Chapter 8: The Rise of the American Regulatory State: A View from the Progressive Era
Marc T. Law and Sukkoo Kim Despite the United States being the world’s largest free market economy, government regulation of economic activity is a pervasive feature of the American economy of the early twenty-first century. The foods Americans eat, the cars they drive, the medicines they take, and the financial institutions from which they borrow and to which they lend are all subject to some kind of regulation. While governments from the colonial times played important roles in shaping the allocation of resources, for much of America’s history regulation was local and relied on the courts. During the Progressive Era (circa 1880–1920), however, the scale and scope of government regulations grew dramatically. State and federal regulatory agencies became the dominant actors in the regulation of economic activities in America. A key question for social science is why regulation of economic activity exists and why it has grown so dramatically over time. Why and how did the scale and scope of regulation expand? What political and economic forces contributed to the rise to the modern regulatory state, especially during the Progressive Era, the period when centralized state and federal governments became the nexus of regulatory activity? For economists there are two standard theories of regulation: public interest and capture. The traditional public interest theory argues that government regulation arose to combat market failures, whereas the more recent capture theory claims that producers sought regulation to restrain competition. But what factors account for the major change and growth of regulation during...
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