During the Progressive Era, from around 1900-1917, government intervened in the economy, breaking up trusts, and regulating railroads and other industries. Learn how government worked to curb the power of unregulated big business and provide tariff and banking reforms.
Unregulated Big Business
When you think of an octopus, what comes to mind? Frank Norris wrote The Octopus in 1901, a novel about the struggle between wheat farmers and the corrupt practices of railroad barons, which included intimidation, bribery, and vote tampering. The octopus became a symbol of the stranglehold monopolies and trusts had on free market competition.
Increased government regulation became a major theme of the Progressive Era, from around 1900 to 1917. The previous laissez-faire, or hands-off, approach was no longer an option as the growth of unregulated big businesses brought about abuses of corporate power. Some of these abuses included the elimination of competition through price wars aimed at driving out small businesses. Once monopolies and trusts were established, consumers were often forced to accept high prices and inferior products. Workers were exploited through low wages and harsh and unsafe working conditions, while employers sought to prevent the formation of labor unions.
Leading the charge against the trusts was Theodore 'Teddy' Roosevelt, president from 1901 to 1909. Roosevelt was not against all trusts, just those he considered bad. 'We do not wish to destroy the corporations,' he said, 'but we do wish to make them… serve the public good.' Federal regulation of business proved difficult, however, because the language of previous antitrust law was vague and existing laws were not adequately enforced. Under his direction, 44 antitrust lawsuits were filed, in an effort to prevent bad trusts from restraining trade and manipulating markets.
One of the most important antitrust lawsuits was brought against the powerful railroad combination, the Northern Securities Company, created by J.P. Morgan and his powerful business associates. The Supreme Court determined that manufacturing fell within the commerce clause of the Constitution. Because manufacturing was now considered interstate trade, it was therefore subject to federal antitrust laws. The Court found the Northern Securities Company to be in violation of the Sherman Antitrust Act (1890) and ordered it dissolved. Following this decision, other key trusts were declared illegal in the beef, sugar, and tobacco industries, prompting other corporations to comply with stronger federal legislation and begin promoting industry regulation from within.
In 1906, another key antitrust lawsuit was brought against the Standard Oil Company, thanks in large part to muckraker Ida B. Tarbell's factual exposé against the 'mother of all trusts.' It took close to five years, but in 1911, the U.S. Supreme Court determined that John D. Rockefeller's Standard Oil Company was in violation of the law, and Standard Oil was split into 34 separate companies.
William Howard Taft, president from 1909 to 1913, continued the assault against unfair business monopolies, initiating over 90 antitrust lawsuits.
Industry Regulation and Business Reform
Progressive Era reformers pushed for the regulation of business and industry and laws protecting workers and consumers. The Department of Commerce and Labor was created to enforce federal regulations, particularly those involving interstate commerce. The Mann-Elkin Act (1910) authorized the Interstate Commerce Commission to regulate telegraph and telephone companies. And by 1913, a separate Department of Labor was created to protect the welfare of workers and to improve working conditions.
The most important antitrust legislation passed during Woodrow Wilson's administration, which began in 1913, was the Clayton Antitrust Act (1914). The Clayton Antitrust Act attempted to strengthen the Sherman Antitrust Act (1890) by identifying specific illegal practices and business combinations that were against the law if they tended to lessen competition or create a monopoly. Some of these illegal activities included:
- Price discrimination, which is charging different consumers different prices
- Tie-in contracts, by which a merchant could buy goods from a company only if it would not handle the products for that company's competitors
- Certain holding companies, where a company buys enough voting stock in different companies to be able to control them
- Interlocking directorates - one or more people serve on the board of directors of several companies
The Clayton Antitrust Act also exempted farm cooperatives and legitimate labor union activities, such as picketing, strikes and boycotts, from antitrust prosecution as a restraint of trade. This supported labor's right to organize and was widely supported by labor unions, particularly the American Federation of Labor.
Consumer Protection and Railroad Regulation
Imagine that you sit down to enjoy a tall glass of milk. But wait, something doesn't taste quite right. It could be that chalk has been added to your milk to improve the color or perhaps a bit of molasses to sweeten the taste. Pretty gross, don't you think? Well, that was the situation before consumer protections were put in place by the federal government during the Progressive Era. The Pure Food and Drug Act (1906) banned the manufacture and sale of tainted foods, drugs, and liquors, and required truthful labeling of medicines. The Meat Inspection Act (1906) empowered U.S. officials to check the quality of meat shipped interstate.
The Federal Trade Commission Act (1914) set up the Federal Trade Commission to enforce the Clayton Antitrust Act and to issue cease and desist orders to stop unfair practices such as misbranding and adulteration of goods, false and misleading advertising, spying and bribery to secure trade secrets, and closely imitating a competitor's product.
A series of federal laws were enacted by Congress to better regulate the railroad industry. The Elkins Act (1903) allowed the previously weak Interstate Commerce Commission (ICC) to punish shippers as well as railroads engaged in rebating, which was the discriminatory practice of discounting rates to large companies or favored customers. The Hepburn Act (1906) allowed the ICC to set maximum railroad rates and to inspect the financial records of railroad companies. The Adamson Act (1916) established an eight-hour day for railroad workers.
Important economic reforms of the tariff and banking industry took place during Wilson's presidency. The Underwood Tariff (1913) lowered the tax on imported goods from 40% to 25%. The goal was to target industries dominated by the large trusts. The decreased tariff was passed by Congress in an effort to promote competition and open American markets to foreign products. Congress also passed the first federal income tax levied on corporations and individuals earning more than $4,000 per year.
After the financial panic of 1907, it became clear that an overhaul of the nation's banking system was in order. After much planning and deliberation, the Federal Reserve Act (1913) created a publicly-controlled banking system resistant to financial panic. A central reserve bank was set up to basically back up private banks. You can think of it as a banker's bank. Twelve regional district reserve banks were created. Each bank was independent, but they were regulated by the Federal Reserve Board, who oversaw national fiscal policy. The Federal Reserve issues paper money and controls the amount of money in circulation through money reserves and interest rates. The new Federal Reserve System provided a reliable, flexible currency system with a decentralized money supply.
In an effort to provide support to the agricultural industry, the Farm Loan Act (1916) created a Federal Farm Loan Board and twelve regional farm loan banks, modeled after the Federal Reserve System. National Farm Loan Associations worked with the banks to offer low-interest loans to farmers.
Let's review. Just like an octopus, monopolies and trusts had a stranglehold on free market competition at the turn of the century. Trust busting efforts during the Progressive Era, from around 1900 to 1917, spanned the presidencies of Roosevelt, Taft, and Wilson. Antitrust lawsuits were used to break up monopolies and trusts found to be restraining trade and manipulating markets.
Federal departments and commissions were created to oversee business and industry. A series of federal laws were enacted by Congress to provide better regulation of corporations, including the railroad industry, as well as protections for workers and consumers. And finally, tariff and banking reforms were important economic achievements of the Progressive Era.
Upon completion of the lesson, you should be able to:
- Compare notes on the new antitrust busting legislation of Presidents Roosevelt, Taft and Wilson
- Clarify the reasons for the breakup of the many monopolies in business and corporations
- Give details about the new lower tariff legislation to open up overseas markets to American exporters and farmers