Part 11

The history of the Sherman Act has absolutely justified the wisdom and integrity of the Supreme Court. Scores of times the lower courts have decided against the government; and the most important decisions have been those in which the Supreme Court has reversed the inferior tribunals. The record of federal prosecutions under this law affords an interesting insight into the attitude of the several administrations toward trust regulation. President Harrison, under whose administration the law was passed, accomplished little. His attorney-general brought seven actions--four bills in equity and three criminal indictments. Under the equity proceedings, he obtained three injunctions; the criminal proceedings all ended in failure. One of the cases instituted by President Harrison, however,--that against the Trans-Missouri Freight Association,--was afterward taken to the Supreme Court by President Cleveland's attorney-general, and resulted in securing one of the most important decisions in the history of the law.

President Cleveland showed considerably more activity than his predecessor. Though only eight proceedings stand to his credit, several of them were of the greatest importance. He used the Sherman Law in fighting the Debs cases growing out of the Pullman strike; and in the well-known Addyston Pipe & Steel Company case he dissolved a combination, formed by several manufacturers of gas and sewer pipe, to monopolize the trade of most large American municipalities. President McKinley apparently had little interest in the Sherman Law; throughout his four and a half years only three cases were prosecuted, none of which were of much consequence. With the administration of President Roosevelt, however, the situation changed. Against the seven cases instituted by Harrison, the eight by Cleveland, the three by McKinley, stand thirty-seven started by Roosevelt. That is, he has instituted twice as many cases as all his predecessors combined, and many of the Roosevelt prosecutions have proved successful. Nineteen of these thirty-seven cases have already been decided; the government has won seventeen and lost only two.

As a result of these many proceedings and interpretations, the Sherman Anti-trust Law is now fairly well understood. There has recently been much complaint that the law is not sufficiently "specific"; that business men and labor leaders are groping very much in the dark; that it is impossible to say what this statute prohibits and what it permits. From the judicial literature which has accumulated in the last eighteen years, however, a fairly clear idea of its bearings upon large enterprises, both of labor and capital, can be obtained. Senator Hoar declared, when the bill came up for final passage, that it enunciated no new principle of law. It made illegal "restraints of trade" and "monopolies," but these had been for centuries unlawful in all Anglo-Saxon countries. As far back as the reign of Henry VI. in England, in 1436, a law was passed declaring that "all agreements in restraint of trade are illegal and voide." This principle has ever since been part of the law of England, and is at present part of the common law of many States in the Union.

In the United States itself, however,--that is, in the federal courts--there is no common law; everything must be fixed and regulated by statute. What the Sherman Act did was to make this common law on the subjects of restraints and monopolies the statute law of the United States. Under the common law of practically every State, monopolies and restraining combinations were illegal; Congress made these illegal when they involved inter-State trade. Under the common law boycotts were illegal also; Congress made illegal the inter-State boycott. Congressional action on this subject was demanded, because the larger number of these unlawful combinations could be reached only by federal action, inasmuch as they usually involved more than one State.

Under the rulings of the Supreme Court, combinations and conspiracies which restrain trade and develop monopolies are those which, broadly speaking, deprive the public of the benefits of free competition. This act recognizes the competitive system as the one industrial ideal, and outlaws anything that interferes with a free, unobstructed flow of trade. A trust that gets control of the larger part of a particular product and manipulates the output so as to prevent trade from flowing in its natural course--that is an illegal restraint. Labor unions that combine to divert artificially this same course of trade--as they unquestionably do when they persuade the public not to have business relations with particular persons or corporations against which they have declared a boycott--also engage in an illegal restraint. The Sherman Law aims only to protect the public against these unnatural influences; to restore business to normal conditions. With corporations, the final test as to whether they restrain trade or not is whether their effect is to increase prices. If they do not increase prices, then they do not restrain trade and consequently do not violate the Sherman Act. The Supreme Court has insisted upon one important modification of this principle. The effect upon prices must be immediate and not remote. An arbitrary agreement that definitely fixes the prices of a product is clearly illegal; an agreement which, in the last analysis, might tend to influence prices, would not necessarily be so.

_Railroads Stopped from Making Rate Agreements_

In the first ten years after the passing of the Sherman Act, the government attacked most successfully, not the great solidified aggregations of capital popularly known as trusts, but the more or less loosely organized federations of corporations, formed chiefly for the purpose of regulating and establishing prices. Trade agreements, not monopolistic corporations, became its chief quarry. In proscribing these agreements as illegal, the Sherman Act was found to be extremely effective. The very first case under this law was directed against a combination of coal-mining companies in Kentucky and Tennessee, which existed for the express purpose of regulating output and fixing prices. The courts promptly decided that this agreement violated the Sherman Act. In 1892 eighteen railroads, nearly all operating west of the Missouri River, organized what they called the Trans-Missouri Freight Association. This association included many of the great Western roads, companies of the magnitude of the Santa Fé, the Missouri Pacific, and the Rock Island. Its object, as clearly stated in the articles of association, was "mutual protection by establishing and maintaining reasonable rates, rules, and regulations, in all freight traffic, both through and local." In other words, it proposed to fix arbitrarily the price of transportation throughout the enormous territory covered by the eighteen railroads in question. The old "pooling" agreements, which had existed for many years, had been prohibited by the Interstate Commerce Law passed in 1887; and this Traffic Association was an attempt to accomplish the same end--that is, stop competition among the railroads and maintain rates--in a different way. The Supreme Court, by a vote of five to four, decided that this agreement was prohibited by the Sherman Anti-trust Act, because, as an attempt to fix prices, it restrained trade. The famous Trans-Missouri decision, which settled this case, made the Sherman Law an insurmountable bulwark against all railroad combinations of this kind. Until this decision was finally given in 1897, this act had not been seriously regarded; after the Supreme Court had spoken, however, capitalists suddenly awoke to its significance. The decision settled many important points, which will be referred to subsequently in this article, and it changed as well the whole policy of railroad management.

The Sherman Act has stopped, not only railroad combinations, but similar agreements existing among manufacturers for the regulation of prices. The case of the Addyston Pipe & Steel Company is the most celebrated of this kind. In 1894 a large number of manufacturers of sewer and gas pipe, the Addyston Company being one, formed a combination to monopolize business and fix prices in thirty-six States and Territories. All companies which were parties to the agreement reserved the right to compete with each other outside of these thirty-six States as fiercely as before. They significantly called the section in which there was to be no competition "pay territory"; and the States outside of this section were known as "free territory." These manufacturers dealt chiefly with municipalities, which usually let contracts for sewer and gas pipe by public bidding. Whenever such a contract was offered, the Addyston combination would meet secretly, decide upon the price they would charge, and then arrange a program of fictitious bids. They then divided the profits among themselves. In this way they forced practically all purchasers in the sections in which they traded to pay exorbitant prices. Indeed, the subsequent history of this combination beautifully illustrates the practical effect upon the public of agreements of this kind. The Addyston and its associate members sold certain pipe in "pay territory," where the combination was enforced, at twenty-four dollars a ton; in "free territory," where they competed with each other, they frequently sold identically the same product at fourteen dollars. The Supreme Court decided that this agreement violated the Sherman Act--that it was a combination or a conspiracy in restraint of trade. William H. Taft, then United States Circuit Judge, wrote an opinion discussing the merits of this dispute which has since become a legal classic. Mr. Taft spent six months in studying the questions involved.

Nearly all such cases, however, involved merely what may be called trade agreements. In each case there were actual attempts to fix prices by compact, and these agreements were the only things in common among the different corporations that became parties to them. The several corporations preserved their independent existence; they were not trusts in the sense in which the Standard Oil Company, the American Sugar Refining Company, the United States Steel Company, are trusts--that is, single corporations, producing and distributing the greater part of some particular product. Until President Roosevelt's administration, these trusts had, for the larger part, escaped prosecution under the Sherman Law, the few attempts that had been made to assail them; having ingloriously failed.

Meanwhile, in the first twelve years after the passage of the Anti-trust Act, and in the teeth of it, some of the largest monopolistic corporations were formed. Many persons have maintained that the Sherman Law, far from forestalling these corporations, has actually precipitated them. Their point is that, since this act clearly outlawed trade agreements among independent corporations, these corporations, in order to get control of the situation, have been compelled to amalgamate themselves under one ownership. The Sherman Act made illegal, for example, rate agreements among railroads; as a consequence, in order to control railroad policy, the owners of the great trunk lines have purchased large blocks of stock in each other's property--on what is popularly known as the "community of interest" idea.

President Roosevelt, however, has succeeded in applying the Sherman Act to the trusts, as that word is popularly understood. The famous Northern Securities case is his greatest victory along that line. In this instance, Mr. J. J. Hill and J. Pierpont Morgan formed a new corporation, the Northern Securities Company, which acquired the actual stock ownership of nine-tenths of the stock of the Northern Pacific Railroad and three-fourths of that of the Great Northern. The Northern Securities Company thus obtained a virtual monopoly of railroad transportation from the Great Lakes to the Pacific Ocean in the northern section of the United States. The Roosevelt administration, relying solely upon the Sherman Act, destroyed this corporation. The administration has followed up this victory by instituting suits against the Standard Oil Company, the American Tobacco Company, and other powerful monopolies.

_Labor Unions, as Such, Not Prohibited_

Meanwhile, the same law has proved an effective weapon in opposing that other form of combination and restraint against which it was framed,--the labor trust. Under it a new code of federal laws affecting labor unions has developed; and to a large extent it has strengthened the cause of legitimate labor organization. No intelligent person now disputes the right of workingmen to organize. A few labor leaders have publicly declared their apprehension that the Sherman Law prohibits peaceable labor organizations; no man, however, has thus far had the hardihood to raise this question legally; and, in the present state of public opinion as to the rights of labor, no one is likely to. The United States Courts, in decisions defining the scope of the Sherman Act, have specifically stated that it does not prohibit the ordinary peaceful activities of labor unions. Justice White, in a decision of the Supreme Court, has declared that an agreement among "locomotive engineers, firemen, or trainmen engaged in the service of an inter-State railroad not to work for less than a certain named compensation" would not be illegal. William H. Taft, in one of the most important decisions affecting the rights of workmen under the Sherman Act, has defined the situation in words which are now widely accepted as a clear statement of what is not only good law but sound public policy:

The employees of the receiver had the right to organize into or join a labor union which would take action as to the terms of their employment. It is a benefit to them and to the public that laborers should unite for their common interest and for lawful purposes. They have labor to sell. If they stand together, they are often able, all of them, to obtain better prices for their labor than dealing singly with rich employers, because the necessities of the single employee may compel him to accept any price that is offered. The accumulation of a fund for those who feel that the wages offered are below the legitimate market value of such labor is desirable. They have the right to appoint officers, who shall advise them as to the course to be taken in relations with their employers. They may unite with other unions. The officers they appoint, or any other person they choose to listen to, may advise them as to the proper course to be taken in regard to their common employment; or if they choose to appoint any one, he may order them on pain of expulsion from the union peaceably to leave the employ of their employer because any of the terms of the employment are unsatisfactory.

It is clearly indicated, therefore, what labor leaders, under the Sherman Act, can do. They have the right to organize, to combine--that is, to form unions; they have the right to refuse to work for wages or terms of employment unsatisfactory to themselves--that is, to strike. Under the Sherman Act, indeed, mere organizations of laboring men are regarded as no more outlawed than ordinary social clubs or college fraternities.

_How the Chicago Strike of 1894 Restrained Trade_

On the other hand, labor leaders know what, under the Sherman Act, they can not do. They cannot enter into combinations that restrain trade. This vital point has been settled in several important proceedings--those involving the Chicago disturbances in 1894, and, more recently the decision just handed down in the matter of the Danbury Hatters. These cases so clearly show the bearing of the Sherman Act upon illegal labor practices, that they may profitably be reviewed here.

In 1894 the employees of the Pullman Palace Car Company of Chicago struck for higher wages. These employees were not railway men; they were workmen engaged in the manufacture of railway cars. In spite of this, about four thousand had been admitted to membership in the American Railway Union, an organization of railroad operatives, which, under the vigorous management of Eugene V. Debs, had acquired a membership of 250,000, and a correspondingly great power in the field of railroad labor. In order to help the Pullman workmen in their struggle with the Pullman Company, the American Railway Union declared what was in effect a boycott upon all railroads using Pullman cars. Nearly all the larger American railroads had entered into contracts with the Pullman Company, by which parlor and sleeping cars were to be used on their trains. Debs now demanded that these railroads should break their contracts, and thereby, of course, become responsible for heavy damages to the Pullman Company. In other words, he demanded that all American railroads cease patronizing the Pullman Company because of its "unfair" attitude toward union labor; that is, he started a boycott against the Pullman Company. When the railroad companies refused to meet his demand, he ordered out all American Railway Union men employed on these lines. He even declared war upon several of the Vanderbilt roads, which had no Pullman sleepers, operating instead the Wagner cars. In effect, in order that several thousand workmen in Chicago might profitably settle their private grievances with their employers, Debs proposed, practically to end railroad communication in the larger part of the United States.

"The gigantic character of the conspiracy," said William H. Taft in a well-known decision resulting from these proceedings, "staggers the imagination. The railroads have become as necessary to the life and health and comfort of the people of this country as are the arteries to the human body." The larger part of our food supply, for example, is furnished by means of the railway; the interruption of railroad transportation for any considerable period would, among other calamities, bring famine upon large sections of the country. In Chicago, in Cincinnati, and in other large cities, Debs despatched his lieutenants with orders to tie up all railroads using Pullman cars. He gave particular instructions to interfere with freight trains, since freight was the main source of railroad revenue. In many places riots followed; in Chicago, strikers began wrecking trains, blowing up bridges, burning freight yards, tearing up tracks--indeed, nearly all the twenty-three railroads centering in that city ceased operations. The fundamental principles of the constitution, guaranteeing the safety of life and property, had apparently given way to lawlessness and anarchy. In the opinion of Grover Cleveland, then President of the United States, these proceedings constituted a "conspiracy in restraint of trade" among the States, and as such were prohibited by the Sherman Act. That the purpose and effect of Debs' proceedings was to restrain trade is sufficiently clear; indeed, no more complete restraint than the cessation of railroad communication could be imagined. Trade in this case was not only restrained; it was entirely stopped. That the means by which this was to be accomplished had all the essential elements of the inter-State boycott has also been shown. In several cities, acting under the President's instructions, United States district attorneys obtained injunctions on the ground that the strike leaders were violating the Sherman Act, and also interfering with the carriage of United States mails. In Chicago Eugene V. Debs was enjoined, and, when he disobeyed the injunction, was arrested and afterward sentenced to six months' imprisonment. In Cincinnati his associate, Frank W. Phelan, was likewise enjoined and likewise imprisoned for contempt. It was his act as judge in sending Phelan to prison for violating the Sherman Law that first made William H. Taft a national figure. The circuit courts[J] decided, in several cases, that the combination formed by Debs against nearly all the trunk lines was a boycott, "a conspiracy in restraint of trade," and punished the leaders, under the Sherman Act. William H. Taft declared that "the combination is in the teeth of the act of July 2, 1890."

_The Danbury Hatters Attempt to "Restrain Trade"_

This boycott involved violence as an incident; the Supreme Court, however, has recently taken still more advanced ground, and decided that a peaceable boycott also violates the Sherman Act. In the last fifteen years a terrific warfare has raged between the American Federation of Labor and nearly all American manufacturers of hats. The American Federation has a membership variously estimated at from 1,500,000 to 2,000,000, including workmen in practically every State and Territory. It is, as its name implies, a central association organized for the purpose of bringing into one effective machine all the local labor organizations scattered throughout the country. It is an association of associations, and, as indicating its national scope, has its headquarters in Washington. It keeps constantly in touch with its membership through its monthly publication, the American Federationist, as well as through the many journals of the unions with which it is affiliated. It regularly employs nearly one thousand agents who continually push the interests of its members in the larger part of the United States and Canada. Mr. Samuel Gompers constantly uses this organization for the prosecution of inter-State boycotts. In his petition to intervene in the Danbury Hatters case, Mr. Gompers stated, over his own signature, that "the constitution of said American Federation of Labor makes special provision for the prosecution of boycotts, so-called, when instituted by a constituent or affiliated organization." In a public speech on May 1, 1908, Mr. Gompers declared that the Supreme Court might "as well dissolve and destroy the organization of labor as to enforce these decisions"--that is, the decisions against boycotts. Obviously, the Federation of Labor has an advantageous organization for work of this kind. A local union, with membership extending not beyond the limits of a town or State, could make little headway against a manufacturer against whose goods it had declared a boycott, inasmuch as his trade usually extends over a large area. The American Federation of Labor, however, by embracing the local unions' cause can make the boycott effective in practically every part of the country. In the last twelve years, Mr. Gompers' organization has declared four hundred and eight boycotts.