Slouching Towards Utopia: An Economic History of the Twentieth Century

What I call the “long twentieth century” started with the watershed-crossing events of around 1870—the triple emergence of globalization, the industrial research lab, and the modern corporation—which ushered in changes that began to pull the world out of the dire poverty that had been humanity’s lot for the previous ten thousand years, since the discovery of agriculture.¹ And what I call the “long twentieth century” ended in 2010, with the world’s leading economic edge, the countries of the North Atlantic, still reeling from the Great Recession that had begun in 2008, and thereafter unable to resume economic growth at anything near the average pace that had been the rule since 1870. The years following 2010 were to bring large system-destabilizing waves of political and cultural anger from masses of citizens, all upset in different ways and for different reasons at the failure of the system of the twentieth century to work for them as they thought that it should.

In between, things were marvelous and terrible, but by the standards of all of the rest of human history, much more marvelous than terrible. The 140 years from 1870 to 2010 of the long twentieth century were, I strongly believe, the most consequential years of all humanity’s centuries. And it was the first century in which the most important historical thread was what anyone would call the economic one, for it was the century that saw us end our near-universal dire material poverty.

My strong belief that history should focus on the long twentieth century stands in contrast to what others—most notably the Marxist British historian Eric Hobsbawm—have focused on and called the “short twentieth century,” which lasted from the start of World War I in 1914 to the fall of the Soviet Union in 1991.² Such others tend to see the nineteenth century as the long rise of democracy and capitalism, from 1776 to 1914, and the short twentieth century as one in which really-existing socialism and fascism shook the world.

Histories of centuries, long or short, are by definition grand narrative histories, built to tell the author’s desired story. Setting these years, 1914–1991, apart as a century makes it easy for Hobsbawm to tell the story he wants to tell. But it does so at the price of missing much of what I strongly believe is the bigger, more important story. It is the one that runs from about 1870 to 2010, from humanity’s success in unlocking the gate that had kept it in dire poverty up to its failure to maintain the pace of the rapid upward trajectory in human wealth that the earlier success had set in motion.³

What follows is my grand narrative, my version of what is the most important story to tell of the history of the twentieth century. It is a primarily economic story. It naturally starts in 1870. I believe it naturally stops in 2010.

As the genius, Dr. Jekyll–like, Austro-English-Chicagoan moral philosopher Friedrich August von Hayek observed, the market economy crowdsources—incentivizes and coordinates at the grassroots—solutions to the problems it sets.⁴ Back before 1870 humanity did not have the technologies or the organizations to allow a market economy to pose the problem of how to make the economy rich. So even though humanity had had market economies, or at least market sectors within its economies, for thousands of years before 1870, all that markets could do was to find customers for producers of luxuries and conveniences, and make the lives of the rich luxurious and of the middle class convenient and comfortable.

Things changed starting around 1870. Then we got the institutions for organization and research and the technologies—we got full globalization, the industrial research laboratory, and the modern corporation. These were the keys. These unlocked the gate that had previously kept humanity in dire poverty. The problem of making humanity rich could now be posed to the market economy, because it now had a solution. On the other side of the gate, the trail to utopia came into view. And everything else good should have followed from that.

Much good did follow from that.

My estimate—or perhaps my very crude personal guess—of the average worldwide pace of what is at the core of humanity’s economic growth, the proportional rate of growth of my index of the value of the stock of useful ideas about manipulating nature and organizing humans that were discovered, developed, and deployed into the world economy, shot up from about 0.45 percent per year before 1870 to 2.1 percent per year afterward, truly a watershed boundary-crossing difference. A 2.1 percent average growth for the 140 years from 1870 to 2010 is a multiplication by a factor of 21.5. That was very good: the growing power to create wealth and earn an income allowed humans to have more of the good things, the necessities, conveniences, and luxuries of life, and to better provide for themselves and their families. This does not mean that humanity in 2010 was 21.5 times as rich in material-welfare terms as it had been in 1870: there were six times as many people in 2010 as there were in 1870, and the resulting increase in resource scarcity would take away from human living standards and labor-productivity levels. As a rough guess, average world income per capita in 2010 would be 8.8 times what it was in 1870, meaning an average income per capita in 2010 of perhaps $11,000 per year. (To get the figure of 8.8, you divide 21.5 by the square root of 6.) Hold these figures in your head as a very rough guide to the amount by which humanity was richer in 2010 than it was in 1870—and never forget that the riches were vastly more unequally distributed around the globe in 2010 than they were in 1870.⁵

A 2.1 percent per year growth rate is a doubling every thirty-three years. That meant that the technological and productivity economic underpinnings of human society in 1903 were profoundly different from those of 1870—underpinnings of industry and globalization as opposed to agrarian and landlord-dominated. The mass-production underpinnings of 1936, at least in the industrial core of the global north, were profoundly different also. But the change to the mass consumption and suburbanization underpinnings of 1969 was as profound, and that was followed by the shift to the information-age microelectronic-based underpinnings of 2002. A revolutionized economy every generation cannot but revolutionize society and politics, and a government trying to cope with such repeated revolutions cannot help but be greatly stressed in its attempts to manage and provide for its people in the storms.

Much good, but also much ill, flowed: people can and do use technologies—both the harder ones, for manipulating nature, and the softer ones, for organizing humans—to exploit, to dominate, and to tyrannize. And the long twentieth century saw the worst and most bloodthirsty tyrannies that we know of.

And much that was mixed, both for good and for ill, also flowed. All that was solid melted into air—or rather, all established orders and patterns were steamed away.⁶ Only a small proportion of economic life could be carried out, and was carried out, in 2010 the same way it had been in 1870. And even the portion that was the same was different: even if you were doing the same tasks that your predecessors had done back in 1870, and doing them in the same places, others would pay much less of the worth of their labor-time for what you did or made. As nearly everything economic was transformed and transformed again—as the economy was revolutionized in every generation, at least in those places on the earth that were lucky enough to be the growth poles—those changes shaped and transformed nearly everything sociological, political, and cultural.

Suppose we could go back in time to 1870 and tell people then how rich, relative to them, humanity would become by 2010. How would they react? They would almost surely think that the world of 2010 would be a paradise, a utopia. People would have 8.8 times the wealth? Surely that would mean enough power to manipulate nature and organize humans that all but the most trivial of problems and obstacles hobbling humanity could be resolved.

But not so. It has now been 150 years. We did not run to the trail’s end and reach utopia. We are still on the trail—maybe, for we can no longer see clearly to the end of the trail or even to wherever the trail is going to lead.

What went wrong?

Well, Hayek may have been a genius, but only the Dr. Jekyll side of him was a genius. He and his followers were extraordinary idiots as well. They also thought the market alone could do the whole job—or at least all the job that could be done—and commanded humanity to believe in the workings of a system with a logic of its own that mere humans could never fully understand: “The market giveth, the market taketh away; blessed be the name of the market.” They thought that what salvation was possible for humanity would come not through St. Paul of Tarsus’s solo fide but through Hayek’s solo mercato.⁷

But humanity objected. The market economy solved the problems that it set itself, but then society did not want those solutions—it wanted solutions to other problems, problems that the market economy did not set itself, and for which the crowdsourced solutions it offered were inadequate.

It was, perhaps, Hungarian-Jewish-Torontonian moral philosopher Karl Polanyi who best described the issue. The market economy recognizes property rights. It sets itself the problem of giving those who own property—or, rather, the pieces of property that it decides are valuable—what they think they want. If you have no property, you have no rights. And if the property you have is not valuable, the rights you have are very thin.

But people think they have other rights—they think that those who do not own valuable property should have the social power to be listened to, and that societies should take their needs and desires into account.⁸ Now the market economy might in fact satisfy their needs and desires. But if it does so, it does so only by accident: only if satisfying them happens to conform to a maximum-profitability test performed by a market economy that is solving the problem of getting the owners of valuable pieces of property as much of what the rich want as possible.⁹

So throughout the long twentieth century, communities and people looked at what the market economy was delivering to them and said: “Did we order that?” And society demanded something else. The idiot Mr. Hyde side of Friedrich von Hayek called it “social justice,” and decreed that people should forget about it: the market economy could never deliver social justice, and to try to rejigger society so that social justice could be delivered would destroy the market economy’s ability to deliver what it could deliver—increasing wealth, distributed to those who owned valuable property rights.¹⁰

Do note that in this context “social justice” was always only “justice” relative to what particular groups desired: not anything justified by any consensus transcendental principles. Do note that it was rarely egalitarian: it is unjust if those unequal to you are treated equally. But the only conception of “justice” that the market economy could deliver was what the rich might think was just, for the property owners were the only people it cared for. Plus, the market economy, while powerful, is not perfect: it cannot by itself deliver enough research and development, for example, or environmental quality, or, indeed, full and stable employment.¹¹

No: “The market giveth, the market taketh away; blessed be the name of the market” was not a stable principle around which to organize society and political economy. The only stable principle had to be some version of “The market was made for man, not man for the market.” But who were the men who counted, for whom the market should be made? And what version would be the best making? And how to resolve the squabbles over the answers to those questions?

Throughout the long twentieth century, many others—Karl Polanyi, Theodore Roosevelt, John Maynard Keynes, Benito Mussolini, Franklin Delano Roosevelt, Vladimir Lenin, and Margaret Thatcher serve as good markers for many of the currents of thought, activism, and action—tried to think up solutions. They dissented from the pseudo-classical (for the order of society, economy, and polity as it stood in the years after 1870 was in fact quite new), semi-liberal (for it rested upon ascribed and inherited authority as much as on freedom) order that Hayek and his ilk advocated and worked to create and maintain. They did so constructively and destructively, demanding that the market do less, or do something different, and that other institutions do more. Perhaps the closest humanity got was the shotgun marriage of Hayek and Polanyi blessed by Keynes in the form of post–World War II North Atlantic developmental social democracy. But that institutional setup failed its own sustainability test. And so we are still on the path, not at its end. And we are still, at best, slouching toward utopia.

RETURN TO MY CLAIM above that the long twentieth century was the first century in which the most important historical thread was the economic one. That is a claim worth pausing over. The century saw, among much else, two world wars, the Holocaust, the rise and fall of the Soviet Union, the zenith of American influence, and the rise of modernized China. How dare I say that these are all aspects of one primarily economic story? Indeed, how dare I say that there is one single most consequential thread?

I do so because we have to tell grand narratives if we are to think at all. Grand narratives are, in the words of that bellwether twentieth-century philosopher Ludwig Wittgenstein, “nonsense.” But, in a sense, all human thought is nonsense: fuzzy, prone to confusions, and capable of leading us astray. And our fuzzy thoughts are the only ways we can think—the only ways we have to progress. If we are lucky, Wittgenstein said, we can “recognize… them as nonsensical,” and use them as steps “to climb beyond them… [and then] throw away the ladder”—for, perhaps, we will have learned to transcend “these propositions” and gained the ability to “see the world aright.”¹²

It is in hopes of transcending the nonsense to glimpse the world aright that I’ve written this grand narrative. It is in that spirit that I declare unhesitatingly that the most consequent thread through all this history was economic.

Before 1870, over and over again, technology lost its race with human fecundity, with the speed at which we reproduce. Greater numbers, coupled with resource scarcity and a slow pace of technological innovation, produced a situation in which most people, most of the time, could not be confident that in a year they and their family members would have enough to eat and a roof over their heads.¹³ Before 1870, those able to attain such comforts had to do so by taking from others, rather than by finding ways to make more for everyone (especially because those specializing in producing, rather than taking, thereby become very soft and attractive targets to the specializers in taking).

The ice was breaking before 1870. Between 1770 and 1870 technology and organization gained a step or two on fecundity. But only a step or two. In the early 1870s that British establishment economist, moral philosopher, and bureaucrat John Stuart Mill claimed, with some justification, that “it is questionable if all the mechanical inventions yet made have lightened the day’s toil of any human being.”¹⁴ You have to go forward a generation after 1870 before general material progress becomes unquestionable. The ice could then have resolidified—the nineteenth-century technologies of steam, iron, rails, and textiles were approaching their culmination point; moreover, they all depended on hyper-cheap coal, and the hyper-cheap coal was being exhausted.

But tell anyone from before the long twentieth century about the wealth, productivity, technology, and sophisticated productive organizations of the world today, and their likely response, as noted above, would be that with such enormous power and wealth in our collective hands we must have built a utopia.