Wealth of a Nation: A review of Thomas J. DiLorenzo's new book, How Capitalism Saved America

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Henry
Ford once famously said, "History is bunk." Although he
probably overstated his case, Ford was certainly correct if what
he meant to say was, "all bad history is bunk." And nothing
is more in need of a good debunking than bad history.

This is the role that Thomas J. DiLorenzo (a professor of economics)
assumes as a lay historian in his new book, How
Capitalism Saved America
. This "untold history of our
country, from the Pilgrims to the present" is a first rate
rendition in every way of how America became a wealthy nation because
of its adoption of a free enterprise system.

It is probably unfair to refer to DiLorenzo as a "lay historian."
He is the author of a revealing history, The
Real Lincoln
, about our nation's sixteenth president. But
students of American history are increasingly beginning to see that
most historical accounts of the United States that they have read
contain little information (and quite a bit of misinformation) about
the role our economic system has played in making America a great
nation. Who better than an economics professor like DiLorenzo to
tell this story?

The author uses his book to argue convincingly that our nation's
wealth has come from one source and one source alone – its
adherence to the principles of the free enterprise system. But DiLorenzo's
work is not a boring polemic about economic theory. Because he uses
the history of the United States to make his points, his illustrative
stories are always interesting and often very entertaining.

The first use of this narrative technique by DiLorenzo may also
be the best example of its effectiveness. It comes in the third
chapter, How Capitalism Saved the Pilgrims. The party first
charged with the settling of America by England, the Virginia Company,
sent a total of 604 settlers to the Tidewater region around Jamestown
over a two-year period beginning in 1607. These pioneers found a
moderate climate, rich soil, plentiful game and an abundance of
seafood. Yet within a few months of their arrivals in the New World,
526 of the original 644 settlers were dead due to starvation or
disease. Why?

The Virginia Company had made an investment in these settlers by
giving them free passage to America. They, in turn, were to compensate
the Virginia Company for seven years through their labor as indentured
servants. But since it would take seven years before their labor
would benefit them directly, the group became indolent to the point
of risking their own lives by not performing the agricultural tasks
required of them.

In other words, the imposition of an essentially communal ownership
of land and property for seven years by the Virginia Company caused
their settlement efforts to fail miserably. In 1611 the British
government amended the system to allow each man to own three acres
of his own land and work for no more than one month a year to make
his contribution to the colony. It was from this point onward that
America began to grow mightily.

In chapter after chapter DiLorenzo relates stories of how the American
people used capitalism, laissez-faire economics and the free enterprise
system to overcome most of the obstacles they faced throughout their
history. The author points out, for example, that the American Revolution
was primarily a revolt against the British economic system, mercantilism,
which was limiting the freedom of the colonists to benefit from
the free enterprise system that had taken root in America.

During the constitutional period there was an internal political
struggle within the country between those who favored an "American
mercantilism" (Federalists such as Alexander Hamilton and John
Adams) and those who fought against government interference in the
economy (Republicans like Thomas Jefferson and James Madison). Fortunately
for the history of our country, the Republicans emerged victorious
in the struggle and dominated the federal government for almost
fifty years after the election of 1800.

America's economic freedom, however, has been steadily eroded by
government intervention since the first half of the nineteenth century.
DiLorenzo says it this way, "any discussion of economic freedom
must consider degrees of freedom, for neither the United
States nor any other nation has ever had an economy that was generally
free from government interference – that is, free of taxes and regulations."

In Chapter Seven of his book, The Truth About "Robber Barons,"
DiLorenzo makes an important and very useful distinction. He contrasts
u2018market entrepreneurs' with u2018political entrepreneurs.' The former
succeeds by always striving to please his customers who can hire
or fire him at a moment's notice. The latter "succeeds primarily
by influencing government to subsidize his business or industry,
or to enact legislation that harms his competitors."

It is in this sense alone that the United States has a "mixed
economy" today. Our wealth has primarily been created by market
entrepreneurs such as James J. Hill, John Rockefeller, Bill Gates
and most small business owners. It is diminished currently by political
entrepreneurs such as subsidized farmers and defense contractors.
Finally, a good portion of our wealth has been to a great extent
squandered by government run enterprises.

How
Capitalism Saved America is a seminal work about economics and
the history of the United States of America. Thomas J. DiLorenzo
has made a great contribution to our nation by writing it. And he
has performed a major service to the book's future purchasers (of
which there will be a great many) by making it so easy and fun to
read.

August
20, 2004

Kirk
W. Tofte [send him mail] is
the manager of the BWIA Private Investment Fund and the author of
Be
Principled and Grow Rich: Your Guide to Investing Successfully in
Both Bull and Bear Markets
. He lives in Des Moines, Iowa.

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