The Sherman Antitrust Act of 1890: Summary & Overview

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  • 0:04 U.S. Economy in the Late 1800s
  • 1:01 The Threat of…
  • 2:31 The Sherman Antitrust…
  • 3:08 Impact of the Act
  • 4:15 Lesson Summary
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Lesson Transcript
Instructor: Dr. Douglas Hawks

Douglas has two master's degrees (MPA & MBA) and a PhD in Higher Education Administration.

In this lesson you'll be introduced to the Sherman Antitrust Act of 1890, the first legislative attempt by the United States to control the powers of trusts and monopolies. After the lesson, you can test your knowledge with a short quiz.

U.S. Economy in the Late 1800s

From 1787 to the late 1800s, the U.S. was transformed from a decentralized group of colonies to the largest producer of manufactured goods in the world. Abundant natural resources, a willing and able labor force, pro-business regulations, and innovative advances in technology all contributed to an amazing period of growth. Titans of industry like John D. Rockefeller and Andrew Carnegie capitalized on the industrial revolution by establishing huge corporations in the oil and steel industries.

While this period of incredible economic growth meant an improved quality of life for most people, low unemployment, and opportunities for innovation and entrepreneurship, it also introduced threats to the free market. For the first time in the U.S. economy, consumers experienced the power that could come from a monopoly, a single company that controls an entire industry.

The Threat of Monopolies and Trusts

Regulators struggled with how to continue creating a business-friendly environment but also protect consumers against the potential abuses of a monopoly. When a company controls an entire market and has no competition, it's able to keep supply artificially low, forcing prices up, or it can simply fix prices to achieve outrageously high margins. The U.S. was the freest market in the world, but it was also clear to regulators that an efficient free market system was only possible with competition.

Many states attempted to curb monopolies by making it illegal for one company to own stock in another company without specific permission from the state. It didn't take long for innovative business owners to find a way around those laws. Trusts were formed, in which shareholders of a company turned over their shares to a board of trustees in return for shares in the trust. Shareholders still had claim on their portion of the profits, but didn't actually control their shares in the company. The trustees would then manage the company, but not actually own any shares. Through a trust, trustees could manage, but not own, multiple companies.

Trusts were a clear violation of the substance of state laws, even though they complied with the letter of the law. In response, Senator John Sherman of Ohio introduced legislation to stop these unfair business practices and encourage competition. This legislation became known as the Sherman Antitrust Act of 1890.

The Sherman Antitrust Act of 1890

The entire act is fewer than 800 words, and the primary intent was to limit anti-competitive behaviors such as trusts, cartels, and monopolies. One of the key provisions in the act gave the federal government the authority to pursue trusts and dissolve them by making 'every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce' illegal. A second important provision clearly stated that individuals who monopolize or attempt to monopolize were guilty of a felony. The legislation applied to all states, the District of Columbia, and U.S. territories.

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