The Bad History—and Bad Politics—of Alan Greenspan and Adrian Wooldridge’s ‘Capitalism in America’

The Bad History—and Bad Politics—of Alan Greenspan and Adrian Wooldridge’s ‘Capitalism in America’

Atlas Weeps

Alan Greenspan and Adrian Wooldridge’s strange elegy for capitalism.


The historian Perry Miller observed, in his 1952 essay “Errand Into the Wilderness,” that most American histories are stories of decline. From the Puritans on, we find the recurring theme that the country has fallen away from a set of high ideals that once prevailed. Miller argued that the intense piety of the early settlers created a standard impossible for later generations to meet, which led, in turn, to profound disappointment and a sense that their country itself had failed. It was, he suggested, a familiar feeling: “Many a man has done a brave deed, been hailed as a public hero, had honors and ticker tape heaped upon him—and then had to live, day after day, in the ordinary routine, eating breakfast and brushing his teeth, in what seems protracted anticlimax.”

This fallen state is the world depicted in Capitalism in America, an account of US economic history co-authored by Alan Greenspan, the former chair of the Federal Reserve, and journalist Adrian Wooldridge. Part popular history, part political intervention, part subtle exoneration of Greenspan for the financial crisis of 2008, this strange book is at heart a declension narrative—an elegy for the American capitalism of yesteryear. Once, Americans harnessed the power of electricity, built steel factories, laid down railroads, and created the Model T. Today, we are hemmed in by a thicket of government programs and regulations. Even as the authors try for an optimistic note near the end (there are smartphones! Robots! Gigabytes!), the book is animated by a fear that capitalism’s glory days have passed.

Back in the 19th century, according to the authors, the government saw its primary role as upholding property rights and enforcing contracts, rather than trying to redistribute wealth or protect people from the vagaries of economic change. There was no income tax or, from 1836 to the Fed’s creation in 1913, even a central bank. The gold standard prevailed. Perhaps most important was the dominant cultural attitude toward business: “Most educated Americans believed in the law of the survival of the fittest.” For Greenspan and Wooldridge, the profound economic transformations of the 19th century were the result.

The problem of how to “restore America’s fading dynamism” hangs over the book. Will America’s economy ever grow again? And more than this, will people ever regain the lost faith in its mission, in the transcendence of economic expansion and the sublimity of technological change? Although the long sweep of American economic history is the ostensible subject of Capitalism in America, the answers that it provides to these questions tell us more about Alan Greenspan than about the history of capitalism in America.

Greenspan’s sympathetic biographer, Sebastian Mallaby, suggested that the former Fed chairman’s trajectory from Ayn Rand’s close friend (she nicknamed him “the Undertaker”) to America’s central banker reflected an underlying commitment to empiricism and pragmatism; he evolved past his initial political predilections. Reading Capitalism in America, one is not so sure. The book is shot through with remarkably ideological readings of American history—everything from the unabashed deification of individual entrepreneurs to occasional exegeses on the glory of gold. In his old age, Greenspan appears to be returning to the faiths that inspired him as a young man (or perhaps he’d never left them behind).

Despite Capitalism in America’s libertarian hue, its explicit intellectual reference point isn’t Ayn Rand, whose name is barely mentioned, but the Austrian economic thinker Joseph Schumpeter, especially the oft-cited notion of “creative destruction” developed in his 1942 book Capitalism, Socialism and Democracy. Greenspan and Wooldridge return repeatedly to Schumpeter and the “perennial gale” of economic change in their analysis of American history. Under capitalism, Schumpeter argued, new production processes are constantly displacing old ones, leading to great tumult (the decline of cities, the wiping out of whole occupations)—but also rapid growth. In the past, Greenspan and Wooldridge argue, “America has been much better than almost every other country at resisting the temptation to interfere with the logic of creative destruction.” But today, this is no longer the case.

The authors trace the hospitality of the United States toward capitalist growth, including its destructive possibilities, to the restrictions that its founders placed on popular or majority rule. “The Founding Fathers had been careful to put limits on both the scope of the state and the power of the people,” they write. Even though they hail American capitalism as “the world’s most democratic” example of the system—in that people born in obscurity have risen to riches, and also in the spread of mass consumption—they approve of the ways in which American politics constrains democratic power.

The result, in their view, is what led to the era of entrepreneurial dominance that lasted for most of the 19th century—the “age of giants.” Greenspan and Wooldridge praise the high “respect” with which Americans then treated businesspeople; apparently, they have long understood 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 built something out of nothing.”Americans rightly worship at the shrine of business, what Greenspan and Wooldridge call the “cult of the entrepreneur.”

Another reason for America’s explosive entrepreneurialism, we are told, is that the 19th century was also the age of the gold standard. For most of the book, the prose is workmanlike, jammed with statistics about economic growth. But when the subject turns to gold, lyrical invocations of timelessness creep in: “Gold has always been acceptable as a means of exchange, and hence a store of value, as far back as history reaches.” It has long served as “one of the most solid defenses of liberal society against the temptation to debauch the currency, the monetary equivalent of property rights.” Conservatives in the late 19th century saw it as “a bulwark not just against economic chaos but against civilizational collapse.” One has the feeling that Greenspan and Wooldridge may see it this way, too.

For Greenspan and Wooldridge, the age of gold was not always a golden age. They are careful to point out the underside of growth. American men lost an average of two inches in height over the course of the late 19th century; there was horrific pollution as well as terrible industrial accidents; and deflation hurt debtors and wage earners. Early in the book, they point out that slavery and the displacement of indigenous peoples also constituted stains on America’s history. But none of this matters as much, in their view, as the fact of the country’s remarkable economic growth.

They thus treat the stormy politics of the late 19th century with a mixture of amusement and disdain. “Anxiety” about the scale of economic change—rather than real and legitimate questions about the nature of the emerging economy and its effects on working Americans—fed the “cult of government” in the Progressive era. When the Populists organized against the gold standard, they “extended the realm of politics” to include economic relationships that had previously been considered sacrosanct. For Greenspan and Wooldridge, this was the beginning of the end. After World War I, there was a brief reversion to the doctrine of laissez-faire. The “active inactivism” of Warren Harding and Calvin Coolidge is cited for praise, but it was a brief “paradise before the fall.” Then came the Great Depression and the era of Franklin Roosevelt’s New Deal, and the nation has never recovered since.

Not surprisingly, Greenspan and Wooldridge express great enthusiasm for the presidency of Ronald Reagan. He not only removed the “shackles” that had bound business during the New Deal and postwar years; more important, in their view, Reagan had “an instinctive faith in business,” and entrepreneurs, in particular, formed “the praetorian guard of his revolution.” The authors are also enthusiastic about Bill Clinton and the way his tenure marked the “revival of entrepreneurialism,” and the financial revolution—junk bonds and all—that made it possible.

Some readers may be tempted to skip ahead to the concluding chapters for some insight into how Greenspan views recent economic events, especially those in which he himself was involved. However, anyone looking for particular evidence of how the economy looked from the viewpoint of the Federal Reserve will be disappointed. Very little appears in these pages that would shed any real light on the debates at the Fed, or on Greenspan’s own contributions to the creative destruction of American capitalism. The closest that Capitalism in America comes to engaging the question of whether Greenspan might bear some culpability for the 2008 financial crash is to observe that while “some critics” have suggested that the low interest rates of the early 2000s helped to drive speculative home-buying and thus the housing bubble, these skeptics “can’t establish a clear link between monetary loosening and the crisis.” While some readers may be frustrated by this coyness, it is in keeping with the overall approach of the book, which downplays public policy in favor of broad statements about America’s great economic culture. Greenspan and Wooldridge insist that our principal problem is that the United States has become “encrusted with entitlements” that crowd out other forms of saving and diminish America’s spirit of entrepreneurialism. Meanwhile, “overregulation forces business founders to endure a Kafkaesque nightmare of visiting different government departments and filling in endless convoluted forms.”

The early Trump years—with their huge corporate-tax cuts and reduction in regulations—offer the occasion for mild cheer, though the authors also note with concern the president’s antagonism toward free trade and his failure to drain the swamp of the regulatory state. Either way, their message is clear: Where once we had prairies, railroads, and an open expanse of light and air, we now have only bureaucracy.

Greenspan and Wooldridge’s historical scholarship leaves much to be desired. Their depiction of the 19th-century American economy as a paragon of laissez-faire seems at a distant remove from actual history. True, it did have the gold standard, and taxes were few, and the federal government did not employ many people. But the enslavement of millions of people—whose labor was actually the engine of economic growth in the early years of the 19th century—in fact required an activist state. The decentralized violence of slavery should not disguise the intrusive regime that was needed to uphold in practice the idea that human beings could be treated as commodities.

After the end of slavery, too, the state played a key role in economic life. Breaking strikes with the National Guard, giving Western lands to railroad companies, overturning state and local regulations for the labor market via the Supreme Court—all of these involved the active use of state power. The industrial powerhouse that the United States became was also not a free-trade haven; for much of the era of industrial growth, its manufacturing companies were protected by high tariffs. There was no near-unanimous sentiment, even among the educated, about the virtues of the idea that society should be governed by the “survival of the fittest”—from the American Revolution on, many were critical of the outsize power that economic might could give some people over the lives of others.

Rather than the tale of a free people coming to be dominated by government control, the story of the United States in the late-19th and early-20th centuries is really one of political conflict over who would control the state. And our contemporary politics remains centered on this conflict: Should business leaders be able to dominate government? Or is there something in democratic politics that authorizes the majority of people to shape their society together? Greenspan and Wooldridge seem to view the market and the state as two distinct and antagonistic realms, but in truth they were never as easy to separate as Capitalism in America suggests.

Nor were the massive transformations of daily life that the book chronicles simply the product of brilliant entrepreneurial innovations: As the economic historian Robert Gordon has written, the improvements in health, mortality, and the quality of life in the late-19th and 20th centuries reflect public as well as private investments. What is more, bemoaning the loss of the growth rates that characterized the 19th century makes little sense. For one thing, rising productivity was even more dramatic between 1920 and 1970—years that Greenspan and Wooldridge insist already contained the seeds of decline. As important, the social changes that swept the United States in the late-19th and 20th centuries—the spread of electricity, the movement of millions of people from farms to cities—are not likely to be repeated, not because there are too many regulations now, but because these are the types of transformations that cannot unfold twice.

When Greenspan was a college student at New York University, he was fascinated by the railroads—and especially by the magnate James J. Hill, who built the rail lines of the Pacific Northwest. “The James Hills and the J.P. Morgans are an affront to a society dedicated to the worship of mediocrity,” Greenspan declared in a lecture he gave in the mid-1960s, organized by one of Rand’s organizations.

One can almost imagine how Rand and her highly moralized vision of economic life might have appealed to the young Greenspan, coming of age amid the anodyne corporate hierarchies of postwar America: In a way, her vision was a rebellion against the gray-flannel monotony of that order. But today, in a world remade by the cult of business, Greenspan’s vision of an entrepreneurial America is not rebellious so much as an affirmation of the powers that already exist—a class of people relentlessly committed to grasping more of society’s wealth for themselves. Trump’s dislike of free trade aside, his presidency seems the sad reductio ad absurdum of the fantasy of entrepreneurial omniscience. In the final pages of Capitalism in America, the authors reiterate the idea that the United States is trapped in an “iron cage of its own making,” one of “out-of-control entitlements and ill-considered regulations.” Scrap these, and the “madness of great men” like Elon Musk and Peter Thiel will once again be able to transform society. But who—outside of the inner circle, the most devout of the faithful—really believes that this would be a good thing?

While Capitalism in America falls short as a work of history, its larger problems are political. On the one hand, the whole framework of “creative destruction” implies a tremendous condescension toward those who dared to impede the march of progress. Contrary to what Greenspan and Wooldridge suggest, their grievances were not mere sour grapes, the whining and complaints of those left behind; what was at stake was always the question of who would benefit from economic change and the kind of social order it would make possible. By framing the issue as a simple resistance to technology and growth, Greenspan and Wooldridge sidestep the underlying questions about democracy, equality, and freedom that are at the heart of this long-standing struggle.

The former chairman of the Fed, it seems, never left behind his childhood obsession with railroad barons and glorious entrepreneurs after all. Perhaps at the start of the Reagan years, this invocation of the market’s wonders still seemed inspiring, the opening bell in a beautiful race. Now it reads like no more than a call to protect the wealthy people who benefited from decades of state-backed economic redistribution upward.

Schumpeter himself would likely have said as much: For him, capitalist growth was not only about rising productivity, but also the transformation of social relationships, and he was closely attuned to the ways that the economic changes brought about by capitalism could also undercut its cultural and political support. In particular, Schumpeter warned that the very march of economic progress meant the doom of the entrepreneur: Over time, the development of technology and of the corporation would render obsolete the role of the lone economic actor, as “teams of trained specialists” and “rationalized and specialized office work” took the place of the robber barons of yesteryear. Back in 1952, Perry Miller wrote that, after the fervor had dissipated and the disappointment had been worked through, people would find themselves forced to confront their country as it actually existed. Capitalism in America aside, that’s where we are now.

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Katrina vanden Heuvel
Editorial Director and Publisher, The Nation

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