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Kicking Away the Ladder: Development Strategy in Historical Perspective

Author(s):Chang, Ha-Joon
Reviewer(s):Irwin, Douglas

Published by EH.NET (April 2004)

Ha-Joon Chang, Kicking Away the Ladder: Development Strategy in Historical Perspective. London: Anthem Press, 2002. iv + 187 pp. $22.50 (paperback), ISBN: 1-84-331027-9.

Reviewed for EH.NET by Douglas Irwin, Department of Economics, Dartmouth College.

Ha-Joon Chang enlists economic history to mount a provocative critique of the “Washington Consensus” — the standard set of policy recommendations that aim to promote economic development in poor countries. According to the consensus, developing countries should adopt a set of “good policies” and “good institutions” to improve their economic performance. The good policies include stable macroeconomic policies, a liberal trade and investment regime, and privatization and deregulation. The good institutions include democratic government, protection of property rights (including intellectual property), an independent central bank, and transparent corporate governance institutions and financial establishments. These policies have been embraced by the World Bank, the International Monetary Fund, and many mainstream economists, hence the term Washington Consensus.

Chang highlights the paradox that many of today’s high income countries did not pursue such policies when they were climbing the economic ladder of success in the nineteenth century. Rather, these countries implemented high tariffs and sectoral industrial policies, lagged in the introduction of democratic reforms, stole industrial technologies from one another, did not have independent central banks, and so forth. Therefore, in Chang’s view, developed countries are hypocritical when they seek to deny developing countries access to these same policy tools and when they urge them to adopt democratic reforms and protect intellectual property.

In some sense, this book pits Adam Smith (free market orthodoxy) against Friedrich List (managed intervention heterodoxy) and comes down on List’s side. In Chang’s view, developed countries preach Adam Smith’s policies to developing countries today but pursued Friedrich List’s policies themselves in the past. Developed countries are “kicking away the ladder” (in Friedrich List’s memorable phrase) that they used to become richer and instead are trying to foist upon developing countries a set of policies wholly unsuited for their economic condition and contrary to their economic interests. This book has already achieved high status as an iconoclastic critique of neo-liberal “market fundamentalism” as pronounced by establishment economics and international institutions.

Chang, who is Assistant Director of Development Studies at the University of Cambridge (UK), divides his slim book into four chapters. Each chapter focuses on the policies pursued a century ago by the leading rich countries of today (Britain, United States, Germany, Japan, and other European countries) and compares those policies to the ones that developing countries are urged to adopt the Washington Consensus. Chapter One introduces the book and asks “How Did the Rich Countries Really Become Rich?” Chapter Two looks at trade and industrial policies designed to allow developing countries to “catch up” with industrial countries. Chapter Three focuses on institutions and good governance. Chapter Four concludes with lessons from the past.

Chang’s book is provocative and interesting, but falls short of persuading. Perhaps the biggest disappointment is Chang’s extremely superficial treatment of the historical experience of the now developed countries. He has simply chosen not to engage the work of economic historians on the questions he is raising. For example, chapter one — “How Did the Rich Countries Really Become Rich?” — does not contend with the work that economics historians have done on the topic. Given the broad question posed in this chapter, one might have expected Chang to confront such landmark works as Douglass North and Robert Thomas’s The Rise of the Western World (1973) or Nathan Rosenberg’s and L.E. Birdzell’s How the West Grew Rich: The Economic Transformation of the Industrial World (1986). These works stress the importance of political systems that provide security to economic transactions and economic systems that allow for competition, broadly construed. But Chang does not explain why the lessons from these works are not relevant to developing countries today.

Rather, in chapter 2, Chang elaborates on his contention that “infant industry promotion (but not just tariff protection, I hasten to add) has been the key to the development of most nations … Preventing the developing countries from adopting these policies constitutes a serious constraint on their capacity to generate economic development.” In my view, this statement is erroneous on two counts — that infant industries were the key to economic development, and that developing countries are prevented from adopting such policies today.

Just because certain trade and industrial policies were pursued and the economic outcome turned out to be good does not mean that the outcome can be attributed to those specific policies. Yet Chang does not advance our understanding beyond this “correlation therefore attribution” approach. Perhaps the success of developed countries came despite the distortions and inefficiencies created by their earlier policies because the broader institutional context was conducive to growth.

For example, the United States started out as a very wealth country with a high literacy rate, widely distributed land ownership, stable government and competitive political institutions that largely guaranteed the security of private property, a large internal market with free trade in goods and free labor mobility across regions, etc. Given these overwhelmingly favorable conditions, even very inefficient trade policies could not have prevented economic advances from taking place. (As Adam Smith once commented, the effort of individuals to improve their condition “is frequently powerful enough to maintain the natural progress of things towards improvement, in spite … of the greatest errors of administration.”)

And yet, in Chang’s story, these other things get no credit for America’s economic success; rather, it all comes down to infant industry promotion. Chang writes: “Although some commentators doubt whether the overall national welfare effect of protectionism was positive, the U.S. growth record during the protectionist period makes this scepticism look overly cautious, if not downright biased.” But, once again, correlation is not causation. Chang produces no evidence that protectionism was responsible for the growth. He does not investigate the various channels and mechanisms by which trade policy affects growth and compare them to other factors leading to economic expansion. He does not undertake a counterfactual analysis to determine the magnitude of benefits and costs of infant industry policies. In the reasoning style of Paul Bairoch, if tariffs were high and growth was strong, then there must be a causal relationship between the two. There is no need to examine alternative explanations, such as whether any effects of tariff policy were swamped by the advantages of other aspects of the American economy. Instead, Chang makes sweeping statements like “It is also clear that the U.S. economy would not have got where it is today without strong tariff protection at least in some key infant industries.”

The implication is that protecting manufacturing industries accounts for the success of rich countries. But Stephen Broadberry (1998) has shown that the United States overtook the United Kingdom in terms of per capita income in the late nineteenth century largely by increasing labor productivity in the service sector, not by raising productivity in the manufacturing sector. Broadberry’s research is not obscure, yet Chang makes no note of it.

Attributing the economic success of various other countries to their trade and industrial policies alone grossly inflates their role. In Europe, Broadberry and others have showed that growth was related to the shifting of resources out of agriculture and into industry and services. Yet trade policies may have slowed this transition for some countries. Britain industrialized with the textile industry in the late eighteenth and early nineteenth century, but the Corn Laws during this period kept more labor and capital resources in agriculture, not industry. Similarly, to the extent that Germany’s tariff code protected agricultural goods (where it was a net importer), it actually slowed that transition and may have retarded growth in the late nineteenth century.

A broader problem afflicts Chang’s approach — sample selection bias. Chang only looks at countries that developed during the nineteenth century and a small number of the policies they pursued. He did not examine countries that failed to develop in the nineteenth century and see if they pursued the same heterodox policies only more intensively. This is a poor scientific and historical method. Suppose a doctor studied people with long lives and found that some smoked tobacco, but did not study people with shorter lives to see if smoking was even more prevalent. Any conclusions drawn only from the observed relationship would be quite misleading. Chang also overstates the degree to which developing countries today are prevented from pursuing interventionist trade and industrial policies. Trade agreements such as the General Agreement on Tariffs and Trade (GATT) pose few barriers to countries that wish to pursue activist trade policies, and indeed many countries did so during the years when import substitution was the rage among developing countries in the 1950s and 1960s. Article XVIII of the GATT allows governments to undertake trade measure to promote development, including the promotion of selected industries. Many countries are choosing not to do so because their past experience with such policies has not been successful.

No economic historian will deny the importance of lessons from history in guiding policy today. The question is “which” economic history is relevant. (This point was raised in some insightful comments on Chang’s work by Ken Sokoloff at last year’s EHA meeting.) Which historical experience is most relevant for developing countries in Asia, Latin America, and Africa today — the perceived failure of state-led development and import substitution in those countries in recent decades, or the experience of Britain and the United States in the nineteenth century? Certainly China and India have answered by saying that their past policies of inward-looking socialism have failed them. Both countries have done better over the past decade or two by shedding heavy-handed government involvement in regulating the economy and allowing a greater role for market forces, even though they have not embraced every aspect of the “Washington Consensus.” In particular, China and India have decided to become much more open to world trade and investment and have reaped benefits by exposing long protected “infant industries” to global competition.

Even if the policy lessons of the distant past are relevant, it is unwise to make policy recommendations based on America’s experience a century ago without appreciating the broader institutional context of the U.S. growth experience and its differences from many developing countries today. In the U.S. case, competitive political institutions and limited government prevented policymakers from pursuing highly damaging policies. Governments in developing countries that are unaccountable, or possess unchecked power, can implement policies that have the potential to impose much greater costs on society for much longer periods of time.

This book raises a fascinating set of questions and succeeds in being provocative, but I think it ultimately fails to be convincing. If Chang had focused in-depth on one particular question, such as the degree to which protectionist policies account for the success of today’s developed countries, and came to terms with the work of economic historians more directly, he might have made more of a contribution.

Reference: Broadberry, Stephen. “How Did the United States and Germany Overtake Britain? A Sectoral Analysis of Comparative Productivity Levels, 1870-1990.” Journal of Economic History 58 (1998): 375-407.

Douglas A. Irwin is professor of economics at Dartmouth College. Among his recent works are “Interpreting the Tariff-Growth Correlation of the Late Nineteenth Century,” American Economic Review (May 2002), “Tariffs and Growth in Late Nineteenth Century America,” The World Economy (January 2001); and “Did Late Nineteenth Century U.S. Tariffs Promote Infant Industries? Evidence from the Tinplate Industry,” Journal of Economic History (June 2000).

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

Institutional Change and American Economic Growth

Author(s):Davis, Lance E.
North, Douglass C.
Reviewer(s):Morris, Cynthia Taft

Lance E. Davis and Douglass C. North (with the assistance of Calla Smorodin), Institutional Change and American Economic Growth. Cambridge: Cambridge University Press, 1971. viii + 282 pp.

Review Essay by Cynthia Taft Morris, Department of Economics, Smith College and American University.

Davis and North Launch Neoclassical Institutional Theory

This book is an early major step in the evolution of the thinking of Douglass North and his collaborators on the “new” neoclassical theory of institutional change — the institutional arm of the new economic history that began to flourish in the 1960s. Among the many notable later steps are The Rise of the Western World (1973) with Robert Paul Thomas and “Constitutions and Commitment: The Evolution of Institutions Governing Public Choice” with Barry Weingast (1989) — which ranks third in citations among articles ever published in the Journal of Economic History.

Lance Davis and Douglass North develop a theory of institutional change so familiar that it is easy to forget the theory was ever “new.” They lay out a model where the core logic of institutional change is neoclassical cost-benefit analysis and the motivating drive for institutional change is profit maximization. The goal of the authors’ “intellectual journey through American economic history [is] . . . to provide a description of the processes that have produced the present structure of economic institutions. That description, in turn, is the basis for a first (and very primitive) attempt at the formulation of a specified, relevant, and logical theory of the birth, growth, mutation, and, perhaps, death of these institutions. The book is a study of the sources of institutional change in American history. It is concerned with the relationship between economic organization and economic growth” (p. 4).

Chapter 1 presents the concepts and definitions (institutional and economic environments, institutional arrangement, institutional instruments, and institutional innovation). An institutional arrangement will be innovated if the expected net gains exceed the expected costs. Arrangements range from purely voluntary to totally government controlled and operated and seek to realize economies of scale, lowered transactions costs, internalization of external economies, reduction of risk, or redistribution of income (pp. 10-11).

Chapter 2 analyses the government’s role in redistribution. The authors’ purpose is to include the role of government in their theory of institutional change in spite of the unsatisfactory state of political theory. To exclude it would likely “yield a model of institutional change no more useful in the growth context than are the present models with their ceteris paribus assumptions about institutions” (pp.37-38). In their analysis, governments with effective coercive power will be the preferred vehicle for institutional innovations where governments are well developed but markets are not, where external benefits are large but property rights are dispersed, where benefits are substantial but indivisible, and where benefits are not increased and the goal is redistribution. The costs of using government to appropriate others’ wealth and income depends on the numbers and heterogeneity of the persons organized, the feasibility of excluding outsiders from benefiting, the complexity of political coalitions, the rules of the political game, and the character of electoral suffrage.

Chapter 3 specifies the dynamics of the model in the context of American history. The authors seek to predict both the institutional “level” of change and the time lag from first perception of profit opportunity to institutional innovation: New institutional arrangements will be innovated where profit or income opportunities appear that require institutional changes or where cost reductions can be achieved with new business forms or political moves redistributing income. Among many influences changing the benefits and costs of institutional innovations are changes in market size, technical change, changes in income expectations, organizational changes in closely related activities, cost reductions associated with government-financed information or reductions in risk, and political changes altering voting or property rights. All these except political changes have parallels in neoclassical theories of technical change. However, “to do no more than assert a relationship between income changes and arrangemental innovation is hardly a significant step; . . . it is our intention to offer a theory that helps predict (or explain) the emergence of these new or mutated arrangements. In particular, the theory predicts the level (individual, voluntary cooperative, or governmental) of the new institutional arrangement and the length of time that passes between the recognition of the potential profit and the emergence of the new arrangement” (p. 39).

The core of chapter 3 divides the causes of varying lags between the perception of an innovation and its successful emergence into four steps: perception and organization, invention, menu selection, and start-up time. (i) The time lag between perceived profit and the organization of a “primary action group” depends on how much profits there are and their certainty. (ii) Where no suitable options are immediately available, time is required for invention. (iii) Where options are available, time is required to search out and select the most profitable ones. (iv) The start-up time for the innovation will vary with the “level” of institutional change, that is, according to whether it is an individual arrangement (shortest lag), a voluntary cooperative one (a longer lag because of more complex arrangements), or a governmental innovation (a still longer lag because political organization is required).

The final chapter of Part I on the theory deals with the exogenous institutional environment, and thus the initial conditions in Davis and North’s model of institutional change. Chapter 4 sketches substantial historical changes in the institutional environment: the rules governing the extent and weighting of voting rights, the legal basis for private property, and “the expectational weights that the community chooses to apply to the future costs and revenues of particular arrangemental innovations — weights that are the product of experience triggered by events exogenous to the model” (p.65). Important sources of change in these three aspects of economic life are (i) the Constitution and its interpretation by the courts, (ii) the common law, and (iii) “the external changes in the political and economic life of the nation that affect the people’s attitudes toward government” (p. 65). A lively sketch of dramatic historical changes and fluctuations over 175 years in each of these categories follows.

Part II consists of six historical chapters in which Davis and North apply their model of institutional change to American economic history by telling vivid stories of changes in land policies, financial institutions, transportation, market structure in manufacturing, the organization of the service industry, and labor market changes affecting unions and education. These stories illustrate well the explanatory potential of their model by describing the history of business and labor responses to changing profit and income opportunities through the adoption of new institutions or adaptations of old ones. No attempt is made here to evaluate these stories since this reviewer has no specialized expertise in American economic history. Of necessity given space constraints, they are selective and reflect the specialties of the authors, as they themselves carefully state in the introduction to the book.

The great strength of the neoclassical theory of institutional change is that it yields an insightful and plausible “explanation” of a wide range of institutional changes over time in individual market economies where the private profit motive is strong and neoclassical-type market supply responses are already widespread. An enormous volume of literature has developed in response to the work of Douglass North and his colleagues. North himself has been an outstanding leader in the expansion of the scope of applications of neoclassical institutional theory.

The limitations of the theory are most evident in the study of cross-country differences in institutional responses to the challenges of opportunities for profit and higher incomes. The new economic theory of institutional change is a variant of historical challenge and response theories, all of which suffer from a similar problem. To quote Nathan Rosenberg’s discussion of David Landes’s Unbound Prometheus (1969), “the industrial world is full of ‘challenges’ and always has been. Why do some challenges in some places at certain times generate successful responses and at other times do not?” (1971, p. 498). Telling historical stories consistent ex post with theories of institutional change does not address the questions raised by many historical instances when profitable opportunities for institutional change did not bring forth historical responses that helped accelerate economic growth. Constrained by its focus on market opportunities and responses, the neoclassical institutional theory poorly accommodates institutional changes driven by nationalist, religious, or imperialist motives so intense as to sacrifice economic gain. Also, the theory accommodates poorly historical country-specific institutional developments that are the outcome of chance and strong path dependency such as are evident in historical patterns of private land acquisitions or foreign domination in some developing countries.

The limitations to the excellent work of North and his collaborators are noted here as a warning that no one theory handles well the diversity of comparative historical experience. Casual empiricism is the usual practice in delimiting the countries and periods to which each theory applies. Because of this, the entire literature on institutional change is particularly weak on the diverse consequences of similar economic, demographic, and technological changes in different institutional settings. We all need to delimit more effectively the domains to which familiar models apply (Morris and Adelman, 1988, p. 32).

References

David S. Landes. 1969. The Unbound Prometheus: Technological Change and Industrial Development in Western Europe from 1750 to the Present. Cambridge: Cambridge University Press.

Cynthia Taft Morris and Irma Adelman. 1988. Comparative Patterns of Economic Development, 1850-1914. Baltimore: Johns Hopkins University Press.

Douglass C. North and Robert Paul Thomas. 1973. The Rise of the Western World: A New Economic History. Cambridge: Cambridge University Press.

Douglass C. North and Barry Weingast. 1989. “Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England,” Journal of Economic History, 49 (December): 803-832.

Nathan Rosenberg. 1971. “Review of the Unbound Prometheus,” Journal of Economic History, 31 (June): 497-500.

Cynthia Taft Morris is distinguished economist in residence, American University and Charles N. Clark Emeritus Professor of Economics, Smith College. She is past president of the Economic History Association.

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

The Protestant Ethic and the Spirit of Capitalism

Author(s):Weber, Max
Reviewer(s):Engerman, Stanley L.

Max Weber, The Protestant Ethic and the Spirit of Capitalism

Review Essay by Stanley Engerman, Departments of Economics and History, University of Rochester

Capitalism, Protestantism, and Economic Development:

Max Weber’s The Protestant Ethic and the Spirit of Capitalism after Almost One Century

Max Weber’s The Protestant Ethic and the Spirit of Capitalism has had an enduring impact on the field of economic history. Ironically, Weber’s contemporary, Joseph Schumpeter (1991, 220-229) argued that, althoughWeber’s academic career began with chairs in economics, “he was not really an economist at all,” but rather a sociologist. Schumpeter (1954, 21 and 819) distinguished between economic analysis, which “deals with the questions of how people behave at any time and what the economic effects are they produce by so behaving,” and economic sociology, which “deals with the question how they came to behave as they do.” This concern with the latter question is reflected in Weber’s still important work on the development of capitalism.

Weber’s concerns within economic history, particularly in The Protestant Ethic and the Spirit of Capitalism, fit well into the general interests of the turn-of-the-century historical schools in Germany and in England. These scholars were concerned with explaining the rise of modern economies, as well as with the explanation of the institutions and conditions that influenced the development and operation of economies and societies. Weber, unlike others in the German School, spent little time describing the role played by economic policies of governments in economic change. He focused, as did Werner Sombart, more on the study of modern capitalism, its natureand the causes of its rise. As the interest in this topic waned, the interest in Weber’s work was lessened, a pattern that persisted for several decades.

Weber’s major contribution to the study of economic history no doubt remains his classic study The Protestant Ethic and the Spirit of Capitalism, first published in 1904-1905, and republished with some revision in 1920, with the addition of extensive footnotes. Weber did not originate the thesis linking Protestantism and capitalism, as he himself pointed out. Jacob Viner (1978, 151-189), among others, has indicated thatthis idea of linking religion to the onset of capitalism had a long history in regard to Protestantism and to other religions prior to Weber’s writings. Earlier writers, including the English economist William Petty, made some of these links. What Weber did was to provide the specifics for the argument, with the details of the mechanism by which the belief in a”calling” and in worldly asceticism developed, leading to modern capitalism. Nevertheless, Weber argues that these behavioral changes alone could not bring about modern capitalism as it required the appropriate set of conditions in the economic sphere.

To clarify his contention on the uniqueness of the west, Weber undertook several major studies in the sociology of religions in different areas, particularly Asia, in order to understand why other religions did not generate the emergence of a modern capitalism. These comparative religious studies have yielded insights into the impact of these different religious systems in China, India, and elsewhere, and their impacts on behavior. To some scholars, however, it was the political nature and openness to new beliefs and innovations in those countries in northwest Europe that lead to developments in science, business, and political freedom that permitted economic and scientific progress to take place.

The issue of the relation of Protestantism and capitalism remains a historic perennial, frequently cited and necessarily discussed and evaluated in all works dealing with its general time period. Weber clearly had raised a central issue for historic studies. The general question and Weber’s approach have remained important to recent works by economic historians for several reasons. First, they have made central the question of the uniqueness of western civilization and the nature of its economicand social development. Whatever might have been the relative incomes of different parts of the world before 1700, it is clear that since then economic growth has been much more rapid in Western Europe and its overseas off shoots than in other parts of the world.

Modern economic growth has taken place with a quite different economic and social structure from that which had existed earlier. Economic growth occurred at roughly the same time, or soon after, these areas experienced the rise of Protestant religions. Some may hold this similarity to be of completely different occurrences, but for many such a non-relationship would seem difficult to understand and accept. Second, Weber has pointed to the significance of non-pecuniary (or what some would call non-economic) factors in influencing economic change, at least in conjunction with some appropriate set of conditions. For Weber, the key non-pecuniary factor wasbased on a particular religion and set of religious codes; to others it was a religious influence, but from a different religion, such as Catholicism or Judaism; while to other scholars it has been some different factorleading to behavior changes, such as rationalism, individualism, or the development of an economic ethic. Some, such as R. H. Tawney (1926), invertWeber’s argument, making the economic change a basic contribution to the religious changes. To still other scholars, the major factor has been the nature of a minority group of penalized outsiders in society. These scholars include William Petty (1899, 260-264), who looked at several different areas in the seventeenth century, Sombart (1969) and Thorstein Veblen (1958) who wrote on the Jews, and Alexander Gerschenkron (1970) who examined the Russian Old Believers. Each of these explanations has been advanced in the attempt to describe the primary cause of those changes in economic behavior that have lead to the distinction between the modern and pre-modern worlds.

In explaining the rise of capitalism in the Western World, Weber makes it clear that “the impulse to acquisition, pursuit of gain, of money, of the greatest possible amount of money, has in itself nothing to do with capitalism”; and “unlimited greed for gain is not in the least identical with capitalism, and is still less its spirit.” The desire for gain has been seen in “all sorts of conditions of men at all times and in all countries of the earth.” Rather what developed in the West was “the rational capitalistic organization of formally free labor,” which was based on “the separation of business from the household” and “rational book keeping,” although the basic factor was the presence of free labor. The ability to calculate, the development of technical capabilities, the creation of systems of law and administration – all have been important to Western culture but, according to Weber, their economic usefulness is “determined by the ability and disposition of men to adopt certain types of practical rational conduct,” unobstructed by spiritual and magical beliefs.

Since religion has always had a major impact upon conduct, the particular development of the West is attributed by Weber to “the influence of certain religious ideas on the development of the economic system,” which, in the case “of the spirit of modern economic life [is] the rational ethics of ascetic Protestantism.” That the impact of the actual teachings of the church was limited is suggested by Weber’s contention that his concerns were with “predominately unforeseen and even unwished-for results.” Hedenies that he believes that the spirit of capitalism could only have derived from the Reformation, and claims that he only wishes “to as certain whether and to what extent religious forces have taken part in the qualitative formation and of quantitative expansion of that spirit over the world.” Nevertheless, he often does suggest that is was Christianasceticism and Calvinism that provided the orientation that led to the development of such ideas as the “necessity of proving one’s faith in worldly activity,” “the preaching of hard, continuous bodily or mentallabor,” and “rational conduct on the basis of the idea of the calling” that were to provide “the fundamental elements of the spirit of modern capitalism.”The recent literature by economic historians, dealing with “How the West Grew Rich,” “The Rise of the Western World,” “The European Miracle,” “The Lever of Riches,” “The Unbound Prometheus,” and related titles, has begun, as did Weber, with the perceived uniqueness of the Western European economy. These studies, by such leading economic historians as Nathan Rosenberg ((1986) with L.E. Birdzell, Jr.), Douglass North (alone (1990),and with Robert Paul Thomas (1973)), Eric Jones (1981), Joel Mokyr (1990),and David Landes (1969, 1998), with the related writings by Fernand Braudel(1981, 1982 and 1984), Immanuel Wallerstein (1974, 1980 and 1989), John R.Hicks (1969), and Deepak Lal (1998), focus on somewhat different explanatory factors from Weber’s, but the problem to be analyzed isidentical. Posited answers include the role of political freedom, the development of property rights, changes in technology and organization of workers, the changing ratio of land to labor, the reactions to different environmental conditions, the emergence of markets, the rise of rational thought, the inflow of specie and various others. Some focus more on what might be regarded as economic factors, while others are more in theWeberian tradition, even if there is no unanimity concerning specific causal factors. Rather curious, however, is that several of these recent works by economic historians do not refer to Weber’s work on the Protestantethic, and in those that do not completely ignore him, his work is not seen as central to explaining the rise of the West, either because the role of religion is seen as more endogenous, or because other religions have been consistent with economic development during the growth of the West. Nevertheless, it is clear that as long as there is a belief that the economic performance of Western Europe has been unique, Weber has presentedan argument that must be confronted. Early in the second half of the twentieth century a non-western nation, Japan, as well as, somewhat later, several East Asian nations, came to experience some of the characteristics of modern economic and social change, with the development of a pattern of thrift and of a work ethic (even if cooperative not individualist), but with a different form of religion. This seems, however, to have done more to reawaken interest in Weber’s arguments than to lead to their dismissal.

Despite the frequency of the criticism, of the specific hypothesis in the past, the Weber thesis remains central to posing questions about the onset of modern economic growth and social and religious change in seventeenth-and eighteenth-century Western Europe. Its importance as a spiritual and ideological counter to a concentration on material conditions, as in the works of Karl Marx, provides an alternative approach to understanding economic change. In addition to the debates on economic growth there are subsidiary questions about related aspects of western development, which might be regarded as either substitutes for or complements to the Weber Thesis. These include debates on the rise of individualism, the causes ofthe development of a more deliberate and rational approach to economic and other behavior, and the link between the emergence of modern capitalism and modern science. Weber discussed the role of those climate and geographic factors that have interested such present-day economic historians as Eric Jones, arguing that the development of firstly cities, and then nation-states, left Europe, unlike Asia, with rational states and rational law. This set of developments reflected, according to Weber, initial differences in natural forces.

As with all “big theories,” there are several different types of criticisms that have been made, posing some rather different questions. First, it is often unclear what the proponent had really said, particularly crucial since we usually look only at the briefest summary of what was presented, without paying as much attention to the various qualifications and boundary conditions that the author was intelligent enough to have added. Second, there are these complications in defining precisely what are regarded ascauses, and what are the effects. In terms of the Weber Thesis, we need to be clearer both on what was to be considered the nature of religion and religious beliefs, and also what exactly we are trying to explain when we discuss capitalism. Third, is the manner by which the cause and effect can be linked, whether we believe they can be related by other than a pattern involving direct causation, and whether the same cause will yield a different effect or, alternatively, the same effects can be achieved with a broader range of causes. Variants of all these types of criticisms have been applied to The Protestant Ethic, and much more space than that available here would be needed to provide a complete examination of this debate.

Many of the disagreements about Weber’s linking of Protestantism and capitalism contain a distinct moral flavor. To those who find capitalism and the modern world morally distasteful, linking capitalism’s rise to religious beliefs places an unfortunate and unfair burden upon the religion, which can lead to a denial of any relationship between the two. Presumably those more sympathetic to modernism and capitalism would find a relationship more acceptable. Weber, himself, believed that capitalism generated important problems, and he did not believe that capitalist growth could continue indefinitely. The decline of capitalism was anticipated because of the development of rigid institutions and the rise of a bureaucratic state, posing a threat to political freedom as well as causing economic stagnation. Weber’s use of the image of the “iron cage” to describe modern society reflected his belief that certain cultural problems emerged because of capitalist development. And while Weber did not describe the same scenario for capitalism’s demise as that later presented by Schumpeter, it was similarly based upon the impact of increasing bureaucracy and rationalism on the belief system in society. Many of Weber’s works dealt with topics in the area of economic history, and even his more sociological writings were concerned with economic comparisons. Particularly rich in presenting his later views was his book devoted exclusively to the study of world economic history, GeneralEconomic History (1981), based on the transcripts of lectures in1919-1920, taken from students’ notes. A look at this work is useful inputting Weber’s economic history in a broad perspective.

General Economic History is an overall survey of economic developments,from ancient times to the modern world. It provides summary statements (insome cases, revisions) of key arguments found in earlier writings, useful descriptions of the pattern of western economic development, and insightful brief views of major economic changes that are sometimes detailed in other writings. Its major contributions include the claim that forms of what could be considered capitalism had long existed, leading to earlier accumulations of wealth, but it was only with the development of capital accounting and rational commerce, and with the need for rules and trust that arise when there are continued transactions among individuals, that the modern form of capitalism emerged in Western Europe. This development was unique to that particular geographic region. In describing this evolution Weber also provides discussions of the changing organization of the manor, the stages in the rise of industry, the impacts of slavery and other forms of labor organization upon the economy as well as the reasons for their transformation over time, and numerous other topics that are still covered, often in a quite similar manner, in today’s textbooks in European economic history.

Weber gave some attention to the importance of non-pecuniary tastes in actions within the economy. Following a strand of argument raised by a member of the Older German Historical School, Karl Knies, he argued that people did not necessarily profit-maximize at all times. Non-economic factors play a role in human behavior. Weber believed that it was certainly possible that there may be less extensive attempts at the maximum degree of maximization within a market economy, at least as a short term goal, than in other forms of social organization. Weber argued that “the notion that our rationalistic and capitalistic age is characterized by a stronger economic interest than other periods is childish,” and claims that while Cortez and Pizarro had strong economic interests, they certainly did not have “an idea of a rationalistic economic life.” Weber distinguished between economic interests, found in many past societies, and arationalistic, capitalistic channeling of those interests. To Weber, the market system was not an idealized means of solving social problems. He recognized the conflicts that existed within the market system, suggesting that price and market outcomes should be seen as the result of conflict, since people disagreed over the use of the economic surpluses that could exist. But to Weber the market, with its various difficulties, seemed to provide a reasonable way to resolve conflicts and to allocate resources with some limitations on destruction and loss of freedom.

While attention was given to the cultural problems due to capitalism, in Weber’s view the rise of capitalism was related to favorable changes in the distribution of economic resources within society. It was what Weber called the “democratization of luxuries” that was the key source of early market demand, rather than “Army, Luxury, or Court Demands.” None of these factors, important as they may have seemed at the time or to subsequent scholars (for example, Sombart), based on demand from a limited segment of the population, had led to prolonged economic growth anywhere. Prolonged growth, rather, was the result of growth of the mass market which arose with capitalism, and which lowered prices permitting the broad masses to imitate the consumption patterns of the rich. Weber argued that “first the prices fell relatively and then came capitalism,” the price declines being due to preceding shifts in technology and economic relations.

One of the major substantive legacies of Weber is his description of the characteristics of modern capitalism. Weber regarded capitalism as an evolving system, so that present-day capitalism has some features rather different from those at the onset of modern capitalism. He did not, however, regard commercial and capitalist activity as something new in the modern era, since such behavior had existed in most societies in earliertimes, as well as in other societies considered non-capitalist at the present time. Under modern capitalism, however, activities of a somewhat different pattern and nature occurred from those in the other forms of capitalism.

The principal characteristics of modern capitalism that Weber points to are the centrality of rationality and those measures that help to implementrational behavior. The emergence of a rationally organized formally free labor market to replace the various forms of labor institutions that had characterized earlier forms of capitalism, the development of rational law and administration in large firms and governments, the evolution of forms of rational bookkeeping and capital accounting, and the growth of bureaucracies in the public and private sectors to order the behavior of the larger-scale units in economic society – all these represent those factors developed out of Protestantism which permit continued capitalist accounting procedures to separate business and household capital in the interests of determining growth. Other accounting procedures of the modern capitalist economy include the use of interests of rational decisionmaking, and the increased number of business leaders whose leadership is based upon their personal charisma, not on either traditional or legal influences. Weber’s argument that charisma weakens the growth of bureaucracy resembles Schumpeter’s contention of the decline of the entrepreneurial function in modern capitalism, leading to a declining social appeal of capitalism. Recent studies in leadership of management, however, have focused upon so-called “change agents” and shapers of corporate culture, leading to attempts to determine what are the crucial characteristics of successful business leaders and what they have done to achieve their success.

Weber’s contribution to the study of economic history includes both methodological approaches and substantive conclusions. His general questions on the role of changing institutions and human behavior have again come into vogue, as has his interest in the law, legal rationality, and the process of historical development. Thus, in a number of ways, Weber reads very much like a present-day economic historian, a development that has taken place after a long period in which Weber was relatively ignored by economic historians. In part his loss of influence was due to a shift in questions, to those mainly dealing with only a relatively short, recent period in the history of the west, based, in the 1930’s, on a primary focuson the relatively short-run set of economic cycles, and, in the 1940’s, ona belief that with the right economic conditions all societies could achieve economic growth. As it became clear that the process of economic growth was rather more complex than believed in the mid-twentieth century, and that its understanding was based on happenings over a much longer timespan than was being examined, Weber’s analysis, with its broad chronological, spatial, and intellectual sweep, again became more central.

Bibliographical Note:

There have been several publications of The Protestant Ethic and The Spirit of Capitalism since the first English-language translation in 1930. All use the original translation by Talcott Parsons, differing only in their introductions. Among them are: – New York: Scribner, 1930, 1948, and 1958 (foreword by R. H. Tawney). – London: Allen & Unwin, 1976; London: Routledge, 1992 (introduction by Anthony Gidden)- Los Angeles: Roxbury Publishing Company, 1996 and 1998 (introduction by Randall Collins) and- Los Angeles: Roxbury Publishing Company, 2000 (introduction by Stephen Kalberg). A recent analysis of the work of Weber is in Stephen P. Turner, editor,Cambridge Companion to Weber (Cambridge: Cambridge University Press,2000). This includes my essay on “Max Weber as Economist and Economic Historian,” parts of which have been drawn upon here.

References:

Braudel, Fernand. 1981, 1982, and 1984. Civilization and Capitalism, 15th-18th Century. New York: Harper and Row (French edition published in 1979).

Gerschenkron, Alexander. 1970. Europe in the Russian Mirror: Four Lecturesin Economic History. Cambridge: Cambridge University Press.

Hicks, John R. 1969. A Theory of Economic History. New York: Oxford University Press.

Jones, Eric L. 1981. The European Miracle: Environments, Economies, and Geopolitics in the History of Europe and Asia. Cambridge: Cambridge University Press.

Lal, Deepak. 1998. Unintended Consequences: The Impact of Factor Endowments, Culture, and Politics on Long-Run Economic Performance.Cambridge, MA: MIT Press.

Landes, David S. 1969. The Unbound Prometheus: Technological Change and Industrial Development in Western Europe from 1750 to the Present.Cambridge: Cambridge University Press.

Landes, David S. 1998. The Wealth and Poverty of Nations: Why Some Are SoRich and Some So Poor. New York: W. W. Norton.

Mokyr, Joel. 1990. The Lever of Riches: Technological Creativity and Economic Progress. New York: Oxford University Press.

North, Douglass C. 1990. Institutions, Institutional Change and Economic Performance. Cambridge: Cambridge University Press.

North, Douglass C. and Robert Paul Thomas. 1973. The Rise of the Western World: A New Economic History. Cambridge: Cambridge University Press.

Petty, William. 1899. The Economic Writings of Sir William Petty. Cambridge: Cambridge University Press.

Rosenberg, Nathan and L. E. Birdzell, Jr. 1986. How the West Grew Rich: The Economic Transformation of the Industrial World. New York: Basic Books.

Sombart, Werner. 1969. The Jews and Modern Capitalism, New York: BurtFranklin (originally published 1913).

Schumpeter, Joseph A. 1954. History of Economic Analysis. New York:Oxford University Press.

Schumpeter, Joseph A. 1991. “Max Weber’s Work,” in Richard Swedberg,editor, Joseph A. Schumpeter: The Economics and Sociology of Capitalism.Princeton: Princeton University Press.

Tawney, R. H. 1926. Religion and the Rise of Capitalism. New York: Harcourt, Brace & World.

Veblen, Thorstein. 1958. “The Intellectual Pre-eminence of Jews in Modern Europe,” in Max Lerner, editor, The Portable Veblen. New York: Viking Press (originally published 1919).

Viner, Jacob. 1978. Religious Thought and Economic Society. Durham: Duke University Press.

Wallerstein, Immanuel. 1974, 1980, and 1989. The Modern World- System,New York: Academic Press.

Weber, Max. 1981. General Economic History. New Brunswick, NJ: Transaction Books (originally published in English in 1927).

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Subject(s):Social and Cultural History, including Race, Ethnicity and Gender
Geographic Area(s):General, International, or Comparative
Time Period(s):General or Comparative

Energy and Civilization: A History

Author(s):Smil, Vaclav
Reviewer(s):Jones, Eric

Published by EH.Net (August 2017)

Vaclav Smil, Energy and Civilization: A History. Cambridge, MA: MIT Press, 2017. x + 552 pp. $40 (cloth), ISBN: 978-0-262-03577-4.

Reviewed for EH.Net by Eric Jones, La Trobe University.
The arrival of an encyclopedic tome of 550 pages, crammed with graphs, calculations, bar diagrams and the interruption of plentiful “boxes,” so giving every appearance of being a textbook, does not usually fill the breast of a reviewer with joy. Fortunately reading this volume turns out to be a pleasure. Vaclav Smil came to notice in 1984 with The Bad Earth, an early account of China’s environmental degradation, and has since written prolifically on topics concerning energy. He is described as an “incorrigible inter-disciplinarian,” a stance that helps him compare and calibrate sources over the widest possible range. His latest book is a greatly expanded version of an earlier volume and may be taken as a summary of his life’s work. It is immensely valuable for reference as well as for calm, decisive commentaries on the state of knowledge, besides on what is actually or potentially computable about uses of energy worldwide and throughout the very long term.

What Smil concludes about the early modern period provides some of the most insightful passages among a vast number of offerings. The immense stretches of time when most humans remained either hunter-gatherers or toiling peasants can, of course, be approached along an energy perspective. Interpretations of these tedious periods by many authors nevertheless tend to lean on mere assumptions about motive and on various anthropological analogies that are sometimes plausible but commonly arbitrary. They typically amount to pronouncements about indifference to accumulation (readily but unconvincingly supported by material poverty) and chronic aversion to physical labor. Nor is Smil impressed by assertions about the labor supposedly required to erect the great monuments of the past, such as the Great Pyramid, and demonstrates how exaggerated they often are. Better documented detail is available once 1850 is passed, when the Western world took up fossil fuels on a grand scale and soon became a fossil fuel civilization. From that date he pays even closer attention to the energy implications of inventions in sphere after sphere after sphere. He offers a new and informative slant on many of these developments. In principle all this is, however, familiar ground.

Smil’s work on early modern times accordingly stands out between these epochs. What one might call the early modern prologue was remarkably progressive compared with many previous centuries. Smil shows just how much human labor could produce with no more than sweat, levers, treadmills, animals, wind power and water power, and how gradual advances were being made in the diffusion and productivity of these every day methods. His “box” on the raising of Alexander’s column at St Petersburg in 1832 is especially impressive, notwithstanding the facts that foreign architects were employed and that the Monument to the Great Fire of London constructed in the 1670s is taller still. Far earlier than any of this the Romans had made strides in exploiting the power afforded by people and nature. Yet from our distant viewpoint the most interesting fact may be how gradually best practice had spread. The tapping of ostensibly straightforward sources of energy continued for a long time — very long. Water wheels, Smil says, were the most significant energy foundation of Western industrialization. Even allowing for the telescoping effect of hindsight, the ancient world had experienced phases of rapid advance that were not matched for a considerable spell. The later Western world, taken as a whole, was often slow by contrast but at least its gains tended to be cumulative. Permissible loads drawn by French horses in the mid-nineteenth century were about four times the Roman limit. But can we say that reaching this point had been achieved at a reasonable pace?

Agreed, pace depends to some extent on where one stands. Even in the modern period, best practice could diffuse with what to our eyes seems a marked sluggishness. From 1745 the English introduced a fantail to turn the sails of windmills automatically into the wind. Their neighbors, the Dutch, who owned the most windmills in Europe, did not take up this device until the early nineteenth century. For all such blemishes on attainable advance, and despite most labor in England and Wales remaining craft work in 1850, energy output had nevertheless risen fifteen-fold in two hundred years. Was that fast or slow? Either way it meant that industrialization as conventionally defined piggybacked on economic changes already springing up with some frequency. Studies of energy use show that the period leading to modernity was complete by the mid-nineteenth century and by any reasonable measure things changed rapidly thereafter.

Studies of individual subjects might perhaps be thought somewhat like single-issue politics, with the distortions it entails. However Smil explicitly avoids the trap of explaining world economic history in terms of energy alone. Although per capita GDP and energy supply are linked more closely than many elements in socio-economic life, they can be decoupled and a determining role for energy is repeatedly frustrated by political and other choices. Energy use is after all an input, though doubtless one with beneficial outputs, but distributional considerations often alter the expected results. The population response that development economists once thought likely to neutralize any income gained from slow technical advances may have been deflected because elites commandeered a lion’s share of the gains. Smil insists on the need to get the balance right between energy imperatives and a multitude of non-energy factors. He rejects tempting comparisons across sectors, such as the uncannily similar energy use by sailing ships and drainage windmills during the United Provinces’ Golden Age, pointing out that no volume of peat dug would have made possible the voyages to the East Indies. Certainly there were too many overlaps in types of exploitation at any one period to separate history into energy eras. There is long experience and a maturity of judgment in this book that inspire much confidence.

 
Eric Jones, Emeritus Professor, La Trobe University, and former Professorial Fellow, Melbourne Business School, is the author of Locating the Industrial Revolution: Inducement and Response (World Scientific, 2010), The Fabric of Society and How It Creates Wealth (Arley Hall Press, 2013) [with Charles Foster], Cultures Merging: A Historical and Economic Critique of Culture (Princeton, 2016, paperback) and Middle Ridgeway and its Environment (Wessex Books, 2016) [with Patrick Dillon].

Copyright (c) 2017 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator (administrator@eh.net). Published by EH.Net (August 2017). All EH.Net reviews are archived at http://www.eh.net/BookReview.

Subject(s):History of Technology, including Technological Change
Transport and Distribution, Energy, and Other Services
Geographic Area(s):General, International, or Comparative
Time Period(s):General or Comparative

Capital Gains: Business and Politics in Twentieth-Century America

Editor(s):John, Richard R.
Phillips-Fein, Kim
Reviewer(s):Benson, Erik

Published by EH.Net (July 2017)

Richard R. John and Kim Phillips-Fein, editors, Capital Gains: Business and Politics in Twentieth-Century America. Philadelphia: University of Pennsylvania Press, 2017. x + 301 pp. $55 (hardcover), ISBN: 978-0-8122-4882-1.

Reviewed for EH.Net by Erik Benson, Humanities Division, Cornerstone University.

In this volume, Richard John of Columbia University and Kim Phillips-Fein of New York University compile eleven essays on the relationship between business and government in twentieth-century America. Contrary to popular perception, this relationship has not been exclusively adversarial, nor have business elites been exclusively committed to “free market fundamentalism” (p. 19). Their interests, views, and activities have varied significantly, and thus their involvement in politics has been complex.

In their introductory overview, the editors argue that in light of the importance of the political economy to the country, a renewed focus on and better understanding of its history is vitally necessary. They acknowledge the contributions of Progressive and corporate liberal scholars, but assert that the role of business elites in the policymaking process has suffered from neglect. Fortunately, a new generation of scholars is emerging who draw upon economic, political, and social perspectives to render a more complex portrayal of America’s political economy. Much as others have done with groups such as the working class, these scholars are presenting the business elite as real actors with complex and varied motives, approaches, and outcomes. At the same time, as a group, the business elite has been distinct in successfully influencing policymaking, at the municipal as well as national level. Acknowledging that the essays do not support overarching generalizations, the editors do note some common themes and insights. One is that the relationship between business and government has been “protean” — at times adversarial, at times not (pp. 19-20). Furthermore, when one considers local versus national perspectives, and the varied motives and interests of the different actors, the relationship becomes even more complex. Finally, sound scholarship based on archival research is necessary for a better understanding of the American political economy.

The volume has four parts. The first, covering the Progressive era through the 1920s, contains two essays. The first essay, by Laura Phillips Sawyer, reveals how business interests, worried by the unpredictability of court rulings in antitrust cases, successfully addressed this by establishing the U.S. Chamber of Commerce (USCC) in the 1910s. The USCC facilitated a working relationship with key federal officials and agencies that resulted in predictable economic policies. In the second essay, Daniel Amsterdam shows how business elites in Detroit and Atlanta successfully lobbied for dramatic increases in municipal spending, infrastructure, and regulation. Motivated by a mix of economic interest and reform impulse, these elites were quite willing to wield municipal power to establish a “civic welfare state,” even as they opposed a national welfare state (p. 45).

The second part, covering the New Deal and World War II, has three essays. In the first, Eric S. Hintz chronicles how the National Association of Manufacturers (NAM) blunted a New Deal initiative to reform the patent process. The NAM did so with a sophisticated public relations campaign that celebrated past inventions as pioneering achievements under the existing patent system, thereby portraying most reform as unnecessary. The second essay, by Mark R. Wilson, contemplates the “privatization” of American military procurement. Contrary to most accounts, the evolution of the “military-industrial complex” did not follow a linear trajectory. During the Progressive era, the military developed “in-house” production facilities for war material (p. 80-81). Yet it subsequently reversed course, relying once again on private contractors; this corresponded to the anti-statist turn of the post-World War II period. The third essay, by Richard John and Jason Scott Smith, highlights the work of Thomas McCraw, a leading scholar in the history of America’s political economy. Over a long and prolific career, McCraw “helped lay the foundations” for the now-burgeoning “history of capitalism” (p. 116).

The third part contains three essays that focus on business and economic development. The first, by Tami J. Friedman, uncovers a significant division in business ranks over federal involvement in the post-World War II economy. Decades before the Reagan administration, national business organizations (e.g. the USCC) were articulating an ideology of “free enterprise” and criticizing federal largesse. Yet some local and regional business interests, notably in the Northeast where industries were already failing, welcomed federal aid. The second essay, by Brent Cebul, presents an analogous story set in postwar rural Georgia. Here, business leaders formed local and regional associations to pursue federal funding for development projects. This represented a continuation of the “supply-side liberalism” of the New Deal (p. 143). The third essay, by Elizabeth Tandy Shermer, examines the efforts of business leaders in southern and western states to tailor higher education systems to their interests. This involved complex dealings with political and educational leaders, and while the systems expanded greatly, tensions over the purpose of higher education persisted.

The three essays in part four address business and liberalism. The first, by Jennifer Delton, exposes an internecine struggle between “conservatives” and “liberals” in the NAM during the 1950s and ‘60s. Liberals argued that business needed to balance profitability with “social responsibility,” which conservatives roundly condemned (p. 182). For a brief time, the liberal viewpoint held sway in the historically conservative NAM. In the second essay, Eric R. Smith chronicles the campaign of “Business Executives Move for Peace” (BEM) against U.S. military involvement in Vietnam. BEM played a unique role in the antiwar movement, employing economic arguments and distinct tactics. In the final essay, Pamela Walker Laird shows how business responded to the mandate for workplace equality in the wake of the Civil Rights Act of 1964. Initially, businesses complied to protect their interests, but as time went on, they came to champion diversity as a corporate value, going beyond the governmental mandate.

As a collection of essays focused on select topics, this is not a comprehensive account of the relationship between business and politics in twentieth-century America, nor does it purport to be. Rather, its purpose is to challenge the conventional wisdom about the American political economy by highlighting oft-overlooked complexities. In whole, the essays do this. They evidence extensive research, especially in primary sources, and their arguments are generally well presented. For their part, the editors provide a very useful framework for the essays. The work certainly contains points that are up for debate, yet these do not detract from its value; in fact, they represent opportunities for future scholarly engagement. In addition to scholars, undergraduate courses in business history could benefit from this work, as the essays are quite accessible and ideal for class discussion. In all, this is a fine scholarly contribution.

Erik Benson is the author of Aviator of Fortune: Lowell Yerex and the Anglo-American Commercial Rivalry, 1931-46 (2006), a study of a pioneering airline entrepreneur. He is continuing research in the history of flight, and serves on the editorial staff of Essays in Economic and Business History.

Copyright (c) 2017 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator (administrator@eh.net). Published by EH.Net (July 2017). All EH.Net reviews are archived at http://eh.net/book-reviews/

Subject(s):Business History
Government, Law and Regulation, Public Finance
Geographic Area(s):North America
Time Period(s):20th Century: Pre WWII
20th Century: WWII and post-WWII

The Long Space Age: The Economic Origins of Space Exploration from Colonial America to the Cold War

Author(s):MacDonald, Alexander
Reviewer(s):Salter, Alexander

Published by EH.Net (June 2017)

Alexander MacDonald, The Long Space Age: The Economic Origins of Space Exploration from Colonial America to the Cold War.  New Haven: Yale University Press, 2017. xi + 258 pp. $35 (hardcover), ISBN: 978-0-300-21932-6.

Reviewed for EH.Net by Alexander Salter, Rawls College of Business, Texas Tech University.

Alexander MacDonald, an economic historian trained at Oxford currently working as an economist for the Jet Propulsion Laboratory and as Senior Economic Advisor with NASA, has written an exciting account of the development of space capability in the United States.  MacDonald’s scholarship is both readable and precise, and this thesis — that private initiative in space has historically been much greater than recognized — certainly challenges conventional interpretations in the literature on the economics of space policy.

In the Introduction, MacDonald makes clear he is undertaking an ambitious project.  The conventional wisdom holds that space exploration was primarily driven by governments, and in particular by competition between the United States and the Soviet Union during the Cold War.  The U.S.’s victory with the Apollo 11 landing, and eventual triumph with the waning and collapse of the Soviet Union, saw public activity in space shrink during the latter decades of the twentieth century, with private activity (privately funded commercial and exploratory ventures) just picking up in the first decades of the twenty-first.  MacDonald seeks to turn this narrative on its head.  Instead of government being the senior partner in space exploration and private initiative the junior, MacDonald shows how “if we look at the history of America space exploration on a longer timescale, a very different history emerges — one in which personal initiative and private funding is the dominant trend and government funding a recent one” (p. 3).  This justifies the author’s chosen title: the Space Age is “Long” because it cannot be fully understood without reference to private initiative in funding observatories, the major space exploration technology to precede spacecraft, dating back to the late eighteenth century.

MacDonald begins by surveying the history of celestial observation in America, from colonial days until the mid-nineteenth century.  He does an excellent job of detailing the rise of civic (community-funded) observatories, as well as the subtle shifts in public motives behind celestial exploration.  Most surprising, however, is the statistical information presented in the beginning of the chapter (pp. 15-19).  By adjusting the expenditures on observatories to capture changes in purchasing power (using an index more relevant to large capital outlays, rather than consumer expenditures), and then showing what the equivalent expenditure today would have to be in order for observatory expenditures to remain a constant share of GDP, MacDonald shows that private initiative was capable of mobilizing vast resources.  For example, expenditures on the Lick Observatory, finished in 1876, totaled $188 million in adjusted dollars.  The equivalent expenditure in 2015, as a percentage of GDP, would be over $1.5 billion, making this expenditure larger than many major NASA missions (pp. 14-16).  Altogether, MacDonald shows that expenditure on space-related observational activities from 1820 to 1940 was overwhelmingly private: 96.6% of funds were supplied by the private sector.  The picture that emerges from these statistics, and the narrative to follow, portrays the dominance of private (individual and community-led) initiative in celestial observation.

The second chapter continues the narrative of the development of American observatories, going up until the 1940’s.  One theme of this chapter is the changing means by which observatories were financed, beginning with community-based, and widely-purchased, subscription options, and later moving predominantly to large grants from wealthy philanthropists.  Others include the tensions between community members and professional astronomers in how observatories were used, and the public motives of politicians, astronomers, and the ordinary public in seeing these projects to fruition.

Chapter 3 focuses on the fundraising strategies of aerospace and rocketing pioneer Robert Goddard.  This is the narrowest of the chapters in terms of focus, and perhaps the one least easy to square with MacDonald’s thesis of private initiative in space exploration.  This is because a good deal of Goddard’s funding came from military contracts during and after the First World War.  However, it’s important to note — as MacDonald does — that most funding for Goddard’s projects did come from private sources, most notably the personal fortune of mining magnate Daniel Guggenheim, and later the Guggenheim Foundation (p. 155).

The final chapter brings us to the popular conception of the Space Age: 1957 (Sputnik) and beyond.  MacDonald analyzes national space programs, focusing on that of the United States, as driven by signaling, rather than national prestige per se (pp. 161-163).  MacDonald presents a simple model of two nations competing for allies.  Potential allies want to ally with the stronger of the two nations, but this information is incomplete and asymmetrically distributed.  The two courter nations can signal power by investing in a successful space program.  A successful space program is a good signal because, as the saying goes, such a program is “costly to make and costly to fake.”  MacDonald also analyzes late- and post-Cold War space activities in terms of signaling, although for obvious reasons the precise information to be signaled, and the goals for signaling in the first place, differed from the periods of fiercest competition with the U.S.S.R.

The Conclusion summarizes the arguments and reasserts MacDonald’s chief contribution: showing that private initiative was massively more important, relative to politically-led signaling efforts during the Space Race, to developing space capability than previously thought.  MacDonald also comments on the implications of his arguments for twenty-first century space policy.  Examples include resisting the temptation to rebuild existing organizations, such as NASA, on lines identical to those that existed in these organizations’ heyday, and instead embrace organizational novelty in the development of space capability, as well as recognizing that the private sector can play a much larger role than previously appreciated.

Overall, MacDonald succeeds in his arguments.  He convincingly shows that early astronomical observation was not a separate phenomenon from the later Space Age, but a necessary precursor that should be seen as contiguous with it.  I have only two quibbles with the book.  The first has to do with the discontinuity, for lack of a better word, between the first two chapters and the remaining chapters.  Chapters one and two form a single coherent narrative, whereas the transition to Goddard’s work and the Space Race can sometimes feel like add-ons.  However, this is probably an unavoidable result of a work that has the courage to be eclectic and wide-ranging in scope, and it does not distract from the thesis.  The second quibble has to do with MacDonald’s analysis of signaling and intrinsic motivation, especially in chapter four.  MacDonald introduces these concepts in the Introduction, seemingly indicating that they will be doing substantial work throughout.  But the heaviest lifting has to wait until his analysis of the Space Race.  I agree with MacDonald that these economic tools can shed vital light on the episodes in question; I only wish they had been as extensively applied in chapters one through three as in chapter four.

In conclusion, I strongly recommend MacDonald’s work to any scholars who are interested in issues at the intersection of political economy, economic history, and space issues.  In conjunction with the literature on the feasibility of private legal orders in space (e.g., Buxton 2004; Coffey 2009; Cooper 2003; Hertzfeld and von der Dunk 2005; Hudgins 2002; Salter, 2016, 2017; Salter and Leeson 2014; Simberg 2012a, 2012b; White 2003), MacDonald’s work can and should be used to make the case that private initiative will continue to be an invaluable component of space policy and engagement in the twenty-first century.

References:

Buxton, Carol R.  2004.  Property in Outer Space: The Common Heritage of Mankind Principle vs. the First in Time, First in Right, Rule of Property. Journal of Air Law and Commerce 69: 689-708.

Coffey, Sarah. 2009. Establishing a Legal Framework for Property Rights to Natural Resources in Outer Space. Case Western Reserve Journal of International Law 41(1): 119-147.

Cooper, Lawrence A. 2003. Encouraging Space Exploration through a New Application of Space Property Rights. Space Policy 19(2): 111-118.

Hertzfeld, Henry R., and Frans G. von der Dunk.  2005.  Bringing Space Law into the Commercial World: Property Rights without Sovereignty. Chicago Journal of  International Law 6: 81-100.

Hudgins, Edward L., eds.  2002.  Space: The Free Market Frontier.  Washington, D.C.: Cato Institute.

Salter, Alexander W.  2016.  Space Debris: A Law and Economics Analysis of the Orbital Commons. Stanford Technology Law Review 19(2): 221-238.

Salter, Alexander W.  2017.  Ordering the Cosmos: Private Law and Celestial Property Rights.  Journal of Air Law and Commerce, forthcoming.

Salter, Alexander W. and Leeson, Peter T. 2014. Celestial Anarchy: A Threat to Outer Space Commerce? Cato Journal 34(3): 581-596.

Simberg, Rand. 2012a. Homesteading the Final Frontier: A Practical Proposal for Securing Property Rights in Space. Competitive Enterprise Institute, Issue Analysis No. 3.

Simberg, Rand.  2012b. Property Rights in Space. The New Atlantis: 20-31.

White, W. N. Jr. 2003.  Interpreting Article II of the Outer Space Treaty.  Paper presented at the 54th International Astronautical Conference.

Copyright (c) 2017 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator (administrator@eh.net). Published by EH.Net (June 2017). All EH.Net reviews are archived at http://eh.net/book-reviews/

Subject(s):History of Technology, including Technological Change
Geographic Area(s):North America
Time Period(s):18th Century
19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII

Ethical Capitalism: Shibusawa Eiichi and Business Leadership in Global Perspective

Editor(s):Fridenson, Patrick
Takeo, Kikkawa
Reviewer(s):Mosk, Carl

Published by EH.Net (June 2017)

Patrick Fridenson and Kikkawa Takeo, editors, Ethical Capitalism: Shibusawa Eiichi and Business Leadership in Global Perspective. Toronto: University of Toronto Press, 2017. xvi + 215 pp. $55 (cloth), ISBN: 978-1-4875-0106-8.

Reviewed for EH.Net by Carl Mosk, Department of Economics, University of Victoria.

Virtue is its own reward; bad money drives out good; you catch more flies with honey than vinegar; do unto others as they would have them do unto you; catch two birds with one stone: pithy Western aphorisms to be sure. Still in Meiji Japan, enamored with all things Western, these may well have been translated into Japanese. For sure “two birds, one stone” was.

Why not imbibe Western aphorisms? Meiji period thinkers, politicians, business leaders, movers and shakers of all stripes — perhaps more than during any other period in Japanese history — struggled with identity. Were they firebrands committed to root and branch reform of Japan carving out channels through which Western concepts, Western manufacturing techniques, Western scientific learning, Western institutions, and Western laws could flow into the body politic, finding ingenious ways to cloth this program in traditional neo-Confucian garb? Or were they staunch traditionalists, committed to reviving government by Emperor, reinvigorating a failed military campaign to bring Korea, perhaps even China, to its knees, a daring assault plan inspired by the last of the great sixteenth-century warring overlords, Toyotomi Hideyoshi?

Cobbling together a coalition of elites wholeheartedly signing onto one or both of the two agendas — imperial aggrandizement or wealth creation — proved to be challenging. Still, as it turned out — at least for a half century – it proved eminently feasible. Defeating China in the mid-1890s and Russia in 1905-6 opened the door to Japan’s renegotiation of the unequal treaties granting Western powers extraterritorial rights in treaty ports and it allowed Japan to join the gold standard system. All of this served the interests of business, facilitating the import and export of goods and the promotion of Pacific Ocean based shipping services. At the same time it pleased the military elite intent on carving out an empire in mainland Asia. The ideology cementing this unlikely coalition was known as fukoku kyohei (wealthy country/strong army). During the Meiji period the glue of mutual advantage created a “big tent” under which business and ambitious nationalistic politicians could and did jointly flourish.

Great people are great partly because their personal drive dovetails nicely with the era during which they strut upon the stage of history. Ideally suited to operate under the fukoku kyohei ideological umbrella, Shibusawa Eiichi emerged as a paramount figure in Meiji Japan. Born into a wealthy peasant family during the dwindling twilight of Tokugawa rule rudely opened up to the West by the United States, Shibusawa began his colorful career as an anti-foreigner, pro-Emperor rule firebrand. Active in the events leading to the destruction of Tokugawa feudalism and restoration of the Emperor, Shibusawa abandoned his anti-Western agenda, bursting out onto the stage of Meiji Restoration drama as national bureaucrat who had tasted Western culture firsthand through visits to Europe, especially France.  Joining his illustrious colleague Fukuzawa Yukichi (founder of Keio University), he was assiduous in promoting the education of native elites thirsting for Western knowledge.

As Shibusawa saw it, the supercilious bureaucrats he hobnobbed with in Tokyo were more likely to serve a strong army agenda, willing to jettison a wealthy nation program in flexing Japan’s nascent military muscle in the Far East. Fueled by this belief, he resigned from government service at the Ministry of Finance, plunging into the hustle-and-bustle world of private business as banker and creator of joint-stock companies extraordinaire. He conceived of a program of joint-stock creation known as gapponshugi (a gappon-kaisha is a joint-stock company). In many ways it was the perfect embodiment of fukoku thought, of fukoku practical action. As Shibusawa conceived of gapponshugi, commoners were encouraged to purchase stock in businesses, openly and transparently participating in stockholders meetings, their names prominently displayed for public view. In a nutshell it was economic democracy.

Shibusawa’s gapponshugi model was the diametric opposite of the zaibatsu model associated with closed family-centered conglomerates like Mitsui, Mitsubishi and Sumitomo. To be sure separation of management from ownership was a prominent feature of zaibatsu businesses: they were managed by head clerks promoted from within the ranks of employees, not family members. However the zaibatsu were reluctant to issue stock; they coveted secrets about ownership; as often as not in acquiring assets they exploited elite connections with imperial bureaucrats and powerful politicians. The contrast between open gapponshugi and closed zaibatsu is highlighted in Chapter 1 of the edited volume under review here. Penned by Shimada Masakazu the chapter emphasizes the fact that Shibusawa was the most prominent of a number of Meiji business leaders, the so-called zaikaijin. His duties as a zaikaijin included finding astute managers, putting together boards of directors, serving as temporary president of fledgling firms if needed, and arranging stockholder meetings. As well he acted as investment banker, exploiting his knowledge of dealings on the stock market, even in some cases taking out personal loans to get new businesses afloat.

Testimony to the remarkable ability of Shibusawa — operating from his perch atop the powerful First National Bank, Dai-Ichi (Dai-Ichi Kokuritsu Ginko) — is his role in starting and/or promoting hundreds of joint-stock companies, serving on the boards of directors as chairman in many cases. The diversity of chairmanships is remarkable. Consider the range of enterprises running from infrastructure to standard commerce: Sapporo Beer, Tokyo Gas, Tokyo Rope, the Imperial Hotel, Oji Paper, Tokyo Ishikawajima Shipbuilding, Tokyo Artificial Fertilizer, Iwaki Coal Mining, and Hiroshima Hydro Electricity. The list goes on and on.

Why was Shibusawa so successful in these manifold business dealings? In Chapter 4, Miyamoto Matao provides a tantalizing hypothesis: in terms of paid-up capital, joint-stock capital formation outstripped all other forms of private capital formation during the period 1896-1939 (as a percentage of paid-up capital joint-stock capital always exceeded eighty percent). In an era when business information was unusually costly — because auditing of corporate books was in its infancy and many persons where only marginally literate in finance — highly respected zaikaijin like Shibusawa were instrumental in putting together companies. Their reputations as astute financiers loomed large. The best example of this is Osaka Spinning Company established in 1882. As the “kitchen of the bakufu (shogun)” Osaka had been the merchant capital of Tokugawa Japan. But the Osaka merchants were too conservative — bereft of imagination and knowledge of foreign techniques — to start a steam-driven, Western-style mill in their own backyard. Enter Shibusawa who had toured textile mills in Europe. Not only did he — an outsider — put together financing from warring wealthy Osaka families, he also recruited Yamanobe Takeo who was mastering spinning technologies in Lancashire.

Operating under fukoku kyohei meant operating under constraints. For instance, in defeating China Japan gained the right to operate in Chinese treaty ports on an equal footing with Western powers — rights that included investing directly in Chinese treaty ports. As a result Japanese cotton textiles and Japanese silk reeling companies began to cut into the businesses run by Western merchants, especially the British. Not surprisingly the British reacted negatively. In Chapter 5 Janet Hunter highlights criticism of Japanese business practices in Great Britain. The British press labeled the Japanese liars, cheats, and devious in their ways. For Japanese zaikaijin, like Shibusawa, the message was clear. Diplomacy was needed on the international front; on the domestic front cajoling Japanese merchants into adopting morally acceptable norms was imperative.

Along similar lines, in Chapter 6, Kimura Masato shows that Shibusawa’s diplomatic touch was particularly crucial during the period when extraterritoriality was alive and well in Japanese treaty ports. He points out that some of the criticisms directed at the Japanese were ill founded: it was poorly-informed Western traders operating in Japanese treaty ports who were at fault. Shibusawa stepped in, helping finance through the offices of Dai-Ichi Bank a consortium of Yokohama silk merchants involved in exporting silk, thereby undercutting the Western merchants. Fortunately abrogating the unequal treaties solved this problem. Still it did not dispel Western critiques. Kimura goes on to discuss the accusations directed at Japanese companies by the American business community during the early twentieth century: just as in the 1970s and 1980s the Americans were incensed that the bilateral trade balance between the two countries was favorable to Japan. Shibusawa, realizing the American market was crucial to Japanese exporters, led a delegation to the United States with the aim of encouraging Japanese importers to increase their American sourcing of raw materials and finished products.

That Shibusawa was under international pressure to act as a model zaikaijin in upgrading the standards of Japanese merchant activity goes without saying. That he coupled the commoner/transparency model of gapponshugi with a moral imperative calling for virtuous community-oriented ethics is another matter altogether. There is little doubt that Shibusawa was a sincere believer in the neo-Confucianism he imbibed in his youth. Shibusawa believed that business could be carried on according to Confucian ethics; he was steadfast in asserting that capitalists could and should place a strong emphasis on righteousness and benevolence, eschewing greed-oriented profit, despite engaging in competition. This conclusion is made obvious from a number of the chapters in this volume, notably the chapters written by Tanaka Kazuhiro, Geoffrey Jones and Kikkawa Takeo. How much of this commitment was due to Confucianism per se and how much of it was due to experience with Christian-inspired Western thought is less clear. For instance in Chapter 3 Patrick Fridenson argues that the theories of Saint-Simonism may have influenced Shibusawa. What is clear is that Shibusawa’s neo-Confucianism was mainly focused on the aphorisms I cited at the beginning of this review. Adhering to degraded morals drives out good morals; virtue is noble; giving back to the community through philanthropy is essential. It is not simply good advertising. Ethical, community-oriented, capitalism is possible; nay, it is more than possible; it is indispensable. Tragically for Shibusawa and the ethics he espoused, his life came to an end in 1931 just as pendulum swings in fukoku kyohei were propelling Japan away from internationalism onto a fraught-laden path of military aggrandizement he personally deplored. Did he go to the grave believing he had failed?

It is easy to be cynical about business ethics. It is tempting to call it a con job. That said there are decent cons; there are indecent cons; there are actual facts. Without a moral compass self-styled great people cannot be great. To be sure persons devoid of ethical intelligence can become notable; craven con artists strut many a national stage; but they are far, far, far from great. To his credit Shibusawa was sincere in following his moral compass. In that lies his truest greatness.

(Patrick Fridenson is Professor of International Business History at the Recherches Historique at L’Ecole des Hautes Etudes en Science Sociales in Paris. Kikkawa Takeo is Professor at the Graduate School of International Studies, Tokyo University of Science.)

Carl Mosk is Emeritus Professor at the University of Victoria and a lecturer at the University of California at Davis. He is the author of a number of books concerning Japanese economic history including Japanese Industrial History: Technology, Urbanization, and Economic Growth and Japanese Economic Development: Markets, Norms, Structures. His forthcoming book Capitalism and Religion in World History: Purification and Progress explores the long-run global relationship between religious ideology and capitalist ideology.

Copyright (c) 2017 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator (administrator@eh.net). Published by EH.Net (June 2017). All EH.Net reviews are archived at http://eh.net/book-reviews/

Subject(s):Business History
Economic Planning and Policy
Geographic Area(s):Asia
Time Period(s):19th Century
20th Century: Pre WWII

Rulers, Religion, and Riches: Why the West Got Rich and the Middle East Did Not

Author(s):Rubin, Jared
Reviewer(s):Mokyr, Joel

Published by EH.Net (April 2017)

Jared Rubin, Rulers, Religion, and Riches: Why the West Got Rich and the Middle East Did Not. New York: Cambridge University Press, 2017. xxi + 273 pp. $30 (paperback), ISBN: 978-1-108-40005-3.

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

The Middle East, it has been said, is not just a collection of failed states. It is a failed region. It generates a disproportional number of the world’s orphans and refugees, its GDP per capita is intolerably low despite oil riches, and there are few signs that there is light at the end of tunnel. Democracy seems to have been put on the back burner indefinitely, and human rights are a lost cause in most countries and in retreat elsewhere. Intellectually, too, things look rather dismal: In 2005 Harvard University alone produced more scientific papers than 17 Arabic-speaking countries combined. Muslim countries contribute just 2.5 percent of more than 11.5 million papers published worldwide each year (Muslims constituted 23 percent of the world’s population in 2010). A 1997 Scientometrics paper estimated that 46 Muslim countries (which of course contain much more than the Middle East) contributed 1.17 percent to world science literature as opposed to Spain (1.48 percent).

Is the Islamic religion to blame? Jared Rubin, in this stimulating and highly original study, would deny that emphatically. Although this is a book about religion and its implication for institutional and economic change, Rubin is little interested in the actual doctrinal content of religion. He points out, as many others have, that the essence of Islam could not possibly be as rigid and opposed to commerce and economic change as it may seem, because for the first centuries of its existence, the nations that adopted Islam flourished not just commercially but also in terms of technology, architecture, poetry, agriculture, medicine, and engineering, while western Europe was an ignorant, violent and poverty-stricken backwater. What we have witnessed since 1200 is more than a “divergence”: it is a Great Reversal, of momentous importance till the present day.

Rubin’s book presents us with an explanation for this great reversal, which will have to be taken into account from now on in all future discussions on the economic history of the Islamic world. He does not oversell his argument as the reason for the great reversal, he makes a plausible argument for it as a complementary argument to the ones other serious scholars have made. The book is divided into a few chapters that outline the theory and logic of the argument and then applies these insights to a number of historical case studies. It is a tale that combines economic history, political economy, and religion in a unique and novel way.

Here is the basic argument: any kind of ruler has power because his or her subjects accept their rule and their main concern is what Rubin calls “propagating their rule.”  How do you get people to accept you as their ruler and let you keep your job? Political power is supported by a combination of coercion (that is, violence) and legitimacy (people willingly accept a ruler because they believe that this person has the right to rule them). Through most of history, rulers depended on a combination of the two, though the weights of each differed greatly depending on their costs and benefits. Rubin is exclusively interested in the legitimacy part. Legitimacy is provided by what he calls “legitimizing agents” — groups or entities that have enough influence to make the subjects of the ruler follow instructions and pay taxes. An obvious legitimizing agent is the religious establishment — for example, European rulers once ruled ex dei gratia and called themselves the most Catholic King. Some modern royalty still include the line in their title, although in most places such relics are empty.

Rubin observes that in the early medieval period, both Christian and Muslim rulers used religious authorities as legitimizing agents, but that at some point in the later Middle Ages, Muslim and western European society diverged. Whereas in the Ottoman Empire the sultans continued to rely on religious authorities for their legitimacy, in many western societies the Church’s political leverage was diminished irreversibly. From the beginning, Rubin points out, Christian doctrine envisaged separate spheres for secular and religious power. The schisms and exiles to which the late medieval papacy was subject weakened it greatly in the face of ambitious rulers, and the reformation administered to religious legitimization the coup de grace. Apart from a few corners of Europe such as Spain, religion lost the power it had exercised since even before the prophet Samuel anointed Kings Saul and David.

Why and how did this matter to economic history? Rubin argues that religious authorities were in general conservative, and that the institutions they established are less aligned with commerce and finance than when an economically important elite such as rich urban merchants and artisans are more powerful. As a result of their political influence, religious authorities in the Middle East were successful in blocking critical breakthroughs, most notably the printing press and more sophisticated financial institutions. The printing press facilitated the success of the Reformation, and the Reformation had further favorable economic effects, as has recently been shown by a pair of important papers (Cantoni, Dittmar and Yuchtman, 2016; Dittmar and Meisenzahl, 2016). One might add that even in France, in which the reformation was suppressed, the power of religious authorities to legitimize the king disappeared. Napoleon famously took the crown out of the hands of Pope Pius VII during his 1804 coronation and crowned himself, symbolizing that his legitimization came from military power, not God.

In summary, Rubin argues that the leaders of organized religion tended to be conservative across the board. Their influence, he thinks, depended on their monopoly of eternal truths, and updating those truths threatened to erode their credibility.  The Islamic world was unable to curtail the influence of Islamic scholars until the Islamic world had fallen hopelessly behind Europe. Even within Christian Europe, the power of religious authorities, he feels, helped determine the difference between successful regions such as the Netherlands and Britain and economic laggards such as Spain. When discussing the past three centuries, the influence of religious authorities is somewhat diminished, but what counts in Rubin’s view is that in all poor and backward states, the institutional structure and the capability of key players to “sit at the bargaining table” as he calls it was little affected by the urban-commercial classes whose demands for free and open markets, constraints on the executive, and a rule of law led to rapid economic progress in the north-west corners of Europe.

By combining an institutional argument with religion through the effect that religion had on institutions and politics (rather than on cultural beliefs), Rubin’s argument is reminiscent of an important recent book by Karel Davids, which has not thus far received sufficient attention (Davids, 2013). Both books, in a different way, stress how religious institutions mattered regardless of the precise content of religion. Davids, however, emphasizes another aspect, namely the role of religion in the generation and dissemination of technology. Rubin is primarily interested in institutions that support markets. Yet an explanation of modern economic growth cannot possibly avoid the primum movens of economic growth, which was the rapid expansion and dissemination of useful knowledge. In early medieval Islam, engineers, doctors, and chemists were at the forefront of pushing the envelope. By 1600 the Islamic world had become a follower, by 1800 they were a laggard. A natural extension of Rubin’s idea is that a government dominated by religious authorities will also be less than accommodating to out-of-the-box ideas from natural philosophers, astronomers, mathematicians, and medical doctors. The tradeoff between religiosity and scientific and technological progress has become a serious topic of investigation in recent years (Benabou, Ticchi, and Vindigni, 2014; Squicciarini, 2016). Their findings support the notion that devoutness affects innovativeness negatively and that political institutions could be used by powerful religious leaders to suppress what they considered heretical views.

Rubin is correct in pointing out that in the most progressive countries in western Europe the ability of religious leaders to halt progress was limited.  A striking example of this phenomenon is provided by Amir Alexander (2014), who documents the fierce resistance to infinitesimal mathematics by the Jesuits in the seventeenth century, which seriously slowed down the development of mathematics in Italy. The reason the reactionary powers such as the Jesuits were not able to slow down the development of radical new ideas in Europe materially is primarily the high level of political fragmentation in Europe. If a particular ruler tried to crack down on his most creative subjects because they wrote things he felt to be subversive or heretical, they could always move across the border. Such outside options may have been much more limited in the Ottoman Empire and in China. Interstate competition is another factor that rulers worried about, beside Rubin’s legitimization story. After all, every ruler faced both internal and external threats. Without interstate competition, or “emulation” as eighteenth-century writers called it, Europe might never have had the Enlightenment, which opened the doors to so many of the institutional and technological changes that have helped create economic modernity.

Here and there one could nitpick some of Rubin’s historical interpretations. His account of Spain’s political economy would have greatly benefitted from a closer attention to Regina Grafe’s path-breaking work (Grafe, 2012). Rubin’s agnosticism as to the actual content of religion may be somewhat misplaced: the Sunni revival of the eleventh century did in time move the ruling orthodoxy into a more conservative direction, as Eric Chaney (2015) has shown. More generally, an argument that focuses on “the ruler” and the significance of the propagation of political power may exaggerate the ability of the state to control what the citizens did in pre-twentieth-century societies.

All the same, Rubin has written an important and timely book. His methodology is very much that of the historically informed economist: certain choices are made at some point because they make sense, that is, the benefits to those that make the decision exceed the costs. But once made, these initial conditions can have cascading unintended and unanticipated consequences, and those historically contingent causal chains may well be what drove much of the great and little divergences that our profession is so interested in. Equally important, this well-argued and sensible book about Islam provides a much-needed antidote to the toxic rubbish masquerading as scholarship produced by some of the Islamophobes in the current American administration (e.g., Gorka, 2016). The Middle East’s problem is not Islam; it is History.

References:

Alexander, Amir. 2014. Infinitesimal: How a Dangerous Mathematical Theory Shaped the Modern World. New York: Farrar, Straus and Giroux.

Benabou, Roland, Davide Ticchi, and Andrea Vindigni. 2014. “Forbidden Fruits: The Political Economy of Science, Religion and Growth.” Unpublished working paper, Princeton University.

Cantoni, Davide, Jeremiah Dittmar and Noam Yuchtman. 2016.  “Reformation and Reallocation: Religious and Secular Economic Activity in Early Modern Germany.” Unpublished.

Chaney, Eric. 2015. “Religion and the Rise and Fall of Islamic Science.” Unpublished working paper, Harvard University.

Davids, Karel. 2013. Religion, Technology and the Great and Little Divergences. Leiden: Brill.

Dittmar, Jeremiah E. and Ralf Meisenzahl. 2016. “Origins of Growth: Health Shocks, Institutions, and Human Capital in the Protestant Reformation.” Unpublished.

Gorka, Sebastian. 2016. Defeating Jihad: The Winnable War. Washington, DC: Regnery Publishing.

Grafe, Regina. 2012. Distant Tyranny: Markets, Power, and Backwardness in Spain, 1650–1800. Princeton, NJ: Princeton University Press.

Squicciarini, Mara. 2017. “Devotion and Development: Religiosity, Education, and Economic Progress in 19th-century France.” Unpublished working paper, Northwestern University.

Joel Mokyr is the author of Culture of Growth: The Origins of the Modern Economy (Princeton University Press, 2016).

Copyright (c) 2017 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator (administrator@eh.net). Published by EH.Net (April 2017). All EH.Net reviews are archived at http://eh.net/book-reviews/

Subject(s):Economic Development, Growth, and Aggregate Productivity
Economywide Country Studies and Comparative History
Geographic Area(s):Europe
Middle East
Time Period(s):General or Comparative

Brahmin Capitalism: Frontiers of Wealth and Populism in America’s First Gilded Age

Author(s):Maggor, Noam
Reviewer(s):Whitten, David O.

Published by EH.Net (April 2017)

Noam Maggor, Brahmin Capitalism: Frontiers of Wealth and Populism in America’s First Gilded Age.  Cambridge, MA: Harvard University Press, 2017. xii + 284 pp. $40 (cloth), ISBN: 978-0-674-97146-2.

Reviewed for EH.Net by David O. Whitten, Professor of Economics, Auburn University.

Noam Maggor, Postdoctoral Associate in the Department of History at Cornell University and formerly a Fellow in the Charles Warren Center for Studies in American History at Harvard University, opens Brahmin Capitalism: Frontiers of Wealth and Populism in America’s First Gilded Age with the pre-Civil War history of Boston wealth and its employment in the construction and expansion of the cotton textile industry in the Boston area.  The return on investments in mills and machine shops attracted capital to the point of over-development that left investors with declining stock values and reduced returns that might well have spelled the end of Boston as a capital-rich city.  What Boston financiers did to reinvent themselves has a commanding role in Maggor’s study.

The first thrust into investments outside of Boston’s textile industry was a failure.  Bostonians — with more ambition than understanding of human behavior and Mother Nature — undertook to prove to the investment world that cotton culture could be as remunerative under free labor conditions as it was under slavery.  Cultivating cotton on a sea island off the coast of South Carolina proved more challenging than the young Bostonians anticipated.  The heat, high humidity, lack of infrastructure, and hurricanes combined with a recalcitrant newly-freed labor force to overwhelm the young men from the North who returned to Boston in defeat.  They might have benefited from knowledge of the experience of ship builders in the early National period who struggled to harvest live-oak trees for construction of the nation’s renowned frigates.  The live oaks thrive in the swampy Atlantic coastal regions of the Southern states.  The parts essential for the best ship construction were acquired but only at heavy expense of human effort and treasure.

The spectacular growth of the American heartland in the post-Civil War era is well documented.  What Maggor adds to that body of literature is a microscopic analysis of the role of Boston investors in that explosive expansion.  Railroad construction required financing as did exploitation of the mines and forests of the United States.  Maggor documents the Boston investors’ contribution to that underwriting.  The Mexican Central Railway, a 1,225 mile road that ran from El Paso to Mexico City, for example, was incorporated under Massachusetts law and controlled by the Boston investment group that owned the Atchison, Topeka and Santa Fe and was directed from Boston where nine of its thirteen directors resided.  The Mexican Central connected with the Atchinson, Topeka, and Santa Fe and feeder lines constructed to regions where remunerative freight could be found.

The moneyed interests in Boston did not invest in a pig-in-a-poke but relied on their men-on-the-ground to advise them on the potential of attractive enterprises — men who devoted themselves to careful study and analysis of the projects they reviewed for their employers in Boston.  Those employers were family and friends of the advance-agents, who saw themselves as missionaries to the great unwashed of the American heartland and who were often surprised at the intellect, cunning and energy of the lower class men they studied.  It was not unusual for the surveyors to assume responsibility for the undertakings they recommended for investment.

Maggor juxtaposes his exposition of the flow of Boston capital into the heartland with discussions of changes in Boston itself.  At the same time that Boston financiers were gaining national influence with their monetary assets they were losing control of their city.  In the heyday of cotton manufacturing and the import/export trade, the city of Boston belonged to the elite.  The controlling offices were held by those with money and ownership of the factories.  With the decline of cotton manufacturing and import/export, Boston became home to small manufacturing and commercial firms whose owners and employees made up in numbers (read votes) for what they lacked in wealth.  Moreover, the lower and middle classes expanded their political power by expanding the city itself, incorporating what had been outlying towns into the city proper over the protests of the moneyed class that considered itself to be the soul of Boston, the people who mattered.  As the nineteenth century advanced, Boston’s elite were increasingly isolated in pockets they were able to defend against the urban juggernaut.  Beacon Hill and later Back Bay became enclaves of the rich and powerful — powerful nationally but increasingly impotent locally.

Maggor showcases the hometown conflict facing the moneyed interests of Boston with a chapter dedicated to the fierce battle over use of the Common.  Using direct quotations from the debaters, Maggor paints a vivid portrait of the positions taken by the combatants or in the case of the moneyed class, their paid spokespersons.  These positions reflected the philosophies of the two sides and their opposing views of their city and their place in it. The rhetorical storm grew out of a request of mechanics in Boston for use of a small part of the Common for an exposition featuring the mechanical advancements of which they were proud.  Similar expositions were common in the decades after the successful Crystal Palace Exposition in London in 1851.  The Common was a barrier between Back Bay, home to a large portion of the moneyed class who saw any intrusion into the sanctuary they portrayed as an urban retreat for the lower classes, as a threat to their privacy and security.

Following the battle for the Common, Maggor investigates the conflict between East Coast investors and the constitutional conventions at work in the states being carved out of the western territories.  Boston investors, like the others in the East, were concerned that state constitutions might infringe on their freedom to harvest the resources of the territories and to regulate the railroads owned by Eastern moneyed interests.  Delegates to the conventions were not of the elite of society but residents of the new states who had vested interests in the operation of their government.  These delegates sought protection from the rich men back east who sought to take off the resources of the state at minimum or no cost and to run rampant over organized labor and any resistance to railroad rate setting.  Representatives of the East Coast moneyed interests played hard ball with the constitutional conventions threatening the loss of investment funds essential to the development of the state.  Neither side won complete victories but the moneyed interests probably gained the most from the negotiations.

Meanwhile, back in Boston the elites built political coalitions that propelled them back into control of their city government.  Once back in power the elected elites strove to undo what the populist administrations had constructed and reduce the support of lower classes that came at the expense of those better off.  The conflict between those dependent upon a strong and well financed city government and those who wanted to reduce that government parallels the national political conflict of the second decade of the twenty-first century.  As Maggor assures us, the development of the United States as an industrial power and leader of the world did not come about smoothly but in fits and starts with uneven results.  Brahmin Capitalism is a guide to the background of that development as it progressed in Boston, a premier leader in investment at home and beyond.

Maggor’s work lacks a bibliography but extensive citations largely make up for that failure.  The writing is like silk, so smooth that it often moves the reader along at such a pace that the underlying meaning of the narrative is missed and demands a second and even third reading.  This is not an easy book to digest.  It demands concentration but makes the effort worthwhile.  Students of business history will benefit from a reading of this work.

David O. Whitten (Professor of Economics, emeritus, Auburn University) is author (with Bess E. Whitten), of Birth of Big Business in the United States: Giant Commercial, Extractive, and Industrial Enterprise, 1860–1914 (Praeger, 2006) and (with Douglas Steeples) Democracy in Desperation:  The Depression of 1893 (Greenwood Press, 1998) and editor of Business Library Review, International (aka Wall Street Review of Books founded by Robert Sobel) from 1976 to 2002.

Copyright (c) 2017 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator (administrator@eh.net). Published by EH.Net (April 2017). All EH.Net reviews are archived at http://eh.net/book-reviews/

Subject(s):Business History
Geographic Area(s):North America
Time Period(s):19th Century

Paying for Hitler’s War: The Consequences of Nazi Hegemony for Europe

Editor(s):Scherner, Jonas
White, Eugene N.
Reviewer(s):Harrison, Mark

Published by EH.Net (October 2016)

Jonas Scherner and Eugene N. White, editors, Paying for Hitler’s War: The Consequences of Nazi Hegemony for Europe. New York: Cambridge University Press. 2016.  viii + 468 pp. $120 (hardcover), ISBN: 978-1-107-04970-3.

Reviewed for EH.Net by Mark Harrison, Department of Economics, University of Warwick

Paying for Hitler’s War is the outcome of a conference held in Washington, DC, in 2009 under the auspices of the German Historical Institute. Its goal is a deeper understanding of the economics of German occupation during World War II. Eighteen authors, among them the editors, Jonas Scherner (Norwegian University of Science and Technology) and Eugene N. White (Rutgers University), contribute an introduction and three chapters on German war aims for the occupation of Europe and the forms and methods of exploitation of the occupied territories, followed by thirteen more chapters devoted to particular countries or regions of Europe. The latter cover countries that were occupied militarily (France, Belgium, Netherlands, Norway, Denmark, Czechoslovakia, Poland, and Ukraine), as well as neutral Sweden and belligerent Finland and Bulgaria.

As a topic for research, the economics of occupied Europe is not new (see Dallin 1957; Milward 1970, 1972; Liberman 1996; Kay 2006; and Klemann and Kudriashov 2012), but it is far from exhausted. Scherner, White, and their co-authors go beyond the existing literature in geographical detail and also in considering the impact of the wartime occupation regime or other relations with Germany on postwar developments.

Section I is entitled “Germany’s Wartime Dilemma.” The dilemma is not explicitly defined, and there are at least two candidates. One dilemma was the extent to which Germany planned to rely on external versus internal revenues — a blurry distinction, given that by 1940 Greater Germany already included Austria and parts of Poland, Czechoslovakia, and France. Another dilemma was the extent to which Germany could allow short-term confiscation and enslavement to undermine the medium-term sustainability of economic life under occupation.

Chapter 1 (Carsten Burhop) addresses an aspect of the first dilemma. To what extent did the Hitler regime base its war aims on the plans that the German government entertained in the desperate spring months of 1918, when it seemed that Allied resistance might be broken before the German home front collapsed. Did the Kaiser’s Germany inspire Hitler’s later ambitions for a system of dependent states in Eastern Europe and preferential trade with the West? Burhop argues that there is little evidence for continuity. This negative finding usefully closes off one garden path down which lazy thinkers have wandered from time to time. At the same time, here if not in some other chapter, another legacy of the Great War might have been considered: memories of the Allied blockade. In setting their immediate objectives for conquest, Hitler and his circle were strongly influenced by the recollection of Germany’s economic difficulties in World War I, which they attributed to the blocking of German imports by the Allies. Preparing for World War II, they faced the problem that their economy remained dependent on external sources of food and other materials, and they concluded that conquest would provide the means of war.

As things worked out, Germany’s wartime economic exploitation of its neighbors was of major importance for the war. German military spending reached around 70 percent of nominal national income in the later stages of the war, while net foreign saving accounted for 15 percent (Klein 1959: 256). This alone would put the likely contribution of external resources to Hitler’s war spending above 20 percent. But this is a lower bound, to which should be added the contribution of foreign labor to domestic production. Chapter 3 (Johan Custodis) estimates that by 1944 one fifth of the German workforce was made up by foreign workers, forced and “free,” who added as much as ten percent to German production.

Paying for Hitler’s War confirms some of the patterns suggested by past research. The basic extractive methods that Germany imposed were everywhere similar: if you have the power to crush all resistance and the will to use it, you don’t have to adapt sensitively to national or local differences. Chapter 2 (Scherner) shows that in every country the occupation regime imposed a direct tax (occupation costs), an indirect tax (bilateral trade using an overvalued Reichsmark), forced borrowing (unpaid clearing balances), and a labor draft. The combination of these mechanisms extracted a lot or a little, depending on a few basic conditions. Important factors included the prewar level of economic development of the territory, and the extent to which state capacity survived military defeat. In France (Chapter 4, White), Belgium (Chapter 6, Martijn Lak), and the Netherlands (Chapter 7, Kim Oosterlinck and White), the authorities under occupation were able to manage German demands by mixing fiscal and financial repression. Where the state was destroyed, as in Ukraine (Chapter 15, Kim Christian Priemel), looting was the alternative.

Other factors in the intensity of exploitation included the population’s rank in the National Socialist hierarchy of races, the extent of insurgency, and the distance from the front line. Taking everything into account, much more was extracted from Western Europe than from the East. As Chapters 3 and 4  confirm, by 1943 France was transferring more than half of its national output to Germany and at the same time France was the largest supplier of forced and POW labor to the Reich.

In more detail Chapter 3 examines the role of foreign and especially prisoner-of-war labor in the German war economy. Custodis agrees with Klemann and Kudriashov (2012) that the economic losses imposed on the occupied territories by the “hunt for labor” were much greater than the benefits to Germany. Death rates among Polish and Soviet prisoners-of-war were particularly high, depleting these countries’ postwar prospects. Much of this chapter is devoted to hunting down differences among competing estimates; the activity is useful, but could have been placed in an appendix.

This topic shows us that, while German policies were largely the same everywhere, the local experiences of interaction with Germany were almost infinitely variable. While the war continued, these variations were suppressed by the common straitjacket of occupation. When German power collapsed, the local variation exploded: suddenly, every country was different again.

Section II is entitled “The Occupied West.” Chapter 4 focuses on France. German levies were financed by a mix of fiscal and financial repression. Subject to very high rates of extraction, the French GNP collapsed as the war progressed. The end of the war did not cancel all debts, and in France as elsewhere in Europe elites and electorates had lost much of their faith in the market economy, so the exit from a war economy was complicated by the persistence of heavy taxation and financial controls. Marshall Plan Aid and the Treaty of Rome were two steps on France’s gradual path back to a free market economy.

Chapter 5 (Marcel Boldorf) shows that the German occupation of France led to a huge redistribution of rents. Collaboration with the occupation authorities was widespread in the economy, as in government and society. Most branches of the economy were devastated but war suppliers prospered. French businesses often collaborated with former competitors as well as with government, and anti-competitive business ties persisted after the war. Chapters 6 and 7 tell similar stories for Belgium and Netherlands. The wartime burden on the Belgian economy remains unclear, unlike the French burden which looks well established. The burden on the Dutch population was tempered by its “high” racial status, and also by a thriving underground economy. The Dutch postwar recovery was particularly complicated by its dependence on defeated Germany for a revival of trade.

Chapter 8 (Fabian Lemmes) considers German construction projects in France and Italy, administered by the Todt Organization. These accounted for most French and Italian wartime construction, and were implemented through a compliance system that combined rewards and penalties. Their long term consequences remain unclear.

Section III turns to “Northern Europe.” Chapter 9 (Harald Espeli) evaluates Norway’s wartime burdens. These were heavy, partly because the size of the German occupation army was very large relative to a small national population. Still, the chapter argues that war damages and losses were not as heavy as was claimed after the war. As in Western Europe, there was considerable continuity of fiscal and industrial policy into the postwar period, not all of it necessary. Chapter 11 (Steen Andersen) considers Denmark’s “mild” occupation.

Two chapters are devoted to countries that retained their sovereignty in unlikely circumstances. Chapter 10 (Eric Golson) shows that Sweden, sovereign but surrounded, had to offer incentives to both sides to uphold its neutrality. Over time, as the German threat was increasingly confined by the rise of Allied power, Swedish policy adapted flexibly in favor of the Allies. There is a contrast with Sweden, discussed in Chapter 12 (Jari Eloranta and Ilkka Nummela). Having already been attacked by the Soviet Union, Finland ended up going to war on the same side as Germany, even though with much more limited objectives, and paid a heavy price for doing so.

The most devastating outcomes of the war are discussed in Section IV, “Eastern Europe.” There, military defeat was accompanied by the collapse of states and currencies, the tearing up of national boundaries, and the implementation of plans to starve and murder tens of millions of people.

Did Nazi wartime occupation pave the way for Soviet postwar domination in Eastern Europe? Chapter 13 (Jaromír Balcar and Jaroslav Kučera) argues that in Czechoslovakia the occupation was severe but not a disaster. It did not pave the way for a command system after the war. When the governing elite chose its path towards a regulated economy, they were inspired, not forced, by Moscow. Different emphases appear in two other chapters. In Chapter 14 (Vera Asenova), wartime Bulgaria is described as locked into a protected bilateral trade relationship with Germany. When the war ended, the country moved smoothly to a similar relationship with the Soviet Union. Chapter 16 (Ramona Bräu) argues that the devastation of Poland’s physical and human capital under Nazi occupation made it much easier for the communists to impose a centralized command economy after liberation.

A common theme of this heartbreaking book is that the costs of crime to society are generally greater than the gains to the criminal. This was as true as ever when the thief was a state and the instrument was its army. Chapter 15  is soaked in sadness for Ukraine, which “had the worst of the war. Its suffering did not start in 1941 and did not end in 1944, but peaked in between, with its Jewish population suffering near annihilation” (p. 416).

This is a book for specialists. While students and interested lay readers may struggle to extract the pattern from the details, others will find that Paying for Hitler’s War marks an important new stage of scholarship about that tragic conflict.

References:

Dallin, Alexander. 1957. German Rule in Russia, 1941-1945: A Study of Occupation Policies. London: Macmillan.

Kay, Alex J. 2006. Exploitation, Resettlement, Mass Murder: Political and Economic Planning for German Occupation Policy in the Soviet Union, 1940-1941. New York: Berghahn Books.

Klemann, Hein, and Sergei Kudriashov. 2012. Occupied Economies: An Economic History of Nazi-Occupied Europe, 1939-1945. London: Bloomsbury.

Klein, Burton H. 1959. Germany’s Economic Preparations for War. Cambridge, MA: Harvard University Press.

Liberman, Peter. 1996. Does Conquest Pay? The Exploitation of Occupied Industrial Societies. Princeton: Princeton University Press.

Milward, Alan S. 1970. The New Order and the French Economy. Oxford: Clarendon Press.

Milward, Alan S. 1972. The Fascist Economy in Norway. Oxford: Clarendon Press.

Mark Harrison is the author of One Day We Will Live without Fear: Everyday Lives under the Soviet Police State (Hoover Institution Press, 2016).

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