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Inside the Fed: Monetary Policy and Its Management, Martin through Greenspan to Bernanke

Author(s):Axilrod, Stephen H.
Reviewer(s):Wood, John H.

Published by EH.NET (August 2011)

Stephen H. Axilrod, Inside the Fed: Monetary Policy and Its Management, Martin through Greenspan to Bernanke (revised edition). Cambridge, MA: MIT Press, 2011. viii + 225 pp.? $25 (cloth), ISBN: 978-0-262-01562-2.

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

This book is truly from ?inside the Fed.?? The author served the Board of Governors from 1952 to 1986, nearly half the time as senior advisor for monetary policy to chairmen Arthur Burns (1970-78), G. William Miller (1978-79), and Paul Volcker (1979-87).? He also observed William McChesney Martin, Jr. (1951-70) in action as chairman of the Federal Open Market Committee, and has kept in touch with the making of monetary policy under Alan Greenspan (1987-2006) and Ben Bernanke (since 2006).? Axilrod?s accounts of policymaking as seen from inside the Fed are interesting and informative, as are the ?anecdotes,? as he calls them, which reveal the personalities and methods of Fed chairmen, including their working relationships with advisors, fellow governors, and other central bankers.
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Axilrod doesn?t deny that theory influences policy, but he suggests that the personal characteristics of chairmen and their sensitivities to the public and political circumstances are also important.? Burns, for example, was unable to deal effectively with the Great Inflation of the 1970s for several reasons.? Although he had been a student of the consistencies embodied in business cycles, he seemed to see ?each cyclical episode as embodying a unique set of events,? of which money was only one.? Rising inflation during 1974-77, when the real fed funds rate turned negative, caused the market to perceive ?that the Fed was doing too little to contain money growth to a pace that would significantly restrain inflation, and the institution?s anti-inflation credibility substantially eroded.?
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Although Burns possessed substantial persuasive powers in small groups, aided by an explosive temper, his effectiveness as inflation-fighter was hampered by his inability even ?to attempt to exercise powers of persuasion and logic dramatically and compellingly enough in public speeches and congressional testimony so as to evoke the public support that might have made it easier for the Fed itself to pursue a stronger anti-inflationary policy.?? Such a ?task may seem too Herculean,? but it should be remembered that Volcker?s shift was only a year or two in the future, and Burns had a president in Gerald Ford who probably would have supported a genuine attack on inflation (which the Whip Inflation Now ? WIN ? campaign against greed was not).? Burns was further limited by his lack of a potentially persuasive policy, of something more than a maneuver ?inside the box.?
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Paul Volcker, on the other hand, ?combined great sensitivity to shifting trends in political economy (he could see what the country would now accept) with a willingness to take dramatic action,? and see it through.? When a New York Fed official said ?the Fed was in the process of ?experimenting? with a new approach to policy [as it shifted from interest-rate to money targeting], Volcker … went ballistic …. The idea of an ?experiment? was anathema to him because it suggested a lack of conviction at the Fed and would most certainly not help us regain market credibility.?? Some of this might be hindsight on Axilrod?s part, but he had no difficulty finding concerns for credibility among successful Fed chairman such as Martin, Volcker, and the early Greenspan before it became a part of economic models.
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He does not give high grades to Bernanke or the later Greenspan in this respect.? He shares what might be the consensus belief that the Fed contributed to the recent crisis.? Its opposition to inflation seemed half-hearted after 1998, and belief in the Greenspan-put — that the Fed would underwrite the large risks being taken — contributed to its loss of credibility, Axilrod believes.
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Bernanke inherited a difficult situation and didn?t improve on it.? The Fed seemed unaware of speculative and inflationary pressures, and the real fed funds rate became negative before the Fed belatedly shifted to tight money.? Its reactions to the crisis were unusual, and how it will deal with its gargantuan balance sheet is unknown.? There may ?be no very significant technical difficulties in either reining in the monetary base or at least minimizing the extent to which some larger than normal monetary base can be transformed into excess public liquidity.? But the Fed?s ability to undertake effective monetary policies in so complicated and uncertain a transition requires more than technical capacity.? It also requires from its chairmen … a public stature that enables him to perform effectively on the national stage, [which] does not yet seem to be firmly within Bernanke?s grasp.????
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?My experiences at the Fed suggest that a great leader for monetary policy is differentiated not especially by economic sophistication, but by his or her ability to perceive when social and political limits can and should be placed to make space for a significant, paradigmatic change in the approach to policy should it be required, as well as by the courage and bureaucratic moxie to pull it off.?? ?Native good judgment and plain old common sense,? as well as ?an intuitive feel for markets,? are also important.
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He gives no formal ranking of the chairmen, but there is no doubt that Volcker would be at the top of his list, probably with Martin second, although the latter had no ?powerful, dramatic crises to deal with.?
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Unsurprising in a ?lifer,? Axilrod?s stories of people and policies at the Fed reveal institutional beliefs that might improve our understanding of American monetary policy.? One belief that has often found expression among the governors and the staff is that the Fed is fighting inflation, which is hard to swallow when we know that inflation is fully explained by the Fed?s injections of reserves.? Statements to this effect possess the characteristics of a state of denial in an organization that has caused the greatest inflation in U.S. history, and make sense only if it means that the fight is against other, primarily political, interests for the independence to conduct a stable price policy.? There is even less reason, in light of his delivery of inflation leading up to the 1972 election, to call Burns ?unfortunate in the particular decade, the 1970s, where fate placed him as chairman … in years of quite strong inflationary winds.?? The relatively stable conditions in Martin?s term might not have been all luck. ???
One reason why the governors and senior staff have resisted academic influence is the Fed?s immersion in the money markets that are barely evident in economic theories.? The groups have different models for different interests.? There has been a circle-the-wagons reaction to the nearly universal academic disapproval of monetary policy during most of the postwar period.? Axilrod?s recollections in this area are ambivalent.? In the early 1960s, he believed that monetarist Karl Brunner?s description of the Fed?s control of the money stock ?was telling us nothing that we didn?t already know.?? However, Axilrod?s account of the Fed?s growing interest in money seemed to reflect a similar development among economists.?

Whatever the intellectual causes and effects between academia and the Fed — I believe each underrates the other — Axilrod?s bilingual discussion of the development of monetary policy over time, particularly the logical and empirical connections between money and credit, is a genuine contribution to our understanding of monetary policy and the institution that makes it.?

This book by a uniquely placed participant is an interesting and informative read on its own, but those who would like to learn more about Axilrod and his times are advised to read some of the many writings that offer different perspectives of the same events, for example, Allan Meltzer, who confirms Axilrod?s warnings about lagged reserve accounting when it was adopted (A History of the Federal Reserve); the Bank of England?s Charles Goodhart, who gives Axilrod an almost equal share with Volcker for the 1979 policy shift and calls him the second most important person at the Fed, (?Review,? Economica, Jan. 2011); and William Greider, who wrote that Chairman Miller?s lack of expertise made Axilrod ?an extraordinarily powerful bureaucrat.? Axilrod contradicts this by saying that the staff tended to have ?more influence when the chairman was strong than when he was not. … I always had the feeling that in Miller?s time … my views? were received ?with a bit less intensity.?? An author and defender of the modified monetarist model that replaced interest targeting in 1979, Axilrod finds no sense in the statements ?by a policymaker or two [that] the new policy was simply a cover so that the Fed could raise interest rates while ducking direct responsibility.?? It should be noted that one of the offending parties was Volcker (Volcker and Tyoo Gyohten, Changing Fortunes).

John H. Wood, Reynolds Professor of Economics, Wake Forest University, jw@wfu.edu, is the author of A History of Central Banking in Great Britain and the United States (Cambridge University Press, 2005) and A History of Macroeconomic Policy in the United States (Routledge, 2009). A current research project connects the economics and politics of William McChesney Martin, Jr. at the Fed and as president of the New York Stock Exchange. His Federal Reserve experience has been as a fellowship student at the Federal Reserve Bank of Chicago for two summers, an economist at the Board for three years and the Federal Reserve Bank of Dallas for two years, and further visits at the Federal Reserve Banks of Dallas, Chicago and Philadelphia.? He remembers looking down enviously from his window in the Flow-of-Funds section at the noon tennis match of which Axilrod writes, although he eventually got a chance with the afternoon group formed by Dewey Daane when he joined the Board.

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

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

The Big Ditch: How America Took, Ran, and Ultimately Gave Away the Panama Canal

Author(s):Maurer, Noel
Yu, Carlos
Reviewer(s):Arroyo Abad, Leticia

Published by EH.NET (June 2011)

Noel Maurer and Carlos Yu, The Big Ditch: How America Took, Ran, and Ultimately Gave Away the Panama Canal. Princeton: Princeton University Press, 2010.? xv + 420 pp. $35 (hardcover), ISBN: 978-0-691-14738-3.

Reviewed for EH.Net by Leticia Arroyo Abad, Department of Economics, Middlebury College.

In The Big Ditch, Maurer and Yu offer an exciting analysis of the creation and development of one of the masterpieces of engineering: the Big Ditch, i.e. Panama Canal. Until now, the literature fell into two dominant views: the Canal as a great waterway or as a reminder of American imperialism. By reconciling both perspectives, the authors successfully show that this imperialistic act was indeed profitable while exploring the crucial factors to the abandonment of this imperial operation. Integrating thorough quantitative evidence with engaging historical narrative, this work is a crucial contribution to the new political economy of Latin America and to the economics of colonialism.

The dimensions of the Panama Canal project are hard to grasp. Fortunately, the authors successfully portray the immensity of this enterprise. This undertaking effectively took eighteen years to complete, employed at its peak over 45,000 employees in a tiered system, displaced around 12,000 inhabitants of the Chagres basin, and dug out millions of metric tons of dirt. All for a tag price of 9 billion dollars (2009 prices).

From a methodological view, the authors cleverly combine analytical narratives using rational choice assumptions together with social savings calculations ? la Fogel. To estimate the social savings, Maurer and Yu use counterfactual analysis or ?economics by strategic bombing force? (p. 48). By comparing the costs under the non-existence of the Canal to the actual cash flow generated by it, they conclude that while during the first year of operation the project merely yielded 2.9% of return, the following year it exceeded 10%. The bulk of these savings were due to the dramatic decline of intercoastal freight rates leading to a ?transportation revolution? (p. 145). As such, the authors claim that the rents from this imperial initiative had a broad base: American consumers. Yet, the benefits to Panamanians were limited.

The book also takes into account the impact of the Canal on Panama. Before the Canal?s inauguration, Panamanians? optimism was palpable. This impressive engineering marvel was supposed to be Panama?s ticket to growth and development. This promise failed to materialize as the U.S. devised explicit policies to restrict Panamanian access to the Canal project. These measures ranged from the import of cheap foreign labor to the establishment of the Commissary. This institution was initially in charge of feeding and housing the workforce, but then extended its activities to the sale of general goods and supplies to passing ships. Numerous complaints from the Panamanian government and merchants proved unsuccessful. The local economy had little chance to compete with imported goods, exempted from tariffs or taxes, which enjoyed preferential shipping costs. An unintended benefit arose from this institution as imported goods trickled down through the black market to the domestic economy at convenient prices.

While the Canal did not contribute to the development of the domestic economy, the authors ask whether favorable influence may be found elsewhere. Panama under the tutelage of the American empire could have benefited from improvement in institutions. Had the U.S. made property rights more secure and increased the stability of the country, Panama could have achieved a higher rate of investment at lower interest rates. As a consequence we would expect a significant reduction in the cost of capital due to the consistent and deep U.S. intervention in Panamanian domestic affairs.? However, the evidence suggests that the ?empire effect? was virtually nonexistent in this case. In the end, the benefits to Panama were reduced to health improvements due to the eradication of malaria and yellow fever.

While the end of World War II substantially changed the net benefits of the Canal project, the authors argue that even during the war the Canal?s relevance has been overstated. By exploring potential American costs in the absence of this alternative waterway, the evidence indicates the Canal was not too valuable from an economic or military point of view. In addition, the enlargement of military vessels and the expansion of the U.S. strategic needs from two to five oceans further diminished the Big Ditch?s value. The social savings further declined with the sharp drop in the domestic freight costs. The consolidation of trucking-based transportation rooted in the development of the highway system and containerization outstripped the initial comparative advantage of the Canal.

From an economic standpoint, Maurer and Yu show that the Canal made little sense after World War II; however, politically it proved to be difficult to ditch the Ditch. It was not until 1977, under President Carter, that the Panama Canal Treaty was signed leading to the handover of the Canal in 1999 with U.S. participation in a special regulatory commission. The Panamanians were widely in favor of the Treaty manifested in two-thirds support in a national plebiscite.

From a key asset in economic and national security to a liability, the history of the Panama Canal supplies a long-run example of the ever-changing costs and benefits associated with imperial endeavors. We learn how economic and institutional constraints changed over time affecting the net benefit of this imperial endeavor. Judged by social savings, America?s engineering marvel was good business, yielding a 6.4% return for the first two decades. The Big Ditch shows us that this project was not as revolutionary as other public enterprises but still quite useful to the U.S. For Panama, the imperial legacy is restricted to health improvements with no clear favorable institutional development. Overall, this book teaches us important lessons on the global consequences of imperial ventures with particular insights on institutional development, economic and political constraints and power.

Leticia Arroyo Abad is an assistant professor in Economics at Middlebury College. She works on inequality and standards of living in Latin America since colonial times.

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

Subject(s):Economywide Country Studies and Comparative History
Historical Geography
Transport and Distribution, Energy, and Other Services
Geographic Area(s):Latin America, incl. Mexico and the Caribbean
North America
Time Period(s):20th Century: Pre WWII
20th Century: WWII and post-WWII

American Power and Policy

Author(s):Leeson, Robert
Reviewer(s):Domitrovic, Brian

Published by EH.NET (June 2011)

Robert Leeson, editor, American Power and Policy. New York: Palgrave Macmillan, 2009. viii + 278 pp. $100 (hardcover), ISBN: 978-1-4039-4956-1.

Reviewed for EH.Net by Brian Domitrovic, Department of History, Sam Houston State University.

If somehow one could concoct a ratio between the amount of economics and the amount of business in a given time and place, one thing would be clear. The ratio as it ran from the nineteenth to the twentieth century in the Anglophone world would take the shape of a hockey stick.

There was economics in the nineteenth century, to be sure, but it was an episodic and essayistic (if often luminous) affair. Business, however, was going absolutely gangbusters in Britain and the United States. In the first half of twentieth century, roles reversed. Economic growth met with variability, and economics exploded.

Why economics mushroomed in the twentieth century is an imperative historical question on several grounds. The phenomenon was large; it was sophisticated; and most probably, it was consequential. Getting a bead on the enormity of this discipline?s tremendous rise is very much not a trivial preoccupation, and it is in this spirit that Robert Leeson?s new edited collection in the series Archival Insights into the Evolution of Economics must be welcomed.

American Power and Policy is a compendium of case studies of some half-dozen major economists who broadly speaking put themselves in the public service in the 1930s and 1940s, though there is some treatment of the decades that follow. Some of the names are familiar (Marriner Eccles, Harry Dexter White), while others ring bells (Jacob Viner, Allyn Young, John H. Williams). The recurrent theme, one might say the pulse of the book, is that every one of these people was ensconced at the top places, from the premier universities, typically Harvard, to governmental posts near the pinnacle of power and influence. As Paul Samuelson said (if inexplicably) of one of influentials here canvassed, ?The world owes Lauchlin Currie a great debt. … Hail Caesar! Hail Nestor!? (p. 106)

Arguably the most important figure in the book is not one of the chapter subjects, but a recurrent name across the volume: Frank Taussig. Taussig, as American Economic Power and Policy repeatedly infers, was the anchor of the Harvard department which eventually did so much to place economists in positions of prominence. The other major force in the department was Young, an AEA president and (while at Cornell) Frank Knight?s advisor. Young remains unfamiliar to us only because his profound influence was mainly felt in the classroom. These two mentored any number of the high economic practitioners of the New Deal and Bretton Woods, above all Currie (who established the prototype of the CEA chair) and White (who, we learn to our amazement, failed his generals).

It was Taussig who over his long career bestrode the two vastly different worlds of economics — that of the nineteenth and twentieth centuries. In Taussig?s initial heyday, as he composed the Tariff History of the United States in the 1880s, the economist was very much a scribe who rather sat at the feet of businessmen and politicians and recorded the methods of their operations, if offering sage advice and abstracting a theory here and there. This was the golden era of historical political economy.

Yet the department in which Taussig was the grand old man four and five decades later was one which deliberately sought to rush its charges into the power nexus of the economy in order to perform emergency surgery, indeed to assume the role of prime mover. Clearly the Great War and the onset of the Depression had much to do with this remarkable turn of events, but there is more to it than that. The sense that haunts this volume is that the crisis years of 1919-1933 are when the profession realized that it could seize the moment; in turn, the profession proved that it had the outsized ambition required to do just that.

Economists, like scientists, have often taken a dismissive view toward archival research. If something is important and intellectually legitimate, surely it is in the published articles, the argument runs. This view has begun to lose its grip among economists, however, what with the exertions of the journal History of Political Economy and the enormous Economists? Papers Project at Duke University.

American Power and Policy does this change-of-heart good by identifying certain unpublished insights from these economists that ended up being remarkably prescient –and unheeded. In one exchange of letters between Viner and Keynes, the two agree in 1943 that the abundant talk of a dollar shortage was unfounded, and that the real problem that would stalk the world not on a full gold standard was inflation. This view was vindicated by events.

Then there is the exchange between Williams and Keynes (reprinted in the book), also of 1943, in which the former contends that in the postwar world, the United States will be disinclined to conduct economic policy such that domestic stability correlates with international equilibrium. In a few years, this view would be codified in the Triffin dilemma, the Samuelson-Tobin synthesis, and the ?impossible trinity.?

During a brief chapter on the 1970s, an archival source of Arthur Okun is quoted as follows: ?During those good old days, U.S. performance fit the Phillips curve like a glove!? (p. 99). The quotation is telling, in that it indicates the incredible primacy that theory had achieved by the latter decades of the twentieth century. Economic cogitation had become so developed, sophisticated, and institutionalized that it could became a source of disappointment — if not angst — if practical developments made favorite theories inoperative.

Okun could have only thrived in the 1960s and 1970s. A figure with experience at a top university (Yale), a top governmental post (CEA chair), and a top institution (Brookings) getting melancholy about the decline of a theory on account of news from the realm of the hurly-burly was unthinkable among economists of Frank Taussig?s early years. Yet somehow, within three quarters of the century — and ultimately this is the origin of this book?s fascination — economists had reached a point where as intellectuals they could make demands on the world of affairs.

Brian Domitrovic teaches at Sam Houston State University and is author of the history of supply-side economics, Econoclasts (2009). bfd001@shsu.edu

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

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

The Illusion of Free Markets: Punishment and the Myth of Natural Order

Author(s):Harcourt, Bernard E.
Reviewer(s):D'Amico, Daniel J.

Published by EH.NET (April 2011)

Bernard E. Harcourt, The Illusion of Free Markets: Punishment and the Myth of Natural Order. Cambridge, MA: Harvard University Press, 2011. 328 pp. $30 (hardcover), ISBN: 978-0-674-05726-5.

Reviewed for EH.Net by Daniel J. D’Amico, Department of Economics, Loyola University (New Orleans).

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The Illusion of Free Markets is a fascinating attempt to understand public policy. There are both effective and ineffective responses to social problems. Human welfare requires interpreting complex social phenomena and affecting social change. To be fooled by an illusion is to be guided by a bad map.

Neoclassical models of political economy distinguish between markets and governments. Markets are presumed efficient when producing and allocating resources, but in some institutional environments, where property rights are poorly defined and information asymmetric, said to fail. Governments are presumed necessary and sufficient to solve market failures. Society suffers when either problem is misdiagnosed and/or either solution incorrectly prescribed. Bernard Harcourt thinks markets have been overrated. Histories of penology and economic thought help correct this.

The market versus government dichotomy dates to the classical school, when economists thought in terms of natural law. Markets were called natural because the price system is self-adjusting and socially coordinative. Neither shortages nor surpluses persist because prices change on the margin. Self-interest guides social welfare “as if by an invisible hand.” While economists favor markets because they produce and distribute tangible wealth, Harcourt is concerned that they under account social costs. In particular, natural law has supposedly borne complex consequences upon American criminal justice.

Markets were heavily regulated during the time of the classical school. Detailed codes of conduct governed all manner of commercial trade. Harcourt observes that Adam Smith and other classicals used the term ?policing? to refer to both commercial and criminal regulations. Harcourt prefers Foucault’s focus upon discipline over economists’ hard dichotomy. Historically, both markets and governments regulated behavior. Both were backed by physical punishments. The market was as disciplinarian as the state.

Harcourt is concerned, and rightly so, with features of American criminal justice. It appears racially biased, excessively severe and uniquely modern. He argues that these are the theoretical consequences of applied natural law. His historical narrative suggests that as the commercial realm was deregulated, disciplinary resources were directed into the penal sphere. Markets were presumed to be self-regulating, which drove a conceptual schism between lawful market behaviors and unnatural criminal actions. Theorists underrecognize the costs of social change invoked by deregulation because they presume the market natural. Today’s penal excesses are the presumed result of a growing network of anonymous contracts. Harcourt’s message: the notion that markets are free from coercion is an illusion, both yesterday and today. Privatization and deregulation are insufficient policy solutions to mass incarceration.

Harcourt’s comments are a welcome update to neoclassical orthodoxy, which has failed to give an explanation or policy reaction to mass incarceration. If one looks — as Foucault would suggest –? at different enforcement techniques (physical punishment versus torts and fines) used within the different legal spheres (criminal versus civil); or if one looks at the historical specialization of those techniques across those legal spheres, one notices the world is a very different place than it used to be.

Today the market versus government distinction parallels the civil and criminal law. Contract enforcements are maintained by the civil law. Criminal laws are enforced by incarceration. These separate legal spheres were not always distinct, nor were their enforcement resources specialized. Originally there was no criminal law. Physical punishments, such as arrest and jailing, facilitated market exchanges and resolved civil disputes; afterwards a separate criminal law developed. Then physical punishments became more reserved to enforce against crime.

Harcourt argues the doctrine of natural law ushered this process, and led to problematic criminal justice outcomes. Alternatively, Foucault’s historical perspective compliments an Austrian and Public Choice framework of political economy. Neither markets nor governments should be presumed to resolve each other’s failures. The efficient-market hypothesis and traditional public goods theory both risk misguidance by illusion. Enforcement technology is an important focus in so far as it affects the production and distribution of knowledge and incentives.

Austrian political economy emphasizes the distribution of economic knowledge throughout society. Governments differ from markets in how they produce and distribute economic knowledge — who, what, how, when and where to make and distribute goods. Public Choice political economy emphasizes the incentives that affect rational choice. Bureaucracies produce systematically different incentives than do for-profit markets.

An Austro-Public Choice political economy insists upon the behavioral assumptions applied to governments and markets being symmetrical. Neither market nor government decision-makers are perfectly informed nor perfectly incentivized to accomplish goals. The subsidy and administration of criminal punishments yesterday and today appear not to be an exception.

Harcourt interprets history as a slight against the characterization of commerce as non-coercive. Foucault says markets are disciplinary. Though not emphasized by Harcourt, the inverse also seems true. The history of physical punishments within the market sphere weakens the characterization of governments as particularly necessary for optimal criminal punishment. Presuming criminal punishment a public good may be just as illusionary.

When markets wielded physical punishments they appeared constrained from excess by the self-interests of disputants. Conflicts among traders were self-sorted for profit seekers. Punitive threats made compliance with financial and service court rulings more appealing. Contract violators were inclined to settle and civil plaintiffs sought tangible compensation for loss.

Contemporary criminal justice problems coincide with expanded market economies and decentralized government in the market sphere. An Austro-Public Choice perspective must reference how changes in knowledge and incentives yield such outcomes. On net federal government has grown, as has its role within the criminal justice system in conjunction with mass incarceration’s disconcerting results.

Physical punishment has become relegated to the enforcement of criminal law. Though contrary to Harcourt’s narrative, driven by the segregationist logic of natural law, this can be seen as driven by the self-interests of market and government actors. While market traders sought low cost and quantitatively predictable methods to resolve conflict, government capitalized as the monopoly provider of physical enforcements.

Today’s greater quantities of physical enforcement are not deployed to enforce civil contracts or tort compliance. Drug and immigration violators occupy most new prison space, unlikely prohibited by contract law. Rather than necessary and sufficient, democracy has proven ineffective to correct the racial, generational, gender, and substance-abuse disproportionality of criminal sentencing. Policy makers have little incentive to change such policies and ordinary citizens lack the necessary knowledge to implement institutional reform.

Daniel J. D’Amico is the author of “The Prison in Economics: Private and Public Incarceration in Ancient Greece,” in Public Choice. He is currently engaged in a long-term research project focused upon the political economy of mass incarceration.

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

Subject(s):Government, Law and Regulation, Public Finance
History of Economic Thought; Methodology
Markets and Institutions
Geographic Area(s):General, International, or Comparative
Time Period(s):General or Comparative

The Capital and the Colonies: London and the Atlantic Economy, 1660-1700

Author(s):Zahedieh, Nuala
Reviewer(s):Walsh, Lorena S.

Published by EH.Net (February 2011)

Nuala Zahedieh, The Capital and the Colonies: London and the Atlantic Economy, 1660-1700. Cambridge: Cambridge University Press, 2010. xvii + 329 pp. $95 (hardcover), ISBN: 978-0-521-51423-1.

Reviewed for EH.Net by Lorena S. Walsh, Colonial Williamsburg Foundation (retired).

Several recent investigations of early modern economic growth have emphasized the critical importance of overseas expansion — especially the rise of Atlantic commerce — in encouraging economic development and in inducing institutional changes initiated by new mercantile groups operating outside of royal circles (e.g., Robert C. Brenner, Merchants and Revolution: Commercial Change, Political Conflict, and London?s Overseas Traders, 1550-1653 [Cambridge, 1993]; Kenneth Pomeranz, The Great Divergence: China, Europe, and the Making of the Modern World Economy [Princeton, 2000], and Daron Acemoglu, Simon Johnson, and James Robinson, ?The Rise of Europe: Atlantic Trade, Institutional Change, and Economic Growth,? American Economic Review, 95 (2005), 546-579).? Some have also stressed the dynamic role of Atlantic port cities, London in particular, in bringing together strategically favorable combinations of financial and commercial expertise; skilled, well-paid workforces; and high levels of demand for food, fuel, manufactured goods, and new tropical products (e.g., Robert C. Allen, The British Industrial Revolution in Global Perspective [Cambridge, 2009]; and Acemoglu, et al, ?Rise of Europe?).

Nuala Zahedieh, a senior lecturer in economic and social history at the University of Edinburgh, provides a masterful account of Londoners? central role in facilitating economic development in the later seventeenth century that integrates literatures on colonial empire, commerce, the consumer revolution, and the Industrial Revolution.? A main focus of research is how merchants ?responded to the opportunities and challenges? offered by Britain?s early overseas expansion ?and set in place a durable mercantile system which underpinned both extensive and intensive growth and made the Industrial Revolution more likely?(p. 3).? She sees the later seventeenth century as a critical period when ?the rules of the game were established and the incentive structure that shaped investment and the accumulation of financial and human capital took lasting form?(p. 7).? Readers will find her discussion of the mercantilist system familiar, but less so her argument (developed from long years of research on colonial, especially West Indies, trade) that the seventeenth-century state ?did not have the resources to enforce commercial legislation which seriously raised private costs,? leading her to take evidence of general compliance with the Navigation Acts by the 1680s as ?a measure of increasing convergence between English and Dutch commercial capabilities and costs rather than as a forced shift towards inefficient providers?(pp. 6-7).?

Scholars? relative neglect of London?s later seventeenth-century commerce is understandable given the scarcity of aggregated commercial statistics, the loss of many London portbooks, and the daunting volume of those that have survived.? The Capital and the Colonies employs a systematic analysis of portbooks for 1686 (a peacetime year for which the records survive in full) and more limited samples of data from the 1660s and c. 1700 to provide a detailed statistical portrait of London?s Atlantic trade.? In addition to data on exports and imports, Zahedieh compiled a biographical database of colonial merchants identified in the 1686 portbooks which she uses to trace their careers and trading networks.? Less systematic research in mercantile papers and court records, promotional tracts, and economic literature supplements the portbook materials.? Extensive period illustrations of metropolitan and colonial cityscapes, public and commercial buildings, mercantile publications, ships, manufactories, and plantations lend visual concreteness to the text.

London was unique among European cities in the size of its population and manufacturing sector, its concentration of national political and legal institutions, and in its possession of three quarters of the nation?s merchant fleet, including most shipping devoted to lucrative West Indian and African commerce.? Atlantic trade not only constituted a growing proportion of overall trade, but, Zahedieh argues, had a qualitative significance beyond its actual volume and value in that it encouraged diversification in manufacturing and provided a high proportion of commodities traded in the new re-export sector, enabling London to challenge Amsterdam as Europe?s main redistribution center.

Colonial commerce was distinctive in its competitiveness, in its high transactions costs, and in its requirements for long credits and a high volume of shipping.? These characteristics all encouraged efficiency gains from take-up of best practices and from innovation. The trade was open, unregulated, and conducted by individuals rather than corporations.? As a result it stimulated modernized mercantile education, new associational activities, strenuous efforts to reduce transactions costs (including improvements in sorting, marketing, processing, and distribution of colonial products), and more effective solutions to risk mitigation and problems of trust and poor information (e.g., partnerships, marine insurance, bills of exchange, published price-currents, and multilateral settlements).?

Zahedieh finds increasing concentration of plantation commerce among large merchants specializing in particular commodities and regions in the 1680s, when falling commodity prices and increased taxes eroded profit margins and drove out small traders.? Colonial merchants seldom invested in overseas property, but made a massive contribution to expansion of empire in the form of short-term credit extended to settlers. The larger operators accumulated enough capital to diversify investment into shipbuilding, slave-trading, joint-stocks, insurance, wharves, industry, landed property, loans, and public credit. This decade was a turning point, as merchant concentration and specialization led to improved productivity, economies of scale, and reduced costs.? Zahedieh portrays the attempts of the later Stuarts to corner the profits of empire by restricting free trade among Englishmen as having limited success.? On the other hand, she sees the effect of the Glorious Revolution, not as leading to an economically optimal political arrangement, but as consolidating the capacity of the transatlantic trading elite to enforce regulation in its own interests and enhance ?the value and scale of rent-seeking enterprises at the expense of competition and efficiency? (p. 127), leading to a period of slower growth in colonial trade and shipping at the end of the century.

Unlike trade with Europe, colonial commerce required an unusually large fixed capital investment in the greater tonnage needed to transport large volumes of bulky goods over long distances.? Zahedieh argues that English- and plantation-built ships were better suited to most colonial commerce than were Dutch prototypes, and that it was long-distance commerce, rather than the protection of the Navigation Acts, that revived the English shipbuilding industry.? By 1700 plantation shipping accounted for 40% of London?s overseas trading capacity. Atlantic trade led as well to increased education among mariners in mathematical, mechanical and managerial skills, and expanded the market for navigational instruments.? It also contributed to London?s prosperity by stimulating the construction of wharfs and warehouses, and increasing the scale of naval refitting, repair, and provisioning trades.? Although technology and unit input costs were fairly stable across the period, increased volumes and growing experience with colonial conditions led to organizational improvements which made more efficient use of inputs. Greater awareness of seasonality and the accompanying need for careful timing, along with standardized containers, greater use of marine insurance, and the development of multilateral voyages all led to fuller use of shipping capacity and to reduced costs.

The volume of colonial imports more than trebled between the 1660s and 1700, when they accounted for a fifth of London?s inward trade and a third of its re-export trade to Europe.? And, as Zahedieh?s discussions of the fish, fur, timber, tobacco, sugar, cotton, and dye-stuffs trades demonstrate, merchants achieved efficiency gains in both production and distribution. Plantation products provided incentives to invest in improving skills, techniques, commercial infrastructure, and organization of industry, intensifying use of resources and strengthening manufacturing capacities.? Colonial imports proved a catalyst in changing domestic consumption patterns.? Innovations in retailing expanded aggregate demand, while availability of alternative beverages to beer, such as tea and coffee, along with increased use of sugar in alcoholic drinks and as a food preservative, reduced pressure on the nation?s grain supply.? Colonial imports also supplied industrial raw materials and provided a surplus of exotic commodities that were re-exported to pay for European goods.? Their prominence in domestic trade induced investment in an improved national transport network that reduced not just the cost of plantation products for British consumers, but also the cost of bringing goods to the metropolis.? Processing of colonial products, reserved by the Navigation Acts for the mother country and aided by access to skilled workers and cheap fuels in the metropolis, promoted diversification of the capital?s manufacturing sector.?

Zahedieh considers London?s export trade with colonies — which, fueled by colonists? voracious appetite for English goods and services, grew faster between 1660 and 1700 than did imports — to be equally influential as imports in driving expansion and change.? Included and valued in Zahedieh?s survey are the trades in servants and slaves and freight earnings, exports not listed in the portbooks.? Due to limited markets, high labor costs and skills shortage — rather than mercantilist regulations — colonists remained dependent on the mother country for most manufactures.? The high profits merchants could earn in this most profitable branch of colonial commerce ?focused entrepreneurial attention on different problems from those facing the high-fashion, high-cost, craft industries catering for the London elites? (p. 276).?? Making goods for distant American and African markets encouraged restructuring of industries around bulk production at low unit cost, while the growing re-export trade encouraged investment in new processing industries.? A surge in colonial demand in the late seventeenth century had a radical impact of the volume and character of the English export trade away from traditional wool fabrics to a wider array of textiles and ready-to-wear clothes, as well as metalwares, miscellaneous manufactures, and foods.

This sophisticated study in Atlantic economic history will interest metropolitan and colonial as well as Atlantic scholars, challenging them to take more account of the feedback effects and linkages for economic growth generated by overseas expansion, and the potential role of competitive long-distance trade in a wide array of ostensibly mundane commodities in helping to precipitate the Industrial Revolution.

??? ?
Lorena S. Walsh is the author of Motives of Honor, Pleasure and Profit: Plantation Management in the Colonial Chesapeake, 1607-1763 (Chapel Hill: University of North Carolina Press, 2010).

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

Subject(s):International and Domestic Trade and Relations
Markets and Institutions
Geographic Area(s):Europe
North America
Time Period(s):17th Century

Power and the Governance of Global Trade: From the GATT to the WTO

Author(s):Kim, Soo Yeon
Reviewer(s):Dalton, John T.

Published by EH.NET (December 2010)

Soo Yeon Kim, Power and the Governance of Global Trade: From the GATT to the WTO.? Ithaca, NY:? Cornell University Press, 2010.? xi + 182 pp.? $40 (hardcover), ISBN: 978-0-8014-4886-7.

Reviewed for EH.Net by John T. Dalton, Department of Economics, Wake Forest University.

Commodore Perry.? The Opium Wars.? These two hackneyed examples from the historical record have come to symbolize what Jacob Viner referred to as the interdependence of ?Power? and ?Plenty.?? Both political power and economic considerations determine a state?s incentives and capacity constraints when acting on the world stage.? The distribution of incentives and capacity constraints across states then influences the emergence of commercial contours throughout the globe.? Potential feedback occurs.

In her new book, Soo Yeon Kim, Assistant Professor of Government and Politics at the University of Maryland, analyzes the Vinerian interdependence in the case of global trade patterns during the Pax Americana.? She asks two questions.? First, how did the institutional form of the GATT and WTO emerge?? Second, given this form, are the benefits, as measured by increased trade, to GATT and WTO membership skewed in favor of some countries over others?? The first answer is unsurprising, the second less so.?

Kim?s book consists of two parts, each structured around answering one of her two main questions.? Part of the book?s methodological contribution relates to this division.? The first part of the book uses qualitative analysis to answer the first question about the emergence of the GATT and WTO.? The second part of the book incorporates quantitative methods to measure the impact of GATT and WTO membership on the growth of trade.? This methodological mix contributes mightily to the persuasiveness of Kim?s argument and also ensures the book?s wider appeal to a variety of scholars.? Each part can stand alone if the reader so chooses (indeed, one of the two chapters in the second part is based on a previously published article appearing in World Politics), but taking in the complete product is the more satisfying experience.

Kim?s answer for why the GATT and WTO emerged the way they did will ring familiar for scholars in political economy.? After the power vacuum created by two world wars, the U.S. emerged as the sole economic and political power among industrialized economies.? The architecture supporting the global economy after World War II, including those traditionally cited institutions as the IMF, World Bank, and GATT, was fundamentally shaped by U.S. interests.? These interests were not adopted out of enlightened benevolence but rather out of domestic considerations and the looming fear of cold war.? Kim provides an analytical framework for understanding the role of U.S. interests in the creation of the GATT and highlights numerous incidences in the evolution of the GATT as supporting evidence for this framework.? This part of the book provides a concise overview of the key forces explaining the evolution of the GATT and how these forces continue to define the areas of conflict between WTO members to this day.? Kim?s lucid prose makes the discussion readily accessible to most audiences, and I highly recommend the first part of the book as a source for teaching undergraduates the history of the GATT and WTO.

The case of agriculture exemplifies well the impact of U.S. interests on the GATT and its lasting consequences for global trade patterns.? To be brief, in 1955 the U.S. obtained a waiver to its obligations to reduce barriers on agricultural imports.? Demand for the waiver was a direct consequence of domestic interests seeking extension of protection granted under the U.S. Agricultural Adjustment Act.? The unintended consequence of the U.S. exerting its power to obtain the waiver, however, was that agriculture became the sacred cow for industrialized economies in all future trade negotiations.? The Common Agricultural Policy protecting European agriculture stems from the precedent set by the U.S. waiver.? Agricultural protection remains to this day one of the main sticking points dividing industrialized and non-industrialized economies from further reducing barriers to trade.? Agriculture is the mercantilist trap of the post-World War II era.

For Kim?s purposes, the larger point about agricultural protection is that the GATT and WTO are designed by and for U.S. and industrialized interests.? Does this, however, lead to different outcomes in the form of trade creation for industrial and non-industrial economies when joining the GATT and WTO?? The second part of the book answers this question by using a standard gravity model approach common in the international trade literature.? Gravity models measure the impact of variables like distance, language, GDP, and, in the case of Kim?s book, entry into the GATT and WTO on bilateral trade flows.? Kim finds GATT membership increases trade for only a set of industrial countries.? Non-industrial countries experience no trade benefits from being GATT members.? In the case of the WTO, membership results in increased trade between industrial countries, increased trade between non-industrial countries, but decreased trade between industrial and non-industrial countries.? These results lead Kim to conclude the benefits from GATT and WTO membership are highly skewed towards advanced industrial countries.

The book?s most important finding is the result showing trade actually decreases between industrial and non-industrial WTO members.? Policy makers should be concerned.? This suggests the institutional rules, dictated largely by U.S. interests after World War II, fail to accomplish the stated goals of the organization.? As the failure of the Doha Development Round shows, concerns over these rules remain a significant obstacle to further trade negotiations.? But, Viner would have predicted as much.? The distribution of power and plenty changes.? These changes bring with them uncertainty about the future of international trade policies.????

In summary, Soo Yeon Kim makes a fine contribution to the study of international trade patterns in the Vinerian tradition.? International trade economists in particular would do well to study her methodological approach.

John T. Dalton is Assistant Professor of Economics at Wake Forest University.? His recent research is on the impact of Just-in-Time logistics on the growth of international trade.

Copyright (c) 2010 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator (administrator@eh.net). Published by EH.Net (December 2010). All EH.Net reviews are archived at http://www.eh.net/BookReview.

Subject(s):International and Domestic Trade and Relations
Geographic Area(s):General, International, or Comparative
North America
Time Period(s):20th Century: WWII and post-WWII

Self-Determination: The Other Path for Native Americans

Author(s):Anderson, Terry L.
Benson, Bruce L.
Flanagan, Thomas E.
Reviewer(s):Carlson, Leonard

Published by EH.NET (November 2010)

Terry L. Anderson, Bruce L. Benson, and Thomas E. Flanagan, editors, Self-Determination: The Other Path for Native Americans. Stanford, CA: Stanford University Press, 2006. xv + 332 pp. $39 (cloth), ISBN: 978-0-8047-5441-5.

Reviewed for EH.Net by Leonard Carlson, Department of Economics, Emory University.

?
This is an interesting collection of ten essays about Indian tribes and their relationship with the federal governments in the United States and Canada.? All of the papers analyze the issues from a property rights and political economy (public choice) perspective.? The essays consider contemporary and historical issues in both the U.S. and Canada.? As the title of the volume suggests, most conclude that what is needed is more self-determination by Indians (as individuals or as tribes).? This often involves determining what policies create the right incentives through property rights.?

In the introduction, Douglass North calls for the examination of Indian societal performance in light of externally imposed rules as well as internal tribal rules and norms.? He argues that this can yield insights that will be useful understanding other societies as well.? In the first essay Craig Galbraith, Carlos Rodriquez and Curt Stiles argue that Indians respond to incentives and were interested in individual wealth and utility maximization.? In this view, Indian societies created institutions that provided implicit property rights which tried to guide Indian societies to make good use of their resources.? Many scholars, they argue, follow a ?false myth? that Indians were different from other people and placed collective values over the individual.?? People trained in economics will find that treating Indians as rational actors who have institutions to solve economic problems is a useful and sensible approach.?

Bruce Benson looks at how property rights were formed among the Plains tribes that adapted to the horse and to hunting the bison (buffalo).? Horses were obtained from the Spanish beginning in the late eighteenth century through trade or theft and marked a major change in how Indians could exploit the abundant food resource provided by the great bison herds.? Horses allowed previously pedestrian hunters, as well as new arrivals like the Sioux (Lakota), to be much more efficient at hunting bison or waging war.? The mounted tribes had private property rights in animals and other mobile goods and tried to establish tribal territorial hunting rights and exclude other tribes.? There were numerous conflicts between nomadic mounted tribes and agricultural tribes that lived in fixed villages and combined farming with hunting bison.? According to Benson?s analysis, nomadic tribes acquired goods from the sedentary tribes, especially corn, by trade or by raiding the villages, depending on the relative cost of each alternative.

Ann Carlos and Frank Lewis have long worked on the trade in beaver skins between native peoples and the Hudson?s Bay Company in northern Canada.? This paper addresses a paradox.? The Cree Indians of western Canada established property rights to valuable fur-bearing animals as described in the seminal work on property rights by Harold Demsetz.? Yet despite these rules, there was over hunting of beaver.? Carlos and Lewis conclude that this was due to cultural norms that allowed others to hunt beaver for food if they needed it, but not for sale.? This cultural norm provided a useful form of insurance, but also led to inefficiencies.

Other papers have more to do with contemporary legal and policy issues.? D. Bruce Johnsen, in ?A Culturally Correct Proposal to Privatize the British Columbia Salmon Fishery,? offers a way to privatize salmon fisheries consistent with Indian traditions.? This seems to be part of an ongoing policy dispute and more background would have helped to put this in context.? In particular, it would help to know what other alternatives have been proposed.?

In ?Customary Land Rights on Canadian Indian Reserves,? Thomas Flanagan and Christopher Alcantara discuss the role of customary land rights among tribes of the Five Nations in Canada.? In Canada, individual member of the tribe have the right to use tribal land on the reserve for their own purposes.? Such land is recognized as the private property of an individual but can only be sold or transferred to another member of the tribe.? This incomplete property right can lead to some degree of inefficiency.? But the authors conclude that the advantages outweigh the costs.? Under this system, the members of the tribe own all land on a reserve.? This enables members of the tribe to benefit from working together, sharing knowledge, and respecting traditions.? In other words, it allows members of the tribe to capture what have been called ?ethnic externalities? and avoid inefficiencies.

Terry Anderson and Dominic Parker?s ?The Wealth of Indian Nations: Economic Performance and Institutions on Reservations? uses regression techniques to test the impact of institutional factors on per capita income on Indian reservations.? They find that stable property rights have a positive impact on performance and rent seeking has a negative impact economic performance.? This is not surprising, but does challenge the notion that Indians behave differently than other people.

In ?Sovereignty Can Be a Liability: How Tribes Can Mitigate the Sovereign?s Paradox,? David Haddock and Robert Miller deal with a problem created by tribal sovereignty.? Since tribal governments have an element of sovereignty, they have the legal authority to change the terms of an agreement with a private corporation later, without the consent of the other party.? Haddock and Miller argue that there are ways a tribe can constrain itself so that an outsider could have it rights protected from this potential post-contractual opportunism on the part of the tribal governments.? This would benefit tribes by making it easier to attract outside investment, since outside investors will know that their investment will not be taken over by the tribe.?

Ronald Johnson, in ?Indian Casinos: Another Tragedy of the Commons,? addresses a high-profile aspect of Indian economic activities ? casino gambling.? The right of tribes to have legalized gambling derives from the Indian Gaming Regulatory Act (1988).? This gives some tribes (but certainly not all) considerable revenues.? But in order to open a casino, a tribe must have the consent of the government of the state in which it is located.? The profits generated by gambling, however, are desired by state governments in search of additional revenue.? As a result there may be conflict over the rents between tribes and state governments.? There is also competition for these rents by groups within tribes, which could potentially lead to waste.? Johnson concludes that ?How well gaming revenues advance the welfare of their individual tribal members and American Indians in general … may take the passing of a generation to answer? (pp 238-39).
?
In ??Doing Business with the Devil:? Land, Sovereignty, and Corporate Partnerships in Membertou, Inc.,? Jacquelyn Scott discusses how a small indigenous community of 1000 people on Cape Breton, Nova Scotia has successfully managed and developed its resources.
?
James Huffman and Robert Miller?s ?Indian Property Rights and American Federalism? is a concluding chapter that discusses the legal basis of Indian property rights in U.S. law.? These rights evolved from treaties with each tribe.? As result the legal standing of each tribe and the overall position of Indians in the federal system has a complicated history and the law is often a bit contradictory.?

I read this book with an eye to whether I could use it in a course, perhaps a special topics course on Indian economic issues.?? My conclusion is that it could be used, but the instructor would need to give students background to understand the controversies and issues discussed in each essay.? Some of the papers directly address a legal or policy opinion in the U.S. or Canada and it would have helped if the editors or authors had provided more background about the issues being discussed.? In particular Canadian law and policy is different in many important respects than U.S. law and some explanation of the institutional differences between the two would be useful.??

Leonard Carlson is an Associate Professor of Economics at Emory University and teaches courses on U.S. and Southern U.S. economic history.? His published work includes papers and a book on the effects of land allotment on American Indians; the politics of the passage of the Indian Removal Act of 1830; and the economic history of the southern U.S.? His most recent paper is ?Similar Societies, Different Solutions: United States Indian Policy in Light of Australian Policy towards Aboriginal Peoples,? in Economic Evolution and Revolutions in Context: Historical Approaches to Social Science, edited by Paul W. Rhode, Joshua L. Rosenbloom, and David Weiman, Stanford University Press (forthcoming).

Copyright (c) 2010 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator (administrator@eh.net). Published by EH.Net (November 2010). All EH.Net reviews are archived at http://www.eh.net/BookReview.

Subject(s):Agriculture, Natural Resources, and Extractive Industries
Economic Development, Growth, and Aggregate Productivity
Markets and Institutions
Geographic Area(s):North America
Time Period(s):19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII

Capitalism, Institutions, and Economic Development

Author(s):Heller, Michael G.
Reviewer(s):Dupont, Brandon

Published by EH.NET (October 2010)

Michael G. Heller, Capitalism, Institutions, and Economic Development. New York: Routledge, 2009. xx + 312 pp. $130 (hardcover), ISBN: 978-0-415-48259-2.

Reviewed for EH.NET by Brandon Dupont, Department of Economics, Western Washington University.

In Capitalism, Institutions, and Economic Development, Michael Heller draws on a variety of classic works in economics and sociology — Max Weber’s work most frequently — to explain institutional change during contemporary capitalist transitions. Heller spends much of the book outlining the theoretical aspects of capitalist transition but also focuses on the policy relevance of these ideas.

Throughout the book, Heller attempts to dispel the notion that developing countries must follow a long and tortuous path to economic and institutional maturity. He reaches this position primarily because he views capitalism as being of only a single form; as a result, there is no need for separate evolutionary paths to be followed in different countries to solve each country’s particular needs. Heller argues throughout that the prevailing incrementalist approaches to institution-building in developing economies are flawed; instead, he proposes what may be considered shortcuts to institution-building on the route to capitalism.

In the first chapter, Heller draws on Weber?s Economy and Society (1978) to discuss the foundations for a theory of “subsystem interactions” in capitalist economies. The complexity of institutional arrangements is clear in this description of the simultaneous effects that lead to institutional integration. The goal is easy enough to describe — it is to reduce uncertainty (or, achieve relative certainty) about organizational or regulatory procedures. Every subsystem has the responsibility of promoting and monitoring the procedural norms of each of the other subsystems.? When innovations occur in one area, the way in which other areas react and adapt determines the success of that innovation.

Precapitalist societies lack the impersonal regulation of the state, an important feature of capitalist economies, even though many have the facade of the impersonal state, particularly through corporate-government alliances as described in Heller’s second chapter. In precapitalist societies, actual decisions are more often made below the surface using ad hoc informal channels according to various personal loyalties which encourage rent seeking and, importantly, all this occurs in the absence of the countervailing powers of true capitalist institutions. Generalized trust is more effective than personal trust as economies mature and transition. The notion of generalized rather than personal trust is not fully incorporated into precapitalist societies and this can impede the transition to capitalism. These kinds of impersonal governing principles are critical in every society because they create a regularity of action and reduce uncertainty.

Heller draws on Max Weber’s scholarship to argue in favor of a limited (what he calls “parametric”) state that is unimpeded by direct pressure from various interest groups and is thus more responsive to citizens. This parametric state leaves “most market decisions to enterprises … resource allocation is mainly by means of the price mechanism … [and the ideal state?s function is to] design and enforce universal rules for the safe and proper structure and conduct of competitive economic action” (p. 43). While the theoretical descriptions are clear, Heller seems to fall short in his explanation of relevant policy for contemporary transitions. Which market decisions should be left to enterprise? What, if any, resource allocation should not be left to the price mechanism? Those questions are, unfortunately, left unexplored.

In the chapter on “The Modern State,” Heller provides the reader with a thorough description of Weber’s views on the legitimate functions of the state, primarily that of legal regulation. This is a nice overview of Weberian theory, including an interesting review of the implications of the theory for the capture of the policy process by “negative interests,” which is linked to the size of the state or to the number of functions it attempts to perform. Heller emphasizes the importance of sequence in the transition and explains the risks associated with democratizing before market freedom, rule of law, and impersonal public administration have fully developed.

The most interesting chapter in the book is on “Law and Economy,” in which Heller argues that since communitarian ethics are abandoned as the transition from closed to open markets occurs, a switch to the law as the ultimate source of trust is important. Weber, as Heller describes, envisioned an ethical transformation that includes both the destruction of ethics that subordinate economic exchange to social approbation by status, kinship, ritual, etc. and the ethic that legitimizes cheating in exchange with people outside the community. Heller includes a clear description of how, at least in Weber’s theory, the ethical principles of fair dealing in exchange are preserved and extended and eventually become broader general social norms of behavior.

The process Weber described, and Heller adopts, is the transition from custom to convention and finally to formal law as society moves from the interpersonal market ethics of precapitalism to formal state enforcement of impersonal rights. With respect to contemporary capitalist transitions, Heller argues that global technological, economic, or political developments may prompt the selection of capitalist norms. While this is consistent with Weber’s hypothesis that normative changes may happen by innovation, it is not clear how or why particularly useful norms of behavior would be “selected” or under what conditions innovation might reasonably be expected to do this.

Heller advocates establishing effective legal frameworks for regulating private business before (or during) market liberalization but notes that historically the reverse has often occurred. He writes that, “Like the ethical norms that precede them, legal mechanisms for the adequate regulation of economic action almost always follow from the expansion of markets” (p. 100).? In a significant departure from the approach generally taken by the World Bank and other international agencies, Heller argues that modern policymakers have erred in attempting to create regulatory order prior to sufficient market liberalization. This contrast is clear when one considers Joseph Stiglitz’s (2000) argument that, It has become increasingly clear that financial and capital market liberalization — done hurriedly, without first putting into place an effect regulatory framework — was at the core of the problem.

In the fourth chapter, Heller describes his framework, which is based more on Schumpeter than Weber, for understanding the often discontinuous process of institutional change during the transition to capitalism. While Schumpeter’s work dealt with entrepreneurial innovation, Heller applies his framework to institutional change during transition as an alternative to incrementalism. In this chapter, Heller provides a typology of four forces of institutional change which he hopes might be harnessed for better economic development strategies. The four forces are: (1) routine equilibrium change, which is the very gradual aggregation of many smaller unorganized changes that slowly and incrementally modify the institutional system; (2) external disequilibrium change, which is the result of discontinuous pressures that originate outside the economy but that reshape the environment in which transition occurs; (3) internal disequilibrium change, which is due to policy innovations in the domestic economy and is the main mechanism for transition; and (4) routine disequilibrium change, which refers to the “continual discontinuity” of institutional change in most capitalist societies. Heller argues in favor of bringing Schumpeterian ideas about disequilibrium endogenous and exogenous institutional changes into the discussion rather than focusing on the “do institutions grow or are they made” question that dominates that discussion. While Heller agrees with Hayek that market order is spontaneous, he tempers this view by drawing on Buchanan?’ (2001) argument that “deliberate design or reform of a legal or constitutional framework is required.” Spontaneous evolution of institutions is not necessarily efficient in the same way that unimpeded markets are in Heller’s view. The rest of this chapter applies the Schumpeterian “institutional progress by entrepreneurial leadership” model to policy in transition. The motives for institutional policy innovations are more complex than the economic motive of profit but are fundamentally still driven by self-interest; specifically, the pursuit of power, status, prestige and public approval.

In the fifth chapter, “Carriers of Change,” Heller asks how knowledge and sequences of institutional change are created and how citizens and leaders can be persuaded to take the capitalist path. As Heller aptly notes, “Capitalism produces almost everything, but not the human feeling that could guarantee its survival” (p. 170). Democracy and free markets are more likely to succeed in contemporary transition when the goal is to change institutional procedural norms, which might be viewed as universally legitimate. Heller argues that capitalist ideology should “keep silent about self-interested economic ends and means and the virtues of Anglo-American society” or run the risk of culture acting as an impediment to transition. In this, Heller draws on both Hayek and Parsons, who believed that to take root, capitalist ideology must appeal to neutral procedural concepts (impersonal norms, pluralism, equality of opportunity, for example) rather than an ideological focus on profit-making or democracy. Heller ends this chapter by presenting a somewhat confusing notion of speeding up the spontaneous order described by Hayek: “In order to obtain spontaneous orders more rapidly … developing societies first need the formal institutions which alone can guarantee the regulated freedom and procedural impersonality that a spontaneous order requires to work its magic” (p. 198). Heller is attempting to add a bit of constructivism to Hayekian spontaneous order — arguing for building institutions that will speed up the processes of spontaneous evolution — with the objective of creating a compromise between the incrementalist and constructivist views of institutional change. Ultimately, Heller sides more with Karl Popper than with Friedrich Hayek, concluding that “Knowledge of capitalism and of its institutions does increase through time, and it could now be time for social scientists to have more confidence in the knowledge that exists” (p. 276).

The sixth chapter discusses the role that crises in developing economies (mostly in Latin America) play in building the institutions of capitalism. While crises are not the best methods for transition, he admits that they do sometimes generate changes that bring a society closer to capitalism. Underlying the discussion in this chapter is Heller?s impatience with incremental institutional reform. He cites work by Grindle and Thomas (1991), who argued that without a crisis, the stakes are too low to generate the desired rapid reform: “the consequences of failing to implement reforms will not be severe, and policymakers lean towards incremental or marginal change” in a non-crisis environment (p. 200). While crisis can motivate change, the ideal path to capitalism for emerging market economies is Weberian in nature with a systematic order of: markets to law, law to bureaucracy and bureaucracy to democracy. Neoliberalism, which Heller defines as proto-capitalist policies that cope with failed state activism by restructuring economies along market lines but without corresponding reforms to the institutional framework of economic regulation, lost the opportunity to build this path.

The seventh chapter deals with how policymakers might go about implementing transition theory in practice. How, Heller asks, might these policymakers translate Weberian theory into workable guidelines for reform? Ideally, Heller would like for all of the reforms to be simultaneously undertaken but he acknowledges that this is not very realistic. Heller describes what he sees as manageable stages of reform that must be sought given the practical difficulties. This chapter starts with a policy priority sequence followed by a sequence that could be followed in crisis-induced transitions and ending with some details on the implementation of reforms in the legal and administrative subsystems.

The final chapter of the book draws on the World Bank’s worldwide governance indicators conducted in 212 countries to argue that transition does not have to occur only very slowly over many generations. While the World Bank report does conclude that “In less than a decade, a substantial number of countries exhibit statistically significant improvements in at least one dimension of governance, while other countries exhibit deterioration in some dimensions,” it is difficult to share Heller’s optimism that transition can proceed as rapidly as he would like based on findings of statistical significance in some countries. Nonetheless, Heller’s closing chapter is a nice wrap-up and highlights many of the book’s strengths.

References:

Buchanan, J. (2000), Moral Science and Moral Order, Indianapolis: Liberty Fund.

Grindle, M. and Thomas, J.W. (1991), Public Choices and Policy Change: The Political Economy of Reform in Developing Countries, Baltimore: Johns Hopkins University Press.

Stiglitz, J. (2000). “Capital Market Liberalization, Economic Growth, and Instability,” World Development, Vol. 28, Issue 6, pp. 1075-86.

Weber, M. (1978), Economy and Society, Berkeley: University of California Press.

Brandon Dupont is Associate Professor of Economics at Western Washington University. His most recent research explores the history of American overseas travel to Europe in the nineteenth and twentieth centuries.

Copyright (c) 2010 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 (October 2010). All EH.Net reviews are archived at http://www.eh.net/BookReview.

Subject(s):Economic Development, Growth, and Aggregate Productivity
History of Economic Thought; Methodology
Markets and Institutions
Geographic Area(s):General, International, or Comparative
Time Period(s):20th Century: Pre WWII
20th Century: WWII and post-WWII

State and Financial Systems in Europe and the USA: Historical Perspectives on Regulation and Supervision in the Nineteenth and Twentieth Centuries

Author(s):Battilossi, Stefano
Reis, Jaime
Reviewer(s):Hoag, Christopher

Published by EH.NET (September 2010)

Stefano Battilossi and Jaime Reis, editors, State and Financial Systems in Europe and the USA: Historical Perspectives on Regulation and Supervision in the Nineteenth and Twentieth Centuries.? Aldershot, UK: Ashgate, 2010.? xiv + 223 pp. $100 (hardcover), ISBN: 978-0-7546-6594-6.

Reviewed for EH.Net by Christopher Hoag, Department of Economics, Trinity College, Hartford, CT.

This volume, edited by Stefano Battilossi (Universidad Carlos III Madrid) and Jaime Reis (University of Lisbon), collects papers presented at the European Association for Banking and Financial History Annual Conference in May, 2006.? Eminent scholars in nineteenth- and twentieth-century financial history prepared papers that were reviewed by anonymous referees.? Each article relates to government intervention in historical western financial markets, though the country and time period varies.? Although the conference occurred before the recent financial upheaval, a few papers investigate issues that rose to prominence during the crisis.? In addition, several papers consider financial regulation after World War II, explicitly connecting historical and modern institutions.

After a careful introduction by the editors, Philip L. Cottrell opens Chapter 1 with a description of bank charter regulation in England from 1820 to 1890.? The English Act of 1826 allowed only lightly regulated entry by joint-stock banks.? After experience with chartering colonial banks and a domestic banking crisis in the 1830s, the Joint Stock Banking Act of 1844 heavily regulated new bank formation.? The Company Act of 1862 removed these restrictions.

In Chapter 2, Paolo Di Martino questions why the Italian and American legal systems delayed or declined to adopt the practice of ?officialism? in England, where public officials managed bankruptcy proceedings including possible debt-discharge.? The author suggests that the Italian system inherited a strong anti-debtor bias from the Napoleonic codes, while the American bankruptcy revision of 1898 was not pro-debtor (as it is commonly viewed) because creditors retained decision-making authority.

In Chapter 3, Eugene N. White hypothesizes that real productivity growth causes information asymmetries which require additional financial regulation.? White then provides a masterful synthesis of American financial regulation from 1863 to the present, with special attention to periods of high productivity growth.? Large productivity increases roughly coincide with major financial reform, so I look forward to empirical evaluation of the hypothesis in future work.

Chapter 4, by Ranald C. Michie, traces government regulation of the London Stock Exchange (LSE) after World War I.? The government used the LSE to maintain exchange rates and to channel investment towards domestic or government securities during the interwar period.? After World War II, the London Stock Exchange submitted to informal regulation from the British government to prevent more intrusive regulation.? But increasing international competitive pressure on the LSE to offer benefits and not costs to membership meant that the LSE could no longer take on a substantial enforcement role.

In Chapter 5, Laure Quennouelle-Corre and Andre Straus recount the relation of the French state to its financial markets over the period 1880-1970.? France restricted financial markets more forcefully than other European powers.? The French government channeled investment into public savings banks, government bonds, and eventually state-influenced commercial bank loans at the expense of private issues and foreign securities.? While the authors acknowledge the difficulty of producing national estimates for France, they use some aggregate point estimates for comparison within France across time as well as cross-country comparison with Britain and Germany.

In a timely Chapter 6, Richard S. Grossman employs a sample of eighteen mostly European central banks to show that central banks that obtained legal supervisory authority over commercial banks were founded about 20 years on average after those banks that did not acquire such authority.? In a subsample of ten banks with supervisory authority, younger banks acquired their powers earlier than older banks.? Current financial reforms grant central banks, such as the Federal Reserve and the Bank of England, additional supervisory authority over commercial banking, continuing the trend toward the unification of bank oversight and monetary authority.

In Chapter 7, Pablo Martin-Acena and Teresa Tortella discuss the development of the research departments of central banks, with a focus on Italy and Spain.? Research departments organized statistical information, created central bank libraries, and hired economists.? I would be interested in learning more about how the institutional structure of research departments influenced monetary policy.

In a prescient Chapter 8, Catherine R. Schenk outlines the reluctance of national regulators to oversee the Euromarket since 1960.? The Federal Reserve and the Bank of England attempted to use the Euromarket to achieve exchange rate goals during the 1960s.? Yet central banks, including the Federal Reserve, extended lender of last resort facilities to the Euromarket without substantial additional regulatory scrutiny.? National central banks remain unwilling to cede oversight of or information about multinational banks to other central banks or to a supernational regulator.? Emergency dollar funding facilities for Euromarkets remain an important modern policy concern, as the lack of regulation assures another future crisis.

Chapter 9, by Piet Clement, reviews the development of the Bank for International Settlements and notes the lack of access to the BIS archives due to a 30 year time lock.? Yet the lack of primary sources provides an opportunity for historians, economists, and policy experts to speculate about the political motivations of the regulatory maneuvers of central banks.? Unfortunately, researchers can probably expect additional delays to access to the BIS archives in order to prevent the dissemination of politically sensitive information.

In Chapter 10, Peter Englund and Vesa Vihriala document the banking and currency crises of Finland and Sweden in the early 1990s.? Using aggregate level macroeconomic data, they suggest that strong macroeconomic shocks and recent deregulation helped to exacerbate the crisis.? They also detail the policy actions of the government and the reactions of the market both before and during the crisis.

Readers interested in qualitative financial historical will enjoy the volume.? The introduction by the editors places each of the chapters in the context of economic research and modern policy, and the individual chapters emphasize presenting novel hypotheses or uncovering important details in financial history.?? With a few exceptions, articles limit data analysis to comparative aggregate statistics.?? These articles remain useful to researchers seeking to understand the institutions discussed by the authors.? The wide range of time periods and institutions means that most readers will come to the volume for a specific chapter, though on perusal most readers will find more than one chapter of interest.? The editors assemble the references conveniently at the end of the volume, rather than after each chapter.

Christopher Hoag, Assistant Professor of Economics at Trinity College, Hartford, recently completed a study of individual bank borrowing under the Aldrich-Vreeland Act of 1914.

Copyright (c) 2010 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator (administrator@eh.net). Published by EH.Net (September 2010). All EH.Net reviews are archived at http://www.eh.net/BookReview.

Subject(s):Financial Markets, Financial Institutions, and Monetary History
Geographic Area(s):General, International, or Comparative
Time Period(s):19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII

Relationship Banker: Eugene W. Stetson, Wall Street, and American Business, 1916-1959

Author(s):Hunt, James L.
Reviewer(s):Ferderer, J. Peter

Published by EH.NET (August 2010)

James L. Hunt, Relationship Banker: Eugene W. Stetson, Wall Street, and American Business, 1916-1959. Macon, GA: Mercer University Press, 2009.? xxv + 386 pp. $35 (hardback), ISBN: 978-0-86554-915-9.

Reviewed for EH.NET by J. Peter Ferderer, Department of Economics, Macalester College.

In August 1919, after months of cloak-and-dagger intrigue, the Coca-Cola Company was taken public in what was at that time the largest business transaction in the history of the South.? The deal was brokered by Eugene W. Stetson of Guaranty Trust Company of New York and involved the sale of $25 million of stock, much of which was purchased at bargain prices by a small group of bank insiders.? Importantly, none of the shares had voting rights.? Rather, control over Coca-Cola rested in a three-person voting trust composed of the company?s president, the owner of a small Atlanta bank which bought a large stake (Ernest Woodruff) and Eugene Stetson.? At the time of his death in 1959, Stetson was the company?s longest serving board member.???

James L. Hunt, Associate Professor of Law at the Eugene W. Stetson School of Business and Economics and Walter F. George School of Law at Mercer University, has written an excellent biography of Eugene Stetson, full of illuminating stories such as these.? The more ambitious objective of the book is to shed light on the practice of relationship banking during the first half of the twentieth century.? Hunt contends that scholars have not fully appreciated the role of the ?human element? in banking history and attempts to address this shortcoming by exploring Stetson?s career.

Hunt describes several features of relationship banking.? First, it involved repeated transactions between banks and their clients over many years.? Second, banks frequently sacrificed short-term gain for the opportunity to provide an array of profitable services to clients in the long-run (e.g., secured loans, underwriting, trust management, foreign exchange).? Third, the relationship banker relied on ?soft? information and had to understand his client?s business at a deep level across many dimensions (i.e., the political environment it operated in, its patents and trademarks, its suppliers and competitors, etc.)? Fourth, the relationship banker was a ?steward of the client?s business, on par with the client?s chief executive officer? (p. 97).? Finally, friendship frequently accompanied the business relationship because it helped build and maintain cooperation.?

One way to understand the economic function of relationship banking is to consider the theory of the firm put forth by Coase (1937) and Williamson (1985).? Given asymmetric information, economic actors have an incentive to construct coordination mechanisms that reduce the likelihood that they will be exploited when goods and services are traded.? In pure market exchange, transactions are one-shot and the trading parties are unable to punish each other for opportunistic behavior by refusing to trade a second time.? In hierarchies, opportunistic behavior is minimized through permanent command relationships between superiors and subordinates.? Between these two extremes lie long-term relationships: ?transactions among otherwise independent economic actors in which the parties voluntarily choose to continue dealing with each other for a significant amount of time? (Lamoreaux, Raff, and Temin, 2003, p. 407).? The desire to maintain the relationship ? and profit from the business opportunities it produces ? curbs the incentive to misrepresent and cheat.?????????

If there is a weakness of this book it is that Hunt does not firmly ground his analysis in the Coasean theory of the firm and say more about the historical circumstances that caused relationship banking to dominate during the first part of the twentieth century.? His basic argument is that the high level of economic instability during this period caused businesses to value greater interconnectedness with banks.? Banks, in turn, served the role of patient creditors and rainmakers in return for corporate control and semi-monopoly power in the pricing of their services.? Using this line of reasoning, one could conjecture that the originate-and-distribute model of banking which has become popular in the past few decades ? and implicated by many in the recent sub-prime financial crisis ? was the result of the Great Moderation.? While there may be some truth to this argument, it seems that a broader set of technological, institutional and ideological forces were at work.?

The real strength of Relationship Banker is Hunt?s biographical treatment of Eugene Stetson, an excellent choice of study for two reasons.? First, his Southern roots (born in Georgia to an officer in the Confederate Army, student at Mercer College in Macon, and successful small-town banker specializing in cotton financing) help illustrate how certain strategically located individuals facilitate the flow of capital across regions by bridging cultural divides.? Guaranty Trust of New York hired Stetson in 1916, not only because he was a good banker, but also because he enabled the bank to develop profitable business in the South.? For instance, his ties to Southern cotton helped Guaranty become the leading American financier of cotton exports during World War I.? Stetson also utilized his Southern connections in the Coca-Cola transaction and other deals.???

The move to New York was not only financially rewarding for Stetson, but it also provided him with the opportunity to promote his vision for the New South, one which emphasized manufacturing over agriculture and local control.? For example, the Coca-Cola transaction kept the company in Atlanta under the stewardship of the Woodruff family ? a move that paid huge dividends for the South in 1979 when the Woodruffs made Emory University one of the richest universities in America with a $105 million gift of Coca-Cola stock.?

The second reason why Stetson?s career is important to study is that he possessed several unique abilities that allowed him to rise from humble beginnings to become one of the most successful relationship bankers of his generation.? According to Hunt, Stetson gained the confidence of other men with his ?knowledge, personality, and willingness to be forceful or conciliatory as conditions demanded? (p. 354).? He is also credited with being one of the first financiers to recognize the value of a ?brand? (Stetson believed that the Coca-Cola brand was four times more valuable than the company?s hard assets).?

Indeed, there is considerable evidence that Stetson was an extremely talented relationship banker.? He rose steadily through the ranks of Guaranty Trust, from vice president in 1916, to member of the board in 1928, to president in 1941, and chairman of the board in 1944.? The list of business titans with whom he built multidimensional and long-lasting relationships included Averell Harriman, J. P. Morgan partner Thomas Lamont, Robert Woodruff, Thomas Watson Sr., and many others.? When Harriman entered politics in the 1930s, Stetson became one of his trusted lieutenants and managed several of his economic interests including W.A. Harriman Securities, Aviation Corporation, and the Illinois Central Railroad.? Finally, Stetson was appointed to a mind-boggling number of corporate boards, spanning a diverse set of industries including banking, insurance, manufacturing, petroleum, soft drinks, carbonation, sugar, textiles, machinery, automobiles, railroads, tobacco, drugs, baking, alcohol, and more.?

Stetson used his strategic position on corporate boards to arrange mergers, joint ventures and simpler deals.? For example, during the 1920s he sat on the boards of Coca-Cola, Air Reduction Company (which supplied carbonation to Coke), Cuban Sugar (a producer of one of Coke?s main ingredients), and Canada Dry Ginger Ale (Coke?s competitor).? Like a telephone switching station or the hub of a wheel, Stetson connected these firms for their mutual gain.?

It is widely acknowledged that transportation and communication networks played a fundamental role in American economic development by expanding the size of the market and allowing firms to exploit economies of scale.? Hunt?s analysis is important because it helps us understand how human networks complemented these physical ones.? While relationship banking could lead to cronyism, it also had considerable potential to reduce asymmetric information problems by leveraging reputation.? Eugene Stetson?s career makes this point clear.??????????

References:

Coase, Ronald. ?The Nature of the Firm,? Economica, Vol. 4, No. 16, (November 1937), pp. 386-405.

Lamoreaux, Naomi R., Daniel M. G. Raff, and Peter Temin, ?Beyond Markets and Hierarchies: Toward a New Synthesis of American Business History,? Vol. 108, No. 2, American Historical Review, (April 2003), pp. 404-32.

Williamson, Oliver. The Economic Institutions of Capitalism, New York: The Free Press, 1975.??

J. Peter Ferderer is Professor of Economics at Macalester College in St. Paul, Minnesota.? He is currently working on a book which examines the development of the over-the-counter securities markets over the past two centuries.

Copyright (c) 2010 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 (August 2010). All EH.Net reviews are archived at http://www.eh.net/BookReview.

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