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Economics in the Shadows of Darwin and Marx: Essays on Institutional and Evolutionary Themes

Author(s):Hodgson, Geoffrey M.
Reviewer(s):Mongiovi, Gary

Published by EH.NET (March 2008)

Geoffrey M. Hodgson, Economics in the Shadows of Darwin and Marx: Essays on Institutional and Evolutionary Themes. Cheltenham, UK: Edward Elgar, 2006. viii + 265 pp. $100 (cloth), ISBN: 1-84542-497-2.

Reviewed for EH.NET by Gary Mongiovi, Department of Economics and Finance, St John’s University.

Charles Darwin and Karl Marx, each in his own way, radically transformed our understanding of human history. Marx developed a powerful theory of how economic systems change over time. But Darwin’s theory of natural selection has become the preferred metaphor of social scientists who want to understand how institutions emerge, take root and evolve. One recent example of this “evolutionary turn” is the hypothesis put forth by Gregory Clark in A Farewell to Alms (Princeton University Press, 2007), that England’s industrialization in the early nineteenth century can be explained by the high fertility of the medieval nobility, who, through a process of natural or cultural selection, infused the country’s population with traits conducive to economic growth. In another recent book, Niall Ferguson draws upon Darwinian principles to account for, and justify, the modern financial system (see The Evolution of Financial Services , Oliver Wyman, 2007). In the book under review, Geoffrey M. Hodgson, Research Professor in Business Studies at the University of Hertfordshire, argues in the same vein that Darwin rather than Marx provides the appropriate model for making sense of socio-economic change.

Marx read On the Origin of Species in late 1860. His initial reaction was positive; he wrote to Ferdinand Lassalle in January 1861 that “Darwin’s work is most important and suits my purpose in that it provides a basis in natural science for the historical class struggle” (K. Marx and F. Engels, Collected Works, Vol. 41, p. 246; International Publishers, 1985). But Marx’s enthusiasm began to wane as soon as it dawned on him how much Darwin owed to Malthus. In June 1862 Marx commented to Engels that “Darwin rediscovers among the beasts and plants, the society of England with its divisions of labour, competition, opening up of new markets, ‘inventions,’ and Malthusian ‘struggle for existence.’ It is Hobbes’ bellum omnium contra omnes …” (Collected Works, Vol. 41, p. 381). Marx anticipated that reactionaries would appeal to Darwin’s theory as “a conclusive reason for human society never to emancipate itself from its bestiality” (Collected Works, Vol. 43, p. 217). By 1866, Marx was championing Pierre Tr?maux’s Origine et Transformations de l’Homme et des autres ?tres (Paris, 1865) ? now justly forgotten ? as a “significant advance over Darwin.” For Marx, Tr?maux’s great improvement was that he placed progress at the center of his conception of evolution, whereas “Darwin regards [progress] as purely accidental …” (Collected Works, Vol. 42, p. 304).

Marx’s endorsement of Tr?maux over Darwin was a serious lapse in judgment. But the misstep is explained by the affinities between Tr?maux’s theory and Marx’s project to expose a set of forces that drive socio-economic development. Opposition to this idea that history has a “logic” is at the heart of Hodgson’s coolness toward Marx. Whereas Darwin recognized that biological systems are open ? subject to external forces like climate change or species migration ? Marx, Hodgson charges, explains capitalism’s historical trajectory almost entirely in terms of internal mechanisms. Hodgson further contends that Marx ascribes to these mechanisms a teleological character that is incompatible with the open-endedness of Darwinian evolution: they propel the system toward collapse, and set the stage for the next phase of human history, socialism. In biological systems, new traits originate as random mutations, and proliferate if they confer some survival advantage on an organism or population in the prevailing environmental conditions; these new traits may in turn react back on the natural environment. Because the biological system is open, and its constituent elements interact with one another in complex ways, the outcome of the process is not susceptible of prediction: there is no determinate end-point. In this respect, Darwin’s perspective is closer than Marx’s to the “old institutionalist” tradition that has inspired Hodgson’s work over the past two decades.

Hodgson wrongly asserts that Marxism overlooks the indispensable social functions of customs and institutions as repositories of collective knowledge. Marx knew that institutions evolve as solutions to problems that individuals and groups encounter in going about their business; in his account of how capitalism develops, custom is a crucial element of the superstructure that reinforces the underlying economic basis of society. Marx saw also that institutions exhibit inertia: they persist long after the circumstances that gave rise to them have disappeared. As often as not, the new institutions themselves helped to bring about the transformation of the material conditions of society. This disjunction between institutions and the evolving mode of production, Marx hypothesized, generates tensions, or contradictions, that lead eventually to the withering of old institutions and their replacement by new ones: a socio-economic system is pushed forward through history by the tensions generated by the production relations which form the system’s institutional core. Hodgson does not consider whether this bold hypothesis is a fruitful way to approach the analysis of socio-economic change; he simply dismisses it as “teleological” and moves on.

Social Darwinists like Herbert Spencer, William Graham Sumner and, in our own day, Charles Murray maintain that natural selection accounts for the misery that market economies inflict on large numbers of people: the poor are poor because they are inferior or unfit in some objective sense. This is not an application of a metaphor, but a claim about actual social and biological processes. Though its environmental niche is small, Social Darwinism, now generally regarded as morally repugnant and empirically vacuous, poses something of a difficulty for anyone who wants to argue that the theory of evolution provides an apt template for the explanation of social processes. In Chapter 3 Hodgson rescues Darwinism from this ditch. He points out that the term “Social Darwinism” was rarely used before the mid-1920s, and when it was used it was usually deployed by progressives against free-market fundamentalists. We learn also that the writers conventionally labeled Social Darwinists were in fact not genuine Darwinians. But the misapplication of allegedly Darwinian ideas in support of “an ethics of rapacity and greed” (p. 47; the words belong to the sociologist Erville Woods) ? a development that, as we have noted, Marx foresaw ? led to a reaction among social scientists, particularly sociologists, who sought to purge their disciplines of all traces of biological causality. Talcott Parsons plays a malign role in Hodgson’s story. Parsons, who wanted to carve out a secure and influential professional niche for sociology, strategically broadened the definition of Social Darwinism to encompass “anyone who applied biological ideas in the social sciences” (p. 54). He then distorted the views of those who fell within the definition, demonized the distorted views, and erected a barrier between the social sciences and biology.

Hodgson makes a persuasive case that the history of the term “Social Darwinism,” in particular its transformation into an epithet, contributed to the disappearance of biological reasoning from the social sciences. But a few loose ends remain. For a start, Hodgson doesn’t explain why Parsons thought a full-throttle attack on Social Darwinism would advance the professional interests of sociologists. Nor is it clear how Veblen and the American institutionalists fit into the argument. They recognized the evolutionary character of social phenomena, were never tarred with the Social Darwinist brush, and were an influential presence in American economics into the 1950s, long after Parson’s crusade had succeeded in marginalizing the ideas of Spencer and Sumner. The near-demise the Veblenian tradition owes little to the assault on biological approaches that Hodgson describes. In economics the dominant metaphors had, from early on, been drawn mainly from physics. The institutionalists showed that a “biological” outlook might be more appropriate for understanding a large class of human activities; but they were swimming against the current.

In Chapter 4 Hodgson elaborates his critique of Marx. The charge that Marx’s theory is teleological is here connected to another criticism ? that he lacks an adequate theory of human agency, of why people behave as they do. While a Marxian theory of agency would be useful to have (and a good deal of work, ignored by Hodgson, has been done in that direction), the fact that Marx did not himself provide one doesn’t invalidate his general approach. Marx was primarily interested in how the system as a whole reproduces and evolves, and at that level of analysis, some degree of abstraction about individual behavior is not only permissible but necessary. To be sure, class interests and material conditions do not compel people to behave in ways that bring about some inevitable path of social development. Marx knew this, even if he was confident that capitalism would eventually collapse under the weight of its internal contradictions. He knew too, though, that those material conditions have ramifications for what people believe about the world, for how they make choices, and consequently for how society evolves. Hodgson’s remarks on these matters were initially made in 2001, as the opening contribution to a debate with Alex Callinicos, whose rebuttal, presented here as the second part of the chapter, makes short work of Hodgson’s caricature of Marx’s views.

The book loses its thematic focus after Part 1. Readers looking to find direct engagement with the ideas of Darwin and Marx can put the book aside once they have gotten through Chapter 4. Darwin recedes into the background, and Marx receives no attention at all after Chapter 6. This is not to say that the remaining sections of the book lack interest.

In Part 2 Hodgson scores some hits against the critical realist school. He begins by dismantling the claim often made by critical realists that their methodological tenets support an emancipatory left-of-center politics. He then moves on in Chapter 6 to critique several concrete analytical applications of critical realism ? its utilization in defense of Marx’s theory of the tendency of the profit rate to fall; and the attempt to explain Britain’s late-twentieth century industrial decline as the result of trade union resistance to technological change and workplace reorganization. In these chapters Hodgson delivers a penetrating dissection of critical realism’s vulnerabilities, though the effect is marred by the occasional cheap shot, as when he writes that critical realism “is a means for Marxist academics to make political postures while simultaneously earning their crust doing serious academic work” (p. 93).

Chapter 7 is an insightful assessment of “The Problem of Formalism in Economics.” Hodgson identifies two extreme positions on mathematical formalism: (1) rejection of formalism out-of-hand, a view which is close to the critical realist stance; and (2) the treatment of formalism, in itself, as the criterion of scientific legitimacy, without due regard to whether the formal techniques utilized in a particular argument cast light on the real world ? an attitude that is all too evident in modern economics. Hodgson advocates a middle-of-the-road approach: formalism can be useful if we are attentive to the interpretative context in which any given formal model is developed and applied. This sensible view, however, then raises the question, left unaddressed by Hodgson, of what other criteria are necessary to gauge the usefulness of a model.

The third part of the book is concerned mainly with taxonomic issues: how are institutions, habits, rules, routines, customs and norms different from one another, and how are they connected? Much of the ground covered here is familiar, and there is a good deal of hair-splitting on display. These chapters flunk the MEGO test (“My Eyes Glazed Over”).

Hodgson has less to say than one might expect about how new institutions originate, or why they take this or that particular form. Marx provides a potential answer to such questions, but Hodgson consigned Marx to the dustbin of history in Part 1, and wants to leave him there. When, in Chapter 10, Hodgson does take a stab at the problem of how institutions and rules come into existence, his analysis lets us down. With coauthor Thorbj?rn Knudsen, he approaches the issue via a technical exercise that has become common in the new institutionalist literature, a game-theoretic computer simulation aimed at showing how a particular rule ? in this case, the convention about whether cars are to be driven on the left or right side of the road ? might emerge from the undirected choices of atomistic agents. It is a curious exercise for Hodgson to undertake because it seems to be fundamentally at odds with the “old institutionalist” injunction not to treat social actors as atomistic entities. If institutions really do matter, our default setting ought to be skepticism toward any attempt to explain even a simple rule in terms of a model that abstracts from social and political context. Hodgson’s simulation results undermine the view that habits must be grounded in given individual preferences; but I’m not sure we need this sort of analysis to tell us there’s something fishy about the crude reductionism of utility-maximization models. That the convention under examination involves no issue of conflict also limits its interest.

The book’s central message is that “Explanations of socio-economic phenomena [ought not to be] reduced … to individuals [or] to institutions alone” (p. 201). Few would disagree. In elaborating this message, Hodgson overstates the differences between his own methodological approach and Marx’s; herein lies the book’s principal flaw. Hodgson presents Darwin and Marx as mutually exclusive alternatives, when they are in many respects complementary to one another. Darwinian evolution is indeed “random” in a way that Marx’s capitalist dynamics are not. There’s a good reason for this. Social systems are different from biological systems, and the Darwinian metaphor can carry us only so far. One has the impression that Hodgson wants to shield institutionalism from being tarnished by too close an association with Marxism. Yet his perceptive and careful reflections on social transformation would be considerably enriched by a more liberal assimilation of Marxian insights.

Gary Mongiovi teaches economics at St John’s University. He and Steve Pressman co-edit The Review of Political Economy.

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

Adam’s Fallacy: A Guide to Economic Theology

Author(s):Foley, Duncan K.
Reviewer(s):Waterman, A. M. C.

Published by EH.NET (November 2007)

Duncan K. Foley, Adam’s Fallacy: A Guide to Economic Theology. Cambridge MA: Harvard University Press, 2006. xvii + 265 pp. $26 (cloth), ISBN: 978-0-674-02729-9.

Reviewed for EH.NET by A. M. C. Waterman, St John’s College, Winnipeg.

Presumably this book was sent to me for review because of its sub-title. I am sorry to report, therefore, that it contains no theology whatsoever. Its author, who is Leo Model Professor of Economics at the New School for Social Research, uses the word pejoratively to label a way of thinking about economics that he finds objectionable on moral grounds. That way of thinking is “the idea that is it possible to separate an economic sphere of life, in which the pursuit of self-interest is guided by objective laws to a socially beneficent outcome, from the rest of social life, in which the pursuit of self-interest is morally problematic” (p. xiii). Seemingly unaware of the work of Gilbert Faccarello (1999) on Boisguilbert and the latter’s background in Jansensist theology, Duncan Foley attributes this doctrine to Adam Smith and calls it “Adam’s Fallacy.”

After a Preface which states the theme, the book contains six chapters: “Adam’s Vision” on Smith and Wealth of Nations (45 pages); “Gloomy Science” which treats Malthus and Ricardo (41 pages); “The Severest Critic” on Marx (69 pages); “On the Margins,” chiefly about Jevons, Menger and J. B. Clark, with an endnote on Veblen (22 pages); “Voices in the Air” on Keynes with brief mention of Hayek and Schumpeter (34 pages); and “Grand Illusions,” which is a summing up (18 pages). These are followed by 14 pages of appendices on technical matters. It is apparent that two-thirds of this text concerns four canonical authors of the so-called “English School” ? Smith, Malthus, Ricardo and Marx ? followed by a mere 9 percent on what now constitutes the core of economic theory, and another 15 percent on Keynes and two of his contemporaries. The book might almost be called “Political Economy of the English School with an Epilogue” ? except that it totally ignores the most influential single author of that “school,” John Stuart Mill. The dust-jacket calls this “The Intelligent Person’s Guide to Economics”: which implies that the intelligent person will skip almost everything of importance that has happened in our discipline over the past one hundred years.

Foley’s favorite chapter, upon which he lavishes most care and in which he exhibits most scholarship, is that on Marx. With one exception to be noted below, the exposition is careful, lucid and balanced, and this chapter could be recommended to anyone wanting a readable introduction to what Marx’s political economy was about.

The same can hardly be said for chapters 1 and 2. For though these too contain many valuable insights it is all too obvious that Foley has not kept up his reading of the vast and expanding secondary literature on Smith, Malthus and Ricardo. This is most evident in his treatment of Smith and Malthus. There is no understanding of the relation between “labor-embodied” and “labor-commanded” prices; no awareness that Smith’s “natural wages” are dynamic equilibrium outcomes determined by the rate of accumulation; no recognition that the primitive supply-and-demand apparatus of Smith and Malthus is what eventually “won out” (as Schumpeter put it) over the labor theory of value (LTV); and no acknowledgement that this happened because it eventually became clear that Smith’s “natural prices” were the equivalent of Marshall’s long-run equilibrium prices. The fact that Malthus took all of his population theory from the Wealth of Nations (WN) is ignored, as is the fact that what distinguishes the analysis of WN from that of the Essay is that the former abstracts from land scarcity and the diminishing returns implied by Malthus’s “ratios,” which Samuelson, Stigler and many others have noted. The latter means that “Ricardo’s theory of Rent” (p. 74) is actually Malthus’s as Ricardo acknowledged, though Torrens and West also got there at the same time in 1815. Much more contentious is Foley’s account of Ricardo’s value theory. By ignoring the importance of capital costs in determining relative prices he misses the point that Ricardo’s LTV is nothing but a rough and ready approximation ? Stigler’s (1958) “93%” LTV ? brilliantly deployed in the theory of comparative international advantage but now subsumed by Hecksher and Ohlin. Foley’s fixation on the archaic and operationally useless LTV also slightly mars his chapter on Marx. For Marx, like Ricardo, well understood that capital costs enter into prices: but tried unsuccessfully to evade this unwelcome result in the hideous contortions of volume III, chapter IX of Capital.

Rather than appraising the analytical content of the relatively unimportant chapters 4 and 5, which like the curate’s egg are good in parts, we ought rather to turn to what Foley is really interested in, which is ethics. Is the pursuit of self-interest “morally problematic”? And did Smith and his successors create a distinction between an “economic sphere” in which self-interest may have socially beneficent outcomes and “the rest of social life” in which it may not?

It is undoubtedly the case that for Smith and Malthus, eighteenth-century “political economy” was a branch of “Christian moral science” (Winch 1996), for which these were vitally important questions. From the standpoint of intellectual history, however, Foley has chosen to enter the debate some time in 1723, after the public outcry at a new edition of Mandeville’s Fable but before the first of Joseph Butler’s Rolls Sermons preached in response, which showed that “self-love” is morally acceptable in a wide variety of cases and is actually a duty taught by Christ. There is no necessary link between Private Vices and Publick Benefits. Bishop Butler’s doctrine was explicitly incorporated into the analysis of economic behavior by his chaplain Josiah Tucker; and Smith followed Butler and Tucker in Theory of Moral Sentiments which provided a satisfactory account of the part played by self-love in a general theory of conscience, duty and virtue. It is certainly true that in WN Smith separated the public sphere, in which self-love may safely rule, from the private sphere of the family and other intimate relations, in which mutual altruism is important (Folbre 2001). It is also the case that he explicitly acknowledged that “justice,” by which he meant a willingness on the part of agents to obey the rules of the game even when the umpire is not looking, is necessary in order that economic freedom might lead to socially beneficent outcomes. But these imply no distinction between the “economic” and “the rest of social life.”

Malthus, Smith’s most faithful disciple, seems to have accepted this account of self-love, and had no hesitation in describing at as “the main-spring of the great machine.” As for Ricardo and Marx, there is no evidence that they were at all interested in the question. Like all subsequent economists they viewed political economy as a positive science. If we assume that most human beings consistently pursue a set of privately formulated goals most of the time, what will be the unintended social consequences? There is no automatic expectation that these will be socially beneficent. Ricardo’s stationary state, with wages at bare subsistence and rents at an all-time high, is almost certainly not. Whether Marx’s own invisible-hand theorem (“what the bourgeoisie … produces, above all, are its own grave-diggers”) is socially beneficent or not is a matter of taste. As for present-day economics, Samuelson’s theory of public goods, Buchanan’s “public choice” analysis of the actions of bureaucrats and politicians, Chicago theory of marriage and the family, Stiglitz’s investigations of the relative efficiency of public and private sectors, the economics of environmental degradation ? to mention only a few ? provide innumerable examples of the unintended consequences of private, self-regarding acts which are almost certainly maleficent.

I therefore conclude that Duncan Foley’s charges against our profession are without foundation, and ought to be dismissed.


Gilbert Faccarello, 1999. The Foundations of Laissez-faire: The Economics of Pierre de Boisguilbert. London: Routledge.

Nancy Folbre, 2001. The Invisible Heart: Economics and Family Values. New York: The New Press.

George J. Stigler, 1958. “Ricardo and the 93% Labor Theory of Value,” American Economic Review 48: 357-67.

Donald N. Winch, 1996. Riches and Poverty: An Intellectual History of Political Economy in Britain, 1750-1834. Cambridge: Cambridge University Press.

A. M. C. Waterman is Fellow of St John’s College, Winnipeg, and Emeritus Professor of Economics in the University of Manitoba. His most recent book is Political Economy and Christian Theology since the Enlightenment (Palgrave Macmillan 2004). For more information, see

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

The Tradition of Free Trade

Author(s):Magnusson, Lars
Reviewer(s):Hutchinson, William K.

Published by EH.NET (February 2005)

Lars Magnusson, The Tradition of Free Trade. London: Routledge, 2003. xiv + 194 pp. $100 (cloth), ISBN: 0-415-26215-1.

Reviewed for EH.NET by William K. Hutchinson, Department of Economics, Vanderbilt University.

Lars Magnusson, Professor of History at Uppsala University, has packaged into a book a half dozen of his essays that were written during the past two decades. These essays examine the writings of economic thinkers in Britain, the United States and Sweden during the period from the last half of the eighteenth century to the end of the nineteenth century. The book may be aptly described as a history of the manner in which various writers have used the works of economists such as Adam Smith, David Ricardo, Thomas Malthus, and J.S. Mill in a political economy vein to rationalize various political agendas, positions, or institutions. The focus is on the political economy of free trade as it evolved during this period, in these three locations.

The first essay, “The Invention of a Tradition of Free Trade: An Introduction,” makes a case for using the intellectual history approach to analyzing the writings of economic thinkers. He argues that survival of economic theories, such as the theory behind free trade, is not due to the superior logic of one argument relative to another, but rather, it is due to the circumstances of the time and place in which the theorist lives. Magnusson makes the argument in this essay that political and economic circumstances in nineteenth century Britain determined the way in which Adam Smith’s free trade argument would be interpreted by writers. Moreover, it is the language, customs, stage of development, culture and political institutions extant in a country that determines the way in which writers such as Adam Smith will be interpreted. The five remaining essays offer detailed documentation of arguments made by various economic writers as evidence to support Magnusson’s thesis.

Essays two and three establish the linkages for various writers to Smith’s Wealth of Nations by demonstrating how writers used various aspects of this work to substantiate their arguments for free markets and, sometimes, for free trade. Essay two is a review of the economists in the Classical School, most of whom professed to build on the foundation established by Smith. J.R. McCulloch and Cobden figure prominently in this essay which focuses on the various interpretations of arguments for free trade that are said to appear in the Wealth of Nations. Essay three addresses how the Manchester School attempted to manipulate the Wealth of Nations for their purposes. It discusses the various groups that materialized during the early nineteenth century and the positions they took regarding free trade versus fair trade and the corn laws.

Essay four addresses the issue of Mercantilism in the nineteenth century and how other countries viewed Britain’s encouragement for them to join her in moving toward free trade. Britain is viewed as promoting free trade because it was now in her self-interest to do so, whereas Britain had behaved in a mercantilist manner when that served her purpose. Thus, the writers surveyed argue that the benefits from free trade are dependent on the stage of development at which a country finds itself. Essay five discusses the role of Adam Smith in the economic writing in the United States during the nineteenth century. Discussion focuses on writings of Henry and Matthew Carey, Friedrich List and John Rae while mentioning other minor contributors to the political economy literature of nineteenth-century America. It is generally understood that economic writers in the United States were more likely to support protection for domestic industry until the end of the nineteenth century. Interestingly, this is the time that one could say economists, as opposed to economic thinkers, began to appear in the United States.

The last essay describes the role of Adam Smith in the development of Swedish economics by surveying the economic writings of those who came before Wicksell. An argument is made that Sweden was different and that the focus of Smith and the Classical School on individualism had to be adapted to include a role for the state as protector of social well being. Swedish economic thinking also had an emphasis on agriculture which some argued derived from the Physiocrats and other French economists of the eighteenth century.

This book is not about the development of economic theory that supports free trade as the preferred policy position to maximize the welfare of a nation. Rather, it is about the attitudes of economic writers in Britain, the United States and Sweden who were attempting to convince others of the merits of their views. Many of these writers attempted to use parts of the Wealth of Nations in their arguments to establish credibility. Secondary sources are heavily relied on in assessing the motives and agendas that may have influenced the arguments of various writers. There are 3.4 footnotes per page of text and well over 200 works that are referenced, which indicates the extent to which the text is a collection of other people’s thoughts regarding writings on free trade issues during the nineteenth century. This book would be of interest to one who wishes to learn what writers of political economy were thinking regarding the topic of free trade during the nineteenth century in Britain, the United States and Sweden.

William K. Hutchinson is Visiting Professor of Economics at Vanderbilt University and editor of Abstracts in Economic History. Recent publications include “Does Ease of Communication Increase Trade? Commonality of Language and Bilateral Trade” Scottish Journal of Political Economy (2002) and “Linguistic Distance as a Determinant of U.S. Bilateral Trade, 1970-1986,” Southern Economic Journal (forthcoming).

Subject(s):International and Domestic Trade and Relations
Geographic Area(s):North America
Time Period(s):19th Century

A Dictionary of Economics

Author(s):Black, John
Reviewer(s):Whaples, Robert

Published by EH.NET (March 2004)

John Black, A Dictionary of Economics. Oxford: Oxford University Press, 2002, second edition. vi + 501 pp. $16.95 (paperback), ISBN: 0-19-0860767-9.

Reviewed for EH.NET by Robert Whaples, Department of Economics, Wake Forest University.

Economic History in a ‘Mainstream’ Reference Work

Oxford’s Dictionary of Economics would make an excellent gift — perhaps as a prize to the top student in an introductory economics class. It’s a fairly good buy, especially after noting that lists it at over $5 off the publisher’s price. The Dictionary “aims to provide for the needs of students of economics at A-level and in the ‘mainstream’ part of first degree courses, and of lay readers of journals such as The Economist,” and will generally serve these audiences well. It includes about 2500 definitions of concepts that are used in standard economics texts and terms connected with personal finances. The definitions are unusually clear and often include editorial comments about the broader importance of a concept or the controversies surrounding a theory or issue. I learned a lot just thumbing through its pages and will keep the volume close at hand.

I wouldn’t be reviewing the dictionary for EH.NET, however, unless more needed to be said about its treatment of economic history. I first flipped to the appendix, where there is a list of Nobel Prize winners in economics. Tellingly, Douglass North’s first name is misspelled. By chance, within minutes of beginning to browse the dictionary itself I came across the term “cliometrics.” The text offers this definition: “the application of quantitative methods in economic history. The main problem with applying econometrics to any but very recent economic history is the poor quality of the available data.” The first sentence has room for improvement. I would prefer something closer to “the application of economic theory and quantitative techniques to the study history,” and it would be informative to add something about the etymology of the term, but the tragedy of this definition and, perhaps, of the recent fate of the field of economic history, is that the author felt compelled to add his blunt, ill-informed aside. The thickness and richness of historical data sets has always amazed me and I assume this is true of almost anyone with even a passing familiarity with what is available to researchers. Thus, I can only attribute Black’s comment to gross ignorance. Is he representative of the vast body of ahistorical economists who flip right past the economic history articles that still appear in the leading mainstream journals and wouldn’t even consider picking up a journal or book with the word “history” in the title?

What can be done to solve the problem of the deafness of mainstream economists toward economic history? My preferred solution has always been to make the cost of obtaining economic history lower and lower — hence the existence of EH.NET, our database collection, our book reviews, our abstracts service, and especially How Much Is That? and the online Encyclopedia of Economic and Business History. These resources get a lot of traffic, but it is interesting and informative to see what types of economic history sell. The ten most frequently accessed articles in EH.NET’s encyclopedia last year are listed below (note that most of these articles have significant cliometric content):

1. “The Economics of the Civil War” by Roger Ransom
2. “Alcohol Prohibition” by Jeffrey Miron
3. “The Smoot-Hawley Tariff” by Anthony O’Brien
4. “Slavery in the United States” by Jenny Wahl
5. “The Economic History of Tractors in the U.S.” by William White
6. “Child Labor during the British Industrial Revolution” by Carolyn Tuttle
7. “The Depression of 1893” by David Whitten
8. “The Works Progress Administration” by Jim Couch
9. “Women Workers in the British Industrial Revolution” by Joyce Burnette
10. “The Gold Standard” by Lawrence Officer

My conclusion is that the buying public (in this case probably mostly students) looks to economic history mainly for a recurrent trio of intriguing topics — human conflict (slavery and the Civil War), economic depression (Smoot-Hawley, 1893, the WPA), and the industrial revolution. Also, near the top of the list is another “sexy” topic — booze.

However, giving the product away for free has only limited success, because the demand curve for most economic history doesn’t seem to be very elastic. Is there some way to force feed this stuff to our colleagues and the public? Can we sugar coat it, so that they don’t know they’re getting it? The Economic History Association has recently shifted to subsidizing new producers — granting funds to budding economic historians in graduate school.

Interestingly, the Dictionary generally exudes a confidence about economic growth. For example, several figures discussing hypothetical economic trends (natural vs. logarithmic scales, trade cycles, and time trends) all depict strong upward trends in GDP — growth triumphant, as Richard Easterlin might say. Perhaps this is one of the discontents of growth — as the future looks brighter and brighter there is less of a compelling reason to look to the past?

Finally, there are a few errors and omissions in the Dictionary worth mentioning. For example, AFDC is identified as the U.S. federal welfare program — despite its replacement by TANF in 1997, and the ICC’s entry states that “its jurisdiction has since been extended to include transport by inland waterways, roads, and pipelines” belying the fact that it was terminated in 1996. “Black Monday” (October 19, 1987) is identified, but not “Black Tuesday,” (October 29, 1929). (Likewise, the entry titled “stock market crash” surprisingly refers only to October 19, 1987!) Perhaps due to its British origin several entities one would regularly see discussed in the business press, such as Fannie Mae and Freddie Mac, have no entries. A “chartist” is defined as “a person who believes there are recurring patterns in the behaviour of market variables over time, so that study of past variations assists in predicting the future.” There is no mention of William Lovett, the People’s Charter and the political economy of Britain in the 1830s and 1840s. The definition of exploitation doesn’t explain the neoclassical version of the term. The discussion of “globalization” gives the impression that “the process by which the whole world becomes a single market” has had a pretty uniform trend — leaving out the retrogression in the era from World War I to World War II. The space given to the Great Depression is woefully small — shorter even than the discussion given to nearby terms such as “gravity model,” “greenfield development,” and “greenhouse gases.” Likewise the slender discussion of “mercantilism” is shorter than discussions of “median,” “merit good,” and “migrants’ remittances.” The definition of public choice — “the choice of the kind, quantity, and quality of public goods to provide, and how to pay for them” — seems unduly restrictive. I would have preferred Dennis Mueller’s definition: “the economic study of nonmarket decision making, or simply the application of economics to political science.” Based on the evidence I’ve seen, the caveats about the quantity theory of money seem overly cautious: “maybe the quantity theory would work in the very long run, but it would be ages before this could be checked.” The paragraph about the “ratchet effect” neglects to mention arguments about the growth of government. The discussion of the “rustbelt” is inappropriately written in the present tense — “the rustbelt suffers from high obsolescence.” The entry on slavery appears to be uninformed by the intense debates triggered by Robert Fogel and Stanley Engerman’s findings. It unblinkingly states that while slavery has a long history, it is no longer generally practiced on humanitarian grounds and “because it is believed to be inefficient at providing incentives for work.” Other terms missing include “comparable worth,” “prime rate,” “social savings rate” and perhaps worst of all — “institution.”

Robert Whaples is the editor of EH.NET’s Encyclopedia of Economic and Business History at

Subject(s):Development of the Economic History Discipline: Historiography; Sources and Methods
Geographic Area(s):General, International, or Comparative
Time Period(s):General or Comparative

Economics and the Historian

Author(s):Rawski, Thomas G.
Reviewer(s):Kiesling, Lynne

Thomas G. Rawski, ed., Economics and the Historian. Berkeley: University of California Press, 1996. xiv + 297 pp. Bibliography and index. $45.00 (cloth), ISBN 0-520-07268-5; $17.00 (paper), ISBN 0-520-07269-3.

Reviewed for EH.Net by Lynne Kiesling, College of William and Mary

Economic historians fill a peculiar, and sometimes uncomfortable, intellectual gap in the social sciences. In an ever-fracturing and increasingly compartmentalized scholarly environment, the economic historian may not find a welcoming, collegial home with either historians or economists; the notion of a truly interdisciplinary analysis is more rhetoric than reality for many scholars.

This volume of essays seeks to bridge the gap in the direction of historians. Arguing that economic analysis contributes a useful set of tools to historical scholarship, the eight economic historians writing these essays attempt to negate the stereotype of economic analysis as false quantification and so much mathematical esoterica. These chapters are well written, tightly argued, and should be of value both to the historian looking to learn more about the economic approach to history and to the economist looking for a clear presentation of the general methodological foundations of “historical economics.”

In his introductory chapter Thomas Rawski starts by observing how pervasive economic factors are, and were, in everyday situations, and that economists and historians ignoring each other is a two-way street:

“Even if man does not live by bread alone, economics lurks beneath the surface of any historical inquiry. The economist who hesitates to peek outside the confines of his models can overlook cultural influences on markets. Likewise the historian of labor, of agriculture, of trade policy, of elite politics, of the church, of international conflict, of the arts, of migration, ideas, industrialization, universities, technology, demography, or crime ignores the economic approach at the risk of losing important lines of explanation” (p. 1).

After noting the apparent enthusiasm of economists for the benefits of history, Rawski goes on to discuss briefly the ideas underlying basic economic models; by doing so he lays a foundation of understanding in the reader for the more sophisticated analyses presented in the subsequent chapters.

Rawski also wrote the second chapter, in which he discusses the analysis of economic trends. Historical analysis is especially suited to studying long-term changes in factors such as “economic welfare, distribution of income and wealth, degree of commercialization, patterns of cropping, organization of economic activity, [and] significance and functioning of various economic institutions” (p. 15). Getting to the heart of a common misperception that historians often hold concerning economic modeling, Rawski clearly points out that examining long-term changes in such factors is meaningless without putting the trend in its relevant economic context. Rawski then refers to the most common way to explore aggregate trends across time and across countries, national income accounts, and briefly explores the three areas of economic activity that national income accounts miss: household production, underground activity, and unrecorded costs. However, when we look at broad trends we are looking for general tendencies across time, and national income accounts give us an imperfect, but rather consistent, indication of these tendencies or trends. After a useful explanation of how national income accounts are derived, on both the expenditure and the output sides, Rawski also examines economic cycles and trends within them.

Jon Cohen then provides an interesting discussion of the role of institutions in economic analysis, a currently fruitful area of research in some fields of economics. Cohen defines institutions as “efficient ways of organizing human activity where markets alone will not suffice” (p. 60), such as the firm or the family. In the most basic, most restricted economic model of human behavior, all resources in the economy find their highest value use through the market, without any need for relationships beyond those stemming from market activity. Clearly, this simplistic model abstracts too far from the real relationships of life, all of which do have some economic component (even friendship does–when we spend time with friends and do things for and with them, we forego opportunities to do other things that might also be of value to us). Cohen focuses on the family, the farm, and the firm as institutions that work in conjunction with the market, in a more realistic model of human behavior. In the course of discussing why such institutions exist and what benefits they provide, Cohen highlights the property rights literature building on Coase’s work analyzing the existence of the firm.

Exploring labor economics and labor history, Susan Carter and Stephen Cullenberg creatively construct a dialogue between “Clio” and “Hades,” two professors of history and economics, respectively, on the relative merits of their methodologies. They first discuss social norms and market forces as determinants of female labor-force participation, subsequently covering the individual choice between work and leisure as the basis for most economic models of labor. Carter and Cullenberg reinforce what I perceive as the essential elements of this book: economic models are tools, nothing more, but they are useful tools because they may highlight relationships that might otherwise not have been obvious; these tools, as well as the tools of historical analysis, need to be used in context.

The fourth chapter, written by Donald McCloskey, focuses on the basic model of neoclassical economics and its emphasis on choice. Because economists emphasize resource scarcity, they look at human behavior in the context of individuals making choices facing a set of alternatives. McCloskey argues that (neoclassical, but I would argue all) economists “would urge the historian not to jump hastily to a diagnosis that peasants follow their plows by custom alone or that traders trust each other on grounds of solidarity alone…. Neoclassical economics, in other words, completes sociology and anthropology, because it studies a motivation unattractive to those fields: choice under constraint” (p. 123). Choice transcends markets and permeates nonmarket institutions, as Cohen’s chapter suggested. McCloskey’s articulation of the choice basis of economics also enables him to address a common misperception of economics–economics is not about money alone. Choices made and profits garnered need not be pecuniary. This focus on choice complements other historical approaches emphasizing, for example, culture.

Richard Sutch’s chapter provides a concise survey of macroeconomics, peppered with historical examples that highlight some benefits of aggregate economic analysis. He concludes that thinking in terms of a macroeconomic approach could be useful to the historian, even if he or she is not using aggregate economic data. Sutch clears up another problem area for non-economists–what exactly are inflation and unemployment, and how can we tell if they are present in our historical situation? Sutch also addresses the potential pitfalls of aggregation, fruitfully discussing the benefits of, for example, micro studies of real wages in 1830s Britain by region and by occupation, but reminding the reader not to commit the fallacy of composition. Just because handloom weavers in Lancashire suffered large declines in their incomes does not mean that all British workers fared poorly during the 1830s. Sutch also uses the tools of macroeconomic analysis to understand wartime destruction and postwar economic activity after the Civil War and World War II.

Next Hugh Rockoff tackles the thorny topic of money, banking and inflation. He structures his discussion as the tale of the development of money in a hypothetical economy, using examples from history to illustrate issues that arise as an economy becomes more commercial. He starts in medieval times with a gold-based money, moving on to explain how new discoveries of gold caused inflation. His subsequent explanation of the quantity theory of money and Hume’s price-specie flow mechanism is valuable to non-monetary economists as well as to historians interested in monetary history. Rockoff then discusses the rise of banking, usually starting with individuals “depositing” gold coins with their local goldsmith for safekeeping. As goldsmiths discovered that not everyone wanted all of their money back at the same time, they found that they could make money by lending out some of the deposits they held: thus the birth of fractional reserve banking. This development also meant that the goldsmith had an incentive to pay the depositor interest on his deposit, thereby creating a dimension on which goldsmiths compete for business. Rockoff also explores banking panics, fiat money and central banking, which require more sophisticated economic models and some attention to institutional detail.

The final chapter, by Peter Lindert, highlights the role of international economics in understanding the evolution of trade relationships through history. In the context of discussing international relations, Lindert emphasizes one of the basic tenets of economics–trade creates value, and both parties benefit. But that value is not distributed equally among the trading partners, and Lindert addresses the implications of that fact in terms of the development of trade restrictions (tariffs and quotas) and the evolution of trading relationships. In the final section of his chapter Lindert provides a discussion of the determination of exchange rates that I found extremely valuable, and much clearer than any other I’ve seen on the subject.

Every chapter in this collection provides valuable insights on the use of economic logic and modeling in explaining historical phenomena. I sensed no condescension from the authors toward the methodology of the historians among their readers; I sensed only respect and appreciation for good economic methodology, and an interest in sharing that enthusiasm with historian colleagues.

Lynne Kiesling Department of Economics College of William and Mary


Subject(s):Development of the Economic History Discipline: Historiography; Sources and Methods
Geographic Area(s):General, International, or Comparative
Time Period(s):General or Comparative