ITS 455 CSUGC Capitalism in America Worksheet

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Question 11 ptsThe book ties the origins of the Great Recession all the way back to this event in 1989Group of answer choicesThe fall of the Berlin WallGreenspan’s appointment to chair of the Federal ReserveDeregulation of the banking sectorClinton’s electionFlag question: Question 2Question 21 ptsThe book cites three policies that the Federal Reserve took in response to the crisis. Which is NOT one of the policies describedGroup of answer choicesLowering interest rates and providing liquidityApplying stress tests to find weaknessesIncreasing the inflation targetRescuing major institutionsFlag question: Question 3Question 31 ptsAngus Deaton and Anne Cass produced research that suggests this statistic has declined for the first time since the industrial revolutionGroup of answer choicesThe Poverty RatePopulationLife ExpectancyBirth RatesFlag question: Question 4Question 41 ptsThe book gives three explanations for stagnation that it finds unconvincing before discussing the hypothesis that it was caused by entitlement spending. Which is NOT one of the unconvincing explanationsGroup of answer choicesAmerica is losing its lead in education and ability to attract talentTrade with ChinaThe growth rate of the workforce is deceleratingThe IT revolution is not as impactful as previous technological revolutionsFlag question: Question 5Question 51 ptsThe book cites this president as the closest parallel to Donald TrumpGroup of answer choicesAndrew JacksonRonald ReaganAbraham LincolnTeddy Roosevelt

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ALSO BY ALAN GREENSPAN
The Map and the Territory
The Age of Turbulence
ALSO BY ADRIAN WOOLDRIDGE
The Great Disruption
Masters of Management
Measuring the Mind
( WITH
JOHN MICKLETHWAIT)
The Fourth Revolution
God Is Back
The Right Nation
The Company
A Future Perfect
The Witch Doctors
PENGUIN PRESS
An imprint of Penguin Random House LLC
375 Hudson Street
New York, New York 10014
penguinrandomhouse.com
Copyright © 2018 by Alan Greenspan
Penguin supports copyright. Copyright fuels creativity, encourages diverse voices,
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scanning, or distributing any part of it in any form without permission. You are
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LIBRARY OF CONGRESS CATALOGING-IN-PUBLICATION DATA
Names: Greenspan, Alan, 1926- author. | Wooldridge, Adrian, author.
Title: Capitalism in America : a history / Alan Greenspan, Adrian Wooldridge.
Description: New York City : Penguin Press, 2018.
Identifiers: LCCN 2018020397 (print) | LCCN 2018022007 (ebook) | ISBN 9780735222458
(ebook) | ISBN 9780735222441 (hardback)
Subjects: LCSH: Capitalism—United States—History. | United States—Economic
conditions. | United States—Economic policy. | Economic history. | BISAC: BUSINESS &
ECONOMICS / Economic History. | HISTORY / United States / General. | BUSINESS &
ECONOMICS / Development / Economic Development.
Classification: LCC HB501 (ebook) | LCC HB501 .G6454 2018 (print) | DDC 330.973—dc23
LC record available at https://lccn.loc.gov/2018020397
Version_1
Greenspan:
For my beloved Andrea
Wooldridge:
For my American-born daughters, Ella and Dora
CONTENTS
Also by Alan Greenspan and Adrian Wooldridge
Title Page
Copyright
Dedication
INTRODUCTION
One
A COMMERCIAL REPUBLIC: 1776–1860
Two
THE TWO AMERICAS
Three
THE TRIUMPH OF CAPITALISM: 1865–1914
Four
THE AGE OF GIANTS
Five
THE REVOLT AGAINST LAISSEZ-FAIRE
Six
THE BUSINESS OF AMERICA IS BUSINESS
Seven
THE GREAT DEPRESSION
Eight
THE GOLDEN AGE OF GROWTH: 1945–1970
Nine
STAGFLATION
Ten
THE AGE OF OPTIMISM
Eleven
THE GREAT RECESSION
Twelve
AMERICA’S FADING DYNAMISM
CONCLUSION
Appendix: Data and Methodology
Photographs and Illustrations
Acknowledgments
Image Credits
Notes
Index
About the Authors
INTRODUCTION
L
with a flight of fancy. Imagine that
a version of the World Economic Forum was held in Davos
in 1620. The great and the good from across the world
are assembled in the Alpine village: Chinese scholars in
their silk robes, British adventurers in their doublets and
jerkins, Turkish civil servants in their turbans and
caftans . . . all edge along the icy paths, frequently
tumbling over, or gather in the inns and restaurants,
animated by alcohol.
The subject of the conference is an explosive one: who
will dominate the world in the coming centuries? Everyone
wants to make the case for their corner of the planet. You
rush from panel discussion to panel discussion (and then
stumble from after-party to after-party) to absorb the Davos
wisdom.
The Chinese have a compelling argument. Peking has a
population of more than a million at a time when the biggest
European cities (London, Paris, Nice) have no more than three
hundred thousand. The imperial civil service is selected from
an immense country on the basis of the world’s most
demanding examinations. Chinese scholars have compiled an
eleven-thousand-volume encyclopedia. Chinese sailors have
built the world’s biggest ships.
Others make a good case too. A Turk boasts that the
Ottoman Empire, the most important of an arc of Islamic
countries extending from Turkey and Arabia to sub-Saharan
Africa and Asia, is expanding westward and will soon hold
Europe under its sway. A Mughal says that his empire mixes
ET’S START THIS HISTORY
people from every race and religion in a cocktail of
creativity. A Spaniard boasts that Spain is sweeping all
before it—blessed by the one true Church, it is bringing the
rest of Europe under its benign rule and extending its power
even to Latin America (where a huge store of gold and silver
is funding yet further expansion). A plucky Briton makes the
most unlikely case of all. His tiny country has broken with a
corrupt and ossified continent and is developing dynamic new
institutions: a powerful Parliament, a mighty navy (backed up
by a few pirates), and a new species of organization, the
chartered corporation, which can trade all over the world.
In all of the arguing in Davos, one region goes
unmentioned: North America. The region is nothing more than
an empty space on the map—a vast wilderness sitting above
Latin America, with its precious metals, and between the
Atlantic and Pacific oceans, with their trading routes and
treasure troves of fish. The wilderness is populated by
aboriginal peoples who have had no contact with the Davos
crowd. There are a few Europeans in New England and Virginia
—but they report that the life is hard and civilization
nonexistent. The entire North American continent produces
less wealth than the smallest German principality.
Today the United States is the world’s biggest economy: a
mere 5 percent of the world’s population, it produces a
quarter of its GDP expressed in U.S. dollars. America has the
world’s highest standard of living apart from a handful of
much smaller countries such as Qatar and Norway. It also
dominates the industries that are inventing the future—
intelligent robots, driverless cars, and life-extending
drugs. America’s share of the world’s patents has increased
from 10 percent when Ronald Reagan was elected in 1980 to 20
percent today.
The American economy is as diverse as it is huge. The
United States leads the world in a wide range of industries—
natural resources as well as information technology, paper,
and pulp as well as biotechnology. Many leading economies are
dangerously focused on one city: most obviously the United
Kingdom but also South Korea and Sweden. The United States
has numerous centers of excellence: New York for finance, San
Francisco for technology, Houston for energy, and Los Angeles
for films.
American capitalism is also the world’s most democratic.
The United States was the birthplace of the engines of
popular capitalism, from mass production to franchising to
mutual funds. In many countries capitalism has always been
associated with a plutocratic elite. In America, it has been
associated with openness and opportunity: making it possible
for people who were born in obscurity to rise to the top of
society and for ordinary people to enjoy goods and services
that were once confined to the elites. R. H. Macy, a former
whaling skipper with a tattoo on one of his hands, sold
“goods suitable for the millionaire at prices in reach of
the millions.” Henry Ford, a farmer’s son, trumpeted the
Model T as “a car for the common man.” Amadeo Giannini, an
Italian immigrant, founded the Bank of America in order to
bring banking to “the little guy.” Pierre Omidyar, another
immigrant, created an electronic bazaar, eBay, for ordinary
people to engage in free exchange.
America’s rise to greatness has been marred by numerous
disgraces, prime among them the mistreatment of the
aboriginal peoples and the enslavement of millions of African
Americans. Yet judged against the broad sweep of history, it
has been a huge positive. America has not only provided its
own citizens with a prosperous life. It has exported
prosperity in the form of innovations and ideas. Without
America’s intervention in the Second World War, Adolf Hitler
might well have subdued Europe. Without America’s unwavering
commitment to the Cold War, Joseph Stalin’s progeny might
still be in power in Eastern Europe and perhaps much of Asia.
Uncle Sam provided the arsenal of democracy that saved the
twentieth century from ruin.
This is a remarkable story. But it is also a story with a
sting in the tail: today, productivity growth has all but
stalled. Tyler Cowen has talked about a “great stagnation.”
Lawrence Summers has revived Alvin Hansen’s phrase,
“secular stagnation.” Robert Gordon’s study of the
American economy since the Civil War is called
. America is being defeated by China
and other rising powers in one industry after another. The
number of new companies being created has reached a modern
low. The labor market is becoming stickier. Regulations are
multiplying.
America has bounced back from previous disappointments. In
the 1930s, the country suffered from one of the longest and
deepest depressions in history. Then it emerged from the
Second World War as by far the world’s most powerful
economy. In the 1970s, it was plagued by stagflation and
bruised by competition with Germany and Japan. In the 1980s
and 1990s, it seized the opportunities provided by
information technology and globalization to regain its
position as the world’s most dynamic economy. Whether it can
pull off this trick again is still unclear.
This book will tell the most remarkable story of the past
four hundred years: how a collection of thirteen colonies in
the middle of nowhere transformed itself into the mightiest
economy the world has seen. It will also try to use the
lessons of history to address the great question of our time:
whether the United States will preserve its preeminence or
whether its leadership will inevitably pass to other (almost
certainly less liberal) powers.
Fall of American Growth
The Rise and
A GREAT AGE FOR BEGINNINGS
Three hundred years ago America was nothing more than a
collection of sparsely populated settlements hanging off the
edge of the known world—an afterthought to educated minds
and a sideshow in great power politics. Though rich in
natural resources, it was far away from the centers of
civilization; though huge, it was mostly inaccessible. Yet
luck smiled on the young country. America owed its birth to a
succession of lucky breaks. The rebellion that created the
United States might not have gotten off the ground at all if
the British establishment had listened to Edmund Burke and
pursued a more moderate policy. The rebels were the
beneficiaries of a global war between the British and the
French. The independence struggle would have faltered if
George Washington had not been such a great leader of men.
The lucky breaks continued after the country’s birth. Thomas
Jefferson’s purchase of the Louisiana Territory from France
in 1803 doubled the size of the country, adding fertile
farmland, the Mississippi River, and the port of New Orleans.
America bought Florida from Spain in 1821, annexed Texas in
1845 and Oregon in 1846, and with its victory in the MexicanAmerican War, added California in 1850.
America was lucky in its paternity: it was far better to
be the child of the country that produced the first
Industrial Revolution and the first parliamentary government
than, say, the child of Spain or Belgium. To this day
Americans invoke the evils of monarchical tyranny and the
virtues of the Revolution. Yet in many ways the American
Revolution was only a half revolution: America inherited many
of Britain’s best traditions, from limited government to the
common law to a respect for individual rights that, according
to one eminent historian, Alan Macfarlane, stretches back to
the thirteenth century.1 America engaged in a ceaseless
exchange of informal knowledge with Britain, importing
British immigrants, who frequently brought industrial secrets
with them, and sending Americans to visit British factories,
steelworks, and exhibitions. It looked to British models for
its stock market, commodity exchanges, and patent laws.
Divided by a common language, America and Britain are
nevertheless united by a common culture.
The luckiest break of all was timing. The United States
was born in the age of the Enlightenment, when old verities
were being rethought and established institutions remodeled.
The country’s bloody struggle for independence (1775–83)
began a year before the publication of the greatest work of
free-market economics ever written, Adam Smith’s
(1776). For most of recorded history, people had
acquiesced in, and in some ways embraced, a society that was
static and predictable. From the birth of Jesus to about
1820, economic growth amounted to no more than 0.11 percent a
year or 11 percent a century, according to Angus Maddison.2 A
young fifteenth-century vassal could look forward to tilling
the same plot of his landlord’s soil until disease, famine,
natural disaster, or violence dispatched him. And the vassal
could fully expect that his children and his children’s
children would till the same plot.
Adam Smith advanced a vision of a dynamic society in which
wealth multiplied and opportunities abounded. In doing so, he
performed a remarkable intellectual somersault. Until this
point, people had generally regarded the pursuit of selfinterest as, at best, unseemly, and at worst, sinful. Smith
countered that, provided it took place within the constraints
of law and morality, the pursuit of self-interest boosts the
well-being of the entire nation.
No country has embraced this insight more fully than the
one that was born shortly after Adam Smith advanced this
argument. The new country was conceived in a revolt against a
mercantilist regime that believed that a nation’s economic
success was measured by the size of its stock of gold, which
was, in turn, driven by the extent of positive trade balances
of Nations
The Wealth
fostered by protectionist policies. The U.S. Constitution,
written in 1787 and ratified in 1788, established that the
entire country was a unified common market with no internal
tariffs or taxes on interstate commerce. America was the
first country to be born in an age of growth—an age when the
essential economic problem was to promote the forces of
change rather than to divvy up a fixed set of resources.
The second force shaping America was the Enlightenment’s
great antagonist, religion, particularly the Protestant
religion. More than any other country America was the child
of the European Reformation. Whereas the Catholic Church
encouraged its members to approach God through the medium of
the priest, the Protestant Church encouraged the faithful to
approach God through the medium of the Bible. Protestants
were supposed to read the Good Book at home and come to their
own judgment on religious affairs rather than rely on the
authority of their superiors. The Massachusetts Puritans
founded schools and universities on a scale unmatched in any
other country. A Massachusetts law obliged all heads of
households to teach their children to read. “After God has
carried us safe to New England, and we had builded our
houses, provided necessaries for our livelihood, reared
convenient places for God’s worship, and settled Civil
Government,” stated a 1643 letter from Harvard University to
England that is the first known example of a university
funding letter, “one of the next things we longed for and
looked for was to advance learning and perpetuate it to
posterity.”
America had one more piece of luck in its early years: the
Founders realized that the only way to thrive in a mobile
world was to establish some fixed points to navigate by. They
provided citizens with a set of rights that the government
couldn’t violate and a Constitution that kept power in
check. The more you opened the way to the rule of the people,
the more you had to make sure that the people didn’t abuse
their power. And the more you opened the door to commercial
passions, the more you had to make sure that merchants
didn’t debase the currency or cheat their customers.
The Founders injected property rights into the country’s
DNA. Thomas Jefferson’s phrase about man’s “inalienable
right” to “life, liberty and the pursuit of happiness” was
a gloss on John Locke’s phrase, in his “Second Treatise,”
about man having “by nature a power” to preserve “his
life, liberty and estate, against the injuries and attempts
of other men.” The Constitution divided power in large part
to protect propertied people from the predations of the
masses or a dictator. This vigorous protection of property
not only encouraged entrepreneurialism at home, because
people had a reasonable certainty of keeping their gains, it
also encouraged foreign investors to put their money in
America on the grounds that they wouldn’t see their capital
stolen and their contractual rights ignored.
America’s passion for protecting property extended to the
fruits of their imaginations. The Founding Fathers built
patent protection into Article I, Section 8, of the
Constitution. America extended intellectual property rights
to people who would never have had them in Europe, setting
the patent fee at only 5 percent of the amount charged in
Britain. It also required inventors to publicize the details
of their patents so that innovations could be disseminated
even as the right to profit from making them was protected.
The preoccupation with patents points to another
advantage: America was born in an age of business. The
country was founded by business corporations such as the
Virginia Company and the Massachusetts Bay Company: the first
American “freemen” were, in fact, company stockholders, and
the first “commonwealths” were company general assemblies.
Americans were the first people to use the word
“businessman” in the modern sense. In the eighteenth
century, the English used the term to refer to people who
were engaged in public affairs: David Hume described Pericles
as a “man of business.” In the 1830s, Americans began to
use the phrase to refer to people who were engaged in
mercantile transactions.3
Thereafter Americans reserved the same respect for
businesspeople that the British reserved for gentlemen, the
French for intellectuals, and the Germans for scholars.
America’s willingness to “put something heroic into their
way of trading,” as Alexis de Tocqueville put it, produced a
cult of the entrepreneur. Americans were instinctive
supporters of Joseph Schumpeter’s idea that the real motors
of historical change were not workers, as Marx had argued,
nor abstract economic forces, as his fellow economists tended
to imply, but people who build something out of nothing,
inventors like Thomas Edison, who had 1,093 patents, and
company builders like Henry Ford, Thomas Watson, and Bill
Gates.
America didn’t progress in a straight line after the War
of Independence. The infant republic was torn between two
different visions of the future—Thomas Jefferson’s vision
of a decentralized agrarian republic of yeomen farmers, and
Alexander Hamilton’s (astonishingly prescient) vision of an
urban republic with industrial mills driving economic growth
and a powerful bank irrigating the economy. America was also
divided into two strikingly different economies—the
capitalist economy of the North and the slave-owning economy
of the South. This division became more pronounced over time
as the North invested more heavily in machinery and the South
invested more heavily in cotton growing and tried to expand
the slave system into new territories such as Kansas. The
Civil War eventually decided which version of America would
emerge—and the United States tirelessly spread its version
of a business civilization across the entire continent.
PEOPLE OF PLENTY
America’s business civilization took root in a country that
enjoyed an abundance of the three great factors of
production: capital, land, and labor. America’s banking
sector expanded from 338 banks with total assets of $160
million in 1818 to 27,864 banks with assets of $27.3 billion
in 1914. America also became the world’s leading importer of
capital, particularly from America’s predecessor as the
headquarters of capitalism, the United Kingdom. The
country’s official land area kept growing rapidly in the
first half of the nineteenth century, from 864,746 square
miles in 1800 to 2,940,042 in 1850. Americans brought 400
million acres of virgin territory under cultivation between
the end of the Civil War and the outbreak of the First World
War—a quantity of land almost twice the size of Western
Europe.
The land contained a vast store of natural resources.
America has more miles of navigable rivers than the rest of
the world combined. The greatest of these rivers—the
Missouri, Ohio, Arkansas, Tennessee, and of course, the
mighty Mississippi—flow diagonally rather than
perpendicularly, drawing the country together into a natural
geographical unit.4 The Appalachian Mountains, from
Pennsylvania to Kentucky to the hills of West Virginia, are
filled with coal. Montana is so rich in precious metals that
its official nickname is the Treasure State. The Mesabi Range
in Minnesota is stuffed full of iron ore. Texas sits on a
lake of oil (a lake that is now getting bigger thanks to the
invention of fracking). The Midwest is a wheat bowl.
It’s easy to see the impact of resource wealth in
American history. You can see it in the succession of
commodity-driven crazes—most notably the gold rush of 1849
and the oil booms of the early 1900s and 1950s—that have
gripped the country. You can see it in giant export
industries such as wheat. But one of the most important
impacts was invisible: America didn’t suffer from the
resource constraints that have slowed down growth in other
countries. From 1890 to 1905, when America’s steel industry
was booming, Minnesota’s share of the country’s iron ore
production rose from 6 percent to 51 percent and the domestic
price of iron ore fell by half, ensuring that the country’s
steel magnates were paying significantly less for their raw
materials than their British competitors.
America was also a people magnet. Colonial America had one
of the highest birthrates in the world thanks to the
abundance of land and shortage of labor. Population growth
kicked into a still higher gear when America began to suck
people from abroad. In the nineteenth century, the population
multiplied by a factor of almost fifteen, from 5.3 million to
76 million, a total larger than any European country except
Russia. By 1890, 80 percent of New York’s citizens were
immigrants or the children of immigrants, as were 87 percent
of Chicago’s.
A striking proportion of America’s entrepreneurial heroes
were immigrants or the children of immigrants. Alexander
Graham Bell and Andrew Carnegie were born in Scotland. Nikola
Tesla, the discoverer of AC electricity, was Serbian. George
Mitchell, the inventor of fracking and one of the most
consequential businessmen of recent decades, was the son of a
Greek goatherd.
Having arrived in the country, the settlers were unusually
mobile: brought up in countries where land was in short
supply, they were seized by a mixture of land lust and
wanderlust when they realized that land was abundant. This
addiction to mobility survived the creation of a more
prosperous civilization: in their
studies of a
typical town in the Midwest, Muncie, Indiana, Robert and
Helen Lynd discovered that Americans became more mobile as
time went on, with 35 percent of families moving in 1893–98
and 57 percent in 1920–24. In the decades after 1900,
Middletown
millions of black Americans fled the indentured servitude of
sharecropping in the South for booming northern industrial
towns such as Detroit and Chicago. (From the 1980s onward
this flow was reversed as millions of people of all colors
fled the Rust Belt for the booming Sun Belt.)
In the second half of the nineteenth century, the country
combined its various advantages—cultural and demographic,
political and geographical—to turn itself into the world’s
most powerful economy. Railroads knitted the country together
into the world’s biggest single market: by 1905, 14 percent
of the world’s railway mileage passed through a single
American city, Chicago. America produced the world’s biggest
corporations: U.S. Steel, formed in 1901, the world’s first
billion-dollar company, employed some 250,000 people. America
did more than any other country to transform two new
technologies—electricity and the internal combustion engine
—into a cornucopia of consumer products: cars and trucks,
washing machines and radios.
HOW TO GET RICH
In telling this story, this book will focus on three
organizing themes: productivity, creative destruction, and
politics. Productivity describes society’s ability to get
more output from a given input. Creative destruction defines
the process that drives productivity growth. Politics deals
with the fallout of creative destruction. The first is a
technical economic issue. The second is an economic issue
that also touches on some of the most profound problems of
social philosophy. The third takes us far from the world of
charts and numbers into the world of practical politics.
Anyone who regards economic history as history with the
politics left out is reading the wrong book.
Productivity is the ultimate measure of economic success.5
The level of productivity determines the average standard of
living in a society and distinguishes advanced countries from
developing countries. The most commonly used measure of
productivity is labor productivity, which is measured by
output (value added) per every hour worked (OPH). Two big
determinants of the level of labor productivity are the
amount of capital (plant and equipment) employed in making
things and the number of hours people work, adjusted for
their level of education and skills.
In the 1950s, “growth economists,” led by Moses
Abramovitz and Robert Solow, discovered that the inputs of
capital and labor do not fully account for all the growth in
GDP. They dubbed the unexplained leftover multifactor
productivity (MFP) or, sometimes, total factor productivity.
The heart of MFP is innovation. MFP arises mainly from
innovations applied to the inputs of capital and labor.
The problem with calculating GDP and MFP over a long
period is that the further back you go in time, the more
difficult it is to find solid statistics. The U.S. government
only began collecting systematic data on national income and
product accounts in the 1930s, when it called on the
expertise of Simon Kuznets of Stanford University and the
National Bureau of Economic Research. For prior data,
historians have to rely mainly on the decennial census, which
started in the 1790s. Historians supplement official census
data with scattered data on industrial production, crops,
livestock, and hours worked, but, as Paul David identified,
such data were not very accurate before the 1840s. Despite
these limitations, a legion of economic historians has, more
or less, constructed a useful statistical history of GDP,
both nominal and real, for the early years of the republic
(see appendix).6 We draw on that work throughout this book.
CREATIVE DESTRUCTION
Creative destruction is the principal driving force of
economic progress, the “perennial gale” that uproots
businesses—and lives—but that, in the process, creates a
more productive economy. With rare exceptions the only way to
increase output per hour is to allocate society’s resources
to areas where they will produce the highest returns—or, in
more formal language, to direct society’s gross domestic
savings (plus savings borrowed from abroad) to fund cuttingedge technologies and organizations. Creation and destruction
are Siamese twins. The process involves displacing previously
productive assets and their associated jobs with newer
technologies and their jobs. Thus Henry Bessemer’s novel
steel technology of 1855 displaced previous, more costly
steelmaking.
The world owes the idea of creative destruction to Joseph
Schumpeter and his great work
(1942). “The process of creative destruction is
the essential fact about capitalism,” Schumpeter argued.
“It is what capitalism consists in and what every capitalist
concern has got to live in.” Yet for all his genius,
Schumpeter didn’t go beyond brilliant metaphors to produce a
coherent theory of creative destruction: modern economists
have therefore tried to flesh out his ideas and turn
metaphors into concepts that acknowledge political realities,
which is to say, the world as it really is.
There is no better place to study this perennial gale than
late-nineteenth-century America, when the country produced a
throng of business titans who reorganized entire industries
on a continental stage. It was a time in which the federal
government focused overwhelmingly on protecting property
rights and enforcing contracts rather than on “taming” the
process of creative destruction. Thanks to relentless
Democracy
Capitalism, Socialism and
innovation the unit cost (a proxy for output per hour) of
Bessemer steel fell sharply, reducing its wholesale price
from 1867 to 1901 by 83.5 percent. And cheap steel set off a
cycle of improvements: steel rails lasted more than ten times
longer than wrought-iron rails at only a modest increase in
price, allowing more people and products to be carried by
rail for less money. A similar cascade of improvements in
almost every area of life produced a doubling of living
standards in a generation.
The most obvious way to drive creative destruction is to
produce more powerful machines. A striking number of the
machines that have revolutionized productivity look like
improvised contraptions. Cyrus McCormick’s threshing
machine, described by the London
as a cross between a
7
flying machine and a wheelbarrow, helped to produce a 500
percent increase in output per hour for wheat and a 250
percent increase in output for corn from its invention in
1831 to the end of the nineteenth century. In the process, it
helped to displace as much as a quarter of the world’s
agricultural labor force. In 1800, a farmer working hard with
a scythe could harvest only a single acre in a day. By 1890
two men using two horses could cut, rake, and bind twenty
acres of wheat in the same time. The sewing machine, which
was invented in 1846 and produced in large numbers by the
1870s, increased productivity by more than 500 percent. New
tabulating machines meant that the 1890 census was compiled
in less than a year, compared with an estimated thirteen
years for the 1880 census. Teleprinters, which appeared in
1910, displaced 80 to 90 percent of Morse code operators by
1929.
Better business processes are as important as better
machines. Mass production was arguably America’s greatest
contribution to human productivity. In nineteenth-century
Europe, the production of complicated systems such as guns or
clocks remained in the hands of individual master craftsmen.
In America, Eli Whitney and other innovators broke down the
manufacture of the machine into the manufacture of uniform
Times
parts. In 1913, Henry Ford added a moving assembly line,
which brought the job to the man. America’s success in
producing better machines and smoother production processes
has been recognized by even the crudest intellects. Stalin
described America as a “country of machines.”8 Hitler
claimed that Nazism was