The Controversial World Of

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In nineteenth-century American society, the operation of the classical market often did coincide with “the public interest” as perceived by policy makers and perhaps by most of the American people. In the market-oriented culture of the time, productivity and growth usually seemed to promote the overall good of society. Americans generally allowed the “laws” of the market to control their economic decisions. There were compelling reasons for this emphasis, of course. Resources seemed inexhaustible. The American Revolution had been fought, in part, against some of the same British economic policies that Adam Smith had criticized in The Wealth of Nations . Most important, the very meaning of America was individual opportunity, a necessarily short-run phenomenon. Long-range implications—say, beyond a generation—were hard to visualize. Even when the government did intervene, as the states did in financing canal construction, or the federal government did in helping to build the transcontinental railroads, the controlling purpose was promotional assistance to the market. The pay-off would come quickly, or so most Americans believed.

The greatest virtue of the market as regulator was its instantaneous manipulation of supply and demand through the price system. As a mechanism for short-run operations of this type, it had no equal. It still has none to this day. But it could not, and cannot, function very well beyond the next alteration of supply or demand. Thus the market was of little help in protecting society against the exhaustion of natural resources. Nor could it install a floor of living standards below which society could not in good conscience allow its members to sink. Nor could it prevent new industrial processes from exacting a frightful toll of human misery, in lives or limbs lost and existence stunted.

Since the market could not regulate such matters as industrial safety, other regulators had to be found. Belatedly, state legislatures began providing rules for the safe operation of such new devices as railroad trains—incredibly dangerous machines for a society accustomed to the speed of the buggy and the mass of the wagonload. Later, after the turn of the twentieth century, “industrial commissions” materialized to regulate factory safety, and to administer the new workmen’s compensation laws passed by the states. This movement, a part of what in Europe was called “social democracy,” came late to the United States and only after a generation of journalistic muckrakers had stirred up Americans of the Progressive Era, much as Ralph Nader has recently done for those Americans’ grandchildren. That so many commissions of various types originated during the Progressive Era points up the reformist impetus of regulation itself. It also furnishes another reason why the agencies so often seemed to fail: too much was expected of them by their sponsors, as is often the case with other kinds of reform legislation.

Besides, there is nothing inherently humanitarian about regulation. Just as the focus of life in nineteenth-century America was more on the wealth created by industrialization than on the human cost ofthat wealth, so regulation dealt first with economic, not humanitarian, concerns. Businessmen themselves were the first to perceive the inadequacies of the Smithian market in the face of new economic imperatives and create regulatory mechanisms within the business system that would short-circuit the competitive market. They themselves were the first to control prices, outputs, and entry into various industries, and they did it to minimize their own risks. By the late nineteenth century, the inherent economic tendencies of certain types of business had made them so large and expensive that some sort of adjustment beyond the Smithian market was essential. Businessmen therefore invented the long list of devices for consolidation, collusion, or informal cooperation that frustrated the competitive forces of the market, and have frustrated consumers ever since. These devices—pools, informal cartels, holding companies, oligopolies—did not work equally well for every industry. They functioned best for those that by their nature were more efficient on a large scale. That such companies as United States Steel and Standard Oil prospered, whereas others like United States Leather and Standard Rope and Twine did not, tells us more about the nature of these industries than about the shrewdness or wickedness of their leaders.