Capitalism in America: a History by Alan Greenspan & Adrian Wooldridge

Allen Lane, 2018

I read half of this two years ago, in advance of chairing a most enjoyable dinner with Economist political editor Adrian Wooldridge for the think tank Bright Blue. It’s been languishing in the half-read pile for no good reason other than too many brilliant books to read, but current events made me revisit, opting to read through again from the beginning. As you would expect from two such eminently qualified authors (brought together by the legendary Scott Moyers at Penguin Press in New York), it offers everything needed to understand where the next chapter in the history of this unparalleled nation might take us.

Impeccably researched, Capitalism in America is a rollercoaster story of pioneers, inventers, tycoons, great wildernesses and dynamic cities, showing us that the foundations of America were built by experimentation with different models of business, making it completely unlike any other nation on earth.

Aptly, America’s war of independence began in 1775, a year before Adam Smith’s Wealth of Nations was published. Characterised by the work-ethic of Protestantism and influenced by the thinkers of the Enlightenment, once Hamilton’s vision of a nation of entrepreneurs had triumphed over Jefferson’s vision of an agrarian, slave-owning economy, the nation which emerged was unique in being powered by the notion of property rights, both physical and intellectual, for all citizens (although the northern states were considerably ahead of those of the south for some years, slavery not being abolished until 1865).

A business ethic ruled from day one. The new nation bought the state of Louisiana from Napoleon for $15m; bought Florida from Spain, and the states of Virginia and Massachusetts had their origins in chartered companies: the Virginia Company and the Massachusetts Bay Company. Land and natural resources were plentiful – which, when combined with the reassurance that nobody could steal either your physical assets or your ideas, led to an explosion of entrepreneurship.

The new economy was “built on steel and lubricated by oil”, accelerated by railways, the telegraph and electricity. The real achievement, however, was not invention but the systemising of invention.

Thomas Edison set up what must have been the world’s first science park at Menlo Park, New Jersey in 1876 which, as a forerunner to today’s venture capital firms, aimed to produce a minor invention every 10 days and a major one every six months.

Henry T Ford’s great triumph was not in manufacturing cars, but in producing them at scale and hence democratising them (the authors astutely point out that the Joad family in The Grapes of Wrath owned the car they travelled in); the “bonanza farms” of the mid-West in the 1870s essentially industrialised farming.

The success of such operations created a mould of business leader which had never existed before and has only really been generated by the US since: the likes of JJ Astor, Andrew Carnegie, JP Morgan and Rockefeller were predecessors of Mark Zuckerberg, Jeff Bezos and Elon Musk some 150 years later. They all succeeded by creating markets where none existed before and, by exploiting economies of scale and developing more productive methods of manufacturing and distribution, providing those markets with ever-cheaper products.

The authors identify the corporation as “the greatest single discovery of modern times”. Importantly, this includes reinventing the voluntary sector – the American tradition of philanthropy has always been unrivalled, particularly in the arts, which have always thrived to a world-class standard with minimum intervention by the state.

Things first went belly-up in the 1920s via a combination of enormous consumer debt and wild speculation in the stock market, with as many as one in ten households owning shares. The Great Depression ensued, though the authors point out that historians have argued as to what extent the Wall Street crash caused it; and the country didn’t regain stability until the shattering of the world order caused by the second world war once again gave it competitive advantage.

What had become clear was that a stable currency and a Bill of Rights could no longer form the extent of the government’s responsibilities. FDR’s New Deal in the 1930s was unprecedented for what had been the ultimate market economy – but there can be no clearer evidence of sentiment swinging the other way than Hayek’s Road to Serfdom becoming a bestseller with Reader’s Digest in 1944. Thus began a see-saw effect between small- and big-state initiatives enacted by successive governments in the twentieth and early twenty-first centuries.

The world watches as Joe Biden’s ambitious American Rescue Plan swings into motion. But the pandemic aside, the big question is whether America can continue to stay ahead by out-inventing the rest of the world.

The authors – writing just three years ago - speculate that “China … shows no sign of replacing the United States as the pacesetter of the global economy.” Would they write the same now? The success of Huawei, Bytedance (most notable for TikTok, which is fundamentally changing the way we communicate and transact), Alibaba, and Tencent suggest that China is not only becoming self-reliant but is gaining ground in global influence, as a pioneer rather than an imitator – and its modus operandi comes with political challenges far greater than those posed by Soviet Russia and its space programme in the 1960s.

Greenspan and Wooldridge provide us with crucial context if we are to understand where the US might go next, by demonstrating that America is the embodiment of the story of business. Entrepreneurialism, championing the rights of the individual, the commercialisation of ideas; productivity, scale, standardisation, franchising, management and ultimately corporate imperialism were all pioneered by the United States. Its initially disparate, but ultimately cohesive, origins are wholly different from those of any other nation.

In 1975, during a period of complacency and decline, Time magazine ran a cover story “Can capitalism survive?”. With hindsight, the answer is undoubtably yes: the decades which followed saw the birth of Microsoft, Apple, Starbucks, Fedex, and then Google, Facebook, Amazon, Tesla, Netflix ……

The authors’ key tenet is that America’s greatest comparative advantage has been its talent for creative destruction, which of course couldn’t differ more wildly from the philosophy on which China has been built. They conclude that “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.”

Did the 250 years spanning 1775-2025 mark the age of the market economy? If you believe in the power of the free market, assisted but not superseded by the state, the answer is no. The market will evolve in unfamiliar ways, but it will always win out.

Highly recommended reading.