Introduction: A Brief History of Antitrust Policy to 1950
During the last third of the nineteenth century, the rapid expansion of the railroad and telegraph transformed local markets into regional and national ones, and provided ready access to them. In addition, the development of capital intensive, mass production manufacturing techniques increased production costs, especially fixed costs, and compelled manufacturers to seek economies of scale in order to reduce fixed costs per unit of output. It was also a period of fierce competition, when violence and cutthroat pricing policies were regularly employed to destroy economic rivals. Gradually, in order to overcome this disruptive competition, to stabilize output and prices, and to gain increased profits, corporations began to combine, first into "loose" arrangements such as pools, then into "tight" agreements such as trusts, and eventually into holding companies. Finally, toward the end of the century, they resorted to mergers as the most effective method to gain control over production costs and market prices. These combinations, coupled with the collapse of thousands of small firms during the recessions of the 1870s and 1880s, began to concentrate market power in certain industries in the hands of large producers. Liberal state incorporation laws in New Jersey and Delaware also contributed to the growth of large-scale enterprises.
This great growth of economic concentration and corresponding monopoly power took place within an environment of laissez-faire and Social Darwinism. The monopolies that had been so abhorrent to the nineteenth-century consumer and small businessman were those that were granted by state decree. Those monopolies had their origins in the patents given by the British sovereigns. This new power, however, seemed to be the inevitable outcome of a natural business evolution whose inequities eventually would be solved by society. Besides, not big business, but the tariff and the silver question, veterans' pensions, and civil service reform were the major political-economic issues of the day.