The American Experiment

by David M. Rubenstein

  DR: For the rest of his life he’s valued for what he’s done and has a lot of very important jobs, but the greatest things he did were probably in his twenties. Did he regret that he lost this position? Do you think the rest of his life was as valuable as what he’d done in his twenties?

  JM: He never really got over losing to Carmichael. It was very difficult. He went into a kind of self-imposed exile for two years. Then he came back in ’68 and was working for Robert Kennedy, for that presidential campaign, both when Dr. King was killed and when Senator Kennedy was killed.

  No, he saw his life as a series of sequential chapters that were about bringing the Declaration of Independence into fuller realization and trying to bring about that beloved community. I don’t think he had a hierarchy of satisfaction about what he’d done.

  If anything, I think the steadiness of purpose that he brought to his work is something that almost befuddled me. What does he do at the end of his life? He’s standing at Black Lives Matter Plaza. He’s talking to President Obama on a virtual town hall about the murder of George Floyd. And so his life was of a piece.

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  Invention and Ingenuity

  “We choose to go to the moon. We choose to go to the moon in this decade and do the other things, not because they are easy, but because they are hard, because that goal will serve to organize and measure the best of our energies and skills, because that challenge is one that we are willing to accept, one we are unwilling to postpone, and one which we intend to win, and the others, too.”

  —John F. Kennedy’s moonshot speech at Rice University, September 12, 1962

  BHU SRINIVASAN on 400 Years of American Capitalism

  Writer; author of Americana: A 400-Year History of American Capitalism

  “My view of American capitalism is that it’s more like an operating system, rather than a rigid ideology. It requires adjustments, updates, patches, safeguards, and constant iteration to work properly.”

  Few would disagree that the U.S.’s remarkable rise from an eighteenth-century collection of thirteen British colonies to the greatest economic power in the world by the end of the nineteenth century was due in part to a capitalist approach that was (and remains) uniquely American: decisions about capital creation and investment are principally the province of the private sector and markets rather than government.

  It is perhaps not surprising that America began as a capitalist country, powered initially by British traditions; but the country’s capitalist approach was later fueled by a combination of entrepreneurial instincts, European trading relationships, a growing immigrant population, and slave labor in the southern economy. But why did this American-style capitalism not go the way of so many other European or Latin American economies, where socialism or even communism became commonplace, with central governments playing a much more significant role in the economy?

  There is no simple answer. But surely a large part of the answer rests on these factors: a large immigrant population; seemingly unlimited natural resources; the decentralized (in the early years) governmental system; and, very importantly, the continued succession of entrepreneurial wizards who helped create the cotton gin, steam engine, telegraph, distributed electricity, railroads, airplanes, automobiles, radios and televisions, computers, transistors, semiconductors, Internet, e-commerce, and social media, among some of the best-known products or services invented or enhanced significantly in the United States.

  American capitalism tends to provide great wealth for the inventors or the enhancers of these kinds of devices and services, and these wealth creators have subsequently often been lionized, in part because of their creativity, in part because of their job and wealth creation, and in part because of their philanthropy. And even though it is increasingly recognized that American-style capitalism has the downside of creating or enhancing income inequality and reducing social mobility, the U.S. is not likely to soon materially change its centuries-old love affair with capitalism.

  That this style of capitalism does not transfer perfectly to other countries is not seen as a major concern. And that significant social unrest may well result if larger and larger parts of the population are left behind also seems, regrettably, not to be a major concern for significant parts of the American population.

  The American style of capitalism resulted from an unlikely confluence of historical, cultural, and economic factors swirling together in ways no one could have predicted. Countless efforts have been made over the years by historians and economists to describe how this confluence occurred, and many have contributed to our understanding.

  But just a few years ago, another unlikely event occurred. A young businessman and immigrant from India, Bhu Srinivasan, decided to leave his business career behind to research and write a history of the four centuries of American capitalism.

  A first-time author tackling such a detailed and complicated subject might not have been expected to produce a book admired and lauded by both scholars and business leaders. But, after seven years of detailed research and writing, that is what happened.

  I had the opportunity to interview Bhu Srinivasan virtually for a New-York Historical Society program on September 18, 2020, and could see how his passion for detail and history, and his clear understanding of business and economics, produced such a significant—and readable—work.

  * * *

  DAVID M. RUBENSTEIN (DR): What propelled you to want to write a four-hundred-year history of American capitalism?

  BHU SRINIVASAN (BS): Immense curiosity. I came to this country in 1984, when I was eight years old. My mother was doing her postdoctorate degree. Obviously our migration to this country was stimulated by economic opportunity. Once we arrived, a lot of our movements were commercially oriented. That was the backdrop of my American experience.

  As I entered adulthood, had children, and had some commercial success myself, I started reflecting on the backdrop. How far do these economic motivations go back in shaping the American trajectory—to the Pilgrims, for instance, or to the Virginia Company?

  You can trace it back all the way to four hundred years. The Virginia Company was a company, after all, a for-profit company. Even the Pilgrims on the Mayflower were backed by shareholders back in England.

  DR: Let’s suppose somebody says, “I’m not sure I want to read a four-hundred-year history of American capitalism.” Could you summarize what is so essential or distinctive about American capitalism? How would you contrast it with, let’s say, European capitalism?

  BS: I don’t think that there is a lot of relevance between American capitalism and European capitalism. European society has multiple languages, multiple cultures. What we think of as Europe today is a fairly new thing—common borders, a common currency. These are very recent developments. Even Germany was divided into two countries until not so long ago.

  For centuries, they were weighed down by tradition, aristocracy, war, geographic shape-shifting, redrawing borders. You’re looking at the Franco-Prussian War, World War I, the Spanish Civil War, World War II, postcolonial retrenchment for France and Britain. You have a number of different things happening in Europe that don’t translate very well to thinking about the American experience.

  DR: What would you say are the two or three most seminal events that propelled American capitalism forward to the state it is in today?

  BS: The major thesis of my work is that America was shaped by discoveries and deployment of what I think of as next big things. The voyages to the New World, to America itself, were the next big things of that era.

  Some of these discoveries, like Eli Whitney’s cotton gin, are accidental and incredibly significant. The young man, after Yale, goes to the American South to take a tutoring job, and ends up staying at a plantation over a few days.

  The cotton gin seemed like a very simple device. You basically put cotton into this small, circular contraption where you remove the cotton seed from the cotton fibers. That sets off a big boom in cotton, because whil
e it was very easy to grow, separating the seeds from the fiber was very laborious at that time.

  This happened in the early 1790s, when Whitney invented the cotton gin. The Louisiana Purchase happens in 1803. These things are unrelated but they converge—the fertile soil of the Mississippi Delta coupled with the easy extraction of cotton fiber from cotton seed.

  You have a ready labor source in American slaves who are able to produce immense amounts of cotton. For much of the eighteenth century, the big cash crop was tobacco, but that was not the case post-Revolution. At the same time, you’re looking at the Industrial Revolution in England, where cotton cloth really becomes the first global consumer commodity where you have an industrial layer that has to be applied. So you’re able to get cotton cloth, when a change of clothing is this very rare and luxurious thing, and all of a sudden it becomes a more affordable commodity. It starts with Black hands touching cotton in the Mississippi Delta, and the device that made it possible was Eli Whitney’s cotton gin.

  Similarly, the telegraph, when Samuel Morse stumbled onto this in the 1830s, was a very significant thing. When George Washington died, it took seven days for that news to travel back from Washington to New York. With the telegraph, they’re transmitting details from one of the nominating conventions in 1844 within seconds. You’re looking at light speed for information transmission, whereas before, the physical speed of mankind was how fast information could travel. It was like magic. There just was no reference point for how such a thing could be possible. People were bewildered and awed by that. It suggested immense possibilities and sped up commerce.

  The third seminal event is a political event that shaped the American Century. The rise of Teddy Roosevelt as president in 1901 was fairly significant. This happens with the death of William McKinley, who had defeated William Jennings Bryan both in 1896 and 1900. In a simplistic sense, McKinley is the market’s candidate, Bryan is the people’s man, a populist.

  Upon McKinley’s assassination in Buffalo, New York, Teddy Roosevelt becomes the youngest president in American history. He turns out to become this highly energetic mediator between powerful business interests and labor unions, between the consumer and businesses. He uses the power of U.S. Navy contracts to end child labor. Within months of assuming the presidency, he makes the argument that since the corporate form itself is a creation of the law, meaning that the idea of limited liability does not exist in nature and only exists because the government recognizes it as such, it made little sense to him that the government should not have any regulatory authority. His presidency set the trajectory for American capitalism in a big and underrated way.

  DR: Which two or three or four individuals would you say are really responsible for the powerful growth of American capitalism over the last four hundred years?

  BS: My view of American capitalism is that it’s more like an operating system, rather than a rigid ideology. It requires adjustments, updates, patches, safeguards, and constant iteration to work properly. If one person didn’t exist, it doesn’t mean that the trajectory of American capitalism would have been altered that dramatically.

  That said, I think Henry Ford is very significant. In 1914, when he basically comes out with a $5 workday—for a full day of work, an eight-hour shift, you get $5—it was double the prevailing wage. Black men included. The announcement was stunning. It was front-page news. It leads to this equation that, to some degree, still awes me.

  The reason why that’s significant is because you could have a recently arrived immigrant, as many were, who works ninety days and could theoretically accumulate $450, which was the price of a Model T that year.

  That’s an amazing thing. That doesn’t happen in China today. If somebody is earning $250 a month making iPhones, three months of labor gets you a new iPhone. Whereas in 1914, three months of labor was the equivalent of a brand-new Model T. That remains stunning. I’ve always believed that the automobile was the ultimate symbol of American industriousness and wealth in a staggering way—it closed the loop on the American producer and the American consumer, making the workingman one and the same.

  DR: If you could have interviewed one or two or three of these famous people you’ve written about, who would you like the most to have interviewed?

  BS: Andrew Carnegie is at the very top of the list. He was a child laborer when he arrived in this country. He’s thirteen years old. The family is displaced by the Industrial Revolution in Scotland—his father was a weaver. They migrate to the United States and end up in Pittsburgh.

  Andrew immediately has to abandon school to go work in a boiler room. I’m not talking about a boiler room where you cold-call grandmothers to sell questionable securities, but one where a small boy is feeding coal into a furnace all day. He gets into the telegraph office, where he’s a messenger boy, and ultimately rises to the Pennsylvania Railroad as an executive, and has these side ventures. And he keeps making his way in the world. This diminutive man just dominates the steel industry, completely ruthless, utterly brilliant.

  Then in 1901, when J. P. Morgan decides to buy Carnegie Steel, along with some other steel companies, and form U.S. Steel, Carnegie immediately starts giving away most of his money from the sale. He stayed true to that creed he put out in his book The Gospel of Wealth. Whether they know it or not, it becomes the instruction manual for men like Warren Buffett, Bill Gates, yourself. I’ve always believed this paradox also describes and explains American capitalism in a lot of ways.

  DR: Let’s talk about the periods of history you’ve divided your book into: the beginning of the country up to the Civil War, from the Civil War up to the early part of the twentieth century, from the early part of the twentieth century up to the latter part of the twentieth century, and then on to the present.

  Let’s go through each of those periods briefly. It’s been thought by some historians that the person most responsible for our American capitalism was Alexander Hamilton, the first secretary of the treasury. He was very much focused on having a kind of financial system that was opposed by Jefferson. Do you think Hamilton deserves the credit he’s received?

  BS: To some degree. But my view is that capitalism is an action game—it is event-driven. And the interests of states and the federal government were at odds many, many times in that era. For instance, in 1824, you had Gibbons v. Ogden, the Supreme Court decision that affirmed that the right to regulate interstate commerce belongs to the federal government.

  The Erie Canal, for instance, was a project that was entirely financed by bondholders in the state of New York. It was guaranteed by the state itself. It opens up the Great Lakes, connects the American interior to the Eastern Seaboard, the Atlantic Ocean. Same thing with all these canal systems that connected other bodies of water and made all this American land more useful—the individual states did this. The federal government had a very difficult time coming up with money for any of these massive public improvement projects.

  The secretary of the treasury under Thomas Jefferson, Albert Gallatin, had a plan to fund a series of canals in 1806, with one major canal to do what the Erie Canal ultimately did. But at the end of the day, the states did not want one state to be favored. Where would you build this large canal? Would you put it in Virginia? In Maryland? In New York? You’d end up favoring one state or the other.

  So it’s very hard for me to give too much credit to the foresight of the framers in this particular respect, because there were such conflicts. Federal efforts shape capitalism in different ways, but they just couldn’t have foreseen the consequences of the Louisiana Purchase, which was a federal expenditure under Jefferson. This certainly shaped the contours of American capitalism, as the best cotton-producing region was the Mississippi Delta, which extended and deepened American slavery. They couldn’t have foreseen the incredible accidental benefit of the Mexican-American War, which brought California into America and the greatest gold discovery of the time almost days later. At the time there were exactly fifteen slave states and f
ifteen free states; admitting California as a free state, the thirty-first state, required the Compromise of 1850.

  The reaction was severe. The Whig Party self-destructed. You have the Supreme Court’s Dred Scott decision. And you have the assertion of states’ rights versus federal authority, all on the issue of slavery, tearing apart the country. Aside from moral questions, slavery was a most commercial of institutions that only ended with a bloody civil war. The Civil War is what enabled the federal government to assume the importance that it has today.

  So the unified evolution of American capitalism really didn’t happen until after the Civil War. Alexander Hamilton was certainly very influential. But the narrative should be about the discoveries, accidental events, unforeseen consequences, and how all these things worked together, how they played out. It’s very difficult to trace much of it to the foresight of one individual or even a collection of individuals.

  DR: In grade school, you learn this myth—I guess it’s a myth, and maybe you can tell me it’s not—that people came to the United States, or what became the United States, for religious freedom. But you point out that a lot of these things were commercial ventures. Companies were formed to come over here and get some wealth and then send it back to the people who had invested. Can you describe what that was all about?

  BS: Once you start stripping away the mythology and ideology and you really dive into the letters and financing documents leading up to the Mayflower’s voyage, for instance, you see they’re not talking about God as much as they’re talking about contractual terms. It’s a commercial negotiation. That’s one of the things that drew me to the structure of the book.