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The Real Road to Serfdom

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The United States and its democratic allies face serious, and possibly existential, challenges that appear in three manifestations: external, internal, and technological. First, the democracies collectively face a rising group of authoritarian nations loosely centered around China, which seek economic and technological supremacy in the coming century. Internally, the United States and others face lasting economic dissatisfaction and inequality, which has grown since the 2000s, creating a dangerous and widespread sense of polarization, resentment, and distrust. Everywhere there is anger rooted in resentment, the rocket fuel of contemporary politics. And lastly, and the hardest challenge to understand, is the rise of major technology platforms rivaling the power of nation-states, which seems to aid and abet the other challenges. The platforms, coupled with artificial intelligence abilities, seem unstoppable in their acquisition of information, attention, and other intangible assets. They have stoked new fears of humanity losing control over its future.

These three challenges have combined to create a serious ideological retort to democracy itself, centered in a variety of authoritarian populists who claim a truer and more direct connection with the people than the democracies enjoy. Not since communism has democracy been so disparaged and denied. And what are the responses? There is the apologist’s response. It merely reasserts the intellectual and moral superiority of democracy and laissez-faire capitalism. If there are doubts, it says, the proof is in the pudding: democracy is highly democratic and look how easy we have made it to buy stuff for cheap. This response reflects the lingering influence of Francis Fukuyama’s absurd proposition that the contest of ideologies ended in the 1990s. We won, history is over, and all that remains is some tinkering. But what the apologist lacks is any answer to those living in rich countries who have lived through a painful decline in their standard of living, who have fallen through the cracks, and are suffering the humiliation of feeling poorer than their parents. It also lacks any answer for those living in poor countries, embittered by failed promises. No one wants to feel like a loser, and we have spent a generation creating economic winners and losers on a scale unsurpassed since colonialism.

Another response returns to the twentieth-century contest between capitalism and socialism, suggesting that the former’s declaration of victory was premature. The more orthodox suggest that Marx’s prophecies were merely delayed, and blame Stalin for tarnishing the brand. Others, less interested in defending the record of the Soviet Union, suggest that the time has come for democratic socialism: a more gradual transition to a fully public economy. Since it is not capitalism, socialism has a way of serving as a placeholder, a stand-in for the rejection of toxic capitalism.

Another response comes under the banner of rising to the challenge: it would question democracy itself and turn to a “man strong enough to get things done,” as they once said of Mussolini. It calls for an autocrat who will tame the foreigners, the universities, the media, and the disloyal government officials in our midst. Orbánism, Trumpism, and the fringe “dark enlightenment” represent the embrace of these ideas. A higher-brow version subsumes domestic economics to international power politics. It implicitly accepts the Chinese view that there are a fixed number of known contests for the future. To win these contests is to win it all. We therefore need our own command economy and centralized economic response.

Those are some of the louder voices. Most people, I believe, are stuck. They may angrily believe that we are not on a sustainable course but they are uninspired by communism’s track record or by the strongmen who came to power promising to fix everything. But there is still another possible response, lost to time, to what obviously ails us. It is a vision of a decentralized and productive economy that believes in private ownership but is much different from the form of capitalism that has taken too much from too many over the last forty years. It borrows from what has actually been best over the last two centuries in real as opposed to imagined nations that have built sustainable wealth and equality. Unlike communism, it accepts and believes in private ownership, and unlike Marx it respects the instincts of those privately run businesses and seeks economic autonomy. But it believes economic power needs to be balanced and that the economy needs to be connected with real humans. This forgotten alternative has gone by different names over time, including competitive capitalism, Brandeisian capitalism, and distributionism. A general term for what I have in mind, put simply, is decentralized capitalism. 

The fundamental problems of our times arise from a serious imbalance of economic power. This imbalance, or these imbalances, lead to individual suffering, loss of control over one’s life, and the corruption of politics. It is economic equilibrium that we need to recover. We know what communism looks like and what laissez-faire capitalism looks like, but the long and noisy contest between those two ideologies has drowned out alternatives for too long. The political economy of thinkers such as Louis Brandeis, Jane Jacobs, and E.F. Schumacher has been nearly lost, not to mention the ordoliberals, the distributionists, and the physiocrats. We need a new generation that understands what Franklin Delano Roosevelt meant when he declared: “I am against private socialism of concentrated economic power as thoroughly as I am against government socialism.” 

Unbalanced economic power is a recurrent problem. It has caused suffering and instability for centuries, going by a variety of names, among them feudalism, monopoly capitalism, Stalinism, and fascist command centralism. The problem is endemic for several reasons. First, most economic systems, capitalist or otherwise, will tend to aggregate economic power over time. The twentieth century’s exceptions to the trend, as Thomas Piketty showed, occurred in the aftermath of highly destructive wars. When economic power becomes too aggregated, it yields a variety of negative outcomes. The most basic are merely economic, such as the domination of individuals by employers or feudal lords who impose a loss of control and a deprivation of basic freedoms. But as matters get worse, the problems become more political, leading to the corruption of government and a dangerous volatility that can yield revolution or war.

Even though we might know this, we have a way of forgetting it. On the way up, the centralization of economic power can yield a manic high, capable of convincing a nation that all its problems have been solved. It is the mass exercise of a will to power; if it were a drug, it would be a powerful stimulant, one that blinded its users to its dangers. Some in the 1920s believed that they had achieved endless prosperity through scientific management methods. Stalin was hailed as an economic genius after he reorganized the Soviet economy along the lines of a giant American corporation. In our times, we became caught up in our own sugar high, fueled by cheap money, financial deregulation, corporate consolidation, and a strange faith that we could avoid what had befallen previous generations. 

But history tells us that the high is inevitably followed by a crash, and that extreme imbalances of economic power are risky. That is a major lesson to take from the 1930s, and also a lesson to take from the experience of the American and Caribbean slave states, from Tsarist Russia, and Weimar Germany. Our generation’s own run has already yielded the Great Recession and the rise of at least one populist strongman, and we risk becoming another lesson for future historians.

There will always be those who worship size and centralized 
power. Ayn Rand and Herbert Spencer find new audiences in every generation. But as any systems theorist will tell you, overly centralized structures are inherently fragile. They can be aesthetically impressive and achieve results, but when they crash, they crash hard, and when they stagnate, it lasts a long time. This is not to say that we need to live in wooden shacks and tolerate no business larger than a storefront. But what we do need is to fear any ideology that worships economic power instead of viewing it with significant caution. For time and time again, in different ways, excessive centralization has brought down mighty nations who believed that they had conquered time and space. 

Montesquieu and Madison recognized the equivalent dangers in the political sphere. Structures such as the United States Constitution or Germany’s postwar constitution are specifically designed to prevent an aggregated power leading to tyranny or military dictatorship. The balancing can be inefficient and frustrating, but it reduces political instability and that age-old curse known as the war of succession. Whether by correlation or cause, such structures have also anchored some of the wealthiest and most powerful states on earth. But unaccountable economic power? It is almost comical that in the United States there is more attention paid to achieving balance in professional sports leagues than in economic policy. Consider the National Football League, which aspires to an admirable equality among regions and has created an ingenious architecture of parity that ensures no one is fully left behind. Its interventions are structural, centered on the draft, salary caps, and schedule, as opposed to giving smaller cities an advantage on the field. The result is that smaller and poorer cities, such as Kansas City or Baltimore, compete with giants such as Los Angeles or New York. 

Sports leagues have achieved the remarkable feat of intervening forcefully to rebalance power without being perceived as unfair. And such systems speak to an enlightened self-interest inherent in the systems of balancing that dovetails with an older American approach: as Tocqueville observed in the 1830s, Americans “are fond of explaining almost all the actions of their lives by the principle of interest rightly understood.” They explain “how an enlightened regard for themselves constantly prompts them to assist each other.” What economies need is what sports leagues and political systems have: structures that check and rebalance power. We have some such systems, including antitrust and corporate and banking laws, but they do not always march in the same direction, and sometimes they move against each other. 

Above all, we must not fall for the dangerous mythology that the problems of aggregated economic power are inherently self-correcting. They are not. Any serious economic historian will tell you that monopoly and oligopoly can last a very long time; feudalism endured for centuries. While we do not believe in laissez-faire politics, or at least we are not willing to endure a tyranny based on a faith that all will be fine in the long run, in economic policy we are too often transfixed by the belief that market power dissipates naturally, or by the deluded faith that we can solve imbalances by allowing money to pile up in a few places and redistributing it sometime later. 

The political scientist Robert Dahl once defined power as the ability to get someone to do something that they would not do otherwise. Economic power is the same thing, just using economic forces. Its evidence includes the ability to make others pay a higher price than they would like, as in the case of the under-insured cancer patient who feels no choice but to shell out her life savings for a drug. It can also refer to the ability of the only employer in town to get away with lower wages or force employees to sign non-compete agreements. In these examples the power is directly linked to an ability to profit. But economic power can be used for broader purposes, such as enticing a politician to vote in a certain way, or buying control over what ideas get heard and by whom.

For the purpose of this discussion, there are two main sources of economic power. The first is property. For much of recorded history, economic power arose primarily from the ownership of a single productive asset: arable land. In the feudal and slave economies, this meant that power was concentrated if landowners owned or dominated large numbers of serfs or tenant-farmers. In that context, rebalancing meant distributing land to those farming the land, otherwise known as land reform. Over the last two centuries, however, a new major source of economic power has emerged: industrial power. Industrial power is aggregated in owners of large factories and manufacturing facilities over the twentieth century. It is a power that arises from selling at scale. Industries such as airplane and car manufacturing, steel, and many others became primarily the domain of giant companies such U.S. Steel, General Motors, Germany’s Krupp, and Japan’s Mitsubishi conglomerate. In that context, the balance of power was found in the labor unions and the logic of what John Kenneth Galbraith called “countervailing power.” As Edward Bellamy wrote in 1888, “The individual laborer, who had been relatively important to the small employer, was reduced to insignificance 
and powerlessness against the great corporation . . . Self-defense drove him to union with his fellows.” 

In our day, the ascendant power, the second source of economic power, is platform power. Such power arises from the private control of “utility platforms,” the essential transactional platforms in the economy. Recent decades have witnessed the development of self-aware platforms, which are entities that want not just to support economic activity but to control it, and take as much of the proceeds as possible for themselves. Platform power is most familiar in the tech platforms, which most people interact with daily, such as Amazon, Google, Facebook, and the others. Yet the last twenty years has witnessed the expansion of platforms into previously decentralized service industries, from healthcare and medicine through the control of land. 

If there is one thing that the experience of the last twenty years in technology has taught us, it is that economic power concentrates quickly and to great extremes. Platforms anchor a given economic activity, offering both buyers and sellers enormous convenience and opportunity. Great platforms become great because they are useful. The platform is a key part of a capitalism designed to facilitate widespread wealth. But once a private platform becomes essential and unavoidable, it gains a new power over buyers and sellers. Over time, it will predictably seek to maximize its returns, taking too much revenue and profit from the economy — the pattern of “eating the ecosystem.”

The challenge of platform power has, as its only precedent, the industrial railroads and other essential industries of the early twentieth century. The creation of fortunes, the accumulation of data, and the rule of industries by such a limited number of companies is precisely what is meant by concentrated economic power, and it is of a nature that spills easily into the political sphere as well. Therefore, the single greatest challenge we face is this: how to rebalance economic power, distribute productive assets, and prevent platforms — which historically offer the greatest hope for widespread distribution of wealth — from forming into a system that extracts from business and offers a false autonomy. 

If we cannot find a way to do this, history suggests that war tends to do it for us. The greatest question facing this generation may well be: can we rebalance aggregated economic power without another world war? A special word need be said about the international aspects of the challenge facing the United States and other democratic nations. Some readers may think that all talk of addressing domestic economic imbalance need stop at the border. When we speak of the international contest with powerful authoritarian nations such as China and Russia, the logic goes, it becomes time to get behind our biggest and most successful Western firms and support them in the same way we unite behind our Olympic athletes. The argument makes intuitive sense. Some believe that we are in a winner-take all contest for the future, one which China is clear-headed about while the West dithers, fights with itself, and wastes time debating ridiculous superficialities surrounding gender and race. To get serious is to support our own economic champions: after all, that is how we won the Cold War and won the race to the atomic bomb, among other achievements. 

These arguments can sound good, and “going big” has won wars, but in economic policy it is a dangerous course with many failures too great to ignore. It is not how the West won the economic side of the Cold War. Instead of supporting monopolization, the United States always did better by holding the feet of its largest firms to the fire and forcing them to prove their mettle in domestic competition. The real lesson of the Cold War (and also of the postwar contest with Japan) is that monopolies are a bad bet, especially in tech industries. That is certainly the lesson learned from a study of the four major American tech industries of the post-War era: aerospace, automotive, computing, and telecommunications. In the first two, the United States undertook the more intuitive approach of nurturing its champions. General Motors was spared antitrust enforcement and given waves of government support from the 1960s onward — even as it faltered, outsourced, and stagnated. Boeing was allowed to buy its major competitors and also helped significantly, supposedly to meet the challenge of Europe. None of these policies worked particularly well — the industries became flabby, and only incrementally innovative. In computing and telecommunications, meanwhile, the federal government took nearly the opposite approach. IBM was forced to open the software industry subject to an antitrust attack that created room for personal computers. AT&T was broken up into eight pieces, spurring, in time, what we now call the Internet industry, today a multi-trillion dollar “industry 
of industries” that includes the major tech platforms. Coddling key technological industries has never worked well for this country.

The urge to support national champions can be nearly irresistible, but we must learn the real lesson of the 1950s–1990s and force our own companies to face the heat domestically in order to temper their productivity. In a new age of industrial policy, we must avoid the trap that beset too many well-meaning nations that, hoping for dynamic vigor, subsidized their way into mediocrity and stagnation.

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It was only a relatively short time ago that the “great dictator” was understood to be a species on its way to extinction. Over the 1990s, nations across the world were shedding their Pinochets and Mobutus. Seemingly every week, someone’s statue was being pulled down as a crowd cheered, awaiting their deliverance to an economic and political nirvana. It was good riddance to a collection of leaders who had become a cranky and cruel group of old men, who really did do things like feed their political opponents to crocodiles. By the 1990s, with the “great leader” brand tarnished, there arose a different kind of leader: soft-spoken high-minded types such as Vaclav Havel, Nelson Mandela, and Mary Robinson, who were, in the lingo of the 1990s, kinder and gentler. Unlike the older generation, this new breed of leader actually left office at term’s end. Even Boris Yeltsin, the president of Russia, voluntarily called it quits, marking one of the very few voluntarily abdications in Russian history. (True, he was suffering ill health, was under investigation, and had a two-percent approval rating.)

Who would have guessed that the strongman would be marching back so soon? Who knew that more than twenty of the new democracies would flip back to some version of authoritarian rule, and that we would be again living in an age where nations are covered in posters of their dear leader? To better understand what happened, let us return to 1992. That was the year that the Czech Republic’s new playwright-president Vaclav Havel penned an elegant essay in The New York Times proclaiming “the end of communism,” and Francis Fukuyama published his book The End of History and the Last Man. Across the developing world, the widely adopted “Washington Consensus” prescribed a reduced state role in the economy and the opening of markets to trade and investment. Everyone seemed to agree that the free-market economy was the only path that made sense. But that same year, swimming against this consensus, a little-known lieutenant-colonel in Venezuela named Hugo Chavez attempted his first coup d’état. An unrepentant socialist, he attacked elites and foreigners and called for a strong governmental hand in the economy. A communist revolutionary during the fall of communism, Chavez could not have been more out of touch with the times. But decades later, something different seems obvious: Chavez was not the last gasp of something old, but the first peek at something new.

The coup failed and landed Chavez in prison for two years, but it was just a rehearsal. In 1998, Chavez returned, primed by a major economic crisis that was prompted by a decline in oil prices and an ongoing Asian financial crisis. Per capita GDP in Venezuela was back to its 1960s levels, with unemployment high and inflation over thirty-five percent. Chavez ran for president, backed by what seemed a confusing mixture of communists and right-wing militarists. He raged to ever larger crowds against the rule of corrupt, elite, self-enriching ruling class, summoning the mandate of the people and the spirit of Simon Bolivar. His main opponent, Henrique Salas Romer, was a wealthy Yale-educated economist and businessman. He called for the further privatization of state industries, the encouragement of foreign investment, and stronger ties with the United States. To the surprise and shock of the outside world, Chavez won by a landslide.

It is an attractive fantasy to believe that dictators and strongmen are always ugly and unpopular figures who rise through the seizure of coercive power. Yes, it is true that Attila the Hun came to power by killing his brother, and that terror is often how power, once achieved, is consolidated and maintained. And it was Jean-Bédel Bokassa, the ruler of the Central African Republic over the 1970s, who fed political opponents to crocodiles or lions, depending on his mood. But we should not mistake the means through which a late-stage dictator holds onto power with how he rises to power in the first place. Most often over the last century, the real road to the authoritarian state has been paved with the failure or inability of the democratic state to respond to widespread insecurity and grievance, whether economic precarity, challenges to self-identity, or fears about physical safety. (Survey evidence suggests that groups whose identities are threatened turn to strongman leaders who promise is to protect “us” against “them,” but there are just as surely causal interactions between economic grievance and identity questions. As Sheri Berman has written: “Political scientists consistently find that xenophobia, anti-immigrant sentiment, resentment of out-groups, and so on tend to rise during difficult economic times when low-income, low-education citizens in particular are worried about unemployment and future job prospects and concerned about competition for scarce public resources, such as housing or welfare benefits.”) The strongmen are usually those who give voice to those grievances and, like a patent medicine doctor, promise a cure where others have failed.

In the case of Chavez, Venezuelans had good reason to be angry. By 1998, according to one calculation, Venezuela pumped and sold nearly three hundred billion dollars-worth of oil over the preceding decade — yet the poor and the middle class saw little to none of the proceeds. Over the 1980s and 1990s, this vital industry had instead become dominated by a narrow extractive elite. They also happened to be light-skinned and living in the capital, splitting most of the money between themselves, elected officials, and foreign investors. It always complicated the democratic case against Chavez that he kept winning elections. 

Put another way, authoritarians rarely arise or hold power in countries enjoying a broad prosperity, a healthy middle class, and a sense of national unity, in the way that a clean kitchen rarely yields pests. The autocrats are like the maggots that grow out of neglected garbage that emerges after economic crashes or persistent and severe economic inequality. In other words, the clearest path from democracy to authoritarianism lies in the failure of a democracy to force capitalism to serve the broader public and enrich the middle classes.

To note that strongmen arise out of unmet grievance is not to defend their track record. Hugo Chavez was true to type. After an initial redistribution of wealth, he and his successor Nicolás Maduro led Venezuela to ruin, to extrajudicial killings, and to an economic death-spiral, with inflation regularly topping a thousand percent. Figures such as Hugo Chavez, Robert Mugabe, or Benito Mussolini often start strong, redistributing wealth in a very public fashion. But as time goes on, and as matters like contested elections and a free press become a distant memory, Lord Acton’s dictum comes to have a good empirics behind it. The track record of dictatorship in the twentieth century is simply horrific, and on this little more need be said.

It is with this vision of the populist dictator in mind that we can describe, in a more systemic way, how economic imbalance leads to serfdom. The notion of “the road to serfdom” comes from the twentieth-century economist and philosopher Friedrich Hayek, who believed that a well-meaning government, as it expanded and engaged in centralized economic planning, was certain to metastasize into a despotic totalitarian state. Yet Hayek missed something important and essential: that the failures of government, and particularly the failures to control the excesses of monopoly capitalism, and private industry, can contribute to the flip to authoritarianism that he feared.

Here is the contemporary economic road to serfdom in five stages, each based on known and well-studied tendencies. 

The first is monopolization — the takeover of the major industries in the economy by either actual monopolies or a small number of dominant firms, which can be domestic or foreign. That outcome is the predictable result of unrestrained markets, populated by profit-seeking corporations backed by unlimited finance. As William Magnuson puts it, “corporations, by their nature, are constantly seeking to concentrate market power.” Of course, monopoly is a theoretical abstraction; the more common reality is the rise of firms with market power, whether they be a small number of dominant firms (a “big three”) or geographical monopolies. For many countries, particularly those that banked on opening their markets in the 1990s, the market power is centered overseas as it acquires or runs local industry. Regardless of the exact form, the signature of the monopolized economy is its power and ability to undertake the next stage: extraction.

The extraction stage is characterized by the division of the economy into winners and losers. Firms with market power enrich their owners, top managers, and those who are paid to facilitate the creation or use of market power in one way or another. By its nature, it creates a narrow class of winners, whether those rewarded with extraordinary incomes or the owners of capital who enjoy high rates of return and slow growth. The losers are a broader class: consumers who pay more, workers who are paid less, and local and regional smaller and medium-sized businesses that are acquired or driven out of business. The divide can be geographic, with entire regions or entire countries left behind, and left providing low-return inputs, such as labor and resources, with a minimum share of profit.

The extraction stage can also take various forms. In some countries or regions, it may represent a foreign extraction, where the country becomes a source of inputs, whether raw materials or labor. In a globalized economy, the extraction can represent a tacit agreement among the world’s most powerful corporations to collectively take from their respective worker classes. But extraction can be more subtle, especially in developed countries — represented, for example, by the careful pinpointing of pockets of market power, such as those around a patented drug or nursing homes, or as found in the surprise pricing of medical services. 

The third step, following and accompanying systemic extraction, is resentment and mass grievance. There is always some level of economic dissatisfaction in any country, but broad-based resentment and grievance is something different. As Robert Schneider details in his recent book The Return of Resentment, it arises from a de-enrichment of large groups that is systematic: based on location, class, tribe, or some other characteristic of identity. It is a sorting of society along lines having little to do with one’s individual abilities or work ethic, and in this sense it is inhumane. The monopolization and extraction of an economy creates a powerful economic grievance, and the grievance is often expressed in non-economic terms — such as the blaming of immigrants or religious, ethnic, or racial minorities, or greedy elites, and so on. 

The fourth step, and a key turning point, is democratic failure. It is where an elected government is either unable or unwilling to respond to majority resentment or grievance in a meaningful way. The failure is compounded if the state is understood or credibly portrayed as supporting and perpetuating the extraction, perhaps to its own advantage — what is otherwise known as corruption. At this critical stage, the political economy of the country takes on a great importance. The extraction stage creates large profits, and the key question in step three is whether those profits can be used to buy government inaction in the face of public demands for action.

And this leads, finally, to the rise of the strongman, who offers what sounds like a credible commitment to respond to grievances that remain unaddressed. The strongman’s rise lies in a promise to truly serve the people’s interests. With an already centralized economy, it is easier to seize economic as well as political power. And later in time, the strongman either makes a deal with the monopolists or subjugates them to his will.

That is the sequence. The question is how to break it.

The story of Saint-Domingue, once the wealthiest territory in the Western Hemisphere, provides a cautionary tale about economic structure. In the late 1700s, the French Caribbean colony was known as a land of fabled wealth — “the Pearl of the Antilles.” Saint-Domingue achieved its wealth with methods familiar to our age. The island implemented an export-oriented economy that was, at the time, a world leader in the use of technology and scale economies and in keeping labor costs to an absolute minimum. Its signature economic unit was the integrated sugar-cane plantation, carefully irrigated, dependent on waterpower, and staffed by large numbers of enslaved West Africans. As Richard Pares put it, “A sugar plantation was a factory set in a field.” By 1789, the colony’s efficient production methods put it at the forefront of the world’s sugar production and also captured some sixty percent of the European coffee market. 

The structure generated large profits for plantation owners, yet it may not be surprising to hear that it was unstable. Saint Domingue had a two-class society: over half a million enslaved Africans were ruled over by a small number of plantation owners, their lieutenants, and their staff. What existed of a middle class was small and weak. At the La Rochefoucauld-Conflan plantation, a representative example, over four hundred enslaved Africans were overseen by seven white managers and one mulatto.

Tropical heat, local disease, and a focus on cost-cutting yielded brutal working conditions even by the standards of eighteenth century. For the enslaved workforce, death rates were estimated by one scholar as fifty percent among the newly arrived (mostly due to yellow fever) and about five or six percent annually among the acclimatized. Managers also complained about high rates of worker suicide. The plantations provided some health care, but ultimately made the cold calculation that it was more cost-effective to import new slaves than improve the conditions of work. As the historian Robert Forster writes, the managers “believed that no amount of health care would lower the death rates appreciably, and the only way to make more sugar was to pour in more and more slaves from Africa.”

The working conditions made rebellion a major risk. The owners’ deterrent was a system of high-profile punishment, horrific even by the standards of the era. Beyond the usual whippings, there are recorded instances of slaves being buried up to their necks and tortured with insects. To avoid “wasting labor,” however, actual executions were avoided, except in cases of attempting poisoning, for which records show culprits being burned alive.

Economically, Saint-Domingue was quite literally on a sugar high — but the situation was brittle and the crash finally came. Late in the evening of August 22, 1791, a coordinated revolt began in the north, in the largest plantations, as thousands of enslaved Africans set fire to plantations and captured or killed the owners. We have the eyewitness account of the director of the Clément plantation, after being woken by noises: “I jumped out of my bed and shouted: ‘Who goes there?’ A voice like thunder answered me: ‘It is death!’” While the details are unreliable, the organizers had celebrated a secret religious ceremony the week before where lighting and the thunder were taken as good omens. The uprising spread to the rest of the colony and plunged it into a terrible civil war that lasted fourteen years.

In 1804, after terrible violence and killing, the rebels won the war. They christened the new republic “Haiti,” the “land of high mountains,” and proceeded with a massacre of the Europeans who remained on the island. That organized massacre was justified by the new leadership as retribution for the treatment of workers on the plantations:

Have they not hung up men with heads downward, drowned them in sacks, crucified them on planks, buried them alive, crushed them in mortars? Have they not forced them to consume feces? And, having flayed them with the lash, have they not cast them alive to be devoured by worms, or onto anthills, or lashed them to stakes in the swamp to be devoured by mosquitoes?

Economically, the new nation was devastated by the war, slavery, and the legacy of the plantation system, and it has never really recovered. It would be further damaged by the reparations demanded by France — reparations that is, to the slave owners, which lasted until 1947 and at times represented as much as eighty percent of Haiti’s revenue. Today the island that was once so wealthy is the poorest nation in the Western hemisphere.

The story of Saint-Domingue is obviously at an extreme. Yet Haiti teaches a lesson about the risks inherent in top-heavy economic structures, two-class societies, and extreme differences between wealthy and poor. Concentrated capitalism has the potential of extraordinary gains in output achieved through specialization, scale, and coercive reduction of costs, but its downsides lie in an inherent rigidity and fragility that predictably yields catastrophic crashes, both economic and political. This pattern of manic growth and terrifying cataclysm appears endemic to laissez-faire capitalism, and has proven difficult to tame. The patterns of concentration and crash — with the intervening sugar high — are a common feature of the last several centuries. It would take an entire book to chronicle them all, but the most severe episodes occurred in the late nineteenth century, our own late 2000s, and worst of all, the 1930s, during which global tolerance, or cartelization and monopolization, helped make a bad Depression worse and eventually plunged the world into war. 

Despite these ghastly experiences, there has remained a faith in the ability of the economy to self-correct and solve its problems itself. The dream of a self-correcting economy never dies.

It has long been an article of faith among some economists that markets will solve problems of economic power by themselves — that any dangerous level of power can be expected to dissipate 
naturally, according to the theory of self-correcting markets. When it comes to political power, by contrast, such a belief has never been held by students of politics. Nobody says that Putin will be overthrown one day, so everyone should just relax. But in economics the grip of such optimism is strong.

It may be the scientific aspirations of economics that feed the faith. There are real systems in nature, especially biology, that have the property of homeostasis. The trick with a system in dynamic equilibrium is not that it never changes; it is, rather, that it is self-correcting. It has feedback systems that react to imbalances. Should our blood pH become acidic, the kidneys release buffering agents that make it more basic. Similarly, our bodies maintain an internal temperature of about 37°C / 98°F, even if we walk outside in a cold day. Economic systems — markets — have observable tendencies that work against imbalances as well. These tendencies yielded a doctrine, beginning in the 1870s with the pioneering work of the French economist Léon Walras, who became known as the father of general equilibrium theory. He argued, and purported to demonstrate mathematically, that markets, like biological homeostatic systems, are capable of detecting deviations from an ideal state and adjusting themselves to fix it. The hypothesis has both an intuitive and aesthetic appeal, and it has captivated thinkers for more than a century. 

But the hypothesis can be tested, for one can observe whether economic systems return to equilibrium or not. Here are three versions of the theory and how they have fared.

The first and most well-known is the theory of perfect competition, which was the work of the price economists of the late nineteenth century such as Alfred Marshall, who published his influential Principles of Economics in 1890. Those economists theorized that markets could generally be expected to “clear” and reach a partial equilibrium in which firms price at or near their cost of production. Anyone who starts earning a big profit, or a monopoly profit, will face competitors who see that profit as a lure and leap to seize it themselves. It follows that in a free market there is no way to gain a lasting form of economic power.

To give the theory its due, there are situations in which something close to “perfect” competition can, and does, occur — agricultural commodities such as wheat, corn, and soy being the best example. Marshall and neo-classical economists took such markets as the rule and the deviations as the exception. Unfortunately for them, they made that assertion during the golden age of monopolization — the late nineteenth and early twentieth centuries. History was proving exactly the opposite of what they believed. In practice, the great profits of monopolies such as Standard Oil and the Tobacco Trust were not competed down to zero. No markets cleared. Instead, men such as John Rockefeller and Andrew Carnegie became the wealthiest individuals in human history at the expense of smaller business units and workers, and almost at the expense of the American Republic. 

Yet somehow this did not, for a few decades at least, shake the theory’s influence, until finally the Great Depression hit. Aggregate demand remained stubbornly stuck at low levels, despite the prediction of classical economics that demand would rise to meet supply. The failure of the economy to return to equilibrium and the work of John Maynard Keynes together did great damage to any theory of a perfect market. Like the Catholic Church slowly adapting to Newtonian physics, a few brave souls began to question the time-honored theory of perfect competition. Economists such as Joan Robinson and Edward Chamberlin posited that imperfect competition, or the presence of market power, might be the norm. By the 1950s Joseph Schumpeter would write that for most markets “there seems to be no reason to expect to yield the results of perfect competition,” and that “in the general case of oligopoly there is in fact no determinate equilibrium at all.” 

Yet with a persistence indicative of a strange compulsion or fervor, the urge to find market-power self-correcting came back in a different form — most notably in 1952, in John Kenneth Galbraith’s theory of countervailing power in American Capitalism. That book can be understood as an effort to save the theory that economic power is a self-correcting problem. Galbraith did not bother to defend the theory of perfect competition. He accepted that many industries would be dominated by a small number of large corporations, like General Motors and Ford. To his credit, Galbraith recognized that this would yield a serious danger: an extraordinary concentration of economic power in a small number of firms, effectively immune from competitive forces, that could, at least in theory, drive down wages and distort politics. But he was unalarmed by that prospect, because he devised a new theory of market self-correction. He predicted that the great economic power of corporations would be automatically matched by a growing “countervailing power” in adjacent parts of the economy, such as the sale of labor. As he put it, “private economic power is held in check by the countervailing power of those who are subject to it.” There was no need to be particularly concerned about growing corporate power, because union power would automatically rise to match it. “As a common rule,” he declared, “we can rely on countervailing power to appear as a curb on economic power.” 

Galbraith, like a bad physicist, extrapolated too far from one set of data points — his own time. In 1952, he wrote that “as a general though not invariable rule one finds the strongest unions in the United States where markets are served by strong corporations.” That might have been true at the time, when 35.2% of the private workforce was unionized. But in today’s United States, despite even greater corporate concentration, unionization has not risen to match Galbraith’s optimistic prediction. Rather, private sector unionization plunged to about 5.1% by 2023. And things get worse for Galbraith’s predictive theory when you look at individual firms and industries. The tech industry, home to many of the strongest corporations in the United States, is almost entirely non-unionized (the Google union still comprises less than one percent of its workforce). The largest and most profitable firms, including Wal-Mart, Amazon, and Apple, have little or no checks on their power as employers. Meanwhile, there is little evidence that the power of sellers of other inputs systematically rise to match rising firm power. In fact, since the rise of Wal-Mart, the squeezing of suppliers has become a constant complaint. While American Capitalism may make clear why we need countervailing power, the theory that it automatically arises to balance market power is bunk. 

The final installment in this sorry chronicle of the illusion of market self-correction is the contribution of Simon Kuznets in the 1950s and 1960s. Kuznets was an inequality theorist, and in 1955 he optimistically suggested that the wealthier societies became, the more equal they would eventually become. In other words, there was no reason to be concerned about growing aggregations of wealth or economic power, because eventually, through some unspecified mechanism, inequality would cure itself.

The technical name for this leap of faith was the “inverted U-curve hypothesis” (also known as the “Kuznets Curve”). It suggested that very poor or primitive societies were equal (everyone in mud huts), and that as countries developed they would at first become more unequal (the industrial revolution), but that they could be expected to return to a state of equality once they became even wealthier still (hence the “U”) — through some mysterious mechanism. Kuznets suggested that there was data to support his U-shaped theory, though to his credit he admitted that his theory “is perhaps five per cent empirical information and ninety-five percent speculation, some of it possibly tainted by wishful thinking.” 

Unfortunately, in less careful hands, Kuznets’ conjecture became an “iron law” of economic development that suggested putting growth first and worrying about inequality later. The premise was that wealth generation, even if aggregated in just a few hands, would eventually lead to equality through that unspecified mechanism. The market economy was like the Cat in the Hat: whatever mess it might make, it would automatically clean up later. Wouldn’t that be nice? Like the other theories surveyed here, the U-shaped curve was a bust. When tested, it failed, as was most clearly established by  Thomas Piketty, who used the same data as Kuznets but expanded the time horizon. In reality, after the 1960s and 1970s, inequality, suppressed by two world wars and the Great Depression, began to grow again. The wealthy continued to get wealthier and leave the poor farther and farther behind. The belief that increased wealth would naturally lead to greater equality is what Piketty aptly called it: a “fairy tale.” 

In each of these three cases, we see the same phenomenon. While there are some forces that help dissipate dangerous levels of market power, it does not automatically disappear. The theories of self-correcting economic power are each guilty of the same omission: they ignore the actions of those who have economic power. The predictions rely on a few abstract forces and conjecture, in the manner of an ancient Greek scientist. The result is like a physics of motion that ignores Newton’s third law.

The error is so common that it can be given a name: the passive monopolist fallacy. In reality, those with a strong market position seek to keep it, and can succeed. Firms, as anyone in business knows, do everything they can to prevent a loss of market power. That may include seeking protections from government, building “moats” and “walls,” or brand loyalty, or buying rivals outright. Why not? Market power is power and also money, and money is what firms want. 

Why the economic prophets surveyed here decided to ignore such countervailing forces is a good question for a cultural historian. But the critique of the faith in market self-correction is not merely academic — it has important implications for economic policy. For a belief in long-run self-correction gives license for all to ignore any consequences of an unbridled capitalism, based always on the premise that eventually the problem will take care of itself. Unshakeable faith can sometimes get in the way of empirical science; and so some people are deeply convinced — are certain — that a return to an ideal equilibrium must always be around the corner, whatever the present circumstances, however long the run may be. As the nineteenth-century Swiss political economist Simonde de Sismondi remarked, “a certain kind of equilibrium, it is true, is reestablished in the long run, but it is after a frightful amount of suffering.” 

3

There were also some who never expected a return to healthy equilibrium, who held that the power of private capital needed to be met and absorbed by the greater power of the state. This was the answer to the problem of market power provided by the socialists and the Marxists beginning in the nineteenth century. And it proved to be its own disaster. 

There was once a time when Josef Stalin was hailed as an economic genius. In 1932, Bruce Blivens, the editor of The New Republic, wrote that “private capitalism has never, in any country, done a job one-half so good” as Stalin’s Five Year Plan. He predicted that a similar undertaking in the West would be “grand and glorious, a shining success.” One reason that Stalin seemed so brilliant in 1932 was the comparative state of the main Western economies. Germany, the United States, and the United Kingdom were in ruins, mired in an economic depression that seemed never-ending. In the United States, production had fallen by some forty-six percent in three years, with unemployment at over twenty percent. German employment was worse, at thirty percent. By contrast, and by all official accounts, the Soviet Union was booming. It had just completed the first Five Year Plan, and “everything points to a great improvement in living standards,” reported the infamous Walter Duranty in The New York Times. Stalin had taken power in the late 1920s from his main rival, Leon Trotsky, and brought a firm hand — a very firm hand — to the economy. He abruptly put an end to an ongoing, more moderate experiment begun by Lenin that mixed socialist economy with private economy: the so-called “New Economic Program.” Stalin, no one’s idea of a moderate, wanted to run a planned economy from the center. 

What many forget is that Stalin’s economic approach was in many ways borrowed from American managerial theory combined with Prussian military command structures. Lacking any intrinsically Marxist theory of management, Soviet thinkers became fascinated with the centralized production methods of giant American corporations such as Ford Motors and U.S. Steel, and also with the writings of the popular management scientist Fredrick Taylor. As Lenin had instructed in 1924, “the combination of Russian revolutionary sweep with American efficiency is the essence of Leninism.” He further explained that the idea “depends on Soviet organization of administration with the up-to-date achievements of capitalism.” This meant large factories, a highly centralized operation, and highly specific tasks for workers. Scientific management converted the artisan worker — say, a furniture builder, who might complete an entire product himself — into something more like a cog, or a piece of a much larger machine. The popular name for this industrial method was “Fordism,” after Henry Ford and his assembly-line process. Henry Ford even became an unlikely cult hero in the Soviet Union in the late 1920s and early 1930s. The New York Times said he represented a “streamlined, machine-made way of life that the dictatorship of the proletariat promised to give everybody in double quick time.” 

The strange thing about the Soviet embrace of Taylor and Ford was that their doctrine was so clearly anti-worker. The assembly line was efficient, but (as Charlie Chaplin unforgettably illustrated) it converted the worker into little more than a robot with negligible control over his own actions. Among Marx’s earliest and most piercing critiques of capitalism had been his attack on the “alienation of labor,” the dehumanizing disjunction between workers and what they were producing. “Owing to the extensive use of machinery,” Marx wrote, “and to the division of labor, the work of the proletarians has lost all individual character, and, consequently, all charm for the workman.” Instead, “he becomes an appendage of the machine, and it is only the most simple, most monotonous, and most easily acquired knack that is required of him.”

Marx disapproved of such inhumane alienation, but the Soviet leaders seemed happy to make their workers “an appendage of the machine,” as long as it was a state-owned machine. And for their part, Lenin and Trotsky were supremely confident that they could borrow the methods of American corporations without importing the exploitation. The use of capitalist management techniques would be fine, Lenin said, if used only to organize work, and if there were workers’ commissars “watching the manager’s every step.” The Soviet trade unions did oppose the imposition of American corporate practices, but Lenin labeled that tendency “Left-Wing Childishness,” and called for “the application of coercion, so that the slogan ‘dictatorship of the proletariat’ shall not be desecrated by the practice of a jellyfish proletarian government.”

The fact that a worker’s paradise such as the Soviet Union became so enthusiastic about the methods employed by giant American corporations is revealing. But matters became even more extreme under Stalin. Stalin was less intellectually engaged with American management methods, but the centralized command structures seem to suit his temperament. When you get down to it, the Five Year Plan was really a program to organize the entire Soviet industrial economy along the lines of Ford Motors, with Stalin as a kind of super-CEO who retained the special right to imprison, exile, or execute anyone. 

In the short term, moreover, Stalin’s economic program was seen as a great success. To the degree that Soviet statistics 
can be trusted, the economy grew dramatically under Stalin’s watch. From 1928 to 1932, the Soviet economy grew at an average of fourteen percent per year. Steel production grew from four million tonnes to nearly six million tonnes, iron production from 3.3 million tonnes to over six million tonnes, while coal production doubled. Oil production, the source of Russia’s current wealth, also doubled. The result was what remains the fastest mass industrialization in human history, surpassing the Japanese and German models. It greatly increased the power of the Soviet state, particularly its ability to build weapons of war, tanks, battleships, and large guns. As Stalin said at the outset, “We are fifty or a hundred years behind the advanced countries. We must make up this gap in ten years. Either we do it or they will crush us.” Viewed narrowly in terms of state power, Stalin’s Five Year Plan was a resounding success, and made the Soviet Union a feared military power for the rest of its history.

By putting all economic control in the center, creating a single authority, and focusing all efforts of economies of scale, Stalin beat monopoly capitalism at its own game. It was Alfred Chandler’s “visible hand,” but with the state as the hand. He had eliminated all competition from the economy and seemed to have demonstrated the advantages of a planned economic model run by experts, as managerial capitalists might have suggested. The Soviet success story also influenced the first FDR Administration in the early New Deal to adopt state-supported planned cartels in the early 1930s. (The Columbia professor Rexford Tugwell, who visited the Soviet Union in 1927, was the member of Roosevelt’s “brain trust” most inclined to the adoption of Soviet-style planning methods in the United States.) Yet this was another sugar high. Not unlike the story of Haiti, or the monopoly capitalism in Germany or the United States, there were grave risks and significant trade-offs in what Stalin built and how he built it. In the 1930s he may have seemed like a genius, but it was not to last.

Since the publication of The Communist Manifesto in 1848, Marx’s ideas have never entirely left the conversation. Diminished greatly by the abuses and the failures of the Communist states, overshadowed in much of the Western left by the victory of identity politics over class politics, Marx still remains hard to ignore. That is in part because the manifesto is exciting and easy to read: it anthropomorphizes capitalism, making it a character, a villain, one who does this and that and must be stopped. (It is also full of memorable one-liners — for example, that capitalism “has converted the physician, the lawyer, the priest, the poet, the man of science, into its paid wage laborers.”) Marx not only diagnoses the problem, but speaks with complete confidence, with prophetic confidence, about its solution: this villain will be stopped and a better day is coming.

Yet the contest between Soviet communism and laissez-faire capitalism was ultimately a false contest of ideologies. The tell is the Soviet Union’s worship of Ford Motors. The communist economic program, as much as capitalist monopoly, depended on concentrated economic power. Socialism differed from monopoly capitalism in its means of discipline, but it did not fundamentally differ in structure. In the case of free market capitalism, the controls on economic power are, respectively, those competitive market mechanisms that may exist, countervailing power, and the regulatory oversight of the state. None of these guardrails are perfect, and they can be overwhelmed by a powerful monopolist — but they are not illusory. Yet communism’s mechanisms of self-control were even weaker. By its nature, the socialist state must own the means of production, and therefore immediately establish itself as the greatest monopolist of all. But as James Madison might have asked, who then oversees the state? In Marxist doctrine, the answer was that the dictatorship of the proletariat, as the representative of the proletariat, will behave itself, then render itself superfluous, and wither away.

Marx and Engels suggested that the dictatorship of the proletariat would briefly exercise extreme levels of coercive force and then disappear. As Engels put it, the dictatorship “turns the means of production into state property to begin with. But it thereby abolishes itself as the proletariat and abolishes all class distinctions and class antagonisms. State interference in social relations becomes, in one domain after another, superfluous, and then dies down of itself.” Upon assuming control of the Soviet Union, Leninism relied on the idea that the Party, as the vanguard and the representative of the people, would be self-disciplining. When pressed, Lenin put forth the process of “democratic centralism,” an Orwellian coinage if ever there was one, which stipulated that debate and criticism would be tolerated, but once decisions were made all were required to follow the party line on pain of expulsion and punishment.

Contrary to Engel’s prediction, the dictatorships of the proletariat did not wither away. Stalin’s comment on the matter, after centralizing the state economy in 1930, was this: “We stand for the withering away of the state. At the same time we stand for the strengthening of . . . the mightiest and strongest state power that has ever existed. . . . Is this ‘contradictory’? Yes, 
it is ‘contradictory.’ But this contradiction . . . fully reflects Marx’s dialectics.” Quasi-religious mystification, in other words. Few dictatorships over the course of human history have withered away, and the proletarian versions are no exception to that tendency. None of today’s populist authoritarians show any sign of being likely to leave easily. Dictators have died, suffered coups, been thrown out of office, and occasionally lost elections — but so far, no withering. That is a challenge for any supporter or believer in communism and other dirigiste dispensations in our time: to explain why state control of the economy will not yield a power that proves exploitative and uncontrolled.

We have said that the communists borrowed heavily from American managerial capitalism and effectively allowed state monopoly to run the economy. But the true dividing line between socialism, even democratic socialism, and decentralized capitalism lies in the assessment of small producers. Hostility to the “petty bourgeois” has been deeply baked into socialism since the early days, at least as traditionally defined. Marx and his many heirs loathed the middle classes. 

If you have ever been to a city built under communist rule, you will have noticed a gigantic public square. Not the medieval square, as in Siena or Bruges or Krakow, but something much larger and more concrete. Berlin has the Alexanderplatz. Tiananmen Square, in Beijing, is the size of many football fields. Red Square at the center of Moscow was enlarged by the communists. One explanation for these giant city squares was communism’s taste for the grandiose, coupled with a form of government powerful enough to raze large parts of a city to create a square. And, at least in official communist ideology, the idea was not unlike that of the ancient Greeks: to provide a large place for the people — or at least the proletariat — to gather, and for Soviet democracy to function. The idea, as Lenin had said in 1917, was to achieve the “complete democracy” that was never reached in capitalist countries.

In practice, however, these squares were lonely, forlorn places. The people did not gather spontaneously in them for self-government or for commerce. They were not, like the ancient city squares in Europe or China, markets for farmers or artisans. Aside from the occasional government spectacle, such as the parade of military hardware, there was no life in the communist public squares. As for self-government, in China the one truly spontaneous public gathering of citizens for political purposes — the spring of 1989 in Tiananmen Square — led to a brutal massacre. And these empty squares also tell us where communist economics went wrong. For unlike the ancient square, they were never conceptualized as a way to build up a class of small producers as a counterweight to the capitalist class. It was always and only the state, the central government, the dictatorship of the proletariat, that was the counterweight. 

This was no oversight, but rather a reflection of the intense dislike, indeed hatred, of the orthodox Marxist for the traditional middle classes. That is, the artisans, restaurant owners, storekeepers, merchants, and most of all, the small landholding farmers. This was a group which, while not necessarily rich, and often far from it, ran businesses, owned property, and employed workers — distinct, therefore, from the true proletariat, or those who had only their labor to sell. These were the groups that Marx called the “petty bourgeois.” 

His attitude might seem a bit surprising. He himself came from a middle-class family, one that would be considered upper-middle class today. His father was a self-employed attorney, a convert from Judaism to Christianity, who also sold wine. And those small producers and middle-classes were often the most active in effort to fight the excesses of toxic capitalism, especially when their businesses were threatened. As the late James C. Scott, in his brilliant essay “Two Cheers for the Petty Bourgeois” observed:

The historical fact is that in the West right up until the end of the nineteenth century, artisans-weavers, shoemakers, printers, masons, cart makers, and carpenters formed the core of most radical working-class movements. As an old class, they shared a communitarian tradition, a set of egalitarian practices, and a local cohesiveness that the newly assembled factory labor force was hard put to match. 

In the United States, it was small farmers and small producers who were at the historic center of the anti-monopoly movement of the twentieth century. 

But the Marxist progressives viewed this class as traitors who were inevitably inclined to side with the grand capitalists, or those capable of living on their wealth alone. Some of this seems to reflect Marx’s experience during the uprising in Paris in 1848. According to Marx’s account, the shopkeepers, restaurant owners, and other urban small businesses, while originally sympathetic to revolution, began to resist the barricading of the streets of Paris as it began to hurt their businesses and threaten their property. For Marx, this was an unforgivable treason. There is also a parallel between Marx’s dislike of small business and his denunciation of Jews. Marx described both groups as narrow-minded, obsessed with money and property, and consequently incapable of seeing broader interests. In some of his writing, where antisemitic slurs are not uncommon, the groups come in for similar treatment. The shopkeepers of Paris were obsessed with their “sacred” property. “Huckstering” was “the worldly religion of the Jew,” and “money is the jealous god of Israel, in face of which no other god may exist.” Ultimately, by his nature, Marx seemed to abhor ambiguity — a quality that has long attracted his followers. Class conflict is clearest when depicted in the Manichean manner, as a war between two sides, or as Marx put it, “two great hostile camps, . . . two great classes directly facing each other — the Bourgeoisie and the Proletariat.” The petty bourgeois and their mixture of ambitions just muddied things.

I take socialism’s neglect of small- and medium-sized producers as its greatest defect, for it precluded any emergence of a stable and prosperous nation based on communist principles. The vision of decentralized economic power, of decentralized capitalism, for which I am arguing here depends on small producers — small farmers, artisans, skilled self-employed professionals, small traders, and the like, who are collectively the largest class in most societies. And as Scott related, despite the inherent difficulty in such work, the autonomy in these positions cannot be undervalued. An astonishing number of people dream not of joining the proletariat, but of opening their own small shop, cafe, or farm — dreams that all prominently feature control over one’s life and what one can produce.

Let us return, for a moment, to 1933, when Stalin’s economic program seemed most successful. In just five years, the Soviet Union had transformed itself into an industrial power. But the cost was born by Russian and Ukrainian small producers, especially farmers; and despite the initial success, this was very damaging to the long-term economic prospects of the Soviet Union. Stalin’s Five Year Plan was a break from the 1920s experiment with a mixed economy called the “New Economic Policy.” For Lenin, while he talked in extremes, had a pragmatic side, at least as hardcore revolutionaries go. He had learned the hard way during the “War Communism” of the late 1910s that economic centralization could yield resistance. In fact, he had sparked a new revolution against the revolution in 1921: the Kronstadt Rebellion, whose demands were, among others, that the state “give the peasants full freedom of action in regard to their land, and also the right to keep cattle,” and “permit free individual small-scale production by one’s own efforts.” And so Lenin began to accept, at least temporarily, that parts of the economy would require money and individual enterprise to function well. He divided the economy in two. The “commanding heights” of the economy — heavy industry, transport, banking, and foreign trade — were reserved for the state and state enterprise. Light industry, retail, and most importantly, agriculture, were left for private operation. Most critically, farmers — the former serfs, and most of the population — were allowed, consistent with the demands of 1921, to own and farm their own property instead of being obliged to forcibly turn over all grain to the state.

The New Economic Policy was largely a success. With the incentive of selling their own produce, the farmers greatly increased production, and in fact, some became quite wealthy. These new wealthy farmers were, in Soviet parlance, “kulaks,” or farmers who owned livestock or land and employed other peasants, putting them in the category of the petty bourgeois. They were joined by a class of urban entrepreneurs who bought and sold surplus produce and consumer goods. Lenin’s reforms made the Soviet Union of the 1920s a hybrid not so different from, say, the postwar French economy. He even reintroduced a gold-backed convertible ruble as currency — the chervontsy.

But Stalin approached the economy with less theory and more maximization of state power, and of course his own personal control over Soviet society. In the kulaks, the newly wealthy peasant class, he saw not opportunity but a potential threat to Soviet power, given their rising economic strength and control over food. He sought to undo the imbalance — and in the most brutal way imaginable. In a speech in 1929, Stalin announced that it was time to move on from “restricting the exploiting tendencies of the kulaks to the policy of liquidating the kulaks as a class.” In just three years, some five million farmers were liquidated. They either had their property taken or were deported, with some 2.3 million people forcibly deported to distant regions. The human toll of the campaign was immense. Robert Conquest, the author of Harvest of Sorrow: Soviet Collectivization and the Terror Famine, estimates that some seven million peasants died or were killed during the liquidation campaign, the cruel man-made famine known as the Holodomor. Given the death toll, and the fact that the targets were identified through class, some argue that Stalin’s campaign needs to be counted as a form of genocide — a class genocide. And while any potential political threat was eliminated, the forcible collectivization of farming did not, as Stalin’s planners had predicted, lead to increased agricultural production: the disruption, the flaws in central planning, and bad weather led to a major grain shortage in 1932–1933, particularly in the Ukraine. Scholars have conservatively estimated that four to six million people died from food shortages. That leads to a total of over ten million deaths caused by, among less quantifiable causes, poor economic policy — a more brutal toll than any but the most horrendous wars and genocides.

Stalin’s Five Year Plan did lead to the massive industrialization that he sought. The Soviet economy, which had been an agricultural economy with a smattering of industry, became one of the world’s leading industrial producers, albeit with production aimed almost entirely at its own population as opposed to export. Yet over the long term the rigidity of monopolistic command economy took its toll. In the United States, the over-centralization theories began to fail American companies such as Ford, General Motors, and U.S. Steel in the 1970s and after. Soviet enterprises, designed along similar lines, also began suffering increasing inefficiencies of scale. They began to suffer from the problems predicted by both Brandeis and Hayek — the growing problem of management based on what Brandeis described, in 1913, as “a diminishing knowledge of the facts, and a diminishing ability to exercising a careful judgment upon them.” 

In the end, a monopolized economy and a state-controlled economy are similar. Both tend toward rigidity and both do not adapt well to changing conditions. Both rely on a form of centralized economic planning and both almost inevitably get things wrong. The difference is that the private monopoly faces the prospect of being challenged by some entity that it cannot overcome, whereas giant state-controlled industry is immune to ordinary challengers. Its downfall is necessarily political, and as such, can be very brutal. 

As we have seen, communism as practiced has proven a false alternative to monopoly capitalism, for it does not abandon centralized structure nor the concentration of economic power in highly unbalanced forms. Yet socialism still remains something of a default alternative for those opposed to the toxic capitalism in our times. Some will argue that the Soviet experience of Marxist-Leninism is too unrepresentative of socialism’s ideas or full potential. The British Fabian Society, founded in 1884, believed in a more gradual and gentle transition to full socialism. America’s democratic socialists are less inclined to insist on single-party rule and they do accept elections. Their methods are often more reformist than revolutionary, and do not include calls to liquidate the kulaks.

And yet democratic socialism, at least classically defined, still takes as its goal a transition to public control of the modes of production. At face value, that implies a transition to a public, centralized economy, where the democratic socialist would control it with political and democratic means. But depending on industry, this comes with its own dangers, such as a period of grand success followed by old-fashioned stagnation. Over time, it creates a gross inefficiency that is hard to fix. That said, democratic socialism, in a manner that would infuriate Marx, has become a big tent, and now includes those who are greatly concerned by the coercive power of the state, who have come to embrace a more decentralized economy — perhaps one controlled by smaller groups of workers over firms, and public control of the most essential utility-like functions of the economy. The Vermont version seems happy with private property when belonging to small and medium-size producers. At some point in these models, dividing the line between democratic socialism and decentralized capitalism becomes unclear. 

If you consider yourself a democratic socialist, but you also fear coercive state power, and you believe in a mixed economy, small business, and a certain anarchy in production, you might consider whether what you believe in is not actually socialism. As James C. Scott points out, “A society dominated by smallholders and shopkeepers comes closer to equality and to popular ownership of the means of production than any economic system yet devised.”

4

If you woke up your average concerned liberal in the middle of the night at any time over the last thirty years and demanded to know what to do to make the economy fair, she would probably mumble something about “taxation and distribution.” Corporations and wealthy people have taken too much, and so the answer is to increase taxes and start dividing the pie more fairly. In other words, corporate profit itself is fine, but it needs to be better distributed to the poor, to build better schools and fund universal healthcare. Maybe we need to be more like Scandinavia!

There are good and humane reasons to move money from the rich to the sick, the aged, and the very poor. The “tax and redistribute” approach may seem to many the blindingly obvious answer to the problem of excessive corporate power. The defects of the approach are more subtle. First, it is an approach that contains the seeds of its own failure. Encouraging aggregation of wealth now in the hope of taking it back later ignores the fact the more wealth aggregates and concentrates, the more it will prevent redistribution. In 2012, Elon Musk had a net worth of $2 billion; Jeff Bezos had $18 billion; and Mark Zuckerberg had $17.5 billion. In 2024, Musk had $277 billion, Bezos was at $211 billion and Zuckerberg at $203 billion. Getting that money back has become progressively harder.

Moreover, too great a focus on distribution ignores an entire dimension of the problem: where the money goes first — what the political scientist Jacob Hacker calls “pre-distribution,” and is also known as economic structure. Too often, American and some European policy debates miss this dimension and are reduced to two-dimensional debates over more or less redistribution. In caricature form, the left believes in higher taxation and more money for the poor, while the right wants lower taxes and less distribution. But this is really a debate over tax policy, not a debate over the origins of wealth inequality. It neglects the question of who owns productive assets and where they are, how much bargaining power workers and employees have, and what it costs to access life’s essentials. To repeat, I am not opposed to better systems of redistribution, but it is not a fundamental solution, and certainly not if it crowds out attention to the distribution of economic power. But the mythology and the metaphors surrounding distribution have tended to do just that.

Many American progressives believe that what they want is captured by the Scandinavian model, which they imagine to consist in raising taxes to pay for social support systems that create a welfare-state kind of paradise. This, unfortunately, is a misunderstanding of what makes the economy of a nation such as Denmark a model for an equal yet productive economy. The Danish economic system does indeed have generous benefits for citizens, in part based on the premise that human capital is valuable, and that health care, education, and support for the unemployed is essential to economic performance. But the Danish achievement goes deeper. Since the eighteenth century, the Danes have also been serious about balancing economic power — first through land reform, later through the cooperative farm, and still later through giving serious power to a pragmatic organized labor. Denmark has never leaned into the idea of having just a few giant firms who pay the bills. Its path to economic success was centered first on small landowning farmers, and later on its agricultural cooperatives, such as dairy cooperatives that provided high-quality export goods. It avoided any truly large-scale industrialization and any dangerously centralized economic structures. As the economist Ingrid Henriksen writes, Denmark has succeeded by being “small” and “open.”

Denmark’s unions are powerful enough, and the culture agreeable enough, that wages and work conditions are almost entirely a byproduct of collective bargaining as opposed to legislation. In other words, the state is less active in some respects — there is, for example, no minimum wage. It is the countervailing power of labor that prevents the excessive domination or exploitation of workers. The state also maintains a “flexicurity” system for employment which is also centered in somewhat radical ideas for the American context: it combines an acceptance that firms may terminate workers at will with exceedingly generous unemployment insurance and retraining programs. The idea, obviously, is to maximize the ability of firms and the workforce to adapt to changing conditions without depreciating human capital — leaving people behind.

In sum, it is a significant mistake to imagine that the Scandinavian model may be copied by just raising taxes and improving the welfare state. A large part of what makes places such as Denmark models of sustainable wealth is their structural commitment to a balanced economy. 

To truly copy what is admirable about Scandinavia would also require rejecting some of the metaphors and rules of thumb that have dominated American thinking about the economy. For generations now, we have been cruelly misled by the metaphor of the pie. In the 1960s, journalists, economists, and politicians began regularly referring to national output as the “national pie,” or sometimes the “national economic pie.” The practice seems to have originated as an offshoot of labor-management negotiations, where management would seek to persuade labor to agree to terms, such as freezing pay in exchange for factory modernization, to create a “larger pie” for everyone to split. Three things favor the metaphor: pie has always been a symbol of American abundance (and even of America: “as American as apple pie”); a pie must be divided before eating; and economists love pie charts. 

The problem with the pastry metaphor is that it implies that economic policymaking should be strictly understood as a two-step affair. In step one, one works on “growing the pie” — or making it as large as possible. In step two, one distributes the proceeds in a manner that seems right and just, depending on one’s political viewpoint. Those who lean left or right may disagree on the division of the pie. But everyone should set aside ideology or politics when it comes to step one. For surely everyone, regardless of ideology or their place in society, should agree that the first priority must be a larger pie. 

More for everyone — who could be against that? In the labor context, this is how the industrialist Henry Kaiser put it in a speech in 1945: the “wrong way” for unions to achieve a higher standard of living would be “to demand a larger share of the existing national income. A pie that has been baked. The right way is to help make a bigger pie.” Similarly, the case for admitting China to the World Trade Organization in 2001 and normalizing trade relations was made in terms of “growing the pie” and similar metaphors. Yes, the argument went, there would be winners and losers created by opening American markets to Chinese imports, but the right thing to do was to grow the pie first, and then use the tax system, regional transfers, or worker training programs to address any arising disparity. 

Economic policy is hard and messy, which is why metaphors or neat formulas often end up serving as our internal guideposts, and also why they mislead us. The “grow the pie” metaphor dovetailed with a few other bromides, such as “first do no harm” and “a rising tide floats all boats.” For the more intellectual among us, the two-step approach even had the implied blessing of John Rawls, who said that inequality is fine so long as it makes the least advantaged materially better off. But the two-step approach to economic policy has been more misleading than you would think. For as a model of economic policy, it skips over the question of who gets the rewards to begin with — or where the money starts, based 
on an aggressive assumption that money can always be redistributed later. The question of where the money starts makes all the difference.

The nation’s wealth does not actually grow in some central place, ripe for distribution. Perhaps some in the Clinton White House envisioned a massive expanding pie right on the National Mall, in a kind of cross between James and the Giant Peach and In the Night Kitchen. But after reforms to the market beginning in the 1980s, wealth actually accumulated not in one public place, but in the private accounts of individuals and corporations. It might have been better to envision not one national pie, but private pies growing in backyards on the east and west coasts, and even larger ones in the parking lots of corporate headquarters, or on top of buildings in the financial districts. It would have then been a bit clearer that any cutting of the pies was going to require prying a slice out of some very strong hands.

The metaphor of a single national pie also suggests that cutting the pie, or distribution, was a necessary step. After all, a real pie must be cut before being eaten. But of course there is nothing that necessarily compels adjusting the tax code or making transfer payments. Real money does not need to be divided to be enjoyed. Stated differently, the second step turns out to be optional. Apple could have decided to use the profits it gained from manufacturing in China to aid the regions of the United States that have been left behind. Unsurprisingly, it decided to hold onto that cash and pile it up in its proverbial backyard — a mountain of more than two hundred billion dollars in cash, which if stored in bills would have made up a private pie weighing more than four-hundred and forty-one million pounds. The act of “cutting the pie” required, and will continue to require, an act of political power, since it necessitates taking money away from individuals and corporations. To account for the redirection of wealth over the last forty years would have required increasingly large increases in corporate taxes, taxes on the wealthy just to keep pace, and probably also require that such increases be enacted early on, not later.

That did not happen, which leads to the final problem with the “two-step” model: that step one makes step two even less likely. The more concentrated the wealth that is created (growing the pie), the better it defends itself, as public choice theory predicts. In short: a policy focused on only growing the pie was also likely, on a systemic basis, to prevent it from being cut. 

So, what exactly did happen? Well, we already know. Step one happened. The pies grew very large on certain dining tables. But there was really no step two to speak of.

Even taken on its own terms, assuming that a government is able to redistribute cash from monopolists at will despite political resistance, there are reasons to question the long-term appeal of the resulting arrangement, to question the social democratic project without something more. For without something more, it may remodel society in the model of the company town and create what amounts to a two-class society. Imagine the country that tolerates monopoly power and profit, so as to hand out money to the poor and other citizens. While appealing in some respects, the arrangement comes with defects that should not be overlooked. There are the owners and managers of the wealth creation engines, and there is everyone else. Everyone else, in an extreme example, becomes employees or dependent on transfer payments. Entire regions and entire countries become part of this dependent class, like an entire local society dependent on the company town. 

There is an inherent brittleness to such an arrangement in more than one respect. For a start, it depends on the continued willingness of the ruling class to pay out. Yet given that economic power begets political power, redistribution is always endangered. Alternatively, once dependent on the monopolized economy, the priority may become the care and feeding of the behemoths, so as to generate enough profit to pay for the transfers. And finally, even if government overcomes the urgings of the wealthy to take no action, it might instead want to keep more of the money for itself. Indeed, this is precisely what one sees in many dictatorships that come to power promising to give more of the spoils to the people. After an initial phase of generous handouts, more and more of the money stays in official hands.

At a more fundamental level, it is worth asking what kind of life and autonomy arises from a dependence on transfer payments. There is, to be sure, a kind of independence anchored in a freedom from want. Given some kind of trust fund in the sky, we would finally feel free not to worry about money and the monotony of work, free to do as we like. It is the autonomy and freedom that is enjoyed, say, by a retiree with adequate savings. But that is only one dimension of freedom. For there is also a keenly felt sense of autonomy — the old Emersonian virtue of self-reliance — that comes with some control or ownership over one’s own means of production, as petty bourgeois as that may sound.

I return to the position that the two programs are not incompatible. One can believe in a system that provides safeguards and benefits to aid to the sick, the elderly, and the unemployed while still believing in an economy that distributes economic power widely. In fact, there is strong reason to believe the former aids the latter. The mistake is in allowing the first to be understood as a substitute for the second. It is a mistake that has infected the left, particularly the American left, which has too often devoted all its energies to fighting for wealth transfer programs while ignoring the deeper questions about the imbalance of economic power. The agenda needs to be broader and deeper. 

5

And what’s your system of belief, Olivia? Not capitalism; 
not socialism. So just cynicism?

White Lotus

The progressive reformers of our time need a better answer to that question. 

I have set out my belief that the challenge of building a sustainable prosperity is, fundamentally, a Montesquieu–Madison challenge. That is to say, in the same way that 
Montesquieu prescribed and Madison designed a constitution 
designed to prevent a tyranny stemming from aggregated political power, the economic program needs to met the challenge of distributing and rebalancing economic power. 

How can we build a structure, an economic architecture, designed to deliver lasting prosperity for a broad population, as opposed to enriching one class or one set of groups at the expense of others — a structure that is both dynamic and resilient enough to withstand crisis? And one that is cognizant of the challenges stemming from the pharaonic tech platforms. In 2011, Jacob Hacker presciently wrote that “progressive reformers need to focus on market reforms that encourage a more equal distribution of economic power and rewards even before the government collects taxes or pays out benefits.” It is certainly not easy, and some may think such a thing is impossible. 

But it is not so. We have at times had something like it in this country. Indeed, across the course of human history there have existed economies that are not dominated by monopolies or a single extractive class, and that have enjoyed a relative level of economic equality. They remain plausible models, and they should be the models to which we aspire. Think of such places as the northern United States after our revolution, the modern Nordic countries, Taiwan, Japan, and Korea after World War II, and (according to a new wave of scholars) the ancient Greek city states. None are perfect: there has never been an ideal state and there may never be one. But we should move forward by gathering the best of what has worked, by collecting up the pieces that together comprise a just and practicable ideal. 

In this view, the great societies are not those that have built the grandest palaces or opera houses. Rather, they are the societies that managed to deliver on a promise of opportunity 
and prosperity for long stretches of time. They delivered room for dignified work and opportunities to find meaning for much of their populations, and above all they provided enough economic security and leisure so that life might be enjoyed rather than merely endured. They are also the societies that have a fundamental fairness to their economy. As Louis Brandeis once said, “the ‘right to life’” should be understood as “the right to live, and not merely to exist.”

The challenge can be named: it is to create an architecture of parity. That does not mean specific transfers or redistributions by the government. It denotes new economic structures that yield lasting prosperity and opportunity on a much larger and longer scale. More concretely, it broaches four particular roles for government. 

The first, and the hardest to achieve, yet the most important over the long term, are systems that constantly rebalance productive assets. The objective is to curtail the excessive concentration and aggregation of private power, which might distort the entire system. Over time, nothing seems more important than this structural correction, however it is accomplished. In the history of modern civilization, land reform, or giving land to small farmers, has been the most significant and lastingly important means of creating a sustained middle class. Other tools are useful but reactive, such as strong merger rules that prevent firms from aggregating excessive power. The methods for ensuring a rebalancing of productive assets are many, and there is more than one way to skin (or thin) a cat. 

The second obligation of government centers on the utility-style rules for platforms and other essential industries, old or new. Platform and utilities are the inputs into life and business — the public callings of our time — whether in bringing electricity to the household or the Amazon marketplace to the online seller. They have a particular power over those businesses that are dependent on them. “Platform” may be a new word in economic usage, but it refers to something very old: structures where economic interactions happen, which thereby set the preconditions for different types of societies — and for creating an architecture of parity. Ideally, platforms make it possible to make money as an independent business, but in a worst-case scenario they extract too much for the rest of the economy. That is why platform rules are so important for long-term prosperity. 

The third federal obligation concerns the government’s investments, sometimes understood as “industrial policy,” though by that term I mean something very broad — more akin to infrastructure. As I see it, industrial policy means that the government creates the preconditions for the decentralization of economic power, including the building of its own platforms and the individual economic security that creates a resilient and dynamic labor force.

And the final role of government in this structural reform involves setting rules of the game — laws and regulations — by which the private economy plays, including rules to protect a fair process of competition, such as to maintain the operation of a decentralized economy. 

The state that accomplishes these goals is obviously not the night watchman state, which is never seen and manifests itself only in emergencies. But neither is it interventionist in the way of the communist or fascist states and their command economies. Instead, the state should be seen as a gardener state. The state is the caretaker of an immensely large and productive plot that grows by itself in a slightly uncontrolled fashion, but also has plants and weeds that will tend to overgrow and hurt the rest of the garden. The task of the gardener is not to interfere with natural equilibria where they do exist and are healthy. Rather, it is to be constantly aware of imbalances as they emerge, and to seek their remedy in the service of a productive, and even beautiful, outcome. 

I have set out the balanced economy as an ideal. But there is a longstanding fear that trying to balance an economy will impoverish it. Over the twentieth century, the boldest redistribution projects in the communist nations did not end well. And yet there are cases where a more balanced distribution of assets might also yield a broad and wide prosperity. Can it be true that more equal societies can also be wealthier? Or is there inherently an unavoidable trade-off between growth and equality?

If there is one economic falsehood that has done more damage over the last forty years than any other, it is the assertion that there is an unavoidable trade-off between economic equality and economic prosperity (the “equality/productivity 
trade-off”). That idea, popularized by a small group of American economists in the 1970s and 1980s, finally needs to be condemned to the dustbin of history. Like many bad ideas, it was a theoretical extrapolation from personal experience. During the early 1960s in the United States, many economists came to view the ninety-one percent marginal tax rate on income over two hundred thousand dollars a year (equivalent to about two million dollars today), enacted during the Eisenhower administration, as a damper on growth. One of them was Arthur Okun, an economist in the Kennedy White House who successfully advocated for a rate cut (in 1964 the highest rate was reduced to seventy percent). Based on this experience, Okun wrote a book in 1975 entitled Equality and Efficiency: The Big Trade-off.

Okun’s idea was really a critique of extremely high taxes as a tool of wealth redistribution, a reasonable point. (Piketty argues that the high U.S. tax rates of the 1950s did not, in fact, hinder growth, an argument supported by the fact that the U.S. economy grew well during that period.) Yet whatever validity it may have held for taxes, it morphed into a much broader theory asserting that there existed a natural and unavoidable trade-off between equality and “efficiency” (the latter standing in for economic growth). When scientists propose what amounts to a natural law, they usually present evidence to support it, or at least they take account of contrary evidence — such as the fact that, in 1975, three of the fastest growing nations in the world, Japan, Korea and Taiwan, were all achieving growth without sacrificing equality. Okun did not go to any such pains. He reasoned, instead, from first principles and intuitions, like an ancient Greek physicist. “You can’t have your cake and eat it too,” he wrote, stressing that the maxim “is a good candidate for the fundamental theorem of economic analysis.” It follows, he asserted, that “we can’t have our cake of market efficiency and share it equally.” The closest thing to empirical support for that proposition was a prolonged discussion of the inefficiencies of Soviet bureaucracy. (I should add that Okun supported efforts to increase equality of opportunity, many of which, on closer inspection, were actually efforts to increase equality, such as subsidizing the training of the poor. For such efforts, he argued, there was no trade-off. But the point that stuck was his assertion of a trade-off.) 

For several reasons, its defects did not prevent Okun’s trade-off law from catching on in policy circles. For one thing, it was simple and sounded rigorous. Economists, as Piketty once remarked, “prefer simple stories, even if they are incorrect.” Moreover, in its assertion of a trade-off between the two goals, it fit a psychological preference among economists for tough-love lessons, as evidenced by the cake metaphor. But Okun was actually mild-mannered compared to other economists, such as Robert Lucas of the University of Chicago, who tended to argue that any efforts to help the poor were inherently futile and counterproductive. As he once wrote, “Of the tendencies that are harmful to sound economics, the most seductive, and in my opinion the most poisonous, is to focus on questions of distribution.” In the period between the 1970 and 1990 there was a strand of economics that held that helping the poor would always backfire, and always yield less growth to everyone.

The “equality/growth trade-off” is seductive precisely because it sounds plausible. It is true sometimes: anyone can think of efforts to increase equality that have dampened growth, as the ninety-one percent marginal tax rate may have done. But it is not true all the time, and it is not inevitable in that sense. It also gives a lazy intellectual license to a mean-spirited economic policy that is supposedly good for those it deprives of productivity. Looked at more carefully, the trade-off thesis downplayed the many ways in which tolerating excessive inequality hurts growth. For one thing, people too poor to buy anything or to invest represent a massive waste of potential. For another, there can be significant incentivizing effects in efforts to decrease inequality. For example, subsidizing ownership or education might motivate the poor to produce and thereby grow the economy. And of course it ignored the terrible political effects of self-justified concentrated wealth. 

Eventually the economics profession got around to testing the trade-off theory, and it did not fare well. By 2011, economists had shown that there was certainly no “law” governing equality and efficiency, and if there was any general tendency, it was for balanced economies to grow more quickly. In the 2010s, the International Monetary Fund conducted a long-term study that found that “if the income share of the top twenty percent (the rich) increases, then GDP growth actually declines over the medium term, suggesting that the benefits do not trickle down. In contrast, an increase in the income share of the bottom twenty percent (the poor) is associated with higher GDP growth.” But it all depended on design — on what one does to rebalance the economy. 

This episode speaks to the terrible danger of economic simplification. And while economists today are more careful, there is still something missing — something important. Economists are most at home when speaking of money and prices. Yet economic power tends to influence politics, yielding questions of political economy — namely, the question of what impact the concentration of wealth might have on political outcomes, which then return to the economic realm. 

The strongest case suggesting the long-term benefits of a broad distribution of economic power is not a purely economic explanation, but rather a political-economic explanation. Again, there are two major political problems with allowing excessive concentrations of economic power. The first is that economic power can usually be converted into political power, and more specifically, to political resistance to changes that might broaden the distribution of assets, including education. That resistance weakens national productivity. The second is the popular anger and resentment engendered by lasting inequality, which yields mere political division in the best case and violent revolution and the rise of a destructive strongman like Chavez or Stalin in the worst case. 

For most of recorded history, much of humanity has lived in economically deplorable conditions. Some were serfs or peasants bonded to the land; others, indentured servants and underpaid workers at firms; still others, enslaved people bought and sold and treated as commodities. During the same period, women and ethnic minorities have rarely been afforded basic economic rights. As Dickens showed, humans, even when at peace, can be extraordinarily cruel to one another. And this leads to a fairly depressing question: Has there ever been real economic justice or fairness anytime or anywhere? Has anything anywhere ever worked not only for a small number of rich and privileged people, but for everyone? 

History may be a cause for despair, but it can also be a cause for hope. For one thing, even the most unfair societies usually had some recognizable version of a middle class: guild members, artisans, merchants, professionals, and small farmers, who were the origins of today’s middle and upper-middle classes. And there have been societies that have achieved, for lasting periods of time, a balance of economic power and even “growth with equality.” To name a few: the early American Republic outside of the slave states, northern Europe, and post-World War II East Asia outside of mainland China.

Yet history also firmly suggests there is nothing natural or inevitable about the existence of a strong middle class. The invisible hand, whatever its designs may be, is regularly overwhelmed by more visible hands with their own plans. Unbalanced and feudal economies are the norm; balanced economies are the exception. And so we urgently need to understand the exceptional countries or regions that have managed, in one way or another, to provide their populations with widespread wealth over a long period of time, and how they did it. And the study of such places and their economies reveals that there is one recurrent feature of all polities that have managed growth while retaining equality: the broad distribution of productive assets — usually property rights — across the population. The most important examples involve arable land and, since the nineteenth century, knowledge or education. 

After two centuries of failed efforts to design a perfect centralized system, the wiser answer is not to perfect power but to decentralize it. The goal of decentralized capitalism is much less utopian than the two major economic ideologies of the twentieth century. Both inherently relied on an optimistic vision of humanity, whether it be Herbert Spencer’s social evolution, Marx’s “new man,” or the rational maximizer imagined by microeconomics. I am inclined to think instead that we are stuck with what we actually are — flawed and shortsighted, but also capable, through trial and error, of designing systems that work well for everyone. Neither Madison nor Montesquieu are the kind of figures who could drive a crowd into a frenzy, but their spirit is what we need for today’s political economy, an approach that seeks to 
limit the worst abuses while assuming the worst, not the best, about humanity. 

Significant private power is a new challenge, and platform power is even newer. They may seem daunting, even outlandish, but I insist that there is reason for hope. Providence has blessed us with a rich abundance that offers more than we could ever need, and we have developed the tools of efficiency that make us capable of producing more than enough for everyone. If building a sustainable prosperity for everyone may sound utopian to some, that is only a measure of how limited and manipulated our horizons have become. We have accumulated enough experience over the last century to understand the major flaws in what has been tried. It must be possible to do better. The saving truth is that, in the combination of the earth’s resources, human capacity, and technological capability, we have all that we need to provide a sustainable prosperity and a fair and decent life for every person on the planet.