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Global Economic History

Editor(s):Roy, Tirthankar
Riello, Giorgio
Reviewer(s):La Croix, Sumner

Published by EH.Net (December 2019)

Tirthankar Roy and Giorgio Riello, editors, Global Economic History. London: Bloomsbury Academic, 2019. xiv + 370 pp. £26 (paperback), ISBN: 978-1-4725-8843-2.

Reviewed for EH.Net by Sumner La Croix, Department of Economics, University of Hawai‘i-Mānoa.

Tirthankar Roy and Giorgio Riello invited twenty-one contributors to explore one specific question: Why does a global perspective on economic history matter? The volume focuses on the last five centuries and takes the Great Divergence as the fundamental phenomenon around which our understanding of global economic history should be organized. The Great Divergence refers to the gap in wages and living standards that emerged, sometime between 1700 and 1800, among the most successful economies in Europe and the most successful economies in the Middle East, China, and India.

The first seven of the book’s nineteen chapters are devoted to reviewing our understanding of the Great Divergence, which has generated an enormous literature in history and economic history since Ken Pomeranz’s 2000 book on this topic. In this volume (chapter 1), Prasannan Parthasarathi and Pomeranz review this debate and criticize researchers who argue that the divergence emerged as early as the late seventeenth century in India and China (Broadberry and Gupta, 2015) and those who argue that the application of science to produce useful productive knowledge was the “critical” development in the early years of the industrial revolution in Europe (e.g., Mokyr, 2016). Jack Goldstone (chapter 2) provides a lucid chapter on the dating of the Great Divergence that features discussions of “efflorescent” growth in leading economies prior to the nineteenth century. (Efflorescent growth occurs when a brief spurt in productivity leads to several decades of high but ultimately unsustainable output growth.)

Patrick O’Brien (chapter 3) and Karel Davids (chapter 4) consider “useful and reliable knowledge and technology as two of the key factors explaining differing trajectories of global economic change” (p. 10). Both express some skepticism that changes in science and philosophy were accumulating in Europe during the seventeenth and early eighteenth centuries that ultimately led to the Great Divergence. Regina Grafe and Maarten Prak’s (chapter 5) interesting chapter considers how changes in organizations and institutions across different levels of society were both a response to and a cause of economic growth. Trevor Burnard (chapter 6) reviews how the development of plantations in the Americas contributed to British and French growth in the seventeenth and eighteenth centuries, while Maxine Berg (chapter 7) considers how changes in global consumption patterns affected the emergence of the Great Divergence.

The next set of chapters addresses a broad set of factors behind the emergence of the world economy after 1500. In their wide-ranging survey of the growth of global trade, Tirthankar Roy and Giorgio Riello (chapter 8) argue that “soft globalization” — trade in luxury goods — was an important precursor to the nineteenth century emergence of “hard globalization” — mass trade in commodities. J.R. McNeill (chapter 9) provides a succinct review of interactions between the global environment and the world economy, including such topics as the Columbian exchange, the environmental consequences of plantation economies, the effect of industrialization on the environment and “a rumination upon the concept of the Anthropocene” (p. 158). Alessandro Stanziani (chapter 10) contrasts the development of free labor forces in Britain and France, and the rise of indentured labor as slavery was abolished. Kaoru Sugihara (chapter 11) discusses how differential resource endowments affected industrialization in different parts of Asia from the mid-nineteenth to the mid-twentieth century and then briefly reviews the process by which industrialization diffused throughout Asia in the second half of the twentieth century. Bernd-Stefan Grewe (chapter 12) discusses the recent use of “commodity histories,” “commodity chain” and “value chain” approaches in economic history and then applies and critiques applications of these approaches to the study of gold in the world economy. And Youssef Cassis (chapter 13) provides a short survey of the rise of global finance from 1850 that focuses on the rise of international financial centers in both developed and developing countries.

The volume closes with six short (13-20 pages each) tightly-argued chapters that provide regional perspectives to global economic change over the past 400 to 500 years: Gareth Austin (Africa), Alejandra Irigoin (South America), Debin Ma (East Asia), Peer Vries (Europe), Bishnupriya Gupta and Tirthankar Roy (South Asia), and J. Thomas Lindblad (Southeast Asia). The chapter by Alejandra Irigoin is particularly worth reading, as it stands as a plea for more research by economic historians on how trade flows in the Pacific Ocean evolved from their origins in the Spanish trade in silver and Chinese goods in the seventeenth century and how they ultimately affected the global economy.

The book benefits from lucid writing by its contributors who cover extensive terrain in a small amount of space as they argue for a more global perspective on virtually every important issue addressed by economic historians. The literature on the New History of Capitalism appears in several chapters, with some authors dangerously close to ignoring its many flaws in their acknowledgement of its insights (Hilt, 2017; Olmstead and Rhode, 2018). The volume is relatively short, just 359 pages, given its ambitions to cover so many topics and to provide regional overviews spanning several centuries. The brevity may be due to the authors’ desire for the book to serve as a textbook for global economic history courses (as stated on the back cover), but the brevity comes at the cost of giving too little attention to European developments. For example, the authors refer repeatedly to the eighteenth- and nineteenth-century industrial revolution but tell the reader almost nothing about it. As a textbook, it cannot stand alone, but as a stimulating summary of some of the new contributions to global economic history, it is well worth reading.


Broadberry, Stephen, and Bishnupriya Gupta. “The Early Modern Great Divergence: Wages, Prices, and Economic Development in Europe and Asia, 1500-1800,” Economic History Review 59 (2006), 2-31.

Broadberry, Stephen, Hanhui Guan, and David Daokui Li. “China, Europe, and the Great Divergence: A Study in Historical National Accounting, 980–1850,” Journal of Economic History 78 (2018), 955-1000.

Hilt, Eric. “Economic History, Historical Analysis, and the ‘New History of Capitalism,’” Journal of Economic History 77 (2017), 511-536.

Mokyr, Joel. A Culture of Growth: The Origins of the Modern Economy. Princeton: Princeton University Press, 2016.

Olmstead, Alan, and Paul Rhode, “Cotton, Slavery, and the New History of Capitalism,” Explorations in Economic History 67 (2018), 1-17.

Pomeranz, Kenneth. The Great Divergence: China, Europe, and the Making of the Modern World. Princeton: Princeton University Press, 2001.

Sumner La Croix, emeritus professor of economics at the University of Hawai‘i-Mānoa, is the author of Hawai‘i: Eight Hundred Years of Political and Economic Change, University of Chicago Press, 2019.

Copyright (c) 2019 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (December 2019). All EH.Net reviews are archived at

Subject(s):Economywide Country Studies and Comparative History
Markets and Institutions
Geographic Area(s):General, International, or Comparative
Time Period(s):16th Century
17th Century
18th Century
19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII

Feeding the World: Brazil’s Transformation into a Modern Agricultural Economy

Author(s):Klein, Herbert S.
Luna, Francisco Vidal
Reviewer(s):Davis, C. Austin

Published by EH.Net (December 2019)

Herbert S. Klein and Francisco Vidal Luna, Feeding the World: Brazil’s Transformation into a Modern Agricultural Economy. New York: Cambridge University Press, 2019. xvii + 453 pp. $33 (paperback), ISBN: 978-1-108-46097-2.

Reviewed for EH.Net by C. Austin Davis, School of International Service, American University.

In Feeding the World: Brazil’s Transformation into a Modern Agricultural Economy, Herbert S. Klein and Francisco Vidal Luna describe Brazil as “continental.” Indeed, one thing that impresses about the transformation documented by the authors is its broad sweep. The dramatic modernization of Brazilian agriculture took place across an area larger than the continental United States. It included a diversity of crops and livestock cultivated in rain forest, savanna, and subtropical landscapes. But, despite the breadth of modernization, it is by no means uniform or complete. Productivity of land and labor evolved differently across a number of dimensions, including geography, commodity, and farmer characteristics. These are two central contributions of Klein and Luna’s work: first, to describe authoritatively Brazil’s agricultural development and, second, to develop hypotheses from the juxtaposition of broad and uneven progress.

This transition can be systematically observed via agricultural censuses, population censuses, and a range of other data sources. Klein and Luna use detailed, comprehensive, and high-quality data to chart the path of Brazilian agriculture. As late as 1960, they show, Brazil was globally competitive in only sugar and coffee, two crops that grew especially well in certain regions of Brazil. Today, deriving from eye-catching increases in productivity throughout the country, Brazil’s agricultural exports are diversified, including meat, corn, soy, and citrus, among other products.

Exploiting disaggregated data, Klein and Luna reveal the heterogeneity of progress. In three chapters each focusing on the experience of a single state, we see how the adoption of new agricultural practices differed significantly across space. Mato Grosso do Sul exemplifies the development of the cerrado, a vast savanna in central Brazil; the conversion of frontier plains into large soybean farms was facilitated by new varieties and practices, by large stretches of flat land well suited to mechanization, and by significant migration. Rio Grande do Sul entered the late twentieth century as a productive agricultural region with extensive vertical integration and a relative abundance of small commercial farms; since 1970, soybeans have become increasingly important, but the state has increased production of its diverse mix of crops and livestock products. For almost two hundred years, São Paulo has maintained its position as Brazil’s premiere agricultural producer, but it too experienced major change since 1960, with coffee being superseded by sugar, oranges, and pastoral products.

Disaggregating by establishment income, the authors highlight a bifurcation of Brazilian agriculture between large, modern, high-productivity farms and smaller, less productive farms. In a chapter on Brazil’s relatively modest land reforms, we learn that about two-thirds of Brazilian farms generate gross income below two times the minimum wage. Many of these have negative net income. Klein and Luna go on to emphasize regional differences in the distribution of land and the education of farmers, noting that the receipt of technical assistance is highly skewed towards larger farms with well-educated managers.

From the juxtaposition emerges a number of hypothesized causes for the changes in Brazilian agriculture. Klein and Luna develop these hypotheses by combining data with other sources describing events, policies, and institutional arrangements. Broad progress suggests an important role for policy or other forces operating at a national level. For instance, various schemes for subsidized credit, price controls, and regulatory stocks existed during the period of modernization. Many of these were phased out before or during the liberalization of the 1990s, when lowered trade barriers brought international competition to both input and output markets. The government developed a sophisticated network of research institutions to adapt and develop technologies for local conditions.

The authors also present more local explanations; they suggest the astounding expansion of soy cultivation in the Center-West region owes much to the development of transportation infrastructure. A lack of education may be to blame for persistent poverty and low productivity among the country’s many family farms. The reader’s attention is drawn to differences in industrial organization across products and regions. Finally, path dependence is suggested as an explanation for modern outcomes, with historical episodes of international migration and infrastructure development appearing to have lasting consequences.

So where does Klein and Luna’s analysis fit in the broader literature on the modernization of agriculture? In economics, this literature has several strands. One is macro oriented, developing models to explain cross-country productivity differences and the long-run dynamics of structural transformation. A few recent examples include Donovan (2019), Gollin and Udry (2019), Herrendorf and Schoellman (2015) and Lagakos and Waugh (2013). Another focuses on the micro-level determinants of technology adoption in agriculture. Some of these studies analyze historical episodes of technology adoption while others evaluate barriers to technology adoption in contemporary settings. Readers of this site may be acquainted with the historical research, but Alan Olmstead and Paul Rhode have made fine contributions, e.g. (Olmstead and Rhode, 1995). Economists have long been interested in developing-country adoption of agricultural technology, with research preceding the well-known Foster and Rosenzweig (1995) and continuing, for instance, through the Agricultural Technology Adoption Initiative ( Generally, this work aspires to credibly identify causal mechanisms through some combination of high-quality microdata, quasi-experimental variation, randomization, and theory.

Klein and Luna’s work relates to these literatures, but it is not fully contained by them. The book relates to the macro literature insofar as it documents the experience of a large country economy over many decades. They connect to the micro literature both through their use of microdata, from which they draw a rich description of Brazil’s agricultural transformation, and through their attention to causal mechanisms. The authors propose drivers of transformation, with special focus on policy-related explanations. Where the book departs from the economics literature, it is less concerned with developing formal models of structural transformation or rigorously estimating causal relationships from the data.

Reading as a microeconomist, it is these hypothesized drivers of transformation that consistently aroused my curiosity and further convinced me that Brazil offers the opportunity to study first-order questions related to structural change and technology adoption in agriculture. For instance, educational attainment is extremely low among small farm operators, but almost half the operators of large, highly productive farms are illiterate. How important is operator education, then, in productivity and technology adoption? Do the increases in productivity that characterize structural transformation originate within agriculture or result from changes in other sectors? Relatedly, factor prices receive limited quantitative analysis from Klein and Luna. But surely they alter farmer behavior? Can we separate the effects of historic events like the train and port investments in São Paulo from geographic characteristics of the state?

Structural change remains an essential topic in a world that where subsistence agriculture coexists with autopiloted combines, where wealthy, service-driven economies coexist with poor, agricultural economies. Combined with the looming uncertainties of climate change, Klein and Luna’s work towards understanding transformations in agriculture is more relevant than ever.

Donovan, K. (2019). Agricultural Risk, Intermediate Inputs, and Cross-Country Productivity Differences. Working Paper.

Foster, A. D., and Rosenzweig, M. R. (1995). Learning by Doing and Learning from Others: Human Capital and Technical Change in Agriculture. Journal of Political Economy, 103(6), 1176-1209.

Gollin, D., and Udry, C. R. (2019). Heterogeneity, Measurement Error and Misallocation: Evidence from African Agriculture. NBER Working Paper 25440.

Herrendorf, B., and Schoellman, T. (2015). Why is Measured Productivity so Low in Agriculture? Review of Economic Dynamics, 4(18), 1003-1022.

Lagakos, D., and Waugh, M. (2013). Selection, Agriculture, and Cross-Country Productivity Differences. American Economic Review, 2(103), 948-980.

Manuelli, R. E., and Seshadri, A. (2014). Frictionless Technology Diffusion: The Case of Tractors. American Economic Review, 104(4), 1368-91.

Olmstead, A. L., and Rhode, P. W. (1995). Beyond the Threshold: An Analysis of the Characteristics and Behavior of Early Reaper Adopters. Journal of Economic History, 55(1), 27-57.
C. Austin Davis is an Assistant Professor of Economics at American University’s School of International Service and a Postdoctoral Associate at Yale University

Copyright (c) 2019 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (December 2019). All EH.Net reviews are archived at

Subject(s):Agriculture, Natural Resources, and Extractive Industries
Geographic Area(s):Latin America, incl. Mexico and the Caribbean
Time Period(s):20th Century: WWII and post-WWII

Bagehot: The Life and Times of the Greatest Victorian

Author(s):Grant, James
Reviewer(s):Mehrling, Perry

Published by EH.Net (November 2019)

James Grant, Bagehot: The Life and Times of the Greatest Victorian. New York: W.W. Norton, 2019. xxxi + 318 pp. $29 (hardcover), ISBN: 978-0-393-6091-6.

Reviewed for EH.Net by Perry Mehrling, Pardee School of Global Studies, Boston University.

James Grant views Bagehot (1826-1877) fundamentally as a financial journalist, indeed a master of the “near-literature of high journalism” (p. 293), which is to say someone much like himself. His evident deep admiration rests fundamentally on appreciation of Bagehot’s distinctive writing style, and also of his astonishing productivity as editor of The Economist. It takes one to know one.

But Grant writes also as a confessed libertarian deeply distressed by the use that has been made of Bagehot’s Principle, which recommended central banks in a crisis to lend freely at a high rate, by successive generations of central bankers and specifically by Ben Bernanke during the financial crisis of 2007-09. How could Bagehot, a conservative banker in his bones, and a political liberal committed to free trade and the gold standard, have lent his authority to the disastrous doctrine that birthed too-big-to fail? “If an archaeological seeker of the origins of the socialization of risk in high finance wants to find clues, let him or her begin with an excavation of Lombard Street” (p. 268). Bagehot’s advocacy for lender of last resort was of course controversial in his own day. Grant makes clear that on this matter he sides with Bagehot’s antagonists — George Norman, Thomson Hankey, Lord Overstone — rather than with Bagehot himself.

It was not Bagehot’s only lapse of judgement. In his commentary on the American civil war, Bagehot famously supported the South rather than the North, and wrote disparagingly of President Lincoln, although he was quick to change sides once the North surprisingly prevailed. Grant chalks that earlier misjudgment up to class bias, and goes on to suggest that misjudgment on lender of last resort may have similarly stemmed from the distorting effect of self-interest, since Bagehot was a stockholder in Stuckey’s Bank. So long as the Bank of England was willing to hold reserves for the rest of the banking system and to lend them freely in times of stress, banks like Stuckey’s could safely hold less reserves themselves and also run higher leverage on any given capital base, so generating greater profits and paying out higher dividends.

As biography, this book is a ripping read, painting a vivid picture of the man warts and all, not hiding his lifelong misogyny and “scorn for those he considered lesser beings” (p. 229), situating him not only in his time (“age of discussion”) but also among his contemporaries, many of whom are brought alive in brief biographical sketches. Like Bagehot himself, Grant is a compelling writer, and also an empathetic storyteller, and he has quite a story to tell.

Born the son of Watson Bagehot, a partner in Stuckey’s Bank, Walter Bagehot was from the beginning a brilliant student. Study of law shaped his intellect, but did not ultimately enable him to avoid following in his father’s footsteps as a country banker. Resigning himself to fate, he apparently resolved to use the spare time afforded by his profession to pursue authorial ambition, initially literary. These writings brought him to the attention of James Wilson, editor of The Economist, and that’s where the financial journalism began, most significantly with a three-part series criticizing the 1844 Bank Charter Act, signed simply “A Banker.” Marrying Wilson’s eldest daughter Eliza, Bagehot in effect joined the firm, and upon Wilson’s premature death in 1860 took over as editor himself, again resigning himself to apparent fate.

In subsequent years, Bagehot earned his living as a country banker and earned renown with his pen, but the biggest disappointment of his life was his repeated failure as a politician. A close and trusted advisor of the Liberal leader William Gladstone, Bagehot nonetheless never managed to win his own place in the House of Commons, though not for lack of trying. Indeed Grant goes so far as to paint Bagehot’s masterwork The English Constitution (1867) as a kind of campaign document, establishing “Bagehot’s reputation as the keenest political, social, and financial observer of his day” (p. 185). Finally accepting political failure, Bagehot turned his attention instead to economics, starting with Lombard Street in 1873. But this venture was cut short by his premature death in 1877, yielding only a collection of essays Economic Studies (1880) published posthumously by his friends. Thus Bagehot never managed to win a place in the pantheon of economists either. He would of course become famous for the Principle that bears his name, but for Grant that is more a mark of shame than of pride. Better to celebrate his brilliant financial journalism.

It’s a nice story but for me, sometime monetary historian as I am, the biggest weakness is the failure to place Bagehot properly within the history of economic thought. We hear how Bagehot cut his eyeteeth at The Economist on critique of the Bank Charter Act of 1844, which divided the Bank of England into an Issue Department that issued notes against gold, and a Banking Department that discounted bills and made advances. But we hear nothing much about the raging economic debate that surrounded that Act, a debate that pitted the so-called Currency School against the Banking School. Pretty clearly, Bagehot weighs in on the Banking School side, insofar as he insists on the credit character of bank notes, and the importance of bank deposits as close money substitutes. But there is no mention of the classic Banking School texts of Thomas Tooke (1844) and John Fullarton (1845), both of which famously emphasized the supposed self-regulating mechanism of flux and reflux, whereby a credit currency expands and contracts to meet the needs of trade. It’s an important omission because, against this historical background, Bagehot’s contribution to economics seems more considerable than Grant admits. Simply put, Bagehot more than anyone else was responsible for separating the Banking School from the doctrine of laissez-faire. As Bagehot himself put it in Lombard Street: “Money will not manage itself, and Lombard Street has a great deal of money to manage.”

Grant misses this because of course it is exactly what he finds most objectionable about Bagehot. Just so, he quotes the passage just cited (p. 272) but makes clear that he sides with the “more far-sighted” Hankey who, in his stolid Principles of Banking, anticipates the eventual bad consequences of deviation from strict laissez-faire. “A century and a half after Bagehot and Hankey stopped quarrelling, it is the great author’s obscure, rhetorically overmatched adversary whose foresight shines brighter” (p. 281). Bagehot did not originate the idea of lender of last resort. “He did, however, popularize and legitimize the proposition, controversial at the time but now taken as revealed truth, that a central bank owed a public duty to private persons dealing with large sums of money … a special obligation to the citizens who present themselves as borrowers and lenders, investors and speculators” (xiv, xvi).

Here, I’m sorry to say, Grant’s libertarian blinders lead him seriously astray as a biographer. For Grant, “the underlying question was one of political philosophy” (p. 32). Not so for Bagehot, practical banker as he was. Indeed, I would suggest that for Bagehot the problem of managing Lombard Street was nothing more than the problem of managing Stuckey’s Bank writ large. The central bank is, after all, a bank, albeit at a higher level in the system.

In Bagehot’s day, the basic banking business was the discounting of 90 day commercial bills, earning the spread between the yield on those bills and the cost of funds, a rate of zero for bank notes (Stuckey’s notes as well as Bank of England notes) but positive for bank deposits (Stuckey’s as well as the Bank of England’s). In good times commercial bills are self-liquidating, bringing a regular flow of cash into the bank as repayment which is available to meet any deposit withdrawal or note redemption. Occasional default can be absorbed in bank capital, and cash flow disruption can be absorbed from reserve holdings and rediscount with other banks, ultimately with the Bank of England. The secret of safe banking is therefore to confine bank assets to these self-liquidating commercial bills, eschewing especially long term mortgage credits which not only lock up funds during the term of the mortgage but also have no natural source of liquidation even at maturity, short of selling the underlying referenced property. Discount houses that stray into speculative lending, as did Overend Gurney, get their comeuppance in times of tight money when they find themselves unable to meet their cash flow commitments from their illiquid asset holdings.

The problem however comes not so much from the failure of a single overextended firm but from the generalized scramble for cash that can follow. That’s where lender of last resort comes in. So long as the problem is merely an internal drain, which is to say domestic customers demanding notes rather than deposits, Bank of England notes rather than Stuckey’s notes, and even gold rather than Bank of England notes, the problem is inherently manageable. It’s really just a balance sheet operation, and once the panic subsides holders of zero-yielding gold and notes can be expected gladly to replace emergency central bank lending at a more reasonable but positive yield. The problem is harder in the case of an external drain, when foreign customers not only demand gold but also take it out of the country. If a high discount rate fails to stem that tide, then suspension of convertibility becomes inevitable. Those left holding notes just have to wait for resumption, or sell their notes for whatever the market will bear, so realizing a loss.

Grant’s account largely avoids engagement with these dynamics of panic, which threaten good banks as well as bad banks. His mantra throughout the book is Hankey’s mantra, “A good banker had no need of a central bank and a bad banker had no claim on a central bank” (p. 164), and he imagines that were it not for the artificially imposed monopoly of the Bank of England, reserves would be decentralized with each bank taking care of its own needs. But Bagehot’s whole point is precisely that, in a crisis, even good bankers may have need of a central bank. (Indeed, even good central bankers may have need of suspension of convertibility.) Confining bank assets to purportedly self-liquidating bills does no good when market disruption prevents your borrowers from paying you. It is just not true that commercial bills “automatically” liquidate, as Grant asserts (p. xxv). Would that it were.

But Bagehot was about a lot more than just lender of last resort. Although a conservative traditional banker himself, he realized that in his time it was becoming increasingly impossible to confine the social role of banking merely to the discount of commercial bills. Longer term finance was crucial for the capital development of the nation, and England was quite rightly following the innovation of France in this respect. That genie was not going back into the bottle, however much conservative bankers of yesteryear might deplore it, and the real question was therefore how best to adapt to it. In this context, Bagehot’s Principle, which urged free lending against securities that would be good in normal times, can be seen not so much as a radical expansion of central bank responsibility but rather as a conservative banker’s reassertion of the central position of traditional banking in the brave new world of capital finance that was emerging. If banks know that they can always take commercial bills to the central bank for discount, maybe they will make sure to hold an adequate supply of such bills in reserve, and so avoid excessive exposure to illiquid mortgages that are not eligible for discount.

Even more, Bagehot realized that London was emerging as the center of a global trading system that extended far beyond national boundaries. That is the clear subtext of the essays collected in Universal Money (1869) and The Depreciation of Silver (1877). London’s bill market was becoming the essential infrastructure not only for Britain’s domestic trade but also for its international trade, and indeed even for the trade of third nations with each other. De facto, the Bank of England was thus emerging not only as central bank of England, but also central bank of the world. This was another genie not going back into the bottle, and again the real question was how best to adapt to it. In this context as well, we might see Bagehot’s Principle as conservative counsel, an attempt to draw a sharp distinction between assets that are eligible for discount and those that are ineligible, with the idea that subsequent management of the discount rate might prove sufficient lever to manage gold inflows and outflows, thus warding off challenges to convertibility.

These two facts, the rising importance of capital markets and the globalization of commerce, were central subjects of Bagehot’s writing for The Economist over the years. And Bagehot wrote not merely as an observer of current trends, but more importantly as an economist, working to fit the emerging new monetary and financial facts into the fabric of economic science as he knew it. Grant tells us that Bagehot had become familiar with the principle authors of English Political Economy as early as his undergraduate days at University College London (p. 32), and that he was “tapped” for membership in the Political Economy Club as early as May 1864 (p. 154), but he seems not to appreciate the importance of these biographical facts. “He was not a theorist, but a user of theories and a critic of theorists” (p. 287). This seems ungenerous to a fault.

Indeed, when Bagehot died, he was at work on a three volume treatise, the bits and pieces of which were gathered together by his friends and published posthumously as Economic Studies (1880), the first two essays of which were subsequently published separately in a special student edition The Postulates of English Political Economy (1885) with an introduction by Alfred Marshall. In these essays, even more than in his writings for The Economist, we see Bagehot writing not so much as a financial journalist but rather as a classical economist, building on Adam Smith, David Ricardo, and Robert Malthus. (He was apparently unaware of the neoclassical turn that was just then getting started in economics in the works of Jevons and Menger, soon to be consolidated in Alfred Marshall’s Principles of Economics (1890).) And he was writing as one who understands the machinery of money as the very foundation of the system of commerce that the classical economists were trying to understand, a system born in England but expanding during his lifetime across the face of the world.

A central postulate of the classical worldview, according to Bagehot, was the transferability of both labor and capital from one employment to another in search of higher return. From this point of view, so he argues, the operations of the money market are key, because those operations are the fundamental mechanism through which capital moves. Here, to my mind, is a theoretical contribution of the first order, albeit more in embryo than fully realized.

Readers of Grant will miss all of this, and not even know that they are missing it. If you can only read one additional source, my recommendation would be R.S. Sayers’ essay “Bagehot as an Economist” (1978), which treats these points and others as well, in more detail than is possible within the confines of a short review. Readers already familiar with Sayers will know that his own work quite explicitly built on foundations laid by Bagehot (as Sayers 1957), as indeed does the work of many others in the rich intellectual tradition of British central banking that stretches up to the present day. Apparently it takes one to know one.


Bagehot, Walter. 1880. Economic Studies. London: Longmans, Green.

Bagehot, Walter. 1885. The Postulates of English Political Economy. London: Longmans, Green.

Fullarton, John. 1845. On the Regulation of Currencies. London: J. Murray.

Sayers, R. S. 1957. Central Banking after Bagehot. London: Oxford University Press.

Sayers, R. S. 1978. “Bagehot as an Economist.” Pages 27-43 in St. John-Stevas (1978, Vol. IX).

St. John-Stevas, Norman. 1978. The Collected Works of Walter Bagehot. The Economic Essays, Vol. IX-XI. London: The Economist.

Tooke, Thomas. 1844. An Inquiry into the Currency Principle. London: Longman, Brown, Greene, and Longmans.

Perry Mehrling’s MOOC on Coursera tries to do for the twenty-first century New York money market what Bagehot’s Lombard Street did for the nineteenth century London money market, namely to make its operations and its importance visible to the general public:

Copyright (c) 2019 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (November 2019). All EH.Net reviews are archived at

Subject(s):Financial Markets, Financial Institutions, and Monetary History
History of Economic Thought; Methodology
Geographic Area(s):Europe
Time Period(s):19th Century