On this day in economic and business history...
President Benjamin Harrison signed the Sherman Antitrust Act into law on July 2, 1890. Its lasting impact on American industry makes it the most memorable element of an otherwise forgettable presidency. But what is the Sherman Antitrust Act and how has it affected the relationship between government and industry in the United States? Let's take a quick look at the Act's major provisions:
Any unreasonable effort to restrain interstate trade is made illegal.Monopolistic interstate commercial activities are classified as felonies.
Pretty simple, right? The complete Act's sweeping prohibitions and its subsequent explanation of terms and punishments take up fewer than 1,000 words. This short bill (about the length of this article) has nevertheless been used to dismantle some of the world's largest companies. It was designed as a way to remedy competitive imbalances brought on by cartel agreements or other artificial means a business might use to sustain its market position. The Supreme Court further defined its purpose in a 1993 case as "not to protect businesses from the working of the market; [but] to protect the public from the failure of the market."
Ironically, the Act did not break up any monopolistic or cartelized businesses in an era known by its robber barons for over a decade. Instead, it was used as a legal cudgel against labor unions, initially defined as "illegal combinations" under the scope of the Act. It was nearly destroyed as an anti-monopolistic weapon five years after its passage when the Supreme Court ruled that a sugar refining trust did not violate the Act despite controlling 98% of all sugar refining in the country.
Theodore Roosevelt's ascent to the presidency following President William McKinley's assassination revived the Sherman Antitrust Act from near-death, and it was finally used to dismantle a company in 1904. That year, the Northern Securities railroad trust -- controlled by J.P. Morgan and John D. Rockefeller, among others -- was found to control an unreasonably large part of American railroad traffic, and was broken back up into its component railroads. This reestablished the Act as a potent weapon against monopolies, and it was used many times over the following century against major companies, if not always successfully. Here are some of the landmark decisions issued under an interpretation of the Sherman Antitrust Act, with brief explanations provided below (you can also click on their links for more information):United States v. Alcoa Inc (NYSE:AA) , 1945. United States v. AT&T Inc. (NYSE:T) , 1982. United States v. United States Steel Corporation (NYSE:X) , 1920. United States v. Microsoft Corporation (NASDAQ:MSFT) , 2001. United States v. American Tobacco, 1911.
The Standard Oil breakup in 1911 is the most important turning point of the Act's early history. It set a standard for "reasonableness" that has since been applied many times to determine what made a monopoly truly anticompetitive. Between this decision and the one that broke the American Tobacco trust several weeks later, the Supreme Court of 1911 is responsible for creating three long-tenured members of the Dow Jones Industrial Average -- two of which (both oil companies) are still on the index today.