One core tenet of economic and political thought, generally on the libertarian and conservative side, is that the market is a separate entity from the government. We tend to view each as acting separately and only interacting because of government overreach, generally in the form of regulation. Eisner’s view, as presented in The American Political Economy, is that that view is wholly incorrect.
Eisner views the state and market as being inextricably linked, even in a capitalist society. His evidence for that is the role that the state plays in creating the institutional foundations of our economic activity, even in laissez-faire economies. The state, because it creates and enforces laws that shape the market and economy, is a defining aspect of any economy. Eisner calls that linkage The American Political Economy and explores it in the book of the same name.
Summary of The American Political Economy by Marc Eisner
The American Political Economy is divided into three parts, each of which explores the unbreakable link between the state and the market in a unique way.
Making Sense of the Political Economy
The first section, “Making Sense of the Political Economy,” explores his definition of America’s political economy. Eisner describes how governance, from property rights, to laws regarding economic activity, to regulations and institutions, some private and some public, shape market activity and inextricably link it to the state. His view is that even capitalist economies cannot escape that relationship because the state is required to enforce laws that allow the market to function.
Additionally, in the first section of The American Political Economy, Eisner explores the two types of capitalist economies, which he defines as “the liberal market economy” and “the coordinated market economy.” A liberal market economy is one such as America’s, where companies turn to capital markets for funding and are primarily focused on short-term profitability; the result is radical innovation. A coordinated market economy is the sort of market arrangement present in Germany, where firms balance the interests of capital and labor and rely on funding provided by long-term loans more than capital markets. The result of that system is stability and incremental innovation
However, while he views those two systems of capitalism as being different, he notes that the similarity between them is a reliance on institutions, some private and some public. Those institutions connect the market to the state and ensure that the political economy is present in both systems.
Finally, by describing the growth of the state over time, Eisner shows that even in capitalist systems, the government and its institutions have played an increasingly large role in shaping and affecting the market, largely through defining and enforcing public policy objectives. That growth of the state is the subject of the second part of The American Political Economy.
The Evolution of the American Political Economy
Eisner then discusses the history of America’s political economy and what forces have led to the growth of the state and its market-shaping institutions over time.
He begins with the Progressive Era, describing the role of Big Business in modernizing the American economy and how a pushback against that power led to the Progressive Era regulations that insterted the government into the market in a much more obvious way. That was done mainly through the creation of new institutions, most of which arose during World War I.
Eisner then shows how the Great Depression led in turn to the New Deal, which dramatically increased the role of the state. He does that by describing the effective and ineffective New Deal policies and how the funding of them increased the government’s expenditures as a share of GDP over time. Again, The American Political Economy was largely shaped by the growth of institutions.
After introducing the New Deal, Eisner spends a few chapters of The American Political Economy charting the consolidation of those policies and the growth in the welfare state over time, leading up to the Reagan Revolution and its deregulatory policies.
Through the use of statistical evidence, mainly charts, Eisner shows that despite Reagan’s anti-Big Government stance, the role of government continued to increase throughout the Reagan Era and how, even when the government deregulated or cut taxes, it still maintained significant influence over the economy.
He also shows how the consensus created by Reagan remained largely intact until the election of George W. Bush, who increased the size of the welfare state and pursued policies that only increased the role of the government in the market.
Neoliberalism and Its Discontents
Finally, Eisner spends the last section of The American Political Economy charting the course of the Bush and Obama Administrations, showing how the dramatic rise of globalization and the role of finance led to a similarly dramatic increase in the importance of capital and a corresponding decrease in the importance of American manufacturing and production.
That focus on capital and finance, rather than the production of physical goods, resulted in massive trade deficits and big banks, along with the institutions that regulated them becoming a key facet of the American economy.
The result of those changes was the Great Recession; when many of its banks failed, largely as a result of housing policies advanced by the Bush Administration, America’s economy was almost shattered. Those troubles resulted in yet more government intervention in the economy, further entrenching the state’s relationship with the market.
Also, during that time period, the welfare state grew dramatically under both Bush and Obama, ending the Reagan Revolution.
Overall, Eisner largely proves his thesis, which is that The American Political Economy exists because the market and state have been inextricably connected and have only grown more connected since the Progressive Era.
My Take on The American Political Economy by Marc Eisner
The American Political Economy is a complex book and not for the faint of heart. Like most books about economics, it is quite dense and is, at times, hard to understand.
But it is also a very useful lens through which the reader can better understand how America’s economy works. It is a capitalist economy, but is undeniably shaped by government action, even if the government reduces its overt role in economic policy. That understanding is an important one, and Eisner proves it to be the correct one.
To do so, he relies on a wide array of sources. Hayek, Friedman, and The Wealth of Nations are all referenced, along with other capitalist works on the importance of property rights and dangers of the welfare state. But it’s not a work coming from a conservative perspective, so it also relies on more left-leaning sources and depictions of the importance of social policy. In that respect, it is well-balanced and Eisner rarely lets his personal biases shine through, at least in terms of what sources he consulted to write The American Political Economy.
Another positive aspect of The American Political Economy is that, despite being about complex topics, Eisner makes it relatively easy for the layman to read. It doesn’t use much overtly academic terminology and is structured in an easy to digest way; each chapter presents an introduction and thesis, is followed by historical evidence, and ends with a conclusion that summarizes how the evidence proves Eisner’s thesis to be true.
However, there are some negative aspects of the book. While he frequently shows the negative aspects of deregulatory policy, namely when describing the 2007-8 financial meltdown, he describes the problems with regulation less frequently, making it not particularly balanced in that respect.
For example, when describing the 2008 recession, he describes how the government saved the banks and effectively nationalized GM without adequately explaining the danger of doing so, and his placing of blame on the market, rather than government policy, on that collapse, is not particularly fair.
Additionally, I thought it was sometimes lacking in context. Eisner references many charts but doesn’t describe them as much as he perhaps should have. He references events that seem important, but sometimes doesn’t come back to them or relate them to the big picture. Along that same line of criticism, sometimes he delves into minutiae that seem irrelevant to the overall point of the book and doesn’t relate them to his thesis.
But, overall, Eisner does prove the thesis of The American Political Economy quite conclusively. Even if I disagreed with some of his views on welfare or the efficacy of state action in the economy, I did find myself agreeing with him on his depiction of the link between the state and the market, which is the crux of the book.
Like every book, The American Political Economy has its strengths and weaknesses. It’s not perfect.
However, its imperfections are largely confined to Eisner’s analysis of subpoints and his view of the regulatory state. In other words, the problems I had with it were disagreements about policy and the interpretation of facts rather than a belief that the facts within it were wrong. That distinction is important.
If you want to understand how America’s economy works and how we got here, The American Political Economy is a must-read. Eisner does an excellent job of describing how our state and market interact and why the institutions that govern those interactions exist in the way they do. I found that to be quite interesting and think that most conservatives who worry about the debt, deficit, and state’s role in the economy.
By: Gen Z Conservative
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