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1890 Sherman Antitrust Act: Foundation of Modern Competition Law

9 December 2010 - News - Editor

In an era where mergers and acquisitions are relatively commonplace, antitrust laws and regulation of anti-competitive behavior is seen to be of utmost importance to prevent monopolies from forming which may be detrimental to consumers and the economy at large. In the United States, the Sherman Antitrust Act forms the basis of principles regulating anti-competitive behavior, calling upon the Federal Government to take action against companies and organizations engaged in anti-competitive activities. The fact that the act was legislated in 1890, and is still relevant today, shows that anti-competitive behavior is nothing new. There have long been those who have wanted more than their fair share of the pie, and there have long been others who have recognized the need to regulate monopolistic activities for the greater good. John Sherman proved to be among the latter category.

Born in Ohio on May 1, 1823, John Sherman was one of eleven children raised primarily by his mother following the death of his father in 1829. Overcoming adversity and lack of opportunities, Sherman pursued an education that would see him admitted to the bar in 1844. In 1848 he married Cecilia Margaret Stewart, the daughter of an Ohio judge. Shortly after his marriage, Sherman turned his attention to the political arena as a Republican and worked at a number of posts in the following years. His most noteworthy achievement during his time in politics was undoubtedly his role in writing and introducing what came to be known as the Sherman Antitrust Act of 1890. At the time of writing the Act, Sherman was the Chairman of the Senate Finance Committee. This was the very first action by the U.S. Federal Government to prevent monopolies from forming. But although the act was sound and would form the basis of subsequent legislation in this field, John Sherman would not see its full implementation in his lifetime, as at the time politicians were reluctant to use the law. It was only during the Presidency of Theodore Roosevelt (1901-1909) that the law took proper effect, by which time Sherman had passed away on October 22, 1900.

At the time of writing the Sherman Antitrust Act, it was common practice for monopolists to conceal their actions and intent by forming a 'trust' to create enforceable agreements – hence the term 'antitrust'. However, today antitrust laws are more commonly known as 'competition laws'. The principles, however, remain much the same – that of preventing the formation of monopolies or cartels, which crush competition and allow for the manipulation of pricing and supply, to the supplier’s benefit, and often to the consumer's detriment.

Although the Sherman Antitrust Act has many proponents, there are those who believe it is counterproductive and may even have the effect of stifling competition and innovativeness. One of the most outspoken critics of the Sherman Act, Alan Greenspan, noted in his essay entitled 'Antitrust': "No one will ever know what new products, processes, machines, and cost-saving mergers failed to come into existence, killed by the Sherman Act before they were born. No one can ever compute the price that all of us have paid for that Act which, by inducing less effective use of capital, has kept our standard of living lower than would otherwise have been possible." Food for thought indeed.

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monopolies

 


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