Published by EH.NET (October 2000)
Lee A. Craig and Douglas Fisher, The European Macroeconomy: Growth,
Integration and Cycles 1500-1913. Cheltenham, UK and Northampton, MA, USA:
Edward Elgar, 2000. xii + 389 pp. $120.00 (cloth), ISBN: 1-85278-643-4.
Reviewed for EH.NET by Stephen Broadberry, Department of Economics, University
of Warwick.
European economic history currently lacks a good textbook that might appeal
to undergraduate students with a background in economics. Floud and McCloskey
(The Economic History of Britain since 1700, Cambridge University
Press, second edition, 1994) exists, but there is nothing comparable for any
other European country or for the early modern period. This book by Lee Craig
and Douglas Fisher, both from North Carolina State University, is thus to be
welcomed as filling an important gap in the textbook market. It is to be
doubly welcomed, however, for doing an excellent job. In many ways, this book
builds on two earlier volumes, the first by Fisher (1992), The Industrial
Revolution: A Macroeconomic Interpretation, and the second by Craig and
Fisher (1997), The Integration of the European Economy, 1850-1913.
Parts III and IV of this book are essentially compressed and simplified
versions of the earlier two volumes, while parts I and II provide a
theoretical overview and a new section on the early modern period.
Part I sets out the theoretical framework, emphasizing four basic ideas that
recur throughout the book: (1) Institutions have an important role to play in
determining economic performance. In particular, increasing political and
economic integration plays an important role in helping to bring about
convergence of per capita incomes within and between countries. (2) Within a
given institutional setting, the long run rate of economic growth is driven by
population growth and technological progress, with investment affecting the
level of per capita income, but not the long run growth rate, as in the basic
neoclassical growth model. (3) Money and financial services play an important
role in real economic activity, but excessive monetary growth causes inflation
along simple quantity theory lines. (4) Business cycles are driven largely by
shocks to real activity, as in real business cycle models. Armed with this
theoretical toolkit, Craig and Fisher cut a swathe through European economic
history between about 1500 and 1914. The starting date reflects the belief
that integration within nation states had largely occurred by 1500, while
subsequent developments are seen as reflecting integration between those
states.
Part II deals with the growth of the European market economy 1500-1750 in four
chapters, covering population and agriculture (chapter 3), inflation, money
and banking (chapter 4), trade, industry and mercantilism (chapter 5) and
trends and cycles (chapter 6). There are some excellent sections here,
including the analysis of the price revolution in the sixteenth century and
the Kipper- und Wipperzeit inflation in terms of the quantity theory of money,
and the use of real wage data in England, Austria, Alsace, Germany and Spain
to make inferences about living standards. However, apart from population,
there is a serious shortage of macroeconomic data for many countries, so that
at times the authors seem constrained by their framework. Would it not be more
useful, for example, to get at the issue of European integration at this time
by using the abundant microeconomic data on variables such as grain prices,
rather than searching for a common European cycle in the fragments of
macroeconomic data?
Part III then turns to the First Industrial Revolution in Europe, 1750-1850,
with separate chapters on Britain (chapter 7), the “major” continental
economies of France, Germany and Belgium (chapter 8) and the “periphery”
(chapter 9). The discussion of Britain embraces the Crafts/Harley gradualist
view of growth during the Industrial Revolution, although I would have liked
more emphasis on the accompanying and more revolutionary structural change
that the British economy underwent at this time. Traditional microeconomic
themes such as the standard of living and other distributional issues receive
only the briefest mention, and although the “wave of gadgets” that spread
across the continent as well as Britain is discussed in chapter 8, the
treatment is brief by comparison with other texts. By contrast, a great deal
of space is devoted to an innovative attempt to identify a common
international cycle as a sign of the integration of the European economy.
Although the extent to which the peripheral countries can be seen as
integrated into the European economy and hence sharing in this common cycle is
limited, Craig and Fisher are keen to emphasize that right down to the “bottom
of the table,” all these countries were experiencing economic and population
growth rates that were uniquely rapid for any sustained period in their
history.
Part IV contains three chapters on the maturing of the Industrial Revolution
1850-1913 and a final chapter on growth and cycles 1500-1913. The chapters on
the 1850-1913 period cover population and overall economic growth (chapter
10), financial issues (chapter 11) and business cycles (chapter 12). With a
much more complete data set than for earlier periods, it is possible to show
clearly that most West European countries converged towards British levels of
per capita income between 1850 and 1913, but that South and East European
countries did not share in this process of convergence. It is also possible to
show how convergence was linked to a willingness to permit a shift of
resources out of agriculture and out of the industries of the First Industrial
Revolution into the industries of the Second Industrial Revolution. The fuller
data set for this period also permits a much more detailed analysis of the
role of money, drawing on the monetary approach to the balance of payments.
The close correlation of inflation rates across countries during the gold
standard era, combined with the very low correlation of monetary growth rates
across countries is explained by arbitrage in goods markets combined with a
commitment to fixed exchange rates, rather than by a specie-flow mechanism. As
in the previous sections, the chapter on business cycles identifies a common
European cycle.
There is much to commend in this approach. A broad sweep of history can be
covered without getting lost in excessive detail. And by sticking to some
basic ideas, Craig and Fisher have made the book accessible to students with
only a basic knowledge of economics. However, there are also drawbacks. One
concern is that by sticking to a macroeconomic approach, many of the issues
that economic historians have traditionally emphasized are simply not covered
or mentioned only briefly in passing. Maybe traditional texts do sometimes get
a bit bogged down in the details of how the spinning jenny worked, but the
macroeconomic emphasis of this book also has its drawbacks. For one thing, we
can probably be more confident about our knowledge of what happened in the
cotton industry than we can about the growth of national income during the
Industrial Revolution. This makes it instructive to work up to the aggregate
data from the micro evidence, not just to present micro data when macro
estimates are unavailable.
A second area of concern is that economics students studying economic history
should pick up a clear message that history matters. The authors do state at
the beginning that institutions are important, but much of the subsequent
material emphasizes smooth convergence on a global optimum apart from a few
exogenous shocks. One obvious way of emphasizing the importance of the
particular historical path taken would be to cover the twentieth century more
fully, since the period of European integration before 1914 was followed by a
long period of disintegration, some of the consequences of which are still
with us. The excluded twentieth century anyway looks eminently more suitable
for the quantitative macroeconomic treatment favored by the authors than the
included sixteenth and seventeenth centuries.
Overall, I found this a stimulating book. European economic history badly
needs a fresh approach and this is one way of doing it. It is to be hoped that
a paperback version will be issued, otherwise it may prove too expensive for
the mass undergraduate audience that it undoubtedly deserves.
Stephen Broadberry is Professor of Economic History in the Department of
Economics, University of Warwick, United Kingdom. He is currently an editor of
the European Review of Economic History, and his 1997 book, The
Productivity Race: British Manufacturing in International
Perspective,1850-1990, was published by Cambridge University Press.