Now comes Jonathan Levy, a professor at the University of Chicago, with a hefty one-volume, economically focused history of the United States that establishes him as a worthy successor to the Beards. “Ages of American Capitalism” deftly weaves strands of economic, business, political, social and intellectual history into an engaging, accessible narrative of how and why the United States became the world’s most successful economy. Prodigiously researched, elegantly written and relentlessly interesting, Levy’s opus should be required reading for every college history and economics major.
Levy is an unabashed Keynesian, and the broad themes he develops over nearly 750 pages of text reflect the insights of the great British economist John Maynard Keynes — in particular the crucial importance of investment and the necessary role of government in directing and sustaining it. In Levy’s telling, each “age” of American capitalism represents a fresh effort to refashion the relationship between government and markets in response to major disruptions to the old economic order.
In a section titled “The Age of Commerce,” Levy paints a picture of the colonial economy, which grew rich thanks to a “vast imperial trading zone” in which fish, grains, timber, cotton and tobacco were exchanged for enslaved people, rum and sugar from Barbados and Jamaica, and capital and finished goods from England. By the time of the revolution, the average American was richer than the average Brit, with land, income and political power distributed more equally.
The cost of leaving the British Empire brought an almost 20 percent drop in that standard of living, Levy writes, along with the economic imperative to replace it with a new homegrown economic system. The “American system” required steady westward expansion onto Indian lands tilled by an ever-increasing number of enslaved people and indentured European immigrants. It required the development of water- and steam-powered factories and mills in major Northeastern cities, along with roads, canals and railroad lines to bring their goods to market. And it required a new system of credit built around a government-chartered National Bank and government debt.
Nowhere did this system achieve greater success than in the South, where cotton became so profitable that it led to speculative bubbles in two assets that produced it: land and enslaved people. After the Supreme Court’s Dred Scott decision, which among other things outlawed federal restrictions on slavery outside the original 13 colonies, prices soared. In Levy’s calculation, by 1860 enslaved people alone had a market value of $3 billion, or three times the value of all the industrial buildings and machinery in the country at that time. But with emancipation and the demise of the Confederacy, that capital was wiped out — along with the Southern economy, which took a century to recover.
The Civil War not only expanded the scope of the federal government, but, as Levy emphasizes, it also demonstrated the ability to generate exponential growth by borrowing and spending, literally creating money out of thin air, in the case of private finance, or by printing it, in the case of government. Suddenly, Levy writes, “capital” changed everything and touched every life, creating a self-reinforcing cycle of increased investment. Thanks to mechanization, farm productivity nearly tripled over the next 20 years, to the point that five acres of wheat grown in Kansas could be produced and shipped to London at a lower cost than producing one acre in Devonshire, England. The bounty not only increased the incomes of American farmers, it also lowered agricultural prices worldwide, forcing millions of European farmers to emigrate to the United States, where they provided cheap labor for an industrial boom that began with intermediate goods like iron and steel but soon gave way to affordable, mass-produced consumer goods for a growing middle class.
An essential element of “The Age of Capital,” as Levy dubs it, was that a piece of machinery or a company was no longer valued by what it cost or how much was invested, but according to what profits it could generate in the future. Through such speculative alchemy, Wall Street was able to turn one dollar of capital into three, and three into nine, speeding the adoption of new technology and turbocharging the rapid growth in productivity, profits and, in time, workers’ wages. And so it was that Tom Scott’s Pennsylvania Railroad begat Andrew Carnegie’s U.S. Steel, which in turn begat “Fordism” and the Model T. Levy’s portraits of the industrial barons are artfully sketched, admiring but not fawning, full of insights and details about business and finance.
But if the “Age of Capital” opened the door to a spectacular period of economic development, explains Levy, it also gave birth to a recurring credit cycle that brought with it monopolization, greater inequality and a painful series of short-term busts — the Panics of 1873, 1893 and 1907, followed by the mother of them all for most of the 1930s. During the Great Depression, prices dropped by a third and output by half, unemployment among industrial workers reached 37 percent, and bank failures resulted in $7 billion in lost savings. By one estimate, a third of all households had no money income. Levy’s vivid account offers an implicit rebuke to those who too easily draw parallels to the Great Recession of 2009 or the more recent pandemic downturn.
In the wake of the Depression, preventing such prolonged and widespread misery became the obsession of policymakers and business executives. The institutional structures for “The Age of Control” were set in place during the New Deal and then built up during World War II, when the government effectively took control of the industrial sector, financing an unprecedented expansion of manufacturing capacity, setting prices and wages, dictating output, and rationing raw materials and consumer goods. When the war was over, government took it as its business to see that the returning soldiers had education, jobs and new houses in the suburbs filled with all the timesaving accoutrements of modern living, cleverly advertised on the new medium of television and sold at gleaming new shopping centers.
“American consumerism was a utopian project no less audacious than Soviet communism,” Levy writes.
In Washington, policymakers came to believe they could adjust the levers of monetary and fiscal policy to fine-tune economic aggregates — output, unemployment, prices, business investment and consumer confidence. Meanwhile, a paternalism set in among business leaders who, in the words of economist Herbert Simon, became “profit satisficers,” putting the interests of workers and communities on par with those of shareholders. In short, writes Levy, “capitalism became rather boring.”
By the 1970s, however, the postwar prosperity machine had broken down. Excessive regulation had sapped the vitality of key industries while global competition had begun to erode the value of the dollar and the dominance of American business, squeezing profits and investment and driving up prices. Stagflation was a serious challenge to the Keynesian economic consensus, forcing the Federal Reserve to drive interest rates close to 20 percent to finally tame inflation and inviting a wave of business deregulation. It also launched a successful challenge to paternalistic corporate management by Wall Street raiders and traders demanding higher returns.
This restructuring and financialization would restore the competitiveness of American business and generate spectacular returns for investors. But it would come at the expense of long-term investment in the country’s productive capacity and stagnant wages for American workers. As significantly, it would also bring the return of the boom-and-bust cycle as financial markets became increasingly speculative and businesses, households and governments took on increasing amounts of cheap debt.
The problem with this “capitalism of leveraged asset price appreciation,” as Levy accurately describes it, is that it has required repeated and ever-larger bailouts of banks and financial markets by the Treasury Department and the Federal Reserve to prevent a financial meltdown and economic collapse. In “The Age of Chaos,” laments Levy, the economy has become permanently hooked on massive government deficits, loans from mercantilist foreign governments and unending money printing by the Federal Reserve, all designed to reflate bubbles by reassuring investors that stocks, bonds and real estate are worth as much as they foolishly paid for them.
“The situation,” Levy writes in a postscript added during the recent multitrillion-dollar coronavirus rescue, “resembles a confidence game, in which the American government authority strains to make economic fictions reality.”
Unfortunately, Levy’s magisterial volume is undermined by his tendency to characterize every major development in American capitalism as a change in “liquidity preference,” a Keynesian tic that will be distracting to the general reader and unconvincing to those who might understand it.
We could also do without Levy’s repeated attempts to enhance his woke creds by applying present-day norms and morals to earlier eras. After deftly painting a portrait of the 1950s and ’60s as a time of widely shared prosperity and political harmony, for example, he then dismisses that golden era as “premised . . . on the white male hetero-sexual breadwinning wage . . . [and] an energy regime capable of threatening the planet’s future.” These are disappointingly ahistorical assessments from such a fine historian, one who has now given Americans reason to restore economic history to its rightful place in the study of the past and our understanding of the present.
Ages of American Capitalism
A History of the United States
By Jonathan Levy
Random House. 908 pp. $40