Harrison Signs the Sherman Antitrust Act Summary

  • Last updated on November 10, 2022

The Sherman Antitrust Act was the first federal legisalation in the United States to outlaw monopolies and restraint of trade. It still forms the centerpiece of U.S. antitrust law.

Summary of Event

The period following the U.S. Civil War was one of rapid economic growth and change in the United States. Creation of a nationwide network of railroads gave individual firms a way to serve a nationwide market, enabling them to grow to a large size to improve their efficiency or simply to gain strategic advantages. A conspicuous firm was the Standard Oil Standard Oil;and Sherman Antitrust Act[Sherman Antitrust Act] Company, led by John D. Rockefeller. The firm was efficient and progressive in developing petroleum Petroleum;refining refining, but it was heavily criticized for such actions as pressuring railroads for preferential rebates and discriminatory price-cutting to intimidate competitors. Sherman Antitrust Act of 1890 Antitrust law [kw]Harrison Signs the Sherman Antitrust Act (July 20, 1890) [kw]Signs the Sherman Antitrust Act, Harrison (July 20, 1890) [kw]Sherman Antitrust Act, Harrison Signs the (July 20, 1890) [kw]Antitrust Act, Harrison Signs the Sherman (July 20, 1890) [kw]Act, Harrison Signs the Sherman Antitrust (July 20, 1890) Sherman Antitrust Act of 1890 Antitrust law [g]United States;July 20, 1890: Harrison Signs the Sherman Antitrust Act[5710] [c]Laws, acts, and legal history;July 20, 1890: Harrison Signs the Sherman Antitrust Act[5710] [c]Government and politics;July 20, 1890: Harrison Signs the Sherman Antitrust Act[5710] [c]Trade and commerce;July 20, 1890: Harrison Signs the Sherman Antitrust Act[5710] Sherman, John Edmunds, George Franklin Hoar, George Frisbie Olney, Richard Rockefeller, John D.

Standard Oil effectively controlled the petroleum-refining industry by 1879. In addition to lubricants, its principal product was kerosene Kerosene , aggressively marketed worldwide as the first cheap and convenient source of artificial light. In 1882, the firm was reorganized in the form of a trust, facilitating the acquisition of competing firms. Although the trust form went out of use soon after, the term “trust” became a common name for aggressive big-business monopolies. Other large combinations were soon formed, so that by 1890, large companies controlled the production of such items as whiskey, sugar, and lead, and dominated the nation’s railroads.

Opposition to big-business abuses spread among farmers and in small-business sectors such as the grocery business. Popular concern was fueled by writings such as Edward Bellamy’s Bellamy, Edward utopian novel Looking Backward: 2000-1887 Looking Backward: 2000-1887 (Bellamy) (1888), which had sold one million copies within fifteen years after its publication. Individual states adopted antimonopoly legislation or brought court actions against alleged monopolists. By 1891, eighteen states had adopted some sort of antitrust legislation.

Both major political parties had adopted vague antimonopoly statements in their platforms for the 1888 election, but neither rushed to submit appropriate legislation at the next congressional session. President Benjamin Harrison Harrison, Benjamin [p]Harrison, Benjamin;and Sherman Antitrust Act[Sherman Antitrust Act] was moved to ask for such a statute in his annual message of December, 1889. A bill introduced by Senator John Sherman Sherman, John of Ohio was extensively revised by the Senate Judiciary Committee, under the able guidance of George Frisbie Hoar Hoar, George Frisbie and Chairman George Franklin Edmunds Edmunds, George Franklin . The resulting bill was passed by Congress with virtually no debate and only one opposing vote. President Harrison signed it into law July 20, 1890.

The Sherman Antitrust Act contained three important types of provisions. First, the law outlawed “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. . . .” This came to be viewed as dealing with “loose combinations” of several firms undertaking joint action. Second, the law made it illegal for any person to monopolize or attempt to monopolize any part of that trade or commerce. This was viewed as dealing with activities of individual large firms. The key terms were not defined, and it remained for lawyers and judges to try to find satisfactory and consistent meanings for them. Third, the law provided for a variety of means of enforcement. The attorney general was empowered to bring criminal or civil court actions against violators. Civil remedies often proved attractive, because the burden of proof was not so difficult to achieve, and the remedies could involve changing industry structure and behavior, not merely applying punishments. In addition, private individuals could sue offending firms for triple the value of their losses.

Between 1890 and 1904, only eighteen suits were filed under the act. Several of these aimed at collusive rate-fixing by railroads, despite their regulated status under the Interstate Commerce Commission Interstate Commerce Commission . At the time of the Pullman Strike Pullman Strike (1894), the courts held that the Sherman Act could be applied to the activities of labor unions. Unions were repeatedly subjected to injunctions and triple-damage suits for strikes, picketing, and boycotts, Boycotts;and labor[Labor] even after Congress attempted, in the Clayton Antitrust Act of 1914, to exempt most union activities from antitrust laws.

The Sherman Act’s effectiveness was limited severely by the Supreme Court in an 1895 case against the sugar trust, United States v. E. C. Knight Company United States v. E. C. Knight Company (1895) . The ruling in that case defined commerce so narrowly that it excluded almost all forms of interstate enterprise except transportation. The Court was led to make a ruling of this type by the way in which the Justice Department, under Attorney General Richard Olney Olney, Richard , framed the case. Collusive behavior among a number of separate firms, however, was not granted such a loophole. In 1899, activities by six producers of cast-iron pipe to agree on contract bids were held illegal in Addyston Pipe and Steel Co. v. United States Addyston Pipe and Steel Co. v. United States (1899) . These two cases indicated that activities involving several firms were much more likely to be found illegal than the operations of a single-firm monopolist. Perhaps in response, the decade of the 1890’s witnessed an unprecedented boom in the formation of giant corporations through mergers and consolidations. The process culminated in the creation of United States Steel Corporation in 1901, capitalized at more than one billion dollars.

Again, public outcry arose. Congress appointed an industrial commission in 1899 to consider the trust problem. A preliminary report in 1900 observed that “industrial combinations have become fixtures in our business life. Their power for evil should be destroyed and their means for good preserved.” The commission’s 1902 report recommended stronger actions against price discrimination. Some large firms were prosecuted successfully. A giant railroad merger was blocked in the Northern Securities case of 1904, helping to gain for President Theodore Roosevelt Roosevelt, Theodore [p]Roosevelt, Theodore;and trusts[Trusts] a reputation as a vigorous trust-buster. In 1911, two notorious trusts, Standard Oil Standard Oil;and Sherman Antitrust Act[Sherman Antitrust Act] and American Tobacco, Tobacco;trusts were convicted of Sherman Act violations. In each case, the convicted firm was ordered to be broken into several separate firms. The Standard Oil settlement made it much easier for new firms to enter petroleum refining, making possible the emergence of such new competitors as Texaco and Gulf Oil. However, prosecution of the ultimate corporate giant, U.S. Steel, was dismissed in 1920.

Significance

In 1914, Congress adopted the Clayton Act Clayton Act of 1914 , which amended the Sherman Act to specify business actions to be prohibited. This act outlawed price discrimination, tying and exclusive-dealing contracts, mergers and acquisitions, and interlocking directorships, where these tended to decrease competition or to create a monopoly. The Federal Trade Commission was also established in 1914, charged with preventing unfair methods of competition and helping to enforce the Clayton Act.

Until 1950, Sherman Act prosecutions tended to be relatively effective against collusive actions by separate firms in interstate commerce, situations involving, for example, price fixing and agreements to share markets, to boycott suppliers, or to assign market territories. On the other hand, individual firms were left relatively free, even if large and dominant. Treatment of individual large firms shifted somewhat after the government successfully prosecuted the Aluminum Company of America (ALCOA) in 1945. The court agreed with the prosecution that the firm’s market share was large enough to constitute a monopoly, and that ALCOA had deliberately undertaken to achieve this monopoly. This case provided a basis for successful antitrust actions against United Shoe Machinery Company in 1954 and against American Telephone and Telegraph (AT&T) in 1982. In the AT&T case, the telephone industry was drastically reorganized. The various regional operating companies became independent, and entry into long-distance phone services was opened up for new competitors. The government’s ability to block the formation of giant-firm monopoly was strengthened in 1950, when Congress passed the Celler-Kefauver Antimerger Act, which gave the government stronger authority to block mergers that seemed to threaten to produce monopoly.

Further Reading
  • citation-type="booksimple"

    xlink:type="simple">Blair, Roger D., and David L. Kaserman. Antitrust Economics. Homewood, Ill.: Irwin, 1985. This university textbook puts the Sherman Act into a broad economic context.
  • citation-type="booksimple"

    xlink:type="simple">Hylton, Keith N. Antitrust Law: Economic Theory and Common Law Evolution. New York: Cambridge University Press, 2003. Compares the Sherman Antitrust Act and other statutes with antitrust common law.
  • citation-type="booksimple"

    xlink:type="simple">Kovaleff, Theodore P., ed. The Antitrust Impulse: An Economic, Historical, and Legal Analysis. 2 vols. Armonk, N.Y.: M. E. Sharpe, 1994. Diverse essays reexamine the history and impact of the law.
  • citation-type="booksimple"

    xlink:type="simple">Letwin, William L. Law and Economic Policy in America: The Evolution of the Sherman Act. New York: Random House, 1956. Surveys the background and early application of the law, finding it an unsuccessful experiment.
  • citation-type="booksimple"

    xlink:type="simple">Thorelli, Hans. The Federal Antitrust Policy: Origination of an American Tradition. Baltimore: Johns Hopkins University Press, 1955. This encyclopedic study focuses on the political and legal background of the Sherman Act, its legislative history, and its early application.
  • citation-type="booksimple"

    xlink:type="simple">Whitney, Simon N. Antitrust Policies: American Experience in Twenty Industries. 2 vols. New York: Twentieth Century Fund, 1958. Excellent case studies give deeper meaning to the law’s application.

U.S. Civil War

Congress Passes the National Bank Acts

Standard Oil Company Is Incorporated

Standard Oil Trust Is Organized

Pendleton Act Reforms the Federal Civil Service

Interstate Commerce Act

Birth of the People’s Party

Pullman Strike

Congress Passes Dingley Tariff Act

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