The arrangement at which the Sherman Antitrust Act was directed was a business application of the trust form. The Standard Oil Company, for example, induced stockholders in various enterprises to assign their stock to a board of trustees and to receive dividend-bearing trust certificates in return. The board was thus able to manage simultaneously enterprises that many believed should have been in active competition. Soon most business combinations in restraint of trade came to be called trusts, whether in the legal form of a trust or otherwise.
A horizontal trust is a combination of corporations engaged in the same line of business. A vertical trust is an organization that controls all or part of a series of operations extending from the procuring of the raw materials to the retailing of the finished products. In Europe the term cartel is applied to a monopoly or trust, but the term is broader in that it may have international scope, and there, as in the United States, it may be either vertical or horizontal.
Business trusts have been opposed as monopolies, and laws have been enacted to prohibit or control them. They have been defended as reducing costs through large-scale operations and avoiding the expenses of competition. In the United States trusts grew rapidly from 1880, and by 1905 most of the important mergers in American industry had been formed. The Sherman Antitrust Act, passed by Congress in 1890, made illegal all "agreements in restraint of trade" and all "attempts to monopolize" industry; but the law was not vigorously enforced. The Clayton Antitrust Act (1914) was designed to stop various practices of "unfair" competition, and the Federal Trade Commission was given power to issue "cease and desist" orders when violations were found.
See A. A. Berle, Jr., and G. C. Means, The Modern Corporation and Private Property (1932, rev. ed. 1969); W. Berge, Cartels (1944); R. R. B. Powell, Cases and Materials on Trusts and Wills (1960); M. Handler, Cases and Materials on Trade Regulations (4th ed. 1967); A. Hunter, ed., Monopoly and Competition (1969).
Trusts were large business entities that largely succeeded in controlling a market, essentially becoming a monopoly. The term became common in the late 19th century, when a system of trusts controlled much of the economy of the United States. In 1898, President William McKinley launched the "trust-busting" era when he appointed the U.S. Industrial Commission on Trusts, which interrogated Andrew Carnegie, John D. Rockefeller, Charles M. Schwab, and other industrial titans. The report of the Industrial Commission was seized upon by Theodore Roosevelt, who became known as a "Trust Buster," dissolving 44 trusts during his two terms as president. However, the "Trust Buster" name is probably more suited for Roosevelt's successor, William Howard Taft, who brought an end to 90 trusts in one term. Although Taft may have done more to control the trusts while in office, Roosevelt retains the nickname because he was the pioneer of trust-busting.
Senator John Sherman from Ohio introduced legislation, the Sherman Antitrust Act, on July 2, 1890 to prevent trusts from forming. The Clayton Antitrust Act was enacted in 1914 to remedy deficiencies in the Sherman Act.