The Regulated Economy: A Historical Approach to Political Economy.

• Author: Thornton, Mark

Big government is the most important issue of our time. America has gone from the time when people had little or no contact with federal employees to a time when federal employees are killing citizens on a fairly regular basis. Roosevelt's New Deal was the realization of big government, but the origins of the Leviathan state began with Lincoln and continued through the Progressive Era. This earlier period is the focus of The Regulated Economy, a collection of eight cases studies that examine the origins of government intervention.

The most important issue of this grandiose institutional change is the relationship between government intervention and economic growth and development. The editors can only make the weak theoretical stab (this is, after all, an N.B.E.R. conference book) that persistent interventions will tend to be socially detrimental and hinder economic growth. They lament that a complete assessment of the "impact of government on economic performance will require many case studies of the kinds offered here to determine whether, on net, government intervention promoted or retarded economic growth [p. 10]."

The second most important question is why do we have government regulation in the first place? Is it market failure or rent seeking? What is the historical process in which these interventions originated and developed? This second question is the focus of the book and the one in which the tools of the new economic history are better suited. The collection focuses on the major areas of government intervention: railroads, banking, public utilities, agriculture, and "prolabor" policies such as immigration restrictions and worker compensation. After reading the book, one cannot help bemoan the lasting economic and ideological effects of the seemingly innocent attempts to, for example, subsidize railroads in the 19th century.

Mark Kanazawa and Roger Noll use referendum and constitutional convention voting in Illinois circa 1870 to study the public choice of state railroad regulation. Their results support the classic study by Gabriel Kolko [1] by showing that railroad interests feared that they were losing regulatory control at the state level and sought protection with federal regulation. Keith Poole and Howard Rosenthal use the federal roll call votes between 1874-1887 that decided the type of federal railroad regulation enacted to conclude that the Congressional battle was based largely on long-run party interests.

One of the...