Government involvement

Traditionally, most U.S. government leaders were reluctant to involve the federal government too heavily in the private sector -- except in the area of transportation. In general, the role of the federal government was influenced by the concept of "laissez-faire," a doctrine opposing government interference in the economy except that necessary for the maintenance of law and order. This attitude started to change during the latter part of the 19th century, when small business, farm, and labor movements began asking the government to intercede on their behalf.

By the turn of the century, a middle class had developed that was leery of both the business elite and the somewhat radical political movements of farmers and laborers in the Midwest and West. Known as "progressives," these people favored a government that actively involved itself in the regulation of business practices in order to ensure competition and free enterprise.

A law regulating the railroads was enacted in 1887 (Interstate Commerce Act) and another, preventing large firms from controlling a single industry, in 1890 (Sherman Antitrust Act). These laws were not rigorously enforced, however, until the years between 1900 and 1920, when those sympathetic to the views of the progressives came to power. During this time, many of today's regulatory agencies were created, including the Interstate Commerce Commission, the Food and Drug Administration and the Federal Trade Commission.

Although the era of progressivism peaked between 1901 and 1920, government involvement in the economy increased most significantly in the 1930s as a result of the "New Deal" The 1929 stock market crash had brought on the most serious economic dislocation in the nation's history, the Great Depression (1929-1940). The New Deal was President Franklin D. Roosevelt's attempt to alleviate the emergency. New Deal legislation extended federal authority in all fields, notably banking, agriculture, social security and public welfare. It gave immediate attention to labor problems, creating minimum standards for wages, hours, relief and security -- and served as a catalyst for the expansion of labor unions in such industries as steel, automobiles and rubber.

America had to confront problems such as these at the same time as it was developing a network of manufacturing and financial resources including large-scale industry, banks, stock markets, insurance companies and credit unions. Along with these developments came a modern system of agriculture and a strong organized labor force. Then came World War II.

During the Second World War, the U.S. government intervened in the economy as it never had before. The War Production Board was created to coordinate the nation's productive capabilities so that military priorities would be met. Converted consumer-products plants filled many military orders. Automakers built tanks and aircraft, for example, making the United States the "arsenal of democracy." In an effort to limit inflation due to rising national income and scarce consumer products, the newly created Office of Price Administration controlled rents on some dwellings, rationed consumer items ranging from sugar to gasoline, and otherwise tried to restrain price increases.