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Investing in Life: Insurance in Antebellum America

Author(s):Murphy, Sharon Ann
Reviewer(s):Hilt, Eric

Published by EH.Net (March 2012)

Sharon Ann Murphy, Investing in Life:  Insurance in Antebellum America.  Baltimore: Johns Hopkins, 2010.  xii + 395 pp. $65 (hardcover), ISBN: 978-0-8018-9624-8.

Reviewed for EH.Net by Eric Hilt, Department of Economics, Wellesley College.

The first half of the nineteenth century witnessed a transformation of the American economy that some historians have termed the “market revolution.”  Financial markets and institutions played a central role in this process, as banks proliferated and securities markets deepened.  In addition, beginning in the 1820s, insurance companies began to offer American households life insurance policies.  Over the course of the nineteenth century, the business expanded rapidly, and by 1870 more than $2 billion in life insurance was in force in the United States.  The companies that underwrote these policies became important intermediaries within the financial system.

Sharon Ann Murphy’s Investing in Life tells the story of the development of the American life insurance industry through the 1870s.  Best characterized as a business history of antebellum life insurance, Murphy utilizes a rich variety of archival records from early companies, as well as newspapers and printed sources, in presenting her narrative.  The book focuses on the strategies employed by the industry’s entrepreneurs to surmount the challenges they faced in establishing and expanding the business.

And the industry faced a great many challenges in its early history. During the first half of the nineteenth century, no tables of mortality or life expectancy existed for the American population, and the vital statistics data necessary for the computations to produce such a table were generally not collected.  Rate-setting was therefore initially based on tables utilized by the English industry, combined with a fair amount of guesswork.  Also legal issues, such as common law restrictions on the ability of married women to enter into contracts, and uncertainty over the claims of a deceased person’s creditors on the payouts of life insurance policies to their families, impeded the industry’s efforts to market their products.  In response to these challenges, prominent figures in the industry worked with both the federal government and state governments to begin collecting mortality data, and to reshape the law in ways more friendly to the industry.

Cultural barriers were important as well.  Murphy persuasively refutes the notion that Americans’ religious beliefs were somehow incompatible with purchasing life insurance, as some scholars have suggested.  Nonetheless, the European experience with using life insurance policies to gamble on the duration of other people’s lives (or worse) made the American population initially reluctant to utilize the industry’s services.  The industry therefore adhered to strict standards regarding “insurable interest” – one could only insure the life of another if a financial interest in that person’s life, such as a debt owed from that person, could be documented.  And the industry emphasized the benefits of safety and security that a life insurance policy could offer to the growing ranks of salaried, middle-class household heads in their advertising campaigns.  As the composition of the population changed, the industry began to change the products it offered as well, for example creating low-cost “industrial” policies for working-class employees in the second half of the nineteenth century.

Although the earliest life insurance corporations were organized as stock companies, starting in the mid-1830s mutuals were created, and quickly dominated the industry.  Murphy argues that the success of the mutual model was not due to the lower rates they initially charged, or to other organizational advantages, but rather to a marketing advantage: the contracts of mutuals offered the appeal of a long-term investment, since the policy holders were entitled to a share of the accumulated profits from their premium payments.  The mutuals thus advertised themselves as “savings institutions” to the middle class, offering something more than insurance to households who might have considered an account with a savings bank. The stock companies responded in the 1850s by offering policies on mutual plans, and by offering tontine or “deferred dividend” plans.

Murphy argues that the Civil War was a watershed event in the industry’s development.  It profoundly disrupted the operations of Northern companies that had underwritten policies on the lives of people residing in Southern states, including some that had insured the lives of slaves on behalf of their masters.  But more importantly, it created an opportunity for the industry to market its services to the men who served in the War, and associate itself with the Union’s cause.  In the end the extremely high rates charged for these policies made them relatively unattractive, and few were sold.  But Murphy argues the industry benefitted from the war because “it revealed to Americans the benefits of insurance” (p. 274), while raising awareness of mortality.  New civilian policies did indeed grow rapidly during the War.

The Civil War created considerable uncertainty over rate-setting, and the industry’s trade association responded by setting an industry standard for war rates.  At least since the 1850s, prominent firms in the industry had attempted to coordinate rate-setting policies in order to reduce the competition they faced from new entrants.  The American states had also established a tradition of imposing high fees on out-of-state companies, in order to protect the underwriters located within their borders.  The industry sought to replace these state regulations with a system of federal regulation, and also challenged state laws that discriminated against out-of-state companies on constitutional grounds.  But in 1869, the Supreme Court ruled in Paul v. Virginia that insurance contracts underwritten by companies across state lines were not “interstate commerce,” and therefore fell within the legitimate purview of state law.

The book’s treatment of the managerial strategies employed in the industry, such as the development of the agency system, the content of the companies’ marketing campaigns, and the details of how different insurance products worked, are particularly strong.  This book makes a fine contribution to the study of the history of the insurance business.  My only criticism of the book is that its focus on management comes at the cost of excluding other questions of potentially great interest.  For example, insurance companies became enormously important financial intermediaries over the nineteenth century, but there is very little analysis or data on the firms’ investments or their role in the financial system.  And although some detail is provided on the content of state regulations of insurance companies, the political economy of these regulations is not explored, nor is much of a comparative perspective on these regulations presented.  Finally, the book mentions that waves of failures occurred in the 1870s, but relatively little attention is given to those events or to other collapses from earlier periods in the industry’s history, which to this reader seem as important as the successes.

Eric Hilt is Associate Professor of Economics at Wellesley College.  He is the author of “Rogue Finance: The Life and Fire Insurance Company and the Panic of 1826” (Business History Review, Spring 2009). Email:  ehilt@wellesley.edu.

Copyright (c) 2012 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator (administrator@eh.net). Published by EH.Net (March 2012). All EH.Net reviews are archived at http://www.eh.net/BookReview.

Subject(s):Business History
Geographic Area(s):North America
Time Period(s):19th Century

Capitalism, Institutions, and Economic Development

Author(s):Heller, Michael G.
Reviewer(s):Dupont, Brandon

Published by EH.NET (October 2010)

Michael G. Heller, Capitalism, Institutions, and Economic Development. New York: Routledge, 2009. xx + 312 pp. $130 (hardcover), ISBN: 978-0-415-48259-2.

Reviewed for EH.NET by Brandon Dupont, Department of Economics, Western Washington University.

In Capitalism, Institutions, and Economic Development, Michael Heller draws on a variety of classic works in economics and sociology — Max Weber’s work most frequently — to explain institutional change during contemporary capitalist transitions. Heller spends much of the book outlining the theoretical aspects of capitalist transition but also focuses on the policy relevance of these ideas.

Throughout the book, Heller attempts to dispel the notion that developing countries must follow a long and tortuous path to economic and institutional maturity. He reaches this position primarily because he views capitalism as being of only a single form; as a result, there is no need for separate evolutionary paths to be followed in different countries to solve each country’s particular needs. Heller argues throughout that the prevailing incrementalist approaches to institution-building in developing economies are flawed; instead, he proposes what may be considered shortcuts to institution-building on the route to capitalism.

In the first chapter, Heller draws on Weber?s Economy and Society (1978) to discuss the foundations for a theory of “subsystem interactions” in capitalist economies. The complexity of institutional arrangements is clear in this description of the simultaneous effects that lead to institutional integration. The goal is easy enough to describe — it is to reduce uncertainty (or, achieve relative certainty) about organizational or regulatory procedures. Every subsystem has the responsibility of promoting and monitoring the procedural norms of each of the other subsystems.? When innovations occur in one area, the way in which other areas react and adapt determines the success of that innovation.

Precapitalist societies lack the impersonal regulation of the state, an important feature of capitalist economies, even though many have the facade of the impersonal state, particularly through corporate-government alliances as described in Heller’s second chapter. In precapitalist societies, actual decisions are more often made below the surface using ad hoc informal channels according to various personal loyalties which encourage rent seeking and, importantly, all this occurs in the absence of the countervailing powers of true capitalist institutions. Generalized trust is more effective than personal trust as economies mature and transition. The notion of generalized rather than personal trust is not fully incorporated into precapitalist societies and this can impede the transition to capitalism. These kinds of impersonal governing principles are critical in every society because they create a regularity of action and reduce uncertainty.

Heller draws on Max Weber’s scholarship to argue in favor of a limited (what he calls “parametric”) state that is unimpeded by direct pressure from various interest groups and is thus more responsive to citizens. This parametric state leaves “most market decisions to enterprises … resource allocation is mainly by means of the price mechanism … [and the ideal state?s function is to] design and enforce universal rules for the safe and proper structure and conduct of competitive economic action” (p. 43). While the theoretical descriptions are clear, Heller seems to fall short in his explanation of relevant policy for contemporary transitions. Which market decisions should be left to enterprise? What, if any, resource allocation should not be left to the price mechanism? Those questions are, unfortunately, left unexplored.

In the chapter on “The Modern State,” Heller provides the reader with a thorough description of Weber’s views on the legitimate functions of the state, primarily that of legal regulation. This is a nice overview of Weberian theory, including an interesting review of the implications of the theory for the capture of the policy process by “negative interests,” which is linked to the size of the state or to the number of functions it attempts to perform. Heller emphasizes the importance of sequence in the transition and explains the risks associated with democratizing before market freedom, rule of law, and impersonal public administration have fully developed.

The most interesting chapter in the book is on “Law and Economy,” in which Heller argues that since communitarian ethics are abandoned as the transition from closed to open markets occurs, a switch to the law as the ultimate source of trust is important. Weber, as Heller describes, envisioned an ethical transformation that includes both the destruction of ethics that subordinate economic exchange to social approbation by status, kinship, ritual, etc. and the ethic that legitimizes cheating in exchange with people outside the community. Heller includes a clear description of how, at least in Weber’s theory, the ethical principles of fair dealing in exchange are preserved and extended and eventually become broader general social norms of behavior.

The process Weber described, and Heller adopts, is the transition from custom to convention and finally to formal law as society moves from the interpersonal market ethics of precapitalism to formal state enforcement of impersonal rights. With respect to contemporary capitalist transitions, Heller argues that global technological, economic, or political developments may prompt the selection of capitalist norms. While this is consistent with Weber’s hypothesis that normative changes may happen by innovation, it is not clear how or why particularly useful norms of behavior would be “selected” or under what conditions innovation might reasonably be expected to do this.

Heller advocates establishing effective legal frameworks for regulating private business before (or during) market liberalization but notes that historically the reverse has often occurred. He writes that, “Like the ethical norms that precede them, legal mechanisms for the adequate regulation of economic action almost always follow from the expansion of markets” (p. 100).? In a significant departure from the approach generally taken by the World Bank and other international agencies, Heller argues that modern policymakers have erred in attempting to create regulatory order prior to sufficient market liberalization. This contrast is clear when one considers Joseph Stiglitz’s (2000) argument that, It has become increasingly clear that financial and capital market liberalization — done hurriedly, without first putting into place an effect regulatory framework — was at the core of the problem.

In the fourth chapter, Heller describes his framework, which is based more on Schumpeter than Weber, for understanding the often discontinuous process of institutional change during the transition to capitalism. While Schumpeter’s work dealt with entrepreneurial innovation, Heller applies his framework to institutional change during transition as an alternative to incrementalism. In this chapter, Heller provides a typology of four forces of institutional change which he hopes might be harnessed for better economic development strategies. The four forces are: (1) routine equilibrium change, which is the very gradual aggregation of many smaller unorganized changes that slowly and incrementally modify the institutional system; (2) external disequilibrium change, which is the result of discontinuous pressures that originate outside the economy but that reshape the environment in which transition occurs; (3) internal disequilibrium change, which is due to policy innovations in the domestic economy and is the main mechanism for transition; and (4) routine disequilibrium change, which refers to the “continual discontinuity” of institutional change in most capitalist societies. Heller argues in favor of bringing Schumpeterian ideas about disequilibrium endogenous and exogenous institutional changes into the discussion rather than focusing on the “do institutions grow or are they made” question that dominates that discussion. While Heller agrees with Hayek that market order is spontaneous, he tempers this view by drawing on Buchanan?’ (2001) argument that “deliberate design or reform of a legal or constitutional framework is required.” Spontaneous evolution of institutions is not necessarily efficient in the same way that unimpeded markets are in Heller’s view. The rest of this chapter applies the Schumpeterian “institutional progress by entrepreneurial leadership” model to policy in transition. The motives for institutional policy innovations are more complex than the economic motive of profit but are fundamentally still driven by self-interest; specifically, the pursuit of power, status, prestige and public approval.

In the fifth chapter, “Carriers of Change,” Heller asks how knowledge and sequences of institutional change are created and how citizens and leaders can be persuaded to take the capitalist path. As Heller aptly notes, “Capitalism produces almost everything, but not the human feeling that could guarantee its survival” (p. 170). Democracy and free markets are more likely to succeed in contemporary transition when the goal is to change institutional procedural norms, which might be viewed as universally legitimate. Heller argues that capitalist ideology should “keep silent about self-interested economic ends and means and the virtues of Anglo-American society” or run the risk of culture acting as an impediment to transition. In this, Heller draws on both Hayek and Parsons, who believed that to take root, capitalist ideology must appeal to neutral procedural concepts (impersonal norms, pluralism, equality of opportunity, for example) rather than an ideological focus on profit-making or democracy. Heller ends this chapter by presenting a somewhat confusing notion of speeding up the spontaneous order described by Hayek: “In order to obtain spontaneous orders more rapidly … developing societies first need the formal institutions which alone can guarantee the regulated freedom and procedural impersonality that a spontaneous order requires to work its magic” (p. 198). Heller is attempting to add a bit of constructivism to Hayekian spontaneous order — arguing for building institutions that will speed up the processes of spontaneous evolution — with the objective of creating a compromise between the incrementalist and constructivist views of institutional change. Ultimately, Heller sides more with Karl Popper than with Friedrich Hayek, concluding that “Knowledge of capitalism and of its institutions does increase through time, and it could now be time for social scientists to have more confidence in the knowledge that exists” (p. 276).

The sixth chapter discusses the role that crises in developing economies (mostly in Latin America) play in building the institutions of capitalism. While crises are not the best methods for transition, he admits that they do sometimes generate changes that bring a society closer to capitalism. Underlying the discussion in this chapter is Heller?s impatience with incremental institutional reform. He cites work by Grindle and Thomas (1991), who argued that without a crisis, the stakes are too low to generate the desired rapid reform: “the consequences of failing to implement reforms will not be severe, and policymakers lean towards incremental or marginal change” in a non-crisis environment (p. 200). While crisis can motivate change, the ideal path to capitalism for emerging market economies is Weberian in nature with a systematic order of: markets to law, law to bureaucracy and bureaucracy to democracy. Neoliberalism, which Heller defines as proto-capitalist policies that cope with failed state activism by restructuring economies along market lines but without corresponding reforms to the institutional framework of economic regulation, lost the opportunity to build this path.

The seventh chapter deals with how policymakers might go about implementing transition theory in practice. How, Heller asks, might these policymakers translate Weberian theory into workable guidelines for reform? Ideally, Heller would like for all of the reforms to be simultaneously undertaken but he acknowledges that this is not very realistic. Heller describes what he sees as manageable stages of reform that must be sought given the practical difficulties. This chapter starts with a policy priority sequence followed by a sequence that could be followed in crisis-induced transitions and ending with some details on the implementation of reforms in the legal and administrative subsystems.

The final chapter of the book draws on the World Bank’s worldwide governance indicators conducted in 212 countries to argue that transition does not have to occur only very slowly over many generations. While the World Bank report does conclude that “In less than a decade, a substantial number of countries exhibit statistically significant improvements in at least one dimension of governance, while other countries exhibit deterioration in some dimensions,” it is difficult to share Heller’s optimism that transition can proceed as rapidly as he would like based on findings of statistical significance in some countries. Nonetheless, Heller’s closing chapter is a nice wrap-up and highlights many of the book’s strengths.

References:

Buchanan, J. (2000), Moral Science and Moral Order, Indianapolis: Liberty Fund.

Grindle, M. and Thomas, J.W. (1991), Public Choices and Policy Change: The Political Economy of Reform in Developing Countries, Baltimore: Johns Hopkins University Press.

Stiglitz, J. (2000). “Capital Market Liberalization, Economic Growth, and Instability,” World Development, Vol. 28, Issue 6, pp. 1075-86.

Weber, M. (1978), Economy and Society, Berkeley: University of California Press.

Brandon Dupont is Associate Professor of Economics at Western Washington University. His most recent research explores the history of American overseas travel to Europe in the nineteenth and twentieth centuries.

Copyright (c) 2010 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator (administrator@eh.net). Published by EH.Net (October 2010). All EH.Net reviews are archived at http://www.eh.net/BookReview.

Subject(s):Economic Development, Growth, and Aggregate Productivity
History of Economic Thought; Methodology
Markets and Institutions
Geographic Area(s):General, International, or Comparative
Time Period(s):20th Century: Pre WWII
20th Century: WWII and post-WWII

Heavenly Merchandize: How Religion Shaped Commerce in Puritan America.

Author(s):Valeri, Mark
Reviewer(s):Frey, Donald E.

Published by EH.NET (August 2010)

Mark Valeri, Heavenly Merchandize: How Religion Shaped Commerce in Puritan America. Princeton, NJ: Princeton University Press, 2010. xiii + 337 pp. $35 (cloth), ISBN: 978-0-691-14359-0.

Reviewed for EH.Net by Donald E. Frey, Department of Economics, Wake Forest University.

?

Mark Valeri shows impressive mastery of a huge amount of colonial New England archival material, ranging from merchants? accounts, personal letters and legal filings, to Puritan ministers? sermons, tracts, and lectures. He also understands the major thinkers who shaped intellectual currents in England and America, during the period from the founding of Boston through the mid-eighteenth century. Valeri shapes all this into a comprehensive picture of the joint evolution of economics and Puritan teaching. Although Valeri does not explicitly address Max Weber?s Protestant ethic thesis, and even states that the book is not about Weber, I believe that his detailed portrayal of an evolving, multi-faceted Protestant ethic nevertheless shows Weber?s classic to be lacking in depth, with all the qualifications that fact raises.

Valeri frames this history as a sequence of overlapping stages, focusing upon a representative merchant for each of the stages. Valeri?s lens is specifically upon pious merchants, who believed that their commercial practices and ideals were compatible with their Puritan faith. That these merchants were not rebels from mainstream Puritan teaching makes Valeri?s case all the more compelling. Besides showing how religion shaped commerce, Valeri also shows that economics shaped religious teachings: Puritanism?s early suspicion of commerce eventually learned to stand on its head, evolving into an endorsement of commerce. Indeed, the book?s title is taken from the title of a colonial sermon that resorted to commercial metaphors to make its point.

Puritan merchant Robert Keayne is Valeri?s representative of the first stage (early Boston to 1650).? Keayne tried to hold to two moral codes that were incompatible at major points of intersection. The ?civic humanism? of merchant guilds idealized trade as a source of civic and national improvement and promoted professional practices such as keeping detailed accounts. Yet, Keayne also converted to Puritanism, which ?interpreted the market through a different conceptual framework? (p.26); this framework held that sinful humans, including merchants, and maybe especially merchants, were ?inescapably prone to avarice.? Further, as might be obvious, the norms of scripture were hardly the same as civic humanism. Thus, Keayne, the pious merchant, regularly heard sermons that ?warned that merchants were tempted to take advantage of their neighbors, forget their duty to the poor, and become self-interested,? and described an accounting mentality, which every merchant acquired as a matter of course, as a ?disguise for inhumaneness? (p. 31).?

The easy solution to Keayne?s dilemma would have been to reject orthodox Puritanism. Not surprisingly, many merchants flocked to the antinomian heresy, which ?condoned merchants? proclivities to follow their own regulations and rules? (p. 45). Yet, Keayne resolutely remained among the orthodox, faithfully submitting to censure from his church for his own business practices (though continuing to defend his own case). Keayne?s dual professions (one of faith, and one of livelihood) left him in a dilemma that lasted to his death, and was addressed in his bequest to the city. In this early era, Reformed religion recognized economic activity as another human arena requiring boundaries to define acceptable behavior.

With time, Puritan clergy did become more tolerant of trade — and ultimately, much more than merely tolerant. The second stage (1650- late 1680s) was marked by the restoration of the old royal line in England (following Puritan Cromwell?s interregnum). The restored monarchy forced upon New England royal governors not attuned to Puritanism; and Boston merchants inevitably came to conform to developing English trade practices.? According to Valeri, the new complexity of trade caused old Puritan certainties to blur. The Puritans knew ?that usury, oppression, and pure market pricing were wrong, but they lost the specific meaning of such terms in the swirl of contemporary techniques? (p. 90). As a result, Puritan churches ceased disciplining their merchant members for economic infractions.

Puritanism of this stage, however, did not simply abandon the field to rampant commerce. Calvin?s doctrine of divine providence opened the way to a new interpretive approach to commerce.? (In Reformed teaching, this doctrine held that God?s purposes control even the smallest events.) At the personal level, Puritan merchants like John Hull tempered their commercial striving in the belief that God?s providence ultimately dictated success or failure. But the clergy went further, arguing that, as with ancient Israel, God would punish an unrighteous society and reward a virtuous one (though in his hidden purposes, he just might not). ?At minimum, therefore, good government would be necessary for New England to be positioned to receive divine favor. And good government relied on specialized knowledge. Now, ?economic reform rested … in the responsibility of civic leaders to rule according to their social expertise? (p. 103). This exempted the churches from disciplining for more complex economic infractions. As long as merchants avoided ?gross excesses? and ?downright avarice,? their pursuit of profit was not subject to church censure (p. 105).? The merchant John Hull never encountered the censure faced by his predecessor, Keayne. Nevertheless, Puritan faith seems to have influenced Hull?s personal style, for he lived a relatively modest life and accumulated a relatively small estate.

The third stage (1690 to the mid-1710s) marked a shift toward technical, economic theories dominating even the clergy?s discussion of commerce. But the clergy ratcheted up the concept of divine providence to provide a new religious interpretation of what was happening. The Glorious Revolution (1688) providentially returned Protestants to power in England, and allowed for a grand harmonization of faith and economics: ?Protestantism led to wealth; wealth funded the empire; the empire combated Catholicism; the end of Catholicism brought civil liberties; and civil liberties allowed citizens to practice Protestant and market principles? (p. 134). Samuel Sewall was a merchant of this era. He was a writer who ?discovered a perfect congruence between political economy and the most intensely providential world view? (p. 172).? He envisioned God?s purpose to be a Protestant empire in America, funded by commerce.

With providence now drafted into the service of economics, the lead role in defining virtue and vice shifted to purely economic reasoning. For example, the dim Puritan view of luxury was relaxed on the say-so of economic theory, which claimed that hyper-consumption ?strengthened the commonwealth, promoted its independence, and therefore amounted to a social virtue? (p. 137). Ultimately, the clerical successors to the original Puritans ?jettisoned older puritan readings of Scripture for interpretations resting on scientific analyses, patriotic agendas, and practical necessity? (p. 154). They ?treated the language of political economy as a universal certainty, while discarding the original dictates of Reformed teaching? (p. 156).

The transformation of Puritan teachings continued between the 1710s and 1730s. Even the idea of divine providence was renovated: henceforth, it would be reduced to concepts acceptable to the Enlightenment. According to Boston clergy, ?God ruled humanity through a universal, which is to say natural, law? (p. 209) — a proposition consistent with Enlightenment views and Newtonian science.? Commerce became ?a series of natural exchanges, that, by the law of nature, coalesced into a balanced system? (p. 211).? No longer did clergy see the market as a temptation to evil, but glorified it as a natural mechanism ordained by God. It is little wonder, therefore, that the merchant Hugh Hall in this era was ?apparently oblivious to the moral ideas of classic puritanism? and so ?imported expensive and fashionable items, sold sugar and rum … sued his debtors, contributed to the unsettling fluctuation of fiscal values and prices, and dealt in slaves? (p. 224).? Hall?s deeds, which would have rated condemnation from earlier Puritan clergy, were congruent to the Enlightenment-soaked teachings of his religious mentors; these clerical successors to the early Puritans could ignore slave trading while emphasizing inner qualities that showed up more in style than in substance.

Valeri concludes with the revival era of the 1740s and 1750s, which was more of the same, but played in a new key. Clergy and merchants alike, whether for or against the evangelical revivals of the Great Awakening, understood the relationship between Protestantism and economics in the same way: the market was part of God?s natural design and, as such, was ?an arena for the exercise of virtue? (p. 241). As had been the case since at least 1700, ?virtue? was not defined in terms of the goodness of certain actions (and regulation of bad actions), but in terms of inner virtues such as ?equanimity, sincerity, and benevolence? (p. 235).? It is not surprising that pious merchants of the era ?worried about the corruption of personal inclinations yet expressed no reservations? about their business practices, which would have earned them censure by their Puritan ancestors (p. 242).? This era saw the hardening of an ideology, blessed by religion: the market was a ?natural law, a divine construct,? and a school for certain kind of social virtue. The market ?appeared to be a universal truth, whereas the old scriptural idioms … receded into anachronism? (p. 249).

Valeri carefully refrains from drawing conclusions that go beyond his immediate research. I wish he had been willing to extrapolate more, and so I will do so myself. As suggested above, this book raises questions about the adequacy of Max Weber?s classic ?Protestant ethic? thesis. (At a very, very high level of generalization, where specifics are too diluted to matter, Valeri?s work can be made to agree with Weber, in that religious ideas do indeed interact with economics. But beyond that, I see important differences.) The Puritan merchants studied by Valeri never seem so driven by insecurity about their election to seek affirmation of their salvation in economic success — as argued by Weber. In fact, according to my reading of Valeri?s work, the religious stimulus to (or affirmation of) economic activity increased to the degree that clergymen abandoned core Calvinist teachings and adopted secular, Enlightenment ideas.

This book also highlights two enduring alternative paradigms about the fundamental nature of economic systems. The early Puritans had viewed the market essentially as a human activity, and, as such, less than perfect. That being assumed, economic behavior needed boundaries defined by human institutions (churches and governments). The impact of commerce on the local community was a matter for regulation. By the time essentially secular Enlightenment ideas had been hallowed by eighteenth-century clergy, the market had ceased being a human invention and been transmuted into an expression of natural law and a divine construct (p. 249). As such, of course, the economy became sacred and untouchable — perhaps to be worshipped, but never to be reformed by mere mortals. The way was set toward nineteenth-century laissez-faire. The distinction between the economy as an imperfect human invention, always the proper object of reform, and the economy as an expression of some kind of perfection (perhaps general equilibrium), it seems to me, plays out to this day in contemporary politics and economics. As this book shows, these alternative paradigms are largely matters of faith.? Recognition of this might greatly improve contemporary political discourse.

My criticisms of the book are minor. As noted already, the book?s subtitle might have somehow indicated that half of the thesis was that commerce shaped religion, in addition to religion shaping commerce. Although merchants were highly significant in the New England economy, somewhat more attention might have been paid to other occupations. However, authors have to define some boundaries, and Valeri?s chosen emphasis makes sense. Valeri?s long discussions of colonial monetary problems can be defended because such problems were integral to the economic story he tells. However, in my opinion these discussions might have been pared without great damage to the thesis. However, these are minor suggestions. Overall, I found this book to be an outstanding contribution to our understanding of the working out of the Protestant ethic in colonial New England. Therefore, it is a major contribution to our understanding of American economic morality.

?

Donald E. Frey is author of America?s Economic Moralists: A History of Rival Ethics and Economics (2009).

Copyright (c) 2010 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator (administrator@eh.net). Published by EH.Net (August 2010). All EH.Net reviews are archived at http://www.eh.net/BookReview.

Subject(s):Business History
Social and Cultural History, including Race, Ethnicity and Gender
Geographic Area(s):North America
Time Period(s):17th Century
18th Century

The First Tycoon: The Epic Life of Cornelius Vanderbilt

Author(s):Stiles, T. J.
Reviewer(s):Whaples, Robert

Published by EH.NET (December 2009)

T.J. Stiles, The First Tycoon: The Epic Life of Cornelius Vanderbilt. New York: Knopf, 2009. xiii + 719 pp. $37.50 (cloth), ISBN: 978-0-375-41542-5.

Reviewed for EH.NET by Robert Whaples, Department of Economics, Wake Forest University.

Economists have always had a hard time dealing with entrepreneurs ? as individuals and in the aggregate. We sort of know what entrepreneurship is and that it can have a profound impact on economic performance, but it?s usually just too difficult to model and measure. What we do not understand, we simply ignore and leave to others. After all, we are firm believers in comparative advantage and studying entrepreneurship ? even if it is economically important ? doesn?t seem to be our comparative advantage. In the view of most economic historians, it is the rules of the game ? the incentives and the institutions ? that really matter, not the players. American economic history has been cast as the story of millions of diligent and clever beavers working away and transforming the landscape. Take one of them away and nothing of great importance will really change. (In fact, most of us seem to believe that if you take away an entire technological complex, like the railroads, little of much importance would really change.)

Why, then, should economic historians study the careers of entrepreneurs? Not all of us should. But for some, the study of entrepreneurs will illuminate the past and the present ? and put life into our cliometric narrative. If any entrepreneur deserves our attention it is surely Cornelius Vanderbilt. As T.J. Stiles aptly puts it: ?One person cannot move the national economy single-handedly ? but no one else kept his hands on the lever for so long or pushed so hard? (p. 7).

Vanderbilt, born on Staten Island in 1794, had only about three months of formal education. He set to work hauling cargo and passengers across the waters surrounding New York Bay before he was a teenager and immediately showed an ambitious, enterprising streak while working for his father and soon thereafter for himself. He entered the national stage while working for Thomas Gibbons in establishing a steamboat line between New York City and New Brunswick, New Jersey. Vanderbilt began as captain of Gibbons? boat, but he soon acted as the line?s general agent and played the crucial role in besting the market?s incumbent, flouting its state-back monopoly before this monopoly was famously struck down by John Marshall?s Supreme Court in Gibbons v. Ogden (1824).

In the ensuing decades Vanderbilt emerged as one of the industry?s shrewdest, most relentless operators. Stiles? descriptions of the free-wheeling competition and collusion in the steamboat industry are enough to make a game theorist?s pay-off matrix explode. The understood rules of the game were that ?the first proprietor to occupy a line assumed a sort of natural right to the route. A challenger who lasted long enough could expect an offer of a bribe to abandon the market and, should he accept it, would be expected to abstain from further competition? (p. 103-04). As Vanderbilt?s operations grew, he repeatedly preyed on existing lines ? in New Jersey, on the Hudson River and on Long Island Sound ? and often took payoffs to go away. But he occasionally straddled the line between honor and duplicity in this game. The record is replete with episodes of buy outs, no-compete payments, and pooling arrangements, but also fierce face-to-face competition along a vector of price, speed, safety, comfort, amenities (many steamboats were essentially floating saloons), and infrastructure along with hidden ownership arrangements and rapid changes in technology. There simply was no lasting equilibrium in this dynamic market. Above-normal profits were fleeting, but Vanderbilt mastered the arts of motivating his employees and partners, holding down costs, making design improvements to his fleet, operating efficiently and building up a deep capital base. ?His main strength was, in a word, everything? (p. 140), as he emerged as the ?Prince of Long Island Sound? ? the key route between Boston and New York ? by the mid-1840s.

Soon legends about his physical prowess and indomitable personality arose. The legends became mythic with Vanderbilt?s commanding response to the ripe opportunity of transporting men to California during the Gold Rush. As rivals struggled to build a link across Panama, Vanderbilt overcame a series of daunting political, diplomatic, financial, logistical, and physical obstacles to complete a route to San Juan del Norte, Nicaragua, up the San Juan River, across Lake Nicaragua, and down a plank road to the Pacific. The ?Commodore? himself was the first to pilot a steamboat up the Toro rapids (before explosives removed most of the obstacles). The line opened in the summer of 1851, outflanking the Panama route, whose railroad wouldn?t be completed until early 1855. As is the case for earlier and subsequent Vanderbilt endeavors, it appears that the biggest winners were his customers. Unfortunately for Vanderbilt, the longer-term profitably of the line was imperiled by a series of intrigues and the filibustering of William Walker, whose armed force seized control of Nicaragua in 1855. Stiles convincingly argues that Vanderbilt never provided assistance to Walker and was crucial in bringing about his downfall. He also dismisses ?one of the most famous letters in the history of American business,? in which Vanderbilt allegedly informed two double-crossing Nicaragua-line partners: ?Gentlemen: You have undertaken to cheat me. I won?t sue, for the law is too slow. I?ll ruin you. Yours truly, Cornelius Vanderbilt.? Stiles explains that Vanderbilt ?never wrote ?Yours truly,? . . . And it never would have occurred to him to give up legal redress? (p. 237).

Stiles is just as convincing in downplaying legends about Vanderbilt?s bawdiness and in discrediting the contention/fabrication in Edward J. Renehan Jr.?s Commodore: The Life of Cornelius Vanderbilt (2007) that Vanderbilt contracted syphilis in 1839 and began to suffer from syphilitic dementia late in life. Renehan has refused to produce the source of this diagnosis ? alleged diaries of Vanderbilt?s doctor ? and the contention of dementia doesn?t comport with eyewitness accounts of Vanderbilt?s active, lucid behavior. [As if the seal the case, Renehan is now serving time in prison for selling stolen historical letters.]

Vanderbilt was a planner and an improviser. While he oversaw the Nicaragua project, he also launched a profitable trans-Atlantic steamboat service that drove its subsidized competitor to the wall and gained control over a major New York shipyard and the city?s leading engine works. Rather than enjoying a leisured retirement, the Commodore built his fortune up from $11 million in 1853 (about $320 million in today?s dollars according to our colleagues at measuringworth.com) to roughly $100 million at the time of his death in 1877 ($2.1 billion in today?s dollars). This final set of triumphs came in railroading, as Vanderbilt built up stakes in struggling or underperforming lines (the Harlem, the Hudson, the New York Central, and the Lake Shore) and made them profitable. Again and again, he cut costs and improved efficiency. Much of this appears to have come by reining in the principal-agent problem by ousting top executives who had been making self-serving side-deals, from introducing (a la Alfred Chandler) professional managers, and from carefully constructing the optimal amount of infrastructure. These final chapters are replete with episodes of crooked politicians stung while trying to shake down Vanderbilt?s businesses (the two Harlem road corners), sharp dealing during financial panics, and unresolvable family problems.

Although Stiles occasionally interjects a bit too much hyperbole ? the deep-pocketed Vanderbilt is portrayed as teetering on the brink of disaster much too often ? he has done extensive archival work which enables him to draw a thorough and compelling picture of the evolution of Vanderbilt and his enterprises. Moreover, he has a capable grasp of economic theory and economic history, which allows him to knowledgeably discuss the transformation of the economy, monetary policy, financial panics, business practices and a whole range of other important issues. Stiles? book joins the ranks of an encouraging string of recent biographies that have overturned misconceptions about important nineteenth-century entrepreneurs, standing alongside Murray Klein?s The Life and Legend of Jay Gould (1986), Ron Chernow?s Titan: The Life of John D. Rockefeller, Sr. (1998), David Nasaw?s Andrew Carnegie (2006) and others.

?That Vanderbilt is a great ________ (you must fill in the blank)? (Courtlandt Palmer, quoted on page 1). T.J. Stiles? definitive biography not only allows us to fill in this blank ? it also helps fill in many blanks about how the American economy behaved during the Commodore?s life.

Robert Whaples?s recent publications include ?The Policy Views of American Economic Association Members: The Results of a New Survey,? Econ Journal Watch (2009) and ?Is Economic History a Neglected Field of Study?? Historically Speaking (forthcoming). He teaches a course on Entrepreneurs in American History at Wake Forest University.

Subject(s):Transport and Distribution, Energy, and Other Services
Geographic Area(s):North America
Time Period(s):19th Century

The Speculation Economy: How Finance Triumphed over Industry

Author(s):Mitchell, Lawrence E.
Reviewer(s):Ferderer, J. Peter

Published by EH.NET (June 2009)

Lawrence E. Mitchell, The Speculation Economy: How Finance Triumphed over Industry. San Francisco: Berrett-Koehler, 2008. xiii + 395 pp. $25 (paperback), ISBN: 978-1-57675-28-7.

Reviewed for EH.NET by J. Peter Ferderer, Department of Economics, Macalester College.

It is rare that a book about the history of legislation, much of which failed, could have so much potential to shed light on a contemporary economic crisis. Lawrence E. Mitchell, Theodore Rinehart Professor of Business Law at the George Washington University Law School, has written such a book.

Mitchell examines the evolution of security market regulation in the United States during the Progressive Era (1890-1913). Although federal involvement did not reach its modern form until the New Deal, much of the groundwork was laid during this period. Transformation in thinking about the role of government in security markets paralleled broader social and economic changes. While the goals of regulation changed, disclosure was the primary regulatory device emphasized at each stage of the process. In the end, Mitchell concludes that the regulatory course taken in the United States has allowed finance to shape corporate decision-making in a way that is detrimental to society.

One of the interesting themes of the book is the struggle between states and the federal government for authority. Since the birth of the nation, the creation and regulation of corporations had been the domain of the states. This institution was preserved by concerns about federal power, dedication to the notion of states? rights by Southern Democrats and fears of creeping socialism.

Despite the inertia, fundamental social and economic changes created political pressure for federal regulation. These included the merger wave from 1897 to 1903 which created giant corporations, dramatic increases in wealth, the democratization of security market participation, and the Panic of 1907. World War I increased the pressure because it required intrusive federal intervention in the financial system which served as a powerful precedent for future regulation and the Liberty Bond drives brought even more Americans into contact with security markets.

The theoretical foundation for change was provided by a group of young economists, including Richard T. Ely, John Bates Clark and others, who questioned the utility of laissez-faire competition. They argued that giant corporations could be beneficial to society (owing to scale economies) and that it was the state?s role to prevent their excesses. One of the participants in these discussions was Woodrow Wilson, Ely?s former Johns Hopkins student, who Mitchell credits with playing a major role in shaping modern securities market regulation.

Initial efforts at securities regulation at the federal level were motivated by antitrust concerns. In an attempt to attract corporations, states began to liberalize their chartering laws in the 1890s. New Jersey was the first state that ?presided over the degradation of corporate integrity? and it soon became the ?mother of trusts? (p. 31). Although New Jersey eventually reversed course under the leadership of Governor Woodrow Wilson, a race to the bottom led a number of other states (notably Delaware and West Virginia) to embrace corporate liberality.

Allegedly, the incorporation laws of these states were highly problematic because they led to overcapitalization or ?stock watering.? Industrialists were accused of using new shares as currency to buy competitors and monopolize product markets. Corporate managers were accused of watering stocks to gain control over enterprises which they then mismanaged for their own benefit. The antitrust problem had become a corporate governance problem.

One solution was federal incorporation law which would ?subjugate corporate behavior to some notion of responsible public conduct? (p. 139). However, this path was blocked by conservative Republicans during the first decade of the twentieth century (seen most vividly by the 1903 Senate rejection of the Littlefield Bill) and federal incorporation never came to pass. While some modest reform emerged (for example, the Department of Commerce Bill of 1903 which focused on investigation and publicity), ?business was allowed to organize, capitalize and manage as it saw fit? (p. 139).

After the Panic of 1907, the goal of regulation shifted to increasing stability of the financial and economic system by reducing speculation. The philosophy underlying regulatory efforts also changed with more emphasis on publicity as a solution to corporate misbehavior. The Hepburn Bill, which failed in 1908, was important because it marked the first time that federal securities regulation was introduced in its own right, independent of antitrust considerations, and focused on investor protection. The Owen Bill of 1914 would have required that stock exchanges be incorporated under state law so that the government could insist on effective self-regulation. To protect investors, the bill would have mandated that exchanges require listing corporations to disclose more information.

Finally, the Taylor Bill of 1920 illustrates how far the regulatory philosophy had shifted since the federal incorporation movement. According to Mitchell, it was: ?… classic Wilsonian economic progressivism … relatively unintrusive, disclosure-oriented regulation, designed for the needs of business to be largely self-regulatory… Speculation was still a concern, but the focus had shifted from the stability of the economy through the behavior of financial institutions to the well-being of the American people, who had become the new corporate financiers… The new legislation accepted the speculation economy that had been embraced by the American people as the natural and correct order of things financial? (p. 266-67).

The Taylor Bill failed to pass, but was the clear and direct predecessor to modern securities regulation embodied in the Securities Act of 1933.

Mitchell does a masterful job analyzing the evolution of federal securities market regulation during the Progressive Era. His ability to sift through numerous pieces of legislation and long committee reports to tell a coherent and reasonable story about this important part of American history is quite impressive. With this said, however, I do find Mitchell?s characterization of the ?speculation economy? to be problematic.

Mitchell claims that a new form of speculation emerged at the turn of the century as corporations altered their capital structures (and investors their portfolios) away from bonds, with contractually fixed coupon payments, to preferred stock with less certain dividends and, ultimately, to common shares with even more uncertain dividends. While ?traditional speculation? (short selling, buying on margin, etc.) had always been part of the system and periodically played a role in financial panics, it did have a permanent effect on the structure of the American economy. In contrast, the new speculation exerted a ?stranglehold? over industry. While the industrialist of the nineteenth century ?produced profit to his own satisfaction and at his own pace? the ?managers of the giant new combinations had to satisfy the demands of a hungry market increasingly populated by common shareholders who expected their dividends … the dominance of finance over industry had begun to move to a new and powerful level? (p. 196). He argues that, in recent years, changes in corporate governance and theoretical developments in financial economics have paved the way for the ?financial domination over industry? to become ?the full-blown triumph of the stock market over industry? (p. 274).

While it is difficult to read these passages without thinking about mortgaged-backed securities, default-debt swaps and other recent innovations driven by the pursuit of corporate profit, it is far from clear that the stock market is to blame for our current problems. A more benign explanation for the rise of ?new speculation? (or what might be better labeled ?risk-taking?) is that it represents a normal response to fundamental economic change. For example, the merger wave at the turn of the twentieth century should have stabilized profits around a higher mean growth rate. If this was the case, the risk of common shares should have diminished. Moreover, the rapid rise in wealth over this period should have reduced risk premia given the diminishing marginal utility of money. This is not to deny the existence of episodic irrational exuberance and panic, which seems to be part of the human condition. However, secular changes in risk-taking ? as witnessed by the shift from bonds to common shares or the more recent emergence of securitization ? are a natural response to fundamental changes in the real economy and an important source of rising living standards over the long-run.

Despite this criticism, this is an important book. Mitchell links many complex strands of thought and his detailed analysis of Progressive Era legislation sheds new light on the history of securities market regulation. One cannot help but wonder if the outcome of A.I.G. would be different if it had been incorporated by the federal government rather than the state of New York. Perhaps Charles Littlefield was on to something in 1901.

J. Peter Ferderer is Professor of Economics at Macalester College, where he teaches courses in macroeconomics, economic history and behavioral economics, and currently serves as the President of the Minnesota Economic Association. His most recent article is ?Advances in Communication Technology and the Growth of the American Over-the-Counter Markets, 1876-1929,? Journal of Economic History, 68(2), June 2008.

Subject(s):Government, Law and Regulation, Public Finance
Geographic Area(s):North America
Time Period(s):20th Century: Pre WWII

Poverty in the Roman World

Author(s):Atkins, Margaret
Osborne, Robin
Reviewer(s):Jongman, Willem M.

Published by EH.NET (July 2008)

Margaret Atkins and Robin Osborne, editors, Poverty in the Roman World. New York: Cambridge University Press, 2006. xiii + 226 pp. $99 (hardcover), ISBN: 0-521-86211-6.

Reviewed for EH.NET by Willem M. Jongman, Department of History, University of Groningen.

How successful was the Roman economy? For the last few decades, and in the footsteps of the late Sir Moses Finley, the prevailing opinion has been pessimistic: ancient Rome was a world without economic growth, and with great social inequality. Thus, only a small elite escaped life near subsistence, and even they did not escape the horrors of a demographic regime of high mortality. Thus the Roman economy never changed much over time: it was just a grim longue dur?e of poverty and underdevelopment. The fall of the later Roman Empire thus also became the “transformation of the world of late antiquity,” since there had been nothing much to decline from. In a sense, the medievalists had won the day: the Middle Ages had not been a Dark Age after the grandeur that had been Rome.

Perhaps surprisingly, this bleak view of Roman economic performance was barely ever validated empirically. Instead, research focused on possible explanations, such as elite economic mentality, technological stagnation or the scale and status of trade. Empirical research on the actual Roman standard of living was ? and is ? surprisingly rare. Perhaps this is because scholars thought it was self evident that all pre-industrial societies were desperately poor, and perhaps it was because the dominant tradition of writing history mainly from literary or at least written sources made them despair of the possibility of ever writing a real history of the Roman standard of living. Until recently the rare exception was the work of Peter Garnsey, the honorand of this volume. In two major books he argued that in antiquity the worst consequences of temporary food shortages were usually successfully avoided, but that poverty and malnutrition were endemic.

This is a Festschrift of the modern kind (i.e. an edited volume with a smallish number of substantial papers around a real theme, and with a real ? and excellent ? introduction) for Peter Garnsey, one of the world’s leading historians of the economy and society of ancient Rome. In one way or another, the authors are all pupils of Garnsey and thus the volume is not only a tribute to Garnsey the scholar, but also to Garnsey as one of the most successful graduate teachers of Roman history.

Real tributes often are irreverent, and the best teachers encourage their pupils to go their own way. That is indeed precisely what happens in some of these papers, and it happens most prominently in Dominic Rathbone’s excellent chapter on “Poverty and Population in Roman Egypt” (pp. 100-114). Rather than consider how it felt to be poor, or how poverty was perceived, he directly addresses the extent of poverty in Roman Egypt with a clear choice between three possibilities: first, there always was a lot of poverty, second, there was prosperity rather than widespread destitution in the early Empire, but quite a bit of poverty in the later (Christian) Empire, or, third, there never was much poverty, not even in late Antiquity, although the Christian church admittedly talked a lot about it. For the early Empire, Rathbone really does not see much empirical evidence for poverty in Egypt. Nor was there any general system of poor relief “because none was needed” (p. 109). Of course, there were years of bad harvests, but nothing chronic: “Roman Egypt had a prosperous economy, it was highly monetised and urbanised, there were numerous opportunities for earning cash in addition to the availability of land, and even the small man and woman enjoyed a reasonable level of state protection of their rights” (p. 113). The situation in late antiquity was probably worse, even if Christian writers exaggerated this. Population declined, and social relations became harsher.

Two other papers, Neville Morley’s on “The Poor in the City of Rome,” and in particular Walter Scheidel’s on “Stratification, Deprivation and Quality of Life” elaborate on some of the consequences of this argument for social stratification. Morley (I think wrongly) attacks Purcell’s insistence on the prominence of immigrants of slave extraction in the urban population of the city of Rome, and reminds us of the importance of the corn dole for free citizens in the city.[1] Scheidel argues that if there was indeed some prosperity and economic success, Roman society should show more than a mass of desperately poor people, overlorded by a small elite of legally defined orders of senators, equites (knights) and decuriones (town councilors). The legal rigidity of that ranking obscures a far more varied stratification with many people of middling prosperity. Finally, Anneliese Parkin extensively probes the lack of a pagan ideology of almsgiving.

This revisionism stems from a significant paradigm shift that is currently unfolding. The new Cambridge Economic History of the Greco-Roman World is probably the best example of a new interest in economic growth in classical antiquity, and of the new awareness that especially Rome may have been rather successful for a pre-industrial economy. Part of that argument is, inevitably, that the standard of living was not always the same, but changed over time. Tentative reconstructions of Roman GDP such as we have are too tentative to reveal such change, but a host of direct archaeological indicators (shipwrecks, mining activity, building, meat consumption, stature, etc.) show quite dramatic growth from mostly the first century BC, until the late second century AD ? and dramatic decline thereafter.[2]

It is not surprising, therefore, that those papers in this volume that deal with poverty in the early Empire (first and second century AD) are mostly optimistic, whereas the bulk of the papers on later antiquity do indeed take widespread poverty for granted. As Peter Garnsey showed many years ago, social relations became increasingly grim from the second century AD, and the law turned oppressive.[3] Among free Roman citizens, a new distinction emerged, between the honestiores ? the honorable (and certainly rich) people ? and the humbler people, whose status increasingly came to resemble that of slaves. From the early third century AD nearly all free inhabitants of the Empire had become citizens, but some now were more equal than others. Caroline Humfress shows that this is not refuted by the late antique legal discourse on the rights of the poor: these pauperes were by no means the really destitute, but only the less well off. As such, I think it reflects the contraction of and increasing inequality within the upper strata of late Roman society.

The other papers on late antiquity are all concerned with Christian attitudes and behavior to the poor. As Greg Woolf observes, the prominence of the poor is indeed “due to their peculiar moral valency in Christian … thought” (p. 84). Christianity’s growth in, particularly, the third century was facilitated by its message of consolation to the poor, but from the age of Constantine it transformed into the new state religion. As Sophie Lunn-Rockliffe, Richard Finn, Lucy Grig and Cam Grey all show, defending the morality of the poor in a world of great social inequality became a discourse full of compromises.

Attitudes to poverty and the poor clearly changed with time. At some point in time (and it remains hard to decide when exactly), the poor both became more visible, and were looked at more charitably. It also seems likely that poverty became both deeper and more widespread in later antiquity. What is not yet clear from these fascinating papers is the precise chronology and relation between such changes in poverty and compassion.

References:

1. N. Purcell, “The City of Rome and the Plebs Urbana in the Late Republic,” in The Cambridge Ancient History IX, 1994: 644-88; c.f. Willem M. Jongman, “Slavery and the Growth of Rome: The Transformation of Italy in the First and Second Century BCE,” in Catharine Edwards and Greg Woolf, editors, Rome the Cosmopolis, Cambridge, 2003: 100-122; and recently Tracy L. Prowse, Henry R Schwarcz, Peter Garnsey, Martin Knyf, Roberto Macchiarelli and Luca Bondioli (2007), “Isotopic Evidence for Age-related Immigration to Imperial Rome,” American Journal of Physical Anthropology 132 (4): 510-19 for stable isotope analysis of human bone material from Ostia, demonstrating that most had not drunk the local water in their youth, and thus were immigrants from identifiable areas.

2. Willem M. Jongman, “The Early Roman Empire: Consumption,” in Walter Scheidel, Ian Morris and Richard P. Saller, editors, The Cambridge Economic History of the Greco-Roman World, Cambridge, 2007: 592-618; and Willem M. Jongman, “Gibbon Was Right: The Decline and Fall of the Roman Economy,” in Olivier Hekster, Gerda de Kleijn and Dani?lle Slootjes, editors, Crises and the Roman Empire. Proceedings of the Seventh Workshop of the International Network Impact of Empire (Nijmegen, June 20-24, 2006), Leiden, 2007: 183-199.

3. Peter D.A. Garnsey, Social Status and Legal Privilege in the Roman Empire, Oxford, 1970.

Willem Jongman is the author of “The Early Roman Empire: Consumption,” in The Cambridge Economic History of the Greco-Roman World (2007).

Subject(s):Social and Cultural History, including Race, Ethnicity and Gender
Geographic Area(s):Middle East
Time Period(s):Ancient

Puissants et mis?rables: Syst?me social et monde paysan dans l’Europe des Francs (VI-IX si?cles)

Author(s):Devroey, Jean-Pierre
Reviewer(s):Grantham, George

Published by EH.NET (July 2008)

Jean-Pierre Devroey, ?conomie rurale et soci?t? dans l’Europe franque (VI-IX si?cles). Paris: Belin, 2003. 381 pp. ?22.50 (paperback), ISBN: 2-7011-2618-5.

and

Jean-Pierre Devroey, Puissants et mis?rables: Syst?me social et monde paysan dans l’Europe des Francs (VI-IX si?cles). Brussels: Academie Royale de Belgique, 2006. 725 pp. ?60.50 (cloth), ISBN: 2-8031-0227-7.

Reviewed for EH.NET by George Grantham, Department of Economics, McGill University.

Most economic historians who do not specialize in the medieval period draw their understanding of its economic and social evolution directly or indirectly from the work of historians inspired by Henri Pirenne and Marc Bloch, both of whom viewed it as a decisive turning point in Western history. As set out by Georges Duby in his essay on the early growth of the European economy, the half millennium following the formal end of the Roman Empire in the West marks the crucial discontinuity in Western Europe’s economic and social history.[1] The notion was, of course, not new. Originating in the humanist philological critique of early medieval Latin, the notion of a decisive break in social, political, and economic institutions was extended to other domains in the debate between Abb? Du Bos and Montesquieu over whether the Franks were subject to royal taxation, and by early nineteenth-century efforts to construct historical typologies from the surviving diplomatic and legal texts as part of the project to place the French Revolution in historical perspective. That effort led to a consensus that the West experienced a major economic and institutional collapse in the sixth and seventh centuries, and that from the wreckage there emerged a more decentralized economic and political system based on the exploitation of the rural population by lords connected politically in hierarchies constructed from bilateral ties of mutual obligation and fidelity. That institutional space left little room for agricultural innovation and hardly any for economic organization founded on the legal egalitarianism of voluntary exchange. The historiography thus posed three questions: the first concerned the process by which the old world was transformed into a new one; the second concerned the nature of that new world as an economic and social type; the third was how it in turn gave birth to modern western capitalism. Since the dissolution of Roman civilization was an uncontested fact, most attention was devoted to the second and third questions. It is only in the past thirty years that the first has received the attention it deserves, with devastating consequences for the conventional wisdom.

The present works by the eminent Belgian historian Jean-Pierre Devroey represent a vigorous defense of the conventional view that the early medieval society and economy was a distinct social type fundamentally different from the societies that preceded and succeeded it. Explicitly inspired by the theories of Max Weber and Karl Polanyi, this vision is idealistic rather than causal or mechanistic, to use an old-fashioned dichotomy. It aims to explain “why” things worked in terms of their relation to a pre-existing whole rather than “how” they worked in terms of ordinary connections between cause and effect. For Devroey, the true history is sociology. The historian’s task is to show how relations between different elements of a society formed a coherent “whole” or type. The theoretical foundation of this approach to the past is Durkheim’s tenet that social cohesion is a necessary condition for the temporal persistence of a society. This makes the central task of the historian the identification of the sources and mechanisms of that cohesion. Since every society is unique, the mechanisms will differ, providing a basis for comparative analysis of societies. The project of these two works, then, is to construct an ideal type for that analysis. As Teggart pointed out long ago, this approach to history is essentially teleological, since it presumes the whole used to explain the meaning of the parts.[2] In the present case the “whole” is Frankish society. The books thus fall in the category of “stages” history, to which may be added work on the same period by the English historian Chris Wickham, whose approach is also inspired by Polanyi notions of reciprocity and redistribution as essential means of securing social solidarity in primitive societies.[3] Both authors read the early medieval record through the eyes of social anthropologists, and are thus blind to what the eyes of Machiavelli and Adam Smith detect in it.

Devroey’s work thus poses a direct challenge to the alternative vision of early medieval society proposed by Karl-Ferdinand Werner, Jean Durliat and Elisabeth Magnou-Nortier, who view the early Middle Ages from the perspective of the two great theorists of self-interested human behavior. That perspective reveals significant continuity with late Roman civilization in Frankish institutions of public administration and landholding.[4] The findings rest on a re-reading of the polemical and chronological texts, on prosographical studies of the leading Frankish families in the degree the evidence supports it, and on close analysis of the contemporary legal texts. It starts from the premise that the dissolution of the Roman state in the West was essentially an appropriation of its levers of power by German military leaders to whom the Roman state had unwisely subcontracted the defense of the Empire. Given that premise, the central historical questions turn on how the change in administration affected existing governmental apparatus and the day-to-day life of ordinary people, and how political legitimacy ? the ability to command and the willingness to obey ? was maintained in the presence of new and foreign rulers. Of the day-to-day life we know virtually nothing; but it seems plausible that in the core of the Frankish kingdom, things went on pretty much as before, except that, as would be the case down to the middle of the seventeenth century, there was fighting among elites for control of the state and its fiscal resources, and that for this and other reasons that part of the economy based on exchange imploded. On the sources of political legitimacy and the apparatus of administration, the texts are more loquacious, and everything thing they say supports the notion of continuity rather than the creation of a new society by force.[5] If so, the early medieval past was not a different country, but a place and time where men (and women) behaved in ways that are familiar to us. It did not constitute a “whole” whose meaning is accessible only through an exposition of its inner logic, but a congeries of institutions, practices, and attitudes evolving at different rates under the pressure of particular events.

From the perspective of economic history the main issues concern the nature of landholding and the organization of the state. Was land effectively “owned” by the elite and farmed by tenants on tenures determined by asymmetric bargaining, or was it mostly in the hands of small holders subject to their paying a property tax? To some that may be a distinction without a difference: taxes mainly went to support soldiers who the conventional historiography holds were granted land and rights of peasants in payment for their services. In either case the agricultural surplus went to the same people. But from the perspective of agrarian history the distinction is crucial. Taxes were based on assessments not easily altered, since they were regulated by law. On the assumption that they continued to be collected by tax farmers, the proceeds, or more commonly the tax base that generated them, could be securitized and alienated like any other asset, which would explain the exceptionally complex pattern of claims revealed by the sources. The issue turns on the continuity of law. The “primitivist” view of early medieval society espoused by Devroey considers the early medieval era to be fundamentally lawless and governed by relations of force in which the strong expropriated the weak. The “Romanist” view holds for legal continuity; the strong appropriated the tax base but within what must have been fairly wide bounds maintained the rule of law with respect to collection. The issue bears directly on the interpretation of terms relating to agricultural organization, which can be read alternatively as describing estates and farms or as units of fiscal assessment. According to Devroey, the “fiscalist” view is in his words “formalist,” because it rests on the explicit meaning of the legal texts rather than their presumed “real” meaning. He denies that view at great length and in great detail. The denial represents the core of both volumes.

Neither book is an easy read. ?conomie rurale is intended as a textbook for students preparing the aggr?gation, or state doctoral examinations in medieval history. Puissants et mis?rables is a treatise constructed on Weberian principles modified by late twentieth-century French sociology. Both deploy immense erudition to support the conventional view of a discontinuity and social primitivism against the hypothesis of continuity. Since the technical debate turns on etymological issues bearing on individual terms, it would be fruitless to attempt to summarize the argument in a short review. I am not persuaded by it, but as I am not a specialist in late Roman and early medieval Latin my judgment carries no special weight in the debate. Nevertheless, many of his arguments strike me as dogmatic assertions and special pleading. Heavy reliance on Polanyi as a source of theoretical insight raises further danger flags, as do abstract sociological arguments used to motivate description and analysis of institutions. One longs for a simple explanation of how things worked rather than why they worked. In terms of the issues raised, both books would have been better served by a clear exposition of the alternative points of view followed by analysis of facts bearing on them. They contain a lot of useful matter, but it is hard work to release them from their matrix of verbiage. The bibliography is magnificent. To cite the review of Moritz-Maria von Igelfeld’s Portuguese Irregular Verbs, the books give the impression that “there is nothing more to be said on this subject. Nothing.”[6] There is, of course, much more to be said.

Of the two works, the textbook is more accessible to non-specialists, despite being disfigured by “boxes” containing further information of the kind familiar to users of elementary textbooks in economics. The other covers more ground and provides a splendid introduction to the huge explosion in scholarship since the 1960s. Neither book can be ignored. Though clearly not the last word in early medieval economic and social history, they represent a major contribution that no one pretending to an opinion on the period can afford to dismiss. They are, however, highly opinionated, and must be read in conjunction with the literature they criticize. This is hard work, but there are no short-cuts to mastering the secondary literature on early medieval economic history. The divisions among its main practitioners are important and deep. The best account in English is a recent survey by Goldsmith, who gives a clear exposition of the “fiscalist” hypothesis, and follows up its implications for the subsequent evolution of land tenure in France to the end of the Middle Ages.[7] This is the best place for beginners to start.

The early middle ages are a fascinating and central segment of the history of western civilization. Like all extended periods, they were a time of transition. The explosion of scholarship since the 1960s and the renewal of interest in classical antiquity have given new life to a subject whose general contours seemed to have been set in stone in the magnificent syntheses proposed by Pirenne and Bloch. It is time for a new synthesis that encompasses the new findings and interpretations in a plausible narrative account of the transformation of a society and economy over five centuries. That synthesis is within reach, but to attain it will require confronting these two large volumes that, like the Roman army in its latter days, defend the conventional wisdom on the several fronts of attack.

References:

1. Georges Duby, The Early Growth of the European Economy: Warriors and Peasants from the Seventh to the Twelfth Century, London (1974).

2. Frederick J. Teggart, Theory of History, New Haven (1925).

3. Chris Wickham, Framing the Early Middle Ages: Europe and the Mediterranean, 400 – 800, Oxford (2005).

4. Karl-Ferdinand Werner, Naissance de la noblesse: L’essor des ?lites politiques en Europe, Paris (1998); Elisabeth Magnou-Nortier, Aux sources de la gestion publique. 1. Enqu?te lexicographique sur le fundus, villa, domus, mansus, Lille (1993); Jean Durliat, Les finances publiques de Diocl?tien aux Carolingiens, 284-889, Sigmaringen (1990).

5. Bernard Bachrach, Early Medieval Warfare: Prelude to Empire, Philadelphia (2001).

6. Alexander McCall Smith, Portuguese Irregular Verbs, London (2003).

7. James Lowth Goldsmith, Lordship in France, 500-1500, New York (2003).

George Grantham is Professor of Economics at McGill University, where he teaches economic history and the history of economic thought. His work on the present topic includes “The Early Medieval Transition: On the Origins of the Manor and the Early Medieval Transition,” presented at the Annual Meetings of the American Economic Association, Nashville, 2003. He is currently revising papers on “What’s Space Got to Do with It? Distance and Agricultural Productivity before the Railway Age” and “The Prehistoric Origins of European Economic Integration.”

Subject(s):Government, Law and Regulation, Public Finance
Geographic Area(s):Europe
Time Period(s):Medieval

?conomie rurale et soci?t? dans l’Europe franque (VI-IX si?cles)

Author(s):Devroey, Jean-Pierre
Reviewer(s):Grantham, George

Published by EH.NET (July 2008)

Jean-Pierre Devroey, ?conomie rurale et soci?t? dans l’Europe franque (VI-IX si?cles). Paris: Belin, 2003. 381 pp. ?22.50 (paperback), ISBN: 2-7011-2618-5. and Jean-Pierre Devroey, Puissants et mis?rables: Syst?me social et monde paysan dans l’Europe des Francs (VI-IX si?cles). Brussels: Academie Royale de Belgique, 2006. 725 pp. ?60.50 (cloth), ISBN: 2-8031-0227-7.

Reviewed for EH.NET by George Grantham, Department of Economics, McGill University.

Most economic historians who do not specialize in the medieval period draw their understanding of its economic and social evolution directly or indirectly from the work of historians inspired by Henri Pirenne and Marc Bloch, both of whom viewed it as a decisive turning point in Western history. As set out by Georges Duby in his essay on the early growth of the European economy, the half millennium following the formal end of the Roman Empire in the West marks the crucial discontinuity in Western Europe’s economic and social history.[1] The notion was, of course, not new. Originating in the humanist philological critique of early medieval Latin, the notion of a decisive break in social, political, and economic institutions was extended to other domains in the debate between Abb? Du Bos and Montesquieu over whether the Franks were subject to royal taxation, and by early nineteenth-century efforts to construct historical typologies from the surviving diplomatic and legal texts as part of the project to place the French Revolution in historical perspective. That effort led to a consensus that the West experienced a major economic and institutional collapse in the sixth and seventh centuries, and that from the wreckage there emerged a more decentralized economic and political system based on the exploitation of the rural population by lords connected politically in hierarchies constructed from bilateral ties of mutual obligation and fidelity. That institutional space left little room for agricultural innovation and hardly any for economic organization founded on the legal egalitarianism of voluntary exchange. The historiography thus posed three questions: the first concerned the process by which the old world was transformed into a new one; the second concerned the nature of that new world as an economic and social type; the third was how it in turn gave birth to modern western capitalism. Since the dissolution of Roman civilization was an uncontested fact, most attention was devoted to the second and third questions. It is only in the past thirty years that the first has received the attention it deserves, with devastating consequences for the conventional wisdom.

The present works by the eminent Belgian historian Jean-Pierre Devroey represent a vigorous defense of the conventional view that the early medieval society and economy was a distinct social type fundamentally different from the societies that preceded and succeeded it. Explicitly inspired by the theories of Max Weber and Karl Polanyi, this vision is idealistic rather than causal or mechanistic, to use an old-fashioned dichotomy. It aims to explain “why” things worked in terms of their relation to a pre-existing whole rather than “how” they worked in terms of ordinary connections between cause and effect. For Devroey, the true history is sociology. The historian’s task is to show how relations between different elements of a society formed a coherent “whole” or type. The theoretical foundation of this approach to the past is Durkheim’s tenet that social cohesion is a necessary condition for the temporal persistence of a society. This makes the central task of the historian the identification of the sources and mechanisms of that cohesion. Since every society is unique, the mechanisms will differ, providing a basis for comparative analysis of societies. The project of these two works, then, is to construct an ideal type for that analysis. As Teggart pointed out long ago, this approach to history is essentially teleological, since it presumes the whole used to explain the meaning of the parts.[2] In the present case the “whole” is Frankish society. The books thus fall in the category of “stages” history, to which may be added work on the same period by the English historian Chris Wickham, whose approach is also inspired by Polanyi notions of reciprocity and redistribution as essential means of securing social solidarity in primitive societies.[3] Both authors read the early medieval record through the eyes of social anthropologists, and are thus blind to what the eyes of Machiavelli and Adam Smith detect in it.

Devroey’s work thus poses a direct challenge to the alternative vision of early medieval society proposed by Karl-Ferdinand Werner, Jean Durliat and Elisabeth Magnou-Nortier, who view the early Middle Ages from the perspective of the two great theorists of self-interested human behavior. That perspective reveals significant continuity with late Roman civilization in Frankish institutions of public administration and landholding.[4] The findings rest on a re-reading of the polemical and chronological texts, on prosographical studies of the leading Frankish families in the degree the evidence supports it, and on close analysis of the contemporary legal texts. It starts from the premise that the dissolution of the Roman state in the West was essentially an appropriation of its levers of power by German military leaders to whom the Roman state had unwisely subcontracted the defense of the Empire. Given that premise, the central historical questions turn on how the change in administration affected existing governmental apparatus and the day-to-day life of ordinary people, and how political legitimacy ? the ability to command and the willingness to obey ? was maintained in the presence of new and foreign rulers. Of the day-to-day life we know virtually nothing; but it seems plausible that in the core of the Frankish kingdom, things went on pretty much as before, except that, as would be the case down to the middle of the seventeenth century, there was fighting among elites for control of the state and its fiscal resources, and that for this and other reasons that part of the economy based on exchange imploded. On the sources of political legitimacy and the apparatus of administration, the texts are more loquacious, and everything thing they say supports the notion of continuity rather than the creation of a new society by force.[5] If so, the early medieval past was not a different country, but a place and time where men (and women) behaved in ways that are familiar to us. It did not constitute a “whole” whose meaning is accessible only through an exposition of its inner logic, but a congeries of institutions, practices, and attitudes evolving at different rates under the pressure of particular events.

From the perspective of economic history the main issues concern the nature of landholding and the organization of the state. Was land effectively “owned” by the elite and farmed by tenants on tenures determined by asymmetric bargaining, or was it mostly in the hands of small holders subject to their paying a property tax? To some that may be a distinction without a difference: taxes mainly went to support soldiers who the conventional historiography holds were granted land and rights of peasants in payment for their services. In either case the agricultural surplus went to the same people. But from the perspective of agrarian history the distinction is crucial. Taxes were based on assessments not easily altered, since they were regulated by law. On the assumption that they continued to be collected by tax farmers, the proceeds, or more commonly the tax base that generated them, could be securitized and alienated like any other asset, which would explain the exceptionally complex pattern of claims revealed by the sources. The issue turns on the continuity of law. The “primitivist” view of early medieval society espoused by Devroey considers the early medieval era to be fundamentally lawless and governed by relations of force in which the strong expropriated the weak. The “Romanist” view holds for legal continuity; the strong appropriated the tax base but within what must have been fairly wide bounds maintained the rule of law with respect to collection. The issue bears directly on the interpretation of terms relating to agricultural organization, which can be read alternatively as describing estates and farms or as units of fiscal assessment. According to Devroey, the “fiscalist” view is in his words “formalist,” because it rests on the explicit meaning of the legal texts rather than their presumed “real” meaning. He denies that view at great length and in great detail. The denial represents the core of both volumes.

Neither book is an easy read. ?conomie rurale is intended as a textbook for students preparing the aggr?gation, or state doctoral examinations in medieval history. Puissants et mis?rables is a treatise constructed on Weberian principles modified by late twentieth-century French sociology. Both deploy immense erudition to support the conventional view of a discontinuity and social primitivism against the hypothesis of continuity. Since the technical debate turns on etymological issues bearing on individual terms, it would be fruitless to attempt to summarize the argument in a short review. I am not persuaded by it, but as I am not a specialist in late Roman and early medieval Latin my judgment carries no special weight in the debate. Nevertheless, many of his arguments strike me as dogmatic assertions and special pleading. Heavy reliance on Polanyi as a source of theoretical insight raises further danger flags, as do abstract sociological arguments used to motivate description and analysis of institutions. One longs for a simple explanation of how things worked rather than why they worked. In terms of the issues raised, both books would have been better served by a clear exposition of the alternative points of view followed by analysis of facts bearing on them. They contain a lot of useful matter, but it is hard work to release them from their matrix of verbiage. The bibliography is magnificent. To cite the review of Moritz-Maria von Igelfeld’s Portuguese Irregular Verbs, the books give the impression that “there is nothing more to be said on this subject. Nothing.”[6] There is, of course, much more to be said.

Of the two works, the textbook is more accessible to non-specialists, despite being disfigured by “boxes” containing further information of the kind familiar to users of elementary textbooks in economics. The other covers more ground and provides a splendid introduction to the huge explosion in scholarship since the 1960s. Neither book can be ignored. Though clearly not the last word in early medieval economic and social history, they represent a major contribution that no one pretending to an opinion on the period can afford to dismiss. They are, however, highly opinionated, and must be read in conjunction with the literature they criticize. This is hard work, but there are no short-cuts to mastering the secondary literature on early medieval economic history. The divisions among its main practitioners are important and deep. The best account in English is a recent survey by Goldsmith, who gives a clear exposition of the “fiscalist” hypothesis, and follows up its implications for the subsequent evolution of land tenure in France to the end of the Middle Ages.[7] This is the best place for beginners to start.

The early middle ages are a fascinating and central segment of the history of western civilization. Like all extended periods, they were a time of transition. The explosion of scholarship since the 1960s and the renewal of interest in classical antiquity have given new life to a subject whose general contours seemed to have been set in stone in the magnificent syntheses proposed by Pirenne and Bloch. It is time for a new synthesis that encompasses the new findings and interpretations in a plausible narrative account of the transformation of a society and economy over five centuries. That synthesis is within reach, but to attain it will require confronting these two large volumes that, like the Roman army in its latter days, defend the conventional wisdom on the several fronts of attack.

References:

1. Georges Duby, The Early Growth of the European Economy: Warriors and Peasants from the Seventh to the Twelfth Century, London (1974).

2. Frederick J. Teggart, Theory of History, New Haven (1925).

3. Chris Wickham, Framing the Early Middle Ages: Europe and the Mediterranean, 400 – 800, Oxford (2005).

4. Karl-Ferdinand Werner, Naissance de la noblesse: L’essor des ?lites politiques en Europe, Paris (1998); Elisabeth Magnou-Nortier, Aux sources de la gestion publique. 1. Enqu?te lexicographique sur le fundus, villa, domus, mansus, Lille (1993); Jean Durliat, Les finances publiques de Diocl?tien aux Carolingiens, 284-889, Sigmaringen (1990).

5. Bernard Bachrach, Early Medieval Warfare: Prelude to Empire, Philadelphia (2001).

6. Alexander McCall Smith, Portuguese Irregular Verbs, London (2003).

7. James Lowth Goldsmith, Lordship in France, 500-1500, New York (2003).

George Grantham is Professor of Economics at McGill University, where he teaches economic history and the history of economic thought. His work on the present topic includes “The Early Medieval Transition: On the Origins of the Manor and the Early Medieval Transition,” presented at the Annual Meetings of the American Economic Association, Nashville, 2003. He is currently revising papers on “What’s Space Got to Do with It? Distance and Agricultural Productivity before the Railway Age” and “The Prehistoric Origins of European Economic Integration.”

Subject(s):Government, Law and Regulation, Public Finance
Geographic Area(s):Europe
Time Period(s):Medieval

Economics in the Shadows of Darwin and Marx: Essays on Institutional and Evolutionary Themes

Author(s):Hodgson, Geoffrey M.
Reviewer(s):Mongiovi, Gary

Published by EH.NET (March 2008)

Geoffrey M. Hodgson, Economics in the Shadows of Darwin and Marx: Essays on Institutional and Evolutionary Themes. Cheltenham, UK: Edward Elgar, 2006. viii + 265 pp. $100 (cloth), ISBN: 1-84542-497-2.

Reviewed for EH.NET by Gary Mongiovi, Department of Economics and Finance, St John’s University.

Charles Darwin and Karl Marx, each in his own way, radically transformed our understanding of human history. Marx developed a powerful theory of how economic systems change over time. But Darwin’s theory of natural selection has become the preferred metaphor of social scientists who want to understand how institutions emerge, take root and evolve. One recent example of this “evolutionary turn” is the hypothesis put forth by Gregory Clark in A Farewell to Alms (Princeton University Press, 2007), that England’s industrialization in the early nineteenth century can be explained by the high fertility of the medieval nobility, who, through a process of natural or cultural selection, infused the country’s population with traits conducive to economic growth. In another recent book, Niall Ferguson draws upon Darwinian principles to account for, and justify, the modern financial system (see The Evolution of Financial Services , Oliver Wyman, 2007). In the book under review, Geoffrey M. Hodgson, Research Professor in Business Studies at the University of Hertfordshire, argues in the same vein that Darwin rather than Marx provides the appropriate model for making sense of socio-economic change.

Marx read On the Origin of Species in late 1860. His initial reaction was positive; he wrote to Ferdinand Lassalle in January 1861 that “Darwin’s work is most important and suits my purpose in that it provides a basis in natural science for the historical class struggle” (K. Marx and F. Engels, Collected Works, Vol. 41, p. 246; International Publishers, 1985). But Marx’s enthusiasm began to wane as soon as it dawned on him how much Darwin owed to Malthus. In June 1862 Marx commented to Engels that “Darwin rediscovers among the beasts and plants, the society of England with its divisions of labour, competition, opening up of new markets, ‘inventions,’ and Malthusian ‘struggle for existence.’ It is Hobbes’ bellum omnium contra omnes …” (Collected Works, Vol. 41, p. 381). Marx anticipated that reactionaries would appeal to Darwin’s theory as “a conclusive reason for human society never to emancipate itself from its bestiality” (Collected Works, Vol. 43, p. 217). By 1866, Marx was championing Pierre Tr?maux’s Origine et Transformations de l’Homme et des autres ?tres (Paris, 1865) ? now justly forgotten ? as a “significant advance over Darwin.” For Marx, Tr?maux’s great improvement was that he placed progress at the center of his conception of evolution, whereas “Darwin regards [progress] as purely accidental …” (Collected Works, Vol. 42, p. 304).

Marx’s endorsement of Tr?maux over Darwin was a serious lapse in judgment. But the misstep is explained by the affinities between Tr?maux’s theory and Marx’s project to expose a set of forces that drive socio-economic development. Opposition to this idea that history has a “logic” is at the heart of Hodgson’s coolness toward Marx. Whereas Darwin recognized that biological systems are open ? subject to external forces like climate change or species migration ? Marx, Hodgson charges, explains capitalism’s historical trajectory almost entirely in terms of internal mechanisms. Hodgson further contends that Marx ascribes to these mechanisms a teleological character that is incompatible with the open-endedness of Darwinian evolution: they propel the system toward collapse, and set the stage for the next phase of human history, socialism. In biological systems, new traits originate as random mutations, and proliferate if they confer some survival advantage on an organism or population in the prevailing environmental conditions; these new traits may in turn react back on the natural environment. Because the biological system is open, and its constituent elements interact with one another in complex ways, the outcome of the process is not susceptible of prediction: there is no determinate end-point. In this respect, Darwin’s perspective is closer than Marx’s to the “old institutionalist” tradition that has inspired Hodgson’s work over the past two decades.

Hodgson wrongly asserts that Marxism overlooks the indispensable social functions of customs and institutions as repositories of collective knowledge. Marx knew that institutions evolve as solutions to problems that individuals and groups encounter in going about their business; in his account of how capitalism develops, custom is a crucial element of the superstructure that reinforces the underlying economic basis of society. Marx saw also that institutions exhibit inertia: they persist long after the circumstances that gave rise to them have disappeared. As often as not, the new institutions themselves helped to bring about the transformation of the material conditions of society. This disjunction between institutions and the evolving mode of production, Marx hypothesized, generates tensions, or contradictions, that lead eventually to the withering of old institutions and their replacement by new ones: a socio-economic system is pushed forward through history by the tensions generated by the production relations which form the system’s institutional core. Hodgson does not consider whether this bold hypothesis is a fruitful way to approach the analysis of socio-economic change; he simply dismisses it as “teleological” and moves on.

Social Darwinists like Herbert Spencer, William Graham Sumner and, in our own day, Charles Murray maintain that natural selection accounts for the misery that market economies inflict on large numbers of people: the poor are poor because they are inferior or unfit in some objective sense. This is not an application of a metaphor, but a claim about actual social and biological processes. Though its environmental niche is small, Social Darwinism, now generally regarded as morally repugnant and empirically vacuous, poses something of a difficulty for anyone who wants to argue that the theory of evolution provides an apt template for the explanation of social processes. In Chapter 3 Hodgson rescues Darwinism from this ditch. He points out that the term “Social Darwinism” was rarely used before the mid-1920s, and when it was used it was usually deployed by progressives against free-market fundamentalists. We learn also that the writers conventionally labeled Social Darwinists were in fact not genuine Darwinians. But the misapplication of allegedly Darwinian ideas in support of “an ethics of rapacity and greed” (p. 47; the words belong to the sociologist Erville Woods) ? a development that, as we have noted, Marx foresaw ? led to a reaction among social scientists, particularly sociologists, who sought to purge their disciplines of all traces of biological causality. Talcott Parsons plays a malign role in Hodgson’s story. Parsons, who wanted to carve out a secure and influential professional niche for sociology, strategically broadened the definition of Social Darwinism to encompass “anyone who applied biological ideas in the social sciences” (p. 54). He then distorted the views of those who fell within the definition, demonized the distorted views, and erected a barrier between the social sciences and biology.

Hodgson makes a persuasive case that the history of the term “Social Darwinism,” in particular its transformation into an epithet, contributed to the disappearance of biological reasoning from the social sciences. But a few loose ends remain. For a start, Hodgson doesn’t explain why Parsons thought a full-throttle attack on Social Darwinism would advance the professional interests of sociologists. Nor is it clear how Veblen and the American institutionalists fit into the argument. They recognized the evolutionary character of social phenomena, were never tarred with the Social Darwinist brush, and were an influential presence in American economics into the 1950s, long after Parson’s crusade had succeeded in marginalizing the ideas of Spencer and Sumner. The near-demise the Veblenian tradition owes little to the assault on biological approaches that Hodgson describes. In economics the dominant metaphors had, from early on, been drawn mainly from physics. The institutionalists showed that a “biological” outlook might be more appropriate for understanding a large class of human activities; but they were swimming against the current.

In Chapter 4 Hodgson elaborates his critique of Marx. The charge that Marx’s theory is teleological is here connected to another criticism ? that he lacks an adequate theory of human agency, of why people behave as they do. While a Marxian theory of agency would be useful to have (and a good deal of work, ignored by Hodgson, has been done in that direction), the fact that Marx did not himself provide one doesn’t invalidate his general approach. Marx was primarily interested in how the system as a whole reproduces and evolves, and at that level of analysis, some degree of abstraction about individual behavior is not only permissible but necessary. To be sure, class interests and material conditions do not compel people to behave in ways that bring about some inevitable path of social development. Marx knew this, even if he was confident that capitalism would eventually collapse under the weight of its internal contradictions. He knew too, though, that those material conditions have ramifications for what people believe about the world, for how they make choices, and consequently for how society evolves. Hodgson’s remarks on these matters were initially made in 2001, as the opening contribution to a debate with Alex Callinicos, whose rebuttal, presented here as the second part of the chapter, makes short work of Hodgson’s caricature of Marx’s views.

The book loses its thematic focus after Part 1. Readers looking to find direct engagement with the ideas of Darwin and Marx can put the book aside once they have gotten through Chapter 4. Darwin recedes into the background, and Marx receives no attention at all after Chapter 6. This is not to say that the remaining sections of the book lack interest.

In Part 2 Hodgson scores some hits against the critical realist school. He begins by dismantling the claim often made by critical realists that their methodological tenets support an emancipatory left-of-center politics. He then moves on in Chapter 6 to critique several concrete analytical applications of critical realism ? its utilization in defense of Marx’s theory of the tendency of the profit rate to fall; and the attempt to explain Britain’s late-twentieth century industrial decline as the result of trade union resistance to technological change and workplace reorganization. In these chapters Hodgson delivers a penetrating dissection of critical realism’s vulnerabilities, though the effect is marred by the occasional cheap shot, as when he writes that critical realism “is a means for Marxist academics to make political postures while simultaneously earning their crust doing serious academic work” (p. 93).

Chapter 7 is an insightful assessment of “The Problem of Formalism in Economics.” Hodgson identifies two extreme positions on mathematical formalism: (1) rejection of formalism out-of-hand, a view which is close to the critical realist stance; and (2) the treatment of formalism, in itself, as the criterion of scientific legitimacy, without due regard to whether the formal techniques utilized in a particular argument cast light on the real world ? an attitude that is all too evident in modern economics. Hodgson advocates a middle-of-the-road approach: formalism can be useful if we are attentive to the interpretative context in which any given formal model is developed and applied. This sensible view, however, then raises the question, left unaddressed by Hodgson, of what other criteria are necessary to gauge the usefulness of a model.

The third part of the book is concerned mainly with taxonomic issues: how are institutions, habits, rules, routines, customs and norms different from one another, and how are they connected? Much of the ground covered here is familiar, and there is a good deal of hair-splitting on display. These chapters flunk the MEGO test (“My Eyes Glazed Over”).

Hodgson has less to say than one might expect about how new institutions originate, or why they take this or that particular form. Marx provides a potential answer to such questions, but Hodgson consigned Marx to the dustbin of history in Part 1, and wants to leave him there. When, in Chapter 10, Hodgson does take a stab at the problem of how institutions and rules come into existence, his analysis lets us down. With coauthor Thorbj?rn Knudsen, he approaches the issue via a technical exercise that has become common in the new institutionalist literature, a game-theoretic computer simulation aimed at showing how a particular rule ? in this case, the convention about whether cars are to be driven on the left or right side of the road ? might emerge from the undirected choices of atomistic agents. It is a curious exercise for Hodgson to undertake because it seems to be fundamentally at odds with the “old institutionalist” injunction not to treat social actors as atomistic entities. If institutions really do matter, our default setting ought to be skepticism toward any attempt to explain even a simple rule in terms of a model that abstracts from social and political context. Hodgson’s simulation results undermine the view that habits must be grounded in given individual preferences; but I’m not sure we need this sort of analysis to tell us there’s something fishy about the crude reductionism of utility-maximization models. That the convention under examination involves no issue of conflict also limits its interest.

The book’s central message is that “Explanations of socio-economic phenomena [ought not to be] reduced … to individuals [or] to institutions alone” (p. 201). Few would disagree. In elaborating this message, Hodgson overstates the differences between his own methodological approach and Marx’s; herein lies the book’s principal flaw. Hodgson presents Darwin and Marx as mutually exclusive alternatives, when they are in many respects complementary to one another. Darwinian evolution is indeed “random” in a way that Marx’s capitalist dynamics are not. There’s a good reason for this. Social systems are different from biological systems, and the Darwinian metaphor can carry us only so far. One has the impression that Hodgson wants to shield institutionalism from being tarnished by too close an association with Marxism. Yet his perceptive and careful reflections on social transformation would be considerably enriched by a more liberal assimilation of Marxian insights.

Gary Mongiovi teaches economics at St John’s University. He and Steve Pressman co-edit The Review of Political Economy.

Subject(s):History of Economic Thought; Methodology
Geographic Area(s):General, International, or Comparative
Time Period(s):20th Century: WWII and post-WWII

Remaking U.S. Trade Policy: From Protectionism to Globalization

Author(s):Chorev, Nitsan
Reviewer(s):Irwin, Douglas A.

Published by EH.NET (January 2008)

Nitsan Chorev, Remaking U.S. Trade Policy: From Protectionism to Globalization. Ithaca: Cornell University Press, 2007. xii + 242 pp. $42.50 (cloth), ISBN: 978-0-8014-4575-0.

Reviewed for EH.NET by Douglas A. Irwin, Department of Economics, Dartmouth College.

In recent years, political scientists (such as I. M. Destler, Sharyn O’Halloran and Michael Hiscox), economists (Robert Baldwin), and historians (Alfred Eckes, Thomas Zeiler) have studied the shift in U.S. trade policy from high protective tariffs in the early twentieth century to lower tariffs and even “free trade” agreements in the late twentieth century. With this book, a sociologist, Nitsan Chorev (an assistant professor at Brown University), has now entered the fray.

In Remaking U.S. Trade Policy, Chorev argues that globalization did not arise simply because economic obstacles to greater integration in trade and finance eroded over time. Rather, there was an important political component to globalization because legislative and policy barriers to integration were systematically dismantled. Chorev argues that “advocates of free trade prevailed in the struggle with protectionists by manipulating the institutional arrangements governing trade policy formation and implementation, replacing institutional arrangements that favored protectionism with new ones that favor a more internationalist orientation.”

Chorev identifies three such institutional shifts in U.S. trade policy since the early 1930s. First, the Reciprocal Trade Agreements Act of 1934, which eventually led to the General Agreement on Tariffs and Trade in 1947, introduced a period of what she calls “selective protectionism,” i.e. a general reduction in trade barriers except for politically powerful import-sensitive sectors. Second, the Trade Act of 1974 strengthened the laws governing trade remedies under the jurisdiction of the executive branch and introduced a regime of “conditional protectionism,” i.e., certain statutory requirements had to be met for firms to receive protection from imports. Third, the creation of the World Trade Organization in 1995 established a regime of “legalized multilateralism” wherein the trade policies of all countries operated under a single legal framework, complete with a judicial dispute settlement mechanism. Each of these institutional transformations shifted U.S. policy in the direction of more open trade: “each new institutional regime led to the further exclusion of protectionist voices from the process of decision making” and hence “today’s protectionist sentiments pose little threat to the durability of economic globalization and the future expansion of economic practices.”

The book is very well organized around these concepts. Chapters 1 and 2 outline the political basis for economic globalization. Chapter 3 examines selective protectionism during the 1934-1974 period. Chapter 4 deals with the origins of conditional protection, which characterized the period from 1974 to 1994 and is covered in chapter 5. Chapter 6 examines legalized multilateralism from 1994 to 2004.

The organizational triad of selective protectionism, conditional protectionism, and legalized multilateralism is a useful way of thinking about these periods. The book is a good introduction to this important policy shift (although not as exciting as Destler’s American Trade Politics.) In the end, however, the book does not reveal much that is new to those familiar with these periods in trade policy history. While chapter 3 draws mainly on secondary sources, Chapter 4 (on the period just before 1974) brings out interesting new archival evidence on thinking about trade policy in the Nixon administration. In addition, Chapter 5 relies on archival evidence from the Ford and Carter administrations. While useful to specialists, the new archival evidence does not really change our understanding or interpretation of what trade policy was all about during these years.

The book is well written but does not depart from the standard storyline established by others. The greatest disappointment to this reader was the hope that the discipline of sociology might add a new perspective on the policy shift, which has been studied in detail by political scientists. While the story is nicely told, it does not appear that sociologists have any greater insight into (or any significantly different understanding of) this change than other academic disciplines. For example, Chorev depends upon political scientists such as Haggard (1988), O’Halloran (1994), Hiscox (1999), Schnietz (2000) and others who have studied the initial transformation brought about by the Reciprocal Trade Agreements Act of 1934 in great detail. Still, Chorev’s book provides a good introduction for those wishing to understand the important changes in U.S. trade policy over the past seventy years.

References:

Destler, I. M. 2005. American Trade Politics fourth edition. Washington, DC: Institute for International Economics.

Haggard, Stephan. 1988. “The Institutional Foundations of Hegemony: Explaining the Reciprocal Trade Agreements Act of 1934.” International Organization 42: 91-119.

Hiscox, Michael J. 1999. “The Magic Bullet? The RTAA, Institutional Reform and Trade Liberalization.” International Organization 53: 669-98.

O’Halloran, Sharyn. 1994. Politics, Process, and American Trade Policy. Ann Arbor: University of Michigan Press.

Schnietz, Karen E. 2000. “The 1934 Reciprocal Trade Agreements Act: Partisan Institutional Protection of Liberal Trade Policy.” Journal of Policy History 12: 417-44.

Douglas A. Irwin is Professor of Economics at Dartmouth College. His book The Genesis of the GATT (coauthored with Petros Mavroidis and Alan Sykes) will be published by Cambridge University Press in 2008.

Subject(s):International and Domestic Trade and Relations
Geographic Area(s):North America
Time Period(s):20th Century: WWII and post-WWII