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Pay for Play: A History of Big-Time College Athletic Reform

Author(s):Smith, Ronald A.
Reviewer(s):Depken, Craig A.

Published by EH.NET (July 2011)

Ronald A. Smith, Pay for Play: A History of Big-Time College Athletic Reform. Champaign, IL: University of Illinois Press, 2011. xii + 344 pp. $30 (paperback), ISBN: 978-0-252-07783-8.

Reviewed for EH.Net by Craig A. Depken II, Department of Economics, University of North Carolina ? Charlotte.

It seems every academic year numerous big-time athletic programs are added to the long list of programs investigated or penalized by the NCAA over the past several decades. In these cases, individual athletes, coaches, boosters, alumni or faculty are often found to have violated one or more of the rules pertaining to amateurism, recruitment, eligibility, or academic preparedness. Why do people continue to violate the NCAA membership agreement when the costs to their affiliated program, if caught and penalized, seem to be increasing over time? In his book Pay for Play: A History of Big Time College Athletic Reform, Ronald A. Smith provides a partial answer to the question: a lack of serious reform. Smith?s extensively researched and well-documented text shows that throughout the history of college athletics there have been only a handful of true champions of reform and they have universally lost to the pressures of professionalization.

The problem of professionalization arose at the very inception of inter-collegiate sport in 1855 as Yale and Harvard wrangled over eligibility of former students in the sport of rowing. Since then amateurism, recruitment, eligibility and academic preparedness have all been the focus of various levels of oversight even while individuals find new ways to circumvent the rules. How best to reform college athletics in order to mitigate the incentives to cheat?

As Smith points out, early in the history of intercollegiate sports, students and faculty provided primary oversight at the institutional level. This period was characterized by so-called ?Home Rule? ? that is, individual institutions dealt with amateurism, recruitment, eligibility and academic preparedness, as well as the professionalization of the coaching ranks. However, systemic reform under Home Rule was nearly impossible because each institution found itself in a prisoners? dilemma: if one institution implemented a reform it might find itself at a competitive disadvantage to those schools that chose not to participate. This coordination problem was somewhat solved by the creation of (what would eventually become) the National Collegiate Athletic Association (NCAA) in 1905. Smith points to the NCAA as a positive development in reform efforts, although it was not created to address recruitment or eligibility issues, per se, but in response to the increasing violence in American football.

However, early in its history the NCAA had no enforcement powers and thus the interwar period was characterized by ever-increasing professionalization. Smith provides in-depth discussions of specific university presidents, such as Frank Graham of the University of North Carolina, and groups of presidents, such as those of the Ivy League schools, who took up the mantle of reform with various levels of success. However, as Smith points out in convincing detail, university presidents find themselves caught in the pincer of advocating reform while often finding it necessary to cheerlead for their school?s athletic programs and turning a blind eye to those who bend the rules.

Despite the solution to the coordination problem the NCAA represented, true reforms to big-time college athletics were sporadic at best through World War II. Smith provides a fascinating read of how fast-and-loose college athletics became during the interwar period leading up to the Sanity Code of the early 1950?s. The story surrounding the failure of the Sanity Code and its implications is one of the more interesting portions of the book. The narrative continues through the NCAA?s evolving enforcement efforts, changes to academic requirements, failures in curbing excesses on the part of a number of schools until the ?Death Penalty? was imposed on Southern Methodist University in 1987, culminating in a discussion of the most recent struggles in dealing with professionalism in college sports.

While Smith?s contribution in terms of a historical text is commendable, he offers suggestions about how long-lasting reform might take place in the future. As mentioned, he is not optimistic that university presidents will provide desired reform because of their inherent conflicts of interest. It is equally unlikely that coaches, students, alumni or boosters will step up to provide credible reform efforts. Smith points to two possible sources of future reform, both of which have made contributions in the past. First is the long-lost faculty oversight. As Smith asserts, the faculty are the only body that is inherently interested in the student athlete qua student and therefore are in the best position to balance athletics and academics. Unfortunately twin problems of free-riding and self-selection would plague this model of reform: those faculty members who are agnostic about sport are unlikely to incur the personal costs required to participate in quality oversight; if the only faculty members willing to incur the personal costs are anti-sport then oversight could become overly ideological.

Smith?s discussion of integration and Title IX highlights one of the major themes of the book: efforts for internal reform of college athletics are rare and half-hearted whereas reforms from the outside, whether from the legislature or the courts, have had substantial and permanent impacts on college athletics. Smith suggests that long-lasting reform might be possible if the broader viewpoint of Congress or the courts is employed. There are substantial reasons for an economist to question whether reform from these sources would be first-best, but Smith?s contribution should be welcomed to the debate by all who are interested and concerned with intercollegiate sports.

Craig A. Depken II is author of over 45 peer-reviewed articles in sports economics, real state, applied microeconomics and industrial organization. He is a regular contributor to collected works, is author of the book Microeconomics Demystified and is a co-editor of Contemporary Economic Policy.

Copyright (c) 2011 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (July 2011). All EH.Net reviews are archived at

Subject(s):Markets and Institutions
Social and Cultural History, including Race, Ethnicity and Gender
Geographic Area(s):North America
Time Period(s):19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII

The Invention of Enterprise: Entrepreneurship from Ancient Mesopotamia to Modern Times

Author(s):Landes, David S.
Mokyr, Joel
Baumol, William J.
Reviewer(s):Blackford, Mansel G.

Published by EH.NET (May 2010)

David S. Landes, Joel Mokyr and William J. Baumol , editors, The Invention of Enterprise: Entrepreneurship from Ancient Mesopotamia to Modern Times. Princeton: Princeton University Press, 2010. xv + 566 pp. $49.50 (hardcover), ISBN: 978-0-691-14370-5.

Reviewed for EH.NET by Mansel G. Blackford, Department of History, Ohio State University.


The second volume published in the Ewing Marion Kauffman Foundation?s Series on Innovation and Entrepreneurship, this collection of eighteen essays explores entrepreneurship, innovation, and economic development in parts of the world from ancient times to the present.? This work, states William J. Baumol, an economist at New York University and one of the study?s editors, was designed to test three basic hypotheses: 1) ?that the practical utilization of inventions? and accompanying economic growth would be lower without the work of entrepreneurs; 2) that ?entrepreneurial activities are not always productive?;? and 3) that ?the direction taken by entrepreneurial activity depends heavily, at any particular time and in any particular society, on the prevailing institutional arrangements? (p. ix).? David Landes, another editor and an economic historian at Harvard University, argues further that ?the countries and regions that have done best are precisely those that have taken advantage of the opportunities offered by active trade and entrepreneurial freedom.?? Those areas, Landes claims, have been mainly in the West, with ?China and the Arabic Middle East? offering ?pungent case studies? of ?resistance to innovation?(p. 2) — surely an outdated assertion.? The essays comprising this volume bear out Baumol?s hypotheses, but not the statements made by Landes.[1]

Six essays investigate preindustrial entrepreneurship and innovation.? Michael Hudson explores the development of entrepreneurship and business enterprises in ancient Mesopotamia (3500-1200 BC), where the association of businesses with public temples and palaces led to a commercial take off.? Many of the business practices first created in Mesopotamia — the use of money, uniform weights and measures, price systems, interest charges, and profit-sharing — Hudson shows, then spread to the Mediterranean world, only to collapse in Roman times.? In an essay on the Neo-Babylonian Empire (626-539 BC), Cornelia Welch looks at family entrepreneurship in agriculture and trade.? Particularly valuable is her case study of the Egibi family, which left an archive of 2,000 cuneiform tablets spanning five generations.? ?The Egibi family represents,? she concludes, ?an outstanding example of Schumpeter?s idea that the main entrepreneurial opportunities for profit or quasi-rent lie in creating new business opportunities.?? The Egibi family had ?far-flung operations? based on a ?marketing plan that integrated agricultural production, tax payments, and the shipment of crops to cities along Babylon?s canal system? (p. 53).? Timur Kuran claims that Islam first spurred entrepreneurship and economic development in the Middle East by creating ?institutions well suited to personal exchange,? but later ?became a source of retardation with the transition to impersonal exchange.?? Islamic institutions, Kuran finds, ?supported small-scale entrepreneurship,? but ?inhibited larger-scale entrepreneurship? (p. 63).? James Murray suggests that the European Middle Ages ?deserve a special place in the history of entrepreneurship,? for by 1500 merchants ?came to direct many of society?s ?productive forces?? (p. 88).? John Munro then examines the ideas of Max Weber and Richard Tawney, about economic development.? He finds that the alterations in mindsets and institutions that Tawney claimed were needed as precursors to industrialization in Great Britain occurred in 1640-1740, not, as Tawney posited, a century earlier.? Oscar Gelderblom defines entrepreneurs broadly as ?not just merchants involved in long-distance trade, but also shipmasters, fishermen, millwrights, farmers, artisans, and shopkeepers,? in arguing for the importance of entrepreneurial actions as the sources of economic development in the Dutch Republic between 1580 and 1650 (p. 156).

Eight essays probe entrepreneurship in Western Europe and the United States during industrial and post-industrial times.? Joel Mokyr, the third editor of this volume and a faculty member in history and economics at Northwestern University and Tel Aviv University, argues for the importance of institutions, especially informal ones such as codes of conduct, as stimuli for entrepreneurship in industrializing Great Britain.? In two jointly authored essays, Mark Casson and Andrew Godley debunk the idea that entrepreneurial failure retarded British economic development in the late-nineteenth and twentieth centuries — a well-worn topic.? They find that entrepreneurs rationally shifted their attentions from manufacturing to infrastructural projects and other undertakings (such as finance) in Great Britain and abroad, in which they were very successful.? Ulrich Wengenroth surveys the ?tortured? history of entrepreneurship in Germany from the early 1800s to the present, emphasizing the roles institutions (including educational ones) played in creating opportunities for innovation.? Pulling no punches, he also looks at anti-Semitism and the unbalanced nature of Germany?s economy, which he concludes became over-industrialized and lacking in service businesses.? Turning to France, Michael Hau presents a picture of varying regional developments and changing roles taken by the national government, concluding that after declining in importance for several decades after World War II ?entrepreneurs have greatly gained in power? in the present day (p. 323).? Louis Cain examines entrepreneurship in the antebellum United States, first exploring innovations in law, finance, and transportation that allowed entrepreneurship to flourish and then describing the processes of industrialization and the diffusion of products to American markets.? Discussing the United States between 1865 and 1920, Naomi Lamoreaux stresses the importance of institutions, including federal and state governments, and big businesses, which encouraged entrepreneurship.? In a particularly wide-ranging essay, Margaret Graham offers a nuanced picture of American entrepreneurship after 1920, looking at the varied roles played by people in companies of all sizes and in many sectors of the economy.

Three essays and a short conclusion complete the volume.? Susan Wolcott examines supplies of financial credit, especially ?informal? types, available to entrepreneurs in Colonial India.? She addresses issues about economic growth in India from the 1700s to the present, emphasizing the importance of family and ethnic networks defined, in part, by caste distinctions.? Wolcott concludes that, while such networks and the informal credit they commanded initially aided economic development, they ultimately limited business development — a finding similar to Kuran?s conclusions about the Islamic Middle East.? Wellington Chan looks at entrepreneurship and innovation in China from the late 1800s, emphasizing continuities in stressing the roles personal relationships and networks have played for business people throughout Chinese history.? ?Chinese entrepreneurship,? Chan concludes, ?has always been an inherent part of Chinese history and tradition? (p. 495).? Seiichiro Yonekura and Hiroshi Shimazu find entrepreneurship at the core of the development of zaibatsu in Japan before World War II and present accounts of the development of Mitsui and Mitsubishi, unfortunately ignoring the significant roles small and medium size business played in Japan?s economic development.? Finally, Baumol and Robert Strom (a director of the Kauffman Foundation) offer short concluding remarks underlining the importance of cultural developments and institutions for the evolution of entrepreneurship and innovation over time.

Anyone interested in entrepreneurship, innovation, and economic development will find much to ponder in this work, and extensive multilingual notes and bibliographies at the end of each essay will lead readers to additional sources.? However, even such an extensive volume as this one has limitations.? The focus is clearly on Western Europe and the United States.? Only a few essays examine developments in Asia and the Middle East, and none look at entrepreneurship in Latin America or Africa.? Then too, most of the essays approach entrepreneurship and innovation from the vantage points of economics and economic history.? The substantial contributions of business historians — Harold Livesay, Thomas McCraw, and William Lazonick, among many others, come to mind — are largely ignored.[2]? Moreover, the authors of the essays follow no commonly agreed-upon definition of entrepreneurship, making cross-national comparisons difficult.? Most of the authors bow in the direction of Joseph Schumpeter, but essentially fail to adopt a common approach.? I was disappointed that little effort was expended by the editors or authors to reach comparisons across boundaries of time or space.? For the most part, this study consists of fairly traditional national studies. ?Ironically for a book about innovation, this volume contains little in the way of conceptual breakthroughs.? The authors might well have explored more fully innovative business networks and industrial districts that often spread across national lines, especially in modern times.[3].? Even with these caveats, however, I think these essays deserve close consideration, as much for the questions they raise as for the answers they give about innovation and entrepreneurship.


1. On innovation in China, see for example, William T. Rowe, China?s Last Empire: The Great Qing (Cambridge, 2009); and Peter Zarrow, China in War and Revolution, 1895-1949 (London, 2005).? Landes? main source on Islamic developments is Bernard Lewis, _What Went Wrong? The Clash between Islam and Modernity in the Middle East_ (Oxford, 2002), a one-sided study.

2. Harold Livesay, American Made: Shapers of the American Economy (New York, 2007); William Lazonick, ?Business History and Economic Development,? in Geoffrey Jones and Jonathan Zeitlin, eds., The Oxford Handbook of Business History (Oxford, 2007), 67-95; and Thomas K. McCraw, Prophet of Innovation: Joseph Schumpeter and Creative Destruction (Cambridge, MA, 2007).

3. See, for example, Louis Galambos and Jane Eliot Sewell, Networks of Innovation: Vaccine Development at Merck, Sharpe & Dohme, and Mulford, 1895-1995 (Cambridge, 1995); and Charles Sabel and Jonathan Zeitlin, eds., World of Possibilities: Flexibility and Mass Production in Western Industrialization (Cambridge, 1995).


Mansel G. Blackford is a business historian at Ohio State University and, most recently, is the author of The Rise of Modern Business: Great Britain, the United States, Germany, Japan, and China Chapel Hill, 2008 (third edition).

Subject(s):Business History
Economywide Country Studies and Comparative History
Markets and Institutions
Geographic Area(s):General, International, or Comparative
Time Period(s):General or Comparative
16th Century
17th Century
18th Century
19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII

The Cost of Living in America: A Political History of Economic Statistics, 1880-2000

Author(s):Stapleford, Thomas A.
Reviewer(s):Logan, Trevon

Published by EH.NET (February 2010)

Thomas A. Stapleford, The Cost of Living in America: A Political History of Economic Statistics, 1880-2000. New York: Cambridge University Press, 2009. xviii + 421 pp. $30 (paperback), ISBN: 978-0-521-71924-7.

Reviewed for EH.NET by Trevon Logan, Department of Economics, Ohio State University.

Thomas Stapleford of the University of Notre Dame has managed to make fascinating what is likely one of the most boring parts of economic theory ? the calculation of price changes. Indeed, standard textbooks at the undergraduate and graduate level pay little attention to such issues. He does so by bringing a keen insight into the analysis ? price indices are not simply economic measures, they are inherently political measures that reflect the growing interest of the state in human welfare and economic policy. While economists know well the theoretical differences between different ways of measuring price increases (Laspeyres, Paasche, Marshall, and so on), the development and use of these measures had a more intimate relationship with political and historical realities than we may realize. Stapleford?s book describes this relationship over the twentieth century in the United States.

It was quite wise for Stapleford to begin his book?s introduction by considering the controversy around the Boskin Commission?s work on whether or not the CPI was overstating inflation, which briefly caused the economics profession to reconsider what we knew about price indices (this is not to say that work had stopped before or after, but price indices are no longer a ?hot? topic in economic research). As he makes clear, very small changes in the CPI have big effects (he notes by the early 1950s a 0.5 percent change in the CPI would cause transfer payment changes of $1 billion). This strategy highlights the importance and the continuing debate about the proper measurement of the CPI. Stapleford also uses the introduction as an opportunity to lay out his main thesis: the idea that rationalization is the driving force behind the development of economic statistics (mainly the Consumer Price Index, CPI). To him, rationalization is the way that the state takes controversial issues and places them in the hands of bureaucrats behind a wall of objective ?science.? As an example, we do not decide to increase or decrease Social Security payments when we ?rationalize? the process by indexing the benefits to inflation. The Bureau of Labor Statistics (BLS) becomes a collection of experts who use a given technique (supposedly a ?scientific? one) to arrive at a number that has large effects on the economy. The key, to Stapleford, is to realize that such a decision is a decidedly political one with seen and unseen causes and consequences.

Overall, this is intellectual and political history of the first rate. Well researched, carefully argued, it does a good job of describing the technical difficulties in price indices without losing focus on the historical narrative. As a scholar of early consumer expenditure surveys myself, I was particularly impressed with Stapleford?s descriptions in the early chapters of the failed efforts to combine the state statistical bureaus into a national force with systematic evidence. While the data collected by the state bureaus has given economic and social historians a detailed picture of many aspects of working class life from 1870 to 1910 or so, Stapleford impressed upon me how much we lost by the inability to regularly and systematically survey workers, firms, and prices. But Stapleford ties this failure to politics ? there was simply very little need for the state bureaus to cooperate because there was no national consensus for what anyone would even do with the price series that could be created. Rather, since each state bureau had its own charge, resource constraints, and politics, the jumbled mass of surveys reflects the jumbled thinking about the usefulness of economic statistics at the time.

After these first chapters Stapleford is left to explain how we constructed and codified the CPI. In the remaining chapters (especially chapters 3 through 6) he builds his case ? in his narrative the impetus for the construction and maintenance of federal economic statistics, and the later canonization of them, took place from roughly 1910 to 1945. There was no one key event; the needs of World War I, the increasing concerns about labor disputes and wages in the 1920s and the Depression each exerted independent forces that not only caused a much larger federal presence in the economy, but a much larger federal measurement of the economy. World War I impressed upon the government (and its citizens) the need for efficient control of resources that needed to be harnessed for national defense. In the 1920s, both organized labor and big business saw the need for standard measures, which were many times used to settle labor disputes. This is key for Stapleford?s hypothesis of rationalization since both labor and business could appeal to ?objective? measures of the cost of production and consumption. The final movement was solidified by the Depression, which left the federal government with the duty to regulate the economy, and also gave it the power to define how that economy would be measured. Given the uses of the price measures in the decade before, it was natural to appeal to these economic statistics when setting goals and in dispersing transfers.

In Stapleford?s narrative the concept of ?purchasing power? was a politically loaded expression of progressives? desires for large changes in industrial relations, while the economic theorists and institutionalists argued about whether a ?true? cost of living could be accurately measured. These developments did not take place independently, as Stapleford shows time and again that the choice of method and, indeed, the decision to measure at all, were carefully navigated political processes. Stapleford shows that during FDR?s administration BLS officials used the economic circumstances to place themselves in a key position for national economic policies. For example, the Economy Act of 1933 allowed the federal government to reduce wages by up to 15 percent based on the BLS cost-of-living index. Stapleford shows that this technique of indexation gave the BLS a larger role in the macroeconomy as indexation proliferated, which he argues is consistent with his rationalization hypothesis. Even after the war the units of measurement they developed ? the series on prices and wages ? continued to exert influence after the New Deal policies were abandoned.

While the heart of the book ends at the beginning of the 1950s, Stapleford spends the last two chapters describing the way that the CPI came to be used as a macroeconomic measure, and even delineates the debates about what the index should be. By this Stapleford does not mean inflation as pi used in macroeconomic models, but for the way that through the 1970s the federal government more and more began to index transfers to inflation. This began with poverty lines in the Great Society, extended to Social Security, and by the early 1980s income tax brackets were indexed. By the end of this indexation movement roughly 50 percent of federal expenditures became tied to the CPI either directly or indirectly. While the CPI has long aimed to be a ?constant utility? measure, Stapleford concludes by noting that while theoretically advantageous, the problems with the ?constant utility? measure of the CPI continue to raise a number of troubling issues. (Chief among them is whose utility we are measuring.) Indeed, the BLS has recently begun developing alternative CPIs for different groups whose utilities may be more dependent on certain expenditure categories (as in the case of older Americans who spend more on health care).

There are naturally some drawbacks. One drawback of the book is that Stapleford paints with a relatively broad brush at times. He regularly implies that the CPI is intimately related to a host of other economic statistics, but this is truly a book about the intellectual history and political history of the CPI. This is not a critique of the book, but the focus could have been sharper if Stapleford had tempered his desire to use the CPI history and then cast a wider, more tenuous net to other measures, especially later in the book. As economic historians know well, unemployment, industrial production, and GDP itself are their own stories (and their histories certainly deserve to be revised or in some cases written as well). Another drawback is that the intellectual development of the indices, while covered well for the novice reader, takes a decided back seat to the politics, but to be fair that is exactly Stapleford?s point.

And perhaps putting the economics in the background was a good idea. About a year ago I was attending a seminar on the misuses of the Penn World Tables ? the large and well used panel dataset of country GDP and other macro indicators. The seminar speaker discussed the fact that revisions of the data changed the results of many well-cited and influential papers. These included studies of the effects of assassinations on growth, the relationship between volatility and growth, and civil conflict and growth. An elder statesman remarked that economists today do not pay much attention to issues such as the measurement of prices and inflation, and that we (as a profession) are worse for it. I agree. For some reason the thorny issues involved in something as ?simple? as a price index have fallen out of vogue in favor of what we like to think of as ?causal? policy analysis. The bite is that we know, without the use of instrumental variables and the sometimes fantastic stories that accompany their use, price index calculations are causally related to a host of economic issues. Even more, all of our time series or panel estimates depend, critically, on getting the prices right ? applied microeconomists are not exempted. One can only hope that Stapleford?s book will cause renewed interest into one of the most important (and non-mundane) economic statistics in use.

Trevon D. Logan is an Assistant Professor of Economics at Ohio State University and a Faculty Research Fellow at the National Bureau of Economic Research. Recent publications include “Economies of Scale in the Household: Puzzles and Patterns from the American Past” in Economic Inquiry, “The Transformation of Hunger: Demand for Calories Past and Present” in Journal of Economic History, and ?Health, Human Capital, and African-American Migration before 1910? in Explorations in Economic History.

Subject(s):Living Standards, Anthropometric History, Economic Anthropology
Geographic Area(s):North America
Time Period(s):20th Century: WWII and post-WWII

A History of the Federal Reserve: Vol. II, 1951-85

Author(s):Meltzer, Allan H.
Reviewer(s):Wood, John

Published by EH.NET (January 2010)

Allan H. Meltzer, A History of the Federal Reserve: Vol. II, 1951-85. Chicago: University of Chicago Press, 2010. xii + 1424 pp. $150 (two books, hardcover), ISBN: 978-0-226-52001-8 and 978-0-226-51994-4.

Reviewed for EH.NET by John Wood, Department of Economics, Wake Forest University.

Allan Meltzer?s History of the Federal Reserve from its founding in 1913 to near the end of Paul Volcker?s chairmanship in 1987 is primarily an account of the thinking behind monetary policy taken from the records of the chief policymaking bodies ? the Federal Open Market Committee (FOMC) and the Federal Reserve Board ? and the papers of members of those bodies ? the seven governors of the Board and the presidents of the twelve Federal Reserve Banks. Meltzer?s searches are a great service to historians and potentially a useful service to reformers. We know what the Fed did ? open market operations and changes in the discount rate and reserve requirements ? but seldom, if ever, its reasons. This history does not give us the reasons because many people with conflicting and often unclear views participated in these committee discussions and decisions, but Meltzer has given us a better chance to understand them or, in many cases, at least to conclude that a coherent rationale for monetary policy was absent.

Meltzer (Carnegie Mellon University) has been following the Fed since he and Karl Brunner prepared a study of The Federal Reserve?s Attachment to the Free Reserves Concept for the House of Representatives Banking and Currency Committee in 1964.

Volume II (the subject of this review) begins with the Treasury-Federal Reserve Accord of March 1951 that released the Fed from its obligation to support Treasury bond prices, and thereby recognized its freedom and responsibility to conduct an ?independent? monetary policy. There is more about independence below, but it was qualified immediately by the Accord?s condition that the Fed assist Treasury financing. This qualified independence of the Treasury was given or taken away in the late-1960s and early 1970?s, regained in 1979, and thrown away in 2008 (which is after Meltzer?s History but recognized in the Epilogue).

The years of this volume can be divided into three periods according to inflationary regimes: mostly 1-2% per annum between 1951 and 1966, rising to double digits in the 1970s, and falling to less than 2% in 1985. It is notable that these periods correspond to those of more or less independence. This review is limited to domestic monetary policy, which is the main emphasis of the book, abstracting from regulation and international monetary affairs.

Meltzer?s discussion is organized around the interwoven concepts of structure, independence, and procedures. At the center of the discussion for over half the volume is William McChesney Martin, Jr., the longest-serving chairman of the Board of Governors (1951-70; three months longer than Alan Greenspan. ?The structure of the modern Federal Reserve is, in large part, Martin?s creation? (p. 43).) The Fed?s main instrument, open market operations, is decided by the FOMC, composed of the seven governors of the Board (whose chairman is also chairman of the FOMC), the president of the Federal Reserve Bank of New York (vice-chairman of the FOMC), and four of the other Bank presidents on a rotating basis. When Martin arrived, the FOMC met four times a year, the minimum mandated by the 1935 Banking Act, to decide general policy while its five-person Executive Committee (including the chairman and vice-chairman) met every two weeks to implement the full committee?s objective and instruct the manager of the open market desk. The desk is in New York, where open market operations are conducted, and the manager is a subordinate of the president of the New York Bank, who had dominated FOMC discussions. Over the next few years, Martin persuaded the FOMC to meet more often and abolish the Executive Committee, thereby reducing the influence of New York. The Board?s power was increased but so was that of the presidents outside New York. Meltzer calls attention to the value of the presidents? market view that frequently opposed the governors in Washington who are more subject to political influence (pp. 55-59, 70-75). The presidents have been allies of the chairmen who opposed inflation (Martin, Volcker, and Greenspan) and the chief dissenters of the policies of Burns, Miller, and Bernanke (pp. 507, 934, 991; Wood 2005, pp. 347-49; FOMC Minutes).

Martin also persuaded the FOMC to limit open market operations to Treasury bills, ostensibly to avoid market breaks arising from operations in long-term bonds, but which also limited New York?s discretion and was defense against political pressures to reduce long rates (pp. 59-70).

These structural changes were qualified by the Fed?s understanding of its independence, defined by Martin as ?independence within the government, not independence of the government? (p. 48). This included, following the Accord, the duty to support Treasury financing, which restricted the Fed?s ability to fight inflation by raising interest rates in the presence of government deficits.

?Procedures? refer to the process by which the ideas of FOMC members are converted into policy. They studied economic conditions with the aid of their economic staffs, met, discussed, and voted on ?directives? to the manager of the desk. Sounds simple, but the difficulties in the way of understanding policy are great. The FOMC did not possess an explicit model of the relations between its instruments and its objectives. It was certainly not the Keynesian model prevalent among economists, including the Board?s staff. Its objectives were not transparent. Were they general conditions such as prices, employment, and output as directed by the Employment Act of 1946, or money market conditions, whose relations to the former were not clarified? ?Nothing in the 1950s compares [even to] the Board?s Tenth Annual Report or the Riefler (1930) and Burgess (1927) books.? (Both were Fed advisors.) Even so, the treatment of the effects of monetary policy in the third edition of The Federal Reserve System: Purposes and Functions (Board of Governors, 1954) ?was more complete than mainstream academic views of that time. … Although the various elements [of the transmission process] were not combined in an explicit framework, the emphasis given to expectations, capital values, and relative prices … suggests an underlying sophistication that anticipated much future research? (p. 79) ? although any policy influence of the staff economists is doubtful.

The Fed?s response to the 1953-54 recession, ?its first major trial after it regained independence,? was in many ways characteristic of later episodes, even to the present. It paid more attention to general economic conditions than in the 1920s and 30s, which was in line with President Eisenhower?s reaction to Council of Economic Advisor Arthur Burns? report to the cabinet that a recession had started: Ike ?recalled the Republican party?s commitment to use the full resources of the federal government to prevent another 1929.?

The Fed?s ?performance was mixed. It recognized the slowdown promptly and voted to provide additional ease. In June, a month before the start of the recession, the FOMC decided on a policy of ?aggressively supplying reserves to the market? rather than ?exercising restraint upon inflationary developments? as agreed at the March meeting.? However, the manager?s instructions that ?reserves should be supplied in sufficient volume to prevent further tightening, but not in such volume as to ease the degree of credit constraint? leaves much to be determined because of the lack of agreed measures of ease and other terms. Long rates were falling but short rates were rising, so that the rise in free reserves (because of a decline in member bank borrowing) ?probably misled the manager on this as on other occasions? [notably 1929-33]. ?Martin criticized the desk for ?failing to purchase Treasury bills more aggressively?? and keeping the FOMC informed, but ?rejected any specific measure of ease or restraint? (pp. 107-109).

Meltzer notes in connection with the onset of recession in 1960: ?Several members referred to the decline in the money supply and wanted to end it by using quantitative targets. The manager preferred to concentrate attention on the tone and feel of the market. … There was no agreement about how to define and conduct policy. [New York] President Hayes proposed more active use of regulation Q ceiling rates to signal the direction in which interest rates should change, and Leedy (Kansas City) proposed using an interest rate target. The FOMC could not reach a consensus. … Vague instructions gave the manager considerable freedom to make decisions or perhaps respond to direction from Martin or Hayes? (pp. 208-209).

Returning to 1954, conflicts continued into the recovery phase. ?Until December 1954, seven months after the recession ended, the System continued the policy of ?actively maintaining a condition of ease in the money market?,? although ?Martin expressed concern about a speculative boom. ?[T]here were indications of an exuberance of spirit among intelligent businessmen with respect to 1955 business prospects that seemed to him to be dangerous?.? Fed ?operations remained procyclical. Money growth was higher in the expansion than in the recession? [a tendency that continued into the next century] because ?the decline in member bank borrowing and rise in free reserves [was interpreted] as evidence of ease? (pp. 112-14).

Friedman and Schwartz (1963, pp. 628-31) wrote about this period that the Fed?s new attention to money represented ?a near-revolutionary change,? although it continued to ?lean against the wind.? As in Volume I, Meltzer?s accounts and interpretations of Federal Reserve actions give us no reason to revise those of Friedman and Schwartz, but reinforce them with the System discussions behind them.

The Fed was not free of easy-money pressures from the Eisenhower administration (pp. 135-53), but those were weaker than in the 1960s, especially during the Vietnam War when the seeds of the Great Inflation were sown. Meltzer gives Martin generally low marks, especially for failing to resist the later pressures more strongly. The reasons for the start of the Great Inflation were, first, ?Martin?s leadership and beliefs? (especially his willingness to coordinate policy with the administration). ?Second, neither Martin, nor his colleagues in the FOMC, nor the staff had a valid theory of inflation or much of a theory at all (which might have bolstered their resistance?). And some of their main ideas were wrong.? Meltzer?s third reason, ?institutional arrangements [that] hindered ? timely effective action? ? coordination with the administration and ?even keel? policies ? fit within the first two (pp. 472-78).

Meltzer?s rating of Martin was shared by most economists at the time, Keynesian and monetarist, who held him largely accountable for the longest peacetime inflation (averaging 2.3% over nineteen years) in history. However, many, probably most, students of monetary policy changed their opinions of Martin after the dozen unhappy years succeeding his tenure, when inflation averaged 7.1%. Some of them credit a sophisticated, if informal, model for what they came to see as the Fed?s success in the 1950s (Romer and Romer 2002), although Meltzer finds ?no evidence to support? this claim. ?A more important factor was the Eisenhower administration?s conservative fiscal policy … The Federal Reserve was not under pressure to finance budget deficits most of this decade? (p. 48).

This reviewer shares Romer and Romer?s view, and finds even more theoretical completeness/sophistication than they do. Contrary to his frequent protestations that ?I am not an economist? (p. 476), Martin was more sophisticated than his critics. Meltzer saw no evidence of ?economic explanations of inflation? (p. 476) but his quotations of Martin are filled with incentives, expectations, and the importance of credibility. Martin anticipated Greenspan?s definition of price stability as one in which inflationary expectations are not a factor in business and consumer decisions. He was explicit about the neutrality of money (or absence of a Phillips curve) in the long-run. His bills-only policy was designed to supply money (although he refused to define it) without obstructing the efficient allocation of resources. He understood that the Fed could not permanently reduce interest rates; reducing them led to inflation. He did not talk of real rates, but he understood them. ?The history of money demonstrates the difficulties which men have to distinguish the permanent from the temporary. … [M]aking this distinction is a constant imperative? (p. 843). Above all, he understood and embraced the idea that inflation was the Fed?s responsibility (pp. 59-60, 89, 112, 126, 207, 242). He rejected the argument of Senator Paul Douglas (himself an eminent economist) that inflation was a cost-push phenomenon generated by unions and oligopolistic industries. Martin wrote to Douglas in 1959 (as Greenspan told Congress in the 1990s; Wood 2005, p. 397): ?My interest in a monetary policy directed toward a dollar of stable value is not based on the feeling that price stability is a more important national objective than either maximum sustainable growth or a high level of employment, but rather on the reasoned conclusion that the objective of price stability is an essential prerequisite for their achievement? (p. 243).

Meltzer recognizes this in places. ?Pressure from the administration to increase purchases of long-term debt remained strong [1961]. Martin cooperated within the limits set by his concern about inflation and his beliefs about how monetary policy worked. But he regarded some of [James] Tobin?s [of the Council of Economic Advisors] arguments as ?hopelessly na?ve?? (p. 323).

Martin?s statements, and perhaps more important, the Fed?s performance under his chairmanship, show an almost explicit sophisticated modern model of monetary policy subject to a survival constraint measured by the costs of resisting political pressures, which Meltzer?s reaction to Romer and Romer seems to support.

The 1970s saw improvements in Federal Reserve data, increased transparency in more frequent reports to Congress, a state-of-the-art econometric model, quantitative money and interest targets, economic forecasts in ?green? and ?blue? books, and a distinguished economist (Arthur Burns, 1970-78) as chairman to join the growing number of economists on the FOMC (pp. 582-92). Unfortunately, the result was ?the Fed?s second great mistake? that produced the Great Inflation and stagflation. The reasons given for the excessive money growth are many: mistaken forecasts, an increased natural rate of unemployment (?bad luck?? Velde 2004), unwillingness to bear the social costs of disinflation, reliance on controls, a preference for an ?even keel? approach that inhibited action, and submission to political pressures (pp. 667-81, 843-63).

Underestimations of inflations could not realistically have persisted for years on end. ?The simple explanation of why inflation persisted and rose … through the 1970s is that the Federal Reserve did not sustain actions that would end it? even though it ?was aware that its actions increased inflation.? ?That was basically political,? said advisor Stephen Axilrod (p. 1005).

The summer of 1979 saw high and rising inflation and unemployment, and falling approval ratings of President Carter. He reorganized his administration, sending Fed Chairman G. William Miller to the Treasury and replacing him with New York Fed President Paul Volcker, a known inflation hawk. On October 6, with the Fed funds rate at 11.6% and inflation at 12.5%, the Fed announced that it would no longer control interest rates, but shift to money control. Interest rates skyrocketed ? the Fed funds rate reached 19.85% in March 1980 ? and recession ensued. The Fed was supported by Carter and his successor (Ronald Reagan, elected in November 1980), and it stuck to its guns. Inflation fell below 4% in late 1982, although real interest rates remained high for several years, until the public was persuaded that low inflation was permanent.

The Fed returned to interest targeting in 1982, but as Meltzer says about 1979, the ?change in objective [a genuine commitment to reduce inflation] was more important and more durable than the change in procedures? (p. 1034). The Fed?s aggressive actions in 1979, as in the months leading up to the Accord in 1951, were made possible by the support of a public and Congress weary of inflation, along with grudging acceptances by politically weak presidents (p. 1128).

The lesson that I draw from this book is that the necessary and sufficient conditions for price stability (or low inflation) are a Fed that recognizes its effect on inflation, is committed to its control, and is supported politically.

Meltzer?s primary proposal for ?better results? in the last chapter is to follow the example of inflation-targeting countries. This ?rule-like behavior? reduces short-term policy influences and improves credibility (pp. 1234-39), although he recognizes elsewhere that procedures are less important than objectives.

In any case, as Meltzer reports in his Epilogue on the 2007-2009 crisis, the current Fed shows no sign of having learned anything. Current pressures dominate its actions, it has no credibility (no one knows what it will do), it favors controls (like Burns and the Keynesian critics of Martin), and, after the Volcker-Greenspan era restored independence, ?Chairman Bernanke has acted frequently as a financing arm of the Treasury? (pp. 1243-56).

This book, or parts of it, should be required reading for students of American monetary policy. Those who study textbook chapters or journal articles about what policy is or ought to be learn only a small part of the subject, and that part contains much misinformation. Monetary policy is a complex combination of politics, structure, and monetary theory, and the least of these may be the last. ?The most comprehensive recent statement of modern macroeconomic theory, Woodford (2003), is an elegant, erudite development of the rational expectations model that currently dominates academic thinking. … Many central bank economists use this model. No central banker uses it? (p. 14).


Burgess, W. Randolph. 1927. The Reserve Banks and the Money Market. Harper & Bros.

Friedman, Milton and Anna J. Schwartz. 1963. A Monetary History of the United States, 1867-1960. Princeton University Press.

Meltzer, Allan H. 2003. A History of the Federal Reserve: Vol. I, 1913-51. University of Chicago Press.

Riefler, Winfield W. 1930. Money Rates and Money Markets in the United States. Harper & Bros.

Romer, Christina D. and David H. Romer. 2002. ?The Evolution of Economic Understanding and Postwar Stabilization Policy,? in Rethinking Stabilization Policy. Federal Reserve Bank of Kansas City.

Velde, Francois R. 2004. ?Poor Hand or Poor Play? The Rise and Fall of inflation in the U.S.,? Federal Reserve Bank of Chicago Economic Perspectives.

Wood, John H. 2005. A History of Central Banking in Great Britain and the United States. Cambridge University Press.

Woodford, Michael. 2003. Interest and Prices: Foundations of a Theory of Monetary Policy. Princeton University Press.

John Wood, Reynolds Professor of Economics, Wake Forest University, is author of A History of Macroeconomic Policy in the United States (Routledge 2009) and is working on a book provisionally titled The Political and Economic Genius of William McChesney Martin, Jr..

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

Triumph of the South: A Regional Economic History of Early Twentieth Century Britain

Author(s):Scott, Peter
Reviewer(s):Wardley, Peter

Published by EH.NET (October 2009)

Peter Scott, Triumph of the South: A Regional Economic History of Early Twentieth Century Britain. Aldershot, UK: Ashgate, 2007. xiv + 324 pp. ?65 (cloth), ISBN: 978-1-84014-613-4.

Reviewed for EH.NET by Peter Wardley, Department of History, University of the West of England, Bristol.

In the Triumph of the South, Peter Scott, Director of the Centre for International Business History and Professor at the University of Reading, has drawn upon his research into specific aspects of interwar British economic and social history to provide an overview of regional development between 1870 and 1939. Scott?s investigations, that have utilized neglected or under-utilized sources, encompass the origins of British regional policy, private sector industrial estates, the nature of the English property market and its agencies, working class house-ownership, hire purchase, and the institutional barriers that impeded transport rationalization in both the coal mining industry and the coal carrying trade undertaken by British railway companies. At the heart of this study are chapters informed by this research that describe and analyze dynamic components of the interwar British economy: the new manufacturing industries of Greater London, the labor market that characterized the interwar industrial estates, and the long distance migration of workers recruited to the new factories. By contrast to vibrant industrial development in the ?South,? the manufacturing sector of depressed ?outer-Britain? experienced only limited innovation; relatively few new plants were established, the expansion of employment in the factories associated with the ?New Industries? was relatively small and their labor productivity was relatively low. Oddly, given the clearly demonstrated relative advantage of the ?South? in the provision of services, and the relative importance of these activities in both the region?s prosperity and economic expansion, apart from tourism the services sectors receive relatively little attention. For example, to select one specific dimension of change, whereas much is made of the failure to embrace technical innovation exhibited by the ?old staples,? and especially the coal industry, no mention is made of the comprehensive implementation of mechanization undertaken by British financial companies at the end of the 1920s. Furthermore, not only is the measurement of productivity growth in services presented here as a more problematic exercise than recent research has demonstrated but the early twentieth century domestic service sector is described as ?a very large employer, with very limited potential for productivity gains? (p. 24). In the context of this study, this is somewhat odd: if this were so in the interwar years, what then was the motive of those who purchased the millions of household appliances produced on the industrial estates so carefully enumerated here?

Scott?s authoritative treatment of the aspects of the interwar years he has so closely researched also stands in contrast with his less convincing consideration of the longer run historical context. The introductory chapters demonstrate a range of basic problems that are conceptual and definitional in kind, reflecting geo-political and economic ambiguities that could lead astray a more naive reader. It would have been useful to indicate very clearly that ?Britain? in this period is a political fiction as the functioning state was the ?United Kingdom,? a union of Britain and Ireland before 1921 and Britain and Northern Ireland after. In this book England gets the lion?s share of attention, Scotland some consideration, Wales little and Ireland none. This constrained perspective has broader analytical and interpretative consequences. A somewhat pessimistic stance towards British economic performance before the First World War depends to a large extent on a comparison of British income per capita data (Table 3.2, p. 33) relative to that of the world?s more developed economies. However, George Boyer?s chapter on ?Living Standards, 1860-1939? (Boyer, pp. 282-83; 294-95), the source upon which Scott relies, is not unmisleading in this context. Boyer, citing data estimated by Angus Maddison, and without mention of this distinction, reports the national income per capita of a ?Britain? which is really an ahistorical United Kingdom, a hypothetical economy defined by political boundaries that would be drawn only in 1921. Nevertheless, Maddison does provides disaggregated estimates for Irish and British income per capita, and it is the latter that Scott should be interested in, given that his story relates specifically to Britain. When Britain, strictly defined, is compared to the United States of America, the relative gap in national income per capita in 1913 is shrunk from that reported of just over five percent to less than three; by analogy to conventional measures of statistical significance, while the former might just about warrant mention, the latter difference would be usually be regarded as insignificant. Moreover, the same comparative perspective indicates that in 1913 British income per capita was in excess of thirty percent higher than that of Germany or France; how many Britons would not now be delighted by the restoration of a similar lead relative to the current level of output per person achieved in Germany and France? Clearly, and contrary to Scott?s gloomy prognosis, on the eve of the Great War the British economy was not failing.

This somewhat negative view also colors analysis of British economic agencies, especially the firms that populated the Victorian economy, and questionable assumptions bolster a rather thin international perspective. Although Britain was the location of most of the world?s largest industrial enterprises at the time of the Great Exhibition of 1851, and probably a third of the world?s largest companies in 1912, with Germany assumed wrongly here to outstrip Britain on this count, much is made of the detrimental consequences of the relatively small size of British firms. However, the significance of firms at the lower end of the corporate spectrum is also interpreted somewhat narrowly. It is difficult to see the existence of well-developed networks of small and medium enterprises (SMEs) that had been established in Britain in the nineteenth century as, per se, a peculiarly national impediment to economic growth. After all, the significant contribution to German economic development of the Mittelstand is well-established in the literature. Moreover, Philip Scranton has told a similar story concerning the contribution of the SMEs, which also saw the development of clusters, networks, external economies and regional specialisms, to American economic development before 1939. Given these international comparisons, that suggest otherwise, and taking the long run view, I remain puzzled also by the statement that, ?Sectoral specialisation appears to have been originally developed as a means of coping with Britain?s poor inland transport links? (p. 15). It is less surprising to read, however, that ?Poverty in rural Britain was even more widespread than in towns and cities? (p. 1).

The empirical database underpinning the introductory chapters that consider regional development in a quantitative framework are provided by statistics extracted from the United Kingdom Census of Population by Clive Lee and published in his British Regional Employment Statistics 1841-1971 and the recently published associated estimates of income per capita for British regions derived by Nick Crafts. Inspection of these data prompt the undisputable conclusion that London was not only the most prosperous region within the British economy in 1871 but that it subsequently and consistently enjoyed the more dynamic economic path to the twentieth century and beyond. Taking a long-run perspective this was only the restoration of a preeminence that had its origins in Norman, Saxon or even Roman times. However, the popular and enduring appeal of the Industrial Revolution does tend to color and even distort our views of British economic development such that the much remarked upon growth of manufacturing in the peripheries, especially cotton textiles in south Lancashire, woolen textiles in west Yorkshire and ferrous metal production and processing in south Wales, central Scotland and the north east of England, crowd out the relatively undramatic and less exotic incremental developments in Bristol, Birmingham and, especially, London. And London, often regarded as synonymous with the ?South,? provided England?s most populated urban center, its cultural center, the social focus of its elite, and the political capital that served first, England, then England and Wales, then the United Kingdom and, ultimately, at least until its more recent imperial retreat, the British Empire and its world. In this sense the ?Triumph of the South? has been persistent and enduring, a process of consolidation and confirmation rather than the outcome of a late nineteenth and early twentieth century contest that saw London emerge as the dominant victor over the industrial ?North? (which often stands as shorthand for all the British periphery). Put quite simply, and galling though this is to many a subject of British crown, the South rules.

This narrative was clearly established by Lee?s The British Economy since 1700, a pioneering text sensitive to regional differentiation that might have had more credit than allowed here as it also highlights the historic significance of the London?s national and international financial predominance, the consequences of London?s role as the global market place for international services, the impact of government policy, and the nature of labor processes found in Britain?s industrial heartlands. Moreover, not only have variants upon these themes long populated the continuing debate among economists and economic historians concerning British ?Declinism? but they also informed two highly visible critiques of more recent economic policy: first, the politically significant but economically ambiguous thesis propounded in the Sunday Times in 1974 by Robert Bacon and Walter Eltis that identified Britain?s problem in their diagnosis of ?Too Few Producers? and, a decade later, the proposition that services, and especially financial services, were privileged by policies introduced by Margaret Thatcher?s governments and then continued by New Labour, with damaging consequences for industry and the ?North.? These same issues now arise with the current reconfiguration of British politics produced by our contemporary recession.

Here I would suggest that Scott?s unique selling point is, his specialist research topics indicated above apart, the strong argument he proposes concerning the detrimental consequences of London?s successes and the resultant bifurcation of the interwar British economy that operated to the detriment of the ?North.? He opines that ?the ?Dutch disease? effect of London?s growing invisibles surplus progressively crowded out the commodity exports of Britain?s provincial regions? and that this was accentuated by re-investment overseas of surpluses on invisible trade which further enhanced its ?growing comparative advantage as a rentier and services-exporting, rather than industrial, nation? such that the growth of non-wage income ?began to crowd out its provincial export industries? (p. 281). However, although this thesis of relative regional deprivation is propounded with keen enthusiasm, if not zealous certainty, it remains largely untested and leaves at least two major questions abegging. The first asks if the adoption of economic policies less permissive to economic development in the ?South? would have resulted a better outcome for those who lived and worked in the ?North,? let alone higher incomes per capita across the whole economy? The second inquires as to the nature of an alternative economic policy regime that would have produced the beneficent counterfactual implicit in Scott?s story? Both questions loomed large for contemporaries and neither prompted an easily defined or uncontested policy response. Just as today.


Boyer, George. ?Living Standards, 1860-1939,? in Roderick Floud and Paul Johnson (eds.), 2004. The Cambridge Economic History of Modern Britain, Vol. II: Economic Maturity, 1860-1939, pp. 280-313. Cambridge: Cambridge University Press.

Crafts, Nicholas. 2005. ?Regional GDP in Britain, 1871-1911: Some estimates,? Scottish Journal of Political Economy, 52, pp. 1-24.

Lee, C.H. 1979. British Regional Employment Statistics 1841-1971. Cambridge: Cambridge University Press.

Lee, C.H. 1986. The British Economy since 1700: A Macroeconomic Perspective. Cambridge: Cambridge University Press.

Maddison, Angus, 1995. Monitoring the World Economy. Paris: OECD.

Maddison, Angus (Home Page) ?Statistics on World Population, GDP and Per Capita GDP, 1-2006 AD.? Scranton, Philip. 2000. Endless Novelty: Specialty Production and American Industrialization, 1865-1925. Princeton: Princeton University Press.

Peter Wardley has written on “The Commercial Banking Industry and Its Part in the Emergence and Consolidation of the Corporate Economy in Britain before 1940,” Journal of Industrial History (October 2000) and [with Norman Gemmell] ?The Contribution of Services to British Economic Growth, 1856-1914,? Explorations in Economic History (1990). His more recent research appears in ?A Global Assessment of the Large Enterprise on the Eve of the First World War: Corporate Size and Performance in 1912,? a chapter published in Youssef Cassis and Andrea Colli (eds.) Business Performance in Theory and History (forthcoming, Cambridge University Press).

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

The Political Economy of the World Bank: The Early Years

Author(s):Alacevich, Michele
Reviewer(s):Galambos, Louis

Published by EH.NET (October 2009)

Michele Alacevich, The Political Economy of the World Bank: The Early Years. Stanford, CA: Stanford University Press, 2009. xvi + 197 pp. $30 (paperback), ISBN: 978-0-8047-6066-9.

Reviewed for EH.NET by Louis Galambos, Department of History, Johns Hopkins University.

At the end of World War II, a momentous change took place in relations between the strong and weak nations. For all of human history to that point, the strong had systematically exploited the weak, taking their people for slaves, stealing booty, and creating colonies subject to the authority and taxation of this or that empire. Seeking to create a new and stable world order, the victors in the late 1940s set out to build a series of international institutions that would no longer involve exploitation. One of these new institutions was the World Bank.

As Michele Alacevich points out, the Bank began its evolution with a relatively simple mandate. It was designated The International Bank for Reconstruction and Development and sent out to help the allied and associated nations recover from the war?s devastation. Preempted in that task by the Marshall Plan, the Bank quickly turned to the task of encouraging the economic development of those nations that had yet to experience the first and second industrial revolutions.

Alas, there was no consensus among economists or government officials as to how, exactly, that should be done. Enter the Canadian-born Lauchlin Currie, who had studied at the London School of Economics and Harvard University before heading to Washington, DC, where he prepped in Treasury and the Fed, then became FDR?s economic advisor. Dedicated to a full-blown form of economic, political, and social planning, Currie was at home in the New Deal White House. In 1948, the World Bank selected Currie to head its mission to Colombia, the first significant effort to launch the new development program. Enter economist Albert Hirschman, who left a position at the Federal Reserve in order to explore the new and exciting field of development economics. Sent by the Bank to assist in Colombia, Hirschman soon clashed with Currie. Their struggle provides the central tension of Alacevich?s stimulating, on-the-ground account of this important phase of the Bank?s grand experiment in closing the gap between the developed and the under-developed nations.

The job wasn?t (and still isn?t) easy. Currie?s mission struggled with a lack of good data, with third-world political turmoil, and with an inefficient agricultural economy stubbornly resistant to change. The mission?s approach emphasized a broad, New-Deal type program that included consideration of health as well as productivity, education as well as infrastructure. Meanwhile, the Bank was drifting toward a project-centered approach to development. Hirschman, who was skeptical about balanced growth, became the Bank?s leading advisor after Currie completed his mission and began to work with the Colombian government. Alacevich does an excellent job of unraveling the opposing concepts of growth and demonstrating how important personality was in this innovative stage of the development saga. Meticulous research in the extant records enables the author to convey a powerful sense of the sort of confusion and conflict that drops out of history written from the top down.

Does the book fall short in any regards? Yes, of course. It still has the marks of originating in a doctoral dissertation ? in this case, a Ph.D. completed at the University of Milano, Italy. Far better written than most revised dissertations, the book nevertheless seems to be reaching for an appropriate philosophy of history without actually grasping one aligned with this subject. The most serious limitation is one the author probably couldn?t avoid. Having set up the Currie-Hirschman conflict as the central story, Alacevich has a problem when that particular tension is resolved. As a result, the final section of the book appears to be tacked on to a story that has already ended. While the author goes into the Bank?s reorganization of 1952 as a final denouement, the reader?s impression is that this structural adaptation was an epilogue, not a conclusion.

These problems aside, The Political Economy of the World Bank is a study that merits a careful reading. The author has dug deeply into a significant process of institutional change, a process worthy of serious reflection half a century later. The World Bank, despite its thick layers of expertise, has not escaped the problems first uncovered in Colombia. Powerful reasoning could not persuade Colombian leaders that they did not need and could not operate efficiently the integrated steel mill that they badly wanted. Import substitution became an even more powerful form of reasoning, and the Bank had to yield. Amidst steadily increasing costs and some episodes of bad-faith negotiating by the government, Colombia moved ahead with the steel plant at Paz de Rio. As the Bank?s vice president noted with a shrug, ?Paz de R?o had become a national symbol? (p. 98).

Every international program has collided with this style of resistance. Should you provide fresh, safe water or build a hospital ? with a naming opportunity. Should you improve agriculture or buy a modern weapon system? The list of tensions seems endless, and they define the boundary between the ideology of nationalism and the internationalism the Bank was attempting to strengthen. More than fifty years later, we are still perched along that boundary, looking for better ways to close the gaps that still exist between the developed and developing worlds. That, in large part, explains why Alacevich?s history deserves our attention today.

Louis Galambos is a professor of economic and business history at Johns Hopkins University and is a co-director of the Institute for Applied Economics and the Study of Business Enterprise. He has long been interested in the Bretton Woods institutions and has just completed a book on ?The Creative Society ? and the Price Americans Paid for It.?

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

Financing Innovation in the United States: 1870 to the Present

Author(s):Lamoreaux, Naomi R.
Sokoloff, Kenneth L.
Reviewer(s):Calomiris, Charles W.

Published by EH.NET (July 2009)

Naomi R. Lamoreaux and Kenneth L. Sokoloff, editors, Financing Innovation in the United States: 1870 to the Present. Cambridge, MA: MIT Press, 2007. xii + 503 pp. $45 (cloth), ISBN: 978-0-262-12289-4.

Charles W. Calomiris, Columbia Business School, Columbia University.

Innovation has played a central role in the economic ascendance and continuing economic dominance of the United States. It gave a distinctive form to America?s first and second industrial revolutions (including, for example, the development of the unique U.S. patent system, the use of interchangeable parts, and the development of the moving assembly line), as well as to America?s leadership in the current information age. Strangely, despite the well-deserved emphasis on the evolving processes of technological change and its consequences for industrial organization, productivity and growth by economic historians, and the attention given by business historians to the activities of inventive geniuses like Edison and Ford, the literature on the financial history of innovation is scant.

This volume is thus a welcome addition to an under-researched area. It consists of eleven original contributions and a wonderfully cohesive editors? introduction by two of the most prominent contributors to the history of innovation and its financing. The editors bring together the very best scholars in the area, who offer a balanced mix of breadth and depth, which also covers a broad swath of time.

Some of the chapters analyze broad tendencies in innovation. For example, one chapter reviews the experience of the most innovative industries of the second industrial revolution, showing a common pattern of a lack of reliance either on formal financial intermediaries or on financial markets to provide early stage financing to innovative firms; instead, partnerships and other personal relationships, as well as retained earnings, were the primary means of financing innovation in the U.S. The 1920s ? not the pre-World War I period ? saw the first departure from that pattern (as stock market investors for the first time played an active role in financing innovative start ups, especially the utilities). After the 1960s, venture capitalists offered a new source of financing focused on the mobilization of funds for new technologies. One chapter shows that intangible capital (proxied by patent citations) was priced in the stock market boom of the 1920s, which demonstrates that fundamental technological value underlay much of the boom in growth stocks prior to the Great Depression. A related investigation in another chapter exploring more recent events shows that the modern venture capital industry has been quite successful in identifying and valuing productive innovations.

Three of the chapters (covering different periods and employing an impressive array of datasets and empirical methods) identify the determinants of differences over time and across locations in the industrial organization of invention (the extent to which innovation occurs within specialized firms or within large integrated firms) and show how that industrial organization implied important differences in the means of financing innovation.

Another chapter reviews the IT revolution, emphasizing the important role of government in promoting basic research, ensuring competitive diffusion of the fruits of that research, and hastening beneficial learning through procurement policies that created critical demand at early stages of development. Still another explores the ways that complex contracting structures evolved in similar ways across different countries to solve information problems inherent in financing early-stage enterprises.

More narrowly focused chapters make similarly important general points by focusing on particular examples. The chapter on the evolution of the automobile industry in Detroit shows the crucial role of early inter-firm relationships and the history of linkages in production among firms in creating productivity-enhancing innovations via spin offs, and in promoting interpersonal relationships that helped to diffuse technology and spur the development of informal financing networks. There is also a chapter on the development of Cleveland as a hotbed of industrial innovation which similarly points to the crucial role of informal personal connections in financing the most important innovations of the second industrial revolution there.

Perhaps the most gripping story in the volume is the chapter on Corning?s decision to pursue its path-breaking fiber optic technology despite daunting financial challenges, which contains compelling general lessons about the problems of managing breakthrough technologies in firms with limited resources (and no scarcity of enemies), the helpful role of strategic alliances in overcoming some of those barriers, and the crucial importance of developing a corporate culture conducive to rewarding entrepreneurship in research.

Another chapter helpfully qualifies the earlier discussion of the government?s helpful role in the IT sector by pointing out that the market, not the government, played the central role in identifying and shaping winners among specific products ? that is, defining the most productive specific form that technological progress in computing should take, once the government had helped promote the production and diffusion of basic science.

My only complaint about the volume is the conspicuous absence of any attempt to integrate the industrial organization of finance into the discussion of the financing of innovation and its industrial organization. There is one chapter in the volume that properly identifies important reforms in New York Stock Exchange clearing and listing requirements (in the late nineteenth century), which undoubtedly were somewhat helpful to the eventual usefulness of the stock market for financing innovation in the 1920s. But the second industrial revolution was unable to take advantage of those improvements for several decades and the posited causal connection between changes in trading and listing rules and stock market access for innovative firms is not convincing.

That same chapter, and others in the volume, simply ignore important changes in financial structure (changes after World War I in the structure and size of banks and the connections between commercial and investment banks), which played a crucial role in the new access to stock financing for growth firms in the 1920s. The discussion also exaggerates the U.S.?s superiority to other countries in its ability to finance technology during the second industrial revolution. German banking structure, operating under a nationwide banking system that integrated commercial and investment banking operations from an early date, was much more conducive to the financing of growth firms, and was far ahead of the U.S. in the amount of stock issues by utility companies and other industrial innovators prior to World War I. Other subsequent changes in the structure of U.S. intermediation are also ignored ? most importantly, the growth of institutional investors (pensions and mutuals) after World War II, which was crucial in financing the growth of venture capital and investing in IPOs for start ups in the 1970s and afterward.

Anyone interested in the organization of innovation, and the nexus between finance and the organization and process of innovation, must read this book. All of the chapters are original, scholarly, and packed with insightful gems (truly a font of inspiration for Ph.D. students), and the analysis manages to be both sophisticated (theoretically and statistically) and accessible to a broad audience. While the volume is too rich to boil down to a single theme, the editors? introduction does point to a common thread that runs through many of the essays: ?… perhaps the most striking aspect of the record of innovation over American economic history is the flexibility that technologically creative entrepreneurs have exhibited in adjusting their business and career plans so as to obtain financing for, and extract returns from, their projects.?

One can only hope that this impressive volume will inspire other scholars to take up the mantle and help to fill the numerous remaining gaps in our knowledge about the history of the financing of innovation. Sadly, one of the editors, the late Ken Sokoloff, will not be able to continue to provide us with such inspiring examples.

Charles W. Calomiris is Henry Kaufman Professor of Financial Institutions at Columbia Business School and a Professor at Columbia?s School of International and Public Affairs. His recent edited volumes include Sustaining India?s Growth Miracle, 2008 (co-edited with Jagdish Bhagwati) and China?s Financial Transition at a Crossroads 2007, both published by Columbia University Press.

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

The Political Economy of Argentina in the Twentieth Century

Author(s):Conde, Roberto Cortés C
Reviewer(s):Fritscher, André Martínez Fr

Published by EH.NET (July 2009)

Roberto Cort?s Conde, The Political Economy of Argentina in the Twentieth Century. New York: Cambridge University Press, 2009. xi + 388 pp. $85 (hardcover), ISBN: 978-0-521-88232-3.

Reviewed for EH.NET by Andr? Mart?nez Fritscher, Department of Economics, Boston University.

Most of the world’s wealthy nations have been so since the nineteenth century. However, while Argentina enjoyed standards of living similar to the most developed countries during the second half of the nineteenth century, this South American country has reversed its fortune and fallen behind over the course of the twentieth century. Currently Argentina has a GDP per capita closer to other Latin American countries than the group of the developed countries to which it belonged a century ago. In his new book Roberto Cort?s Conde, a professor of Economics at the University of San Andr?s, describes in detail the evolution of Argentina’s economy in the twentieth century. The exceptionality of the Argentinean experience has been a fertile ground on which to explore relevant questions within the literature of economic growth. Why was Argentina unable to grow in the twentieth century at the same pace as countries with similar economic characteristics and endowments, such as Australia and Canada? Is the very poor Argentinean economic performance explained by exogenous shocks or domestic policies? What was the institutional framework in which the economic policies were instituted? Cort?s Conde?s narrative addresses the last two questions in particular, arguing that domestic choices and a weak government explain Argentina’s economic fall.

The book is organized chronologically in six chapters; each covering a different phase of the Argentinean economy from 1880 to 1989. Chapter 1 addresses the period during which Argentina experienced the fastest growth rates around the world in the pre-World War I era (the GDP per capita growth rate was 6.6%, twice as high as the rates of many developed countries). The export of agricultural goods drove this impressive and sustained economic performance, as Argentina is endowed with extensive and very productive portions of land. The profitability of this sector attracted foreign capital for railroads and industries. Moreover, Argentina was host to millions of European immigrants, who were tempted by the high wages. Chapter 2 discusses the economic transformation that Argentina underwent from World War I to the Great Depression. Like many other countries, Argentina entered into a recession following the commencement of hostilities as international flows of goods, capital and labor declined. Additionally, the introduction of universal male suffrage in 1912 changed the balance of power in Argentina. Cort?s Conde argues that higher democratization increased the role of the government in the economy as it intervened more actively in the determination of prices and wages. Now economic policy was put under pressure from different interest groups. Chapter 3 is a detailed description of the exchange and monetary policies in the 1930s. After abandoning the gold standard, the devaluation of the peso increased the competitiveness of Argentinean exports and protected domestic production. The strategy of growth was based on import substitution in which tariffs and quotas for final goods were raised. This period was also marked by the use of exchange margins to finance government activities and the foundation of the Central Bank.

Chapter 4 describes the main economic policies and events during Juan Per?n?s government. Argentina’s inward growth strategy not only remained during Peronism but the period was also characterized by direct public intervention through subsidies and state ownership of certain key industries. In addition, Per?n used subsidies, price controls, and monetary, exchange and trade policies to increase capital formation and real wages and to ensure full employment. The economic policy thus set up a complex and persistent network of interests, manipulated the incentives of the agents and furthermore, inefficiently allocated the factors, hindering long term growth. Chapter 5 provides a description of the period between Peron’s two terms as President (1955-1973), during which political and social instability affected economic performance. This period was characterized by innumerable military coups, reflecting the Army?s fear of Per?n?s return and communism. Any attempt to change the economic model was blocked by interest groups (e.g. land owners, entrepreneurs, unions). As a consequence Argentina underwent a process of decapitalization, macroeconomic instability and limited productivity gains. The sixth chapter analyzes the economic and political conditions that led Argentina to experience negative growth in the period from 1974 to 1989. Despite several orthodox and non-orthodox attempts, civil and military governments failed to put the economy on track. In sum, the seventies and eighties were a continuation of the institutional, political and economic problems inherited from previous periods.

The book is an excellent resource for those who wish to learn about the Argentinean economy and its main limitations during the twentieth century and it is highly recommended for any course on the economic history of Latin America. One of Cort?s Conde?s principal contributions is his fabulous effort to compile historical data and create a narrative of the evolution of the main variables. Do not expect, however, any empirical analysis that would corroborate his main points, although the data he gathers may be an important source for future empirical work. Cort?s Conde proposes that the economic failure of the Argentinean economy is due to a variety of factors and choices accumulated across time. But the initial institutional framework in which the decision making process occurred remains unclear. For instance, the reader may wish to see a discussion of whether the quality of institutions by the end of the nineteenth century was better than the quality of institutions in the next century. Moreover, it would have been enlightening to contrast the Australian and Canadian experiences with that of Argentina. What did they do right compared to Argentina? How were the interest groups held in check during the twentieth century? Would it not be the case that, since the nineteenth century, both countries had better institutions than Argentina, which would have allowed them to overcome the international shocks of the first half of the twentieth century? Furthermore, a brief discussion of why Latin American countries with similar institutions and development strategies could grow faster would help clarify Argentina’s particular situation. Finally, the potential reader would like to know a little bit more about hypotheses, proposed by other authors, concerning Argentina’s economic failure, and how they differ from the one proposed by Cort?s Conde. Although the book aptly describes the changes in economic policies and their consequences, an analytical framework explaining the winners, the losers, and the players’ sources of bargaining power would have been very useful.

Andr? Mart?nez Fritscher recently completed his Ph.D. at Boston University and will be joining Banco de M?xico as a research economist in the fall. His work focuses on the public finances and regional development in Latin American at the turn of the twentieth century.

Copyright (c) 2009 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (July 2009). All EH.Net reviews are archived at

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

Quantitative Economic History: The Good of Counting

Author(s):Rosenbloom, Joshua L.
Reviewer(s):Hansen, Mary Eschelbach

Published by EH.NET (September 2008)

Joshua L. Rosenbloom, editor, Quantitative Economic History: The Good of Counting. London: Routledge, 2008. xvii + 176 pp. $130 (hardback), ISBN: 978-0-415-77349-2.

Reviewed for EH.NET by Mary Eschelbach Hansen, Department of Economics, American University.

Quantitative Economic History is a compact volume dedicated to the prolific Thomas J. Weiss. Joshua Rosenbloom (Weiss? colleague at the University of Kansas), in cooperation with contributors from among Weiss? many students and collaborators, has certainly maximized the ratio of information to ink. The volume is a worthy celebration of Weiss? accomplishments.

Throughout his career, Weiss has scrutinized the details. He is, for example, the authority on the details of the inconsistencies in census enumeration that make the construction of historical series on the size of the labor force so messy. His efforts to straighten up our statistical house make our results more robust. Rosenbloom places the volume in this context, and the contributors make the case by following his example. Each of the seven papers is based upon a detailed accounting of historical fact. Each fact is carefully considered in relation to the concept purportedly being measured.

The topics in the volume are as far-flung across the landscape of economic history as Weiss? own work. The volume begins with two studies in demography. John Ermisch (University of Essex) contributes a history of non-marital births in England and Wales since 1845. He accounts for increases in the rate of non-marital births by considering the effect of macroeconomic conditions on marriage (lower real wages inhibit marriage, even for already-pregnant women) and social interaction effects of cohabitation (cohabitation facilitated a decline in the stigma costs of non-marital births). The accounting necessary to capture the effects of social interaction is based upon demographic histories constructed from interviews in Britain. Louis Cain (Loyola and Northwestern) and Elyce Rotella (Indiana) argue that the decline in urban mortality in the early twentieth century was ultimately the result of epidemics. Epidemics increased urbanites? demand for city leaders to do something about water-borne illness. At the same time, city leaders saw a dramatic decline in the cost of obtaining information about what, in fact, should be done. Statistics on investment in city-owned infrastructure complement a careful narrative accounting of flows of information.

In the next three essays, contributors examine nineteenth and early twentieth century change in three different sectors: manufacturing, transportation, and agriculture. Jeremy Atack (Vanderbilt) and Fred Bateman (Georgia) use samples from the manuscript censuses of manufactures, an extension of Weiss? work with Bateman. They show that firms with greater capitalization had lower average profits, but more predictable profits, than smaller firms. Michael R. Haines (Colgate) and Robert A. Margo (Boston University) try to capture the treatment effects of connecting counties to rail networks between 1850 and 1860. They use a data set that links the most recent compilation of individual and county-level census data to manuscripts of the census of social statistics, as well as to geographic data on rail access in counties. Lee A. Craig (North Carolina State) and Matthew Holt (Purdue) contribute an accounting of the benefits of mechanical refrigeration to farmers and consumers. They examine a long time series of corn and hog prices and demonstrate that refrigeration reduced the seasonal swings in prices long associated with poor harvests of corn.

The final two contributions return to labor-related issues. Rebecca Holmes, Price Fishback (Arizona) and Samuel Allen (VMI) attempt to measure differences between states in overall intensity of regulation of labor markets during the Progressive Era. They use federal reports of labor regulations enacted in the states and panel state-level economic data collected from a variety of sources. Simple specifications reveal that labor law intensity was positively correlated with labor productivity, but exploratory fixed-effects models do not indicate that the laws, by themselves, affected labor productivity in a meaningful way when other differences between states are considered. Joshua Rosenbloom and Gregory W. Stutes (Minnesota State-Moorhead) examine the usefulness of the Integrated Public Use Microdata Series for 1870 as a source for the measurement of inequality of wealth. They contribute to the literature on inequality and growth by exploiting the geographic dispersion within the 1870 sample.

It is, of course, possible to criticize the papers individually. The reader will want more concrete evidence that the best place to split Ermish?s long time series on non-marital births is World War II, even though the clearest discontinuity is in the late 1970s when unemployment associated with the oil crisis coincided with improvements in the availability of contraception and abortion. The reader may wonder how the municipally-owned water systems described by Cain and Rotella compared to private systems. The reader will want Atack and Bateman to discuss the limits of their data to address important questions about both the life cycle of firms and the life cycle of capital: Do small cap firms become larger cap firm through growth or through merger? To what extent are profits in large cap firms limited by the vintage of their capital? The economic geographer might object to the simplification of von Thunen?s prediction concerning the effect of railroad expansion on agriculture in the paper by Haines and Margo. Von Thunen would have expected the crop mix, not only the value of farm output, to respond to transportation improvement. The reader will wonder what quantitative evidence on the investment in refrigeration was rejected by Craig and Holt. The reader will hope that Holmes, Fishback, and Allen plan to ask whether regulatory climate affected industrial employment and the ratio of skilled to unskilled labor. And finally, the economic historian will want Rosenbloom and Stutes to provide more context for interpreting their estimate of inequality: how different does the U.S. in 1870 look from the U.S. later or from developing countries today?

Yet, no quibbles with individual contributors will reduce the usefulness of the volume. Because of its breadth, the volume will be opened and referenced often. Future students will open it expecting to extract the details. But if they read carefully, they will take away more than the details. They will learn how to scrutinize the details and improve upon them. Professor Weiss will continue to teach about the good of counting, albeit indirectly, through the works assembled in his honor.

Mary Eschelbach Hansen is Associate Professor of Economics at American University. Hansen, with co-author Brad Hansen, has been working towards a history of bankruptcy in the first half of the twentieth century. ?The Role of Path Dependence in the Development of U.S. Bankruptcy Law, 1880-1938? appeared in the Journal of Institutional Economics in 2007; ?Religion, Social Capital, and Business Bankruptcy, 1921-1932? will soon appear in Business History; more will follow.

Subject(s):Transport and Distribution, Energy, and Other Services
Geographic Area(s):North America
Time Period(s):20th Century: WWII and post-WWII

Puissants et mis?rables: Syst?me social et monde paysan dans l’Europe des Francs (VI-IX si?cles)

Author(s):Devroey, Jean-Pierre
Reviewer(s):Grantham, George

Published by EH.NET (July 2008)

Jean-Pierre Devroey, ?conomie rurale et soci?t? dans l’Europe franque (VI-IX si?cles). Paris: Belin, 2003. 381 pp. ?22.50 (paperback), ISBN: 2-7011-2618-5.


Jean-Pierre Devroey, Puissants et mis?rables: Syst?me social et monde paysan dans l’Europe des Francs (VI-IX si?cles). Brussels: Academie Royale de Belgique, 2006. 725 pp. ?60.50 (cloth), ISBN: 2-8031-0227-7.

Reviewed for EH.NET by George Grantham, Department of Economics, McGill University.

Most economic historians who do not specialize in the medieval period draw their understanding of its economic and social evolution directly or indirectly from the work of historians inspired by Henri Pirenne and Marc Bloch, both of whom viewed it as a decisive turning point in Western history. As set out by Georges Duby in his essay on the early growth of the European economy, the half millennium following the formal end of the Roman Empire in the West marks the crucial discontinuity in Western Europe’s economic and social history.[1] The notion was, of course, not new. Originating in the humanist philological critique of early medieval Latin, the notion of a decisive break in social, political, and economic institutions was extended to other domains in the debate between Abb? Du Bos and Montesquieu over whether the Franks were subject to royal taxation, and by early nineteenth-century efforts to construct historical typologies from the surviving diplomatic and legal texts as part of the project to place the French Revolution in historical perspective. That effort led to a consensus that the West experienced a major economic and institutional collapse in the sixth and seventh centuries, and that from the wreckage there emerged a more decentralized economic and political system based on the exploitation of the rural population by lords connected politically in hierarchies constructed from bilateral ties of mutual obligation and fidelity. That institutional space left little room for agricultural innovation and hardly any for economic organization founded on the legal egalitarianism of voluntary exchange. The historiography thus posed three questions: the first concerned the process by which the old world was transformed into a new one; the second concerned the nature of that new world as an economic and social type; the third was how it in turn gave birth to modern western capitalism. Since the dissolution of Roman civilization was an uncontested fact, most attention was devoted to the second and third questions. It is only in the past thirty years that the first has received the attention it deserves, with devastating consequences for the conventional wisdom.

The present works by the eminent Belgian historian Jean-Pierre Devroey represent a vigorous defense of the conventional view that the early medieval society and economy was a distinct social type fundamentally different from the societies that preceded and succeeded it. Explicitly inspired by the theories of Max Weber and Karl Polanyi, this vision is idealistic rather than causal or mechanistic, to use an old-fashioned dichotomy. It aims to explain “why” things worked in terms of their relation to a pre-existing whole rather than “how” they worked in terms of ordinary connections between cause and effect. For Devroey, the true history is sociology. The historian’s task is to show how relations between different elements of a society formed a coherent “whole” or type. The theoretical foundation of this approach to the past is Durkheim’s tenet that social cohesion is a necessary condition for the temporal persistence of a society. This makes the central task of the historian the identification of the sources and mechanisms of that cohesion. Since every society is unique, the mechanisms will differ, providing a basis for comparative analysis of societies. The project of these two works, then, is to construct an ideal type for that analysis. As Teggart pointed out long ago, this approach to history is essentially teleological, since it presumes the whole used to explain the meaning of the parts.[2] In the present case the “whole” is Frankish society. The books thus fall in the category of “stages” history, to which may be added work on the same period by the English historian Chris Wickham, whose approach is also inspired by Polanyi notions of reciprocity and redistribution as essential means of securing social solidarity in primitive societies.[3] Both authors read the early medieval record through the eyes of social anthropologists, and are thus blind to what the eyes of Machiavelli and Adam Smith detect in it.

Devroey’s work thus poses a direct challenge to the alternative vision of early medieval society proposed by Karl-Ferdinand Werner, Jean Durliat and Elisabeth Magnou-Nortier, who view the early Middle Ages from the perspective of the two great theorists of self-interested human behavior. That perspective reveals significant continuity with late Roman civilization in Frankish institutions of public administration and landholding.[4] The findings rest on a re-reading of the polemical and chronological texts, on prosographical studies of the leading Frankish families in the degree the evidence supports it, and on close analysis of the contemporary legal texts. It starts from the premise that the dissolution of the Roman state in the West was essentially an appropriation of its levers of power by German military leaders to whom the Roman state had unwisely subcontracted the defense of the Empire. Given that premise, the central historical questions turn on how the change in administration affected existing governmental apparatus and the day-to-day life of ordinary people, and how political legitimacy ? the ability to command and the willingness to obey ? was maintained in the presence of new and foreign rulers. Of the day-to-day life we know virtually nothing; but it seems plausible that in the core of the Frankish kingdom, things went on pretty much as before, except that, as would be the case down to the middle of the seventeenth century, there was fighting among elites for control of the state and its fiscal resources, and that for this and other reasons that part of the economy based on exchange imploded. On the sources of political legitimacy and the apparatus of administration, the texts are more loquacious, and everything thing they say supports the notion of continuity rather than the creation of a new society by force.[5] If so, the early medieval past was not a different country, but a place and time where men (and women) behaved in ways that are familiar to us. It did not constitute a “whole” whose meaning is accessible only through an exposition of its inner logic, but a congeries of institutions, practices, and attitudes evolving at different rates under the pressure of particular events.

From the perspective of economic history the main issues concern the nature of landholding and the organization of the state. Was land effectively “owned” by the elite and farmed by tenants on tenures determined by asymmetric bargaining, or was it mostly in the hands of small holders subject to their paying a property tax? To some that may be a distinction without a difference: taxes mainly went to support soldiers who the conventional historiography holds were granted land and rights of peasants in payment for their services. In either case the agricultural surplus went to the same people. But from the perspective of agrarian history the distinction is crucial. Taxes were based on assessments not easily altered, since they were regulated by law. On the assumption that they continued to be collected by tax farmers, the proceeds, or more commonly the tax base that generated them, could be securitized and alienated like any other asset, which would explain the exceptionally complex pattern of claims revealed by the sources. The issue turns on the continuity of law. The “primitivist” view of early medieval society espoused by Devroey considers the early medieval era to be fundamentally lawless and governed by relations of force in which the strong expropriated the weak. The “Romanist” view holds for legal continuity; the strong appropriated the tax base but within what must have been fairly wide bounds maintained the rule of law with respect to collection. The issue bears directly on the interpretation of terms relating to agricultural organization, which can be read alternatively as describing estates and farms or as units of fiscal assessment. According to Devroey, the “fiscalist” view is in his words “formalist,” because it rests on the explicit meaning of the legal texts rather than their presumed “real” meaning. He denies that view at great length and in great detail. The denial represents the core of both volumes.

Neither book is an easy read. ?conomie rurale is intended as a textbook for students preparing the aggr?gation, or state doctoral examinations in medieval history. Puissants et mis?rables is a treatise constructed on Weberian principles modified by late twentieth-century French sociology. Both deploy immense erudition to support the conventional view of a discontinuity and social primitivism against the hypothesis of continuity. Since the technical debate turns on etymological issues bearing on individual terms, it would be fruitless to attempt to summarize the argument in a short review. I am not persuaded by it, but as I am not a specialist in late Roman and early medieval Latin my judgment carries no special weight in the debate. Nevertheless, many of his arguments strike me as dogmatic assertions and special pleading. Heavy reliance on Polanyi as a source of theoretical insight raises further danger flags, as do abstract sociological arguments used to motivate description and analysis of institutions. One longs for a simple explanation of how things worked rather than why they worked. In terms of the issues raised, both books would have been better served by a clear exposition of the alternative points of view followed by analysis of facts bearing on them. They contain a lot of useful matter, but it is hard work to release them from their matrix of verbiage. The bibliography is magnificent. To cite the review of Moritz-Maria von Igelfeld’s Portuguese Irregular Verbs, the books give the impression that “there is nothing more to be said on this subject. Nothing.”[6] There is, of course, much more to be said.

Of the two works, the textbook is more accessible to non-specialists, despite being disfigured by “boxes” containing further information of the kind familiar to users of elementary textbooks in economics. The other covers more ground and provides a splendid introduction to the huge explosion in scholarship since the 1960s. Neither book can be ignored. Though clearly not the last word in early medieval economic and social history, they represent a major contribution that no one pretending to an opinion on the period can afford to dismiss. They are, however, highly opinionated, and must be read in conjunction with the literature they criticize. This is hard work, but there are no short-cuts to mastering the secondary literature on early medieval economic history. The divisions among its main practitioners are important and deep. The best account in English is a recent survey by Goldsmith, who gives a clear exposition of the “fiscalist” hypothesis, and follows up its implications for the subsequent evolution of land tenure in France to the end of the Middle Ages.[7] This is the best place for beginners to start.

The early middle ages are a fascinating and central segment of the history of western civilization. Like all extended periods, they were a time of transition. The explosion of scholarship since the 1960s and the renewal of interest in classical antiquity have given new life to a subject whose general contours seemed to have been set in stone in the magnificent syntheses proposed by Pirenne and Bloch. It is time for a new synthesis that encompasses the new findings and interpretations in a plausible narrative account of the transformation of a society and economy over five centuries. That synthesis is within reach, but to attain it will require confronting these two large volumes that, like the Roman army in its latter days, defend the conventional wisdom on the several fronts of attack.


1. Georges Duby, The Early Growth of the European Economy: Warriors and Peasants from the Seventh to the Twelfth Century, London (1974).

2. Frederick J. Teggart, Theory of History, New Haven (1925).

3. Chris Wickham, Framing the Early Middle Ages: Europe and the Mediterranean, 400 – 800, Oxford (2005).

4. Karl-Ferdinand Werner, Naissance de la noblesse: L’essor des ?lites politiques en Europe, Paris (1998); Elisabeth Magnou-Nortier, Aux sources de la gestion publique. 1. Enqu?te lexicographique sur le fundus, villa, domus, mansus, Lille (1993); Jean Durliat, Les finances publiques de Diocl?tien aux Carolingiens, 284-889, Sigmaringen (1990).

5. Bernard Bachrach, Early Medieval Warfare: Prelude to Empire, Philadelphia (2001).

6. Alexander McCall Smith, Portuguese Irregular Verbs, London (2003).

7. James Lowth Goldsmith, Lordship in France, 500-1500, New York (2003).

George Grantham is Professor of Economics at McGill University, where he teaches economic history and the history of economic thought. His work on the present topic includes “The Early Medieval Transition: On the Origins of the Manor and the Early Medieval Transition,” presented at the Annual Meetings of the American Economic Association, Nashville, 2003. He is currently revising papers on “What’s Space Got to Do with It? Distance and Agricultural Productivity before the Railway Age” and “The Prehistoric Origins of European Economic Integration.”

Subject(s):Government, Law and Regulation, Public Finance
Geographic Area(s):Europe
Time Period(s):Medieval