Shanghai International Studies University
From Laissez-faire to Regulated Economy: U.S. in
Transition during the Theodore Roosevelt Administration
A Thesis
Submitted to the Graduate School and College of English
In Partial Fulfillment of Requirements for
Degree of Master of Arts
By
Zhang Weiqun
Under Supervision of Professor Wang Enming
December 2013
Contents
Acknowledgements ............................................................................................................................ i
Abstract (Chinese) ............................................................................................................................ ii
Abstract (English) ............................................................................................................................ iii
Introduction ....................................................................................................................................... 1
Chapter One
A Booming Economy in Crises............................................................................. 6
1.1 The Laissez-faire Doctrine .................................................................................................. 6
1.2 Industrial Development after the Civil War ........................................................................ 9
1.3 Crises at the Turn of the Century ...................................................................................... 12
Chapter Two
Towards A Regulated Economy.......................................................................... 17
2.1 The Regulation of Railroads ............................................................................................. 17
2.2 Dealing with the Trusts ..................................................................................................... 21
2.3 The Square Deal ................................................................................................................ 25
Chapter Three
Progressivism: Origins, Significance and Implications .................................... 33
3.1 The Intellectual Origins of Progressivism ......................................................................... 33
3.2 The Significance and Implications of Progressivism ........................................................ 37
Chapter Four
Conclusion ......................................................................................................... 42
Bibliography ................................................................................................................................... 45
Acknowledgements
My MA program in the Graduate School of Shanghai International Studies University
is an unintended challenge as well as a great blessing for me. I enjoyed my 3 years’
study and value it highly. This thesis comes as a conclusion that has taken over a year.
My gratitude goes first to Professor Wang Enming for his insightful guidance and
enlightening criticisms at every stage of my thesis writing. Without his meticulous
examination and invaluable advice, the completion of this thesis would not have been
possible. I am very thankful to him for his generous time. It is his unremitting
devotion that helps me to clear my confusion and expand my horizon in academic
research.
I owe unbounded gratitude to my parents, who have always stood by my side and
encouraged me whenever I encountered difficulties and challenges. It is their
unconditional love and support that has helped me to become who I am now.
Last but not least, my friends and schoolmates rendered generous assistance during
this MA program. They made this otherwise insipid study experience worthwhile and
meaningful.
i
Abstract (Chinese)
二十世纪伊始的美国在加速工业化的背景下曾面临各种严重的问题和矛盾，但美
国经济不仅没有走向崩溃反而实现了自体的新陈代谢，焕发出勃勃生机。本文通
过梳理西奥多·罗斯福推动下美国经济转变的发展脉络，揭示其如何应对转型背
景下的危机和挑战。
罗斯福当局极大地扩展了政府的运作边界，将各种经济社会事务纳入政府的职责
范围，并实施了广泛的改革调控措施。曾倚重地方法院系统和州政府层级的美国
经济体系在罗斯福当政时期大大强化了联邦权力和行政权力。西奥多·罗斯福总
统开创了政府广泛干预社会经济的时代，美国经济从传统的自由放任政策向保护
公众利益的国家调控转变。这种转变作为一个连续的动态过程，以自我进化的形
式避免了激烈的革命和与历史的绝裂。
罗斯福推动美国转化是对于美国历史的继承，在本质上仍然是保存美国最核心的
价值观和宪政体系。罗斯福当局对于更强有力的政府权力的主张和对于社会公平
正义的追求，均滥觞于美国建国之初自由放任政策与国家干预主张的相互博弈
中。就此意义而言，罗斯福当局同时兼具进步和保守的特点，这些集中投射在更
强大的联邦政府对经济的调控规制上。罗斯福政府成功引领美国经济走出危机并
实现在新世纪的新生。
关键词：西奥多·罗斯福，自由放任，调控，进步主义
ii
Abstract (English)
The United States was facing numerous problems and conflicts at the beginning of the
twentieth century. However, the U.S. economy did not crash but developed in its full
blossom. This thesis examines the transition of U.S. economy during Theodore
Roosevelt’s presidency and studies how Theodore Roosevelt responded to various
crises.
The Theodore Roosevelt administration greatly increased its scope to include a wide
range of economic issues as well as social issues into its agenda. U.S. used to rely
heavily on local courts and the states, but the Theodore Roosevelt administration saw
a surge in federal legislation and enhanced administrative regulations. The presidency
of Theodore Roosevelt unveiled an era of government interventions: U.S. economy
transformed from traditional laissez-faire to a regulated economy aiming at common
benefits. Rather than simple reaction to certain issues, such transition of U.S.
economy is a continuous and dynamic process, a kind of self-evolvement without
drastic changes or violent revolution.
The presidency of Theodore Roosevelt manifested the American traditions while it
infused U.S. economy with new life. The essence of its regulations was to preserve
the fundamental values and institutions. The push of Theodore Roosevelt’s
administration for a stronger, more regulative government, as well as its aim to
provide a square deal, can be traced back to the founding of the nation, echoing the
interplay between laissez-faire and governmental intervention. Viewed in this light,
the Theodore Roosevelt administration was both progressive and conservative,
resulting in a more powerful federal government and a more regulated economy. The
Theodore Roosevelt administration successfully led U.S. through the phase of crisis
and accommodated it to modern economy of a new century.
Key words: Theodore Roosevelt, Laissez-faire, Regulation, Progressivism
iii
Introduction
The presidency of Theodore Roosevelt was pivotal to modern U.S. economy. As U.S.
was undergoing a complex of changes caused by Industrialism, former political
institutions and the laissez-faire economy seemed increasingly unable to respond to
the new requirements and address the ailments in the new time. Theodore Roosevelt,
the 26th President of the United States, was a significant figure in U.S. history. By the
time of his presidency, U.S. was disturbed by the apparent breakdown of moral
standards, the rapid growth of centralization and power in American industry and
finance, the new urban problems, the increasing disparities in wealth and class
divisions, and the widespread poverty and misfortune in the midst of industrialism.
Many Americans were appalled and became outraged as the gap widened between the
working and middle ranks of society and wealthy capitalists smugly asserted their
superiority. Progressivism, initiated by a variety of groups, flourished and responded
to cure those afflictions. The government came to adjust the traditional laissez-faire
liberalism inherited from the founding of the nation. Through various legislation and
administrative interventions, the Theodore Roosevelt administration expanded the
scope of government regulation and shaped the agenda for reforming politics and
building a forceful federal government in the twentieth century. The regulation of big
business and the trust-busting were imperative and can never be undervalued. With
the relationship between government and business redefined, Theodore Roosevelt
successfully fastened Jeffersonian idealism on a Hamiltonian structure in a partial
realization of social democracy.
1
As for the significance of Theodore Roosevelt’s role in this era, William H. Harbaugh
commented in Power and Responsibility: The Life and Time of Theodore Roosevelt:
1
George E. Mowry, Theodore Roosevelt and the Progressive Movement. New York: Hill and Wang,
Inc., 1960. p.11
1
At a time when American people’s government was perilously close to becoming a
mere satellite of big business, Theodore Roosevelt, by a masterful assertion of both
his moral and political authority, had reaffirmed the people’s right to control their
affairs through their elected representatives.2
He argued that Roosevelt would be remembered as the first great Progressive
president reformer of the modern industrial era for his unique personality and
constructive achievements. Breaking with presidential tradition and addressing
non-constitutional issues, Theodore Roosevelt revolutionized the American business
community by instilling in it a standard of moral and social accountability. He
legitimated the spirit of progressive reform regarding U.S. economy.
Honored as the first modern American President setting innovative precedents to
tackle the problems of modern and industrialized society, Theodore Roosevelt was in
nature conservative as well as progressive. His responses indicate that he was making
pragmatic “American” reactions to the changes. Theodore Roosevelt preferred
moderate reform rather than radical revolution, which manifested U.S. economy’s
ability of self-improvement, i.e. the economy ameliorated itself without violent
revolution or dramatic changes. The administration of Theodore Roosevelt reasserted
the gradual and measured reform tradition of U.S. history. The significance of
studying the transition of U.S. economy during the Theodore Roosevelt
administration lies in what was done and how that was done in that unusual era. The
American experience in the midst of modernization provides some insights on the
similar problems confronting China.
Public concern over Theodore Roosevelt and Progressivism at the turn of the
twentieth century has been well documented by scholars in the U.S. Some historians
have given him credit for several noteworthy accomplishments. Arthur Johnson has
noted that he worked successfully to create a Bureau of Corporations that would
2
William Harbaugh, Power and Responsibility: The Life and Times of Theodore Roosevelt. New York:
Farrar, Straus and Cudahy, 1961. p. 165
2
publicly report on corporate abuses.3
William Letwin has applauded the President’s
“brilliant defeat” of the railroad holding company, Northern Securities, by invoking
the little used Sherman Act. George Mowry has acknowledged Roosevelt’s direct
responsibility for the pass of the Hepburn Act. 4 For Mowry, this legislation
represented a “landmark in the evolution of federal control of private industry.”
5
For
some, however, Roosevelt’s tough “Rough Rider” image did not extend his relations
to big business. Lewis Gould has noted the ineffectiveness of the Bureau of
Corporations with regard to its dealing with the beef trust, calling it a public-relations
nightmare that embarrassed the Administration.
6
Critics who measure Roosevelt’s
success by the number of anti-trust suits he brought or won missed the essentially
rhetorical purpose of his crusade. Roosevelt hoped to reconcile both the business and
anti-business interest as well as to preserve the order and stability necessary for
America to realize its dream as a materially and spiritually-rich nation.
Richard Hofstadter called Theodore Roosevelt “the conservative as progressive”.7 He
portrayed the reformer from the perspective of his conservative nature, yet the
catchword “Progressivism” leaves its everlasting mark on the administration of
Theodore Roosevelt. Many books about “Progressive Era” and “Progressivism” serve
this thesis on the topic, to name a few: Lewis L. Gould’s The Progressive Era,
Richard Hofstadter’s The Progressive Movement 1900-1915 and David M. Kennedy’s
Progressivism: The Critical Issues. The Presidency of Theodore Roosevelt, another
3
Arthur M. Johnson, “Theodore Roosevelt and the Bureau of Corporations” The Mississippi Valley
Historical Review, 1959(45). pp. 571-590
4
William Letwin, Law and Economic Policy in America : The Evolution of the Sherman Antitrust Act.
New York: Random House, 1965. pp. 55-56
5
George E Mowry, The Era of Theodore Roosevelt: 1900-1912. New York: Harper & Row, 1958.
pp. 9-10
6
Lewis Gould, The Presidency of Theodore Roosevelt. Lawrence, KS: University of Kansas, 1991. pp.
164-165. According to Gould, it was not Roosevelt’s intention that the Hepburn Act would be harmful
to railroads; yet, the Interstate Commerce Commission under later presidencies did use it as an
“anti-railroad weapon.”
7
Richard Hofstadter, The American Political Tradition and the Men Who Made It. New York: Vintage
Books, 1954. p.206
3
book by renowned Lewis L. Gould, presents serious analysis of TR’s presidency
showing that TR’s personality had positive influence. His success was built on
previous political assets, but his achievements should not be diminished. Tom
Lansford’s Theodore Roosevelt in Perspective is concise and focused on his main
political experience. The book belongs to a series on the studies of presidents.
American Epoch: A History of the United States Since 1900, co-authored by Arthur S.
Link and William B. Catton, reviews the most critical historical events in a systematic
manner. Another informative book on U.S. economy is Daniel Gaido’s The Formative
Period of American Capitalism: A material interpretation.
In China, research has not focused on the Theodore Roosevelt administration and its
pivotal role in the transition of U.S. economy. Instead, Theodore’s foreign policy
“speak softly and carry a big stick” attracted much attention. The importance of the
Theodore Roosevelt administration in U.S. history has been neglected, or at least
undervalued. This period was generally regarded as a part of Progressive Era. Wang
Shaoguang’s Apocalypse of the Progressive Era in U.S. sheds light on such historical
events and evaluates the subsequent social-economic legacies, but he mainly focuses
on the fiscal and taxation sectors. American Progressive Governmental Reforms and
the Chinese Lessons, by Ma Jun and Liu Yaping, is a more comprehensive treatise on
U.S. transformation during the late 19th century and early 20th century. However, it is
written more in the Chinese context and the U.S. experience was a minor part. Yet the
acknowledgement of the pivotal role Theodore Roosevelt taken in the transition of
U.S. economy is evident.
This thesis is going to examine the presidency of Theodore Roosevelt in the historical
context of a great transition. Since American capitalism was epitomized as “the
tendencies of Western capitalism [which] could find fullest and most uncontrolled
4
expression,”8 much more lies underneath this topic. How Theodore Roosevelt reacted
when U.S. confronted its most profound crisis provides a reference to modern China.
This thesis uses social and historical approach, as well as qualitative method to learn
the historical background of the Theodore Roosevelt administration. The exploring of
the original writing, biographical and historical account, and historian’s analyses helps
to get to the conclusion. The thesis tries to identify the change of policies, examine
the political implications, trace the causes of the issues and assess their impact, and
display the correlation between government and economy, regulation and laissez-faire,
liberty and democracy, etc. We see how U.S. lives up to the historical requirements
and remains viable under unprecedented social challenges.
This thesis is divided into four chapters. The first chapter introduces the laissez-faire
doctrine and U.S. economy at the turn of the 20th century so as to provide a
background for the discussion of the transition. The second chapter will have a close
study of Theodore Roosevelt’s Presidency making its way towards a regulated
economy, tracing its main events and legislations, analyzing the relative advantages
and disadvantages of regulations versus laissez-faire as a means of formulating
competition policy. The third chapter is composed of two parts. One is to examine the
incentives for the transition, namely the Progressive Movement，probing into the
intellectual origins of Progressivism; and the other is to discuss the significance and
implications of Progressivism. In the last chapter, the thesis argues that the Theodore
Roosevelt administration, by sticking to the credos of American ideals and responding
to crises with social criticism and piecemeal reform, unveiled an era of government
interventions and U.S. economy transformed from traditional laissez-faire to a
regulated economy aiming at common benefits.
8
William N. Parker, “Historiography of American Economic History,” in Glenn Porter, ed.,
Encyclopedia of American Economic History. Studies of the Principal Movements and Ideas, I,
Scribner's, 1980. p. 6
5
Chapter One
A Booming Economy in Crises
In September of 1901 Theodore Roosevelt became the president of the United States
accidentally. He took office at the age of 42, younger than any other U.S. president in
history. “I wish to say that it shall be my aim to continue, absolutely unbroken, the
policy of President McKinsey,”9 claimed Roosevelt as he quietly took the oath of
office. He was born to a family that had acquired its money and position early in
American history. He came to the presidency with considerable experience. He had
run unsuccessfully for mayor of New York and served a term in the New York state
assembly. He had spent four years as a U.S. civil service commissioner and two years
as New York City’s police commissioner. His exploits in the Spanish-American War
as “Rough Riders” brought him to the public’s attention. He had been an effective
assistant secretary of the navy and a reform governor of New York. He had a strong
conviction that he could use power in the interest of the public, which was early
cultivated since in his youth. Rather than simply maintain the status quo, President
Roosevelt sought a mid-course between Republican laissez-faire policies and the
socialism advocated by some reform elements. The administration of Theodore
Roosevelt helped foster the ideas of change and reform. Few people until then had
predicted that a new order would be born upon the death of the old, with which began
a new economy in the United States.
1.1 The Laissez-faire Doctrine
Laissez-faire economic ideas were first advocated by 18th-century French economists
known as physiocrats. Led by François Quesnay, physiocrats challenged the dominant
economic doctrine of the time, mercantilism, according to which increasing exports
and collecting precious metals would maximize the wealth and power of a nation.
Physiocrats argued that nature was the true source of an economy’s wealth and saw
9
Lewis L. Gould, ed. The Progressive Era. New York: Syracuse University Press, 1974. p.156
6
government laws, tariffs, and privileges granted to individuals as interfering with the
natural flow of commerce, hindering economic and social prosperity.
Adam Smith (1723-90), the Scottish philosopher and author of The Wealth of Nations
who was considered the father of modern economic thought, incorporated the ideas of
laissez-faire capitalism in his work. Smith emphasized the role of self-interest in the
functioning of markets—that is, self-interest would guide individuals to use their
resources wisely. Consumers would attempt to maximize their wellbeing with their
limited incomes, purchasing products at the lowest possible price and offering their
resources to the highest bidder. Producers would attempt to purchase resources at the
lowest possible price and sell their products to the highest bidders. Smith theorized
that in markets, buyers and sellers would benefit society by efficiently allocating
resources and goods as if guided by an “invisible hand.” Competition would lead to
efficiency without government oversight or control.
Laissez-faire was a political as well as an economic doctrine, whose economic
principles were not always enthusiastically accepted in the United States. The
pervading theory of the 19th century was that the individual pursuing his own desired
ends would achieve the best results for the society of which he was a part.
Laissez-faire can be best described as a political theory that embracing the idea “that
government is best which governs least.” The function of the state was to maintain
order and security and to avoid interference with the initiative of the individual in
pursuit of his own desired goals.
During their historical experience, Americans had long paid high tribute to
individualism. Private property ownership and personal success were held supreme in
this context where individualism was idealized. The most accepted economic thinking
before the time of Theodore Roosevelt known as classical economics denied that a
conflict existed between private and public interest. Private competition among
individuals, in which each man sought his own self-interest, would automatically
7
produce the greatest social good, according to the theory. Since no public interest
existed above and beyond the sum of private interests, any public concern for social
conflict would violate this “fundamental law of nature.” 10 Labor-management
relationships should be the province solely of employers and their individual
employees; urban civic problems required no special attention over and above what
each individual gave to his private affairs.
In the 19th century, classical economic theory argued that laissez-faire markets would
keep economies at close to the natural level of real output. Flexible prices and wages
would adjust market prices, eliminating shortages and surpluses. Since markets would
be self-correcting, there would be no need for government intervention during ups and
downs in economic activity. For most of the nineteenth century, Congress rather than
the president shaped economic policy. Congress’s approach to American business
during the nineteenth century was essentially laissez-faire—a hands-off, supportive
attitude that did not interfere in business operations.
Following the Civil War, the Gilded Age marked a period of massive economic
growth. America participated in a waxing political debate between two ideas that were
both commonly propagated. One argued the principle of laissez-faire, wherein
government intervention would be minimized. Concurrently, industrialization meant
the national government assumed an increasing role in partaking directly in society.
Although these principles were not completely contradictory, the increased
government influence in non-government affairs was taken both as a necessity and as
misuse of power. Laissez-faire placed too much freedom in the hands of the people.
As a result, government regulation increased and developed with the changing
economy. Outcries about monopolies and scandals that was aided by laissez-faire,
were mitigated by government regulation. Thus, though laissez-faire had been
reasonably articulated during the Gilded Age, it caused too many problems unsolvable
10
Samuel P. Hays, The Response to Industrialism, 1885-1914. Chicago: University of Chicago Press,
1964. p. 108
8
without a national government, exemplifying the importance of such a central power.
1.2 Industrial Development after the Civil War
Following the laissez-faire doctrine in the years before the U.S. Civil War, Congress
rarely acted to regulate the American business community, nor did it impose
regulations that might have inhibited business profitability. Congress began to change
its approach during the Civil War, when the financial stress of the war prompted
Congress in August, 1861, to create an income tax as a means of raising revenue to
fight the war, although it was a tax on individuals not corporations (the tax was
eliminated in 1872). In 1862, Congress acted to support the settlement of the West
with the Homestead Act that provided for free land for people who settled on it for a
period of time. In 1864, Congress provided for subsidies for American railroads to
encourage the construction of intercontinental rail lines. Tinged at times with scandal
as agents for various railroads succeeded in bribing members of Congress to gain
increased benefits, these two acts furthered the settlement of the West and provided
impetus to the developing railroad industry.
In 1865 US had about 35,000 miles of railroad track in operation, most of it owned by
small companies of doubtful economic stability. Lines were generally short,
connecting two or three important market centers, but not yet linked to any larger
system. By 1890, the situation had changed considerably. Over 166,000 miles of track
were in service; the old pattern of short lines had evolved into a national system with
standardized gauge; six transcontinental railroads had been completed; as new
technology put into use, engines were more powerful.
Service had not only become
faster and more dependable but less expensive as well. As a result, use of the railroads
soared.
Table 1 Production of Crude Petroleum, 1888-1904(quantities in thousands of 42-gallon barrels)
9
Source: Adapted from US Bureau of the Census, Historical Statistics of the United States, Colonial
Times to 1957, Government Printing Office, Washington, D.C., 1960, p.36
Table 2 Railroad Mileage in Operation 1860-1910
Note: Mileage figures do not include yard tracks and sidings
Source: Adapted from US Bureau of the Census, Historical Statistics of the United States, Colonial
Times to 1957, Government Printing Office, Washington, D.C., 1960, pp.427-429
Extension of the railroad network gradually, aided by cutting both the time and cost of
transportation,
made the entire United States a single marketing area, at least for
certain products. U.S. became more integrated. The creation of a national market led
eventually to the domination of most industries by a few large firms. A striking but by
no means unique example is the meat-packing industry. Gustavus F. Swift, a new
England packer impressed by intensifying competition from the West, recognized the
possibilities opened to his industry by the increasing speed and efficiency of rail
transportation. Swift moved his operations to Chicago, began experimenting with
refrigerator cars during the 1870s, and was soon able to ship fresh, fully dressed meat
anywhere in the country.11 Although years passed before most consumers developed
confidence in the wholesomeness of meat packed as much as a thousand miles away
11
http://libsysdigi.library.illinois.edu/oca/Books2009-06/gustavusfranklin00good/gustavusfranklin00go
od.pdf
10
and days earlier, widespread acceptance was inevitable. Because live animals lost
weight in shipment and more than a third of their weight was waste anyway, dressed
meat could be shipped more cheaply. In addition, big western packers discovered uses
for many meat by-products in the manufacture of soap, glue, and fertilizer. They thus
realized more income per animal than did smaller operators, especially in the East.
Companies selling in national market also had brand-name reputations to protect and
took pains to establish and maintain high standards of quality, eventually gaining the
advantage. By the end of the nineteenth century, the large western concerns had
driven most small, local meat packers out of business.
An available nationwide transportation system enabled Americans to fully exploit
potential factors of economic growth. Efficient national transportation and
communications networks encouraged and spurred mass production and mass
marketing. Cheap, rapid transportation brought all sectors of the economy into close
contact with one another; factors of production could be combined for much more
readily than ever before. These efficiencies stimulated economic growth not only by
reducing the cost of production but even more significantly by creating a national
market; the transportation and communications revolution destroyed barriers to
distribution and permitted producers to sell to consumers throughout the nation.
Railroad construction proceeded so rapidly and consumed such vast quantities of
material that it generated the growth of a number of key industries, the most obvious
being iron and steel. The huge fortunes accumulated by Andrew Carnegie and John D.
Rockefeller during the time dramatized the pattern of wealth concentration that began
in the high period of industrialization.
As business grew, like the railroads, they recognized the many clear advantages of
legal incorporation. A corporation could raise money for large-scale operations by
selling stocks. Its legal identity allowed it to survive the death of original and
subsequent shareholders, while the principle of limited liability protected the personal
assets of both shareholders and officials. Such characteristics made investments in
11