Define: trusts trustee Sherman Anti-Trust Law pool Interstate Commerce Act Interstate Commerce Commission
We don’t trust YOU!Great wealth and questionable business practices of the late 19th Century industrialists alarmed Americans. States supportingfair competition, tried to prevent horizontal integration monopolies like Rockefeller’s Standard Oil Company. They made it illegal for a company to ownstocks in another company without permission from the state. This was one of the first business regulations of the free enterprise era. 1. What did states do to regulate businesses in the late 19th Century?
In 1882, the Standard Oil Company formed the first trust in America. Atrust was a legal form of a monopoly where many different businesses are managed by one company. Trusts didn’t merge companies of the same business because that would create an illegal monopoly. Instead, trusts took over many companies like insurance & gas companies or banks & transportation industries. These corporations were under the same management of 1 big legal trust, which was technically not a monopoly. Trusts were legal because a person managed another’s property. This person was called a trustee.
Here’s how it works: 1. Stockholders turn over their company stocks to a board of trustees, a group of top businessmen put in charge. 2. Stockholders earn profits while the trustees run the businesses under the trust. Everyone profits. Standard Oil stockholders turned over their Standard Oil stock to theTrust. Since the trustees did not own the stock & only managed it and they controlled many companies, the trust was treated as one large company.
2. Explain how a trust works.
To Trust or not to Trust:Trusts had many advantages. On the plus side its great size let companies use money-saving techniques of mass production to produce a high quality product at a cheaper price for consumers. On the minus side it limited production of a product to create a shortage & charged high prices during the shortage. It fixed prices, forced railroads to give rebates, bankrupted weak companies. Trusts werepowerful & concentrated wealth in fewer hands. 3. What were some positive and negative effects of trusts?
Don’t Trust a Trust: As a result of business practices of trusts, the federal government passed the Sherman Anti-Trust Lawof 1890 which forbade combining companies that limited trade. On the face of the law, it seemed to end trusts. However, the language was not specific clever lawyers found loopholes in the vague wording. The effects were minimal. Trusts reorganized to get around the law. The problem was that the government did not want to offend the richest, most powerful businessmen in world so it did not enforce the law. Lawsuits against trusts were lost in court. In 7 of the first 8 court cases, the trust won. The lawfailed. 4. Why did the Sherman Anti-Trust Law fail?
Regulating Railroads: To make money, railroads [RRs] used rebates to get business. Later RRs started topool fares. This meant that several private RRs secretly agreed to raise fares in certain areas. The overpriced fares gave RRs profits, which were pooled or shared among the participating RRs. Farmers suffered the most. They were at the mercy of RRs paying outrageous prices for transportation for their products.
In 1887 Congress passed the Interstate Commerce Act to outlaw rebates and pooling. It required RRs to publish rates so everyone knew what the prices were. It forbade a higher charge for a short hauls as compared to long hauls for shipping products. It set up the Interstate Commerce Commission to enforce the law.The commission was a five member panel which heard complaints and issued ‘cease and desist’ orders. It was the government’s first large scale attempt to regulate business. It fell short of success.
Problems plagued the commission. The wording of the act was vague and difficult to enforce. The commission had no idea if rates were fair or unfair. Ittried to hear all the complaints against the railroad. In the end, it was powerless, so it failed. The one positive aspect of the commission was that it started the ‘idea’ of federal control and foreshadowed the battle between big business and the public. Laissez-faire was ending. 5. Why did the Interstate Commerce Commission fail?