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The Gunpowder Age: China, Military Innovation, and the Rise of the West in World History

Author(s):Andrade, Tonio
Reviewer(s):Eloranta, Jari

Published by EH.Net (February 2017)

Tonio Andrade, The Gunpowder Age: China, Military Innovation, and the Rise of the West in World History.  Princeton: Princeton University Press, 2016. ix + 432 pp. $40 (cloth), ISBN: 978-0-691-13597-7.

Reviewed for EH.Net by Jari Eloranta, Department of History, Appalachian State University.

The Gunpowder Age is a new elaborate volume on some of the key questions in world and economic history debates, namely the development of China, and to some degree Europe, in the long run, especially in the last five hundred years. Tonio Andrade, who is a professor of history at Emory University, has written a volume that cannot be overlooked in, for example, the so-called Great Divergence debate, which began with Kenneth Pomeranz’s work almost twenty years ago. Since then, economic historians have paid increasing attention to China, producing a lot of welcome scholarship on its long-run economic and social development, as well as tons of new data. Regardless, the debate over the timing and extent of China’s decline, vis-à-vis various parts of Europe, is still going strong. Scholars like Pomeranz, R. Bin Wong, Stephen Broadberry, Robert Allen, and others have weighed in, and the picture emerging from these debates is that China’s decline was probably apparent by the eighteenth century, at least in comparisons with the more affluent parts of Europe. Of course, there was also a great deal of divergence within Europe at the time, which complicates these comparisons.

Yet, Andrade’s work not only contributes to these debates, but also another huge issue in world (and economic) history, i.e. the introduction and use of gunpowder and the development of military supremacy in the early modern period. Andrade highlights the introduction of gunpowder and the technological advances made in both China and Europe, and he argues that China in fact continued to develop gunpowder technologies throughout this period of (relative) economic decline, even as late as the eighteenth century. Why then did China fail so spectacularly during the Opium Wars of the nineteenth century? His answer is that certain conditions failed to materialize in the Chinese case, for example the lack of continuous warfare and competition, which of course Europe experienced almost annually (as shown by Charles Tilly). In some ways, Andrade argues that some of China’s decline was not as noticeable or steep as we have assumed in the past. And it is here that he makes his greatest contribution to our understanding of long-run world history: China’s military development was simply on a different trajectory than in Europe. Europeans went further in developing cannons and handheld weapons, whereas the Chinese often favored rockets and alternative types of gunpowder weapons. In Europe, this manifested itself in “tournaments,” as Philip Hoffman has recently argued in Why Did Europe Conquer the World? (Princeton: Princeton University Press, 2015). Andrade also emphasizes other historical continuities in China’s recovery of superpower status at the end of the twentieth century, pointing to this past of military experimentation and deep understanding of military strategy. (One only needs to recall Sun Tzu to appreciate the long history.)

Andrade’s book is divided into four parts, plus the appendices and other extra material. Part I provides an introduction to the early history of Chinese warfare and military development. This section is mostly deep background to the main arguments of the book, and useful as a reminder of the conflicts that built and destroyed dynasties. Part II sets up the comparison between Europe and China in the early gunpowder age, and gives us a somewhat familiar story of the technological developments in weaponry, similar to Hoffman’s work. However, Chapter 6 is particularly interesting for economic historians in revealing some of the differences between European and Chinese priorities in warfare, in particular the use of cannons. Part III is more explicitly comparative and highlights how Europeans gained dominance in naval and other military weaponry. Part IV then discusses the nineteenth century superiority of the Europeans and how China attempted (actually quite successfully) to modernize their military after the defeats. Andrade then concludes with some broader ideas of China’s military, economic, and political development on the basis of these comparisons.

In general, this book is quite well researched and written, and it is a welcome addition to the new literature on China’s history, the Great Divergence, and the military development of the last 500 years. However, I have some reservations and modest criticisms of this volume. First, the Great Divergence debate is not covered very thoroughly in this book, especially the recent contributions made by many economic historians. I find this curious, but also somewhat predictable. World historians and economic historians still do not have enough common debates and discussions, and thus we often do not experience truly inter- or even intradisciplinary debates. Discussion of the timing and extent of China’s economic decline would have enriched the comparisons in the book. Second, on the same theme, Andrade does not reference some of the more interesting work done on conflicts and the role of governments in this period, for example by Mark Dincecco or David Stasavage. Military technologies are not only the outcome of conflicts, but also the changing role of the central government as well as revenue and spending patterns. Third, while Chapter 14 does discuss European navies, the role and cost of naval warfare, which is intricately linked to the European empire building projects, should have been discussed in a wider context — after all, many world historians ascribe the destruction of the Great Fleet in 1433 and the subsequent prohibition of trade as key moment in the Great Divergence. Andrade also fails to discuss enough the importance of the extensive training received by English seamen in the use of cannons and other gunpowder weapons, which gave them an advantage in the naval battles.

Finally, I would also like to mention that while the book does not make much use of quantitative data, there is an appendix of interesting new data, collected by the author, on the numbers of conflicts in China, in comparison with Europe. Andrade also compiles a data set on instances that warfare was referenced in Ming and Qing records.  This is a clever way of making some inroads into the mindset of the rulers of those dynasties. As we already know, for example the attitudes of Song and Ming rulers on the value of military service were very different — the former saw it as a dishonorable profession, which of course reflected on the quality of recruits and ultimately performance in the battlefield. This type of data is something that will surely also interest economic historians who are interested in broad comparisons between Europe and China in the early modern period.

In general, this is a well-written and careful analysis of an important topic, and the focus is explicitly comparative. While some of the chapters do not go deep enough into the comparisons, and some of the contributions made recently by economic historians are not always referenced here, this book is a welcome and worthwhile addition to the current literature on China, Europe, the Great Divergence, and the early modern military revolution. It should yield to interesting debates among world and economic historians in the near future — hopefully such debates will be visible enough in both fields, so we can have fruitful interactions similar to what followed Pomeranz’s early work in this area.

Jari Eloranta is Editor of monograph series Perspectives in Economic and Social History (Routledge).  He has written extensively on the history of military and government spending as well as conflicts, including a recent volume Economic History of Warfare and State Formation (Jari Eloranta, Eric Golson, Andrei Markevich, and Nikolaus Wolf editors, Springer: Tokyo, 2016).

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Subject(s):Military and War
Geographic Area(s):Asia
Europe
Time Period(s):Medieval
16th Century
17th Century
18th Century
19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII

Military Spending Patterns in History

Jari Eloranta, Appalachian State University

Introduction

Determining adequate levels of military spending and sustaining the burden of conflicts have been among key fiscal problems in history. Ancient societies were usually less complicated in terms of the administrative, fiscal, technological, and material demands of warfare. The most pressing problem was frequently the adequate maintenance of supply routes for the armed forces. On the other hand, these societies were by and large subsistence societies, so they could not extract massive resources for such ventures, at least until the arrival of the Roman and Byzantine Empires. The emerging nation states of the early modern period were much better equipped to fight wars. On the one hand, the frequent wars, new gunpowder technologies, and the commercialization of warfare forced them to consolidate resources for the needs of warfare. On the other hand, the rulers had to – slowly but surely – give up some of their sovereignty to be able to secure required credit both domestically and abroad. The Dutch and the British were masters at this, with the latter amassing an empire that spanned the globe at the eve of the First World War.

The early modern expansion of Western European states started to challenge other regimes all over the world, made possible by their military and naval supremacy as well as later on by their industrial prowess. The age of total war in the nineteenth and twentieth centuries finally pushed these states to adopt more and more efficient fiscal systems and enabled some of them to dedicate more than half of their GDP to the war effort during the world wars. Comparatively, even though military spending was regularly the biggest item in the budget for most states before the twentieth century, it still represented only a modest amount of their GDP. The Cold War period again saw high relative spending levels, due to the enduring rivalry between the West and the Communist Bloc. Finally, the collapse of the Soviet Union alleviated some of these tensions and lowered the aggregate military spending in the world. Newer security challenges such as terrorism and various interstate rivalries have again pushed the world towards growing overall military spending.

This article will first elaborate on some of the research trends in studying military spending and the multitude of theories attempting to explain the importance of warfare and military finance in history. This survey will be followed by a chronological sweep, starting with the military spending of the ancient empires and ending with a discussion of the current behavior of states in the post-Cold War international system. By necessity, this chronological review will be selective at best, given the enormity of the time period in question and the complexity of the topic at hand.

Theoretical Approaches

Military spending is a key phenomenon in order to understand various aspects of economic history: the cost, funding, and burden of conflicts; the creation of nation states; and in general the increased role of government in everyone’s lives especially since the nineteenth century. Nonetheless, certain characteristics can be distinguished from the efforts to study this complex topic among different sciences (mainly history, economics, and political sciences). Historians, especially diplomatic and military historians, have been keen on studying the origins of the two World Wars and perhaps certain other massive conflicts. Nonetheless, many of the historical studies on war and societies have analyzed developments at an elusive macro-level, often without a great deal of elaboration on the quantitative evidence behind the assumptions on the effects of military spending. For example, Paul Kennedy argued in his famous The Rise and Fall of the Great Powers: Economic Change and Military Conflict from 1500 to 2000 (1989) that military spending by hegemonic states eventually becomes excessive and a burden on its economy, finally leading to economic ruin. This argument has been criticized by many economists and historians, since it seems to lack the proper quantitative sources to support his notion of interaction between military spending and economic growth.[2] Quite frequently, as emerging from the classic studies by A.J.P. Taylor and many of the more current works, historians tend to be more interested in the impact of foreign policy decision-making and alliances, in addition to resolving the issue of “blame,” on the road towards major conflicts[3], rather than how reliable quantitative evidence can be mustered to support or disprove the key arguments. Economic historians, in turn, have not been particularly interested in the long-term economic impacts of military spending. Usually the interest of economic historians has centered on the economics of global conflicts — of which a good example of recent work combining the theoretical aspects of economics with historical case studies is The Economics of World War II, a compilation edited by Mark Harrison — as well as the immediate short-term economic impacts of wartime mobilization.[4]

The study of defense economics and military spending patterns as such is related to the immense expansion of military budgets and military establishments in the Cold War era. It involves the application of the methods and tools of economics to the study of issues arising from such a huge expansion. At least three aspects in defense economics set it apart from other fields of economics: 1) the actors (both private and public, for example in contracting); 2) theoretical challenges introduced by the interaction of different institutional and organizational arrangements, both in the budgeting and the allocation procedures; 3) the nature of military spending as a tool for destruction as well as providing security.[5] One of the shortcomings in the study of defense economics has been, at least so far, the lack of interest in periods before the Second World War.[6] For example, how much has the overall military burden (military expenditures as a percentage of GDP) of nation states changed over the last couple of centuries? Or, how big of a financial burden did the Thirty Years War (1618-1648) impose on the participating Great Powers?

A “typical” defense economist (see especially Sandler and Hartley (1995)) would model and attempt, based on public good theories, to explain military spending behavior (essentially its demand) by states with the following base equation:

(1)

In Equation 1, ME represents military expenditures by state i in year t, PRICE the price of military goods (affected by technological changes as well), INCOME most commonly the real GDP of the state in question, SPILLINS the impact of friendly states’ military spending (for example in an alliance), THREATS the impact of hostile states’ or alliances’ military expenditures, and STRATEGY the constraints imposed by changes in the overall strategic parameters of a nation. Most commonly, a higher price for military goods lowers military spending; higher income tends to increase ME (like during the industrial revolutions); alliances often lower ME due to the free riding tendencies of most states; threats usually increase military spending (and sometimes spur on arms races); and changes in the overall defensive strategy of a nation can affect ME in either direction, depending on the strategic framework implemented. While this model may be suitable for the study of, for example, the Cold War period, it fails to capture many other important explanatory factors, such as the influence of various organizations and interest groups in the budgetary processes as well as the impact of elections and policy-makers in general. For example, interest groups can get policy-makers to ignore price increases (on, for instance, domestic military goods), and election years usually alter (or focus) the behavior of elected officials.

In turn within peace sciences, a broader yet overlapping school of thought compared to defense economics, the focus in research has been to find the causal factors behind the most destructive conflicts. One of the most significant of such interdisciplinary efforts has been the Correlates of War (COW) project, which started in the spring of 1963. This project and the researchers loosely associated with it, not to mention its importance in producing comparative statistics, have had a big impact on the study of conflicts.[7] As Daniel S. Geller and J. David Singer have noted, the number of territorial states in the global system has ranged from fewer than 30 after the Napoleonic Wars to nearly 200 at the end of the twentieth century, and it is essential to test the various indicators collected by peace scientists against the historical record until theoretical premises can be confirmed or rejected.[8] In fact, a typical feature in most studies of this type is that they are focused on finding those sets of variables that might predict major wars and other conflicts, in a way similar to the historians’ origins-of-wars approach, whereas studies investigating the military spending behavior of monads (single states), dyads (pairs of states), or systems in particular are quite rare. Moreover, even though some cycle theorists and conflict scientists have been interested in the formation of modern nation states and the respective system of states since 1648, they have not expressed any real interest in pre-modern societies and warfare.[9]

Nevertheless, these contributions have had a lot to offer to the study of long-run dynamics of military spending, state formation, and warfare. According to Charles Tilly, there are four approximate approaches to the study of the relationships between war and power: 1) the statist; 2) the geopolitical; 3) the world system; and 4) the mode of production approach. The statist approach presents war, international relations, and state formation chiefly as a conse­quence of events within particular states. The geopolitical analysis is centered on the argument that state formation responds strongly to the current system of relations among states. The world system approach, á la Wallerstein, is mainly rooted in the idea that the different paths of state formation are influenced by the division of resources in the world system. In the mode of production framework, the way that production is organized determines the outcome of state formation. None of the approaches, as Tilly has pointed out, are adequate in their purest form in explaining state formation, international power relations, and economic growth as a whole.[10] Tilly himself maintains that coercion (a monopoly of violence by rulers and ability to wield coercion also externally) and capital (means of financing warfare) were the key elements in the European ascendancy to world domination in the early modern era. Warfare, state formation, and technological supremacy were all interrelated fundamentals of the same process.[11]

How can these theories of state behavior at the system level be linked to the analysis of military spending? According to George Modelski and William R. Thompson, proponents of Kondratieff waves and long cycles as explanatory forces in the development of world leadership patterns, the key aspect in a state’s ascendancy to prominence via such cycles in such models is naval power; i.e., a state’s ability to vie for world political leadership, colonization, and domination in trade.[12] One of the less explored aspects in most studies of hegemonic patterns is the military expenditure component in the competition between the states for military and economic leadership in the system. It is often argued, for example, that uneven economic growth levels cause nations to compete for economic and military prow­ess. The leader nation(s) thus has to dedicate increasing resources to armaments in order to maintain its position, while the other states, the so-called followers, can benefit from greater investments in other areas of economic activity. Therefore, the follower states act as free-riders in the international system stabilized by the hegemon. A built-in assumption in this hypothesized development pattern is that military spending eventually becomes harmful for economic development; a notion that has often been challenged based on empirical studies.[13]

Overall, the assertion arising from such a framework is that economic development and military spending are closely interdependent, with military spending being the driving force behind economic cycles. Moreover, based on this development pattern, it has been suggested that a country’s poor economic performance is linked to the “wasted” economic resources represented by military expenditures. However, as recent studies have shown, economic development is often more significant in explaining military spending rather than vice versa. The development of the U.S. economy since the Second World War certainly does not the type of hegemonic decline as predicted by Kennedy.[14] The aforementioned development pattern can be paraphrased as the so-called war chest hypothesis. As some of the hegemonic theorists reviewed above suggest, economic prosperity might be a necessary prerequisite for war and expansion. Thus, as Brian M. Pollins and Randall L. Schweller have indicated, economic growth would induce rising government expenditures, which in turn would enable higher military spending — therefore military expenditures would be “caused” by economic growth at a certain time lag.[15] In order for military spending to hinder economic performance, it would have to surpass all other areas of an economy, such as is often the case during wartime.

There have been relatively few credible attempts to model the military (or budgetary) spending behavior of states based on their long-run regime characteristics. Here I am going to focus on three in particular: 1) the Webber-Wildawsky model of budgeting; 2) the Richard Bonney model of fiscal systems; and 3) the Niall Ferguson model of interaction between public debts and forms of government. Caroly Webber and Aaron Wildawsky maintain essentially that each political culture generates its characteristic budgetary objectives; namely, productivity in market regimes, redistribution in sects (specific groups dissenting from an established authority), and more complex procedures in hierarchical regimes.[16] Thus, according to them the respective budgetary consequences arising from the chosen regime can be divided into four categories: despotism, state capitalism, American individualism, and social democracy. All of them in turn have implications for the respective regimes’ revenue and spending needs.

This model, however, is essentially a static one. It does not provide clues as to why nations’ behavior may change over time. Richard Bonney has addressed this problem in his writings on mainly the early modern states.[17] He has emphasized that the states’ revenue and tax collection systems, the backbone of any militarily successful nation state, have evolved over time. For example, in most European states the government became the arbiter of disputes and the defender of certain basic rights in the society by the early modern period. During the Middle Ages, the European fiscal systems were relatively backward and autarchic, with mostly predatory rulers (or roving bandits, as Mancur Olson has coined them).[18] In his model this would be the stage of the so-called tribute state. Next in the evolution came, respectively, the domain state (with stationary bandits, providing some public goods), the tax state (more reliance on credit and revenue collection), and finally the fiscal state (embodying more complex fiscal and political structures). A superpower like Great Britain in the nineteenth century, in fact, had to be a fiscal state to be able to dominate the world, due to all the burdens that went with an empire.[19]

While both of the models mentioned above have provided important clues as to how and why nations have prepared fiscally for wars, the most complete account of this process (along with Charles Tilly’s framework covered earlier) has been provided by Niall Ferguson.[20] He has maintained that wars have shaped all the most relevant institutions of modern economic life: tax-collecting bureaucracies, central banks, bond markets, and stock exchanges. Moreover, he argues that the invention of public debt instruments has gone hand-in-hand with more democratic forms of government and military supremacy – hence, the so-called Dutch or British model. These types of regimes have also been the most efficient economically, which has in turned reinforced the success of this fiscal regime model. In fact, military expenditures may have been the principal cause of fiscal innovation for most of history. Ferguson’s model highlights the importance, for a state’s survival among its challengers, of the adoption of the right types of institutions, technology, and a sufficient helping of external ambitions. All in all, I would summarize the required model, combining elements from the various frameworks, as being evolutionary, with regimes during different stages having different priorities and burdens imposed by military spending, depending also on their position in the international system. A successful ascendancy to a leadership position required higher expenditures, a substantial navy, fiscal and political structures conducive to increasing the availability of credit, and reoccurring participation in international conflicts.

Military Spending and the Early Empires

For most societies since the ancient river valley civilizations, military exertions and the means by which to finance them have been the crucial problems of governance. A centralized ability to plan and control spending were lacking in most governments until the nineteenth century. In fact, among the ancient civilizations, financial administration and the government were inseparable. Governments were organized on hierarchical basis, with the rulers having supreme control over military decisions. Taxes were often paid in kind to support the rulers, thus making it more difficult to monitor and utilize the revenues for military campaigns over great distances. For these agricultural economies, victory in war usually yielded lavish tribute to supplement royal wealth and helped to maintain the army and control the population. Thus, support of the large military forces and expeditions, contingent on food and supplies, was the ancient government’s principal expense and problem. Dependence on distant, often external suppliers of food limited the expansion of these empires. Fiscal management in turn was usually cumbersome and costly, and all of the ancient governments were internally unstable and vulnerable to external incursions.[21]

Soldiers, however, often supplemented their supplies by looting the enemy territory. The optimal size of an ancient empire was determined by the efficiency of tax collection and allocation, resource extraction, and its transportation system. Moreover, the supply of metal and weaponry, though important, was seldom the only critical variable for the military success an ancient empire. There were, however, important changing points in this respect, for example the introduction of bronze weaponry, starting with Mesopotamia about 3500 B.C. The introduction of iron weaponry about 1200 B.C. in eastern parts of Asia Minor, although the subsequent spread of this technology was fairly slow and gathered momentum from about 1000 B.C. onwards, and the use of chariot warfare introduced a new phase in warfare, due to the superior efficiency and cheapness of iron armaments as well as the hierarchical structures that were needed to use them during the chariot era.[22]

The river valley civilizations, nonetheless, paled in comparison with the military might and economy of one of the most efficient military behemoths of all time: the Roman Empire. Military spending was the largest item of public spending throughout Roman history. All Roman governments, similar to Athens during the time of Pericles, had problems in gathering enough revenue. Therefore, for example in the third century A.D. Roman citizenship was extended to all residents of the empire in order to raise revenue, as only citizens paid taxes. There were also other constraints on their spending, such as technological, geographic, and other productivity concerns. Direct taxation was, however, regarded as a dishonor, only to be extended in crisis times. Thus, taxation during most of the empire remained moderate, consisting of extraordinary taxes (so-called liturgies in ancient Athens) during such episodes. During the first two centuries of empire, the Roman army had about 150,000 to 160,000 legionnaires, in addition to 150,000 other troops, and during the first two centuries of empire soldiers’ wages began to increase rapidly to ensure the army’s loyalty. For example, in republican and imperial Rome military wages accounted for more than half of the revenue. The demands of the empire became more and more extensive during the third and fourth centuries A.D., as the internal decline of the empire became more evident and Rome’s external challengers became stronger. For example, the limited use of direct taxes and the commonness of tax evasion could not fulfill the fiscal demands of the crumbling empire. Armed forces were in turn used to maintain internal order. Societal unrest, inflation, and external incursions finally brought the Roman Empire, at least in the West, to an end.[23]

Warfare and the Rise of European Supremacy

During the Middle Ages, following the decentralized era of barbarian invasions, a varied system of European feudalism emerged, in which often feudal lords provided protection for communities for service or price. Since the Merovingian era, soldiers became more specialized professionals, with expensive horses and equipment. By the Carolingian era, military service had become largely the prerogative of an aristocratic elite. Prior to 1000 A.D., the command system was preeminent in mobilizing human and material resources for large-scale military enterprises, mostly on a contingency basis.[24] The isolated European societies, with the exception of the Byzantine Empire, paled in comparison with the splendor and accomplishment of the empires in China and the Muslim world. Also, in terms of science and inventions the Europeans were no match for these empires until the early modern period. Moreover, it was not until the twelfth century and the Crusades that the feudal kings needed to supplement the ordinary revenues to finance large armies. Internal discontent in the Middle Ages often led to an expansionary drive as the spoils of war helped calm the elite — for example, the French kings had to establish firm taxing power in the fourteenth century out of military necessity. The political ambitions of medieval kings, however, still relied on revenue strategies that catered to the short-term deficits, which made long-term credit and prolonged military campaigns difficult.[25]

Innovations in the ways of waging war and technology invented by the Chinese and the Islamic societies permeated Europe with a delay, such as the use of pikes in the fourteenth century and the gunpowder revolution of the fifteenth century, which in turn permitted armies to attack and defend larger territories. This also made possible a commercialization of warfare in Europe in the fourteenth and fifteenth centuries as feudal armies had to give way to professional mercenary forces. Accordingly, medieval states had to increase their taxation levels and tax collection to support the growing costs of warfare and the maintenance of larger standing armies. Equally, the age of commercialization of warfare was accompanied by the rising importance of sea power as European states began to build their overseas empires (as opposed to for example the isolationist turn of Ming China in the fifteenth century). States such as Portugal, the Netherlands, and England, respectively, became the “systemic leaders” due to their extensive fleets and commercial expansion in the period before the Napoleonic Wars. These were also states that were economically cohesive due to internal waterways and small geographic size as well. The early winners in the fight for world leadership, such as England, were greatly influenced by the availability of inexpensive credit, enabling them to mobilize limited resources effectively to meet military expenses. Their rise was of course preceded by the naval exploration and empire-building of many successful European states, especially Spain, both in Europe and around the globe.[26]

This pattern from command to commercialized warfare, from short-term to more permanent military management system, can be seen in the English case. In the period 1535-1547, the English defense share (military expenditures as a percentage of central government expenditures) averaged at 29.4 percent, with large fluctuations from year to year. However, in the period 1685-1813, the mean English defense share was 74.6 percent, never dropping below 55 percent in the said period. The newly-emerging nation states began to develop more centralized and productive revenue-expenditure systems, the goal of which was to enhance the state’s power, especially in the absolutist era. This also reflected on the growing cost and scale of warfare: During the Thirty Years’ War between 100,000 and 200,000 men fought under arms, whereas twenty years later 450,000 to 500,000 men fought on both sides in the War of the Spanish Succession. The numbers notwithstanding, the Thirty Years’ War was a conflict directly comparable to the world wars in terms of destruction. For example, Charles Tilly has estimated the battle deaths to have exceeded two million. Henry Kamen, in turn, has emphasized the mass scale destruction and economic dislocation this caused in the German lands, especially to the civilian population.[27]

With the increasing scale of armed conflicts in the seventeenth century, the participants became more and more dependent on access to long-term credit, because whichever government ran out of money had to surrender first. For example, even though the causes of Spain’s supposed decline in the seventeenth century are still disputed, nonetheless it can be said that the lack of royal credit and the poor management of government finances resulted in heavy deficit spending as military exertions followed one after another in the seventeenth century. Therefore, the Spanish Crown defaulted repeatedly during the sixteenth and seventeenth centuries, and on several occasions forced Spain to seek an end to its military activities. Spain still remained one of the most important Great Powers of the period, and was able to sustain its massive empire mostly intact until the nineteenth century.[28]

What about other country cases – can they shed further light into the importance of military spending and warfare in their early modern economic and political development? A key question for France, for example, was the financing of its military exertions. According to Richard Bonney, the cost of France’s armed forces in its era of “national greatness” were stupendous, with expenditure on the army by the period 1708-1714 averaging 218 million livres, whereas during the Dutch War of 1672-1678 it had averaged only 99 million in nominal terms. This was due to both growth in the size of the army and the navy, and the decline in the purchasing power of the French livre. The overall burden of war, however, remained roughly similar in this period: War expenditures accounted roughly 57 percent of total expenditure in 1683, whereas they represented about 52 percent in 1714. Moreover, as for all the main European monarchies, it was the expenditure on war that brought fiscal change in France, especially after the Napoleonic wars. Between 1815 and 1913, there was a 444 percent increase in French public expenditure and a consolidation of the emerging fiscal state. This also embodied a change in the French credit market structure.[29]

A success story, in a way a predecessor to the British model, was the Dutch state in this period. As Marjolein ‘t Hart has noted, the domestic investors were instrumental in supporting their new-born state as the state was able to borrow the money it needed from the credit markets, thus providing a stability in public finances even during crises. This financial regime lasted up until the end of the eighteenth century. Here again we can observe the intermarriage of military spending and the availability of credit, essentially the basic logic in the Ferguson model. One of the key features in the Dutch success in the seventeenth century was their ability to pay their soldiers relatively promptly. The Dutch case also underlines the primacy of military spending in state budgets and the burden involved for the early modern states. As we can see in Figure 1, the defense share of the Dutch region of Groningen remained consistently around 80 to 90 percent until the mid-seventeenth century, and then it declined, at least temporarily during periods of peace.[30]

Figure 1

Groningen’s Defense Share (Military Spending as a Percentage of Central Government Expenditures), 1596-1795

Source: L. van der Ent, et al. European State Finance Database. ESFD, 1999 [cited 1.2.2001]. Available from: http://www.le.ac.uk/hi/bon/ESFDB/frameset.html.

Respectively, in the eighteenth century, with rapid population growth in Europe, armies also grew in size, especially the Russian army. In Western Europe, a mounting intensity of warfare with the Seven Years War (1756-1763) finally culminated in the French Revolution and Napoleon’s conquests and defeat (1792-1815). The new style of warfare brought on by the Revolutionary Wars, with conscription and war of attrition as new elements, can be seen in the growth of army sizes. For example, the French army grew over 3.5 times in size from 1789 to 1793 – up to 650,000 men. Similarly, the British army grew from 57,000 in 1783 to 255,000 men in 1816. The Russian army acquired the massive size of 800,000 men in 1816, and Russia also kept the size of its armed forces at similar levels in the nineteenth century. However, the number of Great Power wars declined in number (see Table 1), as did the average duration of these wars. Yet, some of the conflicts of the industrial era became massive and deadly events, drawing in most parts of the world into essentially European skirmishes.

Table 1

Wars Involving the Great Powers

Century Number of wars Average duration of wars (years) Proportion of years war was underway, percentage
16th 34 1.6 95
17th 29 1.7 94
18th 17 1.0 78
19th 20 0.4 40
20th 15 0.4 53

Source: Charles Tilly. Coercion, Capital, and European States, AD 990-1990. Cambridge, Mass: Basil Blackwell, 1990.

The Age of Total War and Industrial Revolutions

With the new kind of mobilization, which became more or less a permanent state of affairs in the nineteenth century, centralized governments required new methods of finance. The nineteenth century brought on reforms, such as centralized public administration, reliance on specific, balanced budgets, innovations in public banking and public debt management, and reliance on direct taxation for revenue. However, for the first time in history, these reforms were also supported with the spread of industrialization and rising productivity. The nineteenth century was also the century of the industrialization of war, starting in the mid-century and gathering breakneck speed quickly. By the 1880s, military engineering began to forge ahead of even civil engineering. Also, a revolution in transportation with steamships and railroads made massive, long-distance mobilizations possible, as shown by the Prussian example against the French in 1870-1871.[31]

The demands posed by these changes on the state finances and economies differed. In the French case, the defense share stayed roughly the same, a little over 30 percent, throughout the nineteenth and early twentieth centuries, whereas its military burden increased about one percent to 4.2 percent. In the UK case, the defense share mean declined two percent to 36.7 percent in 1870-1913, compared to early nineteenth century. However, the strength of the British economy made it possible that the military burden actually declined a little to 2.6 percent, a similar figure incurred by Germany in the same period. For most countries the period leading to the First World War meant higher military burdens than that, such as Japan’s 6.1 percent. However, the United States, the new economic leader by the closing decades of the century, averaged spending a meager 0.7 percent of its GDP for military purposes, a trend that continued throughout the interwar period as well (military burden of 1.2 percent). As seen in Figure 2, the military burdens incurred by the Great Powers also varied in terms of timing, suggesting different reactions to external and internal pressures. Nonetheless, the aggregate, systemic real military spending of the period showed a clear upward trend for the entire period. Moreover, the impact of the Russo-Japanese was immense for the total (real) spending of the sixteen states represented in the figure below, due to the fact that both countries were Great Powers and Russian military expenditures alone were massive. The unexpected defeat of the Russians unleashed, along with the arrival of dreadnoughts, an intensive arms race.[32]

Figure 2

Military Burdens of Four Great Powers and Aggregate Real Military Expenditure (ME) for Sixteen Countries on the Aggregate, 1870-1913

Sources: See Jari Eloranta, “Struggle for Leadership? Military Spending Behavior of the Great Powers, 1870-1913,” Appalachian State University, Department of History, unpublished manuscript 2005b, also on the constructed system of states and the methods involved in converting the expenditures into a common currency (using exchange rates and purchasing power parities), which is always a controversial exercise.

With the beginning of the First World War in 1914, this military potential was unleashed in Europe with horrible consequences, as most of the nations anticipated a quick victory but ended up fighting a war of attrition in the trenches. Mankind had finally, even officially, entered the age of total war.[33] It has been estimated that about nine million combatants and twelve million civilians died during the so-called Great War, with property damage especially in France, Belgium, and Poland. According to Rondo Cameron and Larry Neal, the direct financial losses arising from the Great War were about 180-230 billion 1914 U.S. dollars, whereas the indirect losses of property and capital rose to over 150 billion dollars.[34] According to the most recent estimates, the economic losses arising from the war could be as high as 692 billion 1938 U.S. dollars.[35] But how much of their resources did they have to mobilize and what were the human costs of the war?

As Table 2 displays, the French military burden was fairly high, in addition to the size of its military forces and the number of battle deaths. Therefore, France mobilized the most resources in the war and, subsequently, suffered the greatest losses. The mobilization by Germany was also quite efficient, because almost the entire state budget was used to support the war effort. On the other hand, the United States barely participated in the war, and its personnel losses in the conflict were relatively small, as were its economic burdens. In comparison, the massive population reserves of Russia enabled fairly high personnel losses, quite similar to the Soviet experience in the Second World War.

Table 2

Resource Mobilization by the Great Powers in the First World War

Country and years in the war Average military burden (percent of GDP) Average defense share of government spending Military personnel as a percentage of population Battle deaths as a percentage of population
France

1914-1918

43 77 11 3.5
Germany

1914-1918

.. 91 7.3 2.7
Russia

1914-1917

.. .. 4.3 1.4
UK

1914-1918

22 49 7.3 2.0
US

1917-1918

7 47 1.7 0.1

Sources: Historical Statistics of the United States, Colonial Times to 1970, Washington, DC: U.S. Bureau of Census, 1975; Louis Fontvieille. Evolution et croissance de l’Etat Français: 1815-1969, Economies et sociëtës, Paris: Institut de Sciences Mathematiques et Economiques Appliquees, 1976 ; B. R. Mitchell. International Historical Statistics: Europe, 1750-1993, 4th edition, Basingstoke: Macmillan Academic and Professional, 1998a; E. V. Morgan, Studies in British Financial Policy, 1914-1925., London: Macmillan, 1952; J. David Singer and Melvin Small. National Material Capabilities Data, 1816-1985. Ann Arbor, MI: Inter-university Consortium for Political and Social Research, 1993. See also Jari Eloranta, “Sotien taakka: Makrotalouden ongelmat ja julkisen talouden kipupisteet maailmansotien jälkeen (The Burden of Wars: The Problems of Macro Economy and Public Sector after the World Wars),” in Kun sota on ohi, edited by Petri Karonen and Kerttu Tarjamo (forthcoming), 2005a.

In the interwar period, the pre-existing tendencies to continue social programs and support new bureaucracies made it difficult for the participants to cut their public expenditure, leading to a displacement of government spending to a slightly higher level for many countries. Public spending especially in the 1920s was in turn very static by nature, plagued by budgetary immobility and standoffs especially in Europe. This meant that although in many countries, except the authoritarian regimes, defense shares dropped noticeably, their respective military burdens stayed either at similar levels or even increased — for example, the French military burden rose to a mean level of 7.2 percent in this period. In Great Britain also, the defense share mean dropped to 18.0 percent, although the military burden mean actually increased compared to the pre-war period, despite the military expenditure cuts and the “Ten-Year Rule” in the 1920s. For these countries, the mid-1930s marked the beginning of intense rearmament whereas some of the authoritarian regimes had begun earlier in the decade. Germany under Hitler increased its military burden from 1.6 percent in 1933 to 18.9 percent in 1938, a rearmament program combining creative financing and promising both guns and butter for the Germans. Mussolini was not quite as successful in his efforts to realize the new Roman Empire, with a military burden fluctuating between four and five percent in the 1930s (5.0 percent in 1938). The Japanese rearmament drive was perhaps the most impressive, with as high as 22.7 percent military burden and over 50 percent defense share in 1938. For many countries, such as France and Russia, the rapid pace of technological change in the 1930s rendered many of the earlier armaments obsolete only two or three years later.[36]

Figure 3
Military Burdens of Denmark, Finland, France, and the UK, 1920-1938

Source: Jari Eloranta, “External Security by Domestic Choices: Military Spending as an Impure Public Good among Eleven European States, 1920-1938,” Dissertation, European University Institute, 2002.

There were differences between democracies as well, as seen in Figure 3. Finland’s behavior was similar to the UK and France, i.e. part of the so-called high spending group among European democracies. This was also similar to the actions of most East European states. Denmark was among the low-spending group, perhaps due to the futility of trying to defend its borders amidst probable conflicts involving giants in the south, France and Germany. Overall, the democracies maintained fairly steady military burdens throughout the period. Their rearmament was, however, much slower than the effort amassed by most autocracies. This is also amply displayed in Figure 4.

Figure 4
Military Burdens of Germany, Italy, Japan, and Russia/USSR, 1920-1938

Sources: Eloranta (2002), see especially appendices for the data sources. There are severe limitations and debates related to, for example, the German (see e.g. Werner Abelshauser, “Germany: Guns, Butter, and Economic Miracles,” in The Economics of World War II: Six Great Powers in International Comparison, edited by Mark Harrison, 122-176, Cambridge: Cambridge University Press, 2000) and the Soviet data (see especially R. W. Davies, “Soviet Military Expenditure and the Armaments Industry, 1929-33: A Reconsideration,” Europe-Asia Studies 45, no. 4 (1993): 577-608, as well as R. W. Davies and Mark Harrison. “The Soviet Military-Economic Effort under the Second Five-Year Plan, 1933-1937,” Europe-Asia Studies 49, no. 3 (1997): 369-406).

In the ensuing conflict, the Second World War, the initial phase from 1939 to early 1942 favored the Axis as far as strategic and economic potential was concerned. After that, the war of attrition, with the United States and the USSR joining the Allies, turned the tide in favor of the Allies. For example, in 1943 the Allied total GDP was 2,223 billion international dollars (in 1990 prices), whereas the Axis accounted for only 895 billion. Also, the impact of the Second World War was much more profound for the participants’ economies. For example, Great Britain at the height of the First World War incurred a military burden of about 27 percent, whereas the military burden level consistently held throughout the Second World War was over 50 percent.[37]

Table 3

Resource Mobilization by the Great Powers in the Second World War

Country and years in the war Average military burden (percent of GDP) Average defense share of government spending Military personnel as a percentage of population Battle deaths as a percentage of population
France

1939-1945

.. .. 4.2 0.5
Germany

1939-1945

50 .. 6.4 4.4
Soviet Union

1939-1945

44 48 3.3 4.4
UK

1939-1945

45 69 6.2 0.9
USA

1941-1945

32 71 5.5 0.3

Sources: Singer and Small (1993); Stephen Broadberry and Peter Howlett, “The United Kingdom: ‘Victory at All Costs’,” in The Economics of World War II: Six Great Powers in International Comparisons, edited by Mark Harrison (Cambridge University Press, 1998); Mark Harrison. “The Economics of World War II: An Overview,” in The Economics of World War II: Six Great Powers in International Comparisons, edited by Mark Harrison (Cambridge: Cambridge University Press, 1998a); Mark Harrison, “The Soviet Union: The Defeated Victor,” in The Economics of World War II: Six Great Powers in International Comparison, edited by Mark Harrison, 268-301 (Cambridge: Cambridge University Press, 2000); Mitchell (1998a); B.R. Mitchell. International Historical Statistics: The Americas, 1750-1993, fourth edition, London: Macmillan, 1998b. The Soviet defense share only applies to years 1940-1945, whereas the military burden applies to 1940-1944. These two measures are not directly comparable, since the former is measured in current prices and the latter in constant prices.

As Table 3 shows, the greatest military burden was most likely incurred by Germany, even though the other Great Powers experienced similar levels. Only the massive economic resources of the United States made possible its lower military burden. Also the UK and the United States mobilized their central/federal government expenditures efficiently for the military effort. In this sense the Soviet Union fared the worst, and additionally the share of military personnel out of the population was relatively small compared to the other Great Powers. On the other hand, the economic and demographic resources that the Soviet Union possessed ultimately ensured its survival during the German onslaught. On the aggregate, the largest personnel losses were incurred by Germany and the Soviet Union, in fact many times those of the other Great Powers.[38] In comparison with the First World War, the second one was even more destructive and lethal, and the aggregate economic losses from the war exceeded even 4,000 billion 1938 U.S. dollars. After the war, the European industrial and agricultural production amounted to only half of the 1938 total.[39]

The Atomic Age and Beyond

The Second World War brought with it also a new role for the United States in world politics, a military-political leadership role warranted by its dominant economic status established over fifty years earlier. With the establishment of NATO in 1949, a formidable defense alliance was formed for the capitalist countries. The USSR, rising to new prominence due to the war, established the Warsaw Pact in 1955 to counter these efforts. The war also meant a change in the public spending and taxation levels of most Western nations. The introduction of welfare states brought the OECD government expenditure average from just under 30 percent of the GDP in the 1950s to over 40 percent in the 1970s. Military spending levels followed suit and peaked during the early Cold War. The American military burden increased above 10 percent in 1952-1954, and the United States has retained a high mean value for the post-war period of 6.7 percent. Great Britain and France followed the American example after the Korean War.[40]

The Cold War embodied a relentless armaments race, with nuclear weapons now as the main investment item, between the two superpowers (see Figure 5). The USSR, according to some figures, spent about 60 to 70 percent of the American level in the 1950s, and actually spent more than the United States in the 1970s. Nonetheless, the United States maintained a massive advantage over the Soviets in terms of nuclear warheads. However, figures collected by SIPRI (Stockholm International Peace Research Institute), suggest an enduring yet dwindling lead for the US even in the 1970s. On the other hand, the same figures point to a 2-to-1 lead in favor of the NATO countries over the Warsaw Pact members in the 1970s and early 1980s. Part of this armaments race was due to technological advances that led to increases in the cost per soldier — it has been estimated that technological increases have produced a mean annual increase in real costs of around 5.5 percent in the post-war period. Nonetheless, spending on personnel and their maintenance has remained the biggest spending item for most countries.

Figure 5

Military Burdens (=MILBUR) of the United States and the United Kingdom, and the Soviet Military Spending as a Percentage of the US Military Spending (ME), 1816-1993

Sources: References to the economic data can be found in Jari Eloranta, “National Defense,” in The Oxford Encyclopedia of Economic History, edited by Joel Mokyr, 30-33 (Oxford: Oxford University Press, 2003b). ME (Military Expenditure) data from Singer and Small (1993), supplemented with the SIPRI (available from: http://www.sipri.org/) data for 1985-1993. Details are available from the author upon request. Exchange rates from Global Financial Data (Online databank), 2003. Available from http://www.globalfindata.com/. The same caveats apply to the underlying currency conversion methods as in Figure 2.

The one outcome of this Cold War arms race that is often cited is the so-called Military Industrial Complex (MIC), referring usually to the influence that the military and industry would have on each other’s policies. The more nefarious connotation refers to the unduly large influence that military producers might have over public sector’s acquisitions and foreign policy in particular in such a collusive relationship. In fact, the origins of this type of interaction can be found further back in history. As Paul Koistinen has emphasized, the First World War was a watershed in business-government relationships, since businessmen were often brought into government, to make supply decisions during this total conflict. Most governments, as a matter of fact, needed the expertise of the core business elites during the world wars. In the United States some form of an MIC came into existence before 1940. Similar developments can be seen in other countries before the Second World War, for example in the Soviet Union. The Cold War simply reinforced these tendencies.[41] Findings by, for example, Robert Higgs establish that the financial performance of the leading defense contracting companies was, on the average, much better than that of comparable large corporations during the period 1948-1989. Nonetheless, his findings do not support the normative conclusion that the profits of defense contractors were “too high.”[42]

World spending levels began a slow decline from the 1970s onwards, with the Reagan years being an exception for the US. In 1986, the US military burden was 6.5 percent, whereas in 1999 it was down to 3.0 percent. In France during the period 1977-1999, the military burden has declined from the post-war peak levels in the 1950s to a mean level of 3.6 percent at the turn of the millennium. This has been mostly the outcome of the reduction in tensions between the rival groups and the downfall of the USSR and the communist regimes in Eastern Europe. The USSR was spending almost as much on its armed forces as the United States up until mid-1980s, and the Soviet military burden was still 12.3 percent in 1990. Under the Russian Federation, with a declining GDP, this level has dropped rapidly to 3.2 percent in 1998. Similarly, other nations have downscaled their military spending since the late 1980s and the 1990s. For example, German military spending in constant US dollars in 1991 was over 52 billion, whereas in 1999 it declined to less than 40 billion. In the French case, the decline was from little over 52 billion in 1991 to below 47 billion in 1999, with its military burden decreasing from 3.6 percent to 2.8 percent.[43]

Overall, according to the SIPRI figures, there was a reduction of about one-third in real terms in world military spending in 1989-1996, with some fluctuation and even small increase since then. In the global scheme, world military expenditure is still highly concentrated on a few countries, with the 15 major spenders accounting for 80 percent of the world total in 1999. The newest military spending estimates (see e.g. http://www.sipri.org/) put the world military expenditures on a growth trend once again due to new threats such as international terrorism and the conflicts related to terrorism. In terms of absolute figures, the United States still dominates the world military spending with a 47 percent share of the world total in 2003. The U.S. spending total becomes less impressive when purchasing power parities are utilized. Nonetheless, the United States has entered the third millennium as the world’s only real superpower – a role that it embraces sometimes awkwardly. Whereas the United States was an absent hegemon in the late nineteenth and first half of the twentieth century, it now has to maintain its presence in many parts of the world, sometimes despite objections from the other players in the international system.[44]

Conclusions

Warfare has played a crucial role in the evolution of human societies. The ancient societies were usually less complicated in terms of the administrative, fiscal, technological, and material demands of warfare. The most pressing problem was commonly the maintenance of adequate supply for the armed forces during prolonged campaigns. This also put constraints on the size and expansion of the early empires, at least until the introduction of iron weaponry. The Roman Empire, for example, was able to sustain a large, geographically diverse empire for a long time period. The disjointed Middle Ages splintered the European societies into smaller communities, in which so-called roving bandits ruled, at least until the arrival of more organized military forces from the tenth century onwards. At the same time, the empires in China and the Muslim world developed into cradles of civilization in terms of scientific discoveries and military technologies.

The geographic and economic expansion of early modern European states started to challenge other regimes all over the world, made possible in part by their military and naval supremacy as well as their industrial prowess later on. The age of total war and revolutions in the nineteenth and twentieth centuries finally pushed these states to adopt more and more efficient fiscal systems and enabled some of them to dedicate more than half of their GDP to the war effort during the world wars. Even though military spending was regularly the biggest item in the budget for most states before the twentieth century, it still represented only a modest amount of their respective GDP. The Cold War period again saw high relative spending levels, due to the enduring rivalry between the West and the Communist bloc. Finally, the collapse of the Soviet Union alleviated some of these tensions and lowered the aggregate military spending in the world, if only temporarily. Newer security challenges such as terrorism and various interstate rivalries have again pushed the world towards a growth path in terms of overall military spending.

The cost of warfare has increased especially since the early modern period. The adoption of new technologies and massive standing armies, in addition to the increase in the “bang-for-buck” (namely, the destructive effect of military investments), have kept military expenditures in a central role vis-à-vis modern fiscal regimes. Although the growth of welfare states in the twentieth century has forced some tradeoffs between “guns and butter,” usually the spending choices have not been competing rather than complementary. Thus, the size and spending of governments have increased. Even though the growth in welfare spending has abated somewhat since the 1980s, according to Peter Lindert they will most likely still experience at least modest expansion in the future. Nor is it likely that military spending will be displaced as a major spending item in national budgets. Various international threats and the lack of international cooperation will ensure that military spending will remain the main contender to social expenditures.[45]


[1] I thank several colleagues for their helpful comments, especially Mark Harrison, Scott Jessee, Mary Valante, Ed Behrend, David Reid, as well as an anonymous referee and EH.Net editor Robert Whaples. The remaining errors and interpretations are solely my responsibility.

[2] See Paul Kennedy, The Rise and Fall of the Great Powers: Economic Change and Military Conflict from 1500 to 2000 (London: Fontana, 1989). Kennedy calls this type of approach, following David Landes, “large history.” On criticism of Kennedy’s “theory,” see especially Todd Sandler and Keith Hartley, The Economics of Defense, ed. Mark Perlman, Cambridge Surveys of Economic Literature (Cambridge: Cambridge University Press, 1995) and the studies listed in it. Other examples of long-run explanations can be found in, e.g., Maurice Pearton, The Knowledgeable State: Diplomacy, War, and Technology since 1830 (London: Burnett Books: Distributed by Hutchinson, 1982) and William H. McNeill, The Pursuit of Power: Technology, Armed Force, and Society since A.D. 1000 (Chicago: University of Chicago Press, 1982).

[3] Jari Eloranta, “Kriisien ja konfliktien tutkiminen kvantitatiivisena ilmiönä: Poikkitieteellisyyden haaste suomalaiselle sotahistorian tutkimukselle (The Study of Crises and Conflicts as Quantitative Phenomenon: The Challenge of Interdisciplinary Approaches to Finnish Study of Military History),” in Toivon historia – Toivo Nygårdille omistettu juhlakirja, ed. Kalevi Ahonen, et al. (Jyväskylä: Gummerus Kirjapaino Oy, 2003a).

[4] See Mark Harrison, ed., The Economics of World War II: Six Great Powers in International Comparisons (Cambridge, UK: Cambridge University Press, 1998b). Classic studies of this type are Alan Milward’s works on the European war economies; see e.g. Alan S. Milward, The German Economy at War (London: Athlon Press, 1965) and Alan S. Milward, War, Economy and Society 1939-1945 (London: Allen Lane, 1977).

[5] Sandler and Hartley, The Economics of Defense, xi; Jari Eloranta, “Different Needs, Different Solutions: The Importance of Economic Development and Domestic Power Structures in Explaining Military Spending in Eight Western Democracies during the Interwar Period” (Licentiate Thesis, University of Jyväskylä, 1998).

[6] See Jari Eloranta, “External Security by Domestic Choices: Military Spending as an Impure Public Good among Eleven European States, 1920-1938” (Dissertation, European University Institute, 2002) for details.

[7] Ibid.

[8] Daniel S. Geller and J. David Singer, Nations at War. A Scientific Study of International Conflict, vol. 58, Cambridge Studies in International Relations (Cambridge: Cambridge University Press, 1998), e.g. 1-7.

[9] See e.g. Jack S. Levy, “Theories of General War,” World Politics 37, no. 3 (1985). For an overview, see especially Geller and Singer, Nations at War: A Scientific Study of International Conflict. A classic study of war from the holistic perspective is Quincy Wright, A Study of War (Chicago: University of Chicago Press, 1942). See also Geoffrey Blainey, The Causes of War (New York: Free Press, 1973). On rational explanations of conflicts, see James D. Fearon, “Rationalist Explanations for War,” International Organization 49, no. 3 (1995).

[10] Charles Tilly, Coercion, Capital, and European States, AD 990-1990 (Cambridge, MA: Basil Blackwell, 1990), 6-14.

[11] For more, see especially ibid., Chapters 1 and 2.

[12] George Modelski and William R. Thompson, Leading Sectors and World Powers: The Coevolution of Global Politics and Economics, Studies in International Relations (Columbia, SC: University of South Carolina Press, 1996), 14-40. George Modelski and William R. Thompson, Seapower in Global Politics, 1494-1993 (Houndmills, UK: Macmillan Press, 1988).

[13] Kennedy, The Rise and Fall of the Great Powers: Economic Change and Military Conflict from 1500 to 2000, xiii. On specific criticism, see e,g, Jari Eloranta, “Military Competition between Friends? Hegemonic Development and Military Spending among Eight Western Democracies, 1920-1938,” Essays in Economic and Business History XIX (2001).

[14] Eloranta, “External Security by Domestic Choices: Military Spending as an Impure Public Good among Eleven European States, 1920-1938,” Sandler and Hartley, The Economics of Defense.

[15] Brian M. Pollins and Randall L. Schweller, “Linking the Levels: The Long Wave and Shifts in U.S. Foreign Policy, 1790- 1993,” American Journal of Political Science 43, no. 2 (1999), e.g. 445-446. E.g. Alex Mintz and Chi Huang, “Guns versus Butter: The Indirect Link,” American Journal of Political Science 35, no. 1 (1991) suggest an indirect (negative) growth effect via investment at a lag of at least five years.

[16] Caroly Webber and Aaron Wildavsky, A History of Taxation and Expenditure in the Western World (New York: Simon and Schuster, 1986).

[17] He outlines most of the following in Richard Bonney, “Introduction,” in The Rise of the Fiscal State in Europe c. 1200-1815, ed. Richard Bonney (Oxford: Oxford University Press, 1999b).

[18] Mancur Olson, “Dictatorship, Democracy, and Development,” American Political Science Review 87, no. 3 (1993).

[19] On the British Empire, see especially Niall Ferguson, Empire: The Rise and Demise of the British World Order and the Lessons for Global Power (New York: Basic Books, 2003). Ferguson has also tackled the issue of a possible American empire in a more polemical Niall Ferguson, Colossus: The Price of America’s Empire (New York: Penguin Press, 2004).

[20] Ferguson outlines his analytical framework most concisely in Niall Ferguson, The Cash Nexus: Money and Power in the Modern World, 1700-2000 (New York: Basic Books, 2001), especially Chapter 1.

[21] Webber and Wildavsky, A History of Taxation and Expenditure in the Western World, 39-67. See also McNeill, The Pursuit of Power: Technology, Armed Force, and Society since A.D. 1000.

[22] McNeill, The Pursuit of Power: Technology, Armed Force, and Society since A.D. 1000 , 9-12.

[23] Webber and Wildavsky, A History of Taxation and Expenditure in the Western World.

[24] This interpretation of early medieval warfare and societies, including the concept of feudalism, has been challenged in more recent military history literature. See especially John France, “Recent Writing on Medieval Warfare: From the Fall of Rome to c. 1300,” Journal of Military History 65, no. 2 (2001).

[25] Webber and Wildavsky, A History of Taxation and Expenditure in the Western World, McNeill, The Pursuit of Power. Technology, Armed Force, and Society since A.D. 1000. See also Richard Bonney, ed., The Rise of the Fiscal State in Europe c. 1200-1815 (Oxford: Oxford University Press, 1999c).

[26] Ferguson, The Cash Nexus: Money and Power in the Modern World, 1700-2000, Tilly, Coercion, Capital, and European States, AD 990-1990, Jari Eloranta, “National Defense,” in The Oxford Encyclopedia of Economic History, ed. Joel Mokyr (Oxford: Oxford University Press, 2003b). See also Modelski and Thompson, Seapower in Global Politics, 1494-1993.

[27] Tilly, Coercion, Capital, and European States, AD 990-1990, 165, Henry Kamen, “The Economic and Social Consequences of the Thirty Years’ War,” Past and Present April (1968).

[28] Eloranta, “National Defense,” Henry Kamen, Empire: How Spain Became a World Power, 1492-1763, 1st American ed. (New York: HarperCollins, 2003), Douglass C. North, Institutions, Institutional Change, and Economic Performance (New York.: Cambridge University Press, 1990).

[29] Richard Bonney, “France, 1494-1815,” in The Rise of the Fiscal State in Europe c. 1200-1815, ed. Richard Bonney (Oxford: Oxford University Press, 1999a). War expenditure percentages (for the seventeenth and eighteenth centuries) were calculated using the so-called Forbonnais (and Bonney) database(s), available from European State Finance Database: http://www.le.ac.uk/hi/bon/ESFDB/RJB/FORBON/forbon.html and should be considered only illustrative.

[30] Marjolein ’t Hart, “The United Provinces, 1579-1806,” in The Rise of the Fiscal State in Europe c. 1200-1815, ed. Richard Bonney (Oxford: Oxford University Press, 1999). See also Ferguson, The Cash Nexus..

[31] See especially McNeill, The Pursuit of Power..

[32] Eloranta, “External Security by Domestic Choices: Military Spending as an Impure Public Good Among Eleven European States, 1920-1938,” Eloranta, “National Defense”. See also Ferguson, The Cash Nexus.. On the military spending patterns of Great Powers in particular, see J. M. Hobson, “The Military-Extraction Gap and the Wary Titan: The Fiscal Sociology of British Defence Policy 1870-1914,” Journal of European Economic History 22, no. 3 (1993).

[33] The practice of total war, of course, is as old as civilizations themselves, ranging from the Punic Wars to the more modern conflicts. Here total war refers to the twentieth century connotation of this term, embodying the use of all economic, political, and military might of a nation to destroy another in war. Therefore, even though the destruction of Carthage certainly qualifies as an action of total war, it is only in the nineteenth and twentieth centuries that this type of warfare and strategic thinking comes to full fruition. For example, the famous ancient military genius Sun Tzu advocated caution and planning in warfare, rather than using all means possible to win a war: “Thus, those skilled in war subdue the enemy’s army without battle. They capture his cities without assaulting them and overthrow his state without protracted operations.” Sun Tzu, The Art of War (Oxford: Oxford University Press, 1963), 79. With the ideas put forth by Clausewitz (see Carl von Clausewitz, On War (London: Penguin Books, 1982, e.g. Book Five, Chapter II) in the century century, the French Revolution, and Napoleon, the nature of warfare began to change. Clausewitz’s absolute war did not go as far as prescribing indiscriminate slaughter or other ruthless means to subdue civilian populations, but did contribute to the new understanding of the means of warfare and military strategy in the industrial age. The generals and despots of the twentieth century drew their own conclusions, and thus total war came to include not only subjugating the domestic economy to the needs of the war effort but also propaganda, destruction of civilian (economic) targets, and genocide.

[34] Rondo Cameron and Larry Neal, A Concise Economic History of the World: From Paleolithic Times to the Present, 4th ed. (Oxford: The Oxford University Press, 2003), 339. Thus, the estimate in e.g. Eloranta, “National Defense” is a hypothetical minimum estimate originally expressed in Gerard J. de Groot, The First World War (New York: Palgrave, 2001).

[35] See Table 13 in Stephen Broadberry and Mark Harrison, “The Economics of World War I: An Overview,” in The Economics of World War I, ed. Stephen Broadberry and Mark Harrison ((forthcoming), Cambridge University Press, 2005). The figures are, as the authors point out, only tentative.

[36] Eloranta, “External Security by Domestic Choices: Military Spending as an Impure Public Good Among Eleven European States, 1920-1938”, Eloranta, “National Defense”, Webber and Wildavsky, A History of Taxation and Expenditure in the Western World.

[37] Eloranta, “National Defense”.

[38] Mark Harrison, “The Economics of World War II: An overview,” in The Economics of World War II: Six Great Powers in International Comparisons, ed. Mark Harrison (Cambridge, UK: Cambridge University Press, 1998a), Eloranta, “National Defense.”

[39] Cameron and Neal, A Concise Economic History of the World, Harrison, “The Economics of World War II: An Overview,” Broadberry and Harrison, “The Economics of World War I: An Overview.” Again, the same caveats apply to the Harrison-Broadberry figures as disclaimed earlier.

[40] Eloranta, “National Defense”.

[41] Mark Harrison, “Soviet Industry and the Red Army under Stalin: A Military-Industrial Complex?” Les Cahiers du Monde russe 44, no. 2-3 (2003), Paul A.C. Koistinen, The Military-Industrial Complex: A Historical Perspective (New York: Praeger Publishers, 1980).

[42] Robert Higgs, “The Cold War Economy: Opportunity Costs, Ideology, and the Politics of Crisis,” Explorations in Economic History 31, no. 3 (1994); Ruben Trevino and Robert Higgs. 1992. “Profits of U.S. Defense Contractors,” Defense Economics Vol. 3, no. 3: 211-18.

[43] Eloranta, “National Defense”.

[44] See more Eloranta, “Military Competition between Friends? Hegemonic Development and Military Spending among Eight Western Democracies, 1920-1938.”

[45] For more, see especially Ferguson, The Cash Nexus, Peter H. Lindert, Growing Public. Social Spending and Economic Growth since the Eighteenth Century, 2 Vols., Vol. 1 (Cambridge: Cambridge University Press, 2004). On tradeoffs, see e.g. David R. Davis and Steve Chan, “The Security-Welfare Relationship: Longitudinal Evidence from Taiwan,” Journal of Peace Research 27, no. 1 (1990), Herschel I. Grossman and Juan Mendoza, “Butter and Guns: Complementarity between Economic and Military Competition,” Economics of Governance, no. 2 (2001), Alex Mintz, “Guns Versus Butter: A Disaggregated Analysis,” The American Political Science Review 83, no. 4 (1989), Mintz and Huang, “Guns versus Butter: The Indirect Link,” Kevin Narizny, “Both Guns and Butter, or Neither: Class Interests in the Political Economy of Rearmament,” American Political Science Review 97, no. 2 (2003).

Citation: Eloranta, Jari. “Military Spending Patterns in History”. EH.Net Encyclopedia, edited by Robert Whaples. September 16, 2005. URL http://eh.net/encyclopedia/military-spending-patterns-in-history/

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

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

Published by EH.Net (April 2020)

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

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

 

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

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

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

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

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

 

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

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

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

Paying for Hitler’s War: The Consequences of Nazi Hegemony for Europe

Editor(s):Scherner, Jonas
White, Eugene N.
Reviewer(s):Harrison, Mark

Published by EH.Net (October 2016)

Jonas Scherner and Eugene N. White, editors, Paying for Hitler’s War: The Consequences of Nazi Hegemony for Europe. New York: Cambridge University Press. 2016.  viii + 468 pp. $120 (hardcover), ISBN: 978-1-107-04970-3.

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

Paying for Hitler’s War is the outcome of a conference held in Washington, DC, in 2009 under the auspices of the German Historical Institute. Its goal is a deeper understanding of the economics of German occupation during World War II. Eighteen authors, among them the editors, Jonas Scherner (Norwegian University of Science and Technology) and Eugene N. White (Rutgers University), contribute an introduction and three chapters on German war aims for the occupation of Europe and the forms and methods of exploitation of the occupied territories, followed by thirteen more chapters devoted to particular countries or regions of Europe. The latter cover countries that were occupied militarily (France, Belgium, Netherlands, Norway, Denmark, Czechoslovakia, Poland, and Ukraine), as well as neutral Sweden and belligerent Finland and Bulgaria.

As a topic for research, the economics of occupied Europe is not new (see Dallin 1957; Milward 1970, 1972; Liberman 1996; Kay 2006; and Klemann and Kudriashov 2012), but it is far from exhausted. Scherner, White, and their co-authors go beyond the existing literature in geographical detail and also in considering the impact of the wartime occupation regime or other relations with Germany on postwar developments.

Section I is entitled “Germany’s Wartime Dilemma.” The dilemma is not explicitly defined, and there are at least two candidates. One dilemma was the extent to which Germany planned to rely on external versus internal revenues — a blurry distinction, given that by 1940 Greater Germany already included Austria and parts of Poland, Czechoslovakia, and France. Another dilemma was the extent to which Germany could allow short-term confiscation and enslavement to undermine the medium-term sustainability of economic life under occupation.

Chapter 1 (Carsten Burhop) addresses an aspect of the first dilemma. To what extent did the Hitler regime base its war aims on the plans that the German government entertained in the desperate spring months of 1918, when it seemed that Allied resistance might be broken before the German home front collapsed. Did the Kaiser’s Germany inspire Hitler’s later ambitions for a system of dependent states in Eastern Europe and preferential trade with the West? Burhop argues that there is little evidence for continuity. This negative finding usefully closes off one garden path down which lazy thinkers have wandered from time to time. At the same time, here if not in some other chapter, another legacy of the Great War might have been considered: memories of the Allied blockade. In setting their immediate objectives for conquest, Hitler and his circle were strongly influenced by the recollection of Germany’s economic difficulties in World War I, which they attributed to the blocking of German imports by the Allies. Preparing for World War II, they faced the problem that their economy remained dependent on external sources of food and other materials, and they concluded that conquest would provide the means of war.

As things worked out, Germany’s wartime economic exploitation of its neighbors was of major importance for the war. German military spending reached around 70 percent of nominal national income in the later stages of the war, while net foreign saving accounted for 15 percent (Klein 1959: 256). This alone would put the likely contribution of external resources to Hitler’s war spending above 20 percent. But this is a lower bound, to which should be added the contribution of foreign labor to domestic production. Chapter 3 (Johan Custodis) estimates that by 1944 one fifth of the German workforce was made up by foreign workers, forced and “free,” who added as much as ten percent to German production.

Paying for Hitler’s War confirms some of the patterns suggested by past research. The basic extractive methods that Germany imposed were everywhere similar: if you have the power to crush all resistance and the will to use it, you don’t have to adapt sensitively to national or local differences. Chapter 2 (Scherner) shows that in every country the occupation regime imposed a direct tax (occupation costs), an indirect tax (bilateral trade using an overvalued Reichsmark), forced borrowing (unpaid clearing balances), and a labor draft. The combination of these mechanisms extracted a lot or a little, depending on a few basic conditions. Important factors included the prewar level of economic development of the territory, and the extent to which state capacity survived military defeat. In France (Chapter 4, White), Belgium (Chapter 6, Martijn Lak), and the Netherlands (Chapter 7, Kim Oosterlinck and White), the authorities under occupation were able to manage German demands by mixing fiscal and financial repression. Where the state was destroyed, as in Ukraine (Chapter 15, Kim Christian Priemel), looting was the alternative.

Other factors in the intensity of exploitation included the population’s rank in the National Socialist hierarchy of races, the extent of insurgency, and the distance from the front line. Taking everything into account, much more was extracted from Western Europe than from the East. As Chapters 3 and 4  confirm, by 1943 France was transferring more than half of its national output to Germany and at the same time France was the largest supplier of forced and POW labor to the Reich.

In more detail Chapter 3 examines the role of foreign and especially prisoner-of-war labor in the German war economy. Custodis agrees with Klemann and Kudriashov (2012) that the economic losses imposed on the occupied territories by the “hunt for labor” were much greater than the benefits to Germany. Death rates among Polish and Soviet prisoners-of-war were particularly high, depleting these countries’ postwar prospects. Much of this chapter is devoted to hunting down differences among competing estimates; the activity is useful, but could have been placed in an appendix.

This topic shows us that, while German policies were largely the same everywhere, the local experiences of interaction with Germany were almost infinitely variable. While the war continued, these variations were suppressed by the common straitjacket of occupation. When German power collapsed, the local variation exploded: suddenly, every country was different again.

Section II is entitled “The Occupied West.” Chapter 4 focuses on France. German levies were financed by a mix of fiscal and financial repression. Subject to very high rates of extraction, the French GNP collapsed as the war progressed. The end of the war did not cancel all debts, and in France as elsewhere in Europe elites and electorates had lost much of their faith in the market economy, so the exit from a war economy was complicated by the persistence of heavy taxation and financial controls. Marshall Plan Aid and the Treaty of Rome were two steps on France’s gradual path back to a free market economy.

Chapter 5 (Marcel Boldorf) shows that the German occupation of France led to a huge redistribution of rents. Collaboration with the occupation authorities was widespread in the economy, as in government and society. Most branches of the economy were devastated but war suppliers prospered. French businesses often collaborated with former competitors as well as with government, and anti-competitive business ties persisted after the war. Chapters 6 and 7 tell similar stories for Belgium and Netherlands. The wartime burden on the Belgian economy remains unclear, unlike the French burden which looks well established. The burden on the Dutch population was tempered by its “high” racial status, and also by a thriving underground economy. The Dutch postwar recovery was particularly complicated by its dependence on defeated Germany for a revival of trade.

Chapter 8 (Fabian Lemmes) considers German construction projects in France and Italy, administered by the Todt Organization. These accounted for most French and Italian wartime construction, and were implemented through a compliance system that combined rewards and penalties. Their long term consequences remain unclear.

Section III turns to “Northern Europe.” Chapter 9 (Harald Espeli) evaluates Norway’s wartime burdens. These were heavy, partly because the size of the German occupation army was very large relative to a small national population. Still, the chapter argues that war damages and losses were not as heavy as was claimed after the war. As in Western Europe, there was considerable continuity of fiscal and industrial policy into the postwar period, not all of it necessary. Chapter 11 (Steen Andersen) considers Denmark’s “mild” occupation.

Two chapters are devoted to countries that retained their sovereignty in unlikely circumstances. Chapter 10 (Eric Golson) shows that Sweden, sovereign but surrounded, had to offer incentives to both sides to uphold its neutrality. Over time, as the German threat was increasingly confined by the rise of Allied power, Swedish policy adapted flexibly in favor of the Allies. There is a contrast with Sweden, discussed in Chapter 12 (Jari Eloranta and Ilkka Nummela). Having already been attacked by the Soviet Union, Finland ended up going to war on the same side as Germany, even though with much more limited objectives, and paid a heavy price for doing so.

The most devastating outcomes of the war are discussed in Section IV, “Eastern Europe.” There, military defeat was accompanied by the collapse of states and currencies, the tearing up of national boundaries, and the implementation of plans to starve and murder tens of millions of people.

Did Nazi wartime occupation pave the way for Soviet postwar domination in Eastern Europe? Chapter 13 (Jaromír Balcar and Jaroslav Kučera) argues that in Czechoslovakia the occupation was severe but not a disaster. It did not pave the way for a command system after the war. When the governing elite chose its path towards a regulated economy, they were inspired, not forced, by Moscow. Different emphases appear in two other chapters. In Chapter 14 (Vera Asenova), wartime Bulgaria is described as locked into a protected bilateral trade relationship with Germany. When the war ended, the country moved smoothly to a similar relationship with the Soviet Union. Chapter 16 (Ramona Bräu) argues that the devastation of Poland’s physical and human capital under Nazi occupation made it much easier for the communists to impose a centralized command economy after liberation.

A common theme of this heartbreaking book is that the costs of crime to society are generally greater than the gains to the criminal. This was as true as ever when the thief was a state and the instrument was its army. Chapter 15  is soaked in sadness for Ukraine, which “had the worst of the war. Its suffering did not start in 1941 and did not end in 1944, but peaked in between, with its Jewish population suffering near annihilation” (p. 416).

This is a book for specialists. While students and interested lay readers may struggle to extract the pattern from the details, others will find that Paying for Hitler’s War marks an important new stage of scholarship about that tragic conflict.

References:

Dallin, Alexander. 1957. German Rule in Russia, 1941-1945: A Study of Occupation Policies. London: Macmillan.

Kay, Alex J. 2006. Exploitation, Resettlement, Mass Murder: Political and Economic Planning for German Occupation Policy in the Soviet Union, 1940-1941. New York: Berghahn Books.

Klemann, Hein, and Sergei Kudriashov. 2012. Occupied Economies: An Economic History of Nazi-Occupied Europe, 1939-1945. London: Bloomsbury.

Klein, Burton H. 1959. Germany’s Economic Preparations for War. Cambridge, MA: Harvard University Press.

Liberman, Peter. 1996. Does Conquest Pay? The Exploitation of Occupied Industrial Societies. Princeton: Princeton University Press.

Milward, Alan S. 1970. The New Order and the French Economy. Oxford: Clarendon Press.

Milward, Alan S. 1972. The Fascist Economy in Norway. Oxford: Clarendon Press.

Mark Harrison is the author of One Day We Will Live without Fear: Everyday Lives under the Soviet Police State (Hoover Institution Press, 2016).

Copyright (c) 2016 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator (administrator@eh.net). Published by EH.Net (October 2016). All EH.Net reviews are archived at http://eh.net/book-reviews/

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

Why Did Europe Conquer the World?

Author(s):Hoffman, Philip T.
Reviewer(s):Eloranta, Jari

Published by EH.Net (April 2016)

Philip T. Hoffman, Why Did Europe Conquer the World? Princeton: Princeton University Press, 2015. vii + 272 pp. $30 (cloth), ISBN: 978-0-691-13970-8.

Reviewed for EH.Net by Jari Eloranta, Department of History, Appalachian State University.

Philip Hoffman, Professor of History and Business Economics at California Tech and recent president of the Economic History Association, is a prolific scholar, whose work has primarily focused on early modern Europe, especially French economic history and financial markets. Hoffman’s new book focuses on a pivotal issue in world history, namely how Europe came to rule the world. This is, needless to say, a hugely ambitious book and one that no scholar analyzing transitions in global history can overlook. It is a daunting task to attempt such an endeavor, let alone succeed as Hoffman has. This book will change interpretations of European warfare, the financing of conflicts, transitions in other regions of the world, the causes of the Industrial Revolution, and the Great Divergence — topics that are at the forefront of history, economics, and political science today.

Hoffman takes on big theories of history and development in this book, similar to other grand theorists like Jared Diamond (1999), Charles Tilly (1992), David Landes (1998), Joel Mokyr (1992), and Daron Acemoglu and James Robinson (2005). The pivotal question for all social scientists remains: Why are some so rich and some so poor? Whereas explanations for the different development paths have ranged from biological (Diamond) to geographical and cultural (Landes) and institutional (see e.g. North 1990), Hoffman follows a similar path as Tilly, Larry Neal (2000), and Niall Ferguson (2001), who argue that understanding the costs and impacts of warfare is the key to this puzzle. Tilly (1992) pointed out that capital and coercion are pivotal components in the rise of Europe over the last thousand years and that the constant need to fund warfare led to the creation of public debt and sharing of power between sovereigns and merchants. And, as Ferguson (2001) argues, military spending was the crucial component in this transition, since it led to other financial, fiscal, and institutional innovations. Hoffman is able to go a step beyond these somewhat blunt insights to provide a theoretical and (partially) empirical foundation that fills in many of the gaps and challenges the other “big” historical frameworks.

Hoffman poses a question for a potential time traveler similar to the one asked by Landes: How did Europe go from a patchwork of small and seemingly powerless communities one thousand years ago to a position of military and political dominance by the end of the millennium? Why did the world not become dominated by the Chinese or some of the other worthy contender? He answers the question by turning to a model of tournaments — the “tournament” for domination in Europe in conjunction with other cultural and historical developments explains Europe’s global success. Ultimately, the key to Hoffman’s explanation is warfare. As he correctly points out, Europeans have been almost constantly at war. Historically, most of their sovereigns’ spending went toward military purposes, and even lavish palaces like Versailles represented only a minuscule part of the state budget. His model links the high probability that European rulers would go to war to the high value of the victor’s prize, and similarity of resources, military technology, and ability to mobilize those resources (absence of a hegemon is crucial). Moreover, the political cost of attempting to win the prize must have been fairly low, and rulers were willing and able to learn from these conflicts. Thus, Hoffman’s four conditions for Europeans’ path toward global dominance include frequent war, high (and consistent) military spending, adoption and advancement of gunpowder technology, and relative lack of obstacles to military innovations. Europeans enjoyed low fixed costs for going to war, distances were small, variable costs for mobilization were low, and there was a merchant base that helped with the financing of conflicts.

One of the key elements in Hoffman’s explanatory framework is the ability of rulers to extract revenue from the society. His comparative data — which are by necessity a bit sporadic for China and other states around the globe — prove that European rulers collected, in per capita terms, much higher revenues and invested them into warfare. He also shows, based on his research into early modern European revenue systems and military producers, that the high military spending in Europe also translated into sustained productivity growth in the military sector. He even goes further to suggest that this was linked to the eventual Industrial Revolution, which is a bit harder to verify. Positive technological externalities may arise from military technologies, but significant crowding out effects cannot be ignored.

This book is particularly interesting when Hoffman engages in comparative research to examine various empires and regimes around the world in this period. While specialists in the histories of these polities may find details that they disagree with, the overall argument about China’s stagnation from the fifteenth century onward (or later, depending on whether one ascribes to the views of Pomeranz (2000) or Broadberry and Gupta (2006)) is quite convincing. Eschewing some of the more traditional explanations, for example China’s turn inwards in the fifteenth century, Hoffman makes a case for the tournament model here as well. He shows that Chinese tax collection rates were low, and that the focus on defending against nomads meant lower military spending on navies. Also, the investment in gunpowder technology was not consistently high, and thus the Chinese eventually fell behind the Europeans, which was displayed amply in the Opium Wars of the nineteenth century. Similar arguments can be made as to why Japan and India also stagnated, although some of the reasons differed. Interestingly enough, Hoffman also assigns a large role in Europe’s bellicosity to Christianity; rather than pulling European nations together, Christianity became a source of almost constant conflict, starting with the Crusades, divisions within the Catholic Church, and then the wars of religion in the sixteenth and seventeenth centuries.

In general, Hoffman’s model and the empirical support presented in the book are impressive and persuasive. One could, of course, offer some counterarguments. For example, Hoffman’s model is probably not as all-encompassing as he suggests; in many ways his framework complements the broader models about the role played by geography, nature, climate, and human interactions. Moreover, he inordinately downplays the role played by the modes of financing wars — why it may make a difference whether tax revenue or loans were used to extend conflicts. Ultimately the European (or originally Dutch/British) model of financing wars with the support of domestic merchants and markets with low interest rate loans was a huge advantage when Europe entered the age of total wars at the end of the eighteenth century. Finally, it is hard to discount the role raw materials and other natural resources played in assigning winners and losers in these tournaments. The classic argument by Pomeranz (2000) about the lack of coal near developing urban centers in China as a major hindrance to its industrialization is a good example of this line of thinking. Regardless of these small reservations, this book is a classic of economic history, which should be required reading by scholars everywhere, and will be a starting point for many debates about the role conflicts and military spending have played in historical processes.

References:

Acemoglu, D. and J.A. Robinson (2005) Economic Origins of Dictatorship and Democracy, Cambridge University Press.

Broadberry, S. and B. Gupta (2006) “The Early Modern Great Divergence: Wages, Prices and Economic Development in Europe and Asia, 1500–1800,” Economic History Review, 59(1), 2-31.

Diamond, J. (1999) Guns, Germs, and Steel: The Fates of Human Societies, W.W. Norton.

Ferguson, N. (2001) The Cash Nexus: Money and Power in the Modern World, 1700-2000, Basic Books.

Landes, D. (1998) The Wealth and Poverty of Nations: Why Some Are So Rich and Some So Poor, W.W. Norton.

Mokyr, J. (1992) The Lever of Riches: Technological Creativity and Economic Progress, Oxford University Press.

Neal, L. (2000) “How It All Began: The Monetary and Financial Architecture of Europe during the First Global Capital Markets, 1648–1815,” Financial History Review, 7(2), 117-140.

North, D. C. (1990) Institutions, Institutional Change and Economic Performance, Cambridge University Press.

Pomeranz, K. (2000) The Great Divergence: China, Europe, and the Making of the Modern World Economy, Princeton University Press.

Tilly, C. (1992) Coercion, Capital, and European States, AD 990-1992, Blackwell.

Jari Eloranta (elorantaj@appstate.edu) is a Professor of Comparative Economic and Business History at Appalachian State University and author of several articles on military and government spending, including (with Andreev Svetlozar and Pavel Osinsky) “Democratization and Central Government Spending, 1870–1938: Emergence of the Leviathan?” Research in Economic History (2014).

Copyright (c) 2016 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator (administrator@eh.net). Published by EH.Net (April 2016). All EH.Net reviews are archived at http://eh.net/book-reviews/

Subject(s):Economywide Country Studies and Comparative History
Financial Markets, Financial Institutions, and Monetary History
Military and War
Industry: Manufacturing and Construction
Geographic Area(s):General, International, or Comparative
Time Period(s):General or Comparative

Comparing Post-War Japanese and Finnish Economies and Societies: Longitudinal Perspectives

Editor(s):Tanaka, Yasushi
Tamaki, Toshiaki
Ojala, Jari
Eloranta, Jari
Reviewer(s):Heikkinen, Sakari

Published by EH.Net (September 2015)

Yasushi Tanaka, Toshiaki Tamaki, Jari Ojala, and Jari Eloranta, editors, Comparing Post-War Japanese and Finnish Economies and Societies: Longitudinal Perspectives. London: Routledge, 2015. xxii + 253 pp. $168 (hardcover), ISBN: 978-0-415-65620-7.

Reviewed for EH.Net by Sakari Heikkinen, Department of Political and Economic Studies, University of Helsinki.

Japan and Finland are not the most obvious pair of countries to compare in their economic development. Japan is more than twenty times as large as Finland in both population and GDP, and they are located on opposite sides of the globe. Yet there are also similarities between them: both economies grew quickly after the Second World War and succeeded in joining the rich-country club. At the turn of the millennium, Finnish GDP per capita (PPP-adjusted) surpassed Japan’s, and it has remained higher since then.

This book examines the not-so-obvious pair by analyzing the economic and societal development of Japan and Finland after the Second World War. It is a true joint venture of Japanese and Finnish scholarship. Two of the volume’s four editors are from Kyoto Sangyo University (Yasushi Tanaka and Toshiaki Tamaki) and two are Finns (Jari Ojala from the University of Jyväskylä and Jari Eloranta from Appalachian State University). The book consists of an introduction and ten articles, two of which are methodological. The remaining eight analyze different aspects of the Japanese and Finnish economies in the post-World War II decades. All the eight substantial articles were written by teams comprising both Japanese and Finnish scholars.

Comparison is essential in all human understanding and explanation, as Christopher Lloyd reminds us in the conclusion (Chapter 11). But comparisons come in many varieties, as Pavel Osinsky and Jari Eloranta explain in their methodological piece (Chapter 2). “Variable-oriented research” explores a well-defined relationship using a large number of cases, e.g. countries. Here the emphasis is on generality. Another method of comparison is to study a small number of cases and emphasize in-depth comparison, complexity and context. Such is the methodological approach of this volume.

The actual comparative studies of the book are divided into three parts: Welfare Societies, Macroeconomic Policies, and Trade and Industry. This appears a relevant division, promising wide coverage of different aspects of economic development. However, the two or three articles under each of these headings cover only part of these vast thematic fields.

In Part 2 (Welfare Societies), the first article (Chapter 3) by Maare Paloheimo, Kota Sugahara, Tadashi Fukui, and Merja Uotila compares Japanese and Finnish paths to building a welfare society. The focus is on policies related to work and family. Their comparison highlights, among other things, the higher female labor participation rate in Finland (with a high share of public sector jobs) as well as the Nordic principles of universal, uniform and equal social services. They also illustrate how differences in cultural and religious values have influenced welfare policies, granting a greater role to the family in Japan than in Finland.

In Chapter 4, Anu Ojala, Yasushi Tanaka and Olli Turunen examine Japanese and Finnish systems of higher education and the resulting labor market outcomes. They also briefly compare the educational systems in their entirety. The biggest difference between the higher education systems of the two countries is the fact that Japan relies on private-sector solutions, whereas in Finland higher education is organized and financed almost completely by the state. In examining labor market outcomes, the authors point out the expected result that in both countries the unemployment rate is lower than average among the highly educated. Education-related wage premiums are higher in Japan whereas the general gender equality of pay is greater in Finland. Japanese women are the group who benefit most from higher education attainment while their Finnish sisters do not reap the same gains from being more educated than men.

Jari Eloranta and Yasushi Tanaka compare military spending in Japan and Finland (Chapter 5). The rationale for placing this under the umbrella of the welfare state is revealed in the subtitle “From Warfare to Welfare State.” Both countries lost the war, although in a very different manner, and faced direct external pressure from the winners of the war to constrain military spending — the pressure being stronger in Japan’s case. However, there were also domestic pressures: in particular, the tradeoff between military and social spending that the authors analyze in this article, which is the most cliometric in the book. The authors show how military spending quickly took a back seat and social spending benefited from the low level of military spending.

Macroeconomic policies (Part 3) are discussed in three articles. Toshiaki Tamaki and Timo Särkkä examine the role of Keynesianism in macroeconomic thinking and policymaking (Chapter 6). Since neither of the countries was in the front line of economics, this is more a study on importing than on inventing ideas. The authors examine the practical economic policies of the two countries and show that economic theory hardly defines the choices made in economic policy, at least by itself. They emphasize that the active role of the state implied by the Keynesian demand management policy was not a fundamental problem, since in both Japan and Finland the state had traditionally played a relatively large role. However, neither of the two countries applied purely Keynesian policies, perhaps reflecting their somewhat peripheral position in this respect.

Energy supply and regulation is studied by Park Seung-Joon and Esa Ruuskanen (Chapter 7). Energy use per capita has grown rapidly in both Japan and Finland since 1960 and has been consistently higher in Finland. Energy intensity (energy use/GDP) has also been higher in Finland due to its cold climate and energy-intensive industries (paper and pulp). In both countries, energy intensity has declined since the 1970s, after the oil crises. Both countries have invested in nuclear power and have been cautious regarding the possibilities of alternative energy sources. The main narrative in both countries has therefore been a shift from oil dependency to nuclear energy dependency. One difference between the two countries is that in Finland, the deregulation of the energy sector, starting in the 1990s, has been more extensive than in Japan.

Kari Heimonen, Shigeyoshi Miyagawa and Yoji Morita compare the financial crises of the 1990s in Finland and Japan (Chapter 8). These crises, Finland in 1991 and Japan in 1992, are among “the big five” identified by Reinhart and Rogoff (the other three being Spain in 1977, Norway in 1987 and Sweden in 1991). This makes the Japan–Finland comparison immediately interesting in a global context. The boom and bust cycle had many similarities in both countries. Deregulation of financial markets was unsuccessful in both Japan and Finland, creating a bubble economy, the bursting of which was in both cases at least partly initiated by exogenous shocks: the collapse of trade with the Soviet Union/Russia in Finland and the Louvre Accord (1987) obliging Japan to cut its trade surplus and to ease her monetary policy. Yet recovery was very different: it was rapid in Finland but weak and difficult in Japan. The authors emphasize the role of public intervention here. In Finland, the state actively reorganized crisis-stricken banks and recapitalized them, whereas in Japan policy reaction was much slower. Measured by post-crisis economic performance, Finland’s choice was wiser.

The title of the fourth part, “Trade and Industry,” promises a bit too much. It contains only two articles, which are both too specific to make a comprehensive comparison between Japan and Finland. Juha Sahi and Kazuhiro Igawa examine Finnish–Japanese trade relations from 1919 to 2010 (Chapter 9). The authors show that after trade was liberated from post-war regulations in the late 1960s, trade between Japan and Finland was very unbalanced, Japanese exports to Finland being many times Finland’s exports to Japan. This is no wonder, since Finland’s exports until the ICT boom of the 1990s consisted largely of paper, pulp and other processed wood articles with a much lower value-to-weight ratio than automobiles, Japan’s main export article to Finland. The 5,000 mile distance between the countries thus favored Japanese exports over Finnish.

The manufacturing sectors of Japan and Finland are compared in one article: Pasi Sajasalo and Kazuhiro Igawa’s comparison of the paper industries of the two countries (Chapter 10). Both countries have been among the largest paper producers of the world, but the industry’s macroeconomic weight is much greater in Finland. Furthermore, their raw material base and market orientation are very different. Japanese paper mills rely on imported raw material and process it for domestic markets, whereas the opposite is true in the Finnish case. The authors illustrate the idiosyncrasies of Japanese and Finnish business organizations, the Japanese keiretsu and the Finnish sales associations, but point out their common rationale: a long-standing feature of restraint of competition.

This volume is a collaboration between Japanese and Finnish scholars and also a collaboration between economists and historians. It proves that we can learn much from the in-depth two-country comparison about “the wider paths and causation of economic and social development over the long run,” as Christopher Lloyd notes in his conclusion (Chapter 11). Because of the slight heterogeneity of the articles they do not paint the whole comparative picture of the two economies in their process of post-war economic catch-up. Some of the articles speak more to specialist audiences, for instance to those interested in military spending, the paper industry or Finnish–Japanese trade relations, than to those interested in common trends and features of economic development. However, the book is a good pioneer work that will hopefully be continued and amended.

Sakari Heikkinen is professor of economic history in the Department of Political and Economic Studies at the University of Helsinki in Finland. His publications include Paper for the World (2000).  His current research interests are long-term economic growth in Finland compared with Sweden, as well as labor markets in Finland and Sweden during the Great Depression.

Copyright (c) 2015 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator (administrator@eh.net). Published by EH.Net (September 2015). All EH.Net reviews are archived at http://eh.net/book-reviews/

Subject(s):Economic Planning and Policy
Economywide Country Studies and Comparative History
Financial Markets, Financial Institutions, and Monetary History
International and Domestic Trade and Relations
Labor and Employment History
Macroeconomics and Fluctuations
Transport and Distribution, Energy, and Other Services
Geographic Area(s):General, International, or Comparative
Asia
Europe
Time Period(s):20th Century: WWII and post-WWII

Anticipating The Wealth of Nations: The Selected Works of Anders Chydenius (1729-1803)

Author(s):Jonasson, Maren
Hyttinen, Pertti
Reviewer(s):Eloranta, Jari

Published by EH.Net (November 2012)

Maren Jonasson and Pertti Hyttinen, editors, Anticipating The Wealth of Nations: The Selected Works of Anders Chydenius (1729-1803). Translated from the original by Peter C. Hogg. London: Routledge, 2012. xxv + 382 pp. $130 (hardcover), ISBN: 978-0-415-55133-5.

Reviewed for EH.Net by Jari Eloranta, Department of History, Appalachian State University.

?Freedom never exists without causing us to desire it once we know of it: our desires guide us in all our actions? (Anders Chydenius, 1763, p. 101 in this volume)

Anticipating The Wealth of Nations
is a collection of the most important writings of Anders Chydenius, eleven texts in total, while a full five-volume set of his complete works (about 85 texts in total) will be published in the coming years in Finnish and Swedish (and later online). Who was Anders Chydenius? He was an eighteenth-century Finnish-Swedish clergyman, writer, and political philosopher, whose ideas are often compared to those of Adam Smith. The texts are aligned with some of his key interests, such as Swedish politics of the time, freedom of information, occupation, and religion, as well as broader economic issues of the time. Moreover, the book features an excellent introduction by one of the best known Nordic economic historians, Lars Magnusson. Each of the original texts is followed by a brief commentary by him as well.

As Magnusson points out in the introduction, Chydenius is often, unfairly so, solely compared to Adam Smith and his monumental achievement, An Inquiry into the Nature and Causes of the Wealth of Nations (1776), especially since Chydenius? writings preceded Smith?s. In fact, both were influenced by eighteenth-century economic and political thought, for example the French Physiocrats, with Chydenius more so than Smith. There are many similar themes in their writings, ranging from ideas about freedom of thought and liberty to more practical economic issues and policies. However, as a whole, Chydenius? writings are less theoretical by nature and perhaps also a bit more practical as policy statements.?

This review can only scratch the surface of these works, presenting some examples of the economic ideas in the writings (especially the text called The National Gain). For a fuller picture, I urge all scholars of the history of economic thought to peruse the book on their own. Moreover, I will not go into great detail about the life and personal history of Chydenius, beyond a brief biography, since that is also not the main contribution of this volume.

Anders Chydenius was born in 1729 in Sotkamo, Finland, to a middle-class family, as his father was the rector of a large parish in Northern Finland. Anders also became very accustomed to a rural lifestyle; something that profoundly influenced his worldview in later life. Finland at the time was a part of Sweden, a state of affairs that had lasted for over 500 years. This was also the heyday of mercantilism, an ideology aimed at maximizing exports over imports and emphasizing the state?s control over economic affairs in the realm. In this case that meant that all foreign trade had to go through the so-called staple towns, and Finland only had a few of those in the south and Northern Finland had none until 1765. This was often perceived to be an unjust system in the more peripheral parts of the nation, and certainly influenced Chydenius? thinking on economic policy, up until his death in 1803.

Politics became a natural outlet for Chydenius after his university studies. Eighteenth century Sweden was a fertile ground for ideological debates, given the expansion of the universities and the more flexible ideas about democracy, not to mention the intense competition between the two main political parties (the so-called Hats and Caps). University life exposed him to new and radical ideas, and he concentrated on the study of philosophy and religion. Ultimately this led to his selection of profession and employment as a preacher, initially under his father?s supervision, and later his own appointment as a chaplain and finally the rector of a parish.

Anders became fluent in both Finnish and his native Swedish when growing up, which helped him during his political and religious career, and exposed him to a wider circle of influences. His political awakening seems to have culminated in the early years of the 1760s, when he had secured an occupation for himself in the clergy. For example, he participated in essay writing contests that brought him some attention. When he participated in the Diet (the Swedish Parliament) in 1765-66, he garnered even more attention as a keen writer and supporter of economic and political freedoms. This also got him in trouble with some powerful political players (particularly due to his views on monetary policy) and he was expelled from the Diet. Chydenius? political career remained tumultuous up until the late 1770s. However, during the later years of his life he remained politically active and occasionally was a member of the Diet as well.

Why was Chydenius controversial? Some of his writings certainly hit a nerve as far as the ruling parties were concerned, for example on the issue of censorship. Chydenius was himself a target for censorship on several occasions, which made him an even more ardent supporter of free speech. As he wrote in 1765, ?the liberty of a nation is preserved not only by the laws but by public information and knowledge as to how they are being administered? (p. 221). He wanted to make sure that no single individual would be given the singular power to censor political discourse. His fairly practical solution to this was to expand the number of individuals engaged in censorship by forming a larger body, scientific or literary, to make the decisions. This is the issue that also got him in trouble with some of his peers and political opponents.

While he expressed his views on economic issues in several essays (for example, in the essay on why Swedes were emigrating from the country, see the quote in the beginning of the review ? he also warned societies of not focusing too much on armed enemies rather than enemies within, see p. 124), The National Gain is the most important of his writings in regards to his economic philosophy. The National Gain was presented to the Estates in 1765, and it contained many themes similar to Smith?s 1776 masterpiece. There were, however, important differences as well. First, Chydenius? ideas were less clearly articulated as a cohesive theory; in contrast, he presented an interesting mix of rather abstract principles and certain clear policy recommendations. Second, Chydenius was much more influenced by the French Physiocrats, and his opposition to the staple towns was tied to the idea of giving rural communities a more equal footing in the economic system.??

?That every individual nation pursues profit as the chief aim of its economic and political regulations is incontrovertible, but if we consider the means that each has adopted to achieve that, we observe an incredible variety? (p. 142). Is this the famous ?invisible hand,? in its preliminary form? Not quite, at least explicitly. Chydenius did articulate some ideas that would feature prominently in the writings of Smith and David Ricardo. For example, he discussed the idea of an absolute advantage in similar terms, highlighting that ?each individual will of his own accord gravitate towards the locality and the enterprise where he will most effectively increase the national profit, provided that the laws do not prevent him from doing so? (p. 145). He frequently discussed ?free enterprise? and ?industriousness? as useful forces in shaping an economy, although he did not advocate completely free markets rather than ?order;? i.e. less invasive, yet firm governmental oversight of the economy (p. 156). For him, allowing the freedom of occupation and enterprise would lead to beneficial outcomes, as for example merchants would know best how to conduct their business ? if they were to try to extract exorbitant rents, their competitors would drive them out of business (p. 158).

Chydenius argued that freeing up trade and occupations would increase ?national profit? as well, going directly against the existing mercantilist orthodoxy. Freedom for all occupations would, in his view, guarantee the largest ?national profit,? since profit-seeking in all occupations would lead to the greatest efficiency; even though he did not use the word ?efficiency? directly (p. 162). While Chydenius? thinking emanated from a fairly practical place, namely the aim to improve the rural economic communities and existence (similar to Physiocrats, who were against luxury consumption and profit, the latter being one of the favorite themes of Chydenius as a beneficial force), he formed an abstract synthesis that was in many ways similar to Smith. Both were influenced by eighteenth-century thought and writings, which makes this less surprising. However, it is quite interesting that Chydenius articulated many themes and concepts similar to Smith prior to 1776. While that is important, we should not confine Chydenius to some sort of a footnote of history, a ?pre-Adam Smith.? His writings addressed many societal and economic themes, often going beyond the moral philosophy of Smith. On the other hand, he did not present a coherent philosophical construct like Smith, which explains why his influence was much more limited (and language certainly played a role as well).

On the whole, Chydenius was an important eighteenth-century contributor who offers us a window into Nordic economic and political thought and helps us understand why and when The Wealth of Nations was created, giving us a more nuanced view of the time period. I would recommend this volume to all those interested in eighteenth-century economic thought and theory. This book is well organized and thought out, and the commentaries by an expert will help non-Nordic readers by providing more context to the texts. The future publications of the full volumes will certainly give us an even better view of Chydenius and the time period. Hopefully many of those texts will be made available in English as well, so a broader audience will be exposed to these writings.

Jari Eloranta is an Associate Professor of Comparative Economic and Business History at Appalachian State University. His publications include several articles and edited volumes on military and government spending, trade and conflicts among smaller nations, and Nordic economic and business history. He is currently working on several projects related to these research areas. elorantaj@appstate.edu

Copyright (c) 2012 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 2012). All EH.Net reviews are archived at http://www.eh.net/BookReview.

Subject(s):History of Economic Thought; Methodology
Geographic Area(s):Europe
Time Period(s):18th Century

How Countries Compete: Strategy, Structure, and Government in the Global Economy

Author(s):Vietor, Richard H. K.
Reviewer(s):Eloranta, Jari

Published by EH.NET (August 2007)

Richard H. K. Vietor, How Countries Compete: Strategy, Structure, and Government in the Global Economy. Boston: Harvard Business School Press, 2007. vi + 308 pp. $35 (hardcover), ISBN: 978-1-4221-1035-5.

Reviewed for EH.NET by Jari Eloranta, Department of History, Appalachian State University.

Richard Vietor, a prominent Harvard scholar who is comfortable in many fields including business history, economics, and management, has written a comprehensive and rich survey of the “unique social, economic, cultural, and historical forces that shape individual governments’ approach to economic growth.” The book builds from his extensive research and consulting experience, providing in essence a thesis of why government can serve a crucial role in the economic development of nations. Vietor argues that government can do this in a variety of ways in order to advance the performance of business, namely by inducing savings and offering low interest rates, guaranteeing property rights and other necessary institutions, providing an educated workforce, and maintaining low inflation. The main thrust of the book is to posit that institutions are the central building blocks of any economy, and that “good” institutions are vital for sustained economic development. This argument is not very new, albeit his emphasis on the role of the government is a bit more novel. He wants the book to serve as sort of a manual for business managers, so that they can learn from the past and the present, as well as to be able to handle future challenges.

This volume is divided into three sections. The first focuses on the Asian high growth experience, in particular on Japan, Singapore, China, and India. Vietor’s reason for this is that he wants to reel in the casual reader by discussing the cases that are the most visible examples of his arguments. The spectacular growth performances of these nations are discussed at length in the book, usually preceded by rather skimpy historical introductions. By and large, he emphasizes the role of government policies and institutions in producing high savings and investment, low inflation and wages, and the transitions toward export-led development strategies. The second part discusses cases in which institutional transitions have been less successful, such as Russia and Mexico. Vietor argues that the main difference between for example Latin America and Asia has been the lack of institutional progress and stability. The third, and final, section of the book analyzes the role played by deficits, debt patterns, and persistent stagnation in the development of the biggest economies in the world. His main focus is on comparative analysis of the development paths of the European Union, Japan, and the United States. The main message of this section appears to be that having a strong governmental presence in the economy does not necessarily have adverse effects for economic growth, a message that is obviously aimed at American policymakers.

While this volume is certainly well researched and fluently written, even appealing for lay readers too, it has some weaknesses. The first is that it is written for a general audience and mostly lacks theoretical depth, for example in its treatment of institutions. Vietor does not address some of the major developments in the field of institutional economics and history, in particular the common division between formal and informal institutions. For him institutions seem to mainly consist of the former kind, produced by various governmental organizations. The analysis would have been enriched by a comparative analysis of the evolution of particular informal institutions and cultural development patterns, as done before by Douglass North and Avner Greif, among others. My second point of criticism, or curiosity, pertains to the selection of the country cases. For example, why focus so heavily on the European Union as a uniform entity and then select Italy as an illustrative case study of its problems? Vietor’s treatment of the integration process itself, and its history, is superficial at best. Moreover, if the author wanted to make a point about government-business relations and the beneficial role of the state, why not choose the Nordic countries as cases, given the performance of their welfare states and corporatist institutions? Third, the book is very light in terms of quantitative evidence to support the main arguments, mostly because the book is meant for a broader audience. Specialists, however, will be clamoring for more evidence to prove some of the causal linkages inferred by the author. For instance, the link between military spending and economic growth, as Vietor intimates in the case of Japan, is not necessarily that straightforward and the so-called peace dividend is often hard to come by.

All in all, it is very difficult to do justice to such a broad, proficient, and comparative analysis of today’s global economy in such a brief review. It is certainly a worthwhile read for anyone interested in the issues of institutional and economic development, role of the state in the current era of globalization, and comparative analysis of economic processes. If the reader is interested in detailed economic history and analysis of the countries covered in the book, then perhaps it would be useful to refer to more specific studies on those polities. While this book lacks some of the explanatory power and evidence of the usual academic tomes, it more than makes up for this in its powerful narrative. It is also very well written and should appeal to policymakers, business managers, and other informed readers both domestically and abroad.

Jari Eloranta is Assistant Professor in the Department of History, Appalachian State University in Boone, North Carolina. His research interests include corporate political action in the long run, defense economics and the financing of wars, as well as the analysis of government spending in the nineteenth and twentieth centuries. His publications include: “The Evolution of Corporate Political Action: A Framework for Processual Analysis” (with Juha-Antti Lamberg, Mika Skippari, and Saku M?kinen) Business and Society (2004); “Rent Seeking and Collusion in the Military Allocation Decisions of Finland, Sweden, and the UK, 1920-1938” (forthcoming, 2008) Economic History Review; and “Struggle for Leadership? Military Spending Behavior of the Great Powers, 1870-1913” (2007) European Review of Economic History.

Subject(s):Government, Law and Regulation, Public Finance
Geographic Area(s):General, International, or Comparative
Time Period(s):20th Century: WWII and post-WWII

The Road to Prosperity: An Economic History of Finland

Author(s):Ojala, Jari
Eloranta, Jari
Jalava, Jukka
Reviewer(s):Andersson, Lars Fredrik

Published by EH.NET (June 2007)

Jari Ojala, Jari Eloranta and Jukka Jalava, editors, The Road to Prosperity: An Economic History of Finland. Helsinki: Suomalaisen Kirjallisuuden Seura, 2006. 343 pp. 43 Euro (cloth), ISBN: 951-746-818-0.

Reviewed for EH.NET by Lars Fredrik Andersson, Department of Economic History, Ume? University.

Just more than a century ago, Finland was an agrarian society featuring low per capita income and dependency of Russia. Today, Finland is a highly advanced independent industrial country in the top ten of the world income league. Finland’s twentieth-century economic miracle is a story of success over hardship, poverty and Russian dependence. How was this achieved? Considering the causes and consequences of this transition into modern economic growth, this book gives valuable insights into the challenges faced by Finland in particular and other small successful European countries in general.

This anthology, edited by Jari Ojala, Jari Eloranta and Jukka Jalava, sets out to provide a model of Finnish success. The so called “Finnish model” is characterized by: (1) solid institutional legacies, (2) long-term utilization of abundant natural resources, (3) rapid adoption to shifting economic and political structures, (4) heavy investments in human capital, (5) egalitarian society with an extensive welfare state, and (6) innovations in new technologies. Using this model as a point of departure, the chapters in the book underpin the specific features of Finnish economic and social development.

Finland’s long-term growth performance is outlined by Riita Hjerppe and Jukka Javala. The authors provide a description and analysis of Finland’s transition into modern economic growth. It is shown that the industrial breakthrough occurred during the period 1860 to 1940 and that rapid economic growth was achieved by high labor productivity growth. The labor productivity growth was driven by rapid technological progress. In turn, structural change was more an effect than a cause of the growth process.

Although the shift effects were small, one should not forget the importance of modernization in agriculture and the movement of labor from agriculture to industry and service production. Indeed, as noted by Jari Ojala and Ilkka Nummela, the shift from labor- to capital-intensive production in agriculture stimulated aggregated productivity growth and facilitated labor movement into the expanding industry and service sectors. In addition, the growth of industry and service production was also characterized by an evolution in business structures raging from merchant capitalism in the eighteenth and nineteenth centuries to industrial in the twentieth century and global capitalism today. To explain this evolution the authors Jari Ojala and Petri Karonen underpin the importance of competitive and institutional forces as well as long-term co-operation within and between companies in different industrial sectors.

The stages of evolution in business and are furthermore shown in Yrj? Kaukianinen’s chapter on maritime trade. Finland was foremost a supplier of raw material back in the nineteenth century. During the twentieth century, these commodities were replaced by manufactured products emanating foremost from the forest industry. Only in the later part of the twentieth century was there a transition to higher value added and high technology exports.

As Finland’s economy became more industrialized, factor markets became increasingly important. The labor market started to evolve in the end of the twentieth century in conjunction with the expansion of the manufacturing and service sectors. In the post-war period, the growth of private services and welfare services created job opportunities for women as well as men. The authors, Matti Hannikainen and Sakari Heikkinen, also stress how the labor market changed from domination by employers to a system with strong trade unions and centralized collective bargaining. In turn, the financial sector had a strong involvement from the government. The authors Concepci?n Garc?a-Iglesias and Juha Kilponen maintain that the Finnish case in some sense was different from other countries as the strong involvement of the government and the central bank in regulating the financial markets after World War II delayed the start of the financial modernization.

The government was apparently important in the development of the welfare state as well. Jari Eloranta and Jari Kauppila argue that while growth of government’s spending primarily was an issue of institutional expansion, other factors also need to the considered. The building of the welfare state was closely tied to the development of incomes and the trade-off between social and military spending.

The equality ambitions of the welfare state were furthermore strengthened by the development of income distribution (taxable income of tax units). Indeed, as shown by Markus J?ntti, inequality was quite variable in the inter-war period, increased significantly in the period 1950-70 and declined rapidly after 1970. In the 1990s, Finland had one of the most equal distributions of income across the OECD.

Growing income and output have been enhanced by, among other things, investments in education, human capital and R&D. Rita Asplund and Mika Maliranta show that high investments in education and training has been important to foster economic growth as well as technology policy focusing on R&D and ICT investments. Part of this success has been the joint effort of private and public spending.

Summing up the chapters in the book, Pauli Kettunen concludes that Finland was a late-comer among the Nordic countries. The industrial take-off occurred late and the social structure remained agrarian for a long time. He maintains that Finland has indeed absorbed features of the other Nordic countries but still preserved features of its own. The “Finnish model” has been characterized by egalitarianism, a strong government role, innovativeness and geopolitical adjustment.

This book, written by three distinguished editors along with fourteen prominent contributors offers many kernels of insight. Numerous important issues are addressed around the topic of economic progress. However, the main explanation of this progress, “the Finnish model,” has deficits. It is quite hard to find that Finland is an exception. The explanatory factors of Finland’s economic progress ? solid institutional legacies, utilization of abundant natural resources, rapid adoption to shifting economic and political structures, investments in human capital, egalitarian society with an extensive welfare state, and innovations in new technologies ? are also keys features of the other Nordic countries. With this shortcoming in mind, I still would like to congratulate the editors and contributors for providing a comprehensive description and analysis of how Finland has evolved into the affluent society that it is today. This book should find a broad audience.

Lars Fredrik Andersson is active in a research project titled “The Historical Development of Swedish Insurance,” financed by the Bank of Sweden Tercentenary Foundation. Among his recent publications is “The Evolution and Development of the Swedish Insurance Market,” in Accounting, Business and Financial History (November 2006).

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

East-West Trade and the Cold War

Author(s):Eloranta, Jari
Ojala, Jari
Reviewer(s):Spechler, Martin C.

Published by EH.NET (November 2005)

?

Jari Eloranta and Jari Ojala, editors, East-West Trade and the Cold War. Jyvaskyla, Finland: University of Jyvaskyla, 2005. 237 pp. ?26 (paperback), ISBN: 951-39-2088-7.

Reviewed for EH.NET by Martin C. Spechler, Department of Economics, Indiana University-Purdue University Indianapolis.

This collection of articles by authors from Western Europe, the U.S., and Israel analyzes East-West trade during the Cold War period from the 1950’s to the 1980’s, an important historical example of economic warfare. It is part of the Studies in Humanities of the University of Jyvaskyla in Finland, one of the neutral states most actively engaged in trade with the USSR during that time. Building on the seminal work of Gunnar Adler-Karlsson (Western Economic Warfare, 1947-1967), more recent literature has shown how Britain and France were able to moderate the American-led COCOM (Coordinating Committee on Multilateral Export Controls) sanctions. In this work the main point of interest is to see how private corporations and “weak” states — principally Switzerland and Scandinavia — dealt with those restrictions. While an exact measurement of the effectiveness of Western economic warfare seems beyond our reach, it does seem clear that trade was disrupted and distorted and may have contributed to the mutual hostility of that period.

Following an introduction, in which Alan Dobson labors to point out the semantic distinctions proposed in the political science literature on economic warfare — unhappily, he omits Peter Wiles lively Communist International Economics — there are seven different contributions. Jacqueline McGlade, a “founding member” of the East-West Working Group, shows how America’s European allies and many business leaders chafed at the COCOM restrictions by the mid-1950’s, but she misunderstands the basics of the post-war economy when she asserts that “as a result” of technical embargoes and military considerations, “the American share in world exports in manufactured goods” declined from 1945 to 1977 (p. 47). Might European and Japanese recovery and the overvalued American dollar have had something to do with this? McGlade’s almost complete lack of objective evidence of the real or perceived effect of the embargoes on the U.S. allows her to express her distaste for these anti-Communist measures and exaggerate their negative impact. After all, during most of the twentieth century Russia had been a poor market for the U.S. and offered counter-trade, instead of hard currency, making the Communists troublesome business partners. This practice, part of trade aversion in the Soviet bloc, meant that East-West trade within Europe never reached its pre-war significance, though COCOM restrictions may have contributed to that, too.

Uri Noi’s short contribution relies extensively on newly opened archives in the UK and, to a lesser extent, in Russia. Soviet diplomats repeatedly and unsuccessfully tried to persuade Her Majesty’s government to relax their trade restrictions on machine tools, tin, and rubber. Despite what Noi questionably calls Britain’s “dependence” on trade with Eastern Europe (p. 74) and specifically on Russian coarse grains and timber, Churchill’s government refused, suspicious of Soviet intentions to expand their “industrial potential.” Was the Conservative government’s appreciation of the value of American military protection, so recently exhibited, of any influence? Britain’s industrial exports were in need of help, but just how much long-term demand would Soviet Russia afford?

Lucia Coppolaro of the European University in Florence describes the curious, but ultimately unimportant, approach in 1957-59 by W?adyslaw Gomulka’s Polish government to join the GATT. As was understood, a centrally planned economy could not meaningfully promise to cut its formal tariffs and adopt non-discriminatory trade. Even so, the Western desire to encourage East European independence from Moscow eventually motivated acceptance of the Poles (and Hungarians and Romanians) on a special, “symbolic” basis. However, the refusal of the EEC to ease their quantitative restrictions on Poland’s key agricultural exports and Poland’s obligations to the CMEA meant that trade with the West was probably unaffected (p. 90).

Niklas Jensen-Eriksen, an economic historian at the University of Helsinki, uses extensive documents to show that UK aid to Finland was substantially blocked by Britain’s economic ministries, despite the Foreign Office’s desires to help this Soviet neighbor. Not only was Britain too weak in 1950-62 to make loans, but also there was no desire to encourage Finnish shipbuilding and engineering competition.

Klaus Ammann’s interesting study of Swiss trade with Eastern Europe shows how the powerful Swiss business elite pursued commercial connections under the cover of neutrality, just as they had done with Hitler’s regime. Trade with East Europe was not very important, relative to its more dynamic partners in Western Europe, but at least the Swiss had an export trade surplus with its Communist partners. Nonetheless, in the Hotz-Linder agreement of 1951, Switzerland acceded to American pressures over the COCOM list, lest its exports to the U.S. be blacklisted. A similar story is told by Niklas Stenl?s and Mikael Nilsson in their chapter on Sweden, which required British and American military technology as part of its close cooperation with NATO.

Finland’s position on the border of the USSR obviously influenced the policy of President Urho Kekkonen (1956-81) to preserve Soviet bilateral trade even in 1960-61, while his neutral country was entering EFTA, and a decade later in its commercial agreements with the European Community. In Finland’s case, as in Austria’s, the U.S. was more tolerant of their trade with the East than it had been with Sweden or Switzerland, as shown in a fine article by Tapani Paavonen from the University of Turku.

At the end of the volume the editors have inserted a long essay of their own dealing with Converta, the paper and packaging export cartel, which did a lot of business in the East after 1945. Following the armistice of 1944, Finland was obliged to pay reparations of 300 million gold dollars to the USSR, mostly in ships and other metal products. But exports of manufactured paper products also grew well beyond the levels of the interwar period. (Regrettably, the amounts are given in FIM without a conversion to dollars or British pounds and shown in arithmetic, rather than semilog, graphs.) Trade was conducted bilaterally pursuant to Soviet five-year plans with the Bank of Finland arranging the clearing payments to Finnish exports. A regression shows that during 1955-91, exports to Soviet Russia increased when demand in the West was falling. Such a buffering market was advantageous to Finnish producers, who had considerable fixed investments. What is more, the Soviet Union supplied approximately 74 percent of Finnish petroleum at long-term contractual prices, so Finland enjoyed the same implicit trade subsidy that the East Europeans did from 1974 to about 1985, when world market prices exceeded those negotiated with the USSR. Unfortunately the Finnish authors seem unaware of this parallelism and do not attempt to calculate the value of the implicit subsidy.

Despite a long excursus on American institutional literature, Eloranta and Ojala discover very little about the negotiations among the Finnish members of the cartel nor much about how information on the ultimate Soviet customer was obtained and shared. By the 1980s, the cartel had broken up, with individual firms able to conduct their trade themselves. Finnpap, the forest products cartel, had already dissolved by the 1970’s. Soon after the unexpected breakup of the USSR, Converta was officially terminated.

With respect to Finnish trade and economic sanctions, the main topic of this volume, it is to be regretted that Soviet-area archives were not more fully employed to understand the Kremlin’s intentions and evaluation of Western economies and alliances. This might have influenced the book’s contributors’ generally benign retrospective on Soviet Russia and often impatient attitude towards American containment policy. As Alan Milward points out in his short conclusion, when the Reagan Administration raised the stakes with its technological dubious “star wars” initiative, the Soviets could not stay in the game and were under pressure to propitiate the West. Economic warfare, a substitute for armed violence, had worked! Had the West continued its careful, low-risk program of embargoes, divisive as that became with America’s recovered allies, the future of Soviet communism might have turned on other historical events.

Besides its interesting accounts of little known topics, the book has a useful bibliography and index and is well produced with only negligible typos or awkwardness in the English text.

A specialist on the former Soviet Union and Eastern Europe, Martin Spechler is professor of economics at Indiana University-Purdue University Indianapolis, Indiana, and the author of several articles on Central Asia. He is now at work writing a book on the political economy of modern Uzbekistan and is also Book Review Editor of Comparative Economic Studies.

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Subject(s):International and Domestic Trade and Relations
Geographic Area(s):North America
Time Period(s):20th Century: WWII and post-WWII