Sherman Antitrust Act

Thanks to Senator John Sherman, the Antitrust Act was put in place as a leash on various trusts, companies, and organizations. It was also implemented to restrict cartels and their monopoly. It was passed on July 2, 1890.

This act was the foundation of the anti-trust litigation by the federal government of the USA. Primarily, as mentioned previously, the Sherman Act restricted trusts and cartels from going haywire and gaining the upper hand.

Hence, the objective of this act was to resist the combination of the entities posing a risk to the competitors. Interestingly, this act did not have a lot to do with trusts.

A more appropriate term for it is considered to be the 'Competition Law'. The law tried to prevent the artificial price hike on account of trade or supply restriction. It is also said in some avenues that this act does not protect competitors, but protects the competition.

The act, based on the power given to the Congress to regulate interstate commerce, declared every contract, combination (in the form of trust or otherwise), or conspiracy to be in restraint of interstate and foreign trade. A fine of 5,000 USD and imprisonment for one year were fixed as the maximum penalties for violating the act.

There were two main provisions of this act―the first delineated and prohibited the means of anti-competitive conduct and monopoly. The other section dabbled in the end results that are anti-competitive in nature.

Apart from being applicable to dealings of pure commerce, the prohibition of cartels was interpreted to hold a number of labor union activities illegal.

Senator John Sherman, of Ohio, was the main proponent of the Act. He was also the chairman of the Senate finance committee. One of the very first applications of this act came in the year 1894.

The American Railway union was dragged into court by Eugene Debs, to settle the Pullman strike. Although the act was passed in 1890, a number of politicians were not happy with the implementation of the act till the early 1900s, when Theodore Roosevelt would take over.

It was succeeded by legislation, in 1914, by way of the Clayton Antitrust Act. This added several items to the prohibited activities along with those laid down by the Sherman Act.

Some of them were exclusively dealing agreements and tying arrangements. The Clayton Act laid down the mergers and acquisitions, substantially reducing market competition and creating a secure marketing environment.

The Act attracted a good amount of controversy. One of the major criticisms was that it would restrict innovation, and become a hindrance to progress. It was also said that anything new in the market would suffer. There were some more criticisms from the economic perspective as well.

Nevertheless, it was passed and criticisms did not matter, apart from mere academic interest.