Clayton Antitrust Act Summary

  • Last updated on November 10, 2022

With the passage of the Clayton Antitrust Act in 1914, the U.S. government further codified prohibitions against unlawful restraints of trade and monopolies.

Summary of Event

On October 15, 1914, the U.S. Congress passed and President Woodrow Wilson signed the Clayton Antitrust Act. This law was designed to strengthen the Sherman Antitrust Act Sherman Antitrust Act (1890) of 1890 by fully codifying specific illegal activities. The Clayton Act forbade a corporation from purchasing stock in a competitive firm, outlawed contracts based on the condition that the purchaser would do no business with the seller’s competitors, and made interlocking stockholdings and directorates illegal. It also contained provisions designed to make corporate officers personally responsible for antitrust violations. In addition, the Clayton Act declared that labor unions were not conspiracies in restraint of trade, thus exempting them from provisions of the bill. To carry out and enforce the Clayton Act and the Sherman Act, Congress created the Federal Trade Commission Federal Trade Commission Act (1914) in a related measure. Clayton Antitrust Act (1914) Antitrust legislation [kw]Clayton Antitrust Act (Oct. 15, 1914) [kw]Antitrust Act, Clayton (Oct. 15, 1914) [kw]Act, Clayton Antitrust (Oct. 15, 1914) Clayton Antitrust Act (1914) Antitrust legislation [g]United States;Oct. 15, 1914: Clayton Antitrust Act[03620] [c]Trade and commerce;Oct. 15, 1914: Clayton Antitrust Act[03620] [c]Laws, acts, and legal history;Oct. 15, 1914: Clayton Antitrust Act[03620] Wilson, Woodrow [p]Wilson, Woodrow;Clayton Antitrust Act Brandeis, Louis D. Clayton, Henry D. Roosevelt, Theodore Pujo, Arsène

For more than a decade after its passage, the Sherman Antitrust Act of 1890 had very little effect on corporations in the United States. President Theodore Roosevelt, however, pushed enforcement of the Sherman Act. In 1902, the Roosevelt administration brought suit against the giants of the railroad industry and the “beef trust.” Beef trust The U.S. Supreme Court ordered dissolution of the Morgan-Hill-Harriman railroad holding company in the Northern Securities case (1904), Northern Securities Company v. United States (1904) and in the case of Swift & Company v. United States (1905) Swift & Company v. United States (1905) the Court enjoined the beef trust from engaging in collusive price-fixing activities. In 1906 and 1907, Roosevelt had the Justice Department bring suit against the American Tobacco Company, the E. I. du Pont Chemical Corporation, the New Haven Railroad, and the Standard Oil Company. The Supreme Court ordered the dissolution of the American Tobacco (1910) and Standard Oil (1911) companies. Between 1890 and 1905, the Department of Justice brought twenty-four antitrust suits; the Roosevelt administration brought suit against fifty-four companies. The single administration of William Howard Taft later prosecuted ninety antitrust cases.

Despite this increase in federal antitrust regulation and prosecution, the trend toward large corporations grew. The economic concentration that had increased dramatically in the late nineteenth century continued to increase in the early twentieth century. The greatest period of business mergers Mergers;U.S. in the United States occurred during the William McKinley administration, from 1897 to 1901. Between 1896 and 1900, approximately two thousand mergers were completed, with nearly twelve hundred of them occurring in 1899. Business consolidations took place in phases after that. Between 1904 and 1906, there were roughly four hundred mergers; between 1909 and 1913, more than five hundred mergers took place.

During this time of increasing economic concentration, interlocking directorates Interlocking directorates (in which individuals serve on the boards of directors of several corporations, particularly within the same industry) also increased. By 1909, 1 percent of the industrial firms in the United States produced nearly half of the nation’s manufactured goods. By 1913, two financial groups, the investment banking firm of J. P. Morgan and the interests of John D. Rockefeller, held 341 directorships in 112 corporations, with an aggregate capitalization of more than $22 billion. These facts and many others were made public by the House of Representatives subcommittee on the “money trust” Money trust in the summer of 1912. Led by Representative Arsène Pujo, the hearings heightened existing public fears about economic concentration and intensified the political debate over the trust issue during the presidential campaign of 1912.

Louis D. Brandeis, a Boston attorney who had developed a reputation for being “the people’s lawyer,” greatly influenced Democratic presidential candidate Woodrow Wilson’s policies on business trusts and government regulation. Brandeis often represented small and medium-sized manufacturers, retailers, and wholesalers and had developed a philosophy he believed would protect them against the actions of their larger competitors. Brandeis met Wilson in the summer of 1912, and he later advised Wilson on matters concerning banking reform, monopoly and antitrust policy, and a trade commission to enforce existing antitrust laws.

Brandeis also publicized his regulatory philosophy in a series of articles appearing in Harper’s Weekly titled “Other People’s Money and How the Bankers Use It.” Coming in the wake of the Pujo Committee hearings, these articles further directed public attention to the issues of banking reform, antitrust, and economic concentration. Brandeis denounced combinations and trusts of all kinds, including interlocking directorates.

In the 1912 presidential campaign, Republican candidate Theodore Roosevelt, in his attempt to regain the presidency, proposed an increase in the use of governmental agencies to regulate large corporations. Agencies would police certain corporate actions rather than focus on corporate size. Roosevelt believed that large corporations could be more efficient than smaller businesses and that unlimited competition could be devastating to corporations and ultimately to the economy. His Progressive/Bull Moose Party platform advocated establishment of a trade commission to begin a cooperative regulatory approach.

Wilson, influenced by Brandeis and to some extent by former Populist/Democratic presidential candidate William Jennings Bryan, opposed bigness in general, both in business and in government. Wilson favored dissolutions such as those of Standard Oil Standard Oil v. United States (1911) and American Tobacco. United States v. American Tobacco Company (1911) He believed that such large corporate monopolies squeezed economic opportunity away from small and medium-sized businesses. For much of the 1912 campaign, Wilson failed to propose an antitrust agency or trade commission, as Roosevelt did. Toward the end of the campaign, and certainly once in office, Wilson came to support positions on the issues of antitrust and a trade commission that were closer to those of Roosevelt.

The general public wanted increased regulation of large corporations, but businesses of all sizes wanted clarification and further codification of the Sherman Antitrust Act. Both small and large businesses wanted a clear line between legality and illegality to be embodied in legislation and enforced by a trade commission that would work with the private sector.

What the business community opposed was being subject to the unpredictable policies of the Justice Department and the shifting jurisprudence of the Supreme Court, which had clouded the already vague standards and definitions of antitrust with its decisions in the Standard Oil and American Tobacco cases. In those cases, the Court ruled that not every restraint of trade was illegal in terms of the Sherman Act. In the Standard Oil case, the Court ruled that it would determine whether combinations restrained trade rather than using size alone as a criterion of noncompetitive behavior. Firms would be within the law, through the “rule of reason,” Rule of reason principle no matter how large they were, if they did not engage in “unreasonable” behavior. The main objectives of additional antitrust legislation were thus clear: to create statutory specifics on antitrust prohibitions, to make monopolistic price-fixing agreements and price discrimination illegal, and to eliminate interlocking directorates.

After obtaining legislation on tariff and banking reform in 1913, Wilson turned his attention to antitrust in 1914. In his message to Congress of January 20, 1914, Wilson stated that although further antitrust legislation would make a number of activities illegal, the main purpose was to help businesses remain within the bounds of legality. “Nothing hampers business like uncertainty,” said Wilson. “The best informed men of the business world condemn the methods and processes and consequences of monopoly as we condemn them.” With this presidential support, two days later Representative Henry D. Clayton introduced four bills in the House to amend the Sherman Act. Proposed antitrust bills and trade commission bills developed from February through June as the House Judiciary Committee and the Senate Interstate Commerce Committee held hearings.

Although businesses wanted antitrust clarification, some provisions of the developing Clayton bill alarmed smaller and “peripheral” businesses, which often engaged in trade or associational activities and price agreements initially prohibited by the bill. Businesses such as merchants, grocers, small manufacturers, and retailers desired prosecution of “unfair price competition” engaged in by larger firms. Conversely, these peripheral businesses feared government prosecution of trade association activities that included “fair-price agreements” designed to ensure profitability.

Smaller businesses had been hit especially hard by federal antitrust policies in the past. From 1905 to 1915, seventy-two antitrust cases had been brought against these peripheral businesses; fewer than thirty had involved the largest firms. Under pressure from business groups such as the U.S. Chamber of Commerce, the Chicago Chamber of Commerce, and the National Association of Manufacturers, Congress amended the bill. The Clayton Act made price discrimination illegal but attached amendments that gave businesses considerable allowances and exemptions.

Other amendments undermined the strength of the bill. The prohibition against corporate mergers in the Clayton Act was modified to apply only in those cases in which mergers tended to decrease competition, a vague standard open to judicial interpretation. The exemption of labor unions under the Clayton Act was equivocal and subject to judicial review. It was in fact the intention of Congress and the Wilson administration to allow the courts to settle the ambiguity of the new antitrust law. As a consequence, federal courts often ruled that the Clayton Act was inapplicable to business mergers, and labor unions found that they had no more protection under the Clayton Act than they had before.

In its final form, the Clayton Act prohibited a corporation from discriminating in price between purchasers, engaging in exclusive sales, and tying purchases of one good to purchases of another if the effect of any of these actions was “to substantially lessen competition or tend to create a monopoly,” a standard open to broad judicial interpretation. Executives, directors, and officers of a corporation were made personally liable for corporate antitrust violations. The Clayton Act also prohibited one corporation from acquiring the stock of a competitor or a holding company from acquiring the stock of two competitors if such acquisition would substantially lessen competition, restrain commerce, or tend to create a monopoly; these were again standards open to judicial review. The Federal Trade Commission Act, also passed in 1914, transferred the functions of the U.S. Bureau of Corporations to the Federal Trade Commission and authorized the commission, among other duties, to issue cease-and-desist orders enjoining “unfair methods of competition and commerce.”

Significance

The Clayton Act proved to be an enduring piece of legislation, and it has been strengthened a number of times since its passage. Just after its passage, however, the antitrust movement began to fade away. The great period of antitrust activity in the United States began during the McKinley administration and peaked under President Taft. The Wilson administration brought fewer antitrust suits than did either the Roosevelt or the Taft administration. Late in 1914, Wilson stated that he believed federal regulation had gone far enough. He viewed the Clayton Act as the concluding act in the antitrust movement, noting, “The reconstructive legislation which for the last two decades the opinion of the country has demanded has now been enacted.”

At least as important, however, was the fact that foreign policy and World War I increasingly demanded Wilson’s attention. Many historians have contended that although the antitrust movement had reached a natural decline, World War I further undermined it. War mobilization required the coordinated efforts of the leaders of every industry involved. Economic concentration and collusive efforts were necessary and accepted for the war effort. For example, in early 1918 the Fuel Administration, a wartime agency, suppressed an attempt by the Federal Trade Commission to begin litigation against Standard Oil of Indiana for violation of the Clayton Antitrust Act.

Some economic historians contend that the Clayton Act actually promoted economic concentration. The act clarified illegal actions, thereby helping to eliminate some monopolistic activities, but in so doing it allowed business combinations and trusts to engage in collusive activities not specifically prohibited. By codifying illegal behavior, Congress tacitly sanctioned other collusive activities aimed at reducing chaotic competition and ensuring stability. Large corporations such as General Motors and the Du Pont Chemical Company grew much larger immediately after passage of the Clayton Act and especially during the war effort.

Desire for further antitrust reform was rekindled, briefly, by the federal New Deal response to the Great Depression of the 1930’s. The Public Utilities Holding Company Act of 1935 Public Utilities Holding Company Act (1935) prohibited public utility systems with more than three tiers of companies and designated the Securities and Exchange Commission to regulate their size and finances. The Robinson-Patman Act of 1936 Robinson-Patman Act (1936)[Robinson Patman Act] and the Miller-Tydings Act of 1937 Miller-Tydings Act (1937)[Miller Tydings Act] both supplemented the Clayton Act by attempting to protect small business from wholesalers that practiced price discrimination and by establishing “fair trade” price floors on numerous items.

In 1938, Congress created the Temporary National Economic Committee Temporary National Economic Committee to hold hearings on the issue of antitrust. Attorney General Thurman Arnold Arnold, Thurman reinvigorated federal antitrust prosecution. Arnold brought a number of antitrust suits, notably against General Electric and the Aluminum Company of America (Alcoa). Like the earlier antitrust effort of the Progressive Era, this campaign lost its strength and direction as a result of foreign policy concerns and economic mobilization for a war effort.

Some important antitrust cases have taken place since World War II. In 1945, Alcoa was found to be in violation of the Sherman Antitrust Act. In 1948, the federal government forced a number of major U.S. film studios to divest themselves of studio-owned theaters. In 1961, the Supreme Court ordered the Du Pont Corporation to divest itself of its holdings in General Motors Company. In 1967, the Federal Communications Commission ordered the American Telephone and Telegraph Company (AT&T) to lower its rates. In 1982, after eight years of battling a private antitrust suit in federal court, AT&T agreed to be broken up, and a number of rival long-distance communication companies began to challenge AT&T’s control over the market.

In 1950, the Celler-Kefauver Act Celler-Kefauver Act (1950)[Celler Kefauver Act] extended the Clayton Act by tightening prohibitions on business mergers that lessen competition and lead to monopoly. In 1976, Congress passed the Hart-Scott-Rodino Act, also known as the Concentrated Industries Act, a mild reform law that attempted to strengthen provisions of existing antitrust laws. Clearly, monopolistic behavior remained a fact of American economic life throughout the twentieth century, but federal prosecution of anticompetitive mergers and acquisitions became rare, although several high-profile antitrust actions were pursued with some vigor in the 1990’s in the federal courts, including a U.S. government suit against Microsoft Corporation. Clayton Antitrust Act (1914) Antitrust legislation

Further Reading
  • citation-type="booksimple"

    xlink:type="simple">Blum, John Morton. “Woodrow Wilson and the Ambiguities of Reform.” In The Progressive Presidents: Theodore Roosevelt, Woodrow Wilson, Franklin D. Roosevelt, Lyndon Johnson. New York: W. W. Norton, 1980. Good for an introduction to progressive policies and politics, as well as foreign policies, of Roosevelt and Wilson. A concise section discusses the development of Wilson’s legislative reform efforts, especially the Clayton Act and the Federal Trade Commission.
  • citation-type="booksimple"

    xlink:type="simple">Clark, John D. The Federal Anti-trust Policy. Baltimore: The Johns Hopkins University Press, 1931. Analytic, detailed, and still brief enough to be of use both to those seeking an introduction to the topic of antitrust at the federal level and to those with some familiarity with the topic. Presents the varying economic analyses of the time and includes a chapter on the Clayton Act and the Federal Trade Commission Act.
  • citation-type="booksimple"

    xlink:type="simple">Kolko, Gabriel. The Triumph of Conservatism: A Reinterpretation of American History, 1900-1916. New York: Free Press of Glencoe, 1963. Presents an interpretation challenging the standard view of progressive regulation and business-government relationships in the early twentieth century by showing the ways in which businesses desired and influenced regulatory legislation as a means to achieving their own goal of ending cutthroat competition and stabilizing industries. Includes a lengthy section on the development of the Federal Trade Commission and the Clayton Act in this vein.
  • citation-type="booksimple"

    xlink:type="simple">Link, Arthur S. Wilson: The New Freedom. Princeton, N.J.: Princeton University Press, 1956. Part of a series on Wilson, this is one of the best works available on Wilson’s New Freedom progressive reforms. Provides detailed discussion of the development of the Clayton and Federal Trade Commission bills in Congress, along with Wilson’s role with them.
  • citation-type="booksimple"

    xlink:type="simple">McCraw, Thomas. Prophets of Regulation: Charles Francis Adams, Louis D. Brandeis, James M. Landis, Alfred E. Kahn. 1984. Reprint. Cambridge, Mass.: Belknap Press, 2005. An excellent study of business-government relations in U.S. history. Uses the efforts of these prominent individuals to focus an assessment of the successes and failures of regulation.
  • citation-type="booksimple"

    xlink:type="simple">Milkis, Sidney M., and Jerome M. Mileur, eds. Progressivism and the New Democracy. Amherst: University of Massachusetts Press, 1999. Collection of essays by political scientists and historians examines various achievements and failures of the Progressive Era and their long-term impacts on American government and politics.
  • citation-type="booksimple"

    xlink:type="simple">Peritz, Rudolph J., Jr. Competition Policy in America, 1888-1992: History, Rhetoric, Law. Rev. ed. New York: Oxford University Press, 2001. A history of federal government policies relating to antitrust issues. Includes a substantial bibliography and index.
  • citation-type="booksimple"

    xlink:type="simple">Thorelli, Hans B. The Federal Antitrust Policy: Origination of an American Tradition. Baltimore: The Johns Hopkins University Press, 1955. A comprehensive and in-depth treatment of antitrust policy in U.S. history. Covers economic, social, and political formation of the antitrust movement in the legislative, executive, and judicial branches of government in the late nineteenth and early twentieth centuries.

U.S. Supreme Court Rules Against Northern Securities

U.S. Supreme Court Upholds Prosecution of the Beef Trust

U.S. Supreme Court Establishes the “Rule of Reason”

U.S. Supreme Court Breaks Up the American Tobacco Company

United States v. United States Steel Corporation

U.S. Government Loses Its Suit Against Alcoa

Eastman Kodak Is Found to Be in Violation of the Sherman Act

Antitrust Prosecution Forces RCA to Restructure

Categories: History Content