12/03/2015 04:08 pm ET | Updated Dec 03, 2016

The Unexpected History of American Capitalism


The Fifth Amendment of the U.S. Constitution prevents the government from depriving (certain) people of "life, liberty, or property" without due process of law. That's pretty vague on its face, and it may be an historical accident that we have focused mainly on the "property" angle ever since. What would it have looked like if we'd instead focused on what it means to have real "life"?

For most of us, the fact of U.S. Capitalism is sort of an inevitability, and it seems we got here on a path as determined as that of a tossed baseball. We are taught and come to believe that the DNA of the American economy is capitalist; you could no more change it and still be American, that you could change a person's genetic code and still have them be them.

It's time to break out of that way of thinking. Let's briefly contemplate the history of American Capitalism, not so much as a means of vilifying it (at least for the moment), but primarily to get us out of the habit of thinking of the United States' economic path as pre-determined.

For example, when we say "The History of American Capitalism," presumably we mean to include historical periods and developments like the Robber Barons, but do we also mean the social responses to them, like the Progressive Movement? Is the rise of Labor Movement in the 1940s and 50s an event within America's capitalist history, or a force that intervened from outside?

If your gut reaction to that kind of question is -- "Oh please don't go there"-- that is the right one, because the hypothetic force that drove the United States to develop institutions that we now consider distinctly capitalistic, and the tendency for those institutions' sharpest corners to be somewhat (in our view, inadequately) softened, blunted and ameliorated over time--is all the same history.

There is no one "capitalistic force" driving us toward ever increased recognition of individual privileges to accumulate and control property, and a separate extra-capitalistic force pushing us to preserve and (God forbid, create) public goods. Rather, we call our current social ordering "capitalist" because it has certain core features like sophisticated financial markets and strong legal protections associated with private wealth, but the system came about and has survived just as much because of the Social Security benefits which phenomenally elevated millions of older Americans from poverty and thus justified their participation in the system, and the Fair Labor Standards Act, weekends, and workers comp (largely brought to us by unions), which similarly allowed a social order to exist, rather than just having a runaway tyranny of unlimited wealth-based power.

There has been nothing short of a renaissance recently of writings about how capitalism emerged and functions. A sampling of the resources is included at the end of this piece. So if you don't walk away from reading this post with a comprehensive understanding of American Capitalism's development (you won't), there is a great and growing selection of resources available to get you there. But let's take a quick walk through the historic landscape, just to get a sense of the development of the U.S. economic system--and in particular, how it has not been guided by a singularly capitalistic logic or principle.

When did American Capitalism begin? The Puritans church-goers, mid-Atlantic indentured servants, displaced European Catholics, African slaves, and Native Americans who interacted at the (so to speak) beginning of American History were obviously not individually or collectively capitalists. There is some belief among scholars, notably stemming from the early 20th Century writings of Max Weber, that there was something about the Protestant work ethic which was proto-capitalist. But while the Puritans may have taken a uniquely individualistic approach for their time to man's relationship with God, their frugal and communitarian ways hardly anticipate modern consumer culture or much else we associate with present-day American Capitalism. Further, it is also always possible to find vague similarities between certain time-periods and claim that an aspect of the earlier therefore foretold the essence of the latter. The more important point is that things could have developed in countless different ways as well, so just showing that a path has an origin, as Weber does, gives no reason to view American Capitalism's current form as in anyway pre-ordained.

Probably more relevant are the various contingent facts that shaped American economic history, like that a substantially uncultivated continent provided European migrants with previously unimaginable access to land, just as Europe was getting over-crowded; and that the presence of culturally dissimilar and historically unrelated people lowered perceived moral boundaries, thereby facilitating the just-mentioned territorial acquisitions, as well as generating a system of forced labor that was uninhibited by the rituals and traditions that had created a more morally advanced (if far from perfect) relationship between workers and land-owners in Europe. The new and often brutal mechanisms for acquiring and creating things of value in America generated a lot of private property, as well as a deep sense of its importance in defining social groups.

There was also clearly no singularly capitalistic ideology or social theory at work in early America. Indeed, the guiding economic principle of the day was Mercantilism, which, in retrospect, rather idiotically valued expending large amounts of resources--and sacrificing even more Native lives--to dig up vast supplies of unproductive precious metals on one side of the world, in order to hold them in vaults on the other side.

Jumping hundreds of years forward to the adoption of the U.S. Constitution, still no notion of capitalism was in the air. The "Founding Fathers" were in fact deeply suspicious of large aggregations of wealth. In the acclaimed Federalist No. 10, James Madison warned of the dangers to democracy of minority factions that subvert popular will, and in particular noted the inevitable presence and risk of a panoply of factions based on "a landed interest, a manufacturing interest, a mercantile interest, [and] a moneyed interest." Not long thereafter, in his 1830s foundational text on the political spirit of early American, Democracy in America, Alexis de Toquiville could not get over the country's obsession with equality, not wealth accumulation.

One of the great scholarly developments that has gained momentum since the Financial Crisis is the re-understanding of the role of slavery in the evolution of American Capitalism. For many years we were told that slavery was doomed to failure because of the greater productivity of wage labor, so, implicitly, it was the North's greater progress towards full-blown capitalism that defeated the South, and we should continue to have faith in capitalism's mysterious moralizing powers.

But historians like Edward Baptist at Cornell have recently made a very compelling case that slavery was in fact a hugely efficient system, because increasingly sophisticated methods of torture exacted on slaves drove them to ever-higher cotton picking capabilities, which was in turn critical to the creation of private wealth all over the Euro-American world: in the U.S. South where cotton was grown, in the North where financial institutions worked to fund the expansion of the southern forced-labor camps into new territories, and in Europe where the textile industry worked the cotton into clothes to be traded throughout the world, which launched the Industrial Revolution. On this account, far from being a discarded relic in the path to modern capitalism, slavery has a lot to do with making it possible in the first place. known as staunchly political--sums up the modernity of the notion of capitalism quite nicely in its "word story" for the term:

It is easy to forget that capitalism was coined not so long ago, in the mid-19th century, when the Industrial Revolution was in full swing, and individual entrepreneurs were creating new industries and amassing wealth. Terms for the other two major competing economic systems of the past two centuries-- socialism and communism --were also coined around the same time.

In other words, capitalism came to be a "thing" once it was already there, and comes into being as a concept largely through conversations over how its most brutal consequences might be addressed. You might say capitalism has socialism and communism to thank for its existence in the same way "up" makes no sense without "down." In short, in the mid-1800s socialism and communism and other ideas about how things might be different provided a framework in which the distinct aspects of a capitalistic economy finally were noticed and discussed.

Which is not to say thought and ideology have not played a role in this history. Adam Smith incisively captured some of the wealth-creating benefits of trade and specialized labor. But the last thing he meant to do was hold-up the likes of modern unconstrained private wealth accumulation as the solution to all social problems. The Wealth of Nations is replete with warnings about the limits of free trade as a complete system of social ordering, and he thought the best book he ever wrote was The Theory of Moral Sentiments, which is all about the importance of acting in ways that make us "lovely" to others--hardly a modern capitalist sentiment.

Real capitalistic ideology only comes into full flower based on the Right's dismay over the New Deal's survival into the post-War era and effort to draw moral lessons in favor of capitalism from the Western Cold War victory. But regardless of what you may think about the icons of neo-liberal theory, like Frederick Hayek, Ayn Rand and Milton Friedman, they clearly did not turn us into a capitalist society. Their influences become strongly felt in applied public policy only in the 1980s, by which point all they were really doing (or in Hayek's case, being used to do) was make arguments as to why particular parts of our history were the best (the ones involving selfishness, free-trade, and fierce protection of private property), to therefore be followed to the exclusion of all others.

But whatever they may have had to say about political, moral, or economic thought, Hayek, Rand and Friedman are--for good reason--not celebrated historians. Because it has always been a fight and series of choices and a contingent fact as to how our society would be structured, arranged, and change. The late-stage dysfunction of the Soviet economy certainly contributed to the demise of that empire, but to view this as a decisive argument for unrestrained capitalism is just counter-historical. It is well documented that the race between the U.S. and the U.S.S.R. for the hearts and minds of the Third World was a critical influence on U.S. leaders like Kennedy and Johnson in deciding to embrace the fight against Jim Crow and then later, in Johnson's case, commence the War on Poverty.

In other words, the West's "victory" in the Cold War is hardly just attributable to its tendency to leave its poor to pull themselves up (or not) by their own bootstraps. Western success had just as much to do with the fact the Cold War was first and foremost an ideological fight which required countering the Soviet's capture of the moral high-ground on issues like basic human equality and entitlement to freedom-from-want. The neo-liberal historical re-interpreters seem to forget that the women and men who knocked down the Berlin Wall did not risk their lives to enter a rankly captialistic land; they broke into democratically socialist West Germany. In short, competition with the Soviets on the field of values, at least as much as economics, drove us and our allies to adopt the systems we did, which in turn gained us recognition throughout the world as providing a better political, economic, and social model.

Indeed, the upshot of Edward Baptist's re-understanding of slavery as having been defeated despite its efficiency is that its non-existence within modern America's version of capitalism requires a new explanation, which Hayek, Rand and Friedman cannot provide. The best account for slavery's disappearance is probably just that the outrage stoked by the Abolitionists' unfathomably committed moral drive made slavery a political issue before the Civil War, and then claimed its eradication as a laurel of Northern victory. So in some weird but true way, the Abolitionist Movement, just like the Civil Rights Movement after it, is a very relevant part of the story of how American Capitalism came to take its form, i.e. without rampant reliance on highly efficient slaves nor wide-spread employment of business establishments that cater to the preferred shopping experience of white racists.

If such distinctly "un-capitalist" forces and bodies of thought as Abolitionism and the Civil Rights Movement are foundational parts of America's economic history (as are so many other moral movements that make our current reality somewhat better than it might otherwise have been), then we should rest assured that our historic path has not been carved by the invisible hand. We can think imaginatively and with confidence about where we go from here.

Further Reading and/or Podcasts:

1. The Half Has Never Been Told: Slavery and the Making of American Capitalism, Edward E. Baptist (2014)
2. Empire of Cotton: A Global History, Sven Beckert (2015)

3. American Capitalism: A History, (MOOC) Edward Baptist and Loius Hyman
4. Who Makes Cents: A History of Capitalism Podcast