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Current Federal Reserve Policy under the Lens of Economic History: Essays to Commemorate the Federal Reserve System’s Centennial

Editor(s):Humpage, Owen F.
Reviewer(s):Hausman, Joshua K.

Published by EH.Net (September 2016)

Owen F. Humpage, editor, Current Federal Reserve Policy under the Lens of Economic History: Essays to Commemorate the Federal Reserve System’s Centennial. New York: Cambridge University Press, 2015. xxi + 386 pp. $110 (hardback), ISBN: 978-1-107-09909-8.

Reviewed for EH.Net by Joshua K. Hausman, School of Public Policy, University of Michigan.

This volume is a festschrift for Michael Bordo; it contains sixteen papers presented in December 2012 at the Federal Reserve Bank of Cleveland. The conference, organized with the help of Barry Eichengreen, Hugh Rockoff, and Eugene N. White, celebrated both Michael Bordo’s work and the Federal Reserve System’s centennial. It brought together leading economic historians and macroeconomists, and they produced a collection of fascinating papers.

The volume is made more than a collection of papers by the introduction, the first chapter, and the last two chapters. The substantial introduction by Owen F. Humpage (the book’s editor and senior economic advisor in the research department at the Federal Reserve Bank of Cleveland) summarizes each of the papers in the volume and draws out their common themes. (For further summary of the work in this volume, see Williamson 2016.) The first chapter by Barry Eichengreen, “The Uses and Misuses of Economic History,” argues for both the usefulness and potential limitations of historical analogies for informing public policy. It is an ideal first chapter, since the relevance of history to current macroeconomic policy is a more or less explicit theme of all the papers in this collection.

The second-to-last chapter, “Monetary Regimes and Policy on a Global Scale: The Oeuvre of Michael D. Bordo,” by Hugh Rockoff and Eugene N. White summarizes Michael Bordo’s lifetime of work. It is a testament to Bordo’s work that this summary doubles as a review of the causes of the Great Depression, the proper role(s) of a central bank, the operation of the Gold Standard and Bretton Woods system, and the changing frequency of financial crises. Rockoff and White do a particularly nice job of reminding readers of Bordo’s work on the history of economic thought. They make a persuasive argument that Bordo’s attention to past generations of economists was often fruitful; for instance, Bordo’s important 1980 Journal of Political Economy paper on the determinants of price responses to monetary policy shocks grew out of earlier work on the thinking of John Elliot Cairnes (Bordo 1975).

The book fittingly concludes with a short essay by Bordo, “Reflections on the History and Future of Central Banking.” Bordo argues that central banks should confine the use of monetary policy tools to targeting the traditional, pre-2008, goals of low inflation and short-run macroeconomic stability. In the event of a financial crisis, central banks should act as a lender-of-last resort, but should not engage in bailouts of insolvent institutions. Other financial stability concerns, in particular asset prices, are best addressed with different tools. This argument is grounded in history: Bordo argues that macroeconomic outcomes have been best when central banks have acted in this way.

The body of the book contains twelve academic papers. The first, by Marvin Goodfriend (“Federal Reserve Policy Today in Historical Perspective”) traces both the development of transparency in Federal Reserve communication and the Federal Reserve’s focus on inflation. Relatedly, the second paper, by Allan H. Meltzer (“How and Why the Fed Must Change in Its Second Century”), marshals history to argue in favor of rules-based monetary policy.

The next two papers consider the lender-of-last-resort aspect of monetary policy. Mark A. Carlson and David C. Wheelock (“The Lender of Last Resort: Lessons from the Fed’s First 100 Years”) review the history of the Fed as a lender of a last resort; most novel may be the discussion of Fed actions between 1970 and 2000, and the ways in which these foreshadowed those during the 2008 financial crisis. Jon Moen and Ellis Tallman (“Close but Not a Central Bank: The New York Clearing House and Issues of Clearing House Loan Certificates”) reevaluate the effectiveness of clearing house loan certificates for liquidity provision during the pre-Fed National Banking Era (1863-1913). They argue that the New York Clearing House and its clearing house loan certificates were unable to provide the liquidity necessary to effectively address banking crises.

Forrest Capie and Geoffrey Wood (“Central Bank Independence: Can It Survive a Crisis?”) consider how the inevitable strains of a crisis affect central bank independence. Their conclusion is pessimistic. In reviewing the recent history of the Bank of England and the Federal Reserve, they conclude that the 2008 crisis has reduced monetary policy independence.

The next two papers by Peter L. Rousseau (“Politics on the Road to the U.S. Monetary Union”) and Harold James (“U.S. Precedents for Europe”) consider the long and often messy process through which the U.S. achieved political, fiscal, and monetary union. Rousseau draws an optimistic lesson from this history for Europe today, arguing that forces like those that brought about union in the U.S. are at work in Europe. By contrast, James is pessimistic, concluding that “American history shows how difficult and obstacle-filled is the path to federalism” (p. 192).

Christopher M. Meissner in his paper “The Limits of Bimetallism” is also interested in historical parallels to Europe’s current problems. He makes the intriguing — and convincing — argument that France’s transition from bimetallism to the Gold Standard was an example of policymakers’ mistaken belief in the sustainability of the status quo. He concludes that for analogous reasons “European Monetary Union as established in 1999 is very likely to face the fate of bimetallism” (p. 214).

In their essay “The Reserve Pyramid and Interbank Contagion during the Great Depression,” Kris James Mitchener and Gary Richardson consider an often-ignored aspect of the early 1930s financial crisis: interbank deposit flows. Using a remarkable new dataset, they show that in the early 1930s these deposit flows transmitted shocks to financial centers.

John Landon-Lane in his paper “Would Large-Scale Asset Purchases Have Helped in the 1930s? An Investigation of the Responsiveness of Bond Yields from the 1930s to Changes in Debt Levels” considers a counterfactual question: suppose that the Fed had undertaken quantitative easing in the 1930s; what would the effects have been? To answer this question, Landon-Lane examines the relationship between interest rates and large changes in outstanding debt. He concludes that the effect on interest rates of quantitative easing in the 1930s would have been similar to the effect of quantitative easing in recent years.

The final two academic papers relate to an important strand of Michael Bordo’s work: comparison of the U.S. and Canada. Ehsan U. Choudhri and Lawrence L. Schembri’s contribution (“A Tale of Two Countries and Two Booms, Canada and the United States in the 1920s and 2000s: The Roles of Monetary and Financial Stability Policies”) compares U.S. and Canadian monetary policy in the 1920s and 2000s. The description of Canadian monetary policy in the 1920s before there was a central bank will be useful for many. Angela Redish (“It Is History but It’s No Accident: Differences in Residential Mortgage Markets in Canada and the United States”) traces the current large differences between the U.S. and Canadian mortgage markets to differing institutional responses to the Great Depression.

This very brief review of the papers in this volume illustrates the diversity of topics considered. The diversity of methods is also noteworthy, ranging from a formal monetary model to cross-sectional econometrics and narrative evidence. This volume thus serves not only as a superb review of current lessons from monetary history, but also as an introduction to methods used by macroeconomic historians. This will be useful to students and practitioners alike.


Bordo, Michael David. 1975. “John E. Cairnes on the Effects of the Australian Gold Discoveries, 1851-73: An Early Application of the Methodology of Positive Economics,” History of Political Economy, 7:3, pp. 337-359.

Bordo, Michael David. 1980. “The Effects of Monetary Change on Relative Commodity Prices and the Role of Long-Term Contracts,” Journal of Political Economy, 88:6, pp. 1088-1109.

Williamson, Stephen D. 2016. “Current Federal Reserve Policy under the Lens of Economic History: A Review Essay,” Journal of Economic Literature, 54:3, pp. 922-934.

Joshua K. Hausman is assistant professor of public policy and economics at the University of Michigan. He is currently working on understanding the role of agriculture in the initial recovery from the Great Depression.

Copyright (c) 2016 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (September 2016). All EH.Net reviews are archived at

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

The Economic History of Mexico

The Economic History of Mexico

Richard Salvucci, Trinity University



This article is a brief interpretive survey of some of the major features of the economic history of Mexico from pre-conquest to the present. I begin with the pre-capitalist economy of Mesoamerica. The colonial period is divided into the Habsburg and Bourbon regimes, although the focus is not really political: the emphasis is instead on the consequences of demographic and fiscal changes that colonialism brought.  Next I analyze the economic impact of independence and its accompanying conflict. A tentative effort to reconstruct secular patterns of growth in the nineteenth century follows, as well as an account of the effects of foreign intervention, war, and the so-called “dictatorship” of Porfirio Diaz.  I then examine the economic consequences of the Mexican Revolution down through the presidency of Lázaro Cárdenas, before considering the effects of the Great Depression and World War II. This is followed by an examination of the so-called Mexican Miracle, the period of import-substitution industrialization after World War II. The end of the “miracle” and the rise of economic instability in the 1970s and 1980s are discussed in some detail. I conclude with structural reforms in the 1990s, the North American Free Trade Agreement (NAFTA), and slow growth in Mexico since then. It is impossible to be comprehensive and the references appearing in the citations are highly selective and biased (where possible) in favor of English-language works, although Spanish is a must for getting beyond the basics. This is especially true in economic history, where some of the most innovative and revisionist work is being done, as it should be, by historians and economists in Mexico.[2]


Where (and What) is Mexico?

For most of its long history, Mexico’s boundaries have been shifting, albeit broadly stable. Colonial Mexico basically stretched from Guatemala, across what is now California and the Southwestern United States, and vaguely into the Pacific Northwest.  There matters stood for more than three centuries[3]. The big shock came at the end of the War of 1847 (“the Mexican-American War” in U.S. history). The Treaty of Guadalupe Hidalgo (1848) ended the war, but in so doing, ceded half of Mexico’s former territory to the United States—recall Texas had been lost in 1836. The northern boundary now ran on a line beginning with the Rio Grande to El Paso, and thence more or less west to the Pacific Ocean south of San Diego. With one major adjustment in 1853 (the Gadsden Purchase or Treaty of the Mesilla) and minor ones thereafter, because of the shifting of the Rio Grande, there it has remained.

Prior to the arrival of the Europeans, Mexico was a congeries of ethnic and city states whose own boundaries were unstable. Prior to the emergence of the most powerful of these states in the fifteenth century, the so-called Triple Alliance (popularly “Aztec Empire”), Mesoamerica consisted of cultural regions determined by political elites and spheres of influence that were dominated by large ceremonial centers such as La Venta, Teotihuacan, and Tula.

While such regions may have been dominant at different times, they were never “economically” independent of one another. At Teotihuacan, there were living quarters given over to Olmec residents from the Veracruz region, presumably merchants. Mesoamerica was connected, if not unified, by an ongoing trade in luxury goods and valuable stones such as jade, turquoise and precious feathers. This was not, however, trade driven primarily by factor endowments and relative costs. Climate and resource endowments did differ significantly over the widely diverse regions and microclimates of Mesoamerica. Yet trade was also political and ritualized in religious belief. For example, calling the shipment of turquoise from the (U.S.) Southwest to Central Mexico the outcome of market activity is an anachronism. In the very long run, such prehistorical exchange facilitated the later emergence of trade routes, roads, and more technologically advanced forms of transport. But arbitrage does not appear to have figured importantly in it.[4]

In sum, what we call “Mexico” in a modern sense is not of much use to the economic historian with an interest in the country before 1870, which is to say, the great bulk of its history. In these years, specificity of time and place, sometimes reaching to the village level, is an indispensable prerequisite for meaningful discussion. At the very least, it is usually advisable to be aware of substantial regional differences which reflect the ethnic and linguistic diversity of the country both before and after the arrival of the Europeans. There are fully ten language families in Mexico, and two of them, Nahuatl and Quiché, number over a million speakers each.[5]


Trade and Tribute before the Europeans

In the codices or deerskin folded paintings the Europeans examined (or actually commissioned), they soon became aware of a prominent form of Mesoamerican economic activity: tribute, or taxation in kind, or even labor services. In the absence of anything that served as money, tribute was forced exchange. Tribute has been interpreted as a means of redistribution in a nonmonetary economy. Social and political units formed a basis for assessment, and the goods collected included maize, beans, chile and cotton cloth. It was through the tribute the indigenous “empires” mobilized labor and resources. There is little or no evidence for the existence of labor or land markets to do so, for these were a European import, although marketplaces for goods existed in profusion.

To an extent, the preconquest reliance on barter economies and the absence of money largely accounts for the ubiquity of tribute. The absence of money is much more difficult to explain and was surely an obstacle to the growth of productivity in the indigenous economies.

The tribute was a near-universal attribute of Mesoamerican ceremonial centers and political empires. The city of Teotihuacan (ca. 600 CE, with a population of 125,000 or more) in central Mexico depended on tribute to support an upper stratum of priests and nobles while the tributary population itself lived at subsistence. Tlatelolco (ca 1520, with a population ranging from 50 to 100 thousand) drew maize, cotton, cacao, beans and precious feathers from a wide swath of territory that broadly extended from the Pacific to Gulf coasts that supported an upper stratum of priests, warriors, nobles, and merchants. It was this urban complex that sat atop the lagoons that filled the Valley of Mexico that so awed the arriving conquerors.

While the characterization of tribute as both a corvée and a tax in kind to support nonproductive populations is surely correct, its persistence in altered (i.e., monetized) form under colonial rule does suggest an important question. The tributary area of the Mexica (“Aztec” is a political term, not an ethnic one) broadly comprised a Pacific slope, a central valley, and a Gulf slope. These embrace a wide range of geographic features ranging from rugged volcanic highlands (and even higher snow-capped volcanoes) to marshy, humid coastal plains. Even today, travel through these regions is challenging. Lacking both the wheel and draught animals, the indigenous peoples relied on human transport, or, where possible, waterborne exchange. However we measure the costs of transportation, they were high. In the colonial period, they typically circumscribed the subsistence radius of markets to 25 to 35 miles. Under the circumstances, it is not easy to imagine that voluntary exchange, particularly between the coastal lowlands and the temperate to cold highlands and mountains, would be profitable for all but the most highly valued goods. In some parts of Mexico–as in the Andean region—linkages of family and kinship bound different regions together in a cult of reciprocal economic obligations. Yet absent such connections, it is not hard to imagine, for example, transporting woven cottons from the coastal lowlands to the population centers of the highlands could become a political obligation rather than a matter of profitable, voluntary exchange. The relatively ambiguous role of markets in both labor and goods that persisted into the nineteenth century may perhaps derive from just this combination of climatic and geographical characteristics. It is what made voluntary exchange under capitalistic markets such a puzzlingly problematic answer to the ordinary demands of economic activity.


[See the relief map below for the principal physical features of Mexico.]


[See the political map below for Mexican states and state capitals.]




Used by permission of the University of Texas Libraries, The University of Texas at Austin.


“New Spain” or Colonial Mexico: The First Phase

Mexico was established by military conquest and civil war. In the process, a civilization with its own institutions and complex culture was profoundly modified and altered, if not precisely destroyed, by the European invaders. The catastrophic elements of conquest, including the sharp decline of the existing indigenous population, from perhaps 25 million to fewer than a million within a century due to warfare, disease, social disorganization and the imposition of demands for labor and resources should nevertheless not preclude some assessment, however tentative, of its economic level in 1519, when the Europeans arrived.[6]

Recent thinking suggests that Spain was far from poor when it began its overseas expansion. If this were so, the implications of the Europeans’ reactions to what they found on the mainland of Mexico (not, significantly in the Caribbean, and, especially, in Cuba, where they were first established) is important. We have several accounts of the conquest of Mexico by the European participants, of which Bernal Díaz del Castillo is the best known, but not the only one. The reaction of the Europeans was almost uniformly astonishment by the apparent material wealth of Tenochtitlan. The public buildings, spacious residences of the temple precinct, the causeways linking the island to the shore, and the fantastic array of goods available in the marketplace evoked comparisons to Venice, Constantinople, and other wealthy centers of European civilization. While it is true that this was a view of the indigenous elite, the beneficiaries of the wealth accumulated from numerous tributaries, it hardly suggests anything other than a kind of storied opulence. Of course, the peasant commoners lived at subsistence and enjoyed no such privileges, but then so did the peasants of the society from which Bernal Díaz, Cortés, Pedro de Alvarado and the other conquerors were drawn. It is hard to imagine that the average standard of living in Mexico was any lower than that of the Iberian Peninsula. The conquerors remarked on the physical size and apparent robust health of the people whom they met, and from this, scholars such as Woodrow Borah and Sherburne Cook concluded that the physical size of the Europeans and the Mexicans was about the same. Borah and Cook surmised that caloric intake per individual in Central Mexico was around 1,900 calories per day, which certainly seems comparable to European levels.[7]

Certainly, the technological differences with Europe hampered commercial exchange, such as the absence of the wheel for transportation, metallurgy that did not include iron, and the exclusive reliance on pictographic writing systems. Yet by the same token, Mesoamerican agricultural technology was richly diverse and especially oriented toward labor-intensive techniques, well suited to pre-conquest Mexico’s factor endowments. As Gene Wilken points out, Bernardo de Sahagún explained in his General History of the Things of New Spain that the Nahua farmer recognized two dozen soil types related to origin, source, color, texture, smell, consistency and organic content.  They were expert at soil management.[8] So it is possible not only to misspecify, but to mistake the technological “backwardness” of Mesoamerica relative to Europe, and historians routinely have.

The essentially political and clan-based nature of economic activity made the distribution of output somewhat different from standard neoclassical models. Although no one seriously maintains that indigenous civilization did not include private property and, in fact, property rights in humans, the distribution of product tended to emphasize average rather than marginal product. If responsibility for tribute was collective, it is logical to suppose that there was some element of redistribution and collective claim on output by the basic social groups of indigenous society, the clans or calpulli.[9] Whatever the case, it seems clear that viewing indigenous society and economy as strained by population growth to the point of collapse, as the so-called “Berkeley school” did in the 1950s, is no longer tenable. It is more likely that the tensions exploited by the Europeans to divide and conquer their native hosts and so erect a colonial state on pre-existing native entities were mainly political rather than socioeconomic. It was through the assistance of native allies such as the Tlaxcalans, as well as with the help of previously unknown diseases such as smallpox that ravaged the indigenous peoples, that the Europeans were able to place a weakened Tenochtitlan under siege and finally defeat it.


Colonialism and Economic Adjustment to Population Decline

With the subjection first of Tenochtitlan and Tlatelolco and then of other polities and peoples, a process that would ultimately stretch well into the nineteenth century and was never really completed, the Europeans turned their attention to making colonialism pay. The process had several components: the modification or introduction of institutions of rule and appropriation; the introduction of new flora and fauna that could be turned to economic use; the reorientation of a previously autarkic and precapitalist economy to the demands of trade and commercial exploitation; and the implementation of European fiscal sovereignty. These processes were complex, required much time, and were, in many cases, only partly successful. There is considerable speculation regarding how long it took before Spain (arguably a relevant term by the mid-sixteenth century) made colonialism pay. The best we can do is present a schematic view of what occurred. Regional variations were enormous: a “typical” outcome or institution of colonialism may well have been an outcome visible in central Mexico. Moreover, all generalizations are fragile, rest on limited quantitative evidence, and will no doubt be substantially modified eventually. The message is simple: proceed with caution.

The Europeans did not seek to take Mesoamerica as a tabula rasa. In some ways, they would have been happy to simply become the latest in a long line of ruling dynasties established by decapitating native elites and assuming control. The initial demand of the conquerors for access to native labor in the so-called encomienda was precisely that, with the actual task of governing be left to the surviving and collaborating elite: the principle of “indirect rule.”[10] There were two problems with this strategy: the natives resisted and the natives died. They died in such large numbers as to make the original strategy impracticable.

The number of people who lived in Mesoamerica has long been a subject of controversy, but there is no point in spelling it out once again. The numbers are unknowable and, in an economic sense, not really important. The population of Tenochtitlan has been variously estimated between 50 and 200 thousand individuals, depending on the instruments of estimation.  As previously mentioned, some estimates of the Central Mexican population range as high as 25 million on the eve of the European conquest, and virtually no serious student accepts the small population estimates based on the work of Angel Rosenblatt. The point is that labor was abundant relative to land, and that the small surpluses of a large tributary population must have supported the opulent elite that Bernal Díaz and his companions described.

By 1620, or thereabouts, the indigenous population had fallen to less than a million according to Cook and Borah. This is not just the quantitative speculation of modern historical demographers. Contemporaries such as Jerónimo de Mendieta in his Historia eclesiástica Indiana (1596) spoke of towns formerly densely populated now witness to “the palaces of those former Lords ruined or on the verge of. The homes of the commoners mostly empty, roads and streets deserted, churches empty on feast days, the few Indians who populate the towns in Spanish farms and factories.” Mendieta was an eyewitness to the catastrophic toll that European microbes and warfare took on the native population. There was a smallpox epidemic in 1519-20 when 5 to 8 million died. The epidemic of hemorrhagic fever in 1545 to 1548 was one of the worst demographic catastrophes in human history, killing 5 to 15 million people. And then again in 1576 to 1578, when 2 to 2.5 million people died, we have clear evidence that land prices in the Valley of Mexico (Coyoacán, a village outside Mexico City, as the reconstructed Tenochtitlán was called) collapsed. The death toll was staggering. Lesser outbreaks were registered in 1559, 1566, 1587, 1592, 1601, 1604, 1606, 1613, 1624, and 1642. The larger point is that the intensive use of native labor, such as the encomienda, had to come to an end, whatever its legal status had become by virtue of the New Laws (1542). The encomienda or the simple exploitation of massive numbers of indigenous workers was no longer possible. There were too few “Indians” by the end of the sixteenth century.[11]

As a result, the institutions and methods of economic appropriation were forced to change. The Europeans introduced pastoral agriculture – the herding of cattle and sheep – and the use of now abundant land and scarce labor in the form of the hacienda while the remaining natives were brought together in “villages” whose origins were not essentially pre- but post-conquest, the so-called congregaciones, at the same time that the titles to now-vacant lands were created, regularized and “composed.”[12] (Land titles were a European innovation as well). Sheep and cattle, which the Europeans introduced, became part of the new institutional backbone of the colony. The natives would continue to rely on maize for the better part of their subsistence, but the Europeans introduced wheat, olives (oil), grapes (wine) and even chickens, which the natives rapidly adopted. On the whole, the results of these alterations were complex. Some scholars argue that the native diet improved even in the face of their diminishing numbers, a consequence of increased land per person and of greater variety of foodstuffs, and that the agricultural potential of the colony now called New Spain was enhanced. By the beginning of the seventeenth century, the combined indigenous, European immigrant, and new mixed blood populations could largely survive on the basis of their own production. The introduction of sheep lead to the introduction and manufacture of woolens in what were called obrajes or manufactories in Puebla, Querétaro, and Coyoacán. The native peoples continued to produce cottons (a domestic crop) under the stimulus of European organization, lending, and marketing. Extensive pastoralism, the cultivation of cereals and even the incorporation of native labor then characterized the emergence of the great estates or haciendas, which became a characteristic rural institution through the twentieth century, when the Mexican Revolution put an end to many of them. Thus the colony of New Spain continued to feed, clothe and house itself independent of metropolitan Spain’s direction. Certainly, Mexico before the Conquest was self-sufficient. The extent to which the immigrant and American Spaniard or creole population depended on imports of wine, oil and other foodstuffs and textiles in the decades immediately following the conquest is much less clear.

At the same time, other profound changes accompanied the introduction of Europeans, their crops and their diseases into what they termed the “kingdom” (not colony, for constitutional reasons) of New Spain.[13] Prior to the conquest, land and labor had been commoditized, but not to any significant extent, although there was a distinction recognized between possession and ownership.  Scholars who have closely examined the emergence of land markets after the conquest—mainly in the Valley of Mexico—are virtually unanimous in this conclusion. To the extent that markets in labor and commodities had emerged, it took until the 1630s (and later elsewhere in New Spain) for the development to reach maturity. Even older mechanisms of allocation of labor by administrative means (repartimiento) or by outright coercion persisted. Purely economic incentives in the form of money wages and prices never seemed adequate to the job of mobilizing resources and those with access to political power were reluctant to pay a competitive wage. In New Spain, the use of some sort of political power or rent-seeking nearly always accompanied labor recruitment. It was, quite simply, an attempt to evade the implications of relative scarcity, and renders the entire notion of “capitalism” as a driving economic force in colonial Mexico quite inexact.


Why the Settlers Resisted the Implications of Scarce Labor

The reasons behind this development are complex and varied. The evidence we have for the Valley of Mexico demonstrates that the relative price of labor rose while the relative price of land fell even when nominal movements of one or the other remained fairly limited. For instance, the table constructed below demonstrates that from 1570-75 through 1591-1606, the price of unskilled labor in the Valley of Mexico nearly tripled while the price of land in the Valley (Coyoacán) fell by nearly two thirds. On the whole, the price of labor relative to land increased by nearly 800 percent. The evolution of relative prices would have inevitably worked against the demanders of labor (Europeans and increasingly, creoles or Americans of largely European ancestry) and in favor of the supplier (native labor, or people of mixed race generically termed mestizo). This was not of course what the Europeans had in mind and by capture of legal institutions (local magistrates, in particularly), frequently sought to substitute compulsion for what would have been costly “free labor.” What has been termed the “depression” of the seventeenth century may well represent one of the consequences of this evolution: an abundance of land, a scarcity of labor, and the attempt of the new rulers to adjust to changing relative prices. There were repeated royal prohibitions on the use of forced indigenous labor in both public and private works, and thus a reduction in the supply of labor. All highly speculative, no doubt, but the adjustment came during the central decades of the seventeenth century, when New Spain increasingly produced its own woolens and cottons, and largely assumed the tasks of providing itself with foodstuffs and was thus required to save and invest more.  No doubt, the new rulers felt the strain of trying to do more with less.[14]


Years Land Price Index Labor Price Index (Labor/Land) Index
1570-1575 100 100 100
1576-1590 50 143 286
1591-1606 33 286 867


Source: Calculated from Rebecca Horn, Postconquest Coyoacan: Nahua-Spanish Relations in Central Mexico, 1519-1650 (Stanford: Stanford University Press, 1997), p. 208 and José Ignacio Urquiola Permisan, “Salarios y precios en la industria manufacturer textile de la lana en Nueva España, 1570-1635,” in Virginia García Acosta, (ed.), Los precios de alimentos y manufacturas novohispanos (México, DF: CIESAS, 1995), p. 206.


The overall role of Mexico within the Hapsburg Empire was in flux as well. Nothing signals the change as much as the emergence of silver mining as the principal source of Mexican exportables in the second half of the sixteenth century. While Mexico would soon be eclipsed by Peru as the most productive center of silver mining—at least until the eighteenth century—the discovery of significant silver mines in Zacatecas in the 1540s transformed the economy of the Spanish empire and the character of New Spain’s as well.




Silver Mining

While silver mining and smelting was practiced before the conquest, it was never a focal point of indigenous activity. But for the Europeans, Mexico was largely about silver mining. From the mid- sixteenth century onward, it was explicitly understood by the viceroys that they were to do all in their power to “favor the mines,” as one memorable royal instruction enjoined. Again, there has been much controversy of the precise amounts of silver that Mexico sent to the Iberian Peninsula. What we do know certainly is that Mexico (and the Spanish Empire) became the leading source of silver, monetary reserves, and thus, of high-powered money. Over the course of the colonial period, most sources agree that Mexico provided nearly 2 billion pesos (dollars) or roughly 1.6 billion troy ounces to the world economy. The graph below provides a picture of the remissions of all Mexican silver to both Spain and to the Philippines taken from the work of John TePaske.[15]


Since the population of Mexico under Spanish rule was at most 6 million people by the end of the colonial period, the kingdom’s silver output could only be considered astronomical.

This production has to be considered in both its domestic and international dimensions. From a domestic perspective, the mines were what a later generation of economists would call “growth poles.” They were markets in which inputs were transformed into tradable outputs at a much higher rate of productivity (because of mining’s relatively advanced technology) than Mexico’s other activities. Silver thus became Mexico’s principal exportable good, and remained so well into the late nineteenth century.  The residual claimants on silver production were many and varied.  There were, of course the silver miners themselves in Mexico and their merchant financiers and suppliers. They ranged from some of the wealthiest people in the world at the time, such as the Count of Regla (1710-1781), who donated warships to Spain in the eighteenth century, to individual natives in Zacatecas smelting their own stocks of silver ore.[16] While the conditions of labor in Mexico’s silver mines were almost uniformly bad, the compensation ranged from above market wages paid to free labor in the prosperous larger mines  of the Bajío and the North to the use of forced village  labor drafts in more marginal (and presumably less profitable) sites such as Taxco. In the Iberian Peninsula, income from American silver mines ultimately supported not only a class of merchant entrepreneurs in the large port cities, but virtually the core of the Spanish political nation, including monarchs, royal officials, churchmen, the military and more. And finally, silver flowed to those who valued it most highly throughout the world. It is generally estimated that 40 percent of Spain’s American (not just Mexican, but Peruvian as well) silver production ended up in hoards in China.

Within New Spain, mining centers such as Guanajuato, San Luis Potosí, and Zacatecas became places where economic growth took place rapidly, in which labor markets more readily evolved, and in which the standard of living became obviously higher than in neighboring regions. Mining centers tended to crowd out growth elsewhere because the rate of return for successful mines exceeded what could be gotten in commerce, agriculture and manufacturing. Because silver was the numeraire for Mexican prices—Mexico was effectively on a silver standard—variations in silver production could and did have substantial effects on real economic activity elsewhere in New Spain. There is considerable evidence that silver mining saddled Mexico with an early case of “Dutch disease” in which irreducible costs imposed by the silver standard ultimately rendered manufacturing and the production of other tradable goods in New Spain uncompetitive. For this reason, the expansion of Mexican silver production in the years after 1750 was never unambiguously accompanied by overall, as opposed to localized prosperity. Silver mining tended to absorb a disproportional quantity of resources and to keep New Spain’s price level high, even when the business cycle slowed down—a fact that was to impress visitors to Mexico well into the nineteenth century. Mexican silver accounted for well over three-quarters of exports by value into the nineteenth century as well. The estimates vary widely, for silver was by no means the only, or even the most important source of revenue to the Crown, but by the end of the colonial era, the Kingdom of New Spain probably accounted for 25 percent of the Crown’s imperial income.[17] That is why reformist proposals circulating in governing circles in Madrid in the late eighteenth century fixed on Mexico. If there was any threat to the American Empire, royal officials thought that Mexico, and increasingly, Cuba, were worth holding on to. From a fiscal standpoint, Mexico had become just that important.[18]


“New Spain”: The Second Phase                of the Bourbon “Reforms”

In 1700, the last of the Spanish Hapsburgs died and a disputed succession followed. The ensuring conflict, known as the War of Spanish Succession, came to an end in 1714. The grandson of French king Louis XIV came to the Spanish throne as King Philip V. The dynasty he represented was known as the Bourbons. For the next century of so, they were to determine the fortunes of New Spain. Traditionally, the Bourbons, especially the later ones, have been associated with an effort to “renationalize” the Spanish empire in America after it had been thoroughly penetrated by French, Dutch, and lastly, British commercial interests.[19]

There were at least two areas in which the Bourbon dynasty, “reformist” or no, affected the Mexican economy. One of them dealt with raising revenue and the other was the international position of the imperial economy, specifically, the volume and value of trade. A series of statistics calculated by Richard Garner shows that the share of Mexican output or estimated GDP taken by taxes grew by 167 percent between 1700 and 1800. The number of taxes collected by the Royal Treasury increased from 34 to 112 between 1760 and 1810. This increase, sometimes labelled as a Bourbon “reconquest” of Mexico after a century and a half of drift under the Hapsburgs, occurred because of Spain’s need to finance increasingly frequent and costly wars of empire in the eighteenth century. An entire array of new taxes and fiscal placemen came to Mexico. They affected (and alienated) everyone, from the wealthiest merchant to the humblest villager. If they did nothing else, the Bourbons proved to be expert tax collectors.[20]

The second and equally consequential change in imperial management lay in the revision and “deregulation” of New Spain’s international trade, or the evolution from a “fleet” system to a regime of independent sailings, and then, finally, of voyages to and from a far larger variety of metropolitan and colonial ports. From the mid-sixteenth century onwards, ocean-going trade between Spain and the Americas was, in theory, at least, closely regulated and supervised. Ships in convoy (flota) sailed together annually under license from the monarchy and returned together as well. Since so much silver specie was carried, the system made sense, even if the flotas made a tempting target and the problem of contraband was immense. The point of departure was Seville and later, Cadiz. Under pressure from other outports in the late eighteenth century, the system was finally relaxed. As a consequence, the volume and value of trade to Mexico increased as the price of importables fell. Import-competing industries in Mexico, especially textiles, suffered under competition and established merchants complained that the new system of trade was too loose. But to no avail. There is no measure of the barter terms of trade for the eighteenth century, but anecdotal evidence suggests they improved for Mexico. Nevertheless, it is doubtful that these gains could have come anywhere close to offsetting the financial cost of Spain’s “reconquest” of Mexico.[21]

On the other hand, the few accounts of per capita real income growth in the eighteenth century that exist suggest little more than stagnation, the result of population growth and a rising price level. Admittedly, looking for modern economic growth in Mexico in the eighteenth century is an anachronism, although there is at least anecdotal evidence of technological change in silver mining, especially in the use of gunpowder for blasting and excavating, and of some productivity increase in silver mining. So even though the share of international trade outside of goods such as cochineal and silver was quite small, at the margin, changes in the trade regime were important. There is also some indication that asset income rose and labor income fell, which fueled growing social tensions in New Spain. In the last analysis, the growing fiscal pressure of the Spanish empire came when the standard of living for most people in Mexico—the native and mixed blood population—was stagnating. During periodic subsistence crisis, especially those propagated by drought and epidemic disease, and mostly in the 1780s, living standards fell. Many historians think of late colonial Mexico as something of a powder keg waiting to explode. When it did, in 1810, the explosion was the result of a political crisis at home and a dynastic failure abroad. What New Spain had negotiated during the Wars of Spanish Succession—regime change– provide impossible to surmount during the Napoleonic Wars (1794-1815). This may well be the most sensitive indicator of how economic conditions changed in New Spain under the heavy, not to say clumsy hand, of the Bourbon “reforms.”[22]


The War for Independence, the Insurgency, and Their Legacy

The abdication of the Bourbon monarchy to Napoleon Bonaparte in 1808 produced a series of events that ultimately resulted in the independence of New Spain. The rupture was accompanied by a violent peasant rebellion headed by the clerics Miguel Hidalgo and José Morelos that, one way or another, carried off 10 percent of the population between 1810 and 1820. Internal commerce was largely paralyzed. Silver mining essentially collapsed between 1810 and 1812 and a full recovery of mining output was delayed until the 1840s. The mines located in zones of heavy combat, such as Guanajuato and Querétaro, were abandoned by fleeing workers. Thus neglected, they quickly flooded.

At the same time, the fiscal and human costs of this period, the Insurgency, were even greater.[23] The heavy borrowings in which the Bourbons engaged to finance their military alliances left Mexico with a considerable legacy of internal debt, estimated at £16 million at Independence. The damage to the fiscal, bureaucratic and administrative structure of New Spain in the face of the continuing threat of Spanish reinvasion (Spain did not recognize the Independence of Mexico (1821)) in the 1820s drove the independent governments into foreign borrowing on the London market to the tune of £6.4 million in order to finance continuing heavy military outlays. With a reduced fiscal capacity, in part the legacy of the Insurgency and in part the deliberate effort of Mexican elites to resist any repetition Bourbon-style taxation, Mexico defaulted on its foreign debt in 1827. For the next sixty years, through a serpentine history of moratoria, restructuring and repudiation (1867), it took until 1884 for the government to regain access to international capital markets, at what cost can only be imagined. Private sector borrowing and lending continued, although to what extent is currently unknown. What is clear is that the total (internal plus external) indebtedness of Mexico relative to late colonial GDP was somewhere in the range of 47 to 56 percent.[24]

This was, perhaps, not an insubstantial amount for a country whose mechanisms of public finance were in what could be mildly termed chaotic condition in the 1820s and 1830s as the form, philosophy, and mechanics of government oscillated from federalist to centralist and back into the 1850s.  Leaving aside simple questions of uncertainty, there is the very real matter that the national government—whatever the state of private wealth—lacked the capacity to service debt because national and regional elites denied it the means to do so. This issue would bedevil successive regimes into the late nineteenth century, and, indeed, into the twentieth.[25]

At the same time, the demographic effects of the Insurgency exacted a cost in terms of lost output from the 1810s through the 1840s. Gaping holes in the labor force emerged, especially in the fertile agricultural plains of the Bajío that created further obstacles to the growth of output. It is simply impossible to generalize about the fortunes of the Mexican economy in this period because of the dramatic regional variations in the Republic’s economy. A rough estimate of output per head in the late colonial period was perhaps 40 pesos (dollars).[26] After a sharp contraction in the 1810s, income remained in that neighborhood well into the 1840s, at least until the eve of the war with the United States in 1846. By the time United States troops crossed the Rio Grande, a recovery had been under way, but the war arrested it. Further political turmoil and civil war in the 1850s and 1860s represented setbacks as well. In this way, a half century or so of potential economic growth was sacrificed from the 1810s through the 1870s. This was not an uncommon experience in Latin America in the nineteenth century, and the period has even been called The Stage of the Great Delay.[27] Whatever the exact rate of real per capita income growth was, it is hard to imagine it ever exceeded two percent, if indeed it reached much more than half that.


Agricultural Recovery and War

On the other hand, it is clear that there was a recovery in agriculture in the central regions of the country, most notably in the staple maize crop and in wheat. The famines of the late colonial era, especially of 1785-86, when massive numbers perished, were not repeated. There were years of scarcity and periodic corresponding outbreaks of epidemic disease—the cholera epidemic of 1832 affected Mexico as it did so many other places—but by and large, the dramatic human wastage of the colonial period ceased, and the death rate does appear to have begun to fall. Very good series on wheat deliveries and retail sales taxes for the city of Puebla southeast of Mexico City show a similarly strong recovery in the 1830s and early 1840s, punctuated only by the cholera epidemic whose effects were felt everywhere.[28]

Ironically, while the Panic of 1837 appears to have at least hit the financial economy in Mexico hard with a dramatic fall in public borrowing (and private lending), especially in the capital,[29] an incipient recovery of the real economy was ended by war with the United States. It is not possible to put numbers on the cost of the war to Mexico, which lasted intermittently from 1846 to 1848, but the loss of what had been the Southwest under Mexico is most often emphasized. This may or may not be accurate. Certainly, the loss of California, where gold was discovered in January 1848, weighs heavily on the historical imaginations of modern Mexicans. There is also the sense that the indemnity paid by the United States–$15 million—was wholly inadequate, which seems at least understandable when one considers that Andrew Jackson offered $5 million to purchase Texas alone in 1829.

It has been estimated that the agricultural output of the Mexican “cession” as it was called in 1900, was nearly $64 million, and that the value of livestock in the territory was over $100 million. The value of gold and silver produced was about $35 million. Whether it is reasonable to employ the numbers in estimating the present value of output relative to the indemnity paid is at least debatable as a counterfactual, unless one chooses to regard this as the annuitized value on a perpetuity “purchased” from Mexico at gunpoint, which seems more like robbery than exchange.  In the long run, the loss may have been staggering, but in the short run, much less so. The northern territories Mexico lost had really yielded very little up until the War. In fact, the balance of costs and revenues to the Mexican government may well have been negative.[30]

Whatever the case, the decades following the war with the United States until the beginning of the administration of Porfirio Díaz (1876) are typically regarded as a step backward. The reasons are several. In 1850, the government essentially went broke. While it is true that its financial position had disintegrated since the mid-1830s, 1850 marked a turning point. The entire indemnity payment from the United States was consumed in debt service, but this made no appreciable dent in the outstanding principal, which hovered around 50 million pesos (dollars).  The limits of debt sustainability had been reached: governing was turned into a wild search for resources, which proved fruitless. Mexico continued to sell of parts of its territory, such as the Treaty of the Mesilla (1853), or Gadsden Purchase, whose proceeds largely ended up in the hands of domestic financiers rather than foreign creditors’.[31] Political divisions, if anything, terrible before the war with the United States, turned catastrophic. A series of internal revolts, uprisings and military pronouncements segued into yet another violent civil war between liberals and conservatives—now a formal party—the so-called Three Years’ War (1856-58). In 1862, frustrated by Mexico’s suspension of foreign debt service, Great Britain, Spain and France seized Veracruz. A Hapsburg prince, Maximilian, was installed as Mexico’s second “emperor.” (Agustín de Iturbide was the first). While only the French actively prosecuted the war within Mexico, and while they never controlled more than a very small part of the country, the disruption was substantial. By 1867, with Maximillian deposed and the French army withdrawn, the country required serious reconstruction. [32]


Juárez, Díaz and the Porfiriato: authoritarian development.

To be sure, the origins of authoritarian development in nineteenth century Mexico were not with Porfirio Díaz, as is often asserted. Their beginnings actually went back several decades earlier, to the last presidency of Santa Anna, generally known as the Dictatorship (1853-54). But Santa Anna was overthrown too quickly, and now for the last time, for much to have actually occurred. A ministry for development (Fomento) had been created, but the Liberal revolution of Ayutla swept Santa Anna and his clique away for good. Serious reform seems to have begun around 1870, when the Finance Minister was Matías Romero. Romero was intent on providing Mexico with a modern Treasury, and on ending the hand-to- mouth financing that had mostly characterized the country’s government since Independence, or at least since the mid-1830s. So it is appropriate to pick up with the story here. Where did Mexico stand in 1870?[33]

The most revealing data that we have on the state of economic development come from various anthropometric and cost of living studies by Amilcar Challu, Aurora Gómez Galvarriato, and Moramay López Alonso.[34] Their research overlaps in part, and gives a fascinating picture of Mexico in the long run, from 1735 to 1940. For the moment, let us look at the period leading up to 1867, when the French withdrew from Mexico. If we look at the heights of the “literate” population, Challu’s research suggests that the standard of living stagnated between 1750 and 1840. If we look at the “illiterate” population, there was a consistent decline until 1850. Since the share of the illiterate population was clearly larger, we might infer that living standards for most Mexicans declined after 1750, however we interpret other quantitative and anecdotal evidence.

López Alonso confines her work to the period after the 1840s. From 1850 through 1890, her work generally corroborates Challu’s. The period after the Mexican War was clearly a difficult one for most Mexicans, and the challenge that both Juárez and Díaz faced was a macroeconomy in frank contraction after 1850. The regimes after 1867 were faced with stagnation.

The real wage study of by Amilcar Challu and Aurora Gómez Galvarriato, when combined with the existing anthropometric work, offers a pretty clear correlation between movements in real wages (down) and height (falling). [35]

It would then appear growth from the 1850s through the 1870s was slow—if there was any at all—and perhaps inferior to what had come between the 1820s and the 1840s. Given the growth of import substitution during the Napoleonic Wars, roughly 1790-1810, coupled with the commercial opening brought by the Bourbons’   post-1789 extension of “free trade” to Mexico, we might well see a pattern of mixed performance (1790-1810), sharp contraction (the 1810s), rebound and recovery, with a sharp financial shocks coming in the mid-1820s and mid -1830s (1820s-1840s), and stagnation once more (1850s-1870s). Real per capita output oscillated, sometimes sharply, around an underlying growth rate of perhaps one percent; changes in the distribution of income and wealth are more or less impossible to identify consistently, because studies conflict.

Far less speculative is that the foundations for modern economic growth were laid down in Mexico during the era of Benito Juárez. Its key elements were the creation of a secular, bourgeois state and secular institutions embedded in the Constitution of 1857. The titanic ideological struggles between liberals and conservatives were ultimately resolved in favor of a liberal, but nevertheless centralizing form of government under Porfirio Diáz. This was the beginning of the end of the Ancien Regime. Under Juárez, corporate lands of the Church and native villages were privatized in favor of individual holdings and their former owners compensated in bonds. This was effectively the largest transfer of land title since the late sixteenth century (not including the war with the United States) and it cemented the idea of individual property rights. With the expulsion of the French and the outright repudiation of the French debt, the Treasury was reorganized along more modern lines. The country got additional breathing room by the suspension of debt service to Great Britain until the terms of the 1825 loans were renegotiated under the Dublán Convention (1884). Equally, if not more important, Mexico now entered the railroad age in 1876, nearly forty years after the first tracks were laid in Cuba in 1837. The educational system was expanded in an attempt to create at least a core of literate citizens who could adopt the tools of modern finance and technology. Literacy still remained in the neighborhood of 20 percent, and life expectancy at birth scarcely reached 40 years of age, if that. Yet by the end of the Restored Republic (1876), Mexico had turned a corner. There would be regressions, but the nineteenth century had finally arrived, aptly if brutally signified by Juárez’ execution of Maximilian in Querétaro in 1867.[36]

Porfirian Mexico

Yet when Díaz came to power, Mexico was, in many ways, much as it had been a century earlier. It was a rural, agrarian nation whose primary agricultural output per person was maize, followed by wheat and beans. These were produced on haciendas and ranchos in Jalisco, Guanajuato, Michoacán, Mexico, Puebla as well as Oaxaca, Veracruz, Aguascalientes, Chihuahua and Sonora. Cotton, which with great difficulty had begun to supply a mechanized factory regime (first in spinning, then weaving) was produced in Oaxaca, Yucatán, Guerrero and Chiapas as well as in parts of Durango and Coahuila. Domestic production of raw cotton rarely sufficed to supply factories in Michoacán, Querétaro, Puebla and Veracruz, so imports from the Southern United States were common. For the most part, the indigenous population lived on maize, beans, and chile, producing its own subsistence on small, scattered plots known as milpas. Perhaps 75 percent of the population was rural, with the remainder to be found in cities like Mexico, Guadalajara, San Luis Potosí, and later, Monterrey. Population growth in the Southern and Eastern parts of the country had been relatively slow in the nineteenth century. The North and the center North grew more rapidly.  The Center of the country, less so. Immigration from abroad had been of no consequence.[37]

It is a commonplace to see the presidency of Porfirio Díaz (1876-1910) as a critical juncture in Mexican history, and this would be no less true of economic or commercial history as well. By 1910, when the Díaz government fell and Mexico descended into two decades of revolution, the first one extremely violent, the face of the country had been changed for good. The nature and effect of these changes remain not only controversial, but essential for understanding the subsequent evolution of the country, so we should pause here to consider some of their essential features.

While mining and especially, silver mining, had long held a privileged place in the economy, the nineteenth century had witnessed a number of significant changes. Until about 1889, the coinage of gold, silver, and copper—a very rough proxy for production given how much silver had been illegally exported—continued on a steadily upward track. In 1822, coinage was about 10 million pesos. By 1846, it had reached roughly 15 million pesos. There was something of a structural break after the war with the United States (its origins are unclear), and coinage continued upward to about 25 million pesos in 1888. Then, the falling international price of silver, brought on by large increases in supply elsewhere, drove the trend after 1889 sharply downward. By 1909-10, coinage had collapsed to levels previously unrecorded since the 1820s, although in 1904 and 1905, it had skyrocketed to nearly 45 million pesos.[38]

It comes as no surprise that these variations in production corresponded to sharp changes in international relative prices. For example, the market price of silver declined sharply relative to lead, which in turn encountered a large increase in Mexican production and a diversification into other metals including zinc, antinomy, and copper. Mexico left the silver standard (for international transactions, but continued to use silver domestically) in 1905, which contributed to the eclipse of this one crucial industry, which would never again have the status it had when Díaz became president in 1876, when precious metals represented 75 percent of Mexican exports by value. By the time he had decamped in exile to Paris, precious metals accounted for less than half of all exports.

The reason for this relative decline was the diversification of agricultural exports that had been slowly occurring since the 1870s. Coffee, cotton, sugar, sisal and vanilla were the principal crops, and some regions of the country such as Yucatán (henequen) and Durango and Tamaulipas (cotton) supplied new export crops.


Railroads and Infrastructure

None of be of this would have occurred without the massive changes in land tenure that had begun in the 1850s, but most of all, without the construction of railroads financed by the migration of foreign capital to Mexico under Díaz. At one level, it is a well-known story of social savings, which were substantial in Mexico because the terrain was difficult and the alternative modes of carriage few. One way or another, transportation has always been viewed as an “obstacle” to Mexican economic development. That must be true at some level, although recent studies (especially by Sandra Kuntz) have raised important qualifications. Railroads may not have been gateways to foreign dependency, as historians once argued, but there were limits to their ability to effect economic change, even internally. They tended to enlarge the internal market for some commodities more than others. The peculiarities of rate-making produced other distortions, while markets for some commodities were inevitably concentrated in major cities or transshipment points which afforded some monopoly power to distributors even as a national market in basic commodities became more of a reality. Yet, in general, the changes were far reaching.[39]

Conventional figures confirm conventional wisdom. When Díaz assumed the presidency, there were 660 km (410 miles) of track. In 1910, there were 19,280 km (about 12,000 miles). Seven major lines linked the cities of Mexico, Veracruz, Acapulco, Juárez, Laredo, Puebla, Oaxaca. Monterrey and Tampico in 1892. The lines were built by foreign capital (e.g., the Central Mexicano was built by the Atchison, Topeka and Santa Fe), which is why resolving the long-standing questions of foreign debt service were critical. Large government subsidies on the order of 3,500 to 8,000 pesos per km were granted, and financing the subsidies amounted to over 30 million pesos by 1890. While the railroads were successful in creating more of a national market, especially in the North, their finances were badly affected by the depreciation of the silver peso, given that foreign liabilities had to be liquidated in gold.

As a result, the government nationalized the railroads in 1903. At the same time, it undertook an enormous effort to construct infrastructure such as drainage and ports, virtually all of which were financed by British capital and managed by “Don Porfirio’s contactor,” Sir Weetman Pearson.  Between railroads, ports, drainage works and irrigation facilities, the Mexican government borrowed 157 million pesos to finance costs.[40]

The expansion of the railroads, the build-out of infrastructure and the expansion of trade would have normally increased output per capita. Any data we have prior to 1930 are problematic, and before 1895, strictly speaking, we have no official measures of output per capita at all. Most scholars shy away from using levels of GDP in any form, other than for illustrative purposes.  Aside from the usual problems attending national income accounting, Mexico presents a few exceptional challenges. In peasant families, where women were entrusted with converting maize into tortilla, no small job, the omission of their value added from GDP must constitute a sizeable defect in measured output. Moreover, as the commercial radius of Mexican agriculture expanded rapidly as railroads, roads, and later, highways spread extensively, growth rates represented increased commercialization rather than increased growth. We have no idea how important this phenomenon was, but it is worth keeping in mind when we look at very rapid growth rates after 1940.

There are various measures of cumulative growth during the Porfiriato. By and large, the figure from 1900 through 1910 is around 23 percent, which is certainly higher than rates achieved during the nineteenth century, but nothing like what was recorded after 1940. In light of declining real wages, one can only assume that the bulk of “progress” flowed to the recipients of property income. This may well have represented a reversal of trends in the nineteenth century, when some argue that property income contracted in the wake of the Insurgency[41].

There was also significant industrialization in Mexico during the Porfiriato. Some industry, especially textiles, had its origins in the 1840s, but its size, scale and location altered dramatically by the end of the nineteenth century. For example, the cotton textile industry saw the number of workers, spindles and looms more than double from the late 1870s to the first decade of the nineteenth century. Brewing and its associated industry, glassmaking, became well established in Monterrey during the 1890s. The country’s first iron and steel mill, Fundidora Monterrey, was established there as well in 1903. Other industries, such as papermaking and cigarettes followed suit. By the end of the Porfiriato, over 10 percent of Mexico’s output was certainly industrial.[42]


From Revolution to “Miracle”

The Mexican Revolution (1910-1940) began as a political upheaval provoked by a crisis in the presidential succession when Porfirio Díaz refused to leave office in the wake of electoral defeat after signaling his willingness to do so in a famous pubic interview of 1908.[43] It was also the result of an agrarian uprising and the insistent demand of Mexico’s growing industrial proletariat for a share of political power. Finally, there was a small (fewer than 10 percent of all households) but upwardly mobile urban middle class created by economic development under Díaz whose access to political power had been effectively blocked by the regime’s mechanics of political control. Precisely how “revolutionary” were the results of the armed revolt—which persisted largely through the 1910s and peaked in a civil war in 1914-1915—has long been contentious, but is only tangentially relevant as a matter of economic history. The Mexican Revolution was no Bolshevik movement (of course, it predated Bolshevism by seven years) but it was not a purely bourgeois constitutional movement either, although it did contain substantial elements of both.

From a macroeconomic standpoint, it has become fashionable to argue that the Revolution had few, if any, profound economic consequences. It seems as if the principal reason was that revolutionary factions were interested in appropriating rather than destroying the means of production. For example, the production of crude oil peaked in Mexico in 1915—at the height of the Revolution—because crude oil could be used as a source of income to the group controlling the wells in Veracruz state. This was a powerful consideration.[44]

Yet in another sense, the conclusion that the Revolution had slight economic effects is not only facile, but obviously wrong. As the demographic historian Robert McCaa showed, the excess mortality occasioned by the Revolution was larger than any similar event in Mexican history other than the conquest in the sixteenth century. There has been no attempt made to measure the output lost by the demographic wastage (including births that never occurred), yet even the effect on the population cohort born between 1910 and 1920 is plain to see in later demographic studies.  [45]

There is also a subtler question that some scholars have raised. The Revolution increased labor mobility and the labor supply by abolishing constraints on the rural population such as debt peonage and even outright slavery. Moreover, the Revolution, by encouraging and ultimately setting into motion a massive redistribution of previously privatized land, contributed to an enlarged supply of that factor of production as well. The true impact of these developments was realized in the 1940s and 1950s, when rapid economic growth began, the so-called Mexican Miracle, which was characterized by rates of real growth of as much as 6 percent per year (1955-1966). Whatever the connection between the Revolution and the Miracle, it will require a serious examination on empirical grounds and not simply a dogmatic dismissal of what is now regarded as unfashionable development thinking: import substitution and inward-oriented growth.[46]

The other major consequence of the Revolution, the agrarian reform and the creation of the ejido, or land granted by the Mexican state to rural population under the authority provided it by the revolutionary Constitution on 1917 took considerable time to coalesce, and were arguably not even high on one of the Revolution’s principal instigators, Francisco Madero’s, list of priorities. The redistribution of land to the peasantry in the form of possession if not ownership – a kind of return to real or fictitious preconquest and colonial forms of land tenure – did peak during the avowedly reformist, and even modestly radical presidency of Lázaro Cárdenas (1934-1940) after making only halting progress under his predecessors since the 1920s. From 1940 to 1965, the cultivated area in Mexico grew at 3.7 percent per year and the rise in productivity in basic food crops was 2.8 percent per year.

Nevertheless, the long-run effects of the agrarian reform and land redistribution have been predictably controversial. Under the presidency of Carlos Salinas (1988-1994) the reform was officially declared over, with no further land redistribution to be undertaken and the legal status of the ejido definitively changed. The principal criticism of the ejido was that, in the long run, it encouraged inefficiently small landholding per farmer and, by virtue of its limitations on property rights, made agricultural credit difficult for peasants to obtain.[47]

There is no doubt these are justifiable criticisms, but they have to be placed in context. Cárdenas’ predecessors in office, Alvaro Obregón (1924-1928) and Plutarco Elías Calles (1928-1932) may well have preferred a more commercial model of agriculture with larger, irrigated holdings. But it is worth recalling that one of the original agrarian leaders of the Revolution, Emiliano Zapata, had an uneasy relationship with Madero, who saw the Revolution in mostly political terms, from the start and quickly rejected Madero’s leadership in favor of restoring peasant lands in his native state of Morelos.  Cárdenas, who was in the midst of several major maneuvers that would require widespread popular support—such as the expropriation of foreign oil companies operating in Mexico in March 1938—was undoubtedly sensitive to the need to mobilize the peasantry on his behalf. The agrarian reform of his presidency, which surpassed that of any other, needs to be considered in those terms as well as in terms of economic efficiency.[48]

Cárdenas’ presidency also coincided with the continuation of the Great Depression. Like other countries in Latin America, Mexico was hard hit by the Great Depression, at least through the early 1930s.  All sorts of consumer goods became scarcer, and the depreciation of the peso raised the relative price of imports. As had happened previously in Mexican history (1790-1810, during the Napoleonic Wars and the disruption of the Atlantic trade), in the medium term domestic industry was nevertheless given a stimulus and import substitution, the subsequent core of Mexico’s industrialization program after World War II, was given a decisive boost. On the other hand, Mexico also experienced the forced “repatriation” of people of Mexican descent, mostly from California, of whom 60 percent were United States citizens. The effects of this movement—the emigration of the Revolution in reverse—has never been properly analyzed. The general consensus is that World War II helped Mexico to prosper. Demand for labor and materials from the United States, to which Mexico was allied, raised real wages and incomes, and thus boosted aggregate demand. From 1939 through 1946, real output in Mexico grew by approximately 50 percent. The growth in population accelerated as well as the country began to move into the later stages of the demographic transition, with a falling death rate, while birth rates remained high.[49]


From Miracle to Meltdown: 1950-1982  

The history of import substitution manufacturing did not begin with postwar Mexico, but few countries (especially in Latin America) became as identified with the policy in the 1950s, and with what Mexicans termed the emergence of “stabilizing development.” There was never anything resembling a formal policy announcement, although Raúl Prebisch’s 1949 manifesto, “The Economic Development of Latin America and its Principal Problems” might be regarded as supplying one. Prebisch’s argument, that a directed change in the composition of imports toward capital goods to facilitate domestic industrialization was, in essence, the basis of the policy that Mexico followed. Mexico stabilized the nominal exchange rate at 12.5 pesos to the dollar in 1954, but further movement in the real exchange rate (until the 1970s) were unimportant. The substantive bias of import substitution in Mexico was a high effective rate of protection to both capital and consumer goods. Jaime Ros has calculated these rates in 1960 ranged between 47 and 85 percent, and between 33 and 109 percent in 1980. The result, in the short to intermediate run, was very rapid rates of economic growth, averaging 6.5 percent in 1950 through 1973. Other than Brazil, which also followed an import substitution regime, no country in Latin America experienced higher rates of growth. Mexico’s was substantially above the regional average. [50]

[See the historical graph of population growth in Mexico through 2000 below]


Source: Essentially, Estadísticas Históricas de México (various editions since 1999; the most recent is 2014) (Accessed July 20, 2016)


But there were unexpected results as well. The contribution of labor to GDP growth was 14 percent. Capital’s contribution was 53 percent, and the remainder, total factor productivity (TFP) 28 percent.[51] As a consequence, while Mexico’s growth occurred through the accumulation of capital, the distribution of income became extremely skewed. The ratio of the top 10 percent of household income to the bottom 40 percent was 7 in 1960, and 6 in 1968. Even supporters of Mexico’s development program, such as Carlos Tello, conceded that it probable that it was the organized peasants and workers experienced an effective improvement of their relative position. The fruits of the Revolution were unevenly distributed, even among the working class.[52]

By “organized” one means such groups as the most important labor union in the country, the CTM (Confederation of Mexican Workers) or the nationally recognized peasant union, the CNC, both of which formed two of the three organized sectors of the official government party, the PRI, or Party of the Institutional Revolution that was organized in 1946. The CTM in particular was instrumental in supporting the official policy of import substitution, and thus benefited from government wage setting and political support. The leaders of these organizations became important political figures in their own right. One, Fidel Velázquez, as both a federal senator and the head of the CTM from 1941 to his death in 1997. The incorporation of these labor and peasant groups into the political system offered the government both a means of control and a guarantee of electoral support. They became pillars of what the Peruvian writer Mario Vargas Llosa famously called “the perfect dictatorship” of the PRI from 1946 to 2000, during which the PRI held a monopoly of the presidency and the important offices of state. In a sense, import substitution was the economic ideology of the PRI.[53]

Labor and economic development during the years of rapid growth is, like many others, a debated subject. While some have found strong wage growth, others, looking mostly at Mexico City, have found declining real wages. Beyond that, there is the question of informality and a segmented labor market. Were workers in the CTM the real beneficiaries of economic growth, while others in the informal sector (defined as receiving no social security payments, meaning roughly two-thirds of Mexican workers) did far less well? Obviously, the attraction of a segmented labor market model can address one obvious puzzle: why would industry substitute capital for labor, as it obviously did, if real wages were not rising? Postulating an informal sector that absorbed the rapid influx of rural migrants and thus held nominal wages steady while organized labor in the CTM got the benefit of higher negotiated wages, but in so doing, limited their employment is an attractive hypothesis, but would not command universal agreement. Nothing has been resolved, at least for the period of the “Miracle.” After Mexico entered a prolonged series of economic crises in the 1980s—here labelled as “meltdown”—the discussion must change, because many hold that the key to relative political stability and the failure of open unemployment to rise sharply can be explained by falling real wages.

The fiscal basis on which the years of the Miracle were constructed was conventional, not to say conservative.[54] A stable nominal exchange rate, balanced budgets, limited public borrowing, and a predictable monetary policy were all predicated on the notion that the private sector would react positively to favorable incentives. By and large, it did. Until the late 1960s, foreign borrowing was considered inconsequential, even if there was some concern on the horizon that it was starting to rise. No one foresaw serious macroeconomic instability. It is worth consulting a brief memorandum from Secretary of State Dean Rusk to President Lyndon Johnson (Washington, December 11, 1968) –to get some insight into how informed contemporaries viewed Mexico. The instability that existed was seen as a consequence of heavy-handedness on the part of the PRI and overreaction in the security forces. Informed observers did not view Mexico’s embrace of import-substitution industrialization as a train wreck waiting to happen. Historical actors are rarely so prescient.[55]


Slowing of the Miracle and Echeverría

The most obvious problems in Mexico were political. They stemmed from the increasing awareness that the limits of the “institutional revolution” had been reached, particularly regarding the growing democratic demands of the urban middle classes. The economic problem, which was far from obvious, was that import substitution had concentrated income in the upper 10 per cent of the population, so that domestic demand had begun to stagnate. Initially at least, public sector borrowing could support a variety of consumption subsidies to the population, and there were also efforts to transfer resources out of agriculture via domestic prices for staples such as maize. Yet Mexico’s population was also growing at the rate of nearly 3 percent per year, so that the long term prospects for any of these measures were cloudy.

At the same time, growing political pressures on the PRI, mostly dramatically manifest in the army’s violent repression of student demonstrators at Tlatelolco in 1968 just prior to the Olympics, had convinced some elements in the PRI, people like Carlos Madrazo, to argue for more radical change. The emergence of an incipient guerilla movement in the state of Guerrero had much the same effect. The new president, Luis Echeverría (1970-76), openly pushed for changes in the distribution of income and wealth, incited agrarian discontent for political purposes, dramatically increased government spending and borrowing, and alienated what had typically been a complaisant, if not especially friendly private sector.

The country’s macroeconomic performance began to deteriorate dramatically. Inflation, normally in the range of about 5 percent, rose into the low 20 percent range in the early 1970s. The public sector deficit, fueled by increasing social spending, rose from 2 to 7 percent of GDP. Money supply growth now averaged about 14 percent per year. Real GDP growth had begun to slip after 1968 and in the early 1970s, in deteriorated more, if unevenly. There had been clear convergence of regional economies in Mexico between 1930 and 1980 because of changing patterns of industrialization in the northern and central regions of the country.  After 1980, that process stalled and regional inequality again widened. [56]

While there is a tendency to blame Luis Echeverria for all or most of these developments, this forgets that his administration coincided with the First OPEC oil shock (1973) and rapidly deteriorating external conditions. Mexico had, as yet, not discovered the oil reserves (1978) that were to provide a temporary respite from economic adjustment after the shock of the peso devaluation of 1976—the first change in its value in over 20 years. At the same time, external demand fell, principally transmitted from the United States, Mexico’s largest trading partner, where the economy had fallen into recession in late 1973. Yet it seems reasonable to conclude that the difficult international environment, while important in bring Mexico’s “miracle” period to a close, was not helped by Echeverría’s propensity for demagoguery, of the loss of fiscal discipline that had long characterized government policy, at least since the 1950s. The only question to be resolved was to what sort of conclusion the period would come. The answer, unfortunately, was disastrous.[57]


Meltdown: The Debt Crisis, the Lost Decade and After

In contemporary parlance, Mexico had passed from “stabilizing” to “shared” development under Echeverría. But the devaluation of 1976 from 12.5 to 20.5 pesos to the dollar suggested that something had gone awry. One might suppose that some adjustment in course, especially in public spending and borrowing, would have occurred. But precisely the opposite occurred. Between 1976 and 1979, nominal federal spending doubled. The budget deficit increased by a factor of 15. The reason for this odd performance was the discovery of crude oil in the Gulf of Mexico, perhaps unsurprising in light of the spiking prices of the 1970s (the oil shocks of 1973-74, 1978-79), but nevertheless of considerable magnitude. In 1975, Mexico’s proven reserves were 6 billion barrels of oil. By 1978, they had increased to 40 billion. President López Portillo set himself to the task of “administering abundance” and Mexican analysts confidently predicted crude oil at $100 a barrel (when it stood at $37 in current prices in 1980). The scope of the miscalculation was catastrophic. At the same time, encouraged by bank loan pushing and effectively negative real rates of interest, Mexico borrowed abroad. Consumption subsidies, while vital in the face of slowing import substitution, were also costly, and when supported by foreign borrowing, unsustainable, but foreign indebtedness doubled between 1976 and 1979, and even further thereafter.

Matters came to a head in 1982. By then, Mexico’s foreign indebtedness was estimated at over $80 billion dollars, an increase from less than $20 billion in 1975. Real interest rates had begun to rise in the United States in mid-1981, and with Mexican borrowing tied to international rates, debt service rapidly increased. Oil revenue, which had come to constitute the great bulk of foreign exchange, followed international crude prices downward, driven in large part by a recession that had begun in the United States in mid-1981. Within six months, Mexico, too, had fallen into recession. Real per capital output was to decline by 8 percent in 1982.  Forced to sharply devalue, the real exchange rate fell by 50 percent in 1982 and inflation approached 100 percent. By the late summer, Finance Minister Jesus Silva Herzog admitted that the country could not meet an upcoming payment obligation, and was forced to turn to the US Federal Reserve, to the IMF, and to a committee of bank creditors for assistance. In late August, in a remarkable display of intemperance, President López Portillo nationalized the banking system. By December 20, 1982, Mexico’s incoming President, Miguel de la Madrid (1982-88) appeared, beleaguered, on the cover of Time Magazine framed by the caption, “We are in an Emergency.”  It was, as the saying goes, a perfect storm, and with it, the Debt Crisis and the “Lost Decade” in Mexico had begun. It would be years before anything resembling stability, let alone prosperity, was restored. Even then, what growth there was a pale imitation of what had occurred during the decades of the “Miracle.”


The 1980s

The 1980s were a difficult decade.[58]  After 1981, annual real per capita growth would not reach 4 percent again until 1989, and in 1986, it fell by 6 percent. In 1987, inflation reached 159 percent. The nominal exchange rate fell by 139 percent in 1986-1987. By the standards of the years of stabilizing development, the record of the 1980s was disastrous. To complete the devastation, on September 19, 1985, the worst earthquake in Mexican history, 7.8 on the Richter Scale, devastated large parts of central Mexico City and killed 5 thousand (some estimates run as high as 25 thousand), many of whom were simply buried in mass graves. It was as if a plague of biblical proportions had struck the country.

Massive indebtedness produced a dramatic decline in the standard of living as structural adjustment occurred. Servicing the debt required the production of an export surplus in non-oil exports, which in turn, required a reduction in domestic consumption. In an effort to surmount the crisis, the government implemented an agreement between organized labor, the private sector, and agricultural producers called the Economic Solidarity Pact (PSE). The PSE combined an incomes policy with fiscal austerity, trade and financial liberalization, generally tight monetary policy, and debt renegotiation and reduction. The centerpiece of the “remaking” of the previously inward orientation of the domestic economy was the North American Free Trade Agreement (NAFTA, 1993) linking Mexico, the United States, and Canada. While average tariff rates in Mexico had fallen from 34 percent in 1985 to 4 percent in 1992—even before NAFTA was signed—the agreement was generally seen as creating the institutional and legal framework whereby the reforms of Miguel de la Madrid and Carlos Salinas (1988-1994) would be preserved. Most economists thought its effects would be relatively larger in Mexico than in the United States, which generally appears to have been the case. Nevertheless, NAFTA has been predictably controversial, as trade agreements are wont to be. The political furor (and, in some places, euphoria) surrounding the agreement have faded, but never entirely disappeared. In the United States in particular, NAFTA is blamed for deindustrialization, although pressure on manufacturing, like trade liberalization itself, was underway long before NAFTA was negotiated. In Mexico, there has been much hand wringing over the fate of agriculture and small maize producers in particular. While none of this is likely to cease, it is nevertheless the case that there has been a large increase in the volume of trade between the NAFTA partners. To dismiss this is, quite plainly, misguided, even where sensitive and well organized political constituencies are concerned. But the legacy of NAFTA, like most everything in Mexican economic history, remains unsettled.


Post Crisis: No Miracles

Still, while some prosperity was restored to Mexico by the reforms of the 1980s and 1990s, the general macroeconomic results have been disappointing, not to say mediocre. The average real compensation per person in manufacturing in 2008 was virtually unchanged from 1993 according to the Instituto Nacional De Estadística  Geografía e Informática, and there is little reason to think the compensation has improved at all since then. It is generally conceded that per capita GDP growth has probably averaged not much more than 1 percent a year. Real GDP growth since NAFTA according to the OECD has rarely reached 5 percent and since 2010, it has been well below that.



Source: (Accessed July 21, 2016). The vertical scale cuts the horizontal axis at 1982


For virtually everyone in Mexico, the question is why, and the answers proposed include virtually any plausible factor: the breakdown of the political system after the PRI’s historic loss of presidential power in 2000; the rise of China as a competitor to Mexico in international markets; the explosive spread of narcoviolence in recent years, albeit concentrated in the states of Sonora, Sinaloa, Tamaulipas, Nuevo León and Veracruz; the results of NAFTA itself; the failure of the political system to undertake further structural economic reforms and privatizations after the initial changes of the 1980s, especially regarding the national oil monopoly, Petroleos Mexicanos (PEMEX); the failure of the border industrialization program (maquiladoras) to develop substantive backward linkages to the rest of the economy. This is by no means an exhaustive list of the candidates for poor economic performance. The choice of a cause tends to reflect the ideology of the critic.[59]

Yet it seems that, at the end of the day, the reason why post-NAFTA Mexico has failed to grow comes down to something much more fundamental: a fear of growing, embedded in the belief that the collapse of the 1980s and early 1990s (including the devastating “Tequila Crisis” of 1994-1995, which resulted in a another enormous devaluation of the peso after an initial attempt to contain the crisis was bungled)  was so traumatic and costly as to render event modest efforts to promote growth, let alone the dirigisme of times past, as essentially unwarranted. The central bank, the Banco de México (Banxico) rules out the promotion of economic growth as part of its remit—even as a theoretical proposition, let alone as a goal of macroeconomic policy– and concerns itself only with price stability. The language of its formulation is striking. “During the 1970s, there was a debate as to whether it was possible to stimulate economic growth via monetary policy.  As a result, some governments and central banks tried to reduce unemployment through expansive monetary policy.  Both economic theory and the experience of economies that tried this prescription demonstrated that it lacked validity. Thus, it became clear that monetary policy could not actively and directly stimulate economic activity and employment. For that reason, modern central banks have as their primary goal the promotion of price stability” (translation mine). Banxico is not the Fed: there is no dual mandate in Mexico.[60]

The Mexican banking system has scarcely made things easier. Private credit stands at only about a third of GDP. In recent years, the increase in private sector savings has been largely channeled to government bonds, but until quite recently, public sector deficits were very small, which is to say, fiscal policy has not been expansionary. If monetary and fiscal policy are both relatively tight, if private credit is not easy to come by, and if growth is typically presumed to be an inevitable concomitant to economic stability for which no actor (other than the private sector) is deemed responsible, it should come as no surprise that economic growth over the past two decades has been lackluster.  In the long run, aggregate supply determines real GDP, but in the short run, nominal demand matters: there is no point in creating productive capacity to satisfy demand that does not exist. And, unlike during the period of the Miracle and Stabilizing Development, attention to demand since 1982 has been limited, not to say off the table completely. It may be understandable, but Mexico’s fiscal and monetary authorities seem to suffer from what could be termed, “Fear of Growth.” For better or worse, the results are now on display. After its current (2016) return to a relatively austere budget, it remains to be seen how the economic and political system in contemporary Mexico handles slow economic growth. For that would now seem to be, in a basic sense, its largest challenge for the future.

[1] I am grateful to Ivan Escamilla and Robert Whaples for their careful readings and thoughtful criticisms.

[2] The standard reference work is Sandra Kuntz Ficker, (ed), Historia económica general de México. De la Colonia a nuestros días (México, DF: El Colegio de Mexico, 2010).

[3] Oscar Martinez, Troublesome Border (rev. ed., University of Arizona Press: Tucson, AZ, 2006) is the most helpful general account in English.

[4] There are literally dozens of general accounts of the pre-conquest world. A good starting point is Richard E.W. Adams, Prehistoric Mesoamerica (3d ed., University of Oklahoma Press: Norman, OK, 2005). More advanced is Richard E.W. Adams and Murdo J. Macleod, The Cambridge History of the Mesoamerican Peoples: Mesoamerica. (2 parts, New York: Cambridge University Press, 2000).

[5] Nora C. England and Roberto Zavala Maldonado, “Mesoamerican Languages” Oxford Bibliographies

(Accessed July 10, 2016)

[6] For an introduction to the nearly endless controversy over the pre- and post-contact population of the Americas, see William M. Denevan (ed.), The Native Population of the Americas in 1492 (2d rev ed., Madison: University of Wisconsin Press, 1992).

[7] Sherburne F Cook and Woodrow Borah, Essays in Population History: Mexico and California (Berkeley, CA: University of California Press, 1979), p. 159.

[8]Gene C. Wilken, Good Farmers Traditional Agricultural Resource Management in Mexico and Central America (Berkeley: University of California Press, 1987), p. 24.

[9] Bernard Ortiz de Montellano, Aztec Medicine Health and Nutrition (New Brunswick, NJ: Rutgers University Press, 1990).

[10] Bernardo García Martínez, “Encomenderos españoles y British residents: El sistema de dominio indirecto desde la perspectiva novohispana”, in Historia Mexicana, LX: 4 [140] (abr-jun 2011), pp. 1915-1978.

[11] These epidemics are extensively and exceedingly well documented. One of the most recent examinations is Rodofo Acuna-Soto, David W. Stahle, Matthew D. Therrell , Richard D. Griffin,  and Malcolm K. Cleaveland, “When Half of the Population Died: The Epidemic of Hemorrhagic Fevers of 1576 in Mexico,” FEMS Microbiology Letters 240 (2004) 1–5. (http://, accessed July 10, 2016.) See in particular the exceptional map and table on pp. 2-3.

[12] See in particular, Bernardo García Martínez. Los pueblos de la Sierrael poder y el espacio entre los indios del norte de Puebla hasta 1700 (Mexico, DF: El Colegio de México, 1987) and Elinor G.K. Melville, A Plague of Sheep: Environmental Consequences of the Conquest of Mexico (New York: Cambridge University Press, 1997).

[13] J. H. Elliott, “A Europe of Composite Monarchies,” Past & Present 137 (The Cultural and Political Construction of Europe): 48–71; Guadalupe Jiménez Codinach, “De Alta Lealtad: Ignacio Allende y los sucesos de 1808-1811,” in Marta Terán and José Antonio Serrano Ortega, eds., Las guerras de independencia en la América Española (La Piedad, Michoacán, MX: El Colegio de Michoacán, 2002), p. 68.

[14] Richard Salvucci, “Capitalism and Dependency in Latin America,” in Larry Neal and Jeffrey G. Williamson, eds., The Cambridge History of Capitalism (2 vols.), New York: Cambridge University Press, 2014), 1: pp. 403-408.

[15] Source: TePaske Page, (Accessed July 19, 2016)

[16]  Edith Boorstein Couturier, The Silver King: The Remarkable Life of the Count of Regla in Colonial Mexico (Albuquerque, NM: University of New Mexico Press, 2003).  Dana Velasco Murillo, Urban Indians in a Silver City: Zacatecas, Mexico, 1546-1810 (Stanford, CA: Stanford University Press, 2015), p. 43. The standard work on the subject is David Brading, Miners and Merchants in Bourbon Mexico, 1763-1810 (New York: Cambridge University Press, 1971) But also see Robert Haskett, “Our Suffering with the Taxco Tribute: Involuntary Mine Labor and Indigenous Society in Central New Spain,” Hispanic American Historical Review, 71:3 (1991), pp. 447-475. For silver in China see (accessed July 13, 2016). For the rents of empire question, see Michael Costeloe, Response to Revolution: Imperial Spain and the Spanish American Revolutions, 1810-1840 (New York: Cambridge University Press, 1986).

[17] This is an estimate. David Ringrose concluded that in the 1780s, the colonies accounted for 45 percent of Crown income, and one would suppose that Mexico would account for at least about half of that. See David R. Ringrose, Spain, Europe and the ‘Spanish Miracle’, 1700-1900 (New York: Cambridge University Press, 1996), p. 93; Mauricio Drelichman, “The Curse of Moctezuma: American Silver and the Dutch Disease,” Explorations in Economic History 42:3 (2005), pp. 349-380.

[18] José Antonio Escudero, El supuesto memorial del Conde de Aranda sobre la Independencia de América) México, DF: Universidad Nacional Autónoma de México, 2014) (, accessed July 13, 2016)

[19] Allan J. Kuethe and Kenneth J. Andrien, The Spanish Atlantic World in the Eighteenth Century. War and the Bourbon Reforms, 1713-1796 (New York: Cambridge University Press, 2014) is the most recent account of this period.

[20] Richard J. Salvucci, “Economic Growth and Change in Bourbon Mexico: A Review Essay,” The Americas, 51:2 (1994), pp. 219-231; William B Taylor, Magistrates of the Sacred: Priests and Parishioners in Eighteenth Century Mexico (Palo Alto: Stanford University Press, 1996), p. 24; Luis Jáuregui, La Real Hacienda de Nueva España. Su Administración en la Época de los Intendentes, 1786-1821 (México, DF: UNAM, 1999), p. 157.

[21] Jeremy Baskes, Staying AfloatRisk and Uncertainty in Spanish Atlantic World Trade, 1760-1820 (Stanford, CA: Stanford University Press, 2013); Xabier Lamikiz, Trade and Trust in the Eighteenth-century Atlantic World: Spanish Merchants and their Overseas Networks (Suffolk, UK: The Boydell Press., 2013). The starting point of all these studies is Clarence Haring, Trade and Navigation between Spain and the Indies in the Time of the Hapsburgs (Cambridge, MA: Harvard University Press, 1918).

[22] The best, and indeed, virtually unique starting point for considering these changes in their broadest dimensions   are the joint works of Stanley and Barbara Stein: Silver, Trade, and War (2003); Apogee of Empire (2004), and Edge of Crisis (2010), All were published by Johns Hopkins University Press and do for the Spanish Empire what Laurence Henry Gipson did for the First British Empire.

[23] The key work is María Eugenia Romero Sotelo, Minería y Guerra. La economía de Nueva España, 1810-1821 (México, DF: UNAM, 1997)

[24] Calculated from José María Luis Mora, Crédito Público ([1837] México, DF: Miguel Angel Porrúa, 1986), pp. 413-460. Also see Richard J. Salvucci, Politics, Markets, and Mexico’s “London Debt,” 1823-1887 (NY: Cambridge University Press, 2009).

[25] Jesús Hernández Jaimes, La Formación de la Hacienda Pública Mexicana y las Tensiones Centro -Periferia, 1821-1835  (México, DF: El Colegio de México, 2013). Javier Torres Medina, Centralismo y Reorganización. La Hacienda Pública Durante la Primera República Central de México, 1835-1842 (México, DF: Instituto Mora, 2013). The only treatment in English is Michael P. Costeloe, The Central Republic in Mexico, 1835-1846 (New York: Cambridge University Press, 1993).

[26] An agricultural worker who worked full time, 6 days a week, for the entire year (a strong assumption), in Central Mexico could have expected cash income of perhaps 24 pesos. If food, such as beans and tortilla were added, the whole pay might reach 30. The figure of 40 pesos comes from considerably richer agricultural lands around the city of Querétaro, and includes as an average income from nonagricultural employment as well, which was higher.  Measuring Worth would put the relative historic standard of living value in 2010 prices at $1.040, with the caveat that this is relative to a bundle of goods purchased in the United States. (

[27]The phrase comes from Guido di Tella and Manuel Zymelman. See Colin Lewis, “Explaining Economic Decline: A review of recent debates in the economic and social history literature on the Argentine,” European Review of Latin American and Caribbean Studies, 64 (1998), pp. 49-68.

[28] Francisco Téllez Guerrero, De reales y granos. Las finanzas y el abasto de la Puebla de los Angeles, 1820-1840 (Puebla, MX: CIHS, 1986). Pp. 47-79.

[29]This is based on an analysis of government lending contracts. See Rosa María Meyer and Richard Salvucci, “The Panic of 1837 in Mexico: Evidence from Government Contracts” (in progress).

[30] There is an interesting summary of this data in U.S Govt., 57th Cong., 1 st sess., House, Monthly Summary of Commerce and Finance of the United States (September 1901) (Washington, DC: GPO, 1901), pp. 984-986.

[31] Salvucci, Politics and Markets, pp. 201-221.

[32] Miguel Galindo y Galindo, La Gran Década Nacional o Relación Histórica de la Guerra de Reforma, Intervención Extranjera, y gobierno del archiduque Maximiliano, 1857-1867 ([1902], 3 vols., México, DF: Fondo de Cultura Económica, 1987).

[33] Carmen Vázquez Mantecón, Santa Anna y la encrucijada del Estado. La dictadura, 1853-1855 (México, DF: Fondo de Cultura Económica, 1986).

[34] Moramay López-Alonso, Measuring Up: A History of Living Standards in Mexico, 1850-1950 (Stanford, CA: Stanford University Press, 2012);  Amilcar Challú and Auroro Gómez Galvarriato, “Mexico’s Real Wages in the Age of the Great Divergence, 1730-1930,” Revista de Historia Económica 33:1 (2015), pp. 123-152; Amílcar E. Challú, “The Great Decline: Biological Well-Being and Living Standards in Mexico, 1730-1840,” in Ricardo Salvatore, John H. Coatsworth, and Amilcar E. Challú, Living Standards in Latin American History: Height, Welfare, and Development, 1750-2000 (Cambridge, MA: Harvard University Press, 2010), pp. 23-67.

[35]See Challú and Gómez Galvarriato, “Real Wages,” Figure 5, p. 101.

[36] Luis González et al, La economía mexicana durante la época de Juárez (México, DF: 1976).

[37] Teresa Rojas Rabiela and Ignacio Gutiérrez Ruvalcaba, Cien ventanas a los países de antaño: fotografías del campo mexicano de hace un siglo) (México, DF: CONACYT, 2013), pp. 18-65.

[38] Alma Parra, “La Plata en la Estructura Económica Mexicana al Inicio del Siglo XX,” El Mercado de Valores 49:11 (1999), p. 14.

[39] Sandra Kuntz Ficker, Empresa Extranjera y Mercado Interno: El Ferrocarril Central Mexicano (1880-1907) (México, DF: El Colegio de México, 1995).

[40] Priscilla Connolly, El Contratista de Don Porfirio. Obras públicas, deuda y desarrollo desigual (México, DF: Fondo de Cultura Económica, 1997).

[41] Most notably John Tutino, From Insurrection to Revolution in Mexico: Social Bases of Agrarian Violence, 1750-1940 (Princeton, NJ: Princeton University Press, 1986). p. 229. My growth figures are based on the INEGI, Estadísticas Historicas de México, 2014) (, Accessed July 15, 2016).

[42] Stephen H. Haber, Industry and Underdevelopment: The Industrialization of Mexico, 1890-1940 (Stanford, CA: Stanford University Press, 1989); Aurora Gómez-Galvarriato, Industry and Revolution: Social and Economic Change in the Orizaba Valley (Cambridge, MA: Harvard University Press, 2013).

[43] There are literally dozens of accounts of the Revolution. The usual starting point, in English, is Alan Knight, The Mexican Revolution (reprint ed., 2 vols., Lincoln, NE: 1990).

[44] This argument has been made most insistently in Armando Razo and Stephen Haber, “The Rate of Growth of Productivity in Mexico, 1850-1933: Evidence from the Cotton Textile Industry,” Journal of Latin American Studies 30:3 (1998), pp. 481-517.

[45]Robert McCaa, “Missing Millions: The Demographic Cost of the Mexican revolution,” Mexican Studies/Estudios Mexicanos 19:2 (Summer 2003): 367-400; Virgilio Partida-Bush, “Demographic Transition, Demographic Bonus, and Ageing in Mexico, “ Proceedings of the United Nations Expert Group Meeting on Social and Economic Implications of Changing Population Age Structures. ( (Accessed July 15, 2016), pp. 287-290.

[46] An implication of the studies of Alan Knight, and of Clark Reynolds, The Mexican Economy: Twentieth Century Structure and Growth (New Haven, CT: Yale University Press, 1971).

[47] An interesting summary of revisionist thinking on the nature and history of the ejido appears in Emilio Kuri, “La invención del ejido, Nexos, January 2015.

[48]Alan Knight, “Cardenismo: Juggernaut or Jalopy?” Journal of Latin American Studies, 26:1 (1994), pp. 73-107.

[49] Stephen Haber, “The Political Economy of Industrialization,” in Victor Bulmer-Thomas, John Coatsworth, and Roberto Cortes-Conde, eds., The Cambridge Economic History of Latin America (2 vols., New York: Cambridge University Press, 2006), 2:  537-584.

[50]Again, there are dozens of studies of the Mexican economy in this period. Ros’ figures come from “Mexico’s Trade and Industrialization Experience Since 1960: A Reconsideration of Past Policies and Assessment of Current Reforms,” Kellogg Institute (Working Paper 186, January 1993). For a more general study, see Juan Carlos Moreno-Brid and Jaime Ros, Development and Growth in the Me3xican Economy. A Historical Perspective (New York: Oxford University Press, 2009). A recent Spanish language treatment is Enrique Cárdenas Sánchez, El largo curso de la economía mexicana. De 1780 a nuestros días (México, DF: Fondo de Cultura Económica, 2015). A view from a different perspective is Carlos Tello, Estado y desarrollo económico. México 1920-2006 (México, DF, UNAM, 2007).

[51]André A. Hoffman, Long Run Economic Development in Latin America in a Comparative Perspective: Proximate and Ultimate Causes (Santiago, Chile: CEPAL, 2001), p. 19.

[52]Tello, Estado y desarrollo, pp. 501-505.

[53] Mario Vargas Llosa, “Mexico: The Perfect Dictatorship,” New Perspectives Quarterly 8 (1991), pp. 23-24.

[54] Rafael Izquierdo, Política Hacendario del Desarrollo Estabilizador, 1958-1970 (México, DF: Fondo de Cultura Económica, 1995. The term stabilizing development was itself termed by Izquierdo as a government minister.

[55]See Foreign Relations of the United States, 1964-1968. Mexico and Central America (Accessed July 15, 2016).

[56] José Aguilar Retureta, “The GDP Per Capita of the Mexican Regions (1895:1930): New Estimates, Revista de Historia Económica, 33: 3 (2015), pp. 387-423.

[57] For a contemporary account with a sense of the immediacy of the end of the Echeverría regime, see “Así se devaluó el peso,” Proceso, November 13, 1976.

[58] The standard account is Stephen Haber, Herbert Klein, Noel Maurer, and Kevin Middlebrook, Mexico since 1980 (New York: Cambridge University Press, 2008). A particularly astute economic account is Nora Lustig, Mexico: The Remaking of an Economy (2d ed., Washington, DC: The Brookings Institution, 1998).  But also Louise E. Walker, Waking from the Dream. Mexico’s Middle Classes After 1968 (Stanford, CA: Stanford University Press, 2013).

[59] See, for example, Jaime Ros Bosch, Algunas tesis equivocadas sobre el estancamiento económico de México (México, DF: El Colegio de México, 2013).

[60] La Banca Central y la Importancia de la Estabilidad Económica  June 16, 2008.  (, Accessed July 15, 2016.). Also see Brian Winter, “This Man is Brilliant: So Why Doesn’t Mexico’s Economy Grow Faster?” Americas Quarterly ( (Accessed July 21, 2016)



Handbook of Cliometrics

Editor(s):Diebolt, Claude
Haupert, Michael
Reviewer(s):Mitch, David

Published by EH.Net (July 2016)

Claude Diebolt and Michael Haupert, editors, Handbook of Cliometrics. Berlin and Heidelberg: Springer, 2016. xxii + 590 pp.  $149 (hardcover), ISBN: 978-3-642-40405-4.

Reviewed for EH.Net by David Mitch, Department of Economics, University of Maryland – Baltimore County.

There is by now a long tradition of handbooks in economics. And they have varied over the decades in their intended audience and aims. J.M. Keynes in his 1922 introduction to the Cambridge Economic Handbook series described it as “intended to convey to the ordinary reader and to the uninitiated student some conception of the general principles of thought which economists apply to economic problems.”  Kenneth Arrow and Michael Intrilligator in their introduction to the North-Holland Handbooks in Economics series describe them as “a definitive source, reference and teaching supplement for use by professional researchers and advanced graduate students. Each Handbook contains self-contained surveys of the current state of a branch of economics in the form of chapters prepared by leading specialists on various aspects of this branch of economics.”

Claude Diebolt (University of Strasbourg) and Michael Haupert (University of Wisconsin-La Crosse), the editors of Springer’s Handbook of Cliometrics have not clearly identified the audience at which the volume is aimed. They do indicate in their introduction (p. xi) that the contributions “stress the usefulness of cliometrics for economists, historians, and social scientists in general.” Their preface and introduction describe the handbook as one that “contains digested knowledge in an easily accessible format,” (p. xv) while also asserting the aim “to foster world-class research” (p. xv).  They have followed the lead of North-Holland’s handbook series of choosing leading specialists in various branches of cliometrics to write its chapters but appear to have given them quite free reign regarding intended audience, scope, and methodology employed.   Indeed one message the volume as a whole conveys is the diversity of formats that can be associated with cliometric history ranging from exercises in applied econometrics to purely verbal narrative expositions.

The volume comes in at just under 600 pages. It is divided into 22 chapters subsumed under some 7 headings.  This implies an average allotment of 27 pages per chapter with the actual chapters varying from 15 to 35 pages in length.  By way of comparison, the North-Holland Handbook of Economic Growth, Vols. 1A and 1B (to choose just one immediately available volume from the many in the series) runs to a total  of 1800 pages in some 28 chapters for an average length of 64 pages per chapter.  The considerable relative restriction in length for the Springer Handbook implies tradeoffs between the scope and level of the audience for a given contribution.  Some contributions in this volume provide an overview of the forest, taking up general concepts such as labor markets or human capital or landmark episodes such as the Great Depression and accomplish this by aiming at primarily an undergraduate audience albeit with elegance and incisiveness.  Other contributions focus on specific trees, considering a few key issues, key studies or key methodologies which they cover in a depth more suitable for advanced graduate students and researchers.

What choice of topics and organization is appropriate for a handbook of cliometrics?  Insofar as cliometrics is a method rather than substantive economic history, organization according to chronological or geographical coverage would not seem in order. If cliometrics is defined as the application of economic theory and quantitative methods to the study of history, then what is to be covered in such a handbook over and above the theoretical and quantitative tools to be applied? Are there either general principles or specific techniques that can be articulated for the application of economic theory and methods to the study of history? Forums on the future of economic history (such as that from the 2015 Economic History Association annual meeting published in the December, 2015 Journal of Economic History) suggest no shortage of methodological advances to consider including Geographical Information Systems, big data and computational power, and use of quasi-experimental methods — to name just some.

The editors acknowledge the difficulty of deciding what to include and that some important and historically significant topics were excluded (p. xi) and point to the goals of achieving “variety over time, topic, and geography” and “a sampling of topics cliometrics has helped to transform over the past half-century” as principles of selection.

The seven section headings chosen for the volume seem more Fogelian than Northian in conception.  Four of the categories, Human Capital, Finance, Innovation, and Government have clear parallels with headings in The Reinterpretation of American Economic History, the important 1972 compilation by Fogel and Engerman of cliometric work. The three other categories that round off the work include a section on the history of cliometrics, a section on growth, and a section on statistics and cycles.  While Douglass North and new institutional approaches certainly get mention throughout this handbook, none of the chapters give extended coverage to institutions or a Northian framework, an understandable decision given space constraints.

The opening section on history contains both Michael Haupert’s history of cliometrics and Peter Temin’s effort to link economic history and economic development via his own illustrious career experiences.  Almost half of Haupert’s history of cliometrics is actually devoted to the history of pre-cliometric economic history; which limits the detail he provides to either old or new economic history.  Such important episodes as the controversy over the cliometrics of slavery are notably missing from his account, though it does provide a quite useful entrée to the topic. Peter Temin’s contribution fills in this gap with his insightful romp through selected cliometrics highlights over the past fifty years pointing to parallels and synergies between the study of economic history and economic development.  He offers the perspective of a pioneering practitioner of cliometrics on work by more recent generations of cliometricians. His is one of the few contributions in the volume to give explicit consideration to the quasi-experimental methods that have become widespread in the work of younger cliometricians. He also considers tensions and opportunities in publication strategies aiming at alternatively economic history or mainstream economics journals as outlets.

The second section on human capital has five contributions which differ widely in scope and detail.  Claudia Goldin and Robert Margo provide quite general, albeit cogent, overviews of respectively cliometric work on human capital and labor markets. Given their own scholarly work they both not surprisingly focus on the U.S. case, though Goldin sets this in the global context of unified growth theory with Malthusian, transition, and human capital phases.  Her treatment of education and schooling centers on her landmark 2008 book with Lawrence Katz rather than a detailed overview of recent research. She also treats health as a form of human capital in considering long run trends in mortality and life expectancy.  She does not provide any assessment or even mention of recent age-heaping approaches to estimating human capital historically.  Robert Margo’s treatment of labor markets centers around estimates of long term trends in some basic magnitudes including that of the labor force as a whole, occupational structure, wage structure, and racial differences.  He provides concise but insightful interpretations of these trends utilizing a simple demand and supply framework. Margo does refer to work exploring underlying sources and data limitations but given his space limitations does not do so in any depth.  A major and innovative area of cliometric research since the late 1970s has been in examining the relationship between nutrition, heights, and biological living standards, and disease environments as evidenced in trends in human heights, the field of anthropometrics.  Lee Craig overviews this research and his particular emphasis on nineteenth century U.S. developments allows him some focus in depth, though he does draw extensively on more global evidence.  He considers in more depth than the Goldin chapter the role of improvements in nutrition and in public health measures in improving the biological standard of living.  Franziska Tollen and Joerg Baten’s contribution provides an in-depth survey of the use of age-heaping indicators to estimate human capital.  They go in detail into the methodology of how age-heaping indicators are constructed and survey a wide range of findings stemming from use of the age-heaping approach.  Unlike other contributions in this section the level of detail is more suited to advanced researchers.  Jacob Weisdorf surveys the use of parish registers by cliometricians and economic and demographic historians more generally. He provides a useful description of the registries themselves. And he makes note of their use not only for the English and other Western European cases but also for Africa and potentially for other regions as well. Weisdorf embeds his survey in a discussion of the Malthusian population framework and the unified growth approach of Oded Galor and collaborators through the evidence parish registers can provide on trends in births, deaths, and marriages. He connects with the human capital theme by taking up the important information registries can provide on occupational trends.  He gives coverage to historically integrated occupational coding schemes that have been developed to categorize the occupations sometimes recorded on parish registries as in the work of Marco van Leeuwen, Andrew Miles and others (2004, 2005), but only passing mention to the major Cambridge Group project of using occupational information on parish registers to extend back in time knowledge about trends in English occupational structure (Shaw-Taylor and Wrigley 2014).

Section Three on Economic Growth contains a further five chapters that are quite varied in character and coverage.  Claude Diebolt and Faustine Perrin nominally give coverage to a range of growth theories, although they use the unified growth approach of Oded Galor and David Weil to provide a narrative of growth over the past millennium while offering an extension by incorporating implications of female economic and social empowerment into their discussion.   Gregory Clark offers a cliometric perspective on the British Industrial Revolution centering on the sources of productivity advance and identifying it as driven by an “upturn in the rate of technological innovation” (p. 207).  Although he does not provide an in-depth survey of cliometric work on the Industrial Revolution, Clark does consider some of the leading underlying explanations that have been offered including institutional and intellectual approaches and those grounded in human capital; he argues that none can provide convincing explanations. He thus concludes that the “Industrial Revolution remains one of history’s great mysteries” (p. 232). James Foreman-Peck takes up economic-demographic interactions by using a simple linear specification of the Malthusian model as his starting point and quite effectively uses it as a unifying framework for his review both of empirical evidence and causal estimation strategies. While I would have been interested in seeing further discussion of the implications of relaxing the assumptions of linearity, Foreman-Peck’s contribution should prove an effective teaching tool in showing how some simple micro-specifications can have far-reaching applications.  Emanuele Felice provides a quite detailed discussion of issues involved in constructing GDP estimates that are comparable across countries and over time and even for sub-national regions, as well as turning to the evidence and approaches in using such estimates to examine tendencies to growth convergence and factors influencing these tendencies.  Markus Lampe and Paul Sharp take up the topic of trade, turning first to the importance of trade, then to how to measure the extent of trade and market integration, then to the role of institutions, technology, and policy in determining trade and finally to the measurement and determinants of trade policy. Their coverage is very well informed, but with only a sentence or two to devote to each study they consider, the emphasis is on breadth rather than depth.

Section Four on Finance, has more unity and coherence between its four chapters than other sections of this volume.  Larry Neal’s opening contribution on the cliometrics of finance focuses specifically on surveying the market for sovereign debt from early modern times through the early twentieth century and the market for short-term commercial credit with particular emphasis on exchange rates, including extensive comments for both topics on available data sources. Neal concludes, however, with extended general reflections on both the accomplishments and limitations of the now quite extensive body of cliometric work on finance.  For his contribution, the late John James defines “Payment Systems” as “the complex of financial instruments and relationships that transfer value between buyers and sellers to complete their transactions” (pp. 353-54).  James provides a wide ranging narrative account — suitable for non-specialists that can be viewed as informed by a cliometric framework or spirit rather than directly cliometric — of the evolution of payment systems so defined from the demonetization accompanying the collapse of the Roman Empire through the early twenty-first century U.S.  In contrast to Neal and James, Matthew Jaremski organizes his survey of cliometric work on financial crises methodologically.  He first considers studies that employ survival and hazard models to examine determinants of banking crises, then turns to the use of data envelopment analysis for a production function/efficiency perspective on deposit insurance and then in the last part of the survey considers approaches to deal with simultaneity in the interaction between financial crises and more general economic activity; these include vector auto-regression, instrumental variables approaches and difference-in-difference models.  Jaremski’s exposition is lucid despite the amount of technical detail presented, though it seems aimed at specialists and researchers in the field.  Caroline Fohlin concludes the Finance section with a wide-ranging international comparative perspective on financial systems.  She starts with some basic typologies on financial systems, distinguishing first between functional and institutional perspectives and then to standard distinctions between a) bank-based versus market-based systems, b) universal versus specialized systems and c) relationship versus arms-length systems.  She then turns to the extent to which the actual historical evolution of financial systems adds complexity to these distinctions. She proceeds to consider determinants of choices between the various types of systems she distinguishes and to evidence on the nexus between finance and economic growth.  Throughout her detailed survey of a large number of studies and countries, Fohlin warns against rigid classification by over-arching categories or mono-causal explanations, leaving her with the final conclusion (p. 427) that “history matters.”

The remaining three sections of the volume each contain pairs of contribution.  The two essays in the fifth section on Innovation provides a quite interesting contrast.  Stanley Engerman and the late Nathan Rosenberg comment on “innovation in historical perspective” by arguing that uncertainty associated with the innovation process implies that the richness of historical accounts of the innovation process can capture important aspects that would be missed in an ahistorical theoretical framework. Engerman and Rosenberg were both early contributors to cliometrics; their chapter, as with that of John James described above, can perhaps be seen as more informed by a cliometric framework than involving direct application of either the theoretical or empirical methods associated with Cliometrics.  In contrast, Jochen Streb directly embraces “the Cliometric Study of Innovations,” surveying both theoretical and empirical cliometric studies of the history of innovation with a particular, though not exclusive, focus on patents as measures of innovation.

The sixth section is on “Statistics and Cycles.”  The contribution by Thomas Rahlf in this section on “Statistical Inference” is actually a history of thought of statistical inference during the twentieth century.  He attempts to link this with cliometrics in the last part of his essay by suggesting that Alfred Conrad, John Meyer and others formulating cliometric methodology were informed by a Bayesian approach and that the history of Bayesian statistics is thus relevant for understanding the methodology of cliometrics.  He also suggests that cliometric inference could benefit from further attention to the criticisms of econometric methodology offered by Rudolf Kalman of Kalman filter fame. However, neither of these suggestions is articulated in any detail. The other contribution is by Terence Mills on “Trends, Cycles, and Structural Breaks in Cliometrics,” which offers a helpful primer on developments over the past quarter century in time-series statistics and econometrics pertinent to this topic and provides a number of illustrations based on cliometric work.

In the final section on government Price Fishback contributes an essay focused on a particular historical episode in which the role of government loomed large and on which he has considerable expertise, that of the 1930s Great Depression in the United States. And Jari Eloranta brings his specialist knowledge to surveying a recurring situation in which governments have been prominent, that of war.  Given the large literatures they each consider, Fishback and Eloranta make the quite sensible choice of providing non-technical narrative overviews suitable for undergraduates and general readers.

Given the varying audiences at which the contributions appear to aim, as well as the range of formats and styles of the contributions, it may be more apt to label this volume a companion to cliometrics or a cliometric sampler than a handbook with the comprehensiveness the latter title might imply. Indeed, as already mentioned above, the editors are more circumspect than Springer’s blurb on its website about the comprehensiveness of coverage.  One can readily come up with a list of topics in which cliometrics has made important contributions that are omitted, including coverage of work on the major economic sectors, income and wealth inequality, and (as noted above) extended treatment of institutional approaches. And as suggested above, I would also have welcomed discussion of quasi-experimental approaches — both opportunities and reservations, in light of how prevalent this has become in recent research.  Nevertheless, given the apparent constraints on length presumably set by the publisher, the choice of topics is quite appropriate.  The editors are to be commended for taking on such a challenging yet important assignment and for recruiting such a strong set of contributors.  The resultant volume contains worthwhile contributions that readers from a range of disciplines and varying degrees of commitment to cliometrics will want to consult.   As more and more historians and sociologists, as well as economists, seem to be venturing into financial history, economic history, and the history of capitalism, it would be interesting to know more about how persuaded they will be about the usefulness of cliometrics by the essays in this volume.


Philippe Aghion and Steven N. Durlauf, eds. 2005. Handbook of Economic Growth Vols. 1A and 1B, Amsterdam: North-Holland Elsevier.

William Collins, Kris Mitchener, Ran Abramitzky, and Naomi Lamoreaux. 2015. “Essays: The Future of Economic History,” Journal of Economic History, 75, 4: 1228-1257.

Robert Fogel and Stanley Engerman, editors. 1972. The Reinterpretation of American Economic History, New York: Harper and Row.

Oded Galor and David N. Weil. 2000. “Population, Technology, and Growth: From Malthusian Stagnation to the Demographic Transition and Beyond,” American Economic Review, 90, 4: 806-828.

Claudia Goldin and Lawrence Katz. 2008. The Race between Education and Technology, Cambridge, MA: Harvard University Press.

J.M. Keynes. 1922. “Introduction to H.D. Henderson, Supply and Demand,” Cambridge Economic Handbooks – 1, New York: Harcourt and Brace, pp. v-vi.

Marco H.D. van Leeuwen, Ineke Maas and Andrew Miles. 2004. “Creating a Historical International Standard Classification of Occupations: An Exercise in Multinational, Interdisciplinary Cooperation,” Historical Methods, 37, 4: 186-197.

Bart Van de Putte and Andrew Miles. 2005. “A Social Classification Scheme for Historical Occupational Data,” Historical Methods, 38, 2: 61-94.

Leigh Shaw-Taylor and E.A. Wrigley. 2014. “Occupational Structure and Population Change” in Roderick Floud, Jane Humphries, and Paul Johnson, editors, The Cambridge Economic History of Modern Britain, New Edition, Vol.1, Cambridge: Cambridge University Press, 53-88.

David Mitch is Professor of Economics at the University of Maryland, Baltimore County. He is the author of “Schooling for All by Financing by Some,” Paedagogica Historica, 52: 4 (August, 2016): 325-348.

Copyright (c) 2016 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (July 2016). All EH.Net reviews are archived at

Subject(s):Development of the Economic History Discipline: Historiography; Sources and Methods
Economic Development, Growth, and Aggregate Productivity
Education and Human Resource Development
Financial Markets, Financial Institutions, and Monetary History
Historical Demography, including Migration
History of Economic Thought; Methodology
History of Technology, including Technological Change
Military and War
Industry: Manufacturing and Construction
International and Domestic Trade and Relations
Labor and Employment History
Living Standards, Anthropometric History, Economic Anthropology
Macroeconomics and Fluctuations
Geographic Area(s):General, International, or Comparative
Time Period(s):General or Comparative

Money Changes Everything: How Finance Made Civilization Possible

Author(s):Goetzmann, William N.
Reviewer(s):Neal, Larry

Published by EH.Net (July 2016)

William N. Goetzmann, Money Changes Everything: How Finance Made Civilization Possible.  Princeton: Princeton University Press, 2016. x + 584 pp. $35 (cloth), ISBN: 978-0-691-14378-1.

Reviewed for EH.Net by Larry Neal, Department of Economics, University of Illinois.

Long awaited by other financial historians, myself included, William N. Goetzmann’s book has finally appeared! This, after years of research and teaching during which Goetzmann allowed anyone interested in financial history to view his chapters in progress on-line at: (The website is well worth visiting in any case for the wide selection of primary source materials he has made readily available there for the rest of us.)  The printed product covers defining episodes in the history of finance from ancient Mesopotamia to the sub-prime crisis of 2008.  The introduction explains the themes that underlie the chest-thumping title despite his modest initial disclaimer that, “This book is a somewhat personal narrative about the people, places, and things that, in my view, shaped the history of finance as a technology of civilization” (p. 3). To motivate the structure of the book chapters that follow Goetzmann summarizes the key elements of finance as:
1. Reallocating economic value through time
2. Reallocating risk
3. Reallocating capital
4. Expanding the access to, and the complexity of, these reallocations

After explaining and extolling the virtues of each financial element, however, he broadens and deepens the implications of financial innovations that have occurred through history under each element.  The first element, the re-allocation of economic value through time, he sees as the fundamental feature that allowed civilizations to arise in the first place, wherever and whenever they occurred. Drawing on earlier work by his father, the late historian William H. Goetzmann, he distinguishes cultures as “structures of interrelated institutions, language, ideas, values, myths and symbols.  They tend to be exclusive, even tribal.  Civilizations, on the other hand, are open to new customs and ideas. They are syncretistic, chaotic, and often confusing societal information systems.  They continue to grow in the richness, variety and complexity of societal experience” (p. 9).

Goetzmann concludes with the optimistic view that: “financial technology allowed for more complex political institutions, enhanced social mobility, and greater economic growth – in short, all the major indicators of complex society we call civilization” (p. 14). Following this upbeat overview, there are four major sections, each with a separate introduction to explain the motivation.  Part 1, “From Cuneiform to Classical Civilization,” starts with Babylon and ends with Roman finance making a transition from informal securities markets in the Republic to central control of the money supply and its uses under the Empire.  Part II, “The Financial Legacy of China,” is a thoughtful diversion about the different routes that financial engineers can take, depending on the nature of political controls and contract enforcement.  Part III, the bulk of the book in two hundred pages, describes in loving detail “The European Crucible,” beginning with sovereign debt in Venice and concluding with American substitutes for sovereign debt, often underwritten by Dutch financiers.   Part IV, “The Emergence of Global Markets,” takes the reader into the maelstrom of the late nineteenth, twentieth, and early twenty-first centuries as global finance made its way among competing political visions in the world, all the while becoming increasingly complex — and disruptive.

Part I, “From Cuneiform to Classical Civilization,” focuses on lasting contributions to the rise of civilizations in the West, starting with writing, then cities, and culminates with a “financial architecture” based on record keeping, contract enforcement, a numerical system that permitted compound interest calculations, and astronomical observations based on a calendar year of 360 days (to make interest calculations easier).  This financial architecture held congeries of cities together in mutually beneficial trade networks, but then also allowed the rise of empires and their disruptive consequences.  Especially poignant is the interpretation of the Muraŝu archive discovered in the ruins of ancient Nippur, which must have been one of the financial centers of the Persian Empire.  Three generations of the Muraŝu family maintained their clay tablets recording outstanding claims on property and business ventures, concluding with their aid to a usurper who overthrew the reigning emperor, Sogdianus.  The Muraŝu family organized the financing of the army of his half-brother, Ochus, who became Darius II.  After which, however, the archive testifies to continuing indebtedness and foreclosures of the various financiers.  Goetzmann concludes, “finance could rapidly and powerfully focus economic assets in one time and place for political gain” (p. 68).

The historical record of finance in the ensuring centuries remains largely to be decoded from the millions of clay tablets now dispersed in museums throughout the world, but the Mesopotamian innovations persisted into Grecian times.  The famed orator, Demosthenes, was often hired to express eloquently and convincingly the case of his client, whether an aggrieved creditor or debtor, before a mass jury of Athenian citizens.  His various speeches demonstrate the sophistication and complexity of Athenian private finance. Goetzmann concludes, “The Athenian state was able to induce investors into the equally risky venture of prospecting and mining through mechanisms for dispute resolution and the means by which the state fairly and transparently allotted property rights” (p. 91).

Roman finance, he argues, laid the basis for later development of corporate enterprises and secondary markets in mortgages as the Roman Republic expanded at the expense of Grecian (and Phoenician) city-states, while adopting their most successful and proven financial techniques, including the use of standardized coins to facilitate impersonal exchanges throughout the unified empire.  Why some forms of private finance, annuities based on rental properties, disappear from the historical record after the rise of the Empire remains a mystery.  The later travails of the Roman Empire with increasingly desperate measures for war finance, moreover, elicit a comparison with the contemporaneous Han Empire in China.

Part II, “The Financial Legacy of China,” basically resolves the so-called “Needham Paradox,” the failure of the technology advances of the Song Dynasty to generate an industrial revolution or further scientific advances that occurred much later in Europe, to the financial divergence between China and Europe. The key factor was the failure of China to develop sovereign debt, whether for its magnificent cities or for the central government.  Only with the opening of China’s treaty ports in the nineteenth century did the Chinese government finally resort to state debt, and even then the first Chinese government bonds were floated on international debt markets rather than in China itself.  But when China did enter global markets of the late nineteenth century, it did so with a vengeance. Shanghai rapidly became one of the great banking centers of the world in the 1920s, but only by discarding the imperial legacy of centuries before.  Goetzmann notes, “There was great debate in the Han over the role of private enterprise versus state ownership [especially regarding salt, iron, and maritime trade] and state ownership won” (p. 174).  Thereafter, the state provided credit to merchants and warlords when it needed to mobilize resources, eventually creating fiat paper money in the Song Dynasty.  Goetzmann concludes, “It is impossible to create fiat money without complete fiat.  Thus, the value of the currency rose and ultimately collapsed with the state” (p. 202).

Part III, “The European Crucible,” develops the logic that led small, competing, and warring city-states scattered across Western Europe to create viable forms of finance that led, with many well-known missteps but also with a few underappreciated financial successes, to modern, global finance.  Goetzmann sees the stages of financial development in Europe as: “first, the emergence of financial institutions; second the development of securities markets; third, the emergence of companies; fourth, the sudden explosion of stock markets; fifth, the quantification of risk; and finally, the spillover of this system to the rest of the world” (p. 203). The next twelve chapters explore both the missteps and the occasional successes that lay the foundations for modern finance.

After 219 pages of fascinating historical episodes, often interleaved with personal accounts of Goetzmann’s encounters with archaeological digs or archival sites, he sums up the lessons of history from the European example.  “Financial technology is redundant, adaptive, and sometimes mercurial.  The institutions we take to be sacrosanct, inevitable, and indispensable are probably not.  Given the random outcome of historical events, another set of institutions might have emerged to solve the same financial problems.  Financial innovation is thus a series of accidents of history — the caprice of time, location, and opportunity” (p. 219).  Consequently, his treatment of the technical advances in probability theory and actuarial science, starting with Fibonacci, Bernoulli and Pascal, contrasts sharply with that of Peter Bernstein’s Against the Gods: The Remarkable Story of Risk (New York: Wiley, 1996).  For Bernstein, the practical application of the Black-Scholes model for pricing options, built on the assumption that past distributions of asset prices could persist over the near future, had created the modern, efficient, global financial market.  For Goetzmann, however, the successes of the early financial markets led to the formalization in mathematical terms of the underlying processes.  He notes with approval the possibilities of non-linearities formalized by his Yale colleague Benoit Mandelbrot and erratic market movements highlighted by another Yale colleague, Robert Shiller.  Both scholars were inspired by observing anomalies in the price discovery processes revealed in the securities markets of the 20th century.

The final success of the European Crucible, according to Goetzmann, however, arose in the American colonies, first with their experiments with land banks (until outlawed by the British Parliament) and then with land companies backed usually by Dutch and British investors.  With all the current fervor surrounding the role played by Alexander Hamilton, thanks to the Broadway musical based on Ronald Chernow’s biography, Goetzmann instead gives Abraham Van Ketwich and a number of other Dutch bankers primary credit for having securitized the early debt of the United States.  True, “Dutch investors made out well when the debt of the United States was reorganized by Alexander Hamilton and the young nation made good on its financial commitments” (p. 386).  So, real credit for America’s success should go to the eighteenth century Dutch investors who developed the financial innovation of closed end mutual funds, which allowed small investors to share the returns from risky assets.

Part IV, “The Emergence of Global Markets,” begins with an interesting discussion of Marx, especially his insights into contemporary finance as demonstrated in his newspaper columns in the New York Daily Tribune in the U.S.  Goetzmann writes, “His prose is terse, witty, and convincing.  When I read these lively columns I can almost forgive him” (p. 411). The Tribune articles by Marx portray a world of “global linkages and geo-political dynamics” and that is what excites Goetzmann about this period of financial history. Especially noteworthy is the amount of information contained in the Investor’s Monthly Manual “quoting thousands of prices for securities from all over the world” (p. 412).  (And it’s available on downloadable pdf files from Goetzmann’s website given above.)  He extols The London Stock Exchange in 1870 as “giant economic lever with the fulcrum planted in the present, balancing past savings and future promises” (p. 413).

There follow fascinating insights into the experiences in pre-revolutionary China (“China’s Financiers”) and pre-World War I and early revolutionary Russia (“The Russian Bear”). Each country attempted to adopt financial innovations and capital from abroad while trying to establish legitimacy for a new government.  Both lapsed into authoritarian regimes espousing Marxian ideology, demonstrating again the historical contingencies under which financial innovations arise or meet their demise.  Chapter 26, “Keynes to the Rescue,” contrasts Keynes’ macro-economic recommendations, familiar to all from his General Theory, with his microeconomic investment strategies in handling the endowments of King’s College at Cambridge University.  At the macro-level, Keynes prescribed governmental spending whenever the animal spirits motivating private investment flagged while at a micro-level he switched from speculating on price movements in equities or foreign exchange (with dismal results) into equity investments in firms with sound management and robust markets.

“The New Financial World” emerged after World War I, not World War II, on Goetzmann’s account.  Highlighting the leadership of the U.S. in finance were skyscraper bonds, which he sees as an application into vertical space of the early American land companies dealing with wide, open horizontal spaces.  Financial architecture mimicked in many ways the new architecture that created a building boom toward the sky.  It is their eventual demise at the end of 1926 that Goetzmann sees as the collapse of a real bubble as “skyscrapers built in Manhattan were … driven by a demand for bonds that backed them rather than by a demand for the amazing new machine to make the land pay” (p. 480). Following the collapse of the urban real estate market in the U.S., returns from applying other new technologies such as radios, autos, and electrical appliances were delayed by a decade of more and equity prices in their companies collapsed, destroying the American public’s craving for investing in the stock markets.

Out of the Great Depression that followed, however, Goetzmann sees the emergence of useful financial innovations, starting with government regulation of the securities markets, implementation of a national Social Security plan, and improvements in mutual fund designs, all leading to post-war developments in financial theories, as well as intense empirical research into the varieties of movements in equity prices.  The challenges of the future, in a global financial system with confidence badly shaken from the 2008 financial crisis, lie in providing assurances to the current working age populations around the world that their future medical expenses and pension benefits can be financed. Attempts to meet these challenges with new financial innovations, whether from private or public initiatives, should be encouraged, as history shows that the consequences of disappointing the public’s expectations have always been disastrous for a civilization.

Larry Neal is the author of A Concise History of International Finance: From Babylon to Bernanke (Cambridge University Press, 2015).

Copyright (c) 2016 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (July 2016). All EH.Net reviews are archived at

Subject(s):Financial Markets, Financial Institutions, and Monetary History
Geographic Area(s):General, International, or Comparative
Time Period(s):General or Comparative

The Pox of Liberty: How the Constitution Left Americans Rich, Free, and Prone to Infection

Author(s):Troesken, Werner
Reviewer(s):Kitchens, Carl

Published by EH.Net (July 2016)

Werner Troesken, The Pox of Liberty: How the Constitution Left Americans Rich, Free, and Prone to Infection. Chicago: University of Chicago Press, 2015. x + 237 pp. $40 (cloth), ISBN: 978-0-226-92217-1.

Reviewed for EH.Net by Carl Kitchens, Department of Economics, Florida State University.

Recently, the economic growth literature has widely debated the relationship between the disease environment and economic growth. Economists such as Jeffrey Sachs have noted that certain regions of the world are poor because of their disease environment, and will remain poor so as long as disease persists.  Other scholars, such as Daron Acemoglu, Simon Johnson, and James Robinson (AJR) argue that the quality of institutions may be a more important determinate of economic growth, noting the decline of many European colonies after European nations gained control from indigenous populations in the New World. Enter Werner Troesken (Professor of Economics, University of Pittsburgh) and his new book, The Pox of Liberty. Troesken takes a different approach from both Sachs and AJR. Early on, Troesken asks an important question given the relative quality of institutions in the United States: “How and why did the United States — the richest, most technologically advanced democracy in the world at the time — lag behind poorer and often less benevolent societies in eradicating smallpox, as well as several other infectious diseases?” (p. 3). Throughout the remainder of the book, Troesken answers this question by appealing to the American system itself. In a single word, the reason the America historically had such a high disease rate: liberty.

The fact the American political system values individual liberty and allows the public to elect officials that share their beliefs, combined with a strong history of individual and states’ rights allowed local preferences and, in some cases, the voices of a few to prevent compulsory vaccination and deter certain public health investments. While this book’s focus is on the eradication of smallpox and typhoid from the late eighteenth to the early twentieth century, its framework is useful in understanding contemporary public health debates and policy.  Recently, scientific evidence has debunked the potential link between autism and vaccination, yet there is still a strong anti-vaccine movement among parents of newborns. Likewise, the HPV vaccine is highly effective in reducing cervical cancer later in life, yet vaccination rates remain relatively low due to a resistance to discussing reproductive health with young daughters. Understanding that the American system empowers these voices should shed light on the persistence of disease in the United States.

The meat of the book begins by discussing the role of urbanization on public health policy. Initially, small, tight knit townships were able to address many of the externalities associated with public health problems. However, as commerce and industry expanded, creating larger, more diverse population centers, social pressure and social norms became a less effective means to internalize externalities. Combined with the development of germ theory, which suggested larger investments in public health, the scope for government action increased.

In Chapter 3, the book transitions to discuss the rise of interest groups and how they were able to influence policy for all. The chapter highlights a particularly ugly incident from American history. In 1900, white citizens in San Francisco required that individuals of Chinese decent be vaccinated to prevent plague (by force if necessary). While the rule was overturned in federal court under the equal protection clause of the Fourteenth Amendment, this incident highlighted the power of the majority and developing factions. Chapter 3 also begins to outline the importance of states being granted the power to grant monopolies, which provide mechanisms to credibly commit to certain contracts. This ability eventually became very important in terms of the provision of running water and sewerage.

Chapter 4 is one of the star chapters of the book. After outlining the importance of certain clauses within the constitution in early chapters, Chapter 4 is devoted to demonstrating how disease rates (smallpox) varied across a wide swath of geography and political environments. In England, Sweden, and among Italian soldiers, smallpox rates were markedly lower if one were vaccinated. In the United States, smallpox persisted. Yet the United States had the capability to eradicate smallpox and did so in its territorial possessions. After acquiring Cuba, Puerto Rico, and the Philippines in the Spanish American War, the U.S. Army eradicated smallpox in five, five, and fifteen years respectively, despite the hostile climate in each location. This suggestive data, combined with narrative describing a series of court battles regarding compulsory vaccination in Massachusetts, highlights the role that the institutional structure played in the persistence of disease in the United States, while the military remained relatively unconstrained in other environments. These types of constraints arise again in Chapter 6 when Troesken discusses policy to combat yellow fever, as the military was highly effective in reducing yellow fever abroad while it persisted at home.

Chapter 5 is devoted to the rise of large investments in water and sewage infrastructure. The ability of local, state, and the federal government to credibly commit to its debt obligations allowed large scale investments to be made to provide clean water. These projects were the largest infrastructure investments made to date, and have had profound effects on human health. Simple procedures, such as filtration, reduced the prevalence of typhoid, particularly for blacks, and contributed to the overall decline in death rates, which helped support large urban populations.

After finishing the book, one is left with the following impression: The institutions, which provide individuals the incentives to trade and produce have also hindered higher levels of government from internalizing public health externalities. Thus, the United States has been able to amass significant wealth and income due to individual effort, yet has continued to battle certain diseases longer than other nations with a stronger central government. At the same time, the government’s desire to pay its debts has also facilitated large, long term investments to improve water infrastructure. This nuanced study has helped fill a gap in the existing literature by highlighting that the institutions and disease environment are part of an endogenous relationship between the two.

Carl Kitchens’ research studies the impacts of large scale infrastructure investments on a variety of outcomes. Most recently, his work has been concentrated on investments in electricity.  He is the author (with Taylor Jaworski) of “Ownership, Technology, and the Provision of Residential Electricity” (forthcoming in Explorations in Economic History) and is currently working on “National Policies for Regional Development: Evidence from Appalachian Highways” (with Taylor Jaworski).

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Subject(s):Economic Development, Growth, and Aggregate Productivity
Government, Law and Regulation, Public Finance
Historical Demography, including Migration
Geographic Area(s):North America
Time Period(s):18th Century
19th Century
20th Century: Pre WWII

Illiberal Reformers: Race, Eugenics and American Economics in the Progressive Era

Author(s):Leonard, Thomas C.
Reviewer(s):Hammond, J. Daniel

Published by EH.Net (July 2016)

Thomas C. Leonard, Illiberal Reformers: Race, Eugenics and American Economics in the Progressive Era. Princeton: Princeton University Press, 2016. xiv + 250 pp. $35 (cloth), ISBN: 978-0-691-16959-0.

Reviewed for EH.Net by J. Daniel Hammond, Department of Economics, Wake Forest University.

With Illiberal Reformers, Thomas C. (Tim) Leonard of Princeton University opens the door of a closet containing family artifacts of American economists from the half century that straddled 1900. An hour or two or three spent in the family closet via Leonard’s fine book is sobering to any economist who has promoted our discipline as the “queen of social sciences.” These artifacts of our immediate family (economics), near-extended family (social sciences), and more distant family (science) are not pretty. Imagine learning that your great grandfather or grandmother whose name you bear was a member of the mafia or the Klan or perhaps a slave trader. You might be tempted to extinguish the closet light and close the door as you depart. But we should not turn away from this history, because it is revealing of ourselves as well as our forebears. As American Economic Association founder Richard T. Ely (1936, p. 141) wrote in a reflection on the Association’s founding, “Great oaks from little acorns grow.”

With a focus on economics, the book is broadly about educated beliefs and presumptions in the Progressive era. A generation of American scholars returning from graduate study in Germany in the late nineteenth century brought science to bear on what they understood to be the social problems of the day. Many of the problems were products of the transformation of the American economy from agriculture to industry and the growth of cities.  Preeminent among the problems were unmanaged and dysgenic biological and social evolution. Progressives paired biological and social science with social and legal activism to answer the author of Ecclesiastes (“Consider the work of God: for who can make that straight, which he has made crooked?” 7:13) with “we can and we will!”

Illiberal Reformers is in two parts. The three chapters in Part I, “The Progressive Ascendency,” cover the pairing of science and religion in the Social Gospel that was the foundation of the American Economic Association’s establishment in 1885; the turn by economists away from Classical Liberalism and so-called laissez-faire; the rise of the expert and the administrative state in the Theodore Roosevelt and Woodrow Wilson presidencies; and the application of the new science of administration to achieve efficiency across the gamut of social activities and institutions. Part II, “The Progressive Paradox,” concerns a paradox that Leonard identifies running through the Progressive reform movement, that people who received a bad draw in the lottery of genetic or social circumstances were viewed both as subjects to be assisted and as threats to be managed, excluded, or if necessary destroyed. This section includes chapters on theories of labor markets and wages; the various strands of Darwinism that informed the reformers; the perceived crisis of dysgenic human breeding; and the eugenic basis for labor reforms that remain key parts of our political economy today.  The chapters brim over with facts, quotations, and references to the Progressives’ writings and activities.

It is easy, perhaps too easy, from our place in history to condemn the Progressives for ignorant intellectual commitments that justified cruel and unjust policies and practices. Many of the statements of leading lights of economics and sociology, religion, politics, jurisprudence, social work, and reform activism are offensive to our sensibilities. We encounter AEA founder Richard T. Ely, who is honored by the AEA each year with the Richard T. Ely Lecture, referring to the poor as a “human rubbish heap” (p. 53) and writing that “the morally incurable” and those “who will not work and will not obey should not be allowed to propagate their kind” (pp. 131-32).  AEA President and monetary theorist Irving Fisher wrote in his Elementary Principles of Economics that “if the vitality or vital capital is impaired by a breeding of the worst and a cessation of the breeding of the best, no greater calamity could be imagined.”  This calamity, however, could be forestalled “by isolation in public institutions and in some cases by surgical operation” (p. 227). Preeminent international trade theorist, AEA President, and long-time editor of the Quarterly Journal of Economics Frank Taussig wrote in his Principles of Economics that those who would be chronically unemployable with a minimum wage “should simply be stamped out. . . . We have not reached the stage where we can proceed to chloroform them once and for all; but at least they can be segregated, shut up in refuges and asylums, and prevented from propagating their kind” (p. 165).

Nor by current standards do Progressive women reformers fare well. Florence Kelley, settlement worker at Hull House in Chicago and the first woman to hold statewide office in Illinois, held views on immigration and women in the workforce that would be considered by today’s sophisticates beyond the pale. On immigration, Kelley wrote to a correspondent that “I am convinced that the Pacific Coast people are right about the Mongolians; and I am sure that we are utter fools to endure the ruin of the Atlantic Coast by the invasion of Asia Minor and South Eastern Europe” (p. 153). She supported a family wage for men in order to keep wives and mothers in the home. “Family life in the home is sapped in its foundations when mothers of young children work for wages.” A problem with immigrants was that wives of immigrant men were more likely than American natives to be employed outside the home. “The American tradition is that men support their families, their wives throughout life, and the children at least until the fourteenth birthday” (p. 173).

Leonard draws from the history of Progressivism a warning of the dangers of scientific hubris for contemporary intellectuals who concern themselves with public policy. The Progressives wanted to do good, but out of impatience and pride fell prey to various evils. Leonard insists that we should not turn away from the ugliness in the foundations of twenty-first century disciplines of genetics, economics, sociology, demography, medicine and public health (p.189), presuming under the sway of our own progressive presumptions, that time and research funding and effort have over the past century turned pseudosciences into genuine science.

Leonard’s preferred alternative to the Progressives’ intellectual and ethical commitments is classical liberalism with its emphasis on the primacy of the individual and protection of political, economic and civil liberties. Thus the criticism imbedded in the title, Illiberal Reformers. But liberalism carries its own dangers of antinomian individualism and social isolation if it is not secured by sound ethics and understanding of human nature. How can we know that a return to classical liberalism is progress?

Are there grounds for confidence that a hundred years hence scholars will look back with pride and not shame at the records of what we have presumed to know? How will future scholars view papers presented, for example, in recent (2016) AEA conference sessions on Culture, Prosocial Behavior and Ethnicity; Health, Education and Families; Applications of Behavioral Science; and Behavioral Interventions and Environmental Sustainability? Since the Progressive era, economics has become increasingly specialized and identified with mathematical and statistical technique. Absent grounding in universal and timeless principles of who humans are and their right relationships with each other and with nature we will remain at risk of being technicians in service to whatever are the prevailing fashions. We need sound standards by which to judge our current beliefs and practices along with those of past generations.


Richard T. Ely (1936), “The Founding and Early History of the American Economic Association,” American Economic Review, 26 (1, supplement): 141-50.

J. Daniel Hammond is co-editor with Robert A. Cord of Milton Friedman: Contributions to Economics and Public Policy, Oxford University Press, 2016.

Copyright (c) 2016 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (July 2016). All EH.Net reviews are archived at

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

Education Matters: Global Schooling Gains from the 19th to the 21st Century

Author(s):Barro, Robert J.
Editor(s):Lee, Jong-Wha
Reviewer(s):Go, Sun

Published by EH.Net (June 2016)

Robert J. Barro and Jong-Wha Lee, Education Matters: Global Schooling Gains from the 19th to the 21st Century. New York: Oxford University Press, 2015. xi + 289 pp. $35 (hardcover), ISBN: 978-0-19-937923-1.

Reviewed for EH.Net by Sun Go, School of Economics, Chung-Ang University.

Can we analyze the role of education in economic, political, and social development using cross-country panel data? Robert J. Barro (Paul M. Warburg Professor of Economics at Harvard University) and Jong-Wha Lee (Professor of Economics and the Director of the Asiatic Research Institute at Korea University) have long been studying this subject and have published numerous academic works on it for more than twenty years. Education Matters is a comprehensive volume of their contributions to the literature on human capital and development, compiled by creating and analyzing their own long-term panel data at the country level. The book is mainly composed of two parts. The first part (Chapters 2 and 3) explains how they created cross-country panel data on average school years, and projects the growth of educational attainment to 2040. The second part (Chapters 3, 4, and 5) presents their analysis of the panel data on the effect of educational attainment on growth, fertility, and political institutions. In Chapter 5, in particular, Barro and Lee create another set of educational attainment data considering the quality of schooling, and repeat their analysis using the new quality-adjusted data set.

A conspicuous contribution of Barro and Lee is the creation of the cross-county educational attainment data sets. They first collect 146 countries’ enrollment rates of school-age population at the elementary, secondary, and tertiary levels at five-year intervals from 1950 to 2010. Most of the enrollment data are collected from UNESCO statistics based on each country’s census reports. By applying school-entering ages, term lengths, and the dropout rates to the enrollment rates by year and country, they compute the average years of schooling of the young cohorts, such as the 15 to 19 or the 20 to 24 year-old population. The average years of schooling for the older cohorts are estimated by applying cohort and education-level specific mortality rates to the educational attainment of younger cohorts under the assumption of no adult education. Finally, the educational attainment of the working population of a country for a year are calculated by the average years of schooling of the five-year-interval birth cohorts weighted by their population sizes. In addition to the total educational attainment data, Barro and Lee also estimate country-level educational attainment by sex. This is the baseline data that they have created and updated since the 1990s.

The book introduces another historical panel of educational attainment at the country level from 1870 to 1945, which is constructed in a similar way. The starting point is again a collection of the enrollment rates at elementary, secondary, and tertiary levels of 89 countries from 1820 to 2010 at five-year intervals. They calculate the enrollment rates using various historical statistics of school enrollments and school-age populations. Historical enrollment statistics are compiled from diverse sources such as Databanks International, Mitchell’s International Historical Statistics, Benavot and Riddle (1988), Lindert (2004), U.S. Bureau of Education’s Annual/Biannual Reports, Barnard (1854), and Monroe (1911). School-age population statistics are collected from Mitchell’s International Historical Statistics, the United Nations’ Demographic Yearbooks, and the League of Nation’s Statistical Yearbooks. However, due to the limited availability of historical enrollment data, a portion of the enrollment rates are created by linear interpolation or estimation assuming a logistic trend. About 38 percent of the school enrollment rates of total population from 1870 to 1945 are either interpolated or estimated. The share of the artificial data is greater for the female population and the period before 1870. Using the historical enrollment rates, Barro and Lee estimate the historical data on educational attainment by sex in a similar way to their baseline data for 1950-2010.

The two data sets are freely downloadable from the authors’ webpage ( The baseline data on educational attainment from 1950 to 2010 have already been widely used by researchers in social sciences, and their unique historical panel is expected to attract the interests of scholars. The historical panel will be useful in capturing long-run trends and examining over-time correlation between the expansion of formal schooling and other variables in the long run. However, the Barro-Lee historical panel of educational attainment may not be the best for identifying moments of change in educational expansion or research that requires identifying the timing of variation in formal schooling, as it contains values structurally estimated only by the trend.

Barro and Lee also present various results from the cross-country panel analysis using their own data sets. Although they have created balanced panels of educational attainment, the data sets for further analysis become unbalanced panels because other dependent and control variables, such as GDP per capita, fertility, and the democracy index, are not available for all the countries and years. Their development accounting shows that about 6 to 20 percent of the cross-country variation in output per worker can be explained by educational attainment. The contribution of human capital to economic growth is estimated to be a bit higher in growth accounting. The authors also present results from the three-stage least squares regressions with country fixed effects, which use lagged explanatory variables as instruments to deal with a possible endogeneity problem between education and the outcome variables — the growth rate of GDP per worker, fertility, and the democracy index. The results are not exactly the same as in the existing literature. The effect of educational attainment on growth is weak and statistically insignificant. The effect on fertility differs by gender. Women’s schooling leads to lower fertility, while men’s schooling is positively associated with fertility. The effect on democracy is nonlinear. Controlling for the country fixed effects, the higher average years of schooling, particularly of women, raise the democracy index at a decreasing rate. The panel regressions using the baseline data of 1950-2010 and the historical panel of 1870-2010 return similar results.

In Chapter 6, Barro and Lee repeat the panel regression analysis using another cross-country panel of 70 countries containing the quality-adjusted human capital stock measures from 1960 to 2010 at five-year intervals. The quality-adjusted human capital stock is calculated by weighting the average schooling years of each five-year birth cohort by the relevant test scores representing the quality of education and associated labor market returns. Their collection of standardized test scores spans 134 countries from 1965 to 2010 at the elementary and secondary school levels, despite a significant portion of the observations being missing, especially for the earlier period. Barro and Lee again fill the missing observations with estimates by linear interpolation or regional trends. The real and artificial standardized test scores for each five-year interval then become cohort-specific aggregate measures of school quality at each level of schools. The quality-adjusted panel of educational attainment is constructed in a similar way to the previous data sets. Further, from the panel IV regressions, Barro and Lee find that quality-adjusted educational attainment has a positive effect on the growth rates of GDP per worker if average years of schooling are controlled.

Education Matters offers a bird’s eye view of the role of education in the long-run development in the global context. It clearly shows the pioneering endeavor of Robert Barro and Jong-Wha Lee for the construction and analysis of their unique cross-country panels of educational attainment data. Anyone interested in cross-country analysis on the effect of human capital on economic, social, and political outcomes will undeniably find this volume a practically helpful starting point. This book also contains good teaching resources for undergraduate courses, such as maps showing the expansion of formal schooling in the world or figures presenting correlations between the average years of schooling and other socioeconomic indicators. On the other hand, the book may not be perfect for studying what really happened in history, as descriptions of historical or institutional backgrounds are not sufficiently accompanied by the valuable work of data construction and analysis. The book also contains little discussion of the contributions by economic history research to the literature on the rise of formal schooling and its associated effects on various outcomes since the nineteenth century.


H. Barnard (1854), National Education in Europe: Being an Account of the Organization, Administration, Instruction and Statistics of Public Schools of Different Grades in the Principal States, New York: C.B. Norton.

A. Benavot and P. Riddle (1988), “The Expansion of Primary Education, 1870-1940: Trends and Issues,” Sociology of Education, 61(3): 191-210.

P. Lindert (2004), Growing Public, Cambridge, UK: Cambridge University Press.

P. Monroe (1911), A Cyclopedia of Education, New York: Macmillan.

Sun Go is an Associate Professor of Economics at Chung-Ang University. His research focuses on the development of public school finance in the nineteenth-century United States and twentieth-century Korea.

Copyright (c) 2016 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (June 2016). All EH.Net reviews are archived at

Subject(s):Economic Development, Growth, and Aggregate Productivity
Education and Human Resource Development
Geographic Area(s):General, International, or Comparative
Time Period(s):19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII

Economic Thought: A Brief History

Author(s):Kurz, Heinz D.
Reviewer(s):Hébert, Robert F.

Published by EH.Net (June 2016)

Heinz D. Kurz, Economic Thought: A Brief History (translated by Jeremiah Riemer). New York: Columbia University Press, 2016.  ix + 208 pp. $27 (cloth), ISBN: 978-0-231-17258-5.

Reviewed for EH.Net by Robert F. Hébert, Department of Economics, Auburn University.

Writing a brief history of any subject requires its author to be organized and selective.  The former requires skill; the latter judgment.  Heinz Kurz, professor of economics at the University of Graz in Austria, displays his literary skill in this volume, a survey of economic thought from ancient times to the present, in less than 200 pages.  The author does a good job of linking various ideas scattered through time and space, weaving an abstruse narrative into a cohesive fabric.  This is no mean feat, and its accomplishment contributes in great measure to the readability of the present work.  His judgment, however, is more likely to be in the critics’ crosshairs, which is, not surprisingly the case here.

In Kurz’s literary time machine the reader reaches the sixteenth century after seven pages, and arrives at the eighteenth after another fifteen pages.  Kurz resists the temptation to anoint Adam Smith the “father of economics,” opting for the more defensible claim that “Smith permanently shaped the new field of political economy, both thematically and methodologically, and won it an important place in the circle of the venerable sciences” (p. 28).  Although he had numerous precursors, the long train of economic analysis that left the Smith station followed mainly the tracks he laid down.  Kurz takes us down those tracks in successive chapters on Marx, marginalism, Marshall, utilitarianism, welfare theory, imperfect competition, Schumpeter, Keynes, reactions to Keynes, general equilibrium and welfare theory, and developments in selected fields.

Clearly, publishing forces a tradeoff between brevity and depth.  Some things must be sacrificed in order to keep the narrative (and costs) within bounds.  Kurz provides a good compass for navigating the journey before us, but reviewers are duty-bound to pay attention to what is excluded as well as included.  I don’t quite know what to make of the statement (p. 7) that the difficulty of evading taxes on invisible wealth (e.g., money or interest) was a probable source of the long-lasting opposition to credit and interest by the Roman Catholic Church.  A more nuanced view is that the medieval Church’s outward opposition to credit and interest was curious and one-sided, i.e., the Vatican operated on both sides of the loan market, borrowing freely from its own merchant bankers while quietly making usurious loans to its prelates, all the while outwardly denouncing usury as a sin.[1]

The author’s interpretation of Mercantilism and Cameralism, a part of what Mark Blaug called “pre-Adamite” economics, follows tradition while either ignoring or rejecting the alternative interpretation based on public-choice theory[2], for which no explanation is given.  The spare mention of Richard Cantillon in mere passing (p. 17) can easily be overlooked, also in passing, and might be judged an opportunity lost, especially in light of Cantillon’s seminal influence on the theory and method of many economic thinkers who followed.  Karl Marx gets appropriate attention as the premier architect of a socialist system, but Kurz’s discussion of Marx’s impact stops at the twentieth century, which is a shame because so much of contemporary cultural politics in Europe and America has a distinctly Marxian odor.

Henry George is much misunderstood by historians of economics, and Kurz perpetuates the popular myth by unqualifiedly lumping George among the proponents of land nationalization (p. 43).  George in fact advocated a nuanced view of land value taxation not far removed from Alfred Marshall, who took George more seriously than other economists.[3]   Both George and Marshall recognized that taxing the “public value” of land did not require public ownership, which Marshall, not George, nevertheless qualifiedly endorsed (after a hundred years) in his lectures on George’s Progress and Poverty.[4]   It has somehow escaped historians of economics that by his own (public) admission Marshall would have been a de facto socialist after 1983!

Thünen, Rau and Gossen (Chapter 4) are appropriately singled out as forerunners of marginalism, but Kurz doesn’t explain how to reconcile his claim for Rau’s primacy “in substance (not verbatim) [regarding] the concept of marginal utility” (p. 67) with Rectenwald’s judgment that Rau “was not an original thinker.”[5]   Despite better coverage of some German predecessors, the story Kurz tells about early marginalism is incomplete, especially in regards to France.  By now Kurz should be aware of the peculiar institutional and cultural dimensions of French society that gave us Dupuit and his pioneering band of ponts engineers attached to the École des ponts et chaussées.  To be sure, Cournot formulated the demand curve, a succinct treatment of monopoly and duopoly, and the neoclassical theory of profit maximization, but Dupuit gave us a neoclassical concept of surplus (later retro-fitted by Marshall), a thorough treatment of utility and demand, novel concepts of monopoly and competition, price and product differentiation, and a clear explication of the relationship between property rights and economic welfare.[6] Continuing to ignore Dupuit and his contributions to economic science merely furthers what Jevons called “the noxious influence of authority.”

Having passed through marginalism and Marshall’s “neoclassical synthesis” Kurz capably guides us next through imperfect competition, Schumpeter and Keynes, general equilibrium theory and welfare economics, concluding with developments in the selected fields of game theory, capital theory, growth theory, spatial and urban economics, development economics and the new economic geography, behavioral and experimental economics, new institutional economics, and financial market theory.  Adequately covering the significance and impact of so many selected fields in less than twenty pages is a monumental challenge, and hence, some fields get very short shrift.  For example, public choice theory and new institutional economics are each encapsulated within a single paragraph; whereas behavioral/experimental economics and financial markets theory each get three paragraphs.  Whether this tells us something about the author’s evaluative priorities or not is left for the reader to guess.

This brief history concludes with the lofty hope that knowing the history of economics should help us resist superstition, hysteria and exuberance in economic and social questions; as well as immunize us against the naive idea that it is the privilege of living economists to articulate only correct ideas (“A Final Word,” p. 185).  If it were only that easy, perhaps courses in the history of economics would not be disappearing from university curricula at such a rapid rate.

Since the author is a seasoned scholar undoubtedly aware of the tradeoff between brevity and depth, fairness dictates that this book be evaluated primarily for what it does rather than what it does not do.  As long as the limitations of books like this are understood, there is a place for them in the field of economics.  Economics is not the dismal science claimed by historian Thomas Carlyle, unless one has little understanding of and appreciation for its complexity and relevance, which can, in large measure, be gained only from a study of its history.  For those untutored in the history of economics, this little book is not a bad place to start.


1. See Robert B. Ekelund, Jr., et al., Sacred Trust: The Medieval Church as an Economic Firm (New York: Oxford University Press, 1996), p. 120.

2. Cf., Robert B. Ekelund, Jr. and Robert D. Tollison, Mercantilism as a Rent-Seeking Society: Economic Regulation in Historical Perspective (College Station: Texas A&M University Press, 1981); and same authors, Politicized Economies: Monarchy, Monopoly and Mercantilism (College Station: Texas A&M University Press, 1997).

3.  Robert F. Hébert, “Marshall:  A Professional Economist Guards the Purity of His Discipline,” in Critics of Henry George, ed. R. V. Andelson (London: Associated University Press, 1979), pp. 47-71.

4. Ronald Coase, “Three Lectures on Progress and Poverty by Alfred Marshall,” Journal of Law and Economics, 12 (April 1969), 184-226.

5. H.C. Rectenwald, “Rau, Karl Heinrich,” in The New Palgrave: A Dictionary of Economics, ed. J. Eatwell, M. Milgate, and P. Newman (London: Macmillan Press, 1987), IV: 96.

6. See Robert B. Ekelund, Jr. and Robert F. Hébert, Secret Origins of Modern Microeconomics: Dupuit and the Engineers (Chicago: University of Chicago Press, 1999).

Robert F. Hébert is Emeritus Russell Foundation Professor of Entrepreneurship at Auburn University.  With Robert B. Ekelund, Jr., he is the author of A History of Economic Theory and Method, sixth edition, and several other books.

Copyright (c) 2016 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (June 2016). All EH.Net reviews are archived at

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

Rural Society and Economic Change in County Durham: Recession and Recovery, c.1400-1640

Author(s):Brown, A. T.
Reviewer(s):Bailey, Mark

Published by EH.Net (April 2016)

A. T. Brown, Rural Society and Economic Change in County Durham: Recession and Recovery, c.1400-1640. Woodbridge, UK: Boydell Press, 2015. xv + 288 pp. £60 (cloth), ISBN: 978-1-78327-075-0.

Reviewed for EH.Net by Mark Bailey, School of History, University of East Anglia.

Alex Brown is an Addison Wheeler postdoctoral Research Fellow at the University of Durham, and this publication is based on his Ph.D. thesis.  Modern Ph.D.s in economic and social history tend to offer an in-depth study of a single community, but Brown tackles a large geographical area over an unusually long timeframe.  In doing so, he establishes a platform from which to offer perspectives on a number of major debates, such as the transition from feudalism to capitalism, the rise of the gentry and the crisis of the aristocracy.  His ambition is largely justified and fulfilled: this is a well-researched, clearly structured, uncomplicated and thoughtful study.

County Durham is chosen for a number of compelling reasons: the two major institutional landlords within the county — the bishopric of Durham, and Durham cathedral priory (renamed the Dean and Chapter in the 1540s) — have left a substantial archive; the precocious local development of the coal industry offers an opportunity to explore whether mercantile capital was invested in industry or diverted into land; and, finally, the region’s geographical diversity provides a contrast between the arable lowlands in the  east and the pastoral uplands in the west.

Brown begins by charting the impact of the fifteenth-century economic recession on rural society in Durham, and then assessing how decisions made in its depths shaped the ability of local people to respond to galloping inflation in the sixteenth and early seventeenth centuries.  In particular, he contrasts the responses on the estate of the priory with those on the bishopric. During the course of the fifteenth century customary land on the former was largely converted to leases, and holdings were reorganized into larger units often held by syndicates, enabling the priory to staunch the hemorrhaging of its revenues.  During the sixteenth-century inflation, leases presented the priory estate with a mechanism for increasing revenues at a level commensurate with rises in land values.  Unusually, the standardized leasehold units were seldom fragmented or absorbed into larger leases, and, as a consequence, the settled landholding structure supported in each township a sizeable group of middling yeoman, each of whom held consolidated farms of between fifty and one hundred acres.

In contrast, the bishopric responded to the cash crisis of the mid-fifteenth century by exploiting revenues from coal rather than reorganizing the structure of tenant landholding, and therefore little customary land was converted to leases or reorganized into standardized units.  The persistence of the old tenures and landholding structures meant that after c.1550 the bishopric was unable to extract a commercial value from its agricultural holdings, whose rents were ossified at a low level by custom.  Consequently, small numbers of tenants were able to exploit the favorable combination of low rents and rising agrarian profits to construct large farms, so that in c.1600 many townships on the bishop’s estate possessed a polarized social structure characterized by a small but wealthy yeoman elite and a large number of cottagers, smallholders and laborers.

The prior and the bishopric managed estates whose composition was essentially fixed, whereas lay landlords were able to acquire and dispose of manors more freely.  The depressed demand for land during the fifteenth century enabled a handful of lay landlords to construct sizeable estates across Durham, so that in c.1500 a small seigniorial elite controlled around one half of all lay manors in the county.  By c.1600 these estates had fragmented, such that no lay landlord owned more than a dozen manors.  Brown avoids regarding this dramatic change as evidence of either a rising gentry or an aristocracy in crisis, but instead argues that “passive” rentier landlords — who in Durham tended to be the great lay lords — were caught in a pincer movement of inflation and stagnant rents leading to financial ruin.  Landlords who actively exploited opportunities in agriculture, trade and industry fared better, and in Durham these tended to be the lesser gentry.  The growth of the coal industry, especially after the 1570s, provided some leading Newcastle merchants with the capital to enter the rural land market, although they did so in order to secure control over coal seams rather than to establish themselves as landed gentry.  New money from Newcastle trickled rather than flooded into the Durham countryside.

The novelty of Brown’s approach is to contrast the managerial policy on two contiguous estates in the same part of England: thus, by holding constant the variables of time and place, he can isolate accurately key differences in institutional decision-making and so chart their subsequent impact upon both lords and tenants. The shift to standardized leaseholds on the prior’s estate, and the bishopric’s adherence to the old forms of landholding, locked each estate onto a different pathway of development with starkly different consequences for lords and tenants in the sixteenth and early seventeenth centuries.  He cites this as a powerful illustration of path dependency theory and of how managerial policies created major institutional constraints on seigniorial estates.

The study’s broad sweep means that some important points of detail escape closer scrutiny.  The reasons why the priory chose the leasehold pathway, and the bishopric did not, remain vague.  The exact nature and evolution of the bishopric’s copyholds, and, indeed, of the prior’s leaseholds, attract little analysis for a study placing so much emphasis upon tenure.  Indeed, the leases were neither straightforward nor unchanging, evolving over time from life leases, to short-term leases, and finally into longer-term leases with reversionary rights benefiting the tenant and protecting the integrity of the holding.  Each phase required careful elucidation, including any evidence for changes in the formulae of grants.

But these are quibbles.  Overall, this is an admirable and ambitious first monograph from a promising young scholar.

Mark Bailey is Professor of Late Medieval History at the University of East Anglia.  He has published on the decline of serfdom in England, and has been invited to deliver the Ford Lectures in British History at the University of Oxford in 2019.

Copyright (c) 2016 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (April 2016). All EH.Net reviews are archived at

Subject(s):Agriculture, Natural Resources, and Extractive Industries
Urban and Regional History
Geographic Area(s):Europe
Time Period(s):Medieval
16th Century
17th Century

The Engine of Enterprise: Credit in America

Author(s):Olegario, Rowena
Reviewer(s):Wright, Robert E.

Published by EH.Net (February 2016)

Rowena Olegario, The Engine of Enterprise: Credit in America. Cambridge: Harvard University Press, 2016. v + 301 pp. $40 (cloth), ISBN: 978-0-674-05114-0.

Reviewed for EH.Net by Robert E. Wright, Thomas Willing Institute, Augustana University.
Rest assured that I did not judge this book by its cover, ugly as the 1940 GMAC advertisement the book designer chose to use appears to my eye. But try as I might, I could not find an appropriate audience for this (perhaps overly) ambitious undertaking after perusing it for several days. There is no preface to help readers to understand the author’s goals or the book’s purpose and the introduction launches directly into the content.

As its title suggests, the thesis of The Engine of Enterprise is that “the United States was built on credit” (p. 1) or, with more nuance, “despite problems with credit that were at times severe, and which Americans have never fully solved, credit has been the invigorating principle that turned potential wealth into national prosperity” (p. 226) (my emphases). The proof comes in the form of five narrative chapters covering the colonial and early national (Chapter 1: “The Foundations of Credit in the New Republic”), antebellum (Chapter 2: “Credit, Enterprise, and Risk in the Antebellum Era”), postbellum (Chapter 3: “Credit in the Reconstructed Nation”), interwar and postwar (Chapter 4: “A Nation of Consumers and Homeowners”), and late twentieth century (Chapter 5: “The Erosion of Credit Standards”) periods, plus a brief postscript (“Creative and Destructive Credit”) on the causes and consequences of the Panic of 2008. The chapters do not follow a cookie cutter format but many cover the same topics, e.g., consumer credit, business credit, bankruptcy, and so forth.

While narrative descriptions of the evolution of different types of credit abound, the book does not show the primal importance of credit in statistically rigorous (e.g., Rousseau and Sylla 2005) or internationally comparative (e.g., Beck, Demirguc-Kunt, Levine 2007) ways, or even cite the finance-led growth literature (see Levine 2005 for a review). Moreover, the finance-led growth hypothesis was tempered by studies (e.g., Martin 2010; Wright 2008) that showed that financial development is just one of a series of growth-inducing economic changes that begin with secure human rights and end with improvements in physical and human capital that drive productivity gains. Because microfinance failed to spur growth in anarchic or dictatorial states, few continue to baldly assert the primacy of finance, let alone just its credit component. Alexander Hamilton had it exactly right when he argued that credit “was among the principal engines of useful enterprise” (p. 4) (my emphasis), i.e., that credit is a necessary but not a sufficient cause of economic growth. It is the fuel injection system, in other words, not the entire engine.

The book is unlikely to appeal to other specialists, either, as it is not based on new or extensive archival research or even novel interpretations of printed primary sources. As a senior research fellow at Said School of Business, author Rowena Olegario lives thousands of miles from scores of archival U.S. bank records that range from underutilized to completely untouched (for a partial list, see New Bedford Whaling Museum 2011), but one would think that Oxford University could afford to pay for the filming of, and/or travel to, at least one set of U.S. banking records. Moreover, although Olegario occasionally alludes to the theory of asymmetric information, the book is largely devoid of pertinent economic theories. So in her narrative, the early economy was “vulnerable to external shocks” (p. 24) due to unregulated banks and banknotes rather than the nation’s solution to the Trilemma or Impossible Trinity, a bimetallic standard demanding free international capital flows and fixed exchange rates in lieu of a central bank with significant monetary policy discretion.

Although The Engine of Enterprise presents more evidence about what people thought than how they behaved, the book is not a compelling “history of thought” either. Olegario, for instance, credits Henry C. Carey with being “the most notable economist of his time” and with anticipating “the new institutional economics by a century and a half” (p. 7). Carey’s life (1793-1879) overlapped those of important American political economists like Edward Atkinson (1827-1905), Alexander Bryan Johnson (1786-1867), and Erasmus Peshine Smith (1814-1882), not to mention numerous European economists of far more probity. Moreover, most of Carey’s ideas merely reiterated the thought of Hamilton and other financial founding fathers and even his own biological father. Olegario herself later (p. 59) admits that Carey was less important than Henry George (1839-1897).

Given its long coverage, from the colonial period to the present, the book might have been designed as a survey text, but for what course and at what level? Graduate students would quickly dismiss The Engine of Enterprise because it does not discuss historiography and glosses over the few debates that it explicitly recognizes without describing the major issues or even mentioning the major contributors. For example, Olegario informs readers that “historians are not in full agreement about how stringently” (p. 28) usury laws were enforced in colonial America but the corresponding note refers only to Geisst (2013). Most other debates are not even hinted at in the notes. For instance, the author blithely asserts that some colonial bills of credit depreciated because they “were insufficiently backed by land or taxes” (p. 21) without mentioning the long debate over “backing theory” (e.g., Michener 2015). Moreover, many endnotes point to a relatively limited set of broad secondary sources, like Wood (1991), Morgan (2000), and Calomiris and Haber (2014), rather than relevant specialized monographs like Kamoie (2007), which details the credit relations of the important Tayloe family in Virginia, or Roney (2014), which describes how NGOs in colonial Philadelphia served as financial intermediaries. Worse, works long since superseded are cited, some with disturbing frequency (e.g., Foulke 1941; Trescott 1963).

I also doubt that anyone teaching a financial history survey would adopt this book as an undergraduate text. The prose, while competent, is pedestrian throughout and hence more likely to bore Millennials than to spur their interest in financial history. Similarly, general readers usually demand ripping yarns like those spun in Kamensky (2008) or Mihm (2009). Lucid sections can of course be found (particularly recommended are the discussions of bankruptcy), but their benefits are outweighed by conceptual flaws and errors of commission and omission. By the latter, I mean missing important supporting data, superior examples, or more telling points. For instance, to make the point that Benjamin Franklin “took for granted that credit was essential to commerce” (p. 2), Olegario adduces mere words, Franklin’s “Advice to a Young Tradesman,” rather than Franklin’s actual actions, most notably his establishment of microfinance institutions in Philadelphia and Boston (Yenawine and Costello 2010). Likewise, the best evidence that the “new banks were meant not just to serve the needs of governments and merchants but also tradesmen, farmers, and manufacturers” (p. 24) is not Pennsylvania’s Omnibus Banking Act of 1814 but studies like Lockard (2000) and Wang (2006) that document actual bank lending patterns, a type of direct evidence that the author suggests does not exist (p. 64).

Olegario has particular difficulty astutely narrating the history of early U.S. finance because she accepts a narrow anthropological literature (e.g., Muldrew 1998) that sees much of the colonial credit system as pre-capitalist, as part of a “moral economy” characterized by “trust” and “barter” (pp. 24-25). But Olegario herself destroys both claims, presumably inadvertently. “Households bartered produce, game, and animal skins to obtain the services of blacksmiths, coopers, and other artisans,” she claims, but then adds that such exchanges were “notated in rough ledgers [sic] using monetary values even though no actual cash changed hands” (p. 24). So such transactions were not barter (trading one good for another without the use of money in any of its forms) at all but rather a form of open account, book credit, or “bookkeeping barter” (Michener 2011). Olegario also subverts the supposed reliance of colonial creditors on “trust” by detailing the widespread use of collateral, co-signers, lawsuits, prison, threats of reputation tarnishing, and other devices designed to induce borrowers to repay their debts. Colonists were certainly more apt to be lax when lending to family and friends, but that does not mean a “noncommercial morality” (p. 25) suffused the economy as family matters stand no differently today.

Other errors abound and many would flummox students and general readers. Olegario claims, for example, that bills of exchange “functioned as currency” (p. 21) by conflating negotiability (via endorsement) and currency (passing from hand to hand without formal assignment). By conflating banknotes with bank loans, she can assert that “entrepreneurial society desired … paper money” (p. 23) when in fact it sought intermediation. Imagine the confusion that would ensue were students to read that retailers “notated the value of purchased goods in a day book or ledger without issuing [sic] formal instruments like notes or bills of exchange” (p. 24). (Borrowers, not lenders, issue debt instruments.) Or that the Bank of the United States (1791-1811) was “rechartered [sic]” (p. 42) to be “in existence … again [sic]” (p. 49) as the Bank of the United States (1816-1836)!

I could continue but won’t for fear of drawing a flag for unscholarly-like conduct. Perhaps some readers will think I deserve a flag already but when the author’s school and publisher are so prestigious I think it incumbent upon reviewers to support negative generalizations with sufficient citations, details, and examples. The dust jacket can be removed if readers don’t like it, but the same can’t be said of the text, so potential readers must be credibly pointed elsewhere, like to the recent works cited below.


Beck, Thorsten, Asli Demirguc-Kunt, and Ross Levine. 2007. “Finance, Inequality, and Poverty: Cross-Country Evidence.” Journal of Economic Growth (March): 27-49.

Calomiris, Charles and Stephen Haber. 2014. Fragile by Design: The Political Origins of Banking Crises and Scarce Credit. Princeton: Princeton University Press.

Foulke, Ray. 1941. The Sinews of American Commerce. New York: Dun and Bradstreet.

Geisst, Charles. 2013. Beggar Thy Neighbor: A History of Usury and Debt. Philadelphia: University of Pennsylvania Press.

Kamensky, Jane. 2008. The Exchange Artist: A Tale of High Flying Speculation and America’s First Banking Collapse. New York: Viking.

Kamoie, Laura Croghan. 2007. Irons in the Fire: The Business History of the Tayloe Family and Virginia’s Gentry, 1700-1860. Charlottesville: University Press of Virginia.

Levine, Ross. 2005. “Finance and Growth: Theory and Evidence.” Handbook of Economic Growth, edited by Philippe Aghion and Steven Durlauf. Amsterdam: Elsevier Science.

Lockard, Paul. 2000. “Banks, Insider Lending, and Industries of the Connecticut River Valley of Massachusetts, 1813-1860.” Ph.D. Dissertation. University of Massachusetts, Amherst.

Martin, Joe. 2010. Relentless Change: A Casebook for the Study of Canadian Business History. Toronto: University of Toronto Press.

Michener, Ron. 2011. “Money in the American Colonies.” EH.Net Encyclopedia, edited by Robert Whaples.

Michener, Ron. 2015. “Redemption Theories and the Value of American Paper Money.” Financial History Review (December): 1-21.

Mihm, Stephen. 2009. A Nation of Counterfeiters: Capitalists, Con Men, and the Making of the United States. Cambridge: Harvard University Press.

Morgan, Kenneth. 2000. Slavery, Atlantic Trade and the British Economy, 1660-1800. New York: Cambridge University Press.

Muldrew, Craig. 1998. The Economy of Obligation: The Culture of Credit and Social Relations in Early Modern England. New York: St. Martin’s Press.

New Bedford Whaling Museum. 2011. “Records of the Merchants Bank Finding Aid, Appendix C,” MSS 107, New Bedford, Mass.

Roney, Jessica Choppin. 2014. Governed by a Spirit of Opposition: The Origins of American Political Practice in Colonial Philadelphia. Baltimore: Johns Hopkins University Press.

Rousseau, Peter and Richard Sylla. 2005. “Emerging Financial Markets and Early U.S. Growth.” Explorations in Economic History (March): 1-26.

Trescott, Paul. 1963. Financing American Enterprise: The Story of Commercial Banking. New York: Harper and Row.

Wang, Ta-Chen. 2006. “Courts, Banks, and Credit Markets in Early American Development.” Ph.D. Dissertation. Stanford University.

Wood, Gordon. 1991. Radicalism of the American Revolution. New York: Random House.

Wright, Robert. 2008. One Nation under Debt: Hamilton, Jefferson, and the History of What We Owe. New York: McGraw Hill.

Yenawine, Bruce and Michele Costello. 2010. Benjamin Franklin and the Invention of Microfinance. London: Pickering & Chatto.

Robert E. Wright is the Nef Family Chair of Political Economy at Augustana University and the author or co-author of seventeen books, including, with Richard Sylla, Genealogy of American Finance (Columbia University Press, 2015).

Copyright (c) 2016 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (February 2016). All EH.Net reviews are archived at

Subject(s):Financial Markets, Financial Institutions, and Monetary History
Geographic Area(s):North America
Time Period(s):18th Century
19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII