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Abolish Antitrust:
Remarks of Richard Salsman at the CAC Press Conference on US v. Microsoft
Adapted from a press conference at the National Press Club on 29 June, 2000.

By Richard M. Salsman
The Center for the Advancement of Capitalism

Good afternoon.

Most of you will recall the scandal during the winter Olympics a few years back, when disgruntled skating competitor Tanya Harding hired a thug to take a pipe to the shins of Nancy Kerrigan. Harding was envious of Kerrigan's superior ability and tried to cripple her before their next event. Harding tried to get away with the assault—but with the help of an investigative media and outraged public, her scheme and crime were exposed. Eventually, Harding was banned—properly—from professional skating.

I wish I could say the media have been as keen about identifying the assailants against Microsoft—and as persistent in exposing them for their misdeeds. They haven't. Indeed, they've done the precise opposite: they've painted Microsoft as the perpetrator. But the fact is—to extend the analogy—Microsoft is Nancy Kerrigan, while disgruntled competitors such as Novel, Netscape and Oracle are like Tanya Harding. And the thugs hired for the assault are Janet Reno, Joel Klein and the 19 state Attorneys General. Our so-called Justice Department has perpetrated a multi-year injustice against Microsoft—aided and abetted by judges like Thomas Jackson—and has patently violating the firm's Constitutional rights—just as it has violated the rights of hundreds of America's greatest firms since the inception of antitrust law in 1890.

Why was it so easy for the media to see the injustice done to Kerrigan by Harding, but not the injustice done by Reno to Microsoft? Could it be that so many in the media today are themselves envious of the success of firms like Microsoft and multi-billionaires like Bill Gates? If so, they're views are not shared by most Americans. When polled, most Americans say they admire firms like Microsoft and creators like Bill Gates. And when you look at people's purchasing patterns, you see that they put their money where their mouths are: they voluntarily buy millions of copies of Microsoft products every year. It is this free, voluntary exchange between consenting adults that Reno and her thugs seek to abridge, manipulate and destroy.

Tanya Harding's assault on Kerrigan was direct and physical. Some of it was captured on video. It was easy, for most, to see the envy and malice of Harding, as against the superiority and grace of Kerrigan. Why, in contrast, is Microsoft not defended—as Kerrigan was? Why is there so little outrage against the gang of Netscape-Oracle-Janet Reno-Joel Klein and Judge Jackson, who've played the role of Harding?

Let me suggest three reasons—three widely-held myths that leave great firms exposed to great harm:

  • Economic power versus political power

  • "Perfect" competition

  • Arbitrary law

Economic Power vs. Political Power

From the time great business leaders were first maligned as "Robber Barons," socialists have tried to obscure the difference between economic power and political power. They've insisted, against all evidence, that productive giants such as Andrew Carnegie, John D. Rockefeller, J.P. Morgan, Henry Ford, Mike Milken and Bill Gates were every bit as “powerful,” when left free to "reign," as Europe’s kings and feudal land barons, that these business creators were every bit as "dangerous" as political tyrants. Big government is bad, but so is big business, claim the anti-capitalists. Both can “oppress” us all the same. 

Read any book on the great industrialists and financiers of history—or any anti-trust article from long ago or today—and you’ll see repeated references to allegedly “predatory” behavior, to the “grabbing” of market share, to "dominance" or “dog-eat-dog” or else “cut-throat” competition, to “zero-sum games,” “hostile” takeovers, “price-gouging,” “bullying” tactics, insurmountable “barriers to entry,” “corporate raiders,” “headhunting,” “poison pills,” and “greenmail.” How often do we hear it said that some company "controls" some percent of a market?—as if that control represents some land grab that must, in justice, be reversed. How often do we here business leaders accepting the same premises—insisting that they'll "give something back to the community"—as if their life's work consisted of robbing it.

Do such terms describe voluntary production and trade? No, they do not. But you see such terms tossed around as if there was no question that economic power is essentially equivalent to political power. Such terms are used to describe business activity precisely because the distinction between political power and economic power has been obscured. Take, for instance, the concept of "controlling" some market. That really means that a company is the supplier of the goods in a market—but that's only the case because it's the owner of the goods. It has private property rights in those goods. This is the "control" the socialists hate.

When Microsoft issued Windows 95 in spring of that year, it did so with a free, new feature: a “web” browser. And it freely signed contracts with personal computers makers like Dell and Compaq to include the browser, along with many other applications it had added to the Windows platform over the years, when PCs were assembled. A rival browser made by Netscape was losing market share. But instead of improving its product, Netscape and others rivals ganged up on Microsoft, ran to Washington and got the trust-busters to launch an attack. That's how 90% of all antitrust cases are initiated—by disgruntled rivals to secure by coercive means what they can’t achieve voluntarily on a free market. 

At a press conference in the spring of 1995 Janet Reno announced that the Justice Department would fine Microsoft $1 million per day unless it unbundled its browser from Windows 95. She accused Microsoft of “coercion” and told reporters: “forcing PC manufacturers to take one of Microsoft’s product as a condition of buying a monopoly product like Windows 95 is . . . plain wrong. We won’t tolerate any coercion by dominant companies in any way that distorts competition.” (emphasis added).

What an obscene travesty. Microsoft, a leading producer using voluntary cooperation is derided as a coercive thug. Meanwhile its puny rivals—puny because they couldn't sell their inferior products—are permitted to wield actual coercive power, with the full backing of the world’s most powerful government—worse, from that government's “Justice” Department. This is injustice in the name of justice. The fact is, when firms like Microsoft sell a winning product there are no victims—not among suppliers or customers. There are only eclipsed rivals. Victims arise only when rivals try to gain something by coercion. The plaintiffs are the real “robber barons” in the realm of anti-trust. Microsoft is the victim.

Let's be clear. Economic power is the power to create and produce. Political power is the power to coerce and punish. Economic power entails intellectual achievement. Political power entails physical aggrandizement. Economic power involves voluntary trade to mutual advantage, trade with whomever you choose to deal and with whoever chooses to deal with you. Unlike political power, which entails fear and punishment, economic power means the offering of incentives and rewards. Economic power is the power of a dollar—how many you earn and how many you can spend determines the extent of your “power.” Political power involves involuntary subjugation to the state, which has sole discretion over the use of force. 

In a free society government may only use its power in retaliation against those who initiate force or fraud. Unless it seeks tyranny, no government may use such power to itself initiate force or fraud against innocent parties. To the extent it does, it acts as a robber or a gang—but far worse: a robber or gang with no higher, legal authority above, controlling it. Economic power is wholly innocent of any hint of the initiation of force—or even of retaliatory force. Productive giants such as Carnegie, Ford and Gates don’t just have less power than politicians or pose less danger than tyrants. They have no political power at all and present no danger whatsoever. Political power, at root, is the power of a gun—of the police, the military, the taxman and the jailer. If you flout the law, whether a just law or an anti-trust law, you must submit. But no one “must” submit to a business proposition—not even from Bill Gates. 

"Perfect" Competition

Antitrust law relies heavily on flawed economic theory—particularly its theory of competition. It's a view held explicitly or implicitly by most economists, politicians, and journalists. It’s been taught for decades in the universities. Unfortunately, it's also a view of competition held even by the victims of antitrust.

I’m referring to the textbook theory known as “pure and perfect competition.” This is a theory, not about how market competition really works—but about how it ought to work, according to the Judeo-Christian ethic, regardless of reality. According to this theory, markets are "perfect," or "ideal," only if they possess the following characteristics:

  • Every industry must have hundreds of firms and potential entrants, each firm with tiny shares of the overall market. 

  • Potential entrants must have equal and virtually cost-free access to the industry.

  • No firm can have the power to influence the price of its products or to alter its market share.

  • Within each industry the products and services of each firm must be virtually indistinguishable from those of other firms; with no need to differentiate one’s offerings, ideally there should no promotion or advertising; if there is, it’s a waste. 

  • Profits are non-existent; if they exist, there is an imperfection. A firm’s price should only cover its “marginal costs”—the variable costs, the extra costs needed to produce extra goods, such as materials, fuel, inventory and labor. In pricing its product a firm is not supposed to cover fixed costs, the costs associated with plant, equipment, and patents, because these assets already exist. Since, in fact, fixed capital wears out and must be replaced, the requirement that price cover only marginal costs means that the “ideal” situation is firms showing losses.

In short, the theory says there should be intense competition, but if any firm is actually observed competing or, God forbid, winning a competition, that’s evidence of “imperfect competition” and of “market failure.” What then is the solution to a market that “fails?” Obviously, a government policy to “fix” the failure, to "enforce competition"—all in accordance with the demands of this bogus theory. 

Need I remind you that this theory of "perfect competition" is wholly at odds with the facts of reality? It is a theory that pertains to no industry and no market, any place in the world, at any time in history. It is a theory at odds with facts. The proponents of the theory know this full well; they admit it openly in their texts. Still, they say, the theory must serve as a "rough guide" for judging real market competition. 

Where on Earth did this unreal theory of competition come from? It came from bad ideas in philosophy. After all, doesn’t the theory of “pure and perfect” competition fit the prevailing view of “ideal” fairness and "social" justice? Aren’t large companies and wealthy capitalists seen as ruthless and powerful exploiters? Let’s have hundreds of firms, each with no influence on us. Isn’t it felt that everyone, regardless of ambition or merit, should have equal access to wealth and the preconditions of wealth? That’s egalitarianism; its political application is socialism. Well, let’s have equal access to industry, to goods, to information, to software code. Isn’t it considered vulgar and crass to promote oneself and one’s products? Isn’t it thought impolite to stand out as different, let alone as better? Let’s have no advertising or promotion. Isn’t profit considered a theft—a booty that rightly belongs to the community? Let’s have the opposite; let’s have losses. Don’t the critics insist that business must be a “steward” of the wealth that’s "already here" and belongs to “society?" Isn’t business urged to ignore the rights of its shareholder and instead serve the needs and wishes of the public and consumers? Let’s have an ideal goal of pricing and profit-making which forbids any business to take care of, replace or upgrade its capital equipment. If business does any of these forbidden things, let's call that “imperfect.” Let's call it “impure” behavior. Let's say it's “tainted” competition. “Clean” competition, we are told, really means no competition.

Such contradictions are the necessary result of judging capitalist behavior by an anti-capitalist ethic.

Although the liberals in America, the traditional disciples of big government, have been willing accomplices in promoting this view of competition, it is the conservatives, the alleged defenders of capitalism, who are most responsible for it. The conservatives were the ones who initiated the antitrust laws, the ones who, like Teddy Roosevelt, intensified their enforcement and the ones who have defended the laws and their basis in academia for decades—primarily at the University of Chicago. 

The “pure and perfect competition” doctrine appeals to conservatives and liberals alike because it offers an ideal world free of what they call crass self-interest, free of the so-called vicious profit motive. It's a world that says business must be a humble and self-sacrificial servant of society and consumers, a world that preserves a place for the losers and laggards, by sacrificing the best among us and by enacting laws that permit the meek to inherit the Earth now. Frank Knight, father of the Chicago School of Economics and main proponent of "perfect competition" wrote that the “Christian conception of goodness” “is the antithesis of competitive.” Conservative Friedrich Hayek wrote that “it may be a good thing if the monopolist is treated as a sort of whipping boy of economic policy.” And Milton Friedman has written that “the participant in a competitive market is hardly visible as a separate entity.” Any businessman who is “visible” is virtually a monopolist, he claims, and as such “it is easy to argue that he should discharge his power . . . to further socially desirable ends.” Friedman realizes that “widespread application of such a doctrine would destroy a free society,” so he suggests that antitrust laws be enforced selectively. This means, of course, that they should be applied arbitrarily—as indeed they are.

Arbitrary Law

The antitrust laws and their enforcement are every bit as arbitrary as the “perfect competition” doctrine. Consider only those provisions relating to price setting. If a business sets a price above the prices of its rivals, it can be charged with “intent to monopolize.” If it sets a price below those of rivals, it can be charged with “predatory pricing” or “unfair competition” or “restraint of trade.” If it charges a price similar to those of rivals, it can be charged with “collusion” and forming a “conspiracy to fix prices.”

In short, the minute anyone goes into business, whatever price policy they adopt, they violate the antitrust laws. They're guilty for being in business as such. They're presumed guilty until proven innocent—a direct perversion of proper justice. Does this mean every enterprise is prosecuted under the antitrust laws? No. But the wide discretion and limitless capacity to attack anyone, anywhere, at anytime, gives the trustbusters unlimited, totalitarian power. What, then, is the standard or signal justifying prosecutorial action? The trustbusters target firms that it deems, subjectively, to have “excessive” economic power, or profits, or market share. They seek out and persecute the most visible “imperfections” in the market—that is, they seek out and attack the biggest, the most distinct, most successful, most profitable, most widely advertised and most frequently patronized firms. 

There are other elements of antitrust law which codify altruist and egalitarian theories of perfection and sabotage business freedom. There is the “essential services” doctrine which says a product or service that becomes widely used and relied upon loses its private character and effectively becomes public property, to be shared with rivals and the government. The exercise of one’s property rights and the successful creation and distribution of a product causes one to lose those rights, to be robbed of the product of one’s creative efforts. This doctrine penalizes success for being success. That's an injustice.

Another example of the arbitrariness of antitrust laws is the way trustbusters define a firm’s “market share.” Microsoft has, perhaps 5% of the worldwide software market. But it has, say, 25% of the U.S. software market. Or 50% of the PC-based software market. Or 80% of the software for Intel-chip based PC's. Well, does Microsoft not have 100% of the market share of software emanating from its Redmond campus? The trustbusters can define "market share" however they wish, so as to maximize convictions. 

The assumption behind market share analysis is that markets are fixed things, grabbed at by competitors. But, in fact, markets are made possible by and expanded by the producers. Has it been forgotten that Microsoft created the products that made the market in question possible? Has it been forgotten that Microsoft owns the goods it produces? The right to private property means the right to hold it, to alter it, to exchange it—that is, to control it. Is a firm guilty of controlling its own property? It is under antitrust. To prosecute a firm for the right to it's own property is to obliterate the right to property as such. To allow others to vandalize property is an outrage. This is not justice. On the contrary, it's an injustice.

The trustbusters also oppose what it calls "restrictive" and "exclusionary" contracts." But all contracts are restrictive and exclusionary in one way or another. You contract with one party and not another and do so on particular terms and not others, at a particular price and time period and not others. Thus, to oppose “restrictive contracts” is to oppose contracts per se. And to oppose contracts is to oppose rational, voluntary exchange per se. To oppose voluntary exchange is to oppose liberty per se. When the Justice Department of the United States actively subverts contracts, voluntary exchange and liberty, it’s no longer a department of justice but a dungeon of hellish injustice where liberty is repeatedly crucified because it is liberty. Government should uphold and enforce market contracts—not violate freedom of contract by dictating the terms, changing the terms, or abrogating the terms of voluntary contracts.

I’ve not even mentioned the array of other antitrust provisions that violate simple justice. There are the retroactive elements—definitions of wrong-doing that are so murky, firms can’t possibly know in advance what they might become charged with, what they may be guilty of, when, or for what reason. That’s called retroactive law—or ex post facto law—and it's explicitly forbidden by the US Constitution. 

Add to this the fact that most antitrust cases are decided by precedent—not what’s written in the law itself, but what thousands of judges have written in thousands of antitrust case spanning an entire century. And it gets worse every year. Now business engages in what's known as "self-regulation." To avoid prosecution, they purposely resist creating new products, or extending their market presence, or merging with others, in order to appease trustbusters. Self-regulation is the hallmark of a dictatorship. 

The fact is, the rights of criminals are better protected than those of businessmen under antitrust law. We have reached this point because profit-seeking itself has come to be viewed as evil and criminal.

If we care about individual rights, about private property rights and about justice, we should abolish the antirust laws. These laws are anti-success, anti-American and unconstitutional. They are an abomination. They are morally obscene. They are a travesty of justice. That's why I strongly recommend that economists, lawyers, and businessmen—indeed, every citizen—fight aggressively against the very existence of the antitrust laws—not simply their particular application in specific cases. Justice demands it.

 

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