Oxford University Press • 2000 • 355 pages • $30.00
The current Microsoft court case, hotly debated and full of economic implications, makes a historical study of monopolies and antitrust law very relevant. Unfortunately, business historian Charles Geisst’s Monopolies in America is incomplete and one-sided, mostly reiterating the traditional statist interpretation of big business and monopoly. Geisst ignores a wealth of contradictory writings and evidence, and shows little understanding of the dynamic role of marketplace competition.
Geisst’s goal is to describe the relationship of big business and government from the Civil War to the present. He gets off to a shaky start by confusing oligopoly and monopoly. Monopoly, strictly speaking, means only one seller in a particular industry. But whether a company is an active monopoly or merely one that strongly dominates its industry, Geisst implies that it has inherent and insurmountable advantages that government needs to dissolve.
In arguing his case, Geisst asserts that predatory price-cutting was a common technique in the late 1800s and that “pooling” was effective in stabilizing a company’s share of the market. However, the detailed research of D. T. Armentano, Thomas DiLorenzo, Butler Shaffer, and Larry Schweikart (which Geisst ignores or overlooks) shows that markets created competition and gave customers low prices. Pools didn’t endure, and predatory price-cutting was rarely tried because, as John McGee demonstrated for Standard Oil, it would have been self-defeating. Standard Oil, with the largest market share, stood to lose more than it would have gained from cutting prices below cost. Competitors, meanwhile, would simply have reappeared when prices rose. None of that is new or obscure, but Geisst gives no evidence of familiarity with the free-market critiques of conventional theory.
Geisst maintains that the Sherman Antitrust Act was needed because big businesses had the ability, or at least the potential, to restrain trade. He therefore deplores the first major antitrust decision, the E.C. Knight case (1895) because it allowed American Sugar Refining to buy Knight and thereby control 98 percent of the sugar refining market in the 1890s. Geisst neglects to mention that new sugar companies entered the refining business quickly after the Knight consolidation and had slashed American Sugar Refining’s market share to 25 percent by the mid-1920s. The market, not government, created this competition.
The pattern was similar with Standard Oil. Geisst praises the decision to break up the company in 1911 because it was so large and “powerful.” But Standard Oil was in decline even before its day in court: it failed to invest in Texas oil or to innovate in off-shore drilling. Gulf Oil, Texaco, and newer companies did those things and whittled down Standard’s market share years before the courts broke up the company. Geisst further cites U.S. Steel and International Harvester as sinister behemoths stitched together by the powerful J.P. Morgan. But both companies failed to innovate in the early 1900s and thus lost significant market shares within 20 years after their formation. For example, Bethlehem Steel, not U.S. Steel, innovated in structural steel by inventing a process to make a beam in a single section instead of riveting it together.
The only redeeming part of the book is the last chapter, “Goodbye Antitrust (1983-1999).” Geisst wrote two earlier books on Wall Street and three on banking and capital markets. On the financial developments of the 1980s and 1990s he is well informed and his description and analysis of junk bonds, leveraged buyouts, hostile takeovers, and greenmail is usually thoughtful. Geisst criticizes the government’s disastrous prosecution of IBM for its alleged near-monopoly in the computer business. He writes, “During the record-setting trial, IBM’s monopoly in the computer business was proven to be a myth, as dozens of smaller competitors entered the market for the new personal computers.” Once again, antitrust laws were not needed to create competition, but led to the waste of many millions of dollars in legal costs.
Unfortunately, when it comes to Microsoft, Geisst returns to his old habits of reiterating “conventional wisdom” without any critical analysis. For example, he buys the government’s line that Microsoft had to be prevented from erecting “barriers to entry” to the Internet.
Monopolies in America is weak on research and rarely asks penetrating questions about the theory that government action is necessary to protect us against monopoly. But Geisst, as he shows in his last chapter, is not inherently biased against free-market ideas. He just doesn’t seem to know the strong scholarship supporting them.