♪ ♪ (theme music plays) RUBENSTEIN: Hello, I'm David Rubenstein.

We're in conversation today with Bhu Srinivasan, about his new book, "Americana, A 400-Year History of American Capitalism".

Welcome very much to our show today.

SRINIVASAN: Well, thank you, David, for having me on your program.

RUBENSTEIN: Okay, so as you look back on these 400 years, what would you say are the two or three most seminal events, which propelled American capitalism forward to the state it is today?

SRINIVASAN: At the time, there were some things were very, very important.

You know, the discovery of the cotton gin, I think that was a very important discovery in the sense not in, uh, in terms of, in the moral sense, or-or in the economic sense but in what, uh, it did to transform this country.

It, um, you know, it coincided with the Louisiana Purchase, within by, you know, half a decade or so.

And the Louisiana Purchase obviously gave this country the Mississippi Delta, which was the, some of the most fertile cotton, uh, land imaginable.

And then you have the ability to separate cottonseed from cotton fiber.

So that was very seminal.

The second thing would probably be the discovery of, uh, the telegraph.

You know, with, that's Morse coming up with not just the Morse code, um, but also coming up with the principal of being able to take electricity and being able to use dashes and dots, essentially long, long buzzes versus short buzzes to communicate messages that was remarkable.

And the third thing I would point out is, uh, Henry Ford, when he announced the $5 workday.

And the reason why I think that was a seminal moment, um, is because that's a time when you had, you know, uneducated, um, immigrants come to this country, they were able to get a job at the Ford Motor Company in 1914, the Model T at that time cost $450.

And with the $5 Workday, you know, uh, you basically could afford a car with 90 day's worth of labor, which is just, uh, an, an insane proposition to the rest of the world.

Thinking that in 1914, someone could work for three months.

If they were able to save 100% of their money, be able to afford a new car.

So that was a, a convergence of a consumerism with industrial capacity.

It just made this, uh, just shaped the American story in a way.

RUBENSTEIN: So, uh, which two or three or four individuals that you may not have yet mentioned, would you say are really responsible for the powerful growth of American capitalism over the last 400 years?

Are there a couple of individuals you think are most important to cite?

SRINIVASAN: Well, when I look at the story, I treat American capitalism as a system.

Um, and because of that, I don't think any one individual necessarily shaped it, but there are individuals obviously that are wonderful examples of what is possible, uh, with American capitalism.

And, and, um, and one of those is Andrew Carnegie, and Andrew Carnegie came to this country as a child laborer in, uh, the late 1840s.

And then eventually gets a job as a Telegraph boy, is, um, delivering messages and gets discovered by an executive for the Pennsylvania Railroad and on and on.

He becomes, you know, the great steel magnate and in 1901, JP Morgan congratulates him as the richest man in the world.

And here's Andrew Carnegie that all of maybe 5'2", 5'3", this diminutive man, that's the reigning King of Steel.

So there are these types of stories that exemplify possibilities.

Walt Disney.

I think that's something that, um, probably at the earliest level without using human beings, uh, you know, was able to draw himself and create this intellectual property.

So even though it's not necessarily directly related to the consu, uh, to the computer age, that is probably the first time that you saw large-scale commercial art, if you will, uh, and intellectual property get created and monetized in a very large way.

RUBENSTEIN: Now, in your book, you cover a lot of prominent individuals.

But if you could have interviewed one or two or three of these famous people you've, uh, write, written about, who would you like the most have interviewed?

And what would you like to ask him if you could ask each one-one question or so?

SRINIVASAN: I probably would have liked to have interviewed people that have not been documented and that fascinated me in their work.

Robert Fulton would be one of them.

Um, this was this incredible polymath.

This is someone that was obsessed with canals, obsessed with, um, you know, submarines, all types of things.

And, uh, it was this incredible, uh, incredible brain, incredible mind, also an artist and a sculptor.

After that, I probably would like to interview Harriet Beecher Stowe.

And I think that she was fascinating and remarkable, and I've always felt that "Uncle Tom's Cabin", was a more remarkable book than even "Huckleberry Finn".

And interestingly, uh, primarily, because "Huckleberry Finn" happened after the civil war and "Uncle Tom's Cabin", happened 10 years before, um, where people to some degree give her some credit for galvanizing sentiment against slavery.

So I certainly would have a lot to talk to her about.

And she also remarkably wrote a book called "The American Woman's Home", it's this domestic guide that she wrote with her sister.

So there'd be plenty to talk about from the early days of, um, feminism.

She herself did not even believe in the woman's suffrage movement.

So that would be interesting to talk to her about as well.

And, and, you know, the people that I would look to interview are not necessarily business people, but oftentimes people that, um, you know, rose against it and, and, and acted as a check or a balance on the system, Upton Sinclair would be one, John Steinbeck would be one.

RUBENSTEIN: One of the myths that we often have in the United States, particularly when you're in grade school, you learn this myth, I guess it's a myth, and maybe you can tell me it's not, is that people came to the, the United States or became the United States initially for religious freedom.

But you point out in your book that a lot of these things were commercial ventures that companies were formed to basically come over here and get some wealth and then send it back to the people who had invested in the people who came over here.

Can you describe what that was all about?

SRINIVASAN: Well, very much so.

I mean, if you think about the Virginia Company, I mean that, it's a Company, it's a company before it's a colony and, you know, you finance that, uh, with shareholders.

And in addition, anybody that wanted to go to Virginia, that wasn't a shareholder could become a shareholder provided that they finished out a seven-year term, and that same structure, uh, applied to a lot of the people that came over on the Mayflower.

The religious separatists weren't even living in England at the time they were living in Holland, and they'd look to, uh, uh, look to greater economic prosperity.

They weren't necessarily fleeing the King.

And in fact, there's a lot of evidence that once they come here, um, you know, off the shore, uh, off the shores of America, they're there, uh, with the Mayflower compact where they're pledging obedience to King and God.

You know, the, the Mayflower, um, was a privately financed venture.

It had shareholders, they came over here with a year supply of food and, um, trading goods, uh, you know, they'd in fact missed the, uh, missed their departure by quite a few days while they were negotiating with their financiers for better terms.

So there are a lot of things that, uh, uh, that made it very, uh, very commercial.

Obviously, there-there were some religious motivations as well, but I don't think that that was the large part of, uh, the American story, even in the early days.

RUBENSTEIN: Now, in the first period, uh, you're writing about in your book, uh, obviously, there's slavery.

And if there had not been slavery, do you think American capitalism would have developed much differently?

Or would it have gone pretty much the same way even if we hadn't had slavery?

SRINIVASAN: I think that's a very difficult question to answer.

I think it's impossible to imagine, uh, what would have happened if slavery hadn't existed in America, primarily because cotton was so enormously important to the first half of the 19th century.

It was by far America's largest export, 60 to 70% of American exports, all the way to the civil war were a result of slavery, uh, and cotton.

And at the same time, if you look at America's largest asset, they were slaves.

You know, if you think about the four million slaves in this country, even the American South, when they were seceding, they had put a value on it at $3 billion, another state had to put it at $4 billion.

It was obviously very, very crucial to the development of American capitalism, uh, both in actual export terms, uh, in terms of utilization of land in America.

And in addition to what happened with slaves in terms of how they were securitized because lot of these slaves were borrowed against and they were in, in effect of the monetary base the entire American South.

RUBENSTEIN: Let's go to the second period, uh, let's say post civil war up to, let's say, the early part of the 20th century.

So, of the things that you write about that are very significant to the further growth of American capitalism, one of them is oil.

Why was oil so important?

And when did that really gets discovered?

SRINIVASAN: Well, oil was discovered much earlier.

Even the Indians knew that it had therapeutic properties and would be able to take blankets and, and soak up the oil as it seeped from the ground.

The big discovery was how to drill for oil.

And that happened in 1859, uh, in Titusville, Pennsylvania.

And pretty soon you have, uh, an oil rush.

You have men rushing to the fields, um, to, to take, fill up barrels and barrels of oil.

And pretty soon you have, uh, light in American homes.

You know, you have lamps that, um, are, are cheap and abundant.

Um, and you have, uh, the oil to be able to light, uh, light the homes in evenings where you don't have to rely on expensive candles.

So that certainly was a liberating aspect.

And again, it's one of those accidental things.

Then you have the automobile, um, almost a half a century later, and now all of a sudden you have oil, that's able to power automobiles.

So these are these accidental discoveries that are serendipitous in so many ways.

And that serve as a catalyst for American development, and oil is certainly one of them.

RUBENSTEIN: Now you write about a man named John D. Rockefeller, who was not from a wealthy family, for sure.

What did he do to make it possible for him to become the wealthiest man really, in the history of our country, as measured as a percentage of GDP that he had?

What did he actually do?

SRINIVASAN: Well, I think John D. Rockefeller was probably the, greatest organizer in American history and especially because it was so early.

This was a time when, um, corporations couldn't exist beyond their state boundaries.

So one corporation and one state couldn't own a subsidiary and enjoy limited liability in another state.

So, starting from a very young age, you know, he was, I think 21, 22, um, when the civil war had started.

And he was able to fully take advantage of both, uh, what was happening in terms of, uh, the economic boom caused by the civil war, and then slowly stumbled into, uh, oil as his primary occupation, primary business.

And he had been this great organizer that had, uh, assembled refinery after refinery, acquiring smaller companies, making it a small part of a larger whole.

And lots of his innovations were really financial organization.

Um, being able to get economies of scale, um, from this very, very rapidly growing industry, but, uh disorganized industry.

Being able to deal with the railroads and understanding the industrial infrastructure of his day and being able to fully capitalize on that.

RUBENSTEIN: Now, what about steel?

Steel is really not invented in the United States, I guess, maybe not even perfected initially, but how important was steel to the growth of American capitalism?

SRINIVASAN: Well, tremendously so.

Because, the largest industrial asset post civil war, was railroads and railroad tracks and railroad tracks built with iron tended to erode very quickly.

And steel was this incredibly, obviously a, strong metal.

And at the same time, it was extremely cost-effective.

Steel was also used for buildings.

You know, it changed the structure of urban landscapes.

What you could do with, um, a cast iron building was much more limited compared to what you could do with steel.

Uh, so certainly not just railroads, but industrial development, urban development, everything relied on steel.

RUBENSTEIN: So let's talk about electricity.

You pointed out in your book that electricity came along, relatively, uh, I'd say in the first, maybe, couple decades or so of the 20th century wasn't as if everybody had electricity.

Uh, when did electricity really get started?

And who was most responsible for electricity getting, uh, created in the United States and developed?

SRINIVASAN: Well certainly, I mean, that-that's been well-documented as, um, this great battle between Edison and Westinghouse.

But again, one of the great forgotten names, in electricity is this man named Charles Brush.

Um, you know, even in, uh, he was a, somebody that came up with a Brush lighting system in Cleveland much earlier than Edison.

And in fact, electricity took a while for it to make its way into American homes.

Even as late as 1910, the majority of homes did not have electricity.

And primarily, the reason for this was, in most cities, the gas company, was the predominant driver of light in people's homes.

So until you saw, appliances really take off, there was no reason to really switch to electricity just for the sake of evening light.

RUBENSTEIN: So World War I comes along and the 1916, '17, '18 period of time we got in the 1918, I guess it was.

Um, how did World War I affect our capitalism approach?

SRINIVASAN: Well, this is the first time when, the, federal government, uh, is able to mobilize so quickly.

It's not fighting, first of all, uh, states that it's acceded and it's much larger in terms of its scale than it was at the time of the civil war.

At the same time, it's got this new instrument, the income tax.

The income tax, had been ruled unconstitutional in 1894, 1895, I think, and eventually had to have a constitutional amendment to be able to, to, uh, enact the income tax.

So it hadn't been used, but during World War I, it went into full effect and all of a sudden the federal government now was able to utilize a new financing mechanism.

Um, and that's, what's probably one of the most transformative effects that had, carried on after the war.

In addition, uh, if you think about something like the radio, uh, this is again, war spending all of a sudden serves as a catalyst for a brand new discovery where the exigencies of war, um, creates the innovative environment for us to come with, come up with something that, um, uh, and utilize something at a much larger scale.

So before this, it was really the wireless Telegraph was the main use of radio.

Uh, but right after that, all of a sudden, uh, it was discovered that you can also have sound traveled through, uh, radio wires.

And, uh, much more efficiently, it was the, there were already, uh, ideas floating around prior to the war, but it really became a commercially viable right after the war.

RUBENSTEIN: Let's skip forward to World War II, obviously, has a major effect on the United States and capitalist system, but what was the impact of the automobile on the country?

You mentioned Henry Ford, but automobiles became much more prevalent, I guess, after World War II, is that right?

SRINIVASAN: No, first of all, before World War II, even in the twenties, uh, you know, the automobile had fully taken over this country.

You know, by, um, you know, one of the examples that I point out in the book, is the, uh, is Steinbeck's use of the Joad family, traveling across the country and their own jalopy.

You know, the idea that a poor family, during the depression, would have their own automobile and be able to go all the way to California in their own car, is just something that would be unfathomable even today in a place like India or China or Africa.

You know, by definition, a poor family does not have a car.

Yet in the 1930s, even in America, it was a very believable tale, that the Joad family would have their own automobile.

So, the automobile was incredibly prevalent.

It was very cheap.

It didn't cost very much, uh, to buy one.

And at the same time, uh, the automobile being such a, uh, enormously successful consumer product, it's what allowed American industrial capacity, despite the depression, to still be as large and as powerful as it was and where it could be repurposed very quickly to make tanks or bombers or armaments, um, and all sorts of other things.

And, and to, to go even further, the person that's in charge of, uh, you know, war industries is essentially an, an auto man.

So the automobile industry was very much, uh, vital to the war effort.

Uh, and certainly, it wouldn't have been as vital if automobiles weren't as prevalent as they were even prior to the war.

RUBENSTEIN: Now, you mentioned a couple industries that arose during this period of time, I guess, uh, before the war and World War II, but after World War II, they flourished.

They are the radio industry, the television industry, and the cinema industry.

How important were these to the growth of American capitalism?

SRINIVASAN: Well, radio and cinema were very important even prior to the war.

You know, Walt Disney had his, uh, great run in the '30s, um, well before the war.

He had a great film like, "Gone with the Wind" that is, um, enormously anticipated right after "Snow White", in fact.

And at the same time, uh, the radio was a dominant thing in the '20s.

You know, um, RCA was one of the most valuable corporations in America even, even, uh, in the '20s.

So the television industry is the medium that really took off after World War II and, um, entered American homes very rapidly in the '50s and essentially put a window, uh, window to the world inside of American living rooms.

RUBENSTEIN: So in the fourth period of your book, uh, you talk about a number of things that all of us are probably very familiar with maybe unlike some of the things you talked about earlier, because we didn't live through some of those periods.

But the period, in the fourth period of your book, let's go through some of the things you mentioned, as being very significant.

So computers, how important were computers to the growth of American capitalism?

SRINIVASAN: Well, computers are vital.

And I think the entire information revolution, obviously, um, we still don't know where that's all headed.

Um, but it's as substantial and perhaps even more transformative than the Industrial Revolution.

But interestingly, computers and computing has its roots all the way, uh, you could trace it back to 1890 and you could trace it back to the US census.

So here's this constitutionally mandated activity where every 10 years, um, you have to take a census.

And the 11th census of the United States, they decided that they were gonna count, um, uh, count the information using the Hollerith Machine.

And the Hollerith Machine used these punch cards where, you would punch the hole that, uh, corresponded with that particular data point, and you would have these electronic counters that counted them.

And eventually, Herman Hollerith, uh, becomes a, uh, uh, part of a company called, uh, CTR, you know.

Uh, and CTR eventually changes its name, uh, to IBM, International Business Machines.

And CTR was Computing, Tabulation and Recording.

So the catalyst for computing, you can trace it all the way back to 1890 and something as large scale as the US census.

And similarly, I think with computing and the Internet as a whole, a large part of this, uh, activity has largely, uh, been incubated by government spending.

At the very beginning, the needs of this, uh, the, the space age or defense spending and the needs of the Cold War, uh, were, were vital at the start of this industry.

RUBENSTEIN: Now, you talk about the importance of startups to American capitalism, particularly in the, let's say, the last few decades.

Um, the, the startup phenomenon are a uniquely American kind of thing?

And did it happened much more, let's say, in the last 20, 30 years than it did in the previous hundred years or so?

SRINIVASAN: Well, I mean, I think startups overall, uh, have always happened in terms of entrepreneurs founding companies that certainly are very much a part of the American DNA.

What's happened over the last 20 or 30 years, however, are these companies get very big, very fast.

And one of the reasons is, uh, the network.

And, you know, the network has these things called network effects.

And many of these companies, um, going from the early embryonic period to companies worth $50 billion, $100 billion within a decade, uh, has just, it's unprecedented and, obviously, um, it is a incredible phenomenon to behold.

But you can trace it all the way back to the mid-'70s when Apple and Microsoft were founded, and how transformative, um, this particular type of activity is.

The largest market cap companies in the United States now largely have been venture-backed.

RUBENSTEIN: Well, you describe another period, uh, where finance is very important, where, uh, high yield bonds help finance people, and the advent of private equity and so forth.

How important do you think all of that was to the growth of American capitalism?

SRINIVASAN: In the '80s, what you saw was the rise of junk bond financing.

But I don't think it was necessarily a catalyst for new industries.

What it really was, was a reaction to the era of conglomerates in the late '60s all the way through the '70s where you'd have mishmash of, uh, assets coupled under these large industrial giants.

And I think to, to separate that out and make it more efficient, you had the rise of junk bond financing that was able to, in effect, take over these large corporations, strip out assets that were under performing or didn't quite belong.

Um, it was exactly, in my view, high-yield financing used for, uh, leveraged buyouts was the opposite of venture financing.

So venture financing is the incubation period of companies, whereas private equity is, in a sense, the undertaker of American capitalism.

RUBENSTEIN: Now the Internet has come along in the last 20 plus years, 25 years and smart phones.

How important is, has the Internet been to the growth of American capitalism?

And now smart phones, the ubiquitous smart phones that everybody has?

SRINIVASAN: Well, the Internet has been transformative.

I mean you only need to look at, you know, the largest companies in the United States today and they're largely companies either in computing on inter, or on the Internet.

Um, you look at Amazon, Facebook, um, Google, Nvidia, um, you know, company after company, um, companies that were founded seven, 10, 15 years ago that are worth tens of billions of dollars or hundreds of billions of dollars.

In addition, I think the smart phone is one of those things that's made in China.

You know, it's a, it's a new type of economic organization, if you will, where, um, the largest market cap company in the world, Apple, doesn't make the product in the United States at all, and it's been just as much a great benefit to China as it, as it has been to the United States.

You know, if you asked in 2000 who was the expert in electronics in Asia, people would've pointed to Japan or maybe to Korea and today, that's no longer the case.

The other thing to remember.

You know, if, if you take my family, for instance, in 1984 when we had left India, we didn't, we didn't have a land line in our home.

Uh, but if you look at the vast majority of people in India today that have phones, they have never had land line telephones, they just skipped right to mobile devices.

And at the same time, the smart phone is something that allowed most Indians also skip computers altogether.

You know, the first time most Indians accessed the web was on their smart phone so they've never had a memory of accessing the web through laptops or desktops.

So it had multiple benefits, uh, both for China and for India.

RUBENSTEIN: Having studied 400 years of American capitalism in your book "Americana, A 400-Year History of American Capitalism", would you think that American capitalism is going to prosper and, and, and do well in the next 50 years or so compared to Chinese form of capitalism?

How do you compare the two?

I know you didn't study, uh, Chinese capitalism, but as an observer of what China is doing, you've mentioned it.

How do you compare Chinese capitalism, its prospect over the next 50 years to say, American capitalism?

SRINIVASAN: Well, I will tell you I'm, I'm very, very worried about the prospects for not just American capitalism but America on the whole.

And in terms of its comparisons to China, you know, China has, I would say, a different form of capitalism which is a much more state-directed capitalism and they're using the full power of the state to organize, uh, themselves and not just leaving it entirely to the market, which is ironic, because you have a communist country that knows exactly when to use the levers of the free market and when to use the full power of the state.

And that's something that, I think, we've lost in America.

And so, in my view, if China decides to electrify and decides to address something like, let's say, climate change, they're gonna do so very rapidly.

You know, China today doesn't have really Chinese branded cars that they export.

But tomorrow if they decide that they're gonna completely leapfrog, just like they did with the, the smart phone, that they're gonna leapfrog that type of manufacturing altogether and be the leader in electric cars, I think they will.

I think that they have, have shown a demonstrable competence over the past 20 years, uh, and, you know, I think that America's certainly gonna have its work cut out for it, uh, in, in meeting this challenge.

RUBENSTEIN: Okay, well, I want to thank you for a very interesting conversation.

We've been in conversation with Bhu Srinivasan, and who's written an extraordinarily interesting book about American capitalism.

Thank you very much for being in conversation with us today.

SRINIVASAN: Thank you, David.

Thank you for having me on.

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