A History of US Economic Law- Part 1
It has been repeatedly said that the Great Depression was caused by "no rules" laissez-faire capitalism. This is a completely absurd claim as the Great Depression occurred after several decades of laws that were revolutionary at the time and completely changed the nature of our economy from one that was heavily influenced at the state level, to one that was heavily influenced by the federal government.
I don't care to argue about whether or not the changes were positive at this time. Anyone who has read my posts knows what my opinions are. I simply want to deal with the facts of what laws were passed. My contention is that while the economy at the time of the 1929 crash was free by today's standards, it occurred in an economy that was in the process of becoming more regulated. Hardly the free, no rules, anarchic economy that some on this site, and the vast majority of teachers suggest there was.
I don't know about you, but my middle school economics discussion regarding this era consisted of talking about the expansion of the railroads in the 1800's then magically skipping to "the 20's boomed and then there was a crash, lets talk about Roosevelt" while ignoring the period of 1890-1929. Any discussion of the era was of the new technologies while virtually ignoring the laws. So hopefully you might learn something you were not aware of before.
I intend to offer a brief summary of each significant economic law passed during this period and if I can find it, link to a copy of the original text- don't be afraid to read them yourself, laws back then were MUCH shorter than they are today. I will make every attempt to keep my personal bias out of it, as my goal is to simply provide an account of what happened. When I am done with this laborious task I might go back and state my opinions on the laws as stated, and my reflection on what the actual consequences of the laws were.
Feel free to discuss your opinion of the law as to whether or not you think it was a good thing in concept, and if you feel informed enough as to whether or not it worked well in practice.
The first law I will discuss is the Sherman Antitrust Act passed July 2nd 1890. This was a time when the national economy had experienced massive (and sometimes turbulent) growth and industry tycoons were becoming amazingly rich as the country was in the process of modernizing from an agricultural economy to an industrial economy. Railroad tycoons, oil tycoons, steel tycoons, banking tycoons had built their fortunes. People like Rockefeller, Carnegie and the Vanderbilts were wealthy beyond belief. Adjusted for inflation, they make Bill Gates look poor having up to six times his purchasing power.
One of the reasons these tycoons got so wealthy is that they owned trusts and had business agreements that caused them to have virtual monopolies on the market. Standard Oil for example had roughly 90% of the market share. These tycoons lived very lavish lifestyles and used their profits to buy up smaller firms by the dozens, not just in their original industry but in many other industries as well.
Politicians supported the antitrust act by making the argument that monopolies=bad and that these large tycoons could manipulate the market in ways that harmed the consumer.
According to the congressional record the purpose of the bill was
To protect trade and commerce among the several States or with foreign nations against unlawful restraints and monopolies
In the nice straight forward way they used to write laws, it stated pretty bluntly
Section 1: Every contract, combination in the form of trust or otherwise, or
conspiracy, in restraint of trade or commerce among the several
States, or with foreign nations, is declared to be illegal...
Section 2: Every person who shall monopolize, or attempt to monopolize, or
combine or conspire with any other person or persons, to monopolize
any part of the trade or commerce among the several States, or with
foreign nations, shall be deemed guilty of a felony....
Section 3: Every contract, combination in form of trust or otherwise, or
conspiracy, in restraint of trade or commerce in any Territory of
the United States or of the District of Columbia, or in restraint
of trade or commerce between any such Territory and another, or
between any such Territory or Territories and any State or States
or the District of Columbia, or with foreign nations, or between
the District of Columbia and any State or States or foreign
nations, is declared illegal.
I edited out the punishment details and left out sections 4-7 as they simply provide the enforcement mechanisms which are not really relevant here. The entire act is available for your reading pleasure here.
Initially, the Sherman Antitrust Act didn't get much use. Ironically, the first use of the act was by President Cleveland using its violation as an excuse to send in US Marshalls and military troops to break up a strike. http://en.wikipedia.org/wiki/Pullman_Strike
In 1895 the law suffered a setback in United States vs. E.C. Knight Co. 156 U.S. 1 (1895) a case where E.C. Knight Co. controlled 98% of the sugar refining in the US. The Court ruled 8 to 1 that manufacturing was intra state commerce, not interstate commerce and therefore was not covered by the Sherman Act.
It was in the early 1900's when the Sherman Antitrust Act started being aggressively used to break up larges trusts, mostly due to President Theodore Roosevelt who made it a central issue during his campaign for president. He went on to sue dozens of companies under the act and President Taft continued the trend leading to the breakup of many trusts, perhaps most famously Standard Oil was broken into 34 different companies. Many of which you can recognize as the big oil names today- Exxon, BP, Mobil, Conoco, Amoco, Pennzoil and Chevron can all trace their lineage back the Standard Oil Trust.
As a side note, the breakup of Standard Oil ironically is what made Rockefeller the wealthiest man in the world. At the time he was retired but still owned a large stake the value of which multiplied exponentially as investors flocked to buy up the shares of a very profitable industry.