An Empire of Wealth:
The Epic History of American Economic Power
By John Steele Gordon
(Harper Collins, 480 pages, $26.95)
A few months ago I had lunch with the president of a local biotech
company who commented that because of its vast labor base and raw
materials, within the next 30 years China would surpass the United
States as the greatest economic power in the world. I wouldn’t bet
on it. China (not to mention Russia) has had these attributes for
as long as the U.S. has existed. What creates economic wealth is
not a big labor base or an abundance of raw materials (though these
can help) but a population with a spirit of enterprise and a
political system that allows that spirit to blossom. Deng
Xiaoping’s limited market-based reforms of the 1980s have helped
China’s economy to show impressive growth (from a low base) over
the last 20 years, but they would need to be greatly expanded to
provide the necessary environment to turn China into a true world
economic powerhouse.
With its history of innovation, invention, and enterprise it is
the American experience that serves as the model for sustained
economic expansion, and there is no better text to study this
experience than John Steele Gordon’s brilliant new book, An
Empire of Wealth: The Epic History of American Economic Power.
If you only read one economic history of the United States, and
every educated American should do at least that, this is the one.
Gordon’s narrative, from colonial times to the present, is
entertaining and insightful. Some may find it hard to imagine that
a work of economic history can be entertaining, but believe me, it
can. John Steele Gordon, a columnist for American Heritage
and the author of several books on business and economic history,
has indeed done it.
To the left, American economic power is the result of historical
or geographical accident. Conservative and libertarian observers
know better. “American politics,” writes Gordon, “had the great
good fortune to be grounded in English traditions, especially the
idea that the law, not the state, is supreme. The uniquely English
concept of liberty — the idea that individuals have inherent
rights, including property rights, that may not be arbitrarily
abrogated — was also crucial.” This liberty is the reason that
most all of the major technological innovations of the past century
— from microwave ovens to personal computers to compact disks —
have originated in America, not in China or the paternalistic
welfare states of Europe.
Gordon gives a fair (politically incorrect) view of the misnamed
“robber barons” of the Gilded Age, but this work is not a paean to
unrestricted laissez-faire capitalism; he recognizes the need for
some level of government regulation, though always keeping an eye
on the law of unintended consequences. Libertarians also will not
like his siding with Alexander Hamilton in advocating a national
banking system. Gordon is highly critical of Thomas Jefferson’s
hostility to banks, and Andrew Jackson’s decision to kill the
Second Bank of the United States, which left the country without a
central banking system from 1836 until 1913 when the Federal
Reserve System was established. This lack of a central bank
contributed to the financial instability of this time, which would
have been even worse without J. P. Morgan, the de facto central
bank during the late 19th and early 20th century. (Morgan,
coincidently, was born in 1836 and died in 1913.)
Morgan is one of the many extraordinary characters — including
Eli Whitney, Cornelius Vanderbilt, Thomas Edison, Andrew Carnegie,
John D. Rockefeller, Henry Ford, Bill Gates, and other lesser known
but nonetheless important shapers of America (and the world) —
illuminated in Gordon’s work. It was Morgan (perhaps the most
powerful banker in American history) who got the country out of a
financial pickle in 1894, and rode to the rescue again in 1907 to
prevent a financial panic from turning into an economic depression,
despite the fact that then president Theodore Roosevelt had made
Morgan a prime target of both his “trust buster” legal actions and
his acidic rhetoric. Fortunately for Roosevelt, Morgan was not just
a brilliant financial mind and exceptionally influential (after
summoning New York’s banking community and convincing them to risk
the capital necessary to stem the Panic of 1907, he summoned the
city’s leading clergy to encourage them to give upbeat sermons on
the following Sunday), he was also a patriot.
Gordon also gives much credit — too much credit — to Franklin
Roosevelt and the New Deal. He writes, “[W]hile many of the New
Deal programs were unsuccessful and many of its economic principles
shortsighted, in its totality it was an enormous success. The
country since the New Deal has been a far richer, far more
economically secure, far more just society.” Yes, but is that due
to the New Deal? It did bring about some important and successful
measures, such as the FDIC and rural electrification, but just how
successful was a New Deal that presided over a moderate recovery
from 1933 to 1937 that then relapsed into a new “recession” that
took unemployment from the “low” of 12% for 1937 back up to nearly
19% in 1938? Gordon admits that, ultimately, it was not the New
Deal that brought back prosperity to the American economy, but the
massive demand caused by World War II (which, fortunately, was not
fought, for the most part, on U.S. soil). Nonetheless, Gordon’s
narrative on the Great Depression is lucid and instructive.
The “Great Society” of Lyndon Johnson and the Keynesianism
run-amok that characterized government policy during much of the
1960s and 1970s gets a far more critical appraisal. But the
American economy — and the American entrepreneur — was proven yet
again more durable than bad economic policy, and by the 1980s, as
the Reagan administration rolled back tax rates on both income and
capital and continued a trend started at the end of the Carter
years of (mostly) well-crafted deregulation, the engine of economic
growth re-ignited. The amount of money raised by the venture
capital industry exploded from just $39 million in 1977 to $1.3
billion in 1981. And yet again, the American economy is riding a
wave of transformation, this time sparked by the personal computer
and the Internet.
The history of the American economy is one of great transitions
and transformations, and of great men and women of drive,
adventure, and genius. It is truly epic. And An Empire of
Wealth tells it extraordinarily well.
