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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

Adam Smith’s America: How a Scottish Philosopher Became an Icon of American Capitalism

Author(s):Liu, Glory M.
Reviewer(s):Ebenstein, Lanny

Published by EH.Net (September 2023).

Glory M. Liu. Adam Smith’s America: How a Scottish Philosopher Became an Icon of American Capitalism. Princeton: Princeton University Press, 2022. xxxii + 346 pp. $35 (hardback), ISBN 978-0691203812.

Reviewed for EH.Net by Lanny Ebenstein, University of California, Santa Barbara.


Glory Liu’s Adam Smith’s America has been decidedly praised, and appropriately so. It is a work of scholarly depth and wide scope. Notwithstanding that so much has been written on the Scottish savant for centuries, this is an invaluable book. Upon reading it, even longtime Smith scholars will have a much better idea of development of the interpretations of Smith’s work and thus of his work itself.

Like many, perhaps most, great thinkers and philosophers, Smith was a protean figure whose work is subject to diverse perspectives. Almost from the start, there has been a progressive as well as a conservative Smith. Liu’s work accurately situates him in the former camp. He was far from an advocate of the status quo. He did not live in a libertarian but a mercantilist era. Active government was the practice when he wrote An Inquiry into the Nature and Causes of the Wealth of Nations (1776), and, indeed, that book was directed against mercantilism.

But Smith was not thereby an advocate of very little or no government. Indeed, as his best recent biographer, Nicholas Phillipson, presents, Smith sought a science of humankind which would allow the maximization of human happiness through appropriate government laws and policies. Smith was no philosophical opponent of government. Rather, he saw the secular salvation of humankind through government. He was a humanist and utilitarian in the tradition of his close friend and fellow key figure in the Scottish Enlightenment, David Hume.

Liu’s work chronologically presents the reaction to Smith’s work. She correctly states the French Revolution had the “greatest immediate impact on Smith’s reception” (p. xxvi). Smith was considered a forerunner of the French Revolution: “After 1789, figures like the Marquis de Condorcet turned Smith’s ideas into the ‘voice of revolution’ … Smith’s association with French revolutionary zeal, sedition, and dissenting public opinion travelled back to England. After Smith’s death in 1790, obituaries noted that his ideas had drawn attention to ‘subjects that unfortunately have become too popular in most countries of Europe’” (pp. xxvi-xxvii). Samuel Fleischacker, among the leading modern Smith scholars, also emphasizes Smith’s influence on French revolutionary figures and their supporters in England and elsewhere.

In America, too, Smith was originally perceived as a progressive, largely because America’s founders were themselves progressive. Like Smith, America’s founders sought active but not all-encompassing government together with a broadly middle-class society without extremes of wealth and poverty. There is not a word in Smith, as there is not a word in the founders, about encouraging an elite of wealth-producers who will create prosperity for everyone else—not a word. This would have been inconsistent with the largely egalitarian view of the nature of at least European men that Smith and the founders had. For Smith, according to a student’s 1763 lecture notes in a remark that appeared in a slightly modified form in The Wealth of Nations: “No two persons can be more different in their genius as a philosopher and a porter, but there does not seem to have been original difference betwixt them. For the five or six first years of their lives there was hardly any apparent difference … Their manner of life began then to affect them, and without doubt had it not been for this they would have continued the same. The difference of employment occasions the difference of genius.” [1] This view of natural and intrinsic human equality is very different than that possessed by most present interpreters of Smith, yet it is basic to understanding and appreciating his thought.

Liu also correctly states that “[m]aking sense of Smith’s figurative arrival and reception in the decades leading up to and following American independence requires removing many of the contemporary blinders that often lead to overstatements of Smith’s importance—for instance, the idea that The Wealth of Nations was ‘an intellectual shot heard round the world in 1776’” (p. 15). Again, Smith’s influence has been protean and many-sided with different interpretations of him at different times and in different places. According to Liu: “For the American founders, the works of Adam Smith were guidebooks for enlightened statesmanship” (p. 17). James Madison, Alexander Hamilton, and John Adams read and were influenced practically and philosophically by Smith—Adams “used ideas from Smith’s The Theory of Moral Sentiments to grapple with what Adams saw as a troubling socio-psychological influence of wealth in society” (p. 17). In sum: “The eclecticism of … interpretations and uses evokes the embryonic state of political economic thinking during the late eighteenth century and reinforces the notion of political economy as a branch of statecraft” (p. 17). Showing the diversity of early views on Smith, Hamilton quoted extensively from The Wealth of Nations in arguing for government encouragement of manufacturing and high tariffs. Both George Washington and Thomas Jefferson owned copies of The Wealth of Nations, and Jefferson publicly praised it.

Only after the Civil War did the interpretation of Smith as an apostle, or the apostle, of capitalism really develop. Capitalism had to emerge before Smith could be identified as its initiator. Much like the incorrect interpretation of America’s founders as basically opposed to democracy and preeminently private property advocates put forward by progressive historians in the late nineteenth and early twentieth centuries, contemporaneous political economists incorrectly interpreted Smith as much more opposed to government in the abstract than he in fact had been. Smith was not an advocate of socialism (understood as direct state management of economic activity), of course. But there is a great difference between what may be termed “democratic capitalism”—basically free markets in the production and exchange of goods, combined with democratic governance and a significant but not all-encompassing role for government—and libertarianism as it is now practiced (extreme rhetorical opposition to government combined with little effective opposition to it and advocacy of the lowest top income and estate tax rates possible). Smith was in these senses a democratic capitalist, not a libertarian.

Smith favored some progressive taxation and nascent government welfare state activities. The great historian of economic thought Jacob Viner remarked Smith was “not a doctrinaire advocate of laissez-faire. He saw a wide and elastic range of activity for government, and he was prepared to extend it even farther.” [2] According to Thomas Sowell: “Egalitarianism is pervasive in Smith.” [3] James Buchanan said a “returned Adam Smith would be a long distance from the modern libertarian anarchists.” [4] John Maynard Keynes observed the “phrase laissez-faire is not to be found in the works of Adam Smith … Even the idea is not present in a dogmatic form.” [5]

As industrial capitalism unprecedentedly expanded in the final decades of the nineteenth century, the progressive Smith was lost. From the standpoint of technical and popular economics, he had, to some extent, already been supplanted in the United States, first by Jean-Baptiste Say and then by John Stuart Mill. However, especially with the hundredth anniversary of The Wealth of Nations in 1876, he experienced a revitalization, ably furthered by the great British Smith scholar Edwin Cannan, who emphasized Smith’s support for distributive economic justice.

The great issue of the day for England was to promote free trade, and Smith’s work admirably fit the bill. As Friedrich Hayek recognized, Smith’s most significant contribution was to emphasize the importance and benefits of free trade, not of very little or no government. There is a considerable difference between the doctrines of free trade (economic exchange, particularly of imports and exports, should be unrestricted)—which Smith enthusiastically endorsed—and laissez-faire (government should play a very small role)—which he did not favor with nearly the same enthusiasm. Hayek clarified this in The Road to Serfdom (1944): “The question whether the state should or should not ‘act’ or ‘interfere’ poses an altogether false alternative, and the term laissez-faire is a highly ambiguous and misleading description of the principles on which a liberal policy is based”; “To create conditions in which competition will be as effective as possible, to supplement it where it cannot be made effective, to provide the services which, in the words of Adam Smith, ‘though they may be in the highest degree advantageous to a great society, are, however, of such a nature, that the profit could never repay the expense to any individual or small number of individuals,’ these tasks provide a wide and unquestioned field for state activity. In no system that could be rationally defended would the state just do nothing.” [6] Smith’s crucial commitment was to free trade abroad and at home, not to laissez-faire in the sense of very little or no government.

During the Great Depression, Smith’s work was downgraded and disparaged as simplistic and irrelevant. Keynes’s ideas calling for more discretionary government economic activity were dominant. Liu appropriately calls attention to the fact that, surprising as it may be, the “invisible hand” metaphor was little used to characterize Smith’s work before the twentieth century: “The image [of the ‘invisible hand’] was hardly noticed by his [Smith’s] immediate successors … and virtually absent in debates on free trade in the nineteenth century … By the mid-twentieth century though, economists had begun assigning a level of significance to this idea of Smith’s that exceeded past interpretations” (p. 241).

Liu gives a central role to Paul Samuelson’s hugely influential Economics textbook in initiating greater use of the phrase “invisible hand” when discussing Smith. Samuelson depicted the “invisible hand as a precursor of foundational theories in modern economics such as perfect competition and general equilibrium” (p. 242). She also emphasizes Milton Friedman and George Stigler in propagating this view: Friedman and Stigler “streamlined their image of Smith to be more in line with the ascendancy of rational choice theory and strident market advocacy” (pp. 192-193). Actually, Smith meant the hand of God by “invisible hand,” not a hand of the market. He believed that when individuals pursue their own self-interest within a broad and enlightened concept of self-good, they are led by a utility-maximizing deity to promote the general happiness. Adam Smith certainly did not recommend greed or selfishness, that markets require no regulation or organization, that there should be little to no role for government, and that government should be unconcerned with preventing economic gaps in a society from becoming or remaining too large.

As Hayek held, Smith’s greatest contribution was to explain that economic activity is generally most effective when government allows individuals to transact freely, plays little role in managing details of economic decision-making, and limits its economic role to for the most part establishing a larger institutional framework. Glory Liu reminds us that past generations have considered Smith differently than our own and that for this reason future generations are likely to do so as well. In tracing the evolution of interpretations of his thought, she has made a substantial and lasting contribution to the Smith literature.


[1] Adam Smith (R. L. Meek, D. D. Raphael, and P. G. Stein, eds.), Lectures on Jurisprudence (Oxford: Oxford University Press, 1976), p. 348.

[2] Jacob Viner, The Long View and the Short: Studies in Economic Theory and Practice (Glencoe, IL: Free Press, 1958), p. 244.

[3] Thomas Sowell in Gerald P. O’Driscoll (ed.), Adam Smith and Modern Political Economy (Ames, IA: Iowa State University Press, 1979), p. 5.

[4] James Buchanan in ibid., p. 117.

[5] John Maynard Keynes in William Ebenstein, Great Political Thinkers: Plato to the Present, 4th ed. (New York: Holt, Rinehart and Winston, 1969), p. 674.

[6] Friedrich Hayek, The Road to Serfdom (London: Routledge & Kegan Paul, 1986 [1944]), pp. 29, 60.


Lanny Ebenstein is a Continuing Lecturer in the Department of Economics at the University of California, Santa Barbara. He is the author of many books and articles, including the first biographies of Milton Friedman and Friedrich Hayek, and is currently at work on books on taxation and “The Progressive Adam Smith.”

Copyright (c) 2023 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 (September 2023). All EH.Net reviews are archived at

Subject(s):Economic Planning and Policy
History of Economic Thought; Methodology
Geographic Area(s):Europe
North America
Time Period(s):18th Century
19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII
21st Century

The Postwar Economic Order: National Reconstruction and International Cooperation

Author(s):Hirschman, Albert O.
Editor(s):Alacevich, Michele
Asso, Pier Francesco
Reviewer(s):Pomfret, Richard

Published by EH.Net (August 2023).

Albert O. Hirschman. The Postwar Economic Order: National Reconstruction and International Cooperation. Edited by Michele Alacevich and Pier Francesco Asso. New York: Columbia University Press, 2023. viii + 342 pp. $30.00 (paperback), ISBN 978-0231200592.

Reviewed for EH.Net by Richard Pomfret, Adjunct Professor of International Economics at Johns Hopkins University SAIS Europe and Professor of Economics Emeritus at the University of Adelaide.


This volume reproduces 21 reports that Hirschman wrote from 1947 to 1950 while employed as economist in charge of the Western European desk of the research branch of the Board of Governors of the Federal Reserve System. The reports are lightly edited by Michele Alacevich (Professor of Economics at the University of Bologna) and Pier Francesco Asso (Professor of History of Economics at the University of Palermo) and preceded by a 44-page introduction based on the editors’ recent paper on Hirschman (Alacevich and Asso, 2023).

The collection is interesting on several levels. First, it illustrates key developments in Hirschman’s thinking, building on his pre-war experiences and education in Europe and on the opportunity to comment on post-war developments in Europe from an American perspective. As the Introduction states, “this book shows how Hirschman became Hirschman” (p. 35). Second, it provides insightful analysis of these developments by someone present at the origin of the current international economic order. Hirschman was a valuable commentator because he understood the long-term goal of non-discriminatory market-based international economic relations as well as the political constraints, especially in France and Italy, where he had personal pre-war experience, that justified short-term deviations from these ideals.

The drawback of the format is that the details of, say, Italian exchange rate policy changes in January 1947 may be tedious for the non-specialist. The Introduction provides a more concise guide than the original papers and has, of course, the benefit of hindsight and 75 years of historical analysis. What I missed was critical assessment of Hirschman’s views, which were sometimes controversial. Although most of the reports were “Confidential” or “Restricted”, several were published in academic journals after only a short lag (in a golden era of rapid acceptance and publication) and contributed to active debates.

The advantage of the format is the contemporary nature of the analysis. In addressing the macroeconomic challenges facing France and Italy in 1946-47, the papers in Part One capture the urgency and immediacy of challenges such as inflation, coal shortages, balance of payment deficits, and so forth. These papers also remind the reader of the ubiquity of economic controls as countries recovered from total war and of the reluctance of European policymakers to surrender their controls – to an extent difficult to recognize for anybody born after the 1950s. Indeed, the frustration of Part Two on the Marshall Plan is that Hirschman is analyzing a situation that is second-best in so many ways (high tariffs and non-convertible currencies are just the start), as well as dealing with a reconstruction process that varied considerably from country to country and rudimentary economic forecasting tools. He recognizes the difficulty and accepts the possibility that long-term suboptimal policies may have been justified in the short term in the late 1940s. The lessons for the last half century, when the extreme distortions have been removed, are unclear.

One topic covered in depth is economic integration (Part Three). Hirschman first mentions the topic in a Report from February 1949 which finishes with a one-page section on “Cooperation” as proposed in an Organization for European Economic Cooperation Report. Cooperation is desirable but difficult and must start with coordination of European countries’ investment policies and current production, to be accompanied by a considerable cooperative effort with respect to employment, manpower and migration policy (pp. 159-60). This has some resonance with the European Coal and Steel Community that would be formed a few years later but is out of touch with the more market-driven integration that would follow the 1957 Treaty of Rome and lead to the European Union.

By March 1950, however, Hirschman was arguing the benefits of free trade within Europe (Chapter 17). The prediction was that the benefits of trade creation among European countries would outweigh the costs of trade diversion due to discrimination against non-members, notably the USA. Hirschman’s analysis proved to be empirically valid, although the theory is set out more clearly and elegantly in Jacob Viner’s 1950 book The Customs Union Issue.

The creation of the euro was still half a century in the future when Hirschman wrote in November 1949 about a European monetary authority. It is, however, striking where he saw the limits to be:

“It is quite correct . . . that a common currency requires, among other things, the abandonment of fiscal sovereignty and is, therefore, inconceivable in the absence of political federation.” (p. 196)


“The creation of a European bank of issue would be called for only if and when a regular federal European government comes into being.” (p. 201)

The limits proved to be wrong in the 1990s, when the European Central Bank was established and the euro was created, before political federation. Nevertheless, by August 1950 (Chapter 18) Hirschman was acknowledging the potential of the European Payments Union to erode the costs of bilateralism, despite being far from general convertibility and being resisted by the United Kingdom, with its attachment to the Sterling Area.

The last two Reports from 1950 (Part Four) shift the focus from Europe to the impact of economic development abroad on the USA and the impact of US economic conditions on the rest of the world. The editors suggest that the first Report foreshadows Hirschman’s later thinking on economic development, but Hirschman (1958) was on a grander scale. What is interesting is Hirschman’s confident contrast between European governments that were fearful of competition from new industrializing countries and the positive US attitude towards development abroad, with the USA hoping to benefit from growing world markets. Thirty years later the USA would lead the protectionist response to the challenge from Japan and other Asian industrializing economies; that protectionism would be reversed in the 1990s, only to reappear after another thirty years in concerns about the challenge from China.

The evolution of his thinking on a customs union and on monetary cooperation illustrate Hirschman’s flexibility and the rapid pace of change in European institutional arrangements for trade and finance in the years 1948-51. However, the book can be tedious and sometimes repetitive. Non-specialists may find the succinct Introduction by Alacevich and Asso to be enough.


Alacevich, Michele, and Pier Francesco Asso (2023). “Albert O. Hirschman, Europe, and the Postwar Economic Order, 1946–52.” History of Political Economy 55 (1): 39–75.

Hirschman, Albert (1958). The Strategy of Economic Development. New Haven: Yale University Press.

Viner, Jacob (1950). The Customs Union Issue. New York: Carnegie Endowment for International Peace.


Richard Pomfret is Adjunct Professor of International Economics at Johns Hopkins University SAIS Europe, Bologna, Italy, and Professor of Economics Emeritus, University of Adelaide, Australia; email His books include The Age of Equality: The Twentieth Century in Economic Perspective (Harvard University Press, 2011), The Central Asian Economies in the Twenty-first Century: Paving a New Silk Road (Princeton University Press, 2019) and The Economic Integration of Europe (Harvard University Press, 2021).

Copyright (c) 2023 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 2023). All EH.Net reviews are archived at

Subject(s):Economic Planning and Policy
Financial Markets, Financial Institutions, and Monetary History
International and Domestic Trade and Relations
Geographic Area(s):Europe
North America
Time Period(s):20th Century: WWII and post-WWII

The Journey of Humanity: The Origins of Wealth and Inequality

Author(s):Galor, Oded
Reviewer(s):Ziebarth, Nicolas L.

Published by EH.Net (June 2023).

Oded Galor. The Journey of Humanity: The Origins of Wealth and Inequality. New York: Dutton, 2022. 301 pp. $28 (hardcover), ISBN 978-0593185995.

Reviewed for EH.Net by Nicolas L. Ziebarth, Auburn University and NBER.


Oded Galor is not one for understatement. In the introduction he states that the goal of this book is nothing less than “develop[ing] a unified theory that seeks to encompass the journey of humanity in its entirety,” putting himself in a line of thinkers including “Plato, Hegel, and Marx.” I admit that there is something almost refreshing about such bold pronouncements and lofty goals. Economists have gotten very good at answering very small questions very precisely, but too often that has come at the expense of trying to answer the big questions at all.

The problem is that the book doesn’t really deliver on this unified theory, which I assume should cover both the takeoff of economic growth, the first half of the book, and the divergence in living standards, the second half. The first half does have a unified theory in the form of the aptly named Unified Growth Theory (UGT) to which Galor has made major contributions. The thing is that this theory is never really brought forward in an explicit manner. If you did not know what UGT was before you read this book, you would probably miss it. Instead, the discussion of UGT is mixed with a lot of discussion about the role of institutions, culture, and pretty much every other hypothesis ever put forward for the “great enrichment.” Galor is evenhanded in discussing these alternative hypotheses to the point that you could easily forget he is trying to argue for a “unified” explanation.

That search for a unified theory gets even murkier when the book in its second half switches to a focus on explaining variations in living standards. In this half, we get a summary of some of the greatest hits of the institutional literature, from the Spanish forced labor system known as the mita to settler mortality to the effects of slavery on trust. Again, I thought Galor was quite reasonable in his presentation of this other work. I was happy to see that I’m not the only one who thinks the exclusion restriction in the seminal Acemoglu, Johnson, and Robinson paper (2001) is rather implausible. (Their exclusion restriction was that “the mortality rates of European settlers more than 100 years ago have no effect on GDP per capita today, other than their effect through institutional development” (p. 1371).)

It was only in the last two chapters, in which Galor goes rummaging through the very ancient history of humanity to find the determinants of inequality today, that he lost me. The last chapter makes the audacious claim that a country’s current living standards are related to the distance humans coming out of East Africa long, long ago would have had to travel to arrive at that particular place. Galor argues that the observed inverted U-shape pattern between living standards and this migratory distance from East Africa is due to differences in “population homogeneity.” Places with low diversity are dull but stable. Places with lots of diversity are interesting but a mess. So there is a “sweet spot” (Galor’s term) level of diversity in terms of a country’s level of development.

But why is migratory distance related to diversity in the first place? Galor appeals to the serial founder effect from evolutionary biology. The logic for this effect is simple. A small number of “founders” will not be able to represent all the diversity of the population from which they were drawn. In Galor’s example, if you start with one red, one blue, and one yellow bird and draw one to be the “founder” of a new population, that new population is not going to have all the colors of the original population represented. Hence the diversity of populations started by a small number of founders will appear to have been put through a funnel. In the case of humans, the process of migration out of Africa was a process of successive generations of founders pushing further and further away from that starting point somewhere in Ethiopia, decreasing (genetic) diversity at each step of the way. Galor points to anthropological and genetic evidence for this decline in diversity as the distance from East Africa grows.

The question is whether this diversity really amounts to anything. The genetic evidence is so-called “neutral” genetic diversity, meaning diversity in alleles that have no discernible effect on fitness. The anthropological evidence is in the form of “particular dental attributes, pelvic traits and the shape of the birth canal.” We have to take on faith that these measures of diversity are correlated with the dimensions of diversity that actually cause societies to fracture. Moreover, Galor is frustratingly vague on whether he thinks deep down the dimensions of diversity that matter are genetic or cultural. It is true that the serial founder effect would also apply to cultural evolution. The problem is that, as Galor admits, for this to work, “the rate of migration has to exceed the rate of mutation.” Is there any reason to believe this is true in the cultural context?

So after this whole discussion of institutions, the Agricultural Revolution, and the migration of humans out of East Africa, I was left wondering what exactly is Galor’s unifying theory of differences in living standards. Is it simply that these differences have “deep roots”? Would anyone deny that claim (at least at some level of generality)? Galor, in any case, thinks that establishing the deep roots of economic and cultural institutions is critical for formulating good policy. But, of course, institutions are sticky, slow to change, and have a history. If they did change rapidly, we wouldn’t call them institutions in the first place. So does it really matter if the institutions were determined 25 years ago? 100 years ago? At the dawn of the Neolithic era? At the Big Bang? While there are certainly interesting intellectual questions here, what is at stake when it comes to formulating policy?

There is, in fact, a weird inconsistency between the determinism Galor has so strenuously argued for (if subtly) throughout the book and the “voluntarist” thinking that overtakes him at this point. Galor (rightly?) pans the “misguided approach” of the Washington Consensus with its “one size fits all” policy recommendations that did not take into differences between countries in their “social and cultural prerequisites for growth.” Yet only five pages earlier, Galor makes the pronouncement that if only Bolivia would “foster its cultural diversity, its per capita income could increase as much as five-fold.” Who knew it was that easy?

In the end, this is a book of economic history, but not one that any card-carrying economic historian would write. Galor approaches the study of history with a totally different mindset than a historian. Nothing is out of place in Galor’s world: “Random events – dramatic and substantial as they loom in our minds – have played a transitory and largely limited role in the progression of humanity as a whole.” “Everything in its right place,” as the Radiohead song goes.

There was a time when I found this view of history very attractive. I went through a UGT phase as a graduate student and read (too many) books of evolutionary psychology. I think I was, at least, partly drawn to the type of thinking reflected in both UGT and evolutionary psychology because, like Galor, it seemed like the only two choices were determinism or randomness, and randomness didn’t seem all that fun. I’m not sure what changed, but at some point, I realized that those aren’t the only two possibilities, and, in fact, being able to integrate both of those viewpoints is the defining mark of true economic history.


Acemoglu, Daron, Simon Johnson and James A. Robinson. “The Colonial Origins of Comparative Development: An Empirical Investigation.” American Economic Review 91(5): 1369-1401 (December 2001).


Nicolas L. Ziebarth is the Ekelund and Hebert Professor of Economics at Auburn University and a Research Associate at NBER. His publications include Credit Relationships and Business Bankruptcy During the Great Depression” (American Economic Journal: Macro, 2017) and “Identifying the Effects of Bank Failures From a Natural Experiment in Mississippi During the Great Depression” (American Economic Journal: Macro, 2012).

Copyright (c) 2023 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 2023). All EH.Net reviews are archived at

Subject(s):Economywide Country Studies and Comparative History
Living Standards, Anthropometric History, Economic Anthropology
Social and Cultural History, including Race, Ethnicity and Gender
Geographic Area(s):General, International, or Comparative
Time Period(s):General or Comparative

Insurance Era: Risk, Governance, and the Privatization of Security in Postwar America

Author(s):Horan, Caley
Reviewer(s):Thomasson, Melissa

Published by EH.Net (December 2022).

Caley Horan. Insurance Era: Risk, Governance, and the Privatization of Security in Postwar America. Chicago: The University of Chicago Press, 2021. 251 pp. $40 (cloth), ISBN 978-0226784380.

Reviewed for EH.Net by Melissa Thomasson, Department of Economics, Miami University.

In this book Caley Horan explores the marketing, investment, and underwriting practices of the insurance industry in the United States, with a particular focus on events after World War II. She argues that as they sought to prevent nationalization and increased regulation, insurance companies played an important role in propagating free-market policies that subjugated moral and ethical questions of risk-bearing and reinforced institutionalized discrimination.

The book is divided into three parts, each with two chapters. In the first section, entitled “Selling ‘Self-Made’ Security,” the author looks at how insurance marketing changed after the New Deal. The government’s involvement in the economy following the Great Depression created the opportunity to redefine the connection between economic security, the insurance industry, and the government. After the Temporary National Economic Committee (TNEC) accused the industry of predatory selling practices, price fixing, and failing to prevent policies from lapsing, the insurance industry formed the Institute of Life insurance (ILI) to act as a “public relations organization” to avoid increased regulation by the federal government (p. 25). These efforts, which apparently succeeded in preventing regulatory changes, later evolved into a campaign in the 1940s to sell more insurance using national security as justification. As Horan notes, while prewar ads focused on economic security for dependents of policyholders, postwar ads focused on policyholders using insurance to secure individual economic freedom, a “celebration of free enterprise and entrepreneurial action with a thinly veiled critique of public action” (p. 28).

In the first part of the book, Horan effectively demonstrates that the insurance industry sought to avoid increased regulation and potential nationalization by showcasing their value and highlighting their socially responsible actions. In some cases, we see this in the creation and marketing of new products such as Blue Shield in the late 1930s. While hospitals had founded the predecessors to Blue Cross plans in the late 1920s and early 1930s, physicians were slower to develop similar prepayment plans, believing that such plans would limit their ability to price discriminate. But they quickly adopted their own version of Blue Cross, called Blue Shield, after the passage of the Social Security Act in 1935 raised concerns that government could step in and provide nationalized health insurance to fill a perceived gap. The success of Blue Cross and Blue Shield in overcoming adverse selection in the health insurance market also led commercial companies into the market in the 1940s, providing yet another avenue to market “self-made security” to Americans who were worried about communism.

The first chapters of the book are well researched and provide interesting accounts of the development of the insurance industry and insurance advertising during the first half of the 20th century. They detail the data collection efforts insurance companies used to assess risk more accurately (including the famous weight/height tables from Metropolitan Life Insurance Company), offer insight into the origins of driver education (which also involved data collection), and examine how insurance companies used marketing campaigns related to public health and safety to sell their products. However, the chapter also suggests that without insurance company marketing, other forces might have come to dominate, resulting in a more government-based, collectivist approach to economic security. This argument seems to overlook the fact that Americans and non-insurance public interest groups, even before the ILI was founded in 1939, had little appetite for using the government to offset risk, as seen in the repeated failures of attempts to nationalize the health insurance industry during the Progressive Era, the Great Depression, and the 1940s, before commercial health insurance was well established.

Part II of the book, “Investing in Privatization,” offers a fascinating look at insurance involvement in urban renewal and slum-clearing. It describes how with large amounts of assets and regulatory changes in how they could invest, Metropolitan Insurance built the initially all-White Stuyvesant Town and other communities in New York State and addressed charges of racism by creating Riverton for Black homeowners. Horan also examines how the insurance industry’s decisions on where to locate and what to invest in fueled suburban growth. For example, insurance companies poured millions of dollars into suburban shopping malls, which begs the question as to the role of insurance companies in the decline of the urban core, which the author explores in the third part of the book.

The third section of the book discusses redlining by insurance companies. The author discusses the findings of the Hughes Panel (a presidential advisory panel that issued the report “Meeting the Insurance Crisis of Our Cities” in 1968) and presents a convincing argument that, like the Federal Housing Authority, insurance companies used redlining to discriminate based on race. In response to these criticisms, insurance companies argued that their actuarial analysis of risk justified their practices and provided significant funding for a public relations campaign to “reinvest” in urban areas. This part of the book, which also explores gender discrimination, provides a useful context for considering the benefits and drawbacks of experience rating in insurance markets. (Experience rating is the use of factors that could affect risk such as age, health, location, and previous claims and payouts to guide insurance coverage and premiums.)

Economists are aware of how adverse selection combined with community rating can lead to the failure of insurance. The actuarial science behind experience rating is subjective and prone to error, often assigning individuals the risk of their class regardless of their individual behavior, which can reinforce existing social problems such as racism. In addition, as insurance companies compete for subscribers, those who can cherry-pick often have an advantage. For instance, while Blue Cross and Blue Shield initially community-rated their policies, competition with for-profit insurance companies that relied on experience rating eventually forced them to adopt experience rating as well, leading to many people being unable to afford insurance coverage. In this way, Horan’s thought-provoking book asks a good question: what is the role of flawed experience rating in reinforcing discrimination, and how can the problem be fixed?


Melissa Thomasson is Professor of Economics at Miami University in Oxford, Ohio. Her research focuses on the economic history of the US health insurance and healthcare system.

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Subject(s):Financial Markets, Financial Institutions, and Monetary History
Health, including Medicine, Disease, and Pandemics
Geographic Area(s):North America
Time Period(s):20th Century: WWII and post-WWII
21st Century

Boom and Bust: A Global History of Financial Bubbles

Author(s):Quinn, William
Turner, John D.
Reviewer(s):Rodgers, Mary Tone

Published by EH.Net (June 2022).

William Quinn and John D. Turner. Boom and Bust: A Global History of Financial Bubbles. Cambridge UK: Cambridge University Press, 2020. viii +288 pp. $24.95 (hardcover), ISBN 978-1-108-42125-6.

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


In this easily read book, William Quinn and John D. Turner of Queen’s University Belfast do not identify new explanatory variables as causes of bubbles, booms and busts—instead, they find a way to categorize variables already well established in the literature to make the causes more easily understood. Indeed, the primary contribution of the work is the creation of a fire metaphor to understand financial bubbles and the thorough application of the metaphor to twelve episodes in history of financial bubbles, booms and busts.

Dozens of metaphors and analogies were used during the 2008 subprime crisis, as financial adviser Gary Karz (2014) has described. Karz quotes the following from Tim Geithner’s book Stress Test:

“One afternoon that summer, I tried to lighten up the mood at the New York Fed with an impromptu contest for the best metaphor for what was happening to the financial system. “I’ve heard ‘the wheels coming off the bus’,” I said. “We’ve talked about the engines falling off the plane.” The usual suspects were wildfires and earthquakes, hundred-year storms and hundred-year floods. We also discussed cancer and contagion, sweaters unraveling and boulders rolling down a hill. I relayed one I had first heard from Goldman Sachs CEO Lloyd Blankfein: ‘The rivets are coming off the submarine.’”

So why do Quinn and Turner select fire as their metaphor? Because, they argue, unlike natural phenomena such as storms, hurricanes, or floods, fires can be extinguished by humans, just as financial bubbles, once underway, can also be extinguished by humans.

Deirdre McCloskey (1995) has written about the importance of the metaphor as an effective literary device for economists. “Metaphor is often a serious figure of argument, not an ornament” (p. 215). As she puts it, metaphors depend upon similarities between knowledge domains. By carrying knowledge about two different domains, a metaphor is likely to carry more information than a literal direct equivalent (Noveck, et al., 2000). Because metaphors can be more convincing than their literal equivalent, the choice of metaphor is consequential. In the case of Quinn and Turner’s book, the metaphor powerfully transmits the authors’ intention to say that just as fires are dangerous, so too are financial bubbles dangerous.

The authors use the fire metaphor to ask and answer analogous questions: what does it take to start a fire (how do bubbles start), what does it take to extinguish a fire (how do bubbles burst), and what are the consequences of a fire (are the net effects of a bubble good or bad, big or small). Just as oxygen is necessary to support a fire, marketability of securities is a necessary condition to start a bubble. Just as fuel is necessary to let a fire burn, money or credit is necessary to let a bubble expand. Just as heat is necessary for fuel to combust into flame, speculation is needed for the bubble to enlarge. The authors argue that the catalyst to ignite the fire is a spark; the catalyst to start a financial bubble is technological innovation or a change in government policy. They argue that to extinguish a fire, one must remove one of the three legs of the triangle: oxygen, fuel or heat. Similarly, to burst a bubble, one removes marketability, money or credit, or speculation with either policy tools or introduction of new information to market agents.

To estimate the consequences of a burst bubble, the authors move from summarization and categorization to data gathering and analysis. For each of the twelve episodes, they estimate the size of the burst bubble’s effect on the real economy and suggest ways the bubble may have done both harm as well as good to the real economy.

The secondary contribution of the book is the systematic coverage of the twelve bubbles in ten chapters with each chapter formatted using common sections: history, causes, and consequences of the bubble. The British bicycle mania of 1896-1898, the Australian land boom of 1888-1893, and the Chinese stock market bubble of 2015 are likely less well known to the EH.Net audience, so the coverage by the authors may present suggestions for further research, whereas for the better-known episodes like the dot-com bubble of 2000 and the sub-prime bubble of 2008 the metaphor mainly summarizes a familiar academic literature.

The book clearly appeals to a wide audience; it won a Best Book of 2020 award from the Financial Times and by 2021 was already in its fourth printing. But our unique EH.Net audience might find some sources of dissatisfaction with it. It’s hard to neatly categorize all the explanatory variables developed in the academic literature about bubbles into each of the three legs of the fire triangle. It’s plausible, for example, that information asymmetry, a condition associated with bubbles (Asako, et al., 2017), could fit into any of the three legs of the fire triangle, not just one leg. It could be understood as a reduction in marketability, or a reduction in credit to borrowers, or a reason speculation ends. While the broader public might not think twice about such issues, our audience might puzzle over them. Additionally, EH.Net readers would likely miss a review of how banking institutions evolved over the centuries covered in the book. A chronicle of changing institutional context might shed light on how the fire metaphor could itself have evolved over time.

In conclusion, the value of book’s metaphor is its simplicity, the hallmark of any useful model. While not all the causal variables studied in the literature necessarily fit into the metaphor, the authors include enough of them so that readers can make more sense of how bubbles form, expand, and burst. On the whole, the fire metaphor proves to be a very useful way to simplify complexities of bubbles.



Asako, Yasushi; Funaki, Yukihiko; Ueda, Kozo; and Uto, Noboyuki. “Asymmetric Information Bubbles: Experimental Evidence.” Federal Reserve Bank of Dallas, Globalization and Monetary Policy Institute. Working Paper No. 312, April 2017. Accessed June 5, 2022.

Karz, Gary, CFA. “Global Financial Crisis Analogies, Metaphors and Vocabulary.” Investor Home. October 8, 2014. Accessed June 5, 2022.

McCloskey, Deirdre. “Metaphors Economists Live By.” Social Research 62(2): 215-237 (Summer 1995).

Noveck, Ira; Bianco, Maryse; and Castry, Alain. “The Costs and Benefits of Metaphor.” Metaphor and Symbol 16(1&2): 79-91.


Mary Tone Rodgers, DPS, CFA, is the Marcia Belmar Willock Professor of Finance at the State University of New York at Oswego. She is currently working on a book with Jon R. Moen for Cambridge University Press, working title J. P. Morgan: Architect of the Modern American Response to Financial Crises.

Copyright (c) 2022 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 2022). All EH.Net reviews are archived at

Subject(s):Financial Markets, Financial Institutions, and Monetary History
Macroeconomics and Fluctuations
Geographic Area(s):General, International, or Comparative
Time Period(s):18th Century
19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII

A New Balance of Payments for the United States, 1790–1919: International Movement of Free and Enslaved People, Funds, Goods and Services

Author(s):Officer, Lawrence H.
Reviewer(s):Devereux, John

Published by EH.Net (May 2022).

Lawrence H. Officer. A New Balance of Payments for the United States, 1790–1919: International Movement of Free and Enslaved People, Funds, Goods and Services. New York: Palgrave Studies in American Economic History, Palgrave Macmillan, 2021. xxxiii + 415 pp. $150 (hardcover or paper), ISBN 978-3-030-66098-7.

Reviewed for EH.Net by John Devereux, Department of Economics, Queens College, City University of New York.


This book provides a definitive treatment of the U.S balance of payments from 1790 to 1919. There is rich U.S tradition in this area. The 1960 NBER volume Trends in the American Economy in the Nineteenth Century contained two seminal articles on U.S external transactions. Douglas North covered 1790 to 1840, while Matthew Simon covered 1840 to 1916. Three years later, Robert Lipsey produced his estimates of the U.S external terms of trade after 1879. North went on to win the Nobel Prize in Economics. Lipsey had a distinguished career at the NBER and Queens College. Simon, also of Queens College, died in 1968. For the last 60 years their magisterial work has formed the basis for what we know about U.S. external transactions over the eighteenth and early twentieth centuries.

Much has changed since the early 1960’s. So it is time for a fresh look at historical measures of the U.S balance of payments. Accordingly, Lawrence Officer set out to revise North and Simon. To accomplish this, he gathered the information, published and unpublished, that has appeared over the last six decades. He also revisited earlier sources – including sources missed by North and Simon. It has taken him ten years, but he has accomplished his task in this book.

Officer has two objectives. The first is to put the U.S balance of payments from 1790 to 1919, where the official series begin, on a consistent basis, as previous work joined together series which were often incomplete and which used different approaches and different measures. More importantly, Officer expands coverage and improves the quality of the estimates. It would take a much longer review to even list the improvements in existing series. But the creation of new measures of the U.S net asset position and better measures of service trade are particularly noteworthy. The effort required to accomplish all of this is immense.  Consider the estimates for tourism. This requires 82 series for ocean fares (p. 283). In addition, Officer has to construct a new U.S CPI, and he generates measures of domestic U.S passenger transportation for rail, stagecoaches, etc.

Officer’s thoroughness is shown by the fact that he revisits earlier work by going back to the original sources and correcting errors of transcription, etc. He accomplished all of this, it would appear, working on his own without an army of research assistants. North, Simon, and Lipsey benefitted greatly from the institutional support of the NBER. Alas, the NBER no longer fills this function and Officer works on his own. The resulting book is a model of scholarship – he presents all his results; he outlines his methods and assumptions; he is modest and thoughtful; and he is generous in his praise of earlier work. Indeed, he dedicates the book to North and Simon. North is, of course, a towering figure. But Simon is a forgotten scholar whose wonderful work deserves recognition. Officer’s criticisms, when he makes them, are measured and fair.

The book is a major contribution to U.S economic history. To be sure, it does not change the broad outlines of what we know about U.S trade and foreign indebtedness before 1919 – North and Simon did their work well. But Officer puts the estimates on a firmer basis. Take the external terms of trade. Officer covers commodity and service trade for the entire period where most work in economic history is for commodity trade. He improves deflators and replaces the fixed weight price indices with a more appropriate deflator. The result is that we now have an external terms of trade series for the U.S from 1790 to now that is superior to the estimates for other developed economies. Throughout, Officer either improves on previous work or he provides new series.

Overall, the book is a monumental effort and its mastery of disparate sources puts it on a par with classics such as Lebergott (1964). It will surely stimulate further research. Officer’s early work on the dollar-pound exchange rate is partly responsible for the literature on long run real exchange rates which rehabilitated purchasing power parity (see Lothian and Taylor, 1996). This book will have a similar impact. To provide one instance, the improved measures of U.S foreign assets/liabilities will facilitate work for economic history along the lines of Lane and Milesi-Ferretti (2007).

The book is not an easy read. Officer starts off with a review of previous estimates. Next, there is a long digression on the movement of people. Following this, he outlines how he constructs each series, chapter by chapter. Only at the end of the book does Officer draw the series together and talk about his overall results. I would prefer that he start with the big picture. Throughout, the writing is dense and assumes considerable knowledge. To understand the basic issues with historical measures of U.S external transactions, the reader is advised to consult North and Simon before starting Officer. There are other difficulties. Officer provides important new series, but the summary statistics do not indicate how they differ from the old. Given the extensive reliance on interpolation, it would also help if he gave some indication of possible error margins. All in all, these are minor quibbles. A more serious problem is that some of the most important series appear only as diagrams – including the external terms of trade and the various price series. This is due to space constraints, but it is unfortunate. The author, or the publisher, should consider making all the series available in spreadsheet form on their websites.



Lane, Philip R., and Gian Maria Milesi-Ferretti. (2007) “The External Wealth of Nations Mark II: Revised and Extended Estimates of Foreign Assets and Liabilities, 1970–2004.” Journal of International Economics 73: 223-250.

Lebergott, Stanley. (1964) Manpower in Economic Growth: The American Record Since 1800. New York: McGraw-Hill.

Lipsey, Robert E. (1963) Price and Quantity Trends in the Foreign Trade of the United States. Princeton: Princeton University Press for the National Bureau of Economic Research.

Lothian, James R., and Mark P. Taylor. (1996) “Real Exchange Rate Behavior: The Recent Float from the Perspective of the Past Two Centuries.” Journal of Political Economy 104: 488-509.

North, Douglass C. (1960) “The United States Balance of Payments, 1790-1860.” In NBER Conference on Research in Income and Wealth, Trends in the American Economy in the Nineteenth Century, Studies in Income and Wealth, Vol. 24. Princeton: Princeton University Press for the NBER.

Simon, Matthew. (1960) “The United States Balance of Payments, 1861- 1900.” In NBER Conference on Research in Income and Wealth, Trends in the American Economy in the Nineteenth Century, Studies in Income and Wealth, Vol. 24, Princeton: Princeton University Press for the NBER.


John Devereux is professor of economics at Queens College, City University of New York. His areas of research are International Economics and Economic History.

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Subject(s):Economywide Country Studies and Comparative History
International and Domestic Trade and Relations
Geographic Area(s):General, International, or Comparative
North America
Time Period(s):18th Century
19th Century
20th Century: Pre WWII

Promoting Global Monetary and Financial Stability: The Bank for International Settlements after Bretton Woods, 1973–2020

Editor(s):Borio, Claudio
Claessens, Stijn
Clement, Piet
McCauley, Robert N.
Shin, Hyun Song
Reviewer(s):Rockoff, Hugh

Published by EH.Net (March 2022).

Claudio Borio, Stijn Claessens, Piet Clement, Robert N. McCauley, and Hyun Song Shin, eds. Promoting Global Monetary and Financial Stability: The Bank for International Settlements after Bretton Woods, 1973–2020. Cambridge: Cambridge University Press, 2020. xviii + 268 pp. $110 (hardback), ISBN 9781108495981.

Reviewed for EH.Net by Hugh Rockoff, Department of Economics, Rutgers University.


This collection of six essays was created to celebrate the 90th birthday of the Bank for International Settlements (BIS). It covers the years 1973–2020. Toniolo and Clement (2005) covered 1930–1973 in a detailed and well-received volume.

The BIS was established in 1930. Its first home was in the former Savoy Hôtel Univers in Basel, Switzerland. It was part of the Young Plan to facilitate the payment of Germany’s World War I reparations. However, its raison d’être soon disappeared with the moratoria on German reparations. During the 1930s, moreover, the reputation of the BIS was tarnished when it accepted deposits of gold looted by the Nazis. At the Bretton Woods Conference, there were calls, including one from the top American negotiator Harry Dexter White, to liquidate the BIS. After all, two new international agencies, the International Monetary Fund and the World Bank, would govern the international financial system. This recommendation, however, failed to garner sufficient support.

Although the BIS provides some banking services for central banks, its main functions, to judge from these essays, are twofold: to provide a forum where central bankers can discuss common problems and form relationships and to provide research and analysis. It is difficult to place objective values on these services. The essays abound with phrases like “forum for information exchange and discussions,” “forum for central bank cooperation,” “ideal venue for cooperation” and so on, but how much this meant is difficult to say. The same is true of its role as supplier of information and ideas. The BIS has an active research department, but measuring its impact is difficult.

This book is a birthday present from and for the BIS. There are no naysayers here. Nevertheless, the six essays in this well-planned volume – the first five by distinguished academic students of central banking and international finance and the final essay by a distinguished practitioner – are to my mind, cautious and persuasive.

The first chapter, by Harold James, “The BIS and the European Monetary Experiment,” delivers what the title suggests: a clear and informative description of the road to the Euro emphasizing the role of the BIS.

The second chapter, by Caroline R. Shenk, “The Governance of the Bank for International Settlements, 1973–2020” takes the reader through the changing organizational structure of the BIS. The need to expand the membership of the BIS to reflect the changing structure of international finance while preserving its ability to serve as a forum for central bank cooperation was, it turns out, especially challenging.

The third chapter, by Chris Brummer, “A Theory of Everything: A Historically Grounded Understanding of Soft Law and the BIS,” describes the role of the BIS in promoting and developing the Basel capital standards. These standards are “soft law” because individual nations retain the right to place legally enforceable restrictions on its banks. However, as Brummer explains, the Basel standards have influenced the laws that nations adopt, and so have had an enormous influence.

The fourth chapter, by Andrew Baker, “Tower of Contrarian Thinking: How the BIS Helped Reframe Understandings of Financial Stability,” argues that the BIS played a crucial role in the development and promulgation of the concept of “macroprudential regulation.” This is the idea that, for example, capital requirements for banks should be changed over the course of the business cycle, ratcheting up during economic expansions and down during contractions, thus (hopefully) moderating the business cycle and preventing financial crises.

In the fifth chapter, Barry Eichengreen furthers the discussion of the evolution of the BIS’s thinking about international financial markets and regulation including macroprudential regulation. The chapter is based on a close reading of the annual reports of the BIS and other sources, providing a good example of what can be accomplished through meticulous scholarship.

The final chapter, “The Bank of International Settlements: If It Didn’t Exist, It Would Have to Be Invented (An Insider’s View),” was written by William C. Dudley, who has served as President of the Federal Reserve Bank of New York and on various committees of the BIS, making, he tell us, over 50 trips to Basel. Dudley provides some weighty examples drawn from his own experience of central bank cooperation that were facilitated by the forum provided by the BIS. For example, Dudley argues that in 2008 the rapid deployment of a system of central bank dollar auctions was made possible by personal relationships forged at the BIS.

When I began reading, I was skeptical that a case for the importance of the BIS could be based on its provision of a forum for central bank cooperation and of a center for research. These are both areas where, as I noted, measurement of impact is hard if not impossible. It is, moreover, easy to think of counterfactual substitutes. In the absence of the forum for discussions created by the BIS, would there have been more conferences like the famous conference at Jackson Hole hosted by the Federal Reserve Bank of Kansas City? More Zoom webinars? And in the absence of the BIS research department wouldn’t its researchers have found other places to ply their trade? However, in the end I found the book convincing. Like most economists, I think competition is a good thing, and this appears to be another example. Michael Bordo and Edward Prescott (2019) have argued that the system of competing research departments in Federal Reserve District Banks has proven its worth. It makes sense that the same is true when it comes to international financial agencies.

This clear, judicious, and persuasive volume is well worth reading by someone like myself:  interested in the recent history of international finance, but not an expert. I learned a lot. Moreover, I believe it will be required reading for scholars studying the evolution of the institutional structure of international banking, finance, and monetary policy.


Bordo, Michael D., and Edward S. Prescott. “Federal Reserve Structure, Economic Ideas, and Monetary and Financial Policy.” NBER Working Paper 26098, 2019.

Toniolo, Gianni, and Piet Clement. Central Bank Cooperation at the Bank for International Settlements, 1930-1973. New York: Cambridge University Press, 2005.


Hugh Rockoff is Distinguished Professor of Economics at Rutgers University. His primary research interests include the history of price controls, the U.S. economy in World War II, and U.S. monetary history.

Copyright (c) 2022 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 (March 2022). All EH.Net reviews are archived at

Subject(s):Economic Planning and Policy
Financial Markets, Financial Institutions, and Monetary History
Macroeconomics and Fluctuations
Geographic Area(s):General, International, or Comparative
Time Period(s):20th Century: Pre WWII
20th Century: WWII and post-WWII

Career and Family: Women’s Century-Long Journey Toward Equity

Author(s):Goldin, Claudia
Reviewer(s):Folbre, Nancy

Published by EH.NET (January 2022).

Claudia Goldin. Career and Family: Women’s Century-Long Journey Toward Equity. Princeton: Princeton University Press, 2021. xii + 344 pp. $27.95 (hardback), ISBN 978-0-6912-0178-8.

Reviewed for EH.NET by Nancy Folbre, Professor Emerita of Economics, University of Massachusetts Amherst.


Gender inequality in earnings can’t be entirely blamed on discriminatory preferences, because it is deeply inscribed in the institutional structure and technology of modern economies. In her latest book, Career and Family, Claudia Goldin drives this point home. Along the way, she provides a compelling history of the ways in which successive cohorts of college-educated women in the U.S. managed to engineer new routes of economic opportunity and lead a “quiet revolution” in gender roles.  In her view, the biggest roadblock they now face–conflicting demands of work and family–is emblematic of a larger conflict between efficiency and equity.

Her basic argument will be familiar to fans of her previous research, especially her 2006 American Economic Review article “The Quiet Revolution That Transformed Women’s Employment, Education, and Family.” This book, aimed at a larger audience, includes biographical narratives that illustrate the ways in which individual women built on the successes of previous generations to claim opportunities for themselves. At the same time, it emphasizes a basic dilemma that limits women’s room for maneuver.

Work is greedy, and families are needy. Women prefer the flexibility to commit to both but pay a high price for “having it all” because the marketplace pays a premium for professionals and managers willing to work long hours.  Even high-powered couples who might prefer to equitably share family care responsibilities find it costly, requiring a huge sacrifice of potential earnings from a primary—and highly specialized– breadwinner. The trade-off can best be alleviated by changes in the temporal demands of high-wage employment, but these demands are largely driven by gains from specialization, continuity, and flexibility on the job.

The basic roadmap of career/family conflict is well-traveled. Goldin’s distinctive contribution lies in her economic analysis. While some legal scholars like Joan Williams and Nancy Segal (2003) apply terms such as “family responsibility discrimination,” Goldin highlights the impact of relative prices on both the demand side and the supply side of the labor market.  Whether or not employers have discriminatory attitudes, they prefer to hire—and are willing to pay a premium for—ideal workers willing to put in long hours. Some highly educated women find ways around the problem; others voluntarily sacrifice career prospects in return for a package that includes both greater affluence and more time for their children.

While compelling in many respects, this economic analysis relies heavily on paradigmatic neoclassical assumptions.  By Goldin’s account, care for family members represents a personal preference rather than a productive contribution, and market wages are accurate markers of productivity. In my view, she defines efficiency too narrowly, overlooking the possibility that current institutional structures governing interactions between the family, the market and the state are inefficient as well as unfair.

Gender specialization in marriage has mixed consequences. Mothers without access to independent income face significant financial risks, especially if they lack personal wealth. Divorce has more negative consequences for caregivers than for breadwinners, and the threat of significant reduction in post-divorce living standards reduces women’s bargaining power within families. As Shelly Lundberg and Robert Pollak (2003) explain, contracting and bargaining problems can undermine Pareto optimality in marriage; women are increasingly aware of the potential costs of economic dependence. Fathers who devote little time to their children may fail to develop a close relationship with them, with adverse consequences for family members that can neutralize the benefits of higher income (Petts et al. 2020). Specialization can lead to outcomes that leave everyone worse off.

The decision to raise children or care for other dependent family members can be described as an effort to maximize individual utility. However, such effort is constrained by costs that are shaped by social institutions beyond the market, and it leads to consequences for economy as a whole—such as the future supply of workers and taxpayers.  The increasing costs and risks of raising children help explain why fertility rates in the U.S. (as in many other countries) have fallen far below replacement levels.  Research on the fiscal consequences of fertility decline raises important questions regarding the “efficient” distribution of the costs of investment in human capabilities (Wolf et al. 2011).

Just as greater family income doesn’t always signal greater family efficiency, higher earnings don’t always signal higher productivity. Goldin and others (e.g., Cha and Weeden 2014) convincingly show that earnings per hour in the U.S. increase substantially with total hours of work.  However, a wage premium does not necessarily imply a total compensation premium:  non-wage compensation (including employee benefits) can exceed 40% of total compensation for high earners, and much of it represents a fixed cost that is amortized over increased hours of employment (Gittleman and Pierce 2013).

Many customers and clients value flexibility and continuity, but these needs can potentially be met by institutional reorganization, such team-based services. Problems with lack of continuity in the U.S. health care system have less to do with providers’ hours on the job than with specialization and institutional incentives to cut costs (Frey 2018). Indeed, long hours of health care provision can lead to serious errors; the medical profession validated concerns about the adverse effects of hospital residents’ extreme hours in 2003 when it placed strict limits on shift lengths (Keller et al. 2009).

Bankers and CEOs may well prefer subordinates who are at their beck and call. Is this a productivity-related imperative or a privilege of managerial power? Both institutional inertia and information problems complicate the answer to this question. Like a college diploma that is costly to acquire but not actually necessary for effective job performance, willingness to work long hours may be a signal of potential worker effort that moves job applicants to the head of the hiring queue. Cha and Weeden (2014) offer some evidence that rat-race effects push many into longer work hours than they would prefer. This coordination problem helps explain public choices to regulate hours of employment.

Trade-offs are often a fact of life, and public policies can’t always assuage them. Potential gains from specialization, continuity, job-specific skills, and single-mindedness will always loom large—in both careers and families. On the other hand, life is a portfolio that invites diversification, and many important assets—like healthy family and community members– are undervalued simply because they can’t be bought and sold. Much depends on how gains are defined, and for whom.

Goldin calls out the inequitable division of labor that assigns women more responsibility than men for family care, but her focus on career-oriented college-educated women deflects attention from other dimensions of inequality.  Women without a college education have been far less successful than their more credentialed counterparts at winning work-family benefits such as paid family leave from their employers (Adelstein and Peters 2019). International comparisons show that the effect of national family policies is strongly mediated by earnings inequality—with greatest benefits for low earners (Hook and Paek 2020).

Earnings inequality can reduce the incentives for more affluent women to support progressive family policies that would increase public investments in care infrastructure, and even encourage indifference toward the many low-wage women–from nannies and housecleaners to childcare and eldercare workers–who help keep the price of outsourced domestic services relatively low. In the U.S., college-educated mothers living in cities with large numbers of women immigrants are able to put in longer hours on the job (and also raise more children) than those living in comparable cities (Cortés and Pan 2019).

From a market-centric perspective, this represents an efficient outcome. However, in my book, it doesn’t qualify as a grand convergence or a gender revolution.


Adelstein, Shirley, and H. Elizabeth Peters. 2019. “Parents’ Access to Work-Family Supports.” The Urban Institute. Accessed January 2, 2022.

Cha, Youngjoo, and Kim A. Weeden. 2014. “Overwork and the Slow Convergence in the Gender Gap in Wages.” American Sociological Review 79:3, 457-484.

Cortés, Patricia, and Jessica Pan. 2019. “When Time Binds: Substitutes for Household Production, Returns to Working Long Hours, and the Skilled Gender Wage Gap.” Journal of Labor Economics 37:2, 351-398.

Frey, John J. 2018. “Colluding with the Decline of Continuity.” The Annals of Family Medicine 16:6, 488-489.

Gittleman, Maury, and Brooks Pierce. 2013. “An Improved Measure of Inter-Industry Pay Differentials.” Journal of Economic and Social Measurement 38:3, 229-242.

Goldin, Claudia. 2006. “The Quiet Revolution That Transformed Women’s Employment, Education, and Family.” American Economic Review 96: 2, 1-21.

Hook, Jennifer L., and Eunjeong Paek. 2020. “National Family Policies and Mothers’ Employment: How Earnings Inequality Shapes Policy Effects Across and Within Countries.” American Sociological Review 85:3, 381-416.

Keller, Simone M., Phyllis Berryman, and Eileen Lukes. 2009. “Effects of Extended Work Shifts and Shift Work on Patient Safety, Productivity, and Employee Health.” Aaohn Journal 57:12, 497-504.

Lundberg, Shelly, and Robert A. Pollak. 2003. “Efficiency in Marriage.” Review of Economics of the Household 1:3, 153-167.

Petts, Richard J., Chris Knoester, and Jane Waldfogel. 2020. “Fathers’ Paternity Leave-Taking and Children’s Perceptions of Father-Child Relationships in the United States.” Sex Roles 82:3, 173-188.

Williams, Joan C., and Nancy Segal. 2003. “Beyond the Maternal Wall: Relief for Family Caregivers who are Discriminated Against on the Job.” Harvard Women’s Law Journal 26, 77-162.

Wolf, Douglas A., Ronald D. Lee, Timothy Miller, Gretchen Donehower, and Alexandre Genest. 2011. “Fiscal Externalities of Becoming a Parent.” Population and Development Review 37:2, 241-266.


Nancy Folbre is Professor Emerita of Economics at the University of Massachusetts Amherst. Her most recent book is The Rise and Decline of Patriarchal Systems (New York: Verso, 2021).

Copyright (c) 2022 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 (January 2022). All EH.Net reviews are archived at


Subject(s):Household, Family and Consumer History
Labor and Employment History
Social and Cultural History, including Race, Ethnicity and Gender
Geographic Area(s):North America
Time Period(s):20th Century: Pre WWII
20th Century: WWII and post-WWII

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