CAPITALISM IN AMERICA: A History
Alan Greenspan and Adrian Wooldridge
486 pages; $35
At age 92, Alan Greenspan remains a towering figure in American finance. He was the second-longest serving chairman of the Federal Reserve (after William McChesney Martin). Dubbed a “rock star” by The Economist, Mr Greenspan achieved an unprecedented level of celebrity for a Fed chairman as stocks soared to record levels in the 1990s, and then notoriety, as his legacy was undermined by the Great Recession that began in 2008, less than two years after he left office.
Mr Greenspan was appointed by Ronald Reagan in 1987 and reappointed by three successive presidents from both parties. That a lifelong champion of free markets and an early acolyte of the objectivist author and philosopher Ayn Rand could so successfully straddle the political spectrum for so long is a testament to the bipartisan free-market ideology that followed the end of the Cold War. At the time it all seemed like the ultimate triumph of democratic capitalism.
Now, 10 years after the collapse of Lehman Brothers provoked a global financial panic and led to what Mr Greenspan refers to as “the great stagnation,” the self-congratulation seems to have been premature. Both parties have largely repudiated Mr Greenspan’s precepts, with Republicans lurching toward protectionism and a nativist hostility for globalisation and Democrats lurching toward something he would surely find equally repugnant: Income redistribution, ever-expanding government entitlements and identity politics.
Less a conventional history than an extended polemic, Capitalism in America: A History, by Mr Greenspan and Adrian Wooldridge, a columnist and editor for The Economist, explores and ultimately celebrates the Austrian economist Joseph Schumpeter’s concept of “creative destruction,” which the authors describe as a “perennial gale” that “uproots businesses — and lives — but that, in the process, creates a more productive economy.” While this approach risks oversimplifying centuries of American economic history, it provides a useful lens for analysing America’s current polarisation and for understanding the centrifugal forces that have given rise to a President Trump, on the right, or a Bernie Sanders on the left.
Other than a few paragraphs arguing the case that the Fed’s easy money policy had little to no impact on the housing bubble that led to the Great Recession, Capitalism in America has almost nothing to say about Mr Greenspan’s own role in recent economic history, and he offers no defence of his tenure as Fed chairman.
But that isn’t his purpose here. Capitalism in America is Mr Greenspan and Mr Wooldridge’s plea to re-embrace US’s long-held capitalist traditions and entrepreneurial culture in order to rescue the country from its current “fading dynamism.”
While Capitalism in America begins with the colonial era, Mr Greenspan and Mr Wooldridge hit their narrative stride and ideological sweet spot when they reach the late-19th-century “Age of Giants,” a name they prefer to the prevailing “Robber Barons”.
In the authors’ approving view, men like the banker John Pierpont Morgan, the oil baron John D Rockefeller and the steel magnate Andrew Carnegie, all born within a few years of one another in the 1830s, were “giants of energy and ambition” who “exercised more power than anybody other than kings or generals had exercised before.” These men are “heroes of creative destruction”.
That they also produced social and economic upheaval for many is a small price to pay, the authors contend. The rise of their great corporations, not to mention the industries they helped build and finance, from railroads to autos to retail chains like Sears, Roebuck, displaced millions of workers and small-business owners who were rendered obsolete.
Not surprisingly, these “giants” attracted popular hostility and resentment — Teddy Roosevelt called them “malefactors of great wealth.” Their success and attendant wealth unleashed a populist backlash. Williams Jennings Bryan campaigned against Wall Street and its “cross of gold.” Congress passed the first antitrust laws. The first federal income tax paved the way to income redistribution.
History’s harsh judgement of the era (which culminated in the 1929 stock market crash and ensuing Great Depression) suggests why creative destruction has had trouble gaining much of a following. Like the Robber Barons, today’s drivers of creative destruction, technology and internet entrepreneurs, “are seldom the easiest of heroes, nor the nicest,” the authors note. “They will sacrifice anything, from their own peace of mind to the lives of those around them, to build a business empire and then protect that business empire from destruction.” Such people are prone “to what the Norwegians call Stormannsgalskap, or the ‘madness of great men.’” Tesla’s Elon Musk, who merits several approving mentions, comes to mind. The disruptive forces they unleash generate “unease: the fiercer the gale the greater the unease.”
And not all destruction, it should be said, is creative. In a nod to the exotic derivatives and mortgage-backed securities that led to the Great Recession , Mr Greenspan and Mr Wooldridge acknowledge that “creative destruction can sometimes be all destruction and no creation.”
In their view, America today is already well along that path to stagnation. The book barely mentions Mr Trump beyond condemning his “dangerous” trade policies and warning about the fiscal recklessness of his tax cuts. But the entire book is an indictment of Mr Trump’s stands on immigration and protectionism and his attempts to resurrect fading mining and industrial concerns — attempts that, as Capitalism in America shows repeatedly, are almost surely doomed.
Mr Greenspan and Mr Wooldridge lament that Americans are “losing the rugged pioneering spirit” that once defined them and mock the “trigger warnings” and “safe spaces” that now obsess academia.
Their prescription for American renewal — reining in entitlements, instituting fiscal responsibility and limited government, deregulating, focusing on education and opportunity, and above all fostering a fierceness in the face of creative destruction — was Republican orthodoxy not so long ago.
No longer. Capitalism in America, in both its interpretation of economic history and its recipe for revival, is likely to offend the dominant Trump wing of the Republican Party and the resurgent left among Democrats. It’s not clear who, if anyone, will pick up the Greenspan torch.
America is now “trapped in an iron cage of its own making,” the authors contend. But “we have shown that America has all the keys that it needs to open the cage. The great question is whether it has the political will to turn them.”