At a state level, the Granger Movement managed to pass various laws in some Western states in the 1870s.
- These laws restricted railroad companies by fixing maximum rates, forbidding discriminatory practices that saw different prices for different consumers, and establishing commissions to monitor and enforce these policies.
- When these regulations were challenged by robber barons, the Supreme Court held that:
When private property was for public use, the states had the right to regulate public utilities. (Munn v. Illnois, 1876)
When state regulation proved to be ineffective in interstate commerce, the federal government intervened and passed the Interstate Commerce Act of 1887.
- The Act prohibited pooling (a method where individual companies worked together to control prices), rebates for major consumers, discriminatory practices, and higher charges for short hauls.
- Stop a monopoly on public transport.
- It also created a Interstate Commerce Commission of five members which had the powers to investigate railroad management.
However this was ineffective, when states started to pass laws controlling trusts, companies simply moved to less restrictive states.
In 1890, the federal government bowed to pressure from those against monopolists and passed the Sherman Anti-Trust Act.
- Prescribed the rule of free competition for those who engaged in commerce. Those who ‘restrained trade’ could be prosecuted.
- It allowed for suits to be brought by federal prosecutors, or individuals or firms who felt they suffered by a trust.
- Those found guilty were liable to a $5000 fine and a year in jail.
The law attempts to prevent the artificial raising of prices by restriction of trade or supply.
“Innocent monopoly”, or monopoly achieved solely by merit, is legal, but acts by a monopolist to artificially preserve that status, or nefarious dealings to create a monopoly, are not. The purpose of the Sherman Act is not to protect competitors from harm from legitimately successful businesses, nor to prevent businesses from gaining honest profits from consumers, but rather to preserve a competitive marketplace to protect consumers from abuses.
However,
Although the Interstate Commerce Act and the Sherman Anti-Trust Act did bring some control to the industry, the odds were still firmly stacked in the favour of big business and little was done to enforce either Act effectively.
The laws were also loosely phrased allowing courts to interpret them as they wished.
- Most notoriously of these loose interpretations was ‘United States v. E.C. Knight’ 1895.
- Even though the defendant controlled 98% of the manufacture of refined sugar, he was not violating the terms of the Sherman Anti-Trust Act because manufacture was not trade.
- There were only 36 suits brought under the act between 1890-1901. None of these suits were won against really big corporations and of the cases, only 12 were won.
Definitions
Trust-
Trusts are the organization of several businesses in the same industry and by joining forces, the trust controls production and distribution of a product or service, thereby limiting competition.
Monopoly-
Monopolies are businesses that have total control over a sector of the economy, including prices.
Social-Darwinism-
Social Darwinism refers to various theories and societal practices that purported to apply biological concepts of natural selection and survival of the fittest to sociology, economics and politics.
Entrepreneur-
A person who sets up a business or businesses, taking on financial risks in the hope of profit.