Act passed in 1890 that made monopoly and restraints of trade illegal.
In the United States a sharp conflict of opinion has existed over the relative merits of business monopolies. Many believe that government policy toward business monopolies has been something less than clear-cut and consistent. Even to the present day, the major thrust of federal legislation and policy has focused on maintaining and promoting competition.
Historically, the U.S. economy, steeped in the philosophy of free, competitive markets, has been a fertile ground for the development of a suspicious and fearful public attitude toward business monopolies. This fundamental distrust emerged following the Civil War when local markets widened into national markets as transportation infrastructure improved, resulting in the growth of big business. Increasing mechanization of production and increasingly widespread adoption of the corporate form of business enterprise were important forces giving rise to the development of trusts, or business monopolies, in the 1870s and 1880s. Trusts developed in the petroleum, meatpacking, railroad, sugar, lead, coal, whiskey, and tobacco industries, among others, during this era.
In certain industries—the oil and steel industries, for example—market forces failed to provide adequate control to ensure socially tolerable behavior on the part of the company. High tariffs eliminated foreign competition and economies of scale vanquished domestic competition, and workers, paid low wages, suffered as a result of this lack of competition. To correct this situation, two techniques of regulation were adopted as substitutes for or supplements to the market. First, in those few markets where economic realities preclude the effective functioning of the market (that is, where the market tends toward a “natural monopoly”), the United States established public regulatory agencies to control economic behavior—by setting utility rates, for example. Second, in most other markets, social control has taken the form of antimonopoly or antitrust legislation designed to inhibit or prevent the growth of monopoly.
Acute public resentment of the trusts, which developed in the 1870s and 1880s, culminated in the passage of the Sherman Anti-Trust Act in 1890. The act made monopoly and restraints of trade—for example, collusive price fixing or the dividing up of markets among competitors—criminal offenses against the federal government. Either the Department of Justice or parties injured by business monopolies could file suits under the Sherman Act. The courts could dissolve firms found in violation of the act, or injunctions could be issued to prohibit practices deemed unlawful under the act. Fines and imprisonment were also possible results of successful prosecution. Further, parties injured by illegal combinations and conspiracies could sue for triple the amount of damages. The Sherman Act seemed to provide a sound foundation for positive government action against business monopolies.
The case against business monopoly centers on the contentions that business monopoly causes a misallocation of resources, retards the rate of technological advance, promotes income inequality, and poses a threat to political democracy. The defense of business monopoly revolves around the point that interindustry and foreign competition, along with potential competition from new industry entrants, makes American industries more competitive than generally believed. Also, supporters believe that some degree of monopoly may be essential to the realization of economies of scale and that monopolies are technologically progressive.
The cornerstone of antitrust policy consists of the Sherman Act of 1890 and later the Clayton Act of 1914. In summary, the Sherman Act specifies that “Every contract, combination . . . or conspiracy in the restraint of interstate trade . . . is … illegal,” and that any person who monopolizes or attempts to monopolize interstate trade is guilty of a misdemeanor. The only successful prosecution under the Sherman Anti-Trust Act in the nineteenth century occurred not against big business, but against labor unions during the Pullman Strike of 1894, when 100 percent of the railroad workers agreed to strike. In 1895 when the U.S. Supreme Court heard the case of E. C. Knight Co., the sugar producer—the most prominent use of the act against big business in the nineteenth century—the Court ruled that this company, although controlling up to 98 percent of the market, did not violate the antitrust law because competition still existed. During the administration of President Theodore Roosevelt (1901-1908), the government finally won 45 cases against big business by using the Sherman Anti-Trust Act; during the administration of President William Howard Taft another 90 cases were successfully prosecuted, including one against Standard Oil in 1911. Congress reinforced the Sherman Anti-Trust Act with the passage of the Clayton Anti-Trust Act, which included fines or imprisonment for individuals who violated the act.
