A free market empire

John Steele Gordon jokes that he knew what “selling short” meant before he could ride a bicycle. The New York City native was born on May 7, 1944, to a family long connected with the city’s financial scene: Both his grandfathers worked as stockbrokers. They also passed along their love for history.

Gordon has specialized in the history of American business and finance for close to 40 years. He is the author of several books; most recently, An Empire of Wealth: The Epic History of American Economic Power. CNBC aired a two-hour special based on his book The Great Game: The Emergence of Wall Street as a World Power, 1653-2000. Gordon has been a frequent contributor to Forbes, The Wall Street Journal, and American Heritage, where he wrote the “Business of America” column for more than 10 years.

What values enabled American economic flourishing? Simply freedom. People were free to take risks. During the Colonial era—the 17th and 18th centuries—the European economy was not flourishing particularly well. A small group of people decided to do something about it. They said goodbye to everything they’d ever known for what one Puritan preacher called a howling wilderness. We are the descendants of those risk-takers. Most risk-takers fail: 80% of the corporations started in this country fail. But the other 20% don’t. And maybe one of those turns into an Amazon. That’s what’s made us all so spectacularly rich.

You argue America has also been “exceptionally lucky.” What do you mean by that? We’re blessed with incredible geography. The United States has the best geopolitical position on the planet. It’s the only great power that fronts both the Atlantic and the Pacific. From the end of the War of 1812 up until the era of missiles in the 1950s, the United States couldn’t be attacked: We were too far away and too big. Therefore we could maintain a very small army. In 1940, the United States’ Army was smaller than the army of Belgium. If the government is not spending all that money on the military, taxes can be low and people can invest that money into more productive enterprises.

How is the United States a different kind of world power from the empires of the past? The United States was always a reluctant imperialist. Here we are, the most powerful country in the world, not because of our empire, but because of our wealth we created. We didn’t take it from somebody else.

What else made us unique? European nations followed a system called primogeniture: The eldest son would inherit essentially everything. There are families in England that have been among the richest families in England for 500 years. Here, fortunes very quickly get dispersed. None of the families of the Gilded Age who were legendarily rich—the Carnegies, Rockefellers, Vanderbilts—are on the Forbes 400 list today.

You point out that 2026 is also the 250th anniversary of Scottish economic philosopher Adam Smith’s magnum opus, The Wealth of Nations. Why is that important? Adam Smith enlightened the world about how an economy actually works. Smith points out that when power is concentrated, the economy suffers. The government has a long history of making people in the government rich. But when power is distributed under the rule of law, you can create much more wealth. Individuals can do much more creative things with wealth than the government can. European governments were always much more involved in the economy. When we became independent, we didn’t have an established aristocracy or an established merchant class like Europe did. We’ve been blessed with a very small government. We could be a much more Smithian nation than any other.

But you worry most Americans don’t understand Smith’s vision? They’re never taught that. They’re taught to feel the world is divided between the oppressed and the oppressor.

What do people often miss when they teach economic history? I wish they would talk more about how a real economy works. The Bernie Sanderses of this world see the economy as a conspiracy. They really seem to think that if somebody gets richer then everybody else has to get poor. That it’s like a poker game: The amount of winnings at the end of the evening are exactly equal to the amount of losses. No wealth is created in a poker game. That’s not true in the real-world economy. Who is poorer because Jeff Bezos is so immensely more rich than he was? I use Amazon because it saves me time and money. I put in the order last evening, and it was on my front steps this morning. I’m richer as a result. The whole country is much richer thanks to his bright ideas.

What concerns you about the United States economic position today? The size of the national debt. My history of the national debt is called Hamilton’s Blessing because Alexander Hamilton said the national debt will be a national blessing if it is not excessive. In 1915, John D. Rockefeller could have paid off the national debt, and he still would’ve been the richest man in the world. But in 1974, Congress passed the Congressional Budget and Impound­ment Control Act. It eliminated the president as a major player in budget negotiations. The president is the only one with a national outlook. The debt immediately began to spiral out of control. The national debt is now greater as a percentage of GDP than it was at the end of World War II. What has that money been spent on? It’s been spent on getting senators and congressmen reelected. It’s an absolute disgrace. And at some point, Wall Street is going to say, “I’m sorry, we’re not taking any more of your bonds. We don’t think you’re a good risk.” This happened to New York City in the 1970s when they were running these constant deficits. And all hell broke loose.

What makes you hopeful? I’m an optimist by nature. The great German chancellor, Otto Von Bismarck, at the end of the 19th century famously said that God looks after three things: drunks, fools, and the United States of America. I’m not a very religious person, but the United States does indeed seem to have someone watching over us.

Why do you love history? I like telling stories, and yet I have absolutely no talent whatsoever for inventing characters or plots. God has to invent the plots and characters for me. And God is really, really good at it. History is just full of good stories. My grandfather Gordon would tell me these wonderful stories of Wall Street. My first real book, The Scarlet Woman of Wall Street, is about Wall Street’s Wild West days in the 1860s. It was a lot of fun to write about.