What is the 'Sherman Antitrust Act'

The Sherman Antitrust Act is landmark 1890 U.S. legislation which outlawed trusts — monopolies and cartels — to increase economic competitiveness. As a means to regulate interstate commerce, the law is a broad and sweeping attempt to address the use of trusts as a tool for placing the control of a number of key industries into the hands of a limited number of individuals.

Breaking Down 'Sherman Antitrust Act'

The Sherman Antitrust Act was proposed in 1890 by Senator John Sherman from Ohio and was passed as 15 U.S.C. §§ 1-7 and amended by the Clayton Antitrust Act in 1914 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 19th 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. 

Sherman Antitrust Act Sections

The Sherman Antitrust Act is broken down into three sections. Section 1 defines and bans specific means of anticompetitive conduct. Section 2 addresses the end results that are by their nature anticompetitive. As such, Sections 1 and 2 act to prevent the violation of the spirit of the law while still remaining within its bounds. Section 3 extends the guidelines and provisions in Section 1 to the District of Columbia and U.S. territories.

Sherman Antitrust Act Impact

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 Antitrust Act paved the legislative road for more specific laws like the Clayton 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. For more, see the Federal Trade Commission's guide to Antitrust Laws.

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