Industrialization brought concentration in both capital and control of business. Monopolies, oligopolies, and conglomerates were incompatible with the democratic freedoms sought by the common man. As Tocqueville had predicted, the new “manufacturing aristocracy” was as eager to exploit those under its thumb as the old hereditary aristocracy had been, but without any sense of obligation to those who worked for them.
The 2nd major development that undermined faith in the validity of laissez-faire was unemployment. With millions out of work for years and productive resources idle during repeated depressions, doubt abounded that unfettered enterprise, left to its own devices, was the utilitarian ideal once supposed.
Liberalism and capitalism had evolved as affirmations of individual rights against the power of the state. As businesses aggregated power, the state became the only possible counterbalance.
Liberals from Locke onwards have always insisted that the state should be an instrument of the people. The proper role of the state regarding liberty changed as liberals began to fathom the mordant dynamics of modern capitalism.
18th-century liberals saw the state as an obstacle. Remove its domination and society becomes freer.
By the late 19th century, it had become apparent that concentrated economic power impinged on the lives and liberties of people as political power had in the past. The state, once the disease, became the possible remedy.
Liberals found themselves in the position of looking to the state, their historic nemesis, for assistance against the bludgeon of capitalism. This seeming paradox was more apparent than real.
Liberalism of every age has been about curbing power, whatever its source. During early industrialization, laissez-faire economics afforded a balance against the political power of the state. Then private economic power became the primary threat to individual liberty, to which only government could act as counteragent.
Further empowering the state in the 18th century would have been illiberal. By the 1930s, advocating laissez-faire had become illiberal.
Conversely, conservatives who cherish authority favored the state in the 18th century, but private economic power in the 20th. Because state power was predominant in the 18th century, conservatives opposed the liberal policy of economic individualism. By the 20th century, conservatives were attacking government for interfering with the power behind market forces.
In the US especially, the power worm turned in the early 21st century. State power surged after the terrorist attack of 9/11, while leaving private economic power untouched. Individual liberty lessened from both pressures.
Liberals increasingly view the federal government as oppressive and wish a reactionary return to its more benign presence in the 20th century. Meanwhile, conservatives are generally content with the 21st-century police state and plutocracy that has fortified itself. The 2016 pseudo-election of Donald Trump as president was the icing on the cake that George Bush Jr. baked.