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The Infinite Power of Trusts and the Rise of the Antitrust

The introduction of trusts may arguably be the most innovative development in common law.  A trust is a relationship by which property is held by one party for the benefit of another.  This simple division between control and benefits creates an infinite world of possibilities to the creator in managing his or her assets.  The great American industrialist and philanthropist John D. Rockefeller seized on this innovation to grow Standard Oil into the greatest monopoly Wall Street had ever seen.  In only two decades, Rockefeller shocked the very foundations of the American economy and forced the hands of authorities to introduce antitrust laws to level the playing field.           

Trusts find their origin in Roman law when wills created fideicommissum or testamentary trusts.  A testamentary trust only comes into effect upon the maker’s death.  The next innovation was to create trusts that came into effect during a maker's lifetime, referred to as inter vivos or living trusts.  Living trusts arose in England during the Crusades when many landowners departed for many years to fight to reclaim the Holy Lands.  The position of a trustee was created to manage the family’s estate in their absence. 

Fast-forward to the Industrial Revolution taking place in the United States.  A young Rockefeller was competing with many entrepreneurs to exploit the profits found in drilling for oil.  Within 20 years, Rockefeller’s Standard Oil controlled 80 percent of the American oil refining business.  As Standard Oil grew exponentially across the country, it came into conflict with state laws that forbade corporations from owning another company or property in another state.  In 1879, Samuel Dodd, a brilliant attorney for Standard Oil, devised a new type of trust agreement to overcome these prohibitions.  A few managers were named as trustees to hold ownership of the subsidiaries for the benefit of the stockholders of Standard Oil.         

This was the beginning of the trust form for corporations and cemented Standard Oil’s dominance for a decade.  Other corporations imitated Standard Oil and in response to monopolistic business practices, the federal government passed the Sherman Antitrust Act of 1890.  This antitrust law was necessary to break up the dominance of monopolistic trusts in multiple sectors.  The Act’s reference to “trusts” and to “antitrust” law is sometimes misunderstood by modern readers.  The antitrust law is truly an anti-competition law but it was the trust form for corporations, and not corporations themselves, that so frightened government officials.

Robert ElamComment