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Banks and Finance in Modern Macroeconomics: A Historical Perspective

Author(s):Ingrao, Bruna
Sardoni, Claudio
Reviewer(s):Rubin, Goulven

Published by EH.Net (June 2020)

Bruna Ingrao and Claudio Sardoni, Banks and Finance in Modern Macroeconomics: A Historical Perspective. Cheltenham, UK: Edward Elgar, 2019. vii + 281 pp. $145 (hardcover), $31 (ebook), ISBN: 978-1-78643-152-3.

Reviewed for EH.Net by Goulven Rubin, Sciences Économiques, Université Paris 1 (Panthéon-Sorbonne).


Banks and Finance in Modern Macroeconomics by Bruna Ingrao and Claudio Sardoni aims to explain the eviction of banks and finance from the mainstream of macroeconomics before the Great Recession occurred in 2008. The book begins with two chapters on the “giants” of pre-Keynesian revolution macroeconomics. Chapter 2 compares Knut Wicksell and Irving Fisher, two economists who analyzed the role of banks’ supply of credit in order to complete the quantity theory of money. Chapter 3 discusses the contributions of Joseph Schumpeter and Dennis Robertson who both argued that banks’ intervention in the economy is a precondition of innovation and growth. Chapter 4 shows how, in the early 1930s, John Maynard Keynes (1931) and Fisher (1933) analyzed the destabilizing effects of deflation on the financial structure of the economy. Chapter 5 opens the story of how the mainstream excluded banks and finance from its models. It argues that, from 1930 to 1936, Keynes progressively expelled commercial banks from his theoretical apparatus. Chapter 6 and 7 follow the evolution of mainstream Keynesian macroeconomics from 1937 to the 1970s. This mainstream is related first to John Richard Hicks’ “attempt to expound macroeconomic theory in the context of a general equilibrium model” (p. 114) in “Mr Keynes and the Classics” (1937) and in Value and Capital (1939). But the main focus is on the contribution of Don Patinkin and Franco Modigliani. Patinkin erased the financial structure of the economy by assuming away distributive effects and risks of default. A similar simplification of the financial sector is found in Modigliani (1963). In the 1960s, only two lines of research emerged from the wreckage. John Gurley and Edward Shaw (1960) showed the importance of financial intermediaries for the process of growth. James Tobin attempted to incorporate banks and equity markets in the IS-LM framework beginning in the 1960s. Chapter 8 discusses the contribution of Milton Friedman and ends up with the Real Business Cycle literature, which represent the last step in the “disappearance of money.” Chapter 9 surveys the macroeconomic literature spanning the last forty years that considered banks and finance from the perspective of imperfect information. The conclusion of the book explains the authors’ dissatisfaction with the current mainstream. If they credit the post-2008 DSGE literature with a rediscovery of banks and finance, they consider that “the general environment within which the analysis is carried out” (p. 243) remains unfit. The Arrow-Debreu intertemporal general equilibrium model that serves as a benchmark for macroeconomics is not consistent with models incorporating money and imperfections. Ingrao and Sardoni thus end up with a plea for a return to the insights of the giants of the inter-war and to practices less tied to mathematical modelling and more open to the complexities of history, the role of institutions and the reality of behaviors characterized by bounded rationality.

To my knowledge, Ingrao and Sardoni’s book is the first attempt to explore systematically the attention that macroeconomics has paid to banks and finance since its beginnings. It is history of ideas at its best, a practice of history that takes the time to assess the consistency of the theories under scrutiny and to discuss their limits, preparing the reader to “study the present state of economics from the standpoint of past authors” (Kurz, 2006: 468). In this respect it will probably remain a landmark. It provides simultaneously a big picture of the subject and a myriad of subtle case studies to which the above summary cannot do justice. The book is a must-read because of its breadth. But this breadth goes along with a lack of comprehensiveness that blurs the picture and leaves open questions.

Concerning the 1960s and the 1980s, Ingrao and Sardoni’s presentation is too selective. Where they conclude that banks and finance were absent from the mainstream, I would argue that these decades saw a boom of research on the topic. In the 1960s, the book ignores the works of Modigliani and his team to develop the first macroeconometric model at the Federal Reserve Board, the MPS, which featured a detailed finance sector (Acosta and Rubin, 2019). It also ignores the attempts of Karl Brunner and Alan Meltzer to propose an alternative to the IS-LM model with an equity market and financial intermediaries. Concerning the 1980s and 1990s, Ingrao and Sardoni fail to acknowledge the importance and the centrality of the burgeoning literature on credit market imperfections. What we need to explain is why, in spite of the waves of research on banks and finance that marked different periods, those key aspects of the market economy did not become part and parcel of all workhorse models before 2008. Ingrao and Sardoni put all the blame on the Arrow-Debreu model and on the “troubled marriage” of macroeconomics with it. But how exactly did the Walrasian benchmark influence the way banks were defined and modelled or the way they were excluded when it was the case? Was general equilibrium theory really the prime influence here? Matters of tractability or available empirical evidence should also be considered. On this score, I find the discussion too cursory. To take only one example, Ingrao and Sardoni present the version of IS-LM introduced by Hicks (1937) as a Walrasian model. As I have explained elsewhere (Rubin, 2016) following the contributions of Young (1987), Dimand (2007) or Barens (1999), IS-LM originates in the works of Keynes and is not Walrasian. What is lacking is a more careful discussion of the complex interaction between the pure theory of general equilibrium and the impure and simpler macroeconomic models.


Acosta, Juan and Goulven Rubin (2019). “Bank Behavior in Large-scale Macroeconometric Models of the 1960s,” History of Political Economy, 51 (3): 471-491.

Barrens, I. (1999) “From Keynes to Hicks – an Aberration? IS-LM and the Analytical Nucleus of the General Theory,” in P. Howitt et al (editors) Money, Markets and Method: Essays in Honour of Robert W. Clower, Cheltenham: Edward Elgar.

Dimand, Robert (2007) “Keynes, IS-LM, and the Marshallian Tradition,” History of Political Economy, 39 (1): 81-95.

Fisher, Irving (1933). “The Debt Deflation Theory of Great Depressions,” Econometrica, 1(4): 337-357.

Gurley, John G. and Edward S. Shaw (1960). Money in a Theory of Finance, Washington: Brookings Institution.

Hicks, John R. 1937. “Mr Keynes and the Classics: A Suggested Interpretation,” Econometrica 5: 147-59.

Hicks, John R. [1939] 1946. Value and Capital. An Inquiry into Some Fundamental Principles of Economic Theory. Oxford: Clarendon Press.

Keynes, John Maynard (1931[1972]). “The Great Slump of 1930” in Essays in Persuasion, London, Macmillan, vol. 9 of The Collected Writings of John Maynard Keynes.

Keynes, John Maynard (1936). The General Theory of Employment, Interest and Money, vol. 7 of The Collected Writings of John Maynard Keynes: London: Macmillan.

Kurz, Heinz (2006). “Whither the History of Economic Thought? Going Nowhere Rather Slowly?” European Journal of the History of Economic Thought, 13(4): 463-488.

Modigliani, Franco (1963). “The Monetary Mechanism and Its Interaction with Real Phenomena,” Review of Economics and Statistics, 45 (1): 79-107.

Rubin, Goulven (2016) “Oskar Lange and the Walrasian Interpretation of IS-LM,” Journal of the History of Economic Thought, 38 (3): 285-309.

Young, Warren (1987) Interpreting Mr Keynes: The IS-LM Enigma, Cambridge: Polity Press.


Goulven Rubin is Professor at Sorbonne School of Economics, University Paris 1 Panthéon-Sorbonne, and Deputy Head of laboratory PHARE. He is a specialist of the history of macroeconomics and the author of articles on Don Patinkin, John Richard Hicks, Oskar Lange, Franco Modigliani and the IS-LM model.

Copyright (c) 2020 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (June 2020). All EH.Net reviews are archived at

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

Alexander Hamilton and the Origin of the Fed

Author(s):Rasmus, Jack

Published by EH.Net (June 2020)

Jack Rasmus, Alexander Hamilton and the Origin of the Fed. Lanham, MD: Lexington Books, 2019. v + 139 pp. $85 (hardcover), ISBN: 978-1-4985-8284-1.

Reviewed for EH.Net by David Cowen, Museum of American Finance.


In Alexander Hamilton and the Origins of the Fed, Jack Rasmus of St. Mary’s College traces and analyzes the roots of American central banking. The book consists of eleven detailed chapters that outline the story of U.S. banking development. He starts with Hamilton’s creation of the First Bank of the United States (BUS1), the subsequent chartering of Second Bank of the United States (BUS2), an in-depth survey of the period 1836-1913 without a national bank, followed by the creation of the Federal Reserve System. He concludes by looking at the current Federal Reserve and comparing it to the BUS1 in order to answer the question of whether the Federal Reserve is the “Third Bank of the United States.” This is a phrase that is not in the book, but is one I first heard as a student of Richard Sylla.

The setup to that question can be found in the first several chapters, which describe how Hamilton’s central banking vision was crucial for early U.S. economic growth. The author retraces Hamilton’s youth and early ideas on banking, as well as his military service, the Constitutional Convention, his appointment as the nation’s first Secretary of the Treasury, the creation of the BUS1, and the subsequent battle to get the legislation passed. One of Rasmus’s analogies that resonates is his comparison of the U.S. Constitution to the Bible: “One can find a particular passage or reference to justify one’s interpretation, and other passages to justify the opposite” (p. 31).

Many others — including Bray Hammond, Fritz Redlich, Edwin Perkins, James Wettereau, Benjamin Klebaner, Robert Wright, Richard Sylla, and this author — have looked at the BUS1 and concluded that the national bank performed many tasks associated with a modern central bank. All, including Rasmus, give the BUS1 high marks as the government’s fiscal agent. Rasmus looks at Hamilton’s unique hybrid 80%/20% private-public partnership and, on the one hand, concludes that there was independence for the bankers. However, he states that the Treasury Department made “considerable interference” in its operations (p. 36). Reconciling this “considerable interference” with his notion that there was independence is not an easy tightrope to walk. This theme continues throughout the book and is nicely framed as a two-sided question, “Independence from whom? … Interference in carrying out central banking functions by private banker interests? Or interference from government politicians” (p. 66).

After reading and analyzing hundreds of letters about the bank, it seems to me that during this period the Treasury was the central banker and the BUS1 the central bank. It is best described as a principal-agent relationship; however, it is clear the principal held the upper hand. For instance, when Treasury Secretary Albert Gallatin was in office, he allayed Thomas Jefferson’s fears about the BUS1: “Whenever they shall appear to be really dangerous, [the Bank is] completely in our power and may be crushed.”

While aptly describing the bigger themes surrounding the BUS1 creation, Rasmus makes several errors. He correctly states that Hamilton’s first act was to raise money for the newborn country through bank loans from the Bank of New York. However, he mistakenly labels the other bank, the Bank of North America, as the “National Bank of Philadelphia” and says that the total loan amount was $100 million when the borrowings were a tenth of one percent of that amount (p. 19). Also needing correction is that the “bonds issued” by the BUS1 to its investors would be paid at 4% (p. 21). It was the equity stock of the bank that paid the dividends, as the BUS1 did not issue bonds. To state that the “federal government put up $2 million in gold” is correct in terms of amount, but the reality is that the government did not have $2 million in gold to invest (p. 25). Rather, the federal government infused the funds to the national bank through a complex transaction via loans from Amsterdam, but immediately borrowed that amount and more. Rasmus does note that within a few years BUS1 loans to the government had tripled, peaking at $6 million or about 60% of its capital, before the BUS1 directors became nervous and asked for repayment. The government commenced selling its shares to repay the loans.

Because banks proliferated and the money supply grew, Rasmus states that as far as control of that supply is concerned, the “BUS1 clearly receives an ‘F’ in terms of performance during its twenty-year charter period” (p. 34). This failing grade contradicts Thomas Willing, the bank’s long-standing president, who wrote that BUS1 was the “great regulating wheel of all the Commercial Banks [and] … never overtraded, neither was it possible for any other institution to do so and preserve its credit for a day.” Bolstering the Willing case was William Gouge, certainly no friend of bank note issuance, who wrote in 1842 that the BUS1 “was perhaps as well managed as a paper money Bank could be.”

The book is detailed in describing nineteenth century banking in the intervening years between the BUS2 and the creation of the Federal Reserve. Major financial crises are on display — 1837, 1857, 1873, 1884, 1890, 1893 — culminating with the 1907 panic that led to the creation of the Fed. These episodes include explanations of a “full-blown financial crisis versus a banking panic” (p. 81). Themes recur, for instance how fractional reserve banking is a “great boon,” but at the same time a “fundamental weakness,” and the constant pushback and resistance to centralized banking powers in U.S. history (p. 5).

Rasmus brings the book together in a nice concluding chapter analyzing where the Fed and Hamilton’s BUS1 have similarities, differences, or an incomplete scorecard. The verdict: “In many respects the 1913 Fed was an implementation of Hamilton’s vision. It was very much a Hamiltonian central bank” (p. 121). However, Rasmus sees two great failures in the lack of effective bank supervision and a weak lender of last resort, the latter evidenced by many bank failures, particularly in the 1930s. Nonetheless, Rasmus’s book suggests that the Federal Reserve is indeed the Third Bank of the United States.

In a postscript, Rasmus criticizes central banks and the Fed for the massive stimulation in the wake of the 2008-09 financial crisis, believing it has “not been very effective” (p. 125). Earlier in the book, he posed the question of whether the Fed would be able to “evolve further” to handle a future crisis (p. 10). That answer is currently upon us, as the U.S. grapples with the coronavirus, quarantine, economic shut down and reopening, and social unrest. With the Fed balance sheet growing from $4.5 trillion to $7 trillion in a matter of months in 2020, and likely more financial stimulus on the way, we may expect that Jack Rasmus will have some forthcoming opinions on evolving central banking.


David Cowen is President/CEO of the Museum of American Finance. He is the co-author (with Richard Sylla) of Alexander Hamilton on Finance, Credit, and Debt (Columbia University Press, 2018) and (with Robert Wright) of Financial Founding Fathers: The Men Who Made America Rich (University of Chicago Press, 2006). He is author of The Origins and Economic Impact of the First Bank of the United States, 1791-1797 (Garland Publishing, 2000).

Copyright (c) 2020 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (June 2020). All EH.Net reviews are archived at

Subject(s):Financial Markets, Financial Institutions, and Monetary History
Government, Law and Regulation, Public Finance
Geographic Area(s):North America
Time Period(s):18th Century
19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII

Europe’s Growth Champion: Insights from the Economic Rise of Poland

Author(s):Piatkowski, Marcin
Reviewer(s):Guzowski, Piotr

Published by EH.Net (June 2020)

Marcin Piatkowski, Europe’s Growth Champion: Insights from the Economic Rise of Poland. Oxford: Oxford University Press, 2019. xxv + 370 pp. £25 (paperback), ISBN: 978-0-19-883961-3.

Reviewed for EH.Net by Piotr Guzowski, Faculty of History and International Relations, University of Bialystok.


Marcin Piatkowski’s book is a study of the contemporary history of Poland and its economic success after the fall of communism. Simultaneously, the author tries to assess the current position of Poland in a long-term historical perspective stretching back to the end of the Middle Ages. Piatkowski claims that the term “Golden Age” ought not to be used with reference to sixteenth-century Poland, but, more appropriately, to Poland after 1989. All his arguments are presented from the perspective of an economist. The author is a senior economist at the World Bank and Associate Professor at Kozminski University, Warsaw.

The book is divided into ten coherent chapters, each of which is followed by a brief summary and conclusions. In addition to tables and charts, it contains boxes with short discussions of specific topics that could not be given sufficient attention in the main body of the text. The first chapter is a universal synthetic presentation of institutional, cultural and ideological sources of economic growth. The following three chapters are concerned with Poland’s distant past — its economic history in the early modern period, and the country’s less distant past — post-war communist era and transformation after 1989. Further, the author presents his own interpretation of the reasons for Poland’s economic success in the last three decades and offers scenarios of its future growth.

Piatkowski, drawing on the achievements of contemporary economic thought, especially the institutional approach, constructs logical models of growth (chapter 1) and applies them to the study of economic development of contemporary Poland (chapters 6 and 7). He seeks to prove the thesis that late twentieth and twenty-first-century Poland experienced unprecedented economic growth, incomparable with any other historical period. Although many (if not most) of the author’s theses provoke discussion and definitely require deeper justification, his analysis of the role of institutions, culture, ideas and leadership is very clear and persuasive. The clarity of the author’s reasoning is in fact one of the book’s greatest merits, even though the resulting simplifications add unnecessary journalistic quality to the narrative. Upon publication of the book, the author frequently presented his economic views to the press, commenting on current economic policies.

It is hard to disagree with the author that one of the major sources of post-communist economic transformation and a key reason for adaptation of western institutions in Poland was a desire “to return to Europe and feel European again” on the part of the political elite (p. 237). Piatkowski is also right stating that “there is no single explanation for Poland’s success since 1989” (p. 201). His interpretations are definitely worth considering in discussions on the course of socio-political and economic reforms in post-communist Poland, but it must be born in mind that they are the result of the reflection undertaken from the macroeconomic perspective of financial institutions.

Piatkowski’s detailed analyses concerning both the events from the recent history of Poland and from the early modern period vary in quality. Apart from relatively balanced deliberations, for example on the importance of religion in the lives of Poles and its impact on economic activity, the book also contains many grossly anachronistic opinions about the past. This is illustrated by the author’s approach to the legacy of communism. Only in one short subchapter does he mention that “Communism fell because of extractive political and economic institutions that supported growth in the short term, but failed to sustain it in in the long term. […] Economic institutions did not provide incentives for entrepreneurship, ‘creative destruction’, and innovation. They promoted the status quo and frowned upon change” (p. 88). In the light of these facts, the author’s insistence on emphasizing the advantages of socio-economic changes in Poland between 1944 and 1989, one of which was to be the creation of egalitarian society, appears self-contradictory (“Why communism was not all bad,” “Positive legacy of communism,” “How communism destroyed feudalism”).

The anachronism of such an approach is in comparing the effects of half a century of communist rule with the situation in Poland before World War II. The author assumes that if Poland had never fallen under communism, remained independent and capitalist for 50 years after the war, it would not have modernized, like Spain or Italy did, but would have remained a backward peripheral economy in the shadow of the Soviet Union (p. 107-12). However, what Piatkowski sees as a chance for Poland, can also be viewed as a major obstacle by which the communist system deprived the country of a prospect for much earlier growth. The author tends to forget that in 1939 the Soviet Union invaded Poland and this fact had grave consequences. One of the elements of Soviet occupation in the years 1939-1941 and later in post-war years was physical extermination of the Polish intellectual elite. Its loss should be regarded as a lost chance for growth. These people were the lost human capital; they could have become the leaders of economic modernization after 1945.

The author mentions that Poland’s transition did not much benefit the communist elites, because only 9 percent of the Polish former top communist party members held higher political offices after 1990. Nevertheless, considering the fact that the first president of Poland elected by the national assembly in 1989 was a communist general, Wojciech Jaruzelski (responsible for the deaths of dozens of protesters killed in 1970 and under whose leadership in the 1980s Poland had experienced its deepest economic crisis), the third president (for two terms between 1995 and 2004) was Aleksander Kwaśniewski, who had been a minister in the last two communist governments, and two prominent communists served as Prime Ministers (Józef Oleksy, 1993-95; Leszek Miller, 2001-2004), it can be concluded that quality was much more crucial here than quantity. Moreover, the starting point in building an economic position for members of the former communist establishment favored them in comparison with all other post-1989 entrepreneurs.

Piatkowski emphasizes that one of the most important achievements of the egalitarian communist system was that it allegedly provided lower-class youth with unparalleled educational opportunities. As he stresses, many Polish ministers of finance/economy after 1989 were the beneficiaries of this system and gained their professional experience in the communist era, doing their scientific internships in international institutions. However, the author ignores the fact that in communist Poland the freedom to travel abroad was a privilege for the few. The ministers whom he praises as leaders of economic transformation after 1989 (Leszek Balcerowicz, Andrzej Olechowski, Marek Belka, Marek Borowski, Grzegorz Kołodko) were the same people who had for years worked to maintain the communist system in Poland and had been to a lesser or greater extent responsible for the economic crisis in the 1980s. Presumably Piatkowski’s positive attitude towards the role of communism and specifically towards former members of its establishment should be viewed in the context of the fact that he was a doctoral student of Grzegorz Kołodko, an adviser to the President of the National Bank of Poland in communist era, and later Minister of Finance in 1994-1997, 2002-2003, praised by the book’s author as a “hero of post-communist transition” (p. 221).

While accepting many of the author’s theses concerning economic growth in general, it is still worth considering alternative interpretations of the processes and events described in the book. Several omissions appear particularly conspicuous. One of them is the author’s failure to mention Mieczyslaw Wilczek’s Act. It was introduced in 1988 by the minister who, although he served in the last communist government, was an entrepreneur and inventor, and supported a radical liberalization of economic activity. The Act contributed to the explosion of private economic initiative in Poland between 1989 and 2001. The author also omits to mention a number of problems related to the social cost of the transformation model chosen by the political elite, such as the emigration of over two million citizens seeking a better and faster road to wealth abroad.

Piatkowski’s deliberations upon the early modern period require separate assessment. They are not the result of any in-depth studies conducted by the author. Instead, he compiles data from a single study of Polish historical data provided by Statistics Poland and uses them to support the thesis that it was not the sixteenth or seventeenth, but the twenty-first century that truly is the Polish Golden Age. Piatkowski does not manage to eliminate stereotypical or misguided opinions from his narrative (e.g. that the gentry turned peasants into alcoholics), revealing his limited knowledge of the historical reality in the early modern period. In his attempt to debunk the myth of sixteenth-century Poland as the granary of the West, Piatkowski compares the Polish Kingdom to today’s developing countries and writes: “Poland was not a banana republic, but for sure a wheat republic” (p. 48). Having appreciated the witticism, it is worth clarifying that 90 percent of grain exported from Poland to western Europe was rye. Wheat was neither an important export nor domestic consumption product, hence using data for wheat trade to support the claim that “Poland was […] not the West’s ‘breadbasket,’ as the Polish stereotype maintains” may easily lead to false conclusions.

Sixteenth-century Poland, with its GDP per capita at the level of 53 percent of the average for four most developed countries of the period is described by Piatkowski as backward. Such an opinion appears hardly justified in the light of the author’s further claim that twenty-first-century Poland, twenty-five years after the fall of communism, with its GDP per capita at the level of 60 percent of the average for the Netherlands, Germany and the UK should be described as “Europe’s Growth Champion.” Piatkowski’s historical conclusions are best characterized as falling into the category described by Gregory Clark in his renowned, though also controversial book A Farewell to Alms: “The popular misconception of the preindustrial world is of a cowering mass of peasants ruled by a small, violent, and stupid upper class that extracted from them all surplus beyond what was needed for subsistence and so gave no incentives for trade, investment, or improvement in technology. These exclusive and moronic ruling classes were aided in their suppression of all enterprise and innovation by organized religions of stultifying orthodoxy, which punished all deviation from established practices as heretical” (Clark 2007, p. 145).


Piotr Guzowski — economic historian and historical demographer – is the author of two books published in Polish (Peasants and Money in the Late Middle Ages and Early Modern Period, 15th-16th c. (Krakow 2008) and Noble Family in Pre-partition Poland: Demographic Study (Bialystok 2019). Other publications include “The Influence of Exports on Grain Production on Polish Royal Demesne Farms in the Second Half of the Sixteenth Century,” Agricultural History Review 59 (2011) and “Village Court Records and Peasant Credit Market in Fifteenth- and Sixteenth-century Poland,” Continuity and Change 29 (2014).

Copyright (c) 2020 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (June 2020). All EH.Net reviews are archived at

Subject(s):Economic Development, Growth, and Aggregate Productivity
Economywide Country Studies and Comparative History
Geographic Area(s):Europe
Time Period(s):16th Century
17th Century
18th Century
19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII

Bankrupt in America: A History of Debtors, Their Creditors and the Law in the Twentieth Century

Author(s):Hansen, Mary Eschelbach
Hansen, Bradley A.
Reviewer(s):Rodgers, Mary Tone

Published by EH.Net (June 2020)

Mary Eschelbach Hansen and Bradley A. Hansen, Bankrupt in America: A History of Debtors, Their Creditors and the Law in the Twentieth Century. Chicago: University of Chicago Press, 2020. vii + 222 pp. $55 (cloth), ISBN: 978-0-226-67956-3.

Reviewed for EH.Net by Mary Tone Rodgers, Center for Finance and Risk Management, State University of New York at Oswego


As this review is being written and as we progress from the initial shock of the COVID-19 pandemic to a phase in which personal bankruptcy filings have begun to soar, it is opportune that Bankrupt in America has been released. It provides a century-long perspective from which to understand present day events and it explains why bankruptcy rates rise and fall over time.

The authors succeed at justifying their argument that the primary driver of American consumer bankruptcy rate over the past century has been the increased supply of consumer credit by mustering two complementary approaches to economic research, statistical and documentary. They convincingly explain spurts and lulls in the bankruptcy rate as functions of the supply of consumer credit and other economic conditions, that have been amplified by changes in the law or in states’ collection methods through their identification of interactive regression variables with multiplicative effects, rather than relying on standard regression variables with only additive effects. With that groundbreaking result, Mary Hansen and Bradley Hansen reconcile the decades-long puzzle surrounding the findings of two opposing camps of bankruptcy researchers, one group finding explanations from credit supply and economic variables contrasted with the other group finding explanations from variables related to laws and collection methods. Without Hansen and Hansen’s work, the contradiction in findings between the two groups might not have been resolved.

Before turning to other important contributions this book makes, a review of the chapter content and of the data sources is in order. After an Introductory chapter, the next five are structured as a chronology of bankruptcy rates and laws from 1898 to 2005, bookended by the introduction of the 1898 Act to Establish a Uniform System of Bankruptcy, the first enduring federal bankruptcy law, and by the more recent 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). A seventh chapter offers Conclusions and an Epilogue. Each chapter starts with a concise, vividly written vignette about a consumer making the choice to use the bankruptcy law. Then an analysis follows of how the bankruptcy rate in the time period covered by the chapter was affected by social, economic and legal variables. Finally, each chapter ends with a detailed appendix of the statistical analysis of those three types of variables. Hansen and Hansen uncover four facts about bankruptcy rates: it was once rare, but now it is common; most early users of bankruptcy law were businesses, but now are consumers; the bankruptcy rate varies dramatically between places; and growth in bankruptcy has not been steady.

Extensive primary and secondary data sources are used to cover over one hundred years of history, but the most striking data sets are the ones created by the authors with their teams of assistants and co-authors: 1) United States District Court Boundary Shapefiles (1900-2000) and 2) United States Bankruptcy Statistics by District, 1899-2007. The data to construct the bankruptcy rate are sourced from Department of Justice and the Administrative Office of the U.S. Courts and from population count data. The data about individual bankruptcy cases are taken from a sample of personal bankruptcies in Missouri (1898-1945 from the Eastern and Western Districts of Federal Court of Missouri) and in Maryland (1940-2000 from the Maryland District Court at Baltimore). The Missouri and Maryland data are part of an effort by the authors to construct a nationally representative sample of case files for the entire twentieth century. Both the digitized data and the authors’ codebooks are archived at the Inter-university Consortium for Political and Social Research.

By framing the analysis over such a long span of history, the authors make contributions to scholarship that authors who study a shorter time span cannot make. Without such a long time span, the authors could not confidently conclude that path-dependency provides the best explanation for the development of bankruptcy in America. They note the non-economic factors that helped shape the law at critical junctures, specifically the roles played by Jay Torrey in the 1890’s, Walter Chandler in the 1930’s and Leonor Sullivan in the 1960’s. Previous law and how people were using it influenced the people who made changes to the law, meaning a path-dependent process was underway. Researchers with a shorter time frame of investigation could miss the outsized influence played by a few individuals who changed the path of bankruptcy law.

A second benefit of framing the analysis over such a long period of time is that the authors observe that the competing social narratives around bankruptcy have remained essentially the same for a century, pitting the pro-creditor story of how discharge provisions in bankruptcy law encourage opportunistic consumer default against the pro-debtor story of how predatory lenders harshly garnish defaulting consumers’ wages. The authors’ insight is that the alternating success of each narrative lies in the belief system of the audience to whom it has been pitched, not in an evolution of the narratives: when Republicans held power, the pro-creditor narrative succeeded in changing the law (the Original Act of 1898), but when Democrats held power, the pro-debtor narrative won the day (Bankruptcy Reform Act of 1978).

The economic historian will likely find the explication and application of the complementary methods of cliometric analysis and new institutional analysis refreshing in Chapter One. While the authors argue that path dependency explains the course of much institutional change in the history of bankruptcy, they go a step further and identify the precise source of path dependence by complementary cliometric analysis: bankruptcy rates are most thoroughly explained when overlays of the effects of institutional change amplify the underlying effect of increases in the supply of credit.

My favorite line of the book, “[this is] how we do history,” (p. 13), may also resonate with other economic and financial historians. When Hansen and Hansen acknowledge they have their own way of “doing history,” they imply that there is more than one way of doing it! As researchers, we each find the blend of research methods best suited to address each research question, knowing the blend can evolve over time.

As COVID-19 alters economic and financial conditions, this book prepares us to anticipate emergence of the century-old tug-of-war between the pro-creditor and pro-lender narratives. The authors alert us that it may be the predisposition of the politicians in power to believe one of the narratives that could carry the day regarding changes to the bankruptcy laws related to COVID-19, should any be made.


Mary Tone Rodgers, D.PS, CFA, is the Marcia Belmar Willock Professor of Finance and Director of the Gordon Lenz Center for Finance and Risk Management at the State University of New York at Oswego. She has published several articles in financial history, including “Post-financial Crisis Changes in Financial System Structure: An Examination of the JP Morgan & Co. Syndicates after the 1907 Panic” (with James E. Payne) in Review of Financial Economics (2020). She continues to research J. Pierpont Morgan’s role as lender of last resort in the pre-Federal Reserve period with Jon R. Moen.

Copyright (c) 2020 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (June 2020). All EH.Net reviews are archived at

Subject(s):Financial Markets, Financial Institutions, and Monetary History
Government, Law and Regulation, Public Finance
Markets and Institutions
Geographic Area(s):North America
Time Period(s):19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII

John Maynard Keynes

Author(s):Hayes, M. G.
Reviewer(s):Johnson, A. Reeves

Published by EH.Net (June 2020)

M. G. Hayes, John Maynard Keynes. Cambridge, UK: Polity Press, 2020. xv + 195 pp. $25 (paperback), ISBN: 978-1-5095-2825-7.

Reviewed for EH.Net by A. Reeves Johnson, Department of Economics, Maryville College.


Mark Gerard Hayes, formerly of Robinson College, Cambridge, was a post-Keynesian economist who committed his academic life to the study of John Maynard Keynes. In his preface to John Maynard Keynes, Hayes reminisces that his over forty-year study of Keynes eclipses the time Keynes spent in his own scholastic pursuits.

Having invested an effective lifetime to become one of the trusted expositors of Keynes’s economics, it’s hard to imagine someone better suited than Hayes to distilling the economics of Keynes to less than 170 pages (graphs and tables included, no less). Even so, as an analytical biography written for undergraduates with or without formal training in economics, Keynes is an ambitious project. Its primary object is not solely to introduce readers to Keynes, but, specifically, to reiterate Keynes’s critique of classical economics in accessible language. But, Hayes is a veritable authority on Keynes, and his many years of devotion to the subject materialize in a refusal to take shortcuts. It should come as no surprise, then, that the exposition is rigorous, and, for many undergraduates, unsparing.

I note here that reviewing this work through the lens of an academic and an instructor on Keynes offers too little scope. The value of Keynes is understood by its ability to inform its intended audience. Therefore, to fairly assess this book, I offer the following review with its target readership in mind.

Keynes sets out with a brief statement of purpose and summary of the book’s trajectory in the opening chapter. Hayes then delves into classical thought in the form of a corn model in Chapter 2. The core argument is familiar, although its representation may not be. Marginal products determine the respective rates of utilization and of remuneration of labor and capital as profit-maximizing farmers organize production under conditions of diminishing returns. Hayes credits David Ricardo with this theory of production and distribution, echoing the dubious “continuity thesis” implicit in The General Theory. In any case, this chapter will be tough going for students unacquainted with mainstream economics, but provides a necessary transition to Keynes’s mature thinking.

Chapter 3 naturally turns to The General Theory and offers a concise and careful exposition of the principle of effective demand. Keynes’s non-standard concept of demand as income expected from production is first defined in order to underscore two fundamental features absent in the classical model: the role of future expectations shaping present behavior and the monetary nature of economic activity.

Hayes’s unique approach to the principle of effective demand is well-suited for undergraduates due to his manner of making concrete what Keynes left as abstract. Two instances stand out. For one, Hayes takes Keynes literally by designating the short term as one day. This firmly places the argument in historical time, while also promoting greater conceptual clarity than conventional definitions of the short term admit.

What’s most instructive about Hayes’s approach, though, is his tripartite classification of business into employers, investors and dealers. Keynes’s aggregate demand-supply framework is a constant source of confusion due, in no small part, to its anti-Marshallian rendering of supply and demand in which business appears on both sides of the aggregate market. But Hayes’s expository device disentangles aggregate supply from aggregate demand by mapping employers onto the supply curve, and dealers and investors onto the demand curve. Further, dealers play the critical role in finding, or not, the point of effective demand. In a skillful delineation of the multiplier, dealers adjust their daily inventories by selling spot to meet the increasing consumer demand while buying forward to replenish inventories. Whether the point of effective demand is reached ultimately depends on the fulfillment of dealers’ medium-term expectations, which, as Hayes notes, is unlikely given the uncertainty of consumer demand.

Chapter 4 extends further into The General Theory by fixating on Say’s Law and hence the theory of interest. As in the preceding chapter, Hayes sets out again by fixing ideas. Saving is income not consumed; income is the money value of net output; and, in aggregate, saving takes the form of physical goods. As the rate of interest is the rate on loans of money, an assumption shared by both loanable-funds theorists and Keynes, and saving represents a physical quantity of goods, the rate of interest is a matter of the supply and demand of money.

Hayes addresses liquidity preference after an interlude into Keynes’s investment theory. Because of the interest-centric perspective adhered to, a result of an analytical narrative that puts Say’s Law into the foreground, investment serves as a mere backdrop to discuss liquidity preference. Hayes does briefly address fundamental uncertainty and its relation to investment decisions, but there’s no mention of the marginal efficiency of capital nor its relation to the rate of interest.

Perhaps more troublesome, though, and bearing in mind the intended audience, is that Hayes repeats Keynes’s inconsistent usage of “investor” in The General Theory to mean both buyer of newly produced capital assets and holder of money, debts and shares. This inconsistency engendered confusion among Keynes’s readers; to reproduce it in an introductory text comes off as negligent. It’s all the more unfortunate to find it in a chapter intended to reveal the confusion between money and saving.

Chapters 5 and 6 take as their theme Keynes’s “long struggle to escape from habitual modes of thought and expression,” and especially as this escape concerns monetary theory. Hayes moves swiftly through technical aspects from A Tract on Monetary Reform and A Treatise on Money. Allusions to recent financial events enliven the prose and interrupt the brisk pace of Hayes’s analytical exposition to give the reader an appreciated respite. Still, these chapters, and especially Chapter 5, beset the reader with a kind of textual vertigo. Hayes juxtaposes Keynes’s early work against The General Theory, while enduring ideas (e.g., on the nature of money as debt) are interspersed between the two. These deficiencies don’t detract from Hayes’s extension of the principle of effective demand into the international sphere in Chapter 6, which deserves praise.

The book’s final two chapters assess Keynes’s legacy. Free from the burdens of crafting an analytical narrative, these final chapters establish an organic flow. Chapter 7 begins with a statistical comparison of the “Keynesian Era,” roughly the years 1951-1973, against other historical periods. Despite Hayes’s penchant for statistical inference on the basis of descriptive statistics, his broad-brush comparisons nicely segue to a consideration of how Keynesian was Keynes. Keynes’s policy positions, as borne out by the textual evidence, are then compared to his subsequent followers. Would Keynes be an advocate of Modern Money Theory and support a job guarantee program for developed countries? Almost certainly not. Keynes agrees with post-Keynesians that monetary policy is a rather ineffective instrument to manage the economy, right? No. Keynes’s primary policy proposal was to keep long-term rates low to encourage private and public investment. Linking Keynes’s thoughts on policy to current debates will no doubt interest those navigating today’s landscape.

Chapter 8 continues to dispel popularly-held beliefs on Keynes’s thinking. Hayes deflates the most pervasive myth of Keynes as the figurehead of lavish, even reckless, government spending programs. The unappreciated nuance concerns the ends to which government borrows. While increased borrowing for consumption is likely inevitable during recession, these deficits should be recovered over the course of the upswing. For Keynes, there is no permanent role for government consumption, in contrast to government investment.

The shortcomings I’ve cited relate almost exclusively to the disparity between the book’s elevated content and its targeted readership. Though easily digestible at times, I fear this book is beyond the grasp of undergraduates without training in economics. It will draw interest from dedicated neophytes, advanced students and academics looking for a concise and honest appraisal of Keynes’s work. Indeed, unlike other treatments that reveal more about their authors than the subject (Hyman Minsky’s John Maynard Keynes comes to mind), Hayes’s faithfulness to Keynes’s economics may well irritate some post-Keynesians for its, at times, conservative tone; while intriguing New Keynesians and others to notice that their concerns and positions on critical policy matters share a likeness with Keynes’s.

With his final work, Hayes confronted the onerous task of consolidating an encyclopedia of knowledge. But his passion for the subject cannot be abridged. While Hayes’s Keynes marks an end to a life of dedicated scholarship, in turn, it may mark the beginning for its readers.


A. Reeves Johnson is an Assistant Professor of Economics at Maryville College and is currently researching the links between Alvin Hansen’s stagnation thesis and early business-cycle theory.

Copyright (c) 2020 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (June 2020). All EH.Net reviews are archived at

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

Risk, Choice, and Uncertainty: Three Centuries of Economic Decision-Making

Author(s):Szpiro, George G.
Reviewer(s):Kuchar, Pavel

Published by EH.Net (June 2020)

George G. Szpiro, Risk, Choice, and Uncertainty: Three Centuries of Economic Decision-Making. New York: Columbia University Press, 2020. xii + 250 pp. $32 (cloth), ISBN: 978-0-231-19474-7.

Reviewed for EH.Net by Pavel Kuchar, Department of Economics, University of Bristol.


The main character of George Szpiro’s Risk, Choice, and Uncertainty is the notorious concave utility function familiar to any student of intermediate economics. George Szpiro, a journalist and mathematician, promises to explain how the twenty-first-century economist came to think about choices under risk and uncertainty and he does so with style. While the book is entertaining and informative, it is worth paying as much attention to what it leaves out as to what it decides to include.

The first chapter puts forward the idea that while the utility of wealth increases, it does so and a decreasing rate. The origins of modern decision theory are traced back to Daniel Bernoulli and his discovery that people are generally averse to risk and are willing to pay for eliminating it. This is one of the consequences of the concave character of the utility function that maps wealth on some measure of happiness. Chapter 2 examines the “self evident truth” that more is better only to add in chapter 3 that the utility of wealth increases at a decreasing rate. While the author traces these principles back to Jeremy Bentham’s “felicific calculus,” the reader also gets to meet Simon Laplace, a French polymath who contributed to the mathematization of decision theory, and learn about the Weber–Fechner psychophysics of the late nineteenth century.

The second part of the book focuses on the mathematization of the science of wealth. In the very long chapter 4, Szpiro introduces the “Marginalist Triumvirate” of William Stanley Jevons, Léon Walras, and Carl Menger who would independently help incorporate the principle of marginalism into political economy. Szpiro suggests that the most significant innovation of the marginal revolution was the idea that “decision-makers strive to maximize their total utility” (p. 100). I find this generalization to be problematic. Szpiro often presents unjustified assertions bordering with caricatures. For instance, about the German-speaking ambassador of the Marginalist Triumvirate he writes: “Menger’s conviction that historical data give no indication as to how the economy works, and that it is therefore futile to design economic institutions and set up regulations, appeals to laissez-faire enthusiasts” (p. 101). Szpiro should know better that Menger was convinced that the primary task of economists is to contribute to the improvement of institutions (and laws) and that governments can often improve institutions that emerge spontaneously. This is not the only blunder the reader gets to find in the book.

A very brief chapter 5 discusses the often-overlooked precursors of the so-called marginal revolution. Chapter 6 then moves on into the twentieth century introducing the reader to the Cambridge philosopher and mathematician Frank Ramsey who, Szpiro writes, thought that humans must be rational and consistent in their personal beliefs. Szpiro advertises that the rest of his book will show how economists got to realize that this is often not the case. But not to get ahead of ourselves!

In chapter 7 the reader gets to meet John von Neumann and Oskar Morgenstern while learning about the procedural definition of economic rationality according to which individuals are rational only if they abide by the four axioms of completeness, transitivity, continuity and independence of irrelevant alternatives. Szpiro correctly observes that the Theory of Games written by von Neumann and Morgenstern (1944) was a significant break with conventional economics of the time that would inspire generations of students to think of economic interactions in terms of lotteries and gambles. Chapter 8 introduces Milton Friedman and Leonard Savage discussing the contention that whenever decision-makers choose in the presence of risk, they tend to maximize their expected utility rather than the expected payout.

Unfortunately, the book follows the profession all too closely in muddling the distinction between risk and uncertainty. This problem culminates in chapter 9 when Kenneth Arrow, who was famously unwilling to address this important distinction, enters the story. The chapter introduces the reader to Arrow’s thesis on the impossibility of utility comparisons between people by way of discussing the Arrow-Pratt measure of risk aversion as a function of wealth. Simply put, we can say that the degree of a person’s risk aversion can be measured by relating it to the premium that individuals are willing to pay to avoid risk. By this point, the difference between risk and uncertainty is completely lost and the terms are used interchangeably.

Part 3 takes the reader on a sightseeing tour through the suburbs of economic theory that take on board ideas imported from cognitive science and psychology. Chapter 10 introduces the reader to Maurice Allais and Daniel Ellsberg who would come to show (against Ramsey and Savage) that subjective probabilities often do not add up and that choices are generally not independent of irrelevant alternatives. Szpiro shows how realizing that people behave in ways that are inconsistent with expected utility theory made way for the introduction of bounded rationality into economics. In chapter 11 we thus get to meet Herbert Simon who taught economists that in view of an option paralysis, people tend to use shortcuts and rules of thumb (heuristics).

Following Simon, in chapter 12, Daniel Kahneman and Amos Tversky enter the debate and Szpiro informs the reader about their finding that heuristics lead to systematic and predictable errors that lead people astray. Chapter 13 concludes the book by way of introducing Richard Thaler’s claim that because in certain well-defined situations many consumers act in a manner that is inconsistent with economic theory, economists will in fact make systematic errors in predicting behavior. Here the book comes to a somewhat frustrating and highly unsatisfactory halt by suggesting that that while Simon introduced economics to the theory of bounded rationality, and as Kahneman and Tversky explained what the bounds are by exploring the systematic biases, Thaler would manage to incorporate the psychology of decision-making into economic models of behavior. This conclusion is simplistic at best and misleading at the worst.

While Szpiro tells a highly engaging and informative story about the discipline that mostly purged true uncertainty from its textbooks, he does so unreflectively. The lack of reflection is apparent from the illustration of Kahneman and Tversky’s concept of framing. Szpiro asks the reader to “imagine that the U.S. is preparing for the outbreak of an unusual Asian disease which is expected to kill 600 people” while presenting the reader with two programs one of which is “uncertain” in that if chosen, people would be “risk taking” (p. 198) by facing certain payoffs with certain probabilities. The problem is — as Michael J. Ryan, the Executive Director of the World Health Organization’s Health Emergencies Programme, recently pointed out — that we often find ourselves in situations where “there are no numbers that say if this number is this then you do that” (WHO 2020). After all, Frank Knight (1921) and John Maynard Keynes (1936, 1937) reminded us that not all decisions have the character of a lottery. The lack of reflection on when and how reducing true uncertainty to calculable risk took place in economics is, in my opinion, a serious omission of the otherwise excellent book.


Keynes, John Maynard (1937). “The General Theory of Employment.” Quarterly Journal of Economics, 51(2), 209–23.

Keynes, John Maynard (1978). The Collected Writings of John Maynard Keynes: Volume 7: The General Theory. Elizabeth Johnson and Donald Moggridge, editors. Royal Economic Society.

Knight, Frank H. (1921). Risk, Uncertainty and Profit. Houghton Mifflin.

von Neumann, John and Oskar Morgenstern (1944). Theory of Games and Economic Behavior. Princeton, Princeton University Press.

World Health Organization, “Transcript of COVID-19 Virtual Press Conference,” April 6, 2020, 00:37:45,


Pavel Kuchar’s recent paper “Lachmann and Shackle: On the Joint Production of Interpretation Instruments” (coauthored with Erwin Dekker), was awarded the 2019 Warren Samuels Prize for Interdisciplinary Research in the History of Economic Thought and Methodology.

Copyright (c) 2020 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (June 2020). All EH.Net reviews are archived at

Subject(s):History of Economic Thought; Methodology
Geographic Area(s):General, International, or Comparative
Time Period(s):18th Century
19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII

Ian W. McLean

by Barry Eichengreen and Kris James Mitchener

We are saddened to report the passing of Ian W. McLean on May 24, 2020.

Born in New Zealand, Ian received his B.A. from the University of Wellington. Shortly thereafter, he moved to Australia, where he began researching technological adoption in 19th-century Victoria. He completed his Ph.D. in economics in 1971 at Australian National University under the supervision of Noel Butlin. Soon after, Ian began a lifelong career as a professor and researcher at the University of Adelaide, publishing influential economic history articles on the living standards, income distribution, and long-run economic growth of Australia.

An abiding focus of Ian’s research was a desire to understand how a small, frontier economy, isolated by distance and exporting primary products and minerals, was able to develop into one of the richest countries in the world (in terms of per capita GDP) by the beginning of the 20th century. His interest in these themes culminated in his magnum opus, Why Australia Prospered: The Shifting Sources of Economic Growth (Princeton University Press, 2012). Ian retired from Adelaide in 2007. In 2020 he was awarded the E.O.G. Shann Award for Distinguished Service to Economic History in Australia and New Zealand.

Ian’s pathbreaking work documenting the importance of both geography and institutions in shaping long-run development speaks for itself, but what made him a leader of our tribe was his incredible generosity and spirit with students, not only in Australia, but around the globe. Many of us came to know him through his stints as a visiting scholar or visiting professor at academic departments in North America, including UC Berkeley, Stanford, Harvard, and Yale Universities. In all these cases, Ian served as a bridge between ambitious graduate students and all-too-often preoccupied faculty — gracefully providing stewardship and mentorship. His patience, wisdom, and guidance helped launch the careers of many prominent members of the discipline, and left an indelible mark on the field of economic history. He will be greatly missed.

The Economics Book: From Xenophon to Cryptocurrency, 250 Milestones in the History of Economics

Author(s):Medema, Steven G.
Reviewer(s):Emmett, Ross B.

Published by EH.Net (May 2020)

Steven G. Medema, The Economics Book: From Xenophon to Cryptocurrency, 250 Milestones in the History of Economics. New York: Sterling, 2019. 528 pp. $21.49 (cloth), ISBN: 978-1-4549-3008-2.

Reviewed for EH.Net by Ross B. Emmett, School of Civic and Economic Thought and Leadership, Arizona State University.


Here’s a fun game for lunchtime debate among economics faculty: what would you put on your list of the top 250 “milestones” in the history of economics? The Wealth of Nations, Das Kapital, and The General Theory? Okay, but what about ideas themselves, like the iron law of wages, or creative destruction, Arrow’s impossibility theorem, the median-voter theorem, and the Lucas critique? Since a lot of economic historians read these reviews, I should add one limitation: events in economic history can be included insofar as you can make the case for their influence on economic ideas or on the economics profession. So that would include the industrial revolution, the Great Depression, and the Cold War, right? And what about things that built the discipline of economics, like the invention of calculus, the National Bureau of Economic Research, the Cambridge Economics Tripos, computation aids from the Phillips machine to the personal computer, and the Nobel Prize?

You get the idea. In The Economics Book, each topic gets one page of text, plus one picture on the opposing page. What image would you juxtapose with Akerlof’s “The Market for ‘Lemons’?” A 1970s-era used car lot, of course. And for “the rational voter model and the paradox of voting”? Answer: women in India waiting in line to vote with their ID cards. The creation of the economics Nobel prize? A group photo of some of the 1969 Nobel laureates, including Jan Tinbergen, who shared the first Economics Prize with Ragnar Frisch. And lest you think that Medema’s team chose the easy way by looking just for photos of the people associated with the idea, school, event, etc., there are less than forty pictures of the individuals named in the volume. The other images come from a wide assortment that illustrate the ideas mentioned.

The arrangement is historical — appropriate to the “milestones” theme. The year, or approximate year for the earliest entries, is printed vertically along the left margin, allowing one to flip through pages quickly to a time period of interest. The first entry is Hesiod’s Work and Days, in which the author tells the myth of Pandora opening the jar full of curses from the gods, thereby releasing them, and condemning humans to have to work hard to acquire food and other good things. Of course, the theme is scarcity: the relation between the wants and needs of humans relative to the available resources to fulfill them. Medema nicely ties scarcity to the origin of economics, by pointing out that the organizational context within which we originally fulfilled our needs and wants — households (oikos) and custom/law (nomos) provide the etymological origin of economics. Confirmation comes three entries later with Xenophon’s Oeconomicus. Another three entries and we have traveled 1900 years to Aquinas, noted for both his consideration of justice in exchange and for the common early concern about usury. Another thirty-one entries later and we’re up to 1776 and the publication of The Wealth of Nations. With five entries devoted directly to themes from Smith’s great work, we are left with just slightly more than two hundred entries for the remaining two hundred and thirty-three years until 2009, the date for the final entry, on Cryptocurrency.

Many will be happy to see Adam Smith remain “both the Adam and the Smith of systematic economics” (Boulding 1969, 1) with more than double as many mentions (approximately thirty) as any other author. Those who follow include David Ricardo and Paul Samuelson with twelve, Robert Malthus and Maynard Keynes with ten, and Alfred Marshall with nine. You might be interested to know that Karl Marx just edges out Milton Friedman (six to five mentions). There are thirty-two entries on specific texts in economics: not just Smith’s The Wealth of Nations, Mill’s Principles of Political Economy, Marshall’s Principles of Economics, and Keynes’ The General Theory. Texts from alternate traditions find their space here: Marx’s Das Kapital, Luxemburg’s Accumulation of Capital, Veblen’s Theory of the Leisure Class, Berle and Means’ The Modern Corporation and Private Property, Hayek’s Road to Serfdom, Galbraith’s The Affluent Society. I could go on with various combinations of entries, but you can do that yourself. I might add that Medema’s “Notes and Further Reading” at the end of the volume is worth consulting for the references, and those interested in using the entries in economics or history of economic courses should see his website at Duke:

The treatment of each theme is wonderfully done, although as we get closer to today’s economics, the entries collapse the work of several scholars into one general treatment. While this is generally done effectively, some of the potential disagreements and differences are masked. Historical perspective is, of course, lacking on work done in the past several decades. But couldn’t that historical perspective allow older authors to be combined as well: why not Hesiod or Aristotle with Xenophon, for instance? But these are small complaints in a generally excellent volume.

But we should ask what might be missing? I’m sure Medema could give me a list of his next fifty items, and he probably had to make hard choices, given the range of the types of entries the volume includes. Here are my next ten suggested entries, listed in chronological order: 1841 — Das Nationale System der Politischen Ökonomie (F. List)*; 1850 — The Broken Window Fallacy (F. Bastiat); 1933 — The Chicago Plan (H. Simons); 1957 — Technological Change and the Diffusion of Innovations (date based on “Hybrid Corn: An Exploration in the Economics of Technological Change”) (Z. Griliches); 1969 — The Nirvana Fallacy (H. Demsetz), 1974 — World System Theory (I. Wallerstein)*; 1979 — Transaction Cost Economics (O. Williamson); 1984 — The Economics of Religion (L. Iannaccone); 1999 — Development as Freedom (Amartya Sen)*; and 2011 — Field Experiments (E. Duflo and A. Banerjee)*.

Does the book serve a useful purpose other than adorning the coffee-tables of economists’ homes and departmental offices? The price tag keeps the book well inside the range of supplemental texts for history of economic thought courses. One could enliven and enrich discussion with selections from The Economics Book in an introductory level economics course. Dare I say that students might connect better with introductory economics with the judicious addition of readings and short assignments based on the book? Reading through it reminded me of not only the great hits of economic thought, but also of all the ways economics is connected to the issue we humans face every day.

* The asterisked items are one that expand upon the single entry on “Development Economics” that Medema uses to collect the work of several scholars.


Boulding, Kenneth E. 1969. “Economics as a Moral Science.” American Economic Review 59 (1): 1–12.


Ross B. Emmett is the author of “Reconsidering Frank Knight’s Risk, Uncertainty, and Profit” (The Independent Review, 2020).

Copyright (c) 2020 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (May 2020). All EH.Net reviews are archived at

Subject(s):History of Economic Thought; Methodology
Geographic Area(s):General, International, or Comparative
Time Period(s):General or Comparative

A Land of Milk and Butter: How Elites Created the Modern Danish Dairy Industry

Author(s):Lampe, Markus
Sharp, Paul
Reviewer(s):Webster, Anthony

Published by EH.Net (May 2020)

Markus Lampe and Paul Sharp, A Land of Milk and Butter: How Elites Created the Modern Danish Dairy Industry. Chicago: University of Chicago Press, 2018. x + 273 pp. $65 (cloth), ISBN: 978-0-226-54950-7.

Reviewed for EH.Net by Anthony Webster, Department of Humanities, Northumbria University.


This collaboratively authored work by Markus Lampe (Vienna University of Economics and Business) and Paul Sharp (University of Southern Denmark) builds upon an impressive body of work already undertaken by the authors on the role of dairying in the modern economic history of Denmark. The volume offers a comprehensive review of Denmark’s rise as an agricultural economy from the eighteenth century, stressing that the country’s success — especially as a dairy producer — was not the product of the “co-operative revolution” of the late nineteenth century, but rather of a long and gradual process in which the country’s landed, intellectual and political elites implemented land reforms, new technologies, educational and trading policies, which enabled Denmark to emerge as a major exporter of butter after 1850. They show that the nature of land reform enabled the emergence of a “middle ranking” class of farmers, who were able to gradually absorb and implement innovations first pioneered by wealthy estate owners, and eventually turn them spectacularly to their own advantage, in part through their adoption of the co-operative model. The result was a unique story of national economic development in which agriculture was not merely a “launch pad” for industry development, which would soon outstrip it in terms of resources, employment, political importance and contribution to GDP, but rather a continuously major contributor in its own right. What resulted was a quite uniquely balanced model of economic development based on agriculture as well as modern industrial growth. Of central importance to their argument is the importance of both technological development (such as the separator of the late 1870s) and a vibrant press and educational system, which facilitated the “top down” dissemination of the latest ideas. They argue that the success of co-operative farming owed more to these technological breakthroughs than any inherent superiority of the co-operative institutional model, and they see co-operation as the product of long-term agricultural growth and success, rather than its cause. In fact, they do tend to the view that co-operatives may have been an irrelevance to the success story — that the success of Danish agricultural development would have been achieved regardless of the co-operative movement in the dairy industry.

A great strength of the book is its intense and thorough use of econometric analysis, which, combined with exhaustive scrutiny of primary sources from individual estates and the agricultural press, offers what is undoubtedly a convincing emphasis on the vital importance of pre-1850 developments in the long-term development of the Danish economy. The argument that Denmark underwent a quite exceptional process of balanced economic development is also very persuasive, as is the conclusion that this pattern would be hard if not impossible to replicate elsewhere, given the unique conditions which prevailed in Denmark.

The book is less sure footed in its analysis of the significance of the co-operative movement. The argument that without the preceding “top-down” development of agriculture, the social, knowledge and technological basis for co-operative development would not have existed is undoubtedly true. But this is hardly an original point. Few modern historians of co-operatives would claim that these organizations emerge from a historical vacuum; they are always conditioned by the history and context in which they emerge — this is why no two nations display the same configuration of co-operative development. Moreover, the stress on econometric analysis, generally such a strength in this book, becomes a weakness in assessing the significance of Danish co-operative development. For as every co-operative historian knows, co-operatives are as much about developing new social and political cultures, which stress sharing and greater social solidarity, as they are about generating wealth, crucial though that may be. Peter Gurney’s ground-breaking work on the development of culture, social relations, and politics in the British consumer co-operative movement between 1870 and 1930 reveals much about how the movement shaped social behavior and political attitudes, irrespective of business developments. Such an analysis is absent here, which though not a weakness, becomes so when the authors try to draw conclusions about the significance of Danish co-operation based purely on economic performance. Even in terms of the latter, more consideration is needed of the extent to which the co-operative model in agriculture facilitated the co-operative members securing a greater share of the wealth generated by the industry. Similarly, the tendency to dismiss Irish agricultural co-operatives as something of a failure overlooks recent work by historians such as Patrick Doyle, which stresses the role of co-operatives in shaping a new sense of Irish national identity. Again, this begs the question of how Danish co-operatives perhaps contributed to modern Danish attributes of social solidarity. There is also limited awareness of Danish co-operative commercial relations with overseas co-operative movements. The considerable importance from the 1880s of trade with the Co-operative Wholesale Societies of England and Scotland is one such notable omission, especially in the chapter on trade with the UK.

That said this is an excellent contribution to the literatures on Denmark and economic development. It is thoroughly researched, professionally written and clear in its contribution to knowledge. While some of its conclusions on the significance of the Danish co-operative creameries are arguably evidence of over-reach, and the limitations of a heavy stress on econometric analysis, this is nevertheless a very important book which will undoubtedly inform future research on economic development, Danish history and the unique co-operative movement in that country.


Anthony Webster is the co-author (with John Wilson and Rachael Vorberg-Rugh) of Building Co-operation: A Business History of the Co-operative Group, 1863 to 2013 (Oxford University Press October 2013) and author of Co-operation and Globalisation: The British Co-operative Wholesales, the Co-operative Group and the World since 1863 (Routledge, 2019).

Copyright (c) 2020 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (May 2020). All EH.Net reviews are archived at

Subject(s):Agriculture, Natural Resources, and Extractive Industries
Economic Development, Growth, and Aggregate Productivity
Geographic Area(s):Europe
Time Period(s):18th Century
19th Century
20th Century: Pre WWII

Islam, Authoritarianism, and Underdevelopment: A Global and Historical Comparison

Author(s):Kuru, Ahmet T.
Reviewer(s):Rubin, Jared

Published by EH.Net (May 2020)

Ahmet T. Kuru, Islam, Authoritarianism, and Underdevelopment: A Global and Historical Comparison. New York: Cambridge University Press, 2019. xvii + 303 pp. $35 (paperback), ISBN: 978-1-108-40947-6.

Reviewed for EH.Net by Jared Rubin, Department of Economics, Chapman University.


For centuries following the spread of Islam, the Islamic world was far ahead of Western Christendom by every conceivable metric of civilization: economy, science, philosophy, technology, urbanization, and empire. Yet, the Islamic world is not where the modern economy was born. At some point in the late medieval or early modern period, it fell behind the leading parts of Europe. It was in those places, particularly the Netherlands and Great Britain, where modern economic development began. Why was this the case? Why did the Islamic world lose its once sizable lead over Western Europe?

These are the questions tackled by Ahmet Kuru in Islam, Authoritarianism, and Underdevelopment: A Global and Historical Comparison. Kuru’s primary thesis is that the Middle East fell behind as a result of the “ulema (religious jurist)-state alliance” that took hold in many parts of the Muslim world beginning in the eleventh century. By this, Kuru means an alliance between the religious establishment on the one hand and the military state on the other. According to Kuru, this alliance marginalized intellectuals and bourgeoisie, and this persisted in most parts of the Islamic world until the twentieth century. Importantly, and correctly in my opinion, Kuru argues that this alliance is not a natural outgrowth of Islam, as was long argued by Orientalist scholars and more recently by Bernard Lewis. Kuru argues that this alliance emerged for the first time in the eleventh century and quickly became institutionalized via the madrasa system.

Much of the first half of the book is spent attempting to convince the reader that politics, science, and technology in the first few centuries after Islam were fundamentally different than what would follow after the eleventh century. This is uncontroversial, and Kuru does an excellent job summarizing the major developments from the period. On this front, Kuru is the best recent book I can think of in social science. He delves into the early history of Islamic science, mathematics, and philosophy, spanning most of the Islamic world from Spain to south Asia. Most readers knowledgeable in history will not come away convinced of something new — it is widely known that the Islamic world was well ahead of Western Europe (and perhaps the rest of the world) during Islam’s “Golden Age.” However, most readers will come away with much more insight into exactly what made the Islamic world so cutting-edge in this period.

Kuru proceeds to ask why the Islamic world fell behind. He posits that the “ulema-state” alliance that emerged in the eleventh century is to blame. This alliance emerged in the Seljuk Empire, which ruled large parts of the Middle East and Central Asia in the eleventh and twelfth centuries. It spread west from there, to the weakened Abbasid Empire and eventually toward Egypt and Syria under the Ayyubids and Mamluks. An important institution supporting the fiscal needs of these states was the iqta system (a militarized tax farming arrangement similar to the timar system used under the Ottomans), which gave the state financial independence and permitted the marginalization of the bourgeoisie. To make such a sea-change in the institutions of the state, the Seljuk model promoted the idea of religious legitimation of rule. And an institutional sea-change it was. Prior to the emergence of the ulema-state alliance, Islamic philosophy was vibrant and merchants had political power (mainly via their funding of ulema and philosophers). This changed with the movement towards the ulema-state alliance and the rise of madrasas. With a new source of legitimacy, rulers could afford to ignore the wealthy merchants who had previously been a central source of power. Philosophy also declined in favor of theology. Importantly, for Kuru, this meant that intellectuals were mostly sidelined, although Kuru goes to great lengths to show that intellectual activity merely slowed down; it did not stop altogether. This meant that there was little voice to counteract the ulema and Sufi mystics, neither of whom promoted rational thought. This arrangement was institutionalized through the madrasa system: “the ulema class had dozens, if not hundreds, of madrasas and thousands of members to disseminate its ideas, whereas the philosophers lacked institutional and financial bases except for arbitrary political patronage, particularly after the weakening of the merchant class, which had previously supported both philosophers and independent Islamic scholars” (p. 149). Even today, “the ulema have contributed to the weakening of [intellectuals and the bourgeoisie] by imposing certain religious restrictions that discourage conservative Muslim youth from pursuing careers in intellectual and financial sectors” (p. 60). These prohibitions required state support, which the ulema had as part of the ulema-state alliance. Kuru contrasts this with Europe, where the Renaissance and Enlightenment propelled philosophy, science, and ultimately economic development. He argues that this was where the economic divergence had its roots: the intellectual and mercantile classes of Europe gained greater power over time, while it was the religious clerics of Islam who maintained their grip on political (and, to a lesser extent, economic) power.

There are many things to like about Islam, Authoritarianism, and Underdevelopment. Perhaps above all, Kuru addresses head on the question “why did the Islamic world fall behind, despite being ahead for so long?” While such a question might not be controversial in some circles, particularly in the social sciences, much of Kuru’s audience does not consider this a correct question to ask. I certainly agree with Kuru that this is an important question, and understanding its answer helps us understand much about long-run economic development, both in the Islamic world and beyond. Kuru does an excellent job showing that a reversal of fortunes did indeed happen, and it was not just the result of colonization. Moreover, Kuru’s deep dive into early Islamic philosophy and science is admirable, and I believe most readers will learn a considerable amount from the first half of the book. Another one of the great strengths of Kuru’s tome is the documentation of the ulema-state alliance — both its origins and persistence. Such detailed documentation is largely missing in social science accounts of Islamic political history.

I believe that Kuru’s central thesis — the ultimate cause of the economic divergence was the emergence of an ulema-state alliance — is largely correct. Indeed, it strongly echoes the thesis I recently put forward in my 2017 book, Rulers, Religion, and Riches. This said, I believe there are three aspects to the book that could have been strengthened. Before I get to these, I would like to reiterate that there are indeed many good features to this book, and these positives well outweigh any drawbacks.

First, Kuru is a bit too quick to dismiss alternative explanations. He begins with the supposition that any explanation that cannot account for the initial economic lead of the Islamic world has limited explanatory power. This is undoubtedly true. He also correctly points out that while explanations focusing on colonialism make valid points regarding the detrimental effects of colonialism, they have a difficult time explaining the roots of the divergence, particularly because the timing is off. This said, Kuru is somewhat quick to dismiss works by Greif (2006), Kuran (2011), Blaydes and Chaney (2013), and Rubin (2017). These dismissals tend to take the tone of “there are counterexamples to one aspect of the argument” or “they cannot account for most of the observed phenomena” and thus should be dismissed (with the exception of Kuran, whose argument Kuru is not so negative on). But this is too high of a bar for arguments that attempt to explain major, macroeconomic movements over centuries. There will always be counterexamples (this is Kuru’s major argument against Greif; it is also used to counter Rubin). Arguments do not need to explain everything to provide deep insight (this is Kuru’s major argument against Blaydes and Chaney which, after all, is a nineteen-page article). In fact, if one were to hold Kuru’s argument to the standard he holds other arguments, it would also fail. But I do not believe this to be the case; I believe Kuru’s argument provides nice insight. Kuru’s argument would have been significantly strengthened had he focused on how these various arguments complement each other.

Perhaps this is a methodological issue. The works that Kuru dismisses are either empirical or support their theory via analytic narrative. Kuru’s work, meanwhile, is more of a narrative. The key distinction between narrative and analytic narrative is that the latter lays out the supporting evidence (in this case, historical evidence) within an analytical framework. Such a framework provides falsifiable predictions, and the analytic narrative provides evidence in support of these predictions. Kuru’s book does not do this. Its second shortcoming is that there is no real framework provided for understanding why the ulema-state alliance persisted for so long. In the words of economics, why was this an equilibrium? Kuru provides wonderful evidence that it existed and persisted, but why did it? Why did alternatives not arise? These are key questions to address for a book aiming to achieve a convincing causal explanation. On this front, the book is largely silent.

On this, I admit to being biased: understanding why this equilibrium occurred and why it persisted is central to my own book. On the one hand, Kuru is very good at showing this was not always an equilibrium in the Islamic world (my terminology, not his): for centuries following the spread of Islam, the alliance was weak at best, and merchants were not marginalized. Kuru and I agree on this point (although he does not believe so, as he incorrectly claims that I argue the alliance existed from the inception of Islam; we have some disagreement on details, but my views are largely aligned with his that this alliance emerged sometime around the tenth or eleventh century, after the religious establishment consolidated along with the four major schools of Sunni Islam). On the other hand, it is unclear from Kuru’s theory why this arrangement persisted for so long. A comparison to Europe makes this issue all the more apparent. As Kuru notes, such a cleric-state alliance also pervaded medieval Europe at certain times and places. What were the mechanisms that broke Europe out of this equilibrium? Kuru claims that the rise of the intellectuals, helped by universities and, eventually, the spread of printing facilitated the rise of Europe. But this is not enough. These events were not exogenous. They were part of a larger process through which religion became less important over time in European politics.

Finally, despite the fact that the book’s subtitle is “A Global and Historical Comparison,” this is not really a global theory. Almost nowhere outside of the Islamic world and Western Europe is mentioned in depth. And where Kuru attempts to explain the rise of Western Europe, there is much left wanting. As I read it, Kuru places significant weight on the rise of the European intellectual class (along with merchants) in the late medieval and early modern periods. While it is undoubtedly true that this class superseded its Islamic counterparts by the eve of industrialization, it is big leap to connect this to the rise of the modern economy, as well as why its locus was in northwestern Europe and not elsewhere. Kuru does (correctly) mention the importance of the printing revolution, Reformation, geographical discoveries, and the scientific revolution, but his emphasis remains on the role of intellectuals in making these events happen. This is not necessarily wrong — Joel Mokyr (2010, 2016) convincingly makes the case for an “Enlightened Economy” being central to England’s rise. But Mokyr’s argument is based on England in particular having numerous other, complementary factors such as a large base of highly-skilled workers. Nothing like this comes through in Kuru’s argument. In short, while Kuru’s argument regarding economic stagnation in the Islamic world is a deep one that is a real contribution to the literature, the arguments regarding the rise of Europe are less fleshed out.

If the latter half of this review seems negative, I urge you not to take that as indicative of my overall feelings towards Islam, Authoritarianism, and Underdevelopment. I believe it is the duty of any reviewer to highlight both their perceived positives and negatives in the book they are reviewing, and this is what I have attempted to do. In this case, I believe the positives well outweigh the negatives, and anyone interested in early Islamic history will get much from reading this book. The detailed history of early Islamic philosophy, science, and mathematics are a real treat to read, and are a great reminder that societies and economies ebb and flow.


Blaydes, Lisa and Eric Chaney. 2013. “The Feudal Revolution and Europe’s Rise: Political Divergence of the Christian West and the Muslim World before 1500 CE.” American Political Science Review 107(1): 16-34.

Greif, Avner. 2006. Institutions and the Path to the Modern Economy: Lessons from Medieval Trade. New York: Cambridge University Press.

Kuran, Timur. 2011. The Long Divergence: How Islamic Law Held Back the Middle East. Princeton: Princeton University Press.

Mokyr, Joel. 2010. The Enlightened Economy an Economic History of Britain, 1700-1850. New Haven, CT: Yale University Press.

Mokyr, Joel. 2016. A Culture of Growth: The Origins of the Modern Economy. Princeton, NJ: Princeton University Press.

Rubin, Jared. 2017. Rulers, Religion, and Riches: Why the West Got Rich and the Middle East Did Not. New York: Cambridge University Press.

Jared Rubin is a professor of economics at Chapman University. His most recent book, Rulers, Religion, and Riches: Why the West Got Rich and the Middle East Did Not, was published by Cambridge University Press in 2017.


Copyright (c) 2020 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (May 2020). All EH.Net reviews are archived at

Subject(s):Economic Development, Growth, and Aggregate Productivity
Economywide Country Studies and Comparative History
Geographic Area(s):Middle East
Time Period(s):Medieval