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How Capitalism Survived The Twentieth Century
One hundred years ago many thoughtful people predicted the decline and disappearance of capitalism. What happened to make their prophecy wrong?
November 1987 | Volume 38, Issue 7
But American labor chose to follow the lead of Samuel Gompers, who distrusted all economic philosophizing, accepted as his one political principle the law of rewarding friends and punishing enemies, and asked only that capitalism provide the members of his unions with “more.” In the 1920s they—indeed, virtually all Americans except farmers, who could not hang onto the gains from the glory days of the First World War—did get their “more.” In Europe, where the recovery from the war was painful and incomplete, “social democracy” became the legitimate alternative to the ruling parties and sometimes the government itself; but in the United States the Utopian visions of Bellamy and Howells became a rather esoteric part of the American literature program (itself a rather esoteric subsection of English literature until the late 1950s) rather than an element in social thought. As for Marx, Lenin, and their followers, for most Americans they were simply aliens with beards, bushy or pointy as the case may be.
The Great Depression, the worst of deflations, bewildered everyone, leaving only certainty that the future would be vastly different from the past: “Comes the revolution,” the gag line ran in a foreign accent, “you’ll eat strawberries and cream and you’ll like it.” Then came the Second World War, with its necessary sentimentality about GI Joe and his Russian counterpart and the better world they would build together when they returned home in peace. That world, of course, would be free of the dog-eat-dog exploitation of man by man. “The present generation,” wrote the University of Chicago sociologist Edward Shils in 1950, “has seen the growth of socialism to the point where, in large areas of Western civilization, it has come to be taken for granted as a natural course of development, for which we are destined, for better or for worse.”
Nevertheless, capitalism survived and came to a new and luxuriant flowering in the last quarter of the twentieth century. In part it was saved by the long secular trend of inflation and by the “money illusion” described a quarter of a millennium ago by the Scottish economist and philosopher David Hume, which left people feeling richer and able to buy more and thus willing to leave their fate in the hands of market forces. But like most political movements, the restoration of capitalist ideology was nurtured mainly by the failure of the alternatives.
Over the course of the last two generations, many peoples at many times tried to organize “centrally planned” or “command” economies, as they came to be called (bypassing value-charged words like socialist and communist or indeed state capitalist), and the results were never as desired. Wartime, of course, was especially productive of government orders to manufacture this rather than that industrial item, in officially specified quantities at officially established prices. The more stringently this was done, however, the less impressive historians have found the results. The Strategic Bombing Survey conducted after World War II indicated that Hitler’s Germany, which had built matériel of war with slave labor and had allocated resources through a supposedly omnipotent party/bureaucracy, had in fact dedicated a lesser fraction of its production to the war effort than had the United States, where most goods and services continued to be purchased through the market.
This had not, incidentally, been the original American plan. In the first frenzy of rule and regulation after the outbreak of the war, there had been a great deal of requisitioning and demanding at prices either fixed at that time or to be determined later. Like many of his colleagues, the political scientist Norton Long came out of academia a great believer in the primacy of policy over economics and went to work in 1942 for the Office of Price Administration. Some years later, graciously helping an opponent build an argument, Long remembered the problem of finding enough fractional-horsepower motors to rotate the gun turrets on tanks. The Office of Defense Mobilization had made detailed studies of the facilities at the various manufacturers that could be committed to this vital purpose, and the orders had gone out, with a quota for each factory. Each month the shortage of fractional-horsepower motors got worse until finally, Long recalled, somebody said, “Let’s double the price”—and soon there were all the motors the military could want.
In the United States, throughout the war, we rationed meat, we rationed gasoline, we rationed nylon stockings (the nylon was needed for parachutes), we dedicated the automobile factories to military vehicles and aircraft, we controlled the allocation of building materials. Newspapers were not permitted to increase their consumption of newsprint. We had price control and rent control, and large employers could give their workers raises only with the consent of the National War Labor Board. Taxes rose to a confiscatory 92 percent on the marginal dollar of the income of the wealthiest part of the community. The war was popular: Americans mostly hated the Nazis and the Japanese. War spending and its finance by expansion of the money supply lifted the country from a depression that by 1939 had seemed terrifyingly permanent. Yet as time passed, there were black markets in almost everything and great popular dissatisfaction.