Essay 17-C: Interstate Commerce, the Sherman Antitrust Act, and Founding Documents

Essay Read by Constituting America Founder, Actress Janine Turner

Monopolies have long been viewed with suspicion under Anglo-American law. In the 1602 Case of Monopolies, the Court of Queen’s Bench declared void a monopoly grant by Elizabeth I for the importation of playing cards. The court reasoned that monopolies harmed individuals by preventing skilled tradesmen from pursuing their trade. In addition, they harmed the public because the monopolist would raise prices, yet have no incentive to increase or even maintain the quality of the goods. Not long thereafter, in 1624, Parliament passed the Statute of Monopolies, which broadly forbade the practice of issuing royal patents. 

Americans also looked askance at monopolies for the reasons mentioned in the English case. Justice Stephen Field gave voice to this thinking in a powerful dissent in the Slaughterhouse Cases in 1873. Denouncing the Supreme Court’s failure to declare void a Louisiana grant of a slaughterhouse monopoly, Field asserted that, at the time of American independence, it was part of the fundamental law that “every free subject in the British empire was entitled to pursue his happiness by following any of the known established trades and occupations of the country,” which could not be restrained by government-created monopolies. That principle, he argued, was included in the Declaration of Independence among those inalienable rights which constituted liberty and the pursuit of happiness and “which are the gift of the Creator.” Field also invoked the original Constitution and the Fourteenth Amendment, whose texts protected the privileges and immunities of citizens.  He approvingly quoted another case that “it is one of the privileges of every American citizen to adopt and follow such lawful industrial pursuit, not injurious to the community, as he may see fit, … without being restricted by any of those unjust, oppressive, and odious monopolies or exclusive privileges which have been condemned by all free governments.”

Congress responded with the Interstate Commerce Act of 1887. The statute proved to be of little practical impact initially. While the new Act made rates illegal that were not reasonable and prohibited certain unpopular practices, such as rate-fixing and discriminatory rates between long and short hauls, the Act also allowed for exceptions. Moreover, it neither defined what was a reasonable rate nor allowed the Interstate Commerce Commission to set rates. To facilitate the efficient operation of the nationwide railroad system, the Commission generally tried to promote coordination and cooperation between the railroads. It also permitted the railroads to determine when the Act’s exception to the otherwise prohibited price discrimination applied. Not until 1910 was the Commission authorized to set interstate rates for the railroads. The railroads immediately exploited that change to avoid low maximum local rates set by the Texas Railroad Commission by having the ICC set higher rates for interstate shipping and invoking the principle that an interstate railroad cannot discriminate between its local and interstate traffic. 

While there was sympathy for at least some of the coordination by the railroads to stabilize their markets, the monopolizing activities of the industrial combinations had nothing to recommend them in the eyes of the public. The paradigm of monopolistic trusts was the Standard Oil Company, formed and controlled by the brilliant and ruthless John D. Rockefeller. The operation of that trust was the catalyst for the Sherman Act of 1890, an extremely popular law. It was also a vague law that targeted “combinations in restraint of trade” and “monopolizing.” It did not define what those terms meant, which was left to the courts and later statutes to develop. The Supreme Court eventually took a “rule of reason” approach under the Sherman Act to monopolization. The issue became whether a company sought to exploit its market power through unfair practices, such as monopoly pricing, market allocations with competitors, or predatory pricing (for example, temporarily charging below-cost prices) to thwart market entry by potential competitors.

The history of anti-monopoly sentiment might suggest that the Sherman Act was popular because people are opposed to such concentrations for economic reasons, that is, a concern about extortionate pricing, erosion of quality, and lack of innovation, which results from a lack of competition. Or, people supported the law out of an innate and determined sensibility that monopolies represent a broader threat to individual autonomy and liberty, especially among those who were unsuccessful in competing with such an entity. Yet, the Sherman Act’s vagueness and lack of a clear ultimate objective also suggest a panicked response to a phenomenon not then clearly understood, with the Supreme Court and later legislatures left to solve those complexities. The unprecedented size and presence of the trusts in emerging technological applications and at critical points in markets of vital raw materials frightened many. The vulnerabilities and longer-term weaknesses of industrial monopolies in an era of technological change were not yet apparent. Their alleged ability to bend politicians to their will in an age of corruption made them appear invulnerable. To the public, they were leviathans, with the same ominous potential for oppression as the namesake absolutist government described by Thomas Hobbes two centuries earlier.

An expert on constitutional law, and member of the Southwestern Law School faculty, Professor Joerg W. Knipprath has been interviewed by print and broadcast media on a number of related topics ranging from recent U.S. Supreme Court decisions to presidential succession. He has written opinion pieces and articles on business and securities law as well as constitutional issues, and has focused his more recent research on the effect of judicial review  on the evolution of constitutional law. He has also spoken on business law and contemporary constitutional issues before  professional and community forums, and serves as a Constituting America Fellow.

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