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Monopolies and Antitrust Law - Historical Background

trusts century market courts

Monopolies have existed in civilizations throughout history. English law, for instance, granted the right of monopoly to the nation's guilds through parliamentary or royal decree during the middle ages. This practice diminished in the seventeenth century, and tentative judicial action against unfair trade had begun by the early eighteenth century. It was the Industrial Revolution, beginning in the 1870s, with its expansion of commerce and new markets, that brought greater demand for action from the courts. Yet the English common law only gave American law a contradictory legacy. This was the notion that hindering competition was more or less bad, but that courts generally should only take limited roles in evaluating contracts for fairness. Some short-term restraints were considered "reasonable," other more general restraints "unreasonable". And there were always exceptions.

Inheriting this so-called "rule of reason," late nineteenth century America was thus unable to address its problems. With only a smattering of market-interference laws in twelve states, approaches varied widely. At best, courts sometimes refused to enforce business contracts because they prevented competitors from entering a market. Federal law was silent.

This lack of legal controls helped give rise to the trusts. Following the Civil War, an industrial boom had begun transforming the nation's economic base from agriculture to industry. This fundamental change brought headaches for industries, which were producing more goods than consumers needed. Initially, their incorporation into trusts was self-protective. Resources could be pooled and risks reduced through their merger into oil trusts, steel trusts, mining trusts, sugar trusts, and so on. Monopoly power also meant strength, and by the end of the century, the trusts were flexing their muscles arrogantly. Companies such as Standard Oil and industry captains such as steel magnate J. P. Morgan fixed prices to suit themselves and to eliminate competitors. If rivals tried to enter a market, the monopolists would sell their goods at a loss until the competitors were destroyed, after which prices shot back up. Consumers were powerless, as were businesses whose livelihoods the trusts imperiled. Farmers, for instance, could not count upon the nation's railroad system to transport their goods affordably to market, since the railroads gave preferential treatment in the form of heavy discounts to larger-volume customers. Public outrage in the 1880s led to demand for reform to reign in the "fat cats" and "robber barons".

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