The Sherman Act and Clayton Act are two pieces of legislation which Congress designed to combat abusive trusts and monopolies. Over the years they have been utilized to break up certain large monopolistic enterprises. Their passage also led to the creation of the anti-trust division in the Department of Justice.
In 1890 Congress passed its Sherman Antitrust Act. Though it has been supplemented by other subsequent acts, analysts still consider it to be the most significant. The government felt that the act became necessary because of trusts and monopolies that were taking over major industries in the decades that followed the Civil War.
Trusts proved to be understandings where stockholders of a few companies would transfer over their shares to a group of trustees. The trustees would then give these stockholders certificates that provided shares of earnings from the companies that would then be jointly managed. This is how trusts became monopolies in a variety of significant industries. Among these were steel, railroads, sugar, tobacco, and meatpacking.
Trusts were bad for the economy and smaller competitors because of the means they utilized to eliminate their competition. They would undercut competitors’ prices temporarily, make clients purchase products they did not want to get the ones they did, force their customers to agree to long term contracts, and buy out competitors. When none of these methods worked they would send out intimidators and use violence as necessary.
Farmers and other small businesses complaining about high costs of transport they had to pay for rail caused enough of a stir for Congress to take action. The public had become tired of the economic power that the big corporations had amassed and with the trusts. Sherman turned out to be a commerce regulation expert. As such he acted as main author for the Sherman Antitrust Act.
This measure proved to be the first such effort by Congress to outlaw trusts and monopolies of all kinds. A few states had passed their own laws, but these only applied to commerce passing within their own borders. This act used Congress’ constitutionally held powers to regulate commerce between states. It found almost no opposition in Congress. Only 1 member voted against it in the Senate and none in the House. President Benjamin Harrison signed it to make it the first such national antitrust law. The act granted the Federal government the authority it needed to dissolve these trusts.
Enforcing the law turned out to be another matter. The Supreme Court ruled against the government on the attempted enforcement of it against The American Sugar Refining Company in 1895. President William McKinley enacted an era of busting up trusts in 1898 by setting up the U.S. Industrial Commission. President Theodore Roosevelt at last managed to build on their report to break up the trusts. Subsequent action led to the breaking up of Standard Oil Company, among the most famous and powerful trusts of all time.
The Sherman act still needed more strengthening, so Congress acted again in 1914. This time they passed the Clayton Antitrust Act. This act laid out specifically illegal actions that monopolies were doing. It made it illegal for competitors to buy each other out without approval. Companies could not arbitrarily charge different prices to their customers. Board members could not sit on multiple companies’ boards of directors. At the same time, Congress established the Federal Trade Commission to look into antitrust law violation and to stop practices that were not fair and competitive.
The Sherman Act most successfully applied to breaking up AT&T in 1984. The government attempted to use it against Microsoft for abusive anticompetitive practices in the late 1990s. A number of observers believe they failed to utilize the victory and sufficiently correct Microsoft.