Reflection on Americana: A 400-Year History of American Capitalism by Bhu Srinivasan

This book is essential reading. One of the best history books I’ve read. If you’re interested at all in American history or economic history or the great inventions of the last 200 years you won’t be able to put this book down. “Americana” covers American economic history in some 30-odd chapters, each named for a product, invention, or economic organization, including tobacco, cotton, steam, rail, unions, flight, and more. Srinivasan writes it in an incredibly engaging way, covering each topic like a novelist telling the stories of boom and bust for inventors and investors, often, as a book about capitalism should do, getting into the nitty-gritty of who was investing in what and when. Overall, it’s the best book I’ve read since “The Looming Tower” or “Maps of Time.” In this post I kind of missed most of the 20^th and 21^st centuries because I got tired of writing but here it is:

The Struggle Between the Free Market and Regulation

               The major theme of the book is the eternal struggle between the forces of unbridled capitalism and wealth generation and those of democracy and constraints on capitalism’s excesses. The author makes a nuanced argument and effectively shows that at no point in American history was there ever a truly free market. The greatest successes have balanced the two ideas or chosen one in some places and another somewhere else. Consider the earliest settlers of British America: the Massachusetts Bay Colony and the Virginia Colony:

The first economic system practiced in the Massachusetts Colony was a sort of proto-Communism, with all food belonging in common to the community and company. This failed as no one had a motivation to do work, and once they switched to everyone growing their own, they produced much more food.

In Virginia, the opposite happened. Virginians quickly determined that they could make the most money through tobacco, which became almost the entirety of the crop they harvested. This resulted in food shortages putting them on the brink of starvation. As a result, the answer was economic regulation- the governor ruling that ever man must plant two acres of corn to ensure his entire food supply before planting any tobacco.

The trend continued throughout American history. For example, where would Carnegie’s U.S. Steel have been without the 28 dollar-a-ton tariff on British steel? At the time, Carnegie was selling at 68 dollar-per-ton, so British companies would have had to sell at 40 including shipping, which was impossible.

               Many great capitalist successes are owed to government intervention. The steamboat developed out of a monopoly grant, the railroad benefitted from eminent domain, the telegraph was subsidized by the government early in its development, cotton had state-sanctioned slavery, and steel had tariff protection. While the automobile benefitted from no direct government regulations in its earliest development, it did benefit from the regulations the government put on people, requiring licenses and traffic rules. Although these rules made the barrier to entry higher, they increased confidence that the new invention could be safely used, making more want to buy cars.

The Exploitation of Man’s Labor

               The earliest major labor force in the colonies was the indentured servant, who agreed to work on a farm for a certain number of years in exchange for the payment of their passage to America and a small parcel of land upon the termination of the contract. In Virginia in 1625, indentured servants made up 487 people in the population of 1,227, or nearly 40% of the population. There were only 23 black slaves. Why so many indentured servants? First, England was very politically volatile from 1625 until the 1640’s due to King James’s death and the English Civil War; second, Spain and the Netherlands controlled the sea and the slave trade, as it was most profitable to send slaves to sugar plantations closer to the equator, which were bigger and closer to Africa- a slave ship could make a round trip journey from West Africa to Brazil in the time it would take to get to Virginia one way. In the first half of the 17^th century, ¾ of the white settlers to arrive in Virginia were indentured servants.

               The calculation began to change in the later 17^th century as the political situation stabilized in England and Virginia started to run out of land, as there was only so much good land that could be promised to new settlers each year. By the end of the century the slave population was skyrocketing from just 2,000 in Virginia in 1670 to 16,000 in 1700 and growing fast. As new colonies were formed, they used land grants to attract settlers. South Carolina for example, granted 150 acres per family member, but counted slaves as family members. This dramatically increased the value of having a slave in South Carolina and by 1720 the majority of the colony was African slaves, “a condition that would hold for generations.” Increased cotton production, especially thanks to the invention of the cotton gin, resulted in the rise of Louisiana and Mississippi, and African slaves produced so much cotton for their White planter overlords that the American South was supplying 70 percent of the world’s raw cotton.

               Slavery made a ton of money and the Civil War was the only way to end it at the time. After all, the nearly four million slaves in the South were worth $2.8 million collectively, while the longest railroad in America, the Illinois Central, the most valuable industrial asset in the pre-war North, was worth just a billion dollars, slightly over a third a value of the slaves. The country could not pay the Southern Planter class for its slaves because the value was worth forty times the federal budget at the time. The war was about slavery- more for the South than the North. South Carolina’s “official declaration of the causes of secession” explicitly referred to the “election of a man… whose opinions and purposes are hostile to slavery.” Other states, like Mississippi and Georgia did not refer to slaves themselves, but rather to billions of dollars “of our property,” which can only refer to human property being that valuable.

               Cotton was the life and death of the South and in the Civil War it was death. Perhaps the biggest reason the Union beat the Confederacy was due to the naval supremacy it used to blockade the Confederates, preventing them from exporting their cotton and funding the war effort. This led to a dramatic increase in cotton production in British Egypt and India, doubling their production in just 6 years. It was so significant that “historians of Egypt still rank the American Civil War among the most crucial events in [Egypt’s] 19^th century history.”

Connecting the Country

               The earliest settlements in British America were generally cities based on rivers, such as New York, Boston, and Philadelphia. In the South, there was Charleston, but generally fewer cities, as the area was more agricultural than commercial. Most transport into the mid-19^th century used waterways that were especially plentiful in the Mississippi drainage basin, extending from Western Pennsylvania to states further west like Ohio, Illinois, Nebraska, and Minnesota in the North to Arkansas, Tennessee, and Louisiana in the South. Using steam boats, it was quicker to ship goods from Pittsburgh to New Orleans by river than it was to ship them to Philadelphia by land.

               Thanks to massive government investment, the country started to build networks of canals to connect its rivers in the early 1800’s, the most famous of which is the Erie Canal. The canal meant that goods from Cleveland could be in New York in days thanks to the Hudson, connecting the Midwest with the Northern Atlantic States and New England. It allowed a small town named Chicago to grow from just 30,000 people to over a million in 40 years.

               The canals gave birth to a new form of transportation, as the steam engines used on steamboats were put to use in the first railroads. Their financial backing, government bonds, was also put to work in railroads, so that steamboats, canals, and railroads all formed as public/private partnerships, with the government “setting in place the infrastructure, reconciling federal and state laws, permitting limited liability, and defining and balancing the conflicts of property rights” enabled a free-ish market to thrive.

Today in American Capitalism

               The current state of American capitalism is defined by the last 40 years of running trade deficits and the popularization of neoliberalism, encouraging free trade throughout the world; the two phenomena are closely related. As America is a rich country, it can afford to buy goods more cheaply elsewhere that labor costs are lower, encouraging American money to flow out of the country. The neoliberal theory makes purely economic sense in its prescription to maximize comparative advantage across the world, but economic considerations are just a part of the equation. While all Americans were once producers and consumers, increasingly we are consumers and service providers at best. Because of the open markets that have dominated the last 50 years of world economics, countries have specialized; consumer consume products that they do not produce, and producers produce products that they do not consume. This kills part of the soul. People can’t be so isolated from their own communities. Producing Nike shoes for Americans thousands of miles away cannot be very morally satisfying for a Vietnamese worker as neither is it morally satisfying for the American to buy such a foreign good.

               This book has made me reflect on the warped state of the current American political scene, where extremist Reaganites like Ted Cruz and Paul Ryan advocate for eliminating massive parts of government that provide huge benefits to the economy. It’s reminded me that they are far from the mainstream and that they are not “conserving” any older US tradition. The true American capitalist tradition involves significant state spending and intervention, as the democracy wrangles with the market to create something extraordinary. To go to far to one side is dangerous, and those who would attempt to eliminate government’s role are far more radical than those who would attempt to augment it. Increasing the role of government in society has been the most successful economic trend in American history. Making the American worker stronger makes America stronger. Making the American corporation stronger makes America stronger. Retracting government’s role to allow the market to handle itself is reckless, ahistorical, and a radical position that has no basis in patriotism and would weaken us greatly.

Miscellaneous Facts:

• The Mayflower left England in September 1620, but not all were religious pilgrims, in fact half of them were settlers that came along for the ride but were not members of the Puritan church. Within 6 months, half of those who came on the Mayflower were dead, including Mayflower Compact author John Winthrop’s wife.
• George Washington had a company that attempted to build a canal to link the Potomac to the Ohio River, and therefore the Mississippi, but the plan never came about.
• Germany faced revolution, like most of Europe, in 1848, which was a major cause of German immigration to the USA, with over half a million arriving from 1852-1854 alone, when there was no coherent American immigration law.
• One of the new phenomena of the industrial age was over-production. In the agrarian age there was rarely such a thing as overproducing food, but in the mid to late 1800’s governments failed to provide “shock absorbers” for over-production.
• Why was the Panama Canal needed? After the Mexican-American War, the USA gained control of California and discovered gold in 1849. People flooded in during the gold rush over land. By the turn of the century California and the West were well-populated, but “on sea, the nautical distance from Charleston, South Carolina to Santa Barbara, passing below the southern tip of South America, was greater than the distance from Monterrey, Mexico to Shanghai.
• There are many reasons to hate the Compromise of 1850, which included the Fugitive Slave Act, among other things. But I learned that it also incentivized magistrates to rule that ex-slaves should return to their masters, as they were paid 10 dollars for expenses for ruling that one was an escaped slave, but only 5 dollars for ruling that they should be free.
• While the saloon died out with Prohibition, until then, it provided a major social element, cashing checks, and serving as a mailing address for new arrivals (immigrants etc). It was a crucial element of machine politics, especially of the Democratic Party.
• Andrew Carnegie offered to reimburse the American government the $20 million it paid for the Philippines if the USA would give them their independence.
• In 1916, the Model T cost $360, so that you could earn the car in just 72 days of labor.
• The government’s budget ballooned in World War One from $734 million in 1916 to $12.7 billion in 1918 and would never again fall below $3 billion. The war also affected the development of the airplane. 416 airplanes were produced in 1916 and in 1918 over 14,000 were made- all but nine for the US military.
• The Levitt and Sons homebuilders’ company of “Levittown” fame refused to sell homes to blacks.
• The Federal Housing Administration would ask underwriters to appraise residential neighborhood quality, with the primary factor being economic stability and the second OFFICIALLY being “protection from adverse influences” to avoid “infiltration” from “inharmonious racial groups.”
• The 1980’s was when the major transition happened where stock ownership became so democratized and decentralized that CEOs, who were managers, had more influence than many stockholders, a condition that continues to this day.