The End of Economic Freedom (Part II)

James Madison saw government created monopolies as wicked because they limited the economic freedom for individuals to pursue a profession protected by the government. Madison views of monopoly were adamant during his protest against the creation of a national bank. Madison’s view grew from English Law and the views of Scottish philosopher, Adam Smith. Smith viewed economic freedom “the most sacred and invoidable” rights and monopolies were a “manifest encroachment upon the just rights of both the workman, and those who might be disposed to employ him.” In 1602, the famous English lawyer, Sir Edward Coke, fought a card making monopoly created by King James I in Darcy v. Allen. This court held that a government created monopoly was illegal. Coke would win the rift between King James I when other courts would make similar rulings against government monopolies in Weaver of Newbury’s Case, the Case of the Bricklayers, and Colgate v. Bacheler. It is important to note that the meaning of the word monopoly and corporation was similar in these early English decisions. This early definition of corporation has caused a great deal of the modern animosity that is held toward law abiding companies. For example, a great number of persons still do not agree that Corporations are people and are protected under the Constitution as such. This concept was first introduced by the Court in Santa Clara County v. Southern Pacific Railroad (1886). Corporation own property, can sue and be sued in court, and pay taxes like citizens. Besides, there is no way to protect the rights of investors without treating a corporation as a person.

The Supreme Court was challenged with some monopoly cases under the “Contracts Clause” of the Constitution early in our history. In Dartmouth College v. Woodward (1819) Chief Justice Marshall held that the state could not change a contract charter that would make Dartmouth College a public institution instead of a private one. In Charles River Bridge Company v. Warren Bridge Company (1837), the case involved a contract dispute between those who built the toll road over the Charles River and the State of Massachusetts. Forty years after the Charles River bridge was built the State of Massachusetts made a similar contract with the Warren Bridge company: to build a free bridge parallel to the Charles River Bridge. Charles River Bridge Company felt the Warren Bridge contract violated their monopoly contract with the State citing Dartmouth College v. Woodward (States cannot change a contract or charter). However, Chief Justice Taney said the State of Massachusetts can create new contracts with whomever they want so long as the original contract did not specifically state it was contracting a monopoly to one company. In other words, Charles River Bridge set “precedent that corporate charters would not be read as including a prohibition on competition unless the charter explicitly said so.” In fact, the Taney precedent in Charles River Bridge was used to allow states to revoke monopoly contracts in Butcher’s Union Slaughter House and Live-Stock Landing Company v. Crescent City Live-Stock Landing and Slaughter House Company (1884) and Stone v. Mississippi.

The Slaughter House Cases of 1873 was probably the most important but disastrous monopoly case. In this case, the Court held a Louisiana law to monopolize New Orleans slaughter houses Constitutional even if it denied workers the right to pursue a lawful profession. This case was very damaging because it basically wrote the newly enacted “Privileges and Immunities” clause out of the Fourteenth Amendment. The “Privileges and Immunities” clause was passed to protect the rights outlined in the 1866 Civil Rights Act which echoed those protected rights outlined by Justice Washington in Corfield v. Coryell a few decades earlier. Among those rights was the right to pursue a lawful profession without government interference. However, the Slaughter House decision regressed American law back to pre-Civil War interpretations over economic rights and citizenship disputes.

The Sherman Anti-Trust Act (1890) was originally designed to stop all government monopolies and any public monopolies that used unlawful methods to keep competition out of its economic market. The law was not designed to eliminate or dissolve merely powerful big corporations who were acting legally. But that was exactly what happened. Consider the 1945 anti-trust case against ALCOA (aluminum manufacturer). In this case, Justice Learned Hand said that the Anti-Trust Act was not enacted to control only dishonest behavior, but honest legal behavior as well. Alan Greenspan would call the ALCOA decision as “codemn(ing) [ALCOA] for being too successful, too efficient, and too good a competitor.” After all, ALCOA was not price gouging, in fact, they were providing customers everyday low prices for their products. Since ALCOA was making a profit no one could even accuse them of predatory pricing (to lower prices below profitability margins to push out competitors). The Supreme Court has decided a few predatory pricing cases correctly: Matsushita Electric v. Zenith Radio and Brooke Group v. Brown and Williamson Tobacco. In these cases, the Court held without a viable threat of a monopoly, predatory pricing is legal. Besides, no company could continue predatory pricing for very long without hurting their bottom line. One can ask, is any price cut on a product or service illegal because it causes a customer harm? Of course not, sales are available on a daily basis between competitors. Government regulation of lawful companies simply because they are big is wrong: it stifles innovation, raises prices, and decays job growth for absolutely no reason. ALCOA is a perfect example showing the difference between a lawful public monopoly and unlawful predatory government monopolies.

Even when companies were not monopolies, the government found ways to classify them as monopolies to break them up. In 2003, Nestle tried to purchase Dryer’s Ice Cream. Although this would not create a monopoly for ice cream by any stretch of the imagination, the government classified the merger as a monopoly on “super-premium” ice cream to nix the merger. The government did the same to nix the Whole Foods and Wild Oates Supermarket merger by classifying it as a monopoly on “premium natural and organic supermarkets”.