MINISTERIO DE AMBIENTE Y ESPACIO PÚBLICO

After the Civil War,100 the public’s perception of corporations worsened; therefore, the public started demanding the control of monopolistic corporations by government regulation.101 The reason behind the increasing public outcry was the rapid development of private corporations which were believed to be entirely monopolistic. One of the most infamous types of monopolistic private corporations were trusts which started to be formed in response to a general price war and market instability. In order to maintain high prices and respond to the market situation, trusts were formed with the purpose of maintaining high prices. Eventually, this brought the US to the era of revolutionary industrialisation. The end consumers were hit by high prices; while small businesses were affected by anti- competitive practices of the leading and powerful firms. For instance, farmers were largely affected by high prices charged on transportation of their goods by railroads. These trusts were, thus, taking the form of business trusts which developed into an excellent tool to take control over the entire industry.

Trusts started to be formed by a major oil corporation, Standard Oil, in 1880, a move which was followed by other oil corporations.102 A board of the specialised trustees was set up in order to control all Standard Oil’s property. In return, stockholders were given trust certificates for each share of the company’s stock, while the company’s profits were given to trustees who in turn set the dividends. This system ensured a complete monopoly for Standard Oil. Despite all the concerns and public outcry about the harm created by

99 _{1 Brandeis, L., D., The Brandeis Guide to the World at p.19.} 100 _1861-1865.

101

Letwin, W., Law and Economic Policy in America: The evolution of the Sherman Antitrust Act at p. 67. 102 _{“The Cotton Oil Trust was formed in 1884, the Linseed Oil Trust in 1885, the Sugar Trust and the} Whiskey Trust in 1888, the Envelope, Salt, Cordage, Oil-Cloth, Paving-Pitch, School-Slate, Chicago Gas, St Louis Gas, Paper Bag and New York Meat Trusts in 1889”, Carey, R., “The Sherman Act: what did Congress intend?” [1989] 34 Antitrust Bull. 337 at p.339.

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monopolistic trusts, the Sherman Act historian John Davidson Clark argued that the public was not ‘hysterical’, but was, rather indifferent to the trusts.103

There were various arguments about public’s reaction toward trusts; however, the fact that trusts did affect the US economy was an undisputable fact. It was argued, for example, that financial concentration was one of the most harmful effects of trusts as they destroyed financial independence by providing only a few banking entities with a privilege to undertake trusts’ finances.104 The access to the profits by the general public and the ability for others to compete with such large private corporations as trusts was the distinctive feature of the trusts’ monopolistic position within the US market.105

The formation of trusts triggered various responses and the proposition that trusts were simply the results of natural growth106 was vigorously rejected by Louis Brandeis. The rejection was based on the argument that “not a single industrial monopoly exists today which is the result of natural growth […] competition has been suppressed either by ruthless practices or by an improper use of inordinate wealth and power”.107

It rested on the fact that trusts had proved to be detrimental to the consumer welfare by monopolising the markets.

Before the government took control over trusts, there were different opinions as to the appropriate remedies to stop trusts abusing their power. There were supporters for two types of remedies: the regulation of monopoly and the regulation of competition.108 Some believed that monopoly in business of private corporations was inevitable; therefore, the only way left to the government was to regulate monopoly; rather than fight it. This remedy could be an appropriate one only if the government had enough resources to control the monopoly of private corporations. However, considering that trusts were also accused of bribing legislators and corrupting civil servants,109 such a remedy would pose risks. Others, meanwhile, thought that trusts’ monopoly was not an inevitable process; therefore, arguing that the most appropriate remedy would be to control the regulation of competition. This entails the maximum eradication of monopoly in private power; thereby,

103 _{Clark, J., D., The Federal Trust Policy (The Johns Hopkins Press, 1931).} 104 _{1 Brandeis, L., D., The Brandeis Guide to the World at p.184.}

105 _{The Supreme Court in Alcoa held that Congress “did not condone ‘good trusts’ and condemn ‘bad’ ones;} it forbad all”-- US v Alcoa at p. 427.

106 _{The definition of “natural monopoly” and its implications are discussed in Chapter 3.} 107 _{Brandeis, L., D., The Curse of Bigness at p.105.}

108 _{1 Brandeis, L., D., The Brandeis Guide to the World at p.181.} 109

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promoting free-from-monopoly competition within the US market. It could be argued that Congress chose this remedy; although, it never prohibited monopoly altogether. It could also be argued that Congress preferred to play safe and chose neither of them; rather, it passed a legislation that regulated both monopoly and competition at the same time.