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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

transformation.

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

Capitalism, Socialism and Democracy

Author(s):Schumpeter, Joseph A.
Reviewer(s):McCraw, Thomas K.

Joseph A. Schumpeter, Capitalism, Socialism and Democracy. New York: Harper & Row, 1942, 381 pp.; Third edition, 1950, 431 pp.

Review Essay by Thomas K. McCraw, Harvard Business School.

The Creative Destroyer: Schumpeter’s Capitalism, Socialism, and Democracy

Does Joseph Schumpeter’s Capitalism, Socialism and Democracy rank with the most important works of economic history of the twentieth century? Of course it does. Has there been a more penetrating analyst of capitalism than Joseph Schumpeter? No, I do not think there has.

Schumpeter led a melodramatic life (1883-1950), moving from Austria to England to Egypt to Germany before coming to Harvard for good in 1932. He was a phenomenally productive scholar, despite occasional forays into business and government in addition to a plethora of romantic liaisons that included three marriages. His first published article appeared in 1905, his last in 1950. His output included fifteen books (several of immense length), six pamphlets, about one hundred book reviews, and 148 articles, comments, and occasional pieces.

Long after his death, his influence continues to grow. Massimo M. Augello’s Joseph Alois Schumpeter: A Reference Guide appeared in 1990 and ran to over 350 pages. Since then, several dozen articles on Schumpeter have appeared, in addition to biographies by Eduard M?rz, Robert Loring Allen, Richard Swedberg, and Wolfgang Stolper. All of this work has enriched our knowledge of this remarkable polymath.

Just how great was Schumpeter? Tibor Scitovsky places him at the very top: “America’s most brilliant economist.” The intellectual historian Martin Kessler agrees, arguing that Schumpeter was, apart from Keynes, “the only truly great economist the twentieth century has produced.” Oskar Morgenstern sensibly comments that at this level rankings become pointless, that “all will agree that [Schumpeter] belongs to that small top group where a further ranking becomes almost impossible.”1

Many scholars of business history, most notably Alfred D. Chandler, Jr., have looked to Schumpeter as the economist who best understood the rise of big business and the central roles of innovation and entrepreneurship.2 In economic history, the work of Nathan Rosenberg and William Lazonick, among others, is imbued with Schumpeterian insights.3 In the study of “business strategy,” a term probably coined by Schumpeter in Capitalism, Socialism and Democracy, Michael Porter’s seminal work places a distinctly Schumpeterian emphasis on relentless innovation as the essence of competitive strategy.4 Within economics, Schumpeter’s influence in America is perhaps best exemplified by the work of F. M. Scherer and Richard R. Nelson. Scherer, a prolific scholar and author of a standard textbook in industrial organization, acknowledges his intellectual debts in a book entitled Innovation and Growth: Schumpeterian Perspectives . Nelson’s Schumpeterian proclivities are on display in An Evolutionary Theory of Economic Change , co-authored with Sidney G. Winter.5 A few other economists have tried to implement parts of the Schumpeterian system, particularly those having to do with innovation.6

Most mainstream economists have been frustrated by the difficulty of operationalizing Schumpeter’s models. His aversion to equilibrium as a realistic picture of capitalist economies restricts the mathematicization of his system. Then, too, because he insisted on fusing economics with history, sociology, and psychology, the number of variables becomes almost impossible for the analyst to control.7

As a scholar Schumpeter never advanced a program of economic reform. He believed that doing so compromised “scientific” work. In particular he criticized Keynes and other English economists for their “Ricardian Vice” of leaping into policy debates with abstract models as general prescriptions for change.8 Schumpeter himself took a very different approach in Capitalism, Socialism, and Democracy.

Capitalism, Socialism, and Democracy and Its Predecessor Book

Schumpeter’s core argument in Capitalism, Socialism, and Democracy is reducible to three major tenets:

1. The essence of capitalism is innovation (“creative destruction”) in particular sectors. Certain standard tools of economics, such as static equilibrium and macroeconomic analysis, can therefore disguise reality and mislead scholars and students.

2. The virtues of capitalism–in particular its steady but gradual pattern of growth–are long-run and hard to see; its defects, such as inequality and apparent monopoly, are short-run and conspicuously visible.

3. It is dangerous for economists to prescribe “general” recipes, because political and social circumstances are always changing.

Capitalism, Socialism, and Democracy was Schumpeter’s most popular success by far. Translated into at least sixteen languages, it still sells widely in paperback editions. Although the author often compared it unfavorably with his more scholarly books, it retains its seminal quality three generations after it appeared.

Despite the book’s title, it contains little of lasting interest about either socialism or democracy. But it bursts with ideas about capitalism, and as a “performance”–a term Schumpeter liked to apply to others’ works–it may be the best analysis of capitalism ever written.

Only three years before the appearance of this great work, Schumpeter had brought out another book he thought would be his magnum opus: the 1100-page Business Cycles: A Theoretical, Historical, and Statistical Analysis of the Capitalist Process. The virtues of the second book, Capitalism, Socialism, and Democracy, can be fully understood only against the shortcomings of this prior work.

The first problem with Business Cycles was its extraordinary and wholly unnecessary length. A second characteristic was the author’s misguided attempt to turn business cycle patterns into predictive scientific wave theories borrowed from physics. As Schumpeter wrote, “Barring very few cases in which difficulties arise, it is possible to count off, historically as well as statistically, six Juglars [8-10-year business cycles] to a Kondratieff [50-60 years] and three Kitchins [40 months] to a Juglar–not as an average but in every individual case.” Why this was so, he admitted, “is indeed difficult to see.”9 As his former student Paul Samuelson wrote thirty-five years later, the whole exercise “began to smack of Pythagorean moonshine.”10

The third noteworthy aspect of Business Cycles was its remarkable richness of historical detail and understanding. Though the explanation of cycles remained problematical, the historical vision was squarely on point: that capitalism–not all economic activity, just capitalism–is fundamentally an unstable, disequilibrating process.11

Simon Kuznets, a macroeconomist and future Nobel laureate, wrote for the American Economic Review a fifteen-page analysis of Business Cycles. It was the most thorough and important of the reviews, kindhearted in tone but still devastating. Kuznets conceded that Schumpeter had written a “monumental treatise” that raised all the right questions and did relate short-term business cycles to long-run economic movements. Still, Kuznets wrote, business cycles are essentially quantitative phenomena. Instead of robust statistical argument, Schumpeter had presented the reader with “an intellectual diary,” an account of his own “journey through the realm of business cycles and capitalist evolution, a journal of his encounters there with numerous hypotheses, diverse historical facts, and statistical experiments.” These efforts could not substitute for robust quantitative analysis.12 Two other reviewers noticed Schumpeter’s implicit distaste for macroeconomics, referring to his “vigorous stand against ‘the curse of aggregative thinking.'”13

Given the harsh reception of Business Cycles, published only three years earlier, the content and also the detached and ironic tone of Capitalism, Socialism and Democracy appear in a different light. It is as though Schumpeter, now deeply pessimistic about the state of the world, decided to unburden himself not only on economics but on a broad array of other subjects as well. Hence the candor and breadth of the 1942 book, which produced thousands of future citations by scholars in sociology, history, economics, and other disciplines.14

Some of the major themes represent reworkings of ideas Schumpeter had first presented in articles published long before, while in his twenties (he was fifty-nine in 1942). A capitalist economy, he now wrote in Capitalism, Socialism and Democracy, “is not and cannot be stationary. Nor is it merely expanding in a steady manner. . . . Every situation is being upset before it has had time to work itself out. Economic progress, in capitalist society, means turmoil.”15

In a 54-page analysis of Karl Marx at the beginning of Capitalism, Socialism and Democracy, Schumpeter considers Marx as Prophet, Sociologist, Economist, and Teacher. It’s hard to avoid the thought that the author construed himself in the same roles. Certainly his critique of Marx is full of insight: “Now Marx saw this process of industrial change more clearly and he realized its pivotal importance more fully than any other economist of his time.” He accomplished a fusion of history and theory whose result represented something different from either one alone. Marx “was the first economist of top rank to see and to teach systematically how economic theory may be turned into historical analysis and how the historical narrative may be turned into histoire raison?e.” Nevertheless, Schumpeter’s final verdict is negative, because of the “failure of [Marx’s] prediction of increasing misery,” which in turn derived from “wrong vision and faulty analysis.” Although Marx the economist and sociologist was mostly correct, Marx the prophet and teacher proved to be disastrously wrong.16

As prophet, the same might be said of Schumpeter himself. On page 61 of Capitalism, Socialism and Democracy Schumpeter asks, “Can capitalism survive?”, then replies, “No. I do not think it can.”17 This provocative passage may have been sincere, or simply Schumpeter’s way of getting the reader’s full attention. His purpose was to lay bare the core nature of capitalism–to show how it works, to demonstrate why, on balance, it is a good thing; and then to highlight its fragility.18

In response to the standard charge that capitalism distributes its fruits inequitably, Schumpeter points out that “Queen Elizabeth owned silk stockings. The capitalist achievement does not typically consist in providing more silk stockings for queens but in bringing them within the reach of factory girls in return for steadily decreasing amounts of effort. . . . the capitalist process, not by coincidence but by virtue of its mechanism, progressively raises the standard of life of the masses.”19

A by-product of capitalism is the dominance of all life by an economic calculus, which Schumpeter calls “rationality.” He shows how powerfully the economic way of thinking bestows rewards and penalties: “Prizes and penalties are measured in pecuniary terms. Going up and going down means making and losing money. . . . The promises of wealth and the threats of destitution that [this arrangement] holds out, it redeems with ruthless promptitude.” Constant, relentless change is the hallmark of capitalism. “It may seem strange that anyone can fail to see so obvious a fact which moreover was long ago emphasized by Karl Marx.”20

Underscoring the deficiencies of any conceptual system that proceeds from static assumptions, Schumpeter compares the universe of Adam Smith and other classical economists with the reality of modern industry. The classicists “recognized cases of ‘monopoly,’ and Smith himself carefully noticed the prevalence of devices to restrict competition.” Yet neither Smith nor most other classical and neoclassical economists “saw that perfect competition is the exception and that even if it were the rule there would be much less reason for congratulation than one might think. If we look more closely at the conditions . . . that must be fulfilled in order to produce perfect competition, we realize immediately that outside of agricultural mass production there cannot be many instances of it.”21

Schumpeter contrasts this situation with modern business, parts of which involve constantly evolving oligopolies. These new situations do not easily lend themselves to mathematical modeling. In oligopolies, “there is in fact no determinate equilibrium at all and the possibility presents itself that there may be an endless sequence of moves and countermoves, an indefinite state of warfare between firms.”22

The contemporary structure of business is best understood as having evolved from long “organizational development.” It reflects a “process of industrial mutation–if I may use that biological term–that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.”23

In sum, the process is one of “creative destruction”–the sweeping out of old products, old enterprises, and old organizational forms by new ones. It is what capitalism consists in and what every capitalist concern has got to live in.”24 For the scholar, this necessitates a lengthy time frame for analysis: “Every piece of business strategy acquires its true significance only against the background of that process and within the situation created by it. It must be seen in its role in the perennial gale of creative destruction; it cannot be understood irrespective of it or, in fact, on the hypothesis that there is a perennial lull. . . . As long as this is not recognized, the investigator does a meaningless job.25

One result of this approach should be a sharper focus on product quality and on marketing, and a reduced emphasis on price. “[I]n capitalist reality as distinguished from its textbook picture, it is not [price] competition which counts but the competition from the new commodity, the new technology, the new source of supply, the new type of organization (the largest-scale unit of control for instance)–competition which commands a decisive cost or quality advantage and which strikes not at the margins of the profits and the outputs of the existing firms but at their foundations and their very lives.” A theoretical analysis that “neglects this essential element of the case . . . even if correct in logic as well as in fact, is like Hamlet without the Danish prince.”26

Schumpeter then turns to the question of monopoly. He mounts a devastating attack on what he regards as popular American attitudes toward this subject, which, in his judgment, spill over onto big business in general. Much of what Schumpeter says here was conditioned by what happened in the 1930s, and specifically by New Dealers’ assaults on big business. He argues that the very nature of giant, capital-intensive enterprise requires strategic behavior not contemplated by orthodox economic theory except to the extent that the theory holds such behavior monopolistic. As a matter of historical record, Schumpeter insists, long-run price rigidities are practically unknown. The same is true of long-run cases of monopoly, which are rarer than instances of perfect competition.27

It seemed plain to Schumpeter that big business, instead of exploiting consumers, had radically elevated their living standards. Organizational innovation, not monopolistic profits, accounted for the prosperity of most great companies. They should be viewed with pride and awe, not with detestation and fear. “These units not only arise in the process of creative destruction and function in a way entirely different from the static scheme, but in many cases of decisive importance they provide the necessary form for the achievement. They largely create what they exploit.” Monopoly rents might flow for awhile, but they are inevitably temporary, “the prizes offered by capitalist society to the successful innovator.” Under capitalism, the idea of a permanent monopoly is ludicrous, especially in manufacturing.28

Schumpeter next mounts a savage assault on the idea of perfect competition. He implies that it has evolved from an analytical tool of theoretical economics into an ideal toward which theory should guide public policy. This, he suggests, is catastrophic:

If we try to visualize how perfect competition works or would work in the process of creative destruction, we arrive at a still more discouraging result. . . . In the last resort, [cases approaching perfect competition, such as] American agriculture, English coal mining, [and] the English textile industry are costing consumers much more and are affecting total output much more injuriously than they would if controlled, each of them, by a dozen good brains.29

Pushing his analysis to its limits, Schumpeter identifies capitalist entrepreneurship with technological progress itself. As a matter of historical record, they were “essentially one and the same thing,” the first being “the propelling force” of the second.”30

At this point in the book, Schumpeter begins to lay the foundations for his famous argument that capitalism contains the seeds of its own destruction–not for economic reasons but for sociological ones. His reasoning proceeds as follows:31

1. In pre-capitalist times, no sheer economic achievement, by itself, could advance anyone into the ruling class.

2. When capitalism began to develop, persons of “supernormal ability and ambition” became upwardly mobile provided they would “turn to business.”

3. It was hard to succeed in business, yet success remained inglorious: “no flourishing of swords about it, not much physical prowess, no chance to gallop the armored horse into the enemy. . . . The stock exchange is a poor substitute for the Holy Grail.”

4. There can be no assurance that people are “happier” or “better off” under industrialism than in the medieval manor or village. Efficiency is only one of many human desiderata, and perhaps not the most important one.

5. So the future of capitalism can’t be assured purely because of its economic superiority. “I am not going to argue, on the strength of that performance, that the capitalist intermezzo is likely to be prolonged.”

6. Capitalism all but destroyed most of the secular underpinnings of civilized society–the manor, village, and craft guild. Yet it replaced these institutions with nothing: no idealism, no sense of organic life, no essential ability for social organization of a non-economic nature.

7. In particular, the talents necessary for economic success don’t translate well into other realms of life. “A genius in the business office may be, and often is, utterly unable outside of it to say boo to a goose–both in the drawing room and on the platform.”

8. So, without protection from some other source, “the bourgeoisie is politically helpless and unable not only to lead its nation but even to take care of its particular class interest.”

9. Because capitalist evolution, and particularly the rise of big business, attacks masses of small producers and merchants, it alienates its natural allies, indirectly giving reinforcements to the enemy.

10. The substitution of a share of stock for tangible goods “takes the life out of the idea of property.” If this process goes on long enough and thoroughly enough, “there will be nobody left who really cares to stand for [property].”

11. Capitalism works gradual changes within the psyches of individuals. By reducing everything to an economic calculus, it “rationalizes” thinking. It “creates a critical frame of mind which, after having destroyed the moral authority of so many other institutions, in the end turns against its own.”

12. The philosophical case for capitalism is beyond the intellectual capacity of most persons, even most economists. “Why, practically every nonsense that has ever been said about capitalism has been championed by some professed economist.”

13. Most important, the case for capitalism “must rest on long-run considerations.” In the short run, it is impossible for most people, even intellectuals, to ignore exasperating “profits and inefficiencies” and focus instead on long-range trends.

14. Uniquely among types of societies, capitalism is so successful economically that it “creates, educates and subsidizes a vested interest in social unrest.” It underwrites a class of hostile intellectuals who have no “direct responsibility for practical affairs” and little experience in managing anything.

15. The rise of mass media makes this situation more dangerous by multiplying the access of demagogues to short-run human instincts and desires. In the process, “public policy grows more and more hostile to capitalist interests.”

16. Bureaucracies in Europe antedate the capitalist epoch and owe no allegiance to bourgeois values. Bureaucracies in America, however, with no real civil service tradition, hold onto their antipathy toward capitalism because they don’t grasp the vast stakes at issue. Given the “legislative, administrative and judicial practice born of that hostility, entrepreneurs and capitalists–in fact the whole stratum that accepts the bourgeois scheme of life–will eventually cease to function.”

17. Most alarming of all, the bourgeois family may disintegrate. As soon as men and women “introduce into their private life a sort of inarticulate system of cost accounting,” they will become aware that “children cease to be economic assets.” When this happens, the last pillar of bourgeois society will fall.

Much of Schumpeter’s argument here might be interpreted as a cry from the heart of a brilliant but unlucky European elitist, who had witnessed one catastrophe after another during the bloody first half of the twentieth century. Even in contemporary America, a unique opportunity for the development of an advanced capitalist society stood on the edge of disaster. It was happening in the United States because of the Great Depression, the ascendance of fascism and communism in Europe, and the onset of World War II. It had not happened earlier because “The scheme of values that arose from the national task of developing the economic possibilities of the country drew nearly all the brains into business and impressed the businessman’s attitudes upon the soul of the nation.”32

Schumpeter professed to see not only the decline of capitalism but also the ultimate triumph of socialism. “Can socialism work?” he asks. “Of course it can.” In large part, it can work because it inspires people to noble ends, to something larger than themselves. Socialism implies “a new cultural world” whose psychic rewards may be worth the price of optimal economic efficiency. For true believers, “Socialist bread may well taste sweeter to them than capitalist bread simply because it is socialist bread, and it would do so even if they found mice in it.”33

Despite memorable aphorisms such as this one, Schumpeter’s analysis of socialism and democracy is a good deal less compelling than his dissection of capitalism. He says of democracy that it is best understood not as a system but merely a “method”–an “institutional arrangement for arriving at political decisions in which individuals acquire the power to decide by means of a competitive struggle for the people’s vote.” Of course there is much more to democracy than this, but Schumpeter’s real interests lie elsewhere.34

At the very end of Capitalism, Socialism and Democracy, Schumpeter delivers a philippic about the intrusion of modern government, and specifically the New Deal state, into economic life. He mentions counter-cyclical policies, redistributive taxation, antitrust, price controls, monetary policy, the regulation of labor, securities legislation, and the “indefinite extension of the sphere of wants” to be supplied by public enterprise. Yet, ever the “scientist” reluctant to succumb to the Ricardian Vice, Schumpeter closes with this remarkable statement: “It would spell complete misunderstanding of my argument if you thought that I “disapprove” or wish to criticize any of these policies. Nor am I one of those who label all or some of them “socialist.”35

The Book’s Reception

Capitalism, Socialism and Democracy received a modicum of attention in 1942, when it was first published. A second edition, which appeared in 1946, attracted wider notice, and the third, in 1950, became an international best-seller.

Reviewing the first edition, the Cambridge economist Joan Robinson found that Schumpeter “has little love for socialism, and none at all for socialists. His natural sympathy is all with the heroic age of expanding capitalism.” Herself a leading theorist of imperfect competition, Robinson found Schumpeter’s analysis of that subject the “most brilliant” part of the book: “his argument blows like a gale through the dreary pedantry of static analysis.” Although Schumpeter had little to say about contrary evidence, especially in his argument about the fadeout of capitalism and its replacement by socialism, “The reader is swept along by the freshness, the dash, the impetuosity of Professor Schumpeter’s stream of argument.” Whether or not the reader was totally convinced, “this book is worth the whole parrot-house of contemporary orthodoxies, right, left, or centre.”36

Reviewing the 1946 edition of Capitalism, Socialism and Democracy, Arthur M. Schlesinger, Jr. wrote that the book “burst into the generally sterile atmosphere of political discussion like a collection of firecrackers and skyrockets.” Schumpeter’s analysis made it pointless to keep repeating mindless slogans about the evils of monopoly. Even if he were wrong, “there is no percentage in dodging the uncomfortable points he raises. The intellectual rigor of his analysis sets a standard that liberal writers should try to meet.” The book “is the performance of an intellectual virtuoso, brilliant, complex, perfectly controlled.”37 In 1981, a retrospective analysis of the book appeared, entitled Schumpeter’s Vision: Capitalism, Socialism, and Democracy After 40 Years.38 Here several of Schumpeter’s former students and associates joined with some European scholars in evaluating the book’s legacy. Paul Samuelson led off, conceding that the subject under discussion was “a great book.” He added that from a game theoretic viewpoint Schumpeter might have taken account of the propensity of democratic groups to change the nature of capitalism and to bend it to their own self-interest. Schumpeter’s praise of Marx for “being learned, bold to speculate, and broad in his dynamic vision” describes Schumpeter himself, Marx thereby being “a veritable chip off the new block.” Yet “Schumpeter was of all my teachers the one whose economics was essentially farthest from Marx’s.”39

The sociologist Tom Bottomore, a man of the Left, lamented Schumpeter’s disinclination to cast his analysis in terms of economic and social class. Thus, he had overlooked some important changes that now (in the 1980s) were clearer: “A very large part of the middle class, in spite of variations. . . has maintained a political orientation which is much more favourable to parties of the right and the centre than to those of the left. . . . [Schumpeter] thought that the ‘march into socialism’ was well-nigh irresistible, and deplored the fact. I, on the contrary, think that this ‘march’ has come to an untimely halt, and regret the eclipse of the highest ideal that has emerged in modern Western culture.”40

In a third essay, Schumpeter’s fellow Austrian and longtime Harvard colleague Gottfried Haberler wrote that although Schumpeter never said so in Capitalism, Socialism and Democracy, it was clear that his “real feeling” was “that capitalism or the ‘bourgeois’ society is very much worth fighting for.” Schumpeter’s forecast of capitalism’s downfall “has shocked and puzzled many people. If all qualifications, reservations, and elucidations are given their proper attention, however, the forecast of capitalism’s early doom becomes less apodictic and the demise of capitalism loses much of its inevitability.” Then, too, Schumpeter’s emphasis on rising resentment of taxation anticipated the American tax revolt that began in the 1970s, a movement of extraordinary importance.41

The economist Robert L. Heilbroner, a first-rate stylist himself, judged Capitalism, Socialism and Democracy partly on artistic terms: “There is [in the book] a great deal of attitudinizing. . . an open delight in epater le bourgeois and tweaking the noses of radicals. There is also pomposity and pedantry, mixed with an arrogance that teeters on the edge of a dangerous elitism.” Yet the book remains full of “perceptive insights,” such as Schumpeter’s remark that “The evolution of the capitalist lifestyle is best described ‘in terms of the genesis of the modern lounge suit,’ a remark worthy of Thorstein Veblen.”42

Arthur Smithies, Schumpeter’s former student and colleague, saw Capitalism, Socialism and Democracy in part as a reaction against Keynesianism. Schumpeter had openly derided the “stagnation thesis” introduced in Keynes’s General Theory. This thesis holds that as a country grows richer investment opportunities shrink but the propensity to save increases; therefore savings and investment balance only at high unemployment. “If valid,” wrote Smithies, “the long-run Keynesian argument provided an impregnable case for socialism.” Yet Schumpeter saw that the underpinnings of the stagnation thesis were the atypical conditions of the Great Depression. He “maintained his sanity” and insisted that such problems were not permanent but cyclical. As for Schumpeter’s concern with inflation, in the 1940s Anglo-American economists thought it “obsessive,” but in fact Schumpeter proved remarkably prescient.43

Herbert K. Zassenhaus, another economist from the generation just behind Schumpeter, detected “a certain mysticism” in Capitalism, Socialism, and Democracy. “In the shape of the ‘entrepreneur,'” Schumpeter introduces “a social miracle in the precise sense of the word: an event beyond the laws of nature and society.”44

In perhaps the most telling of all the retrospective comments, the Dutch scholar Henrik Wilm Lambers recalled Schumpeter’s influence on him as a youth and the continued appeal of his book. In Capitalism, Socialism and Democracy, Lambers wrote, “Schumpeter accomplished the feat of moving five layers of thought–the firm, the markets, the institutions, the cultural values, the leaders of society–as one interwoven dynamic process. With incomparable skill he made history go through time as one stream.” Lambers’ own students were invariably taken with the book: “After many an oral graduate examination, I have often heard remarks like: ‘to be honest, the one stimulating book was Schumpeter’.” Radical and conservative students alike “say, each in their own way, ‘he keeps me puzzled: is it my fault or did he intend to?'”45

Capitalism, Socialism, and Democracy continues to puzzle and provoke readers–to make them think, to question their own perceptions measured against their own ideologies and to wonder about the author’s intentions. Only the very greatest books do this, and age so well.

Endnotes:

1. Tibor Scitovsky, “Can Capitalism Survive? — An Old Question in a New Setting,” Ely Lecture, American Economic Review, 70 (May 1980), p. 1; Martin Kessler, “The Synthetic Vision of Joseph Schumpeter,” Review of Politics, 23 (July 1961), p. 334; O. Morgenstern, “Obituary,” Economic Journal, 61 (March 1951), p. 203.

2. Chandler, Strategy and Structure: Chapters in the History of the Industrial Enterprise, Cambridge, MA: MIT Press, 1962, p. 284; and Chandler, Scale and Scope: The Dynamics of Industrial Capitalism, Cambridge: Harvard University Press) pp. 597, 830-831 n1.

3. See, for example, Lazonick, Competitive Advantage on the Shop Floor, Cambridge: Harvard University Press, 1990, pp. 3, 10, 323-324; and Rosenberg, “Joseph Schumpeter: Radical Economist,” in Exploring the Black Box: Technology, Economics, and History, New York: Cambridge University Press, 1994. Schumpeter often spoke on the relationship between history and theory: “Personally, I believe that there is an incessant give and take between historical and theoretical analysis and that, though for the investigation of individual questions it may be necessary to sail for a time on one tack only, yet on principle the two should never lose sight of each other”; see Schumpeter’s 1949 essay, “Economic Theory and Entrepreneurial History,” reprinted in Richard V. Clemence, editor, [Schumpeter’s] Essays: On Entrepreneurs, Innovations, Business Cycles, and the Evolution of Capitalism, New Brunswick, NJ: Transaction Publishers, 1989. See also Schumpeter, “The Creative Response in Economic History,” Journal of Economic History, 7 (November 1947).

4. Porter, The Competitive Advantage of Nations, New York: Free Press, 1990, p. 778 n.46.

5. Frederic M. Scherer, Innovation and Growth: Schumpeterian Perspectives, Cambridge, MA: MIT Press, 1984. Richard R. Nelson and Sidney G. Winter, An Evolutionary Theory of Economic Change, Cambridge, MA: Harvard University Press, 1982. Part V of this book (pp. 273-351) is entitled “Schumpeterian Competition,” and in it the authors try, mathematically, to apply Schumpeter’s insights to the process of innovation.

6. See, in general, Richard V. Clemence and Francis S. Doody, The Schumpeterian System, Cambridge, MA: Addison-Wesley, 1950. For more specialized efforts, and critiques of them, see Carolyn Shaw Solo, “Innovation in the Capitalist Process: A Critique of the Schumpeterian Theory,” Quarterly Journal of Economics, 65 (August 1951), pp. 417-428; Franklin M. Fisher and Peter Temin, “Returns to Scale in Research and Development: What Does the Schumpeterian Hypothesis Imply?” Journal of Political Economy, 81 (January/February 1973), pp. 56-70 [see also Comments by Carlos Alfredo Rodriguez and Reply by the authors in Journal of Political Economy, 87 (April 1979), pp. 383-389]; Morton I. Kamien and Nancy L. Schwartz, “Market Structure and Innovation: A Survey,” Journal of Economic Literature, 13 (March 1975), pp. 1-37; Carl A. Futia, “Schumpeterian Competition,” Quarterly Journal of Economics, 94 (June 1980), pp. 675-695; Meir Kohn and John T. Scott, “Scale Economies in Research and Development: The Schumpeterian Hypothesis,” Journal of Industrial Economics, 30 (March 1982), pp. 239-249; and Horst Hanusch, editor, Evolutionary Economics: Applications of Schumpeter’s Ideas, Cambridge: Cambridge University Press, 1988.

7. During the 1990s the Schumpeter literature became especially voluminous, with articles in such publications as the Journal of Evolutionary Economics and the Journal of Institutional Economics. These pieces often drew as much on Schumpeter’s sociology as on his economics. Several sought to apply biology to Schumpeter’s evolutionary analysis.

8. Schumpeter actually used the word “sins”: “I did not exactly wish to put Ricardo and Keynes on the same level, but I do think that there is striking similarity between their sins.” (Letter to Arthur W. Marget, Feb. 24, 1937, Schumpeter Papers, Harvard University Archives.)

9. Joseph A. Schumpeter, Business Cycles: A Theoretical, Historical, and Statistical Analysis of the Capitalist Process, New York: McGraw-Hill, 1939, Volume I, pp. 169, 173, 174.

10. Samuelson, “Joseph A. Schumpeter,” Dictionary of American Biography, Supplement Four, 1946-1950, New York: Scribner, 1974, p. 723.

11. In this book the orientation appears most clearly in some vivid passages on pages 220-245 of Volume I.

12. Simon Kuznets, American Economic Review, 30 (June 1940), pp. 257, 266-271.

13. E. Rothbarth, Economic Journal, 52 (June-Sept. 1942), p. 229; J. Marschak, Journal of Political Economy, 48 (Dec. 1940), p. 892.

14. An insightful analysis of Schumpeter’s state of mind when he wrote Capitalism, Socialism, and Democracy may be found in Chapter 7 of Richard Swedberg, Schumpeter: A Biography, Princeton, NJ: Princeton University Press, 1991.

15. Capitalism, Socialism, and Democracy, New York: Harper Torchbook Edition, 1976, pp. 31-32.

16. Capitalism, Socialism, and Democracy, p. 32, 34, 44.

17. Capitalism, Socialism, and Democracy, p. 61.

18. In the revised edition of Capitalism, Socialism and Democracy appears Schumpeter’s final paper, “The March into Socialism” (December 1949). Here he speaks candidly about capitalism’s social implications: “Capitalism does not merely mean that the housewife may influence production by her choice between peas and beans; or that the youngster may choose whether he wants to work in a factory or on a farm; or that plant managers have some voice in deciding what and how to produce: it means a scheme of values, an attitude toward life, a civilization–the civilization of inequality and of the family fortune” (p. 419).

19. Capitalism, Socialism, and Democracy, pp. 67-68.

20. Capitalism, Socialism, and Democracy, pp. 73-74, 77 n1, 82. In History of Economic Analysis, published posthumously (New York: Oxford University Press, 1954), Schumpeter wrote that in capitalism, “Disequilibrium prevails throughout, but Marx saw that this disequilibrium is the very life of capitalism” (p. 1051).

21. Capitalism, Socialism, and Democracy, pp. 78-79.

22. Capitalism, Socialism, and Democracy, p. 79.

23. Capitalism, Socialism, and Democracy, p. 83.

24. Capitalism, Socialism, and Democracy, p. 83.

25. Capitalism, Socialism, and Democracy, pp. 83-84.

26. Capitalism, Socialism, and Democracy, pp. 84-86.

27. Capitalism, Socialism, and Democracy, pp. 93, 99.

28. Capitalism, Socialism, and Democracy, pp. 101-102.

29. Capitalism, Socialism, and Democracy, pp. 104-106.

30. Capitalism, Socialism, and Democracy, p. 110. Schumpeter adds that making such a distinction is “quite wrong–and also quite un-Marxian.”

31. My summary here is abstracted from Capitalism, Socialism and Democracy, pp. 124-157.

32. Capitalism, Socialism, and Democracy, p. 331. This point echoes one of Schumpeter’s pet themes: that all societies suffer from a paucity of first-rate talent. Legal issues, labor problems, price control issues, and antitrust prosecutions add up to a “drain on entrepreneurial and managerial energy.” So much effort is expended on such issues that an executive often “has no steam left for dealing with his technological and commercial problems.” One consequence is that except in very large companies, which can afford numerous specialists, “leading [management] positions tend to be filled by ‘fixers’ and ‘trouble shooters’ rather than by ‘production men'” (p. 388.)

33. Capitalism, Socialism, and Democracy, pp. 167, 170, 190.

34. Capitalism, Socialism, and Democracy, p. 269.

35. Capitalism, Socialism, and Democracy, p. 418. This passage is from Schumpeter’s last address, delivered to the American Economic Association in December, 1949, three weeks before his death. The address was entitled “The March into Socialism.”

36. Joan Robinson, in the Economic Journal, 53 (December 1943), pp. 381-383.

37. Arthur M. Schlesinger, Jr., in The Nation, April 26, 1947, pp. 489-491.

38. Arnold Heertje, editor, Schumpeter’s Vision: Capitalism, Socialism and Democracy after 40 Years, New York: Praeger, 1981.

39. Paul A. Samuelson, “Schumpeter’s Capitalism, Socialism and Democracy,” in Schumpeter’s Vision, pp. 1, 13, and passim.

40. Tom Bottomore, “The Decline of Capitalism, Sociologically Considered,” in Schumpeter’s Vision, pp. 22-29, 44.

41. Gottfried Haberler, “Schumpeter’s Capitalism, Socialism and Democracy after Forty Years,” in Schumpeter’s Vision, pp. 70, 71, 74-75, 83, 84, 89.

42. Robert L. Heilbroner, “Was Schumpeter Right?” in Schumpeter’s Vision, pp. 95, 96, 99-100, 101-102, 106.

43. Arthur Smithies, “Schumpeter’s Predictions,” in Schumpeter’s Vision, pp. 130-132, 145-146.

44. Herbert K. Zassenhaus, “Capitalism, Socialism and Democracy: The ‘Vision’ and the ‘Theories,'” in Schumpeter’s Vision, pp. 173, 176, 181, 189.

45. Hendrik Wilm Lambers, “The Vision,” in Schumpeter’s Vision, pp. 107-129.

Thomas K. McCraw is the Isidor Straus Professor of Business History at the Harvard Business School and editor of the Business History Review. He is author of Morgan Versus Lilienthal (William P. Lyons Award, 1970), TVA and the Power Fight (1971), co-author of Management Past and Present (1996); and editor of Regulation in Perspective (1981), America Versus Japan (1986), The Essential Alfred Chandler (1988), and Creating Modern Capitalism (1997). His book Prophets of Regulation won both the Pulitzer Prize in History for 1985 and the Thomas Newcomen Award for 1986. His American Business, 1920-2000: How It Worked (2000) was recently reviewed on EH.NET.

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

Railroads and American Economic Growth: Essays in Econometric History

Author(s):Fogel, Robert W.
Reviewer(s):Davis, Lance

Robert W. Fogel, Railroads and American Economic Growth: Essays in Econometric History. Baltimore: Johns Hopkins Press, 1964. xv + 296 pp.

Review Essay by Lance Davis, Division of Humanities and Social Sciences, California Institute of Technology. led@hss.caltech.edu

For those of us who lived through the exciting days of the “cliometric revolution,” the publication of Robert Fogel’s Railroads and American Economic Growth represented a very major milestone – it was as if we now had proof that we had left the bumpy and unpaved dirt road of the first few years and could see ahead a straight and well-paved highway into the future. (See note 1.) The roots of “clio” clearly lay in the 1956 publication of Cary Brown’s “Fiscal Policy in the Thirties: A Reappraisal” and, a few months later, in Alfred Conrad and John Meyer’s initial presentation of “The Economics of Slavery in the Ante-Bellum South.” Brown showed that, unlike the findings of the then-current historiography, government economic policy during the 1930’s was not an example of President Roosevelt’s imaginative application of the modern tools of Keynesian fiscal policy; and Conrad and Meyer demonstrated that, despite nearly a century of traditional historiography, ante-bellum slavery was profitable and, at least by implication, that, if the goal was to eliminate slavery before the 1940’s, the Civil War was not an extremely costly and totally unnecessary enterprise. However, these findings – findings that have been well substantiated by later research – while convincing to the small cadre of “converted,” were still not generally accepted by the historical profession. Thus, cliometrics did not really begin to flower until the publication of Robert Fogel’s study of the impact of railroads on American growth in the nineteenth century. Not only did it generate a spate of parallel studies (of Russia, Mexico, Brazil, England, and Scotland, to cite only five), but much more importantly, it provided a methodological foundation for the systematic study of economic history and long-term economic growth.

Despite the attention that had been paid to the construction of the Erie Canal, given the role of the national market in underwriting this country’s rise to become, economically at least, the richest nation in the world, and, given the speed with which rails came to dominate the transport network that provided the basis for that national market, it is not surprising that historians had concluded that railroads were the indispensable and driving force behind American growth in the nineteenth century. To the best of my knowledge, before the first annual Cliometric Conference (a conference held at Purdue University in 1960), few economic historians, neither those traditionally nor those cliometrically inclined doubted this fundamental tenant of American development. (See note 2.) Moreover, although some cliometricians may have been aware of the concept of social savings – a concept that was closely related to the economic literature on cost/benefit analysis – none had attempted to measure the savings attached to any specific legal or technical innovation. (Fogel had touched on a similar concept in The Union Pacific Railroad (1960), but his first published paper dealing specifically with social savings was still almost two years in the future – “A Quantitative Approach to the Study of Railroads in American Economic Growth” (1962).)

With its publication, Railroads proved once and for all that economic history, while still depending on the product of scholars “slugging it out in the archives,” could benefit mightily from the careful application of economic theory and econometrics. On the one hand, although the work immediately generated substantial controversy, and even today one might quibble about a few days or a few months, in the long run, there has been little question about the book’s major conclusion – that the level of per capita income achieved by January 1, 1890 would have been reached by March 31, 1890, if railroads had never been invented. Moreover, Fogel’s work also indicated that there was no other industry that was likely to have been more important than the railroads; and, thus, if not railroads, no other industry could have played the role that historiography attributed to the rails. On the other hand, the evidence is overwhelming that, since the publication and subsequent debate over Railroads, almost all economic history has been written by scholars who have either been trained in economics or who have found it necessary to acquire (either formally or informally) those basic economic and econometric skills. What, then, in addition to the central importance of the subject, made this such a path-breaking work? As the title suggests, the book is actually a collection of four interrelated, but really distinct, substantive essays: “The Interregional Distribution of Agricultural Products,” “The Intraregional Distribution of Agricultural Products,” “Railroads and the ‘Take-off’ Thesis: The American Case” and “The Position of Rails in the Market for American Iron, 1840-1860: A Reconstruction.” Any attempt at evaluating the contribution of the book rests on the evaluation of the methods and findings of the four.

If Fogel had limited his work to the last two essays – the two that in many ways were the most central to the then intense discussions of the “Axiom of Indispensability,” the work would have been important; but it would never have had anywhere near the impact that it actually did. In the third essay, “The Takeoff,” Fogel, although not addressing the question of whether or not there was in fact a “takeoff” between 1843 and 1860, in order to operationalize his argument, chooses the first of W.W. Rostow’s criteria for a “leading industry”: in this case, what impact did the railroads have on the “change in the percentage distribution of output among the various industries?” Then, drawing on the best available data – data reported by Robert Gallman in his seminal (1960) study of commodity output – Fogel finds that the impact of the railroads on that percentage distribution was minimal. In the case of iron, railroads, except at the end of the period, accounted for only a minor fraction of the output change (overall, including the later period, it was still only 17 percent); for coal, it was less than 5 percent; for lumber, barely 5 percent; in the case of transport equipment only 25 percent (only half of the change accounted for by vehicles drawn by animals); and for machinery it was less than 1 percent. Thus, for all manufacturing, the railroads accounted for less than 3 percent of the change – hardly a ringing endorsement for what was purported to be a “leading industry.”

In his more detailed examination of the impact of railroads on the development of the iron industry (an attempt to assess the importance of railroads to industrialization because of their alleged “backward linkages”), Fogel found it necessary to produce a new series on pig iron output between 1840 and 1860 and to revise the estimates of the consumption of railroads to account for imports and recycled rails as well as changes in the weight of rails. These new estimates represented a major contribution to our understanding of the industrial history of the period. Fogel’s primary interest, however, was not on the production of the new series, but on estimating the importance of the railroads in the development of the iron industry. His results, again, indicate that railroads did not dominate the development of the iron industry in the two decades before the Civil War. In fact, his conclusions strongly support Douglass North’s conclusion that, from the point of view of backward linkages, it would be as sensible to talk about an iron stove theory of the development of the iron industry as a railroad theory.

In these two essays Fogel demonstrates a command of what had heretofore been the best of traditional economic history, but in neither chapter are there any major methodological breakthroughs – merely a carefully constructed series of new estimates and the demonstration of an ability to bring those estimates to bear on important issues. In the first and second of the four substantive chapters – the estimate of the social savings from the interregional and from the intraregional distribution of agricultural products – Fogel’s methodological innovations do, however, play a central role. First, in both essays, he attempts to explicate and to provide estimates of the appropriate counterfactual – what the world would have been like had there been no railroads. Although historians have long employed counterfactual arguments – sometimes it seems without realizing it – to most historians the idea of an explicit counterfactual was still a very foreign notion in the early 1960s. Second, in both chapters Fogel employs the concept of social savings (the difference in social costs between the real and the counterfactual worlds) to provide a measure of the value of the introduction of the railroad. The concept of social savings is itself an important research tool; but, from a methodological point of view, it is equally important that the measure was defined operationally, so that Fogel’s calculations could be tested against alternative estimates and against possible alternative definitions. As an aside, however, it is interesting to note that, although the two studies are very very important from the view point of methodological innovation, from the point of view of traditional economic history, they are not as strong as the third and fourth substantive essays. In the second substantive essay – the social savings arising from the intraregional distribution of agricultural commodities – Fogel begins by noting that the substitution of rail for water was more rapid in the intraregional than in the interregional distribution of agricultural commodities, and, that, since the distances to be shipped in the intraregional case were only a third as great for rail as for water transport, one would expect that the social savings from the innovation would be greater. To estimate those savings he proposes two measures: alpha (a direct measure of the cost differences with and without the railroads) and beta (an indirect measure based on the difference in the value of the land that would have been economically productive with railroads and the lesser number of acres and, thus, the lesser value of land that would have been economically productive in the absence of those railroads).

Fogel then estimates alpha for a sample of counties in the North Atlantic region and concludes that the direct costs (alpha) would amount to a loss of 2.5% of GNP, and that adjustment for excluded indirect costs (alpha-2) would have increased that figure to 2.8% of GNP. Neither estimate, however, includes the potential savings that would have resulted from the construction of additional canals and better roads. He admits that the North Atlantic region may not provide an adequate representation of the entire country, but he argues that it would be too expensive and difficult to extend this direct measure of savings to the rest of the country.

As an alternative, Fogel suggests that, since water transport was available for about 76% of the land value in the U.S., since, in the absence of railroads, 75% of the loss of land value would be in the four states of Illinois, Iowa, Nebraska, and Kansas, and since all of the lost land could be brought into production with only a small extension of the canal network, a measure based on the difference in the value of arable land provides an equally good measure of social savings. He concludes that the cost of the direct loss of arable land from the absence of railroads (beta) would amount to 1.8% of GNP, and that the total loss – the sum of direct and indirect costs (beta-2) – would amount to 2.1% of GNP. Again, however, beta-2 does include the potential savings that would result from additional canals and better roads. Making further adjustments for the unbuilt canals and better roads, Fogel provides two estimates for the social savings from intraregional trade: alpha-3 equal to 1.2% of GNP and beta-3 equal to 1.0% It was, however, Fogel’s estimates of the social savings generated by railroads in interregional shipping (the first substantive essay), that really touched off the methodological revolution. As in the second essay, the use of explicit counterfactuals and the innovation of the concept (as well as his estimates) of the social savings broke new ground. In this case, however, there were also other very important methodological innovations.

Fogel begins with an operational definition of interregional distribution: “the process of shipping commodities from the primary markets of the Midwest to the secondary markets of the East and South.” While there were good estimates of agricultural production and agricultural exports, there were no data on the method and routes of shipment that were used to move agricultural commodities from producing areas to the points of domestic and foreign consumption; and it is here that Fogel introduces his single most significant innovation. He focuses of four commodities (wheat, corn, beef, and pork) – commodities that together represented 42 percent of agricultural income. He, first, estimates the export surplus at ten primary markets in the west and the consumption in the almost 200 deficit trading areas in the East and South (exports are attributed to the port from which they were shipped). The potential rail and water shipping routes from West to East were easily identified, and the costs of rail and water shipment were well known. To simplify the problem, Fogel focuses on a sample of 30 of the 825 potential routes between pairs of cities in the West and the East. Since the actual choice of routes is unknown, he very imaginatively suggests a linear programming model to estimate the routes – with and without railroads – that would have been selected had the shippers been guided by cost minimization. He then estimates the costs of the inferred shipments, costs estimated both with and without rails. Since there were also additional costs of water transport (lost cargoes, transshipment expenses, extra wagon haulage, time lost because of slower speed and because the canals and rivers froze, and the capital costs of the canals that were not included in the water rates), Fogel adjusts his original cost differentials to account for these additional expenses. His result is an estimate of the social savings in interregional shipment resulting from the innovation of railroads of six-tenths of one percent of GNP, a figure that would have increased to only 1.3%, had he assumed that rail rates were zero.

In this chapter Fogel made four important innovations that were to have a major impact of the nature of research in economic history: (1) the operational definition of social savings; (2) the use of an explicit counterfactual; (3) the use of a formal economic model to estimate what costs would have been had the decisions been made by economic man; and (4) his choice, when it was necessary to make assumptions about the actual world, of assumptions that were biased against his central findings. (See note 3.) Even more than his estimates of interregional social savings, the work in this essay completely changed the way economic historians would do business in the future. There is, however, one blemish in the story. Professor Fogel never actually solved the linear programming problem; his choice of routes was based on what he assumed the solution would have been.

Notes:

1. To give you some feeling about that first decade, one might note that the term “cliometrics” was coined by my then colleague at Purdue, Stanley Reiter – he had been toying around with questions raised by a new discipline that he called “theometrics” (for example, “how many angels can dance on the head of a pin?); and, in his joking way, he suggested that the work in quantitative history seemed to be drawn from similar academic stream.

2. Bob Fogel and, perhaps, Douglass North and Al Fishlow, were the major exceptions. Fogel, himself, has said that he began his investigation fully believing that it would confirm the importance of the railroads. Fishlow (1965) reached conclusions for the antebellum period very similar to those Fogel reached about the latter part of the nineteenth century. Not long before this, North (1961, p. 164) wrote, “While the value added of rails was approximately $6.5 million in 1860 and roughly equals to the value added of bar iron, it was dwarfed by the value added of the polyglot classification of iron castings, which was $21 million in 1860. Indeed, the value added in stove making alone was equal to that of iron rails.”

3. For example, Fogel made no adjustment for changes in non-rail transport that might have been made had there been no railroads: he holds both origins and destinations fixed despite the fact that there would almost certainly have been some such adjustments in the absence of railroads; and he assumes that, in the absence of railroads, water rates would be constant rather than declining as might have been the case had canal builders exploited potential economies of scale.

References:

E. Cary Brown. 1956. “Fiscal Policy in the Thirties: A Reappraisal,” American Economic Review, 46 (December).

Alfred Conrad and John Meyer. 1958. “The Economics of Slavery in the Ante-Bellum South” Journal of Political Economy, 66 (April). This paper was first presented at the meeting of the Economic History Association in 1956.

Albert Fishlow. 1965. American Railroads and the Transformation of the American Economy. Cambridge, MA: Harvard University Press.

Robert Fogel. 1960. The Union Pacific Railroad: A Case Study of Premature Enterprise. Baltimore: Johns Hopkins Press.

Robert Fogel. 1962. “A Quantitative Approach to the Study of Railroads in American Economic Growth: A Report of Some Preliminary Findings,” Journal of Economic History, 22 (June).

Robert E. Gallman. 1960. “Commodity Output in the United States,” in Conference on Income and Wealth, Trends in the American Economy in the Nineteenth Century, 24, Studies in Income and Wealth. Princeton: Princeton University Press.

Douglass North. 1961. The Economic Growth of the United States 1790 to 1860 Englewood Cliffs, NJ: Prentice-Hall.

Subject(s):Transport and Distribution, Energy, and Other Services
Geographic Area(s):North America
Time Period(s):19th Century

Nonzero: The Logic of Human Destiny

Author(s):Wright, Robert
Reviewer(s):Long, J. Bradford De

Published by EH.NET (July 1, 2000)

Robert Wright, Nonzero: The Logic of Human Destiny. New York: Pantheon

Books, 2000. x + 435 pp. $27.50 (cloth), ISBN: 0-679-44252-9.

Reviewed for EH.NET by J. Bradford De Long, Department of Economics, University

of California-Berkeley.

Back in 1794 the Enlightenment philosophe Marie Jean Antoine Nicolas Caritat,

Marquis de Condorcet wrote his Sketch for a Historical Picture of the

Progress of the Human Mind — the boldest of the eighteenth-century

declarations that humanity had and was destined to see Progress with a capital

P. Condorcet was a powerful and convincing advocate– Malthus wrote his

Essay on Population explicitly against Condorcet. But that was the high

water mark of belief in Progress. By and large the past two centuries have seen

the reaction, and confidence in human Progress — technological, political,

humanistic, and moral — fell out of intellectual favor.

Now comes Robert Wright, previously author of Three Scientists and Their

Gods and The Moral Animal, with an excellent book accompanied by an

enthusiastic blurb by William McNeill. Wright’s purpose is to set out the

gospel of progress anew, this time using the language of game theory as his

principal mode of rhetoric. At its most basic level Wright’s point is that

interactions are positive-sum: there are gains from cooperation. Thus human

cultural evolution has an arrow and a direction: toward greater complexity,

toward higher civilization.

The direction arises at two levels. First, individual humans seek out things

that increase their own powers and capabilities. Cooperation tends to do this,

so people find ways to cooperate. But the most important form of cooperation is

one that is almost impossible to stop: the simple sharing of knowledge. Two

heads are better than one. The denser the population (and the better the means

of communication) the more ideas will be generated, the larger the number of

ideas that turn out to be useful, and the faster will be progress. People are,

Wright argues — in my view correctly — naturally acquisitive in that they

want useful things, and will eagerly copy new technologies they hear about.

Thus Wright sees inventions such as agriculture as inevitable — not as a lucky

accident.

Second, at the level of human societies, the societies that are more powerful

– have better technologies, more effective social arrangements, greater

population densities, and so forth — either swamp their neighbors or force

their neighbors to copy them in order to maintain their autonomy. In Eurasia,

where contact was constant from an early age — as Wright points out, in 200 on

one could travel from Gibraltar to the Yangtze River and cross only three

borders (p. 117) — a good innovation at one end would diffuse all the way to

the other in a matter of centuries. He believes that the wide spread of

religion in agricultural civilizations proves that its productivity-boosting

and division of labor-enhancing effects outweigh its exploitative side (p. 86):

those societies that did not have temples and priests did not flourish.

Wright dismisses gloomy talk of barbarian invasions and the fall of empires by

asserting that one goes from furs-and-swords to linen-and-pens in three

generations: “The Romans weren’t exactly hailed by the Greeks as cultural

equals when they happened on the scene…. Yet they were massively infiltrated

by classical Greek memes, which they then spread across the wider world. In

Horace’s phrase, ‘The Greeks, captive, took the victors captive’. And, anyway,

who were the Greeks to look down on intrusive barbarians? … The early Greeks

had a title of honor, ptoliporthos, that meant ‘sacker of cities’…. But

whether these ‘barbarians’ sack cities, or hover on the periphery and trade …

or ally with them in war or ally against them, one outcome is nearly certain:

win, lose, or draw, the ‘barbarians’ become vehicles for advanced memes…” (p.

131). For what truly matters are the basic technologies of agriculture and

craft, not the products of high civilizations. And even when you do have

significant regression — in the post-Mycenean Dark Age, in the post-Roman Dark

Age, or in the wake of the Mongols – Wright reminds us that “the world makes

backup copies.”

Wright also dismisses gloomy talk of the stagnation of Ming and Qing China, the

fall of the Mughal Empire, and the technological and organizational stasis of

the Ottoman Empire by arguing that the key unit is not Europe vs. Asia but is

instead Eurasia. Sooner or later, Wright argues, some part of Eurasia — it did

not have to be Europe – would have hit upon a superior social and technological

recipe to that of the mid second millennium empires, and when it did the rest

would have copied it. Wright is of the school that holds that China almost

broke through to modernity, writing of how paper and woodblock printing were

used to distribute useful texts — Pictures and Poems on Husbandry and

Weaving, Mathematics for Daily Use, and the Treatise on Citrus

Fruit (p. 159). The recipe that ultimately proved successful — what Wright

calls the economic logic of freedom — was stopped in many places: “indeed, on

balance, in the centuries after the printing press was invented, European

governments grew more despotic” (p. 185). But it only had to succeed once. And

given sufficient cultural variation, sooner or later a breakthrough was

inevitable.

But even if you buy all of Wright’s argument that forms of increasing returns

– non-zero-sum-ness, as Wright calls it — impart an arrow of increasing

complexity and division of labor to human social, cultural, and economic

evolution, this does not necessarily amount to Progress — at least not to

anything we would see as progress in human morality or human happiness. For why

should organizational complexity be Progress? As Wright puts it: “… it would

be hard to argue that there was net moral gain between the hunter-gatherer and

ancient-state phases of cultural evolution. The Egyptians had slaves — which

virtually no known hunter-gatherer societies had — and their soldiers returned

from wars of conquest proudly brandishing the severed penises of their slain

foes” (p. 206).

So in the end Wright is forced to play a game of three-card monte to reach

conclusions that support his belief in Progress. The card labeled “complexity”

must be switched for the card labeled “Progress” without our noticing. In the

industrial core, at the end of the twentieth century, we are inclined to

tolerate this switch — to say that it is obvious that a highly complicated and

productive civilization will have widely-distributed individual wealth, lots of

individual freedom, and soft forms of rule, and that social complexity is

civilization. But back in the middle of the twentieth century this switch could

not have been accomplished at all: “complexity yes,” people would have said,

“but progress no.” And who knows how things will look in a hundred more years?

Marie Jean Antoine Nicolas Caritat, Marquis de Condorcet (1743-1794), was an

aristocrat, a mathematician, an official of the Academy of Sciences, and was a

friend of Voltaire (1694-1778). He strongly supported the revolution of 1789 as

an example of human progress. But the Committee of Public Safety turned on him:

he was arrested, and died in prison before he could be executed.

————————————————————————

*The above review covers only the first two-thirds of the book. At that point

Wright asks the question: “Aren’t organic evolution and human history

sufficiently different to demand separate treatment?”

I think the answer to this question is “yes,” and that the book should stop at

that point. Wright thinks that the answer is “no,” and so the book continues.

He goes on to draw analogies between human cultural evolution toward greater

complexity and biological evolution toward greater complexity.

Wright’s argument that biological evolution has an arrow as well — tends to

produce animals with big brains that think — runs roughly as follows:

Life starts out simple. It then evolves, with variation and with the

conservation and spread of successful variations. Thus evolution generates

increasing diversity, and increasing diversity generates increasing complexity:

it is hard for a one-celled organism to become less complicated (although

viruses have managed), and easy for it to become more complicated.

But wait! Most of your environment is made up of other living creatures. Hence

the environment becomes more complicated over time too. And because the

environment becomes more complicated over time, there is increasing adaptive

value in information acquisition and information processing organs: better eyes

(and ears) and bigger brains. Random evolution creates increasing diversity and

complexity of life. Increasing diversity and complexity of life make for a more

complicated environment. And a more complicated environment generates strong

evolutionary pressure for eyes, hands, and brains.

Maybe his biological argument is right — I’m inclined to think it probably is

– but maybe not. Big eyes and big brains are expensive in terms of energy. Why

not go for bigger teeth or stronger legs? And large complicated animals seem to

be (so far) at a disadvantage in species survival when the asteroids hit.

J. Bradford De Long is a professor of economics at U.C. Berkeley, and is the

author of the forthcoming “America’s Historical Experience with Low Inflation”

(Journal of Money, Credit, and Banking), and the recently published

“Some Speculative Microeconomics for Tomorrow’s Economy” (First Monday)

and “The Triumph[?] of Monetarism” (Journal of Economic Perspectives).

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

Global Civil Society: Dimensions of the Nonprofit Sector

Author(s):Salamon, Lester M.
Anheier, Helmut K.
List, Regina
Toepler, S. Stefan
Reviewer(s):Goldin, Milton

Published by EH.NET (March 2000)

Salamon, Lester M., Helmut K. Anheier, Regina List, Stefan Toepler, S.

Wojciech Sokolowski and Associates. Global Civil Society: Dimensions of the

Nonprofit Sector. Baltimore, MD: Johns Hopkins Comparative Nonprofit Sector

Project, 1999. Price (paper) $34.95. ISBN 1-886333-42-4.

Reviewed for H-Business and EH.NET by Milton Goldin

National Coalition of Independent Scholars (NCIS)

The Global Associational Revolution

“…a veritable ‘global associational revolution’ appears to be underway, a

massive upsurge of organized private, voluntary activity in literally every

corner of the world. Prompted in part by growing doubts about the capability of

the state to cope on its own with the social welfare,

developmental, and environmental problems that face nations today, this growth

of civil society organizations has been stimulated as well by the

communications revolution….” (p. 4)

If these statements appear to be exaggerations–after all, how often do you

think of nonprofits in connection with revolutions?–brace yourself before

reading this book. Dr. Salamon and his co-authors will positively jolt you with

their conclusions based on data from 22 nations including Israel,

Japan, the United States, five countries in Eastern Europe, and five countries

in Latin America. All data relate to 1995.

Consider the following:

- “Even excluding religious congregations, the nonprofit sector…is a $1.1

trillion industry that employs close to 19 million full-time equivalent paid

workers. Nonprofit expenditures in these [22] countries…average 4.6 percent

of the gross domestic product, and nonprofit employment is nearly 5 percent of

all nonagricultural employment,” (p. 8)

- “… if the nonprofit sector in these countries were a separate national

economy, it would be the eighth largest economy in the world, ahead of Brazil,

Russia, Canada, and Spain.” (p. 9)

- “Nonprofit employment in the eight countries for which time-series data were

available grew by an average of 24 percent, or more than 4 percent a year,

between 1990 and 1995

. By comparison, overall employment in these same countries grew during this

same period by a considerably slower 8 percent, or less than 2 percent a year,”

(p. 29)

- “…the growth in nonprofit employment evident in these figures has been made

possible

not chiefly by a surge in private philanthropy or public-sector support, but by

a substantial increase in fee income,” (p. 31)

- “…the relative size of the nonprofit sector varies greatly among countries,

from a high of 12.6 percent of total nonagricultural employment in the

Netherlands to a low of less than 1 percent of total employment in Mexico. The

overall 22-country average, however, was close to 5 percent.

This means that the U.S., at 7.8 percent without religious worship, lies

substantially above the global average. However, it falls below three Western

European countries the Netherlands (12.6 percent), Ireland (11.5 percent), and

Belgium (10.5 percent), as well as Israel (9.2 percent). (pp.

265-266)

Despite the awesome data, Salamon writes in

his Preface that we are nowhere near having enough information to fully grasp

what is happening in America or elsewhere vis-a-vis nonprofits. For those of us

who closely follow the philanthropic literature, this is surely no

exaggeration: The IRS isn’t even certain how many private foundations or

nonprofits exist. Nor is lack of data the extent of the problem. Salamon and

his associates at the Johns Hopkins Comparative Nonprofit Sector Project which

manages the research rightly seek in the long term not only to describe the

“basic scale,

structure, and revenue bases” of nonprofits around the world but hope, in later

volumes, to account “for the differences that exist” between nonprofits in

various countries, “the factors [that] seem to encourage or retard

their development,” and, finally (and perhaps most important of all), to

answer the questions, “what difference…these entities seem to make? What are

their special contributions?” (p. xvii)

The more philosophical among us might have preferred that Salamon and his

associates begin with a volume responding to the questions about economic

benefits that justify nonprofits and what expectations we should entertain for

their future. The purpose would be not only to provide intellectual

satisfaction but because of the gigantic transfer of wealth currently

underway, in America, from the World War II generation and baby boomers to

foundations and other tax shelters.

But to return to the present volume, someone somewhere once said there are no

specialists, only vested interests. When Salamon writes, “Traditionally,

the United States has been considered the seedbed of nonprofit activity,”

and then proceeds to write that Alexis de Tocqueville, “a keen 19th century

observer of American institutional life, aptly considered voluntary

associations a uniquely democratic response to solving social problems. . .”

(p. 261), you have to wonder exactly which vested interests de Tocqueville

thought were being served. But had de Tocqueville attempted to address this, he

would have come across immediate, knotty problems, including how,

exactly, to define “nonprofit” or “charity” or “philanthropy” in an American

context.

Definition is no easier 150 years after de Tocqueville’s visit. Annual salaries

of some nonprofit executives now exceed $1 million; this suggests that

nonprofit is not non- profit for them. Benjamin Franklin, the patron saint of

American philanthropy, thought charity (meaning welfare) should be the business

of churches and never of government. To him, philanthropy meant community

advancement, and community advancement must be the business of all citizens. To

put the matter bluntly, successful entrepreneurs could only do well if they did

some local good, but finding shelter for the homeless was not the kind of good

in which they should be involved.

As Global Civil Society

makes clear, one of the most remarkable aspects

of post-industrial philanthropy is the degree to which systems in various

countries throughout the world have come to resemble each other.

In Western Europe, “On average, three-fourths of all nonprofit employees…work

in education, health or social service organizations. This reflects the

historic role that the Catholic and Protestant churches have long played in the

education and social service field.” (p. 16). In America, “…almost half of

all nonprofit employment…is in the health field. This is more than twice as

high as the global average of 19.6%….” (p. 269) (On the other hand, it should

be pointed out, as Salamon does, that “one

out of every five nonprofit employees in the United States works in the

educational field. This is proportionally well below the all-country average

and also falls below the developed country average. The principal reason for

this is that the tradition of

separation of church and state in the U.S. has limited the growth of public

funding of religiously affiliated education institutions in the country….”)

(p. 270)

But in America, as in the other 22 countries during the past two decades,

financing nonprofits has had less and less to do with philanthropic giving and

more and more to do with fees paid for services by governments. In this

connection, Catholic Charities of America receives some 62 percent of its

annual $1.9 billion operating income from eight national agencies as well as

local and state governments, to provide home care for the elderly,

battered-women’s shelters, foster care, and other essential services.[1]

Global Civil Society was published at a time when the American economy

flourished

as no one had ever imagined it could. But not in Washington or in any other

world capital were those officials concerned with welfare policy over- curious

about what might happen if the global economy falters and a depression

threatens. Hopefully, a succeeding volume in this series will include a “What

If” chapter. We badly need thinking in this area.

[1] David Van Bema, “Can Charity Fill the Gap?” Time (December 4, 1995),

pp. 44-46, 53.

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

Latin America and the World Economy since 1800

Author(s):Coatsworth, John
Taylor, Alan
Reviewer(s):Salvucci, Richard

Published by EH.NET (February 2000)

John Coatsworth and Alan Taylor, editors, Latin America and the World

Economy since 1800. Cambridge, MA: Harvard University Press, 1999. xv +

484 pp. $49.95 (cloth), ISBN 0-674-51280-4; $24.95 (paper), 0-674-51281-2.

Reviewed for EH.NET by Richard

Salvucci, Department of Economics, Trinity University, San Antonio, Texas.

Welcome to the Cliometric Revolution, Latin Style

When I started graduate school in 1973, there were no textbooks on Latin

American economic history. Today, depending on your definition of a textbook,

there are 3 or 4 in English alone. In 1973, we argued about the Asiatic mode of

production and precapitalist economic formations. Today we discuss conditional

convergence. In 1973, bourgeois economists were the enemy. Today a bourgeois

economist is your dissertation supervisor. Welcome to the Cliometric

Revolution, Latin style. It’s been 25 years in coming,

but now that it’s come, it’s come with a vengeance.

The present anthology is an artifact of that revolution and like all

historical artifacts, it requires a bit of study to appreciate its meaning in

full. And so to begin, I’m going to quibble with the idea that what you read

here is really all that novel. After all, there’s always been some cliometric

work on Latin America, as the outstanding books of Carlos Dmaz Alejandro on

Argentina or Clark Reynolds on Mexico might attest. In my primary field,

Mexican history, you could point to things done by Luis Tellez or by Jaime

Zabludovsky as recognizably cliometric, but Tellez and Zabludovsky have gone

on to major careers in government service rather into careers as economic

historians. What’s more unusual is to find suitably trained professionals doing

purely academic work-doing economic history for a living. For that we can

thank, at least partly, a sea change in development ideologies in Latin

America, where economists in universities can now spend their time thinking

about conditional convergence (whose acquaintance they may have made in some

gringo institution) rather than about the Asiatic mode of production. And I

think I have some idea why.

For my generation, it was the fall of Allende in 1973 that was critical.

For this one, it is the fall of the Berlin Wall. That makes all the difference

in the world. You can write sympathetically about the economic history of

Cuban sugar mills without espousing the labor theory of value.

You can study the history of financial markets in Brazil without being

implicated in the overthrow of Joco Goulart in 1964. For

now, at least,

there are no gangster regimes advocating “market friendly” policies while

energetically murdering their own citizens. The ideological and political

baggage of the 1960s and 1970s is, for want of a better phrase, just so much

history. Hence

what we read here by so many relative newcomers to the field. Their authors

are students, not prisoners of the past, and that’s what makes their

scholarship worthwhile. I do have a small bone to pick with the volume’s title.

This is not a book about Latin America since 1800.

It is mostly about Argentina, Brazil and Mexico since 1870, which is not quite

the same thing. There are no Indians. There is no Caribbean or Central America.

No Andes. But worse, there are really no papers that engage with the period

before 1870 and that is a real problem. As John Coatsworth’s perceptive essay

on the nineteenth century puts it, “the available quantitative evidence shows

that Latin America became an underdeveloped region between the early eighteenth

and the late nineteenth century” (p. 26). In other words, most of the papers

in the volume-Carlos Newland’s excepted-do not address the principal issue of

Latin America’s economic history, namely, the origins of what Lant Pritchett

has called

“divergence, big time.” Even

if you argue in reply, that X (what existed before 1870) causes Y (what changed

later), the historian is liable to wonder why X occurred when it did and not

before, especially if Y is extremely profitable, the proverbial big bill on the

sidewalk.

I think

I know why. Sensible historians avoid the period before 1870 because it is a

Hobbesian world where life, not to mention some of its major actors, was nasty,

brutish and short. For most of Spanish America,

the era before 1870 (and after Independence in the 1820s) is much, much harder

to work in, let alone understand. The archives with which I am familiar (mostly

Mexican, to be sure) are a mess-disorganized,

uncatalogued, impenetrable-and very nearly impossible to utilize. Of course,

the messiness of the sources faithfully reflects the messiness of economic and

political life at the time, with unending coups, countercoups,

invasions, constitutions, blockades, wars, partitions, regulations,

proclamations, declamations, you name it. There’s no stable structure for

understanding, essentially. Unfortunately, this is where the action is,

unless you regard disorder itself as the proximate cause of poor economic

performance. As anyone reading this is probably aware, there’s really no

consensus about that either.

For this reason, I take claims made for the cliometric potential of Latin

American economic history the way I take tequila: in limited doses, and with

many grains of salt. Still,

triumphalism only infects the blurbs to the volume, for the “Introduction”

by John Coatsworth and Alan Taylor is conspicuously moderate in tone. So maybe

I shouldn’t complain. Besides, the papers are generally very good and a couple

are outstanding. One of the most coherent themes here is the importance of

financial markets and institutions in facilitating or accommodating economic

growth. This really is a new direction, at least in the Latin American context,

for I can think of little in the older historiography that makes this point

with any cogency. A very interesting paper by

Michael Twomey provides the relevant context in arguing that

“[t]he general trend of direct foreign investment [in the twentieth century]

has been downward relative to income and, probably, total capital stock” (p.

192). Portfolio investment aside, which

Twomey identifies as mainly, until 1990, loans to governments, the implication

is that domestic sources of capital were increasingly important between 1913

and 1950, the years when foreign direct investment fell sharply relative to

GDP. Twomey’s argument

frames papers by Stephen Haber, Anne Hanley, Leonard I. Nakamura and Carlos E.

J. M. Zarazaga, Gerardo della Paolera and Alan M. Taylor, and Gail D. Triner.

First, Brazil. Anne Hanley’s study of business finance and the Sco Paulo Bolsa

offers a good point of departure. In the spirit of Twomey’s conclusions,

Hanley argues that the role of foreign capital in direct investment “while

sizeable, mainly played a supporting role in the domestic business formation

that was the cornerstone of Sco Paulo’s development.”

The industrial and utilities sectors “actually found their base in the domestic

capital market” (both quotations, p. 126). And it was the impersonal mechanism

of the stock exchange rather than traditional kin-based finance that fueled “a

type of financial Big Bang” between 1905 and 1913 (p. 131). Similarly, Gail

Triner finds that the recharter of the Banco do Brasil in 1905 created a

“natural infrastructure for financial transactions” (p. 224) that supported a

“strong, centralized role for the national government in the economy.” And

like Hanley, Triner emphasizes that “[t]he banking system increasingly

accumulated and reallocated financial resources of the private sector at the

expense of either personal or other institutional channels” (p. 226, both

quotations). After 1905 the real money supply and the monetized economy grew

rapidly even as the economic predominance of Sco Paulo was consolidated.

The evolution of a modern financial infrastructure for Brazil had measurable

implications for the growth of industrial productivity in Brazil after 1890.

Stephen Haber’s sophisticated analysis of capital market regulation and the

development of a securities market argues that “one crucial piece of the puzzle

explaining the lack of industrial development

before 1890 and rapid industrial growth after 1890 was access to capital”

(p. 279). The maturation of debt and equity markets along with the

establishment of limited liability laws and mandatory financial disclosure

lowered the cost of capital. As a result, the cotton textile industry,

which is Haber’s focus, grew more quickly than it would have had traditional

patterns of kin-based and other less formal avenues of finance been maintained.

In short, “entrepreneurs who could best combine the factors of production and

choose the optimal output mix were able to mobilize capital that otherwise

would not have been available to them” (p.

279).

Argentina has always seemed baffling. Between 1870 and 1900, real per capita

product there doubled, but after 1900, it would not do so again until 1958. In

other words, the rate of real per capita growth fell from 2.3 percent per year

to 1.19 percent per year, which is some slowdown. For Gerardo della Paolera and

Alan Taylor, a capital constraint is (part of)

the answer

. The domestic financial system was simply unable to replace the dwindling

supply of British capital after World War I. Caught between the gold standard,

international convertibility, and repeated financial crises,

the monetary authority, the Caja de Conversisn, was unable to support domestic

banks and maintain convertibility at the same time. For this reason, Argentine

banks “had to maintain a higher capital cushion” than their foreign

counterparts who could borrow abroad much more easily.

“[D]omestic banks could not fill the void left by the retreat of foreign

capital after 1914″ (p. 163). A paper by Leonard I. Nakamura and Carlos E.

J. M. Zarazaga raises some questions about this argument by looking at returns

to Argentine debt instruments, which don’t

seem particularly high.

Daniel Dmaz Fuentes’ chapter on the gold standard in Argentina, Brazil and

Mexico reminds us that the Argentine peso was inconvertible between 1914 and

1927, an awkward point for della Paolera and Taylor as well.

Nevertheless, their discussion of the non-monetary aspects of financial crises

in Argentina is very stimulating. I have heard it said by some historians that

there is nothing “new” in the findings of the new economic history of Latin

America. I defy them to read della Paolera and Taylor and then tell me that. I

doubt the critics have read Bernanke’s 1983 paper and the subsequent work it

inspired. The remaining papers are somewhat more difficult to characterize

because they deal with a wide variety of subjects. Let me give

some examples.

Students of Mexican history will welcome the chapters by Graciela Marquez and

Aurora Gsmez-Galvarriato. Both make extensive use of archival data and both

question commonly held beliefs about Mexico between 1890 and 1920, the last

years of

the Porfiriato (the dictatorship of Porfirio Dmaz from 1876 through 1910) and

the opening decade of the Mexican Revolution (which lasted until 1920, 1938,

1968, or last week, depending on how you view Mexican history). Marquez shows

that it is not enough

to simply label Porfirian Mexico a high-tariff country since nominal

protection fell sharply during the 1890s. It never recovered its former levels

before the outbreak of the Revolution. Gsmez-Galvarriato looks at real wages in

the Santa Rosa textile factory in Veracruz. Stability in real wages through

1907 gave way to a sharp decline between 1907 and 1911. A marked recovery

occurred between 1911 and 1913, only to fall sharply during the bitterest years

of the civil war (1914-1916). From 1917 through 192 0, real wages recovered,

but did not rise much above their level in 1907. I think Marquez and

Gsmez-Galvarriato are saying that the stories we tell about Dmaz and the coming

of the Revolution are not likely to hold up under the careful scrutiny of a new

historiography informed by detailed industry and firm-level studies. Where

this leaves the big studies of the Revolution,

such as Alan Knight’s, which retells many of the old verities, remains to be

seen.

Both William Summerhill and Alan Dye contribute chapters that represent

aspects of larger projects. Dye’s study of the contracts between sugarcane

growers and millers in Cuba lays to rest the myth that the contracts between

growers and millers evolved to exploit the growers, upon whom they were

coercively imposed. Summerhill’s paper on Brazilian railroads concludes that

“The direct impact of the railroad in Brazil places it comfortably within the

top tier of the cases for which economic historians have constructed social

savings estimates” (p. 391). Interested readers can certainly learn more from

Dye’s Cuban Sugar in the Age of Mass Production

(Stanford, 1998) or Summerhill’s forthcoming Order Against Progress:

Government, Foreign Investment and Railroads in Brazil, 1854-1913

(Stanford, scheduled for Summer 2000).

Papers by Lee Alston, Gary

Libecap and Bernardo Mueller; Andri A. Hofman and Nanno Mulder; and Carlos

Newland round out the volume. All are well worth

reading.

A final observation. It’s ironic that economic historians of Latin America

stress the study of institutions, a theme that features prominently in this

volume as well. For those of us trained in the early 1970s, “institutional

history” was something to be avoided, the province of dullards and the

unimaginative. It was a matter of faith, enshrined in a famous article by

James Lockhart, that the only real historians of Latin America were social

historians, and, well, social historians had better things to do than pay

attention to, of all things, institutions. Institutions didn’t affect the

behavior of real people. And real historians studied real (read: ordinary)

people. My how times do change. There isn’t much doubt about who’s doing the

interesting history of Latin America these days. Not a few of them are

represented in this excel lent collection. Now if only I could get them to

explain the Asiatic mode of production to me, my life would be complete.

Fat chance.

Richard Salvucci teaches at Trinity University. He is co-author with Linda K.

Salvucci of “Cuba and the Latin American

Terms of Trade in the Nineteenth Century: Old Theories, New Evidence,”

forthcoming in the

Journal of Interdisciplinary History in Autumn 2000.

Subject(s):Economywide Country Studies and Comparative History
Geographic Area(s):Latin America, incl. Mexico and the Caribbean
Time Period(s):General or Comparative

Warhogs: A History of War Profits in America

Author(s):Brandes, Stuart D.
Reviewer(s):Meulen, Jacob Vander

Published by EH.NET (February, 2000)

Stuart D. Brandes. Warhogs: A History of War

Profits in America.

Lexington: The University Press of Kentucky, 1997. 371 pp. Tables, notes,

bibliography, and index. ISBN 0-8131-2020-9

Reviewed for H-Business and EH.NET by Jacob Vander Meulen,

Jacob@hfx.andara.com, Department of History, Dalhousie

University, Halifax,

Nova Scotia, B3H 3J5.

A new book on wartime profit-making with a title like “Warhogs” might suggest

yet another entry for the “merchants of death” school on the relationship

between private enterprise and the military in America. The

notion that the relation is inherently corrupt, and the idea that the main

beneficiaries of war are contractors, bankers, and market capitalism, have been

widely shared among Americans at least since the Pequot wars of the 1630s when

profiteering gunsmiths scandalized New England (pp. 16-17).

During the twentieth-century that perspective assumed an even more sinister

hue. Not only did merchants of death profit from war, they instigated it at

every opportunity. From the “Warhogs” of World War II to the shadowy figures

dominating the 1990’s worlds of Oliver Stone and The X-Files,

Americans have been more than willing to imagine the worst about those engaged

in war business.

Staurt Brandes’ title, however, is tongue-in-cheek. Warhogs traces

profiteering

and efforts to control it through America’s various wars from the colonial

period to the end of World War Two. The author shows how exaggerated were

common assumptions and constant charges of graft and malfeasance in military

supply. He also shows how basic such suspicions have been to popular

republicanism in America and how that ideology has continuously shaped national

policy on the business of war. Brandes wants to contribute to what he calls the

“New Military History” which, he asserts, offsets ideology and

conspiracy-mindedness by concentrating “less opprobriously on understanding

civil-military relations” (p. 357).

Brandes points to the British Army’s economic impact on early America in

helping foment militant republicanism and the American Revolution. Because

“the Royal Army dripped with corruption” (p. 38), professional standing armies

came to mean patronage, collusion, autocracy and oppression. The equation

formed an essential component of traditional anti-government and

anti-big-business ideology in America. It survived the War of Independence,

despite all George Washington’s efforts to minimize corruption in the

Continental Army. Apart from during the War of 1812, when “left-handed traders”

from New England and New York dealt with Canadian enemies, and during the

Civil War, when members of a “shoddyocracy” seemed in control of Union Army

procurement, minimal hostility for those who dealt in war materiel through the

1800s reflected the relative unimportance of the military in nineteenth-century

society and economy. Turn-of-the-century U.S. imperialism, and especially

World War One, revived the critique.

During the interwar period, Bryanite “neo-Jeffersonians” laid the regulatory

parameters of military contracting and defense-industry profits for World War

Two and into the contemporary period.

Brandes cites numerous

instances of stupendous greed and unconscionable

profiteering, but debunks much more than he confirms and always balances real

corruption and conflict of interest with overall fair

-dealing and dedicated patriotism among businessmen. He points to the

inevitable confusion of rapid war mobilization, the administrative complexity

of determining reasonable costs and profits, and the ever-growing need for

greater and more intimate cooperation between the military and its suppliers

as the technology of warfare became more complex. Warhogs is

particularly strong on war-profit politics during World War One and through

Senator Gerald P. Nye’s investigation of the munitions industry in 193 4-35.

Readers might want to compare Brandes’ dismissal of the Nye Committee’s methods

as “eerily close to the methods of Senator Joseph R. McCarthy” and the Nye

Report as “pure demagoguery” with Matthew Ware Coulter’s recent study.

Nevertheless, Brandes credits the Nye Committee and the Vinson-Trammell Act of

1934 for the general success of excess-profit taxation and renegotiated

contracts during World War Two.

Warhogs is engaging and even-handed and based on impressive research in

both primary and secondary sources. Brandes nicely traces the war-profit

controversy in popular media and literature as well as fiction and cinema.

The book closes with a chapter entitled “War Profits and Cold War Culture”

that is actually about how World War Two profits were perceived during the

immediate post-war years. Brandes does not discuss defense-industry profits

since the Cold War began, how they were regulated, or the degree to which their

legitimacy was problematic for Americans. Some readers might feel left hanging.

What happened to the neo-Jeffersonian critique of profiteering and of the

military-industrial complex during the long and expensive Cold War?

Subject(s):Markets and Institutions
Geographic Area(s):North America
Time Period(s):General or Comparative

Small Firms, Large Concerns: The Development of Small Business in Comparative Perspective

Author(s):Odaka, Konosuke
Sawai, Minoru
Reviewer(s):Acs, Zoltan J.

Published by EH.NET (October 1999)

Konosuke Odaka and Minoru Sawai. Small Firms, Large Concerns: The

Development of Small Business in Comparative Perspective Fuji Business

History Series. Oxford and New York: Oxford University Press, 1999. xiii +

314. Tables, maps, notes, bibliography, and index. $70.00 cloth, ISBN

0-19-829379-8.

Reviewed for H-Business and EH.NET by Zoltan J. Acs, Merrick School of

Business, University of Baltimore. zacs@ubmail.ubalt.edu

The last

quarter of the twentieth century has witnessed a multitude of tectonic

developments in business, industry, and the economy. These included a wave of

mergers and acquisitions, technological change, the deregulation of business,

the emergence of global financial markets, a shift from mass production to

flexible manufacturing, the emergence of the internet as a major business tool,

and a reassessment of the role of small firms.

The reassessment of the role of small firms was stimulated by three events

that transpired over the last twenty-five years. After decades of relative

decline, small firms were seen as innovators, creators of new jobs, and

offering flexible modes of organization compared to outdated forms of mass

production. The re-emergence of small firms in an era of globalization and

rapid technological change led to many questions and concerns about the role of

small firms in industrial economics. This book takes the long view to examine

the changing role of small firms in industrial economies, the relationship

between small and large firms and the management style of small firms.

The book is organized into three parts. Part I examines North America. Part II

looks at Europe including the United Kingdom

, Germany, France and Italy.

The third part looks at Japan in much greater detail than we are accustomed to

seeing.

In chapter one, Philip Scranton takes up some familiar themes, purporting to

expand the object of research concerning small business beyond manufacturing,

embracing a wider choice of topics such as entrepreneurship,

and the role of minorities. Several industries are examined including

retailing, doctors and lawyers, and services. It is important to remember that

in most industries outside of manufacturing most establishments were much

smaller than in manufacturing and therefore the issues were different. This

becomes important especially in the last decade of the twentieth century as

the service sector becomes the primary creator of jobs.

The book starts out with a familiar theme. Before the emergence of mass

production and Taylorist work organization most firms were small. So in some

sense it is the establishment and growth of large business that is significant.

Starting with the growth of trusts in the late nineteenth century, most of the

twentieth century has been characterized by the growth of large and giant

corporations. Witness the emergence of U. S. Steel, Dupont, General Motors,

Ford, IBM, Exxon, Merck, General Electric and so on.

Similar trends can be found in most industrialized countries. It is against

this legacy that the current book tries to make sense out of the continuing

persistence of small firms. In this development small firms were viewed as

inefficient, socially less

desirable because of lower wages, and less mechanized techniques of production.

As Mansel Blackford makes clear in chapter two, the relationship between large

and small firms is a complex one. In the United States there is a strong public

policy infrastructure and a strong political sentiment for the importance of

small firms in maintaining social values, democratic institutions and economic

vitality. It is impossible to understand the relationship between small and

large firms without taking this value

system into consideration.

In chapter three, Kris Inwood looks at the Canadian experience in 1871 with the

goal of uncovering the characteristics of the Canadian experience. The purpose

of this chapter is to look at Canada on the eve of industrialization

. This carefully written chapter lays out the origins of an industrial

structure that is different from most other countries. Here it is not a

populist agenda that is driving the industrial landscape but perhaps the role

of family business, unpaid labor and small scale production.

Part II brings together the experiences of four European countries with

different traditions. In France and the United Kingdom small firms have played

a much less important role than in Germany and Italy.

In chapter five, C.F.

Pratten notes that the United Kingdom was the home of the industrial

revolution. However, over the years the small firm sector had declined and has

not been an important part of the economy in the twentieth century. And chapter

six, by Michel Lescure, explores reasons for the difficulties that French

small-and-medium enterprises (SMEs) have faced in the twentieth century. The

reasons are changing consumer demand,

challenges made by big corporations and by state policies, the evolution of the

financial system and the overall decline of the local production system. In

Germany and Italy the picture is quite different. In Germany,

the small firm sector occupies a central role in the economy. As pointed out by

Ulrich Wengenroth, this tradition grew out of two

pre-industrial traditions, the craft guilds in the cities and the putting out

system in the rural areas. The term-Mittelstand-literally middle-estate, has a

strong corporatist overtone. Mittelstand has always been a defensive concept,

very unlike the recent optimism for highly innovative small business in the

United States.

In chapter seven, Aurelio Alaimo presents a historical study of Italian

institutions. While there has been enough written to fill a large warehouse on

the industrial development of England, Italian historians have shown a clear

preference for the study of the pre-industrial economy.

Industrialization in Italy was viewed as just a special case of latent

development. This is now changing with a new generation of historian playing

close

attention to Italian industrial development. These studies are summarized and

may lead to important contributions regarding the industrial structure in

Europe and comparisons internationally.

The last four chapters (Part III) examine the role of SMEs in

Japan. In Chapter eight Johzen Takeuchi examines the historical origins of the

SME sector. This is important because while some identify Japanese success in

the last quarter of the twentieth century with the growth of giant

corporations, Japan has one of

the largest concentrations of SMEs in the manufacturing sector. A heated

debate has existed in Japan for years about the relative contribution of SMEs

to economic growth. This chapter examines the background of industrialization

using a variety of factors including market conditions and skill formation.

Chapter nine, by Takashi Abe, examines the developments of the putting

out system in modern Japan. In Chapter ten, Minoru Sawai examines the role of

technical education and public research institutes in

the development of SMEs in Osaka between in the inter war period. Osaka

continued to be one of the largest industrial centers in Japan and a virtual

kingdom for SMEs.

This chapter draws attention to the importance of technical education in the

development

of the SME sector. The last chapter, by Konosuke Odaka,

examines the policies used to promote SMEs in Japan after 1956. The chapter

considers the programs to fund SMEs as a part of Japanese industrial policy.

How to evaluate this program and understand its success in the Japanese auto

parts industry is presented.

This book has taken us through an interesting and detailed history of the role

of SMEs in industrial and social organization. The focus has been on the role

of SMEs in economic growth, the relationship between large and small firms and

small business management. What we learn from this book is that the development

of market structure is a rich and complex process that has deep roots in

civilized society.

If one were to be critical, one might have wished for more international

comparison between countries, or at least some commonalties drawn out. An

obvious subject would be Japan and Germany, where in both cases small firms

have deep roots in the institutions that are pre industrial, and in both

countries SMEs are perceived to have contributed to industrial development and

economic growth in the twentieth century. Canada and Britain offer a similar

possibility for different reasons.

There is, however, a deeper and more troubling issue that has

been missed by the authors. After examined two hundred years of SME history

how can one fail to see that SMEs play an important dynamic role in economic

development? This point is surely evident when one thinks about the industrial

revolution in England,

the rise of giant firms in the United States and the .com revolution currently

underway.

What is important about small firms in not how they are managed, or what their

relationship is to large firms, but how they are born and how they grow into

large fi rms. In other words, small firms are important not so much because of

their job creating prowess, or their organizational flexibility, but because of

their ability to innovate and affect industry structure. Surely this is the

story that future historians

will tell when they write the business history of the United States at the turn

of the millennium.

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

Consumers Against Capitalism? Consumer Cooperation in Europe, North America, and Japan, 1840-1990

Author(s):Furlough, Ellen
Strikwerda, Carl
Reviewer(s):Horn, Gerd-Rainer

Published by EH.NET (September 1999)

Ellen Furlough and Carl Strikwerda (eds.). Consumers Against Capitalism?

Consumer

Cooperation in Europe, North America, and Japan, 1840-1990.

Lanham: Rowman & Littlefield, 1999. 377 pp. Notes, bibliography, and index.

$63.00 (cloth), ISBN 0-8476-8648-5; $23.95 (paper), ISBN 0-8476-8649-3.

Reviewed for H-Business and EH.NET by Gerd-Rainer Horn, Department of History,

Western Oregon University.

The Persistence of Historical Alternatives

In this day and age of “the end of history,” a study of consumer cooperation in

the 19th and 20th centuries is a highly welcome occasion to reflect upon

alternatives to seemingly dominant paradigms. The past and present of the

cooperative experience challenged and continues to challenge a whole host of

preconceived notions such as market fetishism in society at large, the

state-centered orientation of much of historical and contemporary socialist

thought and practice, or tendencies to identify cooperatives with the urban

working class Left. If the editors of this volume had done nothing else but to

question these assumed certainties,

t hey would have reached or surpassed this reader’s expectations. In many ways,

they accomplished much more.

Leaving apart a tantalizing reference by Ruth Grubel on the presence in Japan

of “mutual assistance groups” (p. 306) as early as the 17th century, the

cooperative movement generally emerged parallel to the rise of industrial

society. The founders of 19th century cooperatives without exception attempted

thereby to respond to at least some major social ills of laissez-faire

capitalism. Bourgeois liberals were as much involved as the much-maligned

“utopian socialists.” Interestingly, Marxist-influenced social democrats

initially frequently abstained from the construction of a cooperative

commonwealth as many of them (though not all) regarded such ventures as

facilitating an eventual accommodation to actually existing capitalism. If

urban problems as a rule gave birth to the theory and practice of consumer

cooperation, in several important national cases the rural population became

the most forceful and

numerous propagators of the cooperative cause. Any ever-so-brief glance at the

checkered history of consumer cooperation thus raises at least as many

questions as it answers.

Writing these lines near the city of Wuppertal, where one of Germany’s largest

consumer cooperatives in the interwar period built and owned a vast array of

distribution and production facilities, buildings that still stand but in the

post-World War II era housed a succession of private enterprises, the image of

consumer cooperation

as a mere symbol of a bygone age suggests itself with remarkable ease. Surely,

the specific death knell of German cooperatives, expropriation by the Nazi

state, played little role outside of Germany proper. Belgian cooperatives, for

instance, continued to

operate even during the Nazi occupation and, though they suffered, they

apparently suffered from the general economic malaise of German occupation,

not from specific anti-cooperative measures. But the era of consumer

cooperation is now long past its prime.

Or so it seems, until the reader begins to realize that, in Denmark for

instance, the story is an entirely different one. “In the mid-1990s, the Danish

consumer cooperatives represented a market share of roughly 33 percent of the

national foodstuffs and beverage consumption. In every town,

suburb, and rural community, one could find a cooperative supermarket or

smaller shop. In many rural areas, the only retail shop at all was a

cooperative” (p. 221). Canadian cooperatives likewise saw their highpoint

in the most recent decades. “During the 1960s, it seemed on the verge of

becoming a major force in the Canadian economy,” and only “significant economic

swings in the 1970s undercut the capacity of the movement to realize its

earlier promise” (p. 331). Last but not least, today “consumer co-ops

represent 20 percent of the households in Japan” (p. 303). Such simple facts,

ever present realities for consumers in those states but little-known to the

outside world, should immediately question many preconceived notions about

consumer cooperatives.

In their joint contribution at the beginning

of the book, the two editors

attempt to synthesize the points of view of the various contributors: “It is

the argument of most of the authors in this volume that the real

challenge for consumer cooperation in the industrialized world has not been the

movement’s economic weaknesses but its obligation to confront the consumerist

revolution. Cooperation’s great crisis was adaptation to changing times and

tastes – providing a fuller range of goods and appealing to more tastes

without giving up the advantages of low costs and democratic,

consumer participation” (p. 33). In other words, as consumption became ever

more central to the lives of First World citizens, consumer cooperatives began

to trail, or, in the words of Furlough and Strikwerda: “The fundamental shift

in thinking from the nineteenth to twentieth centuries,

which caught consumer cooperation in midstream, was the move from production to

consumption” (pp. 33-34). Were things really that “simple”?

A mere quantitative analysis of the rise and fall of First World consumer

cooperation undoubtedly confirms this trend. In most continental European

countries (and not only here) the highpoint of cooperation by all means pre

dates World War II. But the sheer weight of statistics may be a necessary but

certainly not a sufficient element towards an explanation for this trend.

Indeed, on one level it defies even elementary logic that, of all things,

consumer cooperatives should begin to decline precisely at the moment

when consumerism begins to grow in societal importance and increasingly

determines everyday life. Perhaps a closer look at the success stories of

consumer cooperation since the breakthrough of consumerism in the

Golden Twenties may furnish elements of a more convincing explanation for the

postulated (and, of course, to some extent very real) secular decline of

consumer cooperation.

Carl Strikwerda, in his assessment of Belgian cooperatives ably disassembles

several prominent myths pertaining to the supposed lack of business acumen as

a key cause for the decline of cooperation. Belgian cooperators, he asserts,

early on successfully applied economies of scale and utilized innovative

financing schemes, measures equal to the most flexible tactics of

contemporaneous private entrepreneurs. There is thus no reason, I contend, why

similar creative responses could not have successfully taken up the challenge

of modern consumerism, once it arose.

In the heartland of the modern welfare state, Sweden, the cooperative movement

apparently for a while adapted exceedingly well to the demands of a consumer

society and, significantly without caving in to the demands of rampant

capitalist consumerism, the Swedish movement oriented its members and

sympathizers towards the choice and acquisition of “high-quality,

tasteful products without wasting resources” (p. 257). By 1939, its newspaper

“had become Sweden’s most widely read weekly, printing 570.000 copies every

week” (p. 251),

no mean task in a country of at that time no more than six million people. And

in Japan today the cooperative movement has spawned a series of peripheral

leisure activities, such as sports programs and youth activities, that prove to

be rather popular.

Interestingly, French cooperators in the 1920s executed a similar turn and

“founded vacation colonies, organized excursions, and added movie ‘palaces’

to cooperatives.” “Cooperative stores expanded their inventories to include

items such as furniture and bicycles, and movement literature stressed

‘elegance’ in fashion and ‘tastefulness’ in home decoration” (pp. 185-186).

Curiously, however, what is elsewhere in the volume regarded as proof of

potentially successful adaptation to the challenge of consumer society,

Ellen Furlough here, in combination with some other trends, criticizes as an

abandonment of lofty goals. “The reorientation of consumer cooperation after

World War I signaled the decline of a collective perspective within the

movement. It also eroded the possibility of a collective ideology, of

socialized structures, and of a culture of consumption that was socially

engaged within twentieth century French commerce and distribution” (p.

186).

Only a more detailed examination of the French case may

tell whether French cooperators in the Golden Twenties really did abandon a

“collective perspective” and “collective ideology.” As Furlough’s

above-mentioned contribution stands, however, this reader is tempted to locate

the author’s hostility to the changes of interwar cooperators primarily in the

latter’s creative engagement with consumer culture and its refusal simply to

ignore the reality of a changing world, where an increasing range of goods to

buy and things to do may constitute a growing source of collective and

individual pleasure. As the success stories of Denmark, Sweden and Japan

suggest, if coops have a chance, it lies precisely in abandoning an attitude of

splendid isolation and in taking up the challenge and adapting to the modern

world.

Several authors (and both editors) stress the role of gender in the cooperative

movement and point out that, whereas women constituted the vast majority of

consumers in the various cooperatives, the top decision makers for the movement

were, with few exceptions, men. Furlough and Strikwerda indirectly suggest

that this gender bias hampered cooperators’ success:

“While cooperation differed in important ways from capitalist consumerism,

notably in its commitment to social control over consumption, an analysis of

the ways that gender informed the cooperative movement calls into question the

cooperative movement’s claim to be an active counterexample to capitalist

society” (p. 52). But pointing out the limitations of cooperation as feminist

alternative to the

capitalist norm is not the same as explaining its tendential decline. For,

capitalist retailing businesses were no more oriented towards including women

as active decision makers,

but they obviously won many a competitive battle with cooperatives.

If the level of business skill proper to cooperatives cannot explain the

coops’ secular decline; if coops were indeed able to integrate the challenge of

consumerism into their project, as witnessed in Sweden,

Denmark, Japan and perhaps France in the 1920s; if

gender politics may explain why coops may not have constituted full-scale

societal alternatives but not why coops failed – then what does account for the

fact that, within the First World, coops are less prominent and visible today

than seventy years ago?

Here, Carl Strikwerda’s observations on the Belgian case may point in the right

direction. After justifiedly stressing the difficulty to separate the

“ideological and the business sides” of cooperation, he goes on to make the

following capstone statement: “When the movement as a whole had a vital

mission, before World War I, it managed to pioneer more in business methods and

at the same time to adapt to the needs of consumers. When the movement lost its

forward motion in the interest-group politics of the 1930s, cooperation, too,

failed to innovate” (p. 86). In other word, when cooperators were able to

develop a forward-looking dynamism, innovations followed suite. When

stagnation began to set in, a growing lethargy affected all aspects of

cooperative life.

Given the fact that, on the eve of the new millennium, the First World remains

home to several thriving cooperative experiences, one is left to conclude that

explanations of cooperative failure pointing to secular societal trends are

fatally flawed.

Rather than searching for general causes, it thus appears that nationally

specific and contingent causes may ultimately be of far more persuasive power

than answers stressing the historically limited viability of the cooperative

experience as such.

In their opening contribution, the editors stress that “we believe that

capitalist and cooperative commerce represent different models of consumer

culture, models that for a time exercised different appeals” (p. 5). This

reader therefore concurs with Furlough

and Strikwerda who contend that a

“particular [capitalist] consumerist ethos was, as the study of consumer

cooperation will demonstrate, neither inevitable nor universally embraced,

and there have been (and continue to be) competing visions and practices.

The form of capitalist consumerism that has immense power and influence today

is a peculiar historical development, not a linear and inevitable

‘end of history'” (p. 2).

As can be expected in any collection of articles, the relative merits of the

contributions vary, as do the authors’ particular approaches to their subject

matter. Repetitions and lengthy empirical narratives abound; but all these

potential drawbacks cannot diminish the importance of this collective

anthology. It constitutes an insightful and stimulating first step towards the

explanation of the infrastructure of consumption in the age of capitalism. And

it simultaneously suggests that there is no inherent logic why retailing

businesses are structured as they tend to be today. It is the

great merit of Ellen Furlough and Carl Strikwerda to have drawn attention to

the possibility of historical alternatives in an area as seemingly “naturally”

capitalist as commercial activities in 19th and 20th century First World

societies.

Subject(s):Markets and Institutions
Geographic Area(s):General, International, or Comparative
Time Period(s):General or Comparative

The Economy of Obligation: The Culture of Credit and Social Relations in Early Modern England

Author(s):Muldrew, Craig
Reviewer(s):McCants, Anne E. C.

Published by EH.NET (August 1999)

Craig Muldrew, The Economy of Obligation: The Culture of Credit and Social

Relations in Early Modern England. New York: St. Martin’s Press, 1998. xii

+ 453 pp. $69.95 (cloth), ISBN: 0-312-21565

-7.

Reviewed for EH.NET by Anne E. C. McCants, Department of History,

Massachusetts Institute of Technology.

The economic history profession has recently witnessed a resurgence of interest

in the cultural underpinnings of past economies. Prominent examples, to name

just a few, can be found in Peter Temin’s Presidential Address to the Economic

History Association in 1996, in the sweeping argument of David Landes’ The

Wealth and Poverty of Nations and of most direct relevance to the

work in question here, Deirdre McCloskey’s Presidential Address to the EHA in

1997. Muldrew’s book then makes a timely appearance, given its dedication to a

reconstruction of the “culture of credit” as it existed in England between the

sixteenth and eighteenth centuries.

Craig Muldrew (Department of History and Civilization, European University

Institute–Florence) takes as his broad subject both the material realities of

the early modern English marketplace, and the cultural milieu in which those

realities manifested themselves. Thus, he investigates probate inventories,

shop account books, household expenditure diaries and civic tax schedules, as

well as the court records of debt litigation, family correspondence, personal

diaries, sectarian sermons, and a large prescriptive literature written for

the middling householder and small tradesman. The intellectual reach of his

sources even extends to the natural law theorists of the seventeenth century,

such as Thomas Hobbes,

Richard Hooker and Gerard de Malynes to name just the most famous. In this

literature he finds, as did Max Weber and countless others after him, an almost

excessive attention paid to the themes of diligence and frugality.

But contra Weber, Muldrew does not see this primarily as evidence for the

profit motive of capitalism in its early manifestations. Rather he argues that

all this advice was fundamentally about the preservation of reputation in a

society where credit was the key to market participation, and thus wealth. It

should be further noted that the word credit for Muldrew means more the

“social communication and circulating judgement about the value of other

members of communities” than it does our more typically modern usage as a

financial sum or a claim on assets (p. 2). Thus, early modern marketplace

exchanges dependent on credit were typically solidified only after hours of

negotiation in a local tavern, over drinks and in front of witnesses. In this

insistence on the communicative (even persuasive)

aspects of the marketplace, Muldrew’s work strongly reinforces the argument

made by McCloskey that economic historians can only ignore social variables

(which McCloskey sometimes short-hands as “sweet talk”) at their peril.

The first part of the book will be the most familiar

territory for economic historians. For it is here that Muldrew makes most use

of quantitative techniques to answer a number of important questions of fact,

as it were.

He begins with an effort to reconstruct the sheer magnitude of market

transactions in early modern England, and to date with some precision the

impressive rise in marketing during the sixteenth century, from what was

already an arguably “commercial” medieval England. He attributes the economic

boom of the decades after 1550 to the expansion

of marketing stimulated by the demand generated by the demographic expansion

then underway. In fact, on the basis of a limited number of probate

inventories,

a handful of account books, and a more voluminous court record, he argues that

this was England’

s “most intensely concentrated period of economic growth before the late

eighteenth century” (pp. 20-21); and moreover, that the late sixteenth century

was not the period of absolute immiseration that it would appear to have been

on the basis of the Phelps-Brown and Hopkins real wage index. Relative poverty

may indeed have been on the rise, but he claims that at least the poor

households which were inventoried lived about as well. if not better, than

their fifteenth century peasant equivalents

(p. 32).

This latter claim is a very strong one, and probably needs much more evidence

before we disregard the implications of the real wage series entirely.

Nonetheless, much of the argument is compelling, despite the fact that it rests

only on indirect types of

evidence (admittedly from several different types of sources). What these

strong claims should really do is stimulate the profession to dig anew for yet

more data which can either confirm or refute his revisionist position,

particularly as it pertains tot he lower end of the economic spectrum.

The sixteenth century is not the only place, however, where Muldrew takes on

one of the sacred tenets of the historiography of the English economy.

Part of his project also challenges the long accepted figures for the size of

the English economy at the end of the seventeenth century as devised by the

contemporary political arithmaticians Gregory King, William Petty and Charles

Davenant. Muldrew argues that their figures, designed as they were to evaluate

the taxable

and thus cash portion of the economy, grossly underestimate the scale of all

marketing in England, dependent as most of that was on the extension of local

(oral) credit. Muldrew’s estimate for total national consumption in the latter

part of the seventeenth century

(146,000,000 pounds) is over three times greater than King’s contemporary

estimate of total household income (p 90). While this calculation depends

critically on the representatives of only seventeen household account books

from a period of

over a century and across the social scale, it does have the significant

advantage of including purchases made on credit. If Muldrew’s calculations can

be confirmed by further research (preferably with a much larger data base than

his seventeen account books), they will force us to fundamentally rethink the

magnitude of the economic transition from the early modern to the industrial

period. This could prove to be additional evidence of the significance of the

so-called “industrious revolution” of the early modern period.

This however is not Muldrew’s main agenda, but merely a by-product of his work

for other purposes. The real agenda here is to demonstrate, given the extreme

scarcity of metal coinage throughout this period, the intense reliance that

commerce of this magnitude placed by necessity on mechanisms of informal

credit.

Even more importantly, Muldrew stresses the implications of such widespread and

interlocking networks of credit for the exacerbation of tensions between the

households of consumers and producers,

which were, of course, merely the same households wearing their various many

hats. With the initial mid-sixteenth century boom, these tensions played

themselves out in an explosion of debt litigation and an outpouring of moral

literature on the perils of the prodigal (that is the indebted)

life. With time, adjustments were made to the legal system and new forms for

public credit were established which allowed credit to “become less dependent

on individual morality” (p. 329). Marketing could not only continue at its new

high level, but even expand, without the security of the social fabric being

irreparably damaged.

This is a fascinating book and one which I highly recommend. It moves

comfortably between the quantification of material life in early modern

England, and the way that life was understood by contemporaries. Historians of

the economy, and historians of ideas will both find much in this book to

stimulate further research in their respective fields. Finally, it offers a

potent

reminder that the now dominant utilitarian understanding of economic behavior

as essentially individualistic and fundamentally competitive, is not always an

appropriate model for studies of even strongly market-centered economies. Trust

(and trustworthine4ss), and by extension,

cooperative behavior, were essential to the generation of wealth by households

in early modern England. Thus it is that Daniel Defoe could write as late even

as 1726 that “He that gives no trust, and takes no trust, either by wholes ale

or by retail … is not yet born, or if there ever were any such, they are all

dead” (quoted on p. 95).

Anne E. C. McCants is the author of Civic Charity in a Golden Age: Orphan

Care in Early Modern Amsterdam (University of Illinois Press, 1997).

References:

David S. Landes, The Wealth and Poverty of Nations: Why Are Some So Rich and

Others So Poor?. New York: W.W. Norton, 1998.

Deirdre N. McCloskey, “Bourgeois Virtue and the History of P and S,”

Journal of Economic History, June 1998, 58 (2

): 297-317.

Peter Temin, “Is It Kosher to Talk about Culture?” Journal of Economic

History, June 1997, 57 (2): 267-87.

Subject(s):Markets and Institutions
Geographic Area(s):Europe
Time Period(s):18th Century