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

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

Published by EH.Net (April 2013)

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

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

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

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

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

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

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

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

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

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

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

Copyright (c) 2013 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator (administrator@eh.net). Published by EH.Net (April 2013). All EH.Net reviews are archived at http://www.eh.net/BookReview

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

The Digital Flood: The Diffusion of Information Technology across the U.S., Europe, and Asia

Author(s):Cortada, James W.
Reviewer(s):Garcia-Swartz, Daniel D.

Published by EH.Net (December 2012)

James W. Cortada, The Digital Flood: The Diffusion of Information Technology across the U.S., Europe, and Asia.? New York: Oxford University Press, 2012.? xix + 789 pp. $99 (hardcover), ISBN: 978-0-19-992155-3.

Reviewed for EH.Net by Daniel D. Garcia-Swartz, Compass Lexecon.

In The Digital Flood, James Cortada, the author of two dozen books on the history and management of information technologies, undertakes an incredibly ambitious project: to analyze the international diffusion and deployment of IT from the 1940s through the late 1990s. The project is mind-boggling not only because of its geographical scope ? the book has chapters on the U.S., Western Europe, Eastern Europe, Japan, the Asian Tigers, China, and India ? but also because it covers both the activities of governments and IT vendors (?diffusion?) and those of users (?deployment?). Although readers may quibble about specific dimensions of the world history of IT that should have been included (or left out), in my view Cortada delivers a solid synthesis.

The book focuses on what the author calls Wave One of the history of IT, which extends ?from the late 1930s or early 1940s to the end of the 1990s or beyond? (p. 37). In Cortada?s view neither the distinction between mainframes and personal computers nor the differences between various generations of mainframe computers are substantive enough to serve as periodization criteria ? mainframes, minis, and PCs all belong to Wave One. The key elements marking the transition between Wave One and Wave Two are ?the Internet and cell phones, clearly dominant features of post Wave One IT? (p. 38).
The Digital Flood makes a number of contributions. First, the book examines not only what national governments and commercial vendors did to foster IT diffusion but also the ways in which users fostered the adoption of IT technologies. This is a healthy recalibration ? we know that in the early decades of what Cortada calls Wave One U.S. computer customers, for example, played a fundamental role in, among other things, the creation of computer software.

Second, by compressing the history of IT diffusion in the U.S. to one chapter, the author forces both experts in American IT history and readers more generally to reassess ?their perspectives about the global experience with computing,? and to ?recognize that it proved far greater and more diverse than any of us acknowledged in earlier research? (p. 44).

Third, within the framework of this geographical reassessment of the history of IT, Cortada introduces the notion, largely correct in my view, that IT diffusion started not just in the U.S. but rather in what he calls a Pan-Atlantic community that also included some of the wealthiest Western European countries (pp. 235-237). Computers, and traditional office machines before them, ?were invented and were most thoroughly deployed first in both North America and in Europe? (p. 236). Literature published on one side of the Atlantic travelled to the other side, just as ?early pioneers in computing shuttled back and forth across the Atlantic? (p. 236). Technologies developed on one side of the Atlantic were used on the other side and, most importantly, ?not all the traffic flowed west to east; European software made its way west too, such as Germany?s SAP products in the 1990s, and the Internet?s World Wide Web (WWW) from Switzerland? (p. 236).

Some readers may counter-argue that, in the 1950s and 1960s, IT diffusion happened at a much faster pace in the U.S. than in any of the Western European countries, not only in absolute terms but also in relation to the size of each individual economy. They may also point out that American computer vendors ? and IBM fundamentally ? developed a substantive presence in many Western European markets in the 1950s and 1960s, while Western European vendors failed to penetrate the American market. These facts, however, do not invalidate Cortada?s Pan-Atlantic community thesis ? after all, the first practical stored-program computer, the EDSAC, was designed and built in Cambridge, England, by a group directed by Maurice Wilkes. The question is not whether Cortada?s Pan-Atlantic community existed or not? it did. The interesting question, at least from an economic and business history perspective, is: Why was it that the American computer companies turned out to be so much more successful than their European competitors given that the Pan-Atlantic (scientific and technological) community existed?

Finally, Cortada intersperses summary chapters on diffusion (in Western Europe and Asia) that are particularly useful because they synthesize and highlight some of the key components of his story. Chapter 11, for example, breaks down Asian nations into three groups based on the timing of IT diffusion. The first group ? the early adopters ? includes Japan, the Asian Tigers, Australia and New Zealand. The second group ? the recent adopters ? includes China, India, Malaysia, Thailand, Indonesia, the Philippines, and Vietnam. The third group ? the laggard adopters ? comprises all other Asian countries. These chapters are helpful not only because they summarize a massive amount of information contained elsewhere in the book but also because they allow the reader to pause and digest the main tenets of Cortada?s analysis.

Hard-core cliometricians could argue that Cortada proposes a number of hypotheses about the sequence of IT diffusion but does not bother to test any of them. In various sections of his book Cortada appears to suggest that the depth and scope of national domestic markets played a key role in facilitating diffusion. The Asian early adopters, for example, ?enjoyed high per capita incomes sufficient to pay for their adoptions of IT? (p. 548), whereas the recent adopters ?experienced far lower per capita incomes which often were inadequate to pay for extensive adoption of IT across multiple industries and economic groups? (p. 550). In statements such as these econometrically-oriented historians would immediately discover an opportunity to do some hypothesis testing with, perhaps, dynamic panel-data models. But estimating econometric models is not what Cortada?s book is about. And although The Digital Flood does not rely on mathematical equations or econometric procedures, quantitatively oriented readers interested in the history of IT will likely find in the book a number of insights that they may later want to explore in a more formal framework.
The book is about 600 pages long, without counting two appendices, over 100 pages of footnotes with citations to books and articles in various languages, and a 35-page bibliographic essay. As such, it is not the kind of tome that one would digest in an afternoon or even a long weekend. In any case, as a comprehensive synthesis of the international history of IT diffusion through the late 1990s, Cortada?s book is unique and will clearly serve as the standard reference on the subject for years to come.

(Cortada is a member of the IBM Institute for Business Value, and has held various positions at IBM for over 35 years. He has written numerous books and articles on the history of IT.)

Daniel D. Garcia-Swartz is an economist with Compass Lexecon in Chicago. His publications focus on the economics of high-technology industries, including computer hardware and software. He is currently working with Martin Campbell-Kelly on a book on the economic and business history of the international computer industry.
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Copyright (c) 2012 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator (administrator@eh.net). Published by EH.Net (December 2012). All EH.Net reviews are archived at http://www.eh.net/BookReview.

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

A Europe Made of Money: The Emergence of the European Monetary System

Author(s):Mourlon-Druol, Emmanuel
Reviewer(s):Mushin, Jerry

Published by EH.Net (November 2012)

Emmanuel Mourlon-Druol, A Europe Made of Money: The Emergence of the European Monetary System.? Ithaca: NY: Cornell University Press, 2012. viii + 359 pp. $55 (hardcover), ISBN: 978-0-8014-5083-9.

Reviewed for EH.Net by Jerry Mushin, School of Economics and Finance, Victoria University of Wellington, New Zealand.

At a time when the problems in the euro zone are frequently in the news, it is wise to consider the nature and origins of its immediate predecessor. Emmanuel Mourlon-Druol, of the University of Glasgow and the London School of Economics, has written a thorough description and analysis of the political and economic developments that led to the establishment, in 1979, of the European Monetary System [EMS].

The author explains that, especially from the early 1970s, there were several processes, which were often conflicting. Two were of particular importance. There was a cooperative, transnational monetary elite of technocrats, which was especially interested in the macroeconomic and operational benefits of monetary integration. In addition, from 1974, regular meetings of heads of government at the European Council ensured that this issue remained current. The politicians were often more interested in the importance of monetary stability in the establishment of a European identity. Despite the difficulties, there was a hesitant transition from emphasis on European cooperation to emphasis on European integration.

Although it deals with economic issues, this book is principally a political and diplomatic history, and not an economic history, of the founding of the EMS. It is part of the publisher?s Political Science series. The author has shown that the eventual outcome was reached by a tortuous process that was influenced by recent history and by traditional rivalries. The intermittent progress and regress of negotiations depended on the interaction of a small number of strong and idealistic personalities. Economic arguments were tempered by political pressures and vice versa. Political pressures frequently dominated the economic arguments.

Mourlon-Druol places the negotiations of the 1970s in their proper context. He refers to economic and political events in individual countries, including election results and national policies against inflation. He also shows the significance of world developments, including the perceived increasing weakness of the United States dollar. However, it is curious that the Sterling Area does not merit much attention. In the 1960s, the role of the UK in the Sterling Area was frequently seen, especially by France, as an obstacle in the British application to join the European Economic Community. The author also refers to the theoretical basis of monetary integration, including optimum currency area theory, and to the development of transnational and supranational institutions in Europe.

The negotiations occurred during the existence of the Snake, a cooperative exchange rate arrangement that dated from 1972. There were serious problems in this system. Membership was unstable; the United Kingdom and the Irish Republic withdrew after less than one month, and only the German Federal Republic remained a member for the whole of its existence. Other countries withdrew and rejoined and some, including France, did this more than once. The structure and processes that were eventually agreed for the EMS were an attempt to learn from the experience of the Snake. This was a lengthy process in which the dominant issues included the nature of the parity grid, the role of gold and of the SDR, the width of margins, the increased freedom of capital movements, and the precise obligations of members. The intention was that benefits and obligations would be symmetrical between larger and smaller members. The outcome was the establishment of the EMS, from which, in 1999, the euro zone could evolve.

Although Mourlon-Druol is a fluent and engaging writer, the volume of detail is likely to be overwhelming to all but the most committed specialists. This indicates one of the strengths of this book. It is based on extensive use of primary sources (including the archives of central banks). For this reason, it should be purchased by university libraries. However, it also indicates a weakness. An excess of detail means that this book is unlikely to be accessible to a wide readership.

Although this book should be purchased, as a research resource, by university libraries, it is unlikely to be included on undergraduate reading lists.

Jerry Mushin?s most recent book is Interest Rates, Prices, and the Economy, Scientific Publishers [India], Jodhpur, 2009. jerry.mushin@vuw.ac.nz

Copyright (c) 2012 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator (administrator@eh.net). Published by EH.Net (November 2012). All EH.Net reviews are archived at http://www.eh.net/BookReview.

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

The Political Economy of Pipelines: A Century of Comparative Institutional Development

Author(s):Makholm, Jeff D.
Reviewer(s):Castaneda, Christopher J.

Published by EH.Net (September 2012)

Jeff D. Makholm, The Political Economy of Pipelines: A Century of Comparative Institutional Development.? Chicago: University of Chicago Press, 2012. xii + 270 pp. $60 (hardcover), ISBN: 978-0-226-50210-6.

Reviewed for EH.Net by Christopher J. Castaneda, Department of History, California State University ? Sacramento.

Pipelines are an essential yet largely unseen segment of the modern world?s commodity transport system. Typically buried underground, pipelines provide an overland transportation service that cannot be employed nearly as efficiently by railroads, ships or trucks. And while pipelines are basically not much more than buried steel tubes that transport natural gas, oil, water and other products, they have been subject ? depending on the product transported ? to varying degrees of intensive policy making, regulatory oversight and debate. From the merchant?s perspective, the goal is fairly straightforward: make some money by selling or transporting a product that is delivered via pipeline. But policy makers have sought to shape and guide these financial transactions with different strategies for different pipelines, based on the products transported. In The Political Economy of Pipelines, Jeff D. Makholm, an economist and senior vice president for National Economic Research Associates (NERA) Economic Consulting who has worked with many major oil and gas pipeline systems in the U.S. and internationally, places oil and gas pipeline operations in an economic, political and historic context in order to examine the evolution of competitive pipeline markets.

The Political Economy of Pipelines
examines the evolution of pipeline politics and regulation in several countries with a focus on the U.S. experience. The book is organized into nine chapters that analyze the pipeline industry with respect to the new institutional economics, several phases of pipeline regulation, and the competitive potential of the global pipeline industry. The overarching analytical theme of Makholm?s book is ?the triumph of latter-day economic institutionalists? (p. 1) in successfully explaining why competition arose in the U.S. pipeline industry. In particular, Makholm?s study is informed by the work of economists Leonard Weiss, Alfred E. Kahn and Oliver E. Williamson. But the immediate theoretical framework is that of Coasian bargaining, the theorem developed by Ronald H. Coase, which emphasizes the control of property rights ?as the fulcrum of economic organization? (p. 10) by endowing ?a resource with institutional scarcity in order to form the basis for trade?.? (p. 11)

After reviewing the range of existing literature on oil and gas pipeline history, politics and economics, Makholm posits that there has not been sufficient economic analysis of the world?s pipeline systems. In chapter three, the author examines the generally accepted claim that pipelines are natural monopolies that require regulatory oversight in order to operate efficiently. Yet, U.S. pipeline firms did compete for licenses (certificates of public convenience and necessity) in order to operate. Ultimately, Makholm suggests that long-distance pipelines cannot be easily defined as natural monopolies. Then, in chapter four he explains how the neoclassical structural analysis of pipelines is also not sufficient for understanding the different types of pipeline regulation in the U.S. and abroad.

Makholm then focuses on the regulatory development of the oil and natural gas pipeline industries in the United States. In 1906, the U.S. Congress passed the Hepburn Act which imposed common carriage regulation on oil pipelines. Standard Oil?s domination of the oil pipeline and petroleum market subsequently led to the 1906 anti-trust suit that resulted in its break-up in 1911. But the political outcry over Standard Oil?s monopolistic practices did not encompass natural gas to the same extent. At that time, however, the gas pipeline industry was barely in its infancy and policy makers, apart even from economic reasons, suggested that imposing common carriage status over the gas pipeline system, such as it was, would hinder its further entrepreneurial development.

The gas pipeline industry did not boom until the 1920s and the use of new welding techniques and seamless steel pipe. By the late 1920s, several long-distance lines were constructed and with reliable long-distance transport possible the industry expanded rapidly. By the mid-1930s after the results of the Federal Trade Commission?s investigation of the public utility industry and subsequent Public Utility Holding Company Act (1935), the Federal Power Commission (FPC) became the regulatory agency that administered the Natural Gas Act (1938) on the interstate gas pipeline industry. Makholm describes how Congress intentionally avoided imposing common carriage status (as the Hepburn Amendment had with oil pipelines in 1906) on gas pipelines by treating them instead as public utilities. Makholm traces this episode through the Phillips decision (1954) that gave the FPC regulatory power over the wellhead price of gas and then the gas shortages of the 1970s and subsequent industry dysfunction. This led ultimately to the Federal Energy Regulatory Commission?s (FERC) restructuring of the gas pipeline industry so that pipelines no longer bought and sold gas but served as open access transporters in a redefined competitive gas market. Makholm then examines the pipeline experience in Canada, the United Kingdom, Australia and Argentina as well as the prospects for developing a competitive gas market in the European Union. He concludes that outside the United States, the prospects for competitive pipeline transport ?is thus a question of whether local governing institutions are pushed to evolve to support such competition or are purposely maintained to prevent it.? (p. 186)

The Political Economy of Pipelines provides a valuable perspective on the pipeline industry, and it will be especially useful to policy makers and economists. The book is organized well and clearly written with a focus on the major pipeline regulatory laws in historical context. The narrative is instructive although economists might like to see more quantitative data. The book is particularly useful in its comparison of the U.S. pipeline industry?s transformation into a competitive open-access system with that of international pipeline sectors as they grapple with issues of competitive efficiency versus governmental control.

Christopher J. Castaneda is Professor of History at CSU, Sacramento. His most recent publication is ?Natural Disasters in the Making: Fossil Fuels, Humanity, and the Environment,? OAH Magazine of History (2011) 25 (4): 21-25. cjc@csus.edu
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Copyright (c) 2012 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator (administrator@eh.net). Published by EH.Net (September 2012). All EH.Net reviews are archived at http://www.eh.net/BookReview.

Subject(s):Government, Law and Regulation, Public Finance
Transport and Distribution, Energy, and Other Services
Geographic Area(s):General, International, or Comparative
North America
Time Period(s):19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII

Before and Beyond Divergence: The Politics of Economic Change in China and Europe

Author(s):Rosenthal, Jean-Laurent
Wong, R. Bin
Reviewer(s):Ma, Debin

Published by EH.Net (February 2012)

Jean-Laurent Rosenthal and R. Bin Wong, Before and Beyond Divergence: The Politics of Economic Change in China and Europe. Cambridge, MA: Harvard University Press, 2011. xi + 276 pp. $45 (hardback), ISBN: 978-0-674-05791-3.

Reviewed for EH.Net by Debin Ma, Department of Economic History, London School of Economics.

This book is the latest installment in the Great Divergence debate, which could also be simplified as the question of why the Industrial Revolution (IR) happened in England or Europe, but not in China or Asia. Written by two leading scholars on French and Chinese economic history, respectively, this book makes a new contribution to this debate with a focused, theme-by-theme comparison of similarities and differences between China and Europe. Too often, as the two authors correctly point out, our views of long-run economic growth and the IR have been informed by the English experience, from which a unilinear model of growth is drawn. Their book, by carefully pairing and meshing the narratives of Europe and China with relatively equal weight, is a welcome departure in this genre. It is also a stylistic success, with economic theory seamlessly woven into the narrative and with schematic economic models usually spelled out in separate boxes within the chapters.

The book is, however, more than a stylistic or methodological contribution. The seven substantive chapters examine a far greater array of themes on the issue of Great Divergence than was originally surveyed by Ken Pomeranz and others. The book mounts a careful and thoughtful critique on the traditional wisdom by laying out alternative hypotheses and explanations. Distinguished from the Pomeranz thesis, which emphasizes resource endowments, they stake their claim on differences in political structure, namely the dichotomy between a unified and centralized imperial China versus a politically fragmented Europe. Turning the traditional thesis upside down that Europe?s economy and institutions triumphed because of political fragmentation and inter-state competition while China stagnated under a single despotic autocratic emperor, they argue that for too long we may have underestimated the costs of fragmentation or the damages of constant warfare in Europe, and at the same time neglected the benefits of peace and stability in a unified imperial China. Indeed, they argue that peace and stability help explain not only China?s initial economic lead and, but also ? somewhat surprisingly ? her falling behind or the absence of a Chinese IR in the early modern era ? but not in the way the traditional wisdom had proposed. Below, I will start with some of the more enlightening insights from this book before I turn to its fundamental thesis, which I find more problematic.?

Chapter 1 is an overview of two millennia of contrasting patterns of centralization versus fragmentation in China and Europe. Chapter 2 offers an excellent critique of the traditional thesis on the connections between household structure (nuclear versus extended family), fertility patterns, labor markets and economic growth. The authors argue that, when introducing the concept of transaction cost, the comparative economic efficiencies of an open and external labor market (often associated with a nuclear family structure in Western Europe) versus an internal labor market as existed within extended households in China, becomes far more ambiguous than is traditionally claimed. One implication of their model is that the use of Chinese and European real wages as an indicator of average per capita income may actually underestimate Chinese living standards. Their argument is that if family business could take advantage of private information to retain the high-productivity workers within the household, average wage rates in the external labor market in China were likely to be over-represented by low-productivity workers released from the family business. My own suspicion is that, even allowing for the logic of their model, it may well be the high-productivity workers that were more inclined to exit the household business to enter the external labor market for the potential of high wages. Such disagreement aside, I see great value in their approach to set out a testable hypothesis on the possible linkages between real wages and average real income.?

Chapter 3 counters the simplistic dichotomy on the choice of formal and informal mechanisms for dispute resolution in business transactions. Rosenthal and Wong point out that the two mechanisms are often more complimentary than substitutive. They demonstrate this with a matrix of categories displaying the choice of these two mechanisms as a function of the nature of the transactions, such as frequency, the duration of each exchange, the value of each trade and the distance between trading partners, rather than purely cultural and institutional factors. I find this a very useful correction of the current literature, despite my disappointment at their scant attention paid to the possible differences in the nature of formal justice between China and Europe. Indeed, many scholars, including some cited in the chapter, have long argued for profound differences in the notions and trajectories of law, contract, property, legal jurisprudence, procedures and legal enforcement between the two regions. Although the degree and magnitude of these differences are themselves a source of debate, neglecting them must leave out something that could be potentially important.?

Jumping to Chapter 5, which takes on the thesis of differential factor prices of capital and labor between China and Europe, the authors challenge the accepted thesis of China being a high interest rate and capital scarce country. They argue that empirical observations of a very large differential in interest rate spreads between China and Europe are not based on the comparison of likes for likes. The pairing of long-term interest rates for Europe often derived from public credit (or government debt) ? a credit instrument largely non-existent in China ? with short-term interest rates from the private sector (particularly consumption loans from pawnshops) in China is highly misleading. Indeed, they argue that when Chinese pawnshop rates are compared with similar European ones, the interest rate differentials narrow considerably. The chapter is also mindful of the looming issue of how to account for the absence of a market for public credit or the general relative under-development of formal financial institution in China. Their thesis of an insufficient demand for public debt in China due to the absence of European type of inter-state warfare is not entirely convincing to me as after all, supply and demand are difficult to separate. Historically, there were sustained periods of inter-state warfare in Chinese history particularly in the pre-modern era and there had been various forms of ?forced contributions? or ?advances in tax collection,? none of which developed into a regularized and formal public debt. But public debt of some form caught on very quickly from the second half of the nineteenth century after the arrival of Western imperialism in China. There seems to be more than just an insufficient level of demand behind the absence of sustainable public debt in traditional China. Again despite my disagreement, I like many of the insightful discussions in this chapter.??????

I now turn to the book?s central thesis, as spelled out in chapters 4, 6 and 7. Chapter 4 starts with the premise that China was more peaceful under a unified political regime than European nations were in that continent?s fragmented state between the fourteenth and nineteenth centuries. Warfare, however, impacted the European countryside far more severely than cities, which were often better fortified and defended. In contrast, in China levels of security and peace were better and also spatially more even across both urban and rural locations. The implication of this was a greater degree of concentration of trade and manufacturing in urban locations (and likewise a higher degree of urbanization) in Europe than in China. With higher urban wages and greater concentration of industry in urban locations, technological innovation in Europe, as in the good old Habakkuk thesis (recently resurrected by Robert Allen), would be more biased towards saving labor than in China. Hence the Industrial Revolution, founded as it was on labor-saving mechanical technology, was more like to take off in Europe than in China.

This stimulating and striking hypothesis is supported by fairly meager evidence in the chapter. For a chapter and a book that rely so much on warfare, there is no concrete comparative data on actual incidences, frequencies, duration and costs of warfare in both regions for these five centuries apart from some rather sketchy or vague narrative. China may have been more unified than Europe throughout this time, but was not necessarily short of external threats and internal rebellions, some of which led to phenomenal losses of lives and property perhaps not seen anywhere else in the world. It would have been more helpful if a bit more details had been spelled out in the chapter. Similarly, the claim that the Chinese countryside was comparatively safer, or Chinese urban-rural cost differentials were smaller, are treated almost like stylized facts backed by no empirical data except some ad hoc narrative.

Towards the end of this chapter, the authors focus on why the IR happened in England rather than the European Continent. Here, England becomes the equivalent of China in contrast with the European continent. Relative peace and more centralized? territory within England allowed the location of a rapidly mechanizing cotton textile industry in the low-wage and coal abundant region of Lancashire rather than in high-wage and coal-deficient London, or more poignantly in coal-abundant Belgium of the often war-torn European Continent. While I find this argument as an insightful and valid critique of or supplement to the recent Allen version of why the IR happened in England, I am troubled by the logic that exactly the same condition of peace and stability allowed the IR to take off in England but not in China. I assume that this paradox could be reconciled if we add in the fact that eighteenth century England was already a high-wage economy, possibly driven by the rise of her eminence in the booming Atlantic trade, which itself may be an outcome of the inter-state competition within Europe. I just wonder how much of their urban-rural cost differential argument would stand after controlling for this and other factors.??

One of the long-standing arguments of European urban-rural differentiation has been the peculiar institution of urban autonomy and the resultant inter-city or inter-state rivalry that could lead to successive improvements in institutions in order to attract and retain capital and labor ? a dynamism generally absent or weak in the unitary and isolated regime of imperial China. The book rarely addresses this particular mechanism in comparative perspective. In Chapter 6, the authors? major attempt is to show that imperial governance, at least under Qing, was far less predatory in terms of fiscal extraction and provided a higher level of public goods than European polities, largely because a unified empire engaged in less military warfare and expenditure. The chapter could benefit from a more concrete presentation and direct comparison of fiscal revenue. But overall, their argument of a low level of central fiscal revenue per capita in Qing China in peace time as compared with the relatively smaller western-European polities is credible given other evidences I have seen.

The problem concerns their interpretation of the fiscal revenue data. There is a large and burgeoning literature that links low levels of central taxation with low state capacity, characterized by low administrative efficiency, high agency costs of revenue collection, local corruption and so on. The vast literature on Imperial Qing or earlier dynasties including those by Chinese intellectuals of the time, the reformers of the twentieth century as well as more contemporary secondary scholarship, tends to point to various aspects of Chinese imperial governance as symptomatic of what we today refer as ?low state capacity.? I agree there perhaps has come the time for a reassessment of this literature, but the chapter expends little effort in dispelling the prevailing interpretations. Instead, the authors attribute the phenomenon of low taxation mainly to the imperial ideology of benevolence and good governance. They readily acknowledge that Chinese imperial rule faced no constitutional or other form of formalized institutional constraint on their predation, except the threat of revolt or insurrection. To resort to individual or collective revolt (often at the expense of one?s life or property) is an option available even under the most repressive and despotic regime. Why such a nearly universal threat or constraint in a typical stationary banditry equilibrium would somehow generate peculiarly good governance in Qing China is puzzling to me.

The evidence presented to support the claim that China provided higher levels of public goods is even shakier. To name a couple of problems here: There is no presentation of aggregate expenditure (military or civilian), let alone matching of comparable expenditure per capita between Europe and China. Selective discussions of specific public goods in the chapter are very vague, subject to multiple or even opposite interpretations and often with little clarification on whether they were actually provided by central, local or even the private or civil sectors (see p.177-178 and 189-191). The chapter plays down the role of political representation and parliament as an effective constraining device on ruler extraction. While this may be a valid argument on its own, the statement (p. 195) that ?representation was as unique to Europe as good governance was to China? seems way overdrawn and even rhetorically problematic (after all, ?good governance? is good by definition).???

In sum, the book represents a good contribution in the Great Divergence debate as it addresses some of the key issues beyond what has been done recently by Pomeranz, Allen and others and hence lays out a large research agenda for future scholarship. Overall, the arguments are particularly effective and insightful when it comes to opening our minds and the discipline to alternative hypotheses but far less so when it comes to providing credible support for its own thesis.

Debin Ma is a faculty member of the Economic History Department of the London School of Economics (personal website at http://personal.lse.ac.uk/mad1/). He is the co-editor (with Jan Luiten van Zanden) of Law and Long-term Economic Change: A Eurasian Perspective (Stanford University Press, 2011).

Copyright (c) 2012 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator (administrator@eh.net). Published by EH.Net (February 2012). All EH.Net reviews are archived at http://www.eh.net/BookReview.

Subject(s):Economic Development, Growth, and Aggregate Productivity
Economywide Country Studies and Comparative History
Geographic Area(s):Asia
Europe
Time Period(s):Medieval
16th Century
17th Century
18th Century
19th Century

Creative Reconstructions: Multilateralism and European Varieties of Capitalism after 1950

Author(s):Fioretos, Orfeo
Reviewer(s):Coates, David

Published by EH.Net (January 2012)

Orfeo Fioretos, Creative Reconstructions: Multilateralism and European Varieties of Capitalism after 1950. Ithaca, NY: Cornell University Press, 2011. xix + 245 pp. $50 (hardcover), ISBN: 978-0-8014-4969-7.

Reviewed for EH.Net by David Coates, Department of Political Science, Wake Forest University.

There is now a long established interest in the character and economic fortunes of different models of capitalism. Important debates continue about their internal dynamics of change. Do modern economies flourish to the degree to which we find ?institutional complementaries? within them, as in the original ?varieties of capitalism? (VOC) formulation by Hall and Soskice; or do we need to bring something ?back in? to supplement or replace the incipient ?institutional determinism? of that approach? Do we need to make the ?constructivist? turn favored by Vivien Schmidt and others, or do we need to make the ?class? turn favored by analysts influenced by an on-going stream of Marxist scholarship? If the argument of this impressively researched and coherently argued work by Orfeo Fioretos holds, the intellectual turn we need to take is towards behavioral economics and the concerns of international political economy, by recognizing the role multilateral strategies play (and have played in the immediate past) in shaping the trajectory of particular European capitalisms and the incentive structures operating on their key firms. We need to bring ?the state? back in to our analyses, but to do so in a new and important way.

Covering the years from 1950 to the financial crisis of 2008, this volume explores and explains the interplay of multilateral engagements and internal reform agendas in three major European economies: Britain, Germany and France. Its author asks the standard VOC questions: ?why are some national economic models sustainable over time while others disintegrate??? ?What explains the fact that some countries are able to transform their economic institutions successfully while others fail?? But he declines to answer them by dropping back into the standard VOC framework of liberal and coordinated market economies deploying different internal strongly embedded patterns of industrial organization, finance and governance. Instead, drawing on Joseph Schumpeter?s characterization of capitalism?s core propensity of creative destruction, he characterizes post-war Western Europe as an area (and a time) of ?relentless institutional innovation? (p.2) in order to emphasize a common experience of institutional experimentation and change. He charts the different trajectories of change in his three chosen economies, and uses that chart to deny any simple process of convergence. He sees a shared ?movement towards liberal policies,? but also a more limited and differentiated adoption of ?the panoply of institutions that are associated with the liberal market economy? (p.4). Breaking from the tendency of many comparative political economy scholars to deploy only binary distinctions to describe and measure change, Orfeo Fioretos develops four. For him, ?economic systems are characterized by patterns of consolidation, specialization, systemic transformation, or by patterns of recombination that lead to hybrid systems of governance ? In getting to those, we are told, ?multilateralism matters? (p. 8), precisely because, taken overall, ?the structural and institutional transformations that characterized Europe?s largest economies were not a product of domestic histories and designs alone. They were integrally linked to a history of international cooperation and an expanding set of multilateral institutions? (p. 172, emphasis added).
???
In a book of this quality, the strengths are so many that listing them all would take considerably more space than I have available here. So let me simply single out three.

One is the quality of the case studies themselves. If students are in need of concise but insightful characterizations of government-business relations and post-war modernization strategies in three leading European economies, they will find it here. French scholars, in particular, must appreciate a work that centers France, and not just Germany and the UK, as models of capitalism in need of consideration. As someone who has long worked on post-war UK political economy, I found the UK chapter one of the strongest I have recently read on all three of the UK?s dominant post-war political projects ? insightful precisely because it combines the standard explorations of internal barriers to growth with a sustained consideration of the impact on business incentives of changing UK government involvement in/attitudes to the emerging European Union.

The second is this. The general value of the case studies deployed here is established by Fioretos? willingness to engage directly with schools of scholarship within the new institutionalism. Here you will find a powerful critique of both historical and rational choice institutionalism, and a willingness to expand their analytical lens by bringing each into a working relationship with insights and agendas situated elsewhere in social science: insights from behavioral economics and agendas from international political economy. The result, ?a modified historical institutionalism informed by behavioral economics? (p. 14), retains the firm-centric focus of the original VOC formulations, but uses this behavioral institutionalist approach to explore how the interplay of different national and multilateral designs affects firms? support for different national reform strategies. The methodological conversations developed in this volume deserve study quite separate from the case studies they inform.

The third is the value of the volume?s central thesis. Multilateralism has mattered in the development of national capitalisms. The relationship between economies, and not just their internal configuration of forces, affects their trajectory. There is no institutional determinism here. Politics and policies matter; and that includes politics and policies directed at other economies. Trajectories are lubricated and constrained from outside as well as from within. What goes on abroad shapes what goes on at home, and that shaping often feeds back into levels of support abroad for original trajectories of reform. Systems of governance in national economies are in that sense open rather than closed, and need to be studied as such.

Do I think that this volume, splendid as it is, completes all that we need to know? No, I do not. There is still a voluntarism in the analysis here, and a willingness to stay firmly on the level of institutions and political actors: an agency focus that, from a Marxist perspective at least, gives insufficient weight to class contradictions within national economies and to the impact on each economy of the place occupied in a globalized system of combined and uneven development. But in a field as complex and important as the one concerned with capitalist diversity, there is always legitimate disagreement about how wide explanatory nets need to be spread, and how deep analysis needs to go for completeness. In that on-going conversation on width and depth, this volume establishes Orfeo Fioretos as an important voice. We all benefit from scholarship and insights of this quality.

David Coates holds the Worrell Char in Anglo-American Studies at Wake Forest University in North Carolina. His most recent book is Making the Progressive Case: Towards a Stronger U.S. Economy, details of which are at www.davidcoates.net

Copyright (c) 2012 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator (administrator@eh.net). Published by EH.Net (January 2012). All EH.Net reviews are archived at http://www.eh.net/BookReview.

Subject(s):Economic Planning and Policy
Economywide Country Studies and Comparative History
Markets and Institutions
Geographic Area(s):Europe
Time Period(s):20th Century: WWII and post-WWII

Why Europe Grew Rich and Asia Did Not: Global Economic Divergence, 1600-1850

Author(s):Parthasarathi, Prasannan
Reviewer(s):Mokyr, Joel

Published by EH.Net (January 2012)

Prasannan Parthasarathi, Why Europe Grew Rich and Asia Did Not: Global Economic Divergence, 1600-1850. Cambridge: Cambridge University Press, 2011. 365 pp. $30 (paperback), ISBN: 978-0-521-16824-3.

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

The year 2011 was? a banner year for ambitious books that explain what is becoming known as the ?Great Divergence? of the West and the Rest. In addition to the book under review here, two other books by major scholars have appeared: Jean-Laurent Rosenthal and Bin Wong?s Before and Beyond Divergence and Ian Morris?s Why the West Rules for Now. One would have hoped that the proliferation of this literature would perhaps start to converge toward a consensus, but alas, so far discord and confusion reign in this debate. One could call it perhaps ?the small divergence.?

Parthasarathi?s book, its title notwithstanding, is not about ?Asia? and ?Europe? but really about India and Britain. While there are some pages that deal with China and the European Continent, the author clearly is most at ease when writing about the former two countries. Japan makes only an occasional appearance, and the rest of Asia does not figure much. Above all, this book is an argument that the ?California hypothesis? applies to India as well. The California School, most notably embodied in Kenneth Pomeranz?s Great Divergence and Andre Gunder Frank?s Re-Orient, argue that the Chinese economy rather than falling behind from Ming times actually performed admirably until the end of the eighteenth century, and that it was only the Industrial Revolution in Western Europe that (temporarily) gave Europe a big advantage. Parthasarathi?s book makes a similar argument for India. Moghul India, he argues, was not backward, primitive, ignorant, poorly organized, or anything of the kind. As late as 1800 it was technologically sophisticated, scientifically progressive, commercialized with well-working institutions and efficient markets that allowed the Indian economy to work well. Its cottons were in high demand world-wide, and its abilities in a host of other industries were more than respectable.

If everything in India was so good, why was everything so bad? Parthasarathi?s argument depends heavily on his interpretation of the British Industrial Revolution. For him the Industrial Revolution was above all policy-driven. In his interpretation, the Industrial Revolution was the result of deliberate industrial policies by its governments, protecting domestic industry and encouraging import-substitution. What was true for Britain, Parthasarathi continues, was even more true for the Continental countries. Industrial policies shaped the speed and form of economic development. The one country that had as much potential as Belgium or Germany was India. But the British Raj mercilessly pressed their advantage against the hapless Indians, denied them access to the British market, and forced them to buy the cheap cotton products with which Lancashire after 1820 increasingly flooded the Indian market. India was ruled by the British, and they not only did nothing to encourage the development of manufacturing there; they did all they could to obstruct it. The power of states could determine successful economic development and prevent it elsewhere.

The argument is, of course, not new, and much of the evidence that Parthasarathi relies on has been used by other scholars. A notable example of an important essay published more than three decades ago (not cited by Parthasarathi) is Subramanian Swamy?s ?The Response to Economic Challenge: A Comparative Economic History of China and India, 1870-1952? (Quarterly Journal of Economics, 1979). Swamy fully anticipates Parthasarathi?s argument: ?The slow industrialization, or at least the lack of rapid industrial growth in India … can, be ascribed to the unwillingness of foreign capital to enter into the basic industries, and to the British Indian Government for placing obstacles in the path of indigenous investment … It was the combination of ?British interests? and the underlying social ethos of the Government of India that they were there ?to govern, to stabilize, and to administer,? but not to transform that proved to be the main cause of India?s slow development? (pp. 37?38).

Yet it is far from clear whether we have fully disposed of ?deep? cultural differences between Asia and Europe. Eight years after Swamy?s paper, Gregory Clark published a famous paper with a disturbing finding, comparing the Indian cotton mills in Bombay to those in Lancashire. He found that although Indian wages were only a sixth of British wages and they were using essentially the same equipment, the Indians had no major cost advantage over their British competitors, because Indian labor?s efficiency was only a fraction of their counterparts in Manchester. Clark left the reasons for this open, but subsequently in A Farewell to Alms he returns to the issue and argues that labor quality was remarkably low in poor countries, because of high absenteeism, poor discipline and similar matters. Whether Clark is right or not, Parthasarathi pays no heed to his work. Perhaps he can show us that low labor productivity can somehow be chalked up to the Raj as well, but until he does, his case is simply unpersuasive.

By blaming the Raj squarely for everything that went wrong with India?s nineteenth century development, Parthasarathi offers us a warmed-up old nationalist chestnut, and his waving at the post-colonial literature does not add much credibility to his case. While he is surely right that one can easily overstate the weaknesses of the Indian economy on the eve of the Industrial Revolution, his cherry-picking of examples (there are only a few tables in the book and only one of them pertains to India) simply does not persuade. Had Britain and India been at the same level of economic and institutional development in 1750, why was there no ?Western Europe Company? set up in Delhi that would have exploited the political divisions within Europe, established an Indian ?Raj? based in London and forced Europe to accept Indian calicoes without tariffs? Moreover, there were Asian nations, from Persia to Siam, which were never controlled by European Imperialists, yet they never seem to have developed much modern industry either. Neither, for that matter, did Imperial China, which poses a logical problem for anyone trying to blame imperialism for economic backwardness in Asia. The case of China is brushed off by Parthasarathi as the result of an ecological disaster due to deforestation and the feckless policies of the Q?ing government which did nothing to encourage the exploitation of Chinese coal deposits. But why would we believe that a counterfactual Indian independent government would have performed like Belgians or Prussians and not more like the Q?ing? To make his case stick, Parthasarathi ought perhaps have argued that India?s society was much like Japan?s, and that in the absence of colonial domination it would have made its own rules work for it. But such arguments are never made, and I suspect for good reason.

Parthasarathi is a learned and well-read historian, and he is no-doubt correct in pointing out that scholars have underrated the vitality and strength of the Indian economy in the eighteenth century. There were enclaves of highly skilled craftsmen and craftswomen in India, and it is easy to overrate the advantage that Britain and Europe enjoyed over Asian countries such as India and China. But in his justifiable indignation over the disrespect shown by ?Eurocentric? scholars to Indian civilization, he lets his rhetoric get the better of him and so hopelessly overstates his case as to undermine the credibility of those corrective elements he provides to the standard story that are most valuable.

First, he exaggerates the role of the British government in the first Industrial Revolution. There was no real industrial policy except for letting the new industrialists do their thing. With a few exceptions such as the Longitude Board, the demand for military hardware and royal dockyards, and running a patent office, the government played a remarkably modest role in fostering the Industrial Revolution. On the Continent this role was clearly larger, but even in Belgium and Prussia, the fact that the government supported and abetted the process does not prove that the government was a ?critical factor? as Parthasarathi repeatedly asserts. What these governments did (far more than Westminster) was to invest in infrastructure or encourage and subsidize others to do so. But this is precisely what the British did in India: they invested in its infrastructure. Lord Dalhousie, governor general of India 1848?56 (never mentioned by Parthasarathi) famously said that he introduced three ?great engines of social improvements?: railways, electric telegraph, and uniform postage (Suresh Chandra Gosh, ?The Utilitarianism of Dalhousie and the Material Improvement of India? in Modern Asian Studies, 1978, p. 97). One might add the Ganges irrigation canal, the brainchild of a single-minded Briton, Colonel Proby Cautley, was a huge success.

The exact dimensions of the impact of the Raj on the Indian economy will remain in dispute. Did the British extinguish an intellectual community comparable in quality and achievements to the one in eighteenth century Europe? We are told (p. 266) that the British colonial order led to a lossof patronage for institutions that produced and diffused knowledge, and that this, presumably, contributed to the decline of science and technology in the entire subcontinent. It is true that some of the libraries collected by Maharajas were dispersed and looted, but it seems implausible that a handful of British officials and soldiers could have wiped out the human capital of a population of close to 200 million people and reduced them from a vibrant intellectual community to a largely illiterate mass. The Indian society that emerged in the nineteenth century, Parthasarathi maintains, was radically different from what was there before. There is no question that there is truth to this argument, and that for much of the nineteenth century the British discouraged the formation of human capital and local centers of technology.

But it is frustrating that so little is known about Indian progress in the pre-Raj era and that the experts differ so much. Indian science and technology was surely not as primitive as contemporary Western observers described, but was it really at a par with Europe as we are told in this book? The complexity of the matter is wholly reflected in the writings of the Indian scholar Dharampal (not cited by Parthasarathi) who conceded that ?It is possible that the various sciences and technologies were on a decline in India around 1750 and, perhaps, had been on a similar course for several centuries previously? but that it was hard to know because of the ?general incommunicativeness of eighteenth century Indian scholars and specialists in the various fields? which may have been due to ?the usual secretiveness of such persons? (http://www.scribd.com/doc/29011033/Dharampal-s-Collected-Writings-Vol-1-5, p. 5, accessed on Dec. 31, 2011). The difference between that kind of insider science and the growth of public science in eighteenth-century Western Europe, which was at the very core of the Industrial Enlightenment, is symptomatic of the weakness of the argument made in this book. At the very least, Parthasarathi seems to fall into the trap of what Deepak Kumar has called ?a naive (perhaps revivalist) appreciation of pre-colonial science and technology.?

Part of the book?s weakness is the author?s very limited and minimalist concept of the Industrial Revolution, which he sees as purely a revolution in cotton and coal. He closely examines one key industry, cotton, and points out that British consumers were exposed to the high-quality, brilliantly colored calicoes coming from India. The Act of 1721 prohibited the importation and wearing of these textiles and thus stimulated British manufacturers to make their own, thus creating powerful incentives for the invention of machinery in the cotton industry. In this way, the British Industrial Revolution was indebted to India. Perhaps, but the Calico Act had quite a few exemptions, and its enforcement was far from water tight. But more to the point, the Industrial Revolution consisted of improvement on a much broader front than India?s example can account for. Thus in the woolen textiles ? never mentioned by Parthasarathi ? the introduction of shearing frames in the finishing stages was completely novel. In many other industries there were critical innovations, some of them the result of unscientific serendipity, but at least in some cases they were related to scientific advances. In cotton, the most famous example is of course chlorine bleaching, but Parthasarathi may also find a new book on the British gaslighting industry instructive (Leslie Tomory, Progressive Enlightenment: The Origins of the Gaslight Industry, 1780-1820, MIT Press, 2012). Such examples can be multiplied at will.

In Parthasarathi?s opinion, British coal developed in large part because of the wise policies of the Hanoverian government which regulated prices and protected coastal shipping. They also taxed coal quite heavily, which may not have been such an advantage. But more to the point, British coalmining, from the surveying and viewing stage all the way to the market, was in private hands. So were education, turnpikes, canals, healthcare, railroads, and most law enforcement. There was a fair amount of state regulation, but it is not clear how much of it was actually enforced and what effect it had. The same is true a fortiori for protectionism. The argument that Britain succeeded because of and not despite of the mercantilist policies of the eighteenth century is repeated over and over but never supported with much evidence. The one area in which British government may get some credit (but oddly never mentioned by Parthasarathi) is the Old Poor Law, a unique English institution which may have helped bring about social stability and raised the material quality of life for the bottom third of the income distribution.

This is a polemical book. Parthasarathi criticizes much of the literature on the British Industrial Revolution and its effect on the rest of the world, and often his critiques are well-aimed and deserved. There is no question that the initial differences between Asia and Europe on the eve of the Industrial Revolution have been overdrawn, and that Europe?s success was not quite as predetermined and inexorable as it was made out to be by scholars from Max Weber to David Landes. Yet there is an equal risk to exaggerate in the other direction and to argue that there was no difference whatsoever. More often, Parthasarathi succumbs to the unfortunate habit to take nuanced and subtle arguments of his opponents, oversimplify them into a cartoon, and then energetically proceed to take these strawmen apart; this is a time-honored custom in all rhetoric, but if applied too thickly it can be counterproductive. All in all, this is a provocative and eloquent book that will modify our views of the Great Divergence, if not nearly as much as its author would hope for.

Joel Mokyr is the author of The Enlightened Economy: An Economic History of Britain, 1700-1850, Yale University Press, (2009).

Copyright (c) 2012 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator (administrator@eh.net). Published by EH.Net (January 2012). All EH.Net reviews are archived at http://www.eh.net/BookReview.

Subject(s):Economic Development, Growth, and Aggregate Productivity
Economic Planning and Policy
Economywide Country Studies and Comparative History
Industry: Manufacturing and Construction
Markets and Institutions
Geographic Area(s):Asia
Europe
Time Period(s):17th Century
18th Century
19th Century

Institutions and European Trade: Merchant Guilds, 1000-1800

Author(s):Ogilvie, Sheilagh
Reviewer(s):Harreld, Donald J.

Published by EH.NET (December 2011)

Sheilagh Ogilvie, Institutions and European Trade: Merchant Guilds, 1000-1800. Cambridge: Cambridge University Press, 2011. vi + 493 pp. $38 (paperback), ISBN: 978-0-521-74792-9.

Reviewed for EH.NET by Donald J. Harreld, Department of History, Brigham Young University.

Why did merchant guilds exist for such a long time in Europe? This is an obvious question to ask of an institution that persisted for hundreds of years, but one for which it turns out there is not an easy answer. Most scholars who have studied merchant guilds have insisted that merchant guilds must have existed, and persisted, because they were efficient institutions; inefficient institutions, on the other hand, are doomed to be short lived.

Ogilvie begins her book by asking one overriding and very penetrating question: were merchant guilds efficient institutions that benefitted the entire economy? For Ogilvie, this is the heart of the matter. Because merchant guilds do not exhibit all of the characteristics of efficient institutions, she asks us to consider why they arose, why they survived for such a long time, and why they ultimately declined. Merchant guilds regulated trade, they operated as monopolies, they distorted markets, fixed prices, and restricted entrance into the guild. Does this, she wonders, sound like an efficient institution? For Ogilvie, the only way to answer these questions is to look at everything merchant guilds did — both positive and negative — in order to understand how and if they were beneficial to economic development. She is asking us to back away from the assumption that merchant guilds were efficient institutions. This will not be easy for the many scholars of merchant guilds who have hitched their wagon to the efficiency theory. This book presents us with a ?radical reassessment of both merchant guilds in economic history and institutions in economic theory? (p. 5).

What was a merchant guild? This is, indeed, the title of the book?s second chapter as well as a very good question. Scholars well versed in the history of merchant guilds could skim this chapter, but it provides a foundation for those newer to the topic. Merchant guilds were associations of wholesale traders. They could be either an association of local merchants, or an association of merchants from one geographical area who formed colonies abroad for long-distance trade (what Ogilvie calls, alien merchant guilds). These merchant guilds obtained certain privileges from a ruler that gave its members ?exclusive rights to practice certain commercial activities? (p. 20). Merchant guilds were institutions that enjoyed monopoly rights (the exclusive right to trade, right to decide membership, and a right to regulate their trade). Although of ancient origin, they experienced a hey-day in the high and late Middle Ages. Alien merchant guilds date to the early twelfth century, appearing first in the eastern Mediterranean and later in the Italian cities. By the end of the thirteenth century, alien merchant guilds had spread to all of Europe?s major trading centers. Merchant guilds began to decline in the sixteenth century, first in the Low Countries and England, but persisted elsewhere in Europe until the eighteenth century. Ogilvie points out that the merchant companies of the early modern period shared characteristics with earlier merchant guilds.

But Ogilvie is not presenting a simple narrative history of the merchant guild in this book. She is actively engaging — and challenging — the literature, the bulk of which she suggests has only unconvincingly argued that while monopolistic in theory, merchant guilds were in practice non-monopolistic. Ogilvie?s reading of the evidence suggests that merchant guilds, both local and alien, not only negotiated monopoly privileges from rulers, they actively and enthusiastically sought to enforce these monopoly privileges. Indeed, for Ogilvie, merchant guilds were not at all the efficient institutions many scholars have made them out to be.

But, again, if they were not efficient, why did merchant guilds persist? Ogilvie suggests that the answer is found not in questions of efficiency, but in distribution. According to her, ?an institution that keeps the economic pie small but distributes large slices to powerful groups can be sustained for centuries by its powerful beneficiaries? (p. 160). So merchant guilds did not necessarily increase the size of the economic pie, but they did allow merchants and rulers to take the biggest slices themselves. Of course, benefits were not uniform across merchant guilds because each guild negotiated individually with rulers so that both would obtain the best ?bundle? of benefits. Although merchants and rulers benefitted from these arrangements, the wider economy was actually affected negatively. According to Ogilvie, ?commercial monopolies reduced the volume of exchange and diminished gains from trade? (p. 163).

The book includes chapters that examine a variety of propositions scholars have put forward about why merchants guilds existed and what functions they performed that prompted scholars to characterize them as efficient: commercial security, contract enforcement, principal-agent problems, information exchange, and price volatility. In all cases, Ogilvie rehearses the ?standard? interpretations and systematically challenges them all, showing that merchant guilds were only one of many mechanisms (and probably the least efficient) in place that could potentially solve these problems for medieval and early modern merchants.

So if merchant guilds were not the efficient institutions they have so often been made out to be, how can we explain their longevity? Of course, Ogilvie has already provided an answer. It is found ?in the distributional services guilds offered to two powerful groups? (p. 417). They affected the ruler?s ability to ?extract extra revenues? from the population, and, for merchants, the ability to ?extract profit from trade? (p. 417-18). Ogilvie clearly rejects throughout this book the notion that merchant guilds were able to solve commercial problems in a way that benefitted the entire economy. Indeed, merchant guilds, according to Ogilvie, benefitted their own members at the expense of the wider economy.

Ogilvie?s conclusion has profound implications for the study of economic institutions, and that is what makes this an important book — one might even call it a game-changer. For Ogilvie, institutions cannot be adequately explained in terms of efficiency; indeed, the entirety of an institution?s actions as well as all of its economic effects needs to be considered. She admits that taking such an all-encompassing approach will make our analyses more complicated, but the result will be a much better understanding of the ways institutions ?behave and develop? (p. 426).?

Donald J. Harreld is Associate Professor and Chair of the History Department at Brigham Young University. Harreld is the author of High Germans in the Low Countries: German Merchants and Commerce in Golden Age Antwerp (Leiden, 2004), and several articles that examine social and economic history including: ?Foreign Merchants and International Trade Networks in the Sixteenth-Century Low Countries,? Journal of European Economic History, Vol. 39/1 (2010) and ?An Education in Commerce: Transmitting Business Information in Early Modern Europe? in Information Flows: New Approaches in the Historical Study of Business Information (Helsinki, 2007). His current research projects include a book-length study of early seventeenth-century Dutch commercial voyages, and broader research into early modern commercial networks.

Copyright (c) 2011 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator (administrator@eh.net). Published by EH.Net (December 2011). All EH.Net reviews are archived at http://www.eh.net/BookReview.

Subject(s):International and Domestic Trade and Relations
Markets and Institutions
Geographic Area(s):Europe
Time Period(s):Medieval
16th Century
17th Century
18th Century
19th Century

The Israeli Economy from the Foundation of the State through the 21st Century

Author(s):Rivlin, Paul
Reviewer(s):Halevi, Nadav

Published by EH.NET (June 2011)

Paul Rivlin, The Israeli Economy from the Foundation of the State through the 21st Century.? New York: Cambridge University Press, 2011. xviii + 288 pp. $32 (paperback), ISBN: 978-0-521-15020-0.

Reviewed for EH.Net by Nadav Halevi, Department of Economics, Hebrew University of Jerusalem (emeritus).

For the author, who has written several books on various Arab economies, this is a second economic history of the Israeli economy.[1]? However, the present volume is not just an updating of the material in the first book, which covered developments through 1991, but presents? a much wider and deeper analysis of many aspects and problems, including political and social, some unique to Israel.[2]

After an introduction, the book presents a brief discussion of the pre-State period, mainly the development during the British Mandate, justified by the fact that the new state inherited an economic base, what had been a Jewish government-within-government apparatus, and strong ideology, all of which affected future economic developments. This is followed by two chapters covering economic developments, with emphasis on macroeconomic policy, first for 1948-1985, and second from 1985. A chapter is devoted to the opening of the economy to globalization and the development of high technology industries. Another chapter deals with the costs and benefits of defense expenditures. The author correctly points out that the real defense costs include many not included in the defense budget, and estimates a major one, the loss of income from the army reserves system; however, this is only a partial correction, and one major item — the costs connected to settlement activity in the occupied territories — is deferred to a later chapter. After a chapter on economic relations with the Palestinians, come three chapters on major specific aspects of the Israeli economy: the problem of religion, focusing on the role of the large ultra-orthodox Jewish community; the Arab minority; and one on demographic and social divisions, stressing the growth of poverty and the widening of income inequality. A concluding chapter summarizes the previous material and focuses on what the author sees as the main problems facing Israel in the (at least) near future and necessary economic reforms: ending the Israeli-Arab conflict, dismantling settlements in territories which may be given over to a Palestinian State, and how to integrate the ultra-orthodox and Israel-Arab communities into the productive labor force.

The introduction states that the main theme of the book is what is contained in the phrase ?As Israel?s economy has strengthened, its society has weakened.? The book describes this effectively, though the issue of growing income inequality, thoroughly discussed in Chapter 10, does not get detailed treatment in the suggested reforms. Nor does the book discuss, except for one paragraph, the implications of the growing economic dominance of a small group, and how the process of privatization has resulted in monopolistic competition and lack of internal competition in many sectors, such as communications, banking and others, including foods, not subject to effective competition from imports.

The book gives references to a very large body of literature in English but rather little reference to the large Hebrew literature on the subjects covered. There are also some surprising omissions even in the English literature. For example, the discussion of monetary policy and inflation would have been richer by reference to an important Bank of Israel study,[3] and the analysis of capital liberalization could have benefited by reference to an article in volume II of that publication.[4]? In places, reliance on particular references leads the author to state as fact points that are not exact. For example in the discussion of economic relations with the Palestinians the author states the Paris Protocol provided for free movement of Palestinian labor into Israel, except for limitations due to security considerations. This point is made by some Israeli economists and many Palestinian ones (most even ignore the security element), but it is not accurate: Though restrictions on entry of Palestinian workers into Israel were indeed generally placed for security reasons, a reading of the Protocol itself would reveal that the correct wording gives both parties the right ?to determine the extent and conditions of the labor movement into its area.?[5] ???

Though the choice, the order, and the attention devoted to particular subjects are obviously a matter of personal preference, the book may be criticized for a lack of balance, in two ways. First, if it is to be regarded as an economic history, then the earlier periods are treated in a cursory way, sometimes giving data for a decade or more, implying much more homogeneity than actually existed, whereas in later periods detailed attention is given to one or two year periods. For example, the role of linkage of capital to a price index is discussed as a contributor to inflation in the later period, but there is no discussion of the widespread use of linkages of almost everything — a particular Israeli experience — and its role in inflation, a subject of major debate in the first thirty years. It appears that the author is mainly concerned with pointing out the more recent developments, germane to more immediate problems and the reforms he believes are needed. There is a danger in this, because books focusing on economic changes and problems can never be up-to-date. For example, though some data are presented for 2009, it is clear that most of the book was written earlier, as there is no mention of the implications for Israel of the 2008 world financial crisis, and the effective way that Israel handed them.? A second lack of balance is between technical material, that economists can appreciate but non-economists would find difficult, and interesting and important chapters from which all can learn.

The author is sometime careless with figures and choice of words. Just two of many possible examples: In the first, mass immigration years, a majority of immigrants was not from the Middle East, as stated on p. 2; in fact, through 1951 half were displaced persons from Europe. The table on p.42 would puzzle anyone who knows balance of payments accounting, until examination of the data source shows that the author neglected to include trade in services in his export and import figures.

More problematic are true, or partially true statements, which may be misleading. Again, just two examples: On p.153 it is stated that imports of the Palestinian economy were almost exclusively from Israel. Twenty percent were imports destined directly to it, and of the rest it is not known exactly how much was merely through Israel — since the Arabs had no port of their own — or had minimal Israeli value added. The discussion of settlements notes Jewish building in East Jerusalem, and beyond the previous borders, but the political issue of Jerusalem would be more clearly understood had the author mentioned that after 1967 Israel annexed previously Arab areas to Jerusalem which virtually tripled the municipal area. This carries over into the discussion of ethnic minorities, since fully three of the twenty percent of Israel?s population which is Arab consists of Jerusalem Arabs.

Despite the above criticisms, this book is a welcome addition to the literature on its subject. In fact, even the less technically interested reader would gain much knowledge and important insights from many chapters, and simply by reading only the introduction and concluding chapter.

Notes:
1. The first book was The Israeli Economy, 1992, Boulder, CO: Westview Press.
2. The wording of the book?s title would be better as ?into? rather than ?through? the twenty-first century.
3. H. Barkai and N. Liviatan, The Monetary History of Israel, Vol. 1. The Bank of Israel: Fifty Years of Striving for Monetary Control, Hebrew edition, 2004, Bank of Israel, Jerusalem.? English edition, 2007, Oxford University Press.
4. M. Michaely, ?The Liberalization of Israel?s Foreign Exchange Markets, 1960-2002,? pp. 67-97, Volume II of the study cited above.
5. Article VII of the Paris Protocol, signed 29 April, 1994.? See also, E. Kleiman, ?The Economic Provisions of the Agreement between Israel and the PLO,? Israel Law Review, No. 2-3, 1994.

Nadav Halevi is Chilowich Professor (emeritus) of International Trade at The Hebrew University of Jerusalem. He has published extensively on the Israeli economy and on empirical subjects of international trade, and is currently working on trade in services.

Copyright (c) 2011 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator (administrator@eh.net). Published by EH.Net (June 2011). All EH.Net reviews are archived at http://www.eh.net/BookReview.

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

Manors and Markets: Economy and Society in the Low Countries, 500-1600

Author(s):van Bavel, Bas
Reviewer(s):McCants, Anne E.C.

Published by EH.NET (June 2011)

Bas van Bavel, Manors and Markets: Economy and Society in the Low Countries, 500-1600.? New York: Oxford University Press, 2010.? xiv + 492 pp. $140 (hardcover), ISBN: 978-0-19-927866-4.

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

The search for the medieval origins of European economic growth over the long run has become something of a growth industry in recent years.? For example, since 2008 the field of economic history has witnessed the publication of major book-length contributions from Jack Goldstone, Jan Luiten van Zanden, Paolo Palanima, and Timur Kuran, all of which argue strongly that there are readily identifiable causal linkages that extend in a meaningful way from at least the High Middle Ages (or even earlier) to present realities.[1]? For anyone familiar with an earlier instantiation of medieval economic history this trend may be unexpected.? It wasn?t long ago that the medieval economy was interesting only in so far as it was quaint (serfs and their lords eking out a living in the autarkic wilderness of the manorial economy); or worse, as it was brutal (the Middle Ages as the quintessential locus of the Four Horsemen of the Apocalypse: Conquest, War, Famine and Death).? Or if one?s tastes were not quite so dramatic there was always the longue duree of the Annales School, in which a relatively stable world of European peasants ran more or less seamlessly from late antiquity to the eighteenth century.? Admittedly, the greatest spokespersons of this view were Early Modernists, but the Medievalists were never far behind.? Indeed, it wasn?t always easy to tell them apart, given that they depicted a world of little change other than the cyclical fluctuations in the climate and the ebb and flow of population within its fairly narrow neo-Malthusian bounds.? None of this suggested the likely emergence of a historiography in which modern economic growth (of the kind defined by Simon Kuznets in the middle of the twentieth century and countless followers since) could be attributed back to conditions that prevailed in the years around or even before 1000.

This is not to say that the modern, industrial world as something sui generis has disappeared from recent scholarship; not at all.? Yet another group of important books of recent vintage seeking to explain the extraordinary economic achievement of Western Europe in the last two and a half centuries either passes over the question of medieval origins,[2] or in one prominent case counters it explicitly.[3]?? Jan de Vries finds his explanation for the modern transformation rooted in the new, consumerist, decision making strategies of households in the sixteenth and later centuries, while Deirdre McCloskey turns instead to the new ethical attachments, and the rhetoric by which they were expressed, of a commercial and middle class culture, more or less about the same time period.? Joel Mokyr turns his attention just a bit later to the eighteenth century proper when Enlightenment ideas loom large for both the development of new methods for organizing economic activities and in the tools and techniques employed in production, that is to say technological change in the broadest sense of that term.? For all of these arguments, newness is the important point; what may or may not have happened in the Middle Ages is hardly decisive.? In Greg Clark?s analysis, it is completely irrelevant.? Any economic breakthrough that may have occurred prior to 1800 would have been so quickly dissipated in a Malthusian population response that according to Clark there is no discernible change in living standards prior to the end of the eighteenth century.? Indeed, this position requires what this reader sees as the ironic claim that the only way to increase welfare before the advent of the modern world was for human suffering to increase; i.e. when other people die, you could then benefit.? In any event, all trends break at 1800, much as they did in the older historiography that separated the medieval economy from what came later in every fundamental way.

This is a long introductory discussion that references a lot of books other than the one under review, for which I crave the reader?s indulgence.? In fact, Bas van Bavel?s Manors and Markets: Economy and Society in the Low Countries, 500-1600, is at least as important for what it contributes to the emerging literature on the medieval origins of modern European economic growth, as it is for its direct contribution to the more narrowly circumscribed economic history of the Low Countries.? I should add, however, that it does indeed offer a significant contribution to the latter.? It is rich in detail, documenting the substantial regional variation that existed there (shockingly so given the relatively small area overall), and the shifting locus of the most advanced areas across the thousand years covered by his survey.? The Meuse Valley figures prominently in the Carolingian period, followed by the flowering of urban and industrial inland Flanders during the High Middle Ages, and finally by mercantile and maritime Holland, and its coastal cities in particular, in a sixteenth century he still characterizes as the Late Middle Ages.? Van Bavel?s range of topics includes everything from soil types, hydrological projects, choice of grains between spelt, wheat, and rye, forms of lordship, technological innovations in agriculture and industry, labor contracting arrangements, the standard of living, biometric and material evidence from the archeological record, legal rights to land, the power of political authorities, the emergence of communes and guilds, processes of urbanization, the minting of coins, the location of trade routes and the products traded along them, disease, social unrest, household structure, and of course, the making of cloth.? This list is even so not comprehensive, but it conveys the right idea.? For any economic activity that took place in the medieval Low Countries, van Bavel?s book will be the go-to source for a long time to come.? This is especially helpful as much of the monographic work on which he relies for his own source material is written in languages not readily accessible to a global scholarly audience.?

As wonderfully rich as all this is, most readers of this review are likely to find the broader argument about the powerful continuities between the distant past and the present the most provocative aspect of van Bavel?s work.? Broadly speaking, his argument rests on three components.? First, he postulates that what he calls the ?socio-institutional organization of the economy,? more specifically ?the rules that govern exchange,? is the most productive explanation for economic development (p. 4).? Second, he argues that these factors can vary considerably across even relatively small areas.? Finally, he asserts that the socio-institutional characteristics of a community demonstrate remarkable persistence over the very long run.? Despite the seemingly logical intuition that beneficial institutions ought to be readily adopted by at least close neighbors, this seems not to have been in fact the case.? Instead, van Bavel finds evidence of substantial variation in the response of even micro-regions to similar economic opportunities and changes in climate or population, depending on the socio-institutional framework with which they began.? The attentive reader will of course worry about the problem of origins, but in this case much of the land in question was reclaimed from the sea or swamp over the long Middle Ages, so van Bavel can often build his case from the moment of the original period of settlement.? In the final analysis he finds in the medieval history of the Low Countries ?a clear demonstration of how great the degree of socio-institutional path dependency and long-term continuity in regional structures was? (p. 396).

It is his close attention to the remarkable complexity of regional variation that leads him to reject many of the other commonly proffered explanations for long term economic fluctuations found in the broader economic history literature.? So while he acknowledges the importance of technological change, climate shifts, and population movements for the specific experiences of economic actors, he is not willing to grant them explanatory power for economic development.? He argues that they are too blunt an instrument for parsing the remarkable geographic variation in outcome already witnessed in the Middle Ages.? For example he says of climate and demography that ?these factors often vary little over wide areas, whereas economic and social developments within these areas may differ widely? (p. 3).? Likewise with arguments about commercialization, which he admits seem especially attractive in discussing the history of the Low Countries, characterized as it was from an early date by large cities and unusually intensive trade networks.? All of these factors, ?climatic, geographical, demographic, and political,? had their impact of course, but those effects were ?directed? by the differing socio-institutional factors ?in divergent directions? (p. 387).? Not surprisingly, given this perspective, he also upends the more typical narrative about urbanization as a factor in economic development.? Instead of seeing urbanization as a cause of economic growth, he argues it was more likely the other way around.? Economic growth, especially as it concerned the agricultural sector, was the necessary precursor of rapid urban growth (p. 384).

What then were the critical socio-institutional factors to which we can attribute the largely successful economic development of the Low Countries, at least as measured by the standards of a wider medieval Europe?? The answer to this question is not always entirely clear.? But it seems safe to say that van Bavel gives particular pride of place to two factors:? ?a relatively efficient system of exchange combined with social balance? (p. 405).? His definition of an efficient system of exchange is straightforward enough.? It includes unhindered regional interaction, the presence of open and flexible markets, and the early disappearance of non-economic coercion (p. 11).?? But his understanding of what might constitute social balance is more elusive.? The closest he comes to a concrete definition is to say that social balance occurs directly when ?independent actors and their associations played an important social and economic role,? and indirectly when those actors have ?influence on the authorities? (p. 408).? The Low Countries were blessed with this ?social balance? on account of ?the large degree of freedom for ordinary people? that occurred quite early in their history (p. 409).?

In the final analysis then, we have a story about the medieval period that resonates closely with our understanding of what makes a modern economy work best: relatively unrestricted and autonomous individuals, with access to efficient and well integrated markets, whose worst instincts are held in check by social institutions that promote balance.? No wonder their world proved to be such a good predictor of ours — their world was essentially ours, just on a smaller scale.? Some readers might be daunted by the level of detail that van Bavel dives into in order to substantiate his most important fact: the incredible complexity and variety of micro-regional differences in social institutions in the medieval Low Countries.? But for those who persevere to the end of this long book, his is a happy, and persuasive, tale indeed.

Notes:
1. Jack Goldstone, Why Europe? The Rise of the West in World History 1500-1850, McGraw-Hill: 2008; Jan Luiten van Zanden, The Long Road to the Industrial Revolution: The European Economy in a Global Perspective, 1000-1800, Brill: 2009; Paolo Malanima, Pre-Modern European Economy: One Thousand Years (10th-19th Centuries), Brill: 2009; and Timur Kuran, The Long Divergence: How Islamic Law Held Back the Middle East, Princeton University Press: 2010.
2. See for example, Deirdre McCloskey, Bourgeois Dignity: Why Economics Can’t Explain the Modern World, University of Chicago Press: 2010; Jan de Vries, The Industrious Revolution: Consumer Behavior and the Household Economy, 1650 to the Present, Cambridge University Press: 2008; or Joel Mokyr, The Enlightened Economy: An Economic History of Britain, 1700-1850, Yale University Press: 2010.
3. Gregory Clark, A Farewell to Alms: A Brief Economic History of the World, Princeton University Press: 2008.

Anne E.C. McCants teaches medieval and early modern economic history at the Massachusetts Institute of Technology.? Her research interests in the Low Countries have ranged from historical demography to the role of social welfare institutions and the rise of consumer culture.? She is currently working on a project to explore the financial underpinnings of Gothic cathedral construction in the High Middle Ages.

Copyright (c) 2011 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator (administrator@eh.net). Published by EH.Net (June 2011). All EH.Net reviews are archived at http://www.eh.net/BookReview.

Subject(s):Economic Development, Growth, and Aggregate Productivity
Economywide Country Studies and Comparative History
Markets and Institutions
Geographic Area(s):Europe
Time Period(s):Medieval
16th Century
17th Century