Alan Greenspan’s Ode to Creative Destruction

Alan Greenspan’s Ode to Creative Destruction

In the authors’ approving view, men like the banker John Pierpont Morgan, the oil baron John D. Rockefeller and the steel magnate Andrew Carnegie, all born within a few years of one another in the 1830s, were “giants of energy and ambition” who “exercised more power than anybody other than kings or generals had exercised before.” These men (and they were all men) are “heroes of creative destruction” because they “helped to produce a massive improvement in living standards for all.”


That they also produced social and economic upheaval for many is a small price to pay, the authors contend. The rise of their great corporations, not to mention the industries they helped build and finance, from railroads to autos to retail chains like Sears, Roebuck, displaced millions of workers and small-business owners who were rendered obsolete. Cyrus McCormack’s threshing machine displaced a quarter of the world’s agricultural workers. “People seldom achieve great things without being willing to ride roughshod over the opposition,” the authors note.

Not surprisingly, these “giants” attracted popular hostility and resentment — Teddy Roosevelt called them “malefactors of great wealth.” Their success and attendant wealth unleashed a populist backlash. Williams Jennings Bryan campaigned against Wall Street and its “cross of gold.” Congress passed the first antitrust laws. The first federal income tax paved the way to income redistribution.

History’s harsh judgment of the era (which culminated in the 1929 stock market crash and ensuing Great Depression) suggests why creative destruction has had trouble gaining much of a following. Like the Robber Barons, today’s drivers of creative destruction, technology and internet entrepreneurs, “are seldom the easiest of heroes, nor the nicest,” the authors note. “They will sacrifice anything, from their own peace of mind to the lives of those around them, to build a business empire and then protect that business empire from destruction.” Such people are prone “to what the Norwegians call Stormannsgalskap, or the ‘madness of great men.’” Tesla’s Elon Musk, who merits several approving mentions, comes to mind. The disruptive forces they unleash generate “unease: the fiercer the gale the greater the unease.”

And not all destruction, it should be said, is creative. In a nod to the exotic derivatives and mortgage-backed securities that led to the Great Recession (and went largely undetected by Greenspan’s Fed), Greenspan and Wooldridge acknowledge that “creative destruction can sometimes be all destruction and no creation.”

The popular reaction is typically a well-intentioned but misguided effort to preserve the status quo. “People link arms to protect threatened jobs and save dying industries. They denounce capitalists for their ruthless greed. The result is stagnation: In trying to tame the creative destruction, for example by preserving jobs or keeping factories open, they end up killing it,” the authors contend.

In their view, America today is already well along that path to stagnation. “Capitalism in America” barely mentions Trump beyond condemning his “dangerous” trade policies and warning about the fiscal recklessness of his tax cuts. But the entire book is an indictment of Trump’s stands on immigration and protectionism and his attempts to resurrect fading mining and industrial concerns — attempts that, as “Capitalism in America” shows repeatedly, are almost surely doomed.

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