Northern Securities Company

The U.S. government successfully brought suit against the trust formed by the Northern Securities Company for violations of the Sherman Antitrust Act. This victory demonstrated the government’s power to break up industrial monopolies.

The late nineteenth century saw the rapid industrial development of the United States, including the growth of corporations and trusts. Although Capitalismcapitalism supposedly guaranteed competition, business consolidation had instead resulted in monopoly conditions. The Sherman Antitrust Act of 1890Sherman Antitrust Act of 1890 was an attempt, based on the interstate commerce clause of the U.S. Constitution, to restore competition to the marketplace. However, in United States v. E. C. Knight (1895)United States v. E. C. Knight (1895), involving a sugar trust, the Supreme Court ruled that manufacture was not commerce and that the Sherman Antitrust Act did not apply.Northern Securities Company

In 1901, James Jerome Hill, James JeromeHill, president of the Great Northern Railroad, and Edward H. Harriman, Edward H.Harriman, who controlled the Union Pacific, tried to buy the Burlington (Chicago, Burlington, and Quincy) for its access to the hub of Chicago. Although Hill succeeded in buying the Burlington, Harriman made a bid for control by buying stock in the Northern Pacific, which controlled nearly half of the Burlington’s stock. His actions drove the Northern Pacific’s stock price to $1,000 per share. However, Hill and financier and railroad consolidator J. P. Morgan, J. P.Morgan, working together, were able to purchase enough shares to gain majority control of the Northern Pacific. This battle over stock disrupted the stock market and the U.S. economy. For primarily financial reasons, Hill, Morgan, and Harriman joined forces to create the Northern Securities Company, a holding company that controlled the major railroads of the Midwest and Northwest. This basically created a monopoly over rail transportation in the region.

This lithograph from the 1930’s depicts the empire builders, some of whom were involved in the Northern Securities Company: (from left) James Jerome Hill, Andrew Carnegie, Cornelius Vanderbilt, John D. Rockefeller, J. P. Morgan, Jay Cooke or Edward H. Harriman, and Jay Gould.

(Library of Congress)

The creation of the Northern Securities Company was significant but not unique among business dealings at the time. What made it different was the response of President Theodore Roosevelt. On February 19, 1902, under Roosevelt’s direction, Attorney General Philander Knox filed suit against the Northern Securities Company for violations of the Sherman Antitrust Act. Roosevelt’s motives were several. As a New York patrician and as a progressive, Roosevelt was distrustful of the growing power of industrial capitalism. Politically, with his eye on his reelection in 1904, an attack on one of the more notorious trusts (it is estimated that 30 percent of the stock of the Northern Securities Company was “watered” or inflated) would be popular with U.S. producers and consumers. Also, Roosevelt had little faith that the conservative Republican majority in Congress would establish meaningful laws to regulate corporate power.

The suit against the Northern Securities Company produced shock on Wall Street. In 1904, the Supreme Court ruled, in a five-to-four decision, that the Northern Securities Company had violated the Sherman Antitrust Act by its restraint of trade. The holding company was dissolved. It was the first meaningful demonstration of the government’s power to attack industrial monopolies. Roosevelt was reelected in 1904 and gained the nickname of “the Trust Buster.” Ironically, he actually favored federal regulation rather than the breaking up of business trusts.

Further Reading

  • Dalton, Kathleen. Theodore Roosevelt. New York: Knopf, 2002.
  • Meyer, Balthasar Henry. A History of the Northern Securities Case. New York: Da Capo Press, 1972.
  • Morris, Edmund. Theodore Rex. New York: Random House, 2001.

Antitrust legislation

J. P. Morgan

U.S. Presidency


Sherman Antitrust Act