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American Unemployment: Past, Present, and Future

Author(s):Stricker, Frank
Reviewer(s):Ohanian, Lee

Published by EH.Net (January 2021)

Frank Stricker, American Unemployment: Past, Present, and Future. Urbana, IL: University of Illinois Press, 2020. x + 267 pp. $20 (paperback), ISBN: 978-0-252-08502-4.

Reviewed for EH.Net by Lee Ohanian, Department of Economics, UCLA.

 

There is perhaps no more challenging issue to write about in macroeconomics than unemployment. Measurement issues, theoretical issues, even conceptual issues make unemployment like quicksilver. We want to get our hands on it, but it invariably slips through our fingers.

Consider how many different interpretations/definitions exist in the literature. Old school Keynesians created “NAIRU” — the non-accelerating inflation rate of unemployment — which is based on the Phillips Curve. Neoclassical economists, including Milton Friedman, Edmund Phelps, and Armen Alchian created the “Natural Rate of Unemployment,” which was front and center in Robert Lucas’s misperceptions model that gave birth to the rational expectations business cycle literature.

Search theorists take a different approach, decomposing unemployment into “frictional unemployment,” which is the time it takes an individual to find a job that is a good match for their skills, and “structural unemployment,” which refers to those who remain unemployed long after search and matching frictions can reasonably be operative.

Conceptual struggles are not just academic. The Federal Reserve uses six different concepts of unemployment (known as U1-U6), ranging from the plain vanilla definition, to measures that incorporate long-term unemployment, temporary jobs, and the discouraged worker effect.

Some economists eschew unemployment and instead study alternative labor market indicators such as employment and/or market hours worked as a share of the working age population. The benefit of focusing on how much work is being done is that measurement is conceptually simple. It doesn’t require knowing an individual’s subjective attachment to the labor force or how much time they are devoting to searching if unemployed.

Understanding unemployment is a tall order. Despite this challenge, Frank Stricker — professor emeritus of history at California State University, Dominguez Hills — studies the history of American unemployment from roughly the postbellum period through the 2007-08 financial crisis and its aftermath in American Unemployment: Past, Present, and Future.

As a non-economist, Stricker brings a different eye towards the problem of unemployment. He is a passionate advocate for “full employment” and creating high paying jobs. He focuses the book on whether the shifting American model of a free enterprise economy can create achieve these goals. His answer is a clear “no,” and the latter chapters of the book present an explanation for his views, and present an argument for how government can be the solution to the problems he sees as ailing America’s labor market.

Stricker’s passion for struggling individuals throughout America’s history dominates his writing, and this is an important, positive feature of the book. The primary theme is that the U.S. labor market doesn’t function efficiently, thus leaving a lot of human resources underutilized much of the time. His perception is that the U.S. economy rarely achieves full employment, that compensation is limited by the chronic presence of the unemployed, that it has been a mistake to try to fight inflation using unemployment, and that government jobs policies would lead to significantly better economic outcomes.

While I disagree with Stricker’s characterization of the chronic lack of efficiency of the U.S. labor market, I agree with his perspective about the Phillips Curve and the failed logic of using unemployment to fight inflation. I also agree that there are labor market policy reforms available that could be beneficial in principle, including jobs policies. I discuss these issues below.

The book’s major limitation is the lack of a formal economic model to guide thinking about the U.S. labor market and to interpret labor market data. The term “full employment,” which is the centerpiece of the book, means different things to different people and fundamentally requires a model-based definition. Stricker refers to an unemployment rate of 4 percent as a benchmark, but that number is largely a relic from a time when our understanding of the labor market was much more limited.

The book begins with a discussion of the labor market between 1873 to 1920, a period of significant economic growth, including the technological revolutions of electrification and the internal combustion engine. Stricker discusses the period as one of chronic capitalist crises occurring in the 1870s, as well as the panics of 1893, 1907, and weak economic activity around 1914 and the focus of the chapter is the inability of the American economy to maintain full employment. Stanley Lebergott’s unemployment estimates, which are available from 1900 onwards, shed some light on this issue (though only beginning in 1900). The mean rate of unemployment between 1900 and 1920 was about 4.5 percent.

My view is that an average unemployment rate of 4.5 percent is remarkably low. Keep in mind that this period is one in which the American economy was poor and technologically backwards, which means that information costs were very high and mobility costs were very high, both of which increased unemployment. Moreover, new technologies were changing the nature and scope of work, sharply reducing the demand for agricultural workers and for workers employed in formerly labor-intensive technologies. And rural labor markets were not very competitive at that time. The biggest employer in a small town likely had significant monopsony power, which reduces hiring. I see the 1900-1920 U.S. labor market as a glass 4/5th full, rather than a glass that is 1/5th empty, which seems to be what Professor Stricker sees.

Stricker then moves to the 1920s and 1930s, the latter of which encompasses the Great Depression. This is a period in which government policies played an enormous role in impacting the economy. Stricker rightfully focuses on the role of government in this chapter, though he paints with broad strokes, setting this up as either a “laissez-faire” economy or one with government interventions.

But some 1930s government labor market interventions were destructive, including the National Industrial Recovery Act and the Wagner Act, the latter which de fatco permitted the use and threatened use of the sit-down strike. By impeding the normal forces of competition, the NIRA and the Wagner Act created substantial unemployment by raising real wages in manufacturing and other goods-producing sectors far above market-clearing levels. These are the types of policies that should concern labor activists because they create market inefficiencies by preventing mutually advantageous trades between the suppliers and demanders of labor services.

On the other hand, his positive description of government infrastructure projects in the 1930s (think Hoover Dam) is powerfully told, and the economics of these programs is clearly on his side. There is no better time to build infrastructure than when there is low demand for the factors of production that build that infrastructure. Sadly, our ability to do this today is probably much less efficient than it was 85 years ago. Understanding deeply why this is the case would be a wonderful contribution to American economic history.

The book transitions to three different periods that are demarcated by the observed patterns of unemployment and inflation. There is 1940-1974, which he refers to as “Full Employment: Experiments and Battles”; 1975-2000, which he refers to as “Low Unemployment + Low Inflation: Can’t Be Done, Is Done”; and then 2000-2018, which he refers to as “Low Pay, Great Recession.”

The guiding theme of these three chapters is the chronic conflict between labor and capital, and the evolution of economic policies that are both influenced by and shape these battles. The interpretation is that jobs have been limited for much of this period, and these limitations have depressed worker compensation.

The most compelling point discussed in these chapters is the failed policy of using the Phillips Curve to try and manage inflation by tolerating high unemployment. The Phillips Curve has been an extremely costly policy detour that remains in some policy quarters, despite that it empirically has failed for nearly forty years. Stricker correctly argues that this policy has harmed the economy and is one that should have been abandoned long ago.

An important postwar labor development is that labor conflict and frequent strikes, particularly in Rust Belt industries, sowed the seeds for future weak job growth and compensation growth by reducing investment and the adoption of the latest technologies in these industries. The remarkable increase in steel and auto imports reflects foreign producers who became much better at producing these products because of technological superiority and peaceful relations with their workers. Rust Belt industry management deserves some of this blame for the Rust Belt’s decline, but so do the United Auto Workers and the United Steel Workers, both of whom have admitted that they should have been more cooperative and less combative. What is not recognized in American Unemployment is that the labor movement of the 1950s-1970s damaged future workers.

An important misperception in American Unemployment that is particularly relevant for the recent economy is that wage levels and wage growth are a good proxy for compensation. This was accurate for the 1960s and before, when fringe benefits were a very small fraction of compensation. But today, fringe benefits are nearly 30 percent of compensation.

Competitive models of the labor market predict that real compensation will move closely with worker productivity, but this comparison requires better measurement than using just wages. Worker productivity has increased by about 180 percent since 1965, while compensation has increased by about 125 percent. This is a compensation shortfall of about 30 percent over the 55-year period, which amounts to about a 0.4 annualized percentage point difference. Not perfect, but certainly in the right direction as predicted by the theory. In contrast, measuring compensation using just wages, and deflating by the CPI rather than by the GDP deflator (which is used to construct productivity) shows only a 15 percent increase since 1965. No wonder that Stricker sees workers getting the short end of the stick based on this flawed measure.

The final chapter offers Stricker’s policy ideas. I support in principle his idea of government-provided jobs program, particularly as an alternative to long-term unemployment benefits. A positive externality of this policy is that this expands the ability of otherwise idled workers to contribute to their communities and to enhance their skills. Other policy ideas from Stricker, such as a $20 minimum wage, may not be nearly as productive as he believes, particularly in relatively poor labor markets. Currently, the median Mississippi worker earns less than $15 per hour. The downside of high minimum wages is that they price the least experienced workers, including immigrants, out of the labor market, and essentially force them into public assistance.

What is missing from the policy recommendations section is a detailed assessment of broader forces that will shape the U.S. labor market, including how continued globalization, automation, changing gender roles, and a deficient American K-12 education system will impact future jobs. Almost certainly, the most important policy reform is to improve our schools so that more of our students are adequately trained in STEM disciplines and in written and oral communication, all of which are skills that will be increasingly in demand.

In contrast to Stricker’s views, standard measures of labor market performance show that the American labor market is remarkably efficient. Before the pandemic, nearly six million jobs turned over each month, reflecting large changes in supply and demand across sectors and industries. This works out to be a turnover rate of about 40 percent of jobs annually. In terms of the speed of matching workers, two-thirds of the unemployed found a new match within 14 weeks of unemployment prior to the pandemic. And the percentage of employed prime-age workers (25-54 years old) was 80.5 percent, just below the peak of about 81 percent in the late 1990s. This is not a labor market that is broken.

The problem with our labor market is not that it doesn’t effectively match workers with businesses at compensation levels that are reasonable. Rather, any economy’s ability to create lots of high-paying jobs, which is Stricker’s understandable goal, requires lots of workers with high human capital. For Stricker, unemployed workers are a valuable human resource sitting idle, losing their ability to provide for themselves and their families, and losing the dignity that goes with having a decent job. While most of us agree with Stricker on this point, there is a deeper reason why these workers have been idled that goes far beyond politics and the potential deficiencies of a capitalist economy. It has to do with skills and why more American workers haven’t accumulated more skills to enhance their employability. This is perhaps the most important lesson that the history of labor economics provides, and shows why any discussion of unemployment and the labor market must dig more deeply than Stricker’s engaging and provocative book.

 

Lee E. Ohanian is Professor of Economics at UCLA and is a Senior Fellow at the Hoover Institution, Stanford University. He is the author of “New Deal Policies and the Persistence of the Great Depression.”

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Subject(s):Labor and Employment History
Geographic Area(s):North America
Time Period(s):19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII

Herbert Hoover, Unemployment, and the Public Sphere: A Conceptual History, 1919-1933

Author(s):Gaddis, Vincent
Reviewer(s):Reagan, Patrick D.

Published by EH.NET (September 2008)

Vincent Gaddis, Herbert Hoover, Unemployment, and the Public Sphere: A Conceptual History, 1919-1933. Lanham, MD: University Press of America, 2005. xxix + 180 pp. $36 (paperback), ISBN: 978-0-7618-3235-5.

Reviewed for EH.NET by Patrick D. Reagan, Department of History, Tennessee Technological University.

In this suggestive, yet flawed, study Benedictine University historian Vincent Gaddis calls for reexamination of the unemployment policies of Herbert C. Hoover, Secretary of Commerce and President of the United States, between 1921 and 1933. Using the theoretical approach of German scholar Jurgen Habermas, Gaddis argues that Hoover manipulated the role of the American public in this period to impose his view of a limited voluntarist state on the broader society through the intermediate institutions of municipal government, business, labor, and urban charities in response to the depression of 1920-1921.

Gaddis deploys an abundance of research from the wealth of materials in the Secretary of Commerce and presidential papers at the Hoover Library in West Branch, Iowa to put Hoover at center stage in the public policy formulations of the 1920?s. In a brief introductory chapter on the conceptual challenge of making sense of Hoover?s ideas, Gaddis stresses the interrelationship among Hoover?s ideological values of individual virtue, preservation of liberty through a limited state, and the significance of voluntary action by local governments and private sector actors for public policy making implemented through the work of the President?s Conference on Unemployment of 1921. In the wake of what this reviewer has termed ?the forgotten depression of 1920-1921,? newly-appointed Secretary of Commerce Hoover created a series of follow up committees to investigate the issues of unemployment, the business cycle, seasonal unemployment in the construction industries, and industrial disputes.[1] Gaddis summarizes the work and impact of the conference, Hoover?s voluntarist views of political economy, and Hoover?s efforts to stabilize the coal industry in the 1920?s in separate chapters. In chapters 4 through 6, the most insightful and thoroughly research section of the work, Gaddis presents a sophisticated historical narrative focused on the work of the municipal committees on unemployment in the three key Midwestern cities of Chicago, Milwaukee, and Detroit. Gaddis draws on research in personal manuscript collections, municipal records, local and state historical societies, printed autobiographies and biographies, and city newspapers to fill in the picture of how the Hooverian response to the immediate crisis of unemployment in 1921 played out on the local level. Following recommendations of the Unemployment Conference for local and private-sector based responses to rising unemployment in 1921-1922, Republican machine mayor ?Big Bill? Thompson and Democratic successor William Dever in Chicago, socialist mayor Daniel Hoan in Milwaukee, and progressive Republican mayor James Couzens of Detroit roughly adhered to Hoover?s voluntarist policies in attempting to bring relief to the unemployed.

Yet, once the Great Depression of 1929-1941 began, voluntarism proved much too little and way too late. Traditional sources of local funding for relief such as food, housing subsidies, and limited health care were used up quickly. Little direct relief in the form of cash, known as ?the dole,? was available. Between 1929 and 1933, President Hoover desperately sought to hold on to voluntarist precepts through the work of the President?s Emergency Committee for Employment (1930-1931), the President?s Organization for Unemployment Relief (1931-1932), and, reluctantly, the new Reconstruction Finance Corporation (1932). During the same period, mayors Anton Cermak in Chicago, Daniel Hoan in Milwaukee, and Democrat Frank Murphy in Detroit mouthed voluntarist rhetoric while moving toward increasingly statist policies such as unemployment insurance and federal and direct relief as local charities, businesses, and municipal relief committees experienced a growing gap between their resources and the number and needs of the unemployed. In the penultimate and final chapters, Gaddis traces in detail Hoover?s growing divergence from socioeconomic reality and the city mayors? pragmatic moves toward the post-1933 social welfare state.

Unfortunately, the work is riddled with mistakes in grammar, spelling, and footnote citations that distract the reader?s attention from an otherwise valuable contribution to the historical literature on Hoover as Secretary of Commerce, public policy making in the Republican-dominated 1920?s, and the Hoover presidency. Throughout the text, conjunctions and prepositions that should appear remain missing. Some names appear in two spellings (e.g. Otto Mallery and Otto Mallory). Footnote numbers appear in mixed formats as regular, italicized, and superscript types. Two footnotes numbered 16 appear on pages xxiv and xxv. Chapter 3 with forty-nine footnotes at the end contains only one numbered footnote in the text (p. 53). One footnote on page 108 refers to notes 1 and 2 simultaneously. Whether through poor proofreading or lack of copy editing, this work reflects poorly on the author?s detailed research and careful thinking of an important topic in need of clarity and historical perspective. Production values, while not uppermost in a reader?s mind, do count.

More significantly, Gaddis appears unaware of key works such as Evan Metcalf?s study of Hooverian macroeconomic policy making, Ellis Hawley?s studies of Hoover?s coal stabilization work and Hoover?s use of the National Bureau of Economic Research, Guy Alchon?s Habermas-influenced analysis of Hoover?s policies throughout the period, and this author?s explication of the Hooverian committee and conference system bolstered by the work of the National Bureau of Economic Research and the financial support of national philanthropic foundations.[2] While Gaddis finally ties together many of his insights in the conclusion, this final chapter should have served as the introduction. Not only did Hoover and members of the newly reorganized Department of Commerce engage in a host of policy making ventures in the 1920?s, other people and institutions participated as well such as business groups including the National Civic Federation, the U.S. Chamber of Commerce, and local business associations. So too did the Taylor Society, locally-grounded firms, and individual New Era business leaders some have termed ?corporate liberals.?[3] Aware of the role of organized philanthropy in the Hooverian networks emerging from the Unemployment Conference of 1921, Gaddis points to the work of the Russell Sage Foundation, which played a minor part, while he ignores significant funding by the Laura Spelman Rockefeller Memorial, the Carnegie Corporation, and the Rockefeller Foundation. Rich primary sources exist for study of the part these second-generation philanthropies took in the Hooverian planning efforts throughout the decade as well as the capstone, landmark studies on Recent Economic Changes (1927) and Recent Social Trends (1933).[4] Unlike other revisionist works on Hoover?s ideology of voluntarism, his leadership of the President?s Conference on Unemployment of 1921 and its ensuing committee system, and the failure of President Hoover?s relief policies in the early 1930?s, Gaddis?s research shows us how and why the voluntarist response to the postwar crisis of 1921 set the tone, example, and model for Hoover?s later responses to the Great Depression. While the forgotten depression of 1920-1921 proved to be the sharpest economic downturn since the emergence of the business cycle in the early nineteenth century, it also was one of the shortest reversals. Hoover and his disciples along with city mayors, local business leaders, and local charities thought their response to rising unemployment worked in 1921-1922, so they quite understandably tried to use it again in the 1929-1933 period. In what Boston business leader and Hoover supporter Henry S. Dennison called ?the slowly sucking maelstrom? of the Depression, voluntarism reached its limits. The American people turned to Franklin Delano Roosevelt and the statist-oriented New Deal, leaving Herbert Clark Hoover and the voluntarist New Era behind. Still, when Franklin Roosevelt appointed the only national planning agency in U.S. history in July 1933, all of its members were veterans of the Hooverian experiments of the 1920?s.

Notes:

1. Patrick D. Reagan, ?From Depression to Depression: Hooverian National Planning, 1921?1933,? Mid-America 70 (1988): 35-60.

2. Evan Metcalf, ?Secretary Hoover and the Emergence of Macroecoomic Management,? Business History Review 49 (1975): 60-80; Ellis W. Hawley, ?Secretary Hoover and the Bituminous Coal Problem, 1921-1928,? Business History Review 42 (1968): 247-270; Ellis W. Hawley, ?Economic Inquiry and the State in New Era America: Anti-Statist Corporatism and Positive Statism in Uneasy Coexistence,? in The State and Economic Knowledge: The American and British Experiences, eds. Mary O. Furner and Barry Supple (New York: Woodrow Wilson International Center for Scholars and Cambridge University Press, 1990), pp. 287-324; Guy Alchon, The Invisible Hand of Planning: Capitalism, Social Science, and the State in the 1920?s (Princeton: Princeton University Press, 1985); Patrick D. Reagan, Designing a New America: The Origins of New Deal Planning, 1890-1943 (Amherst: University of Massachusetts Press, 2000); and Michael A. Bernstein, A Perilous Progress: Economists and Public Purpose in Twentieth-Century America (Princeton: Princeton University Press, 2001), pp. 53-58.

3. Ellis W. Hawley, ?The Discovery and Study of a ?Corporate Liberalism?,? Business History Review 52 (1978): 309-20; Robert F. Himmelberg, The Origins of the National Recovery Administration: Business, Government, and the Trade Association Issue, 1921-1933 (New York: Fordham University Press, 1976); Robert F. Himmelberg, ?Government and Business, 1917-1932: The Triumph of Corporate Liberalism?? in _Business and Government: Essays in Twentieth-Century Cooperation and Conflict, eds. Joseph R. Frese and Jacob Judd (Tarrytown, NY: Sleepy Hollow Press, 1985), 1-23; and Essays in Business-Government Cooperation, 1917?1932 : The Rise of Corporatist Policies, ed. Robert F. Himmelberg (New York: Garland Publishing, 1994), Volume 5 in Business and Government in America Since 1870: A Twelve Volume-Anthology of Scholarly Articles.

4. For a sampling of works based on philanthropic records, see Barry D. Karl and Stanley N. Katz, ?The American Private Philanthropic Foundation and the Public Sphere, 1890?1930,? Minerva 18 (Summer 1981): 236-270; Robert Arnove, ed., Philanthropy and Cultural Imperialism: The Foundations at Home and Abroad (Boston: G.K. Hall, 1980); Jack Salzman, ed., Philanthropy and American Society: Selected Papers (New York Columbia University Press/Center for American Studies, 1987); Donald Fisher, Fundamental Development of the Social Sciences: Rockefeller Philanthropy and the United States Social Science Research Council (Ann Arbor: University of Michigan Press, 1993); and Ellen Condliffe Lagemann, ed., Philanthropic Foundations: New Scholarship, New Possibilities (Bloomington: Indiana University Press, 1999) .

Patrick D. Reagan is author of Designing a New America: The Origins of New Deal Planning, 1890-1943 (Amherst: University of Massachusetts Press, 2000); American Journey: World War I and the Jazz Age (Farmington Hills, MI: The Gale Group/ Primary Source Microfilm, 2000); editor of and contributor to Voluntarism, Planning, and the State: The American Planning Experience, 1914-1946 (Westport, CT: Greenwood Press, 1988); and contributor of essays on planning and several economists in Encyclopedia of the Great Depression, ed. Robert S. McElvaine (New York: Macmillan Reference USA, 2003), 2 volumes.

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

Inventing Ourselves Out of Jobs?: America’s Debate over Technological Unemployment, 1929-1981

Author(s):Bix, Amy Sue
Reviewer(s):Zieger, Robert H.

Published by EH.NET (September 2000)

Amy Sue Bix. Inventing Ourselves Out of Jobs?: America’s Debate over

Technological Unemployment, 1929-1981. Studies in Industry and Society.

Baltimore and London: Johns Hopkins University Press, 2000. x + 376 pp.

Illustrations and index. $45.00 (cloth). ISBN 0-8018-6244-2.

Reviewed for H-Business and EH.NET by Robert H. Zieger, Department of History,

University of Florida.

Men (and Women) at Work?

Inventing Ourselves Out of Jobs? is an able and lucidly written account

of the ongoing debate in the United States over the effects of technology on

employment. Drawing on a wide range of published materials as well as on

corporate, labor, and governmental archives, Amy Sue Bix traces in rich detail

the views of three generations of policy makers, labor leaders, engineers, and

business executives to come about the relationship between expanding

productivity and the availability of jobs. A notable feature of the debate has

been the absence of a definitive empirical method for weighing the impact of

technology on employment. Thus, over the seventy years covered in the book

(which deals with developments over the past twenty years as well as with the

period indicated in the title), celebrants and critics of workplace technology

have tended to make the same arguments, often with the same rhetorical

embellishments. According to corporate leaders, engineers, and other partisans

of labor-saving technology, expanding production inevitably lowers prices,

increases consumption, and boosts employment. Labor leaders, social critics,

and troubled politicians, on the other hand, have focused technology’s role in

work force reduction and have argued that promises of long-term growth in job

opportunities have proved unduly optimistic or even illusory.

In Bix’s telling, however, virtually no one called for an end to technological

advance. Laborites, for example, have accepted and even celebrated

technology-facilitated productivity gains, arguing only that workers should

share in them through shorter hours, higher wages, and greater voice in the

actual implementation of new workplace regimes. Three generations of labor

leaders, from William Green and John L. Lewis in the 1930s through Walter

Reuther in the 1950s and John Sweeney currently have repudiated Ludism,

confining their critique of job-related technology to advocacy of

worker-friendly regulation, job training, and the passing on of productivity

savings to workers and consumers. Critical of the blithe optimism of corporate

spokesmen and their scientific and engineering allies that productivity gains

lead inexorably to expanded (and enriched) employment opportunities, even those

most troubled by job loss have accepted the inevitably of continuous workplace

transformation.

Employers have dismissed concerns about job loss, although often in a

defensive idiom. Equating technological advance with progress, and, in turn,

a commitment to progress with national identity, corporate leaders and their

scientific allies have painted a bright new world of abundance and ease.

Rejecting calls for public intervention in the development and application of

labor-saving devices, business leaders such as Henry Ford and machine-tool

innovator John Diebold acknowledged that inevitably some workers would be

displaced and might suffer local and temporary hardships. But the advantages

of expanded production and its concomitant proliferation of consumer goods far

outweighed these minor side effects. Popular writers and editorial cartoonists

might depict soulless robots and inexorable machines spitting out superfluous

unemployed workers as well as appliances and amenities, but resistance to the

machine was in fact ignorant, self-defeating, and even unpatriotic. “Workplace

mechanization,” writes Bix in summary of industrialists’ views, “represented

the inevitable, the only possible way to attain national success.” (166-67).

She quotes economist Benjamin Anderson: “on no account,” declared this banking

analyst of the 1930s, “must we retard or interfere with the most rapid

utilization of new inventions.” (166)

The debate over technology and unemployment has waxed and waned since the onset

of the Great Depression. It raged most fiercely during the 1930s, when

joblessness rose to catastrophic proportions. During World War II, full

employment and military needs dampened it. It re-emerged, now stimulated by

early computerization and other forms of electronic replication, during the

prosperous era of the 1950s and early 1960s, with labor leaders such as Walter

Reuther calling attention to the problem of lingering unemployment amidst

otherwise bright economic prospects. Congressional hearings in 1955 on what

was now called “automation” demonstrated that even during good times, the

specter of worker redundancy walked hand-in-hand with the promise of a brave

new consumerist world. By the late 1970s and into the 1980s, of course, the

computer revolution raised these issues in a new idiom, although corporate

down-sizing, globalization, and widening income disparities have tended to

merge discrete apprehensions about technology’s adverse effects with broader

concerns about job security and living standards.

Bix touches on a wide range of industries and employment situations in

surveying the technology-vs.-unemployment theme. Drawing on TNEC and WPA

studies, she examines the experiences of telephone operators, musicians, steel

workers, coal miners, and railwaymen buffeted by the demands of new

technologies in the 1930s. In the 1950s and 1960s, it was the turn of

packinghouse workers, longshoremen, clerical workers, and electrical workers.

Unions attempted various strategies in an effort to cope with mechanical

displacement. In the 1930s, the musicians union, faced with the substitution

of recorded music for live orchestras in movie houses, launched a massive

public relations campaign, hoping futilely to stimulate an outraged public to

demand live music. In the 1950s, the West Coast Longshoremen’s Union followed

an opposite course, capitulating to what its leaders regarded as the inevitable

inroads of containerization while securing for its existing membership generous

severance and manning reduction payments.

Bix’s account of the protracted and continuing debate over technology and work

is enlivened by frequent references to popular literature and films. In

addition, drawings and cartoons, some hailing the brave new future of a

worker-less future, others depicting with grim foreboding the social chaos sure

to afflict hapless displaced workers, give the debate vivid expression.

Inventing Ourselves Out of Jobs? also brings to attention governmental

efforts in the 1930s, primarily through studies conducted by the Works Progress

Administration and testimony offered at the Temporary National Economic

Committee congressional hearings, to establish an empirical basis for weighing

the impact of industrial technology on employment. The latter chapters ably

survey a wide range of opinion drawn from more contemporary sources, attesting

to the continuing pertinence of concern about the relationship between

employment and technology.

Inventing Ourselves Out of Jobs touches on but explores only briefly a

number of key themes that the general subject would seem to entail. The book

is more of a history of discourse about employment and technology than it is a

social history of the subject. Thus, themes of gender and, especially, race

receive only brief explicit exposition, for example. The social context in

which employers and engineers devise and implement labor-saving devices

likewise is only glancingly dealt with. Thus, for example, some observers have

argued that rapid mechanization of labor- intensive departments in metal

working, paper making, and meat packing after World War II represented less a

technological imperative than an effort on the part of employers to curtail

African American employment in operations that had proven unusually susceptible

to worker militancy and trade union pressure. This is not an issue that

captures Bix’s attention, however.

Likewise, Bix invokes but never quite explores in detail the implications of

the consumerist justifications to which employers increasingly turned in

justifying their resort to labor-saving measures. In 1951, Fortune magazine

published a special edition titled “USA-The Permanent Revolution,” boldly

proclaiming that mass affluence and its attendant consumerism constituted the

real revolution of the 20th century. In the 1960s, social critics such as

Herbert Marcuse, Charles Reich, Paul Goodman, E. F. Schumacher, and Christopher

Lasch-none of whom receives mention in Inventing Ourselves Out of

Jobs?-expressed the reverse of this kind of celebration of material plenty,

which in corporate America’s view depended on continuous technological

innovation. In a sense, competing visions of America centering on consumerism

(and, thus, technology) are the modern echo of the 18th century debate between

adherents of the civic republic and partisans of a commercial republic.

Implicit also, but underdeveloped in the book, is the question as to whether

work can remain an adequate vehicle for the social identities that before the

Great Depression it conveyed. Many of the jobs that Americans hold today are

far removed from productive enterprise, at least as it has traditionally been

understood. Technological advance and productivity gains have made it possible

for televangelists, day traders, and historians to flourish. Why these

particular occupations should attain public certification while other kinds of

non-productive employment languish or are suppressed is a question of culture

and politics, not one of technology per se.

Bix suggests rather than asserts her own sympathies. Her prose comes alive

when she exposes the fatuities and excesses of technology celebrants while

taking on a more troubled and somber tone when exploring the plight of the

displaced and dissident. Her dismay with those who equate America’s purposes

and promises with technological progress and consumerist indulgence is evident,

although never strident. She seems reluctant to concede that ordinary people

might have benefitted from technological innovation and at times flirts with

nostalgia for the good old days of man-killing coal mines and lethal railroad

work. Even so, Inventing Ourselves Out of Jobs? is a useful survey of

the ongoing debate over the relationships between technology and work in the

modern United States.

Robert Zieger has worked extensively in the fields of American labour history

and twentieth century history. His latest book is America’s Great War: World

War One and the American Experience, Rowman & Littlefield, 2000.

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

Fabricating the Keynesian Revolution: Studies of the Inter-war Literature on Money, the Cycle, and Unemployment

Author(s):Laidler, David
Reviewer(s):Hammond, J. Daniel

Published by EH.NET (June 1, 2000)

David Laidler, Fabricating the Keynesian Revolution: Studies of the

Inter-war Literature on Money, the Cycle, and Unemployment. New York and

Cambridge: Cambridge University Press, 1999, xvi + 380 pp. $74.95 (cloth) ISBN:

0-521-64173-X, $27.95 (paper) ISBN: 0-521-64596-4.

Reviewed for EH.NET by J. Daniel Hammond, Department of Economics, Wake Forest

University.

David Laidler’s thesis is just as the title suggests. The Keynesian revolution

was a fabrication. By this Laidler means that the putative revolution was

neither uniquely Keynesian nor revolutionary. The most transforming development

of post-1936 economics was the synthesis embodied in the IS-LM model. The

model, while generally and properly associated with Keynes’s General

Theory and the “revolution” that followed, owed more to John Hicks, James

Meade, Roy Harrod, Brian Reddaway, and Alvin Hansen than to Keynes. Though the

General Theory contained an informal version of the model, the ideas

that the model was subsequently used to organize were themselves neither

particularly Keynesian nor novel.

If there was not a uniquely Keynesian revolution, why organize the book around

the idea of such an event? Obviously, one reason Laidler did so is because the

book is an exercise in myth debunking. The term “Keynesian revolution” is part

of the common parlance among economists, and carries the message that J. M.

Keynes fomented a revolution with the General Theory. No less a source

than Keynes testified to this. Laidler quotes Keynes from a 1935 letter to

George Bernard Shaw: “I believe myself to be writing a book on economic theory

which will largely revolutionise – not, I suppose, at once but in the course of

the next ten years – the way the world thinks about economic problems” (p. 3).

In the decade following publication of the General Theory there was

disagreement over the particulars of the revolution but little doubt that there

had been a revolution and that it was Keynesian.

However, Laidler’s message is also that something new and substantial was

fabricated from inter-war economics, for which Keynes and his followers were

largely responsible. This was a consensus on how to deal analytically and

practically with problems of macroeconomic instability. In this sense

“fabricate” means “to make” rather than “to make up.” The consensus was

embodied in the formal structure and interpretation of the IS-LM model. IS-LM

provided a convenient, easy-to-learn, and rich vehicle for organizing and

comparing ideas. Much of Laidler’s book is an account of the inter-war material

from which this consensus was made. Laidler shows how in the framing consensus

within the formal structure of the IS-LM model portions of inter-war economics

were preserved and portions were lost.

The book is organized around several themes in the inter-war literature. The

first theme is Wicksell’s influence on the divergent ideas in Austrian and

Swedish cycle theory. The second is the British literature of the period, with

Marshall’s heavy influence. The third theme is geographically based — the

diverse American inter-war literature including Irving Fisher’s quantity

theory, the needs-of-trade monetary policy view that was influential at the

Federal Reserve, empirical business cycle research, and underconsumptionism.

The fifth and central theme is Keynes’s General Theory and reactions to

it by older and younger economists. Laidler’s division of Keynes’s critics into

older and younger groups provides a clear view of what was new and what was

old, what was kept and what was shed, in the “Keynesian revolution.”

The IS-LM model was not just a formalization of the General Theory. It

was both more and less than this. It summarized, for instance, Wicksellian

inter-temporal coordination issues and Marshallian quantity theory ideas that

were not original to the General Theory. And it omitted key ideas from

the inter-war period that Keynes emphasized in his book, such as the roles of

uncertainty and expectations.

Fabricating the Keynesian Revolution is an effective complement to

Laidler’s The Golden Age of the Quantity Theory (Princeton University

Press, 1991). Between the two, he has provided an in-depth account of the

development of monetary and macroeconomic theory from 1870 through the 1930s.

The books share the same historiographic approach, detailed and nuanced tracing

of the development and interplay of ideas from their sources. One difference in

their content is that this book has less emphasis on the interaction of

institutions and ideas. But the two books share the same central theme, that

economic ideas evolve gradually and without so much drama as is often presumed.

The evolution of economic doctrine is complicated, with ideas being created,

being lost, and being found. Laidler provided a preview of this book’s thesis

in The Golden Age. So readers who are familiar with The Golden

Age will not be surprised by Fabricating the Keynesian Revolution.

They will, however, be amply rewarded for reading it.

Dan Hammond is author of Theory and Measurement: Causality Issues in Milton

Friedman’s Monetary Economics (Cambridge University Press, 1996).

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

Economists at War: How a Handful of Economists Helped Win and Lose the World Wars

Author(s):Bollard, Alan
Reviewer(s):Bossie, Andrew

Published by EH.Net (March 2021)

Alan Bollard, Economists at War: How a Handful of Economists Helped Win and Lose the World Wars. Oxford: Oxford University Press, 2020. xxi + 321 pp. $25 (hardcover), ISBN: 978-0-19-884600-0.

Reviewed for EH.Net by Andrew Bossie, Department of Economics, New Jersey City University.

 

The economists profiled in Alan Bollard’s Economists at War were all cursed to live in interesting times. All of them were active participants in history as agents of states emerging and collapsing during the violent rending of the 1930s and 40s that birthed modern industrial governance. For those of us who find important echoes in today’s world in which global fascism is again on the rise and the only political force with any energy or will to oppose it has proudly resurrected the “Socialist” label, Bollard provides us with compelling models — both positive and negative — for how economists operated within and with governments to manage the rolling crises that built the twentieth century state.

Economics in our own era have inherited an ideological regime brought about by economists of the baby boomer generation. This intellectual regime has centered around the failures of collective action: the cynicism of public choice theory and the rational callousness of game theory. Within macroeconomics, the great intellectual project of the baby boomers — and Gen X, who came of age when nothing but the neoliberalism of the Great Moderation seemed possible — was to marry Friedman’s centrality of money with micro-founded models of technology and capital that are always in equilibrium. In the New Keynesian consensus that emerged from this project the modern state, even flattened-out as “fiscal policy,” played no role. Multipliers were assumed to be less than one, public debts were assumed to always come due, markets were assumed best deregulated and conservative central bankers were the equilibrium condition.

Since the financial crisis of 2008, caused by a refusal of states to regulate businesses, the ship of this intellectual regime had been increasingly battered against the rocks of reality. Then the COVID recession came, like a great tsunami, and sank the ideology of neoliberalism. Not only do we now have ample evidence that debilitatingly higher interest rates and inflation are not an inevitable consequence of profligate government spending and money printing, but the profession’s proletariat (Temin, 2013) has also risen up in a Credibility Revolution. Empirical economists have chipped away at many ideas that were obviously true twenty years ago. Multipliers are often more than one. The minimum wage does not obviously cause unemployment. The money printer not only can but must go brrr. We find ourselves, much like during the crises of the 30s and 40s intellectually adrift in uncharted waters. For those of us with a historical bent, a major navigation point has been the caldron that formed the modern welfare state in the first half of the twentieth century. Bollard offers and excellent and compelling map of this sea.

Bollard profiles economists operating under all of the emerging, consolidating, and collapsing political-economic systems of the era: capitalist, fascist and communist. Within these systems Bollard provides us with a number of models for how economists interacted and supported their states through depression and war, with an equally compelling epilogue devoted to the roles these men played during the Cold War. Herein lies the first strength of Bollard’s book: its inclusivity. This inclusivity takes three forms. First, as stated, Bollard takes the plurality of political and economic systems engaged in the war seriously. Secondly, Eastern economists are profiled along with Western. While the book is intended to be chronological, it feels like a deliberate decision to open the book with the murder of Takahashi Korekiyo — former Prime Minister and Finance Minster of Japan — by the Japanese military. In doing so Bollard establishes the stakes of the global political drama while also reminding the reader that it was not simply a Western drama. Bollard then segues from Takahashi’s story to that of the unscrupulous Kung Hsiang-hsi, who aided in his family’s rise to riches holding various positions as an economic manager for the Kuomintang’s military kleptocracy in China.

The third way in which Bollard’s inclusivity is evident in his definition of “economist.” I had my initial skepticism of his choices of who to label as an “economist” but as with many of my prior’s going into this book Bollard offers a convincing case for his decisions. Takahashi and Kung are economic policy makers who are joined by Hjalmar Schacht in Germany as profiles in navigating economic policy making during depression and war. These men open the book and provide profiles of the economist as a civil servant. The relationship between these economists and the states they worked for is explicit and obvious. As the book moves on Bollard moves into profiles of economists as academics, and the relationship between these men and their respective governments is more fluid but no less clear.

In this respect, the profile of J.M. Keynes is a useful bridge between the types of economists Bollard profiles, though Keynes was more successful as an academic given that his policy advice was generally ignored or overruled. As someone quite familiar with this period and suffering a bit from “Keynes fatigue,” I went into this book wishing Bollard had picked some other British economist to profile. However, Keynes — as a world historical figure — serves as a central node in the network of relationships between the economists profiled in the book, overlapping with many of them personally and professionally. Even the fact that Keynes had in-laws in Leningrad is used as a transition device. The result is a usefully targeted biography of Keynes that will surely be on the syllabus should I ever decide to teach a class on Keynes again.

Within his exploration of academic economists during the war, Wassily Leontief is a great example of the typical origin stories of the various academics profiled. Forced, like all the other European Jews profiled in the book, to make decisions about how to ride through the instability of the first half of the twentieth century that as often as not targeted them directly, Leontief found his way to the United States and settled into a quiet and productive life following a research program parallel to that of Leonid Kantorovich in the Soviet Union. Though, unlike the comfortable Leontief, Kantorovich’s quiet life was one of suffocation under Stalinism.

Bollard offers a compelling parallel between Kantorovich and American polymath John Von Neumann. Kantorovich was stymied and isolated by the worst impulses of Stalinism while Von Neuman thrived under the worst impulses of American political culture. In a book that features Nazi collaborators, Bollard remains relatively detached with no real villains, except for Stalin. The injustice and irrationality of the claustrophobic intellectual environment that Kantorovich had to survive is palpable in the book. As is the post-Stalin emergence of Kantorovich into the light.

Kantorovich’s first time leaving the USSR on a world tour that started with his accepting the Nobel Prize underscores a theme throughout the book that I felt deeply in this world where the best we can manage are awkward Zoom seminars. Throughout the book Bollard highlights various encounters, seminars and conversations among academics and policy makers. This reminds us that science is collective and participatory, and while the men profiled in this book are all standalone geniuses, the magnifying externalities of that genius are most evident in conversations over a couple glasses of wine or a lunch with a colleague in a seminar room. Kantorovich is a case study in how genius is diminished in both political and physical isolation.

The parallels between Kantorovich and Von Neumann, whose genius floats through his profile as pollen in spring, are striking. Both men made important contributions to economics, nuclear physics, and computer science. Where they diverge, though, leaves me disliking Von Neumann as much as I am sympathetic towards Kantorovich. While Kantorovich’s relationship with his country’s military industrial complex was largely one of survival, Von Neumann’s involvement with the military industrial complex in the U.S. seems to be one in which he thrived. I find it very difficult, even in historical context, to understand how a scientist could see with his own eyes the destructive capabilities of nuclear weapons and then champion their use. Imbibing all the worst impulses of game theoretic thinking, Von Neumann created and then championed the proliferation of nuclear weapons and the strategy of “Mutually Assured Destruction.” Von Neumann’s final days are depicted particularly powerfully: screaming in terror of death and in resentment at his own lost potential. Bollard is right to follow up this scene by reminding the reader that Von Neumann was likely slowly murdered by the same nuclear weapons he advocated using to murder so many other people.

Bollard’s nuanced depiction of Von Neumann is illustrative of another strength of his book: an excellent writer, he presents the economists under consideration as complex and complete figures. This is most clear in his sympathetic depiction of Schacht who was both President of the Reichsbank and Minster of Economics under the Nazi government in the 1930s. Bollard, who has had a rich career as a civil servant in New Zealand — he served at both his country’s Treasury and Reserve Bank and is currently the chair of the New Zealand Infrastructure Commission — portrays Schacht as a civil servant trying to do what he can under conditions he has very little control over. The depiction is probably too sympathetic, but it is nonetheless compelling. The depiction also serves an important purpose in that it forces readers to confront their own complicities and hubris that they would never slide down the slippery slope Schacht did. Further, the ultimately prosperous Schacht is a useful foil to Takahashi’s martyrdom at the hands of his own myopic and militaristic fascist government.

The one exception to Bollard’s general balance between admiration and criticism is H.H. Kung. While all the other economists are portrayed sympathetically and complexly, Bollard seems to outright dislike Kung. Kung is an exception among the economists in the book, the rest of whom were motivated by some kind of higher ideal. The other men were dedicated to their own conception of good governance or motivated by discovery and science. Kung, on the other hand, was simply an opportunist and solely motivated by accruing wealth for himself and his family. A creature of pure corruption, he stands out in a book profiling men devoted to higher ideals than economic accumulation. These higher ideals of governance and science are necessarily collective and cooperative ideals.

Economists at War offers us a diverse series of case studies in men who were thrust into an epic collective struggle by history and employed their energy and genius in that struggle imperfectly. This makes it an important work for economists trying to reimagine a world where there are collective solutions to collective problems. Hopefully, though, we can imagine collectively managing our own global structural shifts adequately enough so that when future historians of economic thought write about our own period we can be portrayed as economists at peace.

Reference:

Temin, Peter (2013). The Rise and Fall of Economic History at MIT. MIT Department of Economics Working Paper Series. https://dspace.mit.edu/handle/1721.1/79063

 

 

Andrew Bossie is Chair of the Economics Department at New Jersey City University. His research focuses on the short- and long-run economic effects of World War II on the U.S.

Copyright (c) 2021 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator (administrator@eh.net). Published by EH.Net (March 2021). All EH.Net reviews are archived at http://www.eh.net/BookReview.

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

The Russian Economy: A Very Short Introduction

Author(s):Connolly, Richard
Reviewer(s):Voskoboynikov, Ilya

Published by EH.Net (November 2020)

Richard Connolly, The Russian Economy: A Very Short Introduction. Oxford: Oxford University Press, 2020. xv + 151 pp. $12 (paperback), ISBN: 978-0-198-84890-5.

Reviewed for EH.Net by Ilya Voskoboynikov, Department of Economics, HSE University.

 

The Russian economy is, modifying Winston Churchill (1939), “a riddle wrapped in a mystery inside an enigma”; Russian economic performance is volatile. In the last three decades its institutional environment changed from a command to a market economy. Its industrial structure shifted from overinvestment in manufacturing and agriculture in the late 1980s to market services and mining (Voskoboynikov 2020). Trade conditions seem to be unpredictable. This is a sensitive issue for the economy, which depends on oil and gas exports. How can one understand the Russian development pattern over its centuries-old history and, possibly, outline Russia’s prospects for the future?

Perhaps there is a key. Richard Connolly dubs that key the “Russian system of political economy” — the System. For centuries, Russia could be characterized by (1) the weakness of its legal system, (2) the underdevelopment of modern economic activities, (3) technological underdevelopment and (4) lower living standards in comparison with major developed economies. The System explains why these features have proven to be so persistent.

Connolly departs from the system of political economy of Robert Gilpin, who highlights three main respects of any economy: the primary purpose of economic activity, the role of the state in the economy and the structure of private business. Historically, in Russia, this purpose was the subordination of economic activity to national security, both external and internal. This has predetermined the primary role of the state in the economy, reallocating resources to national security. Consequently, the position of private business is relatively weak and is characterized by weak property rights. To be successful, it is much more important to connect with state officials and block competition, rather than to produce competitive products.

The System explains the persistence of features (1)–(4). The central state delegated to the so-called state agents — pomeshchiki (landowners), governors or individual communist party bureaucrats — power to extract and reallocate resources and match target objectives at the cost of other activities. The central state granting agents autonomy and overlooking some abuses of power fueled the weakness of the legal system and of property rights. The threat of expropriations reduced the incentives of local private businesses to invest in new production, qualified workers, new technology and innovation. As a consequence, modern economic activities remained underinvested and technology underdeveloped. All these factors impacted productivity growth negatively and led to the deterioration of living standards.

The chapters of the book demonstrate effectively how this framework was formed and how it has worked throughout Russian history. Chapter 1 covers the four centuries from the formation of the Tsardom of Russia (later the Russian Empire) in sixteenth century to the October Revolution in 1917. This period demonstrates that the subordination of economic activities to national security originated from threats from several strong powers in the West and nomadic raiders in South and East. Russia was not alone in dealing with such external pressures, but with no natural geographically defined borders, such as mountains, coastlines, border lakes or rivers, the challenge for Russia was much stronger than for other Eurasian empires. Chapter 2 shows that the Soviet system of political economy, which formed by the mid-1930s and remained unchanged until the end of 1980s, turned out to be the extreme version of the traditional Russian System. Chapters 3, 4, and 5 discuss the formation of the modern system of political economy, which passed through the stages of market stabilization, liberalization and privatization in 1990s; the recovery of the role of the state in 2000s, accompanied by soaring growth rates; and the economic stagnation of 2010s.

The book is worth reading for economic historians. It provides a very simple and consistent conceptual framework, which helps to deal with the wealth of facts and data on the last five centuries of Russian economic history. This framework also demonstrates the difference between modern Russia and its predecessors – the Soviet Union and, to a lesser extent, the Russian Empire. Although national security remains one of the priorities for modern Russia, general social and macroeconomic stability are also the priorities (pp. 78, 85-89). The level of inflation is now at the historically lowest level since 1990. The budget deficit and unemployment are more than reasonable (pp. 83, 87).

The real challenges for Russia are demography, energy dependence and, probably the biggest, the weak legal system. The origins of this weakness are of specific interest and are of my main concern about the book. Connolly states (pp. 6-9) that the use of agents helps the central government to extract revenue, control vast territories and the population, and mobilize resources in times of the crisis with few formal controls. Most of the time the agents ruled their areas as their own domain and sometimes ignored the law. The central government needed the agents and controlled them weakly. As a result, national laws and informal local rules co-existed and collided, weakening the legal system and fueling the conflict between the central government and its agents for centuries.

A related issue is the lack of clarity on the ambiguous concept of the state in the book – specifically, a lack of clarity about the role of the state or its agents in proizvol (the arbitrary treatment) of serfs by their landlords or of a collective farmer by the local Communist Party authority. The same conflict appears in relations among the Soviet government, the ministries and managers of state enterprises (Gregory and Harrison 2005) and in the illusion of State Planning Committee control (p. 14). In all these cases, the state is both strong and weak. It is strong, because the landlord in eighteenth century and the local Communist Party authority in the Soviet era had power within their responsibilities or communities. It is weak, because the central government usually lacked the capacity to keep such agents under control and overlooked the abuse of law by its agents.

The central government made multiple attempts to enforce law and bind its agents. Kormlenie (feeding — the practice in pre-modern Russia of maintaining local officials at the expense of those they governed) was cancelled in sixteenth century. These attempts can also be seen in the constraints of serfdom up to the Emancipation Manifesto (1861) of Aleksandr II, which abolished serfdom. Unfortunately, the abolition of serfdom and its consequences are not discussed in the book, except the short paragraph of consequences of reforms after the Crimean War (p. 11). Scholars link Russian economic growth in the second half of nineteenth and early twentieth centuries to these reforms, including the abolition of serfdom and the subsequent progressive judicial reform. This was an important step forward, which improved the legal system and had a strong impact on economic performance (see, e.g., Markevich and Zhuravskaya (2018)). That is also an important lesson for Russia today.

Another concern is the issue of human capital, closely connected with the middle class and prospective future growth and development. Connolly notices that the Russian population now is highly educated by global standards (p. 114). I would add that the advances of education at all levels and healthcare system are achievements of the Soviet period (see, e.g., Nove 1992, pp. 359–62). This legacy of the Soviet Union makes the position of modern Russia in the global economy different from the Russian empire. In the early twentieth century, the illiteracy rate in Russia was 60% (1913) versus 11% (1900) in the US (Gregory and Stuart 2001, tab. 2.5).

These aspects, however, do not diminish the merits of the book, which helps us reflect on the centuries of Russian economic history and outline its future. Demography, energy dependence and the weak legal system (chapter 7) are particular challenges. The latter was explicitly exposed by the case of Russian oligarch Mikhail Khodorkovsky (pp. 44-45, 60-61) with the questionable legacy of privatization of oil company Yukos in the early 1990s, his payments to deputies in Russia’s parliament to support legislation of his business interests in the early 2000s and the transfer of the main oil-producing arm within Yukos to the state-owned company Rosneft. However, the Russian economy now is in a better position in comparison with 1917 or 1991. In spite of the importance of security issues and the high military expenditure, nobody seriously considers the big push approach or mass property confiscations and deportations, similar to the industrialization or collectivization of late 1920s–early 1930s. The primary purpose of the state is not only security. The role of the state is high, probably excessive, but not as high as three decades ago, and the chances of returning to a Soviet-like planned economy are negligible. In contrast with the period of the empire, the level of education in Russia now is much higher. In contrast with the Soviet period, the middle class, formed in 1990s, is also remarkable. Success will come when not only the government, but also Russian citizens, start considering improvements to the legal system as the top priority. The new book of Richard Connolly is very supportive of this idea.

References:

Churchill, Winston. 1939.  “The Russian Enigma.” London: BBC. The Churchill Society. http://churchill-society-london.org.uk/RusnEnig.html.

Gregory, Paul, and Mark Harrison. 2005. “Allocation under Dictatorship: Research in Stalin’s Archives.” Journal of Economic Literature 43 (3): 721–61.

Gregory, Paul, and Robert Stuart. 2001. Russian and Soviet Economic Performance and Structure. 7th ed. Boston, MA: Addison-Wesley.

Markevich, Andrei, and Ekaterina Zhuravskaya. 2018. “Economic Effects of the Abolition of Serfdom: Evidence from the Russian Empire.” American Economic Review 108 (4–5): 1074–1117.

Nove, Alec. 1992. An Economic History of the USSR. 1917-1991. 3d ed. Penguin Books.

Voskoboynikov, Ilya B. 2020. “Economic Growth and Sectoral Developments, 1990-2008.” In The Economic History of Central, East and South-East Europe: 1800 to the Present, edited by Matthias Morys, 520. Routledge (forthcoming).

 

Ilya Voskoboynikov is a Leading Research Fellow and an Assistant Professor at National Research University Higher School of Economics in Moscow. He is currently focuses on consequences of a command economy period for development and long run growth.

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 (November 2020). All EH.Net reviews are archived at http://www.eh.net/BookReview.

Subject(s):Economywide Country Studies and Comparative History
Geographic Area(s):Asia
Europe
Time Period(s):16th Century
17th Century
18th Century
19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII

Narrative Economics: How Stories Go Viral and Drive Major Economic Events

Author(s):Shiller, Robert J.
Reviewer(s):Jalil, Andrew

Published by EH.Net (April 2020)

Robert J. Shiller, Narrative Economics: How Stories Go Viral and Drive Major Economic Events. Princeton: Princeton University Press, 2019. xix + 377 pp. $28 (hardcover). ISBN: 978-0-691-18229-2.

Reviewed for EH.Net by Andrew Jalil, Department of Economics, Occidental College.

 

Economics is increasingly a data-driven field, with its emphasis on clever statistical techniques to demonstrate causal identification. Yet, Robert Shiller’s Narrative Economics reminds us that narratives, i.e. stories that offer an explanation or justification, play a powerful role in shaping economic events. Shiller argues that economists should integrate narratives into their models and theories of human behavior, making the case, via historical examples and research from other fields, that our brains are hardwired to respond to stories. He presents an extensive list of popular narratives that have affected economic attitudes, behaviors, and outcomes through history. He shows that narratives tend to recur, albeit with mutations that fit each historical era. This book is a must read for economists, particularly scholars of economic history.

Shiller describes “Narrative Economics” as the study of how the narratives that people told one another influenced human behavior in ways that altered the course of economic events. Shiller does not provide new narratives, but instead focuses on how the contagious, word-to-mouth spread of a popular narrative at the time shaped economic developments. In Shiller’s view, history is “a succession of rare big events in which a story goes viral” (p. xi).

Shiller first develops the case that narratives matter by presenting research from other fields. For example, neuroscientists have found that stories with a dramatic arc lead to elevated levels of hormones, such as oxytocin and cortisol, that influence behavior. He analyzes the contagious spread of narratives using insights from epidemiology on the spread of pandemics. He highlights research from other fields utilizing controlled experiments to show the degree to which narratives affect behavior: When a treatment group receives information in the form of a narrative with vivid details and/or a protagonist, relative to a control group that receives information in a more prosaic fact-based format, study participants more strongly retain information embedded in news reports (in the field of journalism), eating habits improve via increased consumption of fruits and vegetables (health), organ donation rates soar (philanthropy), student learning outcomes improve (education), and jury decisions change (law). In each case, the outcome — an economic variable — varies dramatically based on the structure of the narrative.

Shiller then provides vivid historical details on how economic narratives have influenced the course of history. He shows how narratives drove speculative bubbles associated with the two Great Downturns of the past century: the Great Depression of the 1930s and Great Recession of 2007-09. Contagious stories about get-rich-quick schemes fueled speculation in both episodes. Narratives that connected homeownership and the American dream further fueled the housing bubble of the first decade of the twenty-first century. Shiller notes that such stories are not new; narratives about real estate, for example, have fueled speculative boom and bust cycles throughout history.

Shiller focuses on a set of perennial narratives — narratives that tend to recur, with variations that fit the historical moment. He describes how fearful narratives about new technologies resulting in permanently higher unemployment are common through history, despite being consistently wrong. (Shiller even notes worries about labor-saving technologies in Homer’s Iliad in the eighth century BC and by Aristotle in 350 BC.) Shiller compares the debate over bimetallism in the late nineteenth century to discussions about cryptocurrencies, such as Bitcoin, today, noting substantial similarities. Other perennial narratives Shiller examines in depth are stories that (unfairly) vilify corporations and organized labor.

Shiller’s book persuasively makes the case that narratives play a powerful role in shaping human behavior, and in doing so, drive many of history’s major economic events. The book will leave readers convinced that narratives influence many aspects of human behavior, in ways that scholars are only starting to understand. Shiller traces many important political, economic, and social changes to narratives. The book is an excellent resource for academic economists seeking to understand the world through a different lens.

Shiller’s argument on the importance of narratives also relates to the narrative research approach of macroeconomic historians — a research approach that uses narrative evidence, i.e. non-statistical evidence in a more qualitative form, to address issues of causality and unearth new historical evidence. Shiller cites the work of Milton Friedman and Anna Schwartz, pioneers of this approach. Ascertaining causality is difficult in all fields of economics, perhaps particularly so in macroeconomics — yet, Friedman and Schwartz made substantial progress. They examined narratives, such as those embedded in the diaries of Federal Reserve officials and other government documents, to isolate relatively exogenous monetary policy shocks. Many scholars have since used the historical narrative approach to study the effects of macroeconomic policies and the causes of recessions, depressions, and recoveries. The study of stories, via the historical narrative research approach, has increased the knowledge frontier of economics in a way that reinforces the central message of Shiller’s book on the importance of narratives.

In his book, Shiller issues a call to economists to integrate the contagion of narratives into economic theory and borrow insights from other fields, such as anthropology, journalism, psychology, and sociology, that systematically incorporate the study of narratives into their research methods. Shiller argues that careful assessments of what contemporaries (e.g. businesspeople, newspaper writers) thought at the time may help economists better understand the past and improve their forecasts by incorporating a different type of evidence not present in statistical time series. In sum, he argues that economists should more strongly embrace the study of narratives. Though he does not acknowledge this credential in his book, Shiller was one of the few economists to accurately predict the disastrous effects of the collapse of the housing bubble in the mid 2000s. His keen sense of economic history and the role that narratives play in driving booms and busts made him particularly well suited to diagnose the impending housing and financial crisis in real time. Shiller’s book convincingly makes the case that insights from narrative economics have the potential to improve policymaking, forecasting, and the economics discipline itself. As Shiller argues, “Economists can best advance their science by developing and incorporating into it the art of narrative economics … bringing science and art together into a more robust economics” (p. xv). Robert Shiller has accomplished such a feat in this superb work. An engaging read for a general audience and a must read for academic economists.

 

Andrew Jalil is an Associate Professor of Economics at Occidental College. He has used the narrative research approach to study historical U.S. banking panics (“A New History of Banking Panics in the U.S., 1825-1929,” American Economic Journal: Macroeconomics), monetary policy in the Great Depression (“Monetary Intervention Really Did Mitigate Banking Panics during the Great Depression,” Journal of Economic History), inflation expectations in the recovery from the Depression (“Inflation Expectations and Recovery in Spring 1933,” Explorations in Economic History), and historical U.S. asset price bubbles (“A New Chronology of U.S. Asset Price Bubbles, 1825-1929,” a work-in-progress).

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 (April 2020). All EH.Net reviews are archived at http://www.eh.net/BookReview.

Subject(s):Financial Markets, Financial Institutions, and Monetary History
Household, Family and Consumer History
Markets and Institutions
Geographic Area(s):General, International, or Comparative
North America
Time Period(s):19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII

The Panic of 1819: The First Great Depression

Author(s):Browning, Andrew H.
Reviewer(s):Haulman, Clyde A.

Published by EH.Net (January 2020)

Andrew H. Browning, The Panic of 1819: The First Great Depression. Columbia, MO: University of Missouri Press, 2019. x + 439 pp. $45 (hardcover), ISBN: 978-0-8262-2183-4.

Reviewed for EH.Net by Clyde A. Haulman, Department of Economics, College of William and Mary.

 
Andrew H. Browning chronicles the events and unfolds the complexities of the U.S. economy at the end of the second decade of the nineteenth century in his excellently researched and insightful book, The Panic of 1819. Most often, historians and economists have looked at this period as a typical post-war boom and bust while focusing attention on the political and social changes that were driving the young nation. Browning digs deeper and in doing so makes a strong case that the Panic of 1819 was more than the usual post-war cycle.

Beginning with an overview of the years leading up to the crisis, Browning looks at Napoleon’s decision to sell the Louisiana Territory, Mr. Jefferson’s embargo, and Mr. Madison’s war as critical elements in setting the stage for the westward expansion that would dominate the American economy for decades. Although much has been written about the Market and Transportation Revolutions that began during this period and helped shape the nature of economic relationships in the new nation, Browning adds insights about the Corporate Revolution, “a distinctly American surge in limited-liability joint-stock companies” (p. 66). It is this innovation that ensured capital for the interdependent growth in markets and transportation. He concludes setting the stage for the panic with a discussion of the impact of unusually cold temperatures in the middle of the decade (exacerbated by the explosion of the Tambora volcano in 1815). The resulting summer snow and drought in the Northern Hemisphere drove up grain prices and encouraged many Americans to move westward.

Even when grain prices leveled off (although cotton prices continued rising), demand for western land, particularly in Alabama, Ohio, Indiana, and Illinois, continued to accelerate. The sale of land in Alabama increased over twenty times between 1816 and 1818. Encouraged by easy loan terms and funded by the new Second Bank of the United States and the numerous state banks that had sprung up in the years following the demise of the First Bank, a full-blown speculative bubble erupted. Browning covers in detail the well-known role of the Second Bank in the expansion and ensuing contraction. He emphasizes the importance Treasury officials and the Second Bank’s management attached to the 1818-1819 maturation of Louisiana bonds requiring payment in specie, mostly to foreign holders.

With the collapse in full swing, Browning deftly uses a wide range of contemporary sources, especially newspapers and periodicals representing all parts of the country as well as government documents and records, to chronicle the progress of the downturn. Reporting on falling prices, declines in output, and high levels of unemployment, Browning first looks at the eastern part of the nation and then the west. Details provided by the stories of particular individuals enhance the description of the hard times with its rapid increase in bankruptcies and legal actions for debt.

Browning concludes his study with three chapters considering the impact of the Panic. The first discusses the range of relief efforts enacted in many states including restructuring of poor assistance, the use of minimum appraisal and stay laws, and restrictions on bank charters. Increased cost of poor relief in the wake of the Panic along with the Second Great Awakening’s moral views led to changes in public attitudes toward the poor and to reductions in funding that set the tone for much of the next century. The next chapter highlights increased democratic participation stemming from relief efforts and a focus on political corruption that stimulated growth in organized political factions. Browning’s final chapter links the effects of the Panic and the role of the Second Bank in heightening sectionalism to the growing factional politics and the focus on states’ rights of the Jacksonian era.

A question for economists left unanswered by Browning’s work is the disconnect between contemporary reports of significant declines in output and severe unemployment and the findings of empirical work by Joseph H. Davis (Quarterly Journal of Economics, 119:4 (2004), pp. 1177-215.) and Vadim Khramov and John Ridings Lee (IMF Working Paper, 13/214, 2013). Davis uses 43 output series to develop an index of industrial production for the period 1790-1915. For the Panic years (1819-1821), 27 series are available and show an increase of 9.6 percent in industrial output derived from increasing demand in the broader economy. Similarly, creating an index using inflation, unemployment, the budget deficit, and changes in real GDP, Khramov and Lee find the Panic of 1819 to be the second mildest downturn of the nineteenth century.

Now that Browning has catalogued the extensive contemporary reports on output and unemployment during the Panic of 1819, what might those who study the period do to improve empirical measures of the early nineteenth century economy and to reconcile those data with contemporary perceptions about the Panic and its economic impact?

Until that work is completed, Andrew Browning has given us a masterful study of an often overlooked economic crisis and has rightfully subtitled his work “The First Great Depression.”

 
Clyde Haulman is the author of Virginia and the Panic of 1819: The First Great Depression and the Commonwealth (2008).

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 (January 2020). All EH.Net reviews are archived at http://www.eh.net/BookReview.

Subject(s):Macroeconomics and Fluctuations
Markets and Institutions
Geographic Area(s):North America
Time Period(s):19th Century

Forging Ahead, Falling Behind and Fighting Back: British Economic Growth from the Industrial Revolution to the Financial Crisis

Author(s):Crafts, Nicholas
Reviewer(s):Hatton, Tim

Published by EH.Net (August 2019)

Nicholas Crafts, Forging Ahead, Falling Behind and Fighting Back: British Economic Growth from the Industrial Revolution to the Financial Crisis. Cambridge, UK: Cambridge University Press, 2018. vii + 152 pp. $25 (paperback), ISBN: 978-1-108-43816-2.

Reviewed for EH.Net by Tim Hatton, Department of Economics, University of Essex.

 

Nick Crafts is the most distinguished British economic historian of his generation. In this short book he distills the wisdom and experience of a lifetime’s study to provide a compelling analytical account of three centuries of British economic growth. The book is a revised and expanded version of the Ellen McArthur lectures given at the University of Cambridge. Apart from providing an up-to-date account of the macroeconomic dimensions of Britain’s growth experience in a comparative perspective, it has three important features. One is that it is firmly based on modern economic thinking and empirical analysis, in particular endogenous growth. The second is that it provides astute judgments on a variety of debates and controversies on growth-related topics in different economic eras. And finally, it links these insights together to provide a narrative of how and why the past influences the present. In short, history matters. All this is achieved in just 150 pages so that there is no loss of focus and the maximum insight is gained with the minimum of fuss.

The book opens with a brief primer on modern growth analysis. To provide a useful framework we must go beyond the Solow model and Crafts outlines a bare-bones endogenous growth model in which the rate of technological progress, relative to its potential, is conditioned by a country’s institutions. Most important are the effects of the institutional environment on incentive structures for innovation and investment. Crafts also stresses that the potential for growth varies widely, both across countries and especially over time, so that slow growth in one era may represent better performance, relative to potential, than fast growth in another.

The next chapter deals with the classic industrial revolution in Britain. Half a century of scholarship has revised down the pace of productivity growth and put its onset further back in time. From about 1650 there was slow but steady growth but it was not until the mid-nineteenth century that Britain pulled decisively ahead of its rivals, notably the Netherlands. One implication is to downgrade economic progress outside of the glamour industries of the industrial revolution: textiles and iron. Crafts argues that technological progress in the modern sectors made a large contribution to the modest growth rate, both directly and indirectly through increasing the rate of capital formation. Perhaps most important for subsequent development was the environment that produced this precociousness. The key British advantages were a large, well-functioning urban sector, good access to international markets, cheap capital, and an abundance of useful knowledge that could be deployed in technologies that used readily available coal. While these advantages put Britain somewhat ahead of the pack, they reinforced a pattern of specialization in what later became low-tech sectors, they promoted shop floor power, and they shaped a style of corporate governance that separated ownership from control.

The late nineteenth century was the high tide of British leadership and Britain was soon overtaken by the much faster growing United States. Did late Victorian Britain fail, and if so, why? Crafts argues that there was not much of a climacteric and that markets worked well in allocating resources. Compared with its own past Britain faltered only slightly, so if there was failure, it was mainly relative to the increased potential for growth. In this chapter on American overtaking, Crafts argues that the United States benefited from larger market size and from a configuration of factor endowments that favored directed technological change in progressive sectors. By 1913 the negative effects of Britain’s legacy of idiosyncratic industrial relations and poor corporate governance were apparent but not yet too damaging. That was soon to change. A substantial setback relative to the U.S. over the First World War was followed by productivity growth, which, while respectable relative to previous performance, fell further behind the United States. Although some have stressed the emergence of new industries in the interwar years, Crafts shows that their share in the economy was small and their productivity performance was modest. Structural change was inhibited by adversarial industrial relations in the 1920s and by persistently high and regionally concentrated unemployment. In response to the depression of the 1930s, the introduction of policies aimed at stimulating employment, notably the tariff and industrial rationalization, marked a significant retreat from competition in the product market.

From 1950 to 1973 the British economy grew faster than ever before in what has been dubbed the “golden age.” But other European economies grew even faster, partly as catch-up from income deficits in 1950. By 1973, Britain had been overtaken in GDP per capita by seven other countries, amounting to a cumulative shortfall of about 20 percent. Countries such France and West Germany emerged with corporatist structures that enhanced cooperation and eased technological transfer from the United States while Britain’s more liberal post-war consensus combined with anti-competitive economic policies had the opposite effect. This was partly a penalty of the early start and partly a result of policy developments that escalated from the Great Depression onwards. These policies included tariff protection, a complicated tax system with high marginal rates, the nationalization of large swathes of industry and misdirected R&D effort. Any reductions in market failure were outweighed by government failure, which is all the more costly in the context of endogenous growth. This indictment is perhaps the most controversial part of the book but Crafts provides convincing arguments to support it. Summing up: “Corporate governance and industrial relations were clearly recognizable as the grandchildren of their Victorian predecessors but having mutated into more problematic forms and with a greater downside in the environment of weak competition that prevailed in these early post-war decades” (p. 98).

In the decades from 1973 up to the financial crisis, productivity growth in the developed world slowed, but ironically, British relative performance improved. Crafts focuses on two key developments: the Thatcher experiment and the information and communications technology (ICT) revolution. Margaret Thatcher (Prime Minister from 1979 to 1990) introduced conservative fiscal policies, tax reform (shifting from direct to indirect tax) privatization of state enterprises, deregulation in industry and finance and, above all radical reforms to reduce the power of trade unions. Crafts argues that this reversed many of the pre-existing trends and improved economic performance largely though once-and-for-all productivity gains. Although Britain’s liberal market economy had proved bad for growth in the golden age, when combined with the Thatcher reforms, it performed better, particularly for the adoption of ICT. Nevertheless, short-termism and financial reforms may have contributed to the severity of the financial crisis. Although the focus is on these two elements, another lurks in the wings: Britain’s membership since 1973 in the European Union. This may have delivered a boost of up to 10 percent[1], in per capita income, due to the expansion of trade and to increased competition brought about by the single market reform of 1993. With Brexit looming, it would have been good to see a fuller analysis of the gains from EU membership.

Anyone with the slightest interest in British economic history should read this excellent book. It will also be useful to economists interested in economic growth and economic policy. And it will be a very valuable resource for students, especially in view if its brevity, but with the caveat that, in order to get the most out of it, they should have some prior knowledge of key economic concepts.

Endnote:
1. This figure comes from N. Crafts (2016), “The Impact of EU Membership on UK Economic Performance,” Political Quarterly, 87 (2), pp. 262-268.
Tim Hatton is Professor of Economics at the University of Essex, UK, and Director of the Centre for Economic History at the Australian National University. He was a founding editor of the European Review of Economic History and a recipient of the Clio Can. His recent work is on the heights of World War I British servicemen, emigration from the UK 1970-1913, the European migration crisis of recent years, and refugees and asylum policy since the 1990s.

Copyright (c) 2019 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator (administrator@eh.net). Published by EH.Net (August 2019). 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):18th Century
19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII

The Moral Economists: R. H. Tawney, Karl Polanyi, E. P. Thompson, and the Critique of Capitalism

Author(s):Rogan, Tim
Reviewer(s):Knoedler, Janet T.

Published by EH.Net (August 2019)

Tim Rogan, The Moral Economists: R. H. Tawney, Karl Polanyi, E. P. Thompson, and the Critique of Capitalism. Princeton, NJ: Princeton University Press, 2017. viii + 263 pp. $40 (hardcover), ISBN: 978-0-691-17300-9.

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

 
Tim Rogan, a fellow in History at St. Catharine’s College in Cambridge, frames this excellent exegesis of the key intellectual contributions of three towering twentieth century critics of capitalism, R. H. Tawney, Karl Polanyi, and E. P. Thompson, with a trenchant question that underlies most of our modern policy debates: “What’s wrong with capitalism?” (p. 1). Rogan observes that our current debates have focused on the material disparities created by capitalism, framed by the important contributions of such rising stars of our twenty-first century economics as Thomas Piketty and Raj Chetty. However, Rogan also contends that they and others working on this topic in recent years have omitted consideration of the moral critique of capitalism as developed in the key works of the three authors covered in this volume – Tawney’s Religion and the Rise of Capitalism (1926), Polanyi’s The Great Transformation (1944), and Thompson’s The Making of the English Working Class (1963). In Rogan’s view, our current discussions of inequality should include this moral dimension, so clearly articulated by these three scholars: as he puts it, “a preoccupation with material inequality which leaves no room for the considerations this moral critique brought up for discussion leaves contemporary debate diminished” (p. 2).

Rogan connects these three authors and their three seminal books through their efforts to understand the moral implications of the transition to capitalism, specifically, the form of free market capitalism that emerged with the British Industrial Revolution, which in his view, challenged not only the earlier patterns of exchange and production rooted in custom and social norms, but also did away with the ethical principles that had undergirded these processes in earlier traditional societies. Each focuses, in these three important books, on a pivotal moment of change in that society when “tensions between old ethical injunctions and new economic imperatives became acute” (p. 3). Each examined the disruptions to the social fabric that accompanied the rise of capitalism in western Europe, especially, England. Each wrestled with, and ultimately rejected, ideas emerging from the theoretical underpinnings of mainstream economic theory that endeavored to explain the workings of a market economy grounded in utilitarian theory. But each also participated, in different ways, in political debates over the proper role of the state in stabilizing the social order, even as market relationships based on individual effort and outcomes continued to replace the customary social arrangements rooted in older collectivistic understandings of the economy. Rogan devotes one chapter each to Tawney, Polanyi, and Thompson, delineating the intellectual roots and lived experiences that led them to their respective critiques of free market capitalism.

Tawney was exposed directly to working class life while teaching economics in Lancashire and North Staffordshire, England, both communities experiencing unemployment and social dislocation. Tawney came to commit himself not only to academic study of these phenomena but also to the search for practical solutions. He was galvanized by the political and social unrest that followed the death of Edward VII that put England at risk of a constitutional crisis and brought the role of the state in dealing with these social dislocations to the fore. As Rogan states, Tawney realized in this moment that “British society was disintegrating in a clash of groups and interests . . . . [as] interpersonal relationships [were reduced] . . . to the terms of economic exchange encouraged by Victorian political economy” (p. 21), namely, methodological individualism. Tawney began to seek out the intellectual underpinnings that could justify greater social unity: as Rogan quotes Tawney, “‘unity is to be desired in all those matters which involve the everyday life of mankind, not in the sense that all must believe the same things or act in the same way, but in the sense that one man must not suppose that what another believes is dictated solely by selfish interests’” (p. 21). Tawney absorbed ideas from Idealist metaphysics, where the state had a crucial role in promoting unity; from F. W. Maitland’s concerns about a tyrannical state; and from guild socialists such as G. D. H. Cole who saw trade unions as vehicles to supplement the efforts of workers to use solidarity to improve their outcomes. After World War I, Tawney was appointed to the Royal Commission on the Coal Industry, and put some of these ideas to practical use. Although Tawney increasingly saw the state as “’a practical political instrument’” (p. 36), he remained mindful that the state was not a perfect instrument, recognizing, as Rogan quotes him, that “’fools will use it, when they can, for foolish ends, and criminals for criminal ends. Sensible and decent men will use it for ends which are decent and sensible’” (p. 37).

Beyond his ideas about solidarity, Tawney also became acquainted with the Christian Socialists, and began to incorporate explicit consideration of morality in his writings: quoting Tawney, “‘the essence of all morality is this, . . . to believe that every human being is of infinite importance, and therefore, that no consideration of expediency can justify the oppression of one by another’” (p. 43). This idea became the basis for his most important work, Religion and the Rise of Capitalism, in which Tawney investigated the governing principles of the economy that existed in England before capitalism. In Tawney’s view, prior to the rise of capitalism, the state had worked to “‘suppress the greed of individuals or the collision of classes’” [to instate] . . . “‘a much-needed cement of social stability’” (p. 45). An important element of Tawney’s work was not simply the infusion of religion into economics, but also the articulation of the role of social cohesion as it had functioned in an earlier, less secular society. Tawney decided that religion before capitalism had been more than the means of individual salvation; it was also “‘the sanction of social duties and the spiritual manifestation of the corporate life of a complex, yet united, society’” (p. 45). In his treatment of the changing ethos of western society under capitalism, Tawney argued that the Reformation had eliminated this crucial social aspect of the human relationship, not only with God but with each other, leading to the destruction of most of the social structures that had maintained social stability and connected the public and private worlds of the participants in the economy, leading ultimately to the “‘spiritual blindness’” (p. 47) of our modern era. In other words, the destruction of these earlier social relationships, linked to religious ethics, was accompanied by a new faith in unbridled individualism, in the moral as well as the social sphere. Once these traditional social ties were discarded, so too were the mutual understandings and the mutual responsibilities that should have formed the essential underpinnings to a humane capitalism.

The second of these great moral economists of modern capitalism, Karl Polanyi, also examined the transition to capitalism through the perspective of his own ethical understandings of society, and he also framed this understanding with his unique experiences in the politics of his day. Polanyi, as Rogan reports, lived through the tumultuous decades following the First World War and through the Second World War in several European countries where this tumult was most keenly felt. He lived in Hungary during the Communists’ rise to power, and was influenced by their economic ideas. When these communist reforms faltered, Polanyi moved to “Red Vienna” and absorbed ideas from the guild socialists who were driving reforms in education and welfare programs, until he saw the rise of National Socialism in nearby Germany and wisely relocated to England in 1933. There he wrote his essay on the “Essence of Fascism,” critiquing fascism as follows: “‘fascist social philosophy . . . was an attempt to reinforce the sense of inevitability with which people looked to collectivist solutions in the decadence of individualist principles of order’” (p. 67). Rogan sees in this earlier essay by Polanyi his clear intellectual connections to Tawney in the latter’s view of the essential human capacity for “autonomy and responsibility” (p. 69) through “principles of social solidarity” (p. 55) and the “notion of ‘human personality’ at the center” (p. 55) of his work. Polanyi also borrowed ideas from Karl Marx; yet, as Rogan argues, Polanyi rejected what he saw as excessive utilitarianism in Marx in favor of alternative theories that did not reduce human social life to simple economic exchange. But, as Rogan also notes, it is also crucial to see Polanyi’s work as taking place in the context of the enmity toward fascism shared by Christian socialists and secular socialist humanists, two strands of work that Polanyi knew well.

It was after his move to the U.S., and in the context of his earlier writing and experiences, that Polanyi wrote his “masterpiece” (p. 53), The Great Transformation. The most enduring insight of this work was Polanyi’s explication of the double movement, the inexorable transition toward a market economy governing land and labor markets that was followed by the protectionist measures instituted by government to protect these “fictitious commodities” from the excesses of the market by slowing the rate of change. For Rogan, Tawney’s treatment of the problems of capitalism is echoed in Polanyi’s emphasis on the “regeneration of social solidarities amidst capitalism’s dissolution of older social forms” (p. 55). Polanyi wrote The Great Transformation, at least in part, as Rogan sees it, to expand upon the same historical accounts presented in Tawney’s Religion and the Rise of Capitalism, but also to show that this “liberal-capitalist paradigm . . . was itself now in crisis” (p. 78). Rogan also notes that Tawney focused on the form of early capitalism that emerged in the sixteenth and seventeenth centuries during the Reformation period when the earlier economic system rooted in tradition and the principles of just price and social cohesiveness first began to erode. Polanyi instead chose to focus on the full flowering of unregulated market capitalism in the early nineteenth century, with many of these social structures now at risk of destruction, in order to present his analysis of the double movement. The Speenhamland wage subsidies served as his specific example of the protectionist response to these market processes, described by Rogan as Polanyi’s “evidence that the dissolution of medieval moral scruples concerning conduct in economic life was unfinished” (p. 80). For Rogan, thus, both Tawney and Polanyi used their critiques of capitalism to argue on behalf of the essential humanity of the workers caught up in this new harsh system of capitalism that was destroying the essential social bonds between workers. Yet, unlike Tawney, who relied on Christian views of the essential nature of humans to make his argument, Polanyi ultimately chose to return to the ideas of Adam Smith, whom he saw as the “last humanist in political economy” (p. 91), to argue that human relationships were grounded in more than mere barter and exchange, but were, rather, fundamentally tied to social relationships.

When first published, The Great Transformation was received skeptically, as Rogan reports, which was not the case with E.P. Thompson’s History of the English Working Class, written not during turmoil and war, as was the case for Tawney and Polanyi, but instead, during a period of economic growth and relative prosperity in Britain after the Second World War. Thus, the task that eventually fell on the intellectually mature Thompson was to articulate a critique of flourishing capitalism in those favorable conditions as opposed to the economic turmoil and war that conditioned the ideas of Tawney and Polanyi. Yet, as with Tawney and Polanyi, Thompson’s intellectual development was forged in the politics of his own day. While only seventeen, Thompson joined the British Communist Party in 1940 out of his dislike for the fascism engulfing wartime Europe. At the time, British Marxists were arguing, on the authority of their understanding of Marx, for “a new understanding of the nature of scientific research as a practical, problem solving affair of which the state should take charge” (p. 137); interestingly, this group of scholars included physicists and chemists intending to use their study of science, thus informed by Marx, for practical economic aims. Yet, as Rogan also states, Thompson became a communist at a time when “‘uncontrolled romantics’ and ‘cold-blooded theorists’ intermingled in a movement galvanized by the enmity of fascism” (p. 138). Thompson would eventually have to choose between these two understandings of the world. His choice for revolutionary socialism came during his association with the Scrutiny movement, so named for its association with a periodical published by F. R. Leavis, in which “a new kind of radical politics . . . married Marxist sociology with Leavisite cultural criticism” (p. 144). By 1945, with fascism defeated, Thompson turned to Stalinism and thus “to a program of state-based collectivism” (p. 147), combining it with his own critique of individualism. Again, world events intervened: Stalin’s death and Khrushchev’s renunciation of Stalin led Thompson to reexamine his intellectual underpinnings.

As Thompson was regrounding himself, intellectually, Britain was engaging in imperialist actions in the Suez, and in other exertions of postwar military prowess, leading to political protests described by Rogan as a “resurgent politics of conscience” (p. 152). These events, combined with the availability of new English translations of Marx’s early work, led Thompson to rediscover Marx’s “‘notion of the ‘fully human’” and to reconstruct his notion of the human as a social being, in a model of human interaction in economic society based on “‘co-operative productive relationships’” (p. 155), rather than on acquisition and exchange. It was in this context that Thompson was asked to write a history of the English working class, as part of a series of historical texts for undergraduates. Then living in Halifax and working in Yorkshire, Thompson had access to primary source material on British weavers during the Industrial Revolution, so he set out to examine the “depersonalized nature of relations between worker and employer that for Thompson accounted for the demoralization of the ‘working people’ during this ‘classic’ phase of industrialization” (p. 160). What he found was that the earlier moral sanctions that had protected workers — e.g., the just price, social relations between workers and between workers and master — were gone, replaced by impersonal market forces. He found similar impacts on field laborers and London artisans, concluding that market forces had eroded the dignity and status of workers, “depersonalizing” (p. 161) the working class.

Connecting these three authors, thus is a recognition of the fundamental commodification of workers under capitalism and the loss of certain essential aspects of human-ness as part and parcel of that process. All three authors found their way, through different intellectual and political experiences, to articulate their moral critique of capitalism on similar grounds. While these ideas are largely missing from modern economics, including, in Rogan’s view, even the important work of those currently working on economic inequality, Rogan sees useful modern connections between these three towering moral economists and the more recent work of E. F. Schumacher and Kenneth Arrow. He notes that Schumacher’s Small is Beautiful explicitly includes Tawney in formulating his argument on behalf of the “‘dignity’ of ‘human personality’” (p. 188), while Arrow’s 1951 Individual Values and Social Choice pushed his mainstream economist colleagues to think beyond simple utilitarianism to recognize the “solidaristic dynamics in play in economic life now which economists needed to encompass to do their descriptive work properly — dynamics which they were failing to capture because of their continuing fidelity to older ‘individualistic’ assumptions” (p. 194). Following both of their leads, Amartya Sen has become, in Rogan’s view, the most important successor to Arrow and to these others, to take up the question of how a “non-dictatorial politics of reform is possible” (p. 195). In Rogan’s view, Sen, working in the tradition of Polanyi, has also rejected the notion of reducing humans to “rational calculators” (p. 196) of self-interest, a claim that for Rogan has “radical ramifications for economics — advanced here not from an enthusiastic fringe but by one of the discipline’s most distinguished postwar theorists” (p. 198).

All of these economists, the three who are the focus of this book, along with Schumacher, Arrow, and Sen, challenge us as economists to recognize, as Rogan observes, that there is “no one timeless system for reconciling individual values to reach social choices out there awaiting discovery by empyrean economists” (p. 198). Any such system of achieving our best collective choices through whatever process — either capitalism in its fully imagined free-market version or the version that Polanyi envisioned as having at least some protective mechanisms for workers and natural resources, will ultimately be assessed for its success (or failure) at achieving liberty, solidarity and greater levels of equality — measured in material as well as in less tangible forms — for the human participants in its system. Rogan concludes his book by commenting that “politics pervades commercial societies, frustrating the technocratic visionaries of the twenty-first century just as it confounded the goat-and-greyhound utilitarians of the nineteenth century. The question is, what kind of politics?” (p. 200). As Rogan continues, “the question is not whether we have within our grasp the elements of a non-dictatorial politics of reform. The question is what can we make of them” (p. 200). Returning to Rogan’s central animating question at the beginning of this volume, what’s wrong with capitalism, at this point in history? It is a given that the material disparities are with us, that they are growing, that these material disparities are destabilizing and debilitating to humans and to our social systems, and that policy makers have done little to address these disparities, to the detriment of our collective politics, in the U.S. and elsewhere, with disastrous results for the polity. These moral economists challenge us as economists, therefore, not to shy away from the moral implications of our theorizing and our pronouncements under the pretext of avoiding normative judgment, and instead to consider the needs of humanity in our own considerations of the economic, social and moral vicissitudes of twenty-first century capitalism.

 
Janet Knoedler is Professor and Charles P. Vaughan Chair of Economics at Bucknell University. She is co-editor and co-author of three books, The Institutionalist Tradition in Labor Economics (with Dell P. Champlin), Thorstein Veblen and the Revival of Free-Market Capitalism (with Dell P. Champlin and Robert Prasch), and Introduction to Political Economy (with Charles Sackrey and Geoffrey Schneider), as well as numerous articles on institutional economics. She is also the 2019 recipient of the Veblen-Commons award from the Association for Evolutionary Economics.

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