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Capitalism Has Become An Ideology In Today's America. Here's How It Happened

Rund Abdelfatah

Ramtin Arablouei

Capitalism: What Is It?

A demonstrator holds a sign reading "I love capitalism" during a protest against California's stay-at-home order in 2020. Capitalism started as an economic system; it has become an ideology in the modern United States. Robyn Beck/AFP via Getty Images hide caption

A demonstrator holds a sign reading "I love capitalism" during a protest against California's stay-at-home order in 2020. Capitalism started as an economic system; it has become an ideology in the modern United States.

The Throughline team has been thinking about capitalism a lot these days. It's hard not to when so many people are struggling just to get by.

Capitalism is an economic system, but it's also so much more than that. It's become a sort of ideology, this all-encompassing force that rules over our lives and our minds. It might seem like it's an inevitable force, but really, it's a construction project that took hundreds of years and no part of it is natural or just left to chance.

So here's what we did. First, we wanted to look at what makes American capitalism distinct, if it is even distinct ? Is it uniquely individual, uniquely efficient, uniquely cutthroat? Like, these are all the things that we've been thinking about a lot.

A young girl interacts with an employee maintaining one of tanks at New Jersey SEA LIFE Aquarium inside the American Dream mall in East Rutherford. Michael Loccisano/Getty Images hide caption

A young girl interacts with an employee maintaining one of tanks at New Jersey SEA LIFE Aquarium inside the American Dream mall in East Rutherford.

And so we brought together three REALLY DIFFERENT experts who come at these questions from REALLY DIFFERENT points of view.

Bryan Caplan's an economist and adjunct scholar at the Cato Institute, Vivek Chibber studies Marxist theory and historical sociology, and Kristen Ghodsee is an expert in what happened after the fall of communism in Russia and Eastern Europe.

And we had a conversational round of analysis that led us from colonial times, through waves of innovation and American development to the American Dream Mall in New Jersey.

We compared the happiness index in countries to see crazy things like how much happier people in Denmark report that they are, compared to Americans.

But that's not all. We wanted to dive deeper into the dominance of Capitalism in the 20th century American mindset .

What's the role of government in society? What do we mean when we talk about individual responsibility? What makes us free? 'Neoliberalism' might feel like a term that's hard to define and understand. But it's the dominant socio-economic ideology of both major American political parties — Republican and Democrats — no matter how much partisan rhetoric might be geared towards absolute division.

And this ideology, this belief in free markets, deregulation, and privatization can be traced back — pretty directly — to a group of men meeting in the Swiss Alps.

On April 10, 1947, a group of 39 economists, historians and sociologists gathered in a conference room of a posh ski resort at Mont Pelerin, Switzerland. Glasses clinked. Cigars burned. A mission statement was written.

And from that meeting, they would start an organization called The Mont Pelerin Society, MPS. The ideas discussed in that room more than 70 years ago would evolve and warp and, this is no exaggeration, come to shape the world we live in. Those ideas have dominated our economic system for decades. In the name of free market fundamentals, the forces behind neoliberalism act like an invisible hand, shaping almost every aspect of our lives.

From the TV advertisements we all grew up watching to the way the internet is understood today.

Capitalism: What Makes Us Free?

That's not all. We're also dropping a third episode on Capitalism this coming Thursday, July 8. For that episode, we explore how religion and capitalism joined forces to change the way we think about our work, our society, and ourselves — the Prosperity Gospel.

To receive it when it drops subscribe here in Apple Podcasts or wherever else you get your pods.

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World History Project - 1750 to the Present

Course: world history project - 1750 to the present   >   unit 4, read: the emergence of industrial capitalism.

• READ: Class Structure
• READ: Rise of the Proletariat
• READ: Responses to Industrialization
• READ: Ottilie Baader (Graphic Biography)
• READ: Child Labor
• BEFORE YOU WATCH: Capitalism and Socialism
• WATCH: Capitalism and Socialism

First read: preview and skimming for gist

Second read: key ideas and understanding content.

• What two elements does the author use to define capitalism at the beginning of this article?
• What are credit and interest, and why did they become more common in this period?
• What is a bank, and how did the idea of a bank get to Europe?
• What are bonds, and how did the English government get involved in issuing bonds?
• How did joint-stock companies help stimulate trade?
• How did joint-stock companies help stimulate empire?
• What two elements did capitalist individuals and joint-stock companies combine in order to produce things and make profits?

Third read: evaluating and corroborating

• Throughout this article, the author points out that capitalism was a major innovation, but they also point out that some elements of capitalism had been around for a long time. Viewed through the production and distribution frame, what was new about capitalism around 1750?
• You heard a lot about industrialization in the last unit, and you’ve encountered some information about reform movements in this unit. How do you think capitalism helped create a need for reform movements in the Long Nineteenth Century?

Overview of New Economic Systems

Introduction, innovations in finance.

• Private individuals or groups of individuals invest their money (“capital”) in assets or in companies, making them owners or part owners
• Labor, raw materials, and finished products are exchanged on a free market where the buyer and seller agree on prices

Empire and finance

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Literature and the rise of capitalism; critical essays mainly on the sixteenth and seventeenth centuries

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US Economic Success: Rise of Capitalism Research Paper

Introduction, the free market economy, rise of capitalism, works cited.

America’s economic development can be traced over several centuries ago. Economic historians in the United States have established America’s development to the 16 th , 17 th , and 18 th centuries during the period of intense colonization by the Europeans (Gilje 3). The earliest economic activity involved independent regions which were mostly engaged in farming.

These small regions in the North American continent came together to form a block in 1776 which later acquired the name, the United States of America(Headlee 12). This merger saw the region register a significant growth in their collective economy and the subsequent quest for political unity through constitution making in 1787.

For the over two centuries, the United Sates States of America has grown through ups and downs to its present industrialized economy which represents more than a quarter of the entire world’s collective economy (MacNally 10). The research paper seeks to provide an overview of America’s economy, particularly the free market. It will also focus on the rise of capitalism, especially through industrial development, government policies, and American values.

It was in the late 18 th century that the present North America began to experience the need for some political and economic freedom. This was also motivated by the urge to gain independence from the colonialist, England. The agitation was fueled by the then high taxation rates by English powers among other emerging issues (Rhodes 2).

Their demands for self-governance was furiously objected by the British and it only worsened the tension leading to the American Revolution in 1775 that saw fighting of all British masters and the ultimate independence of the then thirteen States of America (MacNally 210). The war could not end until eight years later when the tension eased out and the challenge for reconstruction emerged.

In 1787, the American constitution was adopted and it governed all the states as a union with a shared market where interstate trade was not to bear any taxes or any form of tariffs (Gilje 37). The constitution also established that the unified states would be ruled by the federal government.

The pioneer government leaders forged an economic formula for economic growth in the United States. The first ever secretary of the treasury, Alexander Hamilton, proposed that economic progress would be achieved through the diversification of manufacturing, banking system, as well as shipping (Headlee 35). The new policies by Hamilton did last for about a decade despite the strong opposition from other government officials (MacNally 225).

Subsequent changes at the helm of political leadership had direct impact on economy following the changing and the introduction of new economic policies. Economic reforms since the 18 th century through the 20 th century have seen America undergo significant economic transformations (Rhodes 43). Most economists have proposed that the establishment of free market helped in the economic achievements.

Free market is defined by economists as a system where the buyers as well as the sellers are independently responsible for the choices they make as far as business is concerned (Rhodes 7). This implies that the government does not interfere with pricing of different commodities, but instead, the demand and supply of the commodity is left to determine the price. According to Rhodes, the beginning of free trade in the United States was during the time when it became a unified nation under one constitution in 1787 (8).

It was marked by the interstate trade with no tax or tariff imposition by the government. In a free trade, the government is expected to maintain the national law and order for business to thrive and also to shield the buyers from excessive pricing by the sellers (MacNally 213). However, it is common that in a free economy, commodities are priced very highly living such engagements to those endowed with resources and wealth.

Another significant role of the government in a free economy, just as in America, is that it monitors the pace of purchasing people’s power. For instance, in times of depression and financial crises, the government regulates taxes by enacting the addition of credits to tax in a given financial year, and creating job opportunities for the people in order to empower them economically (Gilje 65).

One of the greatest advocates of a free market in America was Adam Smith, a renowned economist. Throughout America’s history, free market has been associated with the rise of capitalism, especially during the second half of 20 th century and beyond (Rhodes 23).

Capitalism is defined in economics as a system where individuals are able to control the tools or means of production (Noble 71). This implies that the means of production like land, capital, and other non-labor factors are owned privately. On the other hand, goods, resources, and labor are availed for trade in the markets where the profits gained after taxation is shared among the private owners.

Part of the profit can also be used in developing newer technologies as well as industries. In the United States, economic historians have established that capitalism tendencies started just the same period as the introduction of free market economy (Gilje 3). Three major areas have been identified as having contributed significantly to the rise of capitalism in America and shall be discussed here; industrial development, government policies, and American values.

Industrial development

Prior to industrial development as from 1790s, the United States was predominantly an agricultural economy (Headlee 2). During the late 18 th century and early 19 th century, industrial revolution had not taken root as much as in Europe.

The introduction of sophisticated means of production in the US, however, brought a new dawn since people were excited by the machine-made products since they transformed their living standards (Noble 74). The use of hand-made goods and services was starting to be the thing of the past.

Means of communication also improved significantly through the invention of the telegraph by Samuel Morse in 1844. This followed the invention of the rail road as a reliable means of transport in the US. According to Noble, industrial revolution became more advanced in the late 19 th century through the early 20 th century as the American people sought to make life easier while at the same time increasing their rate of production (77).

By mid-20 th century, people worked in industries and this helped in transforming America into a modern industrialized country. This development in the industrial sector impacted directly on the labor productivity since those who owned capital controlled the means of production as well.

Rise of Large Corporations

The industrial revolution played a central role in the rise of large corporations in the United States (Noble 67). A corporation can be defined as an institution that is given a charter acknowledging it as a separate legal entity with its own privileges, as well as liabilities different from those of the members (Rhodes 84), also known as limited liability. The process of registering a corporation with the respective state government is referred to as incorporation.

The relationships among all the stakeholders are governed by corporate laws under which the corporations are established. In America, large corporations did not emerge until the early years of the 19 th century (Noble 70). The government had realized that it could collect more revenue through registration of corporations.

Hence, according to economic historians, more acceptable corporate laws were introduced (Gilje 79). Full recognition of corporations was achieved in 1819 when the government provided that corporate charters were to be respected and treated as separate entities.

The US government made much other legislation through the 19 th century, especially the non-state interference of free markets and other forces of limited liability. This trend continued to the 1980s when the United States started privatizing the state-owned corporations (Noble 73).

At this particular time, the government embraced the laissez-faire principle where the state did not regulate the activities of the corporations. This era also saw the emergence of mergers where smaller corporations were swallowed up by larger ones (Noble 80).

The government of the United States of America played a major role in the rise of capitalism. The government allowed the demise of feudalism which subsequently opened way for the advancement of capitalism (MacNally 17). As have been discussed above, the government started withdrawing its influence and regulation of trade, and instead paving way for free economy. In fact, according to MacNally, the government’s role in promoting capitalism became more pronounced in the 1970s to the present (18).

American Values

As America grew with immigrants coming from most parts of Europe who came with diverse cultural values which would then merge to form what would be the US values. Calvinism originated from Europe and spread to the United States in the 16 th century (Gilje 94).

The value system under Calvinism stressed the importance of an individual and God’s definite plan for everyone. It advocated the need for self-reliance and independence.

The pattern with which the immigrants explored the new land promoted independent struggle for survival. Each family had to search on their own. The value of self-reliance and independence has taken root in the US and is at the core of the present capitalistic economy (Rhodes 91).

The research paper has explored the emergence of capitalism in the United Sates of America since the 16 th century through the 20 th century. It has offered an overview of the economy, particularly the development of the free markets. It has also focused on how industrial revolution, government policies, and the American values have helped in the rise of capitalism.

Gilje, Paul A. Wages of independence: capitalism in the early American republic . Rowman & Littlefield. (1997): 1-123.

Headlee, Sue E. The political economy of the family farming: the agrarian roots of American capitalism. Greenwood Plc. (1991): 1-76.

MacNally, David. Political economy and the rise of capitalism: a reinterpretation (3 rd ed.) . University of California Press. (2000): 1-21, 209-268.

Noble, David F. America by design: science, technology, and the rise of corporate capitalism . Oxford University Press, US. (1979): 67-110.

Rhodes, Sybil. Social movements and free-market capitalism in America (4 th ed.). SUNNY Press. (2006): 1-106.

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IvyPanda. (2023, December 9). US Economic Success: Rise of Capitalism. https://ivypanda.com/essays/us-economic-success-rise-of-capitalism/

"US Economic Success: Rise of Capitalism." IvyPanda , 9 Dec. 2023, ivypanda.com/essays/us-economic-success-rise-of-capitalism/.

IvyPanda . (2023) 'US Economic Success: Rise of Capitalism'. 9 December.

IvyPanda . 2023. "US Economic Success: Rise of Capitalism." December 9, 2023. https://ivypanda.com/essays/us-economic-success-rise-of-capitalism/.

1. IvyPanda . "US Economic Success: Rise of Capitalism." December 9, 2023. https://ivypanda.com/essays/us-economic-success-rise-of-capitalism/.

Bibliography

IvyPanda . "US Economic Success: Rise of Capitalism." December 9, 2023. https://ivypanda.com/essays/us-economic-success-rise-of-capitalism/.

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The Evolution of American Capitalism

Although the American economic system has undergone significant change since colonial times, there are identifiable threads running through the centuries-long narrative. Chief among these are the themes of "liquidity" and state action – both of which can either be a blessing or a curse.

• Jonathan Levy, Ages of American Capitalism: A History of the United States , Random House, 2021.

CAMBRIDGE – Jonathan Levy, a historian at the University of Chicago, is a leader in the burgeoning movement to place capitalism at the core of the American experience. His major new work provides a framework for reading American history over 400 years and a set of themes for explicating its conflicts and crises. Ages of American Capitalism is an outstanding work of scholarship and storytelling.

The “new history of capitalism” has been motivated in good part by the 2008 global financial crisis. The crisis demonstrated the impact that financial events could have on the real economy, thereby exploding the prevailing macroeconomic doctrine that treated such events as literally inconceivable. Levy is one of a number of generally younger historians whose work is available to enrich the ongoing construction of a macroeconomics that integrates the behavior of financial markets and institutions.

The new history he delivers is different in kind from much that has gone before. It roots the “maps and chaps” of conventional historical narratives in the muck of economic life and the fantastic visions of financiers. It is a history constantly informed by what is happening in markets for goods, services, labor, and – especially – financial assets, but with the structure and movements of markets always understood to be shaped by political forces.

Levy’s book demonstrates the power of grand, synthetic history at its best. History of this kind is always subject to criticism for what it leaves out, particularly instances that might illustrate or call into question the historian’s argument. But, whereas much of American history’s energy in recent years has come from accounts that deliver the experience and the perspective of the exploited or the merely ignored – history from the bottom up – that is not the engine moving this narrative.

Levy draws on the work of the originator of macroeconomics, John Maynard Keynes, from whom he takes his central theme of “liquidity,” the defining attribute of money that enables its owner to effect transactions in goods and services (“transactional liquidity”), hoard resources for fear of an uncertain future (“precautionary liquidity”), and speculate on the appreciation of asset prices (“speculative liquidity”). It is the flux and reflux of liquidity within financial markets and between those markets and state agents and entities that drives Ages of American Capitalism , and have shaped how Americans have worked, earned, consumed, and invested – and protested and voted – over 400 years.

The Age of Commerce

Levy structures his book around four “ages.” The first, Commercial Capitalism, emerged in the colonial seventeenth century and broadly persisted until the Civil War. British mercantilism initially encouraged the growth of commerce, which gradually pulled colonists from subsistence farming into increasing dependence on market exchanges. A political economy of property – land and people – developed along a north-south axis, mediated by the rivers of the Mississippi system.

As he explores the multiform interactions between markets and political processes, Levy builds on one of the main achievements of the new history of capitalism: its in-depth investigation of “ slave capitalism ” and its interdependence with northern commercial and nascent industrial capitalism. Even as industry, led by textiles, appeared in New England and spread to the old northwest, the internal market in, and ownership of, slaves enabled the cotton kingdom to expand south and west.

In 1860, Levy notes, the value of property in slaves was three times the value of all US industrial capital. The expansion of slave capitalism thus drove the politics of the Age of Commerce. Not only was this evident in a succession of national compromises – the Missouri Compromise of 1820, the Compromise of 1850, and the Kansas-Nebraska Act of 1854; it also led to a rejection of Henry Clay’s effort to re-animate Alexander Hamilton’s vision of a federally funded “American System” of infrastructure investment. Levy aptly reports the warning of a North Carolina congressman: “If Congress can make canals, they can with more propriety emancipate” the enslaved.

From the Revolution to the Civil War, the defense of slavery meant that funding for “internal improvements” was overwhelmingly left to the states. Canals and turnpikes extended the market and, as Adam Smith had predicted, induced higher productivity through intensification of the division of labor. Growing internal-market demands, in turn, motivated more investment in northern manufacturing, supported by the one element of the Hamilton-Clay program that survived southern resistance: protective tariffs. And exports of slave-produced cotton, along with waves of speculative capital from London, funded the imports that domestic producers could not yet provide.

A turning point in the Age of Commerce came in 1832, when Andrew Jackson mobilized “the Democracy” against the East Coast capitalists and vetoed extension of the Second Bank of the United States. An era of “wildcat banking” followed, with state-chartered banks springing up, subject to no effective supervision and devoid of recourse to any lender of last resort.

The financial fragility that accompanied economic growth in the new nation highlights the role of confidence as what Levy describes as “the emotional and psychological mainspring of economic activity.” Levy brilliantly illuminates this theme by invoking P.T. Barnum’s exploitation of suckers and Herman Melville’s 1857 novel, The Confidence-Man. By then, American capitalism had arrived at a point that made Melville ask: “What would happen if economic life – nay, life itself – were nothing more than a running series of commercial transactions in pursuit of pecuniary gain?”

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Levy uses Melville to limn the contradictory dynamics of “capitalist cycles of boom and busts, just emerging in his day.” While “speculation can lead to genuine capitalist investment booms” – what I have termed “productive bubbles” – “individuals can also succumb to the temptations of short-term speculation alone.” And in Melville’s central character of the miser who hoards “the hard currency of gold for precautionary… reasons,” Levy finds the final contradiction that liquidity offers: the excessive “liquidity preference” that Keynes identified as the source of prolonged economic slumps.

The Age of Commerce ended when conflict between the expanding slave economy and an expanding industrial economy could no longer be managed through compromise. The North’s increasing investment in physical assets had fueled the development of a railroad network from the East Coast to the Great Lakes and beyond. When war finally broke out, the North’s infrastructure for moving men and munitions radically exceeded that of the South.

The Union’s victory in the Civil War ended 250 years of chattel slavery in the territory of what had become the US. Here, Levy cites economists Mary and Charles Beard’s observation that emancipation represented “the most stupendous act of sequestration in the history of Anglo-Saxon jurisprudence.” If human beings could no longer be capitalized into economic wealth, where would capitalism turn next?

The Age of Capital

What followed was industrialization on a scale never previously imagined. Railroads fundamentally changed the country’s economic geography – shifting the north-south axis to an east-west one – while a reduction in transportation costs enabled new economies of scale as specialized manufacturing reached markets that were now national in scope.

One shortcoming of Levy’s discussion of the post-Civil War industrial economy is that he misses an opportunity to put earlier economics-driven historical analyses in their place. Almost 60 years ago, the Nobel laureate economist Robert Fogel set out to extract the American railroad network from the statistical economy of 1890. On the critical assumption that the resources invested in building railroads would otherwise have been fully employed in extending canals and improving roads, Fogel concluded that the “social saving,” or incremental reduction in transportation costs, that the railroads provided was trivial – on the order of 2% or less of national income.

Since then, economists have shown that the railways had an economic impact orders of magnitude above what Fogel’s “cliometric” analysis found. For example, Dave Donaldson and Richard Hornbeck note that, “Removing all railroads in 1890 is estimated to decrease the total value of US agricultural land by 60%, with limited potential for mitigating these losses through feasible extensions to the canal network or improvements to country roads.” Hornbeck returned to the subject with Martin Rotemberg, this time to examine the increases in manufacturing productivity consequent on gaining market access through railroads: “We estimate that US aggregate productivity would have been 25% lower in 1890, in the absence of the railroads, with an associated annual loss of $3 billion or 25% of GDP.”

I linger on the railroads and their central role in the Second Industrial Revolution for three reasons. First, it is important to highlight the kind of quantitative economic history being done by Donaldson and his co-authors, where data is subjected to causal interrogation. The “empirical turn” in the economics discipline is not only liberating economists from the neoclassical fixation on efficiency as the sole criterion for evaluating market outcomes. It is also offering historians rigorous frameworks in which to anchor their narratives.

The second reason to focus on the advent of the railroads is that, as Levy explains, “a new industrial investment multiplier” now complemented Adam Smith’s “commercial multiplier” in driving economic growth. It was no longer just the increased extent of the market that mattered. Railroads needed steel, and steel production depended on coal. But with this expanded production came additional materials for industrial and commercial construction. Levy might therefore have gone one step further and recognized mail-order retail – invented and delivered by Montgomery Ward and Sears Roebuck – as the railroad era’s “killer app” that created a truly national market for consumer goods of all sorts.

The third reason is to highlight the much richer context in which Levy situates his discussion, compared with Fogel. Using the contrasting life histories of the financier Jay Gould and Andrew Carnegie, the reformed investor turned industrialist, Levy shows how the Second Industrial Revolution was finely balanced between speculation and productive investment, with corruption deepening the interdependence between markets and politics. And this dynamic played out at the same time that emancipation was being betrayed – a development happening “offstage,” but certainly not beyond Levy’s reach.

Gilded Greed

Onstage, following emancipation, the political economy of property was transformed into the political economy of income. Industrial workers and organized farmers began to contest for larger, more consistent shares of the rising value-added being generated by industrial capital and claimed by its owners. Carnegie’s defensive response to this was philanthropy – a story well documented by Levy. But while Carnegie was funding public libraries, his subordinate Henry Clay Frick was mobilizing the Pennsylvania Militia to shoot down strikers at Carnegie’s Homestead Steel Works.

The attempt to create a farmer-labor alliance against capital focused on the gold standard as both the symbol and engine of international financial discipline. The 1896 election represented the triumph of the first great wave of globalization – resulting from the confluence of new transportation (railroads, steamships) and communication (telegraphy) technologies – over populist domestic politics. Yet even as income and wealth inequalities reached their peak, there were indications that unbridled capitalism could generate political responses that represented some aspects both of regulation and of insurance from outside the market.

For example, the 1887 Interstate Commerce Commission (ICC) was created in response to agrarian outrage at the rate-setting power of the railroads and their corruption of local, state, and federal legislatures in pursuit of land grants. Ironically, as we shall shortly see, it also served to defend the railroads from themselves. Then, the 1913 Federal Reserve Act belatedly confirmed that President Abraham Lincoln’s National Bank Act was utterly inadequate as a bulwark against the persistent boom-bust, speculation-hoarding cycles that had continued to animate industrial capitalism.

The Age of Capital’s climax came between 1895 and 1904, and expressed itself in the Great Merger Movement, the unprecedented consolidation of some 1,800 industrial firms into 157 corporations organized as trusts to evade the common law prohibition of cartels. Levy correctly documents the revolution in the means of valuing businesses that accompanied (and rationalized) the trust movement. Businesses had previously been valued based on their historic record of paying dividends to their shareholders. But now, they were to be valued on their prospective earning – and thus dividend-paying – power.

The first wave of this phenomenon, as Levy notes, began when J.P. Morgan’s bankers took control of railroads that were facing default on debts that the bank had sold to its clients. But, surprisingly, Levy does not address the underlying logic that explains why the railroads, followed by enormous swaths of mid-scale manufacturing industry, needed to be recapitalized and consolidated.

The railroads exemplified network economics: enormous, debt-financed investment is required to yield a service whose marginal cost approaches zero for delivering the incremental seat-mile or ton-mile. The same logic applies to telegraphy and telephony, electric power generation and distribution, cable television, and internet connectivity. Under competitive conditions in these industries, prices will tend toward marginal cost, which is necessarily less than the average cost after accounting for debt service. All competitors lose money.

Beyond these technology-enabled service industries, the communications and transportation innovations that enabled the first great globalization radically intensified competition within vastly expanded markets across virtually all manufacturing sectors. Hence, the railroads and many other industries had an existential need to restrict competition and amass enough market power to raise prices above marginal cost.

While the ICC represented the political legitimization of this solution for the railroads, the trust movement invited antitrust intervention by the state. But regulated or not, the monopolies built during the Gilded Age could not freeze technological innovation or stop the process of Schumpeterian creative destruction. The power of the railroads would eventually be undermined by automobiles and the trucking industry, operating on – and therefore subsidized by – the most economically important infrastructure solely financed by the state: roads and highways.

Levy accounts for the variable of innovation as he moves from the trust movement to a detailed analysis of “Fordism,” the moving production line that became an industrial religion in the years before, during, and after World War I. In direct contrast with the defensive, financially driven restructuring of railroads and established manufacturing, Henry Ford the man and Ford the company rejected dependence on outside sources of capital, presenting an aggressive model of self-financed industrialization that could only rarely be emulated.

Levy passes swiftly through the great bull market on Wall Street, and thus largely misses the productive bubble within the boom that accelerated electrification, the second great deployment of transformational, technologically innovative network infrastructure after the railroads. On the international front, he recounts the ignorance and indifference with which the US emerged from World War I, incapable of accepting the responsibilities that attended its status as the world’s dominant economic and financial power.

Nemesis, in the form of the Great Depression, soon followed. Levy’s invocation of Keynes in his opening pages now resonates when he identifies the liquidity trap into which the economy sank. “Paradoxically,” he notes, “the Great Depression could not have happened a century earlier.” Only in an economy with so much of its wealth denominated in money – in contradictory fashion, both a potential means of investment in production and a potential store of value that saps production – could a crash have such collapsing economic effects.

The Age of Control

As a systemic loss of confidence threatened the liquidation of capitalism itself, the Age of Capital yielded to the Age of Control. Barely a week after taking office, in his first fireside chat, US President Franklin D. Roosevelt banned the private export of gold and announced a national bank holiday. Only “sound” banks would be allowed to reopen, and, as they did, the national bank run was reversed: cash flowed back into deposits. The volatile dynamics of liquidity, central to Levy’s fundamental argument, were tamed by an exogenous source of confidence emanating from the White House.

The “early pivot” of economic recovery, according to Levy, was Roosevelt’s decision to abandon the gold standard, freeing the US from its “ golden fetters .” But Levy fails to mention that Roosevelt went further than that, formally rejecting the international cooperation sought by the June 1933 London Conference, which would have subjected US domestic policy to deflationary international constraints. Instead, Roosevelt made an explicit and demonstrable commitment to inflation, and that proved sufficient to break “deflationary expectations and [lead] to a recovery of spending of all kinds.”

Levy analyzes the Roosevelt administration’s response to the Great Depression along two dimensions: regulatory and developmental. The New Deal’s regulatory initiatives both constrained business behavior and, by formally sanctioning trade unions and establishing a national minimum wage and the Social Security system, shifted the terms of the political economy of income. The developmental initiatives also operated through two channels: state-funded public corporations supported private-sector companies while new federal agencies invested fiscal resources directly into the construction of public assets.

Levy might have paid more attention to what at the time appeared to be the New Deal’s centerpiece: The National Recovery Administration. The NRA proposed to bring order to American industry, while a companion institution, the Agricultural Adjustment Administration, was to do the same for the farm economy. But both institutions reflected the profound confusion of conventional pre-Keynesian economics. Their architects looked out at mass unemployment and collapsing prices and sought salvation on the supply side of the economy. The idea was that by restricting production, state interventions in the market economy could raise prices, restore profits, and effect a recovery.

Keynes himself sought to intervene in this policy debate. And though he had already recognized that a shortfall of aggregate demand was the source of economic collapse, his political judgment was deficient. In an open letter in late 1933, Keynes saw that governments faced the double task of “Recovery and Reform.” He urged Roosevelt to defer reform and “not upset the confidence of the business world,” believing that a successful recovery would create “the driving force to accomplish long-range Reform.” Fortunately, while Roosevelt’s understanding of economics was primitive, his political instincts were sound. He saw that only in a crisis could radical reforms be enacted.

In 1935, the Supreme Court declared the NRA and other New Deal interventions unconstitutional. By denying that the federal government had the authority to respond to the crisis, the Court transformed a policy fiasco into a popular political rallying cry. When the incipient recovery appeared to stall, Roosevelt responded to the Court’s challenge by launching the substantially more radical “Second New Deal” of 1935, encompassing the Social Security Act, the National Labor Relations (“Wagner”) Act, the Banking Act of 1935, the Rural Electrification Administration, and the Public Utilities Holding Company Act. Contrary to Keynes, recovery and reform marched hand in hand to the tune of FDR’s radical rhetoric against “economic royalists.”

In the event, the recovery resumed in time for FDR’s landslide victory in 1936. Levy works his way through the complex, frustrating dynamics of politics and economics in Roosevelt’s second term. While the economy had recovered to 1929 levels, it remained manifestly fragile. When Roosevelt yielded to Secretary of the Treasury Henry Morgenthau and others who were calling for a return to balanced-budget orthodoxy, the result was the “Roosevelt Recession” of 1937-38.

But Roosevelt then followed the proto-Keynesian advice marshaled by US Federal Reserve Chair Marriner Eccles. With the Public Works Act of 1938, he presided over the first deliberate act of deficit spending in peacetime American history. By the time Hitler started World War II, a renewed US economic expansion was already taking hold.

From War to Golden Age

The fall of France in June 1940, 18 months before the Japanese attack on Pearl Harbor, triggered the massive commitment to rearmament that definitively ended the Depression. The Roosevelt administration implemented far more extensive controls of business and launched a powerful new type of public-private partnership: federally funded “government owned/contractor operated” defense plants. Even while the armed services argued over priorities – planes versus landing craft versus tanks – the war was won on the momentum of production.

In contrast with World War I, inflation this time was substantially constrained. With business’s contribution to victory having restored its political standing, politics in the immediate post-war years was dominated by the first efforts to end the Age of Control. The Republican-controlled Congress elected in 1946 made a bonfire of residual wartime controls. More strategically, it passed the Taft-Hartley Act in 1947, substantially weakening the Wagner Act’s pro-union provisions. While it took a generation, allowing individual states to enact “right to work” laws enabled the liquidation of private-sector unions.

Levy accurately charts the continuation of the Age of Control in the sphere of international finance. At Bretton Woods, the senior representative of the new hegemon, Harry Dexter White, was in full agreement with Keynes, his counterpart representing the previous hegemon. They concluded that international financial stability required limits to short-term capital movements, and that a return to free trade in goods between markets linked by “fixed but adjustable” exchange rates would require capital controls.

Domestically, American capitalism enjoyed a golden age after the war. A sustained boom in industrial investment was matched by a rise in mass consumerism and underwritten by an extension of Big Government from the nascent welfare state of the New Deal to the full-blown warfare state of the Cold War. But the golden age dissolved in what Levy properly calls the “ordeal” of the 1960s.

US President Lyndon B. Johnson’s mission to renew the New Deal and, especially, to address its exclusion of African-Americans, ran aground in the self-initiated tragedy of Vietnam. The legislation of the Second Reconstruction did establish a framework for advancing civil and voting rights; but as Johnson clearly foresaw, it also transformed the South from solidly Democratic to Republican. Race would remain a central pole of American politics.

Looking back, it is difficult to grasp the pretensions of policymakers at the time. I graduated from Princeton University’s School of International and Public Affairs in 1965. I had been taught that all public problems were management problems, and that we were now equipped with all the necessary tools for addressing them. But in the second half of the 1960s, I, along with the rest of the world, watched this assumption turn to dust. The Age of Control began its passage into what Levy calls the Age of Chaos, even as economic theory, and its influence on policy, underwent a radical transition.

The post-war golden age was complemented by the “neoclassical synthesis” formulated at MIT by Paul Samuelson and Robert Solow. This held that at the macro level, Keynesian demand management policies would ensure that all resources are fully employed; and that at the micro level, competitive markets would efficiently allocate those resources among competing demands, fairly distributing the resulting income to the factors of production in proportion to their (marginal) contribution.

But the new, nominally liberal economics abstracted from the actual power relationships in markets, especially the labor market, and thus contradicted much of the original rationale for the New Deal’s regulatory initiatives. It also left a hole in the foundations of theory – one that was exploited by the University of Chicago school of economists, led intellectually by Robert Lucas, and masterfully publicized by Milton Friedman . They argued that Keynesian macroeconomic theory had no “microfoundations” to link it to the utility-maximizing activities of individual, presumptively rational market participants.

A concatenation of events in the early 1970s generated a chaotic decade. The dollar shortage of the immediate post-war period became a dollar glut, fed by growing balance-of-payment deficits, as US manufacturing dominance was eroded by the competitive recoveries of West Germany and Japan, and by the unfunded expenditures on the Vietnam War. In 1971, the US recorded its first actual deficit in trade, and the Bretton Woods system collapsed. The interwar chaos of unconstrained capital flows returned. Two years later, OPEC effected a fourfold increase in the price of oil. As companies fought to maintain profit margins, and as unions fought to maintain real wage levels, inflation rose along with unemployment. This “stagflation” discredited both the Keynesian neoclassical synthesis and the liberal state.

Even before Chicago School economics was welcomed into the White House, Democratic President Jimmy Carter initiated the generation-long process of liquidating the regulatory institutions originally devised to constrain the power of concentrated capital. One of the New Deal’s central achievements had been to align real wages with productivity growth. But from the 1970s on, this alignment ended. Even as productivity continued its upward trend, compensation below the top 10% began to stagnate. When President Ronald Reagan proclaimed in his first inaugural address that, “Government is not the solution to our problem, government is the problem,” the Age of Control was definitively over.

The Age of Chaos

Levy might well have called his fourth Age of Capitalism the Age of Finance. From 1980 on, the dominant phenomenon of American capitalism, shared with the United Kingdom but much less so with other developed countries, has been the pyramiding of financial assets on the underlying cash flows generated in the real economy. Levy captures the consequences for the political economy of income: “The financial appreciation of the asset…generated pecuniary income. Income growth thus shifted from labor to the owners of… the appreciating asset.”

The inflation of the 1970s was reined in by Carter’s last Fed chair, Paul Volcker , who hiked interest rates to historically unprecedented levels in both nominal and real terms. With acute insight, Levy traces the real consequences of the Volcker Shock both at home and abroad. Volcker’s interest rates pulled liquid capital to the US, driving up the value of the now-floating dollar, deepening the US trade deficit, and accelerating the hollowing out of America’s manufacturing industries. The sharp recession reversed itself quickly, but the structural change in the US economy, and in its international position, lasted for at least a generation.

The US thenceforth became the “consumer of last resort,” while manufacturing dominance moved first to Germany and Japan and then increasingly to China. US employment in non-tradable services soared, as did income inequality and, even more, wealth inequality. What George Soros later dubbed the “super-bubble” took off. Liquidity provided by the Fed reversed the one-day crash of 1987 in its tracks and protected financial markets from twin shocks – the collapse of the hedge fund Long-Term Capital Management and the “Asian Flu” financial crisis – at the end of the century. Confidence in the bull market’s perpetuation became informally institutionalized in Fed Chair Alan Greenspan’s “put”: the expectation that the Fed would protect asset values and the real economy whenever they were threatened.

Within the super-bubble of ever-rising debt, a genuine productive bubble emerged in the second half of the 1990s. The dot-com bubble reflected the maturation of the digital technologies that had been nurtured by the US Department of Defense since WWII. The internet’s incipient commercialization heightened investor anticipation and led to the unsustainable capitalization of the next “New Economy” (not unlike the New Economy of autos and electricity transiently celebrated in the 1920s). When the bubble burst in 2000, the Fed duly stepped in once again.

Levy’s narrative skills are well deployed in recounting the excesses of financialization, from the first leveraged buyout (LBO) boom engineered by Mike Milken in the 1980s to the “truthful hyperbole” of the reincarnation of Melville’s confidence man in the person of Donald Trump. Unlike Trump, and unrecognized by Levy, Milken did leave some productive assets behind. His method of selling high-yield (or “junk”) bonds was judged criminal in federal court, but Milken not only funded corporate raiders and LBO financiers; he also financed the deployment of cable television and cellular networks across the country.

For more than 25 years after the Volcker Shock, the Fed’s underwriting of the increasingly financialized economy masked the underlying structural changes. In 2004, just three years before the onset of the worst financial crisis since the one that triggered the Great Depression, Greenspan’s successor, Ben Bernanke, could still speak confidently of a “Great Moderation” in economic volatility.

In somewhat piecemeal fashion, Levy identifies the key factors that contributed to the global financial crisis and subsequent Great Recession. The same technologies that triggered the tech bubble of the late 1990s also operationalized modern finance theory. The apparent ability to quantify, and thereby order and manage, risk was applied to generate limitless layers of derivative securities. Financial models (not liquid financial markets themselves) “priced” these securities in a vacuum.

At the same time, corporate managers’ “mission” had been simplified to maximizing shareholder value, as represented by the current stock price, which motivated a maximization of leverage on cash flows. Finally, the prevailing macroeconomic models had excluded the financial system by design, creating a massive blind spot.

The intellectual failure was bipartisan. Sadly, Levy does not invoke a key name in this narrative: Hyman Minsky (a mentor of mine). A renegade from neoclassical economics, Minsky spent a generation laying out the dynamics by which a prudently hedged financial system shifts endogenously, through increasing speculative exposure, to an unsustainable regime of “Ponzi” finance. At that stage, lenders must advance interest payments to debtors simply to maintain the fictional value of the outstanding credit. The “Minsky Moment” when Lehman Brothers went bankrupt in September 2008 turned my forgotten teacher into a household name.

Levy emphasizes that the crisis was all about liquidity, and he demonstrates that the crucial attribute of liquidity in times of stress is that the more you need it, the less of it there is. Once again, at an unprecedented scale, the Fed came to the rescue as the liquidity provider of last resort, not just for the US but for the whole world. Confronted with financial chaos and economic collapse, the Obama administration “skillfully cobbled the financial system back together.” Yet, as Levy reports, “End-of-millennium faith in a finance-led vision of globalization… persisted, incredibly enough, after the panic of 2008 and over the Obama years….”

Levy’s Age of Chaos is framed by the post-Volcker Shock retreat of political authority from responsibility for market behavior and the economic and social consequences of that behavior. Neoliberal administrations from Reagan to George W. Bush saw no legitimate reason for government to cushion the domestic consequences of US sponsorship of China’s full entry into the global trading system, or to address the return of Gilded Age inequalities. Only during his first two years in office did President Barack Obama shift the terms of trade in the American political economy, through his “Affordable Care Act” (Obamacare).

That legislation and the American Recovery and Reinvestment Act of 2009 provoked the Tea Party backlash, which led to the Democrats’ loss of the House of Representatives in the 2010 midterm election. But even while the Democrats controlled both houses of Congress, Obama used his January 2010 State of the Union address to champion the same self-destructive economic ignorance that had led Roosevelt in 1937 to compromise both the economic recovery he had engineered and his freedom of political action. “Families across the country are tightening their belts and making tough decisions,” Obama said. “The federal government should do the same.”

The fiscal austerity that followed had two main consequences: It slowed the recovery to a crawl, and it deepened the impression that the US government is incapable of buffering its constituencies from the shocks of economic life. The Tea Party then morphed into the “MAGA” bloc that delivered Trump his victory in 2016, leading to an administration whose only domestic legislative policy initiative was to tilt the tax system even more toward inequality.

Fiscal austerity also transformed the Fed from a successful crisis-fighter into what Mohamed El-Erian termed “the only game in town.” The Fed joined the other major central banks in driving real, risk-free interest rates to negative levels and holding them there for what has now been almost 15 years.

The Future After Chaos

A global crisis of excessive financialization thus launched a further appreciation of the prices of financial assets to heights never before observed – not in 1929 nor in 1999 – creating a bubble that has survived Trump’s chaotic four years and the first global pandemic since 1918. Wealth inequality has reached previously unimaginable levels. Regardless of whether this bubble deflates in a measured, managed fashion or implodes catastrophically, it must end eventually.

We don’t yet know what will emerge from the end days of the Age of Chaos. But we do know that throughout American history, it has always been state action that brought on each new age of capitalism.

Now climate change has emerged as a forcing function from outside the capitalist system. It is belatedly beginning to drive state action, and it is bound to “transform the structure of investment,” the key to changes in capitalism’s form and content. It may even prove to be compatible with the “democratic politics of capital” that Levy advocates. Such a politics is embodied in the progressive agenda being pursued by President Joe Biden, to the variously enthusiastic and enraged surprise of all.

I look forward to a second edition of this masterwork to see how it will deal with a fifth Age of American Capitalism: the green one.

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The New History of American Capitalism

Since the start of the 2000s, historians have renewed their interest in capitalism, two Harvard professors observe in their new book, American Capitalism: New Histories. One of the primary contributing factors for this, according to Sven Beckert and Christine Desan, is the expanding tide of market forces following the fall of the Berlin Wall, the collapse of the Soviet Union, and the end of the Cold War. “Capitalism of a wide variety of institutional and ideological stripes, now characterizes all developed countries,” they observe.

In this excerpt from the book’s introduction, Beckert and Desan look to how scholars in history, law, and political science are redefining capitalism in light of the American experience. Essayists write on such diverse subjects as markets, selling of slave clothing, the Gilded Age, women’s rights, money and finance, risk management in the twentieth century, and modern agriculture.

By Sven Beckert and Christine Desan

The new history of American capitalism builds on these disciplinary trends in history, economics, political science, and law; indeed, it would be unimaginable without them. At the same time, it represents a distinctive departure.

First—and most basically—the history of American capitalism, along with the essays gathered here, reinstalls political economy as a category for analysis. Economic life, all the authors agree, is crucial to understanding the history of the United States. But rather than taking the subject as given, they explore it as politically constituted. If “the market” is neither a discrete phenomenon nor marginal to human experience, then basic structures of governance become important. Rather than assuming that exchange for profit naturally produces a particular infrastructure for transactional activity, new scholarship asks what forces shape modern patterns of economic activity and how those patterns sort people and resources. Instead of reproducing conventional dichotomies, current historians of American capitalism contest the line between public and private that had seemed to neatly divide politics and markets, states and economies.

"The new history of American capitalism targets the lived experience of people and groups as they assimilate—and reshape—the political economy they engage"

The connection between markets and political order has been a perennial topic for writers on capitalism, from Progressive historians who argued that elites used the advantages of wealth to skew political structures in their favor to consensus historians who found more widespread support for a market-oriented liberal political order. Echoes of this debate lingered through the late twentieth-century scholarship that sought to locate and date the American “market revolution,” contending over the visions of political voice and material development embedded in agrarian, “republican,” and “liberal” orientations. Capitalism scholarship revisits many traditional questions with the tools generated by the innovation of past decades, including the relationship between money and power, commerce and politics, exchange and social status. Its effort is to find new ways of exploring how institutions, political movements, and legal formations like debt, contract, and property come into being and inflect material and ideological life.

Other writing identifies as transformative a radical redesign of money and finance that, during the Enlightenment, institutionalized the self-interested activity of investors as the compass for public systems. That experiment generated particular turmoil recently when a series of actions, many profit-driven, others unwitting, accelerated financialization.

Second, the new history of American capitalism targets the lived experience of people and groups as they assimilate—and reshape—the political economy they engage. No generic truck and barter here; scholars find instead distinctive regimes of interaction and peculiar modes of relation. They study capitalism in action.

This new focus lies at the intersection of two legacies from the historiography traced above—historians’ tendency to expand their subjects of study and their orientation toward methodologies tuned to the experiential dimension. Capitalism scholars today are interested in the narratives created by the interplay of a broad variety of actors, from those who organize businesses to those who consume, trade, plant, and work. They focus on actually existing capitalism, not the ideal types developed by various social scientists during the past two centuries.

One of the prime foci of social history, for example, was the history of labor. The history of capitalism picks up that interest but moves beyond wage labor in an industrial setting. Recent histories look at enslaved workers, sharecroppers, and other nonwaged workers and shift attention from the industrial cities of the Northeast to the nation as a whole. That approach allows scholars to interrogate the connections between slavery and the unfolding of capitalism. The project has undermined one of the deepest dividing lines of American historiography, between Southern and Northern history. The effect is to restore the centrality of violence and coercion to the history of capitalism while problematizing both liberal and Marxist understandings of capitalism as defined by its reliance on wage labor. At the same time, historians have reconceptualized commodification, sale, and ownership, recasting the market as a place of colliding human ambitions, fantasies of wealth, modes of resistance, acts of brutality, tenderness, and heroism.

Slavery’s relocation into capitalism is only the beginning point for a group of scholars studying racialization as an enduring American strategy for the coercion and control of labor, particularly African American labor. Race and capitalism is an expanding area, reaching subjects as varied Jim Crow, migration, urban studies, the carceral state, and black property rights movements. Approaches vary greatly, but many scholars attend closely to the subjects who receive, impose, resist, or recast race as a category. Their work erodes the image of exchange between equally situated agents and locates it in a field of power and culturally constructed valuation.

New histories reach other actors in the political economy, including shoppers, businesspeople, financiers, and traders. Thus Liz Cohen, in her Consumer’s Republic, looks at the ways consumers helped construct a new kind of political economy—through both individual preferences and politically informed collective action. By following the lines that join purchasers to those who market to them, fund production, and organize economic exchange, scholars have rediscovered financiers, industrialists, and managers, considering them not only as economic actors but also, and especially, as political, ideological, and cultural agents. Slave traders and New York financiers, Boston merchants, and Pittsburgh industrialists feature prominently in many of these accounts.

These accounts not only bring diverse actors into the narrative, they do so to quite different effect than older histories. Alfred Chandler’s approach, for example, sometimes presented businesspeople as almost powerless actors who could do little more than watch as modernity restructured American business enterprises. By contrast, new historians of capitalism present businesspeople as influential actors, but situate them within social networks. Scholars draw on Pierre Bourdieu, among others, to investigate how businesspeople accumulated not just wealth but cultural and political capital. The work on the rise of right-wing politics in the United States after the 1970s, for example, makes such political activities and identities of businesspeople visible, and sees them as crucial to the emergence of a new kind of political economy.

A third point of departure in the new literature concerns the production of knowledge. Sometime in the twentieth century most historians lost faith in the notion that they were intermediaries; it no longer seemed possible to conceive of the historian’s task as only translating the mysteries of a distant world for those in the present. Now the ways of knowing that held together a particular time, its events and ideas, mattered as well. Equally important was a historian’s own interpretative agency, her mode of creating coherence, which inflected the narrative in innumerable ways. History’s journey from self-identifying as an objective or naively empirical project wound through the pragmatism of the Progressive era, the critical existentialism of the mid-twentieth century, the efflorescence of social constructivism and the cultural turn in the 1970s and 1980s, through postmodern and postcolonial arguments about the subject.

One of the legacies of that debate is that historians of capitalism routinely subject to scrutiny narrative perspectives and conceptual orthodoxies, both their own and those of others. Modes of organizing and conveying knowledge themselves have become worthy subjects for query. The history of “disciplines, genres, paradigms, and other forms of representation” joins the study of social, cultural, political, and economic phenomena.

Drawing on an influential stream of pioneering works, scholars now problematize in particular the isolation of the economy as a subject matter and economics as a discipline. They have interrogated the relationship of the discipline of economics with the subject it studies and considered how models and images of the market claimed to communicate reality. Timothy Mitchell, for example, explores how the parameters of economic expertise shape the questions the discipline investigates, while others have scrutinized how data and statistics come to represent the authenticity of phenomena. Those studies amplify the argument, notably articulated by feminist scholars who early recognized that household labor had been read out of the record, that determinations about what is identified, measured, and counted create the “real economy.” As Susan Buck-Morss observed about the visualization of economic data, “In the crossing of the supply-demand curve, none of the substantive problems of political economy are resolved, while the social whole simply disappears from sight.”

In concert with that sensibility, capitalism scholars have interrogated the structures of belief, assumption, and culture that underlie the ascendance of credit, the embrace of speculation, and the legitimation of self-interest as a driver of human behavior. Legal and institutional scholars similarly seek to dereify categories that organize or enable exchange, including property, contract, money, and the classical dichotomy that divides the “real economy” economy itself from its “nominal” counterpart.

"New historians of capitalism present businesspeople as influential actors, but situate them within social networks"

Finally, the new history of American capitalism has often taken a more global perspective. That trend draws on the emergence of global history as a thriving research field, one in which economic issues play a central role. Flows of capital, labor, and science linked developments across oceans; trade bound national economies to one another; and financial institutions grounded in particular places colonized the capitalist global economy as a whole, connections that were overlooked by more locally focused histories.

Capitalism has not observed boundaries, and now neither do those studying it. Scholars currently working on American capitalism emphasize transnational flows of capital, people, ideas, and institutions, whether they are looking at trade relations in early America or considering the transnational history of neoliberalism. The rich literature on “varieties of capitalism” has fed that comparative perspective. And more recently, histories of various commodities—sugar, rice, tobacco, indigo, and cotton—have embedded the history of American capitalism in a larger global story of the spread and intensification of capitalism.

Within such a global perspective, however, the emphasis on understanding capitalism as a political economy counterbalances some of the more enthusiastic globalization narratives. No matter what the scale of analysis—local, regional, national, or global—the new history of American capitalism’s insistence on the importance of the state sees the global market not as an area outside public authority but as one shaped by rules, laws, treaties, and the distribution of power between states. Globalization and state formation constitute one another.

In the process of engaging these issues, historians of American capitalism have reimagined both the spatial divisions common to Americanists and the temporal frame of American history. The focus on capitalism has brought the history of the antebellum North and South into one narrative, for example, while scholars have attempted to integrate the West more broadly into an understanding of American capitalism. Similarly, issues raised by the history of capitalism transcend firm temporal markers such as the Revolution, the Civil War, or the New Deal, even as those events shape political economy in important ways. The project to understand how capitalism both observes and obviates borders at the global level has had, it seems, an impact even in the most local matters.

This volume is deeply indebted to long-running conversations between and within the disciplines. It is also indicative of changing understandings of American capitalism and approaches to exploring it. Invited to discuss the phenomenon of American capitalism according to their own lights, our authors spread out across the last three centuries of the American experience. They emphasized developments emblematic of the modern political economy such as bond markets, corporations, the concerns of wage labor, and the Commerce Clause, but they focused as well on subjects outside the traditional repertoire, including slavery, the rights of women, the utopian claims of late-nineteenth- century monopolists, and rationales that recast capitalism as a matter of state. As they worked, they created new approaches to American capitalism.

Reprinted from American Capitalism: New Histories with permission of Columbia University Press, Copyright 2018.

About the authors

Christine Desan is Leo Gottlieb Professor of Law at Harvard University and co-founder of the Program on the Study of Capitalism. She is the author of Making Money: Coin, Currency, and the Coming of Capitalism (2014).

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The Industrial Revolution & the Rise of Capitalism

Introduction.

• People who do not know their past cannot fully understand the main principles of society
• Every period in history has a certain impact on people’s thoughts
• Industrial Age still has a great influence on modern people
• The perception of wealth significantly changed during the Industrial Age
• The emergence of Capitalism along with the Industrial Revolution
• The perception of wealth and business has changed since the times of the Industrial Age

The Industrial Age

General information.

• The Industrial Age started in Great Britain in the 18 th century
• The number of factories and plants was rapidly growing
• In production, the main focus was on the separation of standardization and labor
• The optimization of production and maximization of profits for businesspeople
• Many companies appeared during the Industrial Revolution
• The Industrial Age quickly spread to the whole of Europe (Hartwell, 2017)

Main Features

• The transition from manual production to mechanization
• The focus on active consumption and mass production
• The rapid development of technology
• A considerable economic growth
• The improvement of the overall quality of people’s lives
• The development of Capitalism

Disadvantages

• The limited access of the working class to the goods they were producing
• The growing power of wealthy people in the sphere of economy
• The increasing social stratification
• It was very difficult for poor people to start their own business
• Task separation
• The decreasing control over the competition
• It was almost impossible for low-income people to improve their financial situation (Mantoux, 2013)

Main Peculiarities

• Capitalist society appeared in the 18 th century
• The first reason for the occurrence of Capitalism is the rapid development of technologies
• The second reason is the increasingly growing population
• Positive changes in the agricultural sector
• The increase in the economic growth
• Capitalism and Socialism are incompatible due to major differences between them (Hudson, 2014)

Disadvantages of Capitalist Society

• The increasing control over resources by wealthy people
• The growing chasm between the working class and the upper class
• The introduction of certain rules and restrictions on factories and plants
• The reduction of the government control overproduction
• Fewer opportunities for poor people to become successful
• The growing indignation of the working class
• The increasing environmental pollution (Mantoux, 2013)

Contemporary Society

Capitalism today.

• The main principles of Capitalism have not changed since its occurrence
• The focus on consumption and mass production has become even stronger
• Environmental pollution has become a major problem
• The negligence towards safety restrictions
• The suppression of democracy
• The increasing propaganda
• The problem of social inequality remains (Amin, 2014)

The Perception of Wealth

• A survey regarding the business people’s perception of money, wealth, and the process of production was conducted
• The age of participants was from 27 to 38 years
• 90% of respondents agreed that the increased consumption is one of the main features of progress
• 60% of respondents believed that it was more efficient to focus on the quantity of production rather than on quality
• 80% of respondents admitted that it was very difficult for people from the low and middle classes to become successful
• 60% of respondents agreed that in modern business, people are not regarded as resources
• Almost all the respondents admitted that maintaining a competitive advantage is crucial in modern business (Amin, 2014)
• Industrial Revolution caused many changes in the sphere of business.
• Capitalism changed people’s perception of business, wealth, and production.
• The key features of capitalism are profitability, social stratification, task separation, and the decrease in the government control.
• Employee effectiveness fully depends on employee happiness.
• The increasing number of employers focus on creating a positive work environment.
• Still, many employers regard their subordinates as resources.

Amin, S. (2014). Capitalism in the age of globalization: The management of contemporary society (2nd ed.). London, UK: Zed Books Ltd.

Hartwell, R. M. (2017). The industrial revolution and economic growth (Vol. 4). Abingdon, UK: Taylor & Francis.

Hudson, P. (2014). The industrial revolution . London, UK: Bloomsbury Publishing.

Mantoux, P. (2013). The industrial revolution in the eighteenth century: An outline of the beginnings of the modern factory system in England . London, UK: Routledge.

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Home » World History » Other Topics » Capitalism

Capitalism ( free market economy ) is an economic system, dominant in the Western world since the breakup of feudalism, in which most means of production are privately owned and production is guided and income distributed largely through the operation of markets.

Capitalism is often thought of as an economic system in which private actors own and control property in accord with their interests, and demand and supply freely set prices in markets in a way that can serve the best interests of society.

The essential feature of capitalism is the motive to make a profit. As Adam Smith, the 18th century philosopher and father of modern economics, said: “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” Both parties to a voluntary exchange transaction have their own interest in the outcome, but neither can obtain what he or she wants without addressing what the other wants. It is this rational self-interest that can lead to economic prosperity.

In a capitalist economy, capital assets—such as factories, mines, and railroads—can be privately owned and controlled, labor is purchased for money wages, capital gains accrue to private owners, and prices allocate capital and labor between competing uses .

Although some form of capitalism is the basis for nearly all economies today, for much of the past century it was but one of two major approaches to economic organization. In the other, socialism , the state owns the means of production, and state-owned enterprises seek to maximize social good rather than profits.

Pillars of capitalism:

Capitalism is founded on the following pillars:

• Private property, which allows people to own tangible assets such as land and houses and intangible assets such as stocks and bonds;
• Self-interest , through which people act in pursuit of their own good, without regard for sociopolitical pressure. Nonetheless, these uncoordinated individuals end up benefiting society as if, in the words of Smith’s 1776 Wealth of Nations , they were guided by an invisible hand;
• Competition, through firms’ freedom to enter and exit markets, maximizes social welfare, that is, the joint welfare of both producers and consumers;
• a market mechanism that determines prices in a decentralized manner through interactions between buyers and sellers—prices, in return, allocate resources, which naturally seek the highest reward, not only for goods and services but for wages as well;
• freedom to choose with respect to consumption, production, and investment—dissatisfied customers can buy different products, investors can pursue more lucrative ventures, workers can leave their jobs for better pay; and
• limited role of government , to protect the rights of private citizens and maintain an orderly environment that facilitates proper functioning of markets.

The extent to which these pillars operate distinguishes various forms of capitalism. In free markets, also called laissez-faire economies, markets operate with little or no regulation. In mixed economies , so-called because of the blend of markets and government, markets play a dominant role, but are regulated to a greater extent by the government to correct market failures, such as pollution and traffic congestion; promote social welfare; and for other reasons, such as defense and public safety. Mixed capitalist economies predominate today.

T he many shades of capitalism:

Capitalism, for example, can be simply sliced into two types, based on how production is organized.

In liberal market economies , the competitive market is prevalent and the bulk of the production process takes place in a decentralized manner akin to the free-market capitalism seen in the United States and the United Kingdom.

Coordinated market economies , on the other hand, exchange private information through non–market institutions such as unions and business associations—as in Germany and Japan (Hall and Soskice 2001).

More recently, economists have identified four types of capitalism distinguished according to the role of entrepreneurship (the process of starting businesses) in driving innovation and the institutional setting in which new ideas are put into place to spur economic growth .

In state-guided capitalism , the government decides which sectors will grow. Initially motivated by a desire to foster growth, this type of capitalism has several pitfalls: excessive investment, picking the wrong winners, susceptibility to corruption, and difficulty withdrawing support when it is no longer appropriate.

Oligarchic capitalism is oriented toward protecting and enriching a very narrow fraction of the population. Economic growth is not a central objective, and countries with this variety have a great deal of inequality and corruption.

Big-firm capitalism takes advantage of economies of scale. This type is important for mass production of products.

Entrepreneurial capitalism produces breakthroughs like the automobile, telephone, and computer. These innovations are usually the product of individuals and new firms. However, it takes big firms to mass-produce and market new products, so a mix of big-firm and entrepreneurial capitalism seems best. This is the kind that characterizes the United States more than any other country.

Criticisms of capitalism:

Advocates and critics of capitalism agree that its distinctive contribution to history has been the encouragement of economic growth. Capitalist growth is not, however, regarded as an unalloyed benefit by its critics. Its negative side derives from three dysfunctions that reflect its market origins.

• The unreliability of growth

Many critics have alleged that capitalism suffers from an inherent  instability that has characterized and plagued the system since the advent of industrialisation. Because capitalist growth is driven by profit expectations, it fluctuates with the changes in technological or social opportunities for capital accumulation. As opportunities appear, capital rushes in to take advantage of them, bringing as a consequence the familiar attributes of an economic boom. Sooner or later, however, the rush subsides as the demand for the new products or services becomes saturated, bringing a halt to investment, a shakeout in the main industries caught up in the previous boom, and the advent of recession. Hence, economic growth comes at the price of a succession of market gluts as booms meet their inevitable end.

This criticism did not receive its full exposition until the publication of the first volume of Marx’s Das Kapital in 1867. For Marx, the path of growth is not only unstable for the reasons just mentioned—Marx called such uncoordinated movements the “anarchy” of the market—but increasingly unstable. Marx believed that the reason for this is also familiar. It is the result of the industrialization process, which leads to large-scale enterprises. As each saturation brings growth to a halt, a process of winnowing takes place in which the more successful firms are able to acquire the assets of the less successful. Thus, the very dynamics of growth tend to concentrate capital into ever larger firms. This leads to still more massive disruptions when the next boom ends, a process that terminates, according to Marx, only when the temper of the working class snaps and capitalism is replaced by Socialism .

Beginning in the 1930s, Marx’s apocalyptic expectations were largely replaced by the less violent but equally disquieting views of the English economist John Maynard Keynes, first set forth in his influential The General Theory of Employment, Interest, and Money (1936) . Keynes believed that the basic problem of capitalism is not its vulnerability to periodic saturations of investment but rather its likely failure to recover from them. He raised the possibility that a capitalist system could remain indefinitely in a condition of equilibrium despite high unemployment, a possibility not only entirely novel (even Marx believed that the system would recover its momentum after each crisis) but also made plausible by the persistent unemployment of the 1930s. Keynes therefore raised the prospect that growth would end in stagnation, a condition for which the only remedy he saw was “a somewhat comprehensive socialization of investment.”

Keynes argued that capitalism struggles to recover from slowdowns in investment because a capitalist economy can remain indefinitely in equilibrium with high unemployment and no growth.

Keynesian economics challenged the notion that laissez-faire capitalist economies could operate well on their own without state intervention to promote aggregate demand and fight high unemployment and deflation of the sort seen during the 1930s. He postulated that government intervention (by cutting taxes and increasing government spending) was needed to pull the economy out of the recession . These actions sought to temper the boom and bust of the business cycle and to help capitalism recover following the Great Depression. Keynes never intended to replace the market-based economy with a different one; he asserted only that periodic government intervention was necessary.

The forces that generally lead to the success of capitalism can also usher in its failure. Free markets can flourish only when governments set the rules that govern them—such as laws that ensure property rights—and support markets with proper infrastructure, such as roads and highways to move goods and people. Governments, however, may be influenced by organized private interests that try to leverage the power of regulations to protect their economic position at the expense of the public interest—for example, by repressing the same free market that bred their success.

Thus, according to Rajan and Zingales (2003), society must “save capitalism from the capitalists”—that is, take appropriate steps to protect the free market from powerful private interests that seek to impede its efficient functioning. When political interest and the capitalist class combine, “crony capitalism” may emerge, and nepotism will be more rewarding than efficiency. The concentration of ownership of productive assets must be limited to ensure competition. And, because competition begets winners and losers, losers must be compensated. Free trade and strong competitive pressure on incumbent firms will also keep powerful interests at bay. The public needs to see the virtues of free markets and oppose government intervention in the market to protect powerful incumbents at the expense of overall economic prosperity.

2. The quality of growth

A second criticism with respect to market-driven growth focuses on the adverse side effects generated by a system of production that is held accountable only to the test of profitability. It is in the nature of a complex industrial society that the production processes of many commodities generate outcomes (called “externalities”) that are bad as well as those that are good—e.g., toxic waste, Pollution or unhealthy working conditions as well as useful products.

The catalog of such market-generated ills is very long.

• Smith himself warned that the division of labour, by routinizing work, would render workers “as stupid and ignorant as it is possible for a human creature to become,”
• Marx raised the spectre of alienation as the social price paid for subordinating production to the imperatives of profit making.
• Other economists warned that the introduction of technology designed to cut labour costs would create permanent unemployment.

In modern times much attention has focused on the power of physical and chemical processes to surpass the carrying capacity of the environment, a concern made cogent by various types of environmental damage arising from excessive discharges of industrial effluents and pollutants—most importantly, global warming and climate change. Because these social and ecological challenges spring from the extraordinary powers of technology, they can be viewed as side effects of socialist as well as capitalist growth. But the argument can be made that market growth, by virtue of its overriding obedience to profit, is congenitally blind to such externalities.

A third criticism of capitalist growth concerns the fairness with which capitalism distributes its expanding wealth or with which it shares its recurrent hardships. This criticism assumes both specific and general forms.

The specific form focuses on disparities in income among layers of the population. In the early 21st century in the United States, for example, the lowest quintile (fifth) of all households received only 3.1 percent of total income, whereas the topmost fifth received 51.9 percent. Significantly, this disparity results from the concentration of assets in the upper brackets. Also, the disparity is the consequence of highly skewed patterns of corporate rewards that give, say, chief executive officers of large U.S. companies an average of more than 300 times the annual compensation earned by ordinary office or factory employees.

Moving from specific examples of distribution to a more general level, the criticism may be broadened to an indictment of the market principle itself as the regulator of incomes. An advocate of market-determined distribution will declare that in a market-based society, with certain exceptions, people tend to be paid what they are worth; that is, their incomes will reflect the value of their contribution to production. Thus, market-based rewards lead to the efficiency of the productive system and thereby maximize the total income available for distribution.

This argument is countered at two levels. Marxist critics contend that labourers in a capitalist economy are systematically paid less than the value of their work by virtue of the superior bargaining power of employers, so that the claim of efficiency masks an underlying condition of exploitation. Other critics question the criterion of efficiency itself, which counts every dollar of input and output but pays no heed to the moral or social qualities of either and which excludes workers from expressing their own preferences as to the most appropriate decisions for their firms.

Economic growth under capitalism may have far surpassed that of other economic systems, but inequality remains one of its most controversial attributes. Do the dynamics of private capital accumulation inevitably lead to the concentration of wealth in fewer hands, or do the balancing forces of growth, competition, and technological progress reduce inequality? Economists have taken various approaches to finding the driver of economic inequality. The most recent study analyzes a unique collection of data going back to the 18th century to uncover key economic and social patterns . It finds that in contemporary market economies, the rate of return on investment frequently outstrips overall growth. With compounding, if that discrepancy persists, the wealth held by owners of capital will increase far more rapidly than other kinds of earnings (wages, for example), eventually outstripping them by a wide margin. Although this study has as many critics as admirers, it has added to the debate on wealth distribution in capitalism and reinforced the belief among many that a capitalist economy must be steered in the right direction by government policies and the general public to ensure that Smith’s invisible hand continues to work in society’s favor.

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Laurent Cantet Is Dead at 63: His Films Explored France’s Undersides

His acclaimed “The Class” walked a provocative line between documentary and fiction. In that film and others, he explored the inescapable traps of late-stage capitalism.

By Adam Nossiter

Laurent Cantet, an eminent director who made penetrating films about the prickly undersides of French life and society, died on April 25 in Paris. He was 63.

His screenwriter and editor, Robin Campillo, said he died of cancer in a hospital.

Mr. Cantet’s best-known film was “Entre les Murs” (“The Class”), which won the Palme d’Or, the Cannes Film Festival’s top prize, in 2008 and was nominated for an Oscar as best foreign-language film. “The Class” was something new in French filmmaking: an extended snapshot of the inside of a schoolroom in a working-class district of Paris, using a real-life former teacher and real-life schoolchildren and treading a provocative line between documentary and fiction.

That ambiguity infuses the film with a rare tension, as a hapless language teacher struggles with his largely immigrant students, trying (with difficulty) to gain their acceptance of the strict rules of the French language and French identity. In this frank chronicle of classroom life, the students, many of them from Africa, the Caribbean and Asia — bright, sometimes provocative — have the upper hand.

Along the way, Mr. Cantet surgically exposes the fault lines in France’s faltering attempts at integration, showing exactly where the country’s rigid model is often impervious to the experience of its non-native citizens. Reviewing “The Class” in The New York Times, Manohla Dargis called it “artful, intelligent” and “urgently necessary.”

The film touched a nerve in France, selling more than a million tickets. Right-leaning intellectuals like Alain Finkielkraut denounced it for devaluing classical French culture — unwittingly underscoring Mr. Cantet’s point.

Mr. Cantet was invited to the Élysée Palace to discuss the film with President Nicolas Sarkozy. He declined the invitation. “I’m not going to speak about diversity with someone who invented the Ministry of National Identity,” Mr. Cantet said at the time, referring to one of Mr. Sarkozy’s more ill-fated initiatives.

That film, and a handful of others in Mr. Cantet’s foreshortened career — “Ressources Humaines” (“Human Resources”), “L’Emploi du Temps” (“Time Out”), “Vers le Sud” (“Heading South”) — were concerned with the alienation of those caught in inescapable modern-life traps under late-stage capitalism.

The tense, uneasy “Human Resources,” released in 1999, put a business-school graduate in a human resources internship at the factory where his blue-collar father is to be laid off. Two years later, “Time Out” depicted a jobless white-collar worker who covers up his shameful unemployment with disastrous results.

In the disturbing “Heading South,” based on a novel by the Haitian-Canadian author Dany Lafèrriere and released in 2005, Charlotte Rampling gave a bravura performance as the principal among a group of aging sex tourists in Haiti. Reviewing it in The Times, Stephen Holden praised it as “devastating.”

“Mr. Cantet’s film is too sophisticated to demonize these women, whose relationships with their young lovers are more tender and nourishing than overtly crass,” Mr. Holden wrote.

In an email message, Ms. Rampling wrote: “All the locations were outside, and the weather was so unpredictable that we were never sure from one day to the next if we could shoot or how we would proceed. We kept stopping and starting, giving rise to great tension and anxiety in Laurent throughout the filming.”

The film, she added, “is flawed, but it is still a fine piece of work from an honorable and good man.”

In these films, as in “The Class,” Mr. Cantet called into question the basic arrangements that form the texture of modern life. What interested him in “The Class,” he told the newspaper Libération in 2008, were “the moments where the class transforms itself into a school for democracy, and, sometimes, into a school for school itself. What are we doing here? Why are we here at all?”

A soft-spoken filmmaker who hung back and listened and who was uninterested in the glitz of moviemaking, Mr. Cantet was haunted by the last two questions, in a classic French tradition stretching back through Camus and Montaigne.

Mr. Campillo, who was a screenwriter and editor on all of Mr. Cantet’s major films, said the director’s predilection for nonprofessional actors “wasn’t just about naturalism.”

“It was to work with people who, through cinema, discovered something about themselves,” he said. Mr. Cantet, he added, was “very modest. He put himself on the same level as his crew.”

In an interview with the French film critic Michel Ciment after he won the Palme d’Or, Mr. Cantet described the quasi-improvisational method he developed for “The Class,” in which the teacher, the film’s central figure, was played by the author of the novel on which the movie is based.

“I drew up a minimum of dialogue, to indicate the energy we needed, the attitude of each person,” he said. “At the beginning of each scene, I gave them guideposts, so they had something staked out to work with, and then we went to work with something much more constructed.”

Ms. Dargis reported that the shoot lasted a full academic year.

“What we tried to do is construct the film along the lines of this paradox: Is it a documentary? Is it a fiction?” Mr. Cantet told Mr. Ciment.

Among the films Mr. Cantet made after “The Class” were “Foxfire: Confessions of a Girl Gang” (2013), a tale of proto-feminist revolt based on a Joyce Carol Oates novel; “L’Atelier” (“The Workshop”), from 2017, about a writing workshop in the south of France, in which he again dealt with France’s social fractures; and “Arthur Rambo” (2021), about the self-destruction of a promising young man from the immigrant suburbs.

Laurent Cantet was born on April 11, 1961, in the small town of Melle, in western France, and grew up in Niort, another town in that region. He traced his love of film to the monthly screenings organized by his father, Jean, at the school where his father and his mother, Madeleine (Ciach) Cantet, both taught.

Laurent graduated from the Institut des Hautes Études Cinématographiques in Paris in 1986, and before making his own films, he was an assistant on Marcel Ophuls’s 1994 documentary about war correspondents, “The Troubles We’ve Seen.”

One of Mr. Cantet’s favorite quotations, his producer Caroline Benjo said in a tribute to him on the radio station France Culture, was from the director Jean Renoir: “Everyone is more or less right.”

Mr. Cantet is survived by his wife, Isabelle (Coursin) Cantet; his daughter, Marie Cantet; his son, Félix; his father; and his brother, Philippe.

His films were what the French call “socially committed” without being didactic or ideological. His remarks about “The Class” could apply to his other films as well.

“I don’t pretend to a documentary exactitude,” he told Mr. Ciment. “The situation we are showing is very complex, and full of contradictions. There are no good guys and bad guys.”

Adam Nossiter has been bureau chief in Kabul, Paris, West Africa and New Orleans, and is now a Domestic Correspondent on the Obituaries desk. More about Adam Nossiter