Clayton Antitrust Act of 1914: Definition & Summary

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  • 0:05 What Is Antitrust Law?
  • 0:49 Before Clayton
  • 2:15 Clayton Antitrust Act of 1914
  • 3:58 Lesson Summary
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Lesson Transcript
Instructor: David White
Through this lesson, you will learn about antitrust laws and why they are important in U.S. law and economics. You will also see why the Clayton Antitrust Act of 1914 is so important to us in the present day.

What Is Antitrust Law?

Have you ever been so frustrated with your cable or Internet provider that you decided to switch to another provider? Well, if you live in the United States, one of the reasons that you have other options is because of a set of laws known as antitrust laws. Antitrust laws are a series of U.S. laws first enacted by Congress in 1890 to ensure fair business practices and prohibit actions that would restrict trade. For example, if I owned an electric company in California and I decided that I wanted to buy all of the other electric companies in the state, this would be prohibited by antitrust laws, because it is what's known as a monopoly. In other words, it would restrict both consumer and competitor options.

Before Clayton

Before the Clayton Antitrust Act of 1914, there was the Sherman Antitrust Act. Enacted in 1890 it was fairly limited in scope and was intended to prohibit unscrupulous business practices that restricted competition in the marketplace. The act was not intended to stop people from fairly taking over a business or industry if they possessed the skills. It was simply designed to keep people from engaging in activities that would intentionally limit competition or give themselves an unfair advantage. Over the years, the law has been interpreted in a number of different ways and applied much more broadly than may have been intended.

Though it was initially well-intended, the Sherman Antitrust Act prompted business owners to find ways around these laws through loopholes that would allow them to make as much money as possible without violating U.S. law. For example, rather than one business buying up all of the competition, two or more businesses would merge together to create a single business entity. Although this amounted to essentially the same thing, merging businesses was not prohibited by the 1890 act.

The Sherman Antitrust Act of 1890 was also primarily concerned with how businesses affected each other, not with the impact that they had on the consumer or the worker. Because businesses still managed to find ways to consolidate power, they were still able to create an imbalance that allowed them to charge whatever prices they wanted and treat their employees however they wanted.

Clayton Antitrust Act of 1914

In response to these problems, Alabama State Representative Henry De Lamar Clayton introduced new legislation in 1914 that would close loopholes and ensure fair competition. The idea was to create a law that would preempt any unscrupulous practices and balance the increasingly unfair marketplace in the United States. This was known as the Clayton Antitrust Act of 1914.

The wording of Clayton's act is somewhat complicated, but it essentially adds the following four conditions to previous antitrust law:

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