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The Rise of the Western World: A New Economic History

Author(s):North, Douglass C.
Thomas, Robert Paul
Reviewer(s):Coelho, Philip R. P.

Project 2001: Significant Works in Economic History

North, Douglass C. and Robert Paul Thomas, The Rise of the Western World: A New Economic History. New York: Cambridge University Press, 1973. viii + 171 pp. ISBN: 0-521-29099-6.

Review Essay by Philip R. P. Coelho, Department of Economics, Ball State University. <00prcoelho@bsu.edu>

New or Old Economic History? Incentives and Development

This is a landmark book on the impact of property rights on European economic development. Published over a quarter of a century ago, its stated goal is “… to suggest new paths for the study of European economic history rather than … either [a detailed and exhaustive study or a precise empirical test that are the] … standard formats” (p. vii). North and Thomas attempt to identify the elements that allowed the Western European economy to rise to affluence. Their argument is made transparent in Chapter One (Theory and Overview): the key to growth was and is an efficient economic system. Efficient in the sense that the system of property rights gives individuals incentives to innovate and produce, and, conversely inhibits those activities (rent-seeking, theft, arbitrary confiscation and/or excessive taxation) that reduce individual incentives. They argue that property rights are classic public goods because: (1) once a more efficient set of property rights is discovered the marginal cost of copying it is low (compared to the cost of discovering and developing it); (2) it is prohibitively expensive to prevent other political jurisdictions from emulating a more efficient set of property rights regardless of whether they contributed to their construction; (3) and finally, the idea of a set of property rights, like all ideas, is non-rival — we can all consume the same idea and the “stock” of the idea is not diminished. These public good aspects lead them to conclude that there may be under investment in the attempts to create more efficient sets of property rights because the jurisdiction that invests in the development of property rights pays the entire cost of their development but receives only benefits that accrue to its jurisdiction, while other jurisdictions can get the benefits without any of the developmental costs. Thus, the problems of public goods and the “free riders.”

Chapter Two (“An Overview”) sets the historical stage for their analysis. North and Thomas begin with tenth-century Europe and an examination of the classic feudal system. They contend that relatively low population densities and the absence of security (both economic and personal) led to a retreat from market exchange to one of self-sufficiency and to the development of feudalism. Protection was valuable and had to be paid for, but in the absence of markets it was paid for in kind rather than money. Since agricultural output could not be exchanged in the market (land) lords demanded labor services (dues) rather than output shares. Labor dues could be used to produce a more desirable set of consumables than output shares. Lacking market exchange, manorial labor was more fungible than agricultural output. The authors argue that from kings down to peasants, the absence of markets was the mid-wife to feudalism. The second prong of their thesis is that in feudalism, as in any societal arrangement, there existed a myriad of details, known as the custom of the manor that allowed the system to function. Once established, these customs became the set of property rights that molded the economic and personal relationships of feudalism.

As the centuries progressed populations grew and manorial economies replicated themselves. North and Thomas contend that land was available at the constant marginal cost (the cost of clearing land) up to the thirteenth century. At the end of this period diminishing returns to labor employed in agriculture manifested itself. The growth of population densities and the establishment of political order allowed markets to emerge. Diminishing returns and emergent markets gave feudal lords incentives to convert their serfs’ labor dues into fixed money payments. The lords were better off receiving a fixed payment rather than labor dues because the market price for labor was falling due to Malthusian diminishing returns to labor in agriculture. The commutation of labor services into money payments could not be reversed when labor became more valuable during the plagues of the fourteenth century. Amending the custom of the manor was subject to severe transactions costs, consequently by the sixteenth century servile labor in Western Europe was not viable.

Part Two (Chapters 3-7) presents evidence to buttress this thesis. Chapter 3 explores property rights in humans and land, Chapters 4 and 5 develop the frontier movement and the settling of land. Chapter 6 explores diminishing returns to agriculture in the thirteenth century, and Chapter 7 the devastation associated with the fourteenth century. Part Three of the book deals with the period 1500 to 1700 and covers the “unsuccessful” national economies of Spain and France and the successful ones of Holland and England. North and Thomas argue that inefficient sets of property rights hindered economic growth in Spain and France, while more efficient sets promoted the economic growth of England and Holland.

The paragraphs above are a rough sketch of the North-Thomas thesis on the growth of Western Europe. How well have the last 25 years of the twentieth century treated it, and how much consideration should it be given? The first question is relatively easy to answer. Texts and books in European economic development and history generally cite The Rise of the Western World, with the notable exceptions of David Landes and Rondo Cameron. In the academic literature it is frequently cited: The Social Science Citation Index for the years 1986-1990 gives the book about fifteen citations per year (68 total citations in the entire five year period), and for the last decade of the twentieth century (and subsequent to North winning the Nobel Prize in economics) citations rose to about twenty per year.1 But how big is that? It is larger than most, but not in the league of scholarship that alters the way a subject is considered. A relevant example is Ester Boserup’s The Conditions of Agricultural Growth that, for the same period (1986-90), was cited 158 times, or more than twice as frequently as North and Thomas. I believe the citation count assessment of the significance of this book is relatively accurate. The Rise of the Western World is an addition to the historiography of property rights, but it does not accomplish its stated goal: to explain the rise of the West. Furthermore there are significant gaps in its argument.

First, its reliance on Malthusian population theory may be misplaced. In 1966 the aforementioned Ester Boserup published her work The Conditions of Agricultural Growth (not cited in North and Thomas). From empirical evidence she argued that increasing populations led to the intensification of economic activities: From hunting and gathering, to a long-cycle agricultural rotation mixed in with hunting and gathering, to settled agriculture. In Boserup’s analysis output per man-year rises in agricultural societies relative to hunting and gathering societies, but output per hour devoted to the acquisition of food may have fallen. Boserup’s thesis is much more sophisticated than (and contradictory to) the simple Malthusian framework that North and Thomas rely upon. She points out that it is extraordinarily difficult to compare outputs in societies with different levels of production intensity. Population densities lead to different modes of production and entirely different societies. An increase in population density increases the range of productive activities that can be produced for market exchange, and as Adam Smith explains increased specialization leads to increased output and the size of the market limits specialization. North and Thomas recognize this interdependency explicitly. They state that increasing specialization due to increasing population densities may have partially offset Malthusian diminishing returns. How do they know it was a partial offset? The evidence they offer on diminishing returns and a Malthusian crisis in medieval England is primarily derived from the works of James E. Thorold Rogers, who investigated six centuries of wages and prices in England.2

As a source, Rogers is an excellent compilation of manorial roles and other data sources, however he is not a transparent writer and he is difficult to interpret. In volume one of A History of Agriculture and Prices in England (1866) he states, “… we may… conclude that the price of the service [wage labor], in so far as it was affected by competition, represents fully the economical conditions of supply and demand, and is interpreted by the evidence of prices” (p. 253). This may be interpreted to mean that wages are an accurate representation of the laborers’ incomes, but that does not seem to be what Rogers meant. Two pages later he writes that: “In many cases the labourer or artisan was fed. In this case, of course, he received lower wages. … At Southampton, the various artisans are almost invariably fed, … [In 1385] we read … of an allowance instead of food. As a rule, however, the wages paid are irrespective of any other arrangement. Sometimes, but very rarely, and only in the earlier part of the period, the labourer is paid in kind.” And in Six Centuries of Work and Wages (1884), Rogers indicates that feeding workers was considered routine (pp. 170, 328, 354-55, 510, 540-541, etc.).

I interpret Rogers to mean that in the early centuries of his study day laborers did not normally receive family food allowances, but that they were typically fed on the job. Given the nature of work (agricultural labor from shortly after sunrise to sunset) and medieval food preservation and preparation technology, not feeding workers would have forced them to devote significant amounts of time away from working to food preparation and to feeding themselves (just getting bread would be a formidable task given their work hours and the work hours of bakers). Besides being fed on the job laborers frequently had other perquisites such as gleaning, allotments of beer, and small amounts of land for individual agricultural activities (kitchen gardens). All these in-kind payments are mentioned in Rogers (1866) and are considered normal. North and Thomas base their work not only on the wage data from Rogers, but also on his price data for agricultural products.3 In order to determine real wages, money wages are divided by an index of agricultural prices.4 Notice that the numerator typically ignores payments in kind and the denominator is exclusively a food index. Medieval workers’ consumption bundles had a heavy food component, but if one is being partially paid in food and resources devoted to food (kitchen gardens), then real wage indexes that focus solely on the costs of food may be seriously distorted unless the income (both in money and in kind) elasticity for food is one and the overwhelming preponderance of the budget is devoted to food. Mildly put, the data that North and Thomas rely upon to show Malthusian diminishing returns are not entirely adequate to the task.

Other sources question the use of the Malthusian paradigm. James Z. Lee and Wang Feng unequivocally deny that Chinese agriculture from 1300 to 1800 experienced Malthusian crises. Similarly, Julian L. Simon disputed the empirical validity of the Malthusian model. Others question the North and Thomas view of medieval English agriculture. Gregory Clark questions the view of a primitive English agriculture running into diminishing returns in the early fourteenth century.5 Certainly the fourteenth-century plague was a disaster to the European economy, but it does not follow that the plagues that devastated it were direct consequences of Malthusian diminishing returns. More likely it was, as William McNeill hypothesized, a result of an integrated Old World economy that led to the introduction of a “new” pathogen to a dense, flea-ridden European population.6

So there are difficulties with North and Thomas’s belief that the diseases of the fourteenth and fifteenth centuries are a manifestation of declining living standards (Malthusianism). They do not consider that the plague may have been exogenous, that pathogens are subject to their own dynamics and evolution and not necessarily a result of human intervention.7 North and Thomas simply assert that the plague was a result of over population, diminishing returns, and declining living standards. But if that is so, why did the plague reoccur after population had declined and (according to the data they rely upon) wages had increased? And why did plague occur earlier — in the mid-sixth century? North and Thomas do not have answers.

There is a straightforward explanation to these questions that is grounded in epidemiology: It is that the plague was a “new” disease to fourteenth-century Europe and its relatively dense population resulted in high rates of infection and mortality. These rates decreased as immunities (both acquired and genetic) became more predominant in the populations of Europe. What has this to do with Malthus and diminishing returns? Nothing: The simple Malthusian doctrine correlating high death rates with low living standards is suspect. It assumes that diseases are a function of poverty while there is evidence that the causation runs from diseases to poverty, and it is contradicted by data which show areas with high money incomes (cities) having higher death rates than those areas with low money incomes (rural areas). Consequently any line of reasoning that relies upon the Malthusian doctrine, as does The Rise of the Western World, is suspect.

There are other flaws in their thesis, some minor, some major. A minor omission is that they do not specify why the servile labor force accepted the original commutation of labor services to money payments. According to their high transactions cost model, “the custom of the manor” would have made the initial negotiations prohibitively costly. A simple observation that personal freedom to the individual was worth more than the value of the money payments would correct this omission. And, such an observation would reinforce their claim that when the purchasing power of a unit of money fell (inflation) the lords were unable to switch back to servile labor.

A more significant difficulty with their thesis is their claim that while diminishing returns to labor existed in the countryside, urban areas had constant returns. These are inconsistent with declining real wages, because migration from village to town will prevent agricultural wages from falling.8 Another difficulty is their lack of knowledge of antiquity: They seem to believe that institutional innovations such as insurance and bills of exchange were medieval innovations, but these were known and used at least by the Hellenistic era, and the ancients developed many contractual forms that were resurrected and used again during the European Renaissance.9

So North and Thomas’s book is not without its flaws, but blemishes and all it still makes significant contributions in its emphasis on an efficient set of property rights as a necessary condition for economic development to take place. In this emphasis North and Thomas returned to the fundamentals of economics and its founding father, Adam Smith, who said: “Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes and a tolerable administration of justice; all the rest being brought by the natural course of things.”

The Rise of the Western World is right to echo these sentiments. Since its publication in 1973 the modest increases in economic and personal freedom that the Chinese have experienced have led its population to a degree of affluence entirely unanticipated a quarter of a century ago. Similarly, the decline in law and order has bought economic and personal disasters to many in parts of Asia and Africa. The lesson seems a hard one to learn: the protection of the liberties of people to both their persons and properties is the most effective way to promote the general welfare in the long run. Short-run policies that restrict these liberties inevitably reduce welfare in both the short and long run. By focusing on this lesson in The Rise of the Western World, North and Thomas have done the profession and humanity a meritorious service.

Endnotes:

1. Counting citations is a tricky business because a slight change in the citation can result in an entry separate from the main one. Thus D.C. North and R.P. Thomas may be counted differently from D. North and R. Thomas.

2. North and Thomas cite other evidence, but much of this is ultimately derived from Rogers’s work. For example E.H. Phelps Brown and Shelia Hopkins’s works on wages and prices are based on data gathered from Rogers.

3. North and Thomas rely on the Phelps Brown and Hopkins works (1955, 1956, 1957) on real wages whose data are derived from the wage and price data of Rogers.

4. “Index” may not be a completely accurate term because the index frequently contains only one commodity; then, to be specific, it is a wage series expressed in wheat units.

5. Clark (1991) using labor inputs in harvesting as a proxy for wheat yields finds little change in output per acre over the medieval era. He observes that: “Interestingly the labour input on reaping wheat from 1250 to 1450 seems to have risen little, implying a constancy of yields over this period. This is consistent with the work of Titow and of Farmer on the Winchester and Westminster estates over the medieval period. … Wheat yields were fairly constant over the medieval period, the population losses of the Black Death having little impact on yields” (p. 454, footnotes omitted).

In another article, Clark (1988) observes that relatively low yields per acre in medieval England could be attributed to the relatively high interest rates. Taken together these observations do not lend support to the thesis that medieval Europe was in a Malthusian crisis because, if it were so, we would expect to see declining mean output per unit of labor and increasing mean output per unit of land as diminishing returns makes labor relatively abundant and land relatively scarce. The opposite would occur if, as a result of the Black Death, labor became relatively scarce.

6. North and Thomas do not recognize that the plague may have been the result of increasing living standards. As incomes rose trade increased and disease pools in different regions became integrated. Mortal diseases newly introduced to an area frequently have a devastating impact on the native population. For more on this see McNeill.

7. Exogenous in the sense that the plague was not a disease endemic to fourteenth-century Europe, although, most likely, it had appeared in Europe in the first millennium CE; see J. C. Russell for further information.

8. For a complete specification of this model see Chambers and Gordon.

9. Edward F. Cohen argues and presents persuasive evidence that these institutional forms were abundant in fourth-century BC Athens.

References:

Boserup, Ester. The Conditions of Agricultural Growth: The Economics of Agrarian Change under Population Pressure. Chicago: Aldine, 1965.

Cameron, Rondo. A Concise Economic History of the World. New York: Oxford University Press, 1989.

Clark, Gregory. “Yields per Acre in English Agriculture, 1250-1860: Evidence from Labour Inputs,” Economic History Review 44 (1991): 445-60.

Clark, Gregory. “The Costs of Capital and Medieval Agricultural Technique,” Explorations in Economic History 25 (1988): 265-94.

Chambers, Edward J. and Donald F. Gordon. “Primary Products and Economic Growth: An Empirical Measurement,” Journal of Political Economy 74 (1966): 315-32.

Cohen, Edward E. Athenian Economy and Society: A Banking Perspective. Princeton: Princeton University Press, 1992.

Lee, James Z. and Wang Feng. One Quarter of Humanity: Malthusian Mythology and Chinese Realities, 1700-2000. Cambridge, MA: Harvard University Press, 1999.

Landes, David S. The Wealth and Poverty of Nations: Why Some Are So Rich and Some So Poor. New York: Norton, 1998.

McNeill, William H. Plagues and Peoples. New York: Anchor Books, 1976.

Phelps Brown, E. H. and Shelia V. Hopkins. “Seven Centuries of Building Wages,” Economica 22 (1955): 195-206.

Phelps Brown, E. H. and Shelia V. Hopkins. “Seven Centuries of the Prices of Consumables, Compared with Builders’ Wage-Rates,” Economica 23 (1956): 296-314.

Phelps Brown, E. H. and Shelia V. Hopkins. “Wage-Rates and Prices: Evidence for Population Pressure in the Sixteenth Century,” Economica 24 (1957): 289-306.

Rogers, James E. Thorold. Six Centuries of Work and Wages. New York: G.P. Putnam’s Sons, 1884.

Rogers, James E. Thorold. A History of Agriculture and Prices in England. Oxford: Clarendon Press, 1866.

Russell, Josiah C. “That Earlier Plague,” Demography 5 (1968): 174-84.

Simon, Julian L. The Economics of Population Growth. Princeton: Princeton University Press, 1977.

Simon, Julian L. Population and Development in Poor Countries: Selected Essays. Princeton: Princeton University Press, 1992.

Simon, Julian L. The Ultimate Resource 2. Princeton: Princeton University Press, 1998.

Simon, Julian L. and Herman Kahn (editors). The Resourceful Earth: A Response to Global 2000. New York: Oxford, 1984.

Philip R. P. Coelho has written on long-run economic growth (“An Examination into the Causes of Economic Growth,” Research in Law and Economics 1985) and is currently working on the impact of morbid diseases on economic history and growth (see: “Biology Disease and Economics: An Alternative History of Slavery in the American South,” with Robert A. McGuire, Journal of Bioeconomics Vol. 1, 1999; “Epidemiology and the Demographic Transition in the New World,” Health Transition Review, Vol. 7, 1997; and “African and European Bound Labor in the British New World: The Biological Consequences of Economic Choices” with Robert A. McGuire, The Journal of Economic History, Vol. 57, 1997.)

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Subject(s):Servitude and Slavery
Geographic Area(s):Europe
Time Period(s):Medieval

The Debit and Сredit оf War, or How Stalin Made a Trillion Dollars: The Unknown Economic History of the USSR before, during and after World War II (1940–1953)

Author(s):Babichenko, Denis
Reviewer(s):Harrison, Mark

Published by EH.Net (December 2020)

Denis Babichenko, The Debit and Сredit оf War, or How Stalin Made a Trillion Dollars: The Unknown Economic History of the USSR before, during and after World War II (1940–1953). Moscow, 2020.  xi + 379 pp. ISBN: 9798610423784.

Reviewed for EH.Net by Mark Harrison, Department of Economics, University of Warwick.

 

The official reckoning of Soviet material losses arising from the war with Germany makes grim reading. A state commission, established in 1942, reported in September 1945: “During the war, the German fascist invaders completely or partially destroyed and burned 1,710 cities and towns, more than 70 thousand villages and settlements, over 6 million buildings, displaced around 25 million people; and destroyed 31,850 industrial enterprises.” Agricultural losses are said to have included more than 70 million head of livestock large and small, killed, looted, or taken to Germany. A hundred thousand schools, colleges, hospitals, clinics, and so forth were also destroyed. The total was valued at 679 billion rubles at official prices of 1941 (FSGS 2020: 278-279). Semi-official sources (cited by Harrison 1996: 315n) later put this figure at around 30 percent of “national wealth.”

While a few western authors have expressed skepticism about the reported scale of losses (Moorsteen and Powell 1966: 72-77; Harrison 1996: 158-159), the findings of the state commission have never been audited. Nor has there been any comprehensive account of possible Soviet economic gains from the war, which might extend from the value of territories and assets annexed in 1939/40 and 1945 to postwar reparations from former Axis countries.

The Debit and Сredit оf War is a first attempt to strike an informed balance of Soviet losses and gains from World War II. The author, Denis Babichenko, is an independent scholar and writer based in Moscow and earned his PhD in history at Moscow State University. He has previously written about the history of censorship in the Soviet Union.

After a short introduction, the book is divided into four parts. In Part I, chapter 1 reviews the Russian and Soviet national economic statistics of the period from 1913 to 1941. On that basis, Chapter 2 evaluates the size and condition of the Soviet economy on the eve of the German invasion. Both evaluations are very unfavorable.

Part II is concerned with Soviet economic losses arising from the war. While these took place almost entirely on territories that saw fighting and temporary German occupation, Chapter 3 notes that much destruction arose from Soviet, not German actions — apparently, anyway. During retreat, Stalin’s orders were to evacuate what could be saved and destroy the rest. Babichenko argues that less was evacuated than was officially claimed and that more of the capital stock survived occupation than was claimed. With that in mind, Chapter 4 turns to the damage attributable to German war actions and occupation policies, the basis of the 679 billion rubles already mentioned. It is argued that official reports were grossly exaggerated. Rather than being based on reports from the ground, they were thrown together to match a predetermined target for postwar reparations that Stalin had fixed from above in 1943, long before the war’s end (p. 167). Babichenko shows that the reported losses from enemy occupation in physical units, which should have formed the building blocks for valuation of the aggregate loss, were implausibly large: some of them equaled or exceeded the total stocks claimed before the war on the occupied territories, and sometimes the claimed stocks for the entire country (pp. 256-57).

Part III examines Soviet economic gains from the war. Chapter 5 is devoted to “gains from allies,” finding that Allied wartime aid exceeded the mere “4 percent” of the value of Soviet wartime industrial production claimed after the war by a factor of five (p. 268). Chapter 6 considers postwar “gains from wartime enemies,” in which the most important element was reparations. From 1944 through 1953, these alone are put at nearly two trillion rubles at current prices (p. 329), or three times the value of the material losses from German occupation.

In Part IV, Chapter 7 strikes the balance, throwing together an assortment of real and financial, current and capital items to reach a net surplus to the Soviet economy of two trillion rubles of the time or, in today’s values, 1.3 trillion dollars (pp. 331-32). An afterword concludes.

The project of The Debit and Credit of War is a brave one. Today, Russian law criminalizes the denial of facts established by the international war crimes tribunal held in Nuremberg in 1945/46, where the figure of 679 billion rubles was written into the indictment of major German war criminals (IMT 1947: 60). The project is also necessary. In Russia today the scale of Soviet war losses remains a painful subject, powerfully charged with negative emotions. The forty years of Soviet obfuscation of the numbers of civilian and military war dead give no reason to accept official claims of property losses at face value. The political decisions and statistical methodologies that produced the figures are largely unknown and unexplored. This book opens up the subject. The way it does so balances important strengths and weaknesses.

In Part I, Babichenko outlines his approach to Soviet official statistics and archival documents. The dilemma for all researchers in this field is this: you know the published statistics are often deceptive, sometimes intentionally so. You go to the archives and what you find is . . . more of the same. So, what do you do? Babichenko advocates reliance on three things (p. 39). First, look for detail, which is less easily fabricated than broad aggregates and round numbers. Second, look for evidence of methodology; if there is bias in the underlying method, there is a chance you can compensate for it. Third, look for cross-checks across the documentation, which can offer confirmation or expose inconsistences.

These are sensible rules. They resemble the habits that all Western scholars of the Cold War generation (including me) had to learn in order to use Soviet official publications. The same approach continues to be useful for understanding the far more voluminous official documentation left in the secret archives.

In these respects, Babichenko’s revelations are welcome. Not all is done well, however. The tone is often angry, with many digressions. The animosity is directed against the perpetuation of Soviet-era lies and the naïve foreigners who go along with them. Translated for Western readers, the passion appears misdirected. A cooler approach with more focus on presenting and explaining the findings might have been more persuasive.

Much of the argument of Part I is distracting and irrelevant. Chapter 1 notes, correctly, that the economic information found in Soviet archives is generally of low quality. Babichenko explains this as follows: Stalin feared penetration by spies and was interested in disinformation; perhaps he had the archives seeded with fake documents designed to mislead the adversary about the true state of the Soviet economy. So far, this is conjecture. At the same time, Babichenko maintains, truthful documents were deliberately weeded out and destroyed. Here he brings evidence, but the evidence means less than he thinks. The Soviet bureaucracy had a procedure for discarding excess documentation. The procedure has left plentiful traces in the archives (Harrison 2013). In the process, important documents were sometimes destroyed. But this does not support the hypothesis. When documents were produced in multiple copies, one copy was typically assigned to the archive. If another copy was destroyed, it does not mean that the archive copy had disappeared. If the intention behind destruction was to destroy all copies, it is hard to explain why it was meticulously recorded. If the archives were so thoroughly weeded of reliable economic records, it is hard to explain why detailed records of mass killings and other abuses were carefully conserved.

Babichenko notes, again correctly, that Soviet official growth measures were greatly overstated. This is not new; it was the basis of the long Western project to reevaluate Soviet economic data that began with Colin Clark (1939). In Chapter 2 Babichenko rejects nearly all these efforts, preferring the “alternative” growth estimates of Grigorii Khanin (1991). Ironically, for the period 1950-80, the results of Khanin’s efforts differ little from those of Western scholars. For the period 1928-41, all-important for this study, Khanin’s sector components of national income follow a mix of Western and Soviet official series, but his national income measure, which should average them, falls below them by far more than can be explained by any weighting scheme (Harrison 1993). The reasons are not evident. Relying on this, however, Babichenko’s estimates of the level and growth of Soviet output between the wars fall well below those adopted by the Maddison Project (Bolt and van Zanden 2020) and currently in general use among economic historians.

A feature of the analysis, introduced in Chapter 2, and particularly important in Chapters 5 to 7, is the U.S. dollar as the standard of value. Recent decades have seen largescale collaborative efforts to improve cross-country comparisons in real terms (i.e. at purchasing power parity), represented by the International Comparisons Project of the World Bank, the Penn World Tables, and (for historical data) the Maddison Project. Babichenko conducts much of his book’s argument in dollars, but without the benefit of these efforts. That is, ruble values of various years are converted to dollars at the market exchange rate (for 1913), or (for the Soviet period) at purchasing power parity, before being updated to dollars of 2019. The PPPs, which are Khanin’s (1991) “alternative” ruble/dollar rates for selected years, give two problems. One, they are guesses. Two, even if they were roughly right for traded goods, they would then be wrong for aggregates (such as national income) that include non-tradeables. The likely direction of the biases is to overstate the value of foreign relative to Soviet resources.

Another feature of Chapters 5 to 7 that serves to swell the final sum is the aggregation of stocks and flows and of real and financial items into the balance sheet of war. Ideally, these should be separated (e.g. Harrison 1996: 156; Broadberry and Howlett 1998: 66-71). For example, while Babichenko correctly excludes defense costs and foregone output from the debit side, he adds Lend-lease supplies as a credit. But most Western aid was consumed in the war period. Even if some minor fraction of Lend-lease goods was diverted into postwar reconstruction, the greater part should be excluded.

In weighing up the book’s findings, I am swayed in different directions. This is a subject about which we need to know more. I have learned a lot from the author’s investigations, and I am grateful for that. At the end, however, I am skeptical of many findings. At times it is hard to avoid the sense that Babichenko is in pursuit of the control figure set by his own subtitle: one trillion dollars. There are too many grand claims and short cuts. The author is less critical of the potential biases that favor his thesis than of any that would work against it. Nonetheless this book opens up important questions and indicates lines along which scholarship can advance.

References:

Bolt, Jutta, and Jan Luiten van Zanden. 2020. “Maddison Style Estimates of the Evolution of the World Economy. A New 2020 Update.” University of Groningen, Groningen Growth and Development Centre, Maddison Project Working Paper no. 15.

Broadberry, Stephen, and W. Peter Howlett. 1998. “The United Kingdom: Victory at all Costs.” In The Economics of World War II, 43-80. Edited by Mark Harrison. Cambridge: Cambridge University Press.

Clark, Colin. 1939. A Critique of Russian Statistics. London: Macmillan

FSGS (Federal’naia sluzhba gosudarstvennoi statistiki). 2020. Velikaia Otechestvennaia voina. Iubileinyi statisticheskii sbornik. Moscow: Rosstat.

Harrison, Mark. 1993. “Soviet Economic Growth since 1928: The Alternative Statistics of G. I. Khanin.” Europe-Asia Studies 45(1): 141-167.

Harrison, Mark. 1996. Accounting for War: Soviet Production, Employment, and the Defence Burden, 1940-1945. Cambridge: Cambridge University Press.

Harrison, Mark. 2013. “Accounting for Secrets.” Journal of Economic History 73(4): 1017-1049.

IMT (International Military Tribunal). 1947. Trial of the Major War Criminals before the International Military Tribunal, Nuremberg, 14 November 1945-1 October 1946. Vol. I, Official Text in the English Language. Official Documents. International Military Tribunal: Nuremberg.

Khanin, Grigorii I. 1991. Dinamika ekonomicheskogo razvitiya SSSR. Novosibirsk: Nauka.

 

Mark Harrison is Emeritus Professor of Economics at the University of Warwick. He is currently writing about secrecy and the Soviet state. His most recent book is The Soviet Economy and the Approach of War, 1937-1939 (with R. W. Davies, Oleg Khlevniuk, and Stephen G. Wheatcroft), published by Palgrave Macmillan in 2018.

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Subject(s):Military and War
Geographic Area(s):Europe
Time Period(s):20th Century: WWII and post-WWII

The WEIRDest People in the World: How the West Became Psychologically Peculiar and Particularly Prosperous

Author(s):Henrich, Joseph
Reviewer(s):Root, Hilton

Published by EH.Net (October 2020)

Joseph Henrich, The WEIRDest People in the World: How the West Became Psychologically Peculiar and Particularly Prosperous. New York: Farrar, Straus and Giroux, 2020. xxv + 680 pp. $31.50 (hardcover), ISBN: 978-0-374-17322-7.

Reviewed for EH.Net by Hilton Root, School of Policy and Government, George Mason University.

 

 

Harvard anthropologist Joseph Henrich’s latest book, The WEIRDest People in the World: How the West Became Psychologically Peculiar and Particularly Prosperous, differs from most contemporary scholarship in one big way. It tackles a cross-disciplinary topic and makes giant claims. Henrich asserts that the West became Educated, Industrialized, Rich, and Democratic owing to traits that have their genesis in a little appreciated tenet of early Christianity, that it is wrong for cousins to marry each other. Through “accidental genius,” the Church dismantled kin-based power networks in order to spread its own norms and institutions.

The book comprises three sections. The first describes the traits of WEIRD people; the second, how societies have always used religion to scale up, which builds on another book of his, The Secret of Our Success; the third, how the Catholic Church and its offshoot, Protestantism, shaped early institutions and psychology, paving the way for modernity.

Henrich claims that starting in the fourth century, the Roman Church assumed control of marriage by making the institution dependent on its blessing and banning cousin marriages. In great synods, it proclaimed the ban 88 times into the twentieth century.

What Henrich calls the Church’s “Marriage and Family Program” restructured medieval populations and directed the evolution of European society along a pathway no other society in world history has ever traveled. In another unforeseen consequence, it fertilized the West’s responsiveness to individualistic religious faith and eventually opened the doors for the Reformation, which split the Church and accelerated still more cultural changes that created modernity.

With its emphasis on personal responsibility for one’s salvation, the Reformation stressed literacy and the need to know the Bible, leading the Reformed states of Northwestern Europe to promote education. This was to have unintended consequences as well. As Henrich explains, recent clinical discoveries relate reading to alterations to brain tissue and connectivity that expand the capacity for analytical reasoning.

Henrich emphasizes that the Church did not foresee the long-term cultural changes its actions were to have, and he reiterates throughout the book that much of the downstream transformations the Church initiated — representative government, universal law, and democracy — were “accidental.” So why did the Church persist in defining incest, even up to the sixth cousins and widowed in-laws, pushing it far beyond other major religious denominations? Self-interest, he speculates. The Church competed for influence against tribal loyalties and intensive kin-based networks and institutions. It used the relentless taboos and punishments to weaken the traditional patriarchal authority and dissolve clan affinities, creating more opportunity for believers to devote themselves, their children, and their estates to the Church.

Henrich thus aligns himself with other scholars of Christianity, which sees the early Church as self-serving and aggressive in its pursuit of power. William Jack Goody (1983), a leading figure in cultural anthropology, makes this very point about the Church’s heirship policies.

If Henrich is correct, he is onto something big. His major discovery draws upon the research of two German historians, Karl Ubl (2008) and Michael Mitterauer (1991), along with papers that he worked on with other colleagues, and especially the econometric verification of George Mason economist Jonathan Schulz (2020).

The most widely known books on early Christianity place little emphasis on incest bans when discussing Church contributions to Western civilization. The proscriptions are also passed over by historians as being more aspirational than effectual. Late antiquity, which lasted into the seventh century, was a world in which monasteries were often owned by founding families; the sons of married priests followed them into office; and divorce and illicit marriages were rife. Christianity’s greatest impact was in its written laws that eventually took precedence over the oral diffusion of tribal customs on marriage and inheritance. Even so, it took centuries of Church influence to establish that the legality of marriage required ecclesiastical blessing. During the Early Medieval Period (500–1000), the supervision of an episcopate was not even sufficient to ensure celibacy of the priesthood. The ban forbidding divorce or the marriage between persons within prohibited degrees required repeated reaffirmation, suggesting that the Church faced a long uphill battle to enforce its rules.

Nevertheless, even if the incessant marriage and family campaign were merely aspirational, Henrich’s findings suggest that we need to change our thinking of the early Church. The aggressive pursuit of the marriage program cannot be explained as solely a result of narrow self-interest and self-aggrandizement, which Henrich explains as the absorption of Church leaders in their own institutional ambitions. It seems instead that its ideological zeal aimed to stem the polarization of the European population and the constant breakdown of order due to frequent war among the barbarian tribes and to ensure the very survival of Christendom as a kingdom, or society, of Christians. This interpretation of the cousin marriage ban would be more consistent with the research of Ubl and the synthesis of St. Augustine.

One of the great intellectual achievements of early Christianity addressed this polarization. St. Augustine’s City of God, was written in the early fifth century and links Church and state with war and peace, and with sex and marriage. It is an entreaty to the Catholic Church for a state that can act as an instrument of justice. In the fractured political reality of his era, the fourth and fifth centuries, a state built on top of kinship was not stable. A just state, Augustine reasoned, is a community bound by caritas, or agapē in Greek, love that is selfless and directed toward humankind.

Exogamy extends the scope of caritas Augustine (354–430 AD) writes: “Because siblings cannot marry … the separation of relationships extended universal love (caritas) to a greater number and enhanced the social life of human beings, among whom concord should be useful and honorable.” He advocates impediments on marriage to keep familial relationships separate from each other: “because of both the expansion of charity and the beauty of the church, it was instituted that marriage should not take place where there is already natural love, as among blood relations and people sharing a common parent, but only between non-kin” (Reynolds 2016, 340, 342).

Henrich’s genius and the source of his methodological originality reside in his application of contemporary social science to uncover universal laws, and to classify and categorize social reality in a context-free approach. He often works backward from outcomes to causes — for example, describing what European society might have been if the Church had not undertaken its marriage and family program. He draws comparisons with contemporary non-European societies that have retained more kinship-intensive ways of organizing. With cross-cultural empirical data, he illustrates these differences in terms of corruption, violence, obedience, business ethos, contributions to public goods, impersonal fairness, and receptivity to tradition, guilt, shame, and democracy. With this approach we can identify correlations not previously observed. The evidence strongly supports the importance of repressing “kinship intensity” in trajectories toward modernity.

Yet tracing causality without locating the mechanisms of transmission — the nuts and bolts of political history — is problematic. In the case of the marriage ban, it will take further research to resolve the question of intentionality and the ban’s diffusion across the continent. What we do not get from Henrich’s approach is the larger-system context or architecture that also defined Europe. We must understand how the Church as one network connected with other key actors and networks in European society and statecraft. It is not enough to know that the Church published edicts and proclamations unless we know how, when, where, and by whom they were put into practice all the way down to the parish level — another puzzle that seems well suited for Henrich’s consideration.

The Western Church from the fourth century found itself in a fragile geopolitical environment; the Roman empire was split between two capitals, and Church in the West was beset with political machinations from within and tension with the Eastern Church. Invading heathens made constant incursions from the north, east, and south. What made the Church-state dynamics of western Europe unique was its great wealth dating from the fourth-century, when the Emperor Constantine (306–337), hoping to unify the empire, transferred to the western Church the wealth of the pagan temples, making it the greatest landed proprietor in the world.

Nevertheless, Christendom needed an enduring partnership of Church and state to survive. In 800 Pope Leo III crowned Charlemagne (Charles I) as Emperor of the Holy Roman Empire. With Charlemagne both Europe’s most powerful ruler and the Church’s protector, the Church now gained great leverage over education, monastic life, and a large role in the management of civic relationships at the parish level. This alliance was to become the cultural scaffolding of the Middle Ages and from it the Church gained support in its campaign against incest. Charlemagne, Ubl tells us, wanted to diffuse the power of regional aristocracies by forcing them to marry out and thereby reduce the centrifugal forces causing divisiveness within the empire.

Feudal knights constituted another essential actor on Europe’s path to modernity. The knights, along with the monks and country friars, consumed a large portion of Europe’s surplus production. Feudalism, Europe’s nascent system of governance, sprang from the political arrangement designed to sustain the knights’ services to the monarch, which affected the economy as well as morality and aesthetics. This alliance was so critical that starting in the eleventh century, the Church developed special ceremonies to sanctify knighthood. A warrior girded with the belt of knighthood entered the church and placed his sword upon the altar as an offering. The promise to God of services of the sword bound the knight to perpetual service to the Church.

Moreover, Germanic society did not have to wait for the Church marriage ban to develop bonds beyond kinship. Among the Germanic tribes, loyalty to a chief was personal not tribal; chiefs attracted followers from many tribes, and when the claims of the lord conflicted with those of the kindred, duty to the lord would come first. Rather than opposing the Germanic principle of loyalty, the western Church willingly asserted that the binding force of duty was owed to a man’s lord and added sanctity to that oath (Whitelock 1952).

With Church support, the knights evolved into a noble class separated by blood ties from the rest of the population. In every country, the highest positions in the Church typically were preserved for the nobility, and great lords filled the church councils. Strengthening the hereditary rights of kings and knights, the Church embedded greater inequality into the system, the traces of which marked European social history until the early twentieth century. Only in passing does Henrich note that the Church did not apply the marriage rules on elite lineages with the same rigor as it did on peasant communities (p. 180). Elites remained embedded in intensive kin-based institutions. It took two centuries of absolutism and one of revolution to weaken the power and prestige of the aristocracy that the Church had reinforced.

The main shortcoming of Henrich’s analysis is its reliance on linear causality. Tracing an outcome, e.g., the distinctive psychology of Western society, to an original cause, the Church ban on cousins wedding, is in itself WEIRD. And his perspective is written for other WEIRD-minded folk who interpret causal pathways in history as proceeding in a straight line.

A different way to understand the Church’s role in European history is to view it as a social network that interacts and coevolves with other complex social networks. As a subsystem among other important subsystems (secular powers, towns, civil law, and royals, for example) that made up the larger system of the medieval West, it was the constant subject of the pull of those social forces around it, co-adapting within a changing environment (Root 2020), exerting sufficient influence, as events called for it, among the exalted monarchs or the most vulnerable village folk, to ensure its own continuity.

What makes the Church-state dynamics of Western Europe unique in world history is the considerable autonomy the former enjoyed because of its immense wealth. Its administrative capacity far exceeded that of the barbarian kings as it had become the repository of knowledge of Rome. This gave it great stature in a distributed system among other important subsystems, The Church had organizational capacity to mobilize and intellectual capacity to inspire, but it did not act alone. To succeed it needed to cooperate with Europe’s intermarried elites, especially the royal families. Being anointed by the episcopate, monarchs could claim eminence above all other lay leaders, and both the clerical and royal realms depended on the landed nobility to act locally and to recruit foot soldiers from the peasantry, from which the Church drew monks and parish priests.

As a chronicle of history, the narrative falls short, jumping from the fifth century to the High Middle Ages. Even so, the book makes a significant contribution to the study of what makes the West unique and will be a landmark of early twenty-first-century social science. It is persuasive that social psychologists have underestimated the degree to which western behavior once assumed to be universal is actually parochial. It illustrates the need for social psychologists to start to include people living in non-modern environments in their experiments — something Henrich has been doing since early in his career.

Henrich ambitiously tries to reunite economic anthropology with its cousin disciplines, economics and sociology, and places culture and social psychology on center stage. The bold claims he makes will keep a generation of historians busy running back to the archives to prove, disprove, or amend them. This could bring new attention to Church history and contribute to a renewed appreciation of religion’s formative role in making the modern world. It should also fertilize the study of economic history by giving researchers a reason to further explore the role played by the Church in long-term cultural change.

Now that we know how WEIRD Westerners really are, we might question the utility of using its experience to benchmark policy that is designed to help modernity happen in the rest of the world. What if you are the leader of a country that is not filled with culturally WEIRD people? How do you modernize? The book also leaves open the question of what happens when you have met one of the criteria of modernization and are only partially WEIRD — China and East Asia’s high-performing economies, for example, succeed on education and industrialization, but fall short on democracy. What kind of world order and governance of international relations will be possible when kinship intensity causes such significant variation in the performance of institutions?

There is one clear conclusion: the study of social networks will be essential if we are to understand and motivate long-term cultural change.

References:

Goody, Jack. 1983. The Development of the Family and Marriage in Europe. Cambridge: Cambridge University Press.

Mitterauer, Michael. 1991. “Christianity and Endogamy.” Continuity and Change 6 (3): 295–333.

Reynolds, Philip L. 2016. How Marriage Became One of the Sacraments: The Sacramental Theology of Marriage from Its Medieval Origins to the Council of Trent. Cambridge: Cambridge University Press.

Root, Hilton L. 2020. Network Origins of the Global Economy: East vs. West in a Complex System’s Perspective. Cambridge: Cambridge University Press.

Schulz, Jonathan F. 2020. “Kin-Networks and Institutional Development.” Working Paper. SSRN.

Ubl, Karl. 2008. Inzestverbot Und Gesetzgebung. Die Konstruktion Eines Verbrechens (300-1100). Berlin: Walter de Gruyter.

Whitelock, Dorothy. 1952. The Beginnings of English Society. Baltimore: Penguin Books.

 

 

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 (administrator@eh.net). Published by EH.Net (October 2020). All EH.Net reviews are archived at http://www.eh.net/BookReview.

Subject(s):Economic Development, Growth, and Aggregate Productivity
Economywide Country Studies and Comparative History
Historical Demography, including Migration
Social and Cultural History, including Race, Ethnicity and Gender
Geographic Area(s):Europe
Time Period(s):Ancient
Medieval
16th Century
17th Century
18th Century
19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII

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

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

Published by EH.Net (September 2020)

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

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

 

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

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

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

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

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

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

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

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

 

Cihan Artunç is an Assistant Professor of Economics at Middlebury College. Recent publications include “Partnership as Experimentation” (with Timothy W. Guinnane), Journal of Law, Economics, and Organization (2019).

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

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

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

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

Published by EH.Net (June 2020)

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

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

 

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

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

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

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

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

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

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

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

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

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

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

 

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

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

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

An East Asian Challenge to Western Neoliberalism: Critical Perspectives on the ‘China Model.’

Author(s):Horesh, Niv
Lim, Kean Fan
Reviewer(s):Rawski, Thomas G.

Published by EH.Net (March 2020)

Niv Horesh and Kean Fan Lim, An East Asian Challenge to Western Neoliberalism: Critical Perspectives on the ‘China Model.’ New York: Routledge, 2018. viii + 171 pp. $165 (hardcover), ISBN: 978-1-138-92674-5.

Reviewed for EH.Net by Thomas G. Rawski, Department of Economics, University of Pittsburgh.

 
China’s remarkable growth spurt, now somewhat diminished as it navigates its fifth decade, has added a new chapter to long-standing international debates about the efficacy of industrial policy. A rising school of Chinese analysts, many with extensive experience in Western societies, has extended the scope of discussion by arguing that a “China model” may deliver better outcomes than the long-standing ideal of democratic politics and laissez-faire economics.

Niv Horesh and Kean Fan Lim cite “deep-seated suspicion” on the part of elites not just in China, but across East Asia, in the capacity “of free markets, or representative democracy … to pre-empt resource misallocation” (p. 3). They set out to “examine the historical framing of the China Model discourse, compared with perceptions of the broader East Asian and Western trajectories” (p. 2). Their broader objective is to investigate the extent to which postwar economic advances in East Asia, especially post-Mao China, have undermined worldwide adherence to the ideal of open markets and democratic politics.

The authors are well qualified to address these matters. Horesh, a professorial fellow at Durham University, has written several books and numerous articles; his work centers on Chinese economic history, but ranges widely across both time and space. Lim, an economic geographer based at Newcastle University, has produced a book and numerous articles focused mainly on contemporary China, but also encompassing regional and global issues.

Aside from brief introductory and concluding chapters, the book contains five loosely connected essays, three of which offer revised versions of previously published articles.

Chapter 2, “Restoring Tang Splendour?” offers a rambling account of “China’s new aspirational narrative of global leadership” (p. 12). The authors highlight the rhetorical U-turn that has transformed Confucius and his doctrines from Mao-era degradation into symbols of cultural continuity and historical exceptionalism.

Chapter 3, “CPC [Communist Party of China] Elite Perception of the US since the Early 1990s,” analyzes the writings of prominent “America watchers,” among them Wang Huning, a former college professor who has risen to the topmost echelon of China’s party hierarchy. The authors show how “a variety of voices compete for influence” within foreign policy circles, offering “divergent perceptions of the US” (p. 52), with younger, better-informed writers often adopting more critical perspectives on U.S. society than their older colleagues.

Chapter 4, “The Singapore Fever’ in China,” analyzes the People’s Republic’s “second overt attempt [following engagement with the Soviet Union during the 1950s] to learn from a particular country” (p. 59), which emerged from Deng Xiaoping’s 1978 visit to the island city-state. Engagement was intense: a 2014 essay noted that “More than 50,000 [Chinese] government officials” had received training in Singapore over the prior 20 years (p. 66). Nonetheless, Suzhou’s China-Singapore Industrial Park, the flagship bilateral cooperation project, faded into obscurity. This and other failed joint efforts reflect the complexity of China’s political economy, in which high-level endorsement of policy innovation may not suffice to ensure ground-level implementation unless reform initiatives are “aligned to local officials’ agendas” (p. 75).

Chapter 5, “The Chongqing vs. Guangdong ‘Models’ of Economic Development,” describes the very different strategies and policy mixes used to promote rapid growth in Guangdong, China’s most market-oriented region, and in Chongqing, the former wartime capital recognized as a province-level municipality (parallel to Beijing, Tianjin and Shanghai) in 1997, which relies on state-owned enterprises to drive development. The comparison highlights the difficulty of imposing uniform policies on a sprawling economy with wide regional variations in geography, incomes and production structures — features emphasized in recent historical work by National University of Singapore economist Tuan-hwee Sng.

Chapter 6, “China: An East Asian Alternative to Neoliberalism,” aims to consolidate and unify material from the earlier chapters. Here the authors’ failure to attach exact meaning to either “neoliberalism” or the “East Asian alternative,” coupled with their prolix style and propensity to digress, blurs their response to the sweeping issues with which they engage.

Despite these shortcomings, the authors’ wide knowledge of past and present East Asian economies and their fluent injection of historical as well as Japanese, Korean and Singaporean sidelights makes this volume a welcome addition to a literature that often portrays China’s contemporary economy as an autonomous entity whose past originates no earlier than 1949 or even 1976.

 
Thomas G. Rawski is Emeritus Professor of Economics at the University of Pittsburgh. Recent publications include Loren Brandt and Thomas G. Rawski, editors, Policy, Regulation and Innovation in China’s Electricity and Telecom Industries (Cambridge University Press, 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 (administrator@eh.net). Published by EH.Net (March 2020). All EH.Net reviews are archived at http://www.eh.net/BookReview.

Subject(s):Economic Development, Growth, and Aggregate Productivity
Economic Planning and Policy
Geographic Area(s):Asia
Time Period(s):General or Comparative
20th Century: WWII and post-WWII

Globalization and the Rise of Mass Education

Editor(s):Mitch, David
Cappelli, Gabriele
Reviewer(s):Dupraz, Yannick

Published by EH.Net (March 2020)

David Mitch and Gabriele Cappelli, editors, Globalization and the Rise of Mass Education. Cham, Switzerland: Palgrave Macmillan, 2019. xx + 338 pp. $140 (hardcover), ISBN: 978-0-3-030-25416-2.

Reviewed for EH.Net by Yannick Dupraz, Department of Economics, University of Warwick.

 
When a global pandemic is not forcing school closures, the majority of the world’s children now go to school. In 2018, the global net primary enrollment rate was estimated at 90.5% (World Bank 2020). In the last two centuries, the rise of mass education occurred at different dates in different countries of the world, connected through trade, colonization, migration, and the circulation of ideas. Globalization and the Rise of Mass Education brings together a diverse team of scholars (economists, historians and educationists) to give a fresh, global perspective on the expansion of schooling. The book offers accurate accounts of the state of research in the history and economics of education. It is also stimulating for anyone trying to take some distance and think about future research agendas. Like many edited volumes, the book suffers perhaps from a lack of unity. I was also a bit disappointed by the lack of comparative data.

Globalization and the Rise of Mass Education is not a global history of the rise of mass education, but a history of the links between mass education and globalization. The introduction outlines the relationship between globalization and education, taking perhaps too literal a definition of globalization: “the integration of labor, goods and capital markets” (p. 3). This is the classical economist definition of globalization, but the book has, with a few exceptions, little to say on the relationship between education and trade or capital flows. It has, however, a lot to say on the role of colonization, religious missions, and cultural influences broadly speaking. Therefore, the book does in fact take globalization in a much broader sense, as the existence of interactions between countries, irrelevant of the presence of market integration.

The book is divided in four parts. The first is concerned with the role of religious missions in the expansion of schooling. Both contributors make an excellent job of summarizing the recent literature on the subject: Felix Meier zu Selhausen covers the African continent, and Felipe Valencia Caicedo covers Latin America and Asia. Both insist on the historical importance of religious missions in providing education. Valencia Caicedo’s contribution also insists on the persistent economic and cultural legacy of religious missions in Latin America and Asia. Meier zu Selhausen’s main message is that, in Africa, the success of the missions’ education enterprise depended crucially on local characteristics (local demand for education and local supply of African teachers), a message that might be important for the literature assessing the long-term impact of missions on present day outcomes. One thing perhaps missing from these chapters is a discussion of whether, how and why religious schools ended up losing their importance. Meier zu Selhausen writes “while mission schools were responsible for the initial rise in mass education, most educational progress was achieved by the modern African state” (p. 28). I wonder to what extent the same could be said of Latin America.

The second part of the book is entitled “Colonial Legacies, Local Elites and Schooling.” In a first chapter, Sun Go and Ki-Joo Park give a comparative account of the rise of primary education in South Korea and Taiwan during the Japanese colonization. This is particularly interesting considering the rapid growth of these two countries after independence, often attributed to their relatively high level of human capital. The authors used primary sources to produce new internationally comparable estimates of enrollment, class size, and education expenditure, in the spirit of Lindert’s (2004) chapter on the rise of mass public schooling in Western countries. In a second chapter, Irina España-Eljaiek studies school development in Colombia during the first globalization. It is one of the only chapters to directly tackle the question of race and inequality in the provision of education: according to España-Eljaiek, racism explains why the increase in primary education following the export boom during the first globalization was not equally shared. Interestingly, the vision of religious missions emerging from this chapter is very different from the vision emerging from part I: “the Catholic missions were expensive, limited the subnational autonomy and had little impact on education” (p. 138).

The third part is concerned with international migration. The first two chapters ask the same question: was migration during the first globalization responsible for a brain drain or a brain gain in the sending country? The answer is important for anyone concerned about the consequences of emigration for developing countries. The first chapter, written by Matteo Gomellini and Cormac Ó Gráda, studies Italy and Ireland, while the second chapter, written by Johannes Westberg, studies Sweden. Emigration could be responsible for a fall in average human capital if emigrants were positively selected on education, while it could be responsible for a human capital increase if emigration increased the perceived returns to education, or if remittances from migrants increased the income available for spending on education. Though both chapters are very nuanced in their conclusions, they find little evidence for a brain drain and some evidence for a brain gain. Particularly striking is Westberg’s example of the potential for technology transfers because of the migration and re-migration of technical engineers from Sweden to the U.S.: 40% of the graduates from technical institutes between 1880 and 1919 emigrated to the U.S. 70% of these re-migrated, and played a major role in the development of Swedish industry (p. 208-209). Finally, a last chapter by Bruno Gabriel Witzel de Souza studies the impact of migration on human capital in the receiving country, by carefully reconstructing, using a wealth of archival material, the history of German schools in Brazil

The fourth part is concerned with how different ideas about education and school systems travelled around the world and shaped the expansion of education in various places. Nancy Beadie studies the exportation of the American education system to the colonial territories of Hawaii, Puerto Rico, Cuba and the Philippines. According to her, the logic behind the federal support for education expansion after the Civil War was then exported to the colonies. Pei Gao studies the emergence of Western-inspired modern education in China between the end of the nineteenth century and 1949. The implementation of a national education system was decentralized and depended a lot on local political elites. This is reminiscent of the history of the emergence of mass education in Western Europe and the U.S. (Lindert 2004). The chapter brings together data on public and private school supply and enrollment rates. The final chapter by David Mitch studies Iran, a too often overlooked country. It is concerned with how Iran achieved nearly universal literacy in the space of few decades, with surprising continuity between the Pahlavi dynasty and the Islamic regime. Both the Shah and the Ayatollah used education as a policy lever to achieve political goals.

My only concern with this much needed volume is that it perhaps lacks a unifying question. Each chapter stands on its own and there is little discussion between the different chapters. I had the feeling that the book was hesitating between two forms: 1) a history of how globalization (transfers of ideas, migration of people, missionary expansion and colonization) mattered for the expansion of mass education, and 2) a global, comparative history of education systems. In the end, I think what the book wants to be is 1), which means there is still room for writing 2), perhaps with the same contributors. I was also a bit disappointed by the lack of comparative data. Though individual chapters display new data, there was no attempt to harmonize and bring together these data to present a global quantitative vision of the rise of mass education in the last two centuries.

References:

Peter Lindert, Growing Public: Social Spending and Economic Growth since the Eighteenth Century (Vol. 1). Cambridge: Cambridge University Press, 2004.

World Bank. 2020. World Development Indicators.  https://data.worldbank.org/indicator/SE.PRM.TENR

 

Yannick Dupraz is a teaching fellow at the University of Warwick. His research interests are development economics and the economic history of Africa. A recent publication of his “French and British Colonial Legacies in Education: Evidence from the Partition of Cameroon,” Journal of Economic History 79(3).

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 (administrator@eh.net). Published by EH.Net (March 2020). All EH.Net reviews are archived at http://www.eh.net/BookReview.

Subject(s):Education and Human Resource Development
Geographic Area(s):General, International, or Comparative
Time Period(s):19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII

The Lion’s Share: Inequality and the Rise of the Fiscal State in Preindustrial Europe

Author(s):Alfani, Guido
Di Tullio, Matteo
Reviewer(s):Pezzolo, Luciano

Published by EH.Net (March 2020)

Guido Alfani and Matteo Di Tullio, The Lion’s Share: Inequality and the Rise of the Fiscal State in Preindustrial Europe. New York: Cambridge University Press, 2019. xii + 232 pp. $40 (hardcover), ISBN: 978-1-108-447621-8.

Reviewed for EH.Net by Luciano Pezzolo, Department of Humanities, Ca’ Foscari University of Venice

 
Since protesters gathered in Zuccotti Park in New York in 2011 inequality has been one of the most debated issues at both the academic and the popular level. Thomas Piketty’s (2013) work, largely relying on tax data, has provided an apparently solid base to the claim that in the capitalist world inequality is the usual state of affairs. Economic historians have been concerned with this problem too. Following Simon Kuznets’ work (1955), Jeffrey Williamson and Peter Lindert (1976) dealt with American inequality over three centuries, and Jan Luiten van Zanden (1995) wrote a pioneering essay on inequality in early modern western Europe.

The work of Guido Alfani, professor at the Bocconi University of Milan, and Matteo Di Tullio, researcher at the University of Pavia, adds to this literature by analyzing the process of economic inequality in the Republic of Venice between the sixteenth and eighteenth centuries. To this aim, fiscal sources (132 tax registers compiled between 1409 and 1801), provide the fundamental material for measuring the degree of inequality in both urban and rural environments. The estimi (tax registers) were drafted by local authorities in order to distribute direct taxes on both land properties and “heads.” The ample sample on which the authors rely counts five cities, thirteen towns and villages and eight rural districts, which are located in the central part of Veneto and in the territory of Bergamo.

The structure of state revenues, which is the subject of chapter one, was primarily made up of duties on consumption and transactions, while direct taxation provided about one fifth of revenues. Like any tax system, the Venetian one also reflected institutional and power relations: taxpayers, as far as direct taxation was concerned, were divided into city dwellers, inhabitants of the contado (the rural district around the main cities), ecclesiastics, Venetians, and privileged households and communities. These categories were often inscribed in specific estimi and consequently it is difficult to include the entire body of taxpayers in the dataset.

Chapter two addresses the issue of the number of rich and poor in Venetian society. The authors define poor as a household or individual whose assessed wealth is below 25 percent of the median; the rich are at least ten times above the median wealth. The data confirm that the presence of poor people tends to grow throughout the modern age up to 1800, and that their number is larger in the city than in the countryside. As for the rich, they also tend to grow. In short, the Venetian mainland witnessed an evident process of social polarization over the period here considered.

The same phenomenon emerges in chapter three, dedicated to economic inequality in the long run. During the early modern age, the general trend was towards inequality in almost all the areas examined. The data show that this process was more evident in the countryside than in the urban world, where average household wealth was higher. The plague of 1630 smoothed the trend for a short period, but it resumed shortly afterwards.

The fourth and final chapter considers the redistributive effects of taxation, seen as one of the main causes of the growing inequality in the Venetian state. Most (70-80 percent) of state revenue came from indirect taxes, while direct taxation covered the rest. The authors estimate that the impact of this tax structure on the various sections of the population was proportionally more disadvantageous for the poorer classes than for the richer ones. The regressive nature of taxation, common to most of the old regime states, would therefore have favored the process of inequality. This phenomenon was also accentuated by public spending, which was largely earmarked to the defense and debt service, while over the last two centuries of the Republic social spending accounted as low as 0.2-1.3 percent of the budget. It must be considered, however, that social spending (assistance to the poor and orphans, education, public health) was mostly managed by local institutions.

The chapter also offers a wide and interesting comparison with other Italian states (Tuscany, Piedmont, Kingdom of Naples), the Netherlands and the Southern Low Countries. All the cases considered show, despite different phases of growth and stagnation, a common growing inequality over the modern age. The main culprit is identified by the authors in the fiscal-military state, and the consequent fiscal and economic inequality it generated. The emergence of what was once called the absolute state has been the subject of much debate among scholars, but no one has so far emphasized the effects it produced in terms of social (in)equality. The merit of this book is that it has tackled the problem by analyzing a vast area for three centuries. The concept of the fiscal-military state, however, does not always seem to be useful to explain the inequalities between different countries. Most states of the early modern age were more a mosaic of privileges and immunities than that mythical monolithic organism that was built by nineteenth century historiography. It is problematic, for example, to identify in the Grand Duchy of Tuscany the typical features of an aggressive state taxation system that manages to affect the distribution of the wealth of its subjects.

If the state of the old regime seems unable to significantly change the level of inequality of the population, perhaps it is useful to widen our gaze to the market and its mechanism. Recent models developed by statistical physicists (Li, Boghosian and Li, 2019) have hypothesized that a simple exchange, even among equal actors, generates a tiny inequality. Consequently, the growth of transactions is to favor the increasing accumulation of wealth much to the benefit of a small group. It is then likely that the dynamics of inequality in the past could be considered more as a “natural” phenomenon, inherent in the functioning of capitalist markets, than the effect of factors such as relatively weak governments as economic actors.

References:

Kuznets, Simon (1955). “Economic Growth and Income Inequality,” American Economic Review, 45, 1-28.

Li Jie, Boghosian Bruce, and Li Chengli (2019). “The Affine Wealth Model: An Agent Based Model of Asset Exchange that Allows for Negative-wealth Agents and its Empirical Validation,” Physica A: A Statistical Mechanics and its Application, 516, 423-42.

Lindert, Peter and Williamson, Jeffrey (1976). Three Centuries of American Inequality. Madison: University of Wisconsin, Madison Institute for Research on Poverty.

Piketty, Thomas (2013). Le capital au XXIe siècle. Paris: Le Seuil.

Van Zanden, Jan Luiten (1995). “Tracing the Beginning of the Kuznets Curve: Western Europe during the Early Modern Period,” Economic History Review, 48, 643-64.

 
Luciano Pezzolo is Professor of Early Modern History at the Department of Humanities of Ca’ Foscari University of Venice. His main fields of research are financial and military history of late medieval and early modern Italy, on which a book, entitled Mars and Pluto, is to be published by Oxford University Press.

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 (administrator@eh.net). Published by EH.Net (March 2020). All EH.Net reviews are archived at http://www.eh.net/BookReview.

Subject(s):Government, Law and Regulation, Public Finance
Income and Wealth
Geographic Area(s):Europe
Time Period(s):Medieval
16th Century
17th Century
18th Century
19th Century

Before the Neoliberal Turn: The Rise of Energy Finance and the Limits to U.S. Foreign Economic Policy

Author(s):Selva, Simone
Reviewer(s):Naef, Alain

Published by EH.Net (October 2018)

Simone Selva, Before the Neoliberal Turn: The Rise of Energy Finance and the Limits to U.S. Foreign Economic Policy. London: Palgrave Macmillan, 2017. xv + 423 pp. $75 (hardcover), ISBN: 978-1-137-57442-8.

Reviewed for EH.Net by Alain Naef, Department of Economics, University of Cambridge.

 
An abundant literature focuses on Bretton Woods on the one hand, or the liberalization of markets and exchange rates in the 1970s and 1980s on the other. Little is known on the transition between these two periods, however. Simone Selva’s book attempts to make sense of this transition before the “Neoliberal Turn” in the late 1970s, by giving an account of U.S. currency and the functioning of the international monetary system. A Research Fellow in the history of international economic relations at the University of Naples L’Orientale, Selva brings an interesting approach to the subject, specifically tracking the role of the dollar from the 1950s to the late 1970s. Indeed, U.S. balance of payments issues first found their roots in Europe and were linked to postwar loans in the 1960s before the problem moved to Gulf countries in the 1970s. Petrodollars accumulated by oil producing countries had to be disposed of without causing the dollar to suffer. The book explores the struggles of different U.S. presidents to manage both their balance of payments and the dollar.

Chapter 2 describes how American balance of payment deficits in the 1960s conflicted with the country’s military objectives across the world. The Vietnam War was one of these commitments and was a strong inflationary force. As the Federal Reserve increased the money supply to support the Vietnam War in the late 1960s, the dollar weakened, eroding the U.S. competitive position in global markets. Chapter 3 shows how successive devaluations in Europe put more pressure on the U.S. balance of payments. The 1967 devaluation of sterling especially destabilized U.S. policies. This chapter also offers a detailed narrative of the gold crisis in 1967-68, when the price of gold surged and the Gold Pool was disbanded. The author nicely shows how troubles in the USSR prompted the regime to sell gold on the international gold market.

In Chapter 4, Selva argues that inflationary pressures were building up long before the first oil crisis of 1973 — arguing in effect that not all 1970s inflation can be blamed on the price of oil. He describes the Nixon Administration struggling to understand the link between developments in energy markets and the international monetary system. The chapter also offers an interesting account of how U.S. policymakers pushed American banks to open branches in Gulf countries, in an attempt to increase U.S. manufacturing and financial service exports to dollar surplus countries. These U.S. banks then channeled money into the Eurodollar (or Eurocurrency) market in London, where it was then loaned to European countries with balance of payments deficits. This was possible only as long as the Eurodollar market was capable of absorbing currency from oil producing countries.

Around 1974 OPEC countries shifted their investment from short-term (mainly Eurodollar) investments, to long-term ones (mainly loans to governments). Chapter 5 explores what happened when OPEC dollar surpluses overtook the Eurodollar market’s ability to absorb them. Oil producing countries began offering loans directly to governments starting with Egypt, Syria, and France, expanding to other Western countries. The American administration realized that direct investments in the U.S. would have a less detrimental effect on the dollar. Despite public outcry and fears of oil producing countries taking over U.S. firms, the Ford administration promoted direct petrodollar investment into the country. The Treasury actively encouraged OPEC investments in the US, which Selva illustrates with the example of a $100 million investment in telecoms giant AT&T, “openly approved by the Ford Administration” (p. 301).

The research is well documented with archival material across Europe and the U.S. Beyond the archives from international financial institutions, governments, and central banks, the author also relies on archives from the CIA which offer an objective and strategic assessment of the international monetary questions at the time. Selva does not shy away from the complexity of the international monetary system and manages to connect the domestic situation in the U.S. to the troubles of the international monetary system with skill. However, he sometimes lets this complexity cloud the clarity of his argument. The writing is dense. Some paragraphs extend over many pages, some sentences over many lines.

Nonetheless, Simone Selva’s contribution is a solid piece of serious scholarship that helps better understand the origins of the 1970s oil crisis, and how the U.S. managed its balance of payments. It offers a review of American policies at the point when markets became more open and oil production took the center stage in international finance. As such, this detailed analysis will benefit financial historians of the period as well as scholars interested in energy finance and modern American historians.

 

 

Alain Naef is a teaching fellow at the Economics Faculty of the University of Cambridge, where he is finishing a PhD on the role of reserve currencies during the Bretton Woods period. His latest working paper on the Gold Pool with Michael Bordo and Eric Monnet is available at https://ideas.repec.org/p/nbr/nberwo/24016.html and his work on central bank intervention is available at https://ideas.repec.org/p/cmh/wpaper/32.html.

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 (administrator@eh.net). Published by EH.Net (October 2018). All EH.Net reviews are archived at http://www.eh.net/BookReview.

Subject(s):Agriculture, Natural Resources, and Extractive Industries
Economic Planning and Policy
Financial Markets, Financial Institutions, and Monetary History
Government, Law and Regulation, Public Finance
Geographic Area(s):Europe
Middle East
North America
Time Period(s):20th Century: WWII and post-WWII

The Singularity of Western Innovation: The Language Nexus

Author(s):Dudley, Leonard
Reviewer(s):Sasaki, Yu

Published by EH.Net (May 2018)

Leonard Dudley, The Singularity of Western Innovation: The Language Nexus. New York: Palgrave MacMillan, 2017. vii + 316 pp. $170 (hardcover), ISBN: 978-1-137-40317-9.

Reviewed for EH.Net by Yu Sasaki, Waseda Institute of Advanced Study, Waseda University.

 
In The Singularity of Western Innovation, Leonard Dudley of Université de Montréal seeks to identify a cause of “Western innovation,” the term that encompasses the industrial revolution of the nineteenth century and the military revolution of the twentieth century. For Dudley, a primary cause is what he calls the “language nexus,” or the degree to which the main vernacular of a society was standardized in the preceding centuries. He argues that language standardization was far more advanced in Western Europe before 1800 than in contemporaneous eastern empires of Turkey, India, and China. Europe’s cultural precocity eventually led to key inventions in the modern era, including the steam engine, telegraph, electricity, and submarines. Given that these emerged from select Western states, namely Britain, France, and the United States as a British offshoot, the substantive question that is explored in the book is: what enabled these countries to lead in innovation? Addressing this puzzle is important to economic history, because it helps understand why it was Western Europe that economically “took off” first and not other world regions.

Dudley sets out to investigate this question in fourteen chapters that are organized in three sections. Each chapter clearly identifies a thesis and discusses it in a schematic fashion: on each topic, the European (mostly English) experience comes first as the benchmark case, followed by the brief comparison of the Ottoman, Indian, and Chinese cases. After the introductory chapter, Part I traces the extent to which vernaculars were developed in each society in Chapters 2 through 5. Chapter 2 lays out the foundation of language development by examining the dynastic cycle of the seventeenth century. It points out that while the eastern empires continued to suffer from the dynastic cycle — the pattern of the rise and fall of empires through financial instability, internal rebellion or external attack, and regime replacement — this cycle ceased in England as the power of the Parliament grew stronger relative to that of monarchy. This transformation ultimately gave England stability not only in finance but also in daily lives among ordinary citizens, giving an impetus for trust and cooperation in the subsequent centuries.

Chapter 3 discusses the adoption of print technology. In Europe, the metal movable type, invented by Johannes Gutenberg circa 1450, became the standard tool until the twentieth century. Non-European empires had a distinct experience with print. Although Jews brought Gutenberg presses to the Ottoman domain by the end of the fifteenth century, Istanbul banned private printing in Turkish or Arabic until 1726 (private printing in other languages was allowed). The main rationale for the ban is that the Ottomans relied upon oral communications by religious leaders to broadcast and maintain political authority. Printing presses would leave written records and political adversaries might take advantage of any inconsistency between those records and oral transmission to challenge the authority. In India, it was westerners who led the development of vernacular printing to understand local languages (and aid the business for firms such as the East India Company). It seems that the Mughals preferred hand-written materials to printed forms, and only in the late eighteenth century did vernacular print start by the initiative of an Englishman. China was the birthplace of movable type in the eleventh century, but woodblock printing, a more labor-intensive form, became standard until the late nineteenth century.

Chapter 4 describes literacy rates in the seventeenth century whose variation across the cases comes partly from the availability of the printing press and the size of the book market. Dudley argues in Chapter 5 that another factor that affected literacy was the extent to which the main vernacular of a society was standardized prior to industrialization. He uses the first publication date of a monolingual dictionary to measure language standardization. According to this definition, English was codified by 1658 and French, by 1680. Only in the twentieth century were Hindi, Turkish, and Mandarin Chinese standardized (in 1929, 1932, and 1937, respectively). The difference in the timing of standardization played a critical role, because a standardized language would reduce transaction costs and make collaboration easier in the age of urbanization, automation, and mass production.

The rest of the book discusses the consequences of pre-modern language rationalization for innovations in industrial and military technology, drawing examples from the West. Part 2 describes industrialization. Following an overview of each state’s ability to raise revenue reliably (Chapter 6), steam engines (Chapter 7), machine tools (Chapter 8), and rifles (Chapter 9) are examined. Part 3 focuses on the military dimensions: Chapter 10 goes over geopolitics at the turn of the nineteenth century. Chapter 11 discusses steam ships; Chapter 12, major conflicts between European and Asian powers; and Chapter 13, Europe’s overwhelming force of rifled firearms over Asian rivals. The concluding chapter compares the conventional model of geopolitical competition on Europe’s rise to the language hypothesis explored in the book.

One important contribution that Dudley’s book makes is his insight that language standardization is never a “natural” outcome. One reason, I suspect, is that it is hard to imagine how the uniform use of a language can have a direct and positive impact on the desired outcome for political and economic actors — be it greater revenue or greater trade. The monograph makes it clear that few, if any, pre-modern leaders put priority on investing in language standardization, as seen in the case of the Mughal Empire. There was also wide variation in such incentive within Europe, because countries such as Spain, the Netherlands, Germany, and Italy did not quickly follow the examples of Britain and France. Given the high fixed costs required to standardize a vernacular, what provides an incentive for language standardization? This question does not receive sufficient attention in the monograph. Future research could examine it to provide a fuller conceptual framework and offer an empirical test of the role of culture in understanding the process of economic development.

Dudley is right to underscore the importance of considering cultural dimensions when one seeks to address big questions such as “Why did Europe — or a specific subregion of it — industrialize first?” Here “culture” refers to a broad term that captures patterns of behavior with regard to actors’ choices of technology, codified rules, and policies, which conventional institutionalist arguments have difficulty explaining. For example, the Chinese relied on woodblock printing (a labor-intensive technology) even though a superior technology, movable-type print (a capital-intensive technology), was available. Their choice may in part be based on their shared preference for time-consuming but cheap labor over an efficient yet expensive technology. Future work can build on Dudley’s insight to shed greater light on the origins of European industrialization.

 
Yu Sasaki is an Assistant Professor at the Waseda Institute of Advanced Study in Waseda University, Tokyo. His recent publications include “Publishing Nations: Technology Acquisition and Language Standardization for European Ethnic Groups,” Journal of Economic History, December 2017. He is currently working on how cultural consolidation within states affects political and economic development on the state level, drawing from early-modern Europe.

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Subject(s):History of Technology, including Technological Change
Social and Cultural History, including Race, Ethnicity and Gender
Geographic Area(s):General, International, or Comparative
Time Period(s):Medieval
16th Century
17th Century
18th Century
19th Century