The Boston Tea Party’s Warning for Facebook and Google

Bookmark

Back in November, it was possible to dismiss the Trump administration’s antitrust suit against Google as too weak, too narrow and too late. But now more than 40 states – and the Federal Trade Commission – have filed suit against another tech giant: Facebook. It seems unlikely to be the last major lawsuit against technology giants.

Though these cases are ostensibly about antitrust violations, they are a sign of something bigger: the revival of a longstanding antimonopoly tradition in the U.S. This particular view of large, powerful corporations – as threats to the political order – has repeatedly played a significant role in the nation’s history.

As the historian Richard John has observed, antimonopoly is often confused and conflated with antitrust. In fact, it long predates antitrust law. In the 17th century, economic writers started warning of the economic and political dangers posed by corporations.

Much of their indictment focused on corporations chartered by Parliament that enjoyed explicit, exclusive trading rights. In 1600, for example, the East India Company was granted a monopoly over British trade with Asia. Goods included silks, spices and tea.

Most Americans know a little bit about the Boston Tea Party in 1773. But a key part of the story is often left out: They dumped the tea overboard because they viewed the East India Company as an illegitimate monopoly. Under the terms of the so-called “Tea Act” passed by Parliament, they had no choice but to buy their tea from a company chosen by the government.

One Patriot, for example, voiced the following objection: “The first Teas may be sold at a low Rate to make a popular Entry, yet when this mode of receiving Tea is well established, they, as all other Monopolists do, will mediate a greater profit on their Goods, and set them up at what Price they please.”

Adam Smith couldn’t have said it better – and echoed the point in “The Wealth of Nations,” first published the same year the Americans declared their independence. But where Smith’s critique focused more on the economic implications of monopolistic behavior, the Americans emphasized the political implications of concentrated economic power. As one historian of this episode has observed, the Patriots’ objection was not about price; it was about principle.

In this formulation, monopolies threatened to destroy liberty itself. It was what one described as a “monster, too powerful for us to control.” Another warned that if the East India Company got a foothold in America, “they will leave no stone unturned to become your Masters … they [will] become the most powerful Trading Company in the Universe.”

The idea that monopolies would inevitably corrupt the political system and infringe on liberties survived the American Revolution. In the early republic, anyone who wanted to start a corporation had to secure special dispensation from a state legislature. This irked anti-monopolists, who rightly pointed out that this gave politically-connected individuals the ability to secure a charter – and thwart potential competitors.

The solution that Americans ultimately embraced was not to stop issuing corporate charters – much less nationalize industries that could easily be dominated by a single firm – but to make it easier to obtain a charter. The country pioneered general incorporation laws that made it possible to start new businesses without recourse to the legislature.

Yet there was one institution that continued to enjoy an unusual monopoly: the Bank of the United States. This corporation, chartered by Congress, had a unique role in the larger financial system. Though private, it served as the financial arm of the federal government – at least until Andrew Jackson became president in 1829.

His so-called Bank War consumed the nation for several years beginning when Jackson vetoed a bill rechartering the bank. In his now famous veto message, Jackson assailed the fact that the Bank enjoyed a “monopoly” on business with the government, and warned of the “great evils” posed by the Bank, which vested a tremendous amount of power in the hands of elites not responsive to the will of the people.”

This was the classic statement of anti-monopolism. Jackson didn’t care whether or not the Bank was doing a good job or whether it was well run; he didn’t care if the Bank brought tremendous economic benefits to the country. It was an unwarranted concentration of economic power that had to be destroyed in order to protect democracy itself.

Jackson succeeded, finishing off what he called the “corrupting monster” in his second term. It was one of the great victories in the antimonopoly tradition. As a consequence, the U.S. would not get anything approximating the Bank of the United States until the creation of the Federal Reserve in 1913.

But a far greater challenge awaited the forces of antimonopoly in the late 19th century. The rise of massive private corporations like Standard Oil heralded a new and unsettling kind of firm. They conquered their competitors, then used their newfound market dominance to thwart future ones.

Third parties rose up in response, from the Greenbackers and the Populists to working-class organizations like the Knights of Labor. The movement also attracted many elites and businessmen, particularly those who feared being crushed by the new corporate combines.

The critique they offered did not focus on the economic inefficiencies and injustices created by these behemoths, much less the size of the firms. Instead, their animus flowed from the conviction that concentrated economic power could readily corrupt the political system itself.

This would ultimately yield antitrust laws, first in state legislatures and eventually on the federal level with the passage of the Sherman Antitrust Act.

As the federal government began to wield antitrust law to challenge against Standard Oil and others, something surprising happened: The political dimension of anti-monopolism began to recede.

In 1911, the Supreme Court articulated what became known as the “Rule of Reason” doctrine in the Standard Oil case. It restricted the application of antitrust law to corporations that used illegitimate methods to achieve market dominance, which was more restrictive and narrower than the antimonopoly tradition from which it had sprung.

Things didn’t change overnight, and corporations mindful of avoiding the antimonopolists’ wrath went to great lengths to prove that they served what became known as the “public interest.” As the historian Kenneth Lipartito has observed, corporations from the 1920s through the 1960s ostentatiously embraced this outlook, eschewing competitive practices that might lead to condemnation.

But this fragile consensus fell apart in the 1970s and beyond, as legal scholars like Richard Posner and Robert Bork narrowed the meaning of antitrust still further, arguing that it should only be invoked when there was clear damage done to consumers, not competitors. This interpretation became entrenched under President Ronald Reagan and continues to hold sway.

Antitrust suits against Big Tech could drag on for years in court and ultimately fail. But Facebook and Google shouldn’t ignore the popular forces gathering power against them: Americans have a long history of viewing monopolies as inherently dangerous, no matter what benefits they bring.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Stephen Mihm, an associate professor of history at the University of Georgia, is a contributor to Bloomberg Opinion.

©2020 Bloomberg L.P.

BQ Install

Bloomberg Quint

Add BloombergQuint App to Home screen.