Trusts, anti-trust and reform

[Working backward from the year 2000 toward America’s beginnings.]

Trusts and anti-trust

Domestically, the beginning of the century was when Theodore Roosevelt began to attack the influence on the national economy of trusts. While he didn’t actually do much about them (his one-term successor William Howard Taft, later to be Chief Justice of the Supreme Court, did far more), he did put what he called the “bully pulpit” of the presidency behind attacks that until then had been confined to the “muckrakers” – crusading journalists such as Ida Tarbell, Upton Sinclair, etc. (And even this had its ironic aspects, for it was TR who first called them muckrakers, cribbing from John Bunyan’s Pilgrim’s Progress, and meaning it in no complimentary way.)

Trusts had come into existence after the Civil War, and the nation was slow to appreciate how great a change they made in the nation’s economic life. Their net effect was to consolidate control (regardless of ownership) of various industries in ever fewer hands. Standard Oil, to give one famous or infamous example, was a trust, and that structure allowed it to put its tentacles everywhere. In 1890, as we will see, Congress had passed the Sherman Anti-Trust Act. (No, not General Sherman; this was his brother John, for an entire generation one of the Senators most respected for his economic understanding.) But for a long time the Sherman act was used, not against the corporate combinations it had been designed to curb, but against labor unions, seeing them as combinations in restraint of trade!

Now, a trust in itself is not necessarily a bad thing. We employ them all the time, as for instance when a parent established a bank account for a minor child and holds it in trust. And it isn’t necessarily a bad thing on a corporate level, either, but its effects certainly can be anti-competitive. In effect, a group of companies held in trust are no longer independent; their activities can and will be controlled by the company holding them in trust. Thus, if you control the Standard Oil trust, you can determine the economic actions of every company whose shares you control. You dictate what they charge, where they sell, everything.

John D. Rockefeller consolidated the oil industry that way. Andrew Carnegie did the same for steel. In their own eyes, they were rationalizing and standardizing what had been a chaos, and it may well be that they were right. But the result was the creation of a class of merchant princes. Could any republic survive that kind of concentration of economic power in so few hands?

The danger of the situation was illustrated, to those few who understood what was going on, when banker J.P. Morgan was able to dictate the terms of his agreement to do the things needed to end the Panic of 1907. Morgan wasn’t a bad man, and what he dictated simply seemed to him to be what needed to be done. But here was a private merchant prince conferring with the head of the government as one prince to another. Anybody could see it was dangerous. But seeing that a situation is undesirable is not the same as knowing what to do about it.


TR began jawboning. Taft instituted lawsuits. Woodrow Wilson, when he was elected in 1912 promising the New Freedom, passed legislation aimed at correcting the situation.  Maybe later I’ll come back and fill in the legislation Wilson got through in the first half of his first term, before the coming of war in Europe in 1914 put an end to reform. One of the things we should examine is the Federal Reserve Act of 1914 which tried to free capital from the control of a few banks, but didn’t work out that way. Another is the Income Tax amendment, which attempted to address the effects of extreme inequality and, again, didn’t quite work out as planned.

Reforms rarely do. First comes the reform, then comes the vested interest, tweaking the reform to make it more comfortable for those it tries to reform. That’s just the way of the world. Only with time do people learn that although reform is necessary from time to time, reform is never going to lead to utopia. The problem is, many would-be followers won’t follow any reformer promising anything less than the impossible.

Another problem is that after a while the reformer is likely to start to believe that s/he is just the one to deliver the impossible, and anyone in the opposite camp must be, by definition, stupid and/or evil. And yet another problem is, maybe they are! Or maybe there’s something to be said for their side of things too. Plato to the contrary, philosophers would make terrible kings – not that anybody is likely to give them the chance.

Nonetheless, evils arise and have to be faced. The burst of reform that was Wilson’s New Freedom was the result of pressure that had been building at least since the Civil War changed everything. After the war put an end to reform, another 20 years went by until the New Deal brought forth another spate of legislation designed not only to complete the New Freedom but to deal with the problems that had sprung up since, problems unimagined in Wilson’s day. Then came war once again, and again reform was shelved. The limited reforms proposed and backed after the war by Truman, Eisenhower and Kennedy met savage, intractable resistance, particularly in the area of race relations. In the emotional aftermath of John F. Kennedy’s assassination and the consequent Johnson landslide of 1964, the country underwent a third burst of reform, extensive enough to be traumatizing to large numbers, causing or exacerbating a cultural divide which the rest of the century could not transcend. After the Great Society legislation of 1965-1967, reform gave way to retrenchment, and the initiative went to forces calling for retrenchment in all areas of government other than military and police.

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