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Published on Mises Institute (https://mises.org)

The Long History of Government Meddling in the American

Marketplace

Mises Published Date:February 29, 20!"uthor:Mi#e $olly %&

"lthough the 'auses o e'onomi' 'rises re'urring throughout * historyand oten spreading +orld+ide 'ant be pro-en using empiri'al means,oppressi-e go-ernment regulations a-oring spe'ial interests in rele-antindustries ha-e pre'eded e-ery 'risis.

ypi'ally, 'ronyism %2& in-ol-es support o politi'ians in e'hange or regulations denying others the reedom to 'ompete +ith the moneyedinterests (e.g., monopolies). ess 'ompetition %1& leads to higher 'osts andlo+er uality. 3t redu'es e'onomi' gro+th, 4obs, +ages, inno-ation, and produ'ti-ity. "ttempts to 'ontrol e'onomi' gro+th through go-ernmentspending and/or manipulating interest rates %5& (e.g., stimulate gro+th+ith lo+ rates) generally leads to more se-ere 'rises.

 6one o these things are re'ent phenomena, but 'an be ound again and again throughout "meri'an history.

Mercantilism

"ter the 7e-olutionary 8ar, +hen the agrarian %& e'onomy +as beginning to industrialie, politi'ians pursued;ritish<style mer'antilism %!&, in'luding 'olonialism, against nati-es and regulations blo'#ing 'ompetition in ban#ing and manua'turing. Finan'ial pani's %=& and depressions resulted under a national ban# in =92 androm >9?2 and state<regulated ban#s rom >1=?51 and >=?9.

he @i-il 8ar  %>& +as a dispute bet+een 7epubli'ans representing manua'turers in the 6orth that blo'#ed reetrade +ith import taris %9& against Aurope, and Demo'rats representing agri'ultural plantations in the *ouththat reused to repla'e sla-ery +ith me'haniation using the 6orths high<'ost goods.

Monopolization

he BCilded "ge o @apitalism %0& shited the e'onomy rom agri'ulture to industry %& led by Brobber

 barons %2& +ho lobbied mostly 7epubli'ans %1&. he go-ernment %5& helped 'reate railroad %&monopolies +ith lo+<interest loans, land grants, and spe'ial rontier pri-ileges. he railroads ormed a'onglomerate that monopolied mu'h o the rest o the e'onomy %!& by a-oring large o-er small 'ustomers(e.g., 7o'#eellers *tandard Eil %=& o-er armers), large suppliers (e.g., @arnegie *teel), and big ban#s (e.g.,.P. Morgan %>&).

;oth railroads and ban#ing (+ith both national and state ban#s) +ere impli'ated in the se-ere inan'ial pani's %9& rom >=1?=> and >91?9=, o''urring during the ong Depression %20& o >=1?9!, and another pani' in90. ;an#ing regulation led to the pani' in 90= %2&.

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During the Progressi-e Ara %22&, the * used regulation to orm many o todays monopolies. From 90! to90, 7epubli'ans led eorts to 'reate state<regulated ele'tri'ity and natural gas utility monopolies %21&, and the*e-en *isters %25& oil and physi'ian %2& oligopolies. 3n 91, Demo'rats san'tioned the telephone %2!&monopoly and ounded the Federal 7eser-e %2=& ban#ing monopoly (i.e., +hi'h regulates the ban#s). "ter8orld 8ar 3, the Fed raised interest rates +hi'h led to the depression o 920?2 %2>&, +hi'h ban#rupted many'ompanies and led to manua'turing %29& oligopolies, in'luding in the automoti-e industry.

han#s to these ne+ rontiers in a regulated e'onomy, by the 920s, only 200 'orporations %10& 'ontrolled o-erhal o all * industry and the ri'hest per'ent o the population o+ned 50 per'ent o the nationGs +ealth. "s inre'ent times, the Fed responded by pro-iding easy 'redit at lo+ interest rates %1&, +hi'h led to in'reased'onsumer and business debt, une'onomi' and ris#y in-estments, and inlated assets, in'luding sto'# pri'es(urther in'reasing +ealth disparity). "ter the Fed tried to raise interest rates, the result +as the Creat *to'#Mar#et @rash o 929 %12&.

Nationalization

During the 910s, the 'rash led to the Creat Depression %11&, the +orst inan'ial 'risis in * history, and thenspread rom the +orlds largest e'onomy globally %15&, albeit +ith less se-erity abroad. Demo'rats, led byPresident 7oose-elt (FD7) and supported by ban#ers, agri'ulture, oil, and labor  %1&, tried to redistribute +ealth%1!& by limiting 'ompetition through go-ernment ta#eo-ers, in'luding tru'#ing, airline, and housing industries,

and restri'ting the supply o ood and oil. his led to 'ontinued global depression and 8orld 8ar 33 %1=&, +hi'h+as inan'ed +ith debt.

Finally, the post<+ar boom or BColden "ge o @apitalism %1>& sa+ a dismantling o +artime regulations andgro+ing opportunities espe'ially in manua'turing (li#e @hina today). During global rebuilding, the * be'amethe +orlds e'onomi' leader +ith about 5 per'ent annual gro+th, e-en +ith in'reasing interest rates, de'reasingdebt, and high taes. "lthough +ealth disparity %19& +as histori'ally lo+, Demo'rats in'reased regulation one'essities, leading to todays high 'osts.

FD7 had ta#en money rom tapayers to subsidie home loans at lo+ interest rates in'luding guarantees romthe Federal $ousing "dministration %50& (F$") sin'e 915, and se'uritiation %5& by the Fannie Mae %52&se'ondary mortgage monopoly sin'e 91> (and Demo'rats added Freddie Ma' to orm a duopoly in 9=0).

"ter the +ar, the subsidies led to unsustainable demand or more epensi-e %51& and larger  %55& homes %5&,urban spra+l, %5!& and a shortage o  aordable %5=& housing.

FD7 had also ta#en money rom tapayers to subsidie a-ored arm 'rops %5>&, +hi'h dis'ouraged alternati-e'rops. "ter 95!, Demo'rats in'reased subsidies leading to inlated pri'es or armland %59&. *in'e 9=1 %0&,the * has subsidied ood o-erprodu'tion %& leading to dumped eports that retard agri'ultural ande'onomi' de-elopment in the de-eloping +orld %2& and une'onomi'al bio<uels prote'ted by taris against;railian ethanol (until 202). FD7 had led support or the nationaliation o oil industries %1& (e.g., Mei'o),and military spending to deend di'tators %5& in oil<ri'h 'ountries (e.g., *audi "rabia).

3n 9!, Demo'rats led nationaliation o about hal o health 'are pur'hasing through Medi'are and Medi'aid.hese programs, and later Ebama'are, subsidied in'reased demand +hile the supply o do'tors and hospitals

has been restri'ted. he resulting health 'are 'risis %& led to s#yro'#eting 'osts nearly triple %!& those oother de-eloped 'ountries.

Psuedo-eregulation

he dreaded staglation o the 9=0s %=& is 'onsidered tied or the se'ond +orst inan'ial 'risis %>& in *history. he Fed responded to inlation by raising interest rates, leading to the Creat 7e'ession o the early9>0s %9&, +hi'h led to the *a-ings and oan @risis %!0&, and spread as the atin "meri'an Debt @risis. *in'ethen, the Fed has been lo+ering rates %!& o-erall.

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Mean+hile, politi'ians 'laimed to be trying to in'rease 'ost ei'ien'y through pri-atiation %!2& o publi'industries, and oster 'ompetition through partial deregulation %!1& o pri-ate industries. 8orld+ide, politi'iansallo+ed the monopolists to +rite the rules %!5&, in'luding preerential bargain sales to 'ronies, +hi'h led to e-ennastier deregulated monopolies.

Deregulation +as limited mainly to 'ommon 'arrier industries, in'luding airlines %!& in 9=>, tru'#ing %!!& in9>0, tele'ommuni'ation %!=&s in 99!, and ele'tri'ity and natural gas utilities during the 990s, and also ban#ing %!>& in 999. For eample, states allo+ed utilities to design rigged trading s'hemes %!9&, gain preerential a''ess to transport lines, and sell assets to ailiates or pennies on the dollar. Deregulation de'linedater manipulations %=0& led to the @aliornia Anergy @risis o 2000 %=&.

!orporatism

"ter the energy 'rises and bursting o the internet %=2& bubble in 2000, big business 7epubli'ans and biggo-ernment Demo'rats pra'ti'ed 'orporatism %=1&. he * $ouse ;udget @ommittee eplains: B3n too manyareas o the e'onomy H espe'ially energy, housing, inan'e, and health 'are H ree enterprise has gi-en +ay togo-ernment 'ontrol %=5& in partnership +ith a e+ large or politi'ally +ell<'onne'ted 'ompanies.

3n 2001, regulations %=& led to in'reased ethanol produ'tion rom 'orn, but ater that led to the 200=?0> Food@risis %=!&, gro+th +as stopped by mandates that the uel be made rom epensi-e<to<pro'ess 'ellulose %==&.

Mean+hile, Ceorge 8. ;ush promoted home loan %=>&s se'uritied through the Fannie and Freddie duopoly andthe Feds big ban#s, +hile en'ouraging the Fed to lo+er interest rates, leading to a bubble in home o+nershipand pri'es. *oon ater the Fed started raising rates, the bubble burst leading to the 200=?09 *ubprime Mortgage@risis, 200=?0> Finan'ial @risis ('onsidered tied or the se'ond +orst inan'ial 'risis in * history), 200>?0"utomoti-e @risis, and 200>?2 Clobal 7e'ession.

3n 200, Dodd Fran#  %=9& ga-e politi'ians more o-ersight o-er the Feds big ban#s, in'reasing inluen'e peddling, and ris#s o 'rises. he Fed has been loaning trillions %>0& o dollars at lo+ interest rates to the big ban#s. o+er rates 'an en'ourage inan'ial engineering %>&, li#e mergers, +hi'h allo+ ban#ers and 'orporateee'uti-es to bleed proits rom large 'orporations, +ho re'ei-e preerential ta treatment %>2&, espe'iallyabroad. *in'e 99>, the inan'ial se'tor has spent o-er I! billion %>1& lobbying @ongress.

he ;an# or 3nternational *ettlements, or so<'alled Bban# o 'entral ban#ers, +arns another global debt 'risis %>5& is 'oming, and the debt<trap is no+ e-en +orse than beore 200=. he * has led many nations to 'ontinueto lo+er interest rates %!& and a''umulating pri-ate and publi' debt %>&. 6o+, a slo+ing e'onomy 'ould ma#ethe debt toi' and lead to a inan'ial 'risis that +ould be hastened as the Fed raises rates. he ;an# +arns: B3t isunrealisti' and dangerous to epe't that monetary poli'y 'an 'ure all the global e'onomys ills.

Ebama'are %>!& 'ould allo+ bureau'ra'ies to 'ontrol patient treatments and pri'es, +hile lobbied by theindustry. *in'e 99>, medi'al interests ha-e spent o-er  I! billion %>1& lobbying @ongress.

The "ree Market #olution

oday, there is no party that a-ors true pri-atiation or ree mar#ets. 7epubli'ans a-or monopoliation, +hile

'laiming support or ree mar#ets and blaming the Demo'rats high taes and regulations or 'rises. Demo'ratsa-or nationaliation, +hile blaming non<eistent ree mar#ets or 'rises. Mean+hile, many "meri'ans appearto be embra'ing the regulatory nationalism o 'rony 'apitalist Donald rump or the demo'rati' so'ialism o;ernie *anders.

he solution, ho+e-er, is simply to ta#e as mu'h po+er as possible out o the 'ontrol o 'orruptible politi'iansand their spe'ial interest supporters.

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 %>=&

opi's:he Fed %>>&aes and *pending %>9&.*. A'onomy %90&.*. $istory %9&

#ource $%L& https://mises.org/library/long<history<go-ernment<meddling<ameri'an<mar#etpla'e

Links%& https://mises.org/proile/mi#e<holly%2& http://+++.against'rony'apitalism.org/+hat<is<'rony<'apitalism/%1& https://mises.org/library/human<a'tion<0/html/pp/=5>%5& https://mises.org/library/'auses<e'onomi'<'risis<and<other<essays<and<ater<great<depression%& http://ee.org/arti'les/ree<mar#et<arming/%!& http://ee.org/arti'les/mer'antilism<a<lesson<or<our<times/%=& https://+++.ederalreser-eedu'ation.org/about<the<ed/history%>& http://+++.emarotta.'om/prote'ti-e<taris<the<primary<'ause<o<the<'i-il<+ar/%9& https://mises.org/library/ameri'an<taris<and<+ars<re-olution<depression%0& http://+++.nyboo#s.'om/arti'les/205/0/0>/thomas<pi#etty<ne+<gilded<age/%& https://+++.minnpost.'om/ma'ro<mi'ro<minnesota/202/02/history<lessons<understanding<de'line<manua'turing%2& http://history>00s.about.'om/od/>00sglossary/g/7obber<;aron<deinition.htm%1& https://mises.org/library/a+ul<truth<about<republi'ans%5& https://+alter'oey.+ordpress.'om/201/0/=/'orruption<and<the<trans'ontinental<railroad/%& https://'ei.org/blog/sad<early<history<railroad<regulation<subsidies<nationaliation%!& http://'s.stanord.edu/people/eroberts/'s>/pro4e'ts/'orporate<monopolies/de-elopmentJrrmon.html%=& http://+++.mi'heloud.'om/m/so/allian'e.htm%>& http://+++.history.'om/topi's/4ohn<pierpont<morgan%9& http://history>00s.about.'om/od/thegildedage/a/inan'ialpani's.htm%20& https://en.+i#ipedia.org/+i#i/ongJDepression%2& http://+++.e'onseminars.'om/Finan'ialK20Pani's/JPre<*ubprimeK20@rises/Pani'K20oK2090=J"tlantaK20Fed.pd %22& https://mises.org/library/progressi-e<era<and<amily%21& http://ameri'anhistory.si.edu/po+ering/past/hmain.htm%25& http://mygeologypage.u'da-is.edu/'o+en/Lgel/'h1oil.html%2& https://mises.org/library/real<medi'al<reedom%2!& http://+++.'orp.att.'om/history/history1.html%2=& http://+++.s'ionoion.'om/ederalreser-e.htm%2>& https://mises.org/library/orgotten<depression<920%29& http://+++.earlyameri'anautomobiles.'om/ameri'anautomobiles25.htm%10& http://+++.hyperhistory.'om/onlineJn2/'onne'tionsJn2/greatJdepression.html%1& https://+++.stlouised.org/publi'ations/inside<the<-ault/spring<20/lo+<interest<rates<ha-e<beneits<and<'osts%12& http://+++.rbs.org/e'onomi'<resear'h/publi'ations/e'onomi'<letter/999/mar'h/monetary<poli'y<and<the<great<'rash<o<929<a<bursting<bubble<or<'ollapsing<undamentals/%11& https://mises.org/library/ameri'as<great<depression%15& http://+++.digitalhistory.uh.edu/dispJtetboo#.'msmt3DN2OamppsidN1511%1& https://muse.4hu.edu/loginauthN0OamptypeNsummaryOampurlN/4ournals/ameri'anJ4e+ishJhistory/-0>9/>9.1+ald.pd %1!& https://+++.do'soreedom.org/readings/the<ne+<deal%1=& http://blogs.sps#2.net/>1/iles/20/09/he<@auses<o<8833<=a..ppt%1>& http://mer'atus.org/publi'ation/e'onomi'<re'o-ery<lessons<post<+orld<+ar<ii<period%19& http://+++.letbusinessobser-er.'om/3n'omePo-erty2005.html%50& http://haoig.go-/earnMore/$istory%5& https://+++.im.org/eternal/pubs/t/andd/200>/09/pd/basi's.pd %52& https://en.+i#ipedia.org/+i#i/FannieJMae%51& http://er+an.marginal.'om/$M1/ds.pd %55& http://+++.nationalaairs.'om/publi'ations/detail/rethin#ing<ta<beneits<or<home<o+ners

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%2& http://+++.irinne+s.org/report/5!11/ethiopia<+orld<ban#<'ondemns<ri'h<'ountries<agri'ultural<subsidies%1& https://history.state.go-/milestones/91=<95/mei'an<oil%5& https://en.+i#ipedia.org/+i#i/istJoJauthoritarianJregimesJsupportedJbyJtheJnitedJ*tates%& https://mises.org/blog/ho+<go-ernment<regulations<made<health'are<so<epensi-e%!& http://+++.'ommon+ealthund.org/L/media/Files/Publi'ations/3ssue;rie/20/ul/12J*uiresJ*JhltJsysJ'omparisonJ2JnationsJintlJbrieJ-2.pd %=& http://+++.in-estopedia.'om/arti'les/e'onomi's/0>/9=0<staglation.asp%>& http://+++.e'onomist.'om/ne+s/essays/2!005<inan'e<not<merely<prone<'rises<it<shaped<them<i-e<histori'al<'rises<sho+<ho+<aspe'ts<today<s<ina%9& http://+++.nytimes.'om/2009/0/2/business/e'onomy/2leonhardt.htmlJrN0%!0& https://en.+i#ipedia.org/+i#i/AarlyJ9>0sJre'ession%!& http://obser-ationsandnotes.blogspot.'om/200//00<years<o<bond<interest<rate<history.html

%!2& https://hbr.org/99//does<pri-atiation<ser-e<the<publi'<interest%!1& http://+++.in-estopedia.'om/terms/d/deregulate.asp%!5& http://+++.+orldban#.org/html/prddr/outrea'h/or1.htm%!& http://+++.gao.go-/produ'ts/7@AD<9=<5%!!& http://ob4e't.'ato.org/sites/'ato.org/iles/serials/iles/regulation/99/=/-5n1<5.pd %!=& http://+++.-4olt.net/-ol5/issue/homeJart.html%!>& http://+++.orbes.'om/sites/ob4e'ti-ist/202//2/+hy<the<glass<steagall<myth<persists/%!9& http://+++.+s4.'om/arti'les/*;012500252!29%=0& http://oilpri'e.'om/Anergy/Anergy<Ceneral/he<Failure<o<.*.<Politi'ians<to<Epen<ele'tri'ity<and<Ether<Anergy<Mar#ets.html%=& http://+++.nytimes.'om/2002/0/09/business/09A67E.htmlpage+antedNall%=2& http://+++.+allstreetdaily.'om/205/0/0=/three<reasons<no<te'h<bubble/

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%>5& http://+++.telegraph.'o.u#/inan'e/e'onomi's/>>92/;3*<ears<emerging<mar#et<maelstrom<as<Fed<tightens.html%>& http://+++.mar#etora'le.'o.u#/"rti'le59!>.html%>!& http://+++.orbes.'om/sites/+arrenmeyer/20/02/25/the<looming<ailure<o<obama'are<part<1<rent<see#ing/%>=& https://mises.org/gi-ing/'ampaigns/mises<daily%>>& https://mises.org/topi's/ed%>9& https://mises.org/topi's/taes<and<spending%90& https://mises.org/topi's/us<e'onomy%9& https://mises.org/topi's/us<history