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The Past and Future of Central Bank Cooperation

Author(s):Borio, Claudio
Toniolo, Gianni
Clement, Piet
Reviewer(s):Goodhart, C.A.E.

Published by EH.NET (February 2009)

Claudio Borio, Gianni Toniolo and Piet Clement, editor, The Past and Future of Central Bank Cooperation. New York: Cambridge University Press, 2008. xi + 245 pp, $80 (hardback), ISBN: 978-0-521-87779-4.

Reviewed for EH.NET by C.A.E. Goodhart, Financial Markets Group, London School of Economics.

This book contains a selection of papers presented at the BIS (Bank for International Settlements) Conference, held at their headquarters at Basel in 2005, to mark both their seventy-fifth anniversary and the publication of Toniolo?s magnum opus on Central Bank Cooperation at the BIS, 1930-73 (Cambridge University Press). The first two papers, by Borio and Toniolo and by Richard Cooper, pr?cis and go over the same ground as that book. If you have time, read Toniolo?s full book; if not, these provide a nice, short, sensible introduction.

There are four more papers, two long ones by Ethan Kapstein and Beth Simmons, and two shorter papers by Alexandre Lamfalussy and Tommaso Padoa-Schioppa. Let me take these in reverse order. Padoa-Schioppa?s brief paper (commissioned rather than presented at the conference, I think) contains, at a high level of generality, a plea for more supra-national sharing of sovereignty and an attack on the view, termed ?house in order,? that if each country manages its own domestic system well then the global economy will also function satisfactorily.

Lamfalussy?s paper, though not related directly to the work of the BIS, is a gem. In this he recounts his role as the first president of the European Monetary Institute (EMI), from its inception in 1994 until 1997, in institution building, to lay the ground-work for the European System of Central Banks (ESCB). This is the best kind of informative, first-person history, written with candor and charm. I would expect this to be the most cited chapter in the book. Its final section, on ?What Has Gone Wrong since the Second Half of the 1990s,? is, as always, lucid and insightful.

Beth Simmons takes on a dangerous remit, trying to assess ?The Future of Central Bank Cooperation.? As she notes ??Futurology? is a notably precarious exercise,? (p. 208); no one can foresee the future. Moreover, she wrote this piece at the end of the golden age of the ?Great Moderation? in 2005, just before the onset of financial crisis and turmoil. Not surprisingly, therefore, some of her prognostications have come unstuck. Thus she states that Basel II ?is widely viewed as having achieved its primary purpose: the promotion of stability in world financial markets? (p. 191), (though she could claim that that was so in 2005).

Nevertheless, she gets much right, for example that ?central banks may increasingly play the role of lender of first resort? (p. 197), and the continuing tension ?between the need for efficiency, which calls for an intimate gathering of the major players … and global authority, which calls for much wider participation, especially on the part of Asian and Latin American representatives? (p. 195). I would have liked to hear more of her own views on how this tension could best be resolved. Again she notes that ?Financial stability will also require monitoring much more information than seems to be currently available, which is not principally a problem of central bank cooperation as much as it is the ability of central banks and other regulators to get useful information from private financial entities? (p. 195), though in her conclusions, she also opines that ?The informational landscape has been largely transformed and policy better informed by intensified standards of information provision.?

The main macroeconomic problem that she foresees is exchange rate volatility, quoting approvingly Rogoff?s dictum that ?Currency volatility is the price we pay for having independent monetary policies? (p. 198), and the main expected coordination requirements being the need to integrate the main Asian players, notably the People?s Bank of China, into the international framework. For the immediate future, however, curbing the volatility of credit/debt and capital markets now takes precedence over worries about exchange rates. In the longer term it is the insistence of the United States on maintaining its absolute and unconstrained ability to set its own policies without any outside interference that serves to prevent multi-lateral coordination, as Simmons notes historically. But she does not address the question of why China, Japan or Germany should accede to proposals emanating from the U.S., so long as the direction of influence flows uniformly in one direction only.

Perhaps the central, key paper of the whole book (and of the earlier conference) is that by Ethan Kapstein, an international relations expert who queries whether central bankers and supervisors, in their conduct of international cooperation, have actually been ?Architects of Stability?? ? as his chapter is entitled. Along the way he makes many shrewd comments about the conduct of such cooperation, notably in the Basel Committee on Banking Supervision. Thus he writes that negotiators, e.g. at the BCBS, ?must interact and strike multilateral deals not only with each other but also with their domestic constituencies; negotiators are thus ?Janus-faced,? looking out at other states and inward at their domestic polities? (p. 123). Again, in a theme reiterated by Simmons, he has doubts whether the depoliticization of regulatory agreements has been an unalloyed boon. Thus he comments that ?one of the great ?successes? of financial supervisors over the past thirty years [since the foundation of the BCBS] has been to depoliticize the systemic risk environment and to transform crisis management into a technocratic exercise, thereby making financial shocks somewhat easier to manage, by reducing the number and type of players involved in decision making. During future crises, however, there may be greater demands for highly political responses that would involve active intervention by national legislatures and parliaments, alongside financial supervisors and central bank governors, and this could greatly complicate the task of international cooperation? (p. 151).

Writing in 2005, Kapstein has numerous prescient comments on the fragilities of the current system, especially in the section on ?Charting the New Risk Environment,? focusing on the ?paradox that we believe lies at the heart of the contemporary risk environment: the combination ? whether poison or elixir ? of increasing bank consolidation on the one hand and risk atomization on the other? (p. 137). ?As bank size increases, the likelihood that central bankers will enforce market discipline on poorly managed institutions decreases? (p. 140). Meanwhile the current crisis has led to further consolidation, via shot-gun marriages folding weaker into stronger institutions.

Kapstein also had the courage then to challenge Alan Greenspan directly on the beneficence of asset securitization, and opaque markets for credit risk transfer. Again he notes that ?Basel II may have a procyclical bias? (p. 144), and that there was little evidence that bank capital requirements had done much to safeguard financial stability. Particularly with the benefit of having observed the financial crisis in 2007-08, I went through these pages ticking up the points with much appreciation.

This is not to say that I agree with him in every respect. Some of his history on the early years of the BCBS (pp 125-132) is faulty; financial supervisors hardly committed to ?necessary liquidity provision? in the 1990s (p. 124); and I do not think that Kapstein distinguishes sufficiently between a level-playing-field within countries, from a level-playing-field between countries. Regulators/supervisors should only provide the first; they got pushed by the large, international cross-border banks into going for the second.

But overall it is an excellent paper. It is worth buying and reading this book for the two papers by Kapstein and Lamfalussy alone. And you should also try to find time to read Toniolo?s great book as well.

C.A.E. Goodhart is the author (with Boris Hofmann) of House Prices and the Macroeconomy: Implications for Banking and Price Stability (Oxford University Press, 2006).

Subject(s):Financial Markets, Financial Institutions, and Monetary History
Geographic Area(s):General, International, or Comparative
Time Period(s):20th Century: WWII and post-WWII

The Global Economy in the 1990s: A Long-Run Perspective

Author(s):Rhode, Paul W.
Toniolo, Gianni
Reviewer(s):Hanes, Christopher

Published by EH.NET (July 2007)

Paul W. Rhode and Gianni Toniolo, editors, The Global Economy in the 1990s: A Long-Run Perspective. New York: Cambridge University Press, 2006. xiv + 319 pp. $35 (paperback), ISBN: 0-521-85263-3.

Reviewed for EH.NET by Christopher Hanes, Department of Economics, State University of New York at Binghamton.

This excellent book collects papers presented at a Duke University conference in 2004, run by Rhode (now in the economics department at the University of Arizona) and Toniolo (University of Rome and Duke University economics department) ? and attended by this reviewer. Unlike many conference volumes, it is true to its title: each contribution compares economic developments of the 1990s with historical ones; and/or describes 1990s developments in the manner of economic history, weaving together statistics, narrative, and economic theory. The volume is also much more cohesive than most books of its type.

A number of themes pop up in paper after paper, so that it is actually easier to describe the book in terms of these themes than by listing individual chapters. Growth in economy-wide total factor productivity, capital investment and the effects of information technology (IT) improvements, in the U.S. and Europe, are covered by Nicholas Crafts, Riccardo Faini, Alexander J. Field, Gavin Wright and Robert J. Gordon. Faini and Crafts discuss European regulations on labor and product markets as factors hindering growth. The possible role of computers as a “general purpose technology” like steam engines and electricity is the subject for Peter L. Rousseau, and is also discussed by Peter Temin, Crafts, Faini, Field, Wright, and Gordon. The late 1990s U.S. stock market boom is compared with the late 1920s boom by Eugene N. White, Gordon and Temin. Increasing income inequality in the U.S. is discussed by Temin, Wright and Gordon.

Though these contributors’ topics overlap, each author has unique points to make. Gavin Wright argues that total factor productivity growth is not driven only by technological advance, but is the result of complicated interactions between technological opportunities, managerial innovations, unemployment rates and public policies with respect to education and wages. Gordon compares the 1990s with the 1920s, not to understand the later period but to identify “rotten apples” in the 1920s boom that would have caused subsequent problems even if post-1929 monetary policy had been better. (His list includes bad bank regulation, low margin requirements on stock purchases, inventory management, and “overinvestment” in fixed capital.) White draws the lesson that monetary policy should not attempt to prick asset-market bubbles. Field argues that IT advance may be credited with 1990s TFP growth, but not with the investment boom and capital deepening that took place at the same time.

Three contributors resist peer pressure and discuss independent topics. Barry Eichengreen gives a general history of 1990s developments in international trade and finance, including rising capital mobility, trade negotiations, the rise and fall of the “Washington consensus,” and the Asian crisis. Peter Lindert asks and answers some questions about social spending in the 1990s, focusing on public pensions and prospects for welfare-state programs in Eastern Europe and East Asia. Michael Bernstein discusses U.S. fiscal and regulatory policy, unfortunately edging into polemic and odd criticisms of academic economics. (Does Bernstein really think N. Gregory Mankiw is insufficiently Keynesian [p. 266]?)

Each paper is well-written ? with these authors, how could it be otherwise? ? and the book is flawlessly edited and produced, though I wish it had footnotes rather than chapter endnotes. The introductory chapter by Rhode and Toniolo is an appropriate mixture of swinging hyperbole (“The end of the so-called Cold War was undoubtedly the most important event in global history since 1945″) and careful summary of the papers.

Of course, any reader will have a list of topics that he considers central to the economic history of the 1990s, but which this book does not cover in any substantive way. I was disappointed to find very little discussion of vertical disintegration (Chandler in reverse) in industrial organization; the revival of Britain and the astounding rise of those two old laggard economies, Ireland and Spain; the various paths followed by the economies of the former Soviet Empire; and the rise of inflation targeting through interest-rate setting as the basis of monetary policy. To make room for these and other topics, I would have been willing to hear a bit less about general purpose technologies.

But that is not a real criticism of the book. The book is better because a few topics are covered so thoroughly, from different points of view. I found myself making my own connections across chapters and wanting the different contributors to get together and hash out their differences. Reading Field on 1930s TFP, alongside Faini’s discussion of different national income accounting techniques in the U.S. and Europe and how data details can affect apparent TFP growth, I wondered how much of the apparently high 1930s growth rates are a relic of the particular data and techniques used to construct those figures versus those for other decades. As Gavin Wright described the good effects of high-wage labor market policies in the postwar U.S., I wondered why apparently similar policies had bad effects in 1990s Europe. Reading Gordon on stock margin requirements in the 1920s, I wondered why White did not discuss them in his comparison of the equity premium in the 1920s and 1990s booms. It is a good sign when a conference volume makes a reader wish for another conference on the same topic.

Christopher Hanes is Professor of Economics in the State University of New York at Binghamton. He does research on macroeconomic and labor aspects of economic history.

Subject(s):Income and Wealth
Geographic Area(s):North America
Time Period(s):20th Century: WWII and post-WWII

Europe’s Third World: The European Periphery in the Interwar Years

Author(s):Aldcroft, Derek H.
Reviewer(s):Wolf, Nikolaus

Published by EH.NET (June 2007)

Derek H. Aldcroft, Europe’s Third World: The European Periphery in the Interwar Years. Aldershot: Ashgate, 2006. xi + 217 pp. $100 (cloth), ISBN: 0-7546-0599-X.

Reviewed for EH.NET by Nikolaus Wolf, Centre for the Study of Globalisation and Regionalisation, University of Warwick.

Aldrcoft’s book is a compact and very useful survey on what we know about the economic development of the European Periphery during the interwar years. In large parts it reads like an extension of Berend and Ranki (1982) into the 1930s and like Berend and Ranki, Aldcroft refuses to present an overarching scheme or some unified model for the European Periphery. The main virtue of the book is to synthesize in a highly readable way a vast literature on the puzzling persistence of economic backwardness outside the north-western European core. Moreover, the book underlines the urgent need for further comparative research into the economic history of the Europe’s periphery.

The book is organised in nine chapters, covering thirteen European countries, namely Poland and Hungary in Central Europe, the three Baltic States, the Balkan countries of Albania, Bulgaria, Romania and Yugoslavia, and the Mediterranean countries of Turkey, Greece, Spain, and Portugal. There are many informative comparative tables on these countries, a list of references that is quite impressive (though of course incomplete: I missed for example the excellent 1997 book of Feinstein, Toniolo and Temin) given the shortness of the text, and a very good index. But the reader will not find any maps, except the one on the front cover, which is rather misleading about the geographical scope of the book. This absence of maps is understandable from a publisher’s perspective, especially because the cartography of Europe after 1914 is rather challenging, but it is hard to justify from an academic point of view. Good maps on the ethno-linguistic patchwork, on the extreme differences in natural geography, or on the presence or absence of infrastructure across the European Periphery would have been very telling about the economics of this region.

The first chapter argues for an “economic rather than a geographic” (page 3) definition of the European Periphery, encompassing those countries as peripheral which at the turn of the last century still had at least 50 percent of their population dependent on agriculture and with per capita incomes of less than 50 percent of the advanced European nations. On these grounds the exclusion of Czechoslovakia from the book is straightforward, but less so the exclusion of Italy. Here and elsewhere in the book, Aldcroft should have touched upon the massive regional differences within countries that prevailed during the interwar years. Then of course the exclusion of southern Italy but also that of Slovakia from the European Periphery would have become even more debatable, as well as the inclusion of Upper Silesia or some parts of Spain into the periphery: geography matters and I will come back to this. The chapter continues with a description of several common characteristics of these peripheral countries, which implicitly also indicates Aldcroft’s conceptual framework for economic backwardness as such. All countries showed a low land and labor productivity in agriculture, coupled with a not much higher productivity in industry, which is reflected in the dominance of primary commodities in their foreign trade. Urbanization rates were much below Western Europe and the development of infrastructure and capital in a broad sense lagged behind. A growing population was fragmented into a diversity of ethno-linguistic groups, which contributed to political instability and helped to bring about authoritarian regimes. Chapter two elaborates on this to describe the situation of Europe’s periphery prior to 1914: agriculture hampered rather than helped economic progress, human capital formation was slow and institutions poor. It also touches upon the “core-periphery” concept of development limited by economic dependency, but Aldcroft is skeptical about its general applicability (pp. 19-23).

Chapter three on “Peripheral Europe in the Interwar Setting” is the key narrative of the book as it surveys in about thirty pages the interwar experience of the thirteen countries in question. Here Aldcroft shows his outstanding command of a vast literature to tell a tale of many small and often young states fighting against a series of disasters. After a brief description of the difficult post-war reconstruction he rightly points to the fragility of the economic upturn in the late 1920s. Manufacturing production in the periphery grew, but all too often nurtured by subsidies and tariff protection, while still too slow to induce any structural change. When the Great Depression hit, it made a bad situation worse, by limiting access to markets while (often) increasing the debt burden. Aldcroft argues that the policy turn towards strategies of economic nationalism in most parts of the European Periphery during the mid-1930s was essentially without alternative (page 59). He mentions the raising share of defense spending in public expenditure due to a climate of military threat and concludes that “the international background … was scarcely the most auspicious of environments for latecomers to modern development” (page 67). It might have been rewarding to explore that international background a bit closer ? I missed some reference to the work of Eichengreen on international cooperation or more specifically to Ritschl on the international reparations problem. Instead, the following chapters (four to eight) look into some details of the country-specific experiences, before chapter nine concludes with a question mark on “development stalled?”

The country chapters give a concise and suitable introduction into the economic development of the periphery during these years. While Aldcroft acknowledges that the available data on the overall performance of the peripheral economies “should be treated with some caution” (page 172), the data show an intriguing variety in experience. The Baltic countries fared better than most of the Periphery, especially Estonia and Latvia, as did Greece or Bulgaria compared to the rest of the Balkans. Albania did ? for the little we know about it ? develop least, while Poland struggled for most of the period to catch-up to her pre-war level. This cross-country variation within the European Periphery, but also the changes over time that Aldcroft’s survey depicts in a very compact manner, suggest to this reviewer a reconsideration of the “core-periphery” debate in a way that places geography where it belongs: at the very heart of economic development.

As stated earlier, Aldcroft used an “economic rather than a geographic” (page 3) definition of the European Periphery, but he is reluctant to provide the reader with a conceptual framework to make economic sense of it. Paradoxically, geography might deliver such an economic framework. Rosenstein-Rodan’s landmark work of 1943 on economic development dealt with Eastern and South-Eastern Europe, and was elaborated in the work of Krugman and others on the “new” Economic Geography. In Krugman (1991), and in the vast literature that has developed in the wake of Krugman, a core-periphery pattern emerges from the notion that different access to markets can be self-replicating, without any recurrence to economic dependency or exploitation. Aldcroft’s whole book can be read as a history of failed development due to bad access to markets for peripheral countries, made worse by the limits that international politics imposed, especially for the new stats of Eastern Europe. A suitable example is provided by Poland between the wars. The reunification of Poland inevitably reduced the size of her accessible markets in the early 1920s as the Polish domestic market was far too small to make good for the loss of access to Russia. The implied dependency on German markets threatened the state, and Poland tried to channel her trade over the Baltic Sea ? often competing with Britain ? and improve access to “friendly” capital. When Scandinavia entered the Sterling Bloc and capital inflows dried up, Poland was left with a possibly hopeless strategy of autarchic industrialization that started in 1936. Other countries seem to fit into such a picture. Countries that fared best in the 1930s were those with (politically enabled) access to significant markets: Bulgaria and Greece that opened up to Nazi Germany; Estonia and Latvia that became de facto part of the Sterling bloc. The data on many of these states are still very poor, but there are signs for some improvement. While we still lack reliable GDP estimates for Poland, Latvia, Lithuania, or Albania, recent work on Estonia (by Jaak Velge) or Bulgaria (by Ivanov and Tooze) has started to fill some of those gaps and may help to rewrite the history of the European Periphery some day.

For the time being, Aldcroft’s book provides a highly readable and compact survey on what we currently know about the economic development of Europe’s periphery during the interwar years, linking up with the work of Berend and Ranki (1982) for the period up to 1914. It is a good starting point for further research into one of the most promising areas in European economic history.

References:

Ivan T. Berend and Gyoergy Ranki (1982), The European Periphery and Industrialization, 1780-1914, New York: Cambridge University Press.

Charles Feinstein, Gianni Toniolo, and Peter Temin (1997), The European Economy between the Wars, Oxford: Oxford University Press.

Paul Rosenstein-Rodan (1943), “Problems of Industrialization of Eastern and South-Eastern Europe,” Economic Journal 53: 202-11.

Paul Krugman (1991), “Increasing Returns and Economic Geography,” Journal of Political Economy 99: 183-99.

Nikolaus Wolf is a Senior Research fellow at the Centre for the Study of Globalisation and Regionalisation (CSGR), University of Warwick and a Research Affiliate (International Trade) at the CEPR. He works on European economic geography in the long run. Recent publications include “Estimating Financial Integration in the Middle Ages: What Can We Learn from a TAR-model?” Journal of Economic History (2006), with Oliver Volckart and “Endowments vs. Market Potential: What Explains the Relocation of Industry after the Polish Unification in 1918?” Explorations in Economic History (2007).

Subject(s):Historical Geography
Geographic Area(s):Europe
Time Period(s):20th Century: Pre WWII

The European Economy since 1945: Coordinated Capitalism and Beyond

Author(s):Eichengreen, Barry
Reviewer(s):Broadberry, Stephen

Published by EH.NET (May 2007)

Barry Eichengreen, The European Economy since 1945: Coordinated Capitalism and Beyond. Princeton: Princeton University Press, 2006. xx + 495 pp. $35 (cloth), ISBN: 978-0-691-12710-1.

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

In 1996, Barry Eichengreen published an influential article in a book edited by Nick Crafts and Gianni Toniolo, Economic Growth in Europe since 1945, (Cambridge University Press). Eichengreen argued that the same institutions which facilitated postwar recovery in western Europe during the 1950s and 1960s, also exerted a drag on growth from the 1970s. The high growth of the 1950s and 1960s was seen as a result of the particular suitability of western Europe’s institutions of co-ordinated capitalism to catching-up on the United States through capital investment and the absorption of technology and organizational forms from abroad. However, as the frontier was approached, the unsuitability of those same institutions for innovation was seen as creating a crisis of adjustment. This excellent volume can be seen as expanding on the ideas first developed there, updating them to take account of the experience of the last decade, and bringing the centrally planned economies of eastern Europe into the picture. The picture is now much more nuanced than the earlier article, and the author has become more ambivalent about Europe’s economic prospects.

The links to the earlier article are still very visible in chapter 2 on the mainsprings of growth, which sets out the basic analytical framework. A great deal of emphasis is still placed on the “neocorporatist bargain” or postwar settlement between employers, trade unions and governments, which is seen as underpinning high levels of investment. Workers agree to wage restraint so long as employers commit to high levels of investment, and employers commit to high levels of investment so long as workers agree to wage restraint, with the whole bargain being overseen by an interventionist state committed to maintaining full employment through Keynesian policies. The establishment and more or less successful functioning of these neocorporatist bargains in individual west European countries is analyzed in chapters 3, 4 and 7 on the 1940s, 1950s and 1960s respectively. Chapters 7 and 9 focus on the difficulties which these institutions faced in the 1970s and 1980s. The problem can be seen as the breakdown of wage restraint as growth slowed down with the exhaustion of the potential for rapid catch-up growth, and as memories of the mass unemployment of the interwar years began to fade.

Superimposed on this general framework are a number of sub-themes which amplify the central argument of the importance of institutions. First, the author is able to draw on his unrivalled expertise in the area of international monetary systems to show in chapter 3 how Europe’s neocorporatist bargains were facilitated by the Marshall Plan, German economic and monetary reform, the 1949 devaluations and the European Payments Union. Then in chapter 8, he argues that the institutions of the international monetary system exacerbated the breakdown of the neocorporatist bargains as payments problems mounted and the Bretton Woods system collapsed.

A second sub-theme concerns the role of economic and political integration in western Europe, with the initial impetus to co-operation to avoid a return to the conflict of the previous half-century seen in chapter 6 as bolstering the institutions of coordinated capitalism in western Europe. In chapter 11, the further integration pursued since the 1980s is seen as identified with liberalization, and thus helping to overcome the crisis of adjustment by undermining the institutions of coordinated capitalism.

A third sub-theme is the application of the basic approach to eastern Europe, the most extreme case of coordinated capitalism, where the market economy was all but eliminated. Here, of course, the specifics need some modification, but even eastern Europe conformed to the pattern of rapid growth during the 1950s and 1960s, followed by slow-down from the 1970s. Large firms and unions were organs of the state, so there can be no equivalent of the neocorporatist bargain. However, in discussing western Europe, Eichengreen counters criticism that his earlier work was too focused on the highly unionized manufacturing sector by noting that the 1970s saw not just a breakdown of the neocorporatist bargain on wages and investment, but a major technological shift associated with the decline in the cost of information processing, with radical implications for the organization of services as well as industry. This shift towards information and communications intensive technologies, allowing much greater customization of output to individual consumer tastes, can be seen as creating difficulties for the institutions of organized capitalism in western Europe, geared towards large-scale production of standardized products and provision of standardized services in regulated markets. But for eastern Europe, where governments relied for their survival on limiting the free flow of information, it proved fatal. The experiences of the centrally planned economies are discussed in chapter 5, covering the rapid growth of the early postwar period, and chapter 10 on the collapse at the end of the 1980s and the subsequent transition.

The book ends with the author hedging his bets about Europe’s economic future, depending on whether the most appropriate indicator of economic performance is GDP per capita or GDP per hour worked. Although GDP per capita in Europe is only around two-thirds of the U.S. level, GDP per hour worked is about equal to, and in some countries higher than in the US. The MIT view of this is that Europeans simply enjoy their leisure more than Americans, who are caught in a rat race. However, the Minnesotan view is that Europe is being held back by the institutions of coordinated capitalism, with high tax rates and regulations stopping people from working as much as they would like. If you accept the Minnesotan view, Europe is in for a tough period of liberalization or relative decline, but if you accept the MIT view, Europe can continue to enjoy its chosen combination of high productivity and leisure.

My main criticism of the earlier article was its bias towards manufacturing, and that has been dealt with to some extent here by the discussion of technology and its application to services. However, this has the effect of giving a much more central role to changes in technology, which are never really explained in any detail. Also, a place has been found for the importance of the shift of labor out of agriculture, but again agriculture is never really covered in sufficient depth. However, any shortcomings in the treatment of the major sectors should certainly not weigh heavily in the balance against the overwhelming list of positive features about this book, which is clearly structured and well-written, concise and clear. Above all, it strikes a masterly balance between a clear theoretical structure and sufficient attention to historical detail.

Stephen Broadberry is Professor of Economic History in the Department of Economics, University of Warwick, and co-organizer of the CEPR Economic History Initiative. His most recent book is Market Services and the Productivity Race, 1850-2000: British Performance in International Perspective (Cambridge University Press, 2006). He is currently co-editing (with Kevin O’Rourke) a 2-volume economic history of modern Europe.

Subject(s):Labor and Employment History
Geographic Area(s):Europe
Time Period(s):20th Century: WWII and post-WWII

An Economic History of Twentieth-century Europe: Economic Regimes from Laissez-faire to Globalization

Author(s):Berend, Ivan
Reviewer(s):Toniolo, Gianni

Published by EH.NET (April 2007)

Ivan Berend, An Economic History of Twentieth-century Europe: Economic Regimes from Laissez-faire to Globalization. New York: Cambridge University Press, 2006. xv + 356 pp. $35 (paperback), ISBN: 0-521-67268-6.

Reviewed for EH.NET by Gianni Toniolo, Department of Economics, Duke University and Universit? di Roma.

Before taking up his current position of Professor of History at UCLA, Ivan Berend spent most of his scholarly life in Hungary where he was, among other things, Rector of the Budapest University of Economics and President of the Hungarian Academy of Sciences. At the edge of Eastern and Western Europe, endowed with a highly educated and cosmopolitan upper middle class, Hungary provides an excellent observation point for European history. It comes as no surprise, therefore, that after writing extensively on central and eastern Europe, Berend felt the time had come for him to offer his overall view of the eventful economic history of twentieth-century Europe. To do so, he chose the textbook format (or rhetoric). The result is a relatively short book, presumably aimed at upper undergraduates but sure to be appreciated by the general public as well.

The six chapters are structured around the prevailing ideologies of the times rather than according to the traditional political or economic partitions of twentieth-century history. Thus, the first chapter deals with the pre-World War I “laissez-faire system,” the second with the decline of laissez-faire and the rise of “regulated market systems,” the third and the fourth with the fascist and socialist regimes, the fifth with the so-called mixed economy and the welfare state. The title of the final chapter is “Globalization: Return to Laissez-faire?” A strong emphasis on ideology, including the final question mark, will have an intellectual appeal to Europeans over forty while it is likely to puzzle not only most American students but also many of their Old Continent counterparts, particularly economics majors. But, indeed, meminisse juvabit (it is useful to remember) and Berend’s book will help to inoculate readers against the current loss of memory of how heavily European history has been burdened by ideology, as well as against the assumption that we are now living in a post-ideological world.

The first pages in the book deal with “the gradual transformation [of Europe] from protectionism cum bimetallism to free-trade cum gold standard” (p.11). As most scholars do, the Cobden-Chevalier Treaty of 1860 and the general adoption of gold convertibility in the 1870s are taken as the watershed between a world still imbued with mercantilist ideology and one identified with “laissez-faire.” Berend then proceeds to touch upon the rise of modern sectors (sometimes called the “second industrial revolution”), the changing position of Europe in the world and of individual countries within Europe. A mix of aggregate statistics and sectoral case studies (some of them aptly encapsulated in useful boxes) describe the rise of German economic power, the beginning of the Scandinavian catching up and the lagging behind of the eastern and southern peripheries. Among the latter, the fairly good performance of Italy is duly depicted. All this factual material is well organized and written: students will find it useful as an introduction to some of the main topics in pre-1913 European economic history. There are, however, two curiosities students are likely to have but remain unanswered. The first is the reasons why Europe’s “western offshoots” grew so much faster than Western Europe (which Berend characterizes as the core of the world economy as late as 1913). If, by the 1880s, the United States already led Western Europe (if not Britain) in aggregate productivity and per capita GDP, why was Europe unable to close the gap? The second question is: how widespread were laissez-faire practices and what impact did they have on growth? Berend acknowledges that the “laissez-faire ideology … became the Zeitgeist in the advanced countries although it remained a shallow practice” (p.13), but the second part of this statement receives little attention in the following pages. One has to wait for the chapters on the interwar period for a brief mention of the “globalization backlash” highlighted by the tariff movement of the 1880s. Little is also said about domestic economic legislation which, in several countries, retained more than just the flavor of mercantilism: regulation and red tape remained quite pervasive. And students may wonder if there is a link between the questions. The United States enjoyed more than their fair share of protectionism but domestic free trade allowed the exploitation of regional comparative advantages within a large country. It is likely that tariffs and other restrictions on international trade made the exploitation of comparative advantages more difficult in the Old Continent and students would possibly be interested in exploring how far Europe’s fragmentation goes in explaining the diverging rates in productivity growth between the two sides of the Atlantic.

A large portion of the book (three chapters) is devoted to the “regulated market system,” fascist economic dirigisme and centrally planned economies. This will possibly turn out to be the most useful and interesting part as far as students and educated laypersons are concerned, if nothing else because I know of no other comparable compact account of how policymaking everywhere, if with very different connotations, became state-centered and inward looking between 1914 and 1950. Chapter 2, dealing with the democratic countries, collapses in less than fifty pages a good standard review of 1914-1950. The “novelty” here is perhaps the emphasis on the Zeitgeist, even though one wonders whether the economy was driven by ideology, as sometimes the author seems inclined to believe, or it was the economy’s failure to shape new economic and political ideas. The chapter on the varieties of European fascisms covers also the Iberian Peninsula into the 1970s, to the fall of Franco and Salazar. The differences between the Fascist and Nazi regimes are excellently outlined. Had the author dealt more in detail with macroeconomic policies, the similarities between the running of the economy by Fascism and most democratic governments would have become more apparent. Chapter 4, on centrally planned economies, also crosses the World War II threshold to cover the period up to the fall of the Berlin wall. This way of arranging the material compacts the narrative on Eastern Europe, if at the expense of a comparison between and interaction with the market economies west of the river Elbe. Berend takes a balanced approach highlighting not only the shortcomings but also the successes of the centrally planned economies in generating rapid growth, in enhancing education and research as well as in creating a comprehensive welfare state. The reasons that eventually produced increasing inefficiency are highlighted together with the too-little-too-late reform attempts.

The last two chapters are devoted to postwar growth in Western Europe and to the apparent recent globalization challenge to Europe’s economic success. In an interesting departure from most of the recent English-language literature in the field [1], Berend strongly emphasizes the positive role played by the state in the phase of rapid catch-up growth. This is not Eichengreen’s argument about the immediate postwar advantages of coordination, drawing on the long-standing debate on the “varieties of capitalism,” but rather the sheer appreciation of the role played by state-owned companies in technology transfer, infrastructure building, and trend setting in industrial relations. Rehabilitation of the state-run enterprise in most contexts during the 1950s and 1960s is worth pursuing by economic historians provided, however, that the explanation of its early success is matched by a consistent account of its most recent failure. The last chapter, covering the 1970s to the 1990s, does not take up the challenge. This chapter is the one I find least convincing. In particular, I have three main disagreements with the treatment of the period. (i) One finds it difficult to agree with Berend that [in 1973] “the seemingly ‘endless’ prosperity [of Europe] came to an abrupt halt” (p. 280). This may possibly be true for the centrally planned economies, but Western Europe continued to catch up with the United States in GDP per capita and in output per hour worked, which around 1990 was about equal on the two sides of the Atlantic. Within-Europe convergence also continued. (ii) World-wide divergence in across-county income distribution became less rather than more polarized from the 1980s onward. (iii) The final section on Europe as a rising superpower neglects the huge debate on the reasons for the post-1995 new divergence between European and American GDP growth. On the other hand, one would definitely agree with Berend on his harsh judgment about international management of the “transition process”. The “third postwar settlement” of the twentieth century that took place after the end of the Cold War resembled more the ill-fated “first postwar settlement” than the virtuous “second” one.

When compacting into a single book such a long and eventful history as that of twentieth-century Europe, an author knows beforehand that he will not satisfy in detail any of his colleagues working in the field. I am sure that Ivan Berend nurtured no illusion in that respect. Yet, for all the things that I would have liked to have seen covered differently, this is a fascinating book commending high admiration for the breadth of the material covered (in several languages), for the clarity of presentation (a flowing prose is coupled with simple graphs, interesting boxes, a good bibliography and index) and, most of all, for the novelty of the approach which, as I said at the beginning, draws from the author’s personal perspective at the edge of Western and Eastern Europe. Nowhere else has history been as rich and contradictory as in the Old Continent during the twentieth century. Wars, depression, rapid growth, ideologies of all kinds, changing social and political regimes, the abyss of human depravation and the creation of the most humane and socially inclusive society ever seen in the history of mankind: all this and more was compacted in twentieth-century Europe. Berend succeeds in offering an engaging perspective into this enormous variety of situations, abrupt changes and reverses. This is precisely the mark of the great historian.

Note:

1. Two freshly-published excellent books are: Barry Eichengreen, The European Economy since 1945 (Princeton University Press, 2007) and Larry Neal, The Economics of Europe and the European Union (Cambridge University Press, 2007).

Gianni Toniolo’s most recent books are The Global Economy in the 1990s: A Long-run Perspective (Cambridge University Press, 2006), which he edited with Paul Rhode; and Central Bank Cooperation at the Bank for International Settlements (Cambridge University Press, 2005).

Subject(s):Economywide Country Studies and Comparative History
Geographic Area(s):Europe
Time Period(s):20th Century: WWII and post-WWII

Lever of Empire: The International Gold Standard and the Crisis of Liberalism in Prewar Japan

Author(s):Metzler, Mark
Reviewer(s):White, Eugene N.

Published by EH.NET (January 2007)

Mark Metzler, Lever of Empire: The International Gold Standard and the Crisis of Liberalism in Prewar Japan. Berkeley: University of California Press, 2006. xxii + 370 pp. $50 (cloth), ISBN: 0-520-24420-6.

Reviewed for EH.NET by Eugene N. White, Department of Economics, Rutgers University.

Drawing extensively on archival sources, University of Texas professor Mark Metzler provides a detailed history of Japan’s experience with the gold standard. Japan’s interwar quest to return to gold is instructive not only as a policy problem but also because it was a key issue in Japan’s struggle over whether to join a liberal global economy or build a state-controlled empire.

Following Germany’s example after the Franco-Prussian War of extracting reparations to facilitate a move to the gold standard, Japan gained the needed reserves after the Sino-Japanese War of 1894-1895 yielded an indemnity from China. Whether the gold standard offered a nation a seal of good housekeeping when it sought to borrow abroad is currently hotly debated. For Japan, Metzler shows that moving to gold was considered as vital to gaining access to Western capital markets. But empire and gold went hand in hand. To prevent Russian dominance of Korea, Britain signed an alliance with Japan in 1902 that recognized Japanese interest in Korea, after which the British Foreign Office supported the sale of Japanese bonds in London. Japan had equal success on Wall Street, where a critical role was played by Jacob Schiff of Kuhn, Loeb who was eager to see anti-Semitic Russia (and the Morgan bank) defeated. As a result 40 percent of the 1904-1905 Russo-Japanese war was funded with overseas borrowing.

While conquest and the gold standard marched together up to this point, they now pulled Japan in opposite directions. Military-industrial interests wanted to increase government spending, while those committed to the gold standard pressed for balancing the budget and husbanding resources to pay the foreign debt. Metzler translates the two competing policies (sekkyoku seisaku and sh?kyoku seisaku) as “positive” and “negative” policies, suggesting that they represented Keynesian and monetarist approaches. Better translations would be “active” and “passive” policy, which reflected the expansionary imperialist program and the “rules of the game” followed by a liberal state. Two dramatis personae occupied center stage in this battle: Inoue Junnosuke (finance minister and governor of the Bank of Japan) and Takahashi Korekiyo (vice governor of the Bank of Japan, finance minister and prime minister) who respectively campaigned for classic liberal and expansionary economic polices.

By declaring war against Germany in 1914, Japan easily seized German concessions in China. Emboldened, Japan attempted to gain hegemony, issuing the infamous but unsuccessful “Twenty-One Demands” to the Chinese government. The war cost relatively little and created extraordinary export opportunities. The trade surplus led to an inrush of gold, producing a monetary expansion and inflation, and Japan only exited the gold standard after the U.S. embargoed gold exports in 1917.

The worldwide postwar boom was amplified by “positive” policies pursued by finance minister Takahashi who saw an opportunity for Japan to catch up. The government floated new bonds to finance military spending, notably the anti-Bolshevik Siberian expedition. Warning about the dangers of a speculation boom, governor of the Bank of Japan Inoue, lobbied the cabinet to lift the gold embargo. When the Bank of Japan was permitted to raise interest rates in 1919, the boom came to a resounding end with a stock market crash and bank runs.

The battered economy never truly recovered in the 1920s. A gold standard at the prewar parity was a distant goal because postwar deflation was insufficient. Although volatile, the yen was often 20% below its prewar value. A key problem that worsened with time was the Japanese military’s political independence, which made budget cuts difficult. Fiscal policy was loose, but the Bank of Japan kept its key rate over 8% from 1919 to 1925. Chances of an early return to gold ended with the great 1923 Kant? earthquake that devastated Tokyo and Yokohama. The Bank of Japan provided massive credits to banks. Rolled over year after year, they added to the bad loans from the collapse of the postwar boom, undermining the solvency of the banking system.

After Britain’s return to gold in 1925, the government hoped to follow and began a retrenchment in 1926. The costs of an appreciating yen proved to be very high, wounding export industries. When the finance minister moved to clean up the banking system, a storm erupted in Parliament over the disclosure of weak banks. Rumors swirled, setting off a severe panic in 1927, in which 36 banks with 9% of deposits closed. The government fell, and Takahasi returned to the finance ministry, where he halted retrenchment and allowed the yen to depreciate.

Yet by 1929, a new government concluded that a restoration of the gold standard was necessary as Japan’s foreign loans were coming due and needed to be refinanced. Assistance came from the House of Morgan led by Thomas Lamont. An enthusiastic supporter of (some would say, apologist for) Japan, Lamont demanded a “thorough-going” deflation and an end to the government’s “extravagance.” He supported Inoue for whom a return to gold was a matter of honor. The government began an extraordinary campaign, exhorting people to give up unneeded luxuries; and a propaganda pamphlet was distributed to almost every household. Movies and popular songs promoted the government’s plan. The “Retrenchment Ditty,” a movie theme song, entreated the public: Let’s retrench, let’s retrench?..

You give up salt, I’ll give up tea isn’t it so? Lifting the gold embargo (that’s right absolutely) until the joyful lifting of the embargo.

In spite of the 1929 stock market crash a Morgan-led group of banks provided a $25 million loan (to which London added ?5 million) for a cushion of reserves that enabled Japan to lift the gold embargo on January 11, 1930. An overvalued yen caused gold to flow out, yielding a 25% decline in prices. The effects were wrenching. Wage cuts spread across industry, followed by strikes and rising unemployment. Indebted farmers began to fail when world rice and silk prices collapsed. Panics hit the Tokyo stock exchange in April and September 1930.

Whatever control the government had over the military was lost in 1931 when faked Chinese sabotage on the South Manchurian Railway allowed the army to attack China. After Britain abandoned gold in September 1931, a run on the yen began. Inoue tried to stop it by raising interest rates. For his efforts to restrain military spending, he was assassinated in 1932 by a member of the right-wing Blood Pledge Corps. Back at the finance ministry, Takahashi took the yen off gold in December 1931. Budget deficits were financed with money creation; but when inflation picked up, he tried to cut the military budget in 1936. Wrathful ultranationalist officers shot and hacked the 82-year-old finance minister to death in his bed. Gearing up for war, the army’s general staff drafted a five-year plan in 1937 that buried what remained of the liberal economy.

Metzler’s book provides a solid, nuanced and depressing account of the failure of the interwar gold standard in Japan. One can only speculate that had Japan returned to gold at less than its prewar value, the country could have avoided the wrenching deflation that radicalized the public and produced allies for the fanatics promoting imperial expansion.

Eugene N. White is professor of economics at Rutgers University and a NBER research associate. His most recent publication is “Bubbles and Busts: The 1990s in the Mirror of the 1920s,” in G. Toniolo and P. Rhode, editors, The Global Economy in the 1990s: A Long-run Perspective (Cambridge University Press, 2006). He is currently writing on war finance and the microstructure of the NYSE and the Paris Bourse.

Subject(s):Military and War
Geographic Area(s):Asia
Time Period(s):20th Century: Pre WWII

Central Bank Cooperation at the Bank for International Settlements, 1930-1973

Author(s):Toniolo, Gianni
Reviewer(s):Wood, Geoffrey

Published by EH.NET (October 2005)

Gianni Toniolo (with the assistance of Piet Clement), Central Bank Cooperation at the Bank for International Settlements, 1930-1973. Cambridge: Cambridge University Press, 2005. xxii + 729 pp. $125 (cloth), ISBN: 0-521-84551-3.

Reviewed for EH.NET by Geoffrey Wood, Faculty of Finance, Cass Business School, London.

This book covers the history of the Bank of International Settlements (BIS) from its birth in 1930 to 1973, a date determined by the thirty year rule. There is, before the historical study proper starts, a fascinating opening chapter which very briefly describes international monetary systems between 1870 and 1973, discusses what central bank cooperation can mean, and reviews that cooperation under the classical gold standard and for the years 1914 to 1922, as well as setting out “A BIS View of Cooperation.” Let it be said immediately that this is a useful and interesting book. It is also very detailed, and, except for the specialist, for dipping into rather than cover to cover reading. (Friedman and Schwartz’s Monetary History of the United States, which covers a much bigger subject over a much longer period, is longer by only 131 pages.) Its length and detail do, however, make it essential for the specialist.

What would a reader of it learn? It is in twelve chapters, ordered, after the first, chronologically, the breaks determined by key events such as exchange rate regime changes. There are also five appendices, and, absolutely essential to understanding, a list of acronyms – of which there are many.

The chapters deal with the planning for and birth of the BIS; its organization; and then into rough waters, with 1931. The next three chapters cover the discussions after the collapse of the international gold standard; actions between the end of gold and the start of war; and wartime. Then of course comes Bretton Woods and its long aftermath –multilateral payments, convertibility, and the “Patching Up” (Toniolo’s apt phrase) of the 1960s. Finally comes monetary union and the move of the BIS into being concerned with financial stability.

There is something, then, for almost everyone with an interest in monetary, or international financial, history. The book is plainly comprehensive. Is it good? Obviously Toniolo’s reputation leads one to expect so — but a check is always useful, and I first carried out that check by looking at chapter five, which is on a period on which I have worked fairly recently, and at chapter one, where the issue of defining cooperation is considered. As that strikes me as not altogether straightforward I wanted to see what Toniolo made of it.

The difficulty was highlighted by the opening of the preface. Toniolo reports his experience of a heavy snow storm in North Carolina cutting off electricity over a wide area, and, noting next how the payments system also depends on cooperation among many individuals, leads on to a discussion of the importance of cooperation over a wide area of economic life and then to how central banks have cooperated. Now, I think that is to confuse two quite different things. The first two cases are examples, complicated ones admittedly, of the kind of self interested actions that were identified by Adam Smith as bringing us “our beef, our beer, and our bread.” Central bank cooperation is different in kind, for it involves action to produce mutually beneficial results when there are no markets to facilitate this outcome.

Did the BIS understand cooperation in this way? If not, what did it understand by the term? What did it do? And what did it facilitate being done? We get answers to these questions in the course of the book. Indeed, we get the answers to the first two questions on pages 2 to 5, where the BIS Annual Report for 1935 is examined. The answers suggest an ambitious definition and an equally ambitious agenda. Central Banks should develop a common body of monetary doctrine, understand each other’s difficulties, learn how to avoid doing harm to each other, gather and exchange monetary and economic data, improve central bank practice in a “wide range of technical matters,” assist the creation of new central banks and aid small ones, and work out technical improvements to the international monetary system.

It is striking how much of that has actually been pursued. Indeed, the only area where progress has been entirely absent is the first, where few central banks have trod — or in some cases even shown any interest. Toniolo in the “historical” chapters describes much of what was done in these other areas, and how the BIS tried to help. But before leaving chapter one it must be noted that he makes interesting and instructive use of political science writing, such as that of Keohane, on the conditions necessary for successful cooperation, observing that it explains, for example, the difficulties of cooperation during the “insecure interwar years.” He is, I think, less persuasive in his brief use of game theory literature, for he uses it to explain why cooperation is needed to deal with “major single shocks.” I do not see why these cannot be dealt with by a set of prearranged rules or conventions, just as domestic lender of last resort operations can deal with domestic crises. But that is a minor criticism of an interesting and useful ground clearing chapter.

Of Chapter Five, which covers the end of the international gold standard and events immediately subsequent up to the London Conference and the German transfer crisis of 1933, there can be nothing but praise. It avoids the overdramatic melancholy that so often afflicts British accounts of Britain’s departure from gold, is full of fascinating detail, including Norman’s absence at sea at the crucial time, and also manages to convey how the world was sliding into autarchy and political disaster.

I learned much from the chapter on the BIS in wartime; I encountered material completely new to me in the account of how the BIS survived Bretton Woods; and, in chapter 10 started to achieve, I think, a grasp of the tangled and vague notion of convertibility. There was no chapter from which I did not learn something, and that holds even for chapter 12, which covers “Monetary Union and Financial Stability.” Both of these topics, European monetary union, in particular the Werner plan, and the stability implications of Eurocurrency markets, are areas where I have been involved both as a researcher and as a worker on policy, and even here I learned — not only some fresh perspectives, but also facts new to me.

Where the book disappoints is its lack of analysis. How much of what has been achieved in areas of concern to the BIS was achieved because of the BIS? When was it necessary, when helpful, and when irrelevant? Are all the objectives it set out to attain actually desirable?

These are important issues. The book does not resolve them, but it does unambiguously provide an abundance of material to help do so. It is tempting to conclude by saying that the only thing which stops me recommending this book to every monetary historian is that many would lack the strength to lift it, but that would be to treat with excessive levity a massive and skilled work of historical scholarship. We should all be grateful to Toniolo for by his efforts providing us with the material to address a large number of important questions, and for embedding that material in a useful and informative historical narrative.

Geoffrey Wood’s next book is Studies in the Lender of Last Resort, with Forrest Capie, to be published by Routledge in late 2005. He has just published, with Forrest Capie and Terry Mills, a study of the hedging properties of gold. He is currently working on a comparative study of four financial crises.

Subject(s):Financial Markets, Financial Institutions, and Monetary History
Geographic Area(s):General, International, or Comparative
Time Period(s):20th Century: WWII and post-WWII

Exceptionalism and Industrialisation: Britain and Its European Rivals, 1688-1815

Author(s):De la Escosura, Leandro Prados
Reviewer(s):Clark, Gregory

Published by EH.NET (October 2005)

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Leandro Prados de la Escosura, editor, Exceptionalism and Industrialisation: Britain and Its European Rivals, 1688-1815. Cambridge: Cambridge University Press, 2004. xv + 335 pp., $90 (hardcover), ISBN: 0-521-79304-1.

Reviewed for EH.NET by Gregory Clark, Department of Economics, University of California, Davis and Fellow, Wissenschaftskolleg zu Berlin.

This book, edited by Leandro Prados of Carlos III, Madrid, is a Festschrift for the well-known English economic historian Patrick O’Brien, the papers for which originated in a conference held in his honor in Madrid in 2001. The contributors include Robert Allen, Daniel Baugh, Richard Bonney, Forrest Capie, Nick Crafts, Stanley Engerman, Javier Cuenca Esteban, Rainer Fremdling, Knick Harley, Christine MacLeod, Larry Neal, James Simpson, James Thompson, and Gianni Toniolo.

“When traveling should you eat the local specialties?” A widely circulated economic theorem in the U.S. asserts “No.” If the local specialty was any good, it would be available everywhere. (This perhaps explains why American economists have an international, and not just a national, reputation for dullness.) There is a lesser known corollary amongst academics which similarly answers “Should you read Festschrifts?” with “No, anything good in them is available elsewhere.” Given the incentives of academic life, contributors to Festschrifts have an unfortunate motive to deliver what is on the menu else where, or to offer from the larder something that for good reason has been long lying on the bottom shelf untouched.

It is thus a mark of the esteem with which Patrick O’Brien is held by his students and colleagues that this volume, though of variable quality, contains interesting pieces of original research that are unique to this outlet. The thirteen contributions each give at least lip service to detailing what allowed Britain to achieve the great lead in industrialization by 1815. But the diversity of answers reveals once again just how mysterious the Industrial Revolution is, and how little hope there seems at present of a convincing answer to the questions “Why Britain? Why 1770?” They are loosely organized into six sections labeled respectively: the origins of British primacy, agriculture and industrialization, technological change, institutions and growth, war and hegemony, and conclusions.

This reviewer found the pieces on agriculture and technology the most informative and thought provoking. Nick Crafts and Knick Harley, for example, employ their computable general equilibrium (CGE) model of the English Industrial Revolution to ask what explains England’s unusually low share of employment in agriculture by 1841? Was it population growth, agricultural productivity gains, or the peculiar institutional structures of English agriculture? Their conclusion vindicates a long held position of Patrick O’Brien and Caglar Kaydar in their 1978 book that England’s advantage lay more in very high labor productivity in agriculture in the nineteenth century than in high industrial labor productivity. Using the CGE model Crafts and Harley argue that had two thirds of English land remained farmed by peasant farmers, as they assume for 1770, then the share of labor in agriculture in 1841 would have been 47% instead of 22%. The reason this assumption has such a large effect on employment in agriculture is that it would imply that two thirds of all land rents in 1841 were allocated to subsidizing workers to stay in agriculture.

This conclusion seems, to say the least, a little suspect. Already by 1770 English farmland was mainly owned by large owners and rented out for cash rents at market rates to cultivators, who paid the rents to the landlords, not to surplus relatives with low value to their labor time on the farm. And there are strong indications that labor productivity in English agriculture was already high by 1770 by European standards before the Industrial Revolution was under way. But agree or disagree, anyone interested in these issues will want to read this piece.

James Simpson, in another piece that is original to this volume, also supports the O’Brien/Kaydar hypothesis through a consideration of the details of English agriculture versus that of its continental competitors. This piece again is a fresh perspective on these issues.

There are three essays on the role of technological change. The first of these, by Christine MacLeod, though just a survey of technological developments and their institutional structures in Britain and its competitors is well executed, and is an excellent introduction to the subject. The main conclusion is that, if anything, institutions in France provided more incentives for innovation than those in England in the eighteenth century. The other articles in this section by James Thompson and Rainer Fremdling, while not uninteresting, seemed to get lost in the details of the innovations discussed and forget the larger question “Why was Britain different?”

The sections on institutions and war were less rewarding. Another version of the “restaurant theorem” above is the following. “Can local institutions explain the success of particular economies? No, because if any local institution was particularly valuable it would have been copied everywhere.” The authors of these sections seem not to have taken on board this maxim, and attribute wonderful powers to the most mundane institutional differences.

Every institutional difference between England and less successful economies is taken as evidence of the true power and wonder of institutions. No matter how trivial these differences might appear, or how little theory there is in advance of what Industrial Revolution producing institutions look like, the writers have faith they matter. Money, banks, government bonds, taxes, naval organization – did any of these make the British Industrial Revolution? To a skeptic it all seems on a par with those fervent believers who see Weeping Madonnas in tree stumps. But with belief every institution becomes wondrous, and the power of institutions is manifest in every detail of ordinary life.

Gregory Clark is author of “Human Capital, Fertility, and the Industrial Revolution,” Journal of the European Economic Association 3 (2005), and “The Condition of the Working-Class in England, 1209-2004,” Journal of Political Economy (forthcoming, December, 2005).

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Subject(s):Industry: Manufacturing and Construction
Geographic Area(s):Europe
Time Period(s):19th Century

The German Economy during the Nineteenth Century

Author(s):Pierenkemper, Toni
Tilly, Richard H.
Reviewer(s):Guinnane, Timothy W.

Published by EH.NET (September 2004)

Toni Pierenkemper and Richard H. Tilly, The German Economy during the Nineteenth Century. New York: Berghahn, 2004. xvi + 176 pp. $65 (hardback), ISBN: 1-57181-063-3; $22.50 (paperback), ISBN: 1-57181-689-5.

Reviewed for EH.NET by Timothy W. Guinnane, Department of Economics, Yale University.

Most universities in English-speaking countries teach courses on the economic history of “Europe,” but as we all know, those courses tend to focus heavily on Britain. There are a number of sound reasons for this, including the fact that Britain had the first industrial revolution, and thus has valid claim to priority in courses that focus on industrialization and its aftermath. But another reason is purely linguistic: few students in English-speaking countries know another language well enough to cope with readings assigned in that language. Until recently most economic history of Continental European countries was published in the native language, rightly enough, and it will take a while for the new, English-language research to filter through to useful textbook-level treatments. Thus general accounts written in English and meant for students tend to dated even when they first appear. Even faculty with competence in one or more foreign languages must shape their courses around this constraint.

One particularly egregious example of this problem has always been Germany. For many themes in economic history, Germany provides either a useful contrast to the British experience (for example, banking systems), or illuminates an issue that does not really arise in the British case (for example, the consequences of economic unification). Given the size and dynamism of the German economy in the nineteenth century, economic historians have always known in some sense that its experience was very important, and have tried to include it in their courses. But limitation to English-language readings (whether originals or in translation) posed serious problems. There are a few chapters and a few good textbooks, but they have tended to be so dated as to have missed important revisions in central themes in economic history. Some of the best, recent general economic histories have unfortunately never been translated.

Some of these revisions go to the heart of what we “know” about Germany’s economic history. For most English-speaking scholars, Alexander Gerschenkron’s work cast a powerful influence, as it well should. But there is a tendency to take his claims as authoritative in a way they no longer are, which means there is an increasing gap between the research literature on German economic history and what is taught to students elsewhere. The work of Richard Tilly and others, for example, requires serious modification of Gerschenkron’s vision of large banks that at once cradled new firms and bullied old ones.1 Gerschenkron’s remarks about the role of the state in German economic development have also not worn well. We could draw other examples from industrial organization, the role of agricultural tariffs, etc. The point is that it is high time for a new, serious survey of Germany’s economic history in the nineteenth century.

Pierenkemper and Tilly’s volume fits the bill precisely. Pierenkemper began the volume after visiting Georgetown University as the Konrad Adenauer Professor. At some level, then, it is designed around the needs of an undergraduate course at one of the selective private U.S. universities. Tilly, who was Pierenkemper’s Doktorvater, or advisor (Dear Paul: no), joined forces later, and the result is a serious, comprehensive work that covers the major themes and integrates the results of recent research in a slim, highly readable volume. I especially appreciate two features of the book. Its discussion of the role of the state in German economic development transcends old stereotypes partly because it is more accurate (the German government did not build the railroad system, it nationalized the system once built) but moreso because the authors taker a broader view of the state and its actions. The book also includes two chapters on the author’s subjects of specialization — Tilly on money and banking, and Pierenkemper on entrepreneurship — and here the work really sings. The two scholars are research leaders in their respective fields, and these chapters successfully blend a serious view with the need to keep things simple for the audience. Much of the material underlying Pierenkemper’s chapter in particular has never made it into English. The book concludes with an 11-page select bibliography that will keep even the most energetic students busy with research papers and senior theses.

The German Economy in the Nineteenth Century is an excellent synthesis that fills an important gap in the literature useful for teaching undergraduates. The discussion is both sophisticated and clear, so it could be used in a wide range of undergraduate settings. I also highly recommend it as a supplementary work for graduate students and to anyone looking for an entry into the economic history of this large and important country. Pierenkemper and Tilly have done us all a great service.

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For those interested, here is an admittedly idiosyncratic overview of the major synthetic works suitable for advanced undergraduates or graduate students that focus on Germany in the period 1750-1914 or so. Where possible I cite the English version of the work, although some were originally written in German. This sketch is deliberately limited to works that either focus primarily on Germany, or that have discussions of German issues embedded in useful comparative discussions. I also omit some fine studies that focus on a particular issue, such as money and finance. I suspect I have unintentionally omitted something important. If you or your advisor were the author of that work, please accept my apologies without actually demanding the apology!

Arnold Publishers has recently published a three-volume economic and social history of Germany that is similar in spirit to the Floud and McCloskey volumes on Britain. The work consists of thematic chapters written by specialists in various aspects of German economic and social history. The level of difficulty is appropriate to top U.S. undergraduates as well as graduate students and interested scholars from other fields. Compared to the Pierenkemper and Tilly volume, the chapters do less economic but more social and demographic history. The third and final volume, which covers 1800-present, is Ogilvie and Overy (2003). (Full disclosure: I have a chapter in this volume.) A very stimulating if somewhat quirky recent work was written in French and to my knowledge was never translated into either German or English (Hau 1994). Pollard’s (1981)’s emphasis on regions rather than nation-states makes the relevant portions of his book especially useful. He was also, as a professor in Germany, very well-acquainted with the German-language literature of the time. Landes (1969) has been to my mind shown wrong on a number of points, but for sheer scope and vision there remains little that can challenge it. Milward and Saul (1979) was written for a general course in European economic history, and includes very useful short bibliographies after each chapter. Yale undergraduates quite like Borchardt (1973), not least for his bold, quick sketches of important positions. Henderson (1967, 1975) were intended for undergraduate courses, and their only serious drawback is being out of date. I should also mention Sylla and Toniolo (1991). This volume has a fine chapter by Tilly on Germany, and because it is shaped around Alexander Gerschenkron’s claims, much of the synthetic chapters also deal with Germany. One more volume is worth mentioning for those who read German. Tilly (1990)’s short work is a thoughtful and sophisticated account, and while focused on Germany benefits from a broader comparative understanding.

References to other works:

Borchardt, Knut, 1973. “Germany 1700-1914.” In Carlo M. Cipolla, editor, The Fontana Economic History of Europe: The Emergence of Industrial Societies, Part One. London: Fontana.

Hau, Michel, 1994. Histoire ?conomique de l’Allemagne: XIX-XXe si?cles. Paris: Economica.

Henderson, W.O., 1967. The Industrial Revolution on the Continent: Germany, France, Russia 1800-1914. Second edition. London: Frank Cass and Company.

Henderson, W. O., 1975. The Rise of German Industrial Power, 1834-1914. Berkeley: University of California Press.

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

Milward, Alan S., and S.B. Saul, 1979. The Economic Development of Continental Europe, 1780-1870. Second edition. London: George Allen & Unwin.

Ogilvie, Sheilagh, and Richard Overy, 2003. Germany: A New Economic and Social History (Volume 3: Since 1800). London: Arnold.

Pollard, Syndey, 1981. The Peaceful Conquest: The Industrialization of Europe 1760-1970. New York: Oxford University Press.

Sylla, Richard and Gianni Toniolo, 1991. Patterns of European Industrialization: The nineteenth Century. London and New York: Routledge.

Tilly, Richard, 1990. Vom Zollverein zum Industriestaat: Die wirtschaftlich-soziale Entwicklung Deutschlands 1834 bis 1914. Munich: DTV.

Note:

1. For more on this, see my article in the Journal of Economic Literature listed below.

Timothy W. Guinnane is professor of economics and history at Yale University. His recent publications include “A ‘Friend and Advisor': External Auditing and Confidence in Germany’s Credit Cooperatives, 1889-1914,” Business History Review, 2003; “Delegated Monitors, Large and Small: Germany’s Banking System, 1800-1914,” Journal of Economic Literature, 2002; and “Fertility Transition in a Rural, Catholic Population: Bavaria, 1880-1910″ (with John C. Brown), Population Studies, 2002.

Subject(s):Economywide Country Studies and Comparative History
Geographic Area(s):Europe
Time Period(s):19th Century

The Economic Future in Historical Perspective

Author(s):David, Paul A.
Thomas, Mark P.
Reviewer(s):Coelho, Philip R. P.

Published by EH.NET (June 2004)

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Paul A. David and Mark P. Thomas, editors, The Economic Future in Historical Perspective. Oxford: Oxford University Press, 2003. xvi + 528 pp. $74 (hardcover), ISBN: 0-19-726237-6.

Reviewed for EH.NET by Philip R. P. Coelho, Department of Economics, Ball State University.

This book is a compilation of seventeen different papers written by twenty-six authors; the collected works were presented at a symposium convened to honor Charles H. Feinstein prior to his retirement as the Chichele Professor of Economic History at the University of Oxford. The essays are gathered into three broad categories proceeded by editorial comments that can be quite extensive. The three parts of the volume are: 1) “Drivers of Long-Term Economic Growth”; 2) “Changes in Economic Regimes and Ideologies”; and 3) “Welfare, Well-being, and Personal Economic Security.”

The overviews by the editors, Paul David and Mark Thomas, are both thought-provoking and frustrating. Thought-provoking because they do touch upon relevant issues, frustrating because they are opaque and deliberately refuse to evaluate arguments and render judgment. In their initial “Introduction,” the editors present a defense of economic history and a methodological review of equilibrium and path dependence. They defend the utility of economic history as a way “… of researching the past deliberately for the purpose of better informing future policy analyses” (p. 6). Yet they stress (p. 8) “the significance of specific institutional details” and “the timing of exogenous events” as being crucial in determining outcomes. I think economic history would be better served by stressing the commonalities of historical episodes and using the exceptional circumstances to explain confounding predictions. We use economic analysis to elucidate history because all societies at all times face fundamental economic problems that are amenable to rational analysis. What decisions are made and how they are made have effects both direct and indirect (feedback). Consequently, I am at a loss to explain what economic history is if it is not primarily about the application of economic analysis to history. The editors think otherwise (p. 10).

The editorial comments on path dependency are meant to deflect critics of economic history who argue that history is not relevant to the analysis of contemporary problems. The editors devote too much space to the defense of history to take the argument seriously. The critics of history, to be credible must know history and the analysis before their criticism can be credible; they do not, so their criticisms are uninformed.

The study of history is based on the premise that to understand the present it is necessary to have knowledge of the past. The resources and institutions that we have are legacies from the past; understanding them is crucial to any analysis of contemporary problems. Our species, H. Sapiens, is a social one; society, social norms and attitudes are a result of a series of interactions taken in the past. To argue that history, the path taken, does not affect the present, and will not affect the future is not credible. A more pertinent and insightful question concerning the importance of history is: How much does the past matter? The answer depends upon the particulars of the question and the historical circumstances. The past matters a great deal when assessing rates of return to competing investments in Denmark or Afghanistan, but it matters much less in a similar comparison between Denmark or Finland. The legacy of the past affects contemporaneous societies, but it does not condemn them to a predetermined future path. Societies do change, and the changes do affect their abilities to produce economic goods and services. Will these changes be beneficial or detrimental? An honest answer is that we do not know; that is why we do history and study current events.

The editorial discussion on equilibrium analysis is derivative from their discussion of history and path dependency. I believe that their discussion (and most discussions) of equilibria are fundamentally flawed. Equilibrium analysis, like supply and demand, is a way of organizing our thinking; equilibria are not observable phenomena. Restating it, equilibria have no physical presence; they can not be captured, observed, nor unambiguously defined and identified. Since they have no physical existence, proving equilibria exist, or are stable, is akin to proving that Superman can thrash Captain Marvel. “Proofs” of mathematical stability (or theorems) are mathematical exercises testing the internal consistency of mathematical descriptions. They are that, and just that; they should not be confused with incontrovertible evidence, which is another (and more commonly used) meaning of the word “proof.” The mathematical proof of the instability of a system, in and by itself, has no significance to economic reality or policy. To have any relevance to the world in which we live and work, the instability of a system has to be: 1) quantified (how unstable), and 2) its actual temporal sequence has to be predictable in real time. Deidre McCloskey made the point that there is a distinction between statistical and economic significance; to be economically significant, a statistically significance variable has to be large enough to have a meaningful impact on the specified functional relationship. Similarly, if a system is identified as mathematically unstable we have to predict not only how unstable, but its path in real time before we can assess its economic significance. More succinctly, in addition to McCloskey’s how much, we have to know how soon. Suppose that the mathematical model of our economy is unambiguously shown to be unstable, increasingly cyclical, and predicted to have a cataclysmic explosion (implosion). If the cataclysmic event is predicted to take place a thousand centuries from the present, will it have any measurable effects upon human behavior during the next ten generations? Rational economic behavior gives vanishingly small weights to economic events expected to take place a hundred years from now, and virtually none to events predicted to take place 100,000 years from the present. This means that without further information, the existence or non-existence of equilibria and whether they are stable or not, are questions that may concern mathematicians, but, by themselves are irrelevant to policy makers, economists, and historians. Nevertheless, the editors seem to be mesmerized by the importance of the methodological underpinnings of equilibria and path dependent analyses. And I, too, have devoted too much space to them.

The first essay in Part 1 is by Jan De Vries. He gives a very good summary of his thesis of an industrious revolution and how it affected economic growth. He argues that people working harder were the reasons for economic growth before the industrial revolution (pp. 48-51). He recognizes (p. 53) that work intensification may be the result of better nutrition; thus, rather than the cause of higher living standards, it could have been a result of economic growth. De Vries has a very interesting section summarizing how European consumption changed in the eighteenth century. Readers of this volume would to well to read De Vries’ essay in conjunction with Avner Offer’s essay (Chapter 12) on alternative measures of economic well-being. The juxtaposition illuminates both.

Jane Humphries has an interesting piece on apprenticeship. However the essay raises some issues that should be clarified; “In a competitive economy with no market imperfections workers invest in and firms provide efficient levels of general training.” (p. 81) The imperfections are unmentioned; if “market imperfections” include the cost of transaction and enforcement, then this is a restatement of the Coase Theorem. If it means something else, it should be clarified. Humphries provides a wealth of details, but the framework tying them together and quantifying the importance of apprenticeship programs is nebulous. She argues that the apprenticeship program was relatively benevolent, efficient and significant in providing England with skilled workers before the Industrial Revolution. She also believes that legislation, rather than codifying behavior, was instrumental in changing it, and necessary for the establishment of apprenticeships.

Stephen Broadberry’s essay on “Human Capital” is a comparative history of the growth of productivity in Germany, the United States, and the Britain. The essay summarizes his published works. It is a comprehensive essay continuing to the present. This causes a slight problem because he states that aggregate productivity in Britain is behind that of Germany and the United States, yet the last data (2004) released had Britain exceeding Germany’s per capita output. In identifying the contributions of “skills,” “capital,” and the “residual” to the differential in labor productivities (Tables 11 and 12) between Britain, and the United States and Germany, the “residual” is typically the largest single explanatory variable. In some observations the residual has the largest absolute contribution and is negative; this does not inspire confidence.

In “General Purpose Technologies” Paul David and Gavin Wright argue that sporadic surges in productivity are typically part of the economic landscape. Surges can be attributed to the adoption of a technology that has a myriad of facets, and affects many different productive activities. Their study emphasizes American electrification in the early twentieth century. They suggest the decline in the capital-output ratio that occurred in the period 1924-37 was attributable to electrification, and that it had a similar impact in other countries. The evidence is not entirely convincing; if wages were falling relative to capital prices, then rational behavior would substitute labor for capital. In the 1930s the decline in the capital-output ratio may have been a result of declining wages, rather than a productivity surge.

Nick Von Tunzelmann’s essay on “Technological Systems” concludes Part 1. It is not clear what he is attempting and he admits that his paper is “a start on trying to affect a union between such strange bedfellows” (p. 167). They may or may not be strange, but they are certainly not well identified. He argues innovation depends more on “knowledge rather than information,” (p. 168) where knowledge is uncodified, and information is available through the market. This dichotomy is simply asserted. His essay touches on a variety of subjects and countries that may have a relation to one another, but the relationships are not apparent. He does make some remarkable assertions; one of which is that late twentieth century America’s “shortcomings in learning production processes were partially solved by removing such processes off shore to cheaper labour countries … cost competitiveness was maintained by downgrading wages rather than upgrading methods” (p. 183). International trade is not his strong suit.

The editorial introduction to Part Two, “Changes in Economic Regimes and Ideologies,” argues that the unifying element in the six essays is how economies react to “shocks” that disrupt established regimes” (p. 197). In “The East Asian Escape” Nicholas Crafts examines and explains the growth of Asian economics in the twentieth century. This essay is valuable for its data and analysis. Part of the explanation for East Asian growth is a “catch-up” (or Gershenkron) effect. Crafts argues that in the developing East Asian economies: 1) the institutional groundwork had to have been in place, and conducive to growth before rapid growth could commence; and 2) their initial institutional endowment does not insure that these countries will, indeed, catch-up. Institutional changes may have to precede further development. The Japanese stagnation of the 1990s certainly supports the need for institutional change.

Christopher Davis and James Foreman-Peck’s essay on the “Russian Transition” in historical perspective makes comparisons between the Russian transition from Communism to the present post-Communist regime, and the United Kingdom from war to peace following the two World Wars. The essay describes the British transition from war to peace after World War I as failing relative to the transition that took place after World War II. Both post-war periods were adversely affected by fixed exchange rate policies. It seems that free-market policies were tried in all markets except the currency markets. The attempt to fix exchange rates after both wars led to severe problems — unemployment post-World War I, and price controls and other restrictions post-World War II. Their discussion of the Russian transition from Communism illuminates a confusing period. However they do not examine the data closely enough. Post-collapse Russian GDP fell substantially, but the fall in consumption per capita was significantly less. One could interpret this as implying that part of the output decline was fictitious because the output was not valued.

Carol Leonard’s article focuses on agricultural policies in Russia from 1861-2000. The details are interesting but the analytic framework is suspect: 1) (paraphrasing pp. 274-75) in the Post-Soviet period there was a misallocation of resources because low world grain prices led labor away from grain production into labor-intensive farming; 2) “After Emancipation, as the state gradually recovered from financial destabilization during the Crimean War, the need for ad hoc taxes grew, especially since Russia lacked a stable currency” (p. 277); and, 3) prior to the Revolution, “preference for the pooling of production resources was common as it was during and after collectivization in Soviet Russia.” (p. 275) Similar statements appear in the essay to its detriment.

Francis Wilson’s essay on South Africa, “Understanding the Past to Reshape the Future,” is marred by exaggeration. Examples are claims that: 1) equate the institutions governing race established in white-ruled South Africa with a “modernized form of slavery” (p. 302); 2) the educational system of white South Africa was designed with the intention of making black South Africans illiterate and innumerate; (p. 311) and 3) “the [labor] system was part of a process that generated poverty whilst simultaneously producing wealth for others” (p. 304). These statements betray a complete indifference to economic analysis; the author knows better, but moral indignation trumps scholarship.

In contrast, Leandro Conte, Gianni Toniolo, and Giovanni Vecchi in “Lessons from Italy’s Monetary Unification,” have a very good, scholarly essay explaining the ins and outs of the adoption of one currency after Italian unification. They do a commendable job describing and explaining the economic integration that occurred after political unification. A difficulty I have with their paper is that when analyzing the unification of labor markets they use nominal wage data. Rational behavior suggests that suppliers of labor respond to real wages, rather than money wages. But it is too much to expect the authors to develop a series of regional price indices on top of what they have done in fourteen pages. Their essay should be required reading on Italian economic and monetary unification.

In the article “Ideology and the Shadow of History,” Barry Eichengreen and Peter Temin argue that: 1) the consensus that the gold standard “turned an ordinary business downturn into the Great Depression” (p. 357) is correct; and 2) the ideology of the gold standard developed such a hold on the mind-set of the times that it prevented economic recovery and was a primal cause of the Great Depression (pp. 358-59). Unfortunately, ideology can not be measured, but if ideology caused policies designed to: 1) hold prices and wages above market clearing levels; 2) reduce real output; 3) increase taxes; 4) reduce world trade; 5) penalize economic success; 6) follow redistributionist policies and, 7) ignore the disastrous effects that governmental policies caused to the monetary and banking systems, then ideology did play an important role in bringing about and prolonging the Great Depression. But sans the policies and with the ideology, the economic history of the 1930’s would have been much brighter; their argument on the primacy of ideology is not persuasive.

The third and final section of the book, “Welfare, Well-being and Individual Economic Security,” starts with an admirable essay by Avner Offer, “Economic Welfare Measurements and Human Well-being.” It reviews the literature on the alternatives to income per capita as a measure of well-being. It is a comprehensive, wide-ranging, and useful guide to anyone who wants an introduction to the alternative measures of well-being. Per capita income is a widely accepted measure of well-being; this is an important reason why alternative measures should be considered. If the Physical Quality of Life Index or the Anthropometric Index give different accounts of changing living standards compared to income per capita, then a closer examination of all the measures is required. When basic economic attributes are changing (as in De Vries’ industrious revolution) less conventional measures of well-being may illuminate issues.

Essay thirteen, Roderick Floud’s “The Human Body in Britain,” fits very well with Offer’s work. It is a comprehensive review of the anthropometric history of Britain. The argument in favor of anthropometric history is that heights at various ages are an accurate gauge of the nutritional intake and exposure to disease, and that these variables are not captured in per capita output data. Furthermore anthropometric data may more accurately reflect the distribution of well-being among classes, ages, and the sexes. The charts and data presented are very interesting, including the revelation that male modern heights and standards were achieved by the birth cohort of 1925. Does this imply that the welfare policies of the post-World War II era had no affect upon British stature? This question explains why some find anthropometrics fascinating.

In chapter 14, “Height and the High Life,” Timothy Leunig and Hans-Joachim Voth continue with anthropometrics; they argue that in the future data on heights in developed countries’ will be less valuable as indicators of well-being because improved living standards will cease to affect heights. There is a biological limit on how tall human beings can be. Poor nutrition, diseases, and injuries can prevent humans from attaining their potential (genetic) height, absent these, increasing nutrition will not increase the maximum attainable stature. They also make an interesting speculation: because Communist regimes emphasized spending on (socialized) medical care and insuring a basic minimum diet, the economic history of the countries in transition from Communism to market oriented societies may show a divergence between anthropometric data and income per capita. Thirty years or so from now we will be able to test this speculation.

Anne Digby and Shelia Ryan Johansson in “Producing Health in Past and Present,” write a wide-ranging overview of medicine and health over the past millennium. Medicine did not extend the lives of elites relative to ordinary people at least to the seventeenth century. In the present day they point out that good health can be acquired at relatively low cost as a number low-income of countries and regions do (p. 454). Their essay concentrates on different systems’ medical delivery in the production of health; they do not place enough emphasis on the impact of non-medical expenditures on health, both past and present. The most cost-effective expenditures per life saved are those on: potable water, waste removal, sewers, sanitary food, and, probably most importantly, education. Ignaz Semmelweiss is widely credited with discovering that high rates of maternal mortality were caused by the unsanitary bodies of medical practitioners. Washing hands with chlorinated water was not high tech in the nineteenth century, but it was effective in reducing sepsis and puerperal fever. Drains and sewers were known in ancient Rome, and when they were employed in the nineteenth century they were highly effective in reducing contagions. Many of the health problems of the twenty-first century can be prevented most cheaply by changing behavior. The incidence of AIDS, venereal infections, pulmonary disease, and cardiovascular diseases can be reduced significantly by at-risk populations changing behaviors. The authors’ discussion of traditional/alternative versus biomedical/scientific medical system is interesting, but, in producing health in the past both systems take a back seat to public health systems.

Peter Solar and Richard Smith in “An Old Poor Law for New Europe?” have written a short synopsis of the English Poor Laws, both Old and New. They contend that: 1) the local oversight was effective and “served the English well” (p. 473) in the administration of the Old Poor Law; and 2) the Industrial Revolution and economic integration led to the more restrictive New Poor Law. The authors make some final comments that are interesting speculations on the effects that the enlargement of the European Union may have upon national welfare systems that differ in benefits delivered.

Mark Thomas and Paul Johnson, in “Paying for Old Age,” have the last chapter of the book. Their paper discusses the financial problems of increased life expectancy. They do an admirable job of laying out the data, and the financial issues facing societies with ageing populations, with one major exception: they ignore the elephant in the room. The “problem” is that people are living longer, and if retirement occurs at 65 (or earlier) the retirees will be unable to support their expenses over their remaining life without increased state expenditures. Increased life expectancy increases the percentage of retirees to the working population. In pay-as-you-go state pension schemes, this creates a severe financial crunch. The obvious solution is to increase the age of retirement. The average person of 65 in today’s developed world is healthier than the person of 55 years of age a century ago. Relative to the 55 year olds of 1904, today’s 65 year olds: 1) have longer life expectancies; 2) are taller and fitter; and 3) have more human capital. Hard physical labor in OECD countries is a small and diminishing percentage of employment. Services are the largest single employment sector and are growing; is there any reason why the providers of services cannot be 68 or even 70? The problem of pensions is a political problem. There is no reason that the retirement age picked by Bismarck in the late nineteenth century should be sacrosanct in the twenty-first century. Politicians whose careers depend upon not saying unpalatable truths have legitimate reasons for avoiding the “elephant,” but I can not understand intellectuals doing so. Increased life expectancies have made the “problem” of retirement at 65; designing solutions to maintain the current retirement age is analogous to finding ways to keep warm when frigid winds are blowing through an open door. It is much simpler to shut the door.

In sum this book has some very nice essays, and some others. Should you purchase it or order it for classes? Graduate courses surveying issues in economic history and policy could use these essays as a framework for discussing issues. For the most part, the essays are broad and wide-ranging; they do provide competent reviews of the current state of their various topics, but the topics (except for anthropometrics in chapters 12-14) are heterogeneous. Whether one does or does not acquire the book depends upon the overlap between the interests of the reader and the book’s topics.

Philip R. P. Coelho has written on and is continuing his study of long-run economic growth and the impact of biology upon economic growth and development; he is currently sidetracked writing on ethical behavior. His articles have been published in the Journal of Economic History, the American Economic Review, Explorations in Economic History, Economic Inquiry and other journals.

Subject(s):Markets and Institutions
Geographic Area(s):General, International, or Comparative
Time Period(s):20th Century: WWII and post-WWII