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Institutional Change and American Economic Growth

Author(s):Davis, Lance E.
North, Douglass C.
Reviewer(s):Morris, Cynthia Taft

Lance E. Davis and Douglass C. North (with the assistance of Calla Smorodin), Institutional Change and American Economic Growth. Cambridge: Cambridge University Press, 1971. viii + 282 pp.

Review Essay by Cynthia Taft Morris, Department of Economics, Smith College and American University.

Davis and North Launch Neoclassical Institutional Theory

This book is an early major step in the evolution of the thinking of Douglass North and his collaborators on the “new” neoclassical theory of institutional change — the institutional arm of the new economic history that began to flourish in the 1960s. Among the many notable later steps are The Rise of the Western World (1973) with Robert Paul Thomas and “Constitutions and Commitment: The Evolution of Institutions Governing Public Choice” with Barry Weingast (1989) — which ranks third in citations among articles ever published in the Journal of Economic History.

Lance Davis and Douglass North develop a theory of institutional change so familiar that it is easy to forget the theory was ever “new.” They lay out a model where the core logic of institutional change is neoclassical cost-benefit analysis and the motivating drive for institutional change is profit maximization. The goal of the authors’ “intellectual journey through American economic history [is] . . . to provide a description of the processes that have produced the present structure of economic institutions. That description, in turn, is the basis for a first (and very primitive) attempt at the formulation of a specified, relevant, and logical theory of the birth, growth, mutation, and, perhaps, death of these institutions. The book is a study of the sources of institutional change in American history. It is concerned with the relationship between economic organization and economic growth” (p. 4).

Chapter 1 presents the concepts and definitions (institutional and economic environments, institutional arrangement, institutional instruments, and institutional innovation). An institutional arrangement will be innovated if the expected net gains exceed the expected costs. Arrangements range from purely voluntary to totally government controlled and operated and seek to realize economies of scale, lowered transactions costs, internalization of external economies, reduction of risk, or redistribution of income (pp. 10-11).

Chapter 2 analyses the government’s role in redistribution. The authors’ purpose is to include the role of government in their theory of institutional change in spite of the unsatisfactory state of political theory. To exclude it would likely “yield a model of institutional change no more useful in the growth context than are the present models with their ceteris paribus assumptions about institutions” (pp.37-38). In their analysis, governments with effective coercive power will be the preferred vehicle for institutional innovations where governments are well developed but markets are not, where external benefits are large but property rights are dispersed, where benefits are substantial but indivisible, and where benefits are not increased and the goal is redistribution. The costs of using government to appropriate others’ wealth and income depends on the numbers and heterogeneity of the persons organized, the feasibility of excluding outsiders from benefiting, the complexity of political coalitions, the rules of the political game, and the character of electoral suffrage.

Chapter 3 specifies the dynamics of the model in the context of American history. The authors seek to predict both the institutional “level” of change and the time lag from first perception of profit opportunity to institutional innovation: New institutional arrangements will be innovated where profit or income opportunities appear that require institutional changes or where cost reductions can be achieved with new business forms or political moves redistributing income. Among many influences changing the benefits and costs of institutional innovations are changes in market size, technical change, changes in income expectations, organizational changes in closely related activities, cost reductions associated with government-financed information or reductions in risk, and political changes altering voting or property rights. All these except political changes have parallels in neoclassical theories of technical change. However, “to do no more than assert a relationship between income changes and arrangemental innovation is hardly a significant step; . . . it is our intention to offer a theory that helps predict (or explain) the emergence of these new or mutated arrangements. In particular, the theory predicts the level (individual, voluntary cooperative, or governmental) of the new institutional arrangement and the length of time that passes between the recognition of the potential profit and the emergence of the new arrangement” (p. 39).

The core of chapter 3 divides the causes of varying lags between the perception of an innovation and its successful emergence into four steps: perception and organization, invention, menu selection, and start-up time. (i) The time lag between perceived profit and the organization of a “primary action group” depends on how much profits there are and their certainty. (ii) Where no suitable options are immediately available, time is required for invention. (iii) Where options are available, time is required to search out and select the most profitable ones. (iv) The start-up time for the innovation will vary with the “level” of institutional change, that is, according to whether it is an individual arrangement (shortest lag), a voluntary cooperative one (a longer lag because of more complex arrangements), or a governmental innovation (a still longer lag because political organization is required).

The final chapter of Part I on the theory deals with the exogenous institutional environment, and thus the initial conditions in Davis and North’s model of institutional change. Chapter 4 sketches substantial historical changes in the institutional environment: the rules governing the extent and weighting of voting rights, the legal basis for private property, and “the expectational weights that the community chooses to apply to the future costs and revenues of particular arrangemental innovations — weights that are the product of experience triggered by events exogenous to the model” (p.65). Important sources of change in these three aspects of economic life are (i) the Constitution and its interpretation by the courts, (ii) the common law, and (iii) “the external changes in the political and economic life of the nation that affect the people’s attitudes toward government” (p. 65). A lively sketch of dramatic historical changes and fluctuations over 175 years in each of these categories follows.

Part II consists of six historical chapters in which Davis and North apply their model of institutional change to American economic history by telling vivid stories of changes in land policies, financial institutions, transportation, market structure in manufacturing, the organization of the service industry, and labor market changes affecting unions and education. These stories illustrate well the explanatory potential of their model by describing the history of business and labor responses to changing profit and income opportunities through the adoption of new institutions or adaptations of old ones. No attempt is made here to evaluate these stories since this reviewer has no specialized expertise in American economic history. Of necessity given space constraints, they are selective and reflect the specialties of the authors, as they themselves carefully state in the introduction to the book.

The great strength of the neoclassical theory of institutional change is that it yields an insightful and plausible “explanation” of a wide range of institutional changes over time in individual market economies where the private profit motive is strong and neoclassical-type market supply responses are already widespread. An enormous volume of literature has developed in response to the work of Douglass North and his colleagues. North himself has been an outstanding leader in the expansion of the scope of applications of neoclassical institutional theory.

The limitations of the theory are most evident in the study of cross-country differences in institutional responses to the challenges of opportunities for profit and higher incomes. The new economic theory of institutional change is a variant of historical challenge and response theories, all of which suffer from a similar problem. To quote Nathan Rosenberg’s discussion of David Landes’s Unbound Prometheus (1969), “the industrial world is full of ‘challenges’ and always has been. Why do some challenges in some places at certain times generate successful responses and at other times do not?” (1971, p. 498). Telling historical stories consistent ex post with theories of institutional change does not address the questions raised by many historical instances when profitable opportunities for institutional change did not bring forth historical responses that helped accelerate economic growth. Constrained by its focus on market opportunities and responses, the neoclassical institutional theory poorly accommodates institutional changes driven by nationalist, religious, or imperialist motives so intense as to sacrifice economic gain. Also, the theory accommodates poorly historical country-specific institutional developments that are the outcome of chance and strong path dependency such as are evident in historical patterns of private land acquisitions or foreign domination in some developing countries.

The limitations to the excellent work of North and his collaborators are noted here as a warning that no one theory handles well the diversity of comparative historical experience. Casual empiricism is the usual practice in delimiting the countries and periods to which each theory applies. Because of this, the entire literature on institutional change is particularly weak on the diverse consequences of similar economic, demographic, and technological changes in different institutional settings. We all need to delimit more effectively the domains to which familiar models apply (Morris and Adelman, 1988, p. 32).


David S. Landes. 1969. The Unbound Prometheus: Technological Change and Industrial Development in Western Europe from 1750 to the Present. Cambridge: Cambridge University Press.

Cynthia Taft Morris and Irma Adelman. 1988. Comparative Patterns of Economic Development, 1850-1914. Baltimore: Johns Hopkins University Press.

Douglass C. North and Robert Paul Thomas. 1973. The Rise of the Western World: A New Economic History. Cambridge: Cambridge University Press.

Douglass C. North and Barry Weingast. 1989. “Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England,” Journal of Economic History, 49 (December): 803-832.

Nathan Rosenberg. 1971. “Review of the Unbound Prometheus,” Journal of Economic History, 31 (June): 497-500.

Cynthia Taft Morris is distinguished economist in residence, American University and Charles N. Clark Emeritus Professor of Economics, Smith College. She is past president of the Economic History Association.


Subject(s):Markets and Institutions
Geographic Area(s):North America
Time Period(s):General or Comparative

Rulers, Religion, and Riches: Why the West Got Rich and the Middle East Did Not

Author(s):Rubin, Jared
Reviewer(s):Mokyr, Joel

Published by EH.Net (April 2017)

Jared Rubin, Rulers, Religion, and Riches: Why the West Got Rich and the Middle East Did Not. New York: Cambridge University Press, 2017. xxi + 273 pp. $30 (paperback), ISBN: 978-1-108-40005-3.

Reviewed for EH.Net by Joel Mokyr, Departments of Economics and History, Northwestern University.

The Middle East, it has been said, is not just a collection of failed states. It is a failed region. It generates a disproportional number of the world’s orphans and refugees, its GDP per capita is intolerably low despite oil riches, and there are few signs that there is light at the end of tunnel. Democracy seems to have been put on the back burner indefinitely, and human rights are a lost cause in most countries and in retreat elsewhere. Intellectually, too, things look rather dismal: In 2005 Harvard University alone produced more scientific papers than 17 Arabic-speaking countries combined. Muslim countries contribute just 2.5 percent of more than 11.5 million papers published worldwide each year (Muslims constituted 23 percent of the world’s population in 2010). A 1997 Scientometrics paper estimated that 46 Muslim countries (which of course contain much more than the Middle East) contributed 1.17 percent to world science literature as opposed to Spain (1.48 percent).

Is the Islamic religion to blame? Jared Rubin, in this stimulating and highly original study, would deny that emphatically. Although this is a book about religion and its implication for institutional and economic change, Rubin is little interested in the actual doctrinal content of religion. He points out, as many others have, that the essence of Islam could not possibly be as rigid and opposed to commerce and economic change as it may seem, because for the first centuries of its existence, the nations that adopted Islam flourished not just commercially but also in terms of technology, architecture, poetry, agriculture, medicine, and engineering, while western Europe was an ignorant, violent and poverty-stricken backwater. What we have witnessed since 1200 is more than a “divergence”: it is a Great Reversal, of momentous importance till the present day.

Rubin’s book presents us with an explanation for this great reversal, which will have to be taken into account from now on in all future discussions on the economic history of the Islamic world. He does not oversell his argument as the reason for the great reversal, he makes a plausible argument for it as a complementary argument to the ones other serious scholars have made. The book is divided into a few chapters that outline the theory and logic of the argument and then applies these insights to a number of historical case studies. It is a tale that combines economic history, political economy, and religion in a unique and novel way.

Here is the basic argument: any kind of ruler has power because his or her subjects accept their rule and their main concern is what Rubin calls “propagating their rule.”  How do you get people to accept you as their ruler and let you keep your job? Political power is supported by a combination of coercion (that is, violence) and legitimacy (people willingly accept a ruler because they believe that this person has the right to rule them). Through most of history, rulers depended on a combination of the two, though the weights of each differed greatly depending on their costs and benefits. Rubin is exclusively interested in the legitimacy part. Legitimacy is provided by what he calls “legitimizing agents” — groups or entities that have enough influence to make the subjects of the ruler follow instructions and pay taxes. An obvious legitimizing agent is the religious establishment — for example, European rulers once ruled ex dei gratia and called themselves the most Catholic King. Some modern royalty still include the line in their title, although in most places such relics are empty.

Rubin observes that in the early medieval period, both Christian and Muslim rulers used religious authorities as legitimizing agents, but that at some point in the later Middle Ages, Muslim and western European society diverged. Whereas in the Ottoman Empire the sultans continued to rely on religious authorities for their legitimacy, in many western societies the Church’s political leverage was diminished irreversibly. From the beginning, Rubin points out, Christian doctrine envisaged separate spheres for secular and religious power. The schisms and exiles to which the late medieval papacy was subject weakened it greatly in the face of ambitious rulers, and the reformation administered to religious legitimization the coup de grace. Apart from a few corners of Europe such as Spain, religion lost the power it had exercised since even before the prophet Samuel anointed Kings Saul and David.

Why and how did this matter to economic history? Rubin argues that religious authorities were in general conservative, and that the institutions they established are less aligned with commerce and finance than when an economically important elite such as rich urban merchants and artisans are more powerful. As a result of their political influence, religious authorities in the Middle East were successful in blocking critical breakthroughs, most notably the printing press and more sophisticated financial institutions. The printing press facilitated the success of the Reformation, and the Reformation had further favorable economic effects, as has recently been shown by a pair of important papers (Cantoni, Dittmar and Yuchtman, 2016; Dittmar and Meisenzahl, 2016). One might add that even in France, in which the reformation was suppressed, the power of religious authorities to legitimize the king disappeared. Napoleon famously took the crown out of the hands of Pope Pius VII during his 1804 coronation and crowned himself, symbolizing that his legitimization came from military power, not God.

In summary, Rubin argues that the leaders of organized religion tended to be conservative across the board. Their influence, he thinks, depended on their monopoly of eternal truths, and updating those truths threatened to erode their credibility.  The Islamic world was unable to curtail the influence of Islamic scholars until the Islamic world had fallen hopelessly behind Europe. Even within Christian Europe, the power of religious authorities, he feels, helped determine the difference between successful regions such as the Netherlands and Britain and economic laggards such as Spain. When discussing the past three centuries, the influence of religious authorities is somewhat diminished, but what counts in Rubin’s view is that in all poor and backward states, the institutional structure and the capability of key players to “sit at the bargaining table” as he calls it was little affected by the urban-commercial classes whose demands for free and open markets, constraints on the executive, and a rule of law led to rapid economic progress in the north-west corners of Europe.

By combining an institutional argument with religion through the effect that religion had on institutions and politics (rather than on cultural beliefs), Rubin’s argument is reminiscent of an important recent book by Karel Davids, which has not thus far received sufficient attention (Davids, 2013). Both books, in a different way, stress how religious institutions mattered regardless of the precise content of religion. Davids, however, emphasizes another aspect, namely the role of religion in the generation and dissemination of technology. Rubin is primarily interested in institutions that support markets. Yet an explanation of modern economic growth cannot possibly avoid the primum movens of economic growth, which was the rapid expansion and dissemination of useful knowledge. In early medieval Islam, engineers, doctors, and chemists were at the forefront of pushing the envelope. By 1600 the Islamic world had become a follower, by 1800 they were a laggard. A natural extension of Rubin’s idea is that a government dominated by religious authorities will also be less than accommodating to out-of-the-box ideas from natural philosophers, astronomers, mathematicians, and medical doctors. The tradeoff between religiosity and scientific and technological progress has become a serious topic of investigation in recent years (Benabou, Ticchi, and Vindigni, 2014; Squicciarini, 2016). Their findings support the notion that devoutness affects innovativeness negatively and that political institutions could be used by powerful religious leaders to suppress what they considered heretical views.

Rubin is correct in pointing out that in the most progressive countries in western Europe the ability of religious leaders to halt progress was limited.  A striking example of this phenomenon is provided by Amir Alexander (2014), who documents the fierce resistance to infinitesimal mathematics by the Jesuits in the seventeenth century, which seriously slowed down the development of mathematics in Italy. The reason the reactionary powers such as the Jesuits were not able to slow down the development of radical new ideas in Europe materially is primarily the high level of political fragmentation in Europe. If a particular ruler tried to crack down on his most creative subjects because they wrote things he felt to be subversive or heretical, they could always move across the border. Such outside options may have been much more limited in the Ottoman Empire and in China. Interstate competition is another factor that rulers worried about, beside Rubin’s legitimization story. After all, every ruler faced both internal and external threats. Without interstate competition, or “emulation” as eighteenth-century writers called it, Europe might never have had the Enlightenment, which opened the doors to so many of the institutional and technological changes that have helped create economic modernity.

Here and there one could nitpick some of Rubin’s historical interpretations. His account of Spain’s political economy would have greatly benefitted from a closer attention to Regina Grafe’s path-breaking work (Grafe, 2012). Rubin’s agnosticism as to the actual content of religion may be somewhat misplaced: the Sunni revival of the eleventh century did in time move the ruling orthodoxy into a more conservative direction, as Eric Chaney (2015) has shown. More generally, an argument that focuses on “the ruler” and the significance of the propagation of political power may exaggerate the ability of the state to control what the citizens did in pre-twentieth-century societies.

All the same, Rubin has written an important and timely book. His methodology is very much that of the historically informed economist: certain choices are made at some point because they make sense, that is, the benefits to those that make the decision exceed the costs. But once made, these initial conditions can have cascading unintended and unanticipated consequences, and those historically contingent causal chains may well be what drove much of the great and little divergences that our profession is so interested in. Equally important, this well-argued and sensible book about Islam provides a much-needed antidote to the toxic rubbish masquerading as scholarship produced by some of the Islamophobes in the current American administration (e.g., Gorka, 2016). The Middle East’s problem is not Islam; it is History.


Alexander, Amir. 2014. Infinitesimal: How a Dangerous Mathematical Theory Shaped the Modern World. New York: Farrar, Straus and Giroux.

Benabou, Roland, Davide Ticchi, and Andrea Vindigni. 2014. “Forbidden Fruits: The Political Economy of Science, Religion and Growth.” Unpublished working paper, Princeton University.

Cantoni, Davide, Jeremiah Dittmar and Noam Yuchtman. 2016.  “Reformation and Reallocation: Religious and Secular Economic Activity in Early Modern Germany.” Unpublished.

Chaney, Eric. 2015. “Religion and the Rise and Fall of Islamic Science.” Unpublished working paper, Harvard University.

Davids, Karel. 2013. Religion, Technology and the Great and Little Divergences. Leiden: Brill.

Dittmar, Jeremiah E. and Ralf Meisenzahl. 2016. “Origins of Growth: Health Shocks, Institutions, and Human Capital in the Protestant Reformation.” Unpublished.

Gorka, Sebastian. 2016. Defeating Jihad: The Winnable War. Washington, DC: Regnery Publishing.

Grafe, Regina. 2012. Distant Tyranny: Markets, Power, and Backwardness in Spain, 1650–1800. Princeton, NJ: Princeton University Press.

Squicciarini, Mara. 2017. “Devotion and Development: Religiosity, Education, and Economic Progress in 19th-century France.” Unpublished working paper, Northwestern University.

Joel Mokyr is the author of Culture of Growth: The Origins of the Modern Economy (Princeton University Press, 2016).

Copyright (c) 2017 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 (April 2017). All EH.Net reviews are archived at

Subject(s):Economic Development, Growth, and Aggregate Productivity
Economywide Country Studies and Comparative History
Geographic Area(s):Europe
Middle East
Time Period(s):General or Comparative

Handbook of Cliometrics

Editor(s):Diebolt, Claude
Haupert, Michael
Reviewer(s):Mitch, David

Published by EH.Net (July 2016)

Claude Diebolt and Michael Haupert, editors, Handbook of Cliometrics. Berlin and Heidelberg: Springer, 2016. xxii + 590 pp.  $149 (hardcover), ISBN: 978-3-642-40405-4.

Reviewed for EH.Net by David Mitch, Department of Economics, University of Maryland – Baltimore County.

There is by now a long tradition of handbooks in economics. And they have varied over the decades in their intended audience and aims. J.M. Keynes in his 1922 introduction to the Cambridge Economic Handbook series described it as “intended to convey to the ordinary reader and to the uninitiated student some conception of the general principles of thought which economists apply to economic problems.”  Kenneth Arrow and Michael Intrilligator in their introduction to the North-Holland Handbooks in Economics series describe them as “a definitive source, reference and teaching supplement for use by professional researchers and advanced graduate students. Each Handbook contains self-contained surveys of the current state of a branch of economics in the form of chapters prepared by leading specialists on various aspects of this branch of economics.”

Claude Diebolt (University of Strasbourg) and Michael Haupert (University of Wisconsin-La Crosse), the editors of Springer’s Handbook of Cliometrics have not clearly identified the audience at which the volume is aimed. They do indicate in their introduction (p. xi) that the contributions “stress the usefulness of cliometrics for economists, historians, and social scientists in general.” Their preface and introduction describe the handbook as one that “contains digested knowledge in an easily accessible format,” (p. xv) while also asserting the aim “to foster world-class research” (p. xv).  They have followed the lead of North-Holland’s handbook series of choosing leading specialists in various branches of cliometrics to write its chapters but appear to have given them quite free reign regarding intended audience, scope, and methodology employed.   Indeed one message the volume as a whole conveys is the diversity of formats that can be associated with cliometric history ranging from exercises in applied econometrics to purely verbal narrative expositions.

The volume comes in at just under 600 pages. It is divided into 22 chapters subsumed under some 7 headings.  This implies an average allotment of 27 pages per chapter with the actual chapters varying from 15 to 35 pages in length.  By way of comparison, the North-Holland Handbook of Economic Growth, Vols. 1A and 1B (to choose just one immediately available volume from the many in the series) runs to a total  of 1800 pages in some 28 chapters for an average length of 64 pages per chapter.  The considerable relative restriction in length for the Springer Handbook implies tradeoffs between the scope and level of the audience for a given contribution.  Some contributions in this volume provide an overview of the forest, taking up general concepts such as labor markets or human capital or landmark episodes such as the Great Depression and accomplish this by aiming at primarily an undergraduate audience albeit with elegance and incisiveness.  Other contributions focus on specific trees, considering a few key issues, key studies or key methodologies which they cover in a depth more suitable for advanced graduate students and researchers.

What choice of topics and organization is appropriate for a handbook of cliometrics?  Insofar as cliometrics is a method rather than substantive economic history, organization according to chronological or geographical coverage would not seem in order. If cliometrics is defined as the application of economic theory and quantitative methods to the study of history, then what is to be covered in such a handbook over and above the theoretical and quantitative tools to be applied? Are there either general principles or specific techniques that can be articulated for the application of economic theory and methods to the study of history? Forums on the future of economic history (such as that from the 2015 Economic History Association annual meeting published in the December, 2015 Journal of Economic History) suggest no shortage of methodological advances to consider including Geographical Information Systems, big data and computational power, and use of quasi-experimental methods — to name just some.

The editors acknowledge the difficulty of deciding what to include and that some important and historically significant topics were excluded (p. xi) and point to the goals of achieving “variety over time, topic, and geography” and “a sampling of topics cliometrics has helped to transform over the past half-century” as principles of selection.

The seven section headings chosen for the volume seem more Fogelian than Northian in conception.  Four of the categories, Human Capital, Finance, Innovation, and Government have clear parallels with headings in The Reinterpretation of American Economic History, the important 1972 compilation by Fogel and Engerman of cliometric work. The three other categories that round off the work include a section on the history of cliometrics, a section on growth, and a section on statistics and cycles.  While Douglass North and new institutional approaches certainly get mention throughout this handbook, none of the chapters give extended coverage to institutions or a Northian framework, an understandable decision given space constraints.

The opening section on history contains both Michael Haupert’s history of cliometrics and Peter Temin’s effort to link economic history and economic development via his own illustrious career experiences.  Almost half of Haupert’s history of cliometrics is actually devoted to the history of pre-cliometric economic history; which limits the detail he provides to either old or new economic history.  Such important episodes as the controversy over the cliometrics of slavery are notably missing from his account, though it does provide a quite useful entrée to the topic. Peter Temin’s contribution fills in this gap with his insightful romp through selected cliometrics highlights over the past fifty years pointing to parallels and synergies between the study of economic history and economic development.  He offers the perspective of a pioneering practitioner of cliometrics on work by more recent generations of cliometricians. His is one of the few contributions in the volume to give explicit consideration to the quasi-experimental methods that have become widespread in the work of younger cliometricians. He also considers tensions and opportunities in publication strategies aiming at alternatively economic history or mainstream economics journals as outlets.

The second section on human capital has five contributions which differ widely in scope and detail.  Claudia Goldin and Robert Margo provide quite general, albeit cogent, overviews of respectively cliometric work on human capital and labor markets. Given their own scholarly work they both not surprisingly focus on the U.S. case, though Goldin sets this in the global context of unified growth theory with Malthusian, transition, and human capital phases.  Her treatment of education and schooling centers on her landmark 2008 book with Lawrence Katz rather than a detailed overview of recent research. She also treats health as a form of human capital in considering long run trends in mortality and life expectancy.  She does not provide any assessment or even mention of recent age-heaping approaches to estimating human capital historically.  Robert Margo’s treatment of labor markets centers around estimates of long term trends in some basic magnitudes including that of the labor force as a whole, occupational structure, wage structure, and racial differences.  He provides concise but insightful interpretations of these trends utilizing a simple demand and supply framework. Margo does refer to work exploring underlying sources and data limitations but given his space limitations does not do so in any depth.  A major and innovative area of cliometric research since the late 1970s has been in examining the relationship between nutrition, heights, and biological living standards, and disease environments as evidenced in trends in human heights, the field of anthropometrics.  Lee Craig overviews this research and his particular emphasis on nineteenth century U.S. developments allows him some focus in depth, though he does draw extensively on more global evidence.  He considers in more depth than the Goldin chapter the role of improvements in nutrition and in public health measures in improving the biological standard of living.  Franziska Tollen and Joerg Baten’s contribution provides an in-depth survey of the use of age-heaping indicators to estimate human capital.  They go in detail into the methodology of how age-heaping indicators are constructed and survey a wide range of findings stemming from use of the age-heaping approach.  Unlike other contributions in this section the level of detail is more suited to advanced researchers.  Jacob Weisdorf surveys the use of parish registers by cliometricians and economic and demographic historians more generally. He provides a useful description of the registries themselves. And he makes note of their use not only for the English and other Western European cases but also for Africa and potentially for other regions as well. Weisdorf embeds his survey in a discussion of the Malthusian population framework and the unified growth approach of Oded Galor and collaborators through the evidence parish registers can provide on trends in births, deaths, and marriages. He connects with the human capital theme by taking up the important information registries can provide on occupational trends.  He gives coverage to historically integrated occupational coding schemes that have been developed to categorize the occupations sometimes recorded on parish registries as in the work of Marco van Leeuwen, Andrew Miles and others (2004, 2005), but only passing mention to the major Cambridge Group project of using occupational information on parish registers to extend back in time knowledge about trends in English occupational structure (Shaw-Taylor and Wrigley 2014).

Section Three on Economic Growth contains a further five chapters that are quite varied in character and coverage.  Claude Diebolt and Faustine Perrin nominally give coverage to a range of growth theories, although they use the unified growth approach of Oded Galor and David Weil to provide a narrative of growth over the past millennium while offering an extension by incorporating implications of female economic and social empowerment into their discussion.   Gregory Clark offers a cliometric perspective on the British Industrial Revolution centering on the sources of productivity advance and identifying it as driven by an “upturn in the rate of technological innovation” (p. 207).  Although he does not provide an in-depth survey of cliometric work on the Industrial Revolution, Clark does consider some of the leading underlying explanations that have been offered including institutional and intellectual approaches and those grounded in human capital; he argues that none can provide convincing explanations. He thus concludes that the “Industrial Revolution remains one of history’s great mysteries” (p. 232). James Foreman-Peck takes up economic-demographic interactions by using a simple linear specification of the Malthusian model as his starting point and quite effectively uses it as a unifying framework for his review both of empirical evidence and causal estimation strategies. While I would have been interested in seeing further discussion of the implications of relaxing the assumptions of linearity, Foreman-Peck’s contribution should prove an effective teaching tool in showing how some simple micro-specifications can have far-reaching applications.  Emanuele Felice provides a quite detailed discussion of issues involved in constructing GDP estimates that are comparable across countries and over time and even for sub-national regions, as well as turning to the evidence and approaches in using such estimates to examine tendencies to growth convergence and factors influencing these tendencies.  Markus Lampe and Paul Sharp take up the topic of trade, turning first to the importance of trade, then to how to measure the extent of trade and market integration, then to the role of institutions, technology, and policy in determining trade and finally to the measurement and determinants of trade policy. Their coverage is very well informed, but with only a sentence or two to devote to each study they consider, the emphasis is on breadth rather than depth.

Section Four on Finance, has more unity and coherence between its four chapters than other sections of this volume.  Larry Neal’s opening contribution on the cliometrics of finance focuses specifically on surveying the market for sovereign debt from early modern times through the early twentieth century and the market for short-term commercial credit with particular emphasis on exchange rates, including extensive comments for both topics on available data sources. Neal concludes, however, with extended general reflections on both the accomplishments and limitations of the now quite extensive body of cliometric work on finance.  For his contribution, the late John James defines “Payment Systems” as “the complex of financial instruments and relationships that transfer value between buyers and sellers to complete their transactions” (pp. 353-54).  James provides a wide ranging narrative account — suitable for non-specialists that can be viewed as informed by a cliometric framework or spirit rather than directly cliometric — of the evolution of payment systems so defined from the demonetization accompanying the collapse of the Roman Empire through the early twenty-first century U.S.  In contrast to Neal and James, Matthew Jaremski organizes his survey of cliometric work on financial crises methodologically.  He first considers studies that employ survival and hazard models to examine determinants of banking crises, then turns to the use of data envelopment analysis for a production function/efficiency perspective on deposit insurance and then in the last part of the survey considers approaches to deal with simultaneity in the interaction between financial crises and more general economic activity; these include vector auto-regression, instrumental variables approaches and difference-in-difference models.  Jaremski’s exposition is lucid despite the amount of technical detail presented, though it seems aimed at specialists and researchers in the field.  Caroline Fohlin concludes the Finance section with a wide-ranging international comparative perspective on financial systems.  She starts with some basic typologies on financial systems, distinguishing first between functional and institutional perspectives and then to standard distinctions between a) bank-based versus market-based systems, b) universal versus specialized systems and c) relationship versus arms-length systems.  She then turns to the extent to which the actual historical evolution of financial systems adds complexity to these distinctions. She proceeds to consider determinants of choices between the various types of systems she distinguishes and to evidence on the nexus between finance and economic growth.  Throughout her detailed survey of a large number of studies and countries, Fohlin warns against rigid classification by over-arching categories or mono-causal explanations, leaving her with the final conclusion (p. 427) that “history matters.”

The remaining three sections of the volume each contain pairs of contribution.  The two essays in the fifth section on Innovation provides a quite interesting contrast.  Stanley Engerman and the late Nathan Rosenberg comment on “innovation in historical perspective” by arguing that uncertainty associated with the innovation process implies that the richness of historical accounts of the innovation process can capture important aspects that would be missed in an ahistorical theoretical framework. Engerman and Rosenberg were both early contributors to cliometrics; their chapter, as with that of John James described above, can perhaps be seen as more informed by a cliometric framework than involving direct application of either the theoretical or empirical methods associated with Cliometrics.  In contrast, Jochen Streb directly embraces “the Cliometric Study of Innovations,” surveying both theoretical and empirical cliometric studies of the history of innovation with a particular, though not exclusive, focus on patents as measures of innovation.

The sixth section is on “Statistics and Cycles.”  The contribution by Thomas Rahlf in this section on “Statistical Inference” is actually a history of thought of statistical inference during the twentieth century.  He attempts to link this with cliometrics in the last part of his essay by suggesting that Alfred Conrad, John Meyer and others formulating cliometric methodology were informed by a Bayesian approach and that the history of Bayesian statistics is thus relevant for understanding the methodology of cliometrics.  He also suggests that cliometric inference could benefit from further attention to the criticisms of econometric methodology offered by Rudolf Kalman of Kalman filter fame. However, neither of these suggestions is articulated in any detail. The other contribution is by Terence Mills on “Trends, Cycles, and Structural Breaks in Cliometrics,” which offers a helpful primer on developments over the past quarter century in time-series statistics and econometrics pertinent to this topic and provides a number of illustrations based on cliometric work.

In the final section on government Price Fishback contributes an essay focused on a particular historical episode in which the role of government loomed large and on which he has considerable expertise, that of the 1930s Great Depression in the United States. And Jari Eloranta brings his specialist knowledge to surveying a recurring situation in which governments have been prominent, that of war.  Given the large literatures they each consider, Fishback and Eloranta make the quite sensible choice of providing non-technical narrative overviews suitable for undergraduates and general readers.

Given the varying audiences at which the contributions appear to aim, as well as the range of formats and styles of the contributions, it may be more apt to label this volume a companion to cliometrics or a cliometric sampler than a handbook with the comprehensiveness the latter title might imply. Indeed, as already mentioned above, the editors are more circumspect than Springer’s blurb on its website about the comprehensiveness of coverage.  One can readily come up with a list of topics in which cliometrics has made important contributions that are omitted, including coverage of work on the major economic sectors, income and wealth inequality, and (as noted above) extended treatment of institutional approaches. And as suggested above, I would also have welcomed discussion of quasi-experimental approaches — both opportunities and reservations, in light of how prevalent this has become in recent research.  Nevertheless, given the apparent constraints on length presumably set by the publisher, the choice of topics is quite appropriate.  The editors are to be commended for taking on such a challenging yet important assignment and for recruiting such a strong set of contributors.  The resultant volume contains worthwhile contributions that readers from a range of disciplines and varying degrees of commitment to cliometrics will want to consult.   As more and more historians and sociologists, as well as economists, seem to be venturing into financial history, economic history, and the history of capitalism, it would be interesting to know more about how persuaded they will be about the usefulness of cliometrics by the essays in this volume.


Philippe Aghion and Steven N. Durlauf, eds. 2005. Handbook of Economic Growth Vols. 1A and 1B, Amsterdam: North-Holland Elsevier.

William Collins, Kris Mitchener, Ran Abramitzky, and Naomi Lamoreaux. 2015. “Essays: The Future of Economic History,” Journal of Economic History, 75, 4: 1228-1257.

Robert Fogel and Stanley Engerman, editors. 1972. The Reinterpretation of American Economic History, New York: Harper and Row.

Oded Galor and David N. Weil. 2000. “Population, Technology, and Growth: From Malthusian Stagnation to the Demographic Transition and Beyond,” American Economic Review, 90, 4: 806-828.

Claudia Goldin and Lawrence Katz. 2008. The Race between Education and Technology, Cambridge, MA: Harvard University Press.

J.M. Keynes. 1922. “Introduction to H.D. Henderson, Supply and Demand,” Cambridge Economic Handbooks – 1, New York: Harcourt and Brace, pp. v-vi.

Marco H.D. van Leeuwen, Ineke Maas and Andrew Miles. 2004. “Creating a Historical International Standard Classification of Occupations: An Exercise in Multinational, Interdisciplinary Cooperation,” Historical Methods, 37, 4: 186-197.

Bart Van de Putte and Andrew Miles. 2005. “A Social Classification Scheme for Historical Occupational Data,” Historical Methods, 38, 2: 61-94.

Leigh Shaw-Taylor and E.A. Wrigley. 2014. “Occupational Structure and Population Change” in Roderick Floud, Jane Humphries, and Paul Johnson, editors, The Cambridge Economic History of Modern Britain, New Edition, Vol.1, Cambridge: Cambridge University Press, 53-88.

David Mitch is Professor of Economics at the University of Maryland, Baltimore County. He is the author of “Schooling for All by Financing by Some,” Paedagogica Historica, 52: 4 (August, 2016): 325-348.

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Subject(s):Development of the Economic History Discipline: Historiography; Sources and Methods
Economic Development, Growth, and Aggregate Productivity
Education and Human Resource Development
Financial Markets, Financial Institutions, and Monetary History
Historical Demography, including Migration
History of Economic Thought; Methodology
History of Technology, including Technological Change
Military and War
Industry: Manufacturing and Construction
International and Domestic Trade and Relations
Labor and Employment History
Living Standards, Anthropometric History, Economic Anthropology
Macroeconomics and Fluctuations
Geographic Area(s):General, International, or Comparative
Time Period(s):General or Comparative

Political Order and Inequality: Their Foundations and Their Consequences for Human Welfare

Author(s):Boix, Carles
Reviewer(s):Clay, Karen

Published by EH.Net (November 2015)

Carles Boix, Political Order and Inequality: Their Foundations and Their Consequences for Human Welfare. New York: Cambridge University Press, 2015. xii + 311 pp. $65 (hardcover), ISBN: 978-1-107-08943-3.

Reviewed for EH.Net by Karen Clay, Department of Economics, Carnegie Mellon University.

Anyone who has read Acemoglu and Robinson’s Why Nations Fail: The Origins of Power, Prosperity, and Poverty or North, Wallis and Weingast’s Violence and Social Orders: A Conceptual Framework for Interpreting Recorded Human History or Hoffman’s Why Did Europe Conquer the World? or Pomeranz’s The Great Divergence: China, Europe, and the Making of the Modern World Economy or Mokyr’s The Lever of Riches: Technological Creativity and Economic Progress or similar books will want to consider buying Political Order and Inequality: Their Foundations and Their Consequences for Human Welfare.  The book, written by Carles Boix (the Robert Garrett Professor of Politics and Public Affairs at Princeton University), is very much in the spirit of these books.  It tackles a huge and very important question, provides a theoretical framework, and offers selected empirical evidence to support the argument.

One important way in which this book differs from the economics literature, particularly the work on institutions, involves the direction of causality.   Boix argues that technological change and economic growth preceded the formation of the state.  Political order, growth, and inequality were shaped by economic and military factors.  While institutions play a role in this framework, it is a much more limited role than in the work of some other authors.  Boix links his framework loosely to Marx and to endogenous growth models in the sense that economic change takes place through an endogenous process. This allows Boix to offer a theory that can accommodate political and institutional change.

The framework can be thought of as beginning in an initial hunter-gather world. Individuals led relatively equal lives in small cooperative bands that focused on providing enough food for the group.  The price of growth is then inequality.  And inequality brings about, in turn, the breakdown of cooperation that exists in the “state of nature.”  One example of a technological change that caused inequality and change was plant domestication.  A limited number places were suited to initial domestication, and in those places, greater productivity led to inequality and political change.  Out of this emerged one of two types of states.  The majority of early institutions were monarchical, but some were republican or mixed.  The type that emerged depended on military technology.  Monarchies tended to arise when technologies such as horses gave advantages to looters.  Republics tended to arise when technologies such as navies gave advantages to producers. Inequality is then jointly determined by factor endowments and political institutions and is higher under monarchies than republics. Both types of political institutions tended to stifle innovation in order to maintain the status quo.

Boix attributes the rise of the West to a combination of factors. One was endogenous technical change driven by population growth. Urbanization brought together the elements necessary for innovation and endogenous growth. A second was the political fragmentation of Europe.  In a number of areas of Western European, producers were able to fend off looters or the landed elites intermarried and invested in the industrial elites.  A third was a military revolution that allowed some urban centers to defend themselves and continue the process of growth. War-related technologies allowed some groups of producers to prevent military conquest and eradication of their gains.  These war-related technologies included pikes, gunpowder, and navies. These three factors eventually led to the Industrial Revolution. Other regions had some of the same elements, notably China, but in the end growth was stifled.

The empirical evidence is of necessity selected, because an exhaustive discussion of the evidence would take decades to write and many volumes to publish.  Boix also aims to tell a causal story, which is very much in line with analysis by economists.  What sorts of evidence does Boix provide?  Chapter 1 draws on evidence from the Ethnographic Atlas on social structures, inequality, and political life. Chapter 3 returns to the Ethnographic Atlas with a focus on economic activity.  Here Boix provides some evidence that economic activity drives social and institutional outcomes.  In particular he presents graphs showing the relationship between early transition to agriculture and early state formation.  Chapter 4 draws on data on parliamentary meetings, real wages and population densities in Europe. Chapter 5 investigates economic and political inequality using height data.  Whether one finds this useful will depend on one’s view of height data and the nature of the comparisons across groups. Chapter 6 examines evidence on urbanization, politics, income and wealth.

Political Order and Inequality: Their Foundations and Their Consequences for Human Welfare is an important book.  It is by no means the last word regarding the big historical questions such as why some nations are rich and others poor and why the Industrial Revolution happened in Europe.  It does, however, require economists to carefully consider the causal structure of their arguments and the importance of political institutions.  Perspectives may differ on whether Boix has the story right.  But anyone writing in this area needs to read Boix, along with books listed in the first sentence of this review, and offer an interpretation that fits all of the empirical evidence advanced thus far.

Karen Clay’s publications include “Adapting to Climate Change: Evidence from Long-Run Changes in the Temperature-Mortality Relationship in the 20th Century United States”  (with Barreca, Deschenes, Greenstone, and Shapiro – forthcoming in the Journal of Political Economy) and The Evolution of a Nation: How Geography and Law Shaped the American States (with Daniel Berkowitz).

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Subject(s):Government, Law and Regulation, Public Finance
Geographic Area(s):General, International, or Comparative
Time Period(s):General or Comparative

The First Knowledge Economy: Human Capital and the European Economy, 1750-1850

Author(s):Jacob, Margaret C.
Reviewer(s):Hornung, Erik

Published by EH.Net (September 2015)

Margaret C. Jacob, The First Knowledge Economy: Human Capital and the European Economy, 1750-1850. Cambridge: Cambridge University Press, 2014. ix + 257 pp. $30 (paperback), ISBN: 978-1-107-61983-8.

Reviewed for EH.Net by Erik Hornung, Max Planck Institute for Tax Law and Public Finance.

Many factors have been identified as causes of the transition to sustained economic growth during the eighteenth and nineteenth centuries. Human capital may be one of the most controversial additions to the long list of causes, not least because the English are not known to have been well educated at the eve of the Industrial Revolution. In The First Knowledge Economy, Margaret C Jacob argues that English knowledge elites were at the heart of the transition. She especially focusses on the marriage between theoretical sciences and applied mechanical knowledge which helped creating many technological innovations during the Industrial Revolution. She, thus, aims at rectifying the prevalent hypothesis that technological progress resulted from tinkering of skilled but science-ignorant engineers. An impressive set of new archival sources supports her argument that English engineers were, indeed, well aware of and heavily influenced by recent advances in natural sciences.

Each of the first four chapter focuses on outstanding entrepreneurs and engineers whose records and transcripts have survived. Available information on technical and scientific knowledge is extracted from correspondence with fellow engineers and businessmen, calculations, lecture notes, thoughts about scientific readings, and involvement in scientific societies. In this manner, the reader learns how scientific content affected mindsets and decisions of famous entrepreneurs and eventually entered the production process. Understanding that their decisions were based on the latest advances in science helps to sort out the misconception that entrepreneurs were uninformed tinkerers who accidentally became successful. When tinkering, they did so with mechanical precision and regard for the known natural laws.

After a rather unstructured introduction, Chapter 1 depicts James Watt and Matthew Boulton, the inventor/entrepreneur duo famed for developing the steam engine. Analyzing a wealth of notebook entries and correspondence, Jacob depicts the views and attitudes towards religion, politics, education and science of the two businessmen and their family members. Although never formal scholars of science at any institute of higher learning, science infused the life and work of both Watt and Boulton.

The second chapter is mainly concerned with the argument that England was first because labor was expensive and coal was cheap, which made the invention of steam engines necessary. Jacob argues that technical knowledge was crucial for technological progress in mining. This claim is substantiated by transcripts which exemplify the technical knowledge of engineers, colliers, and so-called viewers working with steam engines. Clearly the majority of the technical staff in English mining must have been highly literate and capable of doing sophisticated calculations. They needed to estimate the size of engine cylinders, water-pumping potential, and the size and costs of a steam engine to advise mine owners on which steam engines to buy. Their knowledge eventually translated to a wide knowledge base which diffused through publications and public lectures.

Chapters 3 and 4 expand the established concepts to the Manchester cotton spinning industry and the Leeds textile industry. Using the correspondence of cotton barons John Kennedy and James M’Connel, Jacob describes how science and technical knowledge increased in importance during the mechanization of cotton spinning. Cloth manufacturing was arguably less prone to mechanization than spinning. Yet, the notebooks of textile manufacturers John Marshall and Benjamin Gott confirm the established pattern of adoption of scientific knowledge. The chapters conclude that a common language was needed to allow for the interaction between manufacturers and engineers. Once established entrepreneurs were able to mechanize, their businesses and machines became more sophisticated and complex.

Chapters 5 and 6 constitute a geographical change and a methodological break in the book. The center of attention is shifted to France and the “puzzle” why the French lagged behind in industrial development. Although highly interested in the practical uses of the new science, the Ancien Régime failed to create an optimal environment for industrial purposes. Jacob argues that scientific education was almost completely directed toward the aristocracy who entered into military positions. Consequently, technical knowledge was primarily used in military engineering and not for commercial activity. The French Revolution democratized education and increased the scientific content of the curricula, but, this was only a brief episode before the Restoration re-reformed education to replace scientific with religious content subject to harsh supervision by the clergy and police authorities.

Chapter 7 shifts the focus to the Low Countries, comparing Belgium and the Netherlands regarding how French occupying forces managed to instill scientific knowledge in the curricula of secondary schools and universities. Jacob argues that Belgium with its centralized system of education embraced and retained the French reforms towards industrial educational after 1795, which helped them industrialize quickly. Unlike Belgium, the Netherlands with its localized system of education did not embrace French educational reforms and industrialization evolved more slowly.

Jacob argues that we do not know enough about the curriculum in England, since schooling was organized locally. Thus, to understand whether industry benefited from sciences, we have to rely on the scientific knowledge of entrepreneurs and engineers without knowing where it was acquired. Due to the fact that France was more centralized, it can be convincingly established that the French institutional setting did not leave enough room for scientific content in public education. However, it remains unclear whether this argument suffices in contributing to solve the puzzle of continental backwardness. Instead of applying the established concept of relying on biographical information and the personal scientific knowledge of successful entrepreneurs to France (and the Low Countries), Jacob decides to provide a summary of the political economy of schooling and the curriculum during the pre- and post-Revolution. For a suitable comparison we would need to learn more about the adoption of scientific knowledge by continental entrepreneurs and engineers. We might end up finding similar patterns here.  A recent article by Squicciarini and Voigtlaender (2015) focusses on French knowledge elites (subscribers to Diderot’s Encyclopédie), who seem to have been relevant for industrial development during the period from 1750 to 1850.

This book makes an important contribution by showing that English technological development did not occur detached from scientific advances. Jacob carefully avoids drawing strong conclusions and generalizations. She asserts a central role to human capital without making causal claims. A little more structure and clearer statements might have been helpful. If cheap energy and expensive labor made inventing labor-saving technologies profitable, acquisition of scientific knowledge might be considered a proximate factor rather than the ultimate cause.


Mara P. Squicciarini and Nico Voigtländer (2015). “Human Capital and Industrialization: Evidence from the Age of Enlightenment.” Quarterly Journal of Economics (forthcoming)

Erik Hornung ( is Senior Research Fellow at the Max Planck Institute for Tax Law and Public Finance. He is author of the paper “Immigration and the Diffusion of Technology: The Huguenot Diaspora in Prussia,” American Economic Review 104-1 (2014): 84-122.

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 (September 2015). All EH.Net reviews are archived at

Subject(s):Economic Development, Growth, and Aggregate Productivity
Education and Human Resource Development
History of Technology, including Technological Change
Geographic Area(s):Europe
Time Period(s):18th Century
19th Century

Coordination in Transition: The Netherlands and the World Economy, 1950-2010

Author(s):Touwen, Jeroen
Reviewer(s):van den Berg, Annette

Published by EH.Net (August 2015)

Jeroen Touwen, Coordination in Transition: The Netherlands and the World Economy, 1950-2010. Leiden: Brill, 2014. xiv + 385 pp. $154 (hardcover), ISBN: 978-90-04-27255-2.

Reviewed for EH.Net by Annette van den Berg, School of Economics, Utrecht University.

One of the great debates of the late twentieth century has been around the well-known study Varieties of Capitalism: The Institutional Foundations of Comparative Advantage (VoC) by Peter Hall and David Soskice, in which developed countries are characterized as either a Liberal Market Economy (LME) or a Coordinated Market Economy (CME), based on five interrelated criteria (spheres). Many scholars have applied the VoC approach since then — including economic historians — trying to reconcile the rather static nature of the approach with a historical, more dynamic analysis. Jeroen Touwen (lecturer in Economic and Social History at Leiden University, and the scientific director of the N.W. Posthumus Institute) adds to this line of research, by applying VoC to the case of the Netherlands after World War II in a careful, critical manner. This has resulted in an impressive and voluminous book of which the principal title, Coordination in Transition, neatly captures the key theme: How did a typical CME react to the structural changes as a result of ongoing globalization (influenced by trade liberalization and technological developments, foremost in information and communications technology), causing a shift to a market-based and knowledge-based economy? One of the new contributions of this book is that it also analyzes recent economic history of the Netherlands, in contrast with most other Dutch studies that only treat the twentieth century.

The Netherlands makes for an interesting case because it is seen as a successful and hybrid CME, with a liberal tradition in business relations as in Anglo-American countries; a strong welfare state like in Scandinavia; and a high degree of coordination similar to Germany. Also readers with no particular interest in the Dutch case (or those who think they already know the country, for that matter) will find this book worthwhile to read, as each chapter sets out with a broader treatment of theoretical considerations before analyzing the Netherlands, each time accompanied by a comparison with several other western OECD countries; and as the author makes relevant statements about (developments of) LMEs and CMEs in general. In so doing, he uses theoretical concepts from several socio-political fields of science, and of many statistical sources, thereby providing the reader with ample information and guidance for further research. The large number of interesting footnotes and references underline the thoroughness and dedication with which the book was written.

In my view, Chapter 2 is the most innovative part of the book because here the author comes up with a novel view on how the original, static VoC framework can accommodate for changes through time by adding a temporal dimension and by focusing on the central concept of non-market coordination, which not only encompasses state-induced regulation, but all kinds of information exchange and negotiation between different stakeholders operating at various levels in the economy. He argues that CMEs, despite all having become more liberal in reaction to structural change, remained characterized by a high degree of deliberative institutions (although often in an adjusted form). Hence, whereas Hall and Soskice theorized that due to institutional complementarities, deregulation of financial markets could “snowball into changes in other spheres as well,” possibly causing a break-up of CMEs, Touwen contends that the overall convergence to the LME did not take place, for which he provides plentiful evidence in the subsequent four chapters.

The limited space in this review does not allow me to elaborate on these chapters in depth. In a nutshell, in all of them Dutch postwar economic history is analyzed by focusing, in succession, on the business system, labor relations, the welfare state and economic policy. As these concern strongly overlapping topics an inevitable disadvantage thereof is that the same themes are addressed several times (be it from different perspectives), which is somewhat tiresome if one would read the whole book in one go. On the other hand, each chapter comes up with additional information and interesting details, thereby delivering further building blocks for the main message of the book: when faced by shocks and external threats, almost in all time periods (except during the polarized 1970s) the Dutch responded gradually but nevertheless adequately via an intricate system of coordination in all five distinguished spheres of the economy (in industrial relations, information sharing with employees, corporate governance, inter-firm networks, and vocational training). Although a deliberate choice of the author, it is a missed opportunity not to elaborate on this last-mentioned sphere, for reasons not explicitly mentioned.  Here and there he just touches upon this important topic, while a bit more comprehensive discussion thereof would have made the application of VoC to the Dutch case complete.

The book clearly describes how non-market coordination in the Netherlands originated in the interwar years and how it developed thereafter. At first this occurred in great harmony under guidance of the state (demand-side, Keynesian policy) in order to restore international competitiveness, culminating in the so-called Golden Years (1950s-1960s). There was close collaboration between government, employer associations and unions at all levels. During the stagflation period of the 1970s unemployment rose, labor relations hardened and the government failed to cut spending. Finally, forced by the structural changes in the world economy, by 1982 the sense of urgency was strong enough for all parties to switch to a more liberal, supply-side economic policy. Wage restraints were accepted in return for the creation of jobs, which were often part-time and temporary. The labor market thus became more flexible. Although this whole process coincided with a drastic reform of the welfare state, it was also accompanied by an active labor market policy, preventing segregation of the labor market as well as a rise in income inequality. So, “more market” went hand in hand with sustained coordination. Addressing the most recent time period, the financial crisis of 2007-10 clearly demonstrates the negative consequences of introducing too much free market, and underscores the continued need for coordination and government regulation. Touwen describes the success of the Dutch CME in terms of “managed liberalization under the wing of consultation.” The ability of non-market coordination to accommodate change forms the connecting thread.

Annette van den Berg (lecturer at Utrecht University School of Economics) is the author (together with Erik Nijhof) of “Variations of Coordination: Labour Relations in the Netherlands” in: K. Sluyterman (ed.), Varieties of Capitalism and Business History. The Dutch Case (Routledge, 2015) and (together with John Groenewegen and Antoon Spithoven) of Institutional Economics. An Introduction (Palgrave Macmillan, 2010). Her email address is

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 Planning and Policy
Geographic Area(s):Europe
Time Period(s):20th Century: WWII and post-WWII

Housing and Mortgage Markets in Historical Perspective

Editor(s):White, Eugene N.
Snowden, Kenneth
Fishback, Price
Reviewer(s):Collins, William J.

Published by EH.Net (April  2015)

Eugene N. White, Kenneth Snowden, and Price Fishback, editors, Housing and Mortgage Markets in Historical Perspective. Chicago: University of Chicago Press, 2014. ix + 397 pp. $110 (cloth), ISBN: 978-0-226-07384-2.

Reviewed for EH.Net by William J. Collins, Department of Economics, Vanderbilt University.

In the aftermath of the recent financial crisis and “great recession,” there is renewed interest in the connections between housing markets, mortgage finance, financial institutions, and the macroeconomy.  Economic historians have engaged this discussion by offering trenchant comparisons between recent events and the American experience in the years before and during the Great Depression, as well as perspective on the evolution of institutions, financial instruments, and policies that played important roles in the recent crisis and ensuing policy debates.  The chapters in Housing and Mortgage Markets in Historical Perspective were written with an eye toward the recent crisis, sometimes engaging it directly and at length but more often using it as motivation for a detailed study of a particular aspect of economic history.  They succeed individually and as a multifaceted group of independent studies, in which authors often cross-reference one another’s arguments and findings.  There is much to be learned here.  Even readers who are experts in some areas covered by this volume will find their horizons expanded by the studies’ collective range and depth.

Eugene N. White (Rutgers University), Kenneth Snowden (University of North Carolina at Greensboro) and Price Fishback (University of Arizona) edited the volume, which emerged from a conference sponsored by the National Bureau of Economic Research in 2011.  It consists of an introduction and eleven chapters, most of which focus on the United States.  The volume is divided into four main sections.  Prior to Section I, however, Snowden provides a concise rendering of “A Historiography of Early NBER Housing and Mortgage Research” (chapter 1).  Housing markets and mortgage finance were an important feature of the NBER’s research programs from the 1930s to the 1960s, resulting in several volumes that have provided the intellectual bedrock for long-run perspectives on such topics.  Snowden’s chapter reviews the landmark studies in the NBER series and will serve as a valuable starting point for anyone who is beginning historical research on U.S. housing and mortgage finance.

The volume’s first section is on “Housing and the Interwar Business Cycle,” featuring chapters by Alexander J. Field (chapter 2), Steven Gjerstad and Vernon L. Smith (chapter 3), and Eugene N. White (chapter 4).  Field’s chapter, “The Interwar Housing Cycle in the Light of 2001-2012,” fully engages comparisons of the interwar experience and the more recent rise and fall of the housing market, as well as the macroeconomic implications of the housing cycle in different historical contexts.  Field carefully delineates the similarities and differences between the periods.  He argues that paying more attention to bank and household balance sheet issues may enrich our understanding of the Great Depression, as it has for the recent crisis, but he emphasizes that for many reasons (e.g., housing was less leveraged in the 1920s) the housing sector likely played a smaller and different role in the run up to the Depression than it played in the 2001-12 period.

Gjerstad and Smith’s chapter on “Consumption and Investment Booms in the 1920s and Their Collapse in the 1930s” develops an argument that differs from Field’s in its degree of emphasis on the importance of losses on residential real estate to the Great Depression.  Gjerstad and Smith describe several channels through which a decline in real estate values would plausibly affect economic activity, both then and now.  For instance, a decline the value of housing would lead households cut back on durable goods purchases and firms to cut back on production and employment, which in turn affects households’ income and ability to repay mortgage debt, which in turn affects bank balance sheets and lending, and so on.  Perhaps future research that explicitly models and measures the channels of influence connecting housing, financial markets, and macroeconomic aggregates throughout the 1920s and 1930s would help bridge the competing historical interpretations of Field and Gjerstad and Smith.

White’s “Lessons from the Great American Real Estate Boom and Bust of the 1920s” focuses on explaining why the housing-market collapse in the 1920s did not lead to a banking crisis despite having many similarities to the mid-2000s housing collapse that caused serious instability in the financial sector.  After reviewing and comparing the rise and fall of construction and housing prices during the two periods, White assesses the roles of the Federal Reserve, changes in lending standards and securitization, risk-taking by financial institutions, deposit insurance, and bank supervision.  At the risk of oversimplifying White’s narrative, it seems clear that the institutional environment of the 1920s did not lead banks to take on the same level of risk that financial institutions did in the 2000s.  As White puts it, “When the bust came, large losses did not accrue to them [banks in the 1920s]; and the most risky securitized mortgages were held by investors, not leveraged financial institutions” (p. 154).

The volume’s second section is “A Closer Look at the Interwar Housing Crisis,” with chapters by Michael Brocker and Christopher Hanes (chapter 5), Price Fishback and Trevor Kollmann (chapter 6), and Jonathan D. Rose (chapter 7).  Brocker and Hanes examine data for a cross section of cities, documenting the size of the boom in construction, home ownership, and home values during the 1920s, especially the mid-1920s, and find a correlation with the size of post-1930 collapse in local housing markets.  In addition to standard census-based information, the authors rely on data from the “Financial Survey of Urban Households” and the “Real Property Inventory,” which were collected in 1934 and include useful retrospective information.  They interpret the patterns as being consistent with a mid-1920s bubble that varied across places and that had not fully adjusted before the onset of the Great Depression.

Fishback and Kollmann’s chapter, “New Multicity Estimates of the Changes in Home Values, 1920-1940,” is the best guide to inter-war housing price data that I have read.  They draw on a variety of sources to trace the trajectory of prices over this period.  Importantly, they find patterns that diverge significantly from those in the series that Robert Shiller (2005) created by combining a particular series from Grebler, Blank, and Winnick (1956) with an index of asking prices for five cities for 1935-53.  This chapter should be the starting point for anyone whose research requires information on housing price dynamics during the interwar years.

In chapter 7, “The Prolonged Resolution of Troubled Real Estate Lenders during the 1930s,” Jonathan Rose describes the slow unwinding of troubled Building and Loan associations (B&Ls) through a detailed case study of Newark’s associations, which fell in number from 499 in 1930 to 55 in 1945.  A fascinating part of the story is that withdrawal restrictions at B&Ls led to the development of a secondary market in B&L shares that, in a roundabout way, helped clear the housing market.  Rose explains how B&L shareholders who sold on these markets realized significant losses compared to more patient shareholders.  Rose also examines variation in reported share prices (circa 1939-40), and then goes on to describe two waves of B&L resolutions, through liquidation or reorganization, in the late 1930s and early 1940s.

The volume’s third section consists of two studies of “Securitization in Earlier Times,” written by Rik Frehen, William N. Goetzmann, and K. Geert Rouwenhorst (chapter 8) and Kirsten Wandschneider (chapter 9).  Frehen, Goetzmann, and Rouwenhorst describe “Dutch Securities for American Land Speculation in the Late Eighteenth Century,” with a focus on financial instruments in the 1790s that financed land purchases in Washington, D.C. and New York State.  “Negotiaties” were complex debt securities that in essence provided claims on future land sales.  The authors review the history of related financial instruments in Dutch markets before describing the fate of the investments in Washington (a failure) and New York (a limited success).  The reorganization of the New York debt into an equity-like instrument was critical to the venture’s relative success, and it demonstrates the inadequacy of debt instruments in a setting where development and gains from land sales were slow to materialize.

The chapter by Wandschneider, “Lending to Lemons: Landschaft Credit in Eighteenth-Century Prussia” is an outlier in the best sense.  Eighteenth-century Prussia is far removed from the context of most of the papers in the volume.  Yet the fundamental economic themes are highly relevant to volume’s discussion, and the institutions created in Prussia in response to inherent problems of mortgage finance are a potent reminder of the value of going abroad to gain a novel perspective.

The volume’s last section, “Postwar Housing Policies,” includes work by Daniel K. Fetter (chapter 10) and Matthew Chambers, Carlos Garriga, and Don E. Schlagenhauf (chapter 11).  Fetter’s chapter, “The Twentieth-Century Increase in Home Ownership: Facts and Hypotheses,” begins by laying out a series of first-order facts about the mid-century rise in U.S. homeownership, viewed from time-series, city-level, age-specific, and cohort-specific perspectives.  The steep rise in ownership after 1940, especially for relatively young men, corresponds to both a decline in renting and a decline in living with relatives.  The rise in ownership was widespread, occurring in every region and in rural and urban areas, though not uniform in magnitude.  He then assesses several hypotheses about the rise in ownership, placing emphasis on demographic factors and changes in mortgage finance while noting that stronger evidence could be developed to address other plausibly important channels, such as rising income and the changing tax code.

Chambers, Garriga, and Schlagenhauf’s chapter, “Did Housing Policies Cause the Postwar Boom in Home Ownership?” takes a different approach to studying homeownership, placing the tenure decision in the context of a dynamic general equilibrium model where government intervention affects ownership through the tax code and mortgage market institutions.  Once the model is parameterized to match key properties of the economy observed between 1935 and 1940, the authors can conduct counterfactual policy experiments for the post-1940 period such as changing the tax treatment of housing or the duration of available mortgage instruments, both of which appear to have a nontrivial impact on overall homeownership rates.  It is interesting that the predicted 1960 ownership rate rises when the mortgage interest deduction is eliminated, implying an important divergence between partial and general equilibrium results.

As in most conference volumes, the chapters of this book do not seamlessly cover a particular area of research, nor were they supposed to.  Instead, as individual pieces of work, they impress with the quality of their insight and their resourcefulness in bringing data to bear on important questions.  They also find plenty of common ground for motivation and discussion as a collection of research papers.  Any scholar interested in the history of U.S. housing and mortgage markets or seeking to learn more about historical antecedents to the most recent financial crisis would find the book worth reading.

William J. Collins is the Terence E. Adderley Jr. Professor of Economics at Vanderbilt University.  He has authored several papers on the economic history of home ownership with Robert A. Margo (Boston University).  He is a Research Associate of the NBER but was not involved in the planning or production of this volume or the preceding conference.

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Subject(s):Financial Markets, Financial Institutions, and Monetary History
Household, Family and Consumer History
Industry: Manufacturing and Construction
Macroeconomics and Fluctuations
Markets and Institutions
Urban and Regional History
Geographic Area(s):Europe
North America
Time Period(s):18th Century
19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII

Stinking Stones and Rocks of Gold: Phosphate, Fertilizer, and Industrialization in Postbellum South Carolina

Author(s):McKinley, Shepherd W.
Reviewer(s):Irwin, James R.

Published by EH.Net (January 2015)

Shepherd W. McKinley, Stinking Stones and Rocks of Gold: Phosphate, Fertilizer, and Industrialization in Postbellum South Carolina.  Gainesville, FL: University Press of Florida, 2014.  xii + 230 pp. $70 (hardcover), ISBN: 978-0-8130-4924-3.

Reviewed for EH.Net by James R. Irwin, Department of Economics, Central Michigan University.

Stinking Stones and Rocks of Gold is a well-written history of “the beginnings of South Carolina’s three phosphate-related industries — land mining, river mining, and fertilizer manufacturing” (p. 3) — which emerged in the lowcountry in the aftermath of the Civil War. Shepherd W. McKinley provides a thorough account of the origins and early development of the industries, from the late 1850s into the mid-1880s.  The book is an interesting blend of business history (focused on companies and their leaders) and southern social history (with attention to ex-slave workers and to the “New South” context).  Some economic historians researching the post-Civil War South will want to draw on Stinking Stones and Rocks of Gold, but I suspect the book’s main audience will be a wide range of historians.

Chapter 1 provides an overview of “Antecedents, Precedents, and Continuities, 1800-1865,” years identified as the “gestational period for the three industries” (p. 10). The chapter starts with a brief history of fertilizer in the antebellum U.S., focusing first on the North and drawing on Wines (1985). McKinley sees slavery as an obstacle to fertilizer use in the antebellum South, but that is a minor point in a story of increasing fertilizer supply that came after emancipation. A major contribution of the chapter is a thorough and engaging account of how “gentleman-scientists” (most notably, the planters Francis S. Holmes and St. Julien Ravenal) and professional scientists (such as Charles U. Shepard Sr. and Nathaniel A. Pratt) contributed to the discovery (in the late 1850s) that the lowcountry’s “stinking stones” were a valuable raw material for fertilizer production, and a replacement for increasingly costly guano imports. By 1860, at least two businesses were looking to use lowcountry rock to produce fertilizer, so the phosphate-related industries seemed poised to take off when secession and war intervened. McKinley suggests that “the Civil War was both a catalyst and an obstacle to the development” of the lowcountry’s trio of phosphate-related industries. And he provides examples of how wartime contacts and experiences were advantageous to some of the key players founding the industries in the wake of the Civil War.  But whatever the gains to those individuals, on my reading the war simply delayed the emergence of phosphate mining and fertilizer manufacturing in South Carolina.

Chapter 2 describes the emergence of the lowcountry’s phosphate-related industries in the years 1865 to 1870. It focuses on two firms, the narrowly southern, and small, Wando Fertilizer Company, and the much larger, and northern-financed CMCC (Charleston, SC, Mining and Manufacturing Company).  Starting in November 1866 as a partnership including Ravenal, Wando focused on fertilizer manufacturing and pursued a “cautious” approach to business.  Founded in September 1867, the “northern-dominated CMCC” (p. 56) focused on land-mining, shipping the phosphate rock north to fertilizer manufacturers. Southerners Holmes and Pratt played prominent roles in the early years of CMCC, providing the company a southern face for extensive purchases of phosphate-rich lands in the lowcountry. McKinley notes that “CMCC was active in pioneering public relations through the local press” — a compliant press that distracted attention from the northern financing and control of CMCC (p. 52). After less than two years CMCC had concluded the phase of land acquisition; Holmes and Pratt “dropped out of active participation” (p. 54), and the company headquarters moved to Philadelphia. “By 1870, phosphate land mining was well-established as a substantial industry in the lowcountry” (p. 63), with a wide range of southern and northern companies, even if “Philadelphia-based CMCC was the largest, best-financed, and most productive firm.” McKinley emphasizes the role of “Charleston’s business elites and local planters” (p. 64) in these early years of land-mining and fertilizer-manufacturing in order to challenge views of the New South as a colonial economy of the North.

Chapter 3, “Land Miners and Hand Mining, 1867-1884,” approaches the land-mining industry from the workers’ point of view.  McKinley suggests that ex-slaves built on the lowcountry’s tradition of task-based slavery to create (p. 96) “a relatively autonomous labor system” that featured “good wages” and flexible timing. Of particular interest is McKinley’s suggestion that land-mining was a complement to the “two-day system” (p.77) of part-time sharecropping, which serves to remind that we have much to learn about work arrangements in the postbellum South. The chapter’s section on “Middleton Place” (pp. 85-91) skillfully draws on archival materials to illustrate the challenges a former planter faced in terms of recruiting, retaining, and managing ex-slave workers in the early years of the Ashley Mining and Phosphate Company (the origins of which are covered on pp. 47-48). Moving beyond the immediate postwar years, McKinley highlights limitations of census data for evidence on land miners and land mining, arguing there was a substantial undercount in both 1870 and 1880 (pp. 83, 95-96).

McKinley’s quantitative research on the land-mining labor force could have been more useful to   economic historians researching and teaching about the post-Civil War South; as it is they will find it difficult to build on his work.  McKinley scoured the census manuscripts (1870 and 1880) for evidence on phosphate miners but the book does not give citations to census manuscript pages, so subsequent scholars trying to make sense of the enumerations will probably duplicate McKinley’s efforts, instead of building on them. This is unfortunate because the census manuscripts are now online and easily browsed, creating a range of opportunities for researchers and students. McKinley’s assessment of the size of the land-mining work force also could have been improved, by referring to William Rowland’s “Report on the Manufacture of Chemical Products and Salt,” in the published Manufactures volume of the 1880 census.  Rowland’s “Report” includes sections on “Manufactured Manures” (p. 16-17) and “South Carolina Phosphates” (pp. 17-19). The evidence there would have been a useful starting point for discussing employment and production in South Carolina’s phosphate-related industries. Working from the 1880 manufacturing census manuscripts, McKinley suggests that land-mining employed “at least 1,685 workers,” which is not too far from the published census value of 1,350 hands (Rowland, p. 18).  However, McKinley’s discussion of the sector’s size would be more convincing if it referred to the published census data (which reflect contemporaries’ efforts to make sense of the census manuscripts). Similarly, the discussion might have benefited from attention to Edward Willis’s report titled “Phosphate Rock” in the 1890 census’s Report on Mineral Industries in the United States, which includes data on phosphate mining employment in 1880 (and annual production estimates from 1867 to 1889). McKinley’s primary sources do include two archival items by Willis (an industry insider, see e.g. p. 47), but the published material in 1890 census may provide additional evidence. That said, the quantitative dimensions of the phosphate industries are not central to McKinley’s narrative, so these quibbles of an economic historian are not major criticisms.

Chapter 4 is “River Mining and Reconstruction Politics, 1869-1874.”  Because rivers were public domain, the emergence of river mining raised a number of contentious policy issues that were bound up in “questions of ideology, sectionalism, party politics, race, class, and corruption” (p. 107).  River mining started as “an outgrowth of the land-mining bonanza” (p. 99), an informal industry of individuals gathering phosphate rocks from tidal flats and shallow waters, supplementing the phosphate supply for manufacturers and dealers. But the mining of state-owned waterways soon attracted legislative attention, from two directions: royalties were a potential source of revenue for the state government, and river-mining rights were a potential source of private profit.  Over the course of five years, with heated editorial debates, contentious legislation, and court battles, there emerged three companies that dominated river-mining (p. 122). The three used heavy equipment to break up and process large deposits of “stratum rock” (p. 115) from below the river beds, a year-round industry. Their production was supplemented by a wide range of independent operators and subcontractors with hand tools and small boats, who worked “from April through September” (p. 119).

McKinley’s account of the interplay of issues of race, party, and corruption, will be useful to historians of reconstruction politics. The establishment and enforcement of property rights in the river rock could provide a useful case study for those interested in law and economics or institutional economics.

Chapter 5 is “Convergence and the Fertilizer Industry, 1868-1884.” A history of the third phosphate-related industry of the South Carolina lowcountry, with detailed attention to eight Charleston firms, the chapter may be most useful to business historians. McKinley emphasizes the role of the Charleston elite in the emergence of the fertilizer industry, but generally the industry drew heavily on northern capital and management. Firms downplayed any connections to the North and appealed to regional loyalty and “southern patriotism” (p. 127).  The first plants were located in the city of Charleston, but the “noxious fumes associated with fertilizer manufacturing” (p. 131) made it unsuited to urban areas. Early in the 1870s firms began establishing larger-scale plants on “the Charleston Neck, a sparsely settled area north of the city” (p. 125).  Some of the firms developed vertically integrated operations, from mining to marketing.  Most firms built “acid chambers” to produce the sulfuric acid that dissolved the phosphate rock to make fertilizer. The resulting pollution from the fertilizer plants would end up displacing truck farming from the Neck, as local farmers’ legal challenges failed (p. 148).  According to the South Carolina Department of Health and Environmental Control (SC DHEC), the acid chambers that McKinley refers to were made with lead and arsenic which ended up contaminating the soil and groundwater of the Neck.

McKinley’s “Conclusions and Epilogue” complete the text. He sees the emergence of the lowcountry phosphate-related industries as an early example of “a longer-term change in agriculture and industry ambiguously labeled modernization” and as “a break from the Old South” (p. 154).  He sees continuity however, with members of “Charleston’s antebellum economic elites” (p. 155) taking a leadership role in the new industries. Similarly, McKinley identifies elements of both continuity and change for lowcountry African-Americans. With emancipation, “freedpeople gained mobility and a host of partial freedoms” (p. 161), but ex-slaves “predominated as the working class” while “white elites retained control of the land and the business world” (p. 161). McKinley argues for the long-term impact of the phosphate industries, and against Shick and Doyle’s (1985) characterization of the “South Carolina Phosphate Boom” as part of “the Stillbirth of the New South.” While acknowledging that phosphate mining (land and river) declined in the 1890s, and that the “control and profits” (p. 164) of lowcountry fertilizer manufacturing shifted north, McKinley argues that “the three industries led to sustained economic development” in the Charleston area (p. 162).  In his account, fertilizer manufacturing was the basis for lowcountry industrialization that lasted until the 1970s (pp. 163-64).

McKinley notes some downsides to the phosphate/fertilizer industries, most simply, a legacy of severe pollution: in 1999, “EPA officials named the Neck ‘one of the most concentrated areas of contamination’ in America’” (p. 164).  In his paragraph on the pollution legacy, McKinley mentions “phosphorus leaching from abandoned fertilizer factories.” Interestingly for economic and environmental historians, the key pollution left by the fertilizer plants is “lead and arsenic contamination of soil and groundwater” (SC DHEC), where lead and arsenic are pernicious threats to human health.  Identifying another downside, McKinley speculates that “The sheer tonnage of fertilizer produced in the area altered agricultural production patterns” because it provided “the means for southerners to overproduce” cotton. If so, perhaps “Charleston’s peculiar industrialization” (p. 166) retarded the transition out of agriculture in the South more generally, and contributed to the persistence of southern poverty.  Be that as it may, in most of McKinley’s presentation the lowcountry’s phosphate-related industries come across as net positives for the region, and for both the workers and the firms.

Regardless of whether that assessment stands up over time, McKinley’s fine monograph is a valued addition to the history of the low-county and the post-slavery South more generally. I hope that subsequent scholars will follow his lead and give us histories of “other understudied southern industries emerging in the shadow of the Civil War” (p. 3).


Ellis, Edward, “Phosphate Rock,” in U.S. Census Office,  Report on Mineral Industries in the United States at the Eleventh Census: 1890, Washington DC, GPO, 1892 (pp. 679-691), Volume 7 of the 1890 Census Final Reports.

Rowland, Wm. L., “Report on the Manufacture of Chemical Products and Salt,” in U.S. Census Office, Report on the Manufactures of the United States at the Tenth Census, Washington: GPO, 1883, Volume 2 of the 1880 Census Final Reports.

Shick, Tom W., and Don H. Doyle, “The South Carolina Phosphate Boom and the Stillbirth of the New South, 1867-1920.” South Carolina Historical Magazine (1985): 1-31.

South Carolina Department of Health and Environmental Control (SC DHEC), “Historic Superphosphate Fertilizer Industry in S.C.” Webpage, accessed January 2015,

Wines, Richard A., Fertilizer in America: From Waste Recycling to Resource Exploitation. Philadelphia: Temple University Press, 1985.

James R. Irwin is Professor of Economics at Central Michigan University. His current research draws on probate and deed records to explore wealth and income in Virginia and the rest of North America in the period 1650-1860.

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 (January 2015). All EH.Net reviews are archived at

Subject(s):Agriculture, Natural Resources, and Extractive Industries
Geographic Area(s):North America
Time Period(s):19th Century

Between Slavery and Capitalism: The Legacy of Emancipation in the American South

Author(s):Ruef, Martin
Reviewer(s):Wright, Gavin

Published by EH.Net (December 2014)

Martin Ruef, Between Slavery and Capitalism: The Legacy of Emancipation in the American South.  Princeton, NJ: Princeton University Press, 2014. xvii + 285 pp.  $35 (hardcover), ISBN: 978-0-691-16277-5.

Reviewed for EH.Net by Gavin Wright, Department of Economics, Stanford University.

Martin Ruef, the Egan Family Professor of Sociology and director of Markets and Management Studies at Duke University, has published numerous analyses over the past decade on the transition from slavery to new labor systems in the American South, primarily in sociological journals.  Between Slavery and Capitalism collects and updates these articles.  Because these subject areas have received much attention from economic historians, the book provides an opportunity to compare approaches and perspectives between two hybrid disciplines.

Between Slavery and Capitalism is notable in its effort to develop data sets that allow comparisons between antebellum and postbellum outcomes.  Most studies specialize in either one of these eras or the other, perhaps because the historical issues and institutional structures seem so different, but also because direct quantitative comparisons are difficult.  Ruef makes effective use of sources that bridge the wartime divide, including life histories of ex-slaves from interviews conducted by the WPA’s Federal Writers’ Project; R.G. Dun Credit Reports for southern businesses; and labor contracts recorded by the Freedmen’s Bureau between 1865 and 1867.  The last of these is used in Chapter 2 to compare the relative evaluations of labor attributes (age, gender, and occupational skill) under slavery and free labor markets.  The exercise shows that differentials by age and gender were more pronounced under slavery than under free labor, and that the relative value of slave labor peaked much earlier in the life cycle.   One would not want to draw major historical conclusions from such a narrow sample of labor contracts, but it is helpful to have quantitative confirmation of the proposition that the change in property-rights regimes did make an economic difference.

Subsequent chapters take up a diverse array of topics: persistence of antebellum status distinctions among emancipated slaves; restructuring of labor systems on plantations; trade and credit networks in the South; differences among counties in growth performance; and U.S. emancipation in comparative perspective.  My discussion here will focus on the plantation chapter, which features new evidence bearing on an episode in institutional change much-discussed by economic historians.

In the aftermath of war and emancipation, reports of large-scale black migration were widespread.  Whereas economists tend to view labor mobility as a natural individual response to market opportunities, Ruef instead takes the view that the decision to leave the plantation was a bold and risky move with uncertain consequences, best understood as an interdependent choice process featuring network externalities and “tipping points” (pp. 109-113).  The author tracks plantation departures from wartime through 1870, using the WPA interviews (pp. 120-125).  The resulting pattern does exhibit a classic S-shaped form (p. 120), but because the inflection point occurs with the end of the war in 1865, this is not particularly strong confirmation for a threshold effect.  Nonetheless, Ruef’s analysis is an interesting possible addition to the economic historian’s toolkit, with potential connections to recent work by Kenneth Chay and Kaivan Munshi (2014), who model black voting behavior and regional outmigration as collective-action phenomena.   When it comes to relating these departures to the emergence of new labor systems, however, doubts begin to arise.

From this reviewer’s perspective, Ruef gets off on the wrong foot by entitling the chapter “The Demise of the Plantation.”  True, Ransom and Sutch (1977) have a chapter with the same name, drawing on the same census data showing declining farm size.  The author acknowledges that big land ownership units were largely maintained, and he even quotes Charles Aiken’s view (1998) that the disappearance of the plantation is a myth (p. 106); but he seems to view this as merely terminological rather than substantive persistence.  That labor relationships changed fundamentally after emancipation is not at issue.  The question is the survival of the plantation as a managerial entity. The 1880 census figures cannot be used to settle the matter, because enumerators were instructed to count each tenant plot as an independent farm, even if it was part of a larger operational unit (Virts 1987).   Many of these “tenant plantations” retained aspects of centralized management, such as the “through-and-through” system, but the agricultural census did not enumerate these operations until a special report issued in 1916.  Ruef does not acknowledge this phenomenon, much less address the interpretive issue.

Indeed, the analysis never gets very deeply into the substance of the choices faced by landlords or laborers.  The author does not engage the work of Ralph Shlomowitz (1982) or Gerald Jaynes (1986), both of whom recount the process by which the centralized “wage plantation” gave way first to an intermediate form known as the “squad system,” before devolving to the nuclear family tenant as the basic unit.  A governing constraint was that payments had to be post-harvest, because of the two-peak character of labor requirements in cotton and uncertainty about price; early decisions were strongly influenced by the fact that the price of cotton was falling rapidly, as world markets adjusted to the return of American supply. In this setting, bargains struck at the start of the season looked like bad deals (and were often defaulted) by the end.  All of these considerations are neglected by Ruef.  For a book whose unifying theme is uncertainty, these are major omissions.

The author’s claim to methodological distinctiveness is the notion of uncertainty, distinguishing “classical” uncertainty (where the probability distribution of outcomes is unknown) from “categorical” uncertainty (where even the kinds of outcomes are not known), both of which are to be distinguished from “risk” with a known probability distribution.   This all sounds profound, but this reviewer finds it hard to see the historical content behind these abstractions. The issue comes to a head in a concluding section called “the escalation of uncertainty” in which the author concludes that “predicting the position of the freedman and woman in Southern society seemed a far more uncertain exercise in 1880 than it had been after the Civil War” (p. 190).  An informed historical observer might well argue precisely the opposite.  The wide-open range of political and economic outcomes that seemed possible in 1865 had been sharply limited by 1880, as cotton laborers could then choose among at most a handful of reasonably well-defined tenure options.  Perhaps this is a matter of disciplinary perspectives, but the variability of plausible interpretations suggests that the uncertainty trope does not really add much to historical understanding.


Aiken, Charles (1998). The Cotton Plantation South since the Civil War. Baltimore, MD: Johns Hopkins University Press.

Chay, Kenneth, and Kaivan Munshi (2014). “Black Networks After Emancipation: Evidence from Reconstruction and the Great Migration,” Working Paper.

Jaynes, Gerald (1986).  Branches without Roots: Genesis of the Black Working Class in the American South, 1862-1882.  New York: Oxford University Press.

Ransom, Roger L., and Richard Sutch (1977). One Kind of Freedom: The Economic Consequences of Emancipation.  New York: Cambridge University Press.

Shlomowitz, Ralph (1982).  “The Squad System on Postbellum Cotton Plantations,” in Orville Vernon Burton and Robert C. McMath (eds.), Toward a New South? Studies in Post-Civil War Southern Communities.  Westport, CT: Greenwood Press.

Virts, Nancy (1987).  “Estimating the Importance of the Plantation System in Southern Agriculture in 1880,” Journal of Economic History 47: 984-988.

Gavin Wright is the William Robertson Coe Professor of American Economic History at Stanford. His latest book is Sharing the Prize: The Economics of the Civil Rights Revolution in the American South (Belknap Press, 2013).

Copyright (c) 2014 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 2014). All EH.Net reviews are archived at

Subject(s):Agriculture, Natural Resources, and Extractive Industries
Business History
Social and Cultural History, including Race, Ethnicity and Gender
Geographic Area(s):North America
Time Period(s):19th Century

The Empire Trap: The Rise and Fall of U.S. Intervention to Protect American Property Overseas, 1893-2013

Author(s):Maurer, Noel
Reviewer(s):Dye, Alan

Published by EH.Net (June 2014)

Noel Maurer, The Empire Trap: The Rise and Fall of U.S. Intervention to Protect American Property Overseas, 1893-2013. Princeton: Princeton University Press, 2013.  ix + 558 pp.   $39.50 (hardcover), ISBN: 978-0-691-15582-1.

Reviewed for by Alan Dye, Barnard College, Columbia University

As the United States government flirted with empire circa 1900, it found itself drawn again and again into disputes between private American investors and foreign governments over property.  The Empire Trap shows how and why.  In an energetic narrative, Noel Maurer examines the most prominent threats to American overseas assets and shows how one administration after another was compelled, often against national or strategic interest, to intervene to protect a small minority of private investors.

The “empire trap” was set by Teddy Roosevelt’s Corollary to the Monroe Doctrine. Once this first commitment was made credible, president after president found himself bound by the inexorable logic of the empire trap. Even the high-minded Woodrow Wilson, who considered it “perilous” and beneath the “national integrity” to allow material interests to dictate foreign policy, could not say “no.”  Wilson, the president who vowed that “that United States [would] never again seek one additional foot of territory by conquest,” was pushed to occupy Haiti in 1915 and Panama in 1918.

A key finding of The Empire Trap is that enforcement mechanisms underwent important “technological” (or institutional) innovations, and these innovations defined the distinct phases of American imperialism. The first major innovation was in 1901. The Supreme Court ruled that territories could be annexed without being “incorporated.”  It gave Congress the power to annex the Philippines without extending citizenship or constitutional rights to Filipinos.  Congress then restricted private American investors’ access to the Philippines to limit their influence. Under the constitution, Congress could not have done this; but in unincorporated territories an unchecked Congress could not be trusted to facilitate private interests.  By granting Congress unlimited constitutional powers in the formal colony, the Court’s decision put an end to business support for formal empire.

So the U.S. moved fatefully into informal imperialism.  As Maurer shows, the problem became that, once the government accepted the task of protecting private properties abroad, pressures at home made it hard to get out of the responsibility. Private interests moved vigorously to lend or invest in countries likely to default or without secure private property. They did so expecting the American executive to step in when necessary to provide the enforcement, knowing that the executive could bear significant political costs if he refused to come to the rescue of American citizens’ overseas property in danger.

The method of choice in the first informal empire was the fiscal takeover.  In 1904, the Dominican president asked Roosevelt to take over customs collection in the Dominican Republic to end the seizures of customs revenues by his political rivals. Roosevelt used this opportunity not only to announce his credible commitment to protect overseas investments but also to establish a policy of fiscal intervention to help willing and responsible leaders to reform their fiscal systems.  American officials believed that fiscal intervention could get foreign houses in order and solve chronic problems of political instability. The U.S. set up customs receiverships in the Dominican Republic, Cuba, Nicaragua, Haiti, Liberia, Panama, Peru, and Bolivia. They were all unqualified failures.  In only one case, the Dominican Republic, did fiscal intervention result in a significant improvement in revenue collections.  In no case did fiscal intervention reduce corruption or political instability.

The Great Depression changed the political cost calculus. Before the crisis, the interests of bondholders and direct investors were typically aligned.  During the crisis they weren’t.  Bondholders preferred actions aimed at servicing the debt. Raising tariffs, suspending tax exemptions, and cutting spending were good things.  But these actions hurt the value of direct investments. Maurer finds that when domestic interests were not aligned, presidents were able to dismantle the informal empire. Herbert Hoover and Franklin Roosevelt thus allowed widespread defaults on sovereign debt; signed the Smoot-Hawley tariff into law, despite the damage to foreign direct investments in Cuba; and granted the transition to Philippine independence, which direct investors did not want.

Yet, when the crisis was over, the United States fell back into the empire trap. But it was different now.  The failed technology of fiscal intervention was replaced by foreign aid and covert action. Thus arose the “second American [informal] empire.”  The government got out of the debt enforcement business, ended the formal protectorates in Cuba and Panama, and established a “Good Neighbor Policy”; but it continued to intervene when American direct investments abroad were threatened.  The canonical case was the Mexican oil expropriation of 1938. Despite his aversion to intervention, FDR obtained compensation for expropriated American oil properties that actually exceeded their market value. American presidents learned to master the “carrot” as well as the “stick.” Access to U.S. markets, credit, and grants in aid were deployed to defend private American interests.  In cases of expropriation, Maurer finds that the U.S. almost always succeeded in getting adequate compensation, or better.

The Cold War changed the game again. Covert actions were aimed at communist threats, yet covert actions taken in Iran and Guatemala were also intended to defend American oil interests and the United Fruit Company.  The context and technology of intervention changed with the Cold War, but the logic of the empire trap remained mostly unaltered.

The most recent innovations in the technology of enforcement are also the most revolutionary.  They provide companies with legal instruments – expropriation insurance and arbitration – for property-rights enforcement that depend on international institutions rather than discretionary executive intervention.  Expropriation insurance evolved out of a postwar program associated with the Marshall Plan.  Arbitration had always been possible, but only between sovereign states; private investors still had to call on the state.  But in the 1950s and 1960s, a series of international conventions and the creation of the International Centre for Settlement of Investment Disputes (ICSID) broke down institutional barriers so that private investors could independently enter arbitration with a foreign government.  These institutions became better enforcement mechanisms in the 1990s as more countries became signatories.  Maurer shows that the recent emergence of mechanisms that obviate the need for intervention is truly a remarkable institutional feat.

The Empire Trap traces government enforcement of private investors’ foreign property rights from the coup d’etat of Hawaii staged by American settlers in 1893 to the Venezuelan 2007 expropriation of oil properties owned by eleven multinational corporations.  It is impressive not only for its scope – by my count it examines at least 26 different episodes of international intrigue – but also for its attention to detail in each of the cases presented.  Most important, Maurer’s analysis brilliantly captures a big picture that challenges much of the conventional wisdom – showing how a small number of private investors draw government into one international quagmire after another because it was the only way they could have their property rights enforced. There had to be a better way.

One thing that the book does not offer, which I would like to have seen, is some discussion of how the U.S. approach compares with other countries. How, for example, does the enforcement of property rights in the U.S. informal empire compare with property-rights enforcement in the British formal or informal empire?  But an author must make choices about boundaries, and this project was already a large one. Comparison with other countries will undoubtedly come. The Empire Trap has permanently changed the conversation about American informal imperialism.

Alan Dye’s publications include “The Political Economy of Land Privatization in Argentina and Australia, 1810-1850: A Puzzle,” Journal of Economic History (with Sumner LaCroix, 2013).

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Subject(s):International and Domestic Trade and Relations
Geographic Area(s):General, International, or Comparative
Latin America, incl. Mexico and the Caribbean
North America
Time Period(s):19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII