Judiciary: Trusts and Monopolies

In the last quarter of the nineteenth century, state governments undertook, amid great public clamor, to regulate the "trusts." The Granger laws of the 1870s and the more detailed legislation passed in the 1880s invoked the states' police powers to restrict monopoly practices in several areas of business, with the greatest attention given to industrial combinations. By 1890 about ten states had passed antitrust laws and six state supreme courts had found trust agreements illegal as monopolies, conspiracies in restraint of trade, or against public policy. In several other states, attorneys general brought suit against monopolies as being ultra vires (i.e., acting beyond the scope of their powers). State appellate judges were willing both to accept legislative regulation of trusts and, when legislation was absent, to allow states to proceed on grounds of public policy against the trusts.

These state court decisions reflected two different sentiments. On the one hand, the courts clearly imbibed the historical resentment against monopoly power. On the other hand, their decisions against interstate monopolies constituted one way of sustaining local businesses in an increasingly competitive marketplace. The Singer Sewing Machine Company, which held an exclusive patent on the sewing machine, created a nationwide distribution and sales system in the 1870s that bypassed local merchants and salespersons. In State v. Welton ( 1874), the Missouri Supreme Court sustained the conviction of M. M. Welton, an agent of Singer, for failing to pay a license fee for the privilege of engaging in local business.

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Control of interstate monopolies and efforts to protect local business from nonresident corporations was simply beyond the scope of state legislative or judicial authority. The Singer Company, for example, purposefully violated state law in order to gain a hearing on constitutional grounds in the federal courts. The major trusts dodged the consequences of state court antitrust decisions by incorporating in other states, such as New Jersey and Delaware, that had more liberal incorporation statutes.

The Supreme Court encouraged the efficient conduct of business affairs across state lines. In Welton v. Missouri ( 1876), it broke with precedent by reversing the earlier decision of the Missouri Supreme Court against the Singer Company and overturning the state statute upon which it rested as an illegal restraint on interstate commerce. The decision was an initial step in the creation of a judicially supervised national market that was "spacious enough for the most ambitious growth which private individuals or groups could contrive." ²⁷ Moreover, as with the application of substantive due process to state economic regulation, the Court "eagerly embraced the opportunity to deduce from the commerce clause a new and fundamentally important constitutional right: the right of nonresident corporations, even without express congressional license, to engage in interstate transactions on terms of equality with local firms. ²⁸

The economic nationalism of the Court was restrained in one important way, however. The justices had historically given the states broad discretion to regulate the behavior of nonresident corporations engaged in production (mining and manufacturing) rather than marketing activities. The states had made little use of this authority. The reason was simple expediency: mining and manufacturing, which grew rapidly after the Civil War, constituted a base of taxes, employment, and wealth. Even amid the great antimonopoly crusade of the 1880s, many states followed a pattern of allowing nonresident corporations engaged in these businesses to do what they wanted relatively unrestrained from direct state supervision.

The historical precedent for regulation of these businesses was with the states. But the states did not uniformly undertake that responsibility, with resulting confusion and uncertainty. The Sherman Antitrust Act offered a vaguely drawn national solution to the problem, but its implementation rested entirely with the federal courts.

The justices accepted the constitutionality of the Sherman Act, but they limited the power of Congress to regulate manufacturing monopolies. The leading case was United States v. E. C. Knight ( 1895). The American Sugar Refining Corporation controlled 90 percent of the nation's sugar refining capacity. The government charged that the agreements used to secure this monopoly substantially restrained trade and imposed higher prices on consumers. The Supreme Court concluded otherwise. Chief Justice Melville W. Fuller held that commerce and manufacturing were completely different activities and that the Sherman Act applied only to the former. "Commerce succeeds to manufacturing," Fuller wrote, "and is not a part of it." ²⁹ Remedies to the problems created by manufacturing monopolies belonged where they had traditionally rested: with the states. States, and not the federal government, issued corporate charters, and states therefore had the authority to revoke these licenses if the companies acted ultra vires. Fuller sincerely believed that, in the federal system of the United States, the responsibility for regulating manufacturing monopolies properly belonged with the states. The decision restricted federal antimonopoly efforts just as the justices had circumscribed administrative regulation of the national marketplace in the ICC cases.

The justices were unequivocal in their hostility to clearly redistributive legislation,

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such as the federal income tax passed by Congress in 1894. The following year the Court, in Pollock v. Farmers' Loan and Trust Co., declared the tax unconstitutional. That decision stuck until it was voided by the adoption of the Sixteenth Amendment in 1913.

In matters of economic regulation, state and federal judges interjected themselves into the formulation of public policy. They did so through doctrinal devices, most notably substantive due process, that permitted them to substitute their policy choices for those of legislators. The traditional practice of judicial review assumed a more expansive meaning that contributed directly to the increasing monopoly exercised by judges over constitutional interpretation. Their decisions, however, also involved concern with rights. While the courts trimmed many regulatory efforts, they left in place the major pieces of federal legislation and retained for the state legislatures important, if somewhat hollow, authority to deal with economic matters.

Date: 2015-01-29; view: 687