The Other Sherman’s March

The U.S. Justice Department recently hauled Google into court for violating an 1890 federal law designed to forestall the unjust consolidation of economic power. Known today as the Sherman Act, this law was proposed by Ohio lawmaker John Sherman to prevent sprawling financial combines like Standard Oil from using their formidable command over the production, distribution, and sale of a good or service to bankrupt their rivals and block new entrants from the market. Though the Sherman Act is now over 100 years old, it remains a hammer in the toolkit of U S. industrial policy that at several key junctures in U.S. history has transformed the rules of the game. 

Like most lawmakers of his time, Sherman took it for granted that monopolies were “inconsistent with our form of government”: “If we will not endure a king as a political power, we should not endure a king over the production, transportation, and sale of any of the necessaries of life. If we would not submit to an emperor, we should not submit to an autocrat of trade.” If today’s Justice Department prevails in its lawsuit against Google by breaking up the tech giant’s monopoly over the online search business, this will burnish the legacy not only of Sherman’s lawmaking, but also of the anti-monopoly vision that shaped U.S. law in the epoch that witnessed the country’s debut as the world’s leading economic power.

Sherman is little remembered today, overshadowed in historical memory by his older brother, the Civil War general William Tecumseh Sherman. Yet at the time of his death in 1900, John remained so well known that a colleague averred the two brothers were destined to “go down inseparably in the memory of remote generations.” 

It did not quite work out that way, at least for John. Stolid, uncharismatic, and utterly lacking in the attributes that make for good newspaper copy — journalists dubbed him the “Ohio icicle” — he left little imprint on posterity. If his name had not become attached to the 1890 anti-monopoly law that would come to define the playing field for U. S. business large and small, he might today be altogether forgotten. 

Yet in the late 19th century John Sherman was one of the country’s best-known and most influential statesmen. His long and distinguished public career began in 1854, when he won a seat in Congress as an antislavery representative from Ohio. As a U.S. senator during the Civil War, he developed an enviable mastery of the arcana of public finance, leading to his appointment as secretary of the treasury under President Rutherford B. Hayes. In the 1880s, Sherman sponsored legislation to encourage the monetization of silver, the cryptocurrency of his day. By 1889, he was back in the Senate, eager to mount a campaign for the White House. Though Sherman won a solid bloc of votes at the 1888 Republican national convention, he fell short of the nomination. Sherman’s presidential bid had been derailed, so he believed, by a dirty trick played on him at the convention by a political rival who Sherman accused of bribing delegates to switch their votes. The trickster was the president of the Diamond Match Company, a leading manufacturer, then and now, of a popular brand of wooden matches. Diamond Match had recently bought up several of its rivals, enhancing its market power. It was a betrayal Sherman never forgot. Along with Standard Oil, Diamond Match was one of the financial combines that Sherman would single out for public condemnation in making the case for his anti-monopoly bill. 

The Sherman Act today is often regarded as an “anti-trust” law. This can be confusing, since the word “trust” had, and has, multiple meanings. When lawmakers like Sherman referred in 1890 to trusts, they did not have in mind the venerable contracts drawn up by estate planners to help wealthy families lower their tax bill and consolidate their assets. And they had no quarrel with the presumption that individuals should be truthful in their personal relationships — a common meaning of the word today. Instead, their target was the sprawling financial combines that lawyers cobbled together to limit competition between once-rival business units. Standard Oil had by 1890 been folded into a trust to circumvent state anti-monopoly laws, as had the dominant U.S. based sugar refiners and whiskey distillers. By throttling once-independent businesses, financial combines limited competition and increased wealth inequality. The crux of the issue was not bigness per se, but rather the propensity for legislative corruption and commercial extortion spawned by raw economic power. 

In 1890, the “trustification” of the U.S. economy had just begun. Not until 1895 — five years after the Sherman Act had gone into effect — would what historians today call the “great merger movement” truly get underway. In the 10-year period between 1895 and 1904, an average of 300 firms would be merged every year into their one-time rivals; in 1899 alone, over 1,000 firms disappeared in this way. Among the catalysts for economic consolidation were overproduction, deflation, and the economic uncertainty that followed the Panic of 1893. Among its legacies was the emergence of U.S. big business as a powerful actor on the global stage.

Given the momentous influence that the Sherman Act has come to exert in U.S. business, it may come as a surprise that the law itself was relatively brief. From start to finish, it contains fewer than 1,000 words. Sherman’s name appeared neither in the law itself, nor in its official header, which declared as its rationale the protection of “trade and commerce against unlawful restraints and monopolies.” Only in the 20th century would it become conventional to associate Sherman with the law. In Sherman’s 1900 New York Times obituary, which was longer than the Sherman Act, there is no mention whatsoever of his connection with the law.

The Sherman Act has two main provisions. The first declared it illegal for any person to enter into contracts, combinations, and conspiracies “in restraint of trade or commerce.” The second provision made it illegal for any person to monopolize — or to try to monopolize — trade or commerce. Though the word “monopoly” appeared nowhere in the text of the law, the word “monopolies” did appear in the header: a clue as to its intent. Broad and open-ended, these provisions would be subject to a great deal of juridical interpretation in the years to come. 

The inclusion of the word “person” in the law was a term of art. As the law’s final section specified, the word referred not only to human beings, but also to any corporation or association (an umbrella term that would be interpreted to include labor unions and trade groups) that existed under the laws of the United States, its states and territories, or any foreign country. The only exception concerned conduct that had been confined entirely within the spatial limits of a state, a domain that the law deemed to be outside of the jurisdiction of Congress.

That Sherman’s name has been immortalized in the annals of anti-monopoly law is ironic. The measure as it was finally enacted in July 1890 was very different from the bill Sherman had introduced in the Senate the previous December. In the eight months between the bill’s initial introduction and its final enactment, it would be extensively debated, and almost entirely rewritten. Much of that debate centered on tariff policy: an issue with which anti-monopoly was joined at the hip. 

Tariff policy was a late-19th-century legislative perennial. In 1890 Republican lawmakers embarked on a sweeping upward revision in the duties that the U.S. government charged on the importation of foreign goods. Known today as the McKinley tariff — in honor of one of its most fervent champions, the Ohio representative and future president William McKinley — this law increased the import duties on foreign goods to almost 50%. 

Tariffs on foreign imports were in Sherman’s day a major source of federal revenue. (The legality of a federal income tax would not be settled until the ratification of the 16th amendment in 1913.) Derided by critics as the “mother of trusts,” tariffs were blamed not only for raising prices on consumer goods — a major issue today — but also for enabling big U.S. producers to destroy their smaller U.S. rivals. The willingness of lawmakers to help U.S. producers raise tariffs on imported goods to levels that, in practice, precluded foreign competition, was widely derided as corrupt, especially since it was universally assumed that lawmakers were in on the take.

Sherman, a loyal Republican, defended his party’s traditional support for high tariffs as a boon to U.S. workers. European manufacturers, he believed, paid starvation wages. In the absence of tariff protection, U.S. producers in many sectors would be trapped in a soul-crushing race to the bottom that would leave them no choice but to reduce their wages to levels that were unacceptably low. Yet Sherman also recognized that it was unjust for large and sluggish U.S. firms to weaponize the protection high tariffs gave them to temporarily lower their prices at the expense of their smaller and more nimble rivals. To guard against the abuse of power, Sherman’s bill in its original form empowered Congress to strip tariff protection from any manufacturer that weaponized its tariff-based monopoly power to destroy its rivals. In Sherman’s view, the men who ran the financial combines that were forcing their smaller rivals out of business were not market-savvy innovators but an indolent, overfed “leisure class,” as the political economist Thorstein Veblen would memorably describe them in 1899. Anti-monopoly, in short, was good business.

Anti-monopoly was also good politics. Sherman had almost won the Republican presidential nomination in 1888 and he fully intended to mount another presidential campaign in 1892. Big business at this time wielded less influence over the electorate than it does today: the multitude of small firms and proprietorships that the trust movement threatened were a solid voting bloc. By attacking big business, Sherman hoped to widen his electoral base.

Had Sherman’s original bill been enacted, and had it passed muster in the Supreme Court (two big ifs), Congress would have had a cudgel to strip tariff protection from any corporation that reorganized itself as a trust. How such a law would have operated in practice is anyone’s guess. Also unknown is how, if at all, it would have affected several of most notorious trusts — such as Standard Oil — which enjoyed no tariff protection: around 80% of Standard Oil’s market was overseas.

For several months, Sherman and his colleagues filled the national legislature with earnest speeches decrying special privilege. When the final bill came up for a vote in July, it had been stripped of the tariff-related provisions that Sherman had backed. Lawmakers on the judiciary committee feared that Sherman’s bill would prove unenforceable, and they rewrote it to federalize the venerable common law ban on restraints of trade. In this revised form, the law was relatively innocuous: only one lawmaker opposed it. In the eyes of one recent historian, this was proof that Sherman’s original bill had been so watered down that insiders knew it would be a sham. 

The Sherman Act would defy the skepticism of its naysayers — as the history of the 20th century antitrust jurisprudence makes plain. From the breakup of Standard Oil and American Tobacco in 1911 to the consent decrees against IBM and AT&T in 1956, the breakup of the Bell System in 1982, and the Microsoft settlement in 2001, antitrust has been an effective tool for the erection of guardrails between economic sectors to encourage competition, limit monopoly power, and foster innovation.

The Sherman Act has never been without critics. Some have derided it as ineffectual; others have denounced it as anti-business. Yet on balance, it has proved to be not only consequential, but also salutary — and, despite protestations to the contrary, resolutely pro-business, just as John Sherman had hoped. This was true even in the 1930s, the decade that witnessed the greatest economic downtown in U.S. history. Though several members of President Franklin D. Roosevelt’s inner circle disparaged the Sherman Act as outmoded — following the lead of progressive-era thought leaders like the journalist Walter Lippmann, who ridiculed the Sherman Act as outdated in Drift and Mastery, an influential policy brief from 1914 — prominent voices from across the political aisle demurred. For Supreme Court Justice Charles Evans Hughes, writing in a court opinion in 1933, the law deserved to be lifted up as a “charter of freedom.” For the lawyer-turned-regulator Thurman Arnold — who, as the head of the U.S. justice department’s antitrust division between 1938 and 1943, did more than any other single individual to breathe fresh life into a statute that many derided as obsolescent — the Sherman Act remained in 1941 the “principal government instrument” to “attack conspiracies which hamper production and distribution.” Hughes was a Republican; Arnold a Democrat. Yet when it came to the Sherman Act, they saw eye to eye. Neither saw any merit in the frenzied calls for its suspension that had come from influential members of Franklin Roosevelt’s New Deal coalition, either as a remedy for the nation’s economic woes or as a response to the looming threat of a second world war. 

The search for “original intent” is rarely simple and often a fool’s errand, and the parsing of congressional oratory can only take one so far. Like all landmark U.S. laws, the Sherman Act has never had a single meaning. To understand how it should be interpreted today, it would be a mistake to rely unduly on what Sherman and his colleagues were reported as having said in Congress in 1890. “It is always a task to discover the range and meaning of a statute whose lines are as lean as the Sherman Act,” as one perceptive student of the subject aptly observed in 1941. “The bill which was debated was never passed; the bill which was passed was little debated.”

Even so, it can be instructive to compare the law as Sherman envisioned it with a little-known law that Sherman had shepherded though Congress several years earlier to regulate the telegraph combine Western Union. By 1866, Western Union had become not only the nation’s first nationwide network provider, but also a premier example of what one might call Victorian Big Tech. In response to its rise, Sherman devised the first federal law to regulate a platform monopoly. 

Enacted in 1866, the National Telegraph Act created a mechanism to open railroad rights-of-way for Western Union’s rivals. The law obliged every network provider who signed on to its voluntary provisions to permit their assets to be purchased by Congress at a mutually-agreed-upon time at a mutually-agreed-upon cost. It also mandated low rates for government messages, facilitating the rise of what is today the National Weather Service. Every major network provider quickly signed on, including Western Union. In the highly uncertain legal environment of the post-Civil War South — when the status of individual-state-enforced contracts in the former Confederacy might well be open to doubt — it made sense for even the nation’s dominant network provider to take advantage of the legal protections that Congress provided. 

The National Telegraph Act deserves to be remembered as a landmark in anti-monopoly jurisprudence. By establishing a legally binding relationship between network providers and the federal government, a new kind of social contract for corporations chartered in the individual states, it was simultaneously anti-monopoly, pro-business, and pro-innovation — making it far more expansive in ambit than the final version of the 1890 act that bears Sherman’s name. 

Though the National Telegraph Act has been often overlooked even by specialists in the field, it deserves to be remembered as the kind of law Sherman hoped to enact in 1890, had he been given the chance. By breaking the stranglehold that Western Union, the Google of its age, had come to exert as a platform monopoly, it created the preconditions for the flourishing in the following decade of an entrepreneurial hothouse in which a talented cohort of inventors led by Thomas Edison and Alexander Graham Bell competed to develop a quartet of blockbuster inventions: the broadband telegraph, the telephone, sound recording, and the electric power station. Few federal laws did more to catalyze the late-19th-century transformation of the United States into the Big Tech dynamo that would prompt one British journalist in 1901 to announce the “Americanization” of the world.

It remains an open question if the 1890 anti-monopoly law that bears Sherman’s name retains enough of his jurisprudential DNA to shape the momentous Big Tech contests of our own age. For Sherman, anti-monopoly was good business, and good business thrived in open markets that fostered economic security. In 1890, as in 1866, anti-monopoly was a beacon that illuminated the path forward. Should the stars align, it might remain a lodestar for U.S. industry policy today.