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After the Galleons: Foreign Trade, Economic Change and Entrepreneurship in the Nineteenth-Century Philippines

Author(s):Legarda, Benito J.
Reviewer(s):Giraldez, Arturo

Published by EH.NET (November 2001)


Benito J. Legarda, After the Galleons: Foreign Trade, Economic Change and Entrepreneurship in the Nineteenth-Century Philippines. Madison WI: University of Wisconsin Center for Southeast Asian Studies, 1999. x + 401 pp. $22.95 (paperback), ISBN: 1-881261-28-x.

Reviewed for EH.NET by Arturo Giraldez, Department of Modern Languages and Literatures, University of the Pacific.

The title of Benito Legarda’s book is somewhat misleading because the time span covered in the work begins well before the nineteenth century. In fact, After the Galleons is an economic history of the Phillippine Islands from the time of the arrival of Miguel Gomez de Legazpi’s expedition in 1565 to the independence from the metropolis in 1898. Legarda studies the Philippines’ evolution from an archipelago inhabited by almost self-sufficient communities to the era when it became an agricultural export economy dependent on external trade to meet domestic needs. But, as the author remarks: “The nineteenth-century Philippine economy did not start from scratch. The preceding Age of Transshipment dated back to pre-Hispanic times, and, during the centuries when it was in effect, a process of administrative unification and geographic consolidation took place that laid the groundwork for the rise of national consciousness” (p. 5).

These sentences outline the plan of the book. Part 1 studies Philippine trade from before the Spaniards’ arrival until 1815. Part 2 focuses on the domestic exports and economic changes in the Islands. Part 3, “Entrepreneurial Aspects,” studies the establishment of merchant houses, their activities and innovations. Legarda follows Joseph A. Schumpeter’s ideas on entrepreneurial activity, paying detailed attention to the agents responsible for the “creative responses” in the economy. Businessmen and firms are introduced in relation to new technologies, activities and financial institutions.

Fifteenth-century Chinese and Muslim (Persian and Arab) merchants frequented the archipelago’s coastal areas, attracting a population that established settlements dependent on sedentary agriculture and craft production. These communities, called “barangays,” traded among themselves and with the rest of Southeast Asia and China. Slaves, beeswax and gold were exchanged for porcelain, iron, lead, tin, silks, etc. The early connection with China was going to have a crucial role in Philippine history. The presence of the Spaniards dramatically changed the position of the Philippines with respect to the Asian continent and placed the Islands as one of the crucial points in the global economy created by the galleon trade. From 1565 to 1815 the ships came and went from Manila to Acapulco — “it was the longest shipping line in history” (p. 32). American silver and predominantly Chinese silks were the commodities exchanged between Mexico and the Philippines. A Ricardian model explains the trade. The bimetallic ratio of silver and gold in 1560 was 13 to 1 in Mexico, 11 to 1 in Europe and in China was 4 to 1. “China was long the suction pump that absorbed silver from the whole world” (p. 31). Obviously there were periods of convergence of bimetallic ratios, but until the end of the nineteenth century China continued to be the main receiver of the world’s silver. Considering the price differential in silver prices: “The opportunities for arbitrage profits were staggering” (p. 31). And indeed, they were. Net profits oscillated between 100 and 300 percent. The Chinese brought the wares for the galleons but they also provided supplies for shipbuilding, materials to the military garrisons and foodstuffs to Manila’s citizenry. Also the junks brought artisans and tradespeople to the Islands. The Chinese have played a crucial role in the Filipino economy since the sixteenth century up to the present.

The eighteenth century witnessed plans and proposals to change the monopolistic framework of the galleon trade. After the British occupation of 1762-64, war frigates sailed between Cadiz in Spain and Manila carrying European merchandise. The Royal Philippine Company founded in Madrid (1785) was “encouraged to try Asian ventures,” (p. 58) and the port of San Blas on the Pacific coast was established in 1766 to trade with the Philippines, challenging Acapulco’s position as the only Mexican port in the galleon route. The regulation of libre comercio in 1778 allowed several Spanish ports besides Seville and Cadiz to trade with the colonies, which provided Mexico with new sources of merchandise.

Revolutionary changes did not happen in the eighteenth century — Philippine commerce was still a transshipping operation — but they sowed the seeds of future developments: foreign merchants arrived in Manila; local merchants could travel to other Asian ports; export trade of native products was stimulated and local textile manufactures were encouraged. “And the combined effect of the tobacco monopoly and the domestic operations of export producers, including the company, was the start of agricultural specialization in the Philippines” (p. 90). The tobacco monopoly was established by Governor Jose Basco y Vargas by decree in 1781, was implemented in 1783 and was the main source of fiscal revenue for Spain in the Philippines. There was also a “tentative use of bills of exchange in transferring funds through Canton” (p. 89).

The decades from 1820 to 1870 were crucial in the economic history of the world and produced significant changes in the economy of the country. An increase in trade and navigation in Asia accompanied the opening of the Suez Canal. Goods like sugar, fibers, coffee, etc. became the main export commodities. The Spanish government granted shipping subsidies. As a result of all of this, in the Philippines there was “a saltatory rise in the level of foreign trade” (p. 179). These events and trends were common to the Southeast Asian transformations from subsistence to export economies. However, the trajectory followed by the Islands was different from the Southeast Asian path. The economies of the region’s colonial powers tried to increase agricultural output pressuring the peasants to produce more goods for export and to develop plantation agriculture. According to Legarda in the period between 1820 and 1870: “Neither pressure on the peasantry nor the development of large-scale plantation agriculture was primarily responsible for transforming the Philippines from a subsistence to an export economy” (p. 186). Such a role was played by foreign businesses — “they formed the main nexus between the Philippine economy and the currents of world trade” (p. 211). The foreign merchants introduced agricultural machinery, advanced money on crops which stimulated the opening of new agricultural areas and consequently exports grew. There was an increasing commodity concentration of exports (sugar, abaca, tobacco and coffee) to the United Kingdom, China, British East Indies, United States and Spain [Tables 1 to 5]. Textiles dominated imports accompanied by a decline of local manufacturing and in 1870 rice became an import commodity. “Both trends had significant social and demographic repercussions” (p. 178) [Tables 6 to 13].

British and Americans were predominant in the foreign trade. The Chinese occupied the position of intermediaries between foreign western merchants and the domestic market. In spite of the dominant presence of foreigners in the Philippine economy “a native middle class was rising” (p. 213).

In order to raise funds the merchant houses issued notes taking deposits in local currencies from people of different economic backgrounds. This capital was given as an advance to finance agricultural operations. “Liquid wealth” reached Filipinos in the countryside, at the same time the merchants’ exercised control over the supply of export commodities (p. 256).

The Philippines’ economic landscape was different from Southeast Asia, i.e. Malaya and Indonesia. Western foreigners, public entities, and the Chinese joined rising domestic entrepreneurs. The Spanish government participated financially in the origination of utility companies (steam navigation, telegraphy); western investors entered some joint ventures with local capital (rice, sugar mills, textile industry, railroads and electricity), and domestic businessmen invested in the tranways and created the brewing industry. “But the crucial dichotomy between economic initiative and political authority stamped the Philippine case as being more in the East Asian tradition than the Southeast Asian mold” (p. 289).

This processes of economic integration in the world market had its drawbacks. Income disparities between regions and occupations became more marked. The domestic textile industry could not compete with foreign imports. During the 1880s, ‘the decade of death,’ the lower income groups became more susceptible to diseases due to an imbalance between commercial and subsistence agriculture and due to the arrival of epidemics (p. 335). The upside of these transformations was improvement in communications (telegraphy, mail, cable, steamship lines, electricity, railroads), in finance (foreign banks arrived to Manila), and in infrastructure. The funds of the Obras Pias, a church institution employed in the past to finance the galleon trade, were used to establish the Banco Espanol-Filipino in 1851 and the Monte de Piedad (a savings bank and a pawn shop) in 1882. In the same year with Obras Pias monies coming from the cargo of the galleon Filipino, a municipal water system was built in Manila (pp. 337-38).

Benito Legarda quotes Victor Clark who wrote: “A period of industrial development and expansion immediately preceded the insurrection that marked the beginning of the end of Spanish rule in the Philippines” (p. 339). The United States’ occupation of the country after the war produced increases in exports, innovations in technology, and much higher standards of living. The Philippines’ economy now would resemble more closely the Southeast Asian model. “The price of twentieth-century progress would be economic dependence” (p. 340).

Historians of the Philippines have produced excellent work. Benito Legarda’s economic history of the archipelago is an important addition to this body of literature. For historians of Asia and of the Spanish Empire After the Galleons is essential, but Legarda’s care in placing the Philippines in the context of with global economic trends makes the book an excellent addition to the field of “World History.” For economic historians and development experts, Legarda has written an important book. With clarity, rigor and avoiding unnecessary jargon, After the Galleons addresses questions and processes that are still affecting our times. Scholars, graduate students and advanced undergraduates in economics, history and other social sciences should read Legarda’s work. It is an indispensable book.

Arturo Giraldez, along with his colleague Dennis O. Flynn, is the editor of The Pacific World: Lands, Peoples and History of the Pacific, 1500-1900 an 18-volume series published by Ashgate/Variorum. With Dennis O. Flynn and James Sobredo, he has edited in 2001 European Entry into the Pacific, the fourth volume of the series.


Subject(s):International and Domestic Trade and Relations
Geographic Area(s):Asia
Time Period(s):19th Century

Imagining Consumers: Design and Innovation from Wedgwood to Corning

Author(s):Blaszczyk, Regina Lee
Reviewer(s):Calder, Lendol G.

Published by EH.NET (August 2001)

Regina Lee Blaszczyk, Imagining Consumers: Design and Innovation from

Wedgwood to Corning. Baltimore: Johns Hopkins University Press, 2000. xiii

+ 380 pp. $45.95 (cloth), ISBN: 0-8018-6193-4.

Reviewed for EH.NET by Lendol Calder, Department of History, Augustana

College, Rock Island, IL.

Regina Blaszczyk brings something new to the oldest question asked by

scholars of consumer society: who wields decisive power — the people

themselves, commanding business, their servant, or “captains of consciousness”

manipulating the imaginations of the many for the private gain of a few? It is

a large question that typically attracts large answers. Thus, debates over the

question of power relations in a consumer society tend to be characterized by

metanarratives (e.g., Marxist analysis), abstract theoretical concepts (e.g.,

hegemony), and common-sensical assertions (“producers and audiences shape each

other”). But in Imagining Consumers, Blaszczyk grounds her arguments

on something not seen before: a cornucopia of archival research, painstakingly

acquired from untapped company archives of key firms in the household

furnishings business. Blaszczyk’s conclusion is bold. “Make no mistake,” she

writes, “supply did not create demand in home furnishings, but demand

determined supply” (p. 13). Imagining Consumers is a careful,

fine-grained monograph whose claims are firmly tethered to its assembled

evidence. As such, it will hardly end debate over the nature of power

relations in consumer society. But Blaszczyk succeeds in accomplishing at

least this much: the bar is now raised for those who want to argue that

consumers are the victims of business interests that create and manipulate

consumer desire.

Blaszczyk’s decision to study the household furnishings industry is an

interesting, highly commendable choice. As a researcher and curator of several

exhibits on the glassware and pottery industries for the Smithsonian’s

National Museum of American History (she is now an assistant professor of

history and American Studies at Boston University), Blaszczyk became

dissatisfied with a tendency she observed in historical studies of consumer

society. Historians of consumerism, she noted, either neglect to consider the

point of view of the companies making the goods (which is sort of like

studying medieval society without taking seriously the Catholic Church) or

focus too much on corporate giants such as Procter & Gamble and Coca-Cola,

companies whose well-known successes at creating demand for new products are

not typical of the businesses she was studying. Thus, Blaszczyk directs

attention to a sector of the consumer economy most scholars know little about,

despite the fact that it made some of the most meaningful artifacts of the

consumer revolution, goods like glassware, china, pottery, and bakeware.

Between 1898 and 1916, products for table and kitchen took up a surprising

thirteen per cent of the annual incomes of American households (p. 130). But

the value of these goods may be better measured by examining photographs of

the interiors of late-Victorian and early-twentieth century homes. It wasn’t

Crisco tins and Coke bottles that were displayed in the ubiquitous china

hutches, buffet cabinets, and sideboards, but dinner sets bought at

Woolworth’s, glassware ordered from Sears, and porcelain bric-a-brac given

away as premiums by tea-stores. China and glassware were central in the

creation of consumers’ identities, especially for working- and middle-class

housewives who used them as credentials of respectability and as exhibits of

personal taste. Blaszczyk has interesting things to say about how men and

women participated in consumer culture, though in different ways. But her

central concern is to show the truth behind the dictum laid down by marketing

guru Paul T. Cherington in 1931: “The consuming public imposes its will on

the business enterprise.”

In four case studies spread across seven chapters, Blaszczyk lays out the case

for how this was so in the pottery and glass trades. In two of the industries

studied — glassware and tableware — manufacturers were quick to discover

that the golden road to profits lay not in shaping consumers but in “imagining

them,” i.e., guessing at what they wanted, and designing products for them on

that basis. A basic strategy for how this could be accomplished had been

established years before by the celebrated English potter Josiah Wedgwood.

Partnered after 1769 with the Liverpool merchant Thomas Bentley, Wedgwood

forged a successful business empire based on two innovations that American

glass and crockery companies would later adopt. The first contribution

affected marketing: instead of trying to shape demand, Wedgwood endeavored to

meet it. Adopting a methodological agnosticism on the subject of good taste,

Wedgwood depended on “fashion intermediaries” like the well-connected Bentley

to fine-tune a sense of what the public wanted. Since public tastes varied and

were constantly changing, Wedgwood’s second innovative practice followed from

the first: “flexible batch production.” At Wedgwood’s pottery works, short

production runs were used to cater to various niches of taste, so that from

week to week output was highly variable when it came to color, decoration,

style, and price. As practiced by Wedgwood and his later American imitators,

flexible batch production aimed not for homogenous mass production but for an

endless flow of novel lines calculated to please various groups of consumers.

Well suited for the diverse American market, flexible batch production came

to dominate the furniture, silver, rug, textile, glassware, and pottery

industries. It also effectively closed the circle of the Wedgwood business

strategy, leaving owner-managers too busy with factory matters to have much

time for scheming about ways to manipulate demand. Instead, Blaszczyk finds

that they spent all their energies on getting their audiences in focus.

Imagining Consumers devotes many pages to explaining how American firms

such as the Homer Laughlin China Company used “fashion intermediaries” to

generate new product designs. From 1865 to 1945, fashion intermediaries —

whose porous ranks included workshop artisans, shopkeepers, salesmen, retail

buyers, home economists, and early market researchers — were primarily

responsible for the way things in American homes looked. High-style craftsmen,

name designers, and taste reformers (such as the well-known Walter Dorwin

Teague) may have left historians a more interesting corpus of ideas to write

about, but Blaszczyk finds that in the household goods business those who

attempted to create demand or shape taste to a single national style usually

failed. This was a lesson that Wisconsin’s Kohler Company, a leading maker of

sanitary fixtures in the 1920s, found out the hard way. One of the most

interesting accounts in the book is how Kohler tried to use national

advertising, consumer credit, and innovative product design in the 1920s and

1930s to create demand for the electric sink (an early version of the

electric dishwasher) and for colored, stylish bathroom fixtures. Both attempts

to shape public thinking about bathroom and kitchen plumbing ended in dismal

failure. Corning Glass Works had a similar experience with Pyrex dishware,

until the company learned the lesson followed by Wedgwood, Homer Laughlin

China, and other successful firms selling household durable goods: women would

not buy products they did not want, no matter how much was spent on making

them want the right things.

Thus, Blaszczyk finds that the household furnishings industries, more so than

with Ford, Procter & Gamble, Coca-Cola, and other corporate giants, grasped

the nature of America’s heterogeneous society and the egalitarian potentials

of the consumer revolution. Her history complicates heroic narratives of how

businesses operate, stories featuring powerful corporations employing legions

of scientists, industrial designers, and advertisers to manufacture consumers

as well as products. On the contrary, imagining consumers with the help of

fashion intermediaries was a messy, uncertain business at best, a marriage of

guesswork about what consumers wanted to workshop knowledge of what it was

chemically and financially possible to manufacture. Nevertheless, as is

evident from the commercial success of Fiesta tableware compared with the

failure of 1930s industrial designers to arouse popular enthusiasm for

streamlining, companies that honored consumer sovereignty instead of trying to

elevate it or overpower it generally came out ahead.

A short review risks oversimplifying Blaszczyk’s richly detailed argument.

There is no over-arguing of the case here; looking beyond the household

furnishings trade, Blaszczyk describes the nature of relations between

business and consumers in general as “a complex dialogue” (p. 1). Evidence

that runs counter to the main thesis is admitted, such as the way crockery

merchants in the 1880s used lavish advertising to persuade Americans that

Continental porcelain was more desirable than English pottery. Why merchants

succeeded in manipulating taste here when so many others failed to do the same

is left unexplained as a mysterious exception that proves the rule. Some may

wonder whether Kohler, Corning, and the other business failures in the book

were simply luckless when it came to hiring good advertising talent.

On the question of desire and how it is formed and by whom, Blaszczyk is

neither philosophical nor the first to argue there is more power in the

consumers’ corner than often believed. But she is the first to show from a

business perspective how and in what sense consumers have exercised a degree

of sovereignty over the businesses offering them choices. We await the

scholars who can meld Blaszczyk’s evidentiary approach with the theorizing

that will be necessary to explain the nature, origin, and structure — the

metaphysics — of consumer desire.

Lendol Calder, assistant professor of history at Augustana College, is the

author of Financing the American Dream: A Cultural History of Consumer

Credit (1999).

Subject(s):Household, Family and Consumer History
Geographic Area(s):North America
Time Period(s):20th Century: WWII and post-WWII

New Spain’s Century of Depression

Author(s):Borah, Woodrow Wilson
Reviewer(s):Salvucci, Richard

Project 2001: Significant Works in Economic History
Woodrow Wilson Borah, New Spain’s Century of Depression. Berkeley: University of California Press, 1951. 58 pp.
Review Essay by Richard Salvucci, Department of Economics, Trinity University.

An Obscure Century in a Backward Country: Woodrow Borah and New Spain’s Century of Depression

In 1938, the English novelist Graham Greene traveled to Mexico to investigate the condition of the Catholic Church under the regime of President Plutarco El?as Calles. While there, Greene interviewed the strongman of San Luis Potos?, General Saturnino Cedillo. In the most memorable terms, Greene called Cedillo “an Indian general in an obscure state of a backward country.” So my title, I fear, is a plagiarism, but an appropriate one. For certainly some who read this essay will wonder why a brief (58 pages) book about seventeenth?century New Spain (as Mexico was then known) counts as influential at all, let alone very influential? After all, Lesley Simpson, an authority on Mexico, famously labeled the seventeenth as Mexico’s “forgotten” century, and everyone from Adam Smith to Thomas Jefferson thought the Spanish empire both backward and obscure.

Influence, of course, is a matter of audience. There must be few economic historians of Latin America and fewer still of Mexico who are unfamiliar with the work of Woodrow Borah and the so-called “Berkeley School” of historical demography. Even with prevailing intellectual fashions, it is hard to believe that most English?speaking historians of Latin America have not heard of Borah, although whether or not they read his work in graduate school or after is much less certain. So I might best define my task as to explain why New Spain’s Century of Depression, published in 1951 as number 35 of the University of California Press’s celebrated Ibero?Americana series, should be counted one of the truly important works of twentieth?century economic history, especially for those who have yet to make its acquaintance. I take it for granted that colleagues in my field would agree. But it is a small field, and I am under no illusion that even its best work is widely known, much less regarded as a crucial contribution to economic historiography.

Woodrow Borah, who died in 1999, was one of the outstanding members of the postwar generation of Latin Americanists that included Howard Cline, Charles Gibson, John Lynch and Stanley Stein. At Berkeley, Borah, who was Abraham D. Shepard Professor of History, was one of a stellar cast of scholars drawn from a wide range of disciplines — Sherburne Cook, George Foster, James Parsons, John Rowe, Carl Sauer, and Lesley Simpson come immediately to mind. They exercised a profound influence on each other, sometimes as collaborators, but more often as valuable colleagues. What emerged from their work was a distinctive scholarship that brought together striking research and insights drawn from the natural and social sciences, precocious social science history, you might say. And Borah, his prodigious reading, meticulous scholarship and personal austerity notwithstanding, was one of this group’s more daring and imaginative members. Indeed, in a rueful aside, Borah once told me that his critics (there were a few) had accused him of “inventing Indians,” and this he meant quite literally, not in the now prosaic historicist sense of the term.

The burden of New Spain’s Century of Depression was to suggest the impact of the massive decline of the aboriginal population of Central Mexico (whom we can simply, if incorrectly, call Indians) on the material prospects of the Iberian conquerors (whom we can simply, and equally incorrectly, call Spaniards) and their descendants. As Borah understood it, the intent of the Spaniards was to live off the labor of the dense Indian population they had encountered in Central Mexico, a population accustomed to the rule of a privileged upper stratum by generations of Mesoamerican conquerors of whom the Aztec were simply the most recent. The Spaniards’ intention was no mystery. They announced they had come to the “Indies” (wrong again, but who’s counting?) to get rich, and that they had no intention of tilling the soil “like peasants” in order to do so. To accomplish their goal, the Spaniards, victorious in the wake of Cort?s’ historic expedition, rewarded themselves with the famous encomienda, the right to extract labor from the Indians. For some, like Cort?s himself, the encomienda was the source of great personal wealth and social prestige, although others, including some of Cort?s’ outspoken critics, were less richly rewarded.

For the encomienda to function as an avenue of accumulation, evidently, there had to be Indians to be distributed. At the time of the arrival of the Spaniards, Central Mexico perhaps supported an Indian population as large as 25 million. Within a century, shockingly, the same Indian population had fallen to less than a million, the victims of European disease, massive economic disruption, and the destruction of a coherent civilization that the Spaniards willingly exploited but never really understood. It was one thing for the encomienda to yield a comfortable existence for the Spaniards when Indian labor was abundant. But, obviously, such a system could hardly be expected to function when the people who supported it had disappeared. And here, then, is the gist of the argument of New Spain’s Century of Depression. What happens to a system of colonial expropriation when the society on to which it is fixed essentially disappears?

A bald summary can hardly begin to capture the twists and turns of the research agenda that New Spain’s Century of Depression ultimately entailed. When Borah published it in 1951, Sherburne Cook and Lesley Simpson had produced the population figures for New Spain on which he relied. It would require fully another quarter century, down to 1976, for what are now the standard estimates of early colonial population to emerge. There was considerable controversy along the way, and to an extent, there still is. Yet it is important to keep several things in mind. Much of the controversy regarding the population of New Spain involves the pre?contact population. About the course of events after the Spanish invasion there is far less doubt. The Indian population fell, and it fell sharply within a century, on the order of 90 percent. From an economic standpoint, only one thing really matters: factor endowments. Before the Conquest, labor was the abundant factor in Mexico. By 1620, land had become the abundant factor. No amount of scholastic contention about how many Indians there “really” were can alter that.

The other point is that even if Borah used imperfect population figures or made arbitrary assumptions, his scholarship was sound. He knew the sources and was particularly well versed in the documents associated with the relaciones geogr?ficas, the reports prepared to give Philip II of Spain an idea of what his Mexican dominions contained. While these documents are widely available today due to the efforts of the Instituto de Investigaciones Antropol?gicas in Mexico, it must have required considerably greater difficulty to master them fifty years ago. The impression from reading Borah’s notes is of a reasonably extensive investigation of the archival and printed materials available in the 1940s. In other words, you need to know something about the history of colonial scholarship to appreciate what Borah and his colleagues at Berkeley accomplished and some of the critics simply did not.

The conclusion to which Borah came was straightforward. Beginning sometime in the 1570s, an “economic depression besetting the Spanish cities because of the shrinkage of the Indian base [would last] more than a century,” and a “large number of white families must have found themselves reduced from comparative wealth to straitened circumstances as the drag in the Indian population forced a downward spiral in the economy of the European stratum”(p. 27). Although Borah presented his findings as a “hypothesis of a century?long depression” or “a hypothesis which needs much additional investigation,” the hypothesis is generally accepted as settled fact. It was not until the early 1970s that the work of the English historian Peter Bakewell raised questions about the impact of population decline on the fortunes of silver mining, but Borah’s view of the economic circumstances of the settlers went largely unchallenged. Even John Lynch, whose brilliant synthesis, Spain under the Hapsburgs (1981), called into question the entire notion of a Mexican depression in the seventeenth century, did not address the crucial issue that Borah raised. How did the elite of Mexican society — in effect the advocates, bearers, beneficiaries and putative defenders of colonialism — adjust when deprived of the Indian population on which it depended? My suspicion is that New Spain’s Century of Depression seemed logically unassailable. Borah’s citation (p. 23) of Viceroy Velasco the Younger’s report to Philip II in 1595 was especially acute: “those who consume are many and the Indians who produce are few.” What more could be said?

If you have persisted this far, you may, perhaps, think otherwise or wonder at the peculiar way in which Borah shaped his investigation. Borah did not discuss the fate of the Indians, other than to note that they “seemed doomed to relentless extinction” (p. 28). And even so, life did not come to an end in Mexico in 1576, or 1626, or 1676. Emigration from Spain continued, a fact of which Borah was quite aware. Moreover, if Cook and Borah’s later research indicated that the Indian population reached its nadir around 1620 — Borah puts its size at 750,000 — it began to recover thereafter and probably continued to do so until the 1730s, when severe epidemic disease made is reappearance. A century of population growth in a preindustrial society, however slow, does not square easily with falling living standards. And other developments, particularly the growth of colonial textile production in the middle decades of the seventeenth century, give pause as well. If a “depression” had taken hold, and more people were producing more goods, what sort of a depression was it?

To the extent that there was much data available to answer the question — and by and large, there was not — Borah made some attempt to address the objections, postulating, for instance, the existence of not one, but two economies, one Spanish, the other Indian. But there was not much he could make of the distinction, although there was a hint as to where research might lead. A dramatic change in the land-labor ratio, with the Indian population falling by 90 percent, surely affected the marginal productivity of Indian labor.

However, as Borah pointed out (p. 21), it was inconceivable that rising productivity could have offset the sheer decline in the Indians’ numbers, but the upward drift in real wages of Indian workers in cloth manufactories toward the end of the sixteenth century suggests the horrible irony of a decimated Indian population now better able to sustain itself in the face of Spanish demands. Here was one reason for the subsequent recovery in the Indians’ numbers, along with greater resistance to European disease, more aggressive defense of the Indians’ interests by the Spanish Crown, and even changes in diet — the Spaniards brought chickens with them, which came to be a ubiquitous presence in rural villages. While Borah never said as much in New Spain’s Century of Depression, Borah and Sherburne Cook would go on to argue years later that the material conditions of a reconstituted Indian society may well have been higher than they were before the Conquest. So, in a sense, Borah’s argument about “depression” was potentially revolutionary even if, in some sense, it proved a trap to the unwary who did not think its implications through. The historical intuition was of a very high order, but it was exercised by a scholar who turned twenty in 1932; who hailed from Utica, Mississippi; and for whom the term “depression” was less a technical one than a shorthand for widespread impoverishment.

Another feature of New Spain’s Century of Depression should be attractive to economic historians. It concerns the nature of institutional change that occurred under the pressure of population decline in the sixteenth century. One is sometimes struck by the fact that much (but by no means, all) of the economic historiography that relies on institutions for explanation often does a poor job of explaining why a country has a given set of institutions to begin with. In Latin America, some mix of Divine Providence, Indians, bizarre political culture, difficult geography and dumb luck often seem to be the reasons for the existence of Mexican institutions. This, for all practical purposes, means that institutions are treated as exogenously given. Well, they aren’t, or at least, not always. While Borah, of course, never wrote in these terms, he carefully links the emergence of a Mexican regime of labor and land institutions to the shifting factor endowments with which the colonists had to work. For Borah, the ultimate significance of the dramatic decline of the Indian population was the emergence of the hacienda (which reflected increasingly abundant land) and debt peonage (which reflected increasingly scarce labor). Indeed, this was another central message of New Spain’s Century of Depression. The institutions that had given rise to the Mexican Revolution of 1910 — the hacienda and debt peonage — were a product of the seventeenth century and of the demographic disaster that had destroyed the Indians. This was a remarkably clear statement of what had long been the liberal view of the causes of the Mexican Revolution. Anyone who doubts its durability need do little more than read Alan Knight’s monumental history of the Revolution (The Mexican Revolution, 1986), which largely restates the old verities.

For an historian from Mississippi, an account of “debt peonage” as the defining characteristic of rural labor may not have been untoward. But what exactly one means by “debt peonage” is another matter. Borah’s position was a moderate one. This was not slavery, open or disguised (the enslavement of Indians was forbidden under most circumstances), but an Indian peon who owed a landlord, or, indeed, any employer money was legally required to work for that employer (and for him or her alone) until the debt was discharged. The notion that debt created a form of chattel slavery in rural Mexico does not seem to have entered the vocabulary until well into the regime of President Porfirio D?az (1876-1880, 1884-1910) and provided one explanation for the Revolution in a place like Yucat?n. For a time, colonial historians went to another extreme, intent on showing the agency of free peasants as makers of their own world. They forgot that seventeenth-century Mexico was an unlikely venue for the emergence of a smoothly functioning labor market in which buyers and sellers of labor had no recourse to force or fraud. Indeed, conquest is precisely about force and fraud, depriving the conquered of their possessions, and making them do things they otherwise would never do.

A more fruitful way of viewing the phenomenon of debt peonage — or simply workers’ indebtedness, for debt did not invariably impede their mobility — is to understand how it allowed employers to determine the rate of discount at which workers in a shifting, unstable, and terribly uncertain world valued future income. There is no point in beating around the bush. Life expectancy at birth for a Mexican in the colonial period was about twenty years, and in view of the catastrophic changes that had visited the Indian world since 1519, we can only conclude that Hobbes was right, and that Mexicans knew it. Their lives were short enough, and nasty and brutish as well. In a world in which only God (and whose God was up for grabs too) knew what the future would bring, it made sense for ordinary people to get as much as they could up front, which, after all, is all the “debt” part of debt peonage meant. This was just an extreme form of live for today, for tomorrow, literally, who knew? Workers bargained for better advances and often sought to enlarge them and employers understood this. The wide variance of debts reported by farms and factories for which we have records shows that their owners struck quite different bargains with different workers, a form of price discrimination that allowed them to “pay” no more than they had to, certainly less than raising wages to market-clearing levels. In fact, in the disorganized and fluid circumstances of the late sixteenth and early seventeenth centuries, when Indian villages were forming and reforming under the pressure of Castillian administration, it would have been impossible to gauge the overall willingness of Indians to leave their communities to work for wages, or even the willingness of their communities to allow individuals to leave, a point to which Borah was quite sensitive (pp. 41-42).

Besides, the point of indebtedness was not necessarily to reduce mobility. The Spaniards had other ways of doing so, which is another aspect of the system of land tenure they devised. As Evsey Domar once wrote, it is impossible to have free labor, free land and a nonworking landlord class simultaneously. One of the three must disappear. In Mexico, the Church prevailed in the 1540s in the struggle against the frank coercion of Indian labor. For most purposes, the labor of enslaved Africans was simply too expensive, even though there was a sizeable black population in seventeenth?century Mexico. No, the Spaniards made another choice, to deprive the Indians of access to free land, for free land they very well may have had. The dramatic decline in the Indian population left vast expanses of Central Mexico essentially empty, so what was to prevent the Indians from moving on to the land as a subsistence peasantry, to the lasting dismay of the Spaniards? The answer is that the Spaniards consciously set about driving the Indians into villages over which they could exercise some level of control, as Bernardo Garc?a Mart?nez demonstrated in Los pueblos de la Sierra (1987). At the same time, they sanctioned land?grabbing by the settlers, usually in amounts far in excess of anything the settlers could reasonably cultivate. At a stroke, the Spaniards accomplished two things. First, they shifted to a system of agriculture that reflected the abundance of land, a regime vastly different from the preconquest one based on the intensive use of labor, of which the famous raised?ridged fields (chinampas) of the Valley of Mexico were but one example. Second, they regularized the settlers’ land titles at the beginning of the seventeenth century, effectively transferring much land to Spanish control, whether or not it was cultivated. The hacienda thus circumscribed the ability of the Indian communities to survive independently of the Spanish economy, and in so doing, obviated the need for a draconian regime of forced labor, at least in Mexico.

This dramatic transition, from an economy based on intensive agriculture and the exploitation of a dense indigenous population, to one that relied on extensive agriculture and scarce Indian labor could not be accomplished rapidly. Moreover, the shift from an economy with relatively high levels of personal wealth in the form of Indians held in encomienda to a poorer one with fewer Indians and no encomiendas reduced New Spain’s capacity to import. It was now necessary to produce at home many goods that were, in the early years of the colony, imported through Spain. A reduction in consumption and a reorientation of expenditure toward investment was required to accommodate such a change. Borah, for instance, noted that the construction of churches tended to slow dramatically in the 1570s (p. 31), attributing this primarily to a redeployment of scarcer labor. (The demand for churches sadly fell as well, for there were far fewer souls to fill them.) For Borah, presumably, all this was a depression. To a later generation of historians, however, notably the British school headed by John Lynch, Borah’s “depression” was more a case of deferred consumption, the redirection of productive effort toward mining, manufacturing and farming that a colony living on its own required. None of this could have come easily or cheaply — the mining and irrigation works, the granaries, fences, sugar mills, ranches and textile manufactories absorbed resources. Hence, for Lynch and his followers, the apparent stagnation of the Mexican economy in the seventeenth century was just that, an apparent stagnation that marked the reorientation underway, one that would result in the visible renewal of economic growth under the Bourbon monarchs of the eighteenth century. It was not so much that Borah was wrong about what he had seen, but that he had, instead, seen wrongly.

Viewed fifty years after its publication, New Spain’s Century of Depression reads much like the pioneering work it was, full of insight, largely intuitive, sometimes wrong in detail and premature in judgment, but, all the same, arresting and audacious. It was, above all, a great work of history, for it sought to explain the present through the past, and to explain in simple but persuasive terms how what was distinctively Mexican, the play of institutions, political economy and an emerging social structure, came together out of the shock of the Conquest in the sixteenth and seventeenth centuries. If there is anything disappointing about New Spain’s Century of Depression, it is that the response to it has been admiration or assent from most students of Latin American history, but few studies in which appropriately trained scholars have undertaken the work necessary to establish Borah’s hypothesis fully, or to revise and extend it in ways consistent with contemporary population studies. That is the problem with writing a classic about an obscure century in a backward country: it is hard to get people to notice. Those of us who spend our time studying the history of Mexico know full well how important Borah’s elegant “hypothesis” was. It is time for mainstream economic historians, and, one hopes, their students, to develop an interest in replying to Woodrow Borah’s pioneering work as well.

Richard Salvucci teaches economics at Trinity University in San Antonio, Texas. He was a colleague of Woodrow Borah’s at the University of California, Berkeley, from 1980 through 1989. He works on the economic and financial history of Mexico between 1823 and 1884.


Subject(s):Historical Demography, including Migration
Geographic Area(s):Latin America, incl. Mexico and the Caribbean
Time Period(s):17th Century

Reflections in Bullough’s Pond: Economy and Ecosystem in New England

Author(s):Muir, Diana
Reviewer(s):Knodell, Jane

Published by EH.NET (May 2001)

Diana Muir, Reflections in Bullough’s Pond: Economy and Ecosystem in New

England. Hanover, NH: University Press of New England, 2000. x + 312 pp.

$26 (cloth); ISBN 0-87451-909-8.

Reviewed for EH.NET by Jane Knodell, Department of Economics, University of


This is a history of the material lives of the peoples who have lived in the

area we know today as New England, starting with the original

hunter-gatherers, dwelling on the farmers and mechanics of the nineteenth

century, and ending with affluent suburban commuter-consumers. The author,

herself a New Englander of the latter variety who lives on Bullough’s Pond in

Newton, Massachusetts, is interested in the way in which the material

conditions of life have, time and time again over the span of tens of

thousands of years, eventually encountered ecological constraints, and in the

way New Englanders have repeatedly responded. The story is punctuated by two

“revolutions,” the Neolithic and the Industrial, which were the responses to

two different ecological-economic crises, and ends with the author’s

contemplation on the need for a comparable third revolution today.

The book’s scope is fairly vast. Its contribution is to weave disparate social

and natural scientific literatures together into a well-written, interesting

narrative. This is history made palpable and personal, written by one who has

hiked New England’s mountains and wandered along its beaches. It is written to

enlighten a general audience, not to engage in scholarly debate (although Muir

draws on a number of literatures within economic history and does not hesitate

to stake a claim here and there). Muir starts at the beginning. Drawing on

archeology, anthropology, and ethnohistory, she explains how, after early

hunter-gatherers depleted the population of large game animals, they

eventually turned to agriculture (the “Neolithic Revolution”) combined with

fishing and small game hunting in managed forests. This way of provisioning

depended on an ample supply of forested land near the coast, a supply which

was being depleted as the first Europeans arrived in southern New England. But

before the “crisis of coastal deforestation” could be joined, the native New

Englanders faced a crisis of “extermination” through exposure to Old World

diseases to which they had no immunity (pp. 21-22). This, of course,

facilitated the settlement and expansion of the European population.

We hear very little about the fate of the original New Englanders from this

point on, as the author turns to the colonial economy created with the

migration of the Puritans and the westward expansion of the European

economies. From the very beginning, immigration, and then export markets

provided the external demand needed to propel a largely agricultural economy

forward. By the late eighteenth or early nineteenth century, given the

British-imposed limit on westward settlement, this economy had occupied all

the decent farmland. The response? Manufacturing, followed by

industrialization — the second revolution. For Muir, the threat of a decline

in economic status was a powerful incentive to entrepreneurship. Although the

region “faced the prospect of economic decline, . . . standards of nutruition,

health, and education were high enough to enable men to search for new ways

to earn a living” (p. 107).

Shoes were the most successful of many preindustrial solutions. The book

details the advance of protoindustrialization and the peddling system of

distribution in the early nineteenth century, by which time the region was no

longer feeding itself. Muir suggests, though, that economic decline would only

be forestalled once Yankees began to invent “machines that made machines.”

Muir does a masterful job of reviewing the important inventions and process

innovations that culminated in mechanized production across the array of

consumer and capital goods produced in New England. Government munitions

contracts helped to fund the development of new metal-working tools and

processes, which were then adopted in other sectors. Along the way, the motive

shifted from preserving a middle-class way of life to earning greater profits

from standardization, lower costs, lower prices, and greater sales. This was

now an economy organized around the principle of expansion which faced

barriers to expansion located within itself (in this case the size of the

internal market), not in nature. And it was an economy that would subsequently

fail to avert economic decline in the early twentieth century, but this

receives relatively little attention here other than to credit federal defense

spending for the postwar Massachusetts Miracle.

The ecological angle comes back in as Muir details the environmental

degradation brought about by industrialization and urbanization. We learn

about the ecological impacts of agriculture, husbandry, charcoal production,

mills and dams, commercial logging, city sewers, and commercial fishing.

Although the earlier material ways of life also changed their natural

environments, modern industry and modern life have degraded the rivers,

forests, and atmosphere in ways that now, Muir argues, threaten to undermine

our well-being. Muir hopes that the pressure of population on limited

resources is pushing us into a Third Revolution, in which we will develop and

adopt alternatives to fossil energy. But it is far from clear that either the

profit incentive, assisted by government fiscal policy, as in the Second

Revolution, or declining living standards among those in a position to address

the problem, as in the First Revolution, will move us in this direction.

Jane Knodell conducts research on the evolution and performance of antebellum

monetary institutions, with an emphasis on interregional payments and finance.

She recently published “The Demise of Central Banking and the Domestic

Exchanges: Evidence from Antebellum Ohio”, Journal of Economic History,

September 1998. At the University of Vermont, she teaches a course on the

economic history of early New England.

Subject(s):Historical Geography
Geographic Area(s):North America
Time Period(s):General or Comparative

Political Institutions and Economic Growth in Latin America: Essays in Policy, History, and Political Economy

Author(s):Haber, Stephen
Reviewer(s):Hanley, Anne

Published by EH.NET (April 2001)


Stephen Haber, editor, Political Institutions and Economic Growth in Latin America: Essays in Policy, History, and Political Economy. Stanford, CA: Hoover Institution Press, 2000. x + 294 pp. $18.95 (paper), ISBN 0-8179-9662-1.

Reviewed for EH.NET by Anne Hanley, Department of History, Northern Illinois University.

Political Institutions and Economic Growth in Latin America is a book of essays that explore the important question of how, when and why institutions — the rules and regulations that permit and bound economic behavior — matter in the process of economic growth and development. There is widespread agreement among social scientists that institutions matter, but because this relationship is so difficult to test social scientists are unsure which institutions affect growth and to what degree. The principal problem, it seems, is that most research has studied cases that have long histories of well-developed markets. The question becomes one of feedback. Did the market evolve in anticipation of or in reaction to institutional innovation?

Stephen Haber, the editor of this volume as well as a contributor, argues that to truly test this hypothesis the social scientist needs cases where uncertainty and upheaval, rather than successful institutional and market evolution, reigned. We need cases where institutions departed from the progressive path to actually reduce property rights; where political regimes shifted abruptly; where social and economic revolutions made it impossible for markets to anticipate institutional change. What we need, in short, is to study Latin America. Latin America’s instability is so great, so legendary, that it makes it not just a possible laboratory but the perfect laboratory to test the central tenet of institutional theory.

The five essays in this volume, the product of a collaborative research symposium held at the Hoover Institution in 1998, examine a range of notions we hold to be true: access to capital is good for business development, railroads reduce costs and generate gains for the economy, education is critical to improving income levels and hence standards of living, clearly-specified contracts lower transactions costs, politicians can muck up the best of economies. The innovation is that the authors devise tests to measure how these truths behave in the face of political institutions that enhance, distort or diminish their power to transform economy and society.

The theoretical point of departure that binds these works together “is the notion that economic institutions cannot be studied in isolation from the institutions that regulate politics. Economic institutions, and their enforcement and refinement … are the result of both interest group demands and the specific features of decision making in the polity, which themselves are governed by institutions” (p. 10). Thus, the study of the origins and consequences of economic institutions also requires that we study the institutions that structure political decision making. The result is a powerful set of insights into Latin America’s persistent failure to break out of its poverty and rectify its inequality.

Stephen Haber takes the idea that access to capital is good for business development and applies it to Brazilian textiles to demonstrate how well-developed capital markets matter in economicgrowth. A sudden shift in political regimes brought on by a coup in 1889 ushered in a government friendly to business. This government, reversing decades of ambivalence toward domestic development, introduced sweeping changes to the regulatory environment that made it easy to form limited-liability joint-stock companies. The resulting improvements to capital mobility, Haber argues, promoted rapid industrial growth after 1890. In a rich and multi-layered analysis of the textile industry from 1866 to 1934, Haber finds that the joint-stock firms formed after the 1890 reform were larger, had higher rates of investment and growth, and higher total factor productivity than the private firms formed both before and after 1890. Institutional reform, then, created a positive environment for economic growth.

Alan Taylor addresses the stark fact that the gains of the early twentieth century, like those identified by Haber, didn’t last. Capital flows to Latin America dried up after the 1930s and incomes have fallen farther behind both the OECD and the Asian NICs ever since. For Taylor, who uses capital accumulation as a proxy for growth, an important part of the story lies in capital controls introduced by economic nationalists in the 1930s. Comparing Latin America to Asia, Taylor finds the greatest long-run distortions in the price of capital (hence its supply) in countries that actively intervened with capital controls to manage their economy vis-a-vis a disintegrating world order. Taylor correlates the propensity to intervene with the type of political regime and finds that the interveners had greater tendencies toward populism and even democracy than the regimes that didn’t intervene. In reading this essay one can’t help think that autocratic regimes allowing little competitive political participation might have produced a better record of economic growth for Latin America. Indeed, observes Taylor, Robert Barro’s “alarming claim that too much democracy may be bad for economic growth” is echoed in his findings for Latin America (p.152).

The idea that regimes responding to interest group pressures sacrificed growth for political gain is reinforced in William Summerhill’s outstanding essay on the distribution of railroad subsidies in nineteenth-century Brazil. He shows, as expected, that railroads reduced costs and generated gains for the economy. These gains could have been greater, however, because most of the rail lines generated an incredibly low or even negative social rate of return. Was the Brazilian government that bad at allocating its subsidies? From an economic standpoint the answer is yes, says Summerhill, but economic efficiency did not determine the placement of railroads. Political considerations did. This representative, majority rule, centralized government allocated benefits to regional projects via vote in parliament. This meant that provinces with more seats, and therefore more voting power, were more likely to capture the subsidies. The resulting railroad network corresponded to political benefits rather than economic efficiency, and the gap between the two “proved particularly acute in the context of low levels of overall productivity and income” that prevailed in nineteenth century Brazil (p. 64).

Productivity and income can both be increased by investment in human capital through education, but this is an area in which Latin America has clearly lagged behind other New World nations. In an engaging study comparing public education policies among New World countries Elisa Mariscal and Kenneth Sokoloff ask why only a few of the prosperous societies arising out of European colonization supported the establishment of primary schools. For them, the answer lies primarily in the extent of political participation. Analyzing data from across the Americas they find a strong positive correlation between the extent of the franchise and the spread of primary schools. In the US and Canada, adoption of universal (white) male suffrage in the nineteenth century was followed almost immediately by movements for tax-supportedschools. The many taxed themselves to provide schools for their children. In nations of restricted suffrage, however, universal education would require the few holding the right to vote to tax themselves to pay for the education of the rest. Since most nations of Latin America had either wealth or literacy voting requirements in the nineteenth century, political inequality was pronounced. Country by country data show this political inequality was responsible for regional differences in schooling. Given what we know about the strong relationship between education and income attainment, this is a powerful way of explaining Latin America’s poor record on equality and development.

Alan Dye’s research on Cuban sugar cane contracts rounds out this inquiry into political institutions nicely because it spans a period of no government meddling followed by active meddling and suggests how political considerations distort the efficient allocation of resources. In the pre-meddling period, cane supplies were delivered by independent growers to central mills based on contracts negotiated between grower and miller. Left alone, these parties over time worked out contract provisions that successfully reduced the costs of transacting cane. Overcapacity and international crisis in the 1920s and 1930s disrupted this relationship, however, when the government intervened to fix quotas for growers and millers. The reason for this intervention was political: the least efficient mills turned out to be Cuban owned while the more efficient mills were foreign owned. The quota system protected Cuban growers and millers in an environment that almost certainly would have wiped them out, but the action compromised long-run growth. Dye finds that sugar-to-cane yields, which had been making steady gains up to the 1920s, stalled as a result of economic nationalism.

The essays in this book, as well as the comments and critiques provided in a concluding chapter by Douglass North and Barry Weingast, all raise questions, qualifiers, and caveats that provide additional avenues of research into the relationship between political institutions and economic growth. The strongest case for research, implied but largely unstated here except in Summerhill’s concluding remarks, is that Latin America’s poor growth record has far more to do with local institutional arrangements than with the external culprits championed by dependency theory. The fine articles brought together by Stephen Haber in this volume demonstrate the power of wedding economic history to institutional history and the promise of doing so in the Latin American laboratory.

Anne Hanley is author of “Business Finance and the S?o Paulo Bolsa, 1886-1917″ in John Coatsworth and Alan Taylor, editors, Latin America and the World Economy since 1800 (Harvard University Press, 1998) and is currently writing a book on the role of financial institutions in Brazilian economic modernization.


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

The Conditions of Agricultural Growth: The Economics of Agrarian Change under Population Pressure

Author(s):Boserup, Ester
Reviewer(s):Federico, Giovanni

Project 2001: Significant Works in Economic History

Ester Boserup, The Conditions of Agricultural Growth: The Economics of Agrarian Change under Population Pressure. London, G. Allen and Unwin, 1965; Chicago: Aldine, 1965. 124 pp.

Review Essay by Giovanni Federico, Department of Modern History, University of Pisa.

Population, Agricultural Growth and Institutions: The Real Long-Run View

This may be an unusual review for the series. In fact, Ester Boserup was not a professional economic historian and this is not properly speaking a work of history. Boserup was part of the staff at the United Nations and she wrote the book out of her experience as a consultant in developing countries. The book does not discuss in depth any specific historical event, and quotations of historical works are rather rare. It nevertheless is one of the most widely quoted works in economic history. Usually, it is labeled as “anti-Malthusian” and encapsulated with a sentence such as “population growth causes agricultural growth.” This is undoubtedly an implication of her model and comes in handy to scholars who do not believe that the (human) carrying capacity of a given area is set, and cannot be exceeded. From this point of view, one can draw a parallel between The Conditions of Agricultural Growth and another highly influential book, Amartya Sen’s Poverty and Famines: An Essay on Entitlement and Deprivation (Oxford 1981), which dismantled another tenet of Malthusian theory — i.e. that famines were always (or mainly) caused by absolute deficiency of food.

However, Boserup’s book is much more than a simple rejection of Malthus. It aims at explaining all the characteristics of agriculture in any specific area and time according to the resource endowment — the land/labor ratio. The more dense population is, the more intensive cultivation becomes. Agrarian economists in the 1950s focused on the Western world, and thus they could appreciate only a relatively narrow range of techniques. Looking at less developed countries, Boserup could list five different agricultural systems, according to the length of fallow between periods of cultivation (pp.15-16): 1) forest-fallow or slash and burn (15-20 years of fallow), 2) bush-fallow (6-10 years); 3) short-fallow (1-2 years); 4) annual cropping (a few months); 5) multi-cropping (no fallow). Even if the original evidence comes from the observation of primitive societies in the 1940s, the leap from changes in space to changes in time is short. Thus the rest of the book explores the consequences of intensification — i.e. of the move from one stage to another caused by population growth. Each of them entails more labor per unit of (total) land, and thus the intensification increases the productivity of land and reduces that of labor. A household has to work more to keep the same level of income. The intensification brings about an improvement in tools (from the digging stick, to the hoe, to the plough) and in the long run also brings some investments in land improvement (e.g. irrigation schemes). With pre-industrial technology, land improvements had to be done manually by peasants. Thus, they are typical of the last stages of the process, when there is enough work-force and enough demand for food to justify them. Total factor productivity may increase in the long run, but surely most of the increase in total output is achieved with a massive growth of work effort by the agricultural population. Finally, the intensification also shapes institutions, and this is the most innovative aspect of Boserup’s model. The forest-fallow system is inconsistent with household property of any given plot of land. The land belongs to (or more precisely is exploited by) the tribe as a whole. Property rights have to be created only when the cultivation cycle is shorter, and the quality of each single piece of land begins to matter. In the later stages of development some people could cease to work, and be entitled to rights to a part of the product (a “two-tier” society). However, Boserup is not nostalgic about primitive societies. She makes it crystal clear that the “two-tier” societies are better, even if in these latter some men did not work as hard as others.

Some years later, Boserup extended her model from agriculture to the whole of society (Population and Technological Change: A Study of Long-term Trends, Chicago, 1981). She added the concept of economies of scale. Many technologies can be properly exploited only if the population is dense enough. Population growth makes urban civilization possible. The second book is highly interesting, and has many insightful passages. Yet it fails to reach the simple elegance of The Conditions of Agricultural Growth — that quality which makes this book really deserving of being added to this list of masterpieces.

Of course, one could quibble endlessly about the “details” of Boserup’s model such the number and the exact features of the “stages.” The overall view provides a short, but powerful, history of the world, from prehistory to the nineteenth century arranged around one of the basic principles of economic theory — that techniques (and much else) depend on resource endowments. As you would expect from a seminal work, The Conditions of Agricultural Growth launched and refocused many modern debates. Let me give two examples. When Boserup was writing, the British agricultural revolution (i.e. the change in rotations with the substitution of fodder crops for fallow) was considered an epochal change with far-reaching implications for the entirety of world history. This view is still diffused, if no longer dominant. In Boserup’s model, the change is only part of the long-run process of world-wide intensification, and Europe was trailing behind the two other major civilizations, India and China. In fact, the most advanced areas of Europe reached Stage 4 while China was already at Stage 5. Another, and perhaps less obvious, example may be Greg Clark’s thesis on the differences in work intensity between Eastern Europe and the West (including the US). He argues that in the early nineteenth century Eastern Europeans were less productive than Westerners, because they worked less hard, and that they worked less hard because “they were different” (Clark, “Productivity Growth without Technical Change in European Agriculture before 1850,” Journal of Economic History, Vol. 47, 1987, p. 431). The thesis is very controversial (see the subsequent debate with John Komlos in the Journal of Economic History, in 1988 and 1989), but let’s assume it is true. Is it not possible that the “different” work ethic had been shaped over the centuries by different land/labor ratios? Other examples could follow, but the main point is clear: Boserup’s book is a treasure-trove of ideas. Unfortunately, it is more often quoted than used in actual research. As far as I know, there are very few really “Boserupian” works — i.e., long-term analyses of agricultural change as driven by changes in factor endowments. The most ambitious is Kang Chao’s book on Man and Land in Chinese Economic History: An Economic Analysis (Stanford 1986).

Why this (relative) neglect in spite of the so frequent quotations? One can put forward three causes, which are not mutually exclusive. The first is academic specialization. Intensification lasted for centuries, even for millennia, and few scholars would feel at ease in discussing both pre-historical agriculture and nineteenth century techniques. This fate is common to all interpretations of long-term change (cf. J. L. Anderson, Explaining Long-term Economic Change, Basingstoke, 1991). Second, the evidence on early-stage societies is very scarce, and by its nature it is often unfamiliar to historians. “Real” historical sources exist for Western Europe, China and India in the last three stages.

Last, but not least, the model has its own weaknesses. It is surely convincing as an account of long-term growth. It is less convincing as an explanation of short-term trends, and in this case the “short” term can last for decades. Boserup speaks as if all the techniques were known since the beginning, so that the population had only to choose the one best suited to its resource endowment and adjust its institutions if necessary. On the contrary, new techniques had to be learned, and sometimes discovered or re-discovered. In backward economies, information travels very slowly or not at all, and thus a people may not know that another one, maybe hundreds or thousands of miles away, has successful managed to overcome a specific problem. And, even if it gets to know the right technique, plant, or implement, the population still may need time and effort to master it and to adapt it to its own environment. Thus a success in the long run may conceal several short-term crises. Outright failure cannot be ruled out entirely.

Second, Boserup assumes that population growth is exogenous, following a standard practice among economists in pre-Beckerian time. Today, however, most consider population growth to be endogenous, and largely affected by economic calculations. People could reduce population increase by delaying marriages, controlling births, migrating and the like. Slower population growth would, ceteris paribus, reduce the drive to agricultural intensification. This is, of course, an empirical issue.

Finally, Boserup seems to neglect the different nature of modern technology or, if you want, the new role of capital. Her world is a two-factor world — labor and land. As said, capital does exist either as simple tools or as labor-intensive investment projects — but not as labor-saving machinery and above all land-saving fertilizers. In her world, intensification is possible up to a point, but sooner or later it has to reach a limit. It is unclear whether in real history this limit had ever been reached, even if China in the eighteenth and nineteenth centuries may be a good candidate. Aside from China, even in, say, 1800 there was a lot of “free” land on the Earth and thus a “Malthusian” crisis was still far away for the world as a whole. But sooner or later, a limit had to be reached, and further population increase beyond it was bound to cause a Malthusian crisis (even if smart people may prevent it with birth control). As everyone knows, the solution was technical progress, which has increased the productivity of both land and labor. (One wonders whether there are ecological or maybe ethical limits to technical progress). Boserup should have added a Stage 6 to her intensification model. Of course, she was very well aware of the technical progress, but she did not. One may speculate that she was more interested in less developed countries than in advanced countries, or simply she did not want to add a stage which could not fit easily in a model based on the length of fallow.

It is too easy to criticize ex post with the hindsight of decades of research. In spite of all its shortcomings, The Conditions of Agricultural Growth remains a small masterpiece which economic historians should read — and not simply quote.

Giovanni Federico is the author of An Economic History of the Silk Industry, 1830-1930 (Cambridge University Press, 1997) and (with Jon Cohen) The Economic Development of Italy, 1820-1930 (Cambridge University Press, forthcoming for the Economic History Society).


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

The Cambridge Economic History of the United States, Volume III: The Twentieth Century

Author(s):Engerman, Stanley L.
Gallman, Robert E.
Reviewer(s):Libecap, Gary

Published by EH.NET (March 2001)


Stanley L. Engerman and Robert E. Gallman, editors, The Cambridge Economic History of the United States, Volume III: The Twentieth Century. New York: Cambridge University Press, 2000. vii + 1190 pp. $99.95 (cloth), ISBN: 0-521-55308-3.

Reviewed for EH.NET by Gary Libecap, Department of Economics, University of Arizona.

This is, of course, a volume about an extraordinarily successful economy in the twentieth century. Surely, in terms of individual welfare and economic advancement, there has been no parallel in human history. We not only are extremely lucky to be part of it, but are challenged to understand its origins and progress across the century. This volume is indispensable for such an undertaking. The chapters address key aspects of the American economy and are written by leading scholars in the field. In this review, I summarize some of the highlights from each of the seventeen chapters. There is a very useful bibliographic essay at the end of the volume for more details on the broad patterns described in each chapter. This is the third volume in the Cambridge series on the development of the American economy, and one that serious economic historians will want to have readily available for reference in research and for use in the classroom.

The volume appropriately begins with an overview of the macro economy, “American Macroeconomic Growth in an Era of Knowledge-based Progress: The Long Run Perspective,” by Moses Abramovitz and Paul David. The introduction provides an excellent summary of the recent history of the American economy. Abramovitz and David point out that in the twentieth century there was a shift from extensive productivity growth that characterized the nineteenth century to intensive growth that relied more on technological and organizational change. This is sensible since the American economy moved from a frontier, natural-resource-based economy to a more mature, technology, energy-based economy. While late nineteenth-century technological change tended to be capital using and labor saving, twentieth-century technological change was more intangible capital using and tangible capital and labor saving. Data are provided detailing changes in total factor productivity growth in the transitional decades of 1879 to 1909. Beginning at this time, there was a shift to a greater role for intangible assets — education and training and organized investment in R&D — that would define the twentieth century. Key areas in the new economy were electricity, telecommunications, petroleum, the internal combustion engine, and later, the digital computer. Abramovitz and David outline the rising global position of the American economy over the century. They begin with a statistical profile of American growth since 1800, noting measurement problems, in the early period due to a lack of basic data and in the later period due to problems of comparability and definition of inputs and outputs. Interpretation of production during wars also presents challenges. Many of these issues are familiar to economic historians and were raised in Volume II of the Cambridge series. The authors examine what measured growth fails to capture in reflecting well-being, chiefly improvements in product quality and introduction of new goods and services for consumers whose qualities are not well represented in standard consumption bundles.

Over the twentieth century, the American population became more urban, more western, and more geographically mobile. In Chapter 2, “Structural Changes: Regional and Urban,” Carol Heim outlines the broad regional and urban/rural shifts that have taken place. Cities have grown and regionally, the West and South have gained, especially in the post-WWII period in terms of population and income per capita. There has been general convergence in population and income per capita across the country over the century. Heim emphasizes market and non-market forces, and what she calls hypermarket factors, resource decisions within large firms, in explaining these trends. As part of urban/regional changes, there has been a shift from manufacturing to service, an issue addressed later by Claudia Goldin in her chapter on labor markets. The chapter includes useful data by region on the breakdown of gainful employment by major sector in geographic divisions that reflect the major trends of the century.

The U.S. experience in the twentieth century was really a North American experience, and the growth of the Canadian economy is described in Chapter 3, “Twentieth Century Canadian Economic History,” by Alan Green. He has a particularly heavy load to carry, describing one hundred years of Canadian development in a single chapter. The patterns are similar to those observed for the United States with increased urbanization and industrialization and a movement away from the older wheat and timber-based economy. He points out, however, that the Canadian economy in the 1970s shifted to new natural resources — oil and iron ore production. All in all, Green outlines a record of economic and population growth that for many periods exceeded that of the United States. He briefly examines the sources of economic growth — increases in factor inputs and the growth of total factor productivity. Most interesting is his overview of the wheat economy from 1896-1929, which includes a description of the wheat boom and the staple theory of growth. Green summarizes Canada’s experience with the Great Depression, and although the Canadian economy suffered a sharp drop between 1929 and 1933, as did the U.S., there was a noticeable rebound thereafter that exceeded that of the U.S. The Canadian economy continued to grow, until a slowdown after 1973, where it performed less well than its southern neighbor.

Chapter 4 returns to the American economy with “The Twentieth-Century Record of Inequality and Poverty in the United States” by Robert Plotnick, Eugene Smolensky, Eirik Evenhouse, and Siobhan Reilly. Many of the chapters in the volume address the growth of the economy. This one examines distribution. The authors define inequality and poverty, with the poverty rate equaling the proportion of the population with income below a particular income level fixed in real terms. Inequality was at its highest levels in the century during the period from 1900 to World War I. It then declined during the war, but rose once again through 1929. Inequality fell during the Great Depression and WWII and continued to fall until 1967. It was flat and then trended upward after 1979. The authors claim that there is no single factor that underlies the record of income inequality. In the latter part of the century, where the data are the best, labor supply and demand factors play key roles. After 1979, increases in the demand for skilled labor and technological change bias toward skilled labor led to a premium for those workers. Additionally, there have been changes in the composition of industry, with a shift away from manufacturing toward services, that have increased the earnings of skilled labor and reduced the relative position of the less skilled. The end of the chapter contains an assessment of the public policy effects of tax and expenditures on inequality. The authors find that despite substantial changes in the level and composition of government spending programs in the post-WWII period, there has not been a detectable impact on the trend of inequality. Turning from inequality to the issue of poverty, there has been a clear, generally persistent downward trend through the century. The elderly have experienced a marked decline in poverty, but single-parent households have done less well. In assessing the effects of government programs on poverty, the authors conclude that policies have tended to reinforce, not offset, market factors. The chapter ends with very useful data appendices.

Certainly, one of the major events of the American economy during the twentieth century was the Great Depression, and Chapter 5, “The Great Depression,” is by a leading scholar of the issue, Peter Temin. Temin argues that credit tightness explains most of the fall in production and prices during the first phase of the depression. He discusses the confounding effects of five events that have been cited in the literature as contributing to the start of the depression — the stock market crash, Smoot-Hawley tariff, the first banking crisis, the world-wide decline in commodity prices, and a decline in consumption. He examines the role of the Fed and its adherence to the Gold Standard. Temin argues that a serious macroeconomic downturn due to these factors was turned into the Great Depression by the Federal Reserve’s actions in late 1931 to preserve the Gold Standard. The devaluation that followed the movement off the Gold Standard by the Roosevelt Administration was not followed by aggressive fiscal policy so that the economy deteriorated sharply through 1933. There was recovery between 1933 and 1937, before another downturn. Temin discusses the first New Deal and the actions of the NIRA and AAA and then briefly turns to the second New Deal. Gold inflows from an increasingly unstable Europe increased the money supply, and this helped fuel the recovery through 1937. But government policy brought about an end to that recovery with the recession of 1937. Recovery followed in 1939, largely stimulated by new gold inflows and then the build up for World War II.

Besides the Depression, the other major events of the twentieth century were wars, and in Chapter 6, “War and the American Economy in the Twentieth Century” Michael Edelstein, attempts to gauge the costs of war. This is a very interesting and ambitious chapter. During the twentieth century, there were four major military conflicts — World War I, World War II, the Korean War, and the Vietnam War — along with the Cold War. These conflicts demanded considerable change in the amount of resources devoted by the United States to military activities, which were quite small in the late nineteenth century. Edelstein gauges the direct and indirect costs of these wars, with the direct costs being expenditures for labor, capital, and goods, and the indirect costs including the lost lives, injuries, and destruction of capital and land. Estimates are provided for each as a share of GNP in Table 6.1. The Cold War was the most costly conflict in terms of direct expenditures. Edelstein then turns to the financing of these military conflicts, examining total expenditures and their funding through taxes, borrowing and inflation. Financing approaches are outlined in Table 6.2-6.9. One long-term effect was the apparent permanent increase in the income tax, which was raised by the Revenue Acts of 1941 and 1942. WWII and Korea were financed more by taxation, while Vietnam more by inflation. Finally, Edelstein examines the opportunity costs of the wars by examining the lost capital and investment in public and private enterprises, as described in tables 6.10-6.12. WWI’s opportunity costs included a reduction in nondurable goods consumption and investment in residential and business structures. WWII, held back any growth in consumption, and reduced investment, and the Cold War, Korea, and Vietnam reduced non-durable consumption and relied on deficit financing.

Another broad trend of the twentieth century was the growth of international trade. Peter Lindert, in Chapter 7, “U.S. Foreign Trade and Trade Policy in the Twentieth Century,” examines changes in America’s competitive advantage, the goals of government policy, and their impact on trade. Over the century, he finds a steady increase in the advantage of American skill-intensive goods, with exports increasing. This was not the case for natural resource-based exports. Lindert notes that some industries lost competitive advantage over time, particularly, steel and autos. Although protectionism rose and fell, efforts to promote infant industries never dominated U.S. trade policy. Lindert concludes that U.S. government intervention played no major role in determining which sectors increased or lost competitiveness. Market forces were dominant.

Chapter 8, “U.S. Foreign Financial Relations in the Twentieth Century” by Barry Eichengreen, continues the examination of international trade and monetary patterns. This is one of the best summaries of the financial history of the twentieth century I have seen. It is so complete that students should find it especially useful. The theme of the chapter is that international financial transactions and the institutions that governed them significantly influenced the growth and formation of the American economy. More narrowly, foreign investment led to railroad construction, and more broadly, the business cycle and responses to it were shaped by international capital flows. A related theme is that U.S. financial flows have affected other economies. U.S. capital contributed to European reconstruction following WWI and less positively, transmitted the American depression in the 1930s to other economies. American capital flows had an even greater impact after WWII. Eichengreen examines the gold standard and international financial management during WWI and the associated transformation of U.S. foreign finance. He notes that the United States became more of a creditor at that time, raising policy tensions for balancing internal and external financial markets. This tension was very apparent during the start of the depression, when the U.S. retreated from its international financial position with devaluation and the move off the gold standard. World War II and post-war reconstruction once again increased the role of the United States in the international monetary system. Eichengreen cites Lend Lease, other foreign aid through the Marshall Plan, international borrowing for reconstruction, the Bretton Woods Conference, and the IMF as examples of the key contribution provided by the U.S. in the latter part of the century.

Chapter 9, “Twentieth Century American Population Growth,” by Richard Easterlin shifts attention from financial flows to demographic patterns. This chapter by another leading scholar in the field provides valuable demographic data and charts that outline key trends. Easterlin summarizes patterns that emerged during the century — fertility and mortality continued to decline — and discusses contributing factors. Internal migration to the West, noted earlier in the volume by Carol Heim, is examined in more detail. During the twentieth century, international migration ebbed and flowed, and by the end of the period became a major contributor to population growth. Easterlin concludes with discussion of the implications of the general aging of the population, a pattern offset somewhat by immigration.

Another very complete and useful chapter is by Claudia Goldin, “Labor Markets in the Twentieth Century,” Chapter 10. Goldin summarizes major trends in American labor markets and provides valuable data to demonstrate those trends. Labor gained enormously over the century in terms of increases in real hourly earnings, enhanced worker benefits, reduced hours per week, a reduction in years of work over lifetime, and greater security in the face of unemployment, old age, sickness, and job injury. Goldin argues that these improvements were not really due to union activity or to legislation. They mostly followed from market conditions. Over the century, the face of labor changed. There was a decline in child labor and work by the elderly. The labor force participation of women, however, rose sharply from around 18 percent at the turn of the century to close to 50 percent of the labor force by the end. There were other changes in the labor market, including a shift from manufacturing to service with greater emphasis on skill. The distributional implications of this change in labor markets were noted earlier in Chapter 4. Goldin also points out that workers gained more protection from unemployment, acquired more formal education, and developed increased long-term relationships with firms over the century. At the same time, less discretion was given to supervisors and foremen in hiring and firing and more labor decisions were determined by formal workplace rules. There were fewer strikes and greater reliance on rewards than on punishment by managers. The observed evolution of modern labor markets in the U.S. has affected both individual well being and the performance of the macro economy. Still, Goldin points out that there are differences across region, among immigrants, and across skill levels. She summarizes major twentieth century intervention in the job market, including the enactment of Social Security legislation, OSHA, and the passage of the Wagner Act. Even so, Goldin argues that these actions did not fundamentally change labor markets. Rather, they reinforced market trends. Among the useful data provided are labor force participation; the industrial distribution of the labor force; occupational distribution; self employment figures; productivity measures; data on earnings, benefits, and hours; union membership; unemployment; wage inequality; black/white differences; and the contribution of education.

The discussion of labor markets continues in Chapter 11, “Labor Law” by Christopher Tomlins. Tomlins provides institutional background for the experiences described by Goldin. He traces the beginning of labor law in England and its transfer to the United States in the eighteenth century. He examines the roles of the judicial and legislative bodies in the U.S. in framing labor markets. Unionization, the adoption of workers’ compensation, the granting of anti-trust exemption to unions, the labor provisions of the NIRA and the Wagner Act, as well as Taft Hartley legislation are described.

Chapter 12 turns to agriculture, “The Transformation of Northern Agriculture, 1910-1990,” by Alan Olmstead and Paul Rhode. The well-written introduction summarizes changes in American agriculture in the north during the century, including the decline in the number of farms and farmers and increases in productivity. Improvements in transportation and communication better linked agriculture with the rest of the economy. Olmstead and Rhode examine three themes: sources of technological change, the farm crisis, and government intervention. They begin with discussion of regional contrasts in farm size and number of farms between 1910 and 1990. They emphasize the importance of technological change in explaining these trends. Most productivity change occurred after 1940. There was a labor-saving bias, and a machinery and fertilizer-using bias in technological change. Mechanization was spurred by the internal combustion engine and improved tractor design. The chemical and biological revolutions brought hybrid seeds. Olmstead and Rhode describe the roles of the federal government in providing telephone and electricity to rural areas, in promoting research through the Hatch Act and the agricultural experiment stations, and in subsidizing agriculture. Declining commodity prices, worsening terms of trade, and falling farm populations led to greater federal support of agriculture, beginning in the 1920s, expanding during the New Deal, and continuing through the rest of the century.

While international financial flows were described in Chapter 8 by Barry Eichengreen, Eugene White completes the discussion with focus on internal developments in Chapter 13, “Banking and Finance in the Twentieth Century.” White argues that twentieth century American economic growth was financed by a expanded flow of funds, channeled by alternating waves of financial institutional innovation and government regulation. Government regulation was expanded through adoption of the Federal Reserve System and through various pieces of New Deal legislation, such as the Glass-Steagall Act. White describes the tension that subsequently emerged later in the century between market forces and the regulatory structure that ultimately resulted in political pressure for deregulation. He describes the actions of the Federal Reserve Bank between1913 and 1929 and its relative ineffectiveness in the late 1920s and early 1930s in response to bank failures. This discussion effectively supplements that provided by Eichengreen and Temin. He outlines the consequences of the New Deal and its legacy for financial markets in the last part of the century.

The role of technological change in twentieth century American economic development was emphasized by Abramovitz and David in Chapter 1 and by Goldin in Chapter 10. David Mowery and Nathan Rosenberg examine technology in more detail in Chapter 14, “Twentieth-Century Technological Change.” The distinctive feature of the twentieth century, according to Mowery and Rosenberg, was the institutionalization of the inventive process within firms, universities, and government laboratories. There was emphasis on the use of the scientific method to promote invention and practical use of technology. The authors describe the organization of research and development and the incremental adoption of new technology to improve products and processes. They link the contribution of technology to the pattern of American economic growth. Mowery and Rosenberg note, as well, that as the century progressed, international flows of technology increased through reductions in trade barriers. They show that early technological change tended to be linked with resource endowments and occurred within the chemical and petroleum industries. But there were other examples and the chapter includes short case studies of the internal combustion engine, the automobile and airplane industries, plastics, synthetic fibers, pharmaceuticals, electric power and electronics in production and in consumer products, semi conductors, and of course, computer hardware and software. They provide measures of the growth of industrial R&D and its ties to university research and government investment.

Much R&D occurred within modern corporations, and Louis Galambos describes the development of the corporation in Chapter 15, “The U.S. Corporate Economy in the Twentieth Century.” He outlines the U.S. business system, and argues that there were three major changes: a shift to the corporate form of organization and the development of a high degree of concentration at the beginning of the century; the movement toward the multi-division firm in the 1940s and 1950s, as illustrated by Ford and AT&T; and most significantly, the development of global organizations in the latter part of the century.

Big business and big government collided, as described in Chapter 16, “Government Regulation of Business,” by Richard Vietor. Vietor argues that the growth of regulation over the century in part was due to market failure and in part due to the strategic use of government by firms to enhance their competitive position. He usefully summaries theories of regulation, including the public interest and capture views. Vietor also describes the role of regulatory bodies, which were increasingly influential across the century. He highlights early anti-trust policy, New Deal regulation, and social and environmental regulation in the latter part of the century. He also discusses the deregulation that took place in some industries, notably, in airlines, telecommunications, petroleum and natural gas, and utilities.

The final chapter, “The Public Sector,” by Elliott Brownlee completes the discussion introduced by Vietor. Brownlee describes the growth of government in the twentieth century with data on the relative sizes of the federal, state, and local sectors. He emphasizes Robert Higgs’ crisis argument in explaining the expansion of the public sector. The importance of WWI, the Great Depression, and WWII are noted. Deregulation, however, remains more difficult to understand.

As I indicated in the beginning of this review, Volume III of the Cambridge Economic History of the United States is a superb companion to the earlier two volumes and is an essential addition to the libraries of all serious students of the American economy.

Gary D. Libecap is former editor of the Journal of Economic History. His books include Titles, Conflict and Land Use: The Development of Property Rights and Land Reform on the Brazilian Amazon Frontier (with Lee Alston and Bernardo Mueller) University of Michigan Press, 1999; The Federal Civil Service and the Problem of Bureaucracy: The Economics and Politics of Institutional Change, (with Ronald Johnson), University of Chicago Press and NBER, 1994, The Political Economy of Regulation: An Historical Analysis of Government and the Economy (co-editor with Claudia Goldin), University of Chicago Press and NBER, 1994, and Contracting for Property Rights, New York: Cambridge University Press, 1989.


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

The Invention of Capitalism: Classical Political Economy and the Secret History of Primitive Accumulation

Author(s):Perelman, Michael
Reviewer(s):Clark, Gregory

Published by EH.NET (March 2001)

Michael Perelman, The Invention of Capitalism: Classical Political Economy

and the Secret History of Primitive Accumulation. Durham, NC: Duke

University Press, 2000. 412 pp. $22,95 (paper), ISBN: 0-8223-2491-1; $64.95

(cloth), ISBN: 0-8223-2454-7.

Reviewed for EH.NET by Gregory Clark, Department of Economics, University of


One of our popular diversions here in California is “channeling” the thoughts

of those who have passed on to the spirit world. Michael Perelman has

seemingly by these methods made contact with Karl Marx himself. For his book

is a lively polemic directed at the Classical political economists, full of

allegations of double dealing and bad faith, that the master himself would

have been proud to deliver. Marx lives. He lives in Chico, California.

Perelman interprets Classical political economy as a political program in

search of an intellectual justification. Classical economists wanted to

promote the interests of the new capitalist class. To this end the Classical

system celebrated the virtues of the free market. But free markets were of no

use if the capitalist class could not recruit the wage slaves they needed for

their factories. So Classical economists simultaneously promoted intervention

in markets to strip the peasantry and handicraft workers of the vestiges of

their independence and reduce them to the wage labor. They advocated in Marx’s

terms (or at least in the terms of Marx’s English translators) “primitive

accumulation” as necessary to make a market economy. But they did not advocate

this openly: thus the “secret history of primitive accumulation.” Free

competition was optimal, unless it produced an independent peasantry unwilling

to submit to wage labor. “While energetically promoting their laissez-faire

ideology, they championed time and again policies that flew in the face of

their laissez-faire principles” (pp. 2-3).

Exhibit A in Perelman’s indictment of the Classical mob is the case of the

Game Laws. The Game Laws banned the landless and small owners in the

countryside from taking game animals. Thus in England by the laws of 1670 to

take game even on your own land a person had to meet a very substantial

property qualification. In both England and Scotland these laws became more

severe as the eighteenth century progressed, and more people were convicted

under the laws. Why, asks Perelman, did the new capitalist class and their PR

agents, the Political Economists, support these feudal restrictions in favor

of the country squires? They did so because it took away the sources of

support that kept the poor in the countryside from the factory door. They did

so because a hunting peasant was an idle peasant and an insolent peasant, not

a docile and dependable worker.

That is the Perelman claim. What is his evidence? The main evidence that

Classical political economy promoted the game laws to dispossess the peasantry

is their almost complete silence on the subject! Adam Smith, “that great

master of capitalist apologetics” (p. 49), was, writes Perelman, the only

Classical Economist to ever mention the Game Laws. Smith, however, condemned

the game laws as a feudal relic, noting that “The reason they give is that the

prohibition is made to prevent the lower sort of people from spending their

time on such unprofitable employment; but the real reason is that they

delightin hunting” (p. 50). In light of this Perelman concludes this

discussion by noting generously that “Although Smith refuses to acknowledge

any association between the Game Laws and the interests of capital, he

deserves some credit for broaching the subject, since all other political

economists failed to make any mention whatsoever” (p. 51).

Since Classical writers cunningly concealed their support and promotion of the

Game Laws by not discussing them, or pretending to be opposed to them, their

guilt is established by the silence of their friends in Parliament on the

issue. “When Parliament debated the Game Laws again in 1830, not one prominent

spokesperson for political economy called for their abolition” (p. 54). The

alternative hypothesis, that Classical economists really thought the Game Laws

were a feudal relic too minor to bother with, is not explored.

Exhibit B in the indictment of the Classical mob is their treatment of

household “self provisioning” or as Perelman also refers to it “the social

division of labor.” Here again we know of their bad faith in this matter in

the contrast between their obvious desire to destroy self-provisioning and

force all workers into the market and their public silence on the issue. Thus

“Smith, insofar as he addresses the subject, treated the social division of

labor as the result of voluntary choices on the part of free people” (p. 90).

On the other hand any random statement by anyone criticizing sloth or

indiscipline by independent producers is sign of a plan to eliminating

independence and create a proletariat.

It is true that Classical economists often wrote about the indolence of the

poor and of smallholders. But was this casual moralizing just a relic of

earlier modes of discourse, on the way to a more systematic way of thinking

about the economy? Here I read their general silence on the issue very

differently. It is the silence that shows that concern with forcing the poor

to labor for wages was a peripheral element of their system. Perelman, has to

transform this casual silence into a much more sinister conspiracy to conceal.

The book makes little progress in that direction. Indeed the bold links drawn

on the most tenuous of evidence are one thing that distinguishes the Chico

Marx from the original. Those connections are so bold that this book might

better be placed on the shelf with the “grassy knoll” and “Roswell” genres.

As a historian who has written on England in the Industrial Revolution period

I have a more innocent interpretation of the Classical conspiracy of silence

on the alleged expropriation of the peasantry. This is that the process

whereby independent peasants and artisans became wage laborers was already

largely complete in England by the time the Classical economists arrived on

the scene in the eighteenth century. Their silence on the issue is a silence

of true indifference. They had no need to conspire in the expropriation of

the means of subsistence by capitalists, because a free labor market was in

place. The issue of common rights, access to land, and self-provisioning had

been settled in favor of wage labor by 1700 in all but the rural fastnesses of

the Scottish highlands. Even before the formal Parliamentary enclosure

movement of 1750 and later common rights had mainly become private tradable

rights of access unlikely to be owned by the poorest workers. Truly common

areas with free access were limited and of little value (see Leigh

Shaw-Taylor, “Did Agricultural Laborers Have Common Rights?” forthcoming,

Journal of Economic History, and “Labourers, Cows, Common Rights and

Parliamentary Enclosure: The Evidence of Contemporary Comment, c. 1760-1810″

forthcoming, Past and Present).

Perelman, like Marx, suffers from a wildly romantic vision of a pre-industrial

England of laughter and leisure that accords little with reality. Marx had the

excuse that he was writing at a time when little was known about that past.

Gregory Clark is Professor of Economics at the University of California,


Subject(s):Labor and Employment History
Geographic Area(s):Europe
Time Period(s):19th Century

Traditional Industry in the Economy of Colonial India

Author(s):Roy, Tirthankar
Reviewer(s):Wolcott, Susan

Published by EH.NET (February 2001)

Tirthankar Roy, Traditional Industry in the Economy of Colonial India.

Cambridge: Cambridge University Press, 1999. xi + 252 pp. $64.95 (cloth),

ISBN: 0-521-65012-7.

Reviewed for EH.NET by Susan Wolcott, Department of Economics, University of


This new book by Tirthankar Roy of the Indira Gandhi Institute of Development

Research, Bombay is well worth reading. It is a careful and extremely well

researched discussion of the evolution of five important craft-based

industries during the colonial period: handloom weaving, on which Roy has

written before, gold thread (jari), brassware, leather, and carpets. Roy

addresses himself to India’s failure to grow. Why did industrialization never

lead to a sustained increase in per capita income? He sets out to do two

things in this book. The first is to dispute the contention that the craft

industries were devitalized by the colonial economy, and thus prevented from

becoming the incubators of an indigenous industrial revolution. His second

task is to show that the true root of stagnation was the too rapid rate of

growth of population and an absence of government involvement in the provision

of education and credit. In the first of these tasks, the book succeeds. The

thorough discussion and careful analysis of the history and organization of

each of these crafts well illustrate the dynamism and inventiveness of the

Indian entrepreneur. But the second task remains for further research. Roy

shows that the laissez faire policy of the British colonial government did not

crush these indigenous craft industries. But a history of craft industries by

itself is not well suited to answering the question of why modern industry did

not establish itself in India.

It can, however, offer certain hints. But the hints in this case do not

support Roy’s contention in an obvious manner. If the histories had shown that

there were attempts to move from small scale craft production to large scale

factory production, but these attempts were thwarted by a lack of capital,

that would have lent support to Roy’s claim that more direct intervention by

the government would have fostered faster growth. That is not the case. In

fact, just the opposite is true. The centralization of the craft industries as

they moved from their rural roots to a more urban existence is a recurrent

theme in Roy’s book. All of these crafts moved away from production for local

consumption to production for long distance trade, either for export to

Europe, or intra-India trade via the new railroads. To some extent, this was

just small craft shops moving to the cities for economies of agglomeration;

information sharing is one theme Roy often stresses. But the urban shift was

frequently accompanied by a large increase in the size of the typical factory,

and a move away from family labor to wage labor. To this reader, large

increases in the scale of individual operations suggest capital constraints

were not a critical issue. (The large scale of modern factory operations in

India during this period support this contention.)

Nor do the histories of these crafts suggest that there was a problem that a

broad program of education would address. Roy makes the important point that

the artisans were quick to adopt modern methods. Examples include the move to

use sheet metal in constructing brassware, mineral dyes for carpets, and the

fly-shuttle in handloomed silks. Through simplification, entrepreneurs

increased productivity. His examples successfully dispel any notion that the

Indians were technologically stagnant, at least in these areas. But this makes

it difficult to believe that these crafts, at least, would have seen greater

productivity increase with a more educated workforce.

What the histories do suggest is the importance of caste and regional ties in

the transmission of knowledge and access to credit. Roy’s attention to these

details in his histories is one of the chief reasons for the book’s

usefulness. It appears that knowledge and credit were accessible in India, but

not to everyone. Leather, the longest chapter, provides perhaps the most

interesting discussion. Leather manufacture has until very recently been the

preserve of the lowest rungs of Indian society as it involves handling dead

animals, a very polluting activity among Hindus. (Anything involving death is

polluting (dead cows even more so), and anything which is polluting is avoided

by higher caste Hindus.) Originally leather tanning was done in the village.

Members of certain castes would have the right to the carcass of animals that

died by natural causes in return for removing and disposing of the carcass.

These animals provided more than sufficient leather for the shoes, water bags

and straps needed by villagers. But the development in the late nineteenth

century of large-scale chrome tanning in the US and mineral leather dyes in

Germany created an upsurge in international demand for hides. Suddenly the

carcasses of animals had a significant value. There was a fairly rapid switch

from a small rural craft to large urban slaughterhouses and tanning factories.

Interestingly, these factories remained chiefly staffed and quite often owned

by the same castes that had performed these functions in the villages.

However, although there had been a quick response to the change in export

demand, and yet another rapid switch in product mix when export demand died

down in the interwar period, the further step of developing chrome tanning in

India was pursued only on a very limited basis. Roy attributes this to the

restricted access to capital of the lower caste Hindus who had skills in

leather working. Capital was available in India, but not to them.

Another illustrative story is the non-adoption of the fly shuttle in much of

the trade for coarse cotton cloth. But the reason is not that the workers did

not know better. There had been adoption of better techniques and large-scale

manufacture in handloomed silks. The cotton weavers were unwilling to make

even this relatively small capital investment in what was essentially a use

for otherwise unemployable household labor – women in agricultural off

seasons. The question of why the opportunity cost of women remained virtually

zero is not directly addressed.

These two examples provide a different justification for government

involvement in education and capital markets than what is typically given in

development texts. Roy writes that “the conversion of craft skills into

industrial and innovative capacity required an induced social

revolution in India, the conditions for which were not created,” (emphasis

mine, see p. 59). His book does not directly prove that this was the case. But

it does provide hints to this effect. A discussion that addresses this point

directly instead of obliquely might yield very interesting results.

Susan Wolcott is currently working on an article entitled “The Role of Caste

Relations in the Slow Industrialization of Colonial India: Evidence from

Textile Strikes, 1921-38.”

Subject(s):Industry: Manufacturing and Construction
Geographic Area(s):Asia
Time Period(s):20th Century: Pre WWII

Inventing Ourselves Out of Jobs?: America’s Debate over Technological Unemployment, 1929-1981

Author(s):Bix, Amy Sue
Reviewer(s):Zieger, Robert H.

Published by EH.NET (September 2000)

Amy Sue Bix. Inventing Ourselves Out of Jobs?: America’s Debate over

Technological Unemployment, 1929-1981. Studies in Industry and Society.

Baltimore and London: Johns Hopkins University Press, 2000. x + 376 pp.

Illustrations and index. $45.00 (cloth). ISBN 0-8018-6244-2.

Reviewed for H-Business and EH.NET by Robert H. Zieger, Department of History,

University of Florida.

Men (and Women) at Work?

Inventing Ourselves Out of Jobs? is an able and lucidly written account

of the ongoing debate in the United States over the effects of technology on

employment. Drawing on a wide range of published materials as well as on

corporate, labor, and governmental archives, Amy Sue Bix traces in rich detail

the views of three generations of policy makers, labor leaders, engineers, and

business executives to come about the relationship between expanding

productivity and the availability of jobs. A notable feature of the debate has

been the absence of a definitive empirical method for weighing the impact of

technology on employment. Thus, over the seventy years covered in the book

(which deals with developments over the past twenty years as well as with the

period indicated in the title), celebrants and critics of workplace technology

have tended to make the same arguments, often with the same rhetorical

embellishments. According to corporate leaders, engineers, and other partisans

of labor-saving technology, expanding production inevitably lowers prices,

increases consumption, and boosts employment. Labor leaders, social critics,

and troubled politicians, on the other hand, have focused technology’s role in

work force reduction and have argued that promises of long-term growth in job

opportunities have proved unduly optimistic or even illusory.

In Bix’s telling, however, virtually no one called for an end to technological

advance. Laborites, for example, have accepted and even celebrated

technology-facilitated productivity gains, arguing only that workers should

share in them through shorter hours, higher wages, and greater voice in the

actual implementation of new workplace regimes. Three generations of labor

leaders, from William Green and John L. Lewis in the 1930s through Walter

Reuther in the 1950s and John Sweeney currently have repudiated Ludism,

confining their critique of job-related technology to advocacy of

worker-friendly regulation, job training, and the passing on of productivity

savings to workers and consumers. Critical of the blithe optimism of corporate

spokesmen and their scientific and engineering allies that productivity gains

lead inexorably to expanded (and enriched) employment opportunities, even those

most troubled by job loss have accepted the inevitably of continuous workplace


Employers have dismissed concerns about job loss, although often in a

defensive idiom. Equating technological advance with progress, and, in turn,

a commitment to progress with national identity, corporate leaders and their

scientific allies have painted a bright new world of abundance and ease.

Rejecting calls for public intervention in the development and application of

labor-saving devices, business leaders such as Henry Ford and machine-tool

innovator John Diebold acknowledged that inevitably some workers would be

displaced and might suffer local and temporary hardships. But the advantages

of expanded production and its concomitant proliferation of consumer goods far

outweighed these minor side effects. Popular writers and editorial cartoonists

might depict soulless robots and inexorable machines spitting out superfluous

unemployed workers as well as appliances and amenities, but resistance to the

machine was in fact ignorant, self-defeating, and even unpatriotic. “Workplace

mechanization,” writes Bix in summary of industrialists’ views, “represented

the inevitable, the only possible way to attain national success.” (166-67).

She quotes economist Benjamin Anderson: “on no account,” declared this banking

analyst of the 1930s, “must we retard or interfere with the most rapid

utilization of new inventions.” (166)

The debate over technology and unemployment has waxed and waned since the onset

of the Great Depression. It raged most fiercely during the 1930s, when

joblessness rose to catastrophic proportions. During World War II, full

employment and military needs dampened it. It re-emerged, now stimulated by

early computerization and other forms of electronic replication, during the

prosperous era of the 1950s and early 1960s, with labor leaders such as Walter

Reuther calling attention to the problem of lingering unemployment amidst

otherwise bright economic prospects. Congressional hearings in 1955 on what

was now called “automation” demonstrated that even during good times, the

specter of worker redundancy walked hand-in-hand with the promise of a brave

new consumerist world. By the late 1970s and into the 1980s, of course, the

computer revolution raised these issues in a new idiom, although corporate

down-sizing, globalization, and widening income disparities have tended to

merge discrete apprehensions about technology’s adverse effects with broader

concerns about job security and living standards.

Bix touches on a wide range of industries and employment situations in

surveying the technology-vs.-unemployment theme. Drawing on TNEC and WPA

studies, she examines the experiences of telephone operators, musicians, steel

workers, coal miners, and railwaymen buffeted by the demands of new

technologies in the 1930s. In the 1950s and 1960s, it was the turn of

packinghouse workers, longshoremen, clerical workers, and electrical workers.

Unions attempted various strategies in an effort to cope with mechanical

displacement. In the 1930s, the musicians union, faced with the substitution

of recorded music for live orchestras in movie houses, launched a massive

public relations campaign, hoping futilely to stimulate an outraged public to

demand live music. In the 1950s, the West Coast Longshoremen’s Union followed

an opposite course, capitulating to what its leaders regarded as the inevitable

inroads of containerization while securing for its existing membership generous

severance and manning reduction payments.

Bix’s account of the protracted and continuing debate over technology and work

is enlivened by frequent references to popular literature and films. In

addition, drawings and cartoons, some hailing the brave new future of a

worker-less future, others depicting with grim foreboding the social chaos sure

to afflict hapless displaced workers, give the debate vivid expression.

Inventing Ourselves Out of Jobs? also brings to attention governmental

efforts in the 1930s, primarily through studies conducted by the Works Progress

Administration and testimony offered at the Temporary National Economic

Committee congressional hearings, to establish an empirical basis for weighing

the impact of industrial technology on employment. The latter chapters ably

survey a wide range of opinion drawn from more contemporary sources, attesting

to the continuing pertinence of concern about the relationship between

employment and technology.

Inventing Ourselves Out of Jobs touches on but explores only briefly a

number of key themes that the general subject would seem to entail. The book

is more of a history of discourse about employment and technology than it is a

social history of the subject. Thus, themes of gender and, especially, race

receive only brief explicit exposition, for example. The social context in

which employers and engineers devise and implement labor-saving devices

likewise is only glancingly dealt with. Thus, for example, some observers have

argued that rapid mechanization of labor- intensive departments in metal

working, paper making, and meat packing after World War II represented less a

technological imperative than an effort on the part of employers to curtail

African American employment in operations that had proven unusually susceptible

to worker militancy and trade union pressure. This is not an issue that

captures Bix’s attention, however.

Likewise, Bix invokes but never quite explores in detail the implications of

the consumerist justifications to which employers increasingly turned in

justifying their resort to labor-saving measures. In 1951, Fortune magazine

published a special edition titled “USA-The Permanent Revolution,” boldly

proclaiming that mass affluence and its attendant consumerism constituted the

real revolution of the 20th century. In the 1960s, social critics such as

Herbert Marcuse, Charles Reich, Paul Goodman, E. F. Schumacher, and Christopher

Lasch-none of whom receives mention in Inventing Ourselves Out of

Jobs?-expressed the reverse of this kind of celebration of material plenty,

which in corporate America’s view depended on continuous technological

innovation. In a sense, competing visions of America centering on consumerism

(and, thus, technology) are the modern echo of the 18th century debate between

adherents of the civic republic and partisans of a commercial republic.

Implicit also, but underdeveloped in the book, is the question as to whether

work can remain an adequate vehicle for the social identities that before the

Great Depression it conveyed. Many of the jobs that Americans hold today are

far removed from productive enterprise, at least as it has traditionally been

understood. Technological advance and productivity gains have made it possible

for televangelists, day traders, and historians to flourish. Why these

particular occupations should attain public certification while other kinds of

non-productive employment languish or are suppressed is a question of culture

and politics, not one of technology per se.

Bix suggests rather than asserts her own sympathies. Her prose comes alive

when she exposes the fatuities and excesses of technology celebrants while

taking on a more troubled and somber tone when exploring the plight of the

displaced and dissident. Her dismay with those who equate America’s purposes

and promises with technological progress and consumerist indulgence is evident,

although never strident. She seems reluctant to concede that ordinary people

might have benefitted from technological innovation and at times flirts with

nostalgia for the good old days of man-killing coal mines and lethal railroad

work. Even so, Inventing Ourselves Out of Jobs? is a useful survey of

the ongoing debate over the relationships between technology and work in the

modern United States.

Robert Zieger has worked extensively in the fields of American labour history

and twentieth century history. His latest book is America’s Great War: World

War One and the American Experience, Rowman & Littlefield, 2000.

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