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Before Alan Greenspan became the most well-known and respected Federal Reserve Chair of modern times, he was a member of novelist and philosopher Ayn Rand’s inner circle and a contributor to her Objectivist newsletter.
One of the most important pieces published in the Objectivist is Greenspan’s 1961 essay on antitrust. Greenspan compares antitrust to Alice in Wonderland, since in the world of antitrust law “everything seemingly is, yet apparently isn’t, simultaneously.”
For example, “competition is lauded as the basic axiom and guiding principle, yet too much competition is condemned as cutthroat” and “actions designed to limit competition are branded as criminal when taken by businessmen yet praised as enlightened when initiated by the government.” Greenspan’s final complaint is that down the antitrust rabbit hole “the law is so vague that businessmen have no way of knowing whether specific actions will be declared illegal until they hear the judge’s verdict.”
Greenspan’s Wonderland comparison applies to the holistic approach to antitrust policy embraced by Biden-era Federal Trade Commission (FTC) Chair Lina Khan, and Justice Department Antitrust Division head Jonathan Kanter. This approach to antitrust enforcement is also supported by members of the “post-liberal” right who wish to use Khan’s means for conservative ends.
During the Biden Administration, the government filed a record number of lawsuits challenging mergers and acquisitions. Many of these lawsuits relied on “facts” that were adjusted to help make the government’s case. For example, when reviewing the proposed merger of grocery store chains Kroger and Albertsons, the FTC defined the relevant market to exclude Walmart, even though Walmart is the nation’s leading grocery retailer.
Greenspan’s article examines the history of antitrust, starting with the support for antitrust laws among farmers who claimed they were suffering from the railroad’s monopoly power. As Greenspan explains, the railroads’ monopoly position arose from government granting them exclusive rights to use federal lands. Greenspan points out that a monopoly cannot last unless government policies restrict entry into the market. Greenspan comments that, in a free market, “the observable tendency of an industry’s dominant companies eventually to lose part of their share of the market, is not caused by antitrust legislation, but by the fact that it is difficult to prevent new firms from entering the field when the demand for a certain product increases.”
History is full of examples of once dominant businesses that fell to new and more innovative competitors. President Trump has instructed FTC Chair Andrew Ferguson to identify anti-competitive federal regulations and laws. There needs to be more focus on repealing anti-competitive laws from all sides of the political spectrum. Greenspan credits the capital markets, not antitrust laws, with preventing monopolies. Capital markets do this by enabling entrepreneurs to obtain funding to start businesses to challenge existing market leaders.
Greenspan who passed away in June, also explains how trusts, like Standard Oil, emerged not because of a conspiracy to monopolize markets but because they were the most efficient way for businesses to operate. Antitrust enforcers often block mergers and acquisitions that would make markets more competitive.
An example is the proposed merger between discount airlines JetBlue and Spirit Air. This merger would have strengthened both airlines and given new low-cost flight options to airline passengers. Unfortunately, the Justice Department blocked the merger, and Spirit went out of business. Greenspan observes that support for antitrust laws in the 19th and early part of the 20th century was, “understandable when viewed as a projection of the nineteenth century’s fear and economic ignorance. But it is utter nonsense in the context of today’s economic knowledge.”
Today, there is even less excuse for policymakers to embrace the fallacies of the Alice in Wonderland approach to antitrust. Starting in the sixties, scholars associated with the Law and Economics movement developed a more reasonable approach to antitrust enforcement that focused on consumer welfare. The consumer welfare standard became the dominant approach to antitrust in the 1980s and enjoyed bipartisan support until the rise of the new socialist movement in the Democratic Party and the anti-market right in the Republican Party.
Fortunately, exposing the fallacies behind Alice in Wonderland antitrust policy is easier for today’s free-market advocates than for their predecessors. This is because they have the arguments of pioneering scholars like Alan Greenspan to draw upon for intellectual ammunition.
Charles Sauer is a seasoned economic policy expert, author, and founder of the Market Institute. Sauer authored the book, "Profit Motive: What Drives the Things We Do" and is a frequent voice appearing in outlets like the Washington Examiner, Forbes, Investor's Business Daily, and many more. Charles has also been named to Washingtonian's list of the "Most Influential People Shaping Policy" for four years.
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