Streetwise Professor

Hannah Arendt once wrote that “one of the greatest advantages of the totalitarian elite in the twenties and thirties was to turn any statement of fact into a question of motive.” This quote came to mind when reading Matt Stoller’s hit piece on Aaron Director on the Stigler Center’s Pro-Market blog.

Director was one of the major moving forces behind the Chicago revolution in antitrust scholarship in the 1950s and 1960s. Although he published little himself, through his teaching, and his interactions with other faculty in economics, law, and business at Chicago, Director challenged the consensus on antitrust, especially in areas like vertical restraints. The challenge that he inspired pretty much overturned this consensus, and it is fair to say that the Chicago became the replacement paradigm. A good portion of the industrial organization and antitrust scholarship of the past 50 years has been aimed at challenging the Chicago view, but nonetheless, many of its key insights remain regnant.

Stoller does not mount a serious attempt to critique Director’s actual contributions, or to explain them, as Sam Peltzman does in his two posts on Director. Rather than challenging Director and his followers on the facts, or on the analysis, Stoller instead questions Director’s motives. It is attack by ad hominem.

In Stoller’s telling, for much of his life, Director was a good progressive, and a devotee of Henry Simons. As such, he was an antimonopolist who favored aggressive antitrust enforcement. But then Simons died, and Director “suddenly” converted to a right-wing pro-business fanatic in order to appease a major funder who according to Stoller was an “extreme right-wing[er]” and quasi-fascist:

Director suddenly decided that conservative ideas were compatible with corporatism after all. Monopolies, apparently, were always created by government. At this moment, Director broke with the conservative tradition and birthed neoliberalism, the anti-government, pro-monopoly philosophy that now dominates policymaking globally. Director convinced George Stigler and Milton Friedman of the new creed. Both had opposed corporate monopolies, but flipped to support Director’s new movement. The Chicago School was born.

Thus, Director was nothing but an intellectual Judas, who sold out his firm convictions for a few pieces of silver.

This begs so many questions it isn’t funny. Take Stoller’s premise as fact. How, pray tell, did Director convince such notoriously strong minded people like Stigler and Friedman? Did he pay them off? No really–how did he persuade them?

And how did he persuade others, such as Bork, who was a major force in reshaping antitrust law? And how did the Chicago school antitrust/industrial organization ideas midwifed by Director have such a profound effect on the economics and legal academy outside of Hyde Park, and then the courts? Especially since they were initially so contrary to the professional consensus, and indeed attracted substantial (and often hysterical) opposition?

There must have been something to the ideas, eh? But not in Stoller’s telling. Instead, according to him, Harold Luhnow got his money’s worth by getting Director to turn from anti-monopolist to pro-monopolist, and somehow (mesmerism?) Director convinced myriad intellectuals (and judges) to go along.

The closest that Stoller comes to addressing any of the scholarship that Director inspired is a drive by shooting on John McGee’s Journal of Law and Economics (1958) paper that contended that, contrary to the overwhelming conventional wisdom, Rockefeller’s Standard Oil did NOT engage in predatory pricing.

Stoller refers to a paper which disputes McGee’s findings. Fine. But he is presented with the problem that, as shown by Joshua Wright, McGee’s article had far less of an impact on academic and legal thinking on predatory pricing than the 1975 Areeda-Turner article. But no problem! Just turn this question of fact into one of motive: “It didn’t hurt [Areeda-Turner’s] motivations, of course, that they were both on the payroll of IBM, which was at that moment in a bitter series of antitrust lawsuits which included, you guessed it, predatory pricing claims.”

Disgusting.

Stoller writes: “With support on the right and the left, courts soon accepted Director’s ideas, laundered through McGee, Turner, and Areeda.” Again: through what powers of mind control did Director get “liberal Democrats” from Harvard to launder his dirty ideas? Inquiring minds want to know!

But Stoller’s distortion of history doesn’t end here. His explanation for the rationality of predatory pricing goes like this:

Contra Director’s logic, predatory pricing is quite rational. A competitor to a corporate goliath can’t borrow an infinite amount of money to lose until prices come back, nor can a competitor just shut down until prices go back up. No bank would lend to a competitor of Standard Oil, just as no one today will lend to a retailer competing to lose money against Amazon. 

Wow. That logic sounds familiar! Yes, I remember now: in 1966 one of my thesis advisors, Lester Telser (a contemporary of McGee’s in the PhD program at Chicago), published an article titled “Cutthroat Competition and the Long Purse” which explored that very same logic.

It gets better.

Lester’s article was published in what Stoller portrays as the main vehicle for Director’s malign influence: the Journal of Law and Economics. Better yet, Telser thanks Director for his input. Better yet: Telser’s article was published in an issue honoring Director, on the occasion of his retirement from Chicago and editorship of the JLE.

Of course, you would never know this, if you read Stoller. Stoller also fails to mention that Sam Peltzman told an anecdote regarding Director and predatory pricing in a JLE article on “Aaron Director’s Influence on Antitrust Policy,” published as a sort of obituary at the time of Director’s death in 2004. In Sam’s telling, Director, in his typical Socratic style, led his students through an analysis of predatory pricing . . . in which he concluded that the defendant in a predatory pricing case “most likely was guilty as charged.”

It is particularly astounding that Stoller should overlook this anecdote, given that it was republished on the very same Pro-Market website. So it’s not like Stoller had to, I dunno, get onto JStor and do some real research on whom he was supposedly analyzing.

Stoller also fails to acknowledge that Director’s alleged ability to mesmerize did not even extend to nearby offices at the University of Chicago Law School: Richard Posner, for example, acknowledged that predation could occur.

Stoller also evidently has no clue as to how academia works. Provocative articles like McGee’s inevitably spur others to challenge it. And indeed, there have been numerous articles over the years that identify conditions in which predation can work. As it turns out, however, the conditions are much more fragile than Stoller lets on.

In sum, Stoller’s post on Director is an appalling piece of work. It fails to join Director’s actual work, and relies on vicious ad hominem to discredit the work which he does not like by attempting to discredit the motives of the person.

I don’t really give a damn about Matt Stoller. What I do find especially disgusting is that the Stigler Center at the Booth School of Business would lend its imprimatur to a piece that violates the fundamental norms and ethics of scholarship. If Pro-Market wanted to provide a critical view of Director, the Chicago School of antitrust has a lot of serious critics who could analyze his work and the work that he inspired. Instead, Pro-Market provides a platform for an intellectually disreputable attack on alleged motives, and one that provides no substantial evidence for its central claim, and which begs so many questions as to be self-refuting.

Appalling, and an affront to the long tradition of economics and law at Chicago.