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Wall Street History
https://www.gofundme.com/s3h2w8
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04/14/2000
The Sherman Act, Part II
As we briefly touched on in Part I, the problem with the Sherman
Antitrust Act of 1890 was that the legislation had few teeth.
There was no government oversight by any agency, making
challenges to the Act rather meaningless. Market historian
Charles Geisst comments further:
"The Sherman Act still could not come to grips with some of the
more subtle devices used to dominate certain industries. One
was the central position that bankers had assumed on the
American industrial scene. This was accomplished by sitting on
the boards of many companies - some in the same sorts of
industries - or on the boards of client companies. One of the
banker''s main functions was to sit on as many boards as
possible, ensuring an influence out of all proportion to the actual
importance of the banks themselves."
In the presidential election of 1900, Republican incumbent
William McKinley beat the Democrat / Populist William
Jennings Bryan, 52 to 46 percent, and 292-155 in the electoral
vote. McKinley''s first term vice president was Garret Hobart.
Hobart died late in the term of heart disease and at the
nominating convention in 1900, the name of Teddy Roosevelt
kept popping up, TR having emerged as a famous hero of the
Spanish American War. Said party insider Mark Hanna, if
Roosevelt were nominated, "only one heartbeat" would separate
that "damned cowboy" from the White House. And wouldn''t
you know it, just six months after McKinley''s second
inauguration, he was assassinated in Buffalo, New York by
anarchist Leon Czolgosz. [McKinley was shot on September 6,
1901 and died one week later.]
It''s a little off the track but it''s interesting to note McKinley''s
last public comments. He was in Buffalo to deliver an address at
the Pan-American Exposition, a convention designed to promote
peace and commerce in the Western Hemisphere. In his speech,
he urged a new economic policy of commercial free trade,
arguing that the U.S. could not forever sell the products of
American industry abroad without also buying the products of
other countries.
"The period of exclusiveness is past.the expansion of our trade
and commerce is the pressing problem." He then argued that
such expansion must take place under conditions of world peace.
"Commercial wars are unprofitable."
Enter Theodore Roosevelt. Historian Richard Abrams comments
on this new era.
"The administration of Theodore Roosevelt was in some respects
the first modern presidency. It is with Roosevelt that the most
distinctive twentieth-century characteristics of the executive
office emerged as more or less permanent traits..He extended
presidential initiatives in policymaking to the domestic scene on
an unprecedented scale, putting forward reform proposals for
congressional action and using executive orders to promote
major innovative programs."
Roosevelt sought to persuade the nation that the federal
government had a legitimate responsibility to regulate business
activities (as well as the regulation of the country''s natural
resources, one of his greatest achievements).
In the matter of commerce, by 1900 state governments seemed
incapable of overseeing the nation''s industrial and financial
affairs due to the growing interstate and global character of
economic activity. The time was ripe for the rise of "The
Regulatory State." Historian Abrams:
"The country''s rapid industrialization since mid-century had
suddenly enriched thousands of Americans who had come from
modest and, in some cases, lower-class families. In fact, the
wealth of the Rockefellers, Carnegies, Hills, and Harrimans
substantially dwarfed the family fortunes enjoyed by the
country''s older, self-conscious ''aristocracy,'' such patrician
families as the Adamses, Schuylers, Peabody''s and Roosevelts.
And along with the wealth went power." [Now just stop for a
moment. See any parallels to today and the rise of dot-com
wealth vs. Old Economy corporations?]
In one of his early addresses to Congress, Roosevelt declared,
"The power of Congress to regulate interstate commerce is an
absolute and unqualified grant, and without limitations other than
those prescribed by the Constitution."
The dispute was over how one defined the legal reach of the
phrase "interstate commerce." The Interstate Commerce
Commission had been created in 1887 but the Supreme Court
had repeatedly overrode the intentions of the legislative branches
of American government in antitrust matters. [See Part I wherein
the Supreme Court held that the "mere control" of 98% of the
sugar refining business did not in itself constitute an act in
restraint of trade.]
So Roosevelt sought to reinvigorate the Sherman Act,
announcing, "As far as the Anti-Trust Laws go, they will be
enforced.and when suit is undertaken it will not be
compromised except upon the basis that the Government wins."
In 1902 TR shocked Wall Street by instructing Attorney-General
Philander Knox to prosecute Northern Securities Company
(NSC) for violation of the Sherman Act.
The previous year, financier J.P. Morgan had concluded
the reorganization of the steel industry by buying out Carnegie
and consolidating several other major steel producers into the
new billion-dollar U.S. Steel Corp. The next year, he set his sites
on the railroads.
Seeking to monopolize all rail traffic between the Great Lakes
and the Pacific Coast, Morgan joined with titans J.J. Hill, E.H.
Harriman and others to form NSC. This combined the assets of
Northern Pacific, the Great Northern, and the Chicago,
Burlington and Quincy systems.
From author Jean Strouse: "Morgan was stunned. His lawyers
had put together Northern Securities with a careful eye on the
antitrust law. He thought the President should have conferred
with him, given him a chance to resolve their differences and
make whatever adjustments might be in order, before publicly
branding him an outlaw."
Morgan hurried to the White House (along with insider Mark
Hanna) to dissuade Roosevelt. Morgan told Roosevelt that if
they had done anything wrong, "send your man (Knox) to my
man (one of his lawyers) and we can fix it up." TR retorted:
"That can''t be done," and Knox explained: "We don''t want to fix
it up, we want to stop it."
After Morgan had left, Roosevelt remarked to Knox, "That is a
most illuminating illustration of the Wall Street point of view.
Mr. Morgan could not help regarding me as a big rival operator,
who either intended to ruin all his interests, or else could be
induced to come to an agreement to ruin none."
By a 5 to 4 vote, the U.S. Supreme Court upheld the
government''s prosecution and overruled its previous decision in
the E.C. Knight case, thereby stopping a process of consolidation
that Harriman et al proposed to continue until every important
railway in the country came under their control. Roosevelt
commented:
"It was necessary to reverse the Knight case in the interests of
the people against monopoly and privilege just as it had been
necessary to reverse the Dred Scott case in the interest of the
people against slavery."
Some say TR acted against NSC less from his concern about
monopoly, than from his concern about how the public might
react to uncontrolled corporate arrogance.
"(Revolutionary upheaval was as likely to be inspired from) an
attitude of arrogance on the part of the owners of property and of
unwillingness to recognize their duty to the public" as by
socialist or anarchist revolutionaries (the latter two being of
major, legitimate concern during this period of time).
Historians argued that the NSC decision "aroused consternation
in financial circles, proved to the nation that industrial magnates
were not immune from the law, and enormously enhanced the
popularity of the President." [see below, MCL.]
Roosevelt won the election of 1904 in a landslide over Alton
Parker, 56 to 38 percent, the greatest plurality yet achieved.
Encouraged by this mandate, TR turned with new enthusiasm to
the enforcement of his trust policies.
"In the first two years of his second term, big business was
further discredited by the muckrakers'' (journalists) attacks on
Standard Oil, the beef trust, and the railroads, by the shocking
disclosures of the New York insurance investigations of 1905, by
the discovery that the sugar trust had swindled the government
out of $4 million in customs duties by false weights, and by the
panic of 1907."
Altogether there were 45 prosecutions under the Sherman Act,
but, in truth, little was really accomplished. In virtually all cases,
the damage had been done and the trusts often reemerged.
As to the relationship with J.P. Morgan, Roosevelt reached an
informal gentleman''s agreement with the House of Morgan. He
avoided court action against Morgan companies in return for
their co-operation. Roosevelt came to conclude that the mere
size and power of a combination did not necessarily render it
illegal: there were ''good trusts'' and there were ''bad trusts."
Author Strouse opines on the subject:
"(Morgan and Roosevelt) were essentially ''big rival operators,''
each convinced that he had the country''s long-term best interests
at heart, and ready to use any means in his considerable arsenal
to bring about the future he had in mind. One of them was
President of the United States, looking forward to imperial
dominance abroad and intent at home on publicly subjugating the
''mighty industrial overlords of the country'' to governmental
authority. The other was a private banker who looked
exclusively to economic efficacy, confident that military and
political questions would take care of themselves if the United
States had stable markets and steady productive growth."
"From Morgan''s point of view it was wildly irresponsible of ''the
politicians'' to interfere with the delicate financial mechanisms
over which he was unofficially presiding as the balance of
economic power shifted from the Old World to the New."
[Note: Strouse wrote this in 1999. I wonder if she was thinking
at all about Microsoft as well as the Old Economy vs. New
Economy debate?]
Next week, the case against Standard Oil.
Sources: "The Presidents," Henry Graff. [Essay by Richard
Abrams]
"The Growth of the American Republic, Vol. II"
Samuel Morison, Henry Steele Commager,
William Leuchtenberg
"Wall Street: A History," Charles Geisst
"Morgan: American Financier," Jean Strouse
Brian Trumbore
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