The Great Leveler

Brett Christophers

• Publisher: Harvard University Press
• Year: 2016
• ISBN:
  9780674495630
• Topic: Economics
• Subtopic: Economic History
• Index: Economics

For all the turmoil that roiled financial markets during the Great Recession and its aftermath, Wall Street forecasts once again turned bullish and corporate profitability soared to unprecedented heights. How does capitalism consistently generate profits despite its vulnerability to destabilizing events that can plunge the global economy into chaos? The Great Leveler elucidates the crucial but underappreciated role of the law in regulating capitalism's rhythms of accumulation and growth.Brett Christophers argues that capitalism requires a delicate balance between competition and monopoly. When monopolistic forces become dominant, antitrust law steps in to discourage the growth of giant corporations and restore competitiveness. When competitive forces become dominant, intellectual property law steps in to protect corporate assets and encourage investment. These two sets of laws—antitrust and intellectual property—have a pincer effect on corporate profitability, ensuring that markets become neither monopolistic, which would lead to rent-seeking and stagnation, nor overly competitive, which would drive down profits.Christophers pursues these ideas through a close study of the historical development of American and British capitalist economies from the late nineteenth century to the present, tracing the relationship between monopoly and competition in each country and the evolution of legal mechanisms for keeping these forces in check. More than an illuminating study of the economic role of law, The Great Leveler is a bold and fresh dissection of the anatomy of modern capitalism.

II

LEVELING IN PRACTICE

4

DESIGNS ON MONOPOLY

The final few decades of the nineteenth century and the first half of the twentieth represented an era of extraordinary historical-geographical tumult in the world economy, and not least in the economies of the United States and the United Kingdom. At its outset, Eric Hobsbawm’s Age of Capital was seguing into the Age of Empire; by its conclusion, the Age of Extremes was already three and a half decades old, the Great Depression had been sandwiched between two Great Wars, and laissez-faire political-economic ideology had been widely supplanted, seemingly securely, by the “embedded liberalism” of the immediate postwar economic order. Capital and labor, money and state, production and exchange—the core components of capitalist political economy all underwent profound reconfiguration during this period, which is the period examined in this chapter. And so too did the competition-related laws of the leading capitalist economies. It was, in fact, during this period that such laws came to assume, to varying degrees in different places, what we recognize today as their modern forms.

It was thus also in this period that we can begin to discern in historical practice the leveling work theorized in Part I. As they materialized as increasingly coherent legal doctrines, and as they began to be implemented as increasingly substantive legal realities, antitrust and IP law became increasingly important mechanisms through which certain underlying capitalist instabilities were recognized and resolved, if only ever imperfectly. Where the monopoly-competition dialectic at the heart of capitalist accumulation dynamics swung too far in favor of the former, antitrust was—at least in the United States, and at least in theory—available to effect a countervailing tendency. If competitive forces temporarily overpowered centralizing ones, meanwhile, IP protections could be utilized to enable the (re)assembly of monopoly powers.

For the most part, however, this period represented a kind of historical proving-ground for the law as political-economic leveler. That is, the leveling work performed by these laws in the United Kingdom and the United States, although certainly material, was not quite as clear, consistent, and consequential as it would be in the later periods examined in Chapters 5 and 6. Why was this the case? In short because the laws in question were only now consolidating (and in the United Kingdom in the case of competition law, essentially did not exist); because they were unevenly enforced not only geographically but temporally; and because their work was repeatedly interrupted by, and reconceived in the light of, major ruptures both economic in nature (depression) and not (wars).

With that said, we are nevertheless able to discern a relatively distinctive overall pattern to the form and effect of the legal leveling dynamics at work in this period, even if this pattern was, to be sure, often disturbed and occasionally even reversed. In terms of the direction in which the law impacted our central dialectic of monopoly and competition, it was primarily supportive of the former and suppressive of the latter. Stated another way, IP law mostly had the upper hand, with antitrust relegated to the sidelines.

There were, as we shall see, very many reasons for this, but the main—even unifying—reason is one that foregrounds the power of the preceding theoretical discussion. Chapter 3 posited antitrust and IP laws as mechanisms whereby health can be restored to capitalist profit generation and accumulation dynamics in situations where the necessary degree of balance between competitive forces and monopoly powers has been lost and imbalance in one direction or the other threatens smooth socioeconomic reproduction. Supporting this conceptualization, this chapter emphasizes precisely such a stabilizing and regularizing role. The law largely reinforced monopolizing tendencies, in other words, because in the context of the U.S. and U.K. economies of the day, it largely needed to. At the outset of the period, and for much of its duration, powerful competitive forces were the ones chiefly threatening capitalism’s knife-edge navigation.

The chapter begins by examining these starting conditions in the 1870s, 1880s, and 1890s. Political-economic developments from mid-century had increasingly unsettled the fragile balance between monopoly and competition on which industrial capitalism’s ongoing reproductive health relied, with key traditional sources of monopoly power clearly being eroded. Over ensuing decades, monopoly powers had to be realized and reinforced anew. Legal instruments were not the only means available and exploited in this (successful) endeavor, of course, but they were unquestionably significant ones. The chapter illustrates this first of all for the United Kingdom, where the evidence is perhaps most clear, as the users and enforcers of IP law could (and did) go about their work effectively unimpeded by competition regulation. The United States, which is the subject of the final section, presents a somewhat more complicated picture, as 1890, as we have seen, was the year of the passing of the Sherman Antitrust Act, thus crystallizing, on paper at any rate, a countervailing legal regime for the following decades. Yet the overall political-economic nature and impact of the mobilization of competition-related laws through to the end of the 1940s was, ultimately, much the same in the United States as in the United Kingdom.

The First Great Depression

One of the most notable economic trends identified in histories of the late-nineteenth century U.K. and U.S. economies is the increasing challenge of generating profits in the face of falling price levels. Prices began falling in the United States in the 1860s—subsequently falling there, notes Tony Freyer, “throughout the entire post–Civil War era”—and in the United Kingdom midway through the 1870s.¹ In both places the reason was intensifying competition that manifested itself first and foremost as price competition. In the United States “fear of price cutting” had become “increasingly pervasive” by the 1880s, and the competition that this fear reflected was often referred to as “cutthroat.”² Naomi Lamoreaux, referring to “abnormally serious price wars,” observes that in that decade some of the first U.S. casualties of such price and profit pressures were the paper and sugar industries.³

But in the United States, as in the United Kingdom, it was not until the 1890s that price competition became a pervasive, systemic phenomenon for “capital-intensive, mass-production industries in which firms were closely matched and in which expansion had been rapid.”⁴ Between 1892 and 1896 alone, prices in the United States fell by more than 10 percent.⁵ Moreover such “price competition,” claims Lamoreaux, again in the U.S. context, “rarely divided firms into winners and losers. Rather, as in the case of tin-plate and wire-nail producers, the competition inflicted damage on them all.”⁶

To summarize, then, we can follow Giovanni Arrighi who, surveying the period from 1873 to 1896 as a whole, concluded that the aforementioned tendency for both “the level of prices” and “the rate of profit” to fall rapidly and continuously “can be explained, above all, by the low level of concentration of capital and the powerful competitive drives which characterized the capitalism of this epoch.”⁷

In seeking to understand this intensification of competition and the concomitant, widely increased pressure on prices and profits, manifested over an extended period of time, scholars have generally emphasized the significance of the erosion of extant sources of competition’s dialectical counterpart: monopoly power. In particular, from mid-century onward, certain spatially constituted foundations of monopoly began to unravel, and new competition then emerged to threaten those economic agents previously protected from competition’s disciplines. The effects of the dissolution of these spatial monopolies were comparable, but the forces precipitating such change were different in the U.S. and U.K. cases.

In the United States, developments in transportation and communication technologies were pivotal, as Peter Kunzlik, among others, has stressed: “The trigger for change, in the mid- and late nineteenth century, was the finding of coal and the coming of the steam railway, the telegraph, and, shortly thereafter the oil pipeline and the telephone. The economic and social effects of these innovations in the United States were cataclysmic. More specifically, this technology overcame geographic isolation to the extent of creating a domestic market that was continental in scope. In doing so, it facilitated revolutionary new methods of business organization, production, distribution, and marketing. . . . The railways were critical to this process.”⁸

Two points especially bear exemplification here. The first is that such developments put paid to the “natural” geographical monopolies enjoyed by many producers in earlier periods, when local markets were effectively separated by space; what Marx referred to as the “annihilation of space with time,” and David Harvey calls time-space compression, led ineluctably to greater competition. This, after all, was in Eleanor Fox’s words an age of “revolutionary industrialization. Sprouting transportation networks brought into competition hundreds of firms that had enjoyed local monopolies. Prospects of expanding markets led to over-investment in productive facilities. Fierce and disabling competition ensued.”⁹ The second is that among such “sprouting” networks, the railroads were, as Kunzlik writes, “critical.” The final three decades of the century witnessed their strongest growth, total U.S. mileage mushrooming from approximately 50,000 miles in 1870 to approximately 200,000 in 1900.¹⁰ As the railroads expanded, local monopolies were ruthlessly exposed.¹¹

The U.K. situation was markedly different. To the extent that spatial monopolies continued to flourish in the 1850s and 1860s, they had generally been national rather than local ones. For one thing, the distances involved in internal trade were so much smaller than in the United States. For another, transportation developments, occurring earlier, had already broken down vestigial local monopolies: first, from the late eighteenth century, through the canal system; and then through the rapid build-out, concentrated principally in the 1840s, of a national rail network. Meanwhile, for all the proliferation of international free-trade rhetoric since the 1820s, the national U.K. economy remained in many industry sectors strongly protectionist—much more so than popular histories would have it—well into the 1850s.¹² Spatial monopoly at the national scale thus persisted.

This scheme of things gradually unraveled, however, over the next three decades, which saw the ascendancy in practice, as well as prose, of laissez-faire political economy and free trade. Average tariff levels declined far and fast through to the early 1880s, and then remained at historically low levels until the 1910s and World War I.¹³ Companies accustomed to nationally circumscribed competition and, in some cases, national dominance, increasingly found themselves confronted by competition from abroad.¹⁴ Prices and profits fell accordingly. Thus where in the U.S. case it was technological developments that were principally responsible for disintegrating spatial monopolies and growing price pressure in the 1870s and 1880s, in the U.K. case it was policy developments that were mainly accountable.

If prices fell across the board, however, they fell at different rates for different commodities. And one commodity for which the rate of fall was conspicuously slower than the generalized average was one of the most important and special commodities of all: labor power. Recall here one of the central theoretical propositions encountered in the previous chapter: Michal Kalecki’s argument that as the degree of monopoly increases, so also, ceteris paribus, will the share of income accruing to capital in the form of profits, with labor’s share falling. Where competitive forces progressively assume the upper hand, by contrast, one would expect labor to be able to negotiate a higher share. This, Arrighi suggests, is exactly what happened in the final decades of the nineteenth century: Generic prices “tended to go down much more swiftly than that of money wages. Real wages (taking into account the cost of living) thus tended to rise.”¹⁵

Meanwhile, the aggregate, economy-wide impact of declining price and profit levels—they fell “alarmingly from 1870 to 1896” in the United States, according to James Livingston, and the drop was no less evident in the United Kingdom—was and is clear to see, to contemporaries and historians, respectively.¹⁶ Private investment dried up; and why indeed, with profit seemingly so hard to realize, would it not? In the 1870s and 1880s it remained at sufficient levels in both the United Kingdom and United States to maintain growth; but systemic crisis developed in both places in the 1890s. A major economic downturn began in the United Kingdom in 1890 itself, only bottoming out in early 1895.¹⁷ A similar trajectory applied across the Atlantic where, from 1893, the U.S. economy felt the “sharp downward pull of declining investment in railroads, manufacturing, and agriculture.”¹⁸ Generalizing geographically, therefore, Michael Perelman observes that under the influence of “powerful competitive pressures that ravaged the economy . . . toward the end of the nineteenth century, the world economy suddenly fell into a period of prolonged crisis, which became known as the Great Depression—at least until the 1930s, when the world experienced what we now call the Great Depression.”¹⁹

This, needless to say, represented a real, nontransitory problem for U.S./U.K. capital—a problem assuming exactly the form conceptualized in Chapter 3 in regard to the hypothetical scenario of the competition-monopoly relation becoming unsustainably weighted in favor of the former dynamic. For capitalism to be stabilized and regularized, thus effectively reproduced, it was imperative that conditions be put in place that would encourage—as opposed to inhibit—investment and growth. Balance in the forces of monopoly and competition needed to be restored. For this to happen, it was necessary that existing sources of monopoly power be reinforced and better exploited and/or that new means of assembly of such power be found.

IP Unchallenged: The Reemergence of Monopoly Powers in the United Kingdom

In the United Kingdom the law rapidly became a major part of the answer to how over the next half-century capital successfully negotiated this live existential threat. The codification, strengthening, and vigorous mobilization of IP laws served exactly the aforementioned purposes. That is to say, such laws became directly and materially implicated in shoring up capital’s fr...