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

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

Political Theatre

LRC Blog

LRC Podcasts