Wednesday, June 29, 2011
Posted by D. Daniel Sokol
Robert Van Horn (University of Rhode Island) has a very interesting essay on Chicago’s Shifting Attitude Toward Concentrations of Business Power (1934–1962).
Highly recommended! ABSTRACT: The postwar Chicago School is commonly associated with a pro-corporate standpoint because of its position toward antitrust law and business monopoly. For example, starting in the 1950s, Aaron Director—who is often considered the father of Chicago law and economics—and his students, such as John McGee, defended the practices of the Standard Oil Company, arguing that the Supreme Court’s holding against the company in 1911 was erroneous. Since that time, Chicago has been associated with the position that competition has a self-correcting power, ensuring that monopoly power is short-lived. Members of the Chicago School did not always take a pro-corporate position. In the 1930s, for example, the respected University of Chicago professor and self-identified classical liberal, Henry Simons, described monopoly in all its forms, including “gigantic corporations” and “other agencies for price control,” as “the great enemy of democracy.” For Simons, concentrations of power undermined the necessary condition for democracy to flourish, namely, a competitive market. Besides Simons, Jacob Viner, the infamous Chicago price-theory guru and self-proclaimed classical liberal, also opposed concentrations of business power. Viner’s views on business monopoly in the late 1930s can be gleaned from his correspondence with Laird Bell, a distinguished attorney and public benefactor of Chicago. In writing Bell, Viner acknowledged that big business had some benefits, but emphasized, “[T]he mere size of business units tends almost inevitably to result in attempts to escape the impact of competition which have important—and in my opinion highly desirable—consequences for the operation of the economic system.” Viner considered this to be “the most important economic issue of our day” because “‘bigness’ . . . is the essential element in the faulty working . . . of our economic system.” This Essay traces the development of the Chicago School’s changing position toward concentrations of business power. In Parts II and III, the Essay details the Chicago School’s early position of broad hostility toward concentrations of business power and its belief that such concentrations of power needed to be eradicated by vigorous antitrust enforcement and radical corporate reform. Then, in Part IV, the Essay charts the Chicago School’s shift during the Free Market Study toward a broad acceptance of concentrations of power and a position that large corporations and industrial monopoly were relatively benign. This Essay argues that the Chicago School’s shift toward concentrations of power was a product of the postwar Chicago School’s effort to reconstitute liberalism as a bulwark against collectivist challenges and increasing government regulation of business.