Published by EH.Net (May 2022).

Wyatt Wells. *Permanent Revolution: Reflections on Capitalism*. Stanford:
Stanford Briefs (Imprint of Stanford University Press), 2020. 192 pp. $14,
ISBN 978-1503612372.

Reviewed for EH.Net by Raymond C. Niles, Senior Fellow, American Institute
for Economic Research.



*Permanent Revolution* is a superb integrative discussion of capitalism
that unites history and economics with its political, cultural, and
sociological foundations. When academics typically confine themselves to an
in-depth “silo” of knowledge cut off from other domains, this form of
integration is rare and welcome. Moreover, the author displays a deep,
scholarly grasp of each area, although not without some shortcomings.

Capitalism is an ideologically fraught topic. Wells avoids the biases of
ideology by ruthlessly focusing on facts. Unfortunately, he does this
without any footnotes. This makes the book very readable – he is a talented
writer and the text flows – but it is a shortcoming for the academic reader
who may want to explore further the sources of his facts. Where this
reviewer has first-hand knowledge, he can attest that Wells has captured
them faithfully, but citations would allow anyone, even non-experts, to
make that determination on their own.

The title, “Permanent Revolution,” is a nod to Joseph Schumpeter, the early
20th century economist and student of capitalism’s history and economics,
whom the author quotes at length throughout the book. This is a wise
choice, because Schumpeter, like Wells, takes a broadly integrative and
historical approach to understanding capitalism, which allowed him to come
up with insights that still seem profound and modern today, more than 70
years after his death.

Consider this memorable quote from Schumpeter that Wells uses to show that
capitalism raises the standard of living of the “masses” even while
simultaneously creating inequality:

“The capitalist achievement does not typically consist in providing more
silk stockings for queens but in bringing them within the reach of factory
girls in return for steadily decreasing amounts of effort.” (p. 122)

Inequality is not a bug of capitalism, but a feature. It incentivizes
entrepreneurial innovation and harnesses the large chunks of capital
required to fund large enterprises and achieve the economies of scale that
raise our standard of living. Wells provides numerous fascinating case
studies of this process in action, using well-known entrepreneurs such as
Rockefeller, Carnegie, and Ford, but also less well-known ones, such as
Chessie Cummins of Cummins Engine and Homer Laughlin, who invented the
popular Fiesta tableware during the Great Depression.

Wells offers numerous examples explaining the beneficial role of Wall
Street finance in mobilizing capital, directing it to its highest-valued
uses, and reconstituting failing businesses. In one example, he recounts
how financier J.P. Morgan “morganized” – i.e., restructured – the failing
Richmond Terminal railroad conglomerate in 1893 by removing incompetent
management, shedding underperforming assets, and creating the successful
Southern Railroad.

Schumpeter famously said that capitalism produces “gales of creative
destruction.” Similarly, Wells sees a “permanent revolution” where
capitalism not only continually reshapes a nation’s economic institutions,
but all aspects: political, cultural, artistic, and educational. Wells sees
capitalism as the engine at the center of a beneficial liberalism, which
flowered during the 19th century when capitalism swept the Western world:

“Moral advances have accompanied material ones. By the early twenty-first
century, every country in the world had formally banned slavery, and most
had substantially expanded the rights of women.” (p. viii)

Another virtue of the book is that it is free of Marxist cant, which mars
too many histories of the capitalist era. He avoids such built-in
pejorative language as “robber baron,” despite its common use. He
implicitly acknowledges that the great entrepreneurs of the “Gilded Age”
and the 20th and 21st centuries earned their fortunes by creating abundant
beneficial products for the mass market. In that vein, in plain language he
defends such practices as financial speculation and rebuts the common
Marxist charge that capitalism alienates labor.

His defense of profit is masterful, making capitalism fundamental even to
progress in the non-material, spiritual realm.

“Financial profit is inseparable from economic efficiency, however.
Assuming competent accounting and reasonably efficient markets, profit is
simply the surplus above and beyond the cost of production, and it pays for
everything else in society – art, literature, religion, philosophy. Profit
is necessary, though not sufficient, for ‘the good life’.” (p. 70)

If there is any criticism of the book, it is what I would call “status quo
bias.” The author never explicitly defines capitalism and makes a common
error among historians of equating mixed capitalistic economies with
“capitalism.” This lets him fall into the trap of impugning some problems
as capitalism’s failure when, in fact, they are the result of government
intervention.

This is particularly true in his discussion of banking (despite his worldly
discussion of Wall Street finance). He accepts without question that
America’s problem with “wildcat banking” in the 19th century was a problem
with capitalism. He is apparently unfamiliar with the work of financial
economists and historians such as Lawrence H. White, George Selgin, and
Richard Timberlake, which shows that the bank runs and failures of the 19th
century stemmed from the state-level franchises and unit banking laws that
prevented a robust national banking system from emerging. This is why when
the Great Depression hit neighboring United States and Canada, the U.S.
lost 40% of its 40,000 tiny, fragmented banks to bankruptcy while Canada
did not have a single bankruptcy among its 12 national banking networks.

He makes a similar error when discussing the British economic malaise of
the 1920s. He conflates as explanation the simple historical observation
that the recession reflected the failure of new companies to employ enough
of the newly unemployed workers from declining industries. This
“employment” view of business cycles does not explain; it only describes. A
close study of British economic history shows that the actual cause of the
1920s malaise was financial. It was caused by the Bank of England’s
mispricing of the British pound after the war when it tried to restore the
pound’s pre-war parity to gold. Because of inflation during the war, this
merited a huge deflation, which hurt borrowers throughout the economy.

*Permanent Revolution* is a delight to read. In terse, lucid prose, loaded
with numerous examples, it demonstrates that as capitalism permanently and
relentlessly overturns the status quo, it simultaneously elevates us,
economically and culturally.



Raymond C. Niles (*www.raymondniles.com*) is a Senior Fellow at the
American Institute for Economic Research. He holds a PhD in Economics from
George Mason University, teaches economics at the university level, and is
a former Wall Street executive.

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