United States 1914
Synopsis
In 1914 the U.S. Congress responded to populist antitrust sentiments and deficiencies in the Sherman Antitrust Act of 1890 with a new act. The Clayton Act, authored by Alabama congressman Henry Clayton, outlawed, among other things, anticompetitive mergers and acquisitions, interlocking directorates, and price discrimination. Like the Sherman Act, the Clayton Act made restraint of trade a felony offense punishable by fine and imprisonment. Unlike the Sherman Act, Clayton exempted labor unions and agricultural cooperatives from antimonopoly rules, thus allowing for peaceful strikes and picketing. Nonetheless, although the new legislation formed part of President Woodrow Wilson's New Freedom economic reform program, the bill became so watered down in the Senate that many progressives felt abandoned and Wilson himself lost interest in it.
Timeline
- 1895: Brothers Auguste and Louis Lumière show the world's first motion picture—Workers Leaving the Lumière Factory—at a café in Paris.
- 1900: China's Boxer Rebellion, which began in the preceding year with attacks on foreigners and Christians, reaches its height. An international contingent of more than 2,000 men arrives to restore order, but only after several tens of thousands have died.
- 1905: Albert Einstein presents his special theory of relativity.
- 1910: Revolution breaks out in Mexico.
- 1915: A German submarine sinks the Lusitania, killing 1,195, including 128 U.S. citizens. Theretofore, many Americans had been sympathetic toward Germany, but the incident begins to turn the tide of U.S. sentiment toward the Allies.
- 1915: Italy enters the war on the side of the Allies, and Bulgaria on that of the Central Powers.
- 1915: At the Second Battle of Ypres, the Germans introduce a terrifying new weapon: poison gas.
- 1915: Turkey's solution to its Armenian "problem" becomes the first entry in a long catalogue of genocidal acts undertaken during the twentieth century. Claiming that the Armenians support Russia, the Turks deport some 1.75 million of them to the Mesopotamian desert, where between 600,000 and 1 million perish.
- 1915: D. W. Griffith's controversial Birth of a Nation is the first significant motion picture. As film, it is an enduring work of art, but its positive depiction of the Ku Klux Klan influences a rebirth of the Klan in Stone Mountain, Georgia.
- 1915: Albert Einstein publishes his General Theory of Relativity.
- 1917: On both the Western Front and in the Middle East, the tide of the war begins to turn against the Central Powers. The arrival of U.S. troops, led by General Pershing, in France in June greatly boosts morale, and reinforces exhausted Allied forces. Meanwhile, Great Britain scores two major victories against the Ottoman Empire as T. E. Lawrence leads an Arab revolt in Baghdad in March, and troops under Field Marshal Edmund Allenby take Jerusalem in December.
- 1919: Treaty of Versailles is signed by the Allies and Germany, but rejected by the U.S. Senate. This is due in part to rancor between President Woodrow Wilson and Republican Senate leaders, and in part to concerns over Wilson's plan to commit the United States to the newly established League of Nations and other international duties. Not until 1921 will Congress formally end U.S. participation in the war, but it will never agree to join the League.
Event and Its Context
Curbing Corporate Power
With the advance of industrial capitalism in the late nineteenth century, prominent companies were growing toward monopoly, which created public concern that they would be able to control interstate commerce and prices. In the 1870s and early 1880s, banks and financiers poured huge amounts of capital into rapidly growing industries such as the railroads, mining, and steel. These investments ultimately contributed to a concentration of economic power that was cemented by informal collusion in the form of alleged "gentlemen's agreements." Populist disapproval of the growing power of large corporations, business mergers, and corporate trusts led to the Sherman Antitrust Act of 1890. Drawing legitimacy from the U.S. Congress's power to regulate interstate commerce, this act, which was named after its sponsor, Senator John Sherman, was the federal government's first attempt to thwart monopoly. Section 1 of the act prohibited "every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations." Section 2 made it illegal to "monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations." Violators of either section would be guilty of a felony offense and subject to a fine up to $10 million (if a corporation) or $350,000 (if an individual) and up to three years in prison.
Despite the act's potential as a weapon against corporate power, the government lacked the federal legislation and agencies necessary to make it effective. Moreover, its applicability was for more than a decade weakened by Supreme Court decisions. Those arguing that the Sherman Act was ineffective could point to a post-Sherman period bringing the greatest corporate consolidation in American history. In the five-year fiscal period 1898-1902, there were 1,797 consolidations, 857 of these in 1899 alone. The tide began to change, however, with the launch of President Theodore Roosevelt's "trust-busting"campaigns and a subsequent Supreme Court acknowledgement of the federal government's right to bust the Northern Securities Company. In 1906 Roosevelt filed a federal suit against Standard Oil, which controlled most of the crude oil refined in the United States. The Supreme Court in 1911 found the company in violation of the Sherman Antitrust Act and ordered it to get rid of more than 30 of its primary affiliates. Although the Sherman Act was strengthened during the Taft administration, critics felt it was vague and lacked the juridical teeth to make it effective. Reform would come in 1914, with the founding of the Federal Trade Commission and the passing of the Clayton Antitrust Act.
Wilson's New Freedom
The beginning of the Woodrow Wilson administration in March 1913 brought promises of antimonopoly actions and restoration of free competition. With his "New Freedom" economic reform program, Wilson aimed at banking reform and increased government regulation of business. One part of the new president's economic reform strategy was an interstate trade commission to replace the old Bureau of Corporations; the measure, presented by James Covington of Maryland, passed both houses and was signed into law on 10 September, thus creating the Federal Trade Commission. On 20 November, after successfully defending the Underwood (tariff reform) bill and theFederal Reserve Bill, Wilson met with leading congressional Democrats to discuss an antitrust act. Wilson's rise to power was accompanied by Democratic control of Congress and a number of southern Democrats in positions of influence. Although the president originally considered reforming and clarifying the Sherman Act, the legislators convinced him to seek a new solution. In January 1914 he announced his antitrust plan before a joint session of Congress. Most of Wilson's antitrust measures, at first reflected in several different bills, were later represented in a single House bill authored by Representative Henry Clayton of Alabama.
The Clayton Act of 1914 outlawed or curtailed several specific business practices considered to be unreasonable attempts to restrain trade or commerce. In the words of Montana senator Thomas J. Walsh, the act was meant "to preserve competition where it exists, to restore it where it is destroyed, and to permit it to spring up in new fields." The act, for example, banned mergers and acquisitions in cases in which the result would reduce competition or lead toward monopoly. Section 2 outlawed price discrimination, thus making it illegal for commodities to be sold to different buyers at different prices (except for cases in which the price discrepancy is the result of transportation or selling costs). Section 3 ruled out exclusive dealing, establishing that producers could not sell to a retailer or wholesaler on the understanding that no other distributor in the trade area would receive similar products and that the purchaser would not deal in products supplied by the seller's competitors.
Violators of both sections would be considered guilty of a felony punishable by a fine of up to $10 million (if a corporation); individuals could be fined up to $350,000 and imprisoned for up to three years.
The act established that corporations could not hold stock in competing companies if the result was to reduce competition substantially. It also outlawed so-called interlocking directorates, prohibiting the same individual from serving on the boards of directors of two or more competing companies having capital surplus and undivided profits greater than $1 million. Moreover, it gave power to the new Federal Trade Commission and the U.S. Justice Department to block any merger that was in violation of antitrust laws.
The Clayton bill saw considerable opposition from many camps. Although huge corporations threatened with dissolution may have seen the bill as dangerous, progressives saw it as weak. Southern Democrats and agrarians, for example, wanted to break all trusts completely. Labor unions took issue with the "combinations in restraint of trade" provisions of the bill for fear their actions would be affected.
Labor and the Clayton Act
By the mid-1890s labor unions had learned to hate the Sherman Antitrust Act, given that its attack on capital could also be turned on labor. This became apparent with the Pullman Strike in 1894. In that year, Cleveland attorney general Richard Olney used the Sherman Act against the American Railway Union and was thus able to imprison the union's president, Eugene Debs, for contempt of court. After labor unions protested language in the Clayton bill that they feared might make unions illegal, Congress amended the act to state that unions were not "illegal combinations or conspiracies in restraint of trade." Labor unions and agricultural cooperatives were thus exempted from the proscriptions of the Sherman Act. Nonviolent labor movements, strikes, boycotts and picket lines would all be legal.
Section 17 of the act specifically declared that antitrust laws would not be applicable to labor organizations. Most significantly, it recognized that "the labor of a human being is not a commodity or article of commerce." Nothing in the antitrust laws, it said, should be understood to prohibit the existence or activities of labor, agricultural, or horticultural activities "instituted for the purposes of mutual help, and not having capital stock or conducted for profit." Moreover, it stated that individual members could not be restrained from carrying out their "legitimate objectives." Samuel Gompers, president of the American Federation of Labor (AFL), hailed the legislation as the Magna Carta of labor, though this original euphoria would soon dissipate with court interpretations that practically nullified labor's expected advances.
Although historians generally attribute passage of the Clayton Antitrust Act to popular antitrust sentiment and the need to address the inadequacies of the Sherman Antitrust Act, some economists believe that congressional approval of the act was also the product of lobbying by interest groups. Because the Clayton Act essentially redistributed wealth among the nation's different economic interest groups and agents, those groups presumably influenced legislators' votes on the act. In the case of Senate voting patterns, although senators from the industrialized New England states (with higher numbers of manufacturing pressure groups) tended to oppose the act, those from the agricultural southern states (with corresponding agrarian interest groups) tended to support it.
With the passage of the Clayton Act, Wilson considered his economic reform package complete. The satisfaction of some of his fellow Democrats was summed up by Alabama congressman Tom Heflin when he declared that "laborers are employed, wages are good, the earth has yielded abundantly, the Democratic Party is in control, God reigns, and all is well with the Republic." Many progressives, agrarians, and labor activists nonetheless considered Wilson's reforms insufficient. The bill's original proponents felt that they had been abandoned, as the bill's strongest measures had been amended and thus rendered harmless.
"When the Clayton bill was first written … it was a raging lion with a mouth full of teeth," complained Missouri senator James A. Reed. "It has degenerated to a tabby cat with soft gums, a plaintive mew, and an anemic appearance." Like other antitrust proponents, he considered the amended bill to be a legislative apology to the trusts, "delivered hat in hand, and accompanied by assurances that no discourtesy is intended." Wilson himself complained that Senator Charles Culberson of Texas, chairman of the Judiciary Committee, had worked to water down the bill and had effectively neutralized it. Nonetheless, he lost interest in the bill and did nothing to restore its original force. Congress passed it and he signed it into law on 15 October 1914.
In 1921, in the case of Duplex Printing Press v. Deering, the United States Supreme Court essentially gutted the labor provisions of the Clayton Act by ruling that federal courts could enjoin labor unions for actions in restraint of trade.
Key Players
Clayton, Henry De Lamar (1857-1929): Clayton represented Alabama in the House of Representatives from 1897 to 1915. A Democrat, he was the author of the Clayton Antitrust Act of 1914.
Culberson, Charles Allen (1855-1925): A Texas Democrat, Culberson served in the U.S. Senate from 1899 to 1923. He chaired the Senate Committee on the Judiciary from 1899 to 1929. President Wilson accused him of working to weaken the provisions of the Clayton Antitrust Act.
Wilson, Woodrow (1856-1924): Wilson, a Democrat, was the28th president of the United States, serving from 1913 to1921. His New Freedom program passed economic reforms in the form of banking and antitrust legislation. He complained that the Clayton Antitrust Act was a weak version of the bill he originally supported.
See also: Pullman Strike.
Bibliography
Books
Byrd, Robert C. "The Woodrow Wilson Years: 1913-1920."In The Senate, 1789-1989. Washington, DC: Government Printing Office, 1994.
Periodicals
USIA. "Summary of Major U.S. Antitrust Laws." Economic Perspectives 4, no. 1 (February 1999).
Other
Bonney, Doug. "The Right to Strike." Kansas City Labor Advocate Online. Know Your Rights [cited 17 October 2002]. <http://www.kclabor.org/knowstrike.htm>.
Lucash, Gesmer, and Updegrove, LLC. Web site, ConsortiumInfo.org. The Sherman Antitrust Act of 1890. 2002 [cited 17 October 2002]. <http://www.consortiuminfo.org/antitrust/sherman.shtml>.
Micheloud, Francois. "John D. Rockefeller and the Standard Oil Company. The 1890 Sherman Antitrust Act" [cited 17 October 2002]. <http://www.micheloud.com/FXM/SO/antitrust.htm>.
A Moment in Time Archives. "The South's Revenge: The Amazing Congress of 1912." 24 June 2002 [cited 17 October 2002]. <http://www.ehistory.com/world/amit/display.cfm?amit_id=1258>.
Ramírez, Carlos D., and Christian Eigen-Zucchi. "Why Did the Clayton Act Pass? An Analysis of the Interest Group Hypothesis." Department of Economics, George Mason University. April 1998 [cited 17 October 2002]. <http://www.gmu.edu/departments/economics/working/Papers/98_03.pdf>.
Spartacus Educational. Anti-Trust Act [cited 17 October2002]. <http://www.spartacus.schoolnet.co.uk/USAtrust.htm>.
—Brett Allan King
St. James Encyclopedia of Labor History Worldwide: Major Events in Labor History and Their Impact