The Sherman Anti-Trust Act

The Sherman Anti-Trust Act2018-11-28T09:55:10+00:00

The Sherman Antitrust Act for APUSH

Sherman Antitrust Act for APUSH

About the Author: Warren Hierl taught Advanced Placement U.S. History for twenty-eight years. He has conducted 250+ AP US History workshops for teachers. He was a member of the committee that wrote the original Advanced Placement Social Studies Vertical Teams Guide and the Advanced Placement U.S. History Teachers Guide. He has been a reader, a table leader, and, for the past eight years, the question leader on the DBQ at the AP U.S. History reading.

In other words- Mr. Hierl grades the essays you will write for the APUSH exam.

The Sherman Antitrust Act

The Sherman Antitrust Act was passed in 1890 and reflected a growing concern by the American public that the growth and expansion of monopolies were detrimental to the free market system of the United States and to its citizens in general.  The act marked the first attempt by the federal government to control the growth of big business.  While its goal was to control the growth of monopolies that restrained trade, the vague wording of the act and its interpretation by a very conservative judiciary made the act relatively ineffective during the first decade of its life.

The act marked the first attempt by the federal government to control the growth of big business.

Creating a Monopoly by Trust

A single board of directors could dictate policy (including prices) for several companies for the purpose of monopolizing a market and forcing other competitors out of business.

Trusts were a business structure by which stockholders in several companies transferred their shares to a single board of trustees.   With this control, a single board of directors could dictate policy (including prices) for several companies for the purpose of monopolizing a market and forcing other competitors out of business.  Thus, trusts gave the illusion to the public that various companies were competitive with each other when in fact they were controlled as one.

New Integrations

New business structures such as vertical and horizontal integration gave trusts a competitive advantage.  Vertical integration involved gaining control of all of the materials necessary for the production of a product.  In the case of Carnegie Steel, that would mean gaining control of companies that mined iron ore, coal, and limestone, those that produced coke from coal, and those that transported those products to steel mills, to name a few.  Vertical integration reduced a trust’s expenses by eliminating the need for middle men to make a profit at each stage of production.  Horizontal integration involved gaining control of all of the companies that produced a similar product so that regardless of where a customer bought that product in the marketplace it was controlled by the same trust.  Generally, monopolies were frowned upon because of the fear that control of the market allowed them to increase prices and produce inferior products.  That was not necessarily the case.  Economies of scale allowed some trusts to produce goods faster and cheaper.  Trusts did, however, make it much more difficult for small businesses to gain a foothold in the free enterprise system.

Vertical integration reduced a trust’s expenses by eliminating the need for middle men to make a profit at each stage of production.

Big Business = Bad Business?

The rapid growth of trusts and the subsequent development of monopolies during the Gilded Age led to a growing call for the regulation of big business by the federal government.  While the Interstate Commerce Act of 1887 represented the first attempt by the federal government to regulate business practices, the Sherman Antitrust Act was the initial attempt at regulating trusts that, in the public mind, had grown out of control.  There was a growing belief that big business controlled the federal government and encouraged such policies as a high protective tariff which resulted in higher prices for consumers and widened the gap in income distribution.  There was also the belief that business control of government retarded the ability of workingmen to raise wages and ensure better working conditions as the federal government frequently intervened in labor disputes on the side of big business.

The Sherman Antitrust Act was the initial attempt at regulating trusts that, in the public mind, had grown out of control.

Ruthless business tactics such as those later chronicled by Ida Tarbell in the History of Standard Oil  (as one historian noted, Rockefeller broke no laws, but a lot of laws were passed because of him) eliminated small business competition and put consumers at risk of price gouging.  Business mechanisms, such as vertical and horizontal integration, aided in the domination of the market by select companies and in the exploitation of labor.  As well, the arrogance of certain robber barons such as those expressed by Jay Gould, “I can hire one-half of the working class to kill off the other half of the working class,” or by Cornelius Vanderbilt, “Law!  What do I care about the law?  Ain’t I got the power?” repulsed the American public and intensified calls for regulation.  In the end, the Sherman Antitrust Act passed Congress by a vote of 51-1 in the Senate and 240-0 in the House of Representatives.

Business mechanisms, such as vertical and horizontal integration, aided in the domination of the market by select companies and in the exploitation of labor.

The First Antitrust Act

The Sherman Antitrust Act made any combination “in restraint of trade or commerce among the several states, or with foreign nations” illegal.  Under the provisions of the act, the federal government could bring suit against the combination and dissolve it, that is, force it to sell off some of the companies it controlled.  Individuals or companies who suffered damages could sue for triple the amount of those damages.

Many politicians voted for the Act because they knew it would be difficult to enforce.

While the Sherman Antitrust Act was designed to quiet public clamor against monopolies, many politicians voted for it because they knew it would be difficult to enforce.  That was borne out in the case of the United States v. E.C. Knight Company (1895).  The case involved the American Sugar Refining Company, which controlled 98% of all the sugar refining in the United States.  The Supreme Court ruled that manufacturing did not constitute commerce and, therefore, the company was not in violation of the antitrust statute.  The practical effect of this decision was to make the Sherman Antitrust Act virtually unenforceable.   In many ways, the defeat in the E.C. Knight case reflected the laissez-faire attitude the government held toward the regulation of big business.  Following the ruling in the Knight case, Richard Olney, the Attorney General of the United States who was charged with prosecuting the case, remarked,

“You will observe that the government has been defeated in the Supreme Court on the trust question. I always supposed it would be and have taken the responsibility of not prosecuting under a law I believed to be no good.”

Only eighteen antitrust cases were prosecuted by the government prior to 1901 (the government losing seven out of the first eight) while over 180 trusts were formed between 1899 and 1901.

The government was more successful in using the Sherman Antitrust Act against labor unions.  Unions and strikes were often found to be conspiracies in restraint of trade, and courts issued injunctions against striking workers and often jailed labor leaders under the provisions of the Sherman Act.  With the turn of the century, however, the progressive era ushered in a different attitude toward trusts and more vigorous enforcement of the Sherman Antitrust Act ensued.

With the turn of the century, however, the progressive era ushered in a different attitude toward trusts and more vigorous enforcement of the Sherman Antitrust Act ensued.

The Trust Buster

The assassination of William McKinley elevated Theodore Roosevelt to the White House which signaled a more aggressive policy toward breaking up trusts.  In part that was due to a significant increase in, what Roosevelt termed, “muckraking,” magazine articles exposing the ruthless business practices in eliminating competition, governmental corruption, and lack of concern for the public safety. Roosevelt distinguished between “good trusts” (ones that served the public interest) and “bad trusts” (ones that exploited the American people).  His determination and success in breaking up “bad trusts” led to his nickname of the “trust buster.”

In 1904 the prosecution and breakup of the Northern Securities Company (a railroad trust) under the provisions of the Sherman Antitrust Act signaled Roosevelt’s intention of more aggressively utilizing the provisions of the Sherman Act to dissolve trusts.  Ultimately, under the Roosevelt administration (which spanned a little over seven years) 43 trusts were dissolved.  The federal government under William Howard Taft, Roosevelt’s successor, broke up more than 80 trusts during his four-year tenure, including Standard Oil and American Tobacco.  The reasons for this dramatic turnaround in trust prosecution largely stem from a more pronounced public opposition to trusts (partially fueled by muckraker accounts of the abuses of big business), presidents who were more willing to establish a balance between a capitalist economy and the social welfare needs of the American people, and a more sympathetic Supreme Court.

The federal government under William Howard Taft, Roosevelt’s successor, broke up more than 80 trusts during his four-year tenure, including Standard Oil and American Tobacco.

The Wilson Administration, elected in 1912, continued and even expanded the trust busting power of the U.S. government.  Prosecutions under the Sherman Act continued, but additional legislation was passed which strengthened the act.  In 1914 the Clayton Antitrust Act was passed to clarify and strengthen the Sherman Antitrust Act.  Among other things, the Clayton Act exempted labor unions and farm cooperatives from prosecution and limited the ability of courts to issue injunctions in labor disputes, rectifying perversions of the original intent of the Sherman Antitrust Act.  Under the Wilson Administration, the Federal Trade Commission was created to regulate unfair business practices not covered under the Sherman Antitrust Act.

Trust are Bad… Until We Need Them

World War I largely put a halt to government attempts to control monopolies.

Despite these gains, World War I largely put a halt to government attempts to control monopolies.  As U.S. involvement in the war became more likely and “preparedness” became the order of the day, the government was more sympathetic to the economies of scale and the efficiencies that monopolies brought to the table.  Something of a partnership between government and big business emerged, similar to the relationship that existed during the Gilded Age.

With the election of Warren G. Harding in 1920, a dominantly pro-business attitude was reinstated in the federal government.  Harding’s promise of a “return to normalcy” in truth meant a return to the Gilded Age attitude of a laissez-faire approach to business regulation reinforced by a sympathetic Supreme Court.  Calvin Coolidge exemplified this attitude in statements such as, “The business of America is business,” and “He who builds a factory builds a temple, and he who works there worships there…”

Harding’s promise of a “return to normalcy” in truth meant a return to the Gilded Age attitude of a laissez-faire approach to business regulation

Conclusion

The Sherman Antitrust Act represents the first attempt by the federal government to regulate big business.

The Sherman Antitrust Act represents the first attempt by the federal government to regulate big business.  It remained the basis for antitrust prosecutions throughout the twentieth and into the twenty-first centuries (antitrust prosecution of Microsoft in 1998 was based on violations of the provisions of the Sherman Antitrust Act).  Effective enforcement or non-enforcement of the act has largely been dependent on the disposition of the presidential administrations and the Supreme Court toward business regulation.  The Sherman Antitrust Law reinforced and expanded the precedent set by the Interstate Commerce Act that the regulation of big business is a legitimate function of the federal government.

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