Capitalism, based on free markets, competition, and private ownership, is the prevailing economic system of Western democracies and has been for quite some time, despite powerful challenges from state socialism for much of the 20th century. As Sir Winston Churchill told the U.K. House of Commons on Oct. 22, 1945, “The inherent vice of capitalism is the unequal sharing of blessings. The inherent virtue of socialism is the equal sharing of miseries.”
Ages of American Capitalism: A History of the United States, by Jonathan Levy. Random House, 944 pp., $40.
But capitalism has not remained static over time — it has evolved along with the technologies and techniques of production that are among its greatest legacies. In his new book, Ages of American Capitalism: A History of the United States, Jonathan Levy traces the evolution of capitalism throughout American history. Levy, a historian at the University of Chicago, believes that the U.S. is “perhaps the most capitalist of all countries,” with an “especially forward-looking economic system, in which expectations of the future play a prominent role in determining the present.” But he feels that the public suffers from “amnesia” about its economic history and that the “urge to dispense with the past has led to many flights of economic fancy” as new theories replaced the financial principles of old.
As a friendly word of warning, Levy has an unmistakably Keynesian economic outlook. He’s fascinated by the role that government can play in markets. He obsesses over liquidity and illiquidity when it comes to money and commodities. He regularly places liberal economic theories on very high pedestals. He suggests, like John Maynard Keynes, that “inflation is not always a bad thing.” But if Levy’s preferences might appeal to liberal readers, there’s still plenty of high-quality economic history, research, and thoughtful analysis for conservatives to consider.
The book identifies four ages of American capitalism: “Commerce,” “Capital,” “Control,” and “Chaos.” In addition to changes in demographics, trade policies, growth, and productivity rates, Levy examines everything from Thomas Jefferson’s “disdain for the English” to Ronald Reagan’s “optimism about markets” and Barack Obama’s “ambivalence about bankers.” No dollar, cent, or stone is left unturned.
The Age of Commerce covers the time between 1660 and 1860. The U.S. went from colony to independent republic, and the “dominant [foci] of productive capital were land and slaves.” This period saw the evolution of the “repeating capitalist credit cycle of confidence, credit, and speculative investment, followed by bouts of panic, hoarding, and commercial retrenchment,” which Levy argues has persisted ever since.
Mercantilism, which maximizes a nation’s exports and minimizes imports, was an early economic tradition that Colonial America adopted from the British Empire. It was initially a “political translation of the religious impulse at work in the concept of commonwealth.” This appealed to New England Puritans, although they struggled to find a proper balance between economic self-interest and religious morality.
During the Age of Commerce, the U.S. began to shift away from mercantilism to a more modern form of free market capitalism, but not without bumps in the road. There was dissension between Republican thinkers such as Jefferson, who wanted the U.S. to break away from the British and adopt more laissez faire policies, and Alexander Hamilton and other Federalists, who favored “commercial rapprochement with the British Empire” and a strong federal government overseeing public finances. Democracy’s limitations in the colonies also held back the expansion of private enterprise, and tariff battles ensued between Northern manufacturers and Southern exporters of commodities such as cotton.
The growth of democracy led to the Age of Capital between 1860 and 1932. The Civil War, and with it the abolition of slavery, “gave birth to a new national monetary system and credit network, based in New York.” It led to greater prosperity and financial opportunity for Americans from all walks of life, including emancipated black people, and integrated the various regions of the country while weaving the U.S. more tightly into an international economic system based on the gold standard.
Industrialization played a significant role in the Age of Capital. What Levy describes as “the Civil War transformation of U.S. capital markets,” which led to an increased demand for productive capital and wage labor, aided powerful businessmen such as Andrew Carnegie and “made possible his early speculative fortune and initial start-up fund.” Carnegie correctly assumed “profits would take care of themselves if he dedicated his company to the production of ever more steel, while striving to reduce costs.” Industrialization expanded in the competitive marketplaces of the Northeast and Midwest, now more closely bound to the rest of the country via the railroads.
Levy also outlines some of the financial downturns that defined the Age of Capital. There were financial panics in 1873, 1893, and 1907. The worst was the 1929 Wall Street crash, when an astonishing $14 billion in stock market value “was quickly shed” on a single day, Oct. 28. Ultimately, “10 percent of U.S. national wealth” was wiped out on paper. The result was the Great Depression, which ushered in the four-term presidency of Franklin Delano Roosevelt and the dawn of a new economic era.
The Age of Control, which Levy dates from 1932 to 1980, technically started with Roosevelt’s New Deal, a time when “profit making shifted away from finance and toward production” and the country achieved greater economic security and equality by “anchor[ing] economic life in the illiquidity of industrial capital.” But the Age of Control began in earnest with the U.S.'s economic mobilization for World War II. The war economy “positively boomed … as liberalism, big government, and private initiative together amounted to a dynamic amalgam.” After the war, while many European nations lay in tatters, the U.S. “enjoyed a worldwide economic supremacy never before seen in all of history.”
By the 1950s, the U.S. economy “had climbed out of the Depression’s liquidity trap,” defeated “creeping socialism,” and reoriented itself toward private investment and wealth generation. Consumerism, enabled by rapid and broad-based economic growth, became a popular ideological alternative to Soviet communism. But as growth slowed down in the ‘60s and ‘70s, New Deal liberals began losing political ground to the growing “New Right,” with its powerful support for capitalism and private enterprise.
This leads us to our current Age of Chaos, in which, according to Levy, the “preference for liquidity over long-term commitment has dominated capital investment as never before,” making for “a chaotic age dominated by the vagaries of appreciating assets.” Think of the subprime mortgage crisis as a case-in-point.
According to Levy, this age began with the election of Ronald Reagan, an indomitable enthusiast for supply-side economics and “the magic of the marketplace.” Even a “New Democrat” such as Bill Clinton, who supported modern liberal ideas such as public healthcare and reforming labor laws, shifted right on economics after the Republicans won the House in 1994. Robert Rubin, who served as Clinton’s treasury secretary, employed a neoliberal approach of “private-capital-markets-led globalization that was enabled, at times, by administrative state power.”
Obama and Trump also contributed to the Age of Chaos. The former, a modern liberal, oversaw what was then “the largest fiscal stimulus in American history” during the 2008 subprime mortgage crisis, raised personal and corporate taxes, recapitalized several banks, and was “weighed down” by the Great Recession’s economic sluggishness and global austerity. The latter, more a populist than conservative whose victory “was driven by economics,” cut taxes and experimented with economic nationalism. While the author acknowledges it’s “too early to say what the historical significance” of Trump’s presidency will be, his “pronouncements about a rigged system” could have a short-term or long-term effect on American capitalism.
“Capitalism’s future orientation is a complex issue,” Levy correctly notes in his conclusion. Based on the turbulent history of American capitalism outlined in his book, President Joe Biden and his successors will have their hands full in the Age of Chaos — and whatever age follows it.
Michael Taube, a columnist for Troy Media and Loonie Politics, was a speechwriter for former Canadian Prime Minister Stephen Harper.
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