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Capital Markets and Corporate Governance in Japan, Germany and the United States: Organizational Response to Market Inefficiencies

Author(s):Dietl, Helmut
Reviewer(s):Miyajima, Hideaki

Published by EH.NET (October 1999)

Helmut Dietl, Capital Markets and Corporate Governance in Japan,


and the United States: Organizational Response to Market Inefficiencies.

London and New York: Routledge, 1998. 208 pp. $75.00

(cloth), ISBN 0415171881

Reviewed for H-Business and EH.NET by Hideaki Miyajima, School of Commerce,

Waseda University.

Helmut Dietl deserves credit for authoring a first comparative study on capital

markets and corporate governance across three nations using an integrated

theoretical framework. Previous works have focused on two-country comparisons,

typically the US and Japan, Japan and Germany,

or the US and Germany. There have also been a number of non-theoretical

studies discussing these three nations within a coherent framework. The

author’s efforts reflect steadily increasing interest in the institutional

characteristics of capitalism, and theoretical developments regarding firm

behavior, agency problems, and corporate finance. Dietl succeeds in examining

this theory in a three-nation context, although the validity and persuasiveness

of his final conclusions can be regarded with some skepticism.

The book consists of two parts: theoretical framework and empirical evidence.

The first section introduces basic concepts for analysis.

Key concepts include: investment relationship (the relation between investors

and firms), investment plasticity (reflecting agency and governance problems),

industry maturity, regulatory environment

(neoclassical or relational is the author’s basic dichotomy), and

organizational mode (unintermediated capital markets

, intermediated capital markets, holding company, multi-divisional

organization, LBO association, financial keiretsu). The goal of the second,


section of this book is to characterize organizational responses to capital

market inefficiencies, corporate governance structures, and regulatory

frameworks among three nations.

The framework of this book is coherent, and well organized. Prior theoretical

results are fully utilized in building up this framework,

although references are mainly limited to the 1980s. Descriptions of the

regulatory systems for all three countries appear quite balanced. I feel

little complaint when reading the portions regarding Japan. It is respectable

that a single author could explain complicated aspects of all three

nations’ institutional characteristics without any serious discrepancy.

Accordingly, this book offers the reader a useful summary of corporate

governance systems, regulatory frameworks, and organizational characteristics.

There are, however, several points which I found frustrating. First,

the contribution of existing standard works to the author’s study is not made

clear. With regard to the Japanese capital market and corporate governance

system, several important works were published in the 1990s.

Representative texts include Aoki and Patrick (ed., The Japanese Main Bank

System: Its Relevancy for Developing and Transforming Economies,

Oxford University Press, 1994). Additionally, Aoki and Dore (ed., The

Japanese Firm: Sources of Competitive Strength, New York, Oxford University,

1994) includes several important papers concerning this topic. To my

understanding, Edward and Fisher (Banks, Finance and Investment in Germany,

Cambridge University Press, 1994) has become a standard text in the case of

Germany. Dietl makes no reference to any of these works in his book.

Consequently the reader finds it difficult to separate previous results from

the author’s own research.

Second, with regard to Japan, the author’s main message is that the regulatory

environment is a hybrid neoclassical and relational system, with a

corresponding multi-divisional, financial keiretsu organizational

response. However, it would be more helpful if the conceptual

relationship between financial keiretsu and the main

bank system were made clear, given recent emphasis on the main bank system as

an alternative mechanism of corporate governance. Care should also be used

when the multi-divisional form is identified as an organizational mode in

Japan, based on the consensus that the multi-divisional form in Japan is quite

different in comparison to its US counterpart (see Mark Fruin, The Japanese

Enterprise System. Oxford, Clarendon Press, 1992).

Another weakness with regard to Japan concerns the author’s evaluation of

the effectiveness of Japan’s regulatory environment. Dietl very acceptably

stresses the strong influence of the American model on Japan’s regulatory

framework. He then goes on to implicitly assume that the Japanese hybrid

system is a combination of the

advantages of both neoclassical and relational systems. However, there are

other possible combinations. Although financial keiretsu may allocate

resources efficiently and reduce agency costs, it is also highly possible that

keiretsu could increase

allocative inefficiency. This cost of financial keiretsu should be

considered, especially when considering the causes and effects of the late

1980’s “bubble” economy and its subsequent collapse in the 1990s.

My final complaint is that the presentation

of empirical work could be more complete. First, the author uses random

selection, which is in itself not bad, for sample selection. However, given

that previous empirical studies have normally based sample selection on

objective criteria such as firm

size or industrial category, the decision to use random selection requires

explanation. Similarly, the composition of sample firms in terms of size,

industry affiliation, and rank in assets should be added. Secondly, it is

regrettable that the time period for empirical evidence is not shown.

Although it seems clear that sampling began in the early 1990s (possibly 1993

or 1994), the time period under consideration remains unclear. The relation in

time relation between dependent and independent variables is also unclear.

Lastly, the description of variables seems somehow unclear, and slightly

subjective. There is no sample distribution given for the variable,

organizational mode.

While the variable, investment plasticity, is clearly defined as R&D investment

plus service related sales to total revenues, from the viewpoint of a

fellow researcher, it would be more reader friendly if the source of this

information was fully described. Similar comments can be made regarding the

variable, industry maturity, which is a discrete number from one to five. No

basis is given for determining industrial maturity values, nor does the book

include a distribution of samples.

In general, it would be helpful if the author provided a descriptive summary

for each variable before reporting its estimation results.

Similarly, tabular data for organizational form, industry maturity, and

investment plasticity could have been provided in appendices. Although

empirical results as presented support the author’s theoretical framework,

this conclusion is not robust and persuasive, given the evidence provided and

statistical procedure.

Hideaki, Miyajima is the co-editor of Policies for Competitiveness

(Oxford University Press, 1999), and author of “The Impact of Deregulation on

Corporate Governance and Finance” (Carlile and Tilton

(eds.), Is Japan Really Changing Its ways? (Brookings Institution Press,


Subject(s):Financial Markets, Financial Institutions, and Monetary History
Geographic Area(s):General, International, or Comparative
Time Period(s):20th Century: WWII and post-WWII

Cigarette Wars, The Triumph of the Little White Slaver

Author(s):Tate, Cassandra
Reviewer(s):Kiefer, Kay

Published by EH.NET (October 1999)

Cassandra Tate, Cigarette Wars, The Triumph of the Little White Slaver.

New York: Oxford University Press, 1999. vi + 204 illustrations,

bibliographical references, and index. $29.95 (cloth), ISBN 0-19-511851-0.

Reviewed for H-Business and EH.NET by Kay Kiefer, Department of History,

Southern Illinois University Carbondale.

Although this is hardly the first book to chronicle the hazards of smoking and

the attempts to stamp out the nasty habit forever, Cassandra Tate’s account,

from a researcher’s point of view, may be the most thorough. The reader may be

surprised to learn that a full-fledged anti-smoking crusade

(on a par with the admonitions of medical experts in the 1960’s and 1970’s),

spawned in the late nineteenth-century and continued with fervor into the early

twentieth century.

The central figure in Cigarette Wars is the indomitable Lucy Page


teacher, writer, lecturer and member of the Woman’s Christian Temperance Union

(WCTU). Founder of the Anti-Cigarette League of America, Gaston maintained

that cigarette smoking was a dangerous new habit, particularly threatening to

the young and thus likely to lead to the use of alcohol and narcotics, so

prevalent in the 1890’s. The dedicated Gaston’s mission attracted the

attention and the patronage of like-minded progressives and of such stalwart

members of the WCTU as evangelist Dwight Moody and David Starr Jordan,

president of Stanford University.

In a thought-provoking and interesting style, journalist Cassandra Tate,

writes not only of the overwhelming public support for the Anti-Cigarette

League of America (between 1890 and 1930 fifteen states enacted laws to ban the

sale, manufacture, possession, and use of cigarettes), but of the untimely

distancing of the prohibition movement from the anti-cigarette campaign. The

WCTU feared that the furor over attacks on smokers was eroding support for the

enforcement of prohibition. While they may have disliked cigarettes and tobacco

in general, they were willing to ignore them in the interest of what they had

already won. “The tobacco habit may be a private and personal bad habit, but

it is not in the same class as intoxicating liquor,” said Wayne B. Wheeler,

general counsel of the anti-saloon league (p. 123). Regrettably, a similar

attitude was taken by army doctors and military officials during World War I,

who claimed tobacco calmed the weary, sedated the wounded, and distracted the

bored. Having been denied access to wine and women, the men were encouraged to


Thus, sanctioned by both official edict and public consensus, the cigarette,

relatively uncommon until the turn of the century, enjoyed the benefits of

novelty. Cigarettes had acquired the patina of patriotism.

As the war siphoned support from the anti-cigarette movement, Tate skillfully

constructs a new post-war America, one that catapulted cigarettes into the

mainstream of American culture through advertising. At the outset of World War

II, cigarette advertising was in its heyday.

Health-related messages like, “Fatima, truly comfortable to

your throat and tongue”(p.142), and articles in the prestigious Journal of

American Medicine (JAMA), that claimed only cultists and reformers believed

cigarettes were harmful (p.140), underscored the deception of the medical

community. While Tate duly notes the laxity of the American Medical

Association (AMA), the reader would perhaps be better served had the author

made the more obvious connection between the AMA’s stance on smoking and the

decision to accept cigarette advertising in its medical journal


Cigarette Wars is chockablock with historical information, including

excellent notes and an informative appendix listing state cigarette prohibitive

laws. On the down side is the skimpy index, in dire need of more

cross-referencing. However, overall the little book gives the reader a more

than adequate history of “the little white slaver.”

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

The Voice of Business: Hill & Knowlton and Postwar Public Relations

Author(s):Miller, Karen S.
Reviewer(s):Laird, Pamela W.

Published by EH.NET (September 1999


Karen S. Miller. The Voice of Business: Hill & Knowlton and Postwar Public

Relations. Chapel Hill: University of North Carolina Press, 1999. xiii +

261 pp. Notes, bibliography, index, and illustrations. $ 39.95 (cloth),

ISBN 0-8078-2439-9.


for H-Business and EH.NET by Pamela W. Laird, University of Colorado at Denver.

Listening to a Voice of Business

Public relations, like advertising, is alternatively blamed and credited for

both the good and the wicked conditions of modern times. How can a scholar

tread the perilous course of responsibly assessing the impacts of a public

relations firm, while avoiding both platitudes and alarms? Karen S.

Miller provides us with a solidly researched and insightful model in her

masterful case study of Hill & Knowlton (H&K), one of the most important public

relations firms in the United States. Instead of a false drama of blame or

credit, Miller weaves together a lively and finely tuned narrative of H&K

activities after World War II with a balanced evaluation of their impacts. She

sticks closely to her evidence, resulting in a solid and most useful study.

Moreover she knows that looking at her subjects’ output does not necessarily

tell the historian whether or not “the general

public saw,

read, agreed with, or discussed the material” (p. 112). Like advertisements,

public relations messages tell us more about their creators than their

audiences. This approach is not the stuff of which New York Times best

sellers are made, but

The Voice of Business should make the best seller list of all those

interested in how ideas combine with business activities and interests when

business people try to influence public policy, consumption, and mainstream


Public relations advisors and textbooks alike insist that practitioners’

most important tasks focus on clients. After all, without commitment and

participation by managerial authorities, no PR program can function. Even more

than an advertising campaign, which certainly requires some managerial

cooperation, a public relations policy or program must engage decision makers.

For instance, in an all-time classic case, public relations pioneer Ivy Lee

guided the Rockefellers’ recovery from the public opinion disaster of the 1914

Ludlow Massacre by convincing John D. Rockefeller Jr. to come to the site of

the anti-labor violence and express his sorrow and regret. Had Lee simply

issued a press statement on the Rockefellers’ behalf, it would not have

sufficed to calm public outrage at

a time when Progressive Era opinion already mistrusted Robber Barons, and

firms were more generally identified with their owners than now. In a more

recent classic, Johnson &

Johnson executives decided in 1982, at huge cost, to remove and destroy all

Tylenol packages from store shelves across the United States after seven

poisonings in the Chicago area. Even though the cyanide had been inserted by a

murderer in a single locale, with public confidence their highest priority,

Johnson & Johnson managers sought to assure consumers that they would

thereafter see only safe products on the shelves. They did not hesitate or

argue about their firm’s lack of culpability.

Miller demonstrates the merits of such focus on clients by public relations

practitioners. Th rough a series of case studies she shows how H&K’s prestige

and influence grew because founder John W. Hill early on recognized the client

as the public relations practitioner’s first audience. Selecting cases for

their importance to successive stages of H&K’s development, Miller covers the

agency’s postwar work for and relations

with the steel, aircraft, butter, and tobacco industries. The public opinion

campaigns H&K generated and waged on behalf of these business interests yield

fascinating narratives and provide Miller the means of analyzing complex

relationships between large-scale businesses,

the state, and the public. On behalf of steel interests, for instance, H&K

argued against labor militancy and state authority, taking on the task of

“popular education” about “basic economics,” that is, pro-business economics.

Through the usual armamentarium of news releases, publications,

film, radio broadcasts, speeches, and congressional testimony, plus a comic

book for school distribution, H&K attacked what

Hill called the “national problem of winning more friends for the steel

industry” (pp. 55-9).

In the early stages of the professionalization of advertising agencies, F.

Wayland Ayer raised the stature of the field by operating as a businessman

among businessmen, helping the latter to make decisions rather than just

taking their orders. John W. Hill likewise raised his profession by always

conducting himself as a peer to his clients, counseling them and speaking–not

shouting–for them. Hill expected to participate in policy making, and

believed that clients who sought only publicity risked “poor policy and bad

public relations” (p. 142). When even major clients, like the National Retail

Dry Goods Association and the tobacco industry, closed their decision-making

processes, H&K resigned those accounts.

Miller concludes that “Hill’s legacy must be viewed as mixed.” H&K’s

“manipulation of information” did influence “both the content and the quantity

of public discussion,” but its “biggest impact was not on

the general public but on its own clients” and others who already agreed with

them (p. 3). For instance, the agency helped settle the 1948-1950 controversy

over oleomargarine by “urging the butter lobby [its client] to alter its policy

to a compromise position that in turn changed legislators’

goals” (p. 72). Miller also suggests that in other cases H&K’s influence

followed in part from reinforcing the pre-existing opinions of clients and

like-minded citizens. By fulfilling its mission “to amplify the voice of

industry,” H&K “fortified executives in the face of battle” and strengthened

their resolve (pp. 189, 193).

Perhaps Miller’s strongest methodological contribution is her use of the social

science concept of issue framing. In each of her cases, she

finds H&K’s greatest impact in its “adding to the frames of interpretation used

in public debates” (p. 190). This analytical insight alone is well worth

historians’ attention, for others besides skilled, professional communicators

deliberately attempt to

frame public debates. H&K’s work for the tobacco industry during the 1950s and

1960s provides Miller’s strongest example of purposeful framing. To combat

growing evidence and fears that cigarette smoking was hazardous, H&K

“emphasized several themes within the

‘case is not proved’ frame.” At that early stage in the gathering of

antismoking evidence, H&K helped the tobacco industry to define the public

opinion problem not as a direct confrontation with scientists and their

evidence, but rather as a matter

of raising doubts about the validity of their concerns. “Medical science” had

not proven a health hazard, and H&K recommended that the industry set up a

research program to “demonstrate that a controversy existed” (pp. 129-30,

133-4). This campaign succeeded in rebuilding consumers’ confidence in tobacco

by raising comforting doubts about the challengers’ arguments. After a decline

in smoking among adults during 1953 and 1954, consumption rose again until the

Surgeon General’s 1964 report, which made it increasingly difficult to

maintain the decade-old framing of the controversy. In this case, as in others,

H&K sometimes increased the flow of information, and at other times decreased

it. More importantly, it learned to direct that flow by framing issues for the

press and the public.

Miller’s opening critiques of those who have

“overestimated the power of public

relations” initially raised my concerns that The Voice of Business

might parallel the apologists for cigarette advertising–whose modesty about

its marketing impacts before courts and legislators clashes repeatedly with

the immodesty implied by massive campaign spending. Miller,

however, is no apologist; nor is she a critic. Instead her scholarship conveys

little of her own opinions about the ethical consequences of H&K activities,

although I think I detected a sigh of relief when H&K resigned the tobacco

account in 1969. Clearly, Miller admires John W. Hill for his skills, dignity,

and his steadfast adherence to personal and professional standards, yet she

also points to his political contradictions. She frequently refers to Hill’s

political conservatism and party affiliation without positive or negative


Linking labor’s goals and state authority with the thin edge of socialism’s


, especially when arguing against President Truman’s seizure of steel mills in

April, 1951, during the Korean War, H&K fought the free enterprise battle in

each of its big postwar campaigns. Intriguing contradictions popped up,

however, such as promoting

the butter lobby’s desires that the federal government intervene in the market

by forbidding oleo manufacturers to color their product yellow. Similarly,

H&K’s extensive campaigns on behalf of the air transport industries lobbied

both Congress and the public to increase government contracts. In both these

cases, anti-government partisans unabashedly saw government action as the

solution to their problems.

Exercising the reviewer’s prerogative, what would I have asked Miller to do

differently? A broadened

perspective that included slightly fuller treatments of the public relations

story before and during the postwar period could have deepened Miller’s

analysis of Hill’s principles and practices. Similarly, although Hill’s

pro-business, politically conservative ideas are key to her story,

contextualization and explanation run thin: “Whatever the reason, Hill held

many of the characteristics and beliefs of his clients” (p. 22). The

ideological environment in which Hill and his clients operated during the early

Cold War fostered their mutual successes, and more recognition of this

could have better situated H&K and its impacts. On another track, did H&K

agents take into account issues of population diversity with which advertising

agents were learning to wrestle, or did they dismiss those outside the

mainstream middle classes as either irrelevant to decision-making processes,

or, as with labor,

opponents? A clearer sense of how H&K saw “the public’s” identity would have

enriched our picture of why they operated as they did. Surely they knew that

their field, like advertising, was moving toward stronger feedback loops with

audiences. Was it paternalism, elitism, or just inertia that kept H&K’s vision

narrow? None of these areas is essential for Miller’s story

, but I do think that brief forays would have made the book,

and her otherwise sterling analyses, more accessible to a larger audience and

more meaningful to all. Nonetheless, The Voice of Business is a must

read for all those interested in how and why

business organizations project ideas into the public arena when they seek to

influence public policy,

consumption, and popular attitudes.

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

An Encyclopedia of Keynesian Economics

Author(s):Cate, Thomas
Harcourt, G.C.
Colander, David C.
Reviewer(s):Lawlor, Michael S.

Published by EH.NET (August 1999)


Thomas Cate, Editor, G.C. Harcourt and David C. Colander, Associate Editors. An Encyclopedia of Keynesian Economics. Cheltenham, UK and Brookfield, MA: Edward Elgar, 1997. xxiv + 638 pp. $235, ISBN: 185898145X.

Reviewed for EH.NET by Michael S. Lawlor, Department of Economics, Wake Forest University.

Macroeconomics today is in a peculiar state. Internally, the profession seems to have lost interest. Macroeconomics is neglected as a research topic. Outside of handy data to which to apply the latest advances in time-series econometric technique, graduate students seem to frown upon it as a dissertation topic (judging from the informal sample of assistant professor candidates we have interviewed in the last ten years). No longer are the heady debates, claims and counter-claims of the theoretical battles of the 1970s and 1980s making headlines in the journals.

Yet simultaneously, externally, out in the real economy, something of a revolution (to use a phrase popular in macro-talk) does seems to be taking place in macroeconomic performance, and possibly also in policy. T his is especially so in the case of the United States economy. U.S. real output growth has exceeded all consensus forecasts for the last 3 years (final figures for 1997 and 1998 came in at 3.8% and 4.2%). The duration of the expansion of the economy has now pushed into record territory. Unemployment has been falling for years and has now stood below 5% since 1996. And, most macroeconomically amazing of all, these good times have been accompanied by falling rates of inflation (below 3% for all but two quarters since 1995, below 2% since 1997:4). On the policy side, meanwhile, there is a degree of unreality. Fiscal policy, long ignored in the shadow of deficit politics, has seemingly dropped from the U.S. policy debate (although not so in Japan). Monetary policy in the era of Greenspan is widely given credit for engineering the U.S. miracle. But if you look a bit closer, both Greenspan and his cheering section seem a bit puzzled, even nervous about all the good fortune. M2 growth has fluctuated widely in the nineties, with little apparent correlation with inflation. Moreover, as inflation has declined, M2 growth has been consistently above the upper bound of its target range for most of the period since 1995. Consequently, both publicly and privately the Fed has abandoned money as an intermediate target, preferring to concentrate on the federal funds rate. Federal Open Market Committee (FOMC) minutes reveal a confusing search for signs of inflation that “must be there,” given the state of unemployment, along with much vague discussion of the financial press’s view that we are now in a “New Economy.” The essence of the novelty and the puzzlement seems to be a search for an unexplained and unmeasured productivity boost. Finally, there is the intriguing macroeconomic record of the rest of the world to add spice to this seemingly fertile ground for macro researchers. The largest experiment in one-shot monetary reform since Bretton Woods is taking place in Europe, while all of its major member states, except the dissenting U.K. (see IMF, 1999 for complete details), are still suffering from years of persistently high unemployment. The Asian Tigers have come down with a case of financial flu-if not pneumonia. Japan, the shining light of the 80s, has been limping through a very depressed decade, with disastrous GDP growth, and an interminable financial mess. As Japanese short-term interest rates have hovered below 1% for over four years now, we are perhaps catching the first real glimpse of a that old Keynesian curiosa, the liquidity trap. These are interesting times indeed.

What does modern macroeconomics have to tell us about all this? Has the profession’s enlightenment by the New Classical school helped us in understanding this state of affairs? More to the point of the book here under review, can we now profitably reassess the recent decades of macroecomic debate and experience with a less ideologically heated, more balanced and sober historical view? These are the issues that reading the current volume bring to mind, especially when considering a review for a list that has recently staged a fascinating forum calling for research on “economic history since 1950.”

Let me postpone some short remarks on these questions, though, to turn to the volume I was given to read. An Encyclopedia of Keynesian Economics contains 169 entries by 144 contributors and runs to 638 pages, with no index. The entries are of three varieties: brief biographies of various economists associated with “Keynesianism,” very broadly conceived (Silvio Gessel, Arthur Okun and Robert Lucas are profiled, for example); brief sketches of theoretical issues, models and tools arising in macroeconomic debates (e.g., “Okun’s Law” and “The Lucas Critique”); and longer pieces which typically deal much more closely with issues in Keynes scholarship (e.g., “The Influence of Burke and More on Keynes”).

The quality of the entries is varied. Some of the entries are entirely pedestrian, perhaps intentionally so to fit the evidently strictly imposed spac e requirements for the shorter biographies and theoretical topics. Theoretical topics suffer the most from this enforced brevity. Overall, I find the average level of the discussion in this volume inferior to some other recent reference works of its kind. The New Palgrave: A Dictionary of Economics (Eatwell, Milgate and Newman,1987), more deeply covers many of the same topics, albeit mixed in with much else. On the general topic of macroeconomics, the recent Business Cycles and Depressions: An Encyclopedia (Glasner, 1997) provides more complete coverage, especially of empirical issues in macroeconomics. Closer still to Keynesian concerns, but a beast of a different kind, is “A Second Edition” of the General Theory (Harcourt and Riach, 1997), which includes much more extensive treatments of issues arising within and from Keynes’s landmark book. At a minimum I would recommend cross-references to these sources be consulted along with the entries in the present volume. In any case such short entries as are here provided for theoretical issues can only serve as a mere starting point for further reading, and in this volume the excellent bibliographies attached to many entries will be as valuable a tool in that search as the articles themselves.

Some entries are not well done-“The Monetarist School of Economics” is bizarrely written, for example. It appears to have been inelegantly ripped from the preface of the author’s book on the subject, making references to that text that are unintelligible to the readers of the encyclopedia. But others are remarkable, mostly in those instances where more freedom of space was allowed. My favorite, was “Marshall and Keynes” by Peter Groenewegen, a fascinating and admirable condensation of the extensive treatment Groenewegen gave to this topic in his recent biography of Marshall (Groenewegen, 1995). It shows clearly the continuing impact of Marshall and Marshallian habits of thought on Keynes’s work up to and including his framing of the General Theory. Other entries raise expectations that are ultimately disappointed. In the treatment of Lucas and the “New Classical School of Economics,” for instance, there is a lamentable failure to confront the challenge that the last decades’ theoretical debates have posed for Keynesian economics. The reader longs to see a position taken on who has been left standing after the dust settles. Instead, we get sterile recounting of the dry points of various famous articles (evidently no “books” are influential in this field anymore) with no attempt at evaluation. (For a sterling discussion of this very topic, one that goes far to redeem Keynesianism, while recognizing the contributions of Lucas, see Peter Howitt’s “Expectations and Uncertainty in Contemporary Keynesian Models” in Harcourt and Riach, 1997). I suspect that the editors wanted to limit the partisanship of the volume and thus let each camp speak for itself. No conflict seems evident in this account and thus no evaluation of what we have learned from the tumultuous debates of the last twenty years emerges. Similar complaints apply to the entries on “Money,” “Neutrality of Money: The Keynesian Challenge,” “Monetary Policy,” and “Business Cycles.”

Partly this unsatisfactory nature of the debate reflects the problem of what purpose such a volume is intended to fulfill. This encyclopedia seems to be at cross-purposes with itself. It wants to reach out for inclusiveness-arguably all macroeconomics can be considered in some sense derivative from Keynes. Yet it must be taking sides to some extent in light of its very title. There has obviously been an explosion of scholarship on Keynes, Keynesianism, Post-Keynesianism and things Keynes-like (e.g., the philosophical issues surrounding expectation formation) in recent years. Much of this work was spurred by the combination of dissatisfaction with macro theory in the seventies and the publication of Keynes’ Collected Works. Thus there is now a whole (often interesting) sub-culture of the sub-culture that is the History of Economics devoted to Keynes studies. Another aspect of the same period of resurgence of interest in Keynes has been the extreme partisanship of macroecnonomic debates. It came to be something of a political and methodological ‘statement’ to be identified as a Keynesian in the eighties. While none of the issues raised in this period were ever settled-indeed I would say that much of Keynesianism has aged the period considerably better that any one would have predicted in the midst of the New Classical heyday-the debate itself seems now to have disappeared (except to be drearily recounted in the, significantly last, chapters of most otherwise Keynesian intermediate macro texts). Talking to most recent Ph.D. graduates reveals a pervasive ignorance and disdain for the whole topic of macroeconomics. Thus at whom is the present volume aimed? Is it designed to convert the heathen or to preach to the choir? Consideration of this issue will bring us back to the peculiar state of modern macro theory mentioned above. To motivate that consideration I would like to direct attention to the general history of encyclopedias, looking for clues to the role they have played in past eras of scholarship.

Encyclopedias as a bibliographic form can be traced back more than 2000 years (see the Encyclopedia Britannica entry for a useful account). The beginnings in Greek and Roman times play upon the first meaning of the word-a circle-to imply a complete system of learning or an all around education. There is a long and fascinating history of the concept since Plato’s nephew Speusippus (died 339 BC) began to convey his uncle’s ideas by recording the spoken word of the Forum. Some issues that arose over the course of this long development are interesting to consider in relation to our current theme. The question of audience has always been paramount. For most of their history encyclopedias were written to be a source of sound moral instruction. Hence the fashion of including biographies of exemplars from the past. The reader, it was hoped, would be elevated, inspired and refined by contact with the minds and lives of ideal man. Prior to the Enlightenment, encyclopedias were usually intended for very select groups that the author or editors could easily visualize and about whom they could therefore make certain assumptions. Early on, one could assume that he could read Latin (or “she” could-one of the most beautiful mediaeval encyclopedias is an illustrated manuscript of 636 pages by the abbess Herrad (died 1195), for use by the nuns in her charge). Other safe assumptions included that he or she was of high status and young and so in need of instruction, or later that he or she was a believing Christian, probably a Catholic cleric. In these didactic encyclopedias the common presumptions of the background of the reader were the source of the notion that encyclopedias should dispense with excessive moralizing and commentary in trade for brevity and clarity. Thus many early encyclopedias were little more than compendiums of selected pass ages of great writers, chosen to impart information that would be useful in the readers’ work and private life.

Another closely associated concern of encyclopedias in the pre-Modern period was the issue of the division of knowledge into the Sacred and Profane, or the Spiritual and the Secular. Increasingly, as scholarship became more developed and use was found for non-Christian ancient texts in describing the world, the Scholastic encyclopedists found themselves torn between acceptable beliefs and a passion for objective reporting of scientific observations. This division of course reached its height in the Enlightenment period. In the hands of Bacon, and especially Denis Diderot, the implicit and explicit purpose was to herald a new secular order where all thought would be encompassed in a philosophical system based on logic and natural law – the Enlightenment project. Diderot’s famous Encyclopedie (1751-65) enlisted, perhaps for the first time, a gigantic assemblage of high quality writers, commissioned to survey only secular knowledge. Scandalous in its day as a challenge to orthodox authority, this concept, as much as its uneven execution, has been accorded a substantial role in conditioning the revolutionary spirit of France in those crucial last decades of the Ancien Regime (Darnton, 1979).

If this can only seem incredible to us today-a revolutionary encyclopedia! – it is not only due to the irrelevance of the Academy in our post-Modern age. More directly it is due to the British reaction to the French Encyclopedia. The Britannica consciously avoided the lengthy and scandalous polemics of Diderot’s work, and instead soberly set out to achieve with an extensive list of short, factual entries, the aim of complete scientific and scholarly coverage. To this day we associate this task with the very meaning of encyclopedic. In the vernacular, completeness is the essence of what might be called the popular view of encyclopedias as the ready source for the answer to all queries. (In this regard it is useful to recall that in the 18th and 19th centuries most encyclopedias were sold ahead of time by mass subscription, the funds from which went to pay the writers. Since then the notion of a mass audience, not a select few, has characterized most modern encyclopedias.) This all-encompassing authority of encyclopedias is a view that has no doubt been much damaged at the hands of encyclopedia salesmanship, but still “sells” to the general public via parental faith in educational salvation for their children and schoolroom searches for last minute research papers. Truth be told the attraction reaches much higher in the hierarchy of the knowledge industry than that. What scholar can deny the still live attraction of the promise of knowing the essentials of all there is to know? Thus we can easily connect with the marketing savvy that inspired Dominco Bandini to market his fifteenth-century encyclopedia as Fons Memorabilium Universi (“The Source of the Noteworthy Facts of the Universe”).

Considering this complex set of issues from the general history of encyclopedias along with modern economics is an interesting exercise. Let us begin with the question of audience. An outside audience for economics in its true rhetorical dress of peculiar notation and specialized jargon is now an impossibility. Most of economic “research,” like most of science in general, has now progressed into corners that only the sub-discipline specialists themselves care to venture. Consequently the notion of an all-encompassing dictionary of economics, let alone of all knowledge as in encyclopedias of old, now is beyond belief. Today, the primary purpose of a scientific encyclopedia is to explain to the profession as a whole what the specialists in any area are doing. Here is one dimension in which economics truly can compare to modern science. The New Palgrave definitely fits this bill, as anyone who has ever sent an undergraduate over to the library to consult it has found. If ever there was one of those much discussed businessmen for whom Marshall was writing at the turn of the century, they are definitively not the targets of economic encyclopedias, the Encyclopedia of Keynesian Economics included.

Who among us economists then would profit from the volume? It is safe to say that anyone could profit from some aspect of the volume. At the most universal level some biographies are very interesting and even instructive (some are horribly dull). My favorite was the account by Robert Leeson of the New Zealander A.W.H. Phillips, of the much abused Phillips Curve (an association he was evidently loath to acknowledge). He was a kind of Henry-George-like figure in his colorful background and circuitous route to economics by way of earning his living as a fiddler, crocodile hunter, R AF officer, Japanese prisoner of war and engineer. He seems also to have been an exemplar of the gentleman scientist in the best possible sense of the phrase-disdaining both his own personal acclaim and the, as he saw it, distasteful acrimony of the macro policy debates inspired by his famous paper. But even less colorful biographies offer interesting tidbits-for instance that R. E. Lucas’s parents were New Deal Democrats, that he earned his BA in history and that he prefers to be called a “Monetarist” rather than a “New Classicalist.” Of course the fascination of Keynes’s biography needs no elaboration. Beyond the personal stories, unfortunately, it seems very doubtful to me in our ever more unconsciously conservative profession that many besides the already initiated will find a dictionary on “Keynesian” economics worth the look.

Which brings me to the issue of fact versus faith, or what the medieval monks who compiled encyclopedias termed, “the sacred and the profane.” If encyclopedias are to instruct the young and uninitiated they must have some imprimatur of authority akin to the ecclesiastical seal that the scholastics put upon medieval texts and the similarly ceremonial listing of the legion of famous authorities, resplendent in their degrees and positions, which all modern mass-market encyclopedias display prominently at the head of the first volume. Amongst the brothers and sisters of the macro faith today, though, the priesthood is in serious disarray. There is little enough agreement on basic principles for a consensus among specialists, let alone among the profession as a whole. Just who are the true priests and who are the worshipers of false idols varies by sect. It is this state of uncertainty and discord, I believe, that has effected the graduate training of new economists and turned them away from macroeconomics at just a point in time when the topic seems so interesting. If one has to spend hours learning the latest refinements of New Classical, Real Business Cycle, New Keynesian and Cash-in-Advance macro models to get through the macro sequence, there is little time left to synthesize what one really knows about macroeconomic theory, much less macroeconomic events that will not be covered on the preliminary exam. More telling perhaps is the partisanship, for no vibrant research program is ever just a catalogue of received truths, but must generate ever-new questions and puzzles to progress. If there is little tolerance shown for alternative viewpoints by the lights of the profession, then graduate students are not to be blamed for their reluctance to try to sort it all out for themselves.

Moreover, if the student does happen to have a prior interest in macro events or, more likely, finds himself assigned to teach or write about macro to a non-economist audience (like a group of Principles students) he will quickly find that the only intelligible framework for doing so is the very same old-time Keynesian macro of the pre-Lucas era that was supposedly destroyed by that JPE paper back in ’75! An archipelago of islands inhabited by rational agents, continuously in equilibrium but frustrated by the signal extraction problem is interesting enough, perhaps-but what does it have to tell us about the crash of the crash of the Indonesian Bahtand its implication for the sustainability of the long boom in the U.S.? Faced with the latter question, one inevitably starts talking about aggregate demand, lender of last resort, etc., in ways that would hardly surprise your average 1970s-era macro theorist.

Or, alternatively, we have this puzzle that Alan Greenspan has now spoken of on numerous occasions of how to determine if the recent (pleasant) inflation surprise was a temporary cyclical artifact of reduced world demand or a new era of increased productivity growth. From the realm of high theory we might well sense a resemblance to both the new endogenous growth literature and the real business cycle model. But what do they have to offer in explanation for the current short-term situation or as a guide to Fed policy making? Next to nothing it would seem, judging from the discussions at the recent FOMC meetings. Yoo (1998) offers a very interesting analysis of the “puzzlement” in the FOMC over what they should do to respond to the current macro situation. His analysis, following their discussion, is framed in terms of such issues as the state of “aggregate supply,” “productivity,” the “investment and consumption components of aggregate demand” and the “capacity constraints on the economy.” Reflecting on the impact of the recent macro theory debates, he notes that the Fed continues to distrust money supply growth as a reliable indicator and finds itself “puzzled” by recent performance. The minutes for the FOMC meeting of May 20, 1997 report that:

The members found it very difficult to account for the surprisingly benign behavior of inflation in an economy that had been operating at a level approximating full employment, indeed, possibly somewhat above sustainable full employment in labor markets in the view of a number of members, especially taking into consideration the recent further decline in the unemployment rate. On the basis of historical patterns, any overshooting of full employment would be expected to generate rising inflation over time. (quoted in Yoo, 1998, p. 35)

In one fashion we might say that the big puzzle for the Fed has been to try to uncover what the non-accelerating inflation rate of unemployment (NAIRU) now is, after having seen virtually every consensus estimate of it for the last 15 years succumb to continuing growth with falling inflation.

My point is that virtually all of this policy discussion is conducted in terms of an aggregate short-run supply and demand framework that most closely resembles textbook Keynesianism of the kind that still dominates the intermediate course market. It bears little evidence of influences from the last 20 years of macro research. And if such an application were to be attempted, what would it suggest? That we continuously measure the elasticity of substitution between labor and leisure and between present and future consumption? That we try to anticipate the next shock to the economy’s production function – which are after all considered completely stochastic in the New Classical/Real Business Cycle literature anyway? At best such models approach reality by a non-unique calibration of a whole set of parameters that allows the model to simulate the record of past business cycles. They seem to have no forecasting ability. Note, that while automatic “rules” are very popular among recent theorists of macro policy, no central bank is actually bold enough to seriously adopt one. Flying completely blind, counting on the economy to right itself, neglecting any attempt at anticipation of events, is not in the repertoires of central bankers today – if it ever was (see John Wood’s forthcoming book (Wood, 2000) for a fascinating argument about the mindset of central bankers versus that of economists).

Yet confidence in the self-correcting automaticity of the macroeconomy is the bedrock of classicism (old and new), considered as a policy framework. Thus to give the classical view its due we should also consider the possibility that we have returned to the long-run stability of some past macroeconomic golden age-the gold-standard era seems to be a favorite. This would be a period when budgets were routinely balanced, governments non-intrusive and money so stable in value that actors on the economic stage did not even consider monetary policy in their calculations. Or, put more theoretically, the explanation might be that macroeconomics is not even at issue and what we are dealing with today is long-run supply considerations that no macro policy could do anything to foster in the first place. It is tempting to reply, “tell that to the Japanese!” More soberly, what evidence can we bring to bear on this proposition?

First I believe it is the economic historians who staged the debate in the last 15 years or so on the question of the relative stability of older (pre-war, pre-Keynesian) business cycles, versus newer (post-war, activist government-era) cycles. The exact outcome of the debate as I read it (Romer, 1986, Lebergott, 1986, Weir 1986, Diebold and Rudebush, 1992) is that the initial, and macroeconomically conventional, claim that the post-war business cycle was more stable (challenged by Romer, defended by the others) still holds up. But whatever the case, no one has suggested that the post-war cycle is less stable than the pre-war one. Outside of price stability (where the Gold-standard era is clearly superior), data scarcity makes macroeconomic comparisons before 1929 difficult. But an argument can certainly be made (given one’s weighting of low unemployment and growth along with price stability) that the 1950-1970 era (1961-1969 is still the longest expansion on record but is normally discounted for the “war” effect when compared with “peacetime” expansions) is the most ‘golden’ of ages from the standpoint of macro performance – particularly if we look at international comparisons. Is returning to a pre-war policy context necessarily a good thing?

But other problems are also evident in a crude classical view from a shorter-term perspective. One, the fiscal policy aspect is not at all clear. Th e long-boom(s) of the last 15 years (the expansions 1982:4 – 1990:3, plus 1991:2 – today) were of course mostly a period of extremely high and growing deficits, though followed by shrinking ones after 1992. Moreover, as the European countries positioned themselves for monetary union, they too shrunk their deficits as a percent of GDP (since about 1994). But they have mostly seen no similar decline in the unemployment rate. Thus the role of fiscal effects is not easy to untangle. An alternative story could be told that the U.S. example is one of fiscal demand stimulus (under the banner of supply-side economics), followed by a cyclically balanced budget as the Clinton tax-plan and output increases pushed up tax revenue. Finally, as to the benefits of the productivity shocks we may be experiencing, they are of course part of the Keynesian view in terms of the effect on aggregate supply. But one does wonder about Japan in this context, which seems to be the source of much of the information management and inventory techniques that are often cited as the source of the “New Economy,” but which can’t pull itself out of a very deep recession. (It has been interesting to watch the US administration, the policy institutes and even the Wall Street Journal, admonish the Japanese for not pushing a more aggressive fiscal stimulus package. Evidently the rhetoric of balanced budgets stops at our shores.)

Lastly there is the hand wringing over the financial and monetary situation. We have seen the Fed successfully intervene to ward of the contagion of financial crises and stock-market crashes both at home and abroad in this time period. The money supply seems to have become unhinged from inflation. Most policy moves are made today with a fearful eye on how the bond and stock markets will react. And the guru of the whole era’s prosperity, Alan Greenspan, has nothing but stern words for the high-flying stock market. This potentially unstable combination of interlocking psychologies and ultimate dependence on the Fed to do what is right when the Fed itself seems puzzled over what is going on, does not look like an “automatic adjustment” economy to me. In fact it looks very much like the kind of economy Keynes was describing in the General Theory. Is this what the advocates of the supposedly unmanaged economies of old have in mind?

The French Aristocracy and Jesuits together vehemently opposed Diderot’s Encyclopedie. They were astute enough to realize the threat of Diderot’s self-consciously secular system of knowledge becoming widely disseminated. It was not dangerous that the Philosophes were themselves embracing a new language in which to conduct their professional conversations. What was dangerous was for the 2000 subscribers and the members of the Paris salons in which they gathered, to begin to notice that the entries on government and morality put forth in the Encyclopedie declared their position to be derivative of natural laws and not divine or ecclesiastical authority. If this view were to become widespread, they correctly sensed, the basis of the Ancien Regime was at risk.

Today in macroeconomics we have a curious reversal of this old conflict between social authority and profane science. The ‘science’ of macroeconomics itself has retreated into a kind of religiosity – what Keynes, complaining of his classical critics, called “scholasticism.” To him this was a discussion that proceeds in a kind of infinite loop, sustained by shared cherished assumptions that are not allowed to be questioned- like continuous market clearing and the insistence on modeling all choice as if it were made by rational anticipation of the consequences in situations defined by the impossibility of such anticipation. The risk of such private conversations is that Macroeconomics may be in the process of becoming irrelevant. Meanwhile the macroeconomy marches forward and policy analysis has become the province of non-economist policy analysts and low-status (within the economics profession) government staff economists. Much of the toolkit of these (evidently very successful) practitioners are filled with theories and tools that modern highbrow theory has relegated to historians and outmoded “Keynesians.” Many of these tools are profiled in the encyclopedia under review.

Michael S . Lawlor is Professor of Economics at Wake Forest University. His most recent publication on Keynes was the chapter “The Classical Theory of the Rate of Interest,” in G.C. Harcourt and P.A. Riach, eds, 1997. A ‘Second Edition’ of The General Theory. Lon don and New York: Routledge.


Darnton, Robert, 1979. The Business of the Enlightenment: A Publishing History of the Encyclopedia. Cambridge: Harvard University Press

Diebold, Francis X., and Glenn D. Rudebusch. ” Have Postwar Economic Fluctuations Been Stabilized?” American Economic Review, 82 (1992): 993-1005.

Eatwell, John, Murray Milgate and Peter Newman, eds. 1987. The New Palgrave: A Dictionary of Economics. London: Macmillan.

Glasner, David, ed., 1997. Business Cycles and Depressions: An Encyclopedia. New York and London: Garland.

Groenewegen, Peter D. 1995. A Soaring Eagle: Alfred Marshall 1842-1924. Aldershot: Edward Elgar.

Harcourt, G.C. and Peter Riach, eds. 1997. A ‘Second Edition’ of The General Theory. London and New York: Routledge.

International Monetary Fund, 1999. Chronic Unemployment in the Euro Area: Causes and Cures. Washington D.C.: International Monetary Fund.

Lebergott, Stanley. “Discussion.” Journal of Economic History 46 (1986): 367-71.

Romer, Christina D. “Is Stabilization of the Postwar economy of Figment of the Data?” American Economic Review 17 (1986): 314-34.

Weir, David. “The Reliability of Historical Macroeconomic Data for Comparing Cyclical Stability.” Journal of Economic History 4 6 (1986: 353-65).

Wood, John H. “A Company of Merchants:” A History of the Theories and Ideas That Have Shaped Monetary Policy. Forthcoming.

Yoo, Peter S. “The FOMC in 1997: A Real Conundrum.” Review of the Federal Reserve Bank of St. Louis 80:5 (19 98): 27-40.


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

Economic Cycles: Long Cycles and Business Cycles since 1870

Author(s):Solomou, Solomos
Reviewer(s):Capie, Forrest

Published by EH.NET (August 1999)

Solomos Solomou, Economic Cycles: Long Cycles and Business Cycles since

1870. Manchester: Manchester University Press, 1998. x + 132 pp. $79.95

(paper), ISBN: 0-7190-4150-3; $27.95 (paper), ISBN: 0-7190-4151-1.

Reviewed for EH.NET by Forrest Capie, Department of Banking and Finance, City

University Business School, London.

To the economic historian it seems odd that from time to time economists talk

about the end of the business cycle. In the late 1920s, economists,

in the US in particular, were proclaiming an end of the business cycle, after

a long period of boom. Unfortunately, there followed almost immediately the

worst cyclical downturn of all times–though that did not seem to dent the

reputation of economists. Again in the 1960s macroeconomists were talking of th

e end of the business cycle, regrettably just before the worst postwar

recession. (Look out for these forecasts and sell!) Solomou’s plea is that for

any study of business cycles a long historical period needs to be held in view;

and when it is, it can of

course be seen, that while the nature of the cycle changes, the cycle does not

disappear. One of the many splendid things about this short book is to knock

the “death of the business cycle” story on the head, and indeed go further and

accept that cycles

will always be present.

The book is in a series designed for students, policymakers, and practitioners.

In other words it is designed to survey the literature on the subject in a

critical way and summarize the principal strands. It is in two main parts.

The first and somewhat longer part is on business cycles since 1870, and the

second is on long economic fluctuations. Each of these parts has appended a

substantial bibliography; and there is a short concluding chapter on the

lessons that can be drawn from a consideration of the analysis.

There are two principal ways of looking at business cycles. One is to see them

as the consequence of internally generated dynamics, and the other is to see

external shocks as the source. And there is the possibility of international

transmission through a fixed exchange- rate system. Solomou considers these

approaches, examines the main types of shocks, describes cyclical behavior

across the period, and provides an explanation based on an analysis. In the

process he brings out the considerable differences in cyclical behavior in the

three periods: 1870-1914, 1919-39, and 1945 onwards. The second part of the

book deals with two kinds of cycles:

Kuznets (20 years), and Kondratiev (50 years). There has been more interest in

recent times on the latter but both of these require an even longer historical

period for description and analysis; but then lack of data quickly becomes a


If reviewers are obliged to find a fault, mine would be to query the

significance attributed to the role of agriculture in the cycle after 1870.

If it was simply claimed that weather was a significant shock there would be

little cause for complaint since there is a case for the construction and

perhaps other sectors being seriously affected.

But that would be to quibble and the wrong note on which to end, for this book

can be recommended unreservedly to undergraduates and others.

Forrest Capie has written, co-written or edited sixteen books and over a

hundred articles on monetary, banking

and trade topics. His recent publications include: Tariffs and Growth

(Manchester University Press,

1994); The Future of Central Banking (Cambridge University Press 1995)

with Charles Goodhart and Stanley Fischer; Monetary Economics in the

1990s (Ma cmillan 1996); and Asset Prices and the Real Economy ed.

with G. E. Wood (Macmillan 1997). He is Editor of the Economic History


Subject(s):Macroeconomics and Fluctuations
Geographic Area(s):General, International, or Comparative
Time Period(s):General or Comparative

The Economy of Obligation: The Culture of Credit and Social Relations in Early Modern England

Author(s):Muldrew, Craig
Reviewer(s):McCants, Anne E. C.

Published by EH.NET (August 1999)

Craig Muldrew, The Economy of Obligation: The Culture of Credit and Social

Relations in Early Modern England. New York: St. Martin’s Press, 1998. xii

+ 453 pp. $69.95 (cloth), ISBN: 0-312-21565


Reviewed for EH.NET by Anne E. C. McCants, Department of History,

Massachusetts Institute of Technology.

The economic history profession has recently witnessed a resurgence of interest

in the cultural underpinnings of past economies. Prominent examples, to name

just a few, can be found in Peter Temin’s Presidential Address to the Economic

History Association in 1996, in the sweeping argument of David Landes’ The

Wealth and Poverty of Nations and of most direct relevance to the

work in question here, Deirdre McCloskey’s Presidential Address to the EHA in

1997. Muldrew’s book then makes a timely appearance, given its dedication to a

reconstruction of the “culture of credit” as it existed in England between the

sixteenth and eighteenth centuries.

Craig Muldrew (Department of History and Civilization, European University

Institute–Florence) takes as his broad subject both the material realities of

the early modern English marketplace, and the cultural milieu in which those

realities manifested themselves. Thus, he investigates probate inventories,

shop account books, household expenditure diaries and civic tax schedules, as

well as the court records of debt litigation, family correspondence, personal

diaries, sectarian sermons, and a large prescriptive literature written for

the middling householder and small tradesman. The intellectual reach of his

sources even extends to the natural law theorists of the seventeenth century,

such as Thomas Hobbes,

Richard Hooker and Gerard de Malynes to name just the most famous. In this

literature he finds, as did Max Weber and countless others after him, an almost

excessive attention paid to the themes of diligence and frugality.

But contra Weber, Muldrew does not see this primarily as evidence for the

profit motive of capitalism in its early manifestations. Rather he argues that

all this advice was fundamentally about the preservation of reputation in a

society where credit was the key to market participation, and thus wealth. It

should be further noted that the word credit for Muldrew means more the

“social communication and circulating judgement about the value of other

members of communities” than it does our more typically modern usage as a

financial sum or a claim on assets (p. 2). Thus, early modern marketplace

exchanges dependent on credit were typically solidified only after hours of

negotiation in a local tavern, over drinks and in front of witnesses. In this

insistence on the communicative (even persuasive)

aspects of the marketplace, Muldrew’s work strongly reinforces the argument

made by McCloskey that economic historians can only ignore social variables

(which McCloskey sometimes short-hands as “sweet talk”) at their peril.

The first part of the book will be the most familiar

territory for economic historians. For it is here that Muldrew makes most use

of quantitative techniques to answer a number of important questions of fact,

as it were.

He begins with an effort to reconstruct the sheer magnitude of market

transactions in early modern England, and to date with some precision the

impressive rise in marketing during the sixteenth century, from what was

already an arguably “commercial” medieval England. He attributes the economic

boom of the decades after 1550 to the expansion

of marketing stimulated by the demand generated by the demographic expansion

then underway. In fact, on the basis of a limited number of probate


a handful of account books, and a more voluminous court record, he argues that

this was England’

s “most intensely concentrated period of economic growth before the late

eighteenth century” (pp. 20-21); and moreover, that the late sixteenth century

was not the period of absolute immiseration that it would appear to have been

on the basis of the Phelps-Brown and Hopkins real wage index. Relative poverty

may indeed have been on the rise, but he claims that at least the poor

households which were inventoried lived about as well. if not better, than

their fifteenth century peasant equivalents

(p. 32).

This latter claim is a very strong one, and probably needs much more evidence

before we disregard the implications of the real wage series entirely.

Nonetheless, much of the argument is compelling, despite the fact that it rests

only on indirect types of

evidence (admittedly from several different types of sources). What these

strong claims should really do is stimulate the profession to dig anew for yet

more data which can either confirm or refute his revisionist position,

particularly as it pertains tot he lower end of the economic spectrum.

The sixteenth century is not the only place, however, where Muldrew takes on

one of the sacred tenets of the historiography of the English economy.

Part of his project also challenges the long accepted figures for the size of

the English economy at the end of the seventeenth century as devised by the

contemporary political arithmaticians Gregory King, William Petty and Charles

Davenant. Muldrew argues that their figures, designed as they were to evaluate

the taxable

and thus cash portion of the economy, grossly underestimate the scale of all

marketing in England, dependent as most of that was on the extension of local

(oral) credit. Muldrew’s estimate for total national consumption in the latter

part of the seventeenth century

(146,000,000 pounds) is over three times greater than King’s contemporary

estimate of total household income (p 90). While this calculation depends

critically on the representatives of only seventeen household account books

from a period of

over a century and across the social scale, it does have the significant

advantage of including purchases made on credit. If Muldrew’s calculations can

be confirmed by further research (preferably with a much larger data base than

his seventeen account books), they will force us to fundamentally rethink the

magnitude of the economic transition from the early modern to the industrial

period. This could prove to be additional evidence of the significance of the

so-called “industrious revolution” of the early modern period.

This however is not Muldrew’s main agenda, but merely a by-product of his work

for other purposes. The real agenda here is to demonstrate, given the extreme

scarcity of metal coinage throughout this period, the intense reliance that

commerce of this magnitude placed by necessity on mechanisms of informal


Even more importantly, Muldrew stresses the implications of such widespread and

interlocking networks of credit for the exacerbation of tensions between the

households of consumers and producers,

which were, of course, merely the same households wearing their various many

hats. With the initial mid-sixteenth century boom, these tensions played

themselves out in an explosion of debt litigation and an outpouring of moral

literature on the perils of the prodigal (that is the indebted)

life. With time, adjustments were made to the legal system and new forms for

public credit were established which allowed credit to “become less dependent

on individual morality” (p. 329). Marketing could not only continue at its new

high level, but even expand, without the security of the social fabric being

irreparably damaged.

This is a fascinating book and one which I highly recommend. It moves

comfortably between the quantification of material life in early modern

England, and the way that life was understood by contemporaries. Historians of

the economy, and historians of ideas will both find much in this book to

stimulate further research in their respective fields. Finally, it offers a


reminder that the now dominant utilitarian understanding of economic behavior

as essentially individualistic and fundamentally competitive, is not always an

appropriate model for studies of even strongly market-centered economies. Trust

(and trustworthine4ss), and by extension,

cooperative behavior, were essential to the generation of wealth by households

in early modern England. Thus it is that Daniel Defoe could write as late even

as 1726 that “He that gives no trust, and takes no trust, either by wholes ale

or by retail … is not yet born, or if there ever were any such, they are all

dead” (quoted on p. 95).

Anne E. C. McCants is the author of Civic Charity in a Golden Age: Orphan

Care in Early Modern Amsterdam (University of Illinois Press, 1997).


David S. Landes, The Wealth and Poverty of Nations: Why Are Some So Rich and

Others So Poor?. New York: W.W. Norton, 1998.

Deirdre N. McCloskey, “Bourgeois Virtue and the History of P and S,”

Journal of Economic History, June 1998, 58 (2

): 297-317.

Peter Temin, “Is It Kosher to Talk about Culture?” Journal of Economic

History, June 1997, 57 (2): 267-87.

Subject(s):Markets and Institutions
Geographic Area(s):Europe
Time Period(s):18th Century

The Economics of World War II: Six Great Powers in International Comparison

Author(s):Harrison, Mark
Reviewer(s):Mills, Geofrey T.

Published by EH.NET (July 1999)

Mark Harrison, editor, The Economics of World War II: Six Great Powers in

International Comparison. Cambridge, UK; Cambridge University Press, 1998.

xiii + 307 pp. $49.95 (cloth), ISBN: 0-521-620465.

Reviewed for EH.NET by Geofrey T. Mills, College of Business, University of

Northern Iowa.

Scholars and students of World War II will find this collection of essays an

extremely useful addition to their libraries. The essays cover the six major

antagonists of the war: Germany, Japan, Italy, the Soviet Union, the UK and

the US. The editor succeeds in achieving a major goal of the book which is to

“provide a text of statistical reference for students and researchers

interested in international and comparative economic history,

the history of WWII, the history of economic policy, and comparative economic

systems.” While this is an ambitious goal, these essays provide insight into

these issues, and, where possible, answers to important questions.

Mark Harris on has organized this book around three key questions. What

contribution did economies make to war preparedness and to winning or losing

the war? What was the effect of wartime experiences on post war fortunes? Did

those who won the war then lose the peace? Given these questions, economic

growth as effected by military mobilization becomes a central theme of the

book. In general all six authors devote space not only to the economics of the

war economy, but also to the periods before the war, and to the consequences

of World War II on long-run economic fortunes.

In the introduction, Harrison provides an extensive overview of the book.

This essay is essentially an extended quantitative discussion of the economic

and military elements of the war. In essence

, this section outlines the stark economic realities of conducting an extended

large scale war and concludes that a major reason, if not the prime reason, the

allies were victorious was due to their overwhelming advantage in the material

and logistic aspects of the conflict. Harrison also penned the article on the

Soviet economy. This piece is an impressive statistical analysis of the Soviet

war effort and its impact on post-war growth. Harrison does not conclude that

the collapse of the Soviet economy in

the 1980’s was a result of its success against Germany, but he does indicate

that success in World War II entrenched an inefficient production system and

extended credibility to a generation of leaders positively associated with the

defense industry.


result may well have been a first world military set upon a third world

economic system, and this arrangement could not be sustained indefinitely.

Hugh Rockoff’s article on the United States fills a gap in the literature on

the World War II years, especially the 1939-1943 period. Rockoff concentrates,

not unexpectedly, on the conversion from civilian consumption to war production

and the trade-offs necessary in this transition. Compared to the other

countries detailed in this volume, the US was afforded

the most leisurely approach to rearming as its frontiers were not threatened.

While he looks at a large array of statistics Rockoff tends to focus his

analysis on a total factor productivity model, and concludes that no single

factor accounts for the rise in output. Success came from an across-the-board

effort to mobilize resources. One major contribution which Rockoff offers has

to do with the source of America’s post-war prosperity.

He concludes that while war economics certainly played some role in post-WWII

growth, the most likely explanation for the prosperity was a change in the

macroeconomic regime. The Great Depression and World War II effectively

converted the economics profession to a Keynesian viewpoint whereby the

government was seen as a positive force in the economic affairs of the nation.

He concludes that the most long lasting legacy of the war was this Keynesian

viewpoint which reshaped the intellectual and institutional operations of

macroeconomics and relied upon monetary and fiscal policy tools for the

prevention of inflation and unemployment.

Stephen Broadberry and Peter Howlett offer an essay on the UK entitled

“Victory at all Costs.” The title is indicative of the economic effort which

Britain bent to the war effort. Their analysis indicates the huge scale of

mobilization which the Brits undertook–some 55.3% of GDP of 1943.

This section takes into consideration all aspects of the British economy and is

refreshing in its completeness and attention to close economic analysis. They

conclude that, not unsurprisingly, the war effort in Britain was dominated by a

Keynesian outlook, one which placed great faith in government controls.

One of the main virtues of this volume is its attention, in a single location,

to the totalitarian states. The essays on Germany by Werner Abelshauser;

Italy, by Vera Zamagni; Japan, by Akira Hara; and Russia, by Harrison, all

stand in stark contrast to those on the US and UK. The articles on Japan and

Italy are especially welcome because material on these countries is relatively

unavailable in English, and the comparative approach here makes these essays

both significant and enlightening. All four of these pieces deal with the

problems of managing a huge war effort with a totalitarian mechanism.

Decision making was in the hands of a small set of people, but there was,

in all cases, a surprisingly large amount of input. Hara points out that the

Japanese had an especially difficult time managing their far flung empire with

limited natural resources. And especially interesting in all cases is the

respective discussion of the long run impact of the war given the mass levels

of destruction, occupation and/or defeat which the war wrought on these


Harrison has put together an extremely useful book

on comparative economic history. The six essays are all very well done, and all

conclude with sections outlining the impact of the war on post-war growth. This

book adds to our understanding of war economics and the shape of the world

economy in the second half of the twentieth century.

Geofrey Mills is author (with Hugh Rockoff) of The Sinews of War: Essays on

the Economic History of World War II (Ames, IA: Iowa State University

Press, 1993) plus other articles and essays involving war economics.

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

Knowledge Works: Managing Intellectual Capital at Toshiba

Author(s):Fruin, W. Mark
Reviewer(s):Robertson, Andrew

Published by EH.NET (July 1999)

W. Mark Fruin, Knowledge Works: Managing Intellectual Capital at


Japan Business and Economics Series. New York: Oxford University Press,

1997. 256 pp. $39.95 (cloth). ISBN: 0195081951

Reviewed for H-Business and EH.NET by Andrew Robertson, Harvard University.


in a sea of high quality, meticulously engineered electronic and mechanical

products bearing the label “Made in Japan”, Americans — both inside and

outside academia — continue to wonder, despite Japan’s recent economic

troubles, “How does Japanese industry do it?” In Knowledge Works:

Managing Intellectual Capital at Toshiba, Mark Fruin addresses this

perennial question through a factory organization at Toshiba’s Yanagicho

factory. At irregular intervals from 1986 through 1992, Fruin entered Toshiba’s

workforce to observe the complicated social patterns that generate change at

Toshiba. Because Toshiba devolves most of its resources related to product and

process development to the factory level, working in the various sections

responsible for bringing

new products on line permitted Fruin to study at firsthand the technical,

social, and cultural relations that structure Toshiba’s larger technology

strategy. In

Knowledge Works, Fruin argues persuasively that Toshiba’s success during

the 1980s in responding to rapid shifts in market preference, to the quickly

strengthening yen, and to the establishment — sometimes voluntary,

sometimes not — of international trade quotas, stemmed directly from the

development of a new form of factory organization, a form beyond simple mass

production, a form Fruin terms the “Knowledge Works”.

Briefly, this

book is a useful and thought provoking study of how a single

factory is organized to support rapid innovation in both process and production

technology. Fruin presents a useful model — that is, the knowledge works —

for analysis of this industrial form and supports his claims with detailed

descriptions of the technical systems, social organization, institutional

values, and individual attitudes that underpin this

form. The book is not, however, without its flaws, most prominent being

Fruin’s desire to generalize this form as a source and explanation of Japan’s

national rather than Toshiba’s corporate comparative advantage.

In the term “knowledge works”, Fruin playfully emphasizes the central point of

the book: “Knowledge works” are places where “knowledge works”. Put a little

more elegantly and emphatically,

“Knowledge works are a force for a new age, a postproduction age, of

intellectual capitalism. Instead of

making things, a production problem pure and simple, making the right things,

in the right amounts, at the right times and prices, is the postproduction

problem. And because nothing stands still, making righter thing, in

righter amounts, at righter prices and times, must be the goal.

Post production , or intellectual capitalism, presumes information processing

abilities of a high order,

on-site differentiation and integration of functions, a

customer-is-always-right point of view, and quite emphatically, an

environmentally conscious mode of operations” (p. 24).

Knowledge works permit a higher degree of responsiveness to changes in markets

by permitting higher levels of differentiation in a factory’s product lines and

simultaneously higher levels of

integration technically,

socially, and culturally across the different groups managing, designing,

and producing these products. While management remains well attuned to the

short-term exigencies of the market, still more important to the continued

vitality of both the factories as knowledge works and Toshiba as a corporation

is management’s strategic commitment to factories as sites for not only the

production of better products but also the production of better skilled, more

knowledgeable, better motivated workers on better organized, better managed

lines. Knowledge works prosper not by the traditional mass production

strategies of de-skilling and the division of labor; instead, at Yanagicho, the

factory provides the site where technicians, engineers, and managers from not

only Yanagicho but also other Toshiba plants, group companies, suppliers, and

even outsiders cooperate to attain the “physical, spatial, and functional

integration of labor and information (p. 17).”

Understanding the characteristics

of the manufacturing processes undertaken in knowledge works as being

profoundly determined by the particulars of a given site’s history provides

Fruin a useful explanation to understand how Toshiba innovates so quickly. It

does so because on the factory

floor, the whole organizational panoply of managers, engineers, technicians,

suppliers, assembly personnel, inspection personnel and such are synchronized

by a common set of values, practices, and goals. Technical knowledge, social

contracts, and cultural

intuitions combine seamlessly to create the basis for rapid process and

product innovation. Continuous and ongoing renegotiations of these compacts is

the norm which permits flexible response by management and engineering in the

deployment of Yanagicho’s intellectual, financial, and labor resources.

While it is the social and cultural dynamism and cohesiveness of “knowledge

works” that power technical development at Toshiba, it is the technologies

themselves that create value for the company. Which technologies — and

consequently which complementary skills and what forms of organizational

knowledge — to develop is central in determining which markets any given

knowledge works can and will be able to service. Fruin notes the presence in

each of Toshiba’s

knowledge works of what he terms “Champion Lines”,

families of products that provide not only considerable revenue flows but also

considerable and ongoing innovation in both product and process development.

“They lay a threshold of organizational knowledge on which related products

can thrive, one that ultimately justifies the high risk and cost of creating

multifunctional capabilities in particular product departments [of, that is, a

knowledge works.] (p. 47)” Yanagicho’s

“Champion Line” — plain paper

copiers — has defined the trajectory of technical, product, and market

development for the whole factory complex since the mid-1980s. While the

knowledge works form enables Toshiba to participate in the crowded and highly

competitive domestic copier mark et,

at the same time, in developing the technical know-how necessary to compete in

this market, Toshiba augments, complements, and improves the basic technical

and organizational knowledge present at Yanagicho and thus drives change in the

other product families produced there. Indeed, of the thirteen product lines

produced in the Yanagicho plant, fully two-third are

“historically and technically linked” to its plain paper copier line (p.


Having introduced the concept and architecture of the Knowledge Works in the

first two chapters, Fruin spends the majority of the book studying how Toshiba

management maintains, extends, and reproduces the structures that define a

knowledge works. The third chapter describes how management promotes the

education, socialization and acculturation of its workforce to the needs and

values of a knowledge works through a continual process termed organizational

campaigning. The fourth describes how Toshiba — or more accurately the

Yanagicho factory — manages its relations with suppliers, encouraging

excellence and cooperativeness through the strategic exchange of knowledge,

expertise, and personnel. In the fifth chapter,

Fruin uses a case study of the development of the SuperSmart card — a credit

card sized computer —

to demonstrate the potency of knowledge works to develop rapidly (in only 22

months) a product embodying multiple technological innovations. In the sixth

chapter, Fruin examines how Toshiba responded to the problems encountered in

exporting both the know ledge works concept and plain paper copier manufacture

to a plant in Irvine,

California. Not surprisingly, the seventh and concluding chapter reprises the

basic argument of the book, pointing to Toshiba’s potential for flexible and

speedy innovation that

results from the presence of a corporate factory system organized around

knowledge works.

As noted above, this is a useful and interesting book. Having worked in the

Yanagicho factory as an employee, Fruin writes with an authority born of

experience. At

the same time, the book is more than simply a diary of production line

experience. His experience is structured by new readings of old arguments in a

variety of literatures in management and economics.

Moreover, his method is not limited by overly fastidious attention to

disciplinary boundaries. In trying to understand what motivates workers to

participate, Fruin bravely enters the problematic realm of individual values,

culture, and inevitably history. Knowledge Works persuasively

demonstrates the importance of these less quantifiable and more local aspects

of human experience in Toshiba’s development of a factory-based capability to

respond to and generate rapid change.

Using this multidisciplinary approach combined with a fine detail derived from

careful field research, Fruin has formulated an argument that emphasizes the

importance of a particular cluster of factors — some cultural, some social,

some institutional, some political, some market, and some technical — in

enabling the creation of know ledge works at Toshiba.

By so tightly and persuasively linking the factors of the knowledge works’

creation to the particulars of Toshiba’s products, market, organization,

and culture, Fruin renders any generalization of the knowledge works concept

problematic. After making a good case for knowledge works being the source of

Toshiba’s comparative advantage, Fruin — too boldly in my view

– continues, making much the same claim regarding the sources of Japan’s

national comparative advantage. For example,

in his conclusion Fruin writes,

The widespread existence of Knowledge Works in Japan but the relative scarcity

(or nonexistence) elsewhere suggests the powerful impact of national

competition on manufacturing organization at home, the competitive edge enjoyed

by Japan’s industrial firms in established product markets,

and their ability to respond quickly, even preemptively, to new domestic and

overseas markets (p. 210).

Since no company has experienced exactly what Toshiba has experienced and since


a few even come close in terms of market, product lines, and such, it is

difficult to believe that the knowledge work per se is widespread even in


This is not idle philosophizing. Over the course of the book, we do in fact

learn that many of the

most prominent Japanese companies are not configured in a knowledge works-like

style of production. For example, serving as they do radically different

markets, Toshiba and Toyoda do not, indeed could not, operate using the same

production models (p. 206)

; for Hitachi,

Mitsubishi, and NEC, R&D deployment is mostly focused — contrary to knowledge

works best practice — at laboratories that are neither physically nor

institutionally linked to specific factory sites (p. 57-59);

and the competitive cooperation found in Yanagicho’s dynamic and responsive

supplier network derives from the shared intangible assets fostered under the

knowledge works approach rather than the formal, more static, and more widely

spread fiscal and organizational relations defining

traditional keiretsu and kiygo shodan business groupings (p. 99). These are not

inconsequential differences. In the knowledge works model, the structure of the

supplier network, the factory level allocation of R&D, and the organization of

production are key structuring elements. By and large, its seems that

knowledge works — in the mode in which they are implemented at Yanagicho and

described by Fruin — could be as rare in Japan as they are abroad. By making

an argument that ties knowledge works so tightly to the specific technical,

institutional, and corporate history of Toshiba and its Yanagicho plant, Fruin

renders the imitation of knowledge works by Toshiba’s domestic competitors only

slightly less problematic than their transplantation from Toshiba

‘s plants in Japan to new factories in the United States.

Another way to estimate the influence of knowledge works on Japanese industrial

development would be to ask when they first came into being. In terms of

knowledge works influencing larger issues of national comparative advantage,

earlier would be better to allow time for dispersal. Indeed,

Fruin argues,

“Knowledge Works are not a recent, postwar invention. They appeared during the

interwar period as focal factories: multifunction and occasionally

multiproduct factories that bore administrative responsibility for serving

regional markets at a time when national markets were not well integrated.”

(p. 31).

Here and elsewhere in the book, Fruin times the advent of knowledge works as

during the inter war period. I do not wish to suggest that Fruin is wrong in

drawing links to this period; however, these must be termed only the barest

beginnings of certain aspects of the knowledge works structure. They should not

be mistaken for the structure itself. Given that certain knowledge works

structures at Yanagicho such as total productivity organizational campaigning

(p. 69), the establishment of factory oriented R&D structures (p. 191), and the

creation of an active and responsive Supplier Association (p. 9 7) all stem

from institutional changes undertaken in the period between the late 1970s and

mid-1980s, the development of the knowledge works form should be seen as a

product of the slow down in Toshiba’s corporate growth engendered by “Oil

Shocks” and the

ending of Japan’s period of high economic growth.

Thus, to my way of thinking, the organization defined as knowledge works is

both more recent and less widely spread in Japan than is suggested by Fruin’s

otherwise well constructed and excellently researched book.

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

Studies in the Economic History of the Pacific Rim

Author(s):Miller, Sally M.
Latham, A.J.H.
Flynn, Dennis O.
Reviewer(s):Croix, Sumner La

Published by EH.NET


Sally M. Miller, A.J.H. Latham, and Dennis O. Flynn, editors, Studies in the Economic History of the Pacific Rim. Routledge Studies in the Growth Economies of Asia. London and New York: Routledge , 1998. 253 pp. $90 (cloth), ISBN 0-415-114819-7.

Reviewed for EH.NET by Sumner La Croix, Department of Economics, University of Hawaii and Barnard College.

In the introduction to this volume, Dennis Flynn and Arturo Giraldez write that they searched “for books and articles which might provide an overview of over four centuries of Pacific Rim interchange. For years scholars around the world have given the same answer: no long-term overview of the Pacific Rim exists in any language.” Since the failure by economic historians “to acknowledge an over 420-year trade relationship covering one third of the globe’s surface seemed like a glaring omission,” the editors and the University of the Pacific decided to sponsor “the world’s first conference on Pacific Rim History” in May 1994 (p. 3). The 14 papers in this edited volume are drawn from the papers presented at that conference.

In his essay “No Empty Ocean”, Paul D’Arcy sets the tone for the volume by observing that few scholars “have attempted to construct an image of the Pacific Ocean as a coherent entity in the way that Fernand Braudel has for the Mediterranean or K.N. Chaudhuri has for the Indian Ocean” (p. 21). Anthony Reid has, however, made a notable start for a corner of the Pacific with his excellent two-volume (1988, 1993) study of trade and growth in Southeast Asia from 1450 to 1680. D’Arcy’s observation raises, however, an important question for this volume: Is building a coherent image of the “Pacific Rim” a more quixotic enterprise than those undertaken by Braudel or Chaudhuri?

These are some reasons to think so, at least prior to World War II. First, the Pacific Ocean is surely a good organizing principle for a geographic region, but economies that are part of a geographic region may not be part of the same economic region unless they are linked by significant trade, investment, or migratory flows. Yet many economies in the Pacific Rim have for long periods engaged in little foreign trade or traded only with their proximate neighbors. Japan’s government heavily restricted foreign trade during the Tokugawa period until Admiral Perry’s black ships opened Japanese ports in the 1850s. Korea had similar trade policies until Japanese military pressure along the lines of the American model forced open foreign trade in the 1870s. Before western contact in 1778, Hawaii had no regular trade with other Pacific cultures due to its geographic isolation in the North Pacific and risky maritime technologies for sailing to distant countries.

Second, several essays in this volume highlight the important diffusion of ideas, technologies, flora, fauna, and disease that brought Asia-Pacific societies into contact with one another. Until the 1760s this diffusion was often the result of sporadic or accidental contacts rather than the result of ongoing trade, investment, or migratory flows. Although these spillovers linked many societies within the Pacific Ocean in a path-dependent fashion, the lack of regular contacts often precluded the specialization, trade, and deeper cultural exchanges that serve to link societies into a larger regional economy, polity, and culture.

Third, scholarly work on trade in the Pacific Ocean can only be productive if it is founded upon historical or archaeological records of trade. A.J.H. Latham’s essay, “The Reconstruction of Hong Kong Nineteenth-Century Pacific Trade Statistics”, provides a good example of the careful research needed to construct fundamental data series. Latham’s essay highlights the under-use of colonial records for Indonesia, the Philippines, Vietnam, and Burma. The extensive efforts undertaken to document colonial data in Indonesia cry out to be undertaken for other colonial regimes. [See the 15-volume Changing Economy of Indonesia series.] While several major research projects dedicated to building historical data on critical economic variables in East and Southeast Asia are now underway, such efforts need to be much higher on the research agendas for historians and economic historians studying Pacific Rim trade.

With the lofty aim of producing a history of trade in the Pacific Rim over the last 400 years, the volume opens with eight “overview” essays summarizing various aspects of the interaction between Pacific Rim economies. Essays by Paul D’Arcy (“No Empty Ocean: Trade and Interaction across the Pacific Ocean to the Middle of the Eighteenth Century”), Lionel Frost (“Coming Full Circle: A Long-Term Perspective on the Pacific Rim”), David Chappell (“Peripheralizing the Center: An Historical Overview of Pacific Island Micro-States”), John McNeill (“From Magellan to MITI: Pacific Rim Economies and Pacific Island Ecologies Since 1521″), Arthur P. Dudden (“The American Pacific: Where the West Was Also Won”), Annick Foucrier (“The French Presence in the Pacific Ocean and California, 1700-1850″), and Douglas Daigle (“Environmental Impacts of the Pacific Rim Timber Trade: An Overview”) raise, however, questions about the intended audience for the book. While these essays provide competent, brief surveys of the existing literatures, they break little new ground and, due to their brevity and enormous scope, are not sufficiently exhaustive or critical to focus other economic historians and historians on vital research questions at the frontier of these fields. Instead, the essays seem directed to a more general readership requiring only a brief introduction to each topic.

The other seven essays are more narrowly focused on country-specific industries and institutions significantly related to international trade. Karen Clay’s creative essay (“Trade, Institutions, and Law: The Experience of Mexican California”) nicely applies Avner Greif’s theory of merchant coalitions to California merchants engaged in international trade. Tsu-yu Chen (“The Development of the Coal Mining Industry in Taiwan during the Japanese Colonial Occupation”) assembles output and export data covering Taiwan’s coal mining industry but only begins the task of relating industry behavior to Japanese government policies on energy in the 1920s and 1930s. Frank King (“British Overseas Banking on the Pacific Rim, 1830-1870″) provides a detailed essay on the development of British banking in Asia and briefly discusses how the banking institutions facilitated regional trade. David St. Clair (“California Quicksilver in the Pacific Rim Economy, 1850-90″) provides an interesting analysis of U.S. exports of quicksilver to China. And R. Bin Wong”s suggestive essay (“Chinese Views of the Money Supply and Foreign Trade, 1400-1850″) contrasts Chinese attitudes towards amassing large sums of bullion with Western attitudes and in the process raises more questions than the very brief treatment can answer.

The editors rightly suggest (p. 17) that understanding the powerful influence of China on Asia-Pacific trade should be a central focus of future research. For more than a century after 1571 China imported 50 tons of silver annually from Spanish colonies in the Americas, thereby providing ongoing linkages between China, the Americas, and Europe (if not between China and other Pacific Rim economies). The sheer magnitude of China’s silver imports reinforces new research on China’s living standards. Ken Pomeranz (1997) has recently argued that 18th century living standards in the lower Yangtze reg ion of China were roughly comparable to those observed in England and the Low Countries. With its high per capita income and high population, China’s trade with other Asia-Pacific societies is central to any discussion of Pacific Rim trade between 1500 and 1850 and needs much more careful examination by scholars.

The essays in this volume provide the interested reader with brief overviews of trade between various Asia-Pacific economies, but, as the editors acknowledge, “most of the work [on this topic] remains to be done” (p. 17). A core research agenda focused on careful assembly of fundamental data on Asia-Pacific economies from under-exploited archival and archeological sources is the key to future progress.


Pomeranz, Kenneth (1997), “Rethinking 18th Century China: A High Standard of Living and its Implications,” Unpublished paper, University of California, Irvine.

Reid, Anthony (1988, 1993), Southeast Asia in the Age of Commerce, 1450-1680. 2 vols. New Haven: Yale University Press.

Sumner La Croix’s research focuses on the economic history and development of Asia and the Pacific Islands. He is currently the Alena Wels Hirschorn Visiting Professor at Barnard College.


Subject(s):Economywide Country Studies and Comparative History
Geographic Area(s):Asia
Time Period(s):General or Comparative

The Political Economy of the New Deal

Author(s):Couch, Jim
II, William F. Shughart
Reviewer(s):Fishback, Price V.

Published by EH.NET (June 1999)

Jim Couch and William F. Shughart II, T he Political Economy of the New

Deal. Cheltenham, UK and Northampton, MA: Edward Elgar, 1998. xvi + 229

pp. $85 (hardback), ISBN 1-85898-899-3.

Reviewed for EH.NET by Price V. Fishback, Department of Economics,

University of Arizona.

The New Deal is certainly one of the most dramatic peace-time expansions of

government activity in recorded history. As a result, numerous social

scientists and historians have tried to understand the political economy of the

New Deal. In

particular, a great deal of effort has been devoted to trying to explain the

dramatic differences in per capita New Deal spending across states that were

first mentioned prominently by Leonard Arrington

(1970). Jim Couch and Bill Shughart offer a book-length study that is devoted

to explaining those differences using public choice theory.

Franklin Roosevelt gave speeches that argued that the New Deal was designed to

promote “Relief, Recovery, and Reform.” New Deal administrators like Harold

Ickes and Harry Hopkins also consistently talked about noble goals for the New

Deal programs. Yet Leonard Arrington’s simple comparison of New Deal spending

per capita across the states quickly raises questions about how well the New

Deal met these goals. There was substantial variation in the distribution of

New Deal funds per capita across the states; the West fared well, while the

South fared poorly. This has led a number of economists to perform econometric

studies of the New Deal. Donald Reading

(1973) found that

the distribution of funds seem to be associated with improving federal land,

building highways, and helping to promote recovery.

However, there was little sign that the New Deal money was designed to reform

society because money was not being distributed

disproportionately to poorer areas. Gavin Wright (1974) then added the issue

of presidential politics to the analysis. His results show that the primary

goal in distributing New Deal funds was to ensure the reelection of Roosevelt,

as money was primarily

distributed to swing states and to areas where the money could be used most

productively to increase presidential electoral votes. John Wallis (1987) then

expanded the sample by obtaining information on New Deal spending from year to

year and obtaining more information on the movement of the economic variables

over the course of the decade. Wallis emphasized that Congress had structured

the New Deal so that state and local governments played a role in determining

how much they would receive from

the federal government. Wallis also worried about problems of simultaneity

bias arising in the coefficients on the unemployment variables. Gary Anderson

and Robert Tollison (1991) then added Congressional politics to the mix. Couch

and Shughart’s contribution tot his literature involves a book-length study

that describes a wide variety of New Deal spending and loan programs, offers

numerous anecdotes about their impact, and performs further econometric

analysis on the determinants of New Deal spending and loan across states.

The focus of the book is on developing a public choice analysis of the New

Deal. This is not really a new emphasis because all of the previous work has

used the same notion that people in government were acting in a self-interested

manner. What is new in the book is the combining of the econometric analyses

with extensive descriptive material and a very strong negative tone about the

motives of the Roosevelt administration. The econometric results from nearly

all the studies generally imply that a focus on reelection by political

leaders and pressures from interest groups did a great deal to shape the New

Deal. Couch and Shughart’s econometric results show very little evidence that

reform, recovery, and relief were key factors, although earlier econometric

work suggests that recovery and relief motives might have played a role. To

supplement the econometric results, Couch and Shughart, offer numerous tales of

malfeasance in the book, which offer a counterpoint to many books that heap

unadulterated praise on the New Deal programs.

People interested in the distribution of New Deal funds should read the book in

conjunction with a recent paper by John Wallis (1998) in

Explorations in Economic History. Wallis’s paper in part serves as a

book re view in the sense that Wallis goes through the analyses of all the

prior authors mentioned in the book and tries to compare the results of each

analysis using the same data and the same variables as closely as possible.

Wallis also offers some new insights that are not in this volume because the

book was in press at the time that the Wallis article appeared. Couch and

Shughart expand on the earlier econometric work by offering additional material

and by dissaggregating and examining some of the specific programs.

One of the central issues that Wallis (1998, 1987) was trying to do in his

analysis was take into account the impact on New Deal spending of the matching

features that were included in some programs, as well as differences in the

attitudes of state and local governments toward seeking and obtaining New Deal

funds. His technique involved using a lagged value of grants in the New Deal

distribution equation in a panel data set. In addition for the period 1937

through 1940 Wallis has tried to directly examine the impact of state spending

on New Deal distributions. Couch and Shughart challenge the notion that

matching institutions and local attitudes had much impact on New Deal spending.

They found evidence from the Congressional Record on the share

of WPA projects funded by local sponsors. Regression analysis shows that the

sponsor’s share of the program was negatively related to the amount of WPA

expenditures. Therefore, they argue that there was no simple mechanical

relationship between the money provided by state and local governments and the

“match” from the federal government. I tend to agree that there was no

mechanical relationship, but it is likely that the attitudes and activities of

the state and local governments did influence how much effort they devoted to

obtaining New Deal funds. Couch and Shughart really do not address this issue

well because they do not try to take into account the issues of simultaneity

bias in their regression equations. Wallis (1987) has already made the

theoretic al case that federal government spending and state and local spending

are endogenous and that there are feedbacks between the two. Thus,

it is somewhat surprising that Couch and Shughart ignore the issue by running

simple OLS regressions that ignore the endogeneity issues. They do offer some

criticisms of some of the work Wallis has done on the impact of state spending

on New Deal funds, but it would seem very important to test the issue directly

in their regression analysis.

Couch and Shughart press their argument that state and local activity was

relatively unimportant further by claiming that leaders in the South, which

received less than other regions, did not oppose New Deal programs. They claim

that southerners only opposed the Roosevelt administration late in the 1930s

(p. 212). They argue that nearly all of the southern congressmen voted for the

Emergency Relief Appropriation Act, and that most of the southern opposition

came about in response to the court-packing plan in 1937. Their claims of la ck

of southern opposition to the New Deal are not very convincing. The vote for

the enabling legislation was not even remotely close, suggesting that everybody

expected that the legislation would go through because it was just continuing

the programs already in existence. Further, they appear to have missed the

work of Lee Alston and Joseph Ferrie, who have articles in the Journal of

Economic History

(1985) and in the American Economic Review (1993) that show that

southern planters were strongly opposed to many New Deal programs,

particularly Social Security.

I was surprised by another omission. In their concise history of the Great

Depression, they do not mention the work on the impact of the gold standard on

the depression by Barry Eichengreen (Golden Fetters, 1992). My

impression is that most economists and economic historians see Eichengreen’s

book as the most comprehensive discussion of the issue.

So, what can we learn from the analysis in this book, which also summarizes

most of the literature on the issue? Couch and Shughart give strong emphasis

to the notion that politics and interest groups were the primary factors

shaping the New Deal. Their regression analysis finds little evidence that the

distribution of funds matched the noble rhetorical goals of reform, recovery,

and relief motives. They dismiss the notion that matching had much impact on

the distribution of funds. At this point I am not fully convinced that the New

Dealers did not at least partially try to achieve the noble goals in their

rhetoric. One issue that cannot be addressed with the econometrics is the idea

that the New Deal was conceived to solve a national problem of relief and

recovery. In fact, the 1930s led to all sorts of federal legislation on issues

that had been the state’s preserve because people seemed to believe that these

were national problems. It is clear that the Depression did not touch all

states equally, but it certainly touched each and every state to some extent.

Each state

received a significant amount of spending, at least $200 per capita. So

Roosevelt, Hopkins, Ickes and the rest of the New Dealers could at least claim

that they used resources to foster relief and recovery at a base level in each

state. The variation across states shows that other factors determined the

distribution beyond this base level. None of the regression analyses by any of

the scholars writing on this subject show any sign that the New Deal was

reform-minded, a finding consistent with most historians’

views of the Roosevelt

Administration. It is clear that political maneuvering played an important role

in this story in all of the analyses.

The question of whether or not the variation also reflected more noble motives

is still not fully answered. Different specifications show

different results. One problem with the Couch and Shughart analyses is that

they do not adequately control for problems with simultaneity bias, which was a

central feature of Wallis’s earlier analyses. My sense having followed all of

this literature care fully over the past decade is that the distribution of New

Deal funds was complicated. It was driven by some noble goals, some political

goals, and certainly by special interest pressures.

It was probably driven as well by sheer confusion because there we re so many

diverse programs that it seems likely (and historians have documented)

that the goals of some programs came into direct opposition to the goals of

other programs. All of these factors come together into a giant and very

complex stew that boiled

over into the largest peacetime expansion of government in U.S. history.

Price V. Fishback Department of Economics University of Arizona Tucson, AZ


Price V. Fishback is the Frank and Clara Kramer Professor of Economics at the

University of Arizona. His book with Shawn Kantor on the origins of workers’

compensation laws is forthcoming from University of Chicago Press early in

2000. Fishback and Kantor are currently collaborating with various scholars on

a large-scale project examining the economic impact of the New Deal on the

economy using county- and city-level data.


Alston, Lee and Joseph Ferrie, “Labor Costs, Paternalism, and Loyalty in

Southern Agriculture: A Constraint on the Growth of the Welfare State,”

Journal of Economic

History, 45 (March 1985): 95-117.

Alston, Lee and Joseph Ferrie, “Paternalism in Agricultural Labor Contracts in

the U.S. South: Implications for the Growth of the Welfare State,”

American Economic Review, 83 (September 1993): 852-76.

Anderson, Gary

M., and Robert D. Tollison, “Congressional Influence and Patterns of New Deal

Spending, 1933-1939,” Journal of Law and Economics,

34 (April 1991): 161-175.

Arrington, Leonard J., “Western Agriculture and the New Deal,”

Agricultural History, 49 (1970)

: 337-353.

Eichengreen, Barry, Golden Fetters: The Gold Standard and the Great

Depression, 1919-1939. New York: Oxford University Press, 1992.

Fleck, Robert Kenneth, “Essays on the Political Economy of the New Deal”

(Ph.D. thesis, Stanford University,


Reading, Don C., “New Deal Activity and the States, 1933 to 1939,” Journal

of Economic History, 33 (Dec. 1973): 792-810.

Wallis, John Joseph, “Employment, Politics, and Economic Recovery During the

Great Depression,” Review of Economics and Statistics, 69 (Aug.

1987): 516-20.

, “The Political Economy of New Deal Spending Revisited, Again: With and

Without Nevada,” Explorations in Economic History, 35 (April (1998):


Wright, Gavin, “The Political Economy of New Deal Spending:

An Econometric Analysis,” Review of Economics and Statistics, 56 (Feb.

1974): 30-38.

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