The Law To Make Free Enterprise Free

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The Sherman act filled in with the American economic and legal philosophy that was religiously held in 1890 and which is still our dominant philosophy today. In 1890 Americans distrusted any form of governmental regulation. It was the tradition of the American common law that the relation between business and government should be based on some broad common-law principle which would acquire delimit meaning only through a series of court decisions. The Sherman act followed that tradition. Our faith in the common law was such that Congress believed that the courts could give a better and more practical meaning to the principles of the act than Congress could possibly do by further definition or regulation.

The Sherman act was definitely on the shelf during the administrations of Presidents Harrison, Cleveland, and McKinley. Cleveland’s attorney general not only instituted no proceedings but dropped the prosecution of the notorious Cash Register Trust, even though he had won a victory in the lower court. Under Cleveland the principal impact of the Sherman act was against labor in breaking the Pullman strike. McKinley was equally indifferent to the Sherman act. During his four and one-half years only three suits were brought. The first Sherman act decision by the Supreme Court was in the case of United States v. E. C. Knight & Co. It amounted to a virtual repeal of the act. The Supreme Court held that the Sugar Trust, in acquiring a monopoly over sugar manufacturing, affected interstate commerce only indirectly and, therefore, did not violate the act. As Justice John Marshall Harlan pointed out in his dissent: “While the opinion of the Omit in this case does not declare the Act of 1890 to be unconstitutional, it defeats the main object for which it was passed.” The Knight case thus emasculated the Sherman act. As a result of that decision the government became powerless to prevent the formation of a monopoly through the device of a holding company.

Yet within the short space of eight years, through the daring and ingenuity of Theodore Roosevelt, the Sherman act was transformed again from a meaningless and ineffective formula into a sharp weapon. Theodore Roosevelt was one the few politicians of his time who had seriously studied the antitrust problem. He had his first experience with monopoly power as a New York State assemblyman during the investigation of Jay Gould. He campaigned for re-election on the antimonopoly issue in 1882. In 1899, as governor, he wrote: “I have been in a great quandary over trusts. I do not know what attitude to take. I do not intend to play a demagogue. On the other hand, I do intend, so far as in me lies, to see that the rich man is held to the same accountability as the poor man, and when the rich man is rich enough to buy unscrupulous advise from very able lawyer, this is not always easy.”(Italics added.)

It was the empire-building ambition of J. P. Morgan that gave Theodore Roosevelt his chance. During the last year of the McKinley Administration the Northern Securities Company had been formed as a compromise between E. H. Harriman and Morgan in their fight to control the Northern Pacific Railroad. The holding company device was used to combine under one man agement two of the nation’s largest competing rail roads, the Northern Pacific and the Great Northern. Had the scheme succeeded, it could have led to the domination of all American railroads by this group. It could have created a pattern for the cartelization of all American industry.

Roosevelt, as one of the first acts of his Administration, determined to attack this respected citadel of corporate power. This enterprise was very different from that of using the act to attack mere dishonesty in business, and Roosevelt must have realized that the legal odds were very much against him. A careful lawyer would have advised him that the Knight case exempted J. P. Morgan’s ambitious plans. The decision in the Knight case stood for the principle that the acquisition of monopoly control was immune from attack because, though it affected prices “indirectly,” it was not a conspiracy to fix them “directly.”

The issue as Roosevelt saw it went far beyond the merger of the two railroads involved in Northern Securities. The issue was nothing less than effective national sovereignty. The federal government had been relegated to such minor roles as distributing the mail and collecting tariff duties. Big business was the real sovereign in infinitely more important areas. In the Northern Securities case, Theodore Roosevelt was to obtain for the federal government a magna carta limiting the power of the business princes.

Roosevelt gambled that the Supreme Court, with new faces in it since the Knight case, would repudiate or at least alter that decision. He directed Attorney General Philander C. Knox to draw up a case against the Northern Securities Company. It was to be a head-on attack on the philosophy of the Knight case decision. Fully aware of the tremendous pressures that would be exerted against him, he directed Knox to prepare the prosecution in complete secrecy. Not even his close friend and adviser, Elihu Root, the Secretary of War, was told.