The founding fathers of our nation set up our economy with this in mind, that liberty and the freedom of the people should be above economic gains. This idea stayed with our nation for many years, and the nation had prospered so much from it that we had all national debt paid off by the year 1830. This is very different from our policy on economics today, and in Dr. Burt Folsom’s lecture, we can see a large factor as to why this is the case.
In the 1840s and 1850s, the steamship industry was growing in Europe, specifically in Great Britain. The idea of liberty over economic prosperity was still widely accepted. However, people in congress such as Collins suggested congress support him in making a company to “catch up” to England's steamship business. Congress then decided to give Collins this subsidy in order for the U.S to not “fall behind”. In the railroad industry, a similar situation came up where California was cut off from the rest of the nation since no rail line was connected to it. Congress gave two companies subsidies in order to build the transcontinental railroad.
While the subsidies did allow these companies to form, they both failed. Collins steamship company was poorly managed and was losing customers to another steamship company called Vanderbilt which was not receiving government subsidies. The Transcontinental Railroad was completed but was poorly made, and was less successful than another private railroad run by a man named Hill.
Both cases show that government subsidies promote bad entrepreneurs who will not innovate and will overall perform poorly in their tasks. Yet we see this all the time today. The push for larger government involvement is growing every day, yet many do not know the consequences of such actions. Many major innovators and entrepreneurs in the past did so because they had to in order for them to make a profit. One of the biggest names in business history is Rockefeller, and his success in the oil business was due to a free market forcing him to innovate or go bankrupt. If a company does not need to worry about costs since the government is financing them, then no major innovations will be made. Take the telephone lines for an example, when the companies first set them up, they were paid by the government to provide phone lines to almost every building in their area. Since their profits were capped and they wouldn’t run out of business, no big innovations were made in the industry for many years.
While it seems like a great idea for the government to support companies, the best way for successful companies to appear is to make the market relatively free. This keeps the business world a survival of the fittest game and allows innovation to occur most quickly.