Abstract
Ages of American Capitalism: A History of the United States will help us understand the relevance of institutional economics for labor economics through understanding American economic history. Jonathan Levy teaches American history at the University of Chicago, with an emphasis on American economic life and on legal history. His first book, Freaks of Fortune: The Emerging World of Capitalism and Risk in America (2012), won many awards, and this book continues his interest in the history of the economics of risk and reward.
I consider this latest book to be a very good follow-up and justification for an understanding of economic changes that comes from historical evidence, especially for proponents of institutional economics who use the writings of John R. Commons to understand changes in labor conditions and labor relations. Commons believed in the legitimacy of labor unions as a means of expressing worker interests through economic competition with management. He believed those interests were overlooked by the state of the law, and judges’ deference to theories popularized in classical economics of the 19th century that assumed that all markets are self-correcting, including labor markets, and require minimal government intervention or even intervention from labor unions.
Commons was known for summarizing economic history related to the industrial revolution. This ran from the putting-out system, in which workers worked out of their homes and then brought to another location their finished product, to working in factories, to the point where investors began to emphasize finding the most efficient use of their investment capital, which did not have to coincide with running their factories most efficiently. Sometimes the most efficient use of their investment could involve getting out of production entirely. They might then seek profits from the real estate, commodity futures, financial securities, and other speculative markets. This trend was just starting in Commons’s time, near the beginning of the 20th century. Levy shows how this process has continued and grown.
Levy’s overall historical perspective is, to the extent it can be summarized, quite similar to that pioneered by John R. Commons, though with far more detail and covering a much greater period of time. He covers the policy debates of these various periods in history, though he is not exactly explicit in discussing the sociology of social class, since he is a historian, not a social critic. He makes clear his belief that a historical tendency is often for top management to be more concerned with maximizing profits when economic conditions are more favorable for economic speculation than for increasing economic efficiency by improving working conditions and pay rates for workers.
The history he describes is the history of what has finally reached fruition, an increasingly overreaching, but also in a sense tangential and abstract, system of monitoring both the production process and the overall economic system. This monitoring often includes increasing control over workers. The economic system increasingly reflects not only concern for economic efficiency in an engineering sense but with much less concern for happy workers, partly through loss of security in the gig economy, but with interest in producing profits through economic bubbles. This mode of operation often involves speculation in stock prices, the price of land, and commodities futures that may or may not provide cheaper products to consumers.
Levy’s history is a description of the development from simple trade, largely in agricultural commodities and some luxury goods created by artisans, and their relation to the price of land and the price of slaves, to post–Civil War industrialization. The latter depended on the vagaries of capital markets and resulting speculation for its own sake. Eventually this led to the social and cultural conformity of the post–New Deal, post–World War II world of big business that worked with government to reduce excessive speculation, to the present-day economic situation starting around 1980, which he calls “The Age of Chaos.” The latter tends to lead to obsession with short-term profits, which drives up short-term stock prices, often resorting to ever-present surveillance of employees to increase profits by lowering the cost of labor. In addition, during this time frame investment cartels often specialize in reducing markets to oligopolies. Levy recounts that Ronald Reagan’s Justice Department changed its “merger guidelines” so that it became almost impossible to bring an anti-trust case. With the increased emphasis on enhancing shareholder value, leveraged buyouts became unstoppable. In a chapter on “The New Economy,” Levy writes about markets that exhibit such instability that the business world recognizes that they must be kept in line through flexibility and innovation. This means use of information technology to keep track of changes, but it also means that the dot-com stock market bubble of 1997–2000 produced “truthful hyperbole.”
In his Introduction, Levy makes clear his opposition to neoclassical economics: “If there is one argument, quite prominent over the past decades, that this book argues against, it is that the free mobility of capital will accord with any rational or intelligent design when left to its own devices—that private investment will result in the greatest fulfillment of economic potential, with an allocation of goods that is reasonable, optimal, and just” (p. xviii). The rest of this book is commentary, and in my estimation well-balanced commentary. He does not discuss ideological justifications of management practices that justify social class relations of the sort Thomas Piketty provides in Capital and Ideology (2020) as much as he discusses the management practices themselves.
Let me add here that the goals of the failed populist movement, and in particular the Populist Party at the end of 19th century, were how they sought to provide an alternative to these economic developments that were only in spurts resisted by the economic policies of the Republican and Democratic Parties, then and now. Levy writes about the populist movement of that era, with emphasis on the political and economic reasons for its failure. Admittedly, both the Democratic and the Republican parties have selectively taken up goals originally raised by the Populist Party, mostly dealing with increasing taxes on the rich, providing some economic security for the population at large including some provision of public services, and to a certain extent maintaining a rhetoric of anti-trust watchfulness that is only occasionally enforced. Commons wrote when the ideals of the Populist Party still influenced American politics and reflected certain democratic ideals of the time, especially that the common citizen should have a say in economic policy. They were a reaction to the economic changes of that time, and Levy puts these changes in historical perspective, particularly as faced in the rural areas, including the plight of the farmers. By now some of these ideals remain or at least are being rediscovered, though without much public knowledge of how they fit into past historical circumstances and the economic evolution that has taken place. Levy’s book educates the public on this history, including the consequences for labor, such as the way in recent years capital flight led to deindustrialization in America’s industrial heartland.
The future of the American economy is now unpredictable, especially whether goods and services will continue to expand in a way to increase everyone’s standard of living, or whether the financialization of the economy will continue to increase. The question arises, will speculation and rentier profits (for unnecessary or exploitive economic intermediaries) become the economy’s most important products? Economic model-building to help explain influence and control processes still needs to be developed, particularly to understand ethical implications, so that the public can become wary of more and more unaccountable surveillance. Levy’s book puts this and similar issues in historical context.