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The Economic History of the Fur Trade: 1670 to 1870

Ann M. Carlos, University of Colorado
Frank D. Lewis, Queen’s University


A commercial fur trade in North America grew out of the early contact between Indians and European fisherman who were netting cod on the Grand Banks off Newfoundland and on the Bay of Gaspé near Quebec. Indians would trade the pelts of small animals, such as mink, for knives and other iron-based products, or for textiles. Exchange at first was haphazard and it was only in the late sixteenth century, when the wearing of beaver hats became fashionable, that firms were established who dealt exclusively in furs. High quality pelts are available only where winters are severe, so the trade took place predominantly in the regions we now know as Canada, although some activity took place further south along the Mississippi River and in the Rocky Mountains. There was also a market in deer skins that predominated in the Appalachians.

The first firms to participate in the fur trade were French, and under French rule the trade spread along the St. Lawrence and Ottawa Rivers, and down the Mississippi. In the seventeenth century, following the Dutch, the English developed a trade through Albany. Then in 1670, a charter was granted by the British crown to the Hudson’s Bay Company, which began operating from posts along the coast of Hudson Bay (see Figure 1). For roughly the next hundred years, this northern region saw competition of varying intensity between the French and the English. With the conquest of New France in 1763, the French trade shifted to Scottish merchants operating out of Montreal. After the negotiation of Jay’s Treaty (1794), the northern border was defined and trade along the Mississippi passed to the American Fur Company under John Jacob Astor. In 1821, the northern participants merged under the name of the Hudson’s Bay Company, and for many decades this merged company continued to trade in furs. Finally, in the 1990s, under pressure from animal rights groups, the Hudson’s Bay Company, which in the twentieth century had become a large Canadian retailer, ended the fur component of its operation.

Figure 1
Hudson’s Bay Company Hinterlands
 Hudson's Bay Company Hinterlands (map)

Source: Ray (1987, plate 60)

The fur trade was based on pelts destined either for the luxury clothing market or for the felting industries, of which hatting was the most important. This was a transatlantic trade. The animals were trapped and exchanged for goods in North America, and the pelts were transported to Europe for processing and final sale. As a result, forces operating on the demand side of the market in Europe and on the supply side in North America determined prices and volumes; while intermediaries, who linked the two geographically separated areas, determined how the trade was conducted.

The Demand for Fur: Hats, Pelts and Prices

However much hats may be considered an accessory today, they were for centuries a mandatory part of everyday dress, for both men and women. Of course styles changed, and, in response to the vagaries of fashion and politics, hats took on various forms and shapes, from the high-crowned, broad-brimmed hat of the first two Stuarts to the conically-shaped, plainer hat of the Puritans. The Restoration of Charles II of England in 1660 and the Glorious Revolution in 1689 brought their own changes in style (Clarke, 1982, chapter 1). What remained a constant was the material from which hats were made – wool felt. The wool came from various animals, but towards the end of the fifteenth century beaver wool began to be predominate. Over time, beaver hats became increasingly popular eventually dominating the market. Only in the nineteenth century did silk replace beaver in high-fashion men’s hats.

Wool Felt

Furs have long been classified as either fancy or staple. Fancy furs are those demanded for the beauty and luster of their pelt. These furs – mink, fox, otter – are fashioned by furriers into garments or robes. Staple furs are sought for their wool. All staple furs have a double coating of hair with long, stiff, smooth hairs called guard hairs which protect the shorter, softer hair, called wool, that grows next to the animal skin. Only the wool can be felted. Each of the shorter hairs is barbed and once the barbs at the ends of the hair are open, the wool can be compressed into a solid piece of material called felt. The prime staple fur has been beaver, although muskrat and rabbit have also been used.

Wool felt was used for over two centuries to make high-fashion hats. Felt is stronger than a woven material. It will not tear or unravel in a straight line; it is more resistant to water, and it will hold its shape even if it gets wet. These characteristics made felt the prime material for hatters especially when fashion called for hats with large brims. The highest quality hats would be made fully from beaver wool, whereas lower quality hats included inferior wool, such as rabbit.

Felt Making

The transformation of beaver skins into felt and then hats was a highly skilled activity. The process required first that the beaver wool be separated from the guard hairs and the skin, and that some of the wool have open barbs, since felt required some open-barbed wool in the mixture. Felt dates back to the nomads of Central Asia, who are said to have invented the process of felting and made their tents from this light but durable material. Although the art of felting disappeared from much of western Europe during the first millennium, felt-making survived in Russia, Sweden, and Asia Minor. As a result of the Medieval Crusades, felting was reintroduced through the Mediterranean into France (Crean, 1962).

In Russia, the felting industry was based on the European beaver (castor fiber). Given their long tradition of working with beaver pelts, the Russians had perfected the art of combing out the short barbed hairs from among the longer guard hairs, a technology that they safeguarded. As a consequence, the early felting trades in England and France had to rely on beaver wool imported from Russia, although they also used domestic supplies of wool from other animals, such rabbit, sheep and goat. But by the end of the seventeenth century, Russian supplies were drying up, reflecting the serious depletion of the European beaver population.

Coincident with the decline in European beaver stocks was the emergence of a North American trade. North American beaver (castor canadensis) was imported through agents in the English, French and Dutch colonies. Although many of the pelts were shipped to Russia for initial processing, the growth of the beaver market in England and France led to the development of local technologies, and more knowledge of the art of combing. Separating the beaver wool from the felt was only the first step in the felting process. It was also necessary that some of the barbs on the short hairs be raised or open. On the animal these hairs were naturally covered with keratin to prevent the barbs from opening, thus to make felt, the keratin had to be stripped from at least some of the hairs. The process was difficult to refine and entailed considerable experimentation by felt-makers. For instance, one felt maker “bundled [the skins] in a sack of linen and boiled [them] for twelve hours in water containing several fatty substances and nitric acid” (Crean, 1962, p. 381). Although such processes removed the keratin, they did so at the price of a lower quality wool.

The opening of the North American trade not only increased the supply of skins for the felting industry, it also provided a subset of skins whose guard hairs had already been removed and the keratin broken down. Beaver pelts imported from North America were classified as either parchment beaver (castor sec – dry beaver), or coat beaver (castor gras – greasy beaver). Parchment beaver were from freshly caught animals, whose skins were simply dried before being presented for trade. Coat beaver were skins that had been worn by the Indians for a year or more. With wear, the guard hairs fell out and the pelt became oily and more pliable. In addition, the keratin covering the shorter hairs broke down. By the middle of the seventeenth century, hatters and felt-makers came to learn that parchment and coat beaver could be combined to produce a strong, smooth, pliable, top-quality waterproof material.

Until the 1720s, beaver felt was produced with relatively fixed proportions of coat and parchment skins, which led to periodic shortages of one or the other type of pelt. The constraint was relaxed when carotting was developed, a chemical process by which parchment skins were transformed into a type of coat beaver. The original carrotting formula consisted of salts of mercury diluted in nitric acid, which was brushed on the pelts. The use of mercury was a big advance, but it also had serious health consequences for hatters and felters, who were forced to breathe the mercury vapor for extended periods. The expression “mad as a hatter” dates from this period, as the vapor attacked the nervous systems of these workers.

The Prices of Parchment and Coat Beaver

Drawn from the accounts of the Hudson’s Bay Company, Table 1 presents some eighteenth century prices of parchment and coat beaver pelts. From 1713 to 1726, before the carotting process had become established, coat beaver generally fetched a higher price than parchment beaver, averaging 6.6 shillings per pelt as compared to 5.5 shillings. Once carotting was widely used, however, the prices were reversed, and from 1730 to 1770 parchment exceeded coat in almost every year. The same general pattern is seen in the Paris data, although there the reversal was delayed, suggesting slower diffusion in France of the carotting technology. As Crean (1962, p. 382) notes, Nollet’s L’Art de faire des chapeaux included the exact formula, but it was not published until 1765.

A weighted average of parchment and coat prices in London reveals three episodes. From 1713 to 1722 prices were quite stable, fluctuating within the narrow band of 5.0 and 5.5 shillings per pelt. During the period, 1723 to 1745, prices moved sharply higher and remained in the range of 7 to 9 shillings. The years 1746 to 1763 saw another big increase to over 12 shillings per pelt. There are far fewer prices available for Paris, but we do know that in the period 1739 to 1753 the trend was also sharply higher with prices more than doubling.

Table 1
Price of Beaver Pelts in Britain: 1713-1763
(shillings per skin)

Year Parchment Coat Averagea Year Parchment Coat Averagea
1713 5.21 4.62 5.03 1739 8.51 7.11 8.05
1714 5.24 7.86 5.66 1740 8.44 6.66 7.88
1715 4.88 5.49 1741 8.30 6.83 7.84
1716 4.68 8.81 5.16 1742 7.72 6.41 7.36
1717 5.29 8.37 5.65 1743 8.98 6.74 8.27
1718 4.77 7.81 5.22 1744 9.18 6.61 8.52
1719 5.30 6.86 5.51 1745 9.76 6.08 8.76
1720 5.31 6.05 5.38 1746 12.73 7.18 10.88
1721 5.27 5.79 5.29 1747 10.68 6.99 9.50
1722 4.55 4.97 4.55 1748 9.27 6.22 8.44
1723 8.54 5.56 7.84 1749 11.27 6.49 9.77
1724 7.47 5.97 7.17 1750 17.11 8.42 14.00
1725 5.82 6.62 5.88 1751 14.31 10.42 12.90
1726 5.41 7.49 5.83 1752 12.94 10.18 11.84
1727 7.22 1753 10.71 11.97 10.87
1728 8.13 1754 12.19 12.68 12.08
1729 9.56 1755 12.05 12.04 11.99
1730 8.71 1756 13.46 12.02 12.84
1731 6.27 1757 12.59 11.60 12.17
1732 7.12 1758 13.07 11.32 12.49
1733 8.07 1759 15.99 14.68
1734 7.39 1760 13.37 13.06 13.22
1735 8.33 1761 10.94 13.03 11.36
1736 8.72 7.07 8.38 1762 13.17 16.33 13.83
1737 7.94 6.46 7.50 1763 16.33 17.56 16.34
1738 8.95 6.47 8.32

a A weighted average of the prices of parchment, coat and half parchment beaver pelts. Weights are based on the trade in these types of furs at Fort Albany. Prices of the individual types of pelts are not available for the years, 1727 to 1735.

Source: Carlos and Lewis, 1999.

The Demand for Beaver Hats

The main cause of the rising beaver pelt prices in England and France was the increasing demand for beaver hats, which included hats made exclusively with beaver wool and referred to as “beaver hats,” and those hats containing a combination of beaver and a lower cost wool, such as rabbit. These were called “felt hats.” Unfortunately, aggregate consumption series for the eighteenth century Europe are not available. We do, however, have Gregory King’s contemporary work for England which provides a good starting point. In a table entitled “Annual Consumption of Apparell, anno 1688,” King calculated that consumption of all types of hats was about 3.3 million, or nearly one hat per person. King also included a second category, caps of all sorts, for which he estimated consumption at 1.6 million (Harte, 1991, p. 293). This means that as early as 1700, the potential market for hats in England alone was nearly 5 million per year. Over the next century, the rising demand for beaver pelts was a result of a number factors including population growth, a greater export market, a shift toward beaver hats from hats made of other materials, and a shift from caps to hats.

The British export data indicate that demand for beaver hats was growing not just in England, but in Europe as well. In 1700 a modest 69,500 beaver hats were exported from England and almost the same number of felt hats; but by 1760, slightly over 500,000 beaver hats and 370,000 felt halts were shipped from English ports (Lawson, 1943, app. I). In total, over the seventy years to 1770, 21 million beaver and felt hats were exported from England. In addition to the final product, England exported the raw material, beaver pelts. In 1760, £15,000 in beaver pelts were exported along with a range of other furs. The hats and the pelts tended to go to different parts of Europe. Raw pelts were shipped mainly to northern Europe, including Germany, Flanders, Holland and Russia; whereas hats went to the southern European markets of Spain and Portugal. In 1750, Germany imported 16,500 beaver hats, while Spain imported 110,000 and Portugal 175,000 (Lawson, 1943, appendices F & G). Over the first six decades of the eighteenth century, these markets grew dramatically, such that the value of beaver hat sales to Portugal alone was £89,000 in 1756-1760, representing about 300,000 hats or two-thirds of the entire export trade.

European Intermediaries in the Fur Trade

By the eighteenth century, the demand for furs in Europe was being met mainly by exports from North America with intermediaries playing an essential role. The American trade, which moved along the main water systems, was organized largely through chartered companies. At the far north, operating out of Hudson Bay, was the Hudson’s Bay Company, chartered in 1670. The Compagnie d’Occident, founded in 1718, was the most successful of a series of monopoly French companies. It operated through the St. Lawrence River and in the region of the eastern Great Lakes. There was also an English trade through Albany and New York, and a French trade down the Mississippi.

The Hudson’s Bay Company and the Compagnie d’Occident, although similar in title, had very different internal structures. The English trade was organized along hierarchical lines with salaried managers, whereas the French monopoly issued licenses (congés) or leased out the use of its posts. The structure of the English company allowed for more control from the London head office, but required systems that could monitor the managers of the trading posts (Carlos and Nicholas, 1990). The leasing and licensing arrangements of the French made monitoring unnecessary, but led to a system where the center had little influence over the conduct of the trade.

The French and English were distinguished as well by how they interacted with the Natives. The Hudson’s Bay Company established posts around the Bay and waited for the Indians, often middlemen, to come to them. The French, by contrast, moved into the interior, directly trading with the Indians who harvested the furs. The French arrangement was more conducive to expansion, and by the end of the seventeenth century, they had moved beyond the St. Lawrence and Ottawa rivers into the western Great Lakes region (see Figure 1). Later they established posts in the heart of the Hudson Bay hinterland. In addition, the French explored the river systems to the south, setting up a post at the mouth of the Mississippi. As noted earlier, after Jay’s Treaty was signed, the French were replaced in the Mississippi region by U.S. interests which later formed the American Fur Company (Haeger, 1991).

The English takeover of New France at the end of the French and Indian Wars in 1763 did not, at first, fundamentally change the structure of the trade. Rather, French management was replaced by Scottish and English merchants operating in Montreal. But, within a decade, the Montreal trade was reorganized into partnerships between merchants in Montreal and traders who wintered in the interior. The most important of these arrangements led to the formation of the Northwest Company, which for the first two decades of the nineteenth century, competed with the Hudson’s Bay Company (Carlos and Hoffman, 1986). By the early decades of the nineteenth century, the Hudson’s Bay Company, the Northwest Company, and the American Fur Company had, combined, a system of trading posts across North America, including posts in Oregon and British Columbia and on the Mackenzie River. In 1821, the Northwest Company and the Hudson’s Bay Company merged under the name of the Hudson’s Bay Company. The Hudson’s Bay Company then ran the trade as a monopsony until the late 1840s when it began facing serious competition from trappers to the south. The Company’s role in the northwest changed again with the Canadian Confederation in 1867. Over the next decades treaties were signed with many of the northern tribes forever changing the old fur trade order in Canada.

The Supply of Furs: The Harvesting of Beaver and Depletion

During the eighteenth century, the changing technology of felt production and the growing demand for felt hats were met by attempts to increase the supply of furs, especially the supply of beaver pelts. Any permanent increase, however, was ultimately dependent on the animal resource base. How that base changed over time must be a matter of speculation since no animal counts exist from that period; nevertheless, the evidence we do have points to a scenario in which over-harvesting, at least in some years, gave rise to serious depletion of the beaver and possibly other animals such as marten that were also being traded. Why the beaver were over-harvested was closely related to the prices Natives were receiving, but important as well was the nature of Native property rights to the resource.

Harvests in the Fort Albany and York Factory Regions

That beaver populations along the Eastern seaboard regions of North America were depleted as the fur trade advanced is widely accepted. In fact the search for new sources of supply further west, including the region of Hudson Bay, has been attributed in part to dwindling beaver stocks in areas where the fur trade had been long established. Although there has been little discussion of the impact that the Hudson’s Bay Company and the French, who traded in the region of Hudson Bay, were having on the beaver stock, the remarkably complete records of the Hudson’s Bay Company provide the basis for reasonable inferences about depletion. From 1700 there is an uninterrupted annual series of fur returns at Fort Albany; the fur returns from York Factory begin in 1716 (see Figure 1).

The beaver returns at Fort Albany and York Factory for the period 1700 to 1770 are described in Figure 2. At Fort Albany the number of beaver skins over the period 1700 to 1720 averaged roughly 19,000, with wide year-to-year fluctuations; the range was about 15,000 to 30,000. After 1720 and until the late 1740s average returns declined by about 5,000 skins, and remained within the somewhat narrower range of roughly 10,000 to 20,000 skins. The period of relative stability was broken in the final years of the 1740s. In 1748 and 1749, returns increased to an average of nearly 23,000. Following these unusually strong years, the trade fell precipitously so that in 1756 fewer than 6,000 beaver pelts were received. There was a brief recovery in the early 1760s but by the end decade trade had fallen below even the mid-1750s levels. In 1770, Fort Albany took in just 3,600 beaver pelts. This pattern – unusually large returns in the late 1740s and low returns thereafter – indicates that the beaver in the Fort Albany region were being seriously depleted.

Figure 2
Beaver Traded at Fort Albany and York Factory 1700 – 1770

Source: Carlos and Lewis, 1993.

The beaver returns at York Factory from 1716 to 1770, also described in Figure 2, have some of the key features of the Fort Albany data. After some low returns early on (from 1716 to 1720), the number of beaver pelts increased to an average of 35,000. There were extraordinary returns in 1730 and 1731, when the average was 55,600 skins, but beaver receipts then stabilized at about 31,000 over the remainder of the decade. The first break in the pattern came in the early 1740s shortly after the French established several trading posts in the area. Surprisingly perhaps, given the increased competition, trade in beaver pelts at the Hudson’s Bay Company post increased to an average of 34,300, this over the period 1740 to 1743. Indeed, the 1742 return of 38,791 skins was the largest since the French had established any posts in the region. The returns in 1745 were also strong, but after that year the trade in beaver pelts began a decline that continued through to 1770. Average returns over the rest of the decade were 25,000; the average during the 1750s was 18,000, and just 15,500 in the 1760s. The pattern of beaver returns at York Factory – high returns in the early 1740s followed by a large decline – strongly suggests that, as in the Fort Albany hinterland, the beaver population had been greatly reduced.

The overall carrying capacity of any region, or the size of the animal stock, depends on the nature of the terrain and the underlying biological determinants such as birth and death rates. A standard relationship between the annual harvest and the animal population is the Lotka-Volterra logistic, commonly used in natural resource models to relate the natural growth of a population to the size of that population:
F(X) = aX – bX2, a, b > 0 (1)

where X is the population, F(X) is the natural growth in the population, a is the maximum proportional growth rate of the population, and b = a/X, where X is the upper limit to population size. The population dynamics of the species exploited depends on the harvest each period:

DX = aX – bX2– H (2)

where DX is the annual change in the population and H is the harvest. The choice of parameter a and maximum population X is central to the population estimates and have been based largely on estimates from the beaver ecology literature and Ontario provincial field reports of beaver densities (Carlos and Lewis, 1993).

Simulations based on equation 2 suggest that, until the 1730s, beaver populations remained at levels roughly consistent with maximum sustained yield management, sometimes referred to as the biological optimum. But after the 1730s there was a decline in beaver stocks to about half the maximum sustained yield levels. The cause of the depletion was closely related to what was happening in Europe. There, buoyant demand for felt hats and dwindling local fur supplies resulted in much higher prices for beaver pelts. These higher prices, in conjunction with the resulting competition from the French in the Hudson Bay region, led the Hudson’s Bay Company to offer much better terms to Natives who came to their trading posts (Carlos and Lewis, 1999).

Figure 3 reports a price index for furs at Fort Albany and at York Factory. The index represents a measure of what Natives received in European goods for their furs. At Fort Albany, fur prices were close to 70 from 1713 to 1731, but in 1732, in response to higher European fur prices and the entry of la Vérendrye, an important French trader, the price jumped to 81. After that year, prices continued to rise. The pattern at York Factory was similar. Although prices were high in the early years when the post was being established, beginning in 1724 the price settled down to about 70. At York Factory, the jump in price came in 1738, which was the year la Vérendrye set up a trading post in the York Factory hinterland. Prices then continued to increase. It was these higher fur prices that led to over-harvesting and, ultimately, a decline in beaver stocks.

Figure 3
Price Index for Furs: Fort Albany and York Factory, 1713 – 1770

Source: Carlos and Lewis, 2001.

Property Rights Regimes

An increase in price paid to Native hunters did not have to lead to a decline in the animal stocks, because Indians could have chosen to limit their harvesting. Why they did not was closely related their system of property rights. One can classify property rights along a spectrum with, at one end, open access, where anyone can hunt or fish, and at the other, complete private property, where a sole owner has full control over the resource. Between, there are a range of property rights regimes with access controlled by a community or a government, and where individual members of the group do not necessarily have private property rights. Open access creates a situation where there is less incentive to conserve, because animals not harvested by a particular hunter will be available to other hunters in the future. Thus the closer is a system to open access the more likely it is that the resource will be depleted.

Across aboriginal societies in North America, one finds a range of property rights regimes. Native Americans did have a concept of trespass and of property, but individual and family rights to resources were not absolute. Sometimes referred to as the Good Samaritan principle (McManus, 1972), outsiders were not permitted to harvest furs on another’s territory for trade, but they were allowed to hunt game and even beaver for food. Combined with this limitation to private property was an Ethic of Generosity that included liberal gift-giving where any visitor to one’s encampment was to be supplied with food and shelter.

Why a social norm such as gift-giving or the related Good Samaritan principle emerged was due to the nature of the aboriginal environment. The primary objective of aboriginal societies was survival. Hunting was risky, and so rules were put in place that would reduce the risk of starvation. As Berkes et al.(1989, p. 153) notes, for such societies: “all resources are subject to the overriding principle that no one can prevent a person from obtaining what he needs for his family’s survival.” Such actions were reciprocal and especially in the sub-arctic world were an insurance mechanism. These norms, however, also reduced the incentive to conserve the beaver and other animals that were part of the fur trade. The combination of these norms and the increasing price paid to Native traders led to the large harvests in the 1740s and ultimately depletion of the animal stock.

The Trade in European Goods

Indians were the primary agents in the North American commercial fur trade. It was they who hunted the animals, and transported and traded the pelts or skins to European intermediaries. The exchange was a voluntary. In return for their furs, Indians obtained both access to an iron technology to improve production and access to a wide range of new consumer goods. It is important to recognize, however, that although the European goods were new to aboriginals, the concept of exchange was not. The archaeological evidence indicates an extensive trade between Native tribes in the north and south of North America prior to European contact.

The extraordinary records of the Hudson’s Bay Company allow us to form a clear picture of what Indians were buying. Table 2 lists the goods received by Natives at York Factory, which was by far the largest of the Hudson’s Bay Company trading posts. As is evident from the table, the commercial trade was more than in beads and baubles or even guns and alcohol; rather Native traders were receiving a wide range of products that improved their ability to meet their subsistence requirements and allowed them to raise their living standards. The items have been grouped by use. The producer goods category was dominated by firearms, including guns, shot and powder, but also includes knives, awls and twine. The Natives traded for guns of different lengths. The 3-foot gun was used mainly for waterfowl and in heavily forested areas where game could be shot at close range. The 4-foot gun was more accurate and suitable for open spaces. In addition, the 4-foot gun could play a role in warfare. Maintaining guns in the harsh sub-arctic environment was a serious problem, and ultimately, the Hudson’s Bay Company was forced to send gunsmiths to its trading posts to assess quality and help with repairs. Kettles and blankets were the main items in the “household goods” category. These goods probably became necessities to the Natives who adopted them. Then there were the luxury goods, which have been divided into two broad categories: “tobacco and alcohol,” and “other luxuries,” dominated by cloth of various kinds (Carlos and Lewis, 2001; 2002).

Table 2
Value of Goods Received at York Factory in 1740 (made beaver)

We have much less information about the French trade. The French are reported to have exchanged similar items, although given their higher transport costs, both the furs received and the goods traded tended to be higher in value relative to weight. The Europeans, it might be noted, supplied no food to the trade in the eighteenth century. In fact, Indians helped provision the posts with fish and fowl. This role of food purveyor grew in the nineteenth century as groups known as the “home guard Cree” came to live around the posts; as well, pemmican, supplied by Natives, became an important source of nourishment for Europeans involved in the buffalo hunts.

The value of the goods listed in Table 2 is expressed in terms of the unit of account, the made beaver, which the Hudson’s Bay Company used to record its transactions and determine the rate of exchange between furs and European goods. The price of a prime beaver pelt was 1 made beaver, and every other type of fur and good was assigned a price based on that unit. For example, a marten (a type of mink) was a made beaver, a blanket was 7 made beaver, a gallon of brandy, 4 made beaver, and a yard of cloth, 3? made beaver. These were the official prices at York Factory. Thus Indians, who traded at these prices, received, for example, a gallon of brandy for four prime beaver pelts, two yards of cloth for seven beaver pelts, and a blanket for 21 marten pelts. This was barter trade in that no currency was used; and although the official prices implied certain rates of exchange between furs and goods, Hudson’s Bay Company factors were encouraged to trade at rates more favorable to the Company. The actual rates, however, depended on market conditions in Europe and, most importantly, the extent of French competition in Canada. Figure 3 illustrates the rise in the price of furs at York Factory and Fort Albany in response to higher beaver prices in London and Paris, as well as to a greater French presence in the region (Carlos and Lewis, 1999). The increase in price also reflects the bargaining ability of Native traders during periods of direct competition between the English and French and later the Hudson’s Bay Company and the Northwest Company. At such times, the Native traders would play both parties off against each other (Ray and Freeman, 1978).

The records of the Hudson’s Bay Company provide us with a unique window to the trading process, including the bargaining ability of Native traders, which is evident in the range of commodities received. Natives only bought goods they wanted. Clear from the Company records is that it was the Natives who largely determined the nature and quality of those goods. As well the records tell us how income from the trade was being allocated. The breakdown differed by post and varied over time; but, for example, in 1740 at York Factory, the distribution was: producer goods – 44 percent; household goods – 9 percent; alcohol and tobacco – 24 percent; and other luxuries – 23 percent. An important implication of the trade data is that, like many Europeans and most American colonists, Native Americans were taking part in the consumer revolution of the eighteenth century (de Vries, 1993; Shammas, 1993). In addition to necessities, they were consuming a remarkable variety of luxury products. Cloth, including baize, duffel, flannel, and gartering, was by far the largest class, but they also purchased beads, combs, looking glasses, rings, shirts, and vermillion among a much longer list. Because these items were heterogeneous in nature, the Hudson’s Bay Company’s head office went to great lengths to satisfy the specific tastes of Native consumers. Attempts were also made, not always successfully, to introduce new products (Carlos and Lewis, 2002).

Perhaps surprising, given the emphasis that has been placed on it in the historical literature, was the comparatively small role of alcohol in the trade. At York Factory, Native traders received in 1740 a total of 494 gallons of brandy and “strong water,” which had a value of 1,976 made beaver. More than twice this amount was spent on tobacco in that year, nearly five times was spent on firearms, twice was spent on cloth, and more was spent on blankets and kettles than on alcohol. Thus, brandy, although a significant item of trade, was by no means a dominant one. In addition, alcohol could hardly have created serious social problems during this period. The amount received would have allowed for no more than ten two-ounce drinks per year for the adult Native population living in the region.

The Labor Supply of Natives

Another important question can be addressed using the trade data. Were Natives “lazy and improvident” as they have been described by some contemporaries, or were they “industrious” like the American colonists and many Europeans? Central to answering this question is how Native groups responded to the price of furs, which began rising in the 1730s. Much of the literature argues that Indian trappers reduced their effort in response to higher fur prices; that is, they had backward-bending supply curves of labor. The view is that Natives had a fixed demand for European goods that, at higher fur prices, could be met with fewer furs, and hence less effort. Although widely cited, this argument does not stand up. Not only were higher fur prices accompanied by larger total harvests of furs in the region, but the pattern of Native expenditure also points to a scenario of greater effort. From the late 1730s to the 1760s, as the price of furs rose, the share of expenditure on luxury goods increased dramatically (see Figure 4). Thus Natives were not content simply to accept their good fortune by working less; rather they seized the opportunity provided to them by the strong fur market by increasing their effort in the commercial sector, thereby dramatically augmenting the purchases of those goods, namely the luxuries, that could raise their living standards.

Figure 4
Native Expenditure Shares at York Factory 1716 – 1770

Source: Carlos and Lewis, 2001.

A Note on the Non-commercial Sector

As important as the fur trade was to Native Americans in the sub-arctic regions of Canada, commerce with the Europeans comprised just one, relatively small, part of their overall economy. Exact figures are not available, but the traditional sectors; hunting, gathering, food preparation and, to some extent, agriculture must have accounted for at least 75 to 80 percent of Native labor during these decades. Nevertheless, despite the limited time spent in commercial activity, the fur trade had a profound effect on the nature of the Native economy and Native society. The introduction of European producer goods, such as guns, and household goods, mainly kettles and blankets, changed the way Native Americans achieved subsistence; and the European luxury goods expanded the range of products that allowed them to move beyond subsistence. Most importantly, the fur trade connected Natives to Europeans in ways that affected how and how much they chose to work, where they chose to live, and how they exploited the resources on which the trade and their survival was based.


Berkes, Fikret, David Feeny, Bonnie J. McCay, and James M. Acheson. “The Benefits of the Commons.” Nature 340 (July 13, 1989): 91-93.

Braund, Kathryn E. Holland.Deerskins and Duffels: The Creek Indian Trade with Anglo-America, 1685-1815. Lincoln: University of Nebraska Press, 1993.

Carlos, Ann M., and Elizabeth Hoffman. “The North American Fur Trade: Bargaining to a Joint Profit Maximum under Incomplete Information, 1804-1821.” Journal of Economic History 46, no. 4 (1986): 967-86.

Carlos, Ann M., and Frank D. Lewis. “Indians, the Beaver and the Bay: The Economics of Depletion in the Lands of the Hudson’s Bay Company, 1700-1763.” Journal of Economic History 53, no. 3 (1993): 465-94.

Carlos, Ann M., and Frank D. Lewis. “Property Rights, Competition and Depletion in the Eighteenth-Century Canadian Fur Trade: The Role of the European Market.” Canadian Journal of Economics 32, no. 3 (1999): 705-28.

Carlos, Ann M., and Frank D. Lewis. “Property Rights and Competition in the Depletion of the Beaver: Native Americans and the Hudson’s Bay Company.” In The Other Side of the Frontier: Economic Explorations in Native American History, edited by Linda Barrington, 131-149. Boulder, CO: Westview Press, 1999.

Carlos, Ann M., and Frank D. Lewis. “Trade, Consumption, and the Native Economy: Lessons from York Factory, Hudson Bay.” Journal of Economic History61, no. 4 (2001): 465-94.

Carlos, Ann M., and Frank D. Lewis. “Marketing in the Land of Hudson Bay: Indian Consumers and the Hudson’s Bay Company, 1670-1770.” Enterprise and Society 2 (2002): 285-317.

Carlos, Ann and Nicholas, Stephen. “Agency Problems in Early Chartered Companies: The Case of the Hudson’s Bay Company.” Journal of Economic History 50, no. 4 (1990): 853-75.

Clarke, Fiona. Hats. London: Batsford, 1982.

Crean, J. F. “Hats and the Fur Trade.” Canadian Journal of Economics and Political Science 28, no. 3 (1962): 373-386.

Corner, David. “The Tyranny of Fashion: The Case of the Felt-Hatting Trade in the Late Seventeenth and Eighteenth Centuries.” Textile History 22, no.2 (1991): 153-178.

de Vries, Jan. “Between Purchasing Power and the World of Goods: Understanding the Household Economy in Early Modern Europe.” In Consumption and the World of Goods, edited by John Brewer and Roy Porter, 85-132. London: Routledge, 1993.

Ginsburg Madeleine. The Hat: Trends and Traditions. London: Studio Editions, 1990.

Haeger, John D. John Jacob Astor: Business and Finance in the Early Republic. Detroit: Wayne State University Press, 1991.

Harte, N.B. “The Economics of Clothing in the Late Seventeenth Century.” Textile History 22, no. 2 (1991): 277-296.

Heidenreich, Conrad E., and Arthur J. Ray. The Early Fur Trade: A Study in Cultural Interaction. Toronto: McClelland and Stewart, 1976.

Helm, Jane, ed. Handbook of North American Indians 6, Subarctic. Washington: Smithsonian, 1981.

Innis, Harold. The Fur Trade in Canada (revised edition). Toronto: University of Toronto Press, 1956.

Krech III, Shepard. The Ecological Indian: Myth and History. New York: Norton, 1999.

Lawson, Murray G. Fur: A Study in English Mercantilism. Toronto: University of Toronto Press, 1943.

McManus, John. “An Economic Analysis of Indian Behavior in the North American Fur Trade.” Journal of Economic History 32, no.1 (1972): 36-53.

Ray, Arthur J. Indians in the Fur Trade: Their Role as Hunters, Trappers and Middlemen in the Lands Southwest of Hudson Bay, 1660-1870. Toronto: University of Toronto Press, 1974.

Ray, Arthur J. and Donald Freeman. “Give Us Good Measure”: An Economic Analysis of Relations between the Indians and the Hudson’s Bay Company before 1763. Toronto: University of Toronto Press, 1978.

Ray, Arthur J. “Bayside Trade, 1720-1780.” In Historical Atlas of Canada 1, edited by R. Cole Harris, plate 60. Toronto: University of Toronto Press, 1987.

Rich, E. E. Hudson’s Bay Company, 1670 – 1870. 2 vols. Toronto: McClelland and Stewart, 1960.

Rich, E.E. “Trade Habits and Economic Motivation among the Indians of North America.” Canadian Journal of Economics and Political Science 26, no. 1 (1960): 35-53.

Shammas, Carole. “Changes in English and Anglo-American Consumption from 1550-1800.” In Consumption and the World of Goods, edited by John Brewer and Roy Porter, 177-205. London: Routledge, 1993.

Wien, Thomas. “Selling Beaver Skins in North America and Europe, 1720-1760: The Uses of Fur-Trade Imperialism.” Journal of the Canadian Historical Association, New Series 1 (1990): 293-317.

Citation: Carlos, Ann and Frank Lewis. “Fur Trade (1670-1870)”. EH.Net Encyclopedia, edited by Robert Whaples. March 16, 2008. URL

Between Empire and Globalization: An Economic History of Modern Spain

Author(s):Albert Carreras and Xavier Tafunell
Reviewer(s):Leandro Prados de la Escosura

Published by EH.Net (November 2021).

Albert Carreras and Xavier Tafunell. Between Empire and Globalization: An Economic History of Modern Spain. Palgrave Studies in Economic History. London: Palgrave Macmillan, 2021. x + 350 pp. $140 (hardcover), ISBN 978-3-030-60503-2.

Reviewed for EH.Net by Leandro Prados de la Escosura, Emeritus Professor of Economic History, Universidad Carlos III.


This is a long overdue English-language textbook on modern Spanish economic history. Earlier ones appeared twenty and forty years ago (Harrison, 1978; Tortella, 2000) and were far less comprehensive. In fact, the reader has to go back half a century to find a more ambitious project (Vicens Vives, 1969), which encompassed from the Neolithic to the 1950s. Although the book is rightly timed, it appears paradoxically at a time when courses on Spanish economic history are rarely taught to economics undergraduates in Spanish universities.

The book offers an overview of Spain’s economic performance during the last two centuries in which Spain’s integration into the international economy and the role of government occupy a central position. Assessing how Spain reacted to globalisation and modern economic growth in advanced countries is the main goal of the volume. Five dimensions: institutional change, broad capital (physical and human) formation, structural change, internationalization, and government intervention are highlighted by the authors. Geographic constraints (physical relief, lack of navigable rivers, dry and extreme weather, and location) complete the picture, adding a negative background. The stress on adverse geography continues a venerable tradition of which Gabriel Tortella’s textbook is an exponent. A major conclusion of the volume is that “the best times for the Spanish economy are always linked to increases in the degree of openness” since “trade closure has tended to be a factor in curbing growth, while openness has promoted it” (pp. 284, 299).

The structure of the book is chronological with two overviews, one that presents long run trends in economic performance, followed by an overall assessment. Different phases are distinguished: three in the “long” nineteenth century: 1789-1840, 1840-90, and 1890-1914; and seven in the next hundred years: 1914-36, 1936-51, 1951-59, 1959-73, 1973-85, 1986-98, and 1999-2017. The post- World War I periodisation corresponds to an institutional perspective, rather than to differences in economic performance, which might have led the authors to single out the fast-growing 1920s and a phase of growth (1986-2007) and another of crisis and recovery (from 2008 onwards) after Spain’s accession to the European Union.

Although the authors claim that they “have avoided debates and have sought to build on wide interpretative consensus” (p. 104), their comprehensive assessment of modern Spain’s economic performance is two books in one: an analytical description, as corresponds to a good conventional textbook, and an interpretation. However, the interpretation is mainly restricted to the “long” nineteenth century. The chronological limits of the interpretation are attributable to the comparative absence of historical debate on the post-1914 period, which suggests, in turn, a lack of research (Prados de la Escosura and Sánchez-Alonso, 2020). The “long” nineteenth century debate is presided over by a dilemma that, according to the authors, economic agents faced: either imitate Britain and industrialise, or give up and become its suppliers. The dilemma is not far from that one presented by W. Arthur Lewis (1978) for world regions between 1870 and 1913. The second option, they argue, suited ‘Spanish economic lobbies” but not Catalan and Basque entrepreneurs, and eventually prevailed.

What are the strengths and weaknesses of the volume? A major strength is its impressive and ambitious picture of modern Spain, covering every angle of the international debate on industrialisation and globalisation and providing a new, accurate, and up-to-date description of Spanish economic progress during the last 60 years.  It can be easily argued that the present book represents a landmark not only in Spanish economic history but in international economic history, as few countries, including those of Western Europe and its offshoots, have a comprehensive, well-written, and appealing textbook like this one.

On the downside, the main weakness of the book is that it follows the historical literature too closely for each period, often rendering a fragmented picture. More importantly, the overall macroeconomic view provided in the first and the last chapters is often neglected and even contradicted by the sectoral and piecemeal evidence discussed in the rest of the volume. The book, originally published in Spanish in 2004, has gone through successive updates and this perhaps explains the unsolved tension between the historical literature views and the macroeconomic context. Had the authors presented each chapter within the framework of chapters 1 and 12, the contributions of sectoral developments and economic policies would have been highlighted and the narrative would have been more consistent.

Examples of this mismatch are the contrast between the authors’ pessimistic assessment of the half-century between 1840 and 1890, which they label a “double failure.” For this they draw on old debates on protectionism vs. free trade, as well as the railways’ construction as a speculative bubble and a missed opportunity for domestic industry’s expansion, despite the evidence of fast aggregate growth based on capital accumulation and efficiency gains, in which the railways played a far from negligible part. Similarly, the authors place stress on “weak” domestic demand for cotton and iron and steel goods and poor incentives for industrial development from international markets, even though aggregate industrial output and productivity thrived.

Another shortcoming is the neglect of well-known contributions, such as Pedro Fraile Balbín’s (1991) work on the political economy of protectionism, which would have added a missing dimension to the volume’s narrative, as well as important insights. Occasionally, important additions to the literature are neglected or referred to the further reading section of each chapter, with the unintended consequence of missing views that may have provided new paradigms. Let us consider the case of the first globalisation, which, as shown by Kevin O’Rourke and Jeffrey Williamson (1999), represented a pervasive phenomenon including a dramatic reduction in transport and communication costs and a change in attitudes toward trade. In their analytical framework, protectionist policies appear only as a way to mitigate globalisation effects and temporarily delay the unavoidable. Consequently, the old protection-free trade view, in which trade was halted when a phase of liberalisation, as presented in this book, was replaced by one of high tariffs, needs to be revised. Moreover, the distributional effects of raising tariffs are largely neglected in the historical literature of Spain that the authors follow so closely. Protectionism would plausibly have led to a pro-landowner income distribution, a hypothesis supported by the increase in aggregate income inequality. Lastly, the neglect of recent literature is also evident in assertions such as “protectionist measures had an undeniable impact on emigration, reducing it” (p. 95). This was proved wrong by Blanca Sánchez-Alonso (2000), who showed that protection would have pushed workers to emigrate, as one would expect in a simple Heckscher-Ohlin model, in which trade provides an alternative to factor mobility. The authors seem to ignore that it was the depreciation of Spanish currency that prevented migration, by reducing potential emigrants’ purchasing power.

These critical aspects, which can be certainly addressed in next editions, do not detract from the relevance of the book under review. This volume represents a tour de force survey of modern Spanish economic history in the context of international debates on growth and development. I do, therefore, strongly encourage any reader interested in the performance of a middle-income country during the age of globalisation to read this book, as it provides not just a narrative about Spain’s economic history but useful insights that may be the seed of further research.


Fraile Balbín, Pedro. 1991. Industrialización y grupos de presión. La economía política de la protección en España, 1900-1950. Madrid: Alianza.

Harrison, Joseph. 1978. An Economic History of Modern Spain. Manchester: Manchester University Press.

Lewis, W. Arthur. 1978. Growth and Fluctuations, 1870-1913. London: George Allen & Unwin.

O’Rourke, Kevin H., and Jeffrey G. Williamson. 1999. Globalization and History: The Evolution of a Nineteenth-Century Atlantic Economy. Cambridge, MA: MIT Press.

Prados de la Escosura, Leandro, and Blanca Sánchez-Alonso. 2020. “Economic Development in Spain, 1815–2017.” Oxford Research Encyclopedia of Economics and Finance. Oxford: Oxford University Press.

Sánchez-Alonso, Blanca. 2000. “European Emigration in the Late Nineteenth Century: The Paradoxical Case of Spain.” Economic History Review 53, 2: 309-330.

Tortella, Gabriel. 2000. The Development of Modern Spain: An Economic History of the Nineteenth and Twentieth Centuries. Cambridge, MA: Harvard University Press.

Vicens Vives, Jaime. 1969. An Economic History of Spain. Princeton: Princeton University Press.


Leandro Prados de la Escosura is Emeritus Professor of Economic History, Universidad Carlos III and a CEPR Research Fellow. His research into growth, inequality, and development includes Spanish Economic Growth, 1850–2015 (Palgrave Studies in Economic History, 2017).


Copyright (c) 2021 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 (November 2021). All EH.Net reviews are archived at

Subject(s):Economywide Country Studies and Comparative History
Geographic Area(s):Europe
Time Period(s):19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII

New Perspectives on Political Economy and Its History

Editor(s):Marcuzzo, Maria Cristina
Deleplace, Ghislain
Paesani, Paolo
Reviewer(s):Kates, Steven

Published by EH.Net (March 2021)

Maria Cristina Marcuzzo, Ghislain Deleplace and Paolo Paesani, editors, New Perspectives on Political Economy and Its History. Cham, Switzerland: Palgrave, 2020. xviii + 406 pp. $149 (hardcover), ISBN: 978-3-030-42924-9.

Reviewed for EH.Net by Steven Kates, School of Economics, Finance and Marketing, RMIT University (Melbourne, Australia).


There was a time that one might have said that economic theory was comprised of a series of concepts that help explain the way communities provision themselves and became more prosperous over time. Economic theory as it developed came in the wake of the pamphleteers of more ancient days who saw the world around them and thought there had to be a better way of getting things done. They therefore wrote polemical accounts aimed at addressing various problems as they saw them, to try to persuade others to take up the approaches they were attempting to advocate.

Meanwhile, almost from out of nowhere came the Industrial Revolution. It was not a consequence of Adam Smith having written his Wealth of Nations. The two just appeared on the scene at roughly the same time, and some — observing the world they were living in, while also reading Smith’s account of how economies worked — came to the conclusion that there was some actual theoretical knowledge that might assist in the improvement of the way in which economies grew and prospered. That is how we came to have the classical school first, and then the major critiques of the socialist writers, with Marx and Sismondi among the most significant.

The classical economists observed the world, saw the tremendous growth in output and living standards and, correctly in my view, came to the conclusion that it was the role of private entrepreneurs that had made the difference. Within the community, if it were designed in a way that allowed individuals to pursue their own best interests as they saw them, there would be a rearrangement of productive forces in response to where the greatest return on investments would occur. Output rose, innovations occurred, and as a direct result living-standards rose. It may appear to many of us looking back on those times that the social costs were immense, but many of those who were living at the time were content that England should exchange its “green and pleasant land” for a highly productive economic structure that allowed many individuals to move forward in what they could earn and in the range and quantity of the goods and services they could buy.

But the costs were high, and memories were short. Henry Mayhew’s London Labour and the London Poor, which he began in 1849 as an investigative journalist and which was finally published in 1861-62, brought the tremendous social costs into the limelight (Mayhew 1985). He was hardly the first to do so, but Mayhew’s work stands out as a depiction of the burdens that had befallen the newly formed proletariats of the industrial age. It was the appearance not just of poverty, which had till then been universal, that mattered, but the agglomeration of entire industrial suburbs that focused attention on the world as it had become. Dark satanic mills had become the way of the world.

What also was new in the world at the time was the business cycle, the periodic ebb and flow of economic activity which came at such a tremendous cost to the working classes. It was one thing to be mired in poverty. It was another thing entirely to find that the low wages upon which individuals depended would suddenly disappear, and for reasons utterly beyond the control of the workers themselves, indeed beyond the control of anyone. And while there was no denying the spectacular growth not just in the volume of output but in the assortment of goods and services that came into existence, there was also disquiet at the disruptions and harm that could be visited on individuals and their families because of the disruptions in their working lives.

And while this overview of the years of the Industrial Revolution is part of the background knowledge of every economist, the need for a means to account for how the industrial world operated was required as well as some means to control the forces that had been let loose upon the world. There was the positive side that came in terms of production. But there was the negative side that came in relation to the polluted cities that had sprung up and the uncertainties that had become embedded within the lives of so many individuals. And this is where the history of economic thought comes into the story.

Economists are the inheritors of the latest manifestations of the theory of the economy that more or less satisfies most of the profession. There are now theories of such astonishing abstraction that it is almost impossible any longer to look into what economists believe they know and truly understand how the economic world is structured or what can and should be changed to improve the operation of the productive aspects of our economies. Which brings us to the book under review, New Perspectives on Political Economy and Its History, a collection of readings edited by Maria Cristina Marcuzzo, Ghislain Deleplace and Paolo Paesani. This is how they describe what they are attempting to do in their Introduction.

In contrast to the reorientation of political economy implemented by Keynes with his General Theory less than seven years after the 1929 Wall Street crash, no substantial change in the mainstream approach to economics can be detected twelve years after the collapse of Lehman Brothers. The same Dynamic Stochastic General Equilibrium (DSGE) model which had been unable to anticipate the crisis still rules research, teaching and economic policy, only marginally modified to take account of the most obvious flaws of the economic system. In this intellectual environment, going back to past authors may be of some help, not to fuel nostalgia for times gone by but to explore modern economic issues along new perspectives — in short to build theory and understand facts. This is the task of the history of economic thought, when it is not understood as a graveyard for respected albeit no longer read authors but as a living corpus of debates on the same old issues shrunk and distorted by the present mainstream. (pp. 1-2)

I particularly agree with them on the role of the history of economics which I will repeat: the role of the history of economics is “to explore modern economic issues along new perspectives.” It may seem somewhat odd that one would delve into the past to find new perspectives, but given how hollow the understanding of most economists is of the theories that have come before the ones they have studied themselves, there truly is a vast ocean of economic theory unknown to virtually all economists that do have many perspectives that really might with great benefit be brought into the debates among economists today.

But here we come to the first obstacle. There is an enormous amount of learning that every economist must come to terms with in even being able to deal with the mainstream theories they are taught. Retreating to historic accounts does not provide an obvious wormhole through which new insights can be introduced among the wide array of perspectives that already exist within the profession. If one thinks of theory in relation to General Equilibrium, which is highly mathematical in its orientation, it seems like a major ask to suggest that economists abandon their present approach and return to completely foreign forms of analysis that existed at some point deep in the past. Suppose this is how one goes about thinking about things, which is an equation picked more or less at random:

ct + xt + G0exp(G˜ t) = yt

The meaning of the equation is of no significance so far as the point I am trying to make goes. It is only presented to compare and contrast a passage from a quite sensible argument presented by Sheila Dow in her chapter on “The Methodological Role of the History of Economic Thought.”

The history of economic ideas is important, not just for understanding theory itself, but also for understanding the subject matter of theory and how it has absorbed particular economic ideas. Karl Niebyl . . . presented a stage analysis of Classical monetary theory and policy whereby the dominant economic ideas of each stage are both the product of real experience, but also shape real experience, all mediated by power structures …. Prevailing academic ideas about monetary policy, the product of past experience, provide the basis for monetary arrangements and monetary policy, which then enable and constrain future possibilities for monetary policy. Given this temporal sequence and the tendency for past experience to be a poor guide to the future, these developments get out of phase, so that monetary arrangements and monetary policy get out of phase with reality and academic ideas take time to catch up, and so it goes on. (p. 32)

You can easily see the problem. Is it even possible for practitioners of these two ways of approaching economic theory to even begin to communicate with each other? And this is leaving all issues of political economy aside. These are just two methodologies now used to discuss economic theory. The number of economists who can understand both is vanishingly small. Unless a special effort is made to reach out to modern economists, the economics of earlier times will be utterly beyond their reach, assuming they can even be made to feel a wish to go back to these earlier forms of analysis.

Background Knowledge Required

Going further, if the aim is to interest mainstream economists in the history of economics, there needs to be some kind of overlap in these articles and the kinds of knowledge an economist would typically have. I have chosen for my example an issue of interest to myself, which overlaps both the writings of John Stuart Mill and the Wages Fund doctrine. The article is “Classical Roots of the Criticisms of John Stuart Mill’s Wage-Fund Theory” written by Antonella Stirati. The question that might well be asked is why would someone without a prior interest in Mill or the wages fund wish to read such an article? I, for example, do believe there is a good deal to learn about the operation of a modern economy through seeing what Mill and his classical contemporaries believed. Yet this is how the article begins:

The purpose of this contribution is to discuss the analytical contents of the criticisms levelled at J.S. Mill’s theory of the wage fund and accepted by him in his famous recantation of 1869. I will therefore disregard other important aspects of that debate, of a historical-political nature, particularly in relation to the controversy on the role and legitimacy of the trade unions.

The reasons for the interest in the analytical issues that emerged in the criticisms of the wage-fund theory lie in the fact that they take up and revive many aspects of Smith’s approach to wage determination. In so doing, they show its inconsistency with the wage-fund theory presented by Mill; that is, they show the existence of a conflict between Smith’s views, representative of the theory of wages proper to the classical political economy (from Petty to Ricardo) and the subsequently established theory of the wage fund. (p. 149)

The background knowledge in the history of economic thought that would be required to see what the author is attempting to argue is phenomenal. Indeed, one would already have to know what Mill’s wages fund theory is, what Mill recanted in 1869, and even have some knowledge and even interest in Adam Smith’s approach to wage determination. How much could anyone be expected to know about the theory of wages, especially from Petty (who?) to Ricardo. Where are such people? Where they are not is among the vast majority of the economics profession. And then after many pages we come to the conclusion:

Mill’s acceptance of the two main arguments advanced by Longe and Thornton in turn shows that the departure from the classical tradition was still flimsy, as a new, general analytical framework alternative to the classical approach was yet to become available. The absence of analytical foundations for a decreasing relationship between real wages and employment other than the simple and arbitrary assumption of a given wage fund led to rejection of the wage-fund theory. (pp. 166-67)

This would not only be incomprehensible to virtually every economist today, but almost all would not even see what the point of the struggle to read the article would be. And as it happens, even I who know what the point is, and where the argument is heading, disagree with this conclusion, not that it matters. What we therefore have is an article that argues that even Mill had not completely disassociated his economic argument from the classical tradition which would only come later on and be undertaken by others. Therefore, there is nothing there to learn since even before someone might have picked up this collection of readings they would have, sight unseen, rejected the wages fund doctrine as a sensible approach to understanding any part of how an economy works. (As a recent and contemporary example of how such an argument might be run even today, see Grieve 2020.)

Engaging Mainstream Economists

All authors have an agenda. There is some point they wish to get across to others. I do think there is an enormous amount of sound economic theory that remains embedded within the classical tradition that has now been lost to the modern world. Moreover, I believe that a modern economist who does not understand Mill, for example, is a much-diminished economist in comparison with an economist who does. I have even written an introductory textbook based on Mill’s Principles (see Kates 2017). I do not say that this is the only point in studying the history of economics, but it is one of the important streams in the role of HET. So let me come back to this passage from the Introduction:

In this intellectual environment, going back to past authors may be of some help, not to fuel nostalgia for times gone by but to explore modern economic issues along new perspectives — in short to build theory and understand facts (emphasis added). This is the task of the history of economic thought, when it is not understood as a graveyard for respected albeit no longer read authors but as a living corpus of debates on the same old issues shrunk and distorted by the present mainstream.

I could not agree more with the book’s ambition, but I am disappointed with the execution. I have written a book on this very issue, Defending the History of Economic Thought (Kates, 2013). And let me tell you that this is a highly controversial issue within HET, with many who argue that studying the history of economics should not be trying to use this part of the economics discipline to revive previous doctrines. Theirs is a kind of Whig history, in which there is only progress so that what we find in our textbooks and journals in the present is the final flowering of everything that came before. The history is merely to tell how we reached the supposed heights we have now scaled.

That is obviously how it must look since those who accept some theory must believe that what they have been taught is the best that has ever been thought and said, since if some previous theoretical approach were better, then surely we would be teaching that instead. Yet the reality is that there is an inertia in how issues are conceived. It is something of a cliché to recall that when Galileo dropped a heavy object and a much lighter object from the Leaning Tower of Pisa (or so the story goes) that this was an experiment that could have been undertaken any time during the past if it had occurred to someone to find out for themselves. It was only that the idea had never occurred to anyone else before. But that is not how it was among economists.

It was not as if John Stuart Mill had never considered utility as a means of estimating value. Mill was, after all, the leading utilitarian philosopher of his time. Jevons and his notion of final (marginal) utility may have struck most of his contemporaries as a step forward but then our own textbooks have almost entirely wiped themselves clean of marginal utility in the same way that DSGE has replaced Keynesian theory as the core concept underpinning economic analysis.

All very well, except that every economic downturn since the 1960s has immediately conjured the need for a stimulus, so that no matter how much we might pretend that Keynesian theory has more or less disappeared with our accumulating understanding of the ways in which an economy works, there Keynes remains, as central today as he was in 1936. No introductory textbook avoids Y=C+I+G. And when it comes to that, Keynes seems to have a quite central importance, certainly in the text under review, as shown by the following entry in the index:

Keynes, J.M., 1, 2, 4, 8, 15–17, 29, 32–34, 50, 56, 58, 225, 234, 281, 294, 303, 311, 314, 325–327, 329–331, 334–340, 344–359, 365–367, 370, 371, 374–379, 384–391, 394–397

In fact, there is little doubt that one of the central aims of the book is to assist in the return of Keynesian economic theory to the mainstream. And while I disagree with the specific aim, I am completely onside with the wish to use the history of economic thought in this way, to speak to other economists about how economies work in the real world based on the perspective of economists who are now long dead. This is directly stated in the final paragraph of the introduction.

In their attempt to provide new perspectives on political economy and its history, the eighteen essays collected in this book try to respond to the wish that economics might embark along a different route, whereby economists take into serious consideration past theories and concepts which have failed to survive in the evolutionary struggle of ideas for no good reason, but simply because they have been ‘submerged and forgotten’ with the shift of paradigms. (p. 17)

I too wish to see economics embark along a different route from the one it has taken. Not the different route that the editors of this volume would like to see taken, but nevertheless a different route. These are essays which are attempting to persuade the reader to adopt these different perspectives. And this is a very good thing and I only wish there were more efforts made to do the same.

Economic theory as it is now taught is near moribund. It is too mathematical, too mechanical and almost completely lacking in a philosophical core. There is no longer much of anything that one might describe as “the soul of economics.” The passions that were once central to economic debate have almost entirely evaporated. It is therefore a pleasure to see something of the old enthusiasms found in this book whose essays are largely by people who are trying to convince you of something about the nature of the world and the kinds of economic theories needed to understand it.

This may seem to clash with my earlier statement, that I could not agree more with the book’s ambition, but I am disappointed with the execution. My problem remains that too little effort was made to engage modern economists in a way that would allow those who have studied economics using modern techniques and mathematical analysis to see the difference between what they are taught and what classical economists taught. There is too much asked of readers who are not scholars in the history of economic thought. That was the challenge the editors had set themselves, to bring elements of the classical school within the reach of economists generally. That is an ambition I completely support. My only wish is that a greater effort had been made to explain the views of these earlier economists in a way that would be comprehensible to an economist who had not previously undertaken their own studies into these theories. Thus, I remain concerned that many of the articles in this volume will be understood only by those already versed in the history of economic thought, even while the aim of this book is one I could not agree with more.


Grieve, Roy H. 2020. “Drop the Dead Donkey: A Response to Steven Kates on the Subject of Mill’s Fourth Proposition on Capital.” History of Economics Review: 20-36.

Kates, Steven. 2013. Defending the History of Economic Thought. Cheltenham UK: Edward Elgar.

Kates, Steven. 2017. Free Market Economics: An Introduction for the General Reader. Third edition. Cheltenham UK: Edward Elgar.

Mayhew, Henry. 1985. London Labour and the London Poor. Selections Made and Introduced by Victor Neuburg. Harmondsworth: Penguin Books.



Copyright (c) 2021 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 (March 2021). 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

Classical Economic Theory and the Modern Economy

Author(s):Kates, Steven
Reviewer(s):Numa, Guy

Published by EH.Net (November 2020)

Steven Kates, Classical Economic Theory and the Modern Economy. Cheltenham: Edward Elgar, 2020. vi + 264 pp. $125 (hardcover), ISBN: 978-1-78643-356-5.

Reviewed for EH.Net by Guy Numa, Department of Economics, Colorado State University.


This book is about how little Steven Kates thinks of the “modern economy,” an umbrella term for all variants of Keynesian economics. Bold and pretentious statements abound. “Just about the whole of modern economic theory is perniciously wrong … there is virtually nothing useful one can learn from a modern economics text in how to manage an economy” (p. 1). “Economists know nothing whatsoever about the analytical depth of the classical economists” (p. 16). Kates aims “to explain why classical economics is vastly superior” (p. 17). Kates wants to convince us that he is “almost uniquely placed” to do so, though he acknowledges “how obscure [he is] within the world of economics” and notes that “virtually no one sees things as [he does]” (p. 17). This does not prevent him from boasting about how, as chief economist of Australia’s national employers’ association, he “never made a single wrong call on the economy or the effects of public policy” (p. 20). Unfortunately, the book is filled with errors. Relevant quotes and texts are omitted or distorted for the sole purpose of justifying his anti-Keynesian narrative.

Throughout the book, Kates acts more like a pamphleteer than a convincing analyst. In almost all of the twelve chapters that comprise the book, he rants about Keynesian macro, his long-standing target. He even scolds Austrian economists for being too cozy with Keynes (p. 215). Kates asserts that “the number of jobs is unrelated to the level of demand for goods and services … It is a proposition that is … absolutely correct both in theory and also from the evidence of every attempt to use a stimulus to increase the level of employment” (p. 4). He insinuates that a legal mandate on employers to pay higher wages is tantamount to theft (p. 18)! Kates is more persuasive when he reminds the reader that classical economists considered recessions and government intervention, though the topic is superficially discussed. Overall, Kates’s arguments are quite repetitive.

The centerpiece of Kates’s anti-Keynesian manifesto is his own definition of Say’s Law. His mantra is that “Say’s Law is different in meaning and implications from the nineteenth century’s loi des débouchés … properly attributed to Say” (p. 13). Kates makes three claims: i) Say’s arguments was that “demand is constituted by supply” (pp. 13, 69); ii) “Fred Taylor noted that the principle denying the possibility of overproduction and demand deficiency did not have a name … He supplied that name, calling it ‘Say’s Law’ after J.-B. Say. ‘Say’s Law’ is, however, not Say’s loi des débouchés” (p. 14; see also pp. 67-69). Ironically, the claim contradicts a previous statement, where Kates (1998, p. 151) argued correctly that “Taylor was the first to use the term ‘Say’s Law’ to describe what had previously been referred to as ‘the law of markets’ or the ‘théorie des débouchés’;” iii) “Keynes was not trying to deny that demand is constituted by supply. He was denying that economies never enter recession because of a deficiency of demand” (p. 15).

In fact, all three propositions are erroneous. Kates’s faulty definition of Say’s Law has previously been demonstrated (Jonsson 1999). The problem is that Kates conveniently avoids quoting relevant passages which disprove his manufactured arguments. In some instances, these passages follow immediately Kates’s quotes, but they are conspicuously omitted.

First, apparently Kates is not familiar with Say’s writings. It is no wonder that he never quotes Say. Contrary to Kates’s claims, Say’s loi des débouchés (law of outlets) cannot be reduced to the argument that goods buy goods (pp. 67, 91). Indeed, in the first edition of Say’s Traité the discussion of the law is not limited to the chapter on outlets (Book I, chapter XXII). In Book IV, chapter V, Say ([1803] 2006, p. 688) wrote: “the scope of the total demand for means of production, does not depend upon the scope of consumption. Consumption is not a cause: it is an effect. One must buy in order to consume; yet one can buy only what has been produced. The quantity of products demanded is therefore determined by the quantity of products created? Undoubtedly so” (original emphasis). Thus, Say never declared that “demand is constituted by supply.” Say’s focus was production not supply, an important distinction. For him, products consisted of goods or services produced or traded at cost-covering prices. Kates recognizes that this element “was the core of classical thought” (p. 12), but he fails to apply this crucial reasoning to Say’s thinking. Moreover, Kates maintains that “following the publication of Malthus’s Principles, Say agreed completely with Malthus’s critics and denied the possibility of demand deficiency” (p. 68). This statement, too, is incorrect. Recent studies have demonstrated, with ample evidence, that in several instances Say admitted that a general demand shortfall was possible and could cause economic crises (Béraud and Numa 2018, 2019). Following Say, most classical economists believed that production was the source of demand. That is the essence of what later became known as Say’s Law. However, for Say the law need not imply that supply was necessarily equal to demand, nor that demand deficiency could not cause crises. Because Say and other classical economists carefully distinguished supply from production, Say’s law of outlets differed from Keynes’s interpretation.

Second, it is true that Taylor invented the term “Say’s Law.” However, it is incorrect to claim that Taylor created the term “to describe … the impossibility of demand deficiency as a cause of recession.” Page 73 of the book is the perfect illustration of Kates’s selective quoting and blatant distortions of the historical record and the textual evidence. Kates quotes Taylor twice. The first quote does not contain any reference to the term “Say’s Law.” In reality, Taylor (1925, p. 196) discussed “general demand fallacies;” nowhere in this passage is “Say’s Law” defined as “the impossibility of demand deficiency as a cause of recession,” which is nothing but Kates’s own version of the law. The second quote ends with Taylor’s explicit reference to Say (1803), but Kates omits what follows immediately after, that is, the actual statement of the principle which begins on the same page by the following words. “This principle may be stated as follows: Principle — Say’s Law. The Ultimate Identity of Demand and Product. In the last analysis, the demand for goods produced for the market consists of goods produced for the market, i. e., the same goods are at once the demand for goods and the supply of goods; so that, if we can assume that producers have directed production in true accord with one another’s wants, total demand must in the long run coincide with the total product or output of goods produced for the market (Taylor 1925, pp. 201-202; original emphasis). This passage, Taylor’s actual definition of Say’s Law, is never quoted or mentioned in Kates’s book. The irony is that in the past, Kates (1998, p. 150) correctly quoted it. It should be noted that, like Say, Taylor (1925, p. 203) acknowledged that general demand deficiency could cause economic crises. He also admitted that public expenditures could have expansionary effects, a position that Say also supported. Taylor rightly credited Say with the earliest and clearest formulation of the law of outlets; hence the term “Say’s Law.”

Third, the question is whether Keynes’s definition of Say’s Law is the same as Kates’s. Keynes was very clear. He ([1939] 1973, pp. xxxiv-xxxv) criticized “the doctrines associated with the name of J.-B. Say” and explicitly interpreted Say’s Law as the principle “that demand is created by supply.” For Keynes ([1936] 1973, p. 18), the expression means that “in some significant but not clearly defined sense that the whole of the costs of production must necessarily be spent in the aggregate … on purchasing the product” (see also Keynes [1936] 1973, p. 26). He deduced from this principle the idea that, for classical economists, a lack of demand was not the cause of recessions, but Keynes never defined Say’s Law as “recessions are never caused by demand deficiency.” Kates’s “definition” of Say’s Law is just a straw man to justify his anti-Keynesian propaganda.

The book suffers from other flaws. Kates reduces classical economic theory to John Stuart Mill’s Principles. Even though Mill was a prominent classical economist, this is incredibly simplistic. Kates even admits that much, conceding that “Mill’s economics is very different from the economics of Smith and Ricardo” (p. 32). Kates’s reading of Mill is also incomplete. There is no discussion of Mill’s radicalism (Persky 2016), other than the fact that he was a self-proclaimed “socialist” (pp. 5, 32, 73). Furthermore, the secondary literature is rarely considered. On topics such as Say’s Law, classical political economy, and the Keynesian revolution, one would expect a comprehensive discussion of recent and older studies. Instead, Kates’s volume is a true preacher’s monologue .

There may be legitimate reasons to criticize modern economic theories and policies. However, protesting against Keynesian economics should not be done at the expense of the historical record and the textual evidence.


Béraud, Alain, and Guy Numa. 2018. “Beyond Say’s Law. The Significance of J.-B. Say’s Monetary Views.” Journal of the History of Economic Thought 40 (2): 217–241.

Béraud, Alain, and Guy Numa. 2019. “Retrospectives: Lord Keynes and Mr. Say: A Proximity of Ideas.” Journal of Economic Perspectives 33 (3): 228-242.

Jonsson, Petur. 1999. “‘Say’s Law and the Keynesian Revolution: How Macroeconomics Lost Its Way’ by Steven Kates.” Southern Economic Journal 65 (4): 967–970.

Kates, Steven. 1998. Say’s Law and the Keynesian Revolution: How Macroeconomic Theory Lost its Way. Cheltenham: Edward Elgar.

Keynes, John Maynard. (1936) 1973. The General Theory of Employment, Interest and Money. London: Macmillan. Reprinted in Vol. 7 of The Collected Writings of John Maynard Keynes. London: Macmillan.

Keynes, John Maynard. (1939) 1973. “Preface to the French Edition.” Reprinted in The General Theory, pp. xxxi–xxxv. Vol. 7 of The Collected Writings of John Maynard Keynes. London: Macmillan.

Persky, Joseph. 2016. The Political Economy of Progress: John Stuart Mill and Modern Radicalism. New York: Oxford University Press.

Say, Jean-Baptiste. [1803, 1814, 1817, 1819, 1826, 1841] 2006. Traité d’économie politique ou simple exposition de la manière dont se forment, se distribuent et se consomment les richesses. Édition variorum in Œuvres Complètes de Jean-Baptiste Say. Paris: Economica.

Taylor, Fred Manville. 1925. Principles of Economics. Ninth edition. New York: Ronald Press.

Guy Numa is an Assistant Professor of Economics at Colorado State University. Recent publications include “Retrospectives. Lord Keynes and Mr. Say: A Proximity of Ideas” (with Alain Béraud), Journal of Economic Perspectives (2019); “Jean-Baptiste Say on Free Trade” History of Political Economy (2019); “Money as a Store of Value: Jean-Baptiste Say on Hoarding and Idle Balances” History of Political Economy (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 (November 2020). All EH.Net reviews are archived at

Subject(s):History of Economic Thought; Methodology
Time Period(s):18th Century
19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII

Going the Distance: Eurasian Trade and the Rise of the Business Corporation, 1400-1700

Author(s):Harris, Ron
Reviewer(s):Artunç, Cihan

Published by EH.Net (September 2020)

Ron Harris, Going the Distance: Eurasian Trade and the Rise of the Business Corporation, 1400-1700. Princeton: Princeton University Press, 2020. xiii + 465 pp. $40 (hardcover), ISBN: 978-0-691-15077-2.

Reviewed for EH.Net by Cihan Artunç, Department of Economics, Middlebury College.


In 670 CE, a merchant in Turfan, Central Asia, disappeared while traveling to trade goods he received on a loan from another, foreign, merchant. The debtor’s demise (and with him, one copy of the contract) called into question whether the terms of the loan could be satisfied. The question was finally settled, remarkably in the creditor’s favor. In 1469, Jakob the Elder, the managing partner of the Fugger family firm — one of the largest commercial enterprises in Europe at the time — passed away. Despite being wildly successful, the business almost collapsed as it convulsed through ad hoc arrangements for 43 years until finally transitioning to Jakob the Rich’s stewardship in 1512.

These are just some of micro case studies Ron Harris elegantly weaves to demonstrate the many different problems firms faced in long-distance Eurasian trade. Some risks were outside of merchants’ control. Pirates, bandits, and storms were real threats. But price fluctuations could be just as ruinous. It was difficult to verify any one associate’s claim. In a world with incomplete information, and where information flowed slowly, monitoring different agents, ships, partners, or branches became vital for any growing business. The risks were immense but so were the rewards. But, even if the firm successfully solved these problems and enjoyed growth, it could simply dissolve after the death of its controlling members, with no heir willing to take the reins and risk the fortune they inherited.

Today, businesses wrestle with many of the same issues. To solve the problems of information, agency, and different sources of risk, firms have to come up with a way to effectively monitor agents, coordinate the actions of different actors in the organization, and assign liability to members appropriately. Harris, a legal and economic historian at Tel Aviv University, takes advantage of his expertise in these literatures that are not always in conversation with one another. His careful study combines insights from contract theory and institutional economics with the rich body of evidence the history literature produced to show the similar and different ways in which societies responded to the organizational challenges involved in Eurasian trade, one of the most capital-intensive and risky economic activities before the 1700s.

Some solutions were simple and addressed related problems; these institutions appeared spontaneously in many places. Single ownership like itinerant traders (“peddlers”) or plain bilateral contracts such as loans or agency were endogenous to many areas and endemic across Eurasia. They became the building blocks of more sophisticated institutional arrangements.

Other solutions, like the commenda or the sea loan, emerged in one place but migrated all across Eurasia, through the expansion of empires or religion, the movement of people, and the merchants involved in Eurasian trade themselves. The sea loan allowed for more flexible assignment of liability. The lender took up the sea risk, the borrower assumed the business risk. It permitted the use of ships or goods as collateral. Originated in Phoenician and Greek practices, it was integrated into Roman law, survived Christian rules against usury, and spread across the Mediterranean and much of Eurasia. It remained an attractive way of organizing maritime trade until the arrival of the commenda. In its simplest version, the commenda resembled other bilateral contracts between an investor and a traveling partner to share profits from a venture. Commenda’s innovation was in separating the invested capital from both parties. Creditors could only make claims on the commenda capital, effectively giving both the investor and the traveling partner limited liability. One traveling partner could pool capital from many different investors by combining different commendas and could even entrust these pooled assets to another traveling partner through a new commenda. The form’s flexibility made it a popular organizational choice across Eurasia. Wherever the form migrated, the form could be adapted easily depending on that region’s institutional setup. The profit-sharing rule varied from place to place, as did what the investor could actually invest. But the broad contours remained the same.

Other institutions were so entrenched in the context where they first emerged, they could not migrate easily. The grand example Harris stresses is the business corporation. The idea of a legal person was developed in Western Europe within the Catholic Church. The Eastern Orthodox Church did not enjoy the same robust separation from a higher secular authority; Islam was too decentralized and non-hierarchical to make the corporate form an attractive option. The corporation migrated from the Catholic Church to European cities, which came to be somewhat autonomous as they became independent from the rural feudal system. Municipalities, universities, and guilds all took advantage of the corporate form. In other parts of the world, cities did not enjoy the same level of independence. But it was only the English and the Dutch who innovated by attaching joint stock to the corporation for a commercial objective. Harris argues that the commitment of the government to not arbitrarily expropriate assets was vital for this development. The corporation’s equity, a large pool of assets drawn from many investors, would be a tempting target for the executive. The firm had to convince its potential subscribers that their investment would be safe from expropriation or unexpected taxation, thus locking in capital for long periods of time. Harris further argues the business corporation, by allowing the English and the Dutch to scale up their operations and set up repeatable voyages from East Asia through the long and expensive Cape route, led to their ascendance in Eurasian trade at the expense of the Portuguese and the local players.

Perhaps the book’s most important contribution is the new typology of indigenous, migratory, and embedded institutions. Previous arguments on why certain institutions emerged or were adopted in some places but not others inevitably focused too much on the supply side. Harris improves on the existing views by comparing the complexity of said institutions and their reliance on other building blocks. It’s not that the Islamic Middle East or the Chinese Empire lacked sophisticated solutions. Far from it, the institutions that these regions developed — the waqf or the family lineage organization — also depended on the Islamic or the Chinese institutional complex to function effectively. These institutions, just like the business corporation, could not migrate alone without other complementary institutions. And because these regions had their own alternatives, they did not necessarily need the corporation until the corporation’s advantage in exploiting scale and scope became clear. The book thus develops a nuanced argument that demonstrates the depth of institutional solutions that different societies created and distances itself from the essentialist, Eurocentric arguments that unfortunately characterize some of this literature.

In explaining the corporation’s embeddedness in English and Dutch institutions, the analysis falls back to the all-too-familiar claims about commitment and checks on the executive. The recent reevaluation of that literature notwithstanding, this raises a question about whether the success of the English and Dutch East India Companies can be truly attributed to their organizational advantage or to some other English or Dutch institution that allowed the corporation to emerge there in the first place. Harris is careful in not pushing this line of argument too far and admits that private-state partnerships might have been functionally similar. Disentangling the state’s role from the organizational efficacy of the corporation will be an important question with which future research will have to grapple. Going the Distance makes an important step in this direction and provides an important analytical framework that will be useful in taking up this question.


Cihan Artunç is an Assistant Professor of Economics at Middlebury College. Recent publications include “Partnership as Experimentation” (with Timothy W. Guinnane), Journal of Law, Economics, and Organization (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 (September 2020). All EH.Net reviews are archived at

Subject(s):Business History
International and Domestic Trade and Relations
Geographic Area(s):Asia
Time Period(s):Medieval
16th Century
17th Century

The Economics of the Second World War: Seventy-Five Years On

Editor(s):Broadberry, Stephen
Harrison, Mark
Reviewer(s):Sahari, Aaro

Published by EH.Net (August 2020)

Stephen Broadberry and Mark Harrison, editors, The Economics of the Second World War: Seventy-Five Years On. London: CEPR Press, 2020. vii + 122 pp. free ebook, ISBN: 978-1-912179-31-2.

Reviewed for EH.Net by Aaro Sahari, Department of Philosophy, History and Arts, University of Helsinki.


The Economics of the Second World War is a concise overview on the economic history of the Second World War, or the “greatest conflict of an era of mass warfare” as editors Stephen Broadberry (Professor of Economic History, Oxford University) and Mark Harrison (Emeritus Professor, University of Warwick) define it. The book is divided into three sections and consists of sixteen short chapters written by a group of experienced historians of twentieth century economic, military and technology history. First, the origins of the war are discussed from European perspectives. Second, the conduct of war is analyzed. Third, the consequences of the conflict are examined. All chapters summarize earlier research findings. The book is a continuation to a 2019 work on the First World War by the same editors and also available from CEPR Press.

The first part, “Preparations for War,” re-evaluates the struggling German economy, Hitler’s rise to power, the Soviet economy and war preparations, and British economic management during the war. The role of the Great Depression in the NSDAP’s rise to power is a staple of historical literature but concrete economic evidence has been scarce. In the first chapter Hans-Joachim Voth (University of Zurich) presents recent econometric analyses on the linkages between the 1931 German banking crisis, failure of the Danat bank, regional historical antisemitism, and Nazi propaganda. The second chapter by Richard Overy (University of Exeter) continues on to re-evaluate the making of Germany’s war economy. Overy dismisses the myth of a blitzkrieg economy in favor of a transition onto war footing from 1936 onwards. The third chapter, by editor Mark Harrison, focuses on USSR before the war. Stalin’s Soviet Union was a warfare state in the 1930s, and the welfare of the people was sacrificed in favor of military development. Only this singular, brutal focus on external threats prepared USSR for the 1941 invasion. The last article on prewar developments, by editor Stephen Broadberry, analyses the fiscal and financial management of war in the UK. Together these four chapters point out the significance of the Great War in directing national economic policies of these three countries toward the Second World War.

In the second part, “Conduct of the War,” the discussion of war economics opens up to include United States, Japan, and various neutral and occupied countries. Eight articles provide a kaleidoscopic view of the Second World War using individual cases to highlight essential economic phenomena in the conduct of and survival in this global crisis. First, Phillips Payson O’Brien (University of St. Andrews) re-evaluates the vast literature on how the war was won through logistics, material attrition, and costly, novel military technologies in the air and at sea. David Edgerton (King’s College London) then reminds that a national economy isn’t a sufficient unit of study in the age globalization. The UK economy was better integrated to global trade networks than the German one, and thus more capable of shifting to a war-centric model. Price Fishback (University of Arizona) challenges the notion that the war raised the United States, “the arsenal of democracy,” out of depression. Long-term economic analysis provides quantitative proof that centrally directed war spending not only differs significantly from normal economic activities but also fails to explain changes in U.S. domestic economy. Mark Harrison (University of Warwick) uses economist Mancur Olson’s postwar research activities to analyze the impact of strategic bombing in the war to argue that supply-chain disruptions had limited, often indirect effects. Then, Tetsuji Okazaki (University of Tokyo) discusses the essential role of supplier networks in Japan’s wartime production of airplanes and the impact of extending production to new, inexperienced suppliers.

The last three articles in part II delve into the wider economic phenomena of the war. Hein Klemann (Erasmus University) revisits the strain of the German war effort on occupied European countries. He notes that poorer East European countries suffered more from the occupation than West European countries, and that the Nazi policy of “Germany first” led to production inefficiencies in all occupied territories. Eric Golson’s (University of Surrey) article on neutral countries’ economic activities is an essential, if unduly short, part of the overall story. Legal neutrality was typically maintained through economic concessions to offset military weakness. Finally, Alan Bollard (Victoria University) summarizes the essential role of economists to the war effort in key belligerent countries.

In the final part of the book, “Consequences of the War,” big societal phenomena are investigated. Cormac Ó Gráda (University College Dublin) summarizes the many, horrendous famines of the Second World War from a macro perspective. Walter Scheidel (Stanford University) discusses the impact of the war on lowering economic inequality globally and in leading to more equal economic regimes thereafter. Tamás Vonyó (Bocconi University) compares the role of population loss and migration patterns in East Germany, Eastern Europe and USSR to contextualize significant differences in postwar economic recovery. Finally, Pauline Grosjean (University of New South Wales) discusses differences in the societal impact of war – from institutional growth and increased resiliency to conflict traps and persistent public mistrust in institutions. These four articles provide a necessary social framework for the economic analysis of the Second World War.

The Economics of the Second World War provides a quick and convenient introduction into the topic of war and economy in the twentieth century. The book is a well written throughout, if a bit too short. Most of the discussed phenomena would have benefited from a more thorough examination. Fortunately, all authors have provided well curated lists of further reading for the inquisitive reader. A few omissions remain from the overall story. Essential trade networks remain abstract without a description of the logistics of war. Also, an economic foray into the global impact of the Second World War would have contextualized the articles well. Still, as it is The Economics of the Second World War provides a useful primer into the economic history of a complex, global conflict.


Aaro Sahari defended his PhD on Finnish industrial technopolitics (1918–1954) in 2018. He is a member of the editorial council for the Finnish Journal for the History of Technology — Tekniikan Waiheita — and the Finnish National Council for the History of Science and Technology. Sahari currently works on technology professionals’ tacit knowledge strategies and generational narratives.

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 (August 2020). All EH.Net reviews are archived at

Subject(s):Military and War
Geographic Area(s):General, International, or Comparative
Time Period(s):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).

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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

Small and Medium Powers in Global History: Trade, Conflicts, and Neutrality from the Eighteenth to the Twentieth Centuries

Editor(s):Eloranta, Jari
Golson, Eric
Hedberg, Peter
Moreira, Maria Cristina
Reviewer(s):Straumann, Tobias

Published by EH.Net (April 2020)

Jari Eloranta, Eric Golson, Peter Hedberg, and Maria Cristina Moreira, editors, Small and Medium Powers in Global History: Trade, Conflicts, and Neutrality from the Eighteenth to the Twentieth Centuries. London: Routledge, 2018. x + 240 pp. $124 (hardcover), ISBN: 978-1-138-74454-7.

Reviewed for EH.Net by Tobias Straumann, Department of History, University of Zurich


History is usually written by the victors, and since military victory is often linked to troop size and economic capacity, the victors are usually great powers. As a result, our memory tends to be biased towards a narrow understanding of war and victory, leading us to underestimate the fact that even great powers need alliances with small and medium nations in order to succeed. This book, edited by Jari Eloranta, Eric Golson, Peter Hedberg, and Maria Cristina Moreira, aims at drawing a more realistic picture of the role played by weaker states during greater conflicts and thereby fostering new research. Weakness is defined by relatively low military capacity and relatively high trade openness. The ten contributions study crucial episodes of European countries, the United States, and Brazil from the eighteenth to the twentieth century. As the editors write in the introduction, the main argument of most chapters is that weak states were able to expand their trade and discover new markets, thus increasing their economic importance for belligerents.

Part I deals with the interplay of trade and conflict in the long run, with most contributions focusing on the Napoleonic Wars. Jeremy Land, Jari Eloranta, and Cristina Moreira investigate the evolution of American trade from 1783 to 1830 when the United States were not a great, but a medium power on the world stage. The authors show that the U.S. was able to expand its trade despite difficult circumstances. Silvia Marzagalli studies the U.S. case during the same period, but concentrates on the American shipping and trade in the Mediterranean, which increased enormously from 1793 to 1815. She highlights the crucial role of American neutrality, not as a clear-cut status, but as a negotiable and flexible stance towards war and the belligerent powers. Maria Cristina Moreira, Rita Martins de Sousa, and Werner Scheltjens analyze commercial relations between Portugal and Russia from 1750 to 1850 and show how conflicts, blockades, and institutional problems hampered direct trade. Rodrigo da Costa Dominguez and Angelo Alves Carrara study the effects on the Napoleonic Wars on the governance of Brazil as a part of the Portuguese empire. On the basis of fiscal sources, the authors show how the shift of the Portuguese Court from Lisbon to Rio de Janeiro in 1808 was conditioned by the introduction of the Continental Blockade in 1806 and the desire of the Portuguese authorities to maintain their neutrality during the Napoleonic Wars. Peter Hedberg and Henric Häggqvist explain the patterns of Swedish trade and tariffs from 1800 to 1920, with a special focus on the opportunities created by Swedish neutrality during the Napoleonic Wars, the Crimean War and World War I. Their data suggests that all three conflicts had a significant impact on Swedish trade and trade policy, positively as well as negatively, and that, overall, neutrality helped, but was not important enough to counteract the totality of war, especially during World War I.

Part II investigates the interaction between trade and neutrality in conflicts in the twentieth century. Eric Golson discusses the evolution of the concept of neutrality in wartime. He starts in the early 1600s, when Hugo Grotius came up with a first vague definition, explains how the Hague and Geneva Conventions in the late nineteenth and early twentieth centuries institutionalized the concept, and describes its collapse in World War I, giving way to a “new realism.” Consequently, in World War II small and medium neutrals (Portugal, Spain, Sweden, and Switzerland) were forced to make trade, labor, and capital concessions in order to preserve their territorial integrity. Knut Ola Naastad Strøm analyses how Norway coped with the western blockade of Germany during World War I. He shows how in the first half of the war neutrality and prosperity went hand in hand, while in the second half of the war the tightening of the western blockade drastically reduced Norwegian exports to Germany and imports from the UK and the U.S. Eric Golson and Jason Lennard investigate the impact of World War I on the Swedish economy by studying the history of the ball bearings manufacturer SKF. They find that World War I greatly benefited the company, as it increased its capital stock and provided a long-term dominating position in the international market for ball bearings in the 1920s. In a further chapter, both authors try to capture the macroeconomic effects of neutrality on the Nordic countries by calculating the long-term real output trend between 1900 and 1960 and measuring output gaps for the war periods. Their results suggest that the Nordic countries suffered only mildly from World War I, but significantly from World War II, while recovery was much swifter after 1945 than after 1918. Niklas Jensen-Eriksen deals with the role of neutrality in the 1950s, asking how successful the U.S. and its allies were in incorporating European neutrals (Austria, Switzerland, Sweden, Finland, Ireland) within their export control system. His survey shows that neutrals hardly resisted U.S. demands for cooperation, even if it ran against their principles of neutrality. In the early years of the Cold War, the U.S. was economically too dominant to be ignored.

Toshiaki Tamaki and Jari Ojala conclude the volume with an analytical summary and raise the question of how the historical experiences of small and medium-sized Western countries can be linked to a global history of neutrality and the contemporary reality in which larger units beyond the nation state have become increasingly more important.

Overall, the book succeeds in correcting the conventional picture of the role played by small and medium-sized states during major conflicts. The contributions which compare several countries and make analytical points provide especially valuable insights. The endorsement by Patrick O’Brien in the short foreword is highly deserved. On the other hand, as is often the case with edited volumes, the analytical level and the approaches adopted by the authors are quite diverse, and the unifying themes are not always as strongly visible as the reader would wish. Although the introduction and the concluding remarks go a long way towards bringing the contributions together, the main hypotheses remain general. Moreover, the title implying a global view overstates the range of the volume, as the focus clearly stays on the Western world with a particular emphasis on the experience of the Nordic countries. Nevertheless, the book makes a powerful contribution to a more nuanced understanding of war, trade, and neutrality, and deserves to be widely cited. Future research dealing with the economic history of the Napoleonic War and the world wars of the twentieth century should pay more attention to the importance of trade networks entertained by the great belligerent powers.


Tobias Straumann is Senior Lecturer of Economic History at the University of Zurich. He is the author of 1931: Debt, Crisis, and the Rise of Hitler (Oxford University Press, 2019) and Fixed Ideas of Money: Small States and Exchange Rate Regimes in Twentieth-Century Europe (Cambridge University Press, 2010).

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 (April 2020). All EH.Net reviews are archived at

Subject(s):Military and War
International and Domestic Trade and Relations
Geographic Area(s):General, International, or Comparative
Time Period(s):18th Century
19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII

A Brief History of Doom: Two Hundred Years of Financial Crises

Author(s):Vague, Richard
Reviewer(s):Newman, Patrick

Published by EH.Net (November 2019)

Richard Vague, A Brief History of Doom: Two Hundred Years of Financial Crises. Philadelphia: University of Pennsylvania Press, 2019. xiii + 227 pp. $30 (hardcover), ISBN: 978-0-8122-5177-7.

Reviewed for EH.Net by Patrick Newman, Department of Economics, Florida Southern College.

Most macroeconomists and economic historians are familiar with the classic pattern of a business cycle and the related financial crisis. First, there is the boom, which is a period of unusually high economic growth and prosperity when new bank loans fuel businesses to aggressively take risks and embark on various investment projects. However, the good times do not last forever. The boom is eventually followed by a financial crisis when a couple of prominent firms that participated in the prior economic expansion fail, which sparks runs on banks and other financial institutions that lent to the failed firms. The economic growth soon sputters and the economy enters into a bust. Prior feelings of optimism are replaced with pessimism and uncertainty. However, within the span of a couple of years the economy recovers and enters into a new boom, and the cycle repeats itself.

The recent 2007-2009 financial crisis and impending fears about the probability of a similar event occurring in the future have led to a burst of new research papers and books on understanding business cycles and financial crises. Richard Vague, a managing partner of Gabriel Investments, has written one such work. Vague’s A Brief History of Doom: Two Hundred Years of Financial Crises surveys booms and busts across multiple countries since the end of the Napoleonic Wars. Whereas most studies of financial crises concentrate on the actual crisis and subsequent downturn, Vague devotes most of his analysis to the booms that precede the busts. Vague follows in the footsteps of Hyman Minsky (1919-96) and argues that financial crises are the result of excessive risk taking, speculation, and bank lending. Most importantly, they are always preceded by large increases in private debt. Banks and other lenders make too many loans, many of which are not based on economic fundamentals and are necessarily unprofitable, and when they go bad the economy tailspins into a financial crisis and a severe recession or even depression.

The book has six chapters that survey various prominent booms and financial crises. Vague does not proceed chronologically but instead jumps around across different time periods. Chapter 1 analyzes the real estate bubble in the 1920s and the ensuing Great Contraction (1929-1933). Chapters 2 and 3 then skip ahead to the U.S. Savings and Loan (S&L) crisis in the 1980s and the Japanese crash of the early 1990s. Chapters 4 and 5 go backwards to the nineteenth century and investigate important transportation booms and banking panics in various countries. Vague finishes his historical study in Chapter 6 with the 2000s housing bubble and 2008 financial crisis. For each episode, Vague provides a “Crisis Matrix” that provides pertinent data, such as the ratio of federal debt to Gross Domestic Product (GDP), total private debt to GDP, and various subcomponents of private debt to GDP. The data vary based on what Vague and his team of researchers compiled from available sources, which gets increasingly difficult for older business cycles (the complete data can be found on Overall, Vague’s data are consistent with his hypothesis that in the booms preceding each financial crisis there was an increase in private debt to GDP and unwise loans made to businesses and consumers.

Vague could have enhanced his analysis by looking at what caused the increase in private debt and lending that he considers the primary cause of a financial crisis. No crisis matrix contains data for possible explanations, such as money supply aggregates, bank reserves, and movements in interest rates. Vague also devotes little space to central bank monetary policy (or monetary policy by other government agencies) or any other activist government policy that encouraged problematic lending practices. When he does, it is usually very brief and not integrated into his historical narrative. For example, in his analysis of the 1920s real estate crisis in Chapter 1, Vague briefly mentions that the Federal Reserve allowed unprofitable banks to continuously borrow from the discount window but he does not investigate this policy or any other expansionary actions of the Federal Reserve in the 1920s further (pp. 27-28). Problems from expansionary monetary policy are generally minimized, such as in Chapter 2, when Vague attributes the inflation of the 1970s that later caused problems for the S&L industry to high oil prices, without mentioning at all the accelerating increase in money supply aggregates in the 1960s and 1970s (pp.50, 55). While Vague largely sidesteps the role of the central bank by arguing that financial crises have occurred in the absence of a central bank, this does not rule out the possibility of other forms of expansionary monetary policy or that central bank policy was a contributing factor to booms when they were in existence (p. 191). When regulatory policy is considered, the blame is generally on deregulation and not regulation (pp. 64, 171). Perhaps this is because Vague believes “there is a constituency with the wealth, means, and incentive to promote an unfettered laissez-faire outlook, and there is no well-funded constituency to promote an alternative viewpoint” (p. ix).

Another way Vague could have improved his study would be to include an index at the back of the book. An index enormously helps a researcher navigate to particular pages where a topic is (or is not) discussed and better understand the author’s argument. The lack of an index will unnecessarily limit the book’s readership.

Overall, Vague’s work provides important empirical data that show that there have been large increases in private debt and bad loans in the boom periods that precede financial crises, and these increases are important causes of financial crises. However, he leaves the reader still asking what precisely caused the bad loans to begin with.

Patrick Newman is an assistant professor of economics at Florida Southern College. His most recently published article is “Personnel is Policy: Regulatory Capture at the Federal Trade Commission, 1914-1929” in the Journal of Institutional Economics (2019).

Copyright (c) 2019 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 (November 2019). All EH.Net reviews are archived at

Subject(s):Financial Markets, Financial Institutions, and Monetary History
Macroeconomics and Fluctuations
Geographic Area(s):Europe
North America
Time Period(s):19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII

Hawai’i: Eight Hundred Years of Political and Economic Change

Author(s):La Croix, Sumner
Reviewer(s):Alston, Lee J.

Published by EH.Net (October 2019)

Sumner La Croix, Hawai’i: Eight Hundred Years of Political and Economic Change. Chicago: University of Chicago Press, 2019. ix + 309 pp. $60 (hardcover), ISBN: 978-0-226-59212-1.

Reviewed for EH.Net by Lee J. Alston, Department of Economics, Indiana University.

Economic and political development is a longitudinal process. Sumner La Croix (emeritus University of Hawaii) gives us 800 years of the development of Hawaii from its settlement by immigrants from the Society Islands in the mid-thirteenth century to the present. The settlement of Hawaii was unique because it was uninhabited when the Polynesians arrived, which means they did not face resistance. This does not mean that the settlers started with a tabula rasa. They brought with them the culture and institutions that they left in the Society Island. In Chapter 1, La Croix gives us a short history of Hawaii, a Cliff’s Notes to the book. I encourage the reader not to stop there because the book is too rich in the details of institutional change. Indeed, it is the best case study that I have read on long run development.

In Chapter 2, La Croix takes up the issue of voyaging and settling Hawaii. He relies on recent work by archeologists who have established that Polynesians traveled to Hawaii sometime in the mid-thirteenth century. The Polynesians migrated strategically, i.e., they did not discover Hawaii by chance but rather by taking longer and longer voyages until they discovered Hawaii. They found an uninhabited fertile land and they thrived economically and demographically. The population growth rate in the first century was perhaps the highest recorded anywhere. It slowed from the mid-fourteenth century to the mid-fifteenth century and slowed further to reach an estimated population of 400,000 by 1778, at the arrival of Captain James Cook. To support such a high population growth, land must have been fertile and initially abundant. La Croix maintains that the social structure was relatively egalitarian. The crop of choice was taro.

From Chapter 3 on La Croix adopts the framework of North, Wallis and Weingast (NWW) in Violence and Social Orders. The Polynesians brought their home institutions of chiefdoms to the Hawaiian Islands. They competed with one another and violence erupted frequently. In the language of NWW, the chiefdoms were fragile states. Over time, archaic states emerged that were more stable and became natural states with systems of taxation and a hierarchy. Relying on work of archaeologists, La Croix documents that the agricultural surplus allowed for recreation as well as a more hierarchical structure with the elite taxing those below to allow for investments in stone monuments. Taxation consisted of labor dues, and consumption by chiefs and their retinue as they moved across their states. Ritualistic human sacrifices helped established legitimacy. The archaic states encompassed entire smaller islands with the larger islands splitting into several states generally delineated by volcanic slopes. Despite rebellion and wars, the population continue to grow. Over time, agriculture expanded from ponded taro production to include large rain fed fields on volcanic slopes.

The arrival of Captain Cook in 1778 upset the relatively stable natural order in the Hawaiian states (Chapter 4). The interactions with the whites from the west meant a dramatic decline in population from disease, as much as an 80% drop in population between 1778 and 1831. This exceeds by far the decline in Europe from the Black Death. Amid the population decline, Hawaii experienced a resource boom in the extraction of sandalwood, mostly for the Chinese market. The decline in population and the rush for sandalwood meant a decline in agricultural production, yet somewhat perversely, wages did not increase because of consolidation of political power. In 1795, Kamehameha, one of the ruling chiefs on the island of Hawaii conquered all of the islands except for two minor islands. He did so by amassing an arsenal of weapons before other chiefs. Kamehameha established himself as King and cleverly solidified his power by cutting in the other chiefs on the rents from land and sandalwood. The new dominant network was powerful enough to extract more labor at lower wages in agriculture and sandalwood extraction. Kamehameha died in 1819 and was succeeded by his son, who, though he managed to stay in power, was less successful in managing the overharvest of sandalwood that was more or less depleted by 1830.

Two other booms followed the sandalwood boom (Chapter 5): supplying whaling ships and sugar cane cultivation by British, German and U.S. corporations. Both sugar and supplying whaling ships were labor intensive so wages rose considerably. Population continued to decline from new epidemics. La Croix maintains that in the face of increased power of foreign corporations, the King privatized most of the land including his own holdings. The rationale was that land held in private would be harder to usurp should a foreign power take over Hawaii. The King also adopted other western institutions, including more rule of law in general along with a written Constitution. In the language of NWW, Hawaii by mid-nineteenth century had become a mature natural state.

The monarchy by the mid-nineteenth century seemed relatively stable and accommodated the nascent sugar industry. What upturned the apple cart such that Hawaii became a U.S. territory in 1898? In Chapter 6 La Croix argues convincingly that two factors led to the increased power of the sugar industry, which in turn led to the U.S. toppling the monarchy: population growth in the U.S. West where Hawaii sold most of its sugar; and a reciprocal trade agreement with the U.S. in 1876 that eliminated any tariff on Hawaiian sugar.

After territorial status, native Hawaiians lost power and three forces dominated Hawaii: the sugar industry, the territorial government and the U.S. military. Native Hawaiians increasingly lost power. There was a positive side in that increasingly U.S. institutions became implanted but with fewer checks and balances because power resided in the territorial governor and not the legislature (Chapter 7). For most native Hawaiians, territorial rule was extractive and arbitrary. Chapter 9 “Statehood and the Transition to an Open-Access Order” follows more cleanly after Chapter 7. The details are fascinating on the forces that led to statehood, which Hawaiians overwhelmingly supported. Hawaiians viewed statehood as clearly superior to the colonial style rule of territorial status. With statehood came representation in the U.S. Congress and less arbitrary policies. Importantly, neither the territorial nor the state government ever properly redressed the former confiscation of crown lands and lack of secure property rights to land for the majority of Native Hawaiians. In Chapters 8, 10 and 11, La Croix chronicles the failed policies of territorial and state policies concerning homes, leases and land reform intended to benefit those left behind. The policies consistently never met their stated goals. Despite the failures, Hawaii boomed from the 1960s to today, largely through tourism from the U.S. In his concluding chapter, La Croix discusses the broad sweep of Hawaiian history including the importance of self-rule for 600 years that set the stage for the successful transition to statehood. Problems still exist concerning the recognition of the rich cultural Native heritage but there is strong advocacy for recognition. Overall, La Croix pulls together an amazing amount of interdisciplinary scholarship to shed light not just on Hawaiian economic and political development but on the larger process of institutional change.

I highly recommend this book.


North, Douglass C., John Joseph Wallis and Barry Weingast. 2009. Violence and Social Orders: A Conceptual Framework for Recorded Human History. Cambridge: Cambridge University Press.

Lee J. Alston (Professor of Economics, Indiana University and Research Associate, NBER) is co-author of Institutional and Organizational Analysis: Concepts and Applications, Cambridge University Press (2018) and Brazil in Transition: Beliefs, Leadership, and Institutional Change, Princeton University Press, (2016).

Copyright (c) 2019 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 (October 2019). All EH.Net reviews are archived at

Subject(s):Economywide Country Studies and Comparative History
Geographic Area(s):Australia/New Zealand, incl. Pacific Islands
Time Period(s):General or Comparative