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The World of Private Banking

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

Published by EH.NET (June 2010)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Triumph of the South: A Regional Economic History of Early Twentieth Century Britain

Author(s):Scott, Peter
Reviewer(s):Wardley, Peter

Published by EH.NET (October 2009)

Peter Scott, Triumph of the South: A Regional Economic History of Early Twentieth Century Britain. Aldershot, UK: Ashgate, 2007. xiv + 324 pp. ?65 (cloth), ISBN: 978-1-84014-613-4.

Reviewed for EH.NET by Peter Wardley, Department of History, University of the West of England, Bristol.

In the Triumph of the South, Peter Scott, Director of the Centre for International Business History and Professor at the University of Reading, has drawn upon his research into specific aspects of interwar British economic and social history to provide an overview of regional development between 1870 and 1939. Scott?s investigations, that have utilized neglected or under-utilized sources, encompass the origins of British regional policy, private sector industrial estates, the nature of the English property market and its agencies, working class house-ownership, hire purchase, and the institutional barriers that impeded transport rationalization in both the coal mining industry and the coal carrying trade undertaken by British railway companies. At the heart of this study are chapters informed by this research that describe and analyze dynamic components of the interwar British economy: the new manufacturing industries of Greater London, the labor market that characterized the interwar industrial estates, and the long distance migration of workers recruited to the new factories. By contrast to vibrant industrial development in the ?South,? the manufacturing sector of depressed ?outer-Britain? experienced only limited innovation; relatively few new plants were established, the expansion of employment in the factories associated with the ?New Industries? was relatively small and their labor productivity was relatively low. Oddly, given the clearly demonstrated relative advantage of the ?South? in the provision of services, and the relative importance of these activities in both the region?s prosperity and economic expansion, apart from tourism the services sectors receive relatively little attention. For example, to select one specific dimension of change, whereas much is made of the failure to embrace technical innovation exhibited by the ?old staples,? and especially the coal industry, no mention is made of the comprehensive implementation of mechanization undertaken by British financial companies at the end of the 1920s. Furthermore, not only is the measurement of productivity growth in services presented here as a more problematic exercise than recent research has demonstrated but the early twentieth century domestic service sector is described as ?a very large employer, with very limited potential for productivity gains? (p. 24). In the context of this study, this is somewhat odd: if this were so in the interwar years, what then was the motive of those who purchased the millions of household appliances produced on the industrial estates so carefully enumerated here?

Scott?s authoritative treatment of the aspects of the interwar years he has so closely researched also stands in contrast with his less convincing consideration of the longer run historical context. The introductory chapters demonstrate a range of basic problems that are conceptual and definitional in kind, reflecting geo-political and economic ambiguities that could lead astray a more naive reader. It would have been useful to indicate very clearly that ?Britain? in this period is a political fiction as the functioning state was the ?United Kingdom,? a union of Britain and Ireland before 1921 and Britain and Northern Ireland after. In this book England gets the lion?s share of attention, Scotland some consideration, Wales little and Ireland none. This constrained perspective has broader analytical and interpretative consequences. A somewhat pessimistic stance towards British economic performance before the First World War depends to a large extent on a comparison of British income per capita data (Table 3.2, p. 33) relative to that of the world?s more developed economies. However, George Boyer?s chapter on ?Living Standards, 1860-1939? (Boyer, pp. 282-83; 294-95), the source upon which Scott relies, is not unmisleading in this context. Boyer, citing data estimated by Angus Maddison, and without mention of this distinction, reports the national income per capita of a ?Britain? which is really an ahistorical United Kingdom, a hypothetical economy defined by political boundaries that would be drawn only in 1921. Nevertheless, Maddison does provides disaggregated estimates for Irish and British income per capita, and it is the latter that Scott should be interested in, given that his story relates specifically to Britain. When Britain, strictly defined, is compared to the United States of America, the relative gap in national income per capita in 1913 is shrunk from that reported of just over five percent to less than three; by analogy to conventional measures of statistical significance, while the former might just about warrant mention, the latter difference would be usually be regarded as insignificant. Moreover, the same comparative perspective indicates that in 1913 British income per capita was in excess of thirty percent higher than that of Germany or France; how many Britons would not now be delighted by the restoration of a similar lead relative to the current level of output per person achieved in Germany and France? Clearly, and contrary to Scott?s gloomy prognosis, on the eve of the Great War the British economy was not failing.

This somewhat negative view also colors analysis of British economic agencies, especially the firms that populated the Victorian economy, and questionable assumptions bolster a rather thin international perspective. Although Britain was the location of most of the world?s largest industrial enterprises at the time of the Great Exhibition of 1851, and probably a third of the world?s largest companies in 1912, with Germany assumed wrongly here to outstrip Britain on this count, much is made of the detrimental consequences of the relatively small size of British firms. However, the significance of firms at the lower end of the corporate spectrum is also interpreted somewhat narrowly. It is difficult to see the existence of well-developed networks of small and medium enterprises (SMEs) that had been established in Britain in the nineteenth century as, per se, a peculiarly national impediment to economic growth. After all, the significant contribution to German economic development of the Mittelstand is well-established in the literature. Moreover, Philip Scranton has told a similar story concerning the contribution of the SMEs, which also saw the development of clusters, networks, external economies and regional specialisms, to American economic development before 1939. Given these international comparisons, that suggest otherwise, and taking the long run view, I remain puzzled also by the statement that, ?Sectoral specialisation appears to have been originally developed as a means of coping with Britain?s poor inland transport links? (p. 15). It is less surprising to read, however, that ?Poverty in rural Britain was even more widespread than in towns and cities? (p. 1).

The empirical database underpinning the introductory chapters that consider regional development in a quantitative framework are provided by statistics extracted from the United Kingdom Census of Population by Clive Lee and published in his British Regional Employment Statistics 1841-1971 and the recently published associated estimates of income per capita for British regions derived by Nick Crafts. Inspection of these data prompt the undisputable conclusion that London was not only the most prosperous region within the British economy in 1871 but that it subsequently and consistently enjoyed the more dynamic economic path to the twentieth century and beyond. Taking a long-run perspective this was only the restoration of a preeminence that had its origins in Norman, Saxon or even Roman times. However, the popular and enduring appeal of the Industrial Revolution does tend to color and even distort our views of British economic development such that the much remarked upon growth of manufacturing in the peripheries, especially cotton textiles in south Lancashire, woolen textiles in west Yorkshire and ferrous metal production and processing in south Wales, central Scotland and the north east of England, crowd out the relatively undramatic and less exotic incremental developments in Bristol, Birmingham and, especially, London. And London, often regarded as synonymous with the ?South,? provided England?s most populated urban center, its cultural center, the social focus of its elite, and the political capital that served first, England, then England and Wales, then the United Kingdom and, ultimately, at least until its more recent imperial retreat, the British Empire and its world. In this sense the ?Triumph of the South? has been persistent and enduring, a process of consolidation and confirmation rather than the outcome of a late nineteenth and early twentieth century contest that saw London emerge as the dominant victor over the industrial ?North? (which often stands as shorthand for all the British periphery). Put quite simply, and galling though this is to many a subject of British crown, the South rules.

This narrative was clearly established by Lee?s The British Economy since 1700, a pioneering text sensitive to regional differentiation that might have had more credit than allowed here as it also highlights the historic significance of the London?s national and international financial predominance, the consequences of London?s role as the global market place for international services, the impact of government policy, and the nature of labor processes found in Britain?s industrial heartlands. Moreover, not only have variants upon these themes long populated the continuing debate among economists and economic historians concerning British ?Declinism? but they also informed two highly visible critiques of more recent economic policy: first, the politically significant but economically ambiguous thesis propounded in the Sunday Times in 1974 by Robert Bacon and Walter Eltis that identified Britain?s problem in their diagnosis of ?Too Few Producers? and, a decade later, the proposition that services, and especially financial services, were privileged by policies introduced by Margaret Thatcher?s governments and then continued by New Labour, with damaging consequences for industry and the ?North.? These same issues now arise with the current reconfiguration of British politics produced by our contemporary recession.

Here I would suggest that Scott?s unique selling point is, his specialist research topics indicated above apart, the strong argument he proposes concerning the detrimental consequences of London?s successes and the resultant bifurcation of the interwar British economy that operated to the detriment of the ?North.? He opines that ?the ?Dutch disease? effect of London?s growing invisibles surplus progressively crowded out the commodity exports of Britain?s provincial regions? and that this was accentuated by re-investment overseas of surpluses on invisible trade which further enhanced its ?growing comparative advantage as a rentier and services-exporting, rather than industrial, nation? such that the growth of non-wage income ?began to crowd out its provincial export industries? (p. 281). However, although this thesis of relative regional deprivation is propounded with keen enthusiasm, if not zealous certainty, it remains largely untested and leaves at least two major questions abegging. The first asks if the adoption of economic policies less permissive to economic development in the ?South? would have resulted a better outcome for those who lived and worked in the ?North,? let alone higher incomes per capita across the whole economy? The second inquires as to the nature of an alternative economic policy regime that would have produced the beneficent counterfactual implicit in Scott?s story? Both questions loomed large for contemporaries and neither prompted an easily defined or uncontested policy response. Just as today.

References:

Boyer, George. ?Living Standards, 1860-1939,? in Roderick Floud and Paul Johnson (eds.), 2004. The Cambridge Economic History of Modern Britain, Vol. II: Economic Maturity, 1860-1939, pp. 280-313. Cambridge: Cambridge University Press.

Crafts, Nicholas. 2005. ?Regional GDP in Britain, 1871-1911: Some estimates,? Scottish Journal of Political Economy, 52, pp. 1-24.

Lee, C.H. 1979. British Regional Employment Statistics 1841-1971. Cambridge: Cambridge University Press.

Lee, C.H. 1986. The British Economy since 1700: A Macroeconomic Perspective. Cambridge: Cambridge University Press.

Maddison, Angus, 1995. Monitoring the World Economy. Paris: OECD.

Maddison, Angus (Home Page) ?Statistics on World Population, GDP and Per Capita GDP, 1-2006 AD.? Scranton, Philip. 2000. Endless Novelty: Specialty Production and American Industrialization, 1865-1925. Princeton: Princeton University Press.

Peter Wardley has written on “The Commercial Banking Industry and Its Part in the Emergence and Consolidation of the Corporate Economy in Britain before 1940,” Journal of Industrial History (October 2000) and [with Norman Gemmell] ?The Contribution of Services to British Economic Growth, 1856-1914,? Explorations in Economic History (1990). His more recent research appears in ?A Global Assessment of the Large Enterprise on the Eve of the First World War: Corporate Size and Performance in 1912,? a chapter published in Youssef Cassis and Andrea Colli (eds.) Business Performance in Theory and History (forthcoming, Cambridge University Press).

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

Economics in Russia: Studies in Intellectual History

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

Published by EH.NET (May 2009)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Patron?s Payoff: Conspicuous Commissions in Italian Renaissance Art

Author(s):Nelson, Jonathan K.
Zeckhauser, Richard J.
Reviewer(s):Barnes, Bernadine

Published by EH.NET (February 2009)

Jonathan K. Nelson and Richard J. Zeckhauser, The Patron?s Payoff: Conspicuous Commissions in Italian Renaissance Art. Princeton: Princeton University Press, 2008. xviii + 234 pp. $39.50 (hardcover), ISBN: 978-0-691-12541-1.

Reviewed for EH.NET by Bernadine Barnes, Department of Art, Wake Forest University.

Much of Italian Renaissance art history is centered on the artist and how life experiences determine the appearance and meaning of art objects. This is a tendency with roots in the Renaissance (particularly in the writings of Giorgio Vasari) and carried on in numerous ?life and works? books found on many a coffee table. The patron in these sorts of studies is often cast as the oppositional character in the drama of artistic creation. A test of wills ensues and (of course) the artist wins out, producing the great painting or sculpture that we now admire. Patronage studies ? usually less glossy ? attempt to balance the picture, and the best of them examine with subtlety how works of art convey the patron?s ideas about power and belief. However, this shifts our focus from the intention of the artist to the intention of the patron. Indeed, Dale Kent?s recent monograph on Cosimo de? Medici?s patronage is even subtitled ?The Patron?s Oeuvre,? suggesting a body of work that ?expresses? the personality of the man who paid for the art, rather than its makers? personalities.

Nelson and Zeckhauser take a different approach, one that avoids the two-player drama. They see the relationship of the patron and artists as more collaborative, and yet self-interested on both sides. The authors use game theory and the economics of information as frameworks to recast the relationships. In short, the patron is seen as the principal in a transaction, initiating the project and specifying certain desired outcomes; the artist, on the other hand, is seen the agent, charged with fulfilling these desires and financially rewarded for completion of the project. The principal/patron has a stake in the project because it is a visible sign of his/her status; the artist agrees to work on behalf of the patron to make products that will achieve this end while increasing his own value for future commissions. There are costs involved for both parties ? not just monetary costs, but costs of effort and the possibility of failure. Finally, both artist and patron work within constraints ? not only financial limits, but also limitations due to availability of prime locations and the best artists, and the more intangible constraint of decorum.

All this effort is aimed at an audience that is always variable and sometimes invisible, since some of the most important members of the audience are heavenly. While the choices made by patron and artist can be documented with some precision, the responses of the audience are, as the authors admit, almost always conjectural. Sometimes audience reactions are voiced in surviving letters, but usually these are filtered through the opinions of those who wrote treatises or biographies. In an age before incessant surveys, these really cannot be considered a cross-section of viewers who actually saw the painting, or even of the intended audience ? which may be defined as a more restricted and knowledgeable group who could make sound judgments about the merits of the art or its message.

Nelson and Zeckhauser carefully explain game theory and the economics of information in the introduction, where they provide examples that draw from everyday experience (indeed they use their own project as one of those examples) and clarify how this approach differs from more typical patronage studies. The first and second chapters further define the players, costs, and constraints involved in ?the patronage game?; the examples in these chapters are chosen from a wide array of Italian Renaissance commissions. The third chapter deals with signaling based upon the work of Michael Spence, who provides a forward to this book. Again, Renaissance ideals and practices provide examples, and they include discussions of magnificence in treatises, using fine majolica containers for pharmaceuticals, and the strategy of staging a triumphal procession for an aspiring duke. Finally in the fourth chapter, the authors discuss examples of signposting and stretching, wherein art serves to highlight positive or disguise negative messages about the patrons. Most of the examples in this chapter are portraits well-known to art historians, but they are given fresh interpretations when seen through the lens of these concepts.

The five concluding chapters present case studies. The first, by Nelson and Zeckhauser, considers the costs of acquiring and decorating private chapels in Florence, as well as costs for services like masses that can be considered ?tie-ins? for these projects. Here the benefits to patrons come in the forms of social prestige and spiritual well-being, and the authors demonstrate how patrons made trade-offs depending on their position in Florentine society. In his essay on patronage by the fourteenth-century members of the Alberti family, Thomas Loughman explores how strategies meant to enhance prestige in republican Florence could extend through generations. Kelley Helmstutler Di Dio focuses on the sculptor Leone Leoni and the manner in which Leoni called attention to his wealth and learning in the design of his own home, while downplaying any reference to his (still not well appreciated) profession. (Although I couldn?t help but wonder if the predominance of sculpture on the facade of his remarkable house in Milan isn?t in itself a proclamation of pride in his profession.) In an interesting essay on Mantegna?s Madonna della Vittoria, Molly Bourne suggests that the ?victory? proclaimed by the painting was questionable ? the patron Francesco II Gonzaga used the imagery to ?spin? his image to viewers who did not know the facts. The final chapter, by Larry Silver, is a broad-ranging test of the theories, using an assortment of examples including Rubens?s work for Marie de? Medici, the status-conscious collecting practices of wealthy women in nineteenth century America, self-portraits of artists, and buildings like the Isabella Stewart Gardner Museum and Rubens?s house.

These are all well-written, interesting, well-researched essays, varying in chronological range and in geographical focus. Most of the authors see the patrons controlling the situation, although artists? attempts to signal status are demonstrated in the essays dealing with self-portraits and artists? houses. Art historians are very attuned to the ways paintings, sculpture, or architecture convey prestige, so it probably is no surprise that the authors of the case studies make use of signaling and signposting, rather than working through details of costs and constraints, and how each player ? patron and artist ? negotiates within these constraints. The framework that Nelson and Zeckhauser construct in the first chapters of the book suggests more can be done with cost-benefit analyses, and their own discussion of the Carafa chapel in Santa Maria sopra Minerva in Rome provides a good example. Here, Carafa?s choice of locations and his attempts to wrest Filippino Lippi away from his work for the wealthy Filippo Strozzi in Florence are documented in written sources, while changes to drawings suggest ways that the patron controlled the appearance of arrogance in the milieu of papal Rome. The close examination of this evidence points to the benefits of collaboration ? not just between artist and patron, but between art historian and economist.

Bernadine Barnes is a professor of Renaissance art history at Wake Forest University. Her most recent book is Michelangelo in Print: Reproductions as Response in the Sixteenth Century (forthcoming, Ashgate Publishing, 2009).

Subject(s):Social and Cultural History, including Race, Ethnicity and Gender
Geographic Area(s):Europe
Time Period(s):Medieval

Genres of the Credit Economy: Mediating Value in Eighteenth- and Nineteenth-Century Britain

Author(s):Poovey, Mary
Reviewer(s):Mitch, David

Published by EH.NET (January 2009)

Mary Poovey, Genres of the Credit Economy: Mediating Value in Eighteenth- and Nineteenth-Century Britain. Chicago: University of Chicago Press, 2008. x + 511 pp. $59 (cloth), ISBN: 978-0-226-67532-9.

Reviewed for EH.NET by David Mitch, Department of Economics, University of Maryland ?- Baltimore County.

In recent decades, literary critics have generated a body of scholarship that they have come to label the New Economic Criticism. This body of work defies ready summary but suffice it to say that it represents the interest of literary critics in economic literature and matters economic from a variety of perspectives. It has become sufficiently extensive to be the subject of the edited volume by Woodmansee and Osteen (1999). New economic critics are publishing book length studies with major academic presses, hold important chairs in university literature departments (e.g. Marc Shell at Harvard, Catherine Gallagher at Berkeley), and are producing new generations of literature doctorates. Mary Poovey (Samuel Rudin Professor in the Humanities and Professor of English, New York University) is one of the leading new economic critics and her latest work Genres of the Credit Economy can be seen as a contribution to this field and certainly draws heavily on it; on pages 10-14 she provides her own distinctive overview of this field of literary criticism.

Poovey?s book itself is an exercise in what could be called genre analysis and it is both apt and ironic as she herself notes on p. 14 that her latest work further confirms her own originality in producing new intellectual genres. This ability is already on display in one of her earlier books, A History of the Modern Fact (1998), which can be described as a history of epistemology in work on economic and social affairs. That book put forward the plausible, albeit provocative, claim that by the first half of the nineteenth century, writers on economic and social affairs had come to emphasize quantitative measures regarded as objective facts as the foundation of knowledge and policy discussion in contrast with a previous skepticism of such facts. The social constructionist perspective evident in her 1998 book is amply on display in her latest effort. To my mind, she is fundamentally correct in the underlying premises both of her earlier book and of her new one. A History of the Modern Fact presumes that ?quantitative objective facts? in actuality entail considerable amounts of political and social interpretation (e.g. election vote counts, census population totals, national income measures, cost of living and poverty indexes). Her latest book presumes that the functioning of a modern credit economy fundamentally entails elements of trust. I suspect that one could readily find widespread agreement with both premises with the latter in particular being perhaps self-evident. However, in the case of her earlier book there are issues to be raised regarding her chronology of changing cultural attitudes towards quantification in social affairs, her degree of mastery of vast bodies of both contemporaneous literature and more recent historiography, and the extent to which the changes in epistemological cultural attitudes she maps out are primarily relativistic or have entailed genuine social progress. For a quite skeptical take on Poovey?s earlier book by a leading historian of science see Margaret Jacob?s essay in History and Theory (2001).

?Genres of the Credit Economy states in its opening sentences that it tries to address two questions that arise from Poovey?s earlier book: ?If the kind of knowledge that contemporary society values is really the modern fact, then why does the discipline of Literary studies matter? What can Literary scholars do?? (p. 1). As Poovey explains in a footnote to this passage, these dilemmas arise insofar as prioritizing facts tends to devalue the activity of interpretation, the activity that would seem the focus of Literary studies. Although Poovey at points (p. 14) labels her latest book as a history, its chronological development is less linear than in her previous History of the Modern Fact. Her latest book alternates between tracing general intellectual trends and fine-grained textual analysis of specific works; she jumps back and forth in time in her consideration of various genres. After setting forth her general thesis that imaginative, economic, and monetary forms all emerged as distinctive genres in response to the rise of a credit economy, the core of Poovey?s text consists of detailed readings concentrating on modes of argumentation, organization, and style in selected works of economic and imaginative literature written in Britain between 1650 and 1870.

Poovey acknowledges that other intellectual genres that she does not consider were involved in the modern differentiation of economics and literary criticism; she points in particular to natural philosophy (p. 5). However, she notes ?a conviction that many contemporary scholars share ? that economics and Literary studies have some special relationship to each other.? She goes on to argue that the two fields should be studied together because of a common concern with what literary critics term the problematic of representation. Poovey defines the problematic of representation as ?one way scholars describe the gap that separates the sign from its referrant or ground (of value or meaning), whether the gap takes the form of deferral, substitution, obscurity? (p.5). It is perhaps apparent why the relation between sign and referrant should be an on-going concern of literary scholars; however, she argues that financial crises have also brought this problem to the fore in the fields of economics and finance and that it is useful to consider the parallel treatments of this problem in the cases of the two disciplines. She also takes note of the frequent employment of financial themes by nineteenth century British novelists.

Another term sometimes used by literary critics also recurs throughout her discussion: naturalized (or alternatively naturalization). By naturalization Poovey means a process by which behaviors which are initially new and strange and hence subject to suspicion and scrutiny become customary and taken for granted. She emphasizes its importance for the use of new types of monetary instruments in a credit economy: ?money has been naturalized: through the social process that I describe in this book, money has become so familiar that its writing has seemed to disappear and it has seemed to lose its history as (various forms of) writing? (p.3). To highlight the significance she attaches to these two terms, she introduces each of them by placing them in italics in the text (pp. 3, 5). And one of Poovey?s central claims is that both naturalization and the problematic of representation were central to functioning of money in the rise of the modern credit economy.

In a preamble, she describes the emergence of imaginative literature, financial writing, and monetary instruments as distinctive written genres over the course of the eighteenth century in Britain. She argues that all three genres developed as ways of ?naturalizing? the use of money and hence of dealing with the problematic of representation inherent in monetary instruments: that such instruments frequently only symbolize some underlying item of value without guaranteeing access to the item itself.

The first two self-identified chapters of the book consider writing about money in the seventeenth and eighteenth centuries. The first chapter takes up the attention given by contemporaries between the late seventeenth and early nineteenth century to the problematic of representation inherent in money. She backs into this through looking at J.R. McCullough?s collection of pamphlets dealing with money. She gives particular attention to Joseph Harris? ?An Essay upon Money and Coins? published in 1757-58, in which he challenges the ideas that either the imprint on a coin?s face or its metallic content is its source of value. Then after quickly touching on Locke?s views on the nature of money, she fast-forwards to debates in the early nineteenth century involving Ricardo, McCullough, and Macaulay among others on the desirability of convertibility between coins, paper money, and bank notes. In the last section of the chapter, Poovey offers the intriguing suggestion that writing regarding money in the eighteenth century frequently blurred the distinction between fact and fiction and she identifies a fact/fiction continuum in this regard. The second chapter looks at episodes in what she identifies as generic differentiation of treatments of Money. She notes that Defoe?s work frequently blurred fact/fiction distinctions and in particular focuses on a manuscript of his since labeled Roxanne. Poovey argues that it was later editors who classified this work as fiction; she suggests that one of Defoe?s aims in this text was the non-fictional one of explaining the workings of credit. One example of the insights her literary background provides is her observation (p. 98) that Defoe employed the classical oral rhetorical device of elaboration, i.e. offering long lists in order to engage listeners in an imaginative flight, in written form, with a similar aim of engaging the reader?s imagination. She turns to parallels between James Steuart?s work on Political Economy and Fielding?s novel Tom Jones, noting similarities in the treatment of personal character in each. She then notes Adam Smith?s more abstract mode of argumentation in contrast with Steuart?s more fictionalized narrative. The chapter concludes with observations on the blend of fact and fiction in Thomas Bridges? Adventures of a Bank-Note (1770-71), a work based on depicting the perspective on passing surroundings a bank note might have as it made its way from holder to holder, including intervals when tucked in a woman?s bosom (p. 149).

A first ?interchapter? then takes up the rise of book publishing and of the issuance of bank commercial paper. This really constitutes her brief notes on matters that are pertinent to issues elsewhere in the book; as she notes herself, these issues have been taken up in much greater depth by other authors; indeed each of these topics deserves and has been given book length treatment by others and I did not find the 17 pages she devotes to them sufficient to add much further insight to this other work.

Chapters three and four take up the emergence of economic writing as a distinctive set of genres in the early nineteenth century. Chapter three takes note of increasing skepticism about the workings of the growing credit economy. It examines publications by critics of paper money such as William Cobbett and John Francis Bray. Chapter four takes up the differentiation of writing on economic theory from financial journalism. After giving relatively brief attention to David Ricardo?s employment of abstraction in his theoretical work, she focuses at some length on J.R. McCullough as a writer engaged in both economic theory and journalism. She then turns to Walter Bagehot?s and D. Morier Evans? emergence as specialized economic journalists while attributing to William Stanley Jevons the effort to define economics as a narrow specialist science, giving particular attention to his interest in developing a sun spot theory of the business cycle. Poovey?s general argument in this chapter is that economic journalism and abstract economic theory became increasingly differentiated in the early to mid nineteenth century as part of a social process of naturalizing credit instruments. Economic journalists such as Bagehot and Evans instilled familiarity with the financial system and depicted the occasional crash or panic as an aberration from normal stability. At the same time the emergence of abstract economic science as practiced by Jevons with his work on sunspot theory ? precisely because it employed arcane, mysterious techniques apparently at variance with observable reality ? in Poovey?s view helped establish an expertise which could testify to the value of bank money. This authority provided a way of dispelling doubts about credit instruments implied by the problematic of representation.

Chapter Five then turns to literary authors and suggests that Wordsworth and Coleridge were keen to separate aesthetic from commercial value in literature. Poovey suggests that their concerns were motivated by the growth in demand for cheap popular publications. In a second interchapter, Poovey notes that recent work by literary critics on Harriet Martineau employs formal aesthetic criteria of organic unity in evaluating Martineau?s work though claiming to deviate from literary formalism. She then proposes an alternative approach to interpretation she labels ?historical description? as a means of engaging with texts while placing them in a larger historical narrative. She illustrates her approach in Chapter Six which offers meticulous readings of novels by Austen, Dickens, Eliot, and Trollope focusing on passages in which financial matters come to the fore. Her arguments include the audacious economic determinist claim that Jane Austen?s Pride and Prejudice was in large degree a response to the Bank Restriction Act of 1797: the breach of promise to redeem bank notes with gold explicit in the Bank Restriction Act according to Poovey motivated Austen?s interest in portraying Elizabeth Bennett?s concern about her potential broken promise to thank Mr. Darcy.

The book concludes with a four page ?Coda? in which Poovey bemoans both the low current prestige of literary studies in comparison with that of economics in modern American and British universities and the divide that has arisen between the two disciplines.

Recent economic events would seem to make it abundantly evident that the modern economy is a credit economy and that loss of confidence in credit instruments and their underlying connection to value can wreak economic havoc. Thus, Poovey?s theme is certainly timely. The book itself raises numerous stimulating questions and surveys a wealth of literature both past and more contemporary with which I, for one, was not previously familiar.

One general issue of evaluation posed by her book is that implied by the questions she poses in her introduction ? namely whether a post-modernist literary critic can bring any useful tools to bear in understanding the history of economics, economic history or modern economics. Quite possibly, new economic critics, including Poovey, are aiming their work primarily at fellow literary critics; but as Poovey herself wonders in the passage cited above from her introduction, should those outside of this guild take the burgeoning body of work by new economic critics seriously?

Difficulties are certainly evident with the scope of Poovey?s book. While the range of her reading is impressive both in contemporary sources and in the more recent historiography both of social scientists and literary critics, there are notable omissions in her surveys of relevant literature. Moreover, at points she openly acknowledges not having completed her scholarly homework and assumes an alarmingly nonchalant attitude about not having done so. These issues surface when at points she fails to distinguish or at least elides the fields of economic history and the history of economic thought. This shows up in a particularly egregious manner in her introduction (pp. 9-10) in which she admits her inability to trace out the relationship between the modern discipline of economics and its nineteenth century precursors and blames this on the lack of interest of modern economists in the history of their discipline. She then states (p. 10), ?I can only hope that some day an economic historian will write a version of this history from the other side so that Literary scholars like myself can see how this discipline?s present informs the way we understand its past.? I presume that she means ?historian of economics? rather than ?economic historian? in this passage. Poovey clearly has done some reading in the history of economics and indeed even cites such standard works as Schumpeter?s History of Economic Analysis. I am not clear on what are the requirements for Poovey?s desired ?history from the other side? or why Schumpeter?s work or Mark Blaug?s less compendious Economic Theory in Retrospect or the Warren Samuels, Jeff Biddle, and John Davis edited Companion to the History of Economic Thought would not suffice. It would seem that Poovey simply ran out of energy in trying to master the history of economics as well as modern economics. So why undertake to write the parallel histories of economics and literary criticism from a modern perspective unless one is prepared to take on the admittedly formidable task of reading reasonably deeply in the comparison discipline as well as one?s own discipline? Later (p. 94) she claims that ?economic historians rarely consider Defoe?s writing at any length.? However, the works she cites to illustrate this are all histories of economics. No mention is made of early modern economic historian Peter Earle?s book entitled The World of Defoe.

Given Poovey?s focus on the rise of the credit economy, a particularly glaring omission from her bibliography is Anne Goldgar?s Tulipmania (2007), which provides particularly rich documentation of the psychological reactions and issues of trust and betrayal associated with the mid-seventeenth century Dutch tulip bubble. Perhaps Goldgar?s book came out too late for Poovey to incorporate it in her own analysis. In her discussion of the problem of monetary shortage no mention is made of the important study by Thomas Sargent and Francois Velde, The Big Problem of Small Change (Princeton, 2002).

Central parts of Poovey?s argument are often based on a complex and extensive secondary literature. While she does have her own distinctive take or twist in most of these instances, she frequently does not succeed in the space she has allotted in convincingly expounding the arguments and evidence in question. For example, her claim that money is simply one form of written literary genre comes across as a bit contrived in the 25 pages she devotes to it in comparison with Deborah Valenze?s book length study, The Social Life of Money in the English Past or Carl Wennerlind?s article ?Money Talks but What Is It Saying? Semiotics of Money and Social Control.? Poovey (p. 59) does acknowledge and cite extensively from Valenze?s work while arguing for her own greater emphasis on the role of other written genres in naturalizing money as a genre.

I found the organization and coverage of Poovey?s book rather fragmented and indeed cubist in nature; by cubist, I mean offering shifting perspectives on a given object rather than a cohesive, continuous overview. This may in large part reflect her unabashed use of the tools of literary criticism. Rather than attempting any sort of comprehensive or connected overview, Poovey picks and chooses particular works for intensive analysis. While her choices are intriguing, they also seem idiosyncratic. I was unaware before reading Poovey?s book of Thomas Bridges? Adventures of a Bank Note; and its premise of a banknote?s eye view of the world is interesting. However, it is less evident to me that this work is central to understanding eighteenth century literature on finance.

Although Genres of the Credit Economy considers examples of how the fields of economics and literary criticism treat the problematic of representation, at the end of the day it doesn?t really develop the comparisons and contrasts between them. This, in part, stems from the book?s cubist organization as it jumps back and forth between time periods and subject areas and genres without offering a developed concluding chapter that pulls together her take on how writing on finance and economics has dealt with the problematic of representation inherent in financial markets in comparison with how literary studies have done so.

Poovey?s book itself has the phrase ?mediating value? in its subtitle; at points she does take up the contrast between market value and aesthetic value. And she does note issues regarding the influence of market criteria on aesthetic values raised both by nineteenth century authors and subsequent critics; both groups of writers essentially employed aesthetic values to assess the workings of the market. Yet she does not consider work by economists that discuss the engagement between the market and the aesthetic, both using the market to evaluate aesthetics and the use of aesthetics to evaluate the market. Thus no mention is made of the work of David Galenson, among others, that uses art auction prices as a means of assessing relative artistic or aesthetic merit or the work of Tyler Cowen that argues that market forces of competition lead to cultural richness and diversity rather than bland homogeneity, as is commonly alleged. Nor does she consider arguments by Cowen (2008) regarding how literary works can provide fodder for developing economic models, nor Frank Knight?s claim that ?economics is a branch of aesthetics and ethics to a larger degree than of mechanics? (1935, p. 97) ? and she only briefly touches on the work by McCloskey regarding rhetorical forms in economic argument.

Poovey?s choice of end point for her study in the 1870s would seem to derive from her focus on the relationship between the problematic of representation and the rise of the credit economy. She argues that by the 1870s the field of economic theory had become differentiated from financial journalism. Both endeavors in her view served to naturalize how the credit economy deals with the problematic of representation ? financial journalism by providing familiarity and economic theory by providing the authority of the technical expert. In the meantime, imaginative writing and literary criticism had begun to develop its own distinctive approach to the problematic of representation through emphasizing elite aesthetic values over popular taste in literature.

However, by abruptly ending her account of disciplinary differentiation in the 1870s, it seems to me that Poovey forestalls consideration of important aspects of both continuity and change central to understanding evolving contrasts and relationships between the economic and literary fields of endeavor. One literary genre that has been persistently used by economists and writers on economics over the centuries as a means of reaching general audiences is the parable and its kindred, the fable and the allegory. She does give some mention to Daniel Defoe?s and Harriet Martineau?s use of the parable. Yet the continuity of this tradition would seem worthy of further consideration. She makes no mention of Mandeville?s Fable of the Bees (though she does give brief attention to Mandeville in History of the Modern Fact). And after taking up Martineau in the second interchapter, Poovey drops further consideration of this genre. But notable nineteenth century practitioners include Frederic Bastiat in France and more recently in the U.S. Paul Heyne and Russell Roberts, as well as the pseudo-nominal Angus Black and Marshall Jevons among others. (Richard Stern, the novelist, was invited to review Marshall Jevons? Fatal Equilibrium for the Journal of Political Economy under George Stigler?s editorship and Stern did not give it very high literary marks.) Perhaps Poovey?s focus on the financial sector accounts for her decision to treat this genre only briefly. However, Hugh Rockoff?s article on the Wizard of Oz as a monetary allegory and subsequent literature (Hansen 2002; Dighe 2002) suggests scope for literary critics to consider the persistence of this genre even with a narrower focus on financial and monetary matters.

The employment of the genres of the parable, fable, and allegory in economic writing raises the more general question of whether an examination of the relationship between economics and literature should focus on how each field has engaged with ethics, the nature of human happiness, politics, and social policy. It can be argued that increasing concerns to establish economics as a science, with strong empirical and formal foundations ? i.e., to distinguish economics from political economy on the one hand and to emphasize the importance of aesthetic, conceptual and formalistic concerns in the study of literature on the other ? have displaced or at least obscured an underlying concern with ethics and human well-being common to both economics and literary studies. These are issues of long standing pedigree (see for example the work of Frank Knight, Lionel Robbins, Matthew Arnold, Chris Baldick, Wayne Booth, and Deirdre McCloskey). While this theme is not given much consideration in Poovey?s book, it is a central focus in the book by Poovey?s student, Claudia Klaver, A/Moral Economics. However, many of the key developments in this regard in both disciplines seem to me to have occurred in the later nineteenth and early twentieth century as each became increasingly centered in academic institutions. Despite Poovey?s claim that it is common concern with the problematic of representation that leads to an inherent affinity between economics and literature, one might well think that the underlying architectonic discipline is ethics rather than economics or literary criticism despite intellectual imperialistic tendencies of each of these latter two disciplines. But Poovey?s 1870 cutoff for her study would seem to preclude examination of this issue.

Poovey?s take on the differentiation of economics and literary studies does allow for both external, societal influences and internal disciplinary considerations in both fields. However, it seems to me that she does put more emphasis on external social influences in the cases of economics and financial journalism than literary studies, casting British economists and financial journalists as running-dog lackey apologists for an emerging credit economy. One danger of genre analysis is that genres themselves become reifications based on overly rigid boundaries between fields of intellectual endeavor. One central issue she poses is the degree of specialization which has occurred not only between such broad spheres of endeavor as writing on economic affairs and imaginative literature but also within such spheres. One of the chief merits of Poovey?s study is bringing into play a rich array of ephemeral and journalistic publications in conjunction with more enduring classics of economic theory. Poovey?s underlying premise is the common presumption of the inevitability of increasing intellectual specialization. In her account, eighteenth century writers such as Defoe and Smith covered a broad range of topics even within a given work ? with Defoe in particular blurring the fact and fiction distinction in his coverage of financial affairs. Then in the early nineteenth century, in her view, work on economic theory came to be distinguished from writing aimed at popular audiences, in turn distinguished from coverage offered by financial journalists. Similarly, literary writers were increasingly concerned to emphasize the importance of distinctive aesthetic imperatives from those of the market for popular literature. In her concluding ?Coda,? she suggests that in the early twenty-first century, it is unusual for academic economists to produce work aimed at a general audience, citing in a footnote Steven Levitt?s Freakonomics and Robert Shiller?s Irrational Exuberance as exceptions, while it is even rarer in her reckoning for literary critics to write for general audiences.

However, taking the case of economics, it is of interest to consider longer term trends in the extent to which prominent economists have continued to cross the borders or even simultaneously engage in not only academic work on economics but also economic policy making, business endeavors, and writing aimed at student and general audiences, even if economists in general are not necessarily renaissance people. One can begin with the case of David Ricardo, who at various points in his career engaged in stock broking and service in Parliament as well as writing on economics. If Ricardo?s writing on economics was in some sense more intellectually specialized than Adam Smith?s, he was far more engaged than Smith in business and political endeavors. And although Poovey depicts William Stanley Jevons as emblematic of the narrowing of economics into a largely theoretical, mathematical, and university-centered discipline, she considers only his work on marginal utility and sun spot theory. She makes no mention of Jevons? influential policy-oriented publications including Methods of Social Reform, The State in Relation to Labour, and The Coal Question. And there is certainly a long line forward of prominent academic economists who have been active in policy circles as well as producing introductory textbooks and other literature aimed at general audiences such as Alfred Marshall, John Maynard Keynes, Paul Samuelson, and Milton Friedman. Currently Ben Bernanke?s introductory economics textbook is still in print and coming out in new editions while he serves as Federal Reserve chairman following his quite successful academic career at Princeton and another Princeton academic, Paul Krugman, the latest Nobel laureate in economics, is also an introductory textbook author, New York Times columnist, and television talking head ? to name just a couple of many possible current examples. And academic economists have also pursued financial ventures, as the notorious 1997 episode of Nobel-laureates Robert C. Merton?s and Myron Scholes? involvement in the Long-term Capital Management debacle illustrate. In other words, the increasing specialization of texts by genre does not necessarily reflect a corresponding specialization of the authors who write them. In the case of economics, one could explain some of this by the extensive market both for textbooks and popular economic commentary in contrast with, say, fine imaginative literature. Publishers, perhaps, have much stronger economic incentives to induce leading economists to produce introductory textbooks and work aimed at popular audiences than to do the same for literary critics. Books by Jacques Derrida, Michel Foucault, or Stanley Fish may not have the sales potential of those by Milton Friedman or Paul Krugman. But this still leaves the ongoing pattern of those who have pursued successful careers in both academic economics and economic policy-making from John Maynard Keynes to Lawrence Summers.

A parallel issue unexplored by Poovey and presumably occurring after her end period of the 1870s is the apparent increasing separation between those who write imaginative literature and those who produce criticism of it. The examples of literary criticism she cites in chapters 5 and 6 are primarily by those also engaged in imaginative writing such as Wordsworth, Coleridge, and Trollope. This raises the question of whether the divide between those who write imaginative literature and those who produce literary criticism has become wider than the gap between those who write on economic theory, those who craft economic policy, those who write economic journalism, and those who engage in financial affairs. And if this is the case, what accounts for the greater degree of specialization by those engaging in literary studies than in economic studies? Have the underlying ethical commitments of economists to social well being been stronger than those of more ivory tower literary critics? Although Poovey does not explore these issues, her mode of genre analysis should at least be credited for giving rise to them.

Poovey mentions J.R.McCullough?s activity as a book and pamphlet collector but omits consideration of those in subsequent generations who engaged in this activity. Some might infer that an increasingly analytical mind set resulted in the extinction of the economist bibliophile, although Poovey herself does not explicitly state this. However, W.S. Jevons, who in the eyes of literary scholars such as Claudia Klaver and Poovey had quite narrow analytical interests, in fact appears to have been a quite keen economics bibliophile. By Keynes? account, Jevons transmitted this bug onto the famed economics book collector and Cambridge economist, Herbert Foxwell. And Keynes himself was an avid antiquarian book collector (Keynes, Essays in Biography; Harrod, Life of Keynes). The importance of the book and pamphlet collector for establishing the dimensions of various intellectual realms and genres may warrant further consideration. Foxwell?s collections formed the basis for both the Goldsmith?s and Kress libraries and these collections have now entered electronically searchable cyberspace as the Making of the Modern World database. Keynes thought highly enough of Foxwell?s contributions to economic science as to pen a 23-page obituary for the Economic Journal on Foxwell?s demise in 1936.

Despite the limitations that I think are evident in Poovey?s book, the genre perspective she offers is worthwhile for pointing to alternative intellectual boundaries and for posing questions that may not readily occur to those working within the disciplines she considers. She usefully brings into play a rich array of contemporary and ephemeral literature bearing on economic and financial matters. And her notion of the fact-fiction continuum raises interesting issues about alternative relationships between evidence and theory. The new economic criticism more generally can be seen as providing economists and more specifically historians of economics and economic historians a means of addressing what could be called the Robert Burns problem: seeing ourselves as others see us. My own impression is that while historians of economics and economic historians have not totally ignored the new economic criticism, they have hardly embraced it with enthusiasm. Offsetting any inclination to welcome those with an interest in one?s own subject matter, are likely primordial instincts to defend professional turf boundaries and claims of scholarly expertise. Furthermore, I suspect that much of the new economic criticism is grounded in an ideological outlook that some historians of economics would perceive as uncongenial. Thus Poovey in her concluding Coda (p. 419) refers to ?the longing for an alternative to the market model.? The extent and complexity of this body of work is a further reason for outsiders to neglect it; the new economic criticism, at least from this reviewer?s limited experience, is not an easy read yet there seems lots of it to process before one can claim to have much sense of it. Nevertheless, the new economic criticism probably does deserve further attention by historians of economics and economic historians. As Robert Burns reminds, seeing ourselves as others see us can free us from many a blunder and foolish notion as we become more aware of the louses crawling on our own bonnets.

References:

Matthew Arnold (1869), Culture and Anarchy.

Chris Baldick (1983), The Social Mission of English Criticism 1848-1932, Oxford: Clarendon Press.

Frederic Bastiat (1845), ?The Candle Makers? Petition,? Economic Sophisms.

Mark Blaug (1997), Economic Theory in Retrospect (fifth edition), Cambridge: Cambridge University Press.

Wayne C. Booth (1988), The Company We Keep: An Ethics of Fiction, Berkeley: University of California Press.

Angus Black (1970), A Radical?s Guide to Economic Reality, New York: Holt, Rinehart & Winston.

Angus Black (1971), A Radical?s Guide to Self-Destruction. New York: Holt, Rinehart, & Winston.

Thomas Bridges (1770-71), Adventures of a Banknote (four volumes). Reprint: New York: Garland, 1975.

Robert Burns (1786), ?To a Louse: On Seeing One On a Lady?s Bonnet, At Church.?

Tyler Cowen (2000), In Praise of Commercial Culture, Cambridge: Harvard University Press.

Tyler Cowen (2004), Creative Destruction: How Globalization Is Changing the Worlds? Cultures, Princeton: Princeton University Press.

Tyler Cowen (2008), ?Is a Novel a Model? in Sandra J. Peart and David M. Levy eds. The Street Porter and the Philosopher: Conversations on Analytical Egalitarianism, Ann Arbor: University of Michigan Press.

Ranjit Dighe (2002), The Historian?s Wizard of Oz: Reading L.Frank Baum?s Classic as Political and Monetary Allegory, Westport, CT: Praeger Publishers.

Peter Earle (1977), The World of Defoe, New York: Atheneum.

Robert Frank and Ben Bernanke (2008), Principles of Macroeconomics, New York: McGraw-Hill/Irwin.

David Galenson (2001), Painting Outside the Lines: Patterns of Creativity in Modern Art, Cambridge: MA: Harvard University Press.

Anne Goldgar (2007), Tulipmania: Money, Honor, and Knowledge in the Dutch Golden Age, Chicago: University of Chicago Press.

Bradley Hansen (2002), ?The Fable of the Allegory: tThe Wizard of Oz in Economics,? Journal of Economic Education, 33 (3): 254-64.

Roy Harrod (1951), The Life of John Maynard Keynes, London: Macmillan.

Paul Heyne (1973), The Economic Way of Thinking, Chicago: Science Research Associates.

Margaret Jacob (2001), ?Factoring Mary Poovey?s A History of the Modern Fact,? History and Theory, 40 (May): 280-89.

Marshall Jevons (1985), The Fatal Equilibrium, Cambridge, MA: M.I.T. Press

William Stanley Jevons (1866), The Coal Question: An Enquiry Concerning the Progress of the Nation and the Probable Exhaustion of Our Coal-mines, London: Macmillan.

William Stanley Jevons (1882), The State in Relation to Labour, London: Macmillan.

William Stanley Jevons (1883), Methods of Social Reform and Other Papers, London: Macmillan.

John Maynard Keynes (1936), ?William Stanley Jevons,? Journal of the Royal Statistical Society.

John Maynard Keynes (1936), ?Herbert Somerton Foxwell,? Economic Journal. Reprinted in The Collected Writings of John Maynard Keynes. Vol.X, Essays in Biography, London: MacMillan St. Martin?s Press.

Claudia C. Klaver (2003), A/Moral Economics: Classical Political Economy and Cultural Authority in Nineteenth-Century England, Columbus: Ohio State University Press.

Frank Knight (1935), ?The Ethics of Competition.? Reprinted in The Ethics of Competition and Other Essays, New York: Harper.

Frank Knight (1935), ?Economic Psychology and the Value Problem.? Reprinted in The Ethics of Competition and Other Essays, New York: Harper.

Paul Krugman and Robin Wells (2009), Macroeconomics (second edition), Worth Publishing.

Steven Levitt and Stephen J. Dubner (2005), Freakonomics: A Rogue Economist Explores the Hidden Side of Everything, New York: Harper Collins.

Making of the Modern World: The Goldsmith?s-Kress Library of Economic Literature/ Cengage Learning.

Bernard Mandeville (1924), Fable of the Bees: or, Private Vices, Publick Benefits (With a Commentary Critical, Historical, and Explanatory by F.B.Kaye), Oxford: Clarendon Press.

Deirdre McCloskey (2006), The Bourgeois Virtues: Ethics for an Age of Commerce, Chicago: University of Chicago Press.

Donald McCloskey (1985), The Rhetoric of Economics, Madison: University of Wisconsin Press.

Mary Poovey (1998), A History of the Modern Fact: Problems of Knowledge in the Sciences of Wealth and Society, Chicago: University of Chicago Press.

Lionel Robbins (1932), An Essay on the Nature and Significance of Economic Science, London: Macmillan.

Russell Roberts (2002), The Invisible Heart: An Economic Romance, Cambridge, MA: M.I.T. Press.

Russell Roberts (2006), The Choice: A Fable of Free Trade and Protectionism (third edition), Prentice Hall.

Russell Roberts (2008), The Price of Everything: A Parable of Possibility and Prosperity. Princeton: Princeton University Press.

Hugh Rockoff (1990), ?The Wizard of Oz as a Monetary Allegory,? Journal of Political Economy 98 (4): 739-60.

Warren J. Samuels, Jeff E. Biddle, John B. Davis, editors, (2003), A Companion to the History of Economic Thought, Malden, MA: Blackwell Publishing.

Thomas J. Sargent and Francois R. Velde (2002), The Big Problem of Small Change, Princeton: Princeton University Press.

Joseph Schumpeter (1954), History of Economic Analysis, London: Allen and Unwin.

Robert J. Shiller (2000), Irrational Exuberance, Princeton: Princeton University Press.

Richard G. Stern (1986), ?Review of The Fatal Equilibrium by Marshall Jevons,? Journal of Political Economy 94 (3): 683-84

Deborah Valenze (2006), The Social Life of Money in the English Past, Cambridge: Cambridge University Press.

Carl Wennerlind (2001), ?Money Talks, But What Is It Saying? Semiotics of Money and Social Control,? Journal of Economic Issues 35 (3): 557-74.

Martha Woodmansee and Mark Osteen, editors (1999), The New Economic Criticism: Studies in the Intersection of Literature and Economics, London: Routledge.

David Mitch is Professor of Economics, University of Maryland, Baltimore County (email: mitch@umbc.edu). He is the author of ?Market Forces and Market Failure in Antebellum American Education: A Commentary? Social Science History (Spring, 2008). He is currently revising an essay on ?Chicago and Economic History? for the forthcoming Elgar Companion to the Chicago School of Economics and is also working on high stakes educational testing in Victorian England.

Subject(s):Social and Cultural History, including Race, Ethnicity and Gender
Geographic Area(s):Europe
Time Period(s):19th Century

Information Revolutions in the History of the West

Author(s):Dudley, Leonard
Reviewer(s):Jones, Eric

Leonard Dudley, Information Revolutions in the History of the West. Cheltenham, UK: Edward Elgar, 2008. xi + 347 pp. $150 (cloth), ISBN: 978-1-84720-790-6.

Reviewed for EH.NET by Eric Jones, Melbourne Business School.

Leonard Dudley, a Canadian now at the University of Montreal, once formalized part of Harold Innis?s work on the role of communications in the history of empire. In his current book, Dudley (in part with co-authors) tries to isolate the effects of information revolutions in the whole grand sweep of the history of the Western World. This project is worthy of Innis and is a logical one for our time, when changes in IT and their societal impacts are so visible. Others have been nibbling at the cherry but Dudley has been left plenty to investigate.

A full 85 percent of Information Revolutions is devoted to nine episodes where the proposition is that new technologies, including developments like the standardization of languages and scripts, were followed by rapid changes in society, politics and economics. The author does not assert outright that the inventions and their diffusion caused the wide changes that followed but he obviously thinks this was the case. The nine episodes center on the following phenomena: the consolidation of the Carolingian empire, the Norman Conquest, the impact of Lutheranism, the fall of Charles I, the Reform Bill of 1832, the American Civil War, the Spanish-American War, the entry of the United Kingdom into the First World War, and a supposed link between the dissolution of the USSR and the fall of the Twin Towers. Each of these events is recounted in well-informed, well-documented and well-presented detail. Their precursors and the historical context tend to get more space than the consequences.

Most readers will learn a great deal from these sections, since few will be familiar with every episode. The accounts of the Spanish-American War, of Alfred Harmsworth and his mass production of debased newspapers, and of the Cold War seem the most compelling, despite the fact that the last two are much the most familiar among the cases. Yellow journalism is always fun to read about, though it is unclear just how much we should glory in the spread of literacy (exaggerated, by the way, in the figures Dudley cites) if its crowning achievement is an ability to read the tabloids. Education, judgment and literacy are different things. Any hesitation with which the reader may be left will not, however, concern the narratives but be a faint uncertainty as to why this, rather than some other set of cases, has been selected. Dudley?s answer will be plain: the examples serve as well as any to demonstrate the recurrent force of richer mixes of information.

A slightly greater hesitation may attach to the dramatizing nature of the expositions. Each invention, and its dissemination, is portrayed as rupturing the historical continuum. The thought may arise in the skeptical mind that the economy was often reshaped by less discontinuous change. For example, Yrjo Kaukaninen has shown (European Review of Economic History, 2001) how the transmission of information was being speeded up in the early nineteenth century, before the introduction of the electric telegraph. Dudley gives a lot of space, more conventionally, to Morse and pays special attention to the fact that Grant used the telegraph for coordinating simultaneous attacks on the Confederacy. Kaukianinen presents the argument for less punctuated change, involving broad front improvement via mail coach connections followed by railways, and sailing packets followed by steamships, with the result that more days were saved on most routes between 1820 and 1860 than after the adoption of the telegraph. Although the subject has not hitherto received proportionate scrutiny no one doubts that IT has repeatedly made a big difference to the world, but it remains a tad moot whether Dudley?s emphasis on revolutions is always warranted.

One difficulty with jump-starting history by means of new technologies is that on their own the devices remain inert. Something, or rather somebody, has to put them into the productive system: innovation trumps invention. Hence if we consider the example of Gutenberg?s printing press, we find Dudley makes the large claim that it began to generate a new type of society in early seventeenth-century Britain. This proposition follows the line to which he hews throughout ? that new information technologies spark off great social, political and economic changes. Yet if the printing press were so potent why had it not already succeeded in remolding the societies of China, Japan and Korea? Special interests and the political order muzzled the effects there. New technologies may be necessary conditions for certain types of change but they are not sufficient ones. Dudley is well aware of the significance of processes of diffusion and devotes half his space to them but does not pay much attention to contrary cases.

He frames the consequences of novel technologies in terms of network effects and economies of scale in information storage. The insistence that each episode supports his contention that IT necessarily has a revolutionary impact, as opposed to playing one important role among many in complex processes, is less easy to concede. When he introduces reports of two cruel psychological experiments which, he asserts, altered group behavior in ways analogous to the effects of IT, I am unpersuaded. The analogies are strained and seem mainly to demonstrate the fact that team sports inculcate violence. The historical narratives in this book, on the other hand, are exceptionally worth reading for their own sake.

Eric Jones is Professorial Fellow, Melbourne Business School, and Visiting Professor, University of Exeter. He is the author of The European Miracle (Cambridge University Press, third edition, 2003) and Cultures Merging: A Historical and Economic Critique of Culture (Princeton University Press, 2006).

Subject(s):Military and War
Geographic Area(s):North America
Time Period(s):Medieval

Free Trade Nation: Commerce, Consumption and Civil Society in Modern Britain

Author(s):Trentmann, Frank
Reviewer(s):Cain, Peter J.

Published by EH.NET (October 2008)

Frank Trentmann, Free Trade Nation: Commerce, Consumption and Civil Society in Modern Britain. Oxford: Oxford University Press, 2008. xiv + 450 pp. ?25/$50 (cloth), ISBN: 978-0-19-920920-0.

Reviewed for EH.NET by Peter J. Cain, Department of History, Sheffield Hallam University.

In discussions and analyses of trade regimes in Britain from the late nineteenth century through to the 1930s, protectionist campaigns have hogged most of the attention of historians and free trade ? the ruling regime before the 1930s ? has been relatively neglected. For that reason alone, Frank Trentmann?s account of free trade and its supporters would be a welcome addition to the literature: the bonus is that author, Professor of History at Birkbeck College in London University, has not only added a great deal to our knowledge through painstaking research but has written about it with verve and energy and produced a most readable volume on a subject that can be very dull indeed.

Trentmann?s case is that support for free trade in Edwardian Britain did not mainly rely on calculations of interest, though he does not totally ignore that, but was driven by a highly emotional, even passionate, commitment akin to nationalist or religious fervor, and was seen by its advocates as a crucial element in defining what they thought of as Britishness. He admits that around 1900 the free trade movement was in poor shape as foreign manufactured imports mounted and foreign tariffs rose, and that some form of protectionism was being discussed even at government level. Chamberlain?s tariff campaign starting in 1903 changed all that. Faced with a clear and open challenge, the free trade cause gathered an astonishing momentum which swept the previously ailing Liberal party into office in 1906 and helped to keep them there through two further elections. Masterminded by the Free Trade Union (which, ironically, learned much from its rival the Tariff Reform League) the electorate was aroused by a campaign of propaganda that successfully associated protection with poverty by reminding the nation of the ?Hungry Forties? when protection had last held sway. The free traders also succeeded in accusing protectionists of attempting to revive an oppressive state; of undermining free trade?s natural tendency to bring peace through economic interdependence; and of serving the interests of a minority of landed and business elites whom they branded as selfish vested interests, intent on creating monopolies and cartels that would exploit the majority of the nation. As Trentmann acutely notes, the campaign had a great effect in politicizing women as key consumers and, more widely, in putting consumers? interests at the center of policy, something that anticipates many modern political movements. All this made for a very lively politics that sometimes erupted into violence and which led to extraordinary organizational developments, such as the great series of lectures and entertainments that the FTU took to the seaside towns of Britain.

After 1914, that momentum proved increasing hard to sustain. The war shook faith in laisser-faire and made state control and big business seem much more natural. Under state auspices, some protection was introduced to regulate imports and ensure that they served the cause of winning the war: free trade thus began to appear as a policy that ministered to individual needs rather than to the national interest. That encouraged the idea of ?safeguarding? key industries after the war in case conflict should erupt again; and the much higher unemployment rates in the 1920s also undermined the long-held idea that free trade naturally meant prosperity. Again, the rise of nutritional science meant that more stress was placed on health and the need for the state to improve it, rather than on the ?cheapness? lauded by free traders that now began to seem synonymous with undernourishment and poverty. Moreover, free trade had clearly failed to keep the peace internationally and radicals who had once been fervent Cobdenites were thinking, by the 1920s, much more of the need for international organizations like the League of Nations to regulate international intercourse rather than relying on the invisible hand of the market. As visions of world peace and prosperity under free trade were challenged, empire increased in appeal and, naturally enough, greater stress was placed on the need to bind the empire to Britain through tariffs. All this served to undermine the great cultural movement that had transformed the Edwardian political scene and by the time the world economy began to collapse in the early 1930s, free trade was viewed not as the cement binding the nation together but as the belief of a relatively few staunch individualists who were out of touch with the times.

There is far more in this fine book than can be represented here and Trentmann makes a powerful case for his interpretation of the evidence. It may be, however, that he underestimates the fragility of the commitment to free trade before 1914, thus making its decline in the 1920s seem more precipitous than it was. Trentmann recognizes that Chamberlain was a godsend to free traders but he does not say enough about how easy he made it for them. Firstly, he split the Conservative party thus making it impossible for them at the 1906 election; secondly, in highlighting imperial preference he failed to garner the level of support that a more wholehearted commitment to domestic protection would have given. It may be true, as Trentmann contends, that effective organization by free traders was crucial to victory in the 1910 elections: but it is still the case that the Liberals only won the two elections of that year by a whisker, despite the fact that protectionism was still hobbled by disunity. Protectionists were also unlucky in their timing: Chamberlain launched his campaign just at the beginning of the long Edwardian boom. Support for protection increased sharply in the brief downturn of 1908-09, and if economic times had been harder free trade might have disappeared sooner. If this is so, it may put in question the depth of the moral commitment to free trade that Trentmann lays such stress upon. It may also suggest the need for a counterbalancing reinvestigation of the importance of interest in maintaining free trade before 1914 and in undermining it after that date.

Peter J. Cain is Professor of History at Sheffield Hallam University, UK. E-mail: p.j.cain@shu.ac.uk He is the author of Hobson and Imperialism: Radicalism, New Liberalism and Finance, 1887-1938 (Oxford, 2002).

Subject(s):Social and Cultural History, including Race, Ethnicity and Gender
Geographic Area(s):Europe
Time Period(s):20th Century: Pre WWII

Herbert Hoover, Unemployment, and the Public Sphere: A Conceptual History, 1919-1933

Author(s):Gaddis, Vincent
Reviewer(s):Reagan, Patrick D.

Published by EH.NET (September 2008)

Vincent Gaddis, Herbert Hoover, Unemployment, and the Public Sphere: A Conceptual History, 1919-1933. Lanham, MD: University Press of America, 2005. xxix + 180 pp. $36 (paperback), ISBN: 978-0-7618-3235-5.

Reviewed for EH.NET by Patrick D. Reagan, Department of History, Tennessee Technological University.

In this suggestive, yet flawed, study Benedictine University historian Vincent Gaddis calls for reexamination of the unemployment policies of Herbert C. Hoover, Secretary of Commerce and President of the United States, between 1921 and 1933. Using the theoretical approach of German scholar Jurgen Habermas, Gaddis argues that Hoover manipulated the role of the American public in this period to impose his view of a limited voluntarist state on the broader society through the intermediate institutions of municipal government, business, labor, and urban charities in response to the depression of 1920-1921.

Gaddis deploys an abundance of research from the wealth of materials in the Secretary of Commerce and presidential papers at the Hoover Library in West Branch, Iowa to put Hoover at center stage in the public policy formulations of the 1920?s. In a brief introductory chapter on the conceptual challenge of making sense of Hoover?s ideas, Gaddis stresses the interrelationship among Hoover?s ideological values of individual virtue, preservation of liberty through a limited state, and the significance of voluntary action by local governments and private sector actors for public policy making implemented through the work of the President?s Conference on Unemployment of 1921. In the wake of what this reviewer has termed ?the forgotten depression of 1920-1921,? newly-appointed Secretary of Commerce Hoover created a series of follow up committees to investigate the issues of unemployment, the business cycle, seasonal unemployment in the construction industries, and industrial disputes.[1] Gaddis summarizes the work and impact of the conference, Hoover?s voluntarist views of political economy, and Hoover?s efforts to stabilize the coal industry in the 1920?s in separate chapters. In chapters 4 through 6, the most insightful and thoroughly research section of the work, Gaddis presents a sophisticated historical narrative focused on the work of the municipal committees on unemployment in the three key Midwestern cities of Chicago, Milwaukee, and Detroit. Gaddis draws on research in personal manuscript collections, municipal records, local and state historical societies, printed autobiographies and biographies, and city newspapers to fill in the picture of how the Hooverian response to the immediate crisis of unemployment in 1921 played out on the local level. Following recommendations of the Unemployment Conference for local and private-sector based responses to rising unemployment in 1921-1922, Republican machine mayor ?Big Bill? Thompson and Democratic successor William Dever in Chicago, socialist mayor Daniel Hoan in Milwaukee, and progressive Republican mayor James Couzens of Detroit roughly adhered to Hoover?s voluntarist policies in attempting to bring relief to the unemployed.

Yet, once the Great Depression of 1929-1941 began, voluntarism proved much too little and way too late. Traditional sources of local funding for relief such as food, housing subsidies, and limited health care were used up quickly. Little direct relief in the form of cash, known as ?the dole,? was available. Between 1929 and 1933, President Hoover desperately sought to hold on to voluntarist precepts through the work of the President?s Emergency Committee for Employment (1930-1931), the President?s Organization for Unemployment Relief (1931-1932), and, reluctantly, the new Reconstruction Finance Corporation (1932). During the same period, mayors Anton Cermak in Chicago, Daniel Hoan in Milwaukee, and Democrat Frank Murphy in Detroit mouthed voluntarist rhetoric while moving toward increasingly statist policies such as unemployment insurance and federal and direct relief as local charities, businesses, and municipal relief committees experienced a growing gap between their resources and the number and needs of the unemployed. In the penultimate and final chapters, Gaddis traces in detail Hoover?s growing divergence from socioeconomic reality and the city mayors? pragmatic moves toward the post-1933 social welfare state.

Unfortunately, the work is riddled with mistakes in grammar, spelling, and footnote citations that distract the reader?s attention from an otherwise valuable contribution to the historical literature on Hoover as Secretary of Commerce, public policy making in the Republican-dominated 1920?s, and the Hoover presidency. Throughout the text, conjunctions and prepositions that should appear remain missing. Some names appear in two spellings (e.g. Otto Mallery and Otto Mallory). Footnote numbers appear in mixed formats as regular, italicized, and superscript types. Two footnotes numbered 16 appear on pages xxiv and xxv. Chapter 3 with forty-nine footnotes at the end contains only one numbered footnote in the text (p. 53). One footnote on page 108 refers to notes 1 and 2 simultaneously. Whether through poor proofreading or lack of copy editing, this work reflects poorly on the author?s detailed research and careful thinking of an important topic in need of clarity and historical perspective. Production values, while not uppermost in a reader?s mind, do count.

More significantly, Gaddis appears unaware of key works such as Evan Metcalf?s study of Hooverian macroeconomic policy making, Ellis Hawley?s studies of Hoover?s coal stabilization work and Hoover?s use of the National Bureau of Economic Research, Guy Alchon?s Habermas-influenced analysis of Hoover?s policies throughout the period, and this author?s explication of the Hooverian committee and conference system bolstered by the work of the National Bureau of Economic Research and the financial support of national philanthropic foundations.[2] While Gaddis finally ties together many of his insights in the conclusion, this final chapter should have served as the introduction. Not only did Hoover and members of the newly reorganized Department of Commerce engage in a host of policy making ventures in the 1920?s, other people and institutions participated as well such as business groups including the National Civic Federation, the U.S. Chamber of Commerce, and local business associations. So too did the Taylor Society, locally-grounded firms, and individual New Era business leaders some have termed ?corporate liberals.?[3] Aware of the role of organized philanthropy in the Hooverian networks emerging from the Unemployment Conference of 1921, Gaddis points to the work of the Russell Sage Foundation, which played a minor part, while he ignores significant funding by the Laura Spelman Rockefeller Memorial, the Carnegie Corporation, and the Rockefeller Foundation. Rich primary sources exist for study of the part these second-generation philanthropies took in the Hooverian planning efforts throughout the decade as well as the capstone, landmark studies on Recent Economic Changes (1927) and Recent Social Trends (1933).[4] Unlike other revisionist works on Hoover?s ideology of voluntarism, his leadership of the President?s Conference on Unemployment of 1921 and its ensuing committee system, and the failure of President Hoover?s relief policies in the early 1930?s, Gaddis?s research shows us how and why the voluntarist response to the postwar crisis of 1921 set the tone, example, and model for Hoover?s later responses to the Great Depression. While the forgotten depression of 1920-1921 proved to be the sharpest economic downturn since the emergence of the business cycle in the early nineteenth century, it also was one of the shortest reversals. Hoover and his disciples along with city mayors, local business leaders, and local charities thought their response to rising unemployment worked in 1921-1922, so they quite understandably tried to use it again in the 1929-1933 period. In what Boston business leader and Hoover supporter Henry S. Dennison called ?the slowly sucking maelstrom? of the Depression, voluntarism reached its limits. The American people turned to Franklin Delano Roosevelt and the statist-oriented New Deal, leaving Herbert Clark Hoover and the voluntarist New Era behind. Still, when Franklin Roosevelt appointed the only national planning agency in U.S. history in July 1933, all of its members were veterans of the Hooverian experiments of the 1920?s.

Notes:

1. Patrick D. Reagan, ?From Depression to Depression: Hooverian National Planning, 1921?1933,? Mid-America 70 (1988): 35-60.

2. Evan Metcalf, ?Secretary Hoover and the Emergence of Macroecoomic Management,? Business History Review 49 (1975): 60-80; Ellis W. Hawley, ?Secretary Hoover and the Bituminous Coal Problem, 1921-1928,? Business History Review 42 (1968): 247-270; Ellis W. Hawley, ?Economic Inquiry and the State in New Era America: Anti-Statist Corporatism and Positive Statism in Uneasy Coexistence,? in The State and Economic Knowledge: The American and British Experiences, eds. Mary O. Furner and Barry Supple (New York: Woodrow Wilson International Center for Scholars and Cambridge University Press, 1990), pp. 287-324; Guy Alchon, The Invisible Hand of Planning: Capitalism, Social Science, and the State in the 1920?s (Princeton: Princeton University Press, 1985); Patrick D. Reagan, Designing a New America: The Origins of New Deal Planning, 1890-1943 (Amherst: University of Massachusetts Press, 2000); and Michael A. Bernstein, A Perilous Progress: Economists and Public Purpose in Twentieth-Century America (Princeton: Princeton University Press, 2001), pp. 53-58.

3. Ellis W. Hawley, ?The Discovery and Study of a ?Corporate Liberalism?,? Business History Review 52 (1978): 309-20; Robert F. Himmelberg, The Origins of the National Recovery Administration: Business, Government, and the Trade Association Issue, 1921-1933 (New York: Fordham University Press, 1976); Robert F. Himmelberg, ?Government and Business, 1917-1932: The Triumph of Corporate Liberalism?? in _Business and Government: Essays in Twentieth-Century Cooperation and Conflict, eds. Joseph R. Frese and Jacob Judd (Tarrytown, NY: Sleepy Hollow Press, 1985), 1-23; and Essays in Business-Government Cooperation, 1917?1932 : The Rise of Corporatist Policies, ed. Robert F. Himmelberg (New York: Garland Publishing, 1994), Volume 5 in Business and Government in America Since 1870: A Twelve Volume-Anthology of Scholarly Articles.

4. For a sampling of works based on philanthropic records, see Barry D. Karl and Stanley N. Katz, ?The American Private Philanthropic Foundation and the Public Sphere, 1890?1930,? Minerva 18 (Summer 1981): 236-270; Robert Arnove, ed., Philanthropy and Cultural Imperialism: The Foundations at Home and Abroad (Boston: G.K. Hall, 1980); Jack Salzman, ed., Philanthropy and American Society: Selected Papers (New York Columbia University Press/Center for American Studies, 1987); Donald Fisher, Fundamental Development of the Social Sciences: Rockefeller Philanthropy and the United States Social Science Research Council (Ann Arbor: University of Michigan Press, 1993); and Ellen Condliffe Lagemann, ed., Philanthropic Foundations: New Scholarship, New Possibilities (Bloomington: Indiana University Press, 1999) .

Patrick D. Reagan is author of Designing a New America: The Origins of New Deal Planning, 1890-1943 (Amherst: University of Massachusetts Press, 2000); American Journey: World War I and the Jazz Age (Farmington Hills, MI: The Gale Group/ Primary Source Microfilm, 2000); editor of and contributor to Voluntarism, Planning, and the State: The American Planning Experience, 1914-1946 (Westport, CT: Greenwood Press, 1988); and contributor of essays on planning and several economists in Encyclopedia of the Great Depression, ed. Robert S. McElvaine (New York: Macmillan Reference USA, 2003), 2 volumes.

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

Trade in Classical Antiquity

Author(s):Morley, Neville
Reviewer(s):Temin, Peter

Published by EH.NET (June 2008)

Neville Morley, Trade in Classical Antiquity. Cambridge: Cambridge University Press, 2007. xiv + 118 pp. $30 (paperback), ISBN: 978-0-521-63416-8.

Reviewed for EH.NET by Peter Temin, Department of Economics, MIT.

This book is one of Cambridge University Press’s series of Key Themes in Ancient History. These brief books are designed to introduce various topics of ancient history to graduate students and interested laypeople alike. They presuppose little professional knowledge of the topic and provide an overview of the state of knowledge. The books have single authors, and they express the opinions of the authors more than a typical text.

Morley is a distinguished ancient historian, and this book fits the general pattern. It provides a summary view of trade in the ancient world, but the average economic historian needs a reader’s guide to extract this information. The problem is that Morley feels obliged to introduce his book with two chapters on methodology that easily will put off the non-ancient historian. In his words, “The aim of this book is not to offer a chronological history of the development of trade and commerce or to draw up lists of the goods that were traded between regions, but to identify the different structures ? physical, social, ideological ? that shaped the distribution of goods and the practices of exchange across the ancient world” (p. 15).

My advice to readers of this review is to skip the first two chapters and start reading at Chapter 3. The rest of the book will repay a careful read. Morley argues in Chapter 3 that the distinction between luxuries and necessities is culturally determined. You cannot decide which is which without knowing the culture of the trading people. Since ancient peoples of whom we know lived above biological subsistence, part of their consumption was devoted to culturally-determined goods, that is, goods that established their place in the local hierarchy. Chapter 4 is devoted to the institutions of trade, revealing the impact that Doug North has had on ancient history. This material is covered also in Kessler and Temin (2007), which apparently was not visible to Morley.

Morley confronts the morality of traders in Chapter 5. He argues that most ancient traders and office holders were law abiding in the modern sense. Just as today most contracts are honored without the intervention of a court, so Morley says ancient people dealt with each other on a trusting basis. Since law enforcement is expensive, this is a very important point, and Morley raises but does not answer the question of where this morality comes from. Perhaps that should be the topic of another book in this series. In the sixth and final chapter, Morley assesses the extent of what he calls “ancient globalization.”

One problem for the modern economic historian is Morley’s practice of hopping back and forth between Classical Greece and Republican Rome. These two venues were separated by time and ? more importantly ? scale. In modern terms, Athens was a small open economy, while Rome was the largest economy in the ancient world. Small and large countries differ even today, and we might infer that there were differences then too. This question does not appear to have occurred to Morley.

Another problem is Morley’s ambivalent attitude toward globalization. On the one hand, he says, “Farmers were never wholly isolated from society or wholly divorced from the market” (p. 45). On the other hand, he argues in Chapter 6 that globalization was severely limited by poor technology in transportation and information transmission. Morley does not appear to have a way to resolve this issue. Fortunately, two recent papers help to resolve this puzzle. Both papers were the outcomes of Harvard senior theses in economics.

Geraghty (2007) argues that the extension of Roman trade across the Mediterranean led Roman farmers to shift out of wheat into wine and truck farming for the neighboring city of Rome. This paper complements and extends Morley’s analysis of Roman farming in his 1996 book. Kessler and Temin (2008) show that Roman trade was so extensive that there was a single monetary system and a single wheat market across the whole Mediterranean Sea. Wheat prices were highest in the center of consumption, the city of Rome, and fell with the distance from Rome. While Morley’s new book is a worthy addition to the Key Themes series, I recommend that readers of this review start with the articles I have mentioned here and continue on to Morley if they want more evidence.

References:

Geraghty, Ryan M., “The Impact of Globalization in the Roman Empire, 200 BC – AD 100,” Journal of Economic History 67 (December 2007): 1036-61.

Kessler, David, and Peter Temin, “The Organization of the Grain Trade in the Early Roman Empire,” Economic History Review 60 (May 2007): 313-32.

Kessler, David, and Peter Temin, “Money and Prices in the Early Roman Empire” in William V. Harris, editor, The Monetary Systems of the Greeks and Romans (Oxford: Oxford University Press, 2008): 137-59.

Morley, Neville, Metropolis and Hinterland: The City of Rome and the Italian Economy, 200 BC – AD 200 (Cambridge: Cambridge University Press, 1996).

Recent articles by Peter Temin include “The Economy of the Early Roman Empire,” Journal of Economic Perspectives (2006); “Interest Rate Restrictions in a Natural Experiment: Loan Allocation and the Change in the Usury Laws in 1714″ (with Joachim Voth), Economic Journal, forthcoming; and “The German Crisis of 1931: Evidence and Tradition,” Cliometrica, forthcoming.

Subject(s):International and Domestic Trade and Relations
Geographic Area(s):Middle East
Time Period(s):Ancient

Adam’s Fallacy: A Guide to Economic Theology

Author(s):Foley, Duncan K.
Reviewer(s):Waterman, A. M. C.

Published by EH.NET (November 2007)

Duncan K. Foley, Adam’s Fallacy: A Guide to Economic Theology. Cambridge MA: Harvard University Press, 2006. xvii + 265 pp. $26 (cloth), ISBN: 978-0-674-02729-9.

Reviewed for EH.NET by A. M. C. Waterman, St John’s College, Winnipeg.

Presumably this book was sent to me for review because of its sub-title. I am sorry to report, therefore, that it contains no theology whatsoever. Its author, who is Leo Model Professor of Economics at the New School for Social Research, uses the word pejoratively to label a way of thinking about economics that he finds objectionable on moral grounds. That way of thinking is “the idea that is it possible to separate an economic sphere of life, in which the pursuit of self-interest is guided by objective laws to a socially beneficent outcome, from the rest of social life, in which the pursuit of self-interest is morally problematic” (p. xiii). Seemingly unaware of the work of Gilbert Faccarello (1999) on Boisguilbert and the latter’s background in Jansensist theology, Duncan Foley attributes this doctrine to Adam Smith and calls it “Adam’s Fallacy.”

After a Preface which states the theme, the book contains six chapters: “Adam’s Vision” on Smith and Wealth of Nations (45 pages); “Gloomy Science” which treats Malthus and Ricardo (41 pages); “The Severest Critic” on Marx (69 pages); “On the Margins,” chiefly about Jevons, Menger and J. B. Clark, with an endnote on Veblen (22 pages); “Voices in the Air” on Keynes with brief mention of Hayek and Schumpeter (34 pages); and “Grand Illusions,” which is a summing up (18 pages). These are followed by 14 pages of appendices on technical matters. It is apparent that two-thirds of this text concerns four canonical authors of the so-called “English School” ? Smith, Malthus, Ricardo and Marx ? followed by a mere 9 percent on what now constitutes the core of economic theory, and another 15 percent on Keynes and two of his contemporaries. The book might almost be called “Political Economy of the English School with an Epilogue” ? except that it totally ignores the most influential single author of that “school,” John Stuart Mill. The dust-jacket calls this “The Intelligent Person’s Guide to Economics”: which implies that the intelligent person will skip almost everything of importance that has happened in our discipline over the past one hundred years.

Foley’s favorite chapter, upon which he lavishes most care and in which he exhibits most scholarship, is that on Marx. With one exception to be noted below, the exposition is careful, lucid and balanced, and this chapter could be recommended to anyone wanting a readable introduction to what Marx’s political economy was about.

The same can hardly be said for chapters 1 and 2. For though these too contain many valuable insights it is all too obvious that Foley has not kept up his reading of the vast and expanding secondary literature on Smith, Malthus and Ricardo. This is most evident in his treatment of Smith and Malthus. There is no understanding of the relation between “labor-embodied” and “labor-commanded” prices; no awareness that Smith’s “natural wages” are dynamic equilibrium outcomes determined by the rate of accumulation; no recognition that the primitive supply-and-demand apparatus of Smith and Malthus is what eventually “won out” (as Schumpeter put it) over the labor theory of value (LTV); and no acknowledgement that this happened because it eventually became clear that Smith’s “natural prices” were the equivalent of Marshall’s long-run equilibrium prices. The fact that Malthus took all of his population theory from the Wealth of Nations (WN) is ignored, as is the fact that what distinguishes the analysis of WN from that of the Essay is that the former abstracts from land scarcity and the diminishing returns implied by Malthus’s “ratios,” which Samuelson, Stigler and many others have noted. The latter means that “Ricardo’s theory of Rent” (p. 74) is actually Malthus’s as Ricardo acknowledged, though Torrens and West also got there at the same time in 1815. Much more contentious is Foley’s account of Ricardo’s value theory. By ignoring the importance of capital costs in determining relative prices he misses the point that Ricardo’s LTV is nothing but a rough and ready approximation ? Stigler’s (1958) “93%” LTV ? brilliantly deployed in the theory of comparative international advantage but now subsumed by Hecksher and Ohlin. Foley’s fixation on the archaic and operationally useless LTV also slightly mars his chapter on Marx. For Marx, like Ricardo, well understood that capital costs enter into prices: but tried unsuccessfully to evade this unwelcome result in the hideous contortions of volume III, chapter IX of Capital.

Rather than appraising the analytical content of the relatively unimportant chapters 4 and 5, which like the curate’s egg are good in parts, we ought rather to turn to what Foley is really interested in, which is ethics. Is the pursuit of self-interest “morally problematic”? And did Smith and his successors create a distinction between an “economic sphere” in which self-interest may have socially beneficent outcomes and “the rest of social life” in which it may not?

It is undoubtedly the case that for Smith and Malthus, eighteenth-century “political economy” was a branch of “Christian moral science” (Winch 1996), for which these were vitally important questions. From the standpoint of intellectual history, however, Foley has chosen to enter the debate some time in 1723, after the public outcry at a new edition of Mandeville’s Fable but before the first of Joseph Butler’s Rolls Sermons preached in response, which showed that “self-love” is morally acceptable in a wide variety of cases and is actually a duty taught by Christ. There is no necessary link between Private Vices and Publick Benefits. Bishop Butler’s doctrine was explicitly incorporated into the analysis of economic behavior by his chaplain Josiah Tucker; and Smith followed Butler and Tucker in Theory of Moral Sentiments which provided a satisfactory account of the part played by self-love in a general theory of conscience, duty and virtue. It is certainly true that in WN Smith separated the public sphere, in which self-love may safely rule, from the private sphere of the family and other intimate relations, in which mutual altruism is important (Folbre 2001). It is also the case that he explicitly acknowledged that “justice,” by which he meant a willingness on the part of agents to obey the rules of the game even when the umpire is not looking, is necessary in order that economic freedom might lead to socially beneficent outcomes. But these imply no distinction between the “economic” and “the rest of social life.”

Malthus, Smith’s most faithful disciple, seems to have accepted this account of self-love, and had no hesitation in describing at as “the main-spring of the great machine.” As for Ricardo and Marx, there is no evidence that they were at all interested in the question. Like all subsequent economists they viewed political economy as a positive science. If we assume that most human beings consistently pursue a set of privately formulated goals most of the time, what will be the unintended social consequences? There is no automatic expectation that these will be socially beneficent. Ricardo’s stationary state, with wages at bare subsistence and rents at an all-time high, is almost certainly not. Whether Marx’s own invisible-hand theorem (“what the bourgeoisie … produces, above all, are its own grave-diggers”) is socially beneficent or not is a matter of taste. As for present-day economics, Samuelson’s theory of public goods, Buchanan’s “public choice” analysis of the actions of bureaucrats and politicians, Chicago theory of marriage and the family, Stiglitz’s investigations of the relative efficiency of public and private sectors, the economics of environmental degradation ? to mention only a few ? provide innumerable examples of the unintended consequences of private, self-regarding acts which are almost certainly maleficent.

I therefore conclude that Duncan Foley’s charges against our profession are without foundation, and ought to be dismissed.

References:

Gilbert Faccarello, 1999. The Foundations of Laissez-faire: The Economics of Pierre de Boisguilbert. London: Routledge.

Nancy Folbre, 2001. The Invisible Heart: Economics and Family Values. New York: The New Press.

George J. Stigler, 1958. “Ricardo and the 93% Labor Theory of Value,” American Economic Review 48: 357-67.

Donald N. Winch, 1996. Riches and Poverty: An Intellectual History of Political Economy in Britain, 1750-1834. Cambridge: Cambridge University Press.

A. M. C. Waterman is Fellow of St John’s College, Winnipeg, and Emeritus Professor of Economics in the University of Manitoba. His most recent book is Political Economy and Christian Theology since the Enlightenment (Palgrave Macmillan 2004). watermn@cc.umanitoba.ca. For more information, see http://historyofeconomics.org/awards/DF2007.htm.

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