(FORTUNE Magazine) – Who's missing from FORTUNE's list of great capitalists? Europeans. The European Union has almost exactly the same GDP as America; it has world-class companies and a rich commercial tradition. But when it comes to creating the businesses that have changed the world, this has clearly been the American century.

Europe has had no shortage of talent. It was an Italian, Guglielmo Marconi, who invented the radio, but Americans have become the world's entertainers. It was a 15th-century German who introduced the West to printing, but it was an American, Henry Luce (founder of Time Inc., FORTUNE's parent), who invented mass media. Britain's Alan Turing was the mind behind the first computer, but it was the Watsons, father and son, who made a business of it at IBM. The Porsche family might well have outscored the Ford family in an engineering quiz, but who created the car industry?

The scale of America has always been useful: A huge market right outside the office door encourages the propensity to think big. "Europe used to be a bunch of little countries with barriers between them," notes Sam Peltzman of the University of Chicago Graduate School of Business. "That doesn't foster a lot of innovation." America has also benefited from political stability. Europe suffered much more from the two world wars and is still fiddling with its map. And while America has had broadly consistent economic policy this century, the same cannot be said of Europe, where countries have flirted with everything from communism to autarky.

The bottom line is that the American economy this century has been defined chiefly by businessmen (with a nod to FDR and perhaps Reagan). Europe's economic history is much more heavily weighted with politicians. Four figures stand out: V.I. Lenin, Ludwig Erhard, Jean Monnet, and Margaret Thatcher.

The economic system Lenin created was, with variations, imposed on half of Europe for half a century. After World War II, Erhard brought Germany back to prosperity and the community of nations. Without Monnet, the Frenchman who created the European Coal and Steel Community, there would probably not be a European Union. In the 1980s, Thatcher reasserted the virtues of the market and killed socialism in Britain. And economists John Maynard Keynes and Friedrich Hayek defined the terms of economic debate for 60 years. These are the people who, for better or worse, have shaped Europe's economy the most this century.

THE CENTRAL PLANNER

A child of the bourgeoisie he so detested, Vladimir Ilich Lenin did not know much about economics. His most nuanced economic thought was that "communism is Soviet power plus electrification." But it was during his rule (1917-24) that the Soviet Union developed the fundamentals of communist economics: central planning, collective farming, nationalized industries, and five-year plans. His successor, Josef Stalin, did much the same, only more so. Beginning in the 1920s, heavy industry became the hallmark of Stalinist economics, and in fact the Soviet Union probably industrialized faster under his whip than it would have otherwise. But it is hard to rate this a success. The Soviets basically proved that if the state threw enough money and slave labor at a project, it could build really big things. For decades, the fundamentals of Leninist economics were followed with deplorable consistency. Soviet industry became known for producing shoddy goods and some of the worst fashions known to man. Soviet agriculture was a disaster; with lugubrious humor, Russians joked that it was plagued by 74 years of bad weather.

Lenin never considered himself an economic thinker--and he was right to regard his talents in that direction modestly. So it is ironic that communist economics spread to half of Europe, parts of Latin America and Africa, and China, Indochina, and North Korea. Lenin's was not a constructive economic model, but it was, tragically, an influential one.

THE ECONOMISTS

Unlike Russia, America and most of Europe enjoyed a boom after World War I. Then the Depression struck. How could such a disaster happen? And how could it have been prevented?

From Britain came a ringing voice who declared he knew. The problem, said John Maynard Keynes in The General Theory of Employment, Interest and Money (1936), was that during down cycles, investment slows. That reduces output and eventually employment. The solution was to increase government spending to boost aggregate demand. "Can America spend its way to recovery?" he asked in an article during the Depression. "Why, obviously!" Keynes died in 1946, but his intellectual heirs would stretch the general theory to the limits, using his insights about the savings-and-investment cycle to convince governments that their goal should be full employment, and that inflation could be kept in check through wage and price controls.

Keynesians would rule the West's economic roost until the mid-1970s, when reality, in the form of inflation and unemployment rising at the same time (which was supposed to be impossible), would shake their certainty. Beginning in the 1960s, theoretical counterblasts by monetarists and others also muddied the Keynesian mystique. But the most interesting critique of Keynes came while he was still alive.

Keynes' foil was the Austrian economist Friedrich Hayek. He argued that it is folly to expect that government can ever have all the information it needs to plan economic life well; that is the job of prices. Hayek added an ethical dimension to his view: He believed that the central planning necessary to Keynesian management would lead down The Road to Serfdom (1944), the title of his most famous book (dedicated to "the socialists of all parties"). Economic and political liberty were entwined, Hayek wrote; diminish one, and the other is also threatened. Hayek was ridiculed for this nonsense.

One of the advantages of a long life, though, is that sometimes the world comes around. That, at least, is what happened to Hayek, who died in 1992. His opposition to central planning and Keynesian demand management made him the philosopher king of the market renaissance of the 1980s. And with the collapse of communism, his analysis of the weaknesses--and cost--of collectivization looked prescient. (It was Hayek's work, not Keynes', that was smuggled into Eastern Europe and banned in China.) At century's end, Hayek has gotten his due, and the Keynesians have been humbled a little. That said, Hayek overstated his case. Since 1944, Europeans have voluntarily handed over large chunks of their wealth to government. While the wisdom of this is questionable, Europe's democratic welfare states are hardly serfdoms. Still, Hayek's was a brave reminder that state economic control can carry political as well as economic costs.

HERR DEUTSCHE MARK

In Germany, Ludwig Erhard did not need to be convinced of the virtues of a free market. With several chins, flying eyebrows, a shortened arm, and orthopedic boots (legacies of World War I shrapnel injuries), Erhard was hardly physically prepossessing. But he had a sense of mission that made him that rarest of things: an economist who became a popular hero. "Erhard," says Lester Teltzer of the University of Chicago, "was the most important European of his time."

His big moment came in 1948. The German economy was still in tatters, in part because the reichsmark was so degraded; barter and cigarettes were more reliable currencies. Imports and exports cannot be financed through cigarettes, though, and in June 1948, the British and American occupation authorities imposed a currency reform, exchanging reichsmarks for a new currency, the deutsche mark, at a rate of roughly ten to one.

Erhard's job, as finance director of the American and British zones, was to make the currency reform work smoothly, which he did. But he took the logic of that reform a step further. Legend has it that the Sunday after the currency reform began, Erhard sneaked into a radio station in Berlin to announce over the air the end to most price controls and all rationing. His Anglo-American masters were furious. Any change in rationing, they reminded him, was supposed to be cleared with them. "I have not relaxed rationing," Erhard coolly replied. "I have abolished it."

His premise was that a real currency needed to operate in a real economy, not one in which price and market signals were suppressed through rationing and controls. "From now on," he said, "the only ration card will be the mark." Erhard was sure that goods would become more readily available if businesses could feel confident of their ability to invest and profit. But the immediate effects of deregulation were higher prices and unemployment. By November, unions were demonstrating for a return to rationing: ERHARD TO THE GALLOWS, read angry banners.

Erhard hung tough--and he was proved right. By 1949, prices had leveled off. Three years later the economy was back to its prewar levels of output. Soon after that, Germany was humming along so well that Erhard, who served as Finance Minister from 1949 to 1963, declared, "We must become the teachers of Europe." By 1958 the rest of Europe was back to its usual preoccupation with how to contain those damnably industrious Teutons. The turnaround was so dramatic that (of course) the Germans created a word for it: Wirtschaftswunder, which means "economic miracle." Erhard never liked the term. This was no miracle, he insisted: Given the opportunity to create wealth, the German people simply did so. Any country could follow that example: The lesson was that the market was a mechanism to be used in bad times as well as good.

THE FATHER OF EUROPE

Another crucial factor in the making of modern Germany was the generous peace. The Marshall Plan helped put capital into hands that could use it well. And when Germany was ready to rejoin the world, a hospitable and imaginative Frenchman had a place ready for it. The man was Jean Monnet, and the place was the European Coal and Steel Community. The ECSC, which began operation in 1953, removed internal tariffs, customs, and differential freight rates in six countries (Belgium, France, Germany, Italy, the Netherlands, and Luxembourg) for coal, iron ore, scrap, and steel. This common market, FORTUNE pointed out at the time, was a cartel; in a truly free market for these goods, Germany would have wiped the floor. To Monnet, such criticism was worthy only of a Gallic shrug. The ECSC was not designed to create an efficient market, but to integrate Germany into the West as an equal of France, and without stirring resentment. (Monnet had the French technocrat's suspicion of free enterprise, anyway: His blueprint for France's post-war economy was almost the opposite of Erhard's--and was not nearly as successful.)

Monnet's insight was that if France and Germany were bound together economically, they would be less likely to go to war. Ultimately, he hoped, reconciliation would go much further. "The pooling of coal and steel is but a beginning," he said in 1953. "The union of the peoples of Europe is the end."

The ECSC was autocratic--Monnet, after all, was the head of it--and its record was spotty. Nevertheless, the Six were happy enough with the experiment to sign the Treaty of Rome in 1957. That created the Common Market, which lowered trade barriers for most goods. Imports, industrial production, and GDP soared. Europe was transformed. The manager of the Galeries Lafayette in Paris estimated that in 1957, only 1% of the shopping center's goods were imported. When he set up an exhibit of Italian goods, his suppliers were outraged. By 1961, almost 10% was imported, and Italy was chic. Europe had gone international.

Today's 15-member European Union is the direct descendant of the ECSC and the Common Market. Those early attempts at economic integration have broadened. In 1992, the EU became a single market. This year, a single currency debuted.

At the distance of almost half a century, the political leap of faith that the ECSC represented is hard to appreciate, but it was a breathtaking departure from the past. The EU has had its problems, of course: Since the start, it has been plagued with complaints about accountability, bureaucracy, and that eternal bugbear, farm subsidies. But as a whole, it has been a positive force; notably, none of its members have gone to war with one another. When Monnet died in 1979, many obituaries referred to him as "the father of Europe." That is no exaggeration.

THE IRON LADY

As Prime Minister for almost 12 years, Margaret Thatcher became a fixed point in the political universe. So it's easy to forget that she came to power not as an establishment figure, but as a rebel with a cause. Thatcher was abrasive, maddening, and not richly endowed with humor. She was also essential. By the 1970s, Britain had become known as "the sick man of Europe"--stuck in a low-productivity, low-confidence, high-conflict rut. The final straw came in the "winter of discontent" of 1978-79, when strikes left the dead unburied, the garbage uncollected, and operating rooms shut down. In the wake of that disaster, the Conservatives, led by Thatcher, won the May 1979 election.

Thatcher rejected the conventional wisdom that the unions could not be affronted, that nationalized industries had to stay that way, and that Keynesianism was the natural order. Instead, she argued, inflation should be curbed through control of the money supply. Drawing on the ideas of Hayek, she presented the market as a liberating force--for example, by selling public housing to tenants and breaking up monopolies. There was a principled argument here as well. The market, Thatcher argued, was fairer than socialism because it imposed accountability, a concept lost among state-owned businesses that felt entitled to repeated feeds at the public trough. These were unpopular opinions. Britain had long operated under the consensus that public goods must be provided by the public sector. Thatcher's insistence that this was not so was quite literally unbelievable to much of the country.

The counterrevolution began in her first budget, which lowered tax rates; raised the sales tax; abolished foreign exchange, wage, and price controls; raised prescription drug prices; cut Labor's spending plans to the bone; and took the first modest jabs at reducing union power. Although this was pretty much what Thatcher had said she would do, the reaction was shock and horror.

After a year in office, Thatcherism looked like an utter failure. Interest rates and inflation were both around 20%. Strikes and unemployment had risen. In the early 1980s, Britain fell into the worst recession in 50 years. "We did not promise you instant sunshine," Thatcher told shell-shocked voters. But the woman whom the Soviets dubbed "the Iron Lady"--an insult she adopted gladly--stayed the course. By the time she left office in November 1990, Britain had been transformed. From 1979 to 1990, state-owned industry was cut by almost two-thirds; productivity rose faster than in the U.S. or the rest of Europe; growth more than doubled; and public indebtedness declined. The percentage of Britons who owned stock had tripled; real income rose among all classes; and the rate of homeownership exceeded that of America. Strikes? What strikes?

Margaret Thatcher's dream was to kill socialism in Britain. And she did. Even the Labor Party no longer believes in it. Though Tony Blair opposed every bit of the Thatcher revolution while he was in opposition, in leadership he has embraced most of it--and is even trying to export some distinctly Thatcherite principles, such as flexible labor markets, to continental Europe. Britain is still poorer than Germany and less productive than France. But the former sick man of Europe looks readier than either of them for the 21st century.

Consumed by politics, Europe this century has lacked the continuity needed to build cutting-edge corporate empires. With the exception of Russia and the Balkans, however, it is now freer, richer, and more peaceful than it has been in centuries. Europe is still not as entrepreneurial as the U.S., and way too bureaucratized. But when FORTUNE writes the history of 21st-century business, expect more than a few European entrepreneurs to make the list.