------------ EH.NET BOOK REVIEW --------------  
Published by EH.NET (October 2005)  
  
Gary Hull, editor, _The Abolition of Antitrust_. New Brunswick, NJ:   
Transaction Publishers, 2005. xii + 176 pp. $39.95 (hardcover), ISBN:   
0-7658-0282-1  
  
Reviewed for EH.NET by John Howard Brown, School of Economic   
Development, Georgia Southern University.  
  
  
It would be easy to turn this review into a tendentious attack on Ayn   
Rand's philosophy of Objectivism. However, this reviewer will resist   
the temptation and criticize this book purely on professional   
grounds. In that spirit of fairness it should be noted that the   
editor specifically claims in the introduction that the book is "...   
written for the intellectually active layman (sic)" (p. x). However,   
even the layperson, indeed especially the lay reader, should have the   
right to expect issues to be presented in an intellectually honest   
and non-polemical manner.  
  
The book consists of seven essays. Two are reprints of previously   
published works, although both prior outlets are sufficiently obscure   
that they are likely to be new to most readers. It is divided into   
three parts, labeled, The Economics of Antitrust, The Legal History   
of Antitrust, and The Morality of Antitrust. The first part will be   
the focus of this review since it most likely to be of interest to   
readers on this list.  
  
The Economics of Antitrust, begins with an essay by Dominick   
Armentano. Armentano will be remembered by many industrial   
organization economists for his blistering book, _The Myths of   
Antitrust_ (1972). This book along with Robert Bork's _Antitrust   
Paradox_ (1978) represented the counterattack on the Mason-Bain   
industrial organization tradition in antitrust analysis.  
  
Armentano's essay is entitled "Barriers to Entry" and is a reprint,   
having previously appeared in _Antitrust: The Case for Repeal_   
(1999). Those, including, this reviewer, who were enlightened by _The   
Myths of Antitrust_, will find this contribution disappointing. There   
are two related problems. The first is stale and incomplete   
scholarship. The latest source other than Armentano's own works cited   
in the references is Douglas Greer's 1980 textbook. At minimum, one   
would have expected a citation of Demsetz's (1982) identically titled   
work, which is clearly sympathetic to the point Armentano attempts to   
make.  
  
The other problem is the bulk of the essay is devoted to attacking   
stale antitrust doctrine. Much is made of product differentiation as   
a barrier to entry. However, aside from the FTC cereals investigation   
of the 1970s, antitrust litigation has rarely concerned itself with   
product differentiation. There is also a discussion of the role of   
entrepreneurs in unearthing new technological and economic   
opportunities in a world of limited information which is impossible   
to dispute but not particularly novel. Others barriers cursorily   
examined are advertising, absolute capital requirements, and   
predation.  
  
In the discussion of predation, as in the other discussions, the role   
of consumer choice in the success of particular firms is highlighted,   
again neither controversial nor novel. This argument as applied to   
predation asserts that consumers, as fully rational and informed   
decision-makers, will recognize that a firm practicing predatory   
pricing is attempting to reduce future competition. This argument   
appears to attempt to have it both ways, entrepreneurs are needed to   
navigate a world of scarce information, but consumers don't suffer   
from that same scarcity in their decision-making.  
  
The second essay, John Ridpath's "The Philosophical Origins of   
Antitrust," also reprinted, begins with this rousing sentence, "The   
antitrust laws of the United States are an obscene violation of   
individual rights that have thrown American business into a no-man's   
land of non-objective law" (p. 17). The unlikely victim of Ridpath's   
bile is Frank Knight whom Ridpath accuses of having provided the   
"conceptual underpinnings" of American antitrust. In particular,   
Knight's classic, _Risk, Uncertainty, and Profit_, with its general   
equilibrium model of a perfectly competitive economy is counted as   
providing a pernicious attack on profits that functioned as the   
'camel's nose under the tent' for antitrust. The fact that antitrust   
laws were passed fully thirty years prior to Knight's book seems not   
to carry much weight with Ridpath.  
  
As a part of his sustained attack on Knight, Ridpath accuses him of   
being a follower of Heraclitus, famous for his aphorism, "you can't   
step into the same river twice," whom Ridpath asserts has "created a   
fetid intellectual current" -- whatever that means. He also attacks   
Henri Bergson, Kantian philosophy, pragmatism, and, that particular   
bete noir of Randians -- altruism. To the extent that the discussion   
is not ad hominem attack or polemical, this reviewer would confess to   
being insufficiently informed to judge the philosophical issues.  
  
The third essay, Richard M. Salsman's "The False Profits of   
Antitrust," is the weakest of the three. It is littered with errors   
in characterizing received economic doctrine. Salsman asserts,   
"Instead of refuting false profit theories, modern economists have   
imagined an 'ideal' world of 'pure and perfect competition' that   
expunges 'unearned profit' and the 'robber barons' who garnish it"   
(p. 27). I don't know of any economists who consider the perfectly   
competitive model relevant to antitrust analysis. Nor do I know any,   
in the past century at least, who would characterize entrepreneurs as   
"robber barons."  
  
A more significant error appears three pages later, where he asserts,   
"The most bizarre stricture in perfect competition theory requires   
that firms not price their products above the variable costs of   
producing them" (p. 30). This is, of course, utter rubbish that would   
merit a failing grade in even a principles of economics course. The   
rest of the essay is no better, failing to grasp, for instance, that   
the zero profit condition is no more than a statement of long run   
tendency, unlikely to ever be observed. Nor does the disciplinary   
role of competition in enforcing efficient use of resources seem to   
make an impact. Frank Knight once again comes in for abuse, along   
with John Bates Clark, William Stanley Jevons, and others.  
  
The overarching theme of this book, including the essays not   
discussed here, is casting entrepreneurs as near mythic heroes. Their   
contribution to the economy creates a moral claim to the wealth that   
they unlock. Mainstream economics has moved some direction towards   
this position in the past thirty years. However, the mainstream view   
dating to Adam Smith has always recognized that unlimited   
self-interest seeking can lead to many unsavory practices. It is only   
when channeled by competition that the pursuit of self-interest leads   
to socially benign ends. Where the conditions of the market are not   
sufficient to constrain unbounded self-interest seeking, there lies a   
role for antitrust. Given the limited and evolving state of our   
knowledge of the economy, certainly modesty is called for in the ends   
pursued through antitrust actions, nonetheless where competition   
fails, antitrust represents society's second line of defense. In   
summation, there is beyond a doubt a serious intellectual and   
professional case that could be made for abandoning current antitrust   
law and practice as it exists in the United States and Europe.   
However, this book does not make that case.  
  
References:  
D. T. Armentano, 1972, _The Myths of Antitrust: Economic Theory and   
Legal Cases_. New Rochelle, NY, Arlington House.  
  
D. T. Armentano, 1999, _Antitrust: The Case for Repeal_, revised   
second edition. Auburn, AL: Ludwig von Mises Institute, pp. 47-61.  
  
Bork, Robert, 1978, _The Antitrust Paradox: A Policy at War with   
Itself_. New York: Basic Books.  
  
Harold Demsetz, 1982, "Barriers to Entry," _American Economic   
Review_, Vol. 72, No. 1 (Mar.), pp. 47-57  
  
  
John Howard Brown is Associate Professor of Economics in the School   
of Economic Development of Georgia Southern University. His research   
is in the fields of industrial organization, economic history and   
history of economic thought. Currently he is working on an   
intellectual history of industrial organization.  
  
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