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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

John Bascom and the Origins of the Wisconsin Idea

Author(s):Hoeveler, J. David
Reviewer(s):Johnson, Marianne

Published by EH.Net (July 2017)

J. David Hoeveler, John Bascom and the Origins of the Wisconsin Idea. Madison: WI: University of Wisconsin Press, 2016. xi + 229 pp. $45 (hardcover), ISBN: 978-0-299-30780-6.

Reviewed by EH.Net by Marianne Johnson, Department of Economics, University of Wisconsin — Oshkosh.

In 2014, as part of the biennial budgetary process, Governor Scott Walker proposed to modify the University of Wisconsin’s mission, known as the Wisconsin Idea, striking the statements to “extend knowledge and its application beyond the boundaries of its campus,” to “serve and stimulate society,” and to “extend training and public service designed to educate people and improve the human condition.” He also proposed to delete the phrase “Basic to every purpose of the system is the search for truth.” Instead, the university system was to “meet the state’s workforce needs.”

When discovered buried deep within the budget proposal, the changes were met with outcry and condemnation from the University and its supporters. University of Wisconsin System President Ray Cross stated “The Wisconsin Idea is embedded in our DNA. It is so much more than words on a page. It is the reason the UW System exists. It defines us and forever will distinguish us as a great public university” (Milwaukee Journal Sentinel, 4 February 2015). The New York Times editorialized “Save the Wisconsin Idea” (16 February 2015).

When confronted, the governor denied instigating the changes and blamed a “drafting error.” Sued by the Center for Media and Democracy and several Wisconsin citizens under Wisconsin’s Open Records Law, documents revealed a deliberate attempt to circumscribe the mission of the University of Wisconsin and its system of affiliated schools.

To understand both why the governor had sought the change and the reaction of those in the University of Wisconsin system, it is important to have a book such as that by David Hoeveler on John Bascom and the Origins of the Wisconsin Idea. Combined with Nancy Unger’s biography of Robert La Follette (2000) and Malcolm Rutherford’s The Institutionalist Movement in American Economics (2011), academics and interested readers now have a trio of excellent historical works on the Wisconsin Idea, Wisconsin Progressivism, and Wisconsin’s unique brand of Institutional economics.

Wisconsin gained outsized influence in the early part of the twentieth century, driven by larger-than-life personalities such as “Fighting Bob” La Follete and his partner in reform, University of Wisconsin President Richard Van Hise. The latter is usually credited with the first complete statement of the Wisconsin Idea. Richard T. Ely and E.A. Ross remade the social sciences as taught at American universities, drawing on the German academic tradition of seminars. John R. Commons and his army of disciples oversaw an expansive national political advocacy campaign for labor reform, unemployment insurance, social security and the minimum wage.

Ely was famously prosecuted for espousing socialist doctrines in 1894. The Board of Regents ruled in Ely’s favor, setting the standard for academic freedom. University President, Charles Kendall Adams, writing on behalf of the Board of Regents concluded that “Whatever may be the limitations which trammel inquiry elsewhere, we believe that the great state University of Wisconsin should ever encourage that continual and fearless sifting and winnowing by which alone the truth can be found.” This statement can be found on a plaque at the entrance of Bascom Hall, the best-known building on campus.

Though Bascom predates the great hey-day of Wisconsin Progressivism, Hoeveler makes a compelling case for Bascom’s importance in laying the foundation for change at the end of the nineteenth century.

During Bascom’s professional lifetime, two socio-demographic trends emerged that were to fundamentally alter higher education in the United States: an increased demand for specialized education and an increased demand by women for professional training and careers. American universities responded to the first of these changes by expanding course work at all levels. The second shift involved the transformation of educational opportunities for women. With the influence of Progressivism and the suffrage movement, public opinion slowly shifted to support higher education for women. Having lost the battle for co-education at Williams College, Bascom accepted the presidency of the University of Wisconsin in 1874. Earlier that same year, the university had affirmed a co-educational curriculum. Bascom was an avid supporter of women’s access to higher education. Rather than limiting women’s education to domestic subjects and finishing schools, Bascom argued forcefully for their access to a full liberal education stating that “This exclusion of women from our highest seats of learning is among the remnant…[of] a dark and savage past” (Bascom 1872, 2). Bascom’s two daughters both earned their bachelor’s degrees at Wisconsin, where he defended the right for women to face an identical curriculum to men. Florence Bascom became the second woman to earn a Ph.D. in geology in the U.S.

Much of the book is given over to Bascom’s biography and intellectual influences, including German philosophical idealism, the liberal Protestantism associated with the Social Gospel movement in the U.S., and the theory of evolution. Hoeveler argues that “Bascom made a creative synthesis of these intellectual systems and from them forged the beginning of the Wisconsin Idea” (p. 5). Individuals interested in the intellectual influences of the period will find the book particularly useful.

The first two chapters consider Bascom’s education and early career years, with a heavy emphasis on his own writings and philosophical struggles, particularly in reaction to the American Civil War. Chapter 3 addresses Bascom’s move to Wisconsin, where he served as president from 1874 to 1887. Chapter 4 deals with the changing nature of American universities and their role in society at the end of the 1800s, and Chapter 5 looks at the impact of the Social Gospel movement on the University of Wisconsin and American universities more generally.

The next three chapters address the origins of Progressivism which Hoeveler identifies in three distinct forces: (1) the temperance movement, (2) the women’s suffrage movement, and (3) the profound shift in perceptions of class struggles and of labor rights in the last decades of the nineteenth century. Though much of the book provides interesting background for those that study intellectual history, it is Chapter 8 that will capture the attention of historians of economic thought. Most of the material in this chapter will be familiar to economists who work in this period, but Hoeveler does a nice job of situating Bascom in this milieu of change and to introduce Ely who would later play such a significant role for the University of Wisconsin.

Chapter 9 returns to the Wisconsin Idea and guides the reader through Bascom’s departure from Wisconsin, the hiring of Richard T. Ely, Charles Van Hise’s presidency, the arrival of John R. Commons, and the great debates between La Follette and the university over World War I.  These changes left Wisconsin to be viewed as either the “the outstanding liberal university” (Howe 1989, 247) or a “hot bed of radicalism” (New York Times 1930, 34). Though Bascom’s presidency had ended before these momentous events, Hoeveler does a great service by presenting an excellent account of the life of Bascom and reminding us that ideas emerge from a complex interaction of social, political, philosophical and personal forces.

References:

Bascom, John. 1872. “College Organization,” Independent, September 5 (1872), 2 – 3.

Howe, Florence. 1989. “Practical in Her Theories: Theresa Schmid McMahon,” in Lone Voyagers: Academic Women in Coeducational Universities, 1870–1937, ed. G.J. Clifford, 223 – 280. New York: The Feminist Press at the City University of New York.

Rutherford, Malcolm. 2011. The Institutional Movement in American Economics, 1918–1947. New York: Cambridge University Press.

Unger, Nancy C. 2000. Fighting Bob La Follette: A Righteous Reformer. Chapel Hill, NC: University of North Carolina Press.

“The Wisconsin Idea,” University of Wisconsin Madison. http://www.wisc.edu/wisconsin-idea/

Marianne Johnson is the author of several works on Wisconsin Institutionalism and Progressivism in economics including papers in the Journal of Economic Issues (2017, 2015, 2011) and History of Political Economy (2014) — and a book chapter on the “Daughters of Commons” for Routledge (forthcoming).

Copyright (c) 2017 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 2017). All EH.Net reviews are archived at http://www.eh.net/BookReview.

Subject(s):History of Economic Thought; Methodology
Geographic Area(s):North America
Time Period(s):19th Century
20th Century: Pre WWII

Reform or Repression: Organizing America’s Anti-Union Movement

Author(s):Pearson, Chad
Reviewer(s):Friedman, Gerald

Published by EH.Net (June 2016)

Chad Pearson, Reform or Repression: Organizing America’s Anti-Union Movement.  Philadelphia, University of Pennsylvania Press, 2016. viii + 303 pp. $55 (cloth), ISBN: 978-0-8122-4776-3.

Reviewed for EH.Net by Gerald Friedman, Department of Economics, University of Massachusetts.

Even while the Labor Movement is dying, its history thrives.  For a long time, Labor History was a narrow often sterile discipline focused on the glorious rise of unions and socialist political formations, the formal Labor Movement.  Labor History was populated by advocates whose works often read like sermons, histories of good and honest workers struggling against evil capitalists and their political toadies.  Strikes and unions were good, except where the earnest rank-and-file were betrayed by self-serving union leaders.  Sometimes, these betrayals cost the workers.  But the experience of collective action and struggle always contained good lessons, and task of the labor historian was seen as interpreting these lessons and passing them along to build the labor movement.

While labor historians imagined placing workers and their struggles at the center of historical analysis, by reducing capital, the state, and labor to simplistic Marxist elements, their work was consigned to a leftist ghetto.  Labor History as medieval morality play can contribute little to the broader study of history because it treats all actors as parodies. Ironically, by shrinking all social actors to a simplistic category, this work brought nothing to the understanding of the labor movement or the proper strategy for labor struggles.  In the face of the decline, even the collapse, of the Labor Movement, the old Labor History has had nothing to say except the old mantra of “evil capitalists” and “self-serving union leaders.”

Perhaps it is the crisis of the Labor Movement that has invigorated the field of Labor History.  A new generation of historians has emerged conscious that the old categories are inadequate to understand the current crisis.  They are ready for a much more nuanced approach, one that recognizes the varieties of capital. The experience of the Labor Movement’s rise and decline has forced them to recognize the often-contentious relationship between capital and democratic states, and the role of ideology in shaping not only the Labor Movement, but the response to labor militancy by states and by capitalists.  In short: the new generation recognizes that the making of the capitalist class and any capitalist state is just as challenging as the making of the working class.  By conceiving labor history as a history of contending collective movements, labor historians have enriched our understanding of American employers and their organizations (Ernst 1995; Harris 2006), their bargaining strategies and campaigns against unions (Richards 2008; Sidorick 2009; Cowie 1999), their often-tangled relationship with state officials (Howell 1992; Howell 2005; Friedman 1998; Friedman 2007), and the ideology they developed to sustain their collective action (Phillips-Fein 2009; Harris 1982; Leon 2015).  At its best, this new labor history is contributing, as labor historians have long wanted, to a broader emerging field of the history of capitalism (Beckert 2014).

Chad Pearson’s new book should be seen in the context of this transformation of Labor History into a piece of the larger history of American capitalism. His book uses brief biographies and case studies of local associations to examine the development of the Open Shop movement in American industry before the First World War.  (“Open Shops” are establishments that hire workers without regard for their union membership; in practice, they do not hire union members because they do not sign union contracts.)  In particular, Pearson addresses a question that has often appeared as a paradox to liberal historians eager to portray the American story as a march of progress: the coincidence, both in time and often in personnel, between the Progressive Era “Age of Reform” and the rise of militant anti-unionism and the repression of labor organization.  How to reconcile the seemingly antagonistic positions of progressive reformers like George Creel, who advocated of women’s suffrage, public ownership of utilities, and opposed child labor, while also campaigning for the Open Shop and serving on Citizen’s Industrial Association of America (CIAA) press committee (Pearson 2016, 70)?  What to say of Theodore Roosevelt, bitter critic of both the repressive labor policies of the Anthracite Coal companies and of the closed (union) shop?  Or the liberal hero, Louis Brandeis, who argued that the open shop protected the liberties of both employers and the rights of meritorious unionists and nonunionists alike (Pearson 2016, 83)?

It is the great strength of Pearson’s study that regardless of any personal sympathy with unions and labor militancy, he avoids any cant but evaluates seriously the positions of open-shop employers.  He shows that they, too, were often reformers and their employers’ movement was as much a part of the Progressive Era as was the Labor Movement. In rejecting labor militancy and the closed shop as incompatible with his vision of America’s political traditions, Brandeis, for example, expressed a view of labor relations and the economy that was championed by Progressive Era employers’ organizations, has remained popular in America, and has come to motivate much of our political right.  In this view, free Labor has no social dimension.  It means simply the right of individuals to conduct their businesses and to buy and sell commodities, including their own labor power, untrammeled by the interference of others, either state regulators or other workers or businesses.  An attribute of individuals, freedom is negated by collective action.  Not only does free competition among individuals best promote efficiency, it is fair because it rewards work and merit; and it is just because it represents liberty. Labor unions are a threat to efficiency because they place the lazy and incompetent on equal standing with the hard-working and meritorious.  Worse, through their political action, by promoting regulation and monopoly, they are a fundamental threat to freedom, “the greatest menace” (Pearson 2016, 182).  Far from a selfish battle to increase profits, the campaign for the open shop and the employer in the management of his property, was a noble and generous struggle to protect fundamental principles of justice and fairness.

If the open-shop activists had a general political orientation, Pearson shows that, paradoxically for many historians, it was liberal and progressive rather than reactionary.  Open shop proponents did not see themselves as part of a counter reformist movement; instead, they were part of a tradition of social reform that stretched back to the abolitionists and early Republicans, to Abraham Lincoln rather than Jefferson Davis.  They saw themselves as heirs to the abolitionists, reformers, patriotic and class-neutral proponents of industrial fairness and guardians of ambitious, hard-working individuals. It was natural then for them to oppose monopoly, to favor honest government, municipal efficiency, industrial progress and professionalization. Far from fighting against labor or higher wages, they often condemned abusive managers (like the Anthracite Coal companies), and favored welfare capitalist initiatives and what labor economists today call efficiency wages.

It would be a cheap shot at the open-shop activists to observe that their campaign in defense of individual liberty against collective regulation required collective action, “employer solidarity” and individual sacrifices to benefit the group.  Indeed, their campaigns were often undermined by the actions of self-interested individuals, employers who displayed an inclination not to “give their time to anything that will further the interests of the group. (Pearson 2016, 160, 162).  Like their union opponents, employers’ organizations face a collective action problem, the need to mobilize individual resources to produce public goods. Pearson’s greatest contribution is to show how these organizations addressed this problem, and how they used ideas — the ideology of individual liberty — to mobilize their constituents.  What socialism was for the working-class movement, progressivism became for America’s employers.

Pearson’s work should be read and read carefully by all interested in the history of the Progressive Era, the history of employer organizations, and American political thought.  His work is Labor History in the broadest and finest sense, the history of the development of American capitalist society.

References:

Beckert, Sven. 2014. Empire of Cotton: A Global History. New York: Knopf.

Cowie, Jefferson. 1999. Capital Moves: RCA’s Seventy-Year Quest for Cheap Labor. Ithaca: Cornell University Press.

Ernst, Daniel R. 1995. Lawyers against Labor: From Individual Rights to Corporate Liberalism. The Working Class in American History. Urbana: University of Illinois Press.

Friedman, Gerald. 1998. State-Making and Labor Movements: France and the United States, 1876-1914. Ithaca: Cornell University Press.

Friedman, Gerald. 2007. Reigniting the Labor Movement: Restoring Means to Ends in a Democratic Labor Movement. Abingdon, UK: Routledge.

Harris, Howell John. 1982. The Right to Manage: Industrial Relations Policies of American Business in the 1940s. Madison University of Wisconsin Press.

Harris, Howell John. 2006. Bloodless Victories: The Rise and Fall of the Open Shop in the Philadelphia Metal Trades, 1890-1940. New York: Cambridge University Press.

Howell, Chris. 1992. Regulating Labor: The State and Industrial Relations Reform in Postwar France. Princeton: Princeton University Press.

Howell, Chris. 2005. Trade Unions and the State: The Construction of Industrial Relations Institutions in Britain, 1890-2000. Princeton: Princeton University Press.

Leon, Cedric de. 2015. The Origins of Right to Work: Antilabor Democracy in Nineteenth-Century Chicago. Ithaca: ILR Press/Cornell University Press.

Pearson, Chad. 2016. Reform or Repression: Organizing America’s Anti-Union Movement. American Business, Politics, and Society. Philadelphia: University of Pennsylvania Press.

Phillips-Fein, Kim. 2009. Invisible Hands: The Making of the Conservative Movement from the New Deal to Reagan. New York: W. W. Norton.

Richards, Lawrence. 2008. Union-Free America: Workers and Antiunion Culture. The Working Class in American History. Urbana: University of Illinois Press.

Sidorick, Daniel. 2009. Condensed Capitalism: Campbell Soup and the Pursuit of Cheap Production in the Twentieth Century. Ithaca: ILR Press/Cornell University Press.

Jerry Friedman has served as the U.S. editor of Labor History since 2003.

Copyright (c) 2016 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 (June 2016). All EH.Net reviews are archived at http://eh.net/book-reviews/

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

Rockefeller Philanthropy and Modern Social Science

Author(s):Seim, David L.
Reviewer(s):Critchlow, Donald T.

Published by EH.Net (December 2014)

David L. Seim, Rockefeller Philanthropy and Modern Social Science. London: Pickering and Chatto, 2013.  ix + 265 pp. $120 (cloth), ISBN: 978-1-84893-391-0.

Reviewed for EH.Net by Donald T. Critchlow, Department of History, Arizona State University.

In this age of excessive wealth, the Rockefellers, John D. and his son John D. Jr., in the early twentieth century provide an example of how great wealth can be used to better the world.  Through the establishment of the Rockefeller Foundation, huge sums of money were given to philanthropic causes.  The Rockefeller Foundation’s greatest contribution arguable lay in the advancement of medicine, but its efforts in education and the social sciences were notable.

Historian David Seim focuses his short book on the Rockefeller philanthropy in the social sciences from 1900 through 1920.  Seim eschews deep analysis for a straight-forward narrative of Rockefeller involvement in a wide-range of projects to support individual social scientists, advance social science research and education, and institutionalize the social sciences within universities and inter-disciplinary research institutions.  His book reads like a lengthy institutional report on a dizzying array of projects, but the wealth of information contained in his study is rewarding for any scholar interested in the history of the social sciences, university education, race relations, and public policy in the twentieth-century.

The period from the late nineteenth century up to the Great Depression starting in 1929 can be described as the “Golden Age” of the American social sciences. The emergence of the modern social sciences in this period, so ably described by historians such as Thomas Haskell, Barry Karl, Lawrence Cremin, Mary Furner, and others, projected an optimism that empirical social science research could better the world. The accumulation of empirically derived knowledge about human behavior and nature, these early social scientists maintained, was critical to reforming society, ensuring progress, and overcoming what they believed was a lag between scientific and technological advancement and traditional culture and customs. The confidence of early social scientists in their role in advancing society manifested hubris, but in the process American higher education was transformed and the social sciences became institutionalized. John D. Rockefeller, his son, and a brilliant staff played a critical role in this transformation.

Having earned a fortune in oil, John D. Rockefeller, a devout Baptist, believed that his wealth should be put to use in bettering the world.  At first he directed his charity toward mostly missionary organizations, educational institutions, and projects. From the outset he gave significant funds to African-American and Native American causes, including black seminaries and Indian schools. Overwhelmed by requests for support — sometimes reaching hundreds of letters each day — Rockefeller hired Dr. Frederick T. Gates, a Minneapolis minister, to organize his philanthropic activities. After retiring in 1896 from business, John D. Rockefeller joined with his son, John D. Junior, to direct his philanthropy. In 1901, they decided to establish the Rockefeller Institute for Medical Research. This was followed by the establishment of the General Education Board, which directed much of its money toward the South and black education. In 1913, they established the Rockefeller Foundation. With the specific goal of serving “The Well Being of Mankind throughout the World” (Seim, pp. 58-59). The Rockefeller Foundation collaborated with the Carnegie Institution and the Russell Sage Foundation in promoting the social sciences.

The first efforts of the Rockefeller Foundation were small, providing financial support to the Bureau of Social Hygiene, a Division of Industrial Relations, and an Institute of Economics (1922), which later developed into the Brookings Institution.  The Bureau of Social Hygiene provided support for research into the “prostitution problem,” eugenics, and the establishment of Margaret Sanger’s American Birth Control League.

The turning point in Rockefeller’s involvement in the social sciences came with the establishment of the Laura Spelman Rockefeller Memorial Fund in 1918, named after Rockefeller’s late wife. With an original endowment of $13 million, later extended to $74 million, an extensive program developed providing funds to assist the well-being of women and children and providing major resources to an effort to promote the broad advancement of knowledge, methods and application in the social sciences. The first years of the Spelman Memorial Fund focused on women and children, including support for the East Harlem Health Center, the Maternity Center Association of Manhattan, the YMCA and YWCA, the Boy Scouts and Girl Scouts, the Salvation Army, and the American Child Health Association. Headed by Beardsley Ruml, a University of Chicago trained Ph.D., who had studied with James R. Angell, the Memorial Fund turned its attention to the advancement of the social sciences in 1923. Key advisers such as Abraham Flexner, Raymond Fosdick, and Henry Embree played important roles in shaping the Memorial Fund program.

Seim details the multiple activities of the Spelman Memorial Fund through specific grants to educational institutions, individual research projects, the creation of research centers, and areas of research.  Seim ably outlines the full extent of these projects, showing how Ruml and his associates carefully developed and directed a program to fund the social sciences in America.  The major focus of this program was to redress what was seen as a cultural lag in American society, and to develop knowledge useful to maintaining what was described at the time as “social control” in human behavior. By social control, as Seim observes, Rockefeller people meant social advancement. This was a reform agenda that sought to distinguish between narrow business and class interests and empirical research by non-partisan expertise.

As these research programs developed, Ruml and his advisers expressed particular concern that funds be targeted toward institutional advancement within the universities and interdisciplinary organizations. Ruml did not limit funding to only American universities. In 1923, the London School of Economics began a long-term relationship with the Rockefeller Foundation.

In America, Ruml targeted funding major institutions, including the University of Chicago, which was founded largely with John D. Rockefeller money in 1892. Spelman Memorial funds provided vital in developing what became known as the Chicago School in Sociology. Much of the Chicago school of sociology focused on studies of ethnic and race relations. This focus on race relations was evident as well in funding to the University of North Carolina, where major research was conducted on the state and the means of bettering race relations in the South. At Columbia University in New York, Rockefeller funded major research on black southern migration to the North. Major Spelman Memorial grants went to Harvard University, especially to support the pioneering work of G. Elton Mayo.  Other funding — also on race relations — went to Western Reserve University in Cleveland, and Charles S. Johnson at Fisk University. A graduate student of Robert E. Park at University of Chicago, Johnson published in 1930 The Negro in American Civilization.

Spelman Memorial funds were directed to China, the Soviet Union, Sweden, and Western Europe, often toward research in what now would be called economic development. Seim notes that one of the black marks on Spelman Memorial funding during this period was support of eugenics research in the United States, as well as in Australia and Germany, where funds were used to support the Kaiser Wilhelm Institute for Psychiatry and the Kaiser Wilhelm Institute for Anthropology, Eugenics and Human Heredity. At the same time, Ruml supported research in international relations with a particular goal of aiding the League of Nations. Major funding helped launch the Social Science Research Council, under the direction of University of Chicago political scientist Charles Merriam. Less attention was given to the humanities, although the fund directed some funding toward historians, especially in France.

Seim ends his study with the merging of the Spelman Fund into the Rockefeller Foundation in 1929.  In accomplishing his intent to explain “the creation of the ideal of neutral, public-oriented social scientists (p. 239), Seim does not evaluate more fundamental questions raised by the rise of specialized, empirical social science research. The mindset of Ruml and the Rockefeller Foundation assumed that empirical social science research would improve the world. In many ways, it did and continues to do so today. Yet the mindset of early Rockefeller Foundation officers often precluded larger fundamental questions that had been explored by earlier philosophers and political thinkers: The ancient Greeks, Plato and Aristotle, asked basic questions as to the meaning of truth, justice, and a good society?  Adam Smith and David Hume examined what makes for a well-ordered society?  Alexis de Tocqueville, less than a century before the founding of the Rockefeller Foundation, asked about the relationship of equality and liberty in a democratic society, while warning of a “soft-despotism” that comes with a breakdown in civil society and the rise of a bureaucratic state. Already in the 1920s, political thinkers such as Ludwig von Mises and F.A. Hayek were challenging the hubris of economic planners and regulators. Earlier thinkers may have reached wrong conclusions, but debate over these fundamental issues rests generally outside the realm of narrow empirical social science research, as envisioned by the “new” social science in the early twentieth century.

The new social scientists in this golden age rejected the deductive reasoning of the past –the ancient Greeks and Christian theologians. The new social scientists found such debate maddening and ultimately irresolvable.  Yet, without dismissing the importance of the contributions that empirical modern social science can impart to our understanding of the world — often funded then and today by philanthropic foundations — the question that should have confronted the promoters of the new social sciences was simply: Are we too narrow, too exclusive, and too confident as to the ultimate contribution which we can make to what makes for a just, well-ordered, liberal society in our often facile dismissal of previous thinkers?

Donald T. Critchlow is Director of the Arizona State University Center for Political Thought and Leadership. His most books include The Brookings Institution: Expertise and the Public Interest in a Democratic Society; When Hollywood Was Right: How Movie Moguls, Film Stars, and Big Business Remade American Politics; and A Very Short Introduction to American Political History (forthcoming).

Copyright (c) 2014 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 (December 2014). All EH.Net reviews are archived at http://eh.net/book-reviews/

Subject(s):History of Economic Thought; Methodology
Social and Cultural History, including Race, Ethnicity and Gender
Geographic Area(s):North America
Time Period(s):20th Century: Pre WWII

John Allen James: A Scholarly Remembrance

Submitted by: Chris Hanes, Hugh Rockoff, Mark Thomas and David Weiman

John anniversary 2013

John entered the MIT graduate program during the early, lofty days of the “new” economic history, and emerged as one of its most deft, sensible and versatile practitioners.  His PhD dissertation—directed by Peter Temin—exemplifies the promise of this new approach to historical analysis.  It addresses a central issue in American political economic development, the formation of a more integrated (or “perfect”) money market in the late nineteenth-century.  Influenced by the earlier contributions of Lance Davis and Richard Sylla, John set out to document systematically the timing and spatial extent of this financial innovation, and then to explain why it occurred where and when it did.  He adapted current finance theory (CAPM) to the historical context by incorporating possible market imperfections due to spatial factors such as local market power.  He collected mounds of data on national banks across the country to derive average annual loan rates—the key variable to be explained —over the period 1888 to 1911.

John’s results, subsequently published in his early scholarly articles (one of which was awarded the prestigious Arthur H. Cole prize by the Economic History Association) and then masterfully synthesized in his book Money and Capital Markets in Postbellum America, still constitute the received wisdom on this topic.  Part of the staying power of John’s work can be attributed to the wide range of techniques that he mastered and used.  John refined the art of descriptive statistics especially graphical analysis—or “eye balling the data” in his words—but he also built sophisticated models and tested them using the most current econometric methods.  And then true to his calling as both economist and historian, he constructed a compelling narrative showing the interaction between popular (or in the case of regional interest rates, more accurately Populist) politics and banking development.  First, he showed that the convergence of bank rates to levels in the Northeast occurred unevenly across the regions of the U.S.  It was most pronounced in the Midwestern and Pacific Coast states, and least evident in the South.  The latter observation was the subject of a separate article on Southern financial underdevelopment, and resurfaces in his recent co-authored research on the evolution of the American currency-monetary union.  Second, he dated this convergence from the late 1880s, timing which defied the alternative hypotheses based on the formation of a national commercial paper market (which occurred earlier) and passage of relevant federal banking reforms (in 1900).  Finally, his results emphasized the importance of local market power as a factor in explaining the delayed and uneven narrowing of regional interest differentials.  Reinforcing this conclusion, John marshaled statistical and qualitative evidence relating the erosion of bank market power to the liberalization of state banking laws in the 1880s, but only where populist candidates challenged incumbents.  Regional differences in the risks of lending, although present, it turned out were of secondary importance in explaining regional differences in interest rates.

John’s subsequent research shows his continued fascination with the manifold, profound transformations in the American economy from the Civil War era through the Roaring Twenties.  He contributed significantly to the debates over the first and second industrial revolutions in a series of articles on the causes and consequences of technological innovation over the nineteenth century.  He first investigated whether labor scarcity induced American manufacturers to adopt more capital-intensive, labor-saving (that is mechanical) innovations.  His most widely cited paper on this issue, co-authored with then University of Virginia colleague Jonathan Skinner, provided the definitive resolution of the “labor scarcity” paradox, showing that new mechanical technologies substituted for relatively scarce skilled labor but were strategic complements to unskilled labor and natural resources.  In turn, the James-Skinner view corroborates empirically an alternative frontier thesis, which emphasizes America’s relative abundance of natural resources and not the lure of abundant farm land on labor supplies.  Applying a similar production function analysis to the late nineteenth century period, John also furnishes one of the few statistical tests of Alfred Chandler’s influential thesis relating shifts in the pattern of technological innovation to the rise of big business.

The James-Skinner article is also noteworthy for its application of general equilibrium simulation modeling in economic history.  John had first deployed this methodology in his analysis of U.S. tariff policy before the Civil War.  Armed with a new sophisticated—and disconcertingly intractable—technique for deriving general equilibrium outcomes, John corroborates the conventional view on the distributional impacts of antebellum tariffs: all other things equal, they burdened Southern cotton exporters but benefitted Northern manufacturers and their workers.  At the same time he challenges the mainstream by suggesting that average tariff rates across the period may have been economically “optimal.”

John also made many important contributions to the general macroeconomic history of prewar United States. Working solely and with several co-authors including Christopher Hanes, Jon Skinner, and Mark Thomas, John’s program embraced pay and wealth inequality during the first industrial revolution; public and private savings behavior and economic growth; unemployment-inflation dynamics and the shifting Phillips curve relationship; and changes in the sources and extent of unemployment and cyclical fluctuations.  John’s work in these areas appealed to macroeconomists and made use of the latest econometric methods.  His 1993 article in the American Economic Review pioneered the use of structural vector autoregression analysis in economic history.  A decade later he published another paper in the AER, which used nineteenth century wage data to look for evidence of downward nominal wage rigidity, a phenomenon that had only recently become a focus of research in monetary policy (and has become even more relevant in the post-2008 slump).  Though much of John’s work in these areas appeared in general-interest economics journals, it displayed all the virtues of the best economic history.  John was careful to account for peculiarities of historical data and institutions, and to point out the implications of his findings for the larger sweep of American social history.

John’s foray into the history of U.S. savings tackled thorny questions at the macro and micro levels.  Complementing his earlier work on the impact of Civil War debt repayment (or public savings) on late nineteenth century growth, John, in tandem with Skinner, analyzed the dramatic rise in the personal savings rate during the first industrial revolution (published in a volume that placed him among the elite in the profession).  True to form, they identified a novel mechanism operating through changes in the occupational rather than the age distribution of the population.  And ironically (at least for John), their results downplayed the importance of financial market innovations, such as the spread of deposit banking so important in his earlier work.  But typical of John’s commitment to following the lead of the data, he could not and did not resist the apparent paradox.

A number of years later John investigated the microeconomics of saving behavior with former Virginia graduate student Michael Palumbo and colleague Mark Thomas.  Grounded in the historical equivalent of ‘big data’—almost 28,000 observations of late 19th century working-class households from Federal and State Bureau of Labor Statistics surveys—they modeled the distribution of savings by age group, derived estimates of the persistence of family income and savings rates over time, and then simulated wealth accumulation by 10,000 model households.  Their striking conclusions challenged critics of old-age insurance and working-class profligacy: workers did not save at higher rates in the era before Social Security than in the 1980s.  They also showed that few late nineteenth century working class households saved enough before age 65 to meet their living expenses in old age (an expected 10 more years of life), and conjectured that they likely depended on their children, in particular co-habitation with an older son or daughter in the very houses where they had raised their families.  Further research revealed that workers smoothed their consumption over a medium-period time horizon, indicating the influence of precautionary savings motives in response to a world of considerable riskiness from unemployment, illness, incapacity, and premature death of the household head.  Attesting to his growing interest in Japan, John (in work with Isoa Suto) extended this approach to Japanese savings behavior in the era before the social safety net.[2]

John’s other major contributions to the micro-economic foundations of macro-economic outcomes focused on wage and unemployment dynamics in late 19th century labor markets.  In characteristic fashion, he collected all available data on these topics and then framed questions of historical and current import.  Besides challenging earlier research showing signs of nominal wage rigidity, John also investigated and did not find evidence of increasing wage inequality over the period.  On the unemployment front, he estimated flows into and out of jobs based on the 1885 Massachusetts census, and found evidence of significant positive duration dependence, for employment and non-employment spells.  With a vaster dataset (containing over 100,000 observations), John estimated the natural rate of unemployment in 1909 to be just under 6 percent, strikingly similar to estimates today.  To explain this relatively high rate, his simulation analysis, which divided the labor market into stable-primary and floater-secondary workers, pointed to an eclectic mix of factors: seasonal disturbances for many stable workers, lay-offs for workers in cyclically sensitive sectors, and brief, relatively frequent spells for the floaters.  The paper, co-authored with Mark Thomas, won John his second Arthur H. Cole Prize from the Economic History Association.  Their joint work also challenged the findings of Christina Romer by showing that unemployment was more cyclically volatile during America’s first Gilded Age than it was during its Golden Age (in the post-WWII period).  His broader conclusion from these various strands of research is both simple and striking—labor markets and the macro-economy worked differently in the past and historians need to focus on the role of changing institutions and changing policies to try to explain how and why history matters.

Just prior to his sudden and untimely death, John returned to a topic briefly addressed in his dissertation and subsequent book on banking-financial markets in postbellum America.  At a St. Louis Fed conference, he presented data showing the increased efficiency of a largely private, decentralized banking system in greasing the wheels of commerce by moving money from one location to another, even across the country, at relatively low cost.  Teaming up with David Weiman, they explained this trend by the formation of a tiered network of correspondent banks centered on New York.

James and Weiman elaborated this initial paper into a book-length project to explain the evolution of this neglected economic infrastructure from the demise of the Second Bank of the United States to the formation of the Fed.  Informed by current policy debates, they conceived these transformations in terms of the “benefits and costs” of alternative institutional forms—private versus public and hierarchical networks versus bureaucracies.  En route, they decided to write on the Civil War era banking legislation, which institutionalized the emerging private correspondent banking network.  Their initial foray uncovered a striking connection between the adoption of a common currency and a longer-term trend toward a “more perfect” bank money (or payments) union.

Armed with this serendipitous result, James and Weiman have broadened the scope of their project to show the complex interplay between the “punctuated” evolution of the interbank payment network and the American monetary union.  Conceived along these lines, their book (in progress with a manuscript expected by the end of 2015) will complete what for John was a lifetime’s exploration of the development of the banking system in postbellum America.  Banks, we know, are peculiar financial institutions, both credit and payments intermediary.  John’s first book Money and Capital Markets analyzed their former dimension, and his forthcoming book will attend to the latter.

John’s scholarly contributions cannot be measured solely by his outstanding research record.  He was an academic mensch, to use a most fitting Yiddish expression.  John never refused the thankless tasks of a productive scholar—the endless referee reports, book reviews and discussant comments—but even when critical, he always struck a constructive tone sweetened with a good dose of his dry wit.  (In the case of the discussants’ role, we should also note that ever the cosmopolitan John would rarely pass up the opportunity to venture far and wide to see new sites and especially opera productions.)  But John’s spirit truly shone through in his interactions with younger scholars from all walks of intellectual life.  He was an intellectual gourmand ever curious to broaden his own substantive and theoretical-methodological horizons, but also a genuinely gifted mentor who guided others down their own paths, not his own.  And he was always ready to share his data, and willing to explain how to use them.  This aspect of John’s career can be best measured by the outpouring of affection from his “juniors,” who now can proudly call him a colleague, collaborator, and friend.  And they all describe him in virtually identical terms: brilliant, probing, curious, supportive, generous, decent, kind, humane, compassionate and passionate.  We are sure that this list is not complete but can attest to one fact.  John will be sorely missed by all of those whose lives he touched so profoundly.

 

Selected Highlights from John’s Career

Capitalism in Context: Essays on Economic Development and Cultural Change in Honor of R. M. Hartwell, ed. (with Mark Thomas). Chicago: University of Chicago Press, 1994.

Money and Capital Markets in Postbellum America. Princeton: Princeton University Press, 1978.

“Political Economic Limits to the Fed’s Goal of a Common National Bank Money: The Par Clearing Controversy Revisited” (with David F. Weiman). Research in Economic History.

“Main Street and Wall Street: The Macroeconomic Consequences of New York Bank Suspensions, 1866 to 1914″ (with David F. Weiman and James A. McAndrews), Cliometrica,7 (2013), 99-130.

“The National Banking Act and the Transformation of New York Banking after the Civil War” (with David F. Weiman), Journal of Economic History, 71(June, 2011), pp. 340-364

“Early Twentieth-Century Japanese Worker Saving: Precautionary Behavior before a Social Safety Net” (with Isao Suto), Cliometrica, forthcoming.

“From Drafts to Checks: The Evolution of Correspondent Banking Networks and the  Formation of the Modern U.S. Payments System, 1850-1914″ (with David F. Weiman), Journal of Money, Credit, and Banking, 42 (April, 2010), pp. 237-265.

“Consumption Smoothing among Working-Class American Families before Social

Insurance” (with Michael Palumbo and Mark Thomas), Oxford Economic Papers, 59 (October, 2007), pp. 606-640.

“The Political Economy of the U.S. Monetary Union: The Civil War Era as a Watershed” (with David F. Weiman), American Economic Review Papers and Proceedings, 97 (May, 2007), pp. 271-275 .

“Romer Revisited: Long-term Changes in the Cyclical Sensitivity of Unemployment” (with Mark Thomas), Cliometrica, 1 (April, 2007), pp. 19-44.

“Have American Workers Always Been Low Savers?” Patterns of Accumulation among Working-Class Households, 1885-1910,” (with Mark Thomas and Michael Palumbo), Research in Economic History, Volume 23, Amsterdam: Elsevier, 2005. Pp. 127-175.

“Financial Clearing Systems” (with David F. Weiman). In Richard Nelson, ed.,

Complexity and Limits of Market Organization, New York: Russell Sage, 2005. Pp. 114-155.

“A Golden Age? Unemployment and the American Labor Market, 1880-1910″ (with Mark Thomas), Journal of Economic History, LXIII (December, 2003), pp. 959-994.

“Wage Adjustment under Low Inflation: Evidence from U.S. History” (with Christopher L. Hanes), American Economic Review, 93 (September, 2003), pp. 1414-1424.

“Industrialization and Wage Inequality in Nineteenth-Century Urban America” (with Mark Thomas), Journal of Income Distribution, 9 (2000), pp. 39-64.

“Savings and Early Economic Growth in the United States and Japan,” Japan and the World Economy, 11 (1999), pp. 161-83.

“The Early History of Nominal Wage Rigidity in American Industrial Labor Markets,” Rivista di Storia Economica, XIV (December, 1998), pp. 243-73.

“The Rise and Fall of the Commercial Paper Market, 1900-1930.” In: M. Bordo and R. Sylla, eds., Anglo-American Finance: Financial Markets and Institutions in 20th Century North America and the UK, Homewood, IL: Dow Jones-Irwin, 1996. Pp. 219-59.

“Reconstructing the Pattern of American Unemployment Before World War I,” Economica, 62 (August, 1995), pp. 291-311.

“Job Tenure in the Gilded Age.” In: George Grantham and Mary MacKinnon eds., Labour Market Evolution, London: Routledge Kegan Paul, 1994. Pp. 185-204.

“Economic Instability in Nineteenth-Century America,” American Economic Review, 83 (September, 1993), pp. 710-31.

“The Stability of the Nineteenth-Century Phillips Curve Relationship,” Explorations in Economic History, XXVI (April, 1989), pp. 117-34.

“Sources of Savings in the Nineteenth-Century United States” (with Jonathan Skinner). In: Peter Kilby, ed., Quantity and Quiddity: Essays in U.S. Economic History in Honor of Stanley Lebergott, Middletown, CT: Wesleyan University Press, 1987. Pp. 255-85.

“The Resolution of the Labor Scarcity Paradox,” (with Jonathan Skinner), Journal of Economic History, XLV (September, 1985), pp. 513-40.

“The Use of General Equilibrium Analysis in Economic History,” Explorations in Economic History, XXI (July, 1984), pp. 231-53.

“Public Debt Management Policy and Nineteenth-Century American Economic Growth,” Explorations in Economic History, XXI (April, 1984), pp. 192-217.

“Structural Change in American Manufacturing, 1850-1890,” Journal of Economic History, XLII (June, 1983), pp. 433-60.

“The Optimal Tariff in the Antebellum United States,” American Economic Review, LXXI (September, 1981), pp. 726-34.

“Some Evidence on Relative Labor Scarcity in Nineteenth-Century American Manufacturing,” Explorations in Economic History, XVIII (September, 1981), pp. 376-88.

“Financial Underdevelopment in the Postbellum South,” Journal of Interdisciplinary History, XI (Winter, 1980), pp. 443-54.

“Cost Functions of Postbellum National Banks,” Explorations in Economic History, XV (April, 1978), pp. 184-95.

“The Welfare Effects of the Antebellum Tariff: A General Equilibrium Analysis,” Explorations in Economic History, XV (July, 1978), pp. 231-56.

“Banking Market Structure, Risk, and the Pattern of Local Interest Rates in the United States, 1893-1911,” Review of Economics and Statistics, LVIII (November, 1976), pp. 453-62.

“The Conundrum of the Low Issue of National Bank Notes,” Journal of Political Economy, LXXXIV (April, 1976), pp. 359-67.

“The Development of the National Money Market,” Journal of Economic History, XXXVI  (December, 1976), pp. 878-97.

“Portfolio Selection with an Imperfectly Competitive Asset Market,” Journal of Financial and Quantitative Analysis, XI (December, 1976), pp. 831-46.

 

[1] Composed by Christopher L. Hanes (SUNY-Binghamton), Hugh Rockoff (Rutgers University), Mark Thomas (University of Virginia), and David F. Weiman (Barnard College, Columbia University)

 

[2] John had earlier explored the different historical savings patterns in Japan and the U.S. and their implications for economic growth.

 

 

The Great Persuasion: Reinventing Free Markets since the Depression

Author(s):Burgin, Angus
Reviewer(s):Emmett, Ross B.

Published by EH.Net (December 2013)

Angus Burgin, The Great Persuasion: Reinventing Free Markets since the Depression. Cambridge, MA: Harvard University Press, 2012. v + 303 pp. $30 (hardcover), ISBN: 978-0-674-05813-2.

Reviewed for EH.Net by Ross B. Emmett. James Madison College, Michigan State University.

Neo-liberalism has had several histories written recently. Daniel Stedman Jones (2012) linked the stories of F.A. Hayek and Milton Friedman to the rise of Margaret Thatcher and Ronald Reagan, crossing intellectual history with political history. Phil Mirowski and Dieter Plehwe (2009; see also Mirowski, 2013) provided us with the account of a unitary social movement – a “thought collective” as they called it. Stedman Jones’ account fell short because he lacked a clear understanding of how ideas are translated into institutions and rules via political entrepreneurship (see Leighton and López, 2012 for one model of how political entrepreneurship works). His account both underestimated the subtleties of the ideas of theorists in their academic setting, and overestimated the role of political leaders in translating ideas into the political realities. Mirowski and Plehwe brought the social movement emerging from Mont Pelerin to life. But all too often in the essays included in their volume the ideas and actions of the individuals within the movement were evaluated solely in terms of the outcomes of the movement as a whole – outcomes that were perceived to be threats to all good things; like democracy, human welfare, freedom and the like.

Angus Burgin also sets a lofty objective; but he gives us a much more subtle and nuanced history than either of two accounts mentioned above. “The history of the Mont Pèlerin Society (MPS) can, and to some extent should, be read as an extended plea for the relevance of the history of ideas to the history of politics” (p. 224), he tells us in his conclusion. Agreed. Yet, unlike the one-dimensional, and uni-directional, studies cited above, the historical “relationship between theory and praxis” among members of MPS that he narrates for us reveals the nuanced subtleties of “the dynamic nature of a historical transformation” (p. 224); a transformation in the way we configured the relationship between the state and markets during the latter half of the twentieth century. In Burgin’s account, living, breathing human beings communicate, argue, negotiate, pontificate, and yes, even conspire in their efforts to encourage and preserve “capitalist modes of social organization” (p. 225).

What “capitalism” meant was itself a question. Frank Knight, one of the contributors to the discussion who rightly figures in Burgin’s narrative as a key participant in the early years, never used the word “capitalism” in his little textbook The Economic Organization (2013). Yet Knight’s book did much to revitalize acceptance among the future members of MPS of the benefits of social organization via the price mechanism in an “exchange system” (Knight, 2013, p. 23-24). One of the reasons Knight (in contrast, say, to Ludwig von Mises) figures so prominently in Burgin’s account is that he could never settle on a simple account of the complex relationship among the political, social, economic, and even moral aspects of a society which decided (consciously? or simply as a result of accepting other things like the rule of law, family control of property, certain social customs, etc.) to allow markets to play a central role in social organization (see p. 112-122). Knight’s concerns were shared, to a greater or lesser extent, by other MPS members: Bernard de Jouvenel, Wilhelm Röpke, and Albert Hunold (who served as secretary for the Society in its early years, but eventually left it) for example. And even Hayek, whose intellectual leadership is central to Burgin’s account, reconfigured his understanding of the relation between markets, the state, and various forms of social organization several times.

If anyone is the “hero” in Burgin’s narrative, it is Milton Friedman, who took over leadership of the MPS at the moment when conflict over the relation between capitalism defined narrowly in market terms, and capitalism defined in terms of individual liberty, came to a head. It was to Friedman that Jouvenel wrote his famous letter of resignation from the Society, and it was Friedman that wrote the polemic Capitalism and Freedom (2002) that replaced Hayek’s Road to Serfdom (1994) as the call-to-arms for the next generation of MPS members. Interestingly, Capitalism and Freedom was originally published in the same year that Hayek left Friedman’s lair in Chicago for retirement back on the continent, at the University of Freiburg. Capitalism and Freedom articulated a liberal social philosophy that was “less conflicted than those of the leading figures in the early Mont Pèlerin Society” (p. 177). Unlike his predecessors, who wrote general accounts of the benefits of a liberal society, “Friedman’s consistent preference for unconstrained markets combined with his methodological orientation toward empiricism to inspire him to propose an astonishing range of specific alterations to governmental practice” (p. 178). Among conservative policy-makers in America and Europe, the MPS had been held at arms-length, admired at a distance, and kept away from the practice of policy making. Friedman changed all that. His academic reputation and willingness to engage the public in their own terms “made him a formidable figure in the conservative intellectual world.” But he also possessed a toolbox equipped with novel, explicit ideas “that were clearly derived from and representative of a singular worldview” (p. 184). The combination of these qualities provided him with the means to change the public debate over markets in America, and eventually around the world.

As important as Friedman’s ideas became, and as narrowly focused on the efficiency gains from adopting market-based solutions to social problems the MPS became, there were always those who asked the Society to recall the broader dimensions of social and moral inquiry that had so animated its early members. Burgin spends the penultimate chapter of the book on this debate over the moral capital of the Society, concluding that the Friedman shift – dare I call it a version of the Samuelson’s “F-Twist” (1963)? – may have captured the spirit of an age, but it left a Society that had abandoned the very “questions of value that Hayek had established [it] to address” (p. 213).

Earlier I said that, in Burgin’s account, we see human beings communicating and acting to encourage society’s re-engagement with capitalism. And yet, as I walk away from the book, it is his account of those human beings’ thinking that most captivates me. Thinking in the midst of praxis, I’m tempted to say, because it is not thought leading to action; nor action leading to thoughts. It is both together, and more. Burgin ends by urging modern MPSers to return to the critical openness of the early MPS to engagement with a broader understanding of capitalism in all its dimensions. Can modern proponents of capitalism engage the discontent with liberalism that troubled Knight and Jouvenel, Michael Oakeshott and Röpke? “We have accepted the virtues of markets but failed to determine how to integrate them into life as we wish it to be” (p. 226).

References:

Friedman, M. (2002). Capitalism and Freedom: Fortieth Anniversary Edition. Chicago: University of Chicago Press.

Hayek, F. A. (1994). The Road to Serfdom: Fiftieth Anniversary Edition. Chicago: University of Chicago Press.

Knight, F. H. (2013). The Economic Organization. New Brunswick, NJ: Transaction Publishers.

Leighton, W. and López, E. (2012). Madmen, Intellectuals and Academic Scribblers: The Economic Engine of Political Change.  Stanford, CA: Stanford University Press.

Mirowski, P. (2013). Never Let a Serious Crisis Go to Waste: How Neoliberalism Survived the Financial Meltdown. London: Verso.

Mirowski, P. and Plehwe, D. (Editors) (2009). The Road from Mont Pelerin: The Making of the Neoliberal Thought Collective. Cambridge, MA: Harvard University Press.

Samuelson, P. A. (1963). “Problems of Methodology – Discussion,” American Economic Review, Vol. 53, No. 2 (Papers and Proceedings): 231-36.

Stedman Jones, D. (2012). Masters of the Universe: Hayek, Friedman, and the Birth of Neoliberal Politics. Princeton, NJ: Princeton University Press.

Ross B. Emmett’s publications include Frank Knight and the Chicago School in American Economics, Routledge (2009).

Copyright (c) 2013 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 (December 2013). All EH.Net reviews are archived at http://www.eh.net/BookReview

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

Technological Innovation in Retail Finance: International Historical Perspectives

Author(s):Bátiz-Lazo, Bernardo
Maixé-Altés, J. Carles
Thomes, Paul
Reviewer(s):Wardley, Peter

Published by EH.Net (November 2013)

Bernardo Bátiz-Lazo, J. Carles Maixé-Altés, and Paul Thomes, editors, Technological Innovation in Retail Finance: International Historical Perspectives. New York: Routledge, 2011.
xvi + 319 pp.  £85/$125 (hardback), ISBN: 978-0-415-88067-1.

Reviewed for EH.Net by Peter Wardley, Department of History, Philosophy and Politics, University of the West of England (Bristol).

Until recently there was a largely unbridged historiographic divide between monetary historians, interested largely in stories about monetary aggregates, economic performance and financial policy, and bank historians, authors of scholarly texts that recount the origins, growth and, on occasion, the demise, of specific financial institutions. However, over the last three decades this separation has been to some extent diminished, prompted in part by research that focuses on the application and organization of new technology in financial institutions. In part, this is a result of a widespread familiarity with personal computers along with a growing awareness of the importance of the role of information technology throughout the modern economy. More specifically, it has become increasingly apparent to those outside the financial sector that the processing of information within financial institutions is a major and dynamic factor that should not be neglected. If one of the earliest and most advertised events in this process was the “Big Bang,” that transformed the nature of business on the London Stock Exchange in October 1986, then the “Global Financial Crisis” of 2007-08 demonstrated the extent and significance of international networks that knit together the world’s financial institutions. In this environment, academic interest in the internal structures of banks has increased and analysis of the adoption and organization of information technology in the financial sector, previously almost unheard of, is now well-established. It is in this context that this edited collection makes a novel and valuable contribution by providing a comparative study of technological change in European and North American retail finance.

An editorial introduction, entitled “In Digital We Trust,” provides an enthusiastic and detailed justification for the study of the introduction and usage of information and telecommunication technology (ICT) in the financial sector. This stresses the evolutionary and contingent nature of the diffusion of ICT within financial institutions which varied according to the greatly differing environments that differed by the market segment they operated in, the economic circumstances they faced, and the social, legal, political and cultural settings in which they developed. However, a general pattern emerges in the largely hard-headed and realistic approach adopted by the managers who were responsible for the acquisition and productive use of new machines and applications; often the technology led to the adaptation of existing methods rather than the adoption of completely new managerial practices. As the twentieth century saw a sequence of technological innovations, which were largely incremental and adaptive in nature, for the most part a long term perspective is taken here. This recognizes the initial adoption of mechanical aids in the banking parlor (for example, the typewriter and telephone), then the employment of data recording instruments (adding machines) which was followed by increasingly complex data recording and processing machines (accounting machines, first powered manually and then by electricity). Computers of various types, from mainframe to micro, have been the most recent manifestation of this technological progression that depended on co-developed theoretical and scientific advances which have both sped up processing and increased memory capacity, approximately according to Moore’s law, at costs that have correspondingly diminished. The nature of this technological progression, as evident in the banking industry, is competently discussed in Lars Heide’s concluding chapter which might usefully be read as a guide to much that appears in the preceding chapters.

First, though, a note of caution. There was a major characteristic of retail finance, one that is really important in the first half of the twentieth century, the pre-mainframe era, which might not immediately strike readers who are more accustomed to the banking system of the United States which should have been more emphatically indicated here. In the U.S. the relatively small, single unit bank adopted mechanization in order to process the widest range of functions, from recording personal statements associated with the accounts of individuals to the assessment of the aggregate financial position of the bank. In Europe, and notably in England’s “Big Five” High Street banks, the relatively much larger, multi-unit branched bank tended to undertake these two distinct operations at different locations; the former at the branch and the latter at the bank’s head office. Once recognized, this fundamental distinction explains a great deal about the different rates and patterns of technological adoption and diffusion experienced across retail banking systems in different countries. Different technologies could be used for different purposes but similar technology could also be adopted in other environments to do different tasks. And, of course, there was some path dependency within systems that, for example, linked the adoption of mainframe computer systems after 1950 to the prior implementation of pre-World War II bank mechanization. Here it is interesting to note, at least in the British setting, that the staff associated with computerization do not appear to have learned as much as one might have expected from the experiences of their predecessors, the generation of then recently retired senior bank managers, who it might be argued had been more successful in the interwar years in introducing new technology. The evidence suggests that these pioneers appear to have a much clearer understanding of one the themes of this book: the machine had to serve the bank rather than dictate a radical recasting of organizational practices. These themes appear prominently in chapters here that provide national case-studies.

Martha Poon’s account of the transformation of the credit risk calculations provided by the Fair Isaac Scorecard system highlights the significance of gender, a factor that is less prominent in the chapters presented here than it might be. In her story, before the introduction of electronic system, credit applications were “put-out” as raw data to local housewives who produced coded reports which were then processed by female operators of key punching machines to be coded. Even with the consolidation of a more completely office-based, machine-driven system of data processing, important “heritage” aspects, residual remnants of past practices, now deeply embedded in the calibration of the credit of individual consumers, persisted even as credit scoring became increasingly digitalized and automated. By contrast, women play no visible role in Joakim Appelquist’s study of “Technical and Organizational Change in Swedish Banking, 1975-2003,” which begs the obvious question about the nature of gender (in)equalities in Nordic society. This chapter provides an explicitly specified model whereby the adoption of different generations of ICT, from mainframe to internet via PC-based LANS, correspond with stages of a shift from Tayloristic bureaucracies to post-Taylorisitic organizations “characterized by flattened management structures, outsourcing, etc.” (p. 74). However, rather than the de-skilling of the labor force in a period of new technology adoption, à la Braverman, Appelquist argues that Swedish banks re-skilled their staff either by re-training existing workers or by substituting existing employees with replacements who were better equipped to deliver personal banking services of a more skilled nature.

Joke Mooij provides an exemplary account of the adaptation of new managerial structures and adoption of novel technologies that accompanied the consolidation in 1972 of the Rabobank Nederland (Coöperatieve Centrale Raiffeisen-Boerenleenbank), one of the world’s largest banks; this was achieved by the consolidation of two agricultural co-operative banks that had used earlier machinery within distinctive corporate cultures. Both had shared an initial commitment to Raiffeisen principles, one of which stipulated unsalaried management that made them very different from contemporary Anglo-Saxon co-operative enterprises, and faced challenges with respect to this defining characteristic caused by the technological and organizational changes narrated here.

Bernardo Bátiz-Lazo and J. Carles Maixé-Altés provide a comparative assessment of ICT adoption in a different “non-standard” corporate institution, the Savings Bank, by providing an historical evaluation of their development in Britain and Spain between 1950 and 1985; here they contrast the achievement in Spain of economies of scope, in the form of product portfolio, with the search for economies of scale in Britain. In both stories political factors are demonstrated to be significant though different in character. In Spain collaboration in the acquisition and operation of ICT shared by locally orientated, and sometimes relatively small, members of the Confederation of Spanish Savings Banks (La Confederación Española Cajas de Ahorros, or CECA) allowed the associated development of distinct regionally-based institutions, each of which grew a clearly defined profile in its community.  This was far removed from the British experience. There, after over one hundred and seventy-five years of relative success in providing deposit facilities for inhabitants of their respective neighborhoods, and especially to the comparatively poor, the British state in the 1970s herded together seventy-five semi-autonomous Trustee Savings Banks into a single entity, the Trustee Savings Bank (TSB) that was subsequently floated on the London Stock Exchange in 1986. Unsurprisingly, the philanthropic motives of the pioneers of the TSB movement and the local orientation of each TSB were lost to history and within a decade the TSB was the subject of a “reverse-takeover” by Lloyds Bank. Nevertheless, the TSB has re-emerged recently when, at the insistence of the European Commission in 2012, its divestment was made a condition of the British state’s rescue package to salvage Lloyds Bank; however, the inaugurating publicity of the TSB Bank (sic) did not suggest that the re-emergence of a community-orientated financial institution devoted to the needs of the less well-off was imminent.

The role of the British state is also revealed by Alan Booth and Mark Billings in their assessment of “Techno-Nationalism, the Post Office and the Creation of Britain’s National Giro,” which documents the creation of “very curious beast indeed” (p. 171). In addition to attempts by the British state to foster an indigenous computer-building industry, a persistent theme of the 1960s and 1970s, which could be generalized to encompass even more long-standing and recurrent policies to stimulate “high-tech” manufacturing in Britain, this evidences a political divide between the two parties that formed governments in the two decades before 1979. First, after the Radcliffe Committee Report of 1957, the Conservative administration saw in a Giro system a handy tool to nudge the commercial banks such that they became more responsive to the needs of the economy and more willing to address the shortcomings of their business behavior. Thereafter, Tony Benn, as Post Master General and then as Minister of Technology, in a Labour government whose leader had lauded the benefits of a scientifically informed transformation of society, supported the Giro as a prominent IT project within the nationalized sector of the economy that could contribute to this objective. However, the history of the Giro demonstrates a number of problematic features of this policy, including the difficulties of obtaining new technological capabilities which were embodied in imported equipment at a time when Britain suffered from recurrent Sterling problems and public spending difficulties.

Public perceptions of technical change in the financial sector have always been important and senior bank officials watched keenly the response of their customers, first to mechanization in the interwar years and later to computerization. As Ian Martin documents in “Britain’s First Computer Centre for Banking: What Did This Building Do?”, Barclays Bank was eager to shape public opinion in 1961 when it opened its No.1 Computer Centre near Euston station in London. However successful Barclays was in persuading its customers of the merits and advantages of its innovative strategy, and contrary to the case presented here, this was not first time that customer accounting in Britain had been dislocated “from its traditional confines of the individual bank branch” to be relocated to a centralized facility. This had been achieved, in association with a very similar publicity campaign to that narrated here, by the Westminster Bank some thirty years earlier (Wardley, 2000). As this strategy was dependent upon the comprehensive mechanization of record keeping at its Head Offices (at Lothbury, hard by the Bank of England), readers should also treat with caution Martin’s associated statement that “British banks, with the exception of the Bank of Scotland …, did not make use of tabulating machines to perform centralised branch accounting” (p. 37). The Bank of Scotland, as with other banks in Scotland, was a laggard in this respect; in England, even the Co-operative Bank had mechanized by 1935.

Hubert Bonin’s “Mechanization of Data Processing and Accounting Methods in French Banks, circa 1930-1950” provides an excellent survey of the mechanizing bank that reviews the introduction of tabulators, accounting machines and electromechanical data processors in the context of financial organizations that adopted and continually adapted technical capabilities that reflected existing procedures and dynamic managerial strategies. Here new technology is always the handmaiden of “streamlining” that saw recurrent rounds of re-organization and standardization of information within banks. Bonin also identifies the extensive and eager exchange of information about mechanization among French banks, a tendency shared by contemporary English banks. However, and English contemporaries might have been surprised by its omission here, in France the formation of the Comité Permanent d’Organisation Bancaire in 1930 saw a collective agency created to encourage increased efficiency through information exchange concerning mechanization, more effective work organization, improved clearing arrangements and better statistics and costing data. Paul Thomes responds affirmatively to the question “Is There an ICT Path in the German Savings Banking Industry? (c. 1900-1970s)” by evidencing the recurrent pioneering role of savings banks relative to technology adoption both by Germany’s large commercial banks and by the co-operative banks that served both SMEs and agricultural enterprises. Some additional interesting questions are prompted by this chapter: how was it that German banks were able to introduce machine bookkeeping during the First World War and increase mechanization in World War Two when in Britain such resources were very deliberately directed by the state to military purposes? Why was it that the Banque d’Alsace-Lorraine so quickly came to correspond to the French pattern described by Bonin rather than the “IT path” that Thomes presents for German banks? What is more certain is that a contemporary bank manager would have recognized a near 100% enhancement of the claimed productivity benefits had a hardware salesman suggested to him that “a machine-booking clerk could manage 500 entries a day against 180 done by hand: an efficiency gain of nearly 300 percent” (p. 124). Unfortunately, not only is this calculation wrong but it is one of the few examples provided in this collection of an explicit assessment of the gains, expected or realized, attributable to the introduction of new technology.

Although not the major subject of this collection, technological developments are prominent in some chapters; these include Juan Pablo Pardo-Guerra’s micro history of the successive stages of automation that delivered digitalization at the London Stock Exchange and David Stearn’s account of the iterative responses implemented by Visa to meet technical and organizational challenges of implementing a global consumer payment card system. Mexico provides the setting for Gustavo Del Ángel-Mobarak‘s study of the evolution of interbank connectivity though the use of ICT by its banks after 1965 which, despite an interlude of public ownership, once more illustrates a number of general themes. A novel and distinctive development here demonstrates the long term and continuing nature of technical change in banking; as early as 1934 wireless radio transmitters were used to transfer information between corporate headquarters and branches within Mexico City and this system was nation-wide within a decade.

Overall, this innovative anthology serves to remind that two polar positions can be discerned in studies that assess the impact of new technology. On the one hand, the adoption of novel devices can be captured by a “Gee whiz” response that emphasizes a dramatic break with past practices. Its polar opposite, by contrast, emphasizes long-run continuities and incremental developments. In this examination of technical innovation in the banking sector we find elements of both though generally the evidence presented affirms strongly the “slowly but surely” approach that one would expect from bankers who are often regarded as natural conservatives until the public is sharply reminded that risk-taking is a day-to-day activity for financiers. However, here it might also be noted that in this text at least two essential factors do not get the attention they probably deserve: one is a consideration of cost-benefit analysis of the adoption of new technology, both in terms of the net savings aspired to and the reduction in costs actually achieved; the other is gender: the employment of female staff is a basic characteristic, if not universal feature, of technological change in the financial sector and less attention than is warranted is devoted to gender-related considerations.

Peter Wardley was editor of the annual review of IT for the Economic History Review (1990-95) and has written several articles and chapters on economic and business history. Among those relating to banking history are “The Commercial Banking Industry and Its Part in the Emergence and Consolidation of the Corporate Economy in Britain before 1940,” Journal of Industrial History, 3 (2000) 71-97 (see JIH 3 3 Wardley 2000 Banks low res) and “Women, Mechanization and Cost-savings in Twentieth-century British Banks and Other Financial Institutions” in Mike Richardson and Peter Nicholls, eds. (2011) A Business and Labour History of Britain: Case Studies of Britain in the Nineteenth and Twentieth Centuries.

Copyright (c) 2013 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 (November 2013). All EH.Net reviews are archived at http://www.eh.net/BookReview

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

Project 2000/2001

Project 2000

Each month during 2000, EH.NET published a review essay on a significant work in twentieth-century economic history. The purpose of these essays was to survey the works that have had the most influence on the field of economic history and to highlight the intellectual accomplishments of twentieth-century economic historians. Each review essay outlines the work’s argument and findings, discusses the author’s methods and sources, and examines the impact that the work has had since its publication.

Nominations were received from dozens of EH.Net’s users. P2K
selection committee members were: Stanley Engerman (University of
Rochester), Alan Heston (University of Pennsylvania), Paul
Hohenberg, chair (Rensselaer Polytechnic Institute), and Mary
Yeager (University of California-Los Angeles). Project Chair was
Robert Whaples (Wake Forest University).

The review essays are:

Braudel, Fernand
Civilization and Capitalism, 15th-18th Century Time
Reviewed by Alan Heston (University of Pennsylvania).

Chandler, Alfred D. Jr.
The Visible Hand: The Managerial Revolution in American Business
Reviewed by David S. Landes (Department of Economics and History, Harvard University).

Chaudhuri, K. N.
The Trading World of Asia and the English East India Company, 1660-1760
Reviewed by Santhi Hejeebu.

Davis, Lance E. and North, Douglass C. (with the assistance of Calla Smorodin)
Institutional Change and American Economic Growth.
Reviewed by Cynthia Taft Morris (Department of Economics, Smith College and American University).

Fogel, Robert W.
Railroads and American Economic Growth: Essays in Econometric History
Reviewed by Lance Davis (California Institute of Technology).

Friedman, Milton and Schwartz, Anna Jacobson
A Monetary History of the United States, 1867-1960
Reviewed by Hugh Rockoff (Rutgers University).

Heckscher, Eli F.
Mercantilism
Reviewed by John J. McCusker (Departments of History and Economics, Trinity University).

Landes, David S.
The Unbound Prometheus: Technological Change and Industrial Development in Western Europe from 1750 to the Present
Reviewed by Paul M. Hohenberg (Rensselaer Polytechnic Institute).

Pinchbeck, Ivy
Women Workers and the Industrial Revolution, 1750-1850 
Reviewed by Joyce Burnette (Wabash College).

Polanyi, Karl
The Great Transformation: The Political and Economic Origins of Our Time
Reviewed by Anne Mayhew (University of Tennessee).

Schumpeter, Joseph A.
Capitalism, Socialism and Democracy 
Reviewed by Thomas K. McCraw (Harvard Business School).

Weber, Max
The Protestant Ethic and the Spirit of Capitalism
Reviewed by Stanley Engerman.

Project 2001

Throughout 2001 and 2002, EH.Net published a second series
of review essays on important and influential works in economic
history. As with Project 2000, nominations for Project 2001 were
received from many EH.Net users and reviewed by the Selection
Committee: Lee Craig (North Carolina State University); Giovanni
Federico (University of Pisa); Anne McCants (MIT); Marvin McInnis
(Queen’s University); Albrecht Ritschl (University of Zurich);
Winifred Rothenberg (Tufts University); and Richard Salvucci
(Trinity College).

Project 2001 selections were:

Borah, Woodrow Wilson
New Spain’s Century of Depression
Reviewed by Richard Salvucci (Department of Economics, Trinity University).

Boserup, Ester
Conditions of Agricultural Growth: The Economics of Agrarian Change under Population Pressure
Reviewed by Giovanni Federico (Department of Modern History, University of Pisa).

Deane, Phyllis and W. A. Cole
British Economic Growth, 1688-1959: Trends and Structure
Reviewed by Knick Harley (Department of Economics, University of Western Ontario).

Fogel, Robert and Stanley Engerman
Time on the Cross: The Economics of American Negro Slavery
Reviewed by Thomas Weiss (Department of Economics, University of Kansas).

Gerschenkron, Alexander
Economic Backwardness in Historical Perspective
Review Essay by Albert Fishlow (International Affairs, Columbia University).

Horwitz, Morton
The Transformation of American Law, 1780-1860
Reviewed by Winifred B. Rothenberg (Department of Economics, Tufts University).

Kuznets, Simon
Modern Economic Growth: Rate, Structure and Spread
Reviewed by Richard A. Easterlin (Department of Economics, University of Southern California).

Le Roy Ladurie, Emmanuel
The Peasants of Languedoc
Reviewed by Anne E.C. McCants (Department of History, Massachusetts Institute of Technology).

North, Douglass and Robert Paul Thomas
The Rise of the Western World: A New Economic History
Reviewed by Philip R. P. Coelho (Department of Economics, Ball State University).

de Vries, Jan
The Economy of Europe in an Age of Crisis, 1600-1750
Review Essay by George Grantham (Department of Economics, McGill University).

Temin, Peter
The Jacksonian Economy
Reviewed by Richard Sylla (Department of Economics, Stern School of Business, New York University).

Wrigley, E. A. and R. S. Schofield
The Population History of England, 1541-1871: A Reconstruction

Project Coordinator and Editor: Robert Whaples (Wake Forest
University)

Economic History Classics

Selections for 2006

During 2006 EH.NET published a series of “Classic Reviews.” Modeled along the lines of our earlier Project 2000 and Project 2001 series, reviewers were asked to “reintroduce” each of the books to the profession, “explaining its significance at the time of publication and why it has endured as a classic.” Each review summarizes the book’s key findings, methods and arguments, as it puts it into the larger context and discusses any weaknesses.

This year’s selections are (alphabetically by author):

Selection Committee

  • Gareth Austin, London School of Economics
  • Ann Carlos, University of Colorado
  • John Murray, University of Toledo
  • Lawrence Officer, University of Illinois at Chicago
  • Cormac Ó Gráda, University College Dublin
  • Peter Scott, University of Reading
  • Catherine Schenk, University of Glasgow
  • Pierre van der Eng, Australian National University
  • Jenny Wahl, Carleton College

History of Workplace Safety in the United States, 1880-1970

Mark Aldrich, Smith College

The dangers of work are usually measured by the number of injuries or fatalities occurring to a group of workers, usually over a period of one year. 1 Over the past century such measures reveal a striking improvement in the safety of work in all the advanced countries. In part this has been the result of the gradual shift of jobs from relatively dangerous goods production such as farming, fishing, logging, mining, and manufacturing into such comparatively safe work as retail trade and services. But even the dangerous trades are now far safer than they were in 1900. To take but one example, mining today remains a comparatively risky activity. Its annual fatality rate is about nine for every one hundred thousand miners employed. A century ago in 1900 about three hundred out of every one hundred thousand miners were killed on the job each year. 2

The Nineteenth Century

Before the late nineteenth century we know little about the safety of American workplaces because contemporaries cared little about it. As a result, only fragmentary information exists prior to the 1880s. Pre-industrial laborers faced risks from animals and hand tools, ladders and stairs. Industrialization substituted steam engines for animals, machines for hand tools, and elevators for ladders. But whether these new technologies generally worsened the dangers of work is unclear. What is clear is that nowhere was the new work associated with the industrial revolution more dangerous than in America.

US Was Unusually Dangerous

Americans modified the path of industrialization that had been pioneered in Britain to fit the particular geographic and economic circumstances of the American continent. Reflecting the high wages and vast natural resources of a new continent, this American system encouraged use of labor saving machines and processes. These developments occurred within a legal and regulatory climate that diminished employer’s interest in safety. As a result, Americans developed production methods that were both highly productive and often very dangerous. 3

Accidents Were “Cheap”

While workers injured on the job or their heirs might sue employers for damages, winning proved difficult. Where employers could show that the worker had assumed the risk, or had been injured by the actions of a fellow employee, or had himself been partly at fault, courts would usually deny liability. A number or surveys taken about 1900 showed that only about half of all workers fatally injured recovered anything and their average compensation only amounted to about half a year’s pay. Because accidents were so cheap, American industrial methods developed with little reference to their safety. 4

Mining

Nowhere was the American system more dangerous than in early mining. In Britain, coal seams were deep and coal expensive. As a result, British mines used mining methods that recovered nearly all of the coal because they used waste rock to hold up the roof. British methods also concentrated the working, making supervision easy, and required little blasting. American coal deposits by contrast, were both vast and near the surface; they could be tapped cheaply using techniques known as “room and pillar” mining. Such methods used coal pillars and timber to hold up the roof, because timber and coal were cheap. Since miners worked in separate rooms, labor supervision was difficult and much blasting was required to bring down the coal. Miners themselves were by no means blameless; most were paid by the ton, and when safety interfered with production, safety often took a back seat. For such reasons, American methods yielded more coal per worker than did European techniques, but they were far more dangerous, and toward the end of the nineteenth century, the dangers worsened (see Table 1).5

Table 1

British and American Mine Safety, 1890 -1904

(Fatality rates per Thousand Workers per Year)

Years American Anthracite American Bituminous Great Britain
1890-1894 3.29 2.52 1.61
1900-1904 3.13 3.53 1.28

Source: British data from Great Britain, General Report. Other data from Aldrich, Safety First.

Railroads

Nineteenth century American railroads were also comparatively dangerous to their workers – and their passengers as well – and for similar reasons. Vast North American distances and low population density turned American carriers into predominantly freight haulers – and freight was far more dangerous to workers than passenger traffic, for men had to go in between moving cars for coupling and uncoupling and ride the cars to work brakes. The thin traffic and high wages also forced American carriers to economize on both capital and labor. Accordingly, American carriers were poorly built and used few signals, both of which resulted in many derailments and collisions. Such conditions made American railroad work far more dangerous than that in Britain (see Table 2).6

Table 2

Comparative Safety of British and American Railroad Workers, 1889 – 1901

(Fatality Rates per Thousand Workers per Year)

1889 1895 1901
British railroad workers

All causes
1.14 0.95 0.89
British trainmena

All causes
4.26 3.22 2.21
Coupling 0.94 0.83 0.74
American Railroad workers

All causes
2.67 2.31 2.50
American trainmen

All causes
8.52 6.45 7.35
Coupling 1.73c 1.20 0.78
Brakingb 3.25c 2.44 2.03

Source: Aldrich, Safety First, Table 1 and Great Britain Board of Trade, General Report.

1

Note: Death rates are per thousand employees.

a. Guards, brakemen, and shunters.

b. Deaths from falls from cars and striking overhead obstructions.

Manufacturing

American manufacturing also developed in a distinctively American fashion that substituted power and machinery for labor and manufactured products with interchangeable arts for ease in mass production. Whether American methods were less safe than those in Europe is unclear but by 1900 they were extraordinarily risky by modern standards, for machines and power sources were largely unguarded. And while competition encouraged factory managers to strive for ever-increased output, they showed little interest in improving safety.7

Worker and Employer Responses

Workers and firms responded to these dangers in a number of ways. Some workers simply left jobs they felt were too dangerous, and risky jobs may have had to offer higher pay to attract workers. After the Civil War life and accident insurance companies expanded, and some workers purchased insurance or set aside savings to offset the income risks from death or injury. Some unions and fraternal organizations also offered their members insurance. Railroads and some mines also developed hospital and insurance plans to care for injured workers while many carriers provided jobs for all their injured men. 8

Improving safety, 1910-1939

Public efforts to improve safety date from the very beginnings of industrialization. States established railroad regulatory commissions as early as the 1840s. But while most of the commissions were intended to improve safety, they had few powers and were rarely able to exert much influence on working conditions. Similarly, the first state mining commission began in Pennsylvania in 1869, and other states soon followed. Yet most of the early commissions were ineffectual and as noted safety actually deteriorated after the Civil War. Factory commissions also dated from but most were understaffed and they too had little power.9

Railroads

The most successful effort to improve work safety during the nineteenth century began on the railroads in the 1880s as a small band of railroad regulators, workers, and managers began to campaign for the development of better brakes and couplers for freight cars. In response George Westinghouse modified his passenger train air brake in about 1887 so it would work on long freights, while at roughly the same time Ely Janney developed an automatic car coupler. For the railroads such equipment meant not only better safety, but also higher productivity and after 1888 they began to deploy it. The process was given a boost in 1889-1890 when the newly-formed Interstate Commerce Commission (ICC) published its first accident statistics. They demonstrated conclusively the extraordinary risks to trainmen from coupling and riding freight (Table 2). In 1893 Congress responded, passing the Safety Appliance Act, which mandated use of such equipment. It was the first federal law intended primarily to improve work safety, and by 1900 when the new equipment was widely diffused, risks to trainmen had fallen dramatically.10

Federal Safety Regulation

In the years between 1900 and World War I, a rather strange band of Progressive reformers, muckraking journalists, businessmen, and labor unions pressed for changes in many areas of American life. These years saw the founding of the Federal Food and Drug Administration, the Federal Reserve System and much else. Work safety also became of increased public concern and the first important developments came once again on the railroads. Unions representing trainmen had been impressed by the safety appliance act of 1893 and after 1900 they campaigned for more of the same. In response Congress passed a host of regulations governing the safety of locomotives and freight cars. While most of these specific regulations were probably modestly beneficial, collectively their impact was small because unlike the rules governing automatic couplers and air brakes they addressed rather minor risks.11

In 1910 Congress also established the Bureau of Mines in response to a series of disastrous and increasingly frequent explosions. The Bureau was to be a scientific, not a regulatory body and it was intended to discover and disseminate new knowledge on ways to improve mine safety.12

Workers’ Compensation Laws Enacted

Far more important were new laws that raised the cost of accidents to employers. In 1908 Congress passed a federal employers’ liability law that applied to railroad workers in interstate commerce and sharply limited defenses an employee could claim. Worker fatalities that had once cost the railroads perhaps $200 now cost $2,000. Two years later in 1910, New York became the first state to pass a workmen’s compensation law. This was a European idea. Instead of requiring injured workers to sue for damages in court and prove the employer was negligent, the new law automatically compensated all injuries at a fixed rate. Compensation appealed to businesses because it made costs more predictable and reduced labor strife. To reformers and unions it promised greater and more certain benefits. Samuel Gompers, leader of the American Federation of Labor had studied the effects of compensation in Germany. He was impressed with how it stimulated business interest in safety, he said. Between 1911 and 1921 forty-four states passed compensation laws.13

Employers Become Interested in Safety

The sharp rise in accident costs that resulted from compensation laws and tighter employers’ liability initiated the modern concern with work safety and initiated the long-term decline in work accidents and injuries. Large firms in railroading, mining, manufacturing and elsewhere suddenly became interested in safety. Companies began to guard machines and power sources while machinery makers developed safer designs. Managers began to look for hidden dangers at work, and to require that workers wear hard hats and safety glasses. They also set up safety departments run by engineers and safety committees that included both workers and managers. In 1913 companies founded the National Safety Council to pool information. Government agencies such as the Bureau of Mines and National Bureau of Standards provided scientific support while universities also researched safety problems for firms and industries14

Accident Rates Begin to Fall Steadily

During the years between World War I and World War II the combination of higher accident costs along with the institutionalization of safety concerns in large firms began to show results. Railroad employee fatality rates declined steadily after 1910 and at some large companies such as DuPont and whole industries such as steel making (see Table 3) safety also improved dramatically. Largely independent changes in technology and labor markets also contributed to safety as well. The decline in labor turnover meant fewer new employees who were relatively likely to get hurt, while the spread of factory electrification not only improved lighting but reduced the dangers from power transmission as well. In coal mining the shift from underground work to strip mining also improved safety. Collectively these long-term forces reduced manufacturing injury rates about 38 percent between 1926 and 1939 (see Table 4).15

Table 3

Steel Industry fatality and Injury rates, 1910-1939

(Rates are per million manhours)

Period Fatality rate Injury Rate
1910-1913 0.40 44.1
1937-1939 0.13 11.7

Pattern of Improvement Was Uneven

Yet the pattern of improvement was uneven, both over time and among firms and industries. Safety still deteriorated in times of economic boon when factories mines and railroads were worked to the limit and labor turnover rose. Nor were small companies as successful in reducing risks, for they paid essentially the same compensation insurance premium irrespective of their accident rate, and so the new laws had little effect there. Underground coal mining accidents also showed only modest improvement. Safety was also expensive in coal and many firms were small and saw little payoff from a lower accident rate. The one source of danger that did decline was mine explosions, which diminished in response to technologies developed by the Bureau of Mines. Ironically, however, in 1940 six disastrous blasts that killed 276 men finally led to federal mine inspection in 1941.16

Table 4

Work Injury Rates, Manufacturing and Coal Mining, 1926-1970

(Per Million Manhours)

.

Year Manufacturing Coal Mining
1926 24.2
1931 18.9 89.9
1939 14.9 69.5
1945 18.6 60.7
1950 14.7 53.3
1960 12.0 43.4
1970 15.2 42.6

Source: U.S. Department of Commerce Bureau of the Census, Historical Statistics of the United States, Colonial Times to 1970 (Washington, 1975), Series D-1029 and D-1031.

Postwar Trends, 1945-1970

The economic boon and associated labor turnover during World War II worsened work safety in nearly all areas of the economy, but after 1945 accidents again declined as long-term forces reasserted themselves (Table 4). In addition, after World War II newly powerful labor unions played an increasingly important role in work safety. In the 1960s however economic expansion again led to rising injury rates and the resulting political pressures led Congress to establish the Occupational Safety and Health Administration (OSHA) and the Mine Safety and Health Administration in 1970. The continuing problem of mine explosions also led to the foundation of the Mine Safety and Health Administration (MSHA) that same year. The work of these agencies had been controversial but on balance they have contributed to the continuing reductions in work injuries after 1970.17

References and Further Reading

Aldrich, Mark. Safety First: Technology, Labor and Business in the Building of Work Safety, 1870-1939. Baltimore: Johns Hopkins University Press, 1997.

Aldrich, Mark. “Preventing ‘The Needless Peril of the Coal Mine': the Bureau of Mines and the Campaign Against Coal Mine Explosions, 1910-1940.” Technology and Culture 36, no. 3 (1995): 483-518.

Aldrich, Mark. “The Peril of the Broken Rail: the Carriers, the Steel Companies, and Rail Technology, 1900-1945.” Technology and Culture 40, no. 2 (1999): 263-291

Aldrich, Mark. “Train Wrecks to Typhoid Fever: The Development of Railroad Medicine Organizations, 1850 -World War I.” Bulletin of the History of Medicine, 75, no. 2 (Summer 2001): 254-89.

Derickson Alan. “Participative Regulation of Hazardous Working Conditions: Safety Committees of the United Mine Workers of America,” Labor Studies Journal 18, no. 2 (1993): 25-38.

Dix, Keith. Work Relations in the Coal Industry: The Hand Loading Era. Morgantown: University of West Virginia Press, 1977. The best discussion of coalmine work for this period.

Dix, Keith. What’s a Coal Miner to Do? Pittsburgh: University of Pittsburgh Press, 1988. The best discussion of coal mine labor during the era of mechanization.

Fairris, David. “From Exit to Voice in Shopfloor Governance: The Case of Company Unions.” Business History Review 69, no. 4 (1995): 494-529.

Fairris, David. “Institutional Change in Shopfloor Governance and the Trajectory of Postwar Injury Rates in U.S. Manufacturing, 1946-1970.” Industrial and Labor Relations Review 51, no. 2 (1998): 187-203.

Fishback, Price. Soft Coal Hard Choices: The Economic Welfare of Bituminous Coal Miners, 1890-1930. New York: Oxford University Press, 1992. The best economic analysis of the labor market for coalmine workers.

Fishback, Price and Shawn Kantor. A Prelude to the Welfare State: The Origins of Workers’ Compensation. Chicago: University of Chicago Press, 2000. The best discussions of how employers’ liability rules worked.

Graebner, William. Coal Mining Safety in the Progressive Period. Lexington: University of Kentucky Press, 1976.

Great Britain Board of Trade. General Report upon the Accidents that Have Occurred on Railways of the United Kingdom during the Year 1901. London, HMSO, 1902.

Great Britain Home Office Chief Inspector of Mines. General Report with Statistics for 1914, Part I. London: HMSO, 1915.

Hounshell, David. From the American System to Mass Production, 1800-1932: The Development of Manufacturing Technology in the United States. Baltimore: Johns Hopkins University Press, 1984.

Humphrey, H. B. “Historical Summary of Coal-Mine Explosions in the United States — 1810-1958.” United States Bureau of Mines Bulletin 586 (1960).

Kirkland, Edward. Men, Cities, and Transportation. 2 vols. Cambridge: Harvard University Press, 1948, Discusses railroad regulation and safety in New England.

Lankton, Larry. Cradle to Grave: Life, Work, and Death in Michigan Copper Mines. New York: Oxford University Press, 1991.

Licht, Walter. Working for the Railroad. Princeton: Princeton University Press, 1983.

Long, Priscilla. Where the Sun Never Shines. New York: Paragon, 1989. Covers coal mine safety at the end of the nineteenth century.

Mendeloff, John. Regulating Safety: An Economic and Political Analysis of Occupational Safety and Health Policy. Cambridge: MIT Press, 1979. An accessible modern discussion of safety under OSHA.

National Academy of Sciences. Toward Safer Underground Coal Mines. Washington, DC: NAS, 1982.

Rogers, Donald. “From Common Law to Factory Laws: The Transformation of Workplace Safety Law in Wisconsin before Progressivism.” American Journal of Legal History (1995): 177-213.

Root, Norman and Daley, Judy. “Are Women Safer Workers? A New Look at the Data.” Monthly Labor Review 103, no. 9 (1980): 3-10.

Rosenberg, Nathan. Technology and American Economic Growth. New York: Harper and Row, 1972. Analyzes the forces shaping American technology.

Rosner, David and Gerald Markowity, editors. Dying for Work. Blomington: Indiana University Press, 1987.

Shaw, Robert. Down Brakes: A History of Railroad Accidents, Safety Precautions, and Operating Practices in the United States of America. London: P. R. Macmillan. 1961.

Trachenberg, Alexander. The History of Legislation for the Protection of Coal Miners in Pennsylvania, 1824 – 1915. New York: International Publishers. 1942.

U.S. Department of Commerce, Bureau of the Census. Historical Statistics of the United States, Colonial Times to 1970. Washington, DC, 1975.

Usselman, Steven. “Air Brakes for Freight Trains: Technological Innovation in the American Railroad Industry, 1869-1900.” Business History Review 58 (1984): 30-50.

Viscusi, W. Kip. Risk By Choice: Regulating Health and Safety in the Workplace. Cambridge: Harvard University Press, 1983. The most readable treatment of modern safety issues by a leading scholar.

Wallace, Anthony. Saint Clair. New York: Alfred A. Knopf, 1987. Provides a superb discussion of early anthracite mining and safety.

Whaples, Robert and David Buffum. “Fraternalism, Paternalism, the Family and the Market: Insurance a Century Ago.” Social Science History 15 (1991): 97-122.

White, John. The American Railroad Freight Car. Baltimore: Johns Hopkins University Press, 1993. The definitive history of freight car technology.

Whiteside, James. Regulating Danger: The Struggle for Mine Safety in the Rocky Mountain Coal Industry. Lincoln: University of Nebraska Press, 1990.

Wokutch, Richard. Worker Protection Japanese Style: Occupational Safety and Health in the Auto Industry. Ithaca, NY: ILR, 1992

Worrall, John, editor. Safety and the Work Force: Incentives and Disincentives in Workers’ Compensation. Ithaca, NY: ILR Press, 1983.

1 Injuries or fatalities are expressed as rates. For example, if ten workers are injured out of 450 workers during a year, the rate would be .006666. For readability it might be expressed as 6.67 per thousand or 666.7 per hundred thousand workers. Rates may also be expressed per million workhours. Thus if the average work year is 2000 hours, ten injuries in 450 workers results in [10/450×2000]x1,000,000 = 11.1 injuries per million hours worked.

2 For statistics on work injuries from 1922-1970 see U.S. Department of Commerce, Historical Statistics, Series 1029-1036. For earlier data are in Aldrich, Safety First, Appendix 1-3.

3 Hounshell, American System. Rosenberg, Technology,. Aldrich, Safety First.

4 On the workings of the employers’ liability system see Fishback and Kantor, A Prelude, chapter 2

5 Dix, Work Relations, and his What’s a Coal Miner to Do? Wallace, Saint Clair, is a superb discussion of early anthracite mining and safety. Long, Where the Sun, Fishback, Soft Coal, chapters 1, 2, and 7. Humphrey, “Historical Summary.” Aldrich, Safety First, chapter 2.

6 Aldrich, Safety First chapter 1.

7 Aldrich, Safety First chapter 3

8 Fishback and Kantor, A Prelude, chapter 3, discusses higher pay for risky jobs as well as worker savings and accident insurance See also Whaples and Buffum, “Fraternalism, Paternalism.” Aldrich, ” Train Wrecks to Typhoid Fever.”

9Kirkland, Men, Cities. Trachenberg, The History of Legislation Whiteside, Regulating Danger. An early discussion of factory legislation is in Susan Kingsbury, ed.,xxxxx. Rogers,” From Common Law.”

10 On the evolution of freight car technology see White, American Railroad Freight Car, Usselman “Air Brakes for Freight trains,” and Aldrich, Safety First, chapter 1. Shaw, Down Brakes, discusses causes of train accidents.

11 Details of these regulations may be found in Aldrich, Safety First, chapter 5.

12 Graebner, Coal-Mining Safety, Aldrich, “‘The Needless Peril.”

13 On the origins of these laws see Fishback and Kantor, A Prelude, and the sources cited therein.

14 For assessments of the impact of early compensation laws see Aldrich, Safety First, chapter 5 and Fishback and Kantor, A Prelude, chapter 3. Compensation in the modern economy is discussed in Worrall, Safety and the Work Force. Government and other scientific work that promoted safety on railroads and in coal mining are discussed in Aldrich, “‘The Needless Peril’,” and “The Broken Rail.”

15 Farris, “From Exit to Voice.”

16 Aldrich, “‘Needless Peril,” and Humphrey

17 Derickson, “Participative Regulation” and Fairris, “Institutional Change,” also emphasize the role of union and shop floor issues in shaping safety during these years. Much of the modern literature on safety is highly quantitative. For readable discussions see Mendeloff, Regulating Safety (Cambridge: MIT Press, 1979), and Viscusi, Risk by Choice