329. ABUSE OF POWER BY THE TRUSTS.—Trusts have often abused their monopolistic powers. They have often used their wealth to corrupt legislatures and to attempt to influence even the courts, in the effort to prevent laws and court decisions from restricting their monopoly. The corruption of railway corporations and of political parties has been partly due to the evil influence of the trusts. Trusts have often crushed out independent concerns that endeavored to compete with them. This has been accomplished, partly by inducing railroads to discriminate against independent concerns and in favor of the trusts, partly by cutting prices in competitive markets until independent concerns were crushed out, and partly by the use of bribes, threats, and other unfair methods. After competition had been suppressed, the trusts took advantage of their monopoly to raise prices on their products, thus imposing a heavy burden upon the public.
330. THE SHERMAN ANTI-TRUST ACT. (1890.)—During the eighties a number of states attempted to control the trust movement. But the Federal government has exclusive jurisdiction over interstate business, and for this reason the action of the states was limited to the control of the relatively unimportant trust business lying entirely within their respective borders. The fact that an increasing proportion of trust business was interstate in character stimulated interest in Federal anti-trust legislation, and in 1890 the Sherman Anti-trust Act was passed. This Act declared illegal "every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations."
331. FAILURE OF THE SHERMAN ACT.—For more than twenty years after its passage, the Sherman Act did little to curb the growth of the trusts, indeed, the most marked tendency toward trust formation occurred after 1890. Numerous suits were brought under the Act, but the lukewarm attitude of the courts rendered difficult the administration of the law. After 1911 the courts held that the restraint of trade was illegal if "unreasonable," but few juries could be found that could agree upon the difference between a "reasonable" and an "unreasonable" restraint of trade. Lastly, combinations which had been organized under the original trust plan were not disheartened by court decrees ordering them to dissolve, but reorganized under some device which was practically as effective as the trust plan, but which did not technically violate the Sherman act.
332. FURTHER LEGISLATION IN 1914.—Finally in 1911 the government succeeded in dissolving the Standard Oil Company and the American Tobacco Company, two of the largest trusts in the country. This success encouraged the Department of Justice to institute other suits, and stimulated such general interest in the trust problem that in 1914 Congress passed two new Anti-trust Acts. These were the Clayton Act and the Federal Trade Commission Act. The general effect of these laws was to strengthen anti-trust legislation by correcting some of the fundamental defects of the Sherman Act, and by still further extending the power of the Federal government over monopolistic combinations.
333. The Clayton Act of 1914.—The Clayton Act forbids "unjustifiable discriminations in the prices charged to different persons," and also prohibits the lease or sale of goods made with the understanding that the lessee or purchaser shall not patronize competing concerns. The Act specifies a number of other practices which constitute unreasonable restraints of trade. Somewhat complicated limitations are imposed upon interlocking directorates, by which is meant the practice of individuals being on the board of directors of different corporations. [FOOTNOTE: The danger of the interlocking directorate, of course, is that individuals who are directors in two or more corporations may attempt to suppress competition between those corporations. This may lead to monopoly.] The Act likewise forbids the acquisition by one corporation of stock in another corporation when the effect may be "to substantially lessen competition" between such corporations, or "to tend to create a monopoly."
334. THE FEDERAL TRADE COMMISSION ACT OF 1914.—The second of the two Acts of 1914 created a Federal Trade Commission of five members, appointed by the President. The Commission has the power to require annual or special reports from interstate corporations in such form and relating to such matters as it may prescribe. At the request of the Attorney General, the Commission must investigate and report upon any corporation alleged to be violating the anti-trust laws. The most important power of the Commission is undoubtedly that of issuing orders restraining the use of "unfair methods of competition in commerce." This clause aims at prevention rather than at punishment, and if its power is wisely used it will check monopoly in the early stages. Most authorities claim that in this regard the work of the Commission has already proved definitely helpful.
335. THE OUTLOOK.—Since 1911, and especially since the passage of the two Acts of 1914, the trust situation has materially improved. The vague and wholly inadequate powers of the old Sherman Act have been clarified and supplemented by the more specific provisions of the Clayton and Federal Trade Commission Acts. Fairly adequate machinery for the investigation and prosecution of trusts is now provided. The present laws cover not only combinations making use of the old trust device, but also combinations employing other methods of exercising monopoly control. The Federal Trade Commission Act provides for publicity, so that public opinion may have a chance to enforce the principle of fair play and open competition in business. The trust problem in the United States is not yet solved, but the careful control which we are now exercising over this type of organization justifies the belief that the trust evil will become less important as time goes on.
336. THE TRUST PROBLEM OF THE FUTURE. In connection with the matter of making anti-trust legislation more effective, a new and pressing problem is arising. This has to do with the necessity of distinguishing, first, between the legitimate and the illegitimate practices of trusts [Footnote: Large-scale combination or management allows important economies to be practiced. Plant can be used more advantageously, supervision is less costly, supplies can be purchased in large quantities and hence more cheaply, etc. The securing of these economies constitutes a legitimate feature of large-scale combination or management.]; and second, between combinations which are monopolistic and combinations in which there is no element of monopoly.
We are coming to realize a fact which in Europe has long been a matter of common knowledge, namely, that trusts are never wholly and unqualifiedly bad. The law should not aim to destroy trusts, but rather should attempt so to regulate their activities that their economical features will be preserved while their harmful practices will be suppressed. Laws should also recognize the fact that many large-scale combinations have in them no element of monopoly, and that such combinations should be exempted from anti-trust prosecution. In drawing up anti-trust legislation, prohibitions and restrictions should be as concise and as definite as possible, both in order to facilitate the execution of the law, and in order to prevent hardships being worked upon combinations which have consistently observed the rules of fair play in competitive business.