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The Origins of National Financial Systems: Alexander Gerschenkron Reconsidered

Author(s):Forsyth, Douglas J.
Verdier, Daniel
Reviewer(s):Sylla, Richard

Published by EH.NET (March 2005)

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Douglas J. Forsyth and Daniel Verdier, editors, The Origins of National Financial Systems: Alexander Gerschenkron Reconsidered. London and New York: Routledge, 2003. xv + 237 pp. $129.95 (cloth), ISBN: 0-415-30168-8.

Reviewed for EH.NET by Richard Sylla, Stern School of Business, New York University.

In what has been called “the battle of the systems,” so-called bank-based financial systems typified by German-style universal banking compete with so-called market-based financial systems of the Anglo-American variety. Bank-based systems, of course, always had securities markets, just as market-based systems always had large banking components. Indeed, a recent scholarly trend has been to emphasize the similarities of the two types of systems rather than their differences, and to see in contemporary developments — an increased role for securities markets in Germany, and leading U.K. and U.S. banks looking more and more like universal banks — a convergence of financial systems.

Be that as it may, the conference volume reviewed here focuses on why financial-system differences emerged in the first place, meaning in the period 1850-1914 when universal banking emerged in Germany. It spread from Germany to other countries in Europe, while the British and the Americans continued to develop in tandem the banking systems and securities markets they had established earlier in history. As the subtitle of the volume suggests, one of its major purposes is to reconsider Alexander Gerschenkron’s influential contention that universal banking, defined broadly in the introduction to the volume as “banks that accept deposits, and engage in both short- and long-term lending” (p. 7), was a substitute in moderately backward countries such as Germany for missing “prerequisites” of economic modernization. Such missing prerequisites for Gerschenkron included a long history of commercial development and an “original accumulation of capital” available to finance modern industrial technologies at the appropriate moment. Today we might say, as Joost Jonker more or less does in his contribution to the volume, that a financial revolution is also among the missing prerequisites. Countries that had financial revolutions — the Dutch Republic, the U.K., and the U.S. — tended to have commercial banking specializing in short-term lending, as well as securities markets specializing in financing longer-term capital needs of companies.

In his introduction to the volume, co-editor Forsyth (a historian at Bowling Green State University in Ohio) characterizes Gerschenkron’s approach as one that focuses on bank assets and loan demand. In relatively backward countries, capital scarcity creates a demand by firms for long-term loans from banks to take advantage of new, large-scale production technologies. Universal banks emerge is such countries to satisfy the demand for long-term financing that otherwise would not be met. In more advanced economies, by contrast, established firms can rely on retained earnings and securities markets for long-term capital, leaving banks to specialize on short-term commercial lending.

An alternative explanation to Gerschenkron’s, an exploration of which motivates the volume, is that of the other co-editor, Verdier, a political scientist at Ohio State University. Instead of emphasizing loan demand and bank assets, Verdier in earlier writings and the first chapter here focuses on the supply of deposits, liabilities of banks that are one source of funds to finance loans to companies. More than Gerschenkron, Verdier bases his explanation on politics. In decentralized polities such as nineteenth-century Germany, the political power of farmers and small business led the state to sponsor non-profit financial institutions such as savings banks and cooperative institutions. That meant that bigger banks serving large-scale industry found it difficult to capture a large share of bank deposits. So the big banks had to rely more on their own capital and retained earnings to fund loans, and that in turn meant that they were less prone to runs on deposits and could thus make more long-term loans. But such banks could still suffer runs, and were particularly vulnerable to them because of their long-term lending. So successful universal banking required the presence of a central bank that would actively provide liquidity by acting as a lender of last resort in financial crises. In a nutshell, Verdier’s alternative to Gerschenkron holds that universal banking arises when the deposit market is segmented between non-profit and profit-oriented institutions (which is more likely in decentralized polities), and when the central bank is active as a supplier of liquidity and lender of last resort. Deposit-market segmentation and a lender of last resort are thus said to be the necessary and (together) sufficient conditions for the emergence of universal banking. Gerschenkron’s relative backwardness has nothing to do with it.

Conversely in Verdier’s model, centralized polities such as the U.K. and France were less likely to allow non-profit financial institutions to capture large shares of bank deposits. Hence, commercial banks obtained most of the economies’ bank deposits. Relying less on their own capital and retained earnings, and more on deposits that might be withdrawn on short notice, such banks abandoned long-term lending in favor of short-term commercial loans.

The remaining nine chapters of the book subject the Gerschenkron and Verdier models to intense scrutiny, and in general find that both models are lacking. Ranald Michie (Chapter 2) and Joost Jonker (Chapter 3) in effect criticize both models for being too narrow in their focus on banking, slighting the important role of securities markets, which are both competitive with and complementary to banks, in modern financial systems. Michie notes that the value of securities in 1913 was three to four times greater than worldwide bank deposits, which has to make one wonder why banks and banking have received such disproportionate attention from financial historians. He also produces an interesting table showing that the U.S., with its peculiar banking system made up of tens of thousands of unit banks, somehow managed by 1913 to have 30 percent of total world deposits and 36 percent of world commercial bank deposits, both totals being far ahead of those of any other country. Knowledge of that might cause historians of American banking to temper their critiques of it. Jonker compares the financial systems of the Netherlands, Britain, France, and Germany. He sees the first three as relatively sophisticated financial systems with securities markets playing central roles in them, while Germany, which he cleverly describes as “building a boat while sailing it,” was hampered by late state formation and retarded securities-market development. These are provocative chapters.

The rest of the chapters are country case studies. Richard Deeg’s study of Germany and Alessandro Polsi’s of Italy are perhaps most favorable to Verdier’s emphasis on the primacy of political factors in shaping financial systems. Germany and Italy were two pillars of Gerschenkron’s banking edifice, and both Deeg and Polsi think Gerschenkron exaggerated the role of universal banks in these countries. Both countries had segmented deposit markets, central banks, and universal banking as Verdier’s model would predict. The results, however, were far better in Germany than in Italy.

Michel Lescure’s interesting essay places France squarely between Britain and Germany. Like Britain, France as a centralized state had national deposit banks concentrating on short-term commercial lending, and investment banks serving large-scale industry. But like Germany, it had local universal banks serving local, small- and medium-sized firms. The Bank of France aided the latter in the manner Verdier contends was necessary.

Sweden and Norway were semi-centralized Scandinavian states that do not fit well either the Gerschenkron or Verdier models. In their essay on Sweden, H?kan Lindgen and Hans Sj?gren show that the country had an early development of non-profit savings banks and a central bank, which would lead Verdier to predict the emergence of universal banking. And that may have happened at the turn of the twentieth century, later than Verdier’s model would imply. The explanation may be that Sweden’s savings banks were linked with its commercial banks, so there was not so much deposit-market segmentation. When universal banking did finally come late to Sweden, it may have been for Gerschenkronian reasons, or it may simply have been in imitation of nearby and admired Germany. Sverre Knutsen’s description of Norway make it sound ripe for universal banking under either Gerschenkron’s or Verdier’s model. It didn’t happen. Foreign capital appears to have substituted for Gerschenkronian universal banks, and the Bank of Norway was too timid a supplier of liquidity and lender of last resort to fulfill Verdier’s second precondition for universal banking.

Imperial Russia, according to Don Rowney’s chapter, had British-type commercial banking in Moscow and German-style universal banking in St. Petersburg. Neither Gerschenkron’s nor Verdier’s model seems very helpful in explaining that mixed outcome. Instead the Russian state seems to have sponsored both types of banking, in imitation of Britain in the 1880s (Moscow) and of Germany (St. Petersburg) in the early 1900s.

Jaime Reis’s essay on Portugal ends the volume. Portugal was a centralized state with a weak non-profit banking sector, so Verdier’s model would predict commercial banking, as in Britain. Instead, Portugal had universal banks. But these banks did not make Portugal grow as Germany did. Portugal’s problems seemed to be that it was a poor, underdeveloped country without many bank deposits of any kind, and that the Portuguese national debt, three times larger than the total of bank deposits, crowded out both banks and industrial investment.

The main lesson of this volume is that it is not easy to come up with simple, or even moderately complex, explanations for differences among national financial systems. That said, Daniel Verdier is surely correct in his emphasis on the importance of political factors in producing history’s diverse financial-system outcomes. I also think Gerschenkron, with whom I discussed these matters many times, would have agreed with him on that.

Richard Sylla is Henry Kaufman Professor of the History of Financial Institutions and Markets at New York University’s Stern School of Business. His latest article, with Peter L. Rousseau, is “Emerging Financial Markets and Early U.S. Growth,” Explorations in Economic History 42 (2005).

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Subject(s):Financial Markets, Financial Institutions, and Monetary History
Geographic Area(s):Europe
Time Period(s):20th Century: Pre WWII

Dhows and the Colonial Economy of Zanzibar, 1860-1970

Author(s):Gilbert, Erik
Reviewer(s):Sheriff, Abdul

Published by EH.NET (February 2005)

Erik Gilbert, Dhows and the Colonial Economy of Zanzibar, 1860-1970. Athens, OH: Ohio University Press; Oxford: James Currey; Zanzibar: Gallery; Nairobi: EAEP, 2004. xiii +176 pp. $45 (cloth), ISBN: 0-8214-1557-3; $26.95 (paper), ISBN: 0-8214-1558-1.

Reviewed for EH.NET by Abdul Sheriff, Zanzibar Museums.

The book is one of the very few but growing number of academic books yet written on the dhow, the Indian Ocean sailing vessel with its characteristic lateen sail (Martin, 1979, Agius 2004). The vessel was the premier vehicle for economic and socio-cultural exchange in the western Indian Ocean before the entry of the Europeans in the sixteenth century, and especially before the steamers from the nineteenth century. The book owes its origin in a Boston University doctoral dissertation in 1997 by the author who is now an Assistant Professor of History at Arkansas State University. Subsequent visits to Yemen and the coast of Kenya, as the author says, brought home to him “just how much of a coherent region the western Indian Ocean littoral is,” but substantive results from these excursions are not included in this volume. The book therefore remains primarily a treatment of the dhow trade in the colonial economy of Zanzibar from the mid-nineteenth to the mid-twentieth century, based primarily on sources in the Zanzibar and Tanzania Archives, and the Peabody Essex Museum in Salem, Massachusetts.

The hero of the book is the dhow, and the story is about its valiant struggle to survive against all odds in a rapidly changing world with growing competition from steamers, and despite all colonial machinations to consign it to the dustbin of history. Gilbert sets the argument against the modernization theory that the dhow was an archaic survival from the past that had remained unchanged for centuries. He quotes Chaudhuri, arguably the father of modern Indian Ocean studies who occupies a position comparable to that of Braudel for the Mediterranean, that “If the Kwaiti (sic) booms and their Indian fellow-vessels continue to cross the Arabian Sea, they do so, it could be said, either as part of a backward economy or because their owners are not rational beings,” although his argument is more nuanced than is suggested by Gilbert (Chaudhuri 1985: 221-2). He admits that he was not entirely immune to this view, and indeed, despite his revisions that view is not entirely absent from the text before us, describing it as part of the so-called “informal sector” (p. 59). However, the persistent prediction of the imminent demise of the dhow since the middle of the nineteenth century proved to be premature and wildly exaggerated. The main thesis of the book is that even if Zanzibar lacked the means to resist occupation, the dhow enabled Zanzibaris to resist the steamship until the regional economy was fundamentally transformed in the twentieth century with the generalization of the oil economy in the Persian Gulf.

Gilbert begins his analysis with a survey of the dhow in the nineteenth century when the Atlantic trade system linked up with the Indian Ocean at Zanzibar. Although the former potentially could have diverted the trade from the latter, in fact the expansion of commerce in general enabled the dhow to expand its local entrepot activities between Zanzibar and the mainland out-ports, collecting ivory and other east African exports, and distributing imports, including American cloth, Merikani. At the same time, the older long-distance dhow trade to Arabia and India, dealing in local commodities, such as salted fish, dates and mangrove poles, was not touched, while in the export of ivory to India in exchange for textiles, there was some adjustment but not a complete “rout.” Thus “dhows kept a foot in both worlds.”

More damaging was a series of events that began to undermine the dhow trade more substantially. The first was the British anti-slavery activities which progressively limited the slave trade before prohibiting it altogether, thus depriving the dhow trade of one of its traditional cargoes. In the process many dhows were destroyed even when they were not caught carrying slaves. The second was the colonial partition of Africa which dismembered Zanzibar’s hinterland on the African continent, gradually destroying the entrepot trade between Zanzibar and the mainland in which dhows had flourished, leaving Zanzibar to rely on a single cash crop, cloves. Finally, in 1890 Zanzibar itself was declared a British Protectorate, and the colonial authorities moved to impose their authority and create a colonial economy. In the case of the dhows, they were to be “monitored, listed, registered, labelled, flagged, charged fees and relegated to their own corner of the Zanzibar harbour.”

However, the home-grown dhow refused to die without a fight. The strongest part of the book is in fact Gilbert’s documentation of the ability of the dhow economy to resist attempts to marginalize it in the colonial economy. In the long-distance monsoon trade with India, it increasingly lost ivory and cloth to steamers. However, when the colonial authorities tried to encroach even on the local carrying trade between the two islands within the Protectorate, transporting cloves from Pemba, which was the larger producer, in exchange for consumables, the dhow was able to put up a stiff resistance against government steamers. Although the latter were able to capture a larger proportion of the passenger traffic, especially after the government instituted free passages for clove pickers, when it came to cloves, the dhows’ lower freight rates and ability to penetrate the numerous creeks and small ports in Pemba enabled them to capture most of the freight, leaving less than fifteen percent of the cloves and even a smaller proportion of the return cargo to the steamers. This was despite the fact that most of the port facilities were available to steamers rather than to dhows, and the steamers were continually subsidized.

The crunch came in the 1930s when the colonial state sought to “rationalize” the clove economy by trying to use its power to drive out the Indian middlemen, and with them, the dhow, by setting up a parastatal Clove Growers’ Association that would use only steamers to transport cloves. With their back to the wall, the Indian merchant class called a boycott of Zanzibar cloves that was supported by the Indian National Congress in India, and the colonial state was forced to reach a compromise that was to last until the Revolution of 1964. With their partial success, dhows were also able to retain their niche in the clove economy.

The second commodity on which the dhows had relied was mangrove poles. For hundreds of years they have been used around the treeless coast of Arabia as well as on the East African coast as beams to support the ceiling and as a source of fuel. With the progressive loss of other cargoes, the dhow were forced to rely on them as their main export to Arabia and the Persian Gulf during the twentieth century, while their production and local transport along the East African coast gave employment to a large number of dhows, sailors and cutters. It was an item that did not feature in the conception of the colonial economy, and therefore the authorities were prepared to let the dhows carry on their trade unmolested apart from attempts to charge a royalty fee. Because of these reasons, archival material is less dense, and the chapter devoted to it is therefore much thinner in substance. The exception was the sudden demand for mangrove bark in the 1940s to meet the need for industrial leather tanning in Europe, and it led to frantic stripping of mangrove swamps and their decimation, forcing the colonial state to intervene to conserve the swamps.

Ironically, the mangrove trade peaked in the 1950s with the first flush of the oil wealth in the Persian Gulf. Up to a quarter of a million mangrove poles were exported from Zanzibar alone in a single year, presumably to build traditional houses there, most of them shipped in the monsoon dhows. But this was a false dawn that was a precursor on the one hand to the age of cement and iron which would kill off the monsoon mangrove trade altogether, and on the other, to kill the monsoon dhow traffic itself as easier means of livelihood in the Gulf made it increasingly difficult for dhow captains to lure sailors to the extremely hard life on the dhows. The Zanzibar Revolution of 1964, which had targeted the Arabs in particular and banned port calls by Arab dhows, dealt a coup de grace to this centuries-long exchange between Zanzibar and Arabia. It cut off Zanzibar from the regional trade in the western Indian Ocean precisely when it could have benefited from a trickle down of wealth from the Persian Gulf until the trade liberalization reforms in the mid 1980s.

The same Revolution also dealt a blow to the local dhow traffic in cloves when it nationalized the whole clove trade, and by fiat of state power, accomplished what the colonial state had failed to do, to transfer the whole clove traffic to the even bigger state-owned steamers. This double blow was probably devastating to the dhow trade and the whole community of people from sailors to owners and mangrove cutters and others who were in one way or another involved in it. In India in the post-war period Vaidya had made a very strong nationalist case for support of the dhow industry precisely because it was an indigenous industry in which a very large number of local people found employment as dhow builders, sailors and porters, as opposed to foreign-built steamships which employed only a small number of sailors and much of the porterage was done by cranes. But “Zanzibar’s revolutionaries embraced modernity with a vengeance,” regardless of the consequences for the local population that they proclaimed to serve.

Gilbert thus makes a strong case for the role of the dhow which had made it possible for Zanzibar to play an important part in the world of cultural interactions that cut across the continental division between Africa and Asia. It may be an instrumentalist argument, but in a debate that had hitherto ignored the instrument almost completely, it is well-worth making. In a perhaps overly defensive response to the Africanist historians who harp on the “essentially African character of the Swahili” like a “mantra,” as Barendse puts it, Gilbert says that it is just as useful and valid to look at Zanzibar from the perspective of the western Indian Ocean world as it is from an African perspective. “The structures of the western Indian Ocean’s monsoon economy remained the rock-solid foundation of Zanzibar’s life, dictating what people would eat and wear and how they would shelter from the elements” (14).

All in all, the book is a solid piece of scholarly work that makes a very useful contribution to the history of Zanzibar and of the Indian Ocean during the past two centuries. Perhaps the fly in the ointment is the extremely high price for a rather slim book of 175 pages.

Abdul Sheriff was a professor of history at the University of Dar es Salaam, and is now Advisor and Principal Curator of the Zanzibar Museums. He is a specialist on the history of Zanzibar and the Indian Ocean. His major publication is Slaves, Spices and Ivory in Zanzibar, 1770-1873, and he is currently working on a book on the Indian Ocean.

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

Keynes, Chicago and Friedman

Author(s):Leeson, Robert
Reviewer(s):Samuels, Warren J.

Published by EH.NET (February 2005)

Robert Leeson, Keynes, Chicago and Friedman. London: Pickering & Chatto, 2003. xi + 381 pp. and vii + 534 pp. $325 (cloth), ISBN: 1-85196-767-2.

Reviewed for EH.NET by Warren J. Samuels, Department of Economics, Michigan State University.

I. The Controversy and its Possible Resolution Was there a “Chicago” Quantity-Theory oral tradition, or not; and if so, what was it?

Robert Leeson, of Murdoch University, has collected some fifty contributions to a narrow but intriguing topic in the history of the Chicago School and monetary economics: whether or not, prior to Milton Friedman’s publication in 1956 of his restatement of the quantity theory, there had been (as he claimed) an oral tradition at the University of Chicago of the quantity theory; and, if there was, of what did it consist? Friedman attributed to that oral tradition a model in which the quantity theory was “in the first instance” (vol. 1, p. 1, Leeson quoting Friedman) a theory of the demand for money; indeed, a stable demand for money. Friedman claimed that the tradition was spawned by Henry Simons and Lloyd Mints directly and by Frank Knight and Jacob Viner at one remove. Thirteen years later, Don Patinkin questioned the validity of Friedman’s interpretation of the quantity theory and his “Chicago” version (vol. 1, p. 87). Patinkin identified “The Other Chicago” version thusly: “The quantity theory is, first and foremost, not a theory of the demand for money, but a theory which relates the quantity of money (M) to the aggregate demand for goods and services (MV), and thence to the price level (P) and/or level of output (T); all this in accordance with Fisher’s MV=PT” (vol. 1, pp. 89, 91). After a further twenty-two years Patinkin held that the disagreement was not about “whether or not there was such an oral tradition, but what the nature of that tradition was” (vol. 1, p. 381). Friedman also has modified his position.

Leeson has gathered the important material pertinent to the questions about the Chicago “oral tradition.” He has mastered both that material and the intellectual environment in which the controversy took place, an environment dominated by Keynes’s General Theory. Of the two volumes’ total of 915 pages, some 180-plus pages contain Leeson’s essays on the contents of his four parts: The Initial Controversy, The Debate Widens, How Unique was the Chicago Tradition?, and Towards a Resolution of the Dispute. What does Leeson conclude?

Leeson places a great deal of interpretive weight on Friedman having taken Mints’s graduate course in money and banking (Economics 330) during his first year as a graduate student at Chicago in 1932-33. Leeson has been fortunate in having been given access by Friedman to his notes from Mints’s Economics 330. Leeson notes that “Friedman’s lecture notes are currently in his possession and have not been processed into his archives at the Hoover Institution” (vol. 2, p.515n.1). The next important round may well center on the notes. The course was organized around Keynes’s Treatise, one feature of which was “an increased emphasis on money demand in a revised quantity theory framework” (vol. 2, p. 486).

Additional interpretive weight is placed by Leeson on a private seminar held by graduate students; quite a group, for they included Friedman, Albert G. Hart, George Stigler, Allen Wallis, Kenneth Boulding, and others, as well as a stream of visiting economists.

Leeson concludes:It therefore seems likely that Friedman took the ideas he was exposed to in Economics 330 and used them as an organising framework with which to understand the ‘macroeconomic’ dislocation of the 1930s. If intense student discussion is admissible as an ‘oral tradition’ then Friedman’s assertion has some validity. A version of the quantity theory which was ‘in the first instance a theory of the demand for money’ was apparently ‘a central and vigorous part of the oral tradition’ at Chicago at least among graduate students in 1932-3 (and possibly until the General Theory made Keynes a suspect figure). (Vol. 2, p. 488)

One difficulty with Friedman’s initial position has to do with the concept of an “oral tradition.” Friedman was part of the 1932-33 (and beyond) discussion; the “oral” part of the concept is unobjectionable. But the “tradition” part is highly suspect, on which more below.

A second difficulty is that many different readings were given the Treatise (not unlike the later General Theory), each reading stressing different combinations of variations within a general quantity theory framework. This meant, on the one hand, that a variety of oral “traditions” likely co-existed throughout the discipline and, on the other hand, that some or many of them included significant attention to the demand for money. Leeson stresses the latter: “Friedman’s initial assertion about Chicago uniqueness in this context must now appear unreliable. … It is therefore improbable that the Treatise — with its emphasis on money demand — informed ‘macroeconomic’ discussions in Chicago only. Indeed, Friedman in the preface to these volumes has retreated from his initial assertion about Chicago uniqueness” (vol. 2, pp. 488, 489). In his preface, Friedman begins his defense saying that he early “was baffled … at what all the fuss was about. … very little was at stake.” He then takes, correctly but irrelevantly, the position that if he has been “confused about the origin of the ideas … it would not affect by an iota the validity or usefulness of those ideas.” He concludes that he remains “persuaded that I was the beneficiary of a Chicago oral tradition, but this evidence convinces me that I gave Chicago more credit for uniqueness than was justified. “The issue,” he repeats, “is entirely about the origin of ideas, not about the validity of content” (vol. 1, p. x). Friedman seems to have taken too much for granted; Chicago was no more homogeneous than was the discipline as a whole on the quantity theory.

Leeson is claiming, therefore, only that Friedman’s assertion had “some” validity — in the sense that much “macroeconomic” discussion at Chicago and elsewhere in the early 1930s resembled his 1956 restatement, that “tradition” is too strong, and the uniqueness claim is wrong and must be dropped.

II. Historiographical Considerations

The collection bears on several historiographical considerations.

1. The historical record is uneven. Political history leaves many documents. Social and economic history, until relatively recently, left few lasting markers, but often sufficient indirect evidence to enable imaginative scholars to intuit larger patterns. With only sparse materials bearing on an interpretive problem, historians of thought and others may well find it easy to leap to conclusions. But where one has a vast body of evidence, such leaps seem presumptuous. With sparseness, the world may seem simpler than it actually was; with plentitude, the big, bloomin’ confusion is amply evident. So it is with the problem of the Chicago “oral tradition.”

The existence and content of an “oral tradition” plus our ability to discern them are highly problematical. Until very recently, as historical time goes, the technology to record oral communication did not exist. Even now, absent mechanical recording, the oral, once uttered, no longer endures (vide Adam Smith on unproductive labor). One result is false and/or biased memory.

Clarence E. Ayres, a long-time friend of Frank Knight, was like Knight an imposing and convincing lecturer. It turns out that institutionalists trained by Ayres had different views of institutionalist doctrine (such as the so-called Veblen-Ayres dichotomy) depending on when they sat in Ayres’s classes. There was an oral tradition at Texas centering on Ayres, but for that reason it registered important variations over time. I would expect the same at Chicago, the notable difference being that Friedman, Stigler et alia were more successful.

2. Schools of thought, one surmises, once were loosely and partly non-deliberately and partly deliberately formed. As schools became obvious vehicles for promoting ideas and reputations, they became more highly, if still loosely, organized. Friedman and Stigler, as part of their professional activity, engaged in the role of cheerleader for “Chicago.” Friedman’s claim may well have been an example of the Chicago propensity to promote itself by self-publicizing its beliefs. Stigler was the premier practitioner but rare is the public presentation — e.g., papers given at professional meetings — by a Chicagoan that does not make some claim for the unique brilliance of the Chicago point of view. Leeson aptly quotes Stigler “that it was both ‘true, and necessary to their survival’ that ‘learned bodies are each run by a self-perpetuating inner clique'” (Leeson, vol. 1, p. 296). The twin objectives were the promotion of ideas, a certain definition of reality with which to influence policy; and the quest for power in both the economics profession and the larger world. Such constitutes the deliberate invention of tradition, and the members of the Chicago School have much company, in the world of academic public relations, in constructing suitable advertisements for themselves and their ideas. With the Chicago School on the cutting edge of theoretical development, such promotion is to be expected.

When it comes, therefore, to “Friedman’s motives” — I would prefer “style” — Leeson opines that “If his ‘Restatement’ [of the quantity theory] exaggerated the degree of continuity with respect to earlier Chicago versions of the quantity theory this may have been a rhetorical flourish designed to provide an additional motivational stimulus to his students” (vol. 2, p. 490). True enough, as far as it goes; Leeson has gone further (Leeson 2000a and 2003, both dealing with Friedman’s and Stigler’s struggle for influence). The Stigler-Friedman strategy was directed not only to motivate students but to influence the discipline of economics and its world of policy. That Keynes and others also practiced this strategy (vol. 2, p. 491), enables us to identify and put it into perspective.

Moreover, Friedman’s methodological position served the purpose of erecting his economic theory, here his monetary theory, as the maintained hypothesis under the guise of “predictive power.”

In any event, the quantity theory in any form is no substitute for a comprehensive macroeconomics. There is more to history of the quantity theory than the price level as a function of either the supply of money or the demand for money. There also are several different “monetary theories of production.” There is less to the quantity theory than its devotees often would have us believe. The quantity theory is not alone in deriving its attractiveness from its utility for mobilizing political psychology.

3. Significant differences existed over what is “absolute truth” in monetary economics, whether such existed, and if it did, what it was; over the relative weight to be given to inflation and unemployment as policy goals; over what is “sound” or “proper” monetary policy; and the evaluation of current policies and current events.

Some authors treated the quantity theory as a matter of causal relation and explanation, often differing as to the content and direction of explanation, whereas others saw it as a truism, identity or tautology.

The epistemological nature of much discussion of the quantity theory was mixed. Some of it was theory as hypothesis. Some was comprised of declarative statements without supporting evidence or with carefully constructed evidence. Who is to say which version of the quantity theory is correct? Is there one correct version? What are the criteria of correctness — and the meta-criteria by which to chose from among the criteria, et seq.?

These questions are difficult to answer, for two reasons. First, consider W. H. Hutt’s distinctions between “rational-thought,” “custom-thought,” and “power-thought.” “Rational-thought” is disinterested objective inquiry leading to the accumulation of undisputed social-science knowledge (once class-driven ideology has been removed). “Custom-thought” is modes of thinking infused with implicit premises derived from tradition and customary ways of doing and looking at things. “Power-thought” is modes of thought and expression that are constructed to influence power, politics, and policy, through their service in psycho-political mobilization (Hutt 1990, p. 3 and passim). All three types of thought, especially the latter two, are found in the literature collected by Leeson. Second, inasmuch as no theory, or no version of a theory, can cover all pertinent variables and answer all our questions, correctness by any definition is elusive — especially when various versions of the quantity theory have been adopted to weaken if not destroy the targeted opponent, Keynesian economics. Here, power and persuasion rank well above scientificity (amply developed in Leeson 2000a and 2003).

Economic arguments are used to manipulate political psychology and political psychology is used to manipulate economic policy. Ideology and wishful thinking have relatively easy entry, especially for economists and politicians who favor creation of a certain felicitous picture in the public’s mind as part of the process of creating/manipulating public opinion.

Monetary theory and policy (like many other fields in economics) were characterized by over-intellectualization and economic politics, treated as if conducted cognitively and in sterile environments, whereas they existed in a real world of power play, selective perception, psychology, uncertainty, the quest for wealth and prestige, and efforts to influence the economic role of government. Monetary policy is a function of power, ideology, tradeoffs, power play over the distributions of opportunity, income and wealth. Each model of monetary theory was more or less attractive to particular ideologies and invoked as a weapon in support of policies based on ideology, practical politics, etc.

III. How Different Versions of the Quantity Theory Could Exist

The question of the existence of a Chicago oral tradition and its possible content must confront the variety of forms given the quantity theory. Many individual quantity theorists had their own positions to advance; they had different perspectives, and monetary theory comprised many different considerations on which their different, and changing, perspectives could be brought to bear. Quantity-theory formulations could vary among theorists and each was nested in a larger and variegated model of the money economy. It is impossible to cover all this in a short review but at least the following can be said in abbreviated form.

Sophisticated versions of the quantity theory were possible but because of the vast number of possible complications, advocates were often interested in simple versions easily discussed and taught. The quest for singular explanations of macroeconomic phenomena — real balance effects, sticky or inflexible prices, etc. — was also relevant. Notice the phrases “in the first instance” (Friedman) and “first and foremost” (Patinkin). What, if anything, comes afterward? The problem is, in part, that economists tend to adopt the simplest and most highly stylized versions of their theories, often caricatures of the sophisticated versions held by at least some leading theorists. Advocates were either unaware of the magnitude of possible complications or had their perception thereof narrowed and/or finessed by ideologically driven a priori beliefs, and so on.

The quantity theory exhibited highly variegated content. The quantity theory was ubiquitous. One formulation or another constituted the core of what most individual economists seem to have understood as monetary theory. While the quantity theory was its most conspicuous component, monetary theory included more than the quantity theory. Disagreements centered in part on different versions of the quantity theory using different elements of monetary theory. Ralph Hawtrey’s pure monetary theory of the business cycle had widespread impact for many years. Dennis Robertson, Irving Fisher, John H. Williams, Alfred Marshall, and pre-General Theory John Maynard Keynes, among others, were more conspicuous than any Chicagoan — with the exception of James Laurence Laughlin, who opposed the quantity theory.

It took centuries for the Fisherian and Cambridge versions of the quantity theory to become increasingly the analytical norm. Neither version emerged fully grown. When velocity of circulation (V) is used, attention is drawn to such technical matters as the facility with which the banking system transfers balances between accounts. When 1/K is substituted for V in Fisher’s version, it both resulted from and reinforced attention to the reasons for holding money. What looked to some to involve only a mathematical change, for others now meant that attention was directed to the reasons why people might want to hold money. What we now call real balances (or real balance effect) or liquidity preference was long appreciated and treated as hoarding.

The money economy could be examined in pure abstract terms, independent of monetary, banking and other financial institutions, or with an emphasis on the institutions that helped form and operated through the money economy. Significant disagreements existed as to the nature and substance of fundamental monetary and other macroeconomic processes, the nature and origin of actual monetary and macroeconomic problems, and the solutions to those problems. Considerable confusion results from some economists’ claims that their agenda for government monetary/macroeconomic policy constitutes non-interventionism whereas all other agendas are interventionist.

Major controversies were waged over what is money, the monetary standard, the role of reserves, what commercial banks do, the nature and role of a central bank; fractional reserves and the money multiplier; the Cambridge cash-balance approach, Wicksell’s monetary theory, and so on.

Some work postulated the economy to be fundamentally stable (e.g., through great weight given to Say’s Law); others postulated particular combinations of quantity-theory and business-cycle models. Changes in M could be deemed to affect only changes in P and nominal Y (i.e., T). Changes in Y (or T) could be seen as leading to changes in M and thence in P; or changes in Y (or T) could be seen as leading to changes in P and thence in M. Different supplementary assumptions might lead to changes in the direction of flows of causation or influence. Especially critical was whether an increase in Y (or T) was possible: whereas an increase in M and thence P could lead to an increase in Y (or T) at less than full employment, at full employment an engineered increase in M could not lead to an increase in real Y (or real T).

Much work seemed directly or indirectly influenced by monetary and banking arrangements existing within some form of gold standard. A monetary system predicated upon gold meant that changes in either gold or money meant a change in the other and in the price level. Currency and credit could be treated differently (as was done by Fisher, for example), influenced by differences in view of specie, paper and bank balances.

The relation of reserves to M could vary, as could the money multiplier, reasons for holding money or spending on consumer and/or capital goods, the respective roles of commercial banks and central banks (including targets), the relation of interest rates to the quantity theory variables, neutral versus non-neutral money, and so on.

Friedmanian monetarism — to the extent it can be meaningfully generalized — proposed that the private sector is stable, or would be stable in the absence of monetary and fiscal policy; that changes in the supply of money, vis-a-vis a stable demand for money (expectable in a stable economy) lead to changes in the interest rate and, especially, the price level; that changes in the supply of money generate changes in spending; that prices are generally flexible; and that vis-a-vis all other factors only money matters or money matters most (hard versus soft monetarism). The Keynesian fiscalist alternative — to the extent it too can be meaningfully generalized — proposes that the private sector is unstable, and that government can reinforce this instability, introduce its own instability, or counter instability; that changes in spending are governed by more than changes in the supply of money; that changes in the supply of money are the consequence, not the cause, of changes in spending — in part, the supply of money is a function of the demand for money; prices are generally inflexible; inflation is largely or typically a function of aggregate demand increasing beyond the full employment level; that increases in the supply of money can generate inflation but changes in the supply of money are not the critical factor governing changes in spending; that price-level instability is not the only monetary/macroeconomic problem, because full employment is not guaranteed and the supply of money is key to neither the price level nor the level of real income.

In addition, the two schools — monetarism and fiscalism — identify different transmission processes applicable to changes in the supply of money leading to increased spending. The fiscalist argues that increases in the supply of money are endogenous, resulting from increases in the demand for money by borrowers in order to spend more, and that the increases in the supply of money limit increases in interest rates (generated by the increased demand for money) and thereby increases investment and income. The monetarist argues that increases in the supply of money are exogenous (generated by the central bank), leading to excess money balances which leads to greater spending, to return monetary balances to desired levels. The differences turn on whether the increases in the supply of money are endogenous or exogenous, whether the increased supply of money is felt through the lowering of the interest rate or the creation of excess balances, and whether a stable economy and a stable demand for money is a suitable or a utopian premise.

Furthermore, modeling the demand for money is no simple matter. Even putting aside (and there is no conclusive reason to do so) the fiscalist-Keynesian model of transaction, speculative and precautionary motives, the monetarist demand for money has been modeled differently by different people and even by Friedman himself. The demand for money most generally is said to be a function of permanent income, wealth, price level, expected rate of inflation, and liquidity preference; more narrowing, it is a function of permanent income, wealth, and price level, all felt by Friedman to be relatively stable in the short run (i.e., if the economy is left to run well on its own), plus the interest rate.

Anyone not permanently wedded to either monetarism or fiscalism likely might consider a much more complex interplay of monetary and spending variables and relationships, including structural and expectational factors. Keynesian fiscalism is likely more capable of encompassing a wider range of variables than is the quantity theory. A major point, however, is that there are a multitude of possible complex interplays of all such variables, relationships and factors. An even more important general point is that all of the foregoing constitutes the social construction of economic theory. The argument over the content of the Chicago oral tradition is part of that process. Only in part is the argument a controversy about the actual economy. It is primarily, albeit not solely, a quest for a theory with which to successfully challenge Keynes and fiscalist economics and its policies. In very large part, the argument is about the control of government policy. It is the quest to define and then to enlist a Huttian custom-thought in the service of a Huttian power-thought. The quest for power and control over policy thus drives economic theory (a quest that pervades Friedman’s work; see Samuels 2000; Leeson 2000a and 2003).

The question thus arises as to whether the quantity theory — in whatever form — is itself (1) a definition of economic reality, (2) a tool of analysis with which to investigate economic reality or (3) an instrument of rhetoric with which to mobilize and manipulate political psychology. For example, Leeson says that James W. Angell (who taught Friedman monetary theory at Columbia) “used the quantity theory to advance the proposition that the principal cause of unemployment was ‘excessive variations in the volume of bank credit.’ Angell also prefaced his analysis with a statement about his preference for ‘planned economies …'” (vol. 1, p. 290). Economists of my generation will recall how Samuelson and Friedman, in their televised debates in the 1960s, each invoked aggregate demand and the supply of money; but Samuelson had changes in aggregate spending drive changes in the supply of money, whereas Friedman had changes in the supply of money drive changes in aggregate spending. More is at stake than a conflict about direction of causal flow, just as when advocates of both under-consumption and over-investment theories of the business cycle pointed to the same data to prove their case: unsold goods.

Perusal of several standard reference works confirms the foregoing argument that the quantity theory is not something given but a matter of social construction, a work in progress, and thus characterized by multiple specifications and interpretations. The entry in the Elgar Companion to Classical Economics indeed opens with the caution One of the conclusions drawn by Hugo Hegeland … from his thoroughgoing study of the historical development and interpretation of the quantity theory of money was that “the interpretation of the quantity theory shows almost as many variations as the number of its interpreters.” This assertion is hardly an exaggeration and even after half a century of further intensive research in this field it is probably as valid now as then. … the theory is like a chameleon. From the outset writers on the subject have understood [the] quantity theory of money to mean sometimes very different things …” (Rieter 1998, p. 230)

Why should the Chicago tradition, oral or otherwise, be different?

The opening of the entry in the Penguin Dictionary of Economics asserts that the theory states the relationship between the quantity of money and the price level. The entry goes on to mark the importance of what is or is not assumed, and says of Friedman that the theories of the demand for money, “based on a quantity theory of money approach, do not differ a great deal from the theories based on the Keynesian framework” (Bannock, Baxter and Rees 1972, p. 339). Is the Chicago tradition, a la Friedman, different (from Keynesian treatments)?

The Routledge Dictionary of Economics has Friedman reviving “interest in the [quantity] theory by expounding it as a theory of demand for real balances” (Rutherford 1995, p. 379). The MIT Dictionary of Modern Economics has the theory be one of the demand for money, saying that it “formed the most important component of macroeconomic analysis before Keynes’ General Theory …” (Pearce 1992, p. 356).

A careful reading of all the cited reference works will reveal different positions on whether full employment is an assumption or a conclusion, what else has to be assumed, and so on.

At least one reference work indicates how far the rationality assumption has come in monetary theory: “The underlying premise of the basic quantity theory is that no rational person holds money idle, for it produces nothing and yields no satisfaction,” adding some pages later, “that is, people demand money only for transaction purposes” (Johnson, Ley and Cate 1997, pp. 518, 525). These authors also write that “In the area of policy it would be easy to exaggerate the differences between the Keynesian and monetarist positions. … However, in general, the notion of policy ineffectiveness as elaborated and expanded over the past 30 years by Friedman and others may represent the monetarists’ greatest challenge to the Keynesian heritage. For good or ill, it is an opinion which has come to enjoy considerable support. Moreover, whether monetarism and the modified quantity theory represents a theory of money at all, or a monetary theory of trade and the business cycle, is an open question, one that in part depends on one’s macroeconomic perspective, of which they are certainly a number in fashion” (idem, p. 525). The Chicago tradition, oral or otherwise, is not alone in its attitude of pushing its perspective.

This book must be read, therefore, with cognizance of its elusive background. If a reader is tempted to agree with some statement made by an author included in Leeson’s collection, that reader must ask, on what narrowing premise(s) does this statement rest? The hermeneutic circle is involved between orienting perspective and conclusionary position. However, I am also convinced that my stricture about the hermeneutic circle is and must be self-referential.

IV. A Contribution to the Resolution of the Dispute

Mints was not the only instructor in Economics 330. In volume 23-C (2005) of Research in the History of Economic Thought and Methodology, I am publishing F. Taylor Ostrander’s notes from Charles O. Hardy’s course in Economics 330 given in 1933-34, the next academic year following Friedman’s enrollment in Mints’s course. The notes indicate that Hardy discussed the work of Hawtrey, Frederic Benham, Fisher, Keynes and Laughlin and suggest that the demand for money was part of the course but by no means as central as the notion of an oral tradition centering on the demand for money would have it be.

At the time Hardy taught the course taken by Ostrander during 1933-34, Friedman was a fellow student, and monetary economics was represented by Melchior Palyi and Lloyd Mints as well as Simon, Viner and Knight, in addition to Hardy. Hardy was clearly a leading student of monetary policy. Though apparently not regarded as a leading monetary theorist, he evidently knew his theory, as he easily grounded policy in theory and was respected for his contributions to policy analysis.[1] Each of the Chicago economists specializing, at least in part, in monetary economics went his own way, concentrating on some combination of what interested them and what they considered important. Peering over all their shoulders was the well-known anti-quantity theory orientation of the long-time chair of the Department of Economics, Laughlin.

Among Ostrander’s notes are the following statements:

  • The quantity theory is a truism …
  • For Fisher — V was fixed, any change in M forces a corresponding change in P.
  • T being unchanged — the habits of the people with respect to the money they will hold being unchanged — the Keynes formula is convertible into the Fisher formula.
  • Hardy has a preference for a commodity standard, but can not find a suitable commodity. – Even such a commodity theory would not invalidate the Quantity Theory. – Laughlin’s doctrine is essentially that of the 19th century English “Banking School;” the Quantity Theory is that of the “Currency School.”

The following are Ostrander’s notes bearing on the demand for money:

Problem of the Value of Money

  • Money defined by means of its functions – Classical theory emphasized medium of exchange — brings up turnover. But if exchange were always instantaneous, there would not be much need for money — it is not instantaneous. * Thus the function of money as a store of value. – Suspended purchasing power. – Where the real demand for money comes from. * The classical approach does not allow of any good connection between value theory and monetary theory. – Distinction between this use of money and hoarding is only one of degree. [In margin: “?”]

Big changes in prices over short periods are never the result of changes in the supply of money or the supply of goods — but of changes in the demand for money (or goods).

The prospect of a decline in value of money does not of itself overcome the desirability of money as a liquid factor in unsettled conditions. * Liquidity attained by holding goods — expecting price rise — attained by holding money — expecting price fall. – Why is it that people are still speculating on a price fall? The issue is whether the strongest government in the world is strong enough to devaluate its own currency. * Governments can raise prices by issuing greenbacks or by issuing bonds. – [Greenbacks] may be held as an investment — hoarded – no change in prices. – Bonds may be held as investment-no change in prices. – I.e., both bonds or money may be spent, and may be held as investment — only difference between gold and bonds is one of degree.

- Keynes assumes hoards to be unchanged if the demand schedule for hoarding remains unchanged. (Hardy, Hayek, Robertson had assumed the quantity of hoards to be unchanged.) – Thus there is a change in velocity.

This is Wicksell’s theory. Keynes enlarges it, saying it would be true only in a barter economy. In a monetary economy, there are 3 variables. The willingness to save, the willingness to borrow to produce new capital, the relative attractiveness, as a store of value, of monetary funds and of other investments. * Savings made by purchase of new securities, or hoarding. * Investment made by borrowing from investors, or drawing on investors’ hoards. – Equilibrium requires I = S, also — demand for cash balances to be in equilibrium to [sic: with] demand for securities.

Economics 330 was not the only monetary course given at Chicago. Taylor Ostrander also took Economics 332, Monetary Theory, from Melchior Palyi during his year in residence at Chicago. His notes from the class are published in Archival Supplement 23-B (2005). Among conclusions stated in my introductory comments are these: One facet of the lectures is Palyi’s general attitude toward the quantity theory, indeed substantially all monetary theory, as a theory of control. The aspect of quantity theory discussion that loomed so large, namely, automaticity, especially after World War Two, when the quantity theory (properly applied) was lauded as the non-interventionist alternative to Keynesian fiscal and monetary policy, is subdued, but not altogether absent.

Another is the evident variety of ways in which the quantity theory was operationalized, i.e., how M, V, and T were conceptualized and handled. This also contrasts somewhat with post-War usage, when the policy choices, hence exercise of control, latent in the different versions would have been conspicuous — though eclipsed by the lauded automaticity, even though conservatives like Frank Knight pointed out the inevitable non-automatic, non-rule, elements of administering the quantity theory.

Among other things we read that the quantity theory was * A form of approach to supply such as set forth by Bodin and Davenant. * Value of money not a function of demand, but of factors such as velocity, interest rate, or, if ruled by demand, then demand is ruled by something else.

More recently came * Marshall, Fisher [indecipherable words] – Renewed the old control approach, and united it with the Neo-Nominalist approach. – Then came in Keynes, Robertson, Pigou, Fisher. * Velocity stressed — (l’enfant terrible of previous monetary theory) becomes center of interest. – Reformulation of quantity theory in light of Velocity. – Dozens of reformulations due to differ concepts of velocity. – Changes in it, measurement, causes. * Does velocity have a life of its own — or is it a function of other things, or a constant. * Most difficult to approach from statistical, descriptive or theoretical points of view.

Earlier * The old quantity theory approach looked to money and goods (asked or assumed which is variable which is independent). * The new quantity theory looks to the ratio of savings and investment. – First appeared in a paper of Jevons, in [18]70’s.

Generally, Two types of Quantity Theory: (1) Mere functional relationship; algebraic * A formal expression for the demand for money (Pigou). * On one side is money, on the other side is the physical aspect — no causal explanation. [Single vertical line alongside in margin from (1) to here] – Banking School — there can not be an excess or deficiency of money. Price level is influenced by physical side only. (2) An explanation of the cause of exchange.

On the demand for money, we find the following:

The demand for money. * The “Banking School” of Thought — but underlies the “Currency School” too — the difference between them is on another line. * The velocity of circulation is a passive factor, or a non-changing factor. * Cost of production theory of value of metals, and of money generally. * In case of paper money, it substitutes some psychological factor for quantity — or considers quantitative changes a result of psychology. * Policy of this approach is “sound banking based on commercial paper” –“automatic control.”

This approach is more developed by businessmen than by scientists. * Men of not-systematic methods, bankers. – Tooke — descriptive, not abstract. – Adolph Wagner (Germany) – Laughlin (U.S.) — never tried to be systematic. [“!” to left of name]

This approach became that of the 19th century up to the War. * In spite of Marshall and others. * Bankers and Central Bankers wouldn’t listen to any others. * Keynes (Indian Monetary Policy — 1912) * Robertson (Industrial Fluctuation, 1915) [Bracket connects the two lines, Keynes and Robertson, with arrow pointing to next line.] – Both, at this early date, had tendencies more to the anti-quantitative than to quantitative approach. – Mill — could approach the transfer problem from an entirely different point of view from his approach to bank credit — foolish.

Writing about the Banking School, * Money a matter of quantity which can be regulated by control of its quantity by issue. – By affecting demand for money by: – Discount rate – Open market operations – Public works (governments).

As for Adam Smith, * Implies (by not discussing it) a constant elasticity of demand for money.

We also read * In the single country, value of money is based on interaction of supply of and demand for money.

There is more but altogether what is shown (1) indicates more or less conventional attention to the quantity theory as the core of monetary theory and (2) does not indicate a distinctive Chicago approach centering on the demand for money, a claim no one now seems to be making. The earlier negative position of Laughlin has fallen prey to the selective memory of any oral tradition (Friedman wrote the entry on Laughlin for The New Palgrave). Laughlin, who opposed the quantity theory, was chair of the Department of Economics for many years and was a conspicuous person in the profession. Any complete rendition of Chicago “tradition” presumably would have to include his anti-quantity theory position. Perhaps he was an embarrassment treated largely in silence. Mints may or may not deal with his view; Palyi seems to deal with it only in passing. And Friedman seems not to, as well. He is too busy inventing what he wants that tradition to be.

In partial summary, therefore, Leeson is correct that no oral tradition existed at Chicago by 1932-33 with the substance initially identified by Friedman. If one clearly existed (and it is not certain that one did), it likely was different from and more complex, and likely more ambiguous, than what Friedman proposed. And surely the conversation of one year’s graduate students, by itself, is no “oral tradition.” As Leeson shows, they most certainly did not all agree on issues, though this was the framework that they, and Mints, apparently employed to inform their arguments. Graduate students discussed “macroeconomic” issues using a framework that was in some ways similar to Friedman’s 1956 restatement. Friedman’s assertion only has “some validity” if “intense student discussion is admissible as an ‘oral tradition’…” Friedman’s assertion has more validity than Patinkin gave it credit for, but calling it a “tradition” vastly overstates the case (see Leeson 2000b). Both Friedman and Patinkin exaggerated their case. Friedman was a polemicist who sought influence; Patinkin was an historian whose framework was losing influence. There was an element of justification for Friedman’s assertion — he had not invented it in the 1950s, as some detractors suggested. “Traditions” are potent rhetorical devices, and Friedman sought to make the most of this rhetorical device to serve his counter-revolution.

Note:

1. Robert Dimand comments in re Hardy as follows: “With regard to F. Taylor Ostrander’s notes on Charles O. Hardy’s lectures in Economics 330 (graduate money and banking) in 1933-34, I suspect that Hardy (whose maintained a Chicago connection even though he was primarily at Brookings) was central to bringing Keynes’s Treatise on Money into Chicago monetary economics. Hardy reviewed the first volume of Keynes (1930) in AER (1931) and wrote a review-article in JPE (1931) about the second volume. Hardy was a particularly enthusiastic and perceptive reviewer of TM (perceptive enough that his enthusiasm did not extend to the “fundamental equations”), so if demand for money entered Chicago monetary economics from TM, Hardy’s lectures may well have been the conduit. In addition, Keynes had expounded the central message of TM at the University of Chicago in three Harris Foundation Lectures on “Economic Analysis of Unemployment” in May and June 1931.Chicago was not isolated from such British developments: Sir William Beveridge presented what became Part II of his Unemployment: A Problem of Industry, 1909 and 1930 (1930) as a series of lectures at the University of Chicago in autumn 1929.”

Dimand continues, saying, “Another stimulus at that time would have been Irving Fisher’s Theory of Interest (1930). Hardy’s review of TM chided Keynes for misunderstanding Fisher’s real/nominal interest distinction, and Frank Knight’s 1931 JPE review-article shows that Fisher (1930) received attention at Chicago (although Knight concentrated on Fisher’s real rate analysis). McCallum and Goodfriend, in their New Palgrave article on money demand, identify (as Patinkin did) Fisher (1930, p. 216) as the first unambiguously correct statement of the marginal opportunity cost of holding money.” (Dimand to Samuels, January 13, 2005)

References:

Graham Bannock, R. E. Baxter, and R. Rees, 1972. The Penguin Dictionary of Economics, Hamondsworth, pp. 338-9.

L.E. Johnson, Robert D. Ley, and Tom Cate, 1997. “Quantity Theory of Money,” in Thomas Cate, Geoff Harcourt, and David C. Colander, editors, An Encyclopedia of Keynesian Economics, Cheltenham, UK: Edward Elgar, pp. 517-526.

Robert Leeson, 2000a. The Eclipse of Keynesianism: The Political Economy of the Chicago Counter-Revolution, New York: Palgrave.

Robert Leeson, 2000b. “Patinkin, Johnson, and the Shadow of Friedman,” History of Political Economy 32, no. 4, pp. 733-763.

Robert Leeson, 2003. Ideology and the International Economy: The Decline and Fall of Bretton Woods, Basingstoke: Palgrave Macmillan.

David W. Pearce, editor, 1992. The MIT Dictionary of Modern Economics, Cambridge, MA: MIT Press, pp. 356-7.

Heinz Rieter, 1998. “Quantity Theory of Money,” in Heinz D. Kurz and Neri Salvadori, editors, The Elgar Companion to Classical Economics, Cheltenham, UK: Edward Elgar. Volume 2, pp. 239-248.

Donald Rutherford, 1995. Routledge Dictionary of Economics, London: Routledge, p. 379.

Warren J. Samuels, 2000. Review of Milton and Rose D. Friedman, Two Lucky People: Memoirs. Chicago: University of Chicago Press, 1998. Research in the History of Economic Thought and Methodology 18A, 2000, pp. 241-252.

Warren J. Samuels is Professor Emeritus at Michigan State University. He is working on the use of the concept of the Invisible Hand in economics. He acknowledges with thanks comments on an earlier draft by Robert Dimand and Robert Leeson.

Subject(s):History of Economic Thought; Methodology
Geographic Area(s):North America
Time Period(s):20th Century: WWII and post-WWII

Historical Encyclopedia of American Labor

Author(s):Weir, Robert E.
Hanlan, James P.
Reviewer(s):Friedman, Gerald

Published by EH.NET (November 2004)

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Robert E. Weir and James P. Hanlan, editors, Historical Encyclopedia of American Labor, two volumes. Westport, CT: Greenwood Press, 2004. xxii + 733 pp. $175 (hardcover), ISBN: 0-313-32864-1.

Reviewed for EH.NET by Gerald Friedman, Department of Economics, University of Massachusetts at Amherst.

The development of scholarly disciplines built around the specialized narrative creates an ongoing need for new ways to bring new scholarship to the public. In history, this is often done through textbooks and in synthetic histories. For a long time, economic historians relied on the works of Louis Hacker and Thomas Corcoran, and have used textbooks by Harry Scheiber, Hugh Rockoff, Jonathan Hughes and Louis Cain, and Jeremy Atack and Peter Passell, among others. For nearly a century, labor historians have relied on the four-volume History of Labour in the United States put out by John R. Commons and his associates. In the last thirty years these have been supplemented by syntheses written by Irving Bernstein, David Montgomery and Herbert Gutman and his associates. Recently, several historical encyclopedias have been published to provide quick, short summaries of major findings in the scholarly literature. Gary Fink prepared two, one for American labor unions and one for labor leaders; and recently, Joel Mokyr and Robert Whaples, have edited such encyclopedias for economic history. There is an encyclopedia of strikes being prepared by Aaron Brenner. And, now, we have a new encyclopedia of American labor history prepared by two of the more prominent younger labor historians.

With a large number of relatively short entries, the real measure of an encyclopedia is its breadth of coverage rather than the depth of the individual entries. The Weir and Hanlan Encyclopedia, for example, has 396 entries, averaging under two pages each. The Encyclopedia does well with its choice of topics, providing a nice blending of the institutional concerns of the older labor history and the social movement focus of the no-longer-so-new labor history. Harking back to Commons and the old institutional labor history, there are 117 entries on labor unions, including many of the most important unions, such as the Knights of Labor, the American Federation of Labor, the Congress of Industrial Organizations, the United Mine Workers, and the Service Employees International Union. The Encyclopedia also picks up some of the less famous unions that are of particular interest because they highlight aspects of the American labor experience. These include an entry on a strong and conservative railroad craft union, the Brotherhood of Locomotive Engineers, as well as an article on the Brotherhood of Sleeping Car Porters, a union of black railroad service workers, and one on the International Union of Mine, Mill, and Smelter Workers, a radical industrial union prominent in the early part of the twentieth century.

The range of topics covered reflects an editorial choice common among labor historians. Sympathetic with the political left and a confrontational view of labor relations, the Encyclopedia tilts its coverage towards the more radical unions and topics. Among the topics that can be identified politically, 204 pages (nearly 40% of the entire Encyclopedia) can be associated with leftist topics, including syndicalist and communist unions. Less space is devoted to individuals and unions arguably more representative of America’s relatively conservative labor movement. Only 72 pages (13%) address centrist topics, and even less, only 41 pages, deal with conservative ones associated with Samuel Gompers and the old AFL. Mainstream but conservative ideas like “Voluntarism” and “Pure and simple unionism” are handled in short half-page and one-page entries; more space is devoted to “Bellamyite Nationalism” (one page) and “Utopianism” (two pages). Most major unions and labor organizations are covered, but there is disproportionate coverage towards radical and strike-prone organizations. The Dodge Revolutionary Union Movement, for example, was a short-lived and self-avowed militant organization of black autoworkers. It receives 2.5 pages, and the International Workers of the World gets three pages. By contrast, some of the largest and most important unions receive relatively little attention. The Teamsters and the Machinists are covered in one page each, and conservative unions in the railroad or construction trades, such as the Railway Clerks or the Plumbers, are neglected completely. Nearly half the pages devoted to unions are for organizations that can be identified with the syndicalist or communist left compared with 35% for the relatively moderate socialist center and only 18% on the right. Strikes and other instances of labor unrest also receive heavy coverage, including 127 pages or 24% of the Encyclopedia. A left tilt extends to the choice of biographical entries. Sixty-six biographies fill 105 pages (20%) of the Encyclopedia. Of these, 63% are associated with the left, compared with 18% with the center and only 18% with labor’s right. It is interesting that political sympathies did not lead the editors to over-represent women or minorities among their biographical subjects. White men comprise only 85% of the biographical pages compared with only 4% for blacks and 12% for women, a proportion that may even overstate the white male share of labor union leaders or members throughout American history.

The leftist tilt of the Encyclopedia reflects the feelings of most in the discipline of labor history where the central question continues to be “why is there no socialism in the United States?” or else “what can we do to move the United States to the left?” The Encyclopedia also reflects the profession’s disposition in defining labor history as the actions of workers and organized labor with relatively little regard for context or the actions of the other social actors. The Encyclopedia‘s editors deserve praise for including such employer topics as “Paternalism” and “Welfare Capitalism” along with “Scab” and “Boulwarism.” But the strategies and direct actions of employers still merit only 69 pages, or 13% of the Encyclopedia. More attention is given to economic history than to business history. Generously defined, economic history comprises over 100 pages. But these discussions leave out mention of economic growth, productivity, macroeconomic policy, unemployment, labor market discrimination, or trends in the level or distribution of wages.

The Encyclopedia is largely written by younger scholars. The editors themselves wrote or co-authored over 40% of the pages. (Weir signed 28% of the pages by himself and 8% with others; Hanlan did 8%.) Other authors include some of the best of the younger scholars, including Kevin Boyle, writing on the CIO and on “George Meany,” and Joseph McCartin, writing on the PATCO strike of 1981. Perhaps reflecting the role of younger scholars, the Encyclopedia extends further into the twentieth century than has most labor history. The last entry, on the case of Reeves v. Sanderson Plumbing Products dates from 2000! Nearly 15% of the Encyclopedia concerns events and people since 1966. The focus remains, however, in the classic years of American labor history. Fully a third of the pages date from the 1880-1914 period and another 13% date from the Great Depression years, 1930-46.

The Encyclopedia entries are almost all well-written and clear, and I identified surprisingly few mistakes for a work of this scale. The entries also contain bibliographic information which readers can use to pursue more detail on the topic. In many cases, I would have liked some more bibliographic references but the editors to some extent correct for this failing by including an excellent bibliography including a listing of useful web sites. The editors also include very extensive documentation in 55 appendices including excerpts from legislation, such as the Wagner Act of 1935 and the Taft-Hartley Act of 1947, contemporary descriptions of working conditions and strikes, and excerpts from biographies of prominent labor activists.

Comprising over 130 pages, the Appendices contain much valuable material; they are a real bonus when added to a valuable reference tool. The editors say that the Encyclopedia is directed at high school students. It would be valuable for them, but it also would be a useful resource for college students and libraries. Many graduate students would benefit from dipping into its resources. So would some faculty. I enjoyed reading it; and I learned from it. I guess that merits The Encyclopedia of American Labor History a strong recommendation.

References:

Jeremy Atack and Peter Passell, A New Economic View of American History: From Colonial Times to 1940, second edition. New York: Norton, 1994.

Irving Bernstein, The Lean Years: A History of the American Worker, 1920-1933. Boston: Houghton Mifflin, 1972.

John R. Commons, David J. Saposs, Helen L. Sumner, E. B. Mittelman, H. E. Hoagland, John B. Andrews, and Selig Perlman, History of Labour in the United States. New York. Macmillan Company, 1935-36.

Gary Fink, editor, Biographical Dictionary of American Labor Leaders. Westport, CT: Greenwood Press, 1974

Gary Fink, editor, Biographical Dictionary of American Labor. Westport, CT: Greenwood Press, 1984

Louis M. Hacker, The Triumph of American Capitalism: The Development of Forces in American History to the End of the Nineteenth Century. New York: Columbia University Press, 1946.

Jonathan Hughes and Louis P. Cain, American Economic History, fifth edition. Reading, MA: Addison-Wesley, 1998.

Bruce Levine et al, Who Built America? Working People and the Nation’s Economy, Politics, Culture, and Society. New York: Pantheon Books, c1989-c1992.

Joel Mokyr, editor, The Oxford Encyclopedia of Economic History. Oxford: Oxford University Press, 2003.

David Montgomery, The Fall of the House of Labor: The Workplace, the State, and American Labor Activism, 1865-1925. Cambridge: Cambridge University Press, 1987

Harry N. Scheiber, Harold G. Vatter, and Harold Underwood Faulkner, American Economic History. New York: Harper & Row, 1976.

Gary M. Walton and Hugh Rockoff, History of the American Economy. San Diego: Harcourt Brace Jovanovich, 1990.

Robert Whaples, editor, EH.Net Encyclopedia. http://eh.net/encyclopedia/

Gerald Friedman, the co-editor of the journal Labor History, is working on a book-length collective biography of several early American economists: Richard Ely, John Bates Clark, Wesley Clair Mitchell, and John Maurice Clark, plus another book, Can the Forward March of Labor be Restarted? — a study of trade union decline in advanced capitalist economies and the possibilities for labor renewal.

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

Poverty in Britain, 1900-1965

Author(s):Gazeley, Ian
Reviewer(s):Boyer, George R.

Published by EH.NET (November 2004)

Ian Gazeley, Poverty in Britain, 1900-1965. Basingstoke, UK: Palgrave Macmillan, 2003. xiii + 239 pp. $75 (cloth), ISBN: 0-333-71618-3.

Reviewed for EH.NET by George R. Boyer, Department of Labor Economics, School of Industrial and Labor Relations, Cornell University.

Recent decades have seen a sharp increase in publications examining the “origins,” “evolution,” or “foundation” of the British welfare state. These studies tend to focus on the adoption of government policies to alleviate poverty, and to devote little attention to the extent or causes of poverty. Ian Gazeley’s new book complements these studies, by examining the standard of living of the poor in the first half of the twentieth century.

The book is divided into three roughly equal parts, covering the Edwardian era and the First World War, the interwar years, and the Second World War and early post-war years. For each period, Gazeley begins by presenting data on movements in real wages, and then examines the poverty and nutrition surveys that were undertaken during the period. Some of these surveys (for example, the three poverty surveys of York by Rowntree and the New Survey of London Life and Labour) will be familiar to most readers, but others, such as the pre-World War I poverty surveys of rural England and the interwar studies of poverty in Merseyside (1929-30), Sheffield (1931), Southampton (1931), and Bristol (1937), will not. Each of the major poverty surveys is examined in detail — Gazeley discusses how the survey was undertaken, how many people were found to be living in poverty, differences in poverty rates across demographic groups (the elderly, children, etc.), and the causes of poverty. He also shows how fragile some of the estimates of poverty are. For example, household expenditure data suggest that Rowntree overestimated the food needs of children in his 1899 study of poverty in York, and therefore overestimated the share of the population living in primary poverty (pp. 28-9).

One of the most useful aspects of the volume is its detailed analysis of how the definition of poverty varied across surveys, and how it evolved over time. The early poverty surveys by Rowntree and Bowley defined the “primary” poverty line as the “minimum standard necessary for physical health.” Several of the interwar surveys used similar “physical efficiency” measures of poverty. However, Rowntree, in his second (1936) survey of York, adopted a far more generous “human needs” poverty line, which ensured “health and working capacity” and allowed expenditure for “social participation.” Adjusted for changes in prices from 1899 to 1936, Rowntree’s human needs poverty line for a family of two adults and three schoolchildren was 42% above his physical efficiency poverty line. Changing how poverty was measured had a large, and predictable, effect on the poverty rate. Rowntree found that 31.1% of York’s working-class population in 1936 had incomes below the human needs poverty line, but only 6.8% had incomes below the physical efficiency poverty line (pp. 93-4). A third definition of poverty was adopted by Brian Abel-Smith and Peter Townsend in their 1965 study, The Poor and the Poorest. They concluded that “poverty was entirely a relative concept,” and defined households to be in, or at the margins of, poverty if their income was less than “140 per cent of the then current National Assistance scale plus rent” (pp. 179-80). In 1960, 17.9% of households lived below this relative poverty standard. An unknown, but significantly smaller, share of the population had incomes below the “physical efficiency” or “human needs” poverty lines. As Gazeley makes clear in the text, because of these changes over time in the definition of poverty, it is not possible to use the numerous poverty surveys undertaken from 1899 to 1960 to measure long-term trends in the poverty rate.

This book is a useful addition to the literature on poverty during the first half of the twentieth century. Students and researchers will welcome its summaries of a large number of poverty and dietary/nutrition studies. However, those looking to find evidence on trends in poverty rates over time, or on the role of government policies in reducing poverty, will be disappointed. The first half of the twentieth century saw a transformation in government social welfare policy, beginning with the Liberal Welfare Reforms of 1906-11; from 1900 to 1930 social transfer payments increased from 1.0% of national product to 2.6%. Gazeley devotes little attention to this revolution in social policy. Thus, for example, there is little discussion of the effects of the 1908 Old Age Pensions Act or of the 1925 Widows’, Orphans’ and Old Age Contributory Pensions Act on poverty rates among the elderly. There is a brief discussion of the role of the Poor Law from 1900 to 1913 in Chapter 1, but only one paragraph on poor relief during the interwar period. This despite the fact that the number of poor relief recipients, which had fallen to 784,000 in 1913, averaged 1.3 million from 1922 to 1929, and peaked at 2.06 million in 1927. How can the sharp increase in the number of relief recipients be reconciled with Bowley’s finding that poverty declined significantly from 1912-14 to 1923-24 in the five towns he studied? This and many other questions regarding the role of government social policy go unanswered.

In sum, Gazeley’s book is more a history of poverty surveys during the first half of the twentieth century than a history of poverty. It is excellent at what it does, and it fills an important niche in the literature, but students examining poverty and working class living standards during these years will need to supplement it with other studies.

George Boyer is the author of An Economic History of the English Poor Law, 1750-1850 (Cambridge University Press, 1990), and, with Timothy J. Hatton, of “New Estimates of British Unemployment, 1870-1913,” Journal of Economic History, Vol. 62 (September 2002).

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

The Heqanakht Papyri

Author(s):Allen, James P.
Reviewer(s):Silver, Morris

Published by EH.NET (November 2004)

James P. Allen, The Heqanakht Papyri. New York: Metropolitan Museum of Art, distributed by Yale University Press, 2002. xvii + 297 pp. + 57 Plates + CD. $50 (cloth), ISBN: 0-300-10318-2.

Reviewed for EH.NET by Morris Silver, Professor Emeritus, Department of Economics, City College of the City University of New York

I. Introduction The economic historian Karl Polanyi argued that markets became important only in the eighteenth and nineteenth centuries of the present era. Instead of market-determined prices, the ruler (as representative of the gods) declared simple quantitative equivalencies to allow grain, oil, wine, and wool to be substituted for each other. A few main staples were received and given out at the palace gate (Polanyi 1981: 61, 134). Polanyi continues to enjoy major support. His influence becomes obvious in discussions of the economic mentality of ancient man, of the use of money/coinage and, especially, in the assertion that antiquity lacked markets for land and labor power.

When subjected to challenge, the validity of one or another of Polanyi’s positions is often shifted to times and places for which data are typically scarce and ambiguous, above all to Pharaonic Egypt. The latter is allegedly the epitome of a redistributional society. According to the Egyptologist Jacob J. Janssen (1982: 253) this means that “the surplus of peasant households was collected by the authorities, state and temple, in order to be redistributed among particular sections of society: officials, priests, the army, necropolis workmen, and so on.” However, Janssen (1975: 131, 185) maintains that the evidence is so scanty that “for the present, a study of the redistributional system in all its aspects seems the only possibility.”

The great value of the Heqanakht papyri is that they open a window to the kind of world with which economic historians are familiar. Private property, “economic man,” money and coinage and markets for land and labor-power become visible, however dimly. For these glimpses, economic historians are greatly indebted to Egyptologist James P. Allen and his predecessors for their monumental efforts. After a brief review of the background of the Heqanakht papyri attention is turned to the main economic features of the papyri as revealed in Allen’s translations (in Part I “The Texts”) and his Chapter 8 “Economics” (in Part II “Commentary”). These features are placed in the context of prevailing perspectives and additional relevant evidence is cited when necessary. Technical matters primarily of interest to Egyptologists are not discussed in this review.[1]

II. Background of the Heqanakht Papyri The Heqanakht papyri, part of the permanent collection of the Metropolitan Museum of Art, are currently on display in its Egyptian galleries. They consist of five complete letters, four complete accounts, and four or five fragments. The papyri were discovered on the Museum’s Theban expedition of 1921-22 in the tomb of one Meseh. Each of the complete documents was found folded; two were tied with string and sealed with a lump of clay impressed with the same stamp. The papyri are dated to the early Middle Kingdom — i.e. to about 2000 B.C.

Allen improved on the previous readings of the text by means of examinations under various lighting conditions, with the aid of a microscope and by the application of computer technology.

III Economics 1. “Economic Man” According to Polanyi, “economic solipsism” is an outstanding feature of the market mentality. This is the view that commercial activity is “natural” to men and that markets would thus come into being unless prohibited by the government or other external forces (Polanyi 1981: 14-15). Polanyi’s main thrust anticipates classical scholars such as Moses Finley (1973, 1985) and Paul Millett (1991: especially 165-71), who maintain that, unlike modern economic man, ancient man was motivated primarily by considerations of status and communal solidarity. The postulate of wealth-maximizing used by contemporary economists is said to be utterly inappropriate to the “irrational,” that is, nonutilitarian, ancients.

It is not easy to find historical evidence casting direct light on motives, whether of status or profit. However, as Allen (142) points out, the Heqanakht letters deal almost entirely with economic matters and therefore “they offer unparalleled insights into the economic life of a moderately well-to-do Egyptian family at the beginning of the Middle Kingdom.” Despite obscurities in meaning, it is clear that Heqanakht does not possess the antimarket mentality alleged by Polanyi and Finley. He calculates and makes plans concerning the amount and types of land (watered vs. unwatered) to put under cultivation; crop rotations (flax vs. barley vs. emmer); how to pay for rented land; how much to pay out in salaries; and he keeps and consults accounts of his enterprise. It is abundantly obvious that Heqanakht was very much concerned (obsessed?) with running his enterprise in a manner that would make a profit and augment his wealth. There is little or no reason to believe, moreover, that his objective in this endeavor was to increase his own or his family’s consumption of goods and services (cf. Baer 1963: 16-17)

Heqanakht, like the merchants (sheweteyew) of Papyrus Lansing (dating to the second half of the second millennium) who busied themselves in “supplying him who has not,” possessed the “marketing mind,” said by Polanyi (1981: 5) to be “peculiar to conditions of life under the type of economy the nineteenth century created in all industrial societies.” Let us also mention the warnings of Ankhsheshonqi (Papyrus British Museum 10508) that “the shewetey will charge for the water one drinks in his house” (16.5) and that “he disregards friendship to get his share” (28.4) (Allam 1998: 152).[2]

2. Private Landed Property The Egyptologist Menu (2001: 424) states that “The soil of Egypt is the exclusive property of the king.” This assertion is, however, the product of a “model,” not of evidence. Indeed, Menu (2001: 425) mentions fields termed nemehew “privately owned.” Further, when, in the fourteenth century BC, Akhenaten constructed the city of Amarna, the ruler did not claim (in his “Earlier Proclamation”) that the land, like the rest in Egypt, was his “exclusive property.” Instead, Akhenaten justified his claim by noting simply that the territory was not the property of a deity or ruler and “not the property of any people to do business of theirs with it.” In short, the land was unused and Akhenaten had found it “widowed”/”abandoned” (Murnane and van Siclen 1993: 37-8).

The evidence provided by Heqanakht is not voluminous but it is to the point. Not only does Heqanakht refer three times to “my land,” (149) but the entire tenor of his communications reveals his unquestioned power over the land he cultivates. The only reference to the state is that Heqanakht budgets some grain for the payment of taxes which were assessed on his livestock.[3]

3. Grain Market Heqanakht’s letters attest to grain sales. Heqanakht (1.4-5) anticipates using cash proceeds from the sale of emmer for renting land. If this amount is not sufficient, he instructs his family, to use proceeds from the sale of cloth (1.6).

The papyri also signal the making of grain loans in Heqanakht’s mention of “what is to be collected from the things (debts) which are in Perhaa” (1.vo. 17) and tjabet “grain loan” in Fragment A.4). The tjabet was probably a loan of grain by Heqanakht rather than a loan of grain to him. Allen (163 with n. 125) suggests that a tjabet-loan does not bear interest. The evidence for this interpretation is not entirely conclusive. In any event, the Heqanakht letters mention neither interest nor charity. However, the entire spirit of the letters makes it seem unlikely that he would give loans of grain as a charitable act. As Baer (1963: 17) notes: “And however much one would like to suppose that Heqanakht used some of his resources to succour the poor and starving among his neighbors, charity is not likely to have been a significant element in the personality of a man who was capable of putting his family on short rations for profit.”

Van De Mieroop (2002: 60-2) maintains that “Egyptian material prior to the ninth century is limited, but the available evidence suggests that the concept of lending with the expectation of an increased future return did not exist. People gave one another credit in an atmosphere of reciprocity and mutual aid.” This may be an idyllic vision. However, it is not what the “available evidence suggests.” First, there is a reference to at en mes “interest-grain” in Gurob Fragment L that dates to the second half of the second millennium. Second, Papyrus Turin 1881, also of the second half of the second millennium, contains, Jasnow (2003: 339) reports, “a loan of grain made at the very high interest of some 100 percent yearly”(cf. Baer 1962: 45, n. 115).

4. Markets for Labor-Power and Land Polanyi believes that the French Physiocrats conceived the idea of the economy concurrently with the emergence of the market as a supply-demand-price mechanism. The innovation of markets for goods was eventually followed by the revolutionary innovation of price-making markets for labor and land (Polanyi 1981: 6-7).

a. Land Market Baer (1962: 25-26) notes that “private individuals could own farm land at all periods of ancient Egyptian history,” and the “acquisition of fields for private purposes is … mentioned, from the earliest periods.” In the mid-third millennium, the mother of the entrepreneur/official Metjen conveyed her estate by means of an amat-per “house document.” Metjen himself purchased arable land that was (k)her “under:” numerous persons termed neseweteyew “king’s people” or, better, “citizens, subjects” (see Eyre 1999: 41). Somewhat later in the third millennium, we encounter such testimonies as “I ‘sealed’ a field of 23 arouras,” and “I bought twenty head of people and the ‘sealing’ of a large field” (Fischer 1961: 49). The “sealing” refers, of course, to a deed. Baer (1962) explains that a term nemehew-na-land means “privately owned.”(cf. Menu 2001: 425).

There are no land sales in the Heqanakht papyri but rental contracts are clearly attested. In Letter 2, Heqanankt pays (in advance) a fixed rent to lease (kedeb) fields (154-58). Heqanakht also leases land to others (159) More generally, there is evidence of an active rental market for fields. There are inquiries and negotiations concerning the availability of plots and several qualities of land are available. Thus, Heqanakht instructs his family: “Don’t farm the land everyone else farms. You should ask from Hau Jr. If you don’t find (any) from him, you will have to go before Herunefer. He is the one who can put you on watered land of Khepshyt” (1. 7-9).

b. Labor Market Heqanakht specifies the (barley) wage (akew) to be paid to hired workers and household members in return for work — “only as long as they are working” (Letter 2.29-30) The evidence (Account 7) indicates that he also paid salary plus commission to the woman Sitnesbsekhtu for producing linen from his flax (173-75). Indeed, the evidence of in-kind payments to Egyptian craftsmen is ample for the second half of the third and second millennia. During the earlier period, these payments were often called asew, and there are references to asewew-people, who may be wageworkers or possibly craftsmen.

In Letter P? Heqanakht instructs his steward to “collect the copper of those two female slaves” (21). This probably refers to income from the rental of the slaves. The salaries paid by Heqanakht vary from one worker to another and it is not easy to identify the influence of differences in productivity. However, the highest wage is paid to Nakht who undertakes a skilled and responsible mission — Nakht must travel from Sidder Grove to Perhaa and there consult with various individuals about leasing land. Heqanakht has special land in mind — Nakht must not lease “the land everyone else farms.” Nahkt must handle the arrangements for paying the rent (1. 3-9, 14-17).

5. Evidence for Money/Coinage Although they are presently in the minority, some Egyptologists (e.g., Cerny 1954: 910-12) are inclined to believe that Egypt knew a silver coin in the second half of the second millennium. This belief is founded on the expression of prices in terms of the shat/shaty/shenat/seniu, an ideographically written word conventionally translated as “piece.”

There are texts in which the shaty displays a physical nature. The Heqanakht letters show us barter and cash transactions. Thus, in Letter 1 (4-5) we read: “If, however, they will have collected the shat in exchange for that emmer that is (owed me) in Perhaa, they should use it as well” (cf. Letter 2.vo 3). Allen (155) translates shat as “value” but he finds it “evident” that it “may have involved an actual exchange of commodities for some standard medium of ‘value’…. The nature of this medium is not specified, but a text of the early New Kingdom suggests it may have been metal.” In my view it is perfectly clear from the context that the shat took a material form: the emmer has been sold for shat which will be used to pay rent. I find it difficult to follow Bleiberg (2002: 269), an Egyptologist, when he says, “Egyptians living prior to the first millennium did not have a clear idea of the concept of abstract value.”

Allen’s excellent discussion of the economics of the Papyri concludes with a detailed analysis of Heqanaktht’s grain budgets. This section will repay the efforts of economic historians interested in the specifics of an agricultural enterprise in the early second millennium BC.

Notes:

James P. Allen is Curator, Department of Egyptian Art, Metropolitan Museum of Art and Vice-President of the International Association of Egyptologists. Dr. Allen, a graduate of the University of Chicago, served as epigrapher while on the University’s expedition to Luxor, Egypt. Since 1986 he has held a research appointment at Yale University, and has taught graduate seminars there and at the University of Pennsylvania. Allen’s specialties include ancient Egyptian language, texts and religion. He has written extensively about these subjects, and on the history of the Middle Kingdom and Amarna Period. Allen is the author of Genesis in Egypt, The Philosophy of Ancient Egyptian Creation Accounts, and Middle Egyptian: An Introduction to the Language and Culture of Hieroglyphs.

1. The latter include “Epigraphy and Paleography,” “Language,” “People,” “Places,” and “Chronology.”

2. The main manuscript of this Demotic text dates from late in Ptolemaic times. However, based on linguistic analysis the original date should be placed in late Saitic times.

3. Heqanakht’s letters and accounts make no mention of a tax on the grain grown in his fields. Allen (161) suggests that this was “either because the taxes had already been paid when the documents were written or because they had yet to be expended, like the grain needed for seed. The rate of taxation in the Middle Kingdom is unknown, but it may have been about ten percent of the harvest, as was true for crops grown on normal land in later times.”

References:

Allam, Schafik (1998). “Affaires et Op?rations Commerciales.” In Nicholas Grimal and Bernadette Menu (eds.), Le commerce en ?gypte ancien, Cairo: Institut Fran?ais d?Arch?ologie Orientale, 133-56.

Baer, Klaus (1962). “The Low Price of Land in Ancient Egypt.” Journal of the American Research Center in Egypt, 1, 25-45.

Baer, Klaus (1963). “An Eleventh Dynasty Farmer’s Letters to His Family.” Journal of the American Oriental Society, 83, 1-19.

Cerny, Jareslav (1954). “Prices and Wages in Egypt in the Ramesside Period.” Journal of World History, 1, 903-21.

Eyre, Christopher J. (1999). “The Village Economy in Pharaonic Egypt.” In Alan K. Bowman and Eugene Rogan (eds.). Agriculture in Egypt: From Pharaonic to Modern Times. Oxford: Oxford University Press, 1-32.

Finley, Moses (1973, second edition 1985, updated edition 1999). The Ancient Economy. Berkeley: University of California Press.

Fischer, Henry George (1961). “The Nubian Mercenaries of Gebelein during the First Intermediate Period.” Kush, 9, 44-80.

Janssen, Jacob J. (1975). “Prolegomena to the Study of Egypt’s Economic History during the New Kingdom.” Studien zur Alt?gyptischen Kultur, 3, 127-85.

Janssen, Jacob J. (1982). “Gift-Giving in Ancient Egypt as an Economic Feature.” Journal of Egyptian Archaeology, 68, 253-58.

Jasnow, Richard. (2003). “Egypt: New Kingdom”. In Raymond Westbrook (ed.). A History of Ancient Near Eastern Law, Vol. I. Leiden: Brill, 289-359.

Menu, Bernadette (2001). “Economy: Overview”. In Donald B. Redford (ed.), The Oxford Encyclopedia of Ancient Egypt, Vol. I. Oxford: Oxford University Press, 422-26.

Millett, Paul. (1991). Lending and Borrowing in Ancient Athens. Cambridge: Cambridge University Press.

Murnane, William J. and Charles C. van Siclen III (1993). The Boundary Stelae of Akhenaten. London: Kegan Paul.

Polanyi, Karl (1981). The Livelihood of Man. Harry W. Pearson (ed.). New York: Academic Press.

Van De Mieroop, Marc (2002). “A History of Near Eastern Debt?” In Michael Hudson and Marc Van De Mieroop (eds.), Debt and Economic Renewal in the Ancient Near East. Bethesda, Maryland: CDL Press.59-94.

Morris Silver is Professor Emeritus of Economics in the City College of the City University of New York. His most recent publications about ancient economies are Taking Ancient Mythology Economically (Leiden: Brill, 1992) and Economic Structures of Antiquity (Westport, CT: Greenwood Press, 1995). “Modern Ancients” is in press in Rollinger and Ulf (eds.), Commerce and Monetary Systems in the Ancient World, Fifth Annual Melammu Conference 2002. Professor Silver maintains a website on “Ancient Economies” at http://sondmor.tripod.com/index-html.

Subject(s):Markets and Institutions
Geographic Area(s):Middle East
Time Period(s):Ancient

Emergence of Economic Society in Japan, 1600-1859

Author(s):Hayami, Akira
Saito, Osamu
Toby, Ronald P.
Reviewer(s):Mosk, Carl

Published by EH.NET (October 2004)

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Akira Hayami, Osamu Saito, and Ronald P. Toby, editors, Emergence of Economic Society in Japan, 1600-1859. New York: Oxford University Press, 2004. xviii + 420 pp. $160 (cloth), ISBN: 0-19-828905-7.

Reviewed for EH.NET by Carl Mosk, Department of Economics, University of Victoria.

Revolutionized by the techniques of historical demography and family reconstruction and the statistical approaches of cliometrics, the mainstream field of economic history in Japan has experienced a groundswell transformation. Gone are applications of Marxist stage theory. Today long-run quantitative analysis of economic and demographic activity in villages, towns and urban centers or analysis of government policy largely conceived in neo-classical categories command central stage. Concepts like industrious revolution, proto-industrialization, income elasticity of demand, Gresham’s law, Marshall’s k (propensity to hold money), and budgetary balance dominate the contemporary literature.

The present volume consisting of ten chapters culled from contributions to the series The Economic History of Japan originally published in Japanese by Iwanami Shoten in 1988-1990, exemplifies the new mainstream approach. In his introduction the noted demographic and economic historian Akira Hayami firmly characterizes the Tokugawa period (1600-1868) as the first period in Japanese history when a national economy was created, when market related behavior came to dominate life in the most remote regions of Japan. Describing long-run population growth estimates for the Tokugawa era (that suggest population totals in 1600 are considerably lower than was once believed), Matao Miyamoto develops a sophisticated flow of funds model of the national economy that links major regional markets to two central markets, one with Osaka as its hub, the other linked up through Edo, the capital of the shogunate that acted as a national authority with a confederation-style government in which warlords were given authority over fiefs with populations typically running into the tens of thousands. An important strand in the argument developed in the book is that economic incentives were strengthened under this system of confederation government. Masaru Iwahashi argues that the national land survey carried out just before Tokugawa rule, policies separating peasants from warriors, standardization of weights and measures, and a tax system that was not too burdensome to the peasantry (a view that flies in the face of the Marxist view that warlords exploited their villagers to the maximum degree possible) created incentives for economic growth.

One of the traditional pictures of Tokugawa Japan is that it was almost completely isolated from the rest of the world, save for a window onto the west at Dejima in Nagasaki harbor where Dutch traders were allowed to reside. While it has been recognized for some time that Japan continued to participate in tribute trade with China and Korea during the reign of the shogun, the extent of that trade has been underestimated, or at least that is the argument advanced by Kazui Tashiro who shows that Japanese agents continued to import raw silk and silk textiles in volume, paying for these products with silver.

Monetary and fiscal policy undertaken by various shogunate governments is a major theme in this volume. Surveying long-run macroeconomic dynamics, Matao Miyamoto studies the recoinage campaigns of various administrations, those operating within a relatively closed country environment, and those struggling with the forced opening of the country in the 1850s. Taking another tack, Yujiro Oguchi analyzes shogunate taxation and forced loan policies, linking them up to the monetary accounts of the Tokugawa shogunate.

Theories of peasant and craftspeople behavior rooted in the proto-industrial model motivate four chapters: one by Akira Hayami and Hiroshi Kito that focuses on population dynamics, analyzing them in terms of conflicting regional patterns (post-1720 population stagnation resulting from decline in population in the Northeast countered by modest growth in the Southwest); a second by Osamu Saito and Masayuki Tanimoto that focuses on changes in the rural economy in late Tokugawa; a chapter by Ronald Toby that draws inferences from a study of the records of an entrepreneurial family in central Japan about the growth of finance in the nineteenth century; and a summary overview of late Tokugawa policy and regional economic activity penned by Hiroshi Shimbo and Osamu Saito.

Finally, a valuable contribution by Shunsaku Nishikawa and Masatoshi Amano links up the regional and local to the national through an analysis of fief fiscal and monetary activities, and the growing interest of fiefs in promoting fief monopolies stretching into the burgeoning proto-industrial economy.

As the reader can (I hope) see, this book provides an excellent summary of recent research in Japanese economic history, covering all of the major bases that one would like to see covered. Conceived from a merging of Western concepts in economics and demography with long-standing Japanese historical scholarship attentive to the hustle and bustle of village life at one end, and the practices of elite fief and shogunate administrators at the other, this volume is an indispensable read for those who want to dive into the thriving field of Japanese economic history.

Note: Akira Hayami is Emeritus Professor, Keio University; Osamu Saito is Professor of Economic History, Institute of Economic Research, Hitotsubashi University; and Ronald Toby is Professor of Asian History, University of Illinois (Urbana-Champaign.)

Carl Mosk is Professor of Economics at the University of Victoria and the author of a number of books on Japanese economic and demographic history. He is presently completing a book for Routledge titled Trade and Migration in the Modern World, and is working on the economics of the nation state.

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Subject(s):Markets and Institutions
Geographic Area(s):Asia
Time Period(s):19th Century

A World History of Tax Rebellions: An Encyclopedia of Tax Rebels, Revolts, and Riots from Antiquity to the Present

Author(s):Burg, David F.
Reviewer(s):Vedder, Richard

Published by EH.NET (October 2004)

David F. Burg, A World History of Tax Rebellions: An Encyclopedia of Tax Rebels, Revolts, and Riots from Antiquity to the Present. New York: Routledge, 2003. xxxiv + 502 pp. $125 (cloth), ISBN: 0-415-92498-7.

Reviewed for EH.NET by Richard Vedder, Department of Economics, Ohio University.

David Burg’s new reference volume on tax revolts is better described by its subtitle: “An Encyclopedia of Tax Rebels, Revolts, and Riots from Antiquity to the Present.” The bulk of the book is a description of some 392 different tax protests through history, ranging in length from a couple of paragraphs to eight or nine pages. Like most encyclopedias or dictionaries, this is not a volume sane persons pick up and reads from beginning to end, although, somewhat irrationally, that is what this reviewer tried to do.

The bottom line is this is a nice, well written reference book that should prove useful to persons interested in the history of taxation. Want to know about rising concerns about taxation during the Roman Empire? This volume has perhaps two dozen entries of various incidents where the populace, or an important subset of it, expressed displeasure. Interested in intellectually driven anti-tax movements, say the single tax idea as promoted by Henry George? There are nice descriptions of these incidents, with references to other longer works. Want a bit of titillation? Read of Lady Godiva’s possibly mythical naked ride to protest high taxation.

The book does not stint on references to early tax rebellions in order to emphasize the post-industrial era. Indeed, almost the opposite is true. There are almost as many references (38) to the fourteenth century as there is to the twentieth (45). If the incidence of tax protest were proportional to the number of entries in the Berg volume, one would conclude that tax protestation peaked in the eighteenth century (59 entries), remaining strong in the nineteenth century (56 entries), before subsiding a good bit in the century recently concluded. One might almost believe tax rebellions are in significant decline — it takes 91 pages to describe the revolts of the eighteenth century, including such biggies as the American and French Revolutions, but a mere 48 pages to describe the fewer and less momentous modern ones.

And that brings me to the greatest deficiency of the volume, the lack of analysis and interpretation. This weakness of the book is understandable and predictable, given that it is a reference book. But reading the entries gives rise to lots of questions, the grist for many more volumes trying to explain the changing relationship of citizens to the state.

For example, given the fact that government in most parts of the world has grown substantially relative to output over time, and taxes have risen accordingly, why have not tax revolts multiplied in number and intensity? Why is it that people would kill over taxes (and many of the early revolts boiled down to killing tax farmers and collectors) when they took 10 or 15 percent of people’s income, but be relatively complacent and compliant when they absorbed 40 or 50 percent?

Has the rise in democratic political processes reduced tax revolts by giving citizenry a sense of participation? Is that, indeed, one of the more compelling arguments for democratic forms of government? Were tax revolts virtually unknown in the modern authoritarian state of the Communist or Nazi variety because of fear of brutal police power or because the state professed a benevolence towards the citizenry not found in the old monarchies such as ruled leading European countries before the French Revolution? A supplemental or competing explanation for the decline in tax protest would be that early revolts centered heavily on kleptomania — anger over the redistribution of funds from taxpayers to rulers. While modern day rent-seeking is very real and in my judgment substantial, perhaps a smaller proportion of taxes today in most countries are directly used for taxing a comparatively less affluent population to enrich already affluent plutocratic rulers.

Is there a threshold level of taxation beyond which the citizenry revolts? What determines variation in that threshold over time and space? For example, I think that roughly speaking contemporary Americans will not tolerate federal taxation exceeding 20 percent of GDP except in emergencies, nor state or local spending much greater than 10 percent. But also I think the people of New York and Vermont have a greater tolerance for taxation than those of nearly New Hampshire. Is this the result of a Tiebout effect working in the American federal system? How and why did the New Deal and Great Society raise the threshold level of tolerable taxation, and has there been some slight but perceptible decline in that threshold in modern times, manifested in the tax revolts in California and Massachusetts in the late 1970s (the latter, Proposition 2 1/2, totally ignored by Berg), and by the election of Ronald Reagan (also ignored)?

Returning more to the task at hand, Berg does not provide much in the way of economic analysis surrounding tax revolts. There is little information provided on tax rates, on the impact that levies had on revenues raised (were there Laffer Curve effects?), etc. In large part, that may reflect inadequate information, but that is not generally the case for the modern era. For example, as Berg notes (p. 250), the Sugar Act of 1764 actually cut sugar duties in half but increased enforcement. Revenues apparently rose (no discussion). Was this the Laffer Curve in action, or something else?

In short, the book raises far more questions than it answers, but that is as it should be. This is, after all, a reference volume, a nice addition to other works (e.g., Charles Adams) for those interested in the history of taxation.

Richard Vedder is Distinguished Professor of Economics at Ohio University. His latest book is Going Broke by Degree: Why College Costs Too Much (Washington, DC: American Enterprise Institute Press, 2004).

Subject(s):Government, Law and Regulation, Public Finance
Geographic Area(s):General, International, or Comparative
Time Period(s):General or Comparative

Consumerism in Twentieth-Century Britain: The Search for a Historical Movement

Author(s):Hilton, Matthew
Reviewer(s):Black, Lawrence

Published by EH.NET (September 2004)

Matthew Hilton, Consumerism in Twentieth-Century Britain: The Search for a Historical Movement. Cambridge: Cambridge University Press, 2003. xiii + 382 pp. ?17.99/$24.99 (paperback), ISBN: 0-521-53853-X

Reviewed for EH.NET by Lawrence Black, Department of History, University of Durham, UK.

Historians in Britain are currently entranced by consumption — not only due to the ?5 million AHRB/ESRC “Cultures of Consumption” program, but because it offers a bewildering array of topics and approaches to choose from (surveyed by Frank Trentmann, Journal of Contemporary History 39:3, 2004). It poses fundamental questions: do we work to earn, or earn to spend? Its appeal also lies in the shift from modernist producer to postmodern consumer identities. Simply, as Hilton (University of Birmingham, UK) contends “consumerism has been a mobilizing force at the heart of twentieth-century social and political history” (p. 3).

Consumerism assembles the politics of free trade, empire, citizenship, the state and environment (the latter absent from the Cambridge Economic History of Britain). But it has been disconcertingly marginal in accounts of twentieth-century Britain — whether due to producerist bias amongst historians, the pre-eminence of cultural studies in interpreting it or twentieth-century consumerism seeming more private and parochial or less radical or ideological than other social movements (peace, environmental) or than nineteenth-century consumerism (food rioters, moral reformers, the Co-op, free trade). The “search for a historical movement” is then both about plugging a historiographical gap by opening a consumer lens on modern Britain, but also about activists’ efforts to make a consumer movement. It reminds contemporary consumer campaigners of their antecedents — linking Mclibellers and BSE to Upton Sinclair or Which? magazine and the Co-op.

In discussions of free trade as a consumer-based political economy, the centrality of the politics of bread to working-class activity and how prices as much as wages were key to standard of living debates from the nineteenth century is outlined. World War One tied together diverse strands of consumer politics in criticisms of profiteering and the idea of state provision of necessities. Manifest in the Ministry of Food’s Consumer Council (1918-21), this had revolutionary implications (certainly compared to the meager Food Council that succeeded it), involving women, working-class consumers at the expense of the middle class and retailers.

Inter-war consumer politics reverted to a characteristic diversity — in so much as no agreed program emerged and it was powerless vis-?-vis producer ideologies, of labour or business. G.D.H Cole’s Guild Socialism and the ILP’s “Living Wage” platform had consumerist aspects (reminiscent of U.S. debates), yet could not command support within the British Labour movement. Contenders for a third way politics were the non-party experts of Political and Economic Planning (PEP), broadening consumer politics beyond necessity in the 1930s. Consumer politics disclosed much about inter-war British politics: the breakdown of free trade and rise of state intervention (also in forms like the Empire Marketing Board) and the entry of women into the public political arena.

If the “people’s war,” through state intervention and a recognition of popular desires, suggested a more consumerist prospect, it also reinforced some of the left’s traditional dichotomies. The Utility scheme, bringing key commodities within a state design and price regime and exempting them from purchase tax, differentiated utility and luxury goods both economically and morally. Extended post-war it seemed more paternalist than about “fair shares.” The Conservatives targeted women consumers by critiquing Attlee’s bureaucratic fondness for rationing. Initiatives like the Council of Industrial Design did more than gesture towards consumer rhetoric, but the opaque consumer Boards and Councils of the nationalized industries were less promising. As Hilton would have it, the idea of a state Consumer Advice Centre, which Young inserted into Labour’s 1950 manifesto, had the potential to bridge the politics of necessity and affluence and prefigured later developments. Certainly Harold Wilson’s investigations at the Board of Trade were more even-handed between producers and consumers than previously (or subsequently), but as had been (and would be) the case the idea fell foul of a small parliamentary majority, budgetary constraints and the left’s enduring prejudices. In short, it was judged a luxury. Were Conservatives more skilled in perceiving the consumer? Not innately, but it is suggested the left missed an opportunity to set an agenda of advice to match the Conservatives’ rhetoric of choice. Fatally, Hilton judges that by the later 1950s the Co-Op “lacked the imagination to step beyond an older politics of necessity” (p. 170).

It was thus business-influenced groups (and the press) that had started consumer advice and testing — Good Housekeeping Institute, the British Standards Institution in Shopper’s Guide — when affluence eroded the division between needs and wants in the 1950s. But their parochial, amateurishness, meant Which?, that the Consumers’ Association (CA) started up in 1957 soon dominated this market. The value-for-money information essential during austerity translated into a buyers guide when goods, advertising and brands proliferated under affluence. Professional technocrats almost to a man, the CA turned the comparative testing of goods and services from what one commentator styled “wittering drabness” into a hugely successful enterprise and the largest new voluntary association in post-war Britain. Started by ex-PEP and Labour figure Michael Young out of frustration with the left’s indifference to consumer matters, by the 1970s it was influential on (and indispensable to) official consumer policy.

CA was independent of business and often riled it, but this frankness endeared it to readers. Its economic impact on those at the receiving end like the British car industry is hard to gauge. CA was committed to realizing consumer sovereignty in the market by manufacturing rational consumers. It conceived the irrationalities of the market were produced by consumers’ lack of knowledge as well as the profit motive of business. CA was more than a product of the authority of the post-war expert — this was a grassroots social movement, connected to local campaigning groups by the 1960s. But for most of Which?‘s overwhelmingly middle class subscribers it was comparative test reports on washing machines and such like that were of use. This tension between everyday trade and broader agendas was reminiscent of the working-class Co-op. CA had a split personality, emblematic of consumerism, between a neo-liberal and social democratic ethos. Young urged consumerism should be more “than servants of the washing machine” and most ambitiously touted the idea of a consumers’ political party. Young himself emerges as epicentral to the thought and practice of modern consumerism.

The first peacetime state incursion into consumer matters as a whole (rather than specific commodity or industry) and new legislation might seem to signal the emergence of a consumer-citizenship, but in practice the Consumer Council (1963-70) marked a piecemeal change — dovetailing with rather than filling in for voluntarism. Its budget was small and it did not sit on government economic committees. The product of the business-minded Molony Committee, it was conciliatory towards manufacturers and retailers and treated consumers as shoppers. Its impact was felt through Teltag (rationalizing merchandise marks), education and a raft of legislation. The 1968 Trades Description Act attracted 40,000 cases in its first year and a half. The Office of Fair Trading, likewise pursued an individualist consumerism from 1973, clipped of broader concerns and by the 1980s chiefly administering competition policy.

The consumer movement’s proneness to drift from activism to materialism (or ‘self-interested complaining’, as Hilton saw one of CA’s TV rivals) impacted CA. Its million members by the late 1980s (it had been larger than the political parties since the late 1960s) were shoppers more than activists – the difficulty remained up-grading from a single issue to speaking for a collective. By isolating its leaders from members’ votes and hiving off other activities that were funded by everyday comparative testing, CA could circumvent consumer apathy. Its credit card issued in 1996 caused consternation amongst CA’s committed members (as in Labour ranks when the SDP allowed dues payment on credit cards). Equally, green and anti-globalization agendas renewed the CA’s social sensibilities.

By the 1970s Young (and others) recognized the state was needed to reach poorer consumers and even revived the mutual aid beliefs of the Co-Op. The National Consumer Council set up in 1975 and chaired by Young (who accepted with the proviso that he sat on the National Economic Development Council) was like the first Consumers’ Council a bolder entity and faced wage-price instability. It targeted disadvantaged consumers, encouraged credit unions, local advice centers (although these perished under 1980s local government cuts) and notions like consumer directors (paralleling workers on the Board). The NCC-CA Consumer Congress, an umbrella group for campaigners from Age Concern to the Protection of Rural England and Real Ale, that Young envisioned as a consumers’ TUC, proved too open-ended to have a cutting edge as a “third force.” Yet it also prefigured the extension of consumerist rhetoric in the 1990s in citizens charters and pervasive under New Labour — often more deliverer-driven than consumerists desired but not always as windy as skeptics surmised.

High profile anti-globalization protests against corporate hegemony, genetic modification, the WTO, or what Monbiot termed “affluenza,” do not unduly impress Hilton. While a by-product of the moderate style of the consumer movement Hilton has traced, they nonetheless charge material culture with political baggage and there is little novel in that. Adbusters or Naomi Klein’s No Logo (2000) tender characteristically hazy manifestoes. Except where openly anti-consumerist, Hilton can locate their more radical environmental and ethical tinges in the International Organisation of Consumer Unions (now Consumers’ International) that started in 1960. Funded by testing magazine subscribers, it has sustained a reforming agenda. In 1970 Young addressed the IOCU to the social costs of the “effluent society” and CI had a contingent at Seattle in 1999. Alongside headline-grabbers like Greenpeace, the IOCU forged networks with NGOs, the UN and developing nations for whose consumers necessity was more pressing than rational choice. In short, middle-aged housewives matter as much to consumerism as hooded protesters. Ethical Consumer‘s concern with workers’ (besides animal, environmental) rights had echoes in the U.S. consumer movement and for most consumers ethical purchasing — fairtrade coffee, Britain’s one million vegetarian — likewise assuages the luxury-need gap.

The book is divided — roughly around the Second World War — into sections on “necessity” and “affluence.” This usefully differentiates wants and choices from needs, but elsewhere Hilton is at pains to stress how a consumer politics might subvert such dichotomies. Equating affluence with material plenty, serves to downplay the manifold meanings affluence might bear in the context of a post-colonial, post-industrial and Cold War, besides post-war, Britain.

Hilton extols the virtues of the “consumer-citizen” (to borrow Cohen’s categories from A Consumer’s Republic) over the “consumer-customer.” The former has social and political characteristics, whereas the latter is reduced to economic transactions. A consumer politics might transcend the self-interested producer ideologies of business and workers in Labour and Conservative politics, plot a “third way” between the market and state control, enable a participatory civil society and act as a conduit for women into the public sphere. Hilton is persuaded of this potential radicalism, but much of the story is of constraints, shortcomings, waylaying tactics of incumbent powers and missed opportunities.

All too aware of “the difficulty of outlining a coherent politics of consumption” (p. 51), Hilton’s narrative at times sounds like a twentieth-century extension of E.P. Thompson’s “moral economy” making good market failures. But Hilton stresses the variety (except in World War One) of consumer consciousness, wary of making it a hostage to fortune as socialists did with class. A customer definition of consumerism, manageably confined to issues of choice and protection, could be as self-interestedly sectional as business or labour; a broader, more inclusive definition was prone to fragment. The Co-Op faced this dilemma and the CA, which occupies a heroic role in Hilton’s narrative, is admitted to have “not resolved this tension between consumerism and citizenship” (p. 341).

Especially under Young’s counsel, consumerism’s “attempt to create a new basis for social democracy” becomes “the dominant narrative within this history” (p. 337). In this respect, Hilton’s narrative can sound a little like Peter Gurney’s championing of the Co-op or Hutchinson and Birkitt’s of Social Credit in the 1920s, in its quest to locate alternatives to capitalism and its frustration at Labour’s marginalizing of the consumer. Hilton powerfully conveys a sense of consumerism as often invigorating the politics of the left, but also the trade union and Fabian reflexes that gave Labour its producerist outlook that saw consumerism (beyond necessity) as frivolous, unproductive or private luxury.

This social democratic subtext unduly shortchanges Conservative approaches to the consumer. Paternalist and libertarian strands of Conservatism might usefully have been explored through their consumer rhetoric. Baldwin’s party mastered the appeal to the housewife after 1918 more than opponents, couching it in terms of rising prices; Thatcher cultivated the aspirational property / shareowner consumer, warning of trade union wage demands. On the politics of inflation, Baldwin and Thatcher were at one on. Electoral politics are not always surely handled. The impression on voters of Labour’s proposed Consumer Advice Centre in 1950, Resale Price Maintenance (abolished by the Tories in 1964 despite business wishes) and the Office of Fair Trading are alleged. Debates over EEC entry — about prices and the fate of commonwealth trade — are thin. Hilton’s supposition that as it eclipses other identities “consumerism will eventually find political as well as cultural expression” (p. 11) verges on the determinist, not least since it is apparent political parties have co-opted besides sidelined consumer rhetoric.

Hilton resists the idea that the flourishing of consumerism — as a self-realizing act — in the 1950s and 1960s was a foretaste of 1980s’ free market individualism. The consumer movement shows that far from a nascent neo-liberal agenda, on offer was a negotiation with the market — recognizing both its dynamism and iniquities and crafting a rational, socially-conscious individual consumer. If anything it was a forerunner of Third Way politics of a 1990s Blair-Giddens variety: ideologically tentative, vaguely social democratic in ambition, disparate but inclusive.

Sourced from official committees, Consumer Councils, the Board of Trade and the Consumers’ Association archive, the focus is resolutely on the organized consumer movement and its institutional expressions. Since nowhere else is this surveyed in such detail, this is welcome and novel. It attends to a nation of shoppers, where historians have tended to focus on goods as evidence of “consumer society.” But this might disappoint readers seeking a more cultural history of consumerism. Hilton confesses “there is a book waiting to be written on the shaping of the consuming self” (p. 183), sourced from advertising, business and the “psy” industries. But this is not it, though Hilton is not unconcerned with identities vested in the world of goods. The “consuming self” features fleetingly, if often insightfully — such as in Hilton’s case for the more masculine qualities of the post-war consumer, as white-collar workers transposed productivist rationality into consumptive practices. Commodities themselves are scarce — this is an institutional account of material culture. This offers respite from the interpretive abandon of postmodernism and cultural studies and Hilton notes how Klein’s No Logo was premised upon a rejection of “self”-identity politics and takes to task the more “exaggerated interpretations” of department stores that have been offered.

An asset of Hilton’s remit is to focus on regular, everyday consumption — bread, domestic durables — rather than being dazzled by its more spectacular, conspicuous incidences. Nor does Hilton lack a rangy theoretical engagement — Bourdieu’s “habitus” trumps class in understanding precisely the disposition of CA activists and Castells’ informational “network society” draws out the potential for an international civil society of consumerism. But might the reader be entitled to some analysis of patterns, trends and forms of consumption: what and how much was consumed and by whom. Key dimensions of this story, as material as semiotic, are surely to be found in the role of (a selective list): TV (a media of advertising, taste, information), cars, washing machines, holidays, credit and debt, diet, marketing, supermarkets, Retail Price Index, fashion, the “black” market, fags and fuel (tax included), refrigeration and self-service shopping.

This is a hugely impressive study. It is hard to imagine how Hilton’s study will fail to establish consumerism squarely (and rightly) at the center of historical understanding of twentieth-century Britain or to become itself, for scholars and students alike, vital reading in the debate about interpreting this. As buys go, this is a must — not least it is even good value in paperback!

Lawrence Black is lecturer in Modern British History at the University of Durham. His latest book, edited with Hugh Pemberton, is An Affluent Society? Britain’s Postwar Golden Age Revisited (Ashgate, 2004). Current projects include studies of postwar British political culture and of playwright Arnold Wesker.

Subject(s):Household, Family and Consumer History
Geographic Area(s):Europe
Time Period(s):20th Century: WWII and post-WWII

Regulating Railroad Innovation: Business, Technology, and Politics in America, 1840-1920

Author(s):Usselman, Steven W.
Reviewer(s):Schramm, Jeff

Published by EH.NET (September 2004)

Steven W. Usselman, Regulating Railroad Innovation: Business, Technology, and Politics in America, 1840-1920. New York: Cambridge University Press, 2002. xv + 398 pp. $70 (hardback), ISBN: 0-521-80636-4; $29.95 (paperback), ISBN: 0-521-00106-4.

Reviewed for EH.NET by Jeff Schramm, Department of History and Political Science, University of Missouri — Rolla.

The railroad was the quintessential industrial technology. It has also been the subject of much economic and historical analysis since the days of the Vanderbilts and Jay Gould. While one would think that there was little new to be gained from an exhaustive look at railroads during their height of influence, this book clearly and definitively negates such an assertion. The railroad, America’s first big business, had a need to remain on the cutting edge technologically but also to order and channel those technological innovations to productive ends. The inherent tension between new innovations and existing management and business structures is one of the themes at the heart of the book. It is more than just a look inside the board room, engineering, and accounting departments, however. Railroads, while private businesses, were in the public eye in a way that few other industries were, certainly at the time. Politics, therefore, was also a constant concern. Usselman, an associate professor of History at Georgia Institute of Technology, opens the black box and takes a long look at the process and players involved in railroad innovation. He asserts that railroading during the period of study, “opens a uniquely revealing window into the dynamics not just of technical change but of American history” (p. 4). He clearly wants to tie technological history to the larger stream of American history and even to draw lessons from past attempts to regulate technology to our current efforts.

After a brief introduction stating the above objectives, Ussleman divides his work into three parts. The first is titled Assembling the Machine, 1840-1876, and itself is composed of three chapters. In this section he deals with the initial growth and development of the railroad system, broadly conceived. Railroads were more than just transportation for people and goods. Usselman correctly states that they were seen as transformative enterprises and, therefore, in the public eye from the beginning. This public inspection manifested itself in various ways, from an advantageous legal environment to land grants and other perks. Competition between railroads was less than expected as they were all engaged in the extraction of resources from a seemingly limitless and virgin land. As might be expected during this phase, railroads tried many ways to manage technological change, some more successful than others. Patent disputes were the major source of friction during this period.

The second part is titled Running the Machine, 1876-1904, and is composed of four chapters. With the initial expansion into untapped territory essentially over and with increasing inter line competition, railroads sought to refocus from expansion to efficiency. The public was increasingly turned off by the control that some railroads had over transportation of goods. This concern began to influence policy as the government became less accommodating and began to threaten increasing regulation. To respond to these challenges, railroads settled into a “middle age” where they increasingly turned to professionals for management and engineering expertise. Many railroads, most notably the Pennsylvania, enshrined these specialists in their own, in house, research and development facilities. Other roads embraced industry-wide trade associations, professional organizations, and engineering conferences to set standards and mediate technological development. Railroads also consciously chose not to be all things to all people but to concentrate their energies on what they did best, hauling bulk commodities long distances. Innovations that augmented the chosen mission were embraced while those that did not were shunned. In doing so, railroads elevated engineering and engineering principles above the forces of the market and economics. “The health of the industry as a whole,” was described in engineering, not economic terms (p. 268).

The final portion of the book is titled, Friction in the Machine, 1904-1920, and is composed of two chapters. Usselman asserts that the well-oiled and ordered machine that engineers and managers constructed during the late nineteenth century came under increasing assault from all sides after 1900. Mergers and consolidations left the railroad industry with seven large systems that controlled almost two thirds of the mileage in the United States. With increasing consolidation, government regulation also increased, culminating with a strong and forceful Interstate Commerce Commission that actively intervened in railroad business and set rates and policies. Traffic volumes increased and began to stress existing infrastructure and technologies. Finally, competition in the form of motor transport began to be a concern, although the inroads made by trucks and automobiles prior to 1920 were slight. To respond to these new challenges railroads backed away from the engineering ethos that they had embraced earlier. They sought more flexible ways of serving their customers. Ironically, as the railroads lessened their dependence on engineering and efficiency, the public and the government became enraptured with Scientific Management and even used these techniques against the railroads in rate disputes. The book is well documented with extensive footnotes and index. Usselman consults a wide variety of archival sources including government reports and trade magazines and journals. He focuses on two large and progressive railroads for much of his analysis — the Pennsylvania and the Chicago, Burlington & Quincy, although the Baltimore & Ohio is also mentioned at length. This leads to one small problem with the work. By choosing railroads that were clearly in the vanguard, others that may not have been as progressive are not explored. During the period of his analysis, there were literally hundreds of railroads with a wide variety of operating, management and engineering cultures. Bringing other roads into the narrative would serve to enhance the work. Railroads were not quite the monolithic industry that Usselman presents. Full standardization of such things as locomotive design was not achieved until the diesel revolution after World War II. At times Usselman may overstate his case to make his points. Railroads did experience much expansion after 1876 and the engineering ethos was strongly felt throughout the 1920s. The first section can be a bit slow and plodding but once the book gathers steam the second and third sections shine like well burnished steel rails. These problems, however, are minor compared to what Usselman has accomplished with his work. He sets out to look at a hugely important industry and its struggles with innovation over a long period of time and to tie it into the larger stream of American history. He succeeds at this task and then some. This will stand as an important work, not only in the history of technology and economic and business history but in American history in general for years to come.

Jeff Schramm, Assistant Professor at the University of Missouri — Rolla, is currently working on a manuscript about the dieselization of American railroads.

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