T he Q uarterly J ournal of A ustrian E conomics

Volume 22 | No. 1 | 82–90 | Spring 2019 www.qjae.org

Book Review

Capitalism in America: A History

Alan Greenspan and Adrian Wooldridge
New York: Penguin, 2018, 486 pp.

Joakim Book*

W hat could possibly go wrong when a former Fed chairman

and the Economist’s political editor walk into a publisher’s
office with an almost five hundred page manuscript? Quite a lot,
it turns out. In Capitalism in America: A History, Greenspan and
Wooldridge sketches American economic history through the lens
of Schumpeterian Creative Destruction. The result is, to be polite, a
mixed bag. It has the hallmarks of overly simplistic, broad-brushing
and all-encompassing efforts of those formerly in the spotlight—
looking back at their extended careers and trying to make sense
of their experiences. It reads halfway between a dull encyclopedic
account of major American businessmen and a vaguely-supported
yet boldly-argued Economist column. It is neither as comprehensive
as a full-scale account of American capitalism ought to have been,
nor as shallow as we have become accustomed to from the pages
of said magazine. Despite the book’s many shortcomings, it is a
magnificent overview of American business, describing the lives

*
Joakim Book ([email protected]) is a graduate student at Oxford University.

Quart J Austrian Econ (2019) 22.1:82–90 82 Creative Commons

https://qjae.scholasticahq.com/ BY-NC-ND 4.0 License
Book Review: Capitalism in America: A History 83

and deeds of many known and lesser known industrialists that

propelled America forward, woven together into an overarching
tale that cherishes creative destruction above all else (pp. 14–19).
The book’s title leads one to believe that its object of inquiry is
Capitalism proper, the monetary system of societal interactions
characterized by private ownership of the means of production—or
what Mises (2008, 1) described in the first sentence of The Anti-Cap-
italistic Mentality as “mass production of goods destined for
consumption by the masses.” Instead, Greenspan and Wooldridge
quote Schumpeter (2003, 83) to say that capitalism means creative
destruction (“Creative Destruction is the essential fact about capi-
talism”), and then interpret creative destruction to roughly mean
‘industrial innovation’, after which they take the reader us on a
fascinating journey through most major American industrialists,
their businesses, their innovations and their achievements.
The book defies easy categorization, as it may serve as a brief
introduction to political, social and predominantly business history
and only tangentially does economic history. The common thread
running through the authors’ account is one of the Great Man Theory,
perhaps first comprehensively expressed by Carlyle (1841) and
recently compellingly opposed in Matt Ridley’s (2011; 2015) more
widespread accounts. Antithetical as it is to regular notions of capi-
talism as decentralized, coordinating, spontaneous or “anarchical”
decision-making (Mises 1951, 120), the Great Man Theory states that
history can be understood as the outcome of actions and ideas of a
selected number of persons—the Great Men. Greenspan and Wool-
dridge devote pages and pages to these leading men of American
industrialization: Eli Whitney and his cotton gin (pp. 46, 74–75);
John Deere’s and Cyprus McCormick’s agricultural inventions (pp.
46–48); Oliver Evans’ steam engine (p. 52); Henry Bessemer’s steel
inventions (pp. 99–102) and Carnegie’s steel empire (pp. 126–28);
Edison’s light bulb (p. 105); Ford’s and Sloan’s automobiles (pp. 107,
209–13); Rockefeller’s revolution of the oil business (pp. 128–30); J.
P. Morgan’s domination of the world of money (pp. 130–31); Bell’s
telegraph (pp. 109–10); and Swift’s refrigerated railroad cars (p. 119).
Occasionally, however, impersonal and decentralized trends make
appearances, for instance through institutional and infrastructural
achievements including the Erie Canal (p. 51), the railroad boom
(pp. 96–98) and the importance of the Chicago futures market
84 Quart J Austrian Econ (2019) 22.1:82–90

(p. 120). Even more recent business trends are described, such as
Silicon Valley’s overtaking of Massachusetts’ Route 128 corridor
(e.g. Saxenian, 1996), explicitly attributed to its “decentralized, free-
wheeling and porous” (p. 353) nature. Indeed, the praise of Silicon
Valley is further described as:

a living embodiment of the principle of creative destruction as old

companied died and new ones emerged, allowing capital, ideas, and
people to be reallocated. (p. 353)

The dissonance between the “decentralized, freewheeling and

porous” aspects of capitalism and the significance of the authors’
top-down approach goes entirely overlooked. Indeed, sometime
around the mid-twentieth century in the authors’ story, they change
from describing Great Men to describing Great Presidents: a few
examples include JFK (pp. 302–03); LBJ’s Great Society and Nixon’s
closing of the gold window (pp. 305–06); and of course the authors’
beloved achievements of the Reagan Era (pp. 326–31) that allegedly
“created the conditions for a business revival, removing the shackles
that had bound business ever tighter” (p. 329). Admittedly, some
prominent business leaders make brief appearances (Jack Welch at
GE; George Mitchell, whom the New York Times (2013) called “The
Father of Fracking”; Bill Gates; Larry Page and Sergey Brin) but
their importance is secondary to the main, now political, storyline.
There are at least three areas that warrant serious criticism: the
idea of a wartime ‘prosperity,’ the authors’ use (and presentation)
of data, and the big elephant in the room: central banking, espe-
cially considering the deficient accounts of the Great Recession and
Great Depression.
Firstly, perhaps the most morbid celebration of wartime ever,
Greenspan and Wooldridge argue that the American human capital
stock during World War II was “upgraded” (p. 270) and that the
war acted as “a huge on-the-job training program” (p. 270). In a
paragraph that cannot be read with a straight face, they argue not
only that a contributing benefit to American wartime prosperity was
that demographics such as women massively entered the labor force
and learned valuable skills, but astonishingly enough that soldiers
coming back from the war “with new skills, from organizing groups
of people to repairing jeeps” (p. 271). Never mind the human capital
Book Review: Capitalism in America: A History 85

literally destroyed among the four hundred thousand-odd American

military casualties (not to mention many more wounded), or the
millions upon millions of people whose skills were redirected into
uniquely specific wartime production lines, the “human capital”
value of which were highly doubtful. Neither does the madness
end here, as the authors maintain—contrary to common sense and
indeed both sound economic theory and empirics—on the basis of
four(!) selected indicators that Americans at home were better off
during the war. Noticeably, Robert Higgs (1992, 50–53) debunked
the main myth that real consumer spending increased dramatically,
and I leave the relevance of the other three exhibits to be judged by
the reader (gambling on horses increased by one-and-a-half times;
half a million new businesses were created; eleven thousand new
supermarkets were constructed).
At this point, one sincerely hopes that the nonsense will end, but
alas, it does not. Rather than explaining the immediate post-war
boom in economic data (double digit GNP growth between 1945
and 1946) as a return to capitalism from a wartime command
economy, Greenspan and Wooldridge invoke the infamous pent-up
demand argument. The dissonance is quite remarkable. Instead
of the real income growth and improved living standards in
wartime America—posited no fewer than six pages earlier—the
authors argue that Americans “made up for the deprivations of
the depression and war” (p. 276). American households could not
have both seen their incomes and living standards grow tremen-
dously during the war and suffered deprivations of war, leaving
many needs and demands unmet. Of course, they were not, and the
conviction stems from misapplied GNP numbers deflated with an
inappropriate price index (Higgs 1992, 45–52).
In another oft-repeated argument, pundits denounce the idea that
government spending during the New Deal got America out of the
Great Depression, only to turn around and claim that government
spending during World War II got the job done. Greenspan
and Wooldridge do precisely this: “War spending provided the
stimulus that the economy needed” (p. 268), they write, but just a
few pages earlier, the authors dismissed the New Deal’s emphasis
on spending, since it was “offset by job destruction in the private
sector” (p. 254). What, one might ask, is so “miraculously” different
with government spending on tanks and munitions for use overseas
86 Quart J Austrian Econ (2019) 22.1:82–90

compared to government spending on bridges and public works at

home (Murphy 2012)? The dissonance is surreal.
Second, Greenspan and Wooldridge use a very peculiar selection
of data in making their many arguments. Often, they report
irrelevant or at least unconventional versions of fairly standard
statistics: real GDP during World War II (p. 268), rather than per
capita real GDP; comparing nominal US national income with the
national incomes of Germany, Japan and Italy (p. 262) as if coun-
try-size GDP is of any concern; ignoring massive territorial and
population changes when contrasting the GDP of Germany in
1946 with Germany in 1890 (p. 276), or the doubling of “America’s
real GDP” (p. 361) between 1980 and 2000—conveniently hoping
that the reader had overlooked the emphasis on tens of millions
of immigrants some 15-odd pages earlier. Sometimes, the authors
refer to “the nation’s real income” (p. 304), presumably meaning
price-deflated GDP, but most of the time they settle for reporting
what look like nominal, unadjusted, numbers, which over a time
span of 250 years amounts to little more than rubble. How is the
national output to be rendered legible between vastly different eras
of American history (population, institutions, territorial expansion),
with no recourse to comparability adjustments of any kind? Besides,
a well-read economist with rough knowledge of historical price and
income series (or readily available access to measuringworth.com)
might decipher the present-value equivalent of money prices, but
the employment figures of GM of 1 million in 1960 (p. 288), conveys
very limited information beyond the obvious statement that GM
was a large company even then.
Remarkably, the only time per capita numbers are reported (p.
387), they are used to make the Congressional Budget Office’s
dire projection of the long-term potential growth rate for the U.S.
economy (1.7 percent/year) even worse; with population increases,
the per capita potential growth is therefore well below 1 percent,
which emphasizes the gloomy outlooks for America. One does
wonder why recourse to per capita numbers was superfluous for
close to four hundred pages.
More saliently, all graphs not presenting fractions are given in
logarithmic scale, for rather puzzling reasons. In long-term time
series they are often warranted (for example: stock market index
Book Review: Capitalism in America: A History 87

on p. 222, business productivity and worker output on p. 93, or

prices and wages on p. 175), since nuances in earlier periods would
be entirely swamped by the curves’ exponential increases. But in
a few cases, the frequent use is both unneeded and contributes to
concealing rather than supporting the authors’ main message (as
for miles of railroad construction on p. 97 and wholesale price of
steel on p. 100 and p. 145).
Third, central banking is suspiciously downplayed for a book
on American economic history co-authored by the second longest-
serving chairman of the Fed. It makes an appearance discussing the
accidental invention of the Fed’s 1922 Open Market Operations (p.
235) and a minor comment on monetary policy in the 1980s (p. 331),
in addition to a rather brief inclusion during the Great Depression
and the Great Recession. The Great Depression, noticeably,

was a consequence of the shattering of a stable world order, under-

pinned by fixed gold-standard-linked exchange rates, and by the war
and the failure of the Great Powers to adjust to a changed distribution
of economic and financial power and to put a sustainable new system
in its place (p. 226)

In a twist as remarkably as the dissonances of wartime America

(see above), Greenspan and Wooldridge conclude that Keynes’s
“barbarous relic”—the gold standard—was barbarous only in the
wrong way: “the fetters that doomed the international economy
were not Keynes’s fetters of gold but the fetters of pride”(p. 229),
since its only problem was the price at which foreign countries
pegged their currencies against the dollar, not the many problems
associated with a centrally-regulated pseudo-commodity standard
(Rothbard 2010, 68–98).
At one point, the authors even go as far as blaming “America’s
quirky banking system” (p. 234) at least compared to Canada,
before invoking Friedman and Schwartz’s banking failure expla-
nation of the Great Depression. Rather, the very brief account of
the Great Depression contains nothing but irresponsible stock
brokers, Irving Fisher’s debt deflation and the Smoot-Hawley
tariffs (pp. 230–33).
The Great Recession fares no better, prefaced by generic quips
like “bubbles are endemic to capitalism” (p. 375), and “people’s
88 Quart J Austrian Econ (2019) 22.1:82–90

animal spirits exceed their rational powers” (p. 375) before casti-
gating derivatives and their “notional value” (p. 381). The blame
for the crisis is squarely placed on securitization, the exuberance
of lenders and the thriftiness of Asian savers (pp. 376–79)—the
so-called ‘Savings Glut’—allegedly forcing down interest rates with
a powerless but nevertheless noble Fed standing by (p. 385). Indeed,
the swift and competent actions of the Fed, the “superior quality of
the official response” (p. 385) prevented another Depression. Their
grand achievements included rescuing major financial institutions,
performing stress tests and lowering short-term interest rates to
boost the economy—remarkably so considering that no less than
six sentences earlier, the authors had entirely discounted this trans-
mission mechanism in their quest to exonerate the Fed.
There is a superficial attempt at criticizing low-interest rate
arguments (explicitly that of John Taylor) by placing the beginning
of the housing boom before the interest rate cuts in 2001, and
specifying that originations of a subsection of mortgage lending
“peaked two years before the peak in home prices” (p. 385),
allegedly undermining any low-interest rate arguments. The
attempt is unconvincing to say the least.
While the first eleven chapters provide broad sketches of
American business from 1750 to the present, the value of which
is questionable, chapter twelve (“America’s Fading Dynamism”)
offers a more extensive view into what Greenspan and Wooldridge
see as America’s biggest challenges. This is also their best and most
pertinent chapter, putting the blame of America’s woes in many of
the right places: overburdening regulation, stricter labor markets
and massively reduced (social, geographical, economic) mobility;
the explosive cost of education, its unenlightened pettiness (p. 394)
and the stagnation of Americans’ educational attainment; and the
core reason of America’s failures: “the growth of productivity-sup-
pressing entitlements” (p. 404). They spend eight pages empha-
sizing well-appreciated facts such as the legislative permanence
of entitlements alongside more surprising ones—for instance that
since 1965 entitlements have grown faster (10.7 percent/year)
under Republican presidents than Democratic ones (7.3 percent/
year, p. 405)—and another five pages on how regulation is crippling
entrepreneurial innovation in favor of lawyers, bureaucrats and
consultants. By comparison, acquitting the Fed of blame during the
Book Review: Capitalism in America: A History 89

financial crisis and criticizing low-interest rate arguments is done in

less than a single page.
Huddled among its many shortcomings are many flashes of
brilliancy: quotable quips, accessible summaries of business trends
and revolutionizing innovations (the so-called robber barons,
automobiles, the rise of Silicon Valley and the financial services
innovations of recent decades), a devastating critique of FDR’s
New Deal and a surprisingly Rothbardian position on monopolies
(p. 132). Moreover, the entrepreneur is front and center, albeit more
of a hands-on type than the kind we find in the Austrian entre-
preneurship literature (e.g. Kirzner 1999, Salerno 2008). At least,
one must admit, the authors embrace the entrepreneur as driver
of economic change, a trait they describe as synonymous with
America itself:

American entrepreneurs were drawn from every level of society but

united by their common assumption that every problem was capable of
solution so long as you thought hard enough. (p. 45)

In summary, despite the book’s many flaws of technical, economic

and statistical nature, there is some value to it, especially the two
finishing chapters that identify some of America’s greatest chal-
lenges. The message is ultimately one of optimism, of belief in the
power of entrepreneurial innovation and (mostly) benign impact of
creative destruction. Greenspan and Wooldridge argue that every
time America has been pushed to the brink she has come back
stronger (pp. 28, 449), and despite her current challenges, we should
not despair.
This is a history of American capitalism only if one believes that
capitalism is the actions and consequences of America’s many
noticeable businessmen. Favorably judged, that amounts to a
birds-eye view of American Big Business, 1750 to the present, a
much more apt title for what the authors are doing: paying homage
to the unmatched wonders of creative destruction.

REFERENCES
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London: Fraser.
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the-lives-they-lived/2013/12/21/george-mitchell/.

Kirzner, Israel. 1999. “Creativity and/or Alertness: A Reconsideration of

the Schumpeterian Entrepreneur.” Review of Austrian Economics 11, no.
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MeasuringWorth.com. Accessed January 15, 2019. https://www.measuring

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Mises, Ludwig von. 1951. Socialism: An Economic and Sociological Analysis.

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———. 2007. Theory and History: An Interpretation of Social and Economic

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———. 2008. The Anti-Capitalistic Mentality. Auburn, Ala.: Ludwig von

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Murphy, Robert. P. 2012. “The Myth of Wartime Prosperity.” The American

Conservative, July 10. https://www.theamericanconservative.com/
articles/the-myth-of-wartime-prosperity/.

Reisman, George. 2009. “Credit Expansion, Crisis, and the Myth of

the Saving Glut.” Mises Daily. July 7. https://mises.org/library/
credit-expansion-crisis-and-myth-saving-glut.

Ridley, Matt. 2011. The Rational Optimist: How Prosperity Evolves. New York:
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———. 2015. The Evolution of Everything. London: 4th Estate.

Salerno, Joseph. T. 2008. “The Entrepreneur: Real and Imagined.” Quarterly

Journal of Austrian Economics 11, no. 3: 188–207.

Saxenian, AnnaLee. 1996. Regional Advantage: Culture and Competition in

Silicon Valley and Route 128. Cambridge, Mass: Harvard University Press.

Schumpeter, Joseph A. 2003. Capitalism, Socialism and Democracy. London

and New York: Routledge.