In the Progressive Era we see how government can turn economic turbulence into a license for the large-scale and permanent expansion of power in order to cartelize markets. The first years of the twentieth century saw fabulous economic growth, but also great volatility. There was nothing mysterious about this: America was still a newly developing country, and economic progress never occurs in a straight upward-sloping line. Knowledge, preferences, and conditions change. As some sectors soar, others sink, dashing the expectations of some business investors and employees. And since development is the result of human action that takes place over time, adjustments to dislocations can never be instantaneous.
Thus progress inevitably was uneven, and some suffered hardship while (but not because) others prospered. Ironically, because of the general economic improvement, those who lagged behind stand out more starkly and attracted more sympathy. (When the whole of society was poor, the problem of poverty was seldom recognized or proclaimed.) Finding scapegoats among those successful in business was tempting. Nevertheless, most of those plagued by uncertainty and unemployment were far better off than they would have been in the destitution, stagnation and despair of feudal or state-regimented economies from which they or their ancestors had emigrated. At least they had real prospects and choices in a free market. In order to improve the material conditions of society especially those most disadvantaged, there is no substitute for the dynamic power produced through the voluntary peaceful transactions of individuals. Forcible intervention stifles economic growth with those at the top the only beneficiaries.
But such an approach is not amenable for those seeking to expand government power for their own purposes. Such was the case in the late nineteenth and early twentieth century. If resentment against conspicuous achievers is widespread, ambitious politicians are likely to exploit it in order to obtain and enlarge power. The combination of opportunistic politicians, fawning intellectuals and artists, aspiring bureaucrats, and a resentful populace was sufficient to produce institutional changes that called for greater regulation of private resources and choices. However, this combination in itself could not determine the content of the regulation. While standard accounts of the Progressive Era regard the "reforms" as being in the interest of the masses and against those of business interests, in fact the evidence, first brought to light by such historians as Gabriel Kolko, indicates that most of the measures were essentially proposed and shaped by the specific business interests that were the presumed targets. While private attempts had failed, such business interests found government agencies uniquely effective to create and police cartels, fix prices, extract corporate welfare, and otherwise enrich themselves at the expense of all. For example, the large meat packers initiated efforts for federal meat inspection. The same was true of most of the railroads, major banks, and other firms who found central regulation to their advantage, sometimes because it harmed innovators and smaller competitors and at other times because it brought "stability" to an uncertain marketplace where yesterdays profits could become todays losses. This was largely the story behind the Federal Reserve System, the Federal Trade Commission, the Food and Drug Administration, the Interstate Commerce Commission, and the income tax. All but the ICC are still with us today.
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