US_Ch5_webquest-4

=**Did the Sherman Anti-Trust Act protect the "little guy" - small businesses - and rein in big business abuses?**=

The Sherman Anti-Trust Act of 1890 was aimed at John D. Rockefeller and Standard Oil. Legislation is rarely aimed at a single person, but there were some people who wanted the government to "do something," but it wasn't clear what the effects would be. The oil trust of Rockefeller had formed and then trusts began to form in other industries. Smaller companies that joined the trust didn't lose their business, they lost their independence. Many smaller competitors were willing to give up independence for income and business security. As a result of the oil trust, oil and kerosene prices fell sharply and steadily. Consumers were much better off with lower prices. No one who was buying oil or kerosene complained. Only the remaining competitors who couldn't cut costs like Rockefeller complained. Ida Tarbell was the muckraker who wrote against Rockefeller and Standard Oil saying that Rockefeller's biggest enemy was other oil producers. His prices though dropped steadily, which showed that he wasn't interested in price gouging. In addition, Rockefeller's biggest enemy was waste and inefficiency. He thought some producers were wasteful and inefficient and that he could do better (which he did). As mentioned, consumers certainly didn't complain about Standard Oil's low prices. It was refining competitors who complained about Rockefeller's superior efficiency. John McGee, a legal scholar who examined testimony of his competitors, found no evidence or predatory price cutting by Rockefeller.

The Sherman Act itself was unenforceable. It read "Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal." Defining what was "in restraint of trade" was the difficulty. Did it mean restraining prices? Or did it mean restraining other businesses from entering the market place? Rather than waiting for a government definition, several businesses immediately went to vertical integration/combination. A "monopoly" as we think of it is a horizontal combination, in which one company seeks to buy out or control all competitors so as to affect the price. A vertical combination - already in use by railroads - was adopted by all major companies. It featured more emphasis on internal controls, especially on cost control (cost of materials). For example, Standard Oil would seek to own not only its oil in the ground, but also its own railroads, refining, and sales outlets. Gustavus Swift, with his meatpacking firm, acquired pig farms and cattle ranches and later his own trucking lines and refrigerated railroad cars and finally his own butcher shops. Corporate managers could not only predict costs and expenses, but they could plan. They preferred smaller but predictable profits over larger gains that fluctuate wildly.

Those who passed the Sherman Act looked to control the power of big business by eliminating costs. Vertical combinations made businesses far larger and far more powerful than the trusts ever were. Giant corporations formed as an unintended consequence. U.S. Steel under J.P. Morgan was one and it was the first billion dollar corporation (by comparison, the Northern Securities Company TR went after was only with $400 million). Businesses also started "holding companies" where they could hold stock in other companies. The Northern Securities Company was an example of a holding company. The government went after Northern Securities seeing them as a potential threat.

It stands to reason that small businesses should benefit by anti-trust suits against larger corporations, but research shows that profits fell across the board. Anti-trust laws were meant to "fix" a market problem, but made it worse. The Sherman Anti-Trust Act did make monopolies illegal and therefore a company can't monopolize the prices, but calling businesses evil and monopolistic isn't the full story.


 * 4. Do you favor stricter regulations on business and higher taxes on businesses or do you think the government should simply make sure businesses are not harming people and cut taxes and regulations to allow businesses to expand and hire? Explain.**

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