The first great trust case was decided in 1890 in People v. North River Sugar Refining Co. The North River Sugar Refining Co. was a corporation of the State of New York which had been absorbed by the Sugar Refineries Co., or Sugar Trust, in 1887. About 23 sugar-refining companies were combined in this trust, which thus obtained about 90 per cent of the total production of refined sugar in the United States. The capital stock of the North River Sugar Refining Co. was put in the hands of the board of trustees and the former shareholders received in return the shares of the trust. These trustees chose and controlled the officers of the North River Sugar Refining Co., and for a time they shut down the plant. A suit was instituted by writ of quo warranto to forfeit the charter of the North River Sugar Refining Co. in 1888. The court of appeals held that the defendant had violated and abused its franchises by entering into the combination under the trust deed. (See p. 62.)

The Standard Oil Trust was declared illegal in 1892 as a consequence of similar proceedings begun in Ohio about 1890. This combination was held ultra vires, contrary to public policy, and void. (State v. Standard Oil Co.). (See p. 62.)

These decisions made it clear that the trust device for combining competitors to control the market was unlawful.

HOLDING COMPANIES.-The holding company was next tried as a means of obtaining monopolistic control. It is important, therefore, to consider briefly certain features of State corporation laws prior to the Sherman Act.

At the beginning of the nineteenth century there were only a few corporations, mostly in Massachusetts. Such corporations were all organized under special grant of the legislature. The first State to have anything approaching a general incorporation act was New York; a general law for organizing manufacturing corporations was enacted in 1811 which limited the capital stock to $100,000. After that, general incorporation laws were gradually adopted in other States, but States having such laws were in the minority at the middle of the nineteenth century.

Except in a few States, the common law was interpreted in the sense that no corporation could hold the stocks of another corporation, and some States forbade such holdings by statute. (See p. 58.)

For a long time also corporations were not generally authorized to consolidate. In New York, for example, the consolidation of manufacturing corporations was first permitted in 1867, and was confined to those engaged in the same branch of industry. This privilege was extended in 1892.

Regarding the legal possibility of forming corporate consolidations by means of a holding company, Judge Edward B. Whitney, formerly

1 121 N. Y., 582. Compare Brown v. Pacific Mail S. S. Co., 5 Blatch., 525 (1867), and Hafer v. Railway Co. et al., 14 Cin. Wkly. Law Bull., 68 (1885).

249 Ohio St., 137.

an Assistant Attorney General of the United States, made the following statement:

In New York, for instance, the first act enabling one industrial to purchase and hold stock of another was passed in 1853, permitting a manufacturing company to purchase mining stock in certain cases. The principle was extended, but in a very restricted form, in 1866 and 1876. It did not become general, or permit the buying stock of a competitor, for sixteen years later still. In New Jersey the movement began in a very small way in 1883. The present statutes, which permit any company to purchase stock of a rival for control, are more recent even than the Sherman Antitrust Law. They were in all probability adopted, although the legislatures did not know it, for the very purpose of circumventing that law. They date in New York from 1892. In New Jersey their development was from 1888 to 1893. Before that the holding corporation, now so familiar, was a rarity.

Thus all the trusts are in part a product of artificial conditions produced by human legislation, while some of the most dangerous, or at least the most unpopular, among them are a product of legislation obtained by their own lawyers and legislative agents, put quietly through under the cover of the antitrust agitation, while the public, led by the newspapers, were looking somewhere else.1

It is noteworthy, though perhaps merely a coincidence, that the New Jersey laws permitting such holding companies were passed between 1888 and 1893, while the legal proceedings against the trust form of combination were first begun in New York in 1888.

There seems to be but little doubt that those interested in forming large corporate combinations hoped to obtain a secure legal basis in the holding company, as the pool and trust had both been declared invalid (though not criminal) at the common law.

Section 4. Legislation against combinations prior to the Sherman Antitrust Act.

STATE ANTITRUST LAWS.-The development of great monopolistic combinations attracted much public attention during the eighties, and especially the formation of trusts, such as the Standard Oil Trust and the Sugar Refineries Co.

The fact that these existed in spite of their supposed illegality at the common law made it seem desirable to those who opposed such monopolistic combinations to prohibit them under the criminal law. Consequently, several States during the later eighties passed so-called antitrust statutes prohibiting trusts and other combinations in restraint of trade or tending to monopoly. Among the States which passed such laws prior to the Sherman Antitrust Act were the following: Maine, 1889; Michigan, 1889; Tennessee, 1889; Texas, 1889; Iowa, May 6, 1890; Kentucky, May 20, 1890.

In this connection it may be noted that several States prior to 1890 had constitutional provisions declaring monopolies or combinations in restraint of trade unlawful. Among them may be noted Arkansas, Georgia, Kentucky, Tennessee, and Texas.

1 American Economic Association. Papers and Proceedings of the Seventeenth Annual Meeting (Chicago, 1904), Part II, pp. 3-4.

INTERSTATE COMMERCE ACT OF 1887.-The way for a Federal law against trusts was paved by the Interstate Commerce Act of 1887, which, among other things, provided that rates in interstate commerce should be reasonable and prohibited discrimination and railway pooling in interstate commerce. This law also established a commission

to supervise the enforcement of the law and to decide complaints regarding rates and discriminations.

This Federal railway law was itself preceded by laws of a similar character, in several of the States, relating to intrastate commerce. Section 5. Sherman Antitrust Act of 1890.

Just as several of the States had found it expedient to pass criminal laws against trusts, so the Federal Government was impelled to legislate in a like manner. This seemed especially desirable for the reason that these combinations were generally of such magnitude that their commerce was largely of an interstate character and affected the country as a whole. Moreover, the Federal Government was regarded as more able to successfully combat them, more likely to do so, and by enforcing a general rule more apt to operate with equality than could be expected from the local application of diverse laws in the several States. Another reason for such Federal legislation was the fact that the common law did not apply in the Federal jurisdiction except in certain cases where the Federal courts applied the laws of the States in which the question arose, and without express legislation there was nothing to prevent the formation of such combinations nor any means of enforcing the law by penalties.

Consequently, in 1890 a bill to prohibit such combinations was introduced in Congress by Senator Sherman, and after earnest debate and careful revision the so-called Sherman Antitrust Act was passed on July 2, 1890. The provisions of this law and some of the judicial decisions thereunder are described in detail in Chapter III. Broadly stated, this law prohibited, under severe penalties, every contract or combination in restraint of interstate or foreign commerce, and every monopolization or attempt to monopolize the same, and provided additional remedies, including suit in equity by the Federal Government, to restrain such combinations, and action at law for triple damages by private parties injured thereby. By this law, therefore, acts which at common law were invalid, were made criminal offenses so far as they related to commerce among the States and with foreign nations, while special remedies were established both at law and in equity.

Section 6. Early judicial interpretation (1890-1901).

INEFFECTIVE ENFORCEMENT OF THE LAW.-While both criminal and civil suits to enforce the Antitrust Act were brought almost

immediately after its passage, the results during the first decade of its existence were, on the whole, unsatisfactory. Various factors are alleged to have contributed to this result. Among these are the following: The serious business depression existing from 1893 to 1896; the alleged lack of sympathy on the part of some Attorneys General with the purposes of the law; the decision in the Knight case, (referred to below); and perhaps to some extent the lack of adequate appropriations for the prosecution of such suits. Several criminal cases were brought at the very beginning, and some failed, it is alleged, on account of faulty indictments. One, at least, of the Attorneys General was apparently very much opposed to the enforcement of the law, and several of them showed but slight activity in initiating suits against offenders. This attitude was taken in spite of the existence and contemporary organization of notorious combinations.

In the following sections a few of the leading judicial decisions will be briefly noted, and their apparent effect upon the economic development suggested.

KNIGHT CASE (1895). The effectiveness of the act received a severe blow from the decision in the Knight case,' which was a proceeding in equity against the American Sugar Refining Co. (Sugar Trust), and the first case under this law to be decided by the United States Supreme Court. The court made a distinction between "manufacture" and "commerce," and held that the evidence proved merely a combination of sugar manufacturers, and this did not constitute a violation of the law, inasmuch as "manufacture" was not "commerce" and the law was directed against combinations in interstate or foreign commerce. It has frequently been claimed that this decision was generally understood to mean that the Antitrust Act did not apply to combinations or consolidations of manufacturing establishments.

The decision has also been much criticized, but it is said that the pleadings of the Government were bad, did not specify a combination engaged in interstate commerce, and that the record of the case did not prove that fact. At any rate, the failure of this case against one of the most notorious combinations of the day threw grave doubt on the effectiveness of the law, and tended to discourage efforts to enforce it. At the same time it gave encouragement to further combinations of the same character.

TRANS-MISSOURI FREIGHT ASSOCIATION CASE (1897).-This case was a proceeding in equity against a combination of railroads formed for the purpose of maintaining rates alleged by defendants to be just and reasonable. The Supreme Court held that the combination was unlawful, and that it was immaterial whether the rate agreement in question was reasonable or not.

This decision was understood by many to mean that the reasonableness of an agreement would not be considered, if it in any way restricted competition; that is, that even contracts which only incidentally affected competition, or were only "in partial restraint of trade" (and therefore valid under the common law interpretation of "restraint of trade"), were contrary to the Antitrust Act. The effect of this decision was obviously to discourage efforts at combination by such methods.

ADDYSTON PIPE & STEEL CO. CASE (1899).-In this case,' which was a proceeding in equity, a combination of pipe manufacturers established for the purpose of dividing the markets and enhancing the prices of cast-iron pipe was declared by the Supreme Court to be contrary to the law. This case, like the railroad case just considered, tended strongly to discourage combinations in the form of a pool.

Section 7. Economic and political results.

RAPID GROWTH OF TRUSTS (1898-1901).—The last two decisions referred to, wherein pools were declared unlawful and the question of the reasonableness of the terms of the agreement were held to be immaterial, apparently greatly discouraged efforts to form combinations by means of pools, while the failure in the Knight case to condemn a consolidation of manufacturing companies tended to encourage the formation of large consolidations of industrial enterprises.

At any rate, there developed between 1898 and 1901 an extraordinary number of large consolidations, and this period is often referred to as that of the "consolidation craze.' Among the great consolidations formed during this period may be mentioned the following:

1898.