Published on Mises Institute (https://mises.

org)

The Long History of Government Meddling in the American

Marketplace
Mises Published Date:
February 29, 2016
Author:
Mike Holly [1]
Although the causes of economic crises recurring throughout US history
and often spreading worldwide cant be proven using empirical means,
oppressive government regulations favoring special interests in relevant
industries have preceded every crisis.
Typically, cronyism [2] involves support of politicians in exchange for
regulations denying others the freedom to compete with the moneyed
interests (e.g., monopolies). Less competition [3] leads to higher costs and
lower quality. It reduces economic growth, jobs, wages, innovation, and
productivity. Attempts to control economic growth through government
spending and/or manipulating interest rates [4] (e.g., stimulate growth
with low rates) generally leads to more severe crises.
None of these things are recent phenomena, but can be found again and again throughout American history.
Mercantilism
After the Revolutionary War, when the agrarian [5] economy was beginning to industrialize, politicians pursued
British-style mercantilism [6], including colonialism, against natives and regulations blocking competition in
banking and manufacturing. Financial panics [7] and depressions resulted under a national bank in 1792 and
from 181921 and state-regulated banks from 183743 and 185759.
The Civil War [8] was a dispute between Republicans representing manufacturers in the North that blocked free
trade with import tariffs [9] against Europe, and Democrats representing agricultural plantations in the South
that refused to replace slavery with mechanization using the Norths high-cost goods.
Monopolization
The Gilded Age of Capitalism [10] shifted the economy from agriculture to industry [11] led by robber
barons [12] who lobbied mostly Republicans [13]. The government [14] helped create railroad [15]
monopolies with low-interest loans, land grants, and special frontier privileges. The railroads formed a
conglomerate that monopolized much of the rest of the economy [16] by favoring large over small customers
(e.g., Rockefellers Standard Oil [17] over farmers), large suppliers (e.g., Carnegie Steel), and big banks (e.g.,
J.P. Morgan [18]).
Both railroads and banking (with both national and state banks) were implicated in the severe financial panics
[19] from 187378 and 189397, occurring during the Long Depression [20] of 187396, and another panic in
1901. Banking regulation led to the panic in 1907 [21].

During the Progressive Era [22], the US used regulation to form many of todays monopolies. From 1906 to
1910, Republicans led efforts to create state-regulated electricity and natural gas utility monopolies [23], and the
Seven Sisters [24] oil and physician [25] oligopolies. In 1913, Democrats sanctioned the telephone [26]
monopoly and founded the Federal Reserve [27] banking monopoly (i.e., which regulates the banks). After
World War I, the Fed raised interest rates which led to the depression of 192021 [28], which bankrupted many
companies and led to manufacturing [29] oligopolies, including in the automotive industry.
Thanks to these new frontiers in a regulated economy, by the 1920s, only 200 corporations [30] controlled over
half of all US industry and the richest 1 percent of the population owned 40 percent of the nation's wealth. As in
recent times, the Fed responded by providing easy credit at low interest rates [31], which led to increased
consumer and business debt, uneconomic and risky investments, and inflated assets, including stock prices
(further increasing wealth disparity). After the Fed tried to raise interest rates, the result was the Great Stock
Market Crash of 1929 [32].
Nationalization
During the 1930s, the crash led to the Great Depression [33], the worst financial crisis in US history, and then
spread from the worlds largest economy globally [34], albeit with less severity abroad. Democrats, led by
President Roosevelt (FDR) and supported by bankers, agriculture, oil, and labor [35], tried to redistribute wealth
[36] by limiting competition through government takeovers, including trucking, airline, and housing industries,
and restricting the supply of food and oil. This led to continued global depression and World War II [37], which
was financed with debt.
Finally, the post-war boom or Golden Age of Capitalism [38] saw a dismantling of wartime regulations and
growing opportunities especially in manufacturing (like China today). During global rebuilding, the US became
the worlds economic leader with about 4 percent annual growth, even with increasing interest rates, decreasing
debt, and high taxes. Although wealth disparity [39] was historically low, Democrats increased regulation of
necessities, leading to todays high costs.
FDR had taken money from taxpayers to subsidize home loans at low interest rates including guarantees from
the Federal Housing Administration [40] (FHA) since 1934, and securitization [41] by the Fannie Mae [42]
secondary mortgage monopoly since 1938 (and Democrats added Freddie Mac to form a duopoly in 1970).
After the war, the subsidies led to unsustainable demand for more expensive [43] and larger [44] homes [45],
urban sprawl, [46] and a shortage of affordable [47] housing.
FDR had also taken money from taxpayers to subsidize favored farm crops [48], which discouraged alternative
crops. After 1946, Democrats increased subsidies leading to inflated prices for farmland [49]. Since 1973 [50],
the US has subsidized food overproduction [51] leading to dumped exports that retard agricultural and
economic development in the developing world [52] and uneconomical bio-fuels protected by tariffs against
Brazilian ethanol (until 2012). FDR had led support for the nationalization of oil industries [53] (e.g., Mexico),
and military spending to defend dictators [54] in oil-rich countries (e.g., Saudi Arabia).
In 1965, Democrats led nationalization of about half of health care purchasing through Medicare and Medicaid.
These programs, and later Obamacare, subsidized increased demand while the supply of doctors and hospitals
has been restricted. The resulting health care crisis [55] led to skyrocketing costs nearly triple [56] those of
other developed countries.
Psuedo-Deregulation
The dreaded stagflation of the 1970s [57] is considered tied for the second worst financial crisis [58] in US
history. The Fed responded to inflation by raising interest rates, leading to the Great Recession of the early
1980s [59], which led to the Savings and Loan Crisis [60], and spread as the Latin American Debt Crisis. Since
then, the Fed has been lowering rates [61] overall.

Meanwhile, politicians claimed to be trying to increase cost efficiency through privatization [62] of public
industries, and foster competition through partial deregulation [63] of private industries. Worldwide, politicians
allowed the monopolists to write the rules [64], including preferential bargain sales to cronies, which led to even
nastier deregulated monopolies.
Deregulation was limited mainly to common carrier industries, including airlines [65] in 1978, trucking [66] in
1980, telecommunication [67]s in 1996, and electricity and natural gas utilities during the 1990s, and also
banking [68] in 1999. For example, states allowed utilities to design rigged trading schemes [69], gain
preferential access to transport lines, and sell assets to affiliates for pennies on the dollar. Deregulation declined
after manipulations [70] led to the California Energy Crisis of 2000 [71].
Corporatism
After the energy crises and bursting of the internet [72] bubble in 2000, big business Republicans and big
government Democrats practiced corporatism [73]. The US House Budget Committee explains: In too many
areas of the economy especially energy, housing, finance, and health care free enterprise has given way to
government control [74] in partnership with a few large or politically well-connected companies.
In 2003, regulations [75] led to increased ethanol production from corn, but after that led to the 200708 Food
Crisis [76], growth was stopped by mandates that the fuel be made from expensive-to-process cellulose [77].
Meanwhile, George W. Bush promoted home loan [78]s securitized through the Fannie and Freddie duopoly and
the Feds big banks, while encouraging the Fed to lower interest rates, leading to a bubble in home ownership
and prices. Soon after the Fed started raising rates, the bubble burst leading to the 200709 Subprime Mortgage
Crisis, 200708 Financial Crisis (considered tied for the second worst financial crisis in US history), 200810
Automotive Crisis, and 200812 Global Recession.
In 2010, Dodd Frank [79] gave politicians more oversight over the Feds big banks, increasing influence
peddling, and risks of crises. The Fed has been loaning trillions [80] of dollars at low interest rates to the big
banks. Lower rates can encourage financial engineering [81], like mergers, which allow bankers and corporate
executives to bleed profits from large corporations, who receive preferential tax treatment [82], especially
abroad. Since 1998, the financial sector has spent over $6 billion [83] lobbying Congress.
The Bank for International Settlements, or so-called bank of central bankers, warns another global debt crisis
[84] is coming, and the debt-trap is now even worse than before 2007. The US has led many nations to continue
to lower interest rates [61] and accumulating private and public debt [85]. Now, a slowing economy could make
the debt toxic and lead to a financial crisis that would be hastened as the Fed raises rates. The Bank warns: It is
unrealistic and dangerous to expect that monetary policy can cure all the global economys ills.
Obamacare [86] could allow bureaucracies to control patient treatments and prices, while lobbied by the
industry. Since 1998, medical interests have spent over $6 billion [83] lobbying Congress.
The Free Market Solution
Today, there is no party that favors true privatization or free markets. Republicans favor monopolization, while
claiming support for free markets and blaming the Democrats high taxes and regulations for crises. Democrats
favor nationalization, while blaming non-existent free markets for crises. Meanwhile, many Americans appear
to be embracing the regulatory nationalism of crony capitalist Donald Trump or the democratic socialism of
Bernie Sanders.
The solution, however, is simply to take as much power as possible out of the control of corruptible politicians
and their special interest supporters.

[87]
Topics:
The Fed [88]Taxes and Spending [89]U.S. Economy [90]U.S. History [91]
Source URL: https://mises.org/library/long-history-government-meddling-american-marketplace
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