the dominant ideal in our American economic thinking has been the ideal of the Sherman act. The business pressures against its actual enforcement are great, but support of the principle of the act is so unanimous that no one ever suggests its repeal. Big business, labor, farmers—each economic group wants the Sherman act strictly enforced, against everyone but itself.

In meeting these pressures the Sherman act has shown extraordinary elasticity. It may bend at times, but it always bounces back. Thus it is like a constitutional provision rather than an ordinary statute, and its history tells much about our national attempt to create an economy that will be at the same time both disciplined and free.

How was this ideal born in the first place? The most improbable feature of the Sherman act is that this apparently anti-big business measure was introduced by a senator who was a high-tariff advocate and an extreme conservative, and was passed with only one dissenting vote by a big-business Republican Congress.

The initial pressure for it came from agriculture, which since the Civil War had been reduced to a fairly steady depression. Railroad monopolies were charging farmers all the traffic would bear, and sometimes a little more. Rates were rigged to favor big railroad customers and ruin small ones. As farm income fell, prices that farmers had to pay rose steadily. Monopolies kept them high. If the pressure from the agricultural states was strong, so was the rebellion against other aspects of the dog-cat-dog business ethics of the times. The necessity of some restraint on such practices came at last to be recognized even by business itself.

Big business during the latter half of the nineteenth century had come to regard competition as an unmitigated evil which could be alleviated only by combination. At first the combinations took the form of “pools” or agreements—regional rather than national—to restrain trade, to control prices, to restrict output and divide markets. But businessmen soon learned that agreements between members of an industry were too weak. Only the surrender of business independence by the units could make domination of the market certain.

Pools gave way to trusts, the first of which, established by Standard Oil in 1879, became a model for subsequent business combinations. Each party to the trust surrendered his stock-voting power to trustees, receiving trust certificates in return. Thus the nine trustees of the Standard Oil Trust, without the investment of a dollar, obtained absolute power over the nation’s oil industry. The pattern set by Standard Oil was so widely followed that the name “trust” became a byword for any large industrial combination even after the trust device had been abandoned.

Prior to the Sherman act the federal government had no power to prevent predatory business activities. Therefore, the states themselves began an ineffective attack on the trusts in state courts. In 1887 Louisiana prosecuted the Cotton Oil Trust. In 1889 California prosecuted the Sugar Trust;

in 1890 Nebraska prosecuted the Whiskey Trust. The attorney general of Ohio sought to repeal the charter of the Standard Oil Company of Ohio.

In 1892 the supreme court of Ohio ordered the local oil company to sever its connections with the Standard Oil Trust. The order was never effectively enforced. But these state attacks on it made the device so risky that corporate organizations looked for some other form of combination that could not be prosecuted under state law. New Jersey provided the model, by amending its incorporation statute to permit one corporation to own the stock of another. From then on it was easy.

Corporations A, B, and C would give 51 per cent oftheir stock to holding company X. Holding company X would in turn give 51 per cent of its stock to holding company Y. Thus holding company Y, with only about 25 per cent interest in the operating companies, controlled them completely. Y would transfer enough stock to Z, at which point Z needed only 12½ per cent to control the industry. And so on until fantastic pyramids were built up. No state could attack these pyramids because they were legal in the state of incorporation. Only Congress could interfere with this process.

In July, 1888, John Sherman, senator from Ohio, introduced the resolution that led to the passage of the Sherman act. He had been Secretary of the Treasury under President Hayes and was known as an expert in finance and taxation. He was big business-minded and an ardent advocate of high tariffs. In this important respect, he was opposed to the very interests that were demanding antimonopoly legislation. In the farm belt the tariff was called the mother of monopoly. Sherman could have no part in such radical doctrine. His resolution reconciled that contradiction very neatly. It asked the Finance Committee to report on a bill that would

tend to preserve freedom of trade and production, the natural competition of increasing production, the lowering of prices by such competition, and the full benefit designed by and hitherto conferred by the policy of the government to protect and encourage American industries by levying duties on imported goods.

The Sherman act as it reads today was passed in the Senate 52 yeas to 1 nay, and signed by President Harrison on July 2, 1890. No votes were cast against it in the House.

The act is unexampled in economic legislation. In effect it says: “We want competition in the United States and we will leave it to the federal judiciary to determine, case by case, just what action constitutes a restraint on competition.” That this law could be passed by a conservative Republican Congress whose most influential

leaders were closely associated with big business is remarkable in the extreme. Many writers have argued that the act was a hypocritical piece of legislation, designed as a political sop to the farm belt, and that no one expected it to be of any consequence. For example, Senator Nelson W. Aldrich, who was known as J. P. Morgan’s floor broker in the Senate, voted for it.

Such facts are sometimes cited to support the view that the original passage of the bill was only an attempt to placate western senators in exchange for votes on higher tariffs. But this interpretation has been completely refuted by Hans B. Thorelli in his recent book, The Federal Antitrust Policy, the most complete and objective analysis of the history of American monopoly policy. Thorelli concludes that a majority of congressmen were sincere and that the Sherman act represented for men of both parties the symbol and the image of what they sincerely desired the American economy to become.

By that I do not mean that the Republican supporters of lhe act would have welcomed the breakup of great American combinations into smaller units. At the same time, they would have instinctively rejected the system of domestic and international cartels that had been growing up in Germany and spreading to France from 1870 on, which would surely have become the American pattern if the Sherman act had not been passed.

The Sherman act filled in with the American economic and legal philosophy that was religiously held in 1890 and which is still our dominant philosophy today. In 1890 Americans distrusted any form of governmental regulation. It was the tradition of the American common law that the relation between business and government should be based on some broad common-law principle which would acquire delimit meaning only through a series of court decisions. The Sherman act followed that tradition. Our faith in the common law was such that Congress believed that the courts could give a better and more practical meaning to the principles of the act than Congress could possibly do by further definition or regulation.

The Sherman act was definitely on the shelf during the administrations of Presidents Harrison, Cleveland, and McKinley. Cleveland’s attorney general not only instituted no proceedings but dropped the prosecution of the notorious Cash Register Trust, even though he had won a victory in the lower court. Under Cleveland the principal impact of the Sherman act was against labor in breaking the Pullman strike. McKinley was equally indifferent to the Sherman act. During his four and one-half years only three suits were brought. The first Sherman act decision by the Supreme Court was in the case of United States v. E. C. Knight & Co. It amounted to a virtual repeal of the act. The Supreme Court held that the Sugar Trust, in acquiring a monopoly over sugar manufacturing, affected interstate commerce only indirectly and, therefore, did not violate the act.

As Justice John Marshall Harlan pointed out in his dissent: “While the opinion of the Omit in this case does not declare the Act of 1890 to be unconstitutional, it defeats the main object for which it was passed.” The Knight case thus emasculated the Sherman act. As a result of that decision the government became powerless to prevent the formation of a monopoly through the device of a holding company.

Yet within the short space of eight years, through the daring and ingenuity of Theodore Roosevelt, the Sherman act was transformed again from a meaningless and ineffective formula into a sharp weapon. Theodore Roosevelt was one the few politicians of his time who had seriously studied the antitrust problem. He had his first experience with monopoly power as a New York State assemblyman during the investigation of Jay Gould. He campaigned for re-election on the antimonopoly issue in 1882. In 1899, as governor, he wrote: “I have been in a great quandary over trusts. I do not know what attitude to take. I do not intend to play a demagogue. On the other hand, I do intend, so far as in me lies, to see that the rich man is held to the same accountability as the poor man, and when the rich man is rich enough to buy unscrupulous advise from very able lawyer, this is not always easy.”(Italics added.)

It was the empire-building ambition of J. P. Morgan that gave Theodore Roosevelt his chance. During the last year of the McKinley Administration the Northern Securities Company had been formed as a compromise between E. H. Harriman and Morgan in their fight to control the Northern Pacific Railroad. The holding company device was used to combine under one man agement two of the nation’s largest competing rail roads, the Northern Pacific and the Great Northern. Had the scheme succeeded, it could have led to the domination of all American railroads by this group. It could have created a pattern for the cartelization of all American industry.

Roosevelt, as one of the first acts of his Administration, determined to attack this respected citadel of corporate power. This enterprise was very different from that of using the act to attack mere dishonesty in business, and Roosevelt must have realized that the legal odds were very much against him. A careful lawyer would have advised him that the Knight case exempted J. P. Morgan’s ambitious plans. The decision in the Knight case stood for the principle that the acquisition of monopoly control was immune from attack because, though it affected prices “indirectly,” it was not a conspiracy to fix them “directly.”

The issue as Roosevelt saw it went far beyond the merger of the two railroads involved in Northern Securities. The issue was nothing less than effective national sovereignty. The federal government had been relegated to such minor roles as distributing the mail and collecting tariff duties. Big business was the real sovereign

in infinitely more important areas. In the Northern Securities case, Theodore Roosevelt was to obtain for the federal government a magna carta limiting the power of the business princes.

Roosevelt gambled that the Supreme Court, with new faces in it since the Knight case, would repudiate or at least alter that decision. He directed Attorney General Philander C. Knox to draw up a case against the Northern Securities Company. It was to be a head-on attack on the philosophy of the Knight case decision. Fully aware of the tremendous pressures that would be exerted against him, he directed Knox to prepare the prosecution in complete secrecy. Not even his close friend and adviser, Elihu Root, the Secretary of War, was told.

When Knox finally released to the press his intention to prosecute Northern Securities, there was consternation and panic in the financial world. Root, a Wall Street lawyer, was dismayed and resentful. Morgan and his like-minded friend, Senator Chauncey Depew of New York, descended upon the White House like the emissaries of some independent sovereignty whose rights were being invaded. But by that time the prosecution was a fait accompli.

The Court was bitterly divided, five to four. The majority held that the Sherman act was intended to prevent giant combinations formed under any device and that such exercise of congressional power over industry was not unconstitutional.

Holmes, who wrote one of the two principal dissents, made the statement, believed by many at that time, that the Sherman act was not intended to prevent combinations in restraint of trade. He said: “It was the ferocious extreme of competition with others, not the cessation of competition among the partners, that was the evil feared.”

Justice Holmes had faith in the benevolence and efficiency of the rich. He believed that the Constitution should protect them in their efforts to create industrial empires. But the ideal of a dynamic competitive economy and government-maintained freedom of industrial opportunity, I believe, was beyond him. He would have sincerely approved of the system of domestic and international cartels that dominated industry and caused it to stagnate in Europe before World War II.

Roosevelt, though a rich man himself, was one of the few men of his time to realize the destiny of America as a land of economic freedom. He had the ability

to infuse the public with his point of view. Senator Sherman initiated the antitrust act, but it was Teddy Roosevelt who gave it vigor and meaning, made the policy of the Sherman act an economic religion and its violation an economic sin, and, finally, made it emotionally impossible for American business to co-operate in the European cartel system.

To appraise the effect of the Sherman act on American business institutions correctly we must view it apart from particular prosecutions, or particular periods of enforcement or nonenforcement. Theodore Roosevelt’s achievement was to enshrine the ideal of the act as part of our national folklore. And its influence has continued in a far more potent way than perhaps any other statute on the books. The image of the Sherman act has not prevented tremendous concentrations of economic power, but it has prevented such concentrations from obtaining legitimate status.

Only once since its passage has the principle of the act been repudiated. That was in production codes of the National Recovery Administration during Franklin D. Roosevelt’s New Deal. They were designed to raise prices and restrict production, after the European model. The theory was that this would protect investments and rescue business from insolvency.

But the competitive tradition represented by the Sherman act was too strong for the NRA. The Sherman act over the years, even when it was unenforced, had built up an abiding faith that the elimination of competition in business was morally and economically wrong. Then the Supreme Court threw out the NRA, and Franklin Roosevelt turned back to the antitrust laws as a major instrument of economic policy, and placed me in charge of their enforcement.

When I took office, years of disuse of the Sherman act, culminating in its repudiation by NRA, had made violation of the antitrust laws common, almost respectable. I will never forget the amazement of the Wisconsin Alumni Research Foundation, an organization whose profits were used to support the University of Wisconsin, when the Justice Department charged it with using a vitamin patent to raise prices and restrict manufacture of important food products. It never occurred to the high-minded management of this foundation that it was doing anything wrong. The indictment was considered an attack on education itself.

I believed that my principal function was to convince American businessmen that the Sherman act represented something more than a pious platitude; second, that its enforcement was an important economic policy. But there was very little support among economists for the latter notion.

As indictments of respectable people began to pour out from the Justice Department in unprecedented numbers, cries of outrage could be heard from coast to coast. I will never forget the pain and astonishment caused when criminal charges were brought against the American Medical Association, which had established a pretty effective boycott on all forms of group health plans. I was pictured as a wild man whose sanity was in considerable doubt. One major newspaper referred

to me as “an idiot in a powder mill.” Letters of protest poured into the White House. Adverse publicity reached its peak when the Associated Press was charged with violation of the Sherman act for refusing to sell its news service to any new newspaper that would be competing with one of its member publications. Editorials appeared from coast to coast accusing the department of destroying freedom of the press.

It is difficult now to appraise the economic effect of the revival of the Sherman act at that time. Opinions differ, and my own is, of course, biased. But this at least can be said: American business learned that the Sherman act was something more than a false front to our business structure. The public gained an idea of the purpose of the act, the act itself gained renewed vitality, and American business approved this revival.

There are two principal evils of concentrated economic power in a democracy. The first is the power of concentrated industry to charge administered prices rather than prices based on competitive demand. A second is the tendency of such empires to swallow up local businesses and drain away local capital. Prior to the Depression this condition had advanced so far that our concentrated industrial groups had helped destroy their own markets by siphoning off the dollars that could have been a source of local purchasing power. It is idle to say that periodic enforcement of the antitrust laws has solved these problems, but the laws themselves have given us as an image of what our economy should be. In the cartel economy no one could question the legitimacy of the recent rises in steel—or any other—prices. In an antitrust-minded economy it seems a legitimate and natural thing for a congressional committee to call the companies to account.

Some indication of what American industry might have become without the curb of the Sherman act is to be found in the Senate hearings on labor so widely publicized this past year. It had been my belief when I took office that labor unions, like any other organizations in business, were subject to antitrust laws when the large ones tried to swallow up the smaller ones by using the predatory practices of the old-fashioned trust.

A liberal majority on the Supreme Court of the United States refused to accept my argument that labor coercion (i.e., collective bargaining) should be limited to legitimate labor objectives. They gave the unions a broad and sweeping exemption from any application of the Sherman act, whatever they did, unless they combined with their employers. They permitted

one union, by strike or boycott, to destroy another. Thus the Teamster with their control over transportation became the fastest growing labor union in the world. The only way employers could survive was to buy them off. The brigandry of the 1880’s was repeated, but now by unions in control of bottlenecks in transportations and building. The unhappy spectacle that is presented to the American public today is a direct result of the Court’s decision.

No doubt the liberal majority that bestowed the exemption felt, as Holmes felt about business in the Northern Securities case, that labor leadership if not curbed by the Sherman act would nevertheless be benevolent. But what has actually happened in the labor movement is the picture of what would have happened in American industry had Teddy Roosevelt lost his fight in the Northern Securities case fifty-six years ago.