Reviewing Alan Greenspan and Adrian Wooldridge’s 2018 book, Capitalism in America

In a time where the bi-partisan fervor behind American capitalism is fading, Alan Greenspan and his co-author Adrian Wooldridge’s 2018 book, Capitalism in America: An Economic History of the United States, is an ode to American capitalism. It provides a sunny view of how capitalism has impacted the country since its founding. While the authors acknowledge that capitalism is ruthless in nature, they find that overall, the benefits outweigh the costs. From the outset, the book argues that America is economically superior to other countries like China, Britain, and the late Ottoman empire because of its history as a capitalist nation. Not only does the United States have “the world’s biggest economy,” and “the world’s highest standard of living apart from a handful of much smaller countries” (Greenspan 2-3). Greenspan writes that “American capitalism is also the world’s most democratic”—this is quite a bold statement if you ask me (3). He explains that capitalism in America “has been associated with openness and opportunity: making it possible for people who were born in obscurity to rise to the top of society and for ordinary people to enjoy goods and services that were once confined to the elites” (3). In his view, the capitalist system has been responsible for higher living standards in America; the fruits of capitalism have been spread across society such that all Americans have been able to access them.

The ladder statement is far-fetched and nearly blasphemous when we examine the details of American history. On the other hand, I can agree with the former statement. Greenspan examines economic history through the lens of creative destruction, “the process that drives productivity growth” (Greenspan 12). He writes: “creative destruction is…the ‘perennial gale’ that uproots businesses-and lives-but that, in the process, creates a more productive economy” (14). Greenspan argues that you cannot have creation without destruction. They are “Siamese twins”: “the process involves displacing previously productive assets and their associated jobs with newer technologies and their jobs” (14). He acknowledges that “the benefits of creative destruction can take decades to manifest themselves” and “the costs are often immediate” (24). Nonetheless, he points to America’s resistance of “the temptation to interfere with the logic of creative destruction” as the reason for America’s success above other countries (24-25). In other words, productivity increases because of innovation, which is responsible for creative destruction. But productivity is what drives economic growth in the long run. Economic growth has undeniably provided enormous benefits to most Americans throughout history: this is the narrative that Greenspan puts forth.

From America’s founding up until World War I, Greenspan examines the benefits of the institutions of capitalism, the institutions within the capitalist system, and creative destruction. He finds that the US constitution made America “unique” because it “set strict limits on what the majority could do” (Greenspan 31). The Constitution secured property rights which did “far more than conventional economic advantages such as abundant land and raw materials” (31). The Constitution paved the way for economic institutions like patents, which give people a right to their own ideas. Then, there was the notion that “as Francis Trollope put it, ‘any man’s son may become the equal of any other man’s son,’” set forth by the Declaration of Independence (43). Greenspan admits that “slavery, of course, would remain an abominable exception” (43). Nonetheless, this was the American “wunderkind” that made America special. The Declaration and the Constitution in combination with the American ethos made America a hot bed for innovation. With new creativity came destruction: the Siamese twins.

But, the path to productivity was rocky. America had to decide between two futures: Jefferson’s “republic of yeoman farmers” and Hamilton’s “commercial republic” (Greenspan 62). This was, in essence, the “King Cotton,” slave economy of the South and the modern “commercial nation” of the North (73). Greenspan acknowledges that “slavery and cotton production certainly advanced in lockstep” (75). He explains that slavery is what allowed the backwards Southern economy to survive: “Southern whites” enjoyed “roughly the same income per head as Northern whites despite living in a much more backwards economy” (77-78). He explains that this “rapidly expanding industry rested on foundations of unfathomable cruelty” (77). Greenspan juxtaposes the backwards South to the North which was an idea hub. He writes: “ninety-three percent of the important inventions patented in the United States between 1790 and 1860 were produced in the free states and nearly half in New England” (70). And yes, after the Emancipation Proclamation came “sharecropping” and “prison labor,” but at least the North had won out (Greenspan 87). East coast manufacturing would send America on the path to success.

The following chapter is “the Triumph of capitalism” (Greenspan 95). (He should have called the previous chapter, ‘a Blip on the Road to Triumph’). Greenspan discusses the “combination of westward expansion and technological innovation” which “brought a leap in agricultural productivity” in the first half of the nineteenth century (121). The notorious ‘robber barons’ of the later part of the nineteenth century “were neither ‘robbers’ nor ‘barons’” (125). Greenspan barely admits that there might be anything wrong with their approach to business. He writes: “there is some justification for this hostility: people seldom achieve great things without being willing to ride roughshod over the opposition” (124). In his eyes, the robber barons might as well be superheroes. “These men were entrepreneurial geniuses who succeeded in turning the United States into one of the purest laboratories of creative destruction the world has seen,” he writes (126). These were the masterminds responsible for the second Industrial Revolution and widespread mechanization across the US.

But, as Greenspan puts it, “not everybody was happy about this” (Greenspan 149). With the rise of industrial giants like Carnegie steel, Rockefeller oil, Sears department store, and J.P. Morgan’s stronghold on banking came intense backlash. As America industrialized, it faced a new set of problems: “the growing density of civilization” caused “problems with human and animal waste…it also produced industrial pollution on a terrifying scale” (168). Americans were hit hard by the destruction side of the twins: “America reorganized on a massive scale. The proportion of American workers who worked on farms shrunk from half in 1880 to a quarter in 1920” (175). The country’s wealth moved from rural America to urban America which caused discontent amongst farmers and those who depended upon small-scale agriculture for their livelihood. “Great corporations… produced great concentrations of wealth that tested America’s belief in equality of opportunity,” Greenspan writes (169). As a result of this backlash, American government expanded with increasing federal regulation and moved “significantly to the left” (188). While many historians argue that the dramatic increase in production was responsible for deflation which had lasting ripple effects throughout the economy, Greenspan ultimately concludes at the end of the book that the benefits outweighed the harms, although it may have taken some time to see them manifest.

This book gave me a good mind-map of the economic history of the United States. But it made me angry. It seems that Greenspan just decided that the benefits of creative destruction outweigh the costs. He basically says at the beginning of the book that slavery was worth it. He writes:

“America’s rise to greatness has been marred by numerous disgraces, prime among them the mistreatment of the aboriginal peoples and the enslavement of millions of African Americans. Yet judged against the broad sweep of history, it has been a huge positive” (Greenspan 4).

This is easy for him to say. If Greenspan was a Black man maybe he would have come to a different conclusion about what outweighed what. He was the President of the Federal Reserve! He is probably worth millions of dollars! Americans who have been left behind throughout history and remain poor and neglected by the government to this day would come to a different conclusion.

Greenspan argues that America is special, that creative destruction is responsible for increased productivity. These arguments are quite obvious. Economic historian Craig R. Roach, Ph.D., wrote in a review for New York Journal of Books:

While Greenspan does not ignore the harmful side of creative destruction, some readers will want more about the labor strife, worker safety, poverty, and pollution of the era. Moreover, for the book as a whole, do not expect the full case against capitalism, including issues of inequality, to be stated and rebutted therein (Roach).

The book would have been way better if Greenspan actually rebutted the hard arguments against capitalism: that capitalism is inherently unequal and unforgiving; that capitalism devolves into monopoly, cronyism, and market capture. Above all, that throughout American history, economic productivity has rested on cheap labor: the backs of Africans who were smuggled from their home countries and worked liked dogs, the under-compensated factory workers of the industrial age who worked in dismal conditions.

There are benefits to creative destruction, but I would not go as far as to say that the benefits outweigh the costs. Greenspan concludes that “today life has improved immeasurably in every one of these dimensions”:

Solitary? Most Americans live in cities….Poor? Americans have the highest standard of living on any large nation in the world. Nasty? Most of the indignities that have dogged humankind since the birth of civilization have been either removed or tamed… Short? American life expectancy is more than twice what it was at the birth of the republic (420).

But why is it so important to Greenspan that the benefits outweigh the costs? Why can’t they be equal? Why can’t they exist at the same time? No increase in productivity is worth exploitation. Period.

Indeed, the system of capitalism that Greenspan praises throughout the book was built on the exploitation of laborers by robber barons like Ford, Carnegie, and Rockefeller, and the backs of slaves. Perhaps, the economic success of the North that Greenspan praises would not have been possible without slavery. The banks that Northerners relied on to borrow from to fund their business endeavors had money from Southern slaves. Greenspan admits himself:

“Southerners weren’t the only people to profit from slavery: Dixie was enmeshed in the global cotton economy that stretched from the Mississippi Delta to New York banking houses to European spinning mills and stock exchanges. Several of New York City’s leading banks made fortunes in the cotton trade” (79).

How can Greenspan make this statement and still argue the benefits outweigh the costs? Greenspan praises the North for their increase in patents and juxtaposes the good North against the evil South. But the North arguably benefited from slavery just as much. So, the benefits outweighed the costs for Alan Greenspan and Adrian Wooldridge. For their people. Rich, white men.

The Northern economy was highly dependent on the Southern economy. This is the conclusion that Hasan Kwame Jeffries, professor at Ohio State, comes to after interviewing Christy Clark-Pujara for the Southern Poverty Law Center’s podcast series. Christy Clark-Pujara is an associate professor of history at the University of Wisconsin, Madison, in the department of Afro-Americans Studies. Jeffries, the host of the podcast, had to unlearn what school taught him about slavery. He said: “growing up in Brooklyn…I didn’t dwell on slavery itself. Just about everything I had been taught in school about the peculiar institution focused on the cotton-producing South” (Jeffries). But Pujara confirms the interdependence of the Northern and Southern economies. She said: “it was the business of slavery that allowed New England to become an economic powerhouse without ever producing a single staple or cash crop” (Clark-Pujara qtd. In Jeffries). The Industrial Revolution, which happened primarily in New England, was made possible by slavery.

Just as much as the North depended upon the South, the South depended upon the North. Indeed, “over the 19th century, the textile industry transformed Northern towns. By 1852, the industry employed 14 percent of the labor force, and by 1860, New England was home to 472 cotton mills” (Clark-Pujara qtd. In Jeffries). Slavery would not have been possible if it were not for the manufacturing centers of the North: “Manufacturing plants throughout the North…produced farming implements” and “who are they selling those farming implements to? Southern plantation owners to be used by enslaved people” (Clark-Pujara qtd. In Jeffries). Slavery, therefore, played a big role in creative destruction, which Greenspan praises and repeats again and again was worth it. When Greenspan says this, he delegitimizes the role that slavery played in making creative destruction possible in the first place.

The drawbacks to big business also go understated in the book. As James B. Stewart of the New York Times points out in his review of the book: “in the author’s approving view,” that “men like the banker…Morgan, the oil baron…Rockefeller and the steel magnate…Carnegie,” “also produced social and economic upheaval for many is a small price to pay” (Stewart). Stewart highlights that “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” (Stewart). In fact, Greenspan admits that these businessmen were keen on social Darwinism, and he does not rebuke the theory whatsoever. He writes:

“the country’s great businessmen were particularly keen on social Darwinism…. Social Darwinism provided a perfect explanation as to why the ‘higher types’ of men should be left as free as possible…Leave them free and they would also devote their surplus fortunes and energies to philanthropic activities, applying the same genius to reorganizing education, welfare, and health care that they had applied to iron, steel, and oil. Tie their hands and the whole society would suffer” (164).

Greenspan seems to be a big fan of social Darwinism, which in fact, is inherently predicated on the fact that some humans are more predisposed to success than others. He neglects the fact that via the birth lottery some people are, for instance, born into poverty. While Greenspan and the robber barons might disagree, it is absolutely not these people’s fault that they are in poverty. Not to mention that some people are unable to “survive” in America to this day because of the color of their skin, regardless of how hard they work.

Furthermore, Greenspan’s argument is the fake Reagan theory of trickle down. That the wealth from the country’s elite will somehow magically make it to the country’s most vulnerable. It is no surprise then to find out that he was actually appointed by Reagan to chair the Federal Reserve in 1987. Greenspan writes enthusiastically that “by the turn of the century… the proportion of patents granted to individuals rather than to firms fell, from 95 percent in 1880 to 73 percent in 1920 to 42 percent in 1940” (Greenspan 148). I would argue that this is not a good thing. In fact, it is merely evidence that a few large firms had monopolies over their respective industries which prevented smaller firms from entering the marketplace. Average Americans were denied entry to the market, which is one of the pre-requisites to the proper function of the institution of capitalism. Greenspan does not address this problem in his writing. Greenspan’s book begs the question: for whom did the costs of creative destruction outweigh the benefits? Not slaves, not industrial laborers, not agricultural laborers, but rich white men like Alan Greenspan and Adrian Wooldridge.

This entire book can be summed up by the farming model that we looked at in this class which documents how a decrease in farmers coincided with a rise in productivity. In the time period between 1800 and 1990, the number of farmers decreased, while the number of people fed increased. At the turn of the 19th century, the innovation that came with the Industrial Revolution increased productivity. In essence, fewer farmers were required to farm the same plot of land because of mechanization processes which made farming more efficient. They could subsequently enter other industries to increase yields even more. This has two implications: the first is that more people were fed because with the same plot of land, more food could be produced. The second implication is creative destruction. New and improved mechanized innovations replace the old ones if they bring goods to market faster. For instance, while someone could have invented a farming tool that was great for its time in 1800, this tool was probably quickly replaced and deemed unnecessary by larger machines like tractors etc. which render the tool obsolete.

This book argues that the innovation part of creative destruction outweighs the displacement part. I wish this book explained why capitalism was still preferable regardless of its drawbacks. Greenspan interacts very little with arguments about the de-evolution of capitalism. In this class we discussed how capitalism can devolve into cronyism and can sanction regulatory capture, corporatism, and monopoly. This is why it functions best with the help of collectively owned and/or federal institutions which act as a safety net for those left behind by the capitalist system. So, if Greenspan argues that the robber barons were the great heroes of the American economy, then he should also argue that FDR and Woodrow Wilson, who were the first American presidents to expand the social safety net, are just as much heroes. If creative destruction is the “perennial gale” then so is social spending. As much as big business allows America to flourish and is responsible for our massive economy, so is the social safety net which supports Americans who slip through the cracks of capitalism. This is what Greenspan neglects in his analysis.

It is worth noting that while the robber barons were ruthless and exploitative, in their defense, they fall into the good category of monopoly i.e. the one that economists like. We learned in this class that there are two types of monopolies. Monopolies can either increase prices of goods because they dominate the marketplace, or they can decrease the prices of goods because of increased efficiency. If the price of goods decreases, this is a net benefit for consumers. As Greenspan argues, “not all monopolies are bad…the titans prospered by exploiting economies of scale rather than by price gouging” (Greenspan 132). There is ample evidence to point to the fact that the mergers which occurred during this time merely took advantage of economies of scale, rather than increasing the power of their respective monopolies. In lecture, it is made evident that the wholesale price index declines during the period of mass production. Indeed, the price of steel rails fell from 120 dollars per ton in 1873 to 17 dollars per ton in 1898; the price of farm machinery fell 55% from 1870 to 1910; the price of oil fell from $24.67 in 1865 to $4.46 in 1884. That is not to say that increased production did not come at a cost of the exploitation of laborers who worked in factories. After all, in several instances during the period, worker resentment boiled over. One notable strike was the “homestead strike in 1892, which pitted Andrew Carnegie and Clay Frick against the workers” (173). While there was certainly worker resentment, there is ample evidence to show that efficiency gains outweighed the market power issue and improved people’s lives drastically.

In reference to Greenspan’s discussion of slavery, in lecture it is brought up how there is no way to know exactly how much slavery impacted the Industrial Revolution and Northern production. In lecture it is argued that Northern industry was likely aided by slavery, just as Jeffries and Clark-Pujara point out in the podcast. It is also suggested by the figure used in lecture (Wright 2019) that plantations were not that much more productive than industrial farms, and that slavery may have even reduced the cotton supply. Another figure used in lecture of Liverpool cotton prices (Pence) suggests that there is a higher cotton supply without slavery. It is also argued in lecture that industrialization took place when cotton was relatively expensive (so free labor did not matter that much), and slavery was around for centuries, yet the Industrial Revolution did not happen earlier. There is no way to know the true counter-factual because we cannot remove slavery from the equation when we study American history. In this case, it is best to assume that slavery aided in the mechanization of the North which ultimately led to creative destruction and thus productivity. It would not be unrealistic to argue that slavery was at least partially responsible for America’s success in the nineteenth century. It was perhaps just as much of a “perennial gale” as creative destruction.

When analyzing the costs and benefits of creative destruction, it is imperative to consider who gets the benefits of the creative part, and who feels the ramifications of the destructive part. The optimistic version of this history would argue that the end result of the Industrial Revolution and the creative destruction that came along with it was the beginning of the high living standards which most Americans experience today. In lecture, it is made evident that height and life-expectancy data supports the optimistic view in the long run. But, the pessimistic version of this history, is that the Industrial Revolution was the cause of Dickensian poverty. This is the Marxist argument that capitalists squeezed surplus out of the Proletariat, and the gains they produced were just going to the top.

Industrial giants squeezed profits out of the labor of factory workers and slaves to make mass production possible. A look at the post-Civil war South tells a sad story. In lecture, it is argued that even after slavery was abolished, Southern elites were able to hold onto their capital and were even better off than non-slaveholders. The elite remained the elite. They were local economic gatekeepers and maintained a social stronghold on business and turned to other methods like sharecropping to generate more wealth. In this case, the gains went to the top. And, Black people in the South were subject to Jim Crow, convict labor, and just blatant racism. Codified racism is certainly an obstacle to accessing the benefits of capitalism. Lisa Cooke’s research on patents is ample evidence of the inequitable application of the guarantees of capitalism for African Americans after the Civil War.

Finally, in this class we have discussed how the benefits of creative destruction are about the relevant comparison we make as historians. For instance, we should consider how long it takes for Americans to experience the benefits of creative destruction. Even Greenspan acknowledges that the deflation which was a result of the new production economy “discombobulated four overlapping groups of people: producers, borrowers, employers, and employees…” (Greenspan 174). Clearly the long-term benefits of big business were not seen at the same time that the robber barons were running big business. Perhaps the benefits would not have even played out if it were not for big government economic policy which came with World War I. If that is the case, is the social safety net more responsible for productivity than creative destruction? Possibly. People are better off now than they were then, but is the gap between the richest people now and the poorest people now more severe? Yes. What does it mean if poor people now have more money than they did during the 19th century, if the money is worth less because of inflation? Economic growth looks much more positive when you compare people in the bottom 20 percent of the distribution through time and space, rather than comparing the people at the very bottom now to the people at the very top. So, do the benefits of creative destruction outweigh the harms? The answer is that it is a matter of comparison.

Works Cited

Greenspan, Alan, and Adrian Wooldridge. Capitalism in America: An Economic History of the United States. Penguin Books, 2019.

Roach, Craig R. “Capitalism in America: A history,” Ny Journal of Books, n.d. Accessed June 1, 2021. retrieved from: https://www.nyjournalofbooks.com/book-review/capitalism-america-history

Hasan Kwame Jeffries, “Slavery & the Northern Economy – w/ Christy Clark Pujara,” Teaching Hard History: American Slavery (season 1, ep.3) from Southern Poverty Law Center, n.d. Accessed June 1, 2021. Retrieved from: https://www.learningforjustice.org/podcasts/teaching-hard-history/american-slavery/slavery-and-the-northern-economy

Stewart, James B., “Alan Greenspan’s Ode to Creative Destruction,” New York Times. Nov. 2, 2018. Accessed June 1, 2021. Retrieved from: https://www.nytimes.com/2018/11/02/books/review/alan-greenspan-capitalism-in-america-adrian-wooldridge.html

References

“Alan Greenspan,” Wikipedia. Accessed June 1, 2021. retrieved from: https://en.wikipedia.org/wiki/Alan_Greenspan