Antitrust Chaos

March 29, 1965

Nothing more clearly reveals the contradictions and absurdities in our antitrust laws and their current interpretation than the decision of Federal District Judge Lloyd F. MacMahon that the 1961 merger creating the Manufacturers Hanover Trust Co. of New York violated the Sherman and Clayton Antitrust acts.

The court held that the merger violated the Sherman Act of 1890 because it was a “combination in unreasonable restraint of trade.” Just how unreasonable? At the end of 1960, before the merger, the combined assets of the Manufacturers and the Hanover were 14.3 percent of the assets of all New York City banks. On June 30, 1964, the Manufacturers Hanover assets were only 12.3 percent of the total. The largest New York City bank, the Chase Manhattan, represented 21.7 percent of the total; the second largest, the First National City, represented 19.8 percent. Not counting nearly 1,000 branches, there are now 70 commercial banks in the metropolitan area. Would it noticeably affect the competitive situation if there were 71?

One of the gravest aspects of Judge MacMahon’s decision is the uncertainty it creates for all large firms. The bankers who arranged the merger assumed they were doing a perfectly legal thing. They had got the explicit approval of both the New York State Banking Department and of the Federal Reserve Board. But a third branch of government, the Justice Department, filed suit after the merger was effected. Now, three and a half years later, the bank is asked to unscramble itself back into its former two shells.

UNCERTAINTIES

Obviously the court’s decision will unsettle not only the bank concerned but business generally. Laws should be reasonably certain in their application. If in the future a small bank or other business cannot adequately compete and wants to sell out, what existing larger firm (uncertain about future decisions) will have the courage to buy it? Such a prospect can discourage new ventures.

But there is no use arguing even that the merger of the Manufacturers and Hanover actually had beneficial results, because Judge MacMahon says this doesn’t matter. He agreed with the bank’s lawyers that “the general public and small businesses have benefited” from bank mergers in the city. Nevertheless, he said, “practices harmless in themselves, or even those conferring benefits upon the community, cannot be tolerated when they tend to create a monopoly; those which restrict competition are unlawful no matter how beneficent they may be.” It doesn’t even matter if mergers promote efficiency and reduce costs, “for it is the theory of the antitrust laws that the long-run advantage to the community depends upon the removal of restraints upon competition.”

DOUBLE STANDARD

This brings us squarely to the economic question: do the courts, the Justice Department, or our lawmakers know what practices really restrict competition? Or which are in the long run harmful or beneficial? Obviously the merger of the Manufacturers and Hanover ended any competition with each other. But its purpose was to enable them to offer stiffer competition than before to their bigger rivals, the Chase and First National City. There is no evidence that this merger has caused poorer service to depositors or borrowers. The number of bank offices in New York City has increased since the merger from 645 to 698.

The truth is that the courts, the Justice Department, and Congress have shown no consistency whatever in opposition to “monopoly” per se. A bank that does one-eighth of the banking business of New York City is ordered to bust itself up. But a labor union can be industrywide and nationwide, and employers are legally compelled to bargain exclusively with it. The country’s farmers are not only permitted but compelled to restrict plantings, so that consumers can be forced to pay higher food prices. The international coffee agreement, to which this country is a signatory, enforces quotas on export and hence on production, to keep prices up under the euphemism of “stabilizing” them. Why doesn’t the Justice Department sue every senator who voted for that agreement?