Daniel Hertzberg for the Boston Globe

IDEAS | THE BIG TECH ISSUE

When the GOP fought against monopolies

In the 19th and early 20th centuries, the Republican Party was the party of big business and the more prosperous segments of the population. This was largely because the Republicans favored the gold standard and the sound money that the gold standard guaranteed. The Democrats, whose base was in the impoverished South, favored inflationary monetary policies that would have benefited debtors.

Yet it was Republicans, in both Congress and the White House, who led the way to finding an effective regulatory system for these big businesses.

The American economy underwent a stunning transformation in the years after the Civil War as it rapidly expanded into the largest industrial power on earth. In 1860 the United States had imported most of its steel from Great Britain. By 1900 the United States was producing more steel than Britain and Germany combined.

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But this expansion produced an unprecedented concentration of economic power as the new industrial concerns grew larger and more profitable. In 1860 there had not been a single industrial corporation listed on the New York Stock Exchange. By 1900 there were dozens, many of them employing more than 10,000 workers.

And that concentration was accelerating as many industries consolidated into fewer and fewer companies in pursuit of economies of scale and ever greater efficiency.

Railroads, originally small, local roads, quickly consolidated into roads that reached from New York to Chicago and beyond. The first really large companies in the American economy, railroads often had monopolies on their branch lines. They could — and most certainly did — charge much higher prices for transporting goods on those lines than they did on lines where they faced competition. They also routinely gave rebates to certain companies they favored.

The customers on the branch lines and the companies paying unrebated shipping costs began to exert political pressure to bring the railroads to heel. In 1887, with Republicans in control of the Senate, but the White House and the House of Representatives controlled by the Democrats, the Interstate Commerce Commission was created, the first federal regulatory body. The commission was authorized to monitor railroads and ensure that they charged rates that were “fair and just,” but didn’t specify what that might mean. Further, the commission was empowered to ensure that railroads were not discriminating against disfavored shippers, but gave the commission few ways of determining that.

The commission was not, at first, effective. But a series of amendments early in the 20th century, especially the Hepburn Act of 1906 — when both Congress and the White House were firmly in Republican hands — changed that. The Hepburn Act empowered the commission to set railroad rates and to inspect the books of railroads. It had been sponsored by 12-term Republican William Peters Hepburn, and passed both houses with only three dissenting votes. President Theodore Roosevelt, who had been asking for effective railroad regulation, was only too glad to sign it.

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With the Interstate Commerce Commission empowered to set rates, American railroads effectively became a cartel. That suited the railroads, as their frequent rate wars had hurt profits.

In 1890, with the White House and Congress in Republican hands, the Sherman Antitrust Act became law. Sponsored by Republican Senator John Sherman of Ohio, it was, to use its formal title, “An act to protect trade and commerce against unlawful restraints and monopolies.” It outlawed “combinations in restraint of trade,” and made it a felony to attempt to create such combinations.

Like the commission, the Sherman Antitrust Act was ineffective at first, due to adverse court decisions and the laissez-faire attitude of the federal government. But the late 1890s saw a big increase in combinations. In 1897, there were 69 corporate mergers, 303 the next year, and 1,208 in 1899. In 1901, J. P. Morgan combined the Carnegie Steel Company with several smaller ones to create US Steel, capitalized at an astounding $1.4 billion.

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When Theodore Roosevelt became president later that year, he moved vigorously to break up combinations that he felt impeded competition and to prevent new ones from forming.

In 1904, the Roosevelt Administration announced it would sue, under the Sherman Act, to prevent a new combination being created by J. P. Morgan, the Northern Securities Corporation. Morgan hurried to Washington and told the president that, “If we have done anything wrong, send your man to my man and they can fix it up.”

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“That can’t be done,” Roosevelt said.

“We don’t want to fix it up,” the attorney general, Philander Knox, told him, “we want to stop it.”

In 1907 the Roosevelt Administration sued to break up the biggest industrial monopoly of them all, Standard Oil. In 1911, the Supreme Court, most of whose members had been appointed by Republican presidents, ruled unanimously in the government’s favor and ordered Standard Oil broken up into 34 separate companies.

In 1914, with the Democrats in control of the White House and both houses, the Clayton Antitrust Act passed, strengthening antitrust law by enumerating specific forbidden practices, such as forbidding a person from sitting on the boards of competing corporations if those corporations would be forbidden by the act to merge.

Antitrust activity faded in the 1920s, and government under both Republican Herbert Hoover and Democrat Franklin Roosevelt looked to foster self-policing trade associations. The short-lived National Recovery Administration, soon declared unconstitutional by a unanimous Supreme Court, effectively cartelized most of American industry.

By the post-war era, companies had learned how to stay clear of antitrust scrutiny (General Motors for instance was careful to keep its market share at about 50 percent). When IBM was sued by the Johnson Administration in 1969, it was supreme in the computer industry. The case dragged on and was finally dropped by the Reagan Administration in 1982, by which time IBM was in deep trouble because of the digital revolution and personal computers. In today’s fast evolving digital world, few companies can long maintain a monopoly and antitrust is increasingly an unneeded power. But that power was, to a large extent, the creation of Republican legislation.

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