The American Nation A History of the United States, Combined Volume (14th Edition)

The Government Reacts to Big Business: The Sherman Antitrust Act 477

Federal action came in 1890 with the passage of the
Sherman Antitrust Act. Any combination “in the
form of trust or otherwise” that was “in restraint of
trade or commerce among the several states, or with
foreign nations” was declared illegal. Persons form-
ing such combinations were subject to fines of
$5,000 and a year in jail. Individuals and businesses
suffering losses because of actions that violated the
law were authorized to sue in the federal courts for
triple damages.
Where the Interstate Commerce Act sought to
outlaw the excesses of competition, the Sherman Act
was supposed to restore competition. If businessmen
joined together to “restrain” (monopolize) trade in a
particular field, they should be punished and their
deeds undone. “The great thing this bill does,” Senator
George Frisbie Hoar of Massachusetts explained, “is
to extend the common-law principle... to interna-
tional and interstate commerce.” This was important
because the states ran into legal difficulties when they
tried to use the common law to restrict corporations
engaged in interstate activities.
But the Sherman Act was rather loosely
worded—Thurman Arnold, a modern authority,
once said that it made it “a crime to violate a vaguely
stated economic policy.” Critics have argued that the
congressmen were more interested in quieting the
public clamor for action against the trusts than in
actually breaking up any of the new combinations.
Quieting the clamor was certainly one of their objec-
tives. However, they were trying to solve a new
problem and were not sure how to proceed. A law
with teeth too sharp might do more harm than

good. Most Americans assumed that the courts

would deal with the details, as they always had in

common law matters.

In fact, the Supreme Court quickly emasculated

the Sherman Act. In United States v. E. C. Knight

Company(1895) it held that the American Sugar

Refining Company had not violated the law by taking

over a number of important competitors. Although

the Sugar Trust now controlled about 98 percent of

all sugar refining in the United States, it was not

restraining trade. “Doubtless the power to control

the manufacture of a given thing involves in a certain

sense the control of its disposition,” the Court said in

one of the greatest feats of judicial understatement of

all time. “Although the exercise of that power may

result in bringing the operation of commerce into

play, it does not control it, and affects it only inciden-

tally and indirectly.”

If the creation of the Sugar Trust did not violate

the Sherman Act, it seemed unlikely that any other

combination of manufacturers could be convicted

under the law. However, in several cases in 1898 and

1899 the Supreme Court ruled that agreements to fix

prices or divide markets did violate the Sherman Act.

These decisions precipitated a wave of outright merg-

ers in which a handful of large companies swallowed

up hundreds of smaller ones. Presumably mergers

were not illegal. When, some years after his retire-

ment, Andrew Carnegie was asked by a committee of

the House of Representatives to explain how he had

dared participate in the formation of the U.S. Steel

Corporation, he replied, “Nobody ever mentioned

the Sherman Act to me that I remember.”

Table 17.3 Major Congressional and Supreme Court Decisions Concerning Corporations

Case/Act Year Decision/Action Consequence

Munn v. Illinois 1877 State legislatures can regulate economic enterprises Expansion of state powers against

powerful corporations and trusts

Wabash, St. Louis

& Pacific Railroad

v. Illinois

1886 State legislatures can NOT regulate interstate

economic activity; only federal government can

do that

Congress passes Interstate Commerce

Act 1887, regulating railroad behavior

Interstate

Commerce Act

1887 Federal government can regulate railroad rates and

practices

Sets precedent for federal intervention

in national economic matters

Sherman

Antitrust Act

1890 The federal government can break up economic

enterprises that are so big and powerful that they

have monopoly power

Originally used to weaken labor

unions; eventually allows government

to break up large corporations

United States v.

E. C. Knight

1895 Huge corporations that dominated markets can

not be broken up if they do not also behave badly

Weakens Sherman Antitrust Act