Northern Securities Company: The Great Railroad Trust
In 1901, the Northern Securities Company was formed as a holding company in the business-friendly state of New Jersey. The new venture brought together the talents and wealth of J.P. Morgan and James J. Hill on one side and E.H. Harriman on the other. Hill controlled the Northern Pacific and Great Northern Railways, Harriman the Union Pacific. Harriman's efforts to gain an entry to Chicago by acquiring the Chicago, Burlington & Quincy led to an epic battle that led to the Northern Pacific Panic of 1901 and threatened the financial stability of the country.
Deciding that accommodation was preferable to a fight to the death, the erstwhile competitors merged their holdings in the Northern Securities Company. Noting that traffic between Chicago and the Northwest was monopolized, Roosevelt in 1902 ordered Attorney General Philander C. Knox to bring suit, alleging restraint of trade. Morgan and Mark Hanna pleaded personally with the president to halt the action, but to no avail.
In court, Northern Securities attorneys argued that the company did not really engage in interstate commerce, but simply was a stockholder. They further argued that the by allowing the government's position to hold, the Sherman Act's prohibitions would preempt powers reserved reserved under the Constitution to the states.
By the narrowest of margins, five to four, the Supreme Court in 1904 sided with the government and ordered the NSC's breakup. This decision was notable for the following reasons: