Capitalism in America: A History book review

I came across this book as I was browsing through the new releases section on Amazon. Normally I do not venture into new releases but the authorship of this book along with the potential scope of the book made me want to read it asap. And yes the scope of the book is indeed magnificent. This isn’t a book about a particular successful business. It is instead about all the businesses (or at least the types) that were successful in America. It is about how the USA was formed and shaped economically, right from the earliest passengers on the Mayflower to the current workforce, still reeling under the policies of Donald Trump. It is about how USA came to be rightfully known as the land of opportunity, as it provided the brave and the lucky ones the correct set of conditions for them to grow – both their own wealth, and the collective wealth of the country ahead.
The journey of America is indeed fascinating. As the author mentions in the introduction, at the time of of the 17th century, the continent of America was but an unknown on the global stage. “The region is nothing more than an empty space on the map—a vast wilderness sitting above Latin America, with its precious metals, and between the Atlantic and Pacific oceans, with their trading routes and treasure troves of fish. The wilderness is populated by aboriginal peoples who have had no contact with the Davos crowd. There are a few Europeans in New England and Virginia—but they report that the life is hard and civilization nonexistent. The entire North American continent produces less wealth than the smallest German principality.”
From that point in history to today, where “the United States is the world’s biggest economy: a mere 5 percent of the world’s population, it produces a quarter of its GDP expressed in U.S. dollars,” the journey of a continent is instructive to study. The authors has divided the growth of America into various stages of its life. America was a child of the British Empire and fortunate in this regard, according to the author. “America was lucky in its paternity: it was far better to be the child of the country that produced the first Industrial Revolution and the first parliamentary government than, say, the child of Spain or Belgium.” Also having been born in the age of the Enlightenment, America was fortunate that the old institutions were being questioned and new and better ways of thought were been adopted. As a result it could grow economically faster than anytime before in history (the average of which was 11% per century!) Not only that but the fact that the Founding Fathers of the nation wrote a Constitution that guaranteed their citizens a set of rights (including their property rights) created a fertile ground for risk takers and entrepreneurs to try their luck out in an unknown and hostile frontier.
“Americans were instinctive supporters of Joseph Schumpeter’s idea that the real motors of historical change were not workers, as Marx had argued, nor abstract economic forces, as his fellow economists tended to imply, but people who build something out of nothing, inventors like Thomas Edison, who had 1,093 patents, and company builders like Henry Ford, Thomas Watson, and Bill Gates.” Combine the risk seeking entrepreneurs with the vast amount of land available to the risk takers, it ensured that the risk takers were suitably rewarded as well.
According to the author, one thing that worked very well for America in its growth was that its businessmen were not afraid of change. They say that change is the only constant in this world. What is here today may not be there tomorrow. And the process of growth is similarly accompanied by change, however painful it may be. The process of creative destruction where new inventions and discoveries completely changed the way people ate, moved, or lived, has been America’s constant companion and its lady luck for its innovators. Let’s take the example of transport.  For many centuries, people used to depend on animals for taking them from one place to another. Horses were domesticated and then bred selectively to help in this endeavour. It was only in the early 20th century that Henry Ford mass produced his famous Model T that the entire business of moving people around from one place to another changed. This brought with it a lot of destruction – of old ways, but it made transport easier, and cheaper. The same was the case with the invention of electrical lighting by Thomas Edison. Successive innovations have changed the way people live completely, and with the decease of old way of doing things, came a seed of creation.
The author also mentions that the country’s politicians – right from its founding fathers to the current crop of politicians had a very important role in bringing America to where it is right now. Indeed the policies that they set affected to a very great extent the position that America occupies in the world stage. And last but not the least, where would America be without its bankers, its entrepreneurs, and its managers? There are enough examples given in this book whose biographies would be entertaining and fulfilling to read. JP Morgan, Rockefeller, Henry Ford, Edison, Roosevelt, Reagan, Jack Welch and countless others have contributed in no small part to the rapid growth of business and industry in America.
America also had luck on its side. Blessed with an isolated landmass with acres of fertile land above, and huge reserves of resources underneath the ground, America could utilize these to become a net exporter in world trade. With huge tracts of land to populate, it was cheaper for the government to attract settlements with the promise of enough land. America was also unaffected to the same extent as Europe during the two World Wars, due to the vast Atlantic Ocean that provided a natural shield for any would-be invaders. This allowed America to grow in seeming isolation and quiet.
Of course America’s growth wasn’t a straight line or in a single direction. There were many times when the mettle of the new country was tested – the Great Depression, the world wars, the 70s oil crisis, and the two recessions of the 21st century. Except during the Great Depression, which was one of the earliest and the biggest economic downturns that the country has seen, on most of the other occasions it has managed to bounce back quickly to reach the pre-crisis economic output.
Even today, America is facing a crisis of sorts, at the political and economic level. The surprising win of Donald Trump over a more experience political rival and the upheaval in the stock market since his win has had every one worried. Not to mention his oft-surprising trade policies that is making people scratch their heads. Over the last few decades, America, according to the authors has become complacent. A combination of over-confident managers and companies, a rise in the social entitlements, a worsening demographic equation and increasing bureaucratic tangles for businesses will make it more difficult for America to come out of its current quagmire.
But the authors are confident that this is not something that America is facing for the first time in its history. Earlier too, the country has experienced signs of stagflation, and earlier, America has come out of it successfully and more powerful. If only it uses the forces of creative destruction and its collective intellectual capital that is still the envy of the world, it will still find a place among the top influential countries in the world for years to come.
This book is indeed epic in the eras that it covers. I liked the logical separation of the various decades and the most important development that took place in each of these eras. The authors have themed each era into what shaped that particular era. For example, there was a clear age where different sections of people were at their most powerful. Bankers, owners, managers each have dedicated chapters where they were most powerful. There is a semi-awkward clarification that is given when the authors are defending the low interest rate policies that the Fed pursued to jumpstart the economy after the dotcom crisis. What made it awkward was one of the authors of the book, Alan Greenspan, was the Chairman of the Fed during that time and many accounts point to this persistent low interest rate regime that sowed the seeds for the next crisis – the humbling sub-prime recession that struck America a few years later.
Although it is a long read, the chapterization of the various eras makes it easier to comprehend and complete. Pick this book up if you want to understand the forces that made America a global superpower in the world economy.