Free Market History in America

The first time (deregulation was instituted)was at the end of the Civil War. Up until that time, there had been a very deep mistrust of the power that corporations could accumulate if not carefully regulated. As a result, corporations were prohibited from accumulating capitalization beyond certain carefully regulated limits, and the flotation of all stock issues was tightly restricted. As a result of money made during the Civil War, some corporations and the powerful people who owned them made a great push to get the regulations lifted. Within a few years, they had succeeded, in no small part due to the corruption of the U.S. Grant administration.

The result was the first great conservative "revolution." It brought on the "Robber Baron Era." The resulting concentration of wealth and power enabled the corporations to mainatain a strangling grip on state legislatures. The essentially unregulated banking system caused a series of crippling depressions alternating with wild inflations. Capital formation had become synonymous with wealth accumulation in the true Adam Smithian sense; but it also brought with it abuse of political power that Adam Smith never foresaw and the American people were unwilling to tolerate. The situation became so grave that the American people demanded action, and Congress responded with the Anti-Trust Acts and the establishment of the Federal Reserve System. The Interstate Commerce Act curbed the power of the railroads, and court decisions broke up the chokehold that the Standard Oil Trust had on the manufacture and distribution of petroleum distillates, and the grip that Andrew Carnagie had on steel manufacturing and distribution. J.P. Morgan was forced to relinquish control of banking and securities trading (though he retained enough wealth to single-handedly bail out the New York Stock Exchange). The increasing regulation of business continued through the end of the 19th century and into the first decades of the 20th.

By the 1920's the increasing regulation of business activity spawned a reaction among the wealthy and powerful that led to the election of Herbert Hoover. Hoover's version of Newt's "revolution" declared that the "business of America is business" and set about dismantling many of the regulations that governed the banking and securities industries and the accumulation of capital. The result was the great speculation boom of the the late 20's. As in all speculative booms, the inevitable happened and the bubble burst. In October, 1929, the stock market collapsed, and a massive transfer of wealth occurred from large numbers of ordinary Americans, to a small band of bankers, investors and capitalists quite literally overnight. The result was that purchasing power in the larger economy evaporated, and those greedy capitalists came up against a very hard truth: You can't sell something to someone who has no money. A depression developed that was so deep and became so ingrained by the extreme concentration of wealth that only emergency re-regulation of the economy for the war effort of World War II, along with war taxation and governmental borrowing from that enormous capital pool was able to put purchasing power back into the economy and set it right.

So we're brought to the "golden age" of the 1950's. The era that conservatives so fondly remember was actually an era of increasing, not decreasing, government regulation as a reaction to the horrors of deregulation that brought on the Great Depression just two decades before.
Many conservatives are too young, for example, to remember the 1950's when there was essentially one national telephone company...airlines were strictly regulated as to what routes they could fly, when they could fly them, how much they could charge for passengers and freight and what types of aircraft they were to use. As a result, overbooking of flights and routine flight delays were virtually unknown, even though fares, adjusted for inflation, weren't all that much higher than now.
There was also heavy regulation of the freight forwarding industry. Every trucker had to file a tarrif with the Interstate Commerce Commission declaring his rates for hauling every single type of commodity he intended to haul. A tank trucker, for example, was not allowed to haul toxic industrial solvents or even sewage in his tanker in one direction and then load that same, unwashed tanker with food ingredients for the return trip as he may quite legally do now. And fertilizer manufacturers didn't deliberately contaminate their product with toxic waste. They didn't dare. Back then, there were laws against it.

-scott bidstrup