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How Countries Compete: Strategy, Structure, and Government in the Global Economy

Author(s):Vietor, Richard H. K.
Reviewer(s):Eloranta, Jari

Published by EH.NET (August 2007)

Richard H. K. Vietor, How Countries Compete: Strategy, Structure, and Government in the Global Economy. Boston: Harvard Business School Press, 2007. vi + 308 pp. $35 (hardcover), ISBN: 978-1-4221-1035-5.

Reviewed for EH.NET by Jari Eloranta, Department of History, Appalachian State University.

Richard Vietor, a prominent Harvard scholar who is comfortable in many fields including business history, economics, and management, has written a comprehensive and rich survey of the “unique social, economic, cultural, and historical forces that shape individual governments’ approach to economic growth.” The book builds from his extensive research and consulting experience, providing in essence a thesis of why government can serve a crucial role in the economic development of nations. Vietor argues that government can do this in a variety of ways in order to advance the performance of business, namely by inducing savings and offering low interest rates, guaranteeing property rights and other necessary institutions, providing an educated workforce, and maintaining low inflation. The main thrust of the book is to posit that institutions are the central building blocks of any economy, and that “good” institutions are vital for sustained economic development. This argument is not very new, albeit his emphasis on the role of the government is a bit more novel. He wants the book to serve as sort of a manual for business managers, so that they can learn from the past and the present, as well as to be able to handle future challenges.

This volume is divided into three sections. The first focuses on the Asian high growth experience, in particular on Japan, Singapore, China, and India. Vietor’s reason for this is that he wants to reel in the casual reader by discussing the cases that are the most visible examples of his arguments. The spectacular growth performances of these nations are discussed at length in the book, usually preceded by rather skimpy historical introductions. By and large, he emphasizes the role of government policies and institutions in producing high savings and investment, low inflation and wages, and the transitions toward export-led development strategies. The second part discusses cases in which institutional transitions have been less successful, such as Russia and Mexico. Vietor argues that the main difference between for example Latin America and Asia has been the lack of institutional progress and stability. The third, and final, section of the book analyzes the role played by deficits, debt patterns, and persistent stagnation in the development of the biggest economies in the world. His main focus is on comparative analysis of the development paths of the European Union, Japan, and the United States. The main message of this section appears to be that having a strong governmental presence in the economy does not necessarily have adverse effects for economic growth, a message that is obviously aimed at American policymakers.

While this volume is certainly well researched and fluently written, even appealing for lay readers too, it has some weaknesses. The first is that it is written for a general audience and mostly lacks theoretical depth, for example in its treatment of institutions. Vietor does not address some of the major developments in the field of institutional economics and history, in particular the common division between formal and informal institutions. For him institutions seem to mainly consist of the former kind, produced by various governmental organizations. The analysis would have been enriched by a comparative analysis of the evolution of particular informal institutions and cultural development patterns, as done before by Douglass North and Avner Greif, among others. My second point of criticism, or curiosity, pertains to the selection of the country cases. For example, why focus so heavily on the European Union as a uniform entity and then select Italy as an illustrative case study of its problems? Vietor’s treatment of the integration process itself, and its history, is superficial at best. Moreover, if the author wanted to make a point about government-business relations and the beneficial role of the state, why not choose the Nordic countries as cases, given the performance of their welfare states and corporatist institutions? Third, the book is very light in terms of quantitative evidence to support the main arguments, mostly because the book is meant for a broader audience. Specialists, however, will be clamoring for more evidence to prove some of the causal linkages inferred by the author. For instance, the link between military spending and economic growth, as Vietor intimates in the case of Japan, is not necessarily that straightforward and the so-called peace dividend is often hard to come by.

All in all, it is very difficult to do justice to such a broad, proficient, and comparative analysis of today’s global economy in such a brief review. It is certainly a worthwhile read for anyone interested in the issues of institutional and economic development, role of the state in the current era of globalization, and comparative analysis of economic processes. If the reader is interested in detailed economic history and analysis of the countries covered in the book, then perhaps it would be useful to refer to more specific studies on those polities. While this book lacks some of the explanatory power and evidence of the usual academic tomes, it more than makes up for this in its powerful narrative. It is also very well written and should appeal to policymakers, business managers, and other informed readers both domestically and abroad.

Jari Eloranta is Assistant Professor in the Department of History, Appalachian State University in Boone, North Carolina. His research interests include corporate political action in the long run, defense economics and the financing of wars, as well as the analysis of government spending in the nineteenth and twentieth centuries. His publications include: “The Evolution of Corporate Political Action: A Framework for Processual Analysis” (with Juha-Antti Lamberg, Mika Skippari, and Saku M?kinen) Business and Society (2004); “Rent Seeking and Collusion in the Military Allocation Decisions of Finland, Sweden, and the UK, 1920-1938″ (forthcoming, 2008) Economic History Review; and “Struggle for Leadership? Military Spending Behavior of the Great Powers, 1870-1913″ (2007) European Review of Economic History.

Subject(s):Government, Law and Regulation, Public Finance
Geographic Area(s):General, International, or Comparative
Time Period(s):20th Century: WWII and post-WWII

Structuring the Information Age: Life Insurance and Technology in the Twentieth Century

Author(s):Yates, JoAnne
Reviewer(s):Haigh, Thomas

Published by EH.NET (May 2007)

JoAnne Yates, Structuring the Information Age: Life Insurance and Technology in the Twentieth Century. Baltimore: Johns Hopkins University Press, 2005. x + 351 pp. $50 (hardcover), ISBN: 0-8018-8086-6.

Reviewed for EH.NET by Thomas Haigh, School of Information Studies, University of Wisconsin ? Milwaukee.

In Structuring the Information Age, JoAnne Yates tells the story of the use of computers and tabulating machines within the life insurance industry. Beginning with a snapshot of the already-mature life insurance industry during the first decade of the last century, Yates guides us through the introduction of successive waves of tabulating and punched card equipment, the interaction of life insurance firms with early producers of tabulating and computer technology, and the use of three generations of electronic computers large and small from the 1950s to the 1970s.

This timely and important work is the first scholarly history devoted to the use of information technology within a single American industry. Much less historical attention has been devoted to the use of computers than to the history of computer technologies and of computer manufacturing firms. But the economic and social importance of information technology stems more from its contributions to almost every industry, social activity and scientific discipline than from the relatively tiny industry devoted to designing and building computers. The internal dynamics of hardware and software firms provide fascinating stories but are rarely more than tangentially related to the experiences of computer users. Recent work by scholars such as James Cortada (2003), Martin Campbell-Kelly (1994), Jon Agar (2003) and me (Haigh 2001, 2001) has begun to explore the role of organizations and individuals as users of information technology. Structuring the Information Age makes a major contribution to this literature, establishing itself as the most important work to date on the use of information technology within business.

Yates tells the story of life insurance in parallel with the story of information technology within it. History has been defined as the study of change over time, but any historical work must also explain continuities: what didn’t change and why. By focusing on a single industry, Yates shows successive generations of information technology shaping, and being shaped by, the industry’s existing business processes, cultures and practices. Stories told from the viewpoint of the computer and its creators inevitably tend to produce tales of disruption and sudden upheaval. But, told from the viewpoint of a computer-using industry, this story is for the most part one of gradual and evolutionary change.

The first chapter, a sketch of the life insurance industry in the early 1900s and its origins, sets the stage for what follows. As well as ensuring the book is accessible to those without previous knowledge of the industry, it outlines a number of distinctive features of the life insurance business. This material supports later arguments that the specific course of technological development within the industry had a great deal to do with its history and culture. This was a conservative industry, heavily regulated and concerned with stability and efficiency rather than profit or rapid growth. Yet processing paperwork was its main business process, rather than a sideline as for a manufacturing industry, meaning that improvements to administrative efficiency promised a real boost to overall performance.

The use of tabulating machines by insurance companies from the 1890s onward is the subject of the next three chapters. Although a considerable amount has been written on the business and technical history of the tabulating machine industry (Campbell-Kelly 1989; Heide 1997), almost nothing had been published on their administrative application in America between their celebrated debut at the US Census of 1890 and their adoption on a massive scale by the newly established Social Security Administration circa 1935. Yates’ work here is the deepest analysis to date of their actual use in business. She is the first author to analyze what I consider a crucial transition: from application of punched card technology purely within the niche field of statistical tabulation for which it was originally designed (in this case, actuarial work within life insurance) to its general use for a much broader range of routine administrative tasks such as payroll, billing, and account balance calculation. Yates identifies early operational use of the machines by Phoenix Mutual as early as 1910 (pp. 46-47), long before manufacturers had begun to target applications of this kind by adding hardware features to support it.

When punched card machines were modified to better support administrative work, Yates places users, rather than supplier firms, in the vanguard. As in her award winning Business History Review paper (Yates 1993) she presents technological improvements to tabulating machines during the 1920s and 30s as a “co-evolution” between technology and use. The two most important advances during this era were the addition of printing capabilities and the extension of tabulating equipment to process letters as well as numbers. Both of these advances were pioneered by insurance firms, working closely with established suppliers and entrepreneurial innovators, sponsoring the development of new machines and even, in one case, purchasing a supplier firm.

Beginning with the 1920s, Yates pays considerable attention to the role of trade associations in the spread of technological practices within the life insurance industry. This too is an important contribution. While Phil Scranton and others have drawn attention to the historical development of industries as clusters of firms (Scranton 1997), business historians more often write as if each firm acted independently when introducing managerial, technological, and organizational innovations. Trade associations, in this case the Life Office Management Association, play a vital role in sharing experiences, discussing new ideas, and legitimating particular applications of technology. They also provide a bridge between managers within firms, equipment suppliers, and independent experts. LOMA set up formal working groups and committees to evaluate new technologies and formalize best practices for their use.

The second half of the book is about the computerization of the life insurance industry. Two chapters deal with early developments during the 1940s and 1950s, another with the third generation computer systems introduced in the 1960s and used into the 1970s, and a final narrative chapter presents two detailed case studies. The topics of these chapters mirror those already established: interactions between the users and producers of technology, incremental and evolutionary change, and the importance of trade associations in shaping technological adoption. The symmetry Yates achieves between her analyses of the punched card and computer eras captures one of her main insights: that user organizations experienced computer technology as an extension of well-established tabulating technologies rather than as a revolutionary break with the past. Indeed, this perception itself played an important role in shaping the ways in which computers were used and may therefore have been something of a self-fulfilling expectation. (While the continuities between the tabulating industry and the business computing industry have been well documented, less has been written about these continuities in use (Haigh 2001)).

Yates offers an extended discussion of Prudential Insurance’s Edmund Berkeley, one of the most colorful figures in the early history of computing. Berkeley was exposed to early computing efforts during the war, and returned to the world of insurance keen to apply the power of these new electronic marvels to insurance work. He worked closely with the designers of the Univac I, and pushed Prudential into becoming the first firm to order a commercial computer. (The order was later cancelled, but by then Berkeley had already embarked on an idiosyncratic career as author of the first popular guide to computing, publisher of the first computer journal, and founding secretary of what grew into the main association for computer science.) Berkeley, it must be said, is something of an exception in this book, as one of the few individuals granted much personal agency or a life story. His story has been told before, not least by Yates herself (Yates 1997), but it benefits here from its context as part of the longer history of technological innovation in the life insurance history.

Subsequent discussion returns the focus to trade groups, particularly the Society of Actuaries, in studying and standardizing the use of computers. Yates discusses the strategies taken by a number of firms large and small, illustrating differences in the kinds of computers ordered, the tasks to which they were applied, and the aggressiveness with which companies attempted to impose new business processes along with the new hardware.

These chapters also include some brief discussion of the organizational changes around the technology: feasibility studies, personnel issues, and worries about technological unemployment. The early-1960s transition from vacuum tube computers to transistorized machines such as the IBM 1401 appears here as another evolutionary development, as does the arrival of IBM’s hugely successful and technologically disruptive range of 360 series machines in the mid-1960s. While Yates follows some aspects of the story into the early 1970s, the narrative fizzles out without reaching any clearly demarcated stopping point or milestone event. Instead she shifts to case-study mode, recapitulating events of computer era through developments in two companies: New England Mutual Life and Aetna Life. These case studies, sourced in part from interviews with managers involved in events, help to bring some texture to the story and demonstrate the interplay of industry-wide trends with personal and cultural factors specific to individual firms.

Yates does an excellent job in meeting a key challenge facing anyone writing on the historical use of information technology: how to convincingly analyze technological capabilities without getting the book stuck in a swamp of model numbers and electronic widgets. Throughout the book, she provides just enough detail on the technological capabilities of different generations of tabulating machines and early computers to support her analysis of their business applications. As a result it should prove accessible to readers unstepped in the existing history of computing literature.

Stories familiar from the viewpoint of producer histories, such as the late-1950s success of IBM’s small but flexible 650 computer, take on a new aspect when seen from the viewpoint of user organizations. Yates provides a particular service by showing how identical machines were used in different ways by different firms. Users play a particularly important role in determining the social and organizational impact of computer technologies because of the huge flexibility of the underlying hardware and the consequent importance of software. Insurance companies wrote their own application programs and applied the machines to different areas of the business. Some aimed to consolidate processes, while others mimicked the existing paper-based procedures. While no individual user could exert the same influence over computer hardware in the 1960s that Berkeley enjoyed in the 1940s, the importance of software meant that individual firms continued to exercise an enormous amount of control over the functioning and organizational impact of their own computers. The success of the popular ’62 CFO package introduced by IBM for smaller firms showed that even companies using the same application software package could achieve very different results. In what may be the first historical analysis of the user community of a single mainframe software package, Yates finds that firms used the package in different ways, with some rewriting it to create their own versions. She demonstrates that software packages played an important role within the life insurance industry a good decade before the independent packaged software industry was established in the early 1970s. (For more on this issue, including discussion of an earlier paper by Yates on the topic (Yates 1995), see Haigh (2002).) It remains unclear whether the insurance industry was unique in this respect, or if an equally close examination of other industries will reveal similar examples of early software standards.

Yates’ methodologies and sensibilities are unmistakably those of business history rather than economic history. One fascinating aspect of the story summarized here is the willingness, indeed the eagerness, of hundreds of companies to order computers long before their economic viability had been established. Yates places less emphasis than I do on the symbolic value of computerization as an emblem of modernity, which I believe rapidly led to a situation in which no self-respecting firm could afford not to place an order for a computer. Did the sometimes frenzied investments made in computer technology during the 1950s, 60s and 70s ever pay off? Yates doesn’t know for sure, but neither does anyone else ? including the people who ordered the computers. But unlike other historians who have tackled the business use of computer technology, she did make a concerted effort to find some solid data on the topic. Numbers are crunched, industry averages calculated, and estimates made of the percentage of insurance premiums consumed by administrative overhead. The result: no clear link between computerization and efficiency within individual firms or within the industry as a whole. (This mirrors the findings of Paul Strassman (1997) and other observers of the so-called “productivity paradox” during the 1980s and early 1990s.) Believers in the strategic importance of computing might object that this focus on clerical cost reduction obscures what were often called the “intangible” benefits of flexibility, better managerial decision making, new products or services made possible by automation, and so on. But these benefits appear only rarely in the book, and Yates shows in several of the case studies that firms attempting to make more aggressive use of computer technology to integrate their operations or provide real-time interactive access to information tended to run into insurmountable technical obstacles during the 1950s and 60s.

Like most historians, Yates devotes little explicit discussion to methodological or theoretical questions. This is an observation of disciplinary norms rather than a criticism, and her narrative moves smoothly and convincingly throughout. She relies largely on archival sources, meaning that her evidence is rich but must face the same question as any business history based largely on case studies: how representative are these firms of the general population of institutions of the same kind? As mentioned previously, Yates goes a long way toward answering this question by exploring sources from a second kind of institution: trade associations. This gives a glimpse at the kinds of questions preoccupying administrative managers within life insurance firms at different points in time and of the stories they were telling each other about the power of technologies and systematization.

The one overt appearance of theory in the book is her invocation (pp. 4-5) of Anthony Giddens’ structuration theory as an underpinning justification for her approach and as the source of the book’s title. (Wanda Orlikowski, a collaborator of Yates on earlier work, is well known for applying structuration theory to the use of technologies within organizations.) Structuration theory aims to reconcile the freedom of individual action with the power and persistence of social structure. Its central insight is that social structures of all kinds constrain and guide individual actions, but are themselves constantly reproduced and minutely shifted by those actions. Though the potential relevance of this metatheory to the mutual shaping of institutions and practices is clear, Yates never explicitly comes back to it in the body of the work or in its conclusions to show more directly how it shaped her analysis and findings. As a theory of everything, structuration runs the risk being applicable to any situation without necessarily providing the observer with specific guidance on how to analyze its particulars.

Yates might have found a more directly related body of theory within the literature on “The New Institutionalism in Organizational Analysis” associated with Paul DiMaggio and Walter Powell (1991). As they argue in the introduction to this volume, the New Institutionalist approach has many parallels with structuration theory, but has the benefit of being directly concerned with the evolution of organizational form. Certainly Yates’ findings seem to support their central concept of institutional isomorphism: the idea that organizations within a field (in this case the life insurance industry) tend to grow alike in terms of organizational structure, culture, and practices. Powell and DiMaggio offer a useful set of mechanisms to explain this process: regulation and other external pressure, imitation, and most relevantly here, creation of shared cultural norms within professional communities.

Yates has discussed her methodological goals for the project more thoroughly in a companion essay, published recently in Enterprise and Society (2006). She argues that, while historians of technology have been talking about the social construction of technology and the importance of users for more than two decades, their conception of the user has almost always been that of an individual consumer. Yates insists instead on the importance of thinking of organizations as users of technology, an idea she refers to there as “broadening the demand-side turn.” She reports some resistance to this idea from historians of technology, captured in her recorded surprise at being asked by such an historian why there were no users in her narrative. Having been immersed in the business-school environment in which the idea of user-firms is well established, she wonders in turn why the unnamed historian insisted on focusing on individual people involved with computer technology (whom she would characterize as computer operators) when the relevant decisions were made by “an organization made up of many individuals with different roles and interactions” (Yates 2006, p. 434).

This observation crystallizes the strengths and limitations of Structuring the Information Age more clearly than any single statement within the book itself. Yates’ primary concern is with organizations as users of technology, and therefore she has written a story in which firms are the main actors: firms learn, firms make decisions, firms investigate technologies, and firms create and administer computer applications. But to ascribe such actions to a firm is as much of a simplification as to ascribe it to an individual. This is especially true in the case of software. Most computer application systems during the period Yates discusses were specified, designed and coded by computer staff within “user” firms, using hardware and software tools provided by vendors such as IBM. From the point of view of an IBM sales representative, both the insurance firm and its computer department are users and consumers of technology. But from the point of view of the programmers inside the firm, and their internal customers, the data processing department was a producer of IT systems. Whether a firm appears to be a user or producer of technology depends on where one stands.

Since firms are made of people, Yates inevitably addresses the actions of individuals, such as Berkeley. Issues of organizational politics and personal conflict appear at various points within the case studies, but are not really taken up in her broader analysis. The “roles and interactions” within the firms, which Yates rightly draws attention to, surface sometimes within her case studies but are not generalized into her overall conclusions. “Personnel issues” are dealt with only briefly, and presented (for example on pp. 161-67, 181-82) primarily to discuss the challenges of reassuring workers the computers would not eliminate their jobs and relocating any displaced clerks.

Yates thus downplays something that looms large in my own interpretation of these events: the emergence of new groups of technical and professional specialists within corporate society, each with their own identity and interests (Haigh 2003). Though Yates has a great deal to say about the evolution of the life insurance firm as an institution and its relationship to technology, she has almost nothing to say about the organization, management or culture of the new departments of data processing that accreted, deep inside life insurance firms, around the new machines. Machine operators, systems analysts, computer programmers, corporate accountants and middle managers matter a great deal as classes and communities within the corporate world, even if their individual agency is tightly constrained. (After all, the structuration theory Yates references in her title aims to show how ordinary people can shift social structures even as they reenact them.)

Studying occupational subcultures within the corporation provides an intermediate level of analysis, between firms and individuals, in which to explore the creation of new institutions within firms, such as the data processing department, and the emergence of new occupational groups such as the systems analyst, computer operator, or computer programmer. From Berkeley onward, actuaries, clerks and managers who joined projects to study or implement computer systems often found their careers taking unexpected detours into the new world of data processing. Indeed, the very study groups and industry associations she chronicles must have played an important role in establishing new identities and communities around the intersection of computers and life insurance. A culture of computer enthusiasm created a heterogeneous alliance devoted to the installation and expansion of computer systems. Yates’ predisposition to view technological adoption as the result of rational decision making by the firm as a whole may obscure the importance of these communities of computer enthusiasts within and between firms in pushing the new technology forward.

Today, American businesses employ more than ten million IT workers, and senior managers rely on computer specialists to create and oversee the systems that run every aspect of their firms’ core operations. Only teams of highly specialized technical staff can understand, still less modify, the behavior of these systems. We take this for granted today, but in the 1950s and 60s it represented an important shift in managerial society. As Yates showed in her earlier book, Control through Communication (1989), progressive American managers from the 1890s onward had embraced the personal mastery of new technologies such as graphs, written procedures, organizational charts and filing systems as symbols of modern management expertise. With computerization, however, detailed knowledge of administrative technologies was inevitably separated from general managers to create a new class of specialists. Yates mentions that some managers distrusted magnetic tape because, unlike punched cards, it contained no visible mark of the data within. But she does not further address the cultural or structural consequences of this shift of power within the managerial ranks.

Many computer personnel came to identify more closely with the “data processing profession” than with banking or insurance. The new ranks of technology managers and specialists, mediating between the practices and cultures of business and those of the computer room, faced a set of conflicts and challenges familiar to anyone who has leafed through a book of Dilbert cartoons. Managers complained about the perceived lack of loyalty of the computer staff, whose primary identity often formed around machines or skills rather than a particular organization or even industry. Identities and practices were knitted together across a range of industries by organizations such as the Data Processing Management Association and trade publications such as Datamation and Business Automation. This highlights one of the inevitable limitations of a single industry study. While the organization, identity and practices of data processing departments appear to have been quite stable across industries, Yates tells the story of information technology use within the life insurance industry as a self-contained narrative. Until similar studies are produced of other industries we will not know which characteristics of computer use here were exceptional and which merely mirrored broader trends. James W. Cortada (2003, 2006) has already published the first two in a projected three volume series of books surveying computer use in a series of industries, providing a complementary perspective.

These comments reflect a subject area so rich than no single study could begin to exhaust its potential. As historians come to grips with the business history of the end of the last century and the beginning of this one there will be few industry historians who can avoid the topic. Likewise, historians of technology dealing with the past half century will find rich pickings in the history of business administration and its systems. A flood of books describing information technology use in different industries will sooner or later appear, and their authors will find Structuring the Information Age an invaluable guide and model. The book is a significant landmark within the history of computing literature. I hope Yates succeeds in her stated aim of convincing historians that businesses can be creative users of technologies. We would all benefit if it can also serve what must have been an implicit aim: to remind business school faculty that history explains a great deal about how technology does and doesn’t work when applied within an industry.

References:

Agar, Jon. 2003. The Government Machine. Cambridge, MA: MIT Press.

Campbell-Kelly, Martin. 1989. ICL: A Technical and Business History. New York: Oxford University Press.

Campbell-Kelly, Martin. 1994. The Railway Clearing House and Victorian Data Processing. In Information Acumen: The Understanding and Use of Knowledge in Modern Business, edited by L. Bud-Frierman. London: Routledge.

Cortada, James W. 2003. The Digital Hand: How Computers Changed the Work of American Manufacturing, Transportation, and Retail Industries. Oxford: Oxford University Press.

Cortada, James W. 2006. The Digital Hand, Volume 2: How Computers Changed the Work of American Financial, Telecommunications, Media, and Entertainment Industries. Oxford: Oxford University Press.

Haigh, Thomas. 2001. “The Chromium-Plated Tabulator: Institutionalizing an Electronic Revolution, 1954-1958.” IEEE Annals of the History of Computing 23 (4): 75-104.

Haigh, Thomas. 2001. “Inventing Information Systems: The Systems Men and the Computer, 1950-1968.” Business History Review 75 (1): 15-61.

Haigh, Thomas. 2002. “Software in the 1960s as Concept, Service, and Product.” IEEE Annals of the History of Computing 24 (1): 5-13.

Haigh, Thomas. 2003. “Technology, Information and Power: Managerial Technicians in Corporate America.” Ph.D. dissertation, History and Sociology of Science, University of Pennsylvania, Philadelphia.

Heide, Lars. 1997. “Shaping a Technology: American Punched Card Systems 1800-1914.” IEEE Annals of the History of Computing 19 (4): 28-41.

Powell, Walter W., and Paul J. DiMaggio, eds. 1991. The New Institutionalism in Organizational Analysis. Chicago: University of Chicago Press.

Scranton, Philip. 1997. Endless Novelty: Specialty Production and American Industrialization, 1865-1925. Princeton, NJ: Princeton University Press.

Strassmann, Paul. 1997. The Squandered Computer. New Canaan, CT: Information Economics Press.

Yates, JoAnne. 1989. Control through Communication: The Rise of System in American Management. Baltimore: Johns Hopkins University Press.

Yates, JoAnne. 1993. “Co-evolution of Information-processing Technology and Use: Interaction between the Life Insurance and Tabulating Industries.” Business History Review 67 (1): 1-51.

Yates, JoAnne. 1995. “Application Software for Insurance in the 1960s and Early 1970s.” Business and Economic History 24 (1): 123-134.

Yates, JoAnne. 1997. “Early Interactions between the Life Insurance and Computer Industries: The Prudential’s Edmund C. Berkeley.” IEEE Annals of the History of Computing 19 (3).

Yates, JoAnne. 2006. “How Business Enterprises Use Technology: Extending the Demand-Side Turn.” Enterprise and Society 7 (3): 422-455.

Subject(s):History of Technology, including Technological Change
Geographic Area(s):North America
Time Period(s):20th Century: WWII and post-WWII

New Voices on Adam Smith

Author(s):Montes, Leonidas
Schliesser, Eric
Reviewer(s):Young, Jeffrey T.

Published by EH.NET (March 2007)

Leonidas Montes and Eric Schliesser, editors, New Voices on Adam Smith. London: Routledge, 2006. xxi + 364 pp. $145 (cloth), ISBN: 0-415-35696-2.

Reviewed for EH.NET by Jeffrey T. Young, Department of Economics, St. Lawrence University.

George Stigler began his banquet speech at the Glasgow University bicentennial of the publication of the Wealth of Nations with the now frequently quoted salutation, “I bring you greetings from Adam Smith, who is alive and well and living in Chicago.” (quoted in Meek, p. 3) Thirty odd years later the remark remains true, though ironically not in the Economics Department. Of the fourteen young scholars whose work is published in this book, five earned their Ph.D.s at the University of Chicago, none in economics. Indeed of the fifteen only four are economists, despite the book’s placement in Routledge’s Studies in the History of Economics series. This is reflective of the fact that Smith scholarship has largely moved away from seeing WN and its seminal role in the nineteenth century development of economics as a discipline as Smith’s crowning achievement. The focus today is largely on seeing Smith’s system as a whole, of which The Theory of Moral Sentiments is the foundational work. This is even true among economists who now trawl through TMS in search of interesting hypotheses in the new field of behavioral economics (see Ashraf, Camerer, and Lowenstein, 2005). However, it is even more true among philosophers, who now find TMS a rich vein of philosophical insight, whereas previously it was largely unread or misread.

These trends are amply on display in the present volume, as is Smith’s healthy status among a new generation of international academics. Montes and Schliesser are to be commended for assembling a wide-ranging and stimulating set of essays from a talented group of scholars all of whom completed their doctorate since 2000. The book consists of fifteen chapters organized into four parts, which deal respectively with Adam Smith’s sources and influence, moral theory, economics, and theory of knowledge. A book of this sort does not lend itself easily to adequate treatment in a short review. The coverage ranges widely over all aspects of Smith’s work, with particular attention to the relatively neglected essays on the arts, languages, and the history of science.

As an historian of economics, though, I was particularly interested to see what the younger generation is doing with Smith’s economics. The answer is “not much,” although I do not mean this in a negative way at all. The economics section consists of three essays on Smith’s relation to Mandeville, his interpretation and use of Newtonian method in economics, and his analysis of paper money. As the training of professional economists has long since separated itself from mastery of the classics, interest in the analytical material in WN has waned. Leon Montes’s essay on Newtonianism and general equilibrium theory is about the only place where this book touches on topics that have historically been of interest to professional economists. Here he advances the idea that modern general equilibrium theory, by which is meant the axiomatic approach to general equilibrium modeling, has its philosophical roots in French interpretations and adaptations of Newton’s scientific method. Smith, however, absorbed a Scottish Newtonianism that was empirical, inductive, and, in its application to human affairs, historical. Therefore, associating Smith’s invisible hand with the modern theory, say as an early statement of the theorems of welfare economics, reflects a fundamental philosophical misunderstanding of Smith’s application of Newtonian science.

It is not surprising to me that British empiricists and French rationalists would come up with very different readings of Newton. However, I would like to suggest that if we take a broader perspective in terms of what we classify as general equilibrium modeling, there is more under the sun than Walrasian general equilibrium models. Surely Sraffa’s production of commodities qualifies as general equilibrium modeling, as does Marx’s transformation problem. Indeed, there is plenty of general equilibrium reasoning in Smith, which is expressible in simultaneous equations models. The famous beaver and deer case of the early and rude state, which introduces a labor embodied value theory, is surely a general equilibrium model. While I agree wholeheartedly with the thrust of Montes’s paper, that Walrasian general equilibrium falsely sails under a Smithian flag, I do not think we can conclude there is no concept of general equilibrium to be found in Smith. Nor would I preclude the possibility that Smith may have inspired Walrasian modeling in some way, and that modern theories of the automaticity of the market mechanism owe at least some intellectual debt to Smith. After all, one does not need to have a deep understanding of the sources and context of Smith’s book to be stimulated and taught by it. Misunderstanding can lead to insight also.

This book will be of interest primarily to Smith specialists, both economists and non-economists. I believe that essays are perhaps a bit too narrowly focused, and cover a wide range of interesting, but off-beat, topics, that the general historian of economics may not find much of interest here. I must confess, though, that I did not find the essays to be uniformly interesting to me. At times I felt they suffered some from the young scholar’s eagerness to be original and provocative, perhaps stretching a point. It is good to know, however, that Smith is alive and well among a new generation of accomplished scholars. Their depth and breadth of understanding of a quite complex thinker, as well as their passion for Smith’s unique body of work, is very gratifying.

References:

Nava Ashraf, Colin F. Camerer and George Lowenstein, 2005. “Adam Smith, Behavioral Economist,” Journal of Economic Perspectives, 19(3), Summer, pp. 131-146.

Ronald L. Meek, 1977. Smith, Marx and After, London: Chapman and Hall.

Jeffrey T. Young is the A. Barton Hepburn Professor of Economics at St. Lawrence University in Canton, New York. He is the editor of The Elgar Companion to Adam Smith (forthcoming) and his most recent publication is “Adam Smith and New Institutional Theories of Property Rights,” Adam Smith Review 2.

Subject(s):History of Economic Thought; Methodology
Geographic Area(s):Europe
Time Period(s):18th Century

Economics in Russia: Studies in Intellectual History.

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

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Published by EH.NET (May 2009)

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

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

?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

?

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

Copyright (c) 2009 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 (May 2009). All EH.Net reviews are archived at http://www.eh.net/BookReview.

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

The Company of Strangers: A Natural History of Economic Life

Author(s):Seabright, Paul
Reviewer(s):Ofek, Haim

Published by EH.NET (January 2007)

Paul Seabright, The Company of Strangers: A Natural History of Economic Life. Princeton, NJ: Princeton University Press, 2004. x + 304 pp. $30 (cloth), ISBN: 0-691-11821-3.

Reviewed for EH.NET by Haim Ofek, Department of Economics, Binghampton University.

Organized along several central themes, this book is essentially a collection of self-contained short essays ranging from core economic ideas to the hazy borderlines with other fields of science, and the social sciences. The book seems to be intended (and is certainly highly accessible) to the general reader. It includes, however, a number of innovations of interest to students of economics, chief among them, the notion of “tunnel vision” (a concept closely associated, but not entirely interchangeable, with the “invisible hand”). At the core of the discussion are repeated attempts throughout this book of meeting head-on three of the most important (and perhaps most elusive) concepts in economics: division of labor, cooperation and trust. Of special interest to readers of the present outlet is the attempt by Paul Seabright (Professor of Economics at the University of Toulouse, France) to put current economic issues not only into their historical and pre-historical context but also to add an evolutionary perspective going back, it seems, to our last common ancestor with the chimpanzee. I greatly enjoyed reading sections of the book and agonized over others. On both counts, this uneven experience is reflected in the following review.

1. What’s in a Title?

The study of economic history, as I understand, deals only with agents that are in all respects people like us. Chronology changes but anatomy stays fixed and, other things being equal, so does behavior. The subject matter, understandably, must stay clear of evolution. No speciation events are permitted in history or, for that matter, in the historically conceived notion of prehistory. Confined to anatomically modern humans, the beginning of prehistory itself can thus go back only as far as the appearance of Homo sapiens (some 120,000 years ago). Some paleoanthropologists and prehistorians (e.g., Klein 1999, Mithen 2003) would probably prefer not to push the prehistoric envelope anywhere before the first appearance of undisputed evidence consistent not only with a modern human anatomy but also with a modern human mindset (50,000 or so years ago). The most skeptical may even postpone the beginning of prehistory, as they see it, to the rise of agriculture (10,000 years ago). These benchmark dates facilitate a coherent extension of history into prehistory (by separating both from evolution). On the downside, however, these dates come far too late in the record to allow prehistory any chance of accounting for some of the major developments in the human system of subsistence: the transitions from woodland to grassland and from the feed-as-you-go routine to hunting-gathering, tool making, transport and redistribution of food items, and domestication of fire — to mention but a few (and not necessarily the most important) early developments that set humans economically apart from the chimpanzees. The task of filling the gap is left to paleoeconomics: a new field of economic study best defined (perhaps) as the study of natural history in its application to economic life — to slightly paraphrase the subtitle of this book. Indeed, the subtitle helps to build expectations of a long journey into the remote past of the human experience. The author fully meets these expectations at least in one sense: the separation between history and human evolution is a requirement that does not inhibit the discussion in this book. On the contrary, it smoothly moves from history into evolution and, if there is a need for it, back to current affairs.

Inasmuch as the subtitle makes the connection to natural history, the title itself holds the key to the fundamental economic question associated with it. If you ask the fundamental question (what set humans economically apart from all other forms of life?), then the main title to this book (The Company of Strangers) provides nearly enough of an answer. Indeed, it has been recognized for some time in the literature that the single most striking feature that distinguishes humans from all other animals is the (properly defined) practice of cooperation and the division of labor among members of the species that are genetically unrelated to each other — sure enough — among strangers (Ridley 1996, Ofek 2001, now Seabright in this book, and perhaps others that I am unaware of). In its role as a uniquely human distinguishing feature the division of labor among strangers should be an argument quite compelling to any economist familiar with the unprecedented extent and intensity of division of labor in human society. I would dare to speculate, however, that the argument would be even more compelling to any biologist familiar with animal affairs and with the intricacies of kin-selection. To those familiar with both human affairs and animal affairs it should probably come as an empirically true, or nearly true, argument.

The point of an argument, however, is not to be compelling or to be true but to be testable. Arguments that use poorly defined concepts typically do not easily lend themselves to rigorous tests. Division of labor is a primary example. For all its importance in economics and in biology, division of labor remains to this very day a poorly defined analytical concept in both. As such, it is vulnerable to counterexamples for no other reason than semantically or otherwise contrived ambiguities. To devise a test free of such ambiguities requires further refinements that can be provided, in my opinion, only by economics. I will be more explicit about this issue toward the end of this review. With this understanding, we can now move beyond the extraordinarily informative title to the body of the text itself.

Like natural history itself, Seabright’s book does not exclude history in its conventional sense, nor does it exclude current economic affairs. On the contrary, it is an excellent book on both counts, and it will remain equally excellent on both even if all references to evolution are removed.

The material in this book is organized under four parts. Each part comes with its own prologue or epilogue (or both) which can be added as stand-alone chapters in their own right. Within each part, the chapters seem to wander form topic to topic with such vitality that the original outline of this book comes to serve it more as a straitjacket than as an organizing procedure. For that, if not for other reasons, the subject matter is perhaps better conceived, or at least better evaluated, not under the narrative of its original scope but under the narrative of time; that is, under each of the three separate time scales — current, historical, and evolutionary.

2. Current Affairs

In its capacity as a survey of current economic affairs this book makes an excellent job of bringing to the attention of the reader, especially the lay reader, a wide economic spectrum of public issues. Ranging from water and pollution, to auctions and unemployment, and from air travel and globalization, to suicide and laughter, it seems to include the widest possible set of applications that an economically-trained mind can be brought to bear upon in one place. The author deserves high marks for making many of these applications amiable and highly accessible by replacing otherwise tedious technical explanations, with jargon-free highly intuitive illustrations (e.g., the story of shirts (chapter 1) which is reminiscent of Rose and Milton Friedman’s (1990) discussion of pencils, the example of a better mousetrap (p. 181), the fable of a sailor in charge of a small boat in a storm (p. 25), and a community making a living by extracting strawberries from strawberry ice cream (p. 233) — to mention but a few).

The most impressive applications and most compelling arguments are those deduced from first principles (economic, evolutionary, or otherwise). These include, for instance, the treatment and elaboration of many ideas associated with the invisible hand of the market, in the first part of the book, or the treatment of information (viewed essentially as a public good) toward its end. On many occasions interesting applications are deduced from sets of first principles borrowed from other fields; e.g., repeated applications based on the law of large numbers (borrowed from statistics). Unfortunately, not all the applications follow from first principles. All too many seem actually to rely at least in part on ad hoc explanations. Consequently, the overall quality of the argument shifts occasionally without prior notice from the discourse level of ideas to the discourse level of mere opinions — albeit, for the most part, very interesting ones.

The approach to many issues discussed in this book is not only descriptive but, notably, also prescriptive. Policy recommendations typically invoke the government as part of the solution to problems resulting from market failure. The role of government is a subject of economic interest for two partly unrelated reasons. First, there is the general interest in the role of government as a political institution per se. As such, the role of the government is fairly well covered in this book (toward the end of Chapter 13 and elsewhere). In addition, however, there is also an economic interest in the role of government purely as an instrument, or as a set of instruments, in the service of specific economic policies. Any given economic policy can probably be implemented under one branch of government at lesser cost and with better results than under another. It is incumbent, therefore, on any policy recommendation to make clear to what branch of government (administrative or legislative) and to what level (central or local) it is best addressed. Broadly defined, the Coase theorem helps, for instance, to draw attention to a typical situation in which the legislative branch outperforms the administrative branch simply because unlike the intrusive style of the latter, the former keeps much of the action in the private sphere. Seabright considers the Coase theorem to be too optimistic (apparently because negotiations are not always costless and bargains may not be credible, pp. 132-33). Readers of his book are often left to wonder, however, to what level of government and to what branch he would relegate the responsibility for many of his own recommendations.

3. Historical Affairs

The historical dimension of the discussion in this book cuts across four or five major topics: the rise and spread of agriculture, warfare, city-states and ancient civilizations, and the urban environment (especially in medieval Europe). For lack of space I will review here only the last: the urban environment in relation to the medieval city. The discussion on the urban environment in Chapter 7 deals with the devastating effects of urban externalities on city dwellers, their quality of life, their health, and their property. The general approach that Seabright takes is focused more on cultural and environmental implications than on economic explanations. Largely overlooked, for instance, is the role of the urban real estate market, to say nothing about optimal location decisions in response to it. The primary example is the medieval European city.

A brief passage (pp. 114-18) under the title “Stench and Waste” depicts the plight of a typical city in medieval Europe. As the title suggests, the depiction is graphic and its effect on a reader may be staggering. However, if true, it certainly sounds like a golden opportunity for the real estate market (as shown shortly). I have little doubt that the situation as described could have come to pass at one time or another in almost any city (especially during periods of great economic or demographic transitions, in time of plague, or in the aftermath of natural disasters). I also have little doubt that the situation could have persisted in particular quarters of a city for decades, if not for generations at a time. I do have some doubts, however, about the possibility that such a situation could have come to be endemic; namely, that it could have endured for long throughout the entire space of any city. First, the evidence in support of this description is not beyond dispute. Alternative largely contradicting evidence on almost all counts can be found in the literature dealing with urban history (see for instance, Mumford, pp. 288-93).

Another source of doubt, as already indicated, is the existence of an active urban real estate market. As waste (presumably) piles up and the stench is no longer bearable, property prices are bound to reach rock bottom. It is then high time for professional land owners, developers, and speculators of all kinds to get into action and do what they do best; buy the affected properties by the block, remove the neighborhood disamenities, renovate or rebuild and then, of course, resell at great profit (perhaps even to the original owners). Indeed, starting with Crassus and his likes in ancient Rome, and perhaps long before, the real estate market served always as a great mechanism for the internalization of (certain) urban externalities. The end result is a balance between amenities and disamenities that produces, at equilibrium, certain predictable patterns – not necessarily pretty ones, to be sure, but if they are ugly, they must be ugly in ways quite different from the depiction relayed in this book..

4. Evolutionary Affairs

As already indicated, the phrase “the company of strangers” serves both as the main title to this book and as the answer to the fundamental paleoeconomic or, for that matter, bioeconomic problem: what set humans economically apart from all other forms of life? The author undoubtedly puts great effort both in the attempt of establishing this answer and in the attempt of extracting from it the maximum possible implications. The approach Seabright takes, if I understand correctly, is to break down the phenomenon under investigation (essentially, the interaction between unrelated members of the same species) into its three conceptual components — division of labor, cooperation, and trust — and then he tries to gain the most insights from each. This approach is undoubtedly a natural and perfectly logical course of action to take, though, I am not sure it is the easiest to follow.

Any attempt to meet head-on concepts such as division of labor, cooperation, and trust may take us back to Adam Smith who dealt with many of the same concepts in his own time and by his own devices. One of the first things that Adam Smith does in the opening pages of the Wealth of Nations, however, is to represent, if not replace, the concept of division of labor with the concept of exchange. Exchange, he tells us, facilitates division of labor. Exchange, in other words, is a necessary (if not sufficient) condition for division of labor and thus can serve as a proxy for it (and by extension, for cooperation and for trust, as well). Unlike division of labor, exchange is a semantically, and analytically, well defined concept. It can be measured and can serve both as a quantitative or qualitative variable, it can be aggregated or disaggregated, it can be estimated and can be used as an estimator and, above all, it can be used as a null hypothesis. Specified in terms of exchange (the existence or volume of transactions), the null against the company-of-strangers’ hypothesis is unequivocally as clear as your last paycheck (your personal share in the division of labor among strangers in society). Now, try to specify the same hypothesis directly in terms of division of labor.

The extent of division of labor, further argued Adam Smith, is limited by the size of the market. This is particularly true of division of labor among strangers because the market is where strangers make exchanges. The entire argument from division of labor among strangers boils down, I argue (here and elsewhere), to the existence or nonexistence of market exchange (Ofek 2001). What I am trying to suggest, in conclusion, is that the judicious use of exchange as a measure or as a proxy for division of labor could have improved the overall discourse in many parts of this book, and could still do so (assuming a second edition).

Moving from methodology to substance, it should be noted that despite its title, this book in not a comprehensive discussion of human evolution or a complete picture of the human place in natural history, nor is it intended as such. Aside from the considerable amount of attention paid to the evolutionarily pivotal issue of interaction among strangers, the total amount of space allocated to the course of human evolution hardly exceeds a dozen of pages and comes for the most part in the form of brief unrelated comments scattered throughout the entire book in no particular order. Overall, it may leave in the mind of the general reader an image of human evolution that is, in my opinion, somewhat distorted at the very least in two or three ways.

First, the transition to agriculture is overly emphasized. The reader may be left with the impression that the major features that makes us economically most distinctly human evolved in the span of the most recent 10,000 years — the age of agriculture — a blink of the eye in the evolutionary time scale. The appearance of agriculture is undoubtedly an exceedingly important transition in the course of human evolution. However, it is only one of five or so major transitions and, in that, it is hardly equivalent to some, let alone the most important of all (see Ofek, 2006). Second, the role of hunting-gathering as a pivotal economic innovation in human evolution is largely overlooked. Hunting-gathering is much more than a pair of outdoor activities. It is a complete and self-contained system of subsistence that introduced, for the first time, into the human (and primate) repertoire such activities as food redistribution, food transport and, by all indications, division of labor among strangers in the acquisition of food. In fact, it already included almost all the fundamental economic elements of modern industrial society, albeit in embryonic form, going back nearly two million years before agriculture. Finally, I should add a correction in relation to timing in the process of encephalization: the process of brain expansion. The discussion at the bottom of page 58 leaves the impression that this process was at work starting six or seven million years ago. That is far too early. For the first four or five million years of that time our remote ancestors apparently managed to survive with a brain no larger than a chimpanzee’s. Almost all anthropologists would agree that the expansion in the human brain commenced only as late as two million years ago, or even slightly later.

References

Klein, R. G. (1999). The Human Career: Human Biological and Cultural Origins. Second edition. Chicago: University of Chicago Press.

Mithen, S. (2003). After the Ice: A Global Human History, 20,000-5000 BC. London: Phoenix.

Mumford, Lewis (1961). The City in History, its Origins, its Transformations, and its Prospects. New York: MJF Books.

Ofek, H. (2001). Second Nature: Economic Origins of Human Evolution. Cambridge: Cambridge University Press.

Ofek, H. (2006). “Ape to Farmer in Five Uneasy Steps: An Economic Synopsis of Prehistory.” A paper presented at the First Conference on Early Economic Developments, The University of Copenhagen. Copenhagen, Denmark. Downloadable from http://www.econ.ku.dk/eed/programme_friday.htm

Ridley, M. (1996). The Origins of Virtue. Harmondsworth, U.K.: Viking Penguin.

Haik Ofek is author of Second Nature: Economic Origins of Human Evolution (2001).

Subject(s):Markets and Institutions
Time Period(s):Prehistoric

Nations, Markets, and War: Modern History and the American Civil War

Author(s):Onuf, Nicholas
Onuf, Peter
Reviewer(s):Flaherty, Jane

Published by EH.NET (October 2006)

Nicholas Onuf and Peter Onuf, Nations, Markets, and War: Modern History and the American Civil War. Charlottesville, VA: University of Virginia Press, 2006. xii + 362 pp. $45 (hardcover), ISBN: 0-8139-2502-9.

Reviewed for EH.NET by Jane Flaherty, Department of History, Texas A&M University.

The brothers Onuf move the American Civil War from a national struggle to the “larger context of conceptual change” in the Western development of liberalism and nations. Modernity, and the modern concept of nations and markets, led to the conflagration, according to the authors. “The outbreak of war between great and expansive nations is a much more predictable outcome in the modern history of the ‘civilized West,'” they suggest (pp. 179-180). Thus the American Civil War represents not just a “war between the states” but the culmination of this trajectory. “Our contention,” they declare, “is that these developments were not only historically contingent but that they could only have taken place at a specific moment in the rise of a liberal world of national markets and international exchange, of an international society of bellicose yet civilized nations” (p. 177). Far more than a study of Civil War causation, this book reflects deeply upon the forces that shaped this “modern history.” This masterful book moves the American Civil War from a national tragedy to part of the broader development of western, liberal nations, and the markets that served, and were serviced, by these nations.

Nicholas Onuf, Professor Emeritus of International Relations at Florida International University, and Peter Onuf, the Thomas Jefferson Memorial Foundation Professor of History at the University of Virginia, are two of the most respected scholars in their respective fields. This book represents their second collaboration, “as equals in ignorance,” focusing on the impact of the American republic on the “liberal world order in the nineteenth century” (p. ix). They unleash a tremendous wealth of knowledge in this study, and students of both American history and European economic thought and intellectual history will find much to digest on each page.

They have divided the manuscript into two parts. Part I traces the development of “Liberal Societies” (Chapter 2) and “Civilized Nations” (Chapter 3). “Europeans told themselves that engaging in commerce and war had made their nations more advanced — more civilized,” the Onufs argue (p. 95). Yet, this concept of what constituted a civilized nation exacerbated the sectional tension in the United States. “Two nations [within the U.S.] developed because of slavery. One defined itself as civilized because slavery gave it a prosperous economy, a genteel ruling elite, and a secure place in the liberal world. The other defined itself as civilized because commercial and industrial prowess secured its place in that same world” (p. 81). For this reason, they digressed into war, “the one to save the union and the other to save itself” (p. 108). In Chapter 4 they link this development to Adam Smith and other European enlightenment thinkers’ concept of “Moral Persons.” Finally, in Chapter 5, they show how northern and southern Americans expanded this concept into the intellectual framework of “think[ing] themselves a people” (p. 145).

Peter Onuf’s very visible hand is seen in Part II, which traces how “nationalist thinking” and the “consciousness” about “nationhood” pushed the United States to secession then war (p. 181). Chapters 6 and 7 examine how Adam Smith’s ideas of trade and markets influenced American political economy, most notably Thomas Jefferson and the National Republicans’ “oscillation between his republican optimism … and geopolitical realism” regarding trade and national economic development. “Could Americans trade freely with Europeans without compromising their independence?” the Onufs ask. “This simple question divided Americans along sectoral and sectional lines in the antebellum years and ultimately eroded the foundations of their union,” they suggest (p. 224-25). Chapter 8 chronicles the debates that followed over protection and free trade, with the authors noting the symbiotic relationship between protection and warfare. “Protectionists would prepare for war in order to secure true national independence and a more durable peace,” (259) whereas “free traders inverted protectionist logic at every point,” arguing that “protectionism was the second coming of mercantilism” (p. 272). In Chapters 9 and 10, the authors chart the development of the national identities of the North and South. “On the eve of Civil War, Americans no longer shared the founders’ fears of descending into a Hobbesian war of all against all,” the authors posit (p. 312). For Northerners, “preservation of the union meant war and success in war required the development of the modern, protective, war-making state protectionists had long advocated” (p. 303). Southerners “relocated the national ideal,” in part by moving towards commercial expansion in the late antebellum, and less surprisingly, by allowing “slavery to define the emergent southern nation” (p. 337). Thus, the brothers conclude, the “first fully modern war was the Civil War fought within the boundaries of the United States” (p. 345) yet with roots that stretched deeply into western concepts of nations, markets and war.

This book has some flaws. Primarily, it reads like a collection of essays rather than one narrative. The authors describe the book as “an essay in modern history” (p. 21). However, the overall package seems disjointed in places. Second, their thesis would need further buttressing if brought back into the broader discussion of nineteenth-century European history. For example, could not the Crimean War, which preceded the American Civil War and pitted national commercial interests of Britain and France against those of Russia, also fit the authors’ rubric of nations, markets, and wars? Finally, how could a book so rich in intellectual resources be published without a bibliography? Graduate students in particular will sorely miss not having a list of the rich bibliographic resources the authors use throughout.

What does this book offer the economic historian? First, it provides a thorough analysis of the development of transnational economic thought in the eighteenth century, and how this influenced antebellum American political economy. Their vigorous discussion of protectionism and free trade beliefs will challenge future writings on American tariff policy. Finally, they provide an economic context to the American Civil War that goes far beyond the Beardian determinism.

Jane Flaherty is the Assistant Director of Graduate Studies in the Department of History at Texas A&M University. Her book, The Revenue Imperative: Union Financial Policy during the American Civil War, will be published by Pickering and Chatto in 2008.

Subject(s):Military and War
Geographic Area(s):North America
Time Period(s):19th Century

The “Vanity of the Philosopher”: From Equality to Hierarchy in Post-Classical Economics

Author(s):Peart, Sandra J.
Levy, David M.
Reviewer(s):Hammond, J. Daniel

Published by EH.NET (October 2006)

Sandra J. Peart and David M. Levy, The “Vanity of the Philosopher”: From Equality to Hierarchy in Post-Classical Economics. Ann Arbor: University of Michigan Press, 2005. xviii + 323 pp. $40 (cloth), ISBN: 0-472-11496-4.

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

Peart and Levy’s book takes the reader well off the beaten track of histories of classical and neoclassical economics. In place of laws of production and distribution, the marginal revolution, and other standard topics for historians of economics, Peart and Levy take us on a historical tour of the struggle over one of the most basic premises of social analysis, what sort of creature it is that economists study. In the beginning was Adam Smith, who believed that:

The difference of natural talents in different men is, in reality, much less than we are aware of; and the very different genius which appears to distinguish men of different professions, when grown up to maturity, is not upon many occasions so much the cause, as the effect of the division of labour. The difference between the most dissimilar characters, between a philosopher and a common street porter, for example, seems to arise not so much from nature, as from habit, custom, and education (Wealth of Nations, I.2.?4).

Smith’s belief that humans are born with capacities more equal than unequal led him to build his analysis on the premise of human equality in the capacity for making decisions (analytical egalitarianism) and to look for the causes of observed differences across people and populations in the effects of institutions, incentives, and chance. Classical economists who followed Smith as analytical egalitarians included, among others, Thomas Robert Malthus, David Ricardo, Robert Torrens, Harriet Martineau, Nassau Senior, and most importantly for Peart and Levy’s account, John Stuart Mill.

By the time neoclassical economics and other varieties of post-classical economics appeared in the late nineteenth century, analytical egalitarianism was being supplanted by a belief that human beings differ in their capacities in ways that render the assumption of human homogeneity unrealistic and inappropriate. Thus, William Stanley Jevons worried that working-class consumers made poor choices and Irving Fisher compared the Irish unfavorably with the Scots in terms of their capacity for foresight. F.Y. Edgeworth argued that for analytical and policy purposes the principle “every man, and every woman, to count for one” should be used with caution. Shifting from analytical egalitarianism to a working hypothesis of heterogeneity and hierarchy led the post-classical economists to jettison another of Adam Smith’s presuppositions, that sympathy should have a role in social analysis. Smithian self-interest and the invisible hand were cleaved away from his notions of sympathy and the impartial spectator.

Peart and Levy’s objective is to explain why this transformation of economics took place. Their story is one of external forces from the scientific and literary cultures, particularly the influence of Charles Darwin. In nineteenth century England evolution was in the wind, and this fueled racist reactions to the Irish immigration in the 1840s and 1850s and the Jamaican revolt of former slaves in 1865. These events were context for the alignments of competing coalitions, classical economists and evangelicals on the side of human equality, and literary figures, anthropologists, and ethnologists on the side of human hierarchies. By the end of the nineteenth century, economics had gone over to the other side, with many economists joining “progressives” in their enthusiasm for eugenic state control of human fertility.

The historical accounts in this book are colorful and riveting, not the least because of abundant attention to the literary and scientific figures who were the classical economists’ critics, and to Victorian England’s popular culture. There are numerous illustrations from Punch magazine and other periodicals of the era and outlines of what today seem quirky ideas such as John Ruskin’s chemical political economy and the related Victorian idea that a person’s choices might actually transform their racial identity. Both are instances of malleable human nature. This is relevant for our time because the same questions with which the Victorians struggled are manifest in the popularity of books such as Steven Pinker’s The Blank Slate (2002).

Peart and Levy’s history has a moral, which is that economists’ turn from the human homogeneity assumption to heterogeneity and hierarchy need not and should not have occurred. Classical economists’ assumption that humans share the same innate capacity for making prudent choices was well grounded, even if subsequent scientific opinions indicated otherwise. They argue that classical economists had good scientific reasons for taking institutions seriously, and that economists went awry when theory was shorn of institutions. Also, implicit in Peart and Levy’s account is the notion that the best science of any era can be an insufficient if not faulty guide for social and political life.

But where does one turn apart from science? For Peart and Levy the answer is to morals. They are repulsed by the history of Victorian science which they report. It is not on scientific but on moral grounds that they disapprove. They quote Lionel Robbins on the facts and morality of the presumption of differential capacities for happiness across human populations:

I have always felt that, as a first approximation in handling questions relating to the lives and actions of large masses of people, the approach which counts each man as one, and, on that assumption, asks which way lies the greatest happiness, is less likely to lead one astray than any of the absolute systems. I do not believe, and I have never believed, that in fact men are necessarily equal or should always be judged as such. But I do believe that, in most cases, political calculations which do not treat them as if they were equal are morally revolting. (Economic Journal, 48: December 1938, 635)

Having brought the history of analytical egalitarianism forward in time from classical economics into post-classical economics in this book, Peart and Levy are now exploring Adam Smith’s sources in Stoic philosophy. Their historical project is a reminder that whether we recognize it or not, economics is and always has been grounded on visions of human nature that are not exclusively scientific. Theirs is a worthy effort to recover some of the understanding of human nature that was lost in the nineteenth and twentieth century romance with science.

J. Daniel Hammond is the editor, with Claire H. Hammond of Making Chicago Price Theory: Friedman-Stigler Correspondence, 1945-1957 (Routledge, 2006).

Subject(s):History of Economic Thought; Methodology
Geographic Area(s):Europe
Time Period(s):19th Century

The Emergence of Modern Business Enterprise in France, 1800-1930

Author(s):Smith, Michael Stephen
Reviewer(s):Hautcoeur, Pierre-Cyrille

Published by EH.NET (May 2006)

Michael Stephen Smith, The Emergence of Modern Business Enterprise in France, 1800-1930 . Cambridge, MA: Harvard University Press, 2005. x + 575 pp. $60 (hardcover), ISBN: 0-674-01939-3.

Reviewed for EH.NET by Pierre-Cyrille Hautcoeur, Ecole des Hautes Etudes en Sciences Sociales.

Michael S. Smith, associate professor of history at the University of North Carolina, proposes a synthesis on the emergence of big business in France in the tradition of Alfred Chandler. The book “seeks to explain how and why France acquired the roster of large corporate enterprises that would come to dominate France’s domestic economy and project French economic influence throughout Europe and the world over the course of the twentieth century” (p. 1). It “argues that the same forces that were giving rise to a new kind of very large, very complex business organization in the United States, Germany, and Great Britain between 1880 and 1930 were also at work in France” (p. 2), contrary to the idea of a special or a backward path for French economic development.

The book is well written and structured, revealing an exceptional knowledge of a large historiography and a capacity to organize it in a simple and mostly convincing narrative. It is also well presented, with minor typographical errors (usually in references to French names or publications, e.g. note 6, p. 501). The index includes all personal and firms names mentioned in the main text (not including the notes), as well as some analytical categories.

The book is divided into three parts and sixteen chapters, plus an introduction and a conclusion. Part one deals in less than one hundred pages with commerce, banking and transportation, in three chronological chapters (1800-1840s; 1850s-1870s; 1870s-1900s), with no discussion of the twentieth century.

Part two deals in two hundred pages with “the flowering of industrial capitalism.” It starts with seven chapters on particular industries (textiles, coal, iron and steel, “hardware, machinery and construction,” consumer goods, chemicals, “glass, paper and print”). It ends with a transversal chapter on “the new world of industrial capitalism” that deals with problems common to many industries and not dealt with elsewhere.

Part three analyzes in 160 pages the second industrial revolution and the beginnings of managerial capitalism, from 1880 onward. It includes four “industry based” chapters on the steel, electrical, automobile and “chemicals and materials” industries, and ends with a transversal chapter on “the new world of managerial capitalism.”

In order to make visible the method followed by the author, I will discuss a few chapters in more detail.

After an introduction in which the author presents a well-balanced (although not always up-to-date) synthesis on the “foundations for modern capitalism” before 1800, the first chapter centers on merchant capitalism, which it studies on a local basis and on an individual basis more than in terms of formal organization. It then follows the traditional historiography, sometimes missing the most recent works (even if it would be more consistent with its overall thesis, e.g., J.P. Hirsch, C. Lemercier). The role of the Haute-banque is presented in the conventional way.

Chapter two describes the interrelated revolutions in banking and transportation, which were grounded in Saint-Simonian ideas and networks during the Second Empire. The chapter clearly shows the role of the relationship between the government and these networks in these changes. It does not discuss the conventional wisdom, nor look at the organizational consequences of these relationships (government administrations were structured, not only business ones). The organization of the railroads is not really discussed, except for its “grande politique” dimensions. The internal organization of the banks is not discussed either, and the concept of a financial system is not introduced.

Chapter eight presents the chemical industry. Like most industry-based chapters, it is mostly organized as a succession of firms’ histories in relation with the invention of new products and processes, but says almost nothing of firm or market organization. Technological innovation seems the only important way to success, and its origins are not much discussed.

The transversal chapter 11 discusses three major themes: how industrial enterprises were financed, how they recruited and managed their labor force, and how they managed their external environment, especially the state. Finance and accounting practices are briefly described, but they are not analyzed as strategic choices and/or major explanations with responsibility for the varying success of firms or industries. The main conclusion is “the normality of the French industrial experience — that is, its similarity to the British experience” (p. 303) in finance, accounting and labor relations. As concerns the management of the external environment, the author concentrates on three subjects: tariff policy, competition policy and railroad policy (network subsidies and rate regulation). The precise organization of business and the instruments of its intervention in policymaking or in policy application (industry-level or local-level organizations, such as the chambers of commerce) is not examined (except, briefly, for the iron and steel, chemical and textiles industries, mostly in terms of restriction to competition). In the view of this reviewer, this chapter is too brief and comes too late in comparison with its strategic importance in understanding the rise of big business as a major economic phenomenon.

The third part focuses on those few industries in which French firms underwent a true Chandlerian revolution from the point of view of the author. Chapters on iron and steel, the electrical, automobile and chemical industries show how concentration, both through vertical and horizontal integration, allowed for the creation of important and complex organizations (although the internal organization is always treated only briefly).

One important question is whether the factors behind the smaller size of French firms had an impact on their efficiency and their ability to develop all the economies of scale and scope favored by Chandlerian business historians. These factors certainly included market sharing (in iron and steel), interlocking directorates and participation, and family firms’ preoccupation with secrecy and family control, all elements mentioned by the author but without providing a satisfactory answer to the above question.

Like chapter 11, chapter 16 has a crucial role and could well have been extended beyond its twenty pages. It discusses the creation of complex organizational structures, the growing role of professional managers and the new challenges in corporate policies that made them necessary. After a rapid presentation of the railroad’s pioneering role in organization, it presents the changes in management in industrial firms. It describes examples of divisional organization as early as the late nineteenth century, and emphasizes rightly the importance of holding structures from the 1920s onwards. It mostly insists on the rise of engineers as the main managers of French industrial firms, but discusses little their education, their efficiency, or the importance for their management style or their links with public administration. Overall, it suggests that new techniques of management or organization (including assembly lines) were already well developed in France prior to World War II.

The conclusion describes briefly the evolution of French big business in the second half of the twentieth century.

As a whole, the book gives a quite complete picture of French big (mostly manufacturing) firms in the nineteenth and early twentieth centuries. It reflects the many and important developments in the recent historiography of French business, and also its shortcomings, which explain most of the quibbles mentioned above.

Nevertheless, the reader (especially if he is an economic and not a business historian) could have expected something more. Although in the prologue, the author presents a short survey of (English-speaking) macroeconomic interpretations of French development, he is not really in a position to discuss the views expressed at the macroeconomic level. Some assertions such as “firm-level research demonstrated that French industry was more expansive and technologically advanced … than once thought” (p. 4), or “by the end of the nineteenth century, the activities [of the big firms] had become the focal point of economic life in France” (p. 324), suffer from a methodological bias, since the overall importance of big business in the economy is neither discussed nor compared to that in other countries. The book focuses on firms, not economic development, with an ambiguity since the only reason to discuss French firms separately is their link with French economic development. Bringing in more data comparing big firms with macroeconomic data (which exist at the industry level at least for the period after 1890) could have helped solve that problem. A short discussion of industries where big firms did not develop — and why — would also have been useful.

A second, related quibble: the international position of French firms is mentioned but little discussed, even though some of them had major international operations. If “it is with an eye to France’s eventual success in the late twentieth century that this book tells the story of the modernization of French business” (p. 5), one cannot but point out to the author that today’s big firms make most of their business abroad (not only by exports, but also by producing abroad), so much so that their impact on the French economy is sometimes questioned.

A third point, related to the two previous ones: the book is not very quantitative. It deals with a great number of firms, but provides little quantified comparisons among them (which could give way to typologies, for example) or between them and the rest of the economy or their foreign equivalents. The few tables (eight for the entire book, no figures) list the biggest firms in a given industry at a particular date; only the last two give some international comparison, and they provide few elements of comparison (total assets in general).

Fourth point: the relationship between French firms and the state is discussed in the very first chapters for the early nineteenth century, and somewhat in chapter 11, but almost never thereafter, although discussions of nationalization are widespread in the interwar period. The relationships between government and big business people or organizational practices are worth more discussion. The role of governments regulations (major in the 1930s), but also of semi-public bodies such as the chambers of commerce (important during the all period), is under-appreciated. (Actually neither the Code de commerce, nor the chambers of commerce, the commercial courts, nor the commerce minister appear in the index, even if some of them occasionally appear in the text.)

In conclusion, the book is a very useful synthesis for American students or scholars (French readers will find it strange that the discussion centers only on English-language historiographical debates, even if they are mostly based on French scholarship), more than an original contribution to our knowledge.

Pierre-Cyrille Hautcoeur is Professor of Economic History, Ecole des Hautes Etudes en Sciences Sociales and Research Fellow, Paris Jourdan Sciences Economiques (PSE) (joint research unit, CNRS-EHESS-ENPC-ENS). He specializes in monetary and financial history. His recent publications include “Efficiency, Competition and the Development of Life Insurance in France (1870-1939); or: Why Some People Don’t Trust Pension Funds,” Explorations in Economic History 41 (2004): 205-32; “Was the Great War a Watershed? The Economics of World War One in France,” in S. Broadberry and M. Harrisson, editors, The Economics of World War One (2005); and “Why Didn’t France Follow the British Stabilization after World War One?” (with M. Bordo), NBER Working Paper 9860, forthcoming in the European Review of Economic History.

Subject(s):Business History
Geographic Area(s):Europe
Time Period(s):20th Century: Pre WWII

Private and Public Enterprises in Europe: Energy, Telecommunications and Transport, 1830-1990

Author(s):Millward, Robert
Reviewer(s):Toninelli, Pier Angelo

Published by EH.NET (February 2006)

Robert Millward, Private and Public Enterprises in Europe: Energy, Telecommunications and Transport, 1830-1990. New York: Cambridge University Press, 2005. xix + 351 pp. $90 (hardback), ISBN: 0-521-83524-0

Reviewed by Pier Angelo Toninelli, Department of Economics, University of Milano-Bicocca.

Robert Millward, professor of economic history at the University of Manchester, has written extensively on the history of infrastructures and public ownership in Britain. In this volume his attention is addressed towards a wider and more ambitious objective, the comparative history of the economic organization of energy, transport and communications in a large number of European countries in the nineteenth and twentieth centuries.

The book is divided into five parts. The first is devoted to an introductory discussion of the basic hypothesis of the volume: the actual pattern of regulation and public ownership that has characterized infrastructure and public utilities has to be explained primarily by economic and technological factors or by strategic reasons, rather than by socio-ideological aspects.

The second part analyzes the years from 1830 to 1914, when the new European system of infrastructure was constructed, but no homogenous pattern of government intervention in services and infrastructure emerged: private, municipal and state ownership were mixed up apparently without any uniform criteria or ideological bias. Private enterprise dominated the early growth of networks, when municipal government was fragmented or weak, whereas municipal or state involvement — which required the presence of a well structured and autonomous authority — was motivated by the desires to expedite rights of way, to control monopolies, to secure a reliable supply and by fiscal constraints, as well. For instance, while gas services in Denmark, Germany and Britain were municipalized because of the revenues they could guarantee to the town councils, in several other countries they heavily relied on the private sector — public authorities being content to continue with arm?s length regulation of supply and tariffs. In the case of railways, the state took over the initiative when no subsidiary system could possibly induce the private sector to operate lines not sufficiently profitable, or to quickly build lines that were reputedly strategic. Telegraph services, on the other hand, were soon fully nationalized everywhere, and this depended on the critical and strategic interests of governments in controlling information for civil and military purposes. Therefore government ownership of the nineteenth century can be hardly associated with political or ideological stimuli. Municipal socialism flourished later, after the 1850-1870 spread of municipalization of gas and water services, soon followed by the municipalization of tramways and electricity.

The third part is dedicated to the 1914 to 1945 period, when a tendency towards a more common and homogenous pattern of behavior emerged: ?the road to state enterprise.? Emphasis here is more on the action of central governments than of municipal authorities as a consequence of the stronger interventionist stance by the state in the infrastructure sector. This was motivated mainly by a) the move towards system integration into national networks in electricity supply and telephone services, b) an increasing involvement in railroads by governments which had not yet nationalized trunk lines (as Prussia and Italy had already done), and c) the increasing state presence in the ownership and management of key strategic natural resources like coal and oil. These developments were not so much a product of political-ideological forces nor of wars and Depression, as of specific technological and economic changes. In electricity, for instance, although network integration was a potentially large source of economic benefits, where ?a nationally integrated network was not necessarily an economic proposition? (p. 119) integration could wait, as happened for different reasons in Norway and Italy. In railroads increased state intervention was explained primarily by their ?desperate financial straits? induced by overlapping causes such as wage rises, increases in coal prices and hard competition by petrol-driven coaches, trucks and cars.

Part four discusses the 1945 to 1990 period. It embraces the phase of the maximum expansion of state ownership, when large sectors of economic activities passed into government hands, even in countries previously less affected by the phenomenon, such as France and Britain. The focus here is particularly on coal, oil and airlines. State ownership — together with attempts at economic planning, which yielded a range of successes and failures — characterized the economic policy of recovery and reconstruction of the golden age. Here Millward raises the fundamental question: how to evaluate in a historical perspective the performance of state enterprises in order to take into account additional ?non-economic? aims (that is ?public interest?) increasingly assigned to them by governments? A correct measure should not reckon so much with profitability as with measures of x efficiency, i.e. the difference between maximum and actual effectiveness in the utilization of inputs — such as, for example, output per employee/hour or total factor productivity. These measures are difficult to calculate, given the lack of specific data differentiating private from public firms, but can be approximated by comparing results within the same sectors before and after eventual change of ownership, or across countries in case of different property regimes (i.e. private vs. public). Interestingly enough, no evidence of a poor productivity growth for state enterprises emerges from the examples considered by Millward.

In the fifth part of the volume Millward draws a few conclusions on the findings of his research: here the focus is on the moves towards the privatization and deregulation of the recent decades, in order to evaluate to what extent these were prompted by economic and technological change and/or supported by the prior economic history of the infrastructure sector. According to Millward, such moves did not lie so much in the inefficiencies of public undertakings as in the vanishing of the rationale of state enterprise. On the one side the motives which prompted such institutional format had increasingly weakened — for instance technological change of the last decades had greatly downgraded the issue of natural monopolies; on the other, state enterprises fundamentally failed to break even in the post war period, since the non-economic objectives were financially not supported enough by governments. Therefore the less visible mode of state intervention, arm?s length regulation, has been increasingly replacing the most visible one, ownership.

The major qualities of Millward?s quite stimulating and innovative book lay in its large comparative approach, in its meritorious effort to take into consideration both levels — the central and the municipal — of state intervention, as well as in its deep and not prejudicial discussion about the role and performance of public enterprises. These merits get the better of a few minor shortcomings which I noticed in the treatment of the Italian case: errors in spelling proper nouns and some historical imprecision (e.g. the SIP company was never re-privatized), while the prevailing identification of ideology with socialism is likely to lessen the impact of fascism and autarchy on the still persisting fortunes of statism.

Pier Angelo Toninelli is professor of history at the University of Milano-Bicocca. His latest book is Storia d?impresa (Bologna, Il Mulino, 2006)

Subject(s):Transport and Distribution, Energy, and Other Services
Geographic Area(s):Europe
Time Period(s):20th Century: WWII and post-WWII

Essays on the History of Economics

Author(s):Samuels, Warren J.
Henderson, Willie
Johnson, Kirk D.
Johnson, Marianne
Reviewer(s):Paganelli, Maria Pia

Published by EH.NET (January 2006)

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Warren J. Samuels, Willie Henderson, Kirk D. Johnson and Marianne Johnson, editors, Essays on the History of Economics. New York: Routledge, 2004. xiii + 340 pp. $165 (cloth), ISBN: 0-415-70006-X.

Reviewed for EH.NET by Maria Pia Paganelli, Department of Economics, Yeshiva University.

The unifying theme of Essays on the History of Economics may not be obvious from simply looking at its table of contents. The volume has four essays. Willie Henderson and Warren Samuels write on “The Etiology of Adam Smith’s Division of Labor: Alternative Accounts and Smith’s Methodology Applied to Them” with an appendix by Henderson on “How Does Smith Achieve a Synthesis in Writing? Evidence from His Propensity to Truck, Barter and Exchange.” Warren Samuels, Kirk D. Johnson and Marianne Johnson write the second essay, titled “Should History-of-Economic-Thought Textbooks Cover ‘Recent’ Economic Thought?” as well as the third essay, “What the Authors of History-of-Economic-Thought Textbooks Say about the History of Economics.” The last essay is a solo by Samuels on “Thorstein Veblen as Economic Theorist.”

What connects these four essays is summarized by Samuels in the introduction: “If John R. Hicks is correct that no one theory can answer all our questions, then perhaps there is room for multiple theories of capital, of cost, and so on, each devoted to inquiring into different questions. As it stands, most economists seem compelled to believe that only one correct theory of capital or of cost, etc. can exist and then adopt their favorite one — all the while using it as a tool or element of design strategy. Historians of economic thought can enrich economic theory by educating future economists along the lines of theoretical pluralism” (p. 6).

If a goal of history of economic thought is to show that economics and its history is not a monolith, but rather a discipline with a plurality of socially constructed theories and concepts, this is a successful work of history of economic thought.

The first essay deals with the plurality of interpretations of Adam Smith’s sources of the division of labor. Through a meticulous textual analysis, the authors show that in addition to the oft-mentioned propensity to truck, barter and exchange and reason and speech, four additional sources for the division of labor can be argued for. Division of labor may emerge because individuals take advantage of opportunities, because of the presence of a commercial society, because of the “nature of human nature” or because of human desire for approbation. The interpretative conflicts and paradoxes associated with the language are numerous.

The second essay is explicitly meant to challenge Joseph Dorfman’s answer to the question: Where does history of economic thought end? In The Economic Mind in American Civilization (1959) Dorfman claims that time must pass for us to gain knowledge and perspective. The authors show that history of economic thought is able to handle recency in a more variegated way than Dorfman is willing to admit. The authors go though 73 textbooks in their various editions (a total of 124 textbooks) to see how recency is handled. They report for each whether the problem of recency is explicitly discussed, how the design changed over the years to account for recent materials, the extent of coverage of recent materials, and the frequency of citations and references to prominent post-war economists. The results are mixed: there is no clear end of history of economic thought, which contradicts Dorfman’s rule, and supports the idea of pluralism in the history of economic thought. Dealing with recency may reduce the risks of a history written by the survivors or by the winners. Also, the multitude of histories of economic thought seems to dispute Dorfman’s assertion that the one correct story will be revealed with the full knowledge generated by the passage of time. Another conclusion from this chapter seems a challenge to trained historians of economic thought: “most of recent history-of-economic-thought work is undertaken by economists (and others) who are not historians of economic thought” (p. 179) through survey articles, literature reviews, specialized encyclopedias, biographies and the like. Pluralism in the discipline comes also from the diversity of writers of the history of the discipline.

The third essay reports the historiographic position of 63 textbooks. It successfully shows that “the history of economic thought does not write itself” (p. 264) but is filtered through the interpretive eyes of the textbook writer. By analyzing the design strategies of the textbooks, this chapter is a testimony to the pluralism of the discipline. The diversity of interpretations is visible in the choice of starting and ending time, in the individuals and schools covered, and especially in the focus on theories or on ideas. The work presented seems immense, as for each historiographic question there is a list of authors who provide an answer and the answer itself. Given the amount of information presented, it seems like an electronic version of this chapter, with the option of electronically searching it, would be useful as a working tool for a scholar interested in this kind of research.

The last essay challenges the hegemony of neoclassical economics in defining theory. The interpretation of the work of Thorstein Veblen is used to demonstrate the limits of such supremacy. The same author (Veblen) can be interpreted as an anti-theorist as well as a theorist, depending on how theory is defined. If by theory we understand only neoclassical theory, a la Blaug, then Veblen is an anti-theorist and offers no theory. By expanding the definition of theory to include non-neoclassical theories, Veblen is a theorist (a non-neoclassical one) and is not anti-theory (while he is anti-neoclassical).

The volume is an immense work of scholarship, as shown by the rich twenty-five pages of bibliography. It is a dense picture of the state of the discipline today, a picture that shows a dynamic cacophony of different voices, rather than a unified but maybe more monotonous tune.

Maria Pia Paganelli is an Assistant Professor of Economics at Yeshiva University. She works on eighteenth-century money theories and on Adam Smith.

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