Economic Policy: A History
Ch. 18
How did ideas of government regulation of
the economy change over time?
Why was there a shift away from laissez-faire
attitudes?
How did the interventionist state change the
idea of government involvement in regulating
the private economy?
19th century (1800s)
• State governments were active in promoting/regulating
private economic activity
– Regulation—use of governmental authority to control or change
a practice in the private sector
• National regulatory programs few, restricted
• Post-1865, major period of economic growth
(industrialization)
– Problems from industrialization (accidents, disease,
corporations…)
– Downturn in business cycles—fluctuations between growth and
recession (typical in capitalist economy)
– Limited jurisdictions of states couldn’t compete with national
corporations
• However, businesses/conservatives supporting
gov’t intervention and aid for econ. development
now supported laissez-faire (“let it be”) policy
– Britain’s Adam Smith Wealth of Nations
– Gov’t involvement in economy wrong; role limited to
law/order and that not profitable for private citizens
– Involvement: “econ system and set of gov’t policies
that would encourage private profit”
• Interstate Commerce Act 1887 regulated by
new Interstate Commerce Commission (ICC) to
regulate railroad system
• “trust-busting”—splitting up monopolistic
business practices
– Sherman Anti-Trust (1890)
– These two acts key legislative responses to
industrialization
Progressive Era (1890-1917)
• Movement to reform political, economic, social systems
(“make progress”)
• Desire for corporations under control of government for
democratic ends
– Strengthen/establish regulatory programs under TR and Wilson
• Pure Food and Drug Act (1906) beginning of consumer protection
• Banking and regulation of business:
– Federal Reserve Act (1913): creates Federal Reserve System
to reg. nat’l banking system, flexible $ system
– Federal Trade Commission Act (1914)—creates Federal Trade
Commission to reg. competition (along w/Clayton)
– Clayton Act (1914)—supplements Sherman Act; “the labor of a
human being is not a commodity or article of commerce.”
16th amendment
• Fiscal (government spending) constraints forced
public officials to focus on income tax to raise
money
• 1895: SC rules income tax was a direct tax,
which had to be allocated among states in
proportion to their population (political/admin
impossibility)
• 16th Amendment (1913)— “to lay and collect
taxes on incomes, from whatever source
derived”
– Now major source of general revenues
Great Depression/New Deal
• After 1929 stock market crash, all sectors
of economy suffered
– Initial response of Hoover admin was that
“economically sound” (1/4 all workers
unemployed by 1933)
• Major turning point when laissez-faire
state replaced with interventionist
state—gov’t active/extensive role in
guiding/regulating private economy
Reforms
• Financial
– Glass-Steagall Act (1933): separation of commercial
and investment banks; set up FDIC; control stock
market abuse
– Securities and Exchange Act (1934): created SEC
to regulate stock exchange, enforce act, reduce
stocks on margin
• Agricultural
– Agricultural Adjustment Act (1933, 1938): first
(unconstitutional) to bring farm production to meet
supply/demand; second to give subsidies in order to
regulate interstate commerce
• Labor
– National Labor Relations Act (Wagner Act, 1935):
guaranteed workers’ rights to organize, unionize
under National Labor Relations Board
– Fair Labor Standards Act (1938): set a minimum
wage; banned child labor
• Industrial
– Federal Communications Commission (FCC, 1934):
regulates public airwaves (radio, telephone,
telegraph)
– Interstate Commerce Commission to regulate
transportation
• Gov’t regulation replacing most competition in
these industries; established legitimacy and
viability of n’tl gov’t intervention in economy
Social Regulation Era (1950-1980)
• Economic regulation—gov’t regulation of
business practices, industry rates, routes;
tailored to conditions of particular industry
• Social regulation—gov’t regulation of quality
and safety of products and conditions under
which goods/services produced;
protect/enhance q.o.life
– Clean Air Act 1970
– Occupational Safety and Health Act (OSHA)
– Environmental Protection Agency (EPA)
Why Social Regulation?
• Social activism of 60s/70s through interest
group involvement
• Public consciousness of dangers to health,
safety, environment
• Advocacy of social regulation as a reelection ploy (visibility, n’tl prominence)
• Presidents give support to social
regulation; direct costs to gov’t legislation
minimal
Current issues with the economic policy:
https://www.youtube.com/watch?v=JjvMtGpj2U