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Economic Change in China, c. 1800-1950

Author(s):Richardson, Philip
Reviewer(s):Ma, Debin

Published by EH.NET (June 1, 2000)

Philip Richardson, Economic Change in China, c. 1800-1950. Cambridge:

Cambridge University Press, 1999. xii + 111 pp. $39.95 (hardback), $12.95

(paper), ISBN 0-521-58396-9 (hardback), 0-521-63571-3 (paper).

Reviewed for EH.NET by Debin Ma, Institute of Economic Research, Hitotsubashi

University, Tokyo, Japan and Department of Economics, University of Missouri,

St. Louis.

In a little over a hundred pages, Philip Richardson’s Economic Change in

China c. 1800-1950 provides a concise and excellent survey of current and

major English language scholarship. The book is part of a publication series

called the New Studies in Economic and Social History by Cambridge University

Press which is “designed to introduce (students and teachers) to fresh topics

and to enable them to keep abreast of recent writing and debates” (p. ii).

Measured by that objective, Richardson’s book fares very well.

The book has set a clear focus: “without seeking to deny the influence of

social, cultural and institutional factors, the focus of the inquiry here lies

with an exploration of economic variables. The concern is with the dynamics of

interplay between continuity and change which facilitated, inhibited and

determined not just the process of change but the emergence of modern features

within the Chinese economy and, perhaps, the development of a modern Chinese

economy” (p. 4).

Organized around this theme, the book first lays out the analytic frameworks

(chapter 1), then supplies a background picture on China’s eighteenth-century

legacy and the early nineteenth-century crisis (chapter 2). The third chapter

presents China’s growth and structural change within a national account

framework for the period between the 1890s and 1933. In the next three

chapters, Richardson individually examines China’s external, industrial and

agricultural sectors from the second half of nineteenth century to the 1950s.

The seventh chapter examines the relationship between the state and the

economy.

Overall, Richardson’s presentation of major hypotheses, theories, and debates

are comprehensive, balanced, lucid and largely accurate. Sources are very well

indicated. The bibliography, organized by topics, carefully numbered and

cross-referenced, is particularly useful. But the most commendable feature of

the book is Richardson’s consistent and able presentation and discussion of

quantitative evidence and economic statistics for almost all the major issues

on national income, agriculture, industry and international trade. This is no

easy task as Chinese statistics are a source of controversy.

As Richardson shows, there are relatively firm statistics indicating that

foreign trade and investment grew enormously in the nineteenth and twentieth

centuries. Industrial output, particularly the modern sector, also exhibited an

impressive growth record during the twentieth century. But these elements were

far from altering the basic structure of the economy dominated by the giant

agricultural sector where traditional technology prevailed and estimates of

per-capita output growth are dubious due to the lack of consistent aggregate

time series data.

Richardson’s final assessment on the nature and magnitude of economic changes

in China in the nineteenth and twentieth centuries being characteristically

well-balanced, remains also somewhat non-conclusive. “The major long-term

influences on the process and extent of economic change were the pressure of

population on the land, the intensification of commercialized market

mechanisms, contact with the outside world and the role of state. By the middle

of the twentieth century those factors had combined and interrelated to produce

an economy which contained significant elements of modernization but not an

economy which can be confirmed with certainty as having achieved the onset of

sustained growth. It was also, in the short term, an economy suffering the

effects of more than a decade of war and economic mismanagement” (p.101).

I believe there is still room for Richardson to push his assessment a little

bit. If modern economic growth may or may not have taken hold in China as whole

(p.99), it had clearly taken root in regions where modern industrial sectors

clustered and agriculture was most commercialized. The regional characteristics

of modern economic growth would give us new insights into the nature of

economic change in China. Furthermore, if we are willing to look beyond the

macroeconomic variables, we also find in the twentieth century the spread of

primary education, the growth of a modern scientific community, the beginning

of agricultural experimental station, and the rise of new industrial and

commercial organizations, as well as monetary and fiscal reform of the 1930s.

(Richardson mentions some of these factors in chapter 7.) These all meant that

China was farther along on the path toward modern economic growth in the 1930s

or 1950 than in 1890 or 1850.

I do have some reservations about Richardson’s assessment of Chinese

agricultural conditions in the 1930s. After giving a fairly objective summary

of the optimists’ and pessimists’ cases in the debate on Chinese rural income

and productivity in the nineteenth and early twentieth centuries, Richardson

leans towards the conclusion: “it is clear that the agrarian economy was in a

state of crisis” and this did not seem like a short-term problem brought on by

the world Great Depression (p. 81-82). This view of the 1930s “agrarian crisis”

(beyond the short term) comes about partly due the lack of historical

comparison in the China field — not necessarily comparing China with Europe,

as was most often done, but rather comparing China in the nineteenth and

twentieth centuries with other East Asian countries such as Japan, Taiwan and

Korea. The relatively reliable data on rice yield per acre in the 1930s shows

that the Chinese level was still about 60-70% of the contemporaneous Japanese

level. This level was also equivalent to the rice yield level prevailing in

early Meiji Japan. Meanwhile, the average farm size in China was comparable to,

if not larger than that in Japan, Taiwan and Korea. Various sources also

clearly indicate that per-capita gross value added of farm output in the 1930s

represented one of the peak levels compared with most of the years in 1952-78

in China. The 1930s per-capita level was only surpassed after

de-collectivization and the diffusion of the household responsibility system in

the 1980s China.

Chinese farmers may have been poor in the 1930s, but they were not much poorer

than those in Japan, Taiwan and Korea in their early stages of development.

Very likely, they were just as well-off as the Chinese farmers in the late

1970s before the launching of the successful agricultural reform. Recognition

of these facts not only puts Richardson’s use of “agrarian crisis” (beyond the

short term) to describe the 1930s Chinese agriculture in serious doubt, but

also motivates us to reevaluate the connection between modern economic growth

and the state of Chinese economy in the pre-Communist era.

Debin Ma is the author of “Modern Silk Road: Global Raw Silk Market:

1850-1930″ Journal of Economic History (1996) and “Chinese Agricultural

Production in the Republican Period” (co-authored with Makino and Luo), in

Chinese Economic Statistics in the Republic Period (in Japanese and

Chinese), published by the Institute of Economic Research, Hitotsubashi

University, Feb. 2000.

Subject(s):Economywide Country Studies and Comparative History
Geographic Area(s):Asia
Time Period(s):20th Century: Pre WWII

The Great Wave: Price Revolutions and the Rhythm of History

Author(s):Fischer, David Hackett
Reviewer(s):Munro, John H.

Published by EH.NET (February 1999)

David Hackett Fischer, The Great Wave: Price Revolutions and the Rhythm of

History. Oxford and New York: Oxford University Press, 1996. xvi + 536.

$35 (hardcover), ISBN: 019505377X. $16.95 (paperback), ISBN: 019512121X.

Reviewed for EH.NET by John H. Munro, Department of Economics, University of

Toronto.

Let me begin on a positive note. This is indeed a most impressive work: a

vigorous, sweeping, grandiose, and contentious, though highly entertaining,

portrayal of European and North American economic history, from the High Middle

Ages to the present, viewed through the lens of “long-wave” secular price-

trends. Indeed its chief value may well lie in the controversies that it is

bound to provoke, particularly from economists, to inspire new avenues of

research in economic history

, especially in price history. The author contends that, over the past eight

centuries, the European economy has experienced four major “price-

revolutions,” whose inflationary forces ultimately became economically and

socially destructive, with adverse consequences that provoked various complex

reactions whose “resolutions” in turn led to more harmonious, prosperous, and

“equitable” economic and social conditions during intervening eras of “price

equilibria”. These four price-revolutions are rather too neatly set out as the

following: (1) the later- medieval, from c.1180-c.1350; (2) the far better

known 16th-Century Price-Revolution, atypically dated from c.1470 to c.1650,

(3) the inflation of the Industrial Revolution era, from c.1730 to 1815; and

(4) the 20th century price-revolution, conveniently dated from 1896 to 1996

(when he published the book).

Though I am probably more sympathetic

to the historical concept of

“long-waves” than the majority of economists, I do agree with many opponents of

this concept that such long-waves are exceptionally difficult to define and

explain in any mathematically convincing models, which are certainly not

supplied here. For reasons to be explored in the course of this review, I

cannot accept his depictions, analysis

, and explanations for any of them. This will not surprise Prof. Fischer, who

is evidently not an admirer of the economics profession. He is particularly

hostile to those of us deemed to be “monetarists,” evidently used as a

pejorative term. After rejecting not only the “monetarist” but also the

“Malthusian,

neo-Classical, agrarian, environmental, and historicist” models, for their

perceived deficiencies in explaining inflations, and after condemning

economists and historians alike for imposing rigid models in attempting to

unravel the mysteries of European and North American economic history,

Fischer himself imposes an exceptionally rigid and untenable model for all four

of his so-called price-revolutions, containing in fact selected Malthusian and

monetarist elements from these supposedly rejected models.

In essence, the Fischer model contends that all of his four long-wave

inflations manifested the following six-part consecutive chain of causal and

consequential factors, inducing new causes, etc., into the next part of the

chain. First, each inflationary long-wave began with a prosperity created from

the preceding era of price-equilibrium, one promoting a population growth that

inevitably led to an expansion in aggregate demand that in turn outstripped

aggregate supply, thus — according to his model

— causing virtually ALL prices to rise. Evidently his model presupposes that

all sectors of the economy, in all historical periods under examination, came

to suffer from Malthusian-Ricardian diminishing

returns and rising marginal costs, etc. Second, in each and every such era,

after some indefinite lapse of time, and after the general population had

become convinced that rising prices constituted a persistent and genuine trend,

the “people” demanded and

received from their governments an increase in the money supply to

“accommodate” the price rises. As Fischer specifically comments on p. 83: “in

every price-revolution, one finds evidence of frantic efforts to expand the

money supply, after people have discovered that prices are rising in a secular

way.” Third, and invariably, in his view, that subsequent and continuous growth

in the money supply served only to fuel and thus aggravate the already existing

inflation. He never explains, however, for any of

the four long-waves, why those increases in money stocks were always in excess

of the amount required “to accommodate inflation”. Fourth, with such

money-stock increases, the now accelerating inflation ultimately produced a

steadily worsening impoverishment of the masses, aggravated malnutrition,

generally deteriorating biological conditions, and a breakdown of family

structures and the social order, with increasing incidences of crime and social

violence: i.e., with a rise in consumer prices that outstripped generally

sticky wages in each and every era, and with a general transfer of wealth from

the poorer to richer strata of society. Fifth, ultimately all these negative

forces produced economic and social crises that finally brought the

inflationary forces to a halt,

producing a fall in population and thus (by his model) in prices, declines that

subsequently led to a new era of “price-equilibrium,” along with concomitant

re-transfers of wealth and income from the richer to the poorer strata of

society

(where such wealth presumably belonged). Sixth, after some period of economic

prosperity and social harmony, this vicious cycle would recommence, i.e., when

these favorable conditions succeeded in promoting a new round of incessant

population growth, which inevitably sparked those same inflationary forces to

produce yet another era of price-revolution, continuing until it too had run

its course.

While many economic historians, using more structured Malthusian-Ricardian type

models, have also provided a similarly bleak portrayal of

demographically-related upswings and downswings of the European economy,

most have argued that this bleak cycle was broken with the economic forces of

the modern Industrial Revolution era. Fischer evidently does not. Are we the

reforecondemned, according to his view, to suffer these never-ending bleak

cycles– economic history according to the Myth of Sisyphus, as it were?

Perhaps not, if government leaders were to listen to the various nostrums set

forth in the final chapter,

political recommendations on which I do not feel qualified to comment.

Having engaged in considerable research, over the past 35 years, on European

monetary, price, and wage histories from the 13th to 19th centuries, I am,

however, rather more qualified

to comment on Fischer’s four supposed long-waves. Out of respect for the

author’s prodigious labors in producing this magnum opus, one that is bound to

have a major impact on the historical profession, especially in covering such a

vast temporal and spatial range, I feel duty-bound to provide detailed

criticisms of his analyses of these secular price trends, with as much

statistical evidence as I can readily muster. Problematic in each is defining

their time span,

i.e., the onset and termination of inflations. If many medievalists may concur

that his first long- wave did begin in the 1180s, few would now agree that it

ended as late as the Black Death of 1348-50. On the contrary,

the preceding quarter-century (1324-49) was one of very severe deflation,

certainly in both Tuscany (Herlihy 1966) and England. In the latter, the

Phelps Brown and Hopkins “basket of consumables” price index (1451-75 =

100) fell 47%: from 165 in 1323 (having been as high as 216 in 1316, with the

Great Famine) to just 88 in 1346. Conversely, while most early-modern

historians would agree that the 16th-Century Price Revolution generally ended

in the 1650s (certainly in England), few if any would date its commencement so

early as the 1470s. To be sure, in both the Low Countries and England, a

combination of coinage debasements, civil wars, bad harvests, and other

supply-shocks did produce a short-term rise in prices from the later 1470s to

the early 1490s; but thereafter their basket-of-consumables price-indices

resumed their deflationary downward trend for another three decades (Munro

1981, 1983). In both of these regions and in Spain as well (Hamilton 1934), the

sustained rise in the general price level, lasting over a century, did not

commence until c.1520.

For Fischer’s third inflationary long-wave, of the Industrial Revolution era,

his periodization is much less contentious, though one might mark its

commencement in the late 1740s rather than the early 1730s.

The last and most recent wave is, however, by far more the most controversial

in its character. Certainly a long upswing in world prices did begin in 1896,

and lasted until the 1920s; but can we really pretend that this so neatly

defined century of 1896 to 1996 truly encompasses any form of long wave when we

consider the behavior of prices from the 1920s?

Are we to pretend that the horrendous deflation of the ensuing Great Depression

era was just a temporary if unusual aberration that deviated from this

particular century long (saeclum) secular tend? Fischer, in fact,

very

rarely ever discusses deflation, ignoring those of the 14th century and most

of the rest. Instead, he views the three periods intervening between his price-

revolutions as much more harmonious eras of price-equilibria: i.e. 1350-1470;

1650 – 1730; 1820 –

1896; and he suggests that we are now entering a fourth such era. In my own

investigations of price and monetary history from the 12th century, prices rise

and fall,

with varying degrees of amplitude; but they rarely if ever remain stable,

“in equilibrium”.

Certainly “equilibrium” is not a word that I would apply to the first of these

eras, from 1350 to 1470: not with the previously noted, very stark deflation of

c.1325 – 48, followed by an equally drastic inflation that ensued from the

Black Death over

the next three decades, well documented for England, Flanders (Munro 1983,

1984), France, Tuscany (Herlihy 1966),

and Aragon-Navarre (Hamilton 1936). Thus, in England, the mean quinquennial PB

& H index rose 64%: from 88 in 1340-44 to 145 in 1370-74, fal ling sharply

thereafter, by 29%, to 103 in 1405-09; after subsequent oscillations, it fell

even further to a final nadir of 87 in 1475-79 (when,

according to Fischer, the next price-revolution was now under way). For

Flanders, a similarly constructed price index of quinquennial means

(1450-74 = 100: Munro 1984), commencing only in 1350, thereafter rose 170%:

from 59 in 1350-4 to 126 in 1380-84, reflecting an inflation aggravated by

coinage debasements that England had not experienced, indeed none at all since

1351. Thereafter, the Flemish price index plunged 32%, reaching a temporary

nadir of 88 in 1400-04; but after a series of often severe price oscillations,

aggravated by warfare and more coin debasements, it rose to a peak of 138 in

1435-9; subsequent ly it fell another 31%, reaching its 15th century nadir of

95 in 1465-9 (before rising and then falling again, as noted earlier).

Implicit in these observations is the quite pertinent criticism that Fischer

has failed to use, or use properly, these and many other price

indices–especially the well-constructed Vander Wee index (1975), for the

Antwerp region, from 1400 to 1700, so important in his study; and the Rousseaux

and Gayer-Rostow-Schwarz indices for the 19th century (Mitchell &

Deane 1962). On the other hand, he has relied far too much on the dangerously

faulty d’Avenel price index (1894-1926) for medieval and early-modern France.

Space limitations, and presumably the reader’s patience, prevent me from

engaging in similar analyses of price trends

over the ensuing centuries, to indicate further disagreements with Fischer’s

analyses, except to note one more quarter-century of deflation during a

supposed era of price equilibrium: that of the so-called Great Depression era

of 1873 to 1896, at least within England, when the PB&H price index fell from

1437 to 947, a decline of 34% that was unmatched, for quarter-century periods

in English economic history, since the two stark deflations of the second and

fourth quarters of the 14th century. (The Rousseaux index fell from 42.5% from

127 in 1873 to 73 in 1893).

My criticisms of Fischer’s temporal depictions of both inflationary long-waves

and intervening eras of supposed price equilibria are central to my objections

to his anti-monetarist explanations for them, or rather to his

misrepresentation of the monetarist case, a viewpoint he admittedly shares with

a great number of other historians, especially those who have found

Malthusian-Ricardian type models to be more seductively plausible explanations

of

inflation. Certainly, too many of my students, in reading the economic history

literature on Europe before the Industrial Revolution era, share that beguiling

view, turning a deaf ear to the following arguments: namely, that (1) a growth

in population cannot by itself,

without complementary monetary factors, cause a rise in all prices, though

certainly it often did lead to a rise in the relative prices of grain,

timber, and other natural-resource based commodities subject to diminishing

return and supply

inelasticities; and thus (2) that these simplistic demographic models involve

a fatal confusion between a change in the relative prices of individual

commodities and a rise in the overall price-level. Some clever students have

challenged that admonition,

however,

with graphs that seek to demonstrate, with intersecting sets of aggregate

demand and supply curves, that a rise in population is sufficient to explain

inflation. My response is the following. First, all of the historical prices

with which Fischer and my students are dealing

(1180-1750) are in terms of silver-based moneys-of-account, in the traditional

pounds, shillings, and pence, tied to the region’s currently circulating silver

penny, or similar such coin, while prices expressed in terms of the gold-based

Florentine florin behaved quite differently over the long periods of time

covered in this study. Indeed we should expect such a difference in price

behavior with a change in the bimetallic ratio from about 10:1 in 1400 to about

16:1 in 1650,

which obviously reflects the fall in the relative value or purchasing power of

silver — an issue virtually ignored in Fischer’s book. Second, the shift, in

this student graph, from the conjunction of the Aggregate Demand and Supply

schedules,

from P1.Q1

and P2.Q2, requires a compensatory monetary expansion in order to achieve the

transaction values indicated for the two price levels: from 17,220,000 pounds

and 122,960,000 pounds, which increase in the volume of payments had to come

from either increased

money stocks and/or flows. Even if changes in demographic and other real

variables, shared responsibility for inflation by inducing changes in those

monetary variables, we are not permitted to ignore those variables in

explaining historical inflations.

Admittedly, from the 12th to the 18th centuries, to the modern Industrial

Revolution era, correlations between demographic and price movements are often

apparent. But why do so few historians consider the alternative proposition

that much more profound, deeper economic forces might have induced a complex

combination of general economic growth, monetary expansion, and a rise in

population, together (so that such apparent statistical relationships would

have adverse Durbin-Watson statistics to indicate significant serial

correlation)? Furthermore, if population growth is the inevitable root cause of

inflation, and population decline the purported cause of deflation, how do such

models explain why the drastic depopulations of the 14th-century Black Death

were

followed by three decades of severe inflation in most of western Europe?

Conversely, why did late 19th-century England experience the above-noted

deflation while its population grew from 23.41 million in 1873 (PB&H at 1437)

to 30.80 million in 1896 (PB&H

at 947)?

Nor is Fischer correct in asserting that, in each and every one of his four

price-revolutions, an increase in money supplies followed rather than preceded

or accompanied the rises in the price-level. For an individual country or

region, however

, one might argue that a rise in its own price level, as a consequence of a

transmitted rise in world or at least continental prices would have quickly —

and not after the long-time lags projected in Fischer’s analysis — produced an

increase in money supplies to satisfy the economic requirements for that rise

in national/regional prices. Fischer, however, fails to offer any theoretical

analysis of this phenomenon, and makes no reference to any of the well-known

publications on the Monetary Approach to the Balance of Payments [by Frenkel

and Johnson (1976), McCloskey and Zecher (1976), Dick and Floyd (1985, 1992);

Flynn (1978) and D. Fisher (1989), for the Price Revolution era itself]. In

essence,

and with some necessary repetition, this thesis contends:

(1) that a rise in world price levels, initially arising from increases in

world monetary stocks, is transmitted to most countries through the mechanisms

of international commerce (in commodities, services, labor) and finance

(capital flows); and (2) that monetized metallic (coin) stocks and other

elements constituting M1 will be endogenously distributed among all countries

and/or regions in order to accommodate the consequent rise in the domestic

price levels, (3) without involving those international bullion flows that the

famous Hume “price- specie flow” mechanism postulates to be the consequences of

inflation-induced changes in national trade balances.

In any event, the historical evidence clearly demonstrates that, for each of

Fischer’s European-based price-revolutions, an increase in European monetary

stocks and flows always preceded the inflations. For the first,

the price-revolution of the “long-13th century” (c.1180-c.1325), Ian Blanchard

(1996) has recently demonstrated that within England its elf,

specifically in Cumberland-Northumberland, a very major silver mining boom had

commenced much earlier, c.1135-7, peaking in the 1170s, with annual silver

outputs that were “ten times more than had been produced in the whole of

Europe” for any year in

the past seven centuries. By the 1170s,

and thus still before evident signs of general inflation or a marked

demographic upswing, an even greater silver mining boom had begun in the Harz

Mountains region of Saxony, which continued to pour out vast quantities of

silver until the early 14th century. For this same

“Commercial Revolution” era, we must also consider the accompanying financial

revolution, also evident by the 1180s, in Genoa and Lombardy; and though one

may debate the impact that their deposit-

and-transfer banking and foreign-exchange banking had upon aggregate European

money supplies,

these institutional innovations undoubtedly did at least increase the volume of

monetary flows, and near the beginning, not the middle, of this first

documented

long-wave.

For the far better known 16th-Century Price Revolution, Fischer seems to pose a

much greater threat to traditional monetary explanations, especially in so

quixotically dating its commencement in the 1470s, rather than in the 1520s.

Certainly Fischer and many other critics are on solid grounds in challenging

what had been, from the time of Jean Bodin (1566-78) to Earl Hamilton

(1928-35), the traditional monetary explanation for the origins of the Price

Revolution: namely, the influx of Spanish

American treasure. But not until after European inflation was well underway,

not until the mid-1530s, were any significant amounts of gold or silver being

imported

(via Seville); and no truly large imports of silver are recorded before the

early 1560s (a

mean of 83,374 kg in 1561-55: TePaske 1983), when the mercury amalgamation

process was just beginning to effect a revolution in Spanish-American mining.

Those undisputed facts, however, in no way undermine the so-called

“monetarist” case; for Fischer, and far too many other economic historians,

have ignored the multitude of other monetary forces in play since the 1460s.

The first and least important factor was the Portuguese export of gold from

West Africa (Sao Jorge) beginning as a trickle in the 1460s;

rising to 170 kg per annum by 1480, and peaking at 680 kg p.a. in the late

1490s (Wilks 1993). Far more important was the Central European silver mining

boom, which began in the 1460s, at the very nadir of the West European

deflation, which had thus raised the purchasing power of silver and so

increased the profit incentive to seek out new silver sources: as a

technological revolution in both mechanical and chemical engineering.

According to John Nef (1941, 1952), when this German-based mining boom reached

its peak in the mid 1530s, it had augmented Europe’s silver outputs more than

five-fold, with an annual production that ranged from a minimum of 84,200 kg

fine silver to a maximum of 91,200 kg — and thus well in excess of any amounts

pouring into Seville before the mid-1560s. My own statistical compilations,

limited to just the major mines, indicate a rise in quinquennial mean

fine-silver outputs from 12,356 kg in 1470-74 to 55,025 kg in 1534-39 (Munro

1991). In England, 25-year mean mint outputs rose

from 18,932 kg silver in 1400-24 to 33,655 kg in 1475-99 to 59,090 kg in

1500-24; and then to 305,288 kg in 1550-74 (i.e., after Henry VIII’s

“Great Debasement”); in the southern Low Countries, those means go from 54,444

kg in 1450-74 to 280,958 kg in 15 50-74 (Challis 1992; Munro 1983,

1991).

In my view, however, equally important and probably even more important was the

financial revolution that had begun in or by the 1520s with legal sanctions for

and then legislation on full negotiability, and the contemporary establishment

of effective secondary markets (especially the Antwerp Bourse) in fully

negotiable bills and rentes, i.e., heritable government annuities; and the

latter owed their universal and growing popularity, compared with other forms

of public debt, to papal bulls (1425,

1455) that had exonerated them from any taint of usury. To give just one

example of a veritable explosion in this form of public credit (which thus

reduced the relative demand for gold and silver coins), an issue that Fischer

almost completely ignores: the annual volume of transactions in Spanish

heritable juros rose from 5 million ducats (of 375 maravedis) in 1515 to 83

million ducats in the 1590s (Vander Wee 1977). Thus we need not call upon

Spanish-American bullion imp orts to explain the monetary origins of the

European Price Revolution, though their importance in aggravating and

accelerating the extent of inflation from the 1550s need hardly be questioned,

especially, as Frank Spooner (1972) has so aptly demonstrated,

even anticipated arrivals of Spanish treasure fleets would induce German and

Genoese bankers to expand credit issues by some multiples of the perceived

bullion values. Fischer, by the way, comments (p. 82) that: “the largest

proportionate increases in Spanish prices occurred during the first half of

the sixteenth century — not the second half, when American treasure had its

greatest impact.” This is simply untrue: from 1500-49, the Spanish composite

price index rose 78.5%; from 1550-99, it rose by another 92.1% (Hamilton

1934).

Changes in money stocks or other monetary variables do not, however,

provide the complete explanation for the actual extent of inflation in this or

in any other era. Even if every inflationary price trend that I have

investigate d, from the 12th to 20th centuries, has been preceded or

accompanied by some form of monetary expansion, in none was the degree of

inflation directly proportional to the observed rate of monetary expansion,

with the possible exception of the post World War I hyperinflations.

Consider this proposition in terms of the oft-maligned, conceptually limited,

but still heuristically useful monetary equation MV = Py [in which real y = Y/P

= C + I + G+ (X-M)]; or, better, in terms of the Cambridge “real cash

balances” approach: M = kPy [in which k = the proportion of real NNI (Py) that

the public chooses to hold in real cash balances, reflecting the constituent

elements of Keynesian liquidity preference]. Some Keynesian economists would

contend that an increase in M, or in the rate of growth of money stocks, would

be accompanied by some

offsetting rise in y (i.e. real NNI), whether exogenously created or

endogenously induced by related forces of monetary expansion, and also by some

decline in the income velocity of money, with a reduced need to economize on

the use of money. Since mathematically V = 1/k, they would similarly posit

that an expansion in M,

or its rate of growth, would have led, ceteris paribus — without any change in

liquidity preference, to a fall

in (nominal) interest rates, and thus, by the consequent reduction in the

opportunity costs of holding cash balances, to the necessarily corresponding

rise in k (i.e., an increase in the demand for real cash balances; see Keynes

1936, pp. 306-07). Sometimes, but only very rarely, have changes in these two

latter variables y and V (1/k) fully offset an increase in M; and thus such

increases in money stocks have also resulted, in most historical instances, in

some non-proportional degree of inflation: a rising P, as measured by some

suitable price index, such as the Phelps Brown and Hopkins

basket-of-consumables. [Other economists,

it must be noted, would contend that, in any event, the traditional Keynesian

model is really not applicable to such long-term

phenomena as Fischer’s price-revolutions.

Keynes himself, in considering “how changes in the quantity of money affect

prices… in the long run,” said, in the General Theory (1936, p. 306):

“This is a question for historical generalisation rather than for

pure theory.”]

For the 16th-century Price Revolution, therefore, the interesting question now

becomes: not why did it occur so early (i.e., before significant influxes of

Spanish American bullion); but rather why so late — so many decades after the

onset of the Central European silver-copper mining boom?

Since that boom had commenced in the 1460s, precisely when late-medieval

Europe’s population was at its nadir, perhaps 50% below the 1300 peak, and just

after the Hundred Years’ War had ended, and just

after the complex network of overland continental trade routes between Italy

and NW Europe had been successfully restored, one might contend that in such an

economy with so much “slack” in under-utilized resources, especially land, and

with elastic supplies for so many commodities, both the monetary expansion and

economic recovery of the later 15th century , preceding any dramatic

demographic recovery, permitted an increase in y proportional to the growth of

M, without the onset of diminishing returns an d without significant inflation,

before the 1520s By that decade, however, the monetary expansion had become

all the more powerful: with the peak of the Central European silver-mining

boom and with the rapid increase in the use of negotiable, transferable

credit instruments; and, furthermore, with the Ottoman conquest of the Mamluk

Sultanate (1517), which evidently diverted some considerable amounts of

Venetian silver exports from the Levant to the Antwerp market.

The role of the income-velocity of money

is far more problematic. According to Keynesian expectations, velocity should

have fallen with such increases in money stocks. Yet three eminent economic

historians — Harry Miskimin

(1975), Jack Goldstone (1984), and Peter Lindert (1985) — have sought

to explain England’s16th-century Price Revolution by a very contrary thesis:

of increased money flows (or reductions in k) that were induced by demographic

and structural economic changes, involving interalia(according to their

various models) disproportionate changes in urbanization, greater

commercialization of the rural sectors, far more complex commercial and

financial networks, changes in dependency ratios, etc. The specific

circumstances so portrayed, however, apart from the demographic, are largely

peculiar to 16th- century England and thus do not so convincingly explain the

very similar patterns of inflation in the 16th-century Low Countries, which had

undergone most of these structural economic changes far earlier. Certainly

these velocity model s cannot logically be applied to Fischer’s three other

inflationary long-waves. Indeed, in an article implicitly validating Keynesian

views, Nicholas Mayhew (1995) has contended that the income-velocity of money

has always fallen with an expansion in money stocks, from the medieval to

modern eras, with this one anomalous exception of the 16th-century Price

Revolution. Perhaps, for this one era,

we have misspecified V (or k) by misspecifiying M: i.e., by not properly

including increased issues of negotiable credit; or perhaps institutional

changes in credit (as Goldstone and Miskimin both suggest) did have as dramatic

an effect on V as on M. Furthermore, an equally radical change in the coined

money supply (certainly in England), from one that had been principally gold

to one which, precisely from the 1520s, became largely and then almost entirely

silver, may provide the solution to the velocity paradox: in that the

transactions velocity attached to small value silver coins, of 1d., is

obviously far higher

velocity than that for gold coins valued at 80d and 120d. Except for a brief

reference to Mayhew’s article in the lengthy bibliography, Fischer virtually

ignores such velocity issues

(and thus changes in the demand for real cash balances) throughout his

eight-century survey of secular price trends.

Finally, Fischer’s thesis that population growth was responsible for this the

most famous Price Revolution (and all other inflationary long waves) is hardly

credible, especially if he insists on dating its inception the 1470s. For most

economic historians (Vander Wee 1963; Blanchard 1970;

Hatcher 1977, 1986; Campbell 1981; Harvey 1993) contend that, in NW Europe,

late-medieval demographic decline continued into the early 16th-century;

and that England’s population in 1520 was no more than 2.25 million,

compared to estimates ranging from a minimum of 4.0 to a maximum of 6.0 or even

7.0 million around 1300, the upper bounds being favored by most historians. How

— even if the demographic model were to be theoretically acceptable — could

a modest population growth from such a very low level in the 1520s, reaching

perhaps 2.83 million in 1541, and peaking at 5.39 million in 1656, have been

the fundamental cause of persistent, European wide-inflation, already underway

in the 1520s?

According to Fischer, the ensuing, intervening price-equilibrium

(c.1650-c.1730) involved no discernible monetary contraction, and similarly,

his next inflationary long-wave (c.1730-1815) began well before any monetary

expansion became — in his view — manifestly evident. The monetary and price

data, suggest otherwise, however, incomplete though they may be. Thus, the data

complied by Bakewell, Cross, TePaske, and many others on silver mining at

Potosi (Peru) and Zacatecas (Mexico) indicate that their combined outputs fell

from a mean of 178,692 kg in 1636-40 to one of 101,534 kg in 1661-5, rising to

a mean of 156,497 kg in 1681-5

[partially corresponding to guesstimates of European bullion imports, which

Morineau (1985) extracted fr om Dutch gazettes]; but then sharply falling once

more, and even further, to a more meager mean of 95,842 kg in 1696-1700. During

this same era, the Viceroyalty of Peru’s domestically-

retained share of silver-based public revenues rose from 54% to 96%

(T ePaske 1981); the combined silver exports of the Dutch and English East

India Companies to Asia (Chaudhuri 1968; Gaastra 1983) increased from a

decennial mean of 17,293 kg in 1660-69 to 73,687 kg in 1700-09, while English

mint outputs in terms of fine sil ver (Challis 1992) fell from a mean of 19,400

kg in 1660-64 (but 23,781 kg in 1675-79) to one of just 430.4 kg in 1690-94,

i.e., preceding the Great Recoinage of 1696-98. From the early 18th century,

however, European silver exports to Asia were well more

than offset by a dramatic rise in Spanish-American, and especially Mexican

silver production: for the latter (with evidence from new or previously

unrecorded mines: assembled by Bakewell 1975, 1984; Garner 1980,

1987; Coatsworth 1986, and others), aggregate production more than doubled

from a mean of 129,878 kg in 1700-04 to one of 305,861 kg in 1745-49.

Possibly even more important, especially with England’s currency shift from a

silver to a gold standard, was a veritable explosion in aggregate

Latin-American gold production: from a decennial mean of just 863.90 kg in

1691-1700

zooming to 16,917.4 kg in 1741-50 (TePaske 1998). Within Europe itself, as

Blanchard (1989) has demonstrated, Russian silver mining outputs, ultimately

responsible for perhaps 7%

of Europe’s total stocks,

rose from virtually nothing in the late 1720s to peak at 33,000 kg per annum in

the late 1770s, falling to 18,000 kg in the early 1790s then rising to 21,000

kg per year in the later 1790s.

Finally, even though changes in annual mint outputs are not valid indicators

of changes in coined money supplies, let alone of changes in M1,

the fifty-year means of aggregate values of English mint outputs (silver and

gold: Challis 1992) do provide interesting signals of longer-term monetary

changes: a fall from an annual mean of 348,829 pounds in 1596-1645 to one of

275,403 pounds in 1646-95, followed by a rise, with more than a full recovery,

to an annual mean of 369,644 pounds in 1700-49 (thus excluding the Great

Recoinage of 1696-98). Meanwhile, if the earlier Price Revolution had indeed

peaked in 1645-49, with the quinquennial mean PB&H index at 680, falling to a

nadir of 579 in 1690-94, the fluctuations in the first half of the 18th-century

do not demonstrate any clear inflationary trend, with the mean PB&H index

(briefly peaking at 635 in 1725-9) stalled at virtually the same former level,

581, in 1745-49. Thereafter, of course,

for the second half of the 18th century, the trend is very strongly and

incessantly upward, with almost a

doubling in PB&H index, to 1093 in 1795-9.

Whatever one may wish to deduce from all these diverse data sets, we are

certainly not permitted to conclude, as does Fischer, that inflation preceded

monetary expansion, and did so consistently. Such a view becomes all the more

untenable when the radical changes in English and banking and credit

institutions, following the establishment of the Bank of England in 1694-97,

are taken into account: the consequent introduction and rapid expansion in

legal-tender paper bank note issues (with prior informal issues by London’s

Goldsmith banks), and more especially fully negotiable,

transferable, and discountable Exchequer bills, government annuities,

inland bills and promissory notes, whose veritable explosion in circulation

from the 1760s, with the proliferation of English country-banks, hardly

requires any further elaboration, even if these issues are given short shrift

in Fischer’s book. In view of such complex changes in Britain’s financial and

monetary structures,

subsequent data on coinage outputs have even more limited utility in

estimating money stocks. But we may note that aggregate mined outputs of

Mexican silver more than doubled, from a quinquennial mean of 305,861 kg in

1745-49 to 619,495 kg in 1795-99, while those of Peru more than tripled, from

34,318 kg in 1735-39 (no data for the 1740s) to 126,354 kg in 1795-99 (Garner

1980, 1987; Bakewell 1975, 1984; J.

Fisher, 1975).

Having earlier considered the so-called and misconstrued

“price-equilibrium” of 182 0-1896, let us now finally examine the inception of

the fourth and final long-wave commencing in 1896. Fischer again contends that

population growth was the “prime mover,” despite the fact that Britain’s own

intrinsic growth rate had been falling from its

1821 peak [from 1.75 to 1.31 in 1865, the last year given in Wrigley-Davies-

Oppen-Schofield (1997)]. For evidence he cites an assertion in Colin McEvedy

and Richard Jones, Atlas of World Population History (1978) to the effect that

world population, having increased by 35% from 1850 to 1900,

increased a further 53% by 1950. Are we therefore to believe that such growth

was itself responsible for a 45.2% rise in, for this era, the better structured

Rousseaux price-index [base 100 = (1865cp +1885cp)/2]: from 73 in 1896 to 106

[while the PB&H index rose from 947 in 1896 to 1021 in 1913]?

As for the role of monetary factors in the commencement of this fourth long

wave, Fischer observes (p. 184) that “the rate of growth in gold production

throughout the world was roughly the same before and after 1896.” This

undocumented assertion, about an international economy whose commerce and

finance was now based upon the gold standard, is not quite accurate.

According to assiduously calculated estimates in Eichengreen

and McLean

(1994), decennial mean world gold outputs, having fallen from 185,900 kg in

1850-9 to 135,000 kg in 1880-9 (largely accompanying the aforementioned 44%

fall in the Rousseaux composite index from 128 in 1872 to 72 in 1895),

thereafter soared to

a mean of 255,600 kg in 1890-9 — their graph of annualized data shows that

the bulk of this increased output occurred after 1896 — virtually doubling to

an annual mean of 513,900 kg in 1900-14.

World War I, of course, effectively ended the international gold-standard era,

since the Gold- Exchange Standard of 1925-6 was rather different from the older

system; and the post-war era ushered in a radically new monetary world of fiat

paper currencies, whose initial horrendous manifestation came in the hyper

inflations of Weimar Germany, Russia, and most Central European countries, in

the early 1920s. For this post-war economy, Fischer does admit that monetary

factors often had some considerable importance in influencing price trends; but

his analyses, even of the post-war radical, paper-fuelled hyperinflations, are

not likely to satisfy most economists, either for the inter-war or Post World

War II eras, up to the present day.

This review, long as it is, cannot possibly do full justice to an eight-century

study of this scope and magnitude. So far I have neglected to consider his

often fascinating analyses of the social consequences of inflation over these

many centuries, except for brief allusions in the introduction, where I

indicated his deeply hostile views to persistent inflation for its inevitably

insidious consequences: the impoverishment of the masses, growing malnutrition,

the spread of killer-diseases, increased crime and violence in general, and a

breakdown of the social order, etc.

While some of

the evidence for the latter seems plausible, I do have some concluding quarrels

with his use of real wage indices. Much of our available nominal money-wage

evidence comes from institutional sources on daily wages, which, by their very

nature, tend to be fixed over long periods of time [as Adam Smith noted in the

Wealth of Nations (Cannan ed.

1937, p. 74), “sometimes for half a century together”). Therefore, for such

wage series, real wages rose and fell with the consumer price index, as

measured by, for example, our Phelps Brown and Hopkins basket-of-consumables

index. Its chief problem (as opposed to the better constructed Vander Wee

index for Brabant) is that its components, for long periods, constitute fixed

percentages of the total composite index,

irrespective of changes in relative prices for, say, grains; and they thus do

not reflect the consumers’ ability to make cost-saving substitutions.

Secondly, they are necessarily based on daily wage rates, without any

indication of total annual money incomes; thirdly, the great majority of

money-wage earners in pre-modern Europe earned not day rates but piece-work

wages, for which evidence is extremely scant.

But more important, before the 18th century (or even later), a majority of the

European population did not live by money wages; and most wage-earners had

supplementary forms of income, especially agricultural, that helped insulate

them to some degree from sharp rises in food prices. If rising food prices hurt

many wage-earners, they also benefited ma ny peasants,

especially those with customary tenures and fixed rentals who could thereby

capture some of the economic rent accruing on their lands with such price

increases. It may be simplistic to note that there are always gainers and

losers with both inflation and deflation — but even more simplistic to focus

only on the latter in times of inflation, and especially simplistic to focus on

a real wage index based on the PB&H index. And if deflation is so beneficial

for the masses, why, during the deflationary period in later 17th and early

18th century England, do we find, along with a rise in this real-wage index, a

rise in the death rate from 23.68/1000 in 1626 to 32.14/1000 in 1681,

thereafter falling slightly but rising again to an ultimate peak of

37.00/1000 in 1725 (admittedly an era of anomalous disease-related

mortalities), when the PB&H real-wage index stood at 60 —

some 24% higher than the RWI of 36 for 1626? One of the many imponderables yet

to be considered, though one might ponder that sometimes high real wages

reflect labor shortages from dire conditions, rather than general prosperity

and more equitable wealth and income distributions, as Fischer suggests.

Finally, Fischer’s argument that inflationary price-revolutions were always

especially harmful to the lower classes by leading to rising interest rates is

sometimes but not universally true, even if rational creditors should have

raised rates to protect themselves from inflation. Thus, for the Antwerp money

market in the 16th century,

the meticulous evidence compiled by Vander Wee (1964, 1977) shows that

nominal interest rates fell over this entire period [from 20% in 1515 to 9% in

1549 to 5% in 1561; and on the riskier short term loans to the Habsburg

government, from a mean of 19.5

% in 1506-10 to one of 12.3% in 1541-45 to 9.63% in 1561-55]. In the next

price-revolution, during the later 18th century, nominal interest rates did

rise during periods of costly warfare, i.e., with an increasing risk premium;

but real interest rates actually fell because of the increasing tempo of

inflation (Turner 1984), more so than did real wages for most industrial

workers.

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1522 Muster Returns and the 1524 and 1 525 Lay Subsidies,” Journal of

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1699,” in Christopher E. Challis, ed., A New History of the Royal Mint

(Cambridge: Cambridge University Press

, 1992), pp. 179-397; C.E. Challis,

“Appendix 1. Mint Output, 1220-1985,” pp. 673-698.

John Coatsworth, “The Mexican Mining Industry in the Eighteenth Century,”

in Nils Jacobsen and Hans- Jurgen Puhle, eds., The Economies of Mexico and Peru

during the La te Colonial Period, 1760 – 1810 (Berlin 1986), pp. 26-45.

Harry Cross, “South American Bullion Production and Export, 1550-1750,” in John

Richards, ed., Precious Metals in the Later Medieval and Early Modern Worlds

(Durham, 1983), Appendix II, p. 422.

T revor Dick and John Floyd, Canada and the Gold Standard: Balance of Payments

Adjustment under Fixed Exchange Rates, 1871 – 1913 (Cambridge and New York:

Cambridge University Press, 1992).

Barry Eichengreen and Ian W. McLean, “The Supply of Gold Under the

pre-1914 Gold Standard,” The Economic History Review, 2nd ser., 47:2 (May

1994),

288-309.

John Fisher, “Silver Production in the Viceroyalty of Peru, 1776-1824,”

Hispanic American Historical Review, 55:1 (1975), 25-43.

Douglas Fisher, “The Price Revolution: A Monetary Interpretation,” Journal of

Economic History, 49 (December 1989), 883 – 902.

John Floyd, World Monetary Equilibrium: International Monetary Theory in an

Historical-Institutional Context (Philadelphia, 1985).

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Approach to the Balance of Payments,” Explorations in Economic History, 15

(1978), 388-406.

Jacob Frenkel and Harry G. Johnson, eds., The Monetary Approach to the Balance

of Payments (Toronto: University of Toronto Press, 1976),

especially Jacob Frenkel and Harry Johnson, “The Monetary Approach to the

Balance of Payments: Essential Concepts and Historical Origins,” pp. 21-45;

Harry Johnson, “The Monetary Approach to Balance-of-Payments Theory,” pp.

147-

67; Donald N. McCloskey and J. Richard Zecher, “How the Gold Standard Worked,

1880-1913,” pp. 357-85.

FS. Gaastra, “The Exports of Precious Metal from Europe to Asia by the Dutch

East India Company, 1602-1795 A.D.,” in John F. Richards, ed.,

Precious Metals in the Medieval and Early Modern Worlds(Durham, N.C.,

1983), pp. 447-76.

Richard Garner, “Long-term Silver Mining Trends in Spanish America: A

Comparative Analysis of Peru and Mexico,” American Historical Review, 67:3

(1987), 405-30.

Richard Garner,

“Silver Production and Entrepreneurial Structure in 18th-Century Mexico,”

Jahrbuch fur Geschichte von Staat, Wirtschaft und Gesellschaft

Lateinamerikas,17 (1980), 157-85.

Jack Goldstone, “Urbanization and Inflation: Lessons from the English Price

Revolution of the Sixteenth and Seventeenth Centuries,” American Journal of

Sociology, 89 (1984), 1122 – 60.

Earl Hamilton, American Treasure and the Price Revolution in Spain,

1501-1650 (Cambridge, Mass., 1934; reissued 1965).

Earl Hamilton, Money, Prices, and Wages in Valencia, Aragon, and Navarre,

1351 – 1500 (Cambridge, Massachusetts: Harvard University Press, 1936).

Barbara Harvey, Living and Dying in England, 1100 – 1540 (Oxford: Oxford

University Press, 1993).

John Hatcher, Plague, Population, and the English Economy, 1348-1530

(Studies in Economic History series, London, 1977).

John Hatcher, “Mortality in the Fifteenth Century: Some New Evidence,”

Economic History Review, 39 (Feb. 1986), 19-38.

David Herlihy, Medieval and Renaissance Pistoia: The

Social History of an Italian Town, 1200-1430 (New Haven and London, 1966).

John Maynard Keynes, The General Theory of Employment, Interest and Money

(London, 1936).

Peter Lindert, “English Population, Wages, and Prices: 1541 – 1913,” The

Journal of Interdisciplinary History, 15 (Spring 1985), 609 – 34.

Nicholas Mayhew, “Population, Money Supply, and the Velocity of Circulation in

England, 1300 – 1700,” Economic History Review, 2nd ser.,

48:2 (May 1995), 238-57.

Harry Miskimin, “Population Growth and

the Price Revolution in England,”

Journal of European Economic History, 4 (1975), 179-85. Reprinted in his Cash,

Credit and Crisis in Europe, 1300 – 1600 (London: Variorum Reprints,

1989), no. xiv.

B.R. Mitchell and Phyllis Deane, eds. Abstract of British Historical

Statistics (Cambridge, 1962)

John Munro, “Mint Outputs, Money, and Prices in late-Medieval England and the

Low Countries,” in Eddy Van Cauwenberghe and Franz Irsigler, ed.,

Munzpragung, Geldumlauf und Wechselkurse / Minting, Monetary Circulation and

Exchange Rates, (Trierer Historische Forschungen, Vol. VIII, Trier,

1984), pp. 31-122.

John Munro, “Bullion Flows and Monetary Contraction in Late-Medieval England

and the Low Countries,” in John F. Richards, ed., Precious Metals in the

Medieval and Early Modern Worlds (Durham, N.C., 1983), pp. 97-158.

John Munro, “The Central European Mining Boom, Mint Outputs, and Prices in the

Low Countries and England, 1450 – 1550,” in Eddy H.G. Van Cauwenberghe,

ed., Money, Coins, and Commerce: Essays in

the Monetary History of Asia and Europe (From Antiquity to Modern Times)

(Leuven: Leuven University Press,

1991), pp. 119-83.

John Nef, “Silver Production in Central Europe, 1450-1618,” Journal of

Political Economy, 49 (1941), 575-91.

John Nef, “Mining

and Metallurgy,” in M.M. Postan, ed., Cambridge Economic History, Vol. II:

Trade and Industry in the Middle Ages (Cambridge, 1952),

pp. 456-93. Reprinted without changes, in the 2nd revised edn. of The Cambridge

Economic History of Europe, Vol. II, edited by M.M. Postan and Edward Miller

(Cambridge, 1987), pp. 691-761.

E.H. Phelps Brown and Sheila V. Hopkins, “Seven Centuries of en Centuries of

the Prices of Consumables Compared with B Building Wages,” Economica, 22

(August 1955), and “Sevuilders” Wage-

Rates,” Economica, 23 (Nov. 1956),

reprinted E.H. Phelps Brown and Sheila V. Hopkins, A Perspective of Wages and

Prices (London, 1981), containing additional statistical appendices not

provided in the original publication.

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1493-1725 (Cambridge, Mass., 1972)

John TePaske, “New World Silver, Castile, and the Philippines, 1590-1800 A.D.,”

in John F. Richards, ed., Precious Metals in the Medieval and Early Modern

Worlds (Durham, N.C.

, 1983), pp. 424-446.

John TePaske, “New World Gold Production in Hemispheric and Global Perspective,

1492 – 1810,” in Clara Nunez, ed., Monetary History in Global Perspective, 1500

– 1808, Papers presented to Session B-6 of the Twelfth International Eco nomic

History Congress (Seville, 1998), pp. 21-32.

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Series (London, 1984).

Herman Vander Wee, Growth of the Antwerp Market and the European Economy,

14th to 16th Centuries,

3 Vols. (The Hague, 1963). Vol. I: Statistics; Vol.

II: Interpretation, 374-427; and Vol. III: Graphs.

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Charles Wilson, eds., The Cambridge Economic History of Europe, Vol. V:

T he Economic Organization of Early Modern Europe(Cambridge, 1977), chapter V,

pp. 290-393.

Herman Vander Wee, “Prijzen en lonen als ontwikkelingsvariabelen: Een

vergelijkend onderzoek tussen Engeland en de Zuidelijke Nederlanden,

1400-1700,” in Album aan geboden aan Charles Verlinden ter gelegenheid van zijn

dertig jaar professoraat (Gent, 1975), pp. 413-47; reissued in English

translation (without the tables) as “Prices and Wages as Development Variables:

A Comparison Between England and the Southern Net herlands,

1400-1700,” Acta Historiae Neerlandicae, 10 (1978), 58-78.

Ivor Wilks, “Wangara, Akan, and the Portuguese in the Fifteenth and Sixteenth

Centuries,” in Ivor Wilks, ed., Forests of Gold: Essays on the Akan and the

Kingdom of Asante (Athens, Ohio

, 1993), pp. 1-39.

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History from Family Reconstitution, 1580- 1837 (Cambridge and New York:

Cambridge University Press, 1997).

Subject(s):Macroeconomics and Fluctuations
Geographic Area(s):General, International, or Comparative
Time Period(s):General or Comparative

State-Making and Labor Movements: France and the Unite dStates, 1876-1914

Author(s):Friedman, Gerald
Reviewer(s):Dubofsky, Melvyn

Published by EH.NET (January 2000)

Gerald Friedman, State-Making and Labor Movements: France and the United

States, 1876-1914. Ithaca, NY: Cornell University Press, 1998. xiv + 317

pp. $55 (cloth), ISBN: 0-8014-2325-2.

Reviewed for EH.NET by Melvyn Dubofsky, Departments of History and Sociology,

Binghamton University, SUNY.<

dubof@mailbox.cc.binghamton.edu>

Gerald Friedman, an associate professor of economics at the University of

Massachusetts-Amherst, has written a book that resonates with the spirit of the

last decade of the twentieth century. Although his subject is the growth,

character, and composition of the French and U.S. labor movements in the era of

the Second International, the apogee of Marxism, Friedman views the past

through the lens of the present, a time when labor retreats,

Marxism has been declared dead, and “there is no alternative (TINA)” in sight

to a voracious global capitalism. Based on his comparison of the U.S. and

French labor movements between the 1870s and World War I, Friedman concludes

first, that workers cannot advance their interests without non-working-class

allies and a sympathetic state, and, second, that “orthodox” Marxists, then

and later, were wrong in their economic determinism (historical materialism)

and revolutionary teleology.

Friedman uses the comparative history of U.S. and French labor movements to

make his case. Not only that; he also attempts to reverse the conventional

portrait of the two national labor movements. He suggests that an increasingly

radical and militant French labor movement led by revolutionary syndicalists

grew more rapidly than its U.S. counterpart;

better served the material interests of its members; and succeeded in

organizing the “towering heights” of the French economy, its mass-production

enterprises. By way of contrast, after 1904, a

“conservative” “pure and simple” U.S. labor movement failed to advance; did

little or nothing for the great mass of workers; and failed absolutely to

penetrate the dominant “Fordist” sector of the economy. How does Friedman

explain the relative success of French labor and failure of U.S. labor?

Simply put, he argues that trade unions and the labor movements in both

countries were too weak alone to counteract the greater power of capitalists.

In France, however, Republicans could not defend the Third Republic against

Monarchists and reactionaries (with whom businesspeople allied) without the

support of labor. Hence the French state protected unions against attacks by

capital and encouraged public mediation in place of private or public

repression. In the U.S., however, a liberal state faced no challenge from

anti-Republican reactionaries, hence had no need to build alliances with labor,

and thus enabled employers to crush unions and,

on occasion, used public power to the same end. Put another way, as Friedman

does, the dynamics of French politics and state-making enabled labor to drift

left and remain rhetorically revolutionary while the political process in the

U.S. left labor no choice but to practice

“prudential unionism” and the principle of sauve qui peut.

Does Friedman establish his case? Here I remain less convinced. As an

economist trained in the use of statistics and quantification, Friedman deploys

a variety of data bases, tables, graphs, standard deviations, and regression

analyses to prove his points. A review of this length is not the place to

engage in a debate over the validity of such quantifiable evidence. Suffice it

to say that the meaning of Friedman’s numbers can be interpreted in more than

one way. I prefer to focus on more substantial shortcomings. Are

France and the U.S. actually a good comparison, and is it true, as Friedman

claims (p. 12), that the economic and political differences between the two

nations “were relatively small.” Yes, the U.S.

and France were both capitalist economies and republican polities. Beyond

that, however, it seems to me that enormous differences loomed. One nation was

a centralized, unitary state administered by a trained bureaucracy and governed

by codified legal principles under Roman law. The other was a decentralized,

federal state lacking a trained cadre of administrators and governed by a

common law regime that gave judges enormous autonomy and authority. One nation

had a relatively, large and stable agricultural sector characterized by

small-scale peasant farming and a manufacturing sector dominated in the main

by relatively small enterprises dependent on skilled craftsmen adept at

small-batch production. The other had an agricultural sector that declined

quite rapidly relative to the non-agricultural sector and in

which large holdings increasingly characterized the dynamic staple-producing,

export-driven side of farming;

it also had an industrial sector increasingly characterized by gargantuan

enterprises employing armies of machine operators to mass produce capital and

consumer goods. Should one expect comparable trajectories for labor movements

in Fordist and pre-Fordist economic regimes?

And what of Friedman’s portrait of the histories of the French and U.S.

labor movements? Was the French movement relatively successful as compared to

the one in the U.S.? Did French unions really succeed before World War I in

unionizing among employees in large-scale, mass-production enterprises?

Were U.S. unions as loath to organize the less skilled and as disdainful of

workers in the mass-production sector as Friedman claims? Friedman’s own

statistical and written data fail to answer those questions. If typical French

locals were as small as Friedman’s data indicate, indeed on average far smaller

than U.S. union locals, how could they be characterized as examples of

successful industrial unionism? For an economist trained in quantification,

Friedman provides precious little data in the way of comparative wage rates,

annual earnings, hours of work, working conditions,

and consumption standards, to judge the relative impact of French and U.S.

unions on the lives of their members. Did U.S. unions fail to organize less

skilled mass-production workers because their leaders were narrow-minded,

selfish, chauvinistic, and sexist individuals or because their adversaries

were too powerful, as Friedman’s own evidence suggests?

Does Friedman’s explication of comparative business history and politics in the

two nations work any better? His businesspeople on both sides of the Atlantic

proved equally anti-union but were French entrepreneurs more reactionary, even

Monarchist, hierarchical paternalists than their U.S.

republican, individualistic brothers in capitalism? Did French employers seek

to keep their employees out of unions by playing the “good father” to

obedient, deferential workers, while U.S. employers designed welfare capitalism

to encourage competitive individualism among their more skilled employees? I

suggest that Friedman read carefully the testimony of leading

“welfare capitalists” before the U.S. Commission on Industrial Relations

(1913-15) to see how they perceived their loyal workers as children who

preferred not to think or to act on their own. Or that he visit Binghamton,

New York, the home of one of the most notable practitioners of welfare

capitalism, the Endicott-Johnson Shoe Company (mistakenly called

Endicott-Peabody in the text, p. 197, and index) and view the statue of George

F. Johnson erected in George F. Johnson Recreation Park which features the

patron patronizing two adorable children, or the two arches erected by local

shoe workers to honor their patron. Finally, what of politics? Was the French

state and its republican majority more dependent on working-class votes and

more solicitous of working-class interests than its U.S. counterparts? Again I

find Friedman’s evidence problematic. One of French labor’s friends in power,

Georges Clemenceau, as described by Friedman, in 1906 sent troops to the Nord

and the Pas de Calais to break a coal miner’s strike and

repress riotous behavior by the strikers. Yet in Friedman’s words, Clemenceau

“restrained labor militancy…to preserve republican order, to protect the

Republic. But he never acted merely to bolster capitalist authority, never

acceded to the demands of

employers and the right that he crush organized labor or reject the right of

workers to form unions and to strike. Instead he continued to support labor

organization and to promote collective bargaining as the basis for social peace

and a new republican order (p. 202).” How did this differ from Theodore

Roosevelt’s logic four years earlier during the strike of anthracite coal

miners in northeastern Pennsylvania, when he threatened to send troops not to

repress labor but to seize the mines? Or from the lab or policies of Woodrow

Wilson on the eve of World War I or Herbert Hoover in the 1920s? Workers voted

in the U.S. as well as in France; their leaders also sought to practice

coalition politics; and some, if not all,

office-holders sought labor’s votes.

Friedman also might have done well to temper his criticism of Karl Marx and

“orthodox Marxism.” After all, Marx’s voluminous writings are like scripture,

subject to multiple interpretations and open to the principle that “seek and ye

shall find.” Moreover,

in his haste to make a case for historical contingency and human agency,

Friedman might have done well to recall Marx’s sage words from the

Eighteenth Brumaire, that man indeed makes his own history, but only

“under circumstances directly encountered, given and transmitted from the past.

The tradition of all the dead generations weighs like a nightmare on the brain

of the living.” In his neglect of that astute advice, Friedman misconstrues

Marx’s faith in human agency as well as his “third thesis on Feuerbach.” In

that thesis Marx did not write declaratively, as Friedman cites him (p. 297)

“that it is men who change circumstances and that it is essential to educate

the educator himself.” Rather, Marx asked in response to those who believed

that education could alter society, “Who educates the educator?”

Lest I appear too critical of Friedman’s effort to make us think more

critically about the past and also to remind us about paths not taken as a

result of human volition, let me close by suggesting that this is a book well

worth reading and pondering. Whether its author is right or wrong in many of

his claims, he does make readers consider carefully significant historical and

contemporary issues. And he is certainly right that labor cannot advance its

material and moral interests without non-working-class allies in state and

society, a truth perhaps more to the point today than ever in the past.

Melvyn Dubofsky is Distinguished Professor of History and Sociology at

Binghamton University, SUNY. This spring the University of Illinois Press will

publish a collection of his essays titled Hard Work: The Making of Labor

History. It will also publish a new abridged paperback version of his

history, We Shall Be All: A History of the Industrial Workers of

the World.

Subject(s):Labor and Employment History
Geographic Area(s):General, International, or Comparative
Time Period(s):20th Century: Pre WWII

The Indonesian Economy in the Nineteenth and Twentieth Centuries: A History of Missed Opportunities

Author(s):Booth, Anne
Reviewer(s):Touwen, Jeroen

EH-NET BOOK REVIEW

Published by EH.NET (October 1998)

Anne Booth, The Indonesian Economy in the Nineteenth and Twentieth

Centuries: A History of Missed Opportunities. Basingstoke: Macmillan

and New York: St. Martin’s Press, 1998. xvi + 377 pp. Includes

bibliographical references and index. $19.95 (paperback), ISBN

0-333-55310-1 (Macmillan). $79.95 (hardcover), ISBN 0-333-55309-8

(Macmillan) and 0-312-17749-6 (St. Martin’s Press)

Reviewed for EH-NET by Jeroen Touwen, Historical Institute, Leiden

University, The Netherlands.

BAD LUCK IN A VERY RESOURCEFUL ECONOMY

Which Lessons Can Indonesia Learn from its Past?

This is a volume in a new and ambitious series named A Modern Economic

History of Southeast Asia, edited by Anthony Reid, Anne Booth, Malcom

Falkus and Graeme Snooks, initiated by the Australian National University

in Canberra, and published by Macmillan. Of the eighteen volumes

planned (dealing either with themes or with countries), three have be

en published so far, of which this is one.

Professor Anne Booth of the School of Oriental and Asian Studies (SOAS) in

London has a long experience in the scholarship of the Indonesian economy.

She is known for her monograph Agricultural Development in Indonesia

(Sydney: Allen and Unwin, 1988) and for two influential edited volumes: A.

Booth, W.J. O’Malley and A. Weidemann (eds), Indonesian Economic History

in the Dutch Colonial Era, (New Haven: Yale Center for International Area

Studies, 1990), which is generally regarded as the first survey of modern

economic history of Indonesia), and A. Booth (ed.) The Oil Boom and After;

Indonesian Economic Policy and Performance in the Suharto Era

(Singapore: Oxford University Press, 1992). In addition, she ha

s published a long list of contributions in journals and edited volumes. In her

work,

she has consistently applied systematic quantitative macroeconomic

analysis in combination with a more qualitative evaluation of government

policy and growth theory. But what is also quite significant in her work

(including the present book under review) is her attention for a

combination of the colonial and the independent eras of Indonesian

history. Booth is one of the few historians who easily jumps back and

forth between these two periods, drawing parallels and making comparisons.

Thus, she is able to conceive a long-term view on economic development,

an approach which has often been ignored by economists and historians.

At first sight, the reader of The Indonesian Economy in the Nineteenth and

Twentieth Centuries is confronted with a provocative subtitle: A

History

of Missed Opportunities . To this subtitle a streak of irony is added by

the picture on the cover of the book: a photograph of the Indonesian

government aeroplane factory in Bandung. The Indonesian airplane industry

IPTN (Industri Pesawat Terbang Nasional), in which present-day president

Habibie played a leading role, has often been viewed as a symbol of

irresponsibly large expenditure on prestigious high-tech projects,

significant for the 1980s and 1990s Suharto-era. Does Booth criticize such

projects and imply that the Indonesian economy would have been better off

with investments in different sectors, or a different (more balanced)

economic policy? And which other opportunities have been missed by

Indonesia? Indonesia is one of the poorest countries of Southeast Asia and

has been lagging behind several of its neighbors for many decades. Only

during the recent period of export-oriented growth (ca. 1980-1997) did it

began receiving international praise for its economic performance – praise

that has melted away since the monetary crisis (and subsequent political

unrest) brought the Indonesian economy to a virtual stand-still and scared

off most foreign investors.

In the following, I will first review the contents of the book and outline

some of its characteristics. In conclusion, I will return to the question

of which opportunities were missed and how this affected Indonesian economic

development.

An extensive introduction (Chapter 1) describes the formation of an

‘Indonesian’ economy, highlights the current debates in the historiography,

and states the aims of the book, which consists of six chapters (excluding

the introduction and conclusion) dealing with thematic aspects of the

Indonesian economy.

Chapter 2 is called ‘Output Growth and Structural Change between

1820-1990′, and places the important political events in a chronological

survey of economic performance. This chapter has an essential function

in providing a chronological framework and evaluating the different

indicators and measurements of long-term economic development. Within

each sub-period, the trends in output growth are linked to changes in

domestic economic policies (reflecting changes in political priorities) and

to world market trends (p. 16). Particularly the phases of growth (p. 15,

85-87) should be mentioned here. In combining political events and

economic situation, Booth identifies the following 10 phases:

  • 1) 1830-1870 rapid export growth, slowing down after 1840
  • 2) 1870-1900 policy reforms but sluggish growth
  • 3) 1900-1930 ethical policy and export expansion
  • 4) 1930-1942 world depression leading to contraction of export volume
  • 5) 1942-1950 Japanese occupation and independence struggle (harming

    economic performance)

  • 6) 1950-1958 rehabilitation of the economy, output growth
  • 7) 1958-1966 declining per capita GDP, structural retrogression
  • 8) 1966-1973 economic recovery
  • 9) 1973-1981 the oil boom period
  • 10) 1981-1990 non-oil exports production leading to output growth

economic performance)

Chapter 3 is called ‘Living Standards and Distribution of Income’ and sets

out to investigate why the relative rapid growth of GDP, almost certainly

faster than population for much of the last two centuries, did not result

in broadly based improvement in living standards. Booth argues that,

in fact, we should examine the growth of the part of GDP that is devoted

to household consumption, after subtracting government expenditures

and expenditures on capital formation, of which the returns are not

shared by all classes of society. Of course, also foreign remittances

should be disregarded in this context. The chapter argues that ‘the

growing expenditure on both government consumption and capital

formation, together with the high level of remittances abroad, meant

that, for much of the colonial era, private consumption expenditures

grew less rapidly on average than GDP’. Booth continues: ‘But, in

addition, there is evidence that such growth as occurred in average

consumption expenditures did not benefit all classes of society

equally. There were gainers and losers, and the gainers were often

concentrated in particular ethnic groups and regional locations’ (p. 89).

This development is typical for both the colonial and the independent

period, and also forms an essential element of today’s problems in

Indonesia. To quote Booth again: ‘As in other colonial societies, economic

stratification along ethnic lines was pronounced in Indonesia in the early

twentieth century, and in spite of the egalitarian rhetoric of the

independence struggle, this stratification persisted in the post-1950

period. The growth which has occurred since the 1950s has in turn produced

new patterns of differentiation by ethnic group, social class and region’

(p. 89).

In Chapter 4, ‘Government and the Economy in Indonesia in the Nineteenth

and Twentieth Centuries’, the economic role of the government in Indonesia

is studied. Conforming to the central argument of the book (which can be

rephrased as: to develop a long-term view on economic development and

economic policy in Indonesia), it is argued that for a deeper understanding

of Indonesian economic performance, we must also develop a better

understanding of the domestic factors which promoted or inhibited economic

growth. The actions of the successive governments, in both the colonial

and the post-colonial periods, are crucial in such an understanding (p. 135).

Strangely, a different set of phases is applied in this chapter (p. 137),

distinguishing six phases in the role of government which almost, but not

completely, cover (combinations of) the ten phases of growth distinguished

in Chapter 2 (p. 85-87). Although the six phases make sense and clearly

order the main policy tendencies, some more explicit comment could have

been made on their coinciding or not coinciding with phases of economic

growth (linking the effects of government intervention to the world

economic situation). I must add that in the further elaboration on the

individual phases, the context of economic performance is of course

often included, since government policy is usually designed in reaction to

economic conditions.

It is emphasized that ‘colonial Indonesia, at least in the twentieth

century, was far more than just a nightwatchman state, concerned purely

with law and order and the collection of taxes’ (p. 155). There was a

lot of reform and general enthusiasm for modernization, as

characterized by the Ethical Policy but also by the large number of

projects that were constructed in the physical infrastructure. This is

reflected in the large share of government in GDP. It is remarkable that

in the early independent period, from 1950 to 1965, real growth in public

expenditure was much lower than in the first three decades of the twentieth

century. Increase of the share of public expenditure relative to GDP

occurred not earlier than the latter part of the 1970s (p. 201).

Chapter 5 is entitled ‘The Impact of International Trade’, and deals with

the (important) role of trade in the Indonesian economy, the terms of

trade, the changes in the trade regime (“Rise and decline of free trade

liberalism in the colonial era”), the regulated trade regime since 1950,

and the post-colonial experience in trade. On the whole, Booth’s view

on the “colonial drain” seems to be pessimistic. This is obvious from

her evaluation of the oil boom period (1973-1981), where Booth writes:

‘Certainly, there is plenty of evidence that government investment over the

oil boom years was far from optimal. But at least the rents were retained

in the domestic economy. Had budgetary policy been used for investment

in human and physical capital at earlier periods in Indonesia’s economic

history, per capita output and living standards could have gr

own faster than in fact was the case’ (p. 243).

Further elaborating on the record of investment in the colonial economy,

Chapter 6 treats ‘Investment and Technological Change’, while Chapter 7

focuses on ‘Markets and Entrepreneurs’. The latter chapter

deals with the indigenous sector of the colonial economy, the development of

the labor

market, and the economic role of the Chinese, but also evaluates the role

of socialism and government planning in the period 1950-1965, and the

role of the state and the market during the New Order. This chapter

particularly should attract the attention of economists who will plan the

economic course of Indonesia after 2000. These themes clearly connect with

the problems of present-day Indonesia, concerning the powerful

conglomerates and the ethnic division of affluence. Booth explicitly states

that the rise of powerful conglomerates who were able to exploit political

connections preceded the deregulation and liberalization if the economy

over the 1980s. The rise of these conglomerates was a symptom of the

limitations of the deregulation process and not, as is sometimes argued,

a consequence of this process (p. 322).

A text book for advanced learners and a challenging monograph

As a textbook, this study has an interpretative character. In each chapter,

individual data and events are treated in the context of the theme of the

chapter. For example, if I want to know something about the Sugar Law of

1870, the index refers to pages 30 and 253. On page 30, the S

ugar Law is mentioned in the context of structural change in the economy.

Together with

the so-called Agrarian Law, the Sugar Law signaled the demise of the

Cultivation System in Java, but some scholars have argued that this

legislation did not produce a dramatic change in Java’s economy (it did

not form a watershed), even though it had an impact on export growth over

the longer term. On page 253 the Sugar Law is mentioned in the context of

investment and technological change, since it allowed for private

investment in the sugar sector, permitting free contracts between sugar

refineries and peasant cultivators, which allowed the government to

withdraw from the sugar cultivation (because the high failure rate of sugar

companies had caused the government substantial losses). The Agrarian

Law, closely connected with the Sugar Law, is also mentioned on page

298 in the context of land shortage in Java. There is no introductory

explanation in a chronological context of what the Sugar Law and the

Agrarian Law actually stated or implied.

This example shows that the book is not so much a beginners’ textbook, but

rather an interpretative study based on an exhaustive survey of the recent

literature and extensive analysis of quantitative data. In an elegant andc

ompact style, Booth manages to inform the reader continuously of the

debates on issues mentioned, on the various views held in the

historiography, or the need for further exploration on some themes. Of

course, as a macro-economist, she relies heavily on the (rich) Dutch

colonial source data for the colonial period (since there are no other

quantitative data for the colonial period). But by studying the long-term

development of a first colonized, then independent country, she avoids

placing too much emphasis on the colonizer’s presence and manages to

analyze the economy as such, integrating the domestic or indigenous

economy and the internationally oriented ‘predatory’ economy, and

developing a fairly ‘autonomous’ (non-eurocentric) view.

One criticism that could be made is that the thematic, non-chronological

structure of the contents of this book may not be very helpful in a survey

that covers two centuries. The various chapters, in their dealing with

structural change, distribution of income, government policy, the role of

international trade, investment, and entrepreneurship, each attempt to

cover the entire period 1800-1990. An introductory scholar will

continuously feel the need to browse back and forth, in order to piece

together a complete picture of each historical sub-period. On the other

hand, one may argue, this organisational structure allows for reading

one chapter at a time and puts an explicit emphasis on the long-term

continuity within each aspect of Indonesian history. This is indeed one of the

aims of the book. For example, Booth states that she wants to

‘highlight the underlying continuities in policy-making and the

implications of these continuities for Indonesian economic

development in the longer term’ (p. 12). She also argues that ‘

there were, and continue to be, more similarities in the economic goals of the

Dutch colonialists and the Indonesian nationalists than has yet been

acknowledged. These similarities are due to the persistence of many

underlying problems’ (p. 12). Thus, a thematic organization of the

contents of the book forces the reader to observe chronological

continuities within each theme. This is indeed one of the strong

arguments of the book.

Applying a long-term perspective, Booth distinguishes clearly between thep

eriods of expansion and stagnation. It is very instructive that these are

placed in the context of government economic policy and the world economic

situation. In an accessible style, she provides a balanced picture of

growth and decline, giving thoughtfully phrased judgements in matters

which have raised a lot of discussion. On the whole she meticulously

reviews and quotes the recent historiography, including many Indonesian

scholars.

Missed chances?

Now, which are the missed opportunities referred to in the title? Such

counterfactual meditation is, of course, a hazardous exercise, but it may

be able to throw light on the long-term lessons that can be drawn from

the past two centuries. As Booth says, it is ‘useful to ask if a different

type of colonialism could have produced better economic results’

(p. 329-330).

First, one can think of the effects of the Cultivation System, which

thwarted the development of market institutions in rural Java (p. 334), and

on the whole was merely oriented towards remitting a large annual sum to

the Dutch budget (p. 327).

Secondly, the late colonial Dutch regime was busy ‘developing’ the colony

in the material sense, but it largely ignored the need for higher education

or developing a skilled Indonesian work force. The colonizers constructed

a lot of infrastructure and social overhead capital. But the economic gains

from these efforts were largely lost after independence, mainly because

the educational system had failed to train a higher or middle class of

officials who could take over the economy after independence. Booth even

states that the ‘failure to accelerate access to education was probably the

greatest of sins of omission of Dutch colonialism’ (p. 328).

To perceive this as a missed chance for the Indonesian economy is feasible

from the point of view of the Indonesian society itself, which was hindered

by this imbalance. But it makes little sense when analyzing colonial

policy: the Dutch simply did not plan to leave very soon, and therefore did not

integrate the formation of an indigenous elite into their official

policies. Of course, the colonizer can always be blamed for colonizing

the country, but should it also be blamed for consistency within its own

system? I think it is more important that there was a system of ethnic

inequality or racial prejudice at the core of this Dutch colonial

consistency. It is this legacy of colonial rule which certainly can be

viewed as a “missed chance,” because it shows us, amongst others,

the roots of the strong economic position of Chinese entrepreneurs,

and the relatively weak indigenous entrepreneurial class. It also, in

part, explains the discontinuity in economic development after

independence. Booth draws attention to these matters and points at

the crucial fact that the Indonesian nationalist leaders were essentially

isolated from the economy or from specific economic ideas of how

to rule the country: ‘the weakness of the indigenous business

class in the late colonial era, together with the very small numbers of

indigenous Indonesians in the upper echelons of the administrative

service, or in the professions, meant that these groups had far less

influence on the leaders of the independence struggle than in, for

example, British India.’ (p. 330).

These reflections show that the historiography has progressed from making

simple-minded or emotional accusations to the colonial regime, and now

attempts to adopt a more objective perspective which allows for lessons to

be drawn. There have been many crossroads at which another direction could

have been taken, leading to different outcomes of economic development.

Needless to say that there were also favourable effects of certain

important events of Indonesia’s past.

Do the parallels drawn between Suharto’s new order and the late colonial

government policies also imply the suggestion that other roads could and

should have been taken by post-independence governments, or in other words

opportunities were missed? In Chapter 4, we find a positive evaluation oft

he progress made by the Suharto government during 1983-1990, making the

non-oil sectors (agriculture, manufacturing, tourism) more internationally

competitive and the economy less reliant on the exports of oil and gas

(p. 199). At the same time, it is stressed that the role of the government

in the economy was not in any way significantly reduced in the 1980s,

and that very little attempt was made to privatise the state-owned

enterprises, which had a very low rate of return. ‘Regulatory control over

parts of the state-owned enterprise sector remains weak: the so-called

“strategic enterprises,” controlled by the influential Minister of

Research, Dr. Habibie, enjoy access to extra-budgetory sources of

finance which are outside the control of the Ministry of

Finance, or any other government regulatory agency …. This recurrence of the

“Pertamina syndrome” indicates that the problem of controlling the state

enterprise sector is far from resolved in New Order Indonesia’

(pp. 200-201). Recalling the airplane factory on the cover, probably

Booth does view the Suharto/Habibie emphasis on prestigious,

high-tech state enterprises such as an airplane industry as a missed

chance. . .

As already mentioned, Booth is fairly positive about the investments of the

government using the oil boom rents, at the same time warning that the

economic reforms of the 1980s did not recreate the type of open trading

regime that prevailed in the colonial economy from the 1870s to the early

1930s (p. 242). She also states that investment in education and human

capital has, as it was in colonial times, in fact been neglected by the

Indonesian government since 1950.

In the last pages of Chapter 8, ‘Conclusions’, Booth describes the role and

the shape of the type of “market capitalism” that is encountered in

Indonesia (p. 334-336). Without referring to slogan type phrases such as

‘Asian values,’ she explains why free market capitalism is looked at with

ambivalence in Indonesia. This deep ambivalence about liberal market

capitalism persists in contemporary Indonesia at many different levels of

society and this ambivalence has not exactly strengthened Indonesia’s

economic performance. In part, the hesitation to accept free market

capitalism is rooted in nationalist, anti-imperialist views of the

pernicious colonial past. (This might have been different had the Dutch not

been in Indonesia, but without the colonial state formation process there

probably would not have been an Indonesian state as we know it today at

all.) Senior policy-makers, including Suharto himself, saw free market

capitalism as a good opportunity to favor their immediate families and

close business associates. But more broadly, economic growth was viewed as

necessary because the neighbouring countries around Indones

ia realized rapid economic growth. Should Indonesia fall behind, then this

would

make it vulnerable to external threats and internal insurrections.

Recent events in the spring and summer of 1998, after this book had been

published, confirm these suspicions. But Anne Booth goes one step further

and compares the authoritarian growth-oriented state with other

autoritarian developmental states such as Meiji Japan, Franco’s Spain,

and South Korea under Park Chung Hee. The history of these three

countries ‘would suggest that the forces of economic growth, once

unleashed, will inevitably lead to demands for a stronger legal and

constitutional framework which guarantees a broad range of civil liberties,

including a stronger regime of property rights. In Indonesia, too, it is

inevitable that economic growth will create such demands, which the

political system will then have to accomodate.’ … How the government

responds to these challenges will determine not just Indonesia’s

economic future in the new millenium, but its very survival as a

nation’ (p. 336).

These ominous words aptly describe a process that has been underway,

gaining speed after the KRISMON (monetary crisis in its Indonesian

acronym) and Suharto’s stepping down, and which will draw the world’s

attention to Indonesia for the next few years. It seems that a new

‘decolonization’ has just begun, and anyone who wants to put it in

perspective is recommended to read this book.

Jeroen Touwen

L. Jeroen Touwen is post-doc research fellow at the Historical Institute of

Leiden University. He is the author of Extremes in the Archipelago. Trade

and Economic Development in the Outer Islands of Indonesia, 1900-1942

(Leiden: KITLV Press, forthcoming in 1999).

Subject(s):Economic Development, Growth, and Aggregate Productivity
Geographic Area(s):Asia
Time Period(s):General or Comparative

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

Author(s):Bordo, Michael D.
Goldin, Claudia
White, Eugene N.
Reviewer(s):Cain, Louis P.

Published by EH.NET (September 1998)

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

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

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

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

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

Reviewed

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

Chicago and Northwestern University.

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

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

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

of the programs that persisted from the First and,

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

introduction,

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

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

proposition, and some do find this was NOT a

“defining moment.” Whether each reader ultimately accepts or

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

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

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

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

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

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

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

The

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

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

and David Wheelock ask whether the substantial changes in the monetary

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

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

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

shift power from the Fed toward the Treasury,

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

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

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

“the permanent absence

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

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

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

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

long run.

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

in the

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

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

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

until

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

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

“deficits in time of

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

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

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

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

recession” (84).

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

knowledge to design and the institutional capacity to exercise discretionary

fiscal policy in response

to any macroeconomic cycle of shorter duration that the Great Depression

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

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

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

Depression-era conditions.

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

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

Banks became a scapegoat, and the

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

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

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

did not fail again.

White attempts to estimate bank failures under the assumption that deposit

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

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

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

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

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

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

depositors, with the result that a marginal institution remains extremely

popular.

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

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

of new federal programs. As Rockoff notes,

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

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

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

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

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

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

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

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

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

factors producing an ideological change within the profession.

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

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

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

emergence of a consumer society called into question the assumption of

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

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

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

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

try, things that had been used successfully elsewhere.

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

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

little used fiscal instrument — intergovernmental grants. Before the

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

of independence than they would thereafter. Intergovernmental grants created

the necessity for cooperation that has characterized the fiscal federalism ever

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

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

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

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

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

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

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

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

itself, is uncertain.

Gary Libecap examines the regulatory laws effecting agriculture between 1884

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

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

amount and breadth of agricultural regulation in the economy and …

shifted it from providing public goods and transfers to controlling supplies

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

Acreage restrictions and government purchases were the most apparent of what

he terms, “unprecedented, peacetime government intervention into agricultural

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

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

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

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

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

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

depression.

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

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

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

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

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

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

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

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

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

structure as the key difference. Their counterfactual

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

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

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

induced to adopt their own

UI legislation assured passage of the act and guaranteed its

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

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

Oates.

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

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

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

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

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

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

and Freeman considers that framework to be

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

that framework “looks more like a diversion from American

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

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

just after the

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

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

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

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

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

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

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

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

relations.

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

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

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

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

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

end of the Great

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

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

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

between the old-age assistance component,

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

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

transfer program benefiting many.

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

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

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

largely as a result of “the depression as an

international phenomenon”

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

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

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

attributable to trade policy,

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

the

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

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

rate stability, not

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

gold led to a system

“based on capital account restrictions and pegged but adjustable exchange

rates, one whose very success ultimately led to increasingly unmanageable

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

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

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

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

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

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

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

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

the development of international monetary arrangements”

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

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

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

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

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

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

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

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

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

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

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

postponed the transition.

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

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

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

and recent growth of the financial sector as creating

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

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

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

Bordo and Eichengreen are

correct.

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

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

intervention withered as the public adopted the attitude that the government

could ‘get the job done’

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

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

wavering among social scientists well before the depression, the general

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

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

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

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

in the wings.

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

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

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

aimed at ameliorating specific types of suffering, particularly those where

successful experiments had been tried elsewhere. Some undoubtedly would have

been adopted eventually; the depression meant they started earlier than

otherwise would have been the case.

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

‘cooperative’ with extensive intergovernmental grants, giving greater influence

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

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

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

present much earlier.

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

employment targets and less

to a stable price level and exchange rate.”

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

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

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

possible, those who lived through the Great Depression defined for

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

should be taken to avoid repeating the trauma.

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

Northwestern University

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

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

Jr., “The Growing Commercialization of Zoos and

Aquariums,”

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

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

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

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

Public Health: Essays in Medical History.

Subject(s):Economic Planning and Policy
Geographic Area(s):North America
Time Period(s):20th Century: Pre WWII

Guns, Germs and Steel: The Fates of Human Societies

Author(s):Diamond, Jared
Reviewer(s):Mokyr, Joel

EH.NET BOOK REVIEW

Published by EH.NET (May 1998)

Jared Diamond, Guns, Germs and Steel: The Fates of Human Societies. New York: W. W. Norton, 1997. 480 pp. $27.50 (cloth), ISBN: 0-393-31755-2.

Reviewed for EH.NET by Joel Mokyr, Departments of Economics and History, Northwestern University.

Jared Diamond is a physiologist and evolutionary biologist with a passion for archaeology and linguistics. That, by itself, should seem to make him irrelevant to economic history. Yet his widely read and admired recent book, honored last month with a Pulitzer Prize, is one of the more important contributions to long-term economic history and is simply mandatory to anyone who purports to engage Big Questions in the area of long-term global history. He starts off his account with what he calls “Yali’s question.” Yali is a New Guinea notable, who one day poses to the author the question why white people have so much ‘cargo’ (western manufactured goods desired by New Guineans), but New Guinea produces no cargo that Westerners are interested in.

Indeed, the question of questions. Diamond joins such heavyweights in economic history as Eric Jones, Douglass North, Nathan Rosenberg, and recently David Landes in asking why “we” are so rich and “they” are so poor. Is it institutions? Culture? Technology? Religion? Diamond does not reject any of these answers altogether, but instead formulates models in which they become endogenous variables. The real exogenous variable, when all is said and done, is geography. Diamond, to put it bluntly, is a geographical determinist. The shape and location of continents, flora, fauna, microbes, water, climate, topography, all are truly exogenous to history. The rest is endogenous.

Geography has of course a terrible reputation. David Landes, in Wealth and Poverty of Nations (New York, 1998) starts off by recounting how geography departments were closed around the country without a tear, and notes that “no other discipline has been so depreciated and disparaged.” Simple models that submit that “Britain had an Industrial Revolution because it had coal” have long been abandoned. Yet before we dismiss this as another simplistic model, we have to face the fact that Diamond knows his stuff inside out, to the point where any thought of using the adjective “crude” (traditionally preceding “determinist”) evaporates as we turn the pages. Diamond fires off a barrage of facts and observations based on half a dozen disciplines most economic historians this side of Eric Jones are unschooled in: archaeology, botany, linguistics, anthropology among them. The story he tells is one of a trajectory in which the world’s population bifurcated for geographical reasons. Once on different paths, Africa, America, and “Eurasia” diverged more and more through positive feedback effects, in which geography fed into technology, technology fed into power structures and culture, feeding back into technology and growth until we got a world of Western economic hegemony. Such “autocatalytic” models which view economic history as a disequilibrium process once were shunned by the neoclassical cliometric orthodoxy. Today, thanks to the efforts of scholars as diverse as Douglass North and Paul David, we are getting used to them, and the intellectual gains are substantial.

What, then, are the geographical factors that Diamond thinks determined the course of economic history? Above all, it is that human wealth and success depends on interaction with the environment. Economic history in his view is a game against nature, not primarily a social process. Production– especially in agriculture– depends on the geographical hand we have been dealt. Yet Diamond’s emphasis is not on soil fertility and minerals as in the writings of most geographers, but on the ability of homo sapiens to domesticate plants and animals. His view is that all societies and cultures have approximately similar abilities to manipulate nature, but the raw materials with which they had to work were different. Diamond points out in his witty prose that domestic animals are much like Tolstoy’s view of happy marriages: all happy marriages are the same, each unhappy marriage is different in its own way. Domesticable animals are all domesticable in the same way, but recalcitrant animals are all different. To exploit large animals for food, energy, or other services, domesticable wild animals need to exist, a condition that did not obtain in Precolumbian America (where the arrival of homo sapiens 13,000 years ago had led apparently to their extinction). But even if they existed, they needed to satisfy some conditions such as being able to breed in captivity, safe for children and other living beings, and so on. He argues, with great conviction, that the hippos and giraffes of Africa, the jaguars of the Amazon, and the kangaroos of Australia did not meet those conditions. The domesticated llamas, turkeys, and dogs of America could not pull it off either. Eurasia, on the other hand, was lucky enough to have had the wild animals from which our cows, sheep, horses and chickens could be bred. This gave the Europeans huge advantages, not only in terms of the development of technology (e.g. mixed farming and wheeled transport) but also in providing them eventually with immunity against infectious diseases caused by the proximity of these animals. When they then established sudden contact with non-Europeans, the “Plagues and Peoples” effect simply overwhelmed the unprepared victims.

A similar and perhaps less well-known effect occurred with respect to domesticable plants. Eurasia was simply lucky in that its environment provided a much larger stock of plants that lent themselves to domestication, and plants that had better quality in terms of the nutrients supplied, resistance to disease, ease of cultivation and so on. Botanical wealth, constrained by the local flora, determined agriculture, agriculture determined everything else, says Diamond. Eurasia won because the supply of wild plants that provided the gene pool for domesticated crops was larger, richer, and better. If you feel that this is a bit simplistic, read his chapters on “How to Make an Almond” and “Apples and Indians.” It is a serious, informed, and well-thought out argument, and if in the end we are not wholly convinced, thinking of how to refute Diamond will make us wiser and better informed.

Diamond’s argument makes serious use of counterfactuals, to the point of wondering in the last chapter what would have happened if a German truck driver in 1930 would have hit his brakes a second later and killed Hitler in a head-on collision. But in the chapters on agriculture his imagination abandons him. How much of the performance of non-Europeans was really constrained by their environment and how much their own making? In Diamond’s view, the answer is “all and nothing.” Yet one can imagine crops that were manipulated and selected to produce crops that are as unimaginable to us as poodles and sweet corn would have seemed 10,000 years ago. Take one example: among the disadvantages that the indigenous plants of what is now the Eastern U.S. suffered from is a lack of founder crops. Yet he does concede that some of them on the surface could have done nicely, such as a flower named sumpweed, “a nutritionist’s ultimate dream” with 32 percent protein. Sumpweed, Diamond explains, did not make it to the rank of corn, potatoes, and rye because it causes hayfever, does not smell good, and handling it can cause skin irritation (p. 151). Are we really sure that these vices could not have been bred out of them? After all, all domesticated plants had originally undesirable characteristics, but through deliberate and lucky selection mechanisms they eventually got over them. Wheat, rye, and maize, which feed much of the world’s population, all had humble beginnings. Diamond points out that much of our ability to improve plants depended on whether certain characteristics were the result of epistatic effects, that is, caused by more than one gene. People could select for a particular trait as long as it was caused by one of very few genes; if it was controlled by many genes, breeding specimens that displayed the traits would be unlikely to fix it in the population. But apart from a few examples, Diamond does not persuade us that this lay at the heart of the geographically challenged societies.

A somewhat similar problem exists with Diamond’s view of technology. In a chapter cleverly named “Necessity’s Mother” he notes the many links between geographical constraints and technical options. Why would a society produce wheels if it had no horses or oxen to pull them? Wheelbarrows and rickshaws might have been an option, but maybe draft animals came first. Not all questions can be answered that way: some indigenous populations in America might have built seaworthy ships, or managed to develop some technology we cannot imagine today. If they did not, is this because they tried but failed, or because they never tried?

Yet Diamond points out two elements that suggest that links between geography and technological progress may be significant. One is that geography constrains mobility of knowledge. Assume, somewhat implausibly, that the idea of a wheelbarrow only occurred to one person in history, but that it spread to people seeing their neighbors use. If this happened in Central Asia, it may well have reached China, France and Yemen in a few centuries, but before 1500 it would never get to America or Australia. Agricultural technology, he notes, also diffuses easier from East to West than from North to South, as changing longitude has a stronger effect on climate and seasonality than changing latitude– giving Eurasia an advantage over America and Africa. Furthermore, Diamond resurrects the late Julian Simon’s argument that technological success depends on population density and the ability of a society to produce a surplus beyond subsistence, so that there are resources available for thinking and experimenting. Maximum population density was largely a function of the ability of the environment to feed the population. Writing, for instance, required large and dense settlements with complex hierarchical institutions, much different from hunting and gathering tribes.

The notion that much economic history is a game against nature, in which people form certain views about its regularities and use these to manipulate them to improve material conditions is a powerful one. Diamond’s insight is that nature differs from place to place and that certain environments are easier to manipulate than others. The economic historian must add two qualifications to this. One is that environments can be manipulated or abandoned. While Diamond describes in detail pre-historic population movements (which he deduces from linguistic evidence), he does not realize that he tells the story of regions, not necessarily of people who always had the option to move to a more generous and flexible area. Secondly, it could be argued that much technology emerges precisely because the environment is not generous and requires hard work and ingenuity. What is the partial derivative of technological creativity with respect to initial geographical endowment? In the final analysis, this is still unknown.

The book is full of other clever arguments about writing, language, path dependence and so on. It is brimming with wisdom and knowledge, and it is the kind of knowledge economic historian have always loved and admired. If you teach economic history, any kind of economic history, go read this book. Or else you are taking a serious risk that a clever undergraduate who has read it will ask you a question you don’t know the answer to. Nothing worse is imaginable, short of organizing a world conference and canceling at the last moment.

Joel Mokyr Departments of Economics and History Northwestern University

Joel Mokyr is author of The Lever of Riches: Technological Creativity and Economic Progress (Oxford University Press, 1990).

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Subject(s):History of Technology, including Technological Change
Geographic Area(s):General, International, or Comparative
Time Period(s):General or Comparative