Loyola University Chicago, School of Law LAW eCommons Faculty Publications & Other Works 2004 The Antitrust Legacy of Thurman Arnold Spencer Weber Waller Loyola University Chicago, School of Law, [email protected] Follow this and additional works at:http://lawecommons.luc.edu/facpubs Part of theAntitrust and Trade Regulation Commons, and theLegal Biography Commons Recommended Citation Waller, Spencer Weber, The Antitrust Legacy of Thurman Arnold, 78 St. John’s L. Rev. 569 (2004). This Article is brought to you for free and open access by LAW eCommons. It has been accepted for inclusion in Faculty Publications & Other Works by an authorized administrator of LAW eCommons. For more information, please [email protected]. THE ANTITRUST LEGACY OF THURMAN ARNOLD SPENCER WEBER WALLERt INTRODUCTION No one will ever know exactly why Franklin Roosevelt hired Thurman Arnold as head of the Antitrust Division of the Justice Department in 1938. It may simply have been that head of the Antitrust Division was the first important administration job available when Arnold's supporters and friends sought a full- time Washington position for him.1 While the nomination proved to be an awkward and controversial choice, it was also an inspired choice. For the next five years, Thurman Arnold revitalized antitrust law and enforcement and changed the entire focus of the New Deal from corporatist planning to competition as the fundamental economic policy of the Roosevelt administration. Those who favor a consumer-friendly competitive economy owe him a debt that transcends the specific cases he brought and the doctrines he espoused. This Article is a look at that legacy. I. THE NEW DEAL AND ANTITRUST Although always part of the so-called Roosevelt brain trust, Arnold personally had little interaction with Roosevelt. Their only contact consisted of a single half-hour meeting while Arnold was on loan from the Tax Division of the Justice Department to assist the Treasury Department with the preparation of hearings t Professor and Director, Institute for Consumer Antitrust Studies, Loyola University Chicago School of Law. This article is an expansion of remarks delivered at the annual Lewis Bernstein Antitrust Lecture, November 12, 2003, at St. John's University School of Law and is adapted from the author's biography of Thurman Arnold forthcoming from NYU Press. © 2004 Spencer Weber Waller. I See ALAN BRINKLEY, THE END OF REFORM: NEW DEAL LIBERALISM IN RECESSION AND WAR 111 (1995); Wilson D. Miscamble, Thurman Arnold Goes to Washington:A Look at Antitrust Policy in the Later New Deal, 56 BUS. HIST. REV. 1, 5, 6-7 (1982). ST. JOHN'S LAW REVIEW [Vol.78:569 on tax evasion by the rich.2 Roosevelt admitted he had not read Arnold's best seller, The Folklore of Capitalism, which lambasted antitrust, when he nominated Arnold to head the Antitrust Division.3 In general, Roosevelt paid little attention to antitrust over the years.4 The President presided over a brain trust that included such diverse personalities as Felix Frankfurter, Rexford Tugwell, Adolph Berle, Henry Wallace, Donald Richberg, Robert Jackson, Jerome Frank, Herman Oliphant, and Arnold, each of whom held contrasting views on the relative importance and effectiveness of competition enforcement versus planning in curing the country's ills. For most of the group, including Arnold prior to 1938, antitrust and economic competition were never the preeminent tools to combat the Great Depression.5 No one in the Roosevelt inner circle really knew if the President had a fundamental predisposition one way or another, but it was unlikely that he was a committed trustbuster.6 As Robert Jackson commented in his memoir of the New Deal, "[FDR] knew that there were evils in the suppression of competition and that there were evils in competition itself, and where the greater evils were he never fully decided."7 The entire history of the New Deal and competition was a contradiction.8 It had been preceded by the experience of war 2 See Letter from Thurman Arnold, Assistant Attorney General, to Mr. and Mrs. C.P. Arnold (July 1, 1937), in VOLTAIRE AND THE COWBOY: THE CORRESPONDENCE OF THURMAN ARNOLD 255, 257 (Eugene Gressley ed., 1977) [hereinafter VOLTAIRE AND THE COWBOY]. 3 See Inquiry on Arnold Planned by Borah, N.Y. TIMES, Mar. 9, 1938, at 5. 4 For example, in his 1933 book, Looking Forward, President Roosevelt devoted all of one brief historical paragraph to the topic of antitrust. FRANKLIN D. ROOSEVELT, LOOKING FORWARD 26 (1933). 5 See BERNARD STERNSHER, REXFORD TUGWELL AND THE NEW DEAL 342-43 (1964). 6 See, e.g., ELLIS W. HAWLEY, THE NEW DEAL AND THE PROBLEM OF MONOPOLY: A STUDY IN ECONOMIC AMBIVALENCE 123-24 (Fordham Univ. Press 1995) (1966); REXFORD G. TUGWELL, THE DEMOCRATIC ROOSEVELT 563 (1957); Miscamble, supra note 1, at 5; Raymond Moley, Roosevelt's Refusal to Make a Choice, in NEW DEAL THOUGHT 135 (Howard Zinn ed., 1966). 7 ROBERT H. JACKSON, THAT MAN: AN INSIDER'S PORTRAIT OF FRANKLIN D. ROOSEVELT 124 (John Q. Barrett ed., 2003). 8 See HAWLEY, supra note 6 (discussing the conflicting policies of the New Deal); WILLIAM E. LEUCHTENBURG, FRANKLIN D. ROOSEVELT AND THE NEW DEAL 1932-1940, at 56-60, 64-70, 163-65, 248-49, 258 (Gary Steele Commager & Richard B. Morris eds., 1963) (describing Roosevelt's contradictory policy). Even after the fall of the National Recovery Administration, the planning wing of the New Deal remained a potent force within the administration in constant tension 2004] THE ANTITRUST LEGACY mobilization during World War I, where industry cooperated with government and colluded under the direction of Bernard Baruch and his War Industries Board. The era of associationalism followed in the 1920s, when the antitrust laws were sporadically enforced and key government officials, up to and including President Hoover, preferred industry cooperation to the robust competition mandated by the antitrust laws.9 Throughout the early New Deal period, the antitrust laws were, at best, one minor federal policy among many. For some key New Dealers, competition New Dealers posed a threat to prosperity and needed to be replaced by some form of business- government cooperation and economic planning. 10 The first half of the New Deal focused on the National Industrial Recovery Act (NIRA), the Agricultural Adjustment Administration (AAA), and the promulgation of industry codes, which were the antithesis of the free market competition protected by the antitrust laws.'1 Industry, with minimal government supervision, drafted codes of fair competition with only limited input from labor and consumers. The codes were intended to be legally enforceable against the entire industry, regardless of whether a party participated in the drafting or agreed to be bound. Most codes directly or indirectly sought to control prices, prevent price discounting, legalize open price systems, limit production, and standardize terms of sale to with the antimonopoly proponents. See generally BRINKLEY, supra note 1 (explaining how the New Deal was refined). 9 See generally CHARLES R. GEISST, MONOPOLIES IN AMERICA 92-103 (2000) (explaining how the 1920s were years full of contradiction); ELLIS W. HAWLEY, THE GREAT WAR AND THE SEARCH FOR A MODERN ORDER 53 (1979) ("[Blusiness organizers were able to erect shields against their antagonists and preserve much of what the war had brought about."); HAWLEY, supra note 6, at 10-11, 37-38 (discussing the anti-competitive policies of the 1920s); RULDOLPH J. R. PERITZ, COMPETITION POLICY IN AMERICA 76-78 (rev. ed. 1996) (describing the 1920s as an era of cooperation); Richard M. Steuer & Peter A. Barile III, Antitrust in Wartime, 16 ANTITRUST 71 (2002). 10 For example, even during the 1932 campaign, key Roosevelt advisors such as Rexford Tugwell and Adolph Berle believed that free market competition was impossible; they believed it to be a cause of, rather than a solution to, the Depression. See LEUCHTENBURG, supra note 8, at 34-35. 11 See GEISST, supra note 9, at 140-43; HAWLEY, supra note 6, at 19-148; CHARLES F. Roos, NRA ECONOMIC PLANNING (De Capo Press 1971) (1937). The NRA contained its own contradictions and in some ways was merely a continuation of the battle between those who favored industrial self-government, national economic planning, and competition enforced through the antitrust laws. HAWLEY, supra note 6, at 51. ST. JOHN'S LAW REVIEW [Vol.78:569 minimize non-price competition.12 As the distinguished historian of the New Deal, Ellis Hawley, concluded: "By and large ... the codes reflected the desires of businessmen to [create] economic cartels that could check the forces of deflation."13 The antitrust laws were repealed except for vague and virtually unenforced provisions prohibiting "monopolies or monopolistic practices."'14 Under these provisions, the courts could enjoin sales at less than the code price and subject violators to significant penalties. Adlai Stevenson, who was briefly a lawyer with the AAA noted: "in essence, we're really creating gigantic trusts in all the food industries."'15 It was even the era where the popular board game '"Monopoly" was first introduced. The goal of the NIRA was to restrict production, raise price, create profits, and restart business investment. Not surprisingly, to the extent prices were increased, the increase further limited production, employment, and the purchasing power of consumers-leaving the country in even worse straits than at the beginning of the Great Depression. Over time, consumer interests, labor groups, smaller producers, anti- trusters, and government purchasers became increasingly concerned with higher prices and began to vocally oppose the National Recovery Administration (NRA) and its codes.'6 Throughout this period, the Antitrust Division had been a backwater of the Justice Department. Formed as a separate division of the Justice Department in 1933,17 it perversely spent its early years enforcing the industry price-fixing codes of the NIRA and the AAA and representing a hodgepodge of federal agencies and departments in appellate matters.18 12 See HAWLEY, supra note 6, at 57-60; PETER H. IRONS, THE NEW DEAL LAWYERS 33 (1982). 13 HAWLEY, supra note 6, at 136. 14 A.L.A. Schecter Poultry Corp. v. United States, 295 U.S. 495, 521 (1935) (quoting 15 U.S.C. § 703(a) (2000)). 15 8 THE PAPERS OF ADLAI E. STEVENSON 267, 269 (Walter Johnson ed., 1979). 16 See HAWLEY, supra note 6, at 72-90. Many felt that the NRA policies "virtually eliminated price competition." Id. at 361. For example, Harold Ickes, Secretary of the Interior and head of the Public Works Administration during the NRA period, complained that between June of 1935 and March of 1936, his agency received identical bids on government projects 257 times. Id. 17 See generally Symposium, In Commemoration of the 60th Anniversary of the Establishment of the Antitrust Division, 39 ANTITRUST BULL. 813 (1994) (providing an overview of the formation of the Antitrust Division). 18 See IRONS, supra note 12, at 35-57, 133-55. 2004] THE ANTITRUST LEGACY Those few true antitrust cases it brought often ended in disaster. In the 1934 landmark case Appalachian Coals Inc. v. United States,19 the Supreme Court refused to outlaw a joint selling arrangement in the coal industry, despite past precedent that all price fixing arrangements were per se illegal.20 After the Supreme Court declared the NIRA unconstitutional in the 1935 case A.L.A. Schechter Poultry Corp. v. United States,21 Roosevelt showed renewed interest in favoring antitrust enforcement and competition over planning. Clearly some new policy initiatives were necessary. The recession of 1937 was a shock to the nation and a threat to the political health of the New Deal, already suffering from the defeat of the infamous Court-packing plan and the proposed reorganization of the executive branch.22 Arnold attributed this change to Roosevelt's pragmatism in searching for new ways to end the Depression regardless of philosophical consistency.23 However, change was slow in coming. References to the importance of antitrust began to appear in Roosevelt's public pronouncements.24 Key New Dealers such as Harold Ickes and Robert Jackson gave fiery speeches on the dangers of monopolies.25 Yet the President followed these initiatives with a message to Congress including a renewed call for greater cooperation between government and business. The Antitrust Division did revive somewhat under the leadership of Robert Jackson from 1937 to 1938, bringing important cases in the auto, oil, and aluminum industries. 26 But it simply had too much to do and too few resources. In addition to investigating hundreds of complaints of monopoly and restraint of trade, the Antitrust Division also defended or enforced the orders of administrative agencies including the Interstate Commerce Commission (ICC), Federal Trade 19 288 U.S. 344 (1933) 20 Id. at 346 (concluding that there was no unlawful purpose to restrain or to monopolize commerce). 21 295 U.S. 495, 542 (1935). 22 See Jeffrey W. Stempel, Rehnquist, Recusal, and Reform, 53 BROOK. L. REV. 589, 659 (1987). 23 THURMAN ARNOLD, FAIR FIGHTS AND FOUL 146 (1965). 24 See 3 THE PUBLIC PAPERS AND ADDRESSES OF FRANKLIN D. ROOSEVELT 129 (Samuel I. Rosenman ed., 1969). 25 See, e.g., BRINKLEY, supra note 1, at 56-57; HAWLEY, supra note 6, at 392- 93. 26 See HAWLEY, supra note 6, at 374-76. ST. JOHN'S LAW REVIEW [Vol.78:569 Commission (FTC), and Federal Communications Commission (FCC). Even the defenses of labor and agricultural regulations were normally referred to the now badly misnamed and undermanned Antitrust Division.27 II. A CONTROVERSIAL NOMINEE The Washington pundits viewed the Arnold nomination as part of the continuing struggle between the economic planners and the antimonopoly forces within the administration. In particular, Arnold's nomination to head the Antitrust Division was seen as a loss for Attorney General Homer Cummings, who, although friendly with Arnold, wanted a more conservative successor to Jackson, who was moving on to become Solicitor General. A column in the Washington Star described Arnold as the fourth choice in a contest over the direction of antitrust 28 policy. Arnold's nomination also came at a time when the Senate was feeling buffaloed by Roosevelt in a series of key controversial nominations, including Hugo Black and Stanley Reed to the Supreme Court and Robert Jackson to the post of Solicitor General. Most viewed the nomination as particularly auspicious for Arnold as following in the paths of Jackson and Stanley Reed toward eventual promotion to Solicitor General, Attorney General, and perhaps the Supreme Court. Many in the press attacked Arnold as a radical and a professional smart aleck.29 Other papers weighed in by describing him as a "Foe of Capitalists," a "Left Wing New Dealer" and a "Capitalist critic."30 Most papers pointed out the irony in his selection, but the Philadelphia Record more accurately noted that, although personally an opponent of prohibition, Arnold had also produced the driest administration possible as mayor of Laramie.31 The Baltimore Sun wrote: "Now that he is going to be put in charge of this huge joke, it will be 27 SELECTED PAPERS OF HOMER CUMMINGS 17 (Carl Brent Swisher ed., De Capo Press 1972) (1939). 28 Joseph Alsop & Robert Kintner, The Capital Parade,C ummings Seen Losing Control of JusticeA gency, WASH. STAR, Mar. 9, 1938. 29 See, e.g., WORLD TELEGRAM (N.Y.), Mar. 8, 1938; MONITOR (Concord, N.H.), Mar. 8, 1938. 30 See, e.g., HERALD (D.C.), Mar. 6, 1938; PHILA. REC., Mar. 6, 1938. 31 See, e.g., PHILA. REC., Mar 7, 1938. 20041 THE ANTITRUST LEGACY interesting to see whether he continues to laugh or whether he suddenly decides to take it seriously."32 Arnold was quite uneasy about the upcoming hearings, although Senator Joseph O'Mahoney of Wyoming, a strong supporter and friend of Arnold, was the chair of the Senate subcommittee handling the nomination. Senators King of Utah and Burke of Nebraska, both conservative Democrats, promised to closely investigate Arnold's background because, in their view, too many men with a socialist taint were already in the administration. Senator Borah, the great Republican populist of Idaho, was concerned with both the substance of Arnold's views on antitrust expressed in The Folklore of Capitalism, as well as Arnold's completely gratuitous personal attack on him by name for trust-busting crusades, which were "entirely futile but enormously picturesque and which paid big dividends in terms of personal prestige."33 There was a second surge in book sales for The Folklore of Capitalism as the press, the senators, their staff, and the public scrambled to see what Arnold had actually said.34 Before the hearing, Arnold wrote to his parents: I go on before the Senate Judiciary sub-committee tomorrow, who have been taking sentences out of context of my book to throw at me-at least this is the rumor. I am caught between the conservatives who are afraid I am tougher than Jackson and the liberals who think my book is a satire on antitrust laws. The New York Times and New York Sun have urged that I be thoroughly investigated because I am a sarcastic joker not fit for solemn duties.35 Thus, everyone predicted a lively and exciting hearing in the Senate. On Friday March 11, 1938, in front of a full gallery, the subcommittee approved Arnold's nomination by a 4-0 vote after 32 BALT. SUN, Mar. 7,1 938. 33 THURMAN ARNOLD, THE FOLKLORE OF CAPITALISM 217 (1937). After confirmation, Arnold in fact apologized to Borah for this passage. See Letter from Thurman W. Arnold to William Borah (Mar. 16, 1938), in VOLTAIRE AND THE COWBOY, supra note 2, at 268. 34 The Folklore of Capitalism was even eventually placed on a list of one hundred recommended books for young naval officers. See Thurman W. Arnold, Tugwell Required Reading for Navy, WASH. POST, Oct. 25, 1938, at 1. 35 Letter from Thurman W. Arnold to Mr. And Mrs. C.P. Arnold (undated) (on file with American Heritage Center, University of Wyoming, C.P. Arnold Papers, 1841-1943, box 45). ST. JOHN'S LAW REVIEW [Vol.78:569 forty-five minutes of questioning almost entirely by Borah.36 O'Mahoney lobbed a few softball questions so that Arnold could affirm his belief in capitalism. When prompted, Arnold duly professed his faith in capitalism and support for antitrust policies, arguing that antitrust enforcement needed to be improved. In response to sharper questioning by Borah, Arnold claimed that his book was merely a diagnosis and not a prescription for remedy.37 Max Lerner later wrote: One who reads the account of the Arnold-Borah encounter in the committee room cannot but feel that the temper of Arnold's replies to Borah was not quite the temper of the book. There was more restraint in it, less joyousness, less certitude, less of the sharp quality of the dissecting room.38 His testimony appears persuasive, regardless of whether it was entirely consistent with his personal beliefs or his writings. When it came time for the subcommittee to vote, Borah on the left and King on the right withheld their votes,39 confirming Arnold's earlier concerns that he would be attacked from both sides. Borah claimed there were other matters about Arnold he wished to investigate before the matter came before the full Senate. After Arnold's performance in the subcommittee, quick approval by the Judiciary Committee and the full Senate was assured. The full Judiciary Committee recommended Arnold for the post on March 14, 1938 despite Senator King's statement that Arnold was "not qualified."40 There was no recorded vote, but three to four committee members were rumored to have opposed the nomination.41 Unlike the stormy debate and vote over Robert Jackson's nomination, the full Senate confirmed without a recorded vote on March 16, 1938 "amidst confusion preceding recess."42 36 Nomination of Thurman W. Arnold: Hearings Before Subcomm. of the Senate Comm. on the Judiciary,7 5th Cong. 2-11 (1938). 37 See, ARNOLD, supra note 33, at 141. 38 Max Lerner, The Shadow World of Thurman Arnold, 47 YALE L.J. 687, 701 (1938). For Lerner, this wasn't necessarily a bad thing-the moral of the story was "that you don't take your dissecting instruments into the Senate chamber." Id. 39 See Arnold Approved by Sub-Committee, N.Y. TIMES, Mar. 12, 1938, at A17. 40 Yale Professor is Nominated to Jackson's Post, WASH. POST, Mar. 9, 1938, at X9 (discussing King's statements berating Arnold's qualifications). 41 See Senators Report Arnold: But 3 or 4 Vote No On Nominee for Solicitor General, N.Y. TIMES, Mar. 15, 1938, at A12. 42 WASH. HERALD, Mar. 16,1938. 2004] THE ANTITRUST LEGACY Arnold was sworn in on March 21, 1938. At his initial press conference, he appeared ill at ease, sitting at Jackson's former desk, with his pipe clenched in his teeth, and his hands alternately hooked in his vest or folded across his ample stomach.43 He was said to resemble a "slightly paunchy version" of the actor Ronald Colman.44 Arnold began blandly enough with a prepared statement: [All I can say at this time is that I intend to] pursue a policy of enforcement of the anti-trust laws which will be both fair and vigorous. I have just arrived [in Washington] and as yet I have not had [the] opportunity to acquaint myself with the various complicated matters now pending ...t herefore, in fairness to my colleagues and to my chief, I must restrict myself to this general statement. The only specific thing I can say now is that I am ready to go to work.45 III. THE TASK AHEAD Arnold had a profoundly difficult task ahead of him. Throughout the 1920s, the antitrust laws were barely enforced, if at all.46 Competition law was all but abandoned during the NRA in favor of industry codes which allowed for price competition and unfair practice to be stamped out by the government and the courts. Even after the formal demise of the NRA in the courts, many industries continued to adhere to informal codes of fair competition-illegal price fixing or cartels in another era-with the acquiescence or even informal support of key New Deal officials.47 Arnold was aware of the enormity of his task and his reputation as a smart-aleck opponent of the value of antitrust itself. Arnold always viewed the latter as somewhat undeserved. 43 HARTFORD TIMES, Mar. 23, 1938. 44 BRINKLEY, supra note 1, at 118 (stating that he had slicked back hair, a thin mustache and wore dark, double-breasted suits). 45 Arnold Takes Office as Anti-Trust Chief, N.Y. TIMES, Mar. 22, 1938, at A3 (quoting Arnold). 46 See generally PERITZ, supra note 9, at 75-89 (discussing the courts' reluctance to implement anti-trust laws through cases in the 1920s). 47 See HAWLEY, supra note 6, at 166-68 (demonstrating tendency to draft proposals similar to those made during the days of the NRA).