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Great Transformations: Economic Ideas and Institutional Change in the Twentieth Century

Author(s):Blyth, Mark
Reviewer(s):Knoedler, Janet T.

Published by EH.NET (August 2003)

Mark Blyth, Great Transformations: Economic Ideas and Institutional Change in the Twentieth Century. Cambridge: Cambridge University Press, 2002. xii + 284 pp. $60 (cloth), ISBN: 0-521-81176-7; $22 (paperback), ISBN: 0-521-01052-7.

Reviewed for EH.NET by Janet T. Knoedler, Department of Economics, Bucknell University.

Mark Blyth begins his important new book, Great Transformations: Economic Ideas and Institutional Change in the Twentieth Century, with his working class father’s complaint about the British Labour party. “Once they get elected,” his father said, “Labour will spend all this money on creating jobs, which is fair enough, but it never works. It just means prices go up. … This means we all have to pay more on loans and such things, so people will have less money to spend. The less people spend, the more the economy slows down, and so there are fewer people in work. If the Tories get in again, they’ll cut taxes, people will spend more, and there will be more jobs” (p. vii). His father’s concise summary of the basic Keynesian-Monetarist-Supply Side debate of the late twentieth century and his obvious rejection of activist government resonated deeply with Blyth, who began in graduate school to reflect on the great power of these economic ideas and to develop the argument that appears in this book.

For most of the twentieth century, thanks of course to Keynes and the Keynesians and, less famously, to Karl Polanyi’s The Great Transformation, it was for the most part not disputed that governments had an important role in softening the rough edges of capitalism. Polanyi argued that a self-regulating market mechanism could not govern the fates of labor, land, and capital (Polanyi, p. 73), without inviting great social disruption and upheaval. Governments had to provide protection for their workers, the natural environment, and aggregate purchasing power, from the often wrenching vicissitudes of economic and technological change. Change could not be prevented, argued Polanyi, but governments could and should take action to manage the rate and direction of change so as to protect those most vulnerable to the ravages of capitalism. Moreover, because protective social institutions and legislation had appeared almost immediately after the rise of the self-regulating market and had been strengthened since that time, Polanyi believed that the very notion of a self-regulating capitalism had been effectively repudiated.

Or had it? In Great Transformations, Blyth questions whether Polanyi was correct in positing activist government and the social safety net as a permanent feature of modern capitalism. If the first great transformation led to workers demanding protection from self-regulating market processes, it is reasonable to expect “in turn another reaction against those embedding institutions by those most affected, namely capitalists” (p. 4). And, according to Blyth, we have indeed seen just such a counter double movement over the past two decades, as many governments have come to diagnose their economic problems as being rooted in their own activist policies and have begun to take apart many of their important institutions and instruments of social protection. Blyth identifies two important factors in this reversal of the double movement: the political use of economic ideas and concerted political action by the business sector. In addition to his careful delineation of the historic role of the business sector in combating the double movement, Blyth also contributes a theoretical analysis of how economic ideas “are vitally important components of institutional construction and change” (p. 6).

The role of economic ideas is the essential piece of the puzzle for Blyth. Ideas may or may not reflect the real world, but they are nonetheless constructs that provide “agents with both a ‘scientific’ and a ‘normative’ account of the existing economy and polity, and a vision that specifies how these elements should be constructed” (p. 11). Moreover, given that economic change most often produces “Knightian uncertainty,” that is, an economic crisis with uncertain causes, economic ideas become even more important because they serve as simplifying blueprints that “tell agents what to do and what future to expect” (p. 11). Building upon these basic premises, Blyth sets forth five specific hypotheses about how economic ideas lead to the kind of institutional change that we have witnessed with the counter double movement: 1) economic ideas reduce uncertainty; 2) economic ideas allow for coalitions of various interest groups to be built around them; 3) economic ideas can be used as weapons by the major actors in a given society to challenge existing institutions, these major actors being the state, the business sector, and labor; 4) economic ideas are used in the construction of new institutions to supplant the old; and finally, 5) economic ideas help to coordinate the expectations of the various actors, helping to produce institutional stability.

Blyth then uses this basic framework to investigate the construction, and later dismantling, of activist states in the U.S. and Sweden, and makes use of a massive literature from both economics and political science. His five chapters detailing the double movements and the counter double movements in the U.S. and Sweden are real strengths of this book. A brief consideration of these two movements in the U.S. will demonstrate his theory in action.

In the 1930s U.S., a number of competing theories were offered to explain the economic crisis. The dominant economic idea then prevailing, that this (and any) depression, Great or otherwise, was temporary and would therefore self-correct, was quickly rejected by Hoover. However, his attempts to use alternative theories met with little success. Throughout Franklin Roosevelt’s first administration, other economic theories, such as the administered prices thesis and “sound finance” (or as we call it today, balancing the federal budget), were tested. Business rejection of the National Recovery Administration and failure of sound finance in the crisis of 1937 led the Roosevelt administration to seize upon a fourth theory, the theory of underconsumption, to diagnose the continuing economic crisis as one of insufficient aggregate demand. Both labor and business came to support this approach, labor because of the earlier Wagner and Social Security Acts, and business due to its involvement in wartime production and in many wartime institutions. Significantly, after the war, the business sector formed the Committee on Economic Development to develop the theory of growthmanship — a peacetime variation of FDR’s Keynesian approach that supported sustained high employment and high production and an activist state, in part to quash socialist-stagnationist theories but in part to signal its formal support for activist government. Several major institutions emerged during the 1930s and 1940s to become instruments of embedded liberalism and expanded in the 1950s and 1960s. The resulting institutional stability benefited labor with growing real wages and business with rising profits for three decades.

But, as has been documented by many economists and economic historians, the mid-to-late 1970s ushered in a turning point, or in Blyth’s phrasing, the second great transformation. A major contribution of this book is Blyth’s analysis of the role of ideas and the complicity of the business sector in bringing about this second transformation. This time, the Great Inflation of the 1960s and 1970s, accompanied by periods of high unemployment and stagflation, created an environment of great uncertainty for business, labor and government. Once again, an economic crisis called for new theories, or more precisely, the repackaging of several old neoliberal theories that were taken “off the shelf” (p. 267). Both Milton Friedman’s theory of monetarism and the rational expectations school of macroeconomics challenged the effectiveness of activist monetary policy. Supply-siders resuscitated Say’s Law. Public choice theorists attacked government spending as the self-interested behavior of political actors. All four of these theories challenged important foundations of activist government, and posited that inflation and the current economic crisis, rather than being something that government should try to solve, was in fact the very product of that activist government.

As Blyth hypothesizes, such new (or “rediscovered”) economic ideas must garner support from coalitions of various interest groups if they are to be heard and then used as weapons to challenge existing institutions. And a key interest group — the business sector — played an essential role in dismantling the institutions of activist government in the U.S. by becoming, as Blyth puts it, “directly involved in the production and dissemination of alternative ideas” (p. 154). The rise of corporate PACs beginning in the 1970s was one important step. A second step was business funding of conservative think tanks: the American Enterprise Institute, the Hoover Institute, and the Heritage Foundation were three key institutions that received major infusions of funds in the 1970s to carry out research in the vein of conservative economics. A third step occurred when publications as diverse as the Wall Street Journal, The Public Interest, and Reader’s Digest began to popularize supply-side theories. Finally, the financial markets and the Fed together embraced monetarism, making “the state’s role in economic management obsolete almost at a stroke” (p. 171).

A “new again” theoretical foundation was thus arrayed against activist government through the active sponsorship of the business sector. All that was left was the actual dismantling. Reagan used the refrain, “government is the problem,” to win the 1980 presidential campaign and proceeded to roll back activist government on many fronts throughout the 1980s. A decade later, Clinton continued this reversal of the double movement by embracing deficit reduction (the sound finance rejected decades earlier by FDR), substantially reducing the welfare entitlement, and proclaiming that “the era of big government is over.”

The result of this second great transformation in the U.S, according to Blyth, is a greater concentration in both income and wealth (it is noteworthy that this data does not include the tax cuts of the last three years) and a substantial weakening of the institutions of embedded liberalism. Falling real wages have been exacerbated by higher interest rates (until recently) due to the burgeoning federal deficit of the Reagan and first Bush eras. Citing William Berman, Blyth states that an average of $140 billion annually has been transferred to the wealthiest 5% in the United States. All of this suggests, even without the privatization of Social Security that is the next likely target of the forces arrayed against activist government, that this second great transformation has been at least as “great” as the first.

Why has labor been so quiescent in voting for political leaders that have worked hand in hand with the business sector to dismantle the safety net? Part of the answer lies in an irony noted by Blyth: “While the Democrats defeated the ideas of business in order to build embedded liberalism, business was able to dismantle embedded liberalism only once the Democrats had lost sight of what they were defending” (p. 201). And another part of the answer is found in Blyth’s very careful and sober discussion of the corporate takeover of democracy through PACs and think tanks. But these are only pieces of a more complex story still to be told.

Blyth also recognizes another key unanswered question when he asks: “Why were the ideas used to attack and dismantle embedded liberal institutions … essentially the same ideas discredited a generation before?” Blyth speculates that the “mythology of competition, individualism, and markets” (p. 267) may hold residual power over enough of the core constituencies to maintain belief in these powerful theories. Answering this question satisfactorily, of course, would take at least one more book, but it is indeed the important question.

In summary, this is a good book that raises more questions than it answers, but uses Karl Polanyi’s analysis to raise them well.

Reference: Polanyi, Karl. The Great Transformation. Boston: Beacon Press, 1957 (orig. 1944).

Janet T. Knoedler is Associate Professor of Economics at Bucknell University. She has published numerous articles on institutional economics and history of economic thought, and is presently at work co-editing a book on institutionalist approaches to labor economics, to be published by M.E. Sharpe.

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

From Liberty to Democracy: The Transformation of American Government

Author(s):Holcombe, Randall G.
Reviewer(s):Dinan, John

Published by EH.NET (May 2003)

Randall G. Holcombe, From Liberty to Democracy: The Transformation of American Government. Ann Arbor: University of Michigan Press, 2002. xv + 336 pp. $52 (cloth), ISBN: 0-472-11290-2.

Reviewed for EH.NET by John Dinan, Department of Political Science, Wake Forest University.

Randall G. Holcombe is concerned in From Liberty to Democracy: The Transformation of American Government with “describing the changes in American government during its first two centuries,” and demonstrating that “the great transformation occurred at the end of the nineteenth century and the beginning of the twentieth century,” when “the overriding principle behind American government was transformed from the protection of individual rights to the principle of democracy” (p. xiii).

Holcombe, the DeVoe Moore Professor of Economics at Florida State University, argues that the founders “intended to create a government that would protect the rights of its citizens, ensure their freedom, and do little else” (p.1). As a result: “The role of democratic decision making was severely limited both by insulating the new government from direct voting and by constitutionally limiting the scope of the government” (p. 97). It is true, he notes, that the drafters of “the Constitution created a government more powerful and less constrained than the one that existed under the Articles [of Confederation],” and thereby “created an environment within which the U.S. government had a greater ability to grow than would have been the case under the Articles” (p. 78). Nevertheless, the founders were committed, in the main, to the proposition that “the role of a constitution was to guarantee the rights of individuals and to limit the powers of government” (p. 59).

Although the nineteenth century brought a gradual democratization of political institutions (particularly during the Jacksonian Era), as well as a major expansion of the power of the federal government (particularly with the passage of the Civil War Amendments), the major transformation of American government did not take place until the onset of Progressivism in the late-nineteenth and early-twentieth century. As Holcombe explains: “Liberty for the founders meant that the government would protect the rights of individuals but would have minimal involvement in their economic affairs. The Progressives viewed that notion as outmoded. The oppression that only the government could exert by force when the nation was founded was now being imposed by the trusts, and economic power had replaced political power as the oppressor of the people” (p. 171). To be sure, FDR’s New Deal also played a role in “establish[ing] the role of the federal government in promoting the nation’s economic well-being” (p. 219). And LBJ’s Great Society programs were critical in heralding “the ultimate triumph of democracy because for the first time there was a major expansion in the scope of government power, based on the demands of the electorate, with no extenuating circumstances” (p. 247). In the end, though, Holcombe concludes that the seeds for these twentieth-century developments “were sown in the Progressive Era prior to World War I,” (p. 208) and therefore the Progressive Era constituted the “explicit break with the past that redefined the role of government to include the protection of the economic welfare of its citizens” (p. 188).

Holcombe is certainly not alone in pinpointing the Progressive Era as the key period in the transformation of American government. A number of Progressives were quite open at the turn of the twentieth century about the extent to which they were prepared to challenge founding institutions and ideals. And a growing number of scholars in recent years have taken to reexamining the influence of Progressivism on the development of American political institutions. Holcombe’s principal contribution is to place the Progressive movement in the overall context of American political development (his sweeping survey stretches from Hobbes and Locke to Reagan and Clinton, and includes discussions of the Articles of Confederation and the Confederate Constitution along the way) and to provide a number of insightful details regarding these varied topics. In the course of tracing the development of American electoral practices, for instance, Holcombe notes that a number of states have deviated at times from the normal practice of electing members of the House of Representatives from single-member districts, and that general ticket representation and at-large representation were both used by several states as late as the 1960s. And through a careful comparison of the U.S. and Confederate Constitution, he highlights a number of ways in which the drafters of the Confederate Constitution modified or supplemented particular provisions in the U.S. Constitution, including eliminating the words “general welfare” from the tax and spend clause, prohibiting certain types of internal improvements, and granting the president the line-item veto for appropriations bills. These are just a few of the insights that Holcombe provides in the course of his survey of American political development.

These virtues having been noted, From Liberty to Democracy is not without its shortcomings. For one thing, this is a sprawling book that frequently takes up and then returns to the same topic on a number of different occasions in the course of the narrative. Another round of editing could have eliminated a certain amount of this repetition, though this is to some degree unavoidable when one is integrating several previously published articles with other chapters that appear here for the first time.

In addition, Holcombe is at his best when he is describing the transformation of American government, which is the principal focus of the book; he is somewhat less successful when he turns to evaluate this transformation, as he does at assorted points in the course of each chapter and then in a sustained fashion in a concluding chapter entitled “The Dangers of Democracy.” It is not that Holcombe’s critique of democratic decision making is without merit. In fact, he is squarely in the mainstream of public-choice scholarship when he highlights “the problems that occur with majority rule voting” (p. 257), and contends that “democratic political institutions favor policies that impose small costs on most people, who are rationally ignorant about the policies, to finance large benefits to smaller groups” (p. 263). But a comprehensive evaluation of democratic decision making would require even more attention to the advantages as well as the disadvantages of democratic institutions, and would benefit from a more extensive consideration of the leading alternatives in the contemporary era.

John Dinan is author of Keeping the People’s Liberties: Legislators, Citizens, and Judges as Guardians of Rights (Lawrence, KS: University Press of Kansas, 1998).

Subject(s):Government, Law and Regulation, Public Finance
Geographic Area(s):North America
Time Period(s):20th Century: WWII and post-WWII

American Exceptionalism, American Anxiety: Wages, Competition, and Degraded Labor in the Antebellum United States

Author(s):Glickstein, Jonathan A.
Reviewer(s):Margo, Robert A.

Published by EH.NET (December 2002)

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Jonathan A. Glickstein, American Exceptionalism, American Anxiety: Wages, Competition, and Degraded Labor in the Antebellum United States. Charlottesville, VA: University of Virginia Press, 2002. viii + 361 pp. $39.50 (hardcover), ISBN: 0-8139-2115-5.

Reviewed for EH.NET by Robert A. Margo, Department of Economics, Vanderbilt University.

It is said that the longest running debate in British economic history is the standard of living debate. No debate in American history can be as long running as any debate in British history. Nevertheless, Americans have our own version of the British debate. The issue, simply put is: did American workers “benefit” from early industrialization? For the American case, this comes down to the period from 1820 to 1860.

Until recently the prevailing wisdom on this issue among economic historians — if not labor historians — could be described as strongly Whiggish. Estimates of per capita incomes suggest that these grew in real terms. The distribution of economic rewards may have become more unequal, but not enough to reverse the gains. The quantitative evidence, however, did not seem to square all that well with qualitative accounts, which emphasized the inconstancy of work, the grinding poverty experienced by some groups, the difficulty of moving up, growing pauperism in certain cities, and widespread misery experienced during any of the several antebellum financial “panics.”

This was also a period during which wage labor grew substantially in relative importance. Few people worked for wages early in the nineteenth century, but far more did in 1860, particularly in eastern cities. Labor became a commodity, bought and sold like flour or rum.

Recent cliometric work has challenged the Whiggish point of view. Data on heights and mortality suggest that health conditions were worsening during early industrialization. Robert Fogel has called attention to the so-called “hidden depression” that afflicted eastern urban labor during the late 1840s and early 1850s. Fogel emphasizes several aspects of the transformation of workplaces during this period — the intensification of the pace of work, “de-skilling,” and so on — that are hard to measure and, therefore, have not been incorporated into various quantitative measures of the standard of living.

New estimates of real wages prepared by your reviewer also challenge the Whiggish perspective. If you believe me, real wages grew overall at about 1 percent per year between 1820 and 1860. This number is greater than zero but rather less than previous estimates. Artisans fared worse than common laborers, who fared worse than white-collar workers. Perhaps most importantly, growth was in fits and starts, and there were several periods of poor performance, notably the 1850s. This decade experienced what was perhaps the first “welfare explosion” in American history, partly because real wage performance was so poor.

Jonathan A. Glickstein’s new book is also about wage labor during early American industrialization, but it is not a quantitative work. Rather, its “data” consist of the written record of commentators of the time, primarily elites, commenting about the transformation of work occurring around them. It is about questions like: what did these people think were the good and bad points about a “free” labor market? Were workers motivated by the positive incentive of upward mobility, or the threat of starvation? If one might starve, would it have been better to be a slave? Why did some commentators extol the “intrinsic” benefits of common labor, particularly if it were work that they themselves would never do (being elites)? Broadly speaking, the book about the differences between “perception” and “reality” — if elites thought America was really such a promised land for free labor, why were the promises unfulfilled for so many — particularly, for those other than white males? Were the elites simply misinformed, or did they simply not care, perhaps because they were more interested in constructing an ideology that rationalized their own privileged status. (Jonathan A. Glickstein is Associate Professor of History at the University of California, Santa Barbara, and the author of an earlier work on ante-bellum labor, Concepts of Free Labor in Antebellum America.)

Let it be said at the outset that, for someone like me, this book is not an easy read. It is full of words like “poststructuralism” and phrases like “linguistic turn.” There are no tables and no regressions and, therefore, no escaping the text. The text is densely written, the footnotes more so. However, the footnotes are also filled with references to the economic history literature and, allowing for publication lags, these are up-to-date. Your reviewer’s work is featured prominently in the Introduction, and in the footnotes, along with most of the other relevant economic historians. Glickstein doesn’t always agree with us, and sometimes he gets the story wrong. (For example, on p. 7, he claims that I find that eastern artisans “fared worst of all.” Assuming he means “northeastern,” these experienced higher real wage growth than artisans in the Midwest, or the South; see my Wages and Labor Markets, p. 51.) But he is never dismissive of economic history without reading, and I appreciate that (would that we economic historians were so charitable in reverse).

American Exceptionalism is divided into an Introduction, seven substantive chapters, and a Conclusion. The Introduction, as implied above, sets the stage, noting how recent work in economic history has challenged the Whiggish point of view. Glickstein’s interests, however, are not in the particulars of the debate in economic history, but rather in how individuals — as noted above, mostly elite — conceived of wage labor. Chapter One, “The World’s Dirty Work,” considers views expressed at the time about whether common labor carried “intrinsic” rewards (such as building character) or had only “extrinsic” value (that is, in facilitating consumption, as assumed in the standard labor-leisure model). It also considers the development of beliefs that America was exceptional in the opportunities it provided ambitious free labor — and, therefore, why those who failed did so through their own fault.

Chapter Two, “Pressures from the Bottom,” focuses on how evidence contrary to exceptionalism was to be reconciled. What is one to make of the benefits of a “free” labor system when paupers were swarming on city streets? Perhaps, some commentators suggested, they swarmed because the availability of poor relief “distorted natural market forces” (p. 69). It also considers some of the rhetoric of anti-slavery discourse, in particular, whether slavery “freed” the slave from the risk (and attendant anxiety of facing) starvation, and how this could be weighed against the loss of “hope” — that is, freedom and upward mobility.

Chapter Three, “Buy Cheap, Sell Dear,” takes as its point of departure some of Horace Greeley’s observations on strikes, “especially those of the Iron Puddlers of Pittsburgh.” Greeley admonishes the workers for complaining that their wages “ought” to be higher because the employer can “afford” it. Who among the strikers, Greeley asks, gave the same consideration to the poor widowed seamstress who made the men’s shirts? Glickstein points out, however, that one’s own pursuit of self-interest, given the rules of the economic game, does not mean that one would not prefer different rules. While acknowledging that self-interested behavior proceeded the “market revolution” of the early nineteenth century, Glickstein still insists that that “industrial and urban capitalist components” of the revolution led to a new social norm, one in which a “competitive free-market ethos … did come to govern a plethora of social and economic relationships” (p. 113). Chapter Four, “Further Social Consequences of the Market Mechanism,” examines some of the difficulties that early labor activists faced in reconciling nascent versions of the labor theory of value with the emerging capitalist ideology.

Chapters Five through Seven are inter-related in their use of Gresham’s Law as an organizing device. As originally conceived, Gresham’s Law applied to bad money but in its more general guise, it can apply to bad anything — in Glickstein’s case, “bad” labor arrangements driving out the “good.” Chapter Five examines an address by George M. Weston, a prominent anti-slavery writer of the era. Ostensibly “about” how slavery reduced the wages of free labor, Glickstein also uses the address to segue into two other forms of “cheap” labor. Attitudes towards the first of these, convict labor, are examined in Chapter Six. Convict labor refers to the practice on the part of state government officials of making prisoners available to private contractors. Never widespread, the practice was nevertheless widely condemned at the time by ante-bellum labor organizations. Chapter Seven draws attention to the fact that restrictions placed on the use of convict labor adopted by the New York State Legislature in the early 1840s exempted domestic employers who competed directly with imported manufactured goods. These exemptions recognized, or so the claim went, that such imports were produced by cheap (“pauper”) labor. As a consequence, American manufacturers needed the exemptions to be competitive.

American Exceptionalism is a demanding work. Glickstein makes few concessions to readers who are not fluent in contemporary “humanistic” approaches to historical writing. If I have one criticism, it is that Glickstein might have drawn more parallels with our own time. (Chapter Seven, which notes the resonance of the debate over “pauper” labor with contemporary debates over “globalization,” is a partial exception.) However, the questions that motivate this study are fascinating and well worth the attention of cliometricians, even if they are not the questions that we are used to asking.

Robert A. Margo is Professor of Economics and History, Vanderbilt University, and Research Associate of the National Bureau of Economic Research. He is the author of Wages and Labor Markets in the United States, 1820-1860 (Chicago, 2000) and (with Joel Perlmann) Women’s Work? American Schoolteachers, 1650-1920 (Chicago, 2001).

Subject(s):Living Standards, Anthropometric History, Economic Anthropology
Geographic Area(s):North America
Time Period(s):19th Century

Enriching the Earth: Fritz Haber, Carl Bosch, and the Transformation of World Food Production

Author(s):Smil, Vaclav
Reviewer(s):Johnson, D. Gale

Published by EH.NET (November 2001)

Vaclav Smil, Enriching the Earth: Fritz Haber, Carl Bosch, and the

Transformation of World Food Production. Cambridge, MA: MIT Press, 2001.

xxii + 338 pp. $34.95 (hardcover), ISBN: 0-262-19449-x.

Reviewed for EH.NET by D. Gale Johnson, Professor of Economics, Emeritus,

University of Chicago.

This is a book about nitrogen, an essential nutrient for all plants. It

begins with the discovery and demonstration of the role of nitrogen in plant

growth. The nitrogen available to plants has several natural sources — the

ammonia present in rain and that deposited by leguminous crops, supplemented

by manure, derived from both animals and humans. The story is told of the

intellectual conflicts between Justus von Liebig, who maintained that all

nitrogen available to plants came from the atmosphere, and researchers at the

famous Rothamsted Experimental Station in England who through experiments with

wheat showed that the nitrogen from the atmosphere was insufficient to have a

significant effect on yields while the application of ammonium sulfate or

manure resulted in significant increases in yields, roughly double those of

fields fertilized only by the nitrogen in rain. Professor Smil of the

Department of Geography of the University of Manitoba develops this and other

stories in an interesting and informative way.

The major story is the development of the process by which nitrogen can be

extracted from the air. In contrast to other sources of nitrogen, such as

guano and South American sodium nitrate, which were exhaustible, there is an

inexhaustible supply of nitrogen in the air. The problem was how to extract

that nitrogen at reasonable cost.

Chapter 4 deals with the work of Fritz Haber who achieved the successful

extraction of ammonia from the air. Chapter 5 discusses the role of Carl Bosch

and the BASF firm in the commercialization of the process. An important reason

for the rapid development of commercialization was the First World War.

Germany was cut off from its supply of nitrates, used in the production of

munitions. BASF stepped in and supplied the material.

In Chapter 8 Smil speculates about the effect that the availability of

synthetic nitrogen has had on the world’s population. He argues that the world

is enormously dependent on nitrogen and that less than half of the current

world population could be fed without the availability of synthetic nitrogen:

” . . . only about half of the population of the late 1990s could be fed at

the generally inadequate per capita level of 1900 diets without nitrogen

fertilizer. And if we were to provide the average 1995 per capita food supply

with the 1900 level of agricultural productivity, we could feed only about 2.4

billion people, or just 40% of today’s total” (p. 160).

Smil notes that during the nineteenth century that the world was able to feed

the unprecedented population increase from 1.0 billion to 1.6 billion by

expanding the cultivated area (p. 39). The expansion occurred primarily in

North America, Australia and Russia and was sufficient to permit an increase

in per capita food supplies. The expansion of area continued in the twentieth

century but concern was expressed at the beginning of the century that

insufficient land was available to meet the needs of the growing population.

William Crookes argued that if the low wheat yields that existed in the 1890s

were to continue (and they did for at least a half century), the increase in

global demand would result in a deficiency of wheat as early as the 1930s.

What Crookes did not foresee, and what Smil does not recognize, was the role

the tractor played in contributing to the food supply, especially in the

industrial nations, after World War I. It was estimated that draft animals

utilized a quarter of all the harvested output of American agriculture in the

1920s (Gray, 1924). In fact, researchers in the United States Department of

Agriculture wrote a long article in the early 1920s in which they indicated

that the United States would have to reduce its consumption of animal products

in order to feed a population of 150 million (Gray, 1924). The United States

reached a population 150 million in 1950 and was somewhat better fed than in

1920. Why were these very competent researchers wrong in their projection?

First, they did not foresee that by the time the population reached 150

million that horses and mules would be largely replaced by the tractor,

releasing up to a quarter of the nation’s crop output. Second, one reason for

their gloom was that grain yields in the United States had increased very

little since the 1860s and they saw no reason to expect significant yield

increases in the future.

Smil makes no mention of the tractor and other forms of mechanical power that

have contributed significantly to the available food supply for humans — true

much more so in the industrial countries than in the developing countries but

clearly significant for the world as a whole.

While there is no doubt that synthetic nitrogen fertilizer has had an enormous

impact on the world’s food supply, Smil largely fails to recognize that this

innovation was a necessary but not sufficient condition for the enormous

increase in food that has occurred over the last half century. The varieties

of grain available prior to the mid-1930s were not responsive to significant

amounts of added nutrients. Yields of corn and wheat in the United States were

essentially the same in the late 1920s as in the late 1860s or even in 1800

(USDA, 1962). The corn yield per acre averaged 25.3 bushels in 1866-70 and

26.5 in 1925-29, while wheat yields were 12.3 and 14.1. Wheat yields in

England were 2.08 metric tons per hectare in 1832-59 and 2.25 tons in 1918-45

(Austin and Arnold, 1989), an increase of less than 10 percent in nearly a

century.

Hybrid corn, which became commercially available in the mid-1930s, was the

first variety of grain that was responsive to significant amounts of nitrogen

and other nutrients. By 1960 corn yields in the United States were double what

they were in the late 1920s and are now five times that level. In the 1960s

new high-yielding varieties of rice and wheat were developed and large yield

increases have been achieved. Smil notes that the use of nitrogen fertilizers

did not increase significantly until the late 1940s when U.S. consumption was

approximately 0.25 million tons; it reached 11 million tons by 1980. It didn’t

increase prior to the 1940s because it was not profitable to use.

It is very surprising that Smil says so little about the complementary

relationships between improved grain varieties and the rapid growth of

nitrogen application. I found only two brief references to hybrid corn (pp.

116 and 150) and one reference to the Green Revolution (p. 139), plus a rather

demeaning footnote.

The footnote (no. 30, p. 296): “The Green Revolution did little for yields of

nonstaple cereals, legumes and oil crops. Its diffusion has been very uneven .

. . and some of its socio-economic and environmental consequences have been

widely criticized in many books published since the 1960s.” There is no

recognition that grain yields in developing countries more than doubled

between 1964-66 and 1994-96 after a long period of stagnation and the daily

per capita supply of calories in the same countries increased by 23 percent

between 1970 and 1996 — a quite remarkable achievement for a flawed

revolution.

It is rather ironic that a major environmentally adverse effect of modern

grain production is the leaching of nitrogen into rivers, lakes and other

sources of water supplies. Smil recognizes the negative effects of the high

level of use of synthetic nitrogen for the industrial countries (pp. 192-197)

and for rice in the developing countries (p. 219). It is somewhat odd for him

to attribute environmental costs to the Green Revolution without directly

acknowledging the role that his heroes — Haber and Bosch — had in harming

ecosystems throughout the world.

This is a remarkably well-documented book — there are 813 footnotes. It has a

high standard of scholarship. It makes a very strong case for the importance

of the extraction of nitrogen from the air for the lives of all of us.

Unfortunately the author largely ignores other important developments that

were essential for the effective utilization of synthetic nitrogen.

Together with important innovations in plant breeding, the availability of low

cost nitrogen broke the pattern of low grain yields that had persisted for at

least a century and probably longer. The world is a very different place as a

result.

References:

Austin, Roger B. and Michael H. Arnold (1989), “Variability of Wheat Yields in

England: Analysis and Future Prospects,” in Jock R. Anderson and Peter B. R.

Hazell, editors, Variability of in Grain Yields. Baltimore: Johns

Hopkins University Press, pp. 100-106.

Gray, L. C., et al (1924), “The Utilization of our Land for Crops, Pasture and

Forest,” in United States Department of Agriculture, Yearbook of

Agriculture 1923. Washington, DC: Government Printing Office.

United States Department of Agriculture (1962), Agricultural Statistics

1962. Washington, DC: Government Printing Office.

D. Gale Johnson is the Eliakim Hastings Moore Distinguished Service Professor

of Economics Emeritus at the University of Chicago. He is the author of

World Agriculture in Disarray, revised edition 1991 and “Agricultural

Adjustment in China: Problems and Prospects,” Population and Development

Review, Vol. 26, No. 2, June 2000.

Subject(s):History of Technology, including Technological Change
Geographic Area(s):General, International, or Comparative
Time Period(s):20th Century: WWII and post-WWII

American Agriculture and the Problem of Monopoly: The Political Economy of Grain Belt Farming, 1953-1980

Author(s):Lauck, Jon
Reviewer(s):Woeste, Victoria Saker

Published by EH.NET (July 2001)

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Jon Lauck, American Agriculture and the Problem of Monopoly: The Political Economy of Grain Belt Farming, 1953-1980. Lincoln: University of Nebraska Press, 2000. xiv + 250 pp. 10 tables, notes, index. $45.00 (cloth), ISBN 0-8032-2932-1.

Reviewed for EH.NET by Victoria Saker Woeste, American Bar Foundation, Chicago, Illinois

Twentieth-Century Agricultural Politics: Playing the Monopoly Card

Farmers’ attacks on monopoly have been the main event of U.S. agricultural politics since the Civil War. Industrialization transformed modes of production and processing, reconfigured the relationships between producers and consumers, and resulted in a higher concentration of bargaining power in corporate hands. These results supposedly sounded the death-knell for the family farm and answered the question of whether Jeffersonian values could endure in an industrial society, apparently in the negative. Though variations on this theme have been sung, the tune has remained the same. American agriculture’s monopoly problem has endured from the nineteenth through the twentieth. Yet we produce more food than ever before, pay less for it than ever before (even after adjusting for inflation), and we have fewer individual farmers than ever before.

Jon Lauck, a historian and practicing agricultural lawyer, has performed a valuable service for historians of American agriculture, business, and law with this book, American Agriculture and the Problem of Monopoly: The Political Economy of Grain Belt Farming, 1953-1980. Lauck’s purpose is to trace the politics of agriculture’s antimonopoly crusade in the post-World War II period. This is obviously a subject with a substantial “prehistory,” so to speak. Historians are pretty well versed in the history of nineteenth-century agricultural protests, even if we don’t agree on the meaning or implications of those protests.[1] We also know a fair amount about the impact of 1920s associationalism and the New Deal on the economic organization of agricultural production.[2] Yet it would be a mistake to believe that the entire story of American agribusiness has been told. In fact, as Lauck shows, while the essential nature of the political struggle between farmers and corporate monopoly hasn’t changed much since 1950, or even 1900, the changing American state has altered the ways in which farmers and politics interacted, producing new shifts in policy and shaping the processes of competition and concentration.

The book’s seven chapters survey what Lauck, writing in the tradition of Ellis Hawley, calls the political economy of farming. Chapter One surveys the problem of post-war American farming, which Lauck defines as the persistence of “monopoly capitalism” in the agricultural sector (p. 1). How, he asks, can competition be preserved in an economy with such a pronounced tendency towards oligopoly? And, more importantly, why should it be? The second question is much easier to answer than the first. We want to preserve competition in agriculture, according to Lauck, because farmers connect us to our democratic roots, to the Jeffersonian agrarian tradition, and corporations do not. In view of the rise of large-scale industrial and technological techniques of production, which have become permanent fixtures on farms throughout the country, however, it has become imperative to examine empirically the historical development of markets and to look at factors other than firm structure and market dominance in order to determine whether and where competition actually exists (pp. 9-18). Laws, including antitrust laws, Lauck writes, “are necessarily political” (p. 15). He might have added, all politics are local, for local, specifically situated agricultural interests and the national state, already intimately related by the recovery programs of the New Deal, became inseparable in the second half of the century. It is the resurgence of local interests, both political and economic, that continue to press for the preservation of competition, even though to do so is to swim against the current of our national market.[3]

In Chapter Two, Lauck surveys the debate over corporate farming and calls for policy makers to pay continued attention to the issue of corporate ownership of farm land and control over agricultural processing. Here he traces the interrelationships between public officials and corporate agribusiness, arguing that agribusiness influence over such institutions as the land grant colleges, the Small Business Administration, and the U.S. Department of Agriculture posed significant threats to the need to balance corporate influence with the values of family farming (pp. 23-25). The National Farmers’ Organization, the Farmer’s Union, and a whole host of other interest groups, including environmentalists, the Catholic Church, and prominent writers such as Wendell Berry, all vocally opposed corporate farming and criticized national political leaders for their collusion with agribusiness. Skipping across these pages are many of the nation’s most prominent political figures with agricultural constituencies: senators George McGovern, Hubert Humphrey, James Aborezek, Gaylord Nelson, and Frank Church and secretaries of agriculture Earl Butz and Orville Freeman. Their positions on and connections to corporate farming, farm subsidies, and antitrust enforcement were crucial to their political careers (pp. 36-38).

As Lauck proceeds to show in Chapter Three, the economic choices farmers and processors make are also not without political consequences. This chapter surveys the meat packing and grain processing industries through the 1980s, arguing that the best (and really, only) solution to concentrated corporate power is effective farmers’ marketing and bargaining associations (p. 40). Yet, surprisingly, “throughout the postwar period the sectors farms sold their livestock and grain to [sic] showed signs of competitiveness” (p. 40). Despite the record pace of merger in the food manufacturing sector in the early 1980s, which produced some gains in economies of scale and overall efficiency, firms did not always exercise monopoly power over prices or supply. As a result, Lauck argues, it remained important for farmers to criticize the creation of new monopolies (and to pressure the federal government to enliven antitrust enforcement), but at the same time, market-based checks on the economic power of food-processing conglomerates continued to emerge. For example, the growth of the food retailing sector-including grocery stores and restaurants-undermined the power of packers to dominate sales to end-consumers. More importantly, farmers held the means of their own continued survival in their own hands, if only they could make good on the promise of organizing themselves.

Chapter Four examines the grain-trading “cartel” that dominated the American grain market in the 1970s and 1980s. This chapter explores in detail the impact on American grain farmers of U.S. export policy, a policy that consisted of a slew of treaties, federal statutes, and the recommendations of federal commissions. The nationalization of international trade in grain and other agricultural commodities arose not only in the U.S. but also in Australia, Canada, Great Britain, and other countries whose farmers demanded protection against downward pressure on prices (pp. 69-72). Lauck examines the impact of the U.S.’s grain sales to the Soviet Union during the 1970s and the impact of the 1973 oil crisis on foreign trade in farm commodities. He concludes here, as before, that despite increases in mergers, the grain trade remained highly competitive, meaning that private market ordering by farmers remained a potent source of influence on supply and prices.

Chapter Five takes an extended look at the National Farm Organization, painting a more flattering portrait of the NFO during the 1950s and 1960s than it has tended to receive in the historical literature. Lauck argues that the NFO succeeded in providing some bargaining power to its member farmers in their dealings with food processors. Despite the outbreaks of violence that accompanied the NFO’s insistence on collective bargaining, Lauck writes, “the history of the NFO indicates that farmers could organize and receive better prices at times and were not always the hapless victims of the corporate ‘monopoly problem'” (p. 85). The NFO’s harsh criticism of meat packers’ control over livestock prices led it to advocate such practices as the “holding action,” which was essentially a boycott designed to force packers to deal directly with the NFO for the purchase of livestock (p. 91). Whether this strategy worked or not, Lauck admits, is difficult to determine, but he cites archival evidence that packers grudgingly acknowledged the NFO’s role in raising wholesale prices. During the 1960s the NFO turned to “block marketing,” a method by which it pooled its members commodities and acted as their agent in negotiating prices (p. 93), and to selling directly from farmers to consumers (p. 94). The NFO’s gains for its members spurred other farm groups such as the American Farm Bureau Federation to act; they formed similar pools and sought to reestablish their influence with their own members. These moves resulted in market practices and state laws that gave farmers further protection from the illegal exercise of monopoly power by processors. Lauck acknowledges that “the violence and radicalism of the NFO did serious damage to its credibility and undermined its larger goals,” which would seem to have some consequence for his argument that the NFO has gotten a bum rap (p. 103). The NFO succeeded not least in dividing farmers who disagreed about its methods and leadership and who believed that cooperation was their real ticket to economic stability. In view of farmer organizations’ evanescent influence on farm prices, Lauck’s claim that the NFO “succeeded” may come across as hyperbole.

Chapter Six gives a sustained examination of the postwar cooperative movement, giving Lauck an opportunity to restate his claim, originally made in the introduction, that historians have slighted agriculture in their study of postwar political economy. Lauck’s take on cooperatives follows his interpretation of the NFO: farmer-controlled marketing organizations helped to blunt the impact of monopoly on prices by enabling producers to assert collective control over the sale of their commodities to processors. His reliance on the NFO as his sole historical benchmark leads him to examine the cooperative movement from the perspective of the 1960s and 1970s, rather than recognizing that the legal foundation of cooperative marketing emerged out of its own process of experimentation, protest, litigation, and violence during the Progressive Era. For example, Lauck sees the Capper-Volstead Act, which exempts cooperatives from the federal antitrust laws, as “the first significant statutory help” to the cooperative movement (p. 111). In fact, state laws providing for the organization of cooperatives (both as nonstock associations and as capital stock corporations), state and federal laws exempting farmers from the antitrust laws, and federal laws restricting the Justice Department from spending appropriations dollars prosecuting farmers under the Sherman and Clayton Antitrust Acts all provided significant legal recognition to the cooperative movement several decades prior to the enactment of Capper-Volstead in 1922. Moreover, Capper-Volstead itself emerged out of a specific controversy that directly raised the question of the ability of a farmers’ marketing cooperative to monopolize its product. Though contemporary lawmakers fudged on the answer, it is important that historians recognize that, then as now, farmers have exploited for political purposes the image of corporations as inherently monopolistic and cooperatives as the pure and noble defense against that inevitable end. The New Deal, in fact, enabled cooperatives to act as monopolists in so many ways by providing mandatory production controls that eliminated uncontrollable surpluses. The ideological power of the farmer-owned and -controlled marketing association remained the political touchstone of the postwar era, with president after president making the obligatory declaration that a cooperative movement sufficiently protected by law would save the family farmer. With this kind of consistent support from the Executive Branch, the cooperative movement warded off all attempts to strip farmers’ organizations of their antitrust exemption and their federal tax exemption (p. 119). Lauck continues to press his thesis that farmers’ organizations were successful in competing with agricultural monopolists, despite his finding that cooperatives found it difficult to achieve vertical integration in the grain industry. He even hedges when it comes time to declare “how much the cooperative processors directly engaged the monopoly problem” in industries with commodities requiring a high degree of processing and manufacturing to render them saleable (p. 122). Farmers were and are, it’s safe to say, adept at playing the monopoly card in order to distance themselves (and their organizations) from the specter of concentrated economic power, in order to extract favorable treatment from the state, and to bolster their image as the bastion of democratic values in American society. This doesn’t mean the family farm isn’t worth saving, only that doing so is as much an ideological choice as a political or economic one.

Chapter Seven considers the relationship between the state and agricultural organization, observing the reliance of farmers on state structures and incentives for private efforts at organizing and marketing. Here Lauck ties such issues as the depopulation of American farms, surplus management, and budgetary politics to the identity of the political party in power in Washington and to the careers of certain senators with presidential ambitions (p. 141-148). Farmers continued to exhibit that streak of individualism and independence that persistently undermined attempts at coordinated crop control (p. 150), and by 1968, when the Democrats failed to understand that even endless subsidies might lose their appeal, the Republicans began swaying the farm vote their way. (One might note here that the Democrats have never fully recovered in the Plains states, at least in presidential races, if the 2000 election is any guide.) Part of the problem, as Lauck points out, is that the USDA was involved in programs to make farms more productive even as commodity surpluses spiraled higher (p. 152). Ultimately, in its attempts to create a rational pricing policy for American farm products, the state was unable to bridge the many divisions among farmers, reflected in the diffusion of power among the many farm lobbying organizations (p. 153).

The book presents an impressive collection of archival sources. Lauck’s research is downright amazing; if he’s quoted only half of what he collected, his files must contain a treasure trove of still unpublished evidence. Tons of inside information, excavated from the correspondence of dozens of politicians, farmers, farm leaders, and others, enable him to do a nice job of blending the trajectory of political careers with agriculture’s political fortunes during the twentieth century. The monopoly problem, so chronicled in the nineteenth century, deserves to be more fully understood for the twentieth, and Lauck has contributed mightily to that project.

He is in a good position to do so. Lauck is clearly unafraid of economics, or economists. He engages directly with claims about monopoly with clear and understandable analysis. Especially interesting is his critique of the Chicago School’s sustained attack on antitrust, though why he put this at the end of the book, buried in an epilogue whimsically titled, “Toward an Agrarian Antitrust,” is difficult to discern. If the integrity of the republic relies, as he argues, on the preservation of a competitive farm sector, and if the legal system has thwarted attempts to preserve competition, then debunking the intellectual (or ideological) supports for the status quo deserves to be put front and center.

Instead, Lauck’s central interest here seems to lie in the arena of old-fashioned political history, the history of party alignments and interest group politics. In an attack on the new social and rural history of the last twenty years, Lauck explicitly disdains the conceptual and historical categories of race, gender, ethnicity, arguing that they “overlook what [Louis] Harz called the ‘liberal tradition'” (p. 170). Lauck is deliberately looking back, as if to sweep aside the past twenty years of historical scholarship, in an attempt to reclaim Hartz through the words and values of rural America. Is it really impossible to return to Hartz unless we follow Lauck’s imperative? After all, the historical treatment of race, gender, and ethnicity can reveal the depths to which liberal democratic values permeate both economy and society, shape political and institutional responses. Indeed, scholars are already deeply engaged in creating what Catherine McNichol Stock and Robert Johnson are calling the new political history of rural America.[5]

However Lauck chooses to position himself within the field is of course the author’s prerogative. But the book suffers from a significant formal problem: Parts of every chapter save six and seven have been published previously. The result is the increasingly and lamentingly common form of a string of articles that have not been fully integrated into a whole. The narrative is disjointed and the reading experience fitful, because the book lacks a clearly laid out narrative structure and a clearly defined historical framework. For example, a degree of tunnel vision materializes in Lauck’s discussion of nineteenth century farm protest tactics. He views these through the lens of his interest in the NFO, rather than seeing farmer boycotts as a standard feature of agricultural protest. What is needed is more historicization and more explicit links to nineteenth-century agricultural organizations, which deserve to be understood on their own terms rather than as marginal in the light of subsequent events (p. 111). Each chapter has its own story to tell, but the links between these episodes don’t fully materialize, having been laid aside in favor of a repeated stress on the book’s main argument that farmers have done better in beating back the forces of monopoly than historians have recognized. That is an important argument to make, but to do so more effectively the argument needs to arise out of the historical narrative rather than appear as a superimposition on the evidence. This formal problem can be understood in terms of a specific issue: the task of framing the historical scope of the project. The book’s periodization, 1953-1980, is confusing. The absence of a clear framework undermines the logic of those dates. Several chapters, including 3, 4, and 6, contain historical sections that overlap with each other and aren’t as well developed as they might have been had Lauck treated the historical issues together in one integrated chapter at the beginning of the book instead of presenting them as background. Obvious redundancy could have been avoided with a better organization of the material. These recurring historical sections blur the periodization backwards in history by reaching back to the nineteenth century; other parts of these chapters muddy the ending date by referring to events in the 1980s and 1990s. Chapter 7 does both at once, displaying a maddening tendency to jump backwards and forwards in time without making explicit the connections between eventsor making clear the logic of the presentation. Many a historian has been taken to task for an overreaching title; perhaps Lauck’s sin is one of modesty rather than vanity.

The book also needed a stiffer editing than it got. There are too many awkward phrases and technical mistakes. The prose abounds with overlong paragraphs crammed full of information and quotations from sources but no topic or concluding sentences. In addition, the index is not as serviceable as it should be.

Yet, in the final analysis, what we do come away with here is the unavoidable conclusion that agricultural politics matter, even in an overwhelmingly urban society, because, just as gravity pulls water from higher elevations to lower, farmers will ultimately pursue whatever action brings them the best prices, and, at the same time, be bedeviled by market conditions that undermine those actions. As Lauck writes, “Farmers’ failure to achieve everything they wanted partly reflected their disagreement over which legislation was beneficial and partly reflected ideological opposition to state control of their economic lives” (p. 162). Hence the irony of the enactment of the Freedom to Farm Act of 1996, which supposedly phases out subsidies by 2003, and yet at the same time the federal government has been making record payouts to farmers to prevent widescale abandonment of farms due to-surprise, surprise-depressed prices caused by overplanting and overproduction.

[1] See, e.g., Lawrence Goodwyn, Democratic Promise: The Populist Moment in America (New York: Oxford University Press, 1976); Edward L. Ayers, The Promise of the New South: Life After Reconstruction (New York: Oxford University Press, 1992); Bruce Palmer, “Man Over Money: The Southern Populist Critique of American Capitalism (Chapel Hill: University of North Carolina Press, 1980).

[2] See, e.g., Colin Gordon, New Deals: Business, Labor, and Politics in America, 1920-1935 (New York: Cambridge University Press, 1994); Mary Neth, Preserving the Family Farm: Women, Community, and the Foundations of Agribusiness in the Midwest, 1900-1940 (Baltimore: Johns Hopkins University Press, 1995); Hal S. Barron, Mixed Harvest: The Second Great Transformation in the Rural North, 1870-1930 (Chapel Hill: University of North Carolina Press, 1997); and David Hamilton, From New Day to New Deal: American Farm Policy from Hoover to Roosevelt, 1928-1933 (Chapel Hill: University of North Carolina Press, 1991).

[4] For a brilliant study of local politics and the contingency of regulatory solutions in the railroad industry, see Gerald Berk, Alternative Tracks: The Constitution of American Industrial Order, 1865-1917 (Baltimore: Johns Hopkins University Press, 1994).

[5] Catherine McNicol Stock and Robert Johnston, “Introduction,” in Stock and Johnston, eds., The Countryside in the Age of the Modern State: Political Histories of Rural America (Ithaca, N.Y.: Cornell University Press, 2001, forthcoming).

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Subject(s):Government, Law and Regulation, Public Finance
Geographic Area(s):North America
Time Period(s):20th Century: WWII and post-WWII

Small Business Policy and the American Creed

Author(s):Anglund, Sandra M.
Reviewer(s):Blackford, Mansel G.

Published by EH.NET (June 2001)

Sandra M. Anglund. Small Business Policy and the American Creed.

Westport, CT and London: Praeger, 2000. 176 pp. $59.95 (cloth), ISBN:

0-275-96697-6.

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

University.

Based on her dissertation in political science at the University of

Connecticut, Sandra Anglund’s Small Business Policy and the American

Creed analyzes “federal small business policy and how American core

values, those often referred to as the American Creed, have influenced this

policy and will likely influence others” (preface). This study is written from

the point-of-view of political science; but historians, especially those

interested in the history of small business, will learn a great deal from this

slender volume. Small Business Policy packs quite a punch. This book is

a study of federal government policies — Anglund looks at the legislative

histories of forty-three acts passed by Congress — toward small business

since World War II. Anglund claims throughout that “traditional interest

group and institutional approaches to explaining policy do not provide a full

understanding of small business aid and that a cluster of core values often

referred to as the American Creed must also be taken into account” (pp. 1-2).

Thus, like the historian Jonathan Bean (Beyond the Broker State: Federal

Policies toward Small Business, 1936-1961, Chapel Hill, University of

North Carolina Press, 1996), she argues that there were few well-organized

natural small-business constituencies. Instead, members of Congress, she

finds, have reacted to what they have viewed as values they have thought

Americans have shared in trying to protect small businesses. Anglund

identifies those core values in Chapter 1 as individualism, freedom, equality,

and democracy. Congressional action, she writes, has also been based on the

assumption that small business has been hurt by events beyond its control,

that it was “in short, a victim” (p. 3).

After a cursory survey of the United States’ antitrust heritage in Chapter 2,

Anglund turns to the meat of her book in Chapters 3 and 4, an analysis of the

formation and early work of the Small Business Administration (SBA). Congress

established the SBA as a temporary federal government agency in 1953, she

shows, out of a concern that small firms were suffering from conditions beyond

their control and out of a desire to ensure economic democracy in America as

the Cold War began. The SBA was made permanent five years later. In 1958,

Congress also enacted the Small Business Investment Act, which authorized the

SBA to certify, regulate and contribute to the financing of private-sector

Small Business Investment Companies (SBICs). The SBICs were, in turn, to

invest in small businesses — thus assuring small businesses of both equity

and long-term capital needed for development. Congressional leaders

interpreted a Federal Reserve Board study as suggesting that a “capital gap”

was retarding the growth of small companies. (Contrary statements from small

business people were ignored.) Once again, Anglund observes, “small business

problems were defined with causal stories blaming small business difficulties

on circumstances beyond the control of the target population” (p. 57).

Likewise, considerations of economic competition and opportunity — with the

Cold War again seen as important by legislators — loomed large in the passage

of the various pieces of legislation.

Chapters 5 through 7 examine the work of the SBA during the 1960s and 1970s.

The prominence of arguments for the preservation of economic competition and

opportunity declined in these decades as the rationale for the SBA’s programs,

Anglund observes. Nonetheless, with small business problems “telling of a

beleaguered, needy, and deserving small business population,” SBA programs

expanded, despite major scandals that rocked the agency (p. 73). The core

value of equality replaced core values of freedom and democracy as the

justification for SBA programs. Increasingly, the SBA came to be seen as an

agency that could be harnessed to help minority enterprises. Anglund does a

particularly good job in dissecting the motives for this switch in emphasis of

the SBA’s work and in analyzing the often-unfortunate results of its programs.

Other federal programs, especially those which emerged as part of President

Lyndon Johnson’s Great Society, aimed at helping minority businesses are fully

discussed, as are the initiatives of Presidents Richard Nixon and Jimmy

Carter. An additional transformation in how members of Congress looked on

small business occurred in the 1980s and 1990s, the topic of Chapter 7. Small

businesses came to be valued for imagined powers in creating jobs, fostering

innovation, and boosting exports, with federal government programs designed to

further those ends. Explicit help for minority enterprises took a back seat to

these new concerns, which, Anglund argues, continued through the

administration of President William Clinton.

Small Business Policy should be required reading for anyone interested

in the history of small business in modern America, but it is important to

recognize just what this study is and is not. This work is not an overall

history of small business in postwar America. Only rarely does Anglund relate

the reality of small business situations. Such is not her goal. Her study is

an effort, largely successful, to examine the origins of federal government

policies and congressional legislation for small business. To some extent,

this volume also examines how that legislation played out, what its effects

have been –although the work is weaker in this area. Useful endnotes, an

appendix, and a short bibliographic essay guide readers to additional studies.

Most generally, Small Business Policy underlines the need for

additional research on the history of small business in America.

Professor Blackford has published Fragile Paradise: The Impact of Tourism

on Maui, 1959-2000 (Lawrence: University Press of Kansas, 2001). He is

currently working on a second edition of his A History of Small Business in

America.

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

The Visible Hand: The Managerial Revolution in American Business

Author(s):Chandler, Alfred D. Jr.
Reviewer(s):Landes, David S.

Project 2000: Significant Works in Twentieth-Century Economic History

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Alfred D. Chandler, Jr., The Visible Hand: The Managerial Revolution in American Business. Cambridge, MA: Harvard Belknap, 1977. xvi + 608 pp.

Review Essay by David S. Landes, Departments of Economics and History, Harvard University.

Alfred Chandler: World Master of Institutional Business History

Alfred Chandler is the world master of institutional business history. He began his career as scholar and researcher innocently enough, with a doctoral monograph (1952) on the life and career of Henry Varnum Poor, railway pundit of the nineteenth century. But then he went on to work in the business and personal archives of the du Ponts of Delaware, to whom he was related by family and friendship, and the result was a first-class company and entrepreneurial history, written with the aid and collaboration of Stephen Salsbury: Pierre S. Du Pont and the Making of the Modern Corporation (New York: Harper & Row, 1971.). As the title indicates, he was already interested in the larger question of the structures and evolution of corporate enterprise.

Then, in the mid 1970s, he brought out the first of a series of major works on this subject, his Visible Hand, which won the Pulitzer and Bancroft prizes in 1978. The title reference is to deliberate organizational arrangements designed to make big business work. Chandler was not the first to write on this. As his introductory text and references make clear, the topic is one that has interested economists and essayists going back at least to Adam Smith, that incredible seer into past, present, and future. More recent predecessors (over the last century) would include Werner Sombart, James Burnham, Ronald Coase, Douglass North, and Oliver Williamson. But all of these dealt with the problem as part of larger agendas. It was Chandler who, focusing on the theme, rewrote in effect the course of American economic history and laid the basis for comparative international explorations.

The book lays out the task and theme by stating a number of propositions: 1. Modern business enterprise came in when administrative coordination did better than market mechanisms in enhancing productivity and lowering costs. 2. The advantages of coordinating multiple units within a single enterprise could not be realized without a managerial hierarchy. 3. It was the growing volume of economic activities that made administrative coordination more efficient than market coordination. 4. Once a managerial hierarchy does its job, it becomes its own source of permanence, power, and continued growth. 5. Such hierarchies tend to become increasingly technical and professional. 6. Over time, such professional structures become separate from ownership. 7. Professionals prefer long-term stability and growth to short-term gains. 8. Big businesses grew to dominate branches and sectors of the economy, and so doing, altered their structure and that of the economy as a whole.

So much for the United States. Much of the book is a historical review of these processes, beginning with the colonial era and the early decades of independence. In those days, business structures were not so different from what they had been several centuries earlier, in Renaissance Italy or, later, in the Low Countries and England. Chandler offers here an overview exceptional for its coverage through time and space, its attention to the variety of economic activity and commercial specialization. One of the most striking features of this presentation is his attention to the precocity of American development: a colonial, frontier area, low in density, handicapped in matters of inland transport, yet rich in human capital and opportunity. One silent evidence of this modernity: the large number of watch and clock dealers and repairers.

None of this, though, generated the modern corporate business structure, for reasons implicit in Chandler’s propositions. The economy and its business units were not yet big enough. That came with the railroad in the 1840’s and 1850’s. Here for the first time one had large enterprises dispersed in space, requiring heavy investment and maintenance in road, rails, tunnels, and bridges, tight organization of rolling stock, and all kinds of passenger and freight arrangements including timely service, mobilization of capital and handling of money income and outlays — in short a world of its own. Chandler noted here the critical contribution of men trained in the military academies, for armies were even earlier enterprises of vast scale, though more improvisational and transitory in character, and with destructive-predatory rather than constructive objectives. (The only comparable commercial enterprises to the railroads were the canals, but for topographical reasons, these were less important in the United States than in Europe. The one exception was Erie, but even there the waterway was soon lined with railroads. Chandler notes that in the 1840’s, only 400 miles of canal were built, to make the nation’s total canal mileage something under 4,000. In that same decade, over 6,000 rail miles were completed, making the national total 9,000. Time counted, and railroads were faster and more efficient.)

The introduction of such managerial and organizational techniques into industry waited on gains in scale of enterprise. The traditional manufacturing firm, for example, was a personal or familial operation, assisted by outside supply and demand facilities and initiatives — the shop writ large. Past a certain threshold, however, ways had to be found to pull the parts together, to oversee, coordinate, and control. In the United States, it was the chemical and even more the automobile manufactures that led the way. Chandler is particularly well informed here because of his earlier work on Du Pont, with its subsequent ownership of a controlling share of General Motors. GM itself tells a fascinating story of transition from personal to corporate enterprise. It started with William C. Durant, a kind of freebooter who pulled together a number of independent manufacturers – Buick, Oldsmobile, Cadillac, Chevrolet et al. — and did his best to stay on top but ran into impossible financial impasses, personal and corporate. It then fell into the hands of the bankers and moneymen: J.P. Morgan and Company and Pierre du Pont (rich from wartime earnings). And with the aid of manager Alfred Sloan, Jr., they set up a command structure that became a model for all manner of industrial enterprises.

Chandler’s analysis would have been even richer had he made an explicit comparison between GM and the Ford Motor Company, because the latter is an exquisite, tortuous example of industrial gigantism under personal autocracy gone astray and awry. Ford was just the opposite of the Chandler prescription: all manner of organizational improvisation in the face of arbitrary whimsy. What the costs to Ford, no one will ever know: this was a company that estimated income and outgo by the height of piles of paper and had only an approximate idea of its debts and credits. When in money trouble, it taxed its dealers.

The move to a rational managerial system was bound to encourage professionalization. One of Chandler’s merits was not only to call attention to new schools and curricula, but also to show how much could be achieved in the strangest places. Here again, his later comparative work filled out the American story along lines already explored by European scholars: the creation and transformation of professional schools to meet the needs of state bureaucracies; the differences in national achievement; the implications for the larger process of economic growth and development. Again, each industry had its own requirements and opportunities, just as each society had its own areas of preference. The British, who had accomplished much on the basis of apprenticeship and bench learning, were slow to adopt formal class and lab instruction. The Continental countries, especially the Germans, French, and Scandinavians, strained to catch up and learned not only to transform the older branches but to advance in new areas of production.

The growing reliance on professionally trained managers entailed an assault on the structures and habits of personal and familial enterprise. This was particularly true of technologically complex branches of production, which found it easier to hire good people than to tame them. Inevitably, the people who ran the show nursed aspirations that contradicted family control, the more so as such experts often were remunerated by share options that gave them a piece of ownership. Growth, moreover, entailed mobilization of funds, whether via bank loans or public sales of ownership shares, and this too often countered family interests.

By the same token, the success and resources of managerial corporations have made them the arch seducers of the business world. This is a new, major aspect of the shift away from family control: how can a family firm say no to such generous offers, often exceeding the prospect of immediate gains? The recent sale of Seagram by the Bronfman interests to the French conglomerate Vivendi is an excellent example of money trumping blood, marriage, and personal aspirations. Another is the purchase by LVMH (Mo?t Hennessy Louis Vuitton SA) of a number of Swiss watch manufacturers by way of establishing itself as a major player in the luxury watch trade. These acquisitions exemplify “what can happen to a small, family-founded business under the umbrella of a global corporate superpower with plenty of financial resources. The chairman and chief executive of LVMH, Bernard Arnault, is known for sparing no expense to gain dominance in luxury brands as diverse as champagne and handbags.” The manger of one of these family brands put it straight: “LVMH is prepared to overinvest in Ebel without short-time return. They know that to build up a luxury brand you need time and money.” (Quoted in the International Herald-Tribune, February 5, 2001, p. 11.)

Chandler’s model, like most powerful syntheses, simplifies reality. The world of enterprise is full of variants, of diverse responses to the tensions and conflicts implicit in entrepreneurial strategy and in the personal circumstances and histories of business endeavor. The family firm has not disappeared and will not. New ones are created all the time. There is even an international fraternity of family firms that go back more than two hundred years, Les Henokiens, named after the biblical patriarch Enoch. And there are enterprises that somehow seem to blend the personal and managerial with such art that one is hard pressed to classify.

But Chandler’s model, in combination with Chandler’s extraordinary energy, has served as the standard, the measure, the incentive to further inquiry. A small library has appeared on this subject, and one has only to read the book Chandler edited with Herman Daems, Managerial Hierarchies: Comparative Perspectives on the Rise of Modern Industrial Enterprise (Cambridge, MA: Harvard University Press, 1980), to appreciate the quality and versatility of the collaborators, (Leslie Hannah, Jurgen Kocka, Maurice Levy-Leboyer, Morton Keller, Oliver Williamson), the range of the scholarship, and the opportunities for thought and reconsideration. The Chandlerian model is a monument to present and future scholarship, and the Visible Hand an example and encouragement to scholars everywhere.

David S. Landes is professor emeritus of history and economics at Harvard University and the author of several books including The Unbound Prometheus: Technological Change and Industrial Development in Western Europe from 1750 to the Present (1969) and The Wealth and Poverty of Nations: Why Some Are So Rich and Some So Poor (1998).

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

The Great Transformation: The Political and Economic Origins of Our Time

Author(s):Polanyi, Karl
Reviewer(s):Mayhew, Anne

Karl Polanyi, The Great Transformation: The Political and Economic Origins of Our Time. 1944. xiii + 305.

Review Essay by Anne Mayhew, College of Arts and Sciences, University of Tennessee. amayhew@utk.edu

Markets to Market to Protection: Karl Polanyi’s Great Transformation

Karl Polanyi, once a World War I officer in the Austro-Hungarian army, a lecturer at the People’s University, and a member of the editorial staff of Vienna’s leading financial newspaper, who had been forced first from his native Hungary and then from Vienna by the turmoil of revolutions and dictatorships, began The Great Transformation as an exile in England at the end of the 1930s. He completed it in the U.S. during World War II. The task he set himself was to explain the political and economic origins of the collapse of nineteenth-century civilization, and the great transformation that Polanyi had lived through in the twentieth. As he saw it, four institutions were crucial to the economic and political order that had characterized the North Atlantic Community and its periphery in the nineteenth century: a balance of political power, the international gold standard, a self-regulating market system, and the liberal state. The SRM (self-regulating market) was “the fount and matrix of the system,” the “innovation which gave rise to a specific civilization” (p. 3).

The Great Transformation is a history of the SRM: of its emergence from the fact that the Industrial Revolution of the late eighteenth and early nineteenth centuries took place within a thoroughly commercial though not yet thoroughly market-organized economy; its nurture through the efforts of the liberal economists and statesmen of England in the first decades of the nineteenth century; and finally its demise as a consequence of the “protective reaction” to counteract the consequences that the SRM spawned. Two crucial differences between Polanyi’s analysis and that of most other historians of the economy and of the thought of the nineteenth century are so important to understanding his work that they must be made explicit even before their role in the larger argument is recounted. Polanyi differentiated between economic systems in which there were markets and the “starkly utopian” SRM of the nineteenth century. Markets are places or networks in which goods are bought and sold; they are human interactions organized by price, quality, and quantity of traded goods and services. The SRM was a society-wide system of markets in which all inputs into the substantive processes of production and distribution were for sale and in which output was distributed solely in exchange for earnings from sales of inputs. The second crucially distinct feature of Polanyi’s analysis is his argument that the SRM could not survive — not because of the distributional consequences that play the major role in Marx’s explanation of the inevitable collapse of capitalism — but because the starkly utopian nature of the SRM gave rise to a spontaneous counter movement, even among those enjoying increased material prosperity. Society is vital to humans as social animals, and the SRM was inconsistent with a sustainable society.

Polanyi developed his argument from the work of many economic historians, historians of thought, anthropologists, and others. The Industrial Revolution of the late eighteenth and early nineteenth centuries was “an almost miraculous improvement in the tools of production,” but was also an equally powerful revolution in economic organization that was in part a consequence of the introduction of the new machines into an already commercially organized economy, and in part a social experiment. Up to this point the economies of much of Western Europe, and certainly of most of Britain, had been quite thoroughly commercialized: cottage industries, paid agricultural labor, and thriving trade in towns meant that most people earned money and used that money to buy the material stuff of life. However, as Polanyi also noted, control and regulation of markets by governments and other organizations were also widespread and common. Markets were controlled; they did not control until the beginning of the nineteenth century.

In laying out this argument, Polanyi recognized the need to deal directly with the proposition, itself a creation of late eighteenth and early nineteenth century British thought, that market organization of economic activity was the natural state of human affairs. Polanyi was (counter to what many of his later critics say) quite well aware that markets and careful calculation of prices by buyers and sellers alike had long been important parts of many human societies. By use of logic and of the historical record, Polanyi developed a schema of “forms of economic integration”: that is, forms of organization for production and distribution, of which the familiar circular flow of an idealized capitalist economy (the SRM) is only one. Polanyi developed his schema for characterizing economies to show that economies could and had been organized in ways other than through an SRM. He argued that the organization of production and distribution in many societies had been accomplished through social relationships of kin or community obligations and counter obligations (reciprocity) and that other societies, on scales as small as a band of Kung bushmen or as large of Hammurabi’s empire, or even as large as the planned economy of the Soviet Union, employed redistributive systems.

In much of Western Europe a combination of redistributive and reciprocative systems dominated through the end of the feudal and manorial era, and came to be increasingly supplemented and then replaced by market trading, the control and encouragement of which was a major focus of medieval municipal and mercantilist national governments. (In The Great Transformation Polanyi also described “householding” as a form of integration, but in later work reclassified it as “redistribution writ small.”)

Then, toward the end of the eighteenth century, and with full force in the first half of the nineteenth century, two things happened. The rapidly expanding factory system altered the relationship between commerce and industry. Production now involved large-scale investment of funds with fixed obligations to pay for those funds. Producers were less and less willing to have either the supply of inputs or the vents for output controlled by governments. The second and closely related change was the development of economic liberalism as a body of thought that provided justification of a new set of public policies that facilitated transformation of land, labor, and capital into the “fictitious commodities” of a self-regulating system. Land (nature), labor (people), and capital (power of the purse) were not in fact produced for sale. Nor did the available quantity of land, labor, and capital disappear inconsequentially when relationships of supply and demand produced low input prices. This issue was, of course, particularly acute in the case of labor and led to the dismal conclusions of classical economics. Polanyi describes how, in spite of the threat to social order, the philosophy that came to be called “laissez faire” was “[b]orn as a mere penchant for non-bureaucratic methods . . . [and] evolved into a veritable faith in man’s secular salvation through a self-regulating market” (p. 135). Polanyi describes this evolution of British thought from the humanistic approach of Adam Smith, who wrote in a time of “peaceful progress,” through Malthus’s acceptance of poverty as part of the natural order, and on to the triumphant liberalism of the more prosperous 1830s. What is important is that a set of recommendations about public policy was transformed into widespread acceptance as the laws of a natural order.

Polanyi called the continuing tension and conflict between the efforts to establish, maintain, and spread the SRM and the efforts to protect people and society from the consequences of the working of the SRM “the double movement.” On one side was a concerted philosophical and legislative program to establish the SRM from the enclosures of the 1790s through the Poor Law Reform of 1834 to the Ricardian Bank Charter Act of 1844 and the repeal of the Corn Laws in 1846. The other side was a widely varying, unorganized set of movements, legislative reforms, and administrative actions to limit the effects of self-regulation, from the Chartists through early legislation to limit the hours and places of work of women and children, through the growth of labor unions, and through the emergence of the Bank of England as lender of last resort, to reimposition of tariffs on foodstuffs, and to the first legislation presaging the welfare state. As the SRM was impaired in operation, justifications for international economic cooperation and the liberal state weakened.

Polanyi’s story of the tensions in and collapse of the self-regulating economies that developed in the first half of the nineteenth century differs sharply from the story that Marx anticipated and from the story that Marxian economists have told. Though Polanyi argues that perception and response to the damages of the SRM varied by class, and therefore “the outcome was decisively influenced by the character of the class interests involved,” (p. 161) it was not unfair distribution of total output via exploitation that caused the tensions and ultimate collapse of the SRM system. The working class did not rise up to overthrow the system. Rather, land owners and bankers as well as merchants, whose interests were often threatened by fluctuations in trade, joined workers in seeking protection. As they got protection, the SRM was “impaired,” eventually the point of collapse. Increasing protection so impaired the SRM that it could no longer coordinate the world’s economy when World War I destroyed Europe’s balance of power. The struggle to restore the nineteenth century system by reestablishing the gold standard destroyed the international financial system.

Dictatorships in some places and more benign management elsewhere emerged in nationally varying responses to the collapse of the SRM system. Polanyi was optimistic but uncertain about what the longer term results of the reaction to the nineteenth century utopian experiment in economic organization would be, and if he were alive today his answer might remain uncertain for, to a remarkable extent, the conflicting sides of Polanyi’s double movement still dominate debates in public policy. As neo-liberalism founded on faith in secular salvation through the natural emergence of a self-regulating market system has spread in Central and Eastern Europe and in Asia, Africa, and Latin America, so too have calls for protection of man, nature, and national interests. The framework that Polanyi provided for understanding the collapse of nineteenth century civilization and the rise of the troubled twentieth remains powerful.

Having said this, however, it must also be said that The Great Transformation contains some major errors of omission and interpretation. Most striking to me, as an economic historian of the United States, is his cavalier and quite wrong assertion that a double movement did not develop in the U.S. until after 1890 because, until then, “free land,” a ready supply of cheap labor, and a lack of commitment to keeping foreign exchanges stable meant that a fully self-regulating market did not exist and no protection was needed. This is plainly wrong. In addition, some students of England in the late eighteenth and early nineteenth century quarrel with his interpretation of the Speenhamland system of subsidies in aid of wages.

However, the strongest and most long lasting criticism of The Great Transformation has been directed at the passages where he argues that reciprocative and redistributive forms of integration have been much more common in human history than self-regulating market systems. These criticisms invariably focus, however, not on the forms of integration themselves but on the mistaken proposition that Polanyi assumed the forms to be founded on different human motives: the SRM on self-interest and rational calculation and reciprocative systems on kindness and generosity. (Far less has been said about motives associated with redistribution, probably because emphasis has been on the contrast between greed and kindness, and on the proposition that “you cannot change human nature,” with the associated proposition that the nineteenth century British economy was truly natural.) The original attack of this kind came, not from economists or economic historians, but from anthropologists whose disciplinary literature Polanyi had used in making his assertion. Beginning in the early 1960s, anthropologists, for reasons having to do with changing political structures in the worlds that they studied and because of the evolution of thought in their discipline, began to insist that the primitive and peasant peoples whom they studied were as rational as any westerners.

These anthropologists — known as formalists in the debates that ensued — found in Polanyi, and in the work of some of his followers such as George Dalton, a convenient target. They accused Polanyi and his followers of romanticism about other peoples. Description of behavior in reciprocative systems was fodder: “The premium set on generosity is so great when measured in terms of social prestige as to make any other behavior than that of utter self-forgetfulness simply not pay” (italics added, p. 46). To anthropologists, who ignored the crass and rational self-interest implied by the phrase that I have italicized, this smacked of saying that non-modern, non-western people were “different” and not self-interested and rational. They disagreed and by extension dismissed the rest of Polanyi’s argument about reciprocity and the SRM.

Very similar arguments have been mounted by some economists. The passage most often quoted in ridicule of Polanyi’s argument is this: “previously to our time no economy has ever existed that, even in principle, was controlled by markets . . . gain and profit made on exchange never before [the nineteenth century] played an important part in human economy” (p. 43). Deirdre McCloskey, both in print and in a heated exchange on the FEMECON list serve, faults Polanyi in a way that illustrates precisely the difficulty that many readers, anthropologists and economists alike, have had with the book. McCloskey says that Polanyi asked the right question, but gives the wrong answer in saying that markets played no important role in earlier human societies. As proof McCloskey cites evidence that, the further away from their source of obsidian the Mayan blade makers were, the less was the ratio of blade weight to cutting length. To McCloskey this indicates that “By taking more care with more costly obsidian the blade makers were earning better profits; as they did by taking less care with less costly obsidian” (1997, p. 484). Ergo, Polanyi is wrong, presumably about the existence of other forms of integration and their importance. To be more careful with harder to get valuables is certainly rational, but it is not evidence of how blade makers were provisioned with material means for their sustenance or joys.

It is one thing to note that people for whom shipment of obsidian was difficult treated it with care; another to assume that they used it to produce goods that they sold for profit. Polanyi is in fact careful to note that the range of human motives varies little across systems, with the specific form of action that any motive such as self-interest, generosity, anger, or jealousy may take dependent upon the system. The economic system does not, however, depend upon the presence, or absence of the preponderance of any one motive. That this is perhaps the most difficult point that Polanyi makes is itself testament to the success of those who created the justifications for the nineteenth century.

In the years after publication of The Great Transformation Polanyi and a number of colleagues and students expanded analysis of the forms of economic integration and produced the collection of essays published as Trade and Markets in Ancient Empires. Both books present Polanyi’s understanding of what made the economies of the nineteenth and of the twentieth centuries so different, and with such far-reaching consequences, Polanyi created a way of thinking about economies and societies that has had substantial impact on economic history, anthropology, and the study of the ancient Mediterranean. The Great Transformation remains important as a highly original contribution to the understanding of the Western past; it has been and is important in methodological debates in the social sciences. Beyond that, as the double movement continues, the book is likely to remain one of the best guides available to what brought us to where we are.

Annotated References:

Polanyi, Karl. 1944, 1957. The Great Transformation: The Political and Economic Origins of Our Time. Boston: Beacon Press by arrangement with Rinehart & Company, Inc. (The Beacon Press version remains in print and is the version for which page numbers are given in this essay. The book has been translated into and published in Hungarian, Chinese, Japanese, French, German, Portuguese, and Spanish).

Dalton, George. 1961. “Economic Theory and Primitive Society,” American Anthropologist 63 (Feb.): 1-25. [One of the articles that sparked the formalist-substantivist dispute in economic anthropology.]

Drucker, Peter. 1979. Adventures of a Bystander. New York: Harper & Row. [This book contains an account of the remarkable Polanyi family by a friend who knew them in Vienna.]

Duncan, Colin A.M. and David W. Tandy. 1994. From Political Economy to Anthropology: Situating Economic Life in Past Societies. Montreal and New York: Black Rose Books. [Selection of papers from annual Polanyi Institute Conference.]

Finley, Moses I. 1978. The World of Odysseus . New York: Viking Press. [Classic application of Polanyi to the ancient world.]

Halperin, Rhoda. 1988. Economies Across Cultures: Towards a Comparative Science of the Economy. New York: St. Martin’s Press.

Mayhew, Anne. 1972. “A Reappraisal of the Causes of Farm Protest in the U.S., 1870-1900.” Journal of Economic History 32 (June): 464-475. [Though not acknowledged as such, this was an application of Polanyi’s ideas to the U.S. economy.]

Mayhew, Anne. 1980. “Atomistic and Cultural Analyses in Economic Anthropology: An Old Argument Repeated,” in John Adams, editor, Institutional Economics: Contributions to the Development of Holistic Economics . Boston: Martinus Nijhoff.

McCloskey, Deirdre N. 1997. “Polanyi was Right, and Wrong.” Eastern Economic Journal 23 (Fall): 483- 487.

North, Douglass C. 1977. “Markets and Other Allocation Systems in History: The Challenge of Karl Polanyi.” Journal of European Economic History 6 (Winter): 703-716.

Polanyi, Karl, Conrad M. Arensberg, and Harry W. Pearson. 1957. Trade and Market in the Early Empires: Economies in History and Theory. Glencoe, Illinois: The Free Press.

Sievers, Allen M. 1974. The Mystical World of Indonesia: Culture and Economic Development in Conflict. Baltimore: Johns Hopkins University Press. [Polanyi applied to development issues.]

Schaniel, William C. and Walter C. Neale. 2000. “Karl Polanyi’s Forms of Integration as Ways of Mapping.” Journal of Economic Issues 34 (March): 89-104.

Tandy, David W. 1997. Traders and Warriors: The Power of the Market in Early Greece. Berkeley: University of California Press. [Recent application of Polanyi to the ancient world.]

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

Spreading the News: The American Postal System from Franklin to Morse

Author(s):John, Richard R.
Reviewer(s):McGuire, Mary K.

EH.NET BOOK REVIEW

Published by H-Business

and EH.Net (August 1999)

Richard R. John. Spreading the News: The American Postal System from

Franklin to Morse. Cambridge and London: Harvard University Press,

1995. vii + 369 pp. Tables, endnotes, primary sources, and index.

$54.00 (cloth), ISBN 0

-674-83338-4; $18.95 (paper) ISBN 0-674-83342-2

Reviewed for H-Business and EH.NET by Mary K. McGuire, Department of History,

Southern Illinois University Carbondale.

The U.S. postal system has received surprisingly little historical attention

over the

years, and even less so in recent historical discussions of the state,

politics, political culture, and administration. Even in the latest turn

toward the state, notably among the “new institutionalists,” the postal system

has remained on the fringes of

historical inquiry. While there may be many reasons for this,

I suspect that part of the problem is a sense that it has all been said before.

After all, conventional wisdom knows that the history of the U.S. postal system

is the history of the “spoils sys tem,” of civil service reform, of the weak or

non-existent pre-New Deal federal state.

And for many historians, the study of large-scale political institutions such

as the Post Office Department is mired in the worst excesses of the

“old” political history-a place we have left behind and with good reason.

Despite some recent works that have attempted to reconsider the subject from

various perspectives, the history of the U.S. postal system seems remarkably

resistant to a sustained historical inquiry or interest.

In this work, Richard John not only directs our attention to this relatively

neglected area of study, but he does so from an innovative interpretive

position that opens new ways of approaching and understanding the subject.

Taking, as he terms it

, a contextualist approach, he examines the postal system within the historical

context of the early Republic and the role it played in important social,

political, and cultural changes taking place over a nearly seventy year period.

In an arena where too few have ventured to show the way, John has set himself

a large task-a task made larger by his insistence on understanding the postal

system as an agent of social change in its own right, with significant impact

on shaping the contours and outcome of certain critical moments.

Specifically, he is concerned “not merely to locate the postal system in

the social process, but to explore its role as a social process, and, in

particular, to consider some of the ways in which the communications revolution

that it set in motion transformed American public life” (p. 24). This is an

ambitious project equal to the size and significance of its subject, and John

does an impressive job of developing his thesis with a wealth of detailed

historical information and

deftly handled political, social, and cultural analysis.

Both symbol and reality of the federal government in the early decades of the

fledgling republic, John asks us to consider the postal system’s significance

as the centerpiece of a communications ”

revolution.” As John makes clear, this was a revolution with very decided

market implications and intentions, creating a network of federally designed

and funded transportation and communications links that drew together the

people, producers, and places

of an increasingly far-flung nation.

In the first chapters of this book, he examines the policy and structural

innovations that established and deepened federal postal dominance in this

communications revolution. But, true to his thesis,

John goes beyond a mere discussion of the politics behind this transformation

to the impact of the transformation itself on shaping a new, national, public

sphere for this new, democratic republic.

According to John, the Post Office Act of 1792 laid the cornerstone for postal

impact on American public life when it permitted the transmission of newspapers

through the mails, alongside laying the groundwork for a greatly expanded

postal network. It also protected the sanctity of the mails from surveillance

and other interference-a critically important innovation in a world context

where privacy in communications was far from a right in law or in practice.

Then, turning to one of the central political-administrative figures of the

early postal system, Postmaster General John McLean, John identifies the early

administrative innovations of this nascent bureaucratic enterprise under

McLean’s leadership. In so doing, John asks us to reconsider our assumptions

about national politics and the federal state in the early Republic

, which is an important addition to our understanding of the supposedly

“stateless” United States in the period before the New Deal. For historians of

bureaucracies and of business enterprises, John makes another significant

contribution when he identifies administrative and managerial innovations in a

time and a place where we would hardly have expected to find them. It is

virtually a commonplace among business historians to date the introduction of

middle management practices from the middle nineteenth century and the

creation of huge railway enterprises. In this study, John shows that middle

level management techniques and principles already existed in a well-defined

form within the postal system-a system which could not have functioned without

its

three-tiered administrative structure and its

“hub and spoke” distribution system.

Bringing together the federal level politics and the federal level

administrative developments that occurred under John McLean as Postmaster

General, John explores and ex plains the administrative structure being set in

place even as politics influenced and shaped the postal system that was being

developed-and more. As he concludes: “By greatly expanding the power of the

Postmaster General, the completion of the postal network threatened to tilt

the delicate balance between the postal system, the rest of the executive

branch, and the individual states” (p. 110). It was this consolidation of

political and administrative power in the federal state, in the form of the

Post Office Department, which would influence the political and administrative

battle over “spoils” and states rights in the Jackson presidential campaign and

administration. In his later chapter on the Jacksonians, John expands this

political analysis in a discussion of the efforts by Jacksonians to hold the

federal state administration accountable to their understanding of the

classical republican creed.

Rotation in office-the so-called “spoils” system-wreaked some havoc with the

administrative operations and structure of political institutions like the

Post Office Department, but it also laid the groundwork for building the mass

party system that the Jacksonians had brought into existence in the election of

1828.

This analysis of the spoils system is not altogether a new one, but John ties

it to the power of the postal system as the centerpiece of a central, federal

state-the very thing that states’ rights advocates like the Jacksonians were

concerned to limit. For political historians, the power of his analysis lies

here, by showing how the Jacksonians manipulated the power of appointment to

public office to bring together their political creed of the democratic

republic and their political

need to build the mass party that had brought them into power. In

other words, it might be said there was an internal logic to the spoils system

that, abuses notwithstanding, was not entirely at odds with earlier assumptions

about the role of the postal system in creating an informed and politically

active public among its widespread communities and citizens. The nineteenth

century notion of “the egalitarian ideal,

which held that every citizen had the necessary ability to hold public office

and in this way to participate directly in the affairs of state”

(p. 1 35), was widespread, but not until the Jacksonians would it become

policy.

But this policy, like the politics behind it, was limited to free, white men.

In one of his most fascinating discussions, John looks at the public spaces

controlled by the postal

system. Here he argues that the postal system facilitated “an imagined

community that incorporated a far-flung citizenry into the political process”

(p. 168)-and this despite, or perhaps because of, the constraints placed on

free blacks and on women in

that public space. This is a wide-ranging discussion,

which deals with the aristocratic tradition and influence in securing public

office, the introduction of the military model for public officers, the

exclusion of free blacks from mail delivery, and the problems faced by women

in the male-dominated public space of the post offices. Arguing that “official

norms helped to shape public attitudes regarding the boundaries of American

public life” (p. 142), he concludes that “(t)hrough a combination of customs,

laws, and social conventions,

the central government and ordinary Americans had together constructed a new

social type-the citizen as free, white, and male-and a new kind of social

space-an imagined community that was more or less congruent with the

territorial confines of the United States” (p. 168). As the only public

institution as widespread as the citizens of the nation it served, the postal

system was a central factor in creating and regulating that new social space.

However, it is also here,

as well as in his chapters on Sabbatarianism and on abolitionism, that some

may find it difficult to see the postal system as an agent of social

change with such powers to shape the emergent nation’s political culture and

social conflicts. John’s treatment of the Sabbatarian

controversy–transmitting the mails and opening the post offices on the

Sabbath-is compelling, as is his argument that this needs to be seen as “a

struggle over the proper role of the central government in American public life

and

not, as is often presumed, merely a struggle between competing social groups”

(p. 191).

Likewise, his discussion of the abolitionist controversy-the mailing of

unsolicited abolitionist literature to southerners-brings to light an important

incident in the

battle over states’ rights vs. federal authority in the years preceding the

Civil War. However, it is less convincing in these cases to see the postal

system as the agent of change. It seems more reasonable that the postal

system was the

medium used to provoke change, or was the space in which certain

battles over social change would be fought. John himself seems to suggest this

when he notes of the Sabbatarian controversy that “it demonstrated how easily

a small group of activists could take ad vantage of the communications

revolution

that had been wrought by the postal system, the stagecoach industry, and the

press to mobilize public support throughout the United States” (p. 202). Who

is agent and who is subject here?

I am not interested in splitting hairs, and I am more than willing to accept

the postal system as an agent of social change. And, certainly,

John seems to equate “agent of social change” with the “communications

revolution” he has so ably shown the postal system to have initiated in this

period. However, that seems to me less a clarification of “agency”

and more an opening to explore what it means for the state to act as an

agent of social change. Published in 1995, John’s study came out at a time

when new works on the state, ideology, law, policy, and institutions had

somewhat recently begun to appear-some in response to the much earlier effort

to “bring the state back in”. Many of these works take as their central

premise the notion of the state or its institutions as agents of social

change, and a vibrant discussion emerged among the political scientists,

sociologists, and historians who take the state seriously as an agent in its

own right. In a very important way, I believe John’s study contributes to that

discussion

,

although without directly engaging it, and that is to be regretted. For

example, his short conclusion takes us back all-too-briefly to the

“communications revolution” where, in his interpretation, it all began.

But after such a journey through administrative history, politics,

political culture, public life, and social conflicts, it would have helped

tremendously to tie it all together with some more generalized attention to how

the postal system acted as the agent of social change and in “shaping

the boundaries of American public life” (p. 283).

Even so, this does

not diminish the power of John’s study, or his astute

analysis of the postal system in this early period of U.S. history.

Situating this postal history in its larger historical context and political

significance, John has done a very fine job with a huge,

complex, and unwieldy subject. This is an exhaustively researched study and it

draws on a wealth of detail to make its case. More than that, it raises some

important new ways of under standing events, such as Sabbatarianism and

abolitionism, that should be of interest to historians of nineteenth century

America. Political historians will be especially interested in his treatment

of Jacksonian democracy in action and his attention to political culture and

American public life.

Business and economic historians will find his discussion of the communications

revolution and the expanding postal network useful additions to our knowledge

of government policy influences on the early development of the national

market in this period. And those of us who study the state and state formation

should find this a welcome contribution as well, not only for taking on a

neglected and important subject, but also for taking that subject in new

direction s.

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

Courts and Commerce: Gender, Law and the Market Economy in Colonial New York

Author(s):Rosen, Deborah A.
Reviewer(s):Boylan, Anne M.

EH-NET BOOK REVIEW

Published by H-Business@eh.net (April, 1998)

Deborah A. Rosen. Courts and Commerce: Gender, Law, and the Market Economy in Colonial New York. Historical Perspectives on Business Enterprise Series. Columbus: Ohio State University Press, 1997. xvi + 232 pp. Figures, tables, appendix, notes, bibliography, and index. $45.00 (cloth), ISBN 0-8142-0736-7; $17.95 (paper), ISBN 0-8142-0737-5.

Reviewed for H-Business by Anne M. Boylan , University of Delaware

Seeking the Market Revolution

In this study of colonial New York City and Dutchess County, Deborah Rosen analyzes the intersections between the law and the economy. Employing legal documents to study economic behavior, she focuses particularly on the rise of debt litigation and the decline of jury use in civil trials. Because both can be seen as measures of “a rational, impersonal market economy” (p. 72), she finds that legal change facilitated economic change. “It was the legal system that provided the foundation for economic integration,” Rosen writes; “law was one of the most important factors that permitted New Yorkers to become engaged in market relationships” (pp. 7-8). Moreover, because those legal changes took place in the eighteenth century, historians have seriously misstated the timing of the “transition to capitalism” in the post-Revolutionary North, and misunderstood the relative impact of that transition on men and women. When capitalism came to New York, Rosen states, “women were largely excluded” (p. 132), because they had little legal standing to perform as independent economic actors. These are large claims, and indeed throughout Courts and Commerce sweeping judgments coexist uneasily with detailed research. The result is an uneven book, one that makes its most useful contributions in carefully formed factual building blocks, not in the interpretive mortar that attempts to hold them together. Rosen is unlikely to convince scholars of economic transition and of gender relations that they have built their interpretive structures all wrong and will need to remake them according to her design. But her book includes enough interesting research to make it worth consulting.

The best sections of Courts and Commerce reflect Rosen’s familiarity with legal history and her immersion in primary documents. Her intensive study of probate inventories confirms what historians such as Carole Shammas, T. H. Breen, Gloria Main, and others have noted, that as eighteenth-century Americans became increasingly immersed in a “world of goods,” wealth stratification sharpened.[1] Rosen adds an extra dimension to that finding by comparing city and county, in the process demonstrating a narrowing gap between urban and rural areas in the consumption of luxury goods, and comparable degrees of wealth stratification in both. Rural New Yorkers experienced “a significant polarization of wealth” during the eighteenth century; it was “not just an urban phenomenon” (p. 33). Similarly, by studying merchants’ account ledgers and mortgage-lending practices, Rosen shows that eighteenth-century New Yorkers were increasingly willing to go into debt in order to finance their acquisitive and accumulative economic behavior. And by carefully scrutinizing extant minutebooks from the New York Mayor’s Court and the Dutchess County Court of Common Pleas, she chronicles a rapid upward rise in debt litigation in both town and country as well as a “drastic decrease in the percentage of (civil) cases resolved by jury trial” (p. 62). Finally, by tracing women’s declining involvement in formal legal actions, and their growing invisibility in the courtroom, Rosen provides data for New York that confirm Cornelia Hughes Dayton’s findings for Connecticut.[2]

Rosen’s effort to hitch these findings to that all-purpose interpretive wagon labeled “The Market Revolution” or “the transition to capitalism” is problematic on several planes. One is definitional. Although half-way through the book (p. 74) Rosen acknowledges that other historians define both “the market” and “capitalism” differently, much of her criticism of the existing historiography ignores that key point. Whereas most scholars see the Market Revolution as a complex set of new economic and social relationships revolving around capital accumulation, credit formation, the sale and purchase of labor-power, and new forms of inheritable wealth, Rosen sees market economies simply as those characterized by cash transactions, “the development of commodities markets and a capital market” (p. 76), and the charging of interest. By employing a definition that would fit seventeenth-century Amsterdam as well as New Amsterdam, Rosen does little to sharpen or clarify the historians’ debates.

Moreover, Rosen enters parts of those debates by fencing with straw figures. Especially on the question of how economic changes shaped gender relations, unnamed “historians” and “scholars” (pp. 11, 131, 132) take such untenable positions that Rosen ends up thrusting and parrying with ghosts. One such chimera is the assertion that some “historians, seeming eager to blame gender inequalities on capitalism, industrialization, and domesticity, have simply presumed that in the colonial world…men and women must have lived together as equals” (p. 11). Another is the suggestion that “scholars attribute women’s past and present economic and legal behavior to their natural qualities as women” (p. 131). A check of the footnotes reveals Rosen’s real adversaries: the psychologist Carol Gilligan and legal scholars such as Carrie Menkel-Meadow. Although both would reject the argument that their work naturalizes feminine or masculine qualities, it has been read (or mis-read) that way. But surely recent historians of women, who have worked so diligently to demonstrate that gender is a social and cultural category, deserve more nuanced renditions of their arguments.

In her discussion of economic history, Rosen is similarly prone to bleach out the vivid complexities of interpretive patterns in favor of monochromatic or dichotomous versions. Thus, after surveying a quarter-century of historical work on the colonial economy, she makes the rather astonishing claim that an “idealized image of a communal colonial society remains in, even dominates, current historiography” (p. 3). In Rosen’s universe, “economic relationships” are either “arm’s length business arrangements” or else “familial or communal in nature” (p. 8). There is no room for economic behaviors that are both businesslike and familial. The prevalence of such false oppositions in Courts and Commerce is likely to make readers skeptical of the book’s broader interpretations, especially the argument that legal changes predated and facilitated economic transformations. Without some discussion of Dutch legal precedent or the economic underpinnings of English common law, that position seems asserted more than demonstrated.

If the larger claims of Courts and Commerce remain unconvincing, the book nevertheless provides useful legal and economic data on consumption patterns and court practices in eighteenth-century New York. Students of business will find interesting and well-presented information on subjects such as mortgage-lending, debt litigation, and wealth distribution in both the city and Dutchess County. The appendix summarizes Rosen’s findings in these areas clearly and directly. Likewise, scholars of gender issues will be interested in Rosen’s conclusion that common law rules weighed heavily upon married women in colonial New York, and that, contrary to what Marylynn Salmon discovered, wives’ resort to equity courts was quite uncommon.[3] It is in specific findings like these, rather than in matters of general interpretation, that Courts and Commerce makes its contributions to historical understanding.

Notes

[1]. Carole Shammas, The Pre-Industrial Consumer in England and America (New York: Cambridge University Press, 1990); T. H. Breen, “‘Baubles of Britain': The American and Consumer Revolutions of the Eighteenth Century,” Past and Present 119 (1988): 73-104; Gloria L. Main, “The Standard of Living in Southern New England, 1640-1773,” William and Mary Quarterly 45 (1988): 124-134; John Brewer and Roy Porter, eds., Consumption and the World of Goods (New York: Routledge, 1993).

[2]. Cornelia Hughes Dayton, Women Before the Bar: Gender, Law and Society in Connecticut, 1639-1789 (Chapel Hill: University of North Carolina Press, 1995).

[3]. Marylynn Salmon, Women and the Law of Property in Early America (Chapel Hill: University of North Carolina Press, 1986): 11, 28-30.

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Subject(s):Markets and Institutions
Geographic Area(s):North America
Time Period(s):18th Century