Antitrust Law

In 1776, the same year that the thirteen American colonies adopted the Declaration of Independence and severed their ties to Great Britain, the Scottish economist Adam Smith published The Wealth of Nations, his treatise favoring the benefits of individual enterprise and free trade over a highly regulated economy. According to Smith, self-seeking human beings are often “led by an invisible hand…without knowing it, without intending it, [to] advance the interests of the society.” The Framers of the Constitution nonetheless were less interested in economic theory than in creating a secure and unhindered environment to promote and foster commerce and trade as it was being carried on in America at the time.

Detailed provisions addressing economic policy do appear in other national constitutions. According to Paraguay’s current constitution (1992), “(1) Everyone has the right to engage in any legal economic activity of his choice within a system of equal opportunities. (2) Competition at the market is hereby guaranteed….” Poland’s constitution (1997) provides that the nation’s economic system is a “social market economy, based on the freedom of economic activity, private ownership, and solidarity, dialogue and cooperation between social partners.”

Economic competition, however, like biological evolution, can lead to the growth of entities that so dominate their environment that they significantly reduce further competition. In the case of businesses in a free market such as America’s in the late nineteenth century, such growth has often led to monopolies, cartels, and trusts, which have the effect of thwarting the economic forces that tend to create greater efficiencies and lower consumer prices. A monopoly occurs when a business or a group of businesses obtain exclusive control over the means of production of goods or services. A cartel is a combination of business organizations formed to regulate the production, pricing, and marketing of goods by its members. Trusts are similar to cartels in that they consist of corporations acting in combination to reduce competition and control prices throughout a business or an industry. Other forms of trade restraint include price fixing, allocation of customers and markets among large competitors, and purposeful exclusion of potential competitors from the marketplace.

The favorable economic climate in the United States led to extensive growth of business and industry by the late nineteenth century. To protect their dominant position in the marketplace, a number of American firms in certain industries—steel, oil, sugar, leather, and tobacco, among others— combined to form trusts. These trusts made it possible for members to use their dominant market positions collectively to wring concessions from suppliers and workers, thus lowering expenses and [Page 37] wages. The trusts also allowed members to keep prices for their goods and services artificially high, using collective campaigns to drive their competitors from the marketplace. The resulting reduction in competition in these industries caused consumer prices to rise, which in turn led to public pressure on elected officials to restore the free-market system.

In 1890 Congress passed the Sherman Antitrust Act, which made it illegal for businesses to act in concert to restrain trade or attempt to monopolize any part of commerce. As Supreme Court Justice Hugo L. Black (1886–1971) explained in Northern Pacific Railroad v. United States (1958): “The Sherman Act was designed to be a comprehensive charter of economic liberty aimed at preserving free and unfettered competition as the rule of trade. It rests on the premise that the unrestrained interaction of competitive forces will yield the best allocation of our economic resources, the lowest prices, the highest quality and the greatest material progress, while at the same time providing an environment conducive to the preservation of our democratic political and social institutions.”

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