The Federal Trade Commission

In 1914, during Woodrow Wilson’s first term, Congress passed the Clayton Act, which was intended to remove ambiguities in existing antitrust law and force the courts to take stronger actions against big corporations by making certain specific practices illegal. Price discrimination among buyers was forbidden, as were exclusive selling and tying contracts, acquiring the stock of a competitor, and interlocking directorates, if the effect was to lessen competition. The Federal Trade Commission (FTC) was established to enforce the act, and decisions of the FTC were to be appealed to the circuit courts. The commission could also carry out investigations, acting on its own initiative or on the complaint of an injured party. If a violation was found, the Commission could issue a cease-and-desist order.

The Clayton Act, however, was so weakly drawn that it added little to the government’s power to enforce competition. Once the existence of listed illegal practices was determined, the courts still had to decide whether their effect was to lessen competition or to promote monopoly. As we have just observed, by 1920, about the only practice the courts would consistently consider in restraint of trade was explicit collusion among independent producers or sellers. The useful functions of the FTC became the compiling of a massive amount of data helpful to economists and the elevation of the ethics of competition by acting against misbranding and misleading advertising. Not until it could take action on the basis of injury to consumers instead of on the basis of injury to a competitor would the public gain much advantage from the FTC’s efforts.

Thus, the one great pre-1920 experiment in the social control of business, the Sherman Antitrust Act, achieved little. By the time a vigorous enforcement of the antitrust laws was undertaken late in the 1930s, it was too late to do much about the problem of big business in industry. But by then, it was clear that a kind of competition not envisioned by the framers of the Sherman Act helped protect consumers. The fall in communication and transportation costs wedded regional markets into national and international markets, thereby reducing local monopoly powers (Atack 1985). The effectiveness of these new competitive forces is examined in Chapter 20.