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A Fabulous Failure: The Clinton Presidency and the Transformation of American Capitalism

Author(s):Lichtenstein, Nelson
Stein, Judith
Reviewer(s):Galbraith, James K.

Published by EH.Net (September 2023).

Nelson Lichtenstein and Judith Stein. A Fabulous Failure: The Clinton Presidency and the Transformation of American Capitalism. Princeton: Princeton University Press, 2023. 525 pp. $39.95 (hardback), ISBN 978-0691245508.

Reviewed for EH.Net by James K. Galbraith, Lyndon B. Johnson School of Public Affairs, The University of Texas at Austin.


This splendid book is an unconventional collaboration. Judith Stein, Distinguished Professor of History at the City University of New York, began to write the history of Clintonism before her passing in 2017. Nelson Lichtenstein, Research Professor of History at the University of California, Santa Barbara, picked up the notes, drafts and archives, and has now finished the job.

A Fabulous Failure is an intellectual history expressed in politics. It chronicles how the Clinton years were for Democrats what Reagan’s had been for Republicans: a grand showcase of competing plans, roped together by an impresario. The authors’ signal achievement lies in tracing ideas, particularly those developed by the party’s progressive wing, from their origins at MIT, Berkeley, Princeton, and Harvard’s Kennedy School to their demise at the White House and on Capitol Hill.

The book is organized as parallel chronologies, each covering a major economic or social policy debate (and debacle) of Clinton’s presidency: health, trade (with Japan, Mexico, and China), industrial relations, “reinventing government,” welfare, international debt crises (Mexico, 1995, and Asia, 1997), and the final paroxysm of banking deregulation in 1999 and 2000. Apart from trade, crucial foreign policy issues are not covered. The mishandling of Russia rates just a few pages; NATO, Bosnia, Croatia, Serbia, and Kosovo do not appear in the index; the bombing of the Chinese embassy in Belgrade is mentioned but written off as a “mistake.” (There is no good reason to believe this.)

This reviewer haunts these pages like Banquo’s Ghost. Though some years younger than most of Clinton’s top advisers, my career in American public policy was over by 1992. Still, in the previous decades it had intersected with most of the players described here, going back to Clinton himself at the McGovern headquarters in Washington in 1971. In the 1980s at the Joint Economic Committee I had organized hearings and sponsored studies, collaborated or competed with fellow staffers, and (then and later) written many articles for the small journals where Democratic progressives made their mark, notably Working Papers Magazine and The American Prospect. A Fabulous Failure is, to me, a story of acquaintances, old colleagues, and friends.

Their mood, reflected in some harsh blurbs, is of dreams betrayed. Michael Kazin writes of “a dubious agenda of neoliberalism.” Robert Kuttner writes of “ideological seduction and political corruption”. The bitterness is personal. Much is directed at Clinton; some at the economists (Larry Summers), the political entrepreneurs (Al From, Dick Morris), and the Wall Streeters (Robert Rubin) who ended up on the winning side in the Clinton policy wars. Among the losers, Labor Secretary Robert Reich stands out, especially as he was an old “Friend of Bill” and hoped for more clout than he would enjoy.

What did Clinton’s progressives want? They were not radicals. Broadly, their faith was in institutional reform, economic democracy, business-labor codetermination, and managed trade. Their inspirations were Swedish social democracy, French health care, Italian decentralized manufacturing, and the tamer parts of the New Deal/World War II mobilization legacy, not including price control or strict subordination of the Federal Reserve. Their goal was to revive American industry while strengthening labor, to foster investments in science and technology, to expand the welfare state, especially health insurance. Their tools were—largely—argument, exhortation, and negotiation.

Without excusing Clinton, Rubin or Summers, a fair-minded observer should ask, how realistic and reasonable were the ideas (and campaign slogans) of such people as Reich, Kuttner, Derek Shearer, and Laura Tyson? Many had spent the Reagan-Bush years in academic incubators; some (for instance Ira Magaziner, who ran the Clinton health care effort) had been in consulting; Kuttner was (and remained) a magazine editor. Their beau ideal was often the “thirty glorious years,” 1945-1975, of the postwar epoch in the United States and Europe. They were not working in politics or the unions in the early 1980s and, I fear, their understanding of the irreversible industrial destruction wrought by Reagan and Federal Reserve Chairman Paul Volcker’s disinflationary policy was often superficial. Monetary and budget economics did not much interest them. Japan was the main threat they perceived. China was a mystery to them, its potential neither known nor noted. Russia played no role on their stage except as a broken model, that of “Soviet central planning”. In retrospect, arguably, the leading progressives of the early 1990s were already behind their times—even though the conventional thinkers who bested them were their intellectual inferiors in many respects.

The progressives thus ceded macroeconomic and financial control to the other wing of the Clinton coalition—to budget balancers like Leon Panetta, to mainstream economists, to Robert Rubin and his money men, and to Alan Greenspan at the Federal Reserve. This, along with the complexities of institutional (and international) compromise in areas like health, industrial relations, and trade, doomed their projects. Nor were the progressives always on the ball. As Lichtenstein and Stein observe, Clinton’s greatest domestic policy misdeed—the deregulation of finance—encountered only slight opposition from his progressive wing at the time. Clinton himself, rather like Reagan but with even fewer fixed principles, was mainly interested in his own political success. Top American politicians rarely survive otherwise, as the progressives who were charmed by him eventually learned.

And yet, as Lichtenstein and Stein acknowledge, not everything failed. There were successes—some sustainable, others not—among the debacles. Thanks to Greenspan, who held his fire after 1995, Clinton presided over a long boom, reaching full employment without inflation by the late 1990s. Growth was fueled by investments in new technologies, not the refurbishing of old ones. AFDC was abolished, but the Earned Income Tax Credit, together with abundant jobs, drove poverty down. Health care reform failed, but eventually Medicaid expansion (alongside CHIP, for children) became the go-to form of single-payer coverage for, presently, about ninety million Americans. Part of the resentment progressives now express may, perhaps, be put down to the fact that the successes (such as they were) did not flow from their ideas. Some, indeed, defied their predictions.

Lichtenstein and Stein flash forward occasionally, for example to the Great Financial Crisis of 2008—Clinton’s direct legacy—and to Obama’s Affordable Care Act, the resurrection of his first failure. They pass over Bush’s wars and the entrenchment of the Rubin coterie under Obama with at most a few words. But they do note that under Biden, elements of the 1990s industrial agenda have at last broken through. In 2020, Trump and Covid busted budget orthodoxies, incidentally validating Modern Monetary Theory. In 2021 and 2022, infrastructure, renewable energy, and advanced manufacturing got attention and funding. Inflation—briefly resurgent—seems to be abating without a bust, leaving mainstream economists mystified and the Federal Reserve apparently irrelevant, except to the money markets. Kuttner, among others, sees these developments as a kind of vindication.

I fear my old friend’s optimism is misplaced. Biden’s boom (even more than Clinton’s) rests on a fragile foundation. It depends on fracked fossil fuels, possibly already in decline, and on renewable forms of energy that may soon run up against resource and engineering limits. His chip policy presumes an industrial competence that disappeared at least two decades back. His government, long ago outsourced to private contractors, lacks the technical ability to run the policies that his advisers believe necessary. These days, the American government mostly writes checks.

Most of all, Biden’s policy of taking on China and Russia at once—a policy inflamed by moralizing—rests on a vast underestimate of the weight and power of these two countries. Clinton arrived at the dawn of the unipolar age, which placed him under the obligation to manage American power wisely and with restraint. This, notably in Russia, Yugoslavia, and with respect to NATO in Eastern Europe, he failed to do. This reviewer began to visit Russia back then and heard directly the bitter reaction to the looting and chaos of those “liberal” times. Russia has since recovered its social balance, its economy, and its military power. Clinton’s China policy, moreover, was based on a fantasy of Western cultural superiority—“engage with them and they’ll become like us.” I also advised in China in the 1990s and knew then that the Chinese were not going to take that bait. They didn’t, and today, China’s economy is larger than ours and hardly less advanced.

After Clinton, George W. Bush launched America into brutal invasions, demolishing America’s reputation worldwide. Obama aggravated relations with Russia, and Trump broke with China. Today, as Biden pursues simultaneous conflict with Russia and China, the US is squeezed out of the Middle East by the Saudi-Iran rapprochement. Meanwhile “social-democratic” Europe, long a hollow fiction under the neoliberal EU, is crumbling under sanctions and energy sabotage, aimed at Russia but wreaking havoc, especially, on Germany. Though the hegemony of the dollar and Treasury bond has not disappeared, its days may be numbered. Yes, the US economy is holding up, for now. There is no basis for confidence in the long term.

Today, we are very far from the thirty glorious years. We are also long past the peak of US primacy and free maneuver in the world. Perhaps, indeed, the progressives of the Clinton era had already missed their moment, now thirty years ago, when they were offered a fleeting chance to play at power. Yet their influence remains; their perspectives, preconceptions, commitments, and judgments still largely dominate what passes for progressive thought in America today. At the core of their worldview, the United States and the Western European countries are the good ones—the democratic and economic beacons of their youth, imperfect but fixable, given political goodwill and institutional reforms. This leaves the serious matters to financiers, information tycoons, foreign policy ideologues, and the Joint Chiefs of Staff.

It will not end well.


James K. Galbraith holds the Lloyd M. Bentsen, Jr. Chair in Government/Business Relations at the Lyndon B. Johnson School of Public Affairs at The University of Texas at Austin. He was Executive Director of the Joint Economic Committee in the 1980s, Chief Technical Adviser for Macroeconomic Reform to the State Planning Commission of the People’s Republic of China in the 1990s, adviser to the Finance Ministry of Greece in 2015, and recently elected to the Russian Academy of Sciences.

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
Government, Law and Regulation, Public Finance
Macroeconomics and Fluctuations
Geographic Area(s):North America
Time Period(s):20th Century: WWII and post-WWII
21st Century

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

Banking on Slavery: Financing Southern Expansion in the Antebellum United States

Author(s):Murphy, Sharon Ann
Reviewer(s):Bourne, Jenny

Published by EH.Net (September 2023).

Sharon Ann Murphy. Banking on Slavery: Financing Southern Expansion in the Antebellum United States. Chicago: University of Chicago Press, 2023. 419 pp. $105 (hardback), ISBN 978-0226824598.

Reviewed for EH.Net by Jenny Bourne, Carleton College.


In 2005, JP Morgan Chase made history by apologizing for its involvement in Southern slavery and setting up a scholarship program for African American students from Louisiana. Sharon Ann Murphy, among others, argues that the bank’s gesture was “incredibly small . . . [but] important” (p. 320) in recognizing the role Southern commercial banks played in promoting and preserving slavery. Her book offers substantial detail about individual banking transactions involving slaves and hypothesizes that the willingness of banks to adapt to the changing needs of slave society was key in developing the frontier South in the 1820s and 1830s. Murphy also suggests that the financial panics of 1837 and 1839 put the brakes on Southern commercial banks’ involvement in the peculiar institution.

Like Caesar’s Gaul, Murphy’s analysis is divided into three parts. Part I describes banking in the early Republic, which focused on small, unsecured, short-term loans that were often renewed. In response to the needs of slaveowners, some banks experimented with longer-term loans collateralized by slave property. Part II examines the growth of these arrangements as Southerners moved west and established large plantations on the frontier. Part III explores the conundrum faced by Southern banks in the wake of crippling financial panics: should they foreclose on debtors and face the risk of either owning slaves themselves or attempting to sell in a down market, or should they offer leniency and encounter possible solvency problems? Murphy argues that banks chose the latter, which resulted in widespread bank failure and a withdrawal of commercial banks from the financing of slavery.

The strengths of this book are its connections to the broader literature regarding institutions and its finely drawn descriptions of particular scenarios. For instance, chapter 1 looks at the emergence of commercial banking and its initial focus on short-term lending to facilitate trade. Chapters 1 and 2 explore the legal question of whether slaves constituted real estate or personal property, and chapter 3 refers to issues surrounding women’s rights to own and manage property. Descriptions of the disposal of large estates and the property of delinquent debtors, down to the names and ages of slaves as well as the number of times they were put up for sale, give an agonizingly human face to slave property (pp. 31-39). Tales of multiple families absconding to Texas to escape paying debt in the wake of financial panic makes clear how precarious the living situation was for slaves owned by these families (pp. 228-242). The case study of P.M. Lapice offers a fascinating look at the 60-year career of an entrepreneur and plantation owner who operated in Mississippi and Louisiana (pp. 296-304).

Yet what is strength is also sometimes weakness. At times, the level of detail causes the reader to lose the narrative thread. As just one example, Murphy describes various financial transactions of the Girault family but does not explain why these fit into her argument (pp. 58-61). And is this the same Girault family she cites later (pp. 121-123)? Better connections to hypotheses and across anecdotes might improve flow.

More critically, the author’s lack of a theoretical model, exclusion of other financial institutions from the analysis, failure to contextualize, and incomplete use of quantitative evidence call into question how robust her claims might be. Murphy explicitly focuses on Southern commercial banks and omits banks located elsewhere as well as other sorts of financial intermediaries (pp. 12-13). So how did long-term finance occur in the South before commercial banks got in the picture? Is it possible that Southern commercial banks simply saw an ex ante profit opportunity arise as the frontier opened up and decided to get into the long-term lending game? And then realized ex post that they did not have a comparative advantage in taking on risk in a down market? As another example, she claims that the capital intensity of the sugar industry “magnified the demand for long-term loans” (p. 110), but didn’t the North also have capital-intensive industries? How did Northern banks cope? (As a minor note, capital-intensive production is not equivalent to economies of scale (p. 142).) She makes an elliptical reference to antebellum language that “could have been made in 2008… with only the removal of the word ‘negroes’” (p. 162) – mightn’t this imply that banking with slavery isn’t so different from banking without? Table 9.3 and the surrounding text suggest that a particular commercial bank lent to medium and large slaveholders but not to small and very large ones. This is interesting, but I would have liked the author to speculate more as to why. Perhaps small slaveholders simply didn’t have sufficient collateral and very large ones had other borrowing options?

I understand wanting to keep the focus narrow, but a few umbrella statistics would have helped me understand if the author’s numbers are large or small and whether they are representative or not. New Orleans bank capital in 1838 was $55 million – how big is this relative to national bank capital (p. 5)? Murphy lists the number of Southern bank charters granted and banks closed at various points in time but not the size of bank assets (Tables 1.1, 3.1, 8.1, 9.1, and 9.4). Were large banks receiving charters and small banks exiting the industry, or did another pattern dominate? The author states that the number of banks for the five states of the lower frontier grew by more than 400 percent from 1820 to 1838 (p. 82). Table 3.1 suggests that this was large relative to other regions, but what are the related growth rates in bank assets overall and bank assets on a per capita basis? Table 8.2 offers an example of a property sale by the Bank of Orleans occurring in the early 1840s. Are the numbers typical for assessed values and sale prices for the reported assets at this time?

A couple of picky points: I think the author means well by the epilogue and her comments on how to remember the financialization of slavery, but this section seems tacked on. What is more, I found the constant use of the phrase “enslaved lives” instead of “slaves” a touch contrived. I admire the desire to remind the reader that we are talking about human beings. But perhaps her statement that “it is the voices and experiences of the enslaved themselves that are most absent from this study” (p. 14) is sufficient.

In short, this book is well worth reading for scholars of banking history, slavery, and antebellum institutions generally. The author has clearly done her homework in various archives, and the details associated with individual cases are often fascinating. I think her work would, however, benefit from greater attention to an underlying theoretical model of bank behavior, a more rigorous use of data and statistics, and stronger connection to context.


Jenny Bourne is Raymond Plank Professor of Economics at Carleton College. Jenny has authored books on the Grange movement and the economics of Southern slave law and numerous journal articles on American economic history, law and economics, and tax policy.

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):Financial Markets, Financial Institutions, and Monetary History
Servitude and Slavery
Geographic Area(s):North America
Time Period(s):19th Century

Unequal Cities: Overcoming Anti-Urban Bias to Reduce Inequality

Author(s):McGahey, Richard
Reviewer(s):Gray, Rowena

Published by EH.Net (September 2023).

Richard McGahey. Unequal Cities: Overcoming Anti-Urban Bias to Reduce Inequality. New York: Columbia University Press, 2023. ix + 197 pp. $35 (hardcover), ISBN 978-0231173346.

Reviewed for EH.Net by Rowena Gray, Department of Economics, University of California, Merced.


This is a timely book, providing historical and institutional context to urban problems such as housing affordability, crime, and unequal education systems. Most of the world has urbanized under a variety of organizational structures. McGahey, economist at the New School’s Schwartz Center, has a long record of work on these issues. His connections to the policy world through think tanks such as the Brookings Institution make him well placed to develop a unifying framework that moves beyond the dominant view. The book associates that view with Jimmy Carter’s Commission for a National Agenda for the Eighties, which declared that there were no national urban problems, just a bunch of individual cities each with its own issues.

To illustrate his thesis, the author presents the details of just three cities from that bunch: New York, Los Angeles, and Detroit. The main point is that, rather than nurturing cities as the centers of our economic success that they are, the United States political system is set up to overvalue the preferences of rural voters and smaller states, preventing cities from taking charge of their own destiny. Further, given that technology allows for ever larger metropolitan areas, center cities have been increasingly hamstrung in making their own policy relative to wealthier suburbs which share the benefits of economic growth but are then able to insulate themselves from paying for the problems of center cities and enjoy the better education, safety, environments and so forth of their growing tax bases.

At first I wondered what could be learned from knowing more details about how much of a basket case Detroit has become. But the author does a nice job of plotting out how Detroit was an early adopter of the sprawling city model, with newly built suburbs for whites and the eventual move of the automobile plants to follow. There will be a new rust belt at some point in the future and managing declining cities is possibly more difficult than managing growth, so this is a useful case study. Of course, we might think of more case-study cities that we would have liked to see included—Houston would be my top candidate, as it had about the same population as Detroit in 2000 but coming after 50 years of growth rather than decline. Houston’s successes with homebuilding have been highlighted elsewhere and it would be interesting to contrast the institutional context there with other cities.

McGahey puts political structure front and center, but he does give sufficient space to inequality and race as other key factors driving current urban problems. Certainly, inequality has risen in many American cities over the past few decades, and elite capture of high offices could even be more explored in the book. The book’s case studies show that inequality and the political structure are not always tightly linked, though—Detroit doesn’t suffer from inequality in the same way as New York and Los Angeles. Similarly, the same political system existed in the immediate post-WWII period but other conditions such as prolific house building kept inequality in check.

The book entertains innovative solutions to the organizational conundrum, such as allowing for a city-state type structure of governance or returning to cities the greater powers to annex their surrounds that they possessed in the nineteenth century. While some of the practical, immediate solutions offered in the book, such as bolstering unions and giving them more voice, would be controversial among economists, most would agree with the more relaxed approach to zoning that the book suggests. An extension of this policy exploration might look to what happens in other federal-style countries, to pin down what it is that they do better that could be implemented in the U.S.

What kinds of changes would we see if politics were organized around metropolitan areas, as the book proposes? Maybe New York Governor Kathy Hochul’s housing plan could have passed instead of being blocked by NIMBY suburbs. Perhaps, though, NIMBYs would simply devise alternate strategies to block unwanted development, or other economic divides would become sharper, such as is seen in the UK where the Greater London area has been able to grow to double the area of New York City but whose dominance in the UK economy has arguably hampered outer region growth. McGahey, however, is not full of such pessimistic notions—he points to some recent collaborations of interest groups in Los Angeles through their so-called Community Benefit Agreements which link development plans to benefits for other groups such as workers and consult other interested groups like environmentalists who might otherwise block development. It’s not clear that this sort of piecemeal approach is the way forward. New York has struck some such deals, and McGahey rates those deals struck as bad for citizens, indicating a fundamental problem—these arrangements have to be negotiated by individual politicians, who might make mistakes or be bad actors.

The readers of EH.Net will probably be confused by the use of the straw man of the typical neoliberal economist in this book. McGahey asks us to believe that the average urban economist doesn’t think that politics are important and is laser-focused only on cities as drivers of innovation and growth. For economic historians, who have been at the forefront of documenting inequality and who are open to learning from other disciplines and are used to considering institutional context, the notion that economists believe the market solves all problems will not ring true. It’s a useful rhetorical tool in the book, and it makes sense given McGahey’s involvement with movements to diversify economic thinking such as the Institute for New Economic Thinking, but it’s a little heavy handed at times.

One key lesson that I took away from the book—in times of great crisis like the Great Recession (or individual fiscal crises of cities), the long-run consequences can be dire for services like education and safety and suggest a role for other levels of government to step in to avoid extreme austerity at the city level. Because federal funds since the Nixon and Reagan eras have been distributed to states, cities haven’t even been receiving a fair share of recovery resources. I took less from the more speculative epilogue, which mulled the future of cities in the polarized political sphere that we now find ourselves in. We learn so much more from the rich historical and institutional context that is packed into every other part of the book.

Ultimately the book is a very accessible depiction of some of the key issues facing the people of the United States today, providing rich detail for those interested in urban policy and for especially for readers in the case-study cities. Trying to explain the underlying reasons for underinvestment in city education and housing systems, recently brought into sharp focus by the COVID-19 pandemic, is a worthy task and done well in this new book.


Rowena Gray is associate professor of Economics at the University of California, Merced. Her work on technological change has appeared in Explorations in Economic History and Labour Economics, and she currently works on the urban history of crime and housing in the United States.

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
Government, Law and Regulation, Public Finance
Urban and Regional History
Geographic Area(s):North America
Time Period(s):20th Century: WWII and post-WWII
21st Century

Secret Leviathan: Secrecy and State Capacity under Soviet Communism

Author(s):Harrison, Mark
Reviewer(s):Åslund, Anders

Published by EH.Net (September 2023).

Mark Harrison. Secret Leviathan: Secrecy and State Capacity under Soviet Communism. Stanford, CA: Hoover Institution and Stanford University, 2023. xxv + 341 pp. $65 (hardback), ISBN 978-1503628892.

Reviewed for EH.Net by Anders Åslund, Georgetown University.


Mark Harrison, now Emeritus Professor of Economics of the University of Warwick, has devoted his long academic career to the study of the Soviet economy. He is one of the world’s leading authorities on this topic and is as erudite as he has been prolific. His new book Secret Leviathan: Secrecy and State Capacity under Soviet Communism makes yet another valuable contribution to this subject.

This book is devoted to the Soviet preoccupation with secrecy. Indeed, Soviet history is a story of secrecy. Needless to say, we all know that, but Harrison has much to contribute. He is systematic and comprehensive, going deeply into the evidence. He benefits greatly from archival studies, partly of general Soviet archives, partly from studies of the KGB archives in Lithuania held by the Hoover Institution at Stanford University, which holds the finest open Soviet archives in the world. Harrison knows the Soviet experience and all the relevant literature and he offers a well-structured eminent analysis. His empirical examples are multiple and illustrative. He makes no factual errors.

Harrison goes through secrecy systematically. His book consists of eight chapters. The first chapter explains what he means with “Secret Leviathan.” The second deals with the tradeoff between secrecy and capacity. The third chapter discusses the secrecy tax, that is, the cost of secrecy, the fourth secrecy and fear. The ensuing two chapters deal with secret policing with regard to discrimination and mistrust, respectively. The seventh chapter, which I find the most interesting, explains how secrecy kept the elite uninformed. The last chapter is forward-looking: secrecy and twenty-first century authoritarianism.

While the chapters are not presented as chronological, they really are. Harrison weaves into his systematic discourse the evolution of secrecy from Lenin via Stalin to Khrushchev, Brezhnev, Gorbachev, Yeltsin, and Putin.

Harrison’s first point is that Soviet secrecy was extreme. Only every tenth decree was published under Stalin. Pre-revolutionary Russia was not at all that secretive. He provides a wide picture of what was secret. He discusses the effects of secrecy in all conceivable ways and he does so in great detail. A peculiarity of the Soviet regime was its formality: “every action of the Soviet state left a winding paper train of decrees, orders, correspondence, forms, reports, inquiries, investigations, and audits” (p. 1). Only under Mikhail Gorbachev did we learn that Stalin actually approved all death sentences personally.

Harrison’s main preoccupation is the tradeoff between secrecy and state capacity. In two similar figures (pp. 51, 113), he argues that a certain amount of secrecy is beneficial for state capacity but that the Soviet Union always went too far and state capacity declined with excessive secrecy. He argues: “At very low levels, secrecy is productive: it keeps out opportunists and troublemakers. And this enhances capacity. Beyond that point, however, the costs of secrecy increase so much that they begin to detract from state capacity” (p. 50). To the first part of that argument, I ask: Really? This is my only significant objection. The four Nordic countries, for example, have pursued extreme public transparency since the 18th century, and they have not suffered. On the contrary, they have the least corruption and the greatest state capacity in the world. While that is not his main argument, Harrison does not substantiate why he considers a certain secrecy is productive.

His main thesis, however, is that excessive secrecy is very costly. He introduces the concept of secrecy tax. “Soviet organizations had to set aside resources to meet the requirements of secrecy regulation. These regulations acted on the turnover of Soviet political and economic business like a tax on every transaction made” (p. 74). Moreover, “the secrecy tax did not yield a revenue to anyone” (p. 75). The secrecy was so extreme in the late Stalin period that officials “should not be allowed to read the provisions that they were now obliged to follow” (p. 91). The natural consequence was that at “every level, normal business slowed down” to avoid being punished (p. 92).

So why did this far-reaching secrecy exist? The overall objective was regime security, which “was Stalin’s first and foremost concern and state capacity was of value to him only if it was under his control.… Although increased secrecy gave his officials a harder time, it also added to the security of the regime, which was also his personal security” (p. 117). As a consequence, secrecy became ever greater – and more costly – from the revolution until Stalin died, and the easing of secrecy after Stalin was quite limited until the late 1980s.

In the chapter on how the extreme secrecy kept the Soviet elite uninformed, Harrison brings out the extraordinary ignorance of the top elite. “By Brezhnev’s time the defense budget was so secret that most Politburo members were excluded” (p. 197). As president, Gorbachev once complained that when he was second secretary of the CPSU, his good friend Yuri Andropov who was general secretary did not allow him to see the real economic numbers. Harrison goes through the old discussion about the Soviet military expenditures in a very clarifying fashion. He also devotes substantial space to KGB agents and their informers in Lithuania, quite a sordid tale.

Harrison has written a valuable and detailed study of how the extreme Soviet secrecy operated and developed, and how it harmed the economic performance of the country.


Anders Åslund is a retired adjunct professor at Georgetown University and author of Russia’s Crony Capitalism: The Path from Market Economy to Kleptocracy (Yale University Press, 2019).

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
Economywide Country Studies and Comparative History
Government, Law and Regulation, Public Finance
Geographic Area(s):Europe
Time Period(s):20th Century: Pre WWII
20th Century: WWII and post-WWII
21st Century

Colonial Ports, Global Trade, and the Roots of the American Revolution, 1700–1776

Author(s):Land, Jeremy
Reviewer(s):Carp, Benjamin L.

Published by EH.Net (September 2023).

Jeremy Land. Colonial Ports, Global Trade, and the Roots of the American Revolution, 1700–1776. Leiden: Brill, 2023. xiv + 239 pp. $134 (hardback), ISBN 978-9004542693.

Reviewed for EH.Net by Benjamin L. Carp, Department of History, Brooklyn College.


Most students of the American Revolution have a sense that the northern cities—particularly Boston and Philadelphia—played an important political role in the coming of the American Revolution. In Colonial Ports, Global Trade, and the Roots of the American Revolution, 1700–1776, Jeremy Land demonstrates that the commercial interests of these cities, as well as New York City, were vital to the American colonies’ mobilization against Great Britain.

Land, currently Postdoktor in the Economic History research unit in the Department of Economy and Society at the University of Gothenburg and a visiting scholar at the University of Helsinki, has painstakingly researched the commercial world of northern American merchants in the eighteenth century. He makes thorough use of key merchant records, such as the Caleb Davis Papers at the Massachusetts Historical Society and the Tench Francis Invoice Book at the Historical Society of Pennsylvania. He also uses vital secondary sources, which help to generate some (though not all) of the extensive tabular information throughout the book.

The American Revolution is the climax of the book but not its primary focus. Instead, Land lays the groundwork for understanding the economic motivations that eventually launched worldwide political and military turmoil. After decades of fights among scholars taking ideological, material, imperial, and emotional approaches to the origins of the Revolution, Land offers a convincing material explanation of the cause of American independence. Tight, well-organized, and quite readable, Land’s book presents an argument that is both straightforward and sophisticated. He successfully argues against several prior interpretations of the political economy of eighteenth-century British North America.

First, he argues that scholars should understand Boston, New York City, and Philadelphia, as well as the smaller towns in their orbit, as a complex, integrated “port complex” or “port system” rather than fetishizing them as entrepôts for distinct regions (15). “While at times they competed,” he writes, “merchants in these three cities more often complemented and cooperated with one another, creating intricate networks of credit, business, and trade” (2). Land traces their business structures and commercial connections and emphasizes their networks and political connections to one another (15). Together they formed a “nodal center” that was independent of the British metropole (3).

Second, with that in mind Land argues that these cities’ mercantile interests developed and deployed their own resources, rather than acting as handmaidens to British sources of capital. Indeed, he argues, the metropole often stumbled as an inadequate manager of colonial economic interests. By contrast, since American merchants owned a third of the empire’s merchant marine tonnage, “colonial investment was quite capable of sustaining itself without being dependent on British capital” (51). As a result, North America’s globally connected merchants successfully competed with “English merchants and the English mercantilist agenda” (4).

Third, the British didn’t actively opt for a policy of “salutary neglect” toward the colonies (151). Imperial officials went through earnest phases of trying to enforce mercantilism, particularly after incurring debts during the Seven Years’ War, but these officials also went through phases of accommodating local merchants or leaving them alone. Ultimately, a lack of imperial capacity to enforce customs laws or provide sufficient specie forced the American cities to go outside the British Empire for circulating currency, specie, and trade routes.

Trade with the Caribbean and outside the empire was on the whole more important to American merchants than was trade with Great Britain. By referring to “trans-imperial trade networks,” Land avoids any romantic, Han Solo-esque associations we might have with smuggling and takes a clearer look at American trading networks outside the British Empire (2). While illegal trade can be difficult to document, Land finds plenty of suggestive evidence. As perhaps the best example, he draws from an earlier co-authored article to demonstrate that Lisbon records show 73% more trade with Philadelphia than the Philadelphia customs house records (Land and Dominguez, 2019, 148–49).

By trading outside the empire, northern merchants had mounted a “resistance” to British mercantile policy long before the 1760s, and the customs service was essentially powerless to enforce its Navigation Acts (2). Although the British Empire ramped up its enforcement efforts after 1763, these efforts backfired. American merchants decided that “membership in the British Empire … was not worth the effort” (3).

Land has read the literature extensively and is particularly keen on reviving classic works of economic history, but he also misses opportunities to cite some of the recent work on marine insurance, British political economy, and the historiography of the American Revolution.

Still, Land successfully makes his case. Readers will appreciate his extensive efforts to document northern American commerce in the eighteenth century and they will find his well-constructed arguments thoroughly persuasive.


Land, Jeremy, and Rodrigo da Costa Dominguez. “Illicit Affairs: Philadelphia’s Trade with Lisbon before Independence, 1700-1775.” Ler Historia 75 (2019): 179–204.


Benjamin L. Carp is the Daniel M. Lyons Professor of American History at Brooklyn College and teaches at the Graduate Center of the City University of New York. His most recent book is The Great New York Fire of 1776: A Lost Story of the American Revolution (Yale University Press, 2023).

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):Government, Law and Regulation, Public Finance
International and Domestic Trade and Relations
Geographic Area(s):North America
Time Period(s):18th Century

The Continental Dollar: How the American Revolution Was Financed with Paper Money

Author(s):Grubb, Farley
Reviewer(s):Rockoff, Hugh

Published by EH.Net (August 2023).

Farley Grubb. The Continental Dollar: How the American Revolution Was Financed with Paper Money. Chicago: The University of Chicago Press, 2023. 296 pp. $65 (hardcover), ISBN 978-0226826035.

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


Farley Grubb has written a splendid book that explains a great deal about the financing of the Revolution that we did not know. It will be a cornerstone of future research.

It is the product of an immense amount of archival research and intense and creative thinking about Colonial and Revolutionary finance. One indication of the work that went into it can be found in the reference list, which includes 25 papers by Grubb, most of them single-authored, the earliest published in 2003.

Continental dollars played a major role in the financing of the Revolution. Grubb (pp. 66-7) estimates that they accounted for 100 percent of Congressional spending in the first two years of the war and 77 percent from 1775 through 1779. Altogether, about $200 million at face value was issued. This was a huge amount in real terms, given that the GDP figure for 1781 in Historical Statistics is also about $200 million (Carter, Haines, and Gartner 2006, series Eg220).

Figure 1 is a typical example of a Continental bill. (For the image, see the EH.Net version of this review or click the link below.)

Continental dollar

Source: Museum of the American Revolution.

As one can see, the bill has a face value of three dollars and was redeemable in Spanish milled dollars, the famous pieces of eight, a common form of hard money in the Colonial economies. However, it was not redeemable on demand. It was redeemable according to a “Resolution of Congress” passed in February 1776. The Resolution set the dates – years after the war was expected to be over – when the note could be redeemed. Subsequent emissions were redeemable at later dates described in subsequent resolutions. In all, there were 11 emissions between 1775 and 1779. The resolutions, Grubb explains, were well publicized, so people offered the notes knew when they could be redeemed. People understood, of course, that these promises might not be kept. For one thing, the Revolutionaries had to win the war. The states were given quotas to redeem based on their populations, and the redemption schedules for the notes were set, Grubb believes, so that the taxes needed to finance the redemption would be close to what had been feasible before the war.

Thus, as Grubb emphasizes repeatedly, the Continental dollars were not, initially, a legal-tender fiat currency – notice that there was no mention on the bill shown in Figure 1 of legal tender as there is on the face of a contemporary dollar — but rather a zero-coupon bond currency. It was intended that they would rise in value and circulate at a higher price as the date of redemption approached.

The denominations were large. The smallest was one dollar, an amount that Grubb believes was about equivalent to 31 dollars in 2012. The explanation for large denominations is that initially the bills were paid to soldiers and sailors with the hope that the recipients rather than attempting to spend them during the war, something that would be made difficult by large denominations, would save them to spend afterwards. It was hoped, to be specific, that the recipients would treat them as promises of mustering-out pay or even as pensions (Grubb 30).

The value of the Continental dollars declined precipitously as the war progressed. However, Grubb argues persuasively that at least in the first years of the war this was due to the lengthening of the time to redemption in new emissions and other changes in the redemption schedules. We are witnessing, in other words, the decrease in the present value of a bond, and not inflation caused by an expansion of the stock of money.

Grubb likens the Continental dollars to U.S. Savings Bonds. For me, and I would think for many others, especially of my generation, the analogy evokes warm feelings. U.S. Savings Bonds were, and probably for many still are, a go-to present for births, birthdays, graduations, and so on.

The reference to zero-coupon bonds also reminded me of another analogy, one that I heard in a class on monetary economics taught by Milton Friedman at the University of Chicago many years ago. Zero-coupon bonds were then in the news, because several corporations had issued them, and so it was not surprising when a student asked Friedman whether the Federal government should also issue zero-coupon bonds. Friedman answered “yes, and they do.” He added, gleefully as I recall, “and you probably have one in your pocket.” He then pulled out his wallet, took out a dollar bill, and held it before the class. “This, he said, is a zero-coupon bond! It pays zero interest and has a term to maturity of zero!”

Although Grubb’s story, which emphasizes the bond-like properties of the Continental dollar, is somewhat different, it resonates with recent analyses that stress the macroeconomic effects of fiscal deficits. These include, to mention a few prominent recent examples, the book by John Cochrane (2023), The Fiscal Theory of the Price Level, and papers by Bruce Smith (1985a, 1985b) on Colonial monies and Eric M. Leeper, Margaret M. Jacobson, and Bruce Preston (2019) on early New Deal measures.

Initially, the Continental dollars, as I noted above, were not legal tenders. As the war dragged, however, the pressure on the Continental Congress to make them legal tenders mounted. Congress found itself unable to use Continental dollars mainly for soldiers’ pay. Cash was needed to buy goods in the marketplace. In January 1777, Congress asked the states to make Continental dollars legal tenders within their borders. Presumably, Congress believed that it lacked the authority to do so. Most states, certainly the Northern and Middle Atlantic states, did so at once. By May 1777, the Continentals were a legal tender. Simultaneously, the states made their own currencies legal tenders. This allowed them to issue notes in smaller denominations that could be used to make change for the Continentals. In effect, the Continentals became high-powered money. Making the Continentals legal tenders, Grubb (p. 43) concludes, increased their contribution to the ongoing inflation both directly and through the associated increase in state notes.

The inflation resulting from the monetary issues and other pressures on the economy was intense. The consumer price index available at (Officer and Williamson, accessed July 2023) rose 60 percent between 1775 and 1778 before dropping back a bit in 1779. Many states responded by imposing price controls; ill-fated experiments – that I chronicle in Rockoff (1984, 27-42) – that were soon abandoned.

In January 1779, Congress changed the redemption schedule for the Continental dollars. It now made all the Continentals, whether issued early in the war or later, fungible for redemption. This meant that the bills issued early in the war with short periods to redemption as originally scheduled were no longer more valuable than subsequent issues. This law removed the incentive to cull the notes from earlier emissions, a Gresham’s law story. However, the law probably also created worries about further actions that Congress might take that would reduce the redemption value of the Continentals. Public confidence in the Continentals declined and by 1780, the value of a Continental was nearing one cent on the dollar (Grubb 171).

In March 1780, Congress changed the rules again. It floated a scheme whereby states that acquired Continental dollars and returned them to the Congress would be permitted to issue their own Continental-state dollars, still another form of currency. State efforts to comply with the scheme led finally, Grubb (p. 185) tells us, to the abandonment of the Continental dollar as a medium of exchange.

The end of the story came with the Funding Act of 1790. This Act converted existing debts of the Federal government, of which there were many, into 6-percent callable perpetuities. The Continentals were to be converted at the rate of 100 Continental dollars per one-dollar of the new bonds (Grubb 215).

The Constitution banned both the States and the Federal Government from issuing “bills of credit” – that is, something like the Continental dollars. Most economic and financial histories – including, uh oh! Walton and Rockoff (2018, 108) – claim that the ban was a response to the inflationary record of the State and Continental paper monies. However, Grubb sees it differently. He argues that there were many influential bankers at the Convention and naturally, they were especially influential on questions of finance. They wanted to create an economy in which hand-to-hand currency consisted of bank money redeemable in specie and not of government issued bills of credit. Private interests triumphed. Obviously, a difficult contention to prove – few politicians are willing to tell us that the positions they took on public issues were based on personal greed – but certainly very plausible.

Although Grubb’s book is a major step forward in our understanding of the financing of the Revolution, there is still much to do. Indeed, Grubb makes several pertinent suggestions. For example, he suggests (Grubb 182-3) that we need a new and detailed study of the paper money issued by the states. One hopes that whoever undertakes this task will employ the same attention to detail and clarity of expression as Grubb.

One thing that would especially interest me is additional work on the disturbance to debtor-creditor relations produced by the issue of legal tender notes and inflation. Early financial historians, for example Bolles (1884, 174-189), claimed that the inflation and legal tender status of the Continental and State dollars produced redistributions from creditors to debtors that produced “disastrous consequences.” These redistributions were in turn, Bolles argued, the reason the Constitution prohibited the issue of bills of credit. Bolles and other financial historians offered examples, including heartrending stories about widows living on fixed inheritances –I told one such story in Rockoff (2009) – but how frequent such cases were is unknown. One can imagine a modern study based on large numbers of digitized court cases, newspaper accounts, or other records that would tell us more about the quantitative importance of this phenomenon.

Farley Grubb, to sum up, deserves our thanks for an important and tough job well done.


Bolles, Albert Sidney. 1884. The Financial History of the United States, From 1774 to 1789: Embracing the Period of the American Revolution. Ed. 2. New York: Appleton and company.

Carter, Susan, Scott Gartner, and Michael Haines, et al., eds. 2006. Historical Statistics of the United States: Earliest Times to the Present, Millennial Edition. New York: Cambridge University Press.

Cochrane, John H. 2023. The Fiscal Theory of the Price Level. Princeton: Princeton University Press.

Leeper, Eric M, Margaret M. Jacobson, and Bruce Preston. 2019. “Recovery of 1933.” NBER Working Paper Series, 25629.

Officer, Lawrence H., and Samuel H. Williamson. 2003. “The Annual Consumer Price Index for the United States, 1774-Present,” MeasuringWorth.Org, Accessed July 23, 2023.

Rockoff, Hugh. 1984. Drastic Measures: a History of Wage and Price Controls in the United States. New York: Cambridge University Press.

_________. 2009. “Prodigals and Projectors: An Economic History of Usury Laws in the United States from Colonial Times to 1900.” In Human Capital and Institutions: A Long-run View, eds. David Eltis, Frank D. Lewis, and Kenneth L. Sokoloff, 285-323. Cambridge: Cambridge University Press.

Smith, Bruce D. 1985a. “American Colonial Monetary Regimes: The Failure of the Quantity Theory and Some Evidence in Favour of an Alternate View.” The Canadian Journal of Economics 18, no. 3: 531–65.

_________. 1985b. “Some Colonial Evidence on Two Theories of Money: Maryland and the Carolinas.” Journal of Political Economy 93, no. 6: 1178–1211.

Walton, Gary M., and Hugh Rockoff. 2018. History of the American Economy (13th ed.). Boston: Cengage.


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) 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
Government, Law and Regulation, Public Finance
Military and War
Geographic Area(s):North America
Time Period(s):18th Century

Are We Rich Yet? The Rise of Mass Investment Culture in Contemporary Britain

Author(s):Edwards, Amy
Reviewer(s):Rutterford, Janette

Published by EH.Net (August 2023).

Amy Edwards. Are We Rich Yet? The Rise of Mass Investment Culture in Contemporary Britain. Berkeley: University of California Press, 2022. 384 pp. $29.95 (hardcover), ISBN 978-0520385467.

Reviewed for EH.Net by Janette Rutterford, Professor Emerita of Finance and Financial History, The Open University.


Much has been written on the history of investment in the pre-World War I UK, when investors benefitted from a wide array of foreign and colonial investment opportunities as well as from more or less fixed exchange rates. After WWI, investment in the US became democratised in the 1920s and 1930s, as Julia Ott has chronicled in When Wall Street Meets Main Street. Janice Traflet in A Nation of Small Shareholders has described the resurgence of the New York Stock Exchange in the 1950s and the mass marketing of collective investment schemes thereafter. In the UK, by contrast, financial historians of the post-WWI period have concentrated their efforts on the histories of banks, insurance companies and pension funds and ignored the ultimate beneficiaries of their investments, the man or woman on the Clapham omnibus.

This book thus fills a major hole in British investment history. It offers insights into the 20th century decline in the importance of the small investor. Edwards notes a switch from retail investors holding more than half of UK listed equities in 1963, falling to 20% by 1990, with financial institutions – insurance companies and pension funds – going in the opposite direction, from under 20% in 1963 to around 50% by 1990, higher still if mutual funds – open and closed end – are included. This substantial decline of direct investment hid the mini-boom in privatisation issues offered direct to the public. Before the first large privatisation in the Thatcher era, that of British Telecom, direct holdings by individuals had fallen to 3.5% of the UK equity market.

This fall in importance of direct investment in stock market securities did not mean that individuals were not investing. They were also doing so indirectly through increasingly important financial institutions. Edwards argues that, after the publicity accorded to the privatisations of the 1980s, the growth in importance of stock market investment to individuals was facilitated by the creation of a mass culture of investment, partly through an already important financial press and partly through the efforts of financial institutions such as clearing banks and building societies that were already well-known brands. Edwards terms this ‘the rise of financial consumerism’ and explains in the book how financial institutions succeeded in selling investment products – with high embedded costs – as consumer items. The third and final theme of Edwards’ book is the creation of what she terms ‘financial subjectivities’. Financialisaton of the social as well as political and economic elements of society led to a variety of types of ‘investor subject’: the ‘investor-citizen’, the ‘investment-shopper’ and the ‘investment-oriented subject’.

After an introductory chapter on investment in the period 1840 to 1980, Edwards describes the rise and fall of the OTC (Over the Counter) market operated by ‘licensed dealers’. Offering access to riskier securities, the licensed dealers competed against the London Stock Exchange and its creation the Unlisted Securities Market, which began in 1980, and faced increased competition after deregulation (Big Bang) in 1986. Defenders of the OTC market argued that this allowed speculation as well as investment; detractors argued they were little better than fraudsters. On the other hand, the financial bookmakers, such as IG index, established in the same period, have thrived, despite offering risky bets, because, the author argues, they did not upset the status quo.

Chapter 3 looks at the investor shopper in a world of financial consumerism, illustrating how a variety of market players innovated in product design, service delivery and marketing to tempt large numbers of relatively naïve investors. It starts, though, with companies themselves marketing their shares by offering shareholder perks, a hitherto unresearched topic. The establishing of share shops in locations as disparate as Debenhams and building society branches, though innovative, was a failure: commissions on small savers’ dealings were not high enough for the brokers, banks and building societies to turn a profit. Chapter 4 describes the rise in financial advice in the press, books and through other media, followed by a rise in investment education and in stock-market related games. It points to a growing problem during the period, that of differential access to investment advice – with small investors given share price data and limited investment recommendations after a lag, compared the instant access given to brokers’ more profitable financial institution clients. The book concludes with a chapter on the recent phenomenon of yuppie traders, who first appeared in the Thatcher era, and the final chapter covers the rise of investment clubs – a form of self-help for small investors – and shareholder associations such as UKSA which aim to protect the rights of shareholders who buy direct, frustrated in today’s world by difficulty of access of shareholder details, since many shares are held in nominee names.

This book is an excellent addition to the history of stock market investment in the UK during the past 50 or so years. It gives needed coverage to important but overlooked topics such as shareholder perks and OTC traders.


Janette Rutterford is Professor Emerita of Finance and Financial History at The Open University. Her latest publication, with Les Hannah, is “The unsung activists: UK shareholder investigation committees, 1888-1940,” Business History Review 96(4): 741-775 (2022).

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):Business History
Financial Markets, Financial Institutions, and Monetary History
Geographic Area(s):Europe
Time Period(s):20th Century: Pre WWII
20th Century: WWII and post-WWII
21st Century

Toward Cherokee Removal: Land, Violence, and the White Man’s Chance

Author(s):Pratt, Adam J.
Reviewer(s):Wishart, David M.

Published by EH.Net (August 2023).

Adam J. Pratt. Toward Cherokee Removal: Land, Violence, and the White Man’s Chance. Athens: The University of Georgia Press, 2022. xii + 221 pp. $32.95 (paperback), ISBN 978-0820362649.

Reviewed for EH.Net by David M. Wishart, Professor of Economics Emeritus, Wittenberg University.


Adam J. Pratt’s book Toward Cherokee Removal is a welcome addition to the extensive historiography related to the Cherokee removal from the southeastern United States to parts of Arkansas and Oklahoma. Pratt has collected and organized a wealth of information from unexplored holdings in the Georgia Archives. He was awarded the prize Excellence for Research Using the Holdings of the Archives by the Georgia Historical Records Advisory Council. The prize is richly deserved, as Pratt has broken considerable new ground in early American history.

Pratt’s historical narrative is presented in seven chapters preceded by an introduction and followed by a brief conclusion. A theme that runs throughout is “the white man’s chance,” defined in the introduction as “a promise made to white citizens to create policies that would allow for their economic success” (p. 3). Indeed, chance was central to Indian removal from Georgia as land ceded by the Creeks and Cherokees was distributed via lotteries. Pratt suggests, “The white man’s chance, though, pointed to a way of thinking that saw rights and opportunities as a zero-sum game: in order to increase the opportunities for poor whites, someone had to have their rights and economic potential reduced” (pp. 3-4). Viewed from the Cherokee perspective, the gains for white settlers could not possibly have offset the losses endured by the Cherokees as a result of removal for which they were not fully compensated.

Pratt places his narrative in the context of a burgeoning literature regarding “settler societies” and their various impacts on indigenous communities (p. 9). He maintains, “For the white man’s chance to flourish, the Cherokee Nation had to cease to exist” (p. 10). The chapters that follow detail the dispossession of the Georgia Cherokees through a policy of force and fraud that employed violence verging on genocide.

Chapter 1, titled “Order and Sovereignty,” recounts a group of whites that in 1787 squatted on Cherokee land close to the actual Georgia-Cherokee border claiming ignorance about the location of the boundary line. Known as the Wofford Settlement, tension developed between the Cherokees and settlers, as well as between the state of Georgia and the federal government. The federal government appreciated that settlers (or intruders from the Cherokee perspective) served an important function for the white community by spearheading the westward push consistent with the longer-run policy of removal to the trans-Mississippi west. However, squatting was inconsistent with federal policy that a land transfer must occur through treaty negotiations prior to white settlement. In 1804, the Wofford Settlement dispute was resolved to Georgia’s satisfaction but contrary to federal policy through the federal purchase of a 23-mile by 4-mile strip from the Cherokees where whites had already settled (pp. 12-13).

Pratt places appropriation of Native American land by the United States in the context of recent historical work on European settler societies that justified their claims to land occupied by indigenes because the land had not been “improved.” Therefore, Native Americans held no formal right to the land as their private property. The legal status of indigenous claims to land was set out in Johnson v. M’Intosh (1823) where Chief Justice John Marshall held that the British discovery of America conveyed ownership of the land. Title was transferred to the United States after the revolution; thus, Native Americans were tenants with uncertain leases.

Tension continued to rise along the Cherokee-Georgia border as more white intruders encroached on Cherokee land. Chapter 2, “Disorder in the Disputed Territory” describes white incursions and reveals Cherokee responses to the disorder. Depredations by whites included theft of African slaves owned by Cherokees, theft of livestock, and destruction of houses and stores of crops along the Cherokee-Georgia border. White Georgians claimed that the lack of progress by the Cherokees supported their argument for removal. Whites complained that they felt threatened by the proximity of the Cherokees, adding to the pressure for removal. However, citing evidence, Pratt argues persuasively that white intrusions were the main source of conflict. In fact, the Cherokees were establishing order in their Nation with the emergence of civil society that supported values like those embodied by United States institutions. Cherokee advances included the adoption of a national constitution in 1827 with provisions for a legislative branch (the National Council), a judiciary, and a mounted Lighthorse police force. Even so, according to Pratt, Cherokee adoption of institutions similar to those observed in the white community served only to reinforce the desire for Cherokee removal among many white Georgians. A thriving and successful Cherokee Nation was anathema to proponents of removal. Facts on the ground that reflected Cherokee advances were rendered moot with the discovery of gold within the bounds of the Cherokee Nation in Georgia. Suffice it to say that greater disorder ensued with the flood of gold-seekers onto Cherokee land. A vivid description of the conflict the Georgia gold rush engendered is presented.

Growing disorder in Carroll County, Georgia from 1822 through 1832 is the focus of Chapter 3, “The Slicks and the Pony Club.” The Pony Club was a secretive conglomeration of criminal elements that also included some Georgians serving in governmental positions. All manner of nefarious activities were pursued by the Pony Club along the Georgia-Cherokee border. Opposition emerged with the Slicks and, later, the Regulators, which were vigilante groups, also diverse in membership, meting out rough frontier justice to suppress the Pony Club. The name “Slicks” is derived from a Cherokee form of punishment, especially for thieves, called “slicking” whereby the alleged criminal was stripped, bound, and whipped 50 to 100 lashes, typically with hickory switches. Slicking was employed by the Slicks against captured Pony Club members when deemed appropriate. Reader be warned — this chapter is not for the squeamish.

Indeed, an impartial spectator to the chaos on the Georgia-Cherokee Nation border in the late 1820s might well have asked, “Who is in charge here?” If a functioning state fulfills the requirements of controlling borders and wielding monopoly power over the use of force/violence, then government failure existed at every level — state, federal, and the nascent Cherokee Nation. Pratt’s narrative continues through the remaining four chapters that describe the gradual restoration of order (from the perspective of whites) in the portion of Georgia occupied by the Cherokees. A carefully choreographed dance between Georgia state officials and the federal government resulted in convergence of state and federal policy supporting removal. In essence, Georgia adopted nullification in response to Supreme Court rulings in the cases Cherokee Nation v. Georgia (1831) and Worcester v. Georgia (1832). These rulings held that the extension laws and supremacy laws passed by the Georgia legislature to extend Georgia law into Cherokee territory were unconstitutional. However, the federal government refused to enforce these rulings that Georgia chose to ignore. The Georgia Guard was created in 1830 to maintain order and effect removal in 1838 according to the terms set in the 1835 Treaty of New Echota. The presence and influence of federal troops faded away.

Curiously, Pratt fails to include findings of economic historians in his narrative and even laments a “dearth of quantitative evidence” (p. x). In fact, quantitative evidence abounds, and its presentation would have strengthened Pratt’s arguments. The Cherokee Census of 1835 shows clear evidence of economic progress that persisted through the chaotic years culminating in removal but is absent in Pratt’s bibliography. Cherokee improvements to land in their possession could only have made it more attractive to whites. By moving onto Cherokee land with improvements, white settlers avoided some of the high costs of farm-making. The white man’s chance manifested in the appropriation of rents generated by decades of Cherokee labor and investment. Also, maps would have been helpful to readers unfamiliar with Georgia geography. Notwithstanding these quibbles, Pratt’s excellent narrative history is a welcome addition to the literature related to the Cherokee removal and United States policy toward Native Americans generally.


David M. Wishart is Professor of Economics Emeritus at Wittenberg University. His publications include “Evidence of Surplus Production in the Cherokee Nation Prior to Removal” (Journal of Economic History, 1995) and, with Matthew T. Gregg, “The Price of Cherokee Removal” (Explorations in Economic History, 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 (August 2023). All EH.Net reviews are archived at

Subject(s):Government, Law and Regulation, Public Finance
Historical Demography, including Migration
Military and War
Social and Cultural History, including Race, Ethnicity and Gender
Geographic Area(s):North America
Time Period(s):19th Century

The Federal Reserve: A New History

Author(s):Hetzel, Robert
Reviewer(s):Bordo, Michael D

Published by EH.Net (August 2023).

Robert Hetzel. The Federal Reserve: A New History. Chicago: University of Chicago Press, 2023. 696 pp. $45 (hardcover), ISBN: 978-0226821658.

Reviewed for EH.Net by Michael D Bordo, Rutgers University.


Robert Hetzel has written an ambitious history of Federal Reserve monetary policy since the establishment of the Federal Reserve System in 1913. The book follows an illustrious narrative tradition going back to Milton Friedman and Anna Schwartz’s A Monetary History of the United States:1867 to 1960 (1963) and Allan Meltzer’s A History of the Federal Reserve (2005, 2010). But unlike the earlier books it is based on the modern macroeconomic theory first pioneered by Robert Lucas (1972) and an analytical approach to monetary policy developed since the 1980s at the Federal Reserve Bank of Richmond, where Hetzel was a senior researcher and advisor for five decades.

The author uses the narrative approach of Friedman and Schwartz (1963) and Romer and Romer (2004), which views the history of business cycles under the Fed as semi-controlled experiments. He compares the performance of the Fed in its use of its policy tools to stabilize the business cycle (maintaining both price stability and real output at full potential) across all cycles since establishment of the Fed.

His analysis is based on two sets of modern tools developed by researchers connected with the Richmond Fed. The first is the microeconomic analysis of the connection between Fed monetary policy and the money market via the demand and supply of borrowed and non-borrowed reserves (“the plumbing of monetary policy”) developed by Marvin Goodfriend and others in Cook and LaRoche (1993). The second is the macroeconomic New Keynesian model under rational expectations and the assumption of sticky price setting developed by Marvin Goodfriend and Robert King (1997), which models the strategies required to match the Fed’s real policy rate (the federal funds rate) to Knut Wicksell’s natural rate of interest (further developed by Michael Woodford 2000).

Hetzel’s analytical framework provides a modern perspective to the Modern Quantity Theory of Money framework followed by Friedman and Schwartz (1963) and Meltzer (2005, 2010). Unlike those books, here the model framework is front and center, instead of subtly intertwined with the narrative and buried in footnotes. Hetzel also comparatively downplays the role of monetary aggregates in the Fed’s monetary policy making. An implication of this approach is that a reader who is not familiar with the post-Lucas macro tradition may have difficulty reading this book.

The author divides his narrative of Fed history into three separate regimes. First is the early pre-World War II Fed, embedded in the gold standard and real bills traditions inherited from the nineteenth century. This was followed by the post-World War II regime (1951-1979), which began under Chairman William McChesney Martin who employed a countercyclical policy based on a reaction function referred to as LAW (Leaning Against the Wind) with tradeoffs. Hetzel refers to the third regime (1979 to 2006) associated with Paul Volcker and Alan Greenspan as LAW with Credibility.

The Early Fed

The Federal Reserve Act of 1913 was based on two principles: the gold standard under which the role of a central bank was to use its discount rate to maintain gold convertibility. With free capital mobility the domestic interest rate was determined by the world interest rate and a central bank only had limited ability to pursue domestic objectives (Bordo and MacDonald 2005). Under the real bills doctrine the Fed could use its discount rate to buy and sell eligible (self-liquidating) commercial paper (real bills) and to eschew operations in speculative assets on the belief that speculation would lead to asset price booms, then to inflation in goods and services, followed by an asset price bust, deflation and depression. According to the real bills doctrine were the Fed to only operate in real bills there would never be a surplus or shortage of money (credit) and the economy would always be in balance.

Hetzel posits that the early Fed should be viewed as the first modern central bank to be on a fiat money standard, that the Fed was not constrained by its adherence to the gold standard, unlike the pre-World War I central banks of Europe. This was because the U.S. was a large relatively closed economy, and the Fed could easily sterilize gold flows by offsetting open market operations. According to him, the key failure of the interwar Fed was that it did not learn to base its policies on a reaction function, whereby the Fed would gear changes in its policy rate on deviations from price stability and real economic potential. Instead, it mistakenly based its policy on the real bills doctrine and seemed to view its sole function as preventing speculative excesses.

The author’s primarily closed economy approach could be challenged by extensive evidence that the international capital markets under the interwar gold exchange standard were as efficient as pre-1914 (Bordo and MacDonald 2002) and hence that the U.S. was influenced by international monetary forces. Indeed, the well-known global gold standard approach of Jacques Rueff, Robert Mundell and Barry Eichengreen is totally absent. At the very least, the U.S. was a large open economy with imperfect capital mobility, as argued by Bordo, Choudhri and Schwartz (2002), and the Fed followed a managed gold standard, as earlier argued by Friedman and Schwartz.

In the Hetzel story, as has been argued earlier by Brunner and Meltzer (1968), Wheelock (1992), and Meltzer (2005), the Fed’s real bills approach led it to begin a tight money policy beginning in early 1928 to stem the Wall Street boom that had begun in 1926. This led to the Great Contraction of 1929 to 1933. Moreover, unlike Friedman and Schwartz, Meltzer (2005) and Bernanke (1983), the author views the entirety of the Great Contraction as due to the Fed’s tight monetary policies as explained via the mechanics of the Richmond Fed plumbing model. Unlike his predecessors, Hetzel downplays the role of the four U.S. banking panics from 1930 to 1933 as the key reason the Great Contraction was so severe and protracted. He is especially critical of Ben Bernanke’s (1983) thesis that the banking panics led to the collapse of financial intermediation (which later led to the development of the credit channel of monetary policy). At the very least, further empirical evidence that confronts the voluminous international historical literature that suggests that financial crises, controlling for other factors, can both cause recessions and make them worse (for a survey see Bordo and Meissner 2016) would be most helpful to back this controversial position. This is particularly so in the face of a moderate rise in policy interest rates before 1929 and a massive decline in the money supply that did not occur until the banking panics began.

The LAW with Tradeoffs

The author views the Federal Reserve Treasury Accord of February 1951 as a watershed in Fed policymaking. He is highly complementary of Chairman Martin’s adoption of the reaction function approach to monetary policymaking. Henceforth the Fed would adjust its policy rate, via its Free Reserves indicator, to offset business cycle shocks. Hetzel provides compelling narrative and empirical evidence that this new approach greatly improved both real and nominal performance compared to the interwar era. However, he argues that because the Fed waited for inflation to rise before commencing its tightening in the upswing of the business cycle, its exit policies would always be too late. This agrees with both the earlier Friedman and Schwartz and Meltzer approaches (see Bordo and Landon Lane 2013 and Bordo and Levy 2022).

Martin’s success was short lived, ending with the Great Inflation, which began on his watch in 1965. In agreement with Meltzer (2010). Hetzel attributes the Great Inflation to President Lyndon Baines Johnson’s fiscal shocks of the Vietnam War and the Great Society leading to pressure on the Fed to accommodate the fiscal deficit, as well as the ascendency of Keynesian doctrines in both the Administration and the Fed. The Keynesian approach emphasized maintaining full employment (at 4%) and the view that the Fed could exploit the Philips curve tradeoff of lower unemployment at the expense of higher inflation on the grounds that the benefits of lower unemployment outweighed the costs of higher inflation as argued by Samuelson and Solow (1960).

Chairman Martin was succeeded by Arthur Burns, who believed that inflation was driven primarily by cost-push forces and not by the Fed’s expansionary monetary policy. His solution to inflation was wage and price controls. Burns was also strongly influenced by pressure from President Richard Nixon not to pursue tight monetary policy, which could lead to a recession and prevent Nixon’s reelection chances in 1972. Hetzel, in sympathy with the articles in Bordo and Orphanides (2013), describes the ratcheting up of inflation and inflationary expectations through the 1970s under Burns and his successor William Miller, neither of whom tightened monetary policy enough, over concern of rising unemployment, to break the back of inflationary expectations. Again, the author ignores the rest of the world and the possible role that Nixon’s abandonment in August 1971 of the gold peg of the dollar under the Bretton Woods system could have played in the de-anchoring of inflationary expectations.

The LAW-with-Credibility Fed

Hetzel sees the Volcker shock of 1979 as another watershed in Fed monetary policy making. Paul Volcker, with the backing of President Ronald Reagan, was able to tighten monetary policy sufficiently to break the back of inflationary expectations and inflation but at the expense of two very serious recessions. Volcker is praised for creating a regime of credibility for low inflation. His mantle was taken in 1987 by Alan Greenspan, who cemented credibility by preemptively tightening in the inflation scare of 1994. Hetzel nicely describes how Greenspan used the bond market – which quicky incorporated expectations of future inflation – as its intermediate target. The author praises the Volcker-Greenspan regime for creating the Great Moderation of low and stable inflation and good real economic performance from the mid 1980s to the early 2000s. He views this period as being so successful because the Fed followed rule-like policies, with its reaction function operating close to that of the Taylor rule (1993).

As for the Global Financial Crisis (GFC) of 2007-2008 that ended the Great Moderation, the author attributes it entirely to the policies of Greenspan’s and later Ben Bernanke’s (who succeeded Greenspan as chair in 2006) Fed, which kept its policy rate too high so as to fend off a temporary run-up in commodity prices in 2006-2008. Hetzel attributes these wholesale price pressures primarily to the integration of China into the WTO. He downplays the role that low interest rates played before 2000 in fueling the housing boom, as argued by Taylor (2007). He also downplays the role of the subprime mortgage induced collapse of credit market intermediation in causing the GFC, in contrast to the view of the Federal Reserve under Bernanke. He is highly critical of the Fed’s deployment of numerous lender of last resort facilities to shore up the financial system, which he refers to as credit policies — a form of fiscal policy involving the picking of winners and losers — leading to resource misallocation, moral hazard, and a threat to the Fed’s independence. Like his interpretation of the Great Contraction, his contrarian view of the Fed’s lender of last resort policies in the GFC could use more empirical evidence. As with the Great Contraction of 1929-1944, it is difficult to attribute a deep downturn solely to a previously, modestly tight stance of monetary policy.

The author also has a contrarian view of the slow recovery following the GFC. Unlike the consensus view, he regards Fed Chairman Janet Yellen’s policies after 2012 as a successful continuation of the Volcker Greenspan doctrine in producing good real and nominal performance. He is highly critical of the FAIT (Flexible Average Inflation Targeting) policy strategy enacted by Chairman Jerome Powell in 2019. It was adopted under the belief that the Fed had been unable with its existing quantitative easing and forward guidance strategy, to reach its 2% inflation target during the recovery from the Great Recession. Under the FAIT strategy the Fed would allow inflation to temporarily overshoot its 2% inflation target to push unemployment low enough to employ disadvantaged groups in society. The risk of a more permanent inflation overshoot would not be problematic under the new strategy because of the assumption that inflation would always be credibly anchored at the 2 % target. Hetzel convincingly argues that FAIT was one of the key factors leading to an increase in the outbreak and persistence of high inflation from 2021 to 2023.

The author is also critical of the financial market rescue policies adopted by the Powell Fed in the spring of 2020 as unnecessary in the face of natural market forces, which by themselves would have led to a quick recovery from the pandemic induced shutdown of the economy. The quick decline in credit market spreads after the Fed intervened in the corporate and municipal bond markets, in his view, had little to do with the Fed’s actions. Again, empirical analysis may suggest an alternative conclusion (Bordo and Duca 2022).

In the concluding chapters, Hetzel makes the case for the Fed to follow more rule-like policies along the lines suggested by Goodfriend King (1997). He posits that the Fed should gear its real federal funds rate to the Wicksellian natural rate of interest. He also recommends a return to the preemptive strategies of the Volcker-Greenspan era and an abandonment of FAIT.

Robert Hetzel’s book is a very important contribution to the literature on the history of U.S. monetary policy. His application of modern macro analysis provides a new approach to the subtleties of Fed policy making. His contrarian views on the causes of the Great Recession and the Global Financial Crisis provide a challenge for future research. In my view this book should be read by monetary policy makers and serious students of the Federal Reserve.


Ben Bernanke (1983) “Nonmonetary Effects of the Financial Crisis in the Propagation of the Great Depression.” American Economic Review, Vol. 73 (June): 257-276.

Michael D Bordo and Ronald MacDonald (2005) “Interest Rate Interactions in the Classical Gold Standard, 1880-1914: Was There Any Monetary Independence?” Journal of Monetary Economics, Vol. 82, No. 2: 307-327.

Michael D Bordo, Ehsan Choudhri, and Anna J Schwartz (2002) “Was Expansionary Monetary Policy Feasible During the Great Contraction?” Explorations in Economic History, Vol. 39, No. 1 (January),: 1-28,

Michael D Bordo and Ronald MacDonald (2003) “The Interwar Gold Exchange Standard: Credibility and Monetary Independence.” Journal of International Money and Finance, Vol. 22, No. 1 (February): 1-32.

Michael Bordo and John Landon Lane (2013) “Exits from Recession: The U.S. Experience 1920-2007.” In Vincent Reinhart, ed., No Way Out: Persistent Government Interventions in the Great Contraction. Washington DC: American Enterprise Institute.

Michael D Bordo and Athanasios Orphanides (2013) The Great Inflation: The Rebirth of Modern Central Banking. Chicago: University of Chicago Press for the NBER.

Michael D Bordo and Christopher Meissner (2016) “Fiscal Crises and Financial Crises.” In John B. Taylor and Harald Uhlig, eds., North Holland Handbook of Macroeconomics. North Holland Publishers.

Michael D Bordo and John Duca (2022) “An Overview of the Fed’s New Credit Policy Tools and Their Cushioning Effect on the Covid-19 Recession.” Journal of Government and Economics, Vol. 3, Issue C.

Michael D Bordo and Mickey Levy (2023) The Fed’s Monetary Policy Exit Once Again Behind the Curve.” In Michael D Bordo, John H. Cochrane, and John B. Taylor, eds., How Monetary Policy Got behind the Curve—and How to Get Back. Stanford: Hoover Institution Press.

Karl Brunner and Allan Meltzer (1968) “What Did We Learn from the Monetary Experience of the United States in the Great Depression?” Canadian Journal of Economics, Vol. 1, No. 2 (May): 334-348.

Timothy Cook and Robert L. LaRoche, eds. Instruments of the Money Market, 7th edition. Federal Reserve Bank of Richmond.

Milton Friedman and Anna J Schwartz (1963) A Monetary History of the United States: 1867 to 1960. Princeton: Princeton University Press.

Marvin Goodfriend and Robert King (1997) “The New Neoclassical Synthesis.” In Ben S. Bernanke and Julio Rottemberg, eds., NBER Macroeconomics Annual 1997, Vol. 12. Cambridge: MIT Press.

Robert E. Lucas, Jr. (1972) “Expectations and the Neutrality of Money.” In Robert E. Lucas, Jr. and Thomas J. Sargent, eds., Studies in Business Cycle Theory. Cambridge: MIT Press.

Allan Meltzer (2005) A History of the Federal Reserve. Volume 1: 1913-1951. Chicago: University of Chicago Press.

Allan Meltzer (2010) A History of the Federal Reserve. Volume 2, Books 1 and 2. Chicago: University of Chicago Press.

Christina and David Romer (2004) “A New Measure of Monetary Shocks: Derivation and Implications.” American Economic Review, Vol. 94, No. 4 (September): 1055-1084.

Paul A. Samuelson and Robert M. Solow (1960) “Analytic Aspects of Anti-Inflation Policy.” American Economic Review, Vol. 50, No. 2 (May): 177-194.

John B. Taylor (1993) “Discretion Versus Policy Rules in Practice.” Carnegie Rochester Conference Series on Public Policy, Vol. 39: 195-214. Amsterdam: North Holland.

John B. Taylor (2007) “Housing and Monetary Policy.” Federal Reserve Bank of Kansas City Jackson Hole Economic Symposium. August.

David Wheelock (1992) “Monetary Policy in the Great Depression: What the Fed Did, and Why.” Federal Reserve Bank of St. Louis Review. March/April.

Michael Woodford (2000) Interest and Prices: Foundations of a Theory of Monetary Policy. Princeton University Press.


Michael D Bordo is a Board of Governors Professor of Economics and a Distinguished Professor of Economics at Rutgers University. He is currently working on a book project with Ned Prescott, “Federal Reserve Structure, Economic Ideas, and Monetary and Financial Policy,” as well as several projects in monetary history.

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
Geographic Area(s):North America
Time Period(s):20th Century: Pre WWII
20th Century: WWII and post-WWII
21st Century