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A History of Macroeconomic Policy in the United States

Author(s):Wood, John H.
Reviewer(s):Wheelock, David C.

Published by EH.NET (June 2009)

John H. Wood, A History of Macroeconomic Policy in the United States. London: Routledge, 2008. xiii + 221 pp. $150 (hardcover), ISBN: 978-0-415-77718-6.

Reviewed for EH.NET by David C. Wheelock, Federal Reserve Bank of St. Louis.

Does macroeconomic theory have any influence on macroeconomic policy? Not much, according to John H. Wood, Reynolds Professor of Economics at Wake Forest University. In his book, A History of Macroeconomic Policy in the United States, Wood argues that U.S. fiscal and monetary policy have been remarkably consistent over the decades and largely uninfluenced by macroeconomic theory. Economists have rationalized more than influenced policy, Wood contends, and the direction of influence between economic theory and practice is primarily from the latter to the former. ?Conservatism in monetary and fiscal policies is … unavoidable in a democratic society of enduring interests,? Wood argues, whereas ?economists [have] gyrated from classical to Keynesian to New Classical theories.?

The book divides neatly into two halves ? one focusing on fiscal policy and the other on monetary policy. Each half has three chapters. The first deals with interests and institutions; the second with ideas; and the third with practice. The section on fiscal policy begins with a history of tax conflicts in the United Kingdom and the United States to illustrate that ?government budgets are political outcomes of conflicts between interests? and that ?tax changes not supported by interests have little chance, including … those advocated by economic theorists.? Wood describes the fiscal tussles between the British monarch and Parliament following the Glorious Revolution, Britain?s unsuccessful attempts to impose enforceable and palatable taxes on its American colonies, and the problems of raising and collecting revenue encountered by the American states. He includes a lengthy description of the history of U.S. tariff policy and a short section on the role of military spending on the U.S. federal budget since World War II.

Next Wood examines the theory of stabilization policy, focusing on how the ideas in Keynes? General Theory were framed and modified by subsequent economic theorists and how those ideas were presented to policymakers. Keynesian policy prescriptions are widely cited as a key reason why government budget deficits have been the rule, rather than the exception, since World War II. However, Wood argues that The General Theory had little influence on policy because of both the evolution of Keynesian economics and, more importantly, the persistent lack of impact from economic ideas on the institutions and interests that determine government spending and revenues. Wood argues that military spending and tax smoothing have been the main determinants of the annual federal deficit historically and explain the size of postwar deficits as well as they do deficits before World War II. Further, he reports regression evidence indicating that the GDP gap had little or no influence on the size of the deficit during 1956-2001, indicating little evidence of systematic stabilization policy. Of course, the absence of systematic stabilization policy does not preclude occasional attempts to use fiscal actions to steer the economy. Wood admits that tax cuts in 2001 and 2008 were justified by ongoing recessions, and the massive economic stimulus package enacted by Congress and signed by President Obama in February 2009 was perhaps the most obvious example of Keynesian stabilization policy ever attempted. Nonetheless, Wood?s contention that economic theory has had only limited impact on the U.S. fiscal position historically is largely convincing.

The second half of the book follows a similar path in describing how interests and politics, rather than economic theories, have driven U.S. monetary policy over time. Again, Wood begins in England. The Bank of England was granted a charter in 1694 in return for a loan to the government, and for many years the Bank?s operations and privileges were intertwined with its lending to the government. By the nineteenth century, the Bank?s focus evolved more toward financial stability, though Wood notes that the Bank never accepted Bagehot?s call for making an explicit commitment to act as lender of last resort.

Next, Wood describes the history of central banking in the United States, beginning with the first and second Bank of the United States. Contrary to conventional wisdom, Wood argues that the Second Bank did not pursue a macroeconomic stabilization policy, but rather acted mainly in its own interest. Further, the Bank?s relative conservatism reflected its favored position and size, which made it the industry leader.

The Federal Reserve was established in 1914 to promote financial stability. Although a product of the Progressive Era, the Fed was dominated by bankers and pursued policies that fostered banking profits. Wood argues that financial stability remained the Fed?s principal goal even after a major reorganization in 1935 that sought to reduce the influence of private interests on policymaking. Wood contends that Federal Reserve policy has been remarkably consistent throughout the institution?s history, arguing that ?the Fed continues to see the world today much as it did in the 1920s.? The Fed?s assistance to financial markets and institutions in 2008, Wood argues, was entirely consistent with its long-standing focus on preserving financial stability.

Wood contends that conflicting interests and pressures on the Fed explain the Fed?s uneven performance over time with respect to price stability. He argues that ?bankers have always appreciated that financial stability requires an environment of price stability? and that the Fed has generally pursued price stability when it was able to do so. However, inflation began to rise in the mid-1960s when the Fed faced intense political pressure to hold down interest rates.

Perhaps I have an inflated view of the influence of economics and economists on recent Fed policy because I have been a Federal Reserve economist for several years. Wood argues that Fed officials were aware of the importance of inflation expectations and policy credibility before those concepts became prominent features of macroeconomic models. However, policymakers seem not to have worried much about expectations or credibility before the 1980s. Moreover, only since the 1980s have Fed officials acknowledged that the rate of inflation is determined solely by monetary policy. That is a stark change from the 1970s when Fed officials, as well as many academic economists, blamed inflation on government budget deficits, energy price shocks, and monopolistic pricing.

As Wood argues, the stability of financial markets, particularly the New York money market, has been a principal goal of Federal Reserve officials throughout the Fed?s nearly 100-year history. Concern with financial market conditions also undoubtedly explains the Fed?s vigorous response to the recent financial crisis, which resulted in a doubling of the size of the Fed?s balance sheet and monetary base in a matter of months. However, unlike the Fed?s response to financial crises during the Great Depression, I believe that the Fed?s recent efforts to stabilize the financial system reflect the desire of Chairman Bernanke (and other officials) to avoid a 1930s-style deflation, rather than to protect the financial system per se.

Although I am not entirely convinced by Wood?s arguments and evidence, especially about the relative influence of economists and economic ideas on Federal Reserve policy in recent years, this book provides considerable insight about the influences on U.S. macroeconomic policy and why economic theory historically has had little impact on policy. Accordingly, the book should be of interest to a broad audience of macroeconomists and political economists, as well as to economic historians.

David C. Wheelock is an assistant vice president and economist at the Federal Reserve Bank of St. Louis. He is the author of The Strategy and Consistency of Federal Reserve Monetary Policy, 1924-1933 (Cambridge University Press, 1991). Among his recent publications is ?The Federal Response to Home Mortgage Distress: Lessons from the Great Depression,? Federal Reserve Bank of St. Louis Review, May/June 2008.

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

Economics in Russia: Studies in Intellectual History

Author(s):Barnett, Vincent
Zweynert, Joachim
Reviewer(s):Samuels, Warren J.

Published by EH.NET (May 2009)

Vincent Barnett and Joachim Zweynert, editors, Economics in Russia: Studies in Intellectual History. Burlington, VT: Ashgate, 2008. xviii + 198 pp. $100 (hardcover), ISBN: 978-0-7546-6149-8

Reviewed for EH.NET by Warren J. Samuels, Department of Economics, Michigan State University.

This collection of neatly-defined and well-structured interpretive essays illustrates how written histories of economic thought can vary depending on several distinctions. One distinction concerns whose thought a historian includes. One can concentrate, following Mark Blaug, on what is understood to be economic theory, pursued by largely academic, professional economists, or, following Joseph Dorfman, also include non-academic, non-professional people. A second distinction concerns the mutual impacts of the two mentalities on each other. A third distinction has to do with the homogeneity or heterogeneity of each mentality. A fourth distinction concerns the relation of the economic system, with its distinctive economic practice and system of social control, to the two mentalities. No one of the resulting stories is necessarily correct, but one interpretation can be more accurate than another, though more than one interpretation can often relate to a particular situation.

Accordingly, Russian economic thought of Muscovy in the sixteenth and seventeenth centuries oscillated between the doctrines of mercantilism and those of the Middle Ages. The ideas of some authors remained subordinated to religious, legal and political discourses, especially the vast fusion of state and church which tended to strictly limit the range of independent thinking. Nonetheless, the principal topics were the system of land ownership, money and trade ? with written texts dominated by religious discourse and political practice influenced by mercantilist concepts.

The eighteenth century manifested the conflict between the radical economic reforms of Peter the Great and Catherine II, on the one hand, and the continuing medieval social structure, on the other. Liberal rhetoric was silenced by autocratic claims for enforcement of absolute power. Later thinkers and statesmen helped to develop the system of finance and banking, unintentionally, one supposes, establishing some of the institutional foundations of the initial Russian industrial economy of the late nineteenth century. Writers combined liberal ideas with a Hamiltonian state promoting economic modernization. The targets were given by practice and the government.

Academic research and teaching was initially institutionalized in the early nineteenth century. The teaching of political economy commenced in 1804; the first textbook in political economy published in Russia (written in French, six volumes, a compilation of Smith, Turgot, Say, et alia) appeared in 1815; and the first chair was established in 1819. Some later academicians sought to articulate the ethical foundations of economics, some of them arriving at socialism, including Christian socialism. Several essays serve to suggest that economics cannot be formulated independently of the concrete conditions of time and space, though that does not prevent differences of interpretation and formulation by scholars in any given time and place. The point obviously applies to normative economics but also to positive economics. But the story is more complex and lengthier. Selig Perlman lectured that Marxism was (more or less surreptitiously) taught in the schools before 1917. One school of interpreters argued that until the 1890s Russian economists largely followed, even imitated, Western economists. Socialist ideas gained popularity first and foremost not economists among but the educated public. In 1917 the October Revolution replaced one system of social control of belief and practice with another. In 1927 the Communist Party line ostensibly changed from world revolution to socialism in one country coupled with praise for those early economists who had been close to Marxism and denigrated the Western non-Marxist imitators. Within three years, the Soviet Union adopted collectivization, planning and industrialization. After 1991, Soviet economics was denigrated in favor of both pre-Soviet and especially, eventually, Western mainstream economics. More recently, criticism of both the handling of transition to a market economy and the increasing influence of Western mainstream economics (imitation or transfer?) has emerged, along with discussion of a ?Russian school of economics.?

That is the overall account which emerges from the thirteen chapters written by twelve authors. Each essay attempts to interpret the work of key individuals, issues or concepts of particular periods.

Chapter 1, authored by the co-editors, is a nice six-page introduction and summary. It is preceded by a very useful four-page ?timeline? of the major events of Russian history.

Chapter 2, written by Danila Raskov, examines economic thought in Muscovy.

Chapter 3 discusses the Russian version of the Enlightenment (Leonid Shirokorad).

Chapter 4 examines the ideas and contributions to institutional innovation of three reformers of the monetary system in the early nineteenth century (Alla Sheptun).

Chapter 5 interprets what amounts to conflicts between different assertions of a ?natural order,? between rationalism and empiricism, between one or more conceptual models of the economy and one or more efforts at identifying the ?actual? economy, between German idealism and French rationalism, and between liberalism, socialism, the ideas of Friedrich List, German historicism, and conservative romanticism (Joachim Zweynert).

Chapter 6 takes up the pursuit of an ?ethical? basis for political economy, namely, socialism, by Mikhail Tugan-Baranovsky, and Christian socialism, by Sergei Bulgakov (Natalia Makasheva).

Noting that the co-editors distinguish at this point between the pre- and post-1917 periods and the corresponding chapters, I move on to chapter 7, which deals with the ideas and status of A. V. Chayanov, but which also misses the opportunity to compare and contrast Chayanov and N. D. Kondratiev as agricultural economists (William Coleman and Anna Taitslin).

Chapter 8 examines Russian ?migr? economists in the U.S., and, to a lesser extent, in Europe. It helps explain the predominance of mathematical and statistical approaches to economics taken by those who escaped Hitler and Stalin which, along with the ideas and formulations of Austrian-school economists, eventually had a marked transformative impact on the mainstream of U.S. economics. Among the Austrian-School ?migr?s were Ludwig von Mises, Joseph Schumpeter, Gottfried Haberler, and Fritz Machlup. Among the Russian ?migr?s were Simon Kuznets, Jacob Marschak, and W. W. Leontief (Vincent Barnett).

Chapter 9 presents the lives and work of two Russian economists exiled in 1922, Boris Brutzkus and Sergei Prokopovich, the former a Russian Jew and economic liberal, the latter from a noble family but transformed by his investigation of West Siberian villages during the great famines of 1891-92. The two men were later among the first students of the Soviet economy although having different careers and ideas as well as origins (Shuichi Kojima).

Chapter 10 is on the debate in the U.S.S.R. during 1941-53 on the law of value, interpreted by the chapter?s author, Michael Kaser, to have been a serious blow to economics in the U.S.S.R., one administered by Stalin. During 1956-1958, however, it began to be clear that ?a significant stage in the transition of Soviet economics from Marx to Marshall was complete? (p. 154). The emergence of a relativist value theory (demand and supply theory of price) and the eclipse of an absolutist single-valued value theory (labor theory or marginal utility theory of value) came about for both political and economic reasons in both worlds. In Europe and the United States, price theory came to be seen as both more empirically meaningful and more ideologically, i.e., politically, useful; in Russia during the period covered by Kaser, labor (the labor theory of value) was increasingly seen among economists as inadequate for planning purposes and was increasingly adversely but, writes Kaser (p. 151), not arbitrarily affected by political context.

Chapter 11 identifies the years after Stalin?s death as, in effect, an amalgam of elements (Pekka Sutela). It was a period of scientism, of varieties of Soviet economics, and of stages of economic reform. The stages were: decentralization, market pricing, and incomplete transition to commodity and labor markets. The central topics of reform discussions were on enterprise self-management, and impersonal owners such as pension funds. Not surprisingly, the authorities continued to be sensitive to anything resembling private property.

In the two-page chapter 12 the co-editors observe, first, ?that the progress of economic ideas in Russia was (and still is) inextricably connected to matters of economic policy and also to issues of governmental control? (p. 187). They also urge recognition that ?recent developments in Russia … [include] a tendency [as in the past] toward the ?state capture? of key branches of the economy, increasing restrictions on political liberty, and a low conviction rate regarding serious crimes against persons critical of the Russian government such as journalists. Even if no cases, so far, have been reported of economists being subject to direct political pressure, it does not take much imagination to conceive of such a case in the near future? (pp. 187-188). The co-editors conclude with two points: they do not believe that the mix of Western and native Russian ideas constitutes ?the existence of a ?Russian school? of economic thinking? (p. 188) in the same sense as is meant by such terms as ?Austrian school,? ?Cambridge school,? or ?Chicago school.? Second, they call attention to how little the economics of Marx, Engels and Lenin have been mentioned within this volume. ?Russian economics had a long and distinguished history before 1917? and ?[Marx] was by no means a dominant figure in pre-revolutionary Russian political economy? (p. 188).

Economics in Russia can be recommended as a nicely designed and executed collection of essays which provides insight into a history of economic thought in some respects different from that of the West and in other respects rather similar.

The co-editors correctly point to the centrality of the issue of ?precisely what developmental path the country should take.? They also note ?the extensive presence of ideology in the history of Russian economic thought? and (correctly) reject the argument that it is due to the features of a ?Russian character.? They suggest that in Russia the issue of development path has been heatedly controversial since the time of Peter the Great and claim that that ?might explain (in part) why economics was more strongly politicized [in Russia] than it was in many Western countries? (p. 2).

The view that controversy over development path explains the greater politicization of economics would likely be shared by many, perhaps most, historians of economic thought. The matter of development path is indeed a central issue of economic policy. It did not, however, arise in Russia with Peter the Great. The controversy between mercantilism and medievalism, in which mercantilism was the initial stage of capitalism, was about development path and preceded Peter the Great.

The key question, however, is whether differences in degree of politicization have existed, to be explained by controversy over development path. I do not want to overdo the point but the question of degree of politicization is not only important in itself but it casts light on how decision making on and interpretation of economic policy should be handled by the historian of economic thought.

There has been no conclusive difference in degree of politicization; any such perception is a function of one?s normative selective prior assumptions. The question of development path has not been unique to Russia. It has been, for example, central to policy debate in the United States. I cite the conflict between Pilgrim religious fundamentalism and money-making (trade) as rival ways of life that arose in (more accurately, was brought from England to) the Massachusetts Bay Colony in the early- and mid-seventeenth century. The conflict continues to this day, in more complex forms and in different circumstances, most notably in presidential elections and the on-going formation of and conflict between secularism and religious fundamentalism. One was not more politicized than the other. Even if one or the other supporting group claims more than they actually want, expect or are willing to settle for, the approach to development path is at least expressed in terms of different discourses, each of which is political, whatever their content .

My view is based on several considerations, including: (1) Acceptance of the underlying fact and importance of the legal foundations of the economy, and through it the normative elements in economic policy and the choice of the incidents of the development path. Such acceptance only minimally relies on evidence founded on ideological doctrine. It especially reflects my perception of universal pragmatic practice. (2) Such pragmatism not only accurately describes the United States (and, of course, elsewhere) but has been facilitated, protected, encouraged and, more subtly, taught by the First Amendment?s rejection of an establishment of religion and its protection of the freedom of speech and of the press, and the rights of the people peaceably to assemble and to petition the Government for a redress of grievances, as well as through the use of various other clauses of the Constitution in the ?protection of property.? (I use that trope even though in other circumstances I would insist that property is property because it is protected and not that property is protected because it is property.) Pragmatism also accurately describes the jurisprudential processes through which the meaning of the Constitutional clauses and concepts themselves, e.g., property, are worked out. (3) The relatively greater heavy-handedness of the state in Russia has been either more salient or more selectively perceived than in the United States, which may reflect either ?reality? or the greater effectiveness of relatively light-handed social control in the latter country or the relatively small percentages of its population which thinks seriously of the federal government, state government, local government, indeed all government, as fundamentally infringing on their freedom. (By ?seriously,? I intend to be understood to mean something different from electoral and comparable rhetoric, but not necessarily requiring the ?litmus test? of an immediate willingness if not desire to resort to armed force in open rebellion.) (4) The multiple meanings of ?politicization? is another factor. It has been used to signify the introduction of politics (itself multiply defined) into areas of life in which it hitherto has been absent, to refer to institutions that are political (meaning having to do with decision making, or the exercise of power) by their very nature and/or to suggest that a decision has not been made on the respective merits of the relevant alternatives but in order to insinuate considerations of political-party advantage into the process. (5) Another factor is the eclipse or obfuscation of other possible paths by the success of the path actually ?chosen? and followed, perhaps as if that path was inevitable, say, due to the absolute nature of things.

It has been only (!) two to three hundred years since the eighteenth century, in which the values and policies of the Enlightenment first prospered, in which naturalism made major explicit inroads on supernaturalism, and in which society and its institutions were relatively widely seen to be a matter of policy and neither the natural nor the supernatural order of things. Ideological and normative propositions, typically having a complex relation to power, are operative in the making and conduct of policy and the social reproduction or alteration of socioeconomic structure. As for politicization, I know of no conclusive way in which a medieval or feudal structure and its world view can be conclusively shown to be more, or less, politicized than a mercantilist, capitalist or socialist/communist system. A change in power structure may (or may not) lead to a change of ideology that is typically more important than a change in power structure generated by a change in ideology. My key point is that no one ideology is more politicized than another.

Consider, for example, the interpretations of the United States made in the 1930s and in 2009. Franklin Delano Roosevelt and John Maynard Keynes were seen by many as socialists and antagonistic to capitalism whereas others saw the innovations of the New Deal as saving capitalism for the capitalists, or whomever. The amply evident present-day situation pits President Barack Obama against the Republicans of the House of Representatives. I suggest the following as a possibility ? the Republicans understand that the President?s program is geared to support business (investment) in part through bail-outs, etc., helping selected types of business rather than supporting households, especially lower- and middle-class families. The flow of spending can work, or not work, in different ways. Consider that consumption spending, even if financed by home bailouts of some sort, may lead to an increase in the expected rate of profit of businesses and a fall in liquidity preference by various groups, including those engaged in real or portfolio investment, or increase the distraction of the working class from recognizing or even speculating that it is capitalism that President Obama is saving while more or less increasing the possibility of upward mobility by the children and grandchildren of the masses, which is what President Obama seems at least to desire. (The reader will recall that in their concluding chapter, Barnett and Zweynert note a tendency in Russia ?toward the ?state capture? of key branches of the economy? (p. 187). It would be ironic if the bailout and stimulus packages (notice the play of metaphors) (and, to a lesser but not insignificant degree, the imposition of moral and/or legal constraints on the remuneration of corporate executives) that have become (as of April 2009) the centerpiece of the Obama administration?s anti-depression policy represented an area of Galbraithian (or other) convergence between U.S. capitalism and Russian post-Soviet organization; and possibly even more ironic if the packages represented the capture of business(es) by government in place of or in addition to business capture of government agencies and branches.)

Assume the foregoing is a meaningful account. Joseph Schumpeter pointed out the irony of a European labor party successful at the polls yet, instead of being able to introduce socialism (whatever that might have meant to them), they became the managers of a continuing, if somewhat revised, capitalism. In the dialectic of politics it is sometimes, perhaps often, the continuing task of each party both to abet and to limit the other, for example, in Moscovy. Performing that task transcends the vagaries of ideological perception.

If investment increases (say. due to an increase in the expected rate of profit generated by a newly optimistic psychology), income will tend to increase, as will also consumption. The reverse will also likely happen, i.e., a story of shocks coupled with either positive or negative multipliers. One point is the multiplier account. Another point is that, ceteris paribus, income can change as a result of a policy-induced change in either consumption (working, through the expected rate of profit, on investment) or investment (working, through the marginal propensity to save, on consumption). Each sequence is accompanied by its heroic account. One group of voters applauds one; another resonates with the other. Those who invoke a one-sided view of the two processes narrow the possibilities permitted by economic theory. But neither view is more ideological or more politicized than the other. The same applies to tax versus subsidy externality policies.

Religious people who are successful in life in their own mind, may tend to dispose of their discretionary income in a trade-expanding way; similarly, people engaged in trade who are successful may act in a religion-enhancing way. Neither practice is more ideological or more politicized than the other.

Apropos, therefore, of this and other books, on the Russia of Moscovy, policy might have reflected Eastern Orthodoxy or mercantilism or both, but be interpreted as the opposite. I submit, first, that any story told about the different pieces of Russian history, like that of the U.S., could stress one side or the other, yet the evidence remain incapable of conclusive affirmation of either side. I submit, second, that neither Eastern Orthodoxy nor mercantilism is more ideological or more politicized than the other. I submit, third, that any one-sided choice of a story is a function of sentiment or ideological position coupled with a desire to have a seemingly absolute account whose value is more important for influencing present-day policy than for interpreting the past. I should not be understood as attributing such to the motives of either the editors or the other authors, but to the logical situation of interpretation. There is no one complete, true history; there are interpretations.

One reader of a draft of this review suggested that by the time that the questions of politicization and of controversy over development path were largely and practically ?solved? in the Western countries, they were still on the agenda in Russia. I believe that they have neither ever been solved nor off the agenda in the Western countries. To that reader politicization means the entry of policy and ideology into practical solution policies and into economic theory; that it is impossible to either estimate the degree of politicization or eliminate it; and that its degree and meaning depend on political and legal arrangements, hierarchical system of power and so on. This reader also feels that no history of economic thought can be the ?true? story, only a story bearing signs of their time, place and the views of the people who were engaged in doing economics. This reader also believes that intellectual history cannot be reduced to one or two problems, however important they might be: intellectual history is a multi-stream process.

Another reader of the draft identifies as a missing issue differences in state attempts to control intellectual discourse. The actions can take different forms: the termination or intimidation of professors who challenge the dominant political ?line? or ?consensus,? government funding of economic research with a pronounced bias favoring ?mainstream? research where ?mainstream? reflects both professional orthodoxy and the economic system around which orthodoxy and the national economy is built, and so on.

All of which suggests that the work of contemporary historians of economic thought is richer and less presumptuous than the work of earlier generations. The history of economic thought is itself a vast interpretive field with numerous opportunities for interpretation.

Warren J. Samuels is Professor of Economics, Emeritus at Michigan State University. He is the founding editor of Research in the History of Economic Thought and Methodology. His book of essays on the use of the concept of the invisible hand is in the initial stage of the production process.

Copyright (c) 2009 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 (May 2009). All EH.Net reviews are archived at http://www.eh.net/BookReview.

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Subject(s):History of Economic Thought; Methodology
Geographic Area(s):Europe
Time Period(s):20th Century: WWII and post-WWII

Orderly Change: International Monetary Relations since Bretton Woods

Author(s):Andrews, David M.
Reviewer(s):Officer, Lawrence H.

Published by EH.NET (September 2008)

David M. Andrews, editor, Orderly Change: International Monetary Relations since Bretton Woods. Ithaca, NY: Cornell University Press, 2008. xii + 245 pp. $50 (cloth), ISBN: 978-0-8014-7399-9.

Reviewed for EH.NET by Lawrence H. Officer, Department of Economics, University of Illinois at Chicago.

Orderly Change (a wonderful title!) is edited by David M. Andrews, Associate Professor of Politics and International Relations at Scripps College. There are nine contributors, including the editor, but a total of twelve chapters. Four of these chapters, plus an introduction, are authored by Andrews. Of the other contributors, three are in the United States, three in Canada, one in the United Kingdom, one in Spain. Looked at in terms of academic field, six contributors are faculty members in political science, government, or international relations, one is a professor of law, and one is in a department of economics and business. It should not be surprising that the volume has a heavily political-science orientation. Orderly Change will be of far greater interest to the historian with a political-economy bent than to the economic historian with a cliometric orientation.

Unlike many other collections of original essays, the editor not only attempts to put all chapters within a common framework but also succeeds in doing so. This framework is respected by all the contributors, who, moreover, observe the practice of referring to one another?s essays. The result is a well-integrated volume.

The framework has three components: the Bretton Woods order, the Bretton Woods system, and orderly change. (Hereafter I will abbreviate Bretton Woods as BW.) A ?system? in this context is the legal and organizational framework underlying international monetary relations. Specifically, the BW system is the adjustable-peg system, which ended in 1973. As Andrews (p. 4) writes: ?the instrumental commitment to fixed-but-adjustable exchange rates (however elastically this undertaking was interpreted) … formed the heart of the Bretton Woods system.?

While the switch to floating exchange rates on the part of most major currencies in 1973 ended the BW system, the BW order continued to exist. The BW order is ?the broad vision of international economic relations that inspired the Bretton Woods agreement? (p. 4). The BW order incorporates two normative propositions: countries should have a high degree of autonomy in national economic policy, and international trade should be fostered so that it expands tremendously. To an economist, of course, it is obvious that these two objectives can just as well conflict as complement each other.

Orderly change connotes ?changes in practice that were in keeping with, and in fact promoted adherence to, the underlying principles of the postwar economic order? (p. 5). Orderly change occurred both during the BW system, as the system adjusted to changing circumstances, and after the BW system ended, as flexible exchange rates provided other mechanisms to foster the BW order.

The entire volume can be described as a diplomatic, institutional, and personnel history against the economics background. In fact, the volume can be viewed as a continuation of Richard N. Gardner?s classic work Sterling-Dollar Diplomacy (Oxford University Press: first edition 1958, second edition 1969). The Andrews book is a nice take on international monetary history from the end of World War II to the turn of the twenty-first century. A history of policy and of economic thought is an additional characteristic of the book. In this context, many of the contributors deserve praise for adroit use of archival evidence.

Detracting from the otherwise well-integrated nature of the volume is lack of a common list of references or even chapter lists of references; all references are in the form of footnotes. Also, the book contains relatively little economic analysis as such. Much more attention is devoted to the economic thought of actors. Extremely disappointing in an otherwise impressive volume is the lack of quantitative techniques or even quantitative information or reference to econometric or empirical studies. Another defect is that nothing is written about trade in energy (oil, OPEC, natural-gas pipelines, ?oil politics?) and no reference to an ?absorption? interpretation of the U.S. payments deficit (the United States consuming, broadly defined, more than it produces).

I continue this review by making brief comments about each chapter. In an essay on ?Bretton Woods, System and Order,? Andrews outlines three major subsystems of the BW system: the Treasury system (1945-1947), involving tough terms imposed by the United States for extending official credit; the Marshall system (1947-1958), reflecting exchange-rate realignments and positive U.S. support for its Allies; and the Kennedy system (1960-1971), characterized by exchange-rate stability and defense of the gold value of the dollar. There is the paradox of ?turbulent transitions? between these ?stable systems.? Andrews also considers the argument that the current international monetary system is analogous to the BW system, with East Asia, especially China, taking the place of Western Europe. The firm (albeit changing) organization of international monetary affairs in the postwar period, which characterized the BW system in general, was in contrast to the ad hoc and fragile nature of the trading (GATT) system.

In another impressive essay, Andrews examines ?Trade and Money in the Roosevelt Administration,? on the way to the BW Agreement. My one issue with Andrews concerns his view that the International Trade Organization treaty failed in Congress because of concessions to the British. Andrews does not explain why the United States had to make concessions on trade to the British ? given the disparity in relative power of the two countries. After all, White?s views greatly dominated those of Keynes in establishing the International Monetary Fund.

In a later chapter, Andrews explores the origins of the Kennedy system. He prefers that terminology rather than the conventional term ?heyday of Bretton Woods.? His analysis makes no reference to the analytical work of this reviewer and Thomas D. Willett on foreign demand for dollars and this reviewer?s subsequent econometric study of reserve-asset preferences in the ?crisis zone? (see references in Lawrence H. Officer, Pricing Theory, Financing of International Organisations and Monetary History, Routledge, 2007, p. 307).

Perhaps the most intriguing contribution is that of Anastasia Xenias on ?Wartime Financial Diplomacy and the Transition to the Treasury System.? She concentrates on the U.S. tough financial stance. Very persuasively, she shows that U.S. policy aimed as much at reducing the economic strength of the British Empire as at influencing the international policy of the Soviet Union. The reader is left with an unanswered question: If the United States had been gentler in terms for lending to the USSR, could the Cold War have been avoided?

Jeffrey M. Chwieroth examines the roles of the IMF and World Bank during the Treasury and Marshall systems. New to monetary historians is his finding that ?it was the IBRD that provided critical balance-of-payments loans that helped bridge the financing gap in Western Europe prior to the provision of Marshall Plan aid? (p. 53). Eric Helleiner treats Canada?s floating rate of 1950-1962. As is common to many chapters, his viewpoint is a history of policy and of economic thought of policy-makers ? as well as of private policy-interested groups (bankers). The Canadian experience is viewed as a forerunner of the generalized, albeit managed, floating that would occur in the 1970s. However, the experience is clearly contrary to the movement of exchange-rate regimes in the opposite direction that also was to occur, especially formation of the euro area.

The Kennedy Round and other U.S. policies to solve the U.S. payments imbalance are analyzed by Lucia Coppolaro, who concludes: ?The Kennedy Round liberalized world trade, but U.S. plans to increase the U.S. trade surplus were frustrated? (p. 138). In a provocative essay, Wesley W. Widmaier examines U.S. incomes policies in the context of its commitment to fixed exchange rates during 1953-1974. The chapter incorporates a nice history of economic thought, including the views of John Maynard Keynes. The economist in me would have liked the author also to state the case against incomes policies (creation of suppressed inflationary forces, inefficient pattern of relative prices, etc.).

Hubert Zimmerman studies West German monetary policy in the context of the transition to flexible exchange rates, over 1969-1973. He concentrates on the domestic, political aspects of exchange-rate policy. E. Richard Gold provides a chapter on the legal foundations of the U.S. dollar in 1933-34 and 1971-78. The chapter is disappointing. The author claims to explore the relationship between private law and individual beliefs and behavior toward money (in context of the dollar and its value in terms of, and exchangeability for, gold), but fails to do so adequately.

Luis W. Pauly focuses on the evolution of IMF surveillance, which began in 1973. In perhaps the most perceptive comment in the book, he cuts to the chase as follows: ?Under the surface, however, they [U.S.-France negotiations] were about what international monetary struggles are always about ? power and differing perceptions of fairness in the distribution of adjustment burdens? (p. 198). In a similar vein, he writes: ?In a world of states, markets channel national power? (p. 202). So true!!

In the concluding chapter, Andrews, quite appropriately, pays homage to Richard Gardner?s ?magisterial study of the Anglo-American negotiations for the economic framework of the postwar world? (p. 211). He then observes that: ?Trade liberalization actually flourished once the fixed-rate element of the Bretton Woods system was abandoned, and the underlying economic order established at Bretton Woods ? composed of dual commitments to trade liberalization and national economic autonomy ? endured? (p. 214). However, even while acknowledging that world trading order has widened and deepened, he is concerned that further ?orderly change? may be difficult to achieve. Reasons include the ?Orwellian features? of Russia and China, the euro rivaling the dollar, the danger of regional economic blocs (each with its own system and order?), and the danger that ?monetary relations are unlikely to play the same supportive role with respect to trade liberalization in the future that they have in the past? (p. 215).

All in all, Orderly Change is a most impressive integrated collection of essays. One wishes there were more economics, more quantitative analysis (the entire volume contains only two tables and three figures), and at least some quantitative empirical evidence to support the analysis ? but the volume is what it is. And, for what it is, the volume makes a clear contribution to knowledge.

Lawrence H. Officer is Professor of Economics at the University of Illinois at Chicago. He is co-founder and Director of Research at MeasuringWorth.com, and also a strong supporter of EH.NET. His most recent books are Between the Dollar-Sterling Gold Points: Exchange Rates, Parities and Market Behavior, 1791-1931 (Cambridge University Press, paperback reissue 2007) and Pricing Theory, Financing of International Organisations and Monetary History (Routledge, 2007). Officer?s next book will be Two Centuries of Compensation for U.S. Production Workers in Manufacturing (Palgrave Macmillan, 2009).

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

Pricing Theory, Financing of International Organisations and Monetary History

Author(s):Officer, Lawrence H.
Reviewer(s):Sylla, Richard

Published by EH.NET (November 2007)

Lawrence H. Officer, Pricing Theory, Financing of International Organisations and Monetary History. London: Routledge, 2007. xii + 324 pp. $135 (cloth), ISBN: 978-0-415-77065-1.

Reviewed for EH.NET by Richard Sylla, Department of Economics, Stern School of Business, New York University.

“As they contemplate mortality and immortality,” the late Charles Kindleberger (1985, 1) once wrote, “many economists … think it useful to gather their scattered academic detritus into packages, organized either chronologically or by subject.” Kindleberger was a master of the genre, producing several such packages, which he described as exercises in tidying up things for one’s literary executor. In case you hadn’t guessed from the title of Lawrence Officer’s new book, it is a recent addition to the genre.

Officer, Professor of Economics at the University of Illinois at Chicago, is probably best known to economic historians for his work on purchasing power parity, the operation of the gold standard, and dollar-sterling exchange rates, all of which are treated in an earlier book (Officer, 1996). The current collection, written over the forty years 1966 to 2005, deals mostly with different but sometimes related topics, the three mentioned in the book’s title, and a final brief one entitled “Gold.” Each of the four parts ends with an afterword reflecting on and extending the papers collected under that topic. The first section, “Pricing Theory,” contains four papers, all written more than three decades ago, dealing with “firm and market behavior under conditions of joint supply” and developing “a multidimensional approach to pricing.” These are contributions to microeconomics, but probably will be of limited interest to economic historians.

“Financing of International Organizations,” part II, contains three papers on how the IMF sets its quotas of contributions and drawing rights for member nations, how the UN assessed member states to cover its expenses, and how both organizations might have done a better job of allocating their costs and benefits. Officer’s focus is on the tensions between developed and developing countries over the costs and benefits. Both international organizations tended to base their charges on members’ relative GDPs, made comparable by exchange-rate conversions. Such conversions tend to make developing countries appear smaller, economically, relative to developed countries than would purchasing-power-parity (PPP) comparisons. In the case of the UN, the developing countries liked this method because it resulted in lower assessments. But as regards the IMF, the method reduced the drawing rights of the developing countries compared to alternative methods of determining quotas, so it was less acceptable to them. Such is the stuff of political economy. Officer’s discussion is remindful of the debates over slavery at the U.S. constitutional convention, in which the northern-state delegates argued that slaves ought to be counted for purposes of taxation but not representation, and the southern delegates argued for just the opposite ? or of the debates between Britain and its colonies in the heyday of the empire, in which the British wanted the colonies to be economically independent but politically dependent, whereas the colonies wanted just the opposite. Officer’s treatment of the IMF and UN financing issues is as thorough as one is likely to find anywhere.

Economic historians, or at least financial historians, are likely to gravitate toward part III on “Monetary History,” which contains three fine papers published between 2000 and 2005. One is on the long British episode of sterling inconvertibility ? the paper pound of 1797-1821 ? and the related, so-called bullionist controversy. In that debate, which Officer terms “the most famous monetary debate in the history of economic thought,” the bullionists, forerunners of later monetarists, argued that excessive note issues by the Bank of England led to price-level inflation, a deteriorating exchange rate, and a premium on gold. On the other side, the anti-bullionists argued for a balance-of-payments theory of the exchange rate, in which Napoleonic-War trade interferences, British military spending outside of Britain, and poor wheat harvests led to a deteriorating exchange rate and the gold premium, higher import prices, and general price inflation, whereupon the Bank of England rather passively printed more notes to accommodate supplies of and demands for bills of exchange at the 5 percent usury limit. Officer models and tests both theories with improved data he painstakingly constructed (not included in the original paper, but included in the book in the afterword to part III), using up-to-date econometric techniques. The results are fairly decisively in favor of the anti-bullionist position. Officer ends the chapter on a thoughtful note worth quoting:

Monetarism sees its origin in the bullionist model; and the antibullionist approach to the exchange rate (a flow theory) and monetary policy (passive, and accommodating to the price level) has gone out of fashion. It may be humbling to the macroeconomist that these theoretical developments are contravened by the preponderance of empirical results for the Bank Restriction Period (178).

Chapter 11, “The U.S. Specie Standard, 1792-1932: Some Monetarist Arithmetic,” is one that intrigued me when it first appeared in 2002, and it still does. Among other things, careful data work ? a mark of all of Officer’s scholarship ? produces “a monetary base series that is consistent, complete in coverage, and continuous over a long period of time” (185). One intriguing argument of the chapter is that the two Banks of the United States (BUS) in early U.S. history were indeed central banks; Officer points to substantial evidence that BUS note and deposit liabilities were held as reserves by state and other banks. This is in contrast with analyses by Temin (1969) and others, which view the monetary base as specie (gold and silver) and the BUSs as very large banks but in other respects just like all the other banks in the system. Whether the two BUSs were central banks adding to the monetary base or ordinary banks operating on a specie base obviously bears on how one might model the U.S. money supply and its proximate determinants. It is safe to say that future work in this area will have to build on, or at least contend with, Officer’s data and insights. Officer himself uses the data to study eight different regimes during the 140 years covered in the study, and concludes that the classical gold standard regime (1879-1913) was superior to the others in most respects. One oddity of Officer’s monetary base series is that it grows by 64 percent in 1874, the first of several consecutive years of price deflation. Perhaps this is another triumph of non-monetarists over monetarists.

But wait. In Chapter 12, “The Quantity Theory in New England, 1703-1749: New Data to Analyze an Old Question,” Officer demonstrates that both the classical quantity theory of money and Milton Friedman’s modern version of the quantity theory test out quite well. For Officer, various economic theories are tools to be applied, not articles of faith, and that is rather refreshing. The afterword to part III is full of substance, extensions, and wise commentary on the three provocative papers preceding it.

The short part IV on Gold contains a guide to various documentary collections relating to that subject, and study of reserve-asset preferences of countries when the Bretton Woods System was moving into its crisis period of 1958-1967. In the latter, Officer develops a political-power approach to the proportions of reserve assets consisting of dollars and gold various countries maintained. The United States wanted countries to hold dollars, of course, and used its clout in attempts to achieve that objective. Officer’s political-power model works to his satisfaction, and perhaps even better than standard alternative approaches based on portfolio-management concepts. Bretton Woods was a different world from our current one with market-determined exchange rates for the principal countries. But it seems the United States still has problems getting others to hold all the dollars out there at a non-depreciating exchange rate. Officer’s essay, written a third of century ago and republished here, indirectly sheds some light on a problem that has not gone away.

As one who has been stimulated by Officer’s work and who has relied on some of it in my own, I welcome this collection of articles from a researcher who richly deserves the accolade, “a scholar’s scholar.”

References:

Kindleberger, Charles P. 1985. Keynesianism vs. Monetarism, and Other Essays in Financial History. London: George Allen & Unwin.

Officer, Lawrence H. 1996. Between the Dollar-Sterling Gold Points. Cambridge: Cambridge University Press.

Temin, Peter. 1969. The Jacksonian Economy. New York: Norton.

Richard Sylla is Henry Kaufman Professor of the History of Financial Institutions and Markets and Professor of Economics, Stern School of Business, New York University. His article, “Integration of Trans-Atlantic Capital Markets, 1790-1845,” co-authored with Jack W. Wilson and Robert E. Wright, was published in Review of Finance 10 (2006).

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

When Washington Shut down Wall Street: The Great Financial Crisis of 1914 and the Origins of America’s Monetary Supremacy

Author(s):Silber, William L.
Reviewer(s):Moen, Jon

Published by EH.NET (June 2007)

William L. Silber, When Washington Shut down Wall Street: The Great Financial Crisis of 1914 and the Origins of America’s Monetary Supremacy. Princeton: Princeton University Press, 2007. xi + 217 pp. $28 (cloth), ISBN: 978-0-691-12747-7.

Reviewed for EH.Net by Jon Moen, Department of Economics, University of Mississippi.

The financial crisis of 1914 occupies an ambiguous position in the lineup of American banking and financial crises. It was not one of the celebrated National Banking Era panics (1873, 1884, 1890, 1893, and 1907 by Wicker’s estimation), but it was not then a crisis of the Federal Reserve Era either. Because it wasn’t a banking panic and because it straddled the transition between these two great periods in American banking, it is often presented as a coda to the symphony of earlier panics. For example, it is mentioned only in passing in Friedman and Schwartz’ Monetary History, and I could find no mention of it in Allan Meltzer’s recent History of the Federal Reserve, Volume I. William L. Silber’s book, When Washington Shut down Wall Street, argues persuasively that this crisis helped propel the United States and the dollar to international preeminence, thus raising its status to that of the Panic of 1907.

Silber presents a detailed (and densely referenced) history of the personalities and events in the months leading up to the opening of the Federal Reserve System on November 16, 1914. He focuses in particular on the actions of the Secretary of the Treasury William McAdoo. By Silber’s account, McAdoo’s decisive action in closing the New York Stock Exchange on July 31, 1914 for four months protected the stock of gold in the U.S. and gave the young Federal Reserve System a chance to get organized. This is in contrast to the popular belief that the Governing Board of the NYSE initiated the closure of the exchange in the face of a massive sell-off in shares as a means to protect share prices. Why did McAdoo order the exchange closed? According to Silber he wasn’t concerned about a sell-off in shares driving down prices, for American bargain hunters (the “Shorts”) would snap up the shares. Rather, he was concerned that the sellers, mainly the British and the French, would then convert the dollar proceeds to gold and ship it off to Europe to finance their war efforts, effectively wiping out the U.S. gold stock. Without gold, the young Federal Reserve would have nothing to back its note issue, diminishing its credibility as a central bank. By also insisting that the U.S. remain on the gold standard while everybody else but England was going off of it, McAdoo signaled that the U.S. was determined to honor its foreign debt, preventing a massive devaluation of the dollar. Of course, if foreigners couldn’t convert stock assets to dollars in the first place, staying on the gold standard would be much easier for the U.S. Nevertheless, such bold and decisive action by McAdoo set the foundation for the shift away from the pound sterling to the dollar as the international reserve currency after World War I.

The book is written with a general audience in mind, but it is an important book for any scholar of financial and banking panics. While it contains little theoretical analysis of the crisis, it makes up for that by presenting a tremendous amount of historical detail in a compelling and fast-moving story. An example of this is his account of how gold arbitrage actually worked under the gold standard. We are all aware of the gold points and that gold flowed across the Atlantic when the dollar/sterling exchange rate reached either point. But Silber explains the actual mechanics of gold arbitrage using the example of Max May, the vice president at Guaranty Trust Company in charge of foreign exchange operations. In chapter two he clearly outlines how Max would have to locate a ship going to England, get gold coin or bullion packaged in barrels with sawdust to prevent abrasion of the gold, and get the barrels insured and safely stowed on board. He also provides a numerical demonstration of how much profit May and other arbitrageurs could make at certain exchange rates. Max reappears in chapter 5 in an extended dialogue explaining why the value of sterling was so high in August 1914; as a bonus there is also a detailed discussion of the several types of bills of exchange. Some might view these examples as a bit simplistic, but they are great stuff for a classroom discussion of the gold standard.

Several chapters are worth mentioning in particular, as they highlight Silber’s thesis that McAdoo was central in transforming the U.S. into a financial superpower. Chapter three outlines the events of the Panic of 1907 and how they led to the creation of the emergency currency authorized in the Aldrich-Vreeland Act. Silber makes it clear that the key New York bankers had the horrors of 1907 in mind as they saw gold beginning to flow out of the U.S. at the outbreak of World War I. It was the large gold inflows from Europe that eventually damped the 1907 panic; gold leaving the country was not a comforting development. This leads into chapter four, which describes how the emergency currency was almost unavailable for the Crisis of 1914. The Federal Reserve Act extended the life of the Aldrich-Vreeland currency through June 30, 1915 ? it was to have expired a year earlier. Unfortunately, most of the large banks in New York were not eligible to issue the currency, for they had not issued national bank notes at least equal to 40 percent of their capital. Here McAdoo’s decisive action saved the day when he was able to convince Congress to amend the Aldrich-Vreeland Act to suspend the 40 percent requirement, allowing the large New York banks, as well as banks in other cities, to meet the withdrawals of cash as Americans began hoarding cash in anticipation of war. The Epilogue compares McAdoo’s behavior to several modern Federal Reserve Board chairmen like Arthur Burns, Paul Volcker, and Alan Greenspan. The latter two compare favorably to McAdoo in their decisive handling of financial crises.

Was McAdoo as vital for America’s transformation as Silber would have us believe? I think he makes a reasonable case, although it is also easy to believe that the combination of the Great Depression, the abandonment of the gold standard, and World War II would have left the U.S. as the world’s financial superpower and the dollar as the reserve currency. Be that as it may, this short book contains a vast fund of information and history about an oddly neglected event in U.S. history.

References:

Milton Friedman and Anna Schwartz, A Monetary History of the United States, 1867 to 1960. Princeton, 1963.

Allan Meltzer, A History of the Federal Reserve, Volume I: 1913-1951. Chicago, 2003.

Elmus Wicker, Banking Panics of the Gilded Age. Cambridge, 2000.

Jon Moen is an Associate Professor in the Department of Economics at the University of Mississippi. He has studied retirement in the United States in addition to his research on the Panic of 1907. He is currently working on a book with Ellis Tallman of the Atlanta Federal Reserve Bank on the Panic of 1907.

Subject(s):Military and War
Geographic Area(s):North America
Time Period(s):20th Century: Pre WWII

Monetary Theory and Bretton Woods: The Construction of an International Monetary Order

Author(s):Cesarano, Filippo
Reviewer(s):Wood, John H.

Published by EH.NET (June 2007)

Filippo Cesarano, Monetary Theory and Bretton Woods: The Construction of an International Monetary Order. Cambridge: Cambridge University Press, 2006. xiii + 248 pp. $80 (hardback), ISBN: 0-521-86759-2.

Reviewed for EH.NET by John H. Wood, Department of Economics, Wake Forest University.

This is a timely thought-provoking account by a central banker (the head of the Historical Research Office of the Bank of Italy) of the long and often uncertain transition from the classical gold standard to the unprecedented fiat monetary system prevailing at the end of the twentieth century. The suspensions of national currencies from gold forced by the economic and social disruptions of World War I and the Great Depression shattered the old system – forever, it seems to us now – but governments did not give up on a return until after the final breakdown of the Bretton Woods arrangements in the early 1970s. The 1936 Tripartite Agreement between Britain, France, and the United States was an attempt to work back to the gold standard, as conditions permitted, through exchange controls, negotiated fixed rates, and mutual assistance. The more rigid Bretton Woods System that was agreed upon at the end of World War II sought a quick return to gold (or rather a gold-exchange standard based on the U.S. dollar), with fixed exchange rates and free trade and exchange, but never came into play because of its several contradictions. The author’s relative emphases on the Tripartite Agreement and Bretton Woods are the reverse of mine, but the primary historical point is the same: they were among the several schemes for returning to the monetary system of 1914.

Many economists of the 1920s and 1930s wanted it both ways: the gold standard with a managed currency, which after World War II became expansionist Keynesian policies domestically with fixed exchange rates externally. This proved impossible without severe and eventually unacceptable controls, and the combination of inflation and unemployment, together with the actual and intellectual collapses of the Phillips Curve, compelled governments to focus their monetary attention on price stability.

The author describes the present system as one of competitive monies in an international context similar to Benjamin Klein’s (“The Competitive Supply of Money,” Journal of Money, Credit and Banking, 1974). The purpose of the book as stated at the beginning is to show that “monetary theory [has] been crucial in determining the evolution of [monetary] systems” (p. ix), although the connection is often unclear. His examples indicate that theory has more often followed than influenced events. He states that the Bretton Woods monetary order “was unique to monetary history,” in being designed by experts “from scratch” (pp. 133, 188), but also sees it as a “vain attempt to revive ? commodity money” (p. 189). He reasonably follows much of the literature in using “Bretton Woods” as a convenient label for a period rather than as a system in actual operation.

He might have followed up the implications of his description of the new system by pointing out that with “inflation targeting” we have returned to commodity money. A dollar, pound, or Euro is convertible into a basket of goods. Of course inflation targeting is subject to the government’s discretion, but that was also true of the gold standard. The new system is also like the old in rejecting the managed-money theories that prevailed during much of the transition, and delayed it.

One can argue over the book’s interpretations of the causes of the evolution of the monetary system and its defining characteristics, but I recommend it as an efficient account of the relevant theories and policies during the transition from the classical gold standard.

Recent works by John H. Wood are “Independent Central Banks: New and Old,” Cato Journal, Fall 2006, A History of Central Banking in Great Britain and the United States (Cambridge University Press, 2005), and Ideas, Interests, and Macroeconomic Policies in the United States, in process.

Subject(s):History of Economic Thought; Methodology
Geographic Area(s):North America
Time Period(s):20th Century: WWII and post-WWII

Conflict Potentials in Monetary Unions

Author(s):Jonung, Lars
Nautz, Jürgen
Reviewer(s):Officer, Lawrence H.

Published by EH.NET (April 2007)

Lars Jonung and J?rgen Nautz, editors, Conflict Potentials in Monetary Unions. Stuttgart: Franz Steiner, 2007. 181 pp. ?34 (paperback), ISBN: 978-3-515-09002-5.

Reviewed for EH.NET by Lawrence H. Officer, Department of Economics, University of Illinois at Chicago.

This relatively short book contains seven papers on monetary unions, most of which will be of interest to economic historians. The editors, writing individually, account for two of the seven papers. I use the term “papers” advisedly, because the papers are not enumerated as chapters. In fact, although the editors (Lars Jonung, Research Adviser at the European Commission, and J?rgen Nautz, a faculty member at the University of Vienna) are to be commended for assembling a group of interesting papers, some editorial decisions detract from the usefulness of the volume. In particular: (1) The papers are not organized into sections or parts of the overall work, so relationships among the papers are not emphasized. Jonung does some thematic discussion in his introduction to the volume; but most of that essay is a paper-by-paper summary of the individual-author contributions. Further, Jonung’s discussion is expositional rather than critical. (2) Although the acknowledgements state that “several of the chapters of this book have emerged from papers presented at the conference [with the same name as the book title],” the volume presents no comments on, or exchange of views about, the various papers. (3) There is no index ? a serious flaw for any scholarly book, in my view. (4) There is neither a common list of references nor individual-chapter lists of references. All bibliographical references are in footnotes. (5) In some “chapters,” tables and figures are placed at the end of the paper; in other chapters, they are embedded within the text. Such lack of uniformity can be confusing to the reader. (6) The contributors were allowed to be uneven in their methodology with respect to each other. For example, some authors adopt modern time-series analysis; others make less-sophisticated use of quantitative information. Also, some papers are heavily oriented to specific historical experiences; others make use of history only in passing. On the positive side, there is a paragraph-length bibliography of each of the contributors to the volume.

In fairness to Jonung, his summation of the lessons of the papers, although short, is perceptive. First, monetary unification and resulting adjustment are long-run processes. Second, monetary unification is an exercise in political economy, not just in economics: “Politics is commonly driving monetary marriages as well as monetary divorces. In short, money is an inherent political matter. This message emerges from every chapter of the book” (p. 17). Third, internal distribution issues are important in decisions regarding currency and monetary arrangements.

Something should be said about each paper; but the space devoted to each reflects the interest of this particular reviewer. The contribution of Farley Grubb (“The Constitutional Creation of a Common Currency in the U.S.: Monetary Stabilization versus Merchant Rent-Seeking”) is well-written, interesting and provocative. He writes: “This evidence indicates that the formation of the U.S. currency union had more to do with usurpation of state sovereignty for the personal gain of merchant-bankers than with solutions to monetary instability and transactions costs within the union” (p. 19). Grubb views the monetary policy of the colonies, and later, individual states, as credible and responsible, compared to that of the post-Constitution United States. His views have been vigorously attacked in the literature (Michener and Wright, 2005) and equally vigorously defended (Grubb, 2005); but Grubb’s contribution in the volume makes no mention of this particular literature. In fairness again, the reason might be lag in publication (the conference underlying the volume occurred in 2001 and 2002); but, given the long lag, the authors of contributions could have been given the opportunity to revise their essays in the light of recent literature. Grubb’s paper is also useful in its provision of excellent bibliographical references and a good, though short, summary of colonial monetary history.

Grubb makes the following point (among others) regarding the source of U.S. monetary instability in the post-Constitution [pre-Federal-Reserve?] era: “The U.S … had no regulation of banking specie-reserve to bank-note-loan ratios” (p. 24). This reviewer (Officer, 2002) computed the “pyramiding ratio” monetary base to specie stock for, among other periods, 1792-1810 (First Bank of the United States, FBUS), 1817-1838 (Second Bank of the United States, SBUS), 1862-1878 (greenback) and 1879-1913 (gold standard). The mean ratio is, in order, 1.22, 1.27, 3.72, 2.17. The coefficient of variation of the ratio is, in order, 6.86, 11.45, 42.77, 14.80. From the standpoint of monetary discipline, the ideal ratio would have a “zero coefficient of variation around a unitary mean” (Officer, 2002, p. 136). So the FBUS and SBUS periods come closer to this ideal than the polar monetary standards of a free float and gold standard. The implication is that the problem with the Constitutional monetary system was lack of a central bank (ameliorated by the FBUS and SBUS acting in that role) rather than (as argued by Grubb) a fixed exchange rate.

In their “From Monetary Union to Financial Union in the United States,” John Landon Lane and Hugh Rockoff offer an excellent review of the literature on financial-market integration in U.S. history. Using regional interest rate data in conjunction with national interest rate and monetary data, they conclude that “the journey from monetary union to financial union was long and hard” (p. 65). This essay is clearly complementary to that of Grubb. It is unfortunate that neither essay comments on the other contribution.

Wearing his contributor’s hat, J?rgen Nautz’s topic is “Ethnic Conflicts and Monetary Unification in Austria-Hungary.” Much of the essay would be of interest only to the specialist; but one admires the attention to detail and the single-minded viewpoint centering on the interests of the various ethnic groups within Austria-Hungary and their influences on monetary arrangements and monetary policy. “Summing up, the monetary policy of the Austro-Hungarian Bank was very successful despite the lasting ethnical frictions in the political system” (p. 87).

Nuno Val?rio offers “The Escudo Zone: A Failed Attempt at a Colonial Monetary Union,” a history of the failure of a monetary union and free-trade area for Portugal and its colonies in 1960s. Well-considered tables help the reader appreciate the story. Notwithstanding the failed escudo-zone experiment, Portugal’s colonial empire did survive longer than the empires of other colonial powers. The author does not address the reasons for that accomplishment.

This reviewer did not learn much from the essay, “Trade, Money and Institutions for Conflict Resolution in Monetary Unions: The Gold Standard and European Integration Compared,” by C?dric Dupont and Carsten Hefeker. In contrast, Tal Sadeh’s contribution, “Managing a Common Currency: Political and Cultural Preferences,” is a useful survey article. There is much discussion of the functions of money; but implications of the survey for currency unions are drawn only in the concluding paragraphs and only in the form of generalizations.

The second editor, Lars Jonung, closes the volume with “The Political Economy of Monetary Unification: The Swedish Euro Referendum of 2003.” Via exit polls and official results for all of Sweden’s municipalities, Jonung shows that the theory of optimum currency areas is reflected in the voting patterns. “Yes” votes for the euro came from those employed in the tradable sector or private sector in general, and from high income people and well-educated individuals; “no” votes came from those employed in the non-tradable sector, low-educated people, and low-income individuals. Jonung also makes the excellent point that, with the world’s oldest central bank and a long history of good monetary management ? along with the stable forces of a monarchy combined with democracy ? Sweden (and the similarly situated countries Denmark and the United Kingdom) enjoys a profound internal respect for its national currency.

All in all, this volume merits praise for the solid research and readable exposition of the contributors.

References:

Grubb, Farley W. (2005). “State ‘Currencies’ and the Transition to the U.S. Dollar: Reply– Including a New View from Canada.” American Economic Review 95, pp. 1341-1348.

Michener, Ronald W., and Wright, Robert E. (2005). “State ‘Currencies’ and the Transition to the U.S. Dollar: Clarifying Some Conclusions.” American Economic Review 95, pp. 682-703.

Officer, Lawrence H. (2002). “The U.S. Specie Standard, 1792-1932: Some Monetarist Arithmetic.” Explorations in Economic History 39, pp. 113-153.

Lawrence H. Officer is Professor of Economics, University of Illinois at Chicago. He is Editor, Special Projects, EH.Net, and Director of Research, MeasuringWorth.com. His most recent book is Pricing Theory, Financing of International Organisations and Monetary History (Routledge, 2007).

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

Economics in Russia: Studies in Intellectual History.

Author(s):Barnett, Vincent
Zweynert, Joachim
Reviewer(s):Samuels, Warren J.

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Published by EH.NET (May 2009)

Vincent Barnett and Joachim Zweynert, editors, Economics in Russia: Studies in Intellectual History. Burlington, VT: Ashgate, 2008. xviii + 198 pp. $100 (hardcover), ISBN: 978-0-7546-6149-8

Reviewed for EH.NET by Warren J. Samuels, Department of Economics, Michigan State University.

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This collection of neatly-defined and well-structured interpretive essays illustrates how written histories of economic thought can vary depending on several distinctions.? One distinction concerns whose thought a historian includes.? One can concentrate, following Mark Blaug, on what is understood to be economic theory, pursued by largely academic, professional economists, or, following Joseph Dorfman, also include non-academic, non-professional people.? A second distinction concerns the mutual impacts of the two mentalities on each other.? A third distinction has to do with the homogeneity or heterogeneity of each mentality.? A fourth distinction concerns the relation of the economic system, with its distinctive economic practice and system of social control, to the two mentalities.? No one of the resulting stories is necessarily correct, but one interpretation can be more accurate than another, though more than one interpretation can often relate to a particular situation.?

Accordingly, Russian economic thought of Muscovy in the sixteenth and seventeenth centuries oscillated between the doctrines of mercantilism and those of the Middle Ages.?? The ideas of some authors remained subordinated to religious, legal and political discourses, especially the vast fusion of state and church which tended to strictly limit the range of independent thinking.? Nonetheless, the principal topics were the system of land ownership, money and trade — with written texts dominated by religious discourse and political practice influenced by mercantilist concepts.

The eighteenth century manifested the conflict between the radical economic reforms of Peter the Great and Catherine II, on the one hand, and the continuing medieval social structure, on the other.? Liberal rhetoric was silenced by autocratic claims for enforcement of absolute power.? Later thinkers and statesmen helped to develop the system of finance and banking, unintentionally, one supposes, establishing some of the institutional foundations of the initial Russian industrial economy of the late nineteenth century.? Writers combined liberal ideas with a Hamiltonian state promoting economic modernization.? The targets were given by practice and the government.

Academic research and teaching was initially institutionalized in the early nineteenth century.? The teaching of political economy commenced in 1804; the first textbook in political economy published in Russia (written in French, six volumes, a compilation of Smith, Turgot, Say, et alia) appeared in 1815; and the first chair was established in 1819.? Some later academicians sought to articulate the ethical foundations of economics, some of them arriving at socialism, including Christian socialism.? Several essays serve to suggest that economics cannot be formulated independently of the concrete conditions of time and space, though that does not prevent differences of interpretation and formulation by scholars in any given time and place.? The point obviously applies to normative economics but also to positive economics.? But the story is more complex and lengthier.? Selig Perlman lectured that Marxism was (more or less surreptitiously) taught in the schools before 1917.? One school of interpreters argued that until the 1890s Russian economists largely followed, even imitated, Western economists.? Socialist ideas gained popularity first and foremost not economists among but the educated public.? In 1917 the October Revolution replaced one system of social control of belief and practice with another.? In 1927 the Communist Party line ostensibly changed from world revolution to socialism in one country coupled with praise for those early economists who had been close to Marxism and denigrated the Western non-Marxist imitators.? Within three years, the Soviet Union adopted collectivization, planning and industrialization. After 1991, Soviet economics was denigrated in favor of both pre-Soviet and especially, eventually, Western mainstream economics.? More recently, criticism of both the handling of transition to a market economy and the increasing influence of Western mainstream economics (imitation or transfer?) has emerged, along with discussion of a ?Russian school of economics.??

That is the overall account which emerges from the thirteen chapters written by twelve authors.? Each essay attempts to interpret the work of key individuals, issues or concepts of particular periods.?

Chapter 1, authored by the co-editors, is a nice six-page introduction and summary.? It is preceded by a very useful four-page ?timeline? of the major events of Russian history.?

Chapter 2, written by Danila Raskov, examines economic thought in Muscovy.?

Chapter 3 discusses the Russian version of the Enlightenment (Leonid Shirokorad).

Chapter 4 examines the ideas and contributions to institutional innovation of three reformers of the monetary system in the early nineteenth century (Alla Sheptun).?

Chapter 5 interprets what amounts to conflicts between different assertions of a ?natural order,? between rationalism and empiricism, between one or more conceptual models of the economy and one or more efforts at identifying the ?actual? economy, between German idealism and French rationalism, and between liberalism, socialism, the ideas of Friedrich List, German historicism, and conservative romanticism (Joachim Zweynert).?

Chapter 6 takes up the pursuit of an ?ethical? basis for political economy, namely, socialism, by Mikhail Tugan-Baranovsky, and Christian socialism, by Sergei Bulgakov (Natalia Makasheva).?

Noting that the co-editors distinguish at this point between the pre- and post-1917 periods and the corresponding chapters, I move on to chapter 7, which deals with the ideas and status of A. V. Chayanov, but which also misses the opportunity to compare and contrast Chayanov and N. D. Kondratiev as agricultural economists (William Coleman and Anna Taitslin).?

Chapter 8 examines Russian ?migr? economists in the U.S., and, to a lesser extent, in Europe.? It helps explain the predominance of mathematical and statistical approaches to economics taken by those who escaped Hitler and Stalin which, along with the ideas and formulations of Austrian-school economists, eventually had a marked transformative impact on the mainstream of U.S. economics.? Among the Austrian-School ?migr?s were Ludwig von Mises, Joseph Schumpeter, Gottfried Haberler, and Fritz Machlup.? Among the Russian ?migr?s were Simon Kuznets, Jacob Marschak, and W. W. Leontief (Vincent Barnett).?

Chapter 9 presents the lives and work of two Russian economists exiled in 1922, Boris Brutzkus and Sergei Prokopovich, the former a Russian Jew and economic liberal, the latter from a noble family but transformed by his investigation of West Siberian villages during the great famines of 1891-92.? The two men were later among the first students of the Soviet economy although having different careers and ideas as well as origins (Shuichi Kojima).?

Chapter 10 is on the debate in the U.S.S.R. during 1941-53 on the law of value, interpreted by the chapter?s author, Michael Kaser, to have been a serious blow to economics in the U.S.S.R., one administered by Stalin.? During 1956-1958, however, it began to be clear that ?a significant stage in the transition of Soviet economics from Marx to Marshall was complete? (p. 154).? The emergence of a relativist value theory (demand and supply theory of price) and the eclipse of an absolutist single-valued value theory (labor theory or marginal utility theory of value) came about for both political and economic reasons in both worlds.? In Europe and the United States, price theory came to be seen as both more empirically meaningful and more ideologically, i.e., politically, useful; in Russia during the period covered by Kaser, labor (the labor theory of value) was increasingly seen among economists as inadequate for planning purposes and was increasingly adversely but, writes Kaser (p. 151), not arbitrarily affected by political context.?

Chapter 11 identifies the years after Stalin?s death as, in effect, an amalgam of elements (Pekka Sutela).? It was a period of scientism, of varieties of Soviet economics, and of stages of economic reform.? The stages were: decentralization, market pricing, and incomplete transition to commodity and labor markets. The central topics of reform discussions were on enterprise self-management, and impersonal owners such as pension funds.? Not surprisingly, the authorities continued to be sensitive to anything resembling private property.

In the two-page chapter 12 the co-editors observe, first, ?that the progress of economic ideas in Russia was (and still is) inextricably connected to matters of economic policy and also to issues of governmental control? (p. 187).? They also urge recognition that ?recent developments in Russia … [include] a tendency [as in the past] toward the ?state capture? of key branches of the economy, increasing restrictions on political liberty, and a low conviction rate regarding serious crimes against persons critical of the Russian government such as journalists.? Even if no cases, so far, have been reported of economists being subject to direct political pressure, it does not take much imagination to conceive of such a case in the near future? (pp. 187-188).? The co-editors conclude with two points:? they do not believe that the mix of Western and native Russian ideas constitutes ?the existence of a ?Russian school? of economic thinking? (p. 188) in the same sense as is meant by such terms as ?Austrian school,?? ?Cambridge school,? or ?Chicago school.?? Second, they call attention to how little the economics of Marx, Engels and Lenin have been mentioned within this volume.? ?Russian economics had a long and distinguished history before 1917? and ?[Marx] was by no means a dominant figure in pre-revolutionary Russian political economy? (p. 188).

?_Economics in Russia_ can be recommended as a nicely designed and executed collection of essays which provides insight into a history of economic thought in some respects different from that of the West and in other respects rather similar.

The co-editors correctly point to the centrality of the issue of ?precisely what developmental path the country should take.?? They also note ?the extensive presence of ideology in the history of Russian economic thought? and (correctly) reject the argument that it is due to the features of a ?Russian character.? They suggest that in Russia the issue of development path has been heatedly controversial since the time of Peter the Great and claim that that ?might explain (in part) why economics was more strongly politicized [in Russia] than it was in many Western countries? (p. 2).??

The view that controversy over development path explains the greater politicization of economics would likely be shared by many, perhaps most, historians of economic thought.? The matter of development path is indeed a central issue of economic policy.? It did not, however, arise in Russia with Peter the Great.? The controversy between mercantilism and medievalism, in which mercantilism was the initial stage of capitalism, was about development path and preceded Peter the Great.

The key question, however, is whether differences in degree of politicization have existed, to be explained by controversy over development path.? I do not want to overdo the point but the question of degree of politicization is not only important in itself but it casts light on how decision making on and interpretation of economic policy should be handled by the historian of economic thought.

There has been no conclusive difference in degree of politicization; any such perception is a function of one?s normative selective prior assumptions. The question of development path has not been unique to Russia.? It has been, for example, central to policy debate in the United States.? I cite the conflict between Pilgrim religious fundamentalism and money-making (trade) as rival ways of life that arose in (more accurately, was brought from England to) the Massachusetts Bay Colony in the early- and mid-seventeenth century.? The conflict continues to this day, in more complex forms and in different circumstances, most notably in presidential elections and the on-going formation of and conflict between secularism and religious fundamentalism.? One was not more politicized than the other.? Even if one or the other supporting group claims more than they actually want, expect or are willing to settle for, the approach to development path is at least expressed in terms of different discourses, each of which is political, whatever their content .

My view is based on several considerations, including:? (1) Acceptance of the underlying fact and importance of the legal foundations of the economy, and through it the normative elements in economic policy and the choice of the incidents of the development path.? Such acceptance only minimally relies on evidence founded on ideological doctrine.? It especially reflects my perception of universal pragmatic practice. (2) Such pragmatism not only accurately describes the United States (and, of course, elsewhere) but has been facilitated, protected, encouraged and, more subtly, taught by the First Amendment?s rejection of an establishment of religion and its protection of the freedom of speech and of the press, and the rights of the people peaceably to assemble and to petition the Government for a redress of grievances, as well as through the use of various other clauses of the Constitution in the ?protection of property.? (I use that trope even though in other circumstances I would insist that property is property because it is protected and not that property is protected because it is property.) Pragmatism also accurately describes the jurisprudential processes through which the meaning of the Constitutional clauses and concepts themselves, e.g., property, are worked out.? (3) The relatively greater heavy-handedness of the state in Russia has been either more salient or more selectively perceived than in the United States, which may reflect either ?reality? or the greater effectiveness of relatively light-handed social control in the latter country or the relatively small percentages of its population which thinks seriously of the federal government, state government, local government, indeed all government, as fundamentally infringing on their freedom.? (By ?seriously,? I intend to be understood to mean something different from electoral and comparable rhetoric, but not necessarily requiring the ?litmus test? of an immediate willingness if not desire to resort to armed force in open rebellion.)? (4) The multiple meanings of ?politicization? is another factor.? It has been used to signify the introduction of politics (itself multiply defined) into areas of life in which it hitherto has been absent, to refer to institutions that are political (meaning having to do with decision making, or the exercise of power) by their very nature and/or to suggest that a decision has not been made on the respective merits of the relevant alternatives but in order to insinuate considerations of political-party advantage into the process. (5) Another factor is the eclipse or obfuscation of other possible paths by the success of the path actually ?chosen? and followed, perhaps as if that path was inevitable, say, due to the absolute nature of things.

It has been only (!) two to three hundred years since the eighteenth century, in which the values and policies of the Enlightenment first prospered, in which naturalism made major explicit inroads on supernaturalism, and in which society and its institutions were relatively widely seen to be a matter of policy and neither the natural nor the supernatural order of things.? Ideological and normative propositions, typically having a complex relation to power, are operative in the making and conduct of policy and the social reproduction or alteration of socioeconomic structure.? As for politicization, I know of no conclusive way in which a mediaeval or feudal structure and its world view can be conclusively shown to be more, or less, politicized than a mercantilist, capitalist or socialist/communist system. A change in power structure may (or may not) lead to a change of ideology that is typically more important than a change in power structure generated by a change in ideology.? My key point is that no one ideology is more politicized than another.

Consider, for example, the interpretations of the United States made in the 1930s and in 2009.? Franklin Delano Roosevelt and John Maynard Keynes were seen by many as socialists and antagonistic to capitalism whereas others saw the innovations of the New Deal as saving capitalism for the capitalists, or whomever.? The amply evident present-day situation pits President Barack Obama against the Republicans of the House of Representatives.? I suggest the following as a possibility — the Republicans understand that the President?s program is geared to support business (investment) in part through bail-outs, etc., helping selected types of business rather than supporting households, especially lower- and middle-class families.? The flow of spending can work, or not work, in different ways.? Consider that consumption spending, even if financed by home bailouts of some sort, may lead to an increase in the expected rate of profit of businesses and a fall in liquidity preference by various groups, including those engaged in real or portfolio investment, or increase the distraction of the working class from recognizing or even speculating that it is capitalism that President Obama is saving while more or less increasing the possibility of upward mobility by the children and grandchildren of the masses, which is what President Obama seems at least to desire. (The reader will recall that in their concluding chapter, Barnett and Zweynert note a tendency in Russia ?toward the ?state capture? of key branches of the economy? (p. 187). It would be ironic if the bailout and stimulus packages (notice the play of metaphors) (and, to a lesser but not insignificant degree, the imposition of moral and/or legal constraints on the remuneration of corporate executives) that have become (as of April 2009) the centerpiece of the Obama administration?s anti-depression policy represented an area of Galbraithian (or other) convergence between U.S. capitalism and Russian post-Soviet organization; and possibly even more ironic if the packages represented the capture of business(es) by government in place of or in addition to business capture of government agencies and branches.)

Assume the foregoing is a meaningful account.? Joseph Schumpeter pointed out the irony of a European labor party successful at the polls yet, instead of being able to introduce socialism (whatever that might have meant to them), they became the managers of a continuing, if somewhat revised, capitalism.? In the dialectic of politics it is sometimes, perhaps often, the continuing task of each party both to abet and to limit the other, for example, in Moscovy. Performing that task transcends the vagaries of ideological perception.

If investment increases (say. due to an increase in the expected rate of profit generated by a newly optimistic psychology), income will tend to increase, as will also consumption.? The reverse will also likely happen, i.e., a story of shocks coupled with either positive or negative multipliers.? One point is the multiplier account.? Another point is that, ceteris paribus, income can change as a result of a policy-induced change in either consumption (working, through the expected rate of profit, on investment) or investment (working, through the marginal propensity to save, on consumption). Each sequence is accompanied by its heroic account.? One group of voters applauds one; another resonates with the other. Those who invoke a one-sided view of the two processes narrow the possibilities permitted by economic theory.? But neither view is more ideological or more politicized than the other.? The same applies to tax versus subsidy externality policies.

Religious people who are successful in life in their own mind, may tend to dispose of their discretionary income in a trade-expanding way; similarly, people engaged in trade who are successful may act in a religion-enhancing way.? Neither practice is more ideological or more politicized than the other.

Apropos, therefore, of this and other books, on the Russia of Moscovy, policy might have reflected Eastern Orthodoxy or mercantilism or both, but be interpreted as the opposite.? I submit, first, that any story told about the different pieces of Russian history, like that of the U.S., could stress one side or the other, yet the evidence remain incapable of conclusive affirmation of either side.? I submit, second, that neither Eastern Orthodoxy nor mercantilism is more ideological or more politicized than the other.? I submit, third, that any one-sided choice of a story is a function of sentiment or ideological position coupled with a desire to have a seemingly absolute account whose value is more important for influencing present-day policy than for interpreting the past.? I should not be understood as attributing such to the motives of either the editors or the other authors, but to the logical situation of interpretation.? There is no one complete, true history; there are interpretations.

One reader of a draft of this review suggested that by the time that the questions of politicization and of controversy over development path were largely and practically ?solved? in the Western countries, they were still on the agenda in Russia.? I believe that they have neither ever been solved nor off the agenda in the Western countries.? To that reader politicization means the entry of policy and ideology into practical solution policies and into economic theory; that it is impossible to either estimate the degree of politicization or eliminate it; and that its degree and meaning depend on political and legal arrangements, hierarchical system of power and so on.? This reader also feels that no history of economic thought can be the ?true? story, only a story bearing signs of their time, place and the views of the people who were engaged in doing economics.? This reader also believes that intellectual history cannot be reduced to one or two problems, however important they might be: intellectual history is a multi-stream process.

Another reader of the draft identifies as a missing issue differences in state attempts to control intellectual discourse.? The actions can take different forms:? the termination or intimidation of professors who challenge the dominant political ?line? or ?consensus,? government funding of economic research with a pronounced bias favoring ?mainstream? research where ?mainstream? reflects both professional orthodoxy and the economic system around which orthodoxy and the national economy is built, and so on.

All of which suggests that the work of contemporary historians of economic thought is richer and less presumptuous than the work of earlier generations.? The history of economic thought is itself a vast interpretive field with numerous opportunities for interpretation.?

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Warren J. Samuels is Professor of Economics, Emeritus at Michigan State University.? He is the founding editor of _Research in the History of Economic Thought and Methodology_. His book of essays on the use of the concept of the invisible hand is in the initial stage of the production process.

Copyright (c) 2009 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 (May 2009). All EH.Net reviews are archived at http://www.eh.net/BookReview.

Subject(s):History of Economic Thought; Methodology
Geographic Area(s):Europe
Time Period(s):20th Century: Pre WWII

Historical Statistics of the United States, Volume Three: Economic Structure and Performance

Author(s):Carter, Susan B.
Gartner, Scott Sigmund
Haines, Michael R.
Olmstead, Alan L.
Sutch, Richard
Wright, Gavin
Reviewer(s):Davis, Joseph H.

Published by EH.NET (July 2006)

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Susan B. Carter, Scott Sigmund Gartner, Michael R. Haines, Alan L. Olmstead, Richard Sutch, and Gavin Wright, editors, Historical Statistics of the United States, Volume Three: Economic Structure and Performance. New York: Cambridge University Press, 2006. xiv + 831 pp. $825 (for the five-volume set), ISBN: 0-521-81790-0.

Reviewed for EH.NET by Joseph H. Davis, The Vanguard Group.

This volume of Historical Statistics is comprised of nine chapters and, in most cases, focuses on annual data and their sources. The objective is a straightforward if not ambitious one: provide reliable and relevant data that characterize the evolution of the economic structure and performance of the United States. Of course, “reliable and relevant” are open to interpretation. In my judgment, this Millennial volume does a better job than its Bicentennial predecessor, a noteworthy achievement.

The first two chapters of the volume focus on the prominent macroeconomic data on the trend in national output (first chapter) and business cycles (second chapter). I wish that I had had Richard Sutch’s introduction to these two chapters while in graduate school. Sutch provides an excellent summary on the history of national income accounting and the official NIPA estimates. Along with Paul Rhode, Sutch also provides a much-needed summary on the state of affairs regarding conjectural real GDP estimates before 1929.

The first chapter also introduces a new annual series on real GDP beginning in 1790. Referred to as the Millennial Edition Series, Sutch characterizes his real GDP estimates in the footnotes as “a pastiche reflecting the work of many contributors,” which is no exaggeration given the copious series documentation. In effect, the real GDP Millennial Edition Series is the result of splicing the best available annual interpolators through the best available output benchmarks for the pre-Civil War period. However, one criticism of this series is that it should be accompanied by more disclaimers, and its construction should have been detailed in the introduction (rather than delegated to endnotes). Indeed, given the overview of the unresolved “excess volatility” debate in the introduction, how should this series be viewed? What statistical inferences can (and cannot) be drawn? Given the fact that the volume provides two long-running annual real GDP per capita series dating back to 1790 (the Millennial Edition Series, and an alternative estimated by Louis Johnston and Samuel Williamson for EH.NET using different source data), which one is preferred? While I believe that the Millennial Edition utilizes more appropriate data in its interpretation (disclaimer: some of the data used are my own), I believe that more discussion should have been dedicated to its limitations. In my opinion, these real GDP data may be used to control for long-term trends, but should not be used in testing for structural breaks in macroeconomic volatility over time.

As a minor quibble, some of the tables in the first two chapters do not include the latest revisions, such as the version of the Davis industrial production index used to interpolate the real GDP Millennial Edition Series. In addition, the business cycle dates presented in the second chapter focus solely on the NBER dates, and thus ignore subsequent revisions to the monthly NBER business cycle dates for the late 1800s and early 1900s (by Christina Romer), and revisions to the annual NBER cycles for the 1800s (by myself more recently).

The volume’s fourth chapter focuses on popular wholesale and consumer price indexes. Christopher Hanes, the chapter’s editor, provides a fantastic introduction on how price indexes are constructed, the general trend in aggregate U.S. price indexes since 1800, and a brief history of the most popular aggregate price indexes. Hanes even provides tables with examples of how the rate of change in a price level can be computed under different techniques, a valuable exercise for students. Also noteworthy are Hanes’s comments on (and caveats about) various index construction methods. Hanes also cautions on the usage of the longest historical aggregate price series, particularly the annual CPI for all items, which has been linked from various sources back to 1774. While available for some time among economic historians (and third-party providers such as Global Financial Data), Hanes suggests that researchers may wish to use the PPI (as opposed to the CPI) when controlling for the price level back through the 1800s on account of the scarcity of rent data prior to 1913.

Richard Sutch’s chapter on savings, capital and wealth should serve as must-reading for students of economics and public policy. Of particular note is his expert treatment of the oft-confusing definitions of various savings measures, and the distinction between national and personal savings. The annual data in the chapter include updates of many data series derived from the National Income and Product Accounts and the Flow of Fund Accounts.

I found the volume’s sixth section, entitled “Geography and the Environment,” one of the most interesting, perhaps because I have the least familiarity with this topic. The section discusses and presents data on a host of environmental and climate indicators. Certainly, the section should introduce an interesting array of time series to a broader audience, including annual data on the number of oil spills, North American geese population estimates, and the number of forest acres damaged by insects. The section also updates important weather data, including the annual mean temperature and precipitation from various city and climatological stations as early as 1780.

The volume’s seventh section is dedicated to science, technological change, and productivity. The section’s editors, Gavin Wright and Stanley Engerman, provide excellent and concise overviews of these phenomena, including the U.S. patent system, the rise of organized industrial research, productivity measures, and the rise of computer technology. The section updates various Bicentennial series, including annual patent data, R&D expenditures, and productivity indexes. Gavin Wright also assembles valuable statistics on computers, including performance indicators of computers and transistors beginning in 1946 with the ENIAC.

Naomi Lamoreaux’s introduction to the volume’s eighth section on the dynamics of U.S. business organization is simply excellent, and should serve as necessary reading for students of finance and history alike.

The volume’s final chapter on U.S. financial markets assembles various statistics on monetary aggregates, banking, insurance, and interest rates. In the end, this chapter will be heavily consulted by practitioners and researchers in empirical finance. Michael Bordo, the editor of the section, has assembled a solid chapter with the assistance of other leading minds in the history and evolution of the U.S. financial system. Contributors include Howard Bodenhorn and Eugene White on financial institutions and their regulation, Peter Rousseau on securities markets, and John James and Richard Sylla on debt, the flow of funds, and interest rates. Key financial series have been updated, including those for U.S. equity prices (as early as 1802), long-term bond yields (as early as 1798), and money market rates (as early as 1831).

Like its 1975 predecessor, this reference volume set stands to be among the most widely cited works in economic history. The third volume updates the most popular macroeconomic and financial data, and in most cases does so with the careful assistance of leading scholars. Beyond the data, this volume also provides critical information as to the data sources, their limitations, and their potential implications. Arguably, this context is as important as the data series themselves, since this volume will certainly play a role in educating the next generation of economists, analysts, and historians.

Joe Davis is a Principal within both the Investment Counseling & Research Department and the Fixed Income Group of The Vanguard Group, a mutual fund company based in Valley Forge, Pennsylvania with over $1 trillion assets under management. While not currently in academia, Davis is a Faculty Research Fellow of the National Bureau of Economic Research (NBER).

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

Historical Statistics of the United States, Volume Five: Governance and International Relations

Author(s):Carter, Susan B.
Gartner, Scott Sigmund
Haines, Michael R.
Olmstead, Alan L.
Sutch, Richard
Wright, Gavin
Reviewer(s):Libecap, Gary

Published by EH.NET (April 2006)

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Susan B. Carter, Scott Sigmund Gartner, Michael R. Haines, Alan L. Olmstead, Richard Sutch, and Gavin Wright, editors, Historical Statistics of the United States, Volume Five: Governance and International Relations. New York: Cambridge University Press, 2006. xiv + 856 pp. $825 (for the five-volume set), ISBN: 0-521-85390-7.

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

When my daughter was young and used to go with me to the Government Documents section of the University of Arizona Library, she always thought of the place as “boring.” This volume of the new Historical Statistics of the United States is any thing but. It is for those who love and depend on government data and documents. It is loaded with all that a researcher might need, and then some. It is an essential research and reference tool. The editors are to be commended, as well as the contributors to the individual chapters in this volume. They have provided a public good that will advance the profession. Moreover, the narratives that precede the tables in each of the chapters are themselves wonderful with overviews of the data, bibliographic information, and interpretations of some of the key material. John Wallis’s discussion of “Government Finance and Employment” is especially useful because of the way in which he brings together the subsequent data, but all of the narratives in the volume are of similar quality. These narratives make this volume more than a reference work because it also provides interpretation and guidance. There are eight chapters, plus an appendix.

The first is “Government Finance and Employment,” edited by John Wallis. It includes federal, state, and local government expenditures, revenues, employment, expenditures by function, tax revenues of various types, and the federal debt. Chapter two, “Elections and Politics” is edited by John McIver. It has an excellent overview of U.S. politics, plus over two pages of references from political science that will be of use to economists and economic historians not familiar with that literature. The tables include the apportionment of the House of Representatives since 1787, voting participation, electoral votes cast by state in various presidential elections, party votes, presidential vetoes, and the make up of Congress by party since 1789. Chapter three, “Crime, Law Enforcement, and Justice,” is by Douglas Eckberg and Richard Sutch. The data tables cover crime rates and numbers by offense, arrests by ethnicity and race, suicide, homicides, prison population, drug and alcohol abuse, criminal justice expenditures, Supreme Court cases, as well as case loads of the federal and state courts. Chapter four, “National Defense, Wars, Armed Forces, and Veterans,” edited by Scott Sigmund Gartner and Hugh Rockoff, provides a bibliographic narrative and tables on military personnel by branch, casualties, selective service registrations, government defense expenditures, major battles, plus major conflicts with American Indians in the nineteenth century, number of veterans, and Veterans Administration expenditures. Many will find Chapter Five, “International Trade and Exchange Rates,” edited by Michael Edelstein, Douglas Irwin, and Lawrence Officer very helpful. There is an overview of trade patterns along with a definition of terms followed by data on the balance of payments, overseas investments in the U.S., foreign direct investments by Americans, export and import data by type, destination, and origin, and exchange rates. Chapter 6 provided by Sumner La Croix presents data on “Outlying Areas” — Alaska, Hawaii, Samoa, Guam, the Canal Zone and the Philippines. Population data as well as information on education levels, infant mortality, GDP, price indices, tourism, exports and imports are part of this chapter. Chapter 7, “Colonial Statistics,” is edited by John McCusker. His narrative is another favorite, with overviews of colonial history and over five pages of bibliographic references. Information on colonial population by age, sex, race, and servant status is provided, along with data on slave importation, wealth, wholesale prices, exchange rates, agricultural and fishery output, and international trade. Roger Ransom’s Chapter 8 on the Confederate States of America presents data on population, agricultural output, the money supply, prices, and bond issues of the Confederacy. The volume ends with one Appendix edited by Alan Olmstead and Richard Sutch on “Weights, Measures, and Monetary Values” for conversions; another appendix on “States and Census Regions” by Monty Hindman, and a final appendix, “Origin of Historical Statistics of the United States” by Carmel Ullman Chiswick. There also is an index to help guide the researcher through the data. This is a fantastic volume to an equally fantastic new edition of Historical Statistics.

Gary D. Libecap has just completed a book manuscript, Chinatown: Owens Valley and Its Meaning for Western Water, forthcoming from Stanford University Press. In July he will become Professor of Corporate Environmental Management in the Department of Economics and School of Environmental Science and Management at the University of California, Santa Barbara.

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