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Book Review: How Capitalism Saved America

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How Capitalism Saved America
by Thomas J. DiLorenzo (Crown Forum, 2004); 285 pages; $25.95.

Back in my days as a college professor, I used to give my students a quiz on the first day of class. It didn’t count in their grades, and the purpose was simply to find out the extent to which they had absorbed the widespread anti-capitalist teaching that is so common in our K-12 schools, as well as in the culture generally. I asked my students to reply “True” or “False” to such statements as these: The Great Depression was caused by the failure of our capitalist economic system; If it weren’t for antitrust laws, monopolies would run rampant over consumers; Low-skilled workers would be paid almost nothing if employers didn’t have to abide by minimum-wage laws.

Predictably, the great majority of the students expressed a decidedly anti-capitalist view of the world through their answers. With few exceptions, those students — a typical cross-section of America — believed that freedom was dangerous and government intervention was necessary in many ways to prevent economic and social disaster.

I wasn’t the least bit surprised by that. It is in the interest of politicians, government functionaries, and those who plead for special favors from the state to make people think that freedom just doesn’t work. Their efforts at controlling and expropriating people are made far easier if the population is largely composed of people who are predisposed to think that government does a good job of identifying and solving problems; to think that they shouldn’t question, but just obey. For that reason, since time out of mind, governments have subjected the common people to a blizzard of misinformation calculated to make them servile. This mind-conditioning begins at an early age. My students were evidence of the success of the statist indoctrination techniques.

Those of us who know that freedom works and that government — always rooted in coercion — makes life worse for people when it departs from its proper functions of defending life, liberty, and property have a long, hard task ahead of us. We need to disabuse people of the idea that government is their friend and savior. In writing How Capitalism Saved America: The Untold History of Our Country, From the Pilgrims to the Present, Tom DiLorenzo has done some of that hard work. He has given us a book that refutes many of the common misconceptions about capitalism and its role in American history. DiLorenzo, who teaches economics at Loyola College in Maryland, challenges the reader with a bracing, radical look at our nation from its earliest times right up to the present with one goal in mind — to show that capitalism has been the friend and savior of countless people, whereas government has gotten in the way of progress and caused an enormous amount of suffering.
Capitalism and entrepreneurs

First of all, DiLorenzo explains what capitalism really is. After disposing of the false idea that in trade one person’s gain is another person’s loss, he drives home the crucial point:

Capitalism succeeds precisely because free exchange is mutually advantageous; each party serves his own interest, or what Adam Smith called “self-love.” Cattle ranchers in Montana, for instance, rise at 4 AM and work until well after dark at a number of physically demanding jobs, not out of love for their fellow man, but because they want to earn a living for themselves and their families. Yet the marvelous advantage of capitalism is that it captures this motivation and channels it in a way that encourages human cooperation and betterment.

Therefore, when you see a wealthy businessman, you should think about how all his wealth was accumulated. It was the result of production and trade. In thousands or millions of separate transactions, both buyer and seller were made better off. The efforts of the businessman were the catalyst for all those gains, since production must precede trade. Americans used to the demonization of businessmen will be startled to learn from DiLorenzo that they are actually great social benefactors.

The author is careful, however, to draw the distinction between market entrepreneurs and political entrepreneurs. While some businessmen earn their profits through purely voluntary means, there are others who seek subsidies and favors from government. The author scorns the latter and shows repeatedly how wasteful and destructive they are. Many readers, especially younger ones, will be struck by DiLorenzo’s showing that the antitrust case against Microsoft was fabricated by Microsoft’s competitors.

All right, but how did capitalism “save” America? DiLorenzo starts with the Jamestown and Plymouth colonies. In both, the rulers insisted on socialism, forbidding private property and demanding that each settler work for “the common good.” That proved to be a recipe for disaster. After founding Jamestown in 1607, “within six months, all but 38 of the original 104 settlers were dead, most having succumbed to famine. Two years later, the Virginia Company sent 500 more ‘recruits’ to settle in Virginia, and within six months, a staggering 440 more were dead by starvation and disease,” the author writes.

Finally, in 1611, a new governor was sent from England and he quickly realized that the problem was the colony’s system of communal ownership. Private property was put into place, and as soon as the people could directly benefit from their labors, production increased and famine ended. Thus, capitalism — freedom — succeeded where government had failed. It’s a simple lesson, but one that far too few Americans ever get.
The American Revolution

The book then moves along to the American Revolution. Alas, if Americans have any ideas at all about the causes of the Revolution, they probably think that it was due to “taxation without representation,” which implies that matters would have been all right if only the colonists could have elected a few members to Parliament. Wrong. What bothered the colonists to the point of armed revolt were the mercantilist policies of the British government — policies that denied individuals their freedom to produce and trade as they wished, in order to enrich the ruling class and a few favored businessmen. Among other points DiLorenzo makes that will startle the typical American is his defense of smuggling. He writes, “Adam Smith . . . praised smugglers like John Hancock as popular heroes for defying the mercantilist restrictions on trade and providing consumers with cheaper goods.”

Once the capitalist-inspired revolution had been won, the people established a government with limited powers. DiLorenzo explains that the Founders wanted a strictly limited role for government because “they were aware of the mischief the state could perpetrate if property and contract rights were not reasonably secure.” But there were also men who wanted a powerful, mercantilistic government — men such as Alexander Hamilton — and they immediately went about subverting the Constitution’s small-government plan in order to have a state that could “get things done.” The remainder of the book is mainly devoted to the losing battle that advocates of limited “night-watchman” government have fought against the advocates of big-government mercantilism for two centuries.
The Civil War and the Great Depression

Two of the key subjects in DiLorenzo’s historical/economic exegesis are the Civil War and the Great Depression. Regarding the Civil War, the author shows that the real cause of that terrible conflict was the mercantilistic tax and trade policies of the North, instituted to assist political entrepreneurs. The high tariffs on imported goods were mainly paid by Southerners, and the revenues were then spent on wasteful subsidies and “internal improvement” projects in the North. Following the war, the mercantilist state reigned supreme and squandered vast amounts of wealth on railroad subsidies. DiLorenzo brilliantly contrasts the slovenly construction (and attendant political corruption) of the subsidized railroads with the high-quality construction and lack of political intrigue of James J. Hill’s unsubsidized Great Northern line. When DiLorenzo is done with the conventional beliefs about “robber barons,” they lie in ruins.

The Great Depression receives the most extensive treatment in the book. DiLorenzo patiently refutes the prevalent myths that some vague “failure of capitalism” was the cause of the economic collapse, that President Hoover let matters go from bad to worse because he was a dogmatic believer in laissez faire, and that FDR’s New Deal policies managed to jump-start the economy and get the country out of the Depression. The historical falsehoods that cause so many to steer clear of capitalism and embrace Big Government fall like bowling pins in these pages.

At the end of the book, the author discusses one of the contemporary attacks on capitalism, namely that it is responsible for the various energy crises we have suffered over the last few decades. He demonstrates that the villain in those “crises” has always been government interference with the smooth functioning of the free market, not the market itself.

The title of the book’s concluding chapter sums everything up: “The Never-Ending War on Capitalism.” DiLorenzo points to numerous laws Congress has passed that whittle away at our freedom and impede capitalism, but that is just the most obvious front in the war. There is also the intellectual front, where he observes that universities have a strong bias against economic freedom — American college students are far more likely, for instance, to hear about how wonderful Canada’s universal health-care system is than they are to hear about the terrible costs of that system. And there is the legal front, where people now routinely sue companies for their own foolish misuse or overuse of products. In the war, capitalism has been in retreat, but Tom DiLorenzo hopes to turn the tide.

Who ought to read How Capitalism Saved America? I strongly recommend the book, first, to all free-market advocates who want to sharpen their argumentative abilities. Where I’d most like to see the book read, however, is on college campuses. Every year, many schools have summer reading assignments for incoming freshmen and it is regrettable that the books chosen are often anti-capitalist screeds such as Fast Food Nation, by Eric Schlosser, or Nickel and Dimed, by Barbara Ehrenreich. I would be delighted to see DiLorenzo’s book chosen as the required summer book at campuses across the nation. It would spark endless debate and undoubtedly get a substantial number of students hooked on the study of freedom.

This article was originally published in the October 2004 edition of Freedom Daily.

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    George C. Leef is the research director of the John W. Pope Center for Higher Education Policy in Raleigh, North Carolina. He was previously the president of Patrick Henry Associates, East Lansing, Michigan, an adjunct professor of law and economics, Northwood University, and a scholar with the Mackinac Center for Public Policy.