Controversies over the Role of Government in the Gilded Age

By the end of this lesson, students will be able to:

• Explain the laissez-faire doctrine that organized Gilded Age federal economic policy and identify the social, intellectual, and judicial supports it drew on between 1865 and 1898.
• Describe the Pendleton Civil Service Reform Act of 1883, the Interstate Commerce Act of 1887, and the Sherman Antitrust Act of 1890 as the three structural federal experiments with a more activist state.
• Account for the way the federal courts narrowed the early regulatory statutes, with attention to United States v. E.C. Knight (1895), In re Debs (1895), and Pollock v. Farmers' Loan and Trust (1895).
• Explain the politics of the tariff and the currency, including the McKinley Tariff of 1890, the Wilson-Gorman Tariff of 1894, the Coinage Act of 1873, the Bland-Allison Act of 1878, and the Sherman Silver Purchase Act of 1890 and its repeal.
• Use Skill 4.B (Contextualization) to situate the controversies over the role of government inside the broader story of industrial capitalism, the Populist insurgency, and the imperial turn of the late 1890s.

For most of the Gilded Age, the federal government did very little, on purpose. Some commentators argued that laissez-faire policies and competition produced economic growth in the long run, and they opposed government intervention in the economy (KC-6.1.II.A). The doctrine drew on classical political economy out of Britain, on the writings of Yale sociologist William Graham Sumner, and on a federal bench staffed by judges trained to read the Fourteenth Amendment as a guarantee of freedom of contract. The largest items in the federal budget were the tariff that financed the Treasury, the gold reserves that backed the dollar, the Post Office that delivered the mail, and the Civil War veterans pension system that ballooned across the period until it consumed roughly forty percent of federal expenditures by 1893. Almost everything else, from factory safety to railroad rates to the relations between employer and employee, was left to the states, the courts, or the market.

The civil-service question opened the first crack in that arrangement. For a century the federal government had run on the spoils system, under which incoming presidents replaced thousands of postmasters, customs collectors, and clerks with members of their own party. In July 1881, Charles Guiteau, a disappointed office seeker who had convinced himself he was owed a consulship, shot President James Garfield at a Washington railway station; Garfield died eleven weeks later. The assassination shattered the consensus that patronage was tolerable, and in January 1883 Congress passed the Pendleton Civil Service Reform Act. The statute created a Civil Service Commission, required competitive examinations for a starting list of about ten percent of federal positions, and forbade the assessment of political contributions from federal employees. The Pendleton Act was the most consequential structural reform of the federal government during the Gilded Age, and the share of federal jobs covered by the merit system grew steadily as later presidents extended the classified list. By 1900 about half of federal employees were on the merit list; the modern administrative state had its first foundation stone.

Railroad regulation was the second crack. Farmers and shippers across the Midwest and Plains had spent the 1870s arguing that the consolidated rail trunk lines charged what the traffic would bear and that state legislatures had the authority to set maximum rates. State-level Granger laws in Illinois, Iowa, Wisconsin, and Minnesota tried to do exactly that, and in Munn v. Illinois (1877) the Supreme Court upheld an Illinois grain-elevator statute on the ground that businesses affected with a public interest could be regulated by the legislature. Nine years later, in Wabash, St. Louis and Pacific Railway v. Illinois (1886), the Court reversed direction and held that the states could not regulate interstate rail rates because the Constitution reserved that authority to Congress. The Wabash decision left a hole in railroad oversight that only Congress could fill, and in February 1887 it did. The Interstate Commerce Act required that railroad rates be reasonable and just, outlawed rate discrimination among shippers, and created the Interstate Commerce Commission to administer the new rules. The ICC was the first independent federal regulatory agency in American history, and the precedent it set for later commissions was at least as important as the rules it tried to enforce in its first decade.

The antitrust question was the third crack. By the late 1880s public revulsion at the Standard Oil trust, the sugar trust, the whiskey trust, and the meatpacking pool had reached the point where doing nothing was politically expensive. In July 1890 Congress passed the Sherman Antitrust Act by votes of fifty-two to one in the Senate and a voice vote in the House. The statute outlawed every contract, combination in the form of trust or otherwise, and conspiracy in restraint of trade or commerce among the several states, and it authorized federal prosecutions and private treble-damage suits. Enforcement, however, was almost theatrical. Federal prosecutors filed only eighteen Sherman Act suits between 1890 and 1901. In United States v. E.C. Knight Company (1895), the Supreme Court ruled that the American Sugar Refining Company's purchase of four Pennsylvania refiners controlling about ninety-eight percent of national sugar refining capacity did not violate the Sherman Act, on the ground that manufacturing was not interstate commerce. The decision left the trust the federal government had charged on the field. Worse from labor's perspective, in In re Debs (1895) the Court used the Sherman Act and an injunction theory to break the Pullman Strike, sending the railway workers' organizer to federal prison and turning a statute aimed at trusts into a weapon against unions. Theodore Roosevelt's revival of antitrust enforcement after 1901 began from a statute the courts had nearly defined out of existence.

Tariff politics ran across the entire period and split the parties along regional lines. Northern Republicans defended high duties on imported manufactures as protection for American industry and as the principal source of federal revenue; Southern and Western Democrats and Populists denounced the tariff as a tax on the consumer that funneled wealth to the trusts. The McKinley Tariff of October 1890, named for the Ohio congressman who later became president, raised average duties on imported manufactures to roughly fifty percent and added a reciprocity provision that authorized the executive to negotiate lower rates with selected trading partners. Republican voters punished the higher prices that followed, and the 1890 midterm elections produced a Democratic landslide. Four years later the Cleveland administration replied with the Wilson-Gorman Tariff of August 1894, which trimmed average duties modestly and inserted a two-percent federal income tax on individual and corporate income above four thousand dollars. The income-tax provision drew Populist and Western Democratic votes that the rest of the bill would not have carried on its own. Within a year the Supreme Court invalidated the income tax in Pollock v. Farmers' Loan and Trust Company (1895), holding that a tax on income from real and personal property was a direct tax that the Constitution required to be apportioned among the states by population. The Pollock decision removed the most consequential redistributive plank of the period from the federal toolkit and was not reversed until ratification of the Sixteenth Amendment in 1913.

The currency fight ran in parallel and was the most emotional of the controversies. Before the Civil War the United States had operated on a bimetallism of gold and silver, but in 1873 Congress passed a coinage law that omitted the standard silver dollar from the list of coins struck at the Mint. Western miners and indebted farmers later denounced the act as the Crime of 1873, arguing that it had silently moved the country onto a single gold standard and that the resulting deflation had transferred wealth from debtors to creditors. The Bland-Allison Act of 1878 forced the Treasury to buy between two and four million dollars in silver each month and coin it into legal-tender silver dollars, restoring a partial role for silver without restoring full bimetallism. The Sherman Silver Purchase Act of 1890 expanded the obligation to four and a half million ounces a month and authorized the issue of Treasury notes redeemable in either gold or silver. When the Panic of 1893 drained federal gold reserves below the politically symbolic hundred-million-dollar threshold, President Cleveland called Congress into special session and won repeal of the silver-purchase law in November 1893. The repeal split the Democratic Party in two and set up the climactic gold-versus-silver contest of the 1896 election that the next lesson treats in detail.

The federal government did intervene actively in one sphere across the entire period: the disposal of the public domain. The Homestead Act of 1862 had promised one hundred sixty acres to any settler who lived on and improved the land for five years, and the federal government distributed more than eighty million acres under that statute and its successors before 1900. Even larger transfers went to the railroad corporations: between 1862 and 1871 Congress granted the transcontinental and feeder railroads roughly one hundred thirty million acres of public land, an area larger than France. The land grants were by far the most generous federal subsidy program of the nineteenth century, and they produced the standard Gilded Age irony: the same federal government that refused to set a railroad rate had built the railroads that set the rates. Generous land disposal sat comfortably inside laissez-faire orthodoxy because it took the form of a one-time transfer rather than ongoing regulation, and because the principal beneficiaries of the land grants were the corporate engines of the integrated national economy that the doctrine celebrated.

State legislatures filled in around the federal vacuum, often with results that anticipate the Progressive era of Period 7. Massachusetts had passed the first significant child labor law in the country in 1842, limiting children under twelve to a ten-hour workday in textile mills, and across the late nineteenth century Northeastern and Midwestern states added minimum-age statutes, school-attendance laws, and factory inspection bureaus. New York and Illinois began regulating tenement housing and bakery hours; the Granger states regulated grain elevators and railroad rates; and a growing number of cities and states experimented with municipal ownership of water, gas, and streetcar utilities. The federal courts often struck the state statutes down, most famously in Lochner v. New York (1905), which invalidated a New York maximum-hours law for bakery workers as a violation of liberty of contract under the Fourteenth Amendment. Lochner sat at the high-water mark of laissez-faire jurisprudence and gave the era its name in legal history; the long retreat from Lochner began under the Progressives and ended only with the constitutional revolution of the 1930s.

Two strands of the period push outward beyond the domestic regulatory question. The first is the Populist insurgency that the next lesson treats: Granger and Farmers' Alliance organizations, the People's Party of 1892, the Omaha Platform's call for free silver, public ownership of the railroads, a graduated income tax, and the direct election of senators. The Populist program was a sustained argument that the federal government should be reorganized to balance the trusts; the Pollock decision demonstrated that the courts disagreed. The second strand is foreign policy. Foreign policymakers increasingly looked outside U.S. borders in an effort to gain greater influence and control over markets and natural resources in the Pacific Rim, Asia, and Latin America (KC-6.1.I.E.ii). The purchase of Alaska in 1867, the joint resolution annexing Hawaii in July 1898, and the Spanish-American War later that year were all federal actions in a period otherwise marked by federal restraint, and they preview the imperial state of Period 7. The federal government that would not regulate a sugar trust would still send the Navy to Manila Bay.

The arc of Topic 6.12 is therefore the arc of an unfinished argument. The default position was that the federal government should stay out of the relationship between employer and employee and out of the contracts that organized industrial capitalism. Reform pressure produced a string of statutes the courts then narrowed back down. By 1898 the United States had a Civil Service Commission, an Interstate Commerce Commission, an antitrust statute on the books, a federal pension system that consumed almost half the federal budget, and a federal court system that read the Constitution to protect freedom of contract against legislative interference. The Progressive era of Period 7 would inherit every one of those institutions and use them to build the modern American regulatory state. The losing arguments of the Gilded Age became the winning arguments of the twentieth century, and the controversies of Topic 6.12 are the controversies that produced them.

The five excerpts below sample the period's argument in five forms: a statute that built the merit system, a statute that built the regulatory state, a statute that targeted the trusts, a Supreme Court decision that narrowed it, and a state-regulation decision that the courts later flipped.

1. (Continuity and Change) Compare the role of the federal government in 1865 with the role of the federal government in 1898. Identify two structural shifts and one significant continuity. Which set of changes did the most to set up the Progressive regulatory state of Period 7, and on what grounds?
2. (Causation) Account for the causal chain that led from the assassination of President Garfield in 1881 to the passage of the Pendleton Civil Service Reform Act in 1883. Identify the political, intellectual, and electoral pressures that lined up to produce the statute.
3. (Comparison) Compare the legislative reach of the Sherman Antitrust Act of 1890 on its face with the judicial reach the Supreme Court allowed it after United States v. E.C. Knight in 1895. What does the gap between the two reveal about the role of the federal courts in the Gilded Age regulatory state?
4. (Continuity and Change) Explain why the question of bimetallism became the most emotional political issue of the early 1890s, beginning from the Coinage Act of 1873 and ending with the repeal of the Sherman Silver Purchase Act in 1893. Whose economic interests stood on each side of the gold-versus-silver fight, and why?
5. (Contextualization) Account for the apparent contradiction between the laissez-faire orthodoxy of Gilded Age domestic policy and the active federal role in the disposal of the public domain through the Homestead Act and the railroad land grants. Why did one form of federal intervention sit comfortably inside the doctrine while another could not?

Draft alignment — pending educator review. AP USH codes correspond to the official College Board Course and Exam Description (Effective Fall 2023, Version 1). Statements below are paraphrased in the CountryReports voice; refer to the College Board's published CED for verbatim wording.