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Incorporating Women: A History of Women and Business in the United States

Author(s):Kwolek-Folland, Angel
Reviewer(s):Yeager, Mary A.

Published by H-Business@eh.net and EH.Net (April 1999)

Angel Kwolek-Folland. Incorporating Women: A History of Women and Business

in the United States Twayne’s Evolution of Modern Business Series. New

York: Twayne Publishers, Simon &

Schuster Macmillan, 1998. ix + pp. 275.

Bibliography and index. (cloth), ISBN 0-8057-4519-X.

Reviewed for H-Business by Mary A. Yeager, Department of History, University of

California, Los Angeles, California.

MAKING A DIFFERENCE: WOMEN AND BUSINESS HISTORY

Angel Kwolek-Folland’s Incorporating Women is the first survey to

synthesize the history of women and business anywhere in the world. Its

pioneering status raises a series of significant questions for the scholarly

and business communities and the public at large. Why have businesswomen in

America been the first women to have their history surveyed and synthesized?

And why now? In view of the fact that there is still a great deal that we do

not know about women in business, is the synthesis premature? What does the

synthesis offer historians of women and business and what is its significance

for future research? And finally, where do we go from here? [1]

ACCOUNTING FOR LEADERS

The practice of business and women’s history

in the United States has reached a historiographical cross-roads just when

demographic and economic changes are interacting to compel a dramatic

restructuring of American business. As we approach the millennium, old

certainties about the superior competitiveness of American business have given

way to the uncertainties of global capitalism run amok. Women, including those

with children, have become fifty-one percent of the labor force. They have

started more new businesses at a faster rate than men. T hey have earned more

baccalaureate and graduate degrees than have men across an increasing number of

professions. More women have climbed into the ranks of middle management,

while the small number of women at the very top has held its own.

For the first time in the history of American business, women who work have

begun to be perceived as a partial solution to the problems of competitiveness

rather than as a major social problem. No longer is the question whether single

or married women should work but

rather, how long women will work at a particular occupation and pay scale?

Will married women and men be able to juggle the kids and career demands to

suit personal and familial lifestyles?

The appearance of a historical synthesis of American women and

business at this time is significant because it has been pieced together from

two radically different historiographical traditions before a great deal of

substantive or systematic research on women in business has been completed.

Until relatively recently

, historians have used gender more often to exclude rather than to include the

opposite sex. American business history was generally written by and about men

in growth-oriented manufacturing firms.

American women’s history was written by and about women

who lived compartmentalized lives in private or public spheres.

More is known about women as workers than as businesspeople. Evidence on

women’s labor force-participation is abundant, quantifiable and relatively

accessible, embedded in government labor and occupational censuses, and

company records. As an activity, business confounds with multiple meanings and

definitions. It sweeps in production and trade, manufacturing,

agriculture and service, as well as producers, entrepreneurs, professionals,

workers and managers. As an occupation, it is notoriously ambiguous, often

swept into other occupational groupings, such as proprietors or administrators.

As a career or profession, it offers numerous choices, from clerks to

middle-level managers and corporate

executives.

Businesswomen have been hard to see and difficult to track. They have been

misfits in the male world of business and a privileged minority among women.

Their names have been erased in law and custom by those of husbands, fathers

and brothers.

Their economic activities have spilled across boundaries demarcating

households, families, firms and markets. Their multifaceted roles as wives and

mothers, daughters and widows have blurred their business identities. Most

female business activities have occurred in smaller corners and invisible

niches of the service sector rather than in growth-oriented manufacturing

industries, in family-oriented businesses and retail shops,

and in educational, philanthropic, and health-care and reform-oriented

institutions. The motives of businesswomen have involved a complex and changing

mixture of economic and non-economic factors. Their stories have tended to be

communal and familial, muffling individual decision-making strategies and the

competitive noises of

firms and industries.

Kwolek-Folland has learned from her subjects how to transform problems into

opportunities. She uses debates about working women as scaffolding for the

synthesis. Chapter titles evoke a succession of images about working women:

“Fem ale Economies,” “Mills and More,” “Difference at Work,” “Personal Work,”

“Crisis Management” and “Difference at Work.” Work offers women a way to gain

greater economic visibility. It expands opportunities to undertake business.

Indeed, women’s movement into white collar work in the late nineteenth and

earlier twentieth centuries marks, for her, one of the most important changes

for women in business in the past 300 years. Data on occupations and women’s

labor force participation are correlated generally with women’s increasing

involvement in business activities. Business activities are based on a gendered

division of labor. Women participate in business like workers participating in

the economy, as part of a proletariat, more often in feminized, sex-segregated

dead-end jobs and slower-growing niches of service-oriented industries.

Women’s status at work serves as a lightning rod for the debate over women’s

roles more generally. Debates about working women grow out of debates about

women’s place.

Businesswomen across the centuries have often adopted a work-oriented view of

business. Business has been a way to make a living and survive. So integral

has business been to women’s lives, that some women have steadfastly refused to

distinguish business from life. “You can never think of me as a business

woman,” one woman cautioned her daughter in 1910.

“That is because I make a business of life and living my business.”

“Business is just life,” American real estate entrepreneur Edith Mae Cummings

wrote in 1929, “and we had life long before we had business.”[2]

KWOLEK-FOLLAND, BRIDGE-BUILDER

Kwolek-Folland knows how to listen to women’s voices. She has designed the

synthesis to disrupt disciplinary boundaries that have kept women in separate

spheres a nd men the only players in a male-dominated business game.

Given that “Women have always been in business in America (p.1),”

Kwolek-Folland has defined her central challenge as one of “incorporation”:

how to bring “others,” particularly women of different

classes, races and ethnicities into American business history and how to bring

business into American women’s history.

Incorporation has the ring of a conservative project of integration. Cynical

feminists well-versed in the history of British legal traditions might well

hesitate. After all, English civil law recognized the man and wife as one,

but came to define the “one” as “male.” Who is incorporated into what? Who are

the “gatekeepers” of the incorporation process? What are the terms of

incorporation? And what are the results of the incorporation process, both

for those incorporated and for the incorporating body as a whole?

Kwolek-Folland does not ally with feminist theorists determined to tear down

business institutions in order to clear the playing field of businessmen.

Nor is she a neo-progressive reformer nipping at the heels of Charles and Mary

Beard. She is an artist in tone, style, and temperament, using conservative

colors to cover radical aims.

Double entendres bedevil the incorporation process. Incorporation is testily

political, both a form and process, interacting to constrain and liberate women

unevenly and unequally over time. Power is interpreted as direct authority and

indirect influence. Both the terms and outcome of the incorporation process

are contingent, dependent in part upon how societies regard and value “others”,

as reflected by women’s changing legal status and business activities.

Incorporation involves struggles over the meaning and significance of business

and its associated concepts of profit, risk,

entrepreneurship, and success. Kwolek-Folland defines business expansively as:

“engaging in economic activity in a market to seek profit and assuming the

financial responsibility for that activity.” (p.5). Profit is

often embedded in non-economic goals; risk is defined as much in personal and

familial as in monetary terms; entrepreneurship is defined broadly as “new”

areas of economic activity; success is linked to women’s emancipation and

autonomy.

To incorporate

women into the history of business Kwolek-Folland uses analytical tools derived

from political and women’s history. Social categories of race, gender,

ethnicity and class order human experiences along a continuum of differences

that reveal the dynamics of

power embedded in business activities and institutions. Kwolek-Folland regards

these social categories as a “force,” and more than occasionally, as an

“irrational force” which shapes “how businesses approach markets, make hiring

choices,

and create organizational forms.” (p.8). Women’s political struggles both

spearhead and reflect changes in business activities and structures,

shifting the meaning and influence of business in women’s lives.

Business is incorporated into women’s history through inequities and

asymmetries of power associated with different business structures and economic

activities and roles. Business organizations reinforce differences between men

and women and other women. Business imparts new meaning and significance to

these categories by serving as fickle emancipator of women’s roles and

conscious conservator of woman’s place. It bridges the divide that has

separated women’s private and public lives.

Underlying Kwolek-Folland’s assumptions about the importance of social

categories to the understanding and meaning of business is a reformer’s vision

of a

more equitable and just business system, one where gender differences are not

unequally valued, where social condition does not constrain business

opportunity, where a male standard is not synonymous with

a universal standard, and where men and women have equal chances to exploit

business opportunities. To liberate business from the shackles of a

male-dominated business history and to emancipate women from a private world of

love and ritual, she crafts a single, all-encompassing narrative to bestow

public and historical legitimacy on businesswomen.

SURVEYING THE SURVEY

The survey situates women within a chronological framework that evolves

primarily out of economic and business history. Except for the middle of the

twentieth century, when government policies take center stage, the

periodization scheme is based upon major changes in the nature and dynamics of

liberal, market-oriented capitalism, beginning with a pre-industrial period

and advancing jerkily with successive industrial revolutions across the

nineteenth and twentieth centuries. Women enter economic and business history

indirectly by way of their business activities and relationships with other

women and men in business and the larger society, as members of families, of

social-reform, educational, and political networks. Business enters women’s

history indirectly by way of opportunities and legal status,

through economic roles and activities that women assume as

producers,

entrepreneurs, managers and professionals.

Women jump start the business of colonization in the 1550s as dependent sexual

objects of colonizers’ imaginations. They end their business journeys in 1997,

still unevenly and unequally incorporated

into the business system as legal independents, on unequal terms relative to

men and to each other,

with laws that promise justice without protection. After four and a half

centuries of ever-diversifying business activities and at least three decades

of

debate and litigation about equal pay, businesswomen stand stalled in their

tracks. Women’s revolutionary breakthrough into the top tiers of management has

fizzled.

For Kwolek-Folland, the setbacks are more telling than the advances. As if to

underscore

how much and how little had changed with regard to women and their

relationship to business, she places powerful corporate tycoon Estee Lauder —

named “Outstanding Mother of the Year” in 1984,– atop the shoulders of Ojibwa

fur traders, market women, butter makers bankers, and factory girls. Gender

stereotypes have continued to dog women’s advance in the business world,

constructing their public personas even as women reconstruct the businessworld.

EVALUATING THE RESULTS

Kwolek-Folland’s survey and

synthesis have alerted us to power differentials embedded in difference.

Society’s unequal valuation of “others” nurtured a system of laws regarding

property rights, citizenship, suffrage, marriage and divorce that disadvantaged

women more than men and so me women more than others. Women’s status, as

reflected both in formal laws and informal customs, interacted with economic

conditions to shape women’s business opportunities and the manner of engaging

in business.

The framework enables us to see more clearly different women’s varying

experiences in the business world over time. Some businesswomen mimic the

monotonous and routine male shopkeepers and businessmen the world over, like

Rose Stolowy of Kansas City, Missouri, or Catherine Ferguson, a confectioner

shop-owner. Famous women, such as Rebecca Lukens, Amelia Earhart, and Oprah

Winfrey share brief appearances with their not-so famous contemporary

counterparts, like Phebe Cills, an African-American toy store owner, and the

infamous sisters Aida and

Minna Everleigh. Good businesswomen, like caterer Edith McConnell, coexist with

the less successful, such as Christina Barnes, who “negotiated the business

world with difficulty.” And then there are some who are larger than life, such

as the six-foot,

200 pound Sarah Bowman, who made money from prostitution AND the United States

Army,

only to die ungloriously of a tarantula bite in 1866.

Race opened opportunities for black businesswomen and professionals in

segregated niches of the economy and closed

them in areas dominated by whites. It imposed special social and economic

burdens upon black businesspeople as community builders and as economic

role-models. Black women undertook a variety of business roles even as slaves

and engaged in a range of business activities even though they gained both

property, voting and civil rights later than white women. Their work histories

were longer and more continuous than either white women or black men. Black

women boasted one of the nation’s first and most successful brothel-keepers,

the first female bank president, the first female self-made millionaire in

America, and one of the wealthiest celebrity queens in the entertainment

business.

Ethnicity affected whether women went into business at all. It proved

important to women’s control of property, as in the case of the early female

Dutch

settlers, and formative of entrepreneurial cultures, as in the case of Jewish

women, whom Kwolek-Folland celebrates as the most entrepreneurial of American

businesswomen. Len a Himmelstein Bryant (Lane Bryant Company),

Fanny Goldberg Stahl, Esther Mentzer (Estee Lauder) stand tall in the female

hall of business fame.

Class functioned as a marker of legal and economic status as well as a

gate-keeper of the incorporation process, promoting gender rules that

distinguished women from men and income bars that distanced lower from upper

income groups. It gave wealthier women an easier entree into politics and

educational institutions, which positioned them more strategically as leaders

in social reform and philanthropic institutions.

Business played a mixed role in the lives of women. On the one hand,

business structures operated to reinforce rather than undermine differences.

In the early 1800s textile owners hired young, single

white women because the skills associated with textile production were already

categorized as women’s work. Later, with the coming of managerial capitalism,

the gender coding of managerial and job rules kept women out of the

highest-paying highest status

jobs and paved the way for the feminization of clerical and personnel work. On

the other hand, business expanded women’s opportunities and control, empowering

women as owners and managers even as it reinforced differences between men and

women. Indeed, for some women in social-reform and political networks in the

late nineteenth century, business activities became a proto-feminist political

act.

Successive market-expanding industrial revolutions improved more than they

undermined business women’s economic well-being, generating more income and

greater autonomy and independence for businesswomen than was the case for women

who worked as employees of others. Only when the scope of government’s

involvement in women’s issues broadened across the 20th century

, did business assume a more threatening and ominous role as a major antagonist

in a series of sexual discrimination and affirmative actions cases. With regard

to some issues, such as paid family-leave, big business jumped ahead of the

government, offering its own assistance packages, while small business owners,

many of whom were women, protested on grounds that such legislation would

disadvantage them relative to larger rivals.

For Kwolek-Folland and the women whose experiences she surveys, business

activities generally were growth-enhancing and value-creating activities.

The historical purpose of business, after all, she concludes, has been “to

make people’s lives better or to raise the standard of living for as many as

possible.”(p.216).

Sighs of relief among business historians are likely to be matched by

discomfiting growls from feminists who have always seen more of the meanness

than the magic in the market and in business activities. Inevitably,

scholars in both camps will single out different

aspects of the survey and synthesis for praise and criticism. However, as a

business historian and free-farming feminist, with one eye on men and business

institutions, and the other on businesswomen and the world, I want to focus my

remarks on this unresolved paradox: Why has a study so steeped in the rhetoric

of power and difference not revealed more about how power and difference

actually operate in the business world? About what power means, how it is

expressed and used,

by whom for what ends? Why does a study about women and business so closely

resemble the histories of women at work?

A PARADOX and SOME PUZZLES

Social categories may well hide as much as they reveal about how power really

works in the world of business. Businesswomen have been swept into the history

of business armed with only one set of tools to differentiate them. Race,

ethnicity, class and gender have masked differences arising from women’s

individual capabilities and skills; they have made differences between and

among women of the same social categories difficult to see and to understand;

they have imposed an unnecessary uniformity upon women as a group.

The transformation of categories from inert, disembodied experiences into

causal forces, stalls early on. Business practices are overwhelmed by

cultural forces. Modern business tycoons stand atop the shoulders of Ojibwa

traders, but it is difficult to differentiate one businesswoman and business

from another or to account for differences in the performance and profitability

of business activities over time. Despite the fact that Indians held

dramatically different conceptions of gender roles, of property, autonomy and

responsibility, Indian women emerge as American history’s earliest

businesswomen and consumers.

Women as a group appear to share more similarities than differences but the

business experiences of men and women are allegedly more different than

similar. These hypotheses remain to be tested.

Women are described as having been more continuously and often

circumscribed in their choices and activities by the “family claim” then men

have been.

Yet, histories of businessmen in the pre-industrial period have suggested that

the family claim also structured the economic activity of men. We need to know

whether

women and men interpreted the claim differently and how their interpretations

influenced economic outcomes.

Kwolek-Folland’s definition of business is at war with business realities.

Why has business as “activity” been yoked to the claim of “financial

responsibility” rather than to market-and profit-oriented decisions, as has

been

customary in business history? The choice carries definite ethical and moral

connotations. It broadens the population of businesswomen and businesses but

pinches interpretive

possibilities. The price is operational imprecision and ambiguity.

Activities are different from decisions. Activities indicate little more than

a kind of busyness, industry or work; they are described by their properties.

Decisions are associated with

choices that businesspeople make in the course of doing business, in order to

remain in business. Financial responsibility literally refers to “a charge, a

trust, or duty for which one is responsible.” [3] If a reasonable understanding

of responsible

is that it has to be within the power of the one who is responsible, then how

is that determination to be made? What is meant by the assumption of financial

responsibility, and how is “responsibility” to be determined?

Kwolek-Folland does not consistently

or systematically apply the definition.

Instead, she offers an expansive interpretation whose meanings have to be

squeezed from an ever changing business context.

Kwolek-Folland regards “independence” to be the core of the legal definition of

business.

The ability to negotiate contracts and to acquire, use and dispose of

property is severely impaired without legal recognition and protection of those

rights. Without legal status as “independents,” women could do business as

dependents of others, but they could not profit from their own business

activities. Only as women gained legal recognition and protection as

“independents” and autonomous individuals with the right to their own bodies,

earnings and profits in the late nineteenth century, could they

exploit the same opportunities available to men who had those privileges and

rights.

The definition seems to deny that men and women have long strategized about the

ways in which they could shift, avoid or elide financial responsibility.

They have devised marriages and designed partnerships and firms with precisely

these goals in mind. The definition may be appropriately applied to women who

act as business proprietors, but how is it to be operationalized in a dynamic

world full of business activities undertaken by many individuals and groups

engaged in cooperative ventures, as members of family businesses,

partnerships or teams associated with single firms or corporate enterprise?

What if businesswomen assume financial responsibility but are not held

accountable?

By identifying women in business by their activities and roles as producers,

entrepreneurs, professional and managers, Kwolek-Folland constrains women’s

choices and robs them of the opportunity to exercise control or to assume

financial responsibility. Without interrogating activities or roles, it is

difficult to distinguish one businesswoman or type of business activity from

another, except insofar as production differs from trade and sales and service.

Managerial roles are gender coded but we need to know why and when the codes

took the form they did with respect to different businesses over time. To what

extent did individual women construct and re-construct managerial roles to suit

their own talents and capabilities?

In the 1950s entrepreneurial historians tried but generally failed in their

efforts to use role theory to link men in business to society. Roles represent

problematic psychological categories. Individuals and groups fulfill, perform

and create roles. Activities do not necessarily conform to prescribed roles.

Roles straight-jacket behavior but people also deviate from socially prescribed

roles. How is the historian to determine when women are performing roles

prescribed by society or crafting them as they proceed?

How have women conceived of their roles in business and how have they actually

behaved?

Racial and ethnic differences have also mattered to people’s conceptions of

business roles, activities and results. The survey builds upon studies of black

businesspeople to

suggest that their business strategies often were community-building strategies

as well. But not all of these interrelated strategies worked from the

standpoint of business longevity and profitability. What happened, for

example, when and if black businesswomen deviated from social expectations of

them as community builders?

Social categories need to be more systematically related to women’s

decision-making and organizational capabilities in particular businesses.

Kwolek-Folland surveys how some women

used skills developed in household and family or reform contexts to transform

socially-oriented businesses or non-profit institutions into profitable

businesses. However, we also need to know what kinds of decisions they made,

and which family or household decisions informed their business decisions.

Businesses differ according to operating rules and the short and long run goals

with respect to other institutions and society. Decisions and risks which

women undertake as owners or managers of hospitals

are likely to be different than the kinds of decisions made by women as family

partners, heads of families, or by businesswomen involved in the intensely

competitive cosmetic and restaurant businesses. Why were some women able to

transform household skills into effective business practices, when others

could not? Household production and consumption decisions of nineteenth century

middle-class women and twentieth century farm women gather social significance

primarily as gender dividing strategies. But

we also need to know how these decisions structured economic behavior and

outcomes.

The study suppresses the competitive forces that are at the heart of the

American business system. Although it argues from difference, it homogenizes

women as a group who seldom compete on the same playing field, either with men

or with other women in the same industry. Except in rare instances,

outcomes are seldom revealed nor evaluated. Individual female rodeo riders

compete with men, but we do not know whether they competed effectively or not.

We learn of Ellen Demorest’s pattern business but not of the competition she

experienced from Ebenezer Butterick, who eventually dominated the industry.

“Status” is another concept that creates problems for the survey and synthesis.

Kwolek-Folland employs status as a legal concept, as signifier of

reputation, of income and class, of women’s visibility and relative

equality/inequality in regard to men and other women. Yet indicators of status

do not always mesh with economic

realities. Given that social attitudes about women’s place have remained

stubbornly resistant to change,

Kwolek-Folland’s assertion that by the end of the nineteenth century, women had

achieved a legal status equal to that of men in business, is problematic.

Women could now do business and profit from their own endeavors but to what

extent did they? Data on female labor force participation and occupations pose

interpretive difficulties here. What are the causal lines of influence between

changes in legal

status and business activities?

The survey recognizes the difficulty of positioning irrational and rational

forces on the same economic stage. The problem is not simply a disagreement

about matters of meaning and definition. It also relates to the interpretive

tools that are used to analyze the evidence. To demonstrate how irrational

notions about race undermined the “myth of rationality” in business,

Kwolek-Folland offers a singular notable example, drawn from the history of

financial industries.

White providers of life insurance in the late nineteenth century refused to

sell insurance policies to black customers on the basis of actuarial

information which suggested that blacks had higher mortality rates than whites.

Citing evidence which linked higher mortality rates to environmental

conditions rather than to stereotypical notions about blacks as a group, she

concludes that white managers acted irrationally.

However, by allowing culture to subsume gender and race, and economic

rationalism to

define business practice, Kwolek-Folland misses an opportunity to examine how

and why notions of rationality, with respect to culture and economics,

sometimes complement rather than clash. If managers did not know what evidence

demonstrated, they are more

likely to make unilateral decisions on the basis of cultural predisposition

and habit. As long as other white competitors refused to market to blacks and

social attitudes condoned discrimination, then these actions may well have

produced economically efficient outcomes. Managers would have behaved

irrationally,

from an economic standpoint, only if they refused to sell to blacks when other

rivals were busily cashing in.

Determining why businesspeople do what they do has never been easy. But

economic tools of principal-agent theory are available to determine more

precisely when and why some individuals, rather than behaving act more like the

utility-maximizing automatons of neo-classical economics, act opportunistically

and with guile.

Kwolek-Folland’s

discourse about power is more tantalizing than effective.

Instead of directly confronting issues of power in the market, as business

historians have done when they analyze why some firms or businessmen wield

greater market power than others, she assumes that power adheres primarily in

social categories and institutional structures. Power floats ambiguously on the

surface of business life, seeping from institutional structures and emanating

from unequal relationships between people and things. What kind of

power is at issue is unclear. Kwolek-Folland defines power as direct authority

and indirect influence, yet it is unclear how power and influence operate with

regard to women in business. Is it the power and control that derives from

ownership status, from position, from skill, from unique talents in a

competitive market? Is it the power that comes from having more money and using

it to buy more capital to invest? Is it the competitive power that comes from

being in a technologically cutting-edge industry

at the right time? Is it he power that is embedded in women’s networks and

political activities, in the battle for suffrage and property rights? Is it the

power that derives from impotence and image, from gender and race, as the case

of government policies suggest?

Some businesswomen, like Oprah Winfrey, clearly have power. The survey suggests

that Oprah’s power derives from ownership of Harpo Entertainment Group.

“Winfrey’s control over this conglomerate,” reports Kwolek-Folland,

“gave her the ability

– rare in the business world – to shape the concern according to her personal

vision.”(p.196).

Mere ownership does not necessarily give control nor does it create an ability

to control. Businesspeople who own assets must also be skilled enough and

willing and able to use power to exert the kind of control that is necessary in

order to make money in an a high-stakes, intensely competitive game. Business

historians will want to know more about how Oprah acquired control and secured

the assets necessary to build and grow Harpo Productions. Why and when did

she choose the conglomerate form? Was this organizational form particularly

suited to the entertainment business and Oprah’s managerial style? The ability

to shape business according to one’s own vision may well be important to some

women and men in business, but some visions are likely to be more effective

than others in generating and sustaining returns.

The survey suggests several reasons why power is important in business.

Power seems to be important because women don’t have enough of it relative to

men, or because men have more of it than women and use it to keep women from

getting it and because more businessmen seem ready to wield it than

businesswomen. Power is also important with respect to

the ability to control business and influence government policy and legal

outcomes.

Yet, power is notable by its absence from legislative debates over economic

rights, suffrage, property and citizenship, from debates about regulatory

policies regarding

small and big businesses. The survey suggests that more women battled for

economic rights than for suffrage, but given that the nineteenth century

suffrage campaign proved more effective than the campaigns for economic rights,

we need to know why. Feminists and other leaders of women’s organizations put

in only brief appearances in the book,

and when they do, the survey reduces the infighting among feminist leaders

regarding different strategies to common goals. Business historians will want

to know more

about business’ roles in coalition building strategies. Which businesses and

businesspeople allied with female protagonists or antagonists in these

struggles?

In the twentieth century women’s leaders appear to have garnered more

legislative victories de spite the persistence of traditional attitudes

regarding women’s roles. Why? Kwolek-Folland attributes the results to a

massive social revolution. Other scholars have suggested that business may well

have had a hand in the “conquest of cool” that fueled

a cultural counter-revolution.[4] What was business’ role in these 20th century

revolutions compared to its role in nineteenth century women’s rights

campaigns?

The problem and the opportunity with the survey and synthesis at this stage is

that historians of women and business have focused upon a different set of

differences. Whereas business historians have studied the differences that

emanate from the structure, behavior, conduct and performance of businesspeople

and firms, historians of women have stressed the agency of individuals and

groups and the politics of liberation. Business historians have investigated a

different power dynamic, one associated with price and product competition,

with cost-saving technologies, and with decision-making strategies instead of

that associated with meaning and understanding.

Business historians have concerned themselves primarily with market power,

with the ability of firms to dominate industries and throw their weight around

without being held publicly accountable. They have studied regulatory

patterns to determine the extent to which government policies,

such as anti-trust, have clipped or augmented the market power of particular

firms in particular industries.

Kwolek-Folland expects other approaches and perspectives to increase the

scholarly returns from efforts to understand women and business. She

underscores how the American business system came to be built upon the notion

of difference while simultaneously revealing the dangers of arguments based on

difference. Beliefs about women’s differences from men in the late-nineteenth

century opened some doors for some women but closed others and barred women’s

continuous advance in the business world. Arguments on the basis of gender

differences kept women outsiders in the business world even as women made a

place for themselves in the businessworld.

Just as a business system built on gender difference is likely to crumble when

difference is no longer valued, so too is a synthesis built upon difference

likely

to unravel as women and men occupy the same historical stage. Kwolek-Folland’s

survey necessarily homogenizes women in order to emphasize the differences

between their experiences and those of men, in terms of business opportunities,

ownership and managerial rights, and access to credit, among other things.

Just how different those experiences were in fact remains to be determined by

more systematic comparison of their roles and activities with respect to a

variety of sectors and industries. Business historians are likely to see more

of the differences between iron-manufacturer Rebecca Lukens and prostitute

Sarah Bowman and more similarities between Rebecca Lukens and her male

competitor in Delaware.

Nevertheless,

only by constructing numerous bridges with a variety of tools are we likely to

understand precisely what difference men and women and business institutions

have made to the growth and development of various economic sectors over time.

If we are to turn problems of difference into exciting new

research opportunities, I caution against traveling alone down a separate but

equal road. Women and men in business have interacted throughout history inside

and outside of markets and firms, as family members, as marriage and business

partners, and as competitors, in different industries over time.

They have suffered asymmetries of power and inequities of income. Their

occupations as businesspeople have been jointly shaped by a structure of sexual

inequality. But they have both been engaged in a joint

enterprise that has as its ultimate objective, the generation of a higher

standard of living for everyone. Regardless of gender, race, ethnicity or

class,

business is still business and only survives in the long run if it generates

some income above its

costs. As a market-oriented activity and institution,

the study of business forces a focus on the interaction between men and women,

on the interconnections between families and firms, on the transgressing of

private and public boundaries. Bringing women into business raises new

questions about how business institutions deal with ideas of “masculinity” and

“femininity” and about how women deal with and view the business world. [5]

Kwolek-Folland has done more than grasp the possibilities. She has constructed

one bridge over troubled waters. It is up to others to undertake the

painstaking empirical research needed to build additional bridges. Only then

are women likely to undergo the transformation from workers in business to

businesspeople with different personalities, skills, competitive and

organizational abilities, business experiences, and institutional means of

support.

Mary Yeager Associate Professor of History Bunche Hall UCLA 405 Hilgard Avenue

Los Angeles, CA 90095-1473 310-273-6328 (h)

310

-825-3489 (0)

END NOTES

[1] For an illuminating discussion of the pros and cons of synthesis, see Eric

Monkonnen, “The Dangers of Synthesis,” in Notes and Comment, American

Historical Review, vol. 91, no.5 (December, 1986), 1146-1157.

[2] Zora Putn am Wilkins, Letters of a Business Woman to Her Daughter and

Letters of a Business Girl to Her Mother (Boston: Marshall Jones Company,

1923), p.4, and Edith Mae Cummings, Pots, Pans and Millions: A Study of

Woman’s Right to Be in Business, Her Proclivities and Capacity for Success

(National School of Business Science for Women: Washington, D.C.,

1929), p.100.

[3] The Compact Edition of the Oxford English Dictionary(New York:

Oxford University Press, 1971), r.v. “responsibility,” p. 2514.

[4] Thom as Frank, The Conquest of Cool: Business Culture, Counterculture,

And the Rise of Hip Consumerism (Chicago and London: University of Chicago

Press, 1997).

[5] See Mary A. Yeager, “General Introduction,” Vol. I, Women in

Business, 3 vols., The International Library of Critical Writings in

Business History (Aldershot, UK and Brookfield, US: Elgar Reference

Collection, forthcoming March 1999).

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

Builders: Herman and George R. Brown

Author(s):Pratt, Joseph A.
Castaneda, Christopher J.
Reviewer(s):Carlson, Paul

Published by H-Business@eh.net (March 1999)

BUILDERS: HERMAN AND GEORGE R. BROWN. By

Joseph A. Pratt & Christopher J.

Castaneda. (College Station: Texas A&M University Press, 1999.

Illustrations, notes, bibliography, index. $36.95.)

Reviewed for H-Business by Paul Carlson, Department of History, Texas Tech

University.

k6phc@ttacs.ttu.edu

Brothers Herman and George R. Brown turned their building company, Brown &

Root, into one of the largest and most successful engineering and construction

operations in the world. They were Texans (from Belton) and their company came

to possess the myth

and character of Texas–it was big and bold.

Started in 1919 by Herman (1892-1962) with a loan from his brother-in-law Dan

Root, the company struggled at first. George (1889-1983) joined the company in

1922, and they graded and surfaced roads. Dynamic growth came in the 1930s

Depression years when they won a contract for constructing a large dam across

the Colorado River in Central Texas, and during World War II the company burst

onto the national scene. After the war, the brothers took their operations

overseas, and in the 1950s they were wealthy and their company enjoyed national

prominence.

After Herman died in 1962, George sold Brown & Root to Halliburton Company.

However, the Brown Foundation, established by the brothers some years earlier,

carries

on philanthropic activities of all kinds.

This dual biography, crisply written and refreshingly direct, is well done.

It is largely uncritical business history. The Browns were big thinkers who

took on ambitious projects, and, at least as related here,

they succeeded at making money–money they poured into charitable projects and

into politics. They were conservative Democrats who were sometimes willing to

bend the rules of fair political contributions to support conservative business

candidates.

It is

a book of substance, and typical of the many new books coming from Texas A&M

University Press, it is attractively designed and handsomely packaged.

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

Market Dominance: How Firms Gain, Hold, or Lose It and the Impact on Economic Performance

Author(s):Rosenbaum, David I
Reviewer(s):Castaneda, Christopher J.

Published by EH.NET (March 1999)

?

David I. Rosenbaum, editor. Market Dominance: How Firms Gain, Hold, or Lose It and the Impact on Economic Performance. Westport, CT: Praeger, 1998. viii + 274 pp. $69.50 (hardcover) , ISBN: 0-275-95604-0.

Reviewed for EH.NET by Christopher J. Castaneda, Department of History, California State University, Sacramento.

Dominating Markets

Powerful firms can force the inefficient allocation of resources. If the mark et fails to discipline such firms, should government policy do so? In this collection of essays edited by David I. Rosenbaum, Professor of Economics at the University of Nebraska-Lincoln, fourteen authors study this issue by analyzing eleven dominant firms operating in ten industries. Each essay is essentially a case study that examines an industry dominated for varying time periods by a particular firm. In the case of automobiles, both Ford and General Motors are scrutinized in a single essay; the chapter on the tobacco industry probes several firms that comprise the Tobacco Trust. Altogether, the authors query issues related to corporate dominance in the oil, tobacco, aluminum, magnesium, film, automobile, computer, software, health insurance, and long- distance telephone industries. Some of the subjects, such as the rise of Standard Oil between 1865 and 1911, the early histories of Ford and GM, and AT&T’s long-term monopoly are familiar to students of big business. Other essays scrutinize less well known examples of firm dominance such as Blue Cross’s role in health insurance and Dow Chemical’s involvement in the magnesium industry.

The essays are expectedly complementary. They elucidate common factors that thematically link each story of dominance. Six traits generally characterize these firms in their rise to dominance, maintenance of monopoly, and (in most cases) loss of control. The common traits that facilitated the development of dominance in these examples are: being a first mover; strong leader ship; cost advantages often through economies of scale; effective product promotion to stimulate demand; strategic use of patents and technology; and general dominance through size. While these characteristics suggest that a generally efficient firm is most likely to attain a commanding position in its industry, efficiency provided only one path towards dominance; AT&T, Standard Oil, and the tobacco trust also achieved market control by preying on competitors and engaging in price wars.

The rise to dominance in these cases typically followed implementation of cost advantages. Dow and Alcoa had lower costs in certain stages of production; Ford pioneered cost efficient assembly line manufacture; GM lowered its costs through massive sales volume; and Kodak created cost advantages for itself by exploiting the complementary camera and film markets. Vertical integration, the authors contend, was not always an effective strategy for dominance; at GM integration facilitated lower cost production in the firm’s early years yet brought high costs later.

These cases also suggest common strategies for maintaining market control. Innovating and implementing new technology, and protecting it through patents, contributed to sustained dominance and generally empowered these firms; in other instances new technologies allowed businesses to challenge existing industry leaders. Strong and progressive management also characterized firms in control of their markets. Chief executives who understood their markets and were able to make insightful strategic decisions based on changing market conditions “led the evolution of their industries” (p. 234). Dominating firms controlled by dominating leaders are hallmarks of corporate America, yet all have finite life spans. Today we ponder the future of a Microsoft without Bill Gates. Indeed, a chief manager can also lead a firm to dominance and then take it to the house of problems. Henry Ford became “autocratic . . . . and unable to respond to changing market conditions” (p. 247). At Kodak and IBM, a variety of factors contributed to the decline of management’s sagacity and these firms’ loss of market control.

Microsoft and the Tobacco Trust are the only organizations in this study which remain dominant. The other firms lost their market control for a variety of reasons generally defined as a loss of advantage: management became arrogant and inflexible, market conditions changed, and the government flexed its own muscle. In the case of Standard Oil, a combination of new supply areas in the mid-continent and California along with a proliferation of Gulf Coast refineries changed the oil industry’s market structure as well as Standard’s position in that market. Federal anti-trust policy also contributed to the demise of many firms’ hold on their markets. The U.S. Supreme Court dissolved Standard Oil in 1911, AT&T’s monopoly ended with the Modified Final Judgment of 1982, anti-trust action directed at IBM changed its corporate strategy, and Microsoft is fighting a similar battle today.

These concise and brief case studies provide cogent summaries of the rise and fall of very big business within a market context. In the case of tobacco, the topic is not monopoly but oligopoly and the Tobacco Trust. The authors of this essay note that during the twentieth century, three to four firms consistently controlled from 80 to 98% of the cigarette sales market. For comparative purposes, the editor/authors might have included another essay on an industry dominated by oligopoly. For example, recent congressional debate about the efficacy of the Public Utility Holding Company Act (1935) suggests another industrial study which most likely contains similar lessons.

Ultimately, this collection of essays concludes that government intervention in markets is justifiable in certain instances. While dominant firms often bring technological innovation and more efficient production methods to their industries, they sometimes stifle competition and misuse the power that their very size creates. Since some “[d]ominant firms can become inefficient, yet remain dominant for many years” and others “can price inefficiently without attracting successful entry,” a government policy toward dominance is required (p. 253).

Not only should antitrust policy be used to prevent dominant firms from quashing competition, government should consider its antitrust policy within broader trade policy. Rosenbaum concludes that since in some industries only foreign competitors were able to overcome a U.S. dominant firm’s advantages, “a fairly open trade policy may be one tool to limit the power of dominant firms” (p. 254). It is not only market forces which determine the destiny of powerful firms, it is often price wars, strategic acquisitions, pricing schemes, and other management strategies intended to stifle competition that need to be controlled if not by the market then by policy. The call for reasonable domestic policy is somewhat muted in the sense that policy is described generically. Altogether, this is an interesting collection of essays which suggest that dominant firms should be responsive to reasonable rules of competition which, left unenforced by the “invisible hand” of the domestic market, should be exacted by foreign competitors or promulgated by government policy and law.

Christopher J. Castaneda is Associate Professor of History. His most recent work is Invisible Fuel: Manufactured and Natural Gas in American History, 1800-2000 (New York: Twayne Publishers, forthcoming 1999).

?

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

The Great Wave: Price Revolutions and the Rhythm of History

Author(s):Fischer, David Hackett
Reviewer(s):Munro, John H.

Published by EH.NET (February 1999)

David Hackett Fischer, The Great Wave: Price Revolutions and the Rhythm of

History. Oxford and New York: Oxford University Press, 1996. xvi + 536.

$35 (hardcover), ISBN: 019505377X. $16.95 (paperback), ISBN: 019512121X.

Reviewed for EH.NET by John H. Munro, Department of Economics, University of

Toronto.

Let me begin on a positive note. This is indeed a most impressive work: a

vigorous, sweeping, grandiose, and contentious, though highly entertaining,

portrayal of European and North American economic history, from the High Middle

Ages to the present, viewed through the lens of “long-wave” secular price-

trends. Indeed its chief value may well lie in the controversies that it is

bound to provoke, particularly from economists, to inspire new avenues of

research in economic history

, especially in price history. The author contends that, over the past eight

centuries, the European economy has experienced four major “price-

revolutions,” whose inflationary forces ultimately became economically and

socially destructive, with adverse consequences that provoked various complex

reactions whose “resolutions” in turn led to more harmonious, prosperous, and

“equitable” economic and social conditions during intervening eras of “price

equilibria”. These four price-revolutions are rather too neatly set out as the

following: (1) the later- medieval, from c.1180-c.1350; (2) the far better

known 16th-Century Price-Revolution, atypically dated from c.1470 to c.1650,

(3) the inflation of the Industrial Revolution era, from c.1730 to 1815; and

(4) the 20th century price-revolution, conveniently dated from 1896 to 1996

(when he published the book).

Though I am probably more sympathetic

to the historical concept of

“long-waves” than the majority of economists, I do agree with many opponents of

this concept that such long-waves are exceptionally difficult to define and

explain in any mathematically convincing models, which are certainly not

supplied here. For reasons to be explored in the course of this review, I

cannot accept his depictions, analysis

, and explanations for any of them. This will not surprise Prof. Fischer, who

is evidently not an admirer of the economics profession. He is particularly

hostile to those of us deemed to be “monetarists,” evidently used as a

pejorative term. After rejecting not only the “monetarist” but also the

“Malthusian,

neo-Classical, agrarian, environmental, and historicist” models, for their

perceived deficiencies in explaining inflations, and after condemning

economists and historians alike for imposing rigid models in attempting to

unravel the mysteries of European and North American economic history,

Fischer himself imposes an exceptionally rigid and untenable model for all four

of his so-called price-revolutions, containing in fact selected Malthusian and

monetarist elements from these supposedly rejected models.

In essence, the Fischer model contends that all of his four long-wave

inflations manifested the following six-part consecutive chain of causal and

consequential factors, inducing new causes, etc., into the next part of the

chain. First, each inflationary long-wave began with a prosperity created from

the preceding era of price-equilibrium, one promoting a population growth that

inevitably led to an expansion in aggregate demand that in turn outstripped

aggregate supply, thus — according to his model

– causing virtually ALL prices to rise. Evidently his model presupposes that

all sectors of the economy, in all historical periods under examination, came

to suffer from Malthusian-Ricardian diminishing

returns and rising marginal costs, etc. Second, in each and every such era,

after some indefinite lapse of time, and after the general population had

become convinced that rising prices constituted a persistent and genuine trend,

the “people” demanded and

received from their governments an increase in the money supply to

“accommodate” the price rises. As Fischer specifically comments on p. 83: “in

every price-revolution, one finds evidence of frantic efforts to expand the

money supply, after people have discovered that prices are rising in a secular

way.” Third, and invariably, in his view, that subsequent and continuous growth

in the money supply served only to fuel and thus aggravate the already existing

inflation. He never explains, however, for any of

the four long-waves, why those increases in money stocks were always in excess

of the amount required “to accommodate inflation”. Fourth, with such

money-stock increases, the now accelerating inflation ultimately produced a

steadily worsening impoverishment of the masses, aggravated malnutrition,

generally deteriorating biological conditions, and a breakdown of family

structures and the social order, with increasing incidences of crime and social

violence: i.e., with a rise in consumer prices that outstripped generally

sticky wages in each and every era, and with a general transfer of wealth from

the poorer to richer strata of society. Fifth, ultimately all these negative

forces produced economic and social crises that finally brought the

inflationary forces to a halt,

producing a fall in population and thus (by his model) in prices, declines that

subsequently led to a new era of “price-equilibrium,” along with concomitant

re-transfers of wealth and income from the richer to the poorer strata of

society

(where such wealth presumably belonged). Sixth, after some period of economic

prosperity and social harmony, this vicious cycle would recommence, i.e., when

these favorable conditions succeeded in promoting a new round of incessant

population growth, which inevitably sparked those same inflationary forces to

produce yet another era of price-revolution, continuing until it too had run

its course.

While many economic historians, using more structured Malthusian-Ricardian type

models, have also provided a similarly bleak portrayal of

demographically-related upswings and downswings of the European economy,

most have argued that this bleak cycle was broken with the economic forces of

the modern Industrial Revolution era. Fischer evidently does not. Are we the

reforecondemned, according to his view, to suffer these never-ending bleak

cycles– economic history according to the Myth of Sisyphus, as it were?

Perhaps not, if government leaders were to listen to the various nostrums set

forth in the final chapter,

political recommendations on which I do not feel qualified to comment.

Having engaged in considerable research, over the past 35 years, on European

monetary, price, and wage histories from the 13th to 19th centuries, I am,

however, rather more qualified

to comment on Fischer’s four supposed long-waves. Out of respect for the

author’s prodigious labors in producing this magnum opus, one that is bound to

have a major impact on the historical profession, especially in covering such a

vast temporal and spatial range, I feel duty-bound to provide detailed

criticisms of his analyses of these secular price trends, with as much

statistical evidence as I can readily muster. Problematic in each is defining

their time span,

i.e., the onset and termination of inflations. If many medievalists may concur

that his first long- wave did begin in the 1180s, few would now agree that it

ended as late as the Black Death of 1348-50. On the contrary,

the preceding quarter-century (1324-49) was one of very severe deflation,

certainly in both Tuscany (Herlihy 1966) and England. In the latter, the

Phelps Brown and Hopkins “basket of consumables” price index (1451-75 =

100) fell 47%: from 165 in 1323 (having been as high as 216 in 1316, with the

Great Famine) to just 88 in 1346. Conversely, while most early-modern

historians would agree that the 16th-Century Price Revolution generally ended

in the 1650s (certainly in England), few if any would date its commencement so

early as the 1470s. To be sure, in both the Low Countries and England, a

combination of coinage debasements, civil wars, bad harvests, and other

supply-shocks did produce a short-term rise in prices from the later 1470s to

the early 1490s; but thereafter their basket-of-consumables price-indices

resumed their deflationary downward trend for another three decades (Munro

1981, 1983). In both of these regions and in Spain as well (Hamilton 1934), the

sustained rise in the general price level, lasting over a century, did not

commence until c.1520.

For Fischer’s third inflationary long-wave, of the Industrial Revolution era,

his periodization is much less contentious, though one might mark its

commencement in the late 1740s rather than the early 1730s.

The last and most recent wave is, however, by far more the most controversial

in its character. Certainly a long upswing in world prices did begin in 1896,

and lasted until the 1920s; but can we really pretend that this so neatly

defined century of 1896 to 1996 truly encompasses any form of long wave when we

consider the behavior of prices from the 1920s?

Are we to pretend that the horrendous deflation of the ensuing Great Depression

era was just a temporary if unusual aberration that deviated from this

particular century long (saeclum) secular tend? Fischer, in fact,

very

rarely ever discusses deflation, ignoring those of the 14th century and most

of the rest. Instead, he views the three periods intervening between his price-

revolutions as much more harmonious eras of price-equilibria: i.e. 1350-1470;

1650 – 1730; 1820 –

1896; and he suggests that we are now entering a fourth such era. In my own

investigations of price and monetary history from the 12th century, prices rise

and fall,

with varying degrees of amplitude; but they rarely if ever remain stable,

“in equilibrium”.

Certainly “equilibrium” is not a word that I would apply to the first of these

eras, from 1350 to 1470: not with the previously noted, very stark deflation of

c.1325 – 48, followed by an equally drastic inflation that ensued from the

Black Death over

the next three decades, well documented for England, Flanders (Munro 1983,

1984), France, Tuscany (Herlihy 1966),

and Aragon-Navarre (Hamilton 1936). Thus, in England, the mean quinquennial PB

& H index rose 64%: from 88 in 1340-44 to 145 in 1370-74, fal ling sharply

thereafter, by 29%, to 103 in 1405-09; after subsequent oscillations, it fell

even further to a final nadir of 87 in 1475-79 (when,

according to Fischer, the next price-revolution was now under way). For

Flanders, a similarly constructed price index of quinquennial means

(1450-74 = 100: Munro 1984), commencing only in 1350, thereafter rose 170%:

from 59 in 1350-4 to 126 in 1380-84, reflecting an inflation aggravated by

coinage debasements that England had not experienced, indeed none at all since

1351. Thereafter, the Flemish price index plunged 32%, reaching a temporary

nadir of 88 in 1400-04; but after a series of often severe price oscillations,

aggravated by warfare and more coin debasements, it rose to a peak of 138 in

1435-9; subsequent ly it fell another 31%, reaching its 15th century nadir of

95 in 1465-9 (before rising and then falling again, as noted earlier).

Implicit in these observations is the quite pertinent criticism that Fischer

has failed to use, or use properly, these and many other price

indices–especially the well-constructed Vander Wee index (1975), for the

Antwerp region, from 1400 to 1700, so important in his study; and the Rousseaux

and Gayer-Rostow-Schwarz indices for the 19th century (Mitchell &

Deane 1962). On the other hand, he has relied far too much on the dangerously

faulty d’Avenel price index (1894-1926) for medieval and early-modern France.

Space limitations, and presumably the reader’s patience, prevent me from

engaging in similar analyses of price trends

over the ensuing centuries, to indicate further disagreements with Fischer’s

analyses, except to note one more quarter-century of deflation during a

supposed era of price equilibrium: that of the so-called Great Depression era

of 1873 to 1896, at least within England, when the PB&H price index fell from

1437 to 947, a decline of 34% that was unmatched, for quarter-century periods

in English economic history, since the two stark deflations of the second and

fourth quarters of the 14th century. (The Rousseaux index fell from 42.5% from

127 in 1873 to 73 in 1893).

My criticisms of Fischer’s temporal depictions of both inflationary long-waves

and intervening eras of supposed price equilibria are central to my objections

to his anti-monetarist explanations for them, or rather to his

misrepresentation of the monetarist case, a viewpoint he admittedly shares with

a great number of other historians, especially those who have found

Malthusian-Ricardian type models to be more seductively plausible explanations

of

inflation. Certainly, too many of my students, in reading the economic history

literature on Europe before the Industrial Revolution era, share that beguiling

view, turning a deaf ear to the following arguments: namely, that (1) a growth

in population cannot by itself,

without complementary monetary factors, cause a rise in all prices, though

certainly it often did lead to a rise in the relative prices of grain,

timber, and other natural-resource based commodities subject to diminishing

return and supply

inelasticities; and thus (2) that these simplistic demographic models involve

a fatal confusion between a change in the relative prices of individual

commodities and a rise in the overall price-level. Some clever students have

challenged that admonition,

however,

with graphs that seek to demonstrate, with intersecting sets of aggregate

demand and supply curves, that a rise in population is sufficient to explain

inflation. My response is the following. First, all of the historical prices

with which Fischer and my students are dealing

(1180-1750) are in terms of silver-based moneys-of-account, in the traditional

pounds, shillings, and pence, tied to the region’s currently circulating silver

penny, or similar such coin, while prices expressed in terms of the gold-based

Florentine florin behaved quite differently over the long periods of time

covered in this study. Indeed we should expect such a difference in price

behavior with a change in the bimetallic ratio from about 10:1 in 1400 to about

16:1 in 1650,

which obviously reflects the fall in the relative value or purchasing power of

silver — an issue virtually ignored in Fischer’s book. Second, the shift, in

this student graph, from the conjunction of the Aggregate Demand and Supply

schedules,

from P1.Q1

and P2.Q2, requires a compensatory monetary expansion in order to achieve the

transaction values indicated for the two price levels: from 17,220,000 pounds

and 122,960,000 pounds, which increase in the volume of payments had to come

from either increased

money stocks and/or flows. Even if changes in demographic and other real

variables, shared responsibility for inflation by inducing changes in those

monetary variables, we are not permitted to ignore those variables in

explaining historical inflations.

Admittedly, from the 12th to the 18th centuries, to the modern Industrial

Revolution era, correlations between demographic and price movements are often

apparent. But why do so few historians consider the alternative proposition

that much more profound, deeper economic forces might have induced a complex

combination of general economic growth, monetary expansion, and a rise in

population, together (so that such apparent statistical relationships would

have adverse Durbin-Watson statistics to indicate significant serial

correlation)? Furthermore, if population growth is the inevitable root cause of

inflation, and population decline the purported cause of deflation, how do such

models explain why the drastic depopulations of the 14th-century Black Death

were

followed by three decades of severe inflation in most of western Europe?

Conversely, why did late 19th-century England experience the above-noted

deflation while its population grew from 23.41 million in 1873 (PB&H at 1437)

to 30.80 million in 1896 (PB&H

at 947)?

Nor is Fischer correct in asserting that, in each and every one of his four

price-revolutions, an increase in money supplies followed rather than preceded

or accompanied the rises in the price-level. For an individual country or

region, however

, one might argue that a rise in its own price level, as a consequence of a

transmitted rise in world or at least continental prices would have quickly —

and not after the long-time lags projected in Fischer’s analysis — produced an

increase in money supplies to satisfy the economic requirements for that rise

in national/regional prices. Fischer, however, fails to offer any theoretical

analysis of this phenomenon, and makes no reference to any of the well-known

publications on the Monetary Approach to the Balance of Payments [by Frenkel

and Johnson (1976), McCloskey and Zecher (1976), Dick and Floyd (1985, 1992);

Flynn (1978) and D. Fisher (1989), for the Price Revolution era itself]. In

essence,

and with some necessary repetition, this thesis contends:

(1) that a rise in world price levels, initially arising from increases in

world monetary stocks, is transmitted to most countries through the mechanisms

of international commerce (in commodities, services, labor) and finance

(capital flows); and (2) that monetized metallic (coin) stocks and other

elements constituting M1 will be endogenously distributed among all countries

and/or regions in order to accommodate the consequent rise in the domestic

price levels, (3) without involving those international bullion flows that the

famous Hume “price- specie flow” mechanism postulates to be the consequences of

inflation-induced changes in national trade balances.

In any event, the historical evidence clearly demonstrates that, for each of

Fischer’s European-based price-revolutions, an increase in European monetary

stocks and flows always preceded the inflations. For the first,

the price-revolution of the “long-13th century” (c.1180-c.1325), Ian Blanchard

(1996) has recently demonstrated that within England its elf,

specifically in Cumberland-Northumberland, a very major silver mining boom had

commenced much earlier, c.1135-7, peaking in the 1170s, with annual silver

outputs that were “ten times more than had been produced in the whole of

Europe” for any year in

the past seven centuries. By the 1170s,

and thus still before evident signs of general inflation or a marked

demographic upswing, an even greater silver mining boom had begun in the Harz

Mountains region of Saxony, which continued to pour out vast quantities of

silver until the early 14th century. For this same

“Commercial Revolution” era, we must also consider the accompanying financial

revolution, also evident by the 1180s, in Genoa and Lombardy; and though one

may debate the impact that their deposit-

and-transfer banking and foreign-exchange banking had upon aggregate European

money supplies,

these institutional innovations undoubtedly did at least increase the volume of

monetary flows, and near the beginning, not the middle, of this first

documented

long-wave.

For the far better known 16th-Century Price Revolution, Fischer seems to pose a

much greater threat to traditional monetary explanations, especially in so

quixotically dating its commencement in the 1470s, rather than in the 1520s.

Certainly Fischer and many other critics are on solid grounds in challenging

what had been, from the time of Jean Bodin (1566-78) to Earl Hamilton

(1928-35), the traditional monetary explanation for the origins of the Price

Revolution: namely, the influx of Spanish

American treasure. But not until after European inflation was well underway,

not until the mid-1530s, were any significant amounts of gold or silver being

imported

(via Seville); and no truly large imports of silver are recorded before the

early 1560s (a

mean of 83,374 kg in 1561-55: TePaske 1983), when the mercury amalgamation

process was just beginning to effect a revolution in Spanish-American mining.

Those undisputed facts, however, in no way undermine the so-called

“monetarist” case; for Fischer, and far too many other economic historians,

have ignored the multitude of other monetary forces in play since the 1460s.

The first and least important factor was the Portuguese export of gold from

West Africa (Sao Jorge) beginning as a trickle in the 1460s;

rising to 170 kg per annum by 1480, and peaking at 680 kg p.a. in the late

1490s (Wilks 1993). Far more important was the Central European silver mining

boom, which began in the 1460s, at the very nadir of the West European

deflation, which had thus raised the purchasing power of silver and so

increased the profit incentive to seek out new silver sources: as a

technological revolution in both mechanical and chemical engineering.

According to John Nef (1941, 1952), when this German-based mining boom reached

its peak in the mid 1530s, it had augmented Europe’s silver outputs more than

five-fold, with an annual production that ranged from a minimum of 84,200 kg

fine silver to a maximum of 91,200 kg — and thus well in excess of any amounts

pouring into Seville before the mid-1560s. My own statistical compilations,

limited to just the major mines, indicate a rise in quinquennial mean

fine-silver outputs from 12,356 kg in 1470-74 to 55,025 kg in 1534-39 (Munro

1991). In England, 25-year mean mint outputs rose

from 18,932 kg silver in 1400-24 to 33,655 kg in 1475-99 to 59,090 kg in

1500-24; and then to 305,288 kg in 1550-74 (i.e., after Henry VIII’s

“Great Debasement”); in the southern Low Countries, those means go from 54,444

kg in 1450-74 to 280,958 kg in 15 50-74 (Challis 1992; Munro 1983,

1991).

In my view, however, equally important and probably even more important was the

financial revolution that had begun in or by the 1520s with legal sanctions for

and then legislation on full negotiability, and the contemporary establishment

of effective secondary markets (especially the Antwerp Bourse) in fully

negotiable bills and rentes, i.e., heritable government annuities; and the

latter owed their universal and growing popularity, compared with other forms

of public debt, to papal bulls (1425,

1455) that had exonerated them from any taint of usury. To give just one

example of a veritable explosion in this form of public credit (which thus

reduced the relative demand for gold and silver coins), an issue that Fischer

almost completely ignores: the annual volume of transactions in Spanish

heritable juros rose from 5 million ducats (of 375 maravedis) in 1515 to 83

million ducats in the 1590s (Vander Wee 1977). Thus we need not call upon

Spanish-American bullion imp orts to explain the monetary origins of the

European Price Revolution, though their importance in aggravating and

accelerating the extent of inflation from the 1550s need hardly be questioned,

especially, as Frank Spooner (1972) has so aptly demonstrated,

even anticipated arrivals of Spanish treasure fleets would induce German and

Genoese bankers to expand credit issues by some multiples of the perceived

bullion values. Fischer, by the way, comments (p. 82) that: “the largest

proportionate increases in Spanish prices occurred during the first half of

the sixteenth century — not the second half, when American treasure had its

greatest impact.” This is simply untrue: from 1500-49, the Spanish composite

price index rose 78.5%; from 1550-99, it rose by another 92.1% (Hamilton

1934).

Changes in money stocks or other monetary variables do not, however,

provide the complete explanation for the actual extent of inflation in this or

in any other era. Even if every inflationary price trend that I have

investigate d, from the 12th to 20th centuries, has been preceded or

accompanied by some form of monetary expansion, in none was the degree of

inflation directly proportional to the observed rate of monetary expansion,

with the possible exception of the post World War I hyperinflations.

Consider this proposition in terms of the oft-maligned, conceptually limited,

but still heuristically useful monetary equation MV = Py [in which real y = Y/P

= C + I + G+ (X-M)]; or, better, in terms of the Cambridge “real cash

balances” approach: M = kPy [in which k = the proportion of real NNI (Py) that

the public chooses to hold in real cash balances, reflecting the constituent

elements of Keynesian liquidity preference]. Some Keynesian economists would

contend that an increase in M, or in the rate of growth of money stocks, would

be accompanied by some

offsetting rise in y (i.e. real NNI), whether exogenously created or

endogenously induced by related forces of monetary expansion, and also by some

decline in the income velocity of money, with a reduced need to economize on

the use of money. Since mathematically V = 1/k, they would similarly posit

that an expansion in M,

or its rate of growth, would have led, ceteris paribus — without any change in

liquidity preference, to a fall

in (nominal) interest rates, and thus, by the consequent reduction in the

opportunity costs of holding cash balances, to the necessarily corresponding

rise in k (i.e., an increase in the demand for real cash balances; see Keynes

1936, pp. 306-07). Sometimes, but only very rarely, have changes in these two

latter variables y and V (1/k) fully offset an increase in M; and thus such

increases in money stocks have also resulted, in most historical instances, in

some non-proportional degree of inflation: a rising P, as measured by some

suitable price index, such as the Phelps Brown and Hopkins

basket-of-consumables. [Other economists,

it must be noted, would contend that, in any event, the traditional Keynesian

model is really not applicable to such long-term

phenomena as Fischer’s price-revolutions.

Keynes himself, in considering “how changes in the quantity of money affect

prices… in the long run,” said, in the General Theory (1936, p. 306):

“This is a question for historical generalisation rather than for

pure theory.”]

For the 16th-century Price Revolution, therefore, the interesting question now

becomes: not why did it occur so early (i.e., before significant influxes of

Spanish American bullion); but rather why so late — so many decades after the

onset of the Central European silver-copper mining boom?

Since that boom had commenced in the 1460s, precisely when late-medieval

Europe’s population was at its nadir, perhaps 50% below the 1300 peak, and just

after the Hundred Years’ War had ended, and just

after the complex network of overland continental trade routes between Italy

and NW Europe had been successfully restored, one might contend that in such an

economy with so much “slack” in under-utilized resources, especially land, and

with elastic supplies for so many commodities, both the monetary expansion and

economic recovery of the later 15th century , preceding any dramatic

demographic recovery, permitted an increase in y proportional to the growth of

M, without the onset of diminishing returns an d without significant inflation,

before the 1520s By that decade, however, the monetary expansion had become

all the more powerful: with the peak of the Central European silver-mining

boom and with the rapid increase in the use of negotiable, transferable

credit instruments; and, furthermore, with the Ottoman conquest of the Mamluk

Sultanate (1517), which evidently diverted some considerable amounts of

Venetian silver exports from the Levant to the Antwerp market.

The role of the income-velocity of money

is far more problematic. According to Keynesian expectations, velocity should

have fallen with such increases in money stocks. Yet three eminent economic

historians — Harry Miskimin

(1975), Jack Goldstone (1984), and Peter Lindert (1985) — have sought

to explain England’s16th-century Price Revolution by a very contrary thesis:

of increased money flows (or reductions in k) that were induced by demographic

and structural economic changes, involving interalia(according to their

various models) disproportionate changes in urbanization, greater

commercialization of the rural sectors, far more complex commercial and

financial networks, changes in dependency ratios, etc. The specific

circumstances so portrayed, however, apart from the demographic, are largely

peculiar to 16th- century England and thus do not so convincingly explain the

very similar patterns of inflation in the 16th-century Low Countries, which had

undergone most of these structural economic changes far earlier. Certainly

these velocity model s cannot logically be applied to Fischer’s three other

inflationary long-waves. Indeed, in an article implicitly validating Keynesian

views, Nicholas Mayhew (1995) has contended that the income-velocity of money

has always fallen with an expansion in money stocks, from the medieval to

modern eras, with this one anomalous exception of the 16th-century Price

Revolution. Perhaps, for this one era,

we have misspecified V (or k) by misspecifiying M: i.e., by not properly

including increased issues of negotiable credit; or perhaps institutional

changes in credit (as Goldstone and Miskimin both suggest) did have as dramatic

an effect on V as on M. Furthermore, an equally radical change in the coined

money supply (certainly in England), from one that had been principally gold

to one which, precisely from the 1520s, became largely and then almost entirely

silver, may provide the solution to the velocity paradox: in that the

transactions velocity attached to small value silver coins, of 1d., is

obviously far higher

velocity than that for gold coins valued at 80d and 120d. Except for a brief

reference to Mayhew’s article in the lengthy bibliography, Fischer virtually

ignores such velocity issues

(and thus changes in the demand for real cash balances) throughout his

eight-century survey of secular price trends.

Finally, Fischer’s thesis that population growth was responsible for this the

most famous Price Revolution (and all other inflationary long waves) is hardly

credible, especially if he insists on dating its inception the 1470s. For most

economic historians (Vander Wee 1963; Blanchard 1970;

Hatcher 1977, 1986; Campbell 1981; Harvey 1993) contend that, in NW Europe,

late-medieval demographic decline continued into the early 16th-century;

and that England’s population in 1520 was no more than 2.25 million,

compared to estimates ranging from a minimum of 4.0 to a maximum of 6.0 or even

7.0 million around 1300, the upper bounds being favored by most historians. How

– even if the demographic model were to be theoretically acceptable — could

a modest population growth from such a very low level in the 1520s, reaching

perhaps 2.83 million in 1541, and peaking at 5.39 million in 1656, have been

the fundamental cause of persistent, European wide-inflation, already underway

in the 1520s?

According to Fischer, the ensuing, intervening price-equilibrium

(c.1650-c.1730) involved no discernible monetary contraction, and similarly,

his next inflationary long-wave (c.1730-1815) began well before any monetary

expansion became — in his view — manifestly evident. The monetary and price

data, suggest otherwise, however, incomplete though they may be. Thus, the data

complied by Bakewell, Cross, TePaske, and many others on silver mining at

Potosi (Peru) and Zacatecas (Mexico) indicate that their combined outputs fell

from a mean of 178,692 kg in 1636-40 to one of 101,534 kg in 1661-5, rising to

a mean of 156,497 kg in 1681-5

[partially corresponding to guesstimates of European bullion imports, which

Morineau (1985) extracted fr om Dutch gazettes]; but then sharply falling once

more, and even further, to a more meager mean of 95,842 kg in 1696-1700. During

this same era, the Viceroyalty of Peru’s domestically-

retained share of silver-based public revenues rose from 54% to 96%

(T ePaske 1981); the combined silver exports of the Dutch and English East

India Companies to Asia (Chaudhuri 1968; Gaastra 1983) increased from a

decennial mean of 17,293 kg in 1660-69 to 73,687 kg in 1700-09, while English

mint outputs in terms of fine sil ver (Challis 1992) fell from a mean of 19,400

kg in 1660-64 (but 23,781 kg in 1675-79) to one of just 430.4 kg in 1690-94,

i.e., preceding the Great Recoinage of 1696-98. From the early 18th century,

however, European silver exports to Asia were well more

than offset by a dramatic rise in Spanish-American, and especially Mexican

silver production: for the latter (with evidence from new or previously

unrecorded mines: assembled by Bakewell 1975, 1984; Garner 1980,

1987; Coatsworth 1986, and others), aggregate production more than doubled

from a mean of 129,878 kg in 1700-04 to one of 305,861 kg in 1745-49.

Possibly even more important, especially with England’s currency shift from a

silver to a gold standard, was a veritable explosion in aggregate

Latin-American gold production: from a decennial mean of just 863.90 kg in

1691-1700

zooming to 16,917.4 kg in 1741-50 (TePaske 1998). Within Europe itself, as

Blanchard (1989) has demonstrated, Russian silver mining outputs, ultimately

responsible for perhaps 7%

of Europe’s total stocks,

rose from virtually nothing in the late 1720s to peak at 33,000 kg per annum in

the late 1770s, falling to 18,000 kg in the early 1790s then rising to 21,000

kg per year in the later 1790s.

Finally, even though changes in annual mint outputs are not valid indicators

of changes in coined money supplies, let alone of changes in M1,

the fifty-year means of aggregate values of English mint outputs (silver and

gold: Challis 1992) do provide interesting signals of longer-term monetary

changes: a fall from an annual mean of 348,829 pounds in 1596-1645 to one of

275,403 pounds in 1646-95, followed by a rise, with more than a full recovery,

to an annual mean of 369,644 pounds in 1700-49 (thus excluding the Great

Recoinage of 1696-98). Meanwhile, if the earlier Price Revolution had indeed

peaked in 1645-49, with the quinquennial mean PB&H index at 680, falling to a

nadir of 579 in 1690-94, the fluctuations in the first half of the 18th-century

do not demonstrate any clear inflationary trend, with the mean PB&H index

(briefly peaking at 635 in 1725-9) stalled at virtually the same former level,

581, in 1745-49. Thereafter, of course,

for the second half of the 18th century, the trend is very strongly and

incessantly upward, with almost a

doubling in PB&H index, to 1093 in 1795-9.

Whatever one may wish to deduce from all these diverse data sets, we are

certainly not permitted to conclude, as does Fischer, that inflation preceded

monetary expansion, and did so consistently. Such a view becomes all the more

untenable when the radical changes in English and banking and credit

institutions, following the establishment of the Bank of England in 1694-97,

are taken into account: the consequent introduction and rapid expansion in

legal-tender paper bank note issues (with prior informal issues by London’s

Goldsmith banks), and more especially fully negotiable,

transferable, and discountable Exchequer bills, government annuities,

inland bills and promissory notes, whose veritable explosion in circulation

from the 1760s, with the proliferation of English country-banks, hardly

requires any further elaboration, even if these issues are given short shrift

in Fischer’s book. In view of such complex changes in Britain’s financial and

monetary structures,

subsequent data on coinage outputs have even more limited utility in

estimating money stocks. But we may note that aggregate mined outputs of

Mexican silver more than doubled, from a quinquennial mean of 305,861 kg in

1745-49 to 619,495 kg in 1795-99, while those of Peru more than tripled, from

34,318 kg in 1735-39 (no data for the 1740s) to 126,354 kg in 1795-99 (Garner

1980, 1987; Bakewell 1975, 1984; J.

Fisher, 1975).

Having earlier considered the so-called and misconstrued

“price-equilibrium” of 182 0-1896, let us now finally examine the inception of

the fourth and final long-wave commencing in 1896. Fischer again contends that

population growth was the “prime mover,” despite the fact that Britain’s own

intrinsic growth rate had been falling from its

1821 peak [from 1.75 to 1.31 in 1865, the last year given in Wrigley-Davies-

Oppen-Schofield (1997)]. For evidence he cites an assertion in Colin McEvedy

and Richard Jones, Atlas of World Population History (1978) to the effect that

world population, having increased by 35% from 1850 to 1900,

increased a further 53% by 1950. Are we therefore to believe that such growth

was itself responsible for a 45.2% rise in, for this era, the better structured

Rousseaux price-index [base 100 = (1865cp +1885cp)/2]: from 73 in 1896 to 106

[while the PB&H index rose from 947 in 1896 to 1021 in 1913]?

As for the role of monetary factors in the commencement of this fourth long

wave, Fischer observes (p. 184) that “the rate of growth in gold production

throughout the world was roughly the same before and after 1896.” This

undocumented assertion, about an international economy whose commerce and

finance was now based upon the gold standard, is not quite accurate.

According to assiduously calculated estimates in Eichengreen

and McLean

(1994), decennial mean world gold outputs, having fallen from 185,900 kg in

1850-9 to 135,000 kg in 1880-9 (largely accompanying the aforementioned 44%

fall in the Rousseaux composite index from 128 in 1872 to 72 in 1895),

thereafter soared to

a mean of 255,600 kg in 1890-9 — their graph of annualized data shows that

the bulk of this increased output occurred after 1896 — virtually doubling to

an annual mean of 513,900 kg in 1900-14.

World War I, of course, effectively ended the international gold-standard era,

since the Gold- Exchange Standard of 1925-6 was rather different from the older

system; and the post-war era ushered in a radically new monetary world of fiat

paper currencies, whose initial horrendous manifestation came in the hyper

inflations of Weimar Germany, Russia, and most Central European countries, in

the early 1920s. For this post-war economy, Fischer does admit that monetary

factors often had some considerable importance in influencing price trends; but

his analyses, even of the post-war radical, paper-fuelled hyperinflations, are

not likely to satisfy most economists, either for the inter-war or Post World

War II eras, up to the present day.

This review, long as it is, cannot possibly do full justice to an eight-century

study of this scope and magnitude. So far I have neglected to consider his

often fascinating analyses of the social consequences of inflation over these

many centuries, except for brief allusions in the introduction, where I

indicated his deeply hostile views to persistent inflation for its inevitably

insidious consequences: the impoverishment of the masses, growing malnutrition,

the spread of killer-diseases, increased crime and violence in general, and a

breakdown of the social order, etc.

While some of

the evidence for the latter seems plausible, I do have some concluding quarrels

with his use of real wage indices. Much of our available nominal money-wage

evidence comes from institutional sources on daily wages, which, by their very

nature, tend to be fixed over long periods of time [as Adam Smith noted in the

Wealth of Nations (Cannan ed.

1937, p. 74), “sometimes for half a century together”). Therefore, for such

wage series, real wages rose and fell with the consumer price index, as

measured by, for example, our Phelps Brown and Hopkins basket-of-consumables

index. Its chief problem (as opposed to the better constructed Vander Wee

index for Brabant) is that its components, for long periods, constitute fixed

percentages of the total composite index,

irrespective of changes in relative prices for, say, grains; and they thus do

not reflect the consumers’ ability to make cost-saving substitutions.

Secondly, they are necessarily based on daily wage rates, without any

indication of total annual money incomes; thirdly, the great majority of

money-wage earners in pre-modern Europe earned not day rates but piece-work

wages, for which evidence is extremely scant.

But more important, before the 18th century (or even later), a majority of the

European population did not live by money wages; and most wage-earners had

supplementary forms of income, especially agricultural, that helped insulate

them to some degree from sharp rises in food prices. If rising food prices hurt

many wage-earners, they also benefited ma ny peasants,

especially those with customary tenures and fixed rentals who could thereby

capture some of the economic rent accruing on their lands with such price

increases. It may be simplistic to note that there are always gainers and

losers with both inflation and deflation — but even more simplistic to focus

only on the latter in times of inflation, and especially simplistic to focus on

a real wage index based on the PB&H index. And if deflation is so beneficial

for the masses, why, during the deflationary period in later 17th and early

18th century England, do we find, along with a rise in this real-wage index, a

rise in the death rate from 23.68/1000 in 1626 to 32.14/1000 in 1681,

thereafter falling slightly but rising again to an ultimate peak of

37.00/1000 in 1725 (admittedly an era of anomalous disease-related

mortalities), when the PB&H real-wage index stood at 60 —

some 24% higher than the RWI of 36 for 1626? One of the many imponderables yet

to be considered, though one might ponder that sometimes high real wages

reflect labor shortages from dire conditions, rather than general prosperity

and more equitable wealth and income distributions, as Fischer suggests.

Finally, Fischer’s argument that inflationary price-revolutions were always

especially harmful to the lower classes by leading to rising interest rates is

sometimes but not universally true, even if rational creditors should have

raised rates to protect themselves from inflation. Thus, for the Antwerp money

market in the 16th century,

the meticulous evidence compiled by Vander Wee (1964, 1977) shows that

nominal interest rates fell over this entire period [from 20% in 1515 to 9% in

1549 to 5% in 1561; and on the riskier short term loans to the Habsburg

government, from a mean of 19.5

% in 1506-10 to one of 12.3% in 1541-45 to 9.63% in 1561-55]. In the next

price-revolution, during the later 18th century, nominal interest rates did

rise during periods of costly warfare, i.e., with an increasing risk premium;

but real interest rates actually fell because of the increasing tempo of

inflation (Turner 1984), more so than did real wages for most industrial

workers.

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(Leuven: Leuven University Press,

1991), pp. 119-83.

John Nef, “Silver Production in Central Europe, 1450-1618,” Journal of

Political Economy, 49 (1941), 575-91.

John Nef, “Mining

and Metallurgy,” in M.M. Postan, ed., Cambridge Economic History, Vol. II:

Trade and Industry in the Middle Ages (Cambridge, 1952),

pp. 456-93. Reprinted without changes, in the 2nd revised edn. of The Cambridge

Economic History of Europe, Vol. II, edited by M.M. Postan and Edward Miller

(Cambridge, 1987), pp. 691-761.

E.H. Phelps Brown and Sheila V. Hopkins, “Seven Centuries of en Centuries of

the Prices of Consumables Compared with B Building Wages,” Economica, 22

(August 1955), and “Sevuilders” Wage-

Rates,” Economica, 23 (Nov. 1956),

reprinted E.H. Phelps Brown and Sheila V. Hopkins, A Perspective of Wages and

Prices (London, 1981), containing additional statistical appendices not

provided in the original publication.

Frank Spooner, The International Economy and Monetary Movements in France,

1493-1725 (Cambridge, Mass., 1972)

John TePaske, “New World Silver, Castile, and the Philippines, 1590-1800 A.D.,”

in John F. Richards, ed., Precious Metals in the Medieval and Early Modern

Worlds (Durham, N.C.

, 1983), pp. 424-446.

John TePaske, “New World Gold Production in Hemispheric and Global Perspective,

1492 – 1810,” in Clara Nunez, ed., Monetary History in Global Perspective, 1500

- 1808, Papers presented to Session B-6 of the Twelfth International Eco nomic

History Congress (Seville, 1998), pp. 21-32.

Michael Turner, Enclosures in Britain, 1750 – 1830, Studies in Economic History

Series (London, 1984).

Herman Vander Wee, Growth of the Antwerp Market and the European Economy,

14th to 16th Centuries,

3 Vols. (The Hague, 1963). Vol. I: Statistics; Vol.

II: Interpretation, 374-427; and Vol. III: Graphs.

Herman Vander Wee, “Monetary, Credit, and Banking Systems,” in E.E. Rich and

Charles Wilson, eds., The Cambridge Economic History of Europe, Vol. V:

T he Economic Organization of Early Modern Europe(Cambridge, 1977), chapter V,

pp. 290-393.

Herman Vander Wee, “Prijzen en lonen als ontwikkelingsvariabelen: Een

vergelijkend onderzoek tussen Engeland en de Zuidelijke Nederlanden,

1400-1700,” in Album aan geboden aan Charles Verlinden ter gelegenheid van zijn

dertig jaar professoraat (Gent, 1975), pp. 413-47; reissued in English

translation (without the tables) as “Prices and Wages as Development Variables:

A Comparison Between England and the Southern Net herlands,

1400-1700,” Acta Historiae Neerlandicae, 10 (1978), 58-78.

Ivor Wilks, “Wangara, Akan, and the Portuguese in the Fifteenth and Sixteenth

Centuries,” in Ivor Wilks, ed., Forests of Gold: Essays on the Akan and the

Kingdom of Asante (Athens, Ohio

, 1993), pp. 1-39.

E.A. Wrigley, R.S. Davies, J.E. Oeppen, and R.S. Schofield, English Population

History from Family Reconstitution, 1580- 1837 (Cambridge and New York:

Cambridge University Press, 1997).

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

Creating the Corporate Soul: The Rise of Public Relations and Corporate Imagery in American Big Business

Author(s):Marchand, Roland
Reviewer(s):Fones-Wolf, Elizabeth

Published by H-Business and EH.Net (January, 1999)

Roland Marchand. Creating the Corporate Soul: The Rise of Public Relations

and Corporate Imagery in American Big Business. Berkeley: University of

California Press, 1998. xi + 461 pp. Acknowledgments, illustrations, notes and

index. $39.95 (cloth), ISBN 0-520-08719-4.

Reviewed for H-Business and EH.Net by Elizabeth Fones-Wolf, West Virginia

University

On January 11, 1999 Time Magazine devoted a special edition to the

future of medicine. This issue featured a series of striking full and double

page advertisements sponsored by the pharmaceutical firm, Pfizer. While some

of the company’s 39 pages of advertising promoted Pfizer’s products, ma ny of

the others were designed to create a favorable public image of the firm.

Through this institutional advertising, readers learned about Pfizer’s history,

its concern for women’s health, its innovative research programs and its

longstanding commitment

to service. Pfizer presented itself as a friend of the family and as an

institution dedicated to improving the life of each American. In each

institutional ad, the firm proclaimed that life not profits “is our life’s

work.” Having established its concern for the public, Pfizer shifted from

image-shaping institutional advertising to advocacy advertising, using one of

the issues’ back pages to editorialize against government-led reform of the

healthcare system. Only the free market, CEO William Steere

sermonized, could provide quality healthcare.

Pfizer’s efforts to associate its firm with technological progress and service

and its attack on government regulation have deep historical roots.

Roland Marchand’s study of the creation of the corporate image uncovers the

origins of many of the themes and images still used today by corporations like

Pfizer in their institutional and advocacy advertising campaigns. It is a

major contribution to the growing literature on the history of public

relations, consumer culture, and advertising. This meticulously researched

work draws upon the records of major corporations, advertising agencies and

public relations counselors to analyze the strategies big business used to

attain legitimacy by creating a favorable public image during the first half

of the twentieth century. It combines a survey of the activities of a broad

cross section of firms with in-depth case studies of major companies such as

AT&T, the Pennsylvania Railroad, General Motors, General Electric, Du Pont and

Metropolitan Life Insurance.

In the early twentieth century, large

corporations faced a “crisis of

legitimacy” (p. 3). Appalled at the growing power and corruption associated

with newly emergent big businesses and by increasing industrial strife,

elements of the public began calling for greater state regulation. Some even

demanded the dismantling of the “soulless” giants who seemed to endanger

democracy and the traditional American way of life. This threat to corporate

freedom helped give birth to a host of public relations initiatives, ranging

from welfare capitalism and institutional advertising,

to factory tours and elaborate exhibits at the great world’s fairs, all

designed to create a positive image of the corporation. Like Andrea To ne,

The Business of Benevolence: Industrial Paternalism in Progressive

America, Cornell University Press, 1997), Marchand argues that welfare

capitalism, which provided services such as medical care, recreation,

pensions, and housing, was more than just a mechanism to undercut unionism and

promote worker productivity. By publicly demonstrating compassion for

employees and presenting the human face of American capitalism, welfare

programs served as a “safeguard against perceptions of soullessness” (p.1 5).

Welfarism also helped address corporate concern over the growing distance

between management and the rank and file, which Marchand labels

“the Lament.” The employee magazine, radio broadcasts, company films and

employee representation reunited “the family at one great dining table” (p.

113).

Much of the book is devoted to analyzing the evolution of institutional

advertising. Marchand used corporate records to reveal companies’ multiple

goals and multiple audiences. Metropolitan Life’s 1922 institutional

campaign, for instance, was aimed at both employees and the public. It sought

to shape political opinion, promote employee morale and corporate

consciousness, and develop for the insurance company a reputation for community

service. Similarly, General Motor’s 1920s advertising campaign aspired both to

create public goodwill by portraying GM as an agency of public service and to

stimulate a corporate consciousness among the often hostile divisions of the

firm. Marchand pays close attention to the language and visual imagery of the

ads themselves. This book lavishly reproduced almost two hundred of these

advertisements, both color and black-and-white. While some of the advertising

seems archaic, many of the themes and metaphors that Marchand identified have

become ubiquitous in modern-day institutional advertising. Early ads projected

the corporate image through architecture, using pictures of the factory or

corporate headquarters to symbolize qualities like stability, efficiency, and

security.

More familiar, however, are the AT&T ads from the early part of the century.

A trailblazer in corporate public relations, AT&T advertisements identified the

telephone with economic progress, featured women, sought to humanize the

company, and emphasized

the firm’s commitment to public service.

In the midst of the depression of the thirties, corporations worried less about

their soulless image and more about the future of capitalism.

Competing with the New Deal for public favor, business attempted to se ll

itself and the capitalist system. It looked to new mediums, especially radio

and movies, and reached out to insurgent workers with a common-folk style. New

converts, like Du Pont and U.S. Steel became committed to the mission of

carrying their “corporate message directly to the American

public” (p. 223). Other firms, like General Motors, longtime advocates of

public relations, expanded their image building activities. GM’s striking 1939

World’s Fair exhibit, Futurama, helped convey “the corporation’

s optimism about the capacity of private industry to promote prosperity and

create new jobs,” and suggested the “modernity, benevolence, and

forward-looking social vision of the corporation” (p. 303). World War II saw

yet a further expansion of corporate

public relations as companies connected their images to the war effort and

fought to offset growing wartime regulation of the economy.

In the early part of Creating the Corporate Soul, Marchand offers an

intriguing analysis of the roles of gender and

shifting boundaries in the development of corporate imagery. As he explains,

public relations and welfare capitalism, which were distant from production and

catered to public opinion, were initially viewed as feminine and potentially

subversive.

Gender

considerations shaped the content of ads. Uncomfortable with too

“feminine” an appeal, AT&T’s early institutional advertising shied away from

depicting the social role of the telephone. Welfare capitalism also pushed the

boundaries of conventional business behavior, creating expectations of

stewardship that firms were often hesitant to assume. The themes of gender and

boundaries appear, however, only in the first part of the book. One might have

wished for an extension of this promising analysis through the entire work.

Throughout, Marchand makes realistic appraisals of the corporate image building

campaigns. Many of the corporate assertions were hypocritical,

contradictory and down right false. Firms, for instance, commonly employed the

metaphor of

corporation as family. But, as Marchand observes, “what family would ‘fire’

its children when expediency so dictated?” (p. 107). AT

&T’s depiction of itself as an investment democracy was deceptive.

Similarly, the sit-down strikes made GM’s 1930s portrayals of employees happily

rushing to work hardly credible. Marchand acknowledges that the

“precise effect of institutional advertising campaigns was difficult to

estimate” (p. 201). Companies with political goals at times found the payoff

in favorable

legislation. In the 1930s professional polling services began surveying

popular attitudes toward large firms. They helped provide business the

necessary evidence of the effectiveness of corporate image building. By the

end of World War II, big business

had gained acceptance as a legitimate social institution and corporate

ideology was well on its way to becoming a dominate force in political

discourse.

Roland Marchand died before Creating Corporate Soul was published. It

is an important work and a

beautiful book that will stand as a fitting tribute to his distinguished career

as a historian.

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

The Other Side of the Frontier: Economic Explorations into Native American History

Author(s):Barrington, Linda
Reviewer(s):Weiss, Thomas

Published

by EH.NET (January 1999)

Linda Barrington, editor, The Other Side of the Frontier: Economic

Explorations into Native American History. Boulder, CO; Westview Press,

1998. xiii + 301 pp. $65.00 (cloth), ISBN: 0813333954; $25.00 (paper),

ISBN: 0813333 962.

Reviewed for EH.NET by Thomas Weiss, Department of Economics, University of

Kansas

This is a welcome and useful collection of articles, even though the articles

are not new and original pieces and are not focused on any one the me of Native

American history. Although most of the essays were published previously, their

concentration in one place helps to get across the key idea that Native

Americans responded to economic signals in much the same way that economic

theory would pr edict for any rational economic agent. The essays cover a wide

swath of time, space and issues, and this diversity helps underscore the

universality of their responses to economic forces.

The collection appears to have been motivated in part to provide

material for those interested in providing a more “diversity-friendly”

economics curriculum, in part to disseminate more widely recent literature that

examines Native American history from an economics perspective, and in part to

stimulate further research along these same lines.

I doubt that the essays will be much used to diversify the economics

curriculum. With the exception of the articles by Ann Carlos and Frank Lewis,

“Property Rights and Competition in the Depletion of the Beaver,”

Leonard Carlso n, “The Economics and Politics of Irrigation Projects on Indian

Reservations, 1900-1940,” and by Terry Anderson and Fred McChesney,

“The Political Economy of Indian Wars,” the analysis is not developed in ways

that would make it suitable to teach some particular economic concept or

behavior. And the latter article, although a nice example of the application

of political economic models, is not likely to be the sort of topic covered in

many introductory economic courses. If the idea is to diversify the curriculum

in economic history courses, then the collection fares much better.

In addition to these three, several other articles would be useful as well.

The book should serve to stimulate further research on the economic behavior of

Native Americans wi thin institutional constraints rather than that of an

exploited people decimated by the advance of western civilization. The latter

is a well known story. It is now time to better understand how Native

Americans behaved under those pressures and how those developments and their

reactions have bearing on current issues facing Native Americans and U.S.

society. Most of the articles make clear where some further research is

called for, and the totality of the collection provides a sense that all this

is

a line of inquiry well worth pursuing.

The authors are, of course, careful to point out that any research will be

hampered by a lack of evidence, especially evidence about how the Native

Americans saw these events. An overriding difficulty with any such research is

the great diversity within the Native American population. It is one thing to

imagine that economic principles can be used to explain behavior, it is quite

another to see how it actually worked out in specific cases across a long time

period,

a wide spectrum of events, and involving diverse tribes and cultures.

Given the great diversity and long time period, the book attempts to focus on

key episodes of Native American economic history and salient issues of the

different time periods. The long history is compartmentalized into four

periods: Pre-Colonial Civilizations, Trade and Colonial Economies,

Westward Expansion, and Twentieth Century Federalism. Each section has a short

introduction and two or three articles. Barrington provides a useful overview

of Native American history and its relation to U.S. economic history more

generally, out of which comes the rationale for the four-part categorization.

Vernon Smith’s article covers the entire pre-colonial period, with a sweeping

analysis of the role of economic forces and institutions throughout mankind’s

history. If he is to be believed, economic forces,

such as changes in relative costs and accumulation of human capital,

explain just about everything, including not only inventions, but

also language and bipedalism. To be fair he eventually allows that bipedalism

was a bioeconomic response (p. 72). Much of his story will strike many readers

as nothing more than a relabeling of causes. After all, if we do not know what

brought about certain changes 5 or 10 million years ago, we might just as well

say it was changes in relative costs rather than some biological mutation or

climactic disaster. He does, however, make a plausible case for many of the

developments that took place, and perhaps we should rightly think of it as

economic behavior. At least this will get people to start looking at these

sorts of things from a different perspective, with perhaps fruitful results.

As much as I might laud his efforts to recast these long evolutionary

developments in economic terms, it is easy to see why many non-economists will

be skeptical. Some of the responses, such as the inventions of weapons for

big-game hunting or the shift from hunting to agriculture for example, took a

very long time to evolve. Along the way not all developments were obviously

conscious decisions being made by rational economic agents; they just happened.

Indeed, they would not seem to be the sort of calculating economic actions

described by Demsetz in which

“Property rights develop to internalize externalities when the gains of

internalization become larger than the cost of internalization” (p. 104).

It is hard to imagine early Cro-Magnon people working these things out in their

heads. And, Smith admits that some responses were unconscious (p.

68). As valuable as it might be to now try to describe those unconscious

decisions, most non-economists will prefer to think of some of these things as

the result of biological evolution, the survival of the fittest,

culture

factors, or simply chance.

The main thrust of Smith’s argument, however, is extremely pertinent and he

presents a plausible case for reconsidering enormous and far-distant

developments in economic terms. He argues neatly that “culture and

institutions

can be interpreted as providing the information system for transmitting the

learning embodied in the unconscious response to opportunity cost.” (p. 68).

Although his article has little to do with Native Americans, its value is to

set the tone. If way back when economic forces were at work shaping language,

culture, and mankind–indeed man–then a fortiori these forces must have

influenced Native American behavior. Subsequent essays develop these ideas

more fully.

Barrington in “The Mississippians and

Economic Development Before European Colonization,” argues that in the

precolonial period the existence of Indian towns, such as Cahokia, is part of

the evidence that not all indigenous societies were hunters and gatherers prior

to European contact.

Some

practiced a sedentary agriculture, and there was long-distance trade,

specialization of labor, taxation and social hierarchy. The latter may have

had some influence on the subsequent development of the southeastern United

States, although the link with

slavery seems rather tenuous.

Anderson and LaCombe’s piece, “Institutional Change in the Indian Horse

Culture,” delineates carefully how economic behavior must have been manifest in

the hunting techniques and how they changed with the introduction of the

horse. They also argue that much of this change occurred before there was

extensive contact with Europeans.

The essays on the colonial period are both concerned with trade–the fur trade

in the North and the skin trade in South Carolina. Carlos and Lew is try to

show that Indian behavior that led to the depletion of the beaver stock was not

irrational or culturally-determined, but rather was the outcome of a very

predictable response to changes in the prices received for beaver, and those

changes reflected differences in the competition faced by the Hudson’s Bay

Company. Murphy puts forth a similar sort of economic argument in “The

Eighteenth-Century Southeastern American Indian Economy.” To be sure there

were political influences at work, but he argues that Indians were clearly

motivated by market forces. They were involved in a large commercial hunting

market and their production rose and fell as the real price of skins rose and

fell. At its peak, the deerskin trade provided export earnings that

rivaled those of the Middle colonies,

and as prices fell Indians shifted into alternative economic activities.

David Wishart provides compelling evidence that the Cherokee were responding

well to economic forces; they were successful farmers and heavily

involved in commercial agriculture. In “Could the Cherokee Have Survived in

the Southeast?” he uses evidence from a special census of 1835 to show that at

least half, and perhaps three-fourths, of Cherokee households were producing

substantial agricultural surpluses. From an economic perspective there is

little doubt that they could have survived and thus the argument that they were

to be removed to Oklahoma for humanitarian reasons seems dubious. For

political reasons, however, they might not have be en able to survive and for

that reason the Removal may have been in their interest. James Oberly presents

an interesting and succinct analysis of the demographic history of the Lake

Superior Ojibwa in

“Land, Population, Prices and the Regulation of Natur al Resources.” Unlike

the other authors he does not stress how this tribe responded to economic

forces, but does show that until the late nineteenth century they performed

well economically. He also makes the point that in their treaty negotiations

they

exhibited astute economic thinking, and had estimated quite accurately the

time it would have taken whites to cut the timber on their lands and thus

probably had a good idea of the present value of their assets (p. 198). The

final essay in the Westward

Expansion section is that by Anderson and McChesney, in which they lay out

nicely how political economy models can explain the increase in conflict

between Indians and whites between 1790 and 1897, much of which can be traced

to the acquisition of the horse which turned otherwise sedentary tribes into

nomads. As Smith put it, “For a century and a half the history of the American

West was a history of fear and terror of the Comanche, who, prior to the

arrival of the mustang, had picked berries and dug roots” (p. 75).

The twentieth century economic history of Indians is primarily that of

Federalism. Leonard Carlson provides a succinct history of the key elements of

the Indian-government relations and then analyzes more thoroughly the allotment

program and irrigation policies that were in place between the passage of the

Dawes Act (1887) and the Indian Reorganization Act of 1934. He uses a public

choice approach to show that these programs and policies did not work

primarily for the benefit of the Indians.

Although some Indians did benefit, there was also a waste of resources, and

perhaps more noteworthy, a transfer of resources to bureaucrats in the Bureau

of Indian Affairs and to non-Indian ranchers and farmers. LaCroix and Rose

come to similar conclusions regarding the Hawaiian Home Lands Program. Both

of these papers raise the specter of some counterfactual analysis, but do not

pursue such inquiries in these papers. Carlson notes how difficult it would be

to imagine what alternative organizational scheme might have worked better

than relying on newly formed tribal councils (p.

254). LaCroix and Rose elsewhere propose some reforms of the HHL program,

implying they have in mind some counterfactual that might work better, but they

are skeptical that any such reforms will be adopted soon.

In all this is a useful book, setting out pertinent issues and showing the

sorts of analysis that can be applied. It also makes clear that careful

economic analysis of Native American issues is in its infancy, with much room

to grow. All of these pieces have been written within the last five years, and

they are among the best there is.

Thomas Weiss Department of Economics University of Kansas

Weiss is currently engaged in a joint research project to estimate

GDP for the colonial period. His co-investigators are Joshua Rosenbloom and

Peter Mancall, both of the University of Kansas. A related article “Was

Economic Growth Likely in Colonial British North America” by Mancall and Weiss

is forthcoming in the Journal of Economic History.

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

The Best of Intentions: The Triumph and Failure of the Great Society Under Kennedy, Johnson and Nixon

Author(s):Unger, Irwin
Reviewer(s):Ziliak, Stephen

Published by EH.NET (October 1998)

Irwin Unger, The Best of Intentions: The Triumph and Failure of the Great

Society Under Kennedy, Johnson and Nixon New York: Doubleday, 1996. 366

pp. $27.95 (cloth), ISBN: 0-385-46833-4

Reviewed for EH.NE T by Stephen Ziliak, Department of Economics, Bowling Green

State University.

The middle class reader is disarmed here by a gentle story about the

Great Society, a story which attempts to fill the reader with the quiet

satisfaction, however mellow, that something worked. The middle class reader

merges easily with a traffic of words, traveling in a pathos fit for the first

day of Spring in the opening pages of Irwin Unger’s The Best of Intentions:

The Triumph and Failure of the Great Society Under Kennedy,

Johnson and Nixon. The Great Society, Unger says plainly, made life more

“pleasant” (p. 9). The legacy of the Great Society is good for middle class

Americans. Unger has designs on easy listening, but the subtext is more

Springsteen than Kenny G.

Since the early 1980s, the typical way to begin a book about the

Great Society is to exhort with fists pounding that Americans have been

“losing ground” since Johnson waged a War on Poverty. Another way to begin a

book on the Great Society (less typical, though increasingly common) is to

emphasize with feminist and racial concerns–a la Frances Fox Piven,

Richard Cloward, and Linda Gordon–the post-Reagan attack on whatever gains the

War on Poverty made for welfare rights and the amelioration of poverty.

But Unger chooses the road less traveled. Unger’s book about the Great Society

begins by naming the good effects the Great Society had on the lives of the

educated middle classes.

The Best of Intention s opens with Unger and his wife driving

cross-country on a clean highway in a car fit with mandatory seat belts and

collapsible steering columns, listening to classical music and “intelligent

interviews” on National Public Radio (even from rural location s), stopping at

“well-equipped public rest stops” (p. 9), and taking in some nature,

such as they did at Assateague Island, in Virginia, a seashore preserve.

“The Great Society of the 1960s has left its mark on the land,” says Unger.

But Unger’s idea of “mark” is not what readers in the 1990s have come to

expect. Says Unger: “The Great Society . . . made our trip pleasanter and

safer” (p. 9). In other

words, by contrast with Charles Murray’s metaphor

“losing ground,” The Best of Intentions is positively cheery about the

ground that America has gained with the Great Society. Unger is cheery not

about the effects of welfare on the markets and morals of the poor (indeed,

on this judgment Unger is relatively quiet). Instead, Unger celebrates the

achievements of the Great Society which were designed with intent for the

middle classes. It’s not his only point.

Unger’s emphasis on the worth of human beings who find themselves

middle class is refreshing. The middle class, now that it has come in to the

view of historians after a hundred-year eclipse, is still ignored catholicity

in positive assessments of American culture. It’s all

“spectacle” and “gaze” at the fin-de-siecle. Thus it is notable, too, that

Unger includes the values and the practices of the middle classes in the

social welfare function when he evaluates the many programs of the Great

Society–including the War on Poverty. Unfortunately, The Best of

Intentions devotes little space to an articulation of the author’s chief

and boldest argument: that the programs of the Great Society which “worked

best” were in fact the programs designed for the benefit of the educated middle

classes (pp. 10, 366).

Unger devotes most of his formidable energies documenting the policy

processes which gave rise to the big budget items of the Great Society:

Medicare, federal aid to education, and the War on Poverty. Here,

Unger is particularly strong in archival detail and in administrative scope,

chasing Presidential and Congressional paper trails across the nation’s

depositories of oral history. Unger is also a patient teacher of the sometimes

painful formulation and design of the Great Society programs–from VISTA to

Head Start to the National Endowment for the Humanities.

The main problem with the book as policy history is that Unger

engages in an unarticulated rhetoric of economic and policy performance. It is

difficult to discern what standards are being used by Unger to evaluate the

programs that “work best.” For example

, Unger seems to write without irony: “The Economic Opportunity Act was sound,

[Sargent] Shriver told the legislators; the country would get a dollar’s value

for a dollar spent” (p.

86). That expected rate-of-return, it seems to Shriver and to Unger,

re presented what Shriver called “the best thinking in the nation on this

subject” (p. 86). According to Unger, the Economic Opportunity Act “sought to

change the poor . . . The proposed bill provided modest amounts of seed money

to enable the poor to acquire the skills, motivation, and attitudes they

needed to better cope with the existing economic rules of the game”

(p. 86). Unger’s main criticism of the bill is for its failure to promise a

massive transfer of income to the nation’s poor. The point here

is that Unger does not consider his own standards for how any policy could

“work best:” Sargent Shriver’s standard for investment, the textbook government

rule of TR=TC, does not–despite the intention to build skills among the

poor–promise growth in GD P. It is not clear in this chapter or in others for

what purposes a simple, massive transfer of income to the poor–if politically

feasible–would “work” well for both taxpayers and recipients.

Unger is not alone, of course, in being ambiguous

about performance standards in economic policy. The work is not cliometric: it

is an older style of policy history, pre-cliometric, pre-critical theory.

But a stated commitment to quantification or theory would not alone be

sufficient for improving Unger

‘s policy analysis. (Witness the abuse of tests of statistical significance,

even in the top journals of economics.)

What Unger is reaching for but not attaining is a language for valuing

improvements in the “quality,” not merely the “quantity,” of life.

Unger credits Johnson’s speech-writer, the Harvard-educated Richard Goodwin,

for putting a quality-of-life agenda in the mind of Johnson (p. 17). But Unger

himself has not decided how to evaluate quality of life as a policy variable or

as a way of bein g. Unger’s use of the term “quality of life”

is reserved for the middle classes–for Johnson’s middle class intellectuals,

who seem to inspire Unger, the quality-of-life agenda was about getting more

“Athens” and “Florence” and less sprawl of kitsch and

spiritless suburbia (p. 17). In The Best of Intentions, “quality of

life” does not seem to be an object of concern when evaluating policy directed

at those who lack severely in the quantity” of life. In fact in the epilogue

Unger leans against the project of making quality distinctions altogether,

yielding ground to the neoclassical economic (or philosophical emotivist) idea

that there is no arguing about tastes. Here, Unger suggests that if Americans

want to buy more Heater Meals and less health car e–and GDP is growing–

so be it (p. 364). Yet Unger’s main point is that Americans ought to

discriminate quality from quantity, and that was the good of the Great Society.

Americans should want less Kenny G in the elevators and more symphony in the

city parks, so be it.

Historians of social welfare divide over the perceived need to say

that some reform movement came mostly “from above” or mostly “from below.” In

some arenas the division is hardly perceptible. It is widely agreed, for

example, that the Charity Organization Movement of the late nineteenth

century– the first widespread attempt to privatize and organize

“welfare” in America–came from the enterprise of the white and Protestant

middle classes. Historians of the War on Poverty

are not in agreement, and the division–in a world in which the simple binary

top/down is toggled obsessively–has important consequences for how one goes

about policy and reform. The thesis of reform-from-below is found mostly on

the political left. “T he disagreement is not merely an academic squabble,”

says Unger.

“It is an issue that separates two models of America’s social essence” (p.

49). Yes, historically speaking, as perceived. But it might be better to

think of the division this way: The disagreement is not merely an academic

squabble. It is an issue that separates two models of America’s social

science.

Says Unger, “[on] the whole I believe the top-down view more

persuasive” (p. 50). “The top-down perspective identifies antipoverty

initiatives as the work of liberal technocrats in the Kennedy-Johnson White

House” and of other “top layer” bureaucrats and academics (p. 50). In Unger’s

story of movements for reform in the 1960s, the credit goes to the likes of

Daniel Patrick Moynih an, the economists Walter Heller and Robert Lampman, the

speech-writer Richard Goodwin, the HEW’s Alice Rivlin. There can be no doubt

that these and many other “liberal technocrats” did the thinking and the

policy-writing for the War on Poverty. But Unger, using his own words, seems

to force the conclusion that “America’s social essence” in the 1960s was one in

which reform could have only come from the top; or, perhaps, though less

likely, Unger is concluding that the top is simply the proper location

for reform.

Yet it is plausible to think that Unger’s conclusion has been forced

not by his preferred model of America’s social essence. Unger’s conclusion

that the reforms of the 1960s were top-down may be forced by his preferred

model of American social science. The way Unger views the material of history

is itself top-down. Unger is not a builder of rational-choice models but he

borrows its top-down, policy-driven, and behaviorist rhetorics. Unger is an

empiricist but he examines the movements of the Sixties–community action

programs, “ghetto unrest,” the theater of Baraka–through the lens of

journalists, top-layer bureaucrats,

and liberal technocrats. In other words, Unger does not examine the rise of

anti-poverty initiatives by examining first-person stories and micro-level

practices of the nation’s welfare recipients, welfare rights activists, local

bureaucrats, and so forth. Unger does not examine the ways in which local

inspirations–even neighborhood events–might have gathered

steam from other localities, shaping from the bottom-up what look to be a

passing storm of “federal initiatives.” The top-down model of America’s social

science is shaping the top-down understanding of America’s social essence.

The general weak ness or absence of an explicit theoretical or

critical posture is what will turn many readers away from The Best of

Intentions. The Great Society made its mark on the land, but there were

apparently no women involved. (The author is explicit in his omission of race

and of civil rights [p. 10].) For this reader, Unger’s archival treasures are

material for testing important critical work on economic policy, such as that

which is to be found in Albert Hirschman’s The Rhetoric of Reaction

(Cambridge: Belknap Press, 1991) and in Robert Higgs’ Crisis and

Leviathan (New York: Oxford University Press,

1987). Hirshman’s “jeopardy thesis” needs Higgs’ “ratchet effect,” and the

fusion would surely illuminate The Best of Intentions. Unger is at his

best when his verbal analysis of post-program achievements is tightly woven

with a narrative of program intentions: this is easily witnessed in Unger’s

excellent summary of the Job Corps (p. 178).

The Best of Intentions is at its worst when it attempts to characterize

the behind-the-scenes lives of Presidents Kennedy, Johnson, and Nixon,

sounding at times more like an Arts and Entertainment column than a history

with an ear to morals and manners.

But if Unger has not opened the conversation he has

surely–in his emphasis on the middle class–made an important contribution to

the way in which historians will view the triumphs and the failures of the

Great Society. The middle class matters. Thanks to Unger’s work, observers of

the Great Society will be challenged to add to the balance sheet a Sesame

Street and a theater and a well-equipped rest area for each ill-conceived

community action program and long-term welfare case.

Stephen Ziliak Department of Economics Bowling Green State University

Stephen Ziliak authored, with Deirdre McCloskey, “The Standard Error of

Regressions” (Journal of Economic Literature, March 1996). Ziliak’s

current research is on the economic history of welfare and charity in the

United States. His work on the privatization of welfare has appeared in

The Independent Review and Quarterly Review of Economics and

Finance.

Ziliak is guest editor of a forthcoming issue of Social Science History

on voluntarism and the welfare state, and he is a co-editor of the millennial

edition of Historical Statistics of the United States: Colonial Times to the

Present (Cambridge University Press).

Subject(s):Economic Planning and Policy
Geographic Area(s):North America
Time Period(s):20th Century: WWII and post-WWII

The Indonesian Economy in the Nineteenth and Twentieth Centuries: A History of Missed Opportunities

Author(s):Booth, Anne
Reviewer(s):Touwen, Jeroen

EH-NET BOOK REVIEW

Published by EH.NET (October 1998)

Anne Booth, The Indonesian Economy in the Nineteenth and Twentieth

Centuries: A History of Missed Opportunities. Basingstoke: Macmillan

and New York: St. Martin’s Press, 1998. xvi + 377 pp. Includes

bibliographical references and index. $19.95 (paperback), ISBN

0-333-55310-1 (Macmillan). $79.95 (hardcover), ISBN 0-333-55309-8

(Macmillan) and 0-312-17749-6 (St. Martin’s Press)

Reviewed for EH-NET by Jeroen Touwen, Historical Institute, Leiden

University, The Netherlands.

BAD LUCK IN A VERY RESOURCEFUL ECONOMY

Which Lessons Can Indonesia Learn from its Past?

This is a volume in a new and ambitious series named A Modern Economic

History of Southeast Asia, edited by Anthony Reid, Anne Booth, Malcom

Falkus and Graeme Snooks, initiated by the Australian National University

in Canberra, and published by Macmillan. Of the eighteen volumes

planned (dealing either with themes or with countries), three have be

en published so far, of which this is one.

Professor Anne Booth of the School of Oriental and Asian Studies (SOAS) in

London has a long experience in the scholarship of the Indonesian economy.

She is known for her monograph Agricultural Development in Indonesia

(Sydney: Allen and Unwin, 1988) and for two influential edited volumes: A.

Booth, W.J. O’Malley and A. Weidemann (eds), Indonesian Economic History

in the Dutch Colonial Era, (New Haven: Yale Center for International Area

Studies, 1990), which is generally regarded as the first survey of modern

economic history of Indonesia), and A. Booth (ed.) The Oil Boom and After;

Indonesian Economic Policy and Performance in the Suharto Era

(Singapore: Oxford University Press, 1992). In addition, she ha

s published a long list of contributions in journals and edited volumes. In her

work,

she has consistently applied systematic quantitative macroeconomic

analysis in combination with a more qualitative evaluation of government

policy and growth theory. But what is also quite significant in her work

(including the present book under review) is her attention for a

combination of the colonial and the independent eras of Indonesian

history. Booth is one of the few historians who easily jumps back and

forth between these two periods, drawing parallels and making comparisons.

Thus, she is able to conceive a long-term view on economic development,

an approach which has often been ignored by economists and historians.

At first sight, the reader of The Indonesian Economy in the Nineteenth and

Twentieth Centuries is confronted with a provocative subtitle: A

History

of Missed Opportunities . To this subtitle a streak of irony is added by

the picture on the cover of the book: a photograph of the Indonesian

government aeroplane factory in Bandung. The Indonesian airplane industry

IPTN (Industri Pesawat Terbang Nasional), in which present-day president

Habibie played a leading role, has often been viewed as a symbol of

irresponsibly large expenditure on prestigious high-tech projects,

significant for the 1980s and 1990s Suharto-era. Does Booth criticize such

projects and imply that the Indonesian economy would have been better off

with investments in different sectors, or a different (more balanced)

economic policy? And which other opportunities have been missed by

Indonesia? Indonesia is one of the poorest countries of Southeast Asia and

has been lagging behind several of its neighbors for many decades. Only

during the recent period of export-oriented growth (ca. 1980-1997) did it

began receiving international praise for its economic performance – praise

that has melted away since the monetary crisis (and subsequent political

unrest) brought the Indonesian economy to a virtual stand-still and scared

off most foreign investors.

In the following, I will first review the contents of the book and outline

some of its characteristics. In conclusion, I will return to the question

of which opportunities were missed and how this affected Indonesian economic

development.

An extensive introduction (Chapter 1) describes the formation of an

‘Indonesian’ economy, highlights the current debates in the historiography,

and states the aims of the book, which consists of six chapters (excluding

the introduction and conclusion) dealing with thematic aspects of the

Indonesian economy.

Chapter 2 is called ‘Output Growth and Structural Change between

1820-1990′, and places the important political events in a chronological

survey of economic performance. This chapter has an essential function

in providing a chronological framework and evaluating the different

indicators and measurements of long-term economic development. Within

each sub-period, the trends in output growth are linked to changes in

domestic economic policies (reflecting changes in political priorities) and

to world market trends (p. 16). Particularly the phases of growth (p. 15,

85-87) should be mentioned here. In combining political events and

economic situation, Booth identifies the following 10 phases:

  • 1) 1830-1870 rapid export growth, slowing down after 1840
  • 2) 1870-1900 policy reforms but sluggish growth
  • 3) 1900-1930 ethical policy and export expansion
  • 4) 1930-1942 world depression leading to contraction of export volume
  • 5) 1942-1950 Japanese occupation and independence struggle (harming

    economic performance)

  • 6) 1950-1958 rehabilitation of the economy, output growth
  • 7) 1958-1966 declining per capita GDP, structural retrogression
  • 8) 1966-1973 economic recovery
  • 9) 1973-1981 the oil boom period
  • 10) 1981-1990 non-oil exports production leading to output growth

economic performance)

Chapter 3 is called ‘Living Standards and Distribution of Income’ and sets

out to investigate why the relative rapid growth of GDP, almost certainly

faster than population for much of the last two centuries, did not result

in broadly based improvement in living standards. Booth argues that,

in fact, we should examine the growth of the part of GDP that is devoted

to household consumption, after subtracting government expenditures

and expenditures on capital formation, of which the returns are not

shared by all classes of society. Of course, also foreign remittances

should be disregarded in this context. The chapter argues that ‘the

growing expenditure on both government consumption and capital

formation, together with the high level of remittances abroad, meant

that, for much of the colonial era, private consumption expenditures

grew less rapidly on average than GDP’. Booth continues: ‘But, in

addition, there is evidence that such growth as occurred in average

consumption expenditures did not benefit all classes of society

equally. There were gainers and losers, and the gainers were often

concentrated in particular ethnic groups and regional locations’ (p. 89).

This development is typical for both the colonial and the independent

period, and also forms an essential element of today’s problems in

Indonesia. To quote Booth again: ‘As in other colonial societies, economic

stratification along ethnic lines was pronounced in Indonesia in the early

twentieth century, and in spite of the egalitarian rhetoric of the

independence struggle, this stratification persisted in the post-1950

period. The growth which has occurred since the 1950s has in turn produced

new patterns of differentiation by ethnic group, social class and region’

(p. 89).

In Chapter 4, ‘Government and the Economy in Indonesia in the Nineteenth

and Twentieth Centuries’, the economic role of the government in Indonesia

is studied. Conforming to the central argument of the book (which can be

rephrased as: to develop a long-term view on economic development and

economic policy in Indonesia), it is argued that for a deeper understanding

of Indonesian economic performance, we must also develop a better

understanding of the domestic factors which promoted or inhibited economic

growth. The actions of the successive governments, in both the colonial

and the post-colonial periods, are crucial in such an understanding (p. 135).

Strangely, a different set of phases is applied in this chapter (p. 137),

distinguishing six phases in the role of government which almost, but not

completely, cover (combinations of) the ten phases of growth distinguished

in Chapter 2 (p. 85-87). Although the six phases make sense and clearly

order the main policy tendencies, some more explicit comment could have

been made on their coinciding or not coinciding with phases of economic

growth (linking the effects of government intervention to the world

economic situation). I must add that in the further elaboration on the

individual phases, the context of economic performance is of course

often included, since government policy is usually designed in reaction to

economic conditions.

It is emphasized that ‘colonial Indonesia, at least in the twentieth

century, was far more than just a nightwatchman state, concerned purely

with law and order and the collection of taxes’ (p. 155). There was a

lot of reform and general enthusiasm for modernization, as

characterized by the Ethical Policy but also by the large number of

projects that were constructed in the physical infrastructure. This is

reflected in the large share of government in GDP. It is remarkable that

in the early independent period, from 1950 to 1965, real growth in public

expenditure was much lower than in the first three decades of the twentieth

century. Increase of the share of public expenditure relative to GDP

occurred not earlier than the latter part of the 1970s (p. 201).

Chapter 5 is entitled ‘The Impact of International Trade’, and deals with

the (important) role of trade in the Indonesian economy, the terms of

trade, the changes in the trade regime (“Rise and decline of free trade

liberalism in the colonial era”), the regulated trade regime since 1950,

and the post-colonial experience in trade. On the whole, Booth’s view

on the “colonial drain” seems to be pessimistic. This is obvious from

her evaluation of the oil boom period (1973-1981), where Booth writes:

‘Certainly, there is plenty of evidence that government investment over the

oil boom years was far from optimal. But at least the rents were retained

in the domestic economy. Had budgetary policy been used for investment

in human and physical capital at earlier periods in Indonesia’s economic

history, per capita output and living standards could have gr

own faster than in fact was the case’ (p. 243).

Further elaborating on the record of investment in the colonial economy,

Chapter 6 treats ‘Investment and Technological Change’, while Chapter 7

focuses on ‘Markets and Entrepreneurs’. The latter chapter

deals with the indigenous sector of the colonial economy, the development of

the labor

market, and the economic role of the Chinese, but also evaluates the role

of socialism and government planning in the period 1950-1965, and the

role of the state and the market during the New Order. This chapter

particularly should attract the attention of economists who will plan the

economic course of Indonesia after 2000. These themes clearly connect with

the problems of present-day Indonesia, concerning the powerful

conglomerates and the ethnic division of affluence. Booth explicitly states

that the rise of powerful conglomerates who were able to exploit political

connections preceded the deregulation and liberalization if the economy

over the 1980s. The rise of these conglomerates was a symptom of the

limitations of the deregulation process and not, as is sometimes argued,

a consequence of this process (p. 322).

A text book for advanced learners and a challenging monograph

As a textbook, this study has an interpretative character. In each chapter,

individual data and events are treated in the context of the theme of the

chapter. For example, if I want to know something about the Sugar Law of

1870, the index refers to pages 30 and 253. On page 30, the S

ugar Law is mentioned in the context of structural change in the economy.

Together with

the so-called Agrarian Law, the Sugar Law signaled the demise of the

Cultivation System in Java, but some scholars have argued that this

legislation did not produce a dramatic change in Java’s economy (it did

not form a watershed), even though it had an impact on export growth over

the longer term. On page 253 the Sugar Law is mentioned in the context of

investment and technological change, since it allowed for private

investment in the sugar sector, permitting free contracts between sugar

refineries and peasant cultivators, which allowed the government to

withdraw from the sugar cultivation (because the high failure rate of sugar

companies had caused the government substantial losses). The Agrarian

Law, closely connected with the Sugar Law, is also mentioned on page

298 in the context of land shortage in Java. There is no introductory

explanation in a chronological context of what the Sugar Law and the

Agrarian Law actually stated or implied.

This example shows that the book is not so much a beginners’ textbook, but

rather an interpretative study based on an exhaustive survey of the recent

literature and extensive analysis of quantitative data. In an elegant andc

ompact style, Booth manages to inform the reader continuously of the

debates on issues mentioned, on the various views held in the

historiography, or the need for further exploration on some themes. Of

course, as a macro-economist, she relies heavily on the (rich) Dutch

colonial source data for the colonial period (since there are no other

quantitative data for the colonial period). But by studying the long-term

development of a first colonized, then independent country, she avoids

placing too much emphasis on the colonizer’s presence and manages to

analyze the economy as such, integrating the domestic or indigenous

economy and the internationally oriented ‘predatory’ economy, and

developing a fairly ‘autonomous’ (non-eurocentric) view.

One criticism that could be made is that the thematic, non-chronological

structure of the contents of this book may not be very helpful in a survey

that covers two centuries. The various chapters, in their dealing with

structural change, distribution of income, government policy, the role of

international trade, investment, and entrepreneurship, each attempt to

cover the entire period 1800-1990. An introductory scholar will

continuously feel the need to browse back and forth, in order to piece

together a complete picture of each historical sub-period. On the other

hand, one may argue, this organisational structure allows for reading

one chapter at a time and puts an explicit emphasis on the long-term

continuity within each aspect of Indonesian history. This is indeed one of the

aims of the book. For example, Booth states that she wants to

‘highlight the underlying continuities in policy-making and the

implications of these continuities for Indonesian economic

development in the longer term’ (p. 12). She also argues that ‘

there were, and continue to be, more similarities in the economic goals of the

Dutch colonialists and the Indonesian nationalists than has yet been

acknowledged. These similarities are due to the persistence of many

underlying problems’ (p. 12). Thus, a thematic organization of the

contents of the book forces the reader to observe chronological

continuities within each theme. This is indeed one of the strong

arguments of the book.

Applying a long-term perspective, Booth distinguishes clearly between thep

eriods of expansion and stagnation. It is very instructive that these are

placed in the context of government economic policy and the world economic

situation. In an accessible style, she provides a balanced picture of

growth and decline, giving thoughtfully phrased judgements in matters

which have raised a lot of discussion. On the whole she meticulously

reviews and quotes the recent historiography, including many Indonesian

scholars.

Missed chances?

Now, which are the missed opportunities referred to in the title? Such

counterfactual meditation is, of course, a hazardous exercise, but it may

be able to throw light on the long-term lessons that can be drawn from

the past two centuries. As Booth says, it is ‘useful to ask if a different

type of colonialism could have produced better economic results’

(p. 329-330).

First, one can think of the effects of the Cultivation System, which

thwarted the development of market institutions in rural Java (p. 334), and

on the whole was merely oriented towards remitting a large annual sum to

the Dutch budget (p. 327).

Secondly, the late colonial Dutch regime was busy ‘developing’ the colony

in the material sense, but it largely ignored the need for higher education

or developing a skilled Indonesian work force. The colonizers constructed

a lot of infrastructure and social overhead capital. But the economic gains

from these efforts were largely lost after independence, mainly because

the educational system had failed to train a higher or middle class of

officials who could take over the economy after independence. Booth even

states that the ‘failure to accelerate access to education was probably the

greatest of sins of omission of Dutch colonialism’ (p. 328).

To perceive this as a missed chance for the Indonesian economy is feasible

from the point of view of the Indonesian society itself, which was hindered

by this imbalance. But it makes little sense when analyzing colonial

policy: the Dutch simply did not plan to leave very soon, and therefore did not

integrate the formation of an indigenous elite into their official

policies. Of course, the colonizer can always be blamed for colonizing

the country, but should it also be blamed for consistency within its own

system? I think it is more important that there was a system of ethnic

inequality or racial prejudice at the core of this Dutch colonial

consistency. It is this legacy of colonial rule which certainly can be

viewed as a “missed chance,” because it shows us, amongst others,

the roots of the strong economic position of Chinese entrepreneurs,

and the relatively weak indigenous entrepreneurial class. It also, in

part, explains the discontinuity in economic development after

independence. Booth draws attention to these matters and points at

the crucial fact that the Indonesian nationalist leaders were essentially

isolated from the economy or from specific economic ideas of how

to rule the country: ‘the weakness of the indigenous business

class in the late colonial era, together with the very small numbers of

indigenous Indonesians in the upper echelons of the administrative

service, or in the professions, meant that these groups had far less

influence on the leaders of the independence struggle than in, for

example, British India.’ (p. 330).

These reflections show that the historiography has progressed from making

simple-minded or emotional accusations to the colonial regime, and now

attempts to adopt a more objective perspective which allows for lessons to

be drawn. There have been many crossroads at which another direction could

have been taken, leading to different outcomes of economic development.

Needless to say that there were also favourable effects of certain

important events of Indonesia’s past.

Do the parallels drawn between Suharto’s new order and the late colonial

government policies also imply the suggestion that other roads could and

should have been taken by post-independence governments, or in other words

opportunities were missed? In Chapter 4, we find a positive evaluation oft

he progress made by the Suharto government during 1983-1990, making the

non-oil sectors (agriculture, manufacturing, tourism) more internationally

competitive and the economy less reliant on the exports of oil and gas

(p. 199). At the same time, it is stressed that the role of the government

in the economy was not in any way significantly reduced in the 1980s,

and that very little attempt was made to privatise the state-owned

enterprises, which had a very low rate of return. ‘Regulatory control over

parts of the state-owned enterprise sector remains weak: the so-called

“strategic enterprises,” controlled by the influential Minister of

Research, Dr. Habibie, enjoy access to extra-budgetory sources of

finance which are outside the control of the Ministry of

Finance, or any other government regulatory agency …. This recurrence of the

“Pertamina syndrome” indicates that the problem of controlling the state

enterprise sector is far from resolved in New Order Indonesia’

(pp. 200-201). Recalling the airplane factory on the cover, probably

Booth does view the Suharto/Habibie emphasis on prestigious,

high-tech state enterprises such as an airplane industry as a missed

chance. . .

As already mentioned, Booth is fairly positive about the investments of the

government using the oil boom rents, at the same time warning that the

economic reforms of the 1980s did not recreate the type of open trading

regime that prevailed in the colonial economy from the 1870s to the early

1930s (p. 242). She also states that investment in education and human

capital has, as it was in colonial times, in fact been neglected by the

Indonesian government since 1950.

In the last pages of Chapter 8, ‘Conclusions’, Booth describes the role and

the shape of the type of “market capitalism” that is encountered in

Indonesia (p. 334-336). Without referring to slogan type phrases such as

‘Asian values,’ she explains why free market capitalism is looked at with

ambivalence in Indonesia. This deep ambivalence about liberal market

capitalism persists in contemporary Indonesia at many different levels of

society and this ambivalence has not exactly strengthened Indonesia’s

economic performance. In part, the hesitation to accept free market

capitalism is rooted in nationalist, anti-imperialist views of the

pernicious colonial past. (This might have been different had the Dutch not

been in Indonesia, but without the colonial state formation process there

probably would not have been an Indonesian state as we know it today at

all.) Senior policy-makers, including Suharto himself, saw free market

capitalism as a good opportunity to favor their immediate families and

close business associates. But more broadly, economic growth was viewed as

necessary because the neighbouring countries around Indones

ia realized rapid economic growth. Should Indonesia fall behind, then this

would

make it vulnerable to external threats and internal insurrections.

Recent events in the spring and summer of 1998, after this book had been

published, confirm these suspicions. But Anne Booth goes one step further

and compares the authoritarian growth-oriented state with other

autoritarian developmental states such as Meiji Japan, Franco’s Spain,

and South Korea under Park Chung Hee. The history of these three

countries ‘would suggest that the forces of economic growth, once

unleashed, will inevitably lead to demands for a stronger legal and

constitutional framework which guarantees a broad range of civil liberties,

including a stronger regime of property rights. In Indonesia, too, it is

inevitable that economic growth will create such demands, which the

political system will then have to accomodate.’ … How the government

responds to these challenges will determine not just Indonesia’s

economic future in the new millenium, but its very survival as a

nation’ (p. 336).

These ominous words aptly describe a process that has been underway,

gaining speed after the KRISMON (monetary crisis in its Indonesian

acronym) and Suharto’s stepping down, and which will draw the world’s

attention to Indonesia for the next few years. It seems that a new

‘decolonization’ has just begun, and anyone who wants to put it in

perspective is recommended to read this book.

Jeroen Touwen

L. Jeroen Touwen is post-doc research fellow at the Historical Institute of

Leiden University. He is the author of Extremes in the Archipelago. Trade

and Economic Development in the Outer Islands of Indonesia, 1900-1942

(Leiden: KITLV Press, forthcoming in 1999).

Subject(s):Economic Development, Growth, and Aggregate Productivity
Geographic Area(s):Asia
Time Period(s):General or Comparative

The Defining Moment: The Great Depression and the American Economy in the Twentieth Century

Author(s):Bordo, Michael D.
Goldin, Claudia
White, Eugene N.
Reviewer(s):Cain, Louis P.

Published by EH.NET (September 1998)

Michael D. Bordo, Claudia Goldin, and Eugene N. White, editors, The Defining

Moment: The Great Depression and the American Economy in the Twentieth

Century. An NBER Project Report. Chicago: The University of Chicago

Press, 1998. xvi + 474 pp. $60.00 (cloth). ISBN: 0-226-06589-8

(cloth), 0-226-06589-8 (paper).

Reviewed

for EH.NET by Louis P. Cain, Departments of Economics, Loyola University of

Chicago and Northwestern University.

The “moment” is the Great Depression; what is being “defined” is public policy.

The editors have assembled twelve papers from a distinguished cast of authors

who are closely associated with their subject. The papers discuss almost all

of the programs that persisted from the First and,

particularly, the Second New Deals, but few of those that did not. In their

introduction,

the editors discuss that this is potentially a controversial hypothesis, but

most of the papers simply explain why they agree or disagree with the

proposition, and some do find this was NOT a

“defining moment.” Whether each reader ultimately accepts or

rejects the hypothesis may be little more than a matter of definition.

In any event, each of the papers makes a substantial contribution to our

understanding of the depression. Most will be widely cited. Many readers,

including undergraduates, will want to consult the volume for more than one

paper. Thus, in the interest of disclosure, a thumbnail sketch of each of the

papers is appropriate. These brief synopses emphasize the relation of each

paper to the volume’s general theme. Each contains much more.

The

collection is divided into four sections of three papers each. The first is

entitled “The Birth of Activist Macroeconomic Policy.” Charles Calomiris

and David Wheelock ask whether the substantial changes in the monetary

environment of the 1930s had lasting effects? Those familiar with Wheelock’s

work will not be surprised to note they find little change in the thinking of

the Federal Reserve System. One effect of the New Deal banking laws was to

shift power from the Fed toward the Treasury,

a shift they feel imparted an inflationary bias, especially when conjoined with

the more activist approach to policy that was undertaken concurrently. The

most important legacy of the depression was the departure from gold creating

“the permanent absence

of a ‘nominal anchor’ for the dollar” (63).

The Bretton Woods dollar system allowed the Fed to “stumble” into the inflation

of the 1960s, and the continued absence of something like the gold standard

“provides an enduring legacy of uncertainty” (63) as to monetary policy in the

long run.

Brad De Long notes that the U.S. did not have a fiscal policy

in the

contemporary sense of the term before the Great Depression. It borrowed

heavily during periods of war and tried to redeem the debt as quickly as

possible during periods of peace. Government deficits in peacetime were rare

until

the 1930s, when they proved unavoidable despite the fiscal conservatism of both

Hoover and FDR. Yet, even before Keynes, there was an understanding that

“deficits in time of

recession helped alleviate the downturn” (83). After the second World War, a

fiscal policy consensus emerged that De Long characterizes as: “set tax rates

and expenditure plans so that the high-employment budget would be in surplus,

but do not take any steps to neutralize automatic stabilizers set in motion by

recession” (84).

That consensus proved hard to maintain: “The U.S. government simply lacks the

knowledge to design and the institutional capacity to exercise discretionary

fiscal policy in response

to any macroeconomic cycle of shorter duration that the Great Depression

itself” (82). What has persisted is the willingness to adopt a fiscal policy

stance that imposes a cost — perhaps higher than necessary (higher inflation,

lower saving and productivity) — to insure that there is no return to

Depression-era conditions.

Deposit insurance, the topic of Eugene White’s essay, was a result of the

Depression and is generally considered to be one of its great successes.

Banks became a scapegoat, and the

restrictions placed on the banking business diverted part of what they once

did to other parts of the financial sector. Banking became smaller than it

might have been. Deposit insurance was an attempt to insure the banking system

did not fail again.

White attempts to estimate bank failures under the assumption that deposit

insurance was not adopted. He finds that a stronger, larger banking system

would have resulted in lower failure rates and higher recovery rates.

Thus, it is possible the FDIC increased bank losses. A more important outcome

is that the FDIC changed the distribution of losses. The cost of those losses

is now “distributed to all depositors and hidden in the premialevied on banks”

(119). Thus, even if losses increased, they were unseen by individual

depositors, with the result that a marginal institution remains extremely

popular.

The second part, “Expanding Government,” begins with a paper by Hugh Rockoff on

the expansion of the government sector, largely as a result of a large number

of new federal programs. As Rockoff notes,

“it is easy to see that there was an ideological shift … it is harder to see

what produced it” (125). This ingenious article looks back at the publications

of economists in the 1920s and earlier and finds there were champions for

almost all of the New Deal programs. Curiously, one of the programs economists

did not endorse, one measure that FDR did not champion, was deposit insurance.

When the Depression came and the economic doctors were called, microeconomists

had what they considered successful prescriptions. Some part of that must have

been conditioned by the role of the government in World War I. But another

part is something that Rockoff does not discuss, and it surely is one of the

factors producing an ideological change within the profession.

Even before the Great Depression, the competitive paradigm was under attack.

The merger movement at the turn of the century called into question the

assumptions of constant returns to scale and easy entry and exit. The

emergence of a consumer society called into question the assumption of

homogeneous products. Robinson and Chamberlin’s models are independent of the

Depression, and what impact they would have had in the absence of the

Depression is unclear. It is clear that FDR came into the White House with a

mandate to do something, and the economic doctors had a long list of things to

try, things that had been used successfully elsewhere.

John Wallis and Wallace Oates argue persuasively that the New Deal had a

profound effect on the nature of American federalism through its use of a

little used fiscal instrument — intergovernmental grants. Before the

Depression, different levels of government operated with a much greater degree

of independence than they would thereafter. Intergovernmental grants created

the necessity for cooperation that has characterized the fiscal federalism ever

since; “fiscal centralization and administrative decentralization” (170). They

argue that the new structure was conducive to the growth of government. Like

Rockoff, they note the growth of the federal government did not come at the

expense of state and local governments; both grew. They show how this new

pattern was “the result of the struggle between state and national

governments, and also between the president and Congress, for control over

these programs” (178). How much of this has to do with a states rights’ bias

in the legislative and judicial branches, and how much with the depression

itself, is uncertain.

Gary Libecap examines the regulatory laws effecting agriculture between 1884

and 1970 and the budgetary expenditures that were derived from those laws

between 1905 and 1970. His contention is that “the New Deal increased the

amount and breadth of agricultural regulation in the economy and …

shifted it from providing public goods and transfers to controlling supplies

and directing government purchases to raise prices” (182).

Acreage restrictions and government purchases were the most apparent of what

he terms, “unprecedented, peacetime government intervention into agricultural

markets” (216). Abstracting from those policies, Libecap asks what

agricultural policy might have been in the absence of the Depression.

He believes it would have been more like it had been, but that is the result

of an exercise in which he subtracts laws passed after 1939 with a direct link

to “key New Deal statutes.” One wonders how many any of those statutes would

have been passed in any event; some represent ideas that pre date the

depression.

In the first paper of Section III, “Insuring Households and Workers,”

Katherine Baicker, Claudia Goldin, and Lawrence Katz note that there are three

differences between the system of unemployment compensation in the U.S. and

elsewhere: experience rating, a federal-state structure, and limitations on

benefit duration. The question they address is how that system would have been

different had it not been created during the New Deal. There is an implicit

assumption the U.S. ultimately would have adopted some form of unemployment

compensation in the absence of the Depression. To how many other New Deal

programs is this assumption relevant? The authors point to the federal-state

structure as the key difference. Their counterfactual

system is strictly a federal system with no experience rating, a system

consistent with the administration’s recommendation. We got the system we did

because, “The federal-state structure and the manner in which the states were

induced to adopt their own

UI legislation assured passage of the act and guaranteed its

constitutionality” (261). They criticize the system for not having

“changed with the times,” but that is no surprise after reading Wallis and

Oates.

While most people look to the labor legislation of the 1930s as “a defining

moment,” Richard Freeman argues that to be defining an event must “lock in

certain outcomes that persist … when, given a blank slate, society could have

developed something very different” (287). This test creates two interesting

dichotomies in Freeman’s story. The first concerns the framework versus the

results. The legal framework for private sector labor relations has persisted,

and Freeman considers that framework to be

“outmoded.” On the other hand, the unionization attendant to the adoption of

that framework “looks more like a diversion from American

‘exceptionalism’ … than a critical turning point in labor relations”

(287). The density of private sector unions today is similar to what it was

just after the

turn of this century; the voice of those unions in national political discourse

is barely audible. The second dichotomy concerns private versus public unions.

State regulation of the latter has resulted in a relatively stable environment

in which collective bargaining proceeds with less confrontation, but that may

be because public sector managers are not as accountable to the taxpayers as

private sector managers are to the company’s profits. In sum, Freeman

acknowledges that the framework in which lab or relations takes places was

defined during the Depression, but that was not a “defining moment” for labor

relations.

In their study of the creation and evolution of social security, Jeffrey Miron

and David Weil do not examine the role the Great Depress ion might have played

in the program’s adoption. Their emphasis is on the evolution of the program

since its inception. They find that “in a mechanical sense,

there has been a surprising degree of continuity in social security since the

end of the Great

Depression” (320). That is, there has been little change in what each of the

parts does; it is clear the balance between them has changed and that change

has had an impact on the economy. As the population has aged, the balance

between the old-age assistance component,

the basic response to the depression, and the old-age and survivors insurance

component has transformed what was an insurance program benefiting few to a

transfer program benefiting many.

Doug Irwin’s paper on trade policy begins the final section, “International

Perspectives.” Irwin shows that, during the 1930s, the locus of control of

trade policy passed from the legislative to the executive branch of government

largely as a result of “the depression as an

international phenomenon”

(326). Smoot-Hawley marked the end of the old approach. By the end of the

1930s, the average tariff rate had decreased from over 50% to less than 40%.

In another ten years it would be below 15%. While part of this change is

attributable to trade policy,

part should be attributable to fiscal policy (a return to the days of the

Underwood tariff) as the federal income tax came to play a much larger role,

especially in the 1940s. Similarly, the Reciprocal Trade Agreements Act was

passed during the depression, but it was not “institutionalized”

until after World War II. When, during the war, Republicans moved to seek

congressional approval and to protect domestic firms competing with imports, it

was clear that the policy changes of the 1930s would persist. Then, after the

war, “the new economic and political position of the United States in the world

… made a return to Smoot-Hawley virtually unthinkable” (350).

The paper by Maurice Obstfeld and Alan Taylor is in many ways the most

expansive in the volume. They begin by investigating more than a century of

data on capital mobility, then propose a framework in which both the downtrend

initiated by the Great Depression and the uptrend of recent years can be

understood. The framework is a policy “trilemma” faced by all national

policymakers: “the chosen macroeconomic policy regime can include at most two

elements of the ‘inconsistent trinity’ of (i) full freedom of cross-border

capital movements, (ii) a fixed exchange rate, and (iii) an independent

monetary policy oriented toward domestic objectives” (354). To the authors,

the

Great Depression was caused by subordinating the third element to the second.

Under the classic gold standard, monetary policy was concerned with exchange

rate stability, not

domestic employment, and capital mobility was facilitated. The abandonment of

gold led to a system

“based on capital account restrictions and pegged but adjustable exchange

rates, one whose very success ultimately led to increasingly unmanageable

speculative flows and floating dollar exchange rates….” (397).

The gold standard plays an equally prominent role in the paper by Michael Bordo

and Barry Eichengreen. To address the question of what the Great Depression

meant for the international monetary sy stem, they examine a counterfactual

world without the Great Depression — but with World War II and the Cold War.

They assume the gold standard would have persisted through the 1930s, been

suspended during the war, and resumed in the early 1950s. Under

these assumptions, “the depression interrupted but did not permanently alter

the development of international monetary arrangements”

(446). The system that did develop in the U.S. was very different than the

hypothesized one, but the factors that ultimately led to the collapse of the

Bretton Woods arrangements would have caused the collapse of the gold standard

– and possibly at an earlier date. Those factors include “the failure of the

flow supply of gold to match the buoyant growth of the world economy and hence

of government’s demand for international reserves” (447).

This, in turn, led to questions about U.S. official foreign liabilities and the

gold convertibility of the dollar. Bordo and Eichengreen believe that,

in these circumstances, a floating system would have resulted leaving us with

more or less what we have today. If one accepts the “ifs” in their argument,

the institutional structure that emerged in the wake of the Great Depression

postponed the transition.

This is a remarkable thought on which to end this volume. Calomiris and

Wheelock discuss the Fed’s recent emphasis on price stability as a short-run

policy concern as a “throwback.” Obstfeld and Taylor discuss the deregulation

and recent growth of the financial sector as creating

a barrier to the reimposition of capital controls. Both discussions concern

long-run adjustments the economy has made as a result of the abandonment of

gold, but both would have taken place had there been no Great Depression if

Bordo and Eichengreen are

correct.

The editors point to four common themes supporting the “defining moment”

hypothesis (6). “First, skepticism about the efficacy of government

intervention withered as the public adopted the attitude that the government

could ‘get the job done’

if the free market did not.” It is unquestionably the case that there was a

loss of faith in the tenets of the competitive model. While this faith was

wavering among social scientists well before the depression, the general

bewilderment of the 1930s created a search for someone who was willing to try

anything. To paraphrase the late John Hughes, before the Great Depression the

federal government only knew how to spend money on rivers, harbors, and post

offices. As Rockoff documents, there were a number of other projects waiting

in the wings.

“Second, many innovations introduced by the New Deal were forms of social

insurance.” While much of the First New Deal took the form of World War I

programs modified for peacetime use, many of the Second New Deal programs were

aimed at ameliorating specific types of suffering, particularly those where

successful experiments had been tried elsewhere. Some undoubtedly would have

been adopted eventually; the depression meant they started earlier than

otherwise would have been the case.

“Third, the character of federalism moved from ‘coordinate’ to

‘cooperative’ with extensive intergovernmental grants, giving greater influence

to centralized government.” This change in form, it is argued,

was necessary to get them through Congress and the Supreme Court, but that is

not necessarily a result of the Great Depression; the states rights’ bias was

present much earlier.

“Last, the conduct of economic policy … changed to give more weight to

employment targets and less

to a stable price level and exchange rate.”

These changes in turn imparted what several authors refer to as a bias in favor

of inflation, but, in a simple Phillips curve world, what developed was a bias

against a return to the conditions of the 1930s. To put it as simply as

possible, those who lived through the Great Depression defined for

policy-makers then and for their grandchildren today that all possible steps

should be taken to avoid repeating the trauma.

Louis P. Cain Departments of Economics Loyola University of Chicago and

Northwestern University

Louis Cain and the late Jonathan Hughes are the authors of American Economic

History published by Addison Wesley. Cain’s article with Dennis Meritt,

Jr., “The Growing Commercialization of Zoos and

Aquariums,”

appeared in the Journal of Policy Analysis and Management, Spring 1998.

His article with Elyce Rotella, “Urbanization, Sanitation, and Mortality in the

Progressive Era, 1899-1929,” will appear in Gerard Kearns, W.

Robert Lee, Marie C. Nels on, and John Rogers, editors, Improving the

Public Health: Essays in Medical History.

Subject(s):Economic Planning and Policy
Geographic Area(s):North America
Time Period(s):20th Century: Pre WWII

The Vanishing Irish: Households, Migration, and the Rural Economy in Ireland, 1850-1914

Author(s):Guinnane, Timothy W.
Reviewer(s):Gemery, Henry A.

Published by EH.NET (August 1998)

Timothy W. Guinnane, The Vanishing Irish: Households, Migration, and the Rural Economy in Ireland, 1850-1914. Princeton, NJ: Princeton University Press, 1997. ix + 335 pp. $39.95 (cloth), ISBN: 0-691-04307-8.

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

Over the post-Famine years from 1841 to the eve of World War I, the Irish population fell from 8.2 million to 4.1 million–a complete reversal of the rapid population growth of the pre-Famine era. By 1881 nearly 40% of the Irish-born were living elsewhere. As late as 1911, with slowing emigration, 33% resided elsewhere (p. 104). In studying the why and how of this de-population, Timothy Guinnane (Yale University) examines, at the rural, household level, the decision-making giving rise to major features of that demographic experience: “the rarity of marriage, large families, …. extensive emigration” (p. 7). None of these features alone, Guinnane argues, were unique to Ireland, but the three in combination were.

Before examining why young Irish people made the decisions about marriage, childbearing, and emigration they did, Guinnane undertakes a survey of the Irish rural economy, the role of the state as well as the “several church,” and the demographic patterns of the post-Famine era. After that survey, there follows a detailed examination of household decision-making and it is here that the full range, subtlety, and depth of analysis come into play. The empirical data available are limited and imperfect. As Guinnane ruefully admits, the empirical circumstance is somewhat similar to the drunk-under-the-lamppost anecdote–searching where the light is best. The specific example of this is the “somewhat unusual procedure of going backward in historical time,” i.e. using manuscript census samples from 1901 and 1911 together with tax valuation data to infer individual behavior and decision-making for much earlier, empirically darker, decades (p. 133). However, such data in combination with less detailed, published census material and demographic work done by O Grada, Connell, and others, provide the basis for Guinnane’s attempt to “visualize the [economic and demographic] decisions as people of the day saw them” (p. 17). Thus, Guinnane aims for what he notes (quoting Hammel) as “culturally smart microeconomics” (ibid).

The first step in analysis is with “Households and the Generations,” an examination of the household structures characterizing rural Ireland, the patterns of impartible and partible inheritance, farm size, and the evidence against primogeniture. Guinnane finds a large number of extended family households (“the real Irish departure from the nuclear-family model” p. 142) where an efficiency logic militated against primogeniture, and where increasing emigrant opportunities changed notions of intra-family equality to one of “giving one son a solid farm and the others a chance at good life elsewhere” (p.164). In support of that logic, Guinnane finds that few farms were subdivided in the post-Famine period and the average holding increased, suggesting that amalgamation of holdings became more common.

The analysis then turns to “Coming of Age” and “The Decline of Marriage” where Guinnane finds a Malthusian model of nuptiality (a trade-off between personal consumption and marriage/family) largely a failure. Three grounds are cited: many of the never-married were heads of prosperous households, many remaining in Ireland and remaining unmarried could have emigrated to “a decent life overseas,” and rising rural incomes in the 1851-1911 period were directly at odds with the Malthusian preventative check of increasing poverty (p. 227). Other causal hypotheses, demographic, cultural, and religious are also rejected. Neither a sex imbalance argument nor the role of Catholicism in serving as a brake on marriage are perceived as plausible. Post-Famine emigrant flows were surprisingly evenly balanced across the sexes; thus leaving the remaining home population with a balanced sex ratio as well. A “marriage squeeze” was then, in Guinnane’s judgement, an unlikely occurrence. The Catholicism argument encounters “a simple empirical weakness,” i.e. marital status differences between Catholics and Protestants in Ireland were minor, and overwhelmingly Catholic areas abroad, like the Quebec Province of Canada, did not exhibit high celibacy. Rather, the causes of the rise in permanent celibacy in Ireland are found in economic circumstance: land tenancies made more secure and valuable by the Land Acts, and in the development of a poor relief system with, late in the period, an old age pension system as well. The former meant a rise in the value of an eventual succession to an Irish tenancy relative to the value of emigration. The latter provided a security that substituted, to a degree, for the necessity of family and children. Thus, Guinnane develops “a perspective on marriage” that is quite “Becker-like” in pointing to the altered costs and benefits of marriage and the rise of “marriage substitutes” (p. 238). The outcome, in the Irish case, was a weakened incentive to marry coupled with a rising attractiveness of emigration. By 1911 then, cohort celibacy rates (for ages 45-54) of 25% appeared (Table 4.1).

While celibacy rose, marital fertility remained comparatively high, though Guinnane notes that “recent studies … produce stronger evidence for the beginnings of a fertility transition in Ireland by 1911″ (p. 255). An index of marital fertility (referenced to 1000 for a population with uncontrolled fertility) falls from 868 in 1840 to 769 in 1911 (p. 249). More refined measures of fertility such as cohort parity analysis indicate a beginning adoption of fertility control measures, though fertility remained high by European standards of a fertility transition. Guinnane observes: “The Irish fertility transition consisted, it seems, of couples reducing their families from seven to nine children down to four to six, a number very high by contemporary European standards but demonstrating fertility control nonetheless” (p. 259).

If there is an understated dimension to this nicely-detailed demographic history, it lies with the primacy of emigration in determining the magnitude of the Irish population decline. That point is more evident in Cormac O Grada’s chapter on the same period, “Population and Emigration, 1850-1939″ in his Ireland: A New Economic History, 1780-1939 (1994). In all decades from 1861 to 1926, the net external migration rate dominates the population change rate with its negative impact being nearly double the positive contribution of natural increase (O Grada, Table 9.6). In Guinnane’s analysis, emigration and the emigration decision are never absent–its empirical dimensions (though aggregate population ion change is never decomposed into its components), the coming of age and leaving home, the impact of emigration decisions on nuptiality and fertility. Indeed, a fair portion of the chapter defining the demographic setting is given over to emigration with discussions of migrants’ characteristics and chain migration. Yet, for all that, the decision to leave seems less well defined than are others. That is, perhaps inevitably, a result of the inability to bring empirical evidence to bear directly on mig ration decisions. Unlike the case with two of the major contributions of the work–the empirical base given to discussions of nuptiality and marital fertility–the micro-evidence on migration may be beyond reach.

In this work, as in Guinnane’s earlier a articles on economic-demographic interrelations in Ireland, the case is made for “a more careful integration of microeconomic analysis and institutional detail” (p. 276). It is that sort of careful integration that makes The Vanishing Irish a major contribution to both economic and demographic history.

H.A. Gemery Department of Economics Colby College

Hank Gemery has written articles and monographs on trans-Atlantic migration in periods from the colonial era through the twentieth century.

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Subject(s):Historical Demography, including Migration
Time Period(s):16th Century