Boston Tea Party
The Boston Tea Party is often remembered as a rebellion against taxation. It was also a rebellion against the British East India Company’s trade monopoly. As Samuel Adams and John Hancock wrote in a 1773 letter protesting the Tea Act, the company was “introductive of Monopolies which, besides the trains of evil that attend them in the commercial view, are forever dangerous to public liberty.” Independent merchants expressed concern that the British East India Company would use its monopoly power to take control of other lines of commerce. This early protest inspired Americans to develop anti-monopoly principles to keep marketplaces open and to preserve democracy by breaking up concentrations of economic power.
With this legislation, Congress rejected concentrated land ownership in the territories that would later become the states of Ohio, Michigan, Indiana, Illinois, and Wisconsin. It did so by banning slavery in those regions and by promoting the division of the land into small homesteads. The legislation, which often proved detrimental to Native Americans, also encouraged the breaking up of large estates by requiring that when a landowner dies, his or her lands “be distributed among their children, and the descendants of a deceased child, in equal parts.” The law further encouraged the broad distribution of economic power by declaring the navigable waters of the Mississippi, Ohio, and St. Lawrence rivers to be “common highways and forever free.” This provision ensured that essential river transport would not become monopolized as it had in Europe.
The Constitution addresses monopoly in two explicit ways. First, it specifies that the federal government, rather than private monopolies, will control the postal service and postal roads.
Second, to promote science and the arts, it establishes a system for granting monopolies in the form of patents and copyrights to individual creators. James Madison, one of the main framers of the Constitution, later wrote that although, “monopolies…ought to be granted with caution and guarded with strictness against abuse,” patents and copyrights should be “considered as a compensation for a benefit actually gained to the community.” But Madison and the other Framers also specified that these forms of monopolies be carefully limited in time and scope.
Bill of Rights
Delegates to the Constitutional Convention debated whether to include a provision banning all private monopolies and charters of “special privilege.” Delegates from six states also advocated a clause that would have prohibited Congress from granting monopolies or giving any company “exclusive advantages of commerce.” These measures did not win majority support, but were taken up again in the debate over the Bill of Rights.
A small group of delegates, known as the anti-federalists, proposed including language that outlawed monopolies. Thomas Jefferson, then serving as ambassador to France, in a 1788 letter to James Madison, supported the idea, writing: “It is better to…abolish… monopolies, in all cases, than not to do it in any.”
Madison, however, felt the Constitution provided citizens with sufficient means of protecting themselves against private monopoly:
“Monopolies are sacrifices of the many to the few,” he said. “Where the power is in the few it is natural for them to sacrifice the many to their own partialities and corruptions. Where the power, as with us, is in the many not in the few, the danger cannot be very great that the few will be thus favored.”
Although no anti-monopoly language was included in the ratified Bill of Rights, the debate over monopoly continued to reveal how strongly the Founders opposed concentration of economic power.
At a time of when undeveloped roads made it hard to transport crops from farms to markets, frontier farmers often distilled their crops into whiskey, which was easy to transport and which did not perish. Thus, when Treasury Secretary Alexander Hamilton persuaded Congress to impose a tax on whiskey production in the United States, the threat to frontier farmers was severe. Adding to the farmers’ outrage was the regressive nature of the tax; industrial-scale whiskey producers paid a lower rate. Soon, the so-called Whiskey Rebellion broke out. Hamilton raised a large army, marched into Western Pennsylvania, and arrested protestors. In 1802, President Thomas Jefferson convinced Congress to repeal the tax.
Postal Service Act
Congress established the United States Post Office Department, as called for by the Constitution’s Postal Clause. In doing so, Congress created a neutral, open network of mail communication serving all Americans wherever they lived.
During debate over the bill, Congress concluded that if private couriers administered mail service, they would favor larger cities to smaller locales and fail to cater to a growing citizenry settling westward. Intent on preserving equal access to information and ideas, they designed a system in which profits earned on busy routes would “cross-subsidize” the service to rural and Western parts of the nation.
Supported strongly by President Washington, Congress also voted to subsidize postal rates for newspapers, charging only a penny to send a newspaper from one part of the country to another. To pay the cost of distributing information to Americans, Congress established a de facto tax on merchants, who were responsible for sending most letters, charging 6 cents per stamp.
General Incorporation Acts
Individual states passed a series of Acts during the early 19th century to make it possible for Americans to start new businesses without needing a special charter from the government. The Acts eradicated the system of ‘special privilege’ and ‘monopoly rights’ that the British Crown had imposed on Americans during colonial times. Americans increasingly viewed freedom to incorporate a new business or cooperative — and to compete with entrenched interests – as a fundamental right.
Veto of the Second Bank of the United States
President Andrew Jackson vetoed the extension of the charter of the Second Bank of the United States, a privately controlled financial institution that monopolized all fiscal operations of U.S. Government. Jackson charged that the bank “enjoy[ed] an exclusive privilege” that resulted in the “concentration of power in the hands of a few men irresponsible to the people.” The veto animated the antimonopoly cause and encouraged the growth of open markets and distributed power in banking.
New York Free Banking Act of 1838
This Act, inspired by Andrew Jackson’s Bank Veto, made it easier for New York citizens to start and operate their own financial institutions. By allowing citizens to use general incorporation laws to form banks, the Act encouraged the growth of local independent banks to meet local needs, thereby reducing “the evils of the money monopoly.” Other states soon followed with similar legislation.
New York Telegraph Act of 1848
This anti-monopoly law simplified the procedure for obtaining a telegraph charter in New York. It limited the special privileges lawmakers gave wealthy industrialists when chartering new businesses, introduced new competition into the telegraph industry, and reduced economic concentration.
Understanding that the telegraph would become a key way to spread information about public affairs, lawmakers also permitted journalists to transmit “general and public interest” messages ahead of regular dispatches. This law, like the New York Free Banking Act, served as a legislative template that other states would soon adopt.
The Civil War
America’s Civil War, in addition to being a fight over slavery, was in many ways also a fight over monopoly. Senator Thomas Morris of Ohio was typical of leading abolitionists when he characterized “Slave Power” to be “the goliath of all monopolies.” Similarly, Helen Douglass, wife of the Free Soiler and abolitionist Frederick Douglass, wrote that his opposition against any type of coercion “not only made him a foe to American slavery, but also to all forms of monopoly.”
The Free Soil movement, a spearhead of opposition to slavery, was founded on the conviction that both land monopoly and chattel slavery were “combinations of wealth against the liberty of the masses.” As history scholar Jonathan Earle explains, Free Soilers “went beyond simple hostility to the Slave Power and its pretenses, linking their antislavery opposition to a land reform agenda that pressed for free land for poor settlers, in addition to a land free of slavery.”
At the conclusion of the War, Congress and the States enacted the 13 Amendment to the Constitution to outlaw slavery. But paradoxically, the rapid concentration of corporate and banking power used to finance the war also helped to accelerate the concentration of economic power in the years immediately after the War.
National Banking Acts of 1863 & 1864
The Banking Acts of 1863 and 1864, passed by Congress during the Civil War, established the groundwork for a system of federally chartered banks. In so doing, it carried forward language already found in state bank charters that prohibited banks from trading in stocks or engaging in other lines of business.
This idea for a wall between banking and other forms of commerce traces back hundreds of years within English law. One goal of this wall was to limit the exposure of banks to risks. A second, perhaps even more important goal, was to check the ability of financiers to gain monopoly power over other people’s business.
National Telegraph Act of 1866
This Act set the groundwork for a competitive telegraph industry, compelling providers to compete on price and ensuring that all Americans had equal access to the then revolutionary technology. Congress passed the Act after a series of mergers that gave Western Union control over more than 104,000 miles of wire, compared to the 26,000 miles operated by all other telegraph companies.
Congress made clear in the Act that the government had the right to set rates for all government traffic on the telegraph. It also made clear the government had the right to buy out private telegraph companies at any time. Finally it established rules to encourage other companies to go into competition against Western Union.
Low crop prices, a lack of credit, and the rise of railroad and other interstate agricultural monopolies triggered the largest farmers’ movement in American history. Farmers demanded that government break or regulate the monopolists; during the 1870s, a group of farmers known as The National Grange—or, the Grangers—succeeded in passing laws in several Midwestern states that made railroad rates more favorable to farmers and set a maximum on the price that grain storage facilities could charge.
Farmers also responded by establishing purchasing and marketing cooperatives to counter the market power of seed and crop monopolists. By the late 1880s, the movement was a leader in advocating federal anti-monopoly legislation.
14th Amendment to the Constitution
This amendment outlawed racially discriminatory laws like the Black Codes. The law, at the time, also was seen as a way to prohibit all grants of monopoly or class privilege. An 1866 article in the Boston Daily Advertiser said it “thr[e]w the same shield over the black man as over the white, over the humble as over the powerful.”
One of the earliest applications of the law was by a group of independent Louisiana butchers who argued a state sanctioned 25-year slaughterhouse monopoly violated the 14 Amendment. But the Supreme Court in 1873 ruled 5 to 4 that the monopoly did not violate the clause, and that the 14 Amendment only pertained to the rights of citizens at the federal level.
One result of this case was to buttress the power of state and local governments to regulate activities that affect health and environment. Another result, however, was to make it more difficult for the Federal government to police anticompetitive actions, thus making it easier for businesses to exert market power over their smaller competitors. Worse yet, the ruling that state rights were beyond federal protection also opened the door for Jim Crow laws in the South.
Munn v. Illinois
This Supreme Court case developed from protests by the National Grange, which argues that grain storage facility owners intentionally charged high prices to farmers to drive them out of business. The ruling clarified the right of government to regulate private properties that are “affected with a public interest.” Specifically, it allowed states to regulate grain elevator prices, made the amount of grain in each elevator public information, and stabilized markets. It also laid the foundation for later federal regulation of the railroad industries.
Interstate Commerce Act of 1887
Building on previous initiatives by state governments to regulate railroads, this law created the federal Interstate Commerce Commission, the nation’s first independent federal regulatory body. Through this and subsequent legislation, the ICC would gain the power to set safety standards, maximum prices, and service levels for railroads and later bus and trucking companies, as well as telephone, telegraph, and wireless companies. By prohibiting price discrimination against lower volume shippers and smaller cities and towns, the Act helped to promote small business and regional equality.
Sherman Antitrust Act of 1890
Passed by Congress almost unanimously and signed into law by Republican President Benjamin Harrison, this legislation was a response to the rise of “trusts,” an informal cartel in which large companies would be tied together through contract and cross-ownership. The Act outlaws any “restraints of trade” that reduce competition and any concentrations of market power that restrict interstate commerce. Senator John Sherman (R-OH) defended the bill as essential to preserving freedom and democracy:
“It is the right of every man to work, labor, and produce in any lawful vocation and to transport his production on equal terms and conditions and under like circumstances. This is industrial liberty, and lies at the foundation of the equality of all rights and privileges.”
A wide collection of farmer and labor groups—including the Farmers Alliance and the Knights of Labor—formed a national political party that advocated for direct election of Senators, a graduated income tax, the dissolution of national banks, and anti-monopoly principles that broke up railroad and agricultural trusts. In 1892, the Party ran James B. Weaver for president, and won 8.5% of the vote, a significant number for an independent party. In 1896, the Party fused with the Democratic Party and ran William Jennings Bryan for President, on a platform that aimed to combat economic concentration and promoted an inflationary monetary policy.
United States v. Trans-Missouri Freight
In this case, the Department of Justice sought to break up a cartel among Western railroads, arguing that their collusion in setting freight rates violated the Sherman Antitrust Act. The defendants countered that the Act did not apply to them because their collusion did not result in higher prices. The Supreme Court explicitly rejected this defense, making it clear that monopolists could not justify their actions by asserting that their collusion brought benefits to the buyer. On the contrary, the case affirmed that the purpose of anti-monopoly law is to protect the independent producer and trader—or, in the words of Justice Peckham, the “small dealers and worthy men.” As Peckham concluded:
“Mere reduction in the price of the commodity dealt in might be dearly paid for by the ruin of such a class and the absorption of control over one commodity by an all-powerful combination of capital.”
This Act strengthened the Interstate Commerce Act by outlawing the railroads’ use of price discrimination, such as by charging large shippers lower prices than smaller shippers or favoring lower rates on some routes than on others. By reducing such price discrimination, the legislation helped to even the playing field between big and small businesses and between different regions of country.
Northern Securities Co. v. United States
Republican President Theodore Roosevelt ordered the Department of Justice to pursue antitrust litigation against Northern Securities, a “trust” created by rail tycoons James J. Hill and Edward H. Harriman and financed by J.P. Morgan and John D. Rockefeller.
Finding that the combination had monopolized rail traffic between the Chicago and the Pacific Northwest, the Supreme Court ruled in 1904 that Northern Securities be disbanded. The case broke with the largely pro-monopoly policy of Roosevelt’s predecessor, William McKinley, and helped Roosevelt secure a reputation as a “trust buster.” Within a few years, however, Roosevelt came to see concentration as natural and inevitable, and he largely abandoned his support for antitrust actions.
Hepburn Act of 1906
Passed in response to steep rises in the cost of shipping and traveling by rail, this legislation expanded the Interstate Commerce Commission’s (ICC) powers by giving it unilateral rate-making powers in railroading. The ICC used these powers to prohibit price discrimination against businesses, regions, and buyers that lacked the market power to stand up to railroad monopolies. The Act also outlawed the longtime railroad practice of favoring large shippers and friendly politicians with free travel passes.
Food Regulation Acts of 1906 & 1907
The Pure Food and Drug Act of 1906 and the Federal Meat Inspection Act of 1907 established federal food and drug safety standards for the first time and increased transparency in the meatpacking and drug markets. The laws were passed in response to investigations by muckrakers like Samuel Hopkins Adams, who exposed the patent medicine industry’s deceptive practices, and Upton Sinclar, who investigated meatpackers’ anticompetitive practices.
The legislation had the effect of re-structuring competition within food and drug markets; instead of competing just on price, producers were forced to also compete on safety and scientifically established effectiveness.
Congress used this legislation to extend the Interstate Commerce Commission’s common carrier provisions to the telephone, telegraph, and wireless industries. The Act protected the welfare of individual entrepreneurs, communities, and the public at large by granting them “just and reasonable” access to communications infrastructure. Congress also further increased the ICC’s regulatory control of railroad rates. President Taft signed the Act into law.
Dr. Miles Medical Co. v. John D. Park and Sons Co.
This case centered on a dispute between a drug manufacturer and a drug retailer about which actor had the right to price the drug. The Supreme Court ruled in a split decision that it is a violation of the Sherman Antitrust Act for suppliers to set a minimum price at which independent retailers may resell their products. The Court reasoned that such “Resale Price Maintenance” agreements amount to price-fixing.
Justice Holmes, in a famous dissent, charged the Court with allowing “knaves to cut reasonable prices for some ulterior purpose of their own, and thus to impair, if not to destroy, the production and sale of articles which it is assumed to be desirable that the public be able to get.”
Congress and state legislatures subsequently passed various “fair trade laws” that specifically allowed for such agreements. These laws were designed to prevent large chain stores from stripping out the profits of their suppliers and from using discounting and loss-leading to drive smaller retailers out of business.
Standard Oil Co. v. United States
The action reduced concentration in the oil industry, but also angered many anti-monopoly advocates by establishing the precedent that monopolies were not per se illegal under the Sherman Act and could only be convicted in cases of proven price-fixing and collusion. The decision also held that the courts, not Congress or the executive branch, would determine which monopolies were “good” and which were “bad.”
Dissatisfaction over the decision pushed Congress to pass the Clayton Antitrust Act and to create the Federal Trade Commission to more vigorously prosecute monopolies.
2008 Financial Crisis
On September 15, 2008, investment bank Lehman Brothers went bankrupt, triggering a massive stock market crash that ended with a government bailout of the U.S. financial system. In the aftermath of the collapse, many policymakers concluded that a fundamental problem was that the financial system was too interconnected and that banks had become ‘too big to fail.’
Decades of loose regulatory policy contributed to what proved to be the worst financial crisis since the 1930s. One such policy was the Gramm-Leach-Bliley Act of 1999, which overturned key sections of the Glass-Steagall Act. Another was deregulation of over-the-counter derivatives in 2000, which enabled big financial institutions to package and resell huge volumes of low-grade securities, many of which were composed of subprime mortgages. A third factor involved the Securities and Exchange Commission’s 2004 decision to allow the top five brokerage firms to cut their assets by more than half, leaving them more exposed to sudden downturns in the market.
To help solve the Crisis, Congress in 2010 passed the Dodd-Frank Act, more formally known as the Wall Street Reform and Consumer Protection Act. The law aimed to “promote the financial stability of the United States by ending ‘too big to fail.’” The bill created the Consumer Financial Protection Bureau to help keep financial institutions accountable to their customers and also tightened the regulation of credit rating agencies. But with the exception of derivatives legislation, the law did little to correct the financial industry’s highly consolidated market structure.
Unlike previous anti-monopoly laws that de-concentrated the financial sector to mitigate risk, Dodd-Frank further centralized control in the Federal Reserve and further concentrated power in big banks at the expense of smaller ones. As a result, the U.S. banking industry today is now more consolidated than it was prior to the Crisis. In 2010, for instance, banks with more than $100 million of assets held only 7% of U.S. deposits; today they hold 58%. Additionally, since the passage of the Act the number of community banks has fallen by 14%.