In the United States itself, however,—that is, in the federal courts—there is no common law; everything must be fixed and regulated by statute. What the Sherman Act did was to make this common law on the subjects of restraints and monopolies the statute law of the United States. Under the common law of practically every State, monopolies and restraining combinations were illegal; Congress made these illegal when they involved inter-State trade. Under the common law boycotts were illegal also; Congress made illegal the inter-State boycott. Congressional action on this subject was demanded, because the larger number of these unlawful combinations could be reached only by federal action, inasmuch as they usually involved more than one State.
Under the rulings of the Supreme Court, combinations and conspiracies which restrain trade and develop monopolies are those which, broadly speaking, deprive the public of the benefits of free competition. This act recognizes the competitive system as the one industrial ideal, and outlaws anything that interferes with a free, unobstructed flow of trade. A trust that gets control of the larger part of a particular product and manipulates the output so as to prevent trade from flowing in its natural course—that is an illegal restraint. Labor unions that combine to divert artificially this same course of trade—as they unquestionably do when they persuade the public not to have business relations with particular persons or corporations against which they have declared a boycott—also engage in an illegal restraint. The Sherman Law aims only to protect the public against these unnatural influences; to restore business to normal conditions. With corporations, the final test as to whether they restrain trade or not is whether their effect is to increase prices. If they do not increase prices, then they do not restrain trade and consequently do not violate the Sherman Act. The Supreme Court has insisted upon one important modification of this principle. The effect upon prices must be immediate and not remote. An arbitrary agreement that definitely fixes the prices of a product is clearly illegal; an agreement which, in the last analysis, might tend to influence prices, would not necessarily be so.
SETH LOW, EX-MAYOR OF NEW YORK, WHO, AS PRESIDENT OF THE NATIONAL CIVIC FEDERATION, ADVOCATES THE AMENDMENT OF THE SHERMAN LAW
Railroads Stopped from Making Rate Agreements
In the first ten years after the passing of the Sherman Act, the government attacked most successfully, not the great solidified aggregations of capital popularly known as trusts, but the more or less loosely organized federations of corporations, formed chiefly for the purpose of regulating and establishing prices. Trade agreements, not monopolistic corporations, became its chief quarry. In proscribing these agreements as illegal, the Sherman Act was found to be extremely effective. The very first case under this law was directed against a combination of coal-mining companies in Kentucky and Tennessee, which existed for the express purpose of regulating output and fixing prices. The courts promptly decided that this agreement violated the Sherman Act. In 1892 eighteen railroads, nearly all operating west of the Missouri River, organized what they called the Trans-Missouri Freight Association. This association included many of the great Western roads, companies of the magnitude of the Santa Fé, the Missouri Pacific, and the Rock Island. Its object, as clearly stated in the articles of association, was "mutual protection by establishing and maintaining reasonable rates, rules, and regulations, in all freight traffic, both through and local." In other words, it proposed to fix arbitrarily the price of transportation throughout the enormous territory covered by the eighteen railroads in question. The old "pooling" agreements, which had existed for many years, had been prohibited by the Interstate Commerce Law passed in 1887; and this Traffic Association was an attempt to accomplish the same end—that is, stop competition among the railroads and maintain rates—in a different way. The Supreme Court, by a vote of five to four, decided that this agreement was prohibited by the Sherman Anti-trust Act, because, as an attempt to fix prices, it restrained trade. The famous Trans-Missouri decision, which settled this case, made the Sherman Law an insurmountable bulwark against all railroad combinations of this kind. Until this decision was finally given in 1897, this act had not been seriously regarded; after the Supreme Court had spoken, however, capitalists suddenly awoke to its significance. The decision settled many important points, which will be referred to subsequently in this article, and it changed as well the whole policy of railroad management.
JOHN SHERMAN, A STATESMAN WHO SERVED THE GOVERNMENT FOR MORE THAN FORTY YEARS, AS SENATOR, SECRETARY OF THE TREASURY, AND SECRETARY OF STATE. BETWEEN 1888 AND 1890 HE INTRODUCED SIX SEPARATE BILLS FOR THE REGULATION OF TRUSTS, AND OUT OF THESE GREW THE MEASURE WHICH NOW BEARS HIS NAME
The Sherman Act has stopped, not only railroad combinations, but similar agreements existing among manufacturers for the regulation of prices. The case of the Addyston Pipe & Steel Company is the most celebrated of this kind. In 1894 a large number of manufacturers of sewer and gas pipe, the Addyston Company being one, formed a combination to monopolize business and fix prices in thirty-six States and Territories. All companies which were parties to the agreement reserved the right to compete with each other outside of these thirty-six States as fiercely as before. They significantly called the section in which there was to be no competition "pay territory"; and the States outside of this section were known as "free territory." These manufacturers dealt chiefly with municipalities, which usually let contracts for sewer and gas pipe by public bidding. Whenever such a contract was offered, the Addyston combination would meet secretly, decide upon the price they would charge, and then arrange a program of fictitious bids. They then divided the profits among themselves. In this way they forced practically all purchasers in the sections in which they traded to pay exorbitant prices. Indeed, the subsequent history of this combination beautifully illustrates the practical effect upon the public of agreements of this kind. The Addyston and its associate members sold certain pipe in "pay territory," where the combination was enforced, at twenty-four dollars a ton; in "free territory," where they competed with each other, they frequently sold identically the same product at fourteen dollars. The Supreme Court decided that this agreement violated the Sherman Act—that it was a combination or a conspiracy in restraint of trade. William H. Taft, then United States Circuit Judge, wrote an opinion discussing the merits of this dispute which has since become a legal classic. Mr. Taft spent six months in studying the questions involved.
Nearly all such cases, however, involved merely what may be called trade agreements. In each case there were actual attempts to fix prices by compact, and these agreements were the only things in common among the different corporations that became parties to them. The several corporations preserved their independent existence; they were not trusts in the sense in which the Standard Oil Company, the American Sugar Refining Company, the United States Steel Company, are trusts—that is, single corporations, producing and distributing the greater part of some particular product. Until President Roosevelt's administration, these trusts had, for the larger part, escaped prosecution under the Sherman Law, the few attempts that had been made to assail them; having ingloriously failed.