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Economy of England at the Time of the Norman Conquest

John McDonald, Flinders University, Adelaide, Australia

The Domesday Survey of 1086 provides high quality and detailed information on the inputs, outputs and tax assessments of most English estates. This article describes how the data have been used to reconstruct the eleventh-century Domesday economy. By exploiting modern economic theory and statistical methods the reconstruction has led to a radically different assessment of the way in which the Domesday economy and fiscal system were organized. It appears that tax assessments were based on a capacity to pay principle subject to politically expedient concessions and we can discover who received lenient assessments and why. Penetrating questions can be asked about the economy. We can compare the efficiency of Domesday agricultural production with the efficiency of more modern economies, measure the productivity of inputs and assess the impact of feudalism and manorialism on economic activity. The emerging picture of a reasonably well organized economy and fair tax system contrasts with the assessment of earlier historians who saw the Normans as capable military and civil administrators but regarded the economy as haphazardly run and tax assessments as “artificial” or arbitrary. The next section describes the Survey, the contemporary institutional arrangements and the main features of Domesday agricultural production. Some key findings on the Domesday economy and tax system are then briefly discussed.

Domesday England and the Domesday Survey

William the Conqueror invaded England from France in 1066 and carried out the Domesday Survey twenty years later. By 1086, Norman rule had been largely consolidated, although only after rebellion and civil dissent had been harshly put down. The Conquest was achieved by an elite, and, although the Normans brought new institutions and practices, these were superimposed on the existing order. Most of the Anglo-Saxon aristocracy were eliminated, the lands of over 4,000 English lords passing to less than 200 Norman barons, with much of the land held by just a handful of magnates.

William ruled vigorously through the Great Council. England was divided into shires, or counties, which were subdivided into hundreds. There was a sophisticated and long established shire administration. The sheriff was the king’s agent in the county, royal orders could be transmitted through the county and hundred courts, and an effective taxation collection system was in place.

England was a feudal state. All land belonged to the king. He appointed tenants-in-chief, both lay and ecclesiastical, who usually held land in return for providing a quota of fully equipped knights. The tenants-in-chief might then grant the land to sub-tenants in return for rents or services, or work the estate themselves through a bailiff. Although the Survey records 112 boroughs, agriculture was the predominant economic activity, with stock rearing of greater importance in the south-west and arable farming more important in the east and midlands. Manorialism was a pervasive influence, although it existed in most parts of England in a modified form. On the manor the peasants worked the lord’s demesne in return for protection, housing, and the use of plots of land to cultivate their own crops. They were tied to the lord and the manor and provided a resident workforce. The demesne was also worked by slaves who were fed and housed by the lord.

The Domesday Survey was commissioned on Christmas day, 1085, and it is generally thought that work on summarizing the Survey was terminated with the death of William in September 1087. The task was facilitated by the availability of Anglo-Saxon hidage (tax) lists. The counties of England were grouped into (probably) seven circuits. Each circuit was visited by a team of commissioners, bishops, lawyers and lay barons who had no material interests in the area. The commissioners were responsible for circulating a list of questions to land holders, for subjecting the responses to a review in the county court by the hundred juries, often consisting of half Englishmen and half Frenchmen, and for supervising the compilation of county and circuit returns. The circuit returns were then sent to the Exchequer in Winchester where they were summarized, edited and compiled into Great Domesday Book.

Unlike modern surveys, individual questionnaire responses were not treated confidentially but became public knowledge, being verified in the courts by landholders with local knowledge. In such circumstances, the opportunities for giving false or misleading evidence were limited.

Domesday Book consists of two volumes, Great (or Exchequer) Domesday and Little Domesday. Little Domesday is a detailed original survey circuit return of circuit VII, Essex, Norfolk and Suffolk. Great Domesday is a summarized version of the other circuit returns sent to the King’s treasury in Winchester. (It is thought that the death of William occurred before Essex and East Anglia could be included in Great Domesday.) The two volumes contain information on the net incomes or outputs (referred to as the annual values), tax assessments and resources of most manors in England in 1086, some information for 1066, and sometimes also for an intermediate year. The information was used to revise tax assessments and document the feudal structure, “who held what, and owed what, to whom.”


The Domesday tax assessments relate to a non-feudal tax, the geld, thought to be levied annually by the end of William’s reign. The tax can be traced back to the danegeld, and, although originally a land tax, by Norman times, it was more broadly based and a significant impost on landholders.

There is an extensive literature on the Norman tax system, much of it influenced by Round (1895), who considered the assessments to be “artificial,” in the sense that they were imposed from above via the county and hundred with little or no consideration of the capacity of an individual estate to pay the tax. Round largely based his argument on an unsystematic and subjective review of the distribution of the assessments across estates, vills and the hundreds of counties.

In (1985a) and (1986, Ch. 4), Graeme Snooks and I argued that, contrary to Round’s hypothesis, the tax assessments were based on a capacity to pay principle, subject to some politically expedient tax concessions. Similar tax systems operate in most modern societies and reflect an attempt to collect revenue in a politically acceptable way. We found empirical support for the hypothesis, using statistical methods. We showed, for example, that for Essex lay estates about 65 percent of variation in the tax assessments could be attributed to variations in manorial net incomes or manorial resources, two alternative ways of measuring capacity to pay. Similar results were obtained for other counties. Capacity to pay explains from 64 to 89 percent of variation in individual estate assessment data for the counties of Buckinghamshire, Cambridgeshire, Essex and Wiltshire, and from 72 to 81 percent for aggregate data for 29 counties (see McDonald and Snooks, 1987a). The estimated tax relationships capture the main features of the tax system.

Capacity to pay explains most variation in tax assessments, but some variation remains. Who and which estates were treated favorably? And what factors were associated with lenient taxation? These issues were investigated in McDonald (1998) where frontier methods were used to derive a measure of how favorable the tax assessments were for each Essex lay estate. (The frontier methods, also known as “data envelopment analysis,” use the tax and income observations to trace out an outer bound, or frontier, for the tax relationship.) Estates, tenants-in-chief and local areas (hundreds) of the county with lenient assessments were identified, and statistical methods used to discover factors associated with favorable assessments. Some significant factors were the tenant-in-chief holding the estate (assessments tended to be less beneficial for the tenants-in-chief holding a large number of estates in Essex), the hundred location (some hundreds receiving more favorable treatment than others), proximity to an urban center (estates remote from the urban centers being more favorably treated), economic size of the estate (larger estates being less favorably treated) and tenure (estates held as sub-tenancies having more lenient assessments). The results suggest a similarity with more modern tax systems, with some groups and activities receiving minor concessions and the administrative process inducing some unevenness in the assessments. Although many details of the tax system have been lost in the mists of time, careful analysis of the Survey data has enabled us to rediscover its main features.


Since Victorian times historians have used Domesday Book to study the political, institutional and social structures and the geography of Domesday England. However, the early scholars tended to draw away from economic issues. They were unable to perceive that systematic economic relationships were present in the Domesday economy, and, in contrast to their view that the Normans displayed considerable ability in civil administration and military matters, economic production was regarded as poorly organized (see McDonald and Snooks, 1985a, 1985b and 1986, especially Ch 3). One explanation why the Domesday scholars were unable to discover consistent relationships in the economy lies in the empirical method they adopted. Rather than examining the data as a whole using statistical techniques, conclusions were drawn by generalizing from a few (often atypical) cases. It is not surprising that no consistent pattern was evident when data were restricted to a few unusual observations. It would also appear that the researchers often did not have a firm grasp of economic theory (for example, seemingly being perplexed that the same annual value, that is, net output, could be generated by estates with different input mixes, see McDonald and Snooks, 1986, Ch. 3).

In McDonald and Snooks (1986), using modern economic and statistical methods, Graeme Snooks and I reanalyzed manorial production relationships. The study shows that strong relationships existed linking estate net output to inputs. We estimated manorial production functions which indicate many interesting characteristics of Domesday production: returns to scale were close to constant, oxen plough teams and meadowland were prized inputs in production but horses contributed little, and villans, bordars and slaves (the less free workers) contributed far more than freemen and sokemen ( the more free) to the estate’s net output. The evidence suggested that in many ways Domesday landholders operated in a manner similar to modern entrepreneurs. Unresolved by this research was the question of how similar was the pattern of medieval and modern economic activity. In particular, how well organized was estate production?

Clearly, in an absolute sense Domesday estate production was inefficient. With modern technology, using, for example, motorized tractors, output could have been increased many-fold. A more interesting question is: Given the contemporary technology and institutions, how efficient was production?

In McDonald (1998) frontier methods were used to measure best practice, given the economic environment. We then measured how far, on average, estate production was below the best practice frontier. Providing some estates were effectively organized, so that best practice was good practice, this will be a useful measure. If many estates were run haphazardly and ineffectively, average efficiency will be low and efficiency dispersion measures large. Comparisons with average efficiency levels in similar production situations will give an indication of whether Domesday average efficiency was unusually low.

A large number of efficiency studies have been reported in the literature. Three case studies with characteristics similar to Domesday production are Hall’s (1975) study of agriculture after the Civil War in the American South, Hall and LeVeen’s (1978) analysis of small Californian farms and Byrnes, Färe, Grosskopf and Lovell’s (1988) study of American surface coalmines. For all three studies the individual establishment is the production unit, the economic activity is unsophisticated primary production and similar frontier methods are used to measure efficiency.

The comparison studies suggest that efficiency levels varied less across Domesday estates than they did among postbellum Southern farms and small Californian farms in the 1970s (and were very similar for Domesday estates and US surface coalmines). Certainly, the average Domesday estate efficiency level does not appear to be unusually low when compared with average efficiency levels in similar production situations.

In McDonald (1998) estate efficiency measures are also used to examine details of production on individual estates and statistical methods employed to find factors associated with efficiency. Some of these include the estate’s tenant-in-chief (some tenants-in-chief displayed more entrepreneurial flair than others), the size of the estate (larger estates, using inputs in different proportions to smaller estates, tended to be more efficient) and the kind of agriculture undertaken (estates specialized in grazing were more efficient).

Largely through the influences of feudalism and manorialism, Domesday agriculture suffered from poorly developed factor markets and considerable immobility of inputs. Although there were exceptions to the rule, as a first approximation, manorial production can be characterized in terms of estates worked by a residential labor force using the resources, which were available on the estate.

Input productivity depends on the mix of inputs used in production, and with estates endowed with widely different resource mixes, one might expect that input productivities would vary greatly across estates. The frontier analysis generates input productivity measures (shadow prices), and these confirm this expectation — indeed on many estates some inputs made very little contribution to production. The frontier analysis also allows us to estimate the economic cost of input rigidity induced by the feudal and manorial arrangements. The calculation indicates that if inputs had been mobile among estates an increase in total net output of 40.1 percent would have been possible. This potential loss in output is considerable. The frontier analysis indicates the loss in total net output resulting from estates not being fully efficient was 51.0 percent. The loss in output due to input rigidities is smaller, but of a similar order of magnitude.

Domesday Book is indeed a rich data source. It is remarkable that so much can be discovered about the English economy almost one thousand years ago.

Further reading

Background information on Domesday England is contained in McDonald and Snooks (1986, Ch. 1 and 2; 1985a, 1985b, 1987a and 1987b) and McDonald (1998). For more comprehensive accounts of the history of the period see Brown (1984), Clanchy (1983), Loyn (1962), (1965), (1983), Stenton (1943), and Stenton (1951). Other useful references include Ballard (1906), Darby (1952), (1977), Galbraith (1961), Hollister (1965), Lennard (1959), Maitland (1897), Miller and Hatcher (1978), Postan (1966), (1972), Round (1895), (1903), the articles in Williams (1987) and references cited in McDonald and Snooks (1986). The Survey is discussed in McDonald and Snooks (1986, sec. 2.2), the references cited there, and the articles in Williams (1987). The Domesday and modern surveys are compared in McDonald and Snooks (1985c).
The reconstruction of the Domesday economy is described in McDonald and Snooks (1986). Part 1 contains information on the basic tax and production relationships and Part 2 describes the methods used to estimate the relationships. The tax and production frontier analysis and efficiency comparisons are described in McDonald (1998). The book also explains the frontier methodology. A series of articles describe features of the research to different audiences: McDonald and Snooks (1985a, 1985b, 1987a, 1987b), economic historians; McDonald (2000), economists; McDonald (1997), management scientists; McDonald (2002), accounting historians (who recognize that Domesday Book possesses many attributes of an accounting record); and McDonald and Snooks (1985c), statisticians. Others who have made important contributions to our understanding of the Domesday economy include Miller and Hatcher (1978), Harvey (1983) and the contributors to the volumes edited by Aston (1987), Holt (1987), Hallam (1988) and Britnell and Campbell (1995).


Aston, T.H., editor. Landlords, Peasants and Politics in Medieval England. Cambridge: Cambridge University Press, 1987.
Ballard, Adolphus. The Domesday Inquest. London: Methuen, 1906.
Brittnell, Richard H. and Bruce M.S. Campbell, editors. A Commercialising Economy: England 1086 to c. 1300. Manchester: Manchester University Press, 1995.
Brown, R. Allen. The Normans. Woodbridge: Boydell Press, 1984.
Byrnes, P., R. Färe, S. Grosskopf and C.A. K. Lovell. “The Effect of Unions on Productivity: U.S. Surface Mining of Coal.” Management Science 34 (1988): 1037-53.
Clanchy, M.T. England and Its Rulers, 1066-1272. Glasgow: Fontana, 1983.
Darby, H.C. The Domesday Geography of Eastern England. Reprinted 1971. Cambridge: Cambridge University Press, 1952.
Darby, H.C. Domesday England. Reprinted 1979. Cambridge: Cambridge University Press, 1977.
Darby, H.C. and I.S. Maxwell, editor. The Domesday Geography of Northern England. Cambridge: Cambridge University Press, 1962.
Galbraith, V.H. The Making of Domesday Book. Oxford: Clarendon Press,1961.
Hall, A. R. “The Efficiency of Post-Bellum Southern Agriculture.” Ann Arbor, MI: University Microfilms International, 1975.
Hall, B. F. and E. P. LeVeen. “Farm Size and Economic Efficiency: The Case of California.” American Journal of Agricultural Economics 60 (1978): 589-600.
Hallam, H.E. Rural England, 1066-1348. Brighton: Fontana, 1981.
Hallam, H.E., editor. The Agrarian History of England and Wales, II: 1042-1350. Cambridge: Cambridge University Press, 1988.
Harvey, S.P.J. “The Extent and Profitability of Demesne Agriculture in the Latter Eleventh Century.” In Social Relations and Ideas: Essays in Honour of R.H. Hilton, edited by T.H. Ashton et al. Cambridge, Cambridge University Press, 1983.
Hollister, C.W. The Military Organisation of Norman England. Oxford: Clarendon Press. 1965.
Holt, J. C., editor. Domesday Studies. Woodbridge: Boydell Press, 1987.
Langdon, J. “The Economics of Horses and Oxen in Medieval England.” Agricultural History Review 30 (1982): 31-40.
Lennard, R. Rural England 1086-1135: A Study of Social and Agrarian Conditions. Oxford: Clarendon Press, 1959.
Loyn, R. Anglo-Saxon England and the Norman Conquest. Reprinted 1981. London: Longman, 1962.
Loyn, R. The Norman Conquest. Reprinted 1981. London: Longman, 1965.
Loyn, R. The Governance of Anglo-Saxon England, 500-1087. London: Edward Arnold, 1983.
McDonald, John. “Manorial Efficiency in Domesday England.” Journal of Productivity Analysis 8 (1997): 199-213.
McDonald, John. Production Efficiency in Domesday England. London: Routledge, 1998.
McDonald, John. “Domesday Economy: An Analysis of the English Economy Early in the Second Millennium.” National Institute Economic Review 172 (2000): 105-114.
McDonald, John. “Tax Fairness in Eleventh Century England.” Accounting Historians Journal 29 (2002): 173-193.
McDonald, John. and G. D. Snooks. “Were the Tax Assessments of Domesday England Artificial? The Case of Essex.” Economic History Review 38 (1985a): 353-373.
McDonald, John. and G. D. Snooks. “The Determinants of Manorial Income in Domesday England: Evidence from Essex.” Journal of Economic History 45 (1985b): 541-556.
McDonald, John. and G. D. Snooks. “Statistical Analysis of Domesday Book (1086).” Journal of the Royal Statistical Society, Series A 148 (1985c): 147-160.
McDonald, John. and G. D. Snooks. Domesday Economy: A New Approach to Anglo-Norman History. Oxford: Clarendon Press, 1986.
McDonald, John. and G. D. Snooks. “The Suitability of Domesday Book for Cliometric Analysis.” Economic History Review 40 (1987a): 252-261.
McDonald, John. and G. D. Snooks. “The Economics of Domesday England.” In
A. Williams, editor, Domesday Book Studies. London: Alecto Historical Editions, 1987.
Maitland, Frederic William. Domesday Book and Beyond. Reprinted 1921, Cambridge: Cambridge University Press, 1897.
Miller, Edward, and John Hatcher. Medieval England: Rural Society and Economic Change 1086-1348. London: Longman, 1978.
Morris, J., general editor. Domesday Book: A Survey of the Counties of England. Chichester: Phillimore, 1975.
Postan, M. M. Medieval Agrarian Society in Its Prime, The Cambridge Economic History of Europe. Vol. 1, M. M. Postan, editor. Cambridge: Cambridge University Press, 1966.
Postan, M. M. The Medieval Economy and Society: An Economic History of Britain in the Middle Ages. London: Weidenfeld & Nicolson, 1972.
Raftis, J. A. The Estates of Ramsey Abbey: A Study in Economic Growth and Organisation. Toronto: Pontifical Institute of Medieval Studies, 1957.
Round, John Horace. Feudal England: Historical Studies on the Eleventh and Twelfth Centuries. Reprinted 1964. London: Allen & Unwin, 1895.
Round, John Horace. “Essex Survey.” In VCH Essex. Vol. 1, reprinted 1977. London: Dawson, 1903.
Snooks, G. D. “The Dynamic Role of the Market in the Anglo-Saxon Economy and Beyond, 1086-1300.” In A Commercialising Economy: England 1086 to c. 1300, edited by R. H. Brittnell and M. S. Campbell. Manchester: Manchester University Press, 1995.
Stenton, D. M. English Society in the Middle Ages. Reprinted 1983. Harmondsworth: Penguin, 1951.
Stenton, F. M. Anglo-Saxon England. Reprinted 1975. Oxford: Clarendon Press, 1943.
Victoria County History. London: Oxford University Press, 1900-.
Williams, A., editor. Domesday Book Studies. London: Alecto Historical Editions, 1987.

Citation: McDonald, John. “Economy of England at the Time of the Norman Conquest”. EH.Net Encyclopedia, edited by Robert Whaples. September 9, 2004. URL

Savings and Loan Industry (U.S.)

David Mason, Young Harris College

The savings and loan industry is the leading source of institutional finance for residential home mortgages in America. From the appearance of the first thrift in Philadelphia in 1831, savings and loans (S&Ls) have been primarily local lenders focused on helping people of modest means to acquire homes. This mission was severely compromised by the financial scandals that enveloped the industry in the 1980s, and although the industry was severely tarnished by these events S&Ls continue to thrive.

Origins of the Thrift Industry

The thrift industry traces its origins to the British building society movement that emerged in the late eighteenth century. American thrifts (known then as “building and loans” or “B&Ls”) shared many of the same basic goals of their foreign counterparts — to help working-class men and women save for the future and purchase homes. A person became a thrift member by subscribing to shares in the organization, which were paid for over time in regular monthly installments. When enough monthly payments had accumulated, the members were allowed to borrow funds to buy homes. Because the amount each member could borrow was equal to the face value of the subscribed shares, these loans were actually advances on the unpaid shares. The member repaid the loan by continuing to make the regular monthly share payments as well as loan interest. This interest plus any other fees minus operating expenses (which typically accounted for only one to two percent of revenues) determined the profit of the thrift, which the members received as dividends.

For the first forty years following the formation of the first thrift in 1831, B&Ls were few in number and found in only a handful of Midwestern and Eastern states. This situation changed in the late nineteenth century as urban growth (and the demand for housing) related to the Second Industrial Revolution caused the number of thrifts to explode. By 1890, cities like Philadelphia, Chicago, and New York each had over three hundred thrifts, and B&Ls could be found in every state of the union, as well as the territory of Hawaii.

Differences between Thrifts and Commercial Banks

While industrialization gave a major boost to the growth of the thrift industry, there were other reasons why these associations could thrive along side larger commercial banks in the 19th and early 20th centuries. First, thrifts were not-for-profit cooperative organizations that were typically managed by the membership. Second, thrifts in the nineteenth century were very small; the average B&L held less than $90,000 in assets and had fewer than 200 members, which reflected the fact that these were local institutions that served well-defined groups of aspiring homeowners.

Another major difference was in the assets of these two institutions. Bank mortgages were short term (three to five years) and were repaid interest only with the entire principle due at maturity. In contrast, thrift mortgages were longer term (eight to twelve years) in which the borrower repaid both the principle and interest over time. This type of loan, known as the amortizing mortgage, was commonplace by the late nineteenth century, and was especially beneficial to borrowers with limited resources. Also, while banks offered a wide array of products to individuals and businesses, thrifts often made only home mortgages primarily to working-class men and women.

There was also a significant difference in the liabilities of banks and thrifts. Banks held primarily short-term deposits (like checking accounts) that could be withdrawn on demand by accountholders. In contrast, thrift deposits (called share accounts) were longer term, and because thrift members were also the owners of the association, B&Ls often had the legal right to take up to thirty days to honor any withdrawal request, and even charge penalties for early withdrawals. Offsetting this disadvantage was the fact that because profits were distributed as direct credits to member share balances, thrifts members earned compound interest on their savings.

A final distinction between thrifts and banks was that thrift leaders believed they were part of a broader social reform effort and not a financial industry. According to thrift leaders, B&Ls not only helped people become better citizens by making it easier to buy a home, they also taught the habits of systematic savings and mutual cooperation which strengthened personal morals. This attitude of social uplift was so pervasive that the official motto of the national thrift trade association was “The American Home. Safeguard of American Liberties” and its leaders consistently referred to their businesses as being part of a “movement” as late as the 1930s.

The “Nationals” Crisis

The early popularity of B&Ls led to the creation of a new type of thrift in the 1880s called the “national” B&L. While these associations employed the basic operating procedures used by traditional B&Ls, there were several critical differences. First, the “nationals” were often for-profit businesses formed by bankers or industrialists that employed promoters to form local branches to sell shares to prospective members. The members made their share payments at their local branch, and the money was sent to the home office where it was pooled with other funds members could borrow from to buy homes. The most significant difference between the “nationals” and traditional B&Ls was that the “nationals” promised to pay savings rates up to four times greater than any other financial institution. While the “nationals” also charged unusually high fees and late payment fines as well as higher rates on loans, the promise of high returns caused the number of “nationals” to surge. When the effects of the Depression of 1893 resulted in a decline in members, the “nationals” experienced a sudden reversal of fortunes. Because a steady stream of new members was critical for a “national” to pay both the interest on savings and the hefty salaries for the organizers, the falloff in payments caused dozens of “nationals” to fail, and by the end of the nineteenth century nearly all the “nationals” were out of business.

The “nationals” crisis had several important effects on the thrift industry, the first of which was the creation of the first state regulations governing B&Ls, designed both to prevent another “nationals” crisis and to make thrift operations more uniform. Significantly, thrift leaders were often responsible for securing these new guidelines. The second major change was the formation of a national trade association to not only protect B&L interests, but also promote business growth. These changes, combined with improved economic conditions, ushered in a period of prosperity for thrifts, as seen below:

Year Number of B&Ls
Assets (000,000)
1888 3,500 $300
1900 5,356 $571
1914 6,616 $1,357

Source: Carroll D. Wright, Ninth Annual Report of the Commissioner of Labor: Building and Loan Associations (Washington, D.C.: USGPO, 1894), 214; Josephine Hedges Ewalt, A Business Reborn: The Savings and Loan Story, 1930-1960 (Chicago: American Savings and Loan Institute Publishing Co., 1962), 391. (All monetary figures in this study are in current dollars.)

The Thrift Trade Association and Business Growth

The national trade association that emerged from the “nationals” crisis became a prominent force in shaping the thrift industry. Its leaders took an active role in unifying the thrift industry and modernizing not only its operations but also its image. The trade association led efforts to create more uniform accounting, appraisal, and lending procedures. It also spearheaded the drive to have all thrifts refer to themselves as “savings and loans” not B&Ls, and to convince managers of the need to assume more professional roles as financiers.

The consumerism of the 1920s fueled strong growth for the industry, so that by 1929 thrifts provided 22 percent of all mortgages. At the same time, the average thrift held $704,000 in assets, and more than one hundred thrifts had over $10 million in assets each. Similarly, the percentage of Americans belonging to B&Ls rose steadily so that by the end of the decade 10 percent of the population belonged to a thrift, up from just 4 percent in 1914. Significantly, many of these members were upper- and middle-class men and women who joined to invest money safely and earn good returns. These changes led to broad industry growth as seen below:

Year Number of B&Ls Assets (000,000)
1914 6,616 $1,357
1924 11,844 $4,766
1930 11,777 $8,829

Source: Ewalt, A Business Reborn, 391

The Depression and Federal Regulation

The success during the “Roaring Twenties” was tempered by the financial catastrophe of the Great Depression. Thrifts, like banks, suffered from loan losses, but in comparison to their larger counterparts, thrifts tended to survive the 1930s with greater success. Because banks held demand deposits, these institutions were more susceptible to “runs” by depositors, and as a result between 1931 and 1932 almost 20 percent of all banks went out of business while just over 2 percent of all thrifts met a similar fate. While the number of thrifts did fall by the late 1930s, the industry was able to quickly recover from the turmoil of the Great Depression as seen below:

Year Number of B&Ls Assets (000,000)
1930 11,777 $8,829
1937 9,225 $5,682
1945 6,149 $8,747

Source: Savings and Loan Fact Book, 1955 (Chicago: United States Savings and Loan League, 1955), 39.

Even through fewer thrifts failed than banks, the industry still experienced significant foreclosures and problems attracting funds. As a result, some thrift leaders looked to the federal government for assistance. In 1932, the thrift trade association worked with Congress to create a federal home loan bank that would make loans to thrifts facing fund shortages. By 1934, the other two major elements of federal involvement in the thrift business, a system of federally-chartered thrifts, and a federal deposit insurance program, were in place.

The creation of federal regulation was the most significant accomplishment for the thrift industry in the 1930s. While thrift leaders initially resisted regulation, in part because they feared the loss of business independence, their attitudes changed when they saw the benefits regulation gave to commercial banks. As a result, the industry quickly assumed an active role in the design and implementation of thrift oversight. In the years that followed, relations between thrift leaders and federal regulators became so close that some critics alleged that the industry had effectively “captured” their regulatory agencies.

The Postwar “Glory Years”

By all measures, the two decades that followed the end of World War II were the most successful period in the history of the thrift industry. The return of millions of servicemen eager to take up their prewar lives led to a dramatic increase in new families, and this “baby boom” caused a surge in new (mostly suburban) home construction. By the 1940s S&Ls (the name change occurred in the late 1930s) provided the majority of the financing for this expansion. The result was strong industry expansion that lasted through the early 1960s. In addition to meeting the demand for mortgages, thrifts expanded their sources of revenue and achieved greater asset growth by entering into residential development and consumer lending areas. Finally, innovations like drive-up teller windows and the ubiquitous “time and temperature” signs helped solidify the image of S&Ls as consumer-friendly, community-oriented institutions.

By 1965, the industry bore little resemblance to the business that had existed in the 1940s. S&Ls controlled 26 percent of consumer savings and provided 46 percent of all single-family home loans (tremendous gains over the comparable figures of 7 percent and 23 percent, respectively, for 1945), and this increase in business led to a considerable increase size as seen below:

Year Number of S&Ls Assets (000,000)
1945 6,149 $8,747
1952 6,004 $22,585
1959 6,223 $63,401
1965 6,071 $129,442

Source:Savings and Loan Fact Book, 1966, (Chicago: United States Savings and Loan League, 1966)92-4.

This expansion, however, was not uniform. More than a third of all thrifts had fewer than $5 million in assets each, while the one hundred largest thrifts held an average of $340 million each; three S&Ls approached $5 billion in assets. While regional expansion in states like California, account for part of this disparity, there were other controversial actions that fueled individual thrift growth. Some thrifts attracted funds by issuing stock to the public and become publicly held corporations. Another important trend involved raising rates paid on savings to lure deposits, a practice that resulted in periodic “rate wars” between thrifts and even commercial banks. These wars became so severe that in 1966 Congress took the highly unusual move of setting limits on savings rates for both commercial banks and S&Ls. Although thrifts were given the ability to pay slightly higher rates than banks, the move signaled an end to the days of easy growth for the thrift industry.

Moving from Regulation to Deregulation

The thirteen years following the enactment of rate controls presented thrifts with a number of unprecedented challenges, chief of which was finding ways to continue to expand in an economy characterized by slow growth, high interest rates and inflation. These conditions, which came to be known as “stagflation,” wrecked havoc with thrift finances for a variety of reasons. Because regulators controlled the rates thrifts could pay on savings, when interest rates rose depositors often withdrew their funds and placed them in accounts that earned market rates, a process known as disintermediation. At the same time, rising rates and a slow growth economy made it harder for people to qualify for mortgages that in turn limited the ability to generate income.

In response to these complex economic conditions, thrift managers came up with several innovations, such as alternative mortgage instruments and interest-bearing checking accounts, as a way to retain funds and generate lending business. Such actions allowed the industry to continue to record steady asset growth and profitability during the 1970s even though the actual number of thrifts was falling, as seen below.

Year Number of S&Ls Assets (000,000)
1965 6,071 $129,442
1970 5,669 $176,183
1974 5,023 $295,545
1979 4,709 $579,307

Source: Savings and Loan Fact Book, 1980, (Chicago: United States Savings and Loan League, 1980)48-51.

Despite such growth, there were still clear signs that the industry was chafing under the constraints of regulation. This was especially true with the large S&Ls in the western United States that yearned for additional lending powers to ensure continued growth. At the same time, major changes in financial markets, including the emergence of new competitors and new technologies, fueled the need to revise federal regulations for thrifts. Despite several efforts to modernize these laws in the 1970s, few substantive changes were enacted.

The S&L Crisis of the 1980s

In 1979 the financial health of the thrift industry was again challenged by a return of high interest rates and inflation, sparked this time by a doubling of oil prices. Because the sudden nature of these changes threatened to cause hundreds of S&L failures, Congress finally acted on deregulating the thrift industry. It passed two laws (the Depository Institutions Deregulation and Monetary Control Act of 1980 and the Garn-St. Germain Act of 1982) that not only allowed thrifts to offer a wider array of savings products, but also significantly expanded their lending authority. These changes were intended to allow S&Ls to “grow” out of their problems, and as such represented the first time that the government explicitly sought to increase S&L profits as opposed to promoting housing and homeownership. Other changes in thrift oversight included authorizing the use of more lenient accounting rules to report their financial condition, and the elimination of restrictions on the minimum numbers of S&L stockholders. Such policies, combined with an overall decline in regulatory oversight (known as forbearance), would later be cited as factors in the later collapse of the thrift industry.

While thrift deregulation was intended to give S&Ls the ability to compete effectively with other financial institutions, it also contributed to the worst financial crisis since the Great Depression as seen below:

Year S&L Failures Assets (000,000) Year Total S&Ls Industry Assets (000,000)
1980-2 118 $43,101 1980 3,993 $603,777
1983-5 137 $39,136 1983 3,146 $813,770
1986-7 118 $32,248 1985 3,274 $1,109,789
1988 205 $100,705 1988 2,969 $1,368,843
1989 327 $135,245 1989 2,616 $1,186,906

Source: Statistics on failures: Norman Strunk and Fred Case, Where Deregulation Went Wrong (Chicago: United States League of Savings Institutions, 1988), 10; Lawrence White, The S&L Debacle: Public Policy Lessons for Bank and Thrift Regulation (New York: Oxford University Press, 1991), 150; Managing the Crisis: The FDIC and RTC Experience, 1980‑1994 (Washington, D.C.: Resolution Trust Corporation, 1998), 795, 798; Historical Statistics on Banking, Bank and Thrift Failures, FDIC web page accessed 31 August 2000; Total industry statistics: 1999 Fact Book: A Statistical Profile on the United States Thrift Industry. (Washington, D.C.: Office of Thrift Supervision, June 2000), 1, 4.

The level of thrift failures at the start of the 1980s was the largest since the Great Depression, and the primary reason for these insolvencies was the result of losses incurred when interest rates rose suddenly. Even after interest rates had stabilized and economic growth returned by the mid-1980s, however, thrift failures continued to grow. One reason for this latest round of failures was because of lender misconduct and fraud. The first such failure tied directly to fraud was Empire Savings of Mesquite, TX in March 1984, an insolvency that eventually cost the taxpayers nearly $300 million. Another prominent fraud-related failure was Lincoln Savings and Loan headed by Charles Keating. When Lincoln came under regulatory scrutiny in 1987, Senators Dennis DeConcini, John McCain, Alan Cranston, John Glenn, and Donald Riegle (all of whom received campaign contributions from Keating and would become known as the “Keating Five”) questioned the appropriateness of the investigation. The subsequent Lincoln failure is estimated to have cost the taxpayers over $2 billion. By the end of the decade, government officials estimated that lender misconduct cost taxpayers more than $75 billion, and the taint of fraud severely tarnished the overall image of the savings and loan industry.

Because most S&Ls were insured by the Federal Savings & Loan Insurance Corporation (FSLIC), few depositors actually lost money when thrifts failed. This was not true for thrifts covered by state deposit insurance funds, and the fragility of these state systems became apparent during the S&L crisis. In 1985, the anticipated failure of Home State Savings Bank of Cincinnati, Ohio sparked a series of deposit runs that threatened to bankrupt that state’s insurance program, and eventually prompted the governor to close all S&Ls in the state. Maryland, which also operated a state insurance program, experienced a similar panic when reports of fraud surfaced at Old Court Savings and Loan in Baltimore. In theaftermath of the failures in these two states all other state deposit insurance funds were terminated and the thrifts placed under the FSLIC. Eventually, even the FSLIC began to run out of money, and in 1987 the General Accounting Office declared the fund insolvent. Although Congress recapitalized the FSLIC when it passed the Competitive Equality Banking Act, it also authorized regulators to delay closing technically insolvent S&Ls as a way to limit insurance payoffs. The unfortunate consequence of such a policy was that allowing troubled thrifts to remain open and grow eventually increased the losses when failure did occur.

In 1989, the federal government finally created a program to resolve the S&L crisis. In August, Congress passed the Financial Institutions Reform Recovery and Enforcement Act (FIRREA), a measure that both bailed out the industry and began the process of re-regulation. FIRREA abolished the Federal Home Loan Bank Board and switched S&L regulation to the newly created Office of Thrift Supervision. It also terminated the FSLIC and moved the deposit insurance function to the FDIC. Finally, the Resolution Trust Corporation was created to dispose of the assets held by failed thrifts, while S&Ls still in business were placed under stricter oversight. Among the new regulations thrifts had to meet were higher net worth standards and a “Qualified Thrift Lender Test” that forced them to hold at least 70 percent of assets in areas related to residential real estate.

By the time the S&L crisis was over by the early 1990s, it was by most measures the most expensive financial collapse in American history. Between 1980 and 1993, 1,307 S&Ls with more than $603 billion in assets went bankrupt, at a cost to taxpayers of nearly $500 billion. It should be noted that S&Ls were not the only institutions to suffer in the 1980s, as the decade also witnessed the failure of 1,530 commercial banks controlling more than $230 billion in assets.

Explaining the S&L Crisis

One reason why so many thrifts failed in the 1980s was in the nature of how thrifts were deregulated. S&Ls historically were specialized financial institutions that used relatively long-term deposits to fund long-term mortgages. When thrifts began to lose funds to accounts that paid higher interest rates, initial deregulation focused on loosening deposit restrictions so thrifts could also offer higher rates. Unfortunately, because thrifts still lacked the authority to make variable rate mortgages many S&Ls were unable to generate higher income to offset expenses. While the Garn-St. Germain Act tried to correct this problem, the changes authorized were exceptionally broad and included virtually every type of lending power.

The S&L crisis was magnified by the fact that deregulation was accompanied by an overall reduction in regulatory oversight. As a result, unscrupulous thrift managers were able to dodge regulatory scrutiny, or use an S&L for their own personal gain. This, in turn, related to another reasons why S&Ls failed — insider fraud and mismanagement. Because most thrifts were covered by federal deposit insurance, some lenders facing insolvency embarked on a “go for broke” lending strategy that involved making high risk loans as a way to recover from their problems. The rationale behind this was that if the risky loan worked the thrift would make money, and if the loan went bad insurance would cover the losses.

One of the most common causes of insolvency, however, was that many thrift managers lacked the experience or knowledge to evaluate properly the risks associated with lending in deregulated areas. This applied to any S&L that made secured or unsecured loans that were not traditional residential mortgages, since each type of financing entailed unique risks that required specific skills and expertise on how to identify and mitigate. Such factors meant that bad loans, and in turn thrift failures, could easily result from well-intentioned decisions based on incorrect information.

The S&L Industry in the 21st Century

Although the thrift crisis of the 1980s severely tarnished the S&L image, the industry survived the period and, now under greater government regulation, is once again growing. At the start of the twenty-first century, America’s 1,103 thrift institutions control more than $863 billion in assets, and remain the second-largest repository for consumer savings. While thrift products and services are virtually indistinguishable from those offered by commercial banks (thrifts can even call themselves banks), these institutions have achieved great success by marketing themselves as community-oriented home lending specialists. This strategy is intended to appeal to consumers disillusioned with the emergence of large multi-state banking conglomerates. Despite this rebound, the thrift industry (like the commercial banking industry) continues to face competitive challenges from nontraditional banking services, innovations in financial technology, and the potential for increased regulation.


Barth, James. The Great Savings and Loan Debacle. Washington, D.C.: AEI Press, 1991.

Bodfish, Morton. editor. History of Buildings & Loan in the United States. Chicago: United States Building and Loan League, 1932.

Ewalt, Josephine Hedges. A Business Reborn: The Savings and Loan Story, 1930‑1960. Chicago: American Savings and Loan Institute Press, 1964.

Lowy, Martin. High Rollers: Inside the Savings and Loan Debacle. New York: Praeger, 1991.

Mason, David L. “From Building and Loans to Bail-Outs: A History of the American Savings and Loan Industry, 1831-1989.”Ph.D dissertation, Ohio State University, 2001.

Riegel, Robert and J. Russell Doubman. The Building‑and‑Loan Association. New York: J. Wiley & Sons, Inc., 1927.

Rom, Mark Carl. Public Spirit in the Thrift Tragedy. Pittsburgh: University of Pittsburgh Press, 1996.

Strunk, Norman and Fred Case. Where Deregulation Went Wrong: A Look at the Causes Behind Savings and Loan Failures in the 1980s. Chicago: United States League of Savings Institutions, 1988.

White, Lawrence, J. The S&L Debacle: Public Policy Lessons for Bank and Thrift Regulation. New York: Oxford University Press, 1991.

Citation: Mason, David. “Savings and Loan Industry, US”. EH.Net Encyclopedia, edited by Robert Whaples. June 10, 2003. URL

African Americans in the Twentieth Century

Thomas N. Maloney, University of Utah

The nineteenth century was a time of radical transformation in the political and legal status of African Americans. Blacks were freed from slavery and began to enjoy greater rights as citizens (though full recognition of their rights remained a long way off). Despite these dramatic developments, many economic and demographic characteristics of African Americans at the end of the nineteenth century were not that different from what they had been in the mid-1800s. Tables 1 and 2 present characteristics of black and white Americans in 1900, as recorded in the Census for that year. (The 1900 Census did not record information on years of schooling or on income, so these important variables are left out of these tables, though they will be examined below.) According to the Census, ninety percent of African Americans still lived in the Southern US in 1900 — roughly the same percentage as lived in the South in 1870. Three-quarters of black households were located in rural places. Only about one-fifth of African American household heads owned their own homes (less than half the percentage among whites). About half of black men and about thirty-five percent of black women who reported an occupation to the Census said that they worked as a farmer or a farm laborer, as opposed to about one-third of white men and about eight percent of white women. Outside of farm work, African American men and women were greatly concentrated in unskilled labor and service jobs. Most black children had not attended school in the year before the Census, and white children were much more likely to have attended. So the members of a typical African American family at the start of the twentieth century lived and worked on a farm in the South and did not own their home. Children in these families were unlikely to be in school even at very young ages.

By 1990 (the most recent Census for which such statistics are available at the time of this writing), the economic conditions of African Americans had changed dramatically (see Tables 1 and 2). They had become much less concentrated in the South, in rural places, and in farming jobs and had entered better blue-collar jobs and the white-collar sector. They were nearly twice as likely to own their own homes at the end of the century as in 1900, and their rates of school attendance at all ages had risen sharply. Even after this century of change, though, African Americans were still relatively disadvantaged in terms of education, labor market success, and home ownership.

Table 1: Characteristics of Households in 1900 and 1990

1900 1990
Black White Black White
A. Region of Residence
South 90.1% 23.5% 53.0% 32.9%
Northeast 3.6% 31.8% 18.9% 20.9%
Midwest 5.8% 38.5% 18.9% 25.3%
West 0.5% 6.2% 9.2% 21.0%
B. Share Rural
75.8% 56.1% 11.9% 25.7%
C. Share of Homes Owner-Occupied
22.1% 49.2% 43.4% 67.3%

Based on household heads in Integrated Public Use Microdata Series Census samples for 1900 and 1990.

Table 2: Characteristics of Individuals in 1900 and 1990

1900 1990
Male Female Male Female
Black White Black White Black White Black White
A. Occupational Distribution
Professional/Technical 1.3% 3.8% 1.6% 10.7% 9.9% 17.2% 16.6% 21.9%
Proprietor/Manager/Official 0.8 6.9 0.2 2.6 6.5 14.7 5.4 10.0
Clerical 0.2 4.0 0.2 5.6 10.7 7.2 29.7 31.9
Sales 0.3 4.2 0.2 4.1 2.9 6.7 4.1 7.3
Craft 4.2 15.9 0 3.1 17.4 20.7 2.3 2.1
Operative 7.3 13.4 1.8 24.5 20.7 14.9 12.4 8.0
Laborer 25.5 14.0 6.5 1.5 12.2 7.2 2.0 1.5
Private Service 2.2 0.4 33.0 33.2 0.1 0 2.0 0.8
Other Service 4.8 2.4 20.6 6.6 18.5 9.0 25.3 15.8
Farmer 30.8 23.9 6.7 6.1 0.2 1.4 0.1 0.4
Farm Laborer 22.7 11.0 29.4 2.0 1.0 1.0 0.4 0.5
B. Percent Attending School by Age
Ages 6 to 13 37.8% 72.2% 41.9% 71.9% 94.5% 95.3% 94.2% 95.5
Ages 14 to 17 26.7 47.9 36.2 51.5 91.1 93.4 92.6 93.5
Ages 18 to 21 6.8 10.4 5.9 8.6 47.7 54.3 52.9 57.1

Based on Integrated Public Use Microdata Series Census samples for 1900 and 1990. Occupational distributions based on individuals aged 18 to 64 with recorded occupation. School attendance in 1900 refers to attendance at any time in the previous year. School attendance in 1990 refers to attendance since February 1 of that year.

These changes in the lives of African Americans did not occur continuously and steadily throughout the twentieth century. Rather, we can divide the century into three distinct eras: (1) the years from 1900 to 1915, prior to large-scale movement out of the South; (2) the years from 1916 to 1964, marked by migration and urbanization, but prior to the most important government efforts to reduce racial inequality; and (3) the years since 1965, characterized by government antidiscrimination efforts but also by economic shifts which have had a great impact on racial inequality and African American economic status.

1900-1915: Continuation of Nineteenth-Century Patterns

As was the case in the 1800s, African American economic life in the early 1900s centered on Southern cotton agriculture. African Americans grew cotton under a variety of contracts and institutional arrangements. Some were laborers hired for a short period for specific tasks. Many were tenant farmers, renting a piece of land and some of their tools and supplies, and paying the rent at the end of the growing season with a portion of their harvest. Records from Southern farms indicate that white and black farm laborers were paid similar wages, and that white and black tenant farmers worked under similar contracts for similar rental rates. Whites in general, however, were much more likely to own land. A similar pattern is found in Southern manufacturing in these years. Among the fairly small number of individuals employed in manufacturing in the South, white and black workers were often paid comparable wages if they worked at the same job for the same company. However, blacks were much less likely to hold better-paying skilled jobs, and they were more likely to work for lower-paying companies.

While the concentration of African Americans in cotton agriculture persisted, Southern black life changed in other ways in the early 1900s. Limitations on the legal rights of African Americans grew more severe in the South in this era. The 1896 Supreme Court decision in the case of Plessy v. Ferguson provided a legal basis for greater explicit segregation in American society. This decision allowed for the provision of separate facilities and services to blacks and whites as long as the facilities and services were equal. Through the early 1900s, many new laws, known as Jim Crow laws, were passed in Southern states creating legally segregated schools, transportation systems, and lodging. The requirement of equality was not generally enforced, however. Perhaps the most important and best-known example of separate and unequal facilities in the South was the system of public education. Through the first decades of the twentieth century, resources were funneled to white schools, raising teacher salaries and per-pupil funding while reducing class size. Black schools experienced no real improvements of this type. The result was a sharp decline in the relative quality of schooling available to African-American children.

1916-1964: Migration and Urbanization

The mid-1910s witnessed the first large-scale movement of African Americans out of the South. The share of African Americans living in the South fell by about four percentage points between 1910 and 1920 (with nearly all of this movement after 1915) and another six points between 1920 and 1930 (see Table 3). What caused this tremendous relocation of African Americans? The worsening political and social conditions in the South, noted above, certainly played a role. But the specific timing of the migration appears to be connected to economic factors. Northern employers in many industries faced strong demand for their products and so had a great need for labor. Their traditional source of cheap labor, European immigrants, dried up in the late 1910s as the coming of World War I interrupted international migration. After the end of the war, new laws limiting immigration to the US would keep the flow of European labor at a low level. Northern employers thus needed a new source of cheap labor, and they turned to Southern blacks. In some cases, employers would send recruiters to the South to find workers and to pay their way North. In addition to this pull from the North, economic events in the South served to push out many African Americans. Destruction of the cotton crop by the boll weevil, an insect that feeds on cotton plants, and poor weather in some places during these years made new opportunities in the North even more attractive.

Table 3: Share of African Americans Residing in the South

Year Share Living in South
1890 90%
1900 90%
1910 89%
1920 85%
1930 79%
1940 77%
1950 68%
1960 60%
1970 53%
1980 53%
1990 53%

Sources: 1890 to 1960: Historical Statistics of the United States, volume 1, pp. 22-23; 1970: Statistical Abstract of the United States, 1973, p. 27; 1980: Statistical Abstract of the United States, 1985, p. 31; 1990: Statistical Abstract of the United States, 1996, p. 31.

Pay was certainly better, and opportunities were wider, in the North. Nonetheless, the region was not entirely welcoming to these migrants. As the black population in the North grew in the 1910s and 1920s, residential segregation grew more pronounced, as did school segregation. In some cases, racial tensions boiled over into deadly violence. The late 1910s were scarred by severe race riots in a number of cities, including East St. Louis (1917) and Chicago (1919).

Access to Jobs in the North

Within the context of this broader turmoil, black migrants did gain entry to new jobs in Northern manufacturing. As in Southern manufacturing, pay differences between blacks and whites working the same job at the same plant were generally small. However, black workers had access to a limited set of jobs and remained heavily concentrated in unskilled laborer positions. Black workers gained admittance to only a limited set of firms, as well. For instance, in the auto industry, the Ford Motor Company hired a tremendous number of black workers, while other auto makers in Detroit typically excluded these workers. Because their alternatives were limited, black workers could be worked very intensely and could also be used in particularly unpleasant and dangerous settings, such as the killing and cutting areas of meat packing plants, foundry departments in auto plants, and blast furnaces in steel plants.


Through the 1910s and 1920s, relations between black workers and Northern labor unions were often antagonistic. Many unions in the North had explicit rules barring membership by black workers. When faced with a strike (or the threat of a strike), employers often hired in black workers, knowing that these workers were unlikely to become members of the union or to be sympathetic to its goals. Indeed, there is evidence that black workers were used as strike breakers in a great number of labor disputes in the North in the 1910s and 1920s. Beginning in the mid-1930s, African Americans gained greater inclusion in the union movement. By that point, it was clear that black workers were entrenched in manufacturing, and that any broad-based organizing effort would have to include them.

Conditions around 1940

As is apparent in Table 3, black migration slowed in the 1930s, due to the onset of the Great Depression and the resulting high level of unemployment in the North in the 1930s. Beginning in about 1940, preparations for war again created tight labor markets in Northern cities, though, and, as in the late 1910s, African Americans journeyed north to take advantage of new opportunities. In some ways, moving to the North in the 1940s may have appeared less risky than it had during the World War I era. By 1940, there were large black communities in a number of Northern cities. Newspapers produced by these communities circulated in the South, providing information about housing, jobs, and social conditions. Many Southern African Americans now had friends and relatives in the North to help with the transition.

In other ways, though, labor market conditions were less auspicious for black workers in 1940 than they had been during the World War I years. Unemployment remained high in 1940, with about fourteen percent of white workers either unemployed or participating in government work relief programs. Employers hired these unemployed whites before turning to African American labor. Even as labor markets tightened, black workers gained little access to war-related employment. The President issued orders in 1941 that companies doing war-related work had to hire in a non-discriminatory way, and the Fair Employment Practice Committee was created to monitor the hiring practices of these companies. Initially, few resources were devoted to this effort, but in 1943 the government began to enforce fair employment policies more aggressively. These efforts appear to have aided black employment, at least for the duration of the war.

Gains during the 1940s and 1950s

In 1940, the Census Bureau began to collect data on individual incomes, so we can track changes in black income levels and in black/white income ratios in more detail from this date forward. Table 4 provides annual earnings figures for black and white men and women from 1939 (recorded in the 1940 Census) to 1989 (recorded in the 1990 Census). The big gains of the 1940s, both in level of earnings and in the black/white income ratio, are very obvious. Often, we focus on the role of education in producing higher earnings, but the gap between average schooling levels for blacks and whites did not change much in the 1940s (particularly for men), so schooling levels could not have contributed too much to the relative income gains for blacks in the 1940s (see Table 5). Rather, much of the improvement in the black/white pay ratio in this decade simply reflects ongoing migration: blacks were leaving the South, a low-wage region, and entering the North, a high-wage region. Some of the improvement reflects access to new jobs and industries for black workers, due to the tight labor markets and antidiscrimination efforts of the war years.

Table 4: Mean Annual Earnings of Wage and Salary Workers

Aged 20 and Over



Black White Ratio Black White Ratio
1939 $537.45 $1234.41 .44 $331.32 $771.69 .43
1949 1761.06 2984.96 .59 992.35 1781.96 .56
1959 2848.67 5157.65 .55 1412.16 2371.80 .59
1969 5341.64 8442.37 .63 3205.12 3786.45 .85
1979 11404.46 16703.67 .68 7810.66 7893.76 .99
1989 19417.03 28894.69 .67 15319.29 16135.65 .95

Source: Integrated Public Use Microdata Series Census samples for 1940, 1950, 1960, 1970, 1980, and 1990. Includes only those with non-zero earnings who were not in school. All figures are in current (nominal) dollars.

Table 5: Years of School Attended for Individuals 20 and Over



Black White Difference Black White Difference
1940 5.9 9.1 3.2 6.9 10.5 3.6
1950 6.8 9.8 3 7.8 10.8 3
1960 7.9 10.5 2.6 8.8 11.0 2.2
1970 9.4 11.4 2.0 10.3 11.7 1.4
1980 11.2 12.5 1.3 11.8 12.4 0.6

Source: Integrated Public Use Microdata Series Census samples for 1940, 1950, 1960, 1970, and 1980. Based on highest grade attended by wage and salary workers aged 20 and over who had non-zero earnings in the previous year and who were not in school at the time of the census. Comparable figures are not available in the 1990 Census.

Black workers relative incomes were also increased by some general changes in labor demand and supply and in labor market policy in the 1940s. During the war, demand for labor was particularly strong in the blue-collar manufacturing sector. Workers were needed to build tanks, jeeps, and planes, and these jobs did not require a great deal of formal education or skill. In addition, the minimum wage was raised in 1945, and wartime regulations allowed greater pay increases for low-paid workers than for highly-paid workers. After the war, the supply of college-educated workers increased dramatically. The GI Bill, passed in 1944, provided large subsidies to help pay the expenses of World War II veterans who wanted to attend college. This policy helped a generation of men further their education and get a college degree. So strong labor demand, government policies that raised wages at the bottom, and a rising supply of well-educated workers meant that less-educated, less-skilled workers received particularly large wage increases in the 1940s. Because African Americans were concentrated among the less-educated, low-earning workers, these general economic forces were especially helpful to African Americans and served to raise their pay relative to that of whites.

The effect of these broader forces on racial inequality helps to explain the contrast between the 1940s and 1950s evident in Table 4. The black-white pay ratio may have actually fallen a bit for men in the 1950s, and it rose much more slowly in the 1950s than in the 1940s for women. Some of this slowdown in progress reflects weaker labor markets in general, which reduced black access to new jobs. In addition, the general narrowing of the wage distribution that occurred in the 1940s stopped in the 1950s. Less-educated, lower-paid workers were no longer getting particularly large pay increases. As a result, blacks did not gain ground on white workers. It is striking that pay gains for black workers slowed in the 1950s despite a more rapid decline in the black-white schooling gap during these years (Table 5).


On the whole, migration and entry to new industries played a large role in promoting black relative pay increases through the years from World War I to the late 1950s. However, these changes also had some negative effects on black labor market outcomes. As black workers left Southern agriculture, their relative rate of unemployment rose. For the nation as a whole, black and white unemployment rates were about equal as late as 1930. This equality was to a great extent the result of lower rates of unemployment for everyone in the rural South relative to the urban North. Farm owners and sharecroppers tended not to lose their work entirely during weak markets, whereas manufacturing employees might be laid off or fired during downturns. Still, while unemployment was greater for everyone in the urban North, it was disproportionately greater for black workers. Their unemployment rates in Northern cities were much higher than white unemployment rates in the same cities. One result of black migration, then, was a dramatic increase in the ratio of black unemployment to white unemployment. The black/white unemployment ratio rose from about 1 in 1930 (indicating equal unemployment rates for blacks and whites) to about 2 by 1960. The ratio remained at this high level through the end of the twentieth century.

1965-1999: Civil Rights and New Challenges

In the 1960s, black workers again began to experience more rapid increases in relative pay levels (see Table 4). These years also marked a new era in government involvement in the labor market, particularly with regard to racial inequality and discrimination. One of the most far-reaching changes in government policy regarding race actually occurred a bit earlier, in the 1954 Supreme Court decision in the case of Brown v. the Board of Education of Topeka, Kansas. In that case, the Supreme Court ruled that racial segregation of schools was unconstitutional. However, substantial desegregation of Southern schools (and some Northern schools) would not take place until the late 1960s and early 1970s.

School desegregation, therefore, was probably not a primary force in generating the relative pay gains of the 1960s and 1970s. Other anti-discrimination policies enacted in the mid-1960s did play a large role, however. The Civil Rights Act of 1964 outlawed discrimination in a broad set of social arenas. Title VII of this law banned discrimination in hiring, firing, pay, promotion, and working conditions and created the Equal Employment Opportunity Commission to investigate complaints of workplace discrimination. A second policy, Executive Order 11246 (issued by President Johnson in 1965), set up more stringent anti-discrimination rules for businesses working on government contracts. There has been much debate regarding the importance of these policies in promoting better jobs and wages for African Americans. There is now increasing agreement that these policies had positive effects on labor market outcomes for black workers at least through the mid-1970s. Several pieces of evidence point to this conclusion. First, the timing is right. Many indicators of employment and wage gains show marked improvement beginning in 1965, soon after the implementation of these policies. Second, job and wage gains for black workers in the 1960s were, for the first time, concentrated in the South. Enforcement of anti-discrimination policy was targeted on the South in this era. It is also worth noting that rates of black migration out of the South dropped substantially after 1965, perhaps reflecting a sense of greater opportunity there due to these policies. Finally, these gains for black workers occurred simultaneously in many industries and many places, under a variety of labor market conditions. Whatever generated these improvements had to come into effect broadly at one point in time. Federal antidiscrimination policy fits this description.

Return to Stagnation in Relative Income

The years from 1979 to 1989 saw the return of stagnation in black relative incomes. Part of this stagnation may reflect the reversal of the shifts in wage distribution that occurred during the 1940s. In the late 1970s and especially in the 1980s, the US wage distribution grew more unequal. Individuals with less education, particularly those with no college education, saw their pay decline relative to the better-educated. Workers in blue-collar manufacturing jobs were particularly hard hit. The concentration of black workers, especially black men, in these categories meant that their pay suffered relative to that of whites. Another possible factor in the stagnation of black relative pay in the 1980s was weakened enforcement of antidiscrimination policies at this time.

While black relative incomes stagnated on average, black residents of urban centers suffered particular hardships in the 1970s and 1980s. The loss of blue-collar manufacturing jobs was most severe in these areas. For a variety of reasons, including the introduction of new technologies that required larger plants, many firms relocated their production facilities outside of central cities, to suburbs and even more peripheral areas. Central cities increasingly became information-processing and financial centers. Jobs in these industries generally required a college degree or even more education. Despite decades of rising educational levels, African Americans were still barely half as likely as whites to have completed four years of college or more: in 1990, 11.3% of blacks over the age of 25 had four years of college or more, versus 22% of whites. As a result of these developments, many blacks in urban centers found themselves surrounded by jobs for which they were poorly qualified, and at some distance from the types of jobs for which they were qualified, the jobs their parents had moved to the city for in the first place. Their ability to relocate near these blue-collar jobs seems to have been limited both by ongoing discrimination in the housing market and by a lack of resources. Those African Americans with the resources to exit the central city often did so, leaving behind communities marked by extremely high rates of poverty and unemployment.

Over the fifty years from 1939 to 1989, through these episodes of gain and stagnation, the ratio of black mens average annual earnings to white mens average annual earnings rose about 23 points, from .44 to .67. The timing of improvement in the black female/ white female income ratio was similar. However, black women gained much more ground overall: the black-white income ratio for women rose 50 points over these fifty years and stood at .95 in 1989 (down from .99 in 1979). The education gap between black women and white women declined more than the education gap between black and white men, which contributed to the faster pace of improvement in black womens relative earnings. Furthermore, black female workers were more likely to be employed full-time than were white female workers, which raised their annual income. The reverse was true among men: white male workers were somewhat more likely to be employed full time than were black male workers.

Comparable data on annual incomes from the 2000 Census are not available at the time of this writing. Evidence from other labor market surveys suggests that the tight labor markets of the late 1990s may have brought renewed relative pay gains for black workers. Black workers also experienced sharp declines in unemployment during these years, though black unemployment remained about twice as great as white unemployment.

Beyond the Labor Market: Persistent Gaps in Wealth and Health

When we look beyond these basic measures of labor market success, we find more disturbingly large and persistent gaps between African Americans and white Americans. Wealth differences between blacks and whites continue to be very large. In the mid-1990s, black households held only about one-quarter the amount of wealth that white households held, on average. If we leave out equity in ones home and personal possessions and focus on more strictly financial, income-producing assets, black households held only about ten to fifteen percent as much wealth as white households. Big differences in wealth holding remain even if we compare black and white households with similar incomes.

Much of this wealth gap reflects the ongoing effects of the historical patterns described above. When freed from slavery, African Americans held no wealth, and their lower incomes prevented them from accumulating wealth at the rate whites did. African Americans found it particularly difficult to buy homes, traditionally a households most important asset, due to discrimination in real estate markets. Government housing policies in the 1930s and 1940s may have also reduced their rate of home-buying. While the federal government made low interest loans and loan insurance available through the Home Owners Loan Corporation and the Federal Housing Authority, these programs generally could not be used to acquire homes in black or mixed neighborhoods, usually the only neighborhoods in which blacks could buy, because these were considered to be areas of high-risk for loan default. Because wealth is passed on from parents to children, the wealth differences of the mid-twentieth century continue to have an important impact today.

Differences in life expectancy have also proven to be remarkably stubborn. Certainly, black and white mortality patterns are more similar today than they once were. In 1929, the first year for which national figures are available, white life expectancy at birth was 58.6 years and black life expectancy was 46.7 years (for men and women combined). By 2000, white life expectancy had risen to 77.4 years and black life expectancy was 71.8 years. Thus, the black-white gap had fallen from about twelve years to less than six. However, almost all of this reduction in the gap was completed by the early 1960s. In 1961, the black-white gap was 6.5 years. The past forty years have seen very little change in the gap, though life expectancy has risen for both groups.

Some of this remaining difference in life expectancy can be traced to income differences between blacks and whites. Black children face a particularly high risk of accidental death in the home, often due to dangerous conditions in low-quality housing. African Americans of all ages face a high risk of homicide, which is related in part to residence in poor neighborhoods. Among older people, African Americans face high risk of death due to heart disease, and the incidence of heart disease is correlated with income. Still, black-white mortality differences, especially those related to disease, are complex and are not yet fully understood.

Infant mortality is a particularly large and particularly troubling form of health difference between blacks and whites.

In 2000 the white infant mortality rate (5.7 per 1000 live births) was less than half the rate for African Americans (14.0 per 1000). Again, some of this mortality difference is related to the effect of lower incomes on the nutrition, medical care, and living conditions available to African American mothers and newborns. However, the full set of relevant factors is the subject of ongoing research.

Summary and Conclusions

It is undeniable that the economic fortunes of African Americans changed dramatically during the twentieth century. African Americans moved from tremendous concentration in Southern agriculture to much greater diversity in residence and occupation. Over the period in which income can be measured, there are large increases in black incomes in both relative and absolute terms. Schooling differentials between blacks and whites fell sharply, as well. When one looks beyond the starting and ending points, though, more complex realities present themselves. The progress that we observe grew out of periods of tremendous social upheaval, particularly during the world wars. It was shaped in part by conflict between black workers and white workers, and it coincided with growing residential segregation. It was not continuous and gradual. Rather, it was punctuated by periods of rapid gain and periods of stagnation. The rapid gains are attributable to actions on the part of black workers (especially migration), broad economic forces (especially tight labor markets and narrowing of the general wage distribution), and specific antidiscrimination policy initiatives (such as the Fair Employment Practice Committee in the 1940s and Title VII and contract compliance policy in the 1960s). Finally, we should note that this century of progress ended with considerable gaps remaining between African Americans and white Americans in terms of income, unemployment, wealth, and life expectancy.


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Economic Development in the Americas since 1500: Endowments and Institutions

Author(s):Engerman, Stanley L.
Sokoloff, Kenneth L.
Reviewer(s):Nonnenmacher, Tomas

Published by EH.Net (September 2013)

Stanley L. Engerman and Kenneth L. Sokoloff, Economic Development in the Americas since 1500: Endowments and Institutions. New York: Cambridge University Press, 2012. xx + 417 pp. $99 (hardcover), ISBN: 978-1-107-00955-4.

Reviewed for EH.Net by Tomas Nonnenmacher, Department of Economics, Allegheny College.

Economic Development in the Americas since 1500: Endowments and Institutions brings together the works of Stanley Engerman and the late Kenneth Sokoloff ? along with coauthors Stephen Haber, Elisa Mariscal and Eric Zolt ? on the topic of geography, institutions, and economic development. Their thesis will be very familiar to economic historians: a causal chain links initial endowments in New World colonies to the organization of economic activity, economic power, political power, institutions, and long-run economic performance. Institutions, in Engerman and Sokoloff?s story, are endogenous, and knowing the resource allocation of a colony in 1500 explains much of its future economic performance. The book begins with three chapters that lay out the big picture and then turns to case studies on suffrage, schooling, taxation, land and immigration policies, and banking. The concluding chapters offer commentary on the use of institution-based explanations of growth and a comparison with alternative explanations of development.

The New World constituted a vast and heterogeneous set of opportunities for European nations. Engerman and Sokoloff group colonies into three categories: those with land most suitable for growing lucrative crops like sugar and tobacco, those with rich mineral resources and a substantial native population, and those with land most suitable for small-scale agriculture. Europeans exploited the natural resources in the first two categories of colonies by either importing slaves from Africa or using the Native American population. Doing so led to an uneven distribution of economic and political power that persisted via the adoption of institutions designed to protect that power. In contrast, in areas where the initial endowment of natural resources did not encourage the use of forced labor, a virtuous cycle of political competition generated pro-growth institutions. The long-run economic prosperity of the U.S. and Canada relative to their neighbors is not due to ?better? British institutions, but due to the British coming to the New World late to the game and acquiring colonies that did not possess the valuable natural endowments that made slavery so profitable. Indeed, the economic development of the British sugar colonies (Barbados, Jamaica, and Belize) is more similar to that of Spanish, Dutch, and French colonies in the Caribbean than to the U.S. and Canada. Even the Puritan work ethic has a counterexample in Providence Island off the coast of Nicaragua.

The middle chapters of the book are the heart of Engerman and Sokoloff?s analysis and provide compelling narratives and statistical evidence supporting their hypothesis of a link between inequality and institutional choice. The chapter on voting establishes the link between economic and political inequality. The original thirteen colonies had rules that linked property or wealth to the right to vote. While these restrictions were fairly strict, they still allowed a broad set of elites to participate in elections. In order to attract immigrants, new western states, which had lower population density and lower income inequality, restricted the franchise much less, using race, gender, age, and criminal record rather than wealth and property. The pattern of extending the franchise in areas with lower population density and lower income inequality is a central piece of Engerman and Sokoloff?s story. In Latin America, the right to vote was greatly limited via a literacy test. Racial boundaries were generally more porous in Latin America, making the implementation of an explicit racial criterion politically difficult. While generally rising over time, the proportion of the population voting in Latin America remained well below that in the United States and Canada through 1940. This pattern limited the access of the general population to the political process and led to rules being written for the elites.

Using literacy as a requirement for the franchise reduced the incentive to provide public school education. The schooling ratio was highest in cities (where inequality was lower), in countries with higher income, and in countries in which a higher percentage of the population voted. Political inequality and education are thus directly linked. Inequality is also linked to the tax structure, with more unequal countries relying on regressive sales and trade taxes and more equal countries relying on property and income taxes. Immigration and land policy was open in the United States and Canada and restrictive in Latin America. The cumulative effect led to enormous differences in land ownership rates by the early 1900s. In Mexico, the highest rural land ownership rate was 5.6% in the Pacific Northwest. The rural land ownership rate was 83.4% in the western United States and 87.1% in Canada. Finally, the chapter on the banking system (by Stephen Haber) draws links between elite power and banking regulation. A powerful Latin American elite manipulated the opaque regulatory process in their favor.

One measure of the importance of a research agenda is the number of scholars who build on it, and, by this measure, Engerman and Sokoloff have achieved great success. Many subsequent studies find support for their hypotheses or raise questions about the links between economic and political inequality and underdevelopment. The work of Engerman and Sokoloff is foundational to the literature on colonialism, institutions, and economic development and anyone interested in development or new institutional economics will need to read this book.

Tomas Nonnenmacher is a Professor of Economics at Allegheny College. His most recent article, ?Stability and Change on Henequen Haciendas in Revolutionary Yucat?n: Two Case Studies from the Henequen Zone? is coauthored with Shannan Mattiace and is forthcoming in Estudios Mexicanos/Mexican Studies. He is currently working on a project exploring entrepreneurship in the telegraph industry.

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 ( Published by EH.Net (September 2013). All EH.Net reviews are archived at

Subject(s):Economic Development, Growth, and Aggregate Productivity
Economywide Country Studies and Comparative History
Geographic Area(s):Latin America, incl. Mexico and the Caribbean
North America
Time Period(s):16th Century
17th Century
18th Century
19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII

The Federal Reserve and the Financial Crisis

Author(s):Bernanke, Ben S.
Reviewer(s):Mitchener, Kris James

Published by EH.Net (August 2013)

Ben S. Bernanke, The Federal Reserve and the Financial Crisis. Princeton, NJ: Princeton University Press, 2013. vii + 134 pp. $20 (hardcover), ISBN: 978-0-691-15873-0.

Reviewed for EH.Net by Kris James Mitchener, Department of Economics, University of Warwick.

This book is the product of a series of university lectures given by Federal Reserve Chairman Ben Bernanke in March 2012 at George Washington University. It is short, crisp, and clear, with only five footnotes and no references.? The four chapters are called ?lectures? and the prose is written in a conversational style reflecting the original form of delivery. Indeed, the unedited lectures are also available for free on the web. They could easily be absorbed while driving one?s car, though this reviewer does not necessarily endorse that form of consumption, nor would one expect that to be the Fed?s official position. Since the original audience consisted largely of undergraduates, concepts are kept simple throughout, largely at an introductory level of economics. Student questions from the lectures are included at the end of each chapter.

Not often does one get to read a book that articulates the beliefs and actions of an incumbent policymaker, let alone one who was charged with conducting monetary policy during a severe financial crisis unless, of course, one is reading sworn testimony given to a public agency, but that is an altogether different exercise than what is undertaken here. The value of this book is that it allows one to observe how the Chairman of the Federal Reserve reacted to the events of 2007-2009 and how that response is justified. What makes it especially delightful to read or listen to is that Chairman Bernanke puts his decision making in a long-run context, describing the particular ?lessons? from the Fed?s history that he drew on during the crisis period. It thus provides a shining example of how policymakers use history in formulating economic policy.

It probably comes as no surprise to those familiar with his academic research on central bank transparency that Chairman Bernanke is the first standing Fed Chairman to write a book while in office. That said, one must keep expectations in check while reading the book. Although he is not afraid to discuss mistakes that the Fed made in its past nor to acknowledge that it could have possibly done more prior to the recent crisis, the chairman presents the official rationale of the most controversial decisions. Some economists, such as Alan Blinder (2013), have drawn attention to differences between the rationale policymakers provided to the President, Congress, and the American public and their actual motivations during the crisis.

Lecture 1 provides a review of the history of the founding of the Federal Reserve System and discusses the tools that central banks have at their disposal for maintaining financial stability and limiting the size and duration of aggregate fluctuations. It covers themes that will be very familiar to most readers of this review: the origins of central banking, the advantages and disadvantages of the gold standard, nineteenth-century banking panics, and ?Bagehot?s Rule.? This lecture and the subsequent one serve the purpose of providing the historical and institutional context for the lessons that Chairman Bernanke applied during the financial crisis that peaked in 2008-2009. They also lay out a case for the Fed?s learning process: the Fed made a variety of mistakes in the 1930s and 1970s, for example, which it subsequently drew on in formulating later policies. In this lecture, Chairman Bernanke acknowledges that the Fed failed with respect to monetary policy and financial stability during the Great Depression, as witnessed by the severity of the banking crisis and the depth and duration of the economic decline. He suggests that FDR?s abandonment of the gold standard and the enactment of federal deposit insurance were actions taken to offset policy errors. Detailing the Fed?s policy mistakes of the 1930s allows him to later contrast the Fed?s policy response to the recent financial crisis.

Lecture 2 continues the examination of the Fed?s history, focusing on the post-World War II period. The first part of it is devoted to the Great Inflation and the associated policy mistakes (overconfidence in the ability to fine tune the economy and loose fiscal and monetary policy) as well as the Great Moderation, with substantial credit given to Paul Volcker and Alan Greenspan?s stewardship of the monetary policy. An omission from this period of policymaking is a discussion of the S&L crisis. Although savings and loans were outside the Fed?s regulatory domain, the episode might have been one that the Fed could have learned from, at least with respect to the idea that it could have refocused the Fed?s attention on ensuring financial stability. (An interesting theme throughout the book is that the Fed?s role of providing financial stability fell into neglect until the recent crisis hit.)

The second half of lecture 2 presents his views on what factors led to the intensity of the financial crisis of 2008-2009, which he casts as a ?classic financial panic? that took place in a broader institutional context (multiple financial markets rather than just banks). He provides a laundry list of weaknesses in the financial system that likely transformed a modest recession into a more severe crisis. For example, he points to household leveraging (driven partly by a decline in the standards for mortgage underwriting and exotic mortgage products), inadequate risk management by banks, short-term funding exposure of banks, and the use of CDS and other exotic derivatives as private-sector catalysts. With respect to public sector vulnerabilities, he suggests that supervision of insurance companies, investment banks, and GSEs was inadequate and that the economy lacked a systemic regulator that could oversee risks across different types of financial institutions. It is unsurprising that he places little stock in the view that the Fed set rates too low early in the 2000s, citing cross-country evidence of other housing booms, the timing of the bubble, and the size of the house price increases relative to changes in monetary policy as evidence against this argument. However, he does acknowledge that the Fed did not fully anticipate how large of an effect a decline in house prices could have on the overall economy.

Lecture 3 provides a description of the Fed?s response to the recent financial crisis and a sense of the real-time decision making that was required during the peak period of the crisis when problems in different sectors of the financial system were springing up on an almost daily basis. This is where it is entertaining for the reader to play armchair central banker, and think whether one?s own policy choices would have deviated that far from the path that the Fed actually took. Important for his description of the Fed?s response to the crisis is the fact that, even though the total losses due to subprime mortgages were not very big, they were spread out across different financial markets, making the size of the losses and the bearers of those losses uncertain. Because many financial firms were using wholesale funding, the uncertainty over losses created the potential for short-term funding to dry up as lenders re-assessed the health of borrowers. Firms in need of short-term funding faced fire sales of assets and runs rippled through the financial system. In response, the Fed provided liquidity to illiquid banks via the discount window and to other financial firms like broker-dealers through special liquidity and credit facilities. Interestingly, although he does not state that the Fed could have done more to save Lehman Brothers (arguing it was an investment bank and the Fed and Treasury tried to find either a buyer or more capital), he does seem to acknowledge that its failure was systemically important (p. 75), and he goes on to describe the effects its failure had on money market mutual funds such as Reserve Primary Fund. Finally, he discusses the coordinated international response of central banks to the financial crisis, contrasting it with the lack of coordination of the 1930s.

The last lecture provides a discussion of what the Fed has been doing in the wake of the crisis, how it is working to implement Dodd-Frank, and what that law means for future Fed conduct. This lecture includes a cogent discussion of the Fed?s quantitative easing policies, which are aimed at influencing long-term interest rates and stimulating the housing sector, and it discusses its continued effort to satisfy its dual mandate by focusing on the persistently weak labor market conditions. Since this lecture provides a detailed description of the expansion of the Fed?s balance sheet and the piling up of reserves by Fed member banks, it would have been nice to see this discussion connected more directly to the continued low levels of bank lending.

This book will be particularly useful for those teaching a class in either macroeconomics or economic history of the twentieth century at the undergraduate level, as these lectures provide a succinct and accessible account of U.S. macro policymaking over the last hundred years. Companion questions, written by Stephen Buckles of Vanderbilt and referencing the video presentation, are also available on the Fed?s website.

Alan Blinder, After the Music Stopped: The Financial Crisis, the Response, and the Work Ahead, New York: Penguin, 2013.

Kris James Mitchener is professor of economics at the University of Warwick and Research Associate at NBER and CAGE. Recent publications include ?Globalization, Trade and Wages: What Does History Tell Us about China?? (with Se Yan) International Economic Review (February 2014) and ?Shadowy Banks and Financial Contagion during the Great Depression: A Retrospective on Friedman and Schwartz? (with Gary Richardson) American Economic Review (May 2013).
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 ( Published by EH.Net (August 2013). All EH.Net reviews are archived at

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

Shaping Medieval Markets: The Organisation of Commodity Markets in Holland, c. 1200 – c. 1450

Author(s):Dijkman, Jessica
Reviewer(s):McCants, Anne E.C.

Published by EH.Net (August 2013)

Jessica Dijkman, Shaping Medieval Markets: The Organisation of Commodity Markets in Holland, c. 1200 – c. 1450.? Leiden: Brill, 2011. xvi + 447 pp. $172 (hardcover), ISBN: 978-90-20148-4.

Reviewed for EH.Net by Anne E.C. McCants, Department of History, Massachusetts Institute of Technology.

In a growing body of scholarship that explores the medieval origins of the early modern Dutch economy, many economic historians now expound the thesis that the prosperity of the ?golden age? was presaged, or even made possible, by the fortuitous resource allocations and resulting market conditions that date back to the early settlement of the reclaimed marshy land that would in time become Holland. Much of the detailed archival work that stands behind this literature has been published in Dutch, but increasingly works of broader synthesis are appearing in English.? Jessica Dijkman?s new contribution to this literature fits squarely within this basic framework.

Her study adds to the tradition of regional inquiry, however, by offering up a serious engagement with another currently fashionable project, that is the documentation of the so-called ?institutional origins? of a given economic outcome, in this case a highly successful one.? Dijkman defines the terms of her study from the outset as a response to the oft-cited work of Acemoglu, Johnson, and Robinson (2001), but with the explicit acknowledgement that we must actually explain where the much-touted ?good institutions? came from, and how they are situated in time.? That is, she sets for herself the explicitly historical task of explaining origins and change, and not just the social scientific task of identifying and categorizing states of being.? To do this, she borrows from Acemoglu, Johnson, and Robinson what she calls the ?social conflict view? (p. 18).? Institutions arise, she argues, not just (or perhaps not even usually) as the most efficient response to a set of circumstances, but as the most advantageous to those who wield the political power necessary to enforce them.? Unlike Acemoglu, Johnson, and Robinson though she places a greater emphasis on exogenous forces that shape that political process rather than relying so overwhelmingly on endogenous factors alone (p. 20).?

Dijkman?s argument draws on one other older theoretical tradition, namely that immortalized by Adam Smith in The Wealth of Nations ? the idea that commercialization (the widening and deepening of markets for commodities in particular, but with spin-off effects in markets for labor and land) can be found at the root of what we now think of as modern economic growth.? As she puts it at the outset of her study, her ?aim is to discover whether favourable commodity market institutions rooted in Holland?s specific social and political structure contributed to the remarkable economic development Holland experienced in the late Middle Ages? (p. 15).? From the literature on institutions she defines the relevant markets as ?sets of institutions: rules, customs, and practices that structure the exchange of goods? (p. 15).? But her question, and her method of probing it, are fundamentally historical in nature, namely to ascertain if the specific timing of Holland?s geographical emergence from previously uninhabited swampland was critical to the formation of one set of institutions and not another; and to execute that investigation by means of a comparative analysis with Flanders and England, both places that shared a range of important characteristics with Holland, but also differed from Holland in critical, and easily distinguishable, ways.

A major strength of the book is the detailed historical work that is both carried out directly and distilled from the research of others.? The first part of the book, titled ?The Institutional Framework: Trade Venues,? reviews the actual places where trade took place: fairs, rural markets, urban attempts to control rural trade, and successful small urban staple markets.? Here the main advantage enjoyed by Holland relative to either Flanders or England appears to have been the absence of a feudal past.? Because of the relatively late start date for land reclamation in the northern Low Countries, feudalism never had time to put down sturdy roots in this region.? Neither did any one urban place manage to exert strong control over rural production as had been the case with the major Flemish cloth towns to her south, bolstered as they were by large scale urban industry as well as noble power.

Part II, ?The Institutional Framework: Rules and Practices,? shifts gears to examine the actual practices that facilitated trade.? Here the emphasis is on the emergence of agreed-upon weights and measures which were not as standardized as they were officially in England, but were not so loose as to stifle trade since both Dutch towns and the counts exercised more effective control than it might appear on a first glance at the evidence.? Moreover, the early development of international trade demanded a fair degree of conformity in any event (p. 235).? Similarly, the other great test for the Institutional explanation for economic success, reliable contract enforcement, again finds Holland lagging behind England (with her royal courts) and Flanders (with her few large and dominating cities).? Here Dijkman suggests that the enduring strength of local courts in every town and village was the ?Achilles? Heel of Holland?s system of debt litigation? (p. 267).? Yet once again, this factor proves not to have been ?decisive? ? because in ?medieval Holland a solid foundation for a locally-based system of contract enforcement grounded on individual responsibility was laid at an early stage? (p. 271).

Part III, ?Market Performance: Quantitative Tests,? is where the rubber really hits the road as it were.? It is in Dijkman?s quantitative tests of both price convergence and market density that Holland really begins to outshine its neighbors across the Channel or south of the great rivers.? Holland demonstrates a remarkably well-integrated price system (for wheat) vis-a-vis international markets from a very early stage.? This does not mean that prices were not volatile; but they did track developments on the international trade circuit very closely.? Dijkman attributes this to the very poor land quality for wheat agriculture in the north, leaving no hope of sustaining the local population.? This forced Holland into international grain markets with an unusual precocity.? England by contrast had a relatively self-contained grain market so prices varied much more by distance than in Holland (pp. 306-07).? But dependence on imports still left Holland vulnerable in times of dearth as ?export restrictions in the producing regions could cause acute problems in Holland? (p. 311).?

Finally, her most remarkable finding is the incredibly high level of market orientation in Holland from a relatively early date, with already 60 to 66 percent of the population involved in the market for their sustenance by the mid-fourteenth century rising to around 90 percent by 1500 (p. 325).? Market participation in Flanders had been somewhat higher (at approximately 70 percent of the population in the early fourteenth century) but it had been entirely eclipsed by 1500 (p. 332).? Meanwhile, market density in England never even came close.? In the early fourteenth century its population involved in the marketplace ranged around 50 percent and that number had only edged up towards 65 percent by 1500 (p. 338).

How can we account for these incredibly high levels of market penetration already in the years prior to the Black Death? Or for that matter, for the perhaps even more amazing feat of increasing market saturation in the period of population collapse following?? Dijkman has this to say: ?Returning to Holland, we can conclude that the strong growth of market orientation between 1350 and 1500 would not have been possible without the support of an efficient organization of commodity markets? (p. 342).? Nonetheless, she goes on to argue that Holland?s favorable institutions did not generate high levels of commercialization of their own accord: the process was ultimately triggered by non-institutional forces.? But the contribution of the institutional framework was still essential: it facilitated and supported flexible adaptation to changing circumstances.

So where does this leave her readers interested in testing the theoretical usefulness of the institutional approach?? This reader remains somewhat uncertain.? In the final analysis Dijkman gives us a well-nuanced ?just-so story? ? her strongest explanation is ?the absence of a truly feudal past? ? in the formulation of De Vries and Van der Woude (1997), coupled with ?the near absence of urban coercion over the countryside? (p. 374).? Or as she argues elsewhere ?the weakness of both vertical ties (constraints ensuing from the exertion of lordly power) and horizontal ties (constraints ensuing from collectivities such as guilds)? account for Holland?s unique experience (p. 351).? But of course, for anyone wanting to use the Dutch case as a guide for best practice, this conclusion is not terribly helpful.

Nonetheless, I am not satisfied to end this review on that critical note.? Just-so stories are often actually very good history ? even if they don?t meet the abstractness criterion of best-practice social science.? The historian?s primary task is, of course, to explain how things came to be, not how to alter the future.? In our future-besotted present this may not seem worth much.? But understanding how things came to be is a worthy enterprise in its own right.? There is yet much to learn from the ever-more-clearly delineated medieval origins of the early modern Dutch economy.?? Prosperity often has long roots ? understanding that can indeed help us make wiser assessments in the present, and hopefully, offer more people better opportunities for the future.


Daron Acemoglu, Simon Johnson and James A. Robinson, ?The Colonial Origins of Comparative Development: An Empirical Investigation,? American Economic Review, 91: 1369-1401 (December 2001).

Jan de Vries and Ad van der Woude, The First Modern Economy: Success, Failure, and Perseverance of the Dutch Economy, 1500-1815, Cambridge University Press (1997).

Anne McCants has research and teaching interests in the economic and social history of the Middle Ages and Early Modern Europe, as well as in the application of social science research methods across the disciplines.? Her work has appeared in the Economic History Review, Explorations in Economic History, Family History, Historical Methods, the Journal of Economic History, the Journal of Interdisciplinary History, the Journal of World History, and Social Science History.

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 ( Published by EH.Net (August 2013). All EH.Net reviews are archived at

Subject(s):Economywide Country Studies and Comparative History
Markets and Institutions
Geographic Area(s):Europe
Time Period(s):Medieval

The American Technological Challenge: Stagnation and Decline in the 21st Century

Author(s):Vijg, Jan
Reviewer(s):Mokyr, Joel

Published by EH.Net (April 2013)

Jan Vijg, The American Technological Challenge: Stagnation and Decline in the 21st Century.? New York: Algora Publishing, 2011.? 248 pp.? $33 (hardcover), ISBN: 978-0-87586-886-8.

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

Jan Vijg is a Dutch-born leading molecular geneticist at one of the most prestigious scientific institutions in the nation.? He displays an insatiable appetite for history and technology and an intellectual curiosity that would do credit to the most interdisciplinary of economic historians.? He is also well-read, thoughtful, and articulate, and asks excellent questions.? The result is a thought-provoking and lively ?big picture? book, ideal for undergraduate teachers who want to introduce young students without a strong background in economics and history to global history.?

This book, like a pearl, was born out of irritation.? As a young man, Vijg read a lot of science fiction, which made him think that the world of the future would be full of technological wonders, such as manned space flight, time travel, flying cars, immortality, and one hundred percent dependence on non-hydrocarbon energy.? None of these things have materialized to date, and Vijg at times sounds disappointed that his modern car is not much different from the cars he learned to drive in the 1960s, that airplane flights today are not much faster than the Boeing 707’s of his youth, and that even in medicine, his field of expertise, the rate of technological progress has slowed down.? The exciting technological hustle and bustle of earlier times, he feels, has disappeared.? We are simply coasting along, driven by momentum, but truly revolutionary macroinventions have disappeared and in his view are unlikely to re-appear.? Technological stagnation, or at best technological creep, awaits us.

Vijg is far too sophisticated a thinker to turn this book into a Jeremiad in the style of Daniel Cohen?s recent The Prosperity of Vice: A Worried View of Economics (2012).? He notes that with the technology of the twenty-first century the industrialized West has already secured an unimaginable standard of living, and that prosperity is slowly but inexorably spreading to the rest of the world.? Despite pockets of violence, the world is largely at peace, and most existentialist threats to our golden age such as nuclear terrorism are dismissed as unlikely.? Climate change and an asteroid strike, to be sure, are threats, but on the whole he realizes that the slow-down is the result of our success.? Many of humanity?s most pressing needs ? high-quality food in abundant supply, comfortable shelter, entertainment, information and so on ? are increasingly met with our existing technology.? Yet the boyish and adventurous streak in him wants more: space-travel (or at least hypersonic flights), instant-made textiles, radically different sources of energy, and household robots that obey our whims.? None of this, he claims, is forthcoming.? The IT revolution, he submits, offers scant compensation for those disappointed dreams.? As Peter Thiel, the founder of PayPal once put it, ?we wanted flying cars, instead we got 140 characters.?

To understand his disappointment, he looks at the history of technology summarized in a bare one hundred pages.? Usually these summaries have a certain ?potted? quality to them, but Vijg?s point is to understand an important issue: why successful societies seem to have sunk into stagnation after periods of technological flourishing.? His examples are, not surprisingly, the Roman Empire, Song China, Medieval Islam, and our own industrialized world, the offspring of the Industrial Revolution of the eighteenth century.? In all of them, he observes, a successful period of technological progress was followed by a slowing-down and eventually a collapse.? He observes quite astutely that such a collapse was not inevitable but brought about by foreign invasions of barbarian invaders specializing in violence and mayhem.[1] Given that such an invasion in our own time is unlikely, Vijg feels we will basically coast along, gradually improving on the margins but without setting foot on Mars or doubling life expectancy again.

The culprit of this stagnation, in his view, is decidedly not that human minds are running out of ideas, or that everything important that could be invented already has been invented, or that the ?low-hanging fruits in technology have all been picked? as my Northwestern colleague Robert J. Gordon puts it.[2]? Indeed, the technology we are developing is much like ever-taller ladders that allow us to get to ever higher-hanging fruits.[3]? Instead, Vijg points to what we would call today institutional failure.? We are the victims of our success: wealthy and sated (Vijg does not use words like ?lazy? or ?complacent,? but clearly they are in the back of his mind), we become more risk-averse, more concerned about possible losses, and we feel increasingly reluctant to venture into the unknown and the possibly risky.[4]? Medical advances are severely slowed-down and even blocked if the most minute percentage of users are negatively affected, and Vijg is eloquent and convincing in his just indignation at ?irrational? resistance to many potential sources of macroinventions such as genetically modified organisms, human cloning, and third-generation nuclear energy such as pebble-bed reactors, which are essentially disaster-proof.? Regulation and political control, he feels, are the result of such sentiments and they are getting in the way of more progress.?

What is the economic historian to make of this analysis? The idea that ?conservative? institutions may get in the way of innovation can be traced down to Schumpeter?s Capitalism, Socialism, and Democracy and has been the subject of a small but important literature in an area we may call the political economy of technological change (for a summary, see my Gifts of Athena, chapter 6). While we use the term ?technological progress? in our historical analysis, implying a clear-cut non-stationarity in the evolution of useful knowledge, we do not admit ?progress? in our institutional stories.? There may have been improvement, but it is less secure and less obvious.? Vijg is quite right in that he sees institutions as a threat to continued technological advance.? It is quite possible that a mixture of vested interests in incumbent techniques, and ?irrational? fears of what unknowable disasters innovations may inflict upon our comfortable and secure existence could throttle progress.

Yet two caveats are in order.? First, it is far from clear that in fact technology is slowing down.? Vijg relies heavily on a database of his own creation, 337 macroinventions made between 10,000 BC and 2006.? Such attempts to count the uncountable are common, but in the end run into the irrefutable complaint that inventions simply do not obey the laws of arithmetic because of complex complementarities and substitution effects.? More immediately, his diagnosis that we find ourselves in the midst of a technological slow-down is far from a consensus (as he knows all too well).[5]? Take for instance his argument that transportation has barely improved in the past half century.? Cars are not markedly different in outward appearance, and not moving noticeably faster; airplanes do not fly any faster either and are more cramped than ever.? On the surface, this argument is correct, but at closer examination some doubts creep in: cars today are far better-made, more durable, comfortable and safe than in 1965; drivers have access to hands-free costless communication with almost anywhere on the planet, can listen to a bewildering choice of high-definition music and information, and will never need to shuffle annoying paper maps or worry about getting lost.? Traffic jams are still annoying and costly, but modern technology can resolve it through pricing that will charge peak-hour driving a higher marginal cost (if the political problems of doing so can be resolved).? Airplanes are a different matter.[6]? But even here the effect of technology has been enormous, by reducing the real price of travel and thus making it available to almost everyone in the developed world ? leading of course to the congestion and queues Vijg dislikes.[7]? It is also no more than fair to point out that, before he dismisses the impact of innovation on transportation, Vijg might have benefited from reading Vaclav Smil?s Prime Movers of Globalization: The History and Impact of Diesel Engines and Gas Turbines (2010), which describes in magisterial detail the impact of technology on transport costs and the world we live in.?

What Vijg must also realize is that if he is right that further innovation may not make transportation all that much more efficient (or even cheap), it may make much of it redundant, through increasingly more effective and inexpensive person-to-person communication, in professional meetings and conferences as well as family gatherings can be conducted electronically and much work can be carried out from one?s living room.? If telecommuting and teleconferencing have not taken off quite as rapidly as many were hoping a decade ago, it is because for some reason most of us prefer it this way.? But the technology is basically here and still getting better by the day.? If the full price of transportation were to rise steeply all of a sudden due to a 9-11 type of event, this substitute for transportation would surely witness a rapid expansion.? Similar developments are evolving as these lines are being written, especially three-dimensional printing, which has the potential to alter manufacturing more than any invention since the Industrial Revolution, by providing mass-customization in ways and at prices that are totally unprecedented.? In services, the effects of pattern- and speech-recognizing software are only beginning to be felt.?

The second point is that technology, much like evolution in living species, often moves in leaps and bounds, punctuating extended periods of seeming stagnation.? Part of the reason is that at times technology comes up with a new idea that affects many other techniques and thus causes a widespread innovative wave.? Such techniques have been called General Practice Techniques and account to some extent for the intensity of first Industrial Revolution, but even more so for that of the second Industrial Revolution between 1870 and 1914.[8]? Historically such interactions can explain a great deal of the irregular and discrete behavior of technology.? At times, however, a dominant design is so effective that little change should be expected.? Who would complain that the forks we eat with or the buttons and zippers we use for our clothing have not changed in many years? Moreover, when a new technique is still in development, it is hard to fully see its full impact.? Would someone in 1760 England not have felt that for all their noise and bombast, steam engines had to date done little more than pump a bit of water out of coal mines?
Finally, we should keep in mind that innovation is often needed to fix the unexpected side-effects of earlier technological progress, such as catalytic converters and asbestos removal.? Whether such a technique can emerge to cope with the ?mother of all side-effects? ? climate change ? remains to be seen.? But Vijg is right: the problem is not technological, it is institutional.? Solving the ?global commons? threats, and much of our technological future, depend on politics, not knowledge.


1. A more detailed and elaborate statement in the direction can be found in Ian Morris, Why the West Rules ? For Now, 2010.?

2.? Robert J. Gordon, ?Is U.S.? Economic Growth over? Faltering Innovation Confronts the Six Headwinds?.?? NBER Working Paper 18315 (Aug. 2012).? The term does not appear in that essay, but can be found for instance in ?The Innovation Equation,? World Finance, March 2013, An earlier use of the term was proposed by Tyler Cowen.
3. I made this argument in some detail in my The Gifts of Athena (2002), in which I argue that what counts for technological development is socially useful knowledge which can be defined as the union of all sets of knowledge possessed by members of society.? Since the division of knowledge can be made finer and finer, what really matters is the access that agents have to the knowledge that is in the possession of specialists.? This access is what has become increasingly easy and cheap due to the IT revolution, and hence ? on this account ? we might well expect technological progress to keep growing at a rate that is at least as fast as in the past and possibly a lot faster.?

4. Vijg himself is anything but risk-averse, and boldly (if controversially) postulates (p. 108) that part of the higher risk aversion of modern society could be due to the larger influence of women and older voters on political outcomes, since he feels that these groups are more risk averse than young males.

5. See for example ?Has the Ideas Machine Broken Down,? The Economist, Jan. 12, 2013.

6. GPS technology ? astoundingly ? has not yet been introduced into commercial aircrafts, and a bill to fund the FAA?s plan to introduce it has a target date of 2020, by which time the technology may well be outdated.?

7. Vijg should recognize that goods and services come in two variants, following Fred Hirsch?s classic distinction between ?material? and ?positional? goods.? The former are amenable to technological progress because they are what we think of as goods subject to standard production function relations.? Positional goods are by definition zero-
sum: access to uncrowded museums, front-row tickets to opera performances, fast-track driving on highways, and VIP treatment at airports.? As income goes up, the gap between progress in material goods and the lack thereof in positional goods becomes more noticeable and perhaps more irritating.?

8. For an introduction to GPT?s see Elhanan Helpman, ed., General Purpose Technologies and Economic Growth (1998) and Richard G. Lipsey, Kenneth I. Carlaw, and Clifford T. Bekar, Economic Transformations: General Purpose Technologies and Long-term Economic Growth (2005).

Joel Mokyr is the author of The Enlightened Economy: An Economic History of Britain, 1700-1850 (Yale University Press, 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 ( Published by EH.Net (April 2013).? All EH.Net reviews are archived at

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

The Founders and Finance: How Hamilton, Gallatin, and Other Immigrants Forged a New Economy

Author(s):McCraw, Thomas K.
Reviewer(s):Brownlee, W. Elliot

Published by EH.Net (April 2013)

Thomas K. McCraw, The Founders and Finance: How Hamilton, Gallatin, and Other Immigrants Forged a New Economy. Cambridge, MA: Harvard University Press, 2012.? ix + 485 pp. $35 (hardcover), ISBN: 978-0-674-00692-2.

Reviewed for EH.Net by W. Elliot Brownlee, Department of History, University of California, Santa Barbara.

Thomas McCraw, the Straus Professor of Business History Emeritus at the Harvard University Business School, passed away in November 2012, the year this book appeared. Over his career of more than four decades McCraw often used biography as a tool to reveal and explain important trends and developments in the history of American business and economic life. No historian working in the fields of business and economic history has done so as effectively. His last book, The Founders and Finance: How Hamilton, Gallatin, and Other Immigrants Forged a New Economy, also mobilizes biography as an interpretive tool. The result is a work that lives up to the high standards McCraw set in books like Prophets of Regulation: Charles Francis Adams, Louis D. Brandeis, James M. Landis, and Alfred E. Kahn (Harvard University Press, 1984) and Prophet of Innovation: Joseph Schumpeter and Creative Destruction (Harvard University Press, 2007).

?The United States government started out on a shoestring and almost immediately went bankrupt,? McCraw writes in the first sentence (p. 1) of The Founders and Finance. He goes on to suggest that the severe financial problems might have fragmented the new nation except for ?a handful of people who understood finance and also grasped the economic potential of the American national future,? and adds that ?a disproportionate number of them were recent arrivals from almost a dozen different places overseas.? The objective of the book is to show ?how they put the United States on a sound institutional footing to manage its finances, and how some of their ideas grew out of their experience as immigrants? (p. 2).? From among this ?handful? McCraw focuses on two: Alexander Hamilton (born in the West Indies, probably on the British island of Nevis, and an immigrant to New Jersey in 1772) and Albert Gallatin (born in Geneva, then an independent republic, and an immigrant to Massachusetts in 1780). They were two of the first four secretaries of the treasury, with Gallatin?s service of nearly 13 years the longest in American history.? ?What Hamilton?s policies achieved,? McCraw concludes, ?was the promotion of long-term business confidence, setting the stage for the release of immense economic energy? (p. 132). McCraw argues that as secretary of the treasury Gallatin ?dominated public financial affairs? and ?did more than any other federal official to oversee settlement and economic growth in the West and to turn America?s public lands into a force for the public good? (p. 179).

McCraw?s extended discussions of the institutional innovations of Hamilton and Gallatin add little information that will be new to scholars of the early republic, but no one has written about their careers in a more engaging and literate way, and with as much care regarding the vast scholarship that is available on both careers. McCraw?s attention to Gallatin?s monumental efforts on behalf of fiscal consolidation, financing of the Louisiana Purchase, reorganization of land sales, promotion of western economic development, and financing of the War of 1812 is particularly refreshing in a study that writes so admiringly of Hamilton. McCraw?s juxtaposition of the careers of Hamilton and Gallatin works superbly well.? In the realm of public finance, for example, McCraw correctly views Hamilton as the primary architect of what Joseph Schumpeter called the ?tax state? and Gallatin as complementing Hamilton?s work, crafting what I would describe as a kind of ?asset state? based on the nation?s great wealth in public lands. The juxtaposition also works well for McCraw in contrasting their national security strategies. While Hamilton, ?preoccupied with preserving independence against European threats, looked eastward, toward Europe,? Gallatin ?looked consistently not toward the Atlantic but toward the West.? But, McCraw nicely observes: ?Both believed that military effectiveness depended on economic strength? (pp. 359-60).? McCraw also appreciates the similarity of their views on the power of credit and the virtues of central banking. And, McCraw suggests looking at the ?American System? of Henry Clay and others as a kind of fusion of Hamilton?s and Gallatin?s policies. Except for its program of tariff protection, the system ?mirrored the policies of both Hamilton and Gallatin? (p. 363). More generally, it reflected their powerful nationalism and their shared belief in the potential of vigorous, coherent public-private cooperation to advance the national interest.

For a history of innovation in financial policy, the scope of the book?s attention to the personal lives of the innovators is admirably broad. Because of his ambitious biographical approach, McCraw is able to break new interpretive ground through his emphasis on the significance of their immigrant backgrounds. Hamilton dominates Part I of The Founders and Finance. In McCraw?s narrative, several elements of Hamilton?s formative experiences outside continental North America played crucial roles. First, in St. Croix (a Danish colony where British settlers became powerful) Hamilton?s immersion in the business of a New York trader provided an opportunity for him to learn about ?bookkeeping, inventory control, short-term finance, scheduling, and the pricing of merchandise? (p. 15), to become proficient in calculating exchange rates and coping with the arcane world of bills of credit, and even to acquire, when a teenager, a great deal of personal responsibility within the decentralized organization of international trade. During the Revolution he would follow up on his business experience with extensive reading of European authorities on finance. As early as 1780, McCraw suggests, Hamilton?s ideas foreshadowed the main elements of his programs as secretary of the treasury. Second, his life in the West Indian hot house of international commerce fostered cosmopolitan attitudes ? attitudes that ?the roiling mix? (p. 19) of New York would further encourage. During the political and financial crises after the Revolution Hamilton?s ?immigrant origins served him well, giving him a more national orientation ? a more single-minded devotion to the Union than that of perhaps any other founder? (p. 44). McCraw suggests that in the process of drafting, adopting, and ratifying the Constitution, Hamilton along with the ?other immigrant delegates? (most notably, Robert Morris, born in England) ?took a more national perspective than their native-born counterparts? (p. 83). Third, Hamilton?s experiences in the Caribbean, famously described by historian Eric Williams as ?the cockpit of Europe,? and Hamilton?s service in General George Washington?s headquarters, convinced him of the importance of ?national security in a world of warring empires? (p. 95).

Albert Gallatin takes over the flow of McCraw?s narrative in Part II. Gallatin arrived on the American scene in 1780, too late to play a major role in either the Revolution or the political consolidation of the new nation during the 1780s. Like Hamilton, McCraw argues, Gallatin?s cosmopolitan, immigrant background led him to take a national view of economic issues. But the assets and aspirations that Gallatin brought in immigrating to North America differed greatly from those of Hamilton. He grew up in an aristocratic circle in Geneva and had the benefit of an elite education and the certainty of a financial inheritance. His American goal was, McCraw suggests, becoming a rich landowner, realizing ?Rousseau?s notions about the moral virtues of nature? and ?doing well by doing good.? But his experiences in the financial center of Geneva had also given him a familiarity with the economic benefits of banking, and after more than ten years in the United States, he finally took advantage of this knowledge and realized that ?his gifts? were in finance (p. 183).

The structure of McCraw?s book weakens in the four very short, and perhaps hastily written, chapters of Part III (?The Legacies?). One of the four (?Immigrant Exceptionalism??) poses the important suggestion that Hamilton and Gallatin had an advantage as financial experts because ?much of the best American talent gravitated toward land development and away from trade, finance, and manufacturing? (p. 335). However, the chapter fails to provide the analysis required to sustain the point. Opportunities for land acquisition, trading, and development were certainly powerful economic magnets throughout the British colonies and new republic of the late eighteenth century. But farmers, merchants, and artisans on the mainland colonies often had diverse talents and diverse experiences in a wide range of activities, including international trade and finance (and proto-industrialization) as well as agriculture and land development or speculation. And American merchants did, in fact, contribute significantly to the young nation?s pool of financial talent. One example of such talent was the Philadelphia merchant Thomas Willing who became the first President of the Bank of North America (the first federally chartered bank, established in 1782) and later the first, and quite successful, President of Hamilton?s Bank of the United States.. Another example may have been Robert Morris, who played a central role in financing the Revolution and was George Washington?s first choice as secretary of the treasury. McCraw, however, counts him as an immigrant despite the fact that his father was a British tobacco factor living in Oxford, Maryland, which was then British territory, before young Robert joined him there at 13 years of age. Perhaps McCraw should have sharpened definition of an immigrant.

In this chapter McCraw also raises the interesting question of whether or not the United States was unique in calling on ?foreign-born financial talent.? He observes that ?From the seventeenth century down to the present, outsiders have been summoned to straighten out financial disarray in many countries,? explaining that ?their lack of ties to existing national interest groups has, almost by itself, made them more neutral judges of what must be done.? He cites numerous examples, including the ?money doctors? of the nineteenth and twentieth centuries and the IMF (p. 338). McCraw might have noted, however, that the quality of advice that Hamilton and Gallatin gave was far higher than that of many of the ?money doctors? (Joseph Dodge, for example, in the occupation of Japan) and certainly the cookie-cutter neo-liberalism of the IMF.? But McCraw does go on to emphasize a key point:? in pressing for a centralized and effective fiscal state during the 1780s Hamilton, despite his West Indian birth, was definitely not an outsider. In contrast with the later ?money doctors,? by the time he rendered financial advice he was a committed citizen of the nation he studied. McCraw might have taken the additional step of emphasizing that Hamilton?s financial advice was superb in large part because he was very much an insider:? an experienced leader of a national interest group that had formed to promote financial consolidation in the face of the commercial and financial challenges that the federal government experienced under the Articles of Confederation. With more time, McCraw might have explored in greater depth the composition, sources, objectives, methods, and results of this powerful entrepreneurial interest group, and thus even more effectively situated Hamilton within the political economy of the emerging republic.

At the end of his life McCraw apparently was pursuing further research on the important topic of immigrant entrepreneurship. This endeavor might well have provided him with an opportunity to develop the various intriguing issues that he was able to consider in only a tentative way in Part III. Even without such analysis, we are very much in McCraw?s debt for The Founders and Finance. McCraw?s brilliantly paired biographies of Hamilton and Gallatin add significantly to our understanding of the development of the financial underpinnings of the American republic.

W. Elliot Brownlee, Emeritus Professor of History at UC-Santa Barbara, is editor (with Eisaku Ide and Yasunori Fukagai) of The Political Economy of Transnational Tax Reform: The Shoup Mission to Japan in Historical Context to be published by Cambridge University Press in May 2013.

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Subject(s):Financial Markets, Financial Institutions, and Monetary History
Government, Law and Regulation, Public Finance
Geographic Area(s):North America
Time Period(s):18th Century
19th Century

Bengal Industries and the British Industrial Revolution, 1757-1857

Author(s):Ray, Indrajit
Reviewer(s):Tomlinson, B. R.

Published by EH.Net (March 2013)

Indrajit Ray, Bengal Industries and the British Industrial Revolution, 1757-1857. New York: Routledge, 2011. xiii +290 pp. $145 (hardcover), ISBN: 978-0-415-59477-6.

Reviewed for EH.Net by B. R. Tomlinson, School of Oriental and African Studies, University of London.

The topic of the enforced deindustrialization of Asia as a consequence of the rise of industrializing Europe at the end of the eighteenth and the beginning of the nineteenth century is an ancient staple of global economic history.? This is especially true for stories of the interaction between Britain and India as colonial rule was being established after 1750.? The key concept of a ?drain of wealth? from India to Britain was developed by Edmund Burke and other critics of British rule in the 1780s; accounts of the bones of the cotton-weavers bleaching the plains of India, and of British soldiers cutting the thumbs from Bengali weavers to prevent them competing with imports from Lancashire, still figure prominently in popular histories of the period.? Such traditional narratives have now melded into more modern histories of the ?great divergence? between European and Asian economies from the late eighteenth century onwards; colonialism, capital export and unfair trading practices are now often seen as key reasons why Europe grew rich in the nineteenth century while Asia did not.

Indrajit Ray?s analysis of the Bengali economy in the first century of British domination addresses and contests these themes directly.? Ray?s account uses a wealth of data, especially on trade and employment, to show convincingly that the Bengali economy did not change fundamentally as soon as British rule there became established, or as an immediate result of British industrialization in cloth.? The staple industries of late-eighteenth century eastern India were cotton and silk textiles, salt production, ship-building and the supply of indigo.? Much of this production was for export to European, North American and Asian markets.? Textile manufacture never fell off a cliff once exposed to competition with machine-made imports; silk textile production and sales increased, while output of cotton textiles declined only after woven cloth began to be imported in the 1830s, and then by less than has often been supposed.? Salt, indigo and ship-building did suffer declines as the colonial state made political choices between metropolitan and local elites, but until 1830, at least, industrial Bengal remained buoyant under British rule.?

These case-studies show the resilience of economic agents in colonial Bengal, and their ability to adapt to the changing circumstances brought about by colonial rule.? Interestingly, Ray?s analysis of bullion flows demonstrates that gold and silver, the essential materials of coinage and mass savings, declined in the late eighteenth century, but increased markedly in the nineteenth century, with a steady annual inflow from 1835 to 1860.? Elsewhere, Ray, who is Professor in the Department of Commerce at the University of North Bengal, has also written on the jute industry ? a key part of the next stage of the industrial history of eastern India (?Struggling against Dundee: Bengal Jute Industry during the Nineteenth Century,? Indian Economic and Social History Review, 2012).

In some ways the book delivers rather less than it promises.? Most of the substantive material has been published before.? As the author makes clear, the chapters on the shipbuilding industry, on silk, on salt and on indigo are fuller versions of articles that have already appeared in academic journals between 1995 and 2005, and the chapter on cotton textiles ? arguably the most important ? reproduces an article that first appeared in Economic History Review in 2009.? Only the chapter on bullion flows into and out of Bengal from the late seventeenth to the late nineteenth centuries, which is largely concerned with evidence concerning the availability of coinage, contains arguments and evidence that have not been published before.? The information contained in all the case-study chapters is largely based on published material.? The secondary reading, which includes a range of official sources, covers a wide range stretching back over more than two centuries, but contains little analysis of the intellectual or political context in which this work was produced.

Despite these limitations, there are some important arguments here.? The only major weakness of the book is the lack of any institutional analysis that could explain the structure and behavior of the various firms (native and foreign) and state agencies that operated in early-colonial Bengal.? The years from 1757 to 1857 in eastern India saw fundamental changes in the nature and workings of the East India Company (still nominally in charge of the governance of British India); of private capital in trade and industry, both European and India, formed into extensive managing agency houses; and of the agricultural land market under the Permanent Settlement.? Old accounts of this period assumed too readily that colonial economies jumped straight from viable peripheral local manufacture to simple raw material production for an industrialized imperial core.? By the late nineteenth century Bengal did briefly fit this model to some extent (although with the exception of important local industrial activities in jute, tea and coal); however, the first half of the century had seen a different type of economy, with considerable local dynamism still energizing the industrial activities of the pre-British period, and linking up effectively with new sources of investment and enterprise from the international economy.? It is the importance of this transitional period, from the cementing of British rule in the 1760s to the final collapse of peripheral semi-autonomous industrial capital in the 1840s, that Ray elaborates in such valuable detail.

B. R. (Tom) Tomlinson is professor emeritus at the School of Oriental and African Studies, University of London. He is author of a number of works on the economic and business history of modern India. A new edition of his Economy of Modern India will be published by Cambridge University Press later in 2013, covering the period from 1860 to the twenty-first century.

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 ( Published by EH.Net (March 2013). All EH.Net reviews are archived at

Subject(s):Industry: Manufacturing and Construction
Geographic Area(s):Asia
Time Period(s):18th Century
19th Century

Land of Promise: An Economic History of the United States

Author(s):Lind, Michael
Reviewer(s):Dighe, Ranjit S.

Published by EH.Net (October 2012)

Michael Lind, Land of Promise: An Economic History of the United States. New York: Harper, 2012. vi + 586 pp. $30 (hardcover). ISBN: 978-0-06-183480-6.

Reviewed for EH.Net by Ranjit S. Dighe, Department of Economics, State University of New York at Oswego.

Over the past two decades, Michael Lind has established himself as one of America?s leading public policy intellectuals. Through eight nonfiction books, numerous articles in publications such as Harper?s and Salon, and his work as a founding member of the New America Foundation, Lind has staked out an identity as a ?radical centrist? with iconoclastic policy positions that might be described as 21st-Century Whig. Lind has long called for policies in the tradition of Alexander Hamilton and Henry Clay, so it is fitting that his newest book is an economic history of the United States, from Hamilton?s time to the present.

The book?s overriding theme is threefold: (1) the Hamilton-Jefferson economic policy debate has never ended, although the particulars have of course changed over the years; (2) policies in the spirit of Hamilton and Clay are almost always right; (3) such policies deserve credit for much if not most of our economic progress. That is, Lind favors government action to promote industrialization and economic development by aiding manufacturing, imposing protective tariffs as necessary, extending and regulating credit through a central bank, financing infrastructure improvements, and forging public-private partnerships. While Lind sometimes makes pronouncements that almost no economic historians would agree with ? for example, he says the National Industrial Recovery Act was a success ? he presents his case with verve and usually a deft blend of economic statistics, historical detail, and quotes from contemporaries.

Although this book is published for a lay audience, perhaps one that is a center-left counterpart to the readers of John Steele Gordon?s popular economic history books, Lind clearly wants it to be academically respectable and of interest to academics. His endnotes (68 pages worth) draw on a range of current and classic works by academic economic historians. Past economists like Adam Smith and Henry C. Carey are quoted at length, and Lind shows a lively interest in the intellectual backdrop of each era. For example, we learn that industrialist Joseph Wharton founded the Wharton School of Finance and Economy in 1881 to promote protectionism, as a counterweight to the Northeastern and Southern universities that taught free-trade theory.

The book goes in chronological order with the chapters grouped into four sections: the Preindustrial Economy, the Age of Steam, the Motor Age, and the Information Age. Each section begins with a helpful page-long preview titled ?The Argument.?

The most that Lind can say for the economics of Thomas Jefferson ? and, perhaps surprisingly, Adam Smith ? is that they made sense in a ?largely static? preindustrial economy. Even then, Jefferson?s opposition to a national bank and a national debt put him at odds with Lind, not to mention the course of history. It is by now commonplace to note that in the long run Hamilton?s economic program became a reality and Jefferson?s vision of a nation of small farmers became increasingly obsolete. While Smith?s economics were obviously a lot more sophisticated than Jefferson?s, it is fascinating to hear that Smith was ?the favorite economist of America?s agrarians? and argued that Americans should continue to specialize in agriculture rather than try to develop their own manufacturing. Lind quotes from The Wealth of Nations: ?It has been the principal cause of the rapid progress of our American colonies toward wealth and greatness that almost their whole capitals have hitherto been employed in agriculture?. Were the Americans, either by combination or by any sort of violence, to stop the importation of European manufactures, and by thus giving a monopoly to such of their own countrymen as could manufacture the like goods, divert any considerable part of their capital into this employment, they would retard instead of accelerating the further increase in the value of their annual produce, and would obstruct instead of promoting the progress of their country toward real wealth and greatness.?

Lind says that James Watt and Matthew Boulton?s invention of the steam engine ? in 1776, the same year as the Declaration of Independence and the publication of The Wealth of Nations ? made Smith?s arguments obsolete by ushering in a new industrial revolution. While that is a striking coincidence, Lind later notes that steam power caught on only gradually, with water power providing almost half of the total energy in manufacturing as late as 1869. And Lind gives due credit to (Jefferson?s!) Embargo Act of 1807 and the autarchic years of the War of 1812 for jump-starting American manufacturing. Lind staunchly defends America?s protective tariffs of the nineteenth century, pressing the infant-industry case, though he concedes that high tariffs were no longer necessary by the end of the century. Regarding the tariff of 1816, he cites a remarkable statement from that year by Parliament?s Henry Brougham in favor of predatory British dumping after the war: ?it was well worthwhile to incur a glut upon the first exportation, in order, by the glut, to stifle, in the cradle, those rising manufactures in the United States, which the war had forced into existence, contrary to the natural course of things.?

A notable theme is that the South essentially continued to be a British colony in the antebellum period, with an undiversified economy that revolved around exporting raw cotton to British textile mills. Of course, a significant portion of the South?s raw cotton went to textile mills in New England, and King Cotton had other Northern retainers as well. Lind provides a remarkable quote from New York City Mayor Fernando Wood as secession began in 1860: ?As commercial people it is to our interest to cherish and keep so good a customer?. Not only let us avoid making war upon her peculiar system of labor but let us become even stronger defenders of the system than the South itself.? Wood even proposed that New York City and several adjacent counties secede to be their own city-state.

Andrew Jackson is the principal antebellum villain here, not only dismantling the Bank of the United States but also vetoing a bill to fund part of the National Road. Not until 1916 would the federal government again allocate funds toward a national road system. In the entire period from Washington?s inauguration to the eve of the Civil War, the states spent nearly nine times as much on transportation infrastructure as did the federal government.

Lind sees the Civil War as the ultimate battle in the Jefferson-Hamilton debate. Lincoln called himself ?an old-line Henry Clay Whig,? and during the war the Republican Congress would enact such Hamiltonian measures as the National Banking Act, the Homestead Act, higher tariffs, and lavish subsidies for rail construction. The Confederacy stood for slavery, a weak central government (except for enforcing slavery), and low tariffs; its constitution even forbade its congress from spending money on internal improvements or to promote manufacturing. Prominent among the reasons Lind gives for the Confederacy?s loss are the weakness of its central government and its lack of a manufacturing base; in short, the Confederacy was too Jeffersonian to be a viable opponent of the diversified Hamiltonian Union.

Although Lind attributes no small part of economic growth to enlightened government intervention such as infant-industry protection and state and federal investments in infrastructure, he devotes much space to private inventors and innovators. As in more academic economic histories, technological change is emphasized as the great driver of progress. Lind begins his sections on the Age of Steam, the Motor Age, and the Information Age with admiring surveys of the great inventors and inventions of those eras. Lind?s take on the private sector is similar to his take on the public sector: he likes big government and big business. (One chapter subsection is titled ?The Myth of the Robber Barons.?) Lind sees the rise of big business as primarily a matter of exploiting economies of scale, not of extracting monopoly rents from consumers, and takes a dim view of antitrust. In fact, Lind is generally pro-cartel, saying that cartels are good for stability and often for efficiency, such as when they share patents and technology. Lind notes that even Thomas Edison?s genius was subject to economies of scale: Edison?s great inventions were typically the product of various teams of engineers in research labs directed by Edison, with financing by the House of Morgan and the Vanderbilts. The turn-of-the-century merger movement and J.P. Morgan?s condemnation of ?ruinous competition? get praise; William Jennings Bryan?s and Louis Brandeis?s attacks on monopolies do not. In the twentieth century chapters, Lind decries the stepped-up antitrust enforcement that began in Franklin D. Roosevelt?s second term and which the Truman administration rejoined after the war as counterproductive and wasteful. He decries the Cellar-Kefauver Act of 1950, which decreed that horizontal mergers would invite antitrust prosecution, as giving rise to inefficient corporate conglomerates that produced scores of unrelated products and which would be fat targets for corporate raiders several decades later.

Lind?s fondness for cartels and government involvement may explain his positive view of the National Recovery Administration ?codes of fair competition.? Lind says the claim that they ?retarded recovery by imposing minimum wages is not taken seriously, except by those whom Hoover derided as ?die-hard liquidationists.?? But whether it was through a spike in real wages or through the monopolistic raising of prices and restriction of output, literally every academic economic history I have read of the First New Deal says the NRA retarded recovery. And it bears mentioning that it was also a failure as a public-private partnership; business, both large and small, went from cautious acceptance of the NRA to outright hostility. By the time it was declared unconstitutional by the Supreme Court in 1935, it had virtually no allies. Lind notes that Keynes said that the NRA had worthy goals of reform but ?probably impedes recovery.? Keynes actually went further and said that while ending deflation was important, ?there is much less to be said in favour of rising prices, if they are brought about at the expense of rising output,? i.e., as the result of a deliberate restriction of supply. ?Some debtors may be helped, but the national recovery as a whole will be retarded.?

(On a side note, Lind says that NIRA, for National Industrial Recovery Administration, was changed to NRA by Administrator Hugh S. Johnson after a Business Week article ridiculed NIRA as ?Neera My God to Thee.? The book has many little gems like that one.)

Public-private partnerships seem to get Lind most excited. The book begins with Hamilton?s Society of Establishing Useful Manufactures (SUM), which, far from being just another part of his neglected Report on Manufactures in 1791, became an industrial corporation in Paterson, New Jersey the same year and helped Paterson become a thriving and diversified factory town. Among other highlights, the SUM hired Edison to design an early hydroelectric power plant and Paterson became the site of the Wright Brothers? aeronautical company. The SUM lasted until 1945. Lind waxes eloquent about the Morrill land-grant universities and the agricultural innovation they spawned. And for all his praise of corporate R&D, he says, ?Even more important in the long run was the contribution of the federal government to innovation,? including the National Science Foundation, the National Institutes of Health, and defense-related research contracts that led to early computers and the Internet. One of the heroes of this book is Vannevar Bush, a relatively obscure engineer who directed the government?s Office of Scientific Research and Development and helped establish the National Science Foundation. Lind devotes an entire chapter to Bush, who epitomized the type of ?creative collaboration among government, the academy, and industry from which most transformative innovations in recent generations have emerged.? Bush was involved with the development of countless technologies from the atomic bomb to the jet engine to the personal computer. In addition to being a great administrator and inventor, Bush was a visionary with ideas ? say, for a computer-based networked library with a sophisticated search engine ? that were sufficiently specific to be a basic blueprint for later engineers who would bring those concepts to life.

A chapter on ?The Glorious Thirty Years? of post-World War Two prosperity leans heavily on John Kenneth Galbraith?s concept of ?countervailing power?: big business was oligopolistic and productive through economies of scale and scope; big labor helped make sure that those productivity gains translated into higher living standards; big government expanded the social safety net and the national infrastructure, notably through the interstate highway system. Lind sees a positive legacy for the short-lived NRA in the numerous government-sponsored cartels in such industries as airlines, trucking, and oil. These cartels, as well as established oligopolies in industries like automobiles and steel, helped stabilize the economy and avoid ruinous competition, Lind argues. In the financial sector, New Deal regulations like the Glass-Steagall Act made banking boring and the economy more stable.

As for what ended those glorious postwar decades, Lind recognizes that the 1970s productivity slowdown was worldwide but sees aggregate-demand factors at work too, principally in American trade flows and policy. As Germany, Japan, and other countries rebuilt their war-damaged capacity, it was inevitable that America?s trade surpluses would shrink. Lind says that the tide of imports was larger still due to Cold War policies designed to keep those countries out of the Soviet orbit by offering them one-way trade concessions. He further claims that the Japanese economic miracle of the 1960s?1980s would not have occurred without those concessions. As the economy weakened in the mid-1970s under the combined forces of the productivity slowdown and the OPEC oil shocks, the public rapidly lost faith in big business, big labor, and big government. ?The Great Dismantling? came with the deregulatory programs of Presidents Jimmy Carter and Ronald Reagan. While Lind acknowledges that deregulation may have made sense in the telephone industry and some others, he says deregulation was misguided in general and a disaster in airlines, electrical utilities, and finance. Carter was ?The First Neoliberal President? for his deregulation and his appointment of Paul Volcker to the Federal Reserve. Volcker?s shock therapy ended the high inflation of the 1970s but coincided with a 40 percent rise in the value of the dollar and accelerated deindustrialization. Lind quotes an oil executive at the time who said Volcker and Reagan (who reappointed Volcker) have ?done more to dismantle American industry than any other group in history.? Lind has surprisingly little on Reagan, perhaps because he wants to emphasize that Carter moved the country in a ?neoliberal? direction first. Yet Reagan was a more active dismantler ? for example, breaking up the air-traffic controllers union, consistently opposing an increase in the minimum wage, cutting anti-poverty programs, and calling for less government in general. Elsewhere Lind mentions Reagan as an example of inappropriate policy leadership in the Jefferson-Jackson tradition, but he offers few specifics. Which is unfortunate; whatever one?s politics, one has to admit that Reagan was one of the most consequential politicians of the postwar era, and his administration is arguably a bigger part of the story than we get here.

Regarding the crack-up of the economy in the late 2000s, Lind, like many analysts, traces it to the ?financial-market capitalism? that emerged in the wake of financial deregulation, an unbalanced ?bubble economy,? and over-securitization of mortgages. He contrasts today?s financial-market capitalism with the finance capitalism of J.P. Morgan?s time, arguing that Morgan, unlike today?s institutional investors, took a long-term ?buy and hold? view that was more keyed to fundamentals and stability. He adds that the growing wealth and income gap adds to the instability by weakening aggregate demand; the severe debt overhang and prolonged deleveraging among America?s middle class today would seem to support that view.

He concludes the book with a policy manifesto that he calls the Next American System, in homage to Clay?s American System. Lind?s system includes more government-funded R&D and infrastructure, industrial policy that promotes American manufacturing, and public-private partnerships like R&D banks to subsidize private innovation. In the financial sector Lind would bring back Glass-Steagall?s separation of commercial banking from the securities industry and impose a modest ?Tobin tax? on financial transactions to discourage speculation and raise revenue. Concerned with the failure of the post-1973 economy to distribute its gains to all income levels, Lind offers several possible ideas to raise lower and middle incomes, from an expanded earned-income tax credit to increased public employment to restrictions on unskilled labor immigration. (Like the economist George Borjas, he favors a point system for immigration that gives preference to skilled workers.) He also advocates ?universal social insurance,? financed out of current taxation, to replace dwindling employer-provided benefits.

As noted before, Lind?s book is intended for a lay audience, not an academic audience. Economic historians will find much to criticize here, most likely the general defense of protectionism and cartels, but the book is worth reading by anyone in search of provocative arguments and colorful details.

Ranjit S. Dighe is Professor of Economics at the State University of New York at Oswego. Email: His current research subjects include the economic conservatism of former New York Governor Alfred E. Smith.

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Subject(s):Economywide Country Studies and Comparative History
Geographic Area(s):North America
Time Period(s):19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII