Sherman Antitrust Act

DEFINITION of 'Sherman Antitrust Act'

The Sherman Anti-Trust Act is landmark 1890 U.S. legislation which outlawed trusts, then understood to mean monopolies and cartels, to increase economic competitiveness.

BREAKING DOWN 'Sherman Antitrust Act'

The Sherman Anti-Trust Act was proposed in 1890 by Senator John Sherman from Ohio and was passed in the same year by the 51st U.S. Congress. Passed at the height of what is known as the "Gilded Age" in American history, the legislation is an early example of capitalist "competition law" designed to ensure that the economic playing field remained competitive.

It is important to recognize what late nineteenth-century legislators understood trusts to represent. Today, it means a financial relationship in which one party gives another the right to hold property or assets for a third party, but in the nineteenth century, "trust" became an umbrella term for any sort of collusive or conspiratorial behavior that was seen to render competition unfair. It was designed not to prevent monopolies achieved by honest or organic means, but those which resulted from a deliberate attempt to dominate the marketplace. It especially targeted big corporations operating in multiple states, as Congress justified their radical new regulations on their constitutional right to regulate interstate commerce

The legislation was passed at a time of extreme public hostility towards large corporations like Standard Oil and the American Railway Union which were seen to be unfairly monopolizing certain industries. This outcry sprang from both consumers, who were being damaged by exorbitantly high prices on essential goods, and competitors in production, who found themselves shut out of industries because of deliberate attempts by certain companies to keep other enterprises out of the market. The Act received immediate public approval, but as the legislation's definition of concepts like trusts, monopolies and collusion were not clearly defined, few business entities were actually prosecuted under its measures.  

However, the popular demand for the Act signaled an important shift in American regulatory strategy towards business and markets. After the nineteenth-century rise of big business, American lawmakers reacted with a drive to regulate business practices more strictly. The Sherman Anti-Trust Act paved the legislative road for more specific laws like the 1914 Clayton Anti-Trust Act. Measures like these had widespread popular support, but lawmakers were also motivated by a genuine desire to keep the American market economy broadly competitive in the face of changing business practices.

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