Understanding the first Gilded Age (1870–1914) is essential for assessing the significant political impact of market power. This era featured a blatant anti-democratic worship of business power that contrasts starkly with the more democratic, egalitarian policies of the period from the 1930s to 1980. [It] was a time of extraordinary technological and economic progress when many 20th-century technologies were invented, spurring the creation of many new businesses in all sectors of the economy. According to the enlightened vision of capitalism, these firms would compete, expand, and pursue equal opportunities, leading to an expansion of output and widespread benefits shared by all. In such an economy, business freedom and individual freedom would be fully compatible because no firm or individual would have excessive power. However, this vision is not the economy that developed during the first Gilded Age.

One symbol of the age was the open conflict between the profit motive and the demand for public goods, manifesting in the destruction of natural resources on a tremendous scale. In 55 years, from 1830 to 1885, soldiers, hunters, and settlers killed more than 40 million buffalo and a significant fraction of all predators in the United States. The railroads facilitated the destruction of invaluable old-growth forests and, more generally, the unrestrained exploitation of natural resources. Not until Congress stepped in belatedly did the destruction slow. For example, the Yellowstone National Park Protection Act recognized the conflict explicitly by requiring protections against the “wanton destruction of the fish and game found within said park … or destruction for the purposes of merchandise or profit.” The bill was signed by President Ulysses Grant in 1872.

However, the most significant aspect of the age was the rise of powerful trusts that constituted centers of economic and political power controlled by a few wealthy barons. Between 1895 and 1904, more than 2,000 firms were merged into 157 large conglomerates, leaving virtually every sector of the economy dominated by a powerful monopolist. This trend was aided by an ideology that justified the new monopolies as superior economic organizations. As Samuel Calvin Tait Dodd explained, those who created the trusts believed they were doing God’s work of strengthening the economy by saving it from what was often termed “ruinous” competition.

A sympathetic view of these efforts would stress that people at the time faced one of the biggest problems that industrial capitalism had ushered in: perennial financial and economic instability. Lacking a stabilization policy (which wasn’t developed until the 20th century), the 19th-century U.S. economy suffered from financial panics and bank runs that led to frequent recessions and significant depressions. A brief record of recessions during the 50 years from 1850 to 1900 includes:

• December 1853–December 1854 recession.
• June 1857–December 1858 recession following the financial panic of 1857.
• October 1860–June 1861 recession.
• April 1865–December 1867 recession following the Civil War.
• June 1869–December 1870 recession.
• October 1873–March 1879 Long Depression that began with the Panic of 1873.
• March 1882–May 1885 deep depression.
• March 1887–April 1888 recession.
• July 1890–May 1891 recession.
• January 1893–June 1894 recession that resulted from the financial panic of 1893.
• December 1895–June 1897 recession that resulted from the financial panic of 1895.
• 1899–1900 recession.

Faced with significant economic instability — in particular, the destructive effects of the Long Depression of 1873–1879 — many firms sought to build up economic power. Drawing on the eugenicist Francis Galton’s ideas and Herbert Spencer’s theory of social Darwinism, business leaders saw themselves as intelligent and superior men who had prevailed in a ruthless process of economic natural selection. The same thinking also applied to their firms, through which they built a new society in which a few strong men would lead while everyone else followed. Citing Spencer’s (not Darwin’s) notion of “survival of the fittest,” they concluded that small and weak firms must be eliminated or swallowed up by strong monopolies. Notably, similar ideas were used to justify efforts to eliminate humans deemed inferior according to misguided genetic criteria, which was sometimes done by sterilizing such “inferior” people — often without their consent or knowledge — to prevent them from procreating.

The triumphant monopolist firms were seen not only as strong and thus superior to all the unfit firms that would have gone bankrupt in depressions, but also as progressive organizations because they had achieved their natural destiny. As John D. Rockefeller put it, monopolization was unstoppable because it was “a law of God.”

The ultimate political consequences of these facts and views were the rising power of the barons of industry and the weakening of democracy. From the end of the Civil War to 1901, big money ran U.S. politics. To appreciate the power of banks at the time, recall that the Federal Reserve Bank wasn’t established until 1913. Before that, the U.S. Treasury needed to operate independently under the gold standard, meaning it could run out of gold if it faced sharp economic volatility. The panic of 1893, for example, led to a deep depression in which the Treasury’s gold reserves were largely depleted. In response, J. P. Morgan formed a syndicate of private banks that provided the Treasury with a loan of $62 million in gold to shore up its liquidity.

Capitalism’s strong incentives for innovation and growth remain intact, but the survival of democracy hinges on whether the system’s most destructive effects can be contained.

Wealthy business leaders often nominated the local politicians they wanted in office and then got them elected through their own political machines or by recourse to various other methods. The historian Mark Summers offers rich documentation of the age’s corruption, showing just how common it was for business leaders to bribe politicians to ensure their firms would remain free from government interference. Most of them got their way. Corruption was so widespread and endemic that in 1868 New York State legalized political bribery. The rise of market power resulted in a techno-winner-takes-all economy run by an oligarchy of robber barons until 1901.

Given these political consequences, [the policy change that year] was a dramatic development. It was the initial stage of a long reform era that profoundly altered American life, including through the expanded policies to preserve the natural environment. Progressives forthrightly rejected the ideas underpinning the worship of economic power, as did those pursuing antitrust enforcement under President Theodore Roosevelt. By choosing democracy and rejecting oligarchy during the reform periods of the first half of the 20th century, Americans ushered in a long era of economic growth, shared prosperity, and a vital democracy marked by widespread civic engagement.

But that story ended in 1981, when the return to laissez-faire economic policy created the conditions for today’s resurgence of the techno-winner-takes-all economy. In this second Gilded Age, the worship of power and wealth has returned with a vengeance. Capitalism’s strong incentives for innovation and growth remain intact, but the survival of democracy hinges on whether the system’s most destructive effects can be contained.