The 1890 Sherman Antitrust Act

7.9 The 1890 Sherman Antitrust Act

Congress passed this act in 1890, and this is the source of all American anti monopoly laws. The law forbids every contract, scheme, deal, conspiracy to restrain trade. It also forbids conspirations to secure monopoly of a given industry. The ideas were new and had to wait before they could achieve some efficiency. The Standard reorganized once more, in a holding in the Standard Oil Company (New Jersey) which now coordinated the whole machine, that is 70 companies and 23 refineries controlling 84% of the crude oil refined in the US in 1899. Ten years later, international competition (from Canada, Peru, Rumania, Poland, India or Russian) and the struggle of the independents lowered this percentage to 14 %. Theodore Roosevelt committed himself in 1901 and during both of his mandates to a strong war against monopolies, launching the federal government in 1906 in a lawsuit against the Standard because of discriminatory practices on the market, abuse of power and excessive control on the American oil industry.

7.10 Dismantling of the Standard Oil

In 1911, the Supreme Court finds the Standard Oil in violation of the 1890 Sherman Antitrust Act because of excessive restrictions to trade, and in particular its practice of buying out the small independent refiners or that of lowering the price in a given region to force bankruptcy of competitors. The court ordered the Standard Oil Company (New Jersey) to dismantle 33 of its most important affiliates, giving the stocks to its own shareholders and not to a new trust. From these offspring will come Exxon, Mobil, Chevron, American, Esso (that is SO).

This is a landmark ruling in the economic history of the USA, and is the basis for a new doctrine in American antitrust policy, called the rule of reason (because of the famous unreasonable restraints to trade mentioned in the Sherman Antitrust Act. Need for more solid juridical basis led to the Clayton Antitrust Act in 1914, which explicitly condemns commercial practices like price discrimination, exclusive commercial relations, the buying out of competitors and the incestuous boards.

Rockefeller's testimony before a court

In his testimony, Rockefeller says he did not take part in the South Improvement Company, did not receive special rebates from the railroads and that lived in good entente with his competitors...

One may probe Rockefeller's attitude toward the investigation by reading the following part of the transcript. The judge talked of the refiners pool of 1872 :

--	Judge : Was there a Southern Improvement Company Rockefeller : I have heard of such a company Judge : Were you in it? Rockefeller : I was not

Playing on the error of the judge, who should have said "South Improvement Company", he takes the opportunity to reveal nothing while not lying. But this did not stop the investigation.