GOVERNMENT INTERVENTION IN ECONOMY 2

Government Intervention in Economy

From the time of America’s founding to the period immediately following the Civil War,
government involvement in business was always frowned upon. It was almost taken for granted
that Laissez-faire policies were bound to bring the most economic benefits to the country. This
view, however, changed during the Progressive and New Deal eras. The massive challenges of
industrialization, urbanization, and economic downturns during late 1800s and early 1900s led to
unprecedented government involvement in the nation’s economic activities. This government
involvement in the economy was controversial then as it is now. Some have argued that the
intervention left the economy and workers worse off. This article, however, will show that
government policies that represented intervention in the economy during the Progressive and
New Deal eras not only improved the economy but also made the welfare of workers better.
One of the earliest legislations that signaled government’s willingness to intervene in
economic activity of the nation was the Interstate Commerce Act of 1887. The Act’s purpose
was to discourage monopolistic practices of railroad companies of the time. It required railroad
companies to charge fair prices and stop price discrimination against smaller firms in the
industry (Schultz, 2018). Before the Act, railroad companies could simply band together and set
high prices for their services that they could not individually set (Schultz, 2018). The practice
greatly benefited large railroad companies while putting smaller firms at a disadvantage. Thus,
the Act was instrumental in fostering a fair environment for competition.
A similar anti-monopoly Act was the Sherman Antitrust Act of 1890. This Act prevented
business entities from entering into anti-competition agreements that often led to creation of
monopolies or near monopolies in certain markets (Schultz, 2018). This Act, therefore, created a
fair ground upon which different businesses could compete in a given market. Given that an

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economy runs most efficiently when there is competition, by encouraging business competition
the Act certainly had a positive effect on the economy. Moreover, such measures had the effect
of protecting consumers from buying items at artificially high prices fixed by colluding
businesses. Such had been a very common practice in numerous markets where prices were fixed
not through market forces but through business collusion (Lloyd, 1884).
Another important reform of the Progressive Era was the enactment of the Federal
Reserve Act of 1913 which established the Federal Reserve. Prior to the enactment of the Act,
the U.S. government had trouble preventing or responding to economic crises such as the Panic
of 1907 (Schultz, 2018). With the centralization of the country’s financial system, the Federal
governments was able to maintain a much more stable economy than it had been the case in
previous years.
The New Deal also ushered in its own set of policies that improved not only the poorly
performing economy but also the welfare of workers. For labor, the most consequential policy
was the National Labor Relations Act of 1935 also called the Wagner Act. The Act gave private
sector employees the right to engage in collective bargaining for improved conditions at work
and better employment terms, organize into trade unions, and, if need be, take collective action
against their employers (Schultz, 2018). The Act, therefore, greatly improved worker’s rights. It
also led to the fulfilment some of the long sought-after reforms that the American Federation of
Labor (AFL) (Gompers, 1914).
Looking at this analysis of various legislations passed during the Progressive Era and the
New Deal, it is clear that government intervention in the economy had great benefits for both the
economy and workers. The fact that most of these were strengthened by later legislations and are
still in existence to this day shows that later generations came to appreciate their importance.

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Without such interventions, perhaps the economy would still have performed well but with many
booms and bursts. However, the benefits would have disproportionately gone to owners of
capital. Labor and consumers would have been big losers. It is for this reason that I believe that
the statement that government intervention in the economy does harm to the economy and
employees is false.
The benefits of these legislations are still evident to this day. For instance, I look at how
well employers treat workers at my workplace and appreciate the importance of government
intervention in the economy. For instance, the wages are sufficient, working hours are fewer, and
they have numerous rights that were absent before legislations such as Wagner Act were passed.

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References

Gompers, S. (1914). The American Labor Movement: Its Makeup, Achievements, and
Aspirations. http://wwphs.sharpschool.com/UserFiles/Servers/Server_10640642/File/bugge/Cha
pter%2021/Gompers.pdf 
Lloyd, H. (1884). The Lords of Industry from North American Review, 331. In Modern
Schultz, K. (2018). HIST: Volume 2: U.S. History since 1865.  5th ed.