TRUST 22 TRXJS^, members be exchanged for trust certi- ficates and, second, that the trustees manage the several corporations in the manner they deem most conducive to the best interests of the holders of the trust certificates. Such a combination constitutes a permanent financial union. The first trust created in the United States vv^as the Standard Oil Company, through the remarkable genius of S. C. T. Dodd. Within the next ten years, trusts were also organized in the cotton, sugar, and whisky industries. As these and other similar combinations appeared, however, restrictive legislation was passed^ in the various States, with the exception of New Jersey, whose laws re- mained so accommodating that most com- binations established their headquarters in that State. The stockholding method was that which was most in practice during the earlier period of trust formation in this country. As an illustration, the Amer- ican Sugar Company, known as the sugar trust, was formed by the corporation acquiring a majority interest in its rivals, in 1894. During the following ten years this method was widely practiced among the railroads. In 1900 a new and advanced step was taken, when James J. Hill organized the Northern Securities Company, which acquired possession of the Great Northern railroad companies and the Northern Pacific. Later suit was brought by the State of Minnesota to have this merger dissolved, the Supreme Court finally passing a decision that this form of trust was illegal. The rapid growth of these various forms and types of corporations in the United States was recognized as a con- stantly growing menace to the social interests, which could not be met by the legislation of the individual States. The vast capital available to certain com- binations made it possible to crush small competitors by economic oppression, without redress before the courts of the country. On the other hand, the creation of a monopoly made it possible for them to levy what amounted to heavy taxes on the consuming public in the form of arbitrary profits, unlimited by competi- tion. By the pooling arrangements, al- ready described, competing firms were transformed into partners in one gigan- tic concern that could restrain trade and control the market. In 1890, when ten States had already enacted anti-trust legislation, without much effect, the popular demand became so strong that Congress was compelled to take action. On July 2 of that year the famous Sherman Anti-Trust Law was passed, which for the first time gave the Federal Government power xo tafce legal action against combinations in any part of the country. Though drawn up with care and de- bated at length, the new law could only declare those combinations illegal which were in "restraint of trade." Tremendous efforts^ were therefore made to amend the provisions of the law so as to render their application impotent. The best legal talent available was employed to have incorporated the phrase which would define a trust as enjoying a com- plete monopoly of the market for its particular commodity. The law was also attacked on the ground that it curtailed the fundamental right of free contract. The act having been passed, these same interpretations were put forth through test cases. Several of the lower Federal courts decided in favor of the corporate interests, but after a tedious series of litigations the Supreme Court finally decided that a complete monopoly need not necessarily be proven, and that the liberty to make contracts applied only to legal contracts. But in spite of the fact that several notable convictions were obtained under the Sherman law, in such cases as the Standard Oil Company and the Tobacco trust, both of which were ordered to dissolve into their former com- ponent parts, it soon became evident that this piece of Federal legislation was in- effectual. By means of gentlemen's agreements, dummy directors and inter- locking directorates, the trusts continued to operate. To remedy this condition and make the law really effective, supplementary legislation was passed by Congress, on October 15, 1914, known as the Clayton Anti-Trust Act. By some of its provi- sions a manufacturer was forbidden to sell goods to a merchant on the under- standing that he should not be free to buy from others as well. Another pro- vision forbids a corporation from selling to different dealers at different prices. With certain exceptions holding com- panies and interlocking directorates were forbidden. The most valuable feature of the law was the establishment of the Federal Trade Commission, which has the power to determine what constitutes unfair methods and acts "in restraint of trade." It also has the power to make special investigations, order hearings and to enforce its decisions through the Circuit Court of Appeals. It has been of real value in exposing to the public the methods of vicious combinations through the publicity attending its investigations, even though the facts made public do not come within the provisions of the law. The report of its investigation of the
