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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)


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).


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

Europe Reborn: A History, 1914-2000

Author(s):James, Harold
Reviewer(s):Mokyr, Joel

Published by EH.NET (April 2004)

Harold James, Europe Reborn: A History, 1914-2000. Harlow, UK: Pearson-Longman, 2003. xiv + 492 pp. ?13.59 (paperback), ISBN: 0-582-21533-1.

Reviewed for EH.NET by Joel Mokyr, Departments of Economics and History, Northwestern University.

The cultural bend that has affected academic historians in the past two decades has produced an odd situation that some might even call a “contradiction.” While an increasing number of academic historians espouse distinctly left-wing causes and devote their research to one permutation or another of class, gender, and race, sprinkling their text with quotes from radical continental philosophers, they seem to know and care less and less about economic history — what Marx would call the material conditions of life. To this reviewer, at least, this state of affairs is not an equilibrium. Sooner or later post-modernist historians will be forced to face skeptical graduate students wondering whether such matters as influenza epidemics or the Great Depression are really devoid of factual bases worth discussing and indistinguishable from fiction.

In this brilliantly-written and richly-informed general-audience text, Harold James shows us what an amazing tale can be told about the turbulent and dramatic years between 1914 and 2000 by an economically informed historian who sees facts for what they are and not as socially constructed representations of agents driven by their libido. The book, inevitably, covers a lot of ground that will be familiar to professionals who teach this material. Yet throughout the book James displays an enviable combination of factual knowledge that is both deep and broad and an economic intuition and social understanding that makes him look in corners others have missed. James is no economic determinist, but he understands politics and power as much as he understands taxation, innovation, and international finance.

The ground covered by James is all of Europe, and history in all its aspects. To say that 430 pages are hardly enough to cover this topic would be an understatement. Yet James covers the 1990s with as much panache as he does the years before World War I. The narrative advances at a breakneck speed, but here and there he meanders about a bit and gets into details that many readers may not be familiar with, such as in his discussion of the career of German Central Banker and Economics Minister Hjalmar Schacht, or his summary of how the European Common market coordinated product quality standards in its famous Cassis de Dijon case. James relishes in little ironies: the foreign minister of Luxembourg telling the formerly Yugoslav republics that “they were too small for self-determination” (p. 413). But this book is not only about politics and economics. In a little two-page reflection on the impact of chemicals on youth culture, James discusses how the pill and LSD changed youth culture, citing British poet Philip Larkin as claiming that “sexual intercourse began in 1963″ (p. 308). Indeed.

This is not a very quantitative book; the statistical appendix promised on the cover blurb turns out to be one little table of population figures, and there are few figures and graphs. Nor is it, strictly speaking, an analytical book; there is no single thesis or theme that dominates the narrative. Nor does it bask in free-market triumphalism or gloat in the demise of Communism. Instead, the book is full of little insights and pieces of wisdom that attest to a career of wide reading and informed reflection. Some of those are quite personal and might be controversial in some corners: was Poland in the 1980s really “an equivalent of Spain in the 1930’s” (p. 302)? Was De Gaulle’s vision of France in 1962 really “creakily out of date” (p. 249)? Was Ireland in the 1930s really a society held together “in part by backwardness and in part by the hated memory of … British domination” (p. 127)? In most instances, however, this book is enlightening. In explaining the persistence of the Great Depression, for instance, James points not only to the Gold Standard but also to something he calls “fiscal rectitude,” a felicitous term he illustrates by Ramsay MacDonald waving banknotes and warning that their fate would be like the German Mark during the hyperinflation if unorthodox remedies were applied (p. 120). His assessments of key personalities, from Hitler to Milosevic, may not please everyone, but James realizes that at some junctures individual personalities played a pivotal part.

The result, inevitably, is not a balanced narrative. James is particularly good discussing the seams of history, the short but dramatic episodes in which powerful nations underwent a “phase transition” such as Russia in 1917, Germany in 1933 and the Communist world in 1989. He has no patience, for instance, with military history: his account of World War I does not mention Jutland, Gallipoli or the war in the Middle East. His account of World War II finds the space to report that Hitler was reading Carlyle’s Frederick the Great but not to mention Rommel or Guderian. Some countries, including some close to the heart of this reviewer (such as the Netherlands) get short shrift or nary a mention. The economic history in the book is of a particular kind: James knows banking and international finance, he understands economic policy but he has no interest in the relationship between human capital formation and technological progress, or in the institutional factors that brought about long-term per capita growth or the welfare state. The cheapest shot one can take at a book like this is to complain that the author did not write the kind of book that the reviewer would have written. It is not possible or even desirable to write a “balanced” or “fair” account of Europe in the twentieth century: this is a personal account, a century as seen by one historian, and one who was visibly having fun while writing it. Read the book, and share Harold James’s fun.

Joel Mokyr is the Robert H. Strotz Professor of Arts and Sciences and Professor of Economics and History at Northwestern University. His The Gifts of Athena: Historical Origins of the Knowledge Economy was published in 2002 by Princeton University Press. He is the editor of the Oxford Encyclopedia of Economic History (2003).

Subject(s):Social and Cultural History, including Race, Ethnicity and Gender
Geographic Area(s):Europe
Time Period(s):20th Century: WWII and post-WWII

International Financial History in the Twentieth Century: System and Anarchy

Author(s):Flandreau, Marc
Holtfrerich, Carl-Ludwig
James, Harold
Reviewer(s):Mason, Joseph R.

Published by EH.NET (March 2004)


Marc Flandreau, Carl-Ludwig Holtfrerich, and Harold James, editors, International Financial History in the Twentieth Century: System and Anarchy. Cambridge: Cambridge University Press, 2003. x + 278 pp. $60 (cloth), ISBN 0-521-81995-4.

Reviewed for EH.NET by Joseph R. Mason, Department of Finance, Drexel University.

This book, while not always fun to read, is, however, fascinating. In ten chapters, the essays lay out some of the important principles underlying path dependence between nineteenth and twentieth century international financial institutions. The essays are arranged in an order that demonstrates first the sophistication of late nineteenth century institutions and by the end the relative backwardness of what many consider to be sophisticated modern-day institutions. The essays in the book weave in and out of different academic disciplines, combining history, history of economic thought, and political economy in a way that offers a unique perspective of path dependence.

Flandreau and James sum up the book’s argument succinctly in the introduction. There, they assert:

… modern advocates of monetary reform are just the latest offspring of a long and venerable tradition dating back to the nineteenth century…. The past has lessons that are relatively cheap to learn, and, as we shall see, they are telling and compelling.


Put simply, these lessons are: (1) attempts at international coordination or control rarely work; (2) such attempts are most unstable when they are politicized as a result of unstable international politics; (3) the markets are themselves possible only on the basis of powerful institutional, political, and social forces (pp. 2-3).

Those are important and powerful lessons. I feel, however, that Flandreau and James reach a bit too far when they attempt to draw a globalization analogy out of the history of international monetary order. The authors characterize the interwar period as the bottom of a U-shaped trend of globalization. The present set of essays, however, seems to show that the extremes of the U-shape were lower than previously believed, i.e., that there was less coordination in the nineteenth century and today than was previously believed. Hence, it may be more appropriate to characterize the interwar period as one of transition toward a new hegemony or a new coordination mechanism rather than a low point in globalization per se.

Nonetheless the set of essays contained in the book is extraordinary. Chapter One, written by Marc Flandreau, describes how, under the previously perceived order of the classical gold standard, there existed significant sovereign risk that could detract from monetary order. Global financial centers grew immensely after 1840. This growth was due to better capabilities of screening borrowers and pricing risk, along with faster information flows arising from the growth of the telegraph, which was capped by the completion of cables between London and the Continent (1852) and Europe and America (1866).

Evidence for substantial sovereign risk in the era comes from records of the Service des Etudes Financi?res (SEF) as part of Cr?dit Lyonnais in 1871. The SEF was initially established to organize the vast amounts of information and data into a reference unit accessible to those making credit decisions for the bank. While from its inception in 1871 through about 1879 the SEF was underfunded and understaffed, and as a result only marginally effective at this task, by 1889 the SEF had achieved notoriety as the premier think tank for research into credit risk and international affairs (which at the time were highly correlated).

During its heyday, the SEF produced country ratings that relied critically upon adjusting sovereigns’ own reports of fiscal health for various known accounting irregularities and fudges, and for probabilities of sovereign risk of default. Hence, Flandreau effectively demonstrates that gold standard discipline was not absolute, nor did contemporary investors believe that was the case. Furthermore, disciplined investors routinely estimated default risk during the gold standard era in ways that are strikingly similar to modern rating mechanisms.

Still, there was ample room for investment outside the government sector during the gold standard era. That is the subject of Chapter Two, written by Mira Wilkins, regarding foreign direct investment between 1880 and 1914. Wilkins has poured a phenomenal amount of work into first appropriately defining, and then setting about to estimate a concept akin to what we now call foreign direct investment. A great deal of difficulty stems from not only utilizing vastly different corporate forms in the gold standard era, but also, of course, in the paucity of data from that era. At the end of the chapter Wilkins offers seven conclusions, the seventh of which I found the most intriguing for the purpose of the book: although “… the gold standard reduced the risks of losses based on currency fluctuations; it did not reduce commercial or political risks.” Hence, without nationalized industry business faced substantial risk even in the face of gold standard discipline.

Transitional essays begin with Stephen Shuker’s chapter on the Gold-Exchange Standard. Shuker’s essay offers intriguing insights into the politics of the interwar era and illustrates how resistance to the costs of moving the monetary center from Britain to America resulted in trade blocs that would later define the boundaries of World War II. This essay also points out the many problems inherent in building monetary order on the basis of “conference diplomacy.” Hence the primary difference in stability across the gold and gold standard eras was not one of inherent discipline, as countries routinely broke the “rules of the game” in both eras, but that the pressures left by WWI had already changed the rules in ways that economists at the time may not have recognized.

Kenneth Mour? continues the interwar theme in his chapter, which extends his book, Managing the Franc Poincar? (1991), back in time prior to 1928. Moure describes how, during the period 1914-1928, French politicians locked themselves into a policy of restoring and maintaining the franc’s link to gold.

Beginning as early as 1915, France urged its citizens to exchange gold for paper bank notes “without losing any part of their savings, without running any risk, without having to pay more for anything they wish to buy” (p. 97). The government even mobilized the Catholic Church, appealing to Christian principles, to encourage the exchange. By the end of WWI and lasting until 1928, however, France was in no position to exchange the paper back into gold as promised. For almost fourteen years, then, French citizens were told that France would reestablish her link to gold. Hence, France had little choice but to remain tied to gold once conversion was complete, even in the face of the Great Depression that gripped the world a short while later.

Robert Skidelsky’s chapter begins two essays devoted to the Bretton Woods era. Skidelsky skillfully describes how many of Keynes’ most important contributions owed to his experiences as a British citizen during and after the Great Depression. Hence, Keynes usually wrote from a vantage point of reestablishing Britain’s hegemony. Because the U.S. did not seem to want the role, Keynes was often of the opinion that the U.S. should contribute significant sums to attain this goal. A reluctant U.S., however, was not forthcoming until a shared threat, in the form of the Cold War, motivated it to take a leading role in the New World Order.

Jakob Tanner, on the other hand, describes how difficult it was for the neutral countries, including Sweden, Switzerland, Portugal, Spain, and Turkey, to play any part in helping shape that New World Order. Since the neutrals did not help win the war, and in fact may have in some ways interfered with victory, they were not looked kindly upon in the immediate post-war era. Hence, these countries were not invited to Bretton Woods, and could only join the arrangements in 1946. Those countries, however, being small and relying substantially upon foreign exports for economic growth, were acutely affected by the outcome at Bretton Woods.

The next two chapters deal with issues related to German reconstruction. The chapter by Charles Kindleberger and Taylor Ostrander analyzes the roots of the 1948 German monetary reform. This essay is fascinating on a number of different levels. First it shows just how costly and difficult managing a defeated nation’s postwar economy can be. Myriad resources were devoted to keeping order, planning succession governments, and establishing new monetary arrangements, all the while fighting inflationary pressures and, toward the end of the period, the Cold War. Second, and central to the essay provided here, the essay shows just how difficult it is to reestablish a currency rate that balances inflation, trade, and growth in a volatile country under military occupation. The main point is that the occupying forces often had to take steps that were impossible for an infant government to impose without losing credibility to an extent that insurrection or even war might ensue.

The chapter by Werner Abelshauser builds upon Kindleberger and Ostrander, pointing out that World-class Wars lead to world-class financial commitments long after the battlefields are quiet. Abelshauser demonstrates how military expenditures play a key role in international financial relations. These expenditures began with costs of the German occupation of around one billion dollars per year lasting into the 1960s (chiefly borne by the U.S. and U.K.). By 1960, the costs of the Cold War, Korea, and NATO nuclear armaments forced the U.S. and U.K. out of Germany and into exorbitant spending programs devoted to high-tech weaponry. Those weapons programs led to diplomatic agreements (and disagreements) about how to spread the financial burden of defense and to broader monetary coordination.

Eric Helleiner’s chapter on global money poses the question of whether the world is moving toward or away from a global currency. Some have suggested that the gold standard represented a means by which regional currencies were aggregated to national currencies. National currencies based on the gold standard were thought to be uniform, leading toward a global monetary standard. However, earlier essays revealed that the “rules of the game” in the gold standard era were often violated. Furthermore, once nations took control of their moneys they quickly used coins and currencies as nationalist tools, reflecting national icons, traditions, and pride. Although such movements may be taken as barriers to a global money standard, today a number of nations operate on the basis of substantial dollar-denominated trade. Hence, the market may in fact be driving the world to a de facto monetary standard without central coordination. If that is indeed the case, Friedrich Hayek would be pleased.

The last chapter, by Louis Pauly, characterizes twentieth century international relations not by the absence of gold standard “rules of the game,” (which many have argued were often absent in the nineteenth century anyway) but by the presence of a new means of coordinating monetary arrangements: “conference diplomacy.” Beginning with the League of Nations in the early 1920s, diplomats convened large assemblies of “the right sort of people” who could think intelligently about world economic difficulties and settle on arrangements to ameliorate those difficulties.

These early conferences are the basis of the institutions we know today, GATT, the IMF, the World Bank, etc. But while the minds have changed, the important issues of the day are remarkably similar to those considered in the earliest conventions. Pauly attributes this constancy to the philosophical nature of the debate. It is not economic principles that are being debated, but principles of “contestable markets, efficiency, and fairness” (pp. 254-5). In fact, Pauly notes that even the conclusions of the 1997 WTO meeting of the world’s leading trade ministers — we hereby create a working group, “to study issues raised by Members relating to the interactions between trade and competition policy, including anti-competitive practices, in order to identify any areas that may merit further consideration,” — are uncomfortably similar to the final goals of the Geneva Conference of 1927. Hence Pauly ends his essay with the perhaps disturbing insight:

We do not need to rediscover as the League of Nations did that the important question concerning the universal evolution of deep structural standards is not “efficient and fair for what,” but “efficient and fair for whom.” Symmetry in the distribution of the adjustment burdens associated with global economic interdependence was a key principle of the Bretton Woods system, albeit one honored mainly in the breach. In the post-Bretton Woods environment, it remained a normative ideal. It would seem wise to bring that principle back to center stage before accelerating the movement to articulate and enforce international standards of industrial organization and business practice (pp. 262-3).


Of course, much of the detail on monetary arrangements found in this book is described in Barry Eichengreen’s Globalizing Capital (1996), but that type of detail is not the main contribution. In my opinion, the main contribution is in drawing analogies in history and politics that can contribute perspective on the institutions of the past and help guide decisions in the future. In that regard, I think nearly every essay in the collection has succeeded.

Joseph Mason is the author of numerous articles including, “Do Lender of Last Resort Policies Matter? The Effects of Reconstruction Finance Corporation Assistance to Banks during the Great Depression,” Journal of Financial Services Research, August 2001, pp. 77-95. Find out more at

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

Origins and Growth of the Global Economy: From the Fifteenth Century Onward

Author(s):Seavoy, Ronald E.
Reviewer(s):Cruz, Laura

Published by EH.NET (November 2003)

Ronald E. Seavoy, Origins and Growth of the Global Economy: From the Fifteenth Century Onward. Westport, CT: Praeger, 2003. xii + 301 pp. $65 (cloth), ISBN: 0-275-97912-1.

Reviewed for EH.NET by Laura Cruz, Department of History, Western Carolina University.

Ronald Seavoy’s latest book, Origins and Growth of the Global Economy: From the Fifteenth Century Onward, will not surprise readers of his previous works, including Famine in Peasant Societies (1986), Famine in East Africa (1989) and Subsistence and Economic Development (2000), as the primary argument in each is similar, i.e. that economic development requires political intervention and forced social disruption. In the case of Origins and Growth, Seavoy has placed the argument in a new framework, namely the historic growth of European mercantile empires and their evolution into a world system.

The book begins with an overview of European expansion and commercial development in the sixteenth and seventeenth centuries and then moves to an in-depth examination of English agricultural policy, especially the enclosure movement, which Seavoy sets up as a model for others to follow. The narrative then abruptly jumps to the late nineteenth century, drawing comparisons between old and new styles of imperialism, with particular attention paid to the political forms adopted by the latter. Nearly half of the book focuses on the late twentieth century, especially the economic problems faced in former colonies and the attempts by developed countries to address those problems, of which Seavoy is highly critical.

Seavoy is selective and eclectic in his use of historical sources and does little to address the historiography of European expansion in earlier periods. His historical overview is hardly exhaustive and a list of what-would-seem-like critical omissions would be long. Arguably, however, comprehensiveness is not the purpose of his book. He uses history not so much to contextualize but to highlight cases that illustrate his main focus — the failure of current development policies.

In doing so, he directly challenges neo-classical psychology. Beginning with Adam Smith, economists have claimed that their tenets are universal through time and across space, as they are based on assumptions about basic, inherent human nature — Smith’s homo economicus. Policies based on this assumption seek to bring out the economicus in peasants by providing incentives for them to participate in their own transformation to commercialized capitalists. Seavoy’s fundamental insight is that the main actors (usually male heads of households) in subsistence economies are not latent capitalists and, in fact, possess radically different mentalities than those assumed by policy makers. Capitalistic development, according to Seavoy, cannot be induced by such policies and must instead be forced upon populations who will never be willing participants in their own transformation. In Seavoy’s account, the English enclosure movement demonstrates this basic truth not just because it represents one of the most successful transformations from subsistence to commercialized agriculture but especially because it was accomplished almost entirely by coercion via collusion between the English Crown and the seigniorial landlords.

The colonial empires of the late nineteenth century also illustrate Seavoy’s great revelation, in this case not because of their success but because of their failure. Seavoy believes that the British imperial rulers had sufficient insight into the backwardness of their dependant populations and recognized the need for force. Unfortunately, they lacked the ability and/or the resources to effectively implement the necessary actions. In the end, they were precipitously cut short in their attempts to do so by the great wave of decolonization following World War II. Since that time, the fundamental insight into peasant mentality has been lost and replaced with neo-classical theories that have done nothing more than exacerbate the unfinished business of European, especially British, colonialism.

Seavoy does not examine nearly any recent work in developmental theory, most of which he dismisses simply as political correctness rearing its ugly head. Instead, he focuses on a few select policies and analyzes their results. According to Seavoy, these policies, as enacted by self-serving corporations, often-corrupt post-colonial regimes and well intentioned but misguided international agencies, coddle subsistence producers under the guide of social justice. Seavoy’s examples indicate that the problem is not laziness on the part of the peasants, but rather a radically different set of goals, which lead to an altered calculation of self-interest. Put simply, peasants choose less work because they do not see any increased benefits to working harder. In normal years, their efforts produce enough food for satisfy their basic needs. In bad years, problems do arise but there are plenty of agencies willing to bail them out of their predicament. Increased life expectancy, largely the result of better medical care coming from the developed world, and industrial expansion have strained the limits of these traditional economies and made famine more, rather than less, likely.

Seavoy’s arguments can perhaps justifiably be labeled as oversimplification because in many of his books he distills multivariate outcomes down to the same, single cause. This does not mean, however, that this book is without its contributions. Seavoy, now professor emeritus at Bowling Green State University, maintains unflagging optimism that economic development is possible. He posits a powerful, if problematic, defense of the idea that not everyone is born with a willingness and ability to play in the capitalist playground. The book also serves as a reminder that simple solutions (including those of the accuser and the accused in this case) will not solve complex problems with deep historical roots. Few readers will be able to deny that he has provoked them to think about the difficulties that underlie underdevelopment, even if the main source of that provocation is disagreement.

Laura Cruz is the author of “The Paradox of Prosperity: The Leiden Booksellers’ Guild and the Distribution of Books in the Golden Age” (forthcoming from Oak Knoll Press).

Subject(s):Economic Development, Growth, and Aggregate Productivity
Geographic Area(s):General, International, or Comparative
Time Period(s):20th Century: WWII and post-WWII

Freedom and Growth: The Rise of States and Markets in Europe, 1300-1750

Author(s):Epstein, S. R.
Reviewer(s):Persson, Karl Gunnar

Published by EH.NET (February 2003)

S. R. Epstein, Freedom and Growth: The Rise of States and Markets in Europe,

1300-1750. London: Routledge, 2000. 223 pp. $100 (hardcover), ISBN:


Reviewed for EH.NET by Karl Gunnar Persson, Institute of Economics, University

of Copenhagen.

Freedom and Growth is a carefully and densely argued book which

delivers new and important insights on the political conditions for

pre-industrial economic growth and the nature and historical evolution of an

efficient and modern state. The author, S.R. (Larry) Epstein is professor of

economic history at the London School of Economics. As a medievalist and early

modern scholar he works within a comparative approach and is free from the

constraints of ‘foreign language illiteracy’ sometimes found at British and US

universities. The book relies both on original research based on primary

sources and on an impressive list of secondary sources. The forty-page

bibliography lists everything worth looking at in the English, French and

Italian literature and a fair share of the German discussion.

Epstein’s new book is a contribution to a relatively new approach in

pre-industrial studies taking an explicit anti-Ricardian view. Recognizing that

the large regional income differentials in late medieval Europe and onwards

cannot be ascribed to differences in resource endowments and land constraints,

this new literature singles out rent-seeking, market imperfections and

coordination failures as an explanation for backwardness. It is suggested that

many economies operated below their capacity for long stretches of time.

Freedom and Growth offers a more sophisticated view of the impact of

political constitutions on solving coordination problems and permitting

‘Smithian’ growth, that is growth dependent on efficiency gains from spatial

specialization and division of labor. The outline of the book is presented in

Chapter 1.

In Chapter 2 Epstein takes issue with the prevailing ‘Whig’ interpretation of

political constitutions, which suggests that economic freedom and limited

government are the keys to economic growth. Not so, says Epstein: Good

government is not necessarily small government. The essential element for

growth is undisputed jurisdictional sovereignty over the realm both of economic

and political spheres. Smithian growth requires extension of and free entry to

markets but many pre-modern states, with parliamentary checks and balances or

not, were instead characterized by jurisdictional fragmentation. Regions and

cities, feudal lords and corporations asked for and obtained privileges. That

made tax collection difficult and costly and made barriers to trade pervasive.

Chapter 3 develops the critique of the Ricardian and Malthusian interpretation

of the medieval crisis suggesting instead that it was an ‘integration crisis.’

The main problems were the high costs of trade due to institutional regulation

and tariffs and the absence of social order due to endemic conflicts and

warfare. Political centralization was the response and the late medieval period

witnessed attempts to standardize coinage and measures facilitating trade. One

aspect of the regeneration of trade is explored in Chapter 4, which deals with

regional fairs. Epstein believes that this innovation was an efficient response

undermining established and privileged trading networks. The argument fits into

his general idea that the main problem of pre-industrial constitutions was the

debilitating impact of particular interests, but it is framed in a simplistic

functional form. The author suggests that the stability of the institutional

innovation is a proof of its efficiency but that argument cannot be generalized

to all stable institutions in the pre-modern period.

In Chapters 5 through 7 the focus narrows to different aspects of Italian

city-state relationships. Here Epstein relies on his own research. The

diversity of the Italian political landscape after the Black Death makes a

comparative analysis useful and the development of Lombardy, Sicily and the

Florentine republic are closely monitored. The Italian city-republics often had

accountable governments, which contributed to low interest rates of public debt

and, in general, a sophisticated financial system kept interest rates low for

the general public as well. By and large there was a declining trend in price

volatility of grain in Europe from 1300 to 1600, which in Epstein’s view stems

from political centralization that stimulated market integration. However, the

thesis that political integration precedes market integration must be

qualified, says Epstein. The relationship between a dominant city, say

Florence, and the other cities in the republic mattered. The city of Florence

acquired a privileged position in the food supply network of Tuscany which

delayed market integration compared to other regions, such as Lombardy. I am

not fully convinced that Epstein’s empirical evidence suggests a significant

difference between these two Italian provinces, however.

Chapter 8 concludes: “Prisoner’s dilemmas caused by decentralised rent-seeking

and co-ordination failures caused by jurisdictional fragmentation, posed the

most significant constraint on pre-modern growth.” Furthermore Epstein argues

that modern individualism developed with the modern state — that is a state

with a clear separation between the legislative, executive and judicial

functions and with full sovereignty.

Freedom and Growth will, I believe, have a lasting impact on the

analysis of early modern economic growth because it convincingly shows that the

economics of growth must incorporate the political economy of growth.

Karl Gunnar Persson’s most recent paper is “Mind the Gap! Transport Costs and

Price Convergence in the Nineteenth-Century Atlantic Economy,” (Discussion

Paper from the Institute of Economics, University of Copenhagen, 02-2002). His

most recent book is Grain Markets in Europe, 1500-1900, Cambridge

University Press, 1999.

Subject(s):Markets and Institutions
Geographic Area(s):Europe
Time Period(s):Medieval

The World Economy: A Millennial Perspective

Author(s):Maddison, Angus
Reviewer(s):Brezis, Elise S.

Published by EH.NET (November 2001)

Angus Maddison, The World Economy: A Millennial Perspective. Paris:

OECD, 2001. 384 pp, $63 (hardback), ISBN: 92-64-18654-9; $26 (paperback),

ISBN: 92-64-18608-5.

Reviewed for EH.NET by Elise S. Brezis, Department of Economics, Bar-Ilan


In the past few years, there has been a resurgence of interest in long-term

economic growth, and consequently, the need for long-term data on the

countries of the world has become more acute. The data provided by the

Heston-Summers Penn World Tables are available, but they start in 1950, which

is too short a period to analyze the elements that are important to

development and growth. So those who study macroeconomics and economic growth

and who use long-term data have anxiously awaited the arrival of The World

Economy: A Millennial Perspective. This book, which provides data on GDP

and population growth for the past millennium, enables quantification of

long-term changes, and is therefore of exceptional interest; for research, it

is a must.

World Economy is a continuation of Maddison’s 1995 book, Monitoring

the World Economy, which covers the period 1820-1992 (which itself was a

continuation of his 1991 book Dynamic Forces in Capitalist

Development). What is new in World Economy is that the data are

provided from the year 1000 (although not for all countries).

Like his other two books, there are two distinct parts to World

Economy: In the first part, Maddison presents a succinct historical view

of world economic development, while the second part provides data, which is

Maddison’s specialty.

In Part One, Maddison attempts to identify the factors that explain the

economic success of some countries, and he analyzes the reasons for the

backwardness of others in light of the new data. He places the main onus of

economic performance on conquest, international trade, and technological


In the first chapter, Maddison presents an extensive survey of world economic

development from 1 CE to the present, but focuses mainly on the last

millennium. He analyzes the data on population and GDP per capita, pointing

out the differences over the continents — the Western strength and Asian

weakness around 1800. Comparing the two millennia, he shows that in the last

millennium, the world’s population increased 22-fold, world GDP nearly

300-fold and per capita income increased 13-fold, while in the first

millennium there was no advance in per capita income.

In the second chapter, Maddison attempts to explain changes in the character

of economic leadership that have occurred over the past millennium. He

presents four case histories: the Venetian Republic, Portugal, the

Netherlands, and Britain, and shows how it is misleading to treat the Western

experience as universal. This chapter describes at length the geographic

discoveries and trade that took place in the middle of the millennium; it also

focuses on colonialism.

The third chapter treats the second half of the twentieth century, a period

for which data are easier to find, but still not as easy for some non-Western

countries as for the West. Consequently, Maddison focuses on Asia and Africa,

as well as on the transition process in the countries of Eastern Europe.

Writing a history of the world for 1,000 years in 170 pages is an admirable

achievement which nevertheless has its unavoidable flaws. Maddison does not

attempt a full listing of the various elements that play a role in

development, but rather places an emphasis on what for him is important in

light of his new data. Therefore, he concentrates on discoveries and on trade,

a subject on which he goes into much detail. For example, describing

discoveries, he mentions that “Da Gama got back to Lisbon in August (having

stopped to bury his brother in the Azores)” (p.62). However, treatment of

other subjects, such as government policies and institutions, is absent.

Despite including details that are not relevant to economic development, Part

One is indeed fascinating, and it is interesting to see where Maddison now

places his emphasis, which is very different than in his 1991 and 1995 books,

which focused more on the factors of production.

The second part of the book is the appendices with the data provided by

Maddison, who is the expert today on providing economy-related data on

the past. Producing data is important, since it permits us “?to separate

stylized facts from stylized fantasies which are sometimes perceived to be

reality” (p.45). Maddison’s main contribution to the field is his data on

population, GDP, and likewise, on GDP per capita (although the book also

contains some other data such as data on exports, but these series are not as


Appendix A presents data on 1820-1998. As in his 1995 book, Maddison explains

the way the data are converted into PPP values, permitting a comparison

between countries and over time. He also explains the differences in the

population and GDP data between World Economy and his 1995 book. There

are substantial revisions to the data on Asia, where the detailed coverage has

increased from 11 countries to 37. (As a small but upsetting detail, I was

astonished to see the West Bank + Gaza listed as a country. Because the

amounts involved are small and without any influence on the regional data, I

think that Maddison could have avoided this faute de gout). For African

countries, the coverage has increased from 10 to 57 countries. This increase

will certainly encourage economic research on these countries.

Appendix B is the main new offering of World Economy. It presents the

data from 1500-1800 as well as aggregate data from the year 1. Maddison shows

the alternative estimates of world population, comparing his results with

other research. This appendix is certainly the main contribution of this book.

The other four appendices present the GDP estimates for 1950-1998, the data

for the Eastern European countries during the transition, data on employment,

on labor productivity, and data on exports for 1870-1998.

Today Maddison is nearly the only source for historical macro data of the

world, and only he could rise to the challenge of presenting data for the

entire millennium, even if there are still holes. David Landes in his recent

book (1998) wrote that Paul Bairoch and Angus Maddison are the collectors and

calculators of the numbers of growth and productivity. Since Bairoch is not

with us any more, Maddison now has a “monopoly” on this field.

In World Economy Maddison presents not only data “created” by others

but mainly much data of his own “creation.” The accuracy of his data might

occasionally be questionable, since some of it is merely educated guesswork. A

couple of illustrations of Maddison’s simply guessing are: “For Western Europe

as a whole, I made proxy estimates for Austria, Denmark, Finland, and Sweden,

assuming that per capita real GDP increased at 0.17% a year for 1500-1820″ (p.

248); “For the other Western Offshoots, Canada, Australia, and New Zealand .

. . I assumed a per capita GDP of 400$ for 1500, 1600 and 1700″ (p.249); “For

the Americas . . . and the area of the former USSR, I have assumed that more

or less subsistence levels of income (400$ per capita) prevailed from the

first century to the end of the first millennium” (p. 260).

Despite the many approximations, only Maddison could carry off guessing data

for this period, yet readers will accept his guesses favorably. However, two

issues should be raised.

The first is: If the data that we have are fraught with errors, should we

present data at all? Should we publish data that are highly problematic, or is

it better not to publish data at all? These are serious questions and the

answers are not clear-cut. Data by Maddison have an immediate impact, and

research will be immediately launched based on it. Conclusions and

implications will be drawn in light of these data, and if they are flawed, the

resulting studies could be completely wrong.

On the other hand, there is such a demand for data now that many macro

specialists are engaged in the subject of economic growth, and they certainly

need data to test their models. In the past, the subject of economic growth

and industrialization was mainly studied by economic historians, who were

aware of the danger of working with erroneous data, and so were more cautious.

The field is now studied mainly by economic growth theorists, who are less

cautious, and will make use of whatever data can be found. Since the field

needs data, more and more will be produced. In other words the demand will

create the supply. If data are going to be “created,” better that they come

from Maddison than anyone else.

Moreover, Maddison studiously presents the way he “creates” his data. He

explains what he calls the “proxy procedure to fill gaps in the data set,” and

is aware that proxy estimation is problematic, since one can fill gaps in many

ways. Furthermore, after Maddison presents a first guess and estimate, it is

usually a catalyst for improving the data. His data estimation should

therefore be seen as a trial-and-error mechanism.

This brings me to the second issue: If the first guess leads to more research

and therefore to better data, then this would seem to be a positive outcome.

However, the theoretical question that should be asked is: Does the first

move, i.e., the first estimate influence the entire ensuing quest for the

“true” data? In other words, does the first guess influence the data estimated

even after many corrections? If the first guess can affect the ensuing

research, then despite the fact that Maddison is the best candidate “to throw

the dice and create” the data, then — like every monopoly — this one is also

undesirable. In order to reduce first-move error by removing this “monopoly,”

I suggest that the next book should be the result of the work of an entire

group of specialists. The OECD Development Centre, which is aware of and

understands the importance of data, should organize seminars for each

historical period, where experts from different parts of the world would meet

and discuss the various alternatives, and then publish their common “guess.”

This procedure would result in a better first approximation of the entire

trial-and-error mechanism, and lead therefore to better data.


Landes, D.S. 1998. The Wealth and Poverty of Nations. London: Little


Maddison, A. 1982. Dynamic Forces in Capitalist Development. Oxford:

Oxford University Press.

Maddison, A. 1995. Monitoring the World Economy, 1820-1992. Paris: OECD

Development Centre.

Elise S. Brezis is editor (with Peter Temin) of Elites, Minorities and

Economic Growth (1999, Elsevier) and author of “Social Classes,

Demographic Transition and Economic Growth,” European Economic Review,

45, 2001, 707-17.

Subject(s):Economic Development, Growth, and Aggregate Productivity
Geographic Area(s):General, International, or Comparative
Time Period(s):General or Comparative

The Rise of Capitalism on the Pampas: The Estancias of Buenos Aires, 1785-1870

Author(s):Amaral, Samuel
Reviewer(s):Beatty, Edward

Published by EH.NET (June 1, 2000)

Samuel Amaral, The Rise of Capitalism on the Pampas: The Estancias of Buenos

Aires, 1785-1870. Cambridge: Cambridge University Press, 1998. xviii + 290

pp. $64.95 (cloth), ISBN: 0-521-57248-7.

Reviewed for EH.NET by Edward Beatty, Department of History, Duquesne


The large rural estates of Latin America have long attracted the attention of

historians, placed at the center of debates concerning social inequities,

political influence, and economic growth and development. Whether labeled

haciendas, fazendas, latifundia, or estancias, the large estate has often been

identified with social inequity, coerced labor, productive autarchy and

inefficiency, and technological backwardness. In short, the landed estate of

the eighteenth and nineteenth centuries has been seen as one locus of feudal

persistence in Latin America. Although many studies over the past two decades

have offered a more nuanced and largely revisionist view, only a handful have

provided systematic examinations of the internal dynamics of estate operation.

Samuel Amaral, who teaches history at Northern Illinois University and has

published extensively on Argentine rural and economic history, offers a long

overdue contribution to this subject. The Rise of Capitalism examines

the estancia, the large livestock ranch of the Argentine plains, during the era

of its critical reorientation toward the demand for cattle products generated

in the North Atlantic, circa 1780-1860. The importance of this contribution is

not so much the subject as the approach. Using detailed local sources,

including probate records, estate inventories, managers’ reports, travelers’

accounts, and agricultural surveys, Amaral presents an intensive and compelling

portrait of the internal operation of the Argentine estancia. His conclusions

– and the importance of this work –lie on two levels. First, Amaral shows

that the internal operations of the estancia were market oriented and profit

motivated. Owners and managers responded to market conditions and in their

daily behavior sought consistently to maximize efficiency and profit. Second,

Amaral shows that the estancia developed within an environment where

competitive pressures mattered more than political protection and social

privilege. This is not to say that the political environment did not matter,

for estancias evolved within a particular framework of formal law and informal

custom (and themselves helped alter that institutional context), but that

market-based allocation of the factors of production within the estancia “firm”

mattered more.

While the golden age of economic expansion in the Argentine pampas would not

come until the late nineteenth century, Amaral shows that extensive growth and

profitability were well underway in the first half of the century. The economic

foundations of the estancia lay in their use of land, capital, and labor, and

Amaral presents a systematic examination of each. Land was open and abundant

(chapters 2 & 3), estancias were capitalized largely in the cattle stock

(chapters 3 & 5), and labor consisted of relatively small numbers of slaves

(until after independence) and itinerant temporary free workers — the

Argentine gaucho (chapters 2 & 8). This last issue — labor instability in the

form of large numbers of temporary workers — receives careful treatment.

Neither labor scarcity nor cultural traits explain instability, he argues, but

rather the seasonal pattern of labor demand, patterns created by biological,

climatic, and environmental factors. Amaral is convincing here, although doubt

remains as we are given no view of the broader labor market, of gaucho society,

or of changes in labor’s price. Indeed, Amaral’s narrow focus on quantifiable

data and the dearth of reference to the broader political, social, and cultural

context throughout the book weakens and isolates the contributions that are

made here.

Perhaps the most interesting and important chapters of this work are those

which treat the environment (chapter 6), institutions (chapter 7), and

management (chapter 9). Moving beyond the more conventional issues like factors

of production and market conditions, Amaral shows convincingly that competitive

pressures and market signals mattered greatly, but mattered within a set of

environmental and institutional contexts that largely shaped their evolution.

The physical attributes of the Argentine pampas are well known. Fertile soil, a

broad frontier, and vast expanses of rolling grasslands provided an ideal

environment for grazing Old World cattle, with growing investment activity in

grain agriculture and, later, in sheep. Beyond this context, Amaral focuses on

the thistle, which grew prolifically after cattle disturbed the landscape,

providing a haven for rustlers and a constant aggravation for herders. Vast

“thistleries,” higher than a man’s head, spread across the pampas and shaped

the seasonal rhythm of estancia operations until the expansion of sheep grazing

and agriculture later in the century reduced their scope.

Like thistles, political institutions could also impinge on estancia operations

and productive growth. Both estancieros and the state had an interest in the

specification of property rights on the pampas, including survey and titling

provisions, herding conventions, stocking limits, brand management, the

depredations of wandering cattle, and law enforcement. Amaral shows that

estancieros lobbied for minimum restrictions on the full use of their property

rights (p. 150), but that they also sought increased regulation (or at least

enforcement) of their property rights (p. 147). The combination of wandering

cattle, game hunters, and unfenced lands created externalities against which

estancieros sought to rally protection. The outcome was largely a function of

estanciero’s demands, the physical environment of the pampas, and the limits

imposed on political institutions by the costliness of their enforcement in the

countryside. On most issues, all these worked in the same direction and favored

a competitive environment of private properties. Although this discussion could

use a more systematic comparison of pre-growth (circa 1780) institutional

conditions (including land grants, informal use, title legalization, and

emphyteusis) with the reforms considered in the 1850s and 60s, Amaral provides

an effective model for further work along these lines.

Management decisions were crucial to the estancia’s profitability. Allocating

the factors of production and adjusting to uncertainty required constant

vigilance and some expertise. An estancia’s success, Amaral writes, “was

guaranteed neither by vast tracts of land and large herds nor by the right

political connections. All those elements were necessary, but it was up to the

individual entrepreneur to combine them to make a profit” (p. 208). Indeed,

estancia management explains a central paradox of estancia expansion before

1860: that expansion occurred while the cost of inputs (principally land) was

rising and the price of outputs (principally cattle) was falling. Amaral argues

that estancieros succeeded in using resources more efficiently, allowing

survival, expansion, and profitability in the face of deteriorating relative


Although this book offers important evidence and insights into the formative

stages of the nineteenth century Argentine estancia, it comes at the price of

wading through pages of detailed evidence — often fascinating in itself but

also often tedious. Each chapter takes a narrative approach to the evidence,

and we get a step-by-step, at times disorderly, account of the author’s

exploration of historical minutia. It takes some effort to locate the

conclusions amidst the details (including over 120 tables and figures!),

although each chapter ends with a nice summation. The style is neither concise

nor always direct, and the historical evidence often stands alone. For

instance, Amaral’s extensive evidence on the relative costs and investments on

owned and non-owned lands (or, better put, on lands characterized by formal and

informal property rights) suggests that property right security affected

investment decisions, yet this important topic receives little direct comment

here (pp. 92ff and elsewhere).

For this reader, however, the price was well worth the effort. The Rise of

Capitalism on the Pampas is the result of intensive research, compelling

detail, sophisticated method, and convincing (if restrained) arguments and

insights. It makes a profound contribution to our understanding of this topic,

although it will not end historians’ debates on most of the subtopics. While

the book should appeal most to economic and Argentine historians, it should

also appeal to those interested in comparative agrarian history and in the role

of institutions in economic history.

Ted Beatty is author of Institutions and Investment: The Political Basis of

Industrialization in Mexico before 1911 (forthcoming from Stanford

University Press) and several articles on nineteenth century Mexican economic


Subject(s):Agriculture, Natural Resources, and Extractive Industries
Geographic Area(s):Latin America, incl. Mexico and the Caribbean
Time Period(s):19th Century

Making Peasants Backward: Managing Populations in Russian Agricultural Cooperatives, 1861-1914

Author(s):Kotsonis, Yanni
Reviewer(s):Hayward, Oliver

Published by EH.NET (May 2000)

Yanni Kotsonis, Making Peasants Backward: Managing Populations in Russian

Agricultural Cooperatives, 1861-1914. New York: St. Martin’s Press, 1999.

x + 245 pp. $65 (cloth), ISBN: 0-312-22099-5.

Reviewed for EH.NET by Oliver Hayward, Department of History, University of


This study presents succinctly (188 pages of text) the clearest and most

thorough explanation yet available in the West of the failure of those

ostensibly responsible for the welfare of Russia’s peasantry to assist them

toward the progress enjoyed by many of their contemporaries in Western and

Central Europe.

In developing his analysis, Yanni Kotsonis (Assistant Professor of History,

NYU) has made effective use of extensive archival materials in Moscow and St.

Petersburg, as well as archives in the Archangel section of the Imperial State

Bank and the Agricultural Society of Vologda. He consulted newspapers,

periodicals, and serial publications of several Imperial government and private

agencies operating in the decades up to 1914. Also utilized are many published

monographs and articles on the subject, often by persons involved with

formulating and executing policies ostensibly designed to assist Russia’s

peasantry out of its backwardness.

Following an introductory statement of the theoretical framework within which

he explores various aspects of the peasant situation following the promulgation

of the “Great Reforms,” Kotsonis analyzes the subject in more depth through

chapters utilizing the following periodization: 1. 1861-1895,

during which the “Great Reforms” were set in motion; 2. 1895-1904,as Witte

attempted to strengthen Russia’s peasantry as part of his overall program for

modernizing the economy; and 3. 1906-1914, as first Stolypin and later

Krivoshein made further attempts to enhance the position of Russia’s peasantry.

Chapter 4 (“Citizens: Backwardness and Legitimacy in Agronomy and Economics,

1900-1914″) introduces the new set of forces which descended upon the Russian

countryside: agronomists, economists, and “cooperators,”

the professionals charged with assisting the peasants in establishing

agricultural cooperatives.

The final chapter (“Making Peasants Backward, 1900-1914″), utilizes the various

themes from the first four chapters to explain more precisely why the promising

programs ostensibly designed to assist Russia’s peasants in fact for the most

part conspired to “make peasants backward.” No element in Russian society–the

zemstvo nobility, government ministers and other leaders, the agronomists, and

other professionals sent out presumably to assist the peasants – seems to have

been able to escape the blinders created by their own prejudices and

preconceptions in order to further the peasants’ true interests.

Kotsonis’ brief Epilogue suggests some of the implications of all this for

rural Russia during World War I, especially its impact on the tumultuous years

of 1917-1918.

Permeating the entire book is the overwhelmingly pernicious attitude toward the

peasantry held by almost every group bearing some responsibility to assist the

peasantry. Through extensive quotations from the writings and speeches of

representative individuals, Kotsonis demonstrates this attitude to be a melange

of the following specific assumptions: that Russia’s peasantry were

overwhelmingly illiterate; that they were particularly ignorant in financial

matters; that they were therefore in unceasing danger of being exploited and

misled by unscrupulous and predatory middlemen, and that they therefore must

not be exposed to an impersonal credit market that could only be deleterious to

their interests.

Based on these assumptions, the cooperative movement generally focused on

bringing professionals down to the peasants in order to guide and protect them,

rather than seeking to educate the peasantry and showing them how to more

effectively manage their own agricultural activities. Many in the cooperative

movement viewed capitalism as a form of predatory power that should not be

practiced on or by the peasants except under the close supervision (nadzor) of

agronomists and other professionals.

State officials, zemstvo noblemen, and agronomists and other professionals all

vied to see which among them should conduct the peasants’ affairs for them.

Rarely were the peasants involved in the process even consulted on the chance

that they might have some useful insights regarding how to improve their lot.

Struggles for influence and bureaucratic control took precedence over the

interests of the peasants.

Perhaps most ominous of all, Kotsonis suggests, was the attitude with which the

various groups responsible for overseeing the peasantry in Russia did so, with

attitudes vastly different than those of their counterparts in other parts of

Europe. While there were the familiar references to the backwardness and

barbarism of peasants in European countries as well, there it was often in a

context of the need to mobilize the peasantry into the broader population as a

political nation. In Russia, in contrast, the presumption that peasants could

not measure up to the requisite standards of citizenship, self-reliance,

progress, and rationality produced not only a failure to recognize the

possibility of “dynamic transformation of peasants, but often a caste-like

reification of them and a justification of permanent administration over them,

‘as if by a foreigner'” (p. 134).

In his footnote to this assertion (p. 218, footnote #117), Kotsonis notes that

even in Poland, in stark contrast to Russia, “the integration of peasants into

a national idea was the central issue in political movements from the early

nineteenth century.”

That a mass cooperative movement encompassing by 1914 one-quarter of all

peasant households in Russia could nevertheless achieve so little in mobilizing

the peasantry into a broader political nation is a situation fraught with

ominous implications for post-1917 Russia. Kotsonis has made a significant

contribution to our understanding of how, despite often benevolent intentions

toward the peasantry on the part of many officials,

professionals, and “cooperators,” this dangerous situation was actually

deteriorating still further in the last decades of the Russian Empire.

I would make but one suggestion for improving this study. The specific data on

the extent and distribution of the cooperative movement in Russia that Kotsonis

presents in chapter 5 could have been more helpful if presented much earlier,

for it helps better assess the merits of various proposals to make credit more

readily available to the peasantry and thereby modernize Russian agriculture.

This work is, in any event, a major contribution to augmenting our

understanding of a crucial failure plaguing the troubled history of late

Imperial Russia. Those who might have been able to help formulate a

constructive response to the “Cursed Question” instead compounded and

perpetuated the curse.

Oliver Hayward is completing a study of the life and policies of M.Kh.

Reutern, Minister of Finance under Alexander II. He is currently researching

the periodic flooding of the city of St.Petersburg/Leningrad and efforts to

control that flooding.

Subject: A Geographical Area: 4 Country: Russia Time period: 7, 8

Subject(s):Agriculture, Natural Resources, and Extractive Industries
Geographic Area(s):Europe
Time Period(s):20th Century: Pre WWII

European Industrial Policy: The Twentieth-Century Experience

Author(s):Foreman-Peck, James
Federico, Giovanni
Reviewer(s):Fauri, Francesca

Published by EH.NET (May 1, 2000)

James Foreman-Peck and Giovanni Federico, European Industrial Policy: The

Twentieth-Century Experience. Oxford: Oxford University Press, 1999. xvi +

466 pp. $105 (cloth), ISBN: 0-19828998-7.

Reviewed for EH.NET by Francesca Fauri, Professor of Istituzioni Economiche

Europee, Faculty of Political Sciences, University of Bologna in Forl?.

The aim of this multi-authored volume is to contribute to an understanding of

European industrial policy, broadly interpreted, by introducing an historical

perspective. The collection of case studies allows the reader to become

familiar with the differences among countries, and the remarkable continuity

within countries, of European national industrial policies.

The book analyses the industrial policies of four broad groups of countries:

the largest Western European states – Britain, France, Germany and Italy – a

group of small, but highly productive nations – Sweden, the Netherlands,

Belgium and Ireland – three states with a long tradition of state industrial

regulation: Spain, Portugal and Greece, and finally the case of Russia, a huge

economy with a deep-rooted tradition of centralized decision making and state


British industrial policy from the nineteenth century was characterized by

economic liberalism, and despite the greater industrial role of the government

after the First World War, it clung to the liberal precepts of minimum state

expenditure and ‘self-regulation’ during the inter-war period. It was only

after 1945 that the Labour government took a much more interventionist

stance-nationalizing industries such as the coal industry, gas, electricity and

railways and adopting a variety of measures including import controls and

industrial subsidies at levels unknown in the past. In the 1980s, the state

reversed to more market-oriented industrial policies: it abandoned state

ownership and direction of industry, radically improving the performance of

British economy (even though the author claims that the redirection of economic

activity was not necessarily ideal and skill and learning deficiencies began to


The French claim to have invented the concept of industrial policy and, as a

matter of fact, since Colbert, the idea that productive capacity can be

increased by state aid has never been abandoned by French governments.

Curiously enough, the chapter on Germany is titled “The Invention of

Interventionism,” contending with the French for the primacy. The first and

most important industrial policy instruments used by the German government

since the 1880s have been tariffs and subsidies. In this case economic

performance has shown that state interventionism and a positive economic trend

are not incompatible at all. Also the Italian state has a long-standing

tradition of intervention, progressively shifting its range of interest from

railways, tariffs and public procurements to bailouts, planning regulation,

subsidization and the use of state-owned enterprises. Albeit, not with German

results, being in the words of the authors “much less effective than it may

have been given the large resources allocated to industrial promotion.”

Small states such as Sweden, the Netherlands, Belgium and Ireland, all

experienced, though in different historical periods, state attempts to

influence industrial growth, usually ranging from rare selective interventions

(protection, subsidies, nationalization) in the past, to general efforts to

facilitate and stimulate industrial growth in more recent times. The

Netherlands is a case in point: arguably the most liberal country in Europe

since its creation in the sixteenth century, between 1948 and 1963 the

government actually intervened in support of declining industries as had never

done before (or has done since).

Spain, Portugal and Greece, three latecomers in the industrialization process,

all present, with different degrees of intensity, a key state role in the

promotion of industrial development. Spain, as the other two, was characterized

by a long-term presence of an authoritarian government, but it was the only one

to combine authoritarianism with a political ideology of intense and

large-scale industrialization. Yet, results were meager: the state

interventionist approach proved not very efficient, supporting the

implementation of a rigid system of import substitution that soon became not

only superfluous, but harmful to overall economic growth.

Russia is the utmost example of industrial policies with maximal state

intervention, at least until the 1990s. During the Tsarist peacetime economy

(1890-1913) the state promoted the development of heavy and defense industry in

order to remedy the technological backwardness of the country. The main

beneficiaries of Tsarist industrial policies were the railway, engineering,

iron, steel and defense industries, with much of the burden falling on the

agricultural sector as a result of tax policies. After the New Economy Policy

interval (1921-27) in which the Bolshevik policy-makers tried to reverse the

policy of nationalization by privatizing small industrial enterprises,

industrial policy in the Stalinist era became highly centralized, the state

owned all productive assets and quantity-oriented plans were utilized as the

main coordination mechanism. State planning was retained as the key industrial

policy instrument until 1992 when economic decision-making started being

decentralized to banks, firms and regions and Russia started its difficult

transition to a market economy. Yet, historical traditions are likely to

influence the pattern of industrial organization and policies that Russia will

develop in the future.

The introduction of a cultural theory of industrial policy in the last chapter

helps explaining why European industrial policies show different degrees of

state intervention. Inter-country differences in the propensity to intervene

also depend on the dimension of trust: industrial policy requires an adequate

degree of trust to succeed.

Surely this volume has two great merits: it provides a collection of case

studies constructed along the same line of discussion themes, thus facilitating

comparative analysis, and it offers a synthesis of a great deal of literature

unavailable in English. Undoubtedly, the book has fulfilled its task of

rendering the future writing on the history of European industrial policy more


Francesca Fauri is author of “A Comparative Analysis of Italian and British

Management before World War II” in Vera Zamagni and Lars Engwall, editors,

Management Education in Historical Perspective (Manchester University

Press, 1999) and “Economic Miracle and Italy’s Chemical Industry: A Missed

Opportunity” in Enterprise and Society (forthcoming, summer 2000). She

is currently working on a book on “L’Italia e l’integrazione economica europea


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

Store Wars: Shopkeepers and the Culture of Mass Marketing, 1890-1939

Author(s):Monod, David
Reviewer(s):Horowitz, David A.

EH.NET Book Review

Published by H-Business (September 1997)

Store Wars: Shopkeepers and the Culture of Mass Marketing, 1890-1939, by David Monod. University of Toronto Press, Toronto, 1996. Introduction. Tables. Notes. Index. 438 pp. $55 (clothback); $22.95 (paperback).

Reviewed for EH.Net by David A. Horowitz, Department of History, Portland State University (Oregon)

More than thirty years ago, Ellis W. Hawley’s New Deal and the Problem of Monopoly(1966) depicted contradictory efforts to strengthen retail competition and consolidate the market position of independent merchants. David Monod’s Store Wars: Shopkeepers and the Culture of Mass Marketing, 1890-1939, goes a long way toward explaining this anomaly. Monod’s provocative study also offers fresh conceptual tools for dealing with much-maligned subjects such as small business, traditional economic values, the consumer revolution, and the lower middle class.

Using individual business records, bankruptcy court proceedings, and trade journals, David Monod has compiled a rich account of small business’ adjustment to the emerging mass market in early 20th century Canada. Monod acknowledges that “main street” retailers unified behind a “folkloric rhetoric” that portrayed shopkeepers as small, independent, competitive, ethical, community-based, service-oriented, and content with fair and honest profits. Yet the mercantile “collective memory” excluded poorer, “backstreet” competitors, ethnic traders, and female merchants, who remained outside normal credit and commercial ties.

Monod demonstrates how the mass merchandising of the department and chain stores was first perceived as a threat to the perpetuation of traditional shopkeeper virtues. By providing public access to stock, for example, department stores threatened the moral authority and autonomy of the old-fashioned merchant. In turn, advertising eliminated the selling functions of individual dealers. The new economy also compelled suppliers to tighten credit, forcing merchants to abandon consumer credit services and concentrate on lower prices. As early 20th century manufacturers turned to mass-produced, prepackaged goods and brand-name advertising to meet the demand for cheaper products of uniform quality, independent retailers found themselves increasingly dependent on producers, suppliers, and consumers.

Groups like Canada’s Retail Merchants’ Association (RMA) responded to the chains and departmentals with predictable criticism. Yet survival in the modern economy depended upon adjustment to big business norms. Store Wars blazes conceptual territory by outlining the complex and contradictory response of retailers to the increased competition of the consumer revolution and mass merchandising. Adopting a professional ethic of “progressive retailing,” mid-sized and larger enterprises in the RMA pushed for licensing, trade, health, and safety regulations to discourage “illegitimate” competition by backstreet traders. Conflicts between advocates of inflationary price-fixing and deflationary mass production, however, divided the independent retail lobby.

The heart of Monod’s story concerns the 1920s and 1930s, when shopkeepers were more motivated by the desire for economic security and increased profits than by fears of modernization. As department and chain stores faced mounting rental, maintenance, and advertising costs, trade associations like the RMA sought competitive advantages for members by promoting cooperative purchasing and the elimination of credit services. Grocery trade groups and some wholesalers embraced modernization through resale price maintenance (rpm) agreements, which the author equates with the systematization of retail-manufacturing relations. Meanwhile, independent Canadian pharmacists organized against traditional jobbers and the smallest retailers, portrayed as the agents of “backwardness” in distribution.

During the economic depression of the 1930s, independent trade activists pictured the crusade against chain stores as “a struggle for the soul of humanity.” Yet Monod points out that modernizing shopkeepers focused their ire on perceived distribution abuses such as bulk buying discounts and advertising allowances, not mass merchandising itself. Although Depression populists such as Reconstruction Party leader H. H. Stevens promised a social order based on small property and decentralized authority, the impact of retail activism on Canadian politics was mainly symbolic. Dismissing Stevens’s rhetoric as “retail folklore purged of its content,” Monod suggests that shopkeepers embraced dissident politics as a means of addressing the emotional agony of the economic disaster. Meanwhile, independent merchants joined trade groups to gain access to politicians. Once legislators enacted minor reforms such as the prohibition of secret rebates, retailer organizations outlived their usefulness. Predictably, almost all the decade’s discriminatory legislation had been repealed or seriously amended by 1939.

Store Wars’s account of independent merchants and the consumer economy provides a model for integrating business history with the study of social structure and political movements. Monod reminds us that economic modernization was a plastic process in which independent retailers and consumers actively participated. The author’s clever use of semitics explains how shopkeepers “vitalized the folkloric structures” of traditional values while embracing modernization. Casting aside conventional notions of “small business” unity and the “reactionary” character of the “lower middle class,” Store Wars deserves scrutiny by social and business historians.

David A. Horowitz, Professor of History, Portland State University (Oregon)


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