Sherman Antitrust Act

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Sherman Antitrust Act

Synopsis

The Sherman Antitrust Act of 1890 was Congress's first attempt to curb the monopolistic practices of large corporations, trusts, and other forms of business organization. In the following decades, however, the Sherman Act was often used as a tool against organized labor. Employers argued successfully before the courts that union activities were an illegal restraint of trade of the kind that the act was designed to curtail.

Timeline

1870: Beginning of Franco-Prussian War. German troops sweep over France, Napoleon III is dethroned, and France's Second Empire gives way to the Third Republic.
1876: Four-stroke cycle gas engine introduced.
1880: South Africa's Boers declare an independent republic, precipitating the short First Anglo-Boer War.
1883: Foundation of the League of Struggle for the Emancipation of Labor by Marxist political philosopher Georgi Valentinovich Plekhanov marks the formal start of Russia's labor movement. Change still lies far in the future for Russia, however: tellingly, Plekhanov launches the movement in Switzerland.
1886: Bombing at Haymarket Square, Chicago, kills seven policemen and injures numerous others. Eight anarchists are accused and tried; three are imprisoned, one commits suicide, and four are hanged.
1888: Serbian-born American electrical engineer Nikola Tesla develops a practical system for generating and transmitting alternating current (AC), which will ultimately—and after an extremely acrimonious battle—replace Thomas Edison's direct current (DC) in most homes and businesses.
1890: Police arrest and kill Sioux chief Sitting Bull, and two weeks later, federal troops kill over 200 Sioux at Wounded Knee.
1890: Alfred Thayer Mahan, a U.S. naval officer and historian, publishes The Influence of Sea Power Upon History, 1660-1783, which demonstrates the decisive role that maritime forces have played in past conflicts. The book will have an enormous impact on world events by encouraging the major powers to develop powerful navies.
1893: Henry Ford builds his first automobile.
1896: First modern Olympic Games held in Athens.
1900: Establishment of the Commonwealth of Australia.

Event and Its Context

Background: The Second Industrial Revolution

United States history from the end of the Civil War to the beginning of World War I (1865-1914) is largely the history of the second Industrial Revolution. The first Industrial Revolution, dating back to the late 1700s and extending roughly through the first half of the nineteenth century, was based on new technologies imported from Europe, such as large spinning and weaving mills and coal-fired furnaces for the production of iron.

Industrial development in the United States remained on hold during the Civil War, Reconstruction, and the harsh depression of the 1870s. Once these passed, however, the nation was poised for a second Industrial Revolution, one whose effects dwarfed those of the first. Three major developments made the second Industrial Revolution possible. First was the completion of communications and transportation networks—railroads, the telegraph system, and the steamship—making possible the movement of raw materials and finished goods in high volumes. The second was the development of electricity, which provided industry with a cheap, flexible source of power and revolutionized chemical and metallurgical processes. Finally, the application of science to manufacturing created an array of new consumer and industrial products from major corporations whose names remain familiar today: the Aluminum Company of America (Alcoa), Remington, Burroughs, McCormick Harvester (now International Harvester), Borden, Heinz, Campbell, Du Pont, Dow Chemical, Monsanto. These companies' products were transforming American life.

The Rise of the Capitalist

Science and technology provided the know-how. Equally important, though, were the business skills of a new class of entrepreneurs, whose names, too, remain familiar today: John D. Rockefeller in oil, Cornelius and William Vanderbilt in the railroad industry, Andrew Carnegie in steel, and Jay Gould and J. Pierpont Morgan in finance. These men and others amassed enormous fortunes investing in large, capital-intensive enterprises that churned out new or greatly improved products often at a fraction of the cost of similar products a generation earlier. In the early 1870s, for example, the cost of producing a gallon of kerosene was a nickel; by the mid-1880s the cost had fallen to half a cent. Over a 20-year period from 1880 to 1900, the cost to make a ton of steel fell from $65 to $17. The Aluminum Company of America produced what had previously been a precious metal for a mere 35 cents a pound. In 1865 freight rates on the railroads were about 2 cents per ton-mile; by 1900 that figure had fallen to about .75 cents per ton-mile.

Although many of the industrialists who built these mighty enterprises became prominent philanthropists, the public took a dim view of their efforts. This view was given a name in 1934 with the publication of Matthew Josephson's book Robber Barons. In the late nineteenth and early twentieth centuries, the public and legislators were observing with alarm the sheer, unbridled economic power of corporations, trusts, pools, trade associations, and similar business combinations. Business leaders in such industries as oil, sugar, whiskey, tobacco, and industrial machinery were learning that by cooperating rather than competing, they could eliminate smaller competitors, control output and the supply of products, establish market territories, raise prices to maximize profits, and impose penalties on members who violated the anticompetitive policies of the combination. Perhaps the most notable example was John D. Rockefeller's Standard Oil. Rockefeller believed that the American economic system was in disarray; to succeed, a modern corporation needed dependable supplies of raw materials, access to capital and credit, reliable transportation, and expansive markets. Accordingly, he ruthlessly bought out smaller competitors in the oil industry, and those he could not buy he forced out of business. Similar patterns emerged in the railroad and other industries. The result was an industrial system that denied freedom of entry to the smaller competitor, or that drove the competitor out of business. And, as William Vanderbilt famously exclaimed, "The public be damned!"

The Sherman Antitrust Act

To curb the predatory monopolistic practices of corporations and trusts, Congress passed the Sherman Antitrust Act in 1890. Section 1 of the act made illegal "Every contract, combination, . . . or conspiracy, in restraint of trade or commerce among the several States." Section 2 specified that "every person who shall monopolize, or attempt to monopolize . . . any part of the trade or commerce among the several States, or with foreign nations," shall be guilty of a misdemeanor.

The Sherman Act was a noble failure. By not defining what constituted a "trust" or a "monopoly," it gave the courts little guidance, so early suits against the sugar and whiskey trusts were thrown out of court, although the courts did order the dissolution of Rockefeller's Standard Oil trust. The administration of Theodore Roosevelt (1901-1909) had somewhat more success, and Roosevelt won a reputation as a "trust-buster" by breaking up the Northern Securities railroad trust and others. The reaction of big business, predictably, was one of outrage that its liberties had been infringed. And in the generally conservative, pro-business climate that prevailed at the time, the courts tended to agree. To close some of the Sherman Act's loopholes, President Woodrow Wilson asked for new legislation. The result was the 1914 Clayton Act, which among other practices prohibited pricing agreements that restrained trade. Again, though, the courts' enforcement of the act was at best tepid.

The Sherman Act and Organized Labor

The Sherman Act failed specifically to mention labor unions. Thus, it remained an open question whether Congress intended unions to be subject to the act and whether their activities in some circumstances could be construed as "combinations . . . in restraint of trade or commerce." A federal court in Louisiana offered an early answer to this question in 1893, when, in United States v. Workingmen's Amalgamated Council, it issued an injunction against a group of unions—a tool employers frequently sought and won in their efforts to thwart organized labor during these years—and declared that Congress's intent was to "include combinations of labor, as well as capital; in fact, all combinations in restraint of commerce, without reference to the character of the persons who entered into them." Similarly, a federal court in United States v. Agler (1897), ruling on a suit brought in the wake of the Pullman railroad strike of 1894, asserted its authority under the Sherman Act to "apply the restraining power of the law for the purpose of checking and arresting all lawless interference with . . . the peaceful and orderly conduct of railroad business between the States."

The irony is apparent. The purpose of the Sherman Act was to restrain big business. It failed to do so. But it did stifle organized labor in the early decades of the twentieth century, when employers repeatedly argued in court that certain union activities, in particular the secondary boycott, violated the Sherman Act because they restrained interstate commerce. When some of these cases finally made their way to the Supreme Court, the High Court agreed. In a series of landmark cases, including Danbury Hatters (1908), Gompers v. Bucks Stove and Range Co. (1911), the Coronado Coal Company cases (1922 and 1925), and Bedford Cut Stone Company v. Journeymen Stone Cutters Association (1927), the Court turned the Sherman Act and, later, the Clayton Act against union activities.

Two of these cases in particular stand out. The first was Danbury Hatters; officially, the case was Loewe v. Lawlor, but it took on the name of the location of the Loewe and Company hat factory in Danbury, Connecticut. The case arose in 1902 when the United Hatters of North America attempted to organize workers at the Loewe plant and ultimately called about 250 workers out on strike. When the strike did not have its desired effect, the union adopted a different tactic: it called for a nationwide boycott. The union pressured retailers and wholesalers to stop carrying Loewe hats, and it urged the public not to buy from any store that sold the company's products. So successful was the boycott that the company claimed that in one year it lost $85,000.

Accordingly, the company sued the union and its members in 1903, alleging a violation of the Sherman Act. Five years later, the Supreme Court overturned a court of appeals ruling in the union's favor and said that the union's activities, particularly its use of a secondary boycott, were in fact a restraint of trade within the meaning of the Sherman Act. Thus, the Danbury Hatters case removed from labor's hands one of its most effective tools, the "secondary boycott," or pressure on one firm to persuade it to stop doing business with another firm.

If the Danbury Hatters decision was a sharp blow to labor, the Bucks Stove decision three years later was nearly a knockout punch. The Bucks Stove and Range Company refused to recognize the Molders and Foundry Workers Union of North America, an affiliate of the American Federation of Labor (AFL), as the bargaining agent for its workers. Accordingly, the AFL placed the company's name on its newspaper's "unfair" and "We Don't Patronize" lists, pressured retailers not to carry the company's products, and threatened to boycott those that did. It also urged the public not to buy Bucks Stove products. The union's actions were successful, and sales at the company dropped.

In response, the company filed suit against the officers of the AFL, including its president, Samuel Gompers. The court of appeals granted an injunction against the AFL, but Gompers and the other officers violated the injunction and continued to include the company's name on its "unfair" and "We Don't Patronize" lists and to publicize the boycott in speeches, editorials, and other publications. After the court found the union officials guilty of contempt, they appealed to the Supreme Court. In its decision, the Court addressed the question of whether the Sherman Act was applicable to the case. Citing Loewe v. Lawlor, the Court declared that Sherman was applicable and that any boycott or blacklist promoted by printed matter or by words violated the act. In reaching its decision, the Court pointed to the "vast power" of labor unions, with their "multitudes of members." It distinguished between the "right of speech" of a single individual and the "verbal acts" of a multitude that can come under court scrutiny as much as "the use of any other force whereby property is unlawfully damaged." Any "property" that faced "irreparable damage" such as lost profits because of labor union activities could appropriately be protected by the courts through the issuance of an injunction.

It was not until 1940, in Apex Hosiery Co. v. Leader, that the Supreme Court nullified these earlier decisions by ruling that a labor strike carried out to further the interests of the union conducting it, even if the effect of the strike is to reduce the amount of goods in interstate commerce, is not a violation of the Sherman Antitrust Act.

Key Players

Gompers, Samuel (1850-1924): Gompers was born to Dutch-Jewish immigrants in London, where he began his working life at age ten as a cigar maker. He immigrated to the United States in 1863 and in 1886 was elected vice president of the Cigarmakers' International Union. That year he was a founder of the American Federation of Labor and served as its president from 1886 to 1895, then from 1896 to 1924. In 1919 Gompers was appointed to the American delegation at the Paris Peace Conference following World War I. His autobiography, Seventy Years of Life and Labor, was published in 1925.

Rockefeller, John D. (1839-1937): A high school dropout who eventually gave away $550 million of his fortune, Rockefeller was born in Richford, New York, and began his career as a bookkeeper in Cleveland. He entered the oil business in 1863, and by 1870 his business had expanded to include the Standard Oil Company of Ohio. By the end of the decade Standard Oil dominated the refining, transportation, and sales of petroleum.

Roosevelt, Theodore (1858-1919): Roosevelt, the twenty-sixth president of the United States, was a Harvard graduate who enjoyed an active career in public service. He was a member of the state assembly, head of the U.S. Civil Service Commission, president of the New York City police commission, assistant secretary of the navy, and governor of New York. As vice president, he assumed the presidency when William McKinley was assassinated in 1901. He was known for his aggressive foreign policy and for championing progressive reform at home. He ran again for the presidency against his successor, William Howard Taft, under the banner of the Progressive, or Bull Moose Party in the 1912 election won by Woodrow Wilson.

Bibliography

Books

Koretz, Robert F. Statutory History of the United States:Labor Organization. New York: Chelsea House, 1970.

Northrup, Herbert R., and Gordon F. Bloom. Government and Labor. Homewood, IL: Richard D. Irwin, 1963.

Taylor, Benjamin J., and Fred Witney. Labor Relations Law,3rd ed. Englewood Cliffs, NJ: Prentice-Hall, 1979.

Articles

Jones, Edgar A., Jr. "The Right to Picket—Twilight Zone of the Constitution." University of Pennsylvania Law Review (June 1954): 997+.

"Labor Picketing and Commercial Speech: Free Enterprise Values in the Doctrine of Free Speech." Yale Law Journal (April 1982): 960+.

McNatt, E. B. "Labor Again Menaced by the Sherman Act."Southern Economic Journal 6, no. 2 (1939).

Pope, James Gray. "The Thirteenth Amendment versus the Commerce Clause: Labor and the Shaping of American Constitutional Law, 1921-1957." Columbia Law Review (January 2002): 112+.

Timbers, Edwin. "The Problems of Union Power and Antitrust Legislation." Labor Law Journal 16, no. 9 (1965).

—Michael J. O'Neal

St. James Encyclopedia of Labor History Worldwide: Major Events in Labor History and Their Impact