Capitalism Requires Government

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The Fantasy of our Laissez-Faire History

There is nothing new in the way that government aids business and a market economy. Conservatives would have us believe that our nation began and prospered under a laissez-faire arrangement, until the twentieth century and the advent of the New Deal and big government as we know it. But in fact, there has never been a complete wall between the public and private sectors. Government has always been involved in the economy. Active government support for business and the encouragement of economic growth can be traced back to the very beginnings of our Republic. Consider, for example, section eight in our Constitution – the one that describes the powers given to the newly created Congress. What is striking about most of the powers listed in this section is how mundane they seem. Here are the first eight of those powers:

Clause 1: The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defense and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;

Clause 2: To borrow Money on the credit of the United States;

Clause 3: To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes;

Clause 4: To establish a uniform Rule of Naturalization, and uniform Laws on the subject of Bankruptcies throughout the United States;

Clause 5: To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;

Clause 6: To provide for the Punishment of counterfeiting the Securities and current Coin of the United States;

Clause 7: To establish Post Offices and post Roads;

Clause 8: To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries;

What is remarkable about most of these topics is that they have little to do with promoting freedom, justice, equality, or the other lofty political values for which the American Revolution was fought. What they are promoting is economic prosperity. This was the first attempt to create a legal and policy infrastructure that would promote and encourage business growth – establishing protective patents, providing a stable money supply, preventing counterfeiting, creating uniform duties on goods, establishing uniform bankruptcy rules, regulating foreign trade, and so on. Even the creation of post roads was not simply for the mail – these roads were the main avenues of commercial transportation in the states. Later, in clause ten, the Constitution also forbids states from imposing duties on goods from other states and prevents them from impeding the enforcement of states across state lines – all absolutely necessary if businesses are to grow into nationwide enterprises.

So as far back as the 18th century, American government has been working hand in glove with business interests to promote economic growth. In the 19th century, this government effort to aid the economy intensified and took on new forms. As seen earlier, numerous laws were passed on the federal and state level to protect investors and entrepreneurs from excessive risk and to give an artificial boost to economic growth. In addition, the key infrastructure development of that century – and one that fueled rapid economic development in the entire country – was the railroads. These were extremely risky ventures that had to be heavily subsidized by state and federal governments through loans, credits, and land grants. Government also greatly strengthened and increased farm production through its establishment of agricultural colleges and agricultural extensions services. Further, research and development in public universities and land grant colleges were largely responsible for giving U.S. industries technological leads in areas such as metallurgy, and mechanical, electrical, and chemical engineering during the latter 19th century.3 Extensive and ongoing government tariffs also continued to protect and promote many vital domestic businesses throughout that whole period.

So the conservative idea that until recently we had a laissez-faire economy that prospered without any help from government is really a myth. Robert Kuttner, one of our most insightful commentators on the relationship between government and business makes this point very strongly. Looking at this long tradition of government aid for business in this country, he concludes that it “gives lie to the idea that the United States has historically been a laissez-faire nation. Despite the constitutional restraints on state power and the generally libertarian national creed, government action for economic and industrial development is deeply ingrained in our heritage.”4


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