is owned and operated by the Economic History Association
with the support of other sponsoring organizations.

In the Shadow of Adam Smith: Founders of Scottish Economics, 1700-1900

Author(s):Rutherford, Donald
Reviewer(s):Paganelli, Maria Pia

Published by EH.Net (July 2013)
Donald Rutherford, In the Shadow of Adam Smith: Founders of Scottish Economics, 1700-1900. New York: Palgrave Macmillan, 2012. vii + 344 pp. $40 (paperback), ISBN: 978-0-230-25210-3.

Reviewed for EH.Net by Maria Pia Paganelli, Department of Economics, Trinity University.

Donald Rutherford?s In the Shadow of Adam Smith presents the intellectual wealth of Scotland which generated a large number of economic thinkers who have often been undeservingly overlooked, because of the towering presence of Adam Smith.? The book is an important contribution to the literature on Smith, on the history of economic thought, on Scotland?s intellectual history, as well as, indirectly, on the evolution of ideas more generally.

Smith is generally such an immense figure that we may be tempted to think of him as the only voice of eighteenth century Scotland as far as economics is concerned. Attempts to moderate Smith?s grandeur remind us that he may have just systematized previous knowledge. Rutherford offers us the context in which Smith?s presence grew and his legacy developed. He offers us insight into the wide economic knowledge that Smith used (or did not use), added to (or not), and of which he is (just a) part.

The scholarship present in the book is remarkable, even more so because the book is organized by topic, rather than by time or by authors. The topics covered are trade (international trade, exchange economy, value); money (functions of money, paper credit, banking); public finance (functions of government, taxation, national debt); condition of the people (population, property rights and rent, profits and wages, poverty); condition of the economy (economic growth, economic development); and economic ideology (natural liberty, socialism). And to this, Rutherford adds an appendix with biographical sketches of the major Scottish writers.

Most of the topics chosen bring to light both the strengths and the weaknesses of vision of Smith, given what was written before, during and after his life. Rutherford brings to life the complexity of the debate in Smith?s time and links the complexity of those debates to today?s debates in the literature. I will give an example of both: the debate on population and the debate on poverty.

Smith?s stature seems to shrink a bit when inserted into the complexity of population growth debates. According to Rutherford, Smith, like Richard Cantillon, thought that changes in population were linked to changes in labor demand: higher labor demand would lead to a growth in population. But Smith?s ideas, like those of the writers before him, were based on not much more than speculation, at least for Scotland. The first Census was legislated in 1800. Yet, Alexander Webster (1707-84) started to count the population of parishes and offered an estimate of the population of Scotland in 1750 (1.265 million). Webster was a friend of Robert Wallace (1697-1771), ?the great precursor of Malthus? (p. 151). Hodges (1703), Hutchinson (1755), Ferguson (1767), Kames (1778), Anderson (1782), and Dunbar (1789) seemed preoccupied with a declining population, such as in (the North of) Scotland because they believed that the strength of a country consists in its people, and that population decline is a symptom of unhappiness caused by problems with both subsistence provision and political arrangements.? The opposite fear, of overpopulation, given the slow growth of means of subsistence, was addressed by Lindsay (1736) and Murray (1758). Wallace and Hume debated whether population had increased (Hume) or decreased (Wallace) since ancient times, focusing on moral reasons (government, wars, debauchery, luxury). William Hazlitt (1807) claimed that Wallace was the main source for Malthus (Malthus adds Smith and Hume to Wallace as his sources). James Steuart added his voice to this debate (1767), which included also William Ogilvie (1781), Alexander Campbell (1796-1870), Dugald Stewart (1840), Chalmers (1832), Craig (1814), Grahame (1816), Samuel Read (1829), Ramsay (1836), Alison (1840), and Burton (1849). The general picture that Rutherford offers is that from Scotland we have sophisticated theories of population which rely less on subsistence and more on social and psychological forces, theories which should be seen under their own light outside Smith?s shadow.

Rutherford also offers some short yet pungent engagements of old debates with current debates on Smith. For example, Rutherford tiptoes around the idea that Smith is not as much in favor of the poor as some may describe him today. Smith?s analysis is claimed to be more psychological and his remedies less explicit than some of his fellow Scots. Rutherford mentions Andrew Fletcher of Saltoun (c.1653-1715) who proposed an ?adopt a poor? plan for the rich which provided the ?adopted? poor with a form of slavery cum legal protection. Francis Hutcheson, Smith?s ?never to be forgotten? teacher, suggested that the state should compel the poor to work and to educate their children.? The problem of the idleness of the poor was addressed by David Black (1705), Lindsay (1736), Sinclair (1790), and Craig (1814): public relief encourages idleness; therefore the poor should be given jobs, even useless jobs, in the government sector or in the private sector and paid by government subsidies. The poor could also be given cheap food (Steuart 1769), some land (Ogilvie 1781, Archibald Alison 1840), a one-way ticket to a foreign place, such as North America (Earl of Selkirk 1805, Archibald Alison 1840, Burton 1841), incentives to save in a saving bank (Henry Duncan 1816), charity (Chalmers 1821), or some English-style-like Poor Laws. Samuel Read (1829) proposed a realistic national scheme and is presented as the real champion of the poor. In this context, Smith?s suggestion of labor mobility to solve the problem of poverty and his contemptuous descriptions of the poor seem, Rutherford appears to imply, to somehow weaken Rothschild?s (1992) claim that Smith was a friend of the poor.

With the exception of a section on the invisible hand Adam Smith remains in the background. The section on the invisible hand, on the other hand, feels underdeveloped mostly because it is only about Adam Smith. The rest of the analysis of Smith?s idea remains mounted among other Scottish thinkers.

My only regret about this book is that Scotland is not put into context. Granted, this may require a completely different project. Yet, at least a hint of where Scotland stood compared to the rest of the world of economics, even if only in terms of the number of economic publications compared to other countries, would have completed the picture. This remark should not take away anything from the strengths of the book. As it provides us with detailed economic debates over these two centuries, this volume is a useful and stimulating tool for eighteenth and nineteenth century scholars and scholars of ideas and of their evolution.

Maria Pia Paganelli is co-editor of the Oxford Handbook of Adam Smith (2013).

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

Subject(s):History of Economic Thought; Methodology
Geographic Area(s):Europe
Time Period(s):18th Century
19th Century

Anticipating The Wealth of Nations: The Selected Works of Anders Chydenius (1729-1803)

Author(s):Jonasson, Maren
Hyttinen, Pertti
Reviewer(s):Eloranta, Jari

Published by EH.Net (November 2012)

Maren Jonasson and Pertti Hyttinen, editors, Anticipating The Wealth of Nations: The Selected Works of Anders Chydenius (1729-1803). Translated from the original by Peter C. Hogg. London: Routledge, 2012. xxv + 382 pp. $130 (hardcover), ISBN: 978-0-415-55133-5.

Reviewed for EH.Net by Jari Eloranta, Department of History, Appalachian State University.

?Freedom never exists without causing us to desire it once we know of it: our desires guide us in all our actions? (Anders Chydenius, 1763, p. 101 in this volume)

Anticipating The Wealth of Nations
is a collection of the most important writings of Anders Chydenius, eleven texts in total, while a full five-volume set of his complete works (about 85 texts in total) will be published in the coming years in Finnish and Swedish (and later online). Who was Anders Chydenius? He was an eighteenth-century Finnish-Swedish clergyman, writer, and political philosopher, whose ideas are often compared to those of Adam Smith. The texts are aligned with some of his key interests, such as Swedish politics of the time, freedom of information, occupation, and religion, as well as broader economic issues of the time. Moreover, the book features an excellent introduction by one of the best known Nordic economic historians, Lars Magnusson. Each of the original texts is followed by a brief commentary by him as well.

As Magnusson points out in the introduction, Chydenius is often, unfairly so, solely compared to Adam Smith and his monumental achievement, An Inquiry into the Nature and Causes of the Wealth of Nations (1776), especially since Chydenius? writings preceded Smith?s. In fact, both were influenced by eighteenth-century economic and political thought, for example the French Physiocrats, with Chydenius more so than Smith. There are many similar themes in their writings, ranging from ideas about freedom of thought and liberty to more practical economic issues and policies. However, as a whole, Chydenius? writings are less theoretical by nature and perhaps also a bit more practical as policy statements.?

This review can only scratch the surface of these works, presenting some examples of the economic ideas in the writings (especially the text called The National Gain). For a fuller picture, I urge all scholars of the history of economic thought to peruse the book on their own. Moreover, I will not go into great detail about the life and personal history of Chydenius, beyond a brief biography, since that is also not the main contribution of this volume.

Anders Chydenius was born in 1729 in Sotkamo, Finland, to a middle-class family, as his father was the rector of a large parish in Northern Finland. Anders also became very accustomed to a rural lifestyle; something that profoundly influenced his worldview in later life. Finland at the time was a part of Sweden, a state of affairs that had lasted for over 500 years. This was also the heyday of mercantilism, an ideology aimed at maximizing exports over imports and emphasizing the state?s control over economic affairs in the realm. In this case that meant that all foreign trade had to go through the so-called staple towns, and Finland only had a few of those in the south and Northern Finland had none until 1765. This was often perceived to be an unjust system in the more peripheral parts of the nation, and certainly influenced Chydenius? thinking on economic policy, up until his death in 1803.

Politics became a natural outlet for Chydenius after his university studies. Eighteenth century Sweden was a fertile ground for ideological debates, given the expansion of the universities and the more flexible ideas about democracy, not to mention the intense competition between the two main political parties (the so-called Hats and Caps). University life exposed him to new and radical ideas, and he concentrated on the study of philosophy and religion. Ultimately this led to his selection of profession and employment as a preacher, initially under his father?s supervision, and later his own appointment as a chaplain and finally the rector of a parish.

Anders became fluent in both Finnish and his native Swedish when growing up, which helped him during his political and religious career, and exposed him to a wider circle of influences. His political awakening seems to have culminated in the early years of the 1760s, when he had secured an occupation for himself in the clergy. For example, he participated in essay writing contests that brought him some attention. When he participated in the Diet (the Swedish Parliament) in 1765-66, he garnered even more attention as a keen writer and supporter of economic and political freedoms. This also got him in trouble with some powerful political players (particularly due to his views on monetary policy) and he was expelled from the Diet. Chydenius? political career remained tumultuous up until the late 1770s. However, during the later years of his life he remained politically active and occasionally was a member of the Diet as well.

Why was Chydenius controversial? Some of his writings certainly hit a nerve as far as the ruling parties were concerned, for example on the issue of censorship. Chydenius was himself a target for censorship on several occasions, which made him an even more ardent supporter of free speech. As he wrote in 1765, ?the liberty of a nation is preserved not only by the laws but by public information and knowledge as to how they are being administered? (p. 221). He wanted to make sure that no single individual would be given the singular power to censor political discourse. His fairly practical solution to this was to expand the number of individuals engaged in censorship by forming a larger body, scientific or literary, to make the decisions. This is the issue that also got him in trouble with some of his peers and political opponents.

While he expressed his views on economic issues in several essays (for example, in the essay on why Swedes were emigrating from the country, see the quote in the beginning of the review ? he also warned societies of not focusing too much on armed enemies rather than enemies within, see p. 124), The National Gain is the most important of his writings in regards to his economic philosophy. The National Gain was presented to the Estates in 1765, and it contained many themes similar to Smith?s 1776 masterpiece. There were, however, important differences as well. First, Chydenius? ideas were less clearly articulated as a cohesive theory; in contrast, he presented an interesting mix of rather abstract principles and certain clear policy recommendations. Second, Chydenius was much more influenced by the French Physiocrats, and his opposition to the staple towns was tied to the idea of giving rural communities a more equal footing in the economic system.??

?That every individual nation pursues profit as the chief aim of its economic and political regulations is incontrovertible, but if we consider the means that each has adopted to achieve that, we observe an incredible variety? (p. 142). Is this the famous ?invisible hand,? in its preliminary form? Not quite, at least explicitly. Chydenius did articulate some ideas that would feature prominently in the writings of Smith and David Ricardo. For example, he discussed the idea of an absolute advantage in similar terms, highlighting that ?each individual will of his own accord gravitate towards the locality and the enterprise where he will most effectively increase the national profit, provided that the laws do not prevent him from doing so? (p. 145). He frequently discussed ?free enterprise? and ?industriousness? as useful forces in shaping an economy, although he did not advocate completely free markets rather than ?order;? i.e. less invasive, yet firm governmental oversight of the economy (p. 156). For him, allowing the freedom of occupation and enterprise would lead to beneficial outcomes, as for example merchants would know best how to conduct their business ? if they were to try to extract exorbitant rents, their competitors would drive them out of business (p. 158).

Chydenius argued that freeing up trade and occupations would increase ?national profit? as well, going directly against the existing mercantilist orthodoxy. Freedom for all occupations would, in his view, guarantee the largest ?national profit,? since profit-seeking in all occupations would lead to the greatest efficiency; even though he did not use the word ?efficiency? directly (p. 162). While Chydenius? thinking emanated from a fairly practical place, namely the aim to improve the rural economic communities and existence (similar to Physiocrats, who were against luxury consumption and profit, the latter being one of the favorite themes of Chydenius as a beneficial force), he formed an abstract synthesis that was in many ways similar to Smith. Both were influenced by eighteenth-century thought and writings, which makes this less surprising. However, it is quite interesting that Chydenius articulated many themes and concepts similar to Smith prior to 1776. While that is important, we should not confine Chydenius to some sort of a footnote of history, a ?pre-Adam Smith.? His writings addressed many societal and economic themes, often going beyond the moral philosophy of Smith. On the other hand, he did not present a coherent philosophical construct like Smith, which explains why his influence was much more limited (and language certainly played a role as well).

On the whole, Chydenius was an important eighteenth-century contributor who offers us a window into Nordic economic and political thought and helps us understand why and when The Wealth of Nations was created, giving us a more nuanced view of the time period. I would recommend this volume to all those interested in eighteenth-century economic thought and theory. This book is well organized and thought out, and the commentaries by an expert will help non-Nordic readers by providing more context to the texts. The future publications of the full volumes will certainly give us an even better view of Chydenius and the time period. Hopefully many of those texts will be made available in English as well, so a broader audience will be exposed to these writings.

Jari Eloranta is an Associate Professor of Comparative Economic and Business History at Appalachian State University. His publications include several articles and edited volumes on military and government spending, trade and conflicts among smaller nations, and Nordic economic and business history. He is currently working on several projects related to these research areas.

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

Subject(s):History of Economic Thought; Methodology
Geographic Area(s):Europe
Time Period(s):18th Century

Economists in the Americas

Author(s):Montecinos, Verónica
Markoff, John
Reviewer(s):Boianovsky, Mauro

Published by EH.Net (January 2012)

Ver?nica Montecinos and John Markoff, editors, Economists in the Americas. Cheltenham, UK: Edward Elgar, 2009. xx + 341 pp. $155 (hardcover), ISBN: 978-1-84542-043-7.

Reviewed for EH.Net by Mauro Boianovsky, Department of Economics, Universidade de Bras?lia.

Largely thanks to Bob Coats?s (1924-2007) pioneering studies about the sociology and professionalization of economics, research about the emergence of economics as a discipline and the development of the contexts and institutions in which economists act have become an important area in the history of economic thought. One should expect that the subject would attract also the attention of social scientists such as sociologists and political scientists. Economists in the Americas, edited by sociologists Ver?nica Montecinos and John Markoff (from Pennsylvania State University and University of Pittsburgh, respectively), offers a detailed investigation of the history of the economics profession in the Americas in the form of case studies of a representative set of Latin American countries (Argentina, Brazil, Chile, Colombia, Mexico and Uruguay) plus one chapter about the United States.? Coats focused on North American and British economic thought; a couple of Latin American case studies (particularly about Brazil, by Paulo R. Haddad and Maria R. Loureiro, whose essay is partly reproduced in the volume under review) can be found in the 1981 and 1997 collections edited by him for the History of Political Economy (HOPE) about economists in the government and the internationalization of economics after 1945. Economists in the Americas, as acknowledged by the editors, adds to Coats?s path-breaking research and follows his lead and inspiration.

Although the essays assembled in the book offer much valuable information about the historical evolution and consolidation of economic epistemic communities in the Americas throughout the twentieth century, their main goal is rather to understand the factors behind the paradigm shift that took place in Latin American economic theory and policy between the 1970s and 1990s. It was a doctrinal change expressed as a clear move from ?developmentalism? or ?structuralism? towards what was named (mostly by its critics) ?neo-liberalism.? Instead of state-led import-substituting industrialization, economists shifted to a ?more market, less state? view, and promoted free-market reforms in order to implement it. As the editors explain, the book had a long gestation period; early versions of the chapters were presented at the 2001 meetings of the Latin American Studies Association held in the U.S. This probably explains why editors and contributors do not take into account another volume that addresses the same issue about doctrinal change (FitzGerald and Thorp 2005).? There is a significant overlap between those two books, although the volume edited by FitzGerald and Thorp, based on a conference held in Oxford in 2000, is not dominated by case studies (there are just two, on Colombia and Mexico), featuring contributions by economists, historians and a political scientist. Only one of the contributors to Economists in the Americas is an economist, two are political scientists and the other six are sociologists. Moreover, regarding nationality, four are Latin Americans ? one of them (Montecinos) affiliated to a North American university ? and the others are North Americans. The first discussion of the paradigm shift in Latin American economics came out, however, in an article by Albert Fishlow (then in UC? Berkeley?s Economics Department) as far back as 1985. And it is still attracting the attention of the literature on Latin American economics (see Ocampo and Ros 2011).

As documented by the case studies, the origins of economics as a separate profession in Latin America ? despite the fact that there was already some economic literature and teaching at the end of the nineteenth and beginning of the twentieth centuries, when a broad liberal outlook prevailed ? can be traced to the 1930s and 1940s. The early generations of economists in the region were generally associated with nationalism and protectionism, a tendency that would be much reinforced after CEPAL (the United Nations Economic Commission for Latin America) was established in Santiago in the late 1940s. This started to change in the mid 1970s, especially in Chile, where a cooperation agreement had been signed in 1955 between the University of Chicago and the Catholic University of Santiago. The so-called ?Chicago Boys? (Chilean economists with Chicago Ph.D. training) came to dominate economic thought and policy in Chile. Initially associated with Pinochet?s authoritarian regime, Chile?s market reforms and their effects on the economy became even more visible after the return of democracy in the 1990s. From that perspective, the economic neo-liberal movement started in Chile even before Ronald Reagan and Margaret Thatcher made it a key element of their respective government agendas in the U.S. and the UK. However, as far as Latin America as a whole is concerned, the collection makes clear that the main fact determining the paradigm shift was the Mexican default of 1982 and the ensuing debt crisis that affected most countries in the region for the rest of the decade. That was the turning point for economic policy and thought in Latin America, when the indigenous approach represented by structuralism was largely abandoned and replaced by the international prevailing economic doctrines. One of the main contributions of the comparative essays collected in this volume is to show the increasing role of Latin American economists as members of national political elites on one side and of the international economic community dominated by North American economics on the other, which has provided much of the source of their domestic power.

Paradoxically, as argued by Marion Fourcade in her chapter about the United States, although economics has played an essential role in North American economy and society, the political influence of economists in that country has been much lower than for their Latin American colleagues in their own nations. This is due, in her view, to the fact that U.S. economics has acquired its status through its association with science and its attempted separation from politics. That chapter offers a brief discussion of changes in North American economics after the end of the Keynesian consensus in the early 1970s, but the reader must look elsewhere in order to understand the complex rise of free market economics and the dramatic change in the economists? perception of the role of the state between the 1970s and 1990s (see Backhouse 2005), which have had a strong influence in Latin America and other regions. True enough, neo-liberalism has not gone unchallenged in countries such as Brazil, where there has been a polarization between orthodox Americanized economic institutions and heterodox ones, as documented in the chapter about Brazil. However, as made clear throughout the book, this has not threatened the broad consensus view on ?sound economic fundamentals? such as trade openness, fiscal discipline, and transparent and steady monetary policy shared by most economists in the region and originally laid out by John Williamson in the early 1990s as part of what he famously called the ?Washington Consensus.?

Finally, according to the lengthy editorial introduction, Latin American economists have contributed relatively little to economics worldwide, as judged by names listed in the Who?s Who in Economics. The editors (see p. 7 of the book) tried to extend the exercise to the field of history of economic thought, by assessing articles published by Latin American scholars (or about Latin American economics) in HOPE and the Journal of the History of Economic Theory (JHET) between 1985 and 2005, with the conclusion that hardly any articles belonging to those categories appeared in those journals. They reached that result by studying a sample of years for HOPE (1985, 1990, 1995, 2000 and 2005) and JHET (1990, 1995, 1998, 2000 and 2005). This is a very doubtful methodology, which makes it hard to interpret their results. Whereas it is probably true that articles by Latin American authors or about Latin American history of thought are relatively few, the set is certainly higher than measured by that kind of exercise. But this is just a quibble in this fine collection about the recent dynamics of the economics profession in the Americas, which is hoped to increase the conversation between social scientists and historians of economic thought.


Backhouse, R. (2005), ?The Rise of Free Market Economics: Economists and the Role of the State since 1970,? in The Role of Government in the History of Economic Thought, ed. by S. Medema and P. Boettke. Supplement to Vol. 37 of History of Political Economy.

Coats, A.W., editor (1981), Economists in the Government: An International Comparative Study, Durham, NC: Duke University Press.

Coats, A.W., editor (1997), The Post-1945 Internationalization of Economics, Durham, NC: Duke University Press. Supplement to vol. 28 of History of Political Economy.

Fishlow, A. (1985), ?The State of Economics in Latin America,? Economic and Social Progress in Latin America, pp. 131-59. Inter-American Development Bank.

FitzGerald, V. and R. Thorp, editors (2005), Economic Doctrines in Latin America: Origins, Embedding and Evolution, London: Palgrave Macmillan.

Ocampo, A.J. and J. Ros (2011), ?Shifting Paradigms in Latin America?s Economic Development,? in Handbook of Latin American Economics, ed. by Ocampo and Ros. Oxford: Oxford University Press.

Mauro Boianovsky is Professor of Economics at Universidade de Bras?lia. His research focuses upon the history of macroeconomics, monetary theory and development economics. He is the co-author, along with Roger Backhouse, of Transforming Modern Macroeconomics: The Search for Disequilibrium Microfoundations, 1956-2003, Cambridge University Press, forthcoming (2012).

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

Subject(s):History of Economic Thought; Methodology
Geographic Area(s):Latin America, incl. Mexico and the Caribbean
Time Period(s):20th Century: Pre WWII
20th Century: WWII and post-WWII

The Decline of Jute: Managing Industrial Decline

Author(s):Tomlinson, Jim
Morelli, Carlo
Wright, Valerie
Reviewer(s):Stewart, Gordon

Published by EH.Net (January 2012)

Jim Tomlinson, Carlo Morelli and Valerie Wright, The Decline of Jute: Managing Industrial Decline.? London: Pickering and Chatto, 2011.? xiii + 219 pp. $99 (hardcover), ISBN: 978-1-84893-124-4.

Reviewed for EH.Net by Gordon Stewart, Department of History, Michigan State University.

This superb book deserves to be considered for a prize. It is a close-grained account of the jute industry in Dundee from the 1940s to the 1980s but it is much more than that. In the course of their study of the decline of one industry the authors lay bare some of the fundamental economic, social, and political forces that shaped post-war Britain, and illuminate the complex impact of globalization on the manufacturing sector of the British economy. Many books on such topics end up by focusing on one aspect of the story ? whether it be the role of capital, government policies, strategies of employers, or the responses and actions of workers. The three authors deftly bring together every dimension. The narrative and analysis move easily from women workers, who dominated the jute labor force until the late 1950s, to the policy deliberations of civil service mandarins at the Board of Trade, while fully acknowledging the ultimately inescapable pressures exerted by the international macroeconomic environment. Valerie Wright?s sure exposition of the complex gender issues at play among the workers sits informatively alongside the economic and policy analyses of Jim Tomlinson and Carlo Morelli. It is a remarkable achievement for three authors to produce such a coherent narrative, and a ringing tribute to the benefits of collaborative scholarship.

At first sight the jute industry seems an unpromising candidate for addressing significant issues in modern British history because it was entirely localized in Dundee and surrounding district. But the authors argue that ?jute?s extreme localization makes it ideal for a case study? (p. 2).? What happened in Dundee?s jute industry is a fascinating local story but it also speaks volumes about what happened to the manufacturing economy in much of Western Europe and North America in the decades after World War II. The relentless erosion of manufacturing has been particularly visible in the case of the United Kingdom as the great staple industries which had underpinned Britain?s economic prowess in the heyday of its empire struggled to survive in the post-war decades. In the capable hands of these authors the themes examined in this study resonate with changes taking place in the world economy today and help us better understand what happened in hundreds of urban settings in Western Europe and North America in the past fifty years.

The authors challenge the widely-held view that a distinctive cultural pathology explains Britain?s post-war industrial decline. This cultural approach, they insist, ?leads to moralistic and often unhistorical judgments? (p. 4). Instead of using the tempting magic key of an anti-industry ethos in English culture the authors embark on an ambitious analysis that ranges from assessments of Britain?s place in the international? economy, to the decision-making of individual firms, from workers? strategies for survival and improvement, and to the ideological and policy debates in the corridors of Whitehall. All these elements are satisfyingly brought together as the authors assess the story from the perspective workers, employers, and governments.

The surprising conclusion to their research is that decline was ?successfully? managed in the case of jute. The success depended on the interaction of three factors. First, the jute industry was sheltered from cheap imports by the state. This was not achieved through the imposition of new tariff barriers or by actual quotas, both of which would have been prohibited by the General Agreement on Tariffs and Trade to which Britain was a party after 1947, but by the continuation of the Jute Control system that had been set up during the war. As Lord Swinton tried to explain to a befuddled Winston Churchill (a former M.P. for Dundee) in 1952, Jute Control operated a ?cumbrous control system under which the Ministry of Materials imports jute goods and sells them at an artificial price related to the cost of manufacture in Dundee? (pp. 122-23). This state protection, initiated by the 1945 Labour Government, was continued by its successors down to the 1970s.? Second, in return for this degree of state aid the jute firms agreed to company consolidation to make themselves more efficient, to increase labor productivity, and to cooperate in developing new fibers and goods. Third, unions and management put behind them the bitter relationship that had characterized the industry for much of its history and had come to a head in the dismal decade of unemployment in the 1930s.? In this new collaborative atmosphere ?employers, unions and the city spoke with one voice? (p. 160). As a result of these strategies, and the brief presence in the city of multinational corporations like NCR and Timex, decline was staved off. There was relative ?full employment? in the city down to the 1970s.

All this came to an end in the 1980s. The American multinationals began looking for cheaper and more subservient labor in Asia, and the Thatcher government launched its assault on the elaborate post-1945 apparatus of state support for British industry. In this new environment of ?free markets? and unfettered globalization Dundee finally lost out to the jute industries in Bangladesh, India, South America and other cheaper-labor regions of the world. By the 1990s jute had disappeared from Dundee. That disappearance raises the obvious question of why the authors can claim successful management of decline. The answer gets at the nature of history itself. If one looks at the final outcome by the 1990s then there was no success but being content to describe the past in that easy way gives an inaccurate picture of what Dundee was like from the 1940s to the 1970s. The authors believe that they have provided a truer picture of that era in Dundee?s jute industry. By extension they ask for a comprehensive re-thinking of how the industrial decline of Britain has been treated by historians.

The authors even go so far as to claim that Dundee enjoyed a ?Golden Age … in the 1950s and 1960s? (p. 162). That phrase evokes the work of another great historian of contemporary Europe. Shortly before his death Tony Judt wrote in evocative terms about the Britain he knew in his youth. It was a time and place where government policies to manage the economy helped achieve a fairer distribution of wealth than we now have, and where social and educational policies were deployed to enable those not lucky enough to be born into the ruling classes to make their way up the economic ladder. This is the world we have lost according to Judt. Since the 1980s ?free market? ideologies and individualist attitudes have worked their malign influence on the poor, uneducated and marginalized, as the top tranche of society has flourished. It is easy to fall in love with Judt?s idyllic picture of post-war Britain but this book reminds us of the labyrinthine policies that were needed to sustain the comforting sense of community.
That such big questions about modern British history, and, indeed, history in general, can be raised when reading this book testifies to the power of this first-rate study of the city of jute.

Gordon Stewart is the author of Jute and Empire: The Calcutta Jute Wallahs and the Landscapes of Empire (Manchester University Press, 1998).

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

Subject(s):Economic Planning and Policy
Industry: Manufacturing and Construction
Geographic Area(s):Europe
Time Period(s):20th Century: Pre WWII
20th Century: WWII and post-WWII

Economics of Good and Evil: The Quest for Economic Meaning from Gilgamesh to Wall Street

Author(s):Sedlacek, Tomas
Reviewer(s):Nelson, Robert H.

Published by EH.NET (July 2011)

Tomas Sedlacek, Economics of Good and Evil: The Quest for Economic Meaning from Gilgamesh to Wall Street.? New York: Oxford University Press, 2011. xii + 335 pp. $28 (cloth), ISBN: 978-0-19-976720-5.

Reviewed for EH.Net by Robert H. Nelson, School of Public Policy, University of Maryland.

Economics of Good and Evil was originally published in Czech in 2009.? To the admitted surprise of its economist author, Tomas Sedlacek, it sold more than 50,000 copies and was turned into a popular play with sold-out audiences at the Czech National Theatre in Prague.? Sedlacek served as an economic advisor to the first Czech President, Vaclav Havel (who contributes a Foreword), writes a popular Czech newspaper column, and is a member of the Czech National Economic Council.? He adapted the original Czech version to English so this new Oxford University Press edition is not merely a translation.

The best-selling status of Economics of Good and Evil is perhaps best understood as reflecting an ongoing Czech search for a new national religion to replace socialism and communism.? Any new faith likely to command wide assent in Czech society today will probably have to be, as was Marxist communism, itself a secular religion, perhaps again also grounded in economics.? As Havel writes in the Foreword, a main purpose of the book is to ask:? at a fundamental level ?what is economics?? What is its [deepest] meaning? Where does this new religion [of economics], as it is sometimes called, come from? and where ideally might it be heading?

As an economist, Sedlacek is a throwback to the tradition of Adam Smith, John Stuart Mill and Karl Marx.? There is no mathematics.? His scope of concern extends to the full state of the world and his method is to analyze the historic interactions of religion, economics and culture as they have come to shape modern economic thought.? He traces the beginnings of current economics as far back as the ancient Sumerians, then moves on to the Israelites of the Old Testament, the ancient Greeks, the Christian world, and finally comes to the modern age.??

Economic concerns have always been a central part of western civilization, and have been prominently addressed by leading thinkers of each era.? Modern economics, Sedlacek finds, is less distinguished by its new economic ideas than by its new outward manner of presenting economic insights that actually are in many cases of even ancient origin.? Economists today, however, are themselves often unaware of the original roots in the history of western thought of their own ways of thinking.

Sedlacek explains that even the teachings of modern ?scientific? economics have a significant underlying religious and cultural message.? He draws in this regard on the writings of Deirdre McCloskey who has contended for thirty years now that the formal economics of today is actually often metaphysics in disguise.? The scientific claims of mainstream economics are best understood as an imperial claim for religious authority, a new way of reasserting longstanding economic values, myths, and ethical creeds of the West in a deceptively ?modernist? and therefore supposedly newly authoritative cloak.

Sedlacek begins the exploration of such topics in Chapter 1 with an analysis of the ancient Sumerian Epic of Gilgamesh — believed to be the first mythical story ever put into written form.? In the Epic, he writes, ?the harlot was able to recast wild evil into something useful,? thus offering 4,000 years ago a ?first seed of the principle of the market?s invisible hand,? an economic principle that had in fact ?its predecessors as early as Gilgamesh.?? The organized city is seen in the Epic favorably as a place where individuals can master specific skills and thus collectively maximize their total outputs — or, as Sedlacek writes, as early as Gilgamesh — the first important writing in human history — we see a portrayal of ?the phenomenon of the creation of the city, [where] we have seen how specialization and the accumulation of wealth was born, how holy nature was transformed into a secular supplier of resources? for human benefit.? ???

Sedlacek turns in Chapter 2 to the economic messages of the Old Testament.? Two thousand years before the Protestant Ethic, ?for Hebrews, when a person does well in the (economic) world, it is frequently understood as an expression of God?s favor.?? The rule of law is sustained because for the Jews ?the Lord unequivocally preferred the judge as the highest form of rule.?? Long before modern science, ?Hebrew culture laid the foundations for the rational examination of the world. … [which] has its roots, surprisingly, in [Old Testament] religion.?? ???

Unlike the Greeks and most other ancient peoples, Sedlacek comments, ?the Jewish understanding of time is linear — it has a beginning and an end.? The Jews believed in historical progress, and that progress is in this world.?? These ideas, as Sedlacek says? set the original stage for the much later worship of economic progress as the modern path of the salvation of the world.? Indeed, the Old Testament offers a brand new ?perception of economic anthropology and ethos? that has survived to this day (if now in outwardly much altered forms) and played an important ?role in the development of modern capitalist economics.??

In Chapter 3, Sedlacek describes the writings of the Greek poet Hesiod who ?examined such things as the problem of scarcity of resources, and, stemming from that, the need for their effective allocation? — and therefore may appropriately ?be considered to be the first economist ever.? The Greek philosopher Epicurus develops a view of human behavior grounded in ?hedonism … that would later receive a more exact economization at the hands of J. Bentham and J. S. Mill.?? Sedlacek quotes Karl Popper approvingly to the effect that Karl Marx is a modern heir to Plato — they both ?offered a vision of apocalyptic revolution which will radically transfigure the whole social world? and thereby bring a new heaven on earth.

The ancient Greek philosopher Xenophon, a contemporary of Plato, Sedlacek ranks as ?a brilliant economist, who among other things dealt with the issue of utility and the maximization of yield.?? He also ?deals in detail with specialization, offers a lot of advice on both the micro and macro level, examines the favorable effect of incentives for foreign investors, and so on.?? Although few current economists have ever studied — or maybe even heard of — Xenophon, Sedlacek writes that ?to a certain extent, it could be said that his economic scope is wider and in many ways deeper than Adam Smith?s considerations.??

Sedlacek moves in Chapter 4 to the economic messages of the New Testament and the Christian world.? He notes that ?of Jesus?s thirty parables in the New Testament, nineteen (!) are set in an economic or social context.?? More broadly, ?Christianity builds a large amount of its teaching on economic terminology? and in the process renders a surprisingly wide range of ethical economic judgments.

In the theology of Augustine, in contrast to the Old Testament, ?the world appears evil, unfair, transitory, unimportant? — yielding a newly ascetic outlook that significantly influenced European civilization during the Middle Ages.? Yet, all through the history of Christianity there is a favorable view of work, that ?labor should provide man with pleasure and fulfillment,? that ?labor is even a responsibility for man: ?If a man will not work, he shall not eat,?? as the New Testament says in Second Thessalonians.

Eight hundred years later, drawing heavily on recently recovered writings of Aristotle, Thomas Aquinas reversed attention from Augustine?s inwardness toward examining the external world as a new focus of Christian theology.? Aquinas saw private property as necessary, and the just price for him was in essence the competitive market price.? In Aquinas? writings, as Sedlacek explains, ?reason could not have received higher recognition.? If practical discoveries can be truly proven [by rational methods], the traditional explanation[s] of the Bible must defer, because that interpretation was erroneous.?? For Aquinas, ?revolting against reason was … like revolting against God.?? With rational analysis thereby given such a powerful new religious authority, Aquinas and other scholastics played a key role in setting the stage for the scientific revolution a few centuries later and ultimately the shaping of modern economics.?

Sedlacek writes that ?Christianity is the leading religion of our Euro-American civilization.? Most of our social and economic ideals come from Christianity or are derived from it.?? Most economists today admittedly do not know much about this and would be surprised to learn, as Sedlacek argues, that much of contemporary economics still amounts to a secularized — and thus disguised — Christianity.

In the next three historical chapters of Economics of Good and Evil, Sedlacek delves into the more recent foundations of modern economics.? As he writes, ?Rene Descartes had a truly breakthrough influence on economic anthropology.?? In the seventeenth century, Cartesian philosophy opened the way to the vision of ?economic man [who] is a mechanical construct that works on infallible mathematical principles, … and economists are [therefore] capable of explaining even his innermost motives? through mathematical methods.? For the first time with Descartes, ?a mathematical equation becomes the [religious] ideal of truth.?

Sedlacek?s analysis of Adam Smith emphasizes his role as a natural philosopher who recognized that ?psychology, philosophy, and ethics are in reality at the core of economics.???? Smith has been recast by many later economists as a value-neutral defender of the free market who saw human motivation exclusively in terms of the expression of self-interest.? In reality, as Sedlacek notes, the ?invisible hand? is only mentioned once in Wealth of Nations, almost in passing.? Instead, Smith has a much more nuanced view of human behavior and the workings of the economic system — ?for us economists, I believe Smith?s legacy is that moral questions must be included in economics.?? The final edition of The Theory of Moral Sentiments was published after Wealth of Nations and thus might be considered Smith?s final word on economics and morality.? For Smith, Sedlacek writes, the appropriate ethical principles are ?the key question of economics.?

After the historical analysis, the concluding chapters of Economics of Good and Evil present what Sedlacek labels as his final ?blasphemous thoughts.?? He finds that the modern devotion to ?neverending growth? is a contemporary manifestation of the old idea of religious progress but now ?in different clothing — first in religious (heaven) and later in secular forms (heaven on earth).?? Revealing the true path of maximal economic progress has become the underlying ?raison d?etre for economics, science and politics and is something our civilization grew up with and simply counts? as an unexamined article of faith — as spread by the ?modern priests? of the economics profession.? Sedlacek believes, however, that economic progress, while overall a great benefit in the modern age, may have reached its useful limits, and any suitable economic religion of the future should better teach us to be more ?satisfied with what it [mankind] has, the progress it has already made.??

Admittedly, this would require a whole new methodological foundation for the field of economics.? If economic progress is not a basic goal, the pursuit of ?efficiency? would no longer have its current transcendent purpose — ?efficient? and ?inefficient? having become the secular economic substitutes for good and evil.? There might then need to be a return to earlier religious views in which satisfying ?work,? not consumption, becomes the greatest object of human value.

In recasting economics, Sedlacek argues, a necessary first step will be to deemphasize the role of mathematics.? The use of mathematical methods in economics, Sedlacek concludes, ?is useful but not sufficient. It is only the tip of the iceberg.? Below the mathematics lie much more fundamental issues? of institutions, culture, and basic belief — even of religion.? These issues do not readily lend themselves to mathematical methods.

Rather than exhibiting an introspective curiosity about the foundations of economics, Sedlacek thinks that too many current members of the economics profession are happily content to remain in the dark as to the true historical origins and the underlying ethical norms of their own field.? This is an almost willful blindness that is perhaps best understood as itself a religious statement, part of the general religious scientism that afflicts contemporary economics.? Full knowledge of the many historic antecedents of modern economics would be almost an embarrassment for current economic faith.

In Economics of Good and Evil, Sedlacek draws on a wide range of literature, economic and non-economic alike (there are probably more references to Wittgenstein than to any one twentieth century economist).? The book is well documented including exhaustive footnoting that often includes long direct quotes from original sources (many pages have as much content in the footnotes as in the main text).?

It is not possible in a short review such as this to do more than give the flavor of Economics of Good and Evil.? It is also not possible to say that Sedlacek is either ?correct? or ?incorrect.?? In a work of such broad historical scope, one seeking to rewrite the history of economic thought, a more authoritative judgment must await the test of time.?

A more appropriate test for a review such as this, I would suggest, is whether the book is ?interesting,? ?well informed and documented,? ?well argued,? ?accurate,? and — in the end perhaps the most significant matter of all — ?persuasive.?? These judgments are not reached by a scientific method.? For this reader at least, while there are certainly areas where I would disagree in some of the details, Economics of Good and Evil is a fascinating and provocative read.?

Works of such scope and ambition rarely come along in economics. (Indeed, some current economists may not regard the book as legitimately falling within the scope of ?economics.?? They might say it really belongs to the ?history of ideas,? if with a strong economic emphasis.)? For those economists interested in probing the deepest foundations of their own professional discipline, however, this book is highly recommended.

Robert H. Nelson is a professor of environmental policy at the School of Public Policy of the University of Maryland.? He is the author most recently of The New Holy Wars: Economic Religion versus Environmental Religion in Contemporary America (Penn State Press, 2010).? He also addresses the religious side of economics in Economics as Religion: From Samuelson to Chicago and Beyond (Penn State Press, 2001) and Reaching for Heaven on Earth: The Theological Meaning of Economics (Rowman & Littlefield, 1991).?? His email address is
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 ( Published by EH.Net (July 2011). All EH.Net reviews are archived at

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

Reconceptualizing the Industrial Revolution

Author(s):Horn, Jeff
Rosenband, Leonard N.
Smith, Merritt Roe
Reviewer(s):Jones, Eric

Published by EH.NET (July 2011)

Jeff Horn, Leonard N. Rosenband and Merritt Roe Smith, editors, Reconceptualizing the Industrial Revolution.? Cambridge, MA: MIT Press, 2010.? ix + 366 pp. $24 (paperback), ISBN: 978-0-262-51562-7.

Reviewed for EH.Net by Eric Jones, La Trobe University (emeritus).

This book reminds me of old introductory Great Powers courses that, week by week, discussed the early stages of industrialization in one large economy after another.? Here the scope is expanded for modern times by covering not only the former suspects, Britain, France, Germany, the United States, Russia, and Japan, but Scandinavia, Spain, Brazil, India and China in addition.? Several of the chapters offer notably coherent interpretations of the process of industrialization in addition to supplying descriptive material; most are informative.? The chief unexpected inclusion is Brazil, which de Gaulle ill-advisedly said was the country of the future ?and always will be.?? The most unexpected exclusions are surely Italy and Australia.? It is not clear what the decision rule was.? The whole is edited by Jeff Horn (Manhattan College), Leonard Rosenband (Utah State University) and Merritt Roe Smith (MIT), who each contribute a chapter besides jointly providing an introduction.

Reviewers who criticize the titles of books take them too literally and seldom have much else to say, as well as failing to understand that publishers often foist nicely searchable titles on reluctant authors.? Nevertheless I feel obliged to point out that the element of reconceptualization here is limited and far from systematic.? Insofar as a non-traditional vision of the industrial revolution does emerge, it heightens the roles of Chandler?s visible hand and continental European dirigisme.? Although these are already familiar parts of the story in several countries they are dwelt on here more than they used to be, as is the related role of armaments production and even geopolitics.? Two themes brought to the fore by Joel Mokyr (Northwestern), ?useful knowledge? and the Enlightenment, are also given good runs by several other contributors.?

Nevertheless the suggestions as to what was the key explanation of industrialization, or in certain cases delayed industrialization, diverge widely.? They include: for Brazil (which proves an interesting example) a lack of capital market institutions; for China, spending too much on defending the land empire; for India, the absence of autonomous economic policy; for Japan, more positively, cultural engineering by the state.? Perhaps these apparent inconsistencies mirror historical reality but the profession still seems to make heavy weather when constructing hierarchies of explanation, as opposed to listing sequences of factors.? An interesting exercise might be to tabulate the crucial factors proposed in the different chapters, and to investigate explicitly the status of each in all the other countries where it is scarcely mentioned.

One unfortunate feature that surfaces too often is a determined and occasionally intemperate assault on the British or sometimes entire (Western) European template for growth.? This is a straw man if ever there was one.? Trying to demote Britain?s primacy is a tired game, the statist nature of development elsewhere is perfectly well known, and the contribution to British industry of French science and a smattering of artisans from other countries has long been acknowledged.? It is high time to exclude the politics of resentment from economic history.

The situation is not helped by the casualness, endemic in the profession, about British geography.? We should be clearer where we are talking about.? The prime confusion arises from using Britain or British loosely, not acknowledging that these are not the same labels as England or English.? The chapter on China uses British, England and the British in three successive sentences, though strictly speaking they are not interchangeable.? It probably does not matter much in this instance but for a subject generally, indeed typically, concerned with quantities to take the risk of summing incommensurable columns is rather odd.? Thus Berg (Warwick University) stretches ?Britishness? to cover commerce and commodities produced in the entire British Isles whereas all six of her eighteenth century ?international brands? derived from purely English towns or counties.

Confronted with fifteen chapters by diverse hands I can only play favorites.? Mokyr?s chapter on the English Enlightenment and the origins of modern economic growth spreads its influence elsewhere in the book, as already noted.? His is a tightly argued piece that shows the merits of long professional experience, since it surveys all the familiar aspects but adds to them from his own emerging thought and the tenor of recent literature.? Inkster (Wenzao Ursuline College, Taiwan), who takes up some of Mokyr?s themes, similarly benefits from his long career in Japanese studies.? Bruland (Oslo and Geneva) provides detailed tables of Scandinavia?s imports of technology and the countries they came from, as early as the seventeenth century.? Her chapter is therefore more systematic than most and makes a genuinely novel contribution.? Perdue (Yale) develops a strong argument to the effect that the Qing in China suffered from Imperial overstretch through trying to defend a swollen land empire.? This is not to denigrate the remainder of the contributions but merely to pick out some especially interesting items in a collection which, while not precisely reconceptualizing the industrial revolution, does helpfully bring our understanding of it up to date.

Eric Jones, Emeritus Professor, La Trobe University, and former Professor, Melbourne Business School, is the author of Cultures Merging: A Historical and Economic Critique of Culture (Princeton University Press, 2006), and Locating the Industrial Revolution: Inducement and Response (World Scientific, 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 ( Published by EH.Net (July 2011). All EH.Net reviews are archived at

Subject(s):Economic Development, Growth, and Aggregate Productivity
Economywide Country Studies and Comparative History
Industry: Manufacturing and Construction
Geographic Area(s):General, International, or Comparative
Time Period(s):18th Century
19th Century
20th Century: Pre 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).

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 ( Published by EH.Net (April 2011). All EH.Net reviews are archived at

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

Francis Ysidro Edgeworth: A Portrait with Family and Friends

Author(s):Barbé, Lluis
Reviewer(s):Samuels, Warren J.

Published by EH.NET (August 2010)

Lluis Barb?, Francis Ysidro Edgeworth: A Portrait with Family and Friends. Northampton, MA: Edward Elgar, 2010.? xxxvi + 291 pp. $150 (hardback), ISBN: 978-1-84844-716 5.

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


A glance at the subtitle of this book — A Portrait with Family and Friends — will suggest its unusual character, one derived from several sources with which the author, Professor of Economic Theory at Universitat Aut?noma de Barcelona, Spain, is both comfortable and candid.? Barb? writes that ?This book does not pretend to offer a profound intellectual portrait of Francis Ysidro Edgeworth; rather it is simply a personal portrait that can help us grasp his temperament and his feelings in order to better understand his development as an individual and as a social scientist? (p. xxiii).

The book does that and does it well.? I suggest, however, that Barb? has too narrow a view of what he has accomplished on behalf of other historians and methodologists of economic thought, in at least two respects:? (1) providing suggestive evidence of the comfortable fit of neoclassical economics in middle-class society and therefore that class?s receptiveness to neoclassical theory and ideas; and (2) providing evidence of how neoclassical economic theory was worked out during a major period of the transformation of economic theory. He has, intentionally or otherwise, provided both types of evidence at least in part because pieces of each type were to be found in his materials and in part because he was alert — sensitive to and receptive of its importance.? In regard to both (1) and (2), I doubt if any absolutely new type of evidence is presented; however, the evidence seems to be trustworthy.? The evidence was made and collected by members of Edgeworth?s extended family and professional colleagues in their correspondence to each other about their activities. The evidence was found in the hands of independent archivists.

Barb? was not alone in being comfortable with his project.? He received encouragement and assistance from a number of well-known economists.? The list includes Josep Fontana, Antoin Murphy, Jos? Luis Cardoso, A. W. Coats and John Creedy, who also contributed the Preface.?

Genealogical Matters

One source of evidence is the huge number of persons comprising Edgeworth?s extended family:? on his father?s side, an Anglo-Irish family of Protestant descent, and on his mother?s side, a Catalan family, much smaller in number but with at least some liberal and constitutionalist views.? The economist and statistician we know as Francis Ysidro Edgeworth was born in 1845, the son of Francis Beaufort Edgeworth (1809-1846) and Rosa Florentina Eroles (1815-1864). His paternal grandfather, Richard Lovell Edgeworth (1744-1817), was thrice widowed and altogether had twenty-two children. Eleven pages of genealogical diagrams were needed to identify the extended family, and it is incomplete.????????????????????

Barb? has made several genealogical discoveries. He has found that the future great economist and statistician had been given at birth the name, Ysidro Francis Edgeworth. After long being called Francis or Frank, however, he transposed his Christian names when he started publishing in 1876.?

Barb? also has corrected the misidentification of Edgeworth?s mother, Rosa Florintina Eroles, made initially by the Hispanist Lord Holland, and subsequently continued by Lord John Maynard Keynes and Sir John R. Hicks.? Her father was not the absolutist and anti-liberal Baron Eroles but General {?} Antonio Eroles i Sancho (1779-1840?).? The misidentification was partly predicated upon erroneously taking a name for a title.? The misinformation, however, helped overcome opposition by several female Edgeworth relatives to the (eventual 1831) marriage of his parents.? Those women had found Rosa Eroles deficient in social status and beauty.?

Barb? reports on related matters, which as a Catalan he apparently did not seek to find.? One possibility is established by the question, ?Yet what kind of honourable enterprises may a courageous militia commander undertake which allow him to get rich very rapidly??? He finds that ?we should not discard the possibility that part of Ecoles? income came from illegal trade or from the mere conveyance of smuggled goods? (p. 23).?

Several complications arise. The area in which Antonio Eroles and his family lived (bordering Andorra and France) was a center of the smuggling of Andorran tobacco, French mules and Canadian textiles (most commonly a cotton material printed on one side, roughly similar to calico and called indiana).? Also, Francis Beaufort Edgeworth translated indiana incorrectly as calico from the West Indies.? He also alluded to a gift of some mules from Antonio Eroles as an aid to the liberal cause.? One position was that smuggling was not a source of great wealth, only a means of supplementing one?s income during hard times (which. may very well have been frequent, perhaps so frequent as to seem to be, for all particular purposes, a permanent condition).

Other possibilities have Antonio Eroles being a (former?) stonecutter, performing questionable jobs for a superior, and, with his son, receiving higher salaries than their respective ranks warranted.? The actual military rank of the future bride?s father?s is uncertain.

Barb? suggests as another reputable alternative that Rosa?s father had retained unspent funds originally intended to pay soldiers who deserted when Spain was invaded by the Royalists in 1823. (Not everyone would consider that a ?reputable? explanation, though Antonio Eroles? relation to his commanding general and others is hazy.) Rosa?s age at the time is another complicating matter.? A further basis of the misidentification may have been Rosa?s ?childish version of the facts that her father had brought home,? namely ?to build a hospital in his native place? (pp. 22-23, quoting letter, dated July 1832, from Francis Beaufort Edgeworth to his mother Frances Anne Edgeworth). The letter offers still another explanation of her father?s rapidly accumulated wealth:? ?the father had been saving up money for a long time.? He had been a West Indies merchant dealing in indigo … and this money he was able to carry off in his hour of need? (pp. 22-23).? In 1830 Antonio Eroles and his family were political refugees in London.? Eroles worked with other anti-Royalists to organize expeditions moving through France against Spain (his rank may well have been self-adopted).? However, France, after reaching an entente with Ferdinand VII of Spain, reversed its policy of supporting expeditions to one of neutrality.? Eroles and his son, Isidro, were held under arrest by the French government for more than a year — and, inter alia, could not attend his daughter?s wedding.? Lord Holland, Lord Keynes and Sir Hicks have been corrected, but new questions have arisen.? The Edgeworth opposition to the marriage may have had some merit.

It is fascinating to think, as Ronald Coase has shown, that Alfred Marshall, undoubtedly the most influential economist of the period, was not exactly candid and honest about his family and ancestry.? With the nineteenth-century transformation of class structure, more people openly engaged in status emulation, even to the extent of misrepresentation.

The basis of those findings and, indeed, of much of the family history recounted by Barb?, was his discovery of a cache of some two thousand family letters and other documents that were archived in the National Library of Ireland and the Bodleian at? Oxford.? This principal discovery was precipitated by his visit, while touring Ireland, to the church and manor house of the Edgeworth family, now a senior citizens? residence, in Edgeworthstown, and his inquiry to a nun about any family letters or documents.?
The question of the identity and heritage of Edgeworth?s mother, with the concomitant opportunity to correct a Nobel Laureate (p. xxi), plus Barb? being a Catalan economist himself (p. xxi), motivated a fifteen-year research project.? It resulted in a novel — a ?fictional narrative on the most relevant events — both good and bad — that [the family] had witnessed? (pp. xxii) during roughly the period of Edgeworth?s life (1845-1926).? The novel, written in Catalan, won a literary prize and had a printing of 50,000 copies.?

The Comfortable Fit of Neoclassical Economics in Middle-Class Society

Barb??s portrait in the book under review is a set piece for Edgeworth?s family and class although the evidence is only suggestive.? Given people?s preferences, they tend to act in a manner congruent with the neoclassical model.

The family is large, active and interesting.? Early death by a new born and/or the mother was common.? Education, by either home tutors or organized schools is understood to be important for continuation and enhancement of class and individual position. To have in one?s family someone with an extraordinarily successful academic record is a mark of distinction.? For someone to go on and become a spectacularly famous scholar is even more impressive.? For a family to have more than one member recognized to be among the elite of their profession is unusual if not rare.? The Edgeworth family had at least two such individuals, Maria Edgeworth and her nephew, Francis Ysidro Edgeworth, and each was, in part, identified in terms of their activity pertaining to economics, in a period in which a main issue was whether or not the working class should be informed of the findings of Political Economy.? The aunt was particularly noted for her relationship to David Ricardo and to Sir William Hamilton.?? Other famous people who interacted socially with family members included Erasmus Darwin, James Watt, Joseph Priestly, Josiah Wedgewood, and Francis Galton.? Of course, on such matters one should not omit Edgeworth?s relations as a student with his and other professors.? The latter included John Kells Ingram at Trinity College Dublin and Benjamin Jowett and Thomas Hill Green at Balliol College Oxford.

Consideration of the relations of some family members to other famous people can hardly outdo the relations developed by the holder of the Drummond Chair at Oxford; the economist ranked second only to Alfred Marshall; the first editor of the Economic Journal, published by the Royal Economic society; president of the Royal Statistical Society, whose Guy Medalist he was five years earlier, and twice president of Section F of the British Association.? One cannot over-estimate the magnitude and importance of his relations to others.? As John Creedy knowingly commences his Preface, ?Edgeworth was a leading figure in the rapid development of economics during the last quarter of the nineteenth century and the first quarter of the twentieth century, by which time it was firmly established as an academic subject? (p. xii).? Creedy also notes that ?the period marks … a distinct change of emphasis in the study of economics, in the transition to neoclassical economics from the classical economics associated with Adam Smith? (p. xiii) and at least doubles Edgeworth?s importance by emphasizing that ?[h]e achieved eminence as a statistician as well as an economist? (p. xii).? In part due to his several highly visible positions, in part because he ?was a prolific and highly original author who, in a cosmopolitan age, had probably the widest correspondence with economists all over the world … a man? of enormously wide reading and considerable linguistic skills? (p. xii), he was indeed a leading figure.

But not all activity was laudable.? Excessive gambling and concomitant losses, alcoholism, extravagant spending, and/or failure in one?s career or position are deprecated.? One family member, an army officer serving in India was brought up on charges of participating in ?a heavy gambling affair.?? The family as a whole is not necessarily, even likely, to come to the rescue of a member exhibiting self-destructive, noxious, or harmful behavior.? Albeit not necessarily fully excluded from the group, such an embarrassing member would not have an affirmative, salient role.?

One individual had to be careful with money; another might become wildly independent at the tender age of seven (pp. 4-5) and require family control, to whatever extent if might be effective. Some activity in feudal or post-feudal institutions is likely (in the case of the family, Edgeworthstown, an inheritable community, which provided rent-paying tenants but also ?administrative headaches? (p. 210).? Upon inheriting the property in 1911 and having assumed his new role of landlord, under pressure from the Tenants? League, the Oxford professor lowered all rents by 20 percent (p. 211). Francis was ?just like his grandfather Richard Lovell Edgeworth. … also a Justice of the Peace in the best feudal tradition? (p. 153).

Support of and/or participation in scientific activities, here the Lunar Society, is found in varied activities.? Individuals and the class to which they belonged could encompass diverse beliefs, some rejecting religious creeds, some feeling that creeds were only fit and proper, some more or less willing to be associated with a particular creed and/or that some individuals wished to be, say, a Christian, or that one no longer held the youngster?s early intention to enter the church (in Edgeworth?s case, changing his mind twice, first, the church, and, second, law (pp, 85,163)).

Mistrust and disputes could develop between individuals and/or subgroups.? Some individuals were engaged in political activity (in either Ireland or England).? The same and/or other individuals could be engaged in social activities.? One could say, in retrospect, that family members contemplated the family as an institution, i.e., the family was something in which its members made investments akin to (we would say) human or social capital.? Relations among family members were manifest in the cache of letters.? Relations between family members and others were also manifest but more episodic.

Every family has episodes of the unusual.? One 13 year old managed to escape boarding school. Five years later, he deserted and his father had to pay ?10 to the Royal Navy for his expenses (p. 5).

The Act of Union provided for Irish representation in the two houses of Parliament.? One member of the family, in response to what he thought were non-democratic pressures, left the new politics completely (p. 7).

Maria Edgeworth was named an honorary member of the Royal Irish Academy, of which her father had been a founder. She is reported by Barb? to have greatly enjoyed the distinction, ?since she humbly considered that, despite her texts on education, she had no scientific merits whatsoever? (p. 31).? Barb? also writes that Maria ?was to her dying day the leading character in Edgeworthstown.? All decisions of any importance, especially financial ones, were referred to her.? She was active even in the education of Rosa?s children? (p. 37).?

On the basis of the foregoing information, and without passing judgment, I suggest that the businesslike, rationally calculating, order- and security-loving attitudes of what appears to have been held and acted upon by (at least) the Anglo-Irish members of the Edgeworth family were congruent with the middle-class belief system of neoclassical economics.

How Neoclassical Economic Theory Was Worked Out during a Major Period of the Transformation of Economic Theory

Both Creedy and Barb? focus on Edgeworth?s period as one in which economists transformed their discipline from classical into neoclassical economics.? This transformation centered on several lines.? One line was that of the meaning to be given to economic action.? A second line had to do with the scope and central problem of economics, especially the system of organization and control, or power structure.? A third line was the construction of a purely conceptual, i.e., a-institutional model of the economy.? A fourth line was the protocol stipulating what was required in the analysis of problems and the generation of solutions.? The stipulation that was worked out required the theorist or analyst to produce unique determinate equilibrium optimal solutions — typically competitive solutions.?

Through his utilitarianism, Edgeworth was clearly most importantly involved in the first line, the meaning to be given to economic action, but he seems to have had influence in the other lines as well.

Most economists have seemed to prefer to think that the transformational lines which they articulate on blackboards are somehow related to a given, transcendental economic order.? Barb??s study of Edgeworth suggests that any meaningful account of the transformational process in which he participated was one in which decisions were made, consciously or unconsciously, about the content of those four lines.? In this manner human subjective perceptions and preferences — all essentially assertions — dominate the process of defining and explicating the economy.? Particularly noteworthy is Barb??s view of Edgeworth that ?the most original subject in his research so far [i.e., by 1877] had been what he had called ?Exact Utilitarianism,? which was close to theoretical research in natural law? (p. 85).?? It seems to this reviewer that the adoption of a purely conceptual notion of the economy has been the equivalent in practice of combining those two concepts, even though the imagined ?exactitude? is either a fiction or wishful thinking.? Economists from at least the time of Alfred Marshall have sought to construct an economics that would facilitate and reinforce the status of economics as a science.? It appears to this author that notwithstanding the depth and brilliance of Edgeworth?s utilitarianism, his approach was too laden with ontological formulations to unequivocally comport with the desires of his high-theory oriented colleagues and their quest for the status of economics as a science.?

Although the construction of the protocols involved a number of ironies, I mention only the one involving the juxtaposition of purely conceptual categories in Edgeworth?s economics to the statistical techniques he created or adopted for handling empirical economic substance.

(Two terms — ontology and utilitarian — require a few words for sake of specificity and, hopefully, clarity.? One historiographic problem arises when one takes, for example, the elements of an eighteenth-century body of thought and defines one of those elements using a twentieth-century understanding of that element.

By ontology I mean that branch of metaphysics which deals with the absolute and ultimate nature of things.? It assumes that things have an ultimate nature that transcends both materiality and human choice, i.e., empirical economic substance.

By utilitarianism I intend to include Hedonism and Benthamism as theories of human nature, of ethics, of whose interests count/should count, of how meaning and values are worked out by the interactions among decisional agents, and so on.

Kevin Hoover emailed me, in his commentary on an earlier version of this review, that ?It is odd to me to identify ?the theory of bargain in the wide sense,? with utilitarian moral philosophy? as you do here.? Bargaining as analyzed by Edgeworth employs utility functions, but the mere fact of using utility functions does not itself implicate one in being a utilitarian in an ethical sense, Classical utilitarianism is not about bilateral bargaining in which one the individual puts himself first, but is a social/ethical doctrine that says that we ought to base policy on the good of all people properly aggregated.? Edgeworth was, no doubt, a utilitarian, as well as a user of utility functions, but the analysis of a bargaining itself can?t be the essence of his utilitarianism, since it is not necessarily utilitarian at all? (Hoover to Samuels, July 07, 2010).? The discussion in this section of my review derives from the central argument of this review, namely, that reformulated economic theory during 1850-1925 was worked out in a helter-skelter manner and reflected the philosophical and economic and other interests of individual economists and not the economy itself.)

Without intending to comment on Hoover?s commentary, I must say that one can use it to illustrate the main point of this review:? that the history of the transformation of economic theory during the period roughly 1850-1925 involved an ad hoc slicing and dicing of ingredients assembled without a recipe, or without a fully detailed recipe.? In the resulting array of positions one can find combinations of elements of ontological and of utilitarian theory.? The resulting dish was thus likely to taste differently from cook to cook and from several versions of the dish produced over a period of time by one cook.?

Creedy rightly suggests that the place to start is the Mathematical Psychics (1881), which was ?written right at the start of Edgeworth?s career as an economist? and which ?also provides the key to all his later work and his lasting importance to economists? (p. xii).? In a sense the transformation from classical to neoclassical economics was a retrenchment, from ?dynamic themes of growth and development? to ?the nature of exchange? (p. xiii).? The two were quite different visions.? The classical vision teased a theory of exchange out of the social product.? ?Edgeworth himself? later remarked ?that ?in pure economics there is only one fundamental theorem, but that is a very difficult one:? the theory of bargain in the wide sense?? (p. xiii).? The latter was principally utilitarian moral philosophy.? On the one hand, it signified utility maximization, for which a famous line by Malthus and numerous famous discussions by Bentham were directional precursors.?? On the other hand, the Edgeworth box illustrated the multiple (i.e., a range of non-unique) possibilities of trading, given different initial endowments. Both in its original form in the Edgeworth box and in the subsequent work of Pareto, a core of multiple possible but noncomparable efficient solutions existed.? ?The utility maximizing approach was immediately congenial to Edgeworth, who was steeped in utilitarian moral philosophy? (p. xiii). This was so notwithstanding the inability, inter alia, to settle conclusively on the terms of the initial endowments.? This had several consequences, each unpalatable to different economists: power governed efficiency, interpersonal comparisons of utility needed to be made, and questions of income and wealth distributions had logically to be determined prior to market exchange even though income and wealth distributions were influenced by market exchange. In working out/stabilizing solutions to this (and other) problems of disciplinary construction, some aspects were retained and others cast aside. For Knut Wicksell and others, for example, these factors provided substantial opportunities for different theoretical constructions — especially when presented in terms of indifference curves and contract curves, further refashioning or remodeling the contract curve into what Kenneth Boulding, the better part of a century later, thought should more appropriately be called the conflict curve.? (Economists have had enormous difficulty with topics into which enter both initial and consequential distributions, e.g., both the Stigler and Coase versions of the ?Coase theorem.?)?

The relationship between vision and theory of exchange could easily be variably identified.? Experience with increasingly market-organized economies could lead to a vision of action, price determination, and interpersonal relationships which, in turn, could lead to the centrality of a theory of exchange.? Conversely, it might appear that the central focus should be on the determination of price/value through exchange, a result of which would be transactions and hence ?the theory of bargain in a wide sense.?

One type of fastidious mentality might require a single ultimate determinant of price understood as value, e.g., labor command or embodied labor, or utility.? Another type could provide for multiple potential sources, such as the price-theory model which eventually became dominant, with the variables distributed in any particular case among the categories of demand, supply, and irrelevant.

As Creedy writes: ?The existence of a range of initial endowments has important implications.? First, without introducing further structure to the barter framework, it is not possible to say what the implied rate of exchange is, given only information about the preferences and endowments of individuals.? It results in ?indeterminacy? whereby all that can be said is that the actual trade depends on the relative bargaining strength of the traders? (p. xiv).? Needless, perhaps, to say, the identification of an economic reality of dependence of price structure and resource allocation on the result of relative power, was anathema to those who wanted to exclude considerations of power and any connotation of an important role for government in managing the structure of rights, because they sought either or both a ?pure? economics or a ?laissez-faire? economic policy by government.? Both objectives involved wishful-thinking.? To such economists, bargaining-power theories of prices and wages were not only ?bad? economics but they opened the door to ?bad? policy.? The eventual reconstruction of economic theory along the lines of Kenneth Arrow, Gerard Debreu, Paul Samuelson and others (though not Tjalling Koopmans) served to obfuscate the non-uniqueness of price and resource allocation, thereby rendering dubious the efficiency claims of the new welfare economics.? Koopmans established a survival requirement for Pareto optimality, thereby negating death as a marginal decision.? Not only did the adoption of the indifference-curve technique fail to mollify every dissenter and even some supporters, the institutionalist critique of the new welfare economics was shown to have merit at fundamental levels. But most high theorists, while personally/privately acknowledging the existence and impact of differential power on economic performance, seemingly preferred to leave neither themselves nor the discipline open to scrutiny and criticism. If law/rights are a function of legal (legislative and judicial) action, and if changes in relative rights led to (intentional and unintentional and/or foreseen/expectable and unforeseen/unexpectable) changes in economic performance, then actions by economic agents to influence if not capture the putative regulatory agencies of government (through which the putative rights, opportunities and exposures, and the existence, nature and structure of markets are in part formed) meant that certain hitherto excluded topics had to be included.

Reliance on utility led to the need to somehow identify utility in a manner which seemed to not only organize the relevant material properly but provided acceptable answers to questions about a utilitarian approach.? It should be noted that such terms as ?properly? and ?acceptably? refer either to some bargain among participants or a social contract by their ancestors and not necessarily agreement among philosophers.?

One effect is to introduce into the past, as the source of the present, the same problems encountered in the present independent of the past, including, as we have seen, opportunities for circular reasoning.

It was to the theory of utility that Edgeworth surely felt that he was making his most fundamental contribution in economics and would have preferred comprise the payoff of some of his statistical work.? He was absorbed in controversies over the measurement/measurability of utility, the relative meaningfulness of cardinal and ordinal utility, the possibility of transcending that conflict using the indifference curve, the nature of the utility function, the necessity of establishing interpersonal comparisons of utility or welfare, the relevance of the purpose to which the specific use of utility analysis would be made, and so on.? Moreover, no small proportion of the animosity with which he and others approached each other involved differences of opinion over the foregoing issues.?? This was the case with Leon Walras and Karl Pearson.

Differences of opinion or of belief have existed to the present day.? George Stigler was of the opinion that microeconomic theory did not come of age until it became required for authors of journal articles to stipulate utility functions.? Whether or not one believes that such was another case of economic theory being led down a false track, the following seems historically and epistemologically correct.?? In and about 2000 many of the same issues remained unsettled and unresolvable.? Economists continued to exercise a propensity to refer to like-minded ?authorities.? The result continues to resemble a carnival of the animals, with several groups following elderly leaders, much as judges cite favorable series of precedents.? In each case the function is the same: to identify or claim an authority(ies) through the use of which to assert positions or results.? Each new difference has elicited variations on old assertions but assertions they nonetheless remain.

The development of much (I do not say all) economic theory in the Edgeworthian period of its transformation was due to neither new fundamental ideas nor to more sophisticated means of theory appraisal and choice nor necessarily to more deeply knowledgeable economists.? It was due to regarding, disregarding and weighting differently certain positions that had been around for some time and continued to be discussed, from time to time, for almost a century.

To emphasize Edgeworth?s brilliance and eminence should not be to forget his failure to receive several academic appointments to positions to which he had applied.? Three from 1881 were to King?s College London (Philosophy), University College London (Political Economy), and University College Liverpool (Logic, Mental and Moral Philosophy and Political Economy) (see pp. 105-106, 128-129), his disagreements with others on technical matters of economic and statistical theory and their application, including with Marshall on the use of mathematics (pp. 101, 148,189, 204, 207,215-216) and that for some years he was poorly paid.

Barb? writes that: ?Edgeworth?s connection with King?s College London would span eleven years, from 1880 to 1890. These King?s College lectures were poorly paid, and although his inherited private income allowed him to survive comfortably, he repeatedly tried to secure a better academic position.? However, in order to succeed, he first needed to bolster his curriculum vitae and build a reputation in academic circles through his publications? (p. 92)?? I am not sure what exactly to make of Barb??s language.? Minimally, it may signify merely the operation of the historic ?publish or perish? incentive and reward system.? It may indicate a concern of Edgeworth about his consumption level or standard of living.? The period in question was neither one of economic growth nor a stable level of employment and income — and the next ten to fifteen or so years were worse.? He may either have changed the specifics of his status goal in life or come to appreciate that he could make a name for himself. Certainly more information is required as to the payment levels and policies in academia at the time, as to whether those who made salary decisions appreciated his contributions and potential, as to whether he hid his potential, perhaps inadvertently and (if so) for what reason, how he fared in comparison with others at his level at the time, and so on. Or perhaps he was a ?late? bloomer.? And possibly (for some interpreters, presumably) even if Edgeworth did not need the money of a well-paid academic position, he would have wanted the status (Hoover to Samuels idem).

[Kevin Hoover finds that ?There is a little contrariness and lack of charity in this [the foregoing] paragraph.? ?Private life,? whatever else it could mean, does not normally mean one?s intellectual or inner life, but one?s personal relationships with other people (family, friends, lovers, etc.). Barb??s point seems clear enough to me. And in fact, I find my own intellectual life to be wonderfully exciting, my ?private life? in the usual sense of that term is dry as dust and would make a really poor novel (Hoover to Samuels idem).]
I think that the difference between the professor whose intellect and self-perception is unbound as to range and depth, given training, experience, and innate ability in his or her enthusiasm and effort exerted and the professor who at worst is faking being one and the professor who allocates only so much effort as to qualify for promotion, tenure and merit raises, is reasonably clear to their colleagues and students.? Members of all schools of economic thought may be found in all the foregoing and still others.

It would be interesting, presumably, to know why Mathematical Psychics did not acquire its eventual status much earlier (though as recently as its centenary some thirty years ago, it was clear that the book remained objectionable to many).? Barb? devotes some three pages to reviews of the book published at the time it was published.? Edgeworth had distributed copies of the book to a number of people; some authored and published reviews, some sent him letters with comments.

When one juxtaposes Mathematical Psychics to the economics and social-science literature of the time, it is not inconceivable that it was too strange, too demanding, too alien for those to whom any serious consideration of utilitarianism or issues of equality versus inequality, or the issues of power, right and peace, such as one can find in the work of Thomas Hobbes and others, were repugnant, and so on. The book requires a high degree of personal confidence, due to training and experience, in philosophy and mathematics as well as economics/political economy.? It would not be surprising if its disposition, by many who might have learned from it, was to the class of books ?talked about but never read,? such as, for example, those of Adam Smith.

Conversely, it may be felt that Edgeworth?s own eminence is at least in part due to the subsequent dominance of the type of economics and statistics to which his work led, and then to the explanation of the dominance.

One lesson of the foregoing is that it is misleading to attribute the status of a scholar achieved late in his or her career to an earlier stage. Another lesson is that it may be misleading to attribute later developments and choices to earlier brilliant cognate formulations.
As Creedy writes, ?The importance of this new justification of utilitarianism cannot be exaggerated? (p. xv).? Among the issues were: (1) the identity of utility maximization and its utility in theory construction and policy, in part inasmuch as the term is a primitive one (i.e., lacks specificity and is therefore inconclusive); (2) the related existence of indeterminacy; ( 3) the use of a priori probabilities; (4) the adoption of utility maximization within the welfare economics of the Edgeworth box, with its assumption of utilitarianism as a principle of justice, that, as Edgeworth himself put it, ?in the? absence of any definite principle of selection, [an individual] has about as good a chance of one of the arrangements as another? (p. xiv), i.e., equal a priori probabilities, which requires that one easily can ignore the enormous multiplicity of sources of inequality in life, including the existence and structure of the control of government; (5) the ?willingness to accept … utilitarian arbitration in terms of choice under uncertainty?? (p. xiv); (6) the optimality of price under Paretian theory; (7) the difference between an equilibrium and how it is achieved in practice (p. xv); (8) whether recontracting can apply to whatever is thought of as the ?social contract? as well as to contracts for buying and selling; (9) whether all individuals (or classes) can form coalitions to improve their position, and which coalitions are and are not considered collusion; and (10) the status of ontological assumptions or usages in articulating utilitarianism (or any substitute) and of the assumptions on which they rest vis-?-vis ignoring them and utilizing primitive terms (for example, hedonism vis-?-vis other forms of utilitarianism) (cf. pp. 86-87).

Edgeworth is lauded by Barb? as a pioneer in the use of Lagrangian multipliers and determinants (p. 96).? Barb? also refers to an ?important instrumental improvement? that leads to the coincidence of lines of indifference (pp. 96-97) and to a mathematical proof of the greatest happiness principle (p. 98).? But Barb? makes clear that Edgeworth also tries to justify utilitarianism ?by basing it on a ?social contract?? (p. 99) and by the use of definitions and mathematical constructions that are esoteric and contrived (pp. 114-115).

Barb? treats ?the conceptual symmetry between the ?calculus of feeling? and the ?calculus of belief?? as amounting to a symmetry between utility and probability (p. 110).?? That, in my view is either a dead or a narrowing end compared with late twentieth century linguistics and analyses of belief systems.? On the other hand, the reconstruction of value theory (as above) managed to disparage the Marxian and other socialist vision(s) which had been the objective of at least a significant percentage of economists from the beginning of the period of transformation.? That is, not all esoteria have been treated equally.

Oddly, Barb? concludes that ?Edgeworth?s private life was quite devoid of memorable events? (p. 209).? I do not see how such a judgment can be sustained.? Edgeworth?s intellectual life was his private life. Every time that Edgeworth entered a classroom to give a lecture, every time he worked on and submitted a paper, every time he gave a paper at a professional meeting, every time he opened an envelope with a paper submitted to the Economic Journal, he savored a ?memorable event.?? Barb? points to the routine imposed by the annual academic cycle. Surely, there is more to Barb??s life, as I think there was to Edgeworth?s.

Be that as it may, and notwithstanding the limitations and channeling imposed by the availability of data for all biographers, Barb??s work is a well-done, almost unique study and it is a pleasure to recommend it to historians of economic theory in particular.

Warren J. Samuels is Professor Emeritus at Michigan State University.? His principal fields of research and teaching were the history of economic thought and the economic role of government.? His study, Essays on the Invisible Hand, will be published by Cambridge University Press early in 2011.

(The author is indebted to Kevin Hoover and Steven G. Medema for unusually insightful and helpful comments on an earlier draft of this review.)
??? ?
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 ( Published by EH.Net (August 2010). All EH.Net reviews are archived at

Subject(s):History of Economic Thought; Methodology
Geographic Area(s):Europe
Time Period(s):19th Century
20th Century: Pre WWII

Elgar Companion to Adam Smith

Author(s):Young, Jeffrey T.
Reviewer(s):Wight, Jonathan B.

Published by EH.NET (August 2010)

Jeffrey T. Young, editor, Elgar Companion to Adam Smith. Cheltenham, UK: Edward Elgar, 2009.? xxv + 374 pp. $215 (hardcover), ISBN: 978-1-84542-019-2.

Reviewed for EH.Net by Jonathan B. Wight, Department of Economics, University of Richmond.


The Elgar Companion to Adam Smith contains a set of papers by outstanding scholars, many of whom have made a career of studying Smith and have separately written book-length treatises on him. The reader is thus treated to a mature and nuanced treatment of Smith throughout. While the steep price will preclude many individuals from owning it, it is an essential work for research libraries to own.

The volume contains an introduction by the editor, Jeffrey Young, and nineteen papers mostly by economists, all but two of which are original for this collection. The articles ?give testimony to the richness and enduring appeal of Smith’s principles and wisdom? (p. xi).? The editor notes that he allowed contributors to write on topics they selected. This approach is an attractive feature of the book when you have high quality sources and it provides the reader with a window onto the issues of current importance for Smith scholars.

This volume is distinguished from the Companion to Adam Smith (Cambridge 2006) by its focus on questions of interest to economists and historians of economic thought, rather than mainly philosophical issues.? A theme of the book is the growing importance of The Theory of Moral Sentiments (TMS) to economists seeking to understand the role and evolution of institutions in society (e.g., systems of justice) and behavioral economics.?

The Elgar Companion has three sections.? Part one consists of six essays that address the philosophical antecedents that influenced Adam Smith’s thinking.? Part two consists of four essays on analytics, that is, on Smith’s economic model.? Part three consists of nine essays on applications and policy analysis.? This review deals with a subset of papers.?

The leadoff paper is a reprint of Deirdre McCloskey?s “Adam Smith, The Last of the Former Virtue Ethicists,” which appeared in History of Political Economy in 2008.? This is a classic and erudite exposition of an important idea that should be discussed among a wider audience of economists — namely, that in Smith the initial or ultimate judgment of what is good (or bad) cannot derive simply from a utilitarian construct.? Hence, McCloskey demonstrates for a variety of reasons that Smith?s Enlightenment project cannot be pigeonholed into modern economics.? The most compelling reason (not addressed in this chapter) has to do with the hardwiring of the human brain. Humans make intuitive judgments within a psychological context; logic follows but does not lead. This generates enormous implications for socialization.? Character involves the internalization of ideals of virtuous conduct that derive from exemplars in history, literature, and the arts (e.g., see Wight 2006).?

The virtue of McCloskey’s essay is that it places Smith’s ethics within the wider context of classical philosophy and Christian theology. It is interesting because the eighteenth-century Enlightenment produced two other ways of approaching ethical issues, one through Bentham?s utility and another through Kant?s logical rules and duties.? Economists have almost all fallen into the trap of putting Smith into the utilitarian camp.? As many of the other articles in this compendium show, there is much to learn from understanding Smith?s more behavioral approach.

Brendan Long in ?Adam Smith’s Theism? addresses an issue that has vexed readers since the eighteenth century.? Did Smith believe in God, and if so, what role did God play in the workings of Smith’s system? Long addresses three theories, that Smith was an atheist, that he was a Christian, and that he was a lapsed Christian.? Long puts forward evidence from Smith’s life experiences and writings to argue that Smith held to a ?moderate Christian theism? (p. 92).? This is a defensible position, but not likely to resolve the debate, since Smith himself left so many contradictory clues.? The compelling biographical evidence relies on Smith?s relationship with Hutcheson (who was certainly a Christian).? Smith’s beliefs would have been thoroughly vetted when he went up for the chair in logic at Glasgow University in 1751.? Smith?s religious views could also have changed over time, as reflected in his continued edits of religious materials in TMS.?

To most economists, it is not clear why Smith’s theology matters at all to his economic model; however, it may be quite important for the overarching system on which his economic model builds. If behind the invisible hand there is an omnipotent God, this could imply that the unintended consequences of market interactions are always positive or at least generally positive over a long period of time.? Jerry Evensky (in a later chapter) argues that Smith’s plan for a liberal society ?reflects Smith’s faith in a deity and his belief that the deity has made this liberal plan the human prospect? (p. 114).

Not all the authors see Smith’s contributions as positive. Salim Rashid, who has previously questioned Smith?s appeal, does so again here by addressing Smith’s contributions — or lack thereof — to economic development. Rashid aims to show that the main questions of development addressed by Smith had been dealt with in a better way by his predecessors and contemporaries. Moreover, Smith’s approach is so ?ethereal? that the Wealth of Nations is an ?unhappy landmark in the history of economic development? (p. 212).

While Smith was partial to the interests of the poor, particularly the working poor, Rashid argues that Smith’s sympathy does not translate into his policy recommendations.? Rashid?s rebuke boils down to several key criticisms.? First, Smith?s overemphasis on free trade and his lack of understanding of the coordinating role of government in development are major errors to Rashid. Rashid does not accept Jacob Viner’s assessment that Smith was sanguine about many types of government intervention.? Instead, Rashid argues that Smith?s ideology of unfettered markets comes at the expense of the poor.?

This seems like an unfair reading. One can disagree with Smith’s conclusions about the benefits of trade for development, but it is hard to argue that Smith favored the ideology of free markets even though he knew it would hurt the poor. Quite the contrary; Smith?s support of markets derives (I believe) from his motive to help the working poor.? Moreover, in some contexts, Smith?s approach bears consideration.? Lack of access to markets is still a major barrier to development in parts of sub-Saharan Africa, where forces of monopsony and monopoly create barriers that generate rents for elites. Smith?s contributions to understanding rent-seeking and decrying the mischief that passes for policymaking in mercantilist societies seems on-target. In addition, while Smith?s rhetoric promoted free trade, he never advocated shock therapy in carrying out reforms.? While Rashid might want to argue for industrial policy as a preferable alternative to free trade when institutions support it (e.g., with East Asia?s hierarchical, Confucian social norms), it could be a recipe for disaster in the wrong institutional setting.?

Second, Rashid faults Smith?s economic model for highlighting individual efforts and ignoring critical social interactions.? Smith never discusses the mechanisms — the ?coordinating vision? of the entrepreneur — that are needed (for example) to make the pin factory a success. This is an excellent point.? There is no explicit Coasian world of high transactions costs, for instance, that would lead anyone to start a company instead of remaining a single proprietorship, and each of the producer-agents specializes without conversation or collaboration.? This is a valid criticism, but can be taken too far; Smith does show an interest in social relations in production, although it is subtle.? In the invisible hand that appears in The Wealth of Nations, Smith analyzes the forces at work that would lead entrepreneurs to invest their capital domestically rather than export it. One important factor leading to home investment (and hence to the beneficial character of the invisible hand in this case) is knowledge about the moral character of the traders that one would encounter and could trust.? Hence, social relations enter into Smith?s economic thinking, although not to the extent one might hope.? Despite these comments, Rashid?s chapter is stimulating.?

Further elaboration on Smith?s view of government is found in a paper by Steven Medema and Warren Samuels.? In response to those who claim Smith favored only limited government, the authors note that ?If government and law seem anathema in the Wealth of Nations, they are part of Smith?s obvious and simple system of natural liberty, that is, of the natural order of things? (p. 307).? In contrast to Rashid, these authors believe Smith?s views can and must be discerned from studying the totality of his output because Smith?s work is ?grounded in multiple paradigms? (p. 300).? Smith took different things for granted in different contexts, and a researcher who ignores the unstated totality will depart with an ?undernourished? formulation.? The totality consists in understanding Smith?s tripartite model of a working society: first, an individual?s social interactions and sympathies that lead to self-control via a moral conscience; second, the laws and rules that produce external control by authorities; and third, the market, which imposes its own regimen of discipline.?

Smith notes that laws and institutions evolve and evolution is often instigated by biased sources with personal gain in mind.? Government plays an integral role in Smith?s conception of economic life, even though in the particular time and circumstance of his writing, the dominant evil was excessive government manipulations in favor of the rich.? In short, natural liberty does not trump all else, as exemplified by this quote from WN:

But those exertions of the natural liberty of a few individuals, which might endanger the security of the whole society, are, and ought to be, restrained by the laws of all governments, of the most free as well as of the most despotical. The obligation of building party walls, in order to prevent the communication of fire, is a violation of natural liberty exactly of the same kind with the regulations of the banking trade which are here proposed. (p. 312)

A number of papers endeavor to ground modern discoveries in the insights of Adam Smith.? To mention a few, Maria Paganelli does so for experiments, Amos Witztum addresses general equilibrium, and James Buchanan and Yong Yoon tackle stochastic demand and increasing returns.? These are an interesting, if necessarily incomplete, collection of papers in this section.? What seems conspicuously absent, in light of the 250th anniversary of TMS and the 150th anniversary of Darwin?s On the Origin of Species, is any paper addressing the importance of Smith to economic researchers using Smith as a spring board for understanding evolution, mirror neurons, neuroeconomics, and other concepts that may constitute Smith?s most important insights for the next few decades.?

This critique aside, the Elgar Companion to Adam Smith is an outstanding collection by a gifted group of writers, and is highly recommended.?? The list of contributors is:?? V. Brown, J.M. Buchanan, S.C. Dow, J. Evensky, P. Groenewegen, S. Hollander, G. Hueckel, D.M. Levy, B. Long, D. McCloskey, S.G. Medema, L. Montes, M.P. Paganelli, S.J. Peart, S. Rashid, W.J. Samuels, A.S. Skinner, G. Vivenza, A. Witztum, Y.J. Yoon, and J.T. Young.


K. Haakonssen, editor, (2006), The Cambridge Companion to Adam Smith (Cambridge University Press).?

J. Wight, (2006), ?Adam Smith?s Ethics and the ?Noble? Arts,? Review of Social Economy, 64 (2): 155-180.?


Jonathan Wight is Professor of Economics and International Studies at the University of Richmond.? Recent research has focused on human instincts as a way of understanding Smith?s invisible hand and Smith?s ideas on informal learning and moral learning.? He is the author of the academic novel, Saving Adam Smith: A Tale of Wealth, Transformation, and Virtue (2002).?

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 ( Published by EH.Net (August 2010). All EH.Net reviews are archived at

Subject(s):History of Economic Thought; Methodology
Geographic Area(s):General, International, or Comparative
Time Period(s):18th Century
19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII

The World of Private Banking

Author(s):Cassis, Youssef
Cottrell, Philip
Reviewer(s):Austin, Peter

Published by EH.NET (June 2010)

Youssef Cassis and Philip Cottrell, editors, The World of Private Banking. Aldershot, UK: Ashgate Publishing, 2009.? xxv + 302 pp.? $115 (hardcover), ISBN: 978-1-85928-432-2.

Reviewed for EH.NET by Peter Austin, Department of Interdisciplinary Studies, St. Edward?s University.


Occasionally, one has the chance to look simultaneously at something historical and something very much still with us.? This applies to the business of money that, if all goes well, is almost invisible to everyday life.? Today issues of finance are more visible than usual and a realm that prides itself on discretion is under scrutiny. The World of Private Banking represents a time when discretion and reputation were all.? This edited volume contains fifteen chapters that group and connect in a sensible manner, so that reading the whole creates an impression of something greater than the sum of its parts.? It is hugely descriptive though, for the most part, it is not new scholarship.? It covers various aspects of private banking from the late eighteenth century to the First World War, and a bit beyond.? It has an expansiveness that belies the simplicity of its title.

If there is one name associated with private banking, it is Rothschild, and it is with this five-tentacled bank that the collection begins.? In his ?Rise of the Rothschilds,? Niall Ferguson portrays the bank as it was — a sort of multinational.? He is most concerned with origins, the rise of the organization between 1810 and 1836 — that is, before the great banking changes of the mid-nineteenth century.? Derived from his two-volume history, this essay is the collection?s one case study and concerns itself with Rothschild?s size, its bond-dominated business, the partnership structure, the family itself, and reasons for the bank?s success, including its well-known communications network.

In its role as ?The World Pump,? the Rothschild House might today be called a ?non-state actor,? and like today, myths grow up around the inclinations and capabilities of such organizations.? As Ferguson describes, Rothschild was indeed powerful, even in its early decades, based on a number of factors — not least of which was its great geographical reach, and its reliance not on a single market.? Ferguson?s account is florid with personalities and comments about the ingredients of Rothschild?s operations.? One of the most interesting aspects here is Ferguson?s revelation that the House often improvised in its operations, had no systematic accounting, and lost track of considerable amounts of money.? If there is a weakness to this excellent essay, it is that the Ferguson does not choose or prioritize the most important elements of Rothschild?s success.? Was it superior communication, ruthlessness toward rivals, Jewish solidarity??? In the end, for Ferguson, it appears that Rothschild?s performance came from a combination of things, but the bank remained at heart a family concern, from which emanated its intensity and its methods.

In the three decades after 1815, Rothschild?s closest rival was Barings, and John Orbell?s comment on the British house complements Ferguson well.? Rothschild was much larger than Barings, but in his ?Private Banks and International Finance in the Light of the Archives of Baring Brothers,? Orbell highlights the unparalleled range of Barings? financial activities that assured it greater profitability.? Ferguson?s lens focuses squarely and powerfully on one large piece of the private banking puzzle: Rothschild.? By contrast, I believe Orbell does in exemplary fashion what this collection does as a whole so well: reviews and explains the vocabulary, mechanics, and roles associated with the international finance generally; the merchant/private banking enterprise specifically.?

Orbell?s primary assignment here is to articulate the private banks? source of greatest strength and longevity: its international scope.? From Calcutta, Canton and Madrid to Rio de Janeiro, New Orleans and Moscow, Barings was active, and this remained an advantage that private banks maintained over their joint-stock rivals even after these began to eclipse private bankers in home markets after about 1850.? Not only does this chapter locate Barings? activities geographically, it places them in relation to Baring rivals.? Perhaps of all chapters, Orbell?s is unique for its weaving together of merchant banking themes with archival resources.? The gaps are most interesting.? In my own work on Barings in Canada, Massachusetts and England, I can indeed confirm the perplexing absence of material in the Barings record to do with trade finance before 1900.? But in all, the Barings archive is complete and quite well-managed.? It is an orderly record of one of the most important merchant banks to fuel modernization and growth around the world, particularly in the nineteenth century.? Orbell illustrates this process magisterially.

Barings was one of the nineteenth century?s great international financial enterprises.? In the United States, however, it had no peer before 1840, and Edwin Perkins takes a look at Barings? operations there, along with snapshots of five other major banks in the United States in his essay, ?The Anglo-American Houses in the Nineteenth Century.?? A scholar whose early work focused on the House of Brown, Perkins describes the activities of banks in the antebellum United States when it was an emerging market in the way we think of China, Brazil, or India today.? Perkins reminds us that the American market exploded with activity after the Civil War, and that it was European capital flowing increasingly to maturing American financial institutions that helped to settle and develop the enormous home market of the United States — a home market so large and rich that the United States has historically deemphasized exports since independence. The largest theme in Perkins? work is this transition to American financial control on its own soil.

In the 150 years or so before 1914, private banks were exclusive entities.? Today, they are most often found within larger public companies as in the so-called ?private banking? division of a Wells Fargo Bank or even a Charles Schwab.? The salience of Perkins? essay is that we know that the development of a mature American banking system gained traction with the withdrawal of Barings after the financial difficulties of the Andrew Jackson years; that the reasons for withdrawal by Barings were varied, but in part had to do with the disagreeable style, pace, and practices of American finance.? In the portraits of a Brown, a Seligman, a Kuhn Loeb, or a Morgan, this essay previews the rise of raw American financial power released in the 1840s, and subsequently developed.? The fortunes of discrete patrician private banking of the kind described here, particularly British, correspond inversely with the development of the American market and the spread of American democracy and values.? Perkins? essay describes the transition from a time when Anglo-American houses prioritized Britain and British finance to a time when they prioritized business on the western side of the Atlantic.?

International themes continue with Alain Plessis? interesting article on the ?eccentric, quasi-magical world? of the so-called ?Haute Banque? — a very ?small group of powerful houses? in Paris, usually partnerships, international in orientation, whose membership was unofficial, changeable, and difficult to define.? Their mystery was increased because (with the exception of Rothschild) Plessis finds these French banks left few records compared to their British and American counterparts.? Unraveling events in business history is notoriously difficult — in financial history, particularly so.? In contrast to other fields, personalities attracted to commerce and money tend not to be expressive, impressionistic or prone to lengthy description since they tend to see more value in action rather than thinking and writing.? There are exceptions here of course, but the haute banque?s secrecy is in line with Pierpont Morgan?s French aphorism of ?pense moult, parle peu, ?cris rien? (?think a lot, say little, write nothing?).

International operations were the lifeblood of many private banks.? But in the phrase of Alain Plessis, the Parisian haute banque was ?a world open to foreigners? in a manner unlike others in private banking.? Plessis describes cosmopolitan organizations ?incompletely assimilated? into French elite society since they had roots of foreign origin and desired to keep connection with family members outside France.? To be sure, origins and loyalties were by country.? They were also by faith.? He describes wedlock alliances among Christians and among Jews in order to build banking organizations; of major Jewish and Protestant bankers and their children married off to foreign wives and husbands, to people established in France but with foreign origins, often of the same religion as themselves.? Here was international banking with a vengeance.? Here was the source of the Rothschild mystique, a combination of myth and reality mentioned by Ferguson, made more mercurial and (for those so inclined) more mysterious by family members moving around from country to country for intelligence to find new markets and to keep family ties current.?

Plessis on the haute banque introduces the reader to the general phenomenon of religious and ethnic minorities in trade and finance.? Armenians in Turkey, Chinese in Malaya, Greeks in Cairo, and Lebanese in Buenos Aires come to mind.? Here, authors Ginette Kurgan-van Hentenryk and Martin K?rner concentrate on the idea of financial solidarity along religious lines with their chapters on Jewish and Protestant banking.

Kurgan-van Hentenryk broadens aspects of Plessis? essay as she covers the origins of the haute banque at the time of the Bourbon Restoration, a closed circle of twenty banks of Protestant and Jewish financiers that placed loans for Europe?s conservative monarchies after 1815.? But she does so much more.? Here is the story of Jewish private banking and its spread across Europe in the nineteenth century with imminent names like Stern, Bischoffsheim, Bleichr?der, Fould, Oppenheim, Goldschmidt, Cassel, Lazard, Mendelssohn, Seligman, and Rothschild; and later in the United States with Warburg, Schiff, Goldman, and Soros.

Kurgan-van Hentenryk divides Jewish banking activity into four phases: the Hofjuden period, the nineteenth century through the First World War, the interwar/Nazi period, and the post-1945 years.? At all times, she says, Jewish private banking based itself on trade — whether in commodities, capital, or most recently in ideas and services.? It is a fascinating journey in many respects.? The author emphasizes that, particularly before the 1850s, much of the Jewish private banking story took place in Austria and the German states (Vienna, Frankfurt-am-Main, Cologne, Hamburg, Berlin), from which it ramified to other parts of Europe, the United States, and Europe?s colonial possessions.?

It is the story of financial diaspora.? It is also the story of risk-taking in the face of adversity.? Much of Kurgan-van Hentenryk?s essay discusses Jewish participation in projects many non-Jewish private bankers spurned: railroads and early industrial finance.? In this regard, Jewish private bankers, as described, were integral to the early development and promotion of joint-stock banks that culminated in the creation of the Cr?dit Mobilier in France, and the so-called D-banks in Germany.? Kurgan-van Hentenryk illustrates the quick changes to finance during the middle decades of the nineteenth century with the new ?mixed? banking or joint-stock instruments.? Joint-stock banks were, after all, as key to the finance of the 1871 Franco-Prussian War indemnity as private banks (Barings, Rothschild) had been to the Napoleonic indemnity of 1815.? The shift of instruments so profound over just a few decades seems worthy of the phrase ?Big Bang.?

What did not change was a certain anti-Semitism that persisted on the Continent, of course, well into the twentieth century.? It was a prejudice, according to Kurgan-van Hentenryk, not easily mitigated by wealth, accomplishment, or education.? In this regard, she describes a defensive and fascinating kind of clannish behavior, the important role of women for family ties, and a historical pattern of strict endogamy with a goal to deepen networks, and to conserve and increase wealth among families.? Weaving through her account is the presence of the Rothschilds, and it is unclear if the general fortunes of Jewish bankers were hurt or helped by the blossoming of the Rothschild house after 1815.? In this excellent account, the differences, if any, between Sephardic, Ashkenazi, and even Hasidim Jews in their associations, networks, or business successes are also unclear.? After musing on the influence of Jewish financiers in politics, Kurgan-van Hentenryk ends with a question ?what path is next for Jewish private bankers: integration or some sort of innovation?? Whatever the path, she implies adaptability and survival for Jewish bankers, private or not.

Following this account, Martin K?rner turns our attention to Protestant financiers, who he says operated ?from Lisbon to St. Petersburg? by the eighteenth century.? Though a minority, the place of Protestant bankers was historically much less clear for K?rner than Jews are for Kurgan-van Hentenryk, even in the wake of the Reformation.

K?rner describes solidarity among Protestant bankers in the sixteenth century, and the financial networks that started to form — first in several parts of Switzerland, later between various European Protestant groups in the German states and between Huguenot factions in France.? This said, K?rner devotes most space to the growth of Swiss (Calvinist) financial power, particularly in relation to France.? He recounts in highly technical terms the money transfer routes of Protestant bankers who used Geneva as a financial hub, and, like several essays in this collection, K?rner?s account is useful for explaining the mechanics of government loan finance.? But the chapter remains in large measure a description of Swiss Protestant bankers? influence on the French crown.? Starting with the reign of Louis XIII, K?rner depicts the start of a sort of Huguenot haute banque which only grew in influence with the French court as demand for capital increased under the ambitious Louis XIV.? What is fascinating to see here is Catholic monarchs who elevated Protestant bankers to positions of social and political power in Catholic countries in periods of inter-denominational pressure.? This is particularly arresting when the pattern survived in France even after the 1685 revocation of the Edict of Nantes.?

It is indeed interesting to see K?rner explain how Huguenots fled France during her wars of religion and set up shop as merchants and bankers in all the economic centers of Europe.? The difficulty here is that, except for Paris, these other ?economic centers of Europe? are, in the main, given short attention.? And while this essay has clear strengths, it leaves significant areas tantalizingly unaddressed.? Lutherans, Anglicans, Anabaptists, and Methodists are unmentioned, as well as the regions in which they operated.? Did they form networks?? Even if this essay?s focus were only Swiss/Calvinist?French relations, one large weakness would remain.? K?rner does not provide a reason why Catholic monarchs and princes did not employ Catholics bankers.? It is true that Catholics at times accepted Protestants to avoid the services of Jews, as K?rner mentions, but were Catholic bankers inadequate to solve the financial exigencies that befell France, for example, after her Religious Wars?? Were the financial troubles of the pre-Revolutionary decades so unusual that His Most Catholic Majesty Louis XVI could only summon the services of the talented and Protestant Jacques Necker?? K?rner is frustratingly mute.?

If Ferguson (Rothschild), Orbell (Barings), and Perkins (Brown et al.) treat the overarching development of the private bank, the volume?s editors, Youssef Cassis and Philip Cottrell, treat its crisis in two substantial contributions.

In his masterful ?Private Banks and the Onset of the Corporate Economy,? Cassis describes the emergence of a ?new bank? between 1835 and 1865 which he says represented a seismic change in savings and financial participation by the populations of Europe.? This joint-stock, deposit, and investment banking vehicle presaged the onset of unprecedentedly large capital accumulations demanded by a rapidly-industrializing European society in the half-century before the First World War.?

Cassis? essay is a description of slow change across time, not decline and quick fall.? It first reviews what a private bank was — its character, purpose, legal form, and pedigree.? Cassis then describes the great advantage of the private bank in the long term: not the servicing of small and medium-sized businesses in its various domestic locales, but the financing of international trade and the issuance of foreign loans — that is, the exclusive world of the haute banque.? Though a French term, Cassis touches this idea of the haute banque from Paris and Brussels to Berlin and Vienna, and the discussion is a good complement to Plessis? chapter.? However, if there is an emphasis here, it is Britain where one can see the effect of joint-stock banking on private bankers most clearly.? The decline of the private banker, says Cassis, was no steeper than in Britain, ?yet nowhere did private bankers flourish more than in the City of London.?? Here he presents the central paradox of the nineteenth century related to joint-stock ascendancy: while private bankers lost ground as domestic deposit institutions throughout Britain as a whole, they redoubled their commitment to international activities which strengthened financiers in the City, particularly in short-term acceptances.

Philip Cottrell drives home Cassis? case of Britain with his study of the actual mechanisms that changed finance in the City of London: by legislation of 1826, the arrival of limited liability laws and the explosion of domestic limited joint-stock banking in the early 1860s, measures he calls collectively ?London?s First ?Big Bang.?? In addition, Cottrell surveys the competition to private banks, particularly in the international sphere after the growth of joint-stock banks.? Written about so well by Geoffrey Jones, these limited-liability laws followed by the 1862 Companies Act greatly expanded overseas corporate banks and colonial banking, and even spurred the formation of myriad varieties of finance companies.? ?The ?Big Bang? largely sounded the death knell of personal private enterprise within most of London?s financial markets,? writes Cottrell.? ?Private banking persisted in the City, but its days were numbered.?? As Cottrell and Cassis comment, the decline would take time, and David Kynaston also contributes to this discussion of decline (see below).? Cassis and Cottrell (among others in this collection) voice the central irony that private bankers themselves sowed the seeds of their own destruction by sometimes creating joint-stock banks as vehicles to finance industrial projects that, in the end, despite the private bankers? best efforts at control, ultimately replaced them, certainly domestically.

Dieter Ziegler gives us a look at Germany.? Specifically, he asserts that Alexander Gerschenkron?s explanation for the first capital driver of nineteenth-century German industrialization should be private banks, not universal banks.? Here we have a specific substantiation of Kurgan-van Hentenryk?s account (?Jewish Private Banks?) of the origins of the D-banks.? We also have a substantiation of both Jewish and private inputs to railroad and industrial finance before the full onset of joint-stock banking, which was resisted with few exceptions (e.g., Bavaria) throughout the German states, including Prussia.? Inspired by the Credit Mobilier after 1852, nevertheless, Ziegler finds that innovative consortiums assembled by private bankers in the German states and Hapsburg empire ?proved to be the decisive factor for the nascent universal banks? that financed the earliest railroad projects (e.g. 1836, from Vienna to Bochnia in Galicia).

Of course, one of the facts of banking is that joint-stock banks began to trump private bank capital in Europe and the United States after 1850.? Nevertheless, Ziegler is concerned with timing.? Gerschenkron neglected to show that the first successful joint-stock banks were founded by experienced private bankers.? Thus the start of Gerschenkron?s leading sector take-off had a private bank ?spark-plug.?? By the mid-1850s when the first stock credit banks were founded, the basic railway net connecting almost all important Zollverein States was already built.?

Ziegler says that historians should tweak Gerschenkron to include the input of private bankers in the German industrial story.? What of Italy?? Do we need to adjust Gerschenkron?? Luciano Segreto thinks so.? In his ?Private Bankers and Italian Industrialization,? Segreto describes a pre-unification Italy with few consequential financial institutions, a peninsular quilt of regions and cities through which a few private bankers threaded their way often as Protestants or Jews, and who had the strongest financial contacts with interests outside Italy itself.? He finds no competence or inclination to cooperate on anything like an Italian Zollverein.?

At times, Segreto gives the impression of impatience with the historical circumstances he describes before the birth of the Kingdom of Italy.? In the pre-unification period, for example, Segreto describes attempts to form Italian financial organs based on sericulture or shipbuilding in the manner of Belgium?s Soci?t? G?n?rale, or the later Cr?dit Mobilier and Credit Anstalt.? He laments, however, that these enterprises were ?too advanced for the times and above all for the socio-economic context in which [they] operated, [which were before unification] still loath to make a coherent commitment to industrial development.?

Many things changed in the 1870s.? Suddenly, there were national projects and private bankers who had once individually identified only with particular states or with foreign interests were called on to underwrite large projects with a nationwide scope such as railroads — so that bankers from Genoa, Turin, Livorno, and Florence were brought together for a common purpose.? Cooperation also occurred on a regional basis with no banking center more active than Milan, now free from Austrian surveillance.? Segreto points out that, by the 1880s, Milanese commercial banks had joined forces with banks in Turin and Genoa.? The assembly of an Italian credit system led to a national banking system and Segreto parallels the fever of bank establishment with that of antebellum American or Meiji Japan.? In this expansive environment, Segreto implies, private bankers with political ties were active in such sectors as foodstuffs, petroleum, textiles, mining, transport, and real estate but they were, in Segreto?s words, ?flanked by the large commercial banks.??

Unfortunately parts of this essay are quite difficult and vague, making it unclear until the last section what exactly private bankers? roles were in post-unification Italy.? Moreover, Segreto presents mixed banks as a feature of Italy by 1914.? But it is far from clear how we got here.? Whatever the path, however, the destination emerges from Segreto?s essay.? He asserts that private bankers played a particular role after 1890 — something Segreto calls ?functional ?re-specialization.??? After several decades in which ?all operators in the sector? (I assume financial) were kind of industrial-financial generalists, Segreto finds that private bankers switched to the role of facilitator and smooth point of contact between industry and the mixed bank.? He sees? the private banker as the subtle deal-closer in a mixed bank venue, and substantiates his assertion with a persuasive chart that? lists private banker involvement in 31 major industrial enterprises in Italy from 1884 to 1913.? Segreto also reports the decline of private banker ranks in the years after the First World War.? He implies that the less-than-subtle events of the 1920s and 1930s had something to do with this.

J.P. Morgan?s motto may have been to ?write nothing? (ecrit rien).? When carried out, this makes business history research difficult.? However, written archives do exist and readers will find four sections (five authors) on archives of various family businesses and banks in this collection — two British, one Continental, and the Rothschilds that straddled both.? These essays break up The World of Private Banking nicely and provide updates, insights, and personnel connected to research collections.? They also tease researchers with leads to plug holes in the financial history literature.

Except perhaps for John Orbell?s chapter on the well-established Barings, the archive chapters remind the reader that the nature of archives is fluid.? Even with the oft-studied House of Rothschild, Melanie Aspey points out that a large portion of records of the Vienna branch were retrieved from Moscow less than a decade ago.? Aspey?s partner on the Rothschild archive chapter, Victor Gray, corroborates Niall Ferguson?s comment that the papers remain split among the French, Austrian, English, German and the Italian (Naples) branches.? Of these, London is most complete.? But according to Gray, we may never know what we are truly missing since all the Houses of Rothschild were subject to what all private banks are subject: periodic purging by family members.?

Still, millions of letters need cataloguing due to volume, difficulty of categorization, and language — of which six are used in the Rothschild papers.? Language is a barrier also to what Victor Gray sees as the treasure trove of the House: the Judeo-German (Judendeutsch) correspondence in German using Hebrew letters.? These are Rothschild family and business letters used to skirt competitors and to survive as Jews in the police state of Metternich.? As of 1998, only one in seven of these letters was translated.? Additionally, there are hundreds of thousands of international letters from Rothschild correspondents and agents which are starting only now to get scholarly attention, but remain largely unexplored.? John Orbell mentions something similar about Barings? London Wall accounting records which (I can attest) are vast, complete, yet seldom used; and await the eyes a scholar of a certain temperament.?

As Gray and Aspey?s archive discussion complements Ferguson?s Rothschild chapter, so Gabriele Teichmann?s discussion of the papers of Salomon Oppenheim Jr. & Company complements Ziegler?s chapter on private bankers and German industrialization.?? For that matter, one could sensibly pair it with Kurgan-van Hentenryk?s ?Jewish Private Banks.?

Teichmann?s chapter is useful as an advertisement for an archive of intrinsic importance.? Oppenheim was an institution active in the many industrial sectors of a country which, upon unification, proved the most potent in twentieth-century Europe: Germany.? In her discussion of archive resources and the Oppenheim family, Teichmann highlights Cologne, a pivotal city for the history of the industrial Rhineland, and hence for the history of twentieth century Europe.? And it is not without irony that this contributor to German vitality was a Jew.

The last part of Teichmann?s account called ?Social Studies? explores family related topics of the Oppenheims.? This is the exclusive focus of Fiona Maccoll?s ?Banking and Family Archives? in this fourth of four archives chapters.? Here, Maccoll reinforces the idea of family as a cardinal difference between private and other bank types.? Initially, I found Maccoll too prolix with step-by-step family data — that is to say, who said what, to whom, and when.? This task is for the researcher to discover and present.? However, the archivist can be the handmaiden in this endeavor, and Maccoll does this.? Her chapter steers the reader to archival materials that involve people, family, and relationships.? Seemingly banal, the idea of family was one of the distinguishing entrance criteria for private bankers until its twilight in the late twentieth century.? And it is the potential for personal information relevant to operations that is so seductive about the Rothschild Judendeutsch letters, according to Gray and Aspey.? For Maccoll, though, family papers provide data on private banking operations — sometimes indirect, sometimes oblique — that simply does not exist in other banking venues.

Some material in these chapters will not be as useful to those familiar to archives as to those newer to the field.? Still, the range presented here from French (Gray and Aspey) to German (Teichmann) to British (Maccoll and Orbell) has something for everyone, regardless of experience.? Finally, the internet has transformed so many things, and private bank archives are no exception. Gray addresses these issues at some length in regard to the Rothschild archives.

I suppose it could be said that a banker spends half his life making money, the other half giving it away.? Pat Thane touches on the issue of ?giving it away? in her chapter ?Private Banking and Philanthropy: the City of London, 1880s-1920s.?? It is one of the half dozen essays one should read here if pressed for time, not for its superiority per se, but because it bears on a dimension of money-making not touched elsewhere in the collection.? Thane?s chronological focus is tight, her themes limited for the most part to the British Royals and Jewish philanthropy, and her essay is effective as it stands.? Readers may grow impatient with Thane?s dependence on Frank Prochaska?s work for her Edwardian discussion.? And though there is rich coverage of Baron and Baroness de Hirsch, the Bischoffsheims, and Ernest Cassel, some will likely find the account less than satisfying with Schroeder?s the sole House outside the Jewish sphere.? What of Barings, Hambro, and Coutts, or the Quaker legacy?? To say nothing of moving the chronology to the earlier decades of the nineteenth century?? These queries aside, I suspect that the ambition of the essay was deliberately and ruthlessly limited, and, for what it does, it does quite well.? My complaints are meant to inspire others to complete the task that Thane has begun.? She has whetted appetites terrifically.

David Kynaston closes this collection with thoughts on the years in the City after private banking?s ?moment? has passed: its denouement from 1914 to 1986.? He depicts a vocation aware of its decline — a ?closed world, in which family, wealth and social connections counted for more than industry or ability.?? He describes a world anchored to a past ideal, a pre-1914 order of Old Etonians, ill-suited to compete in a time that was starting to see nothing irregular or wrong with the rise of a clerk to bank president.? One example of Kynaston?s idea of nebulous decline? is Edmund de Rothschild?s 1998 memoir, A Gilt-Edged Life.? Here, Kynaston describes a floating comfortable life; a scion of a rather laconic, somewhat frivolous dying breed — reminiscent of the exhaustion of Thomas Mann?s Buddenbrooks — without the animal spirits needed to survive in the rough and tumble world of the later twentieth century.??? Kynaston? illustrates this sense of floating among private banking families with other convincing anecdotes of the 1950s, 1960s, and 1970s.? The second ?Big Bang?? (see Cottrell for the first) made this intangible sense of? drift and decline abruptly concrete for the private City banker in 1986, as the Houses of Lazard, Warburg,? Hill Samuel, and others — once financial whales — became minnows, and new whales arose with names like Citibank, Chase Manhattan, and Banker?s Trust.? My own work on Barings illustrates this well.? Its conservative principles allowed the partnership to weather the Panic of 1837 brilliantly.? Unfortunately, Barings? culture learned the wrong lessons from these successes, and it failed to adapt and innovate in later years.? Indeed, the first time Sir Peter Baring had heard of the ?clerk? Nicholas Leeson, it was too late.? Certainly in its classic form, Kynaston artfully declares the demise of private banking in the City, for only after death can one call for obituaries, which he does.? In the main, the private banks are gone.? Long live the private banks, Kynaston says — in house histories!

One need not read this book chapter by chapter in order.? I recommend the reader start anywhere in the book and fan out.? I have followed this free course in my remarks above.

In closing, one of the virtues of this collection is the overlapping explanations by several authors of the same terms of trade and finance.? Multiple mentions of acceptances, bills of exchange, country banks, merchant banking in different contexts, as well as key dates in the financial history of the period that this volume represents provide a review for the expert, a primer for the novice.

Technically, I appreciated the publisher?s choice to choose footnotes over less convenient endnotes.? Wherever located though, the citations and bibliography present a fantastic tour of current and classical literature on finance and banking with lacunae only of Peter Temin, W.W. Rostow, John McCusker, and Peter Rousseau.

This is not easy material.? However, the level of writing in this volume is high, no doubt made higher by skilled editing.? The uses of this collection are many, not least as a tonic for the current American fashion to present globalization as something new.? On most every page, one finds accounts of men and organizations working in the business of international affairs, indeed global since the start of the nineteenth century.? Part research guide, part family history and part financial/trade primer, this collection is, finally, part museum-piece — for the world of the private banker is largely gone.? Nonetheless, like good museums, this book repays a visit, has much to teach about the present, and presents important things knowledgably and with style.


Peter E. Austin is a historian at St. Edward?s University in Austin.? He is the author of Baring Brothers and the Birth of Modern Finance (Pickering & Chatto, 2007).? He is currently at work on a book on the 1960s.

Subject(s):Business History
Financial Markets, Financial Institutions, and Monetary History
Geographic Area(s):Europe
Time Period(s):18th Century
19th Century
20th Century: Pre WWII