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


T.R. agreed to the deal, even though U.S. Steel was paying $45 million for a rival worth anywhere from four to 20 times that amount. When the Taft administration initiated an antitrust suit against U.S. Steel, Roosevelt was chagrined. Taft’s Justice Department maladroitly revealed information suggesting that Roosevelt had yielded to U.S. Steel for political reasons; Roosevelt responded with the unjust claim that Taft, then secretary of war, had approved of his decision. He even appeared before a congressional investigating committee to defend his conduct. T.R. likened the Panic of 1907 to the Civil War, particularly to Lincoln’s suspension of habeas corpus. He argued that the U.S. Steel suit showed the futility of a legal approach to industrial regulation.

Roosevelt then reentered the political arena, and in 1912 he challenged Taft for the G.O.P. nomination, tearing the Republican party apart. The Democratic nominee, Woodrow Wilson, made Roosevelt’s policy of “regulated monopoly” the centerpiece of his campaign. With the counsel of his éminence grise, the lawyer Louis D. Brandeis, Wilson called for the breakup of big business, convinced that bigness always resulted from some great crime.

Yet half of Sherman Act prosecutions had been against small, “peripheral” firms, whose cartel-like agreements to limit competition were easier to identify and prosecute. Brandeis wanted to preserve small-firm collusion; as he put it, “The proper role of the government is to encourage not combination, but cooperation.” Giant holding companies were bad, but middling cartels were good.

This tension produced the watered-down Clayton Antitrust Act of 1914. It did not attempt to repeal the “rule of reason” and aggressively break up trusts. It did enumerate some specific illegal practices, such as tying and interlocking directorates, but only when these “substantially lessened competition or tended to promote monopoly.” The act had the same negligible impact on American industrial structure as the Sherman Act, but not because Wilson was actually a “corporate liberal.” He did maintain a vigorous series of antitrust prosecutions against big business — most notably continuing Taft’s case against United States Steel. But World War I led the government to require products on a scale that only gargantuan business could provide, killing their antitrust efforts. And Roosevelt may have been right after all. In 1920, the government finally lost its antitrust suit against U.S. Steel, whose market share continued to fall.

Today, the two men’s contrasting styles have implications that stretch far beyond banking or antitrust. T.R.’s approach to just about everything amounted to a regulated monopoly: Get a few powerful men in a room, knock their heads together, and hash things out. That’s how he solved the Panic of 1907, how he brokered a peace in the Russo-Japanese War (for which he won a Nobel Peace Prize in 1905), and even how he saved college football, as NR’s John J. Miller wrote. And that’s how he regulated business. This approach can work if you have an honest and energetic person in charge, which by and large T.R. was (though misguided in many ways). But if that person is corrupt or lazy or simply ineffectual, it makes things worse.

Taft, by contrast, was a lawyer and a judge, so he took a more legalistic approach: Enact the necessary rules and enforce them. If the rules are clear and not too numerous, and they are enforced evenhandedly, applying the rule of reason, this approach can turn out well. If not, it’s a great burden on whoever is being regulated, and there is plenty of room for corruption and favoritism.

President Obama combines the worst of these two approaches. Obamacare is 2,000-plus pages of regulations, many of which direct the HHS secretary to write even more regulations. That’s the essence of Obamacare, and it’s Taft-like, if Taft had been crazy enough to try to regulate health care nationwide. On the other hand, it strongly encourages consolidation of practitioners and hospitals into big corporations for the sake of efficiency, as T.R. would have done. As with most Obama programs, you can get an exemption if you play ball with them, which is the “send your man to my man” side of T.R. And it all began with T.R.-style meetings of the major health-care players, leading to deals like the one Billy Tauzin made for PhRMA, where they agreed to support Obamacare if Obama would promise not to tax them too heavily.

So Obama’s system combines the cronyism and big-is-beautiful spirit of T.R.’s approach with the potential for legalism and heavy-handedness of Taft’s. This is what happens when a charismatic, visionary leader meets the modern bureaucratic state, as administered by brass-knuckled Chicago politicians. And whatever their differences, T.R. and Taft would both be dismayed at the results.

— Paul Moreno is the director of academic programs at Hillsdale College’s Kirby Center for Constitutional Studies and Citizenship.