The reading group discussed John Steele Gordon's An Empire of Wealth last night. This was a fun read, though surprisingly disjointed in its presentation of economics for a book recommended by Tyler Cowen. The reading group decided to read this book based explicitly on that recommendation. We had initially decided not to read it, partly because it seemed too lightweight, but when a few of us saw Cowen's review, we changed our minds and added it to our list. We choose several months worth of books at a time, so it's taken us 8 months to get to this one.
Cowen called it "the best single volume treatment of American economic history I have read, highly recommended", and it did provide a great review of the evolution of commercial culture in the US, as well as an overview of American History in general, with a focus on the business community and its interactions with government. But for all that, the economics was very inconsistent. Gordon gave similar praise and damnation to market-based solution, socialist innovations, and Keynesian approaches. Each time a problem arose in American History, he would talk about what the government did, or how the market reacted, or what some influential individual did.
He summarised his discussion of monopolies, in the context of Standard Oil with:
As the grip of Standard Oil relentlessly tightened on the oil industry, prices for petroleum products declined steadily, dropping by two-thirds over the course of the last three decades of the nineteenth century. It is simply a myth that monopolies will raise prices once they have the power to do so. Monopolies, like everyone else, want to maximize their profits, not their prices. Lower prices, which increase demand, and increased efficiency, which cuts costs is usually the best way to achieve the highest possible profits. What makes monopolies (and most of them today are government agencies, from motor vehicle bureaus to public schools) so economically evil is the fact that without competitive pressure, they become highly risk-aversive—and therefor shy away from innovation—and notably indifferent to their customers' convenience.
Gordon falls back on monetarist explanations when it's convenient (pp265):
The immediate cause of the new depression [in 1893]—as in most previous ones in this country—had been over-expansion due to the lack of a central bank to tap the brakes when needed
but later on the page says "The gold standard has one big advantage as a monetary system: it makes inflation nearly impossible." And finally, in his discussion of how the US managed to produce an astounding quantity of munitions of all kinds for WWII, he says
The United States accomplished this awesome feat of industry by turning the world's largest capitalist economy into a centrally planned one, virtually overnight. Central planning has always proved dismally inefficient at producing the goods and services needed by a consumer economy (largely because the consumers have so little say in what is produced). But central planning has done far better at producing the instruments of war.
Gordon never considers the question of how a market economy might do if set to the task of preparing for war, or how the market might be harnessed to that purpose. Since central planning produced surprisingly good results, he accepts the conventional assumption that that's the only approach that could have worked.
Gordon is at his best when explaining how people built businesses and how the businesses built the infrastructure that helped the country grow. When he tries to generalize about causes, he makes it clear that he doesn't believe in any general rules. This leaves the reader without an organizing principle. Gordon seems to have explained everything that happened, but the explanations conflict with one another, so the naive reader would be left grasping at analogies in order to decide how to apply any lessons they thought they might have picked up.
But at the end of the day, I have to agree with Tyler Cowen that this is the best single volume treatment of American economy history I've come across. Tom Bethel's Noblest Triumph is much broader, Burton Folsom's The Myth of the Robber Barons is focused on a narrow period, Fernand Braudel's Civilization and Capitalism is three volumes, and not limited to the Americas.
An Empire of Wealth succeeds as history; it's quite readable, and brings up many interesting episodes that should be much better known. The story of New York State's grant of a monopoly on the steamship trade within the state and the ensuing competition in the market and in the courts hasn't been mentioned in anything else I've read.
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