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The Great Transformation: The Political and Economic Origins of Our Time

Author(s):Polanyi, Karl
Reviewer(s):Mayhew, Anne

Karl Polanyi, The Great Transformation: The Political and Economic Origins of Our Time. 1944. xiii + 305.

Review Essay by Anne Mayhew, College of Arts and Sciences, University of Tennessee.

Markets to Market to Protection: Karl Polanyi’s Great Transformation

Karl Polanyi, once a World War I officer in the Austro-Hungarian army, a lecturer at the People’s University, and a member of the editorial staff of Vienna’s leading financial newspaper, who had been forced first from his native Hungary and then from Vienna by the turmoil of revolutions and dictatorships, began The Great Transformation as an exile in England at the end of the 1930s. He completed it in the U.S. during World War II. The task he set himself was to explain the political and economic origins of the collapse of nineteenth-century civilization, and the great transformation that Polanyi had lived through in the twentieth. As he saw it, four institutions were crucial to the economic and political order that had characterized the North Atlantic Community and its periphery in the nineteenth century: a balance of political power, the international gold standard, a self-regulating market system, and the liberal state. The SRM (self-regulating market) was “the fount and matrix of the system,” the “innovation which gave rise to a specific civilization” (p. 3).

The Great Transformation is a history of the SRM: of its emergence from the fact that the Industrial Revolution of the late eighteenth and early nineteenth centuries took place within a thoroughly commercial though not yet thoroughly market-organized economy; its nurture through the efforts of the liberal economists and statesmen of England in the first decades of the nineteenth century; and finally its demise as a consequence of the “protective reaction” to counteract the consequences that the SRM spawned. Two crucial differences between Polanyi’s analysis and that of most other historians of the economy and of the thought of the nineteenth century are so important to understanding his work that they must be made explicit even before their role in the larger argument is recounted. Polanyi differentiated between economic systems in which there were markets and the “starkly utopian” SRM of the nineteenth century. Markets are places or networks in which goods are bought and sold; they are human interactions organized by price, quality, and quantity of traded goods and services. The SRM was a society-wide system of markets in which all inputs into the substantive processes of production and distribution were for sale and in which output was distributed solely in exchange for earnings from sales of inputs. The second crucially distinct feature of Polanyi’s analysis is his argument that the SRM could not survive — not because of the distributional consequences that play the major role in Marx’s explanation of the inevitable collapse of capitalism — but because the starkly utopian nature of the SRM gave rise to a spontaneous counter movement, even among those enjoying increased material prosperity. Society is vital to humans as social animals, and the SRM was inconsistent with a sustainable society.

Polanyi developed his argument from the work of many economic historians, historians of thought, anthropologists, and others. The Industrial Revolution of the late eighteenth and early nineteenth centuries was “an almost miraculous improvement in the tools of production,” but was also an equally powerful revolution in economic organization that was in part a consequence of the introduction of the new machines into an already commercially organized economy, and in part a social experiment. Up to this point the economies of much of Western Europe, and certainly of most of Britain, had been quite thoroughly commercialized: cottage industries, paid agricultural labor, and thriving trade in towns meant that most people earned money and used that money to buy the material stuff of life. However, as Polanyi also noted, control and regulation of markets by governments and other organizations were also widespread and common. Markets were controlled; they did not control until the beginning of the nineteenth century.

In laying out this argument, Polanyi recognized the need to deal directly with the proposition, itself a creation of late eighteenth and early nineteenth century British thought, that market organization of economic activity was the natural state of human affairs. Polanyi was (counter to what many of his later critics say) quite well aware that markets and careful calculation of prices by buyers and sellers alike had long been important parts of many human societies. By use of logic and of the historical record, Polanyi developed a schema of “forms of economic integration”: that is, forms of organization for production and distribution, of which the familiar circular flow of an idealized capitalist economy (the SRM) is only one. Polanyi developed his schema for characterizing economies to show that economies could and had been organized in ways other than through an SRM. He argued that the organization of production and distribution in many societies had been accomplished through social relationships of kin or community obligations and counter obligations (reciprocity) and that other societies, on scales as small as a band of Kung bushmen or as large of Hammurabi’s empire, or even as large as the planned economy of the Soviet Union, employed redistributive systems.

In much of Western Europe a combination of redistributive and reciprocative systems dominated through the end of the feudal and manorial era, and came to be increasingly supplemented and then replaced by market trading, the control and encouragement of which was a major focus of medieval municipal and mercantilist national governments. (In The Great Transformation Polanyi also described “householding” as a form of integration, but in later work reclassified it as “redistribution writ small.”)

Then, toward the end of the eighteenth century, and with full force in the first half of the nineteenth century, two things happened. The rapidly expanding factory system altered the relationship between commerce and industry. Production now involved large-scale investment of funds with fixed obligations to pay for those funds. Producers were less and less willing to have either the supply of inputs or the vents for output controlled by governments. The second and closely related change was the development of economic liberalism as a body of thought that provided justification of a new set of public policies that facilitated transformation of land, labor, and capital into the “fictitious commodities” of a self-regulating system. Land (nature), labor (people), and capital (power of the purse) were not in fact produced for sale. Nor did the available quantity of land, labor, and capital disappear inconsequentially when relationships of supply and demand produced low input prices. This issue was, of course, particularly acute in the case of labor and led to the dismal conclusions of classical economics. Polanyi describes how, in spite of the threat to social order, the philosophy that came to be called “laissez faire” was “[b]orn as a mere penchant for non-bureaucratic methods . . . [and] evolved into a veritable faith in man’s secular salvation through a self-regulating market” (p. 135). Polanyi describes this evolution of British thought from the humanistic approach of Adam Smith, who wrote in a time of “peaceful progress,” through Malthus’s acceptance of poverty as part of the natural order, and on to the triumphant liberalism of the more prosperous 1830s. What is important is that a set of recommendations about public policy was transformed into widespread acceptance as the laws of a natural order.

Polanyi called the continuing tension and conflict between the efforts to establish, maintain, and spread the SRM and the efforts to protect people and society from the consequences of the working of the SRM “the double movement.” On one side was a concerted philosophical and legislative program to establish the SRM from the enclosures of the 1790s through the Poor Law Reform of 1834 to the Ricardian Bank Charter Act of 1844 and the repeal of the Corn Laws in 1846. The other side was a widely varying, unorganized set of movements, legislative reforms, and administrative actions to limit the effects of self-regulation, from the Chartists through early legislation to limit the hours and places of work of women and children, through the growth of labor unions, and through the emergence of the Bank of England as lender of last resort, to reimposition of tariffs on foodstuffs, and to the first legislation presaging the welfare state. As the SRM was impaired in operation, justifications for international economic cooperation and the liberal state weakened.

Polanyi’s story of the tensions in and collapse of the self-regulating economies that developed in the first half of the nineteenth century differs sharply from the story that Marx anticipated and from the story that Marxian economists have told. Though Polanyi argues that perception and response to the damages of the SRM varied by class, and therefore “the outcome was decisively influenced by the character of the class interests involved,” (p. 161) it was not unfair distribution of total output via exploitation that caused the tensions and ultimate collapse of the SRM system. The working class did not rise up to overthrow the system. Rather, land owners and bankers as well as merchants, whose interests were often threatened by fluctuations in trade, joined workers in seeking protection. As they got protection, the SRM was “impaired,” eventually the point of collapse. Increasing protection so impaired the SRM that it could no longer coordinate the world’s economy when World War I destroyed Europe’s balance of power. The struggle to restore the nineteenth century system by reestablishing the gold standard destroyed the international financial system.

Dictatorships in some places and more benign management elsewhere emerged in nationally varying responses to the collapse of the SRM system. Polanyi was optimistic but uncertain about what the longer term results of the reaction to the nineteenth century utopian experiment in economic organization would be, and if he were alive today his answer might remain uncertain for, to a remarkable extent, the conflicting sides of Polanyi’s double movement still dominate debates in public policy. As neo-liberalism founded on faith in secular salvation through the natural emergence of a self-regulating market system has spread in Central and Eastern Europe and in Asia, Africa, and Latin America, so too have calls for protection of man, nature, and national interests. The framework that Polanyi provided for understanding the collapse of nineteenth century civilization and the rise of the troubled twentieth remains powerful.

Having said this, however, it must also be said that The Great Transformation contains some major errors of omission and interpretation. Most striking to me, as an economic historian of the United States, is his cavalier and quite wrong assertion that a double movement did not develop in the U.S. until after 1890 because, until then, “free land,” a ready supply of cheap labor, and a lack of commitment to keeping foreign exchanges stable meant that a fully self-regulating market did not exist and no protection was needed. This is plainly wrong. In addition, some students of England in the late eighteenth and early nineteenth century quarrel with his interpretation of the Speenhamland system of subsidies in aid of wages.

However, the strongest and most long lasting criticism of The Great Transformation has been directed at the passages where he argues that reciprocative and redistributive forms of integration have been much more common in human history than self-regulating market systems. These criticisms invariably focus, however, not on the forms of integration themselves but on the mistaken proposition that Polanyi assumed the forms to be founded on different human motives: the SRM on self-interest and rational calculation and reciprocative systems on kindness and generosity. (Far less has been said about motives associated with redistribution, probably because emphasis has been on the contrast between greed and kindness, and on the proposition that “you cannot change human nature,” with the associated proposition that the nineteenth century British economy was truly natural.) The original attack of this kind came, not from economists or economic historians, but from anthropologists whose disciplinary literature Polanyi had used in making his assertion. Beginning in the early 1960s, anthropologists, for reasons having to do with changing political structures in the worlds that they studied and because of the evolution of thought in their discipline, began to insist that the primitive and peasant peoples whom they studied were as rational as any westerners.

These anthropologists — known as formalists in the debates that ensued — found in Polanyi, and in the work of some of his followers such as George Dalton, a convenient target. They accused Polanyi and his followers of romanticism about other peoples. Description of behavior in reciprocative systems was fodder: “The premium set on generosity is so great when measured in terms of social prestige as to make any other behavior than that of utter self-forgetfulness simply not pay” (italics added, p. 46). To anthropologists, who ignored the crass and rational self-interest implied by the phrase that I have italicized, this smacked of saying that non-modern, non-western people were “different” and not self-interested and rational. They disagreed and by extension dismissed the rest of Polanyi’s argument about reciprocity and the SRM.

Very similar arguments have been mounted by some economists. The passage most often quoted in ridicule of Polanyi’s argument is this: “previously to our time no economy has ever existed that, even in principle, was controlled by markets . . . gain and profit made on exchange never before [the nineteenth century] played an important part in human economy” (p. 43). Deirdre McCloskey, both in print and in a heated exchange on the FEMECON list serve, faults Polanyi in a way that illustrates precisely the difficulty that many readers, anthropologists and economists alike, have had with the book. McCloskey says that Polanyi asked the right question, but gives the wrong answer in saying that markets played no important role in earlier human societies. As proof McCloskey cites evidence that, the further away from their source of obsidian the Mayan blade makers were, the less was the ratio of blade weight to cutting length. To McCloskey this indicates that “By taking more care with more costly obsidian the blade makers were earning better profits; as they did by taking less care with less costly obsidian” (1997, p. 484). Ergo, Polanyi is wrong, presumably about the existence of other forms of integration and their importance. To be more careful with harder to get valuables is certainly rational, but it is not evidence of how blade makers were provisioned with material means for their sustenance or joys.

It is one thing to note that people for whom shipment of obsidian was difficult treated it with care; another to assume that they used it to produce goods that they sold for profit. Polanyi is in fact careful to note that the range of human motives varies little across systems, with the specific form of action that any motive such as self-interest, generosity, anger, or jealousy may take dependent upon the system. The economic system does not, however, depend upon the presence, or absence of the preponderance of any one motive. That this is perhaps the most difficult point that Polanyi makes is itself testament to the success of those who created the justifications for the nineteenth century.

In the years after publication of The Great Transformation Polanyi and a number of colleagues and students expanded analysis of the forms of economic integration and produced the collection of essays published as Trade and Markets in Ancient Empires. Both books present Polanyi’s understanding of what made the economies of the nineteenth and of the twentieth centuries so different, and with such far-reaching consequences, Polanyi created a way of thinking about economies and societies that has had substantial impact on economic history, anthropology, and the study of the ancient Mediterranean. The Great Transformation remains important as a highly original contribution to the understanding of the Western past; it has been and is important in methodological debates in the social sciences. Beyond that, as the double movement continues, the book is likely to remain one of the best guides available to what brought us to where we are.

Annotated References:

Polanyi, Karl. 1944, 1957. The Great Transformation: The Political and Economic Origins of Our Time. Boston: Beacon Press by arrangement with Rinehart & Company, Inc. (The Beacon Press version remains in print and is the version for which page numbers are given in this essay. The book has been translated into and published in Hungarian, Chinese, Japanese, French, German, Portuguese, and Spanish).

Dalton, George. 1961. “Economic Theory and Primitive Society,” American Anthropologist 63 (Feb.): 1-25. [One of the articles that sparked the formalist-substantivist dispute in economic anthropology.]

Drucker, Peter. 1979. Adventures of a Bystander. New York: Harper & Row. [This book contains an account of the remarkable Polanyi family by a friend who knew them in Vienna.]

Duncan, Colin A.M. and David W. Tandy. 1994. From Political Economy to Anthropology: Situating Economic Life in Past Societies. Montreal and New York: Black Rose Books. [Selection of papers from annual Polanyi Institute Conference.]

Finley, Moses I. 1978. The World of Odysseus . New York: Viking Press. [Classic application of Polanyi to the ancient world.]

Halperin, Rhoda. 1988. Economies Across Cultures: Towards a Comparative Science of the Economy. New York: St. Martin’s Press.

Mayhew, Anne. 1972. “A Reappraisal of the Causes of Farm Protest in the U.S., 1870-1900.” Journal of Economic History 32 (June): 464-475. [Though not acknowledged as such, this was an application of Polanyi’s ideas to the U.S. economy.]

Mayhew, Anne. 1980. “Atomistic and Cultural Analyses in Economic Anthropology: An Old Argument Repeated,” in John Adams, editor, Institutional Economics: Contributions to the Development of Holistic Economics . Boston: Martinus Nijhoff.

McCloskey, Deirdre N. 1997. “Polanyi was Right, and Wrong.” Eastern Economic Journal 23 (Fall): 483- 487.

North, Douglass C. 1977. “Markets and Other Allocation Systems in History: The Challenge of Karl Polanyi.” Journal of European Economic History 6 (Winter): 703-716.

Polanyi, Karl, Conrad M. Arensberg, and Harry W. Pearson. 1957. Trade and Market in the Early Empires: Economies in History and Theory. Glencoe, Illinois: The Free Press.

Sievers, Allen M. 1974. The Mystical World of Indonesia: Culture and Economic Development in Conflict. Baltimore: Johns Hopkins University Press. [Polanyi applied to development issues.]

Schaniel, William C. and Walter C. Neale. 2000. “Karl Polanyi’s Forms of Integration as Ways of Mapping.” Journal of Economic Issues 34 (March): 89-104.

Tandy, David W. 1997. Traders and Warriors: The Power of the Market in Early Greece. Berkeley: University of California Press. [Recent application of Polanyi to the ancient world.]

Subject(s):Markets and Institutions
Geographic Area(s):General, International, or Comparative
Time Period(s):20th Century: Pre WWII

Great Transformations: Economic Ideas and Institutional Change in the Twentieth Century

Author(s):Blyth, Mark
Reviewer(s):Knoedler, Janet T.

Published by EH.NET (August 2003)

Mark Blyth, Great Transformations: Economic Ideas and Institutional Change in the Twentieth Century. Cambridge: Cambridge University Press, 2002. xii + 284 pp. $60 (cloth), ISBN: 0-521-81176-7; $22 (paperback), ISBN: 0-521-01052-7.

Reviewed for EH.NET by Janet T. Knoedler, Department of Economics, Bucknell University.

Mark Blyth begins his important new book, Great Transformations: Economic Ideas and Institutional Change in the Twentieth Century, with his working class father’s complaint about the British Labour party. “Once they get elected,” his father said, “Labour will spend all this money on creating jobs, which is fair enough, but it never works. It just means prices go up. … This means we all have to pay more on loans and such things, so people will have less money to spend. The less people spend, the more the economy slows down, and so there are fewer people in work. If the Tories get in again, they’ll cut taxes, people will spend more, and there will be more jobs” (p. vii). His father’s concise summary of the basic Keynesian-Monetarist-Supply Side debate of the late twentieth century and his obvious rejection of activist government resonated deeply with Blyth, who began in graduate school to reflect on the great power of these economic ideas and to develop the argument that appears in this book.

For most of the twentieth century, thanks of course to Keynes and the Keynesians and, less famously, to Karl Polanyi’s The Great Transformation, it was for the most part not disputed that governments had an important role in softening the rough edges of capitalism. Polanyi argued that a self-regulating market mechanism could not govern the fates of labor, land, and capital (Polanyi, p. 73), without inviting great social disruption and upheaval. Governments had to provide protection for their workers, the natural environment, and aggregate purchasing power, from the often wrenching vicissitudes of economic and technological change. Change could not be prevented, argued Polanyi, but governments could and should take action to manage the rate and direction of change so as to protect those most vulnerable to the ravages of capitalism. Moreover, because protective social institutions and legislation had appeared almost immediately after the rise of the self-regulating market and had been strengthened since that time, Polanyi believed that the very notion of a self-regulating capitalism had been effectively repudiated.

Or had it? In Great Transformations, Blyth questions whether Polanyi was correct in positing activist government and the social safety net as a permanent feature of modern capitalism. If the first great transformation led to workers demanding protection from self-regulating market processes, it is reasonable to expect “in turn another reaction against those embedding institutions by those most affected, namely capitalists” (p. 4). And, according to Blyth, we have indeed seen just such a counter double movement over the past two decades, as many governments have come to diagnose their economic problems as being rooted in their own activist policies and have begun to take apart many of their important institutions and instruments of social protection. Blyth identifies two important factors in this reversal of the double movement: the political use of economic ideas and concerted political action by the business sector. In addition to his careful delineation of the historic role of the business sector in combating the double movement, Blyth also contributes a theoretical analysis of how economic ideas “are vitally important components of institutional construction and change” (p. 6).

The role of economic ideas is the essential piece of the puzzle for Blyth. Ideas may or may not reflect the real world, but they are nonetheless constructs that provide “agents with both a ‘scientific’ and a ‘normative’ account of the existing economy and polity, and a vision that specifies how these elements should be constructed” (p. 11). Moreover, given that economic change most often produces “Knightian uncertainty,” that is, an economic crisis with uncertain causes, economic ideas become even more important because they serve as simplifying blueprints that “tell agents what to do and what future to expect” (p. 11). Building upon these basic premises, Blyth sets forth five specific hypotheses about how economic ideas lead to the kind of institutional change that we have witnessed with the counter double movement: 1) economic ideas reduce uncertainty; 2) economic ideas allow for coalitions of various interest groups to be built around them; 3) economic ideas can be used as weapons by the major actors in a given society to challenge existing institutions, these major actors being the state, the business sector, and labor; 4) economic ideas are used in the construction of new institutions to supplant the old; and finally, 5) economic ideas help to coordinate the expectations of the various actors, helping to produce institutional stability.

Blyth then uses this basic framework to investigate the construction, and later dismantling, of activist states in the U.S. and Sweden, and makes use of a massive literature from both economics and political science. His five chapters detailing the double movements and the counter double movements in the U.S. and Sweden are real strengths of this book. A brief consideration of these two movements in the U.S. will demonstrate his theory in action.

In the 1930s U.S., a number of competing theories were offered to explain the economic crisis. The dominant economic idea then prevailing, that this (and any) depression, Great or otherwise, was temporary and would therefore self-correct, was quickly rejected by Hoover. However, his attempts to use alternative theories met with little success. Throughout Franklin Roosevelt’s first administration, other economic theories, such as the administered prices thesis and “sound finance” (or as we call it today, balancing the federal budget), were tested. Business rejection of the National Recovery Administration and failure of sound finance in the crisis of 1937 led the Roosevelt administration to seize upon a fourth theory, the theory of underconsumption, to diagnose the continuing economic crisis as one of insufficient aggregate demand. Both labor and business came to support this approach, labor because of the earlier Wagner and Social Security Acts, and business due to its involvement in wartime production and in many wartime institutions. Significantly, after the war, the business sector formed the Committee on Economic Development to develop the theory of growthmanship — a peacetime variation of FDR’s Keynesian approach that supported sustained high employment and high production and an activist state, in part to quash socialist-stagnationist theories but in part to signal its formal support for activist government. Several major institutions emerged during the 1930s and 1940s to become instruments of embedded liberalism and expanded in the 1950s and 1960s. The resulting institutional stability benefited labor with growing real wages and business with rising profits for three decades.

But, as has been documented by many economists and economic historians, the mid-to-late 1970s ushered in a turning point, or in Blyth’s phrasing, the second great transformation. A major contribution of this book is Blyth’s analysis of the role of ideas and the complicity of the business sector in bringing about this second transformation. This time, the Great Inflation of the 1960s and 1970s, accompanied by periods of high unemployment and stagflation, created an environment of great uncertainty for business, labor and government. Once again, an economic crisis called for new theories, or more precisely, the repackaging of several old neoliberal theories that were taken “off the shelf” (p. 267). Both Milton Friedman’s theory of monetarism and the rational expectations school of macroeconomics challenged the effectiveness of activist monetary policy. Supply-siders resuscitated Say’s Law. Public choice theorists attacked government spending as the self-interested behavior of political actors. All four of these theories challenged important foundations of activist government, and posited that inflation and the current economic crisis, rather than being something that government should try to solve, was in fact the very product of that activist government.

As Blyth hypothesizes, such new (or “rediscovered”) economic ideas must garner support from coalitions of various interest groups if they are to be heard and then used as weapons to challenge existing institutions. And a key interest group — the business sector — played an essential role in dismantling the institutions of activist government in the U.S. by becoming, as Blyth puts it, “directly involved in the production and dissemination of alternative ideas” (p. 154). The rise of corporate PACs beginning in the 1970s was one important step. A second step was business funding of conservative think tanks: the American Enterprise Institute, the Hoover Institute, and the Heritage Foundation were three key institutions that received major infusions of funds in the 1970s to carry out research in the vein of conservative economics. A third step occurred when publications as diverse as the Wall Street Journal, The Public Interest, and Reader’s Digest began to popularize supply-side theories. Finally, the financial markets and the Fed together embraced monetarism, making “the state’s role in economic management obsolete almost at a stroke” (p. 171).

A “new again” theoretical foundation was thus arrayed against activist government through the active sponsorship of the business sector. All that was left was the actual dismantling. Reagan used the refrain, “government is the problem,” to win the 1980 presidential campaign and proceeded to roll back activist government on many fronts throughout the 1980s. A decade later, Clinton continued this reversal of the double movement by embracing deficit reduction (the sound finance rejected decades earlier by FDR), substantially reducing the welfare entitlement, and proclaiming that “the era of big government is over.”

The result of this second great transformation in the U.S, according to Blyth, is a greater concentration in both income and wealth (it is noteworthy that this data does not include the tax cuts of the last three years) and a substantial weakening of the institutions of embedded liberalism. Falling real wages have been exacerbated by higher interest rates (until recently) due to the burgeoning federal deficit of the Reagan and first Bush eras. Citing William Berman, Blyth states that an average of $140 billion annually has been transferred to the wealthiest 5% in the United States. All of this suggests, even without the privatization of Social Security that is the next likely target of the forces arrayed against activist government, that this second great transformation has been at least as “great” as the first.

Why has labor been so quiescent in voting for political leaders that have worked hand in hand with the business sector to dismantle the safety net? Part of the answer lies in an irony noted by Blyth: “While the Democrats defeated the ideas of business in order to build embedded liberalism, business was able to dismantle embedded liberalism only once the Democrats had lost sight of what they were defending” (p. 201). And another part of the answer is found in Blyth’s very careful and sober discussion of the corporate takeover of democracy through PACs and think tanks. But these are only pieces of a more complex story still to be told.

Blyth also recognizes another key unanswered question when he asks: “Why were the ideas used to attack and dismantle embedded liberal institutions … essentially the same ideas discredited a generation before?” Blyth speculates that the “mythology of competition, individualism, and markets” (p. 267) may hold residual power over enough of the core constituencies to maintain belief in these powerful theories. Answering this question satisfactorily, of course, would take at least one more book, but it is indeed the important question.

In summary, this is a good book that raises more questions than it answers, but uses Karl Polanyi’s analysis to raise them well.

Reference: Polanyi, Karl. The Great Transformation. Boston: Beacon Press, 1957 (orig. 1944).

Janet T. Knoedler is Associate Professor of Economics at Bucknell University. She has published numerous articles on institutional economics and history of economic thought, and is presently at work co-editing a book on institutionalist approaches to labor economics, to be published by M.E. Sharpe.

Subject(s):Markets and Institutions
Geographic Area(s):General, International, or Comparative
Time Period(s):20th Century: WWII and post-WWII

A Fabulous Failure: The Clinton Presidency and the Transformation of American Capitalism

Author(s):Lichtenstein, Nelson
Stein, Judith
Reviewer(s):Galbraith, James K.

Published by EH.Net (September 2023).

Nelson Lichtenstein and Judith Stein. A Fabulous Failure: The Clinton Presidency and the Transformation of American Capitalism. Princeton: Princeton University Press, 2023. 525 pp. $39.95 (hardback), ISBN 978-0691245508.

Reviewed for EH.Net by James K. Galbraith, Lyndon B. Johnson School of Public Affairs, The University of Texas at Austin.


This splendid book is an unconventional collaboration. Judith Stein, Distinguished Professor of History at the City University of New York, began to write the history of Clintonism before her passing in 2017. Nelson Lichtenstein, Research Professor of History at the University of California, Santa Barbara, picked up the notes, drafts and archives, and has now finished the job.

A Fabulous Failure is an intellectual history expressed in politics. It chronicles how the Clinton years were for Democrats what Reagan’s had been for Republicans: a grand showcase of competing plans, roped together by an impresario. The authors’ signal achievement lies in tracing ideas, particularly those developed by the party’s progressive wing, from their origins at MIT, Berkeley, Princeton, and Harvard’s Kennedy School to their demise at the White House and on Capitol Hill.

The book is organized as parallel chronologies, each covering a major economic or social policy debate (and debacle) of Clinton’s presidency: health, trade (with Japan, Mexico, and China), industrial relations, “reinventing government,” welfare, international debt crises (Mexico, 1995, and Asia, 1997), and the final paroxysm of banking deregulation in 1999 and 2000. Apart from trade, crucial foreign policy issues are not covered. The mishandling of Russia rates just a few pages; NATO, Bosnia, Croatia, Serbia, and Kosovo do not appear in the index; the bombing of the Chinese embassy in Belgrade is mentioned but written off as a “mistake.” (There is no good reason to believe this.)

This reviewer haunts these pages like Banquo’s Ghost. Though some years younger than most of Clinton’s top advisers, my career in American public policy was over by 1992. Still, in the previous decades it had intersected with most of the players described here, going back to Clinton himself at the McGovern headquarters in Washington in 1971. In the 1980s at the Joint Economic Committee I had organized hearings and sponsored studies, collaborated or competed with fellow staffers, and (then and later) written many articles for the small journals where Democratic progressives made their mark, notably Working Papers Magazine and The American Prospect. A Fabulous Failure is, to me, a story of acquaintances, old colleagues, and friends.

Their mood, reflected in some harsh blurbs, is of dreams betrayed. Michael Kazin writes of “a dubious agenda of neoliberalism.” Robert Kuttner writes of “ideological seduction and political corruption”. The bitterness is personal. Much is directed at Clinton; some at the economists (Larry Summers), the political entrepreneurs (Al From, Dick Morris), and the Wall Streeters (Robert Rubin) who ended up on the winning side in the Clinton policy wars. Among the losers, Labor Secretary Robert Reich stands out, especially as he was an old “Friend of Bill” and hoped for more clout than he would enjoy.

What did Clinton’s progressives want? They were not radicals. Broadly, their faith was in institutional reform, economic democracy, business-labor codetermination, and managed trade. Their inspirations were Swedish social democracy, French health care, Italian decentralized manufacturing, and the tamer parts of the New Deal/World War II mobilization legacy, not including price control or strict subordination of the Federal Reserve. Their goal was to revive American industry while strengthening labor, to foster investments in science and technology, to expand the welfare state, especially health insurance. Their tools were—largely—argument, exhortation, and negotiation.

Without excusing Clinton, Rubin or Summers, a fair-minded observer should ask, how realistic and reasonable were the ideas (and campaign slogans) of such people as Reich, Kuttner, Derek Shearer, and Laura Tyson? Many had spent the Reagan-Bush years in academic incubators; some (for instance Ira Magaziner, who ran the Clinton health care effort) had been in consulting; Kuttner was (and remained) a magazine editor. Their beau ideal was often the “thirty glorious years,” 1945-1975, of the postwar epoch in the United States and Europe. They were not working in politics or the unions in the early 1980s and, I fear, their understanding of the irreversible industrial destruction wrought by Reagan and Federal Reserve Chairman Paul Volcker’s disinflationary policy was often superficial. Monetary and budget economics did not much interest them. Japan was the main threat they perceived. China was a mystery to them, its potential neither known nor noted. Russia played no role on their stage except as a broken model, that of “Soviet central planning”. In retrospect, arguably, the leading progressives of the early 1990s were already behind their times—even though the conventional thinkers who bested them were their intellectual inferiors in many respects.

The progressives thus ceded macroeconomic and financial control to the other wing of the Clinton coalition—to budget balancers like Leon Panetta, to mainstream economists, to Robert Rubin and his money men, and to Alan Greenspan at the Federal Reserve. This, along with the complexities of institutional (and international) compromise in areas like health, industrial relations, and trade, doomed their projects. Nor were the progressives always on the ball. As Lichtenstein and Stein observe, Clinton’s greatest domestic policy misdeed—the deregulation of finance—encountered only slight opposition from his progressive wing at the time. Clinton himself, rather like Reagan but with even fewer fixed principles, was mainly interested in his own political success. Top American politicians rarely survive otherwise, as the progressives who were charmed by him eventually learned.

And yet, as Lichtenstein and Stein acknowledge, not everything failed. There were successes—some sustainable, others not—among the debacles. Thanks to Greenspan, who held his fire after 1995, Clinton presided over a long boom, reaching full employment without inflation by the late 1990s. Growth was fueled by investments in new technologies, not the refurbishing of old ones. AFDC was abolished, but the Earned Income Tax Credit, together with abundant jobs, drove poverty down. Health care reform failed, but eventually Medicaid expansion (alongside CHIP, for children) became the go-to form of single-payer coverage for, presently, about ninety million Americans. Part of the resentment progressives now express may, perhaps, be put down to the fact that the successes (such as they were) did not flow from their ideas. Some, indeed, defied their predictions.

Lichtenstein and Stein flash forward occasionally, for example to the Great Financial Crisis of 2008—Clinton’s direct legacy—and to Obama’s Affordable Care Act, the resurrection of his first failure. They pass over Bush’s wars and the entrenchment of the Rubin coterie under Obama with at most a few words. But they do note that under Biden, elements of the 1990s industrial agenda have at last broken through. In 2020, Trump and Covid busted budget orthodoxies, incidentally validating Modern Monetary Theory. In 2021 and 2022, infrastructure, renewable energy, and advanced manufacturing got attention and funding. Inflation—briefly resurgent—seems to be abating without a bust, leaving mainstream economists mystified and the Federal Reserve apparently irrelevant, except to the money markets. Kuttner, among others, sees these developments as a kind of vindication.

I fear my old friend’s optimism is misplaced. Biden’s boom (even more than Clinton’s) rests on a fragile foundation. It depends on fracked fossil fuels, possibly already in decline, and on renewable forms of energy that may soon run up against resource and engineering limits. His chip policy presumes an industrial competence that disappeared at least two decades back. His government, long ago outsourced to private contractors, lacks the technical ability to run the policies that his advisers believe necessary. These days, the American government mostly writes checks.

Most of all, Biden’s policy of taking on China and Russia at once—a policy inflamed by moralizing—rests on a vast underestimate of the weight and power of these two countries. Clinton arrived at the dawn of the unipolar age, which placed him under the obligation to manage American power wisely and with restraint. This, notably in Russia, Yugoslavia, and with respect to NATO in Eastern Europe, he failed to do. This reviewer began to visit Russia back then and heard directly the bitter reaction to the looting and chaos of those “liberal” times. Russia has since recovered its social balance, its economy, and its military power. Clinton’s China policy, moreover, was based on a fantasy of Western cultural superiority—“engage with them and they’ll become like us.” I also advised in China in the 1990s and knew then that the Chinese were not going to take that bait. They didn’t, and today, China’s economy is larger than ours and hardly less advanced.

After Clinton, George W. Bush launched America into brutal invasions, demolishing America’s reputation worldwide. Obama aggravated relations with Russia, and Trump broke with China. Today, as Biden pursues simultaneous conflict with Russia and China, the US is squeezed out of the Middle East by the Saudi-Iran rapprochement. Meanwhile “social-democratic” Europe, long a hollow fiction under the neoliberal EU, is crumbling under sanctions and energy sabotage, aimed at Russia but wreaking havoc, especially, on Germany. Though the hegemony of the dollar and Treasury bond has not disappeared, its days may be numbered. Yes, the US economy is holding up, for now. There is no basis for confidence in the long term.

Today, we are very far from the thirty glorious years. We are also long past the peak of US primacy and free maneuver in the world. Perhaps, indeed, the progressives of the Clinton era had already missed their moment, now thirty years ago, when they were offered a fleeting chance to play at power. Yet their influence remains; their perspectives, preconceptions, commitments, and judgments still largely dominate what passes for progressive thought in America today. At the core of their worldview, the United States and the Western European countries are the good ones—the democratic and economic beacons of their youth, imperfect but fixable, given political goodwill and institutional reforms. This leaves the serious matters to financiers, information tycoons, foreign policy ideologues, and the Joint Chiefs of Staff.

It will not end well.


James K. Galbraith holds the Lloyd M. Bentsen, Jr. Chair in Government/Business Relations at the Lyndon B. Johnson School of Public Affairs at The University of Texas at Austin. He was Executive Director of the Joint Economic Committee in the 1980s, Chief Technical Adviser for Macroeconomic Reform to the State Planning Commission of the People’s Republic of China in the 1990s, adviser to the Finance Ministry of Greece in 2015, and recently elected to the Russian Academy of Sciences.

Copyright (c) 2023 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 2023). All EH.Net reviews are archived at

Subject(s):Economic Planning and Policy
Government, Law and Regulation, Public Finance
Macroeconomics and Fluctuations
Geographic Area(s):North America
Time Period(s):20th Century: WWII and post-WWII
21st Century

Averting a Great Divergence: State and Economy in Japan, 1868-1937

Author(s):Vries, Peer
Reviewer(s):Koyama, Mark

Published by EH.Net (May 2020)

Peer Vries, Averting a Great Divergence: State and Economy in Japan, 1868-1937. London: Bloomsbury Academic, 2019. iii + 310 pp. $120 (hardcover), ISBN: 978-1-350-12167-6.

Reviewed for EH.Net by Mark Koyama, Department of Economics, George Mason University.


Peer Vries is well known for several monographs on the historical origins of modern economic growth. In particular, in State, Economy, and the Great Divergence: Great Britain and China, 1680s-1850s (Vries, 2015), he emphasized the nature of the British state as one decisive factor in the different economic paths taken at either end of Eurasia. In this book, Vries turns his attention to Japan, but as the subtitle indicates, he retains his focus on the state.

Vries’s book serves two purposes. First, it is an excellent overview of Japanese economic development from the Tokugawa (1600-1867) period until 1937. Vries’s book is reliant on the secondary literature published in, or translated into, European languages; he has not written extensively on Japan prior to researching this book; but while this might appear to be a limitation, it gives him a bird’s-eye view of the literature. He provides a detailed, scholarly, and strongly argued account of economic and political developments as Japan modernized. Second, the book is also an argument for the importance of the state in economic development, more generally. There is a voluminous literature on the developmental state in East Asian growth after 1945 but far less written about the late nineteenth century. Vries applies Michael Mann’s concepts of despotic and infrastructure power to make the case that Japan’s economic success after 1867 was inconceivable without a transformation in the nature of the Japanese state, that is, the emergence of a powerful, developmental state.

The path of Japanese economic development has long puzzled observers. The traditional view held that Tokugawa Japan was very poor and backwards. Beginning in the 1960s, revisionists, however, found evidence of a market orientated society, one with comparatively high levels of urbanization and literacy. Far from being subsistence farmers, many villagers participated in rural handicrafts and trade and were integrated into a monetary economy. Measured in terms of urbanization rates, literacy, or live expectancy, Tokugawa Japan compared quite favorably with all but the most advanced regions of northwestern Europe. A puzzle remained, however, as real wages in Tokugawa Japan were very low. Incomes per capita, though slightly higher than Qing China, were also substantially lower than those observed in Europe (Bassino et al, 2019). So was Tokugawa Japan advanced or backwards? Recent work by Yuzuru Kumon (2018) reconciles this apparent puzzle, demonstrating that it was a consequence of an egalitarian distribution of land in Japan, which in a Malthusian environment led to lower incomes. Vries provides an excellent summary of the literature. His assessment that the Tokugawa economy was a fairly prosperous and successful organic economy strikes me as fundamentally correct.

From this perspective, Japan had many important preconditions that would help it make the transition to modern economic growth. But nothing about this transition was guaranteed. It was only possible because of the decisive efforts made by Japanese statesmen to build a centralized state. While the Tokugawa era certainly left many positive legacies, Vries argues that had the decentralized Tokugawa system remained in place, the transition to sustained economic growth would not have happened. The deeper question is: What enabled this dramatic and successful transformation in political institutions?

Averting a Great Divergence seeks to answer this question. It is divided into nine substantive chapters. Chapter 1 considers the Japanese economy in the Tokugawa period. Chapter 2 considers the nature of the Japanese state. It asks how the Japanese were able to avoid being colonized and how, instead, they successfully built an overseas empire. It assess the extent to which the state built by the Meiji era reformers was “modern.” Chapter 3 considers the successes of the Meiji era, particularly in building a powerful army and navy. Chapter 4 studies the fiscal system. It asks: How did the Meiji state succeed in establishing a modern tax system? Chapter 5 looks at the relationship between business and the state. It make the case the Meiji state should be considered an avowedly “capitalist” one. Chapter 6 makes the case that the Meiji reformers intentionally created what we now call a developmental state. Economic growth and catchup was their political goal because they understand they if they failed Japan would lose its political independence. Chapter 7 considers education and human capital. Chapters 8 and 9 are very short; the former touches on possible failures in the Japanese path to modern economic growth (very few in Vries’s assessment) and the latter summarizes the overall argument of the book.

This is an excellent book. It represents precisely the kind of detailed, scholarly, comparative economic history that helps broaden and deepen our understanding of the origins of economic growth. Vries displays impressive command of both the secondary literature on Japanese development and the wider economic history literature.

In a short review it is impossible to fully summarize the entire contents of the book. Nor is there space for a detailed scholarly engagement with every aspect of the argument. I am fundamentally in sympathy with the overall thrust of the Vries’s argument (see Koyama, Moriguchi, and Sng, 2018). But at times I was frustrated with various claims and arguments! And a review would not be complete without noting some points of disagreement.

In general Vries excels in both explaining how the achievements of the Tokugawa period laid many of the foundations for the Meiji Restoration and in making clear quite how dramatic these achievements were. Less usefully, Vires places great emphasis on the notion that “[t]he state in Japan . . . wanted to develop Japan” (p 163). But it is not clear what is gained by anthropomorphizing the state this way. Individual policymakers across nineteenth century Asia wanted to develop their economies and states, as the examples of individuals like Li Hongzhang in China testify. The question is not their desire but their ability to access power — to overcome or convince those who benefited from the existing distribution of economic and political rents. Rather than treating the state as a unitary actor, I think Averting a Great Divergence could have benefited from a more systematic analysis of the internal political economy of the Meiji state. What political coalitions made these reforms sustainable? In short, more public choice analysis. There is little attempt a looking “under-the-hood” so to speak of the Meiji state.

The book would also have benefited from a more focused engagement with the literature on economic and state development. Vries discusses relevant authors are various points — Acemoglu and Robinson (2012) are taken to task in Chapter 3 for arguing that the Meiji Restoration represented the formation of inclusive institutions in Japan: “Everyone with even the slightly acquaintance with the history of the Japan between 1868 and the beginning of the Asia Pacific War will be struck by the extreme naive ‘optimism’ and historical incorrectness of Acemoglu and Robinson’s interpretation of the Meiji Restoration and its implications” (p. 82). The presentation in Why Nations Fail is certainly overly simplified. But surely what Acemoglu and Robinson mean is that the Japanese state became more inclusive (i.e. the statement is not an absolute one but a relative one, comparing the Meiji regime to its predecessor). In general, Vries convincingly makes the case that a powerful state was critical to Japan’s successes in the Meiji period in both domestic and foreign policy. But he neglects to discuss what (if any) formal or informal institutional constraints ensured that the despotic and infrastructure power of the state was directed towards developmental ends.

I have some other quibbles. The writing is needless wordy at times. A shorter and punchier version of the argument, minus the inessential digressions would attract a wider audience, as would a lower price tag.

Considering the importance of Meiji Japan as the first non-Western country to achieve sustained economic growth, the absence of comprehensive, up-to-date, comparative assessment of its success has long been a lacuna in the literature. Instead, attention has focused on China as a comparator to Western Europe. As major survey of the Japanese experience by a leading scholar of the Great Divergence, Averting a Great Divergence belongs on the shelves of all economic historians interested in comparative economic development.


Acemoglu, Daron and James A. Robinson. 2012. Why Nations Fail: The Origins of Power, Prosperity, and Poverty. New York: Crown Publishing.

Bassino, Jean-Pascal, Stephen Broadberry, Kyoji Fukao, Bishnupriya Gupta and Masanori Takashima. 2019. “Japan and the Great Divergence, 730–1874,” Explorations in Economic History.

Koyama, Mark, Chiaki Moriguchi, and Tuan-Hwee Sng, 2018. “Geopolitics and Asia’s Little Divergence: State Building in China and Japan after 1850,” Journal of Economic Behavior and Organization.

Kumon, Yuzuru. 2018. “How Equality Created Poverty: Japanese Wealth Distribution and Living Standards 1600-1870.” Working Paper. October.

Vries, Peer. 2015. State, Economy, and the Great Divergence: Great Britain and China, 1680s-1850s. London: Bloomsbury Academic.


Mark Koyama is an Associate Professor of Economics at George Mason University. He is the author of Persecution and Toleration: The Long Road to Religious Freedom (with Noel Johnson) which was published by Cambridge University Press in 2019.

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

Subject(s):Economic Development, Growth, and Aggregate Productivity
Economywide Country Studies and Comparative History
Government, Law and Regulation, Public Finance
Geographic Area(s):Asia
Time Period(s):19th Century
20th Century: Pre WWII

Dollars for Dixie: Business and the Transformation of Conservatism in the Twentieth Century

Author(s):Rye Jewell, Katherine Rye
Reviewer(s):Wright, Gavin

Published by EH.Net (December 2018)

Katherine Rye Jewell, Dollars for Dixie: Business and the Transformation of Conservatism in the Twentieth Century. New York: Cambridge University Press, 2017. xvii + 317 pp. $50 (hardcover), ISBN: 978-1-107-17402-3.

Reviewed for EH.Net by Gavin Wright, Department of Economics, Stanford University.

In Dollars for Dixie, Katherine Rye Jewell traces the evolving ideological position of southern business towards economic policy from the 1930s through the 1960s, largely through the perspective of the Southern States Industrial Council (SSIC), a lobbying group founded in 1933. Jewell is Associate Professor of History at Fitchburg University, having completed her Ph.D. at Boston University in 2010, under the direction of Louis Ferleger and Bruce Schulman. As the Preface explains, Jewell acquired her interest in southern industrial history while growing up in Lebanon, Tennessee — whose woolen textile mills had employed generations of her family — with encouragement from her undergraduate teacher at Vanderbilt, David Carlton.

In the 1930s, SSIC rhetoric emphasized a distinctive southern regional economic identity, namely a poor, developing region whose prospects depended on maintaining low wages. This stance was often at odds with business interests elsewhere in the country. Indeed, the SSIC was founded by John Edgerton, president of the Lebanon Woolen Mill, barely two years after he had been ousted as leader of the National Association of Manufactures. The organization initially favored working from within the National Recovery Administration, supporting greater representation for southerners in crafting NRA codes. But the SSIC became increasingly hostile to the New Deal after 1935, with the demise of the NRA and passage of the National Labor Relations Act (better known as the Wagner Act). As Jewell recounts, southern rhetoric supporting mill-village paternalism during this period generated some “strange congruencies” between industrial interests and the anti-modern Agrarians, such as Donald Davidson (p. 71). Despite these efforts, the SSIC basically lost this battle with passage of the Fair Labor Standards Act in 1938. The defeat reflected the political isolation of the South, but also the fact that wage legislation and other New Deal measures actually had strong support from working-class white southerners — as Jewell accurately reports, citing studies by Robert Fleck and Andrew Seltzer (pp. 91, 141, 150).

The postwar era brought new thinking and new leadership to the SSIC, particularly from Director of Public Relations Thurman Sensing. Jewell describes four key issues that contributed to the “ideological recasting” of the South as a “free enterprise zone” (p. 243): the proposal for a permanent Fair Employment Practices Commission; the “rebranding” of regional identity in terms of “moral and spiritual values” rather than special economic interests (pp. 217-222); opposition to labor unions, intensified by the CIO’s campaign known as “Operation Dixie”; and the effort to recapture the national Democratic Party in 1944 and 1948. The transition from regional to universal rhetoric is Jewell’s central theme, justifying the book’s claim (exemplified by the subtitle) as a contribution to understanding the “transformation of conservatism in the twentieth century.” Nonetheless, the SSIC remained a regional organization, and the book makes clear at several points that a deeper source of regional political unity was race. For example: “The complicating fact [in shedding sectionalist language] was that racial solidarity remained the strongest link between anti-New Deal manufacturers and their representatives in Congress” (p. 210). And later: “The southern manufacturers’ litmus test of support segregation meant they could not turn to prominent Republicans, as much as they admired many, such as Robert Taft of Ohio” (p. 234).

The omnipresence of race in the South is by no means denied or minimized, but it is not the book’s central theme. To this reviewer, one of the most interesting subthemes is that southern employers strongly and persistently opposed any outside interference with their racial practices. Anyone harboring the illusion that southern business interests secretly favored Civil Rights reforms, but were reluctant to support them in public, will learn otherwise in this book. A representative statement appears in this letter to Senator Lister Hill from a Birmingham car dealer: “I certainly do not want to have to employ colored employees for jobs that can be much more efficiently filled by white people…neither do my employees want to be associated with the colored employees” (p. 208).

A tempting historical synthesis would be that the Civil Rights Revolution, by sweeping race from the South’s political agenda (or at least appearing to) opened the door to the spread of conservative political ideology across regional boundaries. That is not, however, the author’s chosen direction. She stresses instead that by shifting its rhetoric away from regional themes, “the SSIC, with the cooperation of southern cultural traditionalists and industrialists, facilitated the nationalization of the modern conservative movement and helped bring the South into conversation about a conservative realignment” (p. 244). No doubt there is truth in this formulation, but is it accurate to write that “by the 1950s, the SSIC’s invocation of free enterprise became consistent and coherent, without the compromises of past policy battles” (p. 245)? As recounted in later chapters, the SSIC became vehemently protectionist from the 1950s onward, reflecting the interests of old-line regional industries — indeed Jewell describes it as “largely a single-issue interest group” (p. 267) — but alienating large national and multinational corporations, most of whom declined to renew support for the group. The name change to the United States Business and Industrial Council in the early 1970s may have been of symbolic importance, but it did not save the organization from the political sidelines.

Economic historians might prefer a more quantitative approach to the topic, tracking SSIC membership and donations over time and relating these to the group’s policy positions. The book presents two suggestive figures on donations (pp. 125, 182), but this line of study is not pursued in depth. Using more traditional archival methods, however, Katherine Rye Jewell has added a thoughtful and perceptive contribution to the emerging literature on the rise of American conservatism in the twentieth century.

Gavin Wright is the William Robertson Coe Professor of American Economic History Emeritus at Stanford University. The paperback edition of his book Sharing the Prize: The Economics of the Civil Rights Revolution in the American South was issued by Harvard University Press in 2018.

Copyright (c) 2018 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 (December 2018). All EH.Net reviews are archived at

Subject(s):Business History
Geographic Area(s):North America
Time Period(s):20th Century: Pre WWII
20th Century: WWII and post-WWII

Remaking the Rust Belt: The Postindustrial Transformation of North America

Author(s):Neumann, Tracy
Reviewer(s):Meyer, David R.

Published by EH.Net (September 2016)

Tracy Neumann, Remaking the Rust Belt: The Postindustrial Transformation of North America. Philadelphia: University of Pennsylvania Press, 2016. v + 270 pp. $50 (cloth), ISBN: 978-0-8122-4827-2.

Reviewed for EH.Net by David R. Meyer, Olin Business School, Washington University in St. Louis.

Western Europe, especially Germany, Belgium, and the United Kingdom, and the Great Lakes region of the United States comprised the North Atlantic rust belt based on heavy industry and its signature sector of iron and steel production. This belt rose to world dominance in the late-nineteenth century. The iron and steel sector reached its peak output, at least in the case of the U.S., in the mid-1960s and commenced a precipitous decline in the late 1970s under competition from developing countries in Asia. Tracy Neumann’s Remaking the Rust Belt (a contribution to the series, American Business, Politics, and Society) focuses on the Great Lakes portion and specifically on Pittsburgh, Pennsylvania, and Hamilton, Ontario.

Both metropolitan areas struggled with rapid loss of their signature industry and related heavy industrial sectors of metal fabricating and machinery beginning in the 1970s. At the same time, their central cities had been dealing with the impact of suburbanization and consequent loss of population, especially the middle class, for over two decades previously. The subtitle’s evocation of “postindustrial transformation” signifies the decline of manufacturing and the shift to a service economy or phrased alternatively as the shift from blue collar to white collar jobs or from production to an information/knowledge economy.

The book is organized into an introduction, six analytical chapters, and an epilogue. The introduction sets out the intellectual debate about the meaning of postindustrial. Neumann takes the stance that this debate ultimately rests on ideology and values. While intellectuals framed the debate, the most important consequence for Pittsburgh and Hamilton was that the business elite/civic leaders, politicians, and policy makers executed strategies to transform their cities into what they viewed as postindustrial societies. Chapter 1 traces the roots of postindustrialism to the public/private partnerships of the 1950s and 1960s and the development by the 1970s of a national policy mindset of decentralization of decision making and privatization as means to address the problems of the cities. The emergence of growth partnerships in the 1970s is covered in chapter 2. In Pittsburgh the corporate elite forged new relations with city government compared to prior efforts, whereas in Hamilton, the city officials faced difficulty getting business people to engage with public efforts at revitalization. Chapter 3 argues that the growth coalitions’ execution of their strategy of postindustrial transformation to a service economy was not effectively blocked by critics during the 1980s.

The next chapter covers the emergent geography of downtowns during the 1980s and early 1990s based on corporate headquarters, convention centers, hotels, cultural and entertainment districts, and sports stadiums. These activities received subsidies such as tax breaks and infrastructure, thus redistributing resources from the majority of the population to a favored business elite. Chapter 5 discusses the restructuring of old industrial spaces after the 1970s into sites for new economic activity. While neighborhood groups had some say in the revitalization efforts, ultimately city officials and civic leaders controlled most of the decisions. Marketing the postindustrial transformation of Pittsburgh and Hamilton is covered in chapter 6. The epilogue, asks the question, “cities for whom”? The answer is that blue collar workers and the lower class were left behind as most efforts, including direct subsidies, were devoted to the new service economy workers and their firms.

This well-written book moves in an organized, logical progression through the topics, covering the 1970-1990 period each time from a different angle. Neumann makes extensive use of original sources, including agency archives, government documents, newspapers, and interviews, to create a richly textured interpretation of the postindustrial transformation of Pittsburgh and Hamilton. By choosing these two cities, Neumann is able to contrast divergent political economies. Pittsburgh had access to somewhat more state and federal governmental programs than Hamilton did from the provincial and federal levels, although ultimately both countries devolved much of the postindustrial transformation to the local level which had to fund them through subsidies. Growth coalitions were more structured and effective in implementing programs in Pittsburgh than in Hamilton, but, again, the results were broadly similar. Both cities transformed to the new service economy and left their blue collar and lower income populations to fend for themselves.

The choice of Pittsburgh allows Neumann to draw on a substantial body of prior research which documents and interprets its restructuring and revitalization efforts from the late-1940s to the 1960s, as well as other studies covering subsequent changes. Hamilton, in contrast, does not have the rich base of research background. Pittsburgh has become famous in the academic and popular literature as the epitome of the transformation of an old, heavy industrial city into the new service economy. From that standpoint, therefore, Neumann’s core point of the transformation is not new. Instead, she provides the key details about the underlying political and business dealings which helped drive that process of change. She misses an opportunity to provide trend evidence in several tables and graphs covering the social, economic, and demographic characteristics of both cities’ populations during the 1950-1990 period. This would have precisely documented the long-term transformation to the new service economy and the stress on the blue collar and lower income populations.

Neumann’s study raises intriguing questions for further research. A comparative study of how other old U.S. industrial cities have fared in the postindustrial transformation to the new service economy would provide insight into why some cities successfully made the transformation whereas others either lagged or failed. Thus, Buffalo’s and Cleveland’s, perhaps, laggard efforts, and Detroit’s seemingly failed attempts, would supply ideas about the conditions for transformation. St. Louis has made strides since 2000 in shifting to the new service economy; why did it lag and what galvanized these recent changes? If Neumann had extended her study to the 1990-2010 period, this would have provided evidence on how Pittsburgh and Hamilton currently fare in the postindustrial economy. Still, this study contributes to the ongoing debate about the transformation to a postindustrial society.

David R. Meyer is the author of The Roots of American Industrialization (Johns Hopkins University Press, 2003), and Networked Machinists: High-Technology Industries in Antebellum America (Johns Hopkins University Press, 2006). Recent publications focus on financial centers and financiers’ networks in Asia, including “The World Cities of Hong Kong and Singapore: Network Hubs of Global Finance,” International Journal of Comparative Sociology (2015) and (with George Guernsey) “Hong Kong and Singapore Exchanges Confront High Frequency Trading,” Asia Pacific Business Review (2016).

Copyright (c) 2016 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 2016). All EH.Net reviews are archived at

Subject(s):Economic Planning and Policy
Urban and Regional History
Geographic Area(s):North America
Time Period(s):20th Century: WWII and post-WWII

Century of the Leisured Masses: Entertainment and the Transformation of Twentieth-Century America

Author(s):Surdam, David George
Reviewer(s):Hanssen, F. Andrew

Published by EH.Net (October 2015)

David George Surdam, Century of the Leisured Masses: Entertainment and the Transformation of Twentieth-Century America. New York: Oxford University Press. xviii + 305 pp. $99 (hardcover), ISBN: 978-0-19-021157-8.

Reviewed for EH.Net by F. Andrew Hanssen, Department of Economics, Clemson University.

Economist David Surdam takes on an enormous task: To explore what leisure is and how it has changed, both in conception and fact, over the last hundred years or so. He not only draws liberally on the work by his fellow economists, but copiously cites research and writings by sociologists, anthropologists, psychologists, and social commentators of various orders. For a scholar contemplating research in the field of leisure, the bibliography alone is worth the price of the book. Anecdotes abound, many tremendously interesting. The author is very good at explaining the economic issues, when economic issues arise.

The book’s biggest weakness is that the author makes no overarching argument and advances no particular thesis (despite a title inspired by Thorstein Veblen, Veblen’s work comes up only briefly, most interestingly in a preface by economist Ken McCormick). Rather, the author appears content to recount what others have said. This can yield gems: Many of the quotes from long forgotten books and articles are priceless (like the commentator addressing the worry about all those washing machines sitting around idle). But the result is a disjointed work. Topics appear and disappear, sometimes to reappear again and sometimes not. There is too much repetition.

The author begins in Chapter 1 with an attempt to define leisure, and returns to the task from time-to-time throughout the book. Leisure is voluntary, and presumably unpaid. But is unpaid, voluntary time in the classroom leisure? How about paid but well-enjoyed tennis matches? How about mowing the lawn on the weekend? And where do “unhealthy” activities, like drinking or drug taking, or consuming pornography fit in? Indeed, Surdam’s attempt to define leisure brings to mind Potter Stewart’s famous comment about pornography, with the difference that leisure is hard to know even when one when one sees it.

Chapter 2 examines changing attitudes towards leisure, a topic that provides some of the most entertaining anecdotes in the book. Or should I say, unchanging attitudes? It is clear that from the dawn of time (or at least from the early twentieth century) leisure has generated two pressing fears: 1) that the quantity of it is “wrong” (usually there is too much; occasionally there is too little), and, 2) that whatever leisure there is, it is being badly used. The consistency with which these two points come up is quite striking; whether talking about the working class and their nickelodeons, black Americans and their jazz clubs, or teenagers and their drive-ins (to name just a few), things are going to the dogs! The author trots out a number of predictably ponderous and very amusing quotes about the problem du jour. I’m going to stop worrying so much about my daughter’s iPad.

Chapter 3 provides a reasonably good discussion of the economics of leisure, and the effect of rising incomes on leisure taken, both in amount and form. In Chapter 4, the author describes how leisure has evolved over time. The perhaps unsurprising bottom line is that time taken for leisure has increased and leisure activities have become more varied. In Chapter 5, he reviews expenditure on leisure, using annual data from the Census Bureau. Not surprisingly, he finds that spending rose as the twentieth century progressed. His analysis of the changing mix of spending is mostly anecdotal. Chapter 6 is a somewhat rambling discussion that seeks to contrast the leisure activities of the young and the old. The chapter is a grab bag of topics that includes comic books, jazz and rock-and-roll, the “swinging bachelor” of 1950s fame, and the leisure activities of African Americans. (As always, the fear of badly used leisure rears its ugly head.) Chapter 7 looks at trends in public health, and appears only tangentially related to leisure. Chapter 8 contains a very interesting discussion of how jobs went from dirty and dangerous to clean and safe to downright pleasant. The discussion illustrates how hard it is to draw a bold line between work and leisure — as one bats a volleyball across a net with fellow employees on the campus of a Silicon Valley high tech firm, is one recreating or working? It would have been nice to see the author explore that line of argument more thoroughly; for example, do farmers have very little leisure — they are constantly busy — or a whole lot? (One might ask the same thing about economics professors as they conduct their research!)

Chapter 9 focuses on the household, and illustrates the book’s strength and weaknesses in microcosm. It has an interesting starting point: the change in technology, social mores and so forth that gave rise to a massive increase in female labor force participation. It provides an intelligent review of the labor-leisure tradeoff in the context of household work. It presents some basic data in tables, and discusses cogently empirical analyses conducted by a number of researchers, mostly economists. Descriptions of how arduous many household tasks were in former days are fascinating, and the discussion of technological advances that changed things is interesting. I particularly enjoyed the author’s recounting of the debate over whether women used the time freed up for more leisure or to expand the set of household “chores.” But since there is no overarching theme, and no particular argument being made, it is hard to say what it all adds up to.

Chapter 10 begins to address the industries of mass leisure. The author provides good brief histories of amusement parks, saloons and cabarets, music, and theater and vaudeville. But it once again has a grab-bag feel. A paragraph on radio is followed by a paragraph on phonographs is followed by a paragraph on 45 rpm records and rock-and-roll. Chapter 11 continues with movies, sports, radio, and television. Chapter 12 covers the rise of mass transport, electricity, automobiles, the suburbs, and air conditioning. Chapter 13 briefly discusses the role of government in the leisure business, while Chapter 14 reviews antitrust cases involving music, movies, television, and professional sports. Surdam ends with an epilogue, in which he recounts that — guess what? — people are worried about how leisure is being used! There is nothing new under the sun.

I found the book great fun to dip in and out of. For example, in writing this review, I opened the book at five random points, and came up with: 1) a discussion of the “affable” Puritans; 2) Thomas Sowell’s views on acculturation; 3) the recounted astonishment of a 1959 Life magazine journalist who discovers that “the amount spent on dogs is equal to all the salaries and fees paid on legal services”; 4) a discussion of nineteenth century rag pickers; and 5) a description of how Vaudeville houses were established along newly developing New York City subway lines. (The thing I enjoyed most was reading again and again how one set of people deplored another set’s use of leisure.)

As enjoyable as all this is, because it lacks an organizing thesis, the book becomes, for the most part, a recounting of a lot of “stuff.” Thus, as a volume to browse for entertainment, I recommend it. For its terrific bibliography of work on leisure in myriad fields, I heartily endorse it. But as a means to understand mass leisure in the twentieth century, unfortunately, it comes up a bit short.

F. Andrew Hanssen’s publications include “Explaining Changes in Organizational Form: The Case of Professional Baseball” (with J. Meehan and T. Miceli), Journal of Sports Economics (forthcoming) and “Vertical Integration during the Hollywood Studio Era,” Journal of Law and Economics (2010).

Copyright (c) 2015 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 2015). All EH.Net reviews are archived at

Subject(s):Household, Family and Consumer History
Social and Cultural History, including Race, Ethnicity and Gender
Geographic Area(s):North America
Time Period(s):20th Century: Pre WWII
20th Century: WWII and post-WWII

The Taylor Rule and the Transformation of Monetary Policy

Editor(s):Koenig, Evan F.
Leeson, Robert
Kahn, George A.
Reviewer(s):Gentle, Paul F.

Published by EH.Net (April 2014)

Evan F. Koenig, Robert Leeson, and George A. Kahn, editors, The Taylor Rule and the Transformation of Monetary Policy. Stanford, CA: Hoover Institution Press, 2012. xix + 347 pp. $35 (hardcover), ISBN: 978-0-8179-1404-2.

Reviewed for EH.Net by Paul F. Gentle, NCC British Higher Education (Guangzhou, China).

This book explains the creation and application of the Taylor Rule, one of the most important and well-known rules of monetary policy. The volume includes chapters by Pier Francesco Asso, Ben Benanke, Richard Fisher, Otmar Issing, George Kahn, Evan Koenig, Donald Kohn, Robert Leeson, John Lipsky, Robert Lucas, Edward Nelson, Guillermo Ortiz, Lars Svensson, John Taylor, Michael Woodford and Janet Yellen. These chapters make it very clear that the Taylor Rule is one of the most important monetary policy devices to come along in the last three decades.

The volume provides a detailed history of economic thought, leading up to the Taylor Rule equation, then reviews applications of the Taylor Rule in the United States, the United Kingdom, Australia, Japan and other countries.  As the preface explains, “back in the late 1970s and early 1980s, John Taylor and a few others embraced the notion that households and firms are forward-looking in their decision-making and intelligent in forming their expectations, but rejected the view that wages and prices adjust instantaneously to their market-clearing levels” (p. vii).  In Taylor’s view of New Keynesian economics, consumers try to develop rational expectations about the future. Yet due to nominal frictions (sticky prices and sticky wages), market-clearing levels of wages and prices are not reached instantaneously.  “Taylor helped bridge the gap between monetary theory and applied monetary policy when he showed that the set of activist feedback rules consistent with a well-behaved equilibrium includes certain interest-rate rules” (p. xi). Due to the need to see how well different performance rules worked, Taylor “developed the Taylor Curve, which shows efficient combinations of output and inflation variability” (p. x). Keeping unemployment low and inflation low are goals that are especially important given both the Great Depression of the 1930s and the Great Inflation of the 1970s. Many rules or guidelines have been created to deal with these twin concerns.  The Taylor Rule attempts to do this and its results have often been very good, although many economists believe that the Taylor Rule should be used in conjunction with other policy rules.

Here is John Taylor’s expression of his rule:[1]

r = p + .5y + .5(p – 2) + 2

where r = the federal funds rate; p = the rate of inflation over the previous four quarters; and y = the percent deviation of real GDP from a target.

Convertibility of money to a commodity, such as gold, was one of the first rules for monetary policy.  However, now we have fiat money, which needs a rule or rules to govern its growth.  “The Taylor rule synthesized (and provided a compromise between) competing schools of thought in a language devoid of rhetorical passion” (p. 5). The Taylor Rule with its equal weights has the advantage of offering a compromise solution between y-hawks (output hawks) and p-hawks (price hawks).  The rule is intended as a formative guide to policy and actually describes the conduct of U.S. monetary policy during a period of macroeconomic stability.  This fact helped influence the embrace of the Taylor Rule by policy makers.  Federal Reserve Governor Kohn gives a historical perspective of past episodes, suggesting that the Fed acted gradually in a certain period of time, though not at the slower pace as in estimated Taylor rules.  “These rules do not account for changes in the Fed’s inflation target from 1987 to the second half of the 1990s while the Fed was pursuing opportunistic disinflation” (p. 82). And the Fed’s monetary policy deviated from the Taylor Rule, from 2003 to 2006, when the funds rate was kept below Taylor Rule prescription for a long time (p. 83).  Of course that deviation of the Federal Reserve has been criticized by many economists. The deviation resulted in too much credit, which led up to the U.S. housing bubble and its aftermath.

As mentioned previously, there is also the idea of the Taylor Curve (pp. 148-151). The diagram has a vertical axis that denotes the variance of output.  The variance of inflation is shown on the horizontal axis.  The Taylor equation has proven to be more useful for policy than the Taylor Curve.  The Taylor Rule equation provides prescriptions for monetary policy.  Then there’s the “Great Moderation” – the reduced volatility of inflation and output in the decades before the 2008 recession. Some economists argue that such a moderation can by more readily achieved by central bankers, if they try to follow the Taylor equation.  But Taylor also refers to the “Great Deviation” (p.163) – the period when the Taylor Rule was not followed, to the point of a boom, followed by a bust.  Several economists discuss the ideas of inflation forecasts and the Taylor Rule contending that “forecast targeting and instrumental rules (such as the Taylor Rule) are complementary, rather than alternatives” (p. 236).

Lars Svensson argues that the “institutional framework for monetary policy rests on three pillars:  1. There is a mandate for monetary policy from the government or parliamentary, normally to maintain price stability. 2. There is independence for the central bank to conduct monetary policy and fulfill the mandate. 3. There is accountability of the central bank for its policy and decisions (pp. 245 -246).  Taylor has done in his work with these ideas in mind.  According to former Fed chair Ben Bernanke, the influence of Taylor upon “monetary theory and policy has been profound indeed” (p. 277), while the current Fed chair, Janet Yellen, states that Taylor’s work and “his research has affected the way policy makers and economists analyze the economy and approach to monetary policy” (p. 281).

Ultimately, this book is well worth the read.  A large array, of distinguished contributors give the reader a spectrum of viewpoints about the Taylor Rule.  The views of the Fed and many other central banks are given.  The academic side of monetary theory as it relates to the Taylor rule is covered in detail.  Taylor has done his research work in academic settings, government settings and within the commercial areas of financial markets — and from all those perspectives economists in this book have provided valuable analysis and commentary.

1. John B. Taylor, “Cross-Checking ‘Checking in on the Taylor Rule.’” Economics One blog, July 16, 2013,

Paul F. Gentle is the author of articles in Applied Economics, Applied Economics Letters, Economia Internazionale, Banks and Bank Systems and China and World Economy. He has taught at Samford University, Peking University, University of International Business and Economics, and City University of Hong Kong.

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Subject(s):Financial Markets, Financial Institutions, and Monetary History
Geographic Area(s):General, International, or Comparative
North America
Time Period(s):20th Century: WWII and post-WWII

The Great Persuasion: Reinventing Free Markets since the Depression

Author(s):Burgin, Angus
Reviewer(s):Emmett, Ross B.

Published by EH.Net (December 2013)

Angus Burgin, The Great Persuasion: Reinventing Free Markets since the Depression. Cambridge, MA: Harvard University Press, 2012. v + 303 pp. $30 (hardcover), ISBN: 978-0-674-05813-2.

Reviewed for EH.Net by Ross B. Emmett. James Madison College, Michigan State University.

Neo-liberalism has had several histories written recently. Daniel Stedman Jones (2012) linked the stories of F.A. Hayek and Milton Friedman to the rise of Margaret Thatcher and Ronald Reagan, crossing intellectual history with political history. Phil Mirowski and Dieter Plehwe (2009; see also Mirowski, 2013) provided us with the account of a unitary social movement – a “thought collective” as they called it. Stedman Jones’ account fell short because he lacked a clear understanding of how ideas are translated into institutions and rules via political entrepreneurship (see Leighton and López, 2012 for one model of how political entrepreneurship works). His account both underestimated the subtleties of the ideas of theorists in their academic setting, and overestimated the role of political leaders in translating ideas into the political realities. Mirowski and Plehwe brought the social movement emerging from Mont Pelerin to life. But all too often in the essays included in their volume the ideas and actions of the individuals within the movement were evaluated solely in terms of the outcomes of the movement as a whole – outcomes that were perceived to be threats to all good things; like democracy, human welfare, freedom and the like.

Angus Burgin also sets a lofty objective; but he gives us a much more subtle and nuanced history than either of two accounts mentioned above. “The history of the Mont Pèlerin Society (MPS) can, and to some extent should, be read as an extended plea for the relevance of the history of ideas to the history of politics” (p. 224), he tells us in his conclusion. Agreed. Yet, unlike the one-dimensional, and uni-directional, studies cited above, the historical “relationship between theory and praxis” among members of MPS that he narrates for us reveals the nuanced subtleties of “the dynamic nature of a historical transformation” (p. 224); a transformation in the way we configured the relationship between the state and markets during the latter half of the twentieth century. In Burgin’s account, living, breathing human beings communicate, argue, negotiate, pontificate, and yes, even conspire in their efforts to encourage and preserve “capitalist modes of social organization” (p. 225).

What “capitalism” meant was itself a question. Frank Knight, one of the contributors to the discussion who rightly figures in Burgin’s narrative as a key participant in the early years, never used the word “capitalism” in his little textbook The Economic Organization (2013). Yet Knight’s book did much to revitalize acceptance among the future members of MPS of the benefits of social organization via the price mechanism in an “exchange system” (Knight, 2013, p. 23-24). One of the reasons Knight (in contrast, say, to Ludwig von Mises) figures so prominently in Burgin’s account is that he could never settle on a simple account of the complex relationship among the political, social, economic, and even moral aspects of a society which decided (consciously? or simply as a result of accepting other things like the rule of law, family control of property, certain social customs, etc.) to allow markets to play a central role in social organization (see p. 112-122). Knight’s concerns were shared, to a greater or lesser extent, by other MPS members: Bernard de Jouvenel, Wilhelm Röpke, and Albert Hunold (who served as secretary for the Society in its early years, but eventually left it) for example. And even Hayek, whose intellectual leadership is central to Burgin’s account, reconfigured his understanding of the relation between markets, the state, and various forms of social organization several times.

If anyone is the “hero” in Burgin’s narrative, it is Milton Friedman, who took over leadership of the MPS at the moment when conflict over the relation between capitalism defined narrowly in market terms, and capitalism defined in terms of individual liberty, came to a head. It was to Friedman that Jouvenel wrote his famous letter of resignation from the Society, and it was Friedman that wrote the polemic Capitalism and Freedom (2002) that replaced Hayek’s Road to Serfdom (1994) as the call-to-arms for the next generation of MPS members. Interestingly, Capitalism and Freedom was originally published in the same year that Hayek left Friedman’s lair in Chicago for retirement back on the continent, at the University of Freiburg. Capitalism and Freedom articulated a liberal social philosophy that was “less conflicted than those of the leading figures in the early Mont Pèlerin Society” (p. 177). Unlike his predecessors, who wrote general accounts of the benefits of a liberal society, “Friedman’s consistent preference for unconstrained markets combined with his methodological orientation toward empiricism to inspire him to propose an astonishing range of specific alterations to governmental practice” (p. 178). Among conservative policy-makers in America and Europe, the MPS had been held at arms-length, admired at a distance, and kept away from the practice of policy making. Friedman changed all that. His academic reputation and willingness to engage the public in their own terms “made him a formidable figure in the conservative intellectual world.” But he also possessed a toolbox equipped with novel, explicit ideas “that were clearly derived from and representative of a singular worldview” (p. 184). The combination of these qualities provided him with the means to change the public debate over markets in America, and eventually around the world.

As important as Friedman’s ideas became, and as narrowly focused on the efficiency gains from adopting market-based solutions to social problems the MPS became, there were always those who asked the Society to recall the broader dimensions of social and moral inquiry that had so animated its early members. Burgin spends the penultimate chapter of the book on this debate over the moral capital of the Society, concluding that the Friedman shift – dare I call it a version of the Samuelson’s “F-Twist” (1963)? – may have captured the spirit of an age, but it left a Society that had abandoned the very “questions of value that Hayek had established [it] to address” (p. 213).

Earlier I said that, in Burgin’s account, we see human beings communicating and acting to encourage society’s re-engagement with capitalism. And yet, as I walk away from the book, it is his account of those human beings’ thinking that most captivates me. Thinking in the midst of praxis, I’m tempted to say, because it is not thought leading to action; nor action leading to thoughts. It is both together, and more. Burgin ends by urging modern MPSers to return to the critical openness of the early MPS to engagement with a broader understanding of capitalism in all its dimensions. Can modern proponents of capitalism engage the discontent with liberalism that troubled Knight and Jouvenel, Michael Oakeshott and Röpke? “We have accepted the virtues of markets but failed to determine how to integrate them into life as we wish it to be” (p. 226).


Friedman, M. (2002). Capitalism and Freedom: Fortieth Anniversary Edition. Chicago: University of Chicago Press.

Hayek, F. A. (1994). The Road to Serfdom: Fiftieth Anniversary Edition. Chicago: University of Chicago Press.

Knight, F. H. (2013). The Economic Organization. New Brunswick, NJ: Transaction Publishers.

Leighton, W. and López, E. (2012). Madmen, Intellectuals and Academic Scribblers: The Economic Engine of Political Change.  Stanford, CA: Stanford University Press.

Mirowski, P. (2013). Never Let a Serious Crisis Go to Waste: How Neoliberalism Survived the Financial Meltdown. London: Verso.

Mirowski, P. and Plehwe, D. (Editors) (2009). The Road from Mont Pelerin: The Making of the Neoliberal Thought Collective. Cambridge, MA: Harvard University Press.

Samuelson, P. A. (1963). “Problems of Methodology – Discussion,” American Economic Review, Vol. 53, No. 2 (Papers and Proceedings): 231-36.

Stedman Jones, D. (2012). Masters of the Universe: Hayek, Friedman, and the Birth of Neoliberal Politics. Princeton, NJ: Princeton University Press.

Ross B. Emmett’s publications include Frank Knight and the Chicago School in American Economics, Routledge (2009).

Copyright (c) 2013 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 (December 2013). All EH.Net reviews are archived at

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

After Adam Smith: A Century of Transformation in Politics and Political Economy

Author(s):Milgate, Murray
Stimson, Shannon C.
Reviewer(s):Frey, Donald E.

Published by EH.NET (January 2010)

Murray Milgate and Shannon C. Stimson, After Adam Smith: A Century of Transformation in Politics and Political Economy. Princeton, NJ: Princeton University Press, 2009. x + 309 pp. $35 (cloth), ISBN: 978-0-691-14037-7.

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

The ambitious goal of Milgate and Stimson is to demonstrate how classical political economy “sought to influence and alter the understanding of politics and political life,” especially in Britain (p. 1). They produce a very careful and detailed analysis of early economists’ ideas on issues shaping the modern concept of the political order, in the process displaying a rich array of competing ideas. Milgate and Stimson cast a wide net, catching in it thinkers around the edges of economics, especially the Utilitarian philosophers and a variety of other reformers. However, discussion of continental Europeans and Americans is sparse. Milgate and Stimson use Adam Smith as a benchmark for the developments they discuss, although later ideas often deviated significantly from Smith’s due to his eighteenth-century outlook. Indeed, Milgate and Simson are very systematic in exposing how various later writers, who sometimes cloaked their ideas in Smith’s authority, were simply attributing to Smith what wasn’t unambiguously there. Consider the authors’ approach on a few topics they examine.

A major early chapter addresses the uneasy relationship between the concept of civil society and economic society. Prior to Smith, feudal thinkers and mercantilists had interpreted both civil and economic developments through the lens of state, or government, actions. Their premise was that society operated only with intentional control from the top. However, if society had its own inner, independent dynamic, then any state role would be greatly diminished; further, any explicit public morality, or virtues, would become irrelevant.

It was precisely this latter view ? that society has its own inner dynamic ? that the political economists advocated, thereby revolutionizing the concept of civil society. For Smith, the market system, at the center of society, diminished the significance of “both the state and the direct influence of statesmen” (p. 48). In addition, public virtues were displaced; for Smith, morals reflected the highly particular and individual relationships that people developed with those closest to themselves. Yet, according to Milgate and Stimson, Smith did not go to the extreme in which “the concept of the self-regulating market … came to play the more politically constraining role” that eventually emerged with modern economics (p. 50). David Ricardo added a new element to the notion of the self-guiding market system, arguing that economic classes, not individuals, were the relevant locus of economic and social action. This sharply contradicted the harmonious individualism of many other early economists’ theories. Milgate and Stimson consistently demonstrate that classical economics opened the door to multiple interpretations of civil society.

This richness of possibilities, however, was killed by the ultimate arrival of neoclassical economics. Milgate and Stimson put it this way: “Economics moved from thinking of civil society composed of social classes, professional groups, corporate entities, trade unions, and cooperative societies, to a civil society of isolated individual utility maximizers” (p. 56; emphasis added). They quote Ronald Meek approvingly: “the new starting point became, not the socioeconomic relations between men as producers, but the psychological relation between men and finished goods” (p. 58). In short, civil society was reduced to a neoclassical oxymoron as the isolated castaway Robinson Crusoe became their favored model of what was worth understanding about society! Milgate and Stimson obviously find that true political economy died with the ascendancy of neoclassical economics. They are not any kinder to the various theories of society (e.g., public choice) that have lately emerged from the neoclassical perspective. Their conclusion on the neoclassical vision: no social values exist beyond efficiency, no moral or social obligation remains, only arbitrary individual preferences matter, and anti-institutionalism saturates the literature (p. 59). For Milgate and Stimson, classical economics is always seen in tension with neoclassical theory.

Another significant political issue (covered in two chapters) was extension of the franchise in early nineteenth-century Britain. Milgate and Stimson give major attention to James Mill and David Ricardo, who each favored widening the electorate, but for very different reasons. Because everyone’s individual utility mattered to Mill, government by the rich was intolerable from a Utilitarian perspective. Yet, equally intolerable would be a vote for the ignorant, or those with no stake in the community, thus leaving out the large poor and working classes. Mill, however, favored the vote for the (reliable and safe) middle classes. Before being enfranchised, workers and the poor would need to be educated to know their own true interests, which Mill blandly equated with those of the middle class. They should also acquire the middle-class propensity to accumulate, as property presumably was the most meaningful stake in society that one could have. Mill favored enfranchisement provided it created a bourgeois republic.

Ricardo, on the other hand, did not believe that workers needed conversion to a middle-class mentality, for workers correctly assessed their interests, which also tended to coincide with those of the larger community (p. 176). As defined by Ricardo, the interest of the nation was to increase its net product, and this depended on accumulation (from profits, not middle-class savings). In turn, this required ending the diversion of income to land rents, luxuries, and even general government, an agenda Ricardo believed the working class would accept as being in their interest. In short, Ricardo meshed his case for voting rights to his understanding of economics. Milgate and Stimson drop the subject at this point, leaving implicit some key questions: for example, whether the enfranchised workers would really have an affinity with Ricardo’s essentially capitalist agenda. Implicitly, the authors also expose how tentative and limited was the reasoning that passed for significant reform in the classical era. The very richness of this book’s scholarship sometimes leads the authors away from their main thread. For example, the entire chapter on nineteenth-century utopias and stationary states seemed to have little relationship to political philosophy, politics or statecraft. In general the early political economists (in line with Smith) disparaged reformers as “utopian” if reform ventured in directions that would change the status quo too much. For their part, the political economists predicted the coming of a stagnant steady-state future. The relation of this to the interface of economics and politics is not clear to this reader. However, an exception occurred when colonies, and government policies toward colonies, were debated as an antidote to the steady state. Provocatively, this chapter closes with an interpretation of neoclassical economics as the victory of a sort of utopianism, in which competitive efficiency defines the best world (subject to constraints imposed by the status quo, which lie outside economics of course).

As noted, the authors compare classical economics as much to neoclassical economics (at its endpoint) as to Adam Smith at the starting point. Ironically, according to the authors, neoclassical economics reflected Utilitarian philosophy more than the actual classical economics. Neoclassical economics reduced a variety of classical questions by considering them in merely two dimensions ? individualistic utility and competitive efficiency. This, argue the authors, destroyed the interplay of economics and politics by its narrow focus on the self-oriented individual. This judgment applies as well to more recent neoclassical developments such as public choice; the putative “citizens” populating public-choice “societies” are simply homo economicus of the neoclassical world. At the conclusion of the book the authors contrast Smith’s “tenuous, equivocal, and open-ended” views on the affirmative roles of government against the “quite otherwise” views of neoclassical economics (p. 267).

In short, this book provides a striking perspective on classical political economy. The reader will benefit from some prior familiarity with Smith, Malthus, Ricardo and J. S. Mill, along with the Utilitarians. Some digression from the main thread may be forgiven as it always explores interesting concepts. The book makes only rare references to American thinkers, some of whom could have added a dimension lacking among the British authors. Alexander Hamilton, for example, clearly possessed a philosophy of politics and government informed by economic ideas and pragmatic financial experience; and his outlook clearly differed from that of the major British figures. In addition, nineteenth-century American thinkers often provided a religious interpretation to their economic and political ideas, which could have provided a welcome counterpoint to the predominantly secular outlook of the British classical economists considered.

Donald Frey is author of America’s Economic Moralists: A History of Rival Ethics and Economics (Albany, NY: SUNY Press, 2009; paper 2010).

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