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.