The granddaddy of all federal U.S. trust busting attempts -- the Sherman Antitrust Act -- was signed into law this week on July 2, 1890.

Instigated by Senate Finance Chairman John Sherman (R-OH), younger brother of Civil War general William Tecumseh Sherman, the legislation sailed through Congress with only one "nay" vote, and was approved by President Benjamin Harrison.

Aimed at the unpopular trusts and monopolies cannibalizing American industries and farmers, particularly John D. Rockefeller's Standard Oil Trust, the law vaguely stated that: "Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared illegal."

Furthermore, the Act declared it illegal for any "person or persons… to monopolize any part of the trade or commerce..." and established fines and prison terms for those convicted of these felonious actions.

Naturally, there were critics of the Sherman Antitrust Act from all ends of the political spectrum. Most notably, faultfinders decried that the law never defined key elements -- such as "combination," "trust," "conspiracy," and "monopoly." Consequently the federal government's limited prosecutions of interstate violators of "restraint of trade" were ineffective except, ironically enough, when used against labor unions that the Courts found were "illegal combinations." The most famous union bust-up involved the American Railway Union during the Pullman Strike that saw its leader Eugene Debs, hauled off to prison in contempt of court.

The head bashing free pass against organized labor was not revoked until the 1914 Clayton Antitrust Act...a law that also tightened up other 'Sherman' loopholes.

This Week in Wall Street History

6/23/08