The Clayton Anti-Trust Act
Brian Gongol

The Clayton Anti-Trust Act, approved in 1914, expanded the government's role in regulating business and helped to set the foundation for most of the regulation of business competition with which we're familiar today. The Sherman Anti-Trust Act of 1890 laid the groundwork for anti-trust regulation in the United States, but it was the Clayton Act that elucidated the rules surrounding anti-trust, giving business "fair warning" about the dangers of anti-competitive practice.

The Sherman Anti-Trust Act was written to prohibit "dangerous conspiracies against the public good" (Shenefield 8) Its broad wording provided little guidance to law enforcement; thus, it was applied most vigorously under Theodore Roosevelt, who gained a reputation as America's first "trust-buster." The Sherman Act is often mis-interpreted as a prohibition against "bigness"; in fact, there is no such prohibition to be found. While large companies are more likely to be scrutinized under Sherman than smaller ones, "bigness" in and of itself is not sufficient grounds for prosecution. Instead, behavior that is anti-competitive - abusive, exclusionary, or predatory - is the true offense (Shenefield 18).

The Clayton Anti-Trust Act, passed alongside the Federal Trade Commission Act, rounded out the edges of anti-trust law to specify behaviors that are not protected under the law. In particular, Clayton prohibits action that may "substantially lessen competition or tend to create a monopoly in any line of commerce" (Shenefield 19). This reveals an extremely important characteristic of our anti-trust law: We enforce anti-trust provisions not only when they have effectively permitted or created a monopoly, but ever when they my "tend to create" a monopolistic atmosphere.

Economists generally agree that monopolies are bad for the public, except in a very limited range of markets (like law enforcement). They adopt this view not because they fear "big business" in and of itself, but rather because monopolies and other companies with substantial market power - depending on the market, often around 75-80% (Shenefield 36) - tend to be unresponsive to competitive pressures levied by other suppliers in the market. When this occurs, they have little incentive to keep prices at the level they would reach in a competitive market; as a consequence, less is produced (and consumed) in the market, creating an efficiency loss.

While most economists would prefer redeeming the loss to consumers to be the primary objective of anti-trust law, the reality is that a conflicting value of capitalism arises to "carry the banner." Then-attorney Robert H. Bork wrote in his book, The Antitrust Paradox, "Fragmentation is sought as 'an end in itself and not merely for the sake of competition'" (54). Bork adopts a stubbornly economic position in his attack on the broader motives of antitrust. He notes that "A policy of rivalry for its own sake, and in spite of the costs of industrial fragmentation, would outlaw monopoly no matter how gained" (57). Bork's analysis illustrates that both the framers of the law and many of its enforcers have upheld the law not as a means of promoting capitalistic efficiency, but rather as a means of preserving "competition" and "rivalry" as goods unto themselves.

When analyzing the Clayton Anti-Trust Act in terms of its effect on the values underlying capitalism, we are brought into conflict. Anti-trust regulations would seem, on the surface, to violate our belief in the survival of the fittest. Would not the most fit competitor be the one most likely to attain and preserve monopoly power? On the other hand, however, in the interest of "fairness" we may prefer that the "rules of the game" be laid out so that the competitor most deserving of the greatest market share be the one most likely to gain it. In that respect, then, our prohibitions on behaviors that "tend to create" monopoly power would appear to be simply a set of rules intended to guarantee that the biggest is also the best.

The Clayton Act would further seem to simultaneously support and violate the capitalistic belief in the Protestant work ethic. This tenet holds that the competitor who has contributed the most in the market and has worked the hardest would also be the one to merit the greatest gain from these contributions. God's favor providentially smiling down upon the worthy capitalist, he or she is rewarded for honest toil.

It is not the principle in and of itself that falls into conflict with antitrust regulation, but rather that the rewards and defense of the Protestant work ethic may be considered as either a guarantee of procedure or results. If we believe that the most important way to secure this work ethic is to guarantee that, while working, the most worthy competitor is allowed to "get ahead," then the Clayton Act is a secure guarantee of this work ethic. It would stand in such a case to preserve the right of an individual (or an individual competitor) to participate in the marketplace without fear of predatory behavior by a competitor.

On the other hand, taken as a guarantor of results, the Clayton Act would seem to violate the Protestant work ethic by withholding from the most effective competitor the just rewards of successful earnings. The one whose effort is best-rewarded in the marketplace has his or her takings diminished, providing a negative incentive to reach the top.

The value of freedom, yet unaddressed, is extremely important to the debate. The freedom to act in the market, to gather property, and to behave without unnecessary restraint is highly valued; however, we are once again brought to terms in our understanding of these "freedoms." When applying anti-trust laws, are we interested mainly in preserving the freedom of the consumer, the "average" competitor in the marketplace, or the potential monopolist?

In the case of the consumer, our interest would be primarily in maintaining that market fragmentation so opposed by Bork. By retaining as many competitors in the marketplace as possible, we hold the appearance of maintaining the greatest amount of "consumer freedom" available. It should be noted, as was done by Bork, that unnecessarily "propping up" lesser competitors in the market actually places an implicit tax on consumers, depriving them of their freedom to hold property (Bork 56). Thus, it may superficially help consumers by keeping more brand names on the shelf, though in so doing deprive them of their material possessions. On the other hand, in the case of an unjust competitor, the best market outcome would not be reached by the ordinary interplay of competitors. That is, if one of the competitors is expressly violating the prohibitions on behaviors that tend toward monopoly, then the firm hurts not only the economic freedoms of the other suppliers in the marketplace, but also the economic freedoms of the consumers.

It is difficult, then, to assess the impact of anti-trust regulation (in particular, the Clayton Act) on freedom. Depending upon the economic impact of a firm's behavior, consumers may become either more or less free due to the impact of antitrust regulation - if the competitor is being unfair, then consumers are being hurt; if the competitor is simply being restrained from reaching market dominance, it may in fact have a negative impact on the consumer. It is important to recall here that the Clayton and Sherman Acts do not expressly prohibit "bigness" - they regulate the manner, however, in which "bigness" may be reached.

Finally, then, in our analysis of the values underlying capitalism, we must consider the impact of anti-trust regulation on competition. This, again, brings economic interests and political interests into conflict. Economically, competition is good because it tends to encourage innovation, reduce prices, and eliminate less-efficient producers from the marketplace. Left unto itself, the market will typically seek out the most efficient levels of production and price. Politically, however, "competition" is something different. As written into the Clayton Act, competition is a good unto itself - whether it aids the consumer or not. Competition under the act is to be preserved, and even the tendency to reduce competition is considered a movement so abhorrent that it may be prosecuted.

Certainly, our notions of "fair play" would tend to encourage us to keep the "playing field" of commerce open to all legitimate participants, but it is important to keep in mind that propping up inefficient or under-producing participants in the marketplace is something less than competition. Bork argues that "competition" can be interpreted in at least five significantly different ways: as rivalry, as the absence of restraint between participants, as the enforcement of perfect competition, as an effort to preserve "local" market entrants, or as the maximization of consumer welfare (58-61). Bork takes rivalry to its logical limits (and then some), rejecting it as the "atomization" of commerce, while the "absence of restraint" he rejects as a prohibition on any type of contract (the entire purpose of a contract being mutually-agreed-upon restraint). He rightly rejects the "enforcement" of perfect competition as impossible, perfect competition being the result of market interaction rather than government fiat, and argues that the localism argument is a shoddy excuse for fragmenting a market when no such need exists. If Bork has truly identified the full range of definitions for "competition," then his remaining definition - the maximization of consumer welfare - is the only one that stands up to economic reasoning. Bork's position was also favored at the time by an attorney for one of the best-known monopolists in American history, AT&T.

Writing in Bell Telephone Magazine, AT&T antitrust attorney Richard Schramm argued that "there are clear analogies between Bork's view of Northern Pacific and what has been argued to be a better way to deal with the pending complaints against the Bell System: before regulators and not anti-trust courts" (Schramm 57). Here, Schramm refers to Northern Pacific Railway v. United States (1958), in which the Supreme Court ruled that the Northern Pacific Railway could not force the owners of land on the railway system to ship their commodities via Northern Pacific as a clause "tied" to Northern Pacific's sale of the land (Stelzer 249-253). Bork objected to the decision on the grounds that the Court did not actually find that Northern Pacific had a monopoly on the land being used, but rather that they simply had made the arrangement itself (Bork 367-368).

It would seem entries in the popular press of the day that the Clayton Act was accepted without much rancor. The Independent wrote (interestingly, in the same spirit as Bork) "Regulation by lawsuit is cumbersome, tedious and unsatisfactory. Regulation by administrative action is the proper substitute for it" (Independent). The Bankers Magazine, a publication with its own interests clearly illuminated, was skeptical about any application of anti-trust regulations in any industry, wrote:
Everybody, almost, on the platform, in the press, and through all the customary channels of public discussion, had been solemnly condemning monopoly and the trusts. The Sherman law had been enacted as the consequence of this clamor. Once the law was enacted everybody seemed satisfied, and no one thought seriously of enforcing it [...] Mr. Roosevelt chose not to regard the law in that light... (Bankers 270)
The Bankers Magazine wrote this months before the enactment of the Clayton Act, and it illustrates the laissez-faire view that some apparently had of the anti-trust movement of Roosevelt's day. Bankers was far more "in tune" with the 1914 regulations, agreeing with then-President Woodrow Wilson that trusts were "destroying the opportunities of smaller business concerns" and calling Wilson's efforts to clarify anti-trust law "righteous" (Bankers 272).

It would seem that the Clayton Anti-Trust Act was put into law with mixed interests. Though it was originally a work of utilitarianism, seeking only to restrict the expansion of business interests that challenged the national economy and (as Bork identifies) caused harm to the consumer, the courts have since altered their interpretation of the law in a fundamentally deontological manner. No longer are they concerned with the actual presence of monopoly, per se, they now stridently cut down on businesses that appear to be acting in a way that might lead to monopoly. A literal reading of the law might compel this interpretation, but it seems unlikely that the prosecution of such a broad range of actions was the original intent. In Times-Picayune Publishing v. U.S. (1953), the court ruled that "a specific intent to destroy competition or build monopoly is essential to guilt for the mere attempt" (Shenefield 38). In the 1960s, one company was prosecuted for triggering just a 10% market share (Shenefield 61).

The use of the word "righteous" in the Bankers description of Wilson's anti-trust efforts and the Rooseveltian notion of defending the poor seem to have had a significant religious influence on the development of the Clayton Act. From this, it would appear that the Golden Rule was, at least at one time, one of the main reasons for the enactment of the law. Today, it would appear to be far less influential.

Libertarians are generally offended by the Clayton Act (at least its modern interpretation) in that it restricts intent as much as result. Liberterian ethics stand against unnecessary restraint of behavior unless it causes a present danger to the rights of others. While the Sherman Act requires such dangers, the Clayton Act is today interpreted broadly to restrict a competitor from even the consideration of anti-competitive behaviors.

Virtue ethics appear inconsequential in the application of the Clayton Act. In essence, the Act presumes that actors do not obey any such ethics and that they must be specifically restrained from acting upon their own impulses. Were virtue ethics and the Golden Rule broadly ingrained in business behaviors, the Clayton Act would likely not be necessary at all.

The Clayton Act stands squarely on the side of Kenneth Andrews in its interpretation of business responsibility as one of protecting the consumer and the people affected by the business's actions. In the Milton Friedman paradigm, unfettered commerce would be far more broadly tolerated. Friedman most likely would not object to the enforcement of certain provisions of anti-trust law as a method of preserving profits for many businesses and encouraging the kind of competition that results in greater good for the many through better business, but Andrews's paradigm is far more accepting of the notion that business may not simply put profits first, curse the social consequences.

While the Clayton Act is an important part of the anti-trust mechanism (the necessity of which it is doubtful that anyone would reasonably contest), it has been too broadly interpreted by the courts to include the prosecution of companies for intent and not results. While Microsoft, for example, had a de facto hold on more than 90% of the market for operating systems, the government ignored its behavior. Meanwhile, under the Clayton Act, courts have restricted the rights of businesses to pursue profits when they had not actually behaved in a manner that harmed consumers.

The web of anti-trust law is too intricately intwined for any specific recommendation to take effect without untangling it almost entirely, but one would be safely within bounds to say that the courts ought to return to their original function as arbiters of specific infringements of rights and allow "dangerous encroachments" on competition to be regulated administratively. The Clayton Act (and its accompanying Sherman and Federal Trade Acts) ought to remain in place. It is our interpretation of the same which needs alteration.


The Bankers Magazine. "Woodrow Wilson's First Year in the Presidency." March 1914.

The Independent. "The Clayton Anti-Trust Act." November 2, 1914.

McAdams, Tony. Law, Business, and Society. Boston: McGraw-Hill. 1998.

Schramm, Richard C. "The Anti-Trust Paradox." Bell Telephone Magazine Spring-Summer 1979.

Shenefield, John H., and Irwin M. Stelzer. The Antitrust Laws. Washington: The AEI Press. 1996.

Stelzer, Irwin M. Selected Antitrust Cases and Landmark Decisions. Homewood, Illinois: Richard D. Irwin, Inc. 1966.