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British Economic Growth, 1270-1870

Author(s):Broadberry, Stephen
Campbell, Bruce M. S.
Klein, Alexander
Overton, Mark
van Leeuwen, Bas
Reviewer(s):Persson, Karl Gunnar

Published by EH.Net (August 2015)

Stephen Broadberry, Bruce M. S. Campbell, Alexander Klein, Mark Overton and Bas van Leeuwen, British Economic Growth, 1270-1870. Cambridge: Cambridge University Press, 2015. xxxix + 461 pp. $40 (paperback), ISBN: 978-1-107-67649-7.

Reviewed for EH.Net by Karl Gunnar Persson,  Department of Economics, University of Copenhagen.

This collective work is an ambitious and careful attempt to reconstruct historical national income accounts for England/Britain over six centuries — from 1270 to 1870. GDP is estimated from the output side unlike the study by Gregory Clark (2010), which covers approximately the same period and reconstructs national accounts from the income side. The major results from these two studies differ profoundly: Clark is an advocate of “Malthusian stagnation,” while British Economic Growth presents a more dynamic view of the pre-industrial economy. The contrasting results are a reminder that historical national accounting is marred by the fragility of the underlying data and is sensitive to approximations and assumptions needed to reach an end result.
British Economic Growth, 1270-1870 begins by establishing population levels (chapter 1) and by implication population growth rates. It acknowledges that population level estimates differ by a wide margin for the medieval period and the authors opt for estimates in the middle of the existing range.

In chapters 2 and 3 agricultural volumes are reconstructed by first establishing the area of agricultural land in use, the share of different crops, the number of cattle, etc. Output for the different components can then be estimated using yields and conversion ratios for various crops and animals. The final step is to aggregate these outputs into an agricultural sector output. All this is done in a transparent way, largely based on primary sources.  The incremental nature of agricultural progress is visible in increasing yields and reduced fallows. However, for the medieval period the documentation stems from the estate sector which is a relatively small part of the agrarian sector, less than a quarter. Was the non-estate sector, run by tenants, sharecroppers and free-holders, more efficient? The authors indicate that there is some evidence that this was the case, but they nevertheless assume that conditions in the estate sector prevailed in agriculture at large. For the post medieval period, paradoxically perhaps, the documentation is thinner and farm accounts do not appear until the end of the eighteenth century

Chapters 4 and 5, which are devoted to industry and services, rely more on the secondary literature. Output volumes in the various subsectors are established in chapter 4, and then aggregated to GDP and GDP per head in chapter 5. The resultant pre-1700 GDP series are, of course, a major accomplishment of synthesis, while the post-1700 figures differ only marginally from those established by Nicholas Crafts and Knick Harley and they all rely heavily on Walther G.  Hoffmann’s (1955) pioneering work.

Part 2 of British Economic Growth, 1270-1870 has a more analytical approach, discussing how the new results compare to those of other studies. The central claim in the book is to stress the resilience of the growth process even when faced with continued population growth and resource constraints. When GDP per head increased after the Black Death, because of a softening of resource constraints, the Malthusian expectation would be that income would fall when population stated to grow again in the sixteenth century. The authors take an explicit non-Malthusian position showing that the expected reversal did not happen. In fact the authors argue that income per head doubled from the pre-Black Death period to the mid eighteenth century. Their target here is the argument of Clark (2010) and Michael Postan before him, that pre-industrial income per head was stationary in the long run. That is, income increases were transitory and the only permanent effect of technological change would be an increase in population. Chapter 6 is devoted to comparing real wages series with GDP per head. Clark’s reconstruction of GDP is driven by his real wage series which tend to support the Malthusian thesis. However, wage data are constructed from day wages and British Economic Growth argues that you can reconcile a stationary day wages series with increasing GDP per head by adjusting for known increases in days worked in the sixteenth to eighteenth centuries. The authors do not seriously challenge the validity of the day wage series as such, even if there is a discussion in the literature. One major problem is that the salaried working class was a quite small proportion of the labor force. Most people were tenants, free-holders and self-employed, and very little is known about their income and whether it tracked day wages.

How do you assess the accomplishment of this study in the face of alternative interpretations? One way is to look at the general consistency of the many claims made. One surprising result in chapter 7 is that kilocalorie use per head implied by the agrarian output and population series is more or less stable over the entire period. The implication is that the increase in income per head did not spill over into increased demand for calories, but only into more expensive calories, say, beer instead of porridge.  The calorie intake throughout is not far off the minimum requirement for an active life, and at the same level as in France in the eighteenth century, although French workers were known as being less productive in physically demanding work in that period. There are in fact a number of recent assessments of calorie supplies, reviewed by Morgan Kelly and Cormac Ó Gráda (2013), and while all studies apply the same methodology results differ too much for comfort. The most optimistic ones by Robert A. Allen and Craig Muldrew end up at calorie intake about 70 percent higher in the eighteenth century. Kelly and Ó Gráda suggest that agricultural output might in fact be underestimated in British Economic Growth.

Another puzzle refers to the sharp increase of the relative share of the non-agricultural labor force in the sixteenth and seventeenth centuries (chapter 9). Such a change would presumably have generated changes in consumption patterns in favor of industrial goods and services. However, changes in the consumption pattern of that magnitude are not entirely plausible given the reported slow growth of income. Is income growth underestimated for this period? Other indicators point in that direction. For example per capita consumption of metals had tripled by 1700 compared to its peak medieval level, which you would suspect to be associated with more vigorous growth of income.

British Economic Growth, 1270-1870 will be a work of reference, inspiration and controversy for decades to come. Some results will undoubtedly be challenged and revised. Others will stand the test of time. The claim that England/Britain was on a trajectory of slow income growth from medieval times is one of the results which probably will last.


Gregory Clark (2010). “The Macroeconomic Aggregates for England, 1209-1869.”  Research in Economic History, 27: 51-140.

Walther G. Hoffmann (1955). British Industry, 1700-1950. Oxford: Basil Blackwell.

Morgan Kelly and Cormac Ó Gráda (2013). “Numerare est Errare: Agricultural Output and Food Supply in England before and during the Industrial Revolution.” Journal of Economic History, 73: 1132-63.

Karl Gunnar Persson is Professor Emeritus of Economics at University of Copenhagen.  A revised and enlarged edition of his book An Economic History of Europe: Knowledge, Institutions and Growth, 600 to the Present (in collaboration with Paul Sharp) was published in 2015 by Cambridge University Press.

Copyright (c) 2015 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 (August 2015). All EH.Net reviews are archived at

Subject(s):Economic Development, Growth, and Aggregate Productivity
Geographic Area(s):Europe
Time Period(s):Medieval
16th Century
17th Century
18th Century
19th Century

British Economic Growth, 1688-1959: Trends and Structure

Author(s):Deane, Phyllis
Cole, W. A.
Reviewer(s):Harley, Knick

Project 2001: Significant Works in Economic History

Phyllis Deane and W. A. Cole, British Economic Growth, 1688-1959: Trends and Structure. Cambridge: Cambridge University Press, second edition, 1967. xx + 350 pp.

Review Essay by Knick Harley, Department of Economics, University of Western Ontario.

Foundations of British Quantitative Economic History Phyllis Deane and W. A. Cole’s British Economic Growth, 1688-1959, first published in 1962, with a somewhat revised second edition in 1967, was the seminal work for a generation of economic historians, primarily, of course, of Britain but also for those working on other economies. Its influence was enhanced by the simultaneous publication of British Historical Statistics, edited by Brian Mitchell with Phyllis Deane, which presented the basic statistical raw material that lay behind the study along with detailed discussion and evaluation of the sources. The book stimulated those, like Max Hartwell, who shortly thereafter brought explicit economic models and statistical techniques to the study of British economic history, methodologically joining the ‘cliometricians’ in the United States. The basic quantitative outline Deane and Cole established also influenced more skeptical traditional economic historians even though these scholars rightly emphasized Deane and Cole’s own cautions about the speculative nature of many of the numbers and “were dubious of the basic methodology of (the) approach and . . . suspect(ed) that attempts to analyse the origins and causes of economic growth through the media of national income aggregates runs the risk of obscuring the significant factors, because the experience of the pre-industrial economy does not fit naturally into the conventional national income matrix” (p. xx). Today, although many specific estimates have been superseded — by research largely stimulated by Deane and Cole’s pioneering work (most obviously work on historical national income by Charles Feinstein, as well as by Peter Lindert, N.F.R. Crafts and myself on aggregate income prior to 1840, and by Sir Anthony Wrigley, Roger Schofield and their associates on demography) — Deane and Cole’s volume remains a required text for anyone working on the aggregate British economy over the past three centuries. Our picture of the aggregate growth of Britain during the Industrial revolution has changed significantly over the past few decades, but still rests fundamentally on Deane and Cole’s evidence and analysis. They provided an example of how quantitative economic history should be done, with the exhaustive and careful collection and aggregation of data from a wide range of sources. They saw themselves as historians in a continuing tradition and did not preach a new methodology or exalt the economist’s methodology over that of the historian. Their work set the framework on which traditional social and economic historians and historically minded economists have built.

Deane and Cole identified the key role of the national income estimates in the introduction to the second edition. “It is not possible to study economic growth without some sort of quantitative yardstick to indicate the timing, directions and pace of economic change at the national level (p. xx).” They set themselves the task of providing a broad outline of British national income and the breakdown of the sectoral distribution of value added and of the uses of output over three centuries. In a way, of course, they were following in Sir John Clapham’s footsteps and attempting to see the development of the British economy as a whole rather than concentrating only on the spectacular changes. By the 1950s national income accounts provided an obvious framework for such an overall view. Deane and Cole’s main research focused on the years before 1870 since other researchers had compiled estimates of income and several of its components for the later years. The estimates, and the detail of economic structure that they embody have provided an indispensable basis for the general equilibrium perception of economic development. In recent years the data have also provided the basis for explicit models that have attempted to use the computational power of modern computers to explore causal relationships in the industrial revolution.

Deane and Cole’s quantitative overview of British growth revised somewhat the prevailing picture of British industrialization. Traditional accounts had often emphasized the 1760s and 1770s as key decades of the beginnings of economic growth. Deane and Cole, however, found no discontinuity in those decades but rather accelerations in the 1740s and then in the last two decades of the eighteenth century. An industrial revolution, although somewhat delayed, survived in their estimates. Not only did per capita growth accelerate at the end of the eighteenth century, rapid growth, accompanied by rapid structural change in the economy, continued in early decades of the nineteenth century before slowing in the century’s middle third. Growth accelerated again in later decades of the century only to slow again at the end of the century. In the 1950s, when they conducted their research, the pattern of the twentieth century remained obscure. Late twentieth century growth still lay in the future.

From our present vantage, the book’s crowning achievement lies in its nineteenth-century income estimates. These are presented in Chapter IV “Changes in the Industrial Distribution of the Labour Force and Employment Incomes in the Nineteenth and Twentieth Centuries” and Chapter V “The Changing Structure of National Product.” These two chapters present estimates of National Product by sector of origin for nineteenth-century census years. The key numbers appear in their Tables 34 and 37. The decennial censuses collected data on individuals’ occupations, with reasonable success after 1841. This information provided the raw material on which, with the aid of wage data, they estimated labor income by broad sectors of the economy. Unfortunately the occupational material is deficient prior to 1841 so labor incomes in the first three nineteenth century benchmarks involve extensive extrapolation from later data. They complemented the census-based labor income estimates with income-tax-based estimates of property income. The income tax, both between 1799 and 1815 and after 1842, provided assessment information from which property income by broad sectors could be estimated, with varying degrees of difficulty. Combining the two sources resulted in current price estimates of national product at benchmark years. Deane and Cole were keenly aware of the limitations and approximations in the estimates and cautioned the reader extensively on the approximate nature of the income estimate. Nonetheless, the estimates have retained their general usefulness for more than a generation supplemented, of course, by Charles Feinstein’s work that has provided extensive revision and amplification.

Deane and Cole paid at least as much attention to the changing economic structure that their estimates revealed as they did to the aggregate figures of national income. They constantly considered questions of the relationship between growth and structure. In particular, they emphasized the rapid decline of agriculture in the decades around 1800, the rise of manufacturing and of services that occurred rather more unevenly, and the late nineteenth century important increase in income from abroad.

Chapter VI “The Growth of the Nineteenth-century Staples” extends the quantitative information by surveying the leading industries of the industrial revolution. The chapter retains the careful quantitative focus that characterizes the work, compiling estimates of value-added in the textile, mining, iron and transport industries. This serves to supplement and amplify the census-based aggregate estimates, providing more detailed estimates of the change in economic structure that accompanied nineteenth-century growth. Without the census-based benchmarks, however, the estimates would have limited value since it would be impossible to place the industries within the context of aggregate output. With the aggregate benchmarks, the industry studies provide an extremely useful, finer breakdown of parts of the manufacturing sector.

The sector studies, which give due consideration to each industry’s relative contribution to national income, raise some potential challenges to the conclusions of the indices of national income growth, which Deane and Cole do not address. In contrast to the national income figures, which show growth accelerating in the last years of the eighteenth century and then slowing by 1830, the industry studies show that these ‘leading sectors’ had their greatest impact during the railway age. Furthermore, the estimates of the growth of the ‘leading sectors’ between 1770 and the second quarter of the nineteenth century are considerably below the growth rates of the manufacturing aggregate suggested by the eighteenth-century index and the census-based current values of output deflated by a price index. Even the spectacularly growing textile sector increased more slowly than the estimated aggregate between 1770 and 1840. In particular, textile output increased by only a third between 1770 and 1800 while the index of manufacturing output in the national income index more than doubled. (Between 1800 and 1840 the textile index increased roughly six-fold while the estimated real output of the manufacturing sector increased about five-fold.) It is unfortunate that Deane and Cole did not make more of an attempt to reconcile these estimates.

Chapter VIII’s compilation of capital formation estimates also seemed to challenge the aggregate view of a rapidly growing industrial revolution followed by lower growth. Instead they also suggest that the railway age was the greatest discontinuity. In contrast to Walt Rostow’s assertion that capital formation increased rapidly during the traditional industrial revolution of the late eighteenth century, they find gradual acceleration over some seven decades between 1770 and 1840. If there was a discontinuity, it occurred during the railway age not at the time of the cotton spinning innovation.

When the book appeared, the estimates of national income for the eighteenth century and their implications for the timing and nature of the British industrial revolution probably commanded the most attention. Table 1 “The Social Accounts of England and Wales in 1688″ based on Gregory King’s estimate from government investigations of the late seventeenth century provides Deane and Cole’s starting point. Chapter II “The Eighteenth-century Origins” begins with an extensive, and somewhat discouraging, overview of the available data relating to economic activity in eighteenth-century Britain. This discussion remains required reading for anyone undertaking serious research in the period. The centerpiece of the chapter, however, is undoubtedly Table 19 “Index Numbers of Eighteenth-century Real Output,” which quickly became accepted as the quantitative indicator of the course of the industrial revolution. In retrospect, however, it is clear that users of the figures (sometimes including the authors themselves) at times failed to appreciate the implications of the indices’ construction adequately. Deane and Cole, of course, carefully laid out their procedures. The real output series aggregates five component series — agriculture, export industries, home industries, rent and services and government and defense — using weights reflecting the structure of the economy about 1700. All the series, except that for government spending, are proxies from available data. Although the rationale for each proxy is carefully justified, it becomes apparent that the real output series is in fact narrowly based. Population estimates provided the main trends for agricultural output (with an adjustment for international trade in grain) and the service sectors — together nearly three-quarters of the index in 1700. For manufacturing, Deane and Cole adopted two separate procedures. They constructed an index from excise data for non-traded industries but for the larger traded manufacturing sectors they adopted an index that consisted of the sum of the official values of imports and exports.

The final section of Chapter 2, entitled “The Mechanics of Eighteenth-century Growth” attempts to provide an explanatory sketch of eighteenth-century growth. The output index revealed an upsurge in growth in the 1740s and then “a considerably sharper upward trend appears in the 1780s and 1790s.” Deane and Cole attempt to explain the periods of acceleration by reference to underlying trends in population and trade. At times here, I feel that the reasoning comes perilously close to circular since the index is constructed from population and trade growth. In a simple mechanical sense, the index accelerates in the 1740s because the estimated rate of growth of population accelerates, providing an estimate of accelerated growth for the majority of the aggregate series. In the 1780s and 1790s the acceleration comes, arithmetically, from the acceleration of the growth of the volume of foreign trade. At times Deane and Cole seem to attribute causal features to population and trade and seem to lose sight of the index’s construction. The relationships they find may simply be the result of the construction of estimates. I frequently find myself wanting formal presentations of models in order to understand the mechanisms they had in mind. Overall this section, although ambitious, now seems relatively unsuccessful.

Chapter 3, “Industrialisation and Population Change in the Eighteenth and Early Nineteenth Centuries” is a tour de force in demographic history that anticipated the important role that demography was to play in the evolution of our understanding of the industrial revolution. Here Deane and Cole used data from the samples of eighteenth-century parish register vital events collected by Rickman in the early nineteenth-century retrospective collections and published in the censuses. Their exploration of population change at the county and regional level is of particular interest. Although they emphasize the crudeness of the data, it becomes apparent that regional divergence had been a principal characteristic of eighteenth-century population movements. London was, of course, a center of high death rates and immigration. Rather more interesting, however, was the evidence of systematic interaction between the economic and population growth in the industrial regions of the west Midlands and the North. Baptisms and burials revealed exceptionally high rates of natural increase in the industrializing North and particularly the North-west relative to rest of the nation. Despite the serious limitations of the underlying data, the conclusion that growth was a social phenomenon that interacted with demography is now widely supported by more robust evidence.

Chapters VII on the factor composition of national income and Chapter VIII on capital formation represented less original contributions. These relatively short chapters primarily summarize the work of others, bringing together and combining various series that had previously been available only for shorter periods. The discussion integrates this additional information about the changing structure of the British economy. The chapters highlight the underlying ambition of the work to present the available data in as comprehensive a manner as possible and continue to emphasize the relationship between growth and the structure of national income. The discussion set an agenda to which others responded.

British Economic Growth largely defined the territory of British economic history for a generation. It placed the discipline firmly into a framework of national income accounts and its components — the industrial structure of value-added, the distribution of income among factor owners and the disposition of income. In doing so it encouraged researchers to think about the industrial revolution and subsequent growth in general equilibrium terms. That alone would have made it a great book. In addition, it stimulated much of the most important research of the next decades. Much of that research has resulted in superior estimates of national income and its components that have superseded Deane and Cole’s original efforts. Deane and Cole must be proud to have provided such a stimulus. Finally, despite revisions by many scholars, their estimates continue to be important building blocks in on-going research. The reader might keep in mind, for example, how much Nick Crafts’ and my own work on the industrial revolution rests on Deane and Cole. Our revisions of the likely path of income growth during the industrial revolution, although substantially changing Deane and Cole’s picture of growth before 1840, depend fundamentally on their estimates of national income at current prices in the middle of the nineteenth century. Equally, our computational general equilibrium models rest on a social accounting matrix derived from their 1841 national income estimates.

It is hard to think of greater praise for a book than to note that it stimulated research for over a generation and that it remains a fundamental source after nearly half a century.

C. Knick Harley was the 1999 winner of the Cliometric Society’s annual prize — the Clio Can. Among his recent articles are “Computational General Equilibrium Models in Economic History and an Analysis of British Capitalist Agriculture,” European Review of Economic History (2001); “Simulating the Two Views of the British Industrial Revolution,” Journal of Economic History (2000), with N.F.R. Crafts; and “Cotton Textile Prices and the Industrial Revolution,” Economic History Review (1998).


Subject(s):Economic Development, Growth, and Aggregate Productivity
Geographic Area(s):Europe
Time Period(s):20th Century: Pre WWII

Concrete Economics: The Hamiltonian Approach to Economic Growth and Policy

Author(s):Cohen, Stephen S.
DeLong, J. Bradford
Reviewer(s):Salsman, Richard M.

Published by EH.Net (December 2016)

Stephen S. Cohen and J. Bradford DeLong, Concrete Economics: The Hamiltonian Approach to Economic Growth and Policy. Boston: Harvard Business Review Press, 2016. xi + 223 pp. $28 (cloth), ISBN: 978-1-422-18981-8.

Reviewed for EH.Net by Richard M. Salsman, Program in Philosophy, Politics and Economics, Duke University.

When the U.S. has prospered most has it been due mainly to a limited state that ensures equal legal treatment and relatively free markets, or has it been due to an active, intervening state that regiments activity and protects or subsidizes favored products, firms and sectors, at the expense of others? The latter, say the authors of this brief but rather interesting volume. Take note, any remaining fans of Adam Smith, true believers in “invisible hands,” or diehard devotees of “laissez faire.”

DeLong, a professor of economics at the University of California, Berkeley and Cohen, professor emeritus and co-director of the Berkeley Roundtable in the International Economy (BRIE), deserve credit for reminding us that no economic policy is truly “hands off.” As a discipline, political economy properly recognizes and studies the unavoidable interaction of politics and markets; the latter can’t even function without some basic provision of public goods (e.g., law and order, security of private property, legal sanctity of contract). They deserve kudos also for at least stipulating that prosperity (“the wealth of nations”) is a worthy goal (as it was for Smith), for that’s surely not a key premise of today’s environmentalists, social-justice warriors, or the Pope.

But is more needed, for prosperity, than the provision of basic, rights-protecting public goods? Yes, say these authors — substantially more. In their view the state is an economy’s designer, the one institution which can (must!) identify and clear out “spaces” where entrepreneurs can then confidently operate. They believe the U.S. has suffered economic crises and stagnation since 1980 because economic policy has been too pro-business — i.e., excessively-low tax rates, free trade, deregulation, entrepreneurialism, and promotion of “zero-sum” financial activity at the expense of value-added manufacturing. They tout five prior episodes in U.S. history when “real” prosperity occurred, due (they claim) to their preferred policy mix of high income tax (and tariff) rates, heavy regulation (especially of finance), infrastructure spending, and protectionism: the 1790s and early 1800s (via “Hamiltonian” principles), the post-Civil War Gilded Age (via Lincolnian prescriptions), the progressive era (via Teddy Roosevelt’s policies), the New Deal of the 1930s (via FDR’s New Deal), and the post-WWII decades of infrastructure/aerospace buildout (a by-product of the “military industrial complex” which Eisenhower both encouraged and distrusted).

By intention, the methodology here isn’t very rigorous. No new historical database is cited or analyzed. The authors eschew careful, disciplined treatments of history, empirics, and models. They offer, unapologetically, a selective historical narrative designed mainly to corroborate their theme. They believe policy formation (and analysis) goes awry if ever animated by “ideology,” especially in free-market form. Declaring themselves “non-ideological,” they focus on what they call the “concretes,” instead of abstractions; they endorse only what “works” (“pragmatically”), not what should work (“theoretically”). But can anyone specify what “works” without reference to some criterion? The authors implicitly deny that scientific methods require hypothesizing and testing — that some theory is necessary even to know where to look in a vast empirical record.

DeLong and Cohen’s methodology — more accurately, their anti-methodology posture — is worth mentioning, because in truth they cleverly apply a specific theory in choosing their anecdotes and structuring their narrative, one which economists have variously characterized as “economic nationalism” or “industrial policy.” In this model, popularized in the 1970s and early 1980s by Robert Reich and Lester Thurow, public officials and planners are presumed to be sufficiently wise and prescient to distinguish future economic “winners and losers” and thus able to generate sustainable prosperity by fostering the former and discouraging the latter, while (somehow) also avoiding the corporatist and labor union rent-seeking such policy targeting typically invites. A more recent example of the approach is Mazzucato’s The Entrepreneurial State (2013).

When a theory doesn’t explain economic reality very well, its adherents might elect to eschew theory altogether or instead to cherry-pick the historical record, to make the dubious theory “fit.” Hedging their bets, these authors try both. As for the cherry-picking, they cite nearly every major economic innovation in the U.S. since its founding era and attribute it to the encouragement of some government policy. Thanks mainly to Washington, America has had firearms, railroads, radio, aerospace, autos, trucking, assembly lines, nuclear power, electrification, central banking, paper money, infrastructure, computers, semiconductors, the Internet (yes, they credit Al Gore), and even smart phones. If the U.S. government has ever even remotely touched these things, the authors imply, it pretty much made them possible. At the same time, they blame failed products, eroded industries, and recession-depression decades in U.S. history on overly-free markets.

Even if the claim were true, that these products and sectors were made possible by Washington, it’s worth noting that the authors find that they entail primarily spin-offs from the outlays and projects of the U.S. Department of Defense — a state function even classical liberals can heartily endorse. Are prosperity-fostering spinoffs likely to flow also from the explosion of entitlement-transfer outlays in the half-century since the start of “Great Society” schemes? U.S. federal spending on national defense is now just 12% of all outlays, down from 16% in 2000, 23% in 1980, and 50% in 1960. It’s about as likely as the authors’ more liberal sympathizers being pleased to hear what aspect of U.S. spending most boosts the economy. These Berkeley dons are in the odd position of wishing devoutly for the “military-industrial complex” Ike warned against.

A misleading aspect of the book is the authors’ insistence that theirs is “the Hamilton approach to economic growth and policy.” In truth Alexander Hamilton, the first U.S. Treasury secretary (1789-1795) wanted (and implemented) a constitutionally-limited federal government, by no means a state engaged in “industrial planning” of the kind DeLong and Cohen want (let alone “social insurance” or “redistribution”). Hamilton rejected British mercantilism, which stunted American manufacturing; and unlike his Jeffersonian-agrarian opponents (and successors), he wanted low and uniform tariffs. Hamilton also defended and implemented a gold-silver based dollar, sustained reductions in the national debt, and a limited-power, privately-owned national (nationwide) bank (not a “central bank,” as the authors claim). Also unlike DeLong and Cohen, who devote a whole chapter to denouncing what they claim is a cancer-like “hypertrophy of finance” since 1980, Hamilton saw the financial sector as productive (if left free of government influence — as it surely isn’t today), not one that displaces real and healthy economic sinews.

Two periods in U.S. economic history are particularly misrepresented in the book, to fit the author’s theme. The “Gilded Age,” the half-century between the ended of the Civil War and start of World War I — supposedly entailed “vast accumulations of conspicuous wealth” and a “confiscation of the nation’s wealth” due to “the crushing power of trusts” (p. 71). In fact that was a half-century of stupendous invention, entrepreneurship, and wage gains, due to economic freedom, not theft; it was accomplished without a central bank, a federal income tax, centralized industrial planning, or a regulatory state. The other period misrepresented is the 1930s; the authors say FDR’s heavily-interventionist New Deal revived the economy, but in fact it mainly prolonged the stagnation.

It’s reasonable to expect a book authored by fans of “industrial policy” to highlight Japan, as did Reich and Thurow in the 1980s. After all, Japan’s Ministry of International Trade and Industry (“MITI”) was heralded as the model for planning agencies globally and the progenitor of its post-war economic “miracle.” Yes, Japan’s industrial production increased nearly 10% per annum from 1950 to 1991; but since then it has shrunk at a compounded rate of 0.4% per annum. Does this quarter-century contraction reflect free market policies enacted after 1991? Hardly. Somehow “things changed,” the authors report, dead-pan. “Japan had become a solidly rich nation.” “Asset values then crashed and stayed crashed,” and “rapid growth became dishearteningly elusive. Why? We do not claim to know” (p. 133).  Herein lies the futility (and dishonesty) of historical cherry-picking: when the facts don’t fit, plead humility and ignorance; otherwise, proclaim boldly and often that every sustained economic success necessarily has flowed from astute state planning.

DeLong and Cohen deserve thanks for issuing a reminder that the humane state should facilitate prosperity and higher living standards, as that’s become a minority (but much needed) view in recent decades. The book’s more refutable parts include the claim that prosperity is achievable by actively countermanding markets, the belief that today’s burgeoning welfare-transfer state (which they condone) can spawn wealth-producing “spinoffs,” and above all, the presumption that their book has the imprimatur of a truly Hamiltonian (pro-capitalist) political economy.

Richard M. Salsman is the author of The Political Economy of Public Debt: Three Centuries of Theory and Evidence (Edward Elgar, 2017).

Copyright (c) 2016 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 2016). All EH.Net reviews are archived at

Subject(s):Economic Planning and Policy
Geographic Area(s):North America
Time Period(s):18th Century
19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII

Complexity and Crisis in the Financial System: Critical Perspectives on the Evolution of American and British Banking

Editor(s):Hollow, Matthew
Akinbami, Folarin
Michie, Ranald
Reviewer(s):Moen, Jon

Published by EH.Net (October 2016)

Matthew Hollow, Folarin Akinbami, and Ranald Michie, editors, Complexity and Crisis in the Financial System: Critical Perspectives on the Evolution of American and British Banking.  Cheltenham UK: Edward Elgar, 2016. xv + 339 pp. $145 (cloth), ISBN: 978-1-78347-132-4.

Reviewed for EH.Net by Jon Moen, Department of Economics, University of Mississippi.

Complexity and Crisis is a set of thirteen essays aimed at providing insight into the causes of the 2008 financial crisis.  Most have a strong historical element to them.  They examine the financial and banking systems of the United Kingdom and the United States, comparing responses to crises in the past.  The essays are drawn from several disciplines including economics, law, and management.  The theme that ties this set together is the role of increasing complexity in contributing to financial crises today and in the past.  The definition of complexity is elusive, although lack of transparency about financial instruments or intermediaries certainly contributes.  One example presented early on is that of the complex financial derivatives that collapsed during the 2008 crisis.  Other examples include innovations in financial markets that lead to unexpected connections with other intermediaries that in turn create confusion or uncertainty among participants leading to a crisis.

The book is organized into three sections.  The first describes the long run, historical growth of the U.S. and UK banking systems.  This section contains four mainly historical essays, two that compare different financial and banking crises and two that look at the growth and development of the British banking system since 1688.  The second section looks at how legislation and market pressures changed the financial structures of the two countries.  It contains five essays that look at how legal decisions and legislative changes altered the location of liability in financial markets and the structure of corporate governance in financial firms.  The third section focuses on how financial crises can be dealt with while they are unfolding and what could be done in the aftermath of a crisis.  The four essays in this section look at how the governments of the UK and the U.S changed their responses to crises and what might be some new ways to respond to the inevitable crises in the future.

This is a well-done set of essays.  Although they are arranged somewhat thematically, they can be read in no particular order or even independently.  The book, therefore, can also serve as a useful reference book for those studying more historical aspects of banking and financial markets.  A majority of the essays focus on the UK; only three examine the U.S. exclusively.  This is not really a weakness, as this a useful set of essays to have as most are heavily documented, further enhancing its use as a reference volume.

The theme of complexity and its connections to crises is interesting, although it is not really needed to appreciate any of the essays.  I think there could have been more comparative analysis across various crises because the relative simplicity of earlier crises and panics helps us understand current problems.  Increasing complexity does not rule out seeing parallels across episodes of financial crisis. The Panic of 1907 and the Crisis of 2008 contains some striking similarities once you get past the complex surface of 2008.  In both cases short-term lending was disrupted, intermediaries outside the purview of the lender of last resort were the hotspots in both crises, and regulatory response — or lack thereof in the case of Knickerbocker Trust and Lehman brothers — featured prominently in both crises.  My work and that of Gary Gorton address these parallels.  The place of intermediaries being “too big to fail” also is absent in the book, although that was a concern in the past just as it has been currently.  An essay on that topic would have added a great deal.

Several of the essays caught my attention, in part because they relate to my own research or they demonstrate comparative analysis across panics.  The first chapter (by Robert Bruner, Sean Carr, and Asif Mehedi) examines six panics from U.S. history, highlighting the presence of financial innovation in each crisis and its contribution to complexity in financial markets.  I suspect that innovation was in part spurred as a means to get around new regulations in addition to new profit opportunities.  The third chapter (by Ranald Michie) shows how the evolution of the U.K. financial system was more likely to be guided by internal, market-based responses to crises while the U.S. system was more likely to be changed by outside legislative changes.  As he points out, such legislative changes likely will be followed up with innovations around the legislation, producing unintended consequences in the future.  Chapter five by (Dalia Mitchell) and chapter eleven (by T.T. Arvind, Joanna Gray and Sarah Wilson) taken together provide a nice comparison of the evolution of how legal liability was assigned in the U.S. and the UK over time.  There seems to have been a shift away from interpreting losses as a sign of criminal behavior on the part of directors towards one based more on interpreting losses as a result of market vicissitudes and bad decision making.  This is a theme that appeared during the examination of the crisis of 2008, one that blamed much of the crisis on the fact that the incorporated investment firms that had supplanted partnerships had much less “skin in the game.”  The result was that corporate firms took on more risk.  The remaining chapters are all worth reading, and most of you will select a unique set that appeals to your interests.

Jon Moen is Chair and Associate Professor in the Economics Department at the University of Mississippi.   He has studied the Bank Panic of 1907 and its role in the founding of the Federal Reserve System.  He currently is examining the limited role of the New York Clearing House as a lender of last during the National Banking Era.

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Subject(s):Financial Markets, Financial Institutions, and Monetary History
Geographic Area(s):Europe
North America
Time Period(s):17th Century
18th Century
19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII

The Economic History of Mexico

The Economic History of Mexico

Richard Salvucci, Trinity University



This article is a brief interpretive survey of some of the major features of the economic history of Mexico from pre-conquest to the present. I begin with the pre-capitalist economy of Mesoamerica. The colonial period is divided into the Habsburg and Bourbon regimes, although the focus is not really political: the emphasis is instead on the consequences of demographic and fiscal changes that colonialism brought.  Next I analyze the economic impact of independence and its accompanying conflict. A tentative effort to reconstruct secular patterns of growth in the nineteenth century follows, as well as an account of the effects of foreign intervention, war, and the so-called “dictatorship” of Porfirio Diaz.  I then examine the economic consequences of the Mexican Revolution down through the presidency of Lázaro Cárdenas, before considering the effects of the Great Depression and World War II. This is followed by an examination of the so-called Mexican Miracle, the period of import-substitution industrialization after World War II. The end of the “miracle” and the rise of economic instability in the 1970s and 1980s are discussed in some detail. I conclude with structural reforms in the 1990s, the North American Free Trade Agreement (NAFTA), and slow growth in Mexico since then. It is impossible to be comprehensive and the references appearing in the citations are highly selective and biased (where possible) in favor of English-language works, although Spanish is a must for getting beyond the basics. This is especially true in economic history, where some of the most innovative and revisionist work is being done, as it should be, by historians and economists in Mexico.[2]


Where (and What) is Mexico?

For most of its long history, Mexico’s boundaries have been shifting, albeit broadly stable. Colonial Mexico basically stretched from Guatemala, across what is now California and the Southwestern United States, and vaguely into the Pacific Northwest.  There matters stood for more than three centuries[3]. The big shock came at the end of the War of 1847 (“the Mexican-American War” in U.S. history). The Treaty of Guadalupe Hidalgo (1848) ended the war, but in so doing, ceded half of Mexico’s former territory to the United States—recall Texas had been lost in 1836. The northern boundary now ran on a line beginning with the Rio Grande to El Paso, and thence more or less west to the Pacific Ocean south of San Diego. With one major adjustment in 1853 (the Gadsden Purchase or Treaty of the Mesilla) and minor ones thereafter, because of the shifting of the Rio Grande, there it has remained.

Prior to the arrival of the Europeans, Mexico was a congeries of ethnic and city states whose own boundaries were unstable. Prior to the emergence of the most powerful of these states in the fifteenth century, the so-called Triple Alliance (popularly “Aztec Empire”), Mesoamerica consisted of cultural regions determined by political elites and spheres of influence that were dominated by large ceremonial centers such as La Venta, Teotihuacan, and Tula.

While such regions may have been dominant at different times, they were never “economically” independent of one another. At Teotihuacan, there were living quarters given over to Olmec residents from the Veracruz region, presumably merchants. Mesoamerica was connected, if not unified, by an ongoing trade in luxury goods and valuable stones such as jade, turquoise and precious feathers. This was not, however, trade driven primarily by factor endowments and relative costs. Climate and resource endowments did differ significantly over the widely diverse regions and microclimates of Mesoamerica. Yet trade was also political and ritualized in religious belief. For example, calling the shipment of turquoise from the (U.S.) Southwest to Central Mexico the outcome of market activity is an anachronism. In the very long run, such prehistorical exchange facilitated the later emergence of trade routes, roads, and more technologically advanced forms of transport. But arbitrage does not appear to have figured importantly in it.[4]

In sum, what we call “Mexico” in a modern sense is not of much use to the economic historian with an interest in the country before 1870, which is to say, the great bulk of its history. In these years, specificity of time and place, sometimes reaching to the village level, is an indispensable prerequisite for meaningful discussion. At the very least, it is usually advisable to be aware of substantial regional differences which reflect the ethnic and linguistic diversity of the country both before and after the arrival of the Europeans. There are fully ten language families in Mexico, and two of them, Nahuatl and Quiché, number over a million speakers each.[5]


Trade and Tribute before the Europeans

In the codices or deerskin folded paintings the Europeans examined (or actually commissioned), they soon became aware of a prominent form of Mesoamerican economic activity: tribute, or taxation in kind, or even labor services. In the absence of anything that served as money, tribute was forced exchange. Tribute has been interpreted as a means of redistribution in a nonmonetary economy. Social and political units formed a basis for assessment, and the goods collected included maize, beans, chile and cotton cloth. It was through the tribute the indigenous “empires” mobilized labor and resources. There is little or no evidence for the existence of labor or land markets to do so, for these were a European import, although marketplaces for goods existed in profusion.

To an extent, the preconquest reliance on barter economies and the absence of money largely accounts for the ubiquity of tribute. The absence of money is much more difficult to explain and was surely an obstacle to the growth of productivity in the indigenous economies.

The tribute was a near-universal attribute of Mesoamerican ceremonial centers and political empires. The city of Teotihuacan (ca. 600 CE, with a population of 125,000 or more) in central Mexico depended on tribute to support an upper stratum of priests and nobles while the tributary population itself lived at subsistence. Tlatelolco (ca 1520, with a population ranging from 50 to 100 thousand) drew maize, cotton, cacao, beans and precious feathers from a wide swath of territory that broadly extended from the Pacific to Gulf coasts that supported an upper stratum of priests, warriors, nobles, and merchants. It was this urban complex that sat atop the lagoons that filled the Valley of Mexico that so awed the arriving conquerors.

While the characterization of tribute as both a corvée and a tax in kind to support nonproductive populations is surely correct, its persistence in altered (i.e., monetized) form under colonial rule does suggest an important question. The tributary area of the Mexica (“Aztec” is a political term, not an ethnic one) broadly comprised a Pacific slope, a central valley, and a Gulf slope. These embrace a wide range of geographic features ranging from rugged volcanic highlands (and even higher snow-capped volcanoes) to marshy, humid coastal plains. Even today, travel through these regions is challenging. Lacking both the wheel and draught animals, the indigenous peoples relied on human transport, or, where possible, waterborne exchange. However we measure the costs of transportation, they were high. In the colonial period, they typically circumscribed the subsistence radius of markets to 25 to 35 miles. Under the circumstances, it is not easy to imagine that voluntary exchange, particularly between the coastal lowlands and the temperate to cold highlands and mountains, would be profitable for all but the most highly valued goods. In some parts of Mexico–as in the Andean region—linkages of family and kinship bound different regions together in a cult of reciprocal economic obligations. Yet absent such connections, it is not hard to imagine, for example, transporting woven cottons from the coastal lowlands to the population centers of the highlands could become a political obligation rather than a matter of profitable, voluntary exchange. The relatively ambiguous role of markets in both labor and goods that persisted into the nineteenth century may perhaps derive from just this combination of climatic and geographical characteristics. It is what made voluntary exchange under capitalistic markets such a puzzlingly problematic answer to the ordinary demands of economic activity.


[See the relief map below for the principal physical features of Mexico.]


[See the political map below for Mexican states and state capitals.]




Used by permission of the University of Texas Libraries, The University of Texas at Austin.


“New Spain” or Colonial Mexico: The First Phase

Mexico was established by military conquest and civil war. In the process, a civilization with its own institutions and complex culture was profoundly modified and altered, if not precisely destroyed, by the European invaders. The catastrophic elements of conquest, including the sharp decline of the existing indigenous population, from perhaps 25 million to fewer than a million within a century due to warfare, disease, social disorganization and the imposition of demands for labor and resources should nevertheless not preclude some assessment, however tentative, of its economic level in 1519, when the Europeans arrived.[6]

Recent thinking suggests that Spain was far from poor when it began its overseas expansion. If this were so, the implications of the Europeans’ reactions to what they found on the mainland of Mexico (not, significantly in the Caribbean, and, especially, in Cuba, where they were first established) is important. We have several accounts of the conquest of Mexico by the European participants, of which Bernal Díaz del Castillo is the best known, but not the only one. The reaction of the Europeans was almost uniformly astonishment by the apparent material wealth of Tenochtitlan. The public buildings, spacious residences of the temple precinct, the causeways linking the island to the shore, and the fantastic array of goods available in the marketplace evoked comparisons to Venice, Constantinople, and other wealthy centers of European civilization. While it is true that this was a view of the indigenous elite, the beneficiaries of the wealth accumulated from numerous tributaries, it hardly suggests anything other than a kind of storied opulence. Of course, the peasant commoners lived at subsistence and enjoyed no such privileges, but then so did the peasants of the society from which Bernal Díaz, Cortés, Pedro de Alvarado and the other conquerors were drawn. It is hard to imagine that the average standard of living in Mexico was any lower than that of the Iberian Peninsula. The conquerors remarked on the physical size and apparent robust health of the people whom they met, and from this, scholars such as Woodrow Borah and Sherburne Cook concluded that the physical size of the Europeans and the Mexicans was about the same. Borah and Cook surmised that caloric intake per individual in Central Mexico was around 1,900 calories per day, which certainly seems comparable to European levels.[7]

Certainly, the technological differences with Europe hampered commercial exchange, such as the absence of the wheel for transportation, metallurgy that did not include iron, and the exclusive reliance on pictographic writing systems. Yet by the same token, Mesoamerican agricultural technology was richly diverse and especially oriented toward labor-intensive techniques, well suited to pre-conquest Mexico’s factor endowments. As Gene Wilken points out, Bernardo de Sahagún explained in his General History of the Things of New Spain that the Nahua farmer recognized two dozen soil types related to origin, source, color, texture, smell, consistency and organic content.  They were expert at soil management.[8] So it is possible not only to misspecify, but to mistake the technological “backwardness” of Mesoamerica relative to Europe, and historians routinely have.

The essentially political and clan-based nature of economic activity made the distribution of output somewhat different from standard neoclassical models. Although no one seriously maintains that indigenous civilization did not include private property and, in fact, property rights in humans, the distribution of product tended to emphasize average rather than marginal product. If responsibility for tribute was collective, it is logical to suppose that there was some element of redistribution and collective claim on output by the basic social groups of indigenous society, the clans or calpulli.[9] Whatever the case, it seems clear that viewing indigenous society and economy as strained by population growth to the point of collapse, as the so-called “Berkeley school” did in the 1950s, is no longer tenable. It is more likely that the tensions exploited by the Europeans to divide and conquer their native hosts and so erect a colonial state on pre-existing native entities were mainly political rather than socioeconomic. It was through the assistance of native allies such as the Tlaxcalans, as well as with the help of previously unknown diseases such as smallpox that ravaged the indigenous peoples, that the Europeans were able to place a weakened Tenochtitlan under siege and finally defeat it.


Colonialism and Economic Adjustment to Population Decline

With the subjection first of Tenochtitlan and Tlatelolco and then of other polities and peoples, a process that would ultimately stretch well into the nineteenth century and was never really completed, the Europeans turned their attention to making colonialism pay. The process had several components: the modification or introduction of institutions of rule and appropriation; the introduction of new flora and fauna that could be turned to economic use; the reorientation of a previously autarkic and precapitalist economy to the demands of trade and commercial exploitation; and the implementation of European fiscal sovereignty. These processes were complex, required much time, and were, in many cases, only partly successful. There is considerable speculation regarding how long it took before Spain (arguably a relevant term by the mid-sixteenth century) made colonialism pay. The best we can do is present a schematic view of what occurred. Regional variations were enormous: a “typical” outcome or institution of colonialism may well have been an outcome visible in central Mexico. Moreover, all generalizations are fragile, rest on limited quantitative evidence, and will no doubt be substantially modified eventually. The message is simple: proceed with caution.

The Europeans did not seek to take Mesoamerica as a tabula rasa. In some ways, they would have been happy to simply become the latest in a long line of ruling dynasties established by decapitating native elites and assuming control. The initial demand of the conquerors for access to native labor in the so-called encomienda was precisely that, with the actual task of governing be left to the surviving and collaborating elite: the principle of “indirect rule.”[10] There were two problems with this strategy: the natives resisted and the natives died. They died in such large numbers as to make the original strategy impracticable.

The number of people who lived in Mesoamerica has long been a subject of controversy, but there is no point in spelling it out once again. The numbers are unknowable and, in an economic sense, not really important. The population of Tenochtitlan has been variously estimated between 50 and 200 thousand individuals, depending on the instruments of estimation.  As previously mentioned, some estimates of the Central Mexican population range as high as 25 million on the eve of the European conquest, and virtually no serious student accepts the small population estimates based on the work of Angel Rosenblatt. The point is that labor was abundant relative to land, and that the small surpluses of a large tributary population must have supported the opulent elite that Bernal Díaz and his companions described.

By 1620, or thereabouts, the indigenous population had fallen to less than a million according to Cook and Borah. This is not just the quantitative speculation of modern historical demographers. Contemporaries such as Jerónimo de Mendieta in his Historia eclesiástica Indiana (1596) spoke of towns formerly densely populated now witness to “the palaces of those former Lords ruined or on the verge of. The homes of the commoners mostly empty, roads and streets deserted, churches empty on feast days, the few Indians who populate the towns in Spanish farms and factories.” Mendieta was an eyewitness to the catastrophic toll that European microbes and warfare took on the native population. There was a smallpox epidemic in 1519-20 when 5 to 8 million died. The epidemic of hemorrhagic fever in 1545 to 1548 was one of the worst demographic catastrophes in human history, killing 5 to 15 million people. And then again in 1576 to 1578, when 2 to 2.5 million people died, we have clear evidence that land prices in the Valley of Mexico (Coyoacán, a village outside Mexico City, as the reconstructed Tenochtitlán was called) collapsed. The death toll was staggering. Lesser outbreaks were registered in 1559, 1566, 1587, 1592, 1601, 1604, 1606, 1613, 1624, and 1642. The larger point is that the intensive use of native labor, such as the encomienda, had to come to an end, whatever its legal status had become by virtue of the New Laws (1542). The encomienda or the simple exploitation of massive numbers of indigenous workers was no longer possible. There were too few “Indians” by the end of the sixteenth century.[11]

As a result, the institutions and methods of economic appropriation were forced to change. The Europeans introduced pastoral agriculture – the herding of cattle and sheep – and the use of now abundant land and scarce labor in the form of the hacienda while the remaining natives were brought together in “villages” whose origins were not essentially pre- but post-conquest, the so-called congregaciones, at the same time that the titles to now-vacant lands were created, regularized and “composed.”[12] (Land titles were a European innovation as well). Sheep and cattle, which the Europeans introduced, became part of the new institutional backbone of the colony. The natives would continue to rely on maize for the better part of their subsistence, but the Europeans introduced wheat, olives (oil), grapes (wine) and even chickens, which the natives rapidly adopted. On the whole, the results of these alterations were complex. Some scholars argue that the native diet improved even in the face of their diminishing numbers, a consequence of increased land per person and of greater variety of foodstuffs, and that the agricultural potential of the colony now called New Spain was enhanced. By the beginning of the seventeenth century, the combined indigenous, European immigrant, and new mixed blood populations could largely survive on the basis of their own production. The introduction of sheep lead to the introduction and manufacture of woolens in what were called obrajes or manufactories in Puebla, Querétaro, and Coyoacán. The native peoples continued to produce cottons (a domestic crop) under the stimulus of European organization, lending, and marketing. Extensive pastoralism, the cultivation of cereals and even the incorporation of native labor then characterized the emergence of the great estates or haciendas, which became a characteristic rural institution through the twentieth century, when the Mexican Revolution put an end to many of them. Thus the colony of New Spain continued to feed, clothe and house itself independent of metropolitan Spain’s direction. Certainly, Mexico before the Conquest was self-sufficient. The extent to which the immigrant and American Spaniard or creole population depended on imports of wine, oil and other foodstuffs and textiles in the decades immediately following the conquest is much less clear.

At the same time, other profound changes accompanied the introduction of Europeans, their crops and their diseases into what they termed the “kingdom” (not colony, for constitutional reasons) of New Spain.[13] Prior to the conquest, land and labor had been commoditized, but not to any significant extent, although there was a distinction recognized between possession and ownership.  Scholars who have closely examined the emergence of land markets after the conquest—mainly in the Valley of Mexico—are virtually unanimous in this conclusion. To the extent that markets in labor and commodities had emerged, it took until the 1630s (and later elsewhere in New Spain) for the development to reach maturity. Even older mechanisms of allocation of labor by administrative means (repartimiento) or by outright coercion persisted. Purely economic incentives in the form of money wages and prices never seemed adequate to the job of mobilizing resources and those with access to political power were reluctant to pay a competitive wage. In New Spain, the use of some sort of political power or rent-seeking nearly always accompanied labor recruitment. It was, quite simply, an attempt to evade the implications of relative scarcity, and renders the entire notion of “capitalism” as a driving economic force in colonial Mexico quite inexact.


Why the Settlers Resisted the Implications of Scarce Labor

The reasons behind this development are complex and varied. The evidence we have for the Valley of Mexico demonstrates that the relative price of labor rose while the relative price of land fell even when nominal movements of one or the other remained fairly limited. For instance, the table constructed below demonstrates that from 1570-75 through 1591-1606, the price of unskilled labor in the Valley of Mexico nearly tripled while the price of land in the Valley (Coyoacán) fell by nearly two thirds. On the whole, the price of labor relative to land increased by nearly 800 percent. The evolution of relative prices would have inevitably worked against the demanders of labor (Europeans and increasingly, creoles or Americans of largely European ancestry) and in favor of the supplier (native labor, or people of mixed race generically termed mestizo). This was not of course what the Europeans had in mind and by capture of legal institutions (local magistrates, in particularly), frequently sought to substitute compulsion for what would have been costly “free labor.” What has been termed the “depression” of the seventeenth century may well represent one of the consequences of this evolution: an abundance of land, a scarcity of labor, and the attempt of the new rulers to adjust to changing relative prices. There were repeated royal prohibitions on the use of forced indigenous labor in both public and private works, and thus a reduction in the supply of labor. All highly speculative, no doubt, but the adjustment came during the central decades of the seventeenth century, when New Spain increasingly produced its own woolens and cottons, and largely assumed the tasks of providing itself with foodstuffs and was thus required to save and invest more.  No doubt, the new rulers felt the strain of trying to do more with less.[14]


Years Land Price Index Labor Price Index (Labor/Land) Index
1570-1575 100 100 100
1576-1590 50 143 286
1591-1606 33 286 867


Source: Calculated from Rebecca Horn, Postconquest Coyoacan: Nahua-Spanish Relations in Central Mexico, 1519-1650 (Stanford: Stanford University Press, 1997), p. 208 and José Ignacio Urquiola Permisan, “Salarios y precios en la industria manufacturer textile de la lana en Nueva España, 1570-1635,” in Virginia García Acosta, (ed.), Los precios de alimentos y manufacturas novohispanos (México, DF: CIESAS, 1995), p. 206.


The overall role of Mexico within the Hapsburg Empire was in flux as well. Nothing signals the change as much as the emergence of silver mining as the principal source of Mexican exportables in the second half of the sixteenth century. While Mexico would soon be eclipsed by Peru as the most productive center of silver mining—at least until the eighteenth century—the discovery of significant silver mines in Zacatecas in the 1540s transformed the economy of the Spanish empire and the character of New Spain’s as well.




Silver Mining

While silver mining and smelting was practiced before the conquest, it was never a focal point of indigenous activity. But for the Europeans, Mexico was largely about silver mining. From the mid- sixteenth century onward, it was explicitly understood by the viceroys that they were to do all in their power to “favor the mines,” as one memorable royal instruction enjoined. Again, there has been much controversy of the precise amounts of silver that Mexico sent to the Iberian Peninsula. What we do know certainly is that Mexico (and the Spanish Empire) became the leading source of silver, monetary reserves, and thus, of high-powered money. Over the course of the colonial period, most sources agree that Mexico provided nearly 2 billion pesos (dollars) or roughly 1.6 billion troy ounces to the world economy. The graph below provides a picture of the remissions of all Mexican silver to both Spain and to the Philippines taken from the work of John TePaske.[15]


Since the population of Mexico under Spanish rule was at most 6 million people by the end of the colonial period, the kingdom’s silver output could only be considered astronomical.

This production has to be considered in both its domestic and international dimensions. From a domestic perspective, the mines were what a later generation of economists would call “growth poles.” They were markets in which inputs were transformed into tradable outputs at a much higher rate of productivity (because of mining’s relatively advanced technology) than Mexico’s other activities. Silver thus became Mexico’s principal exportable good, and remained so well into the late nineteenth century.  The residual claimants on silver production were many and varied.  There were, of course the silver miners themselves in Mexico and their merchant financiers and suppliers. They ranged from some of the wealthiest people in the world at the time, such as the Count of Regla (1710-1781), who donated warships to Spain in the eighteenth century, to individual natives in Zacatecas smelting their own stocks of silver ore.[16] While the conditions of labor in Mexico’s silver mines were almost uniformly bad, the compensation ranged from above market wages paid to free labor in the prosperous larger mines  of the Bajío and the North to the use of forced village  labor drafts in more marginal (and presumably less profitable) sites such as Taxco. In the Iberian Peninsula, income from American silver mines ultimately supported not only a class of merchant entrepreneurs in the large port cities, but virtually the core of the Spanish political nation, including monarchs, royal officials, churchmen, the military and more. And finally, silver flowed to those who valued it most highly throughout the world. It is generally estimated that 40 percent of Spain’s American (not just Mexican, but Peruvian as well) silver production ended up in hoards in China.

Within New Spain, mining centers such as Guanajuato, San Luis Potosí, and Zacatecas became places where economic growth took place rapidly, in which labor markets more readily evolved, and in which the standard of living became obviously higher than in neighboring regions. Mining centers tended to crowd out growth elsewhere because the rate of return for successful mines exceeded what could be gotten in commerce, agriculture and manufacturing. Because silver was the numeraire for Mexican prices—Mexico was effectively on a silver standard—variations in silver production could and did have substantial effects on real economic activity elsewhere in New Spain. There is considerable evidence that silver mining saddled Mexico with an early case of “Dutch disease” in which irreducible costs imposed by the silver standard ultimately rendered manufacturing and the production of other tradable goods in New Spain uncompetitive. For this reason, the expansion of Mexican silver production in the years after 1750 was never unambiguously accompanied by overall, as opposed to localized prosperity. Silver mining tended to absorb a disproportional quantity of resources and to keep New Spain’s price level high, even when the business cycle slowed down—a fact that was to impress visitors to Mexico well into the nineteenth century. Mexican silver accounted for well over three-quarters of exports by value into the nineteenth century as well. The estimates vary widely, for silver was by no means the only, or even the most important source of revenue to the Crown, but by the end of the colonial era, the Kingdom of New Spain probably accounted for 25 percent of the Crown’s imperial income.[17] That is why reformist proposals circulating in governing circles in Madrid in the late eighteenth century fixed on Mexico. If there was any threat to the American Empire, royal officials thought that Mexico, and increasingly, Cuba, were worth holding on to. From a fiscal standpoint, Mexico had become just that important.[18]


“New Spain”: The Second Phase                of the Bourbon “Reforms”

In 1700, the last of the Spanish Hapsburgs died and a disputed succession followed. The ensuring conflict, known as the War of Spanish Succession, came to an end in 1714. The grandson of French king Louis XIV came to the Spanish throne as King Philip V. The dynasty he represented was known as the Bourbons. For the next century of so, they were to determine the fortunes of New Spain. Traditionally, the Bourbons, especially the later ones, have been associated with an effort to “renationalize” the Spanish empire in America after it had been thoroughly penetrated by French, Dutch, and lastly, British commercial interests.[19]

There were at least two areas in which the Bourbon dynasty, “reformist” or no, affected the Mexican economy. One of them dealt with raising revenue and the other was the international position of the imperial economy, specifically, the volume and value of trade. A series of statistics calculated by Richard Garner shows that the share of Mexican output or estimated GDP taken by taxes grew by 167 percent between 1700 and 1800. The number of taxes collected by the Royal Treasury increased from 34 to 112 between 1760 and 1810. This increase, sometimes labelled as a Bourbon “reconquest” of Mexico after a century and a half of drift under the Hapsburgs, occurred because of Spain’s need to finance increasingly frequent and costly wars of empire in the eighteenth century. An entire array of new taxes and fiscal placemen came to Mexico. They affected (and alienated) everyone, from the wealthiest merchant to the humblest villager. If they did nothing else, the Bourbons proved to be expert tax collectors.[20]

The second and equally consequential change in imperial management lay in the revision and “deregulation” of New Spain’s international trade, or the evolution from a “fleet” system to a regime of independent sailings, and then, finally, of voyages to and from a far larger variety of metropolitan and colonial ports. From the mid-sixteenth century onwards, ocean-going trade between Spain and the Americas was, in theory, at least, closely regulated and supervised. Ships in convoy (flota) sailed together annually under license from the monarchy and returned together as well. Since so much silver specie was carried, the system made sense, even if the flotas made a tempting target and the problem of contraband was immense. The point of departure was Seville and later, Cadiz. Under pressure from other outports in the late eighteenth century, the system was finally relaxed. As a consequence, the volume and value of trade to Mexico increased as the price of importables fell. Import-competing industries in Mexico, especially textiles, suffered under competition and established merchants complained that the new system of trade was too loose. But to no avail. There is no measure of the barter terms of trade for the eighteenth century, but anecdotal evidence suggests they improved for Mexico. Nevertheless, it is doubtful that these gains could have come anywhere close to offsetting the financial cost of Spain’s “reconquest” of Mexico.[21]

On the other hand, the few accounts of per capita real income growth in the eighteenth century that exist suggest little more than stagnation, the result of population growth and a rising price level. Admittedly, looking for modern economic growth in Mexico in the eighteenth century is an anachronism, although there is at least anecdotal evidence of technological change in silver mining, especially in the use of gunpowder for blasting and excavating, and of some productivity increase in silver mining. So even though the share of international trade outside of goods such as cochineal and silver was quite small, at the margin, changes in the trade regime were important. There is also some indication that asset income rose and labor income fell, which fueled growing social tensions in New Spain. In the last analysis, the growing fiscal pressure of the Spanish empire came when the standard of living for most people in Mexico—the native and mixed blood population—was stagnating. During periodic subsistence crisis, especially those propagated by drought and epidemic disease, and mostly in the 1780s, living standards fell. Many historians think of late colonial Mexico as something of a powder keg waiting to explode. When it did, in 1810, the explosion was the result of a political crisis at home and a dynastic failure abroad. What New Spain had negotiated during the Wars of Spanish Succession—regime change– provide impossible to surmount during the Napoleonic Wars (1794-1815). This may well be the most sensitive indicator of how economic conditions changed in New Spain under the heavy, not to say clumsy hand, of the Bourbon “reforms.”[22]


The War for Independence, the Insurgency, and Their Legacy

The abdication of the Bourbon monarchy to Napoleon Bonaparte in 1808 produced a series of events that ultimately resulted in the independence of New Spain. The rupture was accompanied by a violent peasant rebellion headed by the clerics Miguel Hidalgo and José Morelos that, one way or another, carried off 10 percent of the population between 1810 and 1820. Internal commerce was largely paralyzed. Silver mining essentially collapsed between 1810 and 1812 and a full recovery of mining output was delayed until the 1840s. The mines located in zones of heavy combat, such as Guanajuato and Querétaro, were abandoned by fleeing workers. Thus neglected, they quickly flooded.

At the same time, the fiscal and human costs of this period, the Insurgency, were even greater.[23] The heavy borrowings in which the Bourbons engaged to finance their military alliances left Mexico with a considerable legacy of internal debt, estimated at £16 million at Independence. The damage to the fiscal, bureaucratic and administrative structure of New Spain in the face of the continuing threat of Spanish reinvasion (Spain did not recognize the Independence of Mexico (1821)) in the 1820s drove the independent governments into foreign borrowing on the London market to the tune of £6.4 million in order to finance continuing heavy military outlays. With a reduced fiscal capacity, in part the legacy of the Insurgency and in part the deliberate effort of Mexican elites to resist any repetition Bourbon-style taxation, Mexico defaulted on its foreign debt in 1827. For the next sixty years, through a serpentine history of moratoria, restructuring and repudiation (1867), it took until 1884 for the government to regain access to international capital markets, at what cost can only be imagined. Private sector borrowing and lending continued, although to what extent is currently unknown. What is clear is that the total (internal plus external) indebtedness of Mexico relative to late colonial GDP was somewhere in the range of 47 to 56 percent.[24]

This was, perhaps, not an insubstantial amount for a country whose mechanisms of public finance were in what could be mildly termed chaotic condition in the 1820s and 1830s as the form, philosophy, and mechanics of government oscillated from federalist to centralist and back into the 1850s.  Leaving aside simple questions of uncertainty, there is the very real matter that the national government—whatever the state of private wealth—lacked the capacity to service debt because national and regional elites denied it the means to do so. This issue would bedevil successive regimes into the late nineteenth century, and, indeed, into the twentieth.[25]

At the same time, the demographic effects of the Insurgency exacted a cost in terms of lost output from the 1810s through the 1840s. Gaping holes in the labor force emerged, especially in the fertile agricultural plains of the Bajío that created further obstacles to the growth of output. It is simply impossible to generalize about the fortunes of the Mexican economy in this period because of the dramatic regional variations in the Republic’s economy. A rough estimate of output per head in the late colonial period was perhaps 40 pesos (dollars).[26] After a sharp contraction in the 1810s, income remained in that neighborhood well into the 1840s, at least until the eve of the war with the United States in 1846. By the time United States troops crossed the Rio Grande, a recovery had been under way, but the war arrested it. Further political turmoil and civil war in the 1850s and 1860s represented setbacks as well. In this way, a half century or so of potential economic growth was sacrificed from the 1810s through the 1870s. This was not an uncommon experience in Latin America in the nineteenth century, and the period has even been called The Stage of the Great Delay.[27] Whatever the exact rate of real per capita income growth was, it is hard to imagine it ever exceeded two percent, if indeed it reached much more than half that.


Agricultural Recovery and War

On the other hand, it is clear that there was a recovery in agriculture in the central regions of the country, most notably in the staple maize crop and in wheat. The famines of the late colonial era, especially of 1785-86, when massive numbers perished, were not repeated. There were years of scarcity and periodic corresponding outbreaks of epidemic disease—the cholera epidemic of 1832 affected Mexico as it did so many other places—but by and large, the dramatic human wastage of the colonial period ceased, and the death rate does appear to have begun to fall. Very good series on wheat deliveries and retail sales taxes for the city of Puebla southeast of Mexico City show a similarly strong recovery in the 1830s and early 1840s, punctuated only by the cholera epidemic whose effects were felt everywhere.[28]

Ironically, while the Panic of 1837 appears to have at least hit the financial economy in Mexico hard with a dramatic fall in public borrowing (and private lending), especially in the capital,[29] an incipient recovery of the real economy was ended by war with the United States. It is not possible to put numbers on the cost of the war to Mexico, which lasted intermittently from 1846 to 1848, but the loss of what had been the Southwest under Mexico is most often emphasized. This may or may not be accurate. Certainly, the loss of California, where gold was discovered in January 1848, weighs heavily on the historical imaginations of modern Mexicans. There is also the sense that the indemnity paid by the United States–$15 million—was wholly inadequate, which seems at least understandable when one considers that Andrew Jackson offered $5 million to purchase Texas alone in 1829.

It has been estimated that the agricultural output of the Mexican “cession” as it was called in 1900, was nearly $64 million, and that the value of livestock in the territory was over $100 million. The value of gold and silver produced was about $35 million. Whether it is reasonable to employ the numbers in estimating the present value of output relative to the indemnity paid is at least debatable as a counterfactual, unless one chooses to regard this as the annuitized value on a perpetuity “purchased” from Mexico at gunpoint, which seems more like robbery than exchange.  In the long run, the loss may have been staggering, but in the short run, much less so. The northern territories Mexico lost had really yielded very little up until the War. In fact, the balance of costs and revenues to the Mexican government may well have been negative.[30]

Whatever the case, the decades following the war with the United States until the beginning of the administration of Porfirio Díaz (1876) are typically regarded as a step backward. The reasons are several. In 1850, the government essentially went broke. While it is true that its financial position had disintegrated since the mid-1830s, 1850 marked a turning point. The entire indemnity payment from the United States was consumed in debt service, but this made no appreciable dent in the outstanding principal, which hovered around 50 million pesos (dollars).  The limits of debt sustainability had been reached: governing was turned into a wild search for resources, which proved fruitless. Mexico continued to sell of parts of its territory, such as the Treaty of the Mesilla (1853), or Gadsden Purchase, whose proceeds largely ended up in the hands of domestic financiers rather than foreign creditors’.[31] Political divisions, if anything, terrible before the war with the United States, turned catastrophic. A series of internal revolts, uprisings and military pronouncements segued into yet another violent civil war between liberals and conservatives—now a formal party—the so-called Three Years’ War (1856-58). In 1862, frustrated by Mexico’s suspension of foreign debt service, Great Britain, Spain and France seized Veracruz. A Hapsburg prince, Maximilian, was installed as Mexico’s second “emperor.” (Agustín de Iturbide was the first). While only the French actively prosecuted the war within Mexico, and while they never controlled more than a very small part of the country, the disruption was substantial. By 1867, with Maximillian deposed and the French army withdrawn, the country required serious reconstruction. [32]


Juárez, Díaz and the Porfiriato: authoritarian development.

To be sure, the origins of authoritarian development in nineteenth century Mexico were not with Porfirio Díaz, as is often asserted. Their beginnings actually went back several decades earlier, to the last presidency of Santa Anna, generally known as the Dictatorship (1853-54). But Santa Anna was overthrown too quickly, and now for the last time, for much to have actually occurred. A ministry for development (Fomento) had been created, but the Liberal revolution of Ayutla swept Santa Anna and his clique away for good. Serious reform seems to have begun around 1870, when the Finance Minister was Matías Romero. Romero was intent on providing Mexico with a modern Treasury, and on ending the hand-to- mouth financing that had mostly characterized the country’s government since Independence, or at least since the mid-1830s. So it is appropriate to pick up with the story here. Where did Mexico stand in 1870?[33]

The most revealing data that we have on the state of economic development come from various anthropometric and cost of living studies by Amilcar Challu, Aurora Gómez Galvarriato, and Moramay López Alonso.[34] Their research overlaps in part, and gives a fascinating picture of Mexico in the long run, from 1735 to 1940. For the moment, let us look at the period leading up to 1867, when the French withdrew from Mexico. If we look at the heights of the “literate” population, Challu’s research suggests that the standard of living stagnated between 1750 and 1840. If we look at the “illiterate” population, there was a consistent decline until 1850. Since the share of the illiterate population was clearly larger, we might infer that living standards for most Mexicans declined after 1750, however we interpret other quantitative and anecdotal evidence.

López Alonso confines her work to the period after the 1840s. From 1850 through 1890, her work generally corroborates Challu’s. The period after the Mexican War was clearly a difficult one for most Mexicans, and the challenge that both Juárez and Díaz faced was a macroeconomy in frank contraction after 1850. The regimes after 1867 were faced with stagnation.

The real wage study of by Amilcar Challu and Aurora Gómez Galvarriato, when combined with the existing anthropometric work, offers a pretty clear correlation between movements in real wages (down) and height (falling). [35]

It would then appear growth from the 1850s through the 1870s was slow—if there was any at all—and perhaps inferior to what had come between the 1820s and the 1840s. Given the growth of import substitution during the Napoleonic Wars, roughly 1790-1810, coupled with the commercial opening brought by the Bourbons’   post-1789 extension of “free trade” to Mexico, we might well see a pattern of mixed performance (1790-1810), sharp contraction (the 1810s), rebound and recovery, with a sharp financial shocks coming in the mid-1820s and mid -1830s (1820s-1840s), and stagnation once more (1850s-1870s). Real per capita output oscillated, sometimes sharply, around an underlying growth rate of perhaps one percent; changes in the distribution of income and wealth are more or less impossible to identify consistently, because studies conflict.

Far less speculative is that the foundations for modern economic growth were laid down in Mexico during the era of Benito Juárez. Its key elements were the creation of a secular, bourgeois state and secular institutions embedded in the Constitution of 1857. The titanic ideological struggles between liberals and conservatives were ultimately resolved in favor of a liberal, but nevertheless centralizing form of government under Porfirio Diáz. This was the beginning of the end of the Ancien Regime. Under Juárez, corporate lands of the Church and native villages were privatized in favor of individual holdings and their former owners compensated in bonds. This was effectively the largest transfer of land title since the late sixteenth century (not including the war with the United States) and it cemented the idea of individual property rights. With the expulsion of the French and the outright repudiation of the French debt, the Treasury was reorganized along more modern lines. The country got additional breathing room by the suspension of debt service to Great Britain until the terms of the 1825 loans were renegotiated under the Dublán Convention (1884). Equally, if not more important, Mexico now entered the railroad age in 1876, nearly forty years after the first tracks were laid in Cuba in 1837. The educational system was expanded in an attempt to create at least a core of literate citizens who could adopt the tools of modern finance and technology. Literacy still remained in the neighborhood of 20 percent, and life expectancy at birth scarcely reached 40 years of age, if that. Yet by the end of the Restored Republic (1876), Mexico had turned a corner. There would be regressions, but the nineteenth century had finally arrived, aptly if brutally signified by Juárez’ execution of Maximilian in Querétaro in 1867.[36]

Porfirian Mexico

Yet when Díaz came to power, Mexico was, in many ways, much as it had been a century earlier. It was a rural, agrarian nation whose primary agricultural output per person was maize, followed by wheat and beans. These were produced on haciendas and ranchos in Jalisco, Guanajuato, Michoacán, Mexico, Puebla as well as Oaxaca, Veracruz, Aguascalientes, Chihuahua and Sonora. Cotton, which with great difficulty had begun to supply a mechanized factory regime (first in spinning, then weaving) was produced in Oaxaca, Yucatán, Guerrero and Chiapas as well as in parts of Durango and Coahuila. Domestic production of raw cotton rarely sufficed to supply factories in Michoacán, Querétaro, Puebla and Veracruz, so imports from the Southern United States were common. For the most part, the indigenous population lived on maize, beans, and chile, producing its own subsistence on small, scattered plots known as milpas. Perhaps 75 percent of the population was rural, with the remainder to be found in cities like Mexico, Guadalajara, San Luis Potosí, and later, Monterrey. Population growth in the Southern and Eastern parts of the country had been relatively slow in the nineteenth century. The North and the center North grew more rapidly.  The Center of the country, less so. Immigration from abroad had been of no consequence.[37]

It is a commonplace to see the presidency of Porfirio Díaz (1876-1910) as a critical juncture in Mexican history, and this would be no less true of economic or commercial history as well. By 1910, when the Díaz government fell and Mexico descended into two decades of revolution, the first one extremely violent, the face of the country had been changed for good. The nature and effect of these changes remain not only controversial, but essential for understanding the subsequent evolution of the country, so we should pause here to consider some of their essential features.

While mining and especially, silver mining, had long held a privileged place in the economy, the nineteenth century had witnessed a number of significant changes. Until about 1889, the coinage of gold, silver, and copper—a very rough proxy for production given how much silver had been illegally exported—continued on a steadily upward track. In 1822, coinage was about 10 million pesos. By 1846, it had reached roughly 15 million pesos. There was something of a structural break after the war with the United States (its origins are unclear), and coinage continued upward to about 25 million pesos in 1888. Then, the falling international price of silver, brought on by large increases in supply elsewhere, drove the trend after 1889 sharply downward. By 1909-10, coinage had collapsed to levels previously unrecorded since the 1820s, although in 1904 and 1905, it had skyrocketed to nearly 45 million pesos.[38]

It comes as no surprise that these variations in production corresponded to sharp changes in international relative prices. For example, the market price of silver declined sharply relative to lead, which in turn encountered a large increase in Mexican production and a diversification into other metals including zinc, antinomy, and copper. Mexico left the silver standard (for international transactions, but continued to use silver domestically) in 1905, which contributed to the eclipse of this one crucial industry, which would never again have the status it had when Díaz became president in 1876, when precious metals represented 75 percent of Mexican exports by value. By the time he had decamped in exile to Paris, precious metals accounted for less than half of all exports.

The reason for this relative decline was the diversification of agricultural exports that had been slowly occurring since the 1870s. Coffee, cotton, sugar, sisal and vanilla were the principal crops, and some regions of the country such as Yucatán (henequen) and Durango and Tamaulipas (cotton) supplied new export crops.


Railroads and Infrastructure

None of be of this would have occurred without the massive changes in land tenure that had begun in the 1850s, but most of all, without the construction of railroads financed by the migration of foreign capital to Mexico under Díaz. At one level, it is a well-known story of social savings, which were substantial in Mexico because the terrain was difficult and the alternative modes of carriage few. One way or another, transportation has always been viewed as an “obstacle” to Mexican economic development. That must be true at some level, although recent studies (especially by Sandra Kuntz) have raised important qualifications. Railroads may not have been gateways to foreign dependency, as historians once argued, but there were limits to their ability to effect economic change, even internally. They tended to enlarge the internal market for some commodities more than others. The peculiarities of rate-making produced other distortions, while markets for some commodities were inevitably concentrated in major cities or transshipment points which afforded some monopoly power to distributors even as a national market in basic commodities became more of a reality. Yet, in general, the changes were far reaching.[39]

Conventional figures confirm conventional wisdom. When Díaz assumed the presidency, there were 660 km (410 miles) of track. In 1910, there were 19,280 km (about 12,000 miles). Seven major lines linked the cities of Mexico, Veracruz, Acapulco, Juárez, Laredo, Puebla, Oaxaca. Monterrey and Tampico in 1892. The lines were built by foreign capital (e.g., the Central Mexicano was built by the Atchison, Topeka and Santa Fe), which is why resolving the long-standing questions of foreign debt service were critical. Large government subsidies on the order of 3,500 to 8,000 pesos per km were granted, and financing the subsidies amounted to over 30 million pesos by 1890. While the railroads were successful in creating more of a national market, especially in the North, their finances were badly affected by the depreciation of the silver peso, given that foreign liabilities had to be liquidated in gold.

As a result, the government nationalized the railroads in 1903. At the same time, it undertook an enormous effort to construct infrastructure such as drainage and ports, virtually all of which were financed by British capital and managed by “Don Porfirio’s contactor,” Sir Weetman Pearson.  Between railroads, ports, drainage works and irrigation facilities, the Mexican government borrowed 157 million pesos to finance costs.[40]

The expansion of the railroads, the build-out of infrastructure and the expansion of trade would have normally increased output per capita. Any data we have prior to 1930 are problematic, and before 1895, strictly speaking, we have no official measures of output per capita at all. Most scholars shy away from using levels of GDP in any form, other than for illustrative purposes.  Aside from the usual problems attending national income accounting, Mexico presents a few exceptional challenges. In peasant families, where women were entrusted with converting maize into tortilla, no small job, the omission of their value added from GDP must constitute a sizeable defect in measured output. Moreover, as the commercial radius of Mexican agriculture expanded rapidly as railroads, roads, and later, highways spread extensively, growth rates represented increased commercialization rather than increased growth. We have no idea how important this phenomenon was, but it is worth keeping in mind when we look at very rapid growth rates after 1940.

There are various measures of cumulative growth during the Porfiriato. By and large, the figure from 1900 through 1910 is around 23 percent, which is certainly higher than rates achieved during the nineteenth century, but nothing like what was recorded after 1940. In light of declining real wages, one can only assume that the bulk of “progress” flowed to the recipients of property income. This may well have represented a reversal of trends in the nineteenth century, when some argue that property income contracted in the wake of the Insurgency[41].

There was also significant industrialization in Mexico during the Porfiriato. Some industry, especially textiles, had its origins in the 1840s, but its size, scale and location altered dramatically by the end of the nineteenth century. For example, the cotton textile industry saw the number of workers, spindles and looms more than double from the late 1870s to the first decade of the nineteenth century. Brewing and its associated industry, glassmaking, became well established in Monterrey during the 1890s. The country’s first iron and steel mill, Fundidora Monterrey, was established there as well in 1903. Other industries, such as papermaking and cigarettes followed suit. By the end of the Porfiriato, over 10 percent of Mexico’s output was certainly industrial.[42]


From Revolution to “Miracle”

The Mexican Revolution (1910-1940) began as a political upheaval provoked by a crisis in the presidential succession when Porfirio Díaz refused to leave office in the wake of electoral defeat after signaling his willingness to do so in a famous pubic interview of 1908.[43] It was also the result of an agrarian uprising and the insistent demand of Mexico’s growing industrial proletariat for a share of political power. Finally, there was a small (fewer than 10 percent of all households) but upwardly mobile urban middle class created by economic development under Díaz whose access to political power had been effectively blocked by the regime’s mechanics of political control. Precisely how “revolutionary” were the results of the armed revolt—which persisted largely through the 1910s and peaked in a civil war in 1914-1915—has long been contentious, but is only tangentially relevant as a matter of economic history. The Mexican Revolution was no Bolshevik movement (of course, it predated Bolshevism by seven years) but it was not a purely bourgeois constitutional movement either, although it did contain substantial elements of both.

From a macroeconomic standpoint, it has become fashionable to argue that the Revolution had few, if any, profound economic consequences. It seems as if the principal reason was that revolutionary factions were interested in appropriating rather than destroying the means of production. For example, the production of crude oil peaked in Mexico in 1915—at the height of the Revolution—because crude oil could be used as a source of income to the group controlling the wells in Veracruz state. This was a powerful consideration.[44]

Yet in another sense, the conclusion that the Revolution had slight economic effects is not only facile, but obviously wrong. As the demographic historian Robert McCaa showed, the excess mortality occasioned by the Revolution was larger than any similar event in Mexican history other than the conquest in the sixteenth century. There has been no attempt made to measure the output lost by the demographic wastage (including births that never occurred), yet even the effect on the population cohort born between 1910 and 1920 is plain to see in later demographic studies.  [45]

There is also a subtler question that some scholars have raised. The Revolution increased labor mobility and the labor supply by abolishing constraints on the rural population such as debt peonage and even outright slavery. Moreover, the Revolution, by encouraging and ultimately setting into motion a massive redistribution of previously privatized land, contributed to an enlarged supply of that factor of production as well. The true impact of these developments was realized in the 1940s and 1950s, when rapid economic growth began, the so-called Mexican Miracle, which was characterized by rates of real growth of as much as 6 percent per year (1955-1966). Whatever the connection between the Revolution and the Miracle, it will require a serious examination on empirical grounds and not simply a dogmatic dismissal of what is now regarded as unfashionable development thinking: import substitution and inward-oriented growth.[46]

The other major consequence of the Revolution, the agrarian reform and the creation of the ejido, or land granted by the Mexican state to rural population under the authority provided it by the revolutionary Constitution on 1917 took considerable time to coalesce, and were arguably not even high on one of the Revolution’s principal instigators, Francisco Madero’s, list of priorities. The redistribution of land to the peasantry in the form of possession if not ownership – a kind of return to real or fictitious preconquest and colonial forms of land tenure – did peak during the avowedly reformist, and even modestly radical presidency of Lázaro Cárdenas (1934-1940) after making only halting progress under his predecessors since the 1920s. From 1940 to 1965, the cultivated area in Mexico grew at 3.7 percent per year and the rise in productivity in basic food crops was 2.8 percent per year.

Nevertheless, the long-run effects of the agrarian reform and land redistribution have been predictably controversial. Under the presidency of Carlos Salinas (1988-1994) the reform was officially declared over, with no further land redistribution to be undertaken and the legal status of the ejido definitively changed. The principal criticism of the ejido was that, in the long run, it encouraged inefficiently small landholding per farmer and, by virtue of its limitations on property rights, made agricultural credit difficult for peasants to obtain.[47]

There is no doubt these are justifiable criticisms, but they have to be placed in context. Cárdenas’ predecessors in office, Alvaro Obregón (1924-1928) and Plutarco Elías Calles (1928-1932) may well have preferred a more commercial model of agriculture with larger, irrigated holdings. But it is worth recalling that one of the original agrarian leaders of the Revolution, Emiliano Zapata, had an uneasy relationship with Madero, who saw the Revolution in mostly political terms, from the start and quickly rejected Madero’s leadership in favor of restoring peasant lands in his native state of Morelos.  Cárdenas, who was in the midst of several major maneuvers that would require widespread popular support—such as the expropriation of foreign oil companies operating in Mexico in March 1938—was undoubtedly sensitive to the need to mobilize the peasantry on his behalf. The agrarian reform of his presidency, which surpassed that of any other, needs to be considered in those terms as well as in terms of economic efficiency.[48]

Cárdenas’ presidency also coincided with the continuation of the Great Depression. Like other countries in Latin America, Mexico was hard hit by the Great Depression, at least through the early 1930s.  All sorts of consumer goods became scarcer, and the depreciation of the peso raised the relative price of imports. As had happened previously in Mexican history (1790-1810, during the Napoleonic Wars and the disruption of the Atlantic trade), in the medium term domestic industry was nevertheless given a stimulus and import substitution, the subsequent core of Mexico’s industrialization program after World War II, was given a decisive boost. On the other hand, Mexico also experienced the forced “repatriation” of people of Mexican descent, mostly from California, of whom 60 percent were United States citizens. The effects of this movement—the emigration of the Revolution in reverse—has never been properly analyzed. The general consensus is that World War II helped Mexico to prosper. Demand for labor and materials from the United States, to which Mexico was allied, raised real wages and incomes, and thus boosted aggregate demand. From 1939 through 1946, real output in Mexico grew by approximately 50 percent. The growth in population accelerated as well as the country began to move into the later stages of the demographic transition, with a falling death rate, while birth rates remained high.[49]


From Miracle to Meltdown: 1950-1982  

The history of import substitution manufacturing did not begin with postwar Mexico, but few countries (especially in Latin America) became as identified with the policy in the 1950s, and with what Mexicans termed the emergence of “stabilizing development.” There was never anything resembling a formal policy announcement, although Raúl Prebisch’s 1949 manifesto, “The Economic Development of Latin America and its Principal Problems” might be regarded as supplying one. Prebisch’s argument, that a directed change in the composition of imports toward capital goods to facilitate domestic industrialization was, in essence, the basis of the policy that Mexico followed. Mexico stabilized the nominal exchange rate at 12.5 pesos to the dollar in 1954, but further movement in the real exchange rate (until the 1970s) were unimportant. The substantive bias of import substitution in Mexico was a high effective rate of protection to both capital and consumer goods. Jaime Ros has calculated these rates in 1960 ranged between 47 and 85 percent, and between 33 and 109 percent in 1980. The result, in the short to intermediate run, was very rapid rates of economic growth, averaging 6.5 percent in 1950 through 1973. Other than Brazil, which also followed an import substitution regime, no country in Latin America experienced higher rates of growth. Mexico’s was substantially above the regional average. [50]

[See the historical graph of population growth in Mexico through 2000 below]


Source: Essentially, Estadísticas Históricas de México (various editions since 1999; the most recent is 2014) (Accessed July 20, 2016)


But there were unexpected results as well. The contribution of labor to GDP growth was 14 percent. Capital’s contribution was 53 percent, and the remainder, total factor productivity (TFP) 28 percent.[51] As a consequence, while Mexico’s growth occurred through the accumulation of capital, the distribution of income became extremely skewed. The ratio of the top 10 percent of household income to the bottom 40 percent was 7 in 1960, and 6 in 1968. Even supporters of Mexico’s development program, such as Carlos Tello, conceded that it probable that it was the organized peasants and workers experienced an effective improvement of their relative position. The fruits of the Revolution were unevenly distributed, even among the working class.[52]

By “organized” one means such groups as the most important labor union in the country, the CTM (Confederation of Mexican Workers) or the nationally recognized peasant union, the CNC, both of which formed two of the three organized sectors of the official government party, the PRI, or Party of the Institutional Revolution that was organized in 1946. The CTM in particular was instrumental in supporting the official policy of import substitution, and thus benefited from government wage setting and political support. The leaders of these organizations became important political figures in their own right. One, Fidel Velázquez, as both a federal senator and the head of the CTM from 1941 to his death in 1997. The incorporation of these labor and peasant groups into the political system offered the government both a means of control and a guarantee of electoral support. They became pillars of what the Peruvian writer Mario Vargas Llosa famously called “the perfect dictatorship” of the PRI from 1946 to 2000, during which the PRI held a monopoly of the presidency and the important offices of state. In a sense, import substitution was the economic ideology of the PRI.[53]

Labor and economic development during the years of rapid growth is, like many others, a debated subject. While some have found strong wage growth, others, looking mostly at Mexico City, have found declining real wages. Beyond that, there is the question of informality and a segmented labor market. Were workers in the CTM the real beneficiaries of economic growth, while others in the informal sector (defined as receiving no social security payments, meaning roughly two-thirds of Mexican workers) did far less well? Obviously, the attraction of a segmented labor market model can address one obvious puzzle: why would industry substitute capital for labor, as it obviously did, if real wages were not rising? Postulating an informal sector that absorbed the rapid influx of rural migrants and thus held nominal wages steady while organized labor in the CTM got the benefit of higher negotiated wages, but in so doing, limited their employment is an attractive hypothesis, but would not command universal agreement. Nothing has been resolved, at least for the period of the “Miracle.” After Mexico entered a prolonged series of economic crises in the 1980s—here labelled as “meltdown”—the discussion must change, because many hold that the key to relative political stability and the failure of open unemployment to rise sharply can be explained by falling real wages.

The fiscal basis on which the years of the Miracle were constructed was conventional, not to say conservative.[54] A stable nominal exchange rate, balanced budgets, limited public borrowing, and a predictable monetary policy were all predicated on the notion that the private sector would react positively to favorable incentives. By and large, it did. Until the late 1960s, foreign borrowing was considered inconsequential, even if there was some concern on the horizon that it was starting to rise. No one foresaw serious macroeconomic instability. It is worth consulting a brief memorandum from Secretary of State Dean Rusk to President Lyndon Johnson (Washington, December 11, 1968) –to get some insight into how informed contemporaries viewed Mexico. The instability that existed was seen as a consequence of heavy-handedness on the part of the PRI and overreaction in the security forces. Informed observers did not view Mexico’s embrace of import-substitution industrialization as a train wreck waiting to happen. Historical actors are rarely so prescient.[55]


Slowing of the Miracle and Echeverría

The most obvious problems in Mexico were political. They stemmed from the increasing awareness that the limits of the “institutional revolution” had been reached, particularly regarding the growing democratic demands of the urban middle classes. The economic problem, which was far from obvious, was that import substitution had concentrated income in the upper 10 per cent of the population, so that domestic demand had begun to stagnate. Initially at least, public sector borrowing could support a variety of consumption subsidies to the population, and there were also efforts to transfer resources out of agriculture via domestic prices for staples such as maize. Yet Mexico’s population was also growing at the rate of nearly 3 percent per year, so that the long term prospects for any of these measures were cloudy.

At the same time, growing political pressures on the PRI, mostly dramatically manifest in the army’s violent repression of student demonstrators at Tlatelolco in 1968 just prior to the Olympics, had convinced some elements in the PRI, people like Carlos Madrazo, to argue for more radical change. The emergence of an incipient guerilla movement in the state of Guerrero had much the same effect. The new president, Luis Echeverría (1970-76), openly pushed for changes in the distribution of income and wealth, incited agrarian discontent for political purposes, dramatically increased government spending and borrowing, and alienated what had typically been a complaisant, if not especially friendly private sector.

The country’s macroeconomic performance began to deteriorate dramatically. Inflation, normally in the range of about 5 percent, rose into the low 20 percent range in the early 1970s. The public sector deficit, fueled by increasing social spending, rose from 2 to 7 percent of GDP. Money supply growth now averaged about 14 percent per year. Real GDP growth had begun to slip after 1968 and in the early 1970s, in deteriorated more, if unevenly. There had been clear convergence of regional economies in Mexico between 1930 and 1980 because of changing patterns of industrialization in the northern and central regions of the country.  After 1980, that process stalled and regional inequality again widened. [56]

While there is a tendency to blame Luis Echeverria for all or most of these developments, this forgets that his administration coincided with the First OPEC oil shock (1973) and rapidly deteriorating external conditions. Mexico had, as yet, not discovered the oil reserves (1978) that were to provide a temporary respite from economic adjustment after the shock of the peso devaluation of 1976—the first change in its value in over 20 years. At the same time, external demand fell, principally transmitted from the United States, Mexico’s largest trading partner, where the economy had fallen into recession in late 1973. Yet it seems reasonable to conclude that the difficult international environment, while important in bring Mexico’s “miracle” period to a close, was not helped by Echeverría’s propensity for demagoguery, of the loss of fiscal discipline that had long characterized government policy, at least since the 1950s. The only question to be resolved was to what sort of conclusion the period would come. The answer, unfortunately, was disastrous.[57]


Meltdown: The Debt Crisis, the Lost Decade and After

In contemporary parlance, Mexico had passed from “stabilizing” to “shared” development under Echeverría. But the devaluation of 1976 from 12.5 to 20.5 pesos to the dollar suggested that something had gone awry. One might suppose that some adjustment in course, especially in public spending and borrowing, would have occurred. But precisely the opposite occurred. Between 1976 and 1979, nominal federal spending doubled. The budget deficit increased by a factor of 15. The reason for this odd performance was the discovery of crude oil in the Gulf of Mexico, perhaps unsurprising in light of the spiking prices of the 1970s (the oil shocks of 1973-74, 1978-79), but nevertheless of considerable magnitude. In 1975, Mexico’s proven reserves were 6 billion barrels of oil. By 1978, they had increased to 40 billion. President López Portillo set himself to the task of “administering abundance” and Mexican analysts confidently predicted crude oil at $100 a barrel (when it stood at $37 in current prices in 1980). The scope of the miscalculation was catastrophic. At the same time, encouraged by bank loan pushing and effectively negative real rates of interest, Mexico borrowed abroad. Consumption subsidies, while vital in the face of slowing import substitution, were also costly, and when supported by foreign borrowing, unsustainable, but foreign indebtedness doubled between 1976 and 1979, and even further thereafter.

Matters came to a head in 1982. By then, Mexico’s foreign indebtedness was estimated at over $80 billion dollars, an increase from less than $20 billion in 1975. Real interest rates had begun to rise in the United States in mid-1981, and with Mexican borrowing tied to international rates, debt service rapidly increased. Oil revenue, which had come to constitute the great bulk of foreign exchange, followed international crude prices downward, driven in large part by a recession that had begun in the United States in mid-1981. Within six months, Mexico, too, had fallen into recession. Real per capital output was to decline by 8 percent in 1982.  Forced to sharply devalue, the real exchange rate fell by 50 percent in 1982 and inflation approached 100 percent. By the late summer, Finance Minister Jesus Silva Herzog admitted that the country could not meet an upcoming payment obligation, and was forced to turn to the US Federal Reserve, to the IMF, and to a committee of bank creditors for assistance. In late August, in a remarkable display of intemperance, President López Portillo nationalized the banking system. By December 20, 1982, Mexico’s incoming President, Miguel de la Madrid (1982-88) appeared, beleaguered, on the cover of Time Magazine framed by the caption, “We are in an Emergency.”  It was, as the saying goes, a perfect storm, and with it, the Debt Crisis and the “Lost Decade” in Mexico had begun. It would be years before anything resembling stability, let alone prosperity, was restored. Even then, what growth there was a pale imitation of what had occurred during the decades of the “Miracle.”


The 1980s

The 1980s were a difficult decade.[58]  After 1981, annual real per capita growth would not reach 4 percent again until 1989, and in 1986, it fell by 6 percent. In 1987, inflation reached 159 percent. The nominal exchange rate fell by 139 percent in 1986-1987. By the standards of the years of stabilizing development, the record of the 1980s was disastrous. To complete the devastation, on September 19, 1985, the worst earthquake in Mexican history, 7.8 on the Richter Scale, devastated large parts of central Mexico City and killed 5 thousand (some estimates run as high as 25 thousand), many of whom were simply buried in mass graves. It was as if a plague of biblical proportions had struck the country.

Massive indebtedness produced a dramatic decline in the standard of living as structural adjustment occurred. Servicing the debt required the production of an export surplus in non-oil exports, which in turn, required a reduction in domestic consumption. In an effort to surmount the crisis, the government implemented an agreement between organized labor, the private sector, and agricultural producers called the Economic Solidarity Pact (PSE). The PSE combined an incomes policy with fiscal austerity, trade and financial liberalization, generally tight monetary policy, and debt renegotiation and reduction. The centerpiece of the “remaking” of the previously inward orientation of the domestic economy was the North American Free Trade Agreement (NAFTA, 1993) linking Mexico, the United States, and Canada. While average tariff rates in Mexico had fallen from 34 percent in 1985 to 4 percent in 1992—even before NAFTA was signed—the agreement was generally seen as creating the institutional and legal framework whereby the reforms of Miguel de la Madrid and Carlos Salinas (1988-1994) would be preserved. Most economists thought its effects would be relatively larger in Mexico than in the United States, which generally appears to have been the case. Nevertheless, NAFTA has been predictably controversial, as trade agreements are wont to be. The political furor (and, in some places, euphoria) surrounding the agreement have faded, but never entirely disappeared. In the United States in particular, NAFTA is blamed for deindustrialization, although pressure on manufacturing, like trade liberalization itself, was underway long before NAFTA was negotiated. In Mexico, there has been much hand wringing over the fate of agriculture and small maize producers in particular. While none of this is likely to cease, it is nevertheless the case that there has been a large increase in the volume of trade between the NAFTA partners. To dismiss this is, quite plainly, misguided, even where sensitive and well organized political constituencies are concerned. But the legacy of NAFTA, like most everything in Mexican economic history, remains unsettled.


Post Crisis: No Miracles

Still, while some prosperity was restored to Mexico by the reforms of the 1980s and 1990s, the general macroeconomic results have been disappointing, not to say mediocre. The average real compensation per person in manufacturing in 2008 was virtually unchanged from 1993 according to the Instituto Nacional De Estadística  Geografía e Informática, and there is little reason to think the compensation has improved at all since then. It is generally conceded that per capita GDP growth has probably averaged not much more than 1 percent a year. Real GDP growth since NAFTA according to the OECD has rarely reached 5 percent and since 2010, it has been well below that.



Source: (Accessed July 21, 2016). The vertical scale cuts the horizontal axis at 1982


For virtually everyone in Mexico, the question is why, and the answers proposed include virtually any plausible factor: the breakdown of the political system after the PRI’s historic loss of presidential power in 2000; the rise of China as a competitor to Mexico in international markets; the explosive spread of narcoviolence in recent years, albeit concentrated in the states of Sonora, Sinaloa, Tamaulipas, Nuevo León and Veracruz; the results of NAFTA itself; the failure of the political system to undertake further structural economic reforms and privatizations after the initial changes of the 1980s, especially regarding the national oil monopoly, Petroleos Mexicanos (PEMEX); the failure of the border industrialization program (maquiladoras) to develop substantive backward linkages to the rest of the economy. This is by no means an exhaustive list of the candidates for poor economic performance. The choice of a cause tends to reflect the ideology of the critic.[59]

Yet it seems that, at the end of the day, the reason why post-NAFTA Mexico has failed to grow comes down to something much more fundamental: a fear of growing, embedded in the belief that the collapse of the 1980s and early 1990s (including the devastating “Tequila Crisis” of 1994-1995, which resulted in a another enormous devaluation of the peso after an initial attempt to contain the crisis was bungled)  was so traumatic and costly as to render event modest efforts to promote growth, let alone the dirigisme of times past, as essentially unwarranted. The central bank, the Banco de México (Banxico) rules out the promotion of economic growth as part of its remit—even as a theoretical proposition, let alone as a goal of macroeconomic policy– and concerns itself only with price stability. The language of its formulation is striking. “During the 1970s, there was a debate as to whether it was possible to stimulate economic growth via monetary policy.  As a result, some governments and central banks tried to reduce unemployment through expansive monetary policy.  Both economic theory and the experience of economies that tried this prescription demonstrated that it lacked validity. Thus, it became clear that monetary policy could not actively and directly stimulate economic activity and employment. For that reason, modern central banks have as their primary goal the promotion of price stability” (translation mine). Banxico is not the Fed: there is no dual mandate in Mexico.[60]

The Mexican banking system has scarcely made things easier. Private credit stands at only about a third of GDP. In recent years, the increase in private sector savings has been largely channeled to government bonds, but until quite recently, public sector deficits were very small, which is to say, fiscal policy has not been expansionary. If monetary and fiscal policy are both relatively tight, if private credit is not easy to come by, and if growth is typically presumed to be an inevitable concomitant to economic stability for which no actor (other than the private sector) is deemed responsible, it should come as no surprise that economic growth over the past two decades has been lackluster.  In the long run, aggregate supply determines real GDP, but in the short run, nominal demand matters: there is no point in creating productive capacity to satisfy demand that does not exist. And, unlike during the period of the Miracle and Stabilizing Development, attention to demand since 1982 has been limited, not to say off the table completely. It may be understandable, but Mexico’s fiscal and monetary authorities seem to suffer from what could be termed, “Fear of Growth.” For better or worse, the results are now on display. After its current (2016) return to a relatively austere budget, it remains to be seen how the economic and political system in contemporary Mexico handles slow economic growth. For that would now seem to be, in a basic sense, its largest challenge for the future.

[1] I am grateful to Ivan Escamilla and Robert Whaples for their careful readings and thoughtful criticisms.

[2] The standard reference work is Sandra Kuntz Ficker, (ed), Historia económica general de México. De la Colonia a nuestros días (México, DF: El Colegio de Mexico, 2010).

[3] Oscar Martinez, Troublesome Border (rev. ed., University of Arizona Press: Tucson, AZ, 2006) is the most helpful general account in English.

[4] There are literally dozens of general accounts of the pre-conquest world. A good starting point is Richard E.W. Adams, Prehistoric Mesoamerica (3d ed., University of Oklahoma Press: Norman, OK, 2005). More advanced is Richard E.W. Adams and Murdo J. Macleod, The Cambridge History of the Mesoamerican Peoples: Mesoamerica. (2 parts, New York: Cambridge University Press, 2000).

[5] Nora C. England and Roberto Zavala Maldonado, “Mesoamerican Languages” Oxford Bibliographies

(Accessed July 10, 2016)

[6] For an introduction to the nearly endless controversy over the pre- and post-contact population of the Americas, see William M. Denevan (ed.), The Native Population of the Americas in 1492 (2d rev ed., Madison: University of Wisconsin Press, 1992).

[7] Sherburne F Cook and Woodrow Borah, Essays in Population History: Mexico and California (Berkeley, CA: University of California Press, 1979), p. 159.

[8]Gene C. Wilken, Good Farmers Traditional Agricultural Resource Management in Mexico and Central America (Berkeley: University of California Press, 1987), p. 24.

[9] Bernard Ortiz de Montellano, Aztec Medicine Health and Nutrition (New Brunswick, NJ: Rutgers University Press, 1990).

[10] Bernardo García Martínez, “Encomenderos españoles y British residents: El sistema de dominio indirecto desde la perspectiva novohispana”, in Historia Mexicana, LX: 4 [140] (abr-jun 2011), pp. 1915-1978.

[11] These epidemics are extensively and exceedingly well documented. One of the most recent examinations is Rodofo Acuna-Soto, David W. Stahle, Matthew D. Therrell , Richard D. Griffin,  and Malcolm K. Cleaveland, “When Half of the Population Died: The Epidemic of Hemorrhagic Fevers of 1576 in Mexico,” FEMS Microbiology Letters 240 (2004) 1–5. (http://, accessed July 10, 2016.) See in particular the exceptional map and table on pp. 2-3.

[12] See in particular, Bernardo García Martínez. Los pueblos de la Sierrael poder y el espacio entre los indios del norte de Puebla hasta 1700 (Mexico, DF: El Colegio de México, 1987) and Elinor G.K. Melville, A Plague of Sheep: Environmental Consequences of the Conquest of Mexico (New York: Cambridge University Press, 1997).

[13] J. H. Elliott, “A Europe of Composite Monarchies,” Past & Present 137 (The Cultural and Political Construction of Europe): 48–71; Guadalupe Jiménez Codinach, “De Alta Lealtad: Ignacio Allende y los sucesos de 1808-1811,” in Marta Terán and José Antonio Serrano Ortega, eds., Las guerras de independencia en la América Española (La Piedad, Michoacán, MX: El Colegio de Michoacán, 2002), p. 68.

[14] Richard Salvucci, “Capitalism and Dependency in Latin America,” in Larry Neal and Jeffrey G. Williamson, eds., The Cambridge History of Capitalism (2 vols.), New York: Cambridge University Press, 2014), 1: pp. 403-408.

[15] Source: TePaske Page, (Accessed July 19, 2016)

[16]  Edith Boorstein Couturier, The Silver King: The Remarkable Life of the Count of Regla in Colonial Mexico (Albuquerque, NM: University of New Mexico Press, 2003).  Dana Velasco Murillo, Urban Indians in a Silver City: Zacatecas, Mexico, 1546-1810 (Stanford, CA: Stanford University Press, 2015), p. 43. The standard work on the subject is David Brading, Miners and Merchants in Bourbon Mexico, 1763-1810 (New York: Cambridge University Press, 1971) But also see Robert Haskett, “Our Suffering with the Taxco Tribute: Involuntary Mine Labor and Indigenous Society in Central New Spain,” Hispanic American Historical Review, 71:3 (1991), pp. 447-475. For silver in China see (accessed July 13, 2016). For the rents of empire question, see Michael Costeloe, Response to Revolution: Imperial Spain and the Spanish American Revolutions, 1810-1840 (New York: Cambridge University Press, 1986).

[17] This is an estimate. David Ringrose concluded that in the 1780s, the colonies accounted for 45 percent of Crown income, and one would suppose that Mexico would account for at least about half of that. See David R. Ringrose, Spain, Europe and the ‘Spanish Miracle’, 1700-1900 (New York: Cambridge University Press, 1996), p. 93; Mauricio Drelichman, “The Curse of Moctezuma: American Silver and the Dutch Disease,” Explorations in Economic History 42:3 (2005), pp. 349-380.

[18] José Antonio Escudero, El supuesto memorial del Conde de Aranda sobre la Independencia de América) México, DF: Universidad Nacional Autónoma de México, 2014) (, accessed July 13, 2016)

[19] Allan J. Kuethe and Kenneth J. Andrien, The Spanish Atlantic World in the Eighteenth Century. War and the Bourbon Reforms, 1713-1796 (New York: Cambridge University Press, 2014) is the most recent account of this period.

[20] Richard J. Salvucci, “Economic Growth and Change in Bourbon Mexico: A Review Essay,” The Americas, 51:2 (1994), pp. 219-231; William B Taylor, Magistrates of the Sacred: Priests and Parishioners in Eighteenth Century Mexico (Palo Alto: Stanford University Press, 1996), p. 24; Luis Jáuregui, La Real Hacienda de Nueva España. Su Administración en la Época de los Intendentes, 1786-1821 (México, DF: UNAM, 1999), p. 157.

[21] Jeremy Baskes, Staying AfloatRisk and Uncertainty in Spanish Atlantic World Trade, 1760-1820 (Stanford, CA: Stanford University Press, 2013); Xabier Lamikiz, Trade and Trust in the Eighteenth-century Atlantic World: Spanish Merchants and their Overseas Networks (Suffolk, UK: The Boydell Press., 2013). The starting point of all these studies is Clarence Haring, Trade and Navigation between Spain and the Indies in the Time of the Hapsburgs (Cambridge, MA: Harvard University Press, 1918).

[22] The best, and indeed, virtually unique starting point for considering these changes in their broadest dimensions   are the joint works of Stanley and Barbara Stein: Silver, Trade, and War (2003); Apogee of Empire (2004), and Edge of Crisis (2010), All were published by Johns Hopkins University Press and do for the Spanish Empire what Laurence Henry Gipson did for the First British Empire.

[23] The key work is María Eugenia Romero Sotelo, Minería y Guerra. La economía de Nueva España, 1810-1821 (México, DF: UNAM, 1997)

[24] Calculated from José María Luis Mora, Crédito Público ([1837] México, DF: Miguel Angel Porrúa, 1986), pp. 413-460. Also see Richard J. Salvucci, Politics, Markets, and Mexico’s “London Debt,” 1823-1887 (NY: Cambridge University Press, 2009).

[25] Jesús Hernández Jaimes, La Formación de la Hacienda Pública Mexicana y las Tensiones Centro -Periferia, 1821-1835  (México, DF: El Colegio de México, 2013). Javier Torres Medina, Centralismo y Reorganización. La Hacienda Pública Durante la Primera República Central de México, 1835-1842 (México, DF: Instituto Mora, 2013). The only treatment in English is Michael P. Costeloe, The Central Republic in Mexico, 1835-1846 (New York: Cambridge University Press, 1993).

[26] An agricultural worker who worked full time, 6 days a week, for the entire year (a strong assumption), in Central Mexico could have expected cash income of perhaps 24 pesos. If food, such as beans and tortilla were added, the whole pay might reach 30. The figure of 40 pesos comes from considerably richer agricultural lands around the city of Querétaro, and includes as an average income from nonagricultural employment as well, which was higher.  Measuring Worth would put the relative historic standard of living value in 2010 prices at $1.040, with the caveat that this is relative to a bundle of goods purchased in the United States. (

[27]The phrase comes from Guido di Tella and Manuel Zymelman. See Colin Lewis, “Explaining Economic Decline: A review of recent debates in the economic and social history literature on the Argentine,” European Review of Latin American and Caribbean Studies, 64 (1998), pp. 49-68.

[28] Francisco Téllez Guerrero, De reales y granos. Las finanzas y el abasto de la Puebla de los Angeles, 1820-1840 (Puebla, MX: CIHS, 1986). Pp. 47-79.

[29]This is based on an analysis of government lending contracts. See Rosa María Meyer and Richard Salvucci, “The Panic of 1837 in Mexico: Evidence from Government Contracts” (in progress).

[30] There is an interesting summary of this data in U.S Govt., 57th Cong., 1 st sess., House, Monthly Summary of Commerce and Finance of the United States (September 1901) (Washington, DC: GPO, 1901), pp. 984-986.

[31] Salvucci, Politics and Markets, pp. 201-221.

[32] Miguel Galindo y Galindo, La Gran Década Nacional o Relación Histórica de la Guerra de Reforma, Intervención Extranjera, y gobierno del archiduque Maximiliano, 1857-1867 ([1902], 3 vols., México, DF: Fondo de Cultura Económica, 1987).

[33] Carmen Vázquez Mantecón, Santa Anna y la encrucijada del Estado. La dictadura, 1853-1855 (México, DF: Fondo de Cultura Económica, 1986).

[34] Moramay López-Alonso, Measuring Up: A History of Living Standards in Mexico, 1850-1950 (Stanford, CA: Stanford University Press, 2012);  Amilcar Challú and Auroro Gómez Galvarriato, “Mexico’s Real Wages in the Age of the Great Divergence, 1730-1930,” Revista de Historia Económica 33:1 (2015), pp. 123-152; Amílcar E. Challú, “The Great Decline: Biological Well-Being and Living Standards in Mexico, 1730-1840,” in Ricardo Salvatore, John H. Coatsworth, and Amilcar E. Challú, Living Standards in Latin American History: Height, Welfare, and Development, 1750-2000 (Cambridge, MA: Harvard University Press, 2010), pp. 23-67.

[35]See Challú and Gómez Galvarriato, “Real Wages,” Figure 5, p. 101.

[36] Luis González et al, La economía mexicana durante la época de Juárez (México, DF: 1976).

[37] Teresa Rojas Rabiela and Ignacio Gutiérrez Ruvalcaba, Cien ventanas a los países de antaño: fotografías del campo mexicano de hace un siglo) (México, DF: CONACYT, 2013), pp. 18-65.

[38] Alma Parra, “La Plata en la Estructura Económica Mexicana al Inicio del Siglo XX,” El Mercado de Valores 49:11 (1999), p. 14.

[39] Sandra Kuntz Ficker, Empresa Extranjera y Mercado Interno: El Ferrocarril Central Mexicano (1880-1907) (México, DF: El Colegio de México, 1995).

[40] Priscilla Connolly, El Contratista de Don Porfirio. Obras públicas, deuda y desarrollo desigual (México, DF: Fondo de Cultura Económica, 1997).

[41] Most notably John Tutino, From Insurrection to Revolution in Mexico: Social Bases of Agrarian Violence, 1750-1940 (Princeton, NJ: Princeton University Press, 1986). p. 229. My growth figures are based on the INEGI, Estadísticas Historicas de México, 2014) (, Accessed July 15, 2016).

[42] Stephen H. Haber, Industry and Underdevelopment: The Industrialization of Mexico, 1890-1940 (Stanford, CA: Stanford University Press, 1989); Aurora Gómez-Galvarriato, Industry and Revolution: Social and Economic Change in the Orizaba Valley (Cambridge, MA: Harvard University Press, 2013).

[43] There are literally dozens of accounts of the Revolution. The usual starting point, in English, is Alan Knight, The Mexican Revolution (reprint ed., 2 vols., Lincoln, NE: 1990).

[44] This argument has been made most insistently in Armando Razo and Stephen Haber, “The Rate of Growth of Productivity in Mexico, 1850-1933: Evidence from the Cotton Textile Industry,” Journal of Latin American Studies 30:3 (1998), pp. 481-517.

[45]Robert McCaa, “Missing Millions: The Demographic Cost of the Mexican revolution,” Mexican Studies/Estudios Mexicanos 19:2 (Summer 2003): 367-400; Virgilio Partida-Bush, “Demographic Transition, Demographic Bonus, and Ageing in Mexico, “ Proceedings of the United Nations Expert Group Meeting on Social and Economic Implications of Changing Population Age Structures. ( (Accessed July 15, 2016), pp. 287-290.

[46] An implication of the studies of Alan Knight, and of Clark Reynolds, The Mexican Economy: Twentieth Century Structure and Growth (New Haven, CT: Yale University Press, 1971).

[47] An interesting summary of revisionist thinking on the nature and history of the ejido appears in Emilio Kuri, “La invención del ejido, Nexos, January 2015.

[48]Alan Knight, “Cardenismo: Juggernaut or Jalopy?” Journal of Latin American Studies, 26:1 (1994), pp. 73-107.

[49] Stephen Haber, “The Political Economy of Industrialization,” in Victor Bulmer-Thomas, John Coatsworth, and Roberto Cortes-Conde, eds., The Cambridge Economic History of Latin America (2 vols., New York: Cambridge University Press, 2006), 2:  537-584.

[50]Again, there are dozens of studies of the Mexican economy in this period. Ros’ figures come from “Mexico’s Trade and Industrialization Experience Since 1960: A Reconsideration of Past Policies and Assessment of Current Reforms,” Kellogg Institute (Working Paper 186, January 1993). For a more general study, see Juan Carlos Moreno-Brid and Jaime Ros, Development and Growth in the Me3xican Economy. A Historical Perspective (New York: Oxford University Press, 2009). A recent Spanish language treatment is Enrique Cárdenas Sánchez, El largo curso de la economía mexicana. De 1780 a nuestros días (México, DF: Fondo de Cultura Económica, 2015). A view from a different perspective is Carlos Tello, Estado y desarrollo económico. México 1920-2006 (México, DF, UNAM, 2007).

[51]André A. Hoffman, Long Run Economic Development in Latin America in a Comparative Perspective: Proximate and Ultimate Causes (Santiago, Chile: CEPAL, 2001), p. 19.

[52]Tello, Estado y desarrollo, pp. 501-505.

[53] Mario Vargas Llosa, “Mexico: The Perfect Dictatorship,” New Perspectives Quarterly 8 (1991), pp. 23-24.

[54] Rafael Izquierdo, Política Hacendario del Desarrollo Estabilizador, 1958-1970 (México, DF: Fondo de Cultura Económica, 1995. The term stabilizing development was itself termed by Izquierdo as a government minister.

[55]See Foreign Relations of the United States, 1964-1968. Mexico and Central America (Accessed July 15, 2016).

[56] José Aguilar Retureta, “The GDP Per Capita of the Mexican Regions (1895:1930): New Estimates, Revista de Historia Económica, 33: 3 (2015), pp. 387-423.

[57] For a contemporary account with a sense of the immediacy of the end of the Echeverría regime, see “Así se devaluó el peso,” Proceso, November 13, 1976.

[58] The standard account is Stephen Haber, Herbert Klein, Noel Maurer, and Kevin Middlebrook, Mexico since 1980 (New York: Cambridge University Press, 2008). A particularly astute economic account is Nora Lustig, Mexico: The Remaking of an Economy (2d ed., Washington, DC: The Brookings Institution, 1998).  But also Louise E. Walker, Waking from the Dream. Mexico’s Middle Classes After 1968 (Stanford, CA: Stanford University Press, 2013).

[59] See, for example, Jaime Ros Bosch, Algunas tesis equivocadas sobre el estancamiento económico de México (México, DF: El Colegio de México, 2013).

[60] La Banca Central y la Importancia de la Estabilidad Económica  June 16, 2008.  (, Accessed July 15, 2016.). Also see Brian Winter, “This Man is Brilliant: So Why Doesn’t Mexico’s Economy Grow Faster?” Americas Quarterly ( (Accessed July 21, 2016)



Rural Society and Economic Change in County Durham: Recession and Recovery, c.1400-1640

Author(s):Brown, A. T.
Reviewer(s):Bailey, Mark

Published by EH.Net (April 2016)

A. T. Brown, Rural Society and Economic Change in County Durham: Recession and Recovery, c.1400-1640. Woodbridge, UK: Boydell Press, 2015. xv + 288 pp. £60 (cloth), ISBN: 978-1-78327-075-0.

Reviewed for EH.Net by Mark Bailey, School of History, University of East Anglia.

Alex Brown is an Addison Wheeler postdoctoral Research Fellow at the University of Durham, and this publication is based on his Ph.D. thesis.  Modern Ph.D.s in economic and social history tend to offer an in-depth study of a single community, but Brown tackles a large geographical area over an unusually long timeframe.  In doing so, he establishes a platform from which to offer perspectives on a number of major debates, such as the transition from feudalism to capitalism, the rise of the gentry and the crisis of the aristocracy.  His ambition is largely justified and fulfilled: this is a well-researched, clearly structured, uncomplicated and thoughtful study.

County Durham is chosen for a number of compelling reasons: the two major institutional landlords within the county — the bishopric of Durham, and Durham cathedral priory (renamed the Dean and Chapter in the 1540s) — have left a substantial archive; the precocious local development of the coal industry offers an opportunity to explore whether mercantile capital was invested in industry or diverted into land; and, finally, the region’s geographical diversity provides a contrast between the arable lowlands in the  east and the pastoral uplands in the west.

Brown begins by charting the impact of the fifteenth-century economic recession on rural society in Durham, and then assessing how decisions made in its depths shaped the ability of local people to respond to galloping inflation in the sixteenth and early seventeenth centuries.  In particular, he contrasts the responses on the estate of the priory with those on the bishopric. During the course of the fifteenth century customary land on the former was largely converted to leases, and holdings were reorganized into larger units often held by syndicates, enabling the priory to staunch the hemorrhaging of its revenues.  During the sixteenth-century inflation, leases presented the priory estate with a mechanism for increasing revenues at a level commensurate with rises in land values.  Unusually, the standardized leasehold units were seldom fragmented or absorbed into larger leases, and, as a consequence, the settled landholding structure supported in each township a sizeable group of middling yeoman, each of whom held consolidated farms of between fifty and one hundred acres.

In contrast, the bishopric responded to the cash crisis of the mid-fifteenth century by exploiting revenues from coal rather than reorganizing the structure of tenant landholding, and therefore little customary land was converted to leases or reorganized into standardized units.  The persistence of the old tenures and landholding structures meant that after c.1550 the bishopric was unable to extract a commercial value from its agricultural holdings, whose rents were ossified at a low level by custom.  Consequently, small numbers of tenants were able to exploit the favorable combination of low rents and rising agrarian profits to construct large farms, so that in c.1600 many townships on the bishop’s estate possessed a polarized social structure characterized by a small but wealthy yeoman elite and a large number of cottagers, smallholders and laborers.

The prior and the bishopric managed estates whose composition was essentially fixed, whereas lay landlords were able to acquire and dispose of manors more freely.  The depressed demand for land during the fifteenth century enabled a handful of lay landlords to construct sizeable estates across Durham, so that in c.1500 a small seigniorial elite controlled around one half of all lay manors in the county.  By c.1600 these estates had fragmented, such that no lay landlord owned more than a dozen manors.  Brown avoids regarding this dramatic change as evidence of either a rising gentry or an aristocracy in crisis, but instead argues that “passive” rentier landlords — who in Durham tended to be the great lay lords — were caught in a pincer movement of inflation and stagnant rents leading to financial ruin.  Landlords who actively exploited opportunities in agriculture, trade and industry fared better, and in Durham these tended to be the lesser gentry.  The growth of the coal industry, especially after the 1570s, provided some leading Newcastle merchants with the capital to enter the rural land market, although they did so in order to secure control over coal seams rather than to establish themselves as landed gentry.  New money from Newcastle trickled rather than flooded into the Durham countryside.

The novelty of Brown’s approach is to contrast the managerial policy on two contiguous estates in the same part of England: thus, by holding constant the variables of time and place, he can isolate accurately key differences in institutional decision-making and so chart their subsequent impact upon both lords and tenants. The shift to standardized leaseholds on the prior’s estate, and the bishopric’s adherence to the old forms of landholding, locked each estate onto a different pathway of development with starkly different consequences for lords and tenants in the sixteenth and early seventeenth centuries.  He cites this as a powerful illustration of path dependency theory and of how managerial policies created major institutional constraints on seigniorial estates.

The study’s broad sweep means that some important points of detail escape closer scrutiny.  The reasons why the priory chose the leasehold pathway, and the bishopric did not, remain vague.  The exact nature and evolution of the bishopric’s copyholds, and, indeed, of the prior’s leaseholds, attract little analysis for a study placing so much emphasis upon tenure.  Indeed, the leases were neither straightforward nor unchanging, evolving over time from life leases, to short-term leases, and finally into longer-term leases with reversionary rights benefiting the tenant and protecting the integrity of the holding.  Each phase required careful elucidation, including any evidence for changes in the formulae of grants.

But these are quibbles.  Overall, this is an admirable and ambitious first monograph from a promising young scholar.

Mark Bailey is Professor of Late Medieval History at the University of East Anglia.  He has published on the decline of serfdom in England, and has been invited to deliver the Ford Lectures in British History at the University of Oxford in 2019.

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Subject(s):Agriculture, Natural Resources, and Extractive Industries
Urban and Regional History
Geographic Area(s):Europe
Time Period(s):Medieval
16th Century
17th Century

Purchasing Power: The Economics of Modern Jewish History

Editor(s):Kobrin, Rebecca
Teller, Adam
Reviewer(s):Chiswick, Carmel U.

Published by EH.Net (March 2016)

Rebecca Kobrin and Adam Teller, editors, Purchasing Power: The Economics of Modern Jewish History.  Philadelphia: University of Pennsylvania Press, 2015.  vii + 355 pp. $65 (cloth), ISBN: 978-0-8122-4730-5.

Reviewed for EH.Net by Carmel U. Chiswick, Department of Economics, George Washington University.

Purchasing Power is a collection of eleven well-researched and well-documented essays about the economic life of Jews in a particular industry, time period, or location, usually as producers but sometimes also as consumers.  This subject has only recently been treated seriously as an important aspect of Jewish history, earlier work typically either ignored the practicalities of earning a living or else relied on — or even generated — stereotypes that obscure rather than illuminate.   The editors of Purchasing Power, Rebecca Kobrin of Columbia University and Adam Teller of Brown University, have made a good start on rectifying the situation with this book.

Part I of this collection, “Networks and Niches,” has five historical essays on the economic activities of Jews in various circumstances.  Chapter 1 by Bernard Dov Cooperman (University of Maryland) is about Jewish moneylenders in early modern Rome.  Chapter 2 by Carsten L. Wilke (Central European University, Budapest) focuses on the Jews of the French Pyrenees who held the tobacco monopoly in seventeenth-century Spain.  Chapter 3 by Cornelia Aust (Leibniz-Institute for European History, Mainz, Germany) uses bankruptcy data from eighteenth-century Central Europe to draw insights about the credit-worthiness of Jewish merchants.  Chapter 4 by Glenn Dynner (Sarah Lawrence College) considers whether residential restrictions affected (or did not affect) the success of Jewish businesses in nineteenth-century Poland, including some interesting analysis of unintended consequences.  Chapter 5 by Adam D. Mendelsohn (College of Charleston) tells the story of a family of English Jews that exported clothing to British colonies during the nineteenth century.  Chapter 6 by Jonathan Karp (Binghamton University, SUNY) describes twentieth-century American and British Jews whose economic niche was in (phonograph) record stores catering to collectors of early Rock’n’Roll and folk music.

Together these chapters provide a nuanced view of Jewish business networking, evidence that being Jewish was neither a necessary nor a sufficient condition for inclusion in a successful business relationship.  Most if not all of these networks depended on non-Jews for certain activities, and not every Jew was sufficiently reliable and trustworthy to be included.  In each instance, a person’s good name (i.e., reputation) would be much more important than his religion when it came to building a successful business network.  Jewish businessmen operating in the larger society and belonging to the Jewish community were subject to the (sometimes conflicting) laws and ethical standards of both, and while this could be unduly restrictive it might also provide some wriggle-room for evading the less advantageous legal context.  In a hostile socio-political environment Jews might make a living in niche industries that were scorned by others, but even in friendly environments Jewish innovators created successful niches in new industries or markets.  The reader cannot help but be struck by the entrepreneurship and innovation demonstrated in these chapters.

While the chapters in Part I focus on how Jews earned a living, those in Part II give examples of how economically successful Jews used their wealth to help their less-fortunate co-religionists.  Chapter 7 by Abigail Green (Brasenose College and University of Oxford) considers the nineteenth-century appearance of international Jewish philanthropy, as increasingly high-income Jews in the liberal West tried to alleviate the poverty and powerlessness of Oriental Jews.  Chapter 8 by Derek Penslar (University of Oxford and University of Toronto) describes how Israel was able to finance its 1948 War of Independence with donations from Diaspora Jewish organizations, from wealthy Jewish philanthropists, and from the many contributions of individual middle- and low-income Western (especially American) Jews.  Chapter 9 by Veerle Vanden Daelon (Centre for Historical Research and Documentation on War and Contemporary Society in Brussels) follows the fortunes (good and bad) of Antwerp’s Jews in the diamond industry as they weathered the crises of two World Wars, struggled with the twin challenges of modernization and globalization, and interacted with Belgian governments that were sometimes friendly and sometimes not.  Chapter 10 by Jonathan Dekel-Chen (Hebrew University of Jerusalem) takes the late twentieth-century “Free Soviet Jewry” movement as an example of how financial resources and political activism greatly influenced Jewish communities in the U.S. and UK, even though it is unclear how much of this actually effected change in the Soviet Union.  Chapter 11 by Adam Sutcliffe (King’s College, London) concludes the volume with a re-examination of how Werner Sombart’s important work on Jews and capitalism reflected the popular stereotypes of his time and place, influencing the politics of Jewish economic history for decades to come.

With a few exceptions, Purchasing Power focuses on big successes, whether tracing the growth of business empires or the distribution of wealth to improve the welfare of others.  It is a welcome contribution to the growing literature on the economic activities of Jews.  Part I is myth-busting, providing evidence that the most successful Jewish commercial networks were probably not nearly so parochial as common stereotypes might suggest.  Part II deals with another stereotype, that of a few powerful Jews using their wealth to manipulate world events, but its focus is on politics within the Jewish community rather than influences on the larger society.  Each of the two Parts are composed of chapters that are themselves useful references that open new doors for further research.

As an economist interested in Jewish economic history, I welcome the (belated) entry of historians into this field.  I look forward, however, to new studies that place this literature in a broader perspective.   Most Jews would have earned their livelihood in small businesses, in crafts and trades, or in professions like medicine or clergy, and it would be interesting to know how their economic lives affected the Jewish community as well as the broader economy.  Since Jews were typically a tiny minority in their respective societies, it would be interesting to compare their philanthropic patterns with those of non-Jewish neighbors.  (Any such comparison might well consider that religious philanthropy typically occurred in the context of a state religion for non-Jews but not for Jews, an important difference explored in the growing literature on the economics of religion.)  Perhaps the greatest contribution made by the collection of essays in Purchasing Power is that each chapter is important not only for the light it sheds on the economic activity of Jews but also as a foundation for further research into the economic history of the Jewish people.

Carmel U. Chiswick is the author of Judaism in Transition:  How Economic Choices Shape Religious Tradition, Stanford University Press, 2014.

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Subject(s):Business History
Financial Markets, Financial Institutions, and Monetary History
History of Economic Thought; Methodology
International and Domestic Trade and Relations
Markets and Institutions
Social and Cultural History, including Race, Ethnicity and Gender
Geographic Area(s):Europe
Middle East
North America
Time Period(s):16th Century
17th Century
18th Century
19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII

Mainstream Growth Economists and Capital Theorists: A Survey

Author(s):Muzhani, Marin
Reviewer(s):Lazzarini, Andrés

Published by EH.Net (December 2015)

Marin Muzhani, Mainstream Growth Economists and Capital Theorists: A Survey. Montreal and Kingston: McGill-Queen’s University Press, 2014. x + 558 pp. $45 (paperback), ISBN: 978-0-773-54366-9.

Reviewed for EH.Net by Andrés Lazzarini, Institute of Economics, Federal University of Rio de Janeiro.

Mainstream Growth Economists and Capital Theorists: A Survey provides a comprehensive account of what the author identifies as modern economic growth theory, which spans from the late 1930s to the present. The thread, through which Marin Muzhani (Ph.D. in the History of Economic Doctrines from the University of Florence) joins the main modern growth models, is made up of the issues, controversies and key variables that growth economists have found in their theories to establish “what really determines the rate of growth” (p. 5). Is it physical capital per worker? What is the influence of income distribution on accumulation? Is saving the main driver of growth? Are technical progress and innovations the main factors for boosting an economy? These are really big issues in growth theory, some of which do indeed date back to the early classical economists. Readers of this long survey will gain a grasp of how attempts to address those questions have shaped the aims, validation methods, and empirical research of mainstream growth models over nearly a century. The emphasis on the mainstream, however, makes a misjudgment in the overall assessment of recent growth models, minimizing the serious difficulties into which they have recurrently fallen.

The main objective of this book is to show how modern growth models, in their quest to ensure the stability conditions for economic expansion, shifted in focus during their history. The first shift occurred from the models of the 1930s and 1940s, based on Keynesian features (Harrod and Domar), to neoclassical models of the 1950s and 1960s, focusing on optimization, factor substitution and long-run growth paths. This change originated with dissatisfaction with the Harrod-Domar model’s outcome of unstable, “two-edge knife” equilibrium, which is the result of using “short-run tools, such as the accelerator or the coefficient of the capital-output ratio to ensure equality between the warranted and the natural rate of growth” (p. 65) — a long-run problem. For the author, the line of thought following the Harrod-Domar view “would imply that the economy is in a state of depression rather than in a steady-state growth” (p. 68), but since this was not the case in the world economy in the late 1950s, the early “Neo-Keynesian” models were replaced by mainstream neoclassical theory.

Solow’s model depicts how a market economy can follow a balanced growth path if its capital intensity is appropriately adjusted to savings — a paramount neoclassical result that can only be achieved thanks to the principle of substitution between capital and labor. But, for the author, “the main problem with the neoclassical theory of growth was that it left the rate of growth almost unexplained” (p. 314), because of the exogenous nature of technical progress. “Through their actions, individuals determine the rate of technical progress, and if so, such actions should be part of an explanatory theory” (p. 314). As a result, modern growth theory underwent its second shift in focus from the Solow-Swan model to the endogenous growth theory (EGT) that emerged in the 1980s and continued to develop in the 1990s onwards.

Economic growth in these theories is driven by the accumulation of knowledge-based factors of production, such as human capital, learning by doing, innovation, and research and development. In the long run, “it is the accumulation of these factors that causes factor productivity to increase and prevents the marginal return to physical capital from falling” (p. 475). Muzhani correctly identifies the inability of Solow’s model to explain the high positive correlation between growth and the investment-output ratio: if labor is in full-employment, an addition of physical capital will decrease its marginal productivity, so any addition of this factor would require an appropriate addition of labor to boost growth. Endogenous growth theory emerged to explain that paradox within the neoclassical theory: “the decreasing marginal productivity of capital is in some ways eliminated without losing the competitive framework” (p. 326). On the whole, despite controversies and disagreements with the conventional standpoint regarding growth, the author concludes that neoclassical models of growth, both exogenous and endogenous, are still the most powerful and useful theories at our disposal.

The book is divided into three parts. The first part surveys the classical economists on accumulation and technical progress (chapter 1); the pioneering works of the “Neo-Keynesians” Harrod and Domar (chapter 2); and the works of the so-called “Old Keynesians” Kaldor and Pasinetti (chapter 3). The second part of the book is the central core of Muzhani’s reconstruction. Chapters 4 and 5 provide a wide-ranging account of the most influential neoclassical growth models of the 1950s and 1960s: Solow (1956; 1957), Cass (1965), Koopmans (1965), Uzawa (1961), Phelps (1962), and Arrow (1962), among several others. Chapter 6 reviews the post-war Cambridge capital theory controversies. Chapter 7 surveys the works of a number of influential economists after World War II who started a common effort to create a theory of economic development (Kuznets, 1949; Lewis, 1954; Myrdal 1954; Rostow, 1960; Chenery, 1960; Hirschman, 1958; and the Latin American Structuralist school). The third part (chapters 8, 9, 10) covers endogenous growth models (Romer, 1986; Lucas, 1988; Rebelo, 1991; Alwyn Young, 1998; Grossman and Helpman, 1991); the New Schumpeterian approach of creative destruction (Aghion and Howitt, 1992); and the contribution of the search theory, among several other models.

While this survey contributes to a more comprehensible account of mainstream growth theory, the author does not adequately consider the impact of insurmountable difficulties that impinge upon the neoclassical approach. For example, EGT models, by taking into account positive externalities of the different types, violate neoclassical theory due to the absence of decreasing marginal returns in the inputs, thereby jeopardizing both the determination of distribution according to the principle of factor substitution and the notion of convergence of per capita growth rates. Muzhani, on the other hand, minimizes this formidable problem for EGT: “Romer proposes that knowledge itself has increasing returns in the production function, but the search technology that produces it is based on the scale of decreasing returns, and this assures the existence of an optimal rate of growth. As a result, growth is endogenous because the externalities compensate for the decreasing marginal productivity in research” (p. 342): however, such a compensation would chiefly depend on an exceptionally unlikely value of the parameters involved, which, only by chance, could ever be observed, if only roughly, in the real world (Solow, 1992).

The problem does not stop here, though, because even if one accepts the unreasonable parameter values for EGT models, there would still remain the disquieting results of the Cambridge controversies which demonstrate that it is not possible to deduce the principle of factor substitution logically in any neoclassical model for economies with more than one capital good. Muzhani nods in agreement (pp. 266, 317), but the implication that it is impossible to extend the results of mainstream growth models, both Solovian and EGT, beyond an economy producing one single commodity, is stripped away by the author from his overall assessment of mainstream theory. Quite the opposite, Muzhani states that “the British Cambridge School failed to develop new sets of theoretical instruments in order to avoid the problems associated with general equilibrium and the one-commodity model” (p. 268), whereas it is, in fact, mainstream theory that has to grapple with the extremely incongruous results of intertemporal and temporary general equilibrium models, i.e. the current mainstream economic theory (Petri, 2004), where the one-commodity model is abandoned.

Mainstream Growth Economists and Capital Theorists is an ambitious book and will certainly appeal to graduate students sorting out the intricacies of models that thrive in standard economic growth textbooks, as well as to scholars devoted to macroeconomic and growth studies. It accurately balances a mathematically precise treatment of the models and the broad historical background. It offers a glimpse of the personal and intellectual lives of most of the theorists examined. It carefully simplifies, in other words, the structure of growth theory for the next cohorts of academics and policy makers alike. But, perhaps, in view of a still pessimistic outlook for economic growth for the global economy, the mainly positive assessment of mainstream theory in the book will make those non-conventional economic approach seekers differ from the author’s final judgment. There is little doubt, at any rate, that the big questions posed for economic growth will continue to demand new answers.

References not cited in the book under review:

Petri, F. (2004). General Equilibrium, Capital and Macroeconomics: A Key to Recent Controversies in Equilibrium Theory. Cheltenham, UK: Edward Elgar.

Solow, R. (1992) Siena Lectures on Endogenous Growth Theory. Collana Dipartimento di Economia Politica, Università di Siena, vol.6.

Andrés Lazzarini is assistant professor of History of Economic Thought and of Theories of Value and Distribution at the Federal University of Rio de Janeiro. He is the author of Revisiting the Cambridge Capital Theory Controversy: A Historical and Analytical Study (Pavia University Press, 2011) and has published articles on the Cambridge controversies and on Neoclassical capital theory and equilibrium in Review of Political Economy, History of Economics Review, and Review of Radical Political Economics, among others.
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Subject(s):Economic Development, Growth, and Aggregate Productivity
History of Economic Thought; Methodology
Time Period(s):20th Century: Pre WWII
20th Century: WWII and post-WWII

Institutions, Innovation, and Industrialization: Essays in Economic History and Development

Editor(s):Greif, Avner
Kiesling, Lynne
Nye, John V. C.
Reviewer(s):Margo, Robert A.

Published by EH.Net (May 2015)

Avner Greif, Lynne Kiesling, and John V. C. Nye, editors, Institutions, Innovation, and Industrialization: Essays in Economic History and Development.  Princeton, NJ: Princeton University Press, 2015. v + 430 pp.  $49.50 (cloth), ISBN: 978-0-691-15734-4.

Reviewed for EH.Net by Robert A. Margo, Department of Economics, Boston University.

Although it would be difficult to prove conclusively I believe the level of social capital in the economic history profession is very high, absolutely and relative to other fields in economics.  Because the field is small, new entrants are quickly integrated into the fold.   Senior scholars take their mentoring responsibilities seriously, and not just to their own students.  On the back end, there is a very strong tradition of Festschriften, the formal honoring of distinguished individuals by research conferences and requisite commemorative volumes.   For economic historians who have produced many more successful PhDs in their career than the average number of chapters in an edited volume, the decision of whom to include in the published Festschrift (as opposed to the conference) is a delicate challenge.   As the co-editors note in their introductory remarks, this certainly was the case with the volume under review, honoring as it does Joel Mokyr, one of our most prodigious scholars and certainly one of the most prolific in replenishing the profession with new PhDs over the past several decades.  The co-editors are all well-known Mokyr students.  Avner Grief is the Bowman Family Endowed Professor in Humanities and Sciences at Stanford University; Lynne Kiesling is Associate Professor of Instruction in the Department of Economics at Northwestern University; and John V. C. Nye is the Frederic Bastiat Chair in Political Economy and Professor of Economics at George Mason University.

The book is divided into four sections.  The first without title or number presents the co-editors’ introductory remarks; and two chapters, one by Cormac Ó Gráda (“Neither Feast nor Famine: England before the Industrial Revolution”) and a second by Joel Mokyr (“Progress, Useful Knowledge, and the Origins of the Industrial Revolution”).  The second section (“Institutions”) contains four chapters by Grief (“Coercion and Exchange: How did Markets Evolve?”); Gergely Baics (“Meat Consumption in Nineteenth Century New York:  Quantity, Distribution, and Quality, or Notes on the ‘Antebellum Puzzle’”; Mauricio Drelichman and Hans-Joachim Voth (“Funding Empire: Risk, Diversification, and the Underwriting of Early Modern Sovereign Loans”); and Noel D. Johnson, Mark Koyama, and Nye (“Establishing a New Order: The Growth of the State and the Decline of Witch Trials in France”).   The third, (“Innovation”) has four chapters by Fabbio Braggion, Narly R.D. Dwarkasing, and Lyndon Moore (“Increasing Market Concentration in British Banking, 1885 to 1925”); Peter B. Meyer (“The Catapult of Riches: The Airplane as a Creative Macroinvention”); Karine van der Beck (“England’s Eighteenth Century Demand for High-Quality Worksmanship: Evidence from Apprentice, 1710-1770”); and Rick Szostak (“A Growth Agenda for Economic History”).  The fourth and final section (“Industrial Revolution”) is the longest with five chapters by Hoyt Bleakley, Louis Cain, and Joseph Ferrie (“Amidst Poverty and Prejudice: Black and Irish Civil War Veterans”); Ralf R. Meisenzahl (“How Britain Lost its Competitive Edge: Competence in the Second Industrial Revolution”); Carolyn Tuttle and Simone A. Wegge (“Regulating Child Labor: The European Experience”); Joyce Burnette (“Decomposing the Wage Gap: Within- and Between-Occupation Gender Wage Gaps at a Nineteenth Century Textile Firm”); and Eric Jones (“The Context of English Industrialization.”   Most of the authors are former doctoral students of Mokyr; others are long-time colleagues or professional associates (Cain, Jones, Ferrie).

Due to the eclectic nature of the book and space constraints being what they are, I shall hit the highlights as I see them and make some general observations.  Joel Mokyr’s chapter is a very effective summary of a forthcoming Princeton University Press book on the question near and dear to his heart: Why England? The Baics chapter provides an abundance of fresh quantitative data on the “antebellum puzzle,” showing that meat consumption appears to have declined in New York City in the late 1830s and early 1840s.  Karine van der Beek creatively uses archival records of apprentices subject to the stamp tax to study how the demand for certain types of skilled labor changed during the Industrial Revolution.   The Bleakley, Cain and Ferrie chapter uses unique data from the Early Indicators project collected by Mokyr’s cross-town colleague, the late Robert Fogel, to provide new insights into economic mobility experienced by Civil War veterans, by race and ethnicity.

The blurbs on the back cover of the book tout the “cutting-edge” (Harold James) and “pioneering and provocative” (Stephen Haber) nature of the chapters, but that is not how I see them for the most part.  As practiced today in the United States economic history is mostly indistinguishable in style and technique from other branches of applied economics.   Absent a few passing references to game theory here and there, and some simple algebra in Peter Meyer’s chapter, there is no formal modeling in this book.  When on display (and not often) the econometrics would be right at home in any 1980s issue of Explorations in Economic History.  There is some unevenness in substance and execution across the chapters, not uncommon in Festschrift.  I could have done without the Szostak chapter and its unnecessary eleven-step “program” of recommended behavior for today’s economic historians (“Focus on economic growth.  Focus some more.”)  It reminded me of sterile debates over the “New Economic History” that consumed far too much time (and journal space) back in the 1960s and 1970s and which are irrelevant today, in my personal experience.

What the essays do possess collectively is a studied, patient eye for historical context and clarity of exposition that has always been part and parcel of Joel Mokyr’s work, traits that he has most effectively transmitted to his students.   There is also an abundance of deep respect and affection for the dedicatee that shines through in every chapter.   Social capital runs very high in the Mokyr extended family, as this volume effectively demonstrates.

Robert A. Margo is the current President of the Economic History Association.  His most recent books are Human Capital and History: The American Record (co-edited with Leah Boustan and Carola Frydman) and Enterprising America: Businesses, Banks and Credit Markets in Historical Perspective (co-edited with William Collins), both published by the University of Chicago Press.

Copyright (c) 2015 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 (May 2015). All EH.Net reviews are archived at

Subject(s):Development of the Economic History Discipline: Historiography; Sources and Methods
Economic Development, Growth, and Aggregate Productivity
Economywide Country Studies and Comparative History
History of Technology, including Technological Change
Labor and Employment History
Markets and Institutions
Geographic Area(s):General, International, or Comparative
Time Period(s):General or Comparative
18th Century
19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII

British Mail Steamers to South America, 1851-1965: A History of the Royal Mail Steam Packet Company and Royal Mail Lines

Author(s):Forrester, Robert E.
Reviewer(s):Kaukiainen, Yrjö

Published by EH.Net (December 2014)

Robert E. Forrester, British Mail Steamers to South America, 1851-1965: A History of the Royal Mail Steam Packet Company and Royal Mail Lines. Farnham, UK: Ashgate Publishing, 2014. xiii + 248 pp. £70 (hardcover), ISBN: 978-1-4724-1661-2.

Reviewed for EH.Net by Yrjö Kaukiainen, Department of History, University of Helsinki.

Royal Mail ships played a prominent role in the early history of steam shipping. Around the middle of the nineteenth century, in particular, the subventions paid by the British government were of vital importance for the success of the companies in question; gradually, however, the economic importance of mail contracts diminished and RMS vessels rather became just a special — albeit prestigious — category of passenger liners.

Forrester’s book is of special interest because it describes the history of a company which started in 1840 and lived until 1965 — a period which almost perfectly coincides with the rise and decline of what we could call traditional liner shipping. Thus the RMSP/Royal Mail Lines lived through most of the great revolutions which totally changed the outlook of international shipping in the course of a “long century.”

Overall, the book is a sound example of the British business history tradition. Its significant strength is the practical expertise of the author who — before moving to the publishing business and finally to maritime history studies — worked for two decades as a ship officer. Accordingly he can competently describe and discuss the technical and navigational aspects of his story. In this sense, Chapter 2 is particularly valuable for vividly describing the teething troubles of early steam shipping. In the 1830s and 1840s, there was no infrastructure to support power-driven vessels and the pioneering companies had to build it by themselves. This included coaling stations — which were particularly important in the period before compound engines started to decrease fuel consumption — as well as networks of foreign offices and agents, and sometimes even harbor development. I think this is something which every scholar working with cliometric analysis concerning the transition from sail to steam should read. However, to put things into a perspective, quite similar lack of infrastructure was faced by early container shipping.

The author presents a rather detailed picture of the development of the fleet as well as of passenger and freight volumes, which were particularly fast before First World War. This period of growth even included the beginning of refrigerated transportation of meat.  A good background for these developments is provided by overviews of relevant markets: imports and exports of South American countries, as well as the competition with other shipping lines. One of the author’s main arguments is that the mail steamers were important in instituting and maintaining the considerable British financial, commercial and industrial presence in Latin America.

As the book can be characterized as narrative rather than analytical it may not fully meet the expectations of scholars who are interested in a macro perspective. Its outline consists of strictly chronological chapters which makes it difficult for a reader to perceive an overall picture of different long-terms trends. For example the role of transoceanic postal services in information transmission — which is specifically referred to in the back-cover blurb — as well as their improvement, receives no systematic analysis. Regarding the continuous decline of postal subventions for the company’s economy this, however, cannot be regarded a fatal omission. Moreover, such aspects, at least as far as the period until 1875 is concerned, have already been quite sufficiently analyzed in a Finnish doctoral dissertation published in 2007.

The scope of the book is fairly Britain-centered, which can even be seen in the bibliography. Thus, comparisons with French, German or American mail lines (or other competing shipping) are quite infrequent. One more limitation is already indicated by the title of book: while the Royal Mail lines sailed both to the West Indies and South America, the former area has in practice been excluded. This obviously was a personal choice of the author — he served for ten years, until 1965, as a deck officer on the company’s South American ships. The limitation, however, involves practical problems. Since the company’s accounts did not differentiate between various destinations (which is not really surprising because a number of ships sailed both to the West Indies and South America) the specific economic returns of South American, or Brazil and Argentine traffic cannot be found in the relevant source material. In business history terms, a sounder alternative would have been to deal with the entire RMSP-company right from its beginning (as the subtitle of the book actually suggests).

It is clear that a book with a wide chronological scope is able to offer interesting data for further research. A good example of valuable information can be found in a quotation of freight rates to and from South America in the 1850s (p. 22) which fully confirms the surmise that shipping goods on early steamers was expensive. The description of the company’s economic decline, collapse and reorganization in the late 1920s presents a rather typical case of the difficulties faced by ocean shipping after the First World War. Even the final downturn and demise of the Royal Mail Lines in the 1960s is a good example of a general trend. When the United Nations Conference of Trade and Development (UNCTAD) was instituted in 1964 it almost immediately became the organ of developing countries requiring more equal rules of the game (vis-a-vis the industrial world) for liner shipping. While the actual liner code was adopted only after twenty years, South American countries were very active in developing, with subventions, their own merchant navies already in the 1960s. This harmed not only British lines but even the South America lines of other West and North European countries. Finally, I would like to point out that the Fleet list published as an appendix, offers valuable data of technical development across 120 years.

Yrjö Kaukiainen, Professor Emeritus of European History, University of Helsinki, recently published “The Role of Shipping in the ‘Second Stage of Globalisation,’” International Journal of Maritime History (2014).

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Subject(s):Transport and Distribution, Energy, and Other Services
Geographic Area(s):Europe
Latin America, incl. Mexico and the Caribbean
Time Period(s):19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII