Episode 25 | What Is Capitalism, Anyway (Part 2)? May 01, 2022


GUEST: Jonathan Levy, Author, Ages of American Capitalism: A History of the United States

For centuries, America has put its collective faith in democracy and capitalism, social and economic systems that have been tried and tested during numerous cultural, economic, political, and civil shifts. Our guest, Jonathan Levy, has identified four distinct ages that have shaped America’s economy and led us to where we are today. In a previous episode, Levy talked about how America rose from its agrarian beginnings to become a world economic power. In this episode, he shares how America wobbled but didn’t fall during the Great Depression, only to be hobbled once again – nearly 80 years later – during the 2008 market meltdown. What’s the next age? Levy theorizes where we might be headed, and the principles we might want to consider in shaping a prosperous and equitable future for all.


Jonathan Levy is the author of Ages of American Capitalism: A History of the United States. In it, he tracks the history of American economics from colonial times to the Great Recession. Throughout, he uses a historian’s eye to look at how modern economic life and American capitalism were shaped through wealth acquisition, as well as social and fiscal policies. Jonathan is a history professor at the University of Chicago, where his research and teaching spans the 19th and 20th centuries – specifically the relationships among business history, political economy, legal history, and the history of ideas and culture. He’s also a member of the  John U. Nef Committee on Social Thought at the university and the faculty director of the Law, Letters, and Society program. In 2012, he published his first book, Freaks of Fortune: The Emerging World of Capitalism and Risk in America. He lives in Chicago.


Ages of American Capitalism: A History of the United States

The Feegee Mermaid

The Great Depression

The New Deal

The gold standard

The Wagner Act

A screenshot of Brad Phillips and Jonathan Levy on Speak Good Podcast

Full Transcript


To introduce the second half of our two-part series about American capitalism, I’d like to tell you a story about P.T. Barnum – the man who famously started the nation’s best-known circus.

First, a brief summary. In our last episode, we spoke with University of Chicago professor Jonathan Levy, the author Ages of American Capitalism: A History of the United States. We covered the period starting in 1660 and ending in the decades following the industrial revolution. In this episode, we’ll pick up with the Great Depression and end with the 2008 market meltdown that almost collapsed the American economy and capsized the world economy.

Onto P.T. Barnum. By the mid-1840s, Barnum’s American Museum – located on lower Broadway in Manhattan – was attracting 400,000 paying customers per year, possibly becoming the most-visited place in the United States at that time. Here’s what Levy wrote about one particularly high-profile attraction – and how the canny Barnum sold it:

“Barnum’s greatest hit was the Feejee Mermaid, unveiled to the public in 1842. The Feejee Mermaid was a monkey and a fish smashed together that Barnum proposed was a rare species native to the Pacific island of Feejee. After you paid at the door, you got to see it, and then you decided for yourself. Was it real, or was it humbug? Barnum, a marketing genius, first advertised, “That the animal has lived, moved, and had its being, as it is…ADMITS NOT THE SHADOW OF A DOUBT, as all must acknowledge who see it.” A few days later Barnum anonymously planted a story in a newspaper revealing that someone from within the museum had the “impression” that the mermaid was “humbug.” The next day Barnum responded under his own name, outraged. The accusations were baseless! Next, he secretly set up another museum, with another Feejee Mermaid. He pocketed the profits from both. In one New York newspaper, two advertisements, one for the original Feejee Mermaid, the other for the knockoff, stood side by side, shouting baseless accusations at each other.”

I laughed when I read that because I respected Barnum’s ability, deceptive as it was, to spark a conversation, probably even arguments – about which one was real – even though neither was – and that he was able to profit from both Mermaids, even though the entire debate was manufactured to have the exact effect on the public it ultimately did.

In his autobiography, Barnum wrote the following line: “Put on the appearance of business and generally the reality will follow.”

Barnum was an archetypal confidence man. The Cornell Law School defines a “confidence game” as something that happens “when a person defrauds a victim of their money, property, or information through tricks. The perpetrator is able to defraud the victim of their possessions through gaining the victim’s trust.” The monkey-fish mashup – the so-called Mermaid – was a classic confidence game – one in which curiosity seekers willingly bought into Barnum’s scam.

Why did Levy spend time talking about P.T. Barnum in his book about American capitalism? Well, you’re probably ahead of me by this point, but that idea of people buying into a concept – falling victim to confidence games – has appeared time and time again during the age of capitalism. Remember the dot-com bust of the early 2000s, which rested on the belief that startups with no viable path to profit – or even sizable revenue – were somehow worth many billions of dollars? Or Enron, which created a new market and used accounting tricks to trade with itself, persuading traders to drive its stock price higher? Or Bernie Madoff’s scheme that relied on people believing he was somehow able to get better returns quarter after quarter than virtually any other money manager?

Those may be extreme examples. Not every publicly traded company is engaging in trickery or deception. But it’s fair to say that spending, trading, and investing comes down to confidence – and our belief in the stories and information that politicians, businesses, and analysts share with us.

One of the moments when those narratives mattered most might have been when President Franklin D. Roosevelt shared messages of resilience and hope during the Great Depression. Here’s an excerpt of what he said in his first fireside chat, delivered just eight days after he was inaugurated in 1933:


FDR: “There is an element in the readjustment of our financial system more important than currency, more important than gold, and that is the confidence of the people. Confidence and courage are the essentials of success in carrying out our plan. You people must have faith; you must not be stampeded by rumors or guesses. Let us unite in banishing fear. We have provided the machinery to restore our financial system; it is up to you to support and make it work. It is your problem no less than it is mine. Together we cannot fail.”


More important than currency. More important than gold. And that is the confidence of the people. (The full address can be found here.) We pick up the second half of our conversation there, with Jonathan Levy talking about FDR and the Great Depression.


So, moving on to the third age you identified in your book. This was the age of control. I know we barely touched on industrialization.


I think we did a good job.


Oh, good. Because I have this terrible habit. When I read a book like yours, you tell a story about Andrew Carnegie and Cornelius Vanderbilt, and I think, oh, I want to read a book about them. And so, then I go order books and so my stack of books, I want to read goes on forever, and I wish we could spend more time covering them. But, OK, the age of control, 1932 to 1980. This is, as I say, the time around the Great Depression through the end of Jimmy Carter’s one and only term. I think a place to start is with a New Deal, which, I will admit, I had a misunderstanding of. In my cursory knowledge of the period, I thought FDR and his administration puts out these policies that put America back to work. The country climbs out of the Great Depression. I think that’s kind of the fifth-grade version of learning about the Great Depression, which is what I, unfortunately maintained until this day. Reading your book, you made clear that war materiel and the production of getting ready to enter World War II that was the thing, more than anything else, drew us out of the Great Depression. Can you talk about that?


The fifth-grade account is not completely wrong. Although, as you suggest, it’s incomplete. I mean, the Great Depression is still to this day, thankfully, represents a unique, a uniquely catastrophic failure of a capitalist economy. And by the time FDR was elected in 1932, I think it was very clear to a large, large percentage of the American population that the economy wasn’t going to lift itself out of the depression. That government had to play some role in lifting the economy out of the reaches where it found itself. And FDR, one of the first things he did was to take the economy off the gold standard. That made the reflation of prices and the reflation of economic production possible. And so, I see the New Deal as creating mechanisms that certainly were, I think, well-equipped to end the depression and to lift the economy out of the depression. Government control over monetary policy is one such method, you know, with vis-à-vis ending the gold standard. Also, income politics, and other such methods, new changes in taxation, changes in welfare support, whether emergency relief or welfare provisions that became institutionalized and permanent in 1935. One could think of the Social Security Act in 1935 or also the Wagner Act, which finally legally legitimated collective bargaining as being, again, mechanisms that certainly pointed in the direction of economic recovery and helped economic recovery. With that said, the real cause, if there was one cause of the Great Depression – it was a very complicated event – it was the collapse of investment, the collapse of private investment. And there, the New Deal, it does some things on the margin. It has some public investment programs and things like infrastructure. We can think of dam building in the west, things like that. Other things the New Deal did there as well. The Reconstruction Finance Corporation on the side of finance kind of helped inject public capital into the economy. But there, it just wasn’t enough, that literally the volume and quantity of public investment wasn’t enough to lift up the private economy. And so, you’re right, one has to get to World War II and the ramp up of federal spending and investment in war materiel. And that finally does the trick of licking the depression and licking the problem of mass unemployment. You have to really get into the war before, you know, that was the case.


And going back to the origin of the Great Depression, what caused that collapse of private investment that you described?


Well, to some degree, the depth of that collapse is still a mystery. But we certainly now know all of the most important factors. First were the operations of the gold theater. So, there were financial panics, banking panics, most famously the collapse of the New York Stock Exchange in 1929. But also banking panics across central Europe in 1930, 1931. And then, finally, banking panics across the United States in ’31, ’32, and into the beginning of 1930, the beginning of 1933. That led to a massive flight to security. It led to a massive bout of indebtedness throughout the economy that simply crippled investment and crippled spending of all kinds. The gold standard only magnified, the commitment to the gold standard, only magnified and compounded those effects on the private economy, because the gold standard tied the hands of the government. It prevented the government from spending to try to restore some sense of balance of investment and spending. So that’s one part of it. The second part that I would emphasize was in the 1920s there had been a credit cycle at very high rates. So, this is complicated, but coming out of World War I, just after the Civil War, there’s a similar policy of resumption where you have to raise interest rates to try to bring currencies back up to par value with gold. At the same time, a massive credit boom, tied to the birth of automobiles and the birth of Fordism. And so, a lot of people going into debt at very high rates, and when those credit cycles reverse, they tend to get very ugly because people don’t have the means to pay back loans that were taken out at very, very high levels of interest rates.


So now we’ll skip over World War II.




We’ll go to the 1950s, this period of recovery. And I mentioned to you that this anecdote I had read in the David Halberstam book called The Fifties, and it was this very colorful anecdote that probably 20 years after I read the book has stuck with me. One of the things he said was possible at one point in the 1950s was you would drive up a typical American street, some suburb somewhere, and you would look at the cars in their driveway. And from the slight variations in model, you would be able to discern who had gotten a raise that year. And what he was hinting at was that for the first time, people were replacing perfectly functional automobiles, refrigerators, and other consumer goods with new ones, just because they could suddenly afford them again. And, it was the first time that on a mass scale that happened in American history. So, first again, I’ll ask you if I have that correct. And second, what did that consumerism mean in terms of its contribution to the overall American GDP and the economy?


Yeah, first, let’s just back up for a second. I mentioned this, if there was a single cause of the Great Depression, it was the collapse in investment, a certain kind of spending that makes the economy go round. I think the most important kind, which is investment. Coming out of World War II, of course, what solves the Great Depression is public investment. There’s a new idea that actually a different stream of spending can sustain the economy and that’s consumption, that’s consumerism. And that’s still very much at the heart of the American economy today. That consumerism tends to lead economic activity much more so arguably than  investment. So that’s just kind of one point to state. And then just as you said, you know, the problem that people very quickly realize in the post-war period is how do you make people, you know, continue to consume things, even if they already have them.

This was known is planned obsolescence among corporations and also the burgeoning advertising and marketing industry. And think about, you know, I think we all do this, right? We all have this sense we need a new this, even though our present version of this is perfectly functional. So how do you do that? And there developed a number of different answers. You mentioned one is to gear status, right? To channel anxieties about status among people to consumption, right? To think that my social identity, what my neighbors think about me, my own sense of my own self relative to my neighbors or to my fellow citizens depends on kind of where I am at in the hierarchy of consumption. So that can, you know, motivate people to consume. And it definitely has over time. I emphasize that in the book, but also this, I think another it’s related it’s not a different explanation, but that the fantasy life of consumption is really important too. And that’s what really what turns, or I think feeds or fuels the advertising industry. This very, if you think about it, quite bizarre idea that I can, you can continually become a new person by consuming, which, you know, doesn’t really work because you’re going to discard the thing you’re going to buy very quickly and buy something else. Right? So, the fantasy is never really realized, like the desire is never finally satiated. Nobody ever says, okay, I finally bought a pair of shoes. I love these shoes. And until they completely fall apart, I have no need to buy a new pair of shoes. Like nobody, you know, nobody, very few people, I think say that. Some people, if they’re don’t have the luxury of an income to buy new shoes they might be stuck in that situation, but they consider it a plight, not something to be celebrated. So, this experience of consumption, that’s tied to the experience of the fantasy, not to the goods themselves, is really important to what makes consumerism tick and given the importance of consumption in the American economy, really important to what turns over the economy.


I’ll leapfrog yet again. I’ll skip a couple of decades and leapfrog to that final section of your book, which covers the 1980 period through today. And the connection point between what you just said and this, you brought up the idea of ownership of new consumer goods as a form of status. And so, if you go straight to 2008 and the financial meltdown, fueled in large measure by home ownership, which as you described in the book was really encouraged by George W. Bush’s administration, who wanted to see this ownership society. Maybe on the surface, nothing’s wrong with an ownership society, but for the fact that people couldn’t afford to own it. And so, they were making increasingly risky gambles to own, but that connection point there seems to be that of status. That idea of home ownership tied to status, there seems to be a bit of a throughline from 1950s consumerism. So, let’s talk about that period, how it came to be that you had this market meltdown as I mentioned in some way fostered by federal policy in more than anything else, residential real estate.


Yeah. So maybe to come back to this idea of income politics. So, income politics comes out of the industrial period, and it reaches its culmination, I think, in the postwar period, where you have  historically a relatively muted level of household income inequality because of union power, collective bargaining, because of the rise of the welfare state. But the economy structurally really changes in the 1980s. It’s a very complex story. But the outcome is that the economy begins to hinge much more so,  again, really think about the beginning of our conversation on the ownership of property, as opposed to income through wages and salaries. I call this the asset price appreciation game. Since the 1980s, on the whole stocks go up, the value of bonds recently has gone up, financial assets go up, up, up, and you can leverage their value by accessing new forms of credit. It’s largely a game. If we think about property ownership played by the rich, in order to benefit from property, one has to own it. And so, by definition, you’re talking about the wealthy. They’re the ones who happen to own wealth. The 2000s and the real estate mortgage market, and ultimately the bust, represents something like an aberration, maybe not an aberration, that’s probably not the right word. It represents a genuine attempt by the administration of George W. Bush to open up this asset price appreciation game to the masses. And the way you would do it would be through owning a home. And the way you own a home is going into mortgage debt. So, it’s a genuine attempt, I think, to broaden out or spread the base of this asset price appreciation game. It doesn’t work. And you mentioned why, I mean, you mentioned the critical reasons why, but income growth since the 1970s, in the middle of the distribution, average wages have stalled. And so, if you’re not growing incomes, you don’t have an income sufficient to pay your mortgage. The only way you can survive is if the value of the home, the value of the asset keeps going up, up, up. But if values ever reverse for any reason, you know, the house of cards collapses. And that’s essentially what happened in 2008.


Am I correct? And perhaps I’m projecting here, but I thought your tone shifted a little bit as you described this period in the book. I picked up almost a sense of contempt for some of the games, the financial players, I think you called it the synthetic asset class. You brought up these complicated acronyms, like MBS, OTC, CDS, SIB, CDO, which were various ways that financiers packaged this type of mortgage debt, which ultimately led to the collapse of residential real estate. First of all, maybe you could just tell me, did I pick up on something real, or maybe I was just projecting into your writing. But I am I correct that you just seem to be very contemptuous of some of the broader decisions that had been made by people in power at that point.


You’re right. And, this actually ties back to one of the earlier questions on capitalism and thinking about communication more broadly. As a historian, you’re committed to getting a story, right. The facts matter. And in writing history, for the most part, you try to suppress your own moral or political view of the subject. At the same time, there are moments where it feels important as a writer, and also just as a human being, to communicate how you feel about a subject, hoping that as you do that you don’t undermine your objectivity and authority as someone who’s committed to getting the story right. And you’re certainly correct that this was one of those moments for me in the book where I wanted to indicate, you know, to the reader just how awful and tragic this story was and how egregious the behavior of a lot of, not all, but, many of the bankers and financiers who were involved in the mortgage market meltdown.

And I think one of the reasons I wanted to do that too, was I still think, and this goes back to the theme of communication, again, but one of the problems we have in American politics, as it relates to economic issues since 2008, is I still don’t think there’s been a public reckoning with what happened and who was responsible, the truth of the matter. As you suggested, government policy played a role here. There’s plenty of blame to spread around. But really, since 1980, through today, I argue, for the most part, elites, political elites, business elites, and I suppose I should throw in my class too, so-called academic elites, professors, have really failed the large majority of the American people. That the economy doesn’t work well for a very large percentage of the American public, or not really as well as it could. And that kind of using this moment to just say what I believe is that truth. That was something that I wanted to communicate in this part of the book.


I will just say as a reader, I found that precisely because your book was not a polemic and it was so grounded in history and even-handed and fair, and yes, you expressed a clear opinion on things like using enslaved people as forms of capital, but I wouldn’t say anything in your book read as a polemic. So, when your tone shifted a little bit in that section, it really stood out. And, I think to the betterment of the book, because it really showed how outrageous some of those decisions were in a way that I think if you were a little bit more, for lack of a better term – academic – in its telling wouldn’t have come across. A few more questions and then we’ll wrap up. And, I think the place I’d like to go is back to maybe time hop back in time again. I was struck by when you talked about Andrew Carnegie, and you talked about his personal trajectory. One of the things you said was he was a speculator, felt dissatisfied as a speculator, and decided to go back into or decided to go into manufacturing, a physical asset, which he seemed to see as more real or more of an actual contribution. And there were a few places in the book where I, and again, might be projecting here too, that I almost thought that maybe I, or you, or both of us had a little bit of a sense of nostalgia for that period when you were manufacturing things that were real. Even if those real things are digital and not physical, a couple of lines you wrote suggested that to me, you said in one place with so much energy and flow, everything could seem to be happening, even if nothing much was happening at all. And later you said, it was speculation that in no particular end or purpose beyond itself, is there a reason to be nostalgic for a period when so much of the growth of wealth in our country was based on real actual physical products or manufacture, as opposed to let’s say the more at asset classes that are created in some ways seemingly out of whole cloth and then traded by people who work in finance?


So, I love this question. First, if you don’t mind, I just want to say one thing quickly, that an old famous editor once told me when she was criticizing my writing. She was right to criticize my writing in this respect. She once said, let the reader do some work. Let the reader develop their own ideas to project themselves into the story, into the narrative. I always took that to heart. So, you keep saying maybe I’m projecting myself, but that’s a good thing. I’m pleased to hear you say that. As a writer, you want to always leave space for a reader to, to use their own imagination and kind of develop their own ideas, which might not necessarily conform, you know, with the author’s own ideas, but that that’s okay. That to me is a sign of a text that’s doing what it should. As for the question at hand, this is a really important issue. To go back to that definition of capital as a future-forward looking object of investment, that I think means that speculation is always at the heart of capitalism, always. It cannot be completely eliminated. And, we have a lot of moral critiques and speculation that are deeply rooted in American culture and ideas, which suggest that speculation is not real. It’s not tied to production. It’s not tied to the work ethic. It should be criticized. I think when speculation and you quoted it has no particular and or purpose beyond itself, I share that critique of speculation. With that said, capitalism, in my opinion, is an amoral economic system. It’s neither good nor bad. That idea of an open future, that we can create a future fundamentally different from the past, I’m attracted to that. Think about race and racism, how much they’ve been deeply inscribed in the American past. I’d like to think that that doesn’t necessarily have be our future. So, I think one of the things I like about capitalism, again, in an amoral sense is this idea, right? That we can create an economic future that’s different from the past and different from the present. So, the question is, how do you connect that speculative function, that speculative feature of capitalism to creating a future that we’d actually all like to have. Instead of the speculative function, just being this kind of spinning top, right? Creating essentially nothing except for maybe enriching the rich, which I don’t think is a future that we should be committed to. And, and that is my politics and moral opinion on the matter.


I’d like to end by asking you about one of the things that I really enjoyed most about your book. You referenced artworks and pop culture and writers throughout the book, in many ways who were reflections of the moment that you were describing. And I have a favorite that I took out of it, but I’m curious from your perspective, what was the artwork or pop culture reference that maybe struck you as the best representation of the time that you were describing or that for whatever other reason may have stopped,


I’m dying to hear yours, but if you don’t mind, I’d like to mention two because they connect to this issue we were just talking about, the future. What kind of future do we want to create knowing what kind of history we’re living in or the legacy of the past that we’re still living in. So, I mention two. First is a painting by Charles Sheeler, who was a Precisionist, that was the name of the artistic movement associated with him. It’s a painting of Henry Ford’s great factory River Rouge and Sheeler paints River Rouge as a landscape, evoking the kind of past traditions of American landscape painting, going back to the Hudson River School. And I like the painting because it, it evokes a.) that rupture that industrialization represented and then b.) in making the industrial landscape look like a natural landscape, it evokes the environmental dimensions of industrialization, which is an issue that we haven’t, you know, talked about yet. We can’t talk about everything, the environment and then the looming, if not looming, actually present crisis of climate change. Clearly in thinking about what kind of economic future we want to create, questions of environment and climate have to be important. And so that painting evokes it. And then second, I had stills from a movie, Billy Wilder’s The Apartment, which is a kind of a love plot romance that takes place in a white-collar office setting in the postwar period that it really it’s a film I’ve used to teach my courses over the years that really does a great job of showing how issues of gender and sexuality were central to the workplace environment in the postwar period. Again, going against that idea of the public and private being separated from another family and work. And I think that issue moving forward, how to get that right, these issues surrounding home life and work, issues that have certainly come up in the context of the pandemic, that’s a really important issue for the future. And I think that film does a great job of putting its finger on some of the most important issues there.


Yeah, my favorite, and I’m going mangle, so I’m hoping you could explain what it was. It was the artist who split factory floors and houses. And I thought that was just such a striking and telling work. Could you maybe just share a little bit more about what that was?


So, you’re referring to art. I think it’s fair to call them artworks. I show photographs and also stills from one of the videos or one of the films that was associated with this artwork done by Gordon Matta-Clark, who is a very important 1970s … he called himself an ancharist, anarchist … I’m going to get it wrong .. anchartist.. readers can look it up [Gordon Matta-Clark called himself an anarchitect]. He did that were just incredibly dangerous. The artist actually died at a very young age of cancer, very dangerous operations where he would, in one that I show, he goes to a suburban house in New Jersey. He takes a chainsaw, and he puts himself up on a crane and he literally cuts the, the house down the middle. He splits it. He performs similar kind of cuts, he called them or splits in some old factories, abandoned factories or abandoned warehouses in New York city. And I use these artworks in the book to kind of evoke this split between the industrial and the post-industrial in the 1970s and 1980s. And, actually, to go back to a question you asked that I didn’t answer, which has to do with nostalgia, which I think is one of the biggest problems in our politics. It’s nostalgia for the post-war period. You indicated that maybe the book itself exhibited nostalgia for the industrial era and you must be right because I’m, like everyone else, I think, in this respect, and I think Matta-Clark was really saying, actually, when you create these splits, these spaces in these architectural settings, the way he presents it, the way he shoots it, it lets in the light. Right? And, I think actually his artwork was a critique of the constraints and inequalities and limits of post-war society and of the industrial era. And in that respect, he’s right. You know, there’s no going back to the industrial era and the challenge that we still have, we’ve been faced with since his day, since the 1970s, that we haven’t figured out yet is how to shape and create a post-industrial economy that’s, that’s worth living it and worth sharing, with our fellow citizens. And so, I think I actually liked your answer. I wish I had thought of it. I love those artworks that are in that chapter, in the book at the chapter on the 1970s by Gordon Matta-Clark.


So let me I’ll do the close a second, but I just want to ask you before we wrap, because I know we’re over time, which I’m fine with, but I don’t want to crush your schedule. Is there anything, I mean, there’s probably a thousand things we didn’t get to that we could have, but is there something important that you think we missed that we should have covered?


No, you did a great job with the questions. Thank you.


Okay, good. Then let me close this while you’re still here. And, so Jon, I would just, again, thank you for the generosity of your time. The book is Ages of American capitalism, a history of the United States. I’ll tell you from my experience, I’m sure everybody reads a book like this differently for me, I read maybe 20 pages at a time and stopped so I could kind of digest and reflect. And it was not a book for me that I probably could, but I certainly didn’t want to binge read it. I wanted to take it in a little bit at a time. And I would just say to our listeners, if you’re interested, not only in economics and capital, but in just a better, deeper understanding of who we are and how we got here, I highly recommend this excellent work. Jon Levy, thank you very much for joining me.


Thank you.

This is the second of a two-part series. Listen to the first episode here.

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