Results tagged “railroad monopoly” from PlanetGreen.org

Conscious Commitment: The Trusts Take Control

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Grange Awakening the Sleepers.jpgPart 1 of 5 in a series of posts, "The History of Antitrust"

Economic liberty - the unfettered ability to maintain one's own property and earn one's own living by pursuing any lawful calling - has always been a vital part of American political tradition. It can be argued that the Revolutionary War itself was waged primarily to preserve this freedom, and the Fifth and Fourteenth Amendments to our Constitution inextricably wove it into our legal framework. However, although property rights are mostly safe from governmental despotism in this nation, we continue to face the complex problems arising when a private individual or corporation infringes on the rights of another. The history of antitrust legislation and litigation is the story of countless attempts to solve these problems.

Long before the populist movement of the late nineteenth century galvanized public sentiment in favor of regulating commerce to promote competition, the common law recognized monopolization as inherently illegal and immoral. Contracts "in restraint of trade," such as those in which parties agreed not to engage in a certain industry within a certain area or pledged not to directly compete with each other for customers while both remaining in business, have traditionally been held to be against public policy and therefore void. In England in 1689, it was concisely declared: "The law now is, that total restraints of trade are absolutely bad, and that all restraints, though only partial... are presumed to be bad: therefore if there be simply a stipulation, though in an instrument under seal, that a trade or profession shall not be carried on in a particular place, without any averments shewing circumstances which rendered such a contract reasonable, the instrument is void." Hunlocke v. Blacklowe, 2 Wm. Saund. 156. American courts also consistently enforced this rule well into the nineteenth century: in Jerome v. Bigelow, 66 Ill. 452 (1872), an acquisition deal between two physicians was voided as an unreasonable impediment to free competition; in Callahan v. Donnolly, 45 Cal. 152, a contract providing that a yeast manufacturer refrain from entering the yeast market for eight years was struck down; and in Harkinson's Appeal, 78 Penn. 196 (1875), a mother who sold a bakery and promised as part of the transaction not to "engage in the same business directly or indirectly" - and thereafter opened another bakery with her son in the same area - was not liable to the second owners of the establishment because the clause in question was unconscionable. This principle effectively protected consumers and small businessmen as long as trade was conducted on a largely local scale, but as nationwide and eventually worldwide commerce burgeoned, stronger prohibitions of anticompetitive conduct would clearly be needed.

The transcontinental railroads were probably more responsible for these societal shifts than any other industry. Built using millions of dollars of government subsidies and land cessions instead of private financing, the newly laid tracks were almost immediately profitable, as rail shipping between opposite coasts quickly proved far more efficient than previously used ocean routes. However, not content with the highly lucrative traffic that naturally fell to them, the railway corporations resorted to various forms of oligarchy and chicanery in the attempt to extract every last cent from the nation their lines now spanned. Partisanship and discrimination became rampant. In order to ensure that all direct and incidental profit was collected directly by railroad executives, freight and passenger rates to "company towns" was often drastically cheaper than to independent settlements, even when the latter were fifty miles nearer to a given starting point. Ticket costs plummeted whenever a new competitor emerged and rose again when the threat to the large roads' monopoly was either acquired or bankrupted. In some instances, packages were routed to major rail terminals such as St. Louis, San Francisco, or Omaha, and then sent on to their true destinations - which were often the same stations the incoming train had already stopped at. The public was understandably umbrageous, and several attempts to regulate this untrammeled extortion, including the repeated introduction of antitrust bills in federal and state legislatures, were mounted over the next decades. As one reformer, inveighing against the unjust practices of the Central Pacific, proclaimed twelve years before the passage of the Sherman Act: "I assert that discrimination against one place and in favor of another, or against one man and in favor of another, or against one corporation and in favor of another, is unjust upon the face of it, and not to be justified under any possible contingency." Countless editorials, orations, and exposes reiterated these sentiments, but while the railroad corporations continued to profit they were impervious to common opinion.

Similarly heedless of the rising clamor against monopolization, other companies were quick to follow its example. One of the most flagrant instances of such monopolization occurred in Nevada during the heyday of the Comstock Lode, when an enterprising engineer named Adolph Sutro proposed to construct a tunnel under the lode to adequately ventilate the mines and extract ore in a manner that would be both safer and cheaper than the current method hauling it up the shafts to the surface. Due to its obvious benefits, Sutro's plan initially enjoyed the backing of both the workers themselves and many of the mines. Yet he lost this support when prominent businessman and U.S. Senator William Sharon, who controlled virtually all of the region's ore mills and was an important shareholder in many of the mines, realized that the completed tunnel would allow new mills to spring up at the mouth of the tunnel and compete with his current cartel. Almost immediately the funding that had been promised to Sutro was withdrawn, he was denounced in local newspapers heavily influenced by Sharon, the state legislature even came close to revoking his easement, and he was bankrupted in his efforts to push ahead with construction in the face of these obstacles. Senator Sharon's monopoly continued unchallenged and it looked as though the tunnel project was defeated - until the early morning hours of an uneventful spring day four years later, when a wholly preventable tragedy occurred. The first shift of the day had just descended into the Yellow Jacket mine when it suddenly erupted in uncontrollable flames, killing forty-eight men and injuring hundreds who breathed the toxic smoke. It later emerged that the inferno could have been forestalled simply by providing better airflow in the subterranean passages, precisely what Sutro's tunnel would have done. Though Sharon continued his opposition to the undertaking, many recognized his partial responsibility for the fire, and excavation of the tunnel slowly but steadily continued. In 1878 it was finally completed.

By then, the antitrust movement was gaining traction in the political arena. Just one year before the completion of the tunnel, the Supreme Court decided in Munn v. Illinois, that corporations possessing a "virtual monopoly" over their given markets were subject to more stringent regulation than other businesses. By depriving consumers of other options, reasoned the Court, the owner of such a company "devotes his property to a use in which the public has an interest, [and] he, in effect, grants to the public an interest in that use, and must submit to be controlled by the public for the common good." 94 U.S. 113 (1877). Organized labor was becoming a major national force, and Terence Powderly, president of the Knights of Labor, defended Americans' right to a free market both by defending his position in speeches and debates and by pressuring the legislature to act on the matter before democracy itself was irreparably injured. In Congress, the Interstate Commerce Act was introduced, debated at length, and finally passed: the first significant national attempt to restrict railroads' discretion in setting fares and freight charges. On the lecturing circuit, renowned populist Mary Elizabeth Lease was declaring: "Wall Street owns the country. It is no longer a government of the people, by the people, and for the people, but a government of Wall Street, by Wall Street, and for Wall Street. The great common people of this country are slaves, and monopoly is the master." Across the U.S., citizens were beginning to realize that oligopoly had palpable and highly harmful consequences to them personally and collectively, and it was apparent that the present economic oppression could not continue for much longer. The only question remaining was precisely how it would be curtailed.

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