The economic growth of 1860-1900 was originally supposed to have been created under a policy of laissez faire; however, the Federal government did much to violate this policy during this period. The government became entrenched in business of all kinds, and consequently, the concept of laissez faire became a thing of the past. This happened through the government's policy of regulating the price of goods, granting large amounts of land for the development of the railroad, and passing the Sherman Anti-Trust Act. .
Adam Smith first presented the idea of laissez faire in his book "The Wealth of Nations". He stated that an invisible hand controlled the business market; and if left alone, an economy best suited to the needs of the people would develop. Since Smith felt that the government should not regulate industry, many businessmen agreed with the principle of laissez faire. However, at the same time, those same businessmen saw no problem with asking the government for financial aid for industrial development. Even though this contradicted the principle of laissez faire, it soon became customary for the government to fund projects for major corporations. .
Major examples of this funding are the railroad land grants. In order to unify the westward-expanding country, the government turned to the newly invented railroad. It realized that the only way the railroad would be built was if money and land grants were given to the railroad companies that would construct the massive system of tracks. The total area of land given to these companies would equal almost the same area as the entire state of Texas. This is an extreme violation of the principle of laissez faire, which states that the government should have minimal intervention in the economy. .
In 1887, the Interstate Commerce Act was passed in violation of the laissez faire policy. This stated that railroads must charge reasonable rates, that the pooling of revenues and traffic was unlawful, that price discrimination was unlawful, and that short and long haul prices were to be under the discretion of the interstate commerce commission, a new administrative agency created by this act.
