It is four years now since the publication of George Gilder’s Wealth and Poverty, a book generally considered to be the most important and lucid explication of supply-side economics. In 1981, as the Reagan White House and a more conservative Congress collaborated on a supply-side tax cut, and on reductions (or, at least, smaller increases) in government spending for the poor, Wealth and Poverty became a fixture on national best-seller lists. In the media, the book was recommended alike by friends and enemies of the new administration as an indispensable guide to “Reaganomics.” And Gilder (whose most recent book before Wealth and Poverty, Visible Man, had sold virtually no copies) became, if not a household name, at least a much sought-after guest on television programs, subject of interviews in the print and broadcast media, public speaker, and participant in debates on economic and social policy.
But Gilder was still not fully a man whose time had come. Wealth and Poverty did indeed resonate, and widely, as an attack on socialism and planned economies, on the limits-to-growth school and its argument that the world’s resources would soon be depleted, and on those economists who missed the dynamism of the American economy by reducing it to a series of equations. And the book made an undeniably popular case for the fundamental importance of the private sector in improving people’s material condition, and for a legislative agenda that would enable that sector to perform even better through reductions in personal income-tax rates and taxes on capital gains, some alleviation of the burdens of governmental regulation, the dismantlement of a social-welfare system that was creating incentives for the poor to remain impoverished, and so on.
But Gilder’s stated intention in Wealth and Poverty was much broader than this: he had set out to do nothing less than establish the moral basis of capitalism, to prove that, far from being immoral or at best amoral, as its critics and even its defenders had long charged, capitalism depends on, perpetuates, and serves as a force for good.
For some time now, this issue of the morality of capitalism has been a crucial one—as the frequent and virulent rhetorical attacks on it, and its comparative defenselessness in the face of them, alone would suggest. Its very survival has seemed to hang in the intellectual balance: for if a market economy is evil, it deserves to be overturned; and if it is morally neutral, then it depends on external and potentially fragile sources of legitimation. Wealth and Poverty begins and ends on the case for the morality of capitalism. This was its most novel, and, for Gilder, its most important theme.
It was also, in 1981, the aspect of Wealth and Poverty that was criticized the most. “Criticized” is too mild a word—on this issue Gilder was openly derided, ridiculed, and dismissed. To those who opposed the agenda of supply-side economics from the beginning (Michael Kinsley, writing at length in the New Republic, was one such), here were further grounds for opposition and contumely. And even to those disposed more favorably—even altogether favorably—here was a major flaw in an otherwise admirable undertaking. In this respect, Wealth and Poverty was by and large judged a failure.
It is a measure of Gilder’s conviction that he has stuck lonely to his guns on this position, as he has to similarly touchy positions in the past. In Sexual Suicide, for example, a wide-ranging 1973 attack on feminism, he not only enraged feminists and the Left but espoused sufficiently extreme views—arguing, for example, against equal pay for equal work on the grounds that society ought to reinforce the male’s anthropological role as provider—to antagonize even the sympathetic. Yet the theme of the male as provider also figured in his next book, Naked Nomads, about the necessary irresponsibilities of bachelorhood; was the linchpin of Visible Man, the story of a young, urban black; and would also be cited on occasion in Wealth and Poverty. As for his fundamental moral optimism about capitalism, perhaps to the dismay of those who thought they had corrected him on this matter, Gilder wrote nothing in the years after Wealth and Poverty to suggest he had modified his views. With the publication of his latest book, The Spirit of Enterprise,1 it seems as if he may have been correct, after all, not to do so.
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“Capitalism begins with giving”—so opens the case for the morality of capitalism in Wealth and Poverty. It is a statement that, stripped of its moral implications, can also be read as the first principle of supply-side economics—Say’s Law, that supply creates its own demand. To Gilder, in fact, capitalism and supply-side economics, considered ideally, are one and the same, although his view of capitalism in Wealth and Poverty is much more inclusive than this, drawing politics and culture as well within capitalism’s purview.
Gilder makes the case for capitalism along two different lines, one more or less anthropological, the other more or less metaphysical. It seems that in certain primitive tribes, there emerged traditions of elaborate feasts. A tribesman, according to Gilder, would accumulate his resources—often in fantastic quantity—and make a gift of them, in the form of a feast, to his fellow tribesmen. If these gifts were well received, the tribesman could hope it would be given unto himself in turn.
The givers, in Gilder’s view, are primitive capitalists; the accumulation of resources is work and savings; the gifts are the first kind of investment:
By giving a feast, the mumi imposed implicit debts on all his guests. By attending it, they accepted a liability to him. Through the gifts or investments of primitive capitalism, man created and extended obligations. These obligations led to reciprocal gifts and further obligations in a growing fabric of economic creation and exchange, with each giver hoping for greater returns but not assured of them, and with each recipient pushed to produce a further favor.
The morality of capitalism arises out of the “altruism” of these gifts. They are, it is true, made with the expectation of a return; but this expectation is ultimately only a hope—one based on faith in the ability to please one’s fellows, and on their willingness to return one’s favors. Since the return is not guaranteed—determined in advance of the gift—the giving itself remains an altruistic act. As with primitive tribesmen, so with the first makers of today’s personal computers: no one knew, at first, just how successful these would be; a great deal of “giving,” in the form of money, labor, and applied ingenuity, long preceded any return.
In the last chapter of Wealth and Poverty, called “The Necessity for Faith,” we find the full flowering of the metaphysical argument for the morality of capitalism. Those who adhere to one or another form of socialism, Gilder writes, base their case for planning on a restricted and fundamentally mistaken view of the world and of man’s capabilities:
It is said that we must abandon economic freedom because our frontier is closed; because our biosphere is strained; because our resources are running out; because our technology is perverse; because our population rises; because our horizons are closing in. . . . We must tax and regulate and plan, redistribute our wealth and ration our consumption, because we have reached the end of openness.
But quite to the contrary, these problems and crises are in themselves the new frontier; are themselves the mandate for individual and corporate competition and creativity; are themselves the reason why we cannot afford the consolations of planning and stasis.
The world is not fixed, Gilder says, because the mind of man is not fixed: the innovation of which man is capable in turn makes the world malleable. “The reason capitalism succeeds,” he writes, “is that its laws accord with the laws of mind.”
According to Gilder, these “laws of mind”—or the “crucial rules of creative thought”—are “faith, love, openness, conflict, and falsifiability.” Faith is the intuitive leap—the leap of hypothesis—one makes before taking action. Love is one’s commitment to new ideas. Openness is the willingness to have one’s ideas challenged, whence comes conflict. Falsifiability is the possibility that one’s idea will prove to be wrong. The corresponding “laws of capitalism”—the “crucial rules of economic innovation and production”—are “faith” (again), “altruism” (love), “investment” (openness), “competition” (conflict), and “bankruptcy” (falsifiability). The correspondence of these two sets of “laws”—and it is only in capitalism that such a correspondence occurs—constitutes the lasting moral foundation of capitalism, “the only appropriate system for a world in which all certitude is a sham.”
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This argument—widely derided, as I have mentioned—is addressed, in the main, to two different groups of people. One is made up of those who would replace capitalism with something different, or substantially transform it in the interest of “rationality,” “compassion,” etc.—those, in short, who think capitalism is unjust. Into this group fall socialists of all kinds, democratic and otherwise, and the proponents of large-scale redistribution of income from rich to poor; one could name in addition such moralists as the U.S. Catholic bishops, whose recent pastoral letter condemns the alleged neglect of the poor by our economic system (and by the Reagan administration), and one could even include here the partisans of “industrial policy,” which by means of government is to enhance the development of promising “sunrise” industries and ease the inevitable decline of those whose sun is setting. Taken together, this group is on the Left, broadly construed.
But Gilder’s second target is on the Right, also broadly construed, and it includes such writers as Daniel Bell, Christopher Lasch (erroneously), Robert Nisbet, and Irving Kristol. Among these thinkers, Gilder charges, “Capitalism has been presented as a transitory and conditional compromise: the worst possible system, as Churchill once said of democracy, except for all the others.” This group, in fact, is his primary target, all the more so because its members have themselves mounted the most effective attacks against the Left, arguments on which Gilder, in Wealth and Poverty, draws freely. Thus, in the mid-1970’s Daniel Bell observed that “The most unreported fact of our era is the death of socialism.” The first sentence of Wealth and Poverty is: “The most important event in the recent history of ideas is the demise of the socialist dream.”
But Gilder does not stop there. He goes on: “The second most important event is the failure of capitalism to win a corresponding triumph.” And for this failure, Gilder holds Bell, Nisbet, Kristol, and others like them partly responsible. So it is that Wealth and Poverty is primarily an answer to the “neoconservative” critique of capitalism—at times, rather after the fashion of the junior professor who makes a name for himself by attacking his old dissertation adviser. This is an impression Gilder explicitly reinforced in a 1982 article in the National Review called “Why I Am Not a Neoconservative.”
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What is the neoconservative analysis of capitalism’s history and prospects, and does Gilder succeed in refuting it? Its terms are set out by Irving Kristol in his collection of essays, Two Cheers for Capitalism (1978), and by Daniel Bell in The Cultural Contradictions of Capitalism (1976). According to the neoconservative view,2 the development of capitalism is indeed associated historically, as Gilder maintains, with faith, and specifically (following Max Weber) with the Protestant ethic, the spirit informing the bourgeois life and the thirteen virtues of Benjamin Franklin’s Autobiography: temperance, silence, order, resolution, frugality, industry, sincerity, justice, moderation, cleanliness, tranquillity, chastity, and humility. As Bell writes, the joining of the Protestant ethic, with its particular vision of the good life, to a free economy marked the creation of a morally justified capitalism.
But each of these two elements belongs to a separate “realm,” in Bell’s sociological architectonic. And the problems—to Bell, “contradictions”—of capitalism today derive precisely from the fact that the Protestant ethic no longer goes with the free economy. He writes: “The two realms which had historically been joined to produce a single character structure—that of the Puritan and of his calling—have now become unjoined.”
Bell devotes a great deal of space in The Cultural Contradictions of Capitalism to what he sees as the reasons behind this sundering. Briefly, the modernist movement in the arts (and in intellectual life) waged an assault on bourgeois values; the movement sought “to substitute for religion or morality an aesthetic justification of life; to create a work of art, to be a work of art—this alone provided meaning in man’s effort to transcend himself.” Modernism, carried to a logical extreme in the 1960’s, yielded what Bell calls postmodernism, in which even an aesthetic justification was abandoned. Life became only what was instinctual and pleasurable; the rest was hollow, fraudulent, repressive. “What was once maintained as esoteric is now proclaimed as ideology, and what was once the property of an aristocracy of the spirit is now turned into the democratic property of the mass.”
“Self-realization” thus became the goal and justification of each individual in a culture that “was no longer concerned with how to work and achieve but how to spend and enjoy.” In this transformation, moreover, the free market was decisively complicit. The most important development here was the widespread growth, after World War I, of installment credit: “Previously,” Bell writes, “one had to save in order to buy. But with credit cards one could indulge in instant gratification.” This was a blow successfully aimed at “the heart of the Protestant ethic”—saving, frugality, abstinence, or deferred gratification—a “revolution in moral habit” that led to the “high consumption economy.” In practical terms, the result has been hedonism and nihilism, as the means to pursue one’s self-realization have been readily proffered by the market. In moral terms, capitalism has thereby lost its “transcendent justification.”
Without that transcendent justification, there are no grounds for optimism concerning the future of capitalism. Nor will some facile conjoining of the “laws of capitalism” and the “laws of mind” suffice to provide such a justification. In the neoconservative view, Gilder’s “mind,” a bizarre combination of the scientific method and old-style bourgeois morality, simply does not conform to what is in fact the modern mind, let alone the post-modern mind.
Nor (according to the neoconservative critique) does Gilder succeed as an anthropologist. In order to prove that capitalist “giving” is itself moral, he would have to show that there is no difference between this kind of “altruism” and the altruistic act performed with no hope of return. He would also have to show that this giving is not simply a means, once again, toward the fulfillment of the hedonistic wishes of the post-modern sensibility. Gilder has done neither of these things. There is thus no more basis in his anthropology than there is in his metaphysics for an optimistic assessment of the prospects for capitalism.
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Or is there? Gilder’s new book, The Spirit of Enterprise, is an analysis and celebration of the role of the entrepreneur in capitalism—a role, he persuasively argues, that has been woefully underappreciated:
The prevailing assumption is that at any particular time the economy is a problem with a small number of solutions—limited by tastes, technologies, and natural resources—which can be expressed as a set of simultaneous equations. Within this scheme, the acknowledged role of the capitalist or entrepreneur is to mediate marginally among all the limiting conditions. . . . A dependent variable, the entrepreneur rapidly vanishes into the shadows of such imperious factors of production as land, labor, and capital, such massive numbers as money and aggregate demand.
This limited view of the entrepreneur fails to comprehend the central insight of supply-side economics (to Gilder, of capitalism): that supply creates its own demand. And supply itself derives not from “land, labor, and capital,” the traditional factors of production in economics, but rather from the talents of the entrepreneur as they are brought to bear on these three factors. To understand capitalism, in other words, we must understand capitalists.
To that end, most of The Spirit of Enterprise consists of a series of portraits—some of them small biographies—of entrepreneurs. In most cases, the names of these men (they are all men) are not widely known; but their achievements are prodigious. We read, for example, the story of J.R. Simplot, an Idaho farmer and businessman, who was chiefly responsible for the frozen french-fried potato in general and the McDonald’s french-fried potato in particular. Simplot subsequently provided essential start-up capital for a firm that would achieve a major breakthrough in the memory capacity of computer microchips; Gilder tells the story of the people behind this firm, Micron Technology, as well.
Then there is the story of John Masters, a middle-aged, unemployed geologist when he started a new business, Canadian Hunter Corporation, that “would go into the mountains of Alberta in 1973 when all the other companies were coming out, and would find, and in a sense embody, the solution to the energy crisis”—one of the world’s largest reserves of natural gas, hitherto unknown. Gilder also writes about Japanese entrepreneurs (rebutting, along the way, the alleged importance of Japan’s “industrial policy” to that country’s remarkable postwar expansion): such men as Soichiro Honda, Konosuke Matsushita (Panasonic), and Genichi Kawakami (Yamaha). And there are sketches of refugees from Castro’s Cuba—people who, contrary to the bad press they have suffered in connection with the drug trade, have in fact been almost solely responsible for reviving a decaying Miami, Florida.
It is, in short, an “economy of heroes” about which Gilder is writing, and it is testimony not only to the accomplishments of his subjects but also to Gilder’s empathetic skill in presenting their stories that by the end there can be no denying them the place in the sun he accords them. But what is pathbreaking about The Spirit of Enterprise is that in it Gilder has substantially shifted the grounds of the argument for optimism away from the moralizing abstractions of Wealth and Poverty. Now he is writing not about the nature of man or the nature of mind, but about people. Interestingly, it is this Gilder, the participant/observer and psychologist concerned with what people do and what they think about what they do, rather than Gilder the anthropologist and metaphysician, who has something new and compelling to say about capitalism and its prospects.
Gilder generalizes about his subjects, but he also quotes them directly. Here, for example, is Roberto Goizueta, who left Cuba when Castro confiscated the Coca-Cola bottling plant there and who is now that company’s chairman of the board and chief executive officer:
One thing I learned is that the things you carry in your head, no one can take from you. . . . Don’t attach too much importance to material things, because, as I know so well from my own experience in Cuba, one individual can take all those material things away from you.
Similarly, J.R. Simplot: “Capital is worthless if you don’t have the brains to go with it.”
And here is John Masters, the natural-gas explorer:
Once an opportunity is generally known, it is pretty well gone. . . . You have to recognize that every “out front” maneuver you make is going to be lonely. But if you feel entirely comfortable, then you’re not far enough ahead to do any good. That warm sense of everything going well is usually the body temperature at the center of the herd.
And Soichiro Honda:
Many people dream of success. To me success can be achieved only through repeated failure and introspection. In fact, success represents 1 percent of your work which results only from the 99 percent that is called failure.
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The themes Gilder draws from the lives of these men—and from what “entrepreneurs everywhere report”—are striking. First, as to their origins and motivations, he writes:
In the dynamic of the entrepreneurial life, there is nearly always a crisis of breaking away. Whether it is physically leaving family and country, as for many immigrants, or betraying the expectations of parents or bonds of existing work, the breaking away entails guilt and anxiety and produces a drive to vindicate the departure.
Second, there is the “prime lesson of entrepreneurship”: “The crowd is always wrong.” This “contrarian” principle means that one must be willing to go alone, beyond John Masters’s herd, to seek the greatest opportunities.
Third, there is the meaning of failure. When, from the late 1970’s through the 1981-82 recession, the media reported that more businesses were failing than ever before, they neglected to add that more businesses were being created than ever before. In addition, they did not understand that when a businessman fails, he often gains a great deal of invaluable information that may lead to success on the second (or third or fourth . . .) attempt. Moreover, they did not see that businesses unable to adapt to changing conditions—those that have lost the entrepreneurial spirit—deserve to fail.
Finally, there is the matter of human creativity. These are men who generate new ideas and find or hew niches for them. But creativity also works in another way:
It is the very essence of human creativity, . . . as Albert Hirschman has written, that it always comes as a surprise to us. If it didn’t defy the odds, we could plan it and it would not be necessary. The unexpected boon, the industrial miracle, has become the predictable and providential surprise of capitalism. Entrepreneurs do not succeed through marginal increments. They succeed by shooting for the moon and hitting natural gas under the blast-off site.
Such is the character of entrepreneurs, whom Gilder numbers in the tens of millions in America today. Whether or not his estimate is too high—and even whether or not he is correct to focus most of his attention, as he does, on the very successful ones—the economy is driven by these people. And their number—the number of people whose heartfelt desire it is to produce, to “work and achieve,” not just to “spend and enjoy” (in Daniel Bell’s terms)—shows no sign of decreasing, and every sign of increasing. A high-consumption economy is also, necessarily, a high-production economy, and Gilder demonstrates why it is inaccurate and unjust to ascribe to the producers either only the urge to consume or only the urge to fulfill for money the desire of others to consume.
As a sociological fact, this is cheering news. “Post-modernism,” in conjunction with a “high-consumption economy,” so far has not left us only (or chiefly) with hedonism. “Out there,” as it were, the spirit of enterprise, or the spirit of capitalism, seems to be flourishing. So we can at least put off facing the allegedly inevitable “contradictions of capitalism.”
But there is a much larger issue here, one on which capitalism’s lasting prospects may turn. Successful entrepreneurs, as Gilder describes them, strive to compensate for their sense of personal alienation; they embrace great risks, going in the opposite direction from the crowd; although they fail frequently, they are undeterred; they bring new conceptions to bear on difficult problems, or on things never before regarded as problems; and they often realize their success in ways entirely unforeseen. What does any of this have to do with the bourgeois virtues, the Protestant ethic, or Benjamin Franklin’s temperance, silence, order, resolution, and frugality? The very least one can say is that those virtues simply do not encompass all the qualities George Gilder has found in his entrepreneurs. There are substantial differences; there may even be conflicts.
It would come as no surprise to Daniel Bell, of course, to hear that what drives American capitalism today bears at best an uncertain relation to the Protestant ethic. (It might even come as no surprise to George Gilder, though he would probably deny that it was so.) The question, however, is to what extent entrepreneurs—the real capitalists—have ever exemplified the Protestant ethic, and that alone. The desire to “work and achieve” is, to Gilder, distinctly more hard-edged than it is to Bell, and it is certainly not the equivalent of “the pursuit of wealth alone” (in other words, greed). It involves one in the continuing attempt to dominate nature, in the continuing “creative destruction” of the old in favor of the new, the making of new things under the sun. In this sense, it calls to mind, startlingly, not traditional bourgeois values but the temperament of the artist, as conceived, for example, by Nietzsche: the temperament of romanticism that would soon become (in part through the agency of Nietzsche) the temperament of modernism itself.
Two important differences between the artist and the entrepreneur should be immediately noted here. The first is that art does not necessarily thrive on newer and newer techniques; newer is not better per se, and by no persuasive device can a great modern work be said to have rendered Shakespeare, for example, obsolete. For capitalism, by contrast, newer must be better, or else it will fail; this is the essence of “creative destruction.” The second is that while there may be such a thing as a great but neglected novel, there is no such thing as a great entrepreneur whom capitalism has failed to reward. In a free economy, profit or loss is an exact measure of the success or failure of creation. To an entrepreneur, as Gilder notes, capitalism is just.
All this having been said, however, the question still remains whether the modernist ethic—understood as the will to create, to “make it new,” in Ezra Pound’s famous phrase—does not serve as a better definition of the spirit of capitalism than the Protestant ethic ever did. A reading of Gilder argues powerfully that it does, and what is more, that this ethic, in which Bell’s “Puritan” and his “calling” are replaced by the creative producer and his acts of creation, offers “transcendent justification” aplenty.
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But if there is therefore a case to be made for the morality of capitalism, what about capitalists? The answer to this is that some are morally good and some are not; in no sense do they form a class about which such a generalization is appropriate. Unfortunately, this is an answer at which Gilder continues to balk. Though some of his entrepreneurs are clearly bad husbands and fathers, he cannot bring himself to say so without immediately apologizing on their behalf; to him their behavior is understandable, further evidence of their admirable devotion to their enterprises. In such instances, Gilder’s empathy (not, as some of his critics have charged, his ideology) leads him to a false moral tidiness.
The stability of capitalism, however, does not depend on a successful businessman’s being a good man as well. The sense of transcendent justification Gilder has found among the real capitalists is enough, sociologically speaking, to allay the neoconservative fear (and the Marxist hope) that capitalism will collapse of its own weight. This is by no means to say that the future of democratic capitalism is secure, or that its many opponents in the political and cultural “realms” will now fall silent. But neither need their opponents be silent, especially when they have in their company the formidable voice of George Gilder. Here, to convey a more complete sense of what The Spirit of Enterprise is like, is that voice in one of its more impassioned moments:
The limits to growth are found not in God or nature, but in failures of faith and restrictions of law: all the doom-laden extrapolations of expertise that deny the infinite possibilities of creative men as they penetrate the frontiers of darkness that is always closing in on mortal minds, and reach—in risk and worship—for the inestimable treasures of light beyond.
“Infinite possibilities,” “inestimable treasures”—that is optimism.
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1 Simon & Schuster, 274 pp., $17.95.
2 It is fair to speak of “the” neoconservative view, but only with some qualification. This view emerged from the late 1960's through the mid-1970's, largely in the pages of the Public Interest, of which Kristol and Bell were coeditors until 1973, when Bell became chairman of its Publication Committee. Much of Two Cheers for Capitalism and The Cultural Contradictions of Capitalism originally appeared there and then.
In his 1978 foreword to Cultural Contradictions, Bell vigorously protested the application to himself of the label “neoconservative” (which Kristol had embraced), and instead called himself “a socialist in economics, a liberal in politics, and a conservative in culture.” He resigned as chairman of the Public Interest Publication Committee in 1982, and is no longer formally associated with the magazine.
