June 2017 Archives

Conscious Commitment: The Golden Age of Antitrust

| | Comments (0) | TrackBacks (0)
Part 3 of 5 in a series, "The History of Antitrust"

No mollycoddling.jpgFor the first ten years of its legal life, the Sherman Antitrust Act did not receive much attention from regulators or from the public. The two presidents of the 1890s, Grover Cleveland and William McKinley, emphasized sound tariff policy as a means of lowering prices and promoting competition and did not attempt to utilize the Sherman Act as a major tool to attain those same goals. However, their efforts proved highly ineffective, and at the turn of the century the country was conscious of the need for antitrust enforcement as it has never been before or since.

The activists of the day, commonly known as the Progressives, espoused an economic reform plan fundamentally dissimilar to the liberalism of today in several important respects. For example, though the Socialist party did gain some traction in these turbulent years under the leadership of dynamic, persuasive labor organizer Eugene Debs, the core of the movement sought to protect rather than overthrow the system of free market capitalism. Most prominent agitators of the day emphasized the responsibilities of corporations to offer fair wages to employees and fair choices to consumers, but did not contend that government ought to assume those responsibilities. As a result, attention centered on monopolization and its injurious effects. Reform magazines such as McClure's and LaFollette's stirred public sentiment against the trusts by highlighting individual cases of wrongdoing and by bringing complex economic debates directly to the public forum. Though this "muckraking" journalistic genre could include factually inaccurate or overly sensational serials, it also comprised works as enduring as Ida Tarbell's History of the Standard Oil Company, a meticulously detailed study of the methods used to restrain trade, and Louis Brandeis' Other People's Money, a scathing look at the banking industry that demonstrated how "The fetters that bind the people are forged of the people's own gold." The literary sphere contributed pioneering novels such as Upton Sinclair's The Jungle, the tale of an immigrant laborer who experiences firsthand the duplicitous practices of the meatpacking industry, and Frank Norris' The Octopus, a scathing indictment of the Central Pacific Railroad. The ringing words of Theodore Roosevelt's first State of the Union recognized this tide of public sentiment and epitomized the principles underlying it:

"There are real and grave evils, one of the chief being over-capitalization because of its many baleful consequences; and a resolute and practical effort must be made to correct these evils. There is a widespread conviction in the minds of the American people that the great corporations known as trusts are in certain of their features and tendencies hurtful to the general welfare... It should be as much the aim of those who seek social betterment to rid the business world of crimes of cunning as to rid the entire body politic of crimes of violence. Great corporations exist only because they are created and safeguarded by our institutions; and it is therefore our right and our duty to see that they work in harmony with these institutions."

The central tenets of antitrust policy were as much a part of popular culture as of law; and this, in turn, spurred the authorities to take further action at almost every level. The federal Department of Commerce and Labor, Interstate Commerce Commission, and Federal Trade Commission were all creatures of this period, as was the Antitrust Division of the Justice Department. In 1904, the Supreme Court declared that the Sherman Act was a lawful measure designed to preserve and not encumber freedom of contract, in a landmark decision that compelled the Northern Securities railway conglomerate to dissolve: "If, in the judgment of Congress, the public convenience or the general welfare will be best subserved when the natural laws of competition are left undisturbed by those engaged in interstate commerce, that must be, for all, the end of the matter if this is to remain a government of laws, and not of men." Northern Securities v. United States, 193 U.S. 197 (1904). Additionally, the lawmakers of the several states repeatedly endeavored to address the problem of interstate monopolies affecting commerce within their borders. One commission report from the New York state legislature succinctly summarizes the importance of maintaining free commerce:

"1. Competition between buyers of the raw material enhances the price to the producer.
2. Competition between sellers of the manufactured article reduces its price to the consumer.
3. Reduction of price multiplies the number of consumers.
4. Increase of consumption stimulates production to supply the increased demand.
5. Increase of production implies an increase in the employment of labour.
6. Competition between the employers of labour enhances the wages of labour.
7. Enhancement of the wages of labour involves the material and moral amelioration of the condition of the labouring class.
8. Competition to sell stimulates to improvements in the quality of the article offered.
9. Competition to sell urging reduction in the cost of the article, ingenuity is quickened to the invention of expense-saving and labour-saving machinery, and so a stimulus is applied to the progress of the useful arts and sciences. In short, competition ministers to the welfare of all classes of the community, and augments the resources and power of the state." 

Roosevelt Taft.jpgThe first decade of the twentieth century was the zenith of antitrust enforcement in the United States. Citizens' mounting discontent with untrammeled oligopoly had finally found its voice in the progressivism of the Roosevelt administration, and the rare harmony between official policy and public beliefs led to real change in many cases. Yet these conditions could not last indefinitely. The special interests had been unable to maintain their hold over the popular presses and had even suffered major defeats in the courts such as that in Northern Securities - yet they did not quietly acquiesce to the societal shifts threatening their prominence. In 1912, they succeeded in wresting the Republican nomination away from Roosevelt, who had a majority of the popular vote, and instead supporting William H. Taft, whose record showed only unsuccessful, indifferent attempts to enforce the Sherman Act - and the resulting schism in the Republican party caused the election of little-known New Jersey governor Woodrow Wilson. He had made vague promises about economic liberty during the campaign, but did not actively protect that right once in office and failed to effectively enforce the Clayton Act of 1914. As Roosevelt complained from the stump, "The chapter describing what Mr. Wilson has done about trusts... would read precisely like a chapter describing snakes in Ireland, which ran: 'There are no snakes in Ireland.' Mr. Wilson has done precisely and exactly nothing about the trusts." 

The so-called golden age of the free market had clearly ended. Three years later America entered World War I, and the resulting shortages of many commodities enabled corporations to justify all manner of monopolistic actions in the name of the war effort. A decade of laissez-faire tolerance of the trusts followed, when the lack of competition was justified by an unsustainable illusion of prosperity. As subsequent events would prove, nothing short of complete economic collapse could reawaken the United States to the importance of antitrust enforcement.
Buccaneers.jpgPart 2 of 5 in a series of posts, "The History of Antitrust"

Much of the social and economic landscape of our modern nation was shaped during the latter half of the nineteenth century. The Civil War had ended, and sectional interests and prejudices gave way to a growing consciousness of the United States as a unified world power. The continent grew progressively smaller as the East and West were linked by rail and by telegraph wire, enabling news, ideas and commerce to flow unhindered through established metropolises and territorial outposts alike. All these factors led to the centralization of industry: changes which initially increased national efficiency and opportunity, but which quickly resulted in monopolization and oppression. By 1888, this unprecedented trend of consolidation had led to widespread calls for drastic reform and governmental regulation of American business.

Ohio icicle.jpgThat same year, U.S. Senator John Sherman introduced a bill that addressed these worsening conditions. Reserved and diffident to the extent that he was commonly referred to as the "Ohio Icicle," moderate in most of his policies - the perfect antithesis to his gregarious, aggressive brother William Tecumseh Sherman (of the notorious March to the Sea) - Sherman was an unlikely trustbuster. However, twenty-three years before members of the Senate were even elected by the popular vote of their constituents, he was one of the few politicians with both the willingness and the authority to attempt to rectify the situation. The bill itself, with its clear wording and unequivocal prohibition of all forms of oligarchy, met with determined resistance from conservatives claiming by turns that Congress had no constitutional authority to prohibit monopoly, that protective tariffs and not corporate wrongdoing was culpable for the lack of healthy competition, that no such problem currently existed, and that the proposed legislation would infringe upon and not help to secure the civil liberties enumerated in the Bill of Rights. After lengthy debates on the issue, Sherman's opponents succeeded in postponing any action on his bill for two full sessions. When the merits of the measure finally reached the floor in 1890, the Senator offered an eloquent exposition on the evils of monopolization: "The sole object of such a combination is to make competition impossible... If anything is wrong this is wrong. If we will not endure a king as a political power we should not endure a king over the production, transportation, and sale of any of the necessaries of life. If we would not submit to an emperor we should not submit to an autocrat of trade, with power to prevent competition." This appeal proved ineffective, however, and the bill was referred to the Senate Judiciary Committee for revision.

When it came back to the floor, both its text and its meaning had been eviscerated. The original text of the proposed legislation, designed to protect farmers' cooperatives and labor unions while specifically and unmistakeably banning corporate restraint of trade, read:

"That all arrangements, contracts, agreements, trusts, or combinations between two or more citizens or corporations, or both, of different Sates, or between two or more citizens, or corporations, or both, of the United States and foreign states or citizens or corporations thereof, made with a view or which tend to prevent full and free competition in articles of growth, production, or manufacture of any State or Territory of the United States with similar articles of the growth, production, or manufacture of other State or Territory, or in the transportation or sale of like articles, the production of any State or Territory of the United States, into or within any other State or Territory of the United States: and all arrangements, trusts, or combinations between such citizens or corporations, made with a view or which tend to advance the cost to the consumer of any such article, are hereby declared to be against public policy, unlawful, and void."

When directly contrasted with the forceful, unambiguous terms of the original statute, the impact of the familiar first section of the revised version, commonly known now as the Sherman Antitrust Act - "Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal" - is considerably lessened. Sherman himself was acutely aware that his landmark legislation had survived two long years of inaction and conflict only to be entirely vitiated a week before its passage. Perhaps he foresaw the disputes that would arise over the meaning of this vague sentence and the numerous court decisions that would deprive the law of much of its remaining force of the law in coming years; for, when a reporter asked him about the legislation bearing his name, he deprecated it as "totally ineffective in dealing with combinations and Trusts. All corporations can ride through it or over it without fear of punishment or detection." The first prosecutions brought under it illustrated the accuracy of his misgivings.

However, even though it was far from ideal, the Sherman Act was the law of the land and would now have to be enforced. The effort to do so would permanently transform American industry and do much to shape politics and law as the twentieth century approached.

Read the first part of this series, "The Trusts Take Control"

About this Archive

This page is an archive of entries from June 2017 listed from newest to oldest.

May 2017 is the previous archive.

Find recent content on the main index or look in the archives to find all content.