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The State of the Union's Human Capital

NEW YORK (TheStreet) -- When the President talks about "income inequality" during his State of the Union speech on Tuesday, investors will flash back to childhood, to the sound of fingers being scraped on a blackboard, the sound of a cockroach being squashed underfoot or maybe the taste of broccoli being forced down by a loving parent at dinner.

What they will hear will be a call to take their money and give it to someone else. The economic pie is only so large. Giving others' a bigger piece means less pie for me.

It's a natural feeling, but it's not always right.

Over a century ago, when America's infrastructure was being built, capitalists felt the same way about regulation. The idea of government telling them how they could charge for use of their property sounded like socialism, and they resisted it.

But before that infrastructure could be deployed for mass manufacturing, creating the auto industry, the appliance industry, and so many others, the rates for industrial inputs -- rail rates, kerosene rates, electricity rates, communication rates -- had to be straightforward and fair.

As Ron Chernow wrote in his biography of John D. Rockefeller, Titan, Ohio Republicans enforced this principle, sending Rockefeller fleeing their writs out of Cleveland and into New York.

As Doris Kearns Goodwin wrote in her book on the succeeding era, The Bully Pulpit, President Theodore Roosevelt, pushed the same principle on the federal level, even getting the support of J.P. Morgan to end a coal miners' strike on terms favorable to the miners.

What the Ohio Republicans started, what the Roosevelt Administration finished, and what men like Morgan eventually accepted, was the idea that rates would be regulated, and regularized, in exchange for having some group given monopoly control over the resource.

Without uniform, dependable rates, the pie baked by the trusts wouldn't grow.

Government power had become necessary for economic growth. Electric and telephone utilities agreed to allow government regulation in exchange for monopoly power, to maximize what was then scarce financial capital and make the U.S. into one market.

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