capitalism in america essay

• Entertainment
• Terms and Conditions

Capitalism In America – The History Of Our Economic System

Understanding Economy is Essential

The United States of America has a unique economic system. It’s called Capitalism, and it’s been around for more than 200 years. It was first brought to North America by European settlers, who started trading in the 1620s.

That’s when Europeans imported their new ideas about how society works: from their countries. They came to our country, which at that time included everything from Florida to New York. And they began to put those ideas into practice on this land.

In his book “A Capitalist Manifesto,” economics professor Richard Wolff says three basic rules: competition, private ownership, and free exchange under Capitalism. According to these principles, businesses must compete against each other to sell their goods and services to consumers.

This means that all producers get paid according to their efficiency. No producer gets special favors or tax breaks.

But while Capitalism is known for treating everyone equally, it does have a history of inequality.

Why is the USA a capitalist country?

The US was founded by capitalists who believed that free enterprise creates wealth. They felt that private ownership of land, capital, and labor should be respected. And they thought that competition among companies should be encouraged.

These beliefs have shaped our economic system. Today, we still believe that these ideas will lead to prosperity.

But there are critics of Capitalism. Some say that Capitalism leads to inequality because only rich people own big companies. Others argue that Capitalism doesn’t work because it encourages Greediness.

How does Capitalism work in the United States?

Let’s take a look at how capitalism functions in the United States. First, there are corporations. A corporation is a company owned by shareholders. Shareholders pay money to buy stock in the corporation. That gives them a share of the profits once the business makes money. When a corporation creates a profit, it returns some of that back to the shareholders.

Corporations exist to make a profit. But unlike individual workers, corporations aren’t taxed individually.

Instead, governments collect taxes based on the total amount of income a corporation earns. This allows corporations to deduct the costs of producing goods and services from their taxable income.

So, when a company sells something for $100, it keeps $80 after paying its employees, rent, utilities, advertising, etc. Then, it produces a tax rate of 30 percent on that remaining $80. Finally, the company turns over the rest, $20, to the government. That’s why, even though corporations are often referred to as greedy, they don’t make any more money than individuals who run small businesses.

Next, let’s discuss markets. Markets are where buyers and sellers meet. They allow businesses to find out what customers want and need. If a call has too few suppliers, prices go up. If there are too many suppliers, prices drop. Markets also create incentives for people to produce things better or cheaper.

For example, if I wanted to buy a new car, I might search online to see what cars other people bought recently. If I noticed that my neighbor had bought a particular model, I would be motivated to ask them about his experience with it. Maybe they could tell me about problems they encountered. Or perhaps they could recommend another brand. This kind of exchange helps consumers decide what they want.

It also allows producers to figure out how to improve their products. So, markets work well when there are enough participants.

Finally, let’s talk about the government. Governments provide infrastructure like roads, bridges, tunnels, airports, water treatment plants, power grids, etc. They can also enforce contracts, protect property rights, and regulated industries. Governments also provide police forces, armies, and fire departments.

These institutions help ensure that markets function pretty.

Why Is Capitalism So Important?

Capitalism is one of the most integral parts of modern life—but how exactly did we get here? Today, we can shop online, work flexible hours, and live comfortably without growing much food ourselves. We’re able to provide jobs and opportunities for others because of companies like Walmart and Apple, both of whom were founded long before the Civil Rights Movement.

How did Capitalism become such an essential part of everyday life?

The short answer is that Capitalism gave us freedom. It allowed people to pursue their dreams and goals. Capitalism also created a lot of wealth, which led to prosperity and opportunity for many. And it provided the foundation for economic growth. And now, with the rise of social media, smartphones, and the internet, we have access to information, news, and products faster than ever. Today, Capitalism is viewed as a negative term, but it isn’t anything terrible if you think about it. It’s just a way of organizing production and distribution. Why not call it “production-and-distribution” instead.

How does Capitalism benefit society?

Capitalism benefits everyone. Because it allows people to choose what jobs they want, it gives them control over their lives.

It also lets them earn more money. This means they can spend more money on goods and services.

That makes us all more prosperous.

And finally, Capitalism provides an incentive for innovation. When people invent something new, others may use it. This means that everyone gets to enjoy those innovations.

So, while Capitalism isn’t perfect, it’s still pretty great.

What Are Some Problems With Capitalism?

First, some people say that Capitalism causes inequality. But this is only true in certain circumstances.

Let’s look at two examples:

1) A company hires someone skilled at writing code. The person earns $100 per hour. The company then pays its employees based on the number of hours worked. After working 40 hours, the employee earns $4,000. Now, suppose the same company hired someone else who was less skilled at coding.

They reached $10 per hour. The company paid its employees based on the amount of time spent working. After 40 hours, the employee made $400.In this scenario, the first coder got paid more than twice as much as the second coder. Why? Because the company valued the skills of the first coder more than the second coder. To be considered qualified, applicants must have a bachelor’s degree or higher.

2) Suppose a company offers a job paying $50,000 per year. However, 100 people are applying for the position. Only ten people will be selected. Now, suppose the company offered the same job paying $40,000 per year. Again, only ten people would be chosen. But, this time, the qualifications required to apply were a high school diploma or GED.

Which situation sounds better?

Inequality occurs when the rich get richer, and the poor get poorer. But, under Capitalism, the wealthy don’t always make more money than the poor. For instance, let’s look at the example above where the company pays its employees based on hours worked. If the company had paid its employees based on productivity rather than hours worked, the salaries of the two coders would have been equal.

Thus, Capitalism comes with its Pros and Cons now it comes to the people whether they want to follow it or not. When considering the opportunities that we get through Capitalism, most people don’t open up. Some go with the flow and intake what is required. To understand the country’s economy, one must thoroughly know the nook and corners of Capitalism.

LEAVE A REPLY Cancel reply

Save my name, email, and website in this browser for the next time I comment.

EDITOR PICKS

10 tips on establishing a sophisticated, luxurious home on a budget, 5 easy steps to make your bedroom an inviting place to relax, how to start a successful online business, popular posts, popular category.

• Lifestyle 432
• Home Décor 193
• Finance 141
• Science 122
• Entertainment 48
• affordable decorating ideas 0

Amnesty Media is your news, entertainment, Lifestyle, Health and Fitness website. We provide you with the latest news and videos straight from the industry.

Contact us: [email protected]

It Came in the First Ships: Capitalism in America

"Capitalism came in the first ships." —Carl N. Degler, Out of Our Past

No nation has been more market-oriented in its origins and subsequent history than the United States of America. The very settling of the country, from the Atlantic to the Pacific and onward to Alaska and Hawaii, was one long entrepreneurial adventure. Even down to the present day, more Americans have probably made fortunes from the appreciation of real estate values than from any other source. But land is only the starting place for the epochal drama of American capitalism. That story, in comparison with the long-term business histories of all other large countries, has been one of intense and incessant competition. Americans have persistently shown themselves willing to follow market forces with relatively little hesitation.

In the early years, Americans' ravenous appetite for land was born of European deprivation confronting New World opportunity. Demand, which had been pent up for centuries, suddenly encountered plentiful supply. The settlers' hunger for more and more territory thrust them relentlessly westward, where they could establish farms and ranches that they themselves could own. This was the American Dream in its earliest form, and for the people living the dream, it had an aura of double-edged incredulity. There was disbelief not only at their own good fortune, but also at the backbreaking work required to capitalize on it.

From the colonial period through the early national years, and on into the nineteenth century, everything seemed up for grabs in the new country. Vast, apparently unlimited tracts of land were given away by the government or sold at irresistibly low prices. To get the best land, neither the first colonists nor the pioneers pressing across the frontier had much compunction about dispossessing Native Americans or each other. Sometimes they resorted to outright murder. The movement west constituted a great epic, but in its details was not a pretty story.

Land was available in prodigal abundance in early American history, but it is only one of the classic economic "factors of production." The others are labor, capital, and entrepreneurship. As the earlier chapters of this book have shown, modern capitalism fuses these four factors into operational systems for the conduct of economic life, most notably through the ingenious device of the business corporation.

There are several million corporations in the United States today, and a handful existed at the nation's official birth in 1776. The device became integral to the American economy only in the middle nineteenth century, but it was actually present at the creation 250 years earlier. In 1607, the settlers at Jamestown arrived under the charter of the Virginia Company of London. Puritans founded Boston in 1630 under the auspices of another English corporation, the Massachusetts Bay Company.

The proprietors of the Virginia Company soon were interested primarily in revenues from tobacco. Those of the Massachusetts Bay Company cared less about profit than about setting up what their leader John Winthrop called a "City upon a Hill." They wanted to demonstrate for all humanity the virtues of clean Christian living. If some of the Puritan merchants among them became moderately wealthy, then that might be a sign of God's grace, so long as customers were not cheated or overcharged. The line between virtuous profit and damnable avarice was blurry then, as it remains today. But the Puritans had an unmistakably capitalist turn of mind.

So did William Penn and his community of Friends. Persecuted in England for their religious beliefs, they acquired in 1681 a royal grant of land in America, and proceeded to develop their new colony on both religious and commercial principles. The Quaker merchants of Pennsylvania become prosperous international traders. Like the Puritan merchants of New England, they used their familial and religious connections to form a tight network of trustworthy relationships stretching over long distances. This kind of system for making credible business commitments is one of the essential conditions of strong economic development. In most capitalist economies today, it is embedded in the intricate law of contracts enforced by governments through courts.

Still another English corporation instrumental in populating the New World was the Royal African Company. Chartered in 1672, this company proceeded to take a significant though not dominant part in the slave trade. For the profit of shareholders, it brought to the western hemisphere masses of men and women who had been taken from Africa against their will. Eventually, many thousands of white merchants and seamen on both sides of the Atlantic participated in this commerce, including several hundred from Massachusetts and Rhode Island. The total number of Africans transported to the New World was about 10 million. Their destination was usually Brazil or one of the Caribbean sugar islands, but some 596,000, or about one of every 17, went to areas that became part of the United States.

In 1776, the 13 colonies that made up the original United States declared their independence after almost 170 years of British colonial status. Even at that early date, the new country's population of 2.5 million included plentiful examples of capitalism's many faces. Then as now, capitalism could serve despicable ends, noble ones, or some mixture of the two.

In between the oppressed slaves on the one hand and free yeoman farmers and entrepreneurs on the other stood a large number of whites who had come to America as indentured servants. Between one-half and two-thirds of all white immigrants before the Revolution arrived under these terms. They flocked to America mainly from England, but also from Scotland, Ireland, and Germany. (Germans tended to come in family groups, the others as single adults.) A few were abducted and taken aboard ship by force, but most made the trip voluntarily. They exchanged four to seven years' labor for passage to the New World.

So capitalism did come in the first ships, and in many different forms: legitimate commerce, legal cover for religious freedom, the slave trade, and individuals' exchange of labor for a ticket to America. Yet none of these examples represented modern capitalism. Few had much to do with the First Industrial Revolution, let alone the Second or Third. Each concerned farming, commerce, and trading, not technology and manufacturing. But all contained powerful elements of capitalism, and that proved to be momentous for the nation's future.

Editor's note : Thomas McCraw died inn 2012.

• 26 Mar 2024
• Research & Ideas

How Humans Outshine AI in Adapting to Change

• 24 Jan 2024

Why Boeing’s Problems with the 737 MAX Began More Than 25 Years Ago

• 25 Jan 2022

More Proof That Money Can Buy Happiness (or a Life with Less Stress)

• Cold Call Podcast

How Do Great Leaders Overcome Adversity?

• 04 Mar 2024
• What Do You Think?

Do People Want to Work Anymore?

• Entrepreneurship
• Economic Systems
• Private Ownership
• Economic Sectors
• United States

Sign up for our weekly newsletter

Ages of American capitalism: a history of the United States

A leading economic historian traces the evolution of American capitalism from the colonial era to the present—and argues that we’ve reached a turning point that will define the era ahead.

Today, in the midst of a new economic crisis and severe political discord, the nature of capitalism in United States is at a crossroads. Since the market crash and Great Recession of 2008, historian Jonathan Levy has been teaching a course to help his students understand everything that had happened to reach that disaster and the current state of the economy, but in doing so he discovered something more fundamental about American history. Now, in an ambitious single-volume history of the United States, he reveals how, from the beginning of U.S. history to the present, capitalism in America has evolved through four distinct ages and how the country’s economic evolution is inseparable from the nature of American life itself.

The Age of Commerce spans the colonial era through the outbreak of the Civil War, a period of history in which economic growth and output largely depended on enslaved labor and was limited by what could be drawn from the land and where it could be traded. The Age of Capital traces the impact of the first major leap in economic development following the Civil War: the industrial revolution, when capitalists set capital down in factories to produce commercial goods, fueled by labor moving into cities. But investments in the new industrial economy led to great volatility, most dramatically with the onset of the Great Depression in 1929. The Depression immediately sparked the Age of Control, when the government took on a more active role in the economy, first trying to jump-start it and then funding military production during World War II. Skepticism of government intervention in the Cold War combined with recession and stagflation in the 1970s led to a crisis of industrial capitalism and the withdrawal of political will for regulation. In the Age of Chaos that followed, the combination of deregulation and the growth of the finance industry created a booming economy for some but also striking inequalities and a lack of oversight that led directly to the crash of 2008.

In Ages of American Capitalism, Jonathan Levy proves that, contrary to political dogma, capitalism in the United States has never been just one thing. Instead, it has morphed throughout the country’s history—and it’s likely changing again right now.

Levy, Jonathan

Random House

MA in American History : Apply now and enroll in graduate courses with top historians this summer!

• AP US History Study Guide
• History U: Courses for High School Students
• History School: Summer Enrichment
• Lesson Plans
• Classroom Resources
• Spotlights on Primary Sources
• Professional Development (Academic Year)
• Professional Development (Summer)
• Book Breaks
• Inside the Vault
• Self-Paced Courses
• Browse All Resources
• Search by Issue
• Search by Essay
• Become a Member (Free)
• Monthly Offer (Free for Members)
• Program Information
• Scholarships and Financial Aid
• Applying and Enrolling
• Eligibility (In-Person)
• EduHam Online
• Hamilton Cast Read Alongs
• Official Website
• Press Coverage
• Veterans Legacy Program
• The Declaration at 250
• Black Lives in the Founding Era
• Celebrating American Historical Holidays
• Browse All Programs
• Donate Items to the Collection
• Search Our Catalog
• Research Guides
• Rights and Reproductions
• See Our Documents on Display
• Bring an Exhibition to Your Organization
• Interactive Exhibitions Online
• About the Transcription Program
• Civil War Letters
• Founding Era Newspapers
• College Fellowships in American History
• Scholarly Fellowship Program
• Richard Gilder History Prize
• David McCullough Essay Prize
• Affiliate School Scholarships
• Nominate a Teacher
• Eligibility
• State Winners
• National Winners
• Gilder Lehrman Lincoln Prize
• Gilder Lehrman Military History Prize
• George Washington Prize
• Frederick Douglass Book Prize
• Our Mission and History
• Annual Report
• Contact Information
• Student Advisory Council
• Teacher Advisory Council
• Board of Trustees
• Remembering Richard Gilder
• President's Council
• Scholarly Advisory Board
• Internships
• Our Partners
• Press Releases

History U | Capitalism in American History

Capitalism in american history.

This History U course examines the trajectory of capitalism from its emergence in British North America to the erosion of US global competitiveness in the 1970s and the rise of neoliberalism and financialization since the 1980s.

Course Instructor : Professor David Sicilia, University of Maryland Eligibility : High school students

Image Source: Bernhard Gillam, "The Protectors of Our Industries," Puck , February 7, 1883 (Library of Congress, Prints and Photographs Divison, 94507245)

Free for high school students

Course Description

This History U course examines the trajectory of capitalism from its emergence in British North America to the erosion of US global competitiveness in the 1970s and the rise of neoliberalism and financialization since the 1980s. We will focus on the role of slavery, the state, and corporations in nineteenth-century capitalist expansion; the rise of big business and its impact on US politics, society, and industrial work; the Second Industrial Revolution; causes of the Great Depression; how the New Deal and World War II created a mixed economy; and the predominance of consumerism in postwar America. 

Register Now

The views expressed in this course are those of Dr. David Sicilia.

• Twenty-five video sessions led by Professor David Sicilia
• Links to optional resources
• Short quizzes to review your knowledge
• A certificate of completion for 12 hours of course time

How to Access

• Click  Log In  and either log into your account or click the Sign Up link on the login screen to create an account.
• Click the Register Now button and complete the order form.
• After registering, you may access your course by signing in and visiting your My Courses link under My Account.

Course Introduction

Daniel Jocz explains what you will learn in this course.

About the Scholar

David Sicilia, Henry Kaufman Chair of Financial History, Robert H. Smith School of Business, University of Maryland

David Sicilia is an associate professor of history and the Henry Kaufman Chair of Financial History at the Robert H. Smith School of Business, University of Maryland, College Park. His research expertise includes economic, technological, and exchange history. Sicilia has published several books on these topics, ranging from in-depth investigations of specific entrepreneurs or businesses to explorations of wider global trends. Some of his works include The Entrepreneurs: An American Adventure , co-authored with Robert Sobel; Labors of a Modern Hercules: The Evolution of a Chemical Company , co-authored with Davis Dyer; and Constructing Corporate America: History, Politics, Culture , co-edited with Kenneth Lipartito.

Other History U Courses You May Like

American Immigration History: People, Patterns, and Policy

Led by madeline hsu.

This course provides an overview of American immigration history from the colonial period to the twenty-first century.

• K-12 Student

The Global Cold War

Led by jeremi suri.

This course examines the origins, strategy, and consequences of the Cold War from a global perspective.

World War II

Led by michael neiberg.

This course aims to add more context and nuance to the traditional American views of World War II.

Stay up to date, and subscribe to our quarterly newsletter.

Learn how the Institute impacts history education through our work guiding teachers, energizing students, and supporting research.

• International edition
• Australia edition
• Europe edition

Capitalism in America by Alan Greenspan and Adrian Wooldridge – review

T hirty years ago, I spent some happy weeks in the Library of Congress as a scholar at the Woodrow Wilson Center in Washington DC. Researching the Keynesian proposition that financial systems are the key to the errant behaviour of capitalist economies and have to be put right by public intervention, I stumbled upon a series of measures undertaken by Franklin Roosevelt’s New Dealers in his first year – the introduction of the Home Owners’ Loan Corporation and Farm Credit Administration, and the turbo-boosting of the Reconstruction Finance Corporation. They got little coverage then – even less now – but they were inspiring institutional inventions and central to America’s recovery from the Great Depression.

To this day, I vividly recall the hundreds of thousands of grateful letters, archived in the library, written by farmers, homeowners and small businessmen and women thanking Roosevelt for what his new banks had done. I could only sample hundreds but, to my amazement, the typical American mortgage before 1929 was six years or less – and small business lending beyond the most short term of trade credits almost nonexistent. Roosevelt’s new public banks invented 15-year, even 25-year mortgages and, by allowing farms and homeowners to remortgage themselves, saved millions from being turned out of their homes, farms and businesses by what Roosevelt called tyrannous finance. My reading left an indelible impression about what good government can do and, as importantly, how the financial system was not only pivotal in triggering the Depression but also, through its reshaping, a key factor in the US recovery.

I was gobsmacked by this account of that period by Alan Greenspan , former chair of the US Federal Reserve, and Adrian Wooldridge , the Economist ’s political editor. Neither man would deign to descend to the deep stacks of the wonderful library on Capitol Hill to discover anything, or to read sources that might challenge their deeply entrenched ideological views. The three new pillars that reshaped US finance, the reconfiguring of ordinary Americans’ mortgage and loan repayments, along with the Glass-Steagall Act , which insulated commercial banks from the wild west of investment banking, did much to pull the US out of its slump. They do not get a mention. Instead, the writers inveigh against the growth of trade unions after the 1935 Wagner Act and the clumsiness of the regulations of the National Recovery Administration. But then to hail Roosevelt’s New Deal for US finance would mean acknowledging that parallel actions should have been taken after the 2007-08 crash, along with the scale of the epic mistakes of which Greenspan was a principal architect.

The co-authors are not interested in getting under the skin of the complexities of capitalism by discussing, say, the limits of self-organising markets or the crucial role of democratic institutions in compensating for capitalism’s failings through regulation and institution building. Instead, they are cheerleaders for the view of Ayn Rand – the philosophic high priestess of ultra-individualism – that capitalism is driven by heroic entrepreneurs challenging incumbents in a wild but societally advantageous process of creative destruction. These entrepreneurs may not be admirable human beings, riven as they are by ego and obsessions, but, argue Greenspan and Wooldridge, they are the drivers of human progress. The US – with its continental economy, array of natural resources, culture of self-help that celebrates business, and constitution that limits the impact of government – has allowed individualistic entrepreneurship and creative destruction to do their beneficent work, a process the authors so lionise that their critical faculties are suspended.

They concede it has been a bumpy ride, but see the culprit not as capitalism itself, but as the politicians who “whip up” dissent against the system’s alleged injustices, miss seeing the bigger picture, introduce “entitlements” and impose “regulations”. The overall story is one of bewildering advance – the book rollicks along like a good Victorian adventure story – but only as long as those malevolent forces can be kept at bay. The trouble now, argue the duo, is that the US no longer understands the alchemy of its own success and is becoming bowed down by politicians, regulations and social entitlement. Unless it gets real, fast, America’s glory days may be gone.

Joel Mokyr, in his 2009 masterpiece The Enlightened Economy , describes how Britain’s Industrial Revolution was the product of the interplay of penseurs from all over Europe creating ideas in the best Enlightenment spirit, which were then turned by “fabricants” into great products (factories besides rivers and hills, maximising natural resources).

The US is the great enlightenment republic; it captured what was happening in Britain and launched it across an economy on a scale hitherto unimaginable. Regulations often helped the process by driving out hucksters and setting common continental-wide standards: the emergence of a social contract in which ordinary Americans earned entitlements to a decent income in old age reconciled them to an otherwise brutal process. What threatens American capitalism now is not regulation and entitlement – it is the decline of the Enlightenment spirit and the accompanying public realm under assault from intellectual hawkers and proselytisers of an ultra-libertarian barbarism. This book, for all its breathless enthusiasm for capitalism, has sadly helped their cause.

Will Hutton is principal of Hertford College, University of Oxford, and co-founder of the Big Innovation Centre.

• Book of the day
• History books

OnPoint Subscriber Exclusive

Global Bookmark offers long-form examinations of global trends and challenges, viewed through the lens of important new books.

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?”

Subscribe to PS Digital

Access every new PS commentary, our entire On Point suite of subscriber-exclusive content – including Longer Reads, Insider Interviews, Big Picture/Big Question, and Say More – and the full PS archive.

Subscribe Now

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.

Senegal’s Election and Africa’s Future

Mar 28, 2024 Rabah Arezki

Are Global Capital Rules Possible?

Mar 29, 2024 Howard Davies

America Must Lead on Crypto Regulation

Mar 28, 2024 Dante Alighieri Disparte

How Democracies Can Win the Tech Race

Apr 1, 2024 Ylli Bajraktari & André Loesekrug-Pietri

China Tightens Its Grip on Hong Kong

Mar 29, 2024 Chris Patten

New Comment

It appears that you have not yet updated your first and last name. If you would like to update your name, please do so here .

After posting your comment, you’ll have a ten-minute window to make any edits. Please note that we moderate comments to ensure the conversation remains topically relevant. We appreciate well-informed comments and welcome your criticism and insight. Please be civil and avoid name-calling and ad hominem remarks.

Email this piece to a friend

Friend's name

Friend's email

• Feedback/general inquiries
• Advertise with us
• Corporate Subscriptions
• Education Subscriptions
• Secure publication rights
• Submit a commentary for publication
• Website help

Please provide more details about your request

More PS OnPoint

• Longer Reads
• Global Bookmark
• Insider Interview
• Big Picture

We hope you're enjoying our PS content

To have unlimited access to our content including in-depth commentaries, book reviews, exclusive interviews, PS OnPoint and PS The Big Picture, please subscribe

Angela Huyue Zhang on Chinese innovation, regulation, AI, and more

How Capitalism Became a Threat to Democracy

The Global Economy’s Biggest Untapped Resource

At the current rate of progress, it will take about 300 years to end child marriage, 286 years to deliver full gender equality under the law, and 140 years to achieve equal representation in leadership positions in the workplace, the United Nations reports . This moral failure is compounded by its enormous opportunity cost: a massive improvement in human welfare.

How Resilient Is Putin?

As Russia prepares for another sham presidential election, the West is introducing new sanctions over the death of opposition leader Alexei Navalny, considering seizing some $300 billion of Russian central-bank assets, and struggling to overcome political hurdles to continued support for Ukraine. How, if at all, will these developments affect Russian President Vladimir Putin’s grip on political power?

✕ Log in/Register

Please log in or register to continue. Registration is free and requires only your email address.

Email required

Password required Remember me?

Please enter your email address and click on the reset-password button. If your email exists in our system, we'll send you an email with a link to reset your password. Please note that the link will expire twenty-four hours after the email is sent. If you can't find this email, please check your spam folder.

Reset Password Cancel

• She Writes newsletter
• PS Economics Newsletter
• Promotional emails

By proceeding, you are agreeing to our Terms and Conditions .

Sign in with

Your Institution

Edit Newsletter Preferences

Set up notification.

To receive email updates regarding this {entity_type}, please enter your email below.

If you are not already registered, this will create a PS account for you. You should receive an activation email shortly.

The New York Times

Magazine | american capitalism is brutal. you can trace that to the plantation., american capitalism is brutal. you can trace that to the plantation..

By MATTHEW DESMOND AUG. 14, 2019

Slavery helped turn America into a financial colossus. And our economy is still shaped by management practices invented by enslavers and overseers.

In order to understand the brutality of American capitalism, you have to start on the plantation.

By Matthew Desmond AUG. 14, 2019

A couple of years before he was convicted of securities fraud, Martin Shkreli was the chief executive of a pharmaceutical company that acquired the rights to Daraprim, a lifesaving antiparasitic drug. Previously the drug cost $13.50 a pill, but in Shkreli’s hands, the price quickly increased by a factor of 56, to $750 a pill. At a health care conference, Shkreli told the audience that he should have raised the price even higher. “No one wants to say it, no one’s proud of it,” he explained. “But this is a capitalist society, a capitalist system and capitalist rules.”

This is a capitalist society. It’s a fatalistic mantra that seems to get repeated to anyone who questions why America can’t be more fair or equal. But around the world, there are many types of capitalist societies, ranging from liberating to exploitative, protective to abusive, democratic to unregulated. When Americans declare that “we live in a capitalist society” — as a real estate mogul told The Miami Herald last year when explaining his feelings about small-business owners being evicted from their Little Haiti storefronts — what they’re often defending is our nation’s peculiarly brutal economy. “Low-road capitalism,” the University of Wisconsin-Madison sociologist Joel Rogers has called it. In a capitalist society that goes low, wages are depressed as businesses compete over the price, not the quality, of goods; so-called unskilled workers are typically incentivized through punishments, not promotions; inequality reigns and poverty spreads. In the United States, the richest 1 percent of Americans own 40 percent of the country’s wealth, while a larger share of working-age people (18-65) live in poverty than in any other nation belonging to the Organization for Economic Cooperation and Development (O.E.C.D.).

Or consider worker rights in different capitalist nations. In Iceland, 90 percent of wage and salaried workers belong to trade unions authorized to fight for living wages and fair working conditions. Thirty-four percent of Italian workers are unionized, as are 26 percent of Canadian workers. Only 10 percent of American wage and salaried workers carry union cards. The O.E.C.D. scores nations along a number of indicators, such as how countries regulate temporary work arrangements. Scores run from 5 (“very strict”) to 1 (“very loose”). Brazil scores 4.1 and Thailand, 3.7, signaling toothy regulations on temp work. Further down the list are Norway (3.4), India (2.5) and Japan (1.3). The United States scored 0.3, tied for second to last place with Malaysia. How easy is it to fire workers? Countries like Indonesia (4.1) and Portugal (3) have strong rules about severance pay and reasons for dismissal. Those rules relax somewhat in places like Denmark (2.1) and Mexico (1.9). They virtually disappear in the United States, ranked dead last out of 71 nations with a score of 0.5.

Those searching for reasons the American economy is uniquely severe and unbridled have found answers in many places (religion, politics, culture). But recently, historians have pointed persuasively to the gnatty fields of Georgia and Alabama, to the cotton houses and slave auction blocks, as the birthplace of America’s low-road approach to capitalism.

Slavery was undeniably a font of phenomenal wealth. By the eve of the Civil War, the Mississippi Valley was home to more millionaires per capita than anywhere else in the United States. Cotton grown and picked by enslaved workers was the nation’s most valuable export. The combined value of enslaved people exceeded that of all the railroads and factories in the nation. New Orleans boasted a denser concentration of banking capital than New York City. What made the cotton economy boom in the United States, and not in all the other far-flung parts of the world with climates and soil suitable to the crop, was our nation’s unflinching willingness to use violence on nonwhite people and to exert its will on seemingly endless supplies of land and labor. Given the choice between modernity and barbarism, prosperity and poverty, lawfulness and cruelty, democracy and totalitarianism, America chose all of the above.

Nearly two average American lifetimes (79 years) have passed since the end of slavery, only two. It is not surprising that we can still feel the looming presence of this institution, which helped turn a poor, fledgling nation into a financial colossus. The surprising bit has to do with the many eerily specific ways slavery can still be felt in our economic life. “American slavery is necessarily imprinted on the DNA of American capitalism,” write the historians Sven Beckert and Seth Rockman. The task now, they argue, is “cataloging the dominant and recessive traits” that have been passed down to us, tracing the unsettling and often unrecognized lines of descent by which America’s national sin is now being visited upon the third and fourth generations.

[Listen to an episode of the “1619” podcast with Matthew Desmond and Nikole Hannah-Jones about the economy that slavery built.]

They picked in long rows, bent bodies shuffling through cotton fields white in bloom. Men, women and children picked, using both hands to hurry the work. Some picked in Negro cloth, their raw product returning to them by way of New England mills. Some picked completely naked. Young children ran water across the humped rows, while overseers peered down from horses. Enslaved workers placed each cotton boll into a sack slung around their necks. Their haul would be weighed after the sunlight stalked away from the fields and, as the freedman Charles Ball recalled, you couldn’t “distinguish the weeds from the cotton plants.” If the haul came up light, enslaved workers were often whipped. “A short day’s work was always punished,” Ball wrote.

Cotton was to the 19th century what oil was to the 20th: among the world’s most widely traded commodities. Cotton is everywhere, in our clothes, hospitals, soap. Before the industrialization of cotton, people wore expensive clothes made of wool or linen and dressed their beds in furs or straw. Whoever mastered cotton could make a killing. But cotton needed land. A field could only tolerate a few straight years of the crop before its soil became depleted. Planters watched as acres that had initially produced 1,000 pounds of cotton yielded only 400 a few seasons later. The thirst for new farmland grew even more intense after the invention of the cotton gin in the early 1790s. Before the gin, enslaved workers grew more cotton than they could clean. The gin broke the bottleneck, making it possible to clean as much cotton as you could grow.

[ To get updates on The 1619 Project, and for more on race from The New York Times, sign up f or our weekly Race/Related newsletter .]

The Limits of Banking Regulation

At the start of the Civil War, only states could charter banks. It wasn’t until the National Currency Act of 1863 and the National Bank Act of 1864 passed at the height of the Civil War that banks operated in this country on a national scale, with federal oversight. And even then, it was only law in the North. The Union passed the bills so it could establish a national currency in order to finance the war. The legislation also created the Office of the Comptroller of the Currency (O.C.C.), the first federal bank regulator. After the war, states were allowed to keep issuing bank charters of their own. This byzantine infrastructure remains to this day and is known as the dual banking system. Among all nations in the world, only the United States has such a fragmentary, overlapping and inefficient system — a direct relic of the conflict between federal and state power over maintenance of the slave-based economy of the South.

Both state regulators and the O.C.C., one of the largest federal regulators, are funded by fees from the banks they regulate. Moreover, banks are effectively able to choose regulators — either federal or state ones, depending on their charter. They can even change regulators if they become unsatisfied with the one they’ve chosen. Consumer-protection laws, interest-rate caps and basic-soundness regulations have often been rendered ineffectual in the process — and deregulation of this sort tends to lead to crisis.

In the mid-2000s, when subprime lenders started appearing in certain low-income neighborhoods, many of them majority black and Latino, several state banking regulators took note. In Michigan, the state insurance regulator tried to enforce its consumer-protection laws on Wachovia Mortgage, a subsidiary of Wachovia Bank. In response, Wachovia’s national regulator, the O.C.C., stepped in, claiming that banks with a national charter did not have to comply with state law. The Supreme Court agreed with the O.C.C., and Wachovia continued to engage in risky subprime activity.

Eventually loans like those blew up the banking system and the investments of many Americans — especially the most vulnerable. Black communities lost 53 percent of their wealth because of the crisis, a loss that a former congressman, Brad Miller, said “has almost been an extinction event.”

The United States solved its land shortage by expropriating millions of acres from Native Americans, often with military force, acquiring Georgia, Alabama, Tennessee and Florida. It then sold that land on the cheap — just $1.25 an acre in the early 1830s ($38 in today’s dollars) — to white settlers. Naturally, the first to cash in were the land speculators. Companies operating in Mississippi flipped land, selling it soon after purchase, commonly for double the price.

Enslaved workers felled trees by ax, burned the underbrush and leveled the earth for planting. “Whole forests were literally dragged out by the roots,” John Parker, an enslaved worker, remembered. A lush, twisted mass of vegetation was replaced by a single crop. An origin of American money exerting its will on the earth, spoiling the environment for profit, is found in the cotton plantation. Floods became bigger and more common. The lack of biodiversity exhausted the soil and, to quote the historian Walter Johnson, “rendered one of the richest agricultural regions of the earth dependent on upriver trade for food.”

As slave labor camps spread throughout the South, production surged. By 1831, the country was delivering nearly half the world’s raw cotton crop, with 350 million pounds picked that year. Just four years later, it harvested 500 million pounds. Southern white elites grew rich, as did their counterparts in the North, who erected textile mills to form, in the words of the Massachusetts senator Charles Sumner, an “unhallowed alliance between the lords of the lash and the lords of the loom.” The large-scale cultivation of cotton hastened the invention of the factory, an institution that propelled the Industrial Revolution and changed the course of history. In 1810, there were 87,000 cotton spindles in America. Fifty years later, there were five million. Slavery, wrote one of its defenders in De Bow’s Review, a widely read agricultural magazine, was the “nursing mother of the prosperity of the North.” Cotton planters, millers and consumers were fashioning a new economy, one that was global in scope and required the movement of capital, labor and products across long distances. In other words, they were fashioning a capitalist economy. “The beating heart of this new system,” Beckert writes, “was slavery.”

Perhaps you’re reading this at work, maybe at a multinational corporation that runs like a soft-purring engine. You report to someone, and someone reports to you. Everything is tracked, recorded and analyzed, via vertical reporting systems, double-entry record-keeping and precise quantification. Data seems to hold sway over every operation. It feels like a cutting-edge approach to management, but many of these techniques that we now take for granted were developed by and for large plantations.

When an accountant depreciates an asset to save on taxes or when a midlevel manager spends an afternoon filling in rows and columns on an Excel spreadsheet, they are repeating business procedures whose roots twist back to slave-labor camps. And yet, despite this, “slavery plays almost no role in histories of management,” notes the historian Caitlin Rosenthal in her book “Accounting for Slavery.” Since the 1977 publication of Alfred Chandler’s classic study, “The Visible Hand,” historians have tended to connect the development of modern business practices to the 19th-century railroad industry, viewing plantation slavery as precapitalistic, even primitive. It’s a more comforting origin story, one that protects the idea that America’s economic ascendancy developed not because of, but in spite of, millions of black people toiling on plantations. But management techniques used by 19th-century corporations were implemented during the previous century by plantation owners.

Planters aggressively expanded their operations to capitalize on economies of scale inherent to cotton growing, buying more enslaved workers, investing in large gins and presses and experimenting with different seed varieties. To do so, they developed complicated workplace hierarchies that combined a central office, made up of owners and lawyers in charge of capital allocation and long-term strategy, with several divisional units, responsible for different operations. Rosenthal writes of one plantation where the owner supervised a top lawyer, who supervised another lawyer, who supervised an overseer, who supervised three bookkeepers, who supervised 16 enslaved head drivers and specialists (like bricklayers), who supervised hundreds of enslaved workers. Everyone was accountable to someone else, and plantations pumped out not just cotton bales but volumes of data about how each bale was produced. This organizational form was very advanced for its time, displaying a level of hierarchal complexity equaled only by large government structures, like that of the British Royal Navy.

Like today’s titans of industry, planters understood that their profits climbed when they extracted maximum effort out of each worker. So they paid close attention to inputs and outputs by developing precise systems of record-keeping. Meticulous bookkeepers and overseers were just as important to the productivity of a slave-labor camp as field hands. Plantation entrepreneurs developed spreadsheets, like Thomas Affleck’s “Plantation Record and Account Book,” which ran into eight editions circulated until the Civil War. Affleck’s book was a one-stop-shop accounting manual, complete with rows and columns that tracked per-worker productivity. This book “was really at the cutting edge of the informational technologies available to businesses during this period,” Rosenthal told me. “I have never found anything remotely as complex as Affleck’s book for free labor.” Enslavers used the book to determine end-of-the-year balances, tallying expenses and revenues and noting the causes of their biggest gains and losses. They quantified capital costs on their land, tools and enslaved workforces, applying Affleck’s recommended interest rate. Perhaps most remarkable, they also developed ways to calculate depreciation, a breakthrough in modern management procedures, by assessing the market value of enslaved workers over their life spans. Values generally peaked between the prime ages of 20 and 40 but were individually adjusted up or down based on sex, strength and temperament: people reduced to data points.

This level of data analysis also allowed planters to anticipate rebellion. Tools were accounted for on a regular basis to make sure a large number of axes or other potential weapons didn’t suddenly go missing. “Never allow any slave to lock or unlock any door,” advised a Virginia enslaver in 1847. In this way, new bookkeeping techniques developed to maximize returns also helped to ensure that violence flowed in one direction, allowing a minority of whites to control a much larger group of enslaved black people. American planters never forgot what happened in Saint-Domingue (now Haiti) in 1791, when enslaved workers took up arms and revolted. In fact, many white enslavers overthrown during the Haitian Revolution relocated to the United States and started over.

Overseers recorded each enslaved worker’s yield. Accountings took place not only after nightfall, when cotton baskets were weighed, but throughout the workday. In the words of a North Carolina planter, enslaved workers were to be “followed up from day break until dark.” Having hands line-pick in rows sometimes longer than five football fields allowed overseers to spot anyone lagging behind. The uniform layout of the land had a logic; a logic designed to dominate. Faster workers were placed at the head of the line, which encouraged those who followed to match the captain’s pace. When enslaved workers grew ill or old, or became pregnant, they were assigned to lighter tasks. One enslaver established a “sucklers gang” for nursing mothers, as well as a “measles gang,” which at once quarantined those struck by the virus and ensured that they did their part to contribute to the productivity machine. Bodies and tasks were aligned with rigorous exactitude. In trade magazines, owners swapped advice about the minutiae of planting, including slave diets and clothing as well as the kind of tone a master should use. In 1846, one Alabama planter advised his fellow enslavers to always give orders “in a mild tone, and try to leave the impression on the mind of the negro that what you say is the result of reflection.” The devil (and his profits) were in the details.

Fiat Currency and the Civil War

The Constitution is riddled with compromises made between the North and South over the issue of slavery — the Electoral College, the three-fifths clause — but paper currency was too contentious an issue for the framers, so it was left out entirely. Thomas Jefferson, like many Southerners, believed that a national currency would make the federal government too powerful and would also favor the Northern trade-based economy over the plantation economy. So, for much of its first century, the United States was without a national bank or a uniform currency, leaving its economy prone to crisis, bank runs and instability.

At the height of the war, Lincoln understood that he could not feed the troops without more money, so he issued a national currency, backed by the full faith and credit of the United States Treasury — but not by gold. (These bills were known derisively as “greenbacks,” a word that has lived on.) The South had a patchwork currency that was backed by the holdings of private banks — the same banks that helped finance the entire Southern economy, from the plantations to the people enslaved on them. Some Confederate bills even had depictions of enslaved people on their backs.

In a sense, the war over slavery was also a war over the future of the economy and the essentiality of value. By issuing fiat currency, Lincoln bet the future on the elasticity of value. This was the United States’ first formal experiment with fiat money, and it was a resounding success. The currency was accepted by national and international creditors — such as private creditors from London, Amsterdam and Paris — and funded the feeding and provisioning of Union troops. In turn, the success of the Union Army fortified the new currency. Lincoln assured critics that the move would be temporary, but leaders who followed him eventually made it permanent — first Franklin Roosevelt during the Great Depression and then, formally, Richard Nixon in 1971.

The uncompromising pursuit of measurement and scientific accounting displayed in slave plantations predates industrialism. Northern factories would not begin adopting these techniques until decades after the Emancipation Proclamation. As the large slave-labor camps grew increasingly efficient, enslaved black people became America’s first modern workers, their productivity increasing at an astonishing pace. During the 60 years leading up to the Civil War, the daily amount of cotton picked per enslaved worker increased 2.3 percent a year. That means that in 1862, the average enslaved fieldworker picked not 25 percent or 50 percent as much but 400 percent as much cotton than his or her counterpart did in 1801.

Today modern technology has facilitated unremitting workplace supervision, particularly in the service sector. Companies have developed software that records workers’ keystrokes and mouse clicks, along with randomly capturing screenshots multiple times a day. Modern-day workers are subjected to a wide variety of surveillance strategies, from drug tests and closed-circuit video monitoring to tracking apps and even devices that sense heat and motion. A 2006 survey found that more than a third of companies with work forces of 1,000 or more had staff members who read through employees’ outbound emails. The technology that accompanies this workplace supervision can make it feel futuristic. But it’s only the technology that’s new. The core impulse behind that technology pervaded plantations , which sought innermost control over the bodies of their enslaved work force.

The cotton plantation was America’s first big business, and the nation’s first corporate Big Brother was the overseer. And behind every cold calculation, every rational fine-tuning of the system, violence lurked. Plantation owners used a combination of incentives and punishments to squeeze as much as possible out of enslaved workers. Some beaten workers passed out from the pain and woke up vomiting. Some “danced” or “trembled” with every hit. An 1829 first-person account from Alabama recorded an overseer’s shoving the faces of women he thought had picked too slow into their cotton baskets and opening up their backs. To the historian Edward Baptist, before the Civil War, Americans “lived in an economy whose bottom gear was torture.”

There is some comfort, I think, in attributing the sheer brutality of slavery to dumb racism. We imagine pain being inflicted somewhat at random, doled out by the stereotypical white overseer, free but poor. But a good many overseers weren’t allowed to whip at will. Punishments were authorized by the higher-ups. It was not so much the rage of the poor white Southerner but the greed of the rich white planter that drove the lash. The violence was neither arbitrary nor gratuitous. It was rational, capitalistic, all part of the plantation’s design. “Each individual having a stated number of pounds of cotton to pick,” a formerly enslaved worker, Henry Watson, wrote in 1848, “the deficit of which was made up by as many lashes being applied to the poor slave’s back.” Because overseers closely monitored enslaved workers’ picking abilities, they assigned each worker a unique quota. Falling short of that quota could get you beaten, but overshooting your target could bring misery the next day, because the master might respond by raising your picking rate.

Profits from heightened productivity were harnessed through the anguish of the enslaved. This was why the fastest cotton pickers were often whipped the most. It was why punishments rose and fell with global market fluctuations. Speaking of cotton in 1854, the fugitive slave John Brown remembered, “When the price rises in the English market, the poor slaves immediately feel the effects, for they are harder driven, and the whip is kept more constantly going.” Unrestrained capitalism holds no monopoly on violence, but in making possible the pursuit of near limitless personal fortunes, often at someone else’s expense, it does put a cash value on our moral commitments.

Slavery did supplement white workers with what W.E.B. Du Bois called a “public and psychological wage,” which allowed them to roam freely and feel a sense of entitlement. But this, too, served the interests of money. Slavery pulled down all workers’ wages. Both in the cities and countryside, employers had access to a large and flexible labor pool made up of enslaved and free people. Just as in today’s gig economy, day laborers during slavery’s reign often lived under conditions of scarcity and uncertainty, and jobs meant to be worked for a few months were worked for lifetimes. Labor power had little chance when the bosses could choose between buying people, renting them, contracting indentured servants, taking on apprentices or hiring children and prisoners.

This not only created a starkly uneven playing field, dividing workers from themselves; it also made “all nonslavery appear as freedom,” as the economic historian Stanley Engerman has written. Witnessing the horrors of slavery drilled into poor white workers that things could be worse. So they generally accepted their lot, and American freedom became broadly defined as the opposite of bondage. It was a freedom that understood what it was against but not what it was for; a malnourished and mean kind of freedom that kept you out of chains but did not provide bread or shelter. It was a freedom far too easily pleased.

In recent decades, America has experienced the financialization of its economy. In 1980, Congress repealed regulations that had been in place since the 1933 Glass-Steagall Act, allowing banks to merge and charge their customers higher interest rates. Since then, increasingly profits have accrued not by trading and producing goods and services but through financial instruments. Between 1980 and 2008, more than $6.6 trillion was transferred to financial firms. After witnessing the successes and excesses of Wall Street, even nonfinancial companies began finding ways to make money from financial products and activities. Ever wonder why every major retail store, hotel chain and airline wants to sell you a credit card? This financial turn has trickled down into our everyday lives: It’s there in our pensions, home mortgages, lines of credit and college-savings portfolios. Americans with some means now act like “enterprising subjects,” in the words of the political scientist Robert Aitken.

As it’s usually narrated, the story of the ascendancy of American finance tends to begin in 1980, with the gutting of Glass-Steagall, or in 1944 with Bretton Woods, or perhaps in the reckless speculation of the 1920s. But in reality, the story begins during slavery.

Cotton and the Global Market

Cotton produced under slavery created a worldwide market that brought together the Old World and the New: the industrial textile mills of the Northern states and England, on the one hand, and the cotton plantations of the American South on the other. Textile mills in industrial centers like Lancashire, England, purchased a majority of cotton exports, which created worldwide trade hubs in London and New York where merchants could trade in, invest in, insure and speculate on the cotton—commodity market. Though trade in other commodities existed, it was cotton (and the earlier trade in slave-produced sugar from the Caribbean) that accelerated worldwide commercial markets in the 19th century, creating demand for innovative contracts, novel financial products and modern forms of insurance and credit.

Like all agricultural goods, cotton is prone to fluctuations in quality depending on crop type, location and environmental conditions. Treating it as a commodity led to unique problems: How would damages be calculated if the wrong crop was sent? How would you assure that there was no misunderstanding between two parties on time of delivery? Legal concepts we still have to this day, like “mutual mistake” (the notion that contracts can be voided if both parties relied on a mistaken assumption), were developed to deal with these issues. Textile merchants needed to purchase cotton in advance of their own production, which meant that farmers needed a way to sell goods they had not yet grown; this led to the invention of futures contracts and, arguably, the commodities markets still in use today.

From the first decades of the 1800s, during the height of the trans-Atlantic cotton trade, the sheer size of the market and the escalating number of disputes between counterparties was such that courts and lawyers began to articulate and codify the common-law standards regarding contracts. This allowed investors and traders to mitigate their risk through contractual arrangement, which smoothed the flow of goods and money. Today law students still study some of these pivotal cases as they learn doctrines like forseeability, mutual mistake and damages.

Consider, for example, one of the most popular mainstream financial instruments: the mortgage. Enslaved people were used as collateral for mortgages centuries before the home mortgage became the defining characteristic of middle America. In colonial times, when land was not worth much and banks didn’t exist, most lending was based on human property. In the early 1700s, slaves were the dominant collateral in South Carolina. Many Americans were first exposed to the concept of a mortgage by trafficking in enslaved people, not real estate, and “the extension of mortgages to slave property helped fuel the development of American (and global) capitalism,” the historian Joshua Rothman told me.

Or consider a Wall Street financial instrument as modern-sounding as collateralized debt obligations (C.D.O.s), those ticking time bombs backed by inflated home prices in the 2000s. C.D.O.s were the grandchildren of mortgage-backed securities based on the inflated value of enslaved people sold in the 1820s and 1830s. Each product created massive fortunes for the few before blowing up the economy.

Enslavers were not the first ones to securitize assets and debts in America. The land companies that thrived during the late 1700s relied on this technique, for instance. But enslavers did make use of securities to such an enormous degree for their time, exposing stakeholders throughout the Western world to enough risk to compromise the world economy, that the historian Edward Baptist told me that this can be viewed as “a new moment in international capitalism, where you are seeing the development of a globalized financial market.” The novel thing about the 2008 foreclosure crisis was not the concept of foreclosing on a homeowner but foreclosing on millions of them. Similarly, what was new about securitizing enslaved people in the first half of the 19th century was not the concept of securitization itself but the crazed level of rash speculation on cotton that selling slave debt promoted.

As America’s cotton sector expanded, the value of enslaved workers soared. Between 1804 and 1860, the average price of men ages 21 to 38 sold in New Orleans grew to $1,200 from roughly $450. Because they couldn’t expand their cotton empires without more enslaved workers, ambitious planters needed to find a way to raise enough capital to purchase more hands. Enter the banks. The Second Bank of the United States, chartered in 1816, began investing heavily in cotton. In the early 1830s, the slaveholding Southwestern states took almost half the bank’s business. Around the same time, state-chartered banks began multiplying to such a degree that one historian called it an “orgy of bank-creation.”

When seeking loans, planters used enslaved people as collateral. Thomas Jefferson mortgaged 150 of his enslaved workers to build Monticello. People could be sold much more easily than land, and in multiple Southern states, more than eight in 10 mortgage-secured loans used enslaved people as full or partial collateral. As the historian Bonnie Martin has written, “slave owners worked their slaves financially, as well as physically from colonial days until emancipation” by mortgaging people to buy more people. Access to credit grew faster than Mississippi kudzu, leading one 1836 observer to remark that in cotton country “money, or what passed for money, was the only cheap thing to be had.”

Planters took on immense amounts of debt to finance their operations. Why wouldn’t they? The math worked out. A cotton plantation in the first decade of the 19th century could leverage their enslaved workers at 8 percent interest and record a return three times that. So leverage they did, sometimes volunteering the same enslaved workers for multiple mortgages. Banks lent with little restraint. By 1833, Mississippi banks had issued 20 times as much paper money as they had gold in their coffers. In several Southern counties, slave mortgages injected more capital into the economy than sales from the crops harvested by enslaved workers.

Global financial markets got in on the action. When Thomas Jefferson mortgaged his enslaved workers, it was a Dutch firm that put up the money. The Louisiana Purchase, which opened millions of acres to cotton production, was financed by Baring Brothers, the well-heeled British commercial bank. A majority of credit powering the American slave economy came from the London money market. Years after abolishing the African slave trade in 1807, Britain, and much of Europe along with it, was bankrolling slavery in the United States. To raise capital, state-chartered banks pooled debt generated by slave mortgages and repackaged it as bonds promising investors annual interest. During slavery’s boom time, banks did swift business in bonds, finding buyers in Hamburg and Amsterdam, in Boston and Philadelphia.

Some historians have claimed that the British abolition of the slave trade was a turning point in modernity, marked by the development of a new kind of moral consciousness when people began considering the suffering of others thousands of miles away. But perhaps all that changed was a growing need to scrub the blood of enslaved workers off American dollars, British pounds and French francs, a need that Western financial markets fast found a way to satisfy through the global trade in bank bonds. Here was a means to profit from slavery without getting your hands dirty. In fact, many investors may not have realized that their money was being used to buy and exploit people, just as many of us who are vested in multinational textile companies today are unaware that our money subsidizes a business that continues to rely on forced labor in countries like Uzbekistan and China and child workers in countries like India and Brazil. Call it irony, coincidence or maybe cause — historians haven’t settled the matter — but avenues to profit indirectly from slavery grew in popularity as the institution of slavery itself grew more unpopular. “I think they go together,” the historian Calvin Schermerhorn told me. “We care about fellow members of humanity, but what do we do when we want returns on an investment that depends on their bound labor?” he said. “Yes, there is a higher consciousness. But then it comes down to: Where do you get your cotton from?”

Banks issued tens of millions of dollars in loans on the assumption that rising cotton prices would go on forever. Speculation reached a fever pitch in the 1830s, as businessmen, planters and lawyers convinced themselves that they could amass real treasure by joining in a risky game that everyone seemed to be playing. If planters thought themselves invincible, able to bend the laws of finance to their will, it was most likely because they had been granted authority to bend the laws of nature to their will, to do with the land and the people who worked it as they pleased. Du Bois wrote: “The mere fact that a man could be, under the law, the actual master of the mind and body of human beings had to have disastrous effects. It tended to inflate the ego of most planters beyond all reason; they became arrogant, strutting, quarrelsome kinglets.” What are the laws of economics to those exercising godlike power over an entire people?

How Slavery Made Wall Street

While “Main Street” might be anywhere and everywhere, as the historian Joshua Freeman points out, “Wall Street” has only ever been one specific place on the map. New York has been a principal center of American commerce dating back to the colonial period — a centrality founded on the labor extracted from thousands of indigenous American and African slaves.

Desperate for hands to build towns, work wharves, tend farms and keep households, colonists across the American Northeast — Puritans in Massachusetts Bay, Dutch settlers in New Netherland and Quakers in Pennsylvania — availed themselves of slave labor. Native Americans captured in colonial wars in New England were forced to work, and African people were imported in greater and greater numbers. New York City soon surpassed other slaving towns of the Northeast in scale as well as impact.

Founded by the Dutch as New Amsterdam in 1625, what would become the City of New York first imported 11 African men in 1626. The Dutch West India Company owned these men and their families, directing their labors to common enterprises like land clearing and road construction. After the English Duke of York acquired authority over the colony and changed its name, slavery grew harsher and more comprehensive. As the historian Leslie Harris has written, 40 percent of New York households held enslaved people in the early 1700s.

New Amsterdam’s and New York’s enslaved put in place much of the local infrastructure, including Broad Way and the Bowery roads, Governors Island, and the first municipal buildings and churches. The unfree population in New York was not small, and their experience of exploitation was not brief. In 1991, construction workers uncovered an extensive 18th-century African burial ground in Lower Manhattan, the final resting place of approximately 20,000 people.

And New York City’s investment in slavery expanded in the 19th century. In 1799 the state of New York passed the first of a series of laws that would gradually abolish slavery over the coming decades, but the investors and financiers of the state’s primary metropolis doubled down on the business of slavery. New Yorkers invested heavily in the growth of Southern plantations, catching the wave of the first cotton boom. Southern planters who wanted to buy more land and black people borrowed funds from New York bankers and protected the value of bought bodies with policies from New York insurance companies. New York factories produced the agricultural tools forced into Southern slaves’ hands and the rough fabric called “Negro Cloth” worn on their backs. Ships originating in New York docked in the port of New Orleans to service the trade in domestic and (by then, illegal) international slaves. As the historian David Quigley has demonstrated, New York City’s phenomenal economic consolidation came as a result of its dominance in the Southern cotton trade, facilitated by the construction of the Erie Canal. It was in this moment — the early decades of the 1800s — that New York City gained its status as a financial behemoth through shipping raw cotton to Europe and bankrolling the boom industry that slavery made.

In 1711, New York City officials decreed that “all Negro and Indian slaves that are let out to hire ... be hired at the Market house at the Wall Street Slip.” It is uncanny, but perhaps predictable, that the original wall for which Wall Street is named was built by the enslaved at a site that served as the city’s first organized slave auction. The capital profits and financial wagers of Manhattan, the United States and the world still flow through this place where black and red people were traded and where the wealth of a region was built on slavery.

We know how these stories end. The American South rashly overproduced cotton thanks to an abundance of cheap land, labor and credit, consumer demand couldn’t keep up with supply, and prices fell. The value of cotton started to drop as early as 1834 before plunging like a bird winged in midflight, setting off the Panic of 1837. Investors and creditors called in their debts, but plantation owners were underwater. Mississippi planters owed the banks in New Orleans $33 million in a year their crops yielded only $10 million in revenue. They couldn’t simply liquidate their assets to raise the money. When the price of cotton tumbled, it pulled down the value of enslaved workers and land along with it. People bought for $2,000 were now selling for $60. Today, we would say the planters’ debt was “toxic.”

Because enslavers couldn’t repay their loans, the banks couldn’t make interest payments on their bonds. Shouts went up around the Western world, as investors began demanding that states raise taxes to keep their promises. After all, the bonds were backed by taxpayers. But after a swell of populist outrage, states decided not to squeeze the money out of every Southern family, coin by coin. But neither did they foreclose on defaulting plantation owners. If they tried, planters absconded to Texas (an independent republic at the time) with their treasure and enslaved work force. Furious bondholders mounted lawsuits and cashiers committed suicide, but the bankrupt states refused to pay their debts. Cotton slavery was too big to fail. The South chose to cut itself out of the global credit market, the hand that had fed cotton expansion, rather than hold planters and their banks accountable for their negligence and avarice.

Even academic historians, who from their very first graduate course are taught to shun presentism and accept history on its own terms, haven’t been able to resist drawing parallels between the Panic of 1837 and the 2008 financial crisis. All the ingredients are there: mystifying financial instruments that hide risk while connecting bankers, investors and families around the globe; fantastic profits amassed overnight; the normalization of speculation and breathless risk-taking; stacks of paper money printed on the myth that some institution (cotton, housing) is unshakable; considered and intentional exploitation of black people; and impunity for the profiteers when it all falls apart — the borrowers were bailed out after 1837, the banks after 2008.

During slavery, “Americans built a culture of speculation unique in its abandon,” writes the historian Joshua Rothman in his 2012 book, “Flush Times and Fever Dreams.” That culture would drive cotton production up to the Civil War, and it has been a defining characteristic of American capitalism ever since. It is the culture of acquiring wealth without work, growing at all costs and abusing the powerless. It is the culture that brought us the Panic of 1837, the stock-market crash of 1929 and the recession of 2008. It is the culture that has produced staggering inequality and undignified working conditions. If today America promotes a particular kind of low-road capitalism — a union-busting capitalism of poverty wages, gig jobs and normalized insecurity; a winner-take-all capitalism of stunning disparities not only permitting but awarding financial rule-bending; a racist capitalism that ignores the fact that slavery didn’t just deny black freedom but built white fortunes, originating the black-white wealth gap that annually grows wider — one reason is that American capitalism was founded on the lowest road there is.

Matthew Desmond is a professor of sociology at Princeton University and a contributing writer for the magazine. He last wrote a feature about the benefits of a living wage. Lyle Ashton Harris is an artist who works in photography, collage and performance. He currently has works in two group exhibitions at the Guggenheim in New York. Mehrsa Baradaran is a professor at U.C. Irvine School of Law and author of “The Color of Money” and “How the Other Half Banks.” Tiya Miles is a professor in the history department at Harvard and the author, most recently, of “The Dawn of Detroit: A Chronicle of Slavery and Freedom in the City of the Straits.”

More on NYTimes.com

Advertisement

• Society and Politics
• Art and Culture
• Biographies
• Publications

Capitalism in the USA 1900 to 1940

How did the Great Depression in the USA bring about a crisis of capitalism?

Background and focus

It is important to understand that the focus of THIS section is almost in direct contrast to the previous topic.

Previously, learners were required to understand how the USSR had developed. WE now look at Capitalism and

its development in the US. Learners MUST understand that this topic, along with the previous one, will set them

up for studying the bipolar nature of the globe in Grade 12. So, pay attention, and make notes for next year.

Having looked at socialism (and the USSR) in the previous topic, we now investigate capitalism as it developed

in the USA.

We study the crisis of capitalism that occurred as a result of the Great Depression. At the time of conception,

Roosevelt’s New Deal was criticised by some for bringing in socialism. Learners must analyse these criticisms,

which relate to the New Deal Programmes that were set up to bring about relief, recovery and reform.

Could Roosevelt’s form of state intervention to create jobs, as well as the welfare system he set up, be

considered socialist reform, and did he thereby undermine the capitalist system in the USA?

There was a list of conditions that existed in 4 phases:

1.     The growth of Capitalism during the 19 and 20 centuries in the US.

2.     The conditions that led to the Great Depression.

3.     The policies that attempted to address the Great Depression.

4.     The criticisms of the New Deal.

This section includes the following:

-· the nature of capitalism in the USA

Online Resource:

http://www.newhistory.org/CH07.htm [Accessed: 10/02/2015]

http://www.goodreads.com/book/show/8723692-american-colossus [Accessed:10/02/2015]

 - entrepreneurial and competitive; with rugged individualism; free market; and with minimal state control over business;

”¢ the American dream of individual possibilities - ‘rags to riches’;

Online Resources:

http://www.publicagenda.org/press-releases/hard-work-is-essential-for-achieving-the-american-dream-but-is-it-enough-americans-are-divided-according-to-a-new-survey [Accessed: 10/02/2015]

https://www.youtube.com/watch?v=OvJ8YDma7Wk [Accessed: 10/02/2015]

Ӣ capitalist boom of the 1920s: strengths and weaknesses in the US economy;

Ӣ USA society in the 1920s;

Source: http://rationalrevolution.net/images/income_1918_1929.png [Accessed: 10/02/2015]

Ӣ Wall Street crash of 1929: reasons for and economic and social impact;

Black Tuesday – 29 October 1929

Source: http://rationalrevolution.net/images/income_1929_1932.png [Accessed: 10/02/2015]

http://www.economicshelp.org/blog/76/economics/wall-street-crash-1929/ [Accessed: 10/02/2015]

http://www.historylearningsite.co.uk/Causes_of_the_Great_Depression.htm [Accessed: 10/02/2015]

Causes of the Great Depression

1.Credit boom

2.Buying on the margin

3.Irrational exuberance

4.Mismatch between production and consumption

5.Agricultural recession

6.Weaknesses in the Banking Sector

Source: http://www.economicshelp.org/blog/76/economics/wall-street-crash-1929/

Source : http://newsimg.bbc.co.uk/media/images/40459000/gif/_40459863_wall_street_boom_gra416.gif                          [ Accessed: 10/02/2015]

http://history-world.org/great_depression.htm [ Accessed: 10/02/2015]

Ӣ E lection of Roosevelt: offering a New Deal;

Source : http://image.slidesharecdn.com/usdepthstudy1-140929100512-phpapp01/95/usa-depth-study-new-deal-62-638.jpg?cb=1412003186 [ Accessed: 10/02/2015]

The New Deal...as proposed by Franklin D Roosevelt encompassed the following:

http://education-portal.com/academy/lesson/franklin-d-roosevelt-and-the-first-new-deal-the-first-100-days.html [Accessed: 10/02/2015]

http://education-portal.com/academy/lesson/the-second-new-deal-social-programs-and-their-resistance.html [Accessed: 10/02/2015]

https://www.youtube.com/watch?v=X60Nei2560w [ Accessed: 10/02/2015]

The Agencies

Collections in the Archives

Know something about this topic.

Towards a people's history

Photo by Pascal Maitre/Panos Pictures

The southern gap

In the american south, an oligarchy of planters enriched itself through slavery. pervasive underdevelopment is their legacy.

by Keri Leigh Merritt   + BIO

In 1938, near the end of the Great Depression, the US president Franklin Delano Roosevelt commissioned a ‘Report on the Economic Conditions of the South’, examining the ‘economic unbalance in the nation’ due to the region’s dire poverty. In a speech following the report , Roosevelt deemed the South ‘the nation’s No 1 economic problem’, declaring that its vast levels of inequality had led to persistent underdevelopment.

Although controversial, Roosevelt’s comments were historically accurate. The president’s well-read and highly educated young southern advisors had convinced him that the South’s political problems were partially a result of ‘economic colonialism’ – namely, that the South was used as an extractive economy for the rest of the nation, leaving the region both impoverished and underdeveloped. Plantation slavery had made the planters rich, but it left the South poor.

Unlike the industrialising North and, eventually, the developing and urbanising West, the high stratification and concentrated wealth of the 19th-century South laid the foundations for its 20th-century problems. The region’s richest white people profited wildly from various forms of unfree labour, from slavery and penal servitude to child indenture and debt peonage; they also invested very little in roads, schools, utilities and other forms of infrastructure and development. The combination of great wealth and extreme maldistribution has left people in the South impoverished, underpaid, underserved and undereducated, with the shortest lifespans in all of the United States. Southerners, both Black and white, are less educated and less healthy than other Americans. They are more violent and more likely to die young.

N ow, 86 years after Roosevelt’s report, the South has returned to historically high levels of economic inequality, lagging behind the rest of the US by every measurable standard. The plight of the South is a direct result of its long history of brutal labour exploitation and its elites’ refusal to invest in their communities. They have kept the South in dire poverty, stifled creativity and innovation, and have all but prevented workers from attaining any kind of real power.

With the rapid industrialisation spurred by the Second World War, the South made great economic strides, but never quite caught up with the prosperity of the rest of the US. While the South’s gross domestic product has remained around 90 per cent of the US rate for dozens of years, deindustrialisation of the 1990s devastated rural areas. Since then, hospitals and medical clinics have closed in record numbers, and deaths of despair (those from alcohol, drugs or suicide) have skyrocketed, as has substance abuse. Southerners in general are isolated and lonely, and wealth and power are heavily concentrated: there are a few thousand incredibly wealthy families – almost all of them the direct descendants of the Confederacy’s wealthiest slaveholders – a smaller-than-average middle class, and masses of poor people, working class or not. The South, with few worker protections, prevents its working classes from earning a living wage. It’s virtually impossible to exist on the meagre income of a single, low-wage, 40-hour-a-week job, especially since the US has no social healthcare benefits.

The American South is typically defined as the states of the former Confederacy, stretching north to the Mason-Dixon line separating Maryland from Pennsylvania, and west to Texas and Oklahoma. Today, one-fifth of the South’s counties are marred with the ‘persistent poverty’ designation , meaning they have had poverty rates above 20 per cent for more than 30 years. Four-fifths of all persistently poor counties in the nation are in the states of the former Confederacy. The data is clear that most Southern states continue to be impoverished and politically backwards. Whether measured in terms of development, health or happiness, the region is bad at everything good, and good at everything bad.

The South was portrayed as anti-capitalist: enslavers had to be dragged into modernity against their wills

The recent popularity in liberal circles of the New History of Capitalism (NHC) to explain the region’s exceptionalism has slowed in recent years. The NHC emerged in the 2000s and 2010s, as one historian wrote , by claiming ‘slavery as integral, rather than oppositional, to capitalism.’ It seems likely that during the post-Cold War triumph of capitalism, a subset of historians began trying to tie much of the past to the term – with the most extreme instance being the insistence that slavery was the key to American capitalism. While the NHC scholars rarely define terms like ‘capitalism’, the problems with their theories are more than academic. Unfortunately, presenting enslavers as cunning, profit-driven businessmen not only obscures important features about the past, it also downplays immense regional differences in economic development.

Thinking back over the NHC trends, it is important to note how other scholars, both past and present, have presented the problems of the region, and discuss issues that may have been obscured by a heavy emphasis on business and ‘slavery’s capitalism’. As the economic historian Gavin Wright has pointed out , the NHC’s central claim, echoed in The New York Times ’ Pulitzer Prize-winning ‘1619 Project’ – that slavery was essential for American economic growth – ignored decades of accepted historiographical work on capitalism and slavery. It also contradicted nearly everything economists have argued regarding slavery’s impact on the South’s (under)development.

Beginning in the 1960s, many historians classified the South, from the days of slavery until the Second World War, as distinctively precapitalist in significant ways. They saw the region as having a type of ‘merchant’ or ‘agrarian’ capitalism, and never considered the states of the Old Confederacy as shrewdly ‘capitalist’ (the term itself without any modifiers). Primarily due to the absence of a free labour society, but also because of the lack of infrastructure and development within the region – a place with few cities, little industrialisation, and few social services – the South was often portrayed as distinctly anti-capitalist: enslavers had to be dragged into modernity against their wills.

After the Second World War industrialisation boom ushered the South into a more fully capitalist society, it essentially became a colonial economy to the North, as it courted investment and corporations from the capital-rich Northeastern US. Existing in a dependency-type of relationship, it was never really the South – or southern labour, no matter how unfree or brutalised – driving the US economy.

Finally, contrary to the position that American slavery represents the key or essence of capitalism, the most recent scholarship regarding economic analysis of slavery argues that the institution was not economically efficient. All these points highlight the need for studies on growth, and more importantly, on underdevelopment. Slavery made the planters very rich, but it made the South very poor. In the 19th century, capitalism, even industrial capitalism, did not bring the South to the developmental standards of the rest of the nation. The question remains: why is that so?

I f we turn from looking at planters to studying labour, we see that elite capture of the state is bad for democracy and worse for development. It also helps us distinguish between growth and development, highlighting the unevenness of both in different areas of the US. The US is a large country and awareness of the difference between growth and development can help us see that perhaps it makes more sense to compare the American South with places in the Global South rather than the American North or West.

To begin with, southern militias proved an effective imperial military tool during the brutal process of Indian Removal, which lasted into the 20th century. The white colonialist push westward robbed Native Americans of the greatest wealth the region has: land. That land eventually became the richest white people’s main source of power, owned by the few and guarded like a religion. Elite white southerners were obsessed with intermarriage and have kept their fortunes intact for generations. While they hoarded riches and resources for themselves, they neglected to invest in the communities in which they lived. With few improvements in technology and development, the South’s dependence on slavery enriched enslavers and their descendants, but it left the rest of the region, both people and resources, deeply and cyclically impoverished.

Americans think of the US as having been at a crossroads in 1860, between slavery and freedom, but that impasse was more than just political and ideological: it was also economic. While the North had made fantastic gains over the previous decades by investing in its people, from education to infrastructure, the South lagged far behind. The wealthy enslavers refused to invest in the poor and middling-class whites surrounding them, finding no compelling reason to put money into communities they would move away from as soon as the western spread of slavery beckoned. In terms of development, whether infrastructure, education, healthcare or wealth distribution, the South remained woefully underdeveloped in comparison with the rest of the country.

The Deep South instead functioned more like an oligarchy or aristocracy

With one-third of the nation’s population in 1860, the South was responsible for only 10 per cent of US manufacturing output, and possessed only 10 per cent of the nation’s manufacturing labour force and 11 per cent of its manufacturing capital. Its transportation system, best described as like a ‘conveyor-belt’, transported goods effectively but did little for people. The northern and even western US had been investing in building schools and providing free public education, but the cotton South left its people to fend for themselves: education was reserved for the rich. The North built hospitals, asylums and places for the invalid and indigent; the South built jails and prisons.

Far from a democratic region, the Deep South instead functioned more like an oligarchy or aristocracy. As W E B Du Bois wrote in 1935: ‘Even among the 2 million slaveholders, an oligarchy of 8,000 really ruled the South.’ The wealthiest slaveholders wielded immense and pervasive power as lawmakers, law-enforcers, judges and even jury members. They dominated the region’s politics and devised multiple ways to disenfranchise their poorer fellow countrymen. The oligarchic structure of the 19th-century South meant that the men who controlled government also controlled everything else in society, from rental properties and bank loans to arrest warrants and vigilante violence.

In fact, the enormous cost of the South’s implementation of its various forms of unfree labour still haven’t been adequately calculated. The ubiquitous, police-state-like criminal justice system, complete with slave patrols and night riders, the overseers and slave-drivers and catchers and other middlemen who had to be hired to keep people working – none of that has truly been accounted for yet. Recently, the economists Richard Hornbeck and Trevon Logan challenged decades of accepted scholarship concerning the cost-effectiveness of slavery, arguing that slavery was inefficient when ‘including costs incurred by enslaved people themselves’. Under this view, emancipation produced major economic gains.

The first years of Reconstruction brought immense changes to the South: a free labour economy threatened to change the entire social order as Black politicians courted poor white voters for a cross-racial, class-based coalition. For the first time, the region experienced democratic elections, open to all men, Black and white. The new state legislators established a system of public education. They began funding public works and infrastructure. They started developing the region.

Despite these transformations, former slaveholding families remained rich – and powerful – because they held a near-monopoly of the only real capital left in the war-torn South: land. The leaders of the Confederate insurrection were never held accountable for treason, and the same few wealthy white families who ruled the slave South remained entrenched in power even after the war. Their enduring place at the top of Southern society helped give rise to the ‘continuity thesis’, in which some scholars argue that, despite the Civil War and Reconstruction, little changed in the US South. In many rural areas, even today, their heirs still lord over their little locales. The South’s ruling elite eventually regained complete control of the region, disenfranchising the masses, terrorising the leaders and the intellectuals and the brave, and undergirding this shadow world of unfreedoms with the ever-present threat of violence.

T he Southern elite may have, eventually, emerged from Reconstruction back on top of the South, but the region no longer dominated US politics. The US South remained overwhelmingly agricultural well into the 20th century and long after the rest of the country had become more urban. From the vital perspective of social and labour relations, the South’s transition to capitalism must be considered as late by US standards. In the 1940s and ’50s, historians began arguing that the type of capitalism in the South throughout the early 20th century was merchant capitalism (also known as mercantile, or agrarian capitalism), not industrial capitalism. Merchant capitalism is considered the earliest phase in the transition to capitalism; it is more about moving goods to market, and is characterised by the lack of industrialisation, wage labour and commercial finance. A modified version of the merchant capitalism model would be championed several decades later by Eugene Genovese whose southern ‘in but not of’ capitalism theory, replete with semi-feudalistic social relations, appeared in the 1960s and generated great interest and debate, and eventually, in the early 2000s, came under sustained attack by some US historians who emerged following the end of the Cold War.

These scholars, who eventually came to be grouped under the designation ‘the New History of Capitalism’, never truly engaged with the consequences of the fact that the slave South, in a strict sense, cannot be considered capitalist because the enslaved are unfree, forced labourers who cannot sell their labour power. Even if we sidestep the slavery-as-labour issue, vital to Marxist assessments of capitalist society, we must acknowledge that impoverished southern whites also had little to no control over their respective labour power. The power of enslaved labour consistently reduced the demand for workers, lowered their wages, and rendered their bargaining power weak to worthless. Labourers in the South, regardless of race, worked within a world ruled by degrees of freedom. Never a stark dichotomy, freedom emerged from a give-and-take process of political contestation and negotiation with the planter aristocracy. Slavery was simply one form – albeit the harshest – of a range of unfreedom, lasting well into the 20th century.

But these merchant capitalist labour market features were not simply rooted in the racism of southern white culture. Instead, elite white southerners ensured a calculated and well-codified social order, complete with exploitative labour practices, debt peonage, and continuing forms of unfree labour made possible by the burgeoning criminal justice system. To maintain power and thus control of the region, at times the elite chose to forgo higher profits in the short term so that they could keep their labour force under tighter control in the long term. This was certainly the case with industrialisation during slavery, when enslavers could have turned a much higher profit by industrialising but chose not to; they did not want to disturb the fragile hierarchy.

South Carolina – the birthplace of the Confederacy – has the lowest union membership, at 2 per cent

Compared with the rest of the US, with only a brief interruption during early Reconstruction, the South’s lack of labour power, infrastructure and internal development extended well into the 20th century. Between the violence the Ku Klux Klan and other white supremacists, and the lack of opportunities for poor and working-class southerners, by the mid-1870s former slaveholders and their descendants were back in complete control of the South. Due to the absence of land reform, reparations and the failure to punish Confederate leaders or confiscate Confederate property, the labour lords of the antebellum period merely became the landlords of the postbellum period. Their primary source of wealth changed, but they remained in power, controlling everything in the South and reverting to their old ways of undertaxing, underfunding and underdeveloping.

Given these facts, before the popularity of ‘the New History of Capitalism’ 20 years ago, many historians viewed the transition from slavery to capitalism as a long process because, even after emancipation, unfree labour continued to dominate a significant portion of the labour market. Some argued that forms of unfree labour persisted in the South as late as the 1920s and ’30s, and others claimed they lasted until the Second World War. Even when technically free, African American workers generally lacked the labour power necessary to be deemed a proletariat, able to effectively negotiate on a labour market. Due to predatory sharecropping contracts and debt peonage, an extremely punitive criminal justice system, and the added layer of domestic terrorism from white supremacists, the poorest people in the South, both Black and white, still worked in a society in which labour was not entirely free, that is, able to be brought to a labour market.

The South’s shadowland of unfree labour rested entirely on an undemocratic government, also meant to control labour. In the 1880s and ’90s, when Farmers’ Alliances and Populism began mounting a serious political challenge to planter domination, every southern state passed laws limiting the vote. While primarily aimed at disenfranchising Black people, the laws also disenfranchised poor white people, further concentrating each state’s political power in the hands of white elites in plantation districts. It was an effective strategy: in 1880 there were 160,000 union members in the US, and fewer than 6 per cent of them lived in the South. Today, while a record low of just 10 per cent of Americans are union members, the South’s numbers are roughly half of that, with states like South Carolina – the birthplace of the Confederacy – having the lowest union membership in the nation, just over a measly 2 per cent.

During the last third of the 19th century, the value of output rose and capital investment in the US increased tenfold. Meanwhile, most of the Deep South (outside of a few large cities like Atlanta and New Orleans) remained ‘capital starved’ and ‘technologically laggard’, as the region’s elite continued to baulk at infrastructure or other kinds of developmental investment. To secure funding, the states of the former Confederacy needed to court investment from outside the region – first the North and West, later Europe and Asia. Originally, southern politicians chased northern capital by offering them generous tax breaks and other financial incentives. Without a strong tax base or an effective bureaucracy, the region suffered further because most profits were routed out of the South back to northern owners and investors. Taken together, these things meant that, well into the 20th century, the South remained overwhelmingly rural, without a strong system of infrastructure and no good plan for development. In 1900, the country was 40 per cent urban versus the South’s 18 per cent, and 25 per cent of the US labour force was involved in manufacturing versus the South’s 10 per cent. Something had to drastically change.

F ollowing the Great Depression, which hit the rural, already-impoverished South harder than it did the rest of the nation, the New Deal influx of money, federal programmes, jobs and infrastructure helped bring the region fully into the 20th century. Perhaps most importantly, in the 1930s Roosevelt’s New Deal finally broke up the power stranglehold by the big land (plantation) owners. The South was finally able to evolve from an agricultural labour market that had pre-capitalist characteristics, shifting to a much larger industrial workforce during the Second World War. Some $4 billion in federal spending poured into the region, funding military facilities and forever ending the isolated labour market. Since 1940, the South has outperformed the rest of the US in income, job and construction growth, finally reaching about 90 per cent of national per-capita income norms. It has also remained critically behind in multiple important infrastructural and development measurements, from education and transit to poverty levels and healthcare.

Without question, the Second World War changed the South for the better. War industry jobs pulled workers from rural areas, forcing southern farms to finally mechanise. This mechanisation meant the destruction of sharecropping and tenant farming, as well as debt peonage. Workers in the South would finally be paid in wages – in cold, hard cash. And that fact was incredibly freeing.

Outside of extractive industries, the type of industry that came to dominate the South was reliant on intensive, low-wage labour, a striking difference with the rest of the US. ‘A low-wage region in a high-wage country,’ the South industrialised in a way that preserved and reinforced the class and racial status quo, even when corporations were owned by men from outside the region. Instead of being an agent of radical change, southern industrialisation preserved the region’s legacies of low taxes for the wealthy, heavy-handed labour control, and little in the way of governmental oversight or regulation.

Development is, quite simply, an essential part of restorative justice

Even as the South experienced a period of relative prosperity from the Second World War to the 1990s, with development at its peak, it never quite caught up to the rest of the nation. While there were myriad reasons for this remaining gap, historians have attempted to explain them with a type of regional dependency theory. Referring to the old Confederacy as a ‘colonial economy’, they argued that northern-owned corporations controlled southern money and power, extracting resources and exploiting cheap labour, siphoning both profits and tax dollars away from the impoverished region – all while maintaining racist practices. Adding insult to injury was that the southern economy became the domain of men from outside the South, men with no stake in the local communities their decisions ultimately affected (indeed, often devastated).

Whether or not the South was truly a colonial economy, framing it as such highlighted that the region remained impoverished, infrastructurally stunted, and underdeveloped. Even the golden era of the sunbelt South came to a bitter end by the close of the 20th century. Rural developmental problems began as far back as the 1980s, as local banks began shuttering and hospitals closed. Things worsened in the 1990s, as the economic growth the South enjoyed for decades came crashing to a halt when federal trade deals eviscerated manufacturing. The racial tolerance and progress made possible by labour unions and working-class solidarity began to erode; deindustrialisation profoundly changed the region. Never having invested much in public services, state governments continued to slash budgets through the 2000s. This not only stalled new development, it also let much of the states’ infrastructure, education and healthcare plans fall deeply into trouble, perhaps disrepair.

To address the continuing developmental gap in the poorest areas of the US, the country’s staggering levels of inequality must be addressed. Using policy to redistribute property, the South – and the nation – may finally be brought up to the standards of the rest of the developed world. From universal healthcare and a thriving public education sector to functional public transportation and reliable infrastructure, development is, quite simply, an essential part of restorative justice. With deeply progressive taxation coupled with democratic reforms, the right to organise and collectively bargain may be preserved; the right to retire fully funded; the historically racist criminal justice system switched to a Nordic model. Even the poorest rural Americans could lead lives with dignity due to governmental programmes such as a universal basic income (which would immediately lift more than 43 million people out of poverty) and a federal jobs guarantee – a concept derivative of the best aspects of the New Deal.

Today, more than a lifetime after Roosevelt’s declaration of the South as the ‘the nation’s No 1 economic problem’, nothing has changed. The South remains poor, underdeveloped, and lags behind the rest of the country by every measurable standard. It is a moral blight on the nation’s conscience, and far past time to truly lift the region out of poverty, and into the 21st century.

Thinkers and theories

Our tools shape our selves

For Bernard Stiegler, a visionary philosopher of our digital age, technics is the defining feature of human experience

Bryan Norton

Family life

A patchwork family

After my marriage failed, I strove to create a new family – one made beautiful by the loving way it’s stitched together

The dangers of AI farming

AI could lead to new ways for people to abuse animals for financial gain. That’s why we need strong ethical guidelines

Virginie Simoneau-Gilbert & Jonathan Birch

War and peace

Legacy of the Scythians

How the ancient warrior people of the steppes have found themselves on the cultural frontlines of Russia’s war against Ukraine

Peter Mumford

Public health

It’s dirty work

In caring for and bearing with human suffering, hospital staff perform extreme emotional labour. Is there a better way?

Susanna Crossman

Prehistory in the atomic age

To understand the terrifying futures unleashed by nuclear weapons, we urgently need to return to the deep past

Maria Stavrinaki

Capitalist System in America Essay (Critical Writing)

Introduction.

The word ‘Capitalism’ seems to bring in mind all sorts of thoughts as to whether it is the best way forward for the ailing American economy or not. Those who argue for and against it do so with tremendous passion. For pro-capitalism, it is the best way forward for liberating the American economy. The US economic system has been under scrutiny and a lot has been said as to whether economic liberty is being supported or compromised via recent economic policies and legislative actions.

Capitalism is an economic system where private persons own the means of production and are profit-oriented. The market forces of demand and supply determine the prices of goods and services without the interference of the government (Stinchcombe 415).

For a capitalist system to succeed there should be a government which makes comes up with rules and regulations that define the economic environment. The forces of demand and supply set the prices in this economic system. There is no barrier to entry or exit and hence due to competition that is created, the big firms dominate the market due to the enjoyment of economies of scale. The small and not-well performing firms exit in the long run. Thus there should be economic incentives for high production in the economy where each producer and innovator is rewarded according to the amount of work that he/she has done (Thomas 2004).

The capitalist argues that the government must protect its citizens who are the production units of the economy to create more wealth and help in the economic prosperity of the country. This leads to the creation of a stable economy where innovation is encouraged to keep up with the ever-increasing demands due to changes in technology and population. People realize the need to work hard and get rid of parasites that eat on others’ sweat. This feeling of working hard is motivated by the available incentives. Capitalism also adapts easily to these changes since only a few adjustments need to be done (Stinchcombe 415).

In today’s world democracy is a prerequisite for economic success in any country. Though in America they have a capitalist system it is not pure capitalism since there is a form of government interference. This is where the government has delegated its production powers to non-state actors through some form of regulation. These regulations are through the tax, environmental regulations, consumer safety, and regulations on trade.

Taxation is an example where the US government tries to control the process of production. It capitalizes on this such that the firms are regulated on how much to produce. Another form of government intervention is through consumer safety and environmental regulations. The pro-capitalists also might argue that most of the upcoming nations are a result of the collapse of communists like China and Russia. The system of democratic capitalism in the US has resulted in more social, physical, and economic good than any other known system. This is because the hard work of an individual is rewarded and it encourages innovation and invention (Thomas 2004).

The regimes that are coming up in the US are in the process of continuing the system where much of the debates are on the current economic crises. The candidates are promising to come up with new policies and legislations that will boost the economy of the country. Economic liberty is being supported via recent economic policies and legislative actions. The US government cannot see this system go down since the US citizens identify with it as a national heritage and they thrive best in it.

Works Cited

Stinchcombe, Arthur L. Journal of Political Philosophy 11 (2003):411 – 436.

Thomas Dilorenzo. How Capitalism Saved America: The Untold History of Our Country, from the Pilgrims to the Present . New York: Crown Forum (2004).

• Chicago (A-D)
• Chicago (N-B)

IvyPanda. (2022, May 12). Capitalist System in America. https://ivypanda.com/essays/capitalism-in-america/

"Capitalist System in America." IvyPanda , 12 May 2022, ivypanda.com/essays/capitalism-in-america/.

IvyPanda . (2022) 'Capitalist System in America'. 12 May.

IvyPanda . 2022. "Capitalist System in America." May 12, 2022. https://ivypanda.com/essays/capitalism-in-america/.

1. IvyPanda . "Capitalist System in America." May 12, 2022. https://ivypanda.com/essays/capitalism-in-america/.

Bibliography

IvyPanda . "Capitalist System in America." May 12, 2022. https://ivypanda.com/essays/capitalism-in-america/.

• Exit Strategies in Business
• Capitalist Economy Support
• Biggart and Swedberg Views on Capitalist Development
• Marxists’ Critique of Crises With the Capitalist System
• Socialist vs. Capitalist Approach to Social Issues
• Capitalist Economies in the US
• Hell in Dante's Inferno and Sartre's No Exit
• The Supply of Money in the Capitalist Economy
• Differences Between Capitalism and Socialism
• The Food Stamp Program: History and Effects
• Canadian Concept of Equal Opportunities
• The Fomation and Development of Trade Unions
• United States Economy: Expansion or Recession?
• The Rise and Fall of the Zaibatsu

• Archives Home →

The Ethics of Capitalism

The deepest principles of capitalism are found in the definition of free trade: “A willing buyer and a willing seller deciding on a transaction without outside coercion.”

Two individuals arrive at an agreement.  This point is critical.

Capitalism exists only in individual freedom to choose.  True capitalism doesn’t spring from any law or any government.  The economic system called capitalism arose naturally from the individual freedom on which our nation was founded.

For eons, mankind has bartered, the first seeds of capitalism — but all nations were subject to their more powerful neighbor taking through force.  Free markets didn’t reach their full power until our nation was founded on the concept of the sanctity of the individual.  No other nation codified the concept of inalienable rights, from our creator, not man, until our Declaration of Independence and Constitution were forged.  The entire concept of capitalism is that free trade and individual rights inexorably united our nation and the sanctity of the individual into one concept.

Therefore, the single role of government is to protect the individual freedoms that accrue from our creator. 

Capitalism has been maligned for decades.  The main arguments against are greed and avarice.  No doubt some capitalists are guilty; however, the vast majority of business owners, inventors, and founders created a better way that other people want.  In a capitalist economy, individuals decide, not governments.

Cronyism is not capitalism.  Cronyism uses the power of government to subvert free enterprise.  It creates an unfair advantage through manipulation of a market.  While it is legal for Musk or a Buffett to use government contracts to keep a market to themselves, it is not ethical to do so.  For instance, the subsidy E.V.s get from the government distorts the market; it takes money in the form of taxes from one person to pay off another.

The subsidy that E.V. buyers get is actually taken from other people, through taxation, to benefit one small group, thus costing the majority.  If the E.V. were desirable in a free, capitalist market, then it would not need a federal subsidy.

All federal revenue comes from taking from the individual.  The government is not capable of generating profit, so it must tax its citizens.  Government is antithetical to individual freedom and, therefore, to capitalism.  It’s a zero-sum game: what government has, it must take and the individual must give up.  There must be a limit, a balance.

Citizens realize that some portion of their income should go to supporting our government.  But when a certain group pays the vast majority of taxes, and when another group pays no taxes, the burden is not equally partitioned.  The high wage–earners are disproportionately impaired, while low wage–earners pay almost nothing.  The system will not long sustain itself.

There is a point at which the tax burden becomes untenable.  At that point, businesses and the wealthy will seek tax shelters or even move their product lines offshore.  This is self-limiting, since tax revenues are dependent on profits, and business profits will decline as tax rates increase.

Our nation’s founders recognized the need for limited government.  Therefore, the compromise, so brilliantly executed in our Constitution, is to limit government activity to highly restricted avenues.  They gave taxing authority only to a body that regularly must stand for re-election by the very people they tax.

“Big Government” politicians found a way around the Constitution by “robbing Peter to pay Paul,” so they could always get Paul’s vote.  But this is a highly limited endeavor, since Peter, the producer of wages and taxes, will eventually rebel.  Ayn Rand wrote volumes on this topic, as did Milton Freedman and the entire Austrian Schools of Economics.

Federal Debt

Federal debt is really your debt, since every wage-earner must pay it back.

When the government, especially the Administrative State and Congress, spend more that they take in through taxes, the government places every citizen in our nation into debt, just so the politicians can continue to spend other people’s money.

The solution is to force government, through elected politicians, to stop and reduce spending.  How many more welfare programs do we need?  How effective are the programs in place?  Would not private enterprise better serve the needs of the needy?

Profit allows a business to self-perpetuate.  Profit requires that the business owner balance employee satisfaction with other costs and sell his product or service for a price above his total cost...and thereby create profit.  Remember that capitalism requires a willing buyer.  If the seller doesn’t provide a product or service that satisfies the buyer, the seller won’t sell, and the business will fold.

The key point is that freedom to choose, free of government influence, perpetuates capitalism.

Because capitalism is available for everyone, it has propelled the majority of citizens out of subsistence living to relative wealth.  Even the poorest among us benefit greatly from free markets.  It’s too bad that the government wants to pay people to remain in poverty, using welfare and entitlements.  Instead, we should encourage people to engage in the uplifting process of fending for themselves.  Entitlement breeds dependency.  Free enterprise, capitalism, breeds independence.

The golden thread that unites freedom, capitalism, and our nation is the sanctity of the individual, whose rights are noted in the Declaration of Independence and bestowed by our Creator.  Our constitutional republic allows, and even demands, that we exercise our rights as individuals to limit and balance our government.

We have a golden opportunity to right the wrongs and bring order to the chaos. 

Jay Davidson is founder and CEO of a commercial bank.  He is a student of the Austrian School of Economics and a dedicated capitalist.  He believes there is a direct connection joining individual right and responsibility, our Constitution, capitalism, and the intent of our Creator.

Image: pasja1000 via Pixabay , Pixabay License .

FOLLOW US ON