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TRUSTS. The term "trust" derives from English common law. Not until the 1880s, however, with the rise of big business in the United States, did the modern definition of trust come into use.

In 1879, John D. Rockefeller, a rich industrialist and owner of Standard Oil, was facing a crisis. A self-made man who began his career as a bookkeeper at the age of sixteen, Rockefeller had built up Standard Oil through a system of mergers and acquisitions. A persistent entrepreneur, Rockefeller was involved in various industries, including the rapidly expanding railroads. By 1879 the New York State Legislature was looking into Rockefeller's dealings, specifically his railroad mergers, and when the investigation's findings were published in the Atlantic Monthly in 1881, public outcry made further mergers impossible.

Anxious to expand Standard Oil beyond Ohio, Rockefeller had been limited by antimonopoly laws and sentiment. Rockefeller, realizing that he was stymied after the legislative investigation and that he needed a change of direction, was intent on finding a backdoor to monopoly. His attorney, Samuel Dodd, provided the answer.

Dodd proposed the formation of a trust company, controlled by a board of nine trustees. This board would select directors and officers of component companies and would determine the dividends of the companies within the trust. Rather than acquiring companies directly, Rockefeller would instead control such companies indirectly via the trust. Such a form of corporate organization insured against a direct hierarchy with Rockefeller at the top; this legal technicality allowed Rockefeller to expand and continue to control his business. On 2 Jan uary 1882, the Standard Oil Trust became a reality, changing the face of big business.

As the U.S. economy expanded, so did the number of trusts, attracting such men as steel maker Andrew Carnegie, railroad tycoon Jay Gould, and financier J. P. Morgan. All would use the trust form to crush their competition and achieve monopolies in their industries.

Such concentration meant almost certain death for small businessmen and companies just getting started—they could not be competitive. The cry of "unfair" was quickly heard. Thomas Nast, the famous cartoonist who had exposed the corruption at Tammany Hall during the early 1870s, inflamed the public with caricatures of rich, powerful industrialists controlling everything from corn to Congress, while muckrakers such as Ida M. Tarbell exposed the greed and power behind the robber barons. By 1888, popular antipathy toward the trusts made them a key issue in the presidential election. Both the Democratic candidate, Grover Cleveland, and the Republican, Benjamin Harrison, were forced to make a campaign promise to fight trusts. In a closely contested election, Harrison would receive fewer popular votes, but would win the electoral college and become president.

Sherman Antitrust Act

Eager to gain public support, Harrison was prepared to sign into law antitrust legislation. Congress responded with the Sherman Antitrust Act, named after Ohio senator John Sherman. The Senate passed the bill by 51 to 1 on 8 April 1890. The bill then went on to the House, where it was passed unanimously.

Section 1 of the bill stated that "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." Section 2 extended the law to anyone who attempted to "monopolize any part of the trade or commerce among the several States, or with foreign nations." Violation was ordained a felony, with each violation punishable by a fine of $350,000 and up to three years in jail.

Unfortunately, the bill was poorly worded. The legislators had failed to define the terms "restraint of trade," "combination," and "monopolize." What was to be considered restraint of trade, and how to determine "good" trusts from "bad?" were some immediate questions. This Act was used throughout the 1890s to block strikes. Companies such as Pullman Palace Railcar maintained that unions were prohibited under the "conspiracy to restrict trade" clause. Accepting this argument, the federal government sent troops to put down the Pullman strike of 1892.

A further setback came in 1895, when the Supreme Court, in the case of United States v. E. C. Knight Co. ruled that not all combinations constituted trusts that restrained interstate commerce, and such combinations could therefore not be prosecuted under the new law. The Court noted a distinct difference between commerce and manufacture, declaring that not all that is produced can be considered commerce. "Commerce succeeds to manufacture," the majority decision stated, "and is not a part of it … The fact that an article is manufactured for export to another state does not of itself make it an article of interstate commerce, and the intent of the manufacturer does not determine the time when the article or product passes from the control of the state and belongs to commerce." This decision implied that Congress did not have a right to control all products manufactured, since the simple manufacturing of a product did not make it "interstate commerce" and weakened the already ineffectual Interstate Commerce Commission.

The 1896 presidential campaign again brought the need for reform to the forefront. William Jennings Bryan, the popular orator and Democratic candidate for president, compared the rich industrialists to hogs. "As I was riding along," he declared, "I noticed these hogs rooting in a field, and they were tearing up the ground, and the first thought that came to me was that they were destroying a good deal of property. And that carried me back to the time when as a boy I lived upon a farm, and I remembered that when we had hogs we used to put rings in the noses of the hogs, and the thought came to me, 'Why did we do it?' Not to keep the hogs from getting fat. We were more interested in their getting fat than they were. The sooner they got fat the sooner we killed them; the longer they were in getting fat the longer they lived. But why were the rings put in the noses of those hogs? So that, while they were getting fat, they would not destroy more property than they were worth."

Bryan was not a socialist, but he did not want the Rockefellers, the Goulds, and the Morgans taking more than their share by way of muddy legal maneuvers. His opponent, William McKinley, meanwhile, received large donations from industrialist supporters, enabling his campaign to spend at least $4 million, a tremendous sum at the time. Some called this bribery, but Rockefeller and other industrialists insisted that they had a right to contribute money to candidates who supported their ideas. McKinley won the election by a comfortable margin, and the issue of trusts and monopolies seemed to be put on the backburner, especially with the advent of the Spanish-American War in 1898. McKinley was reelected in 1900; serious trust reform, it seemed, would have to wait. But McKinley's assassination in September 1901 brought Theodore Roosevelt into the White House.


Roosevelt, the "Hero of San Juan Hill" and former governor of New York, where he was outspoken in his criticisms of government policy toward business, quickly took big business to task, attacking the trusts and the newer "holding companies." Five months into Roosevelt's term, Morgan gave him the perfect opportunity to show his mettle when the financier formed the Northern Securities Company. The Northern Securities Company was a $4 million combination of all major groups competing for rail traffic in the northwest, including Rockefeller. Morgan thought that he would be able to negotiate with Roosevelt, even going so far as to suggest that "his man" meet with Roosevelt's "man" (Attorney General Philander C. Knox) to settle the matter.

Roosevelt was not interested in Morgan's negotiations. Instead, in 1902 he ordered Knox to bring suit against Northern Securities for violation of the Sherman Antitrust Act. The case went to the Supreme Court, and in a split five-to-four decision in Northern Securities Co. v. United States (1904), the Court sided with Roosevelt, proclaiming, "Congress has authority to declare, and by the language of its act, as interpreted in prior cases, has, in effect, declared, that the freedom of interstate and international commerce shall not be obstructed or disturbed by any combination, conspiracy, or monopoly that will restrain such commerce, by preventing the free operation of competition among interstate carriers engaged in the transportation of passengers of freight."

Roosevelt's challenge of Northern Securities quickly gained him popularity as a "trustbuster." The wave of support for Roosevelt forced Congress to create a Bureau of Corporations in the Department of Commerce and Labor to investigate the activities of corporations. Congress also passed the Elkins Act of 1903, which outlawed rebates to large shippers and increased the powers of the Interstate Commerce Commission. Although he preferred to regulate corporations rather than "bust" them, Roosevelt went on to file forty-three more antitrust suits. His successor, William Howard Taft, filed sixty-five suits against trusts; Taft is rarely given credit for his vigorous enforcement activities.

The robber barons were losing ground. In Standard Oil Co. v. United States (1911), a case pushed strongly by the Taft administration, the Supreme Court ruled that Rockefeller's Standard Oil combination had to be dissolved; the Court, however, left a small loophole that would later prove crucial in allowing some combinations, including U.S. Steel, to survive. The Court invoked a "Rule of Reason," declaring that the restraint upon trade must be "undue" or "unreasonable." As long as their tactics were not "unreasonable," the alleged robber barons could proceed.

In 1914, during the presidency of Woodrow Wilson, Congress passed the Clayton Antitrust Act; this Act prohibited mergers and acquisitions that tended to "substantially…lessen competition, or … to create a monopoly." The Act also outlawed the "interlocking" of corporate executives on boards of companies issuing more than $1 million in stocks and bonds, and forbade stock purchases and price discriminations in which the intent was to limit competition. Labor unions were exempted from these restrictions, and Congress included provisions for labor's right to strike.

That same year, the Federal Trade Commission (FTC) was created to replace the Bureau of Corporations. The FTC was granted the authority to investigate corporate activities and to make rulings on unfair monopolistic business practices; it was further empowered to regulate advertising and to keep Congress and the public informed of the efficiency of antitrust legislation.

The Depression and the New Deal brought more antitrust legislation. In 1934 Congress created the Securities and Exchange Commission to protect investors from "rags to riches" schemes and maintain the integrity of the securities market.

In 1936, the Robinson-Patman Act was passed. Its purpose was to protect small businessmen who were trying to get back into the market. While many small businesses had been wiped out by the Depression, most of the larger ones had managed to stay afloat. It was widely feared that these companies might expand in such bad times and use methods such as price discrimination to stifle competition. Robinson-Patman forbade firms involved in interstate commerce to engage in price discrimination when the effect would be to lessen competition or to create a monopoly. (This law is frequently referred to as the "Anti-Chain Store Act," as it has often been applied to them.) Through the 1940s and 1950s, the government would continue trust-busting activities. In 1969, the government filed suit against IBM, the corporate giant; the suit dragged on for thirteen years before the case was dismissed. By then IBM's business was threatened by personal computers and networked office systems. Many critics of antitrust legislation declared government intervention pointless, noting that technology is often its own safeguard against monopoly. In 1973, however, the government would succeed in forcing giant AT&T to dissolve.

During the late twentieth and early twenty-first centuries, the government engaged in a massive antitrust lawsuit against Microsoft, the computer-programming giant. The FTC began its attempt to dismantle Microsoft in 1989, accusing the company and its officers of engaging in price discrimination and claiming that the company deliberately placed programming codes in its operating systems that would hinder competition. Microsoft responded by changing its royalty policy. In 1997 Microsoft would come to trial once again, with the Department of Justice claiming that the company violated Sections 1 and 2 of the Sherman Antitrust Act. The case stemmed from the fact that Microsoft's Windows® program required consumers to load Microsoft's Internet browser, giving Microsoft a monopolistic advantage over other browser manufacturers. Microsoft claimed that this was a matter of quality service, not of monopoly. Microsoft claimed that it had produced a superior, more compatible product and that its intent was not to restrict commerce. In late 1999, the judge hearing the case ruled that Microsoft was, in fact, a monopoly and should be broken up. Two years later, in July 2001, an Appeals Court found that Microsoft had acted illegally but reversed the lower court ruling ordering a breakup.


Abels, Jules. The Rockefeller Billions: The Story of the World's Most Stupendous Fortune. New York: MacMillan, 1965.

Brands, H. W. TR: The Last Romantic. New York: Basic Books, 1997.

Chernow, Ron. The Death of the Banker: The Decline and Fall of the Great Financial Dynasties and the Triumph of the Small Investor. New York: Vintage Books, 1997.

Garraty, John A. Theodore Roosevelt: The Strenuous Life. New York: American Heritage Publishing, 1967.

Geisst, Charles R. Monopolies in America: Empire Builders and their Enemies, from Jay Gould to Bill Gates. New York: Oxford University Press, 2000.

Laughlin, Rosemary. John D. Rockefeller: Oil Baron and Philanthropist. Greensboro, N.C.: Morgan Reynolds, 2001.

Tompkins, Vincent, ed. "Headline Makers." In American Eras: Development of the Industrial United States, 1878–1899. Detroit, Mich.: Gale Research, 1997.

Wheeler, George. Pierpont Morgan and Friends: The Anatomy of a Myth. Englewood Cliffs, N.J.: Prentice-Hall, 1973.



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A trust is a tool that an individual or institution uses to transfer property to a beneficiary. The party that grants the property is called the trustor. The trustor, in turn, gives the property to the trustee, who is charged with the task of disbursing the property to the beneficiary according to the instructions of the trustor. In the early 1990s, more than $1 trillion were held in U.S. trusts.

One important advantage that a trust has over a simple gift is that the trustor can exercise control over the disbursement of funds or property over time, even after his or her death (or dissolution, in the case of an institutional trustor). For example, a trustor may stipulate that funds periodically transferred to an all-male academy must be terminated if the school begins enrolling females. A second, and perhaps more important, advantage is that trusts can be used to minimize tax burdens incurred when wealth is transferred.

The two main categories of trusts are non-charitable and charitable, they are differentiated from one another primarily by tax status. Charitable trusts are organized for non-profit beneficiaries, such as educational, religious, and charitable organizations. Beneficiaries of noncharitable trusts typically include individuals or groupsparticularly relatives or employees of the trustoror profit seeking organizations.

Most trustees in the United States are banks' trust departments. However, other types of financial institutions act as trustees, and some companies specialize in trust management. Furthermore, a few trustees are separate entities that have been set up as foundations to manage large trust funds.

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"Trusts." Gale Encyclopedia of U.S. Economic History. . 11 Dec. 2017 <>.

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