By James Grant
'The U.S. economy' is the humdrum name we give to the daily
miracle of 151 million people getting out of bed in the morning to
go to work. Astoundingly, a year after the nation dropped tools to
lock down against the novel coronavirus, the sum total of this
mass, diffused, constructive effort -- the gross domestic product
-- has finally regained its $21 trillion per annum pre-pandemic
The history of America's economy would make a grand mural in the
1930s style of Thomas Hart Benton. A painter could crowd it with
visionaries, inventors, industrialists, farmers, production-line
workers, railroad hands, software coders, entrepreneurs and
financiers, not excluding Alexander Hamilton, Andrew Carnegie,
Thomas Edison, J.P. Morgan, Henry Ford, John M. Nichols, Edmond J.
Forstall and so on down to the present day.
Ages of American Capitalism
By Jonathan Levy
Random House, 908 pages, $40
Forstall was the author of the model 19th-century Louisiana law
that gave a bank free rein to invest its stockholders' money but
closely regulated the treatment of its depositors', stipulating
that one-third of those funds be placed in gold coin and the
balance in high-grade, short-dated commercial paper. A marvel of
concision and function alike, the text of the act could fit on two
sides of a sheet of paper, some 800 pages fewer than the 2010
Nichols, another non-celebrity candidate for inclusion in this
imagined picture, was the early-20th-century president of the tiny
First National Bank of Englewood, Ill., who chose to go out of
business rather than submit to such New Deal innovations as deposit
insurance. To register his contempt for governmental power, he took
a blue pencil to the value of the shares of the Federal Reserve
Bank of Chicago that, under law, his institution was bound to buy
and hold, marking them down to one thin dime from $24,000.
Neither Nichols nor Forstall figures in Jonathan Levy's "Ages of
American Capitalism," a history of the U.S. economy from the
earliest settlements through the Great Recession of 2008. In Mr.
Levy's vast mural of a book, which he ambitiously subtitles "A
History of the United States," John Maynard Keynes cuts the
commanding figure. A few lines from Keynes's "General Theory of
Employment, Interest and Money" (1936), in fact, anticipate Mr.
Levy's central thesis. They read: "A somewhat comprehensive
socialization of investment will prove the only means of securing
an approximation of full employment."
Like his intellectual hero from 85 years ago, Mr. Levy, a
professor of history at the University of Chicago, worries that the
owners of capital will hoard it rather than invest it. And like
Keynes, Mr. Levy places little faith in market-determined prices to
coordinate a market economy. "As the profit motive is not enough,"
he contends, "a high inducement to investment must come from
somewhere outside the economic system, narrowly conceived. History
shows that politics and collective action are usually where it
As to Mr. Levy's history, it's organized by epochs, or "ages,"
of which there are four: Commerce (1660-1860), Capital (1860-1932),
Control (1932-80) and Chaos (1980- ). Topics run the gamut from
17th-century mercantilism (the more exports the better, was the
theory) to 21st-century "quantitative easing" (in which the Federal
Reserve materializes dollars with a few taps on a computer keypad);
from Thomas Jefferson and slavery to Henry Ford and trade unionism;
from home life during the Civil War to 20th-century consumerism;
from 19th-century Populism to 1980s Reaganism.
Mr. Levy's readers will discover that it took 50 years to turn a
patch of American wilderness into a proper farm; that all 82,000
residents of the New York City suburb of Levittown in 1960 were
white; and that, in the junk-bond heyday of 1987, the French artist
Bernard Frize painted an abstract representation of the
once-thriving, now-defunct investment firm Drexel Burnham
Such sidebars and curlicues aside, Mr. Levy writes to advance
the proposition that American capitalism is turning from investment
and production to speculation and chaos. "Asset appreciation" is
the name of the game today, he charges, and there's more than a
little evidence on his side. Since 2010, when Fed Chairman Ben S.
Bernanke informed the readers of the Washington Post that the
profits from a bounding stock market would sooner or later trickle
down into American pockets, the Dow Jones Industrial Average has
But Mr. Levy is less successful at developing his thesis than he
is at announcing it. His haziness on the nomenclature and history
of finance is one problem, his want of authorial craft is another.
Evelyn Waugh laid it down that a good writer no more wastes words
than a master tailor does cloth. Mr. Levy writes as if his
publisher were paying him by the sentence. How else to explain this
head-scratcher? "The very world that Silicon Valley capitalized
into existence is one in which what makes for success is the
qualities that made Silicon Valley successful in the first
Even familiar phrases and concepts lose something in the
author's translation. Thus, in describing the late 1990s selloff
surrounding the failure of Long-Term Capital Management, Mr. Levy
writes: "Asset prices everywhere shed value." No, asset prices
fell. The value inherent in those assets reciprocally rose. The
familiar phrase "carry trade" (e.g., a technique for profiting by
the yield differential between two currencies) is awkwardly
rendered as "carrying trade," while the simple act of tightening
monetary policy becomes a polysyllabic something called
"reasserting the scarcity value of money and credit."
As Wall Street understands it, a "liquid" asset is one that can
be easily sold, but Mr. Levy chooses to define it as one that
"maintains its value over time." While there's no law against
verbal invention, many a liquid security, far from holding its
value, winds up in the junkyard. As for the phrase "credit cycle,"
which signifies the way that lenders and borrowers swing from
optimism to pessimism as the economy moves from boom to bust, it
appears in these pages 59 times. It's an all-purpose rhetorical
workhorse, sometimes pertaining to the accordion-like properties of
credit, at other times meaning nothing more than that the stock
market decided to go up or down.
Mr. Levy doesn't explicitly oppose the enterprise system -- he
acknowledges that it lifted the world from poverty -- but he's more
inclined to disparage than admire the self-organizing dynamics of
market-determined prices. How did America get rich?
Slavery temporarily showered wealth on the sugar colonies of the
Caribbean and on Southern plantation owners of the U.S., Mr. Levy
demonstrates, but the peculiar institution proved no match for a
higher and better one. John Pendleton Kennedy, a mid-19th-century
novelist and historian of the South, put it this way (as historian
Adam Rowe has discovered): "Carolina gentlemen lived in voluptuous
ease upon their plantations and nursed the idea of a peculiar
grandeur, in the profuse returns of a semi-tropical agriculture."
In 1861, shortly after South Carolina seceded from the Union,
Kennedy served prescient notice on a Southern friend about the
"untold wealth" and "power" of the Yankees who had chosen industry
and free labor over grandeur and bondage.
The conclusion to which Mr. Levy's too numerous pages lead is
that government is the indispensable cog in the American economy.
It was World War II, a government enterprise if ever there was one,
that ended the Great Depression, he contends, and it was the
Federal Reserve that led us out of the Great Recession.
Conventionally, the author rushes past the depression of
1920-21, a bear of a downturn that was over and done with in 18
months despite punishingly high interest rates and balanced federal
budgets. Why the slump ever ended should be a matter of intense
curiosity for anyone who, like Mr. Levy, puts his stock in the
Keynesian nostrums of big spending and concessionary borrowing
costs. "Capitalism was not going to lift itself out of the slump,"
the author writes of the Great Depression, yet our unstimulated
capitalist forebears in 1921 somehow decided that prices and wages
had fallen low enough to warrant new commitments of hope and
capital. The 1920s subsequently roared.
That the 1930s groaned, Mr. Levy suggests, is no sweeping
indictment of the very different policies pursued by the
administration of Franklin D. Roosevelt. Yes, the anti-enterprise
program of the New Deal did quash private investment in the 1930s,
but World War II supposedly vindicated Keynes: "The 'total energy'
of total war did the trick, even if the war economy was good only
at producing bombs, tanks and airplanes." It's a vindication that
few would welcome.
More persuasive is Robert Higgs, the author of "Depression, War
and Cold War" (2006), who builds a strong case that neither
Roosevelt nor war restored what the world had lost in 1929. To Mr.
Higgs, it was only with peace that America escaped alike from the
Great Depression and the statist coma that prolonged it.
The story of American finance in the past 100 years is the story
of the accretion of government power over money and banking and the
reciprocal loss of individual responsibility for profit and loss.
You see it in the bloat of the Federal Reserve's announced mission
(now supposedly encompassing social justice and climate change) as
well as in the bulge of the Fed's balance sheet (from $900 billion
at the close of 2007 to $7.8 trillion today).
The present-day protocols of central banking would shock old
Edmond Forstall and John Nichols as much as any integer in the
multi-trillion-dollar Biden spending program, but they ought not to
surprise a historian. The transformation -- from market control to
state control -- has been a long time coming. Yes, the Bank of
England was founded in 1694 to finance the British government. But
it did not, to start with -- contrary to Mr. Levy's claim -- "issue
paper 'bank money' as legal tender." That came much later. Gold was
then, and long remained, the coin of the realm.
Nor in America was the idea of legal tender -- the currency that
one must accept in satisfaction of a debt -- a founding monetary
doctrine. Indeed, up until Aug. 15, 1971, the greenback was not
even legal tender for America's overseas debts. An official foreign
creditor enjoyed the option to demand gold rather than dollar
bills. When President Nixon, changing the rules, clanged shut the
Fort Knox vaults, he not only diminished the rights of those dollar
holders but also enlarged the prerogatives of the dollar
Mr. Levy need not worry about today's capitalists sitting on
their money. Thanks to lawn-level interest rates, limitless public
spending and the envy vector of social media, blue-chip stock
prices, measured as a percentage of GDP, are higher than they have
ever been. Mr. Levy designates this time in finance the Age of
Chaos. He could be more right than he knows, but for reasons that
he seems not to be entirely aware of.
--Mr. Grant, the author of "Bagehot: The Life and Times of the
Greatest Victorian," is the editor of Grant's Interest Rate
(END) Dow Jones Newswires
May 07, 2021 10:31 ET (14:31 GMT)
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