What do you mean by economic legislation?

Economic Legislation means the measures that are taken by a government to regulate economics.

What are some examples of economic laws?

Some examples of economic laws that are government-made to regulate economic activity are the following: Baxter's Law Diminishing Returns Iron Law of wages Marginal Utility

How many economic laws are there?

To date, there are 38 Economic Laws.

Who made economic laws?

Economic laws and policy is made by the Council of Economic advisers in the US. The CEA is made up of three members, one of these is called the Chair, this member is appointed by the President.

Why is law important to the economy?

Law is important to the economy as it creates stability and security in its practice.

What was the main outcome of the Sherman Antitrust Act of 1890?

It prohibited formation of trusts, cartels, and monopolies

Which of the following is true of the government's role in the economy?

The government regulates businesses to ensure ethical practices

What was the purpose of the Insterstate Commerce Act of 1887?

To prevent powerful railroad companies from joining together to control prices

Economic Legislation: Definition & Examples

Economic Legislation

During the Gilded Age and rapid economic growth, the US government needed to step up to the mark and create an efficient economic system in the United States. How did they try to create economic harmony? What role did they play in its enforcement? And what committee was responsible for economic legislation?

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Role of Government in the Gilded Age

During the Gilded Age, government intervention in economics was opposed by laissez-faire policies. Liberals who supported this idea of laissez-faire, meaning 'let them do what they will argue against government involvement as they believed that the free market was the best way to create a sound economic system.

Free Market

In the free market, prices of goods are set by buyers and sellers rather than by the government.

So while the economy of the United States was built on free market principles, the government still played an important role. The United States operates as a free market, with the government stepping in at critical times to ensure stability, prevent misuse, and promote growth. In particular, the US government's role in the economy is to provide public goods and services, redistribute income, protect private property, resolve market failures, and regulate business.

Did you know?

In a command economy, the government controls the economy, including what commodities are available and their prices.

Economic Legislation Meaning

After the war, the nation's economy grew and became quickly dominated by influential individuals. With the American economy almost doubling in size during the Gilded Age, the markets became a battling ground for prices. There was a dire need for economic legislation as those unable to offer the lowest prices were forced into bankruptcy.

The legislation became an essential economic tool used by the government to regulate the activities of producers and consumers, preventing prominent figures such as John D. Rockefeller of Standard Oil, who had risen alongside the economy to a position of control over the oil market.

Economic legislation

Includes any bill passed by Congress that impacts the economy. This includes business regulations, trade regulations, taxes, tariffs, government debt, etc.

Fig. 1 Public Opinion Illustration

Economic Legislation Examples

The government provides public Goods and Services for the good of all people. This means people do not have to purchase them because the government makes them available.
Income Redistribution includes gathering money from citizens through taxes and using that revenue to run the government and provide public goods and services. One example is unemployment benefits, where tax funds are used to provide funds to people who are unemployed and need assistance. Another example is social security, which provides some income for retired people.
Protection of Private Property through laws and regulations, the government is responsible for protecting private property and preserving law and order. This provides stability and structure for the economy.
Resolving Market Failures has been a significant role of the government in the economy in the 20th century. When the mechanisms that uphold the market falter or fail, the government provides stability and regulates the market.

The Great Depression

For example, during the Great Depression, the government increased federal funding for public works projects, provided jobs for unemployed people, and reduced income tax rates.

Economic Legislation Unemployed Men queued at Soup Kitchen during the Great Depression StudySmarter Fig. 2 Unemployed Men queued at Soup Kitchens during the Great Depression.

Government regulations of business practices and the goods provided by the business. For example, the government regulates the vehicle industry by imposing requirements about safety, the impact on the environment, and more. It also oversees business practices and steps in if a business engages in unethical or unlawful business practices.

Federal Trade Commission

For example, the Federal Trade Commission monitors businesses to prevent company fraud or money laundering. They also step in if there are signs that a monopoly is forming (see the Sherman Anti-Trust Act below for more information).

History of Economic Legislation

At the beginning of the United States' history, the government exercised very little control over the economy. For the most part, businesses created and sold goods, and people made purchases without much oversight. However, as the 19^thcentury progressed, the government found it necessary to step in on a few key economic issues, particularly related to the trade of enslaved people and the Industrial Revolution.

Economic Legislation Celebrations in the House of Representatives over the 13th Amendment StudySmarter

Fig. 3 Celebrations in the House of Representatives over the 13th Amendment

In 1800, Congress banned Americans from engaging in the slave trade by bringing people over from other countries, but they continued to allow slave owners to trade domestically. The slave trade brought economic benefits to the South, despite the terrible practice of forcing enslaved people to work for free. It wasn’t until the Civil War, and the passage of the Thirteenth Amendment in 1865 that slavery was officially abolished.
The severe economic crisis of the Great Depression in the 1930s marked a turning point in government involvement in economic issues, as unemployment rates skyrocketed and many Americans lost their savings. President Franklin D. Roosevelt instituted the New Deal to revitalize the American economy and provide critical benefits like Social Security to help care for citizens’ basic needs. In contrast, the economy got back on its feet.

Economic Legislation of the Gilded Age

The Gilded Age of the late 19th Century brought about many changes to the economy of the United States and the world. Below are some examples of major legislative initiatives that passed during this time:

The Interstate Commerce Act

Congress passed the Interstate Commerce Act in 1887 to regulate the railroad business. During the 19th century, railroad companies became extraordinarily wealthy and powerful. Because people and businesses relied on the railroad system, railroad companies raised prices significantly to increase their profits. The law required railroad companies to keep their prices "fair and just," to make them public, and to halt pricing discrimination against certain regions.

Economic Legislation Interstate Commerce Commission StudySmarter Fig. 4 Interstate Commerce Commission

The Sherman Anti-Trust Act

Congress passed the Sherman Anti-Trust Act in 1890 to address concerns over businesses' ability to concentrate trade and power and preserve competition. It prohibits things like cartels, price fixing, and monopolies. A monopoly is formed when one company or business controls an entire commodity, which violates the principles of fair prices and competition in the free market. For example, if one company owned all power plants, they could charge consumers extremely high electricity prices without worrying about losing business.

Did you know?

A significant reason for the Sherman Anti-Trust Act was the Standard Oil Trust in 1882. Nine executives of oil companies joined together to share the profits from the various oil companies they represented. This concentrated all of the profits from oil essentially in the United States in the hands of nine people and functioned as a monopoly on a critical commodity.

Recent Economic Legislation

The government also stepped in during the Industrial Revolution towards the end of the 19^th century. The government created guidelines and regulations to help US businesses thrive and increase competition with other countries. When workers banded together to protest their dangerous and unhealthy working conditions, the government stepped into creating standards for how employees should be treated. Massachusetts passed the first health and safety law in 1877, which laid out factory safety requirements like guards for belts, shafts, and gears, and fire safety exits.

Major economic reform took place under President Barack Obama. In 2008 the US experienced the worst recession since the Great Depression. To help stabilize the economy, Congress passed the American Recovery and Reinvestment Act in 2009. The cost of the bill was around $800 billion and focused on preserving jobs and creating new ones. It also focused on pouring money into infrastructure, education, health, and renewable energy. Based on Keynesian economics, the theory was to make up for the lack of private spending by increasing government spending to help put money in people's pockets and stimulate the economy.

Economic Legislation Barack Obama and Cabinet StudySmarter Fig. 5 Barack Obama and Cabinet

Economic legislation committee

Today, Congress takes an active role in helping to manage the US economy. The economy is one of only four policy areas where the House and Senate create a joint committee. The Senate and House typically develop committees that coordinate to pass legislation. Because of the critical nature of working together on the economy, under the Employment Act of 1946, Congress created the Joint Economic Committee (JEC). Together with the President's Council of Economic Advisors, the two groups monitor the state of the nation's economy and develop recommendations.

joint economic committee hearing monopolies Fig. 6 - The Joint Economic Committee held a hearing in 1938 to investigate monopolies. Source: Wikimedia Commons

Economic Legislation - Key takeaways

In a free market, the government does not control prices or commodities. However, in the US, the government does step in to help ensure stability and prevent unethical business practices; the US government provides public goods and services, protects private property, redistributes income, resolves market failures, and regulates business.
Several historical events led to the government's increased oversight of the economy, including addressing the Slave Trade and abolishing slavery in 1865, the growth of the Industrial Revolution in the 19th Century and unsafe working conditions, and the Great Depression in the 1930s and increasing government spending to revive the economy.
Two critical acts during the Gilded Age were the Interstate Commerce Act and the Sherman Antitrust Act.
Two recent pieces of economic legislation are the American Recovery Plan and the American Recovery and Reinvestment Act.
Economic legislation is proposed and reviewed by the Joint Economic Committee, which is one of only four joint committees of the House and the Senate.

Economic Legislation

StudySmarter Editorial Team