John Steele Gordon, An Empire of Wealth, reviewed by Bert Foer

Jan 31 2006

Book Review, January 31, 2006

An Empire of Wealth: The Epic History of American Economic Power By John Steele Gordon New York: HarperCollins Publishers, 2004 (460 pp., $15.95 Paperback)


Albert A. Foer President, The American Antitrust Institute

John Steel Gordon has written a colorful and entertaining history of the American economy, which he describes as not only the largest economy in the world but “the most dynamic and innovative as well.” Gordon is a non-academic historian who specializes in business and financial history and writes a column for American Heritage magazine. His previous books were about the emergence of Wall Street, the laying of the Atlantic Cable, and the history of our national debt. This volume is intentionally thin on footnotes, charts, and graphs but, according to an interview with Gordon that is included in the paperback edition currently in bookstores, it is “rich in human drama and that would give the reader a fresh slant on the extraordinary story that is American history.”

The story is told chronologically, beginning with the land and its people before Europeans came over, and ending with Gordon’s reaction to the attack of September 11, 2001: “…[A]ll, except perhaps for a few of its enemies, blinded by ideology, thought that the United States would prevail in this new struggle.”

Along the way, there are profiles of powerful figures both well-know (Hamilton, Vanderbilt, Morgan) and less famous (Donald Nelson, Franklin Roosevelt’s director of economic priorities for war production). Interesting facts are dredged up to make important points: e.g., the power of the railroads in the late 19th century is illustrated by their ability “to impose something so fundamental as standard time.” They did this because they needed time zones to make their continent-wide scheduling work, and Congress merely dithered. They established four zones in 1883 and “within a few years, standard time had, indeed, become standard.”

Antitrust specialists will want to know how their field contributed to the development of the American economy. They should turn to the discussion of the monopoly of steamboating in New York waters and how one man from New Jersey, Thomas Gibbons, decided to challenge this monopoly. The result was a leading Supreme Court case in 1824, long before there was a Sherman Act, in which Chief Justice Marshall’s opinion largely recited the arguments of Gibbons’ legendary advocate, Daniel Webster --whose oration had taken a full day to deliver. The economic effects of Gibbons v. Ogden, which held that the Constitution gave the federal government the power to regulate interstate commerce and to prescribe the rules for carrying on intercourse between the states, were immediate. Fares from New Haven to New York fell by 40 percent thanks to competition and the number of steamboats operating in New York waters jumped in less than two years from six to forty-three. “States,” says Gordon in what sounds like a whopper of an overstatement, “stopped granting monopolies of any sort to rent-seeking influential citizens, as all of them were now presumptively unconstitutional.” “Thanks to Gibbons v. Ogden, the United States became the world’s largest truly common market.”

Unfortunately, there isn’t much more in the book about antitrust. Oh, the Sherman Act gets passed in 1890 with only one dissenting vote by a Congress controlled by pro-business Republicans. But neither the Clayton Act nor the Federal Trade Commission Act is ever mentioned. Standard Oil gets broken up in 1911 (but, Gordon notes, in the two years after the breakup, the stock in the successor companies doubled in value). In an aside, Gordon does mention that we don’t like monopolies (“and most of them today are government agencies”) because they become highly risk-aversive and notably indifferent to their customers’ convenience. Neither Louis Brandeis nor Thurman Arnold nor the AT&T or Microsoft cases make it into this history. One wishes that Gordon’s research had included Rudolph Peritz’s magnificent history of antitrust, Competition Policy in America, for if antitrust has indeed played only the most negligible role in our economic history, that would in itself cry out for explanation.

Perhaps part of the problem is that Gordon offers very little visible theoretical framework for his structure. Rather, he seems to imbibe spirits of the neoclassical economic model without questioning or explication. (In the author interview I alluded to, Gordon says, as if it actually explains something, “The laws of supply and demand and of self-interest are every bit as universal and ineluctable as those of gravity and inertia and they affect the destiny of nations in fundamental ways.”) He sees American economic history as “an epic powered by uncountable millions pursuing their self-interests within the rule of law.”

Do culture, the state, or other institutions play a role in shaping a national economy? Gordon says it is not a coincidence that the U.S. is the most religious nation on earth and the most secular, “the most devout and the most commercial,” but there is not the least explanation of this purported non-coincidence.

Given the lack of clear framework, it is difficult to explain why certain topics were simply left out of Gordon’s history. The book offers virtually no attention to industrial organization (other than demonstrating how technological breakthroughs can reduce transaction costs) and does not attempt to explore the role of government in its relation to markets. There is little mention of the distribution of income or wealth or how this has changed in recent decades to the advantage of the super-rich (as described by Kevin Phillips, for example, in Wealth and Democracy). Neither the safety net nor welfare policy appears as part of this American economic history. Recurrent business scandals seem more amusing than significant. Despite the praise for innovation and dynamism, there is almost no discussion of the role of intellectual property rights or how they have been growing like fertilized weeds; and there is no effort to document the role of our universities in generating commercially relevant research and a competent workforce. Relatively recent trends toward the de-integration of integrated companies through outsourcing and the emergence of new global systems (as described, for example, in Barry C. Lynn’s End of the Line) are unexamined.

“An empire of wealth” –the book’s title-- suggests a position within a world of competing nations. Gordon, however, doesn’t focus on political impacts of the American economy around the world (not investments and loans abroad, not trade imbalances or the cultural aspects of operating our companies around the world, not the great American achievement of turning the world against cartels (as described by Wyatt Wells in Antitrust and the Formation of the Postwar World), and not the counter-movement that has grown up around the world in resistance to the American economic empire.

The closer this book approaches to its publication year of 2004, the quirkier it seems. Interestingly, Gordon seems to be a fan of The New Deal and says there has never been a serious political effort to reverse it. (What was Barry Goldwater’s candidacy? Who is George W. Bush?) Despite all my quibbles and quarrels, any economic history that so praises our English traditions, blames Jefferson for destroying Hamilton’s financial regulatory system, reveres the institution of central banking, admires Commodore Vanderbilt and disdains the phrase “robber barons,” hails the GI Bill after World War II as “the Erie Canal of the postindustrial economy”, and blames Congress for the enormous Reagan deficits – can be a lot more fun than econometric equations.