T.R. and T.B.T.F
“Too big to fail” a century ago


We are currently engaged in a lively debate on whether our financial institutions are too big, whether government policies such as Dodd-Frank are making them bigger, and whether the government should break up big banks instead.

Just over a century ago, breaking up big business — “trusts,” as they were then called — was the central issue in American politics. Ex-president Theodore Roosevelt led the charge defending bigness, and this was the principal factor that destroyed his relationship with his friend and hand-picked successor, William Howard Taft. The resulting schism in the Republican party gave the election to Woodrow Wilson.

Despite a few dramatic, high-profile efforts like preventing J. P. Morgan from establishing a northwestern railroad conglomerate, Roosevelt had adopted what might be called an anti-antitrust policy, calling for regulation of big business rather than “busting” it into smaller units. His high-profile trust-busting cases amounted to little more than image-making combined with an assertion of the government’s superiority to business — all to gratify his personal urge to cow the magnates. Roosevelt admitted that economics were beside the point. “I do not care a rap what proportion [J. P. Morgan and John D. Rockefeller] own of the industry,” he explained to William Jennings Bryan. “What I am interested in is getting the hand of government put on all of them — this is what I want.”

When Roosevelt left the presidency in 1909 to go big-game hunting in Africa, Morgan was rumored to have said, “Let every lion do his duty.” But despite his cultivated image as the scourge of the robber barons, T.R. actually got along well with Morgan, who contributed to his electoral campaigns. They were, in a word, cronies.

Roosevelt chose William Howard Taft, his secretary of war, to be his successor. Taft more aggressively enforced the Sherman Antitrust Act, initiating almost twice as many suits as Roosevelt in half as many years. Yet Taft did not think the act applied to every combination in restraint of trade. As a circuit-court judge, he had helped to construct what came to be called the “rule of reason” — that only combinations that harmed consumer welfare violated the act. The Supreme Court approved Taft’s approach in the Standard Oil and American Tobacco cases in 1911 — in large part due to the four new justices whom Taft had appointed. These prosecutions, which broke up the oil and tobacco trusts, threw the business community into some alarm. Taft’s attorney general, George Wickersham, said the administration had helped to turn the Sherman Act into “an actual, effective weapon to the accomplishment of the purposes for which it was primarily enacted.”

Taft’s antitrust-enforcement policy irritated Roosevelt, who had arranged what were known as “gentlemen’s agreements” with the industrialists, limiting the application of the law in exchange for good behavior. (“If we have done anything wrong, send your man to my man and they can fix it up” was how Morgan put it.) He was also willing to work with the trusts to prevent financial meltdowns. In October 1907, the stock market began to slide when the Knickerbocker Trust Company failed. J. P. Morgan had to arrange a fund of $20 million from private bankers to keep the New York Stock Exchange in operation. In November, the brokerage firm of Moore and Schley was facing failure because its loans were secured by stock in the Tennessee Coal & Iron Company, whose shares had declined. The directors of U.S. Steel were willing to purchase T.C.I. and shore up the price of its stock, but they wanted an assurance that they would not face an antitrust prosecution.


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