The Real America

The only thing worth knowing about Ayn Rand is that she ended up on welfare. Reviewing Capitalism in America, by Alan Greenspan and Adrian Wooldridge, Will Hutton deploys the real history of the United States against her latest fanboys, We could also to do with some of the American System and the American School here. Rather a lot, in fact:

Thirty 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.