6. 12 Government and Economic Policy in the Gilded Age

The Historical Context of Government Intervention in the US Economy

• The debate regarding the federal government's role in the economy predates the Gilded Age, rooted in the founding of the United States.
• A primary historical example includes the conflict between Alexander Hamilton and Thomas Jefferson regarding the creation of a national bank.
• Another significant historical debate involved Henry Clay's American System, where Congress argued over whether the government should sponsor infrastructure improvements such as roads and canals.
• During previous eras, such as those involving the National Bank or the American System, the government took a "hands-on" approach. However, the Gilded Age was defined by a transition to a Laissez-Faire approach.

The Principles and Foundations of Laissez-Faire Economics

• "Laissez-Faire" is a French phrase translating to "leave alone" or "let alone."
• During the Gilded Age ($1870\text{s}$ to $1900$), the federal government maintained a hands-off posture toward the national economy.
• Three primary ideological reasons contributed to this Laissez-Faire stance:

1. The Belief in Hard Work as the Source of Prosperity

   • There was a growing acceptance that economic success was the direct result of individual talent and effort.
   • Popular culture reinforced this; for instance, the novels of Horatio Alger depicted characters rising from "rags to riches" through hard work.
   • Religious leaders, such as Baptist pastor Russell Conwell, equated the honest pursuit of wealth with Christian duty. Conwell suggested that poverty was a sign of vice or God withholding wealth due to sin.
   • This stood in direct opposition to the Social Gospel movement, which argued that poverty resulted from systemic inequalities rather than personal failing.
   • The elite perceived the economy as a meritocracy, where the most resourceful rose to the top, leading wealthy industrialists to oppose government intervention as an obstacle to merit-based success.

2. Free Market Principles (Adam Smith)

   • Policymakers adhered to principles articulated by Adam Smith in his $1776$ book, "The Wealth of Nations."
   • Smith argued that an "invisible hand," guided by the laws of supply and demand, should organize economic relationships.
   • Smith’s formula for flourishing required the restraint of artificial influences, specifically the government.
   • The Disconnect in Application: While tycoons cited Smith, the Gilded Age economy lacked the "competition" Smith deemed vital. Business leaders consolidated power into monopolies and trusts, eliminating the competitive environment.
   • President Grover Cleveland exemplified this ideology when he vetoed the Texas Seed Bill in $1887$. Despite Texan farmers losing $85\%$ of their cattle to drought and eating their seed corn to survive, Cleveland argued: "Though the people support the government, the government should not support the people."

3. Social Darwinism

   • This ideology applied "survival of the fittest" to sociology and economics.
   • Proponents argued that government assistance to "weaker" individuals or businesses would ultimately harm the long-term prosperity and evolution of the American economic system.

Contradictions in Laissez-Faire Policy: Selective Intervention

• While industrial leaders opposed government intervention that hindered their business (like regulations or social relief), they actively sought government help when it benefited them.
• Protective Tariffs: Businesses pressured Congress for high tariffs to protect domestic products from foreign competition.
• Land Grants: The federal government granted massive tracts of land to railroad companies to facilitate the construction of transcontinental railroads.
• Labor Suppression: Business leaders requested, and received, federal military intervention to break strikes, such as the Pullman Strike in $1894$, where President Cleveland deployed troops to end the labor action.

Expansion into Foreign Markets and Natural Resources

• Rapid industrialization led to a fear that domestic, European, and Canadian markets could not consume the surplus of manufactured goods produced by the American sector.
• This drove a desire to control foreign markets and natural resources in three key areas:

1. The Pacific Rim (Hawaii)

   • American sugar companies, such as Castle and Cook, gained control over Hawaii, a process initiated by American missionaries.
   • Once the Hawaiian economy was integrated into the US economy, white Americans led a coup to topple the indigenous government.
   • Congress officially approved the annexation of Hawaii in $1898$.

2. Asia (China)

   • In $1868$, the US signed the Burlingame Treaty with China.
   • The treaty allowed American missionaries access to China and established a profitable trade relationship by granting the United States "most favored nation" status.
   • The treaty also encouraged Chinese immigration to provide a source of cheap labor (occurring roughly $15$ years before the Chinese Exclusion Act).

3. Alaska

   • In $1867$, Secretary of State William Seward purchased the Alaskan territory from Russia for $\$7.2\,million$.
   • Initially mocked as "Seward's Folly" or a frozen wasteland, Seward viewed it as a strategic gateway to Asian markets.
   • The discovery of gold in $1896$ triggered the Klondike Gold Rush, and later, the territory provided access to significant oil reserves and natural resources.