Business Applications of Trusts
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.