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The Political Economy of Argentina in the Twentieth Century

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

Published by EH.NET (July 2009)

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

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

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

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

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

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

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

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

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

Planters’ Progress: Modernizing Confederate Georgia

Author(s):Morgan, Chad
Reviewer(s):Adams, Sean Patrick

Published by EH.NET (July 2006)

Chad Morgan, Planters’ Progress: Modernizing Confederate Georgia. Gainesville: University Press of Florida, 2005. xii + 163 pp. $55 (cloth), ISBN: 0-8130-2872-8.

Reviewed for EH.NET by Sean Patrick Adams, Department of History, University of Florida.

Do we need another case study of the American Civil War? While the public demand for the beards and bullets side of America’s Iliad appears insatiable, many historians have wondered if every single aspect of this struggle has already been thoroughly chronicled. For those interested in questions of political economy, however, the American Civil War offers some tantalizing and yet unexplored possibilities, as wartime conditions can trigger dramatic changes in societies. The peculiar demands of a prolonged military struggle on a nation can erode longstanding institutional practices once considered as solid as bedrock. War can also thrust new actors to the forefront of a society; not just in military venues, but in the civilian realm as well. Fissures created by the unique demands of wartime, moreover, allow new entrepreneurs to blossom where they previously had no succor. Thus, there is still a great deal to learn about the intersection of political, military, and economic policies during this well-traveled period.

Chad Morgan’s slim volume entitled Planters’ Progress: Modernizing Confederate Georgia offers a new perspective on the impact of the Civil War upon southern industrialization. Morgan, a Triangle Research Libraries Network Fellow at North Carolina State University, takes issue with the longstanding argument that military exigencies forced the South to industrialize. He argues that Confederate industrialization was not a “clean break with the past” but “instead an elaboration and acceleration of existing tendencies” p. (2). As such, Morgan finds more continuity than change among planters’ conceptions of industrial growth at the same time that the Civil War years placed an unprecedented strain on Georgia’s economy. While his argument is not without its faults, Planters’ Progress is a valuable contribution to the burgeoning field in nineteenth-century political economy.

Morgan begins with an overview of Georgia’s antebellum industrial sector and attempts to challenge the prevailing wisdom about the antebellum southern state. After chronicling the rise of cotton mills in antebellum manufacturing centers like Athens, Augusta, and Columbus and the concurrent expansion of railroads in Georgia, Morgan reminds us that the South compared quite favorably with other nations in terms of industrial growth. He also makes a case for Georgia’s economic prowess by the eve of the Civil War. Here Morgan follows in the footsteps of Milton Sydney Heath, whose Constructive Liberalism still resonates a half-century after its publication.[1] Heath argued that Georgia’s public officials vacillated between laissez-faire and “constructive liberal” policies in the antebellum decades and drew upon an avalanche of statistical evidence to demonstrate that point. Morgan, on the other hand, asserts that Georgia witnessed a steady increase of state power and that planters did not oppose industrial development, but merely wanted to control it. “If industrialization ever took off in earnest, as happened during the Civil War,” Morgan claims, “slaveholders could bring state power to bear on industrialists to block their ascendance while preserving jurisdiction over manufacturing for the government” (p. 17)

Restoring agency to the South’s public policymakers makes sense, but Morgan’s main body of evidence for this trend comes from a close read of the writings of proslavery ideologues George Fitzhugh and Henry Hughes rather than a systematic exploration of Georgia’s political economy. By focusing on intellectual trends at the expense of political battles, Morgan avoids the sloppy world of legislative policymaking altogether. Yet this leads him to assign a great deal of prescience to Georgia’s planters, to whom, “Secession finally gave … an opportunity to pursue a modernity they had long sought” (p. 31). Was the goal of economic “modernity” so clear cut in nineteenth-century America? The work of historians such as Colleen Dunlavy, Robin Einhorn, Richard John, John Larson, William Novak, and Heather Cox Richardson — all of whom have restored contingency and conflict to nineteenth-century political economy — certainly questions that premise.[2] In fact, Morgan’s claim that the Civil War “was a fight over how the South would modernize — with or without slavery” (p. 109) evokes the same assumption that Planters’ Progress attacks throughout the text; namely that the South was a “pre-modern,” “pre-industrial,” and “pre-statist” society that needed to catch up to the North’s more advanced status in these categories. Whiggish conceptions of economic development thus undermine the argument at points, particularly when Morgan attempts to place Georgia’s case within the broader context of nineteenth-century political and economic history.

Planters’ Progress is much more effective in its discussion of Georgia’s wartime economy. Josiah Gorgas, the head of the Confederate Ordnance Bureau, made Georgia the hub of Confederate military production and the state’s industrial sector thrived as a result. The Civil War also saw the rise of Atlanta as a significant rail and manufacturing center, a process that Morgan attributes to the state-sponsored production of war materials. In areas where antebellum industries were established, wartime demand pushed production levels even higher. Morgan’s depiction of the “seemingly overnight creation of a government manufacturing establishment” (p. 44) and the heavy-handed Confederate oversight in running it is a compelling story of how rapid industrialization can occur out of necessity.

The story of labor relations in Georgia during the Civil War is an important one for Planters’ Progress. Here the strong presence of the Confederacy in Georgia’s manufacturing sector muted the labor unrest that often accompanies rapid industrialization. More specifically, Morgan argues, the presence of government officials allowed industrialists to employ a variety of black and white, male and female, and free and enslaved labor in ways that a civilian economy would find unpalatable. Of course, at the same time that a “combination of repression, segregation, and outright luck” in Confederate Georgia “defused a potentially explosive situation,” this style of industrial development resulted in “reprehensible conditions for workers” (p. 86). As the fortunes of the war shifted in the Union’s favor by 1864, this overwhelming state presence shifted from a managerial role into a more humanitarian one, as Georgians from all castes and classes drew upon public resources to survive the deprivations triggered by General Sherman’s invasion of the state.

In the end, Planters’ Progress provides an instructive case study of a state’s economic transformation during wartime conditions. Although Morgan’s wider arguments about Georgia’s “modernity” are less convincing, his concise account of rapid economic development during the Civil War is a model of efficient and effective prose backed by evidence. In a field often overburdened with duplication, Planters’ Progress is recommended reading for economic and political historians grappling with the complex nature of southern industrialization during the turbulent decades of the mid-nineteenth century.

Notes:

1. Milton Sydney Heath, Constructive Liberalism: The Role of the State in Economic Development in Georgia to 1860 (Cambridge: Harvard University Press, 1954).

2. While not a formal school or organization, these historians are commonly cited as good examples of the “new institutionalist” approach that has revitalized the study of political economy in the nineteenth-century United States. See Colleen Dunlavy, Politics and Industrialization: Early Railroads in the United States and Prussia (Princeton: Princeton University Press, 1994); Robin Einhorn, Property Rules: Political Economy in Chicago, 1833-1872 (Chicago: University of Chicago Press, 1991); Richard John, Spreading the News: The American Postal System from Franklin to Morse (Cambridge: Harvard University Press, 1995); John Larson, Internal Improvement: National Public Works and the Promise of Popular Government in the Early United States (Chapel Hill: University of North Carolina Press, 2001); William Novak, The People’s Welfare: Law and Regulation in Nineteenth-Century America (Chapel Hill: University of North Carolina Press, 1996); Heather Cox Richardson, The Greatest Nation on Earth: Republican Economic Policies during the Civil War (Cambridge: Harvard University Press, 1997).

Sean Patrick Adams is the author of Old Dominion, Industrial Commonwealth: Coal, Politics, and Economy in Antebellum America (Baltimore: Johns Hopkins University Press, 2004).

Subject(s):Servitude and Slavery
Geographic Area(s):North America
Time Period(s):19th Century

To Provide for the General Welfare: A History of the Federal Spending Power

Author(s):Sky, Theodore
Reviewer(s):Adamson, Michael R.

Published by EH.NET (January 2005)

Theodore Sky, To Provide for the General Welfare: A History of the Federal Spending Power. Newark, DE: University of Delaware Press, 2003. 442 pp. $75 (cloth), ISBN: 0-87413-793-4.

Reviewed for EH.NET by Michael R. Adamson.

To Provide for the General Welfare traces in meticulous detail and with close reasoning executive branch interpretations of Article 1, Section 8 of the U.S. Constitution, which delegated authority to Congress “to lay and collect taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States.” It relies on the public papers of the presidents, especially annual messages, speeches, and veto messages, and, to a lesser extent diaries and correspondence, to show how Alexander Hamilton’s broad reading of the clause, expressed in his Report on Manufactures, prevailed over James Madison’s “strict constructionist” view, argued vigorously in Federalist No. 41, his 1817 veto of an internal improvements bill, and an 1830 letter to Andrew Stevenson, the speaker of the House. Madison held that Article I, Section 8 limited the scope of federal spending to the enumerated powers listed therein. For Hamilton, no constitutional amendment was necessary to justify federal spending beyond these powers, provided that the funds were appropriated on behalf of the general welfare of the people, rather than the particular interests of a state or section. The decisions of the presidents who believed that a constitutional amendment was required to expand the scope of the general welfare clause (namely Thomas Jefferson, Madison, and James Monroe) to put nation building above political theory and constitutional interpretation in their sanctioning of federal funding of certain public works projects ensured that Hamilton’s reading of the clause would prevail. The actions of the Democratic-Republican presidents in the first quarter of the nineteenth century paved the way for an evolutionary expansion in the scope and scale of federal spending that traces its lineage through presidents John Quincy Adams, Abraham Lincoln, Theodore Roosevelt, Woodrow Wilson, and Franklin Roosevelt. In this context, the vetoing of certain public works projects by Andrew Jackson and other Democratic presidents during the balance of the nineteenth century constitute mere pauses on the road to a more expansive and progressive American state.

In focusing on the intentions and thinking of the nation’s founders and its early presidents — Sky devotes a mere seventy pages to the presidents who followed Lincoln — To Provide for the General Welfare appropriately diminishes the role of the Supreme Court. With very little debate, the delegates to the U.S. constitutional convention self-consciously approved a general welfare clause that was sufficiently ambiguous to leave it to subsequent administrations to interpret the authority of the federal government in light of needs that they could not foresee. Sky devotes a chapter to the thinking of nineteenth-century Supreme Court Justice Joseph Story, for it was his support for a Hamiltonian reading of the general welfare clause on which the majority relied in its 1936 decision in U.S. v. Butler, when it ruled on the general welfare clause for the first time. By setting his argument within a programmatic context of executive branch policy making, however, Sky convincingly demonstrates an executive-branch-driven evolution in spending power jurisprudence that should give pause to individuals and organizations who look to the court to circumscribe the scope of the American state. The political debate about the general welfare clause was settled long before the court sanctioned the New Deal in Butler. Hotly debated during the first fifty years of the American republic, the argument over the constitutional interpretation of the clause was much diminished in Lincoln’s annual messages that justified subsidies to railroads and education during the civil war, and was all but absent from the messages of Theodore Roosevelt and Woodrow Wilson in support of their progressive programs.

For Sky, Distinguished Lecturer at the Catholic University of America School of Law, the spending programs of the eighteenth, nineteenth, and twentieth centuries are all of a piece. For instance, in the area of education, he draws a straight line from the (rejected) initiatives of John Quincy Adams for a national university through Lincoln’s approved aid to states (in the form of land grants) to the education initiatives of Lyndon Johnson’s Great Society. In establishing a close link between modern legislation, particularly in the areas of health, education, and social welfare, to initiatives of the presidents of the early republic, Sky in effect argues on behalf of a “long Progressive Era” in American history, which Mary O. Furner identified in her seminal essay, “Knowing Capitalism: Public Investigation and the Labor Question in the Long Progressive Era” (in The State and Economic Knowledge, edited by Furner and Barry Supple, 1990). Indeed, To Provide for the General Welfare provides evidence to suggest that progressivism was embedded in the American state by its founding document — and therefore well before the 1880s that Furner marked as the beginning of the era. In recent years, scholars have demonstrated that governments at the state level were activist, if not progressive, throughout the nineteenth century. With even the advocates of limited federal government ultimately conceding the practicality of federal spending in areas not enumerated in Article 1, Section 8, the reader may well conclude from Sky’s discussion that it was inevitable that the limited government of Madison and Jefferson would become in time the unbounded modern welfare state.

In identifying a “seamless” legal progression toward the modern welfare state, however, Sky conceals important factors that explain the experience of state building in America. As James Willard Hurst (Law and the Conditions of Freedom in the Nineteenth-Century United States, 1956) and Theodore Lowi (The End of Liberalism, 1979; The End of the Republican Era, 1995) have demonstrated, the “traditional” or “patronage” state of the nineteenth century differed fundamentally from the state established by the New Deal, which built on the expansion of state responsibility undertaken by Teddy Roosevelt and Woodrow Wilson. As Hurst has argued, the state of the nineteenth century sought to harness private property and individual energy on behalf of growing the economy and providing opportunity. It was limited in the sense that the laws that defined it were bounded, concrete, and specific, as Lowi puts it. Moreover, the state saw private property as instrumental in achieving national goals. After creating “the conditions of freedom” under which individuals might act, the state privileged markets in that it accepted the outcomes of proprietary or corporate activity. Indeed, Sky’s text provides indirect evidence of how the state related to the market in this manner.

State building during the twentieth century constituted significant points of departure in ideology and institutions that drove a fundamental “transformation” in the legal regime, as Morton J. Horwitz has argued in The Transformation of American Law, 1870?1960 (1992). In the context of the emergence of corporate capitalism and severe economic depression, progressivism and a “new liberalism” yielded, for all intents and purposes, an unbounded federal state, sanctioned in law, with responsibility not only for the promotion of opportunity but the redress of unjust social and economic outcomes. While no constitutional amendment has been required for a vast expansion in federal government spending beyond the enumerated powers in Article 1, Section 8, the changes that have occurred are not explained by a broad reading of the general welfare clause alone. Sky’s text provides some of the historical context that will help readers understand the ideas and political motivations behind the programmatic initiatives of modern U.S. presidents. Ultimately, Sky relates only part of the story of state responsibility for the “general welfare” (albeit an important one), but in a way that seems to be all encompassing in explaining its expansion in scope and scale. Readers may be forgiven if they come away from their reading of the text with a lack of appreciation of the extent to which the modern welfare state differs from the American state as it existed prior to the New Deal and the Great Society.

To Provide for the General Welfare will be of interest to specialists, including legal scholars, intellectual, economic and political historians, law professors, and public policy analysts. Economic historians who wish to learn more about the political economy of internal improvements during the nineteenth century will find the text to be an especially valuable source. Well-written and argued, the book nevertheless will appeal less to undergraduate students and general readers. Replete with long and block quotes, and closely argued discussions thereof, the text often reads like a law review article. (No criticism of law review articles intended.) Historians will likely be disappointed by the lack of references to the relevant secondary literature on many topics related to progressive political thought, political economy, and economic development. Most of the citations of secondary literature refer the reader to biographies of the presidents, which may prove unsatisfactory to scholars wishing to investigate the historiography or history of the aforementioned topics.

Michael R. Adamson is an independent scholar and historical consultant, based in the San Francisco Bay Area, who has served as Research Associate, NASA Ames Research Center History Office. His publications include, “The Failure of the Foreign Bondholders Protective Council Experiment, 1934-40,” Business History Review (Autumn 2002) and “‘Must We Overlook All Impairment of Our Interests'”: Debating the Foreign Aid Role of the Export-Import Bank, 1934-41″ Diplomatic History, forthcoming.

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

The Destruction of the Bison: An Environmental History, 1750-1920

Author(s):Isenberg, Andrew C.
Reviewer(s):DePolt, Richard

Published by EH.NET (June 2003)

Andrew C. Isenberg, The Destruction of the Bison: An Environmental History, 1750-1920. New York: Cambridge University Press, 2000. xii + 206 pp. $40 (hardcover), ISBN: 0-521-77172-2; $18 (paperback), ISBN: 0-521-00348-2.

Reviewed for EH.NET by Richard DePolt, Department of Economics, Wake Forest University.

We know that over-hunting for the robe trade and the hide market during the nineteenth century nearly exterminated the bison from the Great Plains. But, according to Andrew C. Isenberg, this is an insufficient explanation for such a dramatic ecological event. To fully comprehend what happened, Isenberg presents the destruction as the outcome of an integrated dynamic process involving the volatile natural environment of the Great Plains, the ecological and economic invasion of the Euroamericans, and the culture and economy of the nomadic Plains Indians.

Isenberg argues that the natural volatility of the bison population is key to understanding the near extinction. Extended drought and other natural causes of death — fires, drowning, wolves, falls, blizzards, competition from other grazers — affected the carrying capacity of the plains, the growth rate of the population, or both. The result was that during certain periods, natural mortality may have exceeded the natural increase of the herd, raising the possibility of a catastrophic decline in the population. Any additional mortality due to hunting for subsistence or the market during these episodes would further deplete the stock of bison.

Isenberg’s objective is not to remove blame from the Indian and Euroamerican hunters but to emphasize the role of a dynamic natural world in which those hunters were operating. While Indian arrows and hide hunters’ bullets were sufficient on their own to ultimately destroy the herds, they were assisted by a volatile natural environment.

In addition to volatility of the natural environment, Isenberg seeks to integrate — and implicate — the nomadic equestrian hunting societies of the Great Plains into the explanation for the destruction of the bison. He attributes the development of these nomads to the ecological invasion of the Euroamericans, principally horses and Old World crowd diseases. The first increased the mobility of the Indians and pulled them onto the plains where they could follow the herds. The second pushed them from their horticultural villages and the security of their diversified resource use strategy. (Dispersion was but a temporary solution to the spread of disease. Eventually, visitors to Euroamerican trading posts diffused the pathogens throughout the plains.) The Indians adapted to the invasion, indicating they were not a passive and static element, and adopted a new resource use strategy that tied their fate to that of the bison.

Based on the ultimate outcome for the nomadic Indians, Isenberg is critical of this decision. He asserts that prior to the eighteenth century, “the Indians’ resource diversity was a conscious land use strategy … that protected them from both random environmental shock and overexploitation” (p. 39). Contrary to the security of self-sufficiency, the transformation required a total reliance on the bison and trade, and left the Indians vulnerable. While he suggests this was a necessary adaptation, he also allows that it was “a rational economic adjustment (that) yielded greater wealth at less expense” (p. 47). He points out that many Indians were already semi-sedentary and hunted bison on foot when the opportunity presented itself but they risked starvation when the bison were not to be found. Thus, the arrival of horses can be seen as removing a constraint on food production. Furthermore, the diversification may have been necessary due to the low productivity of hunting and gathering activities. Specializing in bison hunting and inter-tribal trade with horticultural villages was a lower cost way of providing goods for Indians located on marginal lands.

The economic invasion of the Euroamericans further affected the nomadic societies and the natural environment. The nomads participated in the fur trade, first in beaver pelts and later in bison robes. Both trade activities altered the ecology of the plains and influenced the behavior of those human societies that interacted with that environment. However, in contrast to the trade in beaver pelts, which was peripheral to the nomads’ main activities of hunting and processing bison for subsistence and intertribal trade, the robe trade utilized for commercial purposes the resource upon which their survival depended. Isenberg estimates that during periods with a favorable natural environment, the nomads’ harvest for consumption and intertribal trade was sustainable. However, the increased hunting for the market coincided with adverse environmental conditions to deplete the herds during the first half of the nineteenth century.

Isenberg identifies two factors to explain why the nomads exploited the bison for the robe trade. First, the social changes associated with nomadic society removed constraints upon individual economic behavior and the accumulation of wealth. A decline in the cooperative ethic, redistribution, and the centralized control of trade enhanced the individual reward and thus the incentive to increase commercial hunting effort. Also, to maintain mobility, wealth and status were measured by the number of wives and captive women. Second, the new resource utilization strategy eliminated the independent economic activities of women in horticulture and gathering and relegated them to processing robes. Import-competing activities were replaced by export-oriented activities as “men sought to advance their status by relying on the labor of socially subordinate women who dressed robes for trade” (p. 97). These factors were self reinforcing as larger family units could process more robes and thus generate more wealth for the male head.

According to Isenberg, a third factor — consumerism — was “not the cause of the robe trade but a symptom of it.” (p. 98) However, it seems plausible that to maintain their access to Euroamerican trade goods after depleting the beaver population, the nomads simply introduced a different article of trade into the existing trading system. While this ultimately proved not to be sustainable, in an environment without property rights in bison or centralized control over individual effort, it was a rational response by each individual hunter.

Following the Civil War, the scope and scale of the slaughter increased dramatically. Given that many recognized this as unsustainable, Isenberg explains why it was allowed to proceed. He offers two explanations. First, a new tanning process, more powerful rifles, the expansion of railroads, and a large supply of hunters and skinners combined to integrate bison hides into the industrialization occurring in the East. Thus, the bison were part of the nineteenth-century pattern of an industrial society exploiting the abundant natural resources.

Second, the destruction of the bison was also an integral part of Euroamerican expansion onto and domestication of the Great Plains. Some saw it as necessary for the advance of a superior resource utilization strategy — cattle ranching. Others saw it as a way to force the Indians to reservations where they could be civilized or tamed. This later view was supported by the Army, which encouraged hide hunters to violate treaties protecting the Indians’ hunting territories and deplete their food supplies. The result was the exhaustion of the bison from the southern plains during the 1870s and the northern plains between 1880 and 1883.

Isenberg concludes the book with an analysis of the late nineteenth-century and early twentieth- century efforts to preserve the bison from extinction. Two very different motivations are examined. The first was an effort by easterners to preserve the bison as a symbol of an “imagined masculine frontier culture” (p. 175). The second was an opportunity for western ranchers to profit from the species via private bison herds for viewing, sport hunting and meat production. This discussion highlights some interesting ironies. Isenberg attributes the rise of industry in the nineteenth century as the “monumental primary cause” in the destruction of the bison (p. 196). However, it was the wealth generated by industrialization that financed the preservation effort. The “wealthy (and) socially prominent” easterners were willing and able to provide private donations to preserve the species. Furthermore, while the market created very powerful incentives to exploit the resource, it was the lack of property rights that determined the nature of that exploitation. And it was the defining and enforcing of private property rights by ranchers that ensured the survival of the species. Such an interpretation may alter Isenberg’s message that the unsustainable exploitation of natural resources is not a viable development strategy.

The traditional explanation — overhunting — still explains the destruction of bison during the nineteenth century. Isenberg’s well-researched and very readable environmental history provides a more compelling explanation that acknowledges the interaction between a dynamic natural environment and the human societies that inhabited it.

Subject(s):Social and Cultural History, including Race, Ethnicity and Gender
Geographic Area(s):North America
Time Period(s):19th Century

Socializing Capital: The Rise of the Large Industrial Corporation in America

Author(s):Roy, William G.
Reviewer(s):Levenstein, Margaret

H-NET BOOK REVIEW Published by H-Business@eh-net.muohio.edu (August, 1998)

William G. Roy. Socializing Capital: The Rise of the Large Industrial Corporation in America. Princeton, N.J.: Princeton University Press, 1997. xv + 338 pp. Figures, tables, notes, bibliography, and index. $35.00 (cloth), ISBN 0-69-104353- 1.

Reviewed for H-Business by Margaret Levenstein , University of Michigan

This book is extraordinarily ambitious and wide-ranging in its treatment of a very significant topic. At times Roy focuses specifically on the merger wave of the 1890s during which many large firms turned to public capital markets to facilitate mergers. But much of the book, and, from my perspective, the most interesting parts, take a much longer term view, examining changes in property rights and the use of those rights by railroads and then manufacturing firms over the course of the century. Most of the central points of the book I think are correct and many of Roy’s methodological points provide useful correctives to tendencies in business and economic hi story. There were sections of the book that I found insightful bordering on brilliant. There were also sections of the book that I thought were unconvincing, and others that were simply wrong.

The central points of the book can be summarized as follows :

1. The large, widely-held manufacturing corporation is a social creation, not a natural entity.

2. The corporation as it exists today is historically contingent and developed from pre-existing forms. In particular, it evolved from the public corporation, used by the state to accomplish public purposes and was given special privileges (monopoly, eminent domain, limited liability) in order to do so. The happenstance convergence of the economic crisis of 1837, the emergence of the railroad, and the po wer of the “anti-monopoly, anti-state” version of Jacksonian anti-corporatism privatized and democratized the corporation. Thus the corporate form retained many of its privileges (limited liability, alienability of ownership) but made those privileges available to all through general incorporation laws. In doing so, the corporation lost its public purpose and its public accountability (as well as its claim to monopoly).

3. There existed historical alternatives. Manufacturing could have continued to be conducted in firms that were not corporations. The corporate form could have retained its public purpose and its public accountability. The state could have remained a more active economic player in its own right — owning railroads or banks or manufacturing as today the state owns highways. It could have developed a stronger regulatory apparatus, developing the capability to administer public enterprises and assure that those who received the privilege of incorporation fulfilled a public responsibility. In other words, the boundaries between public and private could have been drawn quite differently in many dimensions.

4. Manufacturing firms followed the incorporation practices of railroads because that was required by investment banking firms to get access to large pools of capital, not because the corporate form was demanded by manufacturers to coordinate increasingly complex, large-scale, high-throughput technology.

5. Manufacturing firms (the “trusts”) turned to New Jersey’s incorporation law in order to legalize collusive activities, not to coordinate increasingly complex, large- scale, high-throughput technology.

6. The corporation was privatized – lost its public use and public accountability – and the corporation was socialized – its securities widely owned but no longer controlled by owners – not because this organizational form was the most “efficient” way to organize manufacturing production. Rather, manufacturing firms embrace and continuing use of the corporate form was the result of a “logic of power.”

Roy uses several methods to make his case. He first presents a theoretical argument that a “social logic based on institutional arrangements, including power” (p. 6) is more useful for understanding the dimensions and dynamics of the economy than is an analysis based on “the logic of efficiency.” The latter position he identifies with Chandler, and much of the book is cast as a polemic against Chandler. While I am very sympathetic to his historicizing and “de-naturalizing” of the corporation, I thought this framing of the issue was largely counter- productive. His presentation of Chandler sometimes bordered on caricature. Chandler’s point is not that managers are concerned only with efficiency or that clever managers always pi ck the most efficient organizational design. His point is that it was only in firms where managers made choices that gave the firm a competitive advantage that the firm survived. But Roy ignores the role of competition. He argues that “efficiency theorists” are functionalists, simply providing an ex post rationalization of whatever happened to emerge. While he is certainly correct that some business history is functionalist, and neo-classical economic historians are apt to fall back on “best of all possible worlds” descriptions of whatever institutions exist, the competitive model does provide a story of why it is that we should think that those that survive are different from those that didn’t; their survival is taken as an indication that they are better at competing. Thus it would have been useful to explain how power influenced who survived the competitive process and how power determined the rules of the competitive process. That is, it would have been useful to explain why the firms that survive the competitive process are not necessarily the most efficient. Instead, for the most part, Roy simply ignores competition as a significant force in capitalist economies, arguing that “the social arrangement that governed American industry could only vaguely be described as a market. American businessmen have always been aware that they share common interests at least as much as they compete over conflicting interests” (pp. 176-7). Roy is absolutely correct that American businessmen have often cooperated. But that does not mean that there is no market; it means that those who have been able to cooperate, and better yet, dominate cooperative agreements, are the firms that have survived and prospered. I would dispense with the word “efficiency” altogether. A more useful question is whether firms survived because they were good at inventing new, lower cost technology, good at getting workers to work harder, good at getting tax breaks from local governments, good at increasing demand for their product, good at getting access to others’ property through eminent domain, good at getting cheap capital because of connections to investment bankers. Whether or not any of these particular attributes improves efficiency or is a Good Thing for society as a whole (as if there is such a thing) is an altogether separate question.

Roy then turns to an econometric test of the “power” and “efficiency” explanations. He asks which industries were more likely to adopt the corporate form during the 1890s merger wave (which he measures by their use of publicly-traded securities, thus excluding incorporated firms that were not traded on public exchanges). He finds that average size of the firm and capital intensity are significantly and positively related to an industry’s use of publicly-traded securities. He also finds that labor productivity was negatively related to the use of such securities and that industry growth rates were insignificant. He concludes from this that Chandler and “the efficiency theorists” are wrong. Size matters even when controlling for other things. Labor productivity is lower in “incorporated” industries, so it must not be that incorporation makes firms more efficient. There are several problems with this analysis: he looks only at the 1890s and therefore conflates where the merger wave took place with where the corporate form endured. He groups “Chandlerian” causes of incorporation (growth and capital intensity) with effects (i.e. labor productivity); perhaps the negative relations hip between productivity and incorporation reflects the need for organizational change in low-productivity industries? His unit of analysis is the industry, which groups together large and small firms, and he treats large industries and small industries equivalently. Are we surprised that there are no large firms in the hammock or lapidary works industries despite a faster rate of growth than electrical machinery (p. 30)? Chapter two, which presents this econometric analysis, should be skipped entirely by anyone who has read Naomi Lamoreaux’s The Great Merger Movement (and if you haven’t read it you should). Lamoreaux presents a much more convincing and complete econometric rejection of the Chandlerian contention that the merger wave of the 1890s was motivated by the need for vertical coordination of inherently high-throughput technology. Save your time for the more edifying chapters to come.

In Chapters 3 and 6, Roy compares the history of public enterprise, the legal rights of corporations, and the emerging dominance of “socialized capital” in three states: New Jersey, Pennsylvania, and Ohio. He examines the evolution of the corporation from a tool used by states to encourage economic development and raise revenues to its emergence as a private agent, available to all through general incorporation statutes with no public responsibility or accountability. Roy argues that the differences in the experience of public investment during the canal and early railroad period, as well as the political interpretations placed on that experience, determined the rules under which corporations operated in each state at the end of the century. New Jersey had the most limited experience with public corporations, both quantitatively and qualitatively. It participated as an investor in the Camden and Amboy, and was able to keeps its taxes low as a result, but the railroad controlled the state rather than the other way around. Pennsylvania had both mixed corporations in which it invested and public corporations. Ohio had the most activist policy, both the most successful- the Ohio canal system developed the region and integrated it into the national economy – and the most spectacular failure when logrolling resulted in the expansion of public subsidization of canals and railroads and nearly bankrupted the state. Roy examines the implications of these different experiences for three aspects of corporate law: the permissibility of corporations owning other corporations, the powers of boards of directors (relative to shareholders), and the extent of limited liability. Roy finds that in all three aspects of corporate law, the experience with public and mixed corporations during the canal era shaped state attitudes such that New Jersey’s corporate law was the most “privatized,” allowing corporations broad flexibility in owning other corporations, giving power to corporate boards, and extending unlimited liability through both a general incorporation statute and special charters. Ohioans were at the other end of the spectrum, suspicious of the corporate form, retaining double liability and strictly limiting the activities of corporations to those for which they were chartered. Roy finds that these differences in corporate law led to differences in the importance of corporate capital in the three states. While some of this difference in corporate capital obviously reflects capital mobility – corporations with operations elsewhere chartered in New Jersey to take advantage of its lax laws – Roy’s fundamental point is that business in Ohio was simply less likely to be organized within a corporation. Thus, he suggests, economic activity need not have taken place within the socialized corporation, or at least not within a corporation with no social responsibility . Where the state legislature was unwilling to confer such generous benefits on the corporation, businesses made do with other forms of organization.

This empirical conclusion supports Roy’s argument that there were actually two distinct political responses to the canal crisis within the Jacksonian anti-corporate movement. One demanded more accountability on the part of the quasi-public corporation (i.e. more government) while the other demanded privatization (less government). Roy makes the interesting argument that the privatization ideology won out because it was self-fulfilling. Suspicion of the state led to weak oversight. With no oversight, projects were corrupt or failed; that failure was then interpreted as the failure of public investment (p. 74). But it is not clear from his comparison of the three states that strong state oversight was ever really in consideration. As he shows elsewhere in the book, the choices considered were either democratization of access to corporate privileges through general incorporation statutes or limitation of those privileges by statutes such as Ohio’s requiring double liability and strictly limiting the activities of corporations to those for which they were chartered.

Here and elsewhere, Roy compares the choices made in the United States to those made in France where a strong and competent state apparatus was created. This comparative perspective, though presented more casually than those between the U.S. states, is often very helpful. Unlike the U. S. case where states competed with one another and were, therefore, forced into a prisoner’s dilemma race to the bottom in terms of the social responsibilities of private actors, France was able to chart a very different course. Whether the “strong state ” approach was one that could ever have emerged in the United States will, of course, be debated by many. But that is not Roy’s point. The point is that there is nothing natural or inevitable about the present configuration of rights and responsibilities that constitute the corporation.

Chapters 4 and 5 examine the way that the railroad and investment banking influenced the construction of the corporation. Many of the generalizations he makes in his history of the railroads will not sit well with most economic and business historians. One could read these chapters and think that the railroads were a failure, both privately and publicly. For the most part, neither was the case. And the reader might understandably be confused when he presents Rockefeller’s demand for railroad rebates as an example of how the railroads exercised power. But try to ignore that and focus on the his fundamental point. The financing of railroads was not simply corrupt, or political, or determined by power games among the major players (though all that was certainly the case). The development of institutions to finance railroads determined the set of institutions that industrial corporations could choose from when they needed to finance growth and short term operations. The structure of those inherited institutions favored concentrated over unconcentrated industries, favored incorporation and management-owner separation, perhaps favored some technologies, organizations of work, and regions over others. This point is important and profound. The evidence he gives in its support is not always well organized to make his point. But the challenge that he lays out is clear. The observed choices of corporations are not necessarily the optimal ones in a global sense. They are the choices corporations made given the incentives created by institutions created for a different purpose and as part of deeply politicized process.

Chapters 7 and 8 return to the merger movement of the 1890s. He correctly argues that it is wrong to see this period as one of a shift from a competitive market to an administered or monopolized one. U.S. firms had been cooperating to control prices in many industries throughout the nineteenth century. In fact, he argues, it is only with the emerging dominance of a “free market” ideology that the state makes the strong distinction, now taken for granted in anti-trust law, between contracts promoting trade and those in restraint of trade. Others will argue that there was a long-standing tradition in common law not to enforce contracts in restraint of trade. But there is also a long-standing tradition of allowing quasi- public organizations, such as guilds and corporations, to engage in behavior that we would today think of as monopolistic. Roy perhaps takes this argument too far when he says, “If governments did not enforce contracts between buyers and sellers, markets would collapse by the same sort of opportunism that wrecked the pools” (p. 190). While the current state of the economy in Russia reflects the underlying truth of this statement, we should also recognize that there is not the same inherent incentive to deviate from a mutually beneficial contract to exchange that there is with a contract to restrict output or fix prices. It is true that the state creates and enforces markets, but there is a difference between a self-enforcing contract and one that is inherently a prisoners’ dilemma.

This chapter includes a very interesting section examining the interaction between the first use of the New Jersey incorporation statute and the terms of the statute. He not only shows that the writing of the statute was the result of a complex political process. He also shows that the way that it was used differed substantially even from the purposes of the first corporations for which it was written.

In these chapters he presents the histories of particular industries, arguing that their use of the corporate form cannot be explained by changes in their technology (i.e. by managerial demand). The histories of the sugar and tobacco industries, familiar to business historians, are re-told in a new light. Rather, he argues, the desire for monopoly control and the expectation of financiers that the corporate form would be used, led firms to incorporate. He also makes the interesting argument that the merger wave of the 1890s changed the expectations of investors so that “when a group of entrepreneurs wanted to establish a large-scale industrial enterprise, henceforth the standard procedure would be to mobilize the resources of the corporate institutions by recruiting investment bankers, brokerage houses, and the investment press in order to attract sufficient capital” p. 254. Prior to the 1890s it was deemed acceptable for Andrew Carnegie to operate his steel business as a limited partnership; after the merger wave of the 1890s investors perceived non- corporate firms as higher risk. Trying to operate outside the corporate sphere was now a more costly choice, but only because the prior history had changed investors’ (and investment bankers’ in particular) ideas about how business had to be organized.

The comparison of the three states is intended to suggest that there were various paths that the development of the corporation could have taken. But sin ce the corporation is now firmly ensconced in all three a more overarching point is that competition between the three states limited the power of any individual state to determine the structure of the corporation. The three states are also relatively similar in terms of their level of economic development, industrialization, and integration into the national economy. A slightly different story might have been told, and Roy’s argument made stronger, if he had looked at states that were less developed and continued to have more active state economic development policies throughout the century, including state investment in banks, railroads, and corporations. Did those states making post bellum public investments in corporations demand public accountability? Or had the prevailing ideology of the private corporation so come to dominate by the second half of the century that even where there was substantial and direct state investment the corporation was seen as an autonomous and privately responsible agent?

Roy makes several important methodological points that economic and business historians should heed. First, he emphasizes that actors can exercise power without power being the motivation for their actions. Individuals and groups exercise power when their actions determine the choice set or the constraints faced by others. I think this broad definition of power is very useful and would help economic and business historians to understand and analyze political movements, from late 19th century populism to late 20th century resistance to free trade. But defined this broadly we also have to recognize that the exercise of power is not inherently a bad thing. For example, in a capitalist economy with strong patent protection technological innovation gives the innovator power. Users of older technologies cannot simply continue to operate as they have in the past. This is the creative destruction that Schumpeter celebrated- and it is really does destroy something that someone values. That’s why the technocratic distinction between efficiency and distribution that economists cling to is silly. Any policy choice that has a significant impact on the “efficiency” of the economy will also have distributional consequences. That doesn’t mean that we don’t want technological change. Much of the time we probably do. But this perspective forces us to acknowledge that there are social decisions to be made, not simply private actors doing whatever they please, and that those social decisions require tradeoffs. Second, this book will serve as an enormously useful corrective to the tendency among economists studying the firm, property rights, and institutions generally (a growing trend that is very healthy in and of itself) to follow Oliver Williamson’s “In the beginning, there were markets” approach. Roy argues forcefully, and correctly, that both the market and the firm are social constructions. That does not mean that they are arbitrary or unreal. It means that their structure and their existence are the result of past political decisions and the outcome of social and political conflict. This is also a useful corrective to an approach that conflates the notion of the existence of a market with “rational” behavior by individuals. The existence of a market changes how rational individuals behave. Competitive pressure forces rational individuals to calculate more, and it increases the weight of monetary factors in those calculations relative to very real concerns for community and the quality of human inter action. Economic historians recognize this effect of the market on individual behavior when they can cast it in a positive light (see Sokoloff’s 1992 work on the spread of markets and the rate of patenting, for example), but tend to downplay it otherwise (see Rothenberg 1992, for example).

Third, Roy makes an interesting case for an interplay between contingency and determinacy in the book. He argues for contingency in order to make the case that there is nothing natural or inevitable about the current institution of the corporation. The current configuration of rights and responsibilities that constitute the corporation is the result of highly contingent events in the past. But he does not accept the standard version of path dependence and raises questions that I have long thought were problematic with that approach. He makes clear that while the current construction of the corporation is contingent and path dependent in the sense that it would and could have been different if different events had occurred at key turning points (particularly during the 1830s canal crises), he does not see this as simply the result of chance. The key events were themselves the result of who had power at the time. This approach opens up a whole line of fruitful research in this area. Why was it that the response to the canal crisis was privatization rather than increased regulation? Why was it that some state constitutions were modified to limit direct involvement in economic activity and others weren’t? These were explicitly political decisions that had long term economic ramifications. Understanding the political forces behind these decisions would be very useful. Roy also makes the point, applicable quite generally to the path dependence approach, that what matters is not simply the cost of shifting from one path to another (e.g. from one keyboard to another) but who bears that cost. If those who have the power to make the decisions about whether to switch paths do not bear the costs, then the switch will appear “costless” (see McGuire, Granovetter, and Schwartz, forthcoming).

In making the argument for the contingency of the corporation Roy plays down some forces – powerful forces I am sure he would agree – that led to its current incarnation. On a mundane level he downplays competition among states allowed by the federal structure that led to a spiraling down of public responsibilities for private actors. But on a more basic level, the transformation of assets from things that natural individuals own, use, and are responsible for, to capital personified in the corporation, responsible no longer to the state and barely to its nominal owners, seems to me not a happenstance, contingent event. The corporation gives agency to capital. It’s not for nothing that we call it a capitalist economy.

Finally, Roy’s “de-naturalizing” of the corporation is a giant step forward for business history. So is his problematizing of the boundaries between private and public, the economy and the state, and the rejection of the dichotomy of an “interventionist state” and a “natural market.” As Roy makes clear, the state creates the market, so it is meaningless to talk of it intervening in it. That language simply serves to de-legitimize some actions of the state relative to others. Finally, acknowledging that there are social choices to be made that influence how the economy will function in the future is important, and not simply for academics. Post-cold war ideology presents the corporation not only as natural but all- powerful. It is good to remind people that they can, through social and political action, make choices about how such social creations operate.

Bibliography

Lamoreaux, Naomi R. The Great Merger Movement in American Business, 1895-1904. Cambridge, England: Cambridge University Press, 1985.

McGuire, Patrick, Mark Granovetter, and Michael Schwartz. Forthcoming. The Social Construction of Industry: Human Agency in the Development, Diffusion, and Institutionalization of the Electric Utility Industry. New York, N.Y. and Cambridge, England: Cambridge University Press.

Rothenberg, Winifred (1992). From Market Places to a Market Economy: The Transformation of Rural Massachusetts . Chicago, Ill.: University of Chicago Press.

Sokoloff, Kenneth (1992). “Invention, Innovation, and Manufacturing Productivity Growth in the Antebellum Northeast” in Robert Gallman and John Wallis American Economic Growth and Standards of Living before the Civil War (Chicago, Ill.: University of Chicago Press), pp. 345-378 .

Williamson, Oliver E. (1985). The Economic Institutions of Capitalism. New York, N.Y.: The Free Press.

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

The Greatest Nation on Earth: Republican Economic Policies During the Civil War

Author(s):Richardson, Heather Cox
Reviewer(s):Wright, Gavin

EH.NET BOOK REVIEW

Published by EH.NET (January 1998)

Heather Cox Richardson, The Greatest Nation on Earth: Republican Economic Policies During the Civil War. Cambridge, Massachusetts: Harvard University Press, 1997. viii + 342 pp. $35.00 (cloth), ISBN: 0-674-36213-6.

Reviewed for EH.NET by Gavin Wright, Department of Economics, Stanford University.

American economic historians do not pay enough attention to the history of economic policymaking, and when they do take up one of the usual policy suspects — tariffs, banks, transportation — these are often treated as specialty topics in isolation from each other and from the political context of the times. We generally leave to political historians questions about contending economic philosophies and ideologies, especially for the nineteenth century and especially for the federal government. Perhaps we are implicitly committed to a view that American policies were driven by interest group pressures and pure politics, so that the whole concept of implementing an economic program seems out of place.

There is at least one glaring exception to this image, the insurgency of the Republican Party during the 1850s and its abrupt ascension to political power in the 1860s. To be sure, wartime conditions were exceptional in ways that had little to do with ideology. But even in the midst of war — to some extent because of these extraordinary circumstances — Republicans were able to push through sweeping changes in national policy in any number of areas, with a minimum of political opposition. Many of these are standards in the economic history curriculum — tariffs, banking, the Homestead Act, railroad land grants — but rarely are these treated as a cohesive policy package enacted by a party in power. This quasi-neglected topic is the subject Heather Cox Richardson’s new book, growing out of a Ph.D. thesis from the Harvard history department.

According to Cox, the story has the structure of classical tragedy. In the “self-righteous optimism” of their celebration of individual labor and private property, the Republicans enacted policies that “unwittingly lay the groundwork for the turmoil of the late nineteenth century” (255). Believers in active government support for economic development, party members thought they were opening opportunities for family farmers and ordinary workers. But because they underestimated greed, corruption, racism, and the exercise of economic power, what they gave the country instead was the Gilded Age: “their vision contained the seeds of its own destruction” (vii). This interpretation is not entirely novel — this version is more-or-less what I remember learning in my undergraduate American history class — but to map this transformation in historically specific detail would be no small achievement.

Unfortunately, the book’s individual chapters are not up to the task of carrying such an ambitious historical structure. In her focus on legislative histories, Cox rarely gets close enough to the substance of the issues to be able to compare intentions and reality in any depth. Her command is stretched to the breaking point in the second and third chapters, which deal with war bonds and monetary legislation. These subjects are certainly important, and wartime financial policies had lasting consequences; but they hardly fit the framework of a fresh political opportunity to implement a pre-existing economic philosophy. What Lincoln said about his entire administration– “I claim not to have controlled events, but confess plainly that events have controlled me” — applies as well to Chase’s desperate struggle to pay the wartime bills, and to William Pitt Fessenden’s reluctant support for greenbacks. In general, Cox does not make enough room in her narrative for the possibility that in many areas, Republicans were pressured by events into policies they would otherwise not have dreamed of adopting.

Her best cases are in the next four chapters: taxes and tariffs, support for agriculture — not just the Homestead Act, but the founding of the Department of Agriculture, and the Morrill Act establishing land grant colleges — transcontinental railroads, and, of course, slavery. On many of these one can make the case that a naive enthusiasm for positive action gave birth to something quite different in practice. On the other hand, one can also argue that many of these measures had positive long-run benefits, whatever the calculations and intentions behind them. To pursue these sorts of evaluations rigorously would require a different kind of book, one with more of an empirical base and more follow-up study into the postwar implementation of legislation that originated during the war. To expect such material in a relatively conventional political history is doubtless unfair. What Cox might have provided within her own frame of reference, however, is a better-developed sense of the political context behind each of these measures — not just the Republican ideology, but the lineup of interest groups and the evolution of the debate over time. It would be extremely helpful to know whether the party really functioned as a legislative unit on economic issues, drawing up strategies, choosing leaders, imposing discipline. But organizational matters like these are almost entirely neglected by Cox, and one is led to infer by its absence that by and large the party did not operate in these ways.

With her interest in ideology, Cox is often too ready to take political rhetoric at face value, as in the arguments of Justin Smith Morrill (influenced by Francis Wayland and Henry Carey) that his tariff legislation was not traditional special-interest protectionism, but instead would benefit all members of society (105). Morrill may have been sincere in this belief, but how much of the political support for his tariff bill was attributable to his sincerity?

One particularly interesting shift in the Republican position is noted but not really explained. Although the party had some of its roots in the nativism of the 1850s, by the end of the war it was a champion of immigration (160-168). Cox attributes the change to wartime shortages of farm labor. But was it a permanent change, and did it correspond to a change in the party’s political constituency? To answer these questions one would have to trace political developments beyond the wartime period, which Cox is not generally inclined to do.

Whatever the book’s shortcomings, Cox has formulated or at least revived an extremely interesting set of issues that deserve further attention from economic historians and others. Reading her concluding chapter, however, reminded me that there are still some fairly strong differences between political and economic historians in working assumptions about American history. Cox takes it as axiomatic that the Gilded Age was a disaster. Republican policies, she says, “paved the way for the eventual demise of the small farm” (256). “The standard of living for city workers, especially immigrants, fell to appalling levels” (257). None of these statements are footnoted, and the author seems unaware that documenting them would be a real challenge. The deeper problem is that the entire construction of a disastrous Gilded Age is unexamined. This willingness to accept contemporary rhetorical formulations at face value seems oddly out of date nowadays — which is not to say that on closer examination these conceptions would be entirely wrong. This promising subject area seems ripe for re-examination.

Gavin Wright Department of Economics Stanford University

Gavin Wright is this year’s president of the Economic History Association. He is now revising for publication his 1997 Fleming Lectures on “Slavery and American Economic Development.”

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Subject(s):Government, Law and Regulation, Public Finance
Geographic Area(s):North America
Time Period(s):19th Century

Ships for the Seven Seas: Philadelphia Shipbuilding in the Age of Industrial Capitalism

Author(s):Heinrich, Thomas R.
Reviewer(s):Brown, John K.

Thomas R. Heinrich. Ships for the Seven Seas: Philadelphia Shipbuilding in the Age of Industrial Capitalism. Baltimore: The Johns Hopkins University Press, 1997. x + 290 pp. Illustrations, tables, notes, essay on sources, and index. $39.95 (cloth), ISBN 0-8018-5387-7.

Reviewed by John K. Brown, University of Virginia, for H-Business <

Forty or more years ago, business, economic, and technological historians took a great interest in ships, maritime trade, and shipbuilding, topics of seminal works by Robert G. Albion, Howard I. Chapelle, Louis C. Hunter, John G. B. Hutchins, Samuel Eliot Morison, David B. Tyler, and others. After the fertile work of this World War Two generation of scholars, academic historians turned away from the sea just as earlier Americans did following the War of 1812. But the popular interest in maritime history remains strong on many levels, as evidenced by: the present craze over the Titanic, resurgent interest in maritime museums, Jack Aubrey’s continuing chain of victories over Napoleon’s naval might, and the improbable success of a twelve-volume maritime history encyclopedia. Little wonder. So much of maritime history consists of those transforming events that offer dramatic narratives: humans’ epic struggles with the sea, the rise of successive maritime powers, voyages from old worlds to the New, and technological transformations from wood to iron and steel ships and from sail to engine-driven vessels.

So popular interest in maritime history continues, despite the waning of academic studies. Analysis has dethroned narrative in the work of professional historians, perhaps one reason for their apparently declining interest in maritime topics. But the moment is ripe for a new cadre of Morisons who combine the two approaches. A good story always interests general audiences — indeed a powerful tale can even sway the most rarefied intellectual. Furthermore, many of the analytical approaches and insights of the past forty years of land-based scholarship should travel well. In going to sea they offer new departures for maritime history.

Thomas Heinrich demonstrates this potential for a new maritime history in his Ships for the Seven Seas. Written for a broad range of readers, the book provides a “history of iron and steel shipbuilding in metropolitan Philadelphia . . . from the Civil War to the 1920s” (pp. 2-3). Heinrich takes the stance of an industrial historian — combining threads from political, labor, business, economic, and technological history. This multi-faceted approach is one of the book’s major strengths. For instance cogent summaries of merchant and naval history in each shipbuilding epoch provide admirable technological and economic context about the markets in which the shipbuilders operated. The book is well-designed, nicely illustrated, and free of most proofing errors (although misspelled proper nouns crop up too often). Heinrich tells a good story, and the book deserves the broad readership that its publisher wisely targeted.

Academic historians will find many rewards here too. Throughout the book Heinrich leavens his narrative with analysis, applying to his study of maritime industry the insights offered by labor process studies, Chandlerian business history, and accounts of batch production by Scranton and Zeitlin. On balance, however, Heinrich favors narrative over analysis — a wise choice given the limitations and problems of the original sources available to him. In sum, this is a finely-crafted book on a fascinating period when technical transformations, political compromises, broad economic changes, and world power aspirations reconfigured American shipbuilding. With its skillful blending of narrative and analysis, it is far more comprehensive and insightful than David Tyler’s The American Clyde, written forty years ago, which covered the same period and firms.

Philadelphia-area builders created the American metal shipbuilding industry, they dominated the trade until 1900 or so, and some of the city’s firms remained major players until after World War Two. So Heinrich has ample justification for his geographic focus. The book’s organization places a thematic approach within a chronological narrative. Chapter One provides an overview of wooden shipbuilding. The wooden builders enjoyed notable success for a century-and-a-half, but sank after the 1850s under combined weight of rising British iron shipping (sail and steam), trade disruptions during the Civil War (when Northern shippers registered their vessels under neutral foreign flags), and the broad shifts in investment capital from shipping to railroads, commerce to manufacturing.

In Chapter Two, Heinrich lays out the Civil-War-era foundations for Philadelphia shipbuilders in shifting from sail to steam and wood to iron. In a well-cast and original analysis, he argues that Philadelphia firms’ wartime success in building steam-driven ironclads established embryonic but valuable skills that later served in building iron steamers for the civilian merchant marine. Philadelphia’s strengths in mechanical engineering and metalworking and its proximity to the iron regions provided further advantages to the city’s early iron steamer industry.

Chapter Three focuses on the business history of the leading Philadelphia shipbuilders following the war. Here Heinrich contrasts proprietary capitalism (dominating at the shipyards) with the new corporate managerial capitalism introduced by the railroads. As he observes, the two forms of business organization became mutually dependent when the shipping subsidiaries of major railways became major customers for the shipyards’ iron steamers. Perhaps more insightful are this chapter’s discussions of the integration of marine engineering (design and construction of power plants for vessels) with shipbuilding — a unique attribute of the Philadelphia firms — as well as their disintegrative strategy of relying on extensive sub-contracting.

In his fourth chapter, Heinrich sketches the growing scale of iron shipbuilding firms circa 1875-1885. The American industry never approached the size, specialized capacities, efficiency, or sophistication of its counterpart in Britain. As a result, “American steamship operators paid 25-35 percent more for iron tonnage than their British rivals” circa 1880 (p. 78). But such U.S. builders as Roach, Cramp, and Harlan and Hollingsworth nonetheless achieved growth in this period. Naval construction did not yet amount to much, but Congress gave US shipbuilders a protected market, requiring American-built ships in the coastwise trade (i.e.: all marine freight and passenger traffic within U.S. borders). Although wooden sailing vessels carried most domestic marine commerce, Philadelphia-built iron steamers had few viable competitors in niche markets: oil tankers on routes from Texas to the East coast, overnight passenger steamers on Long Island Sound and Chesapeake Bay, coastwise towboats in the coal trade, and ocean freighters laden with passengers and Hawaiian sugar. On international routes, some American-owned shipping lines chose to buy U.S. vessels, notwithstanding their higher price. Having sketched the “anatomy of a shipbuilding boom” circa 1880 in this chapter, Heinrich then gives an able description of the labor processes involved in iron shipbuilding and marine engineering. From this he briefly considers labor-management relations and class formation in the industry.

By 1885 or so, American iron shipbuilders had established themselves, yet cheap wooden sailing vessels from Maine limited their ability to penetrate the domestic carrying trade, while cheap iron steamers from British yards took most international commerce. So builders like Cramp and Roach turned to the United States Navy after 1885 — the subject of Chapter Five. Here Heinrich ably describes naval procurement policies and the shipbuilders’ lobbying efforts to create a military-industrial complex that would finance plant expansions and the acquisition of subsidiaries while sustaining their yards when the civilian market evaporated, as it often did. Heinrich takes a critical view of naval shipbuilding and its effect on the yards, arguing that builders “preferred private contracts because they involved fewer organizational problems and were usually more profitable.” The yards had little choice — naval work was better than none — but the “potpourri of high-technology naval construction and low-quality commercial shipbuilding was not terribly efficient” for yard managers, workers, or systems (p. 120).

The history of commercial shipping, naval procurement, and steel shipbuilding from 1898 to 1914 occupies Chapter Six. Here themes of earlier chapters are largely reprised: a growing scale of operations despite boom and bust markets, enhanced skill requirements among the workers needed to operate technically-sophisticated production machinery, further innovations in the yards’ products, the challenges of complex and ever-evolving naval work, and the inefficiencies of generalist production in American yards. New issues in the industry circa 1900 included: the rise of competitors (in Philadelphia and elsewhere) seeking to capitalize on America’s new aspirations as a naval power, labor activism and management’s vehement counter thrusts, and a new corporate model of shipyard management. Narrative dominates in the chapter, leaving this reader wishing for a bit more analysis. For instance, Heinrich details a number of problems with the new managerial capitalism adopted at the Cramp shipyard after 1900. Yet he never really offers a verdict on the suitability of corporate management practices in this industry with its vast sales fluctuations, high skill requirements, and circumscribed influence over markets.

World War I occupies Chapter Seven. Beyond the predictable expansions in wartime, here the story centers on Philadelphia’s massive Hog Island Yard. This wartime emergency plant represented a government-funded experiment in standardized ship construction. With its fifty building ways, Hog Island was the world’s largest shipyard. But intractable problems discredited this attempt to produce ships in volume: inadequate transportation from inland fabricating shops to the yard, coordination difficulties once materials did arrive, and an overburdened market for shipbuilding labor in the Philadelphia area. Heinrich has sifted through a multitude of government reports, and he tells this story well.

The book closes out with an eighth chapter on the 1920s depression. The yards came on hard times when the predictable postwar glut in merchant shipping was matched by the novel Washington Naval Disarmament Treaty of 1922 that closed off naval work for a number of years. The shipbuilding depression reached around the world; in Philadelphia the yards responded by further diversifying into non-marine work (the Cramp yard pioneered this strategy circa 1900). Heinrich uses Cramp as a anchor throughout the book, so when that old-line firm dies in 1927, he conducts a detailed autopsy. His verdict: Cramp lost its viability after Averell Harriman merged the builder into his ocean shipping empire. When the Harriman shipping lines foundered, they dragged down Cramp as well. Heinrich also points to excessive competition in the industry and “the lack of an intelligent [federal] merchant marine policy” (p. 212).

A short Epilogue ends the book, wherein Heinrich summarizes his three main analytical points: 1. Naval demand laid foundations for metal steamship construction; thereafter it provided a useful but problematic market, 2. The American merchant marine and its supporting shipbuilders suffered because the federal government failed to pass maritime policies that offered “incentives for investment” for private American firms engaged in international shipping (p. 221), 3. In the absence of those policies, U.S. metal shipbuilders pursued a generalist policy, building whatever tugs, sand barges, passenger liners, or battleships that their markets demanded. This century’s slow withering of America’s merchant marine and the Philadelphia yards closes out the story.

In ways that may not be immediately apparent in this sketch of its contents, Heinrich has pulled off something of a gamble in this book. Despite the fact that essentially no business papers survive from Philadelphia’s metal shipyards, the author has produced a comprehensive history. He builds his portrait from exhaustive searches of periodical records, newspapers, trade and professional society journals, union periodicals, government documents, insurance surveys, and all relevant secondary sources. It is a monumental effort. Still the lack of internal business papers leaves the book with only scattered insights into profits or losses, work force fluctuations and pay rates, capital/labor ratios, the bidding process, cost accounting controls, the quality and severity of price competition, etc.

If the archives had been more forthcoming, it is possible to project a different explanation of American shipbuilders’ inefficiencies. Heinrich explains their shortcomings by pointing to the lack of federal support for U.S. firms in international shipping. This in turn limited the overall market and forced shipyards into an inefficient generalist approach in production. Charles Cramp and other builders made a similar argument in calling for subsidies during the Gilded Age.

While this view has merit, one could advance an argument that I think is equally plausible: namely that the yards’ inefficiencies arose from those federal policies that protected shipbuilders by targeting their chief customers, the shipping lines engaged in domestic commerce. The statutory requirement for American-built ships in coastwise and inland navigation chiefly benefited New England’s wooden yards since their cheap wooden sailing vessels took most of the business. But such slow schooners were simply unsuited to many trades: passenger service, high-value freight traffic, transport of bulk oil, the Hawaiian sugar trade, etc. Through 1900 or so, ship owners seeking metal steamers for these trades had little choice but to deal with the Philadelphia yards. Without protection, these American pioneers in metal shipbuilding would never have begun; with it they never approached the performance of the world’s leading yards in Britain.

Testing this alternate argument would require the sort of internal business papers that simply do not survive. Equally, this perspective and Heinrich’s argument may both be valid. I only raise the point to underscore how the lack of hard data and extensive sources renders any authoritative analysis problematic. Notwithstanding these difficulties, Heinrich has written a detailed, compelling account of iron and steel shipbuilding — an industry vital to America’s economic growth and its rise to world-power status.

Jack Brown

Division of Technology, Culture and Communication School of Engineering and Applied Science Thornton A-216 University of Virginia Charlottesville, VA 22903 jkb6d@virginia.edu (804) 924-6177

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