Sherman Anti-Trust Act

Sources

Rise of the Trusts. By 1878 the Standard Oil Company of Ohio owned seventy-four refineries and controlled 90 percent of the country’s oil. One year later John D. Rockefeller was indicted for creating a monopoly. Though he was not convicted, Rockefeller sensed the danger of creating monopolies. In late December 1881 he decided to turned the ownership of his empire over to nine “trustees,” who held all the stock from the different companies under Rockefeller’s control. Thus, Rockefeller, and the trustees, could escape prosecution for creating a monopoly. Soon other industries followed Rockefeller’s example in creating “trusts.” Between 1884 and 1887 manufacturers and distributors of cotton oil, linseed oil, whiskey, envelopes, school slate, sugar, meat, and natural gas all formed trusts.

State Antitrust Action. The general public could not see the difference between a trust and a monopoly. Reformers called for regulation of the trusts, and some states complied. In 1889 Michigan, Nebraska, and Kansas passed antitrust laws, and by 1900 twenty-seven states prohibited or regulated trusts. These antitrust laws followed a principle of common law, that combinations which restrained trade unreasonably or monopolies that were hostile to the public good were illegal. States could regulate some trusts, but many were too big to be controlled or intimidated by the laws of any one state. When the state of Ohio moved against the Standard Oil Company in 1892, Rockefeller simply reformed the company under the more business-friendly laws of New Jersey.

The Sherman Anti-Trust Act. In 1887 President Grover Cleveland told Congress, “As we view the achievements of aggregated capital we discover the existence of trusts, combinations, and monopolies, while the citizen is struggling far in the rear or is trampled to death beneath an iron heel. Corporations which should be carefully restrained creatures of the law and servants of the people, are fast becoming the people’s masters.” In 1888, in response to public demands to do something about trusts but conscious of the importance of trusts to business organization, Sen. John Sherman of Ohio introduced an antitrust measure in the Senate. In 1890, after considerable revisions by Massachusetts senator George Hoar and Vermont senator George Edmunds, Congress passed a national antitrust law. The law barred any “contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade” and made it a federal crime “to monopolize or attempt to monopolize, or combine or conspire . . . to monopolize any part of the trade or commerce among the several states.”

Enforcing the Sherman Act. Unlike the Interstate Commerce Act, which established a commission to investigate violations of the law, the Sherman Act left enforcement up to the U.S. attorney general. Most attorneys general did not think it necessary to move against trusts. Richard Olney, a corporate lawyer who served as attorney general in the Cleveland administration, took “the responsibility of not prosecuting under a law I believed to be no good.” The presidential administrations of Benjamin Harrison, Cleveland, and William McKinley filed a total of eighteen antitrust suits. More combinations and trusts were formed between 1897 and 1901 than at any other time in American history.

United States v. E. C. Knight. In 1894 the E. C. Knight Company, part of the sugar trust, had tried to buy four Pennsylvania refiners, the last remaining competitors to the American Sugar Refining Company. The national government moved to enforce the Sherman Act and asked a federal court to grant an injunction against this buyout; the court refused. In October the Supreme Court heard the case of United States v. E. C. Knight. In January 1895 Chief Justice Melville Fuller declared that the sugar trust was not subject to the Sherman Act. The chief justice noted that the trust refined 98 percent of the sugar sold in the United States, but it did not sell the sugar. Under the Constitution, Congress can regulate commerce between states, but could not regulate manufacturing. The Sherman Act, therefore, could not apply to a manufacturing monopoly. The trust could restrain the sugar trade only in an indirect manner; Congress could only prevent direct restraints on interstate trade.

In re Debs . The Court’s decision revealed that it would be difficult to enforce the Sherman Act against trusts. Six months after deciding the sugar case, the Court used the Sherman Act against labor leader Eugene V. Debs. In May 1894 the American Railway Union struck against the Pullman Palace Car Company, which had cut workers’ wages by 20 percent, while raising executive salaries and paying the dividends to stockholders. The union called for a boycott of Pullman cars, and workers refused to move trains hauling Pullmans. Attorney General Olney said the union was obstructing interstate commerce, and he sought an injunction against Debs and the union under the Sherman Act. Debs refused to call off the strike, and was sentenced to six months in jail for contempt of court. In March 1895 Clarence Darrow and former Illinois senator Lyman Trumbull defended Debs in the Supreme Court. In June the Court upheld the injunction. Justice David Brewer wrote that “The strong arm of the national government may be put forth to brush away all obstructions to the freedom of interstate commerce or the transportation of the mails.” Debs served his six-month prison sentence at Woodstock, Illinois. Passed to control the abuses of business, the Sherman Act became a weapon against organized labor.

Sources

James W. Ely Jr., The Chief Justiceship of Melville W. Fuller, 1888-1910 (Columbia: University of South Carolina Press, 1995);

Lawrence M. Friedman, A History of American Law (New York: Simon & Schuster, 1985);

John E. Semonche, Charting the Future: The Supreme Court Responds to a Changing Society 1890-1920 (Westport, Conn.: Greenwood Press, 1978);

Tinsley E. Yarbrough, Judicial Enigma: The First Justice Harlan (New York: Oxford University Press, 1995).