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The Transformation of American Law, 1780-1860

Author(s):Horwitz, Morton J.
Reviewer(s):Rothenberg, Winifred B.

Project 2001: Significant Works in Economic History

Morton J. Horwitz, The Transformation of American Law, 1780-1860. Cambridge, MA: Harvard University Press, 1977. xvii + 356 pp.

Review Essay by Winifred B. Rothenberg, Department of Economics, Tufts University.

When the Rules Changed: A Twenty-five Year Retrospective on The Transformation of American Law, 1780-1860

“In short, the transition periods can be described as periods of controlled social and economic revolution. They are revolutions because they involve rapid changes in long-standing economic, social, and often political institutions; they are controlled in that the integrity of the societies is maintained despite prolonged internal conflicts.”(Kuznets, 1968, p. 107)

In 1926, when J. Franklin Jameson published The American Revolution Considered as a Social Movement, the American Revolution was not generally considered to have been a social movement at all. So much less wrenching than its French or Russian prototype, ours seemed to be a colonial war, not a class war; a war about “Who shall rule?” — not a revolution; for — recalling Carl Becker’s famous phrase — with respect to “Who shall rule at home?” nothing much appeared to have changed. But in the seventy-five years since Jameson, historians have compiled abundant evidence that fundamental change took place after the Revolution in virtually every economic, political and social indicator, from market integration to marital fertility, from agricultural productivity to religious affiliation, from the nature of the polity to financial markets, from literacy rates to life expectancy, and most of all in that elusive thing the French call mentalit?. Those changes constituted a ‘transformation’ beyond mere ‘change.’

‘Change’ is continuous. It is the condition of being in a world where “Whirl is King.”1 But the transformation of American private law that Morton Horwitz describes here “lifted pencil off paper.”2. After the Revolution, the legal reasoning that governed judge-made law in America could cut itself free from that ‘undiscovered country’ from which the English common law traced its origins and drew its enormous authority; from its rigid pleadings; from its “blind veneration for ancient rules, maxims, and precedents” (p. 25); from its neglect of societal consequences. More to the point, it was a discontinuity that paralleled the sudden acceleration of capitalist development and the new “era of shared ideation” that legitimated it.3

Horwitz is not alone in remarking a critical period in the law in and around the 1780s. For Roscoe Pound, the early years of the Republic were “the formative era of American law,” although he seems thoroughly to have rejected the notion, so central to Horwitz, of an ideological discontinuity at that time. “Tenacity of a taught legal tradition,” he wrote, “is much more significant in our legal history than the economic conditions of time and place”(Pound, p. 82).4 But in William E. Nelson’s telling, “The War of Independence ushered in the beginning of a new legal and social order . . . the most important element [of which] was the emergence of new legal doctrines that recognized the materialism of the age” (Nelson, p. 5). And Lawrence Friedman, author of the first general history of American law, describes a “fundamental change in the concept of law” after the Revolution, one in which “the primary function of law was … to be a utilitarian tool [protecting] property in motion or at risk rather than property secure and at rest . . . [in order] to foster growth [and] to release and harness the energy latent in the commonwealth” (Friedman, p. 100).

The Transformation of American Law became an instant classic upon its publication in 1977. Readers not already familiar with it should understand that it is a flagship work of the Critical Legal Studies movement which was born and bred in American law schools in the aftermath of the civil rights struggle, the Vietnam War, and Watergate. From that anguished, profoundly anti-institutional perspective, the book mounts a brilliant attack on the transformation of the private law of property, negligence, contract, competition, and commerce that was wrought in the state courts — quite to the exclusion, incidentally, of state legislatures. Decision by decision, treatise by treatise, state court judges of the revolutionary generation began the process of making new law and new legal rules in the form and substance of which Horwitz discerns a coherence to which he gives the name ‘instrumentalism.’

Horwitz’s use of the word “instrumental” is an important clue to his thesis. The dictionary definition of ‘instrumental’ is simply “helpful; serving as a means,” in which sense the word could apply equally well — could it not? — to the eighteenth-century English common law which just because it was based on precedent, was biased in favor of the status quo, was indifferent to social consequences and was resistant to change, was ‘instrumental’ insofar as it preserved order in a society that valued order above all things. It is clear, then, that Horwitz uses the word ‘instrumental’ in a heightened sense to mean reshaping private law so that it may serve as “a creative instrument for directing men’s energy toward social change” (p. 1). To effect social change within a common law tradition inherently biased against change required a transformation not only of legal rules but of the role of judge-made law in the society. Courts shed their passivity, to the point of assuming a quasi-legislative role. Early nineteenth century judges understood — Coase to the contrary notwithstanding — that legal rules do matter, that “different sets of legal rules would have differential effects on economic growth, depending both on the distribution of wealth they produced and the level of investment they encouraged” (p. xvii, note).

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Property Law

The property-rights emphasis in the New Institutional Economic History makes knowing what property rights _are_ a matter of importance, what they _were_ a matter of greater importance, and that they are not what they were, and why, of greater importance still. The substance of Horwitz’s argument begins with property law the transformation of which ran parallel to a transformation in the conception of property itself, from an estate to be tranquilly enjoyed (in the eighteenth century), to a resource to be productively employed (in the nineteenth). The rubric of property law included riparian and other water-power rights, tenant rights, and the law of ‘waste.’ Eminent domain, nuisance, negligence, and damages fall under this rubric as well, but rules changes in those areas figured so conspicuously as subsidies to growth sectors in the economy that Horwitz treats them as such in a separate category.

Land use in the eighteenth century was constrained within two legal maxims that seem at first glance to check each other, but in fact were mutually reinforcing. On one hand stood Blackstone’s definition of private property rights as absolute: “the sole and despotic dominion which one man claims and exercises over the external things of the world in total exclusion of the rights of any other individual in the universe.” On the other stood the ancient common law principle in which property rights appear to be conditional: sic utere tuo, ut alienum non laedas, ‘so use yours that others be not harmed’. But far from mitigating the despotism of A’s dominion, sic utere extended it, for it conferred on A the power to prevent any use by B of his own land that disturbed A’s quiet enjoyment.

Property law would have to change to accommodate the nineteenth century, and it was with respect to rights in the use of water that judges, “listening to the future,” began the transformation. Two iconic cases, Merritt v. Parker (New Jersey, 1795) and Palmer v. Mulligan (New York, 1805) defined the era. Both are riparian rights cases in which a new user constructed a mill upstream or downstream of a prior user, obstructing, diverting, diminishing the flow of water or back-flooding the land. In 1795 the plaintiff won on the common law principle of aqua currit et debet currere, ‘water runs and ought to run.’ In 1805 the defendant won on efficiency grounds: that “explicit consideration of the relative efficiencies of conflicting property uses should be the paramount test of what constitutes legally justifiable injury” (p. 38). On the cusp of the new century the rules of the game had changed.

Palmer v. Mulligan may have been the tipping point that Horwitz tells us it was, but in fact it was challenged, Horwitz tells us, by other judges and by Joseph Angell in his treatise on watercourses. As late as 1827, in Tyler v. Wilkinson, the much-esteemed Justice Story of Massachusetts attacked the Palmer decision as “unjust.” His rejection of the ‘efficiency’ and ‘balancing’ standards that had been determining in Palmer “spawned a line of decisions opposed to all diversion or obstruction of water regardless of any beneficial consequences, [and] marks the nineteenth-century high point in articulating the traditional conception of property that had already come under attack” (p. 39, emphasis mine). In another watercourse case, Cary v. Daniels (1844), Chief Justice Shaw “stated a legal doctrine strikingly different from Story’s earlier formulation [in Palmer]” (p. 41). Judge Morton came down on the other side of Story on the Charles River Bridge’s claim of prescriptive rights. The reader, then, is tempted to ask which — Palmer or Tyler? Story or Angell or Morton or Story? — correctly caught the spirit of the age? Could Horwitz be accused, here and indeed throughout, of selection bias in the judicial opinions upon which he chose to hang his argument? In the age of waterpower there must have been hundreds of riparian rights cases in state courts all over the country.5 How much and how wide was the difference of opinion among sitting state court judges on each of the pivotal issues that made new law? By what process did one opinion become regnant, diffuse, and become new law? Had Horwitz wanted to construct an operationally testable hypothesis, these are the questions, I should have thought, with which he would have dealt. It is early in this review to make this point, but it should, I think, be made.

If ‘for example’ is not proof, neither is it irrelevant to a proof. If the “professional historians and other nonlegally-trained scholars” for whom The Transformation of American Law was written (p. x) are persuaded by it, it will be in large part because of the sheer weight of the evidence, the enormous amount of corroborating testimony with which Horwitz has illuminated a critical juncture in the history of ideas in America.

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Mill Acts

The reinterpretation of eighteenth-century Mill Acts provided another opportunity for nineteenth-century courts to shed the neutrality with which the common law had clothed them and overtly to take sides in the “sacrifice of ‘old’ property for the benefit of the ‘new'” (p. 63). “Under the Mill Acts, an owner of a mill situated on any non-navigable stream was permitted to raise a dam and permanently flood the land of all his neighbors, without seeking prior permission” (p. 48). Mill Acts had been enacted by provincial legislatures as early as 1713 to privilege colonial gristmills on the ground that they were private enterprises exercising a public function. This gave the floodings something of the character of a taking in eminent domain. A jury set the height of the dam, the time of the flooding, and the compensation. In return for the remedies provided in the Acts, the plaintiffs relinquished their common law right to sue for trespass, for punitive damages, for nuisance, or to seek an injunction. But in 1827, the Massachusetts court extended to textile, paper, and saw mills, unaffected with any public interest, the same privileges and immunities, allowing them “virtually unlimited discretion to destroy the value of lands far in excess of any benefit they might possibly receive,” while at the same time to “escape damages entirely by showing that the irrigation benefits the plaintiff received from having his lands over-flowed more than outweighed any injury he had incurred” (pp. 50-51). A sterner lesson could be drawn from this but for the fact that the Mill Acts, in response to public outrage, were repealed in 1830.

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Eminent Domain

Immediately after the Revolution, the “release of energy” that Willard Hurst would teach us to associate with the buoyant business of settling Wisconsin, could already be felt in the ambitious infrastructure projects being undertaken in the East. At such a time, “the most potent legal weapon” in the quiver of an instrumental jurisprudence is the power of eminent domain. Late in his book, Horwitz says of its potential to take and redistribute wealth that it was “the one truly explosive legal ‘time bomb’ in all antebellum law” (p. 259). That a State should have such a power inheres in the principle of sovereignty itself. Under English law, all who hold land do so at the sufferance of the Sovereign. Under U.S. law, where sovereignty resides in the whole people represented by the states, those states possess “unlimited power”(p. 65) to take private property for public use — even, in the case of railroads, to take private property for private use. The argument has gone even further: even to take private property for private use without compensation, for (argued counsel for the railroads) any limitation of the power of eminent domain is a limitation of sovereignty (p. 65). And, indeed, until the ratification of the fourteenth amendment carried the Bill of Rights to the States, the clause of the Fifth Amendment that reads, “nor shall private property be taken for any public use without just compensation” bound only the Congress. Most state constitutions had no such provision even as late as 1820.

Aware, as they always were, that the ad hoc outcomes of eminent domain cases could set precedents that would impact significantly upon the cost of future development projects across the continent, the courts became involved in eminent domain takings only when disputes arose over compensation. How, for example, should the land be valued? By the current owner’s purchase price? By its current price? By its estimated future price given the trend rate of growth of population and land prices? Or by speculating as to its value after the projected construction has secured its market access? Any one of these, even the most generous, could have a perverse outcome: in one of the many cases involving abutters injured by the diversion of water during construction of the Erie Canal, compensation was denied entirely on the ground that the “general increase in land values and access to markets” that might arise as a consequence of the Canal was sufficient remedy (p. 69).

And how should the consequential destruction of property be compensated? In the Erie Canal cases, the court exempted consequential injuries from liability, and never did make clear the grounds on which it did so. Horwitz suggests five: ? the risk of consequential damage was already discounted in the price originally paid for the land; ? the threat of appropriation by the state was already discounted in the price originally paid for the land; ? the injury was damnum absque injuria, (defined in Black’s Law Dictionary as “a loss which does not give rise to an action for damages against the person causing it,” just something to be borne “as part of the price to be paid for the advantages of the social condition”); ? the injury resulted from a breach of contract that could not have been anticipated; ? the injury was entirely predictable, but it is not clear who should bear the cost. In the event, “Landowners whose property values were impaired without compensation in effect were compelled to underwrite a portion of economic development”(p. 70).

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Negligence

The question of who should bear the cost also lies at the center of the negligence doctrine. The issues in negligence law have attracted considerable attention, not only because it is “the largest item of business on the civil side of the nation’s trial courts,” but also because Richard Posner’s well-known analysis of appellate-level determinations in cases of railroad and street railway accidents launched the field of Law and Economics (Posner, p. 29). In that exhaustive study, Posner tested his hypothesis that sitting justices aimed to set damage awards in such a way as to ‘make the market work'; that is, “to bring about an efficient level of accidents and safety” (Posner, p. 34). “The only recognized basis for invoking the legal process to shift an accident loss from the victim to another party is the expectation of improving the efficiency of resource use.” If, as a result of an accident, the magnitude of the loss, L, weighted by the probability or forseeability of it happening, a, is less than the cost, C, of preventing it, then economic welfare requires that the injurer not assume the costs of prevention. The injurer — it was so often the railroad — would do better, both for itself and with respect to maximizing some social welfare function, to assume liability and pay full damages to the victim rather than incur the cost of installing guard-rails, fences, gates and bells at every cross-road, automatic coupling devices, fire extinguishers, etc. to prevent further accidents. The observed behavior of judges confirmed Posner’s proposition. But his data are for the period 1875-1905, leaving room for Horwitz’s discussion of the prior history of negligence to make an important contribution.

He traces the stages in the evolution of the negligence standard from the an eighteenth-century action for nuisance in which the defendant was held strictly liable; to nonfeasance or failure to perform a duty required by law or by contract; to carelessness, as in collisions between non-contracting strangers, where the joint-ness of the act makes causation (and therefore liability) difficult to determine; to contributory negligence where the assumption of the plaintiff’s complicity can defeat his claim against the defendant; to a standard, used in railroad and bridge collapse cases, where there is a defendant at fault but no liability on the rule that “injury brought about by risk-producing activity was itself no ground for imposing legal liability” (p. 97); and finally: to the use of the negligence standard as an instrument of social change. Judges, says Horwitz, were “encouraged to regard themselves as social engineers and legislators, whose decisions to impose liability were influenced by broader considerations of social policy” (p. 88). The rule governing the outcomes in Posner’s sample would, I should think, fit here.

In order to immunize new forms of enterprise against the huge costs of strict liability, the watering-down of negligence doctrine provided a significant subsidy to the dynamic edge of the American economy.6 As in the case of tariffs on British textiles, it is fair to ask, was this subsidy necessary? If it was, it should have been done, says Horwitz, through (progressive) taxation rather than through changing legal rules — a criticism he makes throughout. There are interests of substantive justice as well as of law at stake here, and, as should be clear by now, Horwitz has taken sides. “The increasingly ruthless application of the private law negligence principle . . . became a leading means by which the dynamic and growing forces in American society were able to challenge and eventually overwhelm the weak and relatively powerless segments of the American economy” (p. 99).

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Contract

Contract law may be the area respecting which the nineteenth-century transformation of American law was at once most thoroughgoing and most relevant to the concerns of modern economic history. ‘Thoroughgoing’ in that, as Horwitz tells it (and he tells it with passion and eloquence), after the Revolution contract law was torn root and branch from its origins in equitable conceptions of substantive justice, inherent fairness and objective value, and given over, entire, “to articulate the ‘will theory’ with which American doctrinal writers expressed the ideology of a market economy in the early nineteenth century” (p. 185). ‘Relevant’ in that economic historians have in recent years appropriated from contract law the whole apparatus of modern contract theory — implicit contracts, incomplete contracts, principal-agent interactions, internal labor markets, and the implications of all these for the boundaries of the firm and the transacting that takes place within them. (See for example, Hart (1995), Holmstrom and Robert (1998), and Rosen (1985).)

Evidence of the shift from “the old learning” (that contractual obligation derives “from the inherent justice or fairness of an exchange”) to the new (that contractual obligation shall reside solely in “the convergence of the wills of the contracting parties”) (p. 160) was made manifest as early as 1790 in the first legal action to acknowledge expectation damages. With the emergence of financial markets, “the function of contracts correspondingly shifted from that of simply transferring title to a specific item to that of ensuring an expected return” (p. 161, emphasis mine). Price could no longer be thought of as a stable, objective, customary, absolute measure of value when it was in the very instability of prices that gains were to be made and losses from foregone gains sustained. Henceforth the courts would acknowledge that it is “the consent of the parties alone that fixes the just price of any thing, without reference to the nature of things themselves, or to their intrinsic value” (p. 160).

It is curious to see the extent to which, in this telling, eighteenth-century legal rules are made to rest upon the foundation of intrinsic or objective value. To borrow Calvin’s devastating comment on free will: “What end could it answer to decorate a thing so diminutive with a title so superb?” There could have been little, if any, experience of price stability in the lives of this generation of judges. They had lived through the extreme price volatility of 1720-40, the simultaneous circulation of several paper currencies denominating several sets of prices with only an arbitrary relation to one another, the steady depreciation of each colony’s silver currency on the British pound sterling, and the spectacle of the Continental vanishing daily. ‘Objective value’ must have been less a ‘foundation’ than an “instrumental conception” in the service of a static social order. In light of the dominant place Horwitz gives throughout his book to this shift from objective to subjective value, one might almost say that the emergence of a market economy had a more profound impact upon the law than it had upon the real economy.

The consequential link between subjective value and the will theory of contract is nowhere more clearly illustrated than in the emergence of caveat emptor and the triumph of express over implied contracts. Whereas the most important aspect of the eighteenth-century conception of exchange had been an equitable limitation of contractual obligation if the underlying exchange were unfair, under modern will theory contractual obligation was bounded entirely by the ‘meeting of minds’ as expressed in the contract. The existence of informational asymmetries, even if establishing the inherent inequality of the parties, would no longer invalidate a contract as unfair. No provision of the contract — having been “created by it alone” (p. 182) — could be other than that expressly agreed to, even if the terms of that agreement contravened rules of law. And thus, by 1825, “the chasm” (p. 186) between express and implied contracts had emerged. The bench’s treatment of nineteenth-century labor contracts would make that chasm a bitterly contested terrain.

Applying the will theory to labor contracts The whole corpus of contract theory today is based on the recognition that it is impossible to write a complete contract. “It is simply too difficult to anticipate all the many things that may happen … [I]t is clear that revisions and renegotiations will take place. In fact, the contract is best seen as providing a suitable backdrop or starting point for such renegotiations rather than specifying the final outcome … [Both parties] are looking for a contract that will ensure that, whatever happens, each side has some protection, both against opportunistic behaviour by the other party and against bad luck” (Hart, p. 2). To interpret and enforce a contract as ‘entire’ that even under the best of circumstances is incomplete, enlists something beyond legal rules; it enlists the sympathies of the judges. Horwitz’s thesis, of course, is that the sympathies of nineteenth-century judges were, by this time, allied to commerce and industry and quite orthogonal to labor’s interests. The judicial zeitgeist, having “destroyed most substantive grounds for evaluating the justice of exchange” (p. 201), reified in its stead “the momentary intention of the parties” (p. 196).

Based on the doctrine that “an express contract bars an action in quantum meruit,” laborers who quit on a long-term contract were barred from recovering wages for time served. “In no case,” said the court in Stark v. Parker (Massachusetts 1824), “has a contract in the terms of the one under consideration been construed by practical men to give a right to demand the agreed compensation before the performance of the labor, … it would be a flagrant violation of the first principles of justice to hold it otherwise” (Karsten, p. 170). This precedent stood, with only one “solitary challenge” — Britton v. Turner (New Hampshire 1834) — until the 1870s.7 Horwitz strikingly underscores his point by presenting a parallel case: while laborers were denied recovery, building contractors who quit on an express contract were allowed to recover, both in quantum meruit for labor services and in quantum valebant for materials used (Hayward v. Leonard (Massachusetts 1828). “While the judges who adhered to the distinction between labor and building contracts never acknowledged an economic or social policy behind the distinction, it seems to be,” says Horwitz, “an important example of class bias” (p. 188).

Horwitz has been sharply taken to task for his analysis of labor contracts, and the critics have come at him from all sides, disputing both the benign class relations he attributes to the eighteenth century and the exploitative class relations he attributes to the nineteenth century. Peter Karsten (1997) and Robert J. Steinfeld (1991) are among those who have re-examined these issues in recent years. Karsten disputes Horwitz’s allegation of discrimination in the contrast between Stark v. Parker and Hayward v. Leonard. “I identified some sixty-eight ‘contractor’ cases in American courts,” he writes, “and found very little difference between the ways that courts treated ‘contractors’ and other workers. Contractors fared no better, no worse, than laborers in suits to recover in quantum meruit (and quantum valebant)” (Karsten, p. 186).

And as to the implication that the eighteenth-century common law was more equitable, more just, less punitive, and less coercive than judge-made law in the nineteenth, Karsten responds, “One searches in vain for an idyllic past in the history of British labor law” (Karsten, p. 159). Karsten and Steinfeld both sketch the sorry chronicle of over 550 years of oppressive English labor legislation and jurisprudence, from the Ordinance of Labourers (1349) to the Master-Servant law (which lasted, amended, from 1747 to 1875), during which quitting on a contract not only forfeited wages, but was prosecuted as criminal theft of the master’s property in his servant’s labor. The servant was brought before a magistrate and punished with “wage abatement, imprisonment, and whipping” (Karsten, p. 159), “and a fine largely exceeding the amount of his wages” (Steinfeld, p. 151). “As late as 1875 about two thousand agricultural laborers were still being convicted and imprisoned each year for leaving or threatening to leave their employers” (Karsten, p. 160). In his most recent book, I understand that Steinfeld has found 10,000 such prosecutions each year.

In defense of nineteenth-century American labor law, by contrast, “no one even imagined that [laborers] might be compelled to serve out their time. … Direct coercion would not be permitted, but legally sanctioned economic compulsion would. And this,” says Steinfeld, “made perfect sense. It comported with the emerging model of labor that left to the laborer the formal decision whether to stay or to go” (Steinfeld, pp.150-51).

Our interest as economic historians in the judicial enforcement of these contracts is in their labor-market consequences, for it is upon mobile resources and minimal transaction costs that the efficiency of a labor market depends. In his article on negligence theory, Posner had remarked “the affinity between economic market and common law adjudication as methods of allocating resources” (Posner, p. 75). What efficiency argument justifies the employer’s capture of the worker’s wages? The productivity-enhancing consequences of coercive discipline? But in Clark’s (1994) model of factory discipline it was enough that the worker ‘hired’ the coercive boss; he did not have to forfeit all his earnings to pay him. Then, did the employer need to be compensated by the worker for the savings he must now forgo on search costs, implicit contracting, labor hoarding, and lock-in that had motivated the annual contract in the first place? If so, the loss to the worker should vary inversely, rather than directly, with time worked.

The most plausible explanation is, of course, the deterrent effect. But in my own research on contract labor on Massachusetts farms, 1750-1865, where the quit rate was about ten percent of hires, the account books of the employing farmers showed that in no case were earnings withheld (Rothenberg, p. 207). America’s most ‘peculiar institution’ may not have been plantation slavery — after all, almost every agrarian society designs institutions to constrain the mobility of its labor force — but the genuinely free labor on New England farms.

But with this elegiac insertion from my own work I have broken the mood of Horwitz’s book, which at this point is utterly bleak. With the transformation of contract, having “neutralized” substantive justice, objective values, the power of juries, earlier protective or regulatory doctrines, and moral duties, “judges and jurists could no longer ascribe any purpose to legal obligations that were superior to the expressed ‘will’ of the parties. As contract ideology thus emasculated all prior conceptions of substantive justice, [the patently false assumption of] equal bargaining power inevitably became established as the inarticulate major premise of all legal and economic analysis. The circle was complete; the law had come simply to ratify those forms of inequality that the market system produced” (p. 210). The “affinity” between law and economics that Posner had remarked in 1875, Horwitz has found at least a generation earlier.

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The Development of Commercial Law: Negotiability, Marine Insurance, Usury

While the responsibility for the transformation of most areas of private law fell upon (or was appropriated by) the state courts, the development of a body of commercial law — having to do with negotiability, usury, and marine insurance — was the preserve of the federal judiciary. Of these areas, negotiability, which lay at the heart of all commercial relations, presented the most difficult contradictions with the common law for it intruded upon the privity of contract.

Ideally, full negotiability requires that endorsed notes “should circulate as freely as money,” which, if one thinks about what money is, means that a subsequent innocent holder of the note “might depend on payment, regardless of any unknown defects in the obligation arising out of the original transaction between distant parties” (p. 213). To illustrate, following Horwitz: A, debtor to B, can be sued by C to whom B had transferred A’s note, even if no understanding had passed between A and C. And if C had endorsed the note over to D not knowing that A had defaulted, D could sue B, a prior endorser. Most crucial — and this is what distinguishes fully negotiable instruments from assignments — suppose A has already paid the note to B; the courts will protect D, an innocent purchaser of the instrument, from the assumption of any risk arising from B’s attempts to defend himself against D’s suit. It was with respect to this last particular that the state courts, particularly in Massachusetts, balked, until the federal court overruled them in 1809, thereby taking the first step in creating a general commercial law. For Horwitz this step was doubly important: it established full negotiability, and it deposited commercial disputes in the jurisdiction of the federal courts, thereby taking them from the “uncongenial anti-commercial environment often found (sic!) in state courts” (p. 252).

Marine insurance in the eighteenth century had been operated out of taverns, inns, and coffee-houses, by merchants and shipowners for their mutual protection; “it had never been intended for profit” (p. 227). Each voyage was a unique event; each transaction was personal; only extraordinary perils at sea were covered; and the underwriters held themselves strictly liable in all cases, unless it could be proved that the ship was unseaworthy, or an agent was negligent (called ‘barratry’).

Sometime during the remarkably fruitful period 1790-1820 came “the gradual acceptance of what we might call an actuarial conception of social risk … a social consciousness that comes to conceive of a greater and greater portion of activity as appropriately within the realm of chance” (p. 228). With the chartering in the 1790s of incorporated insurance companies with large pools of capital, marine insurance law — like bankruptcy and negligence law — devolved upon an actuarial conception of insurable risks. Losses were no longer unique events, but were predictable according to a probability distribution calculated on the experience of hundreds of voyages. Unseaworthiness and barratry were no longer bars to recovery against the insurance companies; moral responsibility became attenuated, and while the risks of moral hazard increased, insurance companies protected themselves by requiring a variety of warranties and representations any breach of which would defeat recovery. For example, “any deviation from the stipulated route of a marine voyage would void a policy even without a showing that it had increased the risk of loss” (p. 231).

“The ultimate triumph of a market ideology” (p. 241) was the movement to abolish usury laws. It is noteworthy, however, that by the Civil War, seven states still voided usurious contracts, penalizing them with fines and/or forfeiture of principal, and every state except California maintained some regulation over the legal rate of interest (p. 243), but by 1860, “it was no longer possible to recapture an earlier and more coherent system of premarket morality” (p. 245) in the context of which this lingering survivor of the ‘just price’ any longer made sense.

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Conclusion

As economic historians have been made increasingly aware of legal institutions, if not by Ronald Coase then by Douglass North, no one, I think, any longer doubts that they are intimately related to economic development. But can we understand that relationship without positing a direction of causation? For Horwitz, the transformation of American law after the Revolution appears to have been so thoroughgoing, so deliberate, so willed that it is possible to read him as suggesting that the causation might actually have run counter-intuitively: from legal change to economic change, from pro-entrepreneurial judges to instrumental legal rules; from instrumental legal rules to the institutions of corporate capitalism. And now, twenty-five years after The Transformation of American Law, the theoretical work currently being done by Andrei Shleifer, Robert Vishny, Edward Glaeser, Daron Acemoglu, and other New Political Economists can be read as suggesting that such a thing is not only possible, but a direction worth pursuing in the development field. (See for example, Glaeser and Shleifer, forthcoming.)

Horwitz is not a Luddite. His target is not the process of economic development per se. It is that the courts appropriated so much of the process, and by so doing effected the transformation by obiter dicta rather than by legislation; by changing legal rules rather than by accommodating conflicting interests; by debt- and equity-financing rather than by progressive taxation. It is that, as a consequence, “growth was subsidized by victims of the process” (p. xvi).

Much of Horwitz’s argument depends on his belief that something precious was lost in the passing of the eighteenth century. Objective value, just price, equitable standards, fair contracts, symmetrical information, implied contracts, substantive justice, compensated takings, strict liability: the furniture of “the heavenly city of the eighteenth century.” It can all be compressed into one of his sentences, the belief “that unequal bargaining power was an illegitimate form of duress” (p. 184).

As the book moves through the antebellum period and the lineaments of the transformation harden in place, Horwitz’s own deeply moral commitment to humane values becomes increasingly engaged. The rhetoric grows angrier, the sarcasm more difficult to conceal. It makes this wonderful book exciting to read, but more problematic. One hates – I hate — to disagree with him.

Notes:

1. Becker (1932), p. 15, quoting Aristophanes. The full quote is “Whirl is king, having deposed Zeus.” 2. The phrase is from Gerschenkron (1968). 3. The phrase is from Nelson (1975). 4. Pound goes on to say, “Today national law schools, teaching law, not laws, and teaching law in the ‘spirit of the common legal heritage of English-speaking people’, are working effectively to preserve this uniformity, against many forces of disintegration” (p. 83). 5. Riparian rights are property rights to the banks of non-navigable waterways, i.e., of waterways not subject to the ebb and flow of the tides, and to the waters up to the mid-point of the stream. 6. Subsidy? Posner replies, “It is true that if you move from a regime where railroads are strictly liable for injuries inflicted in cross accidents to one where they are liable only if negligent, the costs to the railroads of crossing accidents will be lower, and the output of railroad service probably greater as a consequence. But it does not follow that any subsidy is involved — unless it is proper usage to say that an industry is being subsidized whenever a tax levied upon it is reduced or removed” (Posner, p. 30). 7. Karsten has an extended discussion of Britton v. Turner on pp. 157-82. Apparently it was not at all a “solitary” case; it was “hotly debated” in many state courts, and “before the Civil War had ended, five states had adopted the Britton v. Turner standard” (p. 175). Others had recognized it as more equitable but so radical as to require a legislative rather than judicial initiative.

References:

Becker, Carl L., 1932. The Heavenly City of the Eighteenth Century Philosophers, New Haven: Yale University Press.

Clark, Gregory, 1994. “Factory Discipline.” Journal of Economic History 54 (1), pp. 128-163.

Friedman, Lawrence M., 1973. A History of American Law. New York: Simon & Schuster.

Gerschenkron, Alexander, 1968. Continuity in History and Other Essays. Cambridge, MA: Harvard University Press.

Glaeser, Edward and Andrei Shleifer, forthcoming. “Legal Origins,” Quarterly Journal of Economics .

Hart, Oliver, 1995. Firms, Contracts and Financial Structure. Oxford: Oxford University Press.

Holmstrom, Bengt and John Robert, 1998. “The Boundaries of the Firm Revisited.” Journal of Economic Perspectives 12 (4), pp. 73-94.

Jameson, J. Franklin Jameson, 1926. The American Revolution Considered as a Social Movement. Princeton: Princeton University Press.

Karsten, Peter, 1997. Heart versus Head: Judge-Made Law in Nineteenth-Century America. Chapel Hill: University of North Carolina Press.

Kuznets, Simon, 1968. “Reflections on Economic Growth,” in Toward a Theory of Economic Growth. New York: W.W. Norton.

Nelson, William E., 1975. The Americanization of the Common Law: The Impact of Legal Change on Massachusetts Society, 1760-1830. Cambridge, MA: Harvard University Press.

Posner, Richard A., 1972. “A Theory of Negligence.” Journal of Legal Studies 29, pp. 29-96.

Pound, Roscoe, 1938. The Formative Era of American Law. Gloucester: Peter Smith.

Rosen, Sherwin, 1985. “Implicit Contracts: A Survey.” Journal of Economic Literature 23 (3), pp. 1144-75.

Rothenberg, Winifred, 1992. From Market-Places to a Market Economy: The Transformation of Rural Massachusetts, 1750-1850. Chicago: University of Chicago Press.

Steinfeld, Robert J., 1991. The Invention of Free Labor: The Employment Relation in English and American Law and Culture, 1350-1870. Chapel Hill: University of North Carolina Press.

Winnie Rothenberg is Associate Professor of Economics at Tufts University. She is the author of From Market-Places to a Market Economy: The Transformation of Rural Massachusetts, 1750-1850 (Chicago: University of Chicago Press, 1992), and of a number of articles in Journal of Economic History, one of which, published in 1981, won the Arthur H. Cole Prize for best article. She has served as Vice President of the Economic History Association and as a member of its Board of Trustees.

Subject(s):Government, Law and Regulation, Public Finance
Geographic Area(s):North America
Time Period(s):19th Century

The Second Great Emancipation: The Mechanical Cotton Picker, Black Migration, and How They Shaped the Modern South

Author(s):Holley, Donald
Reviewer(s):Heinicke, Craig

Published by EH.NET (March 2002)

Donald Holley, The Second Great Emancipation: The Mechanical Cotton Picker,

Black Migration, and How They Shaped the Modern South. Fayetteville, AR:

University of Arkansas Press, 2000. xvi + 284 pp. $36 (cloth), ISBN:

1-55728-606-X.

Reviewed for EH.NET by Craig Heinicke, Department of Economics, Baldwin-Wallace

College, Berea, Ohio.

At the end of World War II, the southern United States stood at a turning

point — would the region continue to catch up with the rest of the nation with

respect to wages, education levels and other economic indicators or return to

its separate path of labor-intensive agriculture, paternalism, racial strife,

underemployment, and lagging wages? Without the mechanical cotton picker there

is no doubt that the former would have been delayed; with it by the late 1960s

the South lost much of its regional character. How important can any one

implement or invention be in bringing about social and economic change?

Although Donald Holley (Professor of History at the University of Arkansas at

Monticello) does not show that the mechanical harvester was indispensable for

the South’s transformation (more on this below), he builds a good case that

this machine was more important than any other since the cotton gin in

transforming the region. By the author’s account, the cotton picker

“emancipated” both southern farmers and black workers from among the most

arduous forms of “stoop” labor, and with it from perpetual misery, inadequate

education, low standards of living and the tedium of unchanging expectations.

Donald Holley’s thoroughness in addressing the associated questions that arise

suggests that this book will be a lasting reference for those interested in

this subject.

After setting out the context in the early chapters, Holley documents how the

mechanical cotton picker came to be mass produced and marketed, beginning with

how its promoters struggled with cotton’s exasperating resistance to machine

techniques, the hallmark of American agricultural advance for much of the

twentieth century. Every aspect of the somewhat familiar story of the Rust

brothers’ inventive activity is examined (chapter three), along with the Rusts’

consciousness of the potential social upheaval that mechanization of the

harvest could unleash (chapter five). The fears of other contemporaries are

documented at length; one particularly striking comment was published amid the

Depression’s high unemployment, when the Rusts’ experiments seemed poised for a

final breakthrough: “The machine is said to be quite practical … That being

true, it should be driven right out of the cotton fields and sunk into the

Mississippi River” (p. 77, quoting The Jackson Daily News, August 31,

1936). The fears of the Rusts and others were for the unemployed themselves,

but the hesitancy of some was mixed with white paranoia: “Imagine, if you can,

500,000 Negroes in Mississippi just now lolling around on cabin galleries or

loafing on the streets” (p. 78). Ten years after that editorial, when the

mechanical harvester was on the verge of becoming a commercial reality, more

fears were expressed, but many also foresaw that the picker would solve the

problem of labor scarcity (chapter eight). Holley’s strength is documenting the

extremes as well as the middle ground, revealing that the harvester was neither

savior nor “Frankenstein’s monster.”

Part of the cotton picker story includes an account of how each major

manufacturer (not only International Harvester, but also John Deere,

Allis-Chalmers, and Ben Pearson) made a bid in the “cotton harvester

sweepstakes.” Among the most interesting passages are those that lay out

International Harvester’s marketing studies (chapter six), and two “case

studies” of cotton producers using the new machinery (chapter seven). While

past accounts have implied only the wealthy used the mechanical harvester in

its early stages, one of Holley’s cases involves a small landowner.

How did it come about that after years of tinkering, doubts, and anxiety about

the consequences, the International Harvester committed itself to regular

production of the “spindle” (so-called, due to the rotating “spindles” that

pulled lint from the cotton boll) picker? In late 1942 Fowler McCormick of

International Harvester announced that a viable picker was perfected —

although scheduled production awaited the year 1948. It is plausible that

war-time migration and the resulting labor scarcity would have increased the

anticipated value of the machine. Still, 1942 was relatively early in the

process; we know only in retrospect of the sustained rise in harvesting wages.

If the experience of World War I had been repeated, however, might not southern

landowners have expected a return to pre-war wages in the future? How much

different would the timing have been without the war?

The above questions are worth pondering, and are indeed to some extent

suggested by the text. The issue involves to what extent changes outside the

cotton and southern labor markets influenced the timing of the cotton picker’s

commercial production. What else was going on at the boardrooms and

decision-making units of the major farm implement makers? Knowing this, would

help us understand exactly how much of the move toward marketing this machine

was due to changes peculiar to the South, and how much of the move was

exogenously determined. Cotton was certainly a key commodity and machinery

makers would no doubt have been aware of the breadth of the potential market.

Still, other trends in the implement industry may well have influenced the

timing of the major manufacturers’ entries into this market. Despite leaving us

to ponder these questions, the book provides extensive documentation of

southern developments and makes a solid contribution to our understanding of

how a production “bottleneck,” a machine invented to fill that need, and the

social consequences that followed, shaped other major demographic and social

changes.

Related to the timing of the picker’s production is a well-documented debate

over whether the picker would “push” workers from the field or replace those

who had been “pulled” to better jobs in the cities (chapters eight and nine).

The book extensively surveys the range of contemporary and scholarly views. The

documentation is rich in its breadth of viewpoints; the author, however, also

forwards a statistical assessment of whether the “push” of workers from the

fields was greater than the “pull.” He finds that the latter dominated,

although not by much. The author’s labor supply and demand estimation is

perhaps too uncritical of the existing data series — for instance the “piece

rates” paid to hand pickers omit important expenses for hand labor — and his

county level regressions are somewhat unconvincing on the matter of causality,

while omitting important variables. The exercise, however, does provide another

angle from which to view the relevant questions. The documentary evidence,

thoroughly presented, will form a highly valued reference from which to assess

these important questions.

Government crop programs of the New Deal era are also important (chapter four)

in the overall process. The author takes the unconventional view that the

Agricultural Adjustment Act was less a cause of tenant “displacement” than

economic trends themselves, and argues that the AAA had positive effects in

helping to rid the South of rural overpopulation. It is not that Holley is

unsympathetic to the plight of the displaced. He recognizes, like those writing

a half century ago, that the poverty of South could not be abated with too many

people on the land. He also appreciates the limited alternatives that existed

in a place and time where the aftermath of slavery still held its loathsome

grip.

The book is convincing that the mechanical cotton picker was important beyond

its value to southern farmers, and thus that we can learn much from examining

the forces which brought it about and those which delayed its arrival. The

author goes one step further, arguing that the cotton picker was

“indispensable” for both the success of the Civil Rights Movement (p. 195), and

for the “transition from the pre-World War II South of overpopulation, poverty,

and sharecropping to the postwar, modern South” (p. 185). Reminiscent of the

“axiom of indispensability” in another context, this is an intriguing idea, but

not one that is tested directly. To show that momentous events (themselves

difficult to measure in any conventional sense) would not have taken

place absent a particular invention is indeed a demanding standard. A problem

with the cotton picker as “indispensable,” is that in part it was an

intermediary between other large demographic and economic shifts and their

results for southern markets and society. These include the effects of World

War II, the New Deal, and the internal evolution of southern society and

economy among others. These observations do not necessarily imply the cotton

picker was dispensable, but they certainly provide perspective on the idea. In

this case — as with railroads, economic growth and the question of

indispensability — the substitutes for the picker from the landowner’s

perspective may have been less attractive, but they were substitutes

nonetheless. Among those that could have relieved the southern plantation

sector’s thirst for a large docile labor force were abandonment of the cotton

“mono-culture” or capital movement to the cities and other industries. On the

labor supply side, there was also migration to the cities.

A slightly different point involves the degree to which the mechanical cotton

picker “emancipated” the southern farmer and African-American. For the latter,

the analogy is laced with meaning. We should note that if the harvester

“emancipated” blacks, then there was also a good deal of self “emancipation”

that preceded it. African-Americans chose to leave the South in large numbers

for three decades prior to 1948, before the first commercially marketed cotton

harvester entered the fields. In fact, that is part of the story the author

forwards, and why it was that many contemporaries thought the harvester mainly

“replaced” those who left the fields rather than kicking workers off the land.

By 1950 when the mechanical picker first became a viable alternative for hand

picking, the percentage of black workers in the South employed in agriculture

was 31 percent. Southern African-Americans were doing other things in addition

to picking cotton. The busses of Montgomery and lunch counters of Greensboro

were more than a step away from the fields.

Perhaps the term “emancipation” is used by the author to counter some of the

“bad press” that labor saving machines, including this one, have attracted over

the years; but we must be careful of overstatement on the other side. Still, we

can agree that on balance the cotton picker represented a positive step,

despite the fact that it brought with it ambiguities and pain for those workers

with few alternatives. It is certainly true that the changes in racial and

economic relationships associated with mechanical harvesting took place

rapidly.

It is difficult to get a handle on exactly how much one should attribute social

and economic change to any one any invention, and this case is no exception. A

great value of the book is that Donald Holley draws attention to the mechanical

cotton picker as among the most consequential inventions for the South in over

two centuries of history. It also was among the more important in

twentieth-century American agriculture, even if it was not indispensable for

the major social changes that followed it. In part, the cotton picker was

important because the demographic and social changes with which it was

entangled were so consequential; Holley is aware of this at every step, and in

the end provides the balance and completeness of documentation that should

assure the longevity of his work as a reference.

Craig Heinicke, Associate Professor of Economics at Baldwin-Wallace College,

has authored, “Driven from the Fields or Enticed to the City? The Cotton

Picking Machine and the Great Migration from the Cotton Belt, 1949-1964,” with

Wayne Grove (Syracuse University), Allied Social Sciences Association Annual

Meeting, Cliometric Society Sessions, 2002; and “African-American Migration and

Mechanized Cotton Harvesting, 1950-60,” Explorations in Economic History

1994, 31: 501-520.

Subject(s):Social and Cultural History, including Race, Ethnicity and Gender
Geographic Area(s):North America
Time Period(s):20th Century: WWII and post-WWII

Capital, Labor, and State: The Battle for American Labor Markets from the Civil War to the New Deal

Author(s):Robertson, David Brian
Reviewer(s):Sundstrom, William A.

Published by EH.NET (January 2002)

David Brian Robertson, Capital, Labor, and State: The Battle for American

Labor Markets from the Civil War to the New Deal. Lanham, MD: Rowman and

Littlefield, 2000. xxii + 297 pp. $75 (cloth), ISBN: 0-8476-9728-2; $22.95

(paperback), ISBN: 0-8476-9729-0.

Reviewed for EH.NET by William A. Sundstrom, Department of Economics, Santa

Clara University.

In this book political scientist David Brian Robertson (University of

Missouri, St. Louis) offers an account of American labor exceptionalism that,

perhaps unsurprisingly, appeals to the uniqueness of American political and

legal institutions. Contrasting American and European labor law and

regulations during the late nineteenth and early twentieth centuries,

Robertson argues that the constitutional separation of powers — in particular

federalism and the commerce clause — and antitrust law were the fundamental

sources of U.S. distinctiveness. Although there are many points on which one

might challenge Robertson’s evidence or interpretation, economic historians

interested in labor or political economy will find much to sink their teeth

into here.

Robertson begins with a useful comparative overview of labor law in the United

States and Europe during the late nineteenth century. A strength of the book

is its attention to labor law broadly defined: not merely laws relating to

unions and bargaining, but also the regulation of working conditions, workers’

compensation, and unemployment and health insurance. Robertson offers evidence

suggesting that as late as 1900 U.S. labor law was overall no less developed

or interventionist than the laws in developed western European countries.

Furthermore, union density (union membership as a percentage of the workforce)

was not significantly lower in the United States.

Still, the book’s underlying theme is that labor law in the United States was

ultimately shaped by the country’s core legal and political institutions. (In

this sense it would be a misreading of Robertson to infer that the development

of labor law was historically contingent, despite the similarities across

countries around 1900.) The national government was constitutionally

constrained to regulate only interstate commerce, while the states were of

course unable to restrict interstate trade. The consequence, in Robertson’s

view, was that labor market regulation was largely left to the states, but

political competition between states inevitably led to a race to the bottom,

as stringent regulation would put local firms at a competitive disadvantage in

interstate trade.

U.S. antitrust law reinforced the laissez-faire orientation of U.S. labor law.

In Europe, Robertson argues, labor unions and government management of labor

relations were accepted by employers because they could help stabilize cartels

by standardizing labor costs and conditions across firms. In the United

States, antitrust efforts busted the cartels and fostered the merger

movements, leading to large corporations and concentrated markets. Having no

use for unions to help coordinate and enforce cartels, large American

corporations tended to view them as an unnecessary evil and adopted various

union avoidance strategies: production shifting across plants to break

strikes, deskilling technological and organizational innovations, and welfare

capitalism (chapter 4). These strategies involved scale economies, and were

largely unavailable to smaller firms. Instead, small employers formed the

vanguard of active anti-union efforts: the open-shop movement. All considered,

“Anti-trust probably made American labor market exceptionalism irreversible”

(p. 115).

Robertson’s race-to-the-bottom thesis reverberates in current debates over

international trade and labor standards. Economists have, of course, raised

doubts about the theoretical and empirical validity of the race-to-the-bottom

idea, so it would be of obvious interest if Capital, Labor, and State

could make its case convincingly. What is the evidence? Robertson gains some

leverage examining the exceptional U.S. industries in which labor-market

regulation or unionization was particularly successful. These included the

railroads, where of course federal regulatory oversight was established under

the Interstate Commerce Commission. In the building trades, where markets

tended to be highly localized and insulated from trade, employers could use

unions to regulate local competition, much along the lines of the European

corporatist model. Negative examples are instructive as well: In bituminous

coal mining, for instance, an 1897 agreement between the United Mine Workers

(UMWA) and Midwestern coal operators failed under competitive pressure from

anti-union West Virginia mines. Indeed, Robertson includes a lengthy 1903

quotation from UMWA President John Mitchell that nicely summarizes the

difficulties competitive federalism posed for labor unionists and reformers

(p. 71).

Other aspects of the argument are less compelling. For example, Robertson

suggests that state-level workers’ compensation laws tended to be weak and

inadequate, again reflecting political competition and a race to the bottom

(chapter 9). He cites recent work in this area by Fishback and Kantor (1998),

but his interpretation seems to be at odds with the evidence they present: the

terms and generosity of these programs actually varied considerably across

states, a heterogeneity that hardly seems consistent with the cross-state

uniformity that a race to the bottom would imply. Similarly, under the Social

Security system, unemployment insurance and welfare benefit levels are set by

the states and also vary significantly. More generally, Robertson takes it for

granted that interstate competition would disfavor firms in states that

adopted a more regulated regime or more generous social benefits. Yet there

were persistent interstate differences in social spending as well as wages,

for example between the northern and southern regions (see Wright 1986). These

regional differences did not place northern firms at a competitive

disadvantage during the first half of the twentieth century, at least in most

industries.

The claim that antitrust and corporate mergers killed any hopes of cooperation

between capital and labor by obviating the use of unions to stabilize cartels

seems to rest on Robertson’s perception of corporations as monopolies in the

U.S. Steel or Standard Oil mode. But in most industries mergers resulted in a

number of oligopoly firms that competed fairly vigorously, if not over price

then over products and market share. Is it not possible that such firms would

also have greatly benefited from collusion, and that such collusion might have

been enforced or stabilized by unions? Pattern bargaining in the postwar

automobile industry might be cited as an example.

Read as an account of American exceptionalism, Capital, Labor, and

State is incomplete because it never really tests its thesis against

alternative explanations, such as mass immigration, internal mobility,

individualistic cultural values, or racism. As I have noted, early in the book

Robertson establishes rather convincingly that American labor law really was

not exceptional before 1900, and thus one might question accounts of

exceptionalism that rely on longstanding national differences such as mobility

or national character; these should have shaped labor institutions earlier on.

But the same objection would apply to Robertson’s thesis as well, resting as

it does on the distinctiveness of the American system of government going back

to the Constitution.

As a political history, Capital, Labor, and State is more interested in

the positive than the normative, but it is clear that Robertson’s sympathies

lie with the European corporatist model, in which the law provides “a fabric

of worker protections,” and labor and capital cooperate in setting wages and

working conditions. Of course, those advantages have to be paid for, and

Robertson is essentially silent on the costs to consumers and economic

efficiency of permitting or even promoting cartelization. He does acknowledge

those critics who blame rigid labor-market regulations for Europe’s high

unemployment and slow growth during the 1980s and 1990s, but he questions

whether U.S. performance during the same period can be attributed to more

flexible, free-market labor institutions, and notes the costs of those

institutions in terms of inequality and job insecurity.

Where Robertson faults federalism, with its checks and balances that have

served to limit the centralization and regulation of markets, admirers of

American laissez-faire might see evidence of the enduring wisdom of the

federalist system. It is a virtue of David Brian Robertson’s stimulating

historical interpretation that both sides of the debate will find much to

learn and ponder.

References:

Fishback, Price V., and Shawn Everett Kantor, “The Political Economy of

Workers’ Compensation Benefit Levels, 1910-1930,” Explorations in Economic

History 35 (April 1998): 109-139.

Wright, Gavin, Old South, New South: Revolutions in the Southern Economy

since the Civil War (New York: Basic Books, 1986).

William A. Sundstrom is Associate Professor of Economics a Santa Clara

University. His research interests include the history of U.S. labor markets

and racial discrimination. His recent publications include “Discouraging

Times: The Labor Force Participation of Married Black Women, 1930-1940,”

Explorations in Economic History 38 (January 2001): 123-146.

Subject(s):Labor and Employment History
Geographic Area(s):North America
Time Period(s):20th Century: Pre WWII

Political Institutions and Economic Growth in Latin America: Essays in Policy, History, and Political Economy

Author(s):Haber, Stephen
Reviewer(s):Hanley, Anne

Published by EH.NET (April 2001)

?

Stephen Haber, editor, Political Institutions and Economic Growth in Latin America: Essays in Policy, History, and Political Economy. Stanford, CA: Hoover Institution Press, 2000. x + 294 pp. $18.95 (paper), ISBN 0-8179-9662-1.

Reviewed for EH.NET by Anne Hanley, Department of History, Northern Illinois University.

Political Institutions and Economic Growth in Latin America is a book of essays that explore the important question of how, when and why institutions — the rules and regulations that permit and bound economic behavior — matter in the process of economic growth and development. There is widespread agreement among social scientists that institutions matter, but because this relationship is so difficult to test social scientists are unsure which institutions affect growth and to what degree. The principal problem, it seems, is that most research has studied cases that have long histories of well-developed markets. The question becomes one of feedback. Did the market evolve in anticipation of or in reaction to institutional innovation?

Stephen Haber, the editor of this volume as well as a contributor, argues that to truly test this hypothesis the social scientist needs cases where uncertainty and upheaval, rather than successful institutional and market evolution, reigned. We need cases where institutions departed from the progressive path to actually reduce property rights; where political regimes shifted abruptly; where social and economic revolutions made it impossible for markets to anticipate institutional change. What we need, in short, is to study Latin America. Latin America’s instability is so great, so legendary, that it makes it not just a possible laboratory but the perfect laboratory to test the central tenet of institutional theory.

The five essays in this volume, the product of a collaborative research symposium held at the Hoover Institution in 1998, examine a range of notions we hold to be true: access to capital is good for business development, railroads reduce costs and generate gains for the economy, education is critical to improving income levels and hence standards of living, clearly-specified contracts lower transactions costs, politicians can muck up the best of economies. The innovation is that the authors devise tests to measure how these truths behave in the face of political institutions that enhance, distort or diminish their power to transform economy and society.

The theoretical point of departure that binds these works together “is the notion that economic institutions cannot be studied in isolation from the institutions that regulate politics. Economic institutions, and their enforcement and refinement … are the result of both interest group demands and the specific features of decision making in the polity, which themselves are governed by institutions” (p. 10). Thus, the study of the origins and consequences of economic institutions also requires that we study the institutions that structure political decision making. The result is a powerful set of insights into Latin America’s persistent failure to break out of its poverty and rectify its inequality.

Stephen Haber takes the idea that access to capital is good for business development and applies it to Brazilian textiles to demonstrate how well-developed capital markets matter in economicgrowth. A sudden shift in political regimes brought on by a coup in 1889 ushered in a government friendly to business. This government, reversing decades of ambivalence toward domestic development, introduced sweeping changes to the regulatory environment that made it easy to form limited-liability joint-stock companies. The resulting improvements to capital mobility, Haber argues, promoted rapid industrial growth after 1890. In a rich and multi-layered analysis of the textile industry from 1866 to 1934, Haber finds that the joint-stock firms formed after the 1890 reform were larger, had higher rates of investment and growth, and higher total factor productivity than the private firms formed both before and after 1890. Institutional reform, then, created a positive environment for economic growth.

Alan Taylor addresses the stark fact that the gains of the early twentieth century, like those identified by Haber, didn’t last. Capital flows to Latin America dried up after the 1930s and incomes have fallen farther behind both the OECD and the Asian NICs ever since. For Taylor, who uses capital accumulation as a proxy for growth, an important part of the story lies in capital controls introduced by economic nationalists in the 1930s. Comparing Latin America to Asia, Taylor finds the greatest long-run distortions in the price of capital (hence its supply) in countries that actively intervened with capital controls to manage their economy vis-a-vis a disintegrating world order. Taylor correlates the propensity to intervene with the type of political regime and finds that the interveners had greater tendencies toward populism and even democracy than the regimes that didn’t intervene. In reading this essay one can’t help think that autocratic regimes allowing little competitive political participation might have produced a better record of economic growth for Latin America. Indeed, observes Taylor, Robert Barro’s “alarming claim that too much democracy may be bad for economic growth” is echoed in his findings for Latin America (p.152).

The idea that regimes responding to interest group pressures sacrificed growth for political gain is reinforced in William Summerhill’s outstanding essay on the distribution of railroad subsidies in nineteenth-century Brazil. He shows, as expected, that railroads reduced costs and generated gains for the economy. These gains could have been greater, however, because most of the rail lines generated an incredibly low or even negative social rate of return. Was the Brazilian government that bad at allocating its subsidies? From an economic standpoint the answer is yes, says Summerhill, but economic efficiency did not determine the placement of railroads. Political considerations did. This representative, majority rule, centralized government allocated benefits to regional projects via vote in parliament. This meant that provinces with more seats, and therefore more voting power, were more likely to capture the subsidies. The resulting railroad network corresponded to political benefits rather than economic efficiency, and the gap between the two “proved particularly acute in the context of low levels of overall productivity and income” that prevailed in nineteenth century Brazil (p. 64).

Productivity and income can both be increased by investment in human capital through education, but this is an area in which Latin America has clearly lagged behind other New World nations. In an engaging study comparing public education policies among New World countries Elisa Mariscal and Kenneth Sokoloff ask why only a few of the prosperous societies arising out of European colonization supported the establishment of primary schools. For them, the answer lies primarily in the extent of political participation. Analyzing data from across the Americas they find a strong positive correlation between the extent of the franchise and the spread of primary schools. In the US and Canada, adoption of universal (white) male suffrage in the nineteenth century was followed almost immediately by movements for tax-supportedschools. The many taxed themselves to provide schools for their children. In nations of restricted suffrage, however, universal education would require the few holding the right to vote to tax themselves to pay for the education of the rest. Since most nations of Latin America had either wealth or literacy voting requirements in the nineteenth century, political inequality was pronounced. Country by country data show this political inequality was responsible for regional differences in schooling. Given what we know about the strong relationship between education and income attainment, this is a powerful way of explaining Latin America’s poor record on equality and development.

Alan Dye’s research on Cuban sugar cane contracts rounds out this inquiry into political institutions nicely because it spans a period of no government meddling followed by active meddling and suggests how political considerations distort the efficient allocation of resources. In the pre-meddling period, cane supplies were delivered by independent growers to central mills based on contracts negotiated between grower and miller. Left alone, these parties over time worked out contract provisions that successfully reduced the costs of transacting cane. Overcapacity and international crisis in the 1920s and 1930s disrupted this relationship, however, when the government intervened to fix quotas for growers and millers. The reason for this intervention was political: the least efficient mills turned out to be Cuban owned while the more efficient mills were foreign owned. The quota system protected Cuban growers and millers in an environment that almost certainly would have wiped them out, but the action compromised long-run growth. Dye finds that sugar-to-cane yields, which had been making steady gains up to the 1920s, stalled as a result of economic nationalism.

The essays in this book, as well as the comments and critiques provided in a concluding chapter by Douglass North and Barry Weingast, all raise questions, qualifiers, and caveats that provide additional avenues of research into the relationship between political institutions and economic growth. The strongest case for research, implied but largely unstated here except in Summerhill’s concluding remarks, is that Latin America’s poor growth record has far more to do with local institutional arrangements than with the external culprits championed by dependency theory. The fine articles brought together by Stephen Haber in this volume demonstrate the power of wedding economic history to institutional history and the promise of doing so in the Latin American laboratory.

Anne Hanley is author of “Business Finance and the S?o Paulo Bolsa, 1886-1917″ in John Coatsworth and Alan Taylor, editors, Latin America and the World Economy since 1800 (Harvard University Press, 1998) and is currently writing a book on the role of financial institutions in Brazilian economic modernization.

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

The Visible Hand: The Managerial Revolution in American Business

Author(s):Chandler, Alfred D. Jr.
Reviewer(s):Landes, David S.

Project 2000: Significant Works in Twentieth-Century Economic History

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Alfred D. Chandler, Jr., The Visible Hand: The Managerial Revolution in American Business. Cambridge, MA: Harvard Belknap, 1977. xvi + 608 pp.

Review Essay by David S. Landes, Departments of Economics and History, Harvard University.

Alfred Chandler: World Master of Institutional Business History

Alfred Chandler is the world master of institutional business history. He began his career as scholar and researcher innocently enough, with a doctoral monograph (1952) on the life and career of Henry Varnum Poor, railway pundit of the nineteenth century. But then he went on to work in the business and personal archives of the du Ponts of Delaware, to whom he was related by family and friendship, and the result was a first-class company and entrepreneurial history, written with the aid and collaboration of Stephen Salsbury: Pierre S. Du Pont and the Making of the Modern Corporation (New York: Harper & Row, 1971.). As the title indicates, he was already interested in the larger question of the structures and evolution of corporate enterprise.

Then, in the mid 1970s, he brought out the first of a series of major works on this subject, his Visible Hand, which won the Pulitzer and Bancroft prizes in 1978. The title reference is to deliberate organizational arrangements designed to make big business work. Chandler was not the first to write on this. As his introductory text and references make clear, the topic is one that has interested economists and essayists going back at least to Adam Smith, that incredible seer into past, present, and future. More recent predecessors (over the last century) would include Werner Sombart, James Burnham, Ronald Coase, Douglass North, and Oliver Williamson. But all of these dealt with the problem as part of larger agendas. It was Chandler who, focusing on the theme, rewrote in effect the course of American economic history and laid the basis for comparative international explorations.

The book lays out the task and theme by stating a number of propositions: 1. Modern business enterprise came in when administrative coordination did better than market mechanisms in enhancing productivity and lowering costs. 2. The advantages of coordinating multiple units within a single enterprise could not be realized without a managerial hierarchy. 3. It was the growing volume of economic activities that made administrative coordination more efficient than market coordination. 4. Once a managerial hierarchy does its job, it becomes its own source of permanence, power, and continued growth. 5. Such hierarchies tend to become increasingly technical and professional. 6. Over time, such professional structures become separate from ownership. 7. Professionals prefer long-term stability and growth to short-term gains. 8. Big businesses grew to dominate branches and sectors of the economy, and so doing, altered their structure and that of the economy as a whole.

So much for the United States. Much of the book is a historical review of these processes, beginning with the colonial era and the early decades of independence. In those days, business structures were not so different from what they had been several centuries earlier, in Renaissance Italy or, later, in the Low Countries and England. Chandler offers here an overview exceptional for its coverage through time and space, its attention to the variety of economic activity and commercial specialization. One of the most striking features of this presentation is his attention to the precocity of American development: a colonial, frontier area, low in density, handicapped in matters of inland transport, yet rich in human capital and opportunity. One silent evidence of this modernity: the large number of watch and clock dealers and repairers.

None of this, though, generated the modern corporate business structure, for reasons implicit in Chandler’s propositions. The economy and its business units were not yet big enough. That came with the railroad in the 1840’s and 1850’s. Here for the first time one had large enterprises dispersed in space, requiring heavy investment and maintenance in road, rails, tunnels, and bridges, tight organization of rolling stock, and all kinds of passenger and freight arrangements including timely service, mobilization of capital and handling of money income and outlays — in short a world of its own. Chandler noted here the critical contribution of men trained in the military academies, for armies were even earlier enterprises of vast scale, though more improvisational and transitory in character, and with destructive-predatory rather than constructive objectives. (The only comparable commercial enterprises to the railroads were the canals, but for topographical reasons, these were less important in the United States than in Europe. The one exception was Erie, but even there the waterway was soon lined with railroads. Chandler notes that in the 1840’s, only 400 miles of canal were built, to make the nation’s total canal mileage something under 4,000. In that same decade, over 6,000 rail miles were completed, making the national total 9,000. Time counted, and railroads were faster and more efficient.)

The introduction of such managerial and organizational techniques into industry waited on gains in scale of enterprise. The traditional manufacturing firm, for example, was a personal or familial operation, assisted by outside supply and demand facilities and initiatives — the shop writ large. Past a certain threshold, however, ways had to be found to pull the parts together, to oversee, coordinate, and control. In the United States, it was the chemical and even more the automobile manufactures that led the way. Chandler is particularly well informed here because of his earlier work on Du Pont, with its subsequent ownership of a controlling share of General Motors. GM itself tells a fascinating story of transition from personal to corporate enterprise. It started with William C. Durant, a kind of freebooter who pulled together a number of independent manufacturers – Buick, Oldsmobile, Cadillac, Chevrolet et al. — and did his best to stay on top but ran into impossible financial impasses, personal and corporate. It then fell into the hands of the bankers and moneymen: J.P. Morgan and Company and Pierre du Pont (rich from wartime earnings). And with the aid of manager Alfred Sloan, Jr., they set up a command structure that became a model for all manner of industrial enterprises.

Chandler’s analysis would have been even richer had he made an explicit comparison between GM and the Ford Motor Company, because the latter is an exquisite, tortuous example of industrial gigantism under personal autocracy gone astray and awry. Ford was just the opposite of the Chandler prescription: all manner of organizational improvisation in the face of arbitrary whimsy. What the costs to Ford, no one will ever know: this was a company that estimated income and outgo by the height of piles of paper and had only an approximate idea of its debts and credits. When in money trouble, it taxed its dealers.

The move to a rational managerial system was bound to encourage professionalization. One of Chandler’s merits was not only to call attention to new schools and curricula, but also to show how much could be achieved in the strangest places. Here again, his later comparative work filled out the American story along lines already explored by European scholars: the creation and transformation of professional schools to meet the needs of state bureaucracies; the differences in national achievement; the implications for the larger process of economic growth and development. Again, each industry had its own requirements and opportunities, just as each society had its own areas of preference. The British, who had accomplished much on the basis of apprenticeship and bench learning, were slow to adopt formal class and lab instruction. The Continental countries, especially the Germans, French, and Scandinavians, strained to catch up and learned not only to transform the older branches but to advance in new areas of production.

The growing reliance on professionally trained managers entailed an assault on the structures and habits of personal and familial enterprise. This was particularly true of technologically complex branches of production, which found it easier to hire good people than to tame them. Inevitably, the people who ran the show nursed aspirations that contradicted family control, the more so as such experts often were remunerated by share options that gave them a piece of ownership. Growth, moreover, entailed mobilization of funds, whether via bank loans or public sales of ownership shares, and this too often countered family interests.

By the same token, the success and resources of managerial corporations have made them the arch seducers of the business world. This is a new, major aspect of the shift away from family control: how can a family firm say no to such generous offers, often exceeding the prospect of immediate gains? The recent sale of Seagram by the Bronfman interests to the French conglomerate Vivendi is an excellent example of money trumping blood, marriage, and personal aspirations. Another is the purchase by LVMH (Mo?t Hennessy Louis Vuitton SA) of a number of Swiss watch manufacturers by way of establishing itself as a major player in the luxury watch trade. These acquisitions exemplify “what can happen to a small, family-founded business under the umbrella of a global corporate superpower with plenty of financial resources. The chairman and chief executive of LVMH, Bernard Arnault, is known for sparing no expense to gain dominance in luxury brands as diverse as champagne and handbags.” The manger of one of these family brands put it straight: “LVMH is prepared to overinvest in Ebel without short-time return. They know that to build up a luxury brand you need time and money.” (Quoted in the International Herald-Tribune, February 5, 2001, p. 11.)

Chandler’s model, like most powerful syntheses, simplifies reality. The world of enterprise is full of variants, of diverse responses to the tensions and conflicts implicit in entrepreneurial strategy and in the personal circumstances and histories of business endeavor. The family firm has not disappeared and will not. New ones are created all the time. There is even an international fraternity of family firms that go back more than two hundred years, Les Henokiens, named after the biblical patriarch Enoch. And there are enterprises that somehow seem to blend the personal and managerial with such art that one is hard pressed to classify.

But Chandler’s model, in combination with Chandler’s extraordinary energy, has served as the standard, the measure, the incentive to further inquiry. A small library has appeared on this subject, and one has only to read the book Chandler edited with Herman Daems, Managerial Hierarchies: Comparative Perspectives on the Rise of Modern Industrial Enterprise (Cambridge, MA: Harvard University Press, 1980), to appreciate the quality and versatility of the collaborators, (Leslie Hannah, Jurgen Kocka, Maurice Levy-Leboyer, Morton Keller, Oliver Williamson), the range of the scholarship, and the opportunities for thought and reconsideration. The Chandlerian model is a monument to present and future scholarship, and the Visible Hand an example and encouragement to scholars everywhere.

David S. Landes is professor emeritus of history and economics at Harvard University and the author of several books including The Unbound Prometheus: Technological Change and Industrial Development in Western Europe from 1750 to the Present (1969) and The Wealth and Poverty of Nations: Why Some Are So Rich and Some So Poor (1998).

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

The Life and Legend of E. H. Harriman

Author(s):Klein, Maury
Reviewer(s):Churella, Albert J.

Published by EH.NET (August 2000)

Maury Klein, The Life and Legend of E. H. Harriman . Chapel Hill:

University of North Carolina Press, 2000. xvi + 521 pp. $34.95, ISBN:

0-8078-251-4

Reviewed for EH.NET by Albert Churella, Department of History, The Ohio State

University.

At a rare public speech given at the 1904 St. Louis World’s Fair, railroad

magnate Edward Henry Harriman set the tone for a new century of railroad

management by emphasizing the need to “not only reconstruct and re-equip these

lines, but to bring them under uniform methods and management . . . [through]

the combination of capital.” (p. 320). The twin goals of modernization and

control echoed through the life of E. H. Harriman and explain much about both

his contributions to railroad operations and finance and to his blighted public

image. Maury Klein draws on a wealth of archival sources in order to provide a

masterful account of Harriman’s contributions to the history of American

business. His book is more than a work of railroad or financial history, and

more than the simple facts of one individual’s existence; it is instead a

successful effort to use Harriman’s life as an entr?e into the complex

evolution of American business during the Gilded Age and the Progressive Era.

According to Klein, Harriman, like Jay Gould (the subject of an earlier

biography by the same author) has traditionally been defined by the mythology

that has grown up around him. The Harriman myth focused primarily on the

financier’s seemingly magical ability to transform rusting, decrepit railroads

into modern moneymakers and, less charitably, on his perceived role as an

old-style robber baron antithetical to such newly enlightened Progressives as

Theodore Roosevelt-a president who eschewed his earlier friendship to Harriman

in order to launch a highly publicized attack against him. As Klein points

out, these myths are at best half-truths, and do little more than scratch the

surface of a complex and often misunderstood individual whose success-and

significance-stemmed from his role as a transitional figure in the finance and

railroad industries.

Even before E.H. Harriman’s birth in 1848, his father had established a

reputation as a chronically unsuccessful entrepreneur, and one who was often

dependent on the charity of others. From his childhood, the younger Harriman

developed a deep sense of independence, a commitment to organization, and a

determination to be in absolute control of any situation. At age fourteen he

began working on Wall Street, fortuitously enough just as the Civil War was

unleashing a new speculative fervor in America’s financial institutions. By

age twenty-two (in 1870), Harriman had become a member of the New York Stock

Exchange. No one who sat on the exchange in the late 1800s could avoid

involvement in railroad finance, and Harriman soon became associated with the

nation’s first big business. His initial involvement in railroad ownership (of

the Ogdensburg and Lake Champlain in 1879 and the Sodus Bay & Southern in

1880), were financially unrewarding. Nevertheless, the latter railroad

initiated the mystique of Harriman as a rebuilder of railroads (in reality,

Harriman did nothing to improve the Sodus Bay’s physical plant) and more

importantly taught Harriman that railroads with no intrinsic value could still

be disposed of profitably to the giant system-building railroads that were

fighting to invade each other’s territories.

Harriman’s early railroad involvement led to an association with Stuyvesant

Fish and then to affiliation with the Illinois Central. By the mid-1880s

Harriman had thus begun to specialize in railroad securities without abandoning

entirely other investment opportunities-a transition that reflected the growing

financial specialization of the era. On the Illinois Central, Fish and

Harriman enhanced an already prosperous railroad by improving the physical

plant to enable the movement of larger volumes of traffic at lower per-unit

cost. They also reorganized the managerial structure on the basis of

decentralized operating divisions rather than centralized departments and

insured that, in Harriman’s words, “We should first adopt a plan & then make

our officers fit into it as best we can, & not make a plan to fit our

officers.” (p. 80) Harriman was certainly not the first industry executive to

think along those lines, and many of the policies for which he became famous

were in reality derivative of Fish and others. However, Harriman did realize

that the growth of giant railroad systems, increased competition, overbuilding,

and growing traffic volumes, especially on western railroads, mandated the

widespread application of these strategies.

Growing conflicts with Fish led Harriman away from the Illinois Central and

toward the Union Pacific. Before Harriman arrived on the scene in 1898, the UP

was hardly the antiquated streak of rust portrayed by the Harriman legend.

While it was a reasonably modern and successful railroad, Harriman realized

that its performance could be improved greatly by restructuring its debt (and

removing the federal government as a creditor) and by undertaking massive

physical improvements to accommodate the enormous traffic potential of a region

that was beginning to emerge from the depression of the 1890s. In rebuilding

the UP, Harriman overcame opposition from “organization men” at all levels of a

traditionally conservative industry, who saw few compelling reasons why they

should not continue the traditional practices of nineteenth-century

railroading. Eventually, Harriman created a line-and-staff organizational

structure (similar to that pioneered by the Pennsylvania Railroad) that granted

authority to both departments and operating divisions. Within ten years,

Harriman had orchestrated the expenditure of $160 million in capital

improvements, which produced the anticipated objective of tripling overall

ton-miles while increasing average train length, car capacity, and engine

utilization.

In addition to his commitment to modernization, Harriman developed an

appreciation for the value of communities of interest-essentially interlocking

boards of directors-in the railroad industry in order to prevent overbuilding,

guarantee equitable access to the traffic of connecting railroads at gateway

cities, and control the effects of “excess” competition. Harriman’s commitment

to communities of interest stemmed from his involvement in the Alton and was

reinforced by a battle with the Great Northern’s James J. Hill for control of

the Chicago, Burlington, and Quincy, yet eventually ran headlong into the

reformist impulses of the Progressive Era. Harriman envisioned these

communities of interest as the precursors of giant rail systems in the West.

To that end, he acquired the Southern Pacific in 1901 and began to

“Harrimanize” it in much the same manner as the Union Pacific. Together with

the Illinois Central, the UP and SP formed the core of the Harriman

system-three technically separate corporate entities that had similar

organizational structures and philosophies and whose standardization and

uniformity produced substantial economies in purchasing, operations, and

maintenance.

The battle for control of the Burlington led to the creation of a much less

harmonious system in the northern Plains states and Pacific Northwest, as

Harriman and Hill uneasily shared in the creation and control of the Northern

Securities Company in 1901. This holding company briefly knitted together the

Great Northern, the Northern Pacific, and the Burlington but soon became a

lightning rod for growing public opposition to “trusts” and an early target for

the nation’s first trustbusting President. If Harriman was disappointed by the

Supreme Court’s 1904 decision ordering the dissolution of Northern Securities,

he was even more distressed by Roosevelt’s attacks on his personal integrity,

particularly since the two men had once been friends. This presidential

condemnation did more than anything else to tar Harriman as a monopolistic

robber baron and enemy of the people. Harriman’s public disagreements with

former ally Stuyvesant Fish and his well-intentioned but misinterpreted efforts

to rescue the financially ailing Equitable Life further tarnished his

reputation.

At the same time, and perhaps because he was stung by what he felt was

unwarranted public criticism, Harriman pledged his corporate and personal

resources to a variety of public works. While Harriman never established a

charitable trust as did so many other philanthropists, he was instrumental in

the creation of a state park near his New York home, sponsored a scientific

expedition to Alaska (which, far more than his railroad activities, first

brought this essentially private individual into the public arena), assisted

victims of the 1906 San Francisco earthquake, and saved California’s Imperial

Valley from flooding. After Harriman’s death, his widow commissioned George

Kennan (whose distant relative George F. Kennan, like Harriman’s son W. Averell

Harriman, became a leading figure in U.S. foreign policy) to write a biography

telling the “true” story of her husband and in so doing to clear his name.

Harriman’s last years were not pleasant ones. While some of harshest critics

developed a new respect for the financier, the general public had “just begun

to grasp the distinction between corporations and the men who dominated them,”

(p. 395) and was not yet ready to admit that giant concentrations of capital

were are part of the American economy. Nor was the ICC convinced, and that

agency launched a scathing inquiry into Harriman’s various communities of

interest. An exhausted, weakened, and embattled Harriman succumbed to stomach

cancer in 1909.

As Klein points out, Harriman owed much of his success to historical

contingency-simply being in the right place at the right time. He arrived on

Wall Street just as the Civil War changed the nature of speculative finance,

entered the world of railroad finance at a time of rapid construction and

system building, embraced the concept of the community of interest at a time

when “merger mania” was sweeping the nation’s businesses, and, less favorably,

appeared in the guise of a soulless robber baron just as the era of the

industrial statesman gave way to Progressivism. Ultimately, Harriman succeeded

not so much because he was an original thinker, but because he “implement[ed]

the strategy [of high-volume traffic carried at low rates] on a grand scale

from which other managers shrank because they lacked the backbone.” (p. 445)

His ability to implement this vision not only revitalized the Union Pacific and

the Southern Pacific; it also enabled the railroad industry to survive

virtually intact against the emergence of various forms of modal competition.

His concept of communities of interest prefigured the giant railroad systems

that have emerged in the West in recent decades, after the now-defunct ICC

began to worry less about competition within the railroad industry and more

about the long-term survival of the industry itself.

Klein has succeeded admirably in weaving the various strands of Harriman’s

life together with larger secular developments in the railroad and financial

industries, government regulation, and public policy. While he does at times

seem to identify too closely with his subject, and occasionally teeters on the

brink of suggesting that Harriman can do no wrong, Klein is careful to point

out that Harriman’s greatest successes came from the application of ideas that

were not originally his own, that Harriman was controlled by events as often as

he controlled them, and that historical contingency lay behind a good portion

of Harriman’s success. In short, Klein does more than simply paint a portrait

of an individual-he sets Harriman with the broad landscape of a nation whose

economic and political values were in the midst of sweeping change.

Albert Churella is a Visiting Assistant Professor in the Department of History

at The Ohio State University at Lima.

Subject(s):Transport and Distribution, Energy, and Other Services
Geographic Area(s):North America
Time Period(s):20th Century: Pre WWII

Latin America and the World Economy since 1800

Author(s):Coatsworth, John
Taylor, Alan
Reviewer(s):Salvucci, Richard

Published by EH.NET (February 2000)

John Coatsworth and Alan Taylor, editors, Latin America and the World

Economy since 1800. Cambridge, MA: Harvard University Press, 1999. xv +

484 pp. $49.95 (cloth), ISBN 0-674-51280-4; $24.95 (paper), 0-674-51281-2.

Reviewed for EH.NET by Richard

Salvucci, Department of Economics, Trinity University, San Antonio, Texas.

Welcome to the Cliometric Revolution, Latin Style

When I started graduate school in 1973, there were no textbooks on Latin

American economic history. Today, depending on your definition of a textbook,

there are 3 or 4 in English alone. In 1973, we argued about the Asiatic mode of

production and precapitalist economic formations. Today we discuss conditional

convergence. In 1973, bourgeois economists were the enemy. Today a bourgeois

economist is your dissertation supervisor. Welcome to the Cliometric

Revolution, Latin style. It’s been 25 years in coming,

but now that it’s come, it’s come with a vengeance.

The present anthology is an artifact of that revolution and like all

historical artifacts, it requires a bit of study to appreciate its meaning in

full. And so to begin, I’m going to quibble with the idea that what you read

here is really all that novel. After all, there’s always been some cliometric

work on Latin America, as the outstanding books of Carlos Dmaz Alejandro on

Argentina or Clark Reynolds on Mexico might attest. In my primary field,

Mexican history, you could point to things done by Luis Tellez or by Jaime

Zabludovsky as recognizably cliometric, but Tellez and Zabludovsky have gone

on to major careers in government service rather into careers as economic

historians. What’s more unusual is to find suitably trained professionals doing

purely academic work-doing economic history for a living. For that we can

thank, at least partly, a sea change in development ideologies in Latin

America, where economists in universities can now spend their time thinking

about conditional convergence (whose acquaintance they may have made in some

gringo institution) rather than about the Asiatic mode of production. And I

think I have some idea why.

For my generation, it was the fall of Allende in 1973 that was critical.

For this one, it is the fall of the Berlin Wall. That makes all the difference

in the world. You can write sympathetically about the economic history of

Cuban sugar mills without espousing the labor theory of value.

You can study the history of financial markets in Brazil without being

implicated in the overthrow of Joco Goulart in 1964. For

now, at least,

there are no gangster regimes advocating “market friendly” policies while

energetically murdering their own citizens. The ideological and political

baggage of the 1960s and 1970s is, for want of a better phrase, just so much

history. Hence

what we read here by so many relative newcomers to the field. Their authors

are students, not prisoners of the past, and that’s what makes their

scholarship worthwhile. I do have a small bone to pick with the volume’s title.

This is not a book about Latin America since 1800.

It is mostly about Argentina, Brazil and Mexico since 1870, which is not quite

the same thing. There are no Indians. There is no Caribbean or Central America.

No Andes. But worse, there are really no papers that engage with the period

before 1870 and that is a real problem. As John Coatsworth’s perceptive essay

on the nineteenth century puts it, “the available quantitative evidence shows

that Latin America became an underdeveloped region between the early eighteenth

and the late nineteenth century” (p. 26). In other words, most of the papers

in the volume-Carlos Newland’s excepted-do not address the principal issue of

Latin America’s economic history, namely, the origins of what Lant Pritchett

has called

“divergence, big time.” Even

if you argue in reply, that X (what existed before 1870) causes Y (what changed

later), the historian is liable to wonder why X occurred when it did and not

before, especially if Y is extremely profitable, the proverbial big bill on the

sidewalk.

I think

I know why. Sensible historians avoid the period before 1870 because it is a

Hobbesian world where life, not to mention some of its major actors, was nasty,

brutish and short. For most of Spanish America,

the era before 1870 (and after Independence in the 1820s) is much, much harder

to work in, let alone understand. The archives with which I am familiar (mostly

Mexican, to be sure) are a mess-disorganized,

uncatalogued, impenetrable-and very nearly impossible to utilize. Of course,

the messiness of the sources faithfully reflects the messiness of economic and

political life at the time, with unending coups, countercoups,

invasions, constitutions, blockades, wars, partitions, regulations,

proclamations, declamations, you name it. There’s no stable structure for

understanding, essentially. Unfortunately, this is where the action is,

unless you regard disorder itself as the proximate cause of poor economic

performance. As anyone reading this is probably aware, there’s really no

consensus about that either.

For this reason, I take claims made for the cliometric potential of Latin

American economic history the way I take tequila: in limited doses, and with

many grains of salt. Still,

triumphalism only infects the blurbs to the volume, for the “Introduction”

by John Coatsworth and Alan Taylor is conspicuously moderate in tone. So maybe

I shouldn’t complain. Besides, the papers are generally very good and a couple

are outstanding. One of the most coherent themes here is the importance of

financial markets and institutions in facilitating or accommodating economic

growth. This really is a new direction, at least in the Latin American context,

for I can think of little in the older historiography that makes this point

with any cogency. A very interesting paper by

Michael Twomey provides the relevant context in arguing that

“[t]he general trend of direct foreign investment [in the twentieth century]

has been downward relative to income and, probably, total capital stock” (p.

192). Portfolio investment aside, which

Twomey identifies as mainly, until 1990, loans to governments, the implication

is that domestic sources of capital were increasingly important between 1913

and 1950, the years when foreign direct investment fell sharply relative to

GDP. Twomey’s argument

frames papers by Stephen Haber, Anne Hanley, Leonard I. Nakamura and Carlos E.

J. M. Zarazaga, Gerardo della Paolera and Alan M. Taylor, and Gail D. Triner.

First, Brazil. Anne Hanley’s study of business finance and the Sco Paulo Bolsa

offers a good point of departure. In the spirit of Twomey’s conclusions,

Hanley argues that the role of foreign capital in direct investment “while

sizeable, mainly played a supporting role in the domestic business formation

that was the cornerstone of Sco Paulo’s development.”

The industrial and utilities sectors “actually found their base in the domestic

capital market” (both quotations, p. 126). And it was the impersonal mechanism

of the stock exchange rather than traditional kin-based finance that fueled “a

type of financial Big Bang” between 1905 and 1913 (p. 131). Similarly, Gail

Triner finds that the recharter of the Banco do Brasil in 1905 created a

“natural infrastructure for financial transactions” (p. 224) that supported a

“strong, centralized role for the national government in the economy.” And

like Hanley, Triner emphasizes that “[t]he banking system increasingly

accumulated and reallocated financial resources of the private sector at the

expense of either personal or other institutional channels” (p. 226, both

quotations). After 1905 the real money supply and the monetized economy grew

rapidly even as the economic predominance of Sco Paulo was consolidated.

The evolution of a modern financial infrastructure for Brazil had measurable

implications for the growth of industrial productivity in Brazil after 1890.

Stephen Haber’s sophisticated analysis of capital market regulation and the

development of a securities market argues that “one crucial piece of the puzzle

explaining the lack of industrial development

before 1890 and rapid industrial growth after 1890 was access to capital”

(p. 279). The maturation of debt and equity markets along with the

establishment of limited liability laws and mandatory financial disclosure

lowered the cost of capital. As a result, the cotton textile industry,

which is Haber’s focus, grew more quickly than it would have had traditional

patterns of kin-based and other less formal avenues of finance been maintained.

In short, “entrepreneurs who could best combine the factors of production and

choose the optimal output mix were able to mobilize capital that otherwise

would not have been available to them” (p.

279).

Argentina has always seemed baffling. Between 1870 and 1900, real per capita

product there doubled, but after 1900, it would not do so again until 1958. In

other words, the rate of real per capita growth fell from 2.3 percent per year

to 1.19 percent per year, which is some slowdown. For Gerardo della Paolera and

Alan Taylor, a capital constraint is (part of)

the answer

. The domestic financial system was simply unable to replace the dwindling

supply of British capital after World War I. Caught between the gold standard,

international convertibility, and repeated financial crises,

the monetary authority, the Caja de Conversisn, was unable to support domestic

banks and maintain convertibility at the same time. For this reason, Argentine

banks “had to maintain a higher capital cushion” than their foreign

counterparts who could borrow abroad much more easily.

“[D]omestic banks could not fill the void left by the retreat of foreign

capital after 1914″ (p. 163). A paper by Leonard I. Nakamura and Carlos E.

J. M. Zarazaga raises some questions about this argument by looking at returns

to Argentine debt instruments, which don’t

seem particularly high.

Daniel Dmaz Fuentes’ chapter on the gold standard in Argentina, Brazil and

Mexico reminds us that the Argentine peso was inconvertible between 1914 and

1927, an awkward point for della Paolera and Taylor as well.

Nevertheless, their discussion of the non-monetary aspects of financial crises

in Argentina is very stimulating. I have heard it said by some historians that

there is nothing “new” in the findings of the new economic history of Latin

America. I defy them to read della Paolera and Taylor and then tell me that. I

doubt the critics have read Bernanke’s 1983 paper and the subsequent work it

inspired. The remaining papers are somewhat more difficult to characterize

because they deal with a wide variety of subjects. Let me give

some examples.

Students of Mexican history will welcome the chapters by Graciela Marquez and

Aurora Gsmez-Galvarriato. Both make extensive use of archival data and both

question commonly held beliefs about Mexico between 1890 and 1920, the last

years of

the Porfiriato (the dictatorship of Porfirio Dmaz from 1876 through 1910) and

the opening decade of the Mexican Revolution (which lasted until 1920, 1938,

1968, or last week, depending on how you view Mexican history). Marquez shows

that it is not enough

to simply label Porfirian Mexico a high-tariff country since nominal

protection fell sharply during the 1890s. It never recovered its former levels

before the outbreak of the Revolution. Gsmez-Galvarriato looks at real wages in

the Santa Rosa textile factory in Veracruz. Stability in real wages through

1907 gave way to a sharp decline between 1907 and 1911. A marked recovery

occurred between 1911 and 1913, only to fall sharply during the bitterest years

of the civil war (1914-1916). From 1917 through 192 0, real wages recovered,

but did not rise much above their level in 1907. I think Marquez and

Gsmez-Galvarriato are saying that the stories we tell about Dmaz and the coming

of the Revolution are not likely to hold up under the careful scrutiny of a new

historiography informed by detailed industry and firm-level studies. Where

this leaves the big studies of the Revolution,

such as Alan Knight’s, which retells many of the old verities, remains to be

seen.

Both William Summerhill and Alan Dye contribute chapters that represent

aspects of larger projects. Dye’s study of the contracts between sugarcane

growers and millers in Cuba lays to rest the myth that the contracts between

growers and millers evolved to exploit the growers, upon whom they were

coercively imposed. Summerhill’s paper on Brazilian railroads concludes that

“The direct impact of the railroad in Brazil places it comfortably within the

top tier of the cases for which economic historians have constructed social

savings estimates” (p. 391). Interested readers can certainly learn more from

Dye’s Cuban Sugar in the Age of Mass Production

(Stanford, 1998) or Summerhill’s forthcoming Order Against Progress:

Government, Foreign Investment and Railroads in Brazil, 1854-1913

(Stanford, scheduled for Summer 2000).

Papers by Lee Alston, Gary

Libecap and Bernardo Mueller; Andri A. Hofman and Nanno Mulder; and Carlos

Newland round out the volume. All are well worth

reading.

A final observation. It’s ironic that economic historians of Latin America

stress the study of institutions, a theme that features prominently in this

volume as well. For those of us trained in the early 1970s, “institutional

history” was something to be avoided, the province of dullards and the

unimaginative. It was a matter of faith, enshrined in a famous article by

James Lockhart, that the only real historians of Latin America were social

historians, and, well, social historians had better things to do than pay

attention to, of all things, institutions. Institutions didn’t affect the

behavior of real people. And real historians studied real (read: ordinary)

people. My how times do change. There isn’t much doubt about who’s doing the

interesting history of Latin America these days. Not a few of them are

represented in this excel lent collection. Now if only I could get them to

explain the Asiatic mode of production to me, my life would be complete.

Fat chance.

Richard Salvucci teaches at Trinity University. He is co-author with Linda K.

Salvucci of “Cuba and the Latin American

Terms of Trade in the Nineteenth Century: Old Theories, New Evidence,”

forthcoming in the

Journal of Interdisciplinary History in Autumn 2000.

Subject(s):Economywide Country Studies and Comparative History
Geographic Area(s):Latin America, incl. Mexico and the Caribbean
Time Period(s):General or Comparative

Learning by Doing in Markets, Firms, and Countries

Author(s):Lamoreaux, Naomi R.
Raff, Daniel M. G.
Temin, Peter
Reviewer(s):Gemery, Henry A.

Published by EH.NET (February 2000)

Naomi R. Lamoreaux, Daniel M.G. Raff, and Peter Temin, editors, Learning by

Doing in Markets, Firms, and Countries. Chicago: University of Chicago

Press (National Bureau of

Economic Research Conference Report), 1999. vii +

347 pp. $65.00 (cloth), ISBN: 0-226-46832-1; $22.50 (paper), ISBN:

0-226-46834-8

Reviewed for EH.NET by Henry A. Gemery, Department of Economics, Colby College.

The “learning by doing” in the title of this NBER volume has little to do with

the classic case of the Horndal effect or with the productivity effects of

learning associated with the long production runs of aircraft or ship

construction. Instead, this volume deals with “scaled-up” learning by doing

concepts with an analytical reach that extends to a number of forms of

organizational learning and, in Gavin Wright’s concluding chapter, to learning

as a “national network phenomenon” (p. 296). The volume, drawn from an

interdisciplinary conference of business and economic historians,

is premised on the notion that information – its acquisition and use –

“effectively determines whether firms, industry groups, and even nations will

succeed or fail” (p. 15). Thus the learning examined in these studies falls

within that broad compass.

The first two essays examine how firms learn of the technological frontier and,

as well, learn how to appropriate best-practice technologies for competitive

advantage. In “Inventors, Firms, and the Market for Technology in the late

Nineteenth and Early Twentieth Centuries,” Naomi R. Lamoreaux and Kenneth L.

Sokoloff utilize patent data to develop a quantitative picture of the market

for technology. That market, they conclude, was well developed and thus

allowed firms to keep track of technological advances via intermediaries in the

market (patent agents and solicitors) or by direct contact with inventors. By

the beginning of the twentieth century,

however, firms increasingly attempted to move inventive activity within the

firm and that in turn required further learning on the part of the firm,

e.g., in minimizing employee turnover and insuring that patents received by

employees were assigned to the firm. The following essay by Steven W.

Usselman examines exactly this form of learning by American railroads and

their “internalization of discovery” (p. 63). Railroad managers from early in

the nineteenth century saw technical innovation in their industry as stemming

largely from “the efforts of ordinary

mechanics and engineers, not through discrete acts of patentable invention” (p.

63). Since railroads saw firm-specific knowledge as critical to the innovation

process, they not only attempted to internalize inventions but also attempted

to buffer the impact of external technical developments by forming railroad

associations and patent pools that insured patents would be cross-licensed to

the member firms. In a detailed and perceptive comment on the Usselman paper,

Jeremy Atack notes that such “… collusion stilled the winds of ‘creative

destruction’ that jeopardized the value of existing investment” (p. 101).

Forms of collusion or, more neutrally, institutionalized forms of information

interchange, were not confined to railroads. Avoiding the cartel label and yet

still providing interfirm coordination on pricing represents another form of

organization learning. In “The Sugar Institute Learns to Organize Information

Exchange,” David Genesove and Wallace P.

Mullin study a “technologically stagnant industry” (p. 106), U.S. sugar

refining from 1928 to 1936, where the learning question shifts away from

production technology to organizational innovation in interfirm information

sharing. The Institute did learn to organize and collect data while insuring

members’ confidentiality, thus allowing for “increases in the correlation of

firm decisions” (p. 133) as price and sugar stock data became available to all

members of the Institute. Not incidentally, the availability of common

information also precluded secret

price concessions.

A Supreme Court decision ended this particular form of organizational learning.

Kazuhiro Mishina’s paper on “Learning by New Experiences: Revisiting the Flying

Fortress Learning Curve” is the only paper in the volume that approaches

learning in its familiar learning curve form and the only one to draw on

econometrics in its analysis. The magnitude of the productivity increase in

Boeing’s B17 production from 1941 to 1944 was huge: the direct labor hours per

airframe dropped from 142,83 7 to 15,316, falling to nearly a tenth of the time

required at the beginning of the production run. What accounted for a

productivity increase of that size? Mishina rejects “the learning-by-doing

hypothesis that holds direct workers or engineers as the learning agent” (p.

175). Instead he finds the answer in the reduction in through-put time and “the

operating know-how that enabled it” (p. 175). No direct econometric test of

that conclusion is possible and the absence of learning taking place by direct

labor and engineers appears improbable. Not surprisingly then, Ross Thomson,

in his comment raises the question of whether the learning involved might have

been a cumulative process in which output growth, productivity growth, and

prior learning interacted.

The next two essays are intensive examinations of organizational

decision-making/learning. David Hounshell focuses on one critical meeting of

the Ford Motor Company Executive Committee on December 2, 1949. This is the

“Whiz Kid” era at Ford and Hounshell sees the meeting as defining a turning

point in Ford’s strategic course since the meeting reversed Ford’s strategy of

a decentralization of production. Hounshell asks how such a reversal came

about, explores several hypotheses, but concludes he can do no more than

speculate on the mechanisms that might have accounted for the Executive

Committee’s about-face on strategy.

Daniel M.G. Raff and Peter Temin’s essay also examines strategy decisions

within a firm, in this case two marketing decisions made by

Sears, one in the 1920s and a second in the 1980s. At the earlier date,

retailing channels were expanded from mail order operations to own retail

stores; in the latter case, financial services were added to the product array

in its retail stores. Again, as with Ford, the question is how these decisions

were made and whether they relied on the firm’s learning of its corporate

strengths and accurate perceptions of its competitive advantages in evolving

markets. Differences in leadership capability in the two eras were, in Raff

and Temin’s view, the critical variable at work. Leadership in the 1920s

focused on an attractive market that could be tapped by

“exploiting [the] firm’s existing competitive strength” (p 246). The 1980s

leadership failed in both learning the market and in recognizing Sears’

competitive strengths.

Perhaps of most interest methodologically is Leslie Hannah’s test of whether

the “lump of corporate capability” (p. 257) presumably possessed by the giant

corporations of 1912 grew or declined by 1995. Survivability to the 1995 date

is the first test, but Hannah also poses a second: among the survivors, how did

a given firm’s growth in market equity capitalization compare with a

price-deflated market index? Using those tests, Hannah notes that

“disappearance or decline was nearly three times more likely among the giants

than growth” (p. 271). Observing that high incidence of corporate decline and

failure, he turns to a consideration of what types of

“corporate architectures” and strategies

allowed large firms to “retain their position, continue to add value, and

expand their capabilities” (p.

270).

In the final essay, Gavin Wright questions whether learning should be equated

solely with changes in total factor productivity. Rather, when looking at the

learning associated American economic growth in the nineteenth century, the

learning “was substantially a national network phenomena” (p. 296). As such,

“collective national learning may reside just as much in the discovery,

expansion, and accumulation of the factors of production as in their

productivity” (p. 296). To develop his point, he examines the U.S. mineral

industry, “one of the earliest and largest American technological networks,”

(p. 307) and the development of chemical engineering as it changed the way in

which chemical knowledge was acquired.

A collection of learning-by-doing studies as diverse as these serve to expand

definitions of the forms of learning. Can one measure the learning taking place

or generalize from the case studies, as Leslie Hannah and the editors attempt

to do? The answer would appear to be: with considerable difficulty. The problem

lies not only with the diverse definitions of learning employed, but also with

the difficulty of devising any empirical measures of the learning taking

place. Once one moves beyond the patent data of Lamoreaux and Sokoloff or the

production data of Mishina, measurement is elusive. One test would appear to

be success in the marketplace,

perhaps indicated by firm size and survivors hip – a measure that Hannah

attempts to make explicit. Market success may be an appropriate measure, if the

firm’s organizational capability, its use of patented technologies, or its

“ability to collect and use information effectively”

(p. 15) represent the major forms of learning occurring and can be linked to

market outcomes. However, as Bruce Kogut points out in his comment on Hannah’s

paper, there are more variables involved. “… a firm’s duration is contingent

on the evolution of its broader competitive and institutional landscape. This

broader landscape consists of firms, workers (sometimes organized in unions),

governments, political interests, research centers,

suppliers and buyers, idea merchants, and, of course, mechanisms of financial

intermediation and corporate governance” (p. 289). With that array of

variables at work, it may be that business and economic historians will not be

able to move significantly beyond case studies in examining these larger forms

of organizational and national learning. Or, as Leslie Hannah resignedly puts

it for the large corporation case: “To date, … we have made great strides in

storytelling, but a clearer, surer recipe for sustained success for large

corporations has remained elusive” (p. 270).

Henry A. Gemery is the author of “The Microeconomic Bases of Short-Run

Learning Curves: Destroyer Production in World War II,” (with Jan Hogendorn) in

Geoffrey Mills and Hugh Rockoff, editors, The Sinews of War:

Essays on the Economic History of World War II, Ames:

Iowa State University Press, 1993.

Subject(s):History of Technology, including Technological Change
Geographic Area(s):General, International, or Comparative
Time Period(s):General or Comparative

The Federal Landscape: An Economic History of the Twentieth Century West

Author(s):Nash, Gerald D.
Reviewer(s):Hill, Peter J.

Published by EH.NET (January 2000)

Gerald D. Nash, The Federal Landscape: An Economic History of the Twentieth

Century West. Tucson, AZ: University of Arizona Press, 1999. xvi

+ 214 pp. $40 (cloth), ISBN: 0-8165-1863-7; $17.95 (paper), ISBN:

0-8165-1988-9.

Reviewed for EH.NET by P. J. Hill, Department of Economics, Wheaton

College.

Gerald D. Nash, Professor of History at the University of New Mexico, has

written a survey of the influence of the federal government on the economic

growth of the American West. Nash hypothesizes that the federal government was

the

dominant force that shaped the western economy throughout the twentieth

century and his monograph details that role. The author also fits the region’s

economic history into a larger framework of Kondratieff cycles, arguing that

these cycles explain the successive waves of growth in the western United

States.

Nash provides a useful compendium of the different ways that the national

government influenced the West. He discusses transportation, moving through

railroads, West Coast harbors and rivers, and en ding with automobiles. The

national government also had a substantial impact on agriculture through the

Reclamation Act of 1902 and the Taylor Grazing Act of 1934. The fact that it

retained ownership of much of the land also affected how agriculture was

organized and the path that agricultural production took.

During World War II, considerable industrial production moved to the West Coast

and after the war urbanization was sped up by housing subsidies and government

investment in city infrastructure. Finally, the increased demand for

recreation and other environmental amenities starting in the 1970s had a

substantial impact upon the western economy.

If one wants a cataloguing of the federal government involvement in the West,

Nash’s book may be an appropriate place to start. However, it is not

particularly useful beyond its descriptive details and even there it is not an

especially strong source. Nash does not have a felicitous writing style and the

overall tone is one of simplistic triumphalism. An appropriate subtitle might

be “How the Federal Government Won the West.” Also, the book is flawed in

several important ways. The use of Kondratieff cycles as the major form of

analysis is not particularly helpful. The author presents no evidence that such

cycles really do exist or that they have any substantial influence upon the

western economy. They are primarily used as a descriptive tool to explain

whatever events Nash wants to describe. It is unfortunate that, in his attempts

to provide a theoretical structure for his work, he drew upon a concept that

plays an insignificant role in most American economic history accounts of the

region.

Second, Nash does not understand comparative advantage and the fact that

through much of its early history it was appropriate for the West to be a

resource intensive economy. He makes repeated references to the colonial status

of the West and finds the move to industrial production advantageous in that it

removed the West’s dependency upon the rest of the economy.

Certainly the scope of the economy widened during the twentieth century,

but it is not accurate to view this as the federal government rescuing the

region from its colonial status.

Finally, Nash assumes that the West was a capital scarce area and that the

investment by the national government was an appropriate response to capital

shortages. He presents no theories as to why private capital was inadequate or

why capital markets were not functioning well in the region.

The federal government is seen primarily as

an agent of positive change in capital markets and little attention is given

to special interests or rent seeking.

The book, while presenting some interesting details about the role of the

federal government in the region, is probably not of great interest to

economic historians. At the most, it can serve as a marginally useful reference

for someone looking for a catalog of federal government projects and influences

in the region.

Peter J. Hill is George F. Bennett Professor of Economics at Wheaton College

and Senior Associate at the Political Economy Research Center. His research

focuses on the evolution of property rights in the American West.

He has published articles in the Southern Economic Journal, the

Journal of Law and Economics, Economic

Inquiry, the Independent Review and other journals. Among his books

is Growth and Welfare in the American Past with Terry Anderson and

Douglass North.

Subject(s):Economic Planning and Policy
Geographic Area(s):North America
Time Period(s):20th Century: Pre WWII

Cliometrics

John Lyons, Miami University

Lou Cain, Loyola University Chicago and Northwestern University

Sam Williamson, Miami University

Introduction

In the 1950s a small group of North American scholars adopted a revolutionary approach to investigating the economic past that soon spread to Great Britain and Ireland, the European mainland, Australia, New Zealand, and Japan. What was first called “The New Economic History,” then “Cliometrics,” was impelled by the promise of significant achievement, by the novelties of the recent (mathematical) formalization of economic theory, by the rapid spread of econometric methods, and by the introduction of computers into academia. Cliometrics has three obvious elements: use of quantifiable evidence, use of theoretical concepts and models, and use of statistical methods of estimation and inference, and an important fourth element, employment of the historian’s skills in judging provenance and quality of sources, in placing an investigation in institutional and social context, and in choosing subject matter of significance to history as well as economics. Although the term cliometrics is used to describe work in a variety of historical social and behavioral sciences, the discussion here focuses on economic history.

A quantitative-analytical approach to economic history developed in the interwar years through the work of such scholars as Simon Kuznets in the U.S. and Colin Clark in Britain. Characteristic elements of cliometrics were stimulated by events, by changes in economics, and by an intensification of what might be called the statistical impulse.

First, depression, war, the dissolution of empires, a renewal of widespread and more rapid growth in the Western world, and the challenge of Soviet-style economic planning combined to focus attention on the sources and mechanisms of economic growth and development.

Second, new intellectual currents in economics, spurred in part by contemporary economic problems, arose and came to dominate the profession. In the 1930s, and especially during the war, theoretical approaches to the aggregate economy and its capabilities grew out of the new Keynesian macroeconomics and the development of national income accounting. Explicit techniques for analyzing resource allocation in detail were introduced and employed in wartime planning. Econometrics, the statistical analysis of economic data, continued to grow apace.

Third, the gathering of facts – with an emphasis on systematic arrays of quantitative facts – became more important. By the nineteenth century governments, citizens and scholars had become preoccupied with fact-gathering, but their collations were ordinarily ad hoc and unsystematic. Thoroughness and system became the desideratum of scholarly fact-gathering in the twentieth century.

All these forces had an impact on the birth of a more rigorous way of examining our economic past.

The New Economic History in North America

Cliometrics was unveiled formally in Williamstown, Massachusetts, in the autumn of 1957 at an unusual four-day gathering sponsored by the Economic History Association and the Conference on Research in Income and Wealth. Most of the program was designed to showcase recent work by economists who had ventured into history.

Young scholars in the Income and Wealth group presented their contributions to the historical national accounts of the United States and Canada, spearheaded by Robert Gallman’s estimates of U.S. commodity output, 1839-1899. A pair of headline sessions dealt with method; the one on economic theory and economic history was headed by Walt Rostow, who recalled his undergraduate years in the 1930s at Yale, where he had been led to ask himself “why not see what happened if the machinery of economic theory was brought to bear on modern economic history?” He asserted “economic history is a less interesting field than it could be, because we do not remain sufficiently loyal to the problem approach, which in fact underlies and directs our efforts.”

Newcomers John R. Meyer and Alfred H. Conrad presented two papers. The first was “Economic Theory, Statistical Inference, and Economic History” (1957), a manifesto for using formal theory and econometric methods to examine historical questions. They argued that particular historical circumstances are instances of more general phenomena, suitable for theoretical analysis, and that that quantitative historical evidence, although relatively scarce, is much more abundant than many historians believed and can be analyzed using formal statistical methods. At another session Conrad and Meyer presented “The Economics of Slavery in the Antebellum South,” which incorporated their methodological views to refute a long-standing proposition that the slave system in the southern United States had become moribund by the 1850s and would have died out had there been no Civil War. Conrad and Meyer buttressed the point by showing that slaveholding, viewed as a business activity, had been at least as remunerative as other uses of financial and physical capital. More broadly they illustrated “the ways in which economic theory might be used in ordering and organizing historical facts.”

Two decades later Robert Gallman recalled that the Williamstown “conference did more than put the ball in motion … It also set the tone and style of the new economic history and even forecast the chief methodological and substantive interests that were to occupy cliometricians for the next twenty-one years.” What began in the late 1950s as a trickle of work in the new style grew to a freshet and then a flood, incorporating new methods, examining bodies of data previously too difficult to analyze without the aid of computers, and investigating a variety of questions of traditional importance, mostly in American economic history. The watershed was continent-wide, collecting the work of small clusters of scholars bound together in a ramifying intellectual and social network.

An important and continuing node in this network was at Purdue University in West Lafayette, Indiana. In the late 1950s a group of young historical economists assembled there, among whom the cross-pollination of historical interests and technical expertise was exceptional. In this group were Lance Davis and Jonathan Hughes and several others known primarily for their work in other fields. One was Stanley Reiter, a mathematical economist who traveled with Davis and Hughes to the meetings of the Economic History Association in September 1960 to present their paper explaining the new quantitative historical research being undertaken at Purdue – and to introduce the term “cliometrics” to the profession. The term was coined by Reiter as a whimsical combination of the words Clio, the muse of history, and metrics, from econometrics. As the years went by, the word stuck and became the name of the field.

To build on the enthusiasm aroused by that presentation, and to “consolidate Purdue’s position as the leader in this country of quantitative research in economic history,” Davis and Hughes (with Reiter’s aid) sought and received funds from Purdue for a meeting in December 1960 of about a dozen like-minded economic historians. They gave it the imposing title, “Conference on the Application of Economic Theory and Quantitative Methods to the Study of Problems of Economic History.” For obvious reasons the meetings were soon called “Clio” or the “Cliometrics Conference” by their familiars. Of the six presentations at the first meeting, none was more intriguing than Robert Fogel’s estimates of the “social saving” accruing from the expansion of the American railroad network to 1890.

Sessions were renowned from Clio’s early days as occasions for engaging in sharp debate and asking probing (and occasionally unanswerable) questions. Those who attended the first Clio conference established a tradition of rigorous and detailed analysis of the presenters’ work. In the early years at Purdue and elsewhere, cliometricians developed a research program with mutual support and encouragement and conducted an unusually large proportion of collaborative work, all the while believing in the progressiveness of their efforts.

Indeed, like Walt Rostow, other established economic historians felt that economic history was in need of renewal: Alexander Gerschenkron wrote in 1957 “Economic history is in a poor way. It is unable to attract good students, mainly because the discipline does not present any intellectual challenge …” Some cliometric young Turks were not so mild. While often relying heavily on the wealth of detail amassed in earlier research, they asserted a distinctive identity. The old economic history, it was said, was riddled with errors in economic reasoning and embodied an inadequate approach to causal explanation. The cliometricians insisted on a scientific approach to economic-historical questions, on careful specification of explicit models of the phenomena they were investigating. By implication and by declaration they said that much of conventional wisdom was based on unscientific and unsystematic historical scholarship, on occasion employing language not calculated to endear them to outsiders. The most vocal proponents declared a new order. Douglass North proclaimed that a “revolution is taking place in economic history in the United States … initiated by a new generation of economic historians” intent on reappraising “traditional interpretations of U.S. economic history.” Robert Fogel said that the “novel element in the work of the new economic historians is their approach to measurement and theory,” especially in their ability to find “methods of measuring economic phenomena that cannot be measured directly.” In 1993, these two were awarded the Nobel Memorial Prize in Economics for, in the words of the Nobel committee, being “pioneers in the branch of economic history that has been called the ‘new economic history,’ or cliometrics.”

The hallmark of the top rung of work done by the new economic historians was its integration of fact with theory. As Donald [Deirdre] McCloskey observed in a series of surveys, the theory was often simple. The facts, when not conveniently available, were dug up from surviving sources, whether published or not. Indeed the discipline imposed by the need to measure usually requires more data than would serve for a qualitative argument. Many new economic historians expended considerable effort in the 1960s to expand the American quantitative record. Thus, with eyebrow raised, so to speak, Albert Fishlow remarked in 1970, “It is ironic … to read that … most of the “New Economic History” only applies its ingenuity to analyzing convenient (usually published) data.'” Many cliometricians worked their magic not merely by relying on their predecessors’ compilations; as Scott Eddie comments, “one of the most significant contributions of cliometricians’ painstaking search for data has been the uncovering of vast treasure troves of useful data hitherto either unknown, unappreciated, or simply ignored.” Very early in the computer age they put such data into forms suitable for tabulation and statistical analysis.

William Parker and Robert Gallman, with their students, were pioneers in analyzing individual-level data from the United States Census manuscripts, a project arising from Parker’s earlier study of Southern plantations. From the 1860 agricultural census schedule they drew a carefully constructed sample of over 5,000 farms in the cotton counties of the American South and matched those farms with the two separate schedules for the free and slave populations. The Parker-Gallman sample was followed by Census samples for northern agriculture and for the post-bellum South.

The early practitioners of cliometrics applied their theoretical and quantitative skills to some issues well established in the more “traditional” economic historiography, none more important than asking when and how rapidly the North American economy began to experience “modern economic growth.” In the nineteenth century, economic growth in both the U.S. and Canada was punctuated by booms, recessions and financial crises, but the new work provided a better picture of the path of GNP and its components, revealing steady upward trends in aggregate output and in incomes per person and per worker. This last, it seemed clear from the work in the 1950s of Moses Abramovitz and Robert Solow, must have derived significantly from the introduction of new techniques, as well as from expansion of the scale and penetration of the market. Several scholars thus established a related objective, understanding – or at least accounting for – productivity growth.

Attempting to provide sound explanations for growth, productivity change, and numerous other developments in modern economic history, especially of the U.S. and Britain, was the objective of the cliometricians’ theory and quantification. They were much criticized from without for the very use of these technical tools, and within the movement there was much methodological dispute and considerable dissent. Nonetheless, the early cliometricians spawned a sustained intellectual tradition that diffused worldwide from its North American origins.

Historical Economics in Britain

Cliometrics arrived relatively slowly among British economic historians, but it did arrive. Some was homegrown; some was imported. When Jonathan Hughes expressed doubts in 1970 that the American style of cliometrics could ever be an “export product,” he was already wrong. Admittedly, by then the new style had been employed by only a tiny minority of those writing economic history in Britain. Introduction of a more formal style, in Britain as in North America, fell to those trained as economists, initially to Alec Cairncross, Brinley Thomas and Robin Matthews. Cairncross’s book on home and foreign investment and Thomas’s on migration and growth developed, or collected into one place, a great deal of quantitative information for theoretical analysis; their method, as David Landes noted in 1955, was “in the tradition of historical economics, as opposed to economic history.” Matthews’s Study in Trade Cycle History (1954), which examines the trade cycle of 1833-42, was written, he said, in a “quantitative-historical” mode, and contains theoretical reasoning, economic models, and statistical estimates.

Systematic use of national accounting methods to study British economic development was a task undertaken by Phyllis Deane at Cambridge. Her work resulted in two early papers on British income growth and capital formation and in two books of major importance and lasting value: British Economic Growth, 1688-1959 (1962), written with W. A. Cole, and a compendium of underlying data compiled with Brian Mitchell. Despite skeptical reviews, the basics of the Deane-Cole estimates of eighteenth- and early nineteenth-century aggregate growth were accepted widely for two decades and provided a quantitative basis for discussing living standards and the dispersion of technical progress in the new industrial era. Also at Cambridge, Charles Feinstein estimated the composition and magnitude of British investment flows and produced detailed national income estimates for the nineteenth and twentieth centuries, augmenting, refining and revising, as well as extending, the work of Deane and Cole.

All these studies belong to a decidedly British empirical tradition, despite the use of contemporary theoretical constructs, and contained nothing like the later claims of some American cliometricians about the virtues of using formal theory and statistical methods. Research in a consciously cliometric style was strongly encouraged in the 1960s at Oxford by Hrothgar Habakkuk and Max Hartwell, although neither saw himself as a cliometrician. Separately and together, they supported the movement, encouraging students to absorb both quantitative and formal analytical elements into their work.

The incursion of cliometrics into British economic history was – and has remained – neither so widespread nor so dominant as in North America, partly for reasons suggested by Hughes. Although economic history had been taught and practiced in British universities since the 1870s, after the first World War most faculty members were housed in separate departments of economic (and social) history that tended to require of their students only a modicum of economics and little of quantitative methods. With the establishment of new British universities and the rapid expansion of others, a dozen new departments of economic history were founded in the 1960s, staffed largely by people taught in history and economic history departments. The limited presence of cliometric types in Britain at the turn of the 1970s did not come from deficient demand, nor was it due to hostility or indifference. It was due to limited supply stemming from the small scale of the British academic labor market and an aversion to excessive specialization among young economists. Yet the situation was being rectified. On the demand side, British faculties of economics began to welcome more economic historians as colleagues, and, on the supply side, advanced students were being aided by post-graduate stipends and research support provided by the new Social Science Research Council.

During the 1970s a British version of new historical economics began to take shape. Its practitioners expanded their informal networks into formal institutional structures and scholarly ventures. The organized British movement opened in September 1970 at an Anglo-American “Conference on the New Economic History of Britain” in Cambridge (Massachusetts), followed by two others. From these meetings grew a project to re-write British economic history in a cliometric mode, which resulted in the publication in 1981 of a path-breaking two-volume work, The Economic History of Britain since 1700, edited by Roderick Floud and Donald [Deirdre] McCloskey.

Equally path-breaking, perhaps more so, was the outcome of parallel developments in English historical demography, whose practitioners had become progressively more quantitatively and theoretically adept since the 1950s, and for whom 1981 was also a banner year. Although portions of the book had been circulating for some time, E. A. Wrigley’s and R. S. Schofield’s Population History of England, 1541-1871: A Reconstruction and its striking revisions of English demographic history were now available in one massive document.

As in North America, after the first wave of “quanitifiers” invaded parts of British historiography, cliometrics was refined in the heat of scholarly debate.

Controversies

Cliometricians started or continued a series of debates about the nature and sources of economic growth and its welfare consequences that decidedly have altered our picture of modern economic history. The first was initiated by Walt Rostow, who argued that modern economic growth begins with a brief and well-defined period of “take-off,” with the necessary “preconditions” having already become the normal condition of a given national economy or society. His metaphor of a “take-off into self-sustained growth”, which first appeared in a journal article, was popularized in Rostow’s famous book, The Stages of Economic Growth (1960). Rostow asserted that “The introduction of the railroad has been historically the most powerful single initiator of take-offs.” To test this contention, Robert Fogel and Albert Fishlow both wrote Ph.D. dissertations dealing in part with Rostow’s view: Fogel’s Railroads and American Economic Growth (1964) and Fishlow’s American Railroads and the Transformation of the Antebellum Economy (1965). These books contain their estimates of the extent of resource saving that had accrued from the adoption of a new transport system, with costs lower than those of canals. Their results rejected Rostow’s view.

Until the cliometricians made a pair of disputatious incursions into its economic history, the American South was largely the province of regional historians – almost a footnote to the story of U.S. economic development. Sparked by Conrad and Meyer, for two decades cliometricians focused intently on the place of the South in the national economy and of slavery in the Southern economy. To what extent was early national economic growth driven by Southern cotton exports and how self-sufficient was the South as an economic region? Douglass North argued that the key to American economic development before 1860 was regional specialization, that Southern cotton was the economy’s staple product, and that much of Western and Northern economic growth derived from Southern demand for food and manufactures. Indeed, Conrad and Meyer had touched a nerve. Their demonstration of current profitability did not demonstrate long-run viability of the slave system; Yasukichi Yasuba was able to fill that gap by showing that slave prices were regularly more than enough to finance rearing slaves for future sale or employment. Many others tested and refined these early results. As a system of organizing production, American slavery was found to have been thriving on the eve of the Civil War; the sources of that prosperity, however, needed deeper examination.

In Time on the Cross (1974), Robert Fogel and Stanley Engerman not only reaffirmed the profitability and viability of Southern slavery, but they also made claims about the superior productivity of Southern versus Midwestern agriculture and about the relatively generous material comforts afforded to the slave population. Their book sparked a long-running controversy that extended beyond academia and prompted critical examinations and rebuttals by political and social historians and, above all, by their fellow cliometricians. A major critique was Reckoning with Slavery (by Paul David and others, 1976), as much a defense of cliometric method as a catalogue of what the authors saw as the method’s improper or incomplete application in Time on the Cross. Fogel subsequently published Without Consent or Contract (1989), a defense and extension of his and Engerman’s earlier work.

The remarkable antebellum prosperity of the Southern slave economy was followed by an equally remarkable relative decline in Southern per-capita income after the war. While the remainder of the American economy grew rapidly, the South stagnated, with a distinctively low-wage, low-productivity economy and a poorly educated labor force, both black and white. The next generation of cliometricians asked “Why?” Was it the legacy of the slave system, of the virtual absence of industrial development in the antebellum South, of post-Civil War Reconstruction and backlash, of continued reliance on cotton, of Jim Crow, or of racism and discrimination? Roger Ransom and Richard Sutch investigated share-tenancy, debt peonage and labor effort in maintaining cotton cultivation, using individual level data, some derived a la Parker and Gallman, from a sample of the manuscript U.S. Censuses. Gavin Wright focused on an effective separation of the Southern from the national labor market, and Robert Margo examined the region’s low level of educational investment and its consequences.

An entirely new line of investigation derived from the research on slavery, measuring the “biological standard of living” using anthropometric data. Richard Steckel’s paper on slave height profiles led directly to the discussion of “Anthropometric Indexes of Malnutrition” in Without Consent or Contract. In a corrective to the Fogel-Engerman interpretation of the slave diet, Steckel showed how stunted (and thus how poorly fed) slave children were before they came of working age. John Komlos discovered that heights (of West Point cadets) were declining even as American per capita income was rising in the years before the Civil War, what he called the “Antebellum Puzzle.” Elsewhere, Roderick Floud led a project employing anthropometric data from records of British military recruits, while Stephen Nicholas, Deborah Oxley and Steckel analyzed records for male and female convicts transported to Australia.

Industrialization and its new technologies in the U.S. long predate the Civil War. In writing about technological progress, economic historians had, before the 1960s, tended to concentrate on single industries or economies. Yet distinctive “national” technologies emerged in the early nineteenth century (e.g., contemporary British observers distinguished “The American System of Manufactures” from their own). Amid the early ferment of quantitative economic history in the United States, Hrothgar Habakkuk published American and British Technology in the Nineteenth Century: The Search for Labour-Saving Inventions, a truly comparative study. It was 1962, when, as Paul David writes, “economic historians’ interests in Anglo-American technological divergences were suddenly raised from a quiet simmer to a furious boil by the publication of … Habakkuk’s now celebrated book on the subject.” Habakkuk expanded on an idea that the apparent labor-saving bias of American manufacturing techniques was due to land so abundant that American workers were paid (relative to other factors) much more than what their British counterparts received, but he did not resolve whether the bias was due to more machines per worker, better machines, or more inventiveness.

One strand of the debate over what Peter Temin called Habakkuk’s “labor-scarcity paradox” left to one side the question of “better machines.” It fell to Nathan Rosenberg and Paul David to explore the distinctive technological trajectories of different economies. Rosenberg pointed to the emergence of “technologically convergent” production processes and to the importance of very low relative materials costs in American manufacturing. Paul David reviewed the debate, beginning to formulate a theoretical approach to explain sources of technical change (and divergence). He argued that an economy’s trajectory of technological development is conditioned, perhaps only initially, by relative factor prices, but then by opportunities for further progress based on localized learning from, or constrained by, existing techniques and their histories. David developed the concept of “path dependence,” which is “a dynamic process whose evolution is governed by its own history.”

The first systematic cliometric debate involving European economic history was over an alleged British technological and economic failure in the late nineteenth century. The slower growth of income and exports, the loss of markets even in the Empire, and an “invasion” of foreign manufactures (many American) alarmed businessmen and policymakers alike and led to opposition to a half-century of British “Free Trade.” Who was to blame for loss of competitiveness? Although some scholars attributed Britain’s “climacteric” to the maturation of the technologies underpinning her success during the Industrial Revolution, others attributed it to “entrepreneurial failure” and cited the inability or refusal of British business leaders to adopt the best available technologies. Cliometricians argued, by and large, that British businessmen made their investment and production decisions in a sensible, economically rational fashion, given the constraints they faced; they had made the best of a bad situation. Subsequent research has demonstrated the problem to be more complex, and it is yet to be resolved.

Many results of the cliometrics revolution come from the application of theory and measurement in the service of history; a converse case comes from the macro economists. Monetarists, in particular, have placed economic history in the service of theory, prominently in analyzing the Great Depression of the 1930s. In 1963, Milton Friedman and Anna Schwartz, in A Monetary History of the United States, 1867-1960, opened a discussion that has led to widespread, but not universal, acceptance among economists of a sophisticated version of the “quantity theory of money.” Their detailed examination of several episodes in American monetary development under varying institutional regimes allowed them to use a set of “natural experiments” to assess the economic impact of exogenous changes in the stock of money. The Friedman-Schwartz enterprise sought support for the general proposition that money is not simply a veil over real transactions – that money does matter. Their demonstration of that point for the Great Depression initiated an entire scholarly literature involving not only economic historians but also monetary and macro economists. Peter Temin was among the first of the economic historians to question their argument, in Did Monetary Forces Cause the Great Depression? (1976). His answer was essentially “No,” stressing declines in consumer spending and in investment in the late 1920s as initiating factors and discounting money stock reductions for the continued downturn. In a later book, Lessons from the Great Depression (1989), Temin in effect recanted his earlier position, impelled by a good deal of further research, especially on international finance. The present consensus is that what Friedman and Schwartz call “The Great Contraction, 1929-1933″ may have been initiated by real factors in the late 1920s, but it was faulty public policy and adherence to the Gold Standard that played major roles in turning an economic downturn into “The Great Depression.”

A broad new approach to economic change over time has emerged from the mind of Douglass North. Confronted in the later 1960s with European economic development in its variety and antiquity, North became dissatisfied with the limited modes of analysis that he had applied fruitfully to the American case and concluded that “we couldn’t make sense out of European economic history without explicitly modeling institutions, property rights, and government.” For that matter, making sense of a wider view of American economic history was similarly difficult, as exemplified in the Lance Davis and North venture, Institutional Change and American Economic Growth (1971). The core of North’s model, conceptual rather than formal, is that, when changes in underlying circumstances alter the cost-benefit calculus of existing arrangements, new institutions will arise if there is a net benefit to be realized. Although their approach arose from dissatisfaction with the static nature of economic theory in the 1960s, North and his colleagues nonetheless followed what most other economists would do in arguing that optimal institutional forms will arise dynamically from an essentially profit-maximizing response to changes in incentives. As Davis and North were quick to admit, their effort was “a first (and very primitive) attempt” at formulating a theory of institutional change and applying that theory to American institutional development. North recognized the limitations of his early work on institutional change and has endeavored to develop a more subtle and articulated approach. In Understanding the Process of Economic Change (2005), North stresses again that modeling institutional change is less than straightforward, and he continues to examine the persistence of “institutions that provided incentives for stagnation and decline.”

Retrospect and Prospect

In the 1960s, when the first cliometricians began to group themselves into a distinct intellectual and social movement, buoyed by their revisionist achievements, they (at least many of them) thought they could use their scientific approach to re-write history. This hope may not have been a vain one, but it is yet to be realized. The best efforts of cliometricians have merged with those in other traditions to develop a rather different understanding of the economic past from views maintained half a century ago.

As economic history has evolved, so have the environs economic historians inhabit. In the Anglophone world, economic history – and cliometrics within it – burgeoned with the growth of higher education, but it has recently suffered the effects of retrenchment in that sector. Elsewhere, a new multi-lingual generation of enthusiastic economic historians and historical economists has arisen, with English as the language of international discourse. Both history and economics have been transformed by dissatisfaction with old verities and values, by adoption of new methods and points of view, and by posing new or revived questions. Economic history has been beneficiary of and contributor to such changes.

Although this entry focuses on the development of historical economics in the United States and the United Kingdom, we note that the cliometric approach has diffused well beyond their boundaries. In France the economist’s quantitative approach was fostered when Kuznets’s historical national accounts project recruited scholars in the 1950s to amass and organize the agricultural, output and population data available, in a new histoire quantitative. Still, that movement was overshadowed by the Annales school, whose histoire totale involved much data collection but limited economic analysis. Economic history of France, produced in the cliometric mode by scholars trained there, did not arrive in force until the mid-1980s. French cliometrics was first written by economic historians from (or trained in) North America or Britain; the Gallic cliometrics revolution occurred gradually, for “peculiarly French” institutional and ideological reasons. In Germany similar institutional barriers were partially breached in the 1960s with the arrival of a “turnkey” cliometrics operation in the form of an American-trained American scholar, Richard Tilly, who went from Wisconsin to Munster. Tilly was joined later by a few central Europeans who received American degrees, and all have since taught younger German cliometricians. Leading cliometric scholars from Italy, Spain and Portugal likewise received their post-graduate educations in Britain or America. The foremost Japanese cliometrician, Yasukichi Yasuba, received his Ph.D. from Johns Hopkins, supervised by Simon Kuznets.

If cliometrics in and of continental Europe could trace its roots to North America and Britain, by the 1980s it had developed indigenous strength and identity. At the Tenth International Economic History Congress in Leuven, Belgium (1990), a new association of analytical economic historians was founded. Rejecting the use of “cliometrics” as descriptor, the participants endorsed the nascent European Historical Economics Society. Subsequently national associations and seminars have grown up under the umbrella of the EHES – for example, French historical economists have the Association Francaise de Cliometrie and a new international journal, Cliometrica, while the Portuguese and Spaniards have sponsored a series of “Iberometrics” Conferences.

Cliometrics has transformed itself over the past half-century, forging important links with other disciplines and continuing to broaden its compass, and interpreting “new” phenomena. They are showing, for example, that recent “globalization” has origins and manifestations going back half a millennium and, given the recent experience of the formerly Socialist “transitional” economies, they are showing that the deep historical roots of institutions, organizations, values and behavior in the developed economies cannot be duplicated by following simple formulae. Despite the presentism of contemporary society, economic history will continue to address essential questions of origins and consequences, and it seems likely that cliometricians will complement and sometimes lead their colleagues in providing the answers. Cliometrics is a well-established field of study and its practitioners continue to increase our understanding of how economies evolve.

Source Note: The bulk of this article is a condensed version of the introduction to Lyons, Cain, and Williamson, eds., Reflections on the Cliometrics Revolution: Conversations with Economic Historians (2008), copyright (c) The Cliometric Society, Inc., which receives the royalties; reproduced by permission. Readers should consult that book for a more complete presentation, notes, and a full bibliography.

Further Reading

Coats, A. W. “The Historical Context of the ‘New’ Economic History.” Journal of European Economic History 9, no. 1 (1980): 185-207.

“Cliometrics after 40 Years.” American Economic Review: Papers and Proceedings 87:2, (1997): 396-414 [commentary by Claudia Goldin, Avner Greif, James J. Heckman, John R. Meyer, and Douglass C. North].

Crafts, N. F. R. “Cliometrics, 1971-1986: A Survey.” Journal of Applied Econometrics 2, no. 3 (1987): 171-92.

Davis, Lance E., Jonathan R. T. Hughes and Duncan McDougall. American Economic History. Homewood, IL: Irwin, 1961. [The first textbook of U.S. economic history to make systematic use of economic theory to organize the exposition. Second edition, 1965; third edition, 1969.]

Davis, Lance E., Jonathan R. T. Hughes and Stanley Reiter. “Aspects of Quantitative Research in Economic History.” _Journal of Economic History_ 20:4 (1960): 539-47 [in which “cliometrics” first appeared in print].

Drukker, J. W. The Revolution That Bit Its Own Tail: How Economic History Has Changed Our Ideas about Economic Growth. Amsterdam: Aksant, 2006.

Engerman, Stanley L. “Cliometrics.” In The Social Science Encyclopedia, second edition, edited by Adam Kuper and Jessica Kuper, 96-98. New York: Routledge, 1996.

Field, Alexander J. “The Future of Economic History.” In The Future of Economic History, edited by Alexander J. Field, 1-41. Boston: Kluwer-Nijhoff, 1987.

Fishlow, Albert, and Robert W. Fogel. “Quantitative Economic History: An Interim Evaluation. Past Trends and Present Tendencies.” Journal of Economic History 31, no. 1 (1971): 15-42.

Floud, Roderick. “Cliometrics.” In The New Palgrave: A Dictionary of Economics, edited by John Eatwell, Murray Milgate and Peter Newman, vol. 1, 452-54. London: Macmillan, 1987.

Goldin, Claudia. “Cliometrics and the Nobel.” Journal of Economic Perspectives 9, no. 2 (1995): 191-208.

Grantham, George. “The French Cliometric Revolution: A Survey of Cliometric Contributions to French Economic History.” European Review of Economic History 1, no. 3 (1997): 353-405.

Lamoreaux, Naomi R. “Economic History and the Cliometric Revolution.” In Imagined Histories: American Historians Interpret the Past, edited by Anthony Molho and Gordon S. Wood, 59-84. Princeton: Princeton University Press, 1998

Lyons, John S., Louis P Cain, and Samuel H. Williamson, eds. Reflections on the Cliometrics Revolution: Conversations with Economic Historians. New York: Routledge, 2008.

McCloskey, Donald [Deirdre] N. Econometric History. London: Macmillan, 1987

Parker, William, editor. Trends in the American Economy in the Nineteenth Century. Princeton, N.J.: Princeton University Press, 1960. [Volume 24 in Studies in Income and Wealth, in which many of the papers presented at the 1957 Williamstown conference appear.]

Tilly, Richard. “German Economic History and Cliometrics: A Selective Survey of Recent Tendencies.” European Review of Economic History 5, vol. 2 (2001): 151-87.

Whaples, Robert. “A Quantitative History of the Journal of Economic History and the Cliometric Revolution.” Journal of Economic History 51, no. 2 (1991): 289-301.

Williamson, Samuel H. “The History of Cliometrics.” In The Vital One: Essays in Honor of Jonathan R. T. Hughes, edited by Joel Mokyr, 15-31. Greenwich, Conn.: JAI Press, 1991. [Research in Economic History, Supplement 6.]

Williamson, Samuel H., and Robert Whaples. “Cliometrics.” In The Oxford Encyclopedia of Economic History, vol. 1, edited by Joel Mokyr, 446-47. Oxford: Oxford University Press, 2003.

Wright, Gavin. “Economic History, Quantitative: United States.” In International Encyclopedia of the Social and Behavioral Sciences, edited by Neil J. Smelser and Paul B. Baltes, 4108-14. Amsterdam: Elsevier, 2001.

Citation: Lyons, John. “Cliometrics”. EH.Net Encyclopedia, edited by Robert Whaples. August 27, 2009. URL http://eh.net/encyclopedia/cliometrics/