The Debate Within Libertarianism on Antitrust Law

Brandon Kressin

As far as American political ideologies go, libertarianism probably qualifies as the most readily definable. Libertarians are consistent in advocating individual liberty, where liberty is defined in its negative sense as the absence of coercion. Government is generally considered a necessary evil, legitimate only as needed to prevent private intrusions on liberty. Markets and people are to be left alone.

Perhaps because their ideology is so well defined, libertarians tend to agree with one another on most major policy issues. With only minor and unimportant dissent, libertarians agree on lower and flatter taxes, deregulation, ending the drug war, free trade, free speech, free love, etc. While cracks of dissent begin form on issues involving foreign policy, libertarians are normally of a like mind on issues of purely domestic policy. But one major exception to this uniformity of opinion reveals an inherent tension within the libertarian movement that is rarely discussed.

Two Schools of Libertarianism

When traveling in libertarian circles, one quickly learns to recognize and distinguish two separate and sometimes opposing branches of libertarian thought. In my personal experience, the majority of libertarians subscribe to the “consequentialist” or “utilitarian school.” They base their arguments for minimal government in economic theory, arguing that libertarian policies produce the best outcomes. From their perspective, free markets and small government are desirable because they tend to create a better world for the most people.

The other, smaller (in my estimation) subset of libertarians might be alternately referred to as “deontological” or “natural rights” libertarians. These libertarians take their cues from moral and ethical philosophy rather than economics. For deontological libertarians, liberty is not a means to better outcomes but a side constraint on what human beings may legitimately do to each other. They would therefore tend reject a policy reducing individual liberty, even if they could be convinced that the policy was Pareto-optimal in that it would make everybody “better off.” The purpose of government, for such libertarians, is to ensure that individuals do not violate each other’s personal autonomy, not to make everybody better off.

Both the deontological and consequentialist libertarian camps have their detractors, and the debates between different libertarians over how they justify their policy preferences are often lively and heated. But the general state of peace within the wider libertarian movement is helped by the fact that the consequentialist and deontological approaches tend to lead to the same policy prescriptions in the vast majority of circumstances.

There is, however, one major area of public policy on which consequentialist and deontological libertarians are hopelessly split: antitrust law. It is informative to examine the debate within libertarianism over laws preserving competition because doing so leads to a greater understanding of the two major theories underlying the movement.

Consequentialist Libertarianism’s Accommodation of Antitrust Law

Economists almost universally agree that the most blatantly anticompetitive activities – horizontal restraints such as price fixing – have net negative effects on aggregate social welfare. A consequentialist, then, would support policies prohibiting horizontal restraints provided that the costs of administering such policies do not outweigh the evils they are meant to combat. This qualification – that the regulatory costs not outweigh the benefits of forestalling anticompetitive conduct – is an important one. Milton Friedman – perhaps the archetypical consequentialist libertarian – largely based his opposition to America’s antitrust regime on those administrative inefficiencies, not the underlying theory of horizontal restraints’ effects on competition:

“My own views about the antitrust laws have changed greatly over time. When I started in this business, as a believer in competition, I was a great supporter of antitrust laws; I thought enforcing them was one of the few desirable things that the government could do to promote more competition. But as I watched what actually happened, I saw that, instead of promoting competition, antitrust laws tended to do exactly the opposite, because they tended, like so many government activities, to be taken over by the people they were supposed to regulate and control. And so over time I have gradually come to the conclusion that antitrust laws do far more harm than good and that we would be better off if we didn’t have them at all, if we could get rid of them.”

Many consequentialist libertarians have adopted Friedman’s more nuanced approach to the antitrust laws, arguing that while prohibitions on anticompetitive conduct may be theoretically beneficial, in practice the regulatory cure proves more toxic than the disease. But this does not bridge the schism between the consequentialist and deontological libertarian camps on the antitrust issue.

Deontological Libertarianism’s rejection of Antitrust Law

Refusing to go after collusive conduct is one thing, but the deontological approach to libertarianism requires going one step further. A deontological libertarian cannot be content with merely not prosecuting collusive agreements between competitors. Under the purely natural rights conception of libertarianism, courts would enforce collusive contracts just as they would any other agreement.

This willingness to enforce anticompetitive contracts represents a dramatic departure from history and is inimical to the consequentialist school of thought. Even before the adoption of the Sherman Act, courts refused to enforce contracts that had the primary purpose of restraining free competition. And while strictly consequentialist libertarians might balk at using the law to actively prevent collusion, none would support using courts to facilitate anticompetitive agreements.

Consequentialist libertarians often argue that antitrust laws are unnecessary because horizontal restraints on trade are inherently unstable. Participants in price-fixing or territory distribution schemes have strong incentives to cheat in order to gain larger market shares. Chicago School economists such as Friedman would rather rely on these incentives to undermine such restraints rather than government action. If the courts begin to actually enforce collusive contracts, however, horizontal restraints on trade become exponentially more viable. The consequentialist is therefore justifiably concerned that the purely deontological approach to libertarianism may lead to widespread cartelization, higher prices, and artificial production restraints. But under the deontological libertarian theory, these unhappy outcomes are not sufficient for overriding voluntary contracts between private actors.

For the deontological libertarian, an agreement to engage in price-fixing is like any other contract entered into voluntarily by two parties. The fact that a collusive contract would inflict pecuniary externalities on third parties is no justification for forbidding such agreements. Indeed, the world might be a better place if such contracts are prohibited, but deontological libertarians are unwilling to use government coercion to overrule the private decisions of autonomous actors.

Categorizing Libertarians

The literature of libertarianism is filled with appeals to economic rationality on the one hand and natural law on the other. Often, the same author will make consequentialist and deontological justifications for libertarianism in the same work. Therefore, as these positions are usually in harmony, discerning the primary motivations animating a libertarian’s commitment to liberty is often difficult. But if you can pin down a libertarian’s position on antitrust policy, you can learn a lot about which school of thought holds most sway in his or her mind.