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Book Review: Capitalism In America by Alan Greenspan and Adrian Wooldridge

Capitalism in America: A History. By Alan Greenspan and Adrian Wooldridge.

I recently read this book, published a few months ago, and it is written by a senior journalist who is political editor of the Economist, and former Federal Reserve Chairman Alan Greenspan. Given their respective occupations, I had a rough idea of their broad ideology (a general predisposition towards free markets, private property and limited government) and on the whole I enjoyed reading this book a great deal.

Their core thesis is that America has been as successful as it has been because it allows a great deal of “creative destruction” – new technologies and business models disrupt and replace older ones, causing pain for specific groups but big benefits for the wider population over time. America is so big, and people have traditionally been so willing to move around to find work, that the “creative” side wins over the “destructive”. They observe the back-and-forth process of how there have been periods of intense growth and upward progress, such as the post-Civil War boom, the rise of the great business tycoons such as the Rockefellers, and then the push-back of anti-trust and the Progressive Era, William Jennings Bryan and his “cross of gold” hysteria. We get the Roaring 20s, and ooops! the Great Depression, followed by WW2 and the post-war boom; the troubles of the late 60s, then 70s; the Reagan era, supply side tax cuts and the dotcom boom. For a while, people are diagnosed with something called “affluenza”. And finally, the 2008 crash happens and there’s all the angst over declining productivity and worries about skyrocketing debt.

The most impressive thing about this book in my view is the way an enormous amount of information, some of it arcane, is conveyed into a fast-paced narrative. This book is written very well and packed with anecdotes and even a bit of sly humour. There are some standouts: the book gives a marvelous account of the agricultural technologies and innovations that turned the Great Plains into the breadbasket of the world; its understanding of business models and mass production techniques is first class. It largely absolves the likes of Rockefeller, Carnegie and the rest of the “robber baron” tag and suggests that much anti-trust doctrine is bunk. Later, in discussing the present controversies over Facebook and other “Big Techs”, it is similarly sceptical about whether state bust-ups of such entities is a good idea.

The book points out how, by the late 19th Century, the US government was so small relative to today’s that the largest department of the Federal government was the Post Office. It generally praises the idea of the Gold Standard – Wooldridge and Greenspan are pretty rough on Bryan and others who think that printing money is a solution to economic problems. They are also pretty harsh on F D Roosevelt, pointing out that during the 1930s, unemployment averaged in the double-digit percentages, and that much of the New Deal was, on its stated terms, a failure. They give Roosevelt stick for his vindictive acts and foolish interventionism – they realise that his genius, if we can use that word, was inventing a myth about himself and in telling people that he was going to make sure everything was OK.

Needless to say, the narrative gets more awkward when it covers the period when Greenspan, a man who in his youth was an acolyte of Ayn Rand and an advocate of gold-backed money, became Fed chairman. The book argues (page 385) that critics cannot prove that the 2008 financial crisis can be blamed on loose monetary policy. Well, how jolly convenient! They say that the Fed’s ability to set interest rates, and influence borrowing costs for those with mortgages, etc, was largely restricted by the global “savings glut”. (I will come to this a bit later.) To a great extent, they blame the 2008 disaster on government-subsidised/supported sub-prime mortgages, excess confidence by bankers in risk models and the sheer complexity of financial products, such as in the derivatives markets. All these criticisms of the financial system prior to the collapse of Lehman Bros. in September 2008 look valid but there is also a problem.

A problem to overcome, the authors say, is how rising entitlement spending (Social Security, Medicare, Medicaid) has “crowded out” private savings and that, over a period of time, savings as a share of total GDP has declined. Coupled with this, and with rising regulation (which they rightly attack) has been less overall capital investment, leading to lower productivity growth. When people talk about “stagnant” wages, it is sub-par productivity that is largely to blame.

Okay, so low savings are a problem. If it is true that insufficient private sector savings is a problem to be fixed, how come the “glut” of savings in the years leading up to 2008 was a problem? If Chinese/other savers were pouring genuine savings (not central bank confetti) into the West, and investing in real capital, then why would this be an issue (other than a dislike of the origins of the savings)? When do we know that there is a “glut” of savings if, in other parts of the narrative, Greenspan/Wooldridge say there are insufficient savings because of a state “crowding out” effect? Of course, had Fed interest rates been higher than they were, yield-hungry Chinese savers might have put even money into the US, but then again it might have chilled the housing market enough to halt some of the damage.

Such points aside, Capitalism In America is a good study of some of the big shifts in the US economy since the Republic was born.

16 comments to Book Review: Capitalism In America by Alan Greenspan and Adrian Wooldridge

  • Julie near Chicago

    Johnathan, you write:

    If it is true that insufficient private sector savings is a problem to be fixed, how come the “glut” of savings in the years leading up to 2008 was a problem?

    I may well be way off base here — and if so, please correct me — but it seems likely to me that, in the various discussions I’ve read about the times, the “savings glut” referred to the firms that were holding onto their money rather than investing it (“holding their cash on the sidelines”), because they were not sure where the economy was going and what was likely to be a good investment;

    Whereas the problem of low savings rates in “the private sector” referred to individuals’ low savings for various reasons (one of them being the need to keep up with loan payments).

    I do see that the book’s title specifies Capitalism in America, not global capitalism. And does the phrase “yield-hungry Chinese savers” likewise mean individuals, or rather business firms looking to invest?

    (This reminds that somewhere lately I read that the Chinese “ghost cities” are at least partly a result of Chinese efforts to invest in real estate and housing properties on the theory that such investments always pay off very well. Don’t know if that is true, or if it was formerly but is no longer true.)

    It seems you’ve given us a good book review, and a review of a good book; thanks. :>))

    . . .

    P.S., O/T: I have read that in fact Miss R. and Alan Greenspan remained good friends to the day she died. I’ve been spending some time trying to find out where I read that, and if I can find it I’ll leave a link. (Most of today’s search-engine searches have turned up mostly Rand-bashing, more’s the pity.)

  • bobby b


    “Ayn Rand and I remained close until she died in 1982, and I’m grateful for the influence she had on my life. I was intellectually limited until I met her. All of my work had been empirical and numbers-based, never values-oriented. I was a talented technician, but that was all. My logical positivism had discounted history and literature — if you’d asked me whether Chaucer was worth reading, I’d have said, “Don’t bother.” Rand persuaded me to look at human beings, their values, how they work, what they do and why they do it, and how they think and why they think. This broadened my horizons far beyond the models of economics I’d learned. I began to study how societies form and how cultures behave, and to realize that economics and forecasting depend on such knowledge — different cultures grow and create material wealth in profoundly different ways. All of this started for me with Ayn Rand. She introduced me to a vast realm from which I’d shut myself off.”

    From The Age of Turbulence, pp. 51-53.

  • Nullius in Verba


    “But Greenspan credits Rand as “a stabilizing force in my life” and was “a regular at the weekly gatherings at her apartment” through the early 1960s. She stood at his side when he was sworn in as chairman of the Council of Economic Advisers in 1974, and they “remained close until she died in 1982.””

    Edit: Oops! Bobby beat me to it!

  • they blame the 2008 disaster on government-subsidised/supported sub-prime mortgages, excess confidence by bankers in risk models and the sheer complexity of financial products

    I would agree with that summary, and in that order (i.e. the first was the most important cause).

    It fits with the where: the US mortgage market was where the pain first revealed itself. I wonder how many now recall that in the UK, it was at first well and widely reported that ‘Northern Rock’, the very first major crash here, had “invested heavily in the US mortgage market”. Next up was RBS who had recently acquired a Dutch subsidiary who were likewise into the US mortgage market. As the crisis deepened, the narrative soon shifted to the media’s favourite enemies and talking points, but for a month or two in autumn 2008, the reporting was factual enough.

    It also fits with the when. From the early-mid-90s, when adding 2 and 2 to get 4 became racist and illegal in US mortgages, to the 2007/8 visible sickening of that market fits an appropriate proportion of the mortgage cycle. Mortgages and rents have for centuries been the safe part of financials, the foundations of the house where turbo-charged options and credit default swaps are in the upstairs or the attic. A crash in the foundations is of course devastating and also of course revealing – something has been poisoning normal system functioning for it to happen first there in the basement, not upstairs where it usually would.

    A few years before this happened, I worked on (one of the – I would say the) most sophisticated of the derivative pricing engines. I became very aware that, like managing a forest by suppressing all small fires, the nulling of the book was actually moving all the risk into an improbable-but-not-impossible part of the phase space – so everything would look great until the improbable happened. The LTCM crash in the 90s was a perfect example of the problem. Their pricing engine had them take on $3billion plus of options and then the 1998 Russian default happened. “No problem”, said their pricing engine, “You can still null your book – just take on another $100 billion.” Another way of expressing the problem is that their system would never make a loss if they had an infinite amount of money backing it – but investors with a finite amount of money and credit were exchanging the ups and downs of ordinary trading for a guaranteed steady slow up in almost all cases, and a spectacular down if several unlikely things happened. The engine I worked on was better – but no engine has an infinite field of view.

    The above paragraph is my way of saying that the second point – “excess confidence by bankers in risk models” – though significantly less important and culpable than the first – has content.

  • Julie near Chicago


    Thanks very much for that! Now I can go back to more important matters, such as what to have for supper. :>)))

  • Gavin Longmuir

    FTA “… savings as a share of total GDP has declined. Coupled with this, and with rising regulation (which they rightly attack) has been less overall capital investment, leading to lower productivity growth.”

    No question that economic growth and improving labor productivity requires investment. (One of the amusing paradoxes is that even the old hard-line Communist governments invested capital). And investment clearly requires deferred consumption, aka saving. But investment also requires something in which it is worth investing.

    One of the oddities of the last few years is that companies have overall invested more in stock buy-backs than in new plant & machinery, or R&D. It seems there was more money to invest than genuine investment opportunities. Perhaps part of the reduced productivity growth has been due to lack of viable new technologies in which to invest. Or that corporate governance has become so distorted that CEOs are rewarding themselves through stock buy-backs at the expense of long-term growth for the shareholders. Or that governmental over-regulation and complicated taxation are indeed strangling the goose that used to lay golden eggs.

  • Paul Marks

    The United States never had an entirely free economy, perfection is not to be had in this world, but it did have a largely free economy – and the decline of freedom in America since at least 1913 has been one of the great tragedies of human history.

    Even as late as the start of the 1960s the United States was not yet an “entitlement” country, and most jobs (in most States) were not yet subject to “licensing”. But today the United States has become a parody of the free country it once was – government spending saturates the economy dominating everything (including health care – “America has capitalist health care” fools, please note), and government licenses and regulations dominate every trade and profession preventing any real “social mobility”. Together the American Welfare State and the “Regulation State” have created an UNDERCLASS that has no real chance of personal advancement and development.

    The CULTURE has also been undermined – the voluntary associations (religious and secular – adult fraternities and so on) that once were the foundation of American life have been in horrible decline since at least the start of the 1960s – perhaps since the 1930s. How much this decline has been “natural” decay, and how much American society (culture) has been MURDERED by an unholy alliance of the Marxists (“liberals” in the weird modern language) and much of “Big Business” is a matter of hot debate – but the decline of society (the culture) itself is obvious and has left the population “atomised” and turning to drugs (vast numbers of people are dying from drugs) and suicide.

    As for Alan Greenspan – Ayn Rand rejected him as a liar many years ago. And his claims that it has not been shown that his CREDIT BUBBLE policies created the Credit Bubble that burst in 2008 are yet more lies. Water is wet – he created the Credit Bubble (he even boasted about it – before it burst). Now another Credit Bubble economy has been created (really the same one) and it will collapse – “capitalism” will be FALSELY blamed.

    Even before 1913 the golden rule that all lending should be from Real Savings (the actual SACRIFICE OF CONSUMPTION) was not followed – after all Mr J.P. Morgan lent out three “Dollars” for every Dollar of physical gold that he actually had (an honest money lender is like the “Iron Bank of Bravos” in the fictional “Game of Thrones” – when one goes to them for a loan, they hand over the PHSYCIAL COMMODITY and do not pretend to still have the money AFTER they have lent it out, which is why they are prepared to just about anything to get that physical gold back) – but Mr Morgan seems like a saint (he really does – a saint) compared to what happens now.

    The modern “financial system” has no connection with reality (none) – it is a “Castle In The Air” filled with magic pixie dust and held up by fairy Moon beams. What is called “Financial Capitalism” is not really capitalism at all – and nor is it honest money lending. People who protest against “usury” know not of what they speak – if only “usury” was going on, the lending out of real money for interest. “Usury” is exactly what is NOT being done.

    Governments, via such things as the Federal Reserve (“private” in name only – conspiracy theorists please note), prop up this madness – they have propped it up (at terrible cost to the basic structure of society – creating a tiny group of very rich people and masses of very poor people, by a process that Richard Cantillon warned about THREE HUNDRED YEARS AGO) far longer than I would have thought possible – but eventually this system must collapse.

    “Capitalism” will be blamed – which is a shame, as the system we live under (domination by the Credit Bubble banks and the Corporations that depend on sweetheart loans from them) is not really capitalism at all.

  • Paul Marks

    Of course even the basic foundation of society, the family, has largely collapsed since the start of the 1960s. The “capitalist” family (actually just the family – the alternative to the state) was correctly identified by Marx and Engels as in opposition to their desire to make all individuals part of a general collective, and the Fabians (H.G. Wells, George Bernard Shaw, and other genocidal types) also understood that the family was their enemy.

    In this they all followed PLATO – and his desire that the “Guardians” would serve the collective (not families) and that children be brought up in common, without real homes and real mothers and fathers. With these “gender roles” all being destroyed.

    Society (including its foundation – the family) is not, I believe, dying a natural death – society (the culture) is being MURDERED.

  • Nicholas (Unlicenced Joker) Gray

    What crisis in 2008? Australia did just fine! We had good Treasurers under both major parties (Keating and Costello), and our economy has been booming for years. Some recent leaders (Labor’s Rudd, Gillard, Rudd) gave some cause for concern, but the Federal government is now in surplus, and paying off the debt. Let’s hope we don’t put Labor back into power in May. Some voters, knowing only decades of good times, might be assuming it is automatic, whoever is in power.

  • Nicholas (Unlicenced Joker) Gray (April 18, 2019 at 8:13 am), that is good to hear. It is said that, in war history, those who know little talk tactics, those who know more talk strategy, and those who know most talk logistics. I hear plenty of distressing stuff about Australian hate speech laws and the commissioner who was recorded saying “Sadly, people can still say what they like round the breakfast table”, but fundamentals such as you mention can have a lot to do with whether dangers become disasters.

    I have a vague notion that Canada also did some deficit-reduction work in the first decade of the millennium and so arrived at 2008 in better shape than some, but my knowledge about this is old and patchy.

    BTW, forgot to mention in my comment above, that of course a further factor was the 2008 crisis touching off the euro-bomb. The millennial creation of the euro was another bomb put into the financial system, bound to explode in the second decade, but the mortgage bomb etc., of 2008 detonated it early (standard ‘perfect storm’ effect).

  • Revelation

    Society (including its foundation – the family) is not, I believe, dying a natural death – society (the culture) is being MURDERED.


    To compound the battering the family took from the benefits initiative, where women were incentivised to marry the government not the father of their children; now the focus is on Gays and trannies, and its focused on grooming primary school kids. Its beyond evil.

  • Johnathan Pearce

    Paul Marks, I get what you say about the family but, er, what has this got to do with my book review?

  • Paul Marks

    “What has this got to do with my book review?”

    The subject J.P. – the subject.

    One can not have “capitalism” without Civil Society and the foundation of Civil Society is the family.

    Still I do not blame you – as most of the Mega Corporations have totally forgotten this. They subsidise far left groups and propaganda designed to destroy Civil Society, unware that by so doing they cut the ground from under their own feet.

  • Paul Marks

    There are no perfect people and Mr Walt Disney had many real faults – but he did believe in supporting Civil Society, his own work and the work his company paid for was designed to support Civil Society (Western Civilisation).

    The Mega Corporation that still carries his name does its “best” (i.e. worst) to UNDERMINE the West in the films and so on that it now makes. And sadly the Disney Corporation is typical of the SJW dominated modern Mega Corporations.

    No one is “just after money” – people want to make money (most certainly), but their political and cultural opinions are embodied in the films and television shows (and so on) that they make.

  • Paul Marks

    Would things be different culturally if the economy was not dominated by a few Mega Corporations supported by the “cheap money” of the Federal Reserve and the other Central Banks?

    Well I hope things would be different.

  • Johnathan Pearce (London)

    Still I do not blame you – as most of the Mega Corporations have totally forgotten this. They subsidise far left groups and propaganda designed to destroy Civil Society, unware that by so doing they cut the ground from under their own feet.

    You don’t succeed in proving to me that the decline of the family is a big part of what this book is about. The most that one could say is that the rise of the Welfare State and demise of the family were interlinked in certain ways, but that wasn’t really addressed in the book at all. The book doesn’t talk about the political campaigns (or much) of CEOs and business tycoons, although it mentions the huge philanthropy of the Rockefellers.

    This book was about business the changing fortunes of it in the US. As far as the family is concerned, that would need another volume.