APUSH Research Paper: Gilded Age Regulatory Failure and the Betrayal of the Jeffersonian Ideal

     Throughout the late 18^th and early 19^th century, the United States of America reached a previously unmatched level of economic prosperity. Free from government intrusion and unburdened by red-tape regulation, the economy was allowed to proceed to new heights. New systems of production and efficiency were being integrated into the workplace, the factory system was evolving, and many of the world’s richest men were building their fortunes. Business, was, in short, booming. However, this prosperity failed to reach a large portion of Americans. Beneath the alluring veneer of the American capitalist system lay a rotting foundation, a corruption of the values on which the nation was based. Business concerns trumped human concerns, labor was commoditized and its organization was vehemently opposed. In a gross distortion of the Jeffersonian ideal of independence, workers were dependent upon the so-called “captains of industry.” Monopolies and trusts were allowed to set prices to eliminate competition. Efforts by the federal government to prevent such actions were rendered ineffective for multiple reasons. Through the laissez-faire system, Supreme Court decisions, and overly vague laws, attempts at regulation during the Gilded Age, or lack thereof, failed, representing the failure of the federal government to uphold the values upon which it was built.

    

 To truly understand the actions, or lack thereof, of government in regards to business and regulation, one must first recognize the central dogma behind early-American governance: laissez-faire capitalism. The United States of America was founded upon the legendary guarantee to life, liberty, and property, and as such sought to protect the rights of all of its constituents to such entities. Free markets, it was believed, were the products of free men. Laissez-faire capitalism and the popular Jeffersonian view of America necessitated that man, and by extension his property, be free from the unnecessary burdens and subservience inherent in government action (Laissez-faire, 1). Property was the ultimate expression of liberty. Material possessions not only offered a method of personal expression but also served as a manifestation of one’s independence. He who owned his property controlled his destiny. To confiscate property or to regulate it would represent the government crushing the rights of a citizen to self-expression and his liberty. As such, large-scale attempts to regulate trade and rein in business were largely non-existent.

       The corollary explaining the relationship between liberty and property extended quite nicely into the world of finance and the aggrandizement of wealth. In the Gilded Age, the market, as mentioned above, was experiencing a period of unmatched prosperity. Government action was therefore unnecessary. In the event of a the market would adjust under the influence of Adam Smith’s “invisible hand” (Nederman, 1). The most prominent example this mindset can be found in interaction between the federal government and monopolies. Built in a time of nonexistent antitrust laws, monopolies were the preeminent product of the economic climate. Monopolies were seen as naturally developing and to break up or hinder the growth of such large conglomerates would be an attack on the personal freedom and property of the owner and its constituents. However, by failing to regulate such large corporations and unquestionably embracing the laissez-faire mindset, the United States effectively abandoned the small local companies and individuals that were unfortunate enough to be competing with such large entities. Left without a viable alternative in the marketplace, American consumers were therefore dependent upon the monopolies for the production of various widgets, most notably oil, steel, and sugar. Regardless, regulation was avoided, leaving the small-business owner and the consumer at the mercy of large, profit-oriented corporations.

     Another reason Gilded Age policy failed is that Monopolies and trusts were notoriously difficult to regulate. However, in light of the Jeffersonian ideal, their assault upon national values and the American ethos of independence, especially regarding property and reasonable degrees of economic freedom, was arguably more appalling. An excellent example is the first truly “big business” in the history of the United States, the railroad industry. Railroads, supported by government subsidy and land grants, were notorious for price-gouging and for cooperation between companies. Furthermore, the companies often utilized rebates and bulk-shipping discounts to cater towards larger, more profitable ventures (Smith, 1). Because smaller lines were often unable to afford giving such large discounts and remain solvent, larger railroad pools obtained great fortunes exerting newfound influence upon clients. The small farmers were left without an alternative to bring their goods to market. However, much larger businesses, most notably John D. Rockefeller’s Standard Oil, received discounts and more favorable shipping (Tarbell, 267–269, 274–277, 287–288, 292). Again, a dependency emerged under a government supposedly supporting the values of independence and freedom. Despite their natural opposition to the values of independence and self-sufficiency, as a dependent, alternative-less consumer-base was conducive to larger profits, any efforts to rein in big business were rebuffed and ultimately fruitless, the railroads being a prominent example.

     On a strictly legal level, the first legislative attempts at regulating such practices were generally ineffective as trusts, by nature, existed outside of the public eye. Through interlocking directorates and the exploitation of legal loopholes, trusts were comprised of seemingly independent companies though all of which were ultimately controlled by a select group of individuals (Roosevelt, 2). However, the Sherman Antitrust Act, though it did dramatically increase the regulatory scope and strength of the federal government, was largely ineffective. It failed to define what constituted a restraint in trade. Consequently, only eighteen antitrust lawsuits were filed from 1890-1901, four of which were actually filed against labor unions. Among the aforementioned railroads, under the Interstate Commerce Act, from 1887-1911 only sixteen were brought to trial. The federal government won only one case (Regulation, 7). Furthermore, the failure to effectively regulate big business could also stem from corruption of the legislature, as one observer stated that “Rockefeller did everything with the Pennsylvania legislature except refine it.” (Lloyd, 4) Business had surpassed government as the true controller of the nation, leaving the nation dependent and thriving in a negligent system.

     Government action of the time indicated a strong bias towards business interests rather than human concerns. A key example can be found in the reactionary approach towards organized labor. During the Gilded Age, workers were being hired in droves in order to increase production. However, rather than the independent and somewhat expressive work found throughout the previous century, labor was reduced to a series of wrote motions; workers were little more than a cog in a machine—as satirized by actor Charlie Chaplin in his film Modern Times. Tasks were standardized, the production was timed and expedited, and quotas were drafted. Humanity had no place in the factory (Manifesto of the Industrial Workers of the World, 1). Unfortunately, the vital role workers played was not well compensated. Workers were paid poorly because wages were brought down by the rapid influx of desperate immigrants. They often lived in tenement housing owned by their respective employers. Left with little spending money, as workers were forced to pay rent to employers and shop at company stores, many members of American society found themselves in abject poverty. As described in the Manifesto of the Industrial Workers of the World:

His (the worker’s) wages constantly grow less as his hours grow longer and monopolized prices grow higher. Shifted hither and thither by the demands of profit-takers the laborer's home no longer exists. In this helpless condition he is forced to accept whatever humiliating conditions his master may impose. He is submitted to a physical and intellectual examination more searching than was the chattel slave when sold from the auction block (Manifesto of Industrial Workers of the World, 1)

 This was quite clearly a corruption of the Lowell system made famous a century before. Such depravity was best shown by photojournalist Jacob Riis in his exposé on American urban life How the Other Half Lives. With no minimum wage to fall back upon and given the proliferation of child labor entire families were left dependent upon their employers. Living in urban slums without access to clean air, water, let alone personal property, the extortion of labor was a gross abandonment of the right to property and liberty (Byington, 1). Even Jefferson himself stated in his inaugural address said:

A wise and frugal Government, which shall restrain men from injuring one another, shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned. This is the sum of good government, and this is necessary to close the circle of our felicities (Jefferson, 3).

     The governmental policies of the Gilded Age failed to uphold the Jeffersonian standards, focusing only upon one part—the lack of regulation—of the statement, rather than the humanitarian and demand for equality woven into the remaining portions.

     With mouths to feed and bills to pay, many individuals sought to form trade unions in order to receive better wages and working conditions (Manifesto of the Industrial Workers of the World, 1-2). Despite a noble cause, the federal government rarely, if ever, came to support organized labor in strikes. At individual companies, workers were forced to sign yellow-dog contracts to prevent unionization, and many strikes were met with swift and merciless retribution (Homestead Strike, 1). Henry Clay Frick was notorious for his tolerance, or lack thereof, of organized labor. At the Homestead Steel Works plant he ran, the Amalgated Association of Iron and Steel Workers requested a raise for its members. Despite a growing market for steel, Frick offered neither better working conditions nor a significantly higher salary. After weeks of tense negotiations, Frick, after being given license by Andrew Carnegie, locked his employees out of the plant. Pinkertons armed with rifles were sent to the strike site immediately after to break the strike. The situation escalated and quickly turned violent, forcing Pennsylvania Governor Robert E. Pattison to call out the state militia, which quickly broke the strike (Homestead Strike, 1). A company that furnished Navy ships to protect American liberty abroad had turned its back on its most disenfranchised citizens.

     The situation was not unique to Homestead, though the strike in Pennsylvania was certainly among the most violent. However, many strikes were broken before they could even begin. The Sherman Antitrust Act was frequently turned against the people it was trying to protect. As conspirators in the restraint of trade, unions, particularly strike members, were found to be in violation of the Act. The strike, the fundamental weapon of labor, the only path to earning better wages and working conditions, as depicted by Frederick Graetz (Image 1) had been stripped away (Lowe, 1). Labor was dependent upon the management once again.

     The first truly large-scale effort by the federal government during the Gilded Age was the Interstate Commerce Commission Act. Passed in 1887, it was designed to end the discriminatory practices of railroads described in the above. The ICCA was weakened by the Supreme Court in Wabash, St. Louis and Pacific Railway Company v. Illinois, which prevented states from regulating the railroads. Furthermore, the act was hampered by pro-trust attorneys general as only sixteen lawsuits against companies were actually filed from 1887-1911(“Federal,” 7). The regulatory commission formed by the Act was unable to enforce rate restrictions without court approval until 1906 and could not criminalize short-haul discrimination, which had been crippling small farmers for decades, until 1903(“Federal,” 7). The most basic tenets of the Act were unenforceable and inefficient. Though certainly an important step for the United States, the ICCA was ineffective at regulating the railroads until the Gilded Age had given way to the Progressive Era, where new laws like the Hepburn act modified and amended the law in portions.

     Another hallmark of Gilded Age policy, the aforementioned Sherman Antitrust Act, was passed in 1890. However, it was often used for purposes contrary to the intentions of its creator. It was vague and unspecific—the central part states that every “contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is hereby declared to be illegal” (Sherman Antitrust Act, 1), without actually defining a trust, conspiracy, or restraint of trade. As stated above, labor unions were often the target of federal prosecution for participating in the ambiguously-titled restraint of trade, as seen in Loewe v. Lawlor (1908) (Loewe, 1). Furthermore, the bill was eviscerated by Supreme Court rulings. In Knight Company, E. C., UNITED STATES v. 156 U.S. 1 (1895), the Supreme Court ruled 8-1 that the American Sugar Refining Company had not formed a trust or restricted trade despite controlling 98% of all domestic sugar production. The decision also declared that manufacturing was not within the regulatory scope of the Act, thus beginning the largest consolidation movement among manufacturing and railroad companies the nation had ever seen (Knight Company, E.C., UNITED STATES, 1). The subsequent loophole formed prompted political scientist Edward S. Corwin to refer to the nation’s regulatory code as a “twilight zone.” (“Federal,” 7)  Even if the Sugar Trust had been found in violation of the Act, only the property in question, in this case four refineries, would have been seized by the United States. The individuals involved would be faced only with a misdemeanor and no more than a $5,000 fine—a pittance compared to potential profits (Sherman Antitrust Act, 1). The law was hollow. The attempt at regulation had failed yet again.

     The Gilded Age was an era of unmatched economic prosperity and development. However, underneath the glamor of big business and mechanization was a gross distortion of American values. The Jeffersonian ideal of personal property and liberty had been distorted in order to support a system that stole life and liberty from the workers and gave property to the managers. America had lost its innocence. The idyllic laissez-faire capitalist system had shown its truly gruesome features of corruption, “gentleman’s agreements,” manipulation, and monopoly. The federal government could not, or in some cases would not, curtail such private-sector excesses.  When efforts were made, namely in the Sherman Antitrust Act and the Interstate Commerce Commission Act, the laws were either too vague or too inefficient for effective regulation. The courts stripped the rights of unions while simultaneously crippling the regulatory power of the government. The United States of America had built its factories and refineries upon foundations of liberty, freedom, and equality. In the Gilded Age, however, those foundations had withered away, setting the stage for a decade of turmoil.