To interpret the railroad history of the nineteenth century as “Proof” of the failure of a free market, is a disaterous error. The same error, which persists to this day, was the nineteenth century’s fear of “The Trusts”.
The most formidible of “The Trusts” was Standard Oil. Nevertheless, at the same time of the passage of the Sherman Act, a pre-automotive period, the entire petrolium industry amounted to less than one percent of the Gross National Product and was barely one-third as large as the shoe industry. It was not the absolute size of the trusts, but their dominance within their own industries that gave rise to apprehension. What the observers failed to grasp, however, was the fact that the control by Standard Oil, at the turn of the century, of the more than eighty percent of the refining capacity made economic sense and accelerated the growth of the American Economy.
Such control yielded obvious gains in efficiency, through the intergration of divergent refining, marketing and pipleine operations, it also made the raising of capitol easier and cheaper. Trusts came into existence because they were the most effective units in those industries which, being relatively new, were too small to support more than one large company.
Based on a paper by Alan Greenspan, given at the Antitrust Seminar of the National Association of Business Economists in Cleveland, on September 25th, 1961