Trust Regulation to-Day



FOR nearly twenty years it has been a crime against the United States to make a contract which shall in any degree restrain trade among the several states. For nearly thirteen years the interpretation of this statute by the courts has tended to show that twothirds of the business of the country is being carried on in defiance of law, and that a strict enforcement of the law would prohibit the normal growth of large commercial enterprise.

The purpose of the Sherman AntiTrust Act was the prevention of monopoly; and one clause of the act effectively accomplished this. The defect of the act has been its sweeping denunciation of “ every contract, combination in the form of trust or otherwise . . . in restraint of trade . . . among the several states, or with foreign nations. . . .”

This defect escaped notice when the bill was under discussion in Congress. Senator Edmunds and Senator Hoar, who together had most to do with the framing of the bill, were both of the opinion that this form of language merely described such contracts and combinations as were made for the express purpose of preventing competition and thereby controlling prices and unduly enhancing profits.

For seven years, this construction of the act was generally accepted. In 1897, however, the Supreme Court of the United States, in the case of United States vs. Trans-Missouri Freight Association, adopted a literal construction of the broad prohibition of the act. No doubt the court expected that its clear exposition of the significance of the act would induce an amendment of the law.

The reasons why the act has not yet been amended are involved with the most important political and financial developments of the past thirteen years.


The Harrison administration, which was the first to execute the Sherman Anti-Trust Act, began seven proceedings — four to dissolve combinations, and three to punish combinations with criminal penalties. The three criminal actions were all unsuccessful. Minor successes were achieved in the dissolution proceedings, but the more important suits were still pending when the Harrison administration expired.

Until 1897, the act had proved efficacious in only two directions: the dissolution of several oppressive trade agreements, and — “ strikingly illustrating the perversion of a law from the real purpose of its authors,” to quote Attorney-General Olney’s sardonic comment — the punishment of various lawless combinations of laborers and railroad employees. In remarkable prophecy of his subsequent career, William H. Taft, then a federal circuit judge in Ohio, interpreted and applied the law in the two most conspicuous cases of this description. In the Freight Association case, finally, the Supreme Court showed that the statute contained real terrors.

The immediate result of this decision was a rush to consolidation in every branch of industry. If contracts, associations, and loose combinations restraining trade in the slightest degree, be illegal, — the corporation lawyers reasoned, — then contracts, associations, and loose combinations should be discarded for consolidations under single ownership in “ holding corporations.” Gigantic “ holding corporations,” designed to concentrate in single control power which previously had been diffused among large groups of concerns, were formed on every hand. Before 1897, there existed scarcely sixty concerns that were dominant in their respective trades. During the next three years, one hundred and eighty-three such corporations were organized, — seventy-nine in the year 1899 alone, — with a total capitalization of over four billion dollars. These enormous combinations comprised oneseventh of the manufacturing industry of the United States, one-twentieth of the total wealth of the nation, nearly twice the amount of money in circulation in the country, and more than four times the capitalization of all the manufacturing consolidations organized between 1860 and 1893.

Throughout this period there was little desire on the part of the administration or the community to prevent this rush toward consolidation. The defeat of free silver and the election of McKinley in 1896 had diffused a sense of relief, which expressed itself in a resolute effort to hasten business prosperity. The forces that assisted McKinley to the presidency and directed his policy during his first administration were not favorable to any statute that stood as an obstacle to the most conspicuous economic movement of the generation. For the first time since the enactment of the Sherman Anti-Trust Act, the administration in power was relieved from the clamor of discontent which had forced the passage of the act and had compelled repressive measures against various forms of aggregated capital. The Spanish War and the subsequent occupation of the Philippines, Porto Rico, and Cuba, diverted still further the attention of the community from thoughts of controlling industrial development. Had the corporation managers realized at that time that the Sherman Anti-Trust Act really forbade every combination in restraint of trade between the states, — whether in the form of a loose association, as in the Trans-Missouri Freight Association, or in the form of “ holding corporations,” such as they were busily organizing, — the act would certainly have been repealed, or at least amended; and this could doubtless have then been accomplished with as little commotion as the final establishment of the gold standard; but while the “ holding corporation ” held out safe refuge from the Sherman Anti-Trust Act, the repeal or amendment of the act seemed unnecessary. The McKinley administration closed with a record of only three inconspicuous prosecutions under the act.

By 1902, however, commercial forces were fast losing political dominance. The advent in 1901 of an accidental president, who owed nothing to the influences that had controlled the government since 1897, brought into power an administration less trammeled by practical considerations, and more responsive to moral and sentimental impulses, than any previous administration. These impulses, while still unexpressed, were, nevertheless, close to the surface of events. An acrimonious opposition to McKinley’s policy of territorial expansion, while unsuccessful in its avowed purpose, had sown grave doubts respecting the justice of trade aggression and the perfection of economic success. The reaction from the commercial prosperity immediately following the Spanish War had disproved the claim that combinations could make business depression impossible. A decline in the securities of certain ill-advised mergers, which quickened in 1903 into a brief panic, had discredited the idea that combination was a universal solvent. Finally, the strain of increasing prices and living expenses upon families sustained by wages, salaries, and fixed incomes — a strain incident to every period of prolonged prosperity — had induced discontent in the most thoughtful portion of the community. While popular attention was still focused upon vast industrial consolidations, upon the vicissitudes of their securities in the market, and the effect of their operation on their competitors, their consumers, and the public generally, it was but natural that an alert president, should turn in that direction the impulses which he felt stirring vaguely about him.

By 1903, proceedings against the Northern Securities Company had been begun; various bills to increase the penalties and enlarge the scope of the Sherman Anti-Trust Act had been introduced and favorably considered by the judiciary committees of both branches of Congress; and five hundred thousand dollars had been appropriated, to be expended by the Attorney-General of the United States in prosecutions under the Sherman Anti-Trust Act and the Interstate Commerce Act. In 1904, the Supreme Court of the United States decided that the Northern Securities Company was in violation of the Sherman AntiTrust Act, and declared illegal all combinations in restraint of trade effected through the device of “ holding corporations.”

This decision, which had been vaguely foreshadowed in the Freight Association case, produced widespread consternation. Its effect, to borrow a phrase of Edmund Burke, was to indict the whole American people. It outlawed almost every industrial concern of first importance. To falter in the enforcement of the act would condone crime and foster the most insidious lawlessness. The administration made haste to assure the business community, through the press, that it would not “ run amuck,” but would merely enforce the law against “bad” trusts. The misfortune of the business community lay in the fact that the criterion of “ good ” and “ bad ” trusts lay not in the statute but in the mind of the administration, and that the administration might determine, without the formality of a trial, that the object of its disfavor was a “ bad ” trust, and might boldly attack any trust in the public prints or in the courts, in the confident assurance that, whether it was a “ bad ” trust or a “ good ” trust, it was guilty before the law.

In 1905, the government procured an injunction restraining Swift & Company and several other large meatpackers from combining, and began similar proceedings against combinations of paper-manufacturers, grocers, beef-packers, transportation companies, and lumber-dealers, widely scattered throughout the United States, from Alaska to Florida and from Hawaii to Missouri.

During the following year, proceedings were begun to dissolve three of the largest railroad systems of the country. Before its close in 1909, the administration had started thirty-seven proceedings under the Sherman Anti-Trust Act.

Court-dockets, however, are inadequate to portray the fury of this anti-trust crusade. Newspapers and magazine writers fed the popular imagination with sensational stories of industrial leaders and business enterprises. The chief burden of the President’s political utterances was the subject of trusts. A decision unfavorable to the government made by a federal judge was denounced by the President, in a special message to Congress, as “ measurably near making the law a farce.” A well-known corporation, in advance of trial and even of indictment, was denounced by the President, in a special message to Congress, as having “ benefited enormously, up almost to the present time, by secret rates, many of these rates being clearly unlawful.” After a subsidiary company of this corporation had been tried on account of these rates, while public attention was still fastened upon this trial, and before the court had rendered its decision, the administration published another report accusing this corporation of “ crippling existing rivals, and preventing the rise of new ones, by vexatious and offensive attacks upon them, and by securing for itself most unfair and wide-reaching discriminations in transportation facilities and rates.” Having found that the unpopular corporation owned stock in the defendant company, the trial judge, voicing the popular clamor, declared that the unpopular corporation was the real defendant, and fined the defendant $29,240,000. Two days after the fine was announced, the administration published another report, declaring that the unpopular corporation had used “ power unfairly gained to oppress the public through highly extortionate prices.” Several days later, after the president of the defendant company had ventured to express his belief that his company was really not guilty of the offense for which it was so roundly fined, the administration published still another report devoted entirely to a defense of the fine. Several months later the President, in a special message to Congress, transmitted a collection of newspaper-clippings commenting unfavorably upon the fine, and denounced the authors as “ writers and speakers who, consciously or unconsciously, act as the representatives of predatory wealth — of wealth accumulated on a giant scale by all forms of inequity, ranging from the oppression of wage-workers to unfair and unwholesome methods of crushing out competition, and to defrauding the public by stock-jobbing and the manipulation of securities.” When the appellate court subsequently set aside this enormous fine, and rebuked the trial court for its abuse of discretion, the President promptly announced: “ The reversal of the decision of the lower court does not in any shape or way touch the merits of the case, excepting in so far as the size of the fine is concerned. There is absolutely no question of the guilt of the defendant or of the exceptionally grave character of the offense.” The United States Circuit Court of Appeals, however, persisted in the contrary opinion, and denied a reargument of the appeal; and the United States Supreme Court, in declining to hear the appeal, apparently shared the same belief.

State legislatures, meanwhile, rivaled one another in harassing large corporations. In 1903, Texas passed laws relieving persons buying goods from a trust from liability to pay the purchase price, and requiring every corporation that owned or leased the patent on a machine to offer such machines for sale, instead of reserving them for exclusive use. In 1905, Arkansas not only relieved persons purchasing goods from a trust from liability to pay therefor, but also authorized such persons to recover from the trust any money or value which they had paid on account of the purchase price of such goods. Arkansas also enacted that, in the prosecution of any trust, the prosecuting attorney might compel any non-resident officer to appear with his books and papers within six days and the necessary time required to travel; and in the event of his failure to appear, judgment on default might be rendered against the trust. In many states, laws were passed forbidding the sale of goods at prices above or below the “cost of production ” or the “ normal price.”


In the midst of this widespread crusade against large corporations, the administration, which had roused the country to the fray, sounded the first, warning note.

In his annual message to Congress in 1906, President Roosevelt discussed the working of the Sherman AntiTrust Act as follows: —

“ The actual working of our laws has shown that the effort to prohibit all combination, good or bad, is noxious where it is not ineffective. Combination of capital, like combination of labor, is a necessary element in our present industrial system. It is not possible completely to prevent it; and if it were possible, such complete prevention would do damage to the body politic. What we need is not vainly to try to prevent all combination, but to secure such rigorous and adequate control and supervision of the combinations as to prevent their injuring the public, or existing in such forms as inevitably to threaten injury. ... It is unfortunate that our present laws should forbid all combinations, instead of sharply discriminating between those combinations which do good and those combinations which do evil. . . .

“ It is a public evil to have on the statute-books a law incapable of full enforcement, because both judges and juries realize that its full enforcement would destroy the business of the country; for the result is to make decent men violators of the law against their will, and to put a premium on the behavior of the willful wrongdoers. Such a result in turn tends to throw the decent man and the willful wrongdoer into close association, and in the end to drag down the former to the latter’s level; for the man who becomes a lawbreaker in one way unhappily tends to lose all respect for law and to be willing to break it in many ways. No more scathing condemnation could be visited upon a law than is contained in the words of the Interstate Commerce Commission when, in commenting upon the fact that the numerous joint-traffic associations do technically violate the law, they say: ‘ The decision of the United States Supreme Court in the Trans-Missouri case and the Joint-Traffic Association case has produced no practical effect upon the railway operations of the country. Such associations, in fact, exist now as they did before these decisions, and with the same general effect. In justice to all parties we ought probably to add that it is difficult to see how our interstate railways could be operated with due regard to the interest of the shipper and the railway without, concerted action of the kind afforded through these associations. ’ This means that the law, as construed by the Supreme Court, is such that the business of the country cannot be conducted without breaking it.”

This intolerable condition of affairs, in which a highly penal statute was daily violated by the normal transactions of business, and business men enjoyed liberty only as the executive power indulged them in the open breach of law, was never better illustrated than in the throes of the panic of 1907. Judge Elbert H. Gary and Mr. Henry C. Frick, representing the United States Steel Corporation, desired to take over the holdings of a group of speculators in the securities of the Tennessee Coal & Iron Company, and accordingly hastened to Washington to obtain a dispensation of the Sherman Anti-Trust Act for that purpose. The administration, acting under the belief that it was saving the stability of a great financial institution, without further inquiry promptly promised amnesty, and thereby sealed with its approval the combination of the United States Steel Corporation and its great competitor.

In 1908, at the suggestion of President Roosevelt, Judge Gary, Mr. Francis Lynde Stetson, chief counsel for the United States Steel Corporation, and Mr. Victor Morawetz, prepared for the National Civic Federation a bill to amend the Sherman Anti-Trust Act. This bill was introduced into Congress by Representative Hepburn. The act of 1890 had left it to the courts to define what combinations were guilty of crime. The bill proposed in 1908 left it to the Bureau of Corporations to define what combinations were guilty of crime. The original mischief of the act in outlawing organized capital and organized labor was sought to be tempered by a system of special immunity. The dispensation of this immunity, it was suggested, should not be intrusted to the courts, nor even to that branch of the government concerned in the administration of justice, but rather to a bureau in the Department of Commerce and Labor. Under such a statute, every business man making a contract relating to interstate commerce — and such contracts are made by scores and hundreds every day in every large business — and desiring to make sure of escaping the penalties of the law, would have had to file a copy of the contract with a government bureau, and thereafter wait patiently for sixty days before completing or executing the contract.

Fortunately, a kindly Providence overcame this bill. In the House, it died in committee. In the Senate, the Judiciary Committee returned a ringing adverse report, in which the bill was denounced as “a course of procedure that would not be tolerated in any court in our country,” a resurrection of the hated dispensing power which led to the fall of the Stuarts and the English Revolution of 1688, and a violation of the Bill of Rights and of the fundamental principles of free government.


The purpose of the Sherman AntiTrust Act was to further free competition. The defect of the act consists in its sweeping prohibitions, which nullify this purpose by preventing certain of the most normal agencies of competition.

Competition, the law says, increases trade; and to acquire a portion of trade every one may use competition. The word itself means strife — struggles with others —warfare for the same thing — “endeavoring to gain what another is striving to gain at the same time.” The strife is always to own exclusively the thing sought, and to own it to the exclusion of everybody else. If it is the intangible thing called trade, each competitor strives for the whole, and the law does not limit the reward of any. The reason is that trade is not stationary but absolutely changing, shifting with the numbers and movements and wants of customers. So changeful, indeed, is trade, that it is axiomatic that monopoly is not dangerous so long as competition is free.

Freedom of competition presumes the freest possible choice of competitive methods short of the use of force, fraud, or similar unlawful means. Such conceptions as undue competition, or unreasonable competition, or any other limitations upon free competition, short of unlawful means, have no place in the business economy. They raise artificial barriers in the strife “ to gain what another is striving to gain at the same time,” behind which lurks every form of monopoly. No one can determine what is undue competition or unreasonable competition. In attempting such a determination, each judge and each juryman would have his own standard. Under such imaginary standards, no trader could regulate his own competition or anticipate the competition of his competitor.

The law protects the winner in the ownership of the prize which he gains by competition. Unless this were so, competition would fail; for no one would endure the strife ofcompetition without the assurance that he would have the prize that he wins. No matter how great the prize, the winner must own it, subject only to the chance of losing it through the same rigor of competition by which he won it. The same rule holds, when the subject of the competition is trade. The legitimate growth and lawful extension of the business of the successful trader is protected by law.

Large business — the reward of success in competition, which the law eagerly protects in the successful competitor — presumes the disappointment of unsuccessful competitors. Essentially, it is the subjugation of competition and the victorious appropriation of the prize, the removal of it from the arena of competition, and the exclusive enjoyment of it under the protection of law. “ According to popular speech,” said Mr. Justice Holmes in the Northern Securities case, “ every concern monopolizes whatever business it does, and if that business is trade between two states, it monopolizes a part of the trade among the states. Of course, the statute does not forbid that. It does not mean that all business must cease.” As one of the judges forcibly expressed it in his opinion in the “ Tobacco Trust ” case: “ It has never been held that the mere fact that a business is large and is extended over a wide territory renders its promoters amenable to the statute. Success is not a crime.”

In this apparent antinomy of large business and competition lies most of the misapprehension of the subject.

Large business is not really the bane of competition, any more than the bestowal of the prize at the close of the game is the death of the sport. The trophy must be defended next season, or be forfeited to the field; and the greater the value of the trophy, the keener will be the rivalry to regain it from the holder. Large business must be defended, not next season, but every moment. Its magnitude merely proves the worth of the prize, and stimulates keener competition. So long as the lists are kept, open to entrants, and the freest, play is allowed within the rules of the game, none but good can result from the enhancement of the prize.

Large business, and the temporary triumph over competition which it implies, is the crown of competition. The exclusive enjoyment which the successful competitor for the moment seizes is monopoly only in the Pickwickian sense that the fleeting ownership of the trophy-winner is monopoly. Even though the skill of the successful competitor lengthen the span of enjoyment, it is at the cost of defending his prize, and not in any true sense through monopoly.

The defect of the Sherman AntiTrust Act has been that it has sought to stimulate competition by punishing the normal forms of large business which naturally develop out of competition. In the fatuous belief that the success of the winner was a discouragement to sport, it has sought to encourage the field by penalizing the winner. The Sherman Anti-Trust Act should prohibit only those combinations which, by unlawful means, repress concerns desirous of entering the market. The act should not punish combinations which, by adaptations of normal competitive methods, have fairly and justly excelled their rivals in competition. The prohibition should apply, not to the form which the combination may assume, nor yet to the power which its efficiency may develop; but should only forbid the use of unlawful means to attain such form, or to increase such power.

The monopolist seeks to suppress competition, and thereby to control prices. The legitimate competitor, however, seeks to extend his trade, and thereby to maintain his prices throughout the trade. Each seeks ultimately to affect prices. The monopolist, however, seeks to accomplish his purpose through preventing, by unlawful means, other concerns from entering the trade in competition with him; while the legitimate competitor seeks to accomplish his purpose by excelling his rivals in competition. Coercion, force, and fraud are the means by which the monopolist endeavors to accomplish his purpose. “ Destroying or restricting free competition,” “ smothering competition,” “ extinguishing competition,” “ stifling competition,” “ eliminating competition,” “ preventing competition,” “ annihilating competition,” and “ suppression of competition,” are a few of the phrases which the courts have used to describe the operation of these unlawful monopolistic methods. None of these are methods evolved out of normal competition. Each of them is as truly anarchistic in the realm of business as “ fouling ” is in the field of sport. Each of them, unless specifically forbidden and punished, must, tend to destroy the fundamental conditions of healthy rivalry. Each of them is sometimes resorted to by the obscure and unsuccessful competitor, as well as by his conspicuous and successful rival. In sport, the harm from the foul play by which an obscure contestant may seek to overcome his fellows and push himself into prominence, is just as despicable as the foul play, by which a prominent contestant may seek to maintain his position. The rules very properly forbid foul play, without regard to the position or attainments of the contestants. In business the same doctrine should obtain. The prohibition should apply specifically to the unlawful practice. Whether the contract, combination, or trust exerts any dominance or “ restraint,” great or small, upon commerce should be entirely immaterial.

“ Coercion,” “ force,” and ” fraud ” are well-established terms in law. They are capable of definition and application by courts and juries to varying states of fact. They are sufficiently definite to serve in penal statutes. Together, they include practically every offense against legitimate competition. “ Destroying or restricting free competition,” and the other phrases above quoted, are of more recent usage. In common speech, and as used by the courts, they include practically every phase of coercion, force, and fraud, as applied to competition. In a statute defining a violation of law and providing only the remedy of injunction, — the most effective remedy against unlawful combinations, as already has appeared,—these phrases would, it is believed, be sufficiently definite and inclusive to define every real offense against competition. Indeed, it may well be contended that these phrases are sufficiently definite to serve in a statute providing for a criminal penalty.

Much of the anti-trust legislation of the various states, and many of the remedies recently proposed, are a misapplication to private businesses of regulations which are properly applicable only to public-service businesses. This was the defect of the Hepburn Bill proposed in 1908, and is the defect of the numerous state anti-trust laws that forbid the sale of goods at prices above or below the ordinary cost of production. The duty to serve everybody, without discrimination,at a reasonable price that may be regulated and determined by the state, is properly enforceable upon railroads, lighting and watering companies, and other corporations which perform a public service, and in most cases enjoy exclusive powers from the state. This duty arises from the fact that the business of such companies is naturally and unavoidably a monopoly, in which competition does not exist, and, in fact, should be discouraged. The duty and purposes of such companies are best fulfilled under state regulation. In the great majority of businesses, however, no public service is performed or professed, and no exclusive powers are obtained from the state. In these businesses, competition naturally exists, and should be encouraged in order to maintain a healthy condition. Remedial legislation regarding such businesses should seek to assure freedom of competition. Interference with prices and with the organization of such businesses misses the real evil, and only creates artificial barriers behind which lurk dangerous forms of privilege.

If the Sherman Anti-Trust Act were amended, so as merely to forbid contracts and combinations made for the purpose of stifling competition, or of committing any of the practices defined in one or more simple phrases above quoted, well-nigh every improper method of competition would be made illegal and every healthy agency of free competition would be relieved from its present embarrassments.

[The decision by the United States Circuit Court in the Standard Oil case, which is announced as these pages go to press, seems merely to confirm Mr. Montague’s argument.—THE EDITORS.]