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Beggar Thy Neighbor: A History of Usury and Debt

Author(s):Geisst, Charles R.
Reviewer(s):Frey, Donald E.

Published by EH.Net (February 2015)

Charles R. Geisst, Beggar Thy Neighbor: A History of Usury and Debt.  Philadelphia: University of Pennsylvania Press, 2013. vi + 388 pp. $40 (cloth), ISBN: 978-0-8122-4462-5.

Reviewed for EH.Net by Donald E. Frey, Department of Economics, Wake Forest University.

In eight long chapters, Geisst, who is professor of finance at Manhattan College, covers the history of usury, debt, and related topics. Chapters address ideas, practices, and context; but side-topics sometime obscure the main argument.

Geisst sees usury as an enduring practice, even to the present. Ancient societies placed limits on charging interest, especially for consumption loans to the poor. Roman law singled out compound interest as usury; but today, argues Geisst, the “predatory element in lending still exits” (p. 10). Anti-usury laws have invited evasion; indeed, for centuries, “outsiders” in the dominant culture were both tolerated and persecuted because of being lenders. Despite the passage of time, Geisst finds similarities between recent financial strategies and those of the past. Even during the financial crisis of 2007-2009, Geisst finds usury and debt playing central roles. Geisst makes a meta-ethical claim, rooting anti-usury views in universal “notions of fairness and equity” (pp. 5-6).  My pared-down summary (ignoring discussions of intricate financial instruments and several tangential issues) follows.

The first three chapters span from the ancient world to the decline of dominating religious influence in the West. The successor societies to Rome long condemned compound interest, struggling with lack of mathematical clarity until the work of mathematician Fibonacci (circa 1170 to 1250). Unconditional condemnations of usury (rejecting even simple interest and business loans) came only after Thomas Aquinas (1225-1274) helped transplant Aristotle’s view, that money was unproductive, into Catholic doctrine. (Geisst notes that contemporary Islamic finance circumvents interest in ways that echo those of this period in Europe.)

With time, however, businesses in the Renaissance came to demonstrate a link between borrowed capital and economic growth. Further, Calvinist Protestants, who “rejected the Aristotelian notions” about money accepted as legitimate interest on business loans (pp. 75-76).  And legal thinkers, such as Hugo Grotius, gave the “early reformers considerable momentum” (p. 90). Geisst claims this acceptance of interest was central to what Max Weber called the “Protestant ethic,” though this reviewer notes that Weber’s work was not primarily focused on interest rates.

The secular Enlightenment’s logical endpoint is illustrated by the classical economists who transformed interest from a moral issue to a theoretical and policy issue. Even Adam Smith rationalized limited interest-rate controls in order to direct capital to “productive” projects and away from lifestyle loans to down-at-the-heels aristocrats (p. 124).

Chapter four portrays the transition to our own era during the nineteenth-century (in the UK and U.S.). In short, laissez-faire theory fought traditional anti-usury concerns in legislatures and courts with mixed results. (Never sparing of detail, Geisst reviews this state-by-state for several states.) The chapter includes fascinating, but seemingly tangential, topics such as bond sinking funds and retailing of U.S. Civil War bonds to average citizens.

The last four chapters cover the twentieth century to the present. Early on, despite much diminishment of usury, “consumption loans with effective interest rates in excess of 100 percent were still common” (p. 180).  In short, Geisst argues that usury is tenacious. However, he notes, for some people, recourse to usurers waned: auto companies financed car purchases, and thrift-institutions served some people.

The full revolution in consumer lending came after World War II. Geisst covers the birth and expansion of mass credit-card lending; credit extension to riskier consumers; “truth in lending” laws (addressing perceived usury in credit-card practices); home-equity loans; securitization and resale of consumer debt, etc. Geisst sees some benefits to people in this, but he underscores disturbing trends. For example, bundling and securitization of consumer loans “was to make banks more lax when extending credit” (p. 228). And, indeed, mortgage securitization eventually led to grief. Surprisingly, the Savings and Loan crisis of the late 1980s is not addressed in detail as a preview of several elements of the debacle of 2007-09 (see pp. 257-258, 263).

Chapter six turns to international application of “the classic beggar-thy-neighbor stratagem” (p. 235). In the 1980s, less-developed countries threated to default on loans from private banks. Massive bailouts (described in great detail) favored banks, at the expense of LDCs’ citizens. Geisst points to IMF aid conditioned on adoption of neoliberal policies (p. 242). Of these policies, Geisst quotes the president of Ecuador: the IMF threatened even “the stability of the democratic system” in the impacted nations (p. 242). (Perhaps a later publication date would have allowed Geisst to compare the earlier episode to current EU austerity regimes for countries like Greece.)  At chapter end, Geisst quotes Jeffrey Sachs: “the free-for-all — letting the market do it — doesn’t work’’ (p. 271). I took these quotes as proxies for Geisst’s views.

Chapter eight covers the financial crisis of 2007-2009. (For brevity, I omit the chapter on Islamic finance.) Geisst accurately covers the main components of the crisis; but the lens of usury seemed to me unable to unify the vision.  Geisst uses the occasion to repeat themes: that leveraged debt almost always is central to financial crises; that securitization and related innovations greatly increased risk-taking; that deregulation permitted dangerous practices to accumulate, even as economic theory rationalized benefits of deregulation. Of this, an unnamed Icelander, caught in Iceland’s version of the crisis, says: “The free market is not doing what it’s supposed to be doing” (p. 323).

Despite Geisst’s good overview of the 2007-2009 crisis, this reader thought that usury (defined in a meaningfully narrow way) was not key. And, in fairness, probably no master interpretation exists.  Much more was involved than usury. Borrowers were not the only victims; passive investors (the ultimate lenders) were harmed, as were insurers (and other parties to side-transactions), and various other innocent third parties. The beneficiaries (e.g., commission-earning mortgage originators, speculators buying assets at fire-sale prices) were not usurers as usually defined. Calculations by all parties accepted the delusion that house prices in the aggregate never fall. (As Michael Lewis chronicles, even the few rational short-sellers often lost their bets because the delusion outlasted their option expirations). Finally, few troubled to figure how all the pieces would work (or fail) together as an integrated system, for such “macro” thinking was in disfavor during this period. Clearly, neither usury nor debt alone is a key explanation.

Geisst’s book is fascinating and comprehensive — good for reference (want to know about defeasance and tontines?) and as an overview. However, this comprehensiveness introduces side-issues that blur the main story. Even debt appears in roles other than its role as the partner of usury — e.g., when used in corporate takeovers or as leverage. Further, the broad reach results in cases where Geisst raises a topic but cannot give it its due (e.g., Weber’s Protestant ethic).

The title of the book, “Beggar thy neighbor,” suggests a history of lending that takes advantage of borrowers. Yet, the huge amount of historical material defies reduction to a simple conclusion. Ultimately Geisst seems to retreat from the conclusion implied in his title to a blander, almost non-committal, conclusion: that interest “contains both positive and negative elements” (p. 332). He even suggests that the positive elements may slightly dominate. This seems at odds, not only with the title, but with interim conclusions (noted above) that imply stronger views. And yet, that financial markets could harbor any negative elements might be a controversial claim among those who assume only hyper-rational market participants.

All in all, the broad historic sweep that Geisst brings to this study impresses. Ironically, that is both the strength and weakness of the book.

Donald E. Frey is the author of America’s Economic Moralists (SUNY Press, 2009).

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Subject(s):Financial Markets, Financial Institutions, and Monetary History
History of Economic Thought; Methodology
Geographic Area(s):General, International, or Comparative
Time Period(s):General or Comparative


Norman Jones, Utah State University

The question of when and if money can be lent at interest for a guaranteed return is one of the oldest moral and economic problems in Western Civilization. The Greeks argued about usury, Hebrews denounced it, Roman law controlled it, and Christians began pondering it in the late Roman Empire. Medieval canon lawyers adapted Greek and Roman ideas about usury to Christian theology, creating a body of Church law designed to control the sin of usury. By the early modern period the concept began to be secularized, but the issue of what usury is and when it occurs is still causing disputes in modern legal and theological systems.


The Greek philosophers wrestled with the question of whether money can be lent at interest. Most notably, Aristotle concluded that it could not. Aristotle defined money as a good that was consumed by use. Unlike houses and fields, which are not destroyed by use, money must be spent to be used. Therefore, as we cannot rent food, so we cannot rent money. Moreover, money does not reproduce. A house or a flock can produce new value by use, so it is not unreasonable to ask for a return on their use. Money, being barren, should not, therefore, be expected to produce excess value. Thus, interest is unnatural.

Roman Law

Roman lawyers were more subtle in their treatment of the problem. They recognized the right to lend and borrow for a specified return, the mutuum. A strict contract in which money, oil, or other fungible good could be lent on the expectation of an equal return in kind and quality of the substance loaned. Interest was not recognized in this obligation unless it was agreed upon by the parties ahead of time. Foenus was an illegal contract for interest without risk, with one exception. The foenus nauticum allowed lenders to contract for certain return on money lent for large projects, such as voyages. It was the Latin foenus that was used interchangeably with usuram in Latin biblical translations. Nonetheless, Roman law did, in the Lex Unicaria of 88 B.C., recognize an interest rate of up to 12%. Made the maximum rate in 50 B.C. by a decree of the Senate, the centesima usura stood until Justinian lowered the rates in 533 A.D., creating a sliding scale with 12% only applying to the foenus nauticum, 8% to business loans, 6% to those not in business, and 4% to distinguished persons and farmers.

Biblical References

The Christians of the late Empire were not so flexible. There is a steady condemnation of lending at interest running through the patristic literature. St. Jerome declared usury to be the same as murder, echoing Cato and Seneca, since it consumed the life of the borrower. Christians, however, seemed required by God to condemn it. Exodus 22:25 forbad oppressing one’s neighbor with usury. Deuteronomy 23:20-21 said you could not charge your brother usury. Ezekiel 18:7-8; 13 makes it clear that the righteous do not lend at usury; and that usurers “shall not live.” Leviticus 25:35-36 says if your brother is poor do not charge him usury. The final Old Testament word on the issue came from the Psalmist, who charged the godly to aid their neighbors, not lending to them at interest. The strongest rejection of loans at interest came from Christ in Luke 6:35, where He says “Lend, hoping for nothing in return.”

Medieval Christians

Given God’s hostility to usury, it is hardly surprising that Christian theologians from the fourth century on defined lending for gain as a sin. Aquinas and his fellow scholastics amplified authors like St. Jerome on the subject, and Gratian built it into the code of Canon Law. Aquinas must have been gratified to find that Aristotle shared his hostility toward usury. By the late Middle Ages there was a consensus that lending at interest for guaranteed return was illegal and damnable. However, they also agreed that if the lender shared in the risk of the venture, the loan was legal. Consequently, laws against usury seldom interfered with merchant capitalism. Businessmen could always get loans if their contracts made them partners in risk. Extrinsic titles of the canon law, for instance, made it legal to charge for damnum emergens and lucrum cessans, losses sustained because someone else was using one’s money. The difference between the amount lent and the profit it might have made was paid as interesse. However, one had to prove the loss to charge interesse. It was also possible to write contracts which specified poena conventionalis, a penalty for late payment that did not demand proof of loss. Merchant bankers like the Medici did not charge interest per se, but they often received gifts from grateful clients.

Legal Ruses

Canon law and secular law held usury to be malum in se, an evil in itself that must be outlawed because God condemned it. Nonetheless, there were many legal ruses that allowed invisible illegal interest to be charged. A contract for a false sale, in which an inflated price was paid for a good, might be constructed. Or the appearance of risk might be incorporated in a contract by conditioning the payment on some eventuality such as the length of someone’s life. Only the poor, lacking personal credit, were forced to pledge collateral to get money.

Poor Men’s Banks

The oppression of the poor by usurers offended many good Christians. As an anti-Semitic counter measure against the Jews who were outside the canon law’s prohibitions, the papal governor of Perugia, Hermolaus Barbarus, invented the mons pietatis, “poor men’s bank” in 1461. Publicly-run pawn shops approved by Paul II in 1467, these nonprofit banks lent to the deserving poor at very low rates of interest and, by the late fifteenth century, they began to accept deposits. By the sixteenth century these banks were spread by the Franciscans all over Europe, though not in England, where Parliament refused to legalize them.

Changing Interpretations in the Fifteenth Century

As the demand for capital grew theologians became increasingly aware that lending at interest was not always theft. In the fifteenth century, Paris’s Jean Gerson and Tubingen’s Conrad Summenhardt, Gabriel Biel and John Eck argued that usury occurred only when the lender intended to oppress the borrower. Eck, supported by the Fugger banking family, became famous for his book Tractates contractu quinque de centum (1515), defending five percent as a harmless and therefore legal rate of interest as long as the loan was for a bona fide business opportunity. For these nominalists the proper measure of usury was the intent of the borrower and lender. If they were in charity with one another the loan was licit.


Eck’s position horrified more conservative people, who continued to see usury as an antisocial crime. Not surprisingly, Eck’s great enemy, Luther, refused to accept the idea that intention was a proper test for usury. Luther refused even to accept the extrinsic titles, insisting that anyone who charged interest was a thief and murderer and should not be buried in consecrated ground. He allowed only one exception to his anathema. If money was lent at interest to support orphans, widows, students and ministers it was good. Melanchthon was less conservative than Luther, admitting the extrinsic titles.


Bourgeois reformers like Martin Bucer and John Calvin were much more sympathetic to Eck’s argument. John Calvin’s letter on usury of 1545 made it clear that when Christ said “lend hoping for nothing in return,” He meant that we should help the poor freely. Following the rule of equity, we should judge people by their circumstances, not by legal definitions. Humanist that he was, Calvin knew there were two Hebrew words translated as “usury.” One, neshek, meant “to bite”; the other, tarbit, meant “to take legitimate increase.” Based on these distinctions, Calvin argued that only “biting” loans were forbidden. Thus, one could lend at interest to business people who would make a profit using the money. To the working poor one could lend without interest, but expect the loan to be repaid. To the impoverished one should give without expecting repayment.

The arguments in Calvin’s letter on usury are amplified in Charles du Moulin’s Tractatus commerciorum et usurarum, redituumque pecunia constitutorum et monetarum, written in 1542 and published in Paris in 1546. Du Moulin (“Molinaeus”) developed a utility theory of value for money, rejecting Aquinas’ belief that money could not be rented because it was consumed.

This attack on the Thomist understanding of money was taken up by Spanish commentators. Domingo de Soto, concerned about social justice, suggested that Luke 6:35 was not a precept, since it has no relation to the justice of lending at interest. Luis de Molina, writing in the late sixteenth century, agreed. He suggested that there was no biblical text which actually prohibited lending money at interest.

Increasing Tolerance toward the Legal of Charging Interest

By the second half of the sixteenth century Catholics and Protestant alike were increasingly tolerant of the idea that the legality of loans at interest was determined by the intentions of the parties involved. Theologians were often reluctant to admit much latitude for usury, but secular law and commercial practice embraced the idea that loans at interest, made with good intentions, were legitimate. By then most places permitted some form of lending at interest, often relying on Roman Law reified in Civil Law to justify it. In the Dutch Republic and England the issue was relegated to conscience. The state ceased to meddle in usury unless it was antisocial, leaving individuals to decide for themselves whether their actions were sinful. At about the same time the image of the usurer in literature changed from a sinister, grasping sinner to a socially inept fool.

17th-Century Debate Turns to Acceptable Interest Rates

As social good became the proper test of a loan’s propriety, there emerged two distinct debates about usury. By the first third of the seventeenth-century the issue of usury as a sin had been relegated to the conscience of the lender. The state was increasingly concerned only with whether or not the rate of interest was damagingly high. As the Act against Usury passed by the English Parliament in 1624 demonstrates, the rate of interest was important to the national economic well-being, lowering the maximum rate of 10%, established in 1571, to 8%. An amendment to the Act announced that this toleration of usury did not repeal the “law of God in conscience.”

This era saw the emergence of a casuistic debate about usury and an economic debate about credit. Robert Filmer, the English political theorist, wrote a book proclaiming that matters of conscience need not be subjected to state control. His contemporaries in the first generation of economists, Gerard de Malyne and Thomas Mun saw usury as a practical business problem. Malyne thought lending at interest was perfectly admissible if it was commercial credit; oppression of the poor by pawnbrokers was the evil usury condemned by God. Mun argued that there was no connection between usury and patterns of trade, and Edward Misselden saw interest rates as a matter of the money supply, not an oppression of the poor.

Most seventeenth-century Europeans knew usury was condemned by God, but many, while not admitting that usury should be legal, were espousing more radical views. Claudius Salmatius wrote a series of books with titles like De Usuris (1638) and De Modo Usurarum (1639) rejecting the Aristotelian definition of money as a good that was consumed. He insisted it could be rented. In this he was following Du Moulin’s argument from the sixteenth century. By the early eighteenth century Salmatius’ rejection of the traditional idea of usury was widely accepted. John Locke tried a slightly different argument, though to the same end. Lending at interest for productive purposes, he said, was no different from a landlord sharing the profits of a field with his tenant.

1700s: Worries about Usury Diminish, Lending at Interest Becomes Normal

By the eighteenth century the moral issue of usury was no longer of interest to most Protestant thinkers. In practice lending at interest with collateral had become normal, as had deposit banking. It was regulated by states, and this regulation was seen as benefiting business and protecting the poor. Adam Smith thought that since money can by made by money, so its use ought to be paid for. Nonetheless, he defended usury laws as the necessary in order to encourage productive investment and discourage consumptive spending. A cap on interest rates makes money cheaper for productive borrowers, while forcing up the cost of money to those borrowing simply to consume, since they would be getting their money outside the regulated money market. The expense of money borrowed for consumption actually keep many people from borrowing at all.

Debates among Catholics in the 1700s

Among Catholics the practice looked much the same, but in 1744 Scipio Maffei set off a debate with his three-volume defense of lending at interest, in which he suggested usury at moderate rates was not illicit, even if it was not charitable. This assertion was condemned by a papal encyclical, Vix Pervenit, in 1745. The encyclical reasserted the scholastic condemnation of usury, reinvigorating the tension between moral attitudes toward lending at interest and commercial necessity for doing it.

Nineteenth Century

In the early nineteenth century the Roman Congregations issued a series of rulings that took the pressure off. Faithful Catholics engaged in lending were not committing sin as long as they lent at a moderate rate. The moral condemnation of usury as an oppression of the poor did not disappear, however. It was adopted by socialists, whose antagonism toward capitalists convinced them that a market in money was evil. To them, usury was the “new slavery.”

Bentham’s Laissez-Faire Position

However, some economists were arguing that state regulation of credit was a distinctly bad thing. Jeremy Bentham wrote, in 1787, his Defence of Usury, in which he proclaimed a laissez-faire position, and introduced his concept of utility, urging “that no man of ripe years and of sound mind, acting freely, and with his eyes open, ought to be hindered, with a view to his advantage, from making such bargain, in the way of obtaining money, as he thinks fit: nor, (what is a necessary consequence) any body hindered from supplying him, upon any terms he thinks proper to accede to.” Bentham’s argument, written against proposed legislation in the Irish Parliament, won out in the English Parliament, which abolished the law against usury.

Usury Laws in the United States

In the United State usury was regulated by each state as it saw fit. Clearly basing themselves on English legislation (usually the 1664 Act against Usury), colonies and states generally assumed that lending at “immoral” rates of interest is wrong and must be prevented by regulation. The laws were eased in the early nineteenth century. Many states, but not all, repealed their anti-usury legislation. Hard economic times in the post-Civil War era caused the return of anti-usury measures, but these statutes had little impact on normal commercial operations. Attempts to regulate interest rates were complicated by the competition among states with varying laws. Thus American usury laws tend to vary the admissible rate of interest according to local economic circumstances, with some much more tolerant of high rates than others. In 1999, for instance, the legal rate of simple interest prescribed by state usury laws varied from 5% (Delaware and Wisconsin) to 15% (Washington and South Dakota). However, most state laws have complex definitions of usury that allow various rates for various types of transactions, which is why credit card companies can charge so much more than the legal usury rate. Moreover, during the 1980’s, when interest rates had reached record highs, the U.S. Congress exempted national banks from state usury laws and small loan regulations, tying their rates to the prime interest rate instead.

Islam and Usury

One of the striking developments in the twentieth century is the creation of a system of Islamic banks that do not lend money usuriously. The Qur’an forbids usury, or riba, and the prohibition of lending for interest without risk to the lender is expanded upon by a number of Hadith. Muslim scholars have followed the same Aristotelean path of analysis as did Christian theologians to understand the divine hostility to usury. In particular, they stress the consumable nature of money. This stress on consumption comes naturally, since the Qur’an says “O you who believe! Eat not Ribâ (usury)” (Al Imran 3:130).

One of the Islamic responses to the West in the past fifty years has been the rapid growth of banks serving Muslims that do not contract for a predetermined amount over and above the principal. These banks must share the risk with the borrower, and they must not make money from money.


Most nations continue to regulate usury, which is now, in the West, defined as contracting to charge interest on a loan without risk to the lender at an interest rate greater than that set by the law. However, moral arguments are still being made about whether or not contracting for any interest is permissible. Because both the Bible and the Qur’an can be read as forbidding usury, there will always be moral, as well as social and economic, reasons for arguing about the permissibility of lending at interest.


Bentham, Jeremy. Defence of Usury: Shewing the Impolicy of the Present Legal

Restraints on Pecuniary Bargains In a Series of Letters to a Friend. To Which is Added a Letter to Adam Smith, Esq.; LL.D. on the Discouragements opposed by the above Restraints to the Progress of Inventive Industry, fourth edition, 1818.

Divine, Thomas F. Interest: An Historical and Analytical Study of Economics and Modern Ethics. Milwaukee: Marquette University Press, 1959.

Gordon, Barry. Economic Analysis before Adam Smith: Hesiod to Lessius. London: Macmillan, 1975.

Jones, Norman. God and the Moneylenders: Usury and the Law in Early Modern England. Oxford: Blackwell, 1989.

Kerridge, Eric. Usury, Interest and the Reformation. Aldershot, Hants. and Burlington, VT: Ashgate, 2002.

Nelson, Benjamin. The Idea of Usury: From Tribal Brotherhood to Universal Otherhood. Chicago: University of Chicago Press, 1969.

Noonan, John T. The Scholastic Analysis of Usury. Cambridge, MA: Harvard University Press, 1957.

Rockoff, Hugh. Prodigals and Projecture: An Economic History of Usury Laws in the United States from Colonial Times to 1900. NBER Working Papers: 9742, 2003.

Savelli, Rodolfo. “Diritto Romano e Teologia Riformata: du Moulin di Fronte al Problema dell’Interesse del Denaro.” Materialli per una Storia della Cultura Giuridica 23, no. 2 (1993): 291-324.

Thireau, Jean-Louis. Charles du Moulin, 1500-1566: Etude sur les sources, la methode, les idee politiques et economiques d’un juriste de la Renaissance. Geneva: Droz, 1980.

Citation: Jones, Norman. “Usury”. EH.Net Encyclopedia, edited by Robert Whaples. February 10, 2008. URL

Usury, Interest and the Reformation

Author(s):Kerridge, Eric
Reviewer(s):Jones, Norman

Published by EH.NET (December 2003)

Eric Kerridge, Usury, Interest and the Reformation. Aldershot, UK: Ashgate, 2002. xv + 191 pp. $79.95 (cloth), ISBN: 0-7546-0688-0.

Reviewed for EH.NET by Norman Jones, Department of History, Utah State University.

Eric Kerridge has been in the first rank of economic historians of early modern England since his The Agricultural Revolution appeared in 1967, followed shortly by his Agrarian Problems in the Sixteenth Century and After (1969), and several other books, including his important Trade and Banking in Early Modern England (1983). Given his expertise in financial instruments and the ways in which trade and agriculture were actually carried out, this book holds out the promise of a nuts-and-bolts approach to usury and interest. Surprisingly, that is not what it delivers. Its 76 pages of text present an overview of the intellectual history of the debate over usury in Germany and England in the sixteenth and seventeenth centuries. The book’s thesis is summarized in its ultimate paragraph: “Yet even the gravest matters of scholarship are as nothing compared to the transcendental importance of acquitting Christians of the charge of having countenanced usury and usurers” (p. 76).

The short text is accompanied by 38 documents, in their original languages as well as in translation, that provide proof texts for his argument. They are referenced in the body of the text, so that the reader can see at length the nature of the arguments under discussion. This feature usefully assembles bits of Aquinas, Bernardine of Siena, Calvin, Bullinger, Luther, Melanchthon, Zwingli, Wycliffe, Jewel, and a few others across a span of time from the thirteenth to the seventeenth century.

Kerridge contends that no historian of usury has understood what it was in law and theology, so he carefully lays out the legal definition of usury, as opposed to legal interest charges as permitted in the extrinsic titles of the canon law. As he rightly insists, “interest,” which always involved risk, was legal, while “usury,” a corrupt contract for certain gain on the sum lent, was never legal. In particular, Kerridge berates R.H. Tawney for his misunderstanding of Luther’s thought on usury as represented in his Religion and the Rise of Capitalism (a misunderstanding that is not in evidence in Tawney’s edition of Thomas Wilson’s A Discourse on Usury). Although Tawney bears the brunt of his critique, he dismisses all the main works on usury with a footnote. It seems that he believes that no one has understood this technical difference between usury and interest.

It is a charge that comes as something of a surprise, but it arises, apparently, from a very different agenda than that of other students of usury. Tawney and Max Weber, Benjamin Nelson and John Noonan, and I, were interested in the interplay between religious ideology and the emergence of a particular kind of capitalism in the early modern period. We were concerned with how theologies were interpreted, how they were transmuted into law, how the individual conscience and the legal contract conformed to or fudged the official line on usury. It was always illegal, but what it was, in the popular mind, evolved. Although Kerridge is well aware of this evolution, he is concerned to correct the errors of both scholars and contemporary publics.

Kerridge can say, rightly, that some Protestant theologians in Germany, Switzerland and England did not tolerate usury. But by concentrating on a few well-known theologians, he controls the outcome of his argument. Missing are the other voices in the debate. Anyone who has read Thomas Wilson’s Dialogue is aware that there were several conflicting interpretations of when and how the sin of usury occurred, and who was expected to regulate it. We are not informed, for instance, of the arguments of Johannes Eck, or Charles du Moulin, or Conrad Summenhart, or Louis Molina, or Navarrus over census, lucrum cessans, and the mons pietatis that opened Christian ways around more conservative arguments. In particular, his definition of the Reformation as a purely Protestant affair removes the discussion of usury from the larger European context and allows him to ignore the fruitful thinking of the Spanish Jesuits on the subject. In that sense, Max Weber’s Protestantism and the Spirit of Capitalism lives on in Kerridge’s conception of the problem.

This little book provides a concise and very scholarly introduction to the arguments about usury, its definition in canon law and English law, and how interest was defined as different. It is immensely learned, too, with half-page footnotes and all quotes in both the original languages and in translation. The reader, however, is dropped in at the deep end of definition, and he or she must read with care in order to keep the technical arguments straight. But does it advance our understanding of the possible links between Protestantism and evolving attitudes toward secured loans at interest? Not really. He does prove that some Protestant theologians insisted that usury remained a sin, and that many people confused usury and interest, but he is not interested in pushing his argument beyond this. To demonstrate that a theologian of the early sixteenth century and one of the late seventeenth agreed with one of the thirteenth ignores the very different economic realities in which their thinking took place.

In the end, one is left wishing that Kerridge had opened up the scope a bit more and used his great learning to engage the debate over evolving credit practices and their relation to ideas about money, credit, and sin in Early Modern England.

Norman Jones is the author of several books including God and the Moneylenders: Usury and Law in Early Modern England (1989), and The English Reformation: Religion and Cultural Adaptation (2002).

Subject(s):Social and Cultural History, including Race, Ethnicity and Gender
Geographic Area(s):Europe
Time Period(s):Medieval

In the Red and in the Black: Debt, Dishonor, and the Law in France between Revolutions

Author(s):Vause, Erika
Reviewer(s):Lemercier, Claire

Published by EH.Net (June 2019)

Erika Vause, In the Red and in the Black: Debt, Dishonor, and the Law in France between Revolutions. Charlottesville, VA: University of Virginia Press, 2019. ix + 324 pp. $45 (cloth), ISBN: 978-0-8139-4141-7.

Reviewed for EH.Net by Claire Lemercier, Center for the Sociology of Organizations, Sciences Po, Paris.

Erika Vause, an Assistant Professor of History and St. John’s University, is passionate about early nineteenth French history and especially the “Revolutions” of the title, those of 1789 and 1848. As she shows, credit — public as well as private — was then hotly and extensively discussed. In order to better understand the economic, political, and cultural stakes of the discussions, Vause focuses on two legal devices that were specific to merchants: debt imprisonment and bankruptcy. After three brief abolitions, imprisoning debtors was finally abrogated in 1867. Bankruptcy law entailed criminal and commercial procedures, depending on suspicions of fraud, and was regularly reformed.

The history of debt imprisonment and bankruptcy is relevant to contemporary debates on economic institutions; the “law and finance” literature has often drawn on legal and financial history to make recommendations for reform. It has always been difficult to balance the idea of attracting creditors thanks to a law that promises punishment to insolvent debtors and the fact that many creditors favor informal arrangements that allow them to recover more money and avoid chain bankruptcies.

In this context, Vause insists on a French peculiarity: the fundamental legal distinction between commercial and civil law, setting merchants apart — something that other continental European countries abolished during the nineteenth century. The legal concept of merchant included all financial, commercial, industrial, and artisanal businesses. In A Revolution in Commerce (Yale University Press, 2007), Amalia D. Kessler explained how the distinction was maintained in the eighteenth century, despite new, more impersonal commercial practices and the abolition of privileges and guilds after 1789.

Vause’s story starts where Kessler’s ended. In Chapter 1, she insists on the fact that revolutionaries of all stripes embraced an ideal of free contractual relations, but embedded it in discourses on commercial honor or virtue; many likened commerce to a public service, implying specific rights and duties. Free contracting was paramount, but public order was at stake and virtue required incentives. The ensuing reforms — the abolition of usury laws; the conservation of commercial courts, with a more solid jurisdiction on bankruptcies; the abolition and restoration of debt imprisonment — therefore do not fall clearly on a of pro-debtor vs. pro-creditor, or liberal vs. interventionist axis.

Chapters 2 and 3 discuss new bankruptcy laws in the context of Napoleonic codification in the early 1800s, and their application before 1830. The laws appear as compromises, and each court interpreted them differently. Even though the criminal procedure was rarely used, bankrupt merchants were stigmatized. Vause focuses on the complications created by the fact of setting merchants apart from other persons. Studying the bankruptcy of the Demiannay Bank (p. 108-117), she shows how difficult it was to define individual liabilities in a context of entanglement between businesses and families. Judgments were based on holistic assessments of personal morality rather than on discussions of strictly economic risk-taking or of accounting skills. A particularly strong cultural trope associated blameworthy bankruptcy with ambitions of social mobility.

Chapter 4 documents debt imprisonment from an astonishing source: journals and petitions published by prisoners, who were surprisingly able to self-organize. In a context of penal reform, they strove to distinguish themselves from other convicts. Chapter 5 addresses debates on debt imprisonment by focusing on an exceptionally thorough statistical study, published in 1836. Vause compares it with her own numbers, based on records of a Lyonese prison. Political and legal debates focused on non-merchants — prodigal sons of wealthy families — allegedly imprisoned in large numbers because they had signed bills of exchange. Vause shows that those were a minority; most prisoners were individual merchants, with higher-status merchants as creditors. She argues that debt imprisonment began to appear less legitimate because it was seen as a consequence of too emotional (not reasonable enough) views on credit.

Chapter 6 addresses the practice of bankruptcy in the 1830s (based on more than 1,000 Parisian files) and the reform of 1838. Vause clearly presents the complicated procedures and the conflicts of interests among creditors, and between them and trustees. She then focuses on companies, from partnerships to corporations: their bankruptcies challenged a law that had been meant to focus on the body and morality of individual merchants.

Chapter 7 (followed by a too brief epilogue about the major reforms of the late 1860s) shows that credit was once again vigorously discussed during the revolution of 1848, with a new focus on access to credit for the owners of small shops and workshops. However, changes in bankruptcy law, according to Vause, opened an era of segmented procedures for small and large, personal and impersonal businesses that made risk-taking easier for the latter, not the former.

I learned a lot in this book, and I found most of Vause’s idea interesting to think about. I would not, however, recommend it to all colleagues interested in the intersections of legal and economic history. Non-specialists of France might sometimes find it difficult to read. (The inordinate quantity of typos does not help.) The second half of the book, from the end of Chapter 3 onward, is clearly written and nicely weaves together legal and political debates, cultural history, and case studies, which is no small feat. (Many historians would have been content to focus on the cultural or political side, with ten times less archival research and an easier to write book.) I cannot say the same about the first chapters, however; I would almost recommend reading the chapters in reverse order.

Economists and social science historians might regret the lack of quantitative evidence. Vause does make the important point that there were extremely few prisoners for debts and bankrupts convicted of fraud, but that the two mechanisms were still deemed important as threats. Other numbers could have made her thesis more compelling, especially as to the differentiation between bankruptcies small and large. Finally, I would have liked the author to engage more explicitly in comparisons between countries or periods. It is of course a lot to ask from a first book, but Vause’s bibliography shows that she knows the relevant works, and her research opens intriguing questions as to the causes and consequences of the having a separate commercial law, no bankruptcy procedure for consumers, etc. I can only hope that the author, without losing her passion for French archives, will in the future engage in such comparative discussions with historians and economists.

Claire Lemercier is a CNRS research professor of history and a member of the Center for the Sociology of Organizations (Sciences Po, Paris). She is the co-author, with Claire Zalc, of “For a New Approach to Credit Relations in Modern History,” Annales HSS, 67-4 (2012) and has extensively studied French commercial institutions, especially commercial courts (see, for example, the working paper “Courts and the Funding of Business in Nineteenth-Century France,” 2017, available online).

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Subject(s):Financial Markets, Financial Institutions, and Monetary History
Government, Law and Regulation, Public Finance
Geographic Area(s):Europe
Time Period(s):18th Century
19th Century

Corporate Spirit: Religion and the Rise of the Modern Corporation

Author(s):Porterfield, Amanda
Reviewer(s):Frey, Donald E.

Published by EH.Net (March 2019)

Amanda Porterfield, Corporate Spirit: Religion and the Rise of the Modern Corporation. New York: Oxford University Press, 2018.  viii + 204 pp. $35 (hardcover), ISBN: 978-0-19-937265-2.

Reviewed for EH.Net by Donald E. Frey, Department of Economics, Wake Forest University.

In Corporate Spirit, Amanda Porterfield (Spivey Professor of Religion at Florida State University) argues there is a long “kinship between churches and commercial institutions” (p. 1), based on corporatism. The apostle Paul wrote that diverse church members are all incorporated into the body of Christ. This involves: 1) members, playing different roles, yet unified and equal in the church; and 2) accountability for behaviors incompatible with the corporate spirit. Porterfield heavily emphasizes accountability in her history. Quickly, by historical standards, churchly structures, practices, and internal cohesion, became models for other organizations, even those whose core identities were not religious in nature.

The opening three chapters cover developments up to the English settlement of North America. The early Christian church is portrayed as a well-organized counter-cultural force in the Roman Empire — modeling humility, respect for others, and charity over typical Roman values. By the fourth century, Christian organizations “exerted greater influence than their numbers would suggest” (p. 16). After the fall of Rome, churchly systems of penance imposed accountability based on legalistic and a transactional thinking — well-suited for commercial thought. Other corporate organizations blossomed, including monasteries, guilds, independent cities and civic organizations. These religious and secular organizations conferred personal dignity, duties, rights and obligations on members.

Porterfield describes Anglican Protestantism (with a measure of Dutch input) as a key influence on commerce right before English colonization of North America. I think Porterfield underplayed the contribution of the European Reformers. Nevertheless, she accurately portrays the religious individualism loosed by the Protestant Reformation as interpreted by the Anglican Puritans. This individualism was to promote fundamental changes from the medieval corporate model.

Part 2 of the book opens with the New England Puritans (chapter 4), whose faith paradoxically encouraged merchants to seek ever more independence from their own church’s regulation of commercial behavior. This religious anti-regulatory tendency was aided and abetted by the rise of a generally non-Christian, Enlightenment individualism. A decisive turn came after American independence when U.S. law adopted the Enlightenment’s “idea of natural law,” which sanctified contracts, and by extension, corporations. How this legalism differed from the older church model is mainly addressed indirectly by the historical narrative.

In any event, Christian corporatism did not simply disappear; but the moral fabric of American society was thereafter pulled in different directions. (This is the main theme of chapter 5, which spans from the early Federalist period to the Civil War.) Porterfield notes that the “Pauline ideal of liberty through corporate membership was reworked . . . as personhood acquired new importance in the context of early industrialization and American law” (pp. 97-98). In contrast, “rapid advances in mechanization and slavery undermined respect for persons” (p. 98). Porterfield illustrates the meaning of these claims from a narrative of corporate developments. Another major claim is that in the antebellum period, “religious and commercial corporations developed similarities” (p. 103). In a symbiotic relationship, ideas imported from business pushed the “Christian community in the direction of greater calculation and rational organization” (p. 103). Whether “calculating” churches are true to their own nature seems a relevant question, left for the reader to decide.

Starting with the post-Civil War era, the last three chapters (6, 7, and 8) seem to demonstrate the increasingly problematic nature of any remaining relationship between business and religious corporatism. In my reading, the “corporate spirit” seems to become but a shell, to be filled by ever-changing, and often contradictory, popular ideas. And this may be Porterfield’s intended message. She asserts: “Religious and commercial corporations evolved together . . . over connecting rails of metaphysical thought” (p. 120). Consider the vagueness of what may be an example of this claim: “The collapsing boundary between heaven and earth in [P]entecostal fire complemented trade in futures and idealism about corporate persons” (p. 136). The actual meaning of such a claim — at least for me — seems elusive.

The last two chapters continue to illustrate various outcroppings of religion in mid-twentieth to early twenty-first century business, often in self-serving advertising, or for political purposes. And, conversely, Porterfield lists the adoption by particular religious actors of business tactics that could well be questionable from a religious perspective.

The end-point of this trend seems, to me, to be summed up in the Enron scandal, in which a business embodied the worst cultural values — rationalized and endorsed by a highly acculturated brand of fundamentalist religion. This is an example of how far corporations had moved from early Christian, counter-cultural corporatism.

One element of Pauline corporatism that Porterfield tries hard to find in such an era is the notion of accountability. In my reading, accountability seems to be presented as an inherent characteristic of early corporatism. By the last chapters of the book, business or churchly corporations act badly, without much internal restraint at all. In recent times, an outside party, government and secular courts, generally must impose accountability and reforms.

At the book’s conclusion we are told that corporate growth in “business and religion has often involved ethical blind spots and moral failure. . . . [But] discovery of these problems has generated considerable complaint, and . . . reform” (p. 185). A much sharper point could be put on this: reform generally seems to be imposed by the laws of states, not from some inherent corporate tendency toward self-correction. How does this development fit Porterfield’s corporate paradigm? This remains unclear.

To sum up, Porterfield leaves a lot implicit, relying on large doses of church and secular history, often illustrating contrary tendencies, from which readers need to infer the possible meanings. This historical goldmine is interesting and significant in its own right; but as a way of making a case, it also invites multiple interpretations. This creates considerable ambiguity — at least for me. As noted, Porterfield’s opening definition of corporatism seems to change significantly (or at least to need much reinterpretation) by the end of the book.

That said, I note that Porterfield is pointing readers to new scholarly territory. As a religion scholar, she brings a fresh perspective to the historical study of economics and religion. Consider the many economists who narrowly (or solely) focus on usury when writing on the intersection of religion and economics. Porterfield points in important new directions to which scholars coming from other disciplines may be blind. This is a refreshing development.

Donald E. Frey is author of America’s Economic Moralists: A History of Rival Ethics and Economics (SUNY Press, 2009).

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Subject(s):Business History
Social and Cultural History, including Race, Ethnicity and Gender
Geographic Area(s):Europe
North America
Time Period(s):General or Comparative

The Infidel and the Professor: David Hume, Adam Smith, and the Friendship that Shaped Modern Thought

Author(s):Rasmussen, Dennis C.
Reviewer(s):Middleton, Edward Austin

Published by EH.Net (June 2018)

Dennis C. Rasmussen, The Infidel and the Professor: David Hume, Adam Smith, and the Friendship that Shaped Modern Thought. Princeton, NJ: Princeton University Press, 2017. xiii + 316 pp. $30 (hardcover), ISBN: 978-0-691-17701-4.

Reviewed for EH.Net by Edward Austin Middleton, Department of Economics and Business Administration, Hood College.

Dennis Rasmussen (Professor of Political Science at Tufts University) begins his acknowledgements by mentioning the joy found writing The Infidel and the Professor, and I believe him to be earnest. His narrative effectively transmits to the reader the personal warmth he surely felt exploring the friendship and humor shared between Smith and Hume, and the sense that we should count ourselves fortunate if we had but one friend like they had in each other. This I believe is Rasmussen’s primary aim, to illuminate the intimacy, spontaneity, and collaboration of these personalities not easily perceived reading only their thoroughly-edited individual publications, or biographies focused on one of the pair. To this purpose, the volume is an unqualified success. Reading it creates a personal experience of Smith’s opening principle in The Theory of Moral Sentiments of deriving pleasure at others’ happiness. This is not to say The Infidel and the Professor is without flaw, either by construction of Rasmussen’s methods and style, or in particular claims he makes; rather that these flaws are characteristic only of the secondary aims of the book.

The pattern of the chapters is to recount the biographies of Smith and Hume, severally at first, and cover broad lengths of time. Rasmussen accounts for their educations, their comings and goings, employments and intellectual pursuits, and their social circles. The narrative is punctuated by chapters on focal events: Smith’s publication of The Theory of Moral Sentiments; Hume’s row with Rousseau; and 1776 in accelerando fashion, with chapters covering The Wealth of Nations, the posthumous publication of Dialogues Concerning Natural Religion, and Hume’s death. Vignettes illustrating their personalities are drawn from correspondence, mostly third party as the pair infrequently wrote each other, though few of these moments will be novel to readers of their biographies. In the focal chapters Rasmussen engages Smith and Hume’s published texts and cites scholarship on the same. The book spends roughly half its length on each type of chapter, slightly favoring biographical narrative.

The choices of formatting and reliance on correspondence suggest that the first best use of The Infidel and the Professor is for the non-academic reader, or as a supplementary undergraduate text in the history of thought: scholars are rarely mentioned by name in the text; endnotes make reference-checking tedious while improving the flow for readers taking claims for granted; longer quotes remain embedded in the text rather than separated in a block; Rasmussen avoids technical digressions, instead referencing the relevant scholarship for those interested and providing a summary in accessible language. By placing Smith and Hume’s work in relation to each other and the social context of their time, the book demonstrates the nature of the academy as an ongoing collaborative conversation, rather than a canon of independently-generated works of genius. Even the more text-oriented focal chapters support this theme by highlighting where Smith adopts examples from Hume’s work, whether they are developed in support of or in opposition to their original use. Rasmussen employs Hollywood’s “show, don’t tell” principle to open the eyes of his target audience to the interconnectedness of scholarship.

These same choices make the volume less useful to the academic reader. Putting aside endnote tedium, the use of secondary and tertiary sources means an author is confronted by a veritable mountain of material on any given point of Smith or Hume’s philosophies; the mountain becomes a range when the scope of the author’s work expands to include his subjects’ entire lifetimes and corpora. A careful reader must understand the degree to which Rasmussen must act as editor when selecting his evidence, and generally consider Rasmussen’s claims as illustrative, rather than demonstrative.

This is not at all to say Rasmussen depicts Smith or Hume scholarship as speaking with one voice in every matter — he takes pains, for example, to stress disagreement between scholars on Smith’s personal religious affiliation, and the extent to which Smith’s refusal to oversee the posthumous publication of Hume’s Dialogues represented a strain on their friendship — merely that the style adopted to serve the primary purpose of animating their lifelong friendship places strong constraints on the comprehensiveness of the literature review.

Furthermore, because Rasmussen’s story concerns the interaction between Smith and Hume, other influences are neglected. Hume seems to spring forth more or less ex nihilo; and Smith is utterly dependent on Hume. Francis Hutcheson, the personality alongside Hume Smith considered “never to be forgotten,” plays a role, but smaller than he otherwise might, particularly considering Hutcheson’s foundational influence on both. Aristotle and Plato are mentioned only in passing. The parlors of François Quesnay and les Économistes play host, but little instruct. Neither Hugo Grotius nor Epictetus are mentioned at all. The effect of this neglect is to paint Smith as a mere satellite in Hume’s philosophical orbit; an effect compounded by the necessity that, after Hume’s death, there’s hardly much more story to tell about an interaction between them. The book ends with a brief account of Smith’s life after Hume, and Smith’s own remarkably unremarked passing, almost as if, after Hume, Smith was merely waiting his turn.

An uncharitable reader might think Rasmussen’s omissions indicate a lack of understanding of Smith. Such a reader mistakes Rasmussen’s project, however, to place us in the drawing room and by the fireside with these men. It is to complain a tool is ineffective for a purpose for which it had not been designed. I am grateful for the experience and would solicit for my own pleasure the undoubtedly countless anecdotes of Hume’s wit uncovered during the research for this book, which for reasons of brevity were left on the editing room floor. Even so, not a few times did I mark in the margins a thread of inquiry I should like to pull on in the future, using The Infidel and the Professor as a starting point. I do not doubt but it will be likewise stimulating for you.

Edward Austin Middleton is a Visiting Assistant Professor of Economics at Hood College. His dissertation research addresses Adam Smith’s advocacy of usury price ceilings in credit markets taking into consideration sympathetic payoffs associated with financial successes.

Copyright (c) 2018 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 (June 2018). All EH.Net reviews are archived at

Subject(s):History of Economic Thought; Methodology
Geographic Area(s):Europe
Time Period(s):18th Century

Legislating Instability: Adam Smith, Free Banking, and the Financial Crisis of 1772

Author(s):Goodspeed, Tyler Beck
Reviewer(s):Rockoff, Hugh

Published by EH.Net (January 2017)

Tyler Beck Goodspeed. Legislating Instability: Adam Smith, Free Banking, and the Financial Crisis of 1772. Cambridge, MA: Harvard University Press, 2016. x + 208 pp. $40 (hardcover), ISBN: 978-0-674-08888-7.

Reviewed for EH.Net by Hugh Rockoff, Department of Economics, Rutgers University.

In 1772 a banking crisis started in Scotland. It is known as the Ayr Bank Crisis after the bank failure that precipitated the crisis. But it quickly turned into an international crisis. London, Amsterdam, Stockholm, St. Petersburg, even the American colonies, were affected. This crisis is important not only to financial historians, but also to historians of economic thought because in the wake of the crisis Adam Smith modified his views on banking and advocated several legal restrictions on banking. These were important exceptions, although far from the only ones, to his working rule that laissez-faire is best.

Much has been written about this crisis. (Goodspeed’s bibliography would be a good place to start. The classic general history of banking in Scotland is Checkland. And full disclosure, I have written several papers about the Smith and the Ayr Bank Crisis.) But Tyler Goodspeed has written the fullest account yet. He has carefully worked his way through a mountain of material, toiling away in libraries and archives, and examining many documents that previous historians have ignored or given only a cursory glance. Even more important, Goodspeed offers a new, radical interpretation of the crisis. I think it is well grounded and generally persuasive, although it will undoubtedly inspire many critics. All future accounts of this episode will need to take Goodspeed’s work into account.

Most writers have followed Smith in seeing the crisis as one in which bankers, particularly the famous Ayr Bank, made foolish investments, and then failed, starting a panic. Smith’s conclusion was that fractional reserve banking was inherently unstable, and for this reason regulation of banking to prevent or at least ameliorate crises was justified. The Ayr Bank crisis and the Lehman Brothers crisis are, to this way of thinking, sisters under the skin.

Specifically, Smith supported four important restrictions on banks. (1) The minimum size of notes should be set at the rather large sum of £5. (Using the calculator at this would be about £600 today using a price index as an inflator, or £7,500 using average earnings! Perhaps the point is simply that £5 was a lot of money in those days.) This was the only specific change in existing banking law advocated in The Wealth of Nations. In 1765 legislation had prohibited notes smaller than £1, but as Goodspeed puts it, Smith doubled down on this restriction. (2) The “optional clause” in bank notes should be prohibited. Privately issued bank notes at that time constituted an important part of the money supply. Until prohibited in 1765 Scottish banks were permitted to issue a note that contained a clause which allowed them to postpone redemption of the note in coin while paying interest on it. In other words, before 1765 notes were not necessarily required to be payable on demand. (3) The interest banks could charge for loans or pay on deposits should be limited by law. Smith’s famous support for usury laws, however, was based on his reading of the long history of usury laws, and not directly connected to the Ayr Bank Crisis. (4) Banks should only invest in “real bills”: short-term loans resulting from “real” transactions. Smith did not offer, however, a clear legislative path for enforcing real bills. Perhaps it was intended mainly as advice to bankers or would-be bankers.

But according to Goodspeed, the prohibition on £1 notes, the prohibition of the optional clause, and the usury law had destabilized the financial system causing the crisis of 1772. And real bills was unworkable. If Adam Smith was hoping that his regulations would stabilize the banking system, Adam Smith was wrong.

In Chapter 1 Goodspeed discusses the origins and consequences of the Ayr Bank Crisis, lays out his case against Smith’s interpretation, and outlines his new alternative.  In chapter 2 Goodspeed takes us back to the period of 1760 to 1765. At that time many Scottish banks were issuing low-denomination notes. It has often been described as the “small note mania.” Goodspeed argues, however, that Scotland was suffering during these years from a balance of payments crisis. Small denomination coins were being drained from the Scotland, and the small notes, rather than being a danger for the poor because of the weakness of the issuers, actually constituted a valuable form of relief for the Scottish economy. Goodspeed finds no evidence that people suffered from the failures of what Adam Smith referred to as “beggarly bankers.”

In chapter 3, Goodspeed explores the 1765 restrictions: no notes below £1 and no optional clauses. First of all, Goodspeed shows, convincingly I would add, that these restrictions were pushed by the largest Scottish banks with the goal of reducing competition from smaller competitors. He goes on to argue that these restrictions then discouraged entry and encouraged the larger banks to pursue riskier investments, making the system less stable.

In chapter 4, Goodspeed focuses on an issue that Smith did not, the joint and several liability of the shareholders of the Ayr Bank. The costs of the collapse of the Ayr Bank ultimately fell on its shareholders, which included Smith’s student the Duke of Buccleuch. Goodspeed documents the devastating consequences for investors in the Ayr Bank, some of whom were completely ruined. But Goodspeed finds a silver lining. Bonds secured by the lands of the shareholders were issued. The money raised was then used to pay the short-term liabilities of the Ayr Bank. The Bank of England and the large Scottish banks had refused to lend except on exorbitant terms to the Ayr Bank, but the shareholders then served that function. Goodspeed attributes the rapid recovery of the Scottish economy after the crisis in part to the shareholders acting, as he puts it, as the lender of last resort.

In chapter 5, the final chapter, Goodspeed asks what practical lessons we can draw from this episode. It’s a tough question. Obviously financial institutions have changed so much since Smith’s day that we can’t directly import ideas appropriate for the 1770s into our time. Nevertheless, Goodspeed to his credit has given a good deal of thought to this question and has come up with some useful ideas. For one thing, he suggests that an examination of the crisis of 1772 should make us more aware of regulatory and intellectual capture of the process of reform. Another conclusion is that after a financial crisis we should take some time to understand the crisis before legislating. It is hard to argue with this, judgments made in haste often turn out to be wrong. But the unresolved question is how long should we wait to be sure we have an adequate understanding of the crisis. Goodspeed’s radical reinterpretation was published in 2016 about 250 years after the crises of 1765 and 1772. If the same lag holds, we won’t understand the crisis of 2008 until about the year 2260!

Here is not the place to undertake a full examination of Goodspeed’s important contribution. This will be the work of many future financial historians and historians of thought. I do want to draw attention, however, to two minor points.

The Real Bills Doctrine

Goodspeed mentions Adam Smith’s famous “real bills doctrine,” but doesn’t spend much ink on it. After all, Smith doesn’t tell us how to distinguish real from fictional bills or how banks could be restricted by law to real bills.

To be sure, the real bills doctrine is not a useful guide for monetary policy. But some discussions of real bills make it sound like some ancient piece of trivia: something to do with “redrawing” of bills of exchange, whatever that is. It is worth, however, recalling one corollary of the real bills that Smith discusses which contains an obvious lesson. It is contained in a passage of The Wealth of Nations that Goodspeed does not cite: “… of the capital which the person who undertakes to improve land employs in clearing, draining, enclosing, manuring and ploughing waste and uncultivated fields, in building farm-houses, with all their necessary appendages of stables, granaries, etc. … such expenses, even when laid out with the greatest prudence and judgment, very seldom return to the undertaker till after a period of many years, a period far too distant to suit the conveniency of a bank” (Wealth of Nations II.ii.64).

I suspect that there are more than a few banks that would be better off today, in some cases at least alive, if their managers had been reading Adam Smith rather than some of the modern experts on banking.

What’s in a Name?

Today financial historians refer to the Ayr Bank Crisis. But at the time, Air was an acceptable alternative spelling for the town of Ayr. Cristopher Berry tells me that the first statistical account, in about 1791, spells the parish and county as “Air.” And at least some of the notes of what we now refer to as the Ayr Bank, and some of the Bank’s public announcements are signed “Douglas, Heron, and Company, Bankers in Air.” Prophetic?


Sydney Checkland. 1975. Scottish Banking: A History, 1695-1973. Glasgow: Collins.

Hugh Rockoff. 2011. “Upon Daedalian Wings of Paper Money: Adam Smith and the Crisis of 1772.” In Adam Smith Review, eds. Fonna Forman-Barzilai, 6: 237-268.

Hugh Rockoff. 2011. “Parallel Journeys: Adam Smith and Milton Friedman on the Regulation of Banking.” Journal of Cultural Economy, 4 (3): 255-84.

Hugh Rockoff. 2013. “Adam Smith on Money, Banking, and the Price Level,” in The Oxford Handbook of Adam Smith, eds. Christopher J. Berry, Maria Pia Paganelli, and Craig Smith, Oxford University: 307-32.

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 (January 2017). All EH.Net reviews are archived at

Subject(s):Financial Markets, Financial Institutions, and Monetary History
History of Economic Thought; Methodology
Geographic Area(s):Europe
Time Period(s):18th Century

Economic Thought: A Brief History

Author(s):Kurz, Heinz D.
Reviewer(s):Hébert, Robert F.

Published by EH.Net (June 2016)

Heinz D. Kurz, Economic Thought: A Brief History (translated by Jeremiah Riemer). New York: Columbia University Press, 2016.  ix + 208 pp. $27 (cloth), ISBN: 978-0-231-17258-5.

Reviewed for EH.Net by Robert F. Hébert, Department of Economics, Auburn University.

Writing a brief history of any subject requires its author to be organized and selective.  The former requires skill; the latter judgment.  Heinz Kurz, professor of economics at the University of Graz in Austria, displays his literary skill in this volume, a survey of economic thought from ancient times to the present, in less than 200 pages.  The author does a good job of linking various ideas scattered through time and space, weaving an abstruse narrative into a cohesive fabric.  This is no mean feat, and its accomplishment contributes in great measure to the readability of the present work.  His judgment, however, is more likely to be in the critics’ crosshairs, which is, not surprisingly the case here.

In Kurz’s literary time machine the reader reaches the sixteenth century after seven pages, and arrives at the eighteenth after another fifteen pages.  Kurz resists the temptation to anoint Adam Smith the “father of economics,” opting for the more defensible claim that “Smith permanently shaped the new field of political economy, both thematically and methodologically, and won it an important place in the circle of the venerable sciences” (p. 28).  Although he had numerous precursors, the long train of economic analysis that left the Smith station followed mainly the tracks he laid down.  Kurz takes us down those tracks in successive chapters on Marx, marginalism, Marshall, utilitarianism, welfare theory, imperfect competition, Schumpeter, Keynes, reactions to Keynes, general equilibrium and welfare theory, and developments in selected fields.

Clearly, publishing forces a tradeoff between brevity and depth.  Some things must be sacrificed in order to keep the narrative (and costs) within bounds.  Kurz provides a good compass for navigating the journey before us, but reviewers are duty-bound to pay attention to what is excluded as well as included.  I don’t quite know what to make of the statement (p. 7) that the difficulty of evading taxes on invisible wealth (e.g., money or interest) was a probable source of the long-lasting opposition to credit and interest by the Roman Catholic Church.  A more nuanced view is that the medieval Church’s outward opposition to credit and interest was curious and one-sided, i.e., the Vatican operated on both sides of the loan market, borrowing freely from its own merchant bankers while quietly making usurious loans to its prelates, all the while outwardly denouncing usury as a sin.[1]

The author’s interpretation of Mercantilism and Cameralism, a part of what Mark Blaug called “pre-Adamite” economics, follows tradition while either ignoring or rejecting the alternative interpretation based on public-choice theory[2], for which no explanation is given.  The spare mention of Richard Cantillon in mere passing (p. 17) can easily be overlooked, also in passing, and might be judged an opportunity lost, especially in light of Cantillon’s seminal influence on the theory and method of many economic thinkers who followed.  Karl Marx gets appropriate attention as the premier architect of a socialist system, but Kurz’s discussion of Marx’s impact stops at the twentieth century, which is a shame because so much of contemporary cultural politics in Europe and America has a distinctly Marxian odor.

Henry George is much misunderstood by historians of economics, and Kurz perpetuates the popular myth by unqualifiedly lumping George among the proponents of land nationalization (p. 43).  George in fact advocated a nuanced view of land value taxation not far removed from Alfred Marshall, who took George more seriously than other economists.[3]   Both George and Marshall recognized that taxing the “public value” of land did not require public ownership, which Marshall, not George, nevertheless qualifiedly endorsed (after a hundred years) in his lectures on George’s Progress and Poverty.[4]   It has somehow escaped historians of economics that by his own (public) admission Marshall would have been a de facto socialist after 1983!

Thünen, Rau and Gossen (Chapter 4) are appropriately singled out as forerunners of marginalism, but Kurz doesn’t explain how to reconcile his claim for Rau’s primacy “in substance (not verbatim) [regarding] the concept of marginal utility” (p. 67) with Rectenwald’s judgment that Rau “was not an original thinker.”[5]   Despite better coverage of some German predecessors, the story Kurz tells about early marginalism is incomplete, especially in regards to France.  By now Kurz should be aware of the peculiar institutional and cultural dimensions of French society that gave us Dupuit and his pioneering band of ponts engineers attached to the École des ponts et chaussées.  To be sure, Cournot formulated the demand curve, a succinct treatment of monopoly and duopoly, and the neoclassical theory of profit maximization, but Dupuit gave us a neoclassical concept of surplus (later retro-fitted by Marshall), a thorough treatment of utility and demand, novel concepts of monopoly and competition, price and product differentiation, and a clear explication of the relationship between property rights and economic welfare.[6] Continuing to ignore Dupuit and his contributions to economic science merely furthers what Jevons called “the noxious influence of authority.”

Having passed through marginalism and Marshall’s “neoclassical synthesis” Kurz capably guides us next through imperfect competition, Schumpeter and Keynes, general equilibrium theory and welfare economics, concluding with developments in the selected fields of game theory, capital theory, growth theory, spatial and urban economics, development economics and the new economic geography, behavioral and experimental economics, new institutional economics, and financial market theory.  Adequately covering the significance and impact of so many selected fields in less than twenty pages is a monumental challenge, and hence, some fields get very short shrift.  For example, public choice theory and new institutional economics are each encapsulated within a single paragraph; whereas behavioral/experimental economics and financial markets theory each get three paragraphs.  Whether this tells us something about the author’s evaluative priorities or not is left for the reader to guess.

This brief history concludes with the lofty hope that knowing the history of economics should help us resist superstition, hysteria and exuberance in economic and social questions; as well as immunize us against the naive idea that it is the privilege of living economists to articulate only correct ideas (“A Final Word,” p. 185).  If it were only that easy, perhaps courses in the history of economics would not be disappearing from university curricula at such a rapid rate.

Since the author is a seasoned scholar undoubtedly aware of the tradeoff between brevity and depth, fairness dictates that this book be evaluated primarily for what it does rather than what it does not do.  As long as the limitations of books like this are understood, there is a place for them in the field of economics.  Economics is not the dismal science claimed by historian Thomas Carlyle, unless one has little understanding of and appreciation for its complexity and relevance, which can, in large measure, be gained only from a study of its history.  For those untutored in the history of economics, this little book is not a bad place to start.


1. See Robert B. Ekelund, Jr., et al., Sacred Trust: The Medieval Church as an Economic Firm (New York: Oxford University Press, 1996), p. 120.

2. Cf., Robert B. Ekelund, Jr. and Robert D. Tollison, Mercantilism as a Rent-Seeking Society: Economic Regulation in Historical Perspective (College Station: Texas A&M University Press, 1981); and same authors, Politicized Economies: Monarchy, Monopoly and Mercantilism (College Station: Texas A&M University Press, 1997).

3.  Robert F. Hébert, “Marshall:  A Professional Economist Guards the Purity of His Discipline,” in Critics of Henry George, ed. R. V. Andelson (London: Associated University Press, 1979), pp. 47-71.

4. Ronald Coase, “Three Lectures on Progress and Poverty by Alfred Marshall,” Journal of Law and Economics, 12 (April 1969), 184-226.

5. H.C. Rectenwald, “Rau, Karl Heinrich,” in The New Palgrave: A Dictionary of Economics, ed. J. Eatwell, M. Milgate, and P. Newman (London: Macmillan Press, 1987), IV: 96.

6. See Robert B. Ekelund, Jr. and Robert F. Hébert, Secret Origins of Modern Microeconomics: Dupuit and the Engineers (Chicago: University of Chicago Press, 1999).

Robert F. Hébert is Emeritus Russell Foundation Professor of Entrepreneurship at Auburn University.  With Robert B. Ekelund, Jr., he is the author of A History of Economic Theory and Method, sixth edition, and several other books.

Copyright (c) 2016 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (June 2016). All EH.Net reviews are archived at

Subject(s):History of Economic Thought; Methodology
Geographic Area(s):General, International, or Comparative
Time Period(s):General or Comparative

The Engine of Enterprise: Credit in America

Author(s):Olegario, Rowena
Reviewer(s):Wright, Robert E.

Published by EH.Net (February 2016)

Rowena Olegario, The Engine of Enterprise: Credit in America. Cambridge: Harvard University Press, 2016. v + 301 pp. $40 (cloth), ISBN: 978-0-674-05114-0.

Reviewed for EH.Net by Robert E. Wright, Thomas Willing Institute, Augustana University.
Rest assured that I did not judge this book by its cover, ugly as the 1940 GMAC advertisement the book designer chose to use appears to my eye. But try as I might, I could not find an appropriate audience for this (perhaps overly) ambitious undertaking after perusing it for several days. There is no preface to help readers to understand the author’s goals or the book’s purpose and the introduction launches directly into the content.

As its title suggests, the thesis of The Engine of Enterprise is that “the United States was built on credit” (p. 1) or, with more nuance, “despite problems with credit that were at times severe, and which Americans have never fully solved, credit has been the invigorating principle that turned potential wealth into national prosperity” (p. 226) (my emphases). The proof comes in the form of five narrative chapters covering the colonial and early national (Chapter 1: “The Foundations of Credit in the New Republic”), antebellum (Chapter 2: “Credit, Enterprise, and Risk in the Antebellum Era”), postbellum (Chapter 3: “Credit in the Reconstructed Nation”), interwar and postwar (Chapter 4: “A Nation of Consumers and Homeowners”), and late twentieth century (Chapter 5: “The Erosion of Credit Standards”) periods, plus a brief postscript (“Creative and Destructive Credit”) on the causes and consequences of the Panic of 2008. The chapters do not follow a cookie cutter format but many cover the same topics, e.g., consumer credit, business credit, bankruptcy, and so forth.

While narrative descriptions of the evolution of different types of credit abound, the book does not show the primal importance of credit in statistically rigorous (e.g., Rousseau and Sylla 2005) or internationally comparative (e.g., Beck, Demirguc-Kunt, Levine 2007) ways, or even cite the finance-led growth literature (see Levine 2005 for a review). Moreover, the finance-led growth hypothesis was tempered by studies (e.g., Martin 2010; Wright 2008) that showed that financial development is just one of a series of growth-inducing economic changes that begin with secure human rights and end with improvements in physical and human capital that drive productivity gains. Because microfinance failed to spur growth in anarchic or dictatorial states, few continue to baldly assert the primacy of finance, let alone just its credit component. Alexander Hamilton had it exactly right when he argued that credit “was among the principal engines of useful enterprise” (p. 4) (my emphasis), i.e., that credit is a necessary but not a sufficient cause of economic growth. It is the fuel injection system, in other words, not the entire engine.

The book is unlikely to appeal to other specialists, either, as it is not based on new or extensive archival research or even novel interpretations of printed primary sources. As a senior research fellow at Said School of Business, author Rowena Olegario lives thousands of miles from scores of archival U.S. bank records that range from underutilized to completely untouched (for a partial list, see New Bedford Whaling Museum 2011), but one would think that Oxford University could afford to pay for the filming of, and/or travel to, at least one set of U.S. banking records. Moreover, although Olegario occasionally alludes to the theory of asymmetric information, the book is largely devoid of pertinent economic theories. So in her narrative, the early economy was “vulnerable to external shocks” (p. 24) due to unregulated banks and banknotes rather than the nation’s solution to the Trilemma or Impossible Trinity, a bimetallic standard demanding free international capital flows and fixed exchange rates in lieu of a central bank with significant monetary policy discretion.

Although The Engine of Enterprise presents more evidence about what people thought than how they behaved, the book is not a compelling “history of thought” either. Olegario, for instance, credits Henry C. Carey with being “the most notable economist of his time” and with anticipating “the new institutional economics by a century and a half” (p. 7). Carey’s life (1793-1879) overlapped those of important American political economists like Edward Atkinson (1827-1905), Alexander Bryan Johnson (1786-1867), and Erasmus Peshine Smith (1814-1882), not to mention numerous European economists of far more probity. Moreover, most of Carey’s ideas merely reiterated the thought of Hamilton and other financial founding fathers and even his own biological father. Olegario herself later (p. 59) admits that Carey was less important than Henry George (1839-1897).

Given its long coverage, from the colonial period to the present, the book might have been designed as a survey text, but for what course and at what level? Graduate students would quickly dismiss The Engine of Enterprise because it does not discuss historiography and glosses over the few debates that it explicitly recognizes without describing the major issues or even mentioning the major contributors. For example, Olegario informs readers that “historians are not in full agreement about how stringently” (p. 28) usury laws were enforced in colonial America but the corresponding note refers only to Geisst (2013). Most other debates are not even hinted at in the notes. For instance, the author blithely asserts that some colonial bills of credit depreciated because they “were insufficiently backed by land or taxes” (p. 21) without mentioning the long debate over “backing theory” (e.g., Michener 2015). Moreover, many endnotes point to a relatively limited set of broad secondary sources, like Wood (1991), Morgan (2000), and Calomiris and Haber (2014), rather than relevant specialized monographs like Kamoie (2007), which details the credit relations of the important Tayloe family in Virginia, or Roney (2014), which describes how NGOs in colonial Philadelphia served as financial intermediaries. Worse, works long since superseded are cited, some with disturbing frequency (e.g., Foulke 1941; Trescott 1963).

I also doubt that anyone teaching a financial history survey would adopt this book as an undergraduate text. The prose, while competent, is pedestrian throughout and hence more likely to bore Millennials than to spur their interest in financial history. Similarly, general readers usually demand ripping yarns like those spun in Kamensky (2008) or Mihm (2009). Lucid sections can of course be found (particularly recommended are the discussions of bankruptcy), but their benefits are outweighed by conceptual flaws and errors of commission and omission. By the latter, I mean missing important supporting data, superior examples, or more telling points. For instance, to make the point that Benjamin Franklin “took for granted that credit was essential to commerce” (p. 2), Olegario adduces mere words, Franklin’s “Advice to a Young Tradesman,” rather than Franklin’s actual actions, most notably his establishment of microfinance institutions in Philadelphia and Boston (Yenawine and Costello 2010). Likewise, the best evidence that the “new banks were meant not just to serve the needs of governments and merchants but also tradesmen, farmers, and manufacturers” (p. 24) is not Pennsylvania’s Omnibus Banking Act of 1814 but studies like Lockard (2000) and Wang (2006) that document actual bank lending patterns, a type of direct evidence that the author suggests does not exist (p. 64).

Olegario has particular difficulty astutely narrating the history of early U.S. finance because she accepts a narrow anthropological literature (e.g., Muldrew 1998) that sees much of the colonial credit system as pre-capitalist, as part of a “moral economy” characterized by “trust” and “barter” (pp. 24-25). But Olegario herself destroys both claims, presumably inadvertently. “Households bartered produce, game, and animal skins to obtain the services of blacksmiths, coopers, and other artisans,” she claims, but then adds that such exchanges were “notated in rough ledgers [sic] using monetary values even though no actual cash changed hands” (p. 24). So such transactions were not barter (trading one good for another without the use of money in any of its forms) at all but rather a form of open account, book credit, or “bookkeeping barter” (Michener 2011). Olegario also subverts the supposed reliance of colonial creditors on “trust” by detailing the widespread use of collateral, co-signers, lawsuits, prison, threats of reputation tarnishing, and other devices designed to induce borrowers to repay their debts. Colonists were certainly more apt to be lax when lending to family and friends, but that does not mean a “noncommercial morality” (p. 25) suffused the economy as family matters stand no differently today.

Other errors abound and many would flummox students and general readers. Olegario claims, for example, that bills of exchange “functioned as currency” (p. 21) by conflating negotiability (via endorsement) and currency (passing from hand to hand without formal assignment). By conflating banknotes with bank loans, she can assert that “entrepreneurial society desired … paper money” (p. 23) when in fact it sought intermediation. Imagine the confusion that would ensue were students to read that retailers “notated the value of purchased goods in a day book or ledger without issuing [sic] formal instruments like notes or bills of exchange” (p. 24). (Borrowers, not lenders, issue debt instruments.) Or that the Bank of the United States (1791-1811) was “rechartered [sic]” (p. 42) to be “in existence … again [sic]” (p. 49) as the Bank of the United States (1816-1836)!

I could continue but won’t for fear of drawing a flag for unscholarly-like conduct. Perhaps some readers will think I deserve a flag already but when the author’s school and publisher are so prestigious I think it incumbent upon reviewers to support negative generalizations with sufficient citations, details, and examples. The dust jacket can be removed if readers don’t like it, but the same can’t be said of the text, so potential readers must be credibly pointed elsewhere, like to the recent works cited below.


Beck, Thorsten, Asli Demirguc-Kunt, and Ross Levine. 2007. “Finance, Inequality, and Poverty: Cross-Country Evidence.” Journal of Economic Growth (March): 27-49.

Calomiris, Charles and Stephen Haber. 2014. Fragile by Design: The Political Origins of Banking Crises and Scarce Credit. Princeton: Princeton University Press.

Foulke, Ray. 1941. The Sinews of American Commerce. New York: Dun and Bradstreet.

Geisst, Charles. 2013. Beggar Thy Neighbor: A History of Usury and Debt. Philadelphia: University of Pennsylvania Press.

Kamensky, Jane. 2008. The Exchange Artist: A Tale of High Flying Speculation and America’s First Banking Collapse. New York: Viking.

Kamoie, Laura Croghan. 2007. Irons in the Fire: The Business History of the Tayloe Family and Virginia’s Gentry, 1700-1860. Charlottesville: University Press of Virginia.

Levine, Ross. 2005. “Finance and Growth: Theory and Evidence.” Handbook of Economic Growth, edited by Philippe Aghion and Steven Durlauf. Amsterdam: Elsevier Science.

Lockard, Paul. 2000. “Banks, Insider Lending, and Industries of the Connecticut River Valley of Massachusetts, 1813-1860.” Ph.D. Dissertation. University of Massachusetts, Amherst.

Martin, Joe. 2010. Relentless Change: A Casebook for the Study of Canadian Business History. Toronto: University of Toronto Press.

Michener, Ron. 2011. “Money in the American Colonies.” EH.Net Encyclopedia, edited by Robert Whaples.

Michener, Ron. 2015. “Redemption Theories and the Value of American Paper Money.” Financial History Review (December): 1-21.

Mihm, Stephen. 2009. A Nation of Counterfeiters: Capitalists, Con Men, and the Making of the United States. Cambridge: Harvard University Press.

Morgan, Kenneth. 2000. Slavery, Atlantic Trade and the British Economy, 1660-1800. New York: Cambridge University Press.

Muldrew, Craig. 1998. The Economy of Obligation: The Culture of Credit and Social Relations in Early Modern England. New York: St. Martin’s Press.

New Bedford Whaling Museum. 2011. “Records of the Merchants Bank Finding Aid, Appendix C,” MSS 107, New Bedford, Mass.

Roney, Jessica Choppin. 2014. Governed by a Spirit of Opposition: The Origins of American Political Practice in Colonial Philadelphia. Baltimore: Johns Hopkins University Press.

Rousseau, Peter and Richard Sylla. 2005. “Emerging Financial Markets and Early U.S. Growth.” Explorations in Economic History (March): 1-26.

Trescott, Paul. 1963. Financing American Enterprise: The Story of Commercial Banking. New York: Harper and Row.

Wang, Ta-Chen. 2006. “Courts, Banks, and Credit Markets in Early American Development.” Ph.D. Dissertation. Stanford University.

Wood, Gordon. 1991. Radicalism of the American Revolution. New York: Random House.

Wright, Robert. 2008. One Nation under Debt: Hamilton, Jefferson, and the History of What We Owe. New York: McGraw Hill.

Yenawine, Bruce and Michele Costello. 2010. Benjamin Franklin and the Invention of Microfinance. London: Pickering & Chatto.

Robert E. Wright is the Nef Family Chair of Political Economy at Augustana University and the author or co-author of seventeen books, including, with Richard Sylla, Genealogy of American Finance (Columbia University Press, 2015).

Copyright (c) 2016 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (February 2016). All EH.Net reviews are archived at

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

Cities of Commerce: The Institutional Foundations of International Trade in the Low Countries, 1250-1650

Author(s):Gelderblom, Oscar
Reviewer(s):Hohenberg, Paul M.

Published by EH.Net (February 2014)

Oscar Gelderblom, Cities of Commerce: The Institutional Foundations of International Trade in the Low Countries, 1250-1650.  Princeton, NJ: Princeton University Press, 2013.  xii + 293 pp. $35 (hardcover), ISBN: 978-0-691-14288-3.

Reviewed for EH.Net by Paul M. Hohenberg, Rensselaer Polytechnic Institute.

In this book, Oscar Gelderblom, who is Associate Professor of Economic History at Utrecht University, sets out to embed the development of three major commercial centers in the ongoing debate over the rise of market-friendly institutions during the late Middle Ages and the early modern period.   Between them, the ports of Bruges, Antwerp, and Amsterdam held the top rank among north European commercial cities for the entire period.  Amidst all the wars, dynastic rivalries, economic cycles, and demographic and religious upheavals, the ships came and went, the goods piled up in warehouses and streamed out again, and the merchants bargained, bickered and borrowed – and often grew rich in the process.  In this fine book, we get a real sense of the riskiness associated with trade (no mention of the polyglot and multi-specie confusion that must have made things even more complicated) and of the efforts urban authorities made to cope with risk.

The focus on institutions is nothing new in economic history; indeed, the “old” economic history studied little else.  But the “New” practitioners look to the role of trade-enabling institutions in fostering the pervasive capitalist economy that was to come, grounded in private enterprise, laissez-faire government, and heavy use of capital.  One school of thought credits the strong nation state and its willingness to honor its debts to private persons. As Gelderblom points out, while this may hold for England, Continental territorial rulers more often hindered than helped trade.  A second school holds that private merchant networks were largely able to cope with the agency problems inherent in long-distance trade.[1]  Again, Gerlderblom believes (and documents) that it took additional institutional scaffolding to manage risk.

The present book offers a third model, one which puts the emphasis on urban institutions not only created to facilitate trade but adaptable to changing needs and circumstances.  Cities were propelled by the need to compete – not just for trade but for a nodal role in trade networks.  Success meant, in particular, the presence of foreign merchants who would reside, store goods, and engage in financial transactions as well as trade.

The bulk of the book is devoted to a close, highly detailed analysis of mechanisms in the three cities intended to deal with recurring problems.  The chapter headings tell the story: “The Organization of Exchange,” “Crossing Borders” (trade at a distance), “Conflict Resolution,” “The Protection of Trade” (from violence), and “Dealing with Losses.”  Using “thick description,” Gelderblom shows how urban mechanisms were generated, modified, and adapted to meet the needs of a disparate set of trades and traders under changing conditions.  The idea was both to supplement private arrangements and to circumvent often overly-rigid and archaic institutions of territorial rulers.

While giving due credit to the depth and breadth of learning these chapters display, I want to focus briefly on the principal argument that it was competition between cities that motivated institutions conducive to long-distance trade.  To do so requires closer attention to two meanings of the term.  Economists use competition to designate a market structure in which sellers that persist in the market must operate with a level of efficiency such that they can cover all costs at the prevailing price.  None has any special incentive to innovate, nor is there any push toward a hierarchy of “firms” (in this case ports).  Competition can also, however, imply rivalry, where the fight for survival or supremacy plays out between two (or a few) contenders.  Here a first mover advantage can prove decisive, providing ample incentive (in this case) to offer foreign merchants a more hospitable habitat with trade-friendly institutions.

Because the three cities succeeded one another as leading ports in the north European network, one expects the second meaning of competition to prevail.  One also expects to find (at least relative) institutional failure, first in Bruges and then in Antwerp, as they lost their primacy.  Yet this is just what we do not find.  In fact, institutional failure gets almost no attention beyond vague allusions to other places.  The decline of Bruges and Antwerp gets little notice; by implication, the causes were exogenous, largely the result of political struggles and aggression by territorial rulers.  Thus, the core argument loses some of its edge given the book’s near-exclusive focus on successful urban institutions in a world of sharp variation in the fortunes of commercial cities

The book is well-written, and only a few infelicities betray the fact that English is not the author’s primary language (and that copy-editing by publishers has fallen victim to the times).  I close with an observation, not a criticism: three things one might expect to find in a study of European trade in these four centuries shine, as the French say, by their absence: Mercantilism, usury, and the silting up of the Zwin (Bruges’ estuary).

1. Full disclosure: the two articles on which much of the recent literature is based appeared in the same issue of the Journal of Economic History.  The present reviewer, though proud as then-editor to shepherd two fine papers into print, did not foresee the impact they would have.  Nor did either win the Journal’s Cole Prize as the best paper published in that year. See Douglass C. North and Barry R. Weingast (1989), “Constitutions and Commitment: Evolution of Institutions Governing Public Choice,” Journal of Economic History 49 (4): 803-32; and Avner Greif (1989), “Reputation and Coalitions in Medieval Trade: Evidence on the Maghribi Traders,” Journal of Economic History 49 (4): 857-82.

Paul M Hohenberg is Professor of Economics Emeritus at Rensselaer and has written widely on European economic history and urbanization.  He is the author with Lynn Hollen Lees of The Making of Urban, Europe, 1000-1994 (Cambridge, MA: Harvard University Press, 1994).

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 (February 2014). All EH.Net reviews are archived at

Subject(s):International and Domestic Trade and Relations
Markets and Institutions
Urban and Regional History
Geographic Area(s):Europe
Time Period(s):Medieval
16th Century
17th Century