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European Commercial Enterprise in Pre-Colonial India

Author(s):Prakash, Om
Reviewer(s):Adams, John

Published by EH.NET (February 2000)

Om Prakash, European Commercial Enterprise in Pre-Colonial India, New

York and Cambridge: Cambridge University Press, 1998. 396 pp. $59.95

(cloth), ISBN: 0-521-25758-1.

Reviewed for EH.NET by John Adams, Visiting Scholar, Center for South Asian

Studies, University of Virginia.

This is volume II.5 of The New Cambridge History of India which will

eventually comprise 31 separately authored titles. The New Cambridge History

contributions cover four overlapping temporal and thematic areas:

I. The Mughals and Their Contemporaries, II. Indian States and the Transition

to Colonialism, III. The Indian Empire and the Beginnings of Modern Society,

and IV. The Evolution of Contemporary South Asia. This stud by Om Prakash Om

Prakash (Professor of Economic History at the Delhi School of Economics) is the

fifth component of the second cluster. Each of the contributions to the New

Cambridge History that this reviewer has read speaks with the distinctive voice

of its author and represents an original and definitive work. There is no

requisition from the general editorship

(Gordon Johnson, C. A. Bayly, John F. Richards) to write to formula or format.

At the same time, there is the desire that the volumes connect to one another

and be firmly grounded in the best current knowledge and scholarly

interpretations. Over one-half

of these are now available and without exception fully realize the principles

of the publisher and the editorial team. If you are interested in the modern

history of the subcontinent this is the place to begin.

Two caveats are issued to the membership of EH.NET. First, the series and this

volume aim at treating economic affairs within the context of society,

culture, and politics. This diminution of the material realm to secondary

status fairly characterizes the state of human affairs in the Indian

subcontinent up to the recent present, but naturally affronts our presumed

professional preeminence. Forewarned is forearmed. Second, even the

contributions to the series that center on commerce, industry, and finance are

historical and descriptive and do not

attempt to use newly discovered or freshly catalogued evidence to advance or

debunk modernistic economic premises in the familiar mannerisms of cliometry.

Prakash, as the immediate example, re-creates historical economies for

inspection and does not strive to validate allegedly universal principles

derived distally from Lenin or Ricardo.

Those who know the bias of the present reviewer will now make the assured

prediction that he will strongly side with Prakash and forthwith utilize the

review to argue with incisiveness and wit against overly formalized economic

history, particularly in the Indian timescape where he has for so long labored.

This would be wrong. He in fact thinks that the most useful thing he can do for

that tiny group of readers that has

gotten this far into what has been a most esoteric introduction to a book

review about a most obscure subject, and are willing to continue further, is to

identify the substantial merits of Prakash’s book and to suggest where it

points towards arenas where the focused application of economic investigation

could yield big dividends. The reviewer further admits that ploughing through

factual avoirdupois in search of a bone structure at times tried his Jobian

patience.

Three fields of inquiry will adequately illustrate how Prakash’s masterly and

comprehensive volume can be approached by the intrepid economic historian.

After 1498, the Portuguese, the Dutch, the French, and the English vied

sequentially for domination of the trade between South Asia

and Europe.

Importantly, India was a geographical link to East Asia: Japan, China, and the

East Indies. Their India goods trade and balances of payments were managed by

the Europeans with an eye towards to the Europe-East Asia trade and payments

systems.

Broadly, from the European side, merchant groups; the newly formed trading

companies such as the Dutch East India Company, the French East India Company,

and the British East India Company, and others of less salience; and traders on

private account, frequently but inconstantly affiliated with the trading

companies, were the key players.

Prakash’s central accomplishment is to provide a rich account of the formation

and operations of each of these organizational instrumentalities of commerce.

He provides vibrant details about key individuals and of the ebb and flow of

on-going operations in the novel trading enterprises. No one has done it better

or more comprehensively or with superior command of the comparative motives,

structures, and results of these harbingers of the modern corporation.

What does the modest and overwhelmed reviewer hope for? A dash of Coase and

Williamson, please. Can we stand back a bit and ask exactly why these new

formations emerged, why they were a timely creation, why their boundaries were

drawn as they were vis-a-vis the melange of external contractual and customary

arrangements that guided Asian commerce? Were they indeed essential before the

Europeans could successfully engage well-established and often politically

sustained

indigenous Asian business clans and transactional networks along which goods

and finance moved? Why did the Asians not create countervailing private

organizations?

Prakash provides a good deal of data on the “triangular” trade among centers in

Europe, South Asia, and East Asia. Exports of textiles from Coromandel and

Gujarat enabled the Dutch East India Company to recruit spices in Indonesia,

while raw silk was the chief export to Japan, for example. Later, opium was

important in the British Company

‘s China trade.

Very generally, the European companies sought a profit when annual accounts

were cleared. There was the irrefragable need for the British to effect

transfers of wealth to London on the Company’s accounts as well as those of

private agents,

who were often Company employees. For most of the pre-colonial period Indians

were quite successful in sending commodities and handicraft manufactures east

and west, while absorbing large net influxes of precious metals, preeminently

silver. Prakash does

an exceptionally able job of delineating these complicated flows and balances

and depicting how they changed over time as opportunities and imperatives

varied.

The abashed reviewer wants to know more about the macroeconomic and financial

implications of

these flows. It is almost certainly wrong to argue as Prakash does in his

conclusion that the “bullion for goods”

character of India’s trade, contrasted with a “goods for goods” pattern,

“implied that the positive implications of the growth in trade for

the level of income, output, and employment in the economy were considerably

more substantial . . . .” (p. 350). This represents a peculiar affection for

simple Mercantilism as opposed to endorsing a Smithian pursuit of the wealth of

nations. One may reasonably ask about this, and other dimensions of Prakash’s

arguments (ch. 8), if India was so well-poised in the

“triangular” system of trade and payments, and the beneficiary of such positive

income, employment, and price benefits, why then was the subsequ ent income

divergence of India and Britain not the reverse of that which precipitated?

European Commercial Enterprise contains many well-designed tables,

figures, and maps. The text is replete with bounties of numbers gleaned from

company records

and other sources. Table 6.1, for instance, gives us the composition of Dutch

exports from Bengal in percentages, 1675-1785, for five benchmark years of the

111 in question. Table 3.6 shows the English East India Company’s total exports

by value to Asia,

1601-1760, and the percentage of treasure. Many of the series go up but some

go down. The profusion of numbers is impressive but less clear is their overall

pattern or meaning.

The bemused reviewer has the sense of being confronted with a 2,000 piece

jigsaw puzzle. What is impossible to find out (and this is not Prakash’s fault

or

responsibility) is how largely trade affected economic activities and people’s

lives. We know that from the middle point of the eighteenth century on, up

until the present, In dia’s trade has never amounted to more than about ten

percent of total product, and was more likely six percent or less for the past

400 years, which is what one would expect in a large,

inward-looking nation. We know that household and village subsistence

economies were predominant in India until at least the early years of the

independence era. It is very hard to sort out, and Prakash certainly

overdramatizes rather than understates, the scope and scale of commercial and

trading-sector activities in the

total picture. There is the risk of erring on the side of making the Indian

subcontinent seem altogether non-commercial and unready for encounter with the

agencies of European commerce, but it is equally misleading to exaggerate the

importance of selected commercial crops relative to the major subsistence food

grains, or to extol the small coastal enclaves and their merchant families and

castes at the expense of the much more numerous interior villages and the

multitudes of farmers and agrarian workers who had little or no contact with

the world “out there.”

These days we are correctly aware of the

fallacy of overstating the role of

Europe in the post-Columbus era of exploration, commercialization, and may one

dare say, post-Seattle, globalization. At the same time, may not the pendulum

swing too far in the other direction? Vide Prakash asserting that India was,

circa-1498, the “. . . ‘industrial hub’ of the region surrounded by west Asia

on one side and southeast Asia on the other” (p. 154). Did India

at that moment (actually India didn’t exist at that moment) possess a

“sophisticated infrastructure” whose ingredients were ” . . . a high degree of

labor mobility and the existence of a labor market, merchant groups capable of

collective defense and good

organization, development of accountancy skills, highly developed and

price-responsive marketing systems, and a sophisticated monetary and credit

structure (ibid.)?” The unprepossessing reviewer would assert that the

subcontinent did not exhibit these features but to avoid confusion would

evenhandedly aver that no other place did either.

On the whole: this is an amazingly erudite and encompassing book, which ably

serves its primary function of offering a survey of the first three centuries

of Indo-European commerce, as defined within the ambit of the New Cambridge

History program, but it does not cope effectively with topics of keen interest

to modern economic historians of any sort: the microeconomics of incentives and

agents, the macroeconomic and developmental effects of trade and financial

flows, and the nature of proto-corporate structures looked at through the

eyeglasses of transactions costs and organizational theory.

Now retired, John Adams is Visiting Scholar at the Center for South Asian

Studies, University of Virginia. He is affiliated with the Center for Middle

Eastern Studies at Harvard University; Professor Emeritus,

Northeastern University; and, President and Chief Economist, Sawhill

Associates, Chancellor, Virginia. His chief current activity is composing

financial sector reforms for Nepal under the aegis of the Asian Development

Bank and the IRIS Center, University of Maryland, College Park. He may be found

at JQA3@msn.com.

Subject(s):Economywide Country Studies and Comparative History
Geographic Area(s):Asia
Time Period(s):General or Comparative

A History of the Modern Fact: Problems of Knowledge in the Sciences of Wealth and Society

Author(s):Poovey, Mary
Reviewer(s):Alborn, Timothy

Published by EH.NET (September 1999)

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Mary Poovey, A History of the Modern Fact: Problems of Knowledge in the Sciences of Wealth and Society. Chicago: University of Chicago Press, 1998. xxv + 419 pp. $49.00 (cloth), ISBN: 0-226-67525-4; $17.00 (paper), I

SBN: 0-226-67526-2.

Reviewed for EH.NET by Timothy Alborn, Department of History, Lehman College, CUNY.

Economic historians don’t tend to think much about epistemology. As they trace unfolding developments in the economy, though, epistemology has a way of sneaking up on them. To cite an example from the recent past, The Economist this past July commented on the difficulty of squaring the enormous optimism generated by the new information-technology economy (reflected in the booming stock market) with the plainly unimpressive growth rates in all sectors of the economy barring computer sales. This was apparently “a sad case of the irresistible story meeting the immovable statistic,” claimed the magazine. As if to drive home the underlying epistemological quandary, the accompanying editorial (and magazine cover) was titled: “How real is the new economy?”

In A History of the Modern Fact, Mary Poovey reinterprets classic texts in political economy, philosophy, and statistics in order to locate the historical origins of what she claims is a peculiarly modern dilemma. Whether charting economic growth or planetary motion, she claims, we moderns feel the need to ground our claims in immovable statistics; yet at the same time we are compelled to find a transcendent meaning (an irresistible story) in the mass of details. Poovey brings to this project the perspective of a literary critic who has, in the past, turned her attention to putatively non “literary” topics like Florence Nightingale and poor law reform. Her recent appointment as director of the Institute for the History of the Production of Knowledge at NYU has provided her with an institutional base from which to pursue the ambitious, and clearly historical, agenda for which A History of the Modern Fact is a blueprint.

It is indeed an ambitious book. One is tempted to apply to it Daniel Defoe’s definition of “project”, which Poovey quotes (p. 158): “a vast undertaking, too big to be managed.” The narrative moves from late-16th century British book-keeping manuals; through the debate between Gerald de Malynes and Thomas Mun on Britain’s money supply; William Petty’s writings on political arithmetic; Defoe’s essays on “projects” and mercantile conduct; Earl Shaftesbury on sociability; David Hume on conjectural history; Samuel Johnson on the Outer Hebrides; and Smith and Malthus on political economy, before concluding with a chapter on John Stuart Mill and the astronomer John Herschel. On the way, she has much to say about the history of classical rhetoric, moral philosophy, scientific societies, and the problem of induction. And for the most part, she succeeds at holding all these topics together by keeping in focus her subjects’ diverse efforts to solve the same problem: how to produce systematic knowledge about society in an era when the political basis of social order was being transformed?

Two important contexts for this problem appear in the book’s opening chapters: classical (or Ciceronian) rhetoric, which dominated the way Renaissance writers made arguments; and “reason of state” theories which viewed politics in terms of sound principles which an absolute monarch could then impose on his subjects. Poovey describes most of her subjects as struggling against one or both of these conventions on their way to inventing a new way of analyzing society. Double-entry bookkeeping, for instance, substituted plain-speaking numbers for Ciceronian excess, in the process selling the precision of balance sheets as a proxy for mercantile virtue. Thomas Mun similarly pitched his arguments against centralized monetary policy both by his recourse to precise-sounding (but wholly illustrative) figures depicting the balance of trade and by his defense of mercantile rules and expertise. And Daniel Defoe moved from tracing the tangible effects of mercantile enterprise (in his Essays upon Several Projects) to writing a conduct manual for merchants (his Compleat English Tradesman), once he had determined that real-world merchants were not capable of rising to his vicarious ambitions.

As all these examples suggest, Poovey is especially interested in what might be called the communitarian origins of the modern fact. Only once a stable community is in place, with formal rules resting on unspoken customs, can its accompanying way of knowing the world start to appear stable as well. Poovey presents each of her early modern participants in the making of the “modern fact” as falling short, in one way or another, of achieving such stability, and hence never quite securing trust in the facts they tried to generate. Neither her bookkeepers nor Mun really intended their “facts” to correspond transparently or comprehensively with “reality”; all that mattered for them was that their figures added up. And she presents other examples of people employing modern facts for premodern purposes, as when William Petty intended his political arithmetic to assist in the Hobbesian project of maintaining social order through kingly fiat.

The main arguments of A History of the Modern Fact come into focus in the chapters on Scottish moral philosophy and political economy. The subjects of these chapters first try to pin their hoped-for epistemological stability on divine design, before settling on the tools of disciplinary expertise. Poovey first traces the Scottish philosopher Francis Hutcheson’s efforts to identify abstractions like “the human mind” at work in history, the reality of which he demonstrated not mainly by reference to historical evidence, but by internal coherence and the assumption that anything constructed by God must run like clockwork. The key figure in the move away from providential design, unsurprisingly, is David Hume, who drew attention to the problem of induction that providence left unanswered. Poovey portrays Hume as solving that problem to his satisfaction by asserting that even though all theories about society or nature can only be fictions, they are useful fictions which should not be abandoned just because they can never be fully proven. For Poovey the most important implication of this insight (although one which Hume shied away from) is that its success as a solution depends on the social authority of the expert whose job it is to invent theories, now that the expert can no longer appeal to the higher authority of God. Once experts achieve both the self-confidence to assert their systematic knowledge as “real” and the social status to enforce allegiance to those assertions, she claims, the modern fact is born.

The most important of Hume’s useful fictions, according to Poovey, was that of the market system, which Adam Smith famously adopted as the centerpiece of his Wealth of Nations. She describes Smith, like Hume, as being ambivalent about claiming the expert authority which lent weight to the thoroughly modern “fact”. But she points to Smith’s famous reference to unintended consequences as paving the way for the modern economist to make such claims. Even though Smith intended his “invisible hand” as a blow to “reason of state” theorists who assumed that rulers could fully predict and hence govern the behavior of their subjects, the notion of unintended consequences also further enhanced his status as an economic expert who could discern productive results, at least in hindsight, where others saw only self-interest. Poovey next turns from Smith to Malthus, who appealed to the economic fact of overpopulation to draw attention to a less optimistic unintended outcome: procreation leads to social disaster. Because this claim was even more clearly opposed to orthodox religious teaching than Smith’s had been (and Poovey makes the same point about Ricardo’s “dismal” theory of rent), the result was to cut economists off from any possible “providentialist” interpretation that might yet discover “reality” in their theories by reference to God’s design.

With this final problem, A History of the Modern Fact comes to an end. Post-Ricardian economists are presented with a choice: try and patch back together the failed marriage between social science and natural theology, or go bravely forward, insisting ever more stridently that “facts” — and not merely fictional “systems” — do in fact prop up their theories. Poovey discusses J.R. McCulloch as a representative of post-Ricardian providentialism; and traces the development of the London Statistical Society as an example of the grim march forward. The march was grim, she suggests, because in their rush to base their social authority on the “facts” of political economy, they came face to face with the problem that neither Smith nor Ricardo had worried very much about “evidence” in the modern sense of empirical verification. Smith had relied on the rhetorical force of his striking claim that bad behavior yields good results, while Ricardo had staked his claim to expertise on internally-coherent mathematics; both, in short, had been happy to assume, along with Hume, that “fictions” could indeed be useful. The statisticians did not agree, so they simply collected facts and chastised anyone who did not do so as merely “literary”. Since the statisticians still claimed to be doing social science, this move kept religious and social critics of political economy out of that domain, which in the long run allowed for further developments in economic theory (e.g. Jevons and Keynes). But, Poovey argues, this move certainly did not pave the way for any real solution to the problem of induction. As she concludes: “By stressing the incontrovertible nature of statistical ‘facts’ … by way of contrast to the excesses and deceits associated with fiction and rhetoric, apologists for statistics were able to downplay the methodological problem of moving from whatever numbers were collected to general principles” (313-314).

Poovey’s mission in this book is, as she states, to open a dialogue about the origins and limitations of modern knowledge claims. In this sense it is primarily educative and synthetic; but not, as in a survey textbook, with the aim of filling undergraduates with relevant facts and socializing them to organize their thoughts in accordance with the norms of an academic discipline. Rather, the goal is to educate other academics to take notice of lively debates in fields outside their own, and the topics in each chapter are intended to illustrate how some of the lessons of these debates might be applied in practice. What makes the book’s ungainly structure work (to the extent that it does work) is exactly what makes a good graduate program turn out good students: readers who have already thought about some of these issues are invited to pursue them in surprising directions. The other side of this is that many historians who have spent a career examining a single thread of this story in far more detail than Poovey could possibly have done will be tempted to split hairs, or to find little value added to their area of special expertise (those who are tempted to respond to the book in this way should at least not ignore the extensive footnotes, where Poovey provides running commentary on her use of secondary sources). And economic historians who have never been interested in the problem of induction (a sizeable demographic, if Poovey’s claims are correct) will most likely not have the patience to follow her arguments through to the end. In other words, this book is not very well designed to teach old dogs new tricks.

Poovey also uses her book to speak, more elliptically, to the ongoing academic debate over the merits of “postmodernism”; indeed, given her background as a literary critic, one way of reading this book is as an inquiry into the historical origins of postmodernism. At nearly every stage of her argument, she is careful to present examples of people proposing alternatives to the “modern fact” as a means of organizing knowledge. Hume, for instance, switched from treatises to essays after 1757 in order to encourage a more open-ended, conversational approach to knowledge; Samuel Johnson’s Journey to the Western Islands of Scotland (1775) appears at the end of chapter five as a very early example of postcolonial critical theory, in which the Highlanders’ agency is used to interrogate the limits of modern rationality. And Poovey concludes her book with the outright rejection of the “modern fact” by the Romantic poets Southey and Coleridge.

These various efforts to get beyond a focus on grand theories and endless evidence, she argues, all anticipate to some extent the more general tendency of various “postmodern” writers today to “solve” the problem of the modern fact by rejecting it; by denying that knowledge needs to be about grand theories, and focusing instead on “micropolitics” or formal models. Although she doesn’t explicitly say so, much of modern economic theory, at least dating back to Debreau, takes exactly this formalist approach to opting out of the problem of induction. As Poovey recognizes, though, and as the persistence of questions like “Is the New Economy Real?” suggests, the modern fact and its associated tensions are likely to remain with us for a long time to come.

Tim Alborn is assistant professor of history at Lehman College in the City University of New York. He has published Conceiving Companies: Joint-Stock Politics in Victorian England (Routledge, 1998) and is working on a book about the social history of British life assurance.

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Subject(s):History of Economic Thought; Methodology
Geographic Area(s):Europe
Time Period(s):General or Comparative

In Pursuit of Leviathan: Technology, Institutions, Productivity and Profits in American Whaling, 1816-1906

Author(s):Davis, Lance E.
Gallman, Robert E.
, Karen Gleiter
Reviewer(s):Paterson, Donald G.

Published by EH.NET (August 1999)

Lance E. Davis, Robert E. Gallman

and Karen Gleiter, In Pursuit of Leviathan: Technology, Institutions,

Productivity and Profits in American Whaling, 1816 – 1906. Chicago:

University of Chicago Press,, 1997. Xii +

550 pp. $80.00 (cloth), ISBN: 0-226-13789-9.

Reviewed for EH.NET by Donald G. Paterson, Department of Economics,

University of British Columbia.

It is said of Herman Melville that he toned down the detail of Moby Dick

because his Victorian readership would have found it too disturbing and highly

fantastical. Davis, Gallman and Gleiter provide the story that Melville left

out. A history of American, mostly New England, whaling in the nineteenth

century, this book deals with the technology and institutions of this ephemeral

industry. It examines the course of productivity that saved the industry

numerous times as the prices of whale products fell and the business forces

that led men to hunt the whale fish.

This is a book written with style and an exemplary economy of argument. The

authors are content to

tell the story with an abundance of evidence and the economics just necessary

to the main theme. There are many instances in the book where, one suspects, in

the hands of less seasoned veterans the reader might have to wade through the

best of modern theory and interpret elaborate and novel econometric tests. For

instance, there is no explicit use of modern fishery models and search theory.

However, it will be clear to any reader who is familiar with formal fishery

modeling that the authors rest their work on that foundation. The complex

economics of natural resource depletion are fully understood by the authors,

which of course is no surprise, and their economic narrative reflects this

fact. The result is an elegant and easy-to-read history that is highly

accessible.

The book traces the growth of the US whaling industry from its expansion into

the Pacific to its decline in the last years of the nineteenth century. In the

early years the Americans were in competition with the British whalers but

curiously the main discussion of this is left to late in the book (Chapter

12). Some, if not all, of this material belongs earlier in the text. Throughout

the authors assemble a vast array of quantitative information. Readers who are

familiar with the Starbuck data published in the 1870s will be pleased to see

how this information has been supplemented by extending the data beyond the

1870s, by providing more information on each vessel-voyage, and by the

inclusion of the records of other ports. (Starbuck recorded the customs

information for New Bedford and adjacent ports by voyage). With this most

impressive data collection the authors examine, each in a separate chapter: the

natural resource base;

labor; capital; the technology of the hunt; productivity, profits and the

roles of the entrepreneurs and middlemen. I found several of the sub-themes in

various chapters particularly interesting. One is the change in the size and

rigs of ships as the whalers sought to find the most efficient combination of

capital/lab or consistent with a particular type of whaling voyage. Another is

the system of payments to labor in the industry that from the earliest of times

was payment by share. On this subject there is a very nice discussion of the

allocation of risk. Readers will find many other well-contained topics.

Although whaling was never an industry central to overall US growth it did have

great importance in the regional economy of New England. Its rise was

coincident with the decline in New England farm productivity. However, the

wide appeal of this book will come from its completeness in following a

renewable natural resource industry through its rise and decline. Economic

historians, business historians and American historians in general will find

the book of interest. Students of American literature with aspirations to

enter the Melville industry must read this book to be current. In Pursuit of

Leviathan would also be an excellent supplement in both undergraduate and

graduate courses in natural resource economics.

Donald G. Paterson is Professor of Economics at the University of British

Columbia. He is the author (with W.L. Marr) of Canada: An Economic

History (Macmillan, 1980) and has published on the history of the North

Pacific fur seal fishery.

Subject(s):History of Technology, including Technological Change
Geographic Area(s):North America
Time Period(s):19th Century

Timken: from Missouri to Mars–A Century of Leadership

Author(s):Pruitt, Bettye H.
Reviewer(s):Mazzoleni, Roberto

Published by EH.NET (June 1999)

Bettye H. Pruitt. Timken: from Missouri to Mars–A Century of

Leadership.

Boston, Mass.: Harvard Business Scholl Press, 1998. xvii + 514 pp. Tables,

figures, photographs, appendices, notes, and index. $39.95 (cloth), ISBN

0-87584-887-7.

Reviewed for H-Business and EH.Net by Roberto Mazzoleni, Department of

Economics, University of Vermont.

Continuity and Change in the Growth of a Family Controlled U.S.

Manufacturing Firm

Established in 1899 by Henry Timken to commercialize tapered roller bearings

axles for carriages, the Timken Company today is a multinational corporation

with sales of about $2.6 billion (1998), 21,000 employees,

engaged in the manufacture and sales of bearings and alloy steel products that

find application in a wide variety of industries. To celebrate its

centennial, the Timken Company commissioned the Winthrop Group Inc. to write a

history of the firm. Timken: from Missouri to Mars–a century of leadership

in manufacturing is the result of historian Bettye H. Pruitt’s research

(with the assistance of Jeffrey R. Yost and others). Pruitt uses a variety of

sources, including internal corporate documents, personal correspondence of

several members of the company, as well as interviews with numerous individuals

from the company itself, its affiliates, and outsiders. The book’s rich detail

testifies to the quality and thoroughness of the author’s research. While

primarily focused on the business aspects of Timken’s life, the book also

discusses the firm’s relationship with the surrounding communities, its

philanthropic activities, and provides biographical sketches of many

individuals

associated with the firm,

including Timken family insiders as well as outsiders. These sections

contribute to establishing a link between the personalities of the firm’s

leaders and the culture of the organization. This is an important element in

the author’s assessment of Timken’s evolution. Pruitt emphasizes the firm’s

identity and sense of purpose as an anchor of stable values enabling the

strategic and organizational adaptation that allowed it to survive and

prosper. These cultural factors are linked to the Timken’s family continuing

control of the firm after a century of activity.

While the family ownership and control constitutes a distinctive feature of the

firm, the events in Timken’s history are in many respects quite representative

of U.S. manufacturing industries more generally, not only from a technological

and economic viewpoint but also from a cultural one,

as the author acknowledges in the book’s early pages. The chronological

sequence of chapters is punctuated by two focus chapters that describe the

company’s establishment of new production plants (see infra). These, Pruitt

argues, symbolize the technological and cultural differences between the mass

production

and the flexible manufacturing eras in Timken’s corporate history.

The origins of the Timken company can be traced as far back as 1855, to a

carriage business set up by Henry Timken, the son of German immigrants in

St.Louis, Missouri. During the 1890s,

Henry became involved in the development of anti-friction bearings and,

together with his nephew Reginald Heinzelman, he invented a tapered roller

bearing for which they received a patent in 1898. One year later, the Timken

Roller Bearing Axle Co. was incorporated for the commercialization of carriage

axles mounting their patented bearings. The growth of the bearing business

followed that of the automobile industry, although since the 1910s Timken began

to develop other markets for its products. Timken bearings were sold at a

premium over competing products, but over time, increased competition and the

possibility of vertical integration by car manufacturers threatened the

company’s future growth. Under the stewardship of Henry Timken’s son, Henry H.,

the

firm committed itself to competing on price and quality to sustain revenue

growth, a strategy that prompted Timken to seek cost savings by establishing an

in-house facility for steel production.

Pruitt suggests a transaction cost rationale for integration related to

Timken’s steel quality requirements which resulted in high steel prices,

monitoring and testing costs. Timken was also experiencing difficulties in

securing reliable supplies of high quality steel from electric arc furnaces.

These factors pushed Timken (and its main rival, Swedish firm SKF) to invest

in a facility for steelmaking. The decision was based on fairly inaccurate

estimates: the final investment costs exceeded the initial forecast by a full

order of magnitude (p.74). As a result, Timken was forced to seek external

finance from banks first, and to offer part of the company’s stock to the

public in 1922. In spite of the earlier reference to transaction and

manufacturing costs, Pruitt’s account indicates that the internal capability i

n steel production proved to be of fundamental value for the innovative

performance of the firm as it provided Timken with control over the interface

between bearing design and steel quality. Thanks to the learned capabilities in

product, process, and sales engineering, Timken experienced profit and revenue

growth throughout the 1920s.

Until the Great Depression, Timken’s policy of paying high wages had succeeded

at keeping unions out of its production plants. Only in the 1930s efforts by

the United Steel Workers to unionize the company’s plants in Canton, Ohio,

succeeded. The firm’s relationship with the union was marred by hostility. The

management spurned any interference with its control of shopfloor activities.

Timken was committed to a managerial style informed by hierarchical command

and control, a practice whose continuity inside the firm was facilitated by

recruiting executives through internal promotions.

The management’s anti-union stance played a role in 1950 when a

state-of-the-art production plant was set up in Bucyrus, Ohio, a rural area

that Timken hoped could provide a union-free environment. The new plant

featured extensive automation of the manufacturing process and focused on the

mass production of standardized products. Timken’s management could benefit

from vastly improved information systems and hoped that its control over the

production process would be unfettered by conflict with its labor force.

Generous employee compensation was expected to avert the unionization of the

plant.

At the same time, the firm intended to provide workers with the training needed

to realize job rotation programs and with team-based performance incentives.

The scale economies realized at the Bucyrus plant were the basis for Timken’s

retention of a firs t-mover advantage in the market for standardized tapered

roller bearings. In contrast with competitors whose product lines encompassed

alternative bearing designs, Timken remained committed to its time-honed

strategy of competing on price and quality in the tapered roller bearing

segment. The same conservatism was also visible in the company’s structure,

where the organization continued to be along functional lines. Pruitt

identifies these facts as symptoms of the incipient divergence of Timken’s

business

strategy and structure from the pattern typical of U.S. manufacturing firms.

These differences notwithstanding, Timken enjoyed a prolonged period of growth

and profitability. It developed a network of international affiliates whose

integration became an

important focus of managerial attention. Driven by the objective to coordinate

sales and production on a worldwide basis,

efforts were made to establish uniform quality and dimensional standards that

could realize interchangeability of products across plants. Whereas Timken’s

management effectively addressed these operational needs, it was not quite as

successful at developing an appropriate business strategy model for its

international affiliates. The business model behind the Bucyrus plant that

succeeded in the U.S. did not enjoy the same fate in other markets, partly

because the firm did not have a first-mover advantage vis-a-visits

competitors.

The competitive pressures in the U.S. bearing market increased during the

1960s. In the usual pattern, Japanese entrants first targeted the low-cost end

of the ball bearing business. Having succeeded in that market segment,

the Japanese firms began to aim at the low-end of the tapered roller bearings

market. Timken’s ability to withstand their competitive threat was the result

of its continuing commitment to modernize manufacturing facilities and expand

capacity. New plants were set up in Gaffney, South Carolina, in 1971 and in

Lincolntown, North Carolina, in 1979. To be sure,

competition put a squeeze on pro fit margins in the bearings business during

the 1970s, but Timken weathered the storm satisfactorily thanks to the

profitability of its steelmaking division. In that area too, Timken upgraded

and expanded manufacturing facilities (notice the acquisition of Latrobe Steel

in 1975) and developed other markets for its steel products in addition to

bearings.

By the late 1970s the firm’s ability to sustain continuous improvement in

bearings’ performance was diminishing. Problems had emerged in regard to the

quality of internal steel supplies. The response to this crisis,

initiated in 1978 as the Clean Steel Program, included a benchmarking exercise

conducted at steelmaking plants in Europe and Japan which revealed that Timken

needed to catch up with the industry’s best practice in order to secure its

competitive standing in the bearings business. In 1981 Timken decided to build

a new steel plant at Faircrest, Ohio.

These events were a watershed in the firm’s history. A prolonged period of

internal change ensued that wrought radical transformations in Timken’s

organization of shopfloor work as well as its corporate structure and culture.

Existing organizational practices had created an inward-looking culture that

failed to absorb useful managerial and technological knowledge from the

outside. The outcomes of the benchmarking exercise shook the management’s

confidence in the organization’s ability to identify and solve problems

internally and to generate the technological and organizational improvements

needed

to sustain the competitive position of the firm.

Outside consultants from McKinsey & Co. collaborated with insiders to

restructure the company. Even more important, they facilitated the overhaul of

the corporate culture, and particularly the abandonment of the strict top-down

approach to management that had characterized Timken since its early years. The

book’s final chapters portray Timken as an organization alert to the need for

strategic adaptation and willing to embrace change in response to external

events. In what may be considered a radical departure from the company’s

conventional wisdom, Joseph Toot Jr. described the Timken Company as having

moved from “a strict , traditional, product orientation toward the application

of certain skills which we

believed we possessed in an exceptional way” (p.393).

The book’s strength is without a doubt in its detailed account of the corporate

history, which a reader without an all encompassing interest in the matter may

find dizzying at times. While I found the

book pleasant and engaging to read for the most part, occasionally, the

author’s attempt to provide details ends up clouding the story line more than I

thought desirable, particularly toward the final chapters of the book. Perhaps

inevitably, the book touches only briefly upon events and issues that

interested readers will want to know more about. For example, Pruitt tells us

that while British Timken had been using Statistical Process Control

(SPC) after World War II, the U.S. headquarters’ efforts at standardizing

procedures across plants were responsible for its elimination. Pruitt says that

British Timken promptly conformed to the orders from Canton

(pp.232-234), but there is no way to tell whether British Timken benefited from

SPC, and if so, why did it simply conform to the orders? Considering that

quality control processes were resumed twenty years later, it would have been

interesting to learn more about the circumstances of SPC’s demise.

While the book rarely attempts to generalize from Timken’

s experience on specific issues, the introductory chapter places Timken’s

corporate history in a broader perspective provided by the scholarly debate

concerning the factors promoting corporate success and longevity. Pruitt lays

out two views, contrasting

Chandler’s [1] emphasis on a firm’s strategic focus on core businesses and

investments in organizational capabilities, with the cultural approach found in

Collins and Porras [2] and de Geus [3]

emphasizing a core ideology that “guides and inspires people

throughout the organization and remains relatively fixed for long periods of

time”

(p.xiii). This contrast does not receive much analytical attention in the rest

of the book. As Pruitt reckons, both themes appear in Timken’s history. This

suggests that the views presented as mutually exclusive need instead to be

integrated with one another. In fact, I would argue that Pruitt’s own narrative

supports the broad proposition that an organization’s culture (intended as a

constellation of values and norms of interaction) is an important determinant

of its capabilities. While the rich evidence discussed in the book clearly

bears on the nexus between culture and capabilities, the nexus is not

adequately developed. Pruitt’s recurring references to the legacy of “a

compelling sense of purpose and a cohesive corporate culture” (p.31), or the

“timeless importance of corporate purpose and identity” (p.xvi) seem to

identify these cultural factors as the key determinant of Timken’s longevity

and success. These emphases

are not supported, in my opinion, by adequate analytical arguments clarifying

the relationship between these concepts and corporate success.

Pruitt’s book provides interesting insights on a much broader range of themes

than my review suggests. Among them

, I would mention the discussions of patent litigation, the effects of

antitrust restrictions on its relationships to foreign subsidiaries, lobbying

for antidumping tariffs,

the development of internal R&D programs, technological developments in steel

and

bearing technologies, the firm’s relationship with standard-setting

organizations, as well as its marketing efforts with respect to particular

customers or industries. As a result, the book deserves the attention of a wide

audience of scholars, from business and economic historians to scholars of

industrial organization, strategic management, and technological innovation.

Notes:

[1] Chandler, Alfred D. Jr., Scale and Scope. The Dynamics of Industrial

Capitalism. Cambridge, Mass.: Belknap Press, 1990.[

2] Collins, James C. and Jerry I. Porras, Built to Last: Successful Habits

of Visionary Companies. New York, N.Y.: HarperCollins, 1994.

[3] de Geus, Arie, The Living Company: Habits for Survival in a Turbulent

Business Environment. Boston, Mass.: Harvard Business School Press, 1997.

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

Incorporating Women: A History of Women and Business in the United States

Author(s):Kwolek-Folland, Angel
Reviewer(s):Yeager, Mary A.

Published by H-Business@eh.net and EH.Net (April 1999)

Angel Kwolek-Folland. Incorporating Women: A History of Women and Business

in the United States Twayne’s Evolution of Modern Business Series. New

York: Twayne Publishers, Simon &

Schuster Macmillan, 1998. ix + pp. 275.

Bibliography and index. (cloth), ISBN 0-8057-4519-X.

Reviewed for H-Business by Mary A. Yeager, Department of History, University of

California, Los Angeles, California.

MAKING A DIFFERENCE: WOMEN AND BUSINESS HISTORY

Angel Kwolek-Folland’s Incorporating Women is the first survey to

synthesize the history of women and business anywhere in the world. Its

pioneering status raises a series of significant questions for the scholarly

and business communities and the public at large. Why have businesswomen in

America been the first women to have their history surveyed and synthesized?

And why now? In view of the fact that there is still a great deal that we do

not know about women in business, is the synthesis premature? What does the

synthesis offer historians of women and business and what is its significance

for future research? And finally, where do we go from here? [1]

ACCOUNTING FOR LEADERS

The practice of business and women’s history

in the United States has reached a historiographical cross-roads just when

demographic and economic changes are interacting to compel a dramatic

restructuring of American business. As we approach the millennium, old

certainties about the superior competitiveness of American business have given

way to the uncertainties of global capitalism run amok. Women, including those

with children, have become fifty-one percent of the labor force. They have

started more new businesses at a faster rate than men. T hey have earned more

baccalaureate and graduate degrees than have men across an increasing number of

professions. More women have climbed into the ranks of middle management,

while the small number of women at the very top has held its own.

For the first time in the history of American business, women who work have

begun to be perceived as a partial solution to the problems of competitiveness

rather than as a major social problem. No longer is the question whether single

or married women should work but

rather, how long women will work at a particular occupation and pay scale?

Will married women and men be able to juggle the kids and career demands to

suit personal and familial lifestyles?

The appearance of a historical synthesis of American women and

business at this time is significant because it has been pieced together from

two radically different historiographical traditions before a great deal of

substantive or systematic research on women in business has been completed.

Until relatively recently

, historians have used gender more often to exclude rather than to include the

opposite sex. American business history was generally written by and about men

in growth-oriented manufacturing firms.

American women’s history was written by and about women

who lived compartmentalized lives in private or public spheres.

More is known about women as workers than as businesspeople. Evidence on

women’s labor force-participation is abundant, quantifiable and relatively

accessible, embedded in government labor and occupational censuses, and

company records. As an activity, business confounds with multiple meanings and

definitions. It sweeps in production and trade, manufacturing,

agriculture and service, as well as producers, entrepreneurs, professionals,

workers and managers. As an occupation, it is notoriously ambiguous, often

swept into other occupational groupings, such as proprietors or administrators.

As a career or profession, it offers numerous choices, from clerks to

middle-level managers and corporate

executives.

Businesswomen have been hard to see and difficult to track. They have been

misfits in the male world of business and a privileged minority among women.

Their names have been erased in law and custom by those of husbands, fathers

and brothers.

Their economic activities have spilled across boundaries demarcating

households, families, firms and markets. Their multifaceted roles as wives and

mothers, daughters and widows have blurred their business identities. Most

female business activities have occurred in smaller corners and invisible

niches of the service sector rather than in growth-oriented manufacturing

industries, in family-oriented businesses and retail shops,

and in educational, philanthropic, and health-care and reform-oriented

institutions. The motives of businesswomen have involved a complex and changing

mixture of economic and non-economic factors. Their stories have tended to be

communal and familial, muffling individual decision-making strategies and the

competitive noises of

firms and industries.

Kwolek-Folland has learned from her subjects how to transform problems into

opportunities. She uses debates about working women as scaffolding for the

synthesis. Chapter titles evoke a succession of images about working women:

“Fem ale Economies,” “Mills and More,” “Difference at Work,” “Personal Work,”

“Crisis Management” and “Difference at Work.” Work offers women a way to gain

greater economic visibility. It expands opportunities to undertake business.

Indeed, women’s movement into white collar work in the late nineteenth and

earlier twentieth centuries marks, for her, one of the most important changes

for women in business in the past 300 years. Data on occupations and women’s

labor force participation are correlated generally with women’s increasing

involvement in business activities. Business activities are based on a gendered

division of labor. Women participate in business like workers participating in

the economy, as part of a proletariat, more often in feminized, sex-segregated

dead-end jobs and slower-growing niches of service-oriented industries.

Women’s status at work serves as a lightning rod for the debate over women’s

roles more generally. Debates about working women grow out of debates about

women’s place.

Businesswomen across the centuries have often adopted a work-oriented view of

business. Business has been a way to make a living and survive. So integral

has business been to women’s lives, that some women have steadfastly refused to

distinguish business from life. “You can never think of me as a business

woman,” one woman cautioned her daughter in 1910.

“That is because I make a business of life and living my business.”

“Business is just life,” American real estate entrepreneur Edith Mae Cummings

wrote in 1929, “and we had life long before we had business.”[2]

KWOLEK-FOLLAND, BRIDGE-BUILDER

Kwolek-Folland knows how to listen to women’s voices. She has designed the

synthesis to disrupt disciplinary boundaries that have kept women in separate

spheres a nd men the only players in a male-dominated business game.

Given that “Women have always been in business in America (p.1),”

Kwolek-Folland has defined her central challenge as one of “incorporation”:

how to bring “others,” particularly women of different

classes, races and ethnicities into American business history and how to bring

business into American women’s history.

Incorporation has the ring of a conservative project of integration. Cynical

feminists well-versed in the history of British legal traditions might well

hesitate. After all, English civil law recognized the man and wife as one,

but came to define the “one” as “male.” Who is incorporated into what? Who are

the “gatekeepers” of the incorporation process? What are the terms of

incorporation? And what are the results of the incorporation process, both

for those incorporated and for the incorporating body as a whole?

Kwolek-Folland does not ally with feminist theorists determined to tear down

business institutions in order to clear the playing field of businessmen.

Nor is she a neo-progressive reformer nipping at the heels of Charles and Mary

Beard. She is an artist in tone, style, and temperament, using conservative

colors to cover radical aims.

Double entendres bedevil the incorporation process. Incorporation is testily

political, both a form and process, interacting to constrain and liberate women

unevenly and unequally over time. Power is interpreted as direct authority and

indirect influence. Both the terms and outcome of the incorporation process

are contingent, dependent in part upon how societies regard and value “others”,

as reflected by women’s changing legal status and business activities.

Incorporation involves struggles over the meaning and significance of business

and its associated concepts of profit, risk,

entrepreneurship, and success. Kwolek-Folland defines business expansively as:

“engaging in economic activity in a market to seek profit and assuming the

financial responsibility for that activity.” (p.5). Profit is

often embedded in non-economic goals; risk is defined as much in personal and

familial as in monetary terms; entrepreneurship is defined broadly as “new”

areas of economic activity; success is linked to women’s emancipation and

autonomy.

To incorporate

women into the history of business Kwolek-Folland uses analytical tools derived

from political and women’s history. Social categories of race, gender,

ethnicity and class order human experiences along a continuum of differences

that reveal the dynamics of

power embedded in business activities and institutions. Kwolek-Folland regards

these social categories as a “force,” and more than occasionally, as an

“irrational force” which shapes “how businesses approach markets, make hiring

choices,

and create organizational forms.” (p.8). Women’s political struggles both

spearhead and reflect changes in business activities and structures,

shifting the meaning and influence of business in women’s lives.

Business is incorporated into women’s history through inequities and

asymmetries of power associated with different business structures and economic

activities and roles. Business organizations reinforce differences between men

and women and other women. Business imparts new meaning and significance to

these categories by serving as fickle emancipator of women’s roles and

conscious conservator of woman’s place. It bridges the divide that has

separated women’s private and public lives.

Underlying Kwolek-Folland’s assumptions about the importance of social

categories to the understanding and meaning of business is a reformer’s vision

of a

more equitable and just business system, one where gender differences are not

unequally valued, where social condition does not constrain business

opportunity, where a male standard is not synonymous with

a universal standard, and where men and women have equal chances to exploit

business opportunities. To liberate business from the shackles of a

male-dominated business history and to emancipate women from a private world of

love and ritual, she crafts a single, all-encompassing narrative to bestow

public and historical legitimacy on businesswomen.

SURVEYING THE SURVEY

The survey situates women within a chronological framework that evolves

primarily out of economic and business history. Except for the middle of the

twentieth century, when government policies take center stage, the

periodization scheme is based upon major changes in the nature and dynamics of

liberal, market-oriented capitalism, beginning with a pre-industrial period

and advancing jerkily with successive industrial revolutions across the

nineteenth and twentieth centuries. Women enter economic and business history

indirectly by way of their business activities and relationships with other

women and men in business and the larger society, as members of families, of

social-reform, educational, and political networks. Business enters women’s

history indirectly by way of opportunities and legal status,

through economic roles and activities that women assume as

producers,

entrepreneurs, managers and professionals.

Women jump start the business of colonization in the 1550s as dependent sexual

objects of colonizers’ imaginations. They end their business journeys in 1997,

still unevenly and unequally incorporated

into the business system as legal independents, on unequal terms relative to

men and to each other,

with laws that promise justice without protection. After four and a half

centuries of ever-diversifying business activities and at least three decades

of

debate and litigation about equal pay, businesswomen stand stalled in their

tracks. Women’s revolutionary breakthrough into the top tiers of management has

fizzled.

For Kwolek-Folland, the setbacks are more telling than the advances. As if to

underscore

how much and how little had changed with regard to women and their

relationship to business, she places powerful corporate tycoon Estee Lauder —

named “Outstanding Mother of the Year” in 1984,– atop the shoulders of Ojibwa

fur traders, market women, butter makers bankers, and factory girls. Gender

stereotypes have continued to dog women’s advance in the business world,

constructing their public personas even as women reconstruct the businessworld.

EVALUATING THE RESULTS

Kwolek-Folland’s survey and

synthesis have alerted us to power differentials embedded in difference.

Society’s unequal valuation of “others” nurtured a system of laws regarding

property rights, citizenship, suffrage, marriage and divorce that disadvantaged

women more than men and so me women more than others. Women’s status, as

reflected both in formal laws and informal customs, interacted with economic

conditions to shape women’s business opportunities and the manner of engaging

in business.

The framework enables us to see more clearly different women’s varying

experiences in the business world over time. Some businesswomen mimic the

monotonous and routine male shopkeepers and businessmen the world over, like

Rose Stolowy of Kansas City, Missouri, or Catherine Ferguson, a confectioner

shop-owner. Famous women, such as Rebecca Lukens, Amelia Earhart, and Oprah

Winfrey share brief appearances with their not-so famous contemporary

counterparts, like Phebe Cills, an African-American toy store owner, and the

infamous sisters Aida and

Minna Everleigh. Good businesswomen, like caterer Edith McConnell, coexist with

the less successful, such as Christina Barnes, who “negotiated the business

world with difficulty.” And then there are some who are larger than life, such

as the six-foot,

200 pound Sarah Bowman, who made money from prostitution AND the United States

Army,

only to die ungloriously of a tarantula bite in 1866.

Race opened opportunities for black businesswomen and professionals in

segregated niches of the economy and closed

them in areas dominated by whites. It imposed special social and economic

burdens upon black businesspeople as community builders and as economic

role-models. Black women undertook a variety of business roles even as slaves

and engaged in a range of business activities even though they gained both

property, voting and civil rights later than white women. Their work histories

were longer and more continuous than either white women or black men. Black

women boasted one of the nation’s first and most successful brothel-keepers,

the first female bank president, the first female self-made millionaire in

America, and one of the wealthiest celebrity queens in the entertainment

business.

Ethnicity affected whether women went into business at all. It proved

important to women’s control of property, as in the case of the early female

Dutch

settlers, and formative of entrepreneurial cultures, as in the case of Jewish

women, whom Kwolek-Folland celebrates as the most entrepreneurial of American

businesswomen. Len a Himmelstein Bryant (Lane Bryant Company),

Fanny Goldberg Stahl, Esther Mentzer (Estee Lauder) stand tall in the female

hall of business fame.

Class functioned as a marker of legal and economic status as well as a

gate-keeper of the incorporation process, promoting gender rules that

distinguished women from men and income bars that distanced lower from upper

income groups. It gave wealthier women an easier entree into politics and

educational institutions, which positioned them more strategically as leaders

in social reform and philanthropic institutions.

Business played a mixed role in the lives of women. On the one hand,

business structures operated to reinforce rather than undermine differences.

In the early 1800s textile owners hired young, single

white women because the skills associated with textile production were already

categorized as women’s work. Later, with the coming of managerial capitalism,

the gender coding of managerial and job rules kept women out of the

highest-paying highest status

jobs and paved the way for the feminization of clerical and personnel work. On

the other hand, business expanded women’s opportunities and control, empowering

women as owners and managers even as it reinforced differences between men and

women. Indeed, for some women in social-reform and political networks in the

late nineteenth century, business activities became a proto-feminist political

act.

Successive market-expanding industrial revolutions improved more than they

undermined business women’s economic well-being, generating more income and

greater autonomy and independence for businesswomen than was the case for women

who worked as employees of others. Only when the scope of government’s

involvement in women’s issues broadened across the 20th century

, did business assume a more threatening and ominous role as a major antagonist

in a series of sexual discrimination and affirmative actions cases. With regard

to some issues, such as paid family-leave, big business jumped ahead of the

government, offering its own assistance packages, while small business owners,

many of whom were women, protested on grounds that such legislation would

disadvantage them relative to larger rivals.

For Kwolek-Folland and the women whose experiences she surveys, business

activities generally were growth-enhancing and value-creating activities.

The historical purpose of business, after all, she concludes, has been “to

make people’s lives better or to raise the standard of living for as many as

possible.”(p.216).

Sighs of relief among business historians are likely to be matched by

discomfiting growls from feminists who have always seen more of the meanness

than the magic in the market and in business activities. Inevitably,

scholars in both camps will single out different

aspects of the survey and synthesis for praise and criticism. However, as a

business historian and free-farming feminist, with one eye on men and business

institutions, and the other on businesswomen and the world, I want to focus my

remarks on this unresolved paradox: Why has a study so steeped in the rhetoric

of power and difference not revealed more about how power and difference

actually operate in the business world? About what power means, how it is

expressed and used,

by whom for what ends? Why does a study about women and business so closely

resemble the histories of women at work?

A PARADOX and SOME PUZZLES

Social categories may well hide as much as they reveal about how power really

works in the world of business. Businesswomen have been swept into the history

of business armed with only one set of tools to differentiate them. Race,

ethnicity, class and gender have masked differences arising from women’s

individual capabilities and skills; they have made differences between and

among women of the same social categories difficult to see and to understand;

they have imposed an unnecessary uniformity upon women as a group.

The transformation of categories from inert, disembodied experiences into

causal forces, stalls early on. Business practices are overwhelmed by

cultural forces. Modern business tycoons stand atop the shoulders of Ojibwa

traders, but it is difficult to differentiate one businesswoman and business

from another or to account for differences in the performance and profitability

of business activities over time. Despite the fact that Indians held

dramatically different conceptions of gender roles, of property, autonomy and

responsibility, Indian women emerge as American history’s earliest

businesswomen and consumers.

Women as a group appear to share more similarities than differences but the

business experiences of men and women are allegedly more different than

similar. These hypotheses remain to be tested.

Women are described as having been more continuously and often

circumscribed in their choices and activities by the “family claim” then men

have been.

Yet, histories of businessmen in the pre-industrial period have suggested that

the family claim also structured the economic activity of men. We need to know

whether

women and men interpreted the claim differently and how their interpretations

influenced economic outcomes.

Kwolek-Folland’s definition of business is at war with business realities.

Why has business as “activity” been yoked to the claim of “financial

responsibility” rather than to market-and profit-oriented decisions, as has

been

customary in business history? The choice carries definite ethical and moral

connotations. It broadens the population of businesswomen and businesses but

pinches interpretive

possibilities. The price is operational imprecision and ambiguity.

Activities are different from decisions. Activities indicate little more than

a kind of busyness, industry or work; they are described by their properties.

Decisions are associated with

choices that businesspeople make in the course of doing business, in order to

remain in business. Financial responsibility literally refers to “a charge, a

trust, or duty for which one is responsible.” [3] If a reasonable understanding

of responsible

is that it has to be within the power of the one who is responsible, then how

is that determination to be made? What is meant by the assumption of financial

responsibility, and how is “responsibility” to be determined?

Kwolek-Folland does not consistently

or systematically apply the definition.

Instead, she offers an expansive interpretation whose meanings have to be

squeezed from an ever changing business context.

Kwolek-Folland regards “independence” to be the core of the legal definition of

business.

The ability to negotiate contracts and to acquire, use and dispose of

property is severely impaired without legal recognition and protection of those

rights. Without legal status as “independents,” women could do business as

dependents of others, but they could not profit from their own business

activities. Only as women gained legal recognition and protection as

“independents” and autonomous individuals with the right to their own bodies,

earnings and profits in the late nineteenth century, could they

exploit the same opportunities available to men who had those privileges and

rights.

The definition seems to deny that men and women have long strategized about the

ways in which they could shift, avoid or elide financial responsibility.

They have devised marriages and designed partnerships and firms with precisely

these goals in mind. The definition may be appropriately applied to women who

act as business proprietors, but how is it to be operationalized in a dynamic

world full of business activities undertaken by many individuals and groups

engaged in cooperative ventures, as members of family businesses,

partnerships or teams associated with single firms or corporate enterprise?

What if businesswomen assume financial responsibility but are not held

accountable?

By identifying women in business by their activities and roles as producers,

entrepreneurs, professional and managers, Kwolek-Folland constrains women’s

choices and robs them of the opportunity to exercise control or to assume

financial responsibility. Without interrogating activities or roles, it is

difficult to distinguish one businesswoman or type of business activity from

another, except insofar as production differs from trade and sales and service.

Managerial roles are gender coded but we need to know why and when the codes

took the form they did with respect to different businesses over time. To what

extent did individual women construct and re-construct managerial roles to suit

their own talents and capabilities?

In the 1950s entrepreneurial historians tried but generally failed in their

efforts to use role theory to link men in business to society. Roles represent

problematic psychological categories. Individuals and groups fulfill, perform

and create roles. Activities do not necessarily conform to prescribed roles.

Roles straight-jacket behavior but people also deviate from socially prescribed

roles. How is the historian to determine when women are performing roles

prescribed by society or crafting them as they proceed?

How have women conceived of their roles in business and how have they actually

behaved?

Racial and ethnic differences have also mattered to people’s conceptions of

business roles, activities and results. The survey builds upon studies of black

businesspeople to

suggest that their business strategies often were community-building strategies

as well. But not all of these interrelated strategies worked from the

standpoint of business longevity and profitability. What happened, for

example, when and if black businesswomen deviated from social expectations of

them as community builders?

Social categories need to be more systematically related to women’s

decision-making and organizational capabilities in particular businesses.

Kwolek-Folland surveys how some women

used skills developed in household and family or reform contexts to transform

socially-oriented businesses or non-profit institutions into profitable

businesses. However, we also need to know what kinds of decisions they made,

and which family or household decisions informed their business decisions.

Businesses differ according to operating rules and the short and long run goals

with respect to other institutions and society. Decisions and risks which

women undertake as owners or managers of hospitals

are likely to be different than the kinds of decisions made by women as family

partners, heads of families, or by businesswomen involved in the intensely

competitive cosmetic and restaurant businesses. Why were some women able to

transform household skills into effective business practices, when others

could not? Household production and consumption decisions of nineteenth century

middle-class women and twentieth century farm women gather social significance

primarily as gender dividing strategies. But

we also need to know how these decisions structured economic behavior and

outcomes.

The study suppresses the competitive forces that are at the heart of the

American business system. Although it argues from difference, it homogenizes

women as a group who seldom compete on the same playing field, either with men

or with other women in the same industry. Except in rare instances,

outcomes are seldom revealed nor evaluated. Individual female rodeo riders

compete with men, but we do not know whether they competed effectively or not.

We learn of Ellen Demorest’s pattern business but not of the competition she

experienced from Ebenezer Butterick, who eventually dominated the industry.

“Status” is another concept that creates problems for the survey and synthesis.

Kwolek-Folland employs status as a legal concept, as signifier of

reputation, of income and class, of women’s visibility and relative

equality/inequality in regard to men and other women. Yet indicators of status

do not always mesh with economic

realities. Given that social attitudes about women’s place have remained

stubbornly resistant to change,

Kwolek-Folland’s assertion that by the end of the nineteenth century, women had

achieved a legal status equal to that of men in business, is problematic.

Women could now do business and profit from their own endeavors but to what

extent did they? Data on female labor force participation and occupations pose

interpretive difficulties here. What are the causal lines of influence between

changes in legal

status and business activities?

The survey recognizes the difficulty of positioning irrational and rational

forces on the same economic stage. The problem is not simply a disagreement

about matters of meaning and definition. It also relates to the interpretive

tools that are used to analyze the evidence. To demonstrate how irrational

notions about race undermined the “myth of rationality” in business,

Kwolek-Folland offers a singular notable example, drawn from the history of

financial industries.

White providers of life insurance in the late nineteenth century refused to

sell insurance policies to black customers on the basis of actuarial

information which suggested that blacks had higher mortality rates than whites.

Citing evidence which linked higher mortality rates to environmental

conditions rather than to stereotypical notions about blacks as a group, she

concludes that white managers acted irrationally.

However, by allowing culture to subsume gender and race, and economic

rationalism to

define business practice, Kwolek-Folland misses an opportunity to examine how

and why notions of rationality, with respect to culture and economics,

sometimes complement rather than clash. If managers did not know what evidence

demonstrated, they are more

likely to make unilateral decisions on the basis of cultural predisposition

and habit. As long as other white competitors refused to market to blacks and

social attitudes condoned discrimination, then these actions may well have

produced economically efficient outcomes. Managers would have behaved

irrationally,

from an economic standpoint, only if they refused to sell to blacks when other

rivals were busily cashing in.

Determining why businesspeople do what they do has never been easy. But

economic tools of principal-agent theory are available to determine more

precisely when and why some individuals, rather than behaving act more like the

utility-maximizing automatons of neo-classical economics, act opportunistically

and with guile.

Kwolek-Folland’s

discourse about power is more tantalizing than effective.

Instead of directly confronting issues of power in the market, as business

historians have done when they analyze why some firms or businessmen wield

greater market power than others, she assumes that power adheres primarily in

social categories and institutional structures. Power floats ambiguously on the

surface of business life, seeping from institutional structures and emanating

from unequal relationships between people and things. What kind of

power is at issue is unclear. Kwolek-Folland defines power as direct authority

and indirect influence, yet it is unclear how power and influence operate with

regard to women in business. Is it the power and control that derives from

ownership status, from position, from skill, from unique talents in a

competitive market? Is it the power that comes from having more money and using

it to buy more capital to invest? Is it the competitive power that comes from

being in a technologically cutting-edge industry

at the right time? Is it he power that is embedded in women’s networks and

political activities, in the battle for suffrage and property rights? Is it the

power that derives from impotence and image, from gender and race, as the case

of government policies suggest?

Some businesswomen, like Oprah Winfrey, clearly have power. The survey suggests

that Oprah’s power derives from ownership of Harpo Entertainment Group.

“Winfrey’s control over this conglomerate,” reports Kwolek-Folland,

“gave her the ability

– rare in the business world – to shape the concern according to her personal

vision.”(p.196).

Mere ownership does not necessarily give control nor does it create an ability

to control. Businesspeople who own assets must also be skilled enough and

willing and able to use power to exert the kind of control that is necessary in

order to make money in an a high-stakes, intensely competitive game. Business

historians will want to know more about how Oprah acquired control and secured

the assets necessary to build and grow Harpo Productions. Why and when did

she choose the conglomerate form? Was this organizational form particularly

suited to the entertainment business and Oprah’s managerial style? The ability

to shape business according to one’s own vision may well be important to some

women and men in business, but some visions are likely to be more effective

than others in generating and sustaining returns.

The survey suggests several reasons why power is important in business.

Power seems to be important because women don’t have enough of it relative to

men, or because men have more of it than women and use it to keep women from

getting it and because more businessmen seem ready to wield it than

businesswomen. Power is also important with respect to

the ability to control business and influence government policy and legal

outcomes.

Yet, power is notable by its absence from legislative debates over economic

rights, suffrage, property and citizenship, from debates about regulatory

policies regarding

small and big businesses. The survey suggests that more women battled for

economic rights than for suffrage, but given that the nineteenth century

suffrage campaign proved more effective than the campaigns for economic rights,

we need to know why. Feminists and other leaders of women’s organizations put

in only brief appearances in the book,

and when they do, the survey reduces the infighting among feminist leaders

regarding different strategies to common goals. Business historians will want

to know more

about business’ roles in coalition building strategies. Which businesses and

businesspeople allied with female protagonists or antagonists in these

struggles?

In the twentieth century women’s leaders appear to have garnered more

legislative victories de spite the persistence of traditional attitudes

regarding women’s roles. Why? Kwolek-Folland attributes the results to a

massive social revolution. Other scholars have suggested that business may well

have had a hand in the “conquest of cool” that fueled

a cultural counter-revolution.[4] What was business’ role in these 20th century

revolutions compared to its role in nineteenth century women’s rights

campaigns?

The problem and the opportunity with the survey and synthesis at this stage is

that historians of women and business have focused upon a different set of

differences. Whereas business historians have studied the differences that

emanate from the structure, behavior, conduct and performance of businesspeople

and firms, historians of women have stressed the agency of individuals and

groups and the politics of liberation. Business historians have investigated a

different power dynamic, one associated with price and product competition,

with cost-saving technologies, and with decision-making strategies instead of

that associated with meaning and understanding.

Business historians have concerned themselves primarily with market power,

with the ability of firms to dominate industries and throw their weight around

without being held publicly accountable. They have studied regulatory

patterns to determine the extent to which government policies,

such as anti-trust, have clipped or augmented the market power of particular

firms in particular industries.

Kwolek-Folland expects other approaches and perspectives to increase the

scholarly returns from efforts to understand women and business. She

underscores how the American business system came to be built upon the notion

of difference while simultaneously revealing the dangers of arguments based on

difference. Beliefs about women’s differences from men in the late-nineteenth

century opened some doors for some women but closed others and barred women’s

continuous advance in the business world. Arguments on the basis of gender

differences kept women outsiders in the business world even as women made a

place for themselves in the businessworld.

Just as a business system built on gender difference is likely to crumble when

difference is no longer valued, so too is a synthesis built upon difference

likely

to unravel as women and men occupy the same historical stage. Kwolek-Folland’s

survey necessarily homogenizes women in order to emphasize the differences

between their experiences and those of men, in terms of business opportunities,

ownership and managerial rights, and access to credit, among other things.

Just how different those experiences were in fact remains to be determined by

more systematic comparison of their roles and activities with respect to a

variety of sectors and industries. Business historians are likely to see more

of the differences between iron-manufacturer Rebecca Lukens and prostitute

Sarah Bowman and more similarities between Rebecca Lukens and her male

competitor in Delaware.

Nevertheless,

only by constructing numerous bridges with a variety of tools are we likely to

understand precisely what difference men and women and business institutions

have made to the growth and development of various economic sectors over time.

If we are to turn problems of difference into exciting new

research opportunities, I caution against traveling alone down a separate but

equal road. Women and men in business have interacted throughout history inside

and outside of markets and firms, as family members, as marriage and business

partners, and as competitors, in different industries over time.

They have suffered asymmetries of power and inequities of income. Their

occupations as businesspeople have been jointly shaped by a structure of sexual

inequality. But they have both been engaged in a joint

enterprise that has as its ultimate objective, the generation of a higher

standard of living for everyone. Regardless of gender, race, ethnicity or

class,

business is still business and only survives in the long run if it generates

some income above its

costs. As a market-oriented activity and institution,

the study of business forces a focus on the interaction between men and women,

on the interconnections between families and firms, on the transgressing of

private and public boundaries. Bringing women into business raises new

questions about how business institutions deal with ideas of “masculinity” and

“femininity” and about how women deal with and view the business world. [5]

Kwolek-Folland has done more than grasp the possibilities. She has constructed

one bridge over troubled waters. It is up to others to undertake the

painstaking empirical research needed to build additional bridges. Only then

are women likely to undergo the transformation from workers in business to

businesspeople with different personalities, skills, competitive and

organizational abilities, business experiences, and institutional means of

support.

Mary Yeager Associate Professor of History Bunche Hall UCLA 405 Hilgard Avenue

Los Angeles, CA 90095-1473 310-273-6328 (h)

310

-825-3489 (0)

END NOTES

[1] For an illuminating discussion of the pros and cons of synthesis, see Eric

Monkonnen, “The Dangers of Synthesis,” in Notes and Comment, American

Historical Review, vol. 91, no.5 (December, 1986), 1146-1157.

[2] Zora Putn am Wilkins, Letters of a Business Woman to Her Daughter and

Letters of a Business Girl to Her Mother (Boston: Marshall Jones Company,

1923), p.4, and Edith Mae Cummings, Pots, Pans and Millions: A Study of

Woman’s Right to Be in Business, Her Proclivities and Capacity for Success

(National School of Business Science for Women: Washington, D.C.,

1929), p.100.

[3] The Compact Edition of the Oxford English Dictionary(New York:

Oxford University Press, 1971), r.v. “responsibility,” p. 2514.

[4] Thom as Frank, The Conquest of Cool: Business Culture, Counterculture,

And the Rise of Hip Consumerism (Chicago and London: University of Chicago

Press, 1997).

[5] See Mary A. Yeager, “General Introduction,” Vol. I, Women in

Business, 3 vols., The International Library of Critical Writings in

Business History (Aldershot, UK and Brookfield, US: Elgar Reference

Collection, forthcoming March 1999).

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

The Great Wave: Price Revolutions and the Rhythm of History

Author(s):Fischer, David Hackett
Reviewer(s):Munro, John H.

Published by EH.NET (February 1999)

David Hackett Fischer, The Great Wave: Price Revolutions and the Rhythm of

History. Oxford and New York: Oxford University Press, 1996. xvi + 536.

$35 (hardcover), ISBN: 019505377X. $16.95 (paperback), ISBN: 019512121X.

Reviewed for EH.NET by John H. Munro, Department of Economics, University of

Toronto.

Let me begin on a positive note. This is indeed a most impressive work: a

vigorous, sweeping, grandiose, and contentious, though highly entertaining,

portrayal of European and North American economic history, from the High Middle

Ages to the present, viewed through the lens of “long-wave” secular price-

trends. Indeed its chief value may well lie in the controversies that it is

bound to provoke, particularly from economists, to inspire new avenues of

research in economic history

, especially in price history. The author contends that, over the past eight

centuries, the European economy has experienced four major “price-

revolutions,” whose inflationary forces ultimately became economically and

socially destructive, with adverse consequences that provoked various complex

reactions whose “resolutions” in turn led to more harmonious, prosperous, and

“equitable” economic and social conditions during intervening eras of “price

equilibria”. These four price-revolutions are rather too neatly set out as the

following: (1) the later- medieval, from c.1180-c.1350; (2) the far better

known 16th-Century Price-Revolution, atypically dated from c.1470 to c.1650,

(3) the inflation of the Industrial Revolution era, from c.1730 to 1815; and

(4) the 20th century price-revolution, conveniently dated from 1896 to 1996

(when he published the book).

Though I am probably more sympathetic

to the historical concept of

“long-waves” than the majority of economists, I do agree with many opponents of

this concept that such long-waves are exceptionally difficult to define and

explain in any mathematically convincing models, which are certainly not

supplied here. For reasons to be explored in the course of this review, I

cannot accept his depictions, analysis

, and explanations for any of them. This will not surprise Prof. Fischer, who

is evidently not an admirer of the economics profession. He is particularly

hostile to those of us deemed to be “monetarists,” evidently used as a

pejorative term. After rejecting not only the “monetarist” but also the

“Malthusian,

neo-Classical, agrarian, environmental, and historicist” models, for their

perceived deficiencies in explaining inflations, and after condemning

economists and historians alike for imposing rigid models in attempting to

unravel the mysteries of European and North American economic history,

Fischer himself imposes an exceptionally rigid and untenable model for all four

of his so-called price-revolutions, containing in fact selected Malthusian and

monetarist elements from these supposedly rejected models.

In essence, the Fischer model contends that all of his four long-wave

inflations manifested the following six-part consecutive chain of causal and

consequential factors, inducing new causes, etc., into the next part of the

chain. First, each inflationary long-wave began with a prosperity created from

the preceding era of price-equilibrium, one promoting a population growth that

inevitably led to an expansion in aggregate demand that in turn outstripped

aggregate supply, thus — according to his model

– causing virtually ALL prices to rise. Evidently his model presupposes that

all sectors of the economy, in all historical periods under examination, came

to suffer from Malthusian-Ricardian diminishing

returns and rising marginal costs, etc. Second, in each and every such era,

after some indefinite lapse of time, and after the general population had

become convinced that rising prices constituted a persistent and genuine trend,

the “people” demanded and

received from their governments an increase in the money supply to

“accommodate” the price rises. As Fischer specifically comments on p. 83: “in

every price-revolution, one finds evidence of frantic efforts to expand the

money supply, after people have discovered that prices are rising in a secular

way.” Third, and invariably, in his view, that subsequent and continuous growth

in the money supply served only to fuel and thus aggravate the already existing

inflation. He never explains, however, for any of

the four long-waves, why those increases in money stocks were always in excess

of the amount required “to accommodate inflation”. Fourth, with such

money-stock increases, the now accelerating inflation ultimately produced a

steadily worsening impoverishment of the masses, aggravated malnutrition,

generally deteriorating biological conditions, and a breakdown of family

structures and the social order, with increasing incidences of crime and social

violence: i.e., with a rise in consumer prices that outstripped generally

sticky wages in each and every era, and with a general transfer of wealth from

the poorer to richer strata of society. Fifth, ultimately all these negative

forces produced economic and social crises that finally brought the

inflationary forces to a halt,

producing a fall in population and thus (by his model) in prices, declines that

subsequently led to a new era of “price-equilibrium,” along with concomitant

re-transfers of wealth and income from the richer to the poorer strata of

society

(where such wealth presumably belonged). Sixth, after some period of economic

prosperity and social harmony, this vicious cycle would recommence, i.e., when

these favorable conditions succeeded in promoting a new round of incessant

population growth, which inevitably sparked those same inflationary forces to

produce yet another era of price-revolution, continuing until it too had run

its course.

While many economic historians, using more structured Malthusian-Ricardian type

models, have also provided a similarly bleak portrayal of

demographically-related upswings and downswings of the European economy,

most have argued that this bleak cycle was broken with the economic forces of

the modern Industrial Revolution era. Fischer evidently does not. Are we the

reforecondemned, according to his view, to suffer these never-ending bleak

cycles– economic history according to the Myth of Sisyphus, as it were?

Perhaps not, if government leaders were to listen to the various nostrums set

forth in the final chapter,

political recommendations on which I do not feel qualified to comment.

Having engaged in considerable research, over the past 35 years, on European

monetary, price, and wage histories from the 13th to 19th centuries, I am,

however, rather more qualified

to comment on Fischer’s four supposed long-waves. Out of respect for the

author’s prodigious labors in producing this magnum opus, one that is bound to

have a major impact on the historical profession, especially in covering such a

vast temporal and spatial range, I feel duty-bound to provide detailed

criticisms of his analyses of these secular price trends, with as much

statistical evidence as I can readily muster. Problematic in each is defining

their time span,

i.e., the onset and termination of inflations. If many medievalists may concur

that his first long- wave did begin in the 1180s, few would now agree that it

ended as late as the Black Death of 1348-50. On the contrary,

the preceding quarter-century (1324-49) was one of very severe deflation,

certainly in both Tuscany (Herlihy 1966) and England. In the latter, the

Phelps Brown and Hopkins “basket of consumables” price index (1451-75 =

100) fell 47%: from 165 in 1323 (having been as high as 216 in 1316, with the

Great Famine) to just 88 in 1346. Conversely, while most early-modern

historians would agree that the 16th-Century Price Revolution generally ended

in the 1650s (certainly in England), few if any would date its commencement so

early as the 1470s. To be sure, in both the Low Countries and England, a

combination of coinage debasements, civil wars, bad harvests, and other

supply-shocks did produce a short-term rise in prices from the later 1470s to

the early 1490s; but thereafter their basket-of-consumables price-indices

resumed their deflationary downward trend for another three decades (Munro

1981, 1983). In both of these regions and in Spain as well (Hamilton 1934), the

sustained rise in the general price level, lasting over a century, did not

commence until c.1520.

For Fischer’s third inflationary long-wave, of the Industrial Revolution era,

his periodization is much less contentious, though one might mark its

commencement in the late 1740s rather than the early 1730s.

The last and most recent wave is, however, by far more the most controversial

in its character. Certainly a long upswing in world prices did begin in 1896,

and lasted until the 1920s; but can we really pretend that this so neatly

defined century of 1896 to 1996 truly encompasses any form of long wave when we

consider the behavior of prices from the 1920s?

Are we to pretend that the horrendous deflation of the ensuing Great Depression

era was just a temporary if unusual aberration that deviated from this

particular century long (saeclum) secular tend? Fischer, in fact,

very

rarely ever discusses deflation, ignoring those of the 14th century and most

of the rest. Instead, he views the three periods intervening between his price-

revolutions as much more harmonious eras of price-equilibria: i.e. 1350-1470;

1650 – 1730; 1820 –

1896; and he suggests that we are now entering a fourth such era. In my own

investigations of price and monetary history from the 12th century, prices rise

and fall,

with varying degrees of amplitude; but they rarely if ever remain stable,

“in equilibrium”.

Certainly “equilibrium” is not a word that I would apply to the first of these

eras, from 1350 to 1470: not with the previously noted, very stark deflation of

c.1325 – 48, followed by an equally drastic inflation that ensued from the

Black Death over

the next three decades, well documented for England, Flanders (Munro 1983,

1984), France, Tuscany (Herlihy 1966),

and Aragon-Navarre (Hamilton 1936). Thus, in England, the mean quinquennial PB

& H index rose 64%: from 88 in 1340-44 to 145 in 1370-74, fal ling sharply

thereafter, by 29%, to 103 in 1405-09; after subsequent oscillations, it fell

even further to a final nadir of 87 in 1475-79 (when,

according to Fischer, the next price-revolution was now under way). For

Flanders, a similarly constructed price index of quinquennial means

(1450-74 = 100: Munro 1984), commencing only in 1350, thereafter rose 170%:

from 59 in 1350-4 to 126 in 1380-84, reflecting an inflation aggravated by

coinage debasements that England had not experienced, indeed none at all since

1351. Thereafter, the Flemish price index plunged 32%, reaching a temporary

nadir of 88 in 1400-04; but after a series of often severe price oscillations,

aggravated by warfare and more coin debasements, it rose to a peak of 138 in

1435-9; subsequent ly it fell another 31%, reaching its 15th century nadir of

95 in 1465-9 (before rising and then falling again, as noted earlier).

Implicit in these observations is the quite pertinent criticism that Fischer

has failed to use, or use properly, these and many other price

indices–especially the well-constructed Vander Wee index (1975), for the

Antwerp region, from 1400 to 1700, so important in his study; and the Rousseaux

and Gayer-Rostow-Schwarz indices for the 19th century (Mitchell &

Deane 1962). On the other hand, he has relied far too much on the dangerously

faulty d’Avenel price index (1894-1926) for medieval and early-modern France.

Space limitations, and presumably the reader’s patience, prevent me from

engaging in similar analyses of price trends

over the ensuing centuries, to indicate further disagreements with Fischer’s

analyses, except to note one more quarter-century of deflation during a

supposed era of price equilibrium: that of the so-called Great Depression era

of 1873 to 1896, at least within England, when the PB&H price index fell from

1437 to 947, a decline of 34% that was unmatched, for quarter-century periods

in English economic history, since the two stark deflations of the second and

fourth quarters of the 14th century. (The Rousseaux index fell from 42.5% from

127 in 1873 to 73 in 1893).

My criticisms of Fischer’s temporal depictions of both inflationary long-waves

and intervening eras of supposed price equilibria are central to my objections

to his anti-monetarist explanations for them, or rather to his

misrepresentation of the monetarist case, a viewpoint he admittedly shares with

a great number of other historians, especially those who have found

Malthusian-Ricardian type models to be more seductively plausible explanations

of

inflation. Certainly, too many of my students, in reading the economic history

literature on Europe before the Industrial Revolution era, share that beguiling

view, turning a deaf ear to the following arguments: namely, that (1) a growth

in population cannot by itself,

without complementary monetary factors, cause a rise in all prices, though

certainly it often did lead to a rise in the relative prices of grain,

timber, and other natural-resource based commodities subject to diminishing

return and supply

inelasticities; and thus (2) that these simplistic demographic models involve

a fatal confusion between a change in the relative prices of individual

commodities and a rise in the overall price-level. Some clever students have

challenged that admonition,

however,

with graphs that seek to demonstrate, with intersecting sets of aggregate

demand and supply curves, that a rise in population is sufficient to explain

inflation. My response is the following. First, all of the historical prices

with which Fischer and my students are dealing

(1180-1750) are in terms of silver-based moneys-of-account, in the traditional

pounds, shillings, and pence, tied to the region’s currently circulating silver

penny, or similar such coin, while prices expressed in terms of the gold-based

Florentine florin behaved quite differently over the long periods of time

covered in this study. Indeed we should expect such a difference in price

behavior with a change in the bimetallic ratio from about 10:1 in 1400 to about

16:1 in 1650,

which obviously reflects the fall in the relative value or purchasing power of

silver — an issue virtually ignored in Fischer’s book. Second, the shift, in

this student graph, from the conjunction of the Aggregate Demand and Supply

schedules,

from P1.Q1

and P2.Q2, requires a compensatory monetary expansion in order to achieve the

transaction values indicated for the two price levels: from 17,220,000 pounds

and 122,960,000 pounds, which increase in the volume of payments had to come

from either increased

money stocks and/or flows. Even if changes in demographic and other real

variables, shared responsibility for inflation by inducing changes in those

monetary variables, we are not permitted to ignore those variables in

explaining historical inflations.

Admittedly, from the 12th to the 18th centuries, to the modern Industrial

Revolution era, correlations between demographic and price movements are often

apparent. But why do so few historians consider the alternative proposition

that much more profound, deeper economic forces might have induced a complex

combination of general economic growth, monetary expansion, and a rise in

population, together (so that such apparent statistical relationships would

have adverse Durbin-Watson statistics to indicate significant serial

correlation)? Furthermore, if population growth is the inevitable root cause of

inflation, and population decline the purported cause of deflation, how do such

models explain why the drastic depopulations of the 14th-century Black Death

were

followed by three decades of severe inflation in most of western Europe?

Conversely, why did late 19th-century England experience the above-noted

deflation while its population grew from 23.41 million in 1873 (PB&H at 1437)

to 30.80 million in 1896 (PB&H

at 947)?

Nor is Fischer correct in asserting that, in each and every one of his four

price-revolutions, an increase in money supplies followed rather than preceded

or accompanied the rises in the price-level. For an individual country or

region, however

, one might argue that a rise in its own price level, as a consequence of a

transmitted rise in world or at least continental prices would have quickly —

and not after the long-time lags projected in Fischer’s analysis — produced an

increase in money supplies to satisfy the economic requirements for that rise

in national/regional prices. Fischer, however, fails to offer any theoretical

analysis of this phenomenon, and makes no reference to any of the well-known

publications on the Monetary Approach to the Balance of Payments [by Frenkel

and Johnson (1976), McCloskey and Zecher (1976), Dick and Floyd (1985, 1992);

Flynn (1978) and D. Fisher (1989), for the Price Revolution era itself]. In

essence,

and with some necessary repetition, this thesis contends:

(1) that a rise in world price levels, initially arising from increases in

world monetary stocks, is transmitted to most countries through the mechanisms

of international commerce (in commodities, services, labor) and finance

(capital flows); and (2) that monetized metallic (coin) stocks and other

elements constituting M1 will be endogenously distributed among all countries

and/or regions in order to accommodate the consequent rise in the domestic

price levels, (3) without involving those international bullion flows that the

famous Hume “price- specie flow” mechanism postulates to be the consequences of

inflation-induced changes in national trade balances.

In any event, the historical evidence clearly demonstrates that, for each of

Fischer’s European-based price-revolutions, an increase in European monetary

stocks and flows always preceded the inflations. For the first,

the price-revolution of the “long-13th century” (c.1180-c.1325), Ian Blanchard

(1996) has recently demonstrated that within England its elf,

specifically in Cumberland-Northumberland, a very major silver mining boom had

commenced much earlier, c.1135-7, peaking in the 1170s, with annual silver

outputs that were “ten times more than had been produced in the whole of

Europe” for any year in

the past seven centuries. By the 1170s,

and thus still before evident signs of general inflation or a marked

demographic upswing, an even greater silver mining boom had begun in the Harz

Mountains region of Saxony, which continued to pour out vast quantities of

silver until the early 14th century. For this same

“Commercial Revolution” era, we must also consider the accompanying financial

revolution, also evident by the 1180s, in Genoa and Lombardy; and though one

may debate the impact that their deposit-

and-transfer banking and foreign-exchange banking had upon aggregate European

money supplies,

these institutional innovations undoubtedly did at least increase the volume of

monetary flows, and near the beginning, not the middle, of this first

documented

long-wave.

For the far better known 16th-Century Price Revolution, Fischer seems to pose a

much greater threat to traditional monetary explanations, especially in so

quixotically dating its commencement in the 1470s, rather than in the 1520s.

Certainly Fischer and many other critics are on solid grounds in challenging

what had been, from the time of Jean Bodin (1566-78) to Earl Hamilton

(1928-35), the traditional monetary explanation for the origins of the Price

Revolution: namely, the influx of Spanish

American treasure. But not until after European inflation was well underway,

not until the mid-1530s, were any significant amounts of gold or silver being

imported

(via Seville); and no truly large imports of silver are recorded before the

early 1560s (a

mean of 83,374 kg in 1561-55: TePaske 1983), when the mercury amalgamation

process was just beginning to effect a revolution in Spanish-American mining.

Those undisputed facts, however, in no way undermine the so-called

“monetarist” case; for Fischer, and far too many other economic historians,

have ignored the multitude of other monetary forces in play since the 1460s.

The first and least important factor was the Portuguese export of gold from

West Africa (Sao Jorge) beginning as a trickle in the 1460s;

rising to 170 kg per annum by 1480, and peaking at 680 kg p.a. in the late

1490s (Wilks 1993). Far more important was the Central European silver mining

boom, which began in the 1460s, at the very nadir of the West European

deflation, which had thus raised the purchasing power of silver and so

increased the profit incentive to seek out new silver sources: as a

technological revolution in both mechanical and chemical engineering.

According to John Nef (1941, 1952), when this German-based mining boom reached

its peak in the mid 1530s, it had augmented Europe’s silver outputs more than

five-fold, with an annual production that ranged from a minimum of 84,200 kg

fine silver to a maximum of 91,200 kg — and thus well in excess of any amounts

pouring into Seville before the mid-1560s. My own statistical compilations,

limited to just the major mines, indicate a rise in quinquennial mean

fine-silver outputs from 12,356 kg in 1470-74 to 55,025 kg in 1534-39 (Munro

1991). In England, 25-year mean mint outputs rose

from 18,932 kg silver in 1400-24 to 33,655 kg in 1475-99 to 59,090 kg in

1500-24; and then to 305,288 kg in 1550-74 (i.e., after Henry VIII’s

“Great Debasement”); in the southern Low Countries, those means go from 54,444

kg in 1450-74 to 280,958 kg in 15 50-74 (Challis 1992; Munro 1983,

1991).

In my view, however, equally important and probably even more important was the

financial revolution that had begun in or by the 1520s with legal sanctions for

and then legislation on full negotiability, and the contemporary establishment

of effective secondary markets (especially the Antwerp Bourse) in fully

negotiable bills and rentes, i.e., heritable government annuities; and the

latter owed their universal and growing popularity, compared with other forms

of public debt, to papal bulls (1425,

1455) that had exonerated them from any taint of usury. To give just one

example of a veritable explosion in this form of public credit (which thus

reduced the relative demand for gold and silver coins), an issue that Fischer

almost completely ignores: the annual volume of transactions in Spanish

heritable juros rose from 5 million ducats (of 375 maravedis) in 1515 to 83

million ducats in the 1590s (Vander Wee 1977). Thus we need not call upon

Spanish-American bullion imp orts to explain the monetary origins of the

European Price Revolution, though their importance in aggravating and

accelerating the extent of inflation from the 1550s need hardly be questioned,

especially, as Frank Spooner (1972) has so aptly demonstrated,

even anticipated arrivals of Spanish treasure fleets would induce German and

Genoese bankers to expand credit issues by some multiples of the perceived

bullion values. Fischer, by the way, comments (p. 82) that: “the largest

proportionate increases in Spanish prices occurred during the first half of

the sixteenth century — not the second half, when American treasure had its

greatest impact.” This is simply untrue: from 1500-49, the Spanish composite

price index rose 78.5%; from 1550-99, it rose by another 92.1% (Hamilton

1934).

Changes in money stocks or other monetary variables do not, however,

provide the complete explanation for the actual extent of inflation in this or

in any other era. Even if every inflationary price trend that I have

investigate d, from the 12th to 20th centuries, has been preceded or

accompanied by some form of monetary expansion, in none was the degree of

inflation directly proportional to the observed rate of monetary expansion,

with the possible exception of the post World War I hyperinflations.

Consider this proposition in terms of the oft-maligned, conceptually limited,

but still heuristically useful monetary equation MV = Py [in which real y = Y/P

= C + I + G+ (X-M)]; or, better, in terms of the Cambridge “real cash

balances” approach: M = kPy [in which k = the proportion of real NNI (Py) that

the public chooses to hold in real cash balances, reflecting the constituent

elements of Keynesian liquidity preference]. Some Keynesian economists would

contend that an increase in M, or in the rate of growth of money stocks, would

be accompanied by some

offsetting rise in y (i.e. real NNI), whether exogenously created or

endogenously induced by related forces of monetary expansion, and also by some

decline in the income velocity of money, with a reduced need to economize on

the use of money. Since mathematically V = 1/k, they would similarly posit

that an expansion in M,

or its rate of growth, would have led, ceteris paribus — without any change in

liquidity preference, to a fall

in (nominal) interest rates, and thus, by the consequent reduction in the

opportunity costs of holding cash balances, to the necessarily corresponding

rise in k (i.e., an increase in the demand for real cash balances; see Keynes

1936, pp. 306-07). Sometimes, but only very rarely, have changes in these two

latter variables y and V (1/k) fully offset an increase in M; and thus such

increases in money stocks have also resulted, in most historical instances, in

some non-proportional degree of inflation: a rising P, as measured by some

suitable price index, such as the Phelps Brown and Hopkins

basket-of-consumables. [Other economists,

it must be noted, would contend that, in any event, the traditional Keynesian

model is really not applicable to such long-term

phenomena as Fischer’s price-revolutions.

Keynes himself, in considering “how changes in the quantity of money affect

prices… in the long run,” said, in the General Theory (1936, p. 306):

“This is a question for historical generalisation rather than for

pure theory.”]

For the 16th-century Price Revolution, therefore, the interesting question now

becomes: not why did it occur so early (i.e., before significant influxes of

Spanish American bullion); but rather why so late — so many decades after the

onset of the Central European silver-copper mining boom?

Since that boom had commenced in the 1460s, precisely when late-medieval

Europe’s population was at its nadir, perhaps 50% below the 1300 peak, and just

after the Hundred Years’ War had ended, and just

after the complex network of overland continental trade routes between Italy

and NW Europe had been successfully restored, one might contend that in such an

economy with so much “slack” in under-utilized resources, especially land, and

with elastic supplies for so many commodities, both the monetary expansion and

economic recovery of the later 15th century , preceding any dramatic

demographic recovery, permitted an increase in y proportional to the growth of

M, without the onset of diminishing returns an d without significant inflation,

before the 1520s By that decade, however, the monetary expansion had become

all the more powerful: with the peak of the Central European silver-mining

boom and with the rapid increase in the use of negotiable, transferable

credit instruments; and, furthermore, with the Ottoman conquest of the Mamluk

Sultanate (1517), which evidently diverted some considerable amounts of

Venetian silver exports from the Levant to the Antwerp market.

The role of the income-velocity of money

is far more problematic. According to Keynesian expectations, velocity should

have fallen with such increases in money stocks. Yet three eminent economic

historians — Harry Miskimin

(1975), Jack Goldstone (1984), and Peter Lindert (1985) — have sought

to explain England’s16th-century Price Revolution by a very contrary thesis:

of increased money flows (or reductions in k) that were induced by demographic

and structural economic changes, involving interalia(according to their

various models) disproportionate changes in urbanization, greater

commercialization of the rural sectors, far more complex commercial and

financial networks, changes in dependency ratios, etc. The specific

circumstances so portrayed, however, apart from the demographic, are largely

peculiar to 16th- century England and thus do not so convincingly explain the

very similar patterns of inflation in the 16th-century Low Countries, which had

undergone most of these structural economic changes far earlier. Certainly

these velocity model s cannot logically be applied to Fischer’s three other

inflationary long-waves. Indeed, in an article implicitly validating Keynesian

views, Nicholas Mayhew (1995) has contended that the income-velocity of money

has always fallen with an expansion in money stocks, from the medieval to

modern eras, with this one anomalous exception of the 16th-century Price

Revolution. Perhaps, for this one era,

we have misspecified V (or k) by misspecifiying M: i.e., by not properly

including increased issues of negotiable credit; or perhaps institutional

changes in credit (as Goldstone and Miskimin both suggest) did have as dramatic

an effect on V as on M. Furthermore, an equally radical change in the coined

money supply (certainly in England), from one that had been principally gold

to one which, precisely from the 1520s, became largely and then almost entirely

silver, may provide the solution to the velocity paradox: in that the

transactions velocity attached to small value silver coins, of 1d., is

obviously far higher

velocity than that for gold coins valued at 80d and 120d. Except for a brief

reference to Mayhew’s article in the lengthy bibliography, Fischer virtually

ignores such velocity issues

(and thus changes in the demand for real cash balances) throughout his

eight-century survey of secular price trends.

Finally, Fischer’s thesis that population growth was responsible for this the

most famous Price Revolution (and all other inflationary long waves) is hardly

credible, especially if he insists on dating its inception the 1470s. For most

economic historians (Vander Wee 1963; Blanchard 1970;

Hatcher 1977, 1986; Campbell 1981; Harvey 1993) contend that, in NW Europe,

late-medieval demographic decline continued into the early 16th-century;

and that England’s population in 1520 was no more than 2.25 million,

compared to estimates ranging from a minimum of 4.0 to a maximum of 6.0 or even

7.0 million around 1300, the upper bounds being favored by most historians. How

– even if the demographic model were to be theoretically acceptable — could

a modest population growth from such a very low level in the 1520s, reaching

perhaps 2.83 million in 1541, and peaking at 5.39 million in 1656, have been

the fundamental cause of persistent, European wide-inflation, already underway

in the 1520s?

According to Fischer, the ensuing, intervening price-equilibrium

(c.1650-c.1730) involved no discernible monetary contraction, and similarly,

his next inflationary long-wave (c.1730-1815) began well before any monetary

expansion became — in his view — manifestly evident. The monetary and price

data, suggest otherwise, however, incomplete though they may be. Thus, the data

complied by Bakewell, Cross, TePaske, and many others on silver mining at

Potosi (Peru) and Zacatecas (Mexico) indicate that their combined outputs fell

from a mean of 178,692 kg in 1636-40 to one of 101,534 kg in 1661-5, rising to

a mean of 156,497 kg in 1681-5

[partially corresponding to guesstimates of European bullion imports, which

Morineau (1985) extracted fr om Dutch gazettes]; but then sharply falling once

more, and even further, to a more meager mean of 95,842 kg in 1696-1700. During

this same era, the Viceroyalty of Peru’s domestically-

retained share of silver-based public revenues rose from 54% to 96%

(T ePaske 1981); the combined silver exports of the Dutch and English East

India Companies to Asia (Chaudhuri 1968; Gaastra 1983) increased from a

decennial mean of 17,293 kg in 1660-69 to 73,687 kg in 1700-09, while English

mint outputs in terms of fine sil ver (Challis 1992) fell from a mean of 19,400

kg in 1660-64 (but 23,781 kg in 1675-79) to one of just 430.4 kg in 1690-94,

i.e., preceding the Great Recoinage of 1696-98. From the early 18th century,

however, European silver exports to Asia were well more

than offset by a dramatic rise in Spanish-American, and especially Mexican

silver production: for the latter (with evidence from new or previously

unrecorded mines: assembled by Bakewell 1975, 1984; Garner 1980,

1987; Coatsworth 1986, and others), aggregate production more than doubled

from a mean of 129,878 kg in 1700-04 to one of 305,861 kg in 1745-49.

Possibly even more important, especially with England’s currency shift from a

silver to a gold standard, was a veritable explosion in aggregate

Latin-American gold production: from a decennial mean of just 863.90 kg in

1691-1700

zooming to 16,917.4 kg in 1741-50 (TePaske 1998). Within Europe itself, as

Blanchard (1989) has demonstrated, Russian silver mining outputs, ultimately

responsible for perhaps 7%

of Europe’s total stocks,

rose from virtually nothing in the late 1720s to peak at 33,000 kg per annum in

the late 1770s, falling to 18,000 kg in the early 1790s then rising to 21,000

kg per year in the later 1790s.

Finally, even though changes in annual mint outputs are not valid indicators

of changes in coined money supplies, let alone of changes in M1,

the fifty-year means of aggregate values of English mint outputs (silver and

gold: Challis 1992) do provide interesting signals of longer-term monetary

changes: a fall from an annual mean of 348,829 pounds in 1596-1645 to one of

275,403 pounds in 1646-95, followed by a rise, with more than a full recovery,

to an annual mean of 369,644 pounds in 1700-49 (thus excluding the Great

Recoinage of 1696-98). Meanwhile, if the earlier Price Revolution had indeed

peaked in 1645-49, with the quinquennial mean PB&H index at 680, falling to a

nadir of 579 in 1690-94, the fluctuations in the first half of the 18th-century

do not demonstrate any clear inflationary trend, with the mean PB&H index

(briefly peaking at 635 in 1725-9) stalled at virtually the same former level,

581, in 1745-49. Thereafter, of course,

for the second half of the 18th century, the trend is very strongly and

incessantly upward, with almost a

doubling in PB&H index, to 1093 in 1795-9.

Whatever one may wish to deduce from all these diverse data sets, we are

certainly not permitted to conclude, as does Fischer, that inflation preceded

monetary expansion, and did so consistently. Such a view becomes all the more

untenable when the radical changes in English and banking and credit

institutions, following the establishment of the Bank of England in 1694-97,

are taken into account: the consequent introduction and rapid expansion in

legal-tender paper bank note issues (with prior informal issues by London’s

Goldsmith banks), and more especially fully negotiable,

transferable, and discountable Exchequer bills, government annuities,

inland bills and promissory notes, whose veritable explosion in circulation

from the 1760s, with the proliferation of English country-banks, hardly

requires any further elaboration, even if these issues are given short shrift

in Fischer’s book. In view of such complex changes in Britain’s financial and

monetary structures,

subsequent data on coinage outputs have even more limited utility in

estimating money stocks. But we may note that aggregate mined outputs of

Mexican silver more than doubled, from a quinquennial mean of 305,861 kg in

1745-49 to 619,495 kg in 1795-99, while those of Peru more than tripled, from

34,318 kg in 1735-39 (no data for the 1740s) to 126,354 kg in 1795-99 (Garner

1980, 1987; Bakewell 1975, 1984; J.

Fisher, 1975).

Having earlier considered the so-called and misconstrued

“price-equilibrium” of 182 0-1896, let us now finally examine the inception of

the fourth and final long-wave commencing in 1896. Fischer again contends that

population growth was the “prime mover,” despite the fact that Britain’s own

intrinsic growth rate had been falling from its

1821 peak [from 1.75 to 1.31 in 1865, the last year given in Wrigley-Davies-

Oppen-Schofield (1997)]. For evidence he cites an assertion in Colin McEvedy

and Richard Jones, Atlas of World Population History (1978) to the effect that

world population, having increased by 35% from 1850 to 1900,

increased a further 53% by 1950. Are we therefore to believe that such growth

was itself responsible for a 45.2% rise in, for this era, the better structured

Rousseaux price-index [base 100 = (1865cp +1885cp)/2]: from 73 in 1896 to 106

[while the PB&H index rose from 947 in 1896 to 1021 in 1913]?

As for the role of monetary factors in the commencement of this fourth long

wave, Fischer observes (p. 184) that “the rate of growth in gold production

throughout the world was roughly the same before and after 1896.” This

undocumented assertion, about an international economy whose commerce and

finance was now based upon the gold standard, is not quite accurate.

According to assiduously calculated estimates in Eichengreen

and McLean

(1994), decennial mean world gold outputs, having fallen from 185,900 kg in

1850-9 to 135,000 kg in 1880-9 (largely accompanying the aforementioned 44%

fall in the Rousseaux composite index from 128 in 1872 to 72 in 1895),

thereafter soared to

a mean of 255,600 kg in 1890-9 — their graph of annualized data shows that

the bulk of this increased output occurred after 1896 — virtually doubling to

an annual mean of 513,900 kg in 1900-14.

World War I, of course, effectively ended the international gold-standard era,

since the Gold- Exchange Standard of 1925-6 was rather different from the older

system; and the post-war era ushered in a radically new monetary world of fiat

paper currencies, whose initial horrendous manifestation came in the hyper

inflations of Weimar Germany, Russia, and most Central European countries, in

the early 1920s. For this post-war economy, Fischer does admit that monetary

factors often had some considerable importance in influencing price trends; but

his analyses, even of the post-war radical, paper-fuelled hyperinflations, are

not likely to satisfy most economists, either for the inter-war or Post World

War II eras, up to the present day.

This review, long as it is, cannot possibly do full justice to an eight-century

study of this scope and magnitude. So far I have neglected to consider his

often fascinating analyses of the social consequences of inflation over these

many centuries, except for brief allusions in the introduction, where I

indicated his deeply hostile views to persistent inflation for its inevitably

insidious consequences: the impoverishment of the masses, growing malnutrition,

the spread of killer-diseases, increased crime and violence in general, and a

breakdown of the social order, etc.

While some of

the evidence for the latter seems plausible, I do have some concluding quarrels

with his use of real wage indices. Much of our available nominal money-wage

evidence comes from institutional sources on daily wages, which, by their very

nature, tend to be fixed over long periods of time [as Adam Smith noted in the

Wealth of Nations (Cannan ed.

1937, p. 74), “sometimes for half a century together”). Therefore, for such

wage series, real wages rose and fell with the consumer price index, as

measured by, for example, our Phelps Brown and Hopkins basket-of-consumables

index. Its chief problem (as opposed to the better constructed Vander Wee

index for Brabant) is that its components, for long periods, constitute fixed

percentages of the total composite index,

irrespective of changes in relative prices for, say, grains; and they thus do

not reflect the consumers’ ability to make cost-saving substitutions.

Secondly, they are necessarily based on daily wage rates, without any

indication of total annual money incomes; thirdly, the great majority of

money-wage earners in pre-modern Europe earned not day rates but piece-work

wages, for which evidence is extremely scant.

But more important, before the 18th century (or even later), a majority of the

European population did not live by money wages; and most wage-earners had

supplementary forms of income, especially agricultural, that helped insulate

them to some degree from sharp rises in food prices. If rising food prices hurt

many wage-earners, they also benefited ma ny peasants,

especially those with customary tenures and fixed rentals who could thereby

capture some of the economic rent accruing on their lands with such price

increases. It may be simplistic to note that there are always gainers and

losers with both inflation and deflation — but even more simplistic to focus

only on the latter in times of inflation, and especially simplistic to focus on

a real wage index based on the PB&H index. And if deflation is so beneficial

for the masses, why, during the deflationary period in later 17th and early

18th century England, do we find, along with a rise in this real-wage index, a

rise in the death rate from 23.68/1000 in 1626 to 32.14/1000 in 1681,

thereafter falling slightly but rising again to an ultimate peak of

37.00/1000 in 1725 (admittedly an era of anomalous disease-related

mortalities), when the PB&H real-wage index stood at 60 —

some 24% higher than the RWI of 36 for 1626? One of the many imponderables yet

to be considered, though one might ponder that sometimes high real wages

reflect labor shortages from dire conditions, rather than general prosperity

and more equitable wealth and income distributions, as Fischer suggests.

Finally, Fischer’s argument that inflationary price-revolutions were always

especially harmful to the lower classes by leading to rising interest rates is

sometimes but not universally true, even if rational creditors should have

raised rates to protect themselves from inflation. Thus, for the Antwerp money

market in the 16th century,

the meticulous evidence compiled by Vander Wee (1964, 1977) shows that

nominal interest rates fell over this entire period [from 20% in 1515 to 9% in

1549 to 5% in 1561; and on the riskier short term loans to the Habsburg

government, from a mean of 19.5

% in 1506-10 to one of 12.3% in 1541-45 to 9.63% in 1561-55]. In the next

price-revolution, during the later 18th century, nominal interest rates did

rise during periods of costly warfare, i.e., with an increasing risk premium;

but real interest rates actually fell because of the increasing tempo of

inflation (Turner 1984), more so than did real wages for most industrial

workers.

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1984), pp. 31-122.

John Munro, “Bullion Flows and Monetary Contraction in Late-Medieval England

and the Low Countries,” in John F. Richards, ed., Precious Metals in the

Medieval and Early Modern Worlds (Durham, N.C., 1983), pp. 97-158.

John Munro, “The Central European Mining Boom, Mint Outputs, and Prices in the

Low Countries and England, 1450 – 1550,” in Eddy H.G. Van Cauwenberghe,

ed., Money, Coins, and Commerce: Essays in

the Monetary History of Asia and Europe (From Antiquity to Modern Times)

(Leuven: Leuven University Press,

1991), pp. 119-83.

John Nef, “Silver Production in Central Europe, 1450-1618,” Journal of

Political Economy, 49 (1941), 575-91.

John Nef, “Mining

and Metallurgy,” in M.M. Postan, ed., Cambridge Economic History, Vol. II:

Trade and Industry in the Middle Ages (Cambridge, 1952),

pp. 456-93. Reprinted without changes, in the 2nd revised edn. of The Cambridge

Economic History of Europe, Vol. II, edited by M.M. Postan and Edward Miller

(Cambridge, 1987), pp. 691-761.

E.H. Phelps Brown and Sheila V. Hopkins, “Seven Centuries of en Centuries of

the Prices of Consumables Compared with B Building Wages,” Economica, 22

(August 1955), and “Sevuilders” Wage-

Rates,” Economica, 23 (Nov. 1956),

reprinted E.H. Phelps Brown and Sheila V. Hopkins, A Perspective of Wages and

Prices (London, 1981), containing additional statistical appendices not

provided in the original publication.

Frank Spooner, The International Economy and Monetary Movements in France,

1493-1725 (Cambridge, Mass., 1972)

John TePaske, “New World Silver, Castile, and the Philippines, 1590-1800 A.D.,”

in John F. Richards, ed., Precious Metals in the Medieval and Early Modern

Worlds (Durham, N.C.

, 1983), pp. 424-446.

John TePaske, “New World Gold Production in Hemispheric and Global Perspective,

1492 – 1810,” in Clara Nunez, ed., Monetary History in Global Perspective, 1500

- 1808, Papers presented to Session B-6 of the Twelfth International Eco nomic

History Congress (Seville, 1998), pp. 21-32.

Michael Turner, Enclosures in Britain, 1750 – 1830, Studies in Economic History

Series (London, 1984).

Herman Vander Wee, Growth of the Antwerp Market and the European Economy,

14th to 16th Centuries,

3 Vols. (The Hague, 1963). Vol. I: Statistics; Vol.

II: Interpretation, 374-427; and Vol. III: Graphs.

Herman Vander Wee, “Monetary, Credit, and Banking Systems,” in E.E. Rich and

Charles Wilson, eds., The Cambridge Economic History of Europe, Vol. V:

T he Economic Organization of Early Modern Europe(Cambridge, 1977), chapter V,

pp. 290-393.

Herman Vander Wee, “Prijzen en lonen als ontwikkelingsvariabelen: Een

vergelijkend onderzoek tussen Engeland en de Zuidelijke Nederlanden,

1400-1700,” in Album aan geboden aan Charles Verlinden ter gelegenheid van zijn

dertig jaar professoraat (Gent, 1975), pp. 413-47; reissued in English

translation (without the tables) as “Prices and Wages as Development Variables:

A Comparison Between England and the Southern Net herlands,

1400-1700,” Acta Historiae Neerlandicae, 10 (1978), 58-78.

Ivor Wilks, “Wangara, Akan, and the Portuguese in the Fifteenth and Sixteenth

Centuries,” in Ivor Wilks, ed., Forests of Gold: Essays on the Akan and the

Kingdom of Asante (Athens, Ohio

, 1993), pp. 1-39.

E.A. Wrigley, R.S. Davies, J.E. Oeppen, and R.S. Schofield, English Population

History from Family Reconstitution, 1580- 1837 (Cambridge and New York:

Cambridge University Press, 1997).

Subject(s):Macroeconomics and Fluctuations
Geographic Area(s):General, International, or Comparative
Time Period(s):General or Comparative

The Indonesian Economy in the Nineteenth and Twentieth Centuries: A History of Missed Opportunities

Author(s):Booth, Anne
Reviewer(s):Touwen, Jeroen

EH-NET BOOK REVIEW

Published by EH.NET (October 1998)

Anne Booth, The Indonesian Economy in the Nineteenth and Twentieth

Centuries: A History of Missed Opportunities. Basingstoke: Macmillan

and New York: St. Martin’s Press, 1998. xvi + 377 pp. Includes

bibliographical references and index. $19.95 (paperback), ISBN

0-333-55310-1 (Macmillan). $79.95 (hardcover), ISBN 0-333-55309-8

(Macmillan) and 0-312-17749-6 (St. Martin’s Press)

Reviewed for EH-NET by Jeroen Touwen, Historical Institute, Leiden

University, The Netherlands.

BAD LUCK IN A VERY RESOURCEFUL ECONOMY

Which Lessons Can Indonesia Learn from its Past?

This is a volume in a new and ambitious series named A Modern Economic

History of Southeast Asia, edited by Anthony Reid, Anne Booth, Malcom

Falkus and Graeme Snooks, initiated by the Australian National University

in Canberra, and published by Macmillan. Of the eighteen volumes

planned (dealing either with themes or with countries), three have be

en published so far, of which this is one.

Professor Anne Booth of the School of Oriental and Asian Studies (SOAS) in

London has a long experience in the scholarship of the Indonesian economy.

She is known for her monograph Agricultural Development in Indonesia

(Sydney: Allen and Unwin, 1988) and for two influential edited volumes: A.

Booth, W.J. O’Malley and A. Weidemann (eds), Indonesian Economic History

in the Dutch Colonial Era, (New Haven: Yale Center for International Area

Studies, 1990), which is generally regarded as the first survey of modern

economic history of Indonesia), and A. Booth (ed.) The Oil Boom and After;

Indonesian Economic Policy and Performance in the Suharto Era

(Singapore: Oxford University Press, 1992). In addition, she ha

s published a long list of contributions in journals and edited volumes. In her

work,

she has consistently applied systematic quantitative macroeconomic

analysis in combination with a more qualitative evaluation of government

policy and growth theory. But what is also quite significant in her work

(including the present book under review) is her attention for a

combination of the colonial and the independent eras of Indonesian

history. Booth is one of the few historians who easily jumps back and

forth between these two periods, drawing parallels and making comparisons.

Thus, she is able to conceive a long-term view on economic development,

an approach which has often been ignored by economists and historians.

At first sight, the reader of The Indonesian Economy in the Nineteenth and

Twentieth Centuries is confronted with a provocative subtitle: A

History

of Missed Opportunities . To this subtitle a streak of irony is added by

the picture on the cover of the book: a photograph of the Indonesian

government aeroplane factory in Bandung. The Indonesian airplane industry

IPTN (Industri Pesawat Terbang Nasional), in which present-day president

Habibie played a leading role, has often been viewed as a symbol of

irresponsibly large expenditure on prestigious high-tech projects,

significant for the 1980s and 1990s Suharto-era. Does Booth criticize such

projects and imply that the Indonesian economy would have been better off

with investments in different sectors, or a different (more balanced)

economic policy? And which other opportunities have been missed by

Indonesia? Indonesia is one of the poorest countries of Southeast Asia and

has been lagging behind several of its neighbors for many decades. Only

during the recent period of export-oriented growth (ca. 1980-1997) did it

began receiving international praise for its economic performance – praise

that has melted away since the monetary crisis (and subsequent political

unrest) brought the Indonesian economy to a virtual stand-still and scared

off most foreign investors.

In the following, I will first review the contents of the book and outline

some of its characteristics. In conclusion, I will return to the question

of which opportunities were missed and how this affected Indonesian economic

development.

An extensive introduction (Chapter 1) describes the formation of an

‘Indonesian’ economy, highlights the current debates in the historiography,

and states the aims of the book, which consists of six chapters (excluding

the introduction and conclusion) dealing with thematic aspects of the

Indonesian economy.

Chapter 2 is called ‘Output Growth and Structural Change between

1820-1990′, and places the important political events in a chronological

survey of economic performance. This chapter has an essential function

in providing a chronological framework and evaluating the different

indicators and measurements of long-term economic development. Within

each sub-period, the trends in output growth are linked to changes in

domestic economic policies (reflecting changes in political priorities) and

to world market trends (p. 16). Particularly the phases of growth (p. 15,

85-87) should be mentioned here. In combining political events and

economic situation, Booth identifies the following 10 phases:

  • 1) 1830-1870 rapid export growth, slowing down after 1840
  • 2) 1870-1900 policy reforms but sluggish growth
  • 3) 1900-1930 ethical policy and export expansion
  • 4) 1930-1942 world depression leading to contraction of export volume
  • 5) 1942-1950 Japanese occupation and independence struggle (harming

    economic performance)

  • 6) 1950-1958 rehabilitation of the economy, output growth
  • 7) 1958-1966 declining per capita GDP, structural retrogression
  • 8) 1966-1973 economic recovery
  • 9) 1973-1981 the oil boom period
  • 10) 1981-1990 non-oil exports production leading to output growth

economic performance)

Chapter 3 is called ‘Living Standards and Distribution of Income’ and sets

out to investigate why the relative rapid growth of GDP, almost certainly

faster than population for much of the last two centuries, did not result

in broadly based improvement in living standards. Booth argues that,

in fact, we should examine the growth of the part of GDP that is devoted

to household consumption, after subtracting government expenditures

and expenditures on capital formation, of which the returns are not

shared by all classes of society. Of course, also foreign remittances

should be disregarded in this context. The chapter argues that ‘the

growing expenditure on both government consumption and capital

formation, together with the high level of remittances abroad, meant

that, for much of the colonial era, private consumption expenditures

grew less rapidly on average than GDP’. Booth continues: ‘But, in

addition, there is evidence that such growth as occurred in average

consumption expenditures did not benefit all classes of society

equally. There were gainers and losers, and the gainers were often

concentrated in particular ethnic groups and regional locations’ (p. 89).

This development is typical for both the colonial and the independent

period, and also forms an essential element of today’s problems in

Indonesia. To quote Booth again: ‘As in other colonial societies, economic

stratification along ethnic lines was pronounced in Indonesia in the early

twentieth century, and in spite of the egalitarian rhetoric of the

independence struggle, this stratification persisted in the post-1950

period. The growth which has occurred since the 1950s has in turn produced

new patterns of differentiation by ethnic group, social class and region’

(p. 89).

In Chapter 4, ‘Government and the Economy in Indonesia in the Nineteenth

and Twentieth Centuries’, the economic role of the government in Indonesia

is studied. Conforming to the central argument of the book (which can be

rephrased as: to develop a long-term view on economic development and

economic policy in Indonesia), it is argued that for a deeper understanding

of Indonesian economic performance, we must also develop a better

understanding of the domestic factors which promoted or inhibited economic

growth. The actions of the successive governments, in both the colonial

and the post-colonial periods, are crucial in such an understanding (p. 135).

Strangely, a different set of phases is applied in this chapter (p. 137),

distinguishing six phases in the role of government which almost, but not

completely, cover (combinations of) the ten phases of growth distinguished

in Chapter 2 (p. 85-87). Although the six phases make sense and clearly

order the main policy tendencies, some more explicit comment could have

been made on their coinciding or not coinciding with phases of economic

growth (linking the effects of government intervention to the world

economic situation). I must add that in the further elaboration on the

individual phases, the context of economic performance is of course

often included, since government policy is usually designed in reaction to

economic conditions.

It is emphasized that ‘colonial Indonesia, at least in the twentieth

century, was far more than just a nightwatchman state, concerned purely

with law and order and the collection of taxes’ (p. 155). There was a

lot of reform and general enthusiasm for modernization, as

characterized by the Ethical Policy but also by the large number of

projects that were constructed in the physical infrastructure. This is

reflected in the large share of government in GDP. It is remarkable that

in the early independent period, from 1950 to 1965, real growth in public

expenditure was much lower than in the first three decades of the twentieth

century. Increase of the share of public expenditure relative to GDP

occurred not earlier than the latter part of the 1970s (p. 201).

Chapter 5 is entitled ‘The Impact of International Trade’, and deals with

the (important) role of trade in the Indonesian economy, the terms of

trade, the changes in the trade regime (“Rise and decline of free trade

liberalism in the colonial era”), the regulated trade regime since 1950,

and the post-colonial experience in trade. On the whole, Booth’s view

on the “colonial drain” seems to be pessimistic. This is obvious from

her evaluation of the oil boom period (1973-1981), where Booth writes:

‘Certainly, there is plenty of evidence that government investment over the

oil boom years was far from optimal. But at least the rents were retained

in the domestic economy. Had budgetary policy been used for investment

in human and physical capital at earlier periods in Indonesia’s economic

history, per capita output and living standards could have gr

own faster than in fact was the case’ (p. 243).

Further elaborating on the record of investment in the colonial economy,

Chapter 6 treats ‘Investment and Technological Change’, while Chapter 7

focuses on ‘Markets and Entrepreneurs’. The latter chapter

deals with the indigenous sector of the colonial economy, the development of

the labor

market, and the economic role of the Chinese, but also evaluates the role

of socialism and government planning in the period 1950-1965, and the

role of the state and the market during the New Order. This chapter

particularly should attract the attention of economists who will plan the

economic course of Indonesia after 2000. These themes clearly connect with

the problems of present-day Indonesia, concerning the powerful

conglomerates and the ethnic division of affluence. Booth explicitly states

that the rise of powerful conglomerates who were able to exploit political

connections preceded the deregulation and liberalization if the economy

over the 1980s. The rise of these conglomerates was a symptom of the

limitations of the deregulation process and not, as is sometimes argued,

a consequence of this process (p. 322).

A text book for advanced learners and a challenging monograph

As a textbook, this study has an interpretative character. In each chapter,

individual data and events are treated in the context of the theme of the

chapter. For example, if I want to know something about the Sugar Law of

1870, the index refers to pages 30 and 253. On page 30, the S

ugar Law is mentioned in the context of structural change in the economy.

Together with

the so-called Agrarian Law, the Sugar Law signaled the demise of the

Cultivation System in Java, but some scholars have argued that this

legislation did not produce a dramatic change in Java’s economy (it did

not form a watershed), even though it had an impact on export growth over

the longer term. On page 253 the Sugar Law is mentioned in the context of

investment and technological change, since it allowed for private

investment in the sugar sector, permitting free contracts between sugar

refineries and peasant cultivators, which allowed the government to

withdraw from the sugar cultivation (because the high failure rate of sugar

companies had caused the government substantial losses). The Agrarian

Law, closely connected with the Sugar Law, is also mentioned on page

298 in the context of land shortage in Java. There is no introductory

explanation in a chronological context of what the Sugar Law and the

Agrarian Law actually stated or implied.

This example shows that the book is not so much a beginners’ textbook, but

rather an interpretative study based on an exhaustive survey of the recent

literature and extensive analysis of quantitative data. In an elegant andc

ompact style, Booth manages to inform the reader continuously of the

debates on issues mentioned, on the various views held in the

historiography, or the need for further exploration on some themes. Of

course, as a macro-economist, she relies heavily on the (rich) Dutch

colonial source data for the colonial period (since there are no other

quantitative data for the colonial period). But by studying the long-term

development of a first colonized, then independent country, she avoids

placing too much emphasis on the colonizer’s presence and manages to

analyze the economy as such, integrating the domestic or indigenous

economy and the internationally oriented ‘predatory’ economy, and

developing a fairly ‘autonomous’ (non-eurocentric) view.

One criticism that could be made is that the thematic, non-chronological

structure of the contents of this book may not be very helpful in a survey

that covers two centuries. The various chapters, in their dealing with

structural change, distribution of income, government policy, the role of

international trade, investment, and entrepreneurship, each attempt to

cover the entire period 1800-1990. An introductory scholar will

continuously feel the need to browse back and forth, in order to piece

together a complete picture of each historical sub-period. On the other

hand, one may argue, this organisational structure allows for reading

one chapter at a time and puts an explicit emphasis on the long-term

continuity within each aspect of Indonesian history. This is indeed one of the

aims of the book. For example, Booth states that she wants to

‘highlight the underlying continuities in policy-making and the

implications of these continuities for Indonesian economic

development in the longer term’ (p. 12). She also argues that ‘

there were, and continue to be, more similarities in the economic goals of the

Dutch colonialists and the Indonesian nationalists than has yet been

acknowledged. These similarities are due to the persistence of many

underlying problems’ (p. 12). Thus, a thematic organization of the

contents of the book forces the reader to observe chronological

continuities within each theme. This is indeed one of the strong

arguments of the book.

Applying a long-term perspective, Booth distinguishes clearly between thep

eriods of expansion and stagnation. It is very instructive that these are

placed in the context of government economic policy and the world economic

situation. In an accessible style, she provides a balanced picture of

growth and decline, giving thoughtfully phrased judgements in matters

which have raised a lot of discussion. On the whole she meticulously

reviews and quotes the recent historiography, including many Indonesian

scholars.

Missed chances?

Now, which are the missed opportunities referred to in the title? Such

counterfactual meditation is, of course, a hazardous exercise, but it may

be able to throw light on the long-term lessons that can be drawn from

the past two centuries. As Booth says, it is ‘useful to ask if a different

type of colonialism could have produced better economic results’

(p. 329-330).

First, one can think of the effects of the Cultivation System, which

thwarted the development of market institutions in rural Java (p. 334), and

on the whole was merely oriented towards remitting a large annual sum to

the Dutch budget (p. 327).

Secondly, the late colonial Dutch regime was busy ‘developing’ the colony

in the material sense, but it largely ignored the need for higher education

or developing a skilled Indonesian work force. The colonizers constructed

a lot of infrastructure and social overhead capital. But the economic gains

from these efforts were largely lost after independence, mainly because

the educational system had failed to train a higher or middle class of

officials who could take over the economy after independence. Booth even

states that the ‘failure to accelerate access to education was probably the

greatest of sins of omission of Dutch colonialism’ (p. 328).

To perceive this as a missed chance for the Indonesian economy is feasible

from the point of view of the Indonesian society itself, which was hindered

by this imbalance. But it makes little sense when analyzing colonial

policy: the Dutch simply did not plan to leave very soon, and therefore did not

integrate the formation of an indigenous elite into their official

policies. Of course, the colonizer can always be blamed for colonizing

the country, but should it also be blamed for consistency within its own

system? I think it is more important that there was a system of ethnic

inequality or racial prejudice at the core of this Dutch colonial

consistency. It is this legacy of colonial rule which certainly can be

viewed as a “missed chance,” because it shows us, amongst others,

the roots of the strong economic position of Chinese entrepreneurs,

and the relatively weak indigenous entrepreneurial class. It also, in

part, explains the discontinuity in economic development after

independence. Booth draws attention to these matters and points at

the crucial fact that the Indonesian nationalist leaders were essentially

isolated from the economy or from specific economic ideas of how

to rule the country: ‘the weakness of the indigenous business

class in the late colonial era, together with the very small numbers of

indigenous Indonesians in the upper echelons of the administrative

service, or in the professions, meant that these groups had far less

influence on the leaders of the independence struggle than in, for

example, British India.’ (p. 330).

These reflections show that the historiography has progressed from making

simple-minded or emotional accusations to the colonial regime, and now

attempts to adopt a more objective perspective which allows for lessons to

be drawn. There have been many crossroads at which another direction could

have been taken, leading to different outcomes of economic development.

Needless to say that there were also favourable effects of certain

important events of Indonesia’s past.

Do the parallels drawn between Suharto’s new order and the late colonial

government policies also imply the suggestion that other roads could and

should have been taken by post-independence governments, or in other words

opportunities were missed? In Chapter 4, we find a positive evaluation oft

he progress made by the Suharto government during 1983-1990, making the

non-oil sectors (agriculture, manufacturing, tourism) more internationally

competitive and the economy less reliant on the exports of oil and gas

(p. 199). At the same time, it is stressed that the role of the government

in the economy was not in any way significantly reduced in the 1980s,

and that very little attempt was made to privatise the state-owned

enterprises, which had a very low rate of return. ‘Regulatory control over

parts of the state-owned enterprise sector remains weak: the so-called

“strategic enterprises,” controlled by the influential Minister of

Research, Dr. Habibie, enjoy access to extra-budgetory sources of

finance which are outside the control of the Ministry of

Finance, or any other government regulatory agency …. This recurrence of the

“Pertamina syndrome” indicates that the problem of controlling the state

enterprise sector is far from resolved in New Order Indonesia’

(pp. 200-201). Recalling the airplane factory on the cover, probably

Booth does view the Suharto/Habibie emphasis on prestigious,

high-tech state enterprises such as an airplane industry as a missed

chance. . .

As already mentioned, Booth is fairly positive about the investments of the

government using the oil boom rents, at the same time warning that the

economic reforms of the 1980s did not recreate the type of open trading

regime that prevailed in the colonial economy from the 1870s to the early

1930s (p. 242). She also states that investment in education and human

capital has, as it was in colonial times, in fact been neglected by the

Indonesian government since 1950.

In the last pages of Chapter 8, ‘Conclusions’, Booth describes the role and

the shape of the type of “market capitalism” that is encountered in

Indonesia (p. 334-336). Without referring to slogan type phrases such as

‘Asian values,’ she explains why free market capitalism is looked at with

ambivalence in Indonesia. This deep ambivalence about liberal market

capitalism persists in contemporary Indonesia at many different levels of

society and this ambivalence has not exactly strengthened Indonesia’s

economic performance. In part, the hesitation to accept free market

capitalism is rooted in nationalist, anti-imperialist views of the

pernicious colonial past. (This might have been different had the Dutch not

been in Indonesia, but without the colonial state formation process there

probably would not have been an Indonesian state as we know it today at

all.) Senior policy-makers, including Suharto himself, saw free market

capitalism as a good opportunity to favor their immediate families and

close business associates. But more broadly, economic growth was viewed as

necessary because the neighbouring countries around Indones

ia realized rapid economic growth. Should Indonesia fall behind, then this

would

make it vulnerable to external threats and internal insurrections.

Recent events in the spring and summer of 1998, after this book had been

published, confirm these suspicions. But Anne Booth goes one step further

and compares the authoritarian growth-oriented state with other

autoritarian developmental states such as Meiji Japan, Franco’s Spain,

and South Korea under Park Chung Hee. The history of these three

countries ‘would suggest that the forces of economic growth, once

unleashed, will inevitably lead to demands for a stronger legal and

constitutional framework which guarantees a broad range of civil liberties,

including a stronger regime of property rights. In Indonesia, too, it is

inevitable that economic growth will create such demands, which the

political system will then have to accomodate.’ … How the government

responds to these challenges will determine not just Indonesia’s

economic future in the new millenium, but its very survival as a

nation’ (p. 336).

These ominous words aptly describe a process that has been underway,

gaining speed after the KRISMON (monetary crisis in its Indonesian

acronym) and Suharto’s stepping down, and which will draw the world’s

attention to Indonesia for the next few years. It seems that a new

‘decolonization’ has just begun, and anyone who wants to put it in

perspective is recommended to read this book.

Jeroen Touwen

L. Jeroen Touwen is post-doc research fellow at the Historical Institute of

Leiden University. He is the author of Extremes in the Archipelago. Trade

and Economic Development in the Outer Islands of Indonesia, 1900-1942

(Leiden: KITLV Press, forthcoming in 1999).

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

Political Economy and Statesmanship: Smith, Hamilton, and the Foundation of the Commercial Republic

Author(s):McNamara, Peter
Reviewer(s):Sylla, Richard

EH.NET BOOK REVIEW

Published by EH.NET (May 1998)

Peter McNamara, Political Economy and Statesmanship: Smith, Hamilton, and the Foundation of the Commercial Republic. DeKalb: Northern Illinois University Press, 1998. xi + 191 pp. $35.00 (cloth) ISBN 0-87580-228-1.

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

TWO FOUNDING FATHERS

Peter McNamara, a political scientist at Utah State University, compares and contrasts the political economies of Adam Smith (1723-1790), founding father of Economics, and Alexander Hamilton (1757-1804), the founding father of the United States most involved in shaping the country’s financial and economic systems. From a thorough study of the writings of the two– and in Hamilton’s case, from his activities in the public arena– McNamara draws out a number of implications and conclusions. His bottom line may surprise you, although it did not surprise me: “The chief conclusion…is that the example of Hamilton’s words and deeds provides a more useful guide for a liberal statesman than does the economic model yielded by Smith’s science of political economy” (McNamara’s emphasis). This conclusion is related to McNamara’s own agenda, to which I shall return.

The careers of Smith and Hamilton intersected in the great events of the last quarter of the 18th century. The Wealth of Nations appeared just before the Declaration of Independence, and in it Smith devoted some attention to the “colonial disturbances.” He gave little credence to American protests over taxes and mercantilist regulations. Taxation of the colonies was justified by Britain’s costs of defending them, and regulation– while bad in principle– had done little actual harm. For Smith, the Americans’ real economic advantage was, and long would remain, agriculture. Smith thought the Americans were fortunate in this, because his theories had persuaded him that the productivity of agriculture was superior to that of either manufacturing or commerce. He also thought that rural life was less degrading of the human spirit than life in cities.

Smith’s preferred solution to the colonial disturbances was peaceful separation. By saving on the costs of defense, this was in Britain’s interest. But he realized that peaceful separation was “visionary” because it conflicted with the “pride” of the British nation and its ruling classes. His fall-back position was therefore to grant the colonies free trade and representation in Parliament. That would likely satisfy the ambitions of colonial politicians. Given the superior productivity of agriculture and therefore America’s economic and demographic prospects, America’s leading men could look forward to the day when the seat of empire would move there. Had George III and Lord North followed Smith’s advice, Parliament might now meet in Chicago, Toronto, or Kansas City, with Tony Blair, Jean Chretien, or Bill Clinton as Prime Minister, and the British Isles as somewhat more populated constituencies than Hawaii, Bermuda, Puerto Rico, and the Falklands.

Smith’s work was well known to the U.S. founding fathers. His political economy extolling reason, enlightened self-interest, free trade, agriculture and rural life, and America’s long-term prospects appealed to the likes of Jefferson, the idealist, and Madison, the realist, both members of Virginia’s planter aristocracy. Much of it also appealed to Hamilton, like Madison a realist, but one with a more commercial and industrial outlook. But parts of Smith did not. Hamilton’s 1791 Report on Manufactures, as has often been noted, is an extended and critical commentary on Smith’s views. These views, given their appeal to many U.S. leaders, had to be addressed and in some cases refuted if Hamilton was to achieve his goals.

Because he dared to disagree with Smith and because of Smith’s icon-like status amongst Jeffersonians, libertarians, and mainstream and public-choice economists, Hamilton’s detractors have tended to dismiss him as a mercantilist, a regulator, and a statist. His admirers, in contrast, have viewed him as a modernizer, an advocate of economic growth and development with advanced insights into the roles technology and finance would play in them. Hamilton was not encumbered with the baggage of Smith’s labor theory of value, his quaint theoretical notions of agriculture’s superior productivity, his inadequate appreciation of new industrial technologies, his primitive ideas on money and finance, his laissez-faire ideology regarding government, or his undeveloped concepts of the threats nation-states might pose to one another in pursuing their real or imagined self-interests.

McNamara’s contribution, it seems to me, is to move to the side these common characterizations and caricatures of Smith and Hamilton, and to raise to a higher plane the analysis of their agreements and differences. Simply put, McNamara says that the key difference between Smith and Hamilton is over method. Smith developed political economy as a deductive system, the conclusions of which should be the main guides to economic policy. Hamilton, on the other hand, distrusted the conclusions of deductive systems as practical guides to policy, preferring instead to rely on experience and history.

Smith launched a tradition that would revolutionize political economy. He began with broad, seemingly self-evident assumptions, such as that every person had a natural and rational interest in bettering his or her condition. He then deduced from the assumptions conclusions as to the optimality of free trade and the folly of governmental interferences with it. While still a revolutionary soldier and apparently before reading Smith, Hamilton in 1779 pronounced his judgment on deriving policy from such grand deductive systems: “A great source of error in disquisitions of this nature,” Hamilton wrote in a long letter, “is the judging of events by abstract calculations, which though ‘geometrically true’ are ‘practically false’ as they relate to the concerns of beings governed more by passion and prejudice than by an enlightened sense of their interests.”

McNamara shows that a recurring theme of Hamilton’s thought, and of his statecraft, was the notion that passions and prejudices were at least as powerful in human affairs as rational self-interest. In his view, trade in history expanded not so much because the traders pursued their self-interest– other traders had just as much of an interest in stopping them– but because the enlightened statesmen of the Dutch Republic, England, and France established policies that overcame parochial passions and prejudices. Two centuries later, I would note, the economic historian Eli Heckscher said much the same thing in his great study, Mercantilism.

The problem as Hamilton saw it was that not all statesmen were enlightened. The pride of British leaders overcame their and their country’s interest when they rejected Adam Smith’s suggestions for preventing the American Revolution. As a result of British pride and prejudice, Hamilton had to spend six years of his life fighting the redcoats and the Hessians. In war, he learned to distrust the practicality of deductions based on assumptions of rational self-interest. When the war was over, Hamilton saw American proponents of state sovereignty and weak confederation, again for reasons of passion and prejudice, condemning the country for which he had fought to an early breakup and the endless commercial and political warfare that plagued the states of Europe.

Hamilton’s solution, formulated in the 1780s with Madison and other nationalists, was a strong federal government to defend the United States against external threats and to subject the states to a higher sovereignty that would avoid European-like strife in North America. The federal government would have to have strong finances– public credit, a national bank, a common currency. Establishing these would also promote a financial system for the country that would give rise to “a general spirit of improvement,” or economic development. The passions and prejudices of foreign nations also suggested to Hamilton that the U.S. government would be wise to take measures promoting manufactures, to diversify the American economy, put idle resources to work, and capture advantages of new technologies. This in essence is McNamara’s interpretation of Hamilton’s tenure as the new nation’s Secretary of the Treasury from 1789 to 1795.

To keep the federal government itself from becoming a threat to liberty, Hamilton worked with other nationalists to create the Constitution’s elaborate system of checks and balances. A strong executive (president) and an independent judiciary would counterbalance the legislative supremacy favored by many Americans. In Hamilton’s conception, McNamara argues, constitutional government, not Smith’s deductive science of political economy, set the parameters for economic statesmanship.

McNamara’s skillful and thorough development of Smith’s and Hamilton’s contrasting approaches to political economy is the main contribution of his book. Each approach proved influential in U.S. history. Comparing and contrasting the Scottish theorist and system builder with the American applied economist and statesman helps us to understand the achievements and continuing appeal of each man’s thought, and also Hamilton’s deeds. In practice, America’s political economy has been mainly Hamiltonian, and with Hamiltonian results– a nation that is more powerful, better governed, and richer than just about any other. Yet its dominant theory of political economy is still pretty much Adam Smith.

McNamara’s study is provocative. He makes a strong case– which no doubt will be contested– for Hamilton as the more insightful and relevant thinker on political economy. But I think he may go too far in suggesting that Hamiltonian precepts of constitutional government could– and maybe should– replace the insights of Smith and mainstream economics in guiding statesmen. Smith, like Hamilton, recognized that there were exceptions to the general presumption for free trade. And Hamilton understood– even developed– insights of deductive economic theory. In the Report on Manufactures, for example, he held that subsidies were better than tariffs as a method of promoting desired activities because they achieved the intended results without making the consumer pay a higher price. Economics, wise economists instruct us, is a bag of tools, and there is room under the big tent of political economy for Smithian and Hamiltonian insights.

McNamara doesn’t like mainstream, deductive economics. His agenda calls or getting away from it, at least in political economy, and emphasizing instead the concept of statesmanship. I doubt he will persuade economists, though. If they can’t fit entrepreneurship into their models, and therefore ignore it, how likely are they to find a place for statesmanship? Political scientists and historians will have to carry that torch.

I also wonder if McNamara is right in suggesting that Hamilton’s example of economic statesmanship has much to offer new and developing nations, although I agree with him that it is relevant to current U.S. political economy, and also relevant in studying U.S. economic history. The lesson from Hamilton would seem to be to ground political economy in constitutional government and the rule of law. But using that as policy advice to leaders of new and developing nations strikes me as about as promising as telling aspiring musicians to study and follow Mozart’s example if they want to become great composers.

I have spent a lot of time studying Hamilton. He was, I think, altogether exceptional in his ability to define a problem, think it through, come up with a good solution, persuade others that it was the right thing to do, and then see to it that the solution was implemented. As the British writer Paul Johnson says in his recent A History of the American People, “The truth is, Hamilton was a genius– the only one of the Founding Fathers fully entitled to that accolade– and he had the elusive, indefinable characteristics of genius.” Europeans– Talleyrand and Lord Bryce are additional examples– have recognized that genius for two centuries. Without a Hamilton, they are still trying to implement Hamiltonian political economy. So when McNamara recommends following Hamilton’s example as a guide to political economy elsewhere, he comes perilously close to adopting the sort of mainstream, “can-opener” economics he so dislikes: Assume we have a genius.

Richard Sylla Department of Economics Stern School of Business New York University

The Federal Reserve Bank of St. Louis REVIEW (May/June 1998) is scheduled to publish Sylla’s paper, “U.S. Securities Markets and the Banking System, 1790-1840,” along with a comment on it by Kenneth Snowden. Sylla’s latest research is on the early U.S. financial system, particularly the development of securities markets.

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Subject(s):History of Economic Thought; Methodology
Geographic Area(s):General, International, or Comparative
Time Period(s):18th Century

The Wealth and Poverty of Nations: Why Are Some So Rich and Others So Poor

Author(s):Landes, David S.
Reviewer(s):De Long, J. Bradford

EH.NET BOOK REVIEW

Published by EH.NET (April 1998)

David S. Landes, The Wealth and Poverty of Nations: Why Are Some So Rich and Others So Poor. New York: W.W. Norton, 1998. 544 pp. $30.00 (cloth) ISBN: 0393040178.

Reviewed for EH.NET by J. Bradford De Long, Department of Economics, University of California-Berkeley.

David Landes has studied the history of economic development for more than half a century. His look at economic imperialism and informal empire in nineteenth-century Egypt (Bankers and Pashas) tells the story of how small were the benefits (either for Egyptian economic development or for the long-run power and happiness of the ruling dynasty) bought at extremely high cost by borrowing from European bankers. His unsurpassed survey of technological change and its consequences in Europe since 1750 (The Unbound Prometheus) remains the most important must-read book for serious students of the industrial revolution. His study of clock-making as an instance of technological development (Revolution in Time) provides a detailed look at a small piece of the current of technological development. His works are critical points-of-reference for those who seek to understand the Industrial Revolution that has made our modern world.

Now David Landes turns to the grandest question of all: the causes of the (so far) divergent destinies and relative prosperity levels of different national economies. The title echoes Adam Smith, but Landes is interested in both the wealth and poverty of nations: Adam Smith lays out what went wrong as the background for his picture of how things can go right, while Landes is as interested in the roots of relative–and absolute–economic failure as of success.

He pulls no punches–of Columbus’s followers treatment of the inhabitants of the Caribbean, Landes writes that “nothing like this would be seen again until the Nazi Jew hunts and killer drives of World War II.” Landes makes no compromises with any current fashion. Readers will remember how columnist after columnist decried high-school history standards (which, truth be told, were not very good) that required students to learn about a fourteenth-century African prince, Mansa Musa, but not about Robert E. Lee; readers of Landes will find three pages on Mansa Musa, and none on Master Robert.

We are all multiculturalists now; or, rather, serious historians have long been multiculturalists.

Nevertheless, Landes’s economic history is a profoundly Eurocentric history. It is Europe-centered without apologies–rather with scorn for those who blind themselves to the fact that the history of the past 500 years is Europe-centered.

Now Landes does not think that all history should be Eurocentric. For example, he argues that a history of the world from 500 to 1500 should be primarily Islamocentric: the rise and spread of Islam was an “explosion of passion and commitment… the most important feature of Eurasian history in what we may call the middle centuries.”

But a history oriented toward understanding the wealth and poverty of nations today must be Eurocentric. Goings-on in Europe and goings-on as people in other parts of the world tried to figure out how to deal with suddenly-expansionist Europeans make up the heart of the story of how some–largely western Europe and northwest Europe’s settler ex-colonies–have grown very, very rich.

Moreover, relative poverty in the world today is the result of failure on the part of political, religious, and mercantile elites elsewhere to pass the test (rigged very heavily against them) of maintaining or regaining independence from and assimilating the technologies demonstrated by the people from Europe–merchants, priests, and thugs with guns in the old days, and multinationals, international agencies, and people armed with cruise missiles in these new days–who have regularly appeared offshore in boats, often with non-friendly intent. To try to tell the story of attempted assimilation and attempted rejection without placing Europe at the pivot is to tell it as it really did *not* happen.

Thus Landes wages intellectual thermonuclear war on all who deny his central premise: that the history of the wealth and poverty of nations over the past millennium is the history of the creation in Europe and diffusion of our technologies of industrial production and sociological organization, and of the attempts of people elsewhere in the world to play hands largely dealt to them by the technological and geographical expansions originating in Europe.

He wins his intellectual battles–and not just because as author he can set up straw figures as his opponents. He wins because in the large (and usually in the small) he has stronger arguments than his intellectual adversaries, who believe that Chinese technology was equal to British until 1800, that had the British not appeared the royal workshops of Mughal India would have turned into the nucleus of an industrialized textile industry, that equatorial climates are as well-suited as mid-latitude climates to the kind of agriculture that can support an Industrial Revolution, that Britain’s industrial lead over France was a mere matter of chance and contingency, or any of a host of other things with which Landes does not agree.

Landes’s analysis stresses a host of factors–some geographical but most cultural, having to do with the fine workings of production, power, and prestige in the pre-industrial past–that gave Eurasian civilizations an edge in the speed of technological advance over non-Eurasian ones, that gave European civilizations an edge over Chinese, Arabic, Indian, or Indonesian, that made it very likely that within Europe the breakthrough to industrialization would take place first in Britain.

And by and large it is these same factors that have made it so damn difficult since the Industrial Revolution for people elsewhere to acquire the modern machine technologies and modes of social and economic organization found in the world economy’s industrial core.

Landes’s account of why Eurasian civilizations like Europe, Islam, and China had an edge in technological development over non-Eurasian (and southern Eurasian) civilizations rests heavily on climate: that it is impossible for human beings to live in any numbers in “temperate” climates before the invention of fire, housing, tanning, and sewing (and in the case of northern Europe iron tools to cut down trees), but that once the technological capability to live where it snows has been gained, the “temperate” climates allowed a higher material standard of living.

I am not sure about this part of his argument. It always seemed to me that what a pre-industrial society’s standard of living was depended much more on at what level of material want culture had set its Malthusian thermostat at which the population no longer grew. I have always been impressed by accounts of high population densities in at least some “tropical” civilizations: if they were so poor because the climate made hard work so difficult, why the (relatively) dense populations?

It seems to me that the argument that industrial civilization was inherently unlikely to arise in the tropics hinges on an–implicit–argument that some features of tropical climates kept the Malthusian thermostat set at a low standard of living, and that this low median standard of living retarded development. But it is not clear to me how this is supposed to have worked.

By contrast, I find Landes’s account of why Europe–rather than India, Islam, or China–to be very well laid out, and very convincing. But I find it incomplete. I agree that it looks as if Chinese civilization had a clear half-millennium as the world’s leader in technological innovation from 500 to 1000. Thereafter innovation in China appears to flag. Little seems to be done in developing further the high technologies like textiles, communication, precision metalworking (clockmaking) that provided the technological base on which the Industrial Revolution rested.

It is far from clear to me why this was so. Appeals to an inward turn supported by confident cultural arrogance under the Ming and Ch’ing that led to stagnation leave me puzzled. Between 1400 and 1800 we think that the population of China grew from 80 million to 300 million. That doesn’t suggest an economy of malnourished peasants at the edge of biological subsistence. That doesn’t suggest a civilization in which nothing new can be attempted. It suggests a civilization in which colonization of internal frontiers and improvements in agricultural technology are avidly pursued, and in which living standards are a considerable margin above socio-cultural subsistence to support the strong growth in populations.

Yet somehow China’s technological lead–impressive in printing in the thirteenth century, impressive in shipbuilding in the fifteenth century, impressive in porcelain-making in the seventeenth century–turned into a significant technological deficit in those same centuries that China’s pre-industrial population quadrupled.

Landes’s handling of the story of England’s apprenticeship and England’s mastership–of why the Industrial Revolution took place in the northwest-most corner of Europe–is perhaps the best part of the book. He managed to weave all the varied strands from the Protestant Ethic to Magna Carta to the European love of mechanical mechanism for its own sake together in a way that many attempt, but few accomplish. Had I been Landes I would have placed more stress on politics: the peculiar tax system of Imperial Spain, the deleterious effect of rule by Habsburgs and Habsburg puppets on northern Italy since 1500 (and the deleterious effect of rule by Normans, Hohenstaufens, Valois, Aragonese, and Habsburgs on southern Italy since 1000), the flight of the mercantile population of Antwerp north into the swamp called Amsterdam once they were subjected to the tender mercies of the Duke of Alva, more on expulsions of Moriscos, Jews, and French Protestants (certainly the Revocation of the Edict of Nantes was an extraordinary shock to my seventeenth-century DeLong ancestors), the extraordinary tax burden levied on the Dutch mercantile economy by the cumulated debt of having had to spend from 1568 to 1714 fighting to achieve and preserve independence, and so forth.

I also would spend more time on Britain itself. I, at least, find myself wondering whether Britain’s Industrial Revolution was a near-run thing–whether (as Adam Smith feared) the enormous burden of the Hanoverian fiscal-military state might not have nearly crushed the British economy like an egg. Part of the answer is given by John Brewer’s Sinews of Power, a work of genius that lays out the incredible (for the time) efficiency of Britain’s eighteenth-century fiscal-military state. Most of the answer is the Industrial Revolution. And some of the answer is (as Jeffrey Williamson has argued) that the burden of the first British Empire did indeed significantly slow–but not stop–industrialization.

I don’t know what I think of all the issues in the interaction of the first British Empire, the British state, and British industrialization. Thus I find myself somewhat frustrated when Landes quotes Stanley Engerman and Barbara Solow that “It would be hard to claim that [Britain’s Caribbean Empire was] either necessary or sufficient for an Industrial Revolution, and equally hard to deny that [it] affected its magnitude and timing,” and then says “That’s about it.” I want to know Landes’s judgment about how much. Everything affects everything else, and when economic historians have an advantage over others it is because they know how to count things–and thus how to use arithmetic to make judgments of relative importance.

But the complaint that a book that tries to do world history in 600 pages leaves stuff out is the complaint of a true grinch.

So where does Landes’s narrative take us?

If there is a single key to success–relative wealth–in Landes’s narrative, it is openness. First, openness is a willingness to borrow whatever is useful from abroad whatever the price in terms of injured elite pride or harm to influential interests. One thinks of Francis Bacon writing around 1600 of how three inventions–the compass, gunpowder, and the printing press–had totally transformed everything, and that all three of these came to Europe from China. Second, openness is a willingness to trust your own eyes and the results of your own experiments, rather than relying primarily on old books or the pronouncements of powerful and established authorities.

European cultures had enough, but perhaps only barely enough. Suppose Philip II Habsburg “the Prudent King” of Spain and “Bloody” Mary I Tudor of England had together produced an heir to rule Spain, Italy, the Low Countries, and England: would Isaac Newton then have been burned at the stake like Giordano Bruno, and would the natural philosophers and mechanical innovators of seventeenth and eighteenth century England have found themselves under the scrutiny of the Inquisition? Neither Giordano Bruno, Jan Hus, nor Galileo Galilei found European culture in any sense “open.”

If there is a second key, it lies in politics: a government strong enough to keep its servants from confiscating whatever they please, limited enough for individuals to be confident that the state is unlikely to suddenly put all they have at hazard, and willing once in a while to sacrifice official splendor and martial glory in order to give merchants and manufacturers an easier time making money.

In short, economic success requires a government that is, as people used to say, an executive committee for managing the affairs of the bourgeoisie–a government that is responsive to and concerned for the well-being of a business class, a class who have a strong and conscious interest in rapid economic growth. A government not beholden to those who have an interest in economic growth is likely to soon turn into nothing more than a redistribution-oriented protection racket, usually with a very short time horizon.

Landes writes his book as his contribution to the project of building utopia–of building a much richer and more equal world, without the extraordinary divergences between standards of living in Belgium and Bangladesh, Mozambique and Mexico, Jordan and Japan that we have today. Yet at its conclusion Landes becomes uncharacteristically diffident and unusually modest, claiming that: “the one lesson that emerges is the need to keep trying. No miracles. No perfection. No millennium. No apocalypse. We must cultivate a skeptical faith, avoid dogma, listen and watch well…”

Such a change of tone sells the book short, for there are many additional lessons that emerge from Landes’s story of the wealth and poverty of nations. Here are five: (1) Try to make sure that your government is a government that enables innovation and production, rather than a government that maintains power by massive redistributions of wealth from its friends to its enemies. (2) Hang your priests from the nearest lamppost if they try to get in the way of assimilating industrial technologies or forms of social and political organization. (3) Recognize that the task of a less-productive economy is to imitate rather than innovate, for there will be ample time for innovation after catching-up to the production standards of the industrial core. (4) Recognize that things change and that we need to change with them, so that the mere fact that a set of practices has been successful or comfortable in the past is not an argument for its maintenance into the future. (5) There is no reason to think that what is in the interest of today’s elite–whether a political, religious, or economic elite–is in the public interest, or even in the interest of the elite’s grandchildren.

It is indeed very hard to think about problems of economic development and convergence without knowing the story that Landes tells of how we got where we are today. His book is short enough to be readable, long enough to be comprehensive, analytical enough to teach lessons, opinionated enough to stimulate thought–and to make everyone angry at least once.

I know of no better place to start thinking about the wealth and poverty of nations.

(This review is a longer draft of a review subsequently published (at 1/3 the length) by the Washington Post..)

J. Bradford De Long Department of Economics University of California- Berkeley

De Long is co-editor, Journal of Economic Perspectives; Research Associate with the National Bureau of Economic Research; visiting scholar, Federal Reserve Bank of San Francisco; and former (1993-1995) deputy assistant secretary (for economic policy), U.S. Treasury.

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

Industrial Constructions: The Sources of German Industrial Power

Author(s):Herrigel, Gary
Reviewer(s):Shearer, Ronald A.

EH-NET BOOK REVIEW

Published by H-Business@eh.net (January, 1998)

Gary Herrigel. Industrial Constructions: The Sources of German Industrial Power. Structural Analysis in the Social Sciences Series, 9. Cambridge: Cambridge University Press, 1996. x + 480 pp. Tables, notes, bibliography, maps, and index. $54.95 (cloth), ISBN 0-521-46273-8.

Reviewed for H-Business by Ronald A. Shearer , University of British Columbia

The question, addressed in this book is: does the literature on German industrialization accurately describe the process that occurred? Alternatively, considering the long sweep of history, how did one of the most successful examples of industrialization in modern times come to pass? Readers may want to extrapolate the analysis to address a broader question: how does any economy industrialize? While Herrigel does not explicitly answer this broader question, his analysis may nonetheless be very relevant in various other contexts.

For economists, Herrigel’s analysis is at once informative and frustrating. Two aspects of this book are important for economists interested in the process of industrialization and economic development. First is the forceful demonstration of the interaction between the social environment, governmental structures, and politics on the one hand and profit seeking decisions of business firms and the supporting activities of business associations on the other. In the German case, the interaction partially shaped the course of industrialization and was partially shaped by it. Second, but equally important, is Herrigel’s careful exploration of the nature and role of regional diversity in German industrial development, an aspect of economic development that has important echoes in many countries. What economists will find frustrating is what is missing in the analysis and the exaggerated assertions made or implied regarding the relevance of “traditional” social and economic analysis. Both are reflected in the virtual neglect (perhaps better, the rejection) of very basic economics in the exploration of the behaviour of firms and industries in the various episodes considered in the book. The problem is most acute in the sections dealing with long run industrialization up to 1945 but is not absent in the post World War II material. Economists will also be concerned about the lack of verifiable quantitative evidence on the importance of the regional industrialization process so clearly described in the book for the long run growth of the German economy. If we grant the story of the development of a “decentralized industrial order,” what difference did it make, not only for the growth of regional economies but also for the growth of the national economy?

The book is well researched and carefully documented. The author’s research included an impressive number of interviews with significant people in industrial firms and associations, universities and governments, and the analysis and conclusions are carefully related to the existing literature. Indeed, some 40 percent of the pages are devoted to notes and bibliography, a rich treasure for students and researchers. The index is short but adequate. Several maps help elucidate the geographical dimensions of the analysis. Many readers will find the writing style of the opening, quasi theoretical chapter overly laden with dense, unrelenting, unfamiliar jargon and may be annoyed by the excessive repetition of some theoretical propositions. By contrast, the historical material and illustrative case studies are presented clearly and effectively. The book has the added merit of being as up-to-date as can be expected. Herrigel pursues his analysis of German industrialization into the 1990s with interesting interpretations of the problems that began to haunt German industry at the beginning of this decade.

While I find aspects of the book less than satisfactory in terms both of content and presentation, on balance, the strengths of the book vastly outweigh its defects. It is a rewarding work for anyone interested in German industrialization and the development of the German state and for anyone interested in the process of industrialization in general. It is a book that merits careful study.

The theoretical approach is presented in an Introduction (Chapter One), and the main theoretical propositions are restated at various places in other chapters. Herrigel’s bete noire is an explanation of German industrialization that focuses almost single mindedly on large, complex, largely self contained conglomerate firms (with strong links to associated banks) what he calls “autarkic firms.” He argues that an interpretation of German industrialization of which the primacy of such firms was the fundamental pillar dominated the “post World War II research agenda” on German industrial development, to the detriment of a deeper understanding of German industrialization. He attributes this agenda to Gershenkron and his disciples, building on the shoulders of Schumpeter and augmented by various later analysts of business management, industrial organization and technological invention, innovation and diffusion in capitalist economies. In this agenda, the smaller industrial enterprises, if considered at all, were seen as an appendage of the central autarkic firm sector or a minor enclave in the aggregate economy. The autarkic sector was the driver; the small business sector a passenger. To the contrary, Herrigel argues, what he calls the “decentralized industrial order” had a vibrant, independent development based in the states of western and southwestern Germany. It played an important role in German industrialization, although Herrigel is deficient in not presenting convincing quantitative indices of how important.

As befits a political scientist, Herrigel’s focus is on governance, namely on what he calls “industrial governance.” While the precise meaning of governance in this context is a bit vague, it is the emphasis on more or less independent regional industrial networks that leads to his depiction of this sector of the economy as an “industrial order.” The decentralized industrial sector is not seen as a part of a larger “industrial structure,” but as something separate in organization, ethos and production characteristics, with its own historical roots, social coherence and governance institutions. Herrigel’s analysis of the development of this sector is evolutionary, reflecting his rejection not only of the language (“which I dislike”, p. 23) but also the substance of neo classical economics. As a result, we have a picture of the development of an industrial sector without reference to underlying production economics.

In three chapters (Chapters Two through Four), Herrigel explores the history of the decentralized and autarkic sectors up to World War II, including an important chapter on the interaction between the firms and business organizations in these sectors and the political system. He finds the roots of the divergent development of the two sectors in the systems of land inheritance in different sections of Germany. Where impartible land inheritance was the rule, a landless proletariat was created, providing the necessary labor force for large scale enterprises. Where partible land inheritance was the rule, the division of the land into smaller and smaller units resulted in a population of land owners for whom cultivation of the land could not be a full time occupation. They engaged in “rural industry” while retaining their land, developing specialized skills and social traditions. The result, the substance of Chapter Two, was the development of regional concentrations of specialized, small scale, mutually supporting factories producing for domestic and eventually world markets. They cooperated in various ways, including farming out production to each other and to home producers and in the development of common services. In the process they developed a distinctive social ethos and an appropriate set of industrial institutions that became the basis for subsequent evolution of the sector.

The emphasis on the long run consequences of impartible land inheritance is interesting. It is surprising, however, that in this context Herrigel does not devote attention to the possibilities for market transactions in land which could have led to consolidation of holdings and the creation of the landless labor force that he sees as so important in the other regions. Similarly, it is surprising that he does not devote considerable space to the analysis of patterns of interregional migration (or limitations thereon) which would seem to be an important adjunct to his analysis.

Underlying it all, no attention is devoted to the economics of production of the products in question. Economic considerations intrude only so far as market conditions affected the performance of the firms and led to adjustments in products and institutions. However, there must have been more than just the ethos of the industries that made industrial production viable in these regions. I looked in vain for some consideration of traditional (“neoclassical”) location of industry considerations, including careful consideration of the nature of the products and available production techniques, including questions of potential scale economies and the optimal scale of production. Nor is there any consideration of relative factor prices in the different regions. Herrigel’s use of the concept of governance in this context is also puzzling. It is clear from his discussion that the firms were autonomous units; they made the production and investment decisions in their own self interest. The role of regional associations in facilitating production as described by Herrigel seems far from the rule making and enforcement that I associate with governance. In part, these associations provided various kinds of support for the firms (in the jargon of neoclassical economics, their activities created “external economies,” services whose benefits could not be fully captured by any individual firm but which lowered the costs or improved the competitive position of the industry as a whole). In part they were cartels, attempting to protect the firms from adverse developments in the market or to take advantage of a strong collective position in the market. As with any cartel of independent firms, when the individual firms saw a strategic advantage in diverging from cartel policy, the cartel became unstable and tended to break down. That is all familiar to economists who study industrial organization. From Herrigel’s discussion, I think the governance concept is stretched very thin in this context. The analysis would be helped immensely by incorporating relevant economics. The analysis of the autarkic sector (Chapter Three) is built around a case study of the Ruhr iron and steel industry with a shorter but still important study of the machinery industry. The analysis has the same character as the analysis of the decentralized sector; the same strength and what I see as the same weaknesses. Heavy emphasis is placed on the evolution of the institutions of the sector and the interaction among firms within the institutions and between the institutions and government, with minimum consideration for locational and production economics. About the only non institutional locational factor noted is passing mention of the availability of abundant iron and steel in the Ruhr Valley. Careful attention is given to the interaction between industry and banks, and the impulse to cartelization is carefully documented. As in the case of the decentralized sector, the analysis of the instability of the cartels could benefit from incorporation of relevant economics, but the analysis on the social and political levels is well developed and persuasive.

The third chapter in this group (Chapter Four) is a stimulating analysis of the interaction between the industrial structure and the political system. Careful attention is given to the role of industries in affecting public policies and the effects of the structure of government on industrial development in Imperial Germany, the Weimar Republic and the Nazi era. The strong message emerging from the analysis is the importance of a federal system of government in promoting the development of the decentralized industrial order and the prevention of its domination by the autarkic industrial order. There are also interesting conclusions about the inconsistency of the centralized Weimar Republic with the established pattern of decentralized industrialization and the roots of the attraction of members of the decentralized sector to the Nazi movement. The period since World War II is the substance for the third part of the book (Chapters Five through Seven). The organization is the same as in the second part: a chapter on the decentralized sector (Chapter Five), one on the autarkic sector (Chapter Six), and one on the interrelations between business and government in the process of industrialization (Chapter Seven). The latter includes the unduly brief conclusion to the book. The analysis of the decentralized and autarkic sectors is in three phases, the period of the economic miracle from 1945 to the mid 1970s, the struggle for restructuring through the 1980s, and finally some relatively brief but nonetheless insightful observations on the pressures that appear to be emerging in the 1990s.

Given the longer run argument developed earlier in the book, the central issue in the analysis of the early part of the post war period is the apostasy of a number of firms in the decentralized sector. Penetration of the autarkic form of organization into the regional domain of the decentralized industrial order occurred as some producers “adopted mass production strategies … by breaking out of the institutional and practical framework that governed production and administration” in the decentralized industries (p. 148). The informative case study is of the Daimler Benz AG automobile manufacturing firm, but it is said to be representative of a number of firms in the decentralized regions. The Daimler Benz process of conversion from specialized production of luxury vehicles to mass production of standardized vehicles is carefully documented. A strong measure of vertical integration of production relationship replaced what Helliger refers to as the horizontal relationships among firms in the decentralized order. The lesson is clear: technology and markets changed and the reality of the production economics of the modern automobile industry intruded. Once again, a healthy dose of economic analysis is called for. While hinted at, it is never adequately developed.

The 1980s brought another major shift in German industrial behaviour. Through cases studies of steel, machinery and automobile manufacturing, Herrigel traces the renewed development of the large scale industrial conglomerates in the postwar period and their amazing production performance during the economic miracle. Intensified international competition in the 1980s induced a reconsideration of the merits of centralization. A search for flexibility and reduced costs led to some decentralization with positive effects on the decentralized industrial sector. However, in this instance, decentralization created dependency in the sense that it involved the use of decentralized firms as sources of supply. As Herrigel argues, the organizational problems of large scale industry seemed to intensify in the early 1990s.

The final chapter (Seven) returns to the themes of Chapter Four, the interaction between industry and government in the postwar period. Not surprisingly, the influences flow both ways as pragmatic adjustments in government fostered and accommodated necessary adjustments in the industrial structure. In the early postwar period, the federal structure of government imposed by the allies provided support for both the decentralized industrial system and autarkic firms. Both sectors flourished. As centralization of industry spread through the economy, greater centralization of economic policy also occurred, particularly in labor relations and in the management of aggregate demand. The reversal of the centralization movement in the 1980s also saw some relaxation in the centralizing governmental arrangements. The mutual adjustment and adaptation of government and industry was not always smooth and trouble free, but it occurred and is an essential element in the Herrigel story. What are the broader lessons that can be abstracted from this analysis? It would be interesting to have an extended discussion of this question by Herrigel, but I carry away three points from his work. First is the proposition that regional diversity is likely to be a basic element in any industrialization process and that radically different forms and scales of industrialization are likely to be appropriate in different regions. It follows that industrialization policies should not pursue as a single-minded objective the creation of large scale, vertically integrated manufacturing firms. A mixture of types of firms and industries is more likely to be appropriate. Second, over time, the relative balance among types of industries is likely to change as technology, external competition and market conditions change. Flexibility and the capacity to adapt to fundamental changes are vitally important if crises are to be avoided. But perhaps the most basic lesson of all is the third one. To be successful, industries have to be compatible with the social and economic characteristics of the regions in which they are located. They are best cultivated by a governmental structure that is sensitive to regional aspirations, possibilities and concerns. I read Herrigel’s work as an argument for a decentralized federal structure of government that adapts pragmatically to changes in fundamental economic conditions. I have criticized Herrigel for the lack of economics in his analysis of German industrialization. Perhaps I am unfair. Within its own terms of reference, Herrigel has written a remarkably good book. He explicitly disavows any intention of presenting a general theory of German industrialization, and he does not present himself as an economist. Indeed, he abruptly rejects the approach of the economist. However, in an age that values interdisciplinary studies, there has to be a happy medium somewhere. What I would like see as the ideal is a Herrigel paired up with an equally well prepared and research-minded economist to produce a definitive work on German industrialization which carefully integrates the political and social institutional analysis with appropriate production, locational and organizational economics (probably in a game theoretic context).

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Subject(s):Industry: Manufacturing and Construction
Geographic Area(s):Europe
Time Period(s):General or Comparative