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Agricultural Development in Jiangnan, 1620-1850

Author(s):Bozhong, Li
Reviewer(s):Pomeranz, Kenneth

Published by EH.NET (July 2003)

Li Bozhong, Agricultural Development in Jiangnan, 1620-1850. New York: St. Martin’s Press, 1998, and

Li Bozhong, Jiangnan de zaoqi gongyehua (Proto-Industrialization in the Yangzi Delta). Beijing: shehui kexue wenxian chubanshe, 2000.

Reviewed for EH.NET by Kenneth Pomeranz, Department of History, University of California at Irvine.

Like most other aspects of Chinese intellectual life, economic history suffered badly during the 1960s and 1970s. In the generation that began rebuilding the field thereafter, probably the single most productive scholar has been Li Bozhong, now of Qinghua University. Professor Li has also been noteworthy for his efforts throughout the last twenty years to encourage Chinese scholars to engage seriously with the very different paradigms favored by most of their colleagues in the West, Taiwan and Japan — and vice versa. Yet only a fraction of Li’s massive scholarly output is available to those who do not read Chinese. The following review attempts to hit many of the highlights of his work by considering two recent complementary volumes, only one of which is translated: Agricultural Development in Jiangnan, 1620-1850 and Jiangnan de zaoqi gongyehua (Proto-industrialization in Jiangnan). Together, they paint a fascinating, though incomplete, picture of the economy of the Yangzi Delta (or Jiangnan),1 which was the richest region in China, and among the richest regions in the world from roughly 1000 until the mid-nineteenth century, when the Opium Wars, Taiping Rebellion (1851-64 — probably the most destructive civil war in history, killing perhaps as many as 20,000,000 people), and the onset of rapid industrialization in Northwestern Europe fundamentally changed the social, political, and economic landscape.

In Agricultural Development, Li argues forcefully against two basic views of the Delta’s agriculture in the Ming (1368-1644) and Qing (1644-1912) periods: 1) the claims of some Chinese Marxist scholars that the Delta remained a subsistence-oriented “feudal” economy in which most peasants had very limited contact with the market until the nineteenth century; 2) the claim of some Western scholars that Malthusian pressures and very limited technological change produced a slow but steady trend of immiseration over the period from roughly 1250 (when the rate of technological progress seems to have slowed considerably) until at least the mid-nineteenth century, and perhaps until well into the twentieth century. (A variant of this latter view, sometimes called the “involutionary” position, claims that living standards remained basically unchanged over the long haul, while the amount of labor required to obtain this standard kept increasing, so that immiseration came in the form of more work for the same rather limited per capita output rather than in the form of a decline in per capita output.) Li argues instead that: a) positive technological change continued in Jiangnan agriculture throughout this period, particularly in the areas of fertilizer use and water control; b) local factor markets continued to become more efficient, facilitating the increasingly rational allocation of labor and capital; c) long distance trade in various products expanded dramatically, allowing the region to benefit by pursuing its comparative advantage in cotton and silk production, and importing rice, timber, soybeans, etc.; d) the gradual decline in farm size as population increased did not lead to under-employment.2 On the contrary, increased double-cropping and other measures meant that the labor year for peasant males stayed about the same, while output per labor day actually rose; meanwhile women increasingly exited agriculture (in which they had never been very productive anyway), and earned more per day by moving into rapidly-growing textile trades; e) deliberate fertility control became fairly widespread by the eighteenth century, considerably reducing any Malthusian pressures and; f) because of all these factors, both aggregate and per capita income increased slowly but steadily during this period. (Li does not attempt to calculate total factor productivity, but makes it clear that he thinks growth in output outstripped the rate of growth in inputs.) He sees these positive trends coming to an end — and even then, only a temporary end — with the coming of the Opium War (1839-42) and the Taiping Rebellion (1851-64), which he argues aborted the development of a national market, and led to the breakdown of law and order. (In a more recent paper, he has suggested a slightly earlier turning point, arguing that a prolonged period of exceptionally bad weather and flooding began about 1820, doing lasting ecological damage and contributing to the calamities of the mid-nineteenth century.)

The basic arguments of Proto-Industrialization are similar in spirit. Li’s most basic point — that handicraft production for the market by Delta households grew enormously between the mid-Ming and mid-Qing — is not much in doubt, but he adds a number of important further observations. First, he broadens the scope of inquiry beyond the relatively well-studied silk and cotton cloth industries, providing very useful discussions of food-processing, tool-making, bleaching and dyeing, residential construction, boat-building, and so on. While he does not have the level of detail on any one of these sectors that one would hope for, his work on most of these industries is a significant advance over anything we had before.

Second, Li shows us that the growth of production in almost all of these sectors was accompanied by increasing levels of specialization, in two senses: a) in the sense that the tasks of production were increasingly sub-divided; and b) that consumers were increasingly purchasing these goods rather than making them for themselves, and so increasingly concentrating their work effort on production for the market rather than “Z-goods” for auto-consumption. (The latter point is less well documented than the former; while Li is able to show burgeoning urban markets, both in the Delta and beyond, for all sorts of ready-made goods, the evidence on rural consumption is sparser.) Along with this increased specialization, Li also assembles evidence that the average size of production units was growing in most of these sectors. In the case of spinning and weaving, where most production continued to be done in households, he makes a generally convincing case that an increasing share of output was controlled by merchants operating on a large scale, who controlled access to often distant markets, imposed increasingly exacting quality standards in order to maintain those markets, and thus had an increasing influence on the production process, even without using credit and the provision of raw materials to control direct producers the way that European “putting-out” merchants often did.

Third, Li’s surveys of specific industries other than textiles make a strong case showing slow but continuing technological development, expansion of markets, and an increasingly complex division of labor. In contrast to an older version of Chinese economic history (pioneered by Japanese scholars in the 1930s, but later widely accepted around the world), which saw an enormous spurt of technological change during the Song dynasty (960-1279), followed by stagnation or even regression thereafter, Li argues that the Song revolutions have been over-emphasized: not because they weren’t important, but because the diffusion and subsequent small improvements of many major inventions pioneered in that period took centuries, and it was those processes that gave Song-era breakthroughs much of their impact. This, too, is a revision of the conventional wisdom that is gaining adherents among both Chinese and Western scholars. While Li has not unearthed enough quantitative data to let us make reliable estimates of, for instance, labor productivity for most of these sectors, what little we can do with this data tends to suggest continued improvements in most sectors, and snapshots of productivity levels in particular sectors that would compare well with other advanced areas in the world until probably some time in the eighteenth century. What we do not see, however, is a shift over time among sectors toward more capital intensive and energy intensive pursuits — and this, as we shall see, is crucial to Li’s overall argument.

Fourth, Li argues that the combination of proto-industrialization and rising yields in agriculture (discussed above) propelled a significant improvement in per capita income and standard of living between 1550 and 1850, despite significant setbacks in the mid-seventeenth century ( a period of civil war, foreign invasion, and massive epidemics) and a decline in the average size of family farms. Here he not only disagrees with the still-regnant Chinese Marxist orthodoxy, which insists that China remained essentially a subsistence economy until the Opium War, but also with American partisans of “involution,” who maintain that the late imperial period was characterized by miniscule gains in income achieved at the expense of very large increases in labor inputs. By contrast, his position comes much closer to what is sometimes called the “California school” of social and economic historians, who argue that economic development in the Delta more or less kept pace with that in the most advanced parts of Europe until the onset of widespread factory industrialization. (Full disclosure statement: this reviewer is a charter member of the California school.) But in some ways, he goes even further than they do: while most of the “Californians” see economic expansion (or at least per capita economic growth) in the Delta slowing by the late eighteenth century, Li’s argument in these two books (though not always since then) suggests that the basic dynamics of growth continued unchanged until China’s mid-nineteenth-century catastrophes.

But while Li is content to rely on largely exogenous factors to explain the decline of the Delta after 1840, he does devote considerable attention to analyzing why the highly productive agriculture, commerce and handicrafts he describes did not spawn something more like classical English industrialization sometime before that date. He argues that institutional structure, surplus available for investment, and the educational level of the workforce were all quite adequate, and that there was widespread interest in productivity-enhancing technological change. Consequently, he looks beyond social, intellectual, and political factors, and finds his answers in geography and the supply of natural resources. In particular, he emphasizes a dearth of energy sources that he says gave Jiangnan production a marked bias away from anything energy-intensive, creating what he calls “a super light industrial” economy. Being very densely populated (and to a great extent reclaimed from marshes, rather than by clearing forest), the Delta had relatively few trees and not very many large work animals; it had no coal or peat, and, being at sea level, relatively little water power. Conditions were even unfavorable for the large-scale use of wind power, though some windmills were established. Thus, Jiangnan did what it was best at: sustaining a very productive agriculture (especially in rice: cotton yields do not seem to have been outstanding), mobilizing the large numbers of people it could feed to produce handicrafts, and taking advantage of its location at the mouth of a river system draining roughly a third of China, plus the coastline and the one thousand mile Grand Canal, to engage in very widespread trade. That it did not shift much labor into areas in which it had serious natural deficiencies, such as energy-intensive heavy industry, should not blind us to what it did achieve, or to the ways in which, Li argues, Jiangnan’s “proto-industrialization,” like its Western counterpart, laid the basis for the growth of modern industry in the region later on.

Much of Li’s argument here parallels the arguments of Western scholars in the so-called “California school,” including myself: thus it is not surprising that I find most of his argument convincing, and welcome the wealth of additional data he has brought to bear. His reconstructions of agricultural productivity and factor inputs, while certainly open to question, are generally the best we have: in particular, I think his claim that both male and female labor productivity rose significantly between the sixteenth and eighteenth centuries, despite a large increase in population, is at least well-enough based that the burden of proof should now rest on those who wish to argue for stagnation or decline. (The problems with these estimates are that a) the documentary base is fairly narrow, and b) because this was an agriculture with both very high inputs of labor, fertilizer, etc., and very high outputs per acre, relatively small percentage changes in assumptions about either yields or the costs of inputs can lead to uncomfortably large changes in estimates of net output.) The particular care that Li has lavished on changes in fertilizer use and their effects has important implications for environmental history as well as economic history. In terms of industry, his attempt to broaden discussion beyond textiles is particularly welcome, as is his general argument that we should look at what happened within the major sectors of this economy, rather than focusing on why the relative size of light and heavy industrial sectors did not shift. And his attention to environmental and resource problems is also quite helpful, though I think there is evidence that these problems began to constrict the Jiangnan economy somewhat sooner than Li allows, and that some of them were exacerbated by state policies (especially restrictive mining policies, and very limited government investment in transportation infrastructure beyond maintaining the massive Grand Canal) in ways that he does not address. His discussion of the conditions for technological change also seems to me a bit too hurried. While he has certainly made an important contribution by showing that such change had not stopped in Qing-era Jiangnan, there is still some reason to think that its pace had slowed, and no sign that it was speeding up the way it was in Europe. And while Li makes a good case for enough literacy, availability of various manuals, and so on to perpetuate continued diffusion of best practices, we need to know considerably more than we currently do about the rate at which new innovations were being introduced, and about such matters as patterns of association among artisans, the extent to which they were aware of elite science, and what was happening in that science, among other things. But this is only to say that no one scholar can do everything. The main problem, for the foreseeable future, will remain data: Li’s re-interpretations of Chinese economic history have generated new hypotheses considerably faster than we have been able to find material that will satisfy skeptics. But this simply means that we can thank Li, along with his other contributions, for keeping ourselves and our students employed for quite some time to come.

Notes: 1. Technically, these two expressions are not synonymous, but they are now used interchangeably in Chinese studies. “Jiangnan,” meaning “South of the (Yangzi) River,” in Chinese, refers to only part of the geographic Delta, omitting the generally less prosperous North Bank. Most Westerners now use “Yangzi Delta” to refer to Jiangnan, rather than to a more geographically accurate, inclusive region. Jiangnan is also somewhat vague, since it does not refer to a political jurisdiction with officially set boundaries. Professor Li uses a fairly broad definition of the area, though still not as broad as that used by, for instance, Wang Yeh-chien or myself; some other scholars, such as Philip Huang, have adopted a much narrower definition, including only the most densely populated prefectures near Suzhou. Li’s Jiangnan, with an area of roughly 43,000 square kilometers (16,000 square miles), had perhaps as many as 36,000,000 people by 1850.

2. Li favors a population figure of 20,000,000 for Jiangnan in 1620, and 36,000,000 in 1850, for a 0.3 percent per annum growth rate. These figures roughly match those of Cao Shuji’s recent work on Chinese population (Zhongguo renkou shi (History of Chinese Population), Shanghai: Fudan daxue chubanshe, 2000), and appear to be widely accepted among Chinese scholars. Many Western scholars, however, favor a lower figure for 1850, following G. William Skinner’s argument that mid-nineteenth century population totals for various parts of China were seriously inflated. (“Sichuan’s Population in the Nineteenth Century: Lessons from Disaggregated Data,” Late Imperial China, 8:1 (1987): 1-79.) Population growth appears to have been minimal in the region after about 1770.

Ken Pomeranz is author of numerous works including The Great Divergence: China, Europe, and the Making of the Modern World Economy, Princeton University Press, 2000 and The Making of a Hinterland: State, Society, and Economy in Inland North China, 1853-1937, University of California Press, 1993.

Subject(s):Industry: Manufacturing and Construction
Geographic Area(s):Asia
Time Period(s):Medieval

The Market, the State, and the Export-Import Bank of the United States, 1934-2000

Author(s):Becker, William H.
McClenahan Jr., William M.
Reviewer(s):Bean, Jonathan J.

Published by EH.NET (July 2003)

William H. Becker and William M. McClenahan, Jr., The Market, the State, and the Export-Import Bank of the United States, 1934-2000. New York: Cambridge University Press, 2003. xii + 340 pp. $80 (cloth), ISBN: 0-521-81143-0.

Reviewed for EH.NET by Jonathan J. Bean, Department of History, Southern Illinois University – Carbondale.

In recent years, “globalization” has become a hot topic in U.S., European and world politics, as young (and not-so-young) demonstrators have taken to the streets protesting free trade and the policies of the World Bank and the International Monetary Fund. The resulting media attention has raised the name recognition of those institutions. Yet very few Americans could properly identify the Export-Import Bank as “the United States’ export credit agency” (p. ix) and one of the country’s chief instruments of free trade. In this superbly researched monograph, Becker and McClenahan highlight the important role “Ex-Im” has played, not only in promoting international trade but also in serving U.S. foreign policy interests. In so doing, they have made an important contribution to the scholarly literature on international trade. The hefty price tag and thick narrative, however, will prevent this book from reaching a broader audience.

This is a commissioned history; Becker and McClenahan were successful bidders for a sixty-fifth anniversary commemoration of Ex-Im’s founding. Despite its commemorative status, this is a serious scholarly study enriched by “full access to the Bank’s records and to its personnel,” including many oral interviews with agency history makers (p. x). In addition to on-site records, the authors delved into documents at the National Archives and at other government agencies. The Export-Import Bank agreed to ongoing peer review by the eminent professor of economic history Richard Sylla (New York University) and the authors retained copyright. The end result is an exhaustively researched manuscript that stands among the best-documented histories of any federal agency.

The Export-Import Bank began as the offspring of President Franklin D. Roosevelt’s diplomatic recognition of the Soviet Union in December 1933. Two months later, prodded by U.S. exporters hoping to pry open a new market, FDR established, by Executive Order, an Export-Import Bank to finance trade with the U.S.S.R., a venture that foundered on the issue of unpaid pre-revolutionary loans. Simultaneously, Roosevelt created a second Export-Import Bank to do business with a new, friendly regime in Cuba. The Banks’ trustees merged the two banks into one — originally financed by the Reconstruction Finance Corporation — and expanded Ex-Im’s mission to include markets around the world, except the U.S.S.R. The Bank received Congressional backing in 1935 and became an independent agency ten years later. By statute, Ex-Im was to avoid competing with commercial banks; assume risk on longer-term loans that they would not accept; yet still assure a reasonable chance of repayment. At the same time, President Roosevelt and his successors repeatedly called on the Bank to serve foreign policy ends that went against the grain of these statutory requirements. Thus, from the beginning, Ex-Im served the conflicting interests of exporters and the foreign policy establishment of the U.S. government. In short, the Bank navigated uneasily “between the state and the market” (p. 8) throughout its history.

One major theme is that “businesslike values” (p. 2) permeated the Bank but U.S. diplomats “tested many times” this “core market orientation” (p. 3). Tested indeed! The authors spend so much time on the fascinating, ever-changing role Ex-Im played in foreign policy that the reader gets the impression that the bankers at Ex-Im were helpless pawns in the hands of diplomats and governments friendly to the United States. This is undoubtedly a false impression gained by the weight of presentation, yet one that could have been countered by more frequent mention of “businesslike” statistics such as loan loss rates, profitability, and so on.

As it stands, the foreign policy story is one that should interest diplomatic historians: During the late 1930s, Ex-Im made risky loans to Latin American countries to forestall German Nazi intervention; after World War II, the Bank was the first U.S. agency to help reconstruct Western Europe before the Marshall Plan went into effect; during the 1950s and 1960s, it financed development projects in the Third World to counter communist movements. Later, in the 1970s, Ex-Im negotiated with the Organization for Economic Cooperation and Development (OECD) to “level the playing field” among export credit agencies in Europe and North America after that era’s brutal trade wars.

The past two decades have proven particularly challenging for the Export-Import Bank. The Reagan Revolution of the 1980s brought to power laissez-faire conservatives who were skeptical of subsidies for bankers. Meanwhile, a Third World debt crisis and a strong dollar led to plummeting U.S. exports, a weak Ex-Im portfolio, and a severe institutional crisis. During the early 1990s, however, the Bank “reinvented” itself by abandoning the direct credit market and relying almost exclusively on loan guarantees through private banks. The authors note that this strong market orientation is unique among Western export credit agencies, which are much more state-oriented. In the epilogue, the authors reflect on recent international financial crises that have reintroduced the potential of Ex-Im as a “lender of last resort” when private capital flees foreign markets.

There is no evidence of institutional bias in this organizational history. Becker and McClenahan give plenty of airtime to critics who have accused Ex-Im of serving as “corporate welfare” and as an agent of the U.S. military-diplomatic-industrial complex. If anything, their judgments on these controversies are too even-handed: After presenting both sides, the authors frequently hedge their judgments, leaving the readers to judge for themselves the merits of the case. A bit more controversy might have spiced up an otherwise dry and neutral presentation of the facts. For readers short on time, the authors provide a splendid summary in their introduction. Specialists will gain much more, however, from the detailed narrative that follows. Overall, this book earns “two thumbs up.”

Jonathan J. Bean is Professor of History at Southern Illinois University – Carbondale. He is the author of Big Government and Affirmative Action: The Scandalous History of the Small Business Administration (University Press of Kentucky, 2001).

Subject(s):International and Domestic Trade and Relations
Geographic Area(s):North America
Time Period(s):20th Century: WWII and post-WWII

American Agriculture in the Twentieth Century: How It Flourished and What It Cost

Author(s):Gardner, Bruce L.
Reviewer(s):Alston, Julian M.

Published by EH.NET (June 2003)

Bruce L. Gardner, American Agriculture in the Twentieth Century: How It Flourished and What It Cost. Cambridge, MA: Harvard University Press, 2002. x + 388 pp. $49.95 (cloth), ISBN: 0-674-00748-4.

Reviewed for EH.NET by Julian M. Alston, Department of Agricultural and Resource Economics, University of California, Davis.

At the turn of the twentieth century most Americans were farmers or came from farm families, and almost half of the U.S. population still lived on farms. The number of farms was almost six million, and still growing, and the amount of land in agriculture was still growing too, mainly through expansion in the west. The expansion of agricultural land and farm numbers continued well into the 1900s, but by mid-century both trends had been reversed. The 1930s saw the beginnings of large progressive changes in the farm economy; and by 2000, the picture was very different from one hundred years earlier. The total number of farms had shrunk to fewer than two million, only a very small share — less than two percent — of the total population lived on farms or worked in agriculture, and agriculture contributed a much smaller share to the total economy than in 1900. Yet with only one-third as much total labor as in 1900, at the end of the twentieth century U.S. agriculture was producing seven times as much output, and average farm family incomes had risen to equal or surpass non-farm family incomes.

These and other dramatic changes in the nature and structure of U.S. agriculture and its role in the economy represent an important element of the nation’s economic development. Much has been written about the causes and consequences of the transformation of American agriculture in the twentieth century, but mostly the literature relates to particular elements of the history — particular sub-periods, regions, industries, or issues. A coherent, complete, comprehensive, quantitative assessment has been lacking. Among economists, Bruce Gardner (Professor and Chair of the Department of Agricultural and Resource Economics, University of Maryland.) is a natural choice to address this deficiency. He is the leading agricultural economist of the age, has a longstanding interest in economic history, and has spent a lifetime — beginning on a dairy farm in Illinois — studying and thinking about the economics of agriculture and the role of government policy in it. Writing a book on American Agriculture in the Twentieth Century provides a context for Gardner to draw together his many well-founded and useful insights from various threads of his professional work on issues such as farm incomes, the “farm problem,” the structure of agriculture, agricultural technology, the relationship between agriculture and the broader economy, and the causes and consequences of government policy related to agriculture and the rural sector.

The book is targeted at a general audience, though it is not short on numbers and details, so that is has plenty to offer professional economists and even specialists in agricultural economics. It begins with an “Introduction” that sets the scene in terms of the broad sweep of major changes in the century. The meat of the book begins in Chapter 2, titled “Technology.” This is a most appropriate place to begin, given the pivotal role that technological change has played in the transformation of American agriculture, perhaps especially in the latter half of the twentieth century when agricultural productivity grew most rapidly and the pace of the other developments accelerated as a consequence. To this reviewer, at least, the technological story is the main story, and it is a strength of Gardner’s analysis of the economic history of American agriculture that he places technology at the forefront.

Chapter 3, “Farms” documents and discusses the early rise and subsequent slow decline in the quantity of farmland; the decline in the numbers of farms and their progressive growth in size and specialization; changes in input use and how farms are organized; and the roles of on-farm versus off-farm work. Much of these changes in farms and farming were fueled by changes in agricultural technology and productivity, as well as changes in the non-farm economy that drew labor away from farming. To conclude the chapter, Gardner compares income over time between farm and non-farm households and reports that, during the past fifty years in particular, farm incomes improved to achieve parity with non-farm incomes, and to achieve a more equal distribution among farm households. Later chapters demonstrate that these changes reflect, in part, a closer integration of the farm and non-farm economies such that farm and rural household incomes are determined for the most part by events outside agriculture. Similar findings are reported in Chapter 4, which extends the discussion to “Farm Communities.” As the farm population has declined and become older, so has the total rural population; many small towns have vanished and much of the infrastructure has declined as well. Gardner discusses the related issues of changing demographic characteristics of the rural population, out-migration and hired farm workers, rural poverty, schooling of farm people, quality of life and technological change, natural resources and the environment, and large farms and the rural community. He provides evidence on the declining incidence of rural poverty and income inequality, as well as documenting what many have perceived as a set of undesirable trends in rural America.

The next three chapters are devoted to the roles of changes in markets and government policy in the evolution of agriculture. Chapter 5, “Markets,” discusses changes in the markets for farm inputs and commodity outputs, and evidence on concentration and market power of agribusiness firms. Along with improvements in market efficiency for other reasons, technological change in food processing and marketing has contributed further productivity growth to the food industry, but at a slower rate than in the farming sector. A primary consequence of comparatively high productivity growth in the farming sector has been declining farmers’ terms of trade — prices received by farmers for their products not growing as fast as the prices they pay for their inputs. This fact, coupled with the observation of growing concentration of agribusiness, and a declining farmers’ share of the consumers’ food dollar, helps account for some of the government policies applied to agriculture, which are the subject of Chapters 6 and 7.

Chapter 6, concerns “Public Investment and Regulation,” including topics such as market institutions and infrastructure, and what Gardner terms “rural industrial policy,” as well as a host of regulatory interventions in agriculture, some of which may be seen as serving a public interest while others, such as some “marketing-order” regulations, clearly involve net social costs and are there to serve a narrower sectional interest. Information is presented on the net social costs of some of these interventions as well as on the net social benefits of public investments in agricultural research and development.

The evidence is generally less mixed on the net social consequences of the “Commodity and Trade Policy” interventions, which are the subject of Chapter 7. The chapter provides a very useful descriptive history of the farm commodity programs, which began in the 1930s, including trade policy as an essential element since most farm commodities are at least potentially traded goods. It also deals with food policy, the benefit-cost analysis of farm programs, and farm politics. Gardner is the authority on the economics of U.S. farm commodity programs and his opinion matters, but he presents a surprisingly equivocal view on the net social impacts of those policies, such as when he allows (p. 213) that “reasonable arguments have been put forward that U.S. commodity policies have been an important contributor to the growth of agricultural productivity.” Productivity growth since 1950 has averaged about 2 percent per year, and it is cumulative, yielding benefits in recent years worth about half of the value of annual agricultural output. Given that commodity programs involve deadweight losses of only a few percent of the total value of output, if the same programs accounted for only a small fraction of the total productivity growth, they could have yielded important net social benefits. Gardner does not go so far as to say this, but nor does he explicitly rule it out, and he provides supporting arguments for the possibility in Chapter 8.

Chapter 8 is devoted to “Explanations” of the economic development of U.S. agriculture, including the growth of output, productivity, and the per capita income of the farm household, but also the decline of agricultural GDP since the 1970s. Gardner reports that the evidence is not clear on the extent to which farmers have benefited from technological change, although the nation has reaped large benefits, and he discusses other — mostly non-farm — factors as sources of improvement in farm household incomes, for which he offers his own econometric findings using less-aggregative data in Chapters 9 and 10.

To this point the story has been told largely at a national level, but the agro-ecological conditions of climate, soil, and terrain, and infrastructure, as well as other relevant elements of the economy, are very diverse across the United States. Consequently the nature of agriculture and its economic history are very diverse among states and regions of the country, and a great deal of interesting detail is foregone when we consider just the national aggregate. Chapter 9, “Regions and States,” provides some more disaggregated details on states and regions, including some statistical analysis of patterns of growth and incomes among them. Chapter 10, “Counties,” reports results from further statistical analysis of data at a more-disaggregated level. A key finding is that growth in farm household income is explained mainly by market adjustments that brought farm labor earnings more nearly into line with the rest of the economy — by variables that are mostly exogenous to the agricultural sector.

Chapter 11, “Findings and Policy Implications” concludes the book. In this chapter Gardner reminds us of a recurring theme, that a host of conceptual and measurement issues must be dealt with even to begin to describe what has happened to “farms” and “farm incomes” and so on. Even still, the main story is clear enough in terms of the gross changes in numbers and sizes of farms and related rural populations, the nature of farms and farming, and the distribution of farm household incomes. To account for these changes is harder given the roles of multiple interacting possible causes, common trends, and data limitations. While technological change driven by private and public agricultural R&D was surely the primary driver of change on farms, its consequences were at least modified by the accompanying developments of infrastructure, education, markets, and government policies, and it was encouraged and its effects were reinforced by changes in the non-farm economy.

This is a valuable book, and I would recommend it to anyone who is interested in the economics of agriculture and its history. It is both technically sound and of interest to specialists, but also accessible to a much broader audience, including non-economists. The scope of the book is ambitious, and we should keep its scope and broad intended audience in mind in deciding how and where to find fault. Keeping that dictum in mind, here are some observations. First, the style and technical content of the work varies among the chapters. The early chapters emphasize mostly verbal and some graphical analysis, and should be entirely accessible to a wide audience, but in some of the later chapters the work drifts towards a more technical and academic style.

Second, like much of U.S. agricultural economics, the book is somewhat U.S. centric (which might seem to be an odd comment to pass on a book that is specifically about American agriculture). The book does deal with international trade in agricultural commodities, mainly in relation to trade policy, but it does not go very far to contemplate American agriculture in the context of global agriculture. Importantly, most agricultural commodities are tradable and traded, and growth in international trade and evolving comparative advantage have been important elements of the history. Through commodity markets, changes in the United States reflect and are reflected in changes in agriculture in other countries. Further, agricultural technologies are internationally mobile. It is no coincidence that, around the world, similar changes were taking place in agriculture in many countries at the same time as they took place in the United States, or soon after. To understand both the causes and the consequences of changes in American agriculture it is appropriate to recognize these international linkages. For instance, the consequences for American agriculture from technologies developed as a result of U.S. public agricultural R&D depend importantly on the extent to which increased U.S. supplies are absorbed in international versus domestic markets, tempered by commodity policies, and the extent to which the same technologies can be adopted by international competitors. Defining the relevant counterfactual is tricky when we have to contemplate international interdependencies in policies as well as technologies. If another chapter or two could be added to the next edition of this book, I would propose using them to contemplate international comparisons, and the causal connections among the agricultural histories of nations.

Finally, it would have been nice if Gardner had presented a more conclusive analysis of government intervention in agriculture and its net consequences. He leaves us wondering where he stands on whether U.S. farm commodity policy has imposed a net drain on the economy. Over many years, legions of agricultural economists have presented analyses that stressed deadweight losses from farm programs, but these studies did not make any allowance for the possibility that the stabilizing effect of farm commodity programs might have stimulated investment in productivity-enhancing technological change that offsets the conventional static deadweight losses. Gardner’s personal, view not just of the possibility but also of the likelihood of this outcome, would have been very welcome. On the other hand, by playing the devil’s advocate and raising this question, the author has given us a reason to reflect on the conventional economist’s (perhaps ideological) view of the deadweight burden of farm commodity programs, which might not be fully supported by evidence from past analysis, and an agenda for research to develop the evidence. The book is provocative on other subjects, too, as Gardner makes a consistent effort to present both sides of issues, drawing attention to some oft-neglected costs associated with an economic history that has been by most measures one of remarkable positive achievement.

Julian Alston is a co-author of Making Science Pay: The Economics of Agricultural R&D Policy (with P. Pardey), AEI Press, 1996, and “The Incidence of Agricultural Policy” (with J. James), Chapter 33 of the Handbook of Agricultural Economics, B. Gardner and G. Rausser, editors, 2002.

Subject(s):Agriculture, Natural Resources, and Extractive Industries
Geographic Area(s):North America
Time Period(s):20th Century: WWII and post-WWII

Sexual Revolutions: Gender and Labor at the Dawn of Agriculture

Author(s):Peterson, Jane
Reviewer(s):Steckel, Richard H.

Published by EH.NET (June 2003)

Jane Peterson, Sexual Revolutions: Gender and Labor at the Dawn of Agriculture. New York: Altamira Press, 2002. xii +177 pp. $70 (hardcover), ISBN: 0-7591-0256-2; $26.95 (paperback), ISBN: 0-7591-0257-0.

Reviewed for EH.NET by Richard H. Steckel, Departments of Economics and Anthropology, Ohio State University.

Generations of economic historians have examined the evolution of labor organization, emphasizing patterns of the industrial era. Many recent efforts consider changes in women’s work over the past century that accompanied declining fertility, rising levels of education and new opportunities for employment in the industrial world. Sexual Revolutions extends the agenda far back in time, to the dawn of settled agriculture. Jane Peterson, who is assistant professor of Anthropology at Marquette University, asks how the rise of farming may have created or changed the sexual division of labor in the southern Levant (the modern regions of Palestine, Israel, and Jordan) as long as 10,000 years ago. One strand of the literature cites biological differences between men and women such as size, strength and the burden of pregnancy and childrearing as the fundamental sources of sexual labor patterns. Others claim that agriculture triggered significantly new labor roles for men and women.

There are no drawings or graphic images, much less written accounts of the process, and so anthropologists and archaeologists must construct their portraits from surviving remains of ancient cultures. Skeletons occupy center stage in this study, suggesting ways that the body adapted to mechanical and biological stress. Peterson explains that the wellsprings of this methodology originated in the late nineteenth century, when surgeons and anatomists observed that the type and intensity of work helped to sculpt the body. Doctors identified skeletal modifications with various occupations or habitual activity patterns, features that have been refined by modern industrial, sports and forensic medicine.

Skeletal Markers of Occupational Stress (MOS) may be confounded by nutrition, disease and other factors, and so Peterson is appropriately cautious in qualifying results. Bony changes are commonly interpreted within the framework of Wolff’s Law, which states that skeletal tissue places itself in the direction of functional demand. Because it has a blood supply, the skeleton remodels or responds to mechanical forces throughout life. Indicators used in the book include joint modification, trauma, and the sizes and shapes of ligament attachments. The latter take the form of bone buildup, rough patches and projections that can be graded using a visual reference system, as illustrated by photos in the book. Some repetitive motions, such as throwing, leave well-defined bony signatures, but other actions are the complex outcome of a large suite of muscle groups that are not easily identified with particular activities. Many actions utilize similar muscle groups, making it impossible, for example, to distinguish repetitive downward blows in pulverizing soil from chopping wood. Contextual information about inhabited sites, obtained from the remains of structures, tools, material goods, animal bones and so forth help to identify likely activity patterns associated with specific skeletal formations.

Although Peterson draws upon the work of other researchers to formulate and test hypotheses, her major contribution originates from careful study of 158 individual remains (93 males and 65 females) that were excavated at 14 sites. Seventy-two of the skeletons fall into the Natufian period, which predates settled agriculture. The hypothesis of sexual division of labor is supported for this period, with well-developed muscle attachments for overhand throwing among the males, while female musculature was oriented toward bilateral tasks associated with processing. During the Neolithic, male activities became increasingly bilateral, more closely resembling the female pattern while activity patterns became more intense for both sexes.

In appraising the book by standards familiar to economic historians, who often work with large quantities of data, one could easily complain about the small sample sizes. Economic historians are familiar, however, with ambiguous or qualified results, which in this case follow from limits in connecting detailed features of skeletal development with specific activities. On the upside, this is a local study and far more evidence is available on a continental or global scale for the transition under consideration. Moreover, the methodology on display is relatively recent and the outlook is promising for developing more nuanced and robust interpretations of activity patterns from skeletal evidence.

At first blush the methods articulated in Sexual Revolutions may appear to be uninteresting or of little use to economic historians, but applications do exist. One involves interpretation of high rates of productivity among American slaves, reported by Robert Fogel and Stanley Engerman in Time on the Cross. They claim this follows from the organization of work in gangs — a type of factory in the field. An alternative explanation, however, is exertion or speed-up– drivers simply forced slaves to work more intensively so that they produced more than free white farmers. Skeletal evidence may be able to distinguish between these explanations, in that slaves who worked intensively in the field should have had more robust skeletons and larger muscle attachments than those of free whites. Second, Robert Fogel recently argued that prior to the agricultural revolution of the nineteenth century, many European peasants had such poor diets that they were incapable of a full day’s work (and by extension, considerable physical exertion). If correct, their skeletons should have been relatively frail and lacking large muscle attachments that characterize more vigorous populations. In sum, skeletons provide useful markers of physical vigor and activity that can be useful for interpreting sources of long-run productivity growth. Thus, economic historians have good reasons to remain tuned to developments in this area of research.

Richard H. Steckel’s latest book (co-edited with Jerome Rose) is The Backbone of History: Health and Nutrition in the Western Hemisphere (Cambridge, 2002), which employs skeletal remains to investigate long-term trends in health.

Subject(s):Living Standards, Anthropometric History, Economic Anthropology
Geographic Area(s):Middle East
Time Period(s):Prehistoric

Every Farm a Factory: The Industrial Ideal in American Agriculture

Author(s):Fitzgerald, Deborah
Reviewer(s):Gardner, Bruce

Published by EH.NET (June 2003)

Deborah Fitzgerald, Every Farm a Factory: The Industrial Ideal in American Agriculture. New Haven: Yale University Press, 2003. xi + 242 pp. $45 (cloth), ISBN: 0-300-08813-2.

Reviewed for EH.NET by Bruce Gardner, Agricultural and Resource Economics, University of Maryland, College Park.

Deborah Fitzgerald, Associate Professor in the Program in Science, Technology, and Society at MIT, investigates ideas about agricultural industrialization in the post-World War I era, promoted as the way forward for U.S. farming by a fascinating cast of characters. Her book takes the common core of their thinking as underpinning the technological and economic changes that transformed American farming in the twentieth century. She states that while many historians have addressed these changes, prevailing thought misses “the emergence of an industrial logic or ideal in agriculture” (p. 3). She documents the emergence of both the ideal and its implementation beginning in the late 1910s. Although the book draws on a wide range of agricultural experience, the major focus is on wheat farming in Montana, because “Wheat was the first agricultural product to be successfully industrialized, and it served as a model for all other farm products” (p. 8); and because the Campbell Farming Corporation, a paradigmatic instance of industrial practice, and M.L. Wilson, whose ideas about land use and mechanization commanded wide attention, both had strong Montana connections.

The book’s treatment is episodic and descriptive rather than comprehensive and analytical. Following an introduction setting out the agenda, five chapters cover distinct sub-topics. Chapter 2 reviews the development and dissemination of quantitative farm management principles. The leading characters here are Henry C. Taylor and George Warren among other USDA and Land-Grant University agricultural economists who played a much more hands-on role in the business of farming than their counterparts do today. Chapter 3 moves on to the role of agricultural engineers, principally in universities and farm implement companies, in inventing and marketing equipment for mechanized farming. Chapter 4 traces the emergence of “chain farms,” and other schemes for large-scale agriculture in 1915-1930. The chief characters here are farming entrepreneurs such as Howard Doane, one of several talented farm managers Fitzgerald discusses who directed operations on up to forty farms. Other multi-farm operations were established as cooperatives. With respect to these developments academic experts and even the U.S. Chamber of Commerce were as notable for being skeptics as for being boosters. And indeed the Great Depression appears to have wiped out most of these farms, although Fitzgerald does not document their overall success or failure quantitatively. Chapter 5 is an extended case study of the Campbell Farming Corporation, the creation of Thomas D. Campbell, whose story is well worth reading. His ideas were successful in maintaining a truly enormous farming operation for a long period of time, until the 1960s. Finally, Chapter 6 assesses the reactions of American observers to Soviet collective farms in the late 1920s, and the role of some notable U.S. farming entrepreneurs as advisors to the Soviets on agricultural development.

These chapters contain a wealth of information, well documented and tied together in a reasonably argued package showing how enthusiastic experts and farming entrepreneurs saw and acted upon opportunities to turn U.S. farming from what they saw as a backward, poverty-stricken sector of the economy into a progressive, prosperous engine of economic growth. But Fitzgerald does not neglect the many nay-sayers who saw industrialization of farming as a most risky venture or even a menace, a road to serfdom for farm people. The strength of expressed convictions both pro and con is similar to more recent debates about organic farming and agricultural biotechnology.

For me, the most surprising element of the story, given the well-reasoned and enthusiastic advocacy of industrialization by knowledgeable people, is how many of the twentieth century’s early experiments in agricultural industrialization came to grief, and how few ultimately survived. It is not, of course, the case that mechanization itself was a flash in the pan, or that increased farm size and new technology failed to transform much of U.S. agriculture. Rather the particular forms that transformation took turned out differently from what the early visionaries of the 1920s foresaw. Thus, while the original focus was heavily on grain growing in semi-arid conditions, the large and lasting changes in economic organization occurred in livestock feeding. While mechanization in field crops resulted in greatly increased acreage by farmer, grain growing remains today, as traditionally, the province largely of single-operator farms or family partnerships. And, while large cooperatives still flourish in rice, cotton, and dairy production, they function as collective marketing mechanisms, not on the level of farm management.

The book concludes with a chapter providing an overall assessment of agricultural industrialization in the United States which, while sensible, is not specifically grounded in findings from the earlier chapters. Developments up to the present day, including the “Green Revolution” that transformed parts of the developing world in the 1960s, are taken to be the legacy of the ventures described in those chapters. This is a stretch too far. Fitzgerald’s case studies, seen from today’s perspective, can as well be taken as lessons in how the best information available about possibilities for agricultural development, including ones that seemingly prove themselves in real-world tests and pilot projects, can nonetheless over the long term lead to dead-ends and insolvency.

Fitzgerald lists the benefits of industrialization as it has developed to the present as “a more plentiful food supply, tremendous food variety, a less physically taxing workload for farmers, a higher standard of living in the countryside,” and the costs as “continuing food distribution problems, both domestically and internationally, an increasing problem ensuring and regulating food safety, a chronic decrease in the number of farm families, a flow of people and capital from rural to urban areas, and an incomprehensible set of deals between federal officials and farmers that make little sense and potentially do as much harm as good” (p. 189). Those assertions might be viewed as suggestions for further investigation, except that they appear in the book’s concluding paragraph and may be read by casual readers as following from its evidence and arguments. Actually the book provides virtually no support for conclusions about the relationship between industrialization and food variety, the standard of rural living, food distribution, food safety, or capital flows from rural to urban areas. Fitzgerald’s accomplishments are further obscured by the back-cover blurb’s statement that the book addresses “a system of agriculture that has never served the best interests of farmers or farmland but that has always been presented to the public as necessary and inevitable.” That statement exhibits a level of tendentiousness that the book itself does not approach. In fact, fair use of the book’s content will provide many illuminating facts and vignettes about U.S. agricultural history, but will not prove a source of ammunition for either its celebrators or denigrators.

Bruce Gardner, Professor of Agricultural and Resource Economics at the University of Maryland, College Park, recently published American Agriculture in the Twentieth Century: How It Flourished and What It Cost, Harvard University Press, 2002.

Subject(s):Agriculture, Natural Resources, and Extractive Industries
Geographic Area(s):North America
Time Period(s):20th Century: Pre WWII

Encumbered Cuba: Capital Markets and Revolt, 1878-1895

Author(s):Fern√°ndez, Susan J. F
Reviewer(s):Salvucci, Linda K.

Published by EH.NET (June 2003)

Susan J. Fern?ndez, Encumbered Cuba: Capital Markets and Revolt, 1878-1895. Gainesville: University Press of Florida, 2002. xii + 203 pp. $59.95 (hardcover), ISBN: 0-8130-2564-8.

Reviewed for EH.NET by Linda K. Salvucci, Department of History, Trinity University.

Encumbered Cuba is a timely addition to the recent spate of historical works commemorating the centennial of the War of 1898 on the one hand and the latest print and broadcast analyses of “Anglobalization” by Niall Ferguson and his critics on the other. Inspired by such ongoing debates on the relationship between empire and economy, this monograph is grounded in sources from Cuba, Spain and the United States, especially the Braga Brothers Collection at the University of Florida. At issue are the very nature of late nineteenth-century Spanish colonialism and its relationship to subsequent economic growth and development in Cuba. Of course, the imperial bond between Spain and Cuba was rendered infinitely more complicated and complex, if not distorted entirely, by the pervasive influence of the United States. Indeed, for much of the nineteenth century, Cuba was a commercial and financial dependency of the United States, while remaining a political dependency of Spain (p. 47). The peculiarities of this situation make it more difficult than is often the case for historians to assess cause and effect, but Fern?ndez makes a credible effort to do so. She makes a compelling case for the significance of the period between the end of the Ten Years War (1868-1878) and the outbreak of rebellion again in 1895. During these years, she argues, Cuba should have been able to diversify its economy but did not, because Spanish colonialism had failed to foster the necessary institutions for credit and investment.

Cubanists will find this monograph an interesting prologue to Allan Dye’s Cuban Sugar in the Age of Mass Production (Stanford, 1998). Fern?ndez begins her intricate tale with an evocative description of the Columbian Exposition of 1893 and its “homage to European colonialism” (p. 1). Drawing upon the work of Spanish economic historians such as Gabriel Tortella Casares and the still useful insights of Stanley J. and Barbara H. Stein in The Colonial Heritage of Latin America (New York, 1970), she reviews the problems inherent in Spanish colonialism. Overall economic decline in the nineteenth century and the low level of technological development in the metropolis itself made for a “takeoff into sustained dependency” on the island (p. 7). Spain resisted the gold standard and free trade; the proportion of its government budget devoted to servicing debt far exceeded expenditures on infrastructure. In Cuba, railroads failed to handle all the sugar produced, let alone to stimulate industrialization or even diversification. A class of bourgeois bankers never developed to meet the significant credit needs of the sugar, tobacco, coffee and mining sectors because “personal favoritism” guided the appointment of “loyal Spaniards” to bank directorships and the subsequent granting of loans to borrowers (pp. 80, 91). In short, the Banco de Espa?ol de la Isla de Cuba (BEIC) and the Banco Hispano-Colonial (BHC) accommodated their functions to government interests and goals. For example, the BEIC alienated the elites outside Havana through its role as a designated tax collector; eventually, it found itself in the position of refusing its own notes for collection of fees to the government (p. 102). The Cuban planter class increasingly turned to the United States as the source of finance capital, paid for by ubiquitous sugar exports. All this was in evidence as early as 1866, when a crisis in Cuban money markets occurred.

Not surprisingly, the Ten Years War only exacerbated these interrelated trends and shortcomings. The impending demise of slavery in Cuba changed cash flow requirements for large producers, while freed slaves would have different credit needs as well. Added to this difficult mix were persistent currency shortages; by the early 1880s, there was not even enough currency available to pay winners of the Cuban colonial lottery. Spanish authorities and Catalan businessmen wanted the banks to stabilize the currency and to act as agencies for mobilizing private capital, but they were simply not able to do so.

During the last two decades of the nineteenth century, Spain’s need for Cuba increased while Cuba’s need for Spain decreased. Fern?ndez points out that the owners of large estates needed U.S. sugar sales and credit to survive Spanish colonialism. In short, Spain failed to provide its once “ever faithful isle” with the benefits of colonialism. The situation worsened dramatically in 1893, as economic crises occurred at other points in the Atlantic basin, most notably the United States. “Between 1893 and 1895, rebellion against Spanish colonialism in Cuba emerged from cross-class opposition to failed Spanish fiscal and monetary policies” (p. 143). Moreover, she asserts, the key element in the Cuban revolt was the perception that Spain could not lead Cuba to economic recuperation after 1894 (p. 150). Apparently, the United States, whose government knew how to recuperate from fiscal crises, could.

Or could it? The arguments of the last chapter of this book are a bit confusing, as Fern?ndez reverts back to her central premise, that the crucial moment for Cuba was not 1898, but the years between 1870 and 1895, when failure to develop adequate credit and investment institutions determined the persistence of sugar monoculture. Comparisons and contrasts with the rest of Latin America are attempted, but not fully pursued. While it is certainly true that, unlike elsewhere, domestic problems in Cuba could be blamed on colonialism (p. 164), the cause-effect relationship needs to be defined more systematically, perhaps by tracking the economic interests and political behavior of key planters and their creditors. Another way to approach this would be to propose a counterfactual: what if Cuba had become independent along with the rest of the Spanish colonies in the New World? In other words, it seems to me that the timing of Cuban independence might be as critical a variable as Spanish colonialism. Had Cuba achieved political independence in the 1810-20s, would the prospects for diversification have been significantly better? Would Cubans have put borrowed capital to better use? Or was U.S. influence already strong enough to have locked Cuba into a system of trade and borrowing that still depended upon sugar monoculture? Perhaps it is developments in the decades before the Ten Years War that proved just as decisive in the long run.

Susan Fern?ndez has tackled a complex and vital subject. While her work may be of greatest interest to specialists in nineteenth century Cuban history, she raises important questions for all who remain intrigued by the relationship between colonialism and economic development.

Linda K. Salvucci, Associate Professor of History at Trinity University in San Antonio, is working on a book project, “Ironies of Empire: The United States-Cuba Trade under Spanish Rule, 1760-1898.” With Richard J. Salvucci, she is coauthor of “Cuba and the Latin American Terms of Trade: Old Theories, New Evidence,” Journal of Interdisciplinary History, XXXI: 2 (Autumn, 2000), 197-222, which won the Conference on Latin American History Prize in 2001.

Subject(s):Financial Markets, Financial Institutions, and Monetary History
Geographic Area(s):Latin America, incl. Mexico and the Caribbean
Time Period(s):19th Century

Crusading Liberal: Paul H. Douglas of Illinois

Author(s):Biles, Roger
Reviewer(s):O'Connor, Alice

Published by EH.NET (June 2003)

Roger Biles, Crusading Liberal: Paul H. Douglas of Illinois. DeKalb, IL: Northern Illinois University Press, 2002. vii + 259 pp. $35.00 (cloth), ISBN: 0-87580-304-0.

Reviewed for EH.NET by Alice O’Connor, Department of History, University of California, Santa Barbara.

For anyone who wants to understand the odyssey of twentieth-century U.S. liberalism, Paul H. Douglas (1892-1976) is an essential figure. Having spent his early career engaged in late progressive-era/early New Deal academic and policy circles, the economist-turned-politician was in the vanguard of reform in the U.S. Senate as post World War II liberalism first struggled for its identity and then reached its Great Society heights, only to see glimmers of backlash in his 1966 electoral defeat. As told by Roger Biles (Professor of History, East Carolina University) in this first full-scale biography, Douglas’ story is less one of liberalism’s “rise and fall” than of ongoing struggle, considerable frustration, and partial achievement. Above all, it is a story of one man’s persistence in the face of opposition, a persistence fueled by an enduring faith in the possibilities of using activist governance, regulation, and economic knowledge in the name of a more just, equitable society.

Biles develops this theme in a straightforward narrative that spans Douglas’ lifetime but pays most attention to his Senate career. Nevertheless, there is much to learn about the roots of his postwar liberalism in his earlier life and career. Raised on the edge of poverty in rural Maine, Douglas worked his way through Bowdoin College and from there went on to Columbia University, eventually earning his Ph.D. in economics in 1921. In what would become a lifelong pattern of joining research with social action, Douglas cultivated his growing interest in labor economics in the heady atmosphere of New York’s pre-World War I labor activism as well as in classrooms with the likes of Charles Beard, John Dewey, Henry R. Seager, and, on the theoretical end, John Bates Clark. He went on to spend most of his academic career in the interwar University of Chicago economics department. While there, he published extensively, establishing himself as a leading labor economist and policy intellectual with articles and books that included Wages and the Family (1925), Real Wages in the United States (1930), Standards of Unemployment Insurance (1933), and The Theory of Wages (1934). He also became prominent in Chicago’s progressive intellectual and reform circles in the 1920s and 30s, and, running as a reform Democrat, won election to the notoriously machine-dominated city council in 1939. Meanwhile, having earlier aligned himself with third party and socialist politics in national elections, he had come to endorse the New Deal during FDR’s second term. Equally important in his growing identification with the Democratic Party mainstream, Douglas was increasingly convinced of the need for American intervention to aid the Allies against Nazi expansionism, and eager to defend FDR against isolationist attacks.

It was not until after World War II, during which the 50-year-old Douglas cajoled his way into active service in the U.S. Marine Corps, that he emerged as a force in national politics. As a three-term senator from Illinois beginning in 1948, he established himself as a standard-bearer for the liberal wing of the Democratic Party, advocating far-reaching civil rights, anti-poverty, consumer rights, and tax reform legislation well before their time. If not immediately successful in his reform vision, Biles argues, Douglas played a key role in chipping away the formidable sources of opposition and in thus setting the stage for successes to come. This comes through especially in Biles’ detailed discussion of the fights over the relatively weak Civil Rights Acts of 1957 and 1960, and of concomitant efforts to thwart the ever-present filibuster threat. Refusing to cave in to pressure from then-Senate majority leader Lyndon B. Johnson, Douglas continued to push for more aggressive legislation and federal enforcement rather than appease Southern Democrats with watered-down measures. Portrayed at the time as obstinate and quixotic, Douglas staked out a position that would eventually be incorporated in later legislation — a sign, according to Biles, not of political zealotry or naivete, but of a principled, ultimately effective stance against reactionary forces.

While similarly persistent in long-gestating truth-in-lending, tax reform, area redevelopment and other domestic legislation (including measures passed after his Senate tenure) Douglas departed from many of his counterparts in the liberal wing of the Democratic Party in his staunch anti-communism and unyielding support for the Cold War. By the mid-to-late 1960s, his continuing support for ever-escalating American involvement in Vietnam was beginning to alienate younger, New Left, and anti-war voters. Ultimately, however, it was as much his Great Society as his Cold War liberalism that proved decisive in his bid for a fourth term. He was defeated for reelection by the much younger, politically inexperienced Republican Charles Percy in 1966, in a campaign that played on the internal fragmentation, and especially the deep racial fissures undermining the Democratic coalition as the civil rights struggle hit the streets of Chicago. By then out of sync with an economics department that had since became a bastion of free-market thinking, Douglas made no attempt to return to the University of Chicago. He finished his career as something of a public intellectual, teaching at the New School for Social Research, hosting a television series on public affairs, and chairing the volatile Commission on Urban Problems while working on his autobiography and other writings.

Illuminating as a chronicle of Douglas’ Senate career, this book provides an important vantage point for viewing the legislative issues and struggles that both shaped and constrained liberalism as a reform ideology in the postwar decades. In adhering so closely to the legislative record, however, Biles sometimes misses the forest for the trees.

Thus, we learn about Douglas’ repeated efforts to provide aid to “depressed areas,” to go after the oil depletion allowance, and to protect consumers from monopolistic or misleading corporate practices, but little about the broader vision of political economy from which he worked. This is pertinent not just in light of Douglas’ background as an economist, but for what it can tell us about debates over such issues as the relative importance of growth and redistribution, as well as the appropriate mix of policy interventions, within the emerging liberal “Keynesian consensus” of the time. Along those lines, it would also be of interest to learn whether Douglas attempted to use his position as chair of the Joint Economic Committee to inject his own ideas, or to assert a more prominent role for Congress in economic policymaking.

Nor do we get much feel for whether and how Douglas was connected to the broader currents of racial thought, extra-congressional political mobilization, and movement building that galvanized the civil rights agenda. That Douglas was an integrationist and egalitarian in his thinking seems clear from his own statements and actions. What is less clear is why and how civil rights became a defining issue for him when it did, especially since there is little in his pre-Senate activism to suggest this direction. Here again, the question goes beyond Douglas himself to the course of postwar liberalism — within which, as the complacency of many a more “moderate” politician indicates, racial equality was hardly a universally shared priority.

Biles also might have done more to explain the sources and nature of Douglas’ anti-communism, which was coming through even as Douglas was visiting the Soviet Union and endorsing Social Party candidate Norman Thomas in the 1928 and 1932 presidential elections, and which seems if anything to have grown more rigid over time. Whether and how this is connected to what later critics considered “overwrought” patriotism during the Cold War and “bellicosity” with regard to Vietnam (p. 213) is largely unexplored.

More generally, Biles does not do enough to connect Douglas the economist and reform intellectual with Douglas the Senator, treating the first half of his life and career as more prelude than foundational to his political record and offering little analysis of his economic ideas. And although extensively researched in archival sources, Biles’ narrative comes very much from the inside, relying on autobiographical and staff analyses for its take on various issues without sufficiently leavening them with outside, independent, or alternative perspectives.

Still, Biles has provided us with an able and welcome, if not definitive, biography of a figure too long neglected in the annals of American liberalism. He makes an important contribution to recent political history.

Alice O’Connor is author of Poverty Knowledge: Social Science, Social Policy, and the Poor in Twentieth-Century U.S. History (Princeton, 2001).

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

Britain and the Greek Economic Crisis, 1944-1947: From Liberation to the Truman Doctrine

Author(s):Lykogiannis, Anthanasios
Reviewer(s):Makinen, Gail

Published by EH.NET (June 2003)

Anthanasios Lykogiannis, Britain and the Greek Economic Crisis, 1944-1947: From Liberation to the Truman Doctrine. Columbia, MO: University of Missouri Press, 2002. xvii + 287 pp. $39.95 (hardcover), ISBN: 0-8262-1422-3.

Reviewed for EH.NET by Gail Makinen.

This meticulously researched and beautifully written book is the author’s Ph.D. dissertation in political history at the London School of Economics. He currently serves as special adviser on historical issues and archives at the Bank of Greece.

Lykogiannis concentrates on the twin problems facing the National Liberation Government when it returned to Athens in October 1944: hyperinflation and massive structural damage inflicted on the economy by the Germans during 1941-1944. The book contains three parts. Chapters 1 and 2 discuss characteristics of Greek history, the economy, and political and social conditions and institutions that he believes are important in explaining the inability of the Greek governments during 1944-1948 to deal with the twin problems. Chapters 3, 4, and 5 deal with the hyperinflation and the British aid and assistance program designed to stabilize the economy. Chapter 6 concerns a similar American program during 1947-48.

There is little new information in this book, a fact acknowledged by Lykogiannis. He believes that his major contribution is to link the deficiencies identified in part 1 with the Greek failure to deal with the twin problems discussed extensively in parts 2 and 3. This book, almost entirely descriptive, formally tests no hypotheses. Lykogiannis has made use of British and American archives and draws heavily on the unpublished Ph.D. dissertation (Harvard 1948) of the late Gardner Patterson, who was closely involved with the stabilization effort during 1944-1948.1

The deficiencies identified by Lykogiannis to explain the failure to deal with the twin problems are: poor education, a confused legal system, excessive reliance on agriculture, encouragement of monopolies, a political system based not so much on parties as on factions led by prominent individuals, and a fiscal system unsuited to the needs of a modern state (e.g., a tax system with little reliance on direct taxes and an inept civil service to administer it).

When the National Liberation Government returned to Athens on October 18, 1944, it immediately had to confront the hyperinflation. A plan of attack was cobbled together and implemented on November 11 consisting of a currency conversion, a limit on the government’s overdraft at the Bank of Greece, and the convertibility of the new drachma into British Military Authority Pounds. Few fiscal reforms were undertaken to increase taxes or reduce expenditures. Heavy reliance was placed on British aid. A number of British advisers arrived. The Greeks accepted the aid and, Lykogiannis tells us, disregarded the advice. The various governments preferred, instead, to cover the substantial budget shortfall by selling state assets (its gold and foreign exchange reserves). This stock response to a flow disequilibrium was obviously not viable and Lykogiannis rightly condemns it as did the British advisers. In fact, this study is a damning indictment, somewhat shrill in tone, of the fiscal ineptitude of the Greek governments during 1944-48.

Nevertheless, Lykogiannis has a hero: the governor of the Bank of Greece, Kyriakos Varvaressos, the man with a stabilization plan.2 However, it might be argued that no plan is better than his which called for wage and price controls to halt inflation, cutting the price of aid goods (an essential revenue source) to reduce measured inflation, and relying on a tax that antagonized powerful interests in Greece, not to speak of a civil service that could not administer the necessary controls. In fact, Lykogiannis seems convinced that controls should have played a major part in solving the twin problems. It is also worth noting that the aid program, while it undoubtedly served an humanitarian purpose, provided little budget support, one of its objectives, for it cost more to distribute the goods than the revenue raised from their sale.

Early in 1946, the British undertook a major effort at stabilization. Among other measures, the Currency Committee was created whose unanimous approval was required before the Bank of Greece could issue additional notes (two of its five members were foreigners, one of whom was Patterson). Despite a new set of British advisers and some success, Lykogiannis argues that the twin problems remained and gold sales continued to be an important source of budget support. Early in 1947, the British decided to call it quits. While the Greeks had pressured the United States for aid since 1944, only limited sums were forthcoming. Prior to opening the purse, the U.S. dispatched Paul Porter on a fact-finding mission. His report, delivered in April 1947, became the basis for U.S. involvement in Greece, although President Truman announced a large aid package before the report was completed.

The U.S. involvement in Greece built on British experience. It involved more aid, a larger number of advisers with a good deal more power to force change, and other institutional controls to end the budgetary disequilibrium (including control over the receipts from the aid program). Lykogiannis concludes that, despite all this, the major difficulties with the Greek government faced by the British remained, while conceding that the advent of civil war complicated this picture greatly.

Thus, Lykogiannis’s overall assessment is that despite massive aid and a good deal of sound advice, the Greek governments did little to solve the twin problems. While some sectors of the economy improved, he concludes “the pace and extent of recovery was far from encouraging.” Yet, there is much evidence to suggest that this assessment is too pessimistic. First, price stability was achieved during the period and this made possible the remonetization of the economy and, with it, a related gain in efficiency. Second, while the author mentions the sectors of the economy that revived, no data are presented. In fact, data on industrial production and national income are available, but not used. The former index increased from 38.3 in January 1946 to 59.7 in March 1947. Real national income rose 5.1%, 62.1% and 33.9% for the years 1945, 1946 and 1947. The increase in output and the remonetization explain why the economy was able to absorb a large increase in the money supply without much of a rise in the price level. However, the budget still received some support from the sale of gold.

Finally, I would like to offer an alternative explanation for the Greek’s apparent failure to solve the twin problems. Far from being inept, the successive governments were really quite clever. They recognized early on the strategic importance of Greece to the geopolitical ambitions of the British and the Americans and decided to exploit it to the maximum. The data on foreign aid record their success. While some disagreements with Lykogiannis remain, this is a fine book, a pleasure to read, and it will undoubtedly remain a standard reference on this subject for years to come.

Notes: 1. Curiously, when I interviewed Patterson (July 13, 1983) for my own work on the Greek hyperinflation, I found him totally disinterested in this early part of his professional life. 2. My interview notes suggest that he was also the hero of Patterson.

Gail Makinen retired from the Congressional Research Service on December 31, 2002. His most recent publication, “An Independent Central Bank and an Independent Monetary Policy: The Role of the Government Budget: The Case of Poland, 1924-1926,” Public Budgeting and Finance (Spring 2001) was the recipient of the 2001 Burkhead Award for the best paper of the year.

Subject(s):Government, Law and Regulation, Public Finance
Geographic Area(s):Europe
Time Period(s):20th Century: WWII and post-WWII

Bronze Age Economics: The First Political Economies

Author(s):Earle, Timothy
Reviewer(s):Graves, Michael W.
Grave, Michael W.

Published by EH.NET (June 2003)

Timothy Earle, Bronze Age Economics: The First Political Economies. Boulder, CO: Westview Press, 2002. xi + 452 pp. $95 (hardcover), ISBN: 0-8133-3969-3; $42 (paperback), ISBN: 0-8133-3877-8.

Reviewed for EH.NET by Michael W. Graves, Department of Anthropology, University of Hawai’i.

This book has been prepared as a companion piece to the anthropologist Marshall Sahlins’ (1972) influential work, Stone Age Economics. Earle, a former student of Sahlins, is well known for his archaeological research on the economy and polities of complex societies in Hawai’i, Andean South America, and northern Europe. This volume gathers together, for the most part, previously published pieces (some slightly revised), along with several new chapters that serve as introductions to the book’s major sections. The earliest chapter was originally published in 1977, the latest in 2001. What strikes one immediately about Earle is how contemporary is his writing and the consistency with which he has pursued his work in anthropology. So, this is not a volume of bits and pieces from the career of an archaeologist but one that is topical, well-integrated and mature throughout.

Earle has remained true to his original roots in the discipline; he is an anthropological archaeologist. As such, his research uses archaeological and ethnohistorical sources of data to advance ideas about ancient economics in societies that no longer exist in their traditional forms, and which span a period of time from 1700 BC through the early nineteenth century. What links these societies is their organization as complex chiefdoms and/or early states — hence the use of the word bronze in the title. Earle’s approach to understanding these entities emphasizes “. . . agricultural intensification, redistribution, prestige-goods exchange, political warfare and ideology” (p. 1), what today would fall under the rubric of political economy. Earle places himself within the community of processual archaeologists, those interested in understanding the general features of human behavior and practices as they evolved over time. What distinguishes him from his peers is the relative lack of emphasis on environmental and climatic factors in human behavioral change. His work is truly a processual form of social archaeology.

For Hawai’i, Earle’s research, carried out in the 1970s, first examined the relationship between irrigated forms of agriculture — in this case, pond field taro — and labor mobilization and organization. He found that contrary to some models (e.g., Wittfogel’s hydraulic hypothesis) that stipulated a necessary functional-evolutionary relationship between these variables, traditional Hawaiian irrigated agriculture did not necessitate the management of large units of labor. Rather, community-based models for agricultural management best fit the available data, and for the most part continue to do so today. With this as a base, Earle next assessed the redistributive model developed originally by the anthropologist Elman Service for chiefly economies, which highlighted its positive society reinforcing functional role. In Hawai’i, Earle suggested that redistribution was not so much to benefit society as it was to benefit elites. This is an important observation for it underlies the concept that in chiefdoms (and other complex organizations) not all individuals occupy comparable structural roles or have access to the same range and quality of resources. Some individuals do better than others and there are political reasons why this was and is the case. Earle has extended his research in Hawai’i to include work on the iconography of style used by Hawaiian chiefs and the extent to which there was specialization in the production of certain artifact forms.

For his Andean research, Earle and his colleagues began a study of the Upper Mantaro Valley, Peru, in what was to become a portion of the Inka Empire in the fifteenth century. It was here that Earle distinguished staple finance and wealth finance in complex political organizations. The former was defined by its role in producing and distributing subsistence and other basic resources (e.g., housing). Wealth, on the other hand, referred to valuables and other commodities that generally were of limited distribution and had high labor costs. Note that these distinctions are not entirely new to Earle, but had been partially developed by the anthropologist Polyani in his discussion of substantive or instituted economic processes.

For Earle, staples are absolutely critical to the survival of individuals/households but generally have high transport costs and can be stored for only limited amounts of time. Objects of wealth, often convertible in terms of staples, are more easily transported and stored. The two are critical components of all archaic states, with the Inka and its precursors exhibiting a trend over time towards increasing extraction of labor specialized in the production and distribution of prestige-goods. Earle and his associates have also contributed to bettering our understanding of the forms that specialization can take, with attached specialists making their appearance in the transition to the archaic state. Under this scenario, increasing wealth finance also spurred additional agricultural intensification in order to support the associated costs of acquiring valuables. Wealth finance, as documented by Earle, was used to underwrite political strategies of elites in early complex societies. Increasingly these strategies resulted in accumulations of wealth in contexts that were more and more distant from the locations where production occurred.

These themes continue in Earle’s most recent research focused on the Bronze Age chiefdom of Thy in northern Denmark. He documents a shift to a system of wealth finance where chiefs occupied critical nodes in an economic network both intra-regionally and inter-regionally/internationally. They are associated with elite residential architecture and were buried in elaborate graves, often with bronze swords and other exotic materials. This system later collapsed as the international source of prestige goods (or materials) was cut-off and as new prestige-goods, most importantly amber, replaced earlier forms. Earle suggests that cattle production was controlled by chiefs and was employed as the basis for export by the early Bronze Age development of chiefdoms in Thy. This form of chiefly economy — networked, drawing on imported exotic materials and artifacts, and based on cattle production for export — was inherently unstable, especially as amber replaced cattle as an export commodity.

These brief synopses of Earle’s research in the ancient political economy of Hawai’i, the Andes, and Europe cannot fully capture the scope and depth of his observations and conclusions. This book reflects his leadership in this area of archaeology and anthropology. Clearly, Earle has pursued a research program that has cohered around a common theme: the political and economic strategies of elites in ancient or traditional societies and their impacts on one another and other segments of society. One consequence of this is that non-elites do not receive the same amount of attention and that sometimes makes it appear that elites are free to do what they please. Of course, they are not, as much as they may sometimes believe otherwise.

I also note a concern, with Earle’s use of “society” as an interpretive or analytic unit, as for instance in, ancient Hawaiian society. This issue brings us back to the point made earlier: the value of a political economy approach lies in its awareness that societies are differentiated into groups/individuals that pursue their own self-interests. Treating societies as wholes or as entities runs the risk of losing sight of these differences and the dynamic they generate in behavioral change.

Some societies, such as Hawai’i, were comprised of multiple polities, not all of which were created equal, had the same environmental conditions, or were characterized by the same range and distribution of economic practices. Individual polities changed over time and at any given time were comprised by multiple communities. These communities did not all appear simultaneously, nor did they necessarily occupy comparable sets of environments. In the search for generalizations and synthesis, Earle occasionally loses sight of these facts and Hawaiian society appears more homogeneous than it was.

Still, this volume is a valuable contribution to the literature on ancient complex societies and their political economies by one of the authorities in this field. From a lifetime of scholarship on this topic, Earle has chosen some of his best work to share with us again, and in doing so has re-integrated these writings into a new volume that demonstrates why the study of political economy endures as a topic in archaeological and anthropological research.

Michael Graves’ current research focuses on the explanation of the evolution of social complexity in Hawai’i and elsewhere in Polynesia, the development of models linking geographical information systems to agricultural practices, and the application of stylistic analyses to explain the evolution of social units and patterns of diversification. Recent publications include Archaeological Evidence for Agricultural Development in Kohala, Island of Hawai’i, Journal of Archaeological Science (with Thegn N. Ladefoged and Mark D. McCoy), 2003, 30:923-940.

Subject(s):Social and Cultural History, including Race, Ethnicity and Gender
Geographic Area(s):North America
Time Period(s):Prehistoric

Politics and Banking: Ideas, Public Policy, and the Creation of Financial Institutions

Author(s):Hoffmann, Susan
Reviewer(s):McAvoy, Michael R.

Published by EH.NET (June 2003)

Susan Hoffmann, Politics and Banking: Ideas, Public Policy, and the Creation of Financial Institutions. Baltimore: Johns Hopkins University Press, 2001. xii + 304 pp. $45 (cloth), ISBN: 0-8018-6702-9.

Reviewed for EH.NET by Michael R. McAvoy, Division of Economics and Business, SUNY College at Oneonta.

In Politics and Banking, Susan Hoffmann traces the role of ideas in shaping financial institutions, legislation and regulation in the United States. Specifically, she studies the ideas that formed the basis for regulating commercial banks, savings and loans and credit unions. Indeed, her analytic method is ambitiously applied to a broad swath of depository institution legislation, from the First Bank of the United States to the Financial Services Modernization Act of 1999. Do ideas drive regulation or does self-interest? Hoffmann observes that different types of depository institutions operate under different regulatory frameworks. Ultimately, she concludes that the banking frameworks remain separate due to their different initial public philosophies. History does matter, just as do ideas.

Chapter 1 observes that depository institutions have three separate regulatory frameworks, each the result of a different institutionalized public philosophy: commercial bank regulation and utilitarianism; savings and loans and progressivism; and credit unions and populism. For each public philosophy, Hoffmann examines the relevant legislative debates for the respective regulatory framework to answer the questions, “What did its advocates conceive as (the depository institution’s) purpose?” and “Given that purpose, what design did they propose to achieve it?”

The development of the Bank of the United States (BUS) is examined in Chapter 2 and the history of the Second Bank of the United States (BUS2) is studied in Chapter 3. Hoffmann observes that in the early republic, banking was part of the conflict between those who favored either strong or weak central power. Chapter 2 introduces an organizational design model for financial institutions whose principle categories are Ownership, Capital, Assets and Governance, since financial institutions’ effectiveness depends on their organizational design. In the example of the BUS, Congress intended that it provide an adequate money supply; however, the BUS regulated the money supply through its business with the state banks, an unintended consequence. Those who favored state interests successfully opposed the renewal of the BUS charter in 1811. While the existence of the BUS led to an increase in the number of state banks, ironically, the five year absence of the BUS led to a greater number of state banks with corresponding abuses and prompted Congress to create the BUS2. The purpose of the BUS2 was to provide a uniform currency and manage the economy. Andrew Jackson, an “ideologue” who favored strict separation between public and private interests, prevented the BUS2 from achieving its public purpose when he vetoed the renewal of its charter in 1832 and removed federal government deposits in 1833.

Chapter 4 examines the transition from state banking to national banking. The development of national banking was largely based upon the state free-banking models in which bank charters provided credit, currency and tax revenues and promoted local development. The states introduced financial regulation innovations such as reporting, capital and reserve requirements and deposit guarantee, while private interests developed payment system services. After 1837, states increasingly adopted free-bank charters rather than legislative special charters. The free- banking charter model sought to protect note holders through bond backing and note redemption at par in specie on demand. The purpose of national banking provided the nation with a uniform currency backed by United States bonds and capitalized the issuing banks. Yet, national banking failed to fulfill its purpose due to institutional designs of pyramiding reserves (to New York City in particular), population-based capital requirements and lending restrictions for commercial purposes, so it provided neither adequate currency nor credit. The system failed to provide the public with enough currency when it was demanded during unpredictable yet regular phases of the seasonal or business cycle, and made individual banks responsible for their own reserve positions. Thus the money supply did not respond to the natural requirements of trade.

The Federal Reserve Board’s formation is studied in Chapter 5. Hoffmann states that the traditional interpretations for the Fed’s founding are debates between private and public control and between centralized and decentralized systems. She offers a different interpretation for the Fed’s existence: nature versus construction — the creation by government of a public institution designed atop a government-designed private institution. The money supply debate revolved around whether it should be determined by the “natural” gold standard or “artificial” bimetallic gold and silver standard and was resolved politically during 1896 and reaffirmed during 1900 in favor of gold by the election of William McKinley over William Jennings Bryan, a populist silverite. The Panic of 1907 shifted the political tide with legislation that authorized a National Monetary Commission, which recommended a central bank and the institutionalization of the real bills doctrine. A shift to Democratic Party control of the national government occurred in 1912 with Woodrow Wilson’s election. Carter Glass, progressive Democratic representative from Virginia, shepherded the Federal Reserve Act, which institutionalized the real bills doctrine and the private provision of credit in a regional rather than a central administrative structure, through the House during 1913. Hoffmann discusses further changes to the Fed through the New Deal reforms and after.

The savings and loan framework is the focus of Chapter 6. Just as a progressive, Carter Glass, promoted the Federal Reserve legislation, President Herbert Hoover, another progressive, established the S&L framework to serve the public purpose of home ownership. In fact, much of the S&L framework was based upon the Federal Reserve System legislation. The Home Loan Bank Board legislation had its origins in the liquidity crises of the Great Depression to solve the maturity mismatching of mortgage lenders, as well and their losses suffered from bankers’ deposits due to the era’s failed banks.

In Chapter 7, Hoffmann covers credit unionism, a movement in which populism is the animating philosophical idea. The populist philosophy is one of economic democracy — the provision of access to necessary productive resources. In the populist view, the private ownership of the financial system is an economic flaw since the concentration of wealth subverts economic democracy. A natural money supply is unacceptable if it reduces the economic freedom of “ordinary” persons. Ordinary persons are those who have small amounts of savings and few borrowing needs. Since commercial banks did not provide services to ordinary people and savings and loans accepted small deposits but did not make small loans, credit unions arose as a means through which members could gain control of their resources to meet their small savings and borrowing requirements. Credit unionism continues to be separate from other depository institution regulation since its public philosophy promotes self-help for both its members and credit unions. While the government bailed out other types of depository institutions during the 1980s, credit unions have relied primarily on each other and have innovated institutions to cope with modern challenges including share insurance for member deposits and corporate credit unions that provide member credit unions with liquidity and other bankers’ services.

Chapter 8 concludes, arguing that government failure is the cause of economic growth below potential GDP, and suggesting solutions. Although the “neoliberal” reforms first suggested by Nixon’s 1971 Hunt Commission have been promoted by Republican and Democrat administrations alike since, Hoffmann faults the public philosophy of the approach for its lack of populist basis and its philosophical opposition to national involvement in public education, government bureaucracy, urban problems and environmental regulation. Hoffmann reasons that as money is allocated by the government so should credit — the populist public philosophy should also extend to credit allocation. Thus, if the market shifts the exchange medium to bank credit then households must have access to free checking and no-fee ATM’s.

Hoffmann’s idea and approach is different from much financial history research. Hoffmann rejects the argument that an efficient allocation of the money supply exists and does not consider economic history research useful since “mainstream economics” fails to explain the institutional development of banking policy. The primary evidence for the thesis is the documents, committee hearings and debates published by Congress. Thus there is no reference to work by J. Van Fenstermaker, Hugh Rockoff, Howard Bodenhorn or Jane Knodell on antebellum banking, Roger White on Treasury monetary policy prior to the Fed or Eugene White on competitive deregulation during 1900-1930. There is no acknowledgement for relevant ideas of Douglass North on the role of institutions in history or Paul David on path dependence. The lack of economics makes use of the book’s chapters alone weak without additional readings for courses in Economic History. For instance, Hoffmann ignores more recent discussion of the role of asymmetric information and the role of financial institutions. She does not inquire into what makes banks special. While corporations exist, Hoffmann determines that corporations are provided by the market, yet economic theory argues that corporations are human associations in which resources may be combined to avoid market transactions costs and risks may be managed better — populist notions even if corporations are legal persons with special privileges. Money is referred to repeatedly as a resource while economics principles texts would disagree.

The categories of Ownership, Capital, Assets and Governance are rarely used to discuss contemporary issues such as solvency, liquidity, investment limitations, or private financial innovations. One gets the impression that Hoffmann was forced to include some sort of model in this work, yet the model is used to provide neither much analysis nor prediction. In addition, Hoffmann’s definition of capital lacks clarity. It confuses bank capital with the initial funds used to purchase ownership shares. For instance, initial Second Bank of the United States shares could be purchased with promissory notes of individuals in addition to specie and United States government debt. All of these assets would become reserves or investments of the bank, yet Hoffmann is critical of promissory notes as a basis for capital investment. Presumably, specie was engaged in commerce so not readily available for use in speculation. If the bank required specie reserves, the notes acquired initially could have been called at expiration and not renewed. Markets may not have existed to readily transfer earning assets to the bank without serious price disruptions, even if exchanges unlikely existed for promissory notes.

Further, the populist public philosophy is promoted although little, if any, evidence is presented to suggest that wealth inequality is increasing or that such is harmful to “ordinary” persons. The populist idea of ensuring economic democracy is accepted uncritically. Is improvement in living standards for the median or even upper 80 percent (“ordinary” persons perhaps?) acceptable if there is increasing wealth inequality? I suspect populists would not accept increasing economic inequality even if almost everyone were better off, but I would like to know whether or not Hoffmann accepts this economic outcome when populism is promoted as a basis for modern policy. Hoffmann believes that the Community Reinvestment Act of 1977 is a great success and an example of legislation promoted by populism, yet that the law might prevent transfers of credit or be abused by community groups affecting efficient money allocation is not discussed and would seem to lack populist outcomes if arbitrarily enforced.

While Hoffmann’s approach has weaknesses, the book illustrates effectively that both history and ideas matter. I recommend it to readers in historical political economy, depository institution regulation history or the history of credit unionism. There is much repetition in each of the chapters so any chapter of the reader’s particular interest may be read with the short preface. In particular, I most enjoyed the credit unions chapter and the history of populism in affecting their continuing history.

Michael McAvoy is an assistant professor of economics at SUNY College at Oneonta. His research interests are in the area of economic history, financial history and the economics of financial institutions.

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