1960s, including the Kennedy “legend” that formed a counternarrative to the consensus view of American society.
A major theme of this book is that unsettled transitional periods of the kind we are now living through have happened before in American history—in the 1850s and 1860s, for example, and later in the 1930s and 1940s. In each period, an old order collapsed and a new one emerged out of an unprecedented crisis; and in each case, the resolution of the crisis opened up new possibilities for growth and reform. No particular consensus or set of political arrangements can be regarded as permanent in a dynamic country like the United States.
The political economy of American capitalism has evolved in distinct chapters, not in cycles or in an orderly sequence as Marxists or developmental theorists would have it. Part I elaborates on this theme, especially in “America’s Fourth Revolution.” The United States has had three such chapters in its history: (1) the Jefferson-Jackson era stretching from 1800 to 1860, when slavery and related territorial issues broke the prevailing consensus apart; (2) the capitalist-industrial era running from the end of the Civil War to 1930, when the regime collapsed in the midst of the Great Depression; and (3) the postwar welfare state that took shape in the 1930s and 1940s and extends to the present, but is now in the process of breaking up. Each of these regimes accomplished something important for the United States; each period lasted roughly a lifetime; and each was organized by a dominant political party: the Democrats in the antebellum era, the Republicans in the industrial era, and the Democrats again in the postwar era. The first two regimes fell under vastly different circumstances: the sectional conflict was a crisis of America’s constitutional system, while the Great Depression was a crisis of capitalism.
The postwar order emerged out of the twin crises of the Great Depression and World War II, and it represented something new in the unfolding history of American democracy. In terms of prosperity and world influence, this era was probably the most successful period in America’s national history. The postwar consensus took some time and political effort to construct. In 1932 there was no consensus in the United States around the programs and ideas that would eventually shape the New Deal, and in 1940 the nation was sharply divided between interventionists who wanted to assist Great Britain in the European war and isolationists who wanted no part of any such entanglement. Yet by 1950 a bipartisan consensus had been hammered into shape, one that assigned the national government responsibility for maintaining full employment and for policing the world in the interests of democracy, trade, and national security. It was a signal political achievement in view of the resistance that had been built up through the nineteenth century against large government establishments and American involvement in foreign disputes. Moreover, there have been continuous efforts coming from both left and right to alter, redefine, or undermine the consensus.
John Maynard Keynes was the theoretical architect of America’s postwar political economy, as elaborated in Part I. Keynes argued in several important works published in the 1920s and 1930s that the old order of nineteenth-century capitalism had been destroyed both by the Great War of 1914–1918 and by the evolution of capitalism from a system organized around small producers and local markets to one increasingly dominated by large corporations and labor unions. In The Economic Consequences of the Peace, his controversial attack on the Treaty of Versailles, he first broached the idea that the capitalist order needed to be placed on new political and intellectual foundations. Later, during the Great Depression, he worked out the theoretical argument for government to take a leading role in stabilizing the market economy with the aims of full employment and maximum output. His General Theory of Employment, Interest, and Money, with its policy prescriptions for a managed economy, is probably the most influential work of economics published in the twentieth century, at least in the Anglo-American world.
The Keynesian system involved a significant revision in the relationship between the state and the market, as the state assumed a steering function over the economy never envisioned by the eighteenth-century founders of the liberal order. A state that commands sufficient resources to stabilize consumer demand and investor behavior stands in sharp contrast to the classical liberal state that preceded it. This new kind of state is an elemental part of the postwar regime, a point whose implications are examined in the chapter titled “The Keynesian Revolution in Political Economy,” which also argues that the Keynesian era itself is now approaching an end.
The unfolding of the postwar era has entailed various surprises, perhaps chief among them the revival of nineteenth-century free-market ideas in the 1980s and beyond as a challenge to the Keynesian order. It would be wrong to suggest that the “age of Keynes” ended in the 1980s. The consensus surrounding the Keynesian regime has been badly weakened but not broken, and the financial crisis of 2008 provided a new occasion for the application of Keynesian policies.
Thomas Piketty’s recent work, Capital in the Twenty-First Century, has called attention to the surprising return of inequality in European and North American countries. While Piketty argues that inequality is somehow intrinsic to the capitalist order, the chapter titled “American Capitalism and the Inequality Crisis” suggests that it is linked more closely to specific elements of the postwar regime, especially in the expansion of global markets and the explosion of asset prices. From 1980 to 2012, the value of world stock markets increased from $2 trillion to more than $50 trillion, an unprecedented development that was bound to produce more inequality as one of its side effects. Even if one thinks inequality is a bad thing, the stock market boom has had beneficial consequences in the areas of innovation and productivity that far outweigh this particular downside. When the stock market contracts again, as it inevitably will, the inequality “crisis” is likely to deflate along with it.
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The evolution of the postwar regime has found expression in various aspects of national life—for example, in assumptions about capitalism, the American economy, and the role of government in the marketplace; in the development of the major political parties; in the changing definitions of liberalism and conservatism; in the interpretation of pivotal events and the assessment of influential personalities; and in the life and operation of important professions and institutions, such as law, philanthropy, book and magazine publishing, and higher education.
After nearly every national election, there is a new debate as to whether one of the dominant ideologies in American life is expiring. During the 1980s and 1990s, some conservative pundits asserted that “liberalism is dead!” Following the election of 2008, several loud voices on the left proclaimed the “death of conservatism.” These were mostly ill-informed forecasts, as argued in Part II, primarily because liberalism and conservatism are woven into the postwar regime as two sides of the contest over the role of the state in the marketplace. Each side has built up a vast infrastructure of supporting institutions, interest groups, think tanks, television networks, newspapers and magazines. Meanwhile, the nation has divided into more and more polarized doctrinal groups—into a conservative nation and a liberal nation. It is true that one or both of these doctrines could disappear, but only as part of a process that involves the collapse of the postwar regime itself, in much the same way that the secession movement disappeared with the Civil War, and laissez-faire capitalism with the Great Depression.
This polarization is also apparent in other institutions of American life—for example, in philanthropy, a field that is usually thought to be purely charitable in nature and thus nonpolitical. The chapter “Investing in Conservative Ideas” describes how liberal philanthropy first evolved in the United States in the 1960s under the leadership of the Ford Foundation and several other large New York institutions. These foundations invented the concept of “advocacy” philanthropy, through which they funded groups in different fields that lobbied, filed lawsuits, and staged protests in behalf of liberal policies. This strategy proved so effective that several conservative foundations followed suit in the 1970s to fund their own mix of advocacy groups, magazines, and university programs. Though the liberal foundations have had far more money at their disposal, the conservative philanthropies have fought them to a draw in promoting their particular philosophy of government and economics.
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