Published by EH.NET (August 1999)

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Thomas Cate, Editor, G.C. Harcourt and David C. Colander, Associate Editors. An Encyclopedia of Keynesian Economics. Cheltenham, UK and Brookfield, MA: Edward Elgar, 1997. xxiv + 638 pp. $235, ISBN: 185898145X.

Reviewed for EH.NET by Michael S. Lawlor, Department of Economics, Wake Forest University.

Macroeconomics today is in a peculiar state. Internally, the profession seems to have lost interest. Macroeconomics is neglected as a research topic. Outside of handy data to which to apply the latest advances in time-series econometric technique, graduate students seem to frown upon it as a dissertation topic (judging from the informal sample of assistant professor candidates we have interviewed in the last ten years). No longer are the heady debates, claims and counter-claims of the theoretical battles of the 1970s and 1980s making headlines in the journals.

Yet simultaneously, externally, out in the real economy, something of a revolution (to use a phrase popular in macro-talk) does seems to be taking place in macroeconomic performance, and possibly also in policy. T his is especially so in the case of the United States economy. U.S. real output growth has exceeded all consensus forecasts for the last 3 years (final figures for 1997 and 1998 came in at 3.8% and 4.2%). The duration of the expansion of the economy has now pushed into record territory. Unemployment has been falling for years and has now stood below 5% since 1996. And, most macroeconomically amazing of all, these good times have been accompanied by falling rates of inflation (below 3% for all but two quarters since 1995, below 2% since 1997:4). On the policy side, meanwhile, there is a degree of unreality. Fiscal policy, long ignored in the shadow of deficit politics, has seemingly dropped from the U.S. policy debate (although not so in Japan). Monetary policy in the era of Greenspan is widely given credit for engineering the U.S. miracle. But if you look a bit closer, both Greenspan and his cheering section seem a bit puzzled, even nervous about all the good fortune. M2 growth has fluctuated widely in the nineties, with little apparent correlation with inflation. Moreover, as inflation has declined, M2 growth has been consistently above the upper bound of its target range for most of the period since 1995. Consequently, both publicly and privately the Fed has abandoned money as an intermediate target, preferring to concentrate on the federal funds rate. Federal Open Market Committee (FOMC) minutes reveal a confusing search for signs of inflation that “must be there,” given the state of unemployment, along with much vague discussion of the financial press’s view that we are now in a “New Economy.” The essence of the novelty and the puzzlement seems to be a search for an unexplained and unmeasured productivity boost. Finally, there is the intriguing macroeconomic record of the rest of the world to add spice to this seemingly fertile ground for macro researchers. The largest experiment in one-shot monetary reform since Bretton Woods is taking place in Europe, while all of its major member states, except the dissenting U.K. (see IMF, 1999 for complete details), are still suffering from years of persistently high unemployment. The Asian Tigers have come down with a case of financial flu-if not pneumonia. Japan, the shining light of the 80s, has been limping through a very depressed decade, with disastrous GDP growth, and an interminable financial mess. As Japanese short-term interest rates have hovered below 1% for over four years now, we are perhaps catching the first real glimpse of a that old Keynesian curiosa, the liquidity trap. These are interesting times indeed.

What does modern macroeconomics have to tell us about all this? Has the profession’s enlightenment by the New Classical school helped us in understanding this state of affairs? More to the point of the book here under review, can we now profitably reassess the recent decades of macroecomic debate and experience with a less ideologically heated, more balanced and sober historical view? These are the issues that reading the current volume bring to mind, especially when considering a review for a list that has recently staged a fascinating forum calling for research on “economic history since 1950.”

Let me postpone some short remarks on these questions, though, to turn to the volume I was given to read. An Encyclopedia of Keynesian Economics contains 169 entries by 144 contributors and runs to 638 pages, with no index. The entries are of three varieties: brief biographies of various economists associated with “Keynesianism,” very broadly conceived (Silvio Gessel, Arthur Okun and Robert Lucas are profiled, for example); brief sketches of theoretical issues, models and tools arising in macroeconomic debates (e.g., “Okun’s Law” and “The Lucas Critique”); and longer pieces which typically deal much more closely with issues in Keynes scholarship (e.g., “The Influence of Burke and More on Keynes”).

The quality of the entries is varied. Some of the entries are entirely pedestrian, perhaps intentionally so to fit the evidently strictly imposed spac e requirements for the shorter biographies and theoretical topics. Theoretical topics suffer the most from this enforced brevity. Overall, I find the average level of the discussion in this volume inferior to some other recent reference works of its kind. The New Palgrave: A Dictionary of Economics (Eatwell, Milgate and Newman,1987), more deeply covers many of the same topics, albeit mixed in with much else. On the general topic of macroeconomics, the recent Business Cycles and Depressions: An Encyclopedia (Glasner, 1997) provides more complete coverage, especially of empirical issues in macroeconomics. Closer still to Keynesian concerns, but a beast of a different kind, is “A Second Edition” of the General Theory (Harcourt and Riach, 1997), which includes much more extensive treatments of issues arising within and from Keynes’s landmark book. At a minimum I would recommend cross-references to these sources be consulted along with the entries in the present volume. In any case such short entries as are here provided for theoretical issues can only serve as a mere starting point for further reading, and in this volume the excellent bibliographies attached to many entries will be as valuable a tool in that search as the articles themselves.

Some entries are not well done-“The Monetarist School of Economics” is bizarrely written, for example. It appears to have been inelegantly ripped from the preface of the author’s book on the subject, making references to that text that are unintelligible to the readers of the encyclopedia. But others are remarkable, mostly in those instances where more freedom of space was allowed. My favorite, was “Marshall and Keynes” by Peter Groenewegen, a fascinating and admirable condensation of the extensive treatment Groenewegen gave to this topic in his recent biography of Marshall (Groenewegen, 1995). It shows clearly the continuing impact of Marshall and Marshallian habits of thought on Keynes’s work up to and including his framing of the General Theory. Other entries raise expectations that are ultimately disappointed. In the treatment of Lucas and the “New Classical School of Economics,” for instance, there is a lamentable failure to confront the challenge that the last decades’ theoretical debates have posed for Keynesian economics. The reader longs to see a position taken on who has been left standing after the dust settles. Instead, we get sterile recounting of the dry points of various famous articles (evidently no “books” are influential in this field anymore) with no attempt at evaluation. (For a sterling discussion of this very topic, one that goes far to redeem Keynesianism, while recognizing the contributions of Lucas, see Peter Howitt’s “Expectations and Uncertainty in Contemporary Keynesian Models” in Harcourt and Riach, 1997). I suspect that the editors wanted to limit the partisanship of the volume and thus let each camp speak for itself. No conflict seems evident in this account and thus no evaluation of what we have learned from the tumultuous debates of the last twenty years emerges. Similar complaints apply to the entries on “Money,” “Neutrality of Money: The Keynesian Challenge,” “Monetary Policy,” and “Business Cycles.”

Partly this unsatisfactory nature of the debate reflects the problem of what purpose such a volume is intended to fulfill. This encyclopedia seems to be at cross-purposes with itself. It wants to reach out for inclusiveness-arguably all macroeconomics can be considered in some sense derivative from Keynes. Yet it must be taking sides to some extent in light of its very title. There has obviously been an explosion of scholarship on Keynes, Keynesianism, Post-Keynesianism and things Keynes-like (e.g., the philosophical issues surrounding expectation formation) in recent years. Much of this work was spurred by the combination of dissatisfaction with macro theory in the seventies and the publication of Keynes’ Collected Works. Thus there is now a whole (often interesting) sub-culture of the sub-culture that is the History of Economics devoted to Keynes studies. Another aspect of the same period of resurgence of interest in Keynes has been the extreme partisanship of macroecnonomic debates. It came to be something of a political and methodological ‘statement’ to be identified as a Keynesian in the eighties. While none of the issues raised in this period were ever settled-indeed I would say that much of Keynesianism has aged the period considerably better that any one would have predicted in the midst of the New Classical heyday-the debate itself seems now to have disappeared (except to be drearily recounted in the, significantly last, chapters of most otherwise Keynesian intermediate macro texts). Talking to most recent Ph.D. graduates reveals a pervasive ignorance and disdain for the whole topic of macroeconomics. Thus at whom is the present volume aimed? Is it designed to convert the heathen or to preach to the choir? Consideration of this issue will bring us back to the peculiar state of modern macro theory mentioned above. To motivate that consideration I would like to direct attention to the general history of encyclopedias, looking for clues to the role they have played in past eras of scholarship.

Encyclopedias as a bibliographic form can be traced back more than 2000 years (see the Encyclopedia Britannica entry for a useful account). The beginnings in Greek and Roman times play upon the first meaning of the word-a circle-to imply a complete system of learning or an all around education. There is a long and fascinating history of the concept since Plato’s nephew Speusippus (died 339 BC) began to convey his uncle’s ideas by recording the spoken word of the Forum. Some issues that arose over the course of this long development are interesting to consider in relation to our current theme. The question of audience has always been paramount. For most of their history encyclopedias were written to be a source of sound moral instruction. Hence the fashion of including biographies of exemplars from the past. The reader, it was hoped, would be elevated, inspired and refined by contact with the minds and lives of ideal man. Prior to the Enlightenment, encyclopedias were usually intended for very select groups that the author or editors could easily visualize and about whom they could therefore make certain assumptions. Early on, one could assume that he could read Latin (or “she” could-one of the most beautiful mediaeval encyclopedias is an illustrated manuscript of 636 pages by the abbess Herrad (died 1195), for use by the nuns in her charge). Other safe assumptions included that he or she was of high status and young and so in need of instruction, or later that he or she was a believing Christian, probably a Catholic cleric. In these didactic encyclopedias the common presumptions of the background of the reader were the source of the notion that encyclopedias should dispense with excessive moralizing and commentary in trade for brevity and clarity. Thus many early encyclopedias were little more than compendiums of selected pass ages of great writers, chosen to impart information that would be useful in the readers’ work and private life.

Another closely associated concern of encyclopedias in the pre-Modern period was the issue of the division of knowledge into the Sacred and Profane, or the Spiritual and the Secular. Increasingly, as scholarship became more developed and use was found for non-Christian ancient texts in describing the world, the Scholastic encyclopedists found themselves torn between acceptable beliefs and a passion for objective reporting of scientific observations. This division of course reached its height in the Enlightenment period. In the hands of Bacon, and especially Denis Diderot, the implicit and explicit purpose was to herald a new secular order where all thought would be encompassed in a philosophical system based on logic and natural law – the Enlightenment project. Diderot’s famous Encyclopedie (1751-65) enlisted, perhaps for the first time, a gigantic assemblage of high quality writers, commissioned to survey only secular knowledge. Scandalous in its day as a challenge to orthodox authority, this concept, as much as its uneven execution, has been accorded a substantial role in conditioning the revolutionary spirit of France in those crucial last decades of the Ancien Regime (Darnton, 1979).

If this can only seem incredible to us today-a revolutionary encyclopedia! – it is not only due to the irrelevance of the Academy in our post-Modern age. More directly it is due to the British reaction to the French Encyclopedia. The Britannica consciously avoided the lengthy and scandalous polemics of Diderot’s work, and instead soberly set out to achieve with an extensive list of short, factual entries, the aim of complete scientific and scholarly coverage. To this day we associate this task with the very meaning of encyclopedic. In the vernacular, completeness is the essence of what might be called the popular view of encyclopedias as the ready source for the answer to all queries. (In this regard it is useful to recall that in the 18th and 19th centuries most encyclopedias were sold ahead of time by mass subscription, the funds from which went to pay the writers. Since then the notion of a mass audience, not a select few, has characterized most modern encyclopedias.) This all-encompassing authority of encyclopedias is a view that has no doubt been much damaged at the hands of encyclopedia salesmanship, but still “sells” to the general public via parental faith in educational salvation for their children and schoolroom searches for last minute research papers. Truth be told the attraction reaches much higher in the hierarchy of the knowledge industry than that. What scholar can deny the still live attraction of the promise of knowing the essentials of all there is to know? Thus we can easily connect with the marketing savvy that inspired Dominco Bandini to market his fifteenth-century encyclopedia as Fons Memorabilium Universi (“The Source of the Noteworthy Facts of the Universe”).

Considering this complex set of issues from the general history of encyclopedias along with modern economics is an interesting exercise. Let us begin with the question of audience. An outside audience for economics in its true rhetorical dress of peculiar notation and specialized jargon is now an impossibility. Most of economic “research,” like most of science in general, has now progressed into corners that only the sub-discipline specialists themselves care to venture. Consequently the notion of an all-encompassing dictionary of economics, let alone of all knowledge as in encyclopedias of old, now is beyond belief. Today, the primary purpose of a scientific encyclopedia is to explain to the profession as a whole what the specialists in any area are doing. Here is one dimension in which economics truly can compare to modern science. The New Palgrave definitely fits this bill, as anyone who has ever sent an undergraduate over to the library to consult it has found. If ever there was one of those much discussed businessmen for whom Marshall was writing at the turn of the century, they are definitively not the targets of economic encyclopedias, the Encyclopedia of Keynesian Economics included.

Who among us economists then would profit from the volume? It is safe to say that anyone could profit from some aspect of the volume. At the most universal level some biographies are very interesting and even instructive (some are horribly dull). My favorite was the account by Robert Leeson of the New Zealander A.W.H. Phillips, of the much abused Phillips Curve (an association he was evidently loath to acknowledge). He was a kind of Henry-George-like figure in his colorful background and circuitous route to economics by way of earning his living as a fiddler, crocodile hunter, R AF officer, Japanese prisoner of war and engineer. He seems also to have been an exemplar of the gentleman scientist in the best possible sense of the phrase-disdaining both his own personal acclaim and the, as he saw it, distasteful acrimony of the macro policy debates inspired by his famous paper. But even less colorful biographies offer interesting tidbits-for instance that R. E. Lucas’s parents were New Deal Democrats, that he earned his BA in history and that he prefers to be called a “Monetarist” rather than a “New Classicalist.” Of course the fascination of Keynes’s biography needs no elaboration. Beyond the personal stories, unfortunately, it seems very doubtful to me in our ever more unconsciously conservative profession that many besides the already initiated will find a dictionary on “Keynesian” economics worth the look.

Which brings me to the issue of fact versus faith, or what the medieval monks who compiled encyclopedias termed, “the sacred and the profane.” If encyclopedias are to instruct the young and uninitiated they must have some imprimatur of authority akin to the ecclesiastical seal that the scholastics put upon medieval texts and the similarly ceremonial listing of the legion of famous authorities, resplendent in their degrees and positions, which all modern mass-market encyclopedias display prominently at the head of the first volume. Amongst the brothers and sisters of the macro faith today, though, the priesthood is in serious disarray. There is little enough agreement on basic principles for a consensus among specialists, let alone among the profession as a whole. Just who are the true priests and who are the worshipers of false idols varies by sect. It is this state of uncertainty and discord, I believe, that has effected the graduate training of new economists and turned them away from macroeconomics at just a point in time when the topic seems so interesting. If one has to spend hours learning the latest refinements of New Classical, Real Business Cycle, New Keynesian and Cash-in-Advance macro models to get through the macro sequence, there is little time left to synthesize what one really knows about macroeconomic theory, much less macroeconomic events that will not be covered on the preliminary exam. More telling perhaps is the partisanship, for no vibrant research program is ever just a catalogue of received truths, but must generate ever-new questions and puzzles to progress. If there is little tolerance shown for alternative viewpoints by the lights of the profession, then graduate students are not to be blamed for their reluctance to try to sort it all out for themselves.

Moreover, if the student does happen to have a prior interest in macro events or, more likely, finds himself assigned to teach or write about macro to a non-economist audience (like a group of Principles students) he will quickly find that the only intelligible framework for doing so is the very same old-time Keynesian macro of the pre-Lucas era that was supposedly destroyed by that JPE paper back in ’75! An archipelago of islands inhabited by rational agents, continuously in equilibrium but frustrated by the signal extraction problem is interesting enough, perhaps-but what does it have to tell us about the crash of the crash of the Indonesian Bahtand its implication for the sustainability of the long boom in the U.S.? Faced with the latter question, one inevitably starts talking about aggregate demand, lender of last resort, etc., in ways that would hardly surprise your average 1970s-era macro theorist.

Or, alternatively, we have this puzzle that Alan Greenspan has now spoken of on numerous occasions of how to determine if the recent (pleasant) inflation surprise was a temporary cyclical artifact of reduced world demand or a new era of increased productivity growth. From the realm of high theory we might well sense a resemblance to both the new endogenous growth literature and the real business cycle model. But what do they have to offer in explanation for the current short-term situation or as a guide to Fed policy making? Next to nothing it would seem, judging from the discussions at the recent FOMC meetings. Yoo (1998) offers a very interesting analysis of the “puzzlement” in the FOMC over what they should do to respond to the current macro situation. His analysis, following their discussion, is framed in terms of such issues as the state of “aggregate supply,” “productivity,” the “investment and consumption components of aggregate demand” and the “capacity constraints on the economy.” Reflecting on the impact of the recent macro theory debates, he notes that the Fed continues to distrust money supply growth as a reliable indicator and finds itself “puzzled” by recent performance. The minutes for the FOMC meeting of May 20, 1997 report that:

The members found it very difficult to account for the surprisingly benign behavior of inflation in an economy that had been operating at a level approximating full employment, indeed, possibly somewhat above sustainable full employment in labor markets in the view of a number of members, especially taking into consideration the recent further decline in the unemployment rate. On the basis of historical patterns, any overshooting of full employment would be expected to generate rising inflation over time. (quoted in Yoo, 1998, p. 35)

In one fashion we might say that the big puzzle for the Fed has been to try to uncover what the non-accelerating inflation rate of unemployment (NAIRU) now is, after having seen virtually every consensus estimate of it for the last 15 years succumb to continuing growth with falling inflation.

My point is that virtually all of this policy discussion is conducted in terms of an aggregate short-run supply and demand framework that most closely resembles textbook Keynesianism of the kind that still dominates the intermediate course market. It bears little evidence of influences from the last 20 years of macro research. And if such an application were to be attempted, what would it suggest? That we continuously measure the elasticity of substitution between labor and leisure and between present and future consumption? That we try to anticipate the next shock to the economy’s production function – which are after all considered completely stochastic in the New Classical/Real Business Cycle literature anyway? At best such models approach reality by a non-unique calibration of a whole set of parameters that allows the model to simulate the record of past business cycles. They seem to have no forecasting ability. Note, that while automatic “rules” are very popular among recent theorists of macro policy, no central bank is actually bold enough to seriously adopt one. Flying completely blind, counting on the economy to right itself, neglecting any attempt at anticipation of events, is not in the repertoires of central bankers today – if it ever was (see John Wood’s forthcoming book (Wood, 2000) for a fascinating argument about the mindset of central bankers versus that of economists).

Yet confidence in the self-correcting automaticity of the macroeconomy is the bedrock of classicism (old and new), considered as a policy framework. Thus to give the classical view its due we should also consider the possibility that we have returned to the long-run stability of some past macroeconomic golden age-the gold-standard era seems to be a favorite. This would be a period when budgets were routinely balanced, governments non-intrusive and money so stable in value that actors on the economic stage did not even consider monetary policy in their calculations. Or, put more theoretically, the explanation might be that macroeconomics is not even at issue and what we are dealing with today is long-run supply considerations that no macro policy could do anything to foster in the first place. It is tempting to reply, “tell that to the Japanese!” More soberly, what evidence can we bring to bear on this proposition?

First I believe it is the economic historians who staged the debate in the last 15 years or so on the question of the relative stability of older (pre-war, pre-Keynesian) business cycles, versus newer (post-war, activist government-era) cycles. The exact outcome of the debate as I read it (Romer, 1986, Lebergott, 1986, Weir 1986, Diebold and Rudebush, 1992) is that the initial, and macroeconomically conventional, claim that the post-war business cycle was more stable (challenged by Romer, defended by the others) still holds up. But whatever the case, no one has suggested that the post-war cycle is less stable than the pre-war one. Outside of price stability (where the Gold-standard era is clearly superior), data scarcity makes macroeconomic comparisons before 1929 difficult. But an argument can certainly be made (given one’s weighting of low unemployment and growth along with price stability) that the 1950-1970 era (1961-1969 is still the longest expansion on record but is normally discounted for the “war” effect when compared with “peacetime” expansions) is the most ‘golden’ of ages from the standpoint of macro performance – particularly if we look at international comparisons. Is returning to a pre-war policy context necessarily a good thing?

But other problems are also evident in a crude classical view from a shorter-term perspective. One, the fiscal policy aspect is not at all clear. Th e long-boom(s) of the last 15 years (the expansions 1982:4 – 1990:3, plus 1991:2 – today) were of course mostly a period of extremely high and growing deficits, though followed by shrinking ones after 1992. Moreover, as the European countries positioned themselves for monetary union, they too shrunk their deficits as a percent of GDP (since about 1994). But they have mostly seen no similar decline in the unemployment rate. Thus the role of fiscal effects is not easy to untangle. An alternative story could be told that the U.S. example is one of fiscal demand stimulus (under the banner of supply-side economics), followed by a cyclically balanced budget as the Clinton tax-plan and output increases pushed up tax revenue. Finally, as to the benefits of the productivity shocks we may be experiencing, they are of course part of the Keynesian view in terms of the effect on aggregate supply. But one does wonder about Japan in this context, which seems to be the source of much of the information management and inventory techniques that are often cited as the source of the “New Economy,” but which can’t pull itself out of a very deep recession. (It has been interesting to watch the US administration, the policy institutes and even the Wall Street Journal, admonish the Japanese for not pushing a more aggressive fiscal stimulus package. Evidently the rhetoric of balanced budgets stops at our shores.)

Lastly there is the hand wringing over the financial and monetary situation. We have seen the Fed successfully intervene to ward of the contagion of financial crises and stock-market crashes both at home and abroad in this time period. The money supply seems to have become unhinged from inflation. Most policy moves are made today with a fearful eye on how the bond and stock markets will react. And the guru of the whole era’s prosperity, Alan Greenspan, has nothing but stern words for the high-flying stock market. This potentially unstable combination of interlocking psychologies and ultimate dependence on the Fed to do what is right when the Fed itself seems puzzled over what is going on, does not look like an “automatic adjustment” economy to me. In fact it looks very much like the kind of economy Keynes was describing in the General Theory. Is this what the advocates of the supposedly unmanaged economies of old have in mind?

The French Aristocracy and Jesuits together vehemently opposed Diderot’s Encyclopedie. They were astute enough to realize the threat of Diderot’s self-consciously secular system of knowledge becoming widely disseminated. It was not dangerous that the Philosophes were themselves embracing a new language in which to conduct their professional conversations. What was dangerous was for the 2000 subscribers and the members of the Paris salons in which they gathered, to begin to notice that the entries on government and morality put forth in the Encyclopedie declared their position to be derivative of natural laws and not divine or ecclesiastical authority. If this view were to become widespread, they correctly sensed, the basis of the Ancien Regime was at risk.

Today in macroeconomics we have a curious reversal of this old conflict between social authority and profane science. The ‘science’ of macroeconomics itself has retreated into a kind of religiosity – what Keynes, complaining of his classical critics, called “scholasticism.” To him this was a discussion that proceeds in a kind of infinite loop, sustained by shared cherished assumptions that are not allowed to be questioned- like continuous market clearing and the insistence on modeling all choice as if it were made by rational anticipation of the consequences in situations defined by the impossibility of such anticipation. The risk of such private conversations is that Macroeconomics may be in the process of becoming irrelevant. Meanwhile the macroeconomy marches forward and policy analysis has become the province of non-economist policy analysts and low-status (within the economics profession) government staff economists. Much of the toolkit of these (evidently very successful) practitioners are filled with theories and tools that modern highbrow theory has relegated to historians and outmoded “Keynesians.” Many of these tools are profiled in the encyclopedia under review.

Michael S . Lawlor is Professor of Economics at Wake Forest University. His most recent publication on Keynes was the chapter “The Classical Theory of the Rate of Interest,” in G.C. Harcourt and P.A. Riach, eds, 1997. A ‘Second Edition’ of The General Theory. Lon don and New York: Routledge.

REFERENCES

Darnton, Robert, 1979. The Business of the Enlightenment: A Publishing History of the Encyclopedia. Cambridge: Harvard University Press

Diebold, Francis X., and Glenn D. Rudebusch. ” Have Postwar Economic Fluctuations Been Stabilized?” American Economic Review, 82 (1992): 993-1005.

Eatwell, John, Murray Milgate and Peter Newman, eds. 1987. The New Palgrave: A Dictionary of Economics. London: Macmillan.

Glasner, David, ed., 1997. Business Cycles and Depressions: An Encyclopedia. New York and London: Garland.

Groenewegen, Peter D. 1995. A Soaring Eagle: Alfred Marshall 1842-1924. Aldershot: Edward Elgar.

Harcourt, G.C. and Peter Riach, eds. 1997. A ‘Second Edition’ of The General Theory. London and New York: Routledge.

International Monetary Fund, 1999. Chronic Unemployment in the Euro Area: Causes and Cures. Washington D.C.: International Monetary Fund.

Lebergott, Stanley. “Discussion.” Journal of Economic History 46 (1986): 367-71.

Romer, Christina D. “Is Stabilization of the Postwar economy of Figment of the Data?” American Economic Review 17 (1986): 314-34.

Weir, David. “The Reliability of Historical Macroeconomic Data for Comparing Cyclical Stability.” Journal of Economic History 4 6 (1986: 353-65).

Wood, John H. “A Company of Merchants:” A History of the Theories and Ideas That Have Shaped Monetary Policy. Forthcoming.

Yoo, Peter S. “The FOMC in 1997: A Real Conundrum.” Review of the Federal Reserve Bank of St. Louis 80:5 (19 98): 27-40.

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Published by EH.NET (Ju ly 1999)

Seymour Drescher and Stanley L. Engerman, editors, A Historical Guide to World Slavery. New York: Oxford University Press, 1998. xxiv + 429 pp. $75.00 (cloth), ISBN: 0-19-512091-4.

Reviewed for EH.NET by Robert Whaples, Department of Economics, Wake Forest University.

Seymour Drescher (University of Pittsburgh) and Stanley Engerman (University of Rochester) have assembled a stellar cast which has written an exceptionally useful reference book. The goal of the nearly one hundred contributors to A Historical Guide to World Slavery is to bring slavery into a “worldwide and cross-cultural focus.” The entries in this volume do this very well. They will be useful to students and scholars alike, as they provide both an accessible overview of the complexities of the subject and a starting point for further research. The authors’ collective ability to be simultaneously concise and informative is striking.

The entries cover an impressive range. The volume begins with a twenty-se ven page entry on “Abolition and Anti-Slavery” in which individual authors examine events in Africa, India, Southeast Asia, Britain, Continental Europe, Latin America, and the United States. It closes with a short essay on “Wage Slavery.” In between are a wide range of entries covering topics such as “Art and Illustration,” “Biblical Literature,” “Family,” “Forced Labor: Soviet Union,” “Gender and Slavery,” “Historiography,” “Manumission,” “Maroons,” “Middle Passage,” “Nazi Slavery,” “Psychology,” “Race and Racism,” “Religion,” “Reproduction,” “Revolts,” “Serfdom,” and “Urban Slavery.” Points of interest include an introductory essay on “The Problem of Slavery” by David Brion Davis, a six-page entry on “Contemporary Slavery” and an unexpectedly detailed three-page entry on “Eunuchs.” Nearly one-quarter of the guide focuses on slavery in particular regions and countries, including Africa (23 pages), Asia (11 pages), Brazil, Canada, the Caribbean (22 pages), Central America, China, Europe, the Mediterranean , Oceania, Russia, South America, and the United States (10 pages).

EH.NET subscribers will find this work to be a valuable resource. Among the entries that will be of most interest to economic historians are those on: -The “Asiento” (the monopoly contract awarded by Spain to supply her colonies in the Americas with African slaves) by Colin Palmer. -“Capitalism and Slavery” in which Joseph Inikori argues that recently “discovered evidence and newer analytical frameworks . . . make it clear that African slavery in the Americas was a critical factor in the development of capitalism in England between 1650 and 1850 (p. 109).” -“Demography” by Barry Higman. -“Economics” in which Richard Steckel focuses mainly on the U.S. South. He concludes that research “in the past two decades has overturned the image of slaves as lazy and inept, established slave-owners as rational capitalists, demonstrated that Southerners were largely independent of Western food supplies, and shown that slave workers were well-nourished while young children had extraordinarily poor health (p. 183).” -“Forced Labor” by Ralph Shlomowitz, which examines indentured servitude, convict labor, and other similar institutions around the world. -“Indentured Servitude” by David Galenson. -“Industrial Slavery” by Charles Dew. -“Mortality in Transport” by Raymond Cohn. -“Occupations” by David Murray. -“Penal Slavery” by Farley Grubb. -A seven-part entry on the “Slave Trade” by Ralph Shlomowitz, Ross Samson, Ralph Austen, David Eltis, Robert Edgar Conrad, David Murray, and David Richardson; -And an entry on slavery in the U.S. South in which Gavin Wright points out that “North American slavery was less essential to the economy than was true for most other major slave systems” (p. 401), provides an ex tended discussion of the “efficiency” debate, and concludes that “slavery in the American South did not create an economy well-suited for rapid integration into the capitalist world (p. 405).”

This guide will be an especially helpful teaching tool. It is a must for any college library.

Robert Whaples Department of Economics Wake Forest University

Robert Whaples is Associate Director of EH.NET and author of “Where Is There a Consensus among American Economic Historians? The Results of a Survey on Forty Propositions,” Journal of Economic History, March 1995.

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Published by EH.NET (January 2000)

Michael Sanderson, Education

and Economic Decline in Britain, 1870 to the 1990s. New York: Cambridge

University Press, 1999. viii + 124 pp. $39.95

(cloth), ISBN: 0-521-58170-2; $11.95 (paper), ISBN: 0-521-58842-1.

Reviewed for EH.NET by David Mitch, Department of Economics, University of

Maryland-Baltimore County.

The education of an economy’s workforce can influence its performance in

diverse ways ranging from the productivity of its farm and factory workers to

the ability of its scientists and engineers to develop and diffuse new

technologies to the entrepreneurial and managerial capabilities of its business

leadership. While the protean nature of education makes it an attractive

candidate for explaining economic performance it also makes it problematic for

the

historian to pin down its actual role in specific situations. The problems

involved can range from controlling for unobservable native ability factors at

the individual level to deciding how to enter education in an aggregate

production function at the macro level.

In the case of the British economy’s relative fall from its Victorian zenith

over the last century, deficiencies in the British educational system have

often been invoked as contributing factors. From Alfred Marshall to David

Landes, critics

of late Victorian economic performance have noted the failure of Britain to

develop a system of formal technical training on the same scale of Germany.

However, defenders of British education such as Sydney Pollard and Roderick

Floud have maintained that the British use of on-the-job training to develop

technical skills was rational given the alternatives.

Michael Sanderson undertakes in the volume under review to survey the debates

that have occurred among “those who would emphasize or deny education’s

contribution or culpability for Britain’s diminished economic state.” (p.2).

The

volume itself is one in the series New Studies in Social and Economic History

published by Cambridge and of which Sanderson himself is the general editor.

Sanderson is a prominent authority on the history of the relation between

education and the economy in Britain since the industrial revolution. He has

written important work on the role (or lack thereof) of literacy in textile

workforce of Lancashire during the industrial revolution, on the growing

involvement of British universities in industrially relevant scientific and

engineering work in the late nineteenth and early twentieth centuries, and on

the failure of Britain to develop extensive secondary level technical training

in the twentieth century.

Sanderson begins with a very brief introduction surveying in just over a page

the evidence for sustained British relative decline in performance over the

past century while acknowledging a parallel rise in absolute levels of

prosperity. At the outset, he explicitly avoids a survey of general

explanations of Britain’s decline, choosing instead to focus specifically on

what role education may have played in decline. He then turns in the first full

chapter of the book to the advent of universal mass schooling and literacy

that occurred in Britain between 1870 and 1914.

While this can generally be seen as a positive aspect of Britain’s educational

performance during this period, Sanderson notes signs of future problems in

subsequent educational development with the reluctance of educational

authorities to support either training in technical courses or higher grade

education more generally as follow-ups to the provision of universal primary

education during this period.

Of the remaining six chapters, four focus primarily on technical and

vocational education, and this primarily at the secondary level. One persistent

theme Sanderson notes in British educational policy, whether in the Victorian

and Edwardian periods covered in chapter 2, the inter-war period covered in

chapter 5, or the postwar period covered in chapter 6, is the reluctance both

of government educational policy makers to support the expansion of secondary

technical training and of employers to hire technical graduates.

Sanderson’s other central theme is the failure of the British educational

system to provide adequately for upward mobility of abler children of

working-class parents. In chapter 4 on Victorian and Edwardian elite education

and in Chapter 7 on higher and public school education in recent decades,

Sanderson argues that despite increasing efforts of universities and elite

schools to develop more relevance for the requirements of industry such as

engineering and business education, too little was done

in either period to recruit able people of humble origins. He argues that this

exclusion has entailed a great waste of talent insofar as mediocre individuals

of privileged background have been able to buy their way into the superior

segments of the British educational system.

Another theme sounded throughout is the excessive emphasis in British education

on self-evidently “useless” knowledge as “mind-trainingly liberal” at the

expense of practical technical and vocational training.

Thus, Sanderson clearly assigns culpability to the British educational system

over the past century for contributing to economic decline. He does so in an

articulate way while generally acknowledging and stating fairly and accurately

the arguments of those whom defend the economic performance of Britain’s

educational system.

However, in a few passages, treatment is not as even handed as it could have

been. In the first chapter on elementary education, Sanderson takes a negative,

dismissive view of the Revised Code of 1861, which based parliamentary grants

to elementary schools on student examination results.

In doing so, he makes no mention of respected, mainstream educational

historians such as John Hurt and David Sylvester who have argued that the

Revised Code made a positive contribution by sustaining ongoing increases in

parliamentary funding for education. In the penultimate sentence of the book,

he cites approvingly the statement of Simon Szreter that education is

“fundamental and essential for the promotion of economic

growth” (p.107),

giving no mention to those, such as the present reviewer, who have questioned

the underlying premise of indispensability in such statements

(see Mitch 1990). But these are exceptions to Sanderson’s generally balanced

coverage.

Some would probably question Sanderson’s assessment of the importance and

magnitude of education’s contribution to British economic decline. A good deal

of Sanderson’s case is based on the virtues he espouses of technical education

and implicitly of the importance

for on-going economic vitality of the manufacturing sector. He provides no

direct support for these views and makes no mention of opposing perspectives

such as that of Philip Foster in his important piece, “The Vocational School

Fallacy in Development Planning.” In making his case, Sanderson relies heavily

on Germany as a benchmark, noting its much more extensive provision of formal

technical and vocational training, its much greater absolute numbers of

scientists and engineers than Britain, and in the later twentieth century, its

higher scores on internationally comparable math tests. There is an element of

circularity to Sanderson’s argument here. He ultimately seeks to explain how

much of England’s loss of economic superiority to Germany can be explained by

educational deficiencies. Yet he ends up making the case for Britain’s

educational deficiencies based on the fact that its educational system was

different from and by some measures behind Germany’s. However,

as Sanderson at points acknowledges (and this returns to the issue of

indispensability noted above), an economy may face a wide continuum of

economically viable educational strategies and the most appropriate one may

vary according to a country’s particular circumstances. One can note here the

contrast between the emphasis on formal education during the late nineteenth

and early twentieth centuries in the U.S. educational system compared with

Germany’s emphasis on vocational training during a period when by many accounts

the U.S., as well as Germany, was overtaking Britain in economic performance

(see Hansen 1998).

In accounting for Britain’s failure to provide a sufficient total level of

education and under-investment in technical and vocational education,

Sanderson assigns part of the blame

to inadequate government support,

noting the failure of any coherent national policy to develop. Barnett

(1999) in his recent review of Sanderson’s book observes a similar feature.

However, one might argue that in regard to higher education, Britain has

suffered from too much centralization of authority with a resultant stifling of

entrepreneurial responses to emerging training opportunities. A more

pluralistic institutional structure in British higher education might have

produced more responsiveness to

economic demands, arguably a strength of U.S. higher education.

Sanderson reserves his harshest criticism for British employers both for their

apathy about developing a system of technical education and for failing to

provide job openings suitable for the training received by the relatively few

technical graduates who were produced. Critics will reply,

as Sanderson himself acknowledges, that complaints of deficiencies in working

training in the absence of employer demands for such training raise the

question of what Sanderson and other advocates of providing such training know

that

private employers at the time did not-the McCloskey “if you’re so smart” issue.

Indeed, in chapter 3, Sanderson notes that those who have defended Britain’s

provision of technical training, have pointed to the lack of demand by

employers for same. (pp. 32, 36). The problem Sanderson perceives is that

employers, because of their business culture,

were accustomed both to a system of on-the-job acquisition of skills via

apprenticeship or related methods and to an over-emphasis on “useless

mind-extending” liberal education with a resultant apathy over “useful”

technical qualifications.

But the claim that employers have been making misjudgments about the

educational qualifications

of their workers raises the question of whether employers making bad decisions

about educational qualifications are not likely to have been making further

misjudgments regarding other aspects of their businesses at least as critical.

In other words, the

root problem here would seem to be that of entrepreneurial failure or even a

more deeply rooted conservative business culture unable to adapt to changing

technological circumstances.

This brings one back to Sanderson’s stated intention at the outset of his book

to avoid any general consideration of sources of economic decline but to focus

only on the role of educational factors. A basic problem here is whether the

protean nature of education fundamentally precludes Sanderson’s understandable

desire to de limit the scope of his study. A wide variety of explanations of

economic decline can be seen as involving education in some respect. And it

would seem difficult to establish the role of education in decline without

specifying the more general explanations

of economic decline that are to be considered. Thus both static problems of

resource misallocation and more dynamic ones of developing undesirable

comparative advantage patterns in an increasingly integrated world economy

could be seen as stemming from under-investment in overall levels of education

and from investing in inappropriate types of education. And problems of

entrepreneurial failure have often been blamed on a complacency and stodginess

inculcated by English Public Schools and Oxbridge.

To be

fair, Sanderson touches on a number of the aspects involved in possible

general explanations of decline, whether they be comparative advantage patterns

or entrepreneurial drive. But at a number of points, his discussion could

benefit from more reference

to the relevant general explanation of decline involved. Indeed, his discussion

of the Matthews et al (1982) findings on the contribution of education to

British economic growth based on growth accounting analysis is misleading.

Sanderson interprets the positive contribution of education to growth from

1855 onwards that Matthews et al report as supporting defenders of British

education. As long as there was some expansion of British education, which no

one disputes, it has to be the case that the contribution of education in a

growth accounting analysis would be positive. But the issue for assessing

possible educational failure is how much higher growth rates could have been if

more suitable levels or direction of educational investments had been made, or

to use Sanderson’s phrase, if Britain had actually pursued “missed

opportunities” regarding education. These missed opportunities are not examined

in the Matthews et al analysis of British education.

During the 120 years covered in Sanderson’s survey, the role education played

in particular occupations and sectors of the economy probably changed

considerably. And further changes occurred in how young people initially

entered the labor market, in the role of the school in this transition, and in

how care ers developed. Yet the book only briefly hints at such changes,

noting, for example, that an increase in educational qualifications became

manifest during both the First and Second World Wars.

To a large extent, the issues raised here really lie in the literature that is

being surveyed and in the complexity of the topic that Sanderson has undertaken

to examine. Although he leaves much unanswered about the contribution of

education to British economic decline, Sanderson has still written a very

worthwhile

and helpful little volume. Britain’s educational system has been subject to

major changes at all levels during the 120 years this work considers. The

existing literature on educational developments in Britain during this period

is very fragmented. Previous works have tended to focus on only one specific

aspect of education and for at most a few decades. It is very useful indeed to

have these developments for the educational sector as a whole surveyed so

concisely and in so authoritative and lucid a fashion for the entire 120 years

under consideration.

Sanderson’s book provides an excellent overview of educational developments as

they relate to the economy in Britain between 1870 and the present.

David Mitch is the author of The Rise of Popular Literacy in Victorian

England (University of Pennsylvania Press, 1992).

References:

Barnett, Corelli. 1999. Review of Michael Sanderson, Education and Economic

Decline in Britain, 1870 to the 1990s in The Times Literary

Supplement August 6, 1999, pp.4-5.

Foster, Philip J. 1965. “The Vocational School Fallacy in Development Planning”

in C. Arnold Anderson and Mary Jean Bowman eds., Education and Economic

Development (Chicago: Aldine), pp.142-166.

Hansen, Hal E. 1998. “Caps and Gowns: Historical Reflections on the

Institutions that Shaped Learning for and Work in Germany and the United

States, 1800-1945.” Ph.D. Dissertation. University of Wisconsin.

Hurt, John S.1971. Education in Evolution. Church, State, Society and

Popular Education 1800-1870. London: Rupert Hart-Davis.

Matthews, R.C.O., C.H.Feinstein, and J.C. Odling-Smee. 1982. British

Economic Growth 1856-1973. Stanford: Stanford University Press.

Mitch, David. 1990. “Education and Economic Growth: Another Axiom of

Indispensability?” in Gabriel Tortella ed., Education and Economic

Development since the Industrial Revolution. Valencia: Generalitat

Valencia.

Sylvester, David. 1974. Robert Lowe and Education. London: Cambridge

University Press.

EH.NET BOOK REVIEW Published by EH.NET (December 1998)

Dora L. Costa, The Evolution

of Retirement: An American Economic History,
1880-1990. Chicago:

University of Chicago Press, 1998. Xiii + 234 pp. $40.00
(cloth), ISBN:

0-226-11608-5.

Reviewed for EH.NET by Brian Gratton, Department of History, Arizona State

University.

“In the words of King Macbeth, let us die in harness.” Sigmund Freud

(1910)

As historians drift off into a postmodernist Land of Oz, social

scientists have emerged as the only scholars treating a number

of

critical issues. The academy’s tragicomedy has its good points, and

Dora Costa’s analysis of declining labor force participation among the

elderly displays several of these. First, Costa restates an axiom that,

however obvious on the face of it, needs reemphasis: free money from the

state encourages able-bodied persons to exit the labor force. This

reminder cautions us against giving too much credit to ageism and other

cultural forces in the history of older persons. Attitudinal factors

were all the rage, not only among the first historians of old age, but

also among the reformers who eventually built the Social Security

system. Whether such factors were decisive in causing change is another

matter.

Second, Costa presents a strong case for pure income effects in

reducing labor force participation during the twentieth century.

Indeed, income effects can be observed in household and family

arrangements

as well, since pension income raised the probability that

the elderly lived separately from their children. Third, she provides a

very useful critique of other explanations, including a novel and

insightful argument that health problems cannot be used to explain

secular declines in labor force activity.

All this is built upon a marvelous and still emerging data set that

links Civil War pension records to those in the United States Census and

other sources. The

data set permits Costa to carry out analyses that

are much better specified than those heretofore used and represent an

important advance in the quality of evidence available to scholars (as

one presumes they soon will be). The rich body

of evidence nonetheless

also constitutes a problem. The central analytic difficulty in the book

is that the bulk of the analysis of a 110 year period (1880-1990) rests

upon data drawn from a very peculiar pension system for a very

particular set of men in 1900 and 1910. The evidence is doubly

difficult to interpret since it pertains largely to individuals already

receiving pensions, many of whom qualified by age, and perhaps by lack

of labor force participation. Costa treats this problem in an ingenious

way for 1900 and 1910 regressions, but relying on these findings to

contemplate such themes as current leisure activities among the elderly

is a stretch. Chapters still more remote from the lab or force decision,

like that on the political economy of pensions, are largely derivative.

Still, the core chapters represent really important work, and the

strong findings for pension effects add to our understanding of the

importance not just of income, but of pension income, in changing human

behavior. Like many other economists, Costa argues that Social Security

itself was of minor importance. However, Old Age Insurance effects are

notoriously difficult to mea ure. The denigration of Social Security

effects also rises from a failure to take other literatures seriously.

Costa is more sensitive than most historical economists to those outside

the fraternity, but still fails to recognize certain

very useful

findings in social history. Imprecise as they may be about the details,

historians like William Graebner convey an essential truth when they fix

upon the Social Security Act as a turning moment in our society, and one

which encouraged an utterly new view of the life cycle. The problem

begins with historical economists’ insistence on using the term

retirement for changes in labor force participation, a habit that has

cost them many an intelligent reader

. (Costa’s rendition is especially

convoluted [7].).

Two last points: 1) there was no decline in earnings with age

among employed workers in the industrial period (12,16,33); 2) the

author exhibits wonderful taste in the epigrams at the beginning of each

chapter. Her book demonstrates that the elderly have paid no attention

to Freud or to Shakespeare.

(Costa is currently Associate Professor of Economics at the

Massachusetts Institute of Technology and a faculty research fellow of

the National Bureau of Economic Research.)

Brian Gratton

Department of History

Arizona State University

Brian Gratton is the author of “The Poverty of Impoverishment Theory:

The Economic Well-Being of the American Elderly, 1890-1950,” Journal of

Economic History, (March 1996), 56(1):39-61.

Published by EH.NET (September 1998)

Michael D. Bordo, Claudia Goldin, and Eugene N. White, editors, The Defining

Moment: The Great Depression and the American Economy in the Twentieth

Century. An NBER Project Report. Chicago: The University of Chicago

Press, 1998. xvi + 474 pp. $60.00 (cloth). ISBN: 0-226-06589-8

(cloth), 0-226-06589-8 (paper).

Reviewed

for EH.NET by Louis P. Cain, Departments of Economics, Loyola University of

Chicago and Northwestern University.

The “moment” is the Great Depression; what is being “defined” is public policy.

The editors have assembled twelve papers from a distinguished cast of authors

who are closely associated with their subject. The papers discuss almost all

of the programs that persisted from the First and,

particularly, the Second New Deals, but few of those that did not. In their

introduction,

the editors discuss that this is potentially a controversial hypothesis, but

most of the papers simply explain why they agree or disagree with the

proposition, and some do find this was NOT a

“defining moment.” Whether each reader ultimately accepts or

rejects the hypothesis may be little more than a matter of definition.

In any event, each of the papers makes a substantial contribution to our

understanding of the depression. Most will be widely cited. Many readers,

including undergraduates, will want to consult the volume for more than one

paper. Thus, in the interest of disclosure, a thumbnail sketch of each of the

papers is appropriate. These brief synopses emphasize the relation of each

paper to the volume’s general theme. Each contains much more.

The

collection is divided into four sections of three papers each. The first is

entitled “The Birth of Activist Macroeconomic Policy.” Charles Calomiris

and David Wheelock ask whether the substantial changes in the monetary

environment of the 1930s had lasting effects? Those familiar with Wheelock’s

work will not be surprised to note they find little change in the thinking of

the Federal Reserve System. One effect of the New Deal banking laws was to

shift power from the Fed toward the Treasury,

a shift they feel imparted an inflationary bias, especially when conjoined with

the more activist approach to policy that was undertaken concurrently. The

most important legacy of the depression was the departure from gold creating

“the permanent absence

of a ‘nominal anchor’ for the dollar” (63).

The Bretton Woods dollar system allowed the Fed to “stumble” into the inflation

of the 1960s, and the continued absence of something like the gold standard

“provides an enduring legacy of uncertainty” (63) as to monetary policy in the

long run.

Brad De Long notes that the U.S. did not have a fiscal policy

in the

contemporary sense of the term before the Great Depression. It borrowed

heavily during periods of war and tried to redeem the debt as quickly as

possible during periods of peace. Government deficits in peacetime were rare

until

the 1930s, when they proved unavoidable despite the fiscal conservatism of both

Hoover and FDR. Yet, even before Keynes, there was an understanding that

“deficits in time of

recession helped alleviate the downturn” (83). After the second World War, a

fiscal policy consensus emerged that De Long characterizes as: “set tax rates

and expenditure plans so that the high-employment budget would be in surplus,

but do not take any steps to neutralize automatic stabilizers set in motion by

recession” (84).

That consensus proved hard to maintain: “The U.S. government simply lacks the

knowledge to design and the institutional capacity to exercise discretionary

fiscal policy in response

to any macroeconomic cycle of shorter duration that the Great Depression

itself” (82). What has persisted is the willingness to adopt a fiscal policy

stance that imposes a cost — perhaps higher than necessary (higher inflation,

lower saving and productivity) — to insure that there is no return to

Depression-era conditions.

Deposit insurance, the topic of Eugene White’s essay, was a result of the

Depression and is generally considered to be one of its great successes.

Banks became a scapegoat, and the

restrictions placed on the banking business diverted part of what they once

did to other parts of the financial sector. Banking became smaller than it

might have been. Deposit insurance was an attempt to insure the banking system

did not fail again.

White attempts to estimate bank failures under the assumption that deposit

insurance was not adopted. He finds that a stronger, larger banking system

would have resulted in lower failure rates and higher recovery rates.

Thus, it is possible the FDIC increased bank losses. A more important outcome

is that the FDIC changed the distribution of losses. The cost of those losses

is now “distributed to all depositors and hidden in the premialevied on banks”

(119). Thus, even if losses increased, they were unseen by individual

depositors, with the result that a marginal institution remains extremely

popular.

The second part, “Expanding Government,” begins with a paper by Hugh Rockoff on

the expansion of the government sector, largely as a result of a large number

of new federal programs. As Rockoff notes,

“it is easy to see that there was an ideological shift … it is harder to see

what produced it” (125). This ingenious article looks back at the publications

of economists in the 1920s and earlier and finds there were champions for

almost all of the New Deal programs. Curiously, one of the programs economists

did not endorse, one measure that FDR did not champion, was deposit insurance.

When the Depression came and the economic doctors were called, microeconomists

had what they considered successful prescriptions. Some part of that must have

been conditioned by the role of the government in World War I. But another

part is something that Rockoff does not discuss, and it surely is one of the

factors producing an ideological change within the profession.

Even before the Great Depression, the competitive paradigm was under attack.

The merger movement at the turn of the century called into question the

assumptions of constant returns to scale and easy entry and exit. The

emergence of a consumer society called into question the assumption of

homogeneous products. Robinson and Chamberlin’s models are independent of the

Depression, and what impact they would have had in the absence of the

Depression is unclear. It is clear that FDR came into the White House with a

mandate to do something, and the economic doctors had a long list of things to

try, things that had been used successfully elsewhere.

John Wallis and Wallace Oates argue persuasively that the New Deal had a

profound effect on the nature of American federalism through its use of a

little used fiscal instrument — intergovernmental grants. Before the

Depression, different levels of government operated with a much greater degree

of independence than they would thereafter. Intergovernmental grants created

the necessity for cooperation that has characterized the fiscal federalism ever

since; “fiscal centralization and administrative decentralization” (170). They

argue that the new structure was conducive to the growth of government. Like

Rockoff, they note the growth of the federal government did not come at the

expense of state and local governments; both grew. They show how this new

pattern was “the result of the struggle between state and national

governments, and also between the president and Congress, for control over

these programs” (178). How much of this has to do with a states rights’ bias

in the legislative and judicial branches, and how much with the depression

itself, is uncertain.

Gary Libecap examines the regulatory laws effecting agriculture between 1884

and 1970 and the budgetary expenditures that were derived from those laws

between 1905 and 1970. His contention is that “the New Deal increased the

amount and breadth of agricultural regulation in the economy and …

shifted it from providing public goods and transfers to controlling supplies

and directing government purchases to raise prices” (182).

Acreage restrictions and government purchases were the most apparent of what

he terms, “unprecedented, peacetime government intervention into agricultural

markets” (216). Abstracting from those policies, Libecap asks what

agricultural policy might have been in the absence of the Depression.

He believes it would have been more like it had been, but that is the result

of an exercise in which he subtracts laws passed after 1939 with a direct link

to “key New Deal statutes.” One wonders how many any of those statutes would

have been passed in any event; some represent ideas that pre date the

depression.

In the first paper of Section III, “Insuring Households and Workers,”

Katherine Baicker, Claudia Goldin, and Lawrence Katz note that there are three

differences between the system of unemployment compensation in the U.S. and

elsewhere: experience rating, a federal-state structure, and limitations on

benefit duration. The question they address is how that system would have been

different had it not been created during the New Deal. There is an implicit

assumption the U.S. ultimately would have adopted some form of unemployment

compensation in the absence of the Depression. To how many other New Deal

programs is this assumption relevant? The authors point to the federal-state

structure as the key difference. Their counterfactual

system is strictly a federal system with no experience rating, a system

consistent with the administration’s recommendation. We got the system we did

because, “The federal-state structure and the manner in which the states were

induced to adopt their own

UI legislation assured passage of the act and guaranteed its

constitutionality” (261). They criticize the system for not having

“changed with the times,” but that is no surprise after reading Wallis and

Oates.

While most people look to the labor legislation of the 1930s as “a defining

moment,” Richard Freeman argues that to be defining an event must “lock in

certain outcomes that persist … when, given a blank slate, society could have

developed something very different” (287). This test creates two interesting

dichotomies in Freeman’s story. The first concerns the framework versus the

results. The legal framework for private sector labor relations has persisted,

and Freeman considers that framework to be

“outmoded.” On the other hand, the unionization attendant to the adoption of

that framework “looks more like a diversion from American

‘exceptionalism’ … than a critical turning point in labor relations”

(287). The density of private sector unions today is similar to what it was

just after the

turn of this century; the voice of those unions in national political discourse

is barely audible. The second dichotomy concerns private versus public unions.

State regulation of the latter has resulted in a relatively stable environment

in which collective bargaining proceeds with less confrontation, but that may

be because public sector managers are not as accountable to the taxpayers as

private sector managers are to the company’s profits. In sum, Freeman

acknowledges that the framework in which lab or relations takes places was

defined during the Depression, but that was not a “defining moment” for labor

relations.

In their study of the creation and evolution of social security, Jeffrey Miron

and David Weil do not examine the role the Great Depress ion might have played

in the program’s adoption. Their emphasis is on the evolution of the program

since its inception. They find that “in a mechanical sense,

there has been a surprising degree of continuity in social security since the

end of the Great

Depression” (320). That is, there has been little change in what each of the

parts does; it is clear the balance between them has changed and that change

has had an impact on the economy. As the population has aged, the balance

between the old-age assistance component,

the basic response to the depression, and the old-age and survivors insurance

component has transformed what was an insurance program benefiting few to a

transfer program benefiting many.

Doug Irwin’s paper on trade policy begins the final section, “International

Perspectives.” Irwin shows that, during the 1930s, the locus of control of

trade policy passed from the legislative to the executive branch of government

largely as a result of “the depression as an

international phenomenon”

(326). Smoot-Hawley marked the end of the old approach. By the end of the

1930s, the average tariff rate had decreased from over 50% to less than 40%.

In another ten years it would be below 15%. While part of this change is

attributable to trade policy,

part should be attributable to fiscal policy (a return to the days of the

Underwood tariff) as the federal income tax came to play a much larger role,

especially in the 1940s. Similarly, the Reciprocal Trade Agreements Act was

passed during the depression, but it was not “institutionalized”

until after World War II. When, during the war, Republicans moved to seek

congressional approval and to protect domestic firms competing with imports, it

was clear that the policy changes of the 1930s would persist. Then, after the

war, “the new economic and political position of the United States in the world

… made a return to Smoot-Hawley virtually unthinkable” (350).

The paper by Maurice Obstfeld and Alan Taylor is in many ways the most

expansive in the volume. They begin by investigating more than a century of

data on capital mobility, then propose a framework in which both the downtrend

initiated by the Great Depression and the uptrend of recent years can be

understood. The framework is a policy “trilemma” faced by all national

policymakers: “the chosen macroeconomic policy regime can include at most two

elements of the ‘inconsistent trinity’ of (i) full freedom of cross-border

capital movements, (ii) a fixed exchange rate, and (iii) an independent

monetary policy oriented toward domestic objectives” (354). To the authors,

the

Great Depression was caused by subordinating the third element to the second.

Under the classic gold standard, monetary policy was concerned with exchange

rate stability, not

domestic employment, and capital mobility was facilitated. The abandonment of

gold led to a system

“based on capital account restrictions and pegged but adjustable exchange

rates, one whose very success ultimately led to increasingly unmanageable

speculative flows and floating dollar exchange rates….” (397).

The gold standard plays an equally prominent role in the paper by Michael Bordo

and Barry Eichengreen. To address the question of what the Great Depression

meant for the international monetary sy stem, they examine a counterfactual

world without the Great Depression — but with World War II and the Cold War.

They assume the gold standard would have persisted through the 1930s, been

suspended during the war, and resumed in the early 1950s. Under

these assumptions, “the depression interrupted but did not permanently alter

the development of international monetary arrangements”

(446). The system that did develop in the U.S. was very different than the

hypothesized one, but the factors that ultimately led to the collapse of the

Bretton Woods arrangements would have caused the collapse of the gold standard

— and possibly at an earlier date. Those factors include “the failure of the

flow supply of gold to match the buoyant growth of the world economy and hence

of government’s demand for international reserves” (447).

This, in turn, led to questions about U.S. official foreign liabilities and the

gold convertibility of the dollar. Bordo and Eichengreen believe that,

in these circumstances, a floating system would have resulted leaving us with

more or less what we have today. If one accepts the “ifs” in their argument,

the institutional structure that emerged in the wake of the Great Depression

postponed the transition.

This is a remarkable thought on which to end this volume. Calomiris and

Wheelock discuss the Fed’s recent emphasis on price stability as a short-run

policy concern as a “throwback.” Obstfeld and Taylor discuss the deregulation

and recent growth of the financial sector as creating

a barrier to the reimposition of capital controls. Both discussions concern

long-run adjustments the economy has made as a result of the abandonment of

gold, but both would have taken place had there been no Great Depression if

Bordo and Eichengreen are

correct.

The editors point to four common themes supporting the “defining moment”

hypothesis (6). “First, skepticism about the efficacy of government

intervention withered as the public adopted the attitude that the government

could ‘get the job done’

if the free market did not.” It is unquestionably the case that there was a

loss of faith in the tenets of the competitive model. While this faith was

wavering among social scientists well before the depression, the general

bewilderment of the 1930s created a search for someone who was willing to try

anything. To paraphrase the late John Hughes, before the Great Depression the

federal government only knew how to spend money on rivers, harbors, and post

offices. As Rockoff documents, there were a number of other projects waiting

in the wings.

“Second, many innovations introduced by the New Deal were forms of social

insurance.” While much of the First New Deal took the form of World War I

programs modified for peacetime use, many of the Second New Deal programs were

aimed at ameliorating specific types of suffering, particularly those where

successful experiments had been tried elsewhere. Some undoubtedly would have

been adopted eventually; the depression meant they started earlier than

otherwise would have been the case.

“Third, the character of federalism moved from ‘coordinate’ to

‘cooperative’ with extensive intergovernmental grants, giving greater influence

to centralized government.” This change in form, it is argued,

was necessary to get them through Congress and the Supreme Court, but that is

not necessarily a result of the Great Depression; the states rights’ bias was

present much earlier.

“Last, the conduct of economic policy … changed to give more weight to

employment targets and less

to a stable price level and exchange rate.”

These changes in turn imparted what several authors refer to as a bias in favor

of inflation, but, in a simple Phillips curve world, what developed was a bias

against a return to the conditions of the 1930s. To put it as simply as

possible, those who lived through the Great Depression defined for

policy-makers then and for their grandchildren today that all possible steps

should be taken to avoid repeating the trauma.

Louis P. Cain Departments of Economics Loyola University of Chicago and

Northwestern University

Louis Cain and the late Jonathan Hughes are the authors of American Economic

History published by Addison Wesley. Cain’s article with Dennis Meritt,

Jr., “The Growing Commercialization of Zoos and

Aquariums,”

appeared in the Journal of Policy Analysis and Management, Spring 1998.

His article with Elyce Rotella, “Urbanization, Sanitation, and Mortality in the

Progressive Era, 1899-1929,” will appear in Gerard Kearns, W.

Robert Lee, Marie C. Nels on, and John Rogers, editors, Improving the

Public Health: Essays in Medical History.

EH.NET BOOK REVIEW

Published by EH.NET (August 1998)

Elliott Robert Barkan, And Still They Come: Immigrants and American Society, 1920 to the 1990s. Wheeling, Illinois: Harlan Davidson, 1996. xi + 262 pp. Illustrations, bibliographical essay, index. $12.95 (paper), ISBN: 0-88295-928-X.

Reviewed for EH.NET by Masao Suzuki, Department of Economics, Mills College. . Immigration to the United States has boomed over the last 30 years, as increasing movements of goods, capital, and people across borders have coincided with more liberal U.S. immigration laws. Record numbers of immigrants (although still below levels of 100 years ago as a percentage of the population) combined with a new economic landscape have also raised popular misgivings about immigration. Elliot Robert Barkan, professor of history and ethnic studies at California State University, San Bernardino, wrote And Still They Come as a history of immigrants and their children in the context of social and economic changes such as the Great Depression, post-World War II suburbanization, and recent globalization. The book extends from the 1920s, which saw the enactment of legislation restricting immigration, through piecemeal liberalization in the post-World War II period, to the recent period of mass immigration and rising nativism.

Barkan begins with the passage of the restrictive Immigration Act of 1924 and how immigrants faced hostility, both in the economic boom of the 1920s, as well as the Depression of the 1930s–the most severe being the deportation and repatriation of more than a half a million Mexicans and their American-born children during the 1930s. World War II and the ensuing cold war began the erosion of the discriminatory immigration and naturalization laws as our country began to open its doors to war brides and refugees, and as the laws excluding Asians and barring them from citizenship were repealed.

The second half of And Still They Come continues with the legislative changes in U.S. immigration law from 1965 to 1990, and discusses the characteristics of recent immigrants, their lives in the United States, and the recent debates about the costs and benefits of immigration. The book ends with a large appendix of tables with data on immigration from the 1920s to the present, and a bibliographic essay covering scholarly works on immigration and immigrants.

And Still They Come exhibits both strengths and weaknesses from its effort to survey the sweep of 20th-century U.S. immigration history. One of its strong points is its emphasis on the diversity of the immigrant experience (including diversity and differences among immigrants from the same country) and its sympathetic presentation of their lives in the United States. Reading the chapter on ethnic adaptation brought back my own memories of hearing Spanish, Chinese, and Tagalog (Filipino) as often as English in a crowded California mall, and seeing a Sikh teenager with his unshorn hair bound in a topknot dressed in an urban style with oversized high-tops, baggy pants and a wool shirt.

Histories of late 19th and early 20th century immigration often stress the largely male composition of the last wave of mass migration, but rarely does one see comments on the fact that most immigrants today are women. And Still They Come does not neglect this aspect of twentieth century immigration, pointing out that this trend can be seen as early as 1926. Barkan’s book also makes a strong effort to integrate the experiences of Asians, Latinos, and other immigrants of color within an overall appraisal of the immigrant experience.

These strengths notwithstanding, there are also a number of shortcomings to the book. One major problem with Barkan’s book is that it begins with the restrictive immigration legislation of the 1920s, skipping over the mass immigration of the turn of the century and the growing nativism. In particular, the lack of an overview of earlier immigration and restriction makes it hard to answer the excellent question of his last chapter entitled “The 1990s: New Directions or Full Circle?” While Barkan’s book is a sequel to Alan Kraut’s The Huddled Masses: The Immigrant in American Society, 1880-1921 (1982), an introductory chapter would be very helpful and make And Still They Come much more useful as an introduction to 20th-century immigration to the United States.

The broad sweep of the book leads to uneven coverage. For example, even though Asian immigrants are prominent throughout the book, the bibliographic essay fails to mention Yuji Ichioka’s The Issei (The Free Press, 1988), which is not only a definitive text on early Japanese immigrants to the U.S., but also is one of the few histories that draws extensively on Japanese-language records. While the bibliographic essay is informative, it is organized by topic and not explicitly connected to the text. The statistical data is contained in the appendix whereas integrating the data tables into the main text would give them more impact.

Another shortcoming is that And Still They Come at times goes too far in the direction of an ethnic history. For example there is a discussion of the ethnic revival among Americans in the 1970s and 1980s which, while interesting, mainly involved the grandchildren of immigrants. This leads the book to try to cover even more ground than it can reasonably do.

Last, but certainly not least, I felt that And Still They Come could have drawn more on studies of immigration by economists. While issues of immigrant entrepreneurship and current debates about the impact of immigrants on government finance and the labor market are addressed, other questions are not. One important issue is the concern of George Borjas and others that the skills composition of immigrants has declined relative to native-born Americans. This issue would fit well into the Barkan’s historical concerns, since this was also an issue that led to a literacy requirement for immigrants in 1917. (Coincidentally, the literacy requirement was promoted by the Immigration Restriction League, founded by recent graduates of Harvard University, where Borjas now teaches.) This shortcoming also shows up in Barkan’s bibliographical essay section on Immigration and Economic Issues, which mentions relatively few works by economists.

Masao Suzuki Department of Economics Mills College

Masao Suzuki is author of “Success Story? Japanese Immigrant Economic Achievement and Return Migration, 1920-1930,” Journal of Economic History, Vol. 55, No. 4 (Dec. 1995): 889-901.

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EH.NET BOOK REVIEW

Published by EH.NET (August 1997)

Richard A. Easterlin, Growth Triumphant: The Twenty-first Century in Historical Perspective. Ann Arbor, MI: The University of Michigan Press, 1996. Pp. xiv + 200. $37.50 (cloth), ISBN: 0472106945.

Reviewed for EH.NET by Dora Costa, Department of Economics, MIT.

In this masterful synthesis, Richard Easterlin (Department of Economics, University of Southern California) draws on the disciplines of economic history, demography, sociology, political science, psychology, and the history of science to present an integrated explanation of the origins of modern economic growth and of the mortality revolution. His emphasis is on long-term factors and on similarities across nations. His book should be easily accessible to non-specialists and will give them a sense of why economic history can inform our understanding of the future.

Richard Easterlin convincingly argues that technological change underlies both modern economic growth and the morality revolution. Underlying this technological change is a set of procedures and attitudes that include reliance on experiments and observed facts. In the case of modern economic growth, this technological change should not necessarily be equated with industrialization, but rather is simply the introduction of new technology, including agricultural, in the economy. This technological change has produced certain commonalities in development, including the gradual acceleration in real per capita income growth, urbanization, and the growth of a white collar work force.

According to Easterlin, modern economic growth began before the modern rise in life expectancy because technological change in the physical sciences preceded technological change in health and medicine, simply because the conceptual state of the physical sciences was far more advanced. Easterlin argues that although modern economic growth may have increased resistance to disease (for example, by increasing food intake), it also increased exposure to disease. In contrast, in developing nations the mortality revolution has often preceded economic growth both because we know how to control disease (e.g. sewage and clean water) and because the necessary public health investments are inexpensive. Because urbanization created demand for public municipal services, he views the rise of government as a direct consequence of technological change.

Once mortality, particularly childhood mortality, fell, Easterlin argues that we moved from a society of high to low fertility. At first the increase in the number of surviving children caused fertility to fall after families realized that they could achieve their target number of children with fewer births, then the target number of children fell as children became more expensive thanks to advances in education, urbanization, and the introduction of new goods. The population explosion of developing countries should, therefore, slowly reverse.

Easterlin presents a very optimistic picture of the future, arguing that modern economic growth will spread to all countries of the world and neither declining population growth nor an aging population will lead to economic stagnation. We have the technology and many of the preconditions for economic growth, such as institutions for the accumulation of physical and human capital and the mobility of labor and capital, are already present in developing countries. In an example of the sort of long-run perspective that the book is best at, Easterlin shows that even the aging of the baby boomers will not produce a dependency burden that is high by historic standards.

Within this optimistic scenario, he sees two causes for concern. One is that the spread of economic growth shifts the balance of power to newer, more populous developing countries that do not share our commitment to democracy and human rights and this may produce political as well as military clashes. The other is that income cannot buy happiness and that despite previously unimaginable levels of affluence, material concerns are as pressing as ever. According to Easterlin technology will always produce new goods that we will want and, because people measure happiness in relative terms, they will forever be stuck on a hedonic treadmill.

It is this last point, “the triumph of material wants over humanity” that I found controversial and whenever there is controversy, the drawbacks of a synthesis become readily apparent. The reader wants to know more, wants further breakdowns of the data. Easterlin cites surveys that show that people in both the United States and abroad are no happier than they were twenty years ago despite increases in per capita income. He also cites surveys that show that personal income, family, and health are individuals’ primary concerns in all countries surveyed. But, what about recent polls showing that 48 percent of U.S. workers had either cut back on hours of work, declined a promotion, reduced their commitments, lowered their material expectations, or moved to a place with a quieter life during the preceding five years? What about the tremendous decline in market hours of work, whether measured in terms of weekly hours, increased vacation time or sick leave, or increasing number of years spent in retirement? As wages have risen so has the opportunity cost of these hours. The history of modern economic growth is not just one of increasing numbers of consumer goods, but also one of increasing hours of leisure. These hours of leisure have enabled more and more individuals to achieve some kind of self-realization. There will always be individuals who will not know what to do with their free time or spend it in ways we disapprove of, such as watching television. But, what of the individuals who work in order to be rock climbers or who teach classes in order to do research? I am not surprised that when surveyed individuals state that they would like more money (more is always better than less), but the question that we must ask is whether they are willing to trade off time that could be spent with family members or in enjoyable pursuits for more material goods and how this trade-off has changed over time.

Dora L. Costa Department of Economics Massachusetts Institute of Technology

Dora Costa is author of a forthcoming (1998) book, The Evolution of Retirement: An American Economic History, 1880-1990.

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