Anti-Trust Legislation in the US: History & Impact on the Economy

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  • 0:20 Definition of a trust
  • 1:45 Trust busting
  • 4:03 Effect of trusts on…
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Lesson Transcript
Instructor: Kevin Newton

Kevin has edited encyclopedias, taught history, and has an MA in Islamic law/finance. He has since founded his own financial advice firm, Newton Analytical.

For more than 100 years, a constant worry has been trying to figure out how big businesses should be allowed to grow. This lesson takes a look at a specific type of business, trusts, and trust busting.

What Is a Trust?

Around 150 years ago, something big happened in business. As the Industrial Revolution hit full gear and communication was made easier through faster ships, railroads, and telegraphs, companies began to expand far beyond a given geographic area. Nowhere was this more true than in the United States, where backroom deals soon established a monopoly or trust, which centralized control of multiple companies under one board of trustees. This resulted in less competition, higher prices, and industries that were largely dominated by a single company.

Many businessmen claimed that trusts were simply a way of organizing large companies, but that wasn't entirely true. Entrepreneurs who consolidated their businesses became exceedingly wealthy at the expense of others. For example, in 1882, John D. Rockefeller established a trust that consolidated oil-related companies under one board of trustees. Within seven short years, Rockefeller owned 90 percent of oil business in the United States, which allowed him (not the market) to determine the price of oil.

Rockefeller and others like him became known among the public as robber barons because they acquired their fortunes through ruthless means like exploiting workers, bribing government officials, ruining small businesses, and making backroom deals to hurt the competition. In this lesson, we'll explore how trusts affect the economy and how anti-trust legislation reigned in big business in the United States.

Trust Busting

For years, trusts had taken advantage of the fact that there was little legislation regulating businesses that operated in multiple states. As a result, the Interstate Commerce Act of 1887 was established to move regulation of large businesses to the federal sphere. Before this, companies could simply ignore a state that tried to limit their activities, knowing that state regulators were unable to look beyond their own state's borders in finding evidence to use against big companies. With the Interstate Commerce Act of 1887, federal regulators were now empowered to challenge big companies.

The first federal anti-trust law was the Sherman Antitrust Act of 1890, which gave trust-busters the tools to prohibit anti-competitive business activities. These tools included outright prohibitions on many of the practices that had made the trusts so hard for smaller companies to challenge in the markets. Now, it was illegal to change prices to force out smaller competitors, as well as to work out backroom deals with other trusts to ensure high profits at the expense of others. No one was more famous for his desire to break up trusts than President Theodore Roosevelt. He sued dozens during his time in the White House.

However, it wasn't until Roosevelt left office that Standard Oil, the largest trust in the U.S. was broken apart. For years, Standard Oil, under its founder John D. Rockefeller, had been the largest company in the world. The company was a classic trust. It had a monopoly over all oil production, with only a few token competitors left in business. Further, it had a long history of making deals with railroad companies to get lower costs for itself as well as higher costs for its competitors' oil.

When the trust was broken up in 1911, it split into dozens of companies, many of which you've probably heard of. Chevron, Amoco, Exxon, and Mobil are all companies that were created following the busting of Standard Oil. Somewhat ironically, Rockefeller became the richest man in the world only after the trust broke apart, as suddenly he had high-valued stock in several companies.

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