Does American capitalism work?

Is it actually capitalism?

I don't know if physics classes still show my favorite film clip from when I was in high school. A suspension bridge over the Tacoma Narrows in Washington is swaying in a stiff breeze. The wind speed increases, and so does the back and forth motion of the main span of the bridge. Alarmed drivers put their cars in reverse and back off the bridge. The magnitude of the swings gets larger and larger until finally the concrete of the roadway starts breaking up and falling into the water. The cables snap and the bridge is destroyed.

The physics lesson involves harmonic motion. The wind gusts matched the resonant frequency of the bridge, causing it to swing higher and higher, in the same way kids on playground swings can go higher and higher by pumping their legs at just the right moments. The wind wasn’t strong enough to damage other structures in the area, but it took down the bridge.

I’ve sometimes thought there was a history lesson in that sequence of events. As the American economy began to modernize in the early nineteenth century, the country started experiencing business cycles—booms and busts. The busts, triggered by financial “panics,” grew worse and worse. Panics in 1817, 1837, 1857, 1873 and 1893 were followed by economic depressions that threw more and more people out of work. World War I averted a depression in the 1910s, but the depression of the 1930s was the worst of all, costing millions of people their jobs, their homes, their life savings, their hope. Despite the ameliorative efforts of Franklin Roosevelt’s New Deal, the depression went on and on and on.

More than a few people thought American capitalism—indeed world capitalism, given the global scope of the depression—had collapsed forever. Like the Tacoma Narrows bridge, capitalism could swing only so far before it fell to pieces. The business cycles had grown more and more violent until this last, terminal act of self-destruction.

As things turned out, the collapse in the 1930s wasn’t terminal. American capitalism revived in the 1940s and went on to have its best decades ever.

Yet it didn’t do so unaided. Central to the revival was massive government spending—on preparations for war and then on World War II war itself. The economy this spending produced wasn’t capitalist in the classical sense, but a hybrid of capitalism and socialism. By 1945 government spending as a portion of gross domestic product was not simply larger than it had ever been, but larger than anyone before 1940 had ever imagined it could be. And government’s share of the pie continued to grow in the decades after the war. By the 2020s, government spending in the United States topped 40 percent, making America’s economy three-fifths capitalist and two-fifths socialist.

Capitalists often claim credit for the fact that America’s postwar economy made America the richest country in history and gave Americans the highest per capita income of any large country ever. But perhaps they should discount those claims by the 40 percent the government accounts for.

Maybe they should give government even more credit. What if American capitalism really was like that bridge, and the final swing—during the 1930s—would have been the last, absent the government’s war-prompted rescue?

Critics of capitalism, most notably Karl Marx and his followers, noted that the crises of capitalism tended to get worse and worse. The contradictions, as they called them, of capitalism would continue to intensify until the system broke down, they predicted. At which point the proletariat would seize power and a socialist Eden emerge.

HIstory took a different turn in America. Capitalism wasn’t replaced by socialism; it was rescued by socialism. It might be mentioned at this point that in America capitalists have an aversion to being called capitalists and socialists to being labeled socialists. Neither party to their shotgun marriage has been comfortable owning up to the terms of the union.

There were other factors moderating the business cycle in the decades after the Great Depression. The most importance of these was the Federal Reserve, which tweaked interest rates and the money supply to keep the highs from getting too high and the lows from going too low.

But the growth of the socialist sector was a more consistent contributor. Many government programs—defense, Social Security, Medicare—are basically recession-proof. Others—income taxes and unemployment compensation—are countercyclical.

Likely we’ll never know whether Marx was right about capitalism containing the seeds of its own destruction. We got close to the brink in the 1930s. Would that swing of the pendulum have been the last, without the war?

Actually, we can say that Marx was wrong, in a broader sense. He wasn’t an economist but a political economist. He understood that economics and politics are intertwined. His prediction of the demise of capitalism allowed for a political coup de grace—of the sort that his disciple Lenin delivered in Russia. But instead of a coup de grace against capitalism, politics in America threw it a life preserver.

Fans of capitalism often talk as though they wish government would go away. The market, they say, is a better allocator of resources than any set of bureaucrats. They have a point, but only up to a point. And that point came in America in the 1930s. Even if capitalism wasn’t quite in its death throes then, its violent thrashing did such damage to the American people that they weren’t willing to leave things to the capitalists to fix.

Judging by their continued enthusiasm for what government has come to provide in terms of jobs and a social safety net, Americans are in no hurry to turn things over to the capitalists again. Thomas Jefferson declared, in 1801 after a hard-fought campaign for president: “We are all Republicans, we are all Federalists.” Contemporary America’s slogan might be: We are all capitalists, we are all socialists.