Laissez-Faire

The American Civil War fades away. It now appears that a new social unrest has taken root in America. But the debate was to be fought in the economic world. The question was, how should the government interact with business? The issue splits into two main views, that of Laissez-faire, and that of General Welfare. Laissez-faire is a rather straight-forward philosophy. It can be best described by saying that the government should have absolutely no interaction within the business world. These thinkers trust that the government’s sole purpose is to protect life and property, and that the role of government should end there. The tree of Laissez-faire has many branches, two of which are classical economics and Social Darwinism. Believers in classical economics base most of their philosophy on mercantilism and its effects. They have no doubt that government interaction with the business world is inept, and can only hurt economic growth. Social Darwinism was a popular belief. It grew from studies of Charles Darwin, and his publication,

 The Origin of Species. Charles Darwin argued that species had not been created, but had evolved. But most importantly to the philosophy of Social Darwinism, Darwin theorized that evolution takes place by survival of the fittest. It was that idea in s! urvival of the fittest that became the backbone for Social Darwinists. The Social Darwinists believed that the involvement of government in business interfered with the natural selection of those that were best suited to survive.(Lesson14 74) On the other side of the issue was the general welfare state. The philosophy of the general welfare state, called the Social Gospel, was advocated in part by Christians in the United States. They believed that individuality had gone too far and that it was necessary for government involvement. Increased urbanization and industrialization also led to the belief in the general welfare state. It was the opinion of these thinkers that laissez-faire was not the answer to the problems of economics.(Lesson14 74) Laissez-faire may have been a significant step in the evolution of economics to many people, but there were also many silent threats that it carried. Without government protection, big business can exploit the many people that make it work. Such exploitation could be brought about in low wages and poor working conditions, long working hours, and many others

. Many believed that government protection was needed to insure fair competition and high standards of morality. In the 1860s oil became more and more essential as an everyday item. Its demand grew dramatically. The main use at that time for oil was kerosene. Kerosene was used in several ways, although its most popular use was in lamps. Crude oil needs to be refined to produce products such as Kerosene. Pennsylvania was the main location that oil refining was done in the 1860s, but times were changing. The Lake Shore Railroad helped Cleveland become one of the new centers for oil refining. It was obvious that the railroads were invaluable to the oil business. In the new refining city of Cleveland, Ohio, a new refining company was created. This company was the Standard Oil Company, owned primarily by John D. Rockefeller.(Lesson16 95) John D. Rockefeller is a legend of the business world. He started a relatively small oil refinery in Cleveland, Ohio in 1870. In just two years, it grew into an enormous monopoly, producing ninety percent of the nations refined oil (Chapter4 15). His business ethics have been hotly debated because of many apparent rebates and other schemes. The Standard Oil Company’s success can be attributed to Rockefeller’s business aptitude. Aside from his great business qualities, the Standard Oil Company’s success in the oil industry is because of the secret illegal rebates by the railroads. A rebate in the railroad business is a reduction in shipping fares in exchange for promised use of the railroad’s services. These rebates were brought about through the South Improvement Company, which was set up in 1872 (Lesson16 96).

The South Improvement Company was designed with one mission, to destroy all competition to the Standard Oil Company, and other companies that were part of the South Improvement Company. It was started by several large corporations, including the Standard Oil Company. Rockefeller is reported to have met with other oil businesses and tell them that if they do not join the South Improvement Company, they will be wiped out of business due to the lower shipping rates given to the South Improvement Company (Lesson16 96). Eventually the public gained knowledge of this conspiracy through . After nonstop opposition, the railroads eventually gave in and stooped giving the rebates. The South Improvement Company collapsed in April of 1872, and the Congressional Committee on Commerce denounced it as one of the most gigantic and dangerous conspiracies ever committed (Lesson16 97). After the failure of the South Improvement Company, the Standard Oil Company also tried secret pacts and bribing. Rockefeller’s objective was to keep the price of crude oil down. If he could buy oil at cheap prices, transport it at low rates, and could sell the refined oil at high prices, he could make enormous profits.

Through his deceiving ways, Rockefeller turned the Standard Oil Company to one of the most famous monopolies of all time. He had turned the oil refining industry away from free market competition and towards monopolization. Ida Tarbell, lady journalist and famous muckraker, became John D. Rockefeller’s greatest nemesis. As a journalist for the popular McClure’s Magazine, Ida Tarbell was hired by S.S. McClure at the age of thirty-seven. She became an immediate sensation with readers. By 1900 McClure’s was reaching 350,000 homes thanks to her. She became known for her biography on Napoleon, and then her series on Abraham Lincoln, which took her four years of research. But she earned her place in the history books for her pursuit of the Standard Oil Company, and the Famous Tycoon that ran it, John D. Rockefeller. In the October, 1902 issue of McClure’s Magazine Ida announced that she had finished her research on the most perfectly developed trust in existence (The Gentlewomen and the Robber Barron 185). For two years and in eighteen installments, Ida Tarbell revealed the scandalous nature of the Standard Oil Company and its primary owner, John Rockefeller. She gained her knowledge of the monopoly, through interviews with business people with first-hand knowledge of the Standard Oil Company, and Rockefeller. As the months passed, Ida Tarbell published her installments, which portrayed Rockefeller as a ruthless tycoon, obsessed with taking over control the oil industry. Miss Tarbell urged her readers not to support monopolists such as Rockefeller. She argued that a thing won by breaking the rules of the game, is not worth winning (The Gentlewomen and the Robber Barron 190).

 In 1909, the Standard Oil Company was accused with violation of the Sherman Act. On May 15, 1911, the U.S. Supreme Court had finally come to a decision. It found the Standard Oil Company, guilty (The Gentlewomen and the Robber Barron 191). Essentially, the supreme court agreed with Ida Tarbell. Ida Tarbell’s study of the Standard Oil Company had raised a controversial question. Is it better to have free competition, with fierce survival of the fittest, or is it better to have industry fall under the control of a single dominance which could maintain order and profits (The Gentlewomen and the Robber Barron 192)? Ida Tarbell wrote and published many other works of literature after that of the Standard Oil Company, but none had such an impact on society. Ida was and is a role model for women of all ages, races, and social classes. She proved that a woman can gain the same amount of admiration and respect as a man. The issues of Laissez-faire versus General Welfare and competition versus Monopoly were becoming more and more hotly debated. It was time for the U.S. Government to start taking sides and making decisions.

This was done through the U.S. Supreme Court. By the mid 1880s people were starting to take notice to the fact that the practices of John D. Rockefeller in the oil industry was not an isolated phenomenon. The same practices of monopolizing were happening in the meat packing, copper, steel, coal, sugar, and countless other industries. It was obvious that Adam Smith’s philosophy of laissez-faire was leading the economic world into one populated and governed by monopolies. The question was, whether or not to do anything about that. The question started to get answered in 1887 by the Interstate Commerce Act. The Interstate Commerce Act was the first of several laws that were a turning point on the governments position of Laissez-faire and monopolies. The Interstate Commerce Act was designed to prevent particular unfair actions, taking place within the railroads (The Supreme Court Decides 37). Examples of such unfair actions are rebates, discrimination, ‘unreasonable’ rates, and several others. In 1890 the Sherman Anti! -Trust Act was passed. This act was designed to forbid unfair competition among large firms, and essentially, make monopolies illegal. The Sherman Anti-Trust Act was written with very broad language, which left it to the courts decide how to interpret it (The Supreme Court Decides 37). We would now have to wait to see how the courts would use these new weapons against monopolies. It was soon found out how the courts would use the Sherman Act in the court case, U.S. v. E.C. Knight, 1894. The court case revolved around the purchase of four sugar refineries in the Philadelphia area, by the American Sugar Company.

This purchase gave the company control of 98% of the nations’ sugar refining capacity (The Supreme Court Decides 38). The American Sugar Company was found not guilty of attempting to monopolize. This loss seemed to make the Sherman Act look like a failure, and for the time being it was. Several other businesses were taken to court, and only a small percent were won by the government. After Theodore Roosevelt took office as president, the prosecution of big business with the Sherman Act was altered, to the disadvantage of big business. Theodore Roosevelt took forty-four different businesses to the supreme court. The most famous one was U.S. v. Standard Oil, 1907. The Government claimed that John D. Rockefeller led his Standard Oil Company! to a monopoly through illegitimate means. The Government won. This lawsuit was one of the most dramatic because the government was taking on the largest corporation in the nation at the time (The Supreme Court Decides 39). It now appeared that the government and the courts had made their decision. There was to be no Laissez-faire economy, and monopolies would not be tolerated in the United States of America.

 What role the government plays in the regulation and intervention of American life is not just a eminently debated issue from the past. It is an issue that has proved to be a major concern and interest of almost all Americans. It is the feeling of many people that business should be unregulated by the federal government. But there are also those many Americans that believe that the government should regulate the growth and behavior of economics, to protect the American Citizen. These two opposite opinions are one of the main divisions of political parties. The Republican party is one that is very attractive to big business. It stands for smaller government intervention in the business world. The Democratic Party stands for larger government interaction in the economy and lives of America’s citizens. It stands to protect the citizens from the dangers small government intervention. Many people fear a large unregulated economy. It is possible that an economy can run out of control and exploit the consumers and workers.

This was illustrated by a study of the Standard Oil Company, headed by the ‘ruthless’ Rockefeller. When a business is able to monopolize within a single industry the outcomes can be potentially devastating. The abuse of consumers is no longer a difficult task. When a consumer has no choice but to purchase from a certain company, that monopoly is able to regulate prices to whatever they deem ‘fair’. It is not always the consumer that is defiled. One may overlook the common worker. When there are no unions to watch over the treatment of workers, employers may exploit them. Long work hours with little pay, and poor working conditions were just two of the many cruelties that early muckrakers uncovered. It is also possible that too much government control over the economy can be present. This is why our present day society exists in a mixed economy. In a mixed economy, private ownership is combined with some government control. This system attempts to eliminate inefficiencies inherent in capitalism or socialism alone. It is in this mixed economy state that a potential median between both philosophies is found. But our philosophies are always changing, as is our government.