The case of internal improvements at the federal level from 1787 to 1837 suggests that American governance patterns were pragmatic and utilitarian, rather than committed to laissez-faire theory of the small state. Federal power can be used in a variety of ways to create a liberal capitalist state by building transportation and communication infrastructures. While the concessions in America’s constitutional model to small-state Republicans often thwarted the more ambitious plans, it was not laissez-faire theory that prevented the use of federal power for nation-building projects. When government in the first half of the century wanted to promote economic development, “no overriding theory held government back.” The liberal forms of governance that developed in America were not the Lockean minimal state that Louis Hartz famously imagined to be America’s continuous laissez-faire tradition. Rather, the American experience of internal improvements reveals the complicated entanglements of state, law, and capitalism in the nineteenth century and illustrates the continuing problems with neat categories of state and market, public and private, to describe the political economy of capitalism.