Economics and Business

Income Tax

What is the Sherman Anti-Trust Act?

Passed by Congress in 1890, the Sherman Anti-Trust Act was an attempt to break up corporate trusts (combinations of firms or corporations formed to limit competition and monopolize a market). The legislation stated that “every contract, combination in the form of trust or otherwise, or conspiracy in the restraint of trade” is illegal. While the act made clear that anyone found to be in violation of restraining trade would face fines, jail terms, and the payment of damages, the language lacked clear definitions of what exactly constituted restraint of trade. The nation’s courts were left with the responsibility of interpreting the Sherman Anti-Trust Act, and the justices proved as reluctant to take on big business as Congress had been.

The legislation was introduced in Congress by Senator John Sherman (1823–1900) of Ohio, in response to increasing outcry from state governments and the public for the passage of national antitrust laws. Many states had passed their own antitrust bills or had made constitutional provisions prohibiting trusts, but the statutes proved difficult to enforce and big business found ways around them. When the legislation proposed by Sherman reached the Senate, conservative congressmen rewrote it; many charged that the Senators had made it deliberately vague. In the decade after its passage, the federal government prosecuted only 18 antitrust cases and court decisions did little to break up monopolies. But after the turn of the century, a progressive spirit in the nation grew; among progressive reformers’ demands was that government regulate business. In 1911 the U.S. Justice Department won key victories against monopolies, breaking up John D. Rockefeller’s Standard Oil Company of New Jersey and James B. Duke’s American Tobacco Company. The decisions set a precedent for how the Sherman Anti-Trust Act would be enforced and demonstrated a national intolerance toward monopolistic trade practices. In 1914 national antitrust legislation was strengthened by the passage of the Clayton Anti-Trust Act, which outlawed price fixing (the practice of pricing below cost to eliminate a competitive product), made it illegal for the same executives to manage two or more competing companies (a practice called interlocking directorates), and prohibited any corporation from owning stock in a competing corporation. The creation of the Federal Trade Commission (FTC) that same year provided further insurance that U.S. corporations engaging in unfair practices would be investigated by the government.

Between 1880 and the early 1900s corporate trusts proliferated in the United States, becoming powerful business forces. The vague language of the Sherman AntiTrust legislation and the courts’ reluctance to prosecute big business based on that act did little to break up the monopolistic giants. The tide turned against corporate trusts when Theodore Roosevelt (1858–1919) became president in September 1901, after President William McKinley (1843–1901) was assassinated. Roosevelt launched a “trust-busting” campaign, initiating, through the attorney general’s office, some 40 lawsuits against American corporations such as American Tobacco Company, Standard Oil Company, and American Telephone and Telegraph (AT&T). Government efforts to break up the monopolies were strengthened in 1914, during the presidency of Woodrow Wilson (1856–1924), when Congress passed the Clayton Anti-Trust legislation and created the Federal Trade Commission (FTC), which is responsible for keeping business competition free and fair. Trust-busting declined during the prosperity of the 1920s, but was again vigorously pursued in the 1930s, during the administration of Franklin D. Roosevelt (1882–1945).


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