Activity 1

NAME_______________________________

BIG BUSINESS AND GOVERNMENT IN THE LATE 1880’S

AN OVERVIEW1

During the late 1880s, business firms in the United States faced few regulations from the federal government. This "hands-off" relationship did not change until the creation of the Interstate Commerce Commission in 1887 and the Sherman Antitrust Act in 1890. Even after these laws were passed things did not change immediately because the Supreme Court issued a series of very narrow interpretations of the laws’ intent, thus restricting their effect on business practices.

This historical period was also an era of business mergers and growth. Businesses now could produce and sell products across the continent. The United States had become the largest single trading zone in the world. Transportation and communication changes allowed firms to reach customers from California to Maine, from Minnesota to Florida. Businesses expanded to serve regional and national markets rather than merely the local area. Often several small businesses would join together as "pools" to set prices and production levels, and to divide territories. Later, these informal arrangements became "trusts" or "holding companies." A trust was formed when stockholders in many competing companies – for example, sugar producers – trusted their shares in the business over to a group of trustees who then ran the entire industry. The trustees attempted to set prices and production levels in a way that would maximize profits. This organizational practice was used to influence the output of kerosene, sugar, whiskey, cottonseed oil, linseed oil, lead, salt, rubber boots, and gloves.

The trusts also sought to influence government legislation which would affect their industry. They sought especially to secure passage of protective tariff legislation to reduce competition from foreign producers.

TARIFFS AND TRUSTS2

"The mother of all trusts is the customs tariff bill" (Henry O. Havemeyer, president of the American Sugar Refining Company, head of the Sugar Trust, June 1899).

"That the tariff, by shielding our manufacturers from foreign competition, makes it easy for them to combine, to restrict production, and to fix prices – up to the tariff limit – ought to be evidence to every intelligent man" (Bryon W. Holt, The New England Free Trade League, September 1899).

QUESTIONS FOR DISCUSSION

  1. Why were businesses expanding late in the 1880s?
  2. What types of business organizations were used to gain some control of prices and competition?
  3. How did the federal government influence the success or failure of business enterprises late in the 1800s?
  4. Did Henry O. Havemeyer and Bryon W. Holt agree on the impact of tariffs on U.S. Business?
  5. Do you think Havemeyer and Holt would have agreed on keeping tariff rates high to protect U.S. business from foreign competition?

1Information taken from Gary Walton and Hugh Rockoff, History of the American Economy, 7th ed. (New York: Dryden Press, 1994).

2See "Why Did American Business Get so Big?" by Colleen A. Dunlavy, Associate Professor of History at the University of Wisconsin-Madison, for Audacity (Spring 1994), p. 46.

© Council for Economic Education
United States History: Focus on Economics, Lesson 7

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