Laissez-Faire, Sil-Vous Plâit

Laissez-faire was the premier economic philosophy which was widely accepted between 1865 and 1900. Laissez-faire is defined as “an economic doctrine that opposes governmental regulation of or interference in commerce beyond the minimum necessary for a free-enterprise system to operate according to its own economic laws (note 1).” And while laissez-faire was widely accepted the Federal Government involved itself in the regulating of businesses and economic practices through a series of policies. And so, “Let us inquire for a moment what are the proper functions of government, and how far…it may interfere with the natural laws governing commerce, manufactures, and agriculture,” to quote Daniel Knowlton before a Senate Committee on Education and Labor.

The Federal Government, during 1865 to 1900, introduced policies that went against the laissez-faire way of thinking. The termination of land grants to any corporation, the Interstate Commerce Act of 1887, and the Sherman Anti-Trust Act of 1890 were all ways for the government to regulate trade through out the United States. There were separate reasons for each act and sometimes the original intent did not go very far.

Land grants given to the booming railroads during the reconstruction period after the Civil War spurred development westward. The railroads would develop the land given to them by the government and bring settlers to the areas where stations sprang up. However, where the railroads went their problems followed: taxation, price discrimination, and monopolies being the main ones. At a National Agricultural Congress, farmer’s representatives passed a resolution saying, “...We recognize the railways of the country as an effectual means of developing its agricultural resources...We have in times fostered and aided them...but a fair degree of reciprocity...suggest that corporations...should...endeavor to subserve the interest of the country through which they pass, by charging fair rates of freights, and by the equitable and just treatment of all localities along their lines.” The previous statement shows that the corporations exuded considerable power over the folk that relied on their transportation and land. “The people are groaning under the burden of taxation heaped upon them by reckless and willful legislation upon the part of their Representatives, who have given to unscrupulous corporations lands, bonds, and money…” J.K Lutterell of California said this in a speech to the House of Representatives in 1878, meaning the people have suffered for the negligible giving of the government. This was part of the reason the government stopped federal land grants to corporations.

Another part is, in 1870, the United States central government hand a $2.4 billion Debt Outstanding. Part of that debt was believed to come from the frivolous giving of land grants to many private and public companies. The land grant policy of the United States towards the railroads ended in 1876 when a resolution was passed by Congress to end any non-imperative outpouring of government “money, bonds, public lands, or indorsement.” This resolution did not interfere extensively with the railroad corporations—they still worked on their millions—however the interference was just enough to violate the laissez-faire economic philosophy.

The second main act of the federal government to regulate corporations was the Interstate Commerce Act of 1887. This act resolved that railway charges must “be reasonable and just,” price inequity was unlawful between customers and different locations, “pooling of freights” between different companies was unlawful, and the Interstate Commerce Commission was created. The Interstate Commerce Commission (ICC) was, “created to aid in bringing about great and salutary measures of improvement to the evils of vast businesses that now exist,” as stated in the First Annual Report of the ICC. The main reason for the creation of this resolution was to regulate the railroad companies and prevent monopolies from being cultivated. “It has become apparent that the recognized laws of trade operate but imperfectly at best in regulating the use made of these modern thoroughfares by those who thus both own and monopolize them,” was said by Charles Francis Adams Jr. in Railroads: Their Origin and Problems. New laws were needed to order the new corporations being created by the further industrialization of America. “The United States has the most efficient railway service and the lowest rates known in the world…but the railroad’s effect has been to build up the strong at the expense of the weak…” said a Senate Committee on Interstate Commerce. When monopolies existed and grew, the people lost economically. Therefore the control of the industries must be in the hand of the government.

Although the Interstate Commerce Act was meant to regulate railroads and other major businesses, the ICC’s First Annual Report stated, “The ICC operated directly to increase railroad earnings, especially in the cutting off of free passes on interstate passenger traffic, and in putting an end to rebates, drawbacks, and special rates upon freight business.” Thus, even though there was more regulation, the railroad still prospered. Plainly speaking, this act did not reach very far.

The Sherman Anti-Trust Act of 1890 was the last major effort to control major corporations. The Sherman Anti-Trust Act was created to combat the “unlawful combinations,” Senator John Sherman’s phrase, of corporations that were interfering with the fair and open field of business competition. When competing companies formed a trust, they worked together for their own interests: raising prices for more profit, bullying other competition, and other business practices of the like. President Grover Cleveland, in his second inaugural message said, “Legitimate strife in business should not be superseded by an enforced concession to the demands of combinations that have the power to destroy…To the extent that they combinations can be reached and restrained by Federal power the General Government should relieve our citizens from their interference and exactions…” Therefore the main reason for the Sherman Anti-Trust Act was the threat of monopolies in the business world. Monopolies meant no competition, and no competition meant the consumer lost out.

The Anti-Trust act had the potential to be the best progression towards helping the common American, however, “the act has serious weaknesses, most notably its failure to specify clearly enough precisely what kinds of combinations it was forbidding (note 2).” The Executive branch of government filed suit against some corporations under the Sherman Anti-Trust Act, but with courts that favored the major businesses, few went very far. Also the Sherman Anti-Trust Act lost much of its power in the case of United States v. E. C. Knight Company. Chief Justice M. W. Fuller, speaking for the Supreme Court in this case, said, “…In the exercise of the power to regulate commerce Congress may suppress such a manufacturing monopoly directly and set aside the instruments which have created it…but the power to control the manufacturing of a given thing involves in a certain sense the control of its disposition…Commerce succeeds to manufacture, and is not part of it. The power to regulate commerce is the power to prescribe the rule by which commerce shall be governed...” In plain English, manufacturing is the making of the goods and not the distributing of them, therefore unless the monopoly involves distribution, the restraining of commerce is not happening.

With the Sherman Anti-Trust Act so weakened, there would be few lawsuits to follow E.C. Knight to court. For example, during the McKinley administration (1897-1900) there were about 1,920 mergers in manufacturing and mining. Yet only three cases were brought before the courts under the Anti-Trust Act. This was most likely because of the weakened state of the Act and how little it actually could do because of some unclear definitions.

The laissez-faire economic philosophy reigned predominant in an age where survival was for the best of the best. As was said by Amasa Walker in The Science of Wealth: A Manuel of Political Economy, “Economically, it will remain true, that the government is best which governs least.” This was the heart of laissez-faire and this idea would continue to persevere till present day. And as America continued on in her industrial pursuits, this much was certain, change would continue to shape and remold what was known as the United States of America.

(note 1): The American Heritage Dictionary of the English Language, . 02.27.04

(note 2): Brinkley, Alan American History: A Survey 10ed. p.667