This month's cover article, about concentration in the food industry, brings to mind a bit of history: the role food played in exploitive trusts.
When people think of the trusts that needed busting toward the end of the 19th century, they think of John D. Rockefeller and Standard Oil, or perhaps the railroad robber barons. Food probably doesn’t come readily to mind. Yet a pair of food industry cases helped shape, or at least bookend, the history of American antitrust laws and policies. In one, the U.S. Supreme Court limited the power of the government to go after trusts; in the other, the court expanded, or at least affirmed, that power.
Sugar and beef companies formed two of America’s highest-profile “trusts.” A merger with E.C. Knight Co. left the American Sugar Refining Co., originators of Domino brand sugar, with 98% of American sugar refining capacity. That got the attention of the Grover Cleveland administration, which brought an antitrust case under the new Sherman Act. U.S. v. E.C. Knight Co. became the first Sherman case to reach the U.S. Supreme Court.
The 1895 decision went 8 to 1 against the government. The court ruled that the federal government didn’t have the power to regulate manufacturing, because it is a local function that does not affect interstate commerce.
A few years later, it was the turn of the so-called Beef Trust. This comprised the six largest beef packing companies at the time: Swift & Co., Armour & Co., Morris & Co., Schwarzschild & Sulzberger, Wilson & Co. and Cudahy Packing Co. Collectively, they controlled at least half the national market, and considerably more in some locations, including New York City.
Around the turn of the century, prices for cattle began to drop while retail prices for meat steadily climbed. This got blamed on the Big Six, who were charged with collusion in 1902 by the federal government at the instigation of President Theodore Roosevelt. They merged the following year into the National Packing Co., apparently under the theory that you can’t “collude” with yourself. But the case, Swift & Co. v. U.S., continued, reaching the Supreme Court in 1905.
The court ruled unanimously in favor of the government this time. The opinion by Oliver Wendell Holmes stated that, while slaughterhouses and processing plants are fixed and subject to state regulation, they are part of a chain of commerce that stretches across state lines from ranch to dining table, and so are subject to Congress’ power to regulate interstate commerce. The decision affirmed a lower court injunction directing the defendants to stop fixing prices.
This pair of decisions evokes certain reactions in the contemporary observer, or at least in me. The first is that people who carry on about the Supreme Court being inconsistent or “political” need to read more history; it’s always been that way. When it came to antitrust prosecution, Theodore Roosevelt carried a very big stick indeed.
The second is that Holmes, as he so often did, got it right. Exempting food or any business from antitrust regulation on the grounds that its capital assets are “immobile” is tendentious to the point of idiocy.
The third is that depending on government policy to sustain your business model is foolishness, because it can change so easily – as fast as the tap of a gavel at the Supreme Court.
