Which Came First?

The arrangement that a higher price results from restricted output involves the “which came first?” question. One might just as well say that restricted output is caused by raising the price or that a price increase and output reduction simultaneously results from a move up the demand curve. But I digress.

Therefore, the original goal of the Sherman act was to minimize the dead weight loss due to market power, that is, the welfare loss due to allocation of resources among industries. Equivalently, the goal is to maximize social welfare: monopoly profit plus consumers ‘surplus.

One can give a similar interpretation to the expression of concern about monopolistic prices that appear throughout the congressional debates. Such comments indicate concern with output restriction; hence they support the view that the purpose of the Sherman act was to minimize allocates inefficiency.

Other students of the legislative history of the Sherman act find this interpretation forced. Is it reasonable to give words uttered by lawyers in 1890 the meaning they would convey if used by an economist nearly a century later? The nation of dead weight loss was poorly understood by economists in 1890, and in any event, economists had precious little influence on the passage of the Sherman act. The words are, after all, subject to another interpretation. The discussion of high prices could just as well reflect concern with the transfer of income from consumers to producers.