To be involved or not? That is the highly debated question circulated in America's political and economic spheres of the Gilded Age. The role of government became a highly contested subject throughout the nineteenth and early twentieth centuries. Due to the dominant economic policy of the era, laissez-faire, there were little to no business regulations. The lack of regulatory policies led wealthy industrialists to reap vast wealth while workers toiled in harsh conditions. Continue reading to see how laissez-faire impacted America through the Gilded Age.
Laissez-Faire Definition
Laissez-Faire means, on the one hand, and in domestic politics, a restriction of government activity to the bare minimum; on the other hand, and in foreign affairs, a policy of free trade and of friendship between nations."
–Mark Francis, Herbert Spencer and the Myth of Laissez-Faire, 1978
Fig. 1 Bosses of the Senate Political Cartoon 1889
The dominant economic principle throughout the Gilded Age came from laissez-faire. The term laissez-faire means "letting them do what they will." This translates into little to minimum government interference in the free market. Supporters of laissez-faire believed businesses should be allowed to do whatever they wanted. This allowed them to set their prices, trade freely, and set employees' wages without government interference.
Did you know?
The argument over how involved the government should be dates back to the founding of the country? It was one of the biggest arguments between Alexander Hamilton and Thomas Jefferson over the National Bank!
Laissez Faire Leadership
In the nineteenth century, liberals advocated for laissez-faire policies and against government intervention. Throughout the Gilded Age, liberals opposed any federal intervention to solve social, economic, or labor problems. Due to laissez-faire ideology, government corruption spread throughout the Gilded Era.
Did you know?
Liberals of the Gilded Age were very different from today's liberals. Today, liberals advocate for government intervention to help solve social and economic problems. The Libertarian Party is the closest resemblance to the liberals of the Gilded Age!
Liberals fought against government corruption but did not want immigrants and freedmen influencing politics. This group argued that government welfare programs would damage opportunities for African Americans in the South. Therefore, liberals helped influence the disbanding of Reconstruction after the Civil War.
Fig. 2 US Government cartoon
Laissez-Faire Economics
What caused Laissez-Faire economics to succeed?
The period from the 1860s to 1900, known as the Gilded Age, would be the most laissez-faire era in U.S. history. Two things helped the forces of limited government to prevail. First, the failure of the railroad subsidies was both visible and colossal... And it was a cumulative failure, right on the heels of the disastrous steamship subsidies. Second, and perhaps more important, the botched subsidies had left very few protected bureaucrats in place to argue for more aid. By contrast, in the twentieth century, when New Deal programs failed, millions of constituents remained eager for more federal aid."
–Burton W. Folson Jr, The Fall and Rise of Laissez-Faire in the United States, 1789-1900, 2019
In the excerpt above, Fulton describes the failure of the federal railroad and steamship subsidies that ultimately triggered negative feelings towards federal involvement. The Union Pacific and Central Pacific Railroads neared bankruptcy due to needless overspending. The debt incurred by the two railroad companies had surpassed the national debt in 1860. Due to the railroad companies' wasteful spending, many bureaucrats did not have a leg to stand on if they argued for federal involvement during the Gilded Age. In sharp contrast, after several New Deal programs failed, representatives advocated for more federal aid. Though laissez-faire was prevalent throughout the Gilded Age, the government occasionally became involved.
Government Involvement
The government did get involved when the economy could benefit. Prominent business owners worked with Republicans and used diplomacy to build markets overseas. For example, proponents of laissez-faire supported the overthrow of the Hawaiian monarchy, which led to annexing the Hawaiian islands. Thus, the acquisition of Hawaii expanded new markets. Another example is the Open Door policy between the U.S. and China which allowed for equal trading rights. Though these examples show the U.S. government's economic involvement, it rarely became involved unless significant financial gains were available.
Fig. 3 Hawaiian Queen Liliuokalani
Laissez-Faire Capitalism
The economic theory of laissez-faire did not first appear in America during the Gilded Era.
Fig. 4 Wealth of Nations by Adam Smith
The theory dates back to the late 1700s when Adam Smith wrote "The Wealth of Nations," arguing that economies succeed when people are allowed to make decisions in their own best interest. This policy makes society flourish if the government stays out of the way. Industrialists of the Gilded Age often used Smith as evidentiary support for laissez-faire economic policies. Yet, Smith believed in healthy business competition, which Gilded Age business owners eliminated.
Businesses throughout the Gilded Age used laissez-faire to eliminate competition through monopolies and trusts. Without the government interfering in business practices, owners took full advantage. This practice created prominent business owners such as John Rockefeller, J.P. Morgan, Andrew Carnegie, and Cornelius Vanderbilt. Large businesses profited throughout the Gilded Age. Corrupt political machines influenced politics by bribing voters and politicians to gain the upper hand. Laissez-Faire capitalism influenced American industry throughout the nineteenth and early twentieth century.
Political Machines: Corrupt businesses/organizations led by political bosses that bribed politicians to get what they wanted.
Labor Unions vs. Laissez-Faire
While the wealthy embraced the ideals behind laissez-faire, the poor and working classes strongly opposed the theory as it directly threatened the way they lived. The wealthy monopolists continued to amass more fabulous fortunes, but the working class decided to unify against the disproportionate wealth gap in America. Groups of workers joined labor unions to fight for decent working conditions and wages. The severe social disruption caused by laissez-faire led to anti-trust legislation to end monopolies.
Fig.5 Knights of Labor
The Sherman Anti-Trust Act, passed in 1890, sought to give power to the federal government to end monopolies and create competitive economic conditions.
Herbert Spencer's Laissez-Faire
English philosopher Herbert Spencer was one of the strongest proponents of laissez-faire capitalism. His "survival of the fittest" theory advocated for this type of capitalism.
Society advances, where its fittest members are allowed to assert their fitness with the least hindrance, and where the least fitted are not artificially prevented from dying out."
–Herbert Spencer
Laissez-Faire Meaning
The ideals of laissez-faire infiltrated every aspect of Gilded Age society, from capitalism to political influences.
Herbert Spencer was a strong proponent of laissez-faire capitalism, allowing business owners to operate without very few government regulations. Many industrialists and other business owners ran with Spencer's laissez-faire and "survival of the fittest" mentality. Without restrictions and government interference, monopolies dominated the economic landscape of America, eliminating almost all competition.
Fig. 6 Herbert Spencer
Workers and labor unions argued against laissez-faire as its' principles caused business owners to implement harsh working conditions, long work days, and lower pay. Poor working conditions led to the formation of labor unions that fought to support workers' rights.
Laissez-Faire - Key Takeaways
- Laissez-Faire was the dominant economic policy of the Gilded Age. It advocated minimal to zero government interference in the economy and business regulations.
- The lack of regulatory policies allowed industrialists to become wealthy while workers dealt with poor working conditions. This led to the formation of labor unions.
- The government did get involved when profitable economic gains were available.
- Example: The overthrow of the Hawaiian monarchy led to new markets.
- Example: Open Door Policy with China led to equal trading rights.
- English Philosopher Herbert Spencer strongly advocated for laissez-faire policies, using his "survival of the fittest" theory to support this.
- Laissez-Faire allowed wealthy industrialists to eliminate competition resulting in monopolies.
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