The Paradox of Democratic Capitalism: Politics and Economics in American Thought
Johns Hopkins University Press
When financial giant Bear Stearns recently danced perilously close to the edge of bankruptcy, the Federal Reserve induced JPMorgan Chase, with $29 billion worth of loan guarantees, to purchase the investment bank. Coming in the midst of a credit crisis in which many Americans were losing their homes, the government’s offer was the target of a great deal of criticism. During a Senate hearing on the subject, Banking Committee Chair Christopher Dodd (D-CT) asked Fed chief Benjamin Bernanke whether this action constituted “a justified rescue to prevent a systemic collapse of financial markets or a $30 billion taxpayer bailout for a Wall Street firm while people on Main Street struggle to pay their mortgages?” Bernanke responded that while “normally, the market sorts out which companies survive and which fail,” the significance of this particular company’s market position is such that “the damage caused by a default by Bear Stearns could have been severe and extremely difficult to contain.”
Both Dodd and Bernanke suggest concerns over the Bear Stearns bailout, but they appear to be almost completely different ones. While the senator’s question suggests a concern about the bailout’s legitimacy in the eyes of the American people, Bernanke’s statement reveals a different anxiety: that government loan guarantees might violate the tenets of market economics. Put another way, the Bear Stearns episode reveals a tension between two significantly American values: those of democracy and capitalism. This point is one that David F. Prindle generalizes in his book, The Paradox of Democratic Capitalism. Academic studies too often compartmentalize U.S. intellectual history by studying democracy as a political issue, and capitalism as an economic one. In this practice, Prindle argues, something important is lost; his goal, therefore, “is to overcome the separation of political, economic and legal discourses and create a comprehensive history of their mutual development through American history.” (ix)
Since capitalism and democracy are, respectively, the economic and political applications of liberalism, Prindle’s story amounts to a modified Hartzian interpretation of U.S. intellectual history. In his 1955 classic The Liberal Tradition in America, Louis Hartz argued that liberalism has been the only significant intellectual outlook in U.S. history. Prindle follows in these footsteps, despite the briefest of nods to more recent scholarship challenging this view (e.g., the historians of revolutionary and early national republicanism, and Rogers Smith). He differs with Hartz, however, in refusing to see U.S. liberalism as a “consensus tradition; instead…capitalism and democracy, while they have been ideologically inseparable, have always been in tension. As a consequence, the liberal tradition in America is one of fundamental internal conflict, not consensus.” (x)
This conflict takes a broad general form that successive eras continually replicate in different terms, and the bulk of the book traces the development of this conflict through U.S. intellectual history. In the founding era, Prindle argues, Alexander Hamilton and Thomas Jefferson represent the beginning of this tension. Rejecting as a hoary cliché the trope that the United States embodies a never-ending debate between big government Hamiltonians and populist Jeffersonians, Prindle nonetheless sees the two as representatives to two important intellectual trends: capitalism and democracy, respectively. “The perspective that frets about the threats to private property and the economy from democratic meddling, which derives from Hamilton, is very much alive today. Similarly, the perspective that fears that capitalist organization and resources are threatening the sovereignty of the people, which derives from Jefferson, is commonly evident in modern public discourse.” (44)
Throughout the nineteenth century, Prindle’s liberal consensus only solidified. Democracy strongly took hold during this period, as evidenced by the elimination of property requirements for the franchise. Though Andrew Jackson’s destruction of the second Bank of the United States rendered his presidency “more noteworthy as a destructive than a constructive force” (78), capitalism thrived behind a tariff that increased the price of imported goods. Even slavery cemented this union for a time, as northern labor activists and southern traditionalists united in their condemnation of industrial “wage slavery.” “In their mutual recognition of this potential contradiction within the premises of liberalism, the preindustrial Southern Right and the industrial Northern Left shared a historical moment of ideological concurrence.” (90)
The Civil War, however, brought this era to a close. The ideological vacuum that characterized Reconstruction and the Gilded Age led to an ascendance of capitalism while democracy began to falter. Social Darwinism “combined satisfaction at the undoubtedly impressive achievements of American capitalism with genuine fear at what appeared to be a serious challenge to the system that had created those achievements, all conditioned by the accepted thinking of previous generations. It was not an era of intellectual distinction, but it was an era of ideological coherence.” (103) During this period, the advocates of democracy were unable to mobilize popular dissatisfaction. Highlighting the Populists, Henry George and Edward Bellamy, Prindle argues that those who criticized the system in the name of the people were unable “to design a plausibly superior alternative. When measured against its own ideas, actual liberalism looks pretty disappointing. When measured against the available alternatives, its virtues suddenly appear much brighter, and its vices more tolerable.” (133)
In Prindle’s view, the New Deal brought about a real and significant shift in the thinking on both the left and the right. Democracy, conservatives realized, was here to stay; strategies to curb its influence, such as limiting the franchise or using the courts to block Roosevelt’s programs, would no longer be effective. As a result, those on the right came to adopt as their main rhetorical strategy a resistance to government itself, on the grounds that interference in the private economy is inefficient and tyrannical. Yet property owners, the main conservative constituency, are in actuality very receptive to government activity. “Farmers loved agricultural support programs, domestic oil producers reveled in market-demand prorationing, broadcasters delighted in the way the Federal Communications Commission assured them uncompetitive markets, the airlines doted on a paternalistic regulation by the Federal Aviation Administration, and so on.” But since those on the right wished to limit some government action—on behalf of labor, the environment, redistributionist impulses, and the like—conservatives, by the late 1930s, “had settled into a pattern of reviling government in public and seeking to influence its activities on behalf of the interests they represented in private. A large portion of American political debate thus took place in a wonderland of hypocrisy and lies.” (212)
On the left, however, the realization that the New Deal had not eliminated economic inequality led to “a genuine transformation of ideas” (213), as thinkers such as C. Wright Mills and John Kenneth Galbraith grappled with economic inequality. By the 1970s, writes Prindle, such “dissent had entered the mainstream of American public discourse.” (234) Thus the state of intellectual life in the postwar United States could best be described as chaotic: while liberals battled the rising “socialism” (256) of the far left, libertarian thinkers such as Milton Friedman and Robert Nozick achieved significant influence, and Marxist intellectuals revised their doctrine in spite of the failures of international communism.
Against this background ascended the new conservatism of the late twentieth century. Seeking a morally legitimating theory of property, “supply side” advocates such as George Gilder and Jude Wanniski redefined capitalism to focus on the social beneficence of the entrepreneur. At the same time, the left began to redefine democracy as being incompatible with the inequality in wealth that characterizes contemporary society. “The message of the Left is frequently that the United States has only a sham democracy, because authentic democracy is not possible under a capitalist economy.” (255)
Thus our contemporary moment is one in which the discourses of capitalism and democracy have been rendered increasingly incommensurable. Given the distance that the protectors of democracy and capitalism have traveled from each other, “[i]t is not impossible to imagine a future American political dialogue in which the Right has moved so far from accepting democracy, and the Left has moved so far from accepting capitalism, that the liberal consensus at the center of American politics dissolves.” (290) The problem, of course, is that in the meantime “somebody has to govern,” and increasing ideological incoherence will mean only that “[p]rogressives and conservatives will make different decisions, based upon incompatible premises, but all equally reckless.” (295) In the book’s final chapter, Prindle appears pessimistic, foreseeing neither the development of a bridge between these two viewpoints, nor some alternative to liberalism itself.
Prindle deserves credit for the observation at the heart of The Paradox of Democratic Capitalism: that democracy and capitalism embody assumptions and conclusions that are not entirely compatible. This is a significant and under-discussed point, one that often meets with considerable resistance from supporters of philosophical liberalism, i.e., just about everyone. Furthermore, the use of democracy and capitalism as a lens through which to view the intellectual history of the United States leads Prindle to some compelling and provocative characterizations of large-scale trends, particularly the increasing division between left and right that followed the New Deal.
Much like the Hartz work that it seeks to revise, however, The Paradox of Democratic Capitalism paints on a very large canvas. As a result it inevitably features some rather broad generalizations. It is not clear, for example, that many of Prindle’s subjects thought of themselves as advocating “democracy” or “capitalism”; based on his own descriptions, “populism” and “property rights,” respectively, appear to be more accurate. Moreover, the scope of the book necessitates that no single thinker receives more than a few pages of attention; as a result such summaries often lack analytical heft. These problems, however, point less to flaws in the book than to the difficult nature of the task that it takes on. Viewed this way, The Paradox of Democratic Capitalism should spur others to write new works that treat specific aspects of this liberal tension in greater historical and theoretical detail.
Mike O’Connor is a visiting assistant professor of American history at the New York Institute of Technology.