The American Journal of Sociology/Volume 01/Number 4/Anti-Monopoly Legislation in the United States
ANTI-MONOPOLY LEGISLATION IN THE UNITED STATES.
Recent legislation against trusts, monopolistic corporations, and railway consolidations is the modern expression of a sentiment which finds its roots far back in English history. Modern monopolies bear little resemblance to those which existed prior to the middle of this century; yet the opposition to the latter, taking shape in constitutions and statutes, has largely influenced public opinion against modern capitalistic combinations. Modern monopolies are the outgrowth of industrial and economic conditions. The older ones were arbitrarily created by kings for the benefit of favorites or for purposes of revenue. It was but natural, therefore, that such monopolies should be vigorously attacked during the long struggles for liberty.
Monopolies, as being opposed to the natural freedom of Englishmen, have been held to be contrary to the famous clauses of the Great Charter which guarantee in essence the rights of habeas corpus and trial by jury—the "essential clauses," as Hallam terms them, which "protect the personal liberty and property of all freemen, by giving security from arbitrary imprisonment and arbitrary spoliation." It was not, however, until the enormous abuses of monopolies arose in the time of Elizabeth, that a definite attack was made upon them. Under the patents which the queen had so lavishly bestowed upon her favorites, the prices of a multitude of articles, most of which were common necessaries of life, became ruinously high. The opposition, after smoldering for many years, burst forth in 1601 with such violence that Elizabeth yielded her cherished prerogative. The evil flourished again under James I., and his last parliament passed an act declaring monopolies and certain Other privileges opposed to the ancient liberties of Englishmen, and void. The abuses were again revived by Charles I., and almost every article consumed by the common people was placed under control of irresponsible monopolies.
Thus the struggle went on until the people finally succeeded in setting aside the royal prerogative by the Revolution of 1688. The bill of rights contained no express declaration against monopolies; but it was made impossible for the king to grant them, and the act passed in the latter part of the reign of James I. was thus again made operative.
The English bill of rights was the model for the sections of American constitutions bearing the same title. The gist of these declarations was that the people had a right to security in their persons, property, and privileges. All else was but elaboration of this. In some form or other declarations of rights were made by all the colonies long before the Revolution, some even preceding the English declaration. In 1765 delegates from nine colonies met in New York and published a declaration of the rights of the people to inherent privileges of Englishmen. Again, in 1774, delegates from all the colonies, except Georgia met in the first Continental Congress and issued a declaration based upon the English model and explicitly claiming the benefits of the common law of England, and of such English statutes as existed at the time of their colonization and which had been found applicable to local circumstances. The Declaration of Independence soon followed this with similar claims; and most of the states then and thereafter organized incorporated bills of rights in their constitutions, though several of the earliest constitutions omit such formal declarations altogether.
Formal declarations of fundamental principles of government have doubtless served an important purpose and are still far from valueless. But there is much truth in the statement made by Mr. Kent in his "Commentaries," that "we weaken greatly the force of them if we incumber the constitution, and perhaps embarrass the future operations and more enlarged experience of the legislature, with a catalogue of ethical and political aphorisms which, in some instances, may reasonably be questioned, and in others justly condemned."
Among the maxims thus condemned are those found in the constitutions of several states declaring monopolies to be odious and contrary to the genius of a free government. Such a declaration was made by Maryland in its first constitution in 1776, and has been repeated in every constitution since adopted by that state, namely, those of 185 1, 1864, and 1867. North Carolina also incorporated this declaration in the constitution of 1776, and repeated it in the present constitution which was adopted in 1868. Tennessee declared against monopolies in the first constitution of 1796, and repeated the clause in the two constitutions since adopted in 1834 and 1870. Arkansas incorporated the same declaration in the first constitution, adopted in 1836, repeated it in the reconstruction constitution of 1864, omitted it from that adopted in 1868, but replaced it in that of 1874, which still stands. The Republic of Texas incorporated this clause in the constitution of 1836, and it has been retained in every constitution adopted by the state, namely, those of 1845, 1866, 1868, and 1876. Florida made this declaration in the constitution of 1838, seven years before admission to the Union, repeated it in the reconstruction constitution of 1865, but omitted it from the present constitution, which was adopted in 1868. The pro-slavery constitution of Kansas in 1857 contained this clause, but it has not been repeated in the later constitutions. New Mexico has recently made the same declaration, and it will doubtless stand in the constitution when that territory is admitted to the Union.
It is noticeable that only southern states have made this declaration, except that Kansas did so in one instance; but this was under southern influence. It is also noticeable that the clauses in the later constitutions are copied almost word for word from the first constitution of either Maryland or North Carolina. It is perhaps not far from correct to say that the conventions which framed the later constitutions were simply anxious to get the finest phrases they could find, and adopted what struck their fancy, just as committees on resolutions of thanks or respect are likely to use the words of any similar reports with which they are familiar; and that any of the declarations made since the beginning of this century mean no more to those making them than is meant by the declaration frequently found in bills of rights, that the state is formed by "social compact."
The first declarations doubtless had real meaning, and were made perhaps because tobacco or some other staple had been monopolized, or because favors had been granted to individuals under the proprietary governments, and it was feared they might be repeated by the states. In confirmation of this latter supposition it may be stated that always immediately following the denunciation of monopolies is found the prohibition of hereditary emoluments, honors, and privileges.
Whatever the cause of these declarations, it is very evident that "monopoly" now means something vastly different from that which the commons so vigorously opposed in the times of Elizabeth and James, and against which the founders of our nation had such deep-rooted antipathy. Then it meant an institution founded and kept in existence by royal favoritism; now it means an institution which may have come into existence without direct governmental assistance, and which may have maintained itself in spite of administrative and legislative opposition.
In spite of this difference, the old opposition, perpetuated in our constitutions and handed down in tradition, has had a potent influence in shaping the popular hostility to the modern monopoly. This influence has been most powerful in the political sphere. Monopolies are opposed because they are supposed to be inimical to our free institutions. It is felt that they should not be tolerated, both because the few are supposed to get undue advantage of the many, and because of the ability of powerful corporations to corrupt legislatures.
Monopolies are further antagonized because they are opposed to the prevailing economic philosophy of the American people. The doctrine of laissez faire has probably been more completely engrafted upon the political and industrial institutions of this country, and more thoroughly absorbed into the consciousness of the people, than anywhere else in the world. The individualistic theories in philosophy, politics, and economics were most widely accepted at the time the colonies achieved their independence and formed their state and national governments. The doctrines of the French philosophers were especially influential. It is not to be expected, however, that the early constitutions and statutes will show any effort to prevent commercial combinations and restrictions of competition. The country was largely agricultural, and the vast unoccupied territory rendered impossible monopolies in that branch of industry which was generally pursued. Moreover, when manufactures began to develop, the more rapid development of the country and its growth in population made it impossible for the evils of competition to bear heavily upon any industry. This condition of affairs continued until the close of the Civil War. No attempts were made to restrict monopolies, because monopolies did not exist; and since constant progress was seen to be possible under the reign of free competition, it was very generally supposed that free competition was the necessary condition of all material prosperity.
Thus it has resulted that on account of political tradition and political and economic philosophy, as well as because of the good results credited to free competition, monopolistic combinations have been almost universally regarded as "odious, contrary to the spirit of a free government, and the principles of commerce."
As the development of industries proceeded, the evils of unlimited competition began to be felt, and managers of industries which suffered most began to devise methods by which those evils could be mitigated. Before the war some efforts at combination had been made in the anthracite coal business and in the telegraph and railroad service in some sections. After the crisis of 1873, renewed efforts were made to avoid the evils of unrestricted competition. As a consequence a dread of monopolies began to be felt, and manifested itself in the legal restrictions which were embodied in constitutions and laws.
The first combinations to be attacked were the railroads and telegraph lines, because these were more apparent than the capitalistic monopolies that were being formed. Railroad and telegraph companies were always corporations, and always acquired privileges under the public right of eminent domain. Trade combinations were frequently not corporations, and were so little the creatures of the state that the right of state interference was not so clearly perceived. There has never been any doubt as to the right of the state to keep corporations, which are its creatures, under strict surveillance. It is a principle of law that corporations can engage only in the activities and enjoy the privileges expressly defined in their charters, and cannot consolidate without the express sanction of the state. This sanction may be granted by a general law, by the charters of the corporations combining, by a special law authorizing consolidation, or by a special law ratifying an unauthorized consolidation. The states of Maine, Vermont, Massachusetts, Rhode Island, Connecticut, Delaware, Maryland, North Carolina, Virginia, Mississippi, Tennessee, Kentucky and Oregon have no general laws authorizing consolidation. In these states, at least, nearly all consolidations of corporations, since public opinion would prevent special permission, would be illegal.
The right of the state to regulate, under its police powers, all matters that affect public policy is also recognized. Several of the states have reserved this right in their constitutions. Alabama, Colorado, Illinois, Missouri, Nebraska, Pennsylvania, and West Virginia provide that the right of eminent domain shall never be abridged. Colorado, Missouri, and Pennsylvania provide that the police power shall never be abridged. Delaware, Kansas, and Pennsylvania reserve the right to alter or revoke any charter granted to corporations.
In harmony with these principles—some of which, however, have been but recently expressed—the states began to take steps to prevent the consolidation of these quasi-public corporations.
In 1868, a provision was made by the constitution of South Carolina for the regulation of "the public use of all franchises which have heretofore been, or hereafter may be created or granted by or under the authority of the state;" and for limitation by law of tolls, imposts, and other charges. In 1870, Illinois prohibited by constitutional enactment the consolidation of competing railroads. West Virginia (1872), Pennsylvania (1873), Nebraska and Missouri (1875), and Colorado (1876), incorporated like prohibitions into their constitutions. Pennsylvania (1873), Nebraska and Alabama (1875), and Colorado (1876), took the same steps with regard to telegraph companies. Constitutional declarations of the right of the state to regulate the rates of transportation were made by Illinois (1870), Pennsylvania (1873), Missouri and Nebraska (1875), and Texas (1876).
In addition to these constitutional changes, many of the states established railroad commissions, and enacted laws having much the same purpose as these clauses in the constitutions. After two years of discussion, the United States Congress passed the Inter-state Commerce Act, January 14,1887. The work of the national and state commissions has been too fully discussed to require extended mention here. It is sufficient for our purpose to remember that all such legislation was directed principally against pools and combinations, though the prevention of discrimination in rates is no small part of the work of the commissions. Combinations and pools have not been effectually stopped, and many thoughtful men are now seriously questioning the wisdom of the attempts to do so. Mr. Reagan, who was chiefly instrumental in inserting the anti- pooling clause in the Interstate Commerce Law, has recently expressed the opinion that pools and combinations under governmental supervision are desirable.
The activity in the various states against railroad consolidation did much to stimulate public opinion against ordinary commercial combinations which, during all this time, were developing. Legislation against them could not take shape, because it was impossible to foresee the conditions which it was desirable to avoid. From the time of the crisis of 1873, the modern trust had been gradually maturing; but it did not take definite shape until the Standard Oil Trust was formed in 1882. This is not saying that capitalistic monopolies did not exist before that date; for the petroleum market was practically monopolized before the trust was formed. But there were no combinations which could be regarded as "conspiracies in restraint of trade" until the date named. From this time, there were numerous legislative inquiries into the monopoly question, always prosecuted with a desire to preserve freedom of competition. These inquiries Were always endorsed by popular opinion, and were pushed with new vigor when instances of actual crookedness and corruption were revealed.
The first definite constitutional enactment with reference to this question is found in Georgia in 1877. This was in reality directed against the consolidation of competing railroads; but after the rise of capitalistic monopolies, it was found that it could be employed against them also. This provided that;— "The General Assembly shall have no power to authorize any corporation to make any contract or agreement whatever with any (other) corporation, which may have the effect, or be intended to have the effect to defeat or lessen competition in their respective business, or to encourage monopoly; and all such contracts or agreements shall be illegal or void."
No specific anti-trust laws were enacted until 1889. At that time laws were placed upon the statute books of the states of Kansas, Maine, Michigan, Missouri, Nebraska, North Carolina, Tennessee, and Texas. The new states of Montana, North Dakota, Washington, and Wyoming introduced similar provisions into their constitutions. In 1890 anti-trust laws were passed by Iowa, Kentucky, Louisiana, Mississippi, South Dakota, and by the territory of Oklahoma. Kentucky and Missouri introduced similar clauses into their constitutions in 1891. In the latter year anti-trust laws were passed by the states of Alabama, Illinois, Minnesota, and the territory of New Mexico; and amendments to the former laws were passed by Missouri and Tennessee. In 1892 a short anti-combination clause was inserted in a general law concerning corporations passed by New York; and an amendment to the former law was passed by Louisiana. Amendments were passed in 1893 by Illinois, Minnesota, and South Dakota; and the same year California prohibited monopolies in livestock, and Nebraska in coal and lumber. North Dakota passed a law in 1895, to take effect January i, 1896, prohibiting combinations in grain and live stock, but having some general anti-trust features; and Missouri passed another amendment to the law of that state.
The United States law was approved by the President, July 2, 1890; and the Tariff Law of 1894 contains a section bearing upon the same subject, but having special reference to importations.
The most complete definition of a trust is given in the Illinois amendment of 1893, though the Texas law of 1889 covers nearly the same ground. The Illinois definition is as follows: A trust is a combination of capital, skill, or acts by two or more persons, firms, corporations, or associations of persons, or of two or more of them, for either, any, or all of the following purposes: First, to create or carry out restrictions in trade. Second, to limit or reduce the production, or increase or reduce the price of merchandise or commodities. Third, to prevent competition in manufacture, making, transportation, sale, or purchase of merchandise, produce, or commodities. Fourth, to fix at any standard or figure whereby its price to the public shall be in any manner controlled or established upon any article or commodity of merchandise, produce, or manufacture intended for sale, use, or consumption in this state; or to establish any pretended agency whereby the sale of any such article or commodity shall be covered up and made to appear to be for the original vendor, for like purpose or purposes, and to enable such original vendor or manufacturer to control the wholesale or retail price of any such article or commodity after the title to such article or commodity shall have passed from such vendor or manufacturer. Fifth, to make or enter into, or examine or carry out any contract, obligation, or agreement of any kind or description by which they shall bind or have bound themselves not to sell, dispose of, or transport any article or commodity, or article of trade, use, merchandise, commerce, or consumption below a common standard figure, or card or list price; or by which they shall agree in any manner to keep the price of such article, commodity, or transportation at a fixed or graduated figure; or by which they shall in any manner establish or settle the price of any article or commodity or transportation between them or themselves and others, to preclude a free and unrestricted competition among themselves or others in the sale or transportation of any such article or commodity; or by which they shall agree to pool, combine, or unite any interest they may have in connection with the sale or transportation of any such article or commodity that its price might in any manner be affected.
The various laws differ from one another in no important particulars. They agree in declaring all combinations in restraint of free competition illegal. The United States law differs from the state laws only in its application to interstate commerce and combinations in the territories and the District of Columbia. Most of the laws are directed against monopolies in ordinary merchandise; but Kansas includes combinations which control the loan or use of money, fix attorneys' and physicians' fees, control the cost or rate of insurance, or which tend to advance the rate of interest for the borrower, and South Dakota declares that it is against public policy and illegal to form a combination to prevent a fair competition for a low rate of interest.
The provisions of the laws do not apply to agricultural products, and live stock while in the hands of the producer, in Michigan, Mississippi, Nebraska and Texas, and, with exceptions, in Alabama. Most of the acts provide that foreign trusts operating in violation of them shall be prohibited from doing business in the states enacting the laws. Some of the laws prohibit corporations from holding trust certificates or stock.
The penalties for violation of the laws are most severe. The United States law fixes the penalty at not exceeding $5000 fine, or not exceeding one year's imprisonment, or both punishments. In addition to this, property in transit shall be forfeited, and any person who may be injured by a trust may recover threefold the damages sustained, cost of suit, and attorney's fee. The penalties in the various states are as follows: Oklahoma, fine of $50 to $500; Alabama, $500 to $2000; Kentucky and Louisiana, $500 to $5000; Illinois, $500 to $15,000; Maine, $5 to $10,000; Minnesota, $100 to $5000, and imprisonment for one to ten years; Missouri, $100 per day; Nebraska, not exceeding $1000, or imprisonment not exceeding six months; Tennessee, $250 for first offense, $500 for the second; Texas and Mississippi, $50 to $5000, and imprisonment for one to ten years, and $50 for each additional day's offense. Officers and agents are liable to the same penalty in Alabama, Kentucky, Louisiana, Missouri and North Dakota, and to fines of $200 to $1000 and imprisonment, in Illinois and New Mexico. If assent to the illegal agreement is not withdrawn within thirty days in Illinois, Iowa, Michigan, Missouri, North Dakota and Nebraska, the corporation shall forfeit its charter and all rights and franchises. It is also provided in many cases that obligations to such combinations need not be regarded.
The laws in question have been uniformly upheld; but they have, as a rule, simply harassed trade without accomplishing the real end which they had in view. The very evident evils resulting from the concentration of power in the hands of a few irresponsible trust managers, and the questionable methods by which combinations have frequently been formed, have aroused the public to action. Naturally, then, with the prejudice against monopolies deep-seated in the public consciousness, legislation has been directed against the trust as such. It is easy to see that the popular prejudice is, in part, unjustifiable; for, without apologizing for many unscrupulous acts done by trusts, and recognizing the danger from irresponsible power, it may still be claimed that very great benefits arise from the economy of management, and the adjustment of production to the needs of consumption, made possible by wise and honorable trust management. Add to this the fact that prohibitory efforts have thus far proved abortive, and it becomes apparent that this, like a great deal of other social legislation, has been based upon a very imperfect knowledge of the facts involved.
Aside from this, the laws would fail of complete success in destroying monoplies, because none of them would prevent a single person from gaining control of an industry. With the prevailing view of the liberty of the individual, it is necessary to find a combination or conspiracy, or a corporation created by the state, to attack. It is not that individual monopolists are not regarded with suspicion; for the opposition to department stores and similar enterprises is frequently pronounced. But these have not yet been declared opposed to public policy; and a single powerful manufacturer or merchant may freeze out all competitors, yet without violating these anti-monopoly laws; while an individual or a corporation that might try to buy out or cooperate with competitors would be guilty of conspiracy. In this respect we have fallen below the anti-monoply law of the last parliament of James I.; for the old monopolists were individuals or individual companies, as the word itself indicates (μόνος + πωλὲομαι); and were in no sense trusts or cooperative associations. It was admitted by the supreme court in the sugar refineries case that congress did not confine itself to the common law sense of the term "as implying an exclusive control, by authority, of one branch of industry without legal right of any other person to interfere therewith by competition or otherwise, but it includes engrossing as well, and covers controlling the market by contracts securing the advantage of selling alone or exclusively all, or some considerable portion, of a particular kind of merchandise or commodity to the detriment of the public; and that such contracts amount to that restraint of trade or commerce declared to be illegal." Evidently, then, if the laws aim not at the contract, but at the fact of irresponsible power, they need some expansion.
The generally unserviceable character of the anti-trust legislation must convince us that the question is no more settled than it was before the legislators began to grapple with it—at least existing laws do not settle it. As Von Halle says, "More may be expected finally from the decisions of the courts. Legal judgments depend upon the conception of public policy; and as this conception is subject to change, the law-creating action of the courts is likely to change also. That this is possible, and indeed is done by a process of quiet and natural progress, is the very thing that constitutes the strength of the English common law."
It may be that these anti-monopoly laws, futile although most of them are, will serve a purpose in bringing into the courts a problem that needs solution. A victory has undoubtedly been gained in compelling the trusts to become incorporated, and in making so much of their business public. Then, too, the general recognition of the right of the state to prohibit that which is opposed to public policy is likely to have most salutary results. While, in the case under consideration, the exercise of authority has been directed to the maintenance of conditions of free competition, the policy itself is the reverse of laissez faire, That old doctrine has worked out its own destruction. On the one hand, powerful business interests will not let the weaker ones alone; on the other, the state dares not let the powerful combinations alone.
The right and duty of the state to preserve conditions conducive to the general welfare being recognized, it may be expected that mistakes and blunders made because of ignorance of the real meaning of new industrial forces will be rectified as those forces are better understood. The element due to demagogism will also doubtless be sifted out. While it is assumed that monopolies "cannot be granted in such ordinary vocations as can be left open to all to the common benefit," it has always been recognized that they "may be given as a matter of regulation, where the business is such that the public interest can be best subserved and protected by confiding it to one person, or association of persons, who shall manage it exclusively. This obligation to serve the public impartially would seem to be an essential incident to any grant of a monopoly, since without it, it would be impossible to justify the grant on public grounds."
Presumably, then, if it is found that a trust can best subserve the interests of the public, and can be made to serve it impartially, there is nothing in the spirit of our laws to prevent a change of attitude toward such combinations. The right of a state to pass laws of this sort is based upon its general right of police regulation. This right is abridged somewhat by the constitutional provision that a state cannot interfere with interstate commerce; but a decision of the Supreme Court, rendered January 21, 1895, in the case above referred to against the consolidated Philadelphia and New Jersey sugar refineries, reserves to the United States the right to regulate trade and commerce only, and leaves the regulation of the acquisition and control of property to the states. Under these circumstances the responsibility is thrown upon the states. With the further progress of the coöperative movement, which is sure to come, we may expect further legislation becoming more and more rational; but the decision of the individual cases, with due allowance for time and place and in harmony with the principles of common law—which means that abandonment by a privileged party of its duty to the public will not be tolerated—will do more to solve the problem than legislation of the kind we have been considering.
The solution will probably be something like that suggested by Von Halle in his conclusion: "It is my belief that the future belongs neither to the prophets of individualism, nor to the ideals of the social-democrats. Its next phases belong to social reorganization. And the probability is that this will show a corporate character, and will be sustained and controlled by public supervision."
The University of Chicago.
- For a description of this conflict, see Hallam, Taswell-Langmead, and other writers on English constitutional history.
- 21 Jac. I. c. 3—"Act concerning Monopolies, and Dispensations with Penal Laws and the Forfeitures thereof."
- As that made by Virginia in 1624, and that by Maryland in 1638.
- Marshall's Life of Washington, II., 90.
- Lecture XXIV., 13th edition, Vol. II., p. 9.
- In addition to these the Massachusetts declaration of rights, adopted in 1780, states: "No man or corporation or association of men have any other title to obtain advantage or particular and exclusive privileges distinct from those of the community than what rises from the consideration of services rendered to the public."
- The tariff legislation is the only evidence of inconsistence with this theory.
- Spelling: "On Trusts and Monopolies."
- See "American and English Encyclopædia of Law," Vol. IV., Art. Corporations.
- Art. XII., Sec. 5.
- Art. XI., Sec. 11.
- Art. XI., Sec. 9.
- Art. XVII., Sec. 4.
- Art. XI., Sec. 3.
- Art. XII., Sec. 17.
- Art. XV., Sec. 5, 14.
- Art. XVI., Sec. 12.
- Art. XI., Sec. 3.
- Art. XIII., Sec. 11.
- Art. XV., Sec. 5, 14.
- Art. XI., Sec. 12.
- Art. XVII., Sec. 3.
- Art. XII., Sec. 12.
- Art XI., Sec. 4.
- Art. XII., Sec. 3, 5.
- Report of Interstate Commerce Commission, 1892, p. 51.
- Von Halle, Trusts, p. 17.
- Von Halle, Trusts, pp. 17, 18, states that Wisconsin passed an anti-trust law in 1892. The Secretary of State writes that Wisconsin has no such law. I am unable to reconcile the two statements. Von Halle also omits Mississippi and Oklahoma from his list, and has several minor divergencies from the statement above given.
- U. S. vs. Knight, 156 U. S., 10.
- "Trusts," p. 109.
- Cooley; "Constitutional Law," p. 247.
- "Trusts," p. 149.