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John Maynard Keynes and International Relations: Economic Paths to War and Peace

Author(s):Markwell, Donald
Reviewer(s):Lawlor, Michael S.

Published by EH.NET (February 2008)

Donald Markwell, John Maynard Keynes and International Relations: Economic Paths to War and Peace. Oxford: Oxford University Press, 2006. xv + 320 pp. $85 (hardcover), ISBN: 0-19-829236-8.

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

This book will be of interest to economists in general, and to Keynes specialists in particular. It focuses on the topic of the international relations views expressed by Keynes over his long career, from his involvement in the First World War as a Treasury official and as Lloyd George’s economic advisor at the Paris Peace Conference; through his interwar position as a prominent analyst of international monetary problems; to the part he played in the British Treasury during the Second World War. There he was very influential on the policies of how Britain would pay for the war, the form that the post-war international payment systems would take under the Bretton Woods system, and the negotiation of the terms of the American post-war loan to Britain in 1946, shortly before his death.

The fact that this book solely focuses on this limited facet of Keynes’s multi-dimensional career, that Markwell is a political scientist and therefore uses much non-economic material, consisting mostly of primary internal memoranda from the Treasury office and other governmental units, and that he frames his arguments in terms of the secondary scholarship on international relations in political science ? both of which are unfamiliar territory for most economists ? adds to the freshness and usefulness of this study. It should also be added ? and I don’t think Markwell would disagree ? that some of the debates and contexts for Keynes’s activities in this regard have already been well discussed in both Robert Skidelsky’s (2000) and Donald Moggridge’s (1992) biographies of Keynes. These books provide a thorough background and context for the many issues, events and personalities surrounding Keynes’s involvement in international relations. I would suggest one of these volumes for further reading to those who find this to be an area of interest. Markwell’s book goes beyond them, and is a useful companion to them, in its bringing together the various strands of Keynes’s ideas, writings and activities with respect to international relations in one place. This treatment adds focus to the material in a way that Keynes’s biographers, necessarily more focused on the grand sweep of his career, were not able to do.

More broadly, this book is instructive to this reviewer for the opportunity it offers to ponder the importance of context for the application of some of the fundamental tenets of economic theory. Ironically, perhaps this is precisely because of Markwell’s lack of focus on economics and due to his use of the aforementioned wealth of policy evidence on Keynes’s extensive involvement in government and international affairs. Markwell’s analysis requires the economic reader to follow Keynes into the task of applying economic theory to knotty problems of international politics and thereby to think hard about the validity of the abstract nature of economic principles in various real geopolitical scenarios of great import (like the two World Wars), to consider what role economic factors may play in the development of hostilities between nations, and to consider seriously the compatibility of microeconomic truths with macroeconomic truths when their application is not just a hypothetical example, but a real live political circumstance.

To first take up the issue of the contextual nature of the application of economics to political situations consider the situation that Keynes, and all western economists and political analysts, faced in the period from the end of the First World War, through the slump and depression of the thirties. What concerned them most was the question of how to re-create the era of rising prosperity and smoothly functioning world trade that had characterized Europe and America in the period before 1914. From the end of the First World War and the Paris Peace Conference on, Keynes was one of the first and most prominent (but by no means the only) international figures who felt that this goal required a lasting peace that would allow Germany to regain its rightful place, for reasons of geography and size, as the economic engine of Europe.

This was Keynes’s message in the book that first made him internationally famous, The Economic Consequences of the Peace. This book, as Markwell shows, grew from Keynes’s fears that restoring prosperity to Europe was wholly lost sight of in the blind rush to revengefully heap reparations and crippling terms of defeat upon a prostrate Germany. Keynes’s sometimes over-the-top criticism of the principals at the conference ? with Lloyd George, George Clemenceau and Woodrow Wilson coming particularly under extensive personal attack, some thought bordering on ridicule ? stemmed from the fact that Keynes believed that their actions, as opposed to their hypocritical words, would lead to an unstable peace.

Thus, at some risk to his own influence and career, Keynes quit his role in the negotiation of the Paris peace treaty and returned to England to hastily write his reaction to that experience in the form of The Economic Consequences. It was a book that both criticized the leaders of England and France for cowardice, in being unwilling to challenge the popular clamor for revenge upon Germany, and that laid bare the flaws of the peace terms that the French and British political leaders had, Keynes thought, bamboozled President Wilson into signing. These plans, he felt, were counterproductive of a lasting peace and unrealizable to boot, because Germany could never meet its reparations obligations so long as its internal economy was crippled by the terms forced upon it by the treaty.

All this is well known to Keynes scholars and to students of the World War One period. What Markwell adds is context and detail to Keynes important role in the struggle to win both the war and the peace. What can be learned by all economists from his experience is that the dire nature of the post-war European economies, particularly those of the losing Axis powers, could not automatically be reversed unless attention was paid both to their immediate needs in the form of relief aid of one kind or another and also to their more long-term need to foster investment and trading institutions that would ensure the growth and permanence of economic prosperity. In asking how this would be achieved, Markwell classifies the nature of Keynes’s arguments at this crucial historical juncture as a species of a “liberal-idealist” one.

At the end of 1918, Keynes had a clear view of some of the elements of the post-war order he wished to see. His liberal-idealist faith in free trade, on which he had been brought up, was unshaken. He had urged the abandonment of inter-Allied debt and Britain’s forgoing her share of reparations, which he hoped would go to assist the new states. He had urged a moderate approach to reparations; and clearly wished the defeated powers to be treated so that they would not need assistance to avoid starvation, unemployment, anarchy, or perhaps Bolshevism. The fundamental views which underlay his action at the peace conference, and which were to be expounded in The Economic Consequences, were already formed and were shared by many others (p. 53).

Thus Keynes began his career, as many economists have before and since his time, as a solid proponent of free trade as the primary means to bring about international peace. This brings us to the second issue raised above: to what extent, and how, are economic factors causative of acrimony and war between nations? Any modern economist could profit by considering this question in light of Markwell’s book. Here, Markwell writes, Keynes’s view matured over the course of his career. The standard argument pits free trade against imperialism. Free trade, it is thought in the standard liberal argument, may have peaceful benefits as an unintended consequence, if it make customers out of potential enemies. Moreover, since mutually beneficial gains for any two countries can be shown (and this is one of the principle lessons of a liberal economics) to lead to rising prosperity for both trading partners, there is a potential for any two countries to both benefit from trade. Trade, so this argument goes, would make traders reluctant to upset trading by aggression and war, and so free trade may tend to reduce international aggression and war.

On the other side, the argument of imperialism starts from the premise that it is beneficial for a country to run a favorable balance of trade, and an expanding export market, in that this tends to keep manufacturers and producers of tradable goods and services at home in a prosperous and expanding state. By this argument developed countries (note not firms directly, but perhaps state action spurred by firms) will seek means to maximize export opportunities in particular and may also vie to receive exclusive preferences for their goods and services in these markets, as well as trying to ensure scarce inputs to the production process, such as raw materials and/or natural resources that are in short supply at home. How is this accomplished? By the argument of imperialism, it is accomplished by military and diplomatic maneuvers that allow powerful states to dominate weaker states and to assemble official or semi-official trading empires.

The economic analysts of the liberal tradition in England ? Smith, Ricardo, Burke, Mill, and Marshall ? can be identified as the major proponents of the former idea. Dissenters from this tradition both in England and on the continent ? like Hobson, Lenin and Luxembourg ? can be identified with various twists on the latter idea in Keynes’s time. Markwell makes it clear that Keynes early in his career came down exclusively on the side of the liberal conception of free trade ? hence his categorizing of Keynes’s earliest arguments into those of a “liberal-idealist” camp. He recognized and believed in the potential of free trade to promote peace and harmony among nations, and he thought that by reestablishing Germany’s power to participate in trade with it neighbors, a lasting peace could be established in Europe after World War One.

It must be said, though, that the history of Europe and the world in the nineteenth century and leading up to the war in 1914, offered evidence supportive to both sides of this debate. On the one hand Britain, France, Germany and in fact most of Europe, had all grown prosperous in this period by trading with other nations, particularly was this so in the case of Britain, a small island economy with vast global trading interests. But each had also sought to carve out for itself some exclusive markets for its exports, and some exclusive sources of raw material for it own producers, through the conquest of overseas empires. This vying for power internationally had become so commonplace among European governments that part of this activity became known in England by the playful title of the “The Great Game.”

But imperialism and empire were not topics that engaged Keynes, either by upbringing or by temperament. In order to reassert the classical liberal argument he had been brought up on in this context he, like many of his fellow British liberals, made a crucial distinction between empires and exclusive trading blocks. “Empires,” according to Keynes (in 1903), need not lead to exclusive trading blocks. An empire that was founded and run on proper political principles, as he thought was the case of the British Empire, could lead to a loose confederation of states for which association with Britain was “to provide facilities for the growth under freedom and justice without molestation from abroad of these young nations … [W]hen a country becomes part of the Empire it is free to pursue it own destiny, in its own way. Because our ideal is democratic” (p. 19).

This somewhat condescending (to the colonial countries) and benign view of empires was in sharp contrast to both the imperialism theorist’s view of empires, as well as to those of other English political and ideological leaders (of the so called “Round Table”) who, after World War One, wanted to work for the imperial unity and exclusivity of trade relations between the various members of the British Empire. Keynes criticized the notion that empires necessarily would form into exclusive trading blocks that excluded all others, and that empires should lead to this state of affairs. He excoriated the latter in particular, exemplified for Keynes by the “German dream of Mittel-Europa.” It was a conception of empire based on “exclusivity” and the attempt to “monopolize” for the home country producers’ markets for their exports and sources of food and raw materials. This, he lamented, led to new frontiers “between greedy, jealous, immature, and economically incomplete, nationalist states” (p. 20). Worse, competing for such imperial preferences by nation-states, such as the British Round Table thinkers advocated, could lead to conflict and war.

Thus, the question that formed the international relations context in which Keynes wrote during and immediately after the First World War, was whether war could only stem from a perverse international policy in pursuing the potential gains from free trade (what Markwell calls the liberal-idealist position) or whether war was a natural outcome that could be expected from an inevitable imperialist-capitalism by which states would naturally vie for national power by assembling competitive exclusionary trading blocks (what Markwell identifies as the “realist” view).. Keynes, at this stage, as we have seen, favored the first argument ? that free trade only caused war when it was perversely pursued along the lines of imperial, exclusive terms. If trade and empires could be based on openness of markets and democracy, such as British experience in the pre-war period showed to Keynes was possible, then empires could be a beneficial source of cosmopolitanism and peace.

So what did Keynes at this early stage in his development think were the economic causes of war? Wars could result, said the younger, classical liberal Keynes, from “impoverishment, population pressure, penetration by foreign capital and the ‘competitive struggle for markets'” (p. 3). Note this fits our conclusion in the previous paragraph, by carefully excluding free-trade from those causes, so long as it is not pursued in exclusionary terms. So the interesting questions for economists today ? trained to believe unreflectively and in the abstract in the eternal verity of the potential for mutual gains from trade ? to take from this study of Keynes are as follows: Are there some possible circumstances under which this gain will not automatically arise in the context of actual situations of international relations? Does economic theory itself suggest conditions in which we may want to abandon a dogmatic attachment to what seems like a species of economic Truth? It turns out that the historical analog to these questions in the present case is “how did Keynes’s view of the role of economics in international relations evolve over his career?”

One way to answer these questions is by following Markwell in identifying three further stages in Keynes’s evolution in this regard ? identified as his “early liberal institutional, protectionist and mature liberal institutionalist” (p. 3) positions. All three stages could be thought of as instances where Keynes did not so much abandon the above-listed catalogue of the potential economic causes of war, but rather thought of extensions to the first cause ? economic “impoverishment.” His extensions were of two varieties. First in the 1920’s, and again in the 1930’s, Keynes suggested extensions from the contextual perspective of then current national and international events. Later in the 1930’s, and from the theoretical perspective of his General Theory, he suggested further, more economically fundamental extensions to this factor. Put another way, as he matured in terms of both experience and theoretical framework, he added to this list of the potential economic causes of war the crucial factors of monetary disorder, trade imbalances and unemployment. Even later, with special reference to Hitler and Germany, he added that there is no proper economic cause that extended to a nation’s possible reaction to “impoverishment” by embracing what he called a “brigand.” That is to say, economics had no explanation or remedy for a nation that was led by “a madman or a gambler” that was willing to risk war for personal power (p. 198). (Markwell convincingly shows on pp. 197-203 that Keynes was never pro-German or an appeaser, as he has sometimes been accused.)

Let us take the first stage of the evolution of Keynes’s views to begin. As Britain suffered through the slump of the twenties and as most of the West similarly suffered though the worse experience of the Great Depression in the thirties, Keynes came to blame these continued difficulties in restoring prosperity on the lack of existence a of well-functioning international monetary order. In particular, he was convinced that the gold standard had become a shackle on Britain, and on western expansion in general, because it forced weakened economies, such as he identified Britain as being since the First World War, to run a high-interest-rate policy for international reasons (to protect its gold reserves) that was wholly inconsistent with a needed internal low-interest-rate policy to restore employment and prosperity. This again deviated from the belief that free trade would automatically restore prosperity in any political context. In this case, and barring international agreement on an alternative system that bitter experience had taught him was not likely, it would be better for Britain to unilaterally either peg its pound below its pre-war parity rate ? and by such a devaluation encourage the output of its exporters – or, as eventually transpired in 1931, to abandon the gold standard altogether.

Even as this was his best counsel on short-term policy, Markwell shows Keynes was continuously preoccupied in this period, roughly 1922-1932, with finding a solution to the question of what possible type of international arrangement could be agreed upon by many nations and managed with some high degree of efficiency that would not rely upon what Keynes considered the immiserating and trade-inhibiting policies of the gold standard [1].

So the second-stage of the development of Keynes’s views on international relations was that he came to feel strongly that a return to the pre-1914 prosperity in Europe required the adoption by international agreement of an alternative to the former gold standard that would attract wide participation. This could only happen, he thought, if there were strong international leadership (which he long looked for from the U.S., as far back as the end of the First World War, but did not actually witness until World War Two). Moreover, Markwell clearly shows that in all of his many writings and participation in conferences devoted to this topic, Keynes was very fluid and pragmatic about the form that such a system should take. He was willing to compromise his own vision of a U.S./British-led system of managed (flexible) fixed exchange rates and the form that a managed stock of international liquidity reserves and payment media would take, if it would encourage wider agreement. (He stressed that the search for unanimity was an evil to be avoided.)

This fluidity as to details was to serve him well when he was negotiating with America during the Second World War over Lend-Lease and especially the post-war monetary system in that the Americans had firmly held demands and alternative plans of their own, which when added to Britain’s weak financial position, meant that Keynes was forced to negotiate from a distinctly weak position. Thus, the 1923-30 period was the stage of Keynes’s developing international relations views that Markwell calls “early liberal institutionalist.” Free trade could be beneficial, he was saying, but only if a properly functioning international monetary institution was adopted.

Briefly, we proceed on to the third stage of Keynes’s views on the economic element in international relations. Here the question becomes more starkly the universal nature of the coincidence of free trade and peaceful international relations. This stage arose out of Keynes’s participation on the Macmillan Committee on Trade and Finance (1929-31), the Economic Advisory Council set up by Ramsey McDonald, and particularly its Committee of Economists (created in July 1930, and to which also belonged William Beveridge, A. C. Pigou and Lionel Robbins) and in the pages of the political affairs journal that he headed at the time, the New Statesman. All of this activity arose from the need to respond to the international crisis that arose from the Great Depression and its particular impact on Britain.

In this and the fourth stage of Keynes’s grappling with international relations questions, Markwell emphasizes continuity in Keynes’s evolving views. The economist in me wants to call the first issue one of political context and, therefore not economically fundamental. But Markwell makes a good case that the last two stages of Keynes’s thought in this regard should be seen as merging into, and reinforcing, one another. The fourth phase he identifies is the period after 1933, sometime between 1934 and 1936, depending on when one judges Keynes to have been in control of the central propositions of his General Theory.

To go back, we should start with describing the third stage of Keynes’s views that Markwell describes as his “protectionist” phase. This occurred when, in the early years of the Great Depression, 1929-33, and to quite a bit of controversy, Keynes advocated protectionist measures for Britain, especially higher tariff barriers, as a way of combating the British unemployment of that period. He contextualized this recommendation by arguing that this unemployment had unfortunately occurred within a world system where the gold standard made the pursuit of free trade for “creditor” countries (such as Britain was since 1914) a road to even higher domestic unemployment than it was already experiencing. This was because, in order to maintain its balance of payments, it was forced to run a high-interest rate policy and deflation to protect its reserves. In this circumstance, and again barring a better international monetary system that seemed so impossible to him at that dark stage in history, Keynes gave a limited endorsement to British protectionist policy in the then-current economic emergency and for the short term. One detects almost a reluctance on his part to do so. And, indeed, his about-face was controversial enough on the Economists Committee that Robbins found it necessary to both author a dissenting minority report, attack Keynes’s position in the press and later author, with Beveridge and other LSE economists, a book defending free trade even in this context (Beveridge et al. 1931).[2] Consider Markwell’s comment on Keynes in this period: “Keynes’s renunciation of free trade came, hesitantly, and then boldly, in proposals, first, for emergency tariffs, and, secondly, for greater national self-sufficiency and economic isolation. Keynes moved from admitting that the classical connection between free trade and peace was an argument against a tariff, but one outweighed by the economic emergency; through saying that his proposed tariffs could also help international amity; to denying that free trade did in fact promote peace” (p. 153).

His argument in the context of such an economic emergency as the Great Depression seems to have been analogous to the old saw that “the patient cannot stand the cure.” He thought that Britain was in such a crisis with regard to unemployment, that her money wages were too rigid for deflation to work its classic role in bring down costs, that the gold standard had so limited the range within which domestic economic policy had to maneuver, and that so many other countries were reacting to this crises by erecting tariff barriers of their own (effectively exporting their unemployment problems to Britain), that he had become “reluctantly convinced” (p.154) that protectionism was the best temporary policy Britain could pursue in this circumstance.

Economists, and particularly specialists in macroeconomics and in Keynes’s thought, might immediately wonder if the drafting of the General Theory of Employment, Interest and Money did not have a profound effect on Keynes’s ideas on this question. Less historically minded economists might also wonder if, and how, the perspective of macroeconomics might alter one’s view of the universal argument for the benefits from trade. Again the history of Keynes’s own international relations positions offers examples of him facing exactly this question. Consequently, the fourth and last stage that Markwell identifies in Keynes’s evolving views on international relations ? what he calls the “mature liberal institutionalist” phase ? was based on just this issue. Again depending on when one judges the proposition of the General Theory to have been drafted, in some period during the middle part of the 1930s, Keynes developed a more fundamental economic theory framework in which to argue the point about protectionism that we have seen him making on pragmatic policy grounds in the early years of the Great Depression. In the General Theory and after, Keynes insisted that the question of the economic causes of war and the advisability of protectionist, anti-trade measures depended on how close the economy was to full employment ? and this extended to his advice to the government during the Second World War, when he judged the economy to have met this condition. Short of this internal goal, Keynes said that countries were unlikely to reap the potential benefits from free trade described by classic liberal economics. This was because the temptation was too strong for any one country to erect tariff barriers around itself to boost the demand for domestic producers. It was Keynes’s view that the policies of many nations since 1929 offered examples of this. Since competitive attempts to export domestic unemployment to another country eventually ended in lowering employment in them all, protectionist policies became a second best solution in this context. Better that each county should act in isolation from international forces to raise domestic employment to its full potential, by lowering interest rates and bolstering demand for domestic industry in any way possible. According to Keynes, “if our central controls succeed in establishing an aggregate volume of output corresponding to full employment as nearly as practicable, the classical theory comes into it own again from this point onwards” (p. 186).

Here we can quote Markwell to the effect that Keynes hereby modified his position on the economic causes of war in a fundamental way:

In short, Keynes’s argument was both that laissez-faire did not have the tendency to peace claimed for it, and that a reformed capitalism along the lines he advocated would much improve the prospects for peace. Keynes said that ‘the new system might be more favourable to peace than the old has been.’ It is not clear whether by this Keynes meant simply that past causes of war would be absent, or that with these gone and free trade, some of the mechanisms classical liberals claimed were the means by which free trade actively promoted peace would work again. Such mechanisms included the creation by trade of vested interests in peace, and the promotion of moral solidarity between nations trading with each other.

Here is the final issue that modern economists might profit from pondering as a result of reading this book. Keynes was saying in the 1930s that countries had first to ensure full employment before they could anticipate the mutual economic gains and the possible peace dividends that trade holds out. If the economic system of a free-market economy does not automatically tend toward full employment, but needs to be managed to attain this goal consistently through time (and surely this is the basic lesson of macroeconomics even to this day), then it is a mistake to think and preach that free trade is some sort of divinely given cure for all economic ills, in all contexts, domestic and foreign.

Keynes, of course, should not be looked on as an infallible guide in pondering this issue. He was fallible in judgment even within the field of international relations that Markwell surveys here. For one, his self confidence about his cleverness in designing policy fixes often led to disastrous negotiations on his part with his official American counterparts during the Second World War. Harry Hopkins, the special advisor to U.S. President Franklin Roosevelt, reportedly expressed this irritation in his comment that Keynes was “one of those fellows that just knows all the answers” (Chandavarkar, 2001).

Moreover he showed a complete lack of understanding of the American political process. Used to dealing exclusively with ministers and their Whitehall staff in the more centralized English system, he was dismayed by the power of individual Congressman. Also, not only was Keynes unnecessarily rude to these Congressman, who he often gave the impression that he considered them provincial and beneath him, but his haughty behavior was also unwise, in that those very Congressmen could hold up American aid for British needs. He similarly accused the White House and State Department of being too timid in its relations with Congress, not realizing that the American Constitution gave Congress control of appropriations, whatever the White House may have negotiated for with the British.

But Keynes’s faults were more than outweighed by his many talents. Keynes’s insight into how economies work, combined with his ability to understand and exert influence over the process of policy creation, is unlikely to be seen again in today’s era of extreme specialization. As such, modern economists, whether they agree with his judgments or not, can learn valuable lessons in the political economy of policy application from following his career in international relations in the context of numerous actual international crises. Markwell does a fine job in showing, over numerous issues, how difficult and how much skill is required to apply economic reasoning in the realm of international relations. Markwell’s greatest attraction for an economist is that he shows how Keynes pursued this activity with skill and subtlety in the context of many of the weightiest geopolitical issues to face the West in the twentieth century. It is one measure of Keynes’s and others’ ultimate success in this context that it is hard now to even imagine Germany and England at war. We, as economists, can learn a great deal from a recounting of his experiences in establishing this peaceful and prosperous state of affairs in Europe. Perhaps it might even make us a bit humble to contemplate that it may be in large part due to Keynes’s own work both in economics and politics, to the wisdom of the architecture and implementation of the Marshall Plan, which was surely in the spirit of Keynes’s ideas, and to the way in which economies have been managed since his time, that we have the luxury of not facing his unpalatable choice between free trade and full employment.


1. Also note that Keynes therefore wanted to destroy what he considered a “barbarous relic” of the nineteenth century, the belief that the gold standard operated “automatically” to restore international imbalances and that this meant it would encourage trade. Alternatively, a major message of Keynes throughout this period was that the gold standard was not, in fact, operating automatically by the pre-war rules of the game in the period after World War One because the U.S. and the Federal Reserve System refused to let its own eventual control of the majority of the world’s monetary gold cause U.S. prices to rise. Keynes thought this unfairly forced upon all other “creditor” nations the problems, noted above, of choosing to abandon international monetary arrangements, to competitively devalue its currency or to run a ruinous deflation.

2. It is instructive to modern economists that Robbins later, in his autobiography (Robbins, 1971), recanted his opposition to Keynes during those depression years.


Chandavarkar, A. 2001. “A Fresh Look at Keynes: Robert Skidelsky’s Trilogy.” Finance and Development, Vol. 38, no. 4, December.

Moggridge, Donald. 1992. Maynard Keynes: An Economist’s Biography, Routledge.

Robbins, Lionel C. 1971. Autobiography of an Economist, Macmillan.

Skidelsky, Robert. 2000. John Maynard Keynes: Fighting for Britain, Macmillan.

Michael S. Lawlor is Professor of Economics, Wake Forest University, Winston-Salem, North Carolina. His most recent publication on Keynes is The Economics of Keynes in Historical Context: An Intellectual History of the General Theory (2006).

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

The Decline of Latin American Economies: Growth, Institutions, and Crisis

Author(s):Edwards, Sebastian
Esquivel, Gerardo
Márquez, Graciela
Reviewer(s):Salvucci, Richard J.

Published by EH.NET (January 2008)

Sebastian Edwards, Gerardo Esquivel and Graciela M?rquez, editors, The Decline of Latin American Economies: Growth, Institutions, and Crisis. Chicago: University of Chicago Press, 2007. viii + 418 pp. $85 (cloth), ISBN: 978-0-226-18500-1.

Reviewed for EH.NET by Richard J. Salvucci, Departments of Economics and History, Trinity University

This book is something of a disappointment, but certainly for no intellectual reason. The papers in it, the results of an NBER conference, are almost uniformly excellent. Their authors are a distinguished group. Chances are if you’re interested in Latin America, you will learn something new, come away stimulated, and wish you could read the conference commentaries, which do not appear. So what’s not to like, aside from proofreading that does the University of Chicago Press no credit?[1]

Well, there is the title, The Decline of Latin American Economies. It is a clich? that you can’t judge a book by its cover. You can’t judge this one from its title, either. True, the lead paper, by Leandro Prados de la Escosura, “When Did Latin America Fall Behind?” is probably destined to become a classic reference. Not only can I do his effort no justice in a brief review: Prados’ paper probably merits a conference (or at least a critical response) of its own. Subtleties aside, the paper sensibly asks “decline relative to what?” and then sets out to frame a proper answer drawing on something other than the usual suspect sources. You may not agree with Prados’ quasi-postmodern “it all depends” conclusion, but then we are reminded that, in the final analysis, index numbers are, perish the thought, constructions. Yet after this really promising start, the volume simply falls apart. It is about everything. To be sure, it is an absorbing, sophisticated, even pioneering everything. But the only thing that “declines” is coherence. I guess you really can’t publish a volume entitled “We had a conference, invited a bunch of really smart people to do their thing, and this is the result.” But honestly, that’s what you get.

And, boy, you do get some great stuff. As usual, what you rate “best” is mostly a matter of preference, but there are some real gems included. The briefest and most badly edited paper in the volume, by Gerardo (aka “Geraldo” in its references) della Paolera and Mart?n Grandes, “The True Measure of Country Risk … (its baroque title is almost as long as the text that follows) may be the single most perceptive piece written about nineteenth-century public finance in some time. Looking at sovereign and subsovereign (provincial) bond spreads in Argentina from 1886 through 1892, they conclude “the economic effects of the political structures of emerging nations are an important consideration in analyzing their economic development … [and] should be priced accordingly” (p. 210). Their insight cuts through all the noise about liberals, conservatives, centralists, federalists, revolts, rebellions and “revolutions” ? the political chatter that contaminates the few decent time series we have (for any country in the region) and provides both a coherent framework for analysis as well as an indication of how mid to late-century Namierist politics might actually affect macroeconomic outcomes. My colleagues in history, to the extent they think about economic history at all, rather confusingly contend that economic models either prove the obvious or the impossible. Too bad they probably won’t read della Paolera and Grandes.

As usual, things Mexican are overrepresented, as if Mexico and the purely notional “Latin America” were coterminous. That’s OK with me (again, personal preference), since the papers by Aurora G?mez-Galvarriato, by Gerardo Esquivel and Graciela M?rquez jointly, by Noel Maurer and Stephen Haber jointly, and by Pedro Lains (more for his rehabilitation of Donald Keesing’s neglected work than for the empirics) are essentially what you’d expect from scholars of this caliber. G?mez-Galvarriato’s superb research on the textile industry not only endogenizes protection in Mexico, it endogenizes the “perfect dictatorship” of the PRI as well and puts to rest once and for all the simplistic, economically chauvinist and wildly ahistorical notion that the commercial policies followed in Mexico before the 1980s were just a “mistake.” Shortsighted they may have been, and increasingly out of sync with structural changes in the world economy already evident by the early 1970s as well. But by then, Mexico’s politics were a matter of institutional inertia too. Yes history matters. It took until 2000 to get the PRI out of Los Pinos, but then it had been in power since 1929. Such changes are hardly costless.

I would be remiss if I did not mention that there are also very thoughtful papers by Luis Catao, by Sebastian Edwards, by Michael Bordo and Christopher Meissner jointly, and by the late Kenneth Sokoloff and Eric Zolt jointly. They deal expertly with international capital flows; establishing the credibility of stabilization programs; variations, mostly venial, on ‘original sin'; and the way in which stark inequalities in wealth and power have contrived to reproduce themselves in Latin America since the nineteenth century. Of most interest to historians would probably be the paper by Sokoloff and Zolt. I can only hope that one of Sokoloff’s coauthors, colleagues, or students will bring what had already become a very influential research program to the conclusion presumably envisioned.

I offer no ritualized concluding paragraph. A book which is not a book, however outstanding, really does not deserve one. You say something’s missing, right? Join the club. That’s the best way to convey the experience of reading this frustratingly directionless “publication.”

Note: 1. For one example, see the footnote on p. 197, with the priceless Portuguese title, “Brazil: 1824-1957: Born on Mau Pagador.” That sounds more like a line from “The Ballad of Davy Crockett” than the title of Marcello (sic) de Paiva Abreu’s article. And this is the sloppiness you can see.

Richard Salvucci is author of the forthcoming book, La Deuda Eterna: Politics and Markets in Mexico’s “London Debt,” 1823-1887.

Subject(s):Markets and Institutions
Geographic Area(s):Latin America, incl. Mexico and the Caribbean
Time Period(s):20th Century: WWII and post-WWII

Kansas in the Great Depression: Work Relief, the Dole and Rehabilitation

Author(s):Fearon, Peter
Reviewer(s):Sorensen, Todd

Published by EH.NET (November 2007)

Peter Fearon, Kansas in the Great Depression: Work Relief, the Dole and Rehabilitation. Columbia, MO: University of Missouri Press, 2007. x + 316 pp. $45 (cloth), ISBN: 978-0-8262-1736-3.

Reviewed for EH.NET by Todd Sorensen, Department of Economics, University of California, Riverside.

Peter Fearon’s book, Kansas in the Great Depression: Work Relief, the Dole and Rehabilitation, is a thorough examination of the role that the Kansas state government, the federal government, and the relationship between the two governments played in providing relief to those hardest hit by the Depression. Fearnon’s work is rich in information drawn from primary sources. Probably the most important of these sources is the personal papers of John G. Stutz, the head of the Kansas Emergency Relief Committee, which was responsible for distributing the bulk of state-administered aid.

Fearon, Professor of Modern Economic and Social History at the University of Leicester, begins his book with a detailed examination of the beginnings of the Great Depression in Kansas. This first chapter describes not only how the economic downturn affected the Kansas economy, but also the first responses by the state government to the crisis. As we later see, the state’s early adoption of a number of reform measures eased its adaptation to New Deal policies and distribution of New Deal aid.

The economic and demographic changes that took place in Kansas throughout the 1920s are described in detail. Fearon notes that during the decade before the Great Depression, manufacturing employment declined significantly (though at a lower rate than in many other states). On the agricultural side of the economy, an unusually moist decade created excellent farming conditions that in turn lead to a “curse of plenty” with downward pressure on wheat and other crop prices, creating economic distress for an already heavily mortgaged farm sector.

Records from the 1920s also allow us to gain some insight into the prior state of the social safety net that would be greatly transformed in the years ahead. The poor laws that existed in the 1920s had changed very little from those that were set up shortly after statehood was granted in 1862. These laws put a strong emphasis upon the ideal that able bodied men should have no problem obtaining employment. A result of this was that serious stigma was attached to aid dispensed to these “undeserving poor.” Two important institutional details of the pre-depression poor laws were that all responsibility for aid rested in the hands of the county, and aid was restricted to those who had been residents of the county for at least six months.

The first large New Deal-like spending from the Hoover Administration came from the Emergency Relief and Construction Act. Kansas was receptive to the type of money that would be available from the Emergency Relief Division (ERD), which was created under the act. The ERD would provide low-interest federal loans to states to undertake projects that would help reduce unemployment. The administration of these projects, however, would still rest with the states. Then Democratic governor, Harry H. Woodring, created the Kansas Federal Relief Committee (KFRC) to administer this money. The KFRC’s members generally supported aid that would consist of work relief rather than handouts, and would be means-tested. The executive secretary of the KFRC was John G. Stutz, who went on to play an important role in the administration of relief throughout the New Deal. The KFRC also created similar style committees in each of Kansas’ 105 counties.

With the November 1932 election of Franklin Roosevelt, federal involvement in state relief efforts was set to change significantly. At the same time, Alfred Landon, a Republican, was elected as the new Governor of Kansas. An important early decision made by Landon was to retain the majority-Democrat KFRC from the prior administration. While this was probably done more due to practical considerations for preserving continuity, it likely had positive political repercussions for the KFRC’s future dealings with the new Democratic administration in Washington.

As mentioned above, Fearon’s key primary source is the papers of John Stutz, whose role in the administration of relief is discussed throughout the text. Stutz was raised in Kansas and had degrees in political science and sociology from the University of Chicago. From the time of his graduation until his involvement with relief administration, Stutz was the executive director of the League of Kansas Municipalities, where he had become well respected nationally among those involved with city management. His efforts to exchange ideas with people in his position in other states lead to the founding of the American Municipal Association, the precursor to the National League of Cities. Fearon cites Stutz’s already established managerial and bureaucratic talents when considering his role in the development of a nationally-respected infrastructure to provide relief support in Kansas. Stutz is credited with the development of a professional and well-educated network of social workers that distributed Kansas’ federal aid dollars efficiently and effectively.

While a Republican himself, the level of respect that Stutz enjoyed from Democrats (at least initially) is evidenced by the fact that it was a Democratic governor who appointed him to his post with KFRC (later the Kansas Emergency Relief Committee (KERC)). Fearon also notes the initial lack of political tension between Washington and Topeka. This truce held reasonably well until the run up to the 1934 elections, in which Landon was able to secure a second term. During the election, Stutz faced a number of personal and political attacks alleging instances of patronage and politicization of relief. At the same time, Democrats seemed to be promising that federal patronage to the state as a whole would increase should they strengthen their share of the state congressional delegation and retake the governorship. Political tensions increased even more as Governor Landon sought the Republican nomination and later challenged Roosevelt in the general election of 1936. While Fearon makes no direct comparisons to other states, it would have been interesting to see if there was an overall increase in the politicization of relief throughout the country in the run up the 1936 election, whether this effect was limited to states with Republican governors, or whether it was specific to Kansas, the home state of the Republican presidential candidate.

In addition to explaining the “why” of economic and political factors that determined how New Deal aid was administered throughout the 1930s, the middle chapters also lay out in great detail the “how” and “what” of the workings of these programs. For instance, Fearon describes how the availability of funds for future relief efforts was influenced greatly by the 1933 approval by the state legislature of Landon’s reforms to the tax code. Landon adopted the first state income tax, and levied a number of excise taxes. This was done both to broaden the tax base to allow for greater expenditures as well as to address equity concerns. These reforms allowed Kansas to move away from a revenue flow that was so greatly dependent upon property taxes; more revenue was to be collected from sources on the basis of ability to pay. Landon also required all taxing entities in Kansas to work on “cash basis” in order to avoid any deficit spending. While expanding relief spending, Landon also embarked on an austerity program that involved salary cuts to state employees, including himself.

A preference shared by both Kansas and the Federal government was the use of work relief over direct “dole” payments. The sources of funding to Kansas’ counties evolved from Reconstruction Finance Corporation (RFC) grants at the end of the Hoover Administration to the Civil Works Administration in the first year of the Roosevelt Administration to the Federal Emergency Relief Administration through 1935, and finally to the establishment of the Works Progress Administration (WPA). The last of these changes was probably the most significant to Kansas, as it meant the federal government taking over direct administration of relief spending.

Given Fearon’s focus on the political struggles between Washington and the state government and alleged further politicization of aid leading up to the 1936 election, a longer in-depth discussion of the political motives behind the establishment of the WPA would have been beneficial: can this be seen as a case of the federal government taking over administration of a program from the states in order to increase the ability of the incumbent to spend money for political benefit?

The effect of the establishment of the WPA upon the KERC was profound: its funding was decreased dramatically and its mission was being tackled by another competing agency. KERC’s preference for work relief over the dole meant a great loss to the WPA in terms of its effective scope. Democrats in Congress, frustrated with Stutz’s running of KERC, were eager to have one of their own in the new post that would oversee the WPA’s activities in the state. In the summer of 1935, Stutz was passed over for this position in favor of Evan Griffith, the state’s re-employment director. Stutz resigned from his position with KERC and ended his role in relief administration in January 1937, after the defeat of the Republican gubernatorial candidate.

In addition to chronicling the development of the administration of New Deal relief in one state and providing some insight into the political and bureaucratic matters that governed this process, the book makes a number of other smaller contributions as well. Not least of these is a chapter on relief and the agricultural sector, to which Fearon devotes a fair portion of the book. While substantial, this is clearly less of a focus than his study of relief efforts outside of the agricultural sector.

Fearon also spends a notable amount of time discussing the plight of women on the relief rolls (or in many cases, merely trying to get onto the rolls). There are also illustrative accounts of tensions between natives and Kansas’ small Mexican migrant community and of the relatively minimal racial tensions that arose as a result of the allocation of New Deal spending. Fearon gives several very informative accounts of how spending programs affected Kansas’ relatively small African American community.

When examining why the Kansas relief administration was a success, Fearon concedes that some of the differences between Kansas’ experience of relief during the Great Depression and the experiences of other states may have stemmed from a relatively less severe economic downturn in Kansas, a relatively homogeneous population, a significant out migration from the state that helped relieve pressures, and a lack of open hostility to relief in principle. However, he maintains that a great deal of the superior performance of Kansas’ relief administration can be attributed to John Stutz and his managerial ability.

One thing that is lacking in the book is a more thorough discussion of how Kansas was different ? apart from the contemporary opinions expressed by federal officials involved in relief efforts. The book would have benefited from a more consistent set of measures to compare how the administrative structure of the relief programs was different from other states, how the politics behind the development of this structure differed, and how ultimately these may have affected outcomes of those dependent upon relief.

All in all, Kansas in the Great Depression provides a well laid out description of the economic circumstances, political factors, and institutional details that lead Kansas to have what was widely perceived to be “a microcosm of what welfare professions were trying to create throughout the country.”

Todd Sorensen is an Assistant Professor at the University of California, Riverside. He works in the areas of labor economics, migration and economic history. A recent work, “Migration Creation, Diversion, and Retention: New Deal Grants and Migration, 1935-1940,” studies how New Deal spending affected internal migration during the Great Depression.

Subject(s):Macroeconomics and Fluctuations
Geographic Area(s):North America
Time Period(s):20th Century: Pre WWII

The Best Transportation System in the World: Railroads, Trucks, Airlines, and American Public Policy in the Twentieth Century

Author(s):Rose, Mark H.
Seely, Bruce E.
Barrett, Paul F.
Reviewer(s):Childs, William R.

Published by EH.NET (May 2007)

Mark H. Rose, Bruce E. Seely, and Paul F. Barrett, The Best Transportation System in the World: Railroads, Trucks, Airlines, and American Public Policy in the Twentieth Century. Columbus: Ohio State University Press, 2006. xxvi + 318 pp. $50 (cloth), ISBN: 0-8142-1036-8.

Reviewed for EH.NET by William R. Childs, Department of History, Ohio State University.[1]

This book makes some contributions to our understanding of national transport regulatory politics in the twentieth century. The narrative is based on a good balance of secondary and primary sources, reasserts the importance of the presidency in regulatory matters, moves back to the 1950s the origins of the deregulation movement, and offers an initial synthesis of deregulation after 1980.

But the book is uneven in its contributions in part because it is more narrowly constructed than its title suggests. It is a book about the politics of transport regulation of three industries at the national level (railways, trucks, and airlines; water carriers are barely mentioned). The authors are not much concerned with state or local regulation or regulatory federalism or with other industries that were deregulated (e.g., banking and savings and loans). Most significantly, they do not focus analytically on economics (industry structures) and management decision making (management strategies and firm structures) and how those elements intertwined with regulatory politics. To these three historians, “the state” (a concept that they do not define clearly) made all of the decisions in regulation; economics hardly mattered; and, management (especially railroad executives) rarely made mistakes. Politics trumped economics, technology, and individuals, both before and after deregulation.

The book begins with a long preface in which the authors reveal that longtime conversations among them ? all historians of technology ? had led to the conclusion that “the introduction and operation after 1920 of technical means of delivering transportation services ? railroads, trucks, and airlines alike ? rested on distinctly political decisions made in political arenas. In virtually every discussion of transportation innovation, regulation, and deregulation, we find that politics was in the driver’s seat” (xii). Towards the end of their preface, they note: “Stated once again, in the realm of framing these three main transportation industries, their firms, and their markets, leaders of the American state always sat squarely in the driver’s seat” (xix).

Chapter 1 focuses on how the Interstate Commerce Commission (ICC) “framed” the railway industry (although at times Congress and the president make appearances in the narrative). Much of the chapter focuses on rate making, especially on the valuation project and value of service approaches, and the attempt, buttressed by the Transportation Act of 1920, to accept the “natural monopoly” aspect of railways and consolidate them into a more effective transportation system. The authors note, however, that this state action neglected to take into account the rise of a new industry, motor trucking. The ICC (and Congress) “had structured the railroad industry and attempted to set the terms of the railroad marketplace down to the last detail” (28). So rigidly focused on politics, the authors do not take into account the rapid appearance of motor trucking in the 1910s and 1920s as a new transport mode, and the difficulties railway management, ICC commissioners, and lawmakers faced in responding to the new technology.

Chapter two narrates the policy transition from consolidation to coordination of rail, truck, and water carriers, which some policy makers trumpeted in the late 1920s and 1930s. State actors, the authors maintain, enabled railways’ “new competitors” (trucks and airlines, and curiously, water carriers) to compete while restraining railways’ abilities to respond. (Water carriers, of course, had influenced railway rate structures as far back as the last quarter of the nineteenth century.) The tone of this and the preceding chapter takes on that of Railway Age, which was one of the key sources cited. The authors assert that the idea of “coordination” rested on the assumption that “each form of transport was different [and] that the public was better off if each mode, such as trucks or trains, remained a freestanding enterprise in competition with one another” (32). “The result was a ‘national’ system composed of separate transportation industries and separate transportation markets, each now defined variously as technology or mode and governed by several equally disconnected policies and regulatory agencies” (33). In part, this analysis makes some sense, but it misses some subtle and important points. For some public officials, “coordination” involved state planning through which each mode would perform what it did best (that is, follow its natural economic evolution), thus eliminating inefficiencies brought on by competition among the various modes. The authors do not take into account economic structures of the transport modes; they do not emphasize the ideas behind the political results; they ignore the fact that interest group politics (based in economic self-interests and on ideas) undermined what some on the ICC (Joseph B. Eastman, for example) desired; and they underplay the management decisions of railway executives.

Following a fine summary in Chapter 2 of the early years of airline regulation, Chapter 3 focuses on regulation of the airlines between 1944 and the early 1970s. Again the authors present the national state as the shaper of the industry, in this case through the efforts of the Civil Aeronautics Board (CAB). The government had been both promoter and regulator of the nascent industry, offering mail contracts to help sustain the new businesses and limiting competition. Not until World War II, however, did the CAB gain more influence to shape the industry through controlling entry, price, and routes. By the 1970s, however, it had come to be viewed as a failed regulatory agency. Unlike with the railways, the authors admit that airline management made some mistakes (e.g., not understanding the overcapacity wrought by jets nor the attempts by CAB to offer service to more than business class customers), but they do not emphasize this theme. To them the CAB ? or the state ? had created the industry and had failed to promote and regulate it effectively.

Chapter 4 is a sprawling survey of railroad and truck regulation in the postwar era before deregulation emerged. It furnishes at times a useful synthesis, but its most important contribution is its focus on President Dwight D. Eisenhower and his administration’s efforts to bring about deregulation. The chapter notes the effectiveness of truckers in blunting the administration’s efforts to help the railways, includes a testy analysis of rate bureaus, and offers a survey of railway mergers, with an extended section on the Penn Central merger. There, the authors list some of the problems (e.g., management failed to see that the computer systems in each firm did not match the other’s and labor leaders failed to note the cultural differences between the working groups), but they still insist that the railway problem was mostly tied to the regulatory system, which the ICC/state had imposed.

Chapter 5 continues the focus on presidential initiatives in the deregulation movement. President Lyndon B. Johnson included a coordinated transportation system in his approach to “fine-tuning” the economy. While he did get a Department of Transportation (in 1966), he did not get the centralized, presidential clout he thought necessary to shape a coordinated and efficient transportation system. Chapter 6 shows how President Richard M. Nixon “helped move the idea of deregulation from the realm of the thinkable ? where Eisenhower and Kennedy had left it ? into the mainstream of American politics” (151). Collapse of the Penn Central in the spring of 1970, along with a less robust economy than Johnson had enjoyed, shaped Nixon’s approach. He was the first to meet with the railway executives and union leaders about deregulation; he saw the significance of utilizing the consumer movement to promote deregulation; and, he was able to do what Eisenhower, Kennedy, and Johnson had not ? gain presidential appointment power for the chair of the ICC (a theme that the authors overplay, in that while it was a political issue it was not all that significant to reforming the regulatory state).

Although in office only a short while, Gerald R. Ford deserves the treatment received in Chapter 7. President Ford’s staff organized an anti-regulatory public relations campaign and carefully identified and organized pro-deregulation members in Congress. The result was modest but notable ? passage of the Railroad Revitalization and Regulatory Reform Act of 1976. In exchange for furnishing loans to ailing railroads and devising Conrail, the act began to loosen government rate controls and to allow abandonment of service (which the ICC, following the law, had restricted, thus maintaining high operations costs, which in turn undermined railway efficiencies and competitiveness). The regulatory regime from the 1920s was still in place, however, and there was not much movement on deregulating trucks and airlines. Still, the authors persuasively argue that President Ford’s efforts laid the groundwork for more political success very soon.

In Chapter 8, the authors show that President Jimmy Carter, while bringing no new ideas to the arena, nevertheless promoted deregulation through the regulatory commissions and in Congress. This is one area in which Carter appeared to have developed effective congressional relations, for he was able to bring about deregulation of airlines in 1978 and trucks and railways in 1980. Yet, the authors go too far in their assertions. Take for example their conclusion on truck deregulation (which opened entry to the industry and relaxed rate controls): “Carter and his top officials … had created one market for all truckers, replacing distinct submarkets” (203). Instead of a singular force ? the “state” ? it was a combination of changing economic conditions, shifting political powers, and new ideas about consumerism, regulation, and economic growth that shaped the decision to open up trucking competition. Carter’s administration played a role, but it was not the omnipotent one asserted by the authors.

The last chapter, “The American State and Transportation, 1980-1995,” includes a useful overview of what happened after the flurry of deregulation statutes in the late 1970s and early 1980s. Essentially, the authors argue that deregulation spread through the processes of “devolution” and “deinstitutionalization,” thus giving more freedom to transport executives to follow market forces. The ICC was dismantled; Congress preempted state regulatory commissions of their powers; intermodal activity increased; railways merged and abandoned unprofitable routes; new airlines entered and left the industry, with a resulting concentration as airlines took up defensive positions in airport hubs. The authors consistently follow their theme of “state” construction; for the airline industry, they conclude that “In reality, the absence of overt federal action to limit the growth of fortress hubs had framed the postderegulation airline industry” (237).

There is no concluding chapter, although the last few pages restate the authors’ point of view about “state” powers and add a new perspective not specifically noted earlier: “The barrier to understanding deregulation of transportation firms in 1978 and 1980 as more than a simple withdrawal of the federal government from markets rests upon the limits of language and with our ideologically driven conceptualization of a market as a counterpart to an imagined state of political nature ? a place sacred in its origin and lacking institutional constraint. Rather than dichotomizing markets and regulation, it makes more sense to perceive them along a continuum shaped in both cases by the leaders of the American state ? with regulation and deregulation representing different types of legal and administrative strategies for organizing the activities of transportation managers and workers” (238).

In summary, the book offers a mixed bag of ideas and insights. On the one hand, the shifting of the deregulation movement in time (back to at least the 1950s) and in focus (on the executive branch) is notable and important. On the other hand, the authors’ point of view throughout the book undermines the contributions they make. No one can deny that politics is part of the story, or that “the state” is involved in shaping regulation (and deregulation). Without acknowledging it directly, however, the authors have completely ignored the powerful argument Thomas K. McCraw made in Prophets of Regulation (Cambridge, MA: Belknap Press, 1984): “More than any other single factor, this underlying structure of the particular industry being regulated has defined the context in which regulatory agencies have operated” (p. 305, emphasis in original). McCraw understood regulation to be a political art (p. 63), but one that took place within the context of industry structures and natural economic markets. My own research in regulation has confirmed this conclusion. For Rose, Seely, and Barrett, apparently, there is nothing natural about industry structures; they do not shape politics but politics shape them. This point of view, rigidly applied throughout the book, undermines the important contributions noted above.

[1] The reviewer did not have any direct input into this volume.

A note on the authors: During the preparation of the manuscript, Paul Barrett, Department of Humanities at Illinois Institute of Technology became ill, passing away in 2004. Bruce Seely (Michigan Technological University/NSF) and Mark Rose (Department of History, Florida Atlantic University) continued the preparation of the manuscript. Seely drafted the first two chapters; Barrett the third; and Rose 4-9.

William R. Childs has published most recently The Texas Railroad Commission: Understanding Regulation in America to the Mid-Twentieth Century (College Station, TX: Texas A&M University Press, 2005).

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

The Path Not Taken: French Industrialization and in the Age of Revolution

Author(s):Horn, Jeff
Reviewer(s):Johnson, Noel D.

Published by EH.NET (May 2007)

Jeff Horn, The Path Not Taken: French Industrialization and in the Age of Revolution. Cambridge, MA: MIT Press, 2006. ix + 383 pp. $45 (cloth), ISBN: 0-262-08352-3.

Reviewed for EH.NET by Noel D. Johnson, Department of Economics, Hobart and William Smith Colleges.

The subject of Jeff Horn’s well researched new book is the Path Not Taken by France into the industrial world. In nine exhaustive chapters Horn, an associate professor at Manhattan College, argues his thesis: that far from being an incompetent imitator of the “British” model of industrial success, France pursued its own path to industrialization. For Horn, the defining event that led to the unique French path was the Revolution and the “threat from below” that it magnified. The credible threat of popular violence in France resulted in the government being unable to repress working class opposition to liberal economic reforms and technological innovation as the British did. As a result, industrialization in France proceeded along a path characterized by greater state intervention in the economy, mediating between the interests of labor and capital. The book will appeal most to a specialist audience already somewhat familiar with the France vs. Britain “retardation-stagnation,” “revisionist,” and finally, “anti-revisionist” debate. Horn, a “revisionist,” takes the refreshing approach of avoiding discussion of the macroeconomic variables which are the bread and butter of these arguments. Instead, his important contribution is to focus on the relationship between politics and industrial policy. The book makes a fundamental contribution by placing the political events of the Revolution at the center of the explanation for the divergent paths of British and French industrialization.

Horn’s argument can be usefully separated into three parts: The path of French industrialization at the end of the Old Regime, the impact of the Revolution on this path, and finally, the lasting impact of the Revolution on industrial policy in the following decades. After framing the argument, he launches into a discussion of industrial policy before the Revolution. In Chapter 2 on the attempted reforms of the corporations Horn argues that the Bourbon government was aware of what was going on across the Channel. Far from being tied to traditional methods of production, ministers actively attempted to introduce reforms that emulated what they perceived to be British industrial policy. Horn rightly points out that the French perception of British free markets efficiently allocating resources, ? la the Wealth of Nations, was off target. The discussion of the gradual chipping away of privilege begun by Turgot in 1776 and never quite completed until 1791 is a welcome contribution to a subject often glossed over by economic historians. It is clear that the French Monarchy wanted to steer the state in a different direction, what requires greater understanding is what forces prevented it from making the turn. Horn argues vehemently that the government’s attempts to eliminate corporate privilege foundered because of resistance by entrepreneurs who were fearful of what workers would do if new technology (Horn focuses on machinery) was introduced into the workshop. This emphasis on French fear of a “threat from below” is a major theme of the book, but it seems one-sided in this context. Surely, the state was constrained by both labor and capital during eighteenth century? Research by John Bosher, David Bien, and Hilton Root, among many others, has made clear the connection between privilege and the finances of the Bourbon Monarchy. Is it reasonable to think that the only reason these privileged corps feared change was because of a threat of popular violence? Perhaps they also simply wanted to protect their rents?

Chapter 3 on the Anglo-French Commercial Treaty of 1786 also does an effective job at arguing for the active role of bureaucrats, inventors, and some entrepreneurs in trying to steer France towards a more “British” industrial policy. This is useful ammunition against those who would claim that the French were hamstrung by a preference for “traditional” modes of production. The vigor with which the French pursued the Commercial Treaty, and the attempts by the government to enforce its provisions, constitute excellent evidence to this effect. Nonetheless, Horn at times confuses the desires of certain Old Regime players to introduce liberalizing reforms with the effectiveness of these attempts. For example, Horn discusses the views of John Holker, the inspecteur g?n?ral des Manufactures ?trang?res, concerning the possibilities of mechanizing spinning in Normandy. Holker’s views on eliminating regulations that blocked the introduction of new methods are excellent evidence of the desire for reform in France. However, Holker’s suggestion that the lack of fast-running streams to provide power could be made up for by “fast moving horses” seems to epitomize the problem facing French policy makers trying to allocate resources without the benefit of British style institutions. Horn’s conclusion on page 87 that the “British model” of industrialization was off to a “promising” start in France before the Revolution seems to ignore the very constraints he so carefully elucidates in the previous seventy pages.

In Chapter 4 Horn discusses labor militancy and machine breaking in Britain and France in detail. His evidence on labor uprisings in both countries is compelling. One of the main differences between the two movements was that, while labor militancy was more pronounced in Britain up to 1789, the Revolution cast French machine breaking in an understandably more radical light. The key question posed by this evidence is, “Why was there no revolution in Great Britain at the end of the eighteenth century?” Again, Horn’s single-minded pursuit of the thesis that the “threat from below” was the source of the divergent path of the French state prevents him from attacking the question of why this threat existed in France and not in Britain. His evidence suggests that labor militancy was worse in eighteenth century Britain than in France, requiring “massive repression” of the working class by the English state. If England and France were on similar paths during the years leading up to the Revolution, why was the English state capable of quelling rebellion, whereas the French state seemed to cave in? There must be more to the story than labor.

Chapter 5 and 6 explicitly deal with the impact of the Revolution on industrial policy. The institutions which Bourbon ministers had been trying to reform since Turgot were finally disassembled by the Revolutionaries. The Allard law suppressing corporations and the Le Chapelier law forbidding coalitions were both passed in 1791. With these vestiges gone, the path was finally open for the government to follow the British path to industrial success. However, the crisis years of 1793-1795 instead compelled the government to impose a command economy in order ensure that food and armaments were available to defeat the First Coalition. In the long run, this state of affairs could not persist and by 1800 a middle path between the government intervention of 1793-1795 and the more “liberal” policies of the British was being laid by ministers such as Jean-Antoine Chaptal. Chaptal and others recognized that French entrepreneurs possessed the industrial technology to compete with the British, however, they also recognized that existing institutions did not create the incentives to use this technology. Horn’s discussion of carding technology is very helpful in illustrating this point. To make the classical distinction, given the institutions that were inherited from the more radical phases of the Revolution, in 1800 the French had the inventions they needed to compete, but not the incentives to innovate. Chaptal and others attempted to fill this void by actively promoting technology through specialized schools, prizes, tax free enterprise zones, protective tariffs, and industrial expositions.

Horn’s discussion in Chapters 7, 8, and 9 on the influence of the “Chaptalian Compromise” between state intervention and Laissez Faire is a valuable contribution. He correctly points out that it would be unreasonable to think that the French would want to compete directly with the British in aftermath of the Revolution. There was a role for the state to play in getting French industry back on its feet. Horn’s discussion of the extent of smuggling during the years of the Continental System and after is, as he states, evidence that entrepreneurs resisted the intervention of the state. His interpretation of this widespread smuggling as evidence that industrialization does not always proceed under the rules of laissez faire is interesting. Though, I wonder whether the correct counterfactual should be, “Would France have industrialized more quickly under a different set of rules?” Horn, presumably, would answer this question in the negative, pointing to the ever-present “threat from below” that made it impossible to impose discipline on the workforce without significant government intervention. Again, though, I am not satisfied by the emphasis on labor. Horn’s own discussion of the abandonment of Napoleon’s liberal labor policies is instructive. We are told that, “… workers increasingly left employers who imposed or enforced the high degree of industrial discipline deemed necessary to maximize the efficiency of production” (p. 204). However, at the same time, “… many entrepreneurs pressed to find competent and disciplined laborers, simply stole them from others with promises of higher wages and better conditions” (p. 204). Sounds like a well-functioning market that is redistributing surplus from capital to labor. Unsurprisingly, “… vociferous complaints from entrepreneurs all over France prompted the government to intervene in the name of international competitiveness” (p. 204). The government responded to complaints from entrepreneurs by reintroducing restrictions on labor mobility and wages. This sounds remarkably like a “threat from above” rather than a threat from below. It is entirely possible that labor would have been a lot less threatening if entrepreneurs did not collude with the state to keep their wages low.

The Path Not Taken fills an important void in research on French industrialization. Jeff Horn is to be congratulated for tackling a question often avoided by researchers, the relationship between political change and economic growth. While I have reservations concerning some of his conclusions, the story Horn outlines is compelling. Hopefully, this book will set a precedent and more researchers will find the courage to incorporate the Revolution, along with its formidably complex political history, into their investigations of French industrialization.

Noel D. Johnson is a visiting assistant professor of economics at the Hobart and William Smith Colleges. His most recent work on the Company of General Farms in seventeenth century France was published in the Journal of Economic History. He also does empirical research on the process of institutional change, which was presented most recently at the meetings of the American Economics Association.

Subject(s):Markets and Institutions
Geographic Area(s):Europe
Time Period(s):19th Century

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.


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

European Aristocracies and Colonial Elites: Patrimonial Management Strategies and Economic Development, 15th-18th Centuries

Author(s):Janssens, Paul
Yun-Casalilla, Bartolomé
Reviewer(s):Álvarez-Nogal, Carlos

Published by EH.NET (March 2007)

Paul Janssens and Bartolom? Yun-Casalilla, editors, European Aristocracies and Colonial Elites: Patrimonial Management Strategies and Economic Development, 15th-18th Centuries. London: Ashgate Publishing, 2005. x + 282 pp. $100 (hardcover), ISBN: 0-7546-5459-1.

Reviewed for EH.NET by Carlos ?lvarez-Nogal, Department of Economic History, Universidad Carlos III de Madrid.

The aristocracy does not normally appear in analyses of economic growth for the pre-industrial period. More attention has usually been paid to the peasantry, a much larger and more homogeneous group. Before the Industrial Revolution, agriculture was the dominant activity employing most of the population. Historians interested in social or political areas had studied the nobility but little attention had been paid to its economic dimension. This may have been because the aristocracy was seen as a parasitic class or a rent-seeking group whose mere existence stood in the way of economic growth.

Paul Janssens, Professor at the Katholieke Universiteit, Brussels, and Bartolom? Yun-Casalilla, Professor at the European University Institute, Florence, remind us, in this magnificent collection of essays written by experts in the field, that the economic importance of the aristocracy under the ancien r?gime was due to their influential position in the institutional framework of society rather than simply to the number of aristocrats. Aside from the way in which wealth was distributed in that period, the aristocracy controlled most of the factors of production and, in addition, enjoyed a dominant position in the political institutions of the young European states. This meant that they were able to play a vital role in the development or lack of development of these societies.

This book brings this important social class into the debate surrounding economic growth and the prerequisites of the Industrial Revolution. It focuses on various European aristocracies and colonial elites and evaluates the strategies behind the decisions taken. The point of view adopted is that of supply, seeing aristocrats as investors in agriculture and other sectors or as innovators in the field of management of patrimonies, rather than taking the angle of demand and considering the aristocracy as wealthy consumers. Their contribution to economic growth is studied as if they were entrepreneurs taking or missing opportunities. Their influence in the establishment of property rights and behind advances in the workings of the market is also analyzed.

The book addresses three large questions. Were these large fortunes managed with maximization of profits or with socio-political criteria in mind? Did this situation change over the period under study? How and to what extent did change or lack of change affect economic performance in these societies?

One of the most interesting aspects of this book, despite the enormous difficulties involved, is the attempt to address these questions from a comparative point of view including as many countries and regions as possible. This approach leads to the conclusion that no single aristocratic model in the pre-industrial period existed and neither is it possible to offer a general model to explain its behavior.

Institutions are central to all the studies in this volume. There is no doubt about the influence of the aristocracy on the workings and development of the states during the ancien r?gime but, at the same time, the huge effect which the norms and traditions present in each society had on their behavior cannot be denied. For example, aristocracies became more important where crown estates and ecclesiastical properties were sold or redistributed as happened in England, France, Holland, Poland and Venice compared to regions like Portugal, Austria, Spain, Naples and Prussia where royal and ecclesiastical properties survived. On the other hand, the accumulation of national stocks of capital in the hands of commercial and industrial elites instead of in aristocratic hands would diminish the macro-economic significance of the aristocracy and lead the privileged group to make strategic changes.

Patrick O’Brien highlights three main areas present in many of the studies included in this book: the share of capital stock under noble control, the strategies and policies pursued by rich families for managing their patrimonies and the openness of aristocracies to talent and enterprise from outside their traditional networks.

The differences between the different European aristocracies in each of these areas are vital in an understanding of the influences of these groups on the economy. For example, the high proportion of real estate in the hands of the English aristocracy during the Industrial Revolution, noted by Robert Allen, allowed access to cheaper finance than that enjoyed by the rest of society. This explains the active investment of the landed classes in the non-agricultural sector, paving the way for a rapid industrialization of the island.

The book invites the reader to draw his or her own conclusions, in the light of the studies included, regarding the question of whether the differences between European aristocracies and ruling elites can explain the paths towards success or failure followed by each country before and during the Industrial Revolution.

The studies included in the book are organized geographically: Northern, Southern, Central and Eastern Europe and Colonial America (British North American, Peruvian and Brazilian colonial elites). The collection contains an introduction and fifteen chapters, each of which would deserve a review in its own right. The first is a general approach by Yun-Casalilla and the book closes with some considerations by O’Brien. While acknowledging the significant role played by the European aristocracy, the book avoids the error of “overcoming the prejudices by making the ancient r?gime nobles into standard-bearers of progress, modernization and economic growth.”

This collection of essays is an excellent first step but it also reveals that further research, measurement and analysis is needed before economic historians can begin to evaluate possible positive or negative contributions of the aristocracy to variations in national growth rates across Europe.

Carlos ?lvarez-Nogal is Assistant Professor of Economic History at the Universidad Carlos III de Madrid. His research spans the areas of early modern economic history, monetary and financial topics. His books include El cr?dito de la Monarqu?a Hisp?nica durante el reinado de Felipe IV (Junta de Castilla-Le?n, 1997) and Los banqueros de Felipe IV y los metales preciosos americanos, (1621-1665) (Banco de Espa?a, 1997). He is currently working on international networks of bankers in the seventeenth century.

Subject(s):Economywide Country Studies and Comparative History
Geographic Area(s):North America
Time Period(s):Medieval

New Frontiers in the Economics of Innovation and New Technology: Essays in Honour of Paul A. David

Author(s):Antonelli, Cristiano
Foray, Dominique
Hall, Bronwyn H.
Steinmueller, W. Edward
Reviewer(s):Bessen, James

Published by EH.NET (February 2007)

Cristiano Antonelli, Dominique Foray, Bronwyn H. Hall and W. Edward Steinmueller, editors, New Frontiers in the Economics of Innovation and New Technology: Essays in Honour of Paul A. David. Cheltenham, UK: Edward Elgar, 2006. vii + 485 pp. $160 (cloth), ISBN: 1-84376-631-0.

Reviewed for EH.NET by James Bessen, Boston University School of Law.

This festschrift of fifteen papers (plus an introduction and a postscript) reflects the breadth of Paul David’s work, both in the range of subjects and in the methods used. The postscript, written by Dominique Foray, compares David’s work to a theatrical performance that includes roles for Galileo and Edison, as well as Pomo Indians and !Kung bushmen, nymphs, reapers and robots, sex, blood and more. The collection in the book, no less broad (although probably less theatrical), has something for everyone.

The papers are grouped into three sections, reflecting important themes in David’s work: path dependence, the economics of knowledge and the diffusion of innovation. The significance of David’s contributions in each of these areas is developed in the introductory essay by the editors and this provides a general, but brief, introduction to his large body of work.

The first chapter, by Andrea P. Bassanini and Giovanni Dosi explores why technology markets tend to be monopolies. This paper presents a theoretical model to challenge Brian Arthur’s (1989) widely-cited model of competing technologies. Arthur’s model has been used to argue that technological monopolies result from unbounded increasing returns. The paper shows that Arthur’s result is not general, but follows instead from specific assumptions of linearity and limited heterogeneity among agents. The authors do find, however, that increasing returns combined with a high rate of technological change frequently generate stable near-monopolies in a more general model.

Cristiano Antonelli, in the second chapter, develops a high level overview of different kinds of technological path dependence and relates this to issues of dynamic economic efficiency.

Franco Malerba and Luigi Orsenigo study the evolution of the pharmaceutical industry, looking at the interrelations between technology, regulation and market structure. They begin with a very nice summary of the development of pharmaceutical search technology over the past fifty years, noting cross-country differences in regulation and differences in the roles of imitative firms and market leaders. They follow this with a simulation model for the “random screening” era that reproduces some of these relationships.

John Cantwell uses patent data in an innovative way to explore path dependency of large firms regarding their choices of technological specialization. These firms maintained patterns of specialization — that is, high levels of patenting relative to their industry peers in certain specialties — for periods of sixty years or longer. Interestingly, Cantwell also finds some general trends in technological diversification: the large firms in chemical and electrical industries initially increased their diversification, followed, over the last several decades, by a trend toward greater technological concentration.

Two papers, one by G. M. Peter Swann and one by Robin Cowan, look at issues of path dependency in tastes for art. Swann uses correlations in auction prices for the paintings of different artists to map these relationships. Cowan models the cyclical nature of changes in these relationships.

Beginning the section on the economics of knowledge, W. Edward Steinmueller picks up on Paul David’s theme of organization and learning. He looks at historical examples, including the transitions from craft organization to the American system of manufactures to Fordism to GM’s “flexible mass production” to inform a discussion of current-day issues of learning and organization in the use of information technology to enhance product variety.

Dominique Foray and Lilian Hilaire Perez cover some less familiar history, comparing Paul David’s “open science” with the “open technology” of the Lyon silk industry, which bore some similarities to examples of shared innovation discussed by Allen, von Hippel and others. Lyon established a sophisticated system of rewards for inventors with incentives to share their knowledge. This led to an extended period inventiveness. In contrast, the British silk industry, where a larger share of inventions was patented, was relatively backward. Foray and Hilaire Perez make a very useful comparison between the features of the Lyon system and those of open science.

Jacques Mairesse and Laure Turner directly explore the nature of scientific collaboration by using data on co-publication to measure the intensity of collaboration. Using this measure, they investigate how the intensity of collaboration varies with geographical location and technological specialization.

Patrick Cohendet and Ash Amin look at knowledge and the nature of the firm, stressing interactions between “epistemic communities” and “communities of practice” within the firm.

Ashish Arora, Andrea Fosfuri and Alfonso Gambardella ask how institutions affect the creation and development of markets for technology. In numerous papers and a book (2001), these authors have explored aspects of technology markets. Here, with an eye toward policy, they look specifically at the roles of standards, well-defined property rights and institutions that encourage risk-taking. The article provides a nice overview of a large range of policy-related issues from an institutional perspective. At times the authors seem a bit too enthusiastic. For example: “It is difficult to think that a market … could ever function properly without property rights …” I suspect that economic historians might think of examples of trade pre-dating property rights or examples of illicit trade outside the realm of property rights. Nevertheless, the article provides a useful overview.

Arora, Fosfuri and Gambardella argue that global technology markets allow small countries to specialize in technology fields in an international division of innovative labor. Stefano Brusoni and Aldo Geuna explore patterns of national specialization and also the integration of different types of technical knowledge. They develop indices of specialization similar to those used by Cantwell in the paper discussed above, but based on data of peer-reviewed papers in chemistry and pharmacology instead of patent data. They also measure the integration of knowledge across areas of basic research, applied research and applied technology and engineering. They find that large European nations do not integrate basic research into pharmaceutical technology as well as the U.S. does; they propose that this explains why EU R&D managers in pharmaceuticals rely on U.S. research. They also claim, perhaps controversially, that their measures might serve as a policy guides — governments might facilitate national specialization by supporting integrated knowledge development.

The book’s section on the diffusion of innovation begins with a chapter by Bronwyn Hall and Manuel Trajtenberg that reports on attempts to identify General Purpose Technologies using patent statistics. Paul David (1990) persuasively argues that the diffusion of electric motors one hundred years ago bears important similarities to the diffusion of computer technology today. Both have been called General Purpose Technologies (GPT), but some researchers have felt that too many technologies can be called GPTs for the term to be a useful analytical tool. The authors of this paper explore the use of a variety of statistics based on patent citations to see if they can derive a measure of “generality” and identify GPTs. Their results are mixed. Using a combination of statistics, they identify twenty highly ranked patents; most are related to using computers, especially for interacting and working at a distance. These technologies seem to fit the intuitive description of GPTs. On the other hand, the authors note several possible biases that may have influenced this result.

The next chapter, by Luis M. B. Cabral presents a theoretical model of technology diffusion that includes adopter heterogeneity (like David’s 1969 model) and also network effects.

In the final chapter, Paul Stoneman and Otto Toivanen also build a model of technology diffusion, this one based on a real options approach. They then apply this model to data on international diffusion of robot technology, using a sophisticated econometric model. They use the estimated model to conduct policy thought-experiments, for example, testing the effects of macro-economic stability on a nation’s diffusion rate for robot technology.

The research in this book exhibits a wide variety of methods, topics and styles. Few readers will find all of the contributions worthwhile or interesting. But few who have an interest in technological innovation will fail to find something of value.


Arora, Ashish, Andrea Fosfuri and Alfonso Gambardella (2001), Markets for Technology: The Economics of Innovation and Corporate Strategy, Cambridge, MA: MIT Press.

Arthur, W. Brian (1989), “Competing Technologies, Increasing Returns, and Lock-in by Historical Events,” Economics Journal 99: 116-31.

David, Paul A. (1969), “A Contribution to the Theory of Diffusion,” Research Center in Economic Growth, Memorandum No. 71, Stanford University.

David, Paul A. (1990), “The Dynamo and the Computer: An Historical Perspective on the Modern Productivity Paradox,” American Economic Review 80: 355-61.

James Bessen, Lecturer in Law, Boston University School of Law and Director, Research on Innovation has, following Paul David, written about learning-by-doing in “Technology and Learning by Factory Workers: The Stretch-Out at Lowell, 1842,” Journal of Economic History (2003). He is a former innovator and entrepreneur who wrote one of the first desktop publishing programs. Now he writes about technological innovation and patents. Current works include (with Eric Maskin) “Sequential Innovation, Patents, and Imitation,” RAND (2007); (with Robert M. Hunt) “An Empirical Look at Software Patents,” Journal of Economics and Management Strategy (2007) and a book (with Michael J. Meurer), Do Patents Work? The Empirical Evidence That Today’s Patents Fail as Property and Discourage Innovation, and How They Might Be Fixed (forthcoming 2008).

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

Poverty and Life Expectancy: The Jamaica Paradox

Author(s):Riley, James C.
Reviewer(s):Lee, Chulhee

Published by EH.NET (February 2007)

James C. Riley, _Poverty and Life Expectancy: The Jamaica Paradox_. New York: Cambridge University Press, 2005. xiii + 235 pp. $60 (hardback), ISBN: 0-521-85047-9.

Reviewed for EH.NET by Chulhee Lee, Department of Economics, Seoul National University.

How to improve the health of their people is a key policy issue for all nations, both rich and poor. For poor countries particularly, it is important to choose the right strategy to achieve the best possible outcome with limited resources. _Poverty and Life Expectancy: The Jamaica Paradox_ deals with this broader issue by focusing on the question of how some poor countries, such as Jamaica, managed to achieve high life expectancies. Riley argued recently, in _Rising Life Expectancy: A Global History_, that there are various paths toward achieving low morbidity and mortality. The case study of Jamaica is, perhaps, meant to highlight a particular historical path to a healthier society that demands relatively low costs.

Chapter 2 addresses questions about the timing and pace of mortality decline in Jamaica. According to official vital statistics, mortality at all ages began to decline in the 1920s, thanks largely to the decrease in deaths caused by communicable diseases, especially diarrhea, malaria, and tuberculosis. Jamaica’s most rapid gains in life expectancy occurred in the period of 1925-1940. Gains from 1945 to 1965 were nearly as rapid, but the pace slowed down thereafter. This chapter also touches on the issue of reliability of data sources, such as the registration of births and deaths and the results of periodic censuses, from which the statistical series of life expectancy and age-specific mortality were constructed. The author maintains that the estimated mortality could be understated because of the underreporting of deaths and emigrants, but the magnitude of potential bias should be moderate.

Chapters 3 through 6 attempt to offer explanations for the changes in life expectancy in each of the four periods, namely, prior to 1920, 1920-1950, 1950-1972, and 1972-2000, by looking at the roles played by such factors as medicine, public health, the economy, the standard of living, the distribution of income, government activities, education, and personal hygiene. The first of these chapters examines Jamaica’s situation on the eve of its mortality transition. By 1920, the British had built some basic medical and health infrastructure, such as a health care system led by district medical officers (DMOs) and hospitals. The number of schools and students increased over time, especially after school fees were discarded in 1892. However, the institutional and economic progress in that era failed to significantly improve life expectancy.

Chapter 4, the longest of the book, provides explanations for the rapid increase in life expectancy in Jamaica between 1920 and 1950, in which the expectation at birth rose from 35.9 years to 54.6 years. Riley suggests that the decline in mortality was not caused by an improvement in the standard of living, based on the facts that per capita GDP stagnated from 1910-1950, and that the dwelling conditions and nutritional status remained poor. Advancements in medicine and the establishment of expensive sanitary facilities, such as filtration and sewage systems, were not major contributors either. The author instead attributes the rapid rise in life expectancy to improvements in public health, education, and individual behavior. It is suggested that some low-cost public health measures, such as building sanitary latrines, safe disposal of human waste, interfering with housefly and mosquito breeding, and isolation of the sick, were effective in controlling the spread of diseases. Another key factor was the diffusion of knowledge through school education and public health campaigns that helped Jamaicans become better informed about the methods of disease prevention and avoidance.

Jamaica’s health transition continued throughout the 1950s and 1960s, the period covered by Chapter 5, with life expectancy at birth rising from 54.6 years in 1950 to 69 years in 1972. Over these two decades, Jamaica’s economy expanded more rapidly than ever. However, Riley maintains again that the increasing standard of living was not a major contributory factor to the improvement because the gains from economic growth were concentrated in small segments of the population, and the majority of Jamaicans continued to be troubled by unemployment and poverty. The author instead suggests that an increase in public sector spending on health, especially on the primary care system, was a more important force.

Chapter 6 examines how Jamaica managed to sustain, and even add to, its already high level of life expectancy in spite of its economic collapse and stagnation from 1973 to 2000. Hit by the first oil shock and troubled by outside influences and internal economic transitions, Jamaica experienced a prolonged period of negative economic growth, higher level of inflation, and higher unemployment. In spite of this economic debacle, death rates continued to decline in most age groups, though at a slower pace. Riley offers the following explanations for this puzzling phenomenon. First, the standard of living did not deteriorate as much as the statistics on income suggests, due to a more equitable distribution of income, a higher level of government spending on public services, earnings from the informal sector of the economy, and remittances from emigrants. Second, the government continued to strengthen public primary health care, focusing on democratic access to health care, counseling about infants and maternal health, and immunizations. In the concluding chapter, Riley suggests that “Jamaica’s health transition was not a weak or second-best substitute in the programs and policies followed, but the robust demonstration of an alternative path” (p. 194).

This book is a useful introduction to the history of health transition in Jamaica over the twentieth century. It offers a vivid narrative about the pioneering efforts of organizations and individuals in the fight against diseases in a developing country. It also provides a clear picture of how living environments and sanitary conditions of ordinary Jamaican people changed over time. In spite of these merits, however, a few major points of the book did not fully convince me, and the reasons are described below.

First, the evidence given in the book is not rich enough to offer decisive conclusions. The main body of quantitative evidence, drawn from time-series statistics on a number of measures of health and economic conditions, is circumstantial, even if it is supplemented by various qualitative materials. Based on the given evidence, for example, it is difficult to accurately assess how many resources were actually devoted to particular activities pertaining to public health, medicine, and education, and how much of the decline in mortality was attributable to each factor.

Regarding the effectiveness of each of the potentially important factors of the health transition, in particular, more rigorous quantitative analyses would have made the case much stronger. For example, exploiting the fact that the timing of improvements in public health and medicine varied across parishes and that economic conditions substantially differed across regions and sectors, it would have been very fruitful to look at cross-sectional variations in the patterns of mortality decline.

In interpreting the given evidence, Riley would have benefited from considering the dynamic aspects of health changes over the life cycle. In light of recent findings that malnutrition and suffering infectious diseases in early life increase the risks of developing chronic illnesses at middle and old ages, it could be misleading to relate improvements in public health and standard of living in particular years only to the mortality decline that occurred during the same period. For example, the continued decline in mortality at an older age in the era of economic stagnation that began in 1973 could be, in part, explained by the decline of infectious diseases and improvement in children’s health which was achieved in earlier periods.

Second, I think that some special features of Jamaica as a colony of one of the world’s most advanced country are not satisfactorily considered. As admitted in the book, the long-term improvement in health in Jamaica was jumpstarted by the British who planned and created its basic infrastructure, and by the Americans who sponsored early public health campaigns. Such transfers of up-to-date knowledge and institutions, as well as material resources, from richer countries could be responsible to some extent for the rapid health transition of Jamaica. It can thus be said that these inputs to Jamaica’s health transition were the outcomes of the long-term economic and technological developments of advanced countries. Correspondingly, it would be unfair to conclude that an improvement in life expectancy can be obtained without economic growth based on Jamaica’s experience.

My final point concerns the author’s assertion that Jamaica’s case demonstrates an alternative path of health transition. Since health is an important element of human well being, it is surely good to achieve a longer life expectancy, as Jamaica did. However, since health is not the only determinant of well being, it should be better to achieve a longer survivorship and economic growth at the same time, if possible. Indeed, a few countries, which were as poor and unhealthy as Jamaica in the early twentieth century, have become both healthier and more affluent than Jamaica today. Would it not therefore be wiser for today’s poor countries to follow the paths of these countries rather than that of Jamaica?

Chulhee Lee is a Professor at the Department of Economics of Seoul National University. He is the author of “Wealth Accumulation and the Health of Union Army Veterans, 1860-1870,” _Journal of Economic History_ 65 (June 2005), and “Labor Market Status of Older Males in Early-Twentieth-Century America,” _Social Science History_ 29 (Spring 2005), as well as numerous other articles on U.S. economic and demographic history.

Subject(s):Living Standards, Anthropometric History, Economic Anthropology
Geographic Area(s):Latin America, incl. Mexico and the Caribbean
Time Period(s):20th Century: WWII and post-WWII

American Treasure and the Price Revolution in Spain, 1501-1650

Author(s):Hamilton, Earl J.
Reviewer(s):Munro, John

Classic Reviews in Economic History

Earl J. Hamilton, American Treasure and the Price Revolution in Spain, 1501-1650. Cambridge, MA: Harvard University Press, 1934. xii + 428 pp.

Review Essay by John Munro, Department of Economics, University of Toronto.

Hamilton and the Price Revolution: A Revindication of His Tarnished Reputation and of a Modified Quantity Theory

Hamilton and the Quantity Theory Explanation of Inflation

As Duke University’s website for the “Earl J. Hamilton Papers on the Economic History of Spain, 1351-1830″ so aptly states: Hamilton “helped to pioneer the field of quantitative economic history during a career that spanned 50 years.”[1] Certainly his most important publication in this field is the 1934 monograph that is the subject of this “classic review.” It provided the first set of concrete, reliable annual data on both the imports of gold and silver bullion from Spain’s American colonies ? principally from what is now Bolivia (Vice Royalty of Peru) and Mexico (New Spain) ? from 1503 to 1660 (when bullion registration and thus the accounts cease); and on prices (including wages) in Spain (Old and New Castile, Andalusia, Valencia), for the 150 year period from 1501 to 1650.[2] His object was to validate the Quantity Theory of Money: in seeking to demonstrate that the influx of American silver was chiefly, if not entirely, responsible for the inflation of much of the Price Revolution era, from ca. 1520 to ca. 1650: but, principally only for the specific period of ca. 1540 to ca. 1600. Many economic historians (myself included, regrettably) have misunderstood Hamilton on this point, concerning both the origins and conclusion of the Price Revolution. Of course the Quantity Theory of Money, even in its more refined modern guise, is no longer a fashionable tool in economic history; and thus only a minority of us today espouse a basically monetary explanation for the European Price Revolution (ca. 1515/20-1650) ? though no such explanation can be purely monetary.[3]

If inflations had been frequent in European economic history, from the twelfth century to the present, the Price Revolution was unique in the persistence and duration of inflation over a period of at least 130 years.[4] Furthermore, if commodity money ? i.e., gold and especially silver specie ? was not the sole monetary factor that explains the Price Revolution that commodity money certainly played a relatively much greater role than it did in the subsequent inflations (of much shorter duration) from the mid-eighteenth century to the present. The role of specie, and specifically Spanish-American silver, in “causing” the Price Revolution was a commonplace in Classical Economics and Hamilton cites Adam Smith’s statement in The Wealth of Nations (p. 191) that “the discovery of abundant mines of America seems to have been the sole cause of this diminution in the value of silver in proportion to that of corn [grain].”[5]

The Comparative Roles of Spanish-American Silver and Coinage Debasements: The Bodin Thesis

According to Hamilton (p. 283) ? and indeed to most authorities to this very day ? the very first scholar to make this quantity-theory link between the influx of American “treasure” and the Price Revolution was the renowned French philosopher Jean Bodin, in his 1568 response to a 1566 treatise by the royal councilor Jean Cherruyt de Malestroit on the explanations for the then quite evident rise in French prices over the previous several decades. Malestroit had contended that coinage debasements were the chief culprit ? as indeed they most certainly had been in the periodic inflations of the fourteenth and fifteenth centuries.[6] Bodin responded by dismissing those arguments and by contending that the growing influx of silver from the Spanish Americas was the primary cause of that inflation.[7]

Hamilton (in chapter 13) was therefore astounded to find, after voluminous and meticulous research in many Spanish treatises, letters, and other relevant documents, that no Spanish writer of the sixteenth century had voiced similar opinions, all evidently ignorant of Bodin’s views. Hamilton, however, had neglected to find (as Marjorie Grice-Hutchinson did, much later) one such Spanish treatise, produced in 1556 ? i.e., twelve years before Bodin ? in which Azpilcueta Navarra, a cleric of the Salamanca School, noted that: “even in Spain, in times when money was scarcer, saleable goods and labor were given for very much less than after the discovery of the Indies, which flooded the country with gold and silver.”[8]

Hamilton also erred, if forgivably so, in two other respects. First, in utilizing what were then, and in many cases still are, imperfect price indexes for many countries ? France, England, Germany, Italy (but not for the Low Countries) ? Hamilton (1934, pp. 205-10) concluded that the rise in the general level of prices during the Price Revolution was the greatest in Spain. In fact, more recent research, based on the Phelps Brown and Hopkins (1956) Composite Price Index for England and the Van der Wee (1975) Composite Price Index (hereafter: CPI) for Brabant, in the southern Low Countries, reveals the opposite to be true. If we adopt a common base of 1501-10 = 100, in comparing the behavior of the price levels in Spain, England, and Brabant, for the period 1511-1650, we find that the Hamilton’s CPI for Spain rose from a quinquennial mean of 98.98 in 1511-15 to one of 343.36 in 1646-50 (for silver-based prices only: a 3.47 fold rise); in southern England, the CPI rose from a quinquennial mean of 103.08 in 1511-15 to one of 697.54 (a 6.77 fold rise); and in Brabant, the CPI rose from a quinquennial mean of 114.80 in 1511-15 to one of 845.07 (a 7.36 fold rise).[9] Both the Phelps Brown and Hopkins and the Van der Wee price indexes are, it must be noted, weighted, with roughly the same weights (80 percent foodstuffs in the former and 74 percent in the latter). Hamilton, while fully admitting that “only index numbers weighted according to the expenditures of the average family accurately measure changes in the cost of living,” was forced to use a simple unweighted arithmetic mean (or equally weighted for all commodities), for he was unable to find any household expenditure budgets or any other reliable guides to produce such a weighted index.[10]

Undoubtedly, however, the principal if not the only explanation for the differences between the three sets of price indexes ? to explain why the Spanish rose the least and the Brabantine the most ? is the one offered by Malestroit: namely, coinage debasements. Spain, unlike almost all other European countries of this era, underwent no debasements of the gold and silver coinages (none from 1497 to 1686),[11] but in 1599 the new Spanish king Philip III (1598-1621) did introduce a purely copper “vellon” coinage, a topic that requires a separate and very necessary analysis. The England of Henry VIII (1509-1547) is famous ? or infamous ? for his “Great Debasement.” He had begun modestly in 1526, by debasing Edward IV’s silver coinage by 11.11% (reducing its weight and silver contents from 0.719 to 0.639 grams of fine silver); but in 1542, he debased the silver by another 23.14% (to 0.491 grams of fine silver). When the Great Debasement had reached its nadir under his successor (Northumberland, regent for Edward VI), in June 1553, the fine silver contents of the penny had been reduced (in both weight and fineness) to just 0.108 grams of fine silver: an overall reduction in the silver content of 83.1% from the 1526 coinage. In November 1560, Elizabeth restored the silver coinage to traditional sterling fineness (92.5% fine silver) and much of the weight: so that the penny now contained 0.480 grams of fine silver (i.e., 75.1% of the silver in the 1526 coinage). The English silver coinage remained untouched until July 1601, when its weight and fine silver contents were reduced by a modest 3.23%. Thereafter the English silver coinage remained untouched until 1817 (when the silver contents were reduced by another 6.06%). Thus for the entire period of the Price Revolution, from ca. 1520 to 1650, the English silver coinage lost 35.5% of its silver contents.[12] In the southern Low Countries (including Brabant), the silver coinage was debased ? in both fineness and weight ? a total of twelve times from 1521 to 1644: from 0.33 grams to 0.17 grams of fine silver in the penny, for an overall loss of 48.5%.[13]

A New Form of Debasement: The New “Fractional” Copper or Vellon Coinages in Spain and Elsewhere

In terms of the general theme of coinage debasement, a very major difference between Spain and these other two countries, from 1599, was the issue of a purely copper coinage called vellon, to which Hamilton devotes two major chapters.[14] Virtually all countries in late medieval and early modern Europe issued a series of petty or low-denomination “fractional” coins ? in various fractions of the penny, chiefly to enable the populace to buy such low-priced commodities as bread and beer (or wine). But in all later-medieval countries the issues of the petty, fractional coinage almost always accounted for a very small proportion of total mint outputs (well under 5% of the aggregate value in Flanders).[15] They were commonly known as monnaie noire (zwart geld in Flemish): i.e., black money, because they contained so much copper, a base metal. Indeed all coins? both silver and gold ? always required at least some copper content as a hardening agent, so that the coins did not suffer too much erosion or breakage in circulation.

The term “debasement” is in fact derived from the fact that the most common mechanism for reducing the silver contents of a coin had been to replace it with more and more copper, a great temptation for so many princes who often derived substantial seigniorage revenues from the increased mint outputs that debasements induced (in both reminting current coin and in attracting bullion from abroad). In this respect, England was an exception ? apart from the era of the Great Debasement (1542-1553) ? for its government virtually always maintained sterling silver fineness (92.5% silver, 7.5% copper), and reduced the silver contents for all denominations equally, by reducing the size and weight of the coin. In continental Europe, the extent of the debasement, whether by fineness or by weight, or by both together, did vary by the denomination (to compensate for the greater labor costs in minting the greater number of lower-valued coins); but the petty “black money” coins ? also known (in French) as billon, linguistically related to vellon, always contained some silver, and always suffered the same or roughly similar proportional reduction of silver as other denominations during debasements until 1543. In that year, the government of the Habsburg Netherlands was the first to break that link: in issuing Europe’s first all-copper coin. France followed suit with an all copper denier (1 d tournois) in 1577; but England did not do so until 1672.[16]

Hamilton gives the erroneous impression that Spain (i.e., Castile) was the first to do so, in issuing an all copper vellon coin in 1599. Previously, Spanish kings (at least from 1471) had issued a largely copper fractional coinage called blancas , with a nominal money-of-account value of 0.5 maraved?, but with a very small amount of silver ? to convince the public that it was indeed precious-metal “money.” The blanca issued in 1471 had a silver fineness of 10 grains or 3.47% (weighing 1.107g).[17] In 1497, that fineness was reduced to 7 grains (2.43% fine); in 1552, to 5.5 grains (1.909% fine); in 1566, to 4 grains (1.39% fine). In 1597, Philip II (1556-1598) had agreed to the issue of a maraved? coin itself, with, however, only 1 grain of silver (0.34% fine), weighing 1.576g.; but whether any were issued is not clear.[18]

Hamilton commends Philip II on his resolute stance on the issue vellon coinages: for, in “believing that it could be maintained at parity only by limitation of its quantity to that required for change and petty transactions, he was exceedingly careful to restrict the supply.”[19] That is a very prescient comment, in almost exactly stating the principle of maintaining a sound system of fractional or petty coinage that Carlo Cipolla (1956) later enunciated,[20] in turn inspiring the recent monograph on this subject by Sargent and Velde (2002).[21] But neither of them gave Hamilton (1934) any credit for this fundamentally important observation, one whose great importance Hamilton deduced from the subsequent, seventeenth-century history of copper coinages in Spain.

Thus, as indicated earlier, in the year following the accession of the aforementioned Philip III, 1599, the government issued Spain’s first purely copper coin (minted at 140 per copper marc of 230.047 g), and from 1602 at 280 per marc: i.e., reducing the weight by half from 1.643 g to 0.8216 g).[22] Certainly some of the ensuing inflation in seventeenth-century Spain, with a widening gap between nominal and silver-based prices, ranging from 4.0 percent in 1620 to 104.2 percent in 1650, has to be explained by such issues of a purely copper coinage. Indeed, in Hamilton’s very pronounced view, the principal cause of inflation in the first half of the seventeenth century lay in such vellon issues ? more of a culprit than the continuing influx of Spanish American silver.[23]

If, however, we use Hamilton’s own CPI based on the actual nominal prices produced with the circulation of the vellon copper coinage, from 1599-1600, we find that this index rose only 4.61 fold from the quinquennial mean of 1511-15 (98.98) to the mean of 1646-50 (457.07) ? again well less than the overall rise of the English and Brabant composite price indexes. Nevertheless, the differences between the silver-based and vellon-based price indexes in Spain for the first half of the seventeenth century are significant. For the former (silver), the CPI rose from a mean of 320.98 in 1596-1600 to one of 343.36 in 1646-50, an overall rise of just 6.97%. For the latter (vellon-based) index, the CPI rose to 457.09 in 1646-50, for a very substantial overall rise of 41.41%. What certainly did now differentiate Spain from the other two, and indeed almost all other European countries in this period, is that in all the latter countries the purely copper petty coinage formed such a very much smaller, indeed minuscule, proportion of the total coined money supply.[24]

The Evidence on Spanish-American Silver Mining and Silver Imports into Seville to 1600

What this discussion of the vellon coinage makes crystal clear is that Hamilton did not attribute all of the inflation of the Price Revolution era to the “abundant mines of the Americas.” Nevertheless many economic historians, after carefully examining Hamilton’s data on prices and imports of Spanish American bullion, noted ? as Hamilton himself clearly demonstrated ? that the Price Revolution had begun as early as the quinquennium 1516-20, long before, decades before, any significant amounts of Spanish American silver had reached Seville. Virtually none was imported in the 1520s; and an annual mean of only 5,090.8 kg in 1531-35.[25] The really substantial imports took place only after by far the two most important silver mines were brought into production: those of Potosi in “Peru” (modern-day Bolivia) in 1545, and Zacatecas, in Mexico, the following year, 1546. From that quinquennium of 1546-50, mean annual silver imports into Seville rose from 18,698.8 kg to 273,704.5 kg in the quinquennium of 1591-95, marking the peak of the silver imports. Between these two quinquennia, the total mined silver outputs of Potosi and Zacatecas (unknown to Hamilton) rose from an annual mean of 64,848.9 kg to one of 219,457.4 kg (indicating that silver was coming from other sources than just these two mines).[26] Even then, their production began to boom only with the application of the mercury amalgamation process (which Hamilton barely mentioned ? only on p. 16), greatly aided by abundant local supplies of mercury ? at Zacatecas, from about 1554-57, and at Potosi, from 1572.[27]

The Alternative Explanation for the Price Revolution: Population Growth

If all this evidence does indeed prove that the influx of Spanish silver was certainly not the initial cause of the European Price Revolution, surely the data should indicate that the subsequent influx of that silver, especially from the 1550s, very likely did play a significant role in fueling an ongoing inflation. But so many of the anti-monetarist historians leapt to an alternative ? and in my view ? false conclusion that population growth was the initial and the prime-mover in “causing” the Price Revolution.[28] My objections to this demographic-oriented thesis are two-fold.

In the first place, the now available evidence on demographic recovery and growth in England and the southern Low Countries (Brabant) does not at all correspond to the statistical evidence on inflation during the early phase of the Price Revolution ? in the early sixteenth century. For England the best estimate of population in the early 1520s, when the Price Revolution was already underway, is 2.25 or 2.30 million, about half of the most conservative estimate for England’s population in 1300: about 4.5 million ? an estimate still rejected by the majority of medieval economic historians, who prefer the more traditional estimate of 6.0 million.[29] If England in the early 1520s was obviously still very unpopulated, compared to its late-medieval peak, and if its population had just begun to recover, how could any such renewed growth, from such a very low level, have so immediately sparked inflation: how could it have caused a rise in the CPI (Phelps Brown and Hopkins) from a quinquennial mean of 96.70 (1451-75 = 100) in 1496-1500 to one of 146.05 in 1521-25?

We find a similar demographic situation in Brabant. From the 1437 census to the 1496 census, the number of registered households fell from 92,738 to just 75,343: a fall of 18.76 percent.[30] If we further assume that a fall in population also involved a decline in the average family or household size, the demographic decline would have been much greater than these data indicate. According to Herman Van der Wee (1963), Brabant, like England, did not commence its demographic recovery until the early sixteenth century; and his estimated average annual rate of population growth from 1496 to 1526 was 0.96%.[31] For this same period, Van der Wee’s CPI for Brabant shows a rise from 115.35 in 1496-1500 (again 1451-75 = 100) to one of 179.94 in 1521-25. How can any such renewed population growth explain that inflation?

In the second place, the arguments and analyses supplied involve faulty economics: an erroneous transfer of micro-economic analysis to macro-economics. One can well argue, for early-modern western Europe, that the effect of sustained population growth for the agrarian sector, with necessary additions of “marginal lands” that were generally inferior in fertility and more distant from markets, and without a widespread diffusion of technological changes to offset diminishing returns in this sector, inevitably led to sharply rising marginal costs. That in turn resulted in price increases for grains and other agricultural commodities (including timber) that were greater than those for non-agrarian and especially industrial commodities, certainly in both England and the southern Low Countries during the course of the sixteenth and first half of the seventeenth century.[32] But that basically micro-economic model concerning individual, relative commodity prices is, however, very different from a macro-economic model contending that population growth by itself led to an overall increase in the level of prices ? i.e., in the CPI.

We should remember that, almost 35 years ago, Donald McCloskey (1972), in a review of Ramsey (1971), responded to these demographic-oriented explanations of the Price Revolution by contending that, if both monetary variables (M and V) were held constant, then population growth (if translated into an increased T or y, in MV = Py) should have led to a fall in P, in the CPI. Nevertheless, there is some validity to the argument that population growth and changes in the demographic structures may have influenced the role of another monetary factor in the Price Revolution: namely changes in the income velocity of money, to be discussed as a separate topic later in this review.

Hamilton’s Explanations for the Origins of the Price Revolution before the Influx of Spanish Treasure: The Roles of Gold, South German Silver Mining, and Changes in Credit

How then did Hamilton ? and how do we ? explain the origins of the Spanish and indeed European-wide Price Revolution, in the early sixteenth century, i.e., for the period well before any significant influxes of American silver, and also before there was any significant population growth (at least in England and the Low Countries). Was Hamilton that ignorant of the implications of his own data? Certainly not. On p. 299, in his chapter XIII entitled “Why Prices Rose,” he stated that: “the gold imports from the Antilles significantly influenced Andalusian and New Castilian prices even in the first two decades of the sixteenth century,” without, however, elaborating that point any further.[33] More important are his observations on p. 301, where he explicitly moderates his emphasis on the role of Spanish-American treasure imports, in stating that: “Only at the beginning of the sixteenth century, when, as has been shown, colonial demand, credit expansion, and the increased output of German silver made themselves felt, and at the end of the century, when a devastating epidemic, and an over issue of vellon coinage took place, did other factors play important roles in the price upheaval [i.e., the Price Revolution].” Indeed, in his own view, the paramount role of the influxes of Spanish-American bullion apply to only, at most, 65 years of the 130 years of the Price Revolution era, i.e., to just half the era ? from ca. 1535 to 1600, though the evidence for that role seems to be more clear for just the half-century 1550-1600.

It is most regrettable that Hamilton himself failed to elaborate the role of any these factors, principally monetary, in producing inflation in early-sixteenth century Spain. Had he done so, surely he would have been spared the subsequent and really unfair criticism that he was offering a simplistic monocausal explanation of the Price Revolution, and one in the form of a very crude Quantity Theory of Money. The most important of “initial causes” that Hamilton lists was surely the question of “German silver,” or more specifically, the South-German and Central European silver-copper mining boom from about the 1460s to the 1540s. Where he derived his information is not clear, but from other footnotes it was presumably from the publications of two much earlier German economic historians, Adolf Soetbeer and Georg Wiebe. The latter was, in fact, the first to write a major monograph on the Price Revolution (Geschichte der Preisrevolution des XVI. und XVII. Jahrhunderts), and he seems to have coined (so to speak) the term.[34] The former, though a pioneer in trying to quantity both European and world supplies of precious metals, providing a significant influence on Wiebe, produced seriously defective data on German mining outputs in the later fifteenth and sixteenth centuries, greatly underestimating total outputs, as John Nef demonstrated in a seminal article published in 1941, subsequently elaborated in Nef (1952).[35] In Nef’s view, this South German mining boom may have quintupled Europe’s supply of silver by the 1530s, and thus before any major influx of Spanish-American silver.[36]

Since then a number of economic historians, me included, have published their research on this South German-Central European silver-copper mining boom.[37] These mountainous regions contained immensely rich ores bearing these two metals, which, however were largely inaccessible for two reasons: first, there was no known method of separating the two metals in smelting the argentiferous-cupric ores; and second, the ever-present danger of flooding in the regions containing these ore bodies made mined extraction very difficult and costly. In my view, the very serious deflation that Europe experienced during the second of the so-called “bullion famines,” from the 1440s to the 1460s, provided the profit incentive for the necessary technological changes to resolve these two problems. Consider that since virtually all of Europe’s money-of-account pricing system was based on, tied to, the silver coinage, deflation (low prices) ipso facto meant a corresponding rise in the real value of silver, gram per gram (just as inflation means a fall in the real value of silver, per gram). The solutions lay in innovations in both mechanical engineering and chemical engineering. The first was the development of water-powered or horse-powered piston vacuum pumps (along with slanted drainage adits in the mountain sides) to resolve the water-flooding problem. The second was the so-called Saigerh?tten process by which lead was added to the ore-bodies in smelting (also using hydraulic machinery and the new blast furnaces) ? during the smelting process the lead combined with the silver to precipitate the copper, and the silver-lead amalgam was then resmelted to remove the lead.

Both processes were certainly in operation by the 1460s; and by my very conservative estimates, certainly incomplete, the combined outputs of mines in Saxony, Thuringia, Bohemia, Slovakia, Hungary, and the Tyrol rose from a quinquennial mean of 12,973.4 kg in 1471-75 (when adequate output data can first be utilized) to a peak production in 1536-40 (thus later than Nef’s estimates), with a quinquennial mean output of 55,703.8 kg ? a 4.29-fold increase overall (i.e.. 329.36% increase) ? close enough to Nef’s five-fold estimate, given the likely lacunae in the data.[38] Consider that this output, for the late 1530s, was not exceeded by Spanish-American silver influxes until a quarter of a century later, in 1561-65, when, thanks to the recently applied mercury amalgamation process, a quinquennial mean import of 83,373.92 kg reached Seville (compared to a mean import of just 27,145.03 in 1556-60).[39]

But where did all this Central European silver go? Historically, from the mid-fourteenth century, most of the German silver-mining outputs had been sent to Venice, whose merchants re-exported most of that silver to the Levant, in exchange for Syrian cotton and Asian spices and other luxury goods. Two separate factors helped to reverse the direction of that flow, down the Rhine, to Antwerp and the Brabant Fairs. The first was Burgundian monetary policy: debasements in 1466-67, which, besides attracting silver in itself, reversed a half-century long pro-gold mint policy to a pro-silver policy, offering a relative value for silver (in gold and in goods) higher than anywhere else in Europe.[40] Thus the combined Flemish and Brabantine mint outputs, measured in kilograms of fine silver rose from nil (0) in 1461-65 to 9,341.50 kg in 1476-80 ? though much of that was recycled silver coin and bullion in quite severe debasements. But in 1496-1500, after the debasements had ceased, the mean annual output in that quinquennium was 4,872.96 kg; and in 1536-40, at the peak of the mining boom (and, again, before any substantial Spanish-American imports) the mean output was 5,364.99 kg.[41]

The second factor in altering the silver flows was increasingly severe disruptions in Venice’s Levant trade with the now major Ottoman conquests in the Balkans and the eastern Mediterranean, from the 1460s (and especially from the mid-1480s) culminating (if not ending) with the Turkish conquest of the Mamluk Levant (i.e., Egypt, Palestine, Syria) itself in 1517 (along with conquests in Arabia and the western Indian Ocean). While we have no data on silver flows, we do have data for the joint-product of the Central European mining boom ? copper, a very important export as well to the Levant. In 1491-95, 32.13% of the Central European mined copper outputs went to Venice, but only 5.22% went to Antwerp; by 1511-15, the situation was almost totally reversed: only 3.64% of the mined copper went to Venice, while 58.36% was sent to Antwerp. May we conjecture that there was a related shift in the flows of silver? By the 1530s, the copper flows to Venice, which now had more peaceful relations with the Turks, had risen to 11.07%, but 53.88% of the copper was still being sent to the Antwerp Fairs.[42] Of course, by this time the Portuguese, having made Antwerp the European staple for their recently acquired Indian Ocean spice trade (1501), were shipping significant (if unmeasurable) quantities of both copper and silver to the East Indies. Then in 1549, the Portuguese moved their staple to Seville, to gain access to the now growing imports of Spanish-American silver.

The Early Sixteenth-century “Financial Revolutions”: In Private and Public Credit

The other monetary factor that Hamilton mentioned ? but never discussed ? to help explain the rise of prices in early sixteenth-century Spain was the role of credit. Indeed, as Herman Van der Wee (1963, 1967, 1977, 2000) and others have now demonstrated, the Spanish Habsburg Netherlands experienced a veritable financial revolution involving both negotiability and organized markets for public debt instruments. As for the first, the lack of legal and institutional mechanisms to make medieval credit instruments fully negotiable had hindered their ability to counteract frequent deflationary forces; and at best, such credit instruments (such as the bill of exchange) could act only to increase ? or decrease ? the income velocity of money.[43] The first of two major institutional barriers was the refusal of courts to recognize the legal rights of the “bearer” to collect the full proceeds of a commercial bill on its stipulated redemption date: i.e., the financial and legally enforceable rights of those who had purchased or otherwise licitly acquired a commercial bill from the designated payee before that redemption date. Indeed, most medieval courts were reluctant to recognize the validity of any “holograph” bill: those that not been officially notarized and registered with civic authorities. The second barrier was the Church’s usury doctrine: for, any sale and transfer of a credit instrument to a third party before the stipulated redemption date would obviously have had to be at some rate of discount ? and that would have revealed an implicit interest payment in the transaction. Thus this financial revolution, in the realm of private credit, in the Low Countries involved the role of urban law courts (law-merchant courts), beginning with Antwerp in 1507, then most of other Netherlander towns, in guaranteeing such rights of third parties to whom these bills were sold or transferred. Finally, in the years 1539-1543, the Estates General of the Habsburg Netherlands firmly established, with national legislation, all of the legal requirements for full-fledged negotiability (as opposed to mere transferability) of all credit instruments: to protect the rights of third parties in transferable bills, so that bills obligatory and bills of exchange could circulate from hand to hand, amongst merchants, in commercial and financial transactions. One of the important acts of the Estates-General, in 1543 ? possibly reflecting the growing influence of Calvinism ? boldly rejected the long-held usury doctrine by legalizing the payment of interest, up to a maximum of 12% (so that anything above that was now “usury”).[44] England’s Protestant Parliament, under Henry VIII, followed suit two years later, in 1545, though with a legal maximum interest of 10%.[45] That provision thereby permitted the openly public discounting of commercial credit instruments, though this financial innovation was slow to spread, until accompanied, by the end of the sixteenth century, with the much more common device of written endorsements.[46]

The other major component of the early-sixteenth century “financial revolution” lay in public finance, principally in the Spanish Habsburg Netherlands, France, much of Imperial Germany, and Spain itself ? in the now growing shift from interest-bearing government loans to the sale of annuities, generally known as rentes or renten or (in Spain) juros, especially after several fifteenth-century papal bulls had firmly established, once and for all, that they were not loans (a mutuum, in both Roman and canon law), and thus not subject to the usury ban.[47] Those who bought such rentes or annuities from local, territorial, or national governments purchased an annual stream of income, either for a lifetime, or in perpetuity; and the purchaser could reclaim his capital only by finding some third party to purchase from him the rente and the attached annuity income. That, therefore, also required both the full legal and institutional establishment of negotiability, with now organized financial markets.

In 1531, Antwerp, now indisputably the commercial and financial capital of at least northern Europe, provided such an institution with the establishment of its financial exchange, commonly known as the beurse (the “purse” ? copied by Amsterdam in 1608, and London in 1695, in its Stock Exchange). Thanks to the role of the South German merchant-bankers ? the Fuggers, Welsers, H?chstetters, Herwarts, Imhofs, and Tuchers ? the Antwerp beurse played a major role in the international marketing of such government securities, during the rest of the sixteenth century, in particular the Spanish juros, whose issue expanded from 3.586 million ducats (escudos of 375 maraved?s) in 1516 to 80.040 million ducats in 1598, at the death of Philip II ? a 22.4-fold increase. Most these perpetual and fully negotiable juros were held abroad.[48] According to Herman Van der Wee (1977), this sixteenth-century “age of the Fuggers and [then] of the Genoese [merchant-bankers, who replaced the Germans] was one of spectacular growth in public finances.”[49] Finally, it is important to note the relationship between changes in money stocks and issues of credit. For, as Frank Spooner (1972) observed (and documented in his study of European money and prices in the sixteenth century), even anticipated arrivals of Spanish treasure fleets would induce these South German and Genoese merchant-bankers to expand credit issues by some multiples of the perceived bullion values.[50]

The Debate about Changes in the Income Velocity of Money (or Cambridge “k”)

The combined effect of this “revolution” in both private and public finance was to increase both the effective supply of money ? in so far as these negotiable credit instruments circulated widely, as though they were paper money ? and also, and even more so, the income velocity of money. This latter concept brings up two very important issues, one involving Hamilton’s book itself, in particular his interpretation of the causes of the Price Revolution. Most postwar (World War II) economic historians, myself included (up to now, in writing this review), have unfairly regarded Hamilton’s thesis as a very crude, simplistic version of the Quantity Theory of Money. That was based on a careless reading (mea culpa!) of pp. 301-03 in his Chapter XIII on “Why Prices Rose,” wherein he stated, first, in explaining the purpose his Chart 20,[51] that:

The extremely close correlation between the increase in the volume of [Spanish-American] treasure imports and the advance ofcommodity prices throughout the sixteenth century, particularly from 1535 on, demonstrates beyond question that the “abundant mines of America” [i.e., Adam Smith’s description] were the principal cause of the Price Revolution in Spain. We should note, first, that the “close correlation” is only a visual image from the graph, for he never computed any mathematical correlations (few did in that prewar era). Second, Ingrid Hammarstr?m was perfectly correct in noting that Hamilton’s correlation between the annual values of treasure imports (gold and silver in pesos of 450 marevedis) and the composite price index is not in accordance with the quantity theory, which seeks to establish a relationship between aggregates: i.e., the total accumulated stock of money (M) and the price level (P).[52] But that would have been an impossible task for Hamilton. For, if he had added up the annual increments from bullion exports in order to arrive at some estimate of accumulated bullion stocks, he would have had to deduct from that estimate the annual outflows of bullion, for which there are absolutely no data. Furthermore, estimates of net (remaining) bullion stocks are not the same as estimates of the coined money stock; and the coined money stock does not represent the total supply of money.[53]

Third, concerning Hamilton’s views on the Quantity Theory itself, his important monetary qualifications concerning the early sixteenth century and first half of the seventeenth century have already been noted. We should now note his further and very important qualification (p. 301), as follows: “The reader should bear in mind that a graphic verification of that crude form of the quantity theory of money which takes no account of the velocity of circulation is not the purpose of Chart 20.” He did not, however, discuss this issue any further; and it is notable that his bibliography does not list Irving Fisher’s classic 1911 monograph, which had thoroughly analyzed his own concepts of the Transactions Velocity of Money.[54]

Most economics students are familiar with Fisher’s Equation of Exchange, to explain the Quantity Theory of Money in a much better fashion than nineteenth-century Classical Economists had done: namely, MV = PT. If many continue to debate the definition of M, as high-powered money, and of P ? i.e., on how to construct a valid weighted CPI ? the most troublesome aspect is the completely amorphous and unmeasurable “T” ? as the aggregate volume of total transactions in the economy in a given year. Many have replaced T with Q: the total volume of goods and services produced each year. But the best substitute for T is “y” (lower case Y: a version attributed to Milton Friedman) ? i.e., a deflated measure of Keynesian Y, as the Net National Product = Net National Income (by definition).[55]

The variable “V” thus becomes the income velocity of money (rather than Fisher’s Transactions Velocity) ? of the unit of money in the creation of the net national income in the course of a year. It is obviously derived mathematically by this equation: V = Py/M (and Py of course equals the current nominal value of NNI). Almost entirely eschewed by students (my students, at least), but much preferred by most economists, is the Cambridge Cash Balances equation: whose modernized form would similarly be M = kPy, in which Cambridge “k” represents that share of the value of Net National Income that the public chooses to hold in real cash balances, i.e., in high-powered money (a straight tautology, as is the Fisher Equation). We should be reminded that both V and k are mathematically linked reciprocals in that: V = 1/k and thus k = 1/V. Keynesian economists would logically (and I think, rightly) contend that ceteris paribus an increase in the supply of money should lead to a reduction in V and thus to an increase in Cambridge “k.” If V represents the extent to which society collectively seeks to economize on the use of money, the necessity to do so would diminish if the money supply rises (indeed, to create an “excess”). But this result and concept is all the more clear in the Cambridge Cash Balances approach. For the opportunity cost of “k” ? of holding cash balances ? is to forgo the potential income from its alternative use, i.e., by investing those funds. If we assume that the Liquidity Preference Schedule is (in the short run) fixed ? in terms of the transactions, precautionary, and speculative motives for holding money ? then a rightward shift of the Money Supply schedule along the fixed or stationary LP schedule should have led to a fall in the real rate of interest, and thus in the opportunity cost of holding cash balances. And if that were so, then “k” should rise (exactly reflecting the fall in V).

What makes this theory so interesting for the interpretation of the causes of at least the subsequent inflations of the Price Revolution ? say from the 1550s or 1560s ? is that several very prominent economic historians have argued that an equally or even more powerful force for inflation was a continuing rise in V, the income velocity of money (i.e., and thus to a fall in “k”): in particular, Harry Miskimin (1975), Jack Goldstone (1984, 1991a, 1991b), and Peter Lindert (1985). Furthermore, all three have related this role of “V” to structural changes in the economy brought about by population growth. Their theories are too complex to be discussed here, but the most intriguing, in summary, is Goldstone’s thesis. He contended, in referring to sixteenth-century England, that its population growth was accompanied by a highly disproportionate growth in urbanization, a rapid and extensive development of commercialized agriculture, urban markets, and an explosive growth in the use of credit instruments. In such a situation, with a rapid growth “in occupationally specialized linked networks, the potential velocity of circulation of coins grows as the square of the size of the network.” Lindert’s somewhat simpler view is that demographic growth was also accompanied by a two-fold set of changes: (1) changes in relative prices ? in the aforementioned steep rise in agricultural prices, rising not only above industrial prices, but above nominal wages, thus creating severe household budget constraints; and (2) in pyramidal age structures, and thus with changes in dependency ratios (between adult producers and dependent children) that necessitated both dishoarding and a rapid reduction in Cambridge “k” ( = rise in V).

Those arguments and the apparent contradiction with traditional Keynesian theory on the relationships between M and V (or Cambridge “k”) intrigued and inspired Nicholas Mayhew (1995), a renowned British medieval and early-modern monetary historian, to investigate these propositions over a much longer period of time: from 1300 to 1700.[56] He found that in all periods of monetary expansion during these four centuries, the Keynesian interpretation of changes in V or “k” held true, with one singular anomalous exception: the sixteenth and early seventeenth-century Price Revolution. That anomaly may (or may not) be explained by the various arguments set forth by Miskimin, Goldstone, and Lindert.

The Debates about the Spanish and European Distributions of Spanish American “Treasure” and the Monetary Approach to the Balance of Payments Theorem

We may now return to Hamilton’s own considerations about the complex relationships between the influx of Spanish-American silver and its distribution in terms of various factors influencing (at least implicitly) the “V” and “y” variables, in turn influencing changes in P (the CPI). He contends first (pp. 301-02) that “the increase in the world stock of precious metals during the sixteenth century was probably more than twice ? possibly as much as four times ? as great as the advance of prices” in Spain. He speculates, first, that some proportion of this influx was hoarded or converted, not just by the Church, in ecclesiastical artifacts, but also by the Spanish nobility (thus leading to a rise in “k”), while a significantly increasing proportion was exported in trade with Asia, though mentioning only the role of the English East India Company (from 1600), surprisingly ignoring the even more prominent contemporary role of the Dutch, and the much earlier role of the Portuguese (from 1501, though the latter used principally South German silver). We now estimate that of the total value of European purchases made in Asia in late-medieval and early modern eras, about 65-70 percent were paid for in bullion and thus only 25-30 percent from the sale of European merchandise in Asia.[57] Finally, Hamilton also fairly speculated that “the enhanced production and exchange of goods which accompanied the growth of population, the substitution of monetary payments for produce rents [in kind] … and the shift from wages wholly or partially in kind to monetary remunerations for services, and the decrease of barter tended to counteract the rapid augmentation of gold and silver money:” i.e., a combination of interacting factors that affected both Cambridge “k” and Friedman’s “y.” Clearly Hamilton was no simplistic proponent of a crude Quantity Theory of Money.

From my own studies of monetary and price history over the past four decades, I offer these observations, in terms of the modernized version of Fisher’s Equation of Exchange, for the history of European prices from ca. 1100 to 1914. An increase in M virtually always resulted in some degree of inflation, but one that was usually offset by some reduction in V (increase in ” k”) and by some increase in y, especially if and when lower interest rates promoted increased investment.[58] Thus the inflationary consequences of increasing the money supply are historically indeterminate, though usually the price rise was, for these reasons, less than proportional to the increase in the monetary stock, except when excessively severe debasements created a veritable “flight from coinage,” when coined money was exchanged for durable goods (i.e., another instance in which an increase in M was accompanied by an increase in V).[59]

One of the major issues related to this debate about the Price Revolution is the extent to which the Spanish-American silver that flowed into Spain soon flowed out to other parts of Europe (i.e., apart from the aggregate European bullion exports to Asia and Russia). There is little mystery in explaining how that outflow took place. Spain, under both Charles V (I of Spain) and Philip II, ruled a vast, far-flung empire: including not only the American colonies and the Philippines, but also the entire Low Countries, and major parts of Germany and Italy, and then Portugal and its colonies from 1580 to 1640. Maintaining and defending such a vast empire inevitably led to war, almost continuous war, with Spain’s neighbors, especially France. Then, in 1568, most of the Low Countries (Habsburg Netherlands) revolted against Spanish rule, a revolt that (despite a truce from 1609 to 1621) merged into the Thirty Years War (1618-48), finally resolved by the Treaty of Westphalia. As Hamilton himself suggests (but without offering any corroborative evidence ? nor can I), vast quantities of silver (and gold) thus undoubtedly flowed from Spain into the various military theaters, in payment for wages, munitions, supplies, and diplomacy, while the German and then Genoese bankers presumably received considerable quantities of bullion (or goods so purchased) in repayment of loans.[60] Other factors that Hamilton suggested were: adverse trade balances, or simply expanding imports, especially from Italy and the Low Countries (with an increased marginal propensity to import); and operations of divergent bimetallic mint ratios. What role piracy and smuggling actually played in this international diffusion of precious metals cannot be ascertained.[61]

But Outhwaite (1969, 1982), in analyzing the monetary factors that might explain the Price Revolution in Tudor and early Stuart England, asserted (again with no evidence) that: “Spanish silver … appears to have played little or no part before 1630 and a very limited one thereafter.”[62] That statement, however, is simply untrue. For, as Challis (1975) has demonstrated, four of the five extant “Melting Books,” tabulating the sources of bullion for London’s Tower Mint, between 1561 and 1599, indicate that Spanish silver accounted for proportions of total bullion coined that ranged from a low of 75.0% (1561-62) to a high of 86.3% (1584-85). The “melting books” also indicate that almost all of the remaining foreign silver bullion brought to the Tower Mint came from the Spanish Habsburg Low Counties (the southern Netherlands, which the Spanish had quickly reconquered).[63] Furthermore, if we ignore the mint outputs during the Great Debasement (1542-1553) and during the Elizabethan Recoinage (1561-63), we find that the quantity of silver bullion coined in the English mints rose from a quinquennial mean of 1,089.012 kg in 1511-15 (at the onset of the Price Revolution) to a peak of 18,653.36 kg in 1591-95, after almost four decades of stable money: a 17.13 fold increase. Over this same period, the proportion of the total value of the aggregate mint outputs accounted for by silver rose from 12.32% to 90.35% ? and (apart from the Great Debasement era) without any significant change in the official bimetallic ratio.[64]

Those economists who favor the Monetary Approach to the Balance of Payments Theorem in explaining inflation as an international phenomenon would contend that we do not have to explain any specific bullion flows between individual countries, and certainly not in terms of a Hume-Turgot price-specie flow mechanism.[65] In essence, this theorem states that world bullion stocks (up to 1914, with a wholesale shift to fiat money) determine the overall world price level; and that individual countries, through international arbitrage and the “law of one price,” undergo the necessary adjustments in establishing a commensurate domestic price level and the requisite money supply (in part determined by changes in private and public credit) ? not just through international trade in goods and services, but especially in capital flows (exchanging assets for money) at existing exchange rates, without specifically related bullion flows.

Nevertheless, in the specific case of sixteenth century England, we are naturally led to ask: where did all this silver come from; and why did England shift from a gold-based to a silver-based economy during this century? More specifically, if Nicholas Mayhew (1995) is reasonably close in his estimates of England’s Y = Gross National Income (Table I, p. 244), from 1300 to 1700, as measured in the silver-based sterling money-of-account, that it rose from about ?3.5 million pounds sterling in 1470 (with a population of 2.3 million) to ?40.88 million pound sterling in 1670 (a population of 5.0 million) ? an 11.68-fold increase ? then we again may ask this fundamental question. Where did all these extra pounds sterling come from in maintaining that latter level of national income? Did they come from an increase in the stock of silver coinages, and/or from a vast increase in the income velocity of money? Indeed that monetary shift from gold to silver may have had some influence on the presumed increase in the income velocity of money since the lower-valued silver coins had a far greater turnover in circulation than did the very high-valued gold coins.[66]

Statistical Measurements of the Impact of Increased Silver Supplies: Bimetallic Ratios and Inflation

There are two other statistical measures to indicate the economic impact within Europe itself of the influx of South German and then Spanish American silver during the Price Revolution era, i.e., until the 1650s. The first is the bimetallic ratio. In England, despite the previously cited evidence on its relative stability in the sixteenth-century, by 1660, the official mint ratio had risen to 14.485:1 (from the low of 10.333:1 in 1464).[67] In Spain, the official bimetallic ratio had risen from 10.11:1 in 1497 to 15.45:1 in 1650; and in Amsterdam, the gold:silver mint ratio had risen from 11.21 in 1600 to 13.93:1 in 1640 to 14.56:1 in 1650.[68] These ratios indicate that silver had become relatively that much cheaper than gold from the early sixteenth to mid-seventeenth century; and also that, despite very significant European exports of silver to the Levant and to South Asia and Indonesia in the seventeenth century, Europe still remained awash with silver.[69] At the same time, it is also a valid conjecture that the greatest impact of the influx of Spanish American silver (and gold) in this era was to permit a very great expansion in European trade with Asia, indeed inaugurating a new era of globalization.

The second important indicator of the change in the relative value of silver is the rise in the price level: i.e., of inflation itself. As noted earlier, the English CPI experienced a 6.77-fold from 1511-15 to 1646-50, at the very peak of the Price Revolution; and the Brabant CPI experienced a 7.36-fold rise over the very same period (expressed in annual means per quinquennium).[70] Since these price indexes are expressed in terms of silver-based moneys-of-account, that necessarily meant that silver, gram per gram, had become that much cheaper in relation to tradable goods (as represented in the CPI) ? though, as noted earlier, the variations in the rates of change in these CPI are partly explained by differences in their respective coinage debasements.

A Comparison of the Data on Spanish-American Mining Outputs and Bullion Imports (into Seville)

Finally, how accurate are Hamilton’s data on the Spanish-American bullion imports? We can best gauge that accuracy by comparing the aggregate amount of fine silver bullion entering Seville with the now known data on the Spanish-American silver-mining outputs, for the years for which we have data for both of these variables: from 1551 to 1660.[71] One will recall that the Potosi mines were opened only in 1545; and those of Zacatecas in 1546; and recall, furthermore, that production at both began to boom only with the subsequent application of the mercury amalgamation process (not fully applied until the 1570s). The comparative results are surprisingly close. In that 110-year period permitting this comparison, total imports of fine silver, according to Hamilton, amounted to 16,886,815.3 kg; and the combined outputs from the Potosi and Zacatecas mines was very close to that figure: 17,057,938.2 kg.[72] It is also worth noting that the outputs from the Spanish-American mines and the silver imports both peak in the same quinquennium: 1591-95, when the annual mean mined silver output was 219,457.4 kg and the annual mean silver import was 272,704.5 kg. By 1626-30, the mean annual mined output had fallen 18.7% to 178,490.0 kg and the mean annual import had fallen even further, by 24.7%, to 206,045.26 kg (both sets of data indicate that the silver imports for these years were not based just on these two mines). Thereafter, the fall in imports is much more precipitous: declining by 86.4%, to an annual mean import of just 27,965.33 kg in the final quinquennium of recorded import data, in 1656-60. The combined mined output of the Potosi and Zacatecas mines also fell during this very same period, but not by as much: declining by 27.1%, with a mean output of 130,084.23 kg in 1656-60: i.e., a mean output that was 4.65 times more than the mean silver imports into Seville in that quinquennium.

The decline in the Spanish-American mining outputs of silver can be largely attributed to the expected rate of diminishing returns in a natural-resource industry without further technological changes. The differences between the two sets of data, on output and imports, were actually suggested by Hamilton himself (even though he lacked any knowledge of the Spanish-American production figures for this era): a higher proportion of the silver was being retained in the Spanish Americas for colonial economic development, and also for export (from Acapulco, in Mexico) across the Pacific to the Philippines and China, principally for the silk trades. Indeed, as TePaske (1983) subsequently demonstrated, the share of pubic revenues of the Viceroyalty of Peru retained for domestic development rose from 40.8% in 1591-1600 to a peak of 98.9% in 1681-90. We have no comparable statistics for the much less wealthy Mexico (in New Spain); but TePaske also supplies data on its silver exports to the Philippines. Those exports rose from an annual mean of 1,191.2 kg in 1591-1600 (4.8% of Mexican total silver outputs) to a peak of 9,388.2 kg in 1631-40 (29.6% of the total silver outputs). Though declining somewhat thereafter, such exports then recovered to 4,990.0 kg in 1681-90 (29.0% of the total silver outputs).[73]

The Morineau Challenge to Hamilton’s Data: Speculations on Post-1660 Bullion Imports and Deflation

Hamilton’s research on Spanish-American bullion imports into Seville ceased with the year, 1660, because that latter date marked “the termination of compulsory registration of treasure” at Seville.[74] Subsequently, the French economic historian Michel Morineau (1968, 1985) sought to remedy the post-1660 lacuna of bullion import data by extrapolating statistics from Dutch gazettes and newspapers. In doing so, contended that Spanish-American bullion imports strongly revived after the 1660s, a view that most historians have uncritically accepted.[75] But his two publications on this issue present a number of serious problems. First, there is the problem of comparing Spanish apples (actual data on bullion imports) with Dutch oranges (newspaper reports, many being speculations). Second, the statistics in the two publications differ strongly from each other. Third, except for one difficult-to-decipher semi-logarithmic graph, they do not provide specific data that allow us to distinguish clearly between gold and silver imports, either by weight or value.[76] Fourth, the statistics on bullion imports are vastly larger in kilograms of metal than those recorded for Spanish American mining outputs, and also differ radically in the trends recorded for the Spanish-American mining output data.[77]

Nevertheless, these Spanish American mining output data do indicate some considerable recovery in production in the later seventeenth century. Thus, while the output of the Potosi mines continued to fall in the later seventeenth century (to a mean of 56,884.9 kg in 1696-1700, and to one of just 30,990.86 kg in 1711-15), those at Zacatecas recovered from the low of 26,373.4 kg in 1656-60 to more than double, reaching an unprecedented peak of 64,139.87 kg in 1676-80. Then, shortly after, a new and very important Mexican silver mine was developed at Sombrerete, producing an annual mean output of 30,492.83 kg in 1681-85. Thus the aggregate (known) Spanish-American mining output rose from a low 101,533.96 kg in 1661-65 (mean annual output) to a high of 143,212.93 kg in 1686-90: a 1.41-fold increase.[78]

Whatever are the actual figures for the imports of Spanish-American silver between the 1660s and the 1690s, we are in fact better informed about the export of precious metals, primarily silver, by the two East India Companies: in those four decades, the two companies exported a total of 1,3345,342.0 kg of fine silver to Asia.[79] An indication of some relative West European scarcity of coined silver money, from the 1660s to the 1690s, can be found in the Consumer Price Indexes for both England and Brabant. In England, the quinquennial mean CPI (1451-75=100) fell from the Price Revolution peak of 734.39 in 1646-50 to a low of 547.58 in 1686-90: a fairly dramatic fall of 25.43%. By that time, however, the London Goldsmiths’ development of deposit and transfer banking, with fully negotiable promissory notes and rudimentary paper bank notes, was providing a financial remedy for any such monetary scarcity ? as did the subsequent vast imports of gold from Brazil.[80] Similarly, in Brabant, the quinquennial mean CPI (1451-75=100) fell from the aforementioned peak of 1015.138 in 1646-50 to a low of 652.217 ? an even greater fall of 35.8% ? similarly in 1686-90. In Spain (New Castile), the deflation commenced somewhat later, according to Hamilton (1947), who, for this period, used a CPI whose base is 1671-80=100. From a quinquennial mean peak of 103.5 in 1676-80 (perhaps reflecting the ongoing vellon inflation), the CPI fell to a low 59.0 in 1686-90 (an even more drastic fall of 43.0%): i.e., the very same period for deflationary nadir experienced in both England and Brabant.

These data are presented in Hamilton’s third major monograph (1947), which appeared thirteen years later, shortly after World War II, covering the period 1651-1800: in Table 5, p. 119. In between these two, Hamilton (1936), published his second monograph: covering the period 1351-1500 (but excluding Castile) One might thus be encouraged to believe that, thanks to Hamilton, we should possess a continuous “Spanish” price index from 1351-1800. Alas, that is not the case, for Hamilton kept shifting his price-index base for each half century over this period, without providing any overlapping price indexes or even similar sets of prices (in the maraved?s money-of-account) to permit (without exhaustive labor) the compilation of such a continuous price index.[81] That, perhaps, is my most serious criticism of Hamilton’s scholarship in these three volumes (though not of his journal articles), even if he has provided an enormous wealth of price data for a large number of commodities over these four and one-half centuries (and also voluminous wage data).[82]

Supplementary Criticisms of Hamilton’s Data on Gold and Silver Imports

One of the criticisms leveled against Morineau’s monetary data ? that they do not allow us to distinguish between the influxes of gold and silver ? can also be made, in part, against Hamilton’s 1934 monograph. The actual registrations of Spanish American bullion imports into Seville, from 1503 to 1660, were by the aggregate value of both gold and silver, in money-of-account pesos that were worth 450 marevedis, each of which represented 42.29 grams pure silver (for the entire period concerned, in which, as noted earlier, no silver debasements took place). Those amounts, for both public and private bullion imports, are recorded in Table 1 (p. 34), in quinquennial means. His Table 2 (p. 40) provides his estimates ? or speculations ? of the percentage distribution of gold and silver imports, by decade, but by weight alone: indicating that from the 1530s to the 1550s, about 86% was in silver, and thereafter, to 1660, from 97% to 99% of the total was consistently always in silver.[83] His table 3 (p. 42) provides his estimate of total decennial imports of silver and gold in grams. What is lacking, however, is the distribution by value, in money-of-account terms, whether in maraved?s, pesos, or ducats (worth 375 maraved?s). Since these money-of-account values remained unchanged from 1497 to 1598, and with only a few changes in gold thereafter (to 1686), Hamilton should have calculated these values as well, utilizing as well his Table 4 gold:silver bimetallic ratios (p. 71). Perhaps this is a task that I should undertake ? but not now, for this review. A more challenging task to be explored is to analyze the impact of gold inflows, especially of Brazilian gold from the 1690s, on prices that are expressed almost everywhere in Europe in terms of a silver-based money of account (e.g., the pound sterling). Obviously one important consequence of increased gold inflows was the liberation of silver to be employed elsewhere in the economy: i.e., effectively to increase the supply of silver for the economy.

At the same time, we should realize that the typical dichotomy of the role of the two metals, so often given in economic history literature ? that gold was the medium of international trade while silver was the medium of domestic trade ? is historically false, especially when we view Europe’s commercial relations with the Baltic, Russia, the Levant, and most of Asia.[84]


EH.Net’s Classic Reviews Selection Committee was certainly justified in selecting Hamilton’s American Treasure and the Price Revolution in Spain, 1501-1650 as one of the “classics” of economic history produced in the twentieth century; and Duke University’s website (see note 1) was also fully justified in declaring that Hamilton was one of the pioneers of quantitative economy history. In his preface, Hamilton noted (p. xii) that he and his wife spent 30,750 hours in collecting and processing this vast amount of quantitative data on Spanish bullion imports and prices and wages, “entirely from manuscript material,” with another 12,500 hours of labor rendered by hired research assistants ? all of this work, about three million computations, done without electronic calcula

Subject(s):International and Domestic Trade and Relations
Geographic Area(s):Latin America, incl. Mexico and the Caribbean
Time Period(s):17th Century