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The European Macroeconomy: Growth, Integration and Cycles 1500-1913

Author(s):Craig, Lee A.
Fisher, Douglas
Reviewer(s):Broadberry, Stephen N.

Published by EH.NET (October 2000)

Lee A. Craig and Douglas Fisher, The European Macroeconomy: Growth,

Integration and Cycles 1500-1913. Cheltenham, UK and Northampton, MA, USA:

Edward Elgar, 2000. xii + 389 pp. $120.00 (cloth), ISBN: 1-85278-643-4.

Reviewed for EH.NET by Stephen Broadberry, Department of Economics, University

of Warwick.

European economic history currently lacks a good textbook that might appeal

to undergraduate students with a background in economics. Floud and McCloskey

(The Economic History of Britain since 1700, Cambridge University

Press, second edition, 1994) exists, but there is nothing comparable for any

other European country or for the early modern period. This book by Lee Craig

and Douglas Fisher, both from North Carolina State University, is thus to be

welcomed as filling an important gap in the textbook market. It is to be

doubly welcomed, however, for doing an excellent job. In many ways, this book

builds on two earlier volumes, the first by Fisher (1992), The Industrial

Revolution: A Macroeconomic Interpretation, and the second by Craig and

Fisher (1997), The Integration of the European Economy, 1850-1913.

Parts III and IV of this book are essentially compressed and simplified

versions of the earlier two volumes, while parts I and II provide a

theoretical overview and a new section on the early modern period.

Part I sets out the theoretical framework, emphasizing four basic ideas that

recur throughout the book: (1) Institutions have an important role to play in

determining economic performance. In particular, increasing political and

economic integration plays an important role in helping to bring about

convergence of per capita incomes within and between countries. (2) Within a

given institutional setting, the long run rate of economic growth is driven by

population growth and technological progress, with investment affecting the

level of per capita income, but not the long run growth rate, as in the basic

neoclassical growth model. (3) Money and financial services play an important

role in real economic activity, but excessive monetary growth causes inflation

along simple quantity theory lines. (4) Business cycles are driven largely by

shocks to real activity, as in real business cycle models. Armed with this

theoretical toolkit, Craig and Fisher cut a swathe through European economic

history between about 1500 and 1914. The starting date reflects the belief

that integration within nation states had largely occurred by 1500, while

subsequent developments are seen as reflecting integration between those


Part II deals with the growth of the European market economy 1500-1750 in four

chapters, covering population and agriculture (chapter 3), inflation, money

and banking (chapter 4), trade, industry and mercantilism (chapter 5) and

trends and cycles (chapter 6). There are some excellent sections here,

including the analysis of the price revolution in the sixteenth century and

the Kipper- und Wipperzeit inflation in terms of the quantity theory of money,

and the use of real wage data in England, Austria, Alsace, Germany and Spain

to make inferences about living standards. However, apart from population,

there is a serious shortage of macroeconomic data for many countries, so that

at times the authors seem constrained by their framework. Would it not be more

useful, for example, to get at the issue of European integration at this time

by using the abundant microeconomic data on variables such as grain prices,

rather than searching for a common European cycle in the fragments of

macroeconomic data?

Part III then turns to the First Industrial Revolution in Europe, 1750-1850,

with separate chapters on Britain (chapter 7), the “major” continental

economies of France, Germany and Belgium (chapter 8) and the “periphery”

(chapter 9). The discussion of Britain embraces the Crafts/Harley gradualist

view of growth during the Industrial Revolution, although I would have liked

more emphasis on the accompanying and more revolutionary structural change

that the British economy underwent at this time. Traditional microeconomic

themes such as the standard of living and other distributional issues receive

only the briefest mention, and although the “wave of gadgets” that spread

across the continent as well as Britain is discussed in chapter 8, the

treatment is brief by comparison with other texts. By contrast, a great deal

of space is devoted to an innovative attempt to identify a common

international cycle as a sign of the integration of the European economy.

Although the extent to which the peripheral countries can be seen as

integrated into the European economy and hence sharing in this common cycle is

limited, Craig and Fisher are keen to emphasize that right down to the “bottom

of the table,” all these countries were experiencing economic and population

growth rates that were uniquely rapid for any sustained period in their


Part IV contains three chapters on the maturing of the Industrial Revolution

1850-1913 and a final chapter on growth and cycles 1500-1913. The chapters on

the 1850-1913 period cover population and overall economic growth (chapter

10), financial issues (chapter 11) and business cycles (chapter 12). With a

much more complete data set than for earlier periods, it is possible to show

clearly that most West European countries converged towards British levels of

per capita income between 1850 and 1913, but that South and East European

countries did not share in this process of convergence. It is also possible to

show how convergence was linked to a willingness to permit a shift of

resources out of agriculture and out of the industries of the First Industrial

Revolution into the industries of the Second Industrial Revolution. The fuller

data set for this period also permits a much more detailed analysis of the

role of money, drawing on the monetary approach to the balance of payments.

The close correlation of inflation rates across countries during the gold

standard era, combined with the very low correlation of monetary growth rates

across countries is explained by arbitrage in goods markets combined with a

commitment to fixed exchange rates, rather than by a specie-flow mechanism. As

in the previous sections, the chapter on business cycles identifies a common

European cycle.

There is much to commend in this approach. A broad sweep of history can be

covered without getting lost in excessive detail. And by sticking to some

basic ideas, Craig and Fisher have made the book accessible to students with

only a basic knowledge of economics. However, there are also drawbacks. One

concern is that by sticking to a macroeconomic approach, many of the issues

that economic historians have traditionally emphasized are simply not covered

or mentioned only briefly in passing. Maybe traditional texts do sometimes get

a bit bogged down in the details of how the spinning jenny worked, but the

macroeconomic emphasis of this book also has its drawbacks. For one thing, we

can probably be more confident about our knowledge of what happened in the

cotton industry than we can about the growth of national income during the

Industrial Revolution. This makes it instructive to work up to the aggregate

data from the micro evidence, not just to present micro data when macro

estimates are unavailable.

A second area of concern is that economics students studying economic history

should pick up a clear message that history matters. The authors do state at

the beginning that institutions are important, but much of the subsequent

material emphasizes smooth convergence on a global optimum apart from a few

exogenous shocks. One obvious way of emphasizing the importance of the

particular historical path taken would be to cover the twentieth century more

fully, since the period of European integration before 1914 was followed by a

long period of disintegration, some of the consequences of which are still

with us. The excluded twentieth century anyway looks eminently more suitable

for the quantitative macroeconomic treatment favored by the authors than the

included sixteenth and seventeenth centuries.

Overall, I found this a stimulating book. European economic history badly

needs a fresh approach and this is one way of doing it. It is to be hoped that

a paperback version will be issued, otherwise it may prove too expensive for

the mass undergraduate audience that it undoubtedly deserves.

Stephen Broadberry is Professor of Economic History in the Department of

Economics, University of Warwick, United Kingdom. He is currently an editor of

the European Review of Economic History, and his 1997 book, The

Productivity Race: British Manufacturing in International

Perspective,1850-1990, was published by Cambridge University Press.

Subject(s):Macroeconomics and Fluctuations
Geographic Area(s):Europe
Time Period(s):20th Century: Pre WWII