The Great A&P and the Struggle for Small Business in America

by Marc Levinson

  In 1923, Arnold became mayor of Laramie, a city of sixty-three hundred that was home to the University of Wyoming, where he taught law. He moved east when a former Harvard Law classmate recruited him to become dean of the law school at West Virginia University. An offer to teach at Yale Law School, one of the most prestigious legal faculties in the country, came in 1930. At Yale, Arnold developed classes on leading-edge subjects such as psychiatry and the law, and his writings made him one of the best-known professors at the school. Easily identified by his three-piece suits, his neatly trimmed mustache, and the cigar that was often between his fingers, Arnold was a colorful character with many friends in New Deal Washington. During vacations and sabbaticals from Yale, he worked in the Agricultural Adjustment Administration (whose counsel was his former Yale Law School colleague Jerome Frank), the newly established Securities and Exchange Commission (headed by his former Yale Law School colleague William O. Douglas), and the tax division of the Department of Justice. Arnold turned down appointments to the National Labor Relations Board and the Securities and Exchange Commission. “An academic seat on the Atlantic Seaboard is more to my liking than anything else I can possibly think of,” he wrote to the Harvard Law professor Thomas Reed Powell in March 1938. When the offer to head the Justice Department’s antitrust division came in 1938, it was one he could not pass up.3

  Antitrust law was not Arnold’s field of expertise, and his nomination brought forth protests from senators who thought him insufficiently concerned about the economic dominance of big business. His record suggested as much. At Yale, he was associated with a group known as legal realists, who were more interested in the ends to be achieved with the law than in philosophical consistency or political ideology. Realism left him skeptical that antitrust policy was an effective way to encourage competition. He thought the antitrust laws were a subterfuge, serving to “promote the growth of great industrial organizations by deflecting the attack on them into purely moral and ceremonial channels.” But the worries about his commitment to activist competition policy were unfounded. As a Westerner, Arnold shared the West’s deep suspicion of eastern capital and of large, centralizing institutions. During the five years of Arnold’s tenure at the antitrust division, from 1938 to 1943, it would undertake almost as many investigations of corporate power as it had since passage of the Sherman Antitrust Act in 1890. The division’s 215 investigations would lead to ninety-three court cases, a number limited only by Arnold’s ability to hire additional investigators and prosecutors.4

  The political situation Arnold faced was difficult, for the Roosevelt administration’s attitude toward competition was nothing if not confused. On the one hand, the New Deal favored restraints on competition in the interest of raising prices and wages; the National Industrial Recovery Act, to take the most extreme example, lent the federal stamp of approval to price-fixing across the economy between 1933 and 1935. On the other hand, Roosevelt was always willing to criticize the monopolistic tendencies of big business. In the spring of 1938, just after Arnold’s appointment, he had launched a blistering attack on “the concentration of economic power in American industry and the effect of that concentration upon the decline of competition.” The president’s ambivalence about a matter that did not deeply interest him permitted Arnold great freedom. He regarded the legal assaults on companies deemed too big as intellectually unsound. Arnold determined to focus on “not the evil of size but the evils of industries which are inefficient or do not pass efficiency on to consumers.”5

  The food industry was one of many that came into Arnold’s sights. Although he had no patience with Patman’s plan to use the tax system to punish big retailers, Arnold shared his concern about competition in food retailing. In June 1940, as Patman’s tax bill was going down to defeat, Arnold’s staff recommended a “systemic nationwide attack” on restraints of trade in the food sector. Arnold jumped on the idea. Food was a huge part of the average household’s budget, and both farm interests and consumers would applaud policies that might shrink the gap between the prices farmers received and the prices consumers paid. “In my opinion there is no excuse for not cleaning the Augean stables of food distribution,” Arnold wrote in a 1940 book arguing that their control of “bottlenecks” in the distribution system enabled companies to exploit consumers.6

  Patman urged him on—and specifically urged him to investigate Carl Byoir. Byoir, the mastermind of the effort to block the chain-store tax, had boasted of its defeat in a series of triumphant twenty-four-page pamphlets: What Farmers of America Did to Defeat the Patman Bill and Why, What Manufacturers of America Did to Defeat the Patman Bill and Why, and so on. Patman was bent on revenge. The congressman’s appointment books, which are largely blank, refer to meeting after meeting to discuss Byoir between 1940 and 1942. He talked about Byoir with Arnold on March 16, 1940, with a State Department official on May 27, and with a New Jersey woman on June 2. On July 21, he attacked Byoir in a statement to the Associated Press. A discussion of Byoir appears on Patman’s calendar again on August 17. Patman’s staff gave information about Byoir to Martin Dies, who was looking into Byoir’s work for the German Tourist Information Office in 1933; after Byoir testified before Dies’s committee that certain interests “were paying Patman what I would consider large sums of money” to fight chain stores, Patman responded with the claim that “big business is cooperating with Nazi agents for the purpose of having this country follow an appeasement policy.” On September 20, Byoir was the subject of a meeting between Patman and Arnold’s top deputy, Wendell Berge, after which Patman’s staff furnished derogatory information to Arnold’s investigators concerning Byoir’s role in the antitax campaign.7

  In 1941, the antitrust division set up an office in New York specifically to pursue antitrust violations by chain grocers. Indictments followed quickly. On May 23, A&P, First National Stores, and several wholesalers were charged in Connecticut with conspiring to fix prices through an organization called the Connecticut Food Council. Five days later, A&P and John Hartford, along with several other retail chains and some labor unions, were indicted in Washington, D.C., on charges of fixing the price of bread. On September 25, 1941, a grand jury in New York indicted A&P and ninety-one other organizations on charges of using the Monday meetings of the Cuba Cheese Board in tiny Cuba, New York, and of a similar board in Gouverneur, New York, to fix cheese prices for the entire state.8

  The theory behind the food investigation was that, while A&P accounted for just 12 percent of U.S. food sales and four other big chains jointly took 20 percent, “they are a monopoly in actual practice or effect.” Yet the economic logic behind Arnold’s attack on the chains was muddled. The Connecticut Food Council was blatantly anticompetitive, which is why all defendants, including A&P, pleaded guilty to antitrust violations. Yet this “conspiracy” was no secret; as one of many organizations set up by grocers and food wholesalers to control competition after the NRA’s demise in 1935, it had been tolerated and even encouraged by the Roosevelt administration until Arnold attacked it. The main evidence of price-fixing in the bread case was that bread cost more in Washington than elsewhere; a federal judge thought the government’s case so weak he dismissed the charges. The cheese case dragged on for three years before A&P and other defendants eventually pleaded no contest, relieving the government of having to explain how there could be a secret conspiracy with ninety-two participants.

  Confusing matters further, in September 1941, Corwin Edwards, the antitrust division’s chief economist, said that “the protection of all grocers, in their ability to buy goods on equal terms,” was the greatest antitrust issue facing food retailers. Allowing all grocers to buy on equal terms, as Edwards demanded, is exactly what the government sought to stop in the Connecticut Food Council, bread, and cheese cases. Indeed, even as the antitrust division was suing chain grocers for keeping food prices artificially high, the State Department was signing deals with twenty countries to artificially hold up the prices of coffee, sugar,
and other commodities. Rather than straightening out the administration’s ambivalent approach to antitrust enforcement, Arnold continued it, at least where chain stores were concerned.9

  A&P fought back with an image-shaping campaign that bore Carl Byoir’s fingerprints. At the end of 1940, John Hartford announced that employees would receive up to 20 percent of their wages for one year if they entered military service, a policy duly noted in the newspapers. He issued a year-end statement, widely reported, emphasizing that efficient distribution would leave the country with more resources for defense. Another Hartford statement, in March 1941, asserted that vegetable and fruit shippers received fifty-three cents from each dollar of produce A&P sold in 1940, up from forty-seven cents in 1937—evidence, Hartford said, of the efficiencies created by the Atlantic Commission Company.10

  The following month, Hartford announced that A&P employees in the New York area would henceforth work only five days a week instead of six, receiving the same pay for a forty-eight-hour week that they previously earned for fifty-four hours. Even a modest decline in profits was treated as good news, a result of “the company’s traditional policy of passing along to consumers, producers and employees the savings resulting from the constantly increasing efficiency,” Hartford said. The distribution of $700,000 to twenty-six hundred employees serving in the military, which once would have been handled quietly, merited a press release, as did the award of $1.5 million in Christmas bonuses. At the end of 1941, three weeks after the Japanese attack on Pearl Harbor brought the United States into the war, A&P published advertisements in three thousand newspapers calling for the government to control food prices.11

  Such efforts may have burnished A&P’s public image, but they did not soften the views of the antitrust division of the Department of Justice. Teams of investigators fanned out across the country, soliciting complaints from organizations whose members had been hurt by A&P’s aggressive growth, from the National League of Wholesale Fresh Fruit and Vegetable Distributors to the Independent Grocers & Meat Dealers of Omaha, Nebraska. Investigators interviewed hundreds of shopkeepers, citrus growers, and vegetable shippers. They collected documents from the giant retailer’s files in New York, Los Angeles, Seattle, and regional offices in between. By early 1942, prosecutors were outlining two separate types of cases, some charging unfair competition by virtue of purchasing practices, the others against several chains that supposedly conspired to eliminate competition. Patman met Arnold for lunch on February 12, and while the two were in no way close, it seems highly probable that chain stores were on the menu.12

  Almost everything the investigators turned up raised suspicions. Internal Justice Department memos highlight examples of normal business dealings that seemed outrageous to the lawyers on the case. Produce handling: “The Commission Company’s files clearly indicate that the best quality of all shipments handled by it are diverted to the Tea Company while the poorer quality on which the multiple commissions, brokerages and discounts are taken, finds its way into the hands of the independent trade.” Wholesaling: “A&P store managers do not have the liberty of buying their supplies from independent wholesale distributors.” Manufacturing: “It manufactures no product whatsoever that is not an imitation of a well-known advertised brand which some manufacturer has invented and introduced to the consuming public at great expense.” Retailing: “In all A&P stores popular brands are displayed in the most inaccessible places. The fighting imitations are kept in the most conspicuous places and everything possible is done to suggest to customers the disparity in price between the originals and the imitations.” Even A&P’s remarkably rapid shift from combination stores to supermarkets exemplified monopoly at work: “We get a vivid picture of the power of this organization to control and dominate when we see how it has been able to reduce the number of its stores by more than one-half and at the same time increase the volume of its retail sales to unprecedented heights.” If fewer stores were able to sell more merchandise, the trustbusters believed, then something illegal must be going on.13

  In addition to their concerns about the food business, Arnold’s investigators had a particular incentive to pursue A&P. By early 1942, with war mobilization in high gear, Arnold’s attacks against industrial cartels and monopolies had triggered a backlash within the federal government. The Army, the Navy, and mobilization agencies such as the War Production Board were concerned that antitrust investigations were distracting corporate managers and diverting attention from efforts to boost industrial production; Arnold’s argument that monopoly was the main cause of production shortfalls cut little ice. In an unusual memorandum of understanding signed in March 1942, the War and Navy departments were given veto rights over antitrust prosecutions, and they exercised those rights frequently. But while Arnold’s ability to investigate manufacturers and transport companies was considerably limited, the military had no reasonable grounds to block an antitrust probe of a retail chain. In this sector, the antitrust division had free rein.14

  On November 25, 1942, Arnold’s prosecutors persuaded a federal grand jury in Dallas to indict twelve A&P-related companies, Carl Byoir and his firm, and sixteen A&P executives, including George and John Hartford, on charges of “combination and conspiracy to restrain trade.”15

  The indictment laid out twenty-five allegations, ranging from publishing false comparisons of store prices to coercing suppliers to sell to other wholesalers and retailers on terms dictated by A&P. At the heart of the complaint was the claim that A&P had “the power to dominate and control the production prices and distribution of a substantial part of the food and food products produced, marketed, sold and consumed in the United States.” The U.S. district judge quickly threw the case out, ruling that the indictment was filled with irrelevant and inflammatory statements. The government appealed, and a federal appeals court reinstated most of the charges; it agreed, however, that there was no case against Carl Byoir. Prosecutors, realizing that a trial in Dallas would be run by a judge who was evidently hostile to their case, withdrew the complaint on February 26, 1944. The same day, they filed new charges against all the original defendants, including Byoir, eight hundred miles away, in the unlikely venue of Danville, Illinois, where A&P’s presence consisted of a single ten-thousand-square-foot supermarket.16

  So it was that the epic criminal antitrust case landed in the courtroom of Walter Lindley in the three-story limestone-fronted post office on Hazel Street in Danville. Public interest was intense; as the Danville newspaper commented, “The Hartford family and A&P has always and still is synonymous. Our mothers and grandmothers for the most part have known and trusted them … the Attorney General’s office has attacked a company that has been one of the institutions of the food merchandising world for 86 years.” Swarms of lawyers, witnesses, and reporters crowded Danville’s hotels. Extra court reporters were laid on for the occasion. Lindley wanted to try the case before a jury, but all the parties felt otherwise. They preferred to leave it to the judge to be both the interpreter of the law and the finder of fact.17

  * * *

  The trial in the Danville antitrust case began on Monday, April 16, 1945, when all defendants save George L. Hartford, who was not present, rose at the request of the defense attorney W. M. Acton to enter pleas of “not guilty.” By any measure, the case was extraordinarily long and complex. Prosecutors subpoenaed more than 260,000 documents from A&P’s files. The trial transcript runs to 21,000 pages, the government’s closing brief to 1,105. The government introduced some forty-five hundred exhibits, the defense over a thousand more. Although wartime travel restrictions made it difficult to book train tickets to Danville, 191 witnesses, from A&P produce buyers to a sausage manufacturer to the head of a Chicago noodle company, passed through the post office’s revolving doors, climbed the stairway to the second floor, walked down the narrow, marble-lined corridor, and pushed through the green leather doors into Lindley’s courtroom. Forty additional prosecution witnesses were brought to Danville at government expen
se but were not called to testify. The presentation of evidence dragged on through eighty-six trial days until October 24, with a two-month break dictated by the fact that the high-ceilinged courtroom lacked air-conditioning. George L. Hartford claimed to be too ill to testify in his own behalf. The final witness, late on a Tuesday afternoon, was John A. Hartford. Then seventy-three, Hartford appeared in his standard gray suit, gray shirt, and bow tie, captivating the audience “both with his rather striking appearance and his knack for expression,” according to a reporter on the scene.18

  Despite the mountain of evidence, there was little dispute about the facts. Indeed, almost every document in the record was from A&P’s own files: statistical reports, minutes of company meetings, correspondence with suppliers, letters between headquarters executives and employees around the country. The issue was not what A&P and its executives had done over the previous two decades, but what they had achieved. In A&P’s view, its aggressive efforts to cut purchasing costs, narrow its own margins, and reduce consumer prices in order to build business were exactly what a company was supposed to do in a competitive economy. In the view of Thurman Arnold and his prosecutors, A&P’s behavior amounted to illegal restraint of trade.

  The logic of the government’s case is worth considering, because it reflected a very peculiar understanding of economics—an understanding quite at odds with the contention of one of Thurman Arnold’s biographers that “his entire antitrust program was oriented toward the benefit of the consumer.” A typical antitrust case involves the claim that the defendant is attempting to control the supply of some product with the aim of driving prices higher than they would be in a competitive market. In many cases, the objectionable conduct includes mergers by which a company gains greater control of its markets. U.S. v. New York Great Atlantic & Pacific was nothing like that. There had been no mergers of consequence; A&P had grown not by buying businesses but by building them. And the government’s case had to do not with monopoly but with monopsony, the use of A&P’s power as the nation’s largest buyer of meat, produce, and packaged groceries to force suppliers’ prices down. As Holmes Baldridge, one of the government’s special prosecutors, explained in the Danville court, “A&P sells food cheaply in its own stores because it is a gigantic blood sucker, taking its toll from all levels of the food industry.”19