6.12 Controversies over the Role of Government

Continuities and Changes 

During the Gilded Age (approximately 1870s-1890s), the role of government in the US economy was marked by both continuities and changes.

One continuity was the government's role in promoting economic growth through policies such as the construction of infrastructure, such as railroads, and the acquisition of new territories. The government also played a role in protecting American industry through tariffs on imported goods.

Another continuity was the government's role in regulating business through laws such as the Sherman Antitrust Act of 1890, which aimed to prevent monopolies and promote competition.

However, there were also changes in the government's role during the Gilded Age. One change was the limited role of the government in addressing social and economic issues, such as poverty and labor rights. The government also largely laissez-faire, or hands-off approach to the economy, believing that the market would regulate itself.

Additionally, during this period, the government's role in certain industries, such as railroads, changed as well. The government initially supported the expansion of railroads through land grants and other incentives, but later sought to regulate the industry through laws such as the Interstate Commerce Act of 1887, which aimed to prevent discrimination and unjust rates.

In summary, during the Gilded Age, the government's role in the US economy was marked by a combination of continuities and changes, with a government that promotes economic growth and regulate business but with a limited involvement in addressing social and economic issues and a hands-off approach.

Context

During the Gilded Age, the dominant economic ideology was laissez-faire, which held that the government should have a minimal role in the economy and that the market should be left to regulate itself. This idea was closely tied to Social Darwinism, which held that competition in the marketplace was a natural and beneficial process that would lead to the survival of the fittest businesses.

Many people during this period opposed government intervention in the economy and believed that businesses and the economy would recover on their own without government interference. However, the government did take certain actions to promote economic growth and development, such as granting land to railroad companies, implementing high tariffs, and following hard money guidelines. These actions were seen as a way to support American businesses and promote economic growth, while still adhering to the laissez-faire ideology.

Federal Land Grants

The federal government provided significant subsidies to railroad companies during the Gilded Age, including granting large amounts of land to build railroads. The government believed that these subsidies would promote economic growth and development, by increasing the value of government land and providing rates for carrying the mail and transporting troops.

However, these subsidies had negative consequences as well. The large land grants prompted hasty and poor construction, with many railroads being built without proper planning and engineering. Additionally, the land grants led to significant corruption, as insiders used construction companies to bribe government officials and pocket profits. This led to a significant loss of government revenue and public trust in government. The land grant also led to the displacement of native American tribes and damage to the environment.

In short, the government's role in promoting the growth of the railroad industry through land grants and subsidies during the Gilded Age had both positive and negative consequences, as it led to economic growth and development, but also to corruption, poor construction, and negative impacts on the environment and native American tribes.

Interstate Commerce Act of 1887

Prior to the passage of the Interstate Commerce Act, many states had passed laws to regulate railroad rates, but these laws ran into legal problems. The Supreme Court case of Wabash v Illinois (1886) declared that individual states could not regulate commerce, as it was a power reserved for the federal government.

As a result of this decision, the federal government passed the Interstate Commerce Act of 1887. The act aimed to address issues of discrimination and unjust rates by railroad companies. It required that railroad rates be "reasonable and just" and established the first federal regulatory agency, the Interstate Commerce Commission (ICC), to enforce the act and investigate complaints. The ICC was given the power to investigate rates and practices of common carriers and to order changes if they were found to be unjust or unreasonable.

The Act helped to prevent discrimination against small shippers and farmers and to ensure that rates were fair. However, the ICC was not very effective as the railroad companies continued to use their influence over the commission. The act was amended several times to strengthen the ICC's power, but it was not until the Hepburn Act of 1906 that the ICC was given the power to set maximum rates.

Antitrust Movement

The trusts, or large monopolies, came under widespread scrutiny and attack in the late 19th century. Many middle-class citizens feared the trusts' unchecked power and believed they were a threat to competition and economic opportunity. Urban elites, or the old wealth, also resented the increasing influence and wealth of the new rich who controlled the trusts.

In response to these concerns, reformers pressured Congress to pass the Sherman Antitrust Act of 1890. The act prohibited any contract, combination, or conspiracy in restraint of trade or commerce among the several states or with foreign nations. The act was intended to break up monopolies and promote competition, but it was not initially enforced effectively.

In the United States v E. C. Knight Co. in 1895, the Supreme Court ruled that the Sherman Antitrust Act could only be applied to commerce and not manufacturing. This ruling severely limited the government's ability to use the act to break up monopolies, and it was not until later court cases, such as Standard Oil Co. of New Jersey v. United States (1911) that the government successfully used the Sherman Act to break up trusts.

Civil Service Reform

The Pendleton Act of 1881 was a federal law that established the Civil Service Commission and implemented a system of merit-based appointments for federal government jobs. It aimed to reduce the widespread practice of political patronage and ensure that government positions were filled based on qualifications and ability, rather than political connections. Initially, the act only applied to a small percentage of federal jobs, but over time it was expanded to cover the majority of positions in the federal government.

"Easy" money vs "Hard" money

During the late 19th century, there were debates in the United States about the appropriate monetary policy to support economic growth. The advocates of "easy" money, such as farmers and startup businesses, argued that an increase in the money supply would make it easier for them to borrow money at lower interest rates and pay off their loans with inflated money. On the other hand, "hard money" supporters, such as bankers, creditors, investors, and established businesses, believed that a currency backed by gold stored in government banks would hold its value in times of inflation. They also believed that as the population grew, each dollar would gain value. Supporters of hard money were correct as the value of the dollar increased by nearly 300 percent between 1865 and 1895. The panic of 1873 was blamed on the gold standard for restricting the money supply and causing economic depression.

Greenback Party

The Greenback Party, which emerged in the United States in the late 19th century, opposed the shift from paper money to a specie-based monetary system, as it believed that this would lead to a reacquisition of power by privately owned banks and corporations to define the value of products and labor. They believed that government control of the monetary system would allow for more currency in circulation, as it had during the Civil War. The party gained 14 seats in Congress and was popular, but the Specie Resumption Act of 1875, passed by Congress, which withdrew all greenbacks from circulation, led to the decline of the party. The economic turmoil of the 1870s also contributed to the decline of the party, by the end of the decade, the Greenback Party died out.

Demands for Silver Money

The "Crime of 1873" refers to the decision made by Congress to stop coining silver, which was seen by some as a blow to the expansion of the money supply and especially to those who had invested in silver mining. The discovery of new silver mines in Nevada, as well as pressure from farmers, debtors, and miners, led to renewed demands for the unlimited coinage of silver. In response, Congress passed the Bland-Allison Act of 1878, which allowed for the limited coinage of silver between $2 million and$4 million per month. However, this did not satisfy those who were calling for unlimited coinage and the debate over the use of silver as a monetary standard would continue in the following years.

Tariff Issue

During the Civil War, Congress passed protective tariffs to protect the US industry and fund the Union government. These tariffs raised the prices of imported goods, making them less competitive with domestically produced goods. However, after the war, both Southern and Northern Democrats opposed these tariffs, arguing that they raised prices for consumers. In response, other countries also raised their tariffs, which led to a decrease in international sales for American products, particularly crops. This resulted in lower farm profits and a decline in the farming industry. The tariffs also led to economic tension between the different regions of the country, as the North, which had a more industrialized economy, generally supported the tariffs, while the South, which was more agriculturally based, opposed them.