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Institutional Change and American Economic Growth

Author(s):Davis, Lance E.
North, Douglass C.
Reviewer(s):Morris, Cynthia Taft

Lance E. Davis and Douglass C. North (with the assistance of Calla Smorodin), Institutional Change and American Economic Growth. Cambridge: Cambridge University Press, 1971. viii + 282 pp.

Review Essay by Cynthia Taft Morris, Department of Economics, Smith College and American University.

Davis and North Launch Neoclassical Institutional Theory

This book is an early major step in the evolution of the thinking of Douglass North and his collaborators on the “new” neoclassical theory of institutional change — the institutional arm of the new economic history that began to flourish in the 1960s. Among the many notable later steps are The Rise of the Western World (1973) with Robert Paul Thomas and “Constitutions and Commitment: The Evolution of Institutions Governing Public Choice” with Barry Weingast (1989) — which ranks third in citations among articles ever published in the Journal of Economic History.

Lance Davis and Douglass North develop a theory of institutional change so familiar that it is easy to forget the theory was ever “new.” They lay out a model where the core logic of institutional change is neoclassical cost-benefit analysis and the motivating drive for institutional change is profit maximization. The goal of the authors’ “intellectual journey through American economic history [is] . . . to provide a description of the processes that have produced the present structure of economic institutions. That description, in turn, is the basis for a first (and very primitive) attempt at the formulation of a specified, relevant, and logical theory of the birth, growth, mutation, and, perhaps, death of these institutions. The book is a study of the sources of institutional change in American history. It is concerned with the relationship between economic organization and economic growth” (p. 4).

Chapter 1 presents the concepts and definitions (institutional and economic environments, institutional arrangement, institutional instruments, and institutional innovation). An institutional arrangement will be innovated if the expected net gains exceed the expected costs. Arrangements range from purely voluntary to totally government controlled and operated and seek to realize economies of scale, lowered transactions costs, internalization of external economies, reduction of risk, or redistribution of income (pp. 10-11).

Chapter 2 analyses the government’s role in redistribution. The authors’ purpose is to include the role of government in their theory of institutional change in spite of the unsatisfactory state of political theory. To exclude it would likely “yield a model of institutional change no more useful in the growth context than are the present models with their ceteris paribus assumptions about institutions” (pp.37-38). In their analysis, governments with effective coercive power will be the preferred vehicle for institutional innovations where governments are well developed but markets are not, where external benefits are large but property rights are dispersed, where benefits are substantial but indivisible, and where benefits are not increased and the goal is redistribution. The costs of using government to appropriate others’ wealth and income depends on the numbers and heterogeneity of the persons organized, the feasibility of excluding outsiders from benefiting, the complexity of political coalitions, the rules of the political game, and the character of electoral suffrage.

Chapter 3 specifies the dynamics of the model in the context of American history. The authors seek to predict both the institutional “level” of change and the time lag from first perception of profit opportunity to institutional innovation: New institutional arrangements will be innovated where profit or income opportunities appear that require institutional changes or where cost reductions can be achieved with new business forms or political moves redistributing income. Among many influences changing the benefits and costs of institutional innovations are changes in market size, technical change, changes in income expectations, organizational changes in closely related activities, cost reductions associated with government-financed information or reductions in risk, and political changes altering voting or property rights. All these except political changes have parallels in neoclassical theories of technical change. However, “to do no more than assert a relationship between income changes and arrangemental innovation is hardly a significant step; . . . it is our intention to offer a theory that helps predict (or explain) the emergence of these new or mutated arrangements. In particular, the theory predicts the level (individual, voluntary cooperative, or governmental) of the new institutional arrangement and the length of time that passes between the recognition of the potential profit and the emergence of the new arrangement” (p. 39).

The core of chapter 3 divides the causes of varying lags between the perception of an innovation and its successful emergence into four steps: perception and organization, invention, menu selection, and start-up time. (i) The time lag between perceived profit and the organization of a “primary action group” depends on how much profits there are and their certainty. (ii) Where no suitable options are immediately available, time is required for invention. (iii) Where options are available, time is required to search out and select the most profitable ones. (iv) The start-up time for the innovation will vary with the “level” of institutional change, that is, according to whether it is an individual arrangement (shortest lag), a voluntary cooperative one (a longer lag because of more complex arrangements), or a governmental innovation (a still longer lag because political organization is required).

The final chapter of Part I on the theory deals with the exogenous institutional environment, and thus the initial conditions in Davis and North’s model of institutional change. Chapter 4 sketches substantial historical changes in the institutional environment: the rules governing the extent and weighting of voting rights, the legal basis for private property, and “the expectational weights that the community chooses to apply to the future costs and revenues of particular arrangemental innovations — weights that are the product of experience triggered by events exogenous to the model” (p.65). Important sources of change in these three aspects of economic life are (i) the Constitution and its interpretation by the courts, (ii) the common law, and (iii) “the external changes in the political and economic life of the nation that affect the people’s attitudes toward government” (p. 65). A lively sketch of dramatic historical changes and fluctuations over 175 years in each of these categories follows.

Part II consists of six historical chapters in which Davis and North apply their model of institutional change to American economic history by telling vivid stories of changes in land policies, financial institutions, transportation, market structure in manufacturing, the organization of the service industry, and labor market changes affecting unions and education. These stories illustrate well the explanatory potential of their model by describing the history of business and labor responses to changing profit and income opportunities through the adoption of new institutions or adaptations of old ones. No attempt is made here to evaluate these stories since this reviewer has no specialized expertise in American economic history. Of necessity given space constraints, they are selective and reflect the specialties of the authors, as they themselves carefully state in the introduction to the book.

The great strength of the neoclassical theory of institutional change is that it yields an insightful and plausible “explanation” of a wide range of institutional changes over time in individual market economies where the private profit motive is strong and neoclassical-type market supply responses are already widespread. An enormous volume of literature has developed in response to the work of Douglass North and his colleagues. North himself has been an outstanding leader in the expansion of the scope of applications of neoclassical institutional theory.

The limitations of the theory are most evident in the study of cross-country differences in institutional responses to the challenges of opportunities for profit and higher incomes. The new economic theory of institutional change is a variant of historical challenge and response theories, all of which suffer from a similar problem. To quote Nathan Rosenberg’s discussion of David Landes’s Unbound Prometheus (1969), “the industrial world is full of ‘challenges’ and always has been. Why do some challenges in some places at certain times generate successful responses and at other times do not?” (1971, p. 498). Telling historical stories consistent ex post with theories of institutional change does not address the questions raised by many historical instances when profitable opportunities for institutional change did not bring forth historical responses that helped accelerate economic growth. Constrained by its focus on market opportunities and responses, the neoclassical institutional theory poorly accommodates institutional changes driven by nationalist, religious, or imperialist motives so intense as to sacrifice economic gain. Also, the theory accommodates poorly historical country-specific institutional developments that are the outcome of chance and strong path dependency such as are evident in historical patterns of private land acquisitions or foreign domination in some developing countries.

The limitations to the excellent work of North and his collaborators are noted here as a warning that no one theory handles well the diversity of comparative historical experience. Casual empiricism is the usual practice in delimiting the countries and periods to which each theory applies. Because of this, the entire literature on institutional change is particularly weak on the diverse consequences of similar economic, demographic, and technological changes in different institutional settings. We all need to delimit more effectively the domains to which familiar models apply (Morris and Adelman, 1988, p. 32).


David S. Landes. 1969. The Unbound Prometheus: Technological Change and Industrial Development in Western Europe from 1750 to the Present. Cambridge: Cambridge University Press.

Cynthia Taft Morris and Irma Adelman. 1988. Comparative Patterns of Economic Development, 1850-1914. Baltimore: Johns Hopkins University Press.

Douglass C. North and Robert Paul Thomas. 1973. The Rise of the Western World: A New Economic History. Cambridge: Cambridge University Press.

Douglass C. North and Barry Weingast. 1989. “Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England,” Journal of Economic History, 49 (December): 803-832.

Nathan Rosenberg. 1971. “Review of the Unbound Prometheus,” Journal of Economic History, 31 (June): 497-500.

Cynthia Taft Morris is distinguished economist in residence, American University and Charles N. Clark Emeritus Professor of Economics, Smith College. She is past president of the Economic History Association.


Subject(s):Markets and Institutions
Geographic Area(s):North America
Time Period(s):General or Comparative

Risk and the Insurance Business in History

Editor(s):Pons, Jerònia
Pearson, Robin
Reviewer(s):Kingston, Chris

Published by EH.Net (May 2021)

Jerònia Pons and Robin Pearson, editors, Risk and the Insurance Business in History. Madrid: Fundación Mapfre, 2020. 290 pp. ISBN: 978-84-9844-753-8.

Reviewed for EH.Net by Chris Kingston, Department of Economics, Amherst College.


The history of insurance, as many authors have noted, has been relatively neglected by historians, including economic historians; but in recent years, with a steady growth of interest from scholars across a range of disciplines, the field has been expanding in geographic, historical and methodological scope.

In June 2019, two leading pioneers in the field, Jerònia Pons (University of Seville) and Robin Pearson (University of Hull) organized an international conference on “Risk and the Insurance Business in History” at the University of Seville. The conference brought together scholars of insurance and risk from a wide variety of academic and professional perspectives, with the explicit goal of creating a forum to encourage interdisciplinary dialogue. For insurance scholars, as this reviewer can attest, it was a rare and valuable opportunity to network, and a remarkably fertile, stimulating and enjoyable gathering. Hats off.

This collection of nine papers presented at the conference, edited by Pons and Pearson, is published with the support of the Mapfre Foundation, which also supported the conference itself. In a valuable and wide-ranging introduction, the editors weave together some of the disparate strands of the fragmented literatures on risk and insurance. Their survey takes in cultural theorists’ studies of how perceptions of risk, liability, and insurance vary across cultures; behavioral economists’ studies of the psychological anomalies that arise in decision-making under uncertainty; and sociologists and legal scholars’ approach to the insurance industry as a source of a kind of governance over risk-taking behavior among the insured. They also emphasize the omnipresent role of “the state” in multiple roles: as a provider of various kinds of insurance, as a source of risk through warfare, and as a fount of regulation that has the potential to constrain or encourage the development of insurance markets, organizations, and practices. The overarching point is to underscore the editors’ motivation for organizing the Seville conference: the diversity of approaches to the study of risk and insurance in history, and their belief in the potential for beneficial collaboration and cross-pollination.

While the quality of the contributions varies, and some might have benefited from more intensive editing, there are several very valuable papers in this collection that stretch the boundaries of the discipline and deserve to be widely read by those interested in insurance history and related fields.

Timothy Alborn tells the fascinating tale of how nineteenth-century British life insurers wrestled with the question of how to insure the lives of missionaries, soldiers and Victorian adventurers as they ventured to remote and frequently pestilential corners of the world and the Empire — areas about which the companies had only very scattered and incomplete information. These companies also made hesitant and frequently racially prejudiced forays into the business of insuring non-white colonial subjects of the Empire, even as it gradually became clear that the “civilized” locals often experienced better health and lower mortality in their native climes than did their European expatriate masters. In contrast, for the late nineteenth century American insurers whose efforts to expand into Latin America are adroitly described by Sharon Ann Murphy, the whole point was to insure the locals. Their efforts were however hampered by agency problems, ultimately collapsing as they abandoned the field to emergent domestic firms in the face of restrictive legislation, political uncertainty, and scandal.

Leonardo Caruana de las Cagigas and André Straus survey the legal development and the increasing role of state regulation of the insurance industry in France and Spain from the late eighteenth to the early twentieth century, as new forms of insurance and organizational innovations emerged. Development in Spain generally lagged behind France, enabling Spanish companies and regulators to take advantage of the lessons learned elsewhere, but divergent political histories ensured that paths of development remained distinct. Christofer Stadlin contrasts the development of employer accident and liability insurance as it was shaped by the regulatory environments in Germany and France in the late nineteenth century up until World War I, as seen through the eyes of the Zurich Insurance Company which was active in both markets.

José García-Ruiz presents a company history of the “bancassurance” relationship between the Spanish Banesto bank and Luyefe, Spain’s leading insurance company for much of the twentieth century, as the closely connected firms navigated a turbulent political landscape and ventured into new areas of business. Mikael Lönnborg, Peter Hedberg and Lars Karlsson describe how the Swedish insurance law of 1948 deliberately favored larger firms under the belief that the industry would become more efficient through economies of scale. Yet the resulting increase in concentration in the Swedish insurance industry failed to yield the hoped-for improvements in consumer welfare.

Other chapters consider the South African regulatory response to the 2008 global financial crisis (Greitjie Verhoef); the evolution of the legal and regulatory framework underpinning the development of fire insurance in nineteenth-century Canada, influenced by both French, British and American precedents (David Gilles and Sébastien Lanctôt); and how the valuation of American insurance companies’ assets was fudged, with the approval of the authorities, to enable them to satisfy solvency requirements during the financial crisis of the early 1930s (Luca Froelicher).

With such a wide breadth in focus, scope, and methodology, it is debatable whether this collection amounts to more than the sum of its parts. Pearson and Pons, seeking for a unifying theme in their introductory essay, draw attention to the congruence in time periods (most contributions deal with the nineteenth and early twentieth centuries) and to the influence of state regulation on decision-making by insurance companies; and certainly “the state,” in one way or another, looms large in all of these pieces, as it must in any study of modern insurance. The real significance of the volume is as a milestone for a field of study that is progressing vigorously, and that holds the promise of important and potentially fruitful interdisciplinary research questions that have barely begun to be explored. In this regard at least, the vision of the conference organizers, the editors of this volume, is fully vindicated.


Chris Kingston is the Richard S. Volpert ’56 Professor of Economics at Amherst College. He has published several papers on the history of marine insurance in eighteenth-century Britain and America and is working on a book provisionally entitled In Peril on the Sea: Institutional Change in Marine Insurance, 1720-1844.

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

Subject(s):Business History
Geographic Area(s):General, International, or Comparative
Time Period(s):19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII

Bankrupt in America: A History of Debtors, Their Creditors and the Law in the Twentieth Century

Author(s):Hansen, Mary Eschelbach
Hansen, Bradley A.
Reviewer(s):Rodgers, Mary Tone

Published by EH.Net (June 2020)

Mary Eschelbach Hansen and Bradley A. Hansen, Bankrupt in America: A History of Debtors, Their Creditors and the Law in the Twentieth Century. Chicago: University of Chicago Press, 2020. vii + 222 pp. $55 (cloth), ISBN: 978-0-226-67956-3.

Reviewed for EH.Net by Mary Tone Rodgers, Center for Finance and Risk Management, State University of New York at Oswego


As this review is being written and as we progress from the initial shock of the COVID-19 pandemic to a phase in which personal bankruptcy filings have begun to soar, it is opportune that Bankrupt in America has been released. It provides a century-long perspective from which to understand present day events and it explains why bankruptcy rates rise and fall over time.

The authors succeed at justifying their argument that the primary driver of American consumer bankruptcy rate over the past century has been the increased supply of consumer credit by mustering two complementary approaches to economic research, statistical and documentary. They convincingly explain spurts and lulls in the bankruptcy rate as functions of the supply of consumer credit and other economic conditions, that have been amplified by changes in the law or in states’ collection methods through their identification of interactive regression variables with multiplicative effects, rather than relying on standard regression variables with only additive effects. With that groundbreaking result, Mary Hansen and Bradley Hansen reconcile the decades-long puzzle surrounding the findings of two opposing camps of bankruptcy researchers, one group finding explanations from credit supply and economic variables contrasted with the other group finding explanations from variables related to laws and collection methods. Without Hansen and Hansen’s work, the contradiction in findings between the two groups might not have been resolved.

Before turning to other important contributions this book makes, a review of the chapter content and of the data sources is in order. After an Introductory chapter, the next five are structured as a chronology of bankruptcy rates and laws from 1898 to 2005, bookended by the introduction of the 1898 Act to Establish a Uniform System of Bankruptcy, the first enduring federal bankruptcy law, and by the more recent 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). A seventh chapter offers Conclusions and an Epilogue. Each chapter starts with a concise, vividly written vignette about a consumer making the choice to use the bankruptcy law. Then an analysis follows of how the bankruptcy rate in the time period covered by the chapter was affected by social, economic and legal variables. Finally, each chapter ends with a detailed appendix of the statistical analysis of those three types of variables. Hansen and Hansen uncover four facts about bankruptcy rates: it was once rare, but now it is common; most early users of bankruptcy law were businesses, but now are consumers; the bankruptcy rate varies dramatically between places; and growth in bankruptcy has not been steady.

Extensive primary and secondary data sources are used to cover over one hundred years of history, but the most striking data sets are the ones created by the authors with their teams of assistants and co-authors: 1) United States District Court Boundary Shapefiles (1900-2000) and 2) United States Bankruptcy Statistics by District, 1899-2007. The data to construct the bankruptcy rate are sourced from Department of Justice and the Administrative Office of the U.S. Courts and from population count data. The data about individual bankruptcy cases are taken from a sample of personal bankruptcies in Missouri (1898-1945 from the Eastern and Western Districts of Federal Court of Missouri) and in Maryland (1940-2000 from the Maryland District Court at Baltimore). The Missouri and Maryland data are part of an effort by the authors to construct a nationally representative sample of case files for the entire twentieth century. Both the digitized data and the authors’ codebooks are archived at the Inter-university Consortium for Political and Social Research.

By framing the analysis over such a long span of history, the authors make contributions to scholarship that authors who study a shorter time span cannot make. Without such a long time span, the authors could not confidently conclude that path-dependency provides the best explanation for the development of bankruptcy in America. They note the non-economic factors that helped shape the law at critical junctures, specifically the roles played by Jay Torrey in the 1890’s, Walter Chandler in the 1930’s and Leonor Sullivan in the 1960’s. Previous law and how people were using it influenced the people who made changes to the law, meaning a path-dependent process was underway. Researchers with a shorter time frame of investigation could miss the outsized influence played by a few individuals who changed the path of bankruptcy law.

A second benefit of framing the analysis over such a long period of time is that the authors observe that the competing social narratives around bankruptcy have remained essentially the same for a century, pitting the pro-creditor story of how discharge provisions in bankruptcy law encourage opportunistic consumer default against the pro-debtor story of how predatory lenders harshly garnish defaulting consumers’ wages. The authors’ insight is that the alternating success of each narrative lies in the belief system of the audience to whom it has been pitched, not in an evolution of the narratives: when Republicans held power, the pro-creditor narrative succeeded in changing the law (the Original Act of 1898), but when Democrats held power, the pro-debtor narrative won the day (Bankruptcy Reform Act of 1978).

The economic historian will likely find the explication and application of the complementary methods of cliometric analysis and new institutional analysis refreshing in Chapter One. While the authors argue that path dependency explains the course of much institutional change in the history of bankruptcy, they go a step further and identify the precise source of path dependence by complementary cliometric analysis: bankruptcy rates are most thoroughly explained when overlays of the effects of institutional change amplify the underlying effect of increases in the supply of credit.

My favorite line of the book, “[this is] how we do history,” (p. 13), may also resonate with other economic and financial historians. When Hansen and Hansen acknowledge they have their own way of “doing history,” they imply that there is more than one way of doing it! As researchers, we each find the blend of research methods best suited to address each research question, knowing the blend can evolve over time.

As COVID-19 alters economic and financial conditions, this book prepares us to anticipate emergence of the century-old tug-of-war between the pro-creditor and pro-lender narratives. The authors alert us that it may be the predisposition of the politicians in power to believe one of the narratives that could carry the day regarding changes to the bankruptcy laws related to COVID-19, should any be made.


Mary Tone Rodgers, D.PS, CFA, is the Marcia Belmar Willock Professor of Finance and Director of the Gordon Lenz Center for Finance and Risk Management at the State University of New York at Oswego. She has published several articles in financial history, including “Post-financial Crisis Changes in Financial System Structure: An Examination of the JP Morgan & Co. Syndicates after the 1907 Panic” (with James E. Payne) in Review of Financial Economics (2020). She continues to research J. Pierpont Morgan’s role as lender of last resort in the pre-Federal Reserve period with Jon R. Moen.

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

Subject(s):Financial Markets, Financial Institutions, and Monetary History
Government, Law and Regulation, Public Finance
Markets and Institutions
Geographic Area(s):North America
Time Period(s):19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII

Islam, Authoritarianism, and Underdevelopment: A Global and Historical Comparison

Author(s):Kuru, Ahmet T.
Reviewer(s):Rubin, Jared

Published by EH.Net (May 2020)

Ahmet T. Kuru, Islam, Authoritarianism, and Underdevelopment: A Global and Historical Comparison. New York: Cambridge University Press, 2019. xvii + 303 pp. $35 (paperback), ISBN: 978-1-108-40947-6.

Reviewed for EH.Net by Jared Rubin, Department of Economics, Chapman University.


For centuries following the spread of Islam, the Islamic world was far ahead of Western Christendom by every conceivable metric of civilization: economy, science, philosophy, technology, urbanization, and empire. Yet, the Islamic world is not where the modern economy was born. At some point in the late medieval or early modern period, it fell behind the leading parts of Europe. It was in those places, particularly the Netherlands and Great Britain, where modern economic development began. Why was this the case? Why did the Islamic world lose its once sizable lead over Western Europe?

These are the questions tackled by Ahmet Kuru in Islam, Authoritarianism, and Underdevelopment: A Global and Historical Comparison. Kuru’s primary thesis is that the Middle East fell behind as a result of the “ulema (religious jurist)-state alliance” that took hold in many parts of the Muslim world beginning in the eleventh century. By this, Kuru means an alliance between the religious establishment on the one hand and the military state on the other. According to Kuru, this alliance marginalized intellectuals and bourgeoisie, and this persisted in most parts of the Islamic world until the twentieth century. Importantly, and correctly in my opinion, Kuru argues that this alliance is not a natural outgrowth of Islam, as was long argued by Orientalist scholars and more recently by Bernard Lewis. Kuru argues that this alliance emerged for the first time in the eleventh century and quickly became institutionalized via the madrasa system.

Much of the first half of the book is spent attempting to convince the reader that politics, science, and technology in the first few centuries after Islam were fundamentally different than what would follow after the eleventh century. This is uncontroversial, and Kuru does an excellent job summarizing the major developments from the period. On this front, Kuru is the best recent book I can think of in social science. He delves into the early history of Islamic science, mathematics, and philosophy, spanning most of the Islamic world from Spain to south Asia. Most readers knowledgeable in history will not come away convinced of something new — it is widely known that the Islamic world was well ahead of Western Europe (and perhaps the rest of the world) during Islam’s “Golden Age.” However, most readers will come away with much more insight into exactly what made the Islamic world so cutting-edge in this period.

Kuru proceeds to ask why the Islamic world fell behind. He posits that the “ulema-state” alliance that emerged in the eleventh century is to blame. This alliance emerged in the Seljuk Empire, which ruled large parts of the Middle East and Central Asia in the eleventh and twelfth centuries. It spread west from there, to the weakened Abbasid Empire and eventually toward Egypt and Syria under the Ayyubids and Mamluks. An important institution supporting the fiscal needs of these states was the iqta system (a militarized tax farming arrangement similar to the timar system used under the Ottomans), which gave the state financial independence and permitted the marginalization of the bourgeoisie. To make such a sea-change in the institutions of the state, the Seljuk model promoted the idea of religious legitimation of rule. And an institutional sea-change it was. Prior to the emergence of the ulema-state alliance, Islamic philosophy was vibrant and merchants had political power (mainly via their funding of ulema and philosophers). This changed with the movement towards the ulema-state alliance and the rise of madrasas. With a new source of legitimacy, rulers could afford to ignore the wealthy merchants who had previously been a central source of power. Philosophy also declined in favor of theology. Importantly, for Kuru, this meant that intellectuals were mostly sidelined, although Kuru goes to great lengths to show that intellectual activity merely slowed down; it did not stop altogether. This meant that there was little voice to counteract the ulema and Sufi mystics, neither of whom promoted rational thought. This arrangement was institutionalized through the madrasa system: “the ulema class had dozens, if not hundreds, of madrasas and thousands of members to disseminate its ideas, whereas the philosophers lacked institutional and financial bases except for arbitrary political patronage, particularly after the weakening of the merchant class, which had previously supported both philosophers and independent Islamic scholars” (p. 149). Even today, “the ulema have contributed to the weakening of [intellectuals and the bourgeoisie] by imposing certain religious restrictions that discourage conservative Muslim youth from pursuing careers in intellectual and financial sectors” (p. 60). These prohibitions required state support, which the ulema had as part of the ulema-state alliance. Kuru contrasts this with Europe, where the Renaissance and Enlightenment propelled philosophy, science, and ultimately economic development. He argues that this was where the economic divergence had its roots: the intellectual and mercantile classes of Europe gained greater power over time, while it was the religious clerics of Islam who maintained their grip on political (and, to a lesser extent, economic) power.

There are many things to like about Islam, Authoritarianism, and Underdevelopment. Perhaps above all, Kuru addresses head on the question “why did the Islamic world fall behind, despite being ahead for so long?” While such a question might not be controversial in some circles, particularly in the social sciences, much of Kuru’s audience does not consider this a correct question to ask. I certainly agree with Kuru that this is an important question, and understanding its answer helps us understand much about long-run economic development, both in the Islamic world and beyond. Kuru does an excellent job showing that a reversal of fortunes did indeed happen, and it was not just the result of colonization. Moreover, Kuru’s deep dive into early Islamic philosophy and science is admirable, and I believe most readers will learn a considerable amount from the first half of the book. Another one of the great strengths of Kuru’s tome is the documentation of the ulema-state alliance — both its origins and persistence. Such detailed documentation is largely missing in social science accounts of Islamic political history.

I believe that Kuru’s central thesis — the ultimate cause of the economic divergence was the emergence of an ulema-state alliance — is largely correct. Indeed, it strongly echoes the thesis I recently put forward in my 2017 book, Rulers, Religion, and Riches. This said, I believe there are three aspects to the book that could have been strengthened. Before I get to these, I would like to reiterate that there are indeed many good features to this book, and these positives well outweigh any drawbacks.

First, Kuru is a bit too quick to dismiss alternative explanations. He begins with the supposition that any explanation that cannot account for the initial economic lead of the Islamic world has limited explanatory power. This is undoubtedly true. He also correctly points out that while explanations focusing on colonialism make valid points regarding the detrimental effects of colonialism, they have a difficult time explaining the roots of the divergence, particularly because the timing is off. This said, Kuru is somewhat quick to dismiss works by Greif (2006), Kuran (2011), Blaydes and Chaney (2013), and Rubin (2017). These dismissals tend to take the tone of “there are counterexamples to one aspect of the argument” or “they cannot account for most of the observed phenomena” and thus should be dismissed (with the exception of Kuran, whose argument Kuru is not so negative on). But this is too high of a bar for arguments that attempt to explain major, macroeconomic movements over centuries. There will always be counterexamples (this is Kuru’s major argument against Greif; it is also used to counter Rubin). Arguments do not need to explain everything to provide deep insight (this is Kuru’s major argument against Blaydes and Chaney which, after all, is a nineteen-page article). In fact, if one were to hold Kuru’s argument to the standard he holds other arguments, it would also fail. But I do not believe this to be the case; I believe Kuru’s argument provides nice insight. Kuru’s argument would have been significantly strengthened had he focused on how these various arguments complement each other.

Perhaps this is a methodological issue. The works that Kuru dismisses are either empirical or support their theory via analytic narrative. Kuru’s work, meanwhile, is more of a narrative. The key distinction between narrative and analytic narrative is that the latter lays out the supporting evidence (in this case, historical evidence) within an analytical framework. Such a framework provides falsifiable predictions, and the analytic narrative provides evidence in support of these predictions. Kuru’s book does not do this. Its second shortcoming is that there is no real framework provided for understanding why the ulema-state alliance persisted for so long. In the words of economics, why was this an equilibrium? Kuru provides wonderful evidence that it existed and persisted, but why did it? Why did alternatives not arise? These are key questions to address for a book aiming to achieve a convincing causal explanation. On this front, the book is largely silent.

On this, I admit to being biased: understanding why this equilibrium occurred and why it persisted is central to my own book. On the one hand, Kuru is very good at showing this was not always an equilibrium in the Islamic world (my terminology, not his): for centuries following the spread of Islam, the alliance was weak at best, and merchants were not marginalized. Kuru and I agree on this point (although he does not believe so, as he incorrectly claims that I argue the alliance existed from the inception of Islam; we have some disagreement on details, but my views are largely aligned with his that this alliance emerged sometime around the tenth or eleventh century, after the religious establishment consolidated along with the four major schools of Sunni Islam). On the other hand, it is unclear from Kuru’s theory why this arrangement persisted for so long. A comparison to Europe makes this issue all the more apparent. As Kuru notes, such a cleric-state alliance also pervaded medieval Europe at certain times and places. What were the mechanisms that broke Europe out of this equilibrium? Kuru claims that the rise of the intellectuals, helped by universities and, eventually, the spread of printing facilitated the rise of Europe. But this is not enough. These events were not exogenous. They were part of a larger process through which religion became less important over time in European politics.

Finally, despite the fact that the book’s subtitle is “A Global and Historical Comparison,” this is not really a global theory. Almost nowhere outside of the Islamic world and Western Europe is mentioned in depth. And where Kuru attempts to explain the rise of Western Europe, there is much left wanting. As I read it, Kuru places significant weight on the rise of the European intellectual class (along with merchants) in the late medieval and early modern periods. While it is undoubtedly true that this class superseded its Islamic counterparts by the eve of industrialization, it is big leap to connect this to the rise of the modern economy, as well as why its locus was in northwestern Europe and not elsewhere. Kuru does (correctly) mention the importance of the printing revolution, Reformation, geographical discoveries, and the scientific revolution, but his emphasis remains on the role of intellectuals in making these events happen. This is not necessarily wrong — Joel Mokyr (2010, 2016) convincingly makes the case for an “Enlightened Economy” being central to England’s rise. But Mokyr’s argument is based on England in particular having numerous other, complementary factors such as a large base of highly-skilled workers. Nothing like this comes through in Kuru’s argument. In short, while Kuru’s argument regarding economic stagnation in the Islamic world is a deep one that is a real contribution to the literature, the arguments regarding the rise of Europe are less fleshed out.

If the latter half of this review seems negative, I urge you not to take that as indicative of my overall feelings towards Islam, Authoritarianism, and Underdevelopment. I believe it is the duty of any reviewer to highlight both their perceived positives and negatives in the book they are reviewing, and this is what I have attempted to do. In this case, I believe the positives well outweigh the negatives, and anyone interested in early Islamic history will get much from reading this book. The detailed history of early Islamic philosophy, science, and mathematics are a real treat to read, and are a great reminder that societies and economies ebb and flow.


Blaydes, Lisa and Eric Chaney. 2013. “The Feudal Revolution and Europe’s Rise: Political Divergence of the Christian West and the Muslim World before 1500 CE.” American Political Science Review 107(1): 16-34.

Greif, Avner. 2006. Institutions and the Path to the Modern Economy: Lessons from Medieval Trade. New York: Cambridge University Press.

Kuran, Timur. 2011. The Long Divergence: How Islamic Law Held Back the Middle East. Princeton: Princeton University Press.

Mokyr, Joel. 2010. The Enlightened Economy an Economic History of Britain, 1700-1850. New Haven, CT: Yale University Press.

Mokyr, Joel. 2016. A Culture of Growth: The Origins of the Modern Economy. Princeton, NJ: Princeton University Press.

Rubin, Jared. 2017. Rulers, Religion, and Riches: Why the West Got Rich and the Middle East Did Not. New York: Cambridge University Press.

Jared Rubin is a professor of economics at Chapman University. His most recent book, Rulers, Religion, and Riches: Why the West Got Rich and the Middle East Did Not, was published by Cambridge University Press in 2017.


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Subject(s):Economic Development, Growth, and Aggregate Productivity
Economywide Country Studies and Comparative History
Geographic Area(s):Middle East
Time Period(s):Medieval

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).

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

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

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

Published by EH.Net (March 2020)

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

The Train and the Telegraph: A Revisionist History

Author(s):Schwantes, Benjamin Sidney Michael
Reviewer(s):Nonnenmacher, Tomas

Published by EH.Net (December 2019)

Benjamin Sidney Michael Schwantes, The Train and the Telegraph: A Revisionist History. Baltimore: Johns Hopkins University Press, 2019. xix + 199 pp. $55 (hardcover), ISBN: 978-1-4214-2974-8.

Reviewed for EH.Net by Tomas Nonnenmacher, Department of Economics, Allegheny College.

In John Gast’s painting, American Progress (1872), the figure Columbia serenely floats westward between early settlers and a railroad, while Native Americans and wild animals retreat from the progress she represents. In her hands she holds a schoolbook and a telegraph wire, the latter being strung along the railroad tracks as she advances. This image conveys a perfect complementarity between the railroad and the telegraph, the technological forces connecting the nation and driving manifest destiny.

Benjamin Sidney Michael Schwantes (Whiting School of Engineering, Johns Hopkins University) provides a “revisionist history” of the narrative of an easy marriage between the railroad and the telegraph by highlighting the great variability in the use of the telegraph by railroad managers over both time and place. For technological and organizational reasons, railroad managers were hesitant adopters of the telegraph for the purposes of dispatching trains. Many managers held on to older systems of dispatch long after the telegraph was a viable alternative. Some managers went so far as to advertise aversion to using the telegraph; “No Trains Run by Telegraph” was the text on one such advertisement in the mid-1860s.

Chapters One through Three cover the development of the railroad and telegraph chronologically, roughly covering a decade each from 1840 through 1870. Schwantes compares the evolution of the industries in the United States and the United Kingdom. After an early failed attempt by Samuel Morse to sell the telegraph to the U.S. Post Office, the telegraph needed the railroad much more than the railroad needed the telegraph. Building telegraph lines across open country or even along roads was an expensive proposition. Railroad rights of way offered a much easier means to build and maintain a telegraph line. Railroad managers saw the telegraph as unreliable at best and dangerous at worst.

William Cooke and Charles Wheatstone, the British telegraph entrepreneurs, targeted railroads early in the development of their system. Cooke published pamphlets extolling the virtues of railroad telegraphy in 1838 and 1842. Because British rail lines were more densely used, managers there experimented with dispatching trains with the aid of the telegraph in the early 1840s. This British system evolved into a block signaling system, in which only one train was allowed to travel within a block of track at a time. This system was costly and could only be used on the most densely traversed lines. With lower volumes than their British counterparts, American managers used schedules and rule-based practices to dispatch trains.

By 1851, two major American railroads, the New York & Erie and the Pennsylvania, began experimenting with the telegraph to manage operations. While these experiments are often cited as the beginning of the use of the telegraph by the railroads, they were only the beginning. Schwantes points out that some of the larger trunk and busier local lines used the telegraph at the beginning of the Civil War, but only as a supplement to managing trains with rules and timetables. The Civil War changed this dynamic. Private and military rail lines increasingly used the telegraph to deal with the large increase in traffic and the subsequent congestion on the lines.

Chapters Four through Six are organized thematically and cover the railroad’s use of the telegraph after the Civil War. The adoption of the telegraph by railroads continued, but at a slow and irregular pace. The “American system” of train dispatching was a hybrid of schedules, rules, and telegraphs. Switching to the costly block method of train dispatching used in Britain was not a financially viable option for many railroads. The relationship between Western Union and the railroads complicated matters further. Western Union controlled by contract many of the rights of way along rail lines. Railroads became unwilling pawns in the battle for control of the telegraph system between Western Union and Jay Gould. Gould strung together two competing systems with the help of railroads that hoped to break the power of Western Union. In both cases, however, Gould sold out to Western Union, ultimately gaining control of the company.

As part of the contract between railroads and Western Union, telegraphers employed by the railroads not only sent the business of the railroad, but also sent Western Union messages and acted as station postmasters. Schwantes argues that the multitude of roles caused these workers to burn out quickly, particularly on busy lines in which they had the high-stress job of tracking and coordinating the movement of many trains over the course of a day. These telegraphers formed the Order of Railroad Telegraphers (ORT) to represent their interests to the railroads. Membership in this order reached 9,000 by 1890 and 37,000 by 1907. The ORT lobbied Congress for a law that would regulate their working conditions. These efforts culminated in the Hours of Service Act of 1907, which limited the hours that railroad telegraphers and dispatchers could work to nine hours in a twenty-four hour period. While a victory for labor, the Act led railroads to experiment with use of telephone dispatching, which did not require special telegraph training. By the beginning of World War I, many of the busier lines had switched to telephone dispatching. In an unsurprising parallel to the reticence of some managers to adopt the telegraph over schedule and rule based systems, some managers resisted adopting the telephone and maintained their use of the telegraph.

There are many directions in which this book could be expanded. Chapter Four on “The American System,” for example, is chock-full of interesting insights on the spread of the telegraph, railroad accidents, and the relationship between Western Union and the railroads. But it is unclear precisely how quickly and where the American system spread and was used. While it seems clear that block signaling was superior to the American system, relative safety statistics are scant. And the relationship between Western Union and the railroads could supply a book’s worth of insights. These are inevitable quibbles with a book of this length and do not diminish its well-crafted story.

In summary, this is a short, well-researched, and very readable overview of the relationship between trains and telegraphs in the United States. It overturns a narrative of a seamless complementarity between the two, highlighting the endless tensions and great variability in usage.

Tomas Nonnenmacher is a Professor of Economics at Allegheny College in Meadville, PA. He is coauthor of Institutional and Organizational Analysis: Concepts and Applications, with Eric Alston, Lee Alston and Bernardo Mueller.

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Subject(s):Business History
History of Technology, including Technological Change
Transport and Distribution, Energy, and Other Services
Geographic Area(s):Europe
North America
Time Period(s):19th Century

The Evolution of Central Banking: Theory and History

Author(s):Ugolini, Stefano
Reviewer(s):Siklos, Pierre

Published by EH.Net (November 2019)

Stefano Ugolini, The Evolution of Central Banking: Theory and History. London: Palgrave Macmillan, 2017. xiii + 330 pp. €135 (hardcover), ISBN: 978-1-137-48524-3.

Reviewed for EH.Net by Pierre Siklos, Department of Economics, Wilfrid Laurier University.

The so-called Global Financial Crisis raised the profile of central banks around the world. While books about central banks were, of course, published prior to the events of 2008-2009, none captured the attention of the wider public until the monetary authorities intervened on a massive scale and continue to do so well over a decade since the near collapse of the global financial system. A new set of books emerged, with titles like The Only Game in Town, or After the Music Stopped, which used a chronological approach to describe what central banks did as well as contemplating the implications of the shift from conventional to unconventional monetary policies. The approach of these books is largely descriptive and the analysis is largely rooted in depicting the evolution of central banking activities in select countries over time.

Stefano Ugolini, an Assistant Professor at the University of Toulouse, argues that this strategy, termed the institutionalist approach by the author, is not satisfactory. Instead, he proposes a functional approach to the analysis of the evolution of central banking. Four functions of central banking are explored. They are: the payments system, the lender of last resort and supervision, the issuance of money, and monetary policy. The author claims that one need not rank order these functions, though the number of pages devoted to the payments system and the lender of last resort functions suggest that these may perhaps be relatively more important to the author than the remaining two functions.

The discussion blends a history of events that reflect the growing importance of central banks in the global economy together with the history of thought about the balance between public and private roles in carrying out central banking functions. As a result, private banks and their connection with monetary authorities play an important role in the depiction of the evolution of central banking. For example, we see how the emergence of clearinghouses led to the creation of “conventional” central banks via the centralization of this function at the public level. Hence, this function is treated as a “natural monopoly.” The same is true of the evolution of many of the other functions examined. Nevertheless, the author is careful to highlight how in some countries, such as the United States, the tension between a role for government versus a preference for a strong role by the private sector in carrying out certain financial functions can explain certain cross-country differences in how central banks evolved when viewed through the lens of the functional approach. It may also be noted in passing that the experiences of Venice and Naples figure prominently in the discussion.

Ugolini has written a compact history of the critical functions of central banks emphasizing how the forces of centralization spurred or prevented financial innovations. The approach taken is a fresh one and will be useful, especially to scholars who are interested in specific areas where central banks have played an important role in economic development over time. That said, does the book provide new insights into central banks and their functions? This is debatable. For example, while financial stability is often mentioned it is not treated as a separate function. This is a shame in light of the ongoing debate about whether central banks are possibly over-burdened with responsibilities. It is also relevant for the question of the degree of centralization of the various functions considered at the level of a single institution. Stated differently, greater emphasis by the author on governance matters might have helped.

Ugolini concludes as follows: “central banking is deeply rooted in the economic and political context in which it happens to operate, and that the evolution of the former closely depends on the evolution of the latter” (p. 271). Readers of “institutionalist” style books of central banking would have reached the same conclusions. Hopefully, this is welcome as it means that the functional and institutional approaches yield similar results but this also means that no fundamentally new insights about the evolution of central banking are generated.

Three other elements about the functional approach adopted by Ugolini are also worth mentioning. First, the discussion is overwhelmingly centered on the European, British, and American experiences. The book is silent about how central banking functions evolved in Canada, Asia, or Australasia. Second, the chapter on the issuance of money does not discuss how history, or the history of thought, might inform the current debate about the digitization of money. Finally, the discussion of the monetary policy function glosses over the evolution of policy regimes, such as exchange rate or inflation targeting, preferring instead to focus on its role as a means of regulating and taxing the public to ensure something called monetary stability. Unfortunately, the latter expression is never sufficiently clearly explained. Nevertheless, Ugolini is correct to underscore the importance of examining how monetary and fiscal policy interact. After all, this is an issue that is very much at the center of the debate about the future of central banking.

Pierre Siklos is Professor of Economics at Wilfrid Laurier University and the Balsillie School of International Affairs. His latest books on central banking are Central Banks into the Breach: From Triumph to Crisis and the Road Ahead and The Economics of Central Banking, co-edited with David Mayes and Jan-Egbert Sturm, both published by Oxford University Press

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Subject(s):Financial Markets, Financial Institutions, and Monetary History
Geographic Area(s):Europe
North America
Time Period(s):18th Century
19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII

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

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

Published by EH.Net (August 2019)

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

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


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

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

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

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

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

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

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

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

Copyright (c) 2019 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (August 2019). All EH.Net reviews are archived at

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

The Federal Reserve and its Founders: Money, Politics and Power

Author(s):Naclerio, Richard A.
Reviewer(s):Rodgers, Mary Tone

Published by EH.Net (February 2019)

Richard A. Naclerio, The Federal Reserve and its Founders: Money, Politics and Power, Newcastle upon Tyne: Agenda Publishing, 2018. vii + 226 pp. $22.50 (paperback), ISBN: 978-1-78821-078-2.

Reviewed for EH.Net by Mary Tone Rodgers, Department of Finance, State University of New York at Oswego.

Scholars have been keenly interested in the Federal Reserve system since its inception, and the subject has motivated many books. Authors’ tones, viewpoints and theses about the Fed are understandably shaded by the political discourse of the period in which they write. Richard Naclerio writes The Federal Reserve and its Founders: Money Politics and Power in 2018, a time of rising populist sentiment and, while not explicitly identifying himself as a populist, Naclerio argues the populist viewpoint. The book’s thesis is that the Federal Reserve was formed by elites to preserve their informational advantages over the “little guy,” primarily by preserving a monopolistic structure of the banking industry. He supports his argument by providing biographical evidence that six men who suggested critical features of the Federal Reserve Act disdained the common man, perceived themselves to be elite and were interested in extracting profits for the central bank from elevated interest rates charged on loans to the “little guy.”

This book is permeated with the rhetoric of economic populism providing an “us versus them” framework for the author’s writing style. The approach is not the traditional one taken by economic historians; it does not test theories of political economy, industry structure, formation of efficient financial systems, or financial panics by examining past quantitative data. Instead, it uses qualitative archival evidence from personal writings, contemporary critiques and newspaper stories for thesis support. Its primary contributions are for the reader to understand, first, how the populist viewpoint may be informed by biographical evidence, and second, what the implications of populism for the future of Federal Reserve might be. Naclerio argues that from the “American people’s” viewpoint a central bank that does not bail out banks, does not profit from high interest rates charged to the “little guy,” and that has oversight by non-elites appears to be the type of institution a populist might prefer.

Naclerio devotes one chapter to each of the six men who attended a private conference at Jekyll Island in 1910 to draft policy proposals to create an American central bank. He also writes a chapter about J. Pierpont Morgan who did not attend the conference but who Naclerio considers a central historical figure epitomizing the elite who formed the central bank. After examining the seven men’s attitudes toward the “little guy,” Naclerio then argues that those attitudes were institutionalized in the legislation that formed the Federal Reserve Act of 1913. A chapter devoted to a post-2008 interview with one journalist at Bloomberg News is used as evidence that elitist attitudes continue to drive Fed policy in the present period. The interview explores how Bloomberg News found it difficult to obtain information from the Fed about loans the Fed made during the 2008 crisis.

The seven chapters about the Jekyll Island attendees and Morgan comprise about two-thirds of the book. Each chapter presents biographical evidence that each man embodied the populist lament that the “little guy” is disadvantaged by elite who create opacity and monopoly for self-aggrandizement. Nelson Aldrich eliminated small sugar producers and refiners by changing the tariff structure for sugar imports, benefitting his family’s wholesale grocery business. Felix Warburg’s proposal to allow the central bank to discount commercial paper disadvantaged small bankers and gave preference to large banks. Benjamin Strong’s efforts to coordinate Europe’s post-World War I reconstruction created a Western monopoly of central banks in defiance of each government’s citizenry and was achieved using loopholes in the Charter of the League of Nations. Strong’s venom toward small bankers is supported by his characterization of them as an “unorganized mob.” Henry Davison persuaded Woodrow Wilson to break his promise to the average American to stay out of World War I – so that loans to France and Britain organized by Davison at J. P. Morgan & Co. could be paid off. Davison’s efforts to preserve Morgan’s profits would be at the expense of the “European working class” whose taxes would pay the interest and principal on war loans. A. Piatt Andrew’s suggestion that the central bank would support itself by charging rates to banks on loans it provided meant that small businessmen’s and farmers’ rates would be higher, benefitting the elites in money center banks. Frank Vanderlip’s assessment that borrowers must sign loan contracts but small depositors earned no such reciprocal contract from the banker was evidence that elite bankers supported the inequity and imbalance of power inherent in the banking business model. J. P. Morgan’s takeovers of weak trust companies and corporations after the Panic of 1907 is evidence of an unscrupulous act of self-dealing. (Morgan is referred to as a “pirate” in the chapter title.)

The book’s populist argument is not completely convincing because it does not explore how concern about the “little guy” was indeed part of the policy formation process; it does not adequately describe how the grassroots debate had been ongoing since at least the Baltimore plan of 1894 and the Indianapolis Monetary Convention of 1896. Rather, Naclerio seems to attribute most of the policy formation process to the seven men showcased in the book.

Nor does the book describe how the “little guy” benefitted from the formation of the Fed. The book does not explore how achieving economies of scale in information production and liquidity coordination became overwhelming tasks for a fragmented banking system during the period of industrialization and urbanization that accompanied technological advancement that opened up opportunities for the “little guy” of the early twentieth century.

Furthermore, Naclerio does not suggest how populists of the day, such as William Jennings Bryan or Theodore Roosevelt. might have managed the problems of providing a lender of last resort in periods of exogenous economic shocks any differently than the “elitist” Wall Street bankers did. The difficulty in compelling collective action in the absence of a lender of last resort was not the purview of the federal government at the time, nor was it easily managed by private actors in an increasingly complex economy.

Naclerio interprets the Great Depression as evidence that the Fed reneged on its promise to shield the “little guy” from shocks to the economy and fluctuations in the business cycle from 1921 through the late 1930’s, without describing the remedial changes to the Fed’s policy formation process made during the subsequent Franklin Roosevelt administration that improved the institution’s future capabilities to become more responsive.

Naclerio pays scant attention to how the Federal Reserve Act was influenced by politicians to include a decentralized system of twelve regional banks that served twelve distinct regions of the country, an effort to give voice to the “little guy.”

The shortcomings of the book do not mar the usefulness of the references it provides to see the Federal Reserve system through the eyes of a twenty-first century populist. Giving voice to those who have felt alienated from or disillusioned by the system can support constructive institutional change going forward.

(Naclerio has worked extensively in business operations and real estate investment in New York City and Denver. While continuing to manage his own real estate companies and stock portfolios, he is pursuing a Ph.D. in history at the CUNY Graduate Center. He worked as an adjunct instructor and academic advisor at Sacred Heart University and Monroe College.)

Mary Tone Rodgers, DPS, CFA, is the Marcia Belmar Willock Professor of Finance and Director of the Gordon Lenz Center for Finance and Risk Management at the State University of New York at Oswego. She has published several articles in financial history, including “Monetary Policy and the Copper Price Bust: A Reassessment of the Causes of the Panic of 1907” with James E. Payne” in Review of Economic History. She is currently working on a book with Jon R. Moen (University of Mississippi) on J. Pierpont Morgan’s role as lender of last resort in the pre-Federal Reserve period.

Copyright (c) 2019 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (February 2019). All EH.Net reviews are archived at

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