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Land of Promise: An Economic History of the United States
Published by EH.Net (October 2012)
Michael Lind, Land of Promise: An Economic History of the United States. New York: Harper, 2012. vi + 586 pp. $30 (hardcover). ISBN: 978-0-06-183480-6.
Reviewed for EH.Net by Ranjit S. Dighe, Department of Economics, State University of New York at Oswego.
Over the past two decades, Michael Lind has established himself as one of America’s leading public policy intellectuals. Through eight nonfiction books, numerous articles in publications such as Harper’s and Salon, and his work as a founding member of the New America Foundation, Lind has staked out an identity as a “radical centrist” with iconoclastic policy positions that might be described as 21st-Century Whig. Lind has long called for policies in the tradition of Alexander Hamilton and Henry Clay, so it is fitting that his newest book is an economic history of the United States, from Hamilton’s time to the present.
The book’s overriding theme is threefold: (1) the Hamilton-Jefferson economic policy debate has never ended, although the particulars have of course changed over the years; (2) policies in the spirit of Hamilton and Clay are almost always right; (3) such policies deserve credit for much if not most of our economic progress. That is, Lind favors government action to promote industrialization and economic development by aiding manufacturing, imposing protective tariffs as necessary, extending and regulating credit through a central bank, financing infrastructure improvements, and forging public-private partnerships. While Lind sometimes makes pronouncements that almost no economic historians would agree with – for example, he says the National Industrial Recovery Act was a success – he presents his case with verve and usually a deft blend of economic statistics, historical detail, and quotes from contemporaries.
Although this book is published for a lay audience, perhaps one that is a center-left counterpart to the readers of John Steele Gordon’s popular economic history books, Lind clearly wants it to be academically respectable and of interest to academics. His endnotes (68 pages worth) draw on a range of current and classic works by academic economic historians. Past economists like Adam Smith and Henry C. Carey are quoted at length, and Lind shows a lively interest in the intellectual backdrop of each era. For example, we learn that industrialist Joseph Wharton founded the Wharton School of Finance and Economy in 1881 to promote protectionism, as a counterweight to the Northeastern and Southern universities that taught free-trade theory.
The book goes in chronological order with the chapters grouped into four sections: the Preindustrial Economy, the Age of Steam, the Motor Age, and the Information Age. Each section begins with a helpful page-long preview titled “The Argument.”
The most that Lind can say for the economics of Thomas Jefferson – and, perhaps surprisingly, Adam Smith – is that they made sense in a “largely static” preindustrial economy. Even then, Jefferson’s opposition to a national bank and a national debt put him at odds with Lind, not to mention the course of history. It is by now commonplace to note that in the long run Hamilton’s economic program became a reality and Jefferson’s vision of a nation of small farmers became increasingly obsolete. While Smith’s economics were obviously a lot more sophisticated than Jefferson’s, it is fascinating to hear that Smith was “the favorite economist of America’s agrarians” and argued that Americans should continue to specialize in agriculture rather than try to develop their own manufacturing. Lind quotes from The Wealth of Nations: “It has been the principal cause of the rapid progress of our American colonies toward wealth and greatness that almost their whole capitals have hitherto been employed in agriculture…. Were the Americans, either by combination or by any sort of violence, to stop the importation of European manufactures, and by thus giving a monopoly to such of their own countrymen as could manufacture the like goods, divert any considerable part of their capital into this employment, they would retard instead of accelerating the further increase in the value of their annual produce, and would obstruct instead of promoting the progress of their country toward real wealth and greatness.”
Lind says that James Watt and Matthew Boulton’s invention of the steam engine – in 1776, the same year as the Declaration of Independence and the publication of The Wealth of Nations – made Smith’s arguments obsolete by ushering in a new industrial revolution. While that is a striking coincidence, Lind later notes that steam power caught on only gradually, with water power providing almost half of the total energy in manufacturing as late as 1869. And Lind gives due credit to (Jefferson’s!) Embargo Act of 1807 and the autarchic years of the War of 1812 for jump-starting American manufacturing. Lind staunchly defends America’s protective tariffs of the nineteenth century, pressing the infant-industry case, though he concedes that high tariffs were no longer necessary by the end of the century. Regarding the tariff of 1816, he cites a remarkable statement from that year by Parliament’s Henry Brougham in favor of predatory British dumping after the war: “it was well worthwhile to incur a glut upon the first exportation, in order, by the glut, to stifle, in the cradle, those rising manufactures in the United States, which the war had forced into existence, contrary to the natural course of things.”
A notable theme is that the South essentially continued to be a British colony in the antebellum period, with an undiversified economy that revolved around exporting raw cotton to British textile mills. Of course, a significant portion of the South’s raw cotton went to textile mills in New England, and King Cotton had other Northern retainers as well. Lind provides a remarkable quote from New York City Mayor Fernando Wood as secession began in 1860: “As commercial people it is to our interest to cherish and keep so good a customer…. Not only let us avoid making war upon her peculiar system of labor but let us become even stronger defenders of the system than the South itself.” Wood even proposed that New York City and several adjacent counties secede to be their own city-state.
Andrew Jackson is the principal antebellum villain here, not only dismantling the Bank of the United States but also vetoing a bill to fund part of the National Road. Not until 1916 would the federal government again allocate funds toward a national road system. In the entire period from Washington’s inauguration to the eve of the Civil War, the states spent nearly nine times as much on transportation infrastructure as did the federal government.
Lind sees the Civil War as the ultimate battle in the Jefferson-Hamilton debate. Lincoln called himself “an old-line Henry Clay Whig,” and during the war the Republican Congress would enact such Hamiltonian measures as the National Banking Act, the Homestead Act, higher tariffs, and lavish subsidies for rail construction. The Confederacy stood for slavery, a weak central government (except for enforcing slavery), and low tariffs; its constitution even forbade its congress from spending money on internal improvements or to promote manufacturing. Prominent among the reasons Lind gives for the Confederacy’s loss are the weakness of its central government and its lack of a manufacturing base; in short, the Confederacy was too Jeffersonian to be a viable opponent of the diversified Hamiltonian Union.
Although Lind attributes no small part of economic growth to enlightened government intervention such as infant-industry protection and state and federal investments in infrastructure, he devotes much space to private inventors and innovators. As in more academic economic histories, technological change is emphasized as the great driver of progress. Lind begins his sections on the Age of Steam, the Motor Age, and the Information Age with admiring surveys of the great inventors and inventions of those eras. Lind’s take on the private sector is similar to his take on the public sector: he likes big government and big business. (One chapter subsection is titled “The Myth of the Robber Barons.”) Lind sees the rise of big business as primarily a matter of exploiting economies of scale, not of extracting monopoly rents from consumers, and takes a dim view of antitrust. In fact, Lind is generally pro-cartel, saying that cartels are good for stability and often for efficiency, such as when they share patents and technology. Lind notes that even Thomas Edison’s genius was subject to economies of scale: Edison’s great inventions were typically the product of various teams of engineers in research labs directed by Edison, with financing by the House of Morgan and the Vanderbilts. The turn-of-the-century merger movement and J.P. Morgan’s condemnation of “ruinous competition” get praise; William Jennings Bryan’s and Louis Brandeis’s attacks on monopolies do not. In the twentieth century chapters, Lind decries the stepped-up antitrust enforcement that began in Franklin D. Roosevelt’s second term and which the Truman administration rejoined after the war as counterproductive and wasteful. He decries the Cellar-Kefauver Act of 1950, which decreed that horizontal mergers would invite antitrust prosecution, as giving rise to inefficient corporate conglomerates that produced scores of unrelated products and which would be fat targets for corporate raiders several decades later.
Lind’s fondness for cartels and government involvement may explain his positive view of the National Recovery Administration “codes of fair competition.” Lind says the claim that they “retarded recovery by imposing minimum wages is not taken seriously, except by those whom Hoover derided as ‘die-hard liquidationists.’” But whether it was through a spike in real wages or through the monopolistic raising of prices and restriction of output, literally every academic economic history I have read of the First New Deal says the NRA retarded recovery. And it bears mentioning that it was also a failure as a public-private partnership; business, both large and small, went from cautious acceptance of the NRA to outright hostility. By the time it was declared unconstitutional by the Supreme Court in 1935, it had virtually no allies. Lind notes that Keynes said that the NRA had worthy goals of reform but “probably impedes recovery.” Keynes actually went further and said that while ending deflation was important, “there is much less to be said in favour of rising prices, if they are brought about at the expense of rising output,” i.e., as the result of a deliberate restriction of supply. “Some debtors may be helped, but the national recovery as a whole will be retarded.”
(On a side note, Lind says that NIRA, for National Industrial Recovery Administration, was changed to NRA by Administrator Hugh S. Johnson after a Business Week article ridiculed NIRA as “Neera My God to Thee.” The book has many little gems like that one.)
Public-private partnerships seem to get Lind most excited. The book begins with Hamilton’s Society of Establishing Useful Manufactures (SUM), which, far from being just another part of his neglected Report on Manufactures in 1791, became an industrial corporation in Paterson, New Jersey the same year and helped Paterson become a thriving and diversified factory town. Among other highlights, the SUM hired Edison to design an early hydroelectric power plant and Paterson became the site of the Wright Brothers’ aeronautical company. The SUM lasted until 1945. Lind waxes eloquent about the Morrill land-grant universities and the agricultural innovation they spawned. And for all his praise of corporate R&D, he says, “Even more important in the long run was the contribution of the federal government to innovation,” including the National Science Foundation, the National Institutes of Health, and defense-related research contracts that led to early computers and the Internet. One of the heroes of this book is Vannevar Bush, a relatively obscure engineer who directed the government’s Office of Scientific Research and Development and helped establish the National Science Foundation. Lind devotes an entire chapter to Bush, who epitomized the type of “creative collaboration among government, the academy, and industry from which most transformative innovations in recent generations have emerged.” Bush was involved with the development of countless technologies from the atomic bomb to the jet engine to the personal computer. In addition to being a great administrator and inventor, Bush was a visionary with ideas – say, for a computer-based networked library with a sophisticated search engine – that were sufficiently specific to be a basic blueprint for later engineers who would bring those concepts to life.
A chapter on “The Glorious Thirty Years” of post-World War Two prosperity leans heavily on John Kenneth Galbraith’s concept of “countervailing power”: big business was oligopolistic and productive through economies of scale and scope; big labor helped make sure that those productivity gains translated into higher living standards; big government expanded the social safety net and the national infrastructure, notably through the interstate highway system. Lind sees a positive legacy for the short-lived NRA in the numerous government-sponsored cartels in such industries as airlines, trucking, and oil. These cartels, as well as established oligopolies in industries like automobiles and steel, helped stabilize the economy and avoid ruinous competition, Lind argues. In the financial sector, New Deal regulations like the Glass-Steagall Act made banking boring and the economy more stable.
As for what ended those glorious postwar decades, Lind recognizes that the 1970s productivity slowdown was worldwide but sees aggregate-demand factors at work too, principally in American trade flows and policy. As Germany, Japan, and other countries rebuilt their war-damaged capacity, it was inevitable that America’s trade surpluses would shrink. Lind says that the tide of imports was larger still due to Cold War policies designed to keep those countries out of the Soviet orbit by offering them one-way trade concessions. He further claims that the Japanese economic miracle of the 1960s–1980s would not have occurred without those concessions. As the economy weakened in the mid-1970s under the combined forces of the productivity slowdown and the OPEC oil shocks, the public rapidly lost faith in big business, big labor, and big government. “The Great Dismantling” came with the deregulatory programs of Presidents Jimmy Carter and Ronald Reagan. While Lind acknowledges that deregulation may have made sense in the telephone industry and some others, he says deregulation was misguided in general and a disaster in airlines, electrical utilities, and finance. Carter was “The First Neoliberal President” for his deregulation and his appointment of Paul Volcker to the Federal Reserve. Volcker’s shock therapy ended the high inflation of the 1970s but coincided with a 40 percent rise in the value of the dollar and accelerated deindustrialization. Lind quotes an oil executive at the time who said Volcker and Reagan (who reappointed Volcker) have “done more to dismantle American industry than any other group in history.” Lind has surprisingly little on Reagan, perhaps because he wants to emphasize that Carter moved the country in a “neoliberal” direction first. Yet Reagan was a more active dismantler – for example, breaking up the air-traffic controllers union, consistently opposing an increase in the minimum wage, cutting anti-poverty programs, and calling for less government in general. Elsewhere Lind mentions Reagan as an example of inappropriate policy leadership in the Jefferson-Jackson tradition, but he offers few specifics. Which is unfortunate; whatever one’s politics, one has to admit that Reagan was one of the most consequential politicians of the postwar era, and his administration is arguably a bigger part of the story than we get here.
Regarding the crack-up of the economy in the late 2000s, Lind, like many analysts, traces it to the “financial-market capitalism” that emerged in the wake of financial deregulation, an unbalanced “bubble economy,” and over-securitization of mortgages. He contrasts today’s financial-market capitalism with the finance capitalism of J.P. Morgan’s time, arguing that Morgan, unlike today’s institutional investors, took a long-term “buy and hold” view that was more keyed to fundamentals and stability. He adds that the growing wealth and income gap adds to the instability by weakening aggregate demand; the severe debt overhang and prolonged deleveraging among America’s middle class today would seem to support that view.
He concludes the book with a policy manifesto that he calls the Next American System, in homage to Clay’s American System. Lind’s system includes more government-funded R&D and infrastructure, industrial policy that promotes American manufacturing, and public-private partnerships like R&D banks to subsidize private innovation. In the financial sector Lind would bring back Glass-Steagall’s separation of commercial banking from the securities industry and impose a modest “Tobin tax” on financial transactions to discourage speculation and raise revenue. Concerned with the failure of the post-1973 economy to distribute its gains to all income levels, Lind offers several possible ideas to raise lower and middle incomes, from an expanded earned-income tax credit to increased public employment to restrictions on unskilled labor immigration. (Like the economist George Borjas, he favors a point system for immigration that gives preference to skilled workers.) He also advocates “universal social insurance,” financed out of current taxation, to replace dwindling employer-provided benefits.
As noted before, Lind’s book is intended for a lay audience, not an academic audience. Economic historians will find much to criticize here, most likely the general defense of protectionism and cartels, but the book is worth reading by anyone in search of provocative arguments and colorful details.
Ranjit S. Dighe is Professor of Economics at the State University of New York at Oswego. Email: email@example.com. His current research subjects include the economic conservatism of former New York Governor Alfred E. Smith.
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