NO ONE’S A KEYNESIAN NOW

It was sixty years ago that Samuel Insull — an American tycoon who lost it all — died, penniless, on a Paris subway platform. Insull is barely remembered today, but it wasn’t always so: He used to be held up as a cautionary tale.

During the booming 1920s, Insull was considered an investment sage. At the peak of his power, he held eleven corporate presidencies, sixty-five chairmanships, and eighty-five directorships. But his empire collapsed after the 1929 crash, and he was indicted for larceny and embezzlement. The unlucky mogul fled to Europe, where he lived an unhappy exile, a merchant without a home.

Back in the United States, Franklin Roosevelt promised to “get the Insulls.” New Dealers invoked Insull’s name whenever the Republican party threatened the pace of regulatory legislation. “Insullism,” which had been a celebrated creed when the economy roared, became an all-purpose epithet for commercial avarice.

Our present era certainly would not have handed Insull so cruel a fate. Capitalism now reigns triumphant. Former Communist states eagerly court American investors while attempting to divine the mysteries of market economics. It seems that our government can do no right and our market no wrong. Commerce has trumped politics and much else besides.

Such giddiness — understandable as it is — has led many to embrace an aggressive brand of economism: a tendency to see the world and all its social goods through green eyeshades. An increasing volume of international transactions, we are told, will hasten peace, political freedom, and the obsolescence of national identity. The domestic corollary holds that all will be well if we assign to the private sector most governmental functions. Like Marxian theologians of years past, our economic determinists advise us that, if we change the economic base, the rest will follow.

How did we arrive at this point? How did we get from vilifying Samuel Insull to championing the very qualities that made him a vituperated household name during the Depression? Daniel Yergin and Joseph Stanislaw grapple with this question in their new book, The Commanding Heights: The Battle Between Government and the Marketplace That Is Remaking the Modern World. The title refers to a speech delivered by Lenin in 1922, in which he reassured his audience that, the New Economic Policy notwithstanding, the state would continue to control the most important levers of the Soviet economy — “the commanding heights.” From here, Yergin and Stanislaw recount the absorbing tale of how the world became enamored and then utterly disillusioned with government dominance of the market.

Until recently, most governments agreed with Lenin that ultimately the state served as a more trustworthy arbiter of economic affairs than the market. Yet the degree of government intervention varied widely among nations: Where socialist countries opted for state ownership, the United States preferred regulation. Even so, the Depression and other events spurred Western governments to ever greater levels of economic management, and for decades the strategy seemed to succeed. During the post-war era, Americans prospered as never before. And the nations of Western Europe, with their carefully managed “mixed economies,” enjoyed “thirty glorious years.”

In Yergin and Stanislaw’s telling, faith in “government knowledge” of economic matters peaked in the early 1970s with Richard Nixon’s decision to institute price controls, coupled with his declaration, “Now I am a Keynesian. ” Soon after, the state’s position atop the commanding heights began to weaken. In the United States, the failures of the government to deal adequately with stagflation and the fallout from the 1973 oil crisis disabused many of their enthusiasm for Keynesianism. Though it would require astronomical levels of unemployment to turn the Europeans around, a debt crisis to do the same in the Third World, and finally the collapse of the Soviet model, by the early 1990s a new worldwide consensus had emerged. “The specter of market failure had shaped four decades of government economic policies,” write the authors. “But the [new] message . . . was that government could fail, too.”

Yergin and Stanislaw treat perfunctorily — and with respect to Keynes, somewhat unfairly — the collective loss of faith in statist economic solutions. But the book’s compelling survey of the ideas and personalities driving today’s market enthusiasm more than compensates for this brevity. The authors have a colorful cast of characters at their disposal. There is, to begin with, Malaysia’s unhinged prime minister, Mohamad Mahathir, holding forth on the “villainous acts of sabotage” perpetrated by international speculators. Then too we witness novelist-cum-free-market advocate Mario Vargas Llosa decking novelist-cum-Castro apologist Gabriel Garcia Marquez one evening at a Mexico City theater. And, of course, we meet Insull.

Such sketches are Yergin’s specialty and will be familiar to readers of his Pulitzer-prize-winning history of oil, The Prize. They serve a valuable function, economic history having earned its reputation as a rather tedious sub-discipline. Moreover, the policies and processes that govern today’s market were not produced by the inevitable laws of history, but rather by men and women and their ideas. Many of these individuals will be familiar only to economists. Few will recognize, for instance, Keith Joseph, the British politician whose lectures on the free market informed Margaret Thatcher’s economic program. But according to the authors, Joseph “did as much as any other single person around the world to reshape the debate about government and the marketplace.”

Unlike so many recent books that promise to unlock the secrets of the new economy, The Commanding Heights pledges only to tell us how we arrived at the present moment. Still, after almost four hundred pages of artfully related history, one could expect Yergin and Stanislaw to offer a few predictions. Perhaps wisely, they do not. They do, however, leave some important questions on the table.

The critical tests that will shape the ongoing battle between government and marketplace, the authors suggest, will be these: Does the market provide basic material necessities? Does it foster a fairly equitable distribution of wealth? Will it erode national identity? How will it cope with demographic shifts? Yergin and Stanislaw provide no answers, but they conclude that, if the market is to prevail, it must foster a moral stance other than one grounded in self-interest.

The authors seem optimistic that the marketplace will prove equal to this task, while conceding that few would go to war and “die with the words ‘free markets’ on their lips.” Beneath this eloquently stated observation, however, lies an uncomfortable truth: The marketplace possesses less moral appeal than is frequently ascribed to it by the most insistent laissez-faire advocates.

In recent years, it has become apparent that market values contribute unevenly to the nation’s civic and cultural health, fostering wide-spread atomism. The market erodes national sovereignty as well, and, with it, much of the state’s legitimate authority. For the citizens of many countries — Iraq, Iran, and Burma, to name just a few — this dissolution probably comes as a welcome development. But in a democracy such as ours, it does not. Should Americans allow market identity to supersede civic virtue and national allegiance, we will surely end up as latter-day Samuel Insulls — consumers without a home.

Lawrence F. Kaplan is a fellow in strategic studies at the Paul H. Nitze School of Advanced International Studies.