I finally finished grading and had a
chance to read a bit more of Levy’s Ages of American Capitalism. I finished
the Age of Capital but still have ages of control and chaos to get through. These
may take a while; the closer we get to now the less history interests me.
In the meantime, I’ll provide my second impression on the book. See here
for the first impression.
As a reminder, Levy is trying write a
story of American economic history that is more engaged with economics than previous
work in the New History of Capitalism (by the way, I think this criticism was probably
more valid when Levy began the book than when he finished it) and is organized
around three theses.
Thesis #1: “Rather than a physical
factor of production, a thing, capital is a process through which a legal asset
is invested with pecuniary value in light of its capacity to yield a pecuniary
profit.”
Thesis #2 “Capital is defined by the
quest for pecuniary profit. Without capitals habitual quest for pecuniary gain
there is no capitalism. But the profit motive of capitalists has never been
enough to drive economic history, not even the history of capitalism.”
Thesis #3 The history of capitalism
is a never-ending conflict between short term propensity to hoard and the long
term propensity to invest. This conflict holds the key to explaining many of
the dynamics of capitalism over time, including its periods of long term
economic development and growth, and its repeating booms and busts.”
To a great extent, Levy lives up to his statement that
he wants to engage more with economics than previous work in the new history
of capitalism. I thought that this was particularly true in the chapters on the
antebellum economy. Much of his
interpretation is consistent with the work of economic historians, many of whom
he cites; he does a good job describing free banking and general incorporation,
the role of state and local governments in supporting transportation
improvements, and the importance of intraregional trade in the economic
development of the Northeast and Mid-Atlantic. He seems to side more with
economists than historians like Baptist on the sources of productivity increase under slavery in the South. He accepts Fogel’s gang system thesis about productivity of
enslaved labor in the South, but notes that the thesis is not universally
accepted, noting in a footnote that Gavin Wright has challenged it.
On the other hand, I still believe that Levy’s
approach to capital is problem. He rejects the definition of capital as a
factor of production and the economic models that go with that definition. He
insists that capital is a process not a physical thing, but he then presents a
story of economic growth that is driven by investment in physical capital, largely
ignoring another source of growth: technological change. The problem with
this approach becomes particularly apparent when Levy gets to his
interpretation of the Industrial Revolution.
Levy suggests that the industrial revolution began in Great
Britain in the 1700s and that the U.S. joined its second wave. That sounds
okay, but he puts the Industrial Revolution in the U.S. after the Civil War,
which is much later than most economic historians would place it. U.S.
manufacturers were copying British innovations in textiles by the 1790s, and by
the early decades of the 19th century, they were developing their
own innovations, such as the Blanchard lathe for woodworking.
Its not just a difference in timing. Levy defines the
Industrial Revolution differently than most economic historians. Economic
historians have traditionally defined the Industrial Revolution in terms of
technological change. Specifically, changes in technology that increased productivity by allowing people
to replace human action with machines and power from animate sources, human and
animal, with power from inanimate sources. but as I pointed out before,
technological change does not play a significant role in Levy’s story.
According to Levy: “The best possible definition of
industrial revolution, in general, is the process by
which the pattern of investment definitely shifts into intermediate capital
goods, breeding new economic habits (236).” It is not clear to me what “the process by which the
pattern of investment definitely shifts into intermediate capital goods,
breeding new economic habits” means. Whatever
it means it is about capital and not about technological change. Perhaps not
surprisingly, this emphasis on Keynesian economics and investment in physical capital
lead him down a path already trod by Walt Whitman Rostow. Levy explains that: “There
is more productive capital in the hands of the same workers. Labor productivity
increases and over time enterprises generate more wealth, as money incomes,
however distributed, multiply. At a certain point in the process a threshold is
reached; there is no going back (236).” One might as well say that there is
takeoff into self-sustaining growth.
His emphasis on physical capital also leads to what I regard
as an odd choice about how to approach his second thesis. Recall that the
second part of thesis 2 was that “the profit motive of capitalists has never
been enough to drive economic history, not even the history of capitalism.” This
is an interesting claim that could be taken in a number of directions. One of
the directions he appropriately follows is the role of government in promoting
growth. But another direction he takes it is an insistence that people like Carnegie,
and Ford were driven not just by a desire to profit but by the desire to make
something. In his treatment of entrepreneurs, like Carnegie and Ford, he emphasizes
their willingness to make large investments in fixed capital because they wanted to make things, rather than the
technological innovations embodied in this capital. At times he comes close to a
traditional great man theory of economic development, in which the vital few drive
growth. For Levy, however, their greatness arises not from the innovations in
products and processes that they implemented but from their willingness to sacrifice
liquidity and make large fixed investments. Nevertheless, it is the psychological
characteristics of these individuals that are used to explain large economic
changes, rather than the constraints and opportunities that they faced. The
approach also seems to imply that they needed to have this desire to make something
to keep them from simply focusing on financial manipulation to make profits. Carnegie,
Ford, and Rockefeller were, however, the wealthiest people in the country. America’s
most prominent financier, J.P. Morgan, may have rivaled them in fame but not in
wealth.
I also noted some additional errors or problems with
citations in the book:
Referring to people like Gould, Vanderbilt and Drew he
states that “They manipulated finance to enrich themselves.” Levy cited
page 167 of Lindert and Williamson Unequal Gains. The closest thing I
could find on page 167 was “the property share of income(and wealth) rose, and property
income became more unequally distributed..”
In his discussion of slavery, he uses the term sunk
cost to refer to fixed costs. Fixed costs are costs that do not vary with the
level of output; they are fixed. Usually, things like buildings and equipment
are fixed. Sunk costs are costs that are
not recoverable. To the extent that you can sell the building and equipment you
can recover those costs; they are fixed but not sunk. If you spend $50,000 and
three years getting a law degree those costs are sunk. You cannot recover them.
Unlike the building and equipment, you cannot sell your degree to someone else
to recover the cost. Enslaved people were a fixed cost, but not a sunk cost. As
Levy himself points out they were among the most marketable assets.
“River steamboats clocked twenty miles an
hour (116).” There is no citation. By 1860, the
fastest steamboats on the Hudson could do twenty miles an hour, but Levy is
talking about steamboats on the Ohio and the Mississippi in the 1830s. Even in
1860 the average speed would have been closer to half that (see Taylor Transportation
Revolution 60 and 138).
Page 95 Writing about the years from the end of the War
of 1812 until the Panics of 1837 and 1839 he states that “the commercial
economy expanded likely in excess of 1.5 percent GDP per capita per year.”
He cites pages 96-141 of Lindert and Williamson. I would prefer a more precise
citation. I am also not sure what it means for the commercial economy to expand
in excess of 1.5 percent GDP per capita per year. Is it the same as GDP per
capita increasing at 1.5 per year. If so, why not just say that? It is possible
to find periods of 1.5 % growth in per capita GDP during those years, but you
have to carefully select the beginning and end dates, e.g., 1823-136 will do the
trick, but the rate for the entire period was about half that.
On page 235 “A farmer might harvest wheat and
selling it in a competitive market, earn a higher money income, but that would
be the end of it. By contrast Carnegie manufactured steal. Steal an “intermediate”
or “capital good” multiplied a whole series of backward and forward linkages,
fostering downstream demand for coal and coke, as well as for the components of
his factories, while supplying, upstream, goods for railroad corporations and
the construction industry.” The obvious problem here is that wheat is an
intermediate good, giving rise to demand for reapers and threshers and later
tractors, and supplying upstream goods for bakers and manufacturers like the
National Biscuit Company (Nabisco).
Levy also cites me. Which is nice. Unfortunately, the
citation is a little misleading. On page 315 Levy was describing how Morgan reorganized
railroads and wrote that “First, Morgan bankers placed the railroad corporations
in preemptive bankruptcies called “friendly receiverships,” perfecting a legal
technique employed by Jay Gould during the 1880s.” he cites my paper "The people's
welfare and the origins of corporate reorganization: The Wabash receivership
reconsidered." The Business History Review (2000): 377-405. My paper, on the other hand, argues that Gould’s
role in the development of receiverships was over-estimated. Specifically. I
argued against an interpretation of the development of railroad receiverships first
put forward by Albro Martin and widely adopted by other historians. Martin
placed Gould at the center of the development of railroad reorganization, arguing
that at Gould’s direction Solon Humphreys, a director and former president of
the Wabash, St. Louis and Pacific Railway, went into a federal court and asked
to have the company, which had not yet defaulted on its bonds, placed in
receivership and that he be made the receiver. Martin claimed that these
actions were unprecedented, that before this if a company defaulted the
creditors went into court and obtained a receiver to look after their
interests. But Martin had relied upon a law review article by an attorney who
lost a case over the receivership to support the claim that these actions were
unprecedented. I showed that far from being unprecedented, these actions were
the norm and had been since before the Civil War. Courts had adopted the
rationale that railroads were quasi-public, they had been chartered by states
to provide transportation services for their citizens and they were damn well
going to do that. I do appreciate the citation, but I suspect Levy may have
remembered the wrong Business History Review paper. Peter Tufano’s
"Business failure, judicial intervention, and financial innovation:
Restructuring US railroads in the nineteenth century." The Business
History Review (1997): 1-40 focused on Morgan’s actions in reorganizing railroads.
It would have been the perfect citation.
In sum, my reading of the book so far continues to be that it
has both strengths and weaknesses. I haven’t yet decided which way the scales
are tipping. On to the Ages of Control and Chaos.
