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The Life and Legend of E. H. Harriman

Author(s):Klein, Maury
Reviewer(s):Churella, Albert J.

Published by EH.NET (August 2000)

Maury Klein, The Life and Legend of E. H. Harriman . Chapel Hill:

University of North Carolina Press, 2000. xvi + 521 pp. $34.95, ISBN:


Reviewed for EH.NET by Albert Churella, Department of History, The Ohio State


At a rare public speech given at the 1904 St. Louis World’s Fair, railroad

magnate Edward Henry Harriman set the tone for a new century of railroad

management by emphasizing the need to “not only reconstruct and re-equip these

lines, but to bring them under uniform methods and management . . . [through]

the combination of capital.” (p. 320). The twin goals of modernization and

control echoed through the life of E. H. Harriman and explain much about both

his contributions to railroad operations and finance and to his blighted public

image. Maury Klein draws on a wealth of archival sources in order to provide a

masterful account of Harriman’s contributions to the history of American

business. His book is more than a work of railroad or financial history, and

more than the simple facts of one individual’s existence; it is instead a

successful effort to use Harriman’s life as an entr?e into the complex

evolution of American business during the Gilded Age and the Progressive Era.

According to Klein, Harriman, like Jay Gould (the subject of an earlier

biography by the same author) has traditionally been defined by the mythology

that has grown up around him. The Harriman myth focused primarily on the

financier’s seemingly magical ability to transform rusting, decrepit railroads

into modern moneymakers and, less charitably, on his perceived role as an

old-style robber baron antithetical to such newly enlightened Progressives as

Theodore Roosevelt-a president who eschewed his earlier friendship to Harriman

in order to launch a highly publicized attack against him. As Klein points

out, these myths are at best half-truths, and do little more than scratch the

surface of a complex and often misunderstood individual whose success-and

significance-stemmed from his role as a transitional figure in the finance and

railroad industries.

Even before E.H. Harriman’s birth in 1848, his father had established a

reputation as a chronically unsuccessful entrepreneur, and one who was often

dependent on the charity of others. From his childhood, the younger Harriman

developed a deep sense of independence, a commitment to organization, and a

determination to be in absolute control of any situation. At age fourteen he

began working on Wall Street, fortuitously enough just as the Civil War was

unleashing a new speculative fervor in America’s financial institutions. By

age twenty-two (in 1870), Harriman had become a member of the New York Stock

Exchange. No one who sat on the exchange in the late 1800s could avoid

involvement in railroad finance, and Harriman soon became associated with the

nation’s first big business. His initial involvement in railroad ownership (of

the Ogdensburg and Lake Champlain in 1879 and the Sodus Bay & Southern in

1880), were financially unrewarding. Nevertheless, the latter railroad

initiated the mystique of Harriman as a rebuilder of railroads (in reality,

Harriman did nothing to improve the Sodus Bay’s physical plant) and more

importantly taught Harriman that railroads with no intrinsic value could still

be disposed of profitably to the giant system-building railroads that were

fighting to invade each other’s territories.

Harriman’s early railroad involvement led to an association with Stuyvesant

Fish and then to affiliation with the Illinois Central. By the mid-1880s

Harriman had thus begun to specialize in railroad securities without abandoning

entirely other investment opportunities-a transition that reflected the growing

financial specialization of the era. On the Illinois Central, Fish and

Harriman enhanced an already prosperous railroad by improving the physical

plant to enable the movement of larger volumes of traffic at lower per-unit

cost. They also reorganized the managerial structure on the basis of

decentralized operating divisions rather than centralized departments and

insured that, in Harriman’s words, “We should first adopt a plan & then make

our officers fit into it as best we can, & not make a plan to fit our

officers.” (p. 80) Harriman was certainly not the first industry executive to

think along those lines, and many of the policies for which he became famous

were in reality derivative of Fish and others. However, Harriman did realize

that the growth of giant railroad systems, increased competition, overbuilding,

and growing traffic volumes, especially on western railroads, mandated the

widespread application of these strategies.

Growing conflicts with Fish led Harriman away from the Illinois Central and

toward the Union Pacific. Before Harriman arrived on the scene in 1898, the UP

was hardly the antiquated streak of rust portrayed by the Harriman legend.

While it was a reasonably modern and successful railroad, Harriman realized

that its performance could be improved greatly by restructuring its debt (and

removing the federal government as a creditor) and by undertaking massive

physical improvements to accommodate the enormous traffic potential of a region

that was beginning to emerge from the depression of the 1890s. In rebuilding

the UP, Harriman overcame opposition from “organization men” at all levels of a

traditionally conservative industry, who saw few compelling reasons why they

should not continue the traditional practices of nineteenth-century

railroading. Eventually, Harriman created a line-and-staff organizational

structure (similar to that pioneered by the Pennsylvania Railroad) that granted

authority to both departments and operating divisions. Within ten years,

Harriman had orchestrated the expenditure of $160 million in capital

improvements, which produced the anticipated objective of tripling overall

ton-miles while increasing average train length, car capacity, and engine


In addition to his commitment to modernization, Harriman developed an

appreciation for the value of communities of interest-essentially interlocking

boards of directors-in the railroad industry in order to prevent overbuilding,

guarantee equitable access to the traffic of connecting railroads at gateway

cities, and control the effects of “excess” competition. Harriman’s commitment

to communities of interest stemmed from his involvement in the Alton and was

reinforced by a battle with the Great Northern’s James J. Hill for control of

the Chicago, Burlington, and Quincy, yet eventually ran headlong into the

reformist impulses of the Progressive Era. Harriman envisioned these

communities of interest as the precursors of giant rail systems in the West.

To that end, he acquired the Southern Pacific in 1901 and began to

“Harrimanize” it in much the same manner as the Union Pacific. Together with

the Illinois Central, the UP and SP formed the core of the Harriman

system-three technically separate corporate entities that had similar

organizational structures and philosophies and whose standardization and

uniformity produced substantial economies in purchasing, operations, and


The battle for control of the Burlington led to the creation of a much less

harmonious system in the northern Plains states and Pacific Northwest, as

Harriman and Hill uneasily shared in the creation and control of the Northern

Securities Company in 1901. This holding company briefly knitted together the

Great Northern, the Northern Pacific, and the Burlington but soon became a

lightning rod for growing public opposition to “trusts” and an early target for

the nation’s first trustbusting President. If Harriman was disappointed by the

Supreme Court’s 1904 decision ordering the dissolution of Northern Securities,

he was even more distressed by Roosevelt’s attacks on his personal integrity,

particularly since the two men had once been friends. This presidential

condemnation did more than anything else to tar Harriman as a monopolistic

robber baron and enemy of the people. Harriman’s public disagreements with

former ally Stuyvesant Fish and his well-intentioned but misinterpreted efforts

to rescue the financially ailing Equitable Life further tarnished his


At the same time, and perhaps because he was stung by what he felt was

unwarranted public criticism, Harriman pledged his corporate and personal

resources to a variety of public works. While Harriman never established a

charitable trust as did so many other philanthropists, he was instrumental in

the creation of a state park near his New York home, sponsored a scientific

expedition to Alaska (which, far more than his railroad activities, first

brought this essentially private individual into the public arena), assisted

victims of the 1906 San Francisco earthquake, and saved California’s Imperial

Valley from flooding. After Harriman’s death, his widow commissioned George

Kennan (whose distant relative George F. Kennan, like Harriman’s son W. Averell

Harriman, became a leading figure in U.S. foreign policy) to write a biography

telling the “true” story of her husband and in so doing to clear his name.

Harriman’s last years were not pleasant ones. While some of harshest critics

developed a new respect for the financier, the general public had “just begun

to grasp the distinction between corporations and the men who dominated them,”

(p. 395) and was not yet ready to admit that giant concentrations of capital

were are part of the American economy. Nor was the ICC convinced, and that

agency launched a scathing inquiry into Harriman’s various communities of

interest. An exhausted, weakened, and embattled Harriman succumbed to stomach

cancer in 1909.

As Klein points out, Harriman owed much of his success to historical

contingency-simply being in the right place at the right time. He arrived on

Wall Street just as the Civil War changed the nature of speculative finance,

entered the world of railroad finance at a time of rapid construction and

system building, embraced the concept of the community of interest at a time

when “merger mania” was sweeping the nation’s businesses, and, less favorably,

appeared in the guise of a soulless robber baron just as the era of the

industrial statesman gave way to Progressivism. Ultimately, Harriman succeeded

not so much because he was an original thinker, but because he “implement[ed]

the strategy [of high-volume traffic carried at low rates] on a grand scale

from which other managers shrank because they lacked the backbone.” (p. 445)

His ability to implement this vision not only revitalized the Union Pacific and

the Southern Pacific; it also enabled the railroad industry to survive

virtually intact against the emergence of various forms of modal competition.

His concept of communities of interest prefigured the giant railroad systems

that have emerged in the West in recent decades, after the now-defunct ICC

began to worry less about competition within the railroad industry and more

about the long-term survival of the industry itself.

Klein has succeeded admirably in weaving the various strands of Harriman’s

life together with larger secular developments in the railroad and financial

industries, government regulation, and public policy. While he does at times

seem to identify too closely with his subject, and occasionally teeters on the

brink of suggesting that Harriman can do no wrong, Klein is careful to point

out that Harriman’s greatest successes came from the application of ideas that

were not originally his own, that Harriman was controlled by events as often as

he controlled them, and that historical contingency lay behind a good portion

of Harriman’s success. In short, Klein does more than simply paint a portrait

of an individual-he sets Harriman with the broad landscape of a nation whose

economic and political values were in the midst of sweeping change.

Albert Churella is a Visiting Assistant Professor in the Department of History

at The Ohio State University at Lima.

Subject(s):Transport and Distribution, Energy, and Other Services
Geographic Area(s):North America
Time Period(s):20th Century: Pre WWII

The History of Consumer Credit: Doctrines and Practices

Author(s):Gelpi, Rosa-Maria
Julien-Labruyère, François Ju
Reviewer(s):Calder, Lendol G.

Published by EH.NET (August 2000)

Rosa-Maria Gelpi and Fran?ois Julien-Labruy?re, The History of Consumer

Credit: Doctrines and Practices. Translated by Mn Liam Gavin. New York: St.

Martin’s Press, 2000. xx + 190 pp. $59.95 (hardbound), ISBN 0-312-22415-X.

Reviewed for EH.NET by Lendol G. Calder, Department of History, Augustana

College, Rock Island, IL.

Is credit good for us? Dante didn’t think so. In his Inferno, we find usurers

consigned to the seventh circle of hell, doomed to “roam round and round” among

their fellow inmates, the blasphemers, murderers, sodomites, and others who

practiced violence against God and nature. Dante doesn’t say so, but he leaves

us free to speculate that moneylenders continue to practice their trade in

hell, lending money at interest to the damned. If so, it would make Visa’s

claim to be “everywhere you want to be” seem a little too modest! But enough of

this credit bashing, plead the authors of this little volume on the history of

consumer credit. According to Rosa-Maria Gelpi and Fran?ois Julien-Labruy?re,

credit is too often made to be a scapegoat during times of social and economic

crises, so that even today when we look more kindly on credit than Dante,

consumer credit continues to be blamed for everything from business recessions

to personal bankruptcies to society’s moral degeneracy. It’s enormously unfair,

argue Gelpi and Julien-Labruy?re, who invite us to accompany them on a “stroll

through history” that will reveal just how good credit really is for us. As

“the cornerstone” of economic growth (p. 84), as “one of the greatest promoters

of social mobility” (p. 171), and as the “single greatest factor of social

integration” (p. 95), they conclude that consumer credit is one of the most

reliable indicators of advanced civilization, if not an important cause of it.

But if all this is true, why has consumer credit had to battle so hard and so

long against a shameful stigma of wastefulness and wrongdoing to achieve a

moral and economic legitimacy? Gelpi and Julien-Labruy?re present their history

as a search for the origins of the cloud of bad feeling that surround this most

crucial institution of modern consumer societies. The crux of their argument is

that present day attitudes about credit-attitudes rarely stated as propositions

but that operate instead as a “mute yet active unconscious”-are outmoded and

debilitating “hangovers” from an earlier era in the history of western

societies, an era when social practices were inspired by theology and ethics

rather than by the economy of free markets, as they increasingly are today. In

other words, consumer credit struggles against a massive case of “cultural

lag.” The volume’s subtitle-“Doctrines and Practices”-neatly summarizes the

tale told in this book. Through the sixteenth century and beyond, legions of

shortsighted theologians and philosophers tried to strangle credit in the noose

of religious dogma, with the end result that credit was “more or less forbidden

but more or less practiced because more or less necessary” (p. 95). But since

the Reformation and Enlightenment, and primarily through the shining example of

the Americans, religious doctrine has been replaced by economic practice as our

fundamental social gyroscope, so that lending and borrowing are increasingly

viewed more properly as economic concepts, free of unnecessary moral baggage.

Today, in societies where economic “practice” is given primacy over moral and

religious “doctrines,” a bright future is being built on the basis of economic

growth, responsible household budgeting and greater “self-actualization”

through credit-financed consumption.

If all this sounds like a textbook case of the “Whig interpretation of

history,” well, it is, though of a refined and smartly written sort. Both

authors are high-ranking officers for Cetelem, the French personal finance

company that over the last five decades has worked to modernize European

household credit on an American model (Gelpi is also Professor of Economics at

the Free University of Lille). Given their day jobs, the authors’ spirited

defense of consumer credit is hardly surprising. Of the criticism of credit

there is no end, which means that Gelpi and Julien-Labruy?re are following a

well-worn path blazed in the United States in the 1930s by the economist Morris

Neifeld, who worked as a credit analyst for Beneficial. Neifeld, whose

Personal Finance Comes of Age (1939) resembles the work under review

here, labored tirelessly though his writings to elevate the status of his

profession. But in terms of eloquence and wit, The History of Consumer

Credit sets a new standard for defenses of consumer credit.

Still, glorifying the present at the expense of the past has its costs, and

they are manifest here. The biggest problem is that the authors never really

succeed in helping us to understand why so many otherwise smart people-from

Aristotle to Ezra Pound-opposed on principle the lending of money at interest,

or why their ideas resonated so long in the public mind. Consider the treatment

given to John Calvin, himself an innovator when it came to new thinking about

credit: “[Calvin’s] work consisted in giving a new faith to the classes who,

through their social skills, were destined to dominate the future. This

supposes a relatively advanced economic organization, and Calvin built his

moral system on such an organization” (p. 50). A page later, we are told, “For

Calvin, the only good deed was worldly success” (p. 51). Reductiveness on this

scale is not easy; one has to work hard at it. When every person and system of

belief is viewed through the narrow lens of what is good for the development of

credit, when economic progress and “social integration” into the wonders of

consumerism are the only ends that count, it becomes impossible to understand

what all the fuss over usury was really about.

If the history is whiggish, it is also mostly recycled, at least through the

first eight chapters. Gelpi and Julien-Labruy?re begin their story in

Mesopotamia, where the Code of Hammurabi (1792-1750 BC) established the first

known law defining and regulating usury. Moving briskly on, they describe the

business of credit in ancient Greece, the Roman Empire, Gothic Catalonia (where

we see the first documented case of a European pawnbroker, 1000 AD), medieval

Italy (which established the first public pawnshops, known as monts-de-pi?t?s,

in the fifteenth century), northern Europe at the time of the Reformation, and

the United States, whose experience is “central” to the history of consumer

credit because, beginning in the nineteenth century, it “offered to build the

future” on the installment plan. Based on standard secondary sources, this part

of the story involves a familiar cast of villains and heroes. Among those who

come off looking particularly stupid or close-minded is Aristotle, who,

declaring money to be sterile, decried interest as being a revolt against

nature (silly old Aristotle, who “has only value judgments to offer when it

comes to economics” (p. 8). Other villains in this tale include the Hebrews,

the first people to condemn interest-bearing loans; the Church Fathers,

especially Saint Basil, who began more than 1000 years of a total ban on

interest by the Church; Charlemagne, who declared the first secular bans on

usury; Dante, of course; the Inquisition at the time of the Councils of Lyon

(1274) and Vienne (1312); and Catholic Europe after the Reformation, which

doomed southern Europe to centuries of economic decadence, thereby offering “a

lesson in how to fail to modernize an economy, while retaining one’s guilt

feelings!” (p. 66)

Opposed to this deadwood are the heroes of modern credit, men who were smart

enough to see through Aristotle and brave enough to relativize the Scriptural

prohibitions against interest, recognizing that a new type of economy was

coming into being where wealth was created, not just plundered or commandeered.

These include Scholastic theologians such as Thomas Aquinas, the Reformers

Luther and Calvin, and greatest of all, Enlightenment champions of reason and

liberty such as Jeremy Bentham and Anne Robert Jacques Turgot. Lengthy

quotations from the latter two figures are included in the text, as Gelpi and

Julien-Labruy?re recommend that all who are interested in contemporary debates

over consumer credit can do no better than to read Bentham’s Defense of

Usury (1787) and Turgot’s Memoir (1770), which will persuade

clear-thinking persons that the strict regulation of credit markets hurt the

poor most of all while making criminals of everyone else.

Beyond the assertive and lively prose (which is marred in this English edition

by a poor job of copy editing that allows too many misspellings and missing

words), the strength of this book lies in the final two chapters. It is only

recently that consumer credit has begun to receive from historians the

attention it deserves. Part of the reason for this is that credit is a commerce

deeply cloaked in confidentiality (as Gelpi and Julien-Labruy?re point out,

until recently the guiding principle of public relations for lenders was “to

live happily you must live in secret”). What Gelpi and Julien-Labruy?re bring

to the history of consumer credit is valuable insiders’ knowledge about the

credit business in Europe over the last hundred years. Much of this information

is interesting and new. For example, I was surprised to learn just how closely

the European development of consumer credit has mirrored the history of credit

in the United States, though with significant time lags between countries.

Great Britain passed its first laws affecting consumer credit in the late

nineteenth century, while Italy only did so in 1992!

This book seems to have been written primarily to influence the opinions of

European policymakers in Brussels, who the authors would like to see taking a

hands off approach to credit markets so governments can treat the causes of

economic woes (e.g., high taxes, low investment) rather than mere symptoms

(e.g., overindebtedness). This is a defensible wish, but there are risks

involved when looking for a usable past, risks the authors seem unaware of.

When packaged with facile claims such as this-“A healthy morality always

coincides with commercial wisdom” (p. 55)-or with shaky historical claims such

as this-“The history of consumer credit in the United States is almost entirely

free of historic influences” (p. 119)-some readers will find even the credible

claims in this book rather suspect.

Lendol Calder, author of Financing the American Dream: A Cultural History

of Consumer Credit (Princeton University Press, 1999) is assistant

professor of history at Augustana College and a Carnegie Scholar with the

Carnegie Academy for the Scholarship of Teaching and Learning.

Subject(s):Household, Family and Consumer History
Geographic Area(s):General, International, or Comparative
Time Period(s):General or Comparative

Merchants to Multinationals: British Trading Companies in the Nineteenth and Twentieth Centuries

Author(s):Jones, Geoffrey
Reviewer(s):Wilkins, Mira

Published by EH.NET (August 2000)

Geoffrey Jones, Merchants to Multinationals: British Trading Companies in

the Nineteenth and Twentieth Centuries. Oxford: Oxford University Press,

2000. x +404 pp. ISBN 0-19-829450-6.

Reviewed for EH.NET by Mira Wilkins, Department of Economics, Florida

International University, Miami, Florida.

Geoffrey Jones’s book is on British merchant houses in the nineteenth and

especially, the twentieth centuries, trading firms that had foreign direct

investment (FDI) outside the United Kingdom. Jones is an authority on the

history of multinational enterprise; he has written extensively on

manufacturers that became multinationals and on banks that expanded

internationally; his Evolution of International Business (published in

1996) was a general history. In the present volume, he turns his attention to

British traders. And, what a rich subject this turns out to be. This is an

archive-based work that provides information not available elsewhere.

Many studies have been made of British international trade; Jones’s concern is

with the companies that made this trade a reality. He is interested in how

these firms functioned and how they performed (whether these family firms

reflected a “decline” in Britain’s global role). He pays attention to both

substance and form. Thus, he finds that when a number of these companies moved

from partnerships to incorporation this did little to change the pattern of

ownership and control; often incorporation was designed to perpetuate rather

than to end family dominance (p. 97).

After a brief introductory discussion on theories of multinational enterprise,

Jones tells his reader about the complex origins of the nineteenth and

twentieth century British merchant houses. He writes of the foreign merchant

houses in Britain that evolved into merchant bankers (Rothschild and Schroeder

for example) and suggests that the great majority of the leading British

merchant banks were set up by emigrant merchants. By contrast, the trading

companies as distinct from the merchant bankers tended overwhelmingly to have

British roots (p. 24), although the roots could be established by expatriates.

For example, Wilson, Sons & Co. was set up in Bahia, Brazil, in 1837 by two

brothers of British birth; the firm subsequently opened a London head office in

1845 (p. 28). Yet, frequently the distinctions between merchants and merchant

bankers was muddy (p. 42, on 1870). Interlocking partnerships, separate houses

(set up by family members and associates), new locales and shut-downs of older

ones made for a webbed network with continuities and discontinuities.

British merchants were clearly in the vanguard of the creation of the

international economy that had emerged by 1914. Their activities went with

(followed) the expansion of British imperial frontiers; yet, they also went

beyond “empire,” playing a major role in Latin America. The traders were

closely connected with the expansion of British shipping. There were also

associated with the growth of overseas banks.

At home, three centers for the mercantile developments emerged: Liverpool,

London, and Glasgow (the principal trading companies, as of 1870, were

identified with each center, see p. 43). Jones shows how each group of

merchants arose and how the three centers interacted with one another. He is

careful to document the particular British exports and imports that the firms

handled and how rapidly the merchant houses engaged in trade that involved far

more than two countries.

The story that Jones unravels is global. Traders did not confine themselves to

commerce; they became involved in storage facilities (from warehouses to timber

yards), in manufacturing abroad (from jute mills to sugar mills, from silk

filatures to cotton spinning and weaving, from flour mills to breweries), as

well as in producing primary products (sugar, fruits, tea, rubber, nitrates,

coal, oil). Typically, the traders participated in banking activities,

providing credit to customers and suppliers, financing trade, and by necessity

dealing in foreign exchange; they also became active in “investment banking,”

aiding and prompting company flotations. In addition, the traders became agents

for British insurance companies. handling not only trade-related insurance but

far more extensive insurance transactions. The developments took on a jagged

and uneven process. The degree of backward integration varied substantially

from firm to firm and from one host country to another. Many of the firms

engaged in labor intensive operations and had in less developed countries huge

numbers of employees (after Bird & Co.’s merger with F.W. Heilger in 1917, the

new firm employed over 100,000 individuals in India; in 1930 Jardine Matheson

employed about 113,000 in China; in 1945, James Finlay’s total work force

principally in India, Ceylon, and Kenya came to 160,000); “local” employees in

each case were supervised by relatively small expatriate staffs.

Through time, the merchants increased their diversification, in product lines

and including substantial intra-regional trade (particularly in Asia). Here,

there is, of course, the problem of defining a region. While the British

trading companies did not take part in intra-regional Latin American trade,

they did participate in intra-regional Western Hemisphere trade, thus bringing

Latin American commodities to US markets. Over the decades, on most continents,

their role in host economies deepened, with added FDIs. By 1914, Jones suggests

that the traders “functioned in part as venture capitalists, identifying

opportunities and placing potential British investors in touch with them” (pp.

50-51). This was done in the main by their assisting in floating separate “free

standing firms,” that, in turn, made the overseas investments. The merchant

houses often had managing agency arrangements with the free-standing firms;

they might handle the trade of these firms; they were a critical part of the

cluster associated with the free-standing firms. Jones’s work adds to the

existing literature on free-standing firms, confirming the validity of the

concept. The trading firms that Jones studies operated within business groups.

Jones is superb in showing the variety; he not only discusses the traders but

also their long-standing and complex external business relationships.

Jones knows well the stories of individual traders and reveals the differences

between and among trading houses. For 1913-1914, he ranks major firms by

estimated size of capital, by major host regions, and by “outposts,” that is,

areas where the firms had a presence although not a large one (pp. 54-55).

Interestingly, of the ten “multi-regional business groups” in 1914 that he

documents, seven had a US presence, while four had Indian business (the next

highest ranking country). Typically the largest British trading companies

required a US office. However, the really sizable activities of most of these

firms was in the East, where regional trading companies were of immense

importance and also in Latin America, where the firms were crucial in

developing international trade. Only one of the multi-regional groups had

African trade; indeed, the trade with Africa seems to have been differently

constituted (pp. 75-80).

Jones is excellent in tracing the multiple problems British trading companies

faced in the years of the First World War, the 1920s, the 1930s, and of the

Second World War. It was not a happy time for companies that lived through

international commerce. As the world economy was torn asunder, these firms felt

the consequences. Jones writes that the entrepreneurial dynamism of the

pre-1914 era “looked decidedly weaker subsequently….” (p. 114). The sharp

post World War One downturn more than the War itself was the turning point.

Nonetheless, he finds that “it is robustness of the traders and their ability

to sustain ‘reinvention’ strategies which is so striking” (p. 350). By 1945,

the roster of British traders still closely resembled the list in 1914. In the

post-Second World War period, the companies – many of which operated within the

British Empire – now faced new uncertainties with decolonization, as the

“umbrella of British colonial rule” was removed.

The “corporate landscape” for the British trading houses changed dramatically

in the 1950s, 1960s, and 1970s. In 1958, Inchape was floated on the London

Stock Exchange, a holding company with 17 subsidiaries, based mainly in Britain

and India; beginning that year, Inchape acquired full ownership of a large

group of family trading companies with long histories in East and South East

Asia. It was in the post Second World War years that Lonrho assumed importance

as a trading company; it had its origins in 1909 as a London-based mining

enterprise in Rhodesia (now Zimbabwe); it took the name Lonrho in 1963;

meanwhile, beginning in the early 1960s, it acquired substantial trading

interests along with other investments (it remained, however, involved in

mining); in the late 1960s and in 1975, it took over the trading firms John

Holt and part of Balfour Williamson. But, finally, in the late 1990s Lonrho

divested its non-mining interests to return to its origins and concentrate on

mining. Booker McConnell (as the firm–the successor to the 1900 merger of

Booker Brothers & Co., founded in 1834, and John McConnell & Co.–was known

after 1968) diversified from a sugar trader and producer in British Guiana (the

largest property owner there in the 1920s) to a vast international business.

Jones traces the complex story of the many trading company mergers and

acquisitions. In the 1960s and 1970s, several British overseas banks bought

trading companies, but they soon sold off their non-financial assets. In the

changed post-World War II world, in the 1950s, 1960s, and 1970s, host country

groups or governments frequently acquired (often through nationalizations)

British trading companies that had important roles in their particular

economies, or alternatively, took over major parts of their international

business. It became harder for the trading companies to recruit personnel, as

the risks of retention of the very business itself multiplied.

Yet Jardine Matheson and John Swire continued on, notwithstanding Chinese

nationalizations; and Booker McConnell survived the 1976 Guyana expropriations.

In 1979, in terms of turnover, the London Times ranked Inchcape (19),

Lonrho (20) and Booker McConnell (64) among the top British “industrials.” The

huge United Africa Company (UAC) was excluded from the Times list,

because it was a subsidiary of Unilever; also omitted was the sizable Jardine

Matheson, because of Hong Kong registration. Incape in 1979 operated in 44

countries and sold the products of 2,750 manufacturers.

Many of the trading companies served the automobile industry (in the first half

of the twentieth century as agencies, before sales and assembly affiliates were

established by car companies); in the post-Second World War years, as

dealerships (in the trading companies’ traditional markets but also in the

United Kingdom). The British trading companies did this for American, Japanese,

German, and British car companies. Automobile industry historians have

understood this, but a scrutiny of the trading companies provides the other

side of the coin. The trading companies’ experience in post-Second World War

representation beyond dealerships (i.e. as wholesalers and assembly plant

operators in their traditional markets) is explained well in Jones’s volume.

In the 1960s and 1970s a number of British trading firms started to manufacture

in less developed countries in non-traditional sectors; these projects tended

not to be successful, for the trading companies had no advantage. Often these

ventures were short-lived. In search of new opportunity, companies made

investments in developed countries in a range of manufactured products; when

there was unrelated diversification, the results were frequently


As I read this book, it provoked me to ask many questions. In 1998, Jones

published an edited book, entitled the Multinational Traders, which

covered German, Dutch, Swedish, Swiss, as well as Japanese merchant houses.

That volume argued that the British were far from alone in having important

trading companies. In the present book, there are brief references to trading

companies of these other nationalities, but neither Merchants to

Multinationals nor Multinational Traders dealt systematically with

the differences by nationality in the trading in specific commodities. Why, for

example, did the large British grain traders, Sanday and Smyth, lose out to

international grain traders of other nationalities? why in the twentieth

century was Clayton more important than any British raw cotton trading house?

There are hints to the answers to these questions in Merchants to

Multinationals, but one would like to see a sequel on trading companies

involved in particular commodities that for much of the nineteenth and

twentieth centuries represented a sizable portion of world trade. These

companies participated on a large scale in intra-company commerce.

This is a splendid book. It not only delineates the trading companies’

expansion (and contraction), but also puts that story in the context of the

evolving world economy. It shows how in the first round of internationalization

before 1914, trading companies played a major role and how in the 1990s, as a

new round of globalization emerged, the trading company era was in “end game.”

As the century concluded, key surviving companies were no longer “trading

companies.” By the end of the 1980s, for example, Booker McConnell had become a

food distributor. Lonrho with about 190,000 and Inchape with about 50,000

employees “broke themselves up” in the mid-1990s. On the other hand, at the

close of millennium, John Swire & Sons (with 120,000 employees) and Jardine

Matheson (with 170,000) persisted. With changes in China, the trading companies

were able to return to the arena of their historical competency. Swire

participated in a variety of Chinese ventures, from Coca Cola bottling to paint

manufacture. In quite different industries, in 1996, Jardine Matheson had 70

joint-ventures in China! These multinational enterprises were, however, by the

1990s far from confined to the “China trade.” Jones attributes the continuity

of these two firms to the on-going “family” control, which meant the absence of

pressure from British “capital markets,” i.e. institutional investors. They

were firms that developed skills, whose management learned Chinese, and which

had “real advantages.”

This book is original and subtle, careful to pick up nuances, and to delineate

properly its topic. It is a major accomplishment. Jones is ready to generalize

and to theorize, but he does not oversimplify. The book will set the reader

reflecting on British economic development and the British role in the global

economy. It is essential reading for every economic and business historian

interested in the history of multinational enterprise, in British economic

history, and also in where British business fits in the evolution of the “world


Mira Wilkins is one of the foremost authorities on multinationals and

globalisation. She wrote a two-volume study of American multinationals, as well

many other studies of this subject. On British overseas business, she coined

the phrase ‘free-standing companies’ to describe the large number of firms

established in Britain that operated exclusively abroad.

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

Famous First Bubbles: The Fundamentals of Early Manias

Author(s):Garber, Peter M.
Reviewer(s):Kindleberger, Charles P.

Published by EH.NET (August 2000)

Peter M. Garber, Famous First Bubbles: The Fundamentals of Early Manias.

Cambridge, MA: MIT Press, 2000. xii + 163 pp. $24.95 (cloth), ISBN


Reviewed for EH.NET by Charles P. Kindleberger, Professor of Economics,

Emeritus, MIT.

This small book has been hailed by a series of financial economists with high

reputations, including Rudi Dornbusch, Robert Shiller, Richard Sylla, Michael

Bordo, Mike Dooley, Eugene White and Charles Calomiris. Its thesis is that

calling a sharp financial expansion that collapses a “mania” or “bubble” is

sloppy thinking. Behind each upset lie some fundamental conditions. Even if

historical contemporaries call an episode a mania or bubble, good economic

historians should probe more deeply and determine what fundamental brought it

on. They should stay clear of expressions like mania, bubble, herd behavior,

panic, crash, irrational exuberance, financial crisis, chain letter, Ponzi

scheme, contagion and “other-fool theory.” Instead, they should dig.

Peter Garber focuses on three episodes: the Dutch tulipmania of 1634-37 (one

word in his lexicon) and the Mississippi and South Sea “bubbles” of 1719-1720.

The tulipmania, on which he has written before, takes eighty-three pages of

text, compared with thirty-five for both Mississippi and South Sea. The tulip

fundamental is that rare bulbs are hard to produce, but once achieved they are

relatively easy to propagate-this brings high and rising speculative prices for

rare species in the process of being developed, which fall after the exotic

coloring has been won. In earlier work Garber held that the similar bubble for

common varieties or pound goods was difficult to explain. In this book he holds

that their price history was meaningless-the players at the various “colleges”

or taverns were merely seeking entertainment, after the disastrous bubonic

plague of 1634-36, confident that any substantial losses would be written down

by the state. The speculation in his new view was just an idle “winter drinking

game” played for amusement. This basis of that confidence in February 1637,

when the write-down in Haarlem occurred in May 1638, is unclear.

Garber has provided a great deal of tulip prices in the period, much of it for

different dates, apart from February 7, 1637, from different sources. One major

source took the form of a debate for and against the speculation promoted by

government in the spring of 1637 to discourage speculation. Some sixteen charts

of the prices of particular bulbs (some exotic, some common) display straight

lines joining an early price to those of 1636 or 1637-to the weighted average

of the day’s price, not the peak. A straight line from, say, 1622 to 1637 gives

an impression of gradual rising, whereas there might have been a sharp rise in

the last weeks or month, as is shown in some charts.

Some arguments against the existence of a bubble are hardly persuasive. One is

that there was a depression following the collapse, as there had been after the

US stock market bubble of 1929 and the Japanese of January 1990. Another is

that the Cambridge Economic History of Europe in the Sixteenth and

Seventeenth Centuries does not mention it. Two important Dutch histories,

do, however: Jonathan I. Israel whose The Dutch Republic (Oxford:

Clarendon Press, 1995) sets it in the boom of East India Company shares, the

West Indies Company, housing, drainage schemes for the wealthy and tulips for

small town dealers and tavern keepers (pp. 552-53); and Jan de Vries and Ad van

der Woude, The First Modern Economy: Success, Failure, and Perseverance of

the Dutch Economy, 1500-1815 (New York: Cambridge University Press, English

translation, 1997), who call it a mania and include considerable detail. They

make the point that the contracts in the taverns were unenforceable. “Public

officials viewed this democratic speculation with both fear and loathing, and

once the mania collapsed . . . pamphlets appeared denouncing the irrational and

immoral conduct of the speculators” (p. 150-51).

Garber’s book was written before the appearance of Devil Take the Hindmost:

A History of Financial Speculation (New York: Farrar, Straus and Giroux,

1999), by Edward Chancellor, English banker and historian. So he had no

opportunity to respond to Chancellor’s third chapter devoted to tulipmania.

Chancellor, on the other hand, had read one of Garber’s early articles and

takes a dim view of it. “This bold attempt at historical revision does not

withstand scrutiny.” Several points are questioned, especially buying bulbs in

the ground in winter which will not be known to have produced exotic offshoots

until exhumed in June, and then whether the offshoots would produce exotic

flowers until years later . . . “The term ‘speculative mania’ aptly described

the condition of the Dutch tulip market in the mid-1630s” (pp. 24-25).

I have left too little space to deal with Garber’s treatment of the Mississippi

and South Sea bubbles. He regards each as a sensible experiment in what is now

called Keynesianism, bidding up the price of shares, financed by a captive

bank, in the hope that supply would expand later to justify the higher prices.

But speculation based on hope is difficult to characterize as a fundamental,

which in ordinary parlance is more tangible. The enemies of John Law in France,

largely in the Languedoc, were “infinitely more realistic than Law . . . . The

true masters of high flight who directly stimulated the agiotage, kept aloof

from the fever, planning themselves to ruin Law’s systeme when they judged the

movement favorable” (Guy Chaussinand-Nogaret, Les Financiers de Languedoc au

XVIII Siecle, Paris: S.E.V.P.E.N., 1970, p. 129). Chancellor includes the

South Sea bubble in Devil Take the Hindmost, noting that “some

speculators lost fabulous sums . . . ?247,000 . . . and ?700,000 of a paper

fortune. Sir Isaac Newton lost ?20,000 by selling out too early (with profit)

and then returning to the market at its peak” (p. 88). “A rational investor is

one who seeks to optimise his wealth by offsetting risk with reward and using

all publicly available information. Was the investor who bought South Sea stock

at ?1,000 behaving rationally? The answer is no. First, there was sufficient

public information to suggest that the share price was seriously overvalued.

Second, by entering the bubble at an advanced sate the investor faced a poor

ratio of risk to reward: he was chasing a small potential gain and risking a

larger and more certain loss. Third the ‘fundamentals’ (i.e., the long-term

prospects of the company) did not change significantly in the year” (p. 94).

Chancellor does not address the Mississippi bubble except tangentially.

As for herding, investors in London and Paris, cashing out in their local

bubble bought shares in the other. As South Sea stock started to slip in July

1720, eighty denizens of “change alley” in London went to the Dutch Republic to

mend their fortunes in insurance companies in Amsterdam, Middelburg, and

Rotterdam. Only, two insurance companies of the more than twenty survived

(Frank Spooner, Risks at Sea: Amsterdam Insurance and Maritime Europe,

1766-1780, New York, Cambridge University Press, 1983, pp. 24-25).

Belief in efficient markets is subscribed to by many, but may be losing

credence after the April 2000 decline of the NASDAQ share index. Andrei

Schleifer of Harvard has just brought out a book, Inefficient Markets

(New York: Oxford University Press, 2000), which argues, inter alia, that many

investors do poorly in the market because they chase the latest fashion. This

is herd behavior.

Garber claims that the world “bubble” lacks clear meaning and that it should be

invoked only as a last resort. The same would seem to apply to fundamentals

based on hope. The notion that markets are rational, efficient and collate all

available information is a strong prior belief often used in the absence of

clear facts. Finance has fads that rest on contagion, some of which may later

prove illusory. For the world today, one can mention conglomerates, mergers and

acquisitions, initial public offerings, hedge funds, loans to emerging markets,

and the Long-Term Capital Management fund.

The last in this list evokes a remark from Garber with an edge to it. “Law’s .

. . experiment is tarred with the pejorative ‘bubble.’ When modern economic

policymakers’ reach exceeds their grasp, they simply accommodate the ensuing

tenfold price inflation and get the Nobel Prize” (p. 107).

The debate between those who believe market are always rational and efficient,

resting on fundamentals, and historians who call attention to a series of

financial crises going back to at least 1550 is likely to continue. Parsimony

calls for making a choice for or against financial crises; complexity permits

one to say that markets are mostly reliable but occasionally get caught up in

untoward activities.

Subject(s):Markets and Institutions
Geographic Area(s):Europe
Time Period(s):18th Century

Receiving Erin’s Children: Philadelphia, Liverpool, and the Irish Famine Migration, 1845-1855

Author(s):Gallman, F. Matthew
Reviewer(s):Cohn, Raymond L.

Published by EH.NET (August 2000)

F. Matthew Gallman, Receiving Erin’s Children: Philadelphia, Liverpool, and

the Irish Famine Migration, 1845-1855. Chapel Hill, NC: University of North

Carolina Press, 2000. xii + 306 pp. $19.95 (paper), ISBN: 0-8078-4845-X; $55

(cloth), ISBN: 0-8078-2534-4.

Reviewed for EH.NET by Raymond L. Cohn, Department of Economics, Illinois State


Gallman (currently the Henry R. Luce Professor of the Civil War Era at

Gettysburg College) examines the responses of Liverpool and Philadelphia to new

and intensified urban problems that resulted from Irish immigration during the

period of the famine. For each city, he considers the responses of the public

and the Catholic Church, and explores how the migrants affected health,

sanitation, and crime. Thus, this book is a study in comparative urban history,

where the developments in the two cities are examined during a period in which

“new urban problems were magnified by the thousands of poor Irish Catholic

immigrants” (p. 14).

Gallman’s argument is that the responses in each city were determined by a

number of similar influences, but that the specific response in a particular

case also depended on three aspects of “national distinctiveness.” First,

government was structured differently in the two cities, with the central

government in Britain traditionally playing a larger role. Decisions in

Liverpool were frequently affected by Parliamentary actions whereas Congress

never influenced Philadelphia’s responses. Second, Americans tended to be more

committed to voluntarism and solved many of the problems caused by the influx

of migrants without resorting to government, even at the local level. Third,

the two cities faced different options concerning what to do with the migrants

and different economic abilities in helping them. Liverpool was often stuck

with many of the migrants, particularly the poorest ones. Philadelphia was able

to employ many of the migrants and could try to send the remainder out to the

frontier. In addition, Philadelphians seemed more able economically to provide

assistance to the migrants.

Gallman’s approach is analytical though he does not use economic theory or

provide numerical estimates. The six substantive chapters possess the same

general framework. Gallman discusses developments in each city before the

famine migration, examines developments in each city during the migration, and

draws conclusions concerning how the famine migration affected the situation.

The book is especially well grounded in original sources. Gallman has spent a

large amount of time going through contemporary newspapers and urban reports

along with the more recent literature.

Chapter 2 examines the public response to the migrants. In both cities, the

influx of poor migrants put a strain on public services in the face of public

pressure to keep taxes low and maintain economic stability. Gallman finds

Philadelphia helped the migrants more through voluntarism than did Liverpool.

In chapter 3, Gallman examines the issue of poor relief. In Liverpool,

non-government assistance was sparse, a situation in stark contrast to

Philadelphia where many private organizations greatly expanded their services.

Chapter 4 on medical care and chapter 5 on environmental reform examine the

issue of health. During the famine migration, a cholera epidemic occurred,

though it affected Philadelphia much less than Liverpool. In both cities, sick

immigrants were seen as a public charge. In Liverpool many were forced into

medical wards in public workhouses or almshouses, whereas Philadelphia’s

hospitals expanded their services and philanthropic organizations increased

their assistance. In both cities, efforts were made to limit the entry of the

afflicted, to quarantine them, and to clean up wastes and “nuisances.”

Chapter 6 on religion and chapter 7 on crime and policing examine the

repercussions of the famine migration. Even before the migration, religion was

an issue in schooling in both cities because the Protestant Bible was

traditionally taught. The famine migrants thus arrived in a heated situation in

both cities, though the main effect of their entry seems to have been that the

Catholic Church expanded its efforts to build parochial schools and churches.

The response was greater in Philadelphia, which is viewed as evidence of

greater American ability to respond. As to crime and policing in each city, the

entry of the famine migrants contributed to street violence and increased

arrest rates for minor crimes but did not have major effects on either the

level of serious crime or the development of the police forces. Overall,

Gallman argues that “the immigrants were adjusting to, rather than recasting,

the established patterns of the host culture” (p. 210).

The major criticism I have concerning Gallman’s book is his choice of cities to

compare. Though Gallman claims that Philadelphia and Liverpool were

sufficiently similar in terms of size, population growth, importance of the

Irish, and migration trends that the cities make an appropriate comparison on

which to draw conclusions concerning urban decision making, I am not convinced

this is the case. Most of the Irish viewed Liverpool as a city through which

they traveled on their way to the United States or elsewhere, rather than as a

final destination. The port that served the corresponding function in the

United States at the time of the famine was New York, not Philadelphia. Thus, a

much larger number of Irish arrived in Liverpool than in Philadelphia (so

potential effects were larger, such as with the amount of funds needed for poor

relief and the extent of the disease outbreaks) and a larger percentage of the

Irish arriving in Philadelphia were presumably planning to stay. The two cities

therefore experienced substantially different numbers of Irish immigrants who

were in different situations. Thus, it is possible that voluntarism would not

have taken on the same level of importance in Philadelphia that it did if the

city had been inundated with the much larger number of migrants who went

through Liverpool. While it is obvious that no set of cities would ever provide

a perfect comparison, and though it might not have changed his conclusions, I

believe Gallman would have better served comparing Liverpool and New York.

Criticisms aside, Gallman’s book is an important work in urban history. In

connection with his other work, he continues to provide support for the

argument that national and local history matters in affecting how a city reacts

to exogenous events.

Raymond Cohn primarily studies immigration to the United States during the

nineteenth century. He is the author of “Nativism and the End of the Mass

Migrations of the 1840s and 1850s,” which appeared in the June 2000 issue of

Journal of Economic History.

Subject(s):Historical Demography, including Migration
Geographic Area(s):General, International, or Comparative
Time Period(s):19th Century

Monopolies in America: Empire Builders and Their Enemies from Jay Gould to Bill Gates

Author(s):Geisst, Charles R.
Reviewer(s):Troesken, Werner

Published by EH.NET (August 2000)

Charles R. Geisst, Monopolies in America: Empire Builders and Their Enemies

from Jay Gould to Bill Gates. New York: Oxford University Press, 2000. x +

355 pp. $30 (cloth), ISBN: 0-19-512301-8.

Reviewed for EH.NET by Werner Troesken, Departments of History and Economics,

University of Pittsburgh.

Monopolies in America by Charles R. Geisst, is a history of the trust

and antitrust movements from their inception in the late nineteenth century

through to the present day. In light of the on-going struggle between Microsoft

and the Department of Justice, this is a timely contribution to the vast

literature on the political economy of antitrust. The book is organized

chronologically and summarizes some of the more colorful developments in the

historical battle between big business and its critics, in and out of


Geisst’s central conclusion is that “monopoly is the logical outcome of free

market economic organization (p. 319).” This conclusion does not sit well with

either standard economic theory or previous historical studies. Economic theory

suggests monopoly — or more precisely high degrees of market concentration —

only in industries with substantial entry barriers and economies of scale. But

in industries where entry barriers are low and economies of scale are limited,

both theory and casual empiricism (look at agriculture or retailing) indicate

much less concentration and market power. Indeed, previous historical studies,

notably Naomi Lamoreaux’s The Great Merger Movement in American Business

(New York, 1985), find that far from being inevitable, the great industrial

combinations of the late nineteenth century were anomalies: most trusts and

combinations failed. Geisst does not discuss the predictions of standard

economic theory, nor does he discuss or cite the work of Lamoreaux.

Chapter 1, “The Monopolist Menace,” focuses on the development of the railroads

and their close ties to state and federal legislators. Geisst emphasizes the

economic and political corruption that came with the railroads. For example, he

explains how the managers of railroads routinely “watered stock” and made the

stock market a very dangerous place for investors. Despite such pervasive

corruption on the part of managers, Geisst claims that investors “always came

back for more,” attracted by the promise of riches floated by inaccurate press

accounts (p. 19). Apparently, investors during this period were a gullible lot.

Later in the chapter, Geisst describes how state legislatures routinely “looked

the other way” as the railroads plundered consumers and investors (e.g., pp.

24-25). Why did voters tolerate such abuses? Explaining the ease with which

Pennsylvania railroads secured patently pro-business legislation, the author

writes that “the people and politicians in Pennsylvania still came under Adams’

criticism as being ‘not marked by intelligence; they are, in fact, dull,

uninteresting, very slow and very persevering.’ It was just this sort of

plodding dullness that made corporations work relatively efficiently” (p. 21).

This portrayal of state legislators as the tools of railroad interests

contrasts sharply with other studies of state railroad regulation, which have

found strong evidence that state regulators were quite sympathetic to the needs

of farmers and shippers. See, for example, Christopher Grandy, “Can Government

Be Trusted to Keep Its Part of the Social Contract?: New Jersey and the

Railroads, 1825-1888,” Journal of Law Economics and Organization, 1989;

Mark T. Kanazawa and Roger G. Noll, “The Origins of State Railroad Regulation:

The Illinois Constitution of 1870″ in Claudia Goldin and Gary Libecap, editors,

The Regulated Economy, (Chicago, 1994); and Gabriel Kolko’s Railroads

and Regulation, 1877-1916 (Princeton, 1965). These studies are neither

discussed nor cited.

Chapter 2, “‘Good’ and ‘Bad’ Trusts,” is broader in scope, discussing such

combinations as the Meat-Packing Trust, the “Banking Trust,” and Standard Oil.

Geisst argues that the rise of the great industrial trusts was driven by a

“general price deflation” which pushed “down profit margins,” and the severe

economic slowdown after 1893 (p. 51). He also ascribes the rise of large

combinations to tariffs, lax antitrust enforcement, and other policy mistakes

(e.g., pp. 51 and 319). Alfred Chandler’s competing interpretation in The

Visible Hand (Cambridge, MA, 1977), which emphasizes the efficiency

characteristics of large firms, is not discussed or cited. This omission occurs

despite well-known studies by economic historians showing that the largest and

most successful combinations persisted in industries experiencing rapid

technological change and exhibiting significant economies of scale. (See, for

example, John James, “Structural Change in American Manufacturing, 1850-1890,”

Journal of Economic History, 1983; and Gary D. Libecap, “The Rise of the

Chicago Packers and the Origins of Meat Inspection and Antitrust,” Economic

Inquiry, 1992).

In discussing Standard Oil, Geisst points out that Standard received large

rebates from the railroads. From Geisst’s perspective these rebates constitute

prima facie evidence that Standard was behaving in an anticompetitive manner

(see, for example, pp. 37-38). Yet it is well-known that Standard Oil received

these rebates, at least in part, because Standard, unlike most of its

competitors, shipped its oil via tank cars rather than barrels. (See Harold F.

Williamson and Arnold R. Daum, The American Petroleum Industry: The Age of

Illumination, 1859-1899, Evanston, IL, 1959, pp. 528-37.) There was a sound

efficiency rationale for giving Standard rebates for using tank cars — they

were cheaper and safer for the railroads to haul than barrels. The rebate

programs may well have had anti-competitive effects, but given their historical

significance, efficiency rationales deserve at least some hearing.

To be clear, I do not wish to imply that all was goodness and light with the

trusts. There is compelling evidence that the trusts repeatedly used

anticompetitive strategies in an effort to gain market power. For example,

event study methodology shows that the tobacco trust used predatory pricing to

reduce the acquisition cost of its competitors (Malcolm R. Burns, “Predatory

Pricing and the Acquisition Cost of Competitors,” Journal of Political

Economy, 1986); direct evidence shows the sugar trust earned a sixty

percent rate of return on its investments in predation (see, generally, David

Genesove and Wallace P. Mullin, “Testing Static Oligopoly Models: Conduct and

Cost in the Sugar Industry, 1890-1914,” Rand Journal of Economics, 1998;

and “Predation and Its Rate of Return: The Sugar Industry, 1887-1914,” working

paper); and event study methodology and voting analyses show how the sugar

trust used its political clout to alter tariff policy. Clearly the trusts

corrupted the democratic process — though they certainly were not alone in

this (Sara Fisher Ellison and Wallace P. Mullin, “Economics and Politics: The

Case of Sugar Tariff Reform,” Journal of Law and Economics, 1995) — and

event study methodology shows the merger of several railroads to create the

Northern Securities company was anticompetitive (Robin Praeger, “The Effects of

Horizontal Mergers on Competition: The Case of the Northern Securities

Company,” Rand Journal of Economics, 1992).

Moreover, historical experience and economic theory both tell us that antitrust

policy can ameliorate things: clearly, the break-up of AT&T increased consumer

surplus and reduced the political clout of a corporate titan; and there is

evidence that had the Supreme Court broken up U.S. Steel in 1920 it would have

accomplished similar ends (see George L. Mullin, Joseph C. Mullin, and Wallace

P. Mullin, “The Competitive Effects of Mergers: Stock Market Evidence from the

U.S. Steel Dissolution Suit,” Rand Journal of Economics, 1995).

My point, then, is simply this: Geisst omits an important piece of the story

when he fails to consider efficiency interpretations of the trusts, and he

would not have omitted this aspect of the story had he considered the entire

corpus of historical and economic knowledge. Even potentially complementary and

supportive studies, like those cited in the two preceding paragraphs, are

omitted from the analysis.

Chapter 3, “Looking the Other Way,” focuses on the 1920s. After claiming that

the twenties were halcyon days for the rich and big business, Geisst observes

(p. 93): “Yet amidst what appeared to be prosperity, the wages of the average

worker were actually dropping. The rich got richer while the working class

scraped to make ends meet. The F.W. Woolworth Company reported profit margins

of 20 percent but actually lowered the wages of salesgirls in its stores,

citing the need for belt tightening.” In short, the rich got richer, and the

poor got poorer. Geisst is not the first writer to make this claim about the

1920s, and he undoubtedly will not be the last. Alas, even when read in a light

favorable to such pessimistic views, the evidence on this point is decidedly

mixed, and when read in a more objective light, the existing evidence

contradicts the pessimistic case. Good summaries of the academic debate about

what happened to wages in the 1920s can be found in any introductory textbook

on American economic history, such as Walton and Rockoff; Atack and Passell; or

Hughes and Cain. The basic thrust of the debate can also be captured by looking

at the Historical Statistics of the United States (1976, pp. 164-68),

which reports a steady increase in the earnings of most industrial workers

between 1921 and 1929.

Later in the chapter, Geisst discusses the shady brokerage practices of banks

in the era before the Glass-Steagall Act. He writes (pp. 102-03): “Many of the

banks produced literature designed to educate investors on the intricacies of

stocks and bonds. What was less apparent, however, was the fact that many of

those investors were sold securities that the banks had a vested interest in,

namely, securities underwritten and held by the banks themselves. Investors

were not aware that the banks were selling them their own inventories, many

times at greatly inflated prices. At other times the risks associated with many

bonds sold by bank subsidiaries were not made clear to their buyers.” This

passage contains no notes or cites to supporting studies, nor is it followed by

any sort of presentation of supporting evidence in the form of statistics

and/or anecdotes. Nonetheless, Geisst goes on to assume that such abuses were

commonplace, and given this, concludes that laws like the Glass-Steagall Act

were “steps in the right direction” and “served to police malefactors in the

banking business” (p. 135).

There are competing interpretations. Probably the best known of these is a

paper in the American Economic Review (1994), “Is the Glass-Steagall Act

Justified? A Study of the U.S. Experience With Universal Banking Before 1933,”

by Randall S. Kroszner and Raghuram G. Rajan, both economists at the University

of Chicago. Kroszner and Rajan systematically compare the securities

underwritten by commercial banks and those underwritten by investment banks.

Their findings suggest investors anticipated the conflicts of interest that

confronted commercial banks and thereby constrained underwriting behavior and

forced commercial banks to deal in better known, low risk securities. Geisst

neither discusses nor cites Kroszner and Rajan.

Subsequent chapters in Monopolies in America are similar in tone and

presentation to those just discussed, with a few notable exceptions. In chapter

7, Geisst discusses McGee’s well-known study of Standard Oil, and the Chicago

School approach to antitrust more generally (e.g., pp. 244-45). And in chapter

8, he briefly considers academic defenders of hostile takeovers and other

controversial developments during the 1980s. He writes (p. 303): “Another

business school professor, Mike Jensen at the University of Rochester, gained

wide notoriety by being one of the few academics to defend corporate raids and

takeovers. He also argued against a growing trend that decried executive

compensation as being too high. He actually favored paying corporate executives

more, not less.” For readers unfamiliar with this line thought it would have

been helpful if Geisst had explained why Jensen made these arguments. Instead

Geisst chose to summarize Jensen’s reasoning curtly: “In [Jensen’s] view,

hostile takeovers were nothing more than businesses vying for a position, a

natural series of events (p. 303).” The discussion of McGee and the Chicago

School in chapter 7 is equally illuminating.

Monopolies in America is best described as a work of popular history:

the writing is clear; important persons and events are usually recounted ably;

the anecdotes are interesting, though not necessarily instructive; and the

narrative is not cluttered with caveats and footnotes. But given the

shortcomings discussed above, it says nothing specialists will find

particularly interesting, nor does it survey the existing literature in a way

that would make it useful in undergraduate courses on economic history.

Werner Troesken is Associate Professor of History and Economics at the

University of Pittsburgh. He has published a book and several articles on the

political economy of regulation.

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

The London Stock Exchange: A History

Author(s):Michie, Ranald C.
Reviewer(s):Neal, Larry

Published by EH.NET (August 2000)

Ranald C. Michie, The London Stock Exchange: A History. Oxford: Oxford

University Press, 1999. xiii + 672 pp. $110 (cloth), ISBN: 0-19-829508-1.

Reviewed for EH.NET by Larry Neal, Department of Economics, University of


Among financial historians, it is now commonplace to regard the emergence of

today’s global capital market as a resumption of the progress that had been

made toward creating a global market in goods, labor, and capital in the period

from 1850 to 1914. Ranald Michie, the preeminent historian of the London Stock

Exchange in that bygone halcyon era, presents the story of how the London Stock

Exchange rose to preeminence in that earlier international capital market, but

then suffered through the disruptions of the international economy created by

two successive world wars and the financial crises that followed them, and is

now still struggling to retain a reputable place in the new global capital

markets that have emerged over the past thirty years. Written on the basis of

an intensive examination of the records of the London Stock Exchange, his work

will now be the standard reference on the London Stock Exchange, replacing old

classics such as E. V. Morgan and W. A. Thomas, The Stock Exchange: Its

History and Functions, (London, 1961), and even Michie’s earlier work,

The London and New York Stock Exchanges 1850-1914, (London, 1987). The

timing of its appearance is especially fortuitous as the current members of the

London Stock Exchange decide how to vote in September 2000 about the proposed

merger with the German stock exchange. Will the smaller members lose their

livelihood from the competition of the more efficient German firms? Or will the

merger preserve their incomes from the competition of electronic market makers

not constrained by the rules of a formal exchange? Or will the largest firms be

willing to buy them out on favorable terms in any event?

These are the questions today, but they have been faced in much the same terms

any number of times over the past two hundred years, as Michie documents. The

answers, though, have varied depending on both the nature of the external

competition and the nature of the internal composition of the exchange. Michie

argues that his kind of study, focusing on the decisions taken over time by the

members of the London Stock Exchange, can reveal much about the role of the

financial system in shaping the course of the real economy. It is not the

securities market in Britain as such, then, that concerns him, but rather the

specific role of the self-governing organization called the London Stock

Exchange in the securities market. This is certainly a worthy endeavor and

modern finance scholars are increasingly concerned about the implications of

what they call “market microstructure” in determining the efficiency of price

discovery processes as well as overall efficiency in financial intermediation.

For them, Michie describes and appraises the creation, operation and evolution

of the microstructure of what is still one of the world’s leading stock

exchanges and was the undisputed leader during the gold standard era. He does

not, however, deal with these arcane issues of market efficiency, to the

disappointment of some readers, but no doubt the relief of most. (The awkward

term “microstructure” never appears in the 642 pages of text.) But neither does

he entertain with stories of rascal behavior by the more opportunistic

participants of the “House,” to the disappointment of most readers and no doubt

his publisher hoping for more robust sales. Rather, he concludes each chapter

with a table showing the number and capitalization of the securities listed on

the London Stock Exchange for a benchmark date. These together show the

changing scale and scope of the exchange’s market over time. This is a solid

work of original historical research that gives the reader many interesting

insights and raises important questions for practitioners and policymakers as


Michie begins his story, “From Market to Exchange, 1693-1801,” with an overview

of the rise of an informal, unorganized, secondary market in government debt.

This begins, in his view, in 1693 with the establishment of permanent debt that

could be transferred. As the amount of debt increased with each successive war,

so did the number of investors, encouraged by the government’s ability to

continue servicing at least the regular interest payments promised on the debt

issues. Gradually, specialists arose, both brokers and jobbers, both very

important to the operation of an efficient secondary market for any set of

products. Brokers made their money from commissions they charged to their

principals, who desired to buy or sell an amount of a particular security

within a specified price range. Jobbers provided the brokers the counterparties

to their principals, offering to sell to their buyer or to buy from their

seller the particular security. They made their money on the difference between

the prices they bid or asked, and saved the broker the time and expense of

finding a specific counter party to his original client. Both made more money,

the greater the volume of transactions. Brokers made a commission charged to

their principals; jobbers made a “turn” on the bid-ask spread always intending

to buy low and sell high. By the end of the eighteenth century, the number of

investors was large and a number of specialized brokers and jobbers seemed to

be making a living from their respective trading activities. Nevertheless,

asserts Michie, this was just a market, not an organized exchange that could

affect by its own rules and enforcement decisions the way the security market

would develop in the future. In 1801, however, the informal London stock market

ceased to be shaped strictly by outside forces and henceforth could determine

in part its own destiny through the decisions taken by its governing bodies.

These were the Committee for General Purposes for the Members and the Trustees

& Managers for the Proprietors.

How they operated vis-?-vis each other to solidify the tradition and prestige

of the “House” is detailed in “From Money to Capital, 1801-1851.” Readers

familiar with Michie’s earlier comparison of the London and New York stock

exchanges, the two classic examples of financial capital marketplaces, will

find a familiar theme in his emphasis in this book upon the importance of the

governance structure of the London Stock Exchange as it coped with the

successive changes in monetary regimes, government controls and policies, new

communications technologies, and international and domestic competition.

Responding to the pressures of war finance in 1801 at the outset of the

Napoleonic Wars with France, one group of traders became the Proprietors of the

building that housed the market place for the Members engaged in actual

trading. The Proprietors, as owners of the market place, but not of the

products of the market place, were strictly interested in maintaining a large

membership paying annual subscriptions for the use of the facility while

keeping operating costs as low as possible. The Members, as users of the market

place, were concerned strictly with generating a large volume of trading while

keeping their own costs of business as low as possible. Faced with outside

competition from time to time, the Members would try to restrict access, while

the Proprietors would try to co-opt it into the House. Members, however, had

complete control over who could become a Member, although Proprietors set the

annual entrance fee that individuals had to pay to take up their membership and

determined the hours of operation and physical amenities provided. Once in

place, this method of operation proved self-sustaining and it endured through

all the travails and opportunities that ensued over the next two centuries.

In the first half century, the governance structure was challenged by two

shocks, the brief but intense interest in foreign government debt and foreign

mining shares in the early 1820s and then the longer and even more intense

investor enthusiasm for railroad securities starting in the late 1830s. In both

cases, the users of the exchange wanted to keep out competition by traders

specializing in the new securities but the owners of the exchange accommodated

them as soon as possible to prevent an alternative exchange from arising in

London. The resulting expansion of business benefited all members and

solidified their operating rules and governance procedures.

In the rest of the nineteenth century, which Michie labels “From Domestic to

International, 1850-1914,” the British success with financing domestic

railroads led to providing finance for foreign railroads and then for large

commercial and industrial firms both at home and overseas. The continued

expansion of the number and variety of securities listed on the exchange led to

enlarged memberships and increased pressure on the physical facilities of the

exchange. To finance a new building in the 1870s, the Proprietors increased

fees on the Members, who responded by demanding more voice in management. The

conflicting interests were resolved through expanding the capital stock of the

Stock Exchange by requiring all future members to become shareholders as well

as subscribers. The number of shareholders grew, as a consequence, from only

268 in 1876 to 2,366 in 1914 so that there gradually occurred an overlap

between Proprietors and Members. In his earlier work, Michie has argued that

the increasing voice of broker members in the governance of the Stock Exchange

was gradually undermining its flexibility in responding to competitive

challenges and its responsiveness to technological advances in communications.

Now, his appraisal is that the exchange was remarkably flexible and responsive,

especially, one infers, by contrast with its continued dithering over the

period 1945 to 1986, which came dangerously close to eliminating it entirely as

an organization.

What accounts for this earlier success? Internally, one factor was that dual

control by Proprietors and Members continued to be effective in offsetting

tendencies towards restricting access to the exchange; another was the

continued importance numerically of jobbers within the membership of the

exchange. Externally, the most important factor was the central role played by

the Stock Exchange in the money market of London. The ever-expanding joint

stock banks in London found that their loanable funds could be employed

profitably for short periods of time by lending to so-called money brokers who

were members of the Stock Exchange. They, in turn, could lend on security of

shares and stocks held by jobbers to allow them to settle differences at the

fortnightly settlements or to continue their positions to the next account.

Specialization in function within the Stock Exchange thus occurred that allowed

further specialization in function among the financial intermediaries of

Lombard Street. These nested specializations increased efficiency in the use of

funds by all concerned. They also allowed, however, increased efficiency within

the growing number of provincial stock exchanges, who could tap into the London

money market easily through the branches of the joint-stock banks.

Whatever the dynamics of the emerging structure of finance and industry would

have created for the future of the British economy, the impact of World War I

changed everything, and mostly for the worse in Michie’s opinion. First of all,

it eliminated the foreign business of the Stock Exchange bringing that under

the control of the Treasury, now concerned only with raising money for war

finance. Second, it eliminated the money market role of the Stock Exchange by

eliminating dealing in options and even for account. Finally, it created a

comfortable source of easy commissions by the huge increase in government debt

traded on the Stock Exchange. Wartime restrictions on membership created by

military service for younger members and expulsion of foreign, especially

German, members were formalized by rule changes when peace returned. Minimum

commissions were rigidly enforced. In short, the war changed permanently all

the external conditions that had created prosperity for the members of the

Stock Exchange before the war. But it also strengthened the rigidity of

internal rules that protected the incomes of the surviving members.

Michie then treats the interwar period in two separate chapters, “Challenges

and Opportunities, 1919-1939,” and “The Changing Market Place Between the

Wars.” The first chapter details how “the rules of the Stock Exchange, designed

to create an orderly market, were increasingly used by the membership to limit

the competitive environment within which they operated. This was true both in

terms of outside competition, with restrictions on admissions, and internally,

with minimum commissions and other controls. The end result was a lessening of

those forces for change that had forced the membership in the past to respond

to challenges and to seize opportunities” (p. 234). This is exactly the

conclusion one expects, given Michie’s earlier study. The second chapter argues

that, nevertheless, the ossification of the Stock Exchange was not the key

problem for the finance of British industry during the interwar period. Rather,

the increased rate of taxation needed to service the huge increase in

government debt, the decline of profitability of older industries, and London’s

diminished international role all limited the potential supply of finance,

irrespective of the reduced efficiency of the Stock Market in providing

financial intermediation. While researching the current book, Michie has become

more sympathetic to the efforts of the Stock Exchange as an organization and

more critical of the external forces that limited its potential service to the

British economy.

In “New Beginnings: The Second World War, 1939-1945,” the changes that the

exigencies of war finance had inflicted upon an unsuspecting and unprepared

Stock Exchange in 1914 were now adopted quickly as a matter of course. The

Stock Exchange willingly became an administrative arm of the government,

helping the Treasury to market its burgeoning debt issues and receiving in turn

the protection of the government against competitive forces in the government

debt market. Dual control was finally ended informally, as the Committee for

General Purposes for the users and the Trustees and Managers Committee for the

owners were combined into a Council, dominated by the members, or users, of the

Stock Exchange for the duration of the war. This streamlined governance

structure made the postwar Stock Exchange an effective arm of the government,

but ossified the responsiveness of the organization to the competition of

provincial exchanges and of the joint stock banks in dealing on the securities

markets in Britain. It did, however, enable the members to buy out the

proprietors and formally end dual control in 1948. Thereafter, the business of

the Stock Exchange was not to make a profit for the owners, but to render

services to the existing members. On the expense side, however, it was

committed to pay out ?160,000 annually to buy out the previous Proprietors and

committed to enlarging its salaried staff to carry out the regulatory functions

it believed the government expected of it. On the revenue side, members were

not willing to vote increased subscriptions fees, much less stock assessments,

on themselves, especially as the incomes of many firms fell after the war.

“Drifting towards Oblivion, 1950-1959,” “Failing to Adjust, 1960-1969,” and

“Prelude to Change, 1970-1979,” are the chapter titles that follow and they

convey well the encompassing malaise that overcame the Stock Exchange and most

of its members, steadily declining in number and consolidating into fewer and

fewer firms in each succeeding decade. During the 1950s, however, the London

Stock Exchange found a new role despite its hidebound governance and

administrative structure. This was serving as a market place for the rising

volume of domestic corporate shares. These were not, Michie argues, a new

source of finance, but a substitute for business debt with fixed interest,

which was increasingly unattractive to British investors in the persistently

inflationary climate of the 1950s. These didn’t match in total volume the size

of government debt, but in terms of trading commissions earned by member firms

they were just as important as those earned on placing and trading issues of

government debt. Moreover, government debt trading became increasingly

concentrated among fewer firms while corporate equities could provide niche

markets for a variety of the member firms. In the 1960s, this trend established

in the 1950s continued to the benefit of the Stock Exchange and its members.

But it also elicited increasing interest from foreign investors, whose demands

were quickly met by foreign firms, both banks and investment houses, located in

London, rather than by the Stock Exchange. Further, provincial exchanges and

non-member stockbroking firms found it easy to enter this growing market,

especially as the Stock Exchange became increasingly restrictive in its listing

requirements for corporate equities. As a quasi-regulatory arm of government,

the London Stock Exchange felt it was important to protect outside investors

from the risks of smaller firms in new industries, but this was precisely where

the largest potential profits could be made. The circumstances of the 1970s at

first confirmed the wisdom of this strategy to the leadership of the Stock

Exchange when the equities market collapsed in 1974. This led to a formal

merger with the provincial exchanges, enlarging the membership of what was now

called the International Stock Exchange within the same rigid set of rules as

before. The country jobbers were forced to become single-capacity brokers, so

they helped strengthen the support within the membership for enforcing minimum

commissions. Moreover, the Stock Exchange was now a much more effective

regulator of the British securities marketplace. But the cost of this

consolidation was that the Stock Exchange was further constrained from

responding to challenges by foreign exchanges and firms, and from initiating or

even imitating financial innovations taking place within non-member firms and

the major financial intermediaries in the City of London.

The breakthrough that eventually led to the “Big Bang” (chapter 12) in 1986,

the once for all elimination of minimum commissions and restrictions on the

size and functions of member firms, Michie argues, was the elimination by the

Thatcher government of exchange controls in 1979. Now the customers of the

brokerage houses, increasingly the banks, insurance companies, and investment

houses, could readily invest abroad with foreign exchanges and stockbroking

firms. Foreign banks and brokerage houses in London could now bypass the high

costs of the Stock Exchange without incurring the penalties imposed by exchange

controls. The response of the Stock Exchange to this challenge was delayed

until 1986, however, not because of the rigidity of the governance structure,

but because of the Thatcher government’s attack on the privileges of the Stock

Exchange brought before the Restrictive Practices Court. While this action was

on the docket, the Stock Exchange officers felt compelled to defend the entire

corpus of Rules and Regulations that had accreted over the decades, according

to Michie. Not until the case was dismissed by the government in 1983, did the

officers feel free to move forward to modernize the rules of the Stock


In the penultimate chapter, “Black Hole,” Michie begins by stating that “On 3

March 2001 the London Stock Exchange, as a formally organized securities

market, will have existed for two centuries.” That, we now know, remains to be

seen! Michie documents the difficulties faced by the venerable institution for

survival, but seems to think they stem mostly from continued hassling of the

securities market in general by government regulators. Given the City’s success

previously in attracting the business of foreign international banks, mainly to

deal in the Euro-dollar and Euro-bond market that developed outside the Stock

Exchange, the Big Bang’s removal of restrictions on membership allowed the

entry of the most innovative firms and practices from around the world. At his

most optimistic, Michie opines, “In fact, what emerged from Big Bang was akin

to the dual control which had worked so well in the past, with responsibility

now shared between the Stock Exchange, representing its members, and the

regulatory authorities, reflecting the needs of the wider financial community”

(p. 634). General readers could more easily share this optimism if they had

confidence that the regulatory authorities would reflect the needs of the

financial community rather than the needs of their political masters to be

re-elected within five years. Indeed, Michie’s final lesson that he draws from

his historical account is “that self-regulation without monopoly power has

produced the most satisfactory solution in the past. Otherwise governments

operate to their own agendas, distorting the market and destroying innovation

in the process, while self-regulating monopolies abuse their power for their

own self-interest” (p. 642). The challenge is clear; how it will be met is not!

Larry Neal is Professor of Economics at the University of Illinois at

Urbana-Champaign and Director of the European Union Center at Illinois. He is

past president of the Economic History Association and the Business History

Conference. From 1981 through 1998, he was editor of Explorations in

Economic History. He is author of The Rise of Financial Capitalism:

International Capital Markets in the Age of Reason, Cambridge University

Press, 1990 and The Economics of the European Union and the Economies of

Europe, Oxford University Press, 1998 as well as numerous articles in

American and European economic history.

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

Living with the Century

Author(s):Cairncross, Alec
Reviewer(s):Rollings, Neil

Published by EH.NET (August 2000)

Alec Cairncross, Living with the Century. Fife: iynx, 1998. xvi + 320

pp. $50 (cloth), ISBN: 0-9535413-0-4.

Reviewed for EH.NET by Neil Rollings, Institute of Economic Research,

Hitotsubashi University, and Department of Economic and Social History,

University of Glasgow.

Before I start this review I should make it clear that Sir Alec Cairncross,

who died just after this book, his memoirs, had gone to press, has played an

important role in my academic career. Not only was he the Chancellor of the

University of Glasgow when I was appointed, but he was one of my referees and I

had also worked for him in preparing The Robert Hall Diaries 1947-53.

After my appointment he always found time when he visited Glasgow to see me and

to see how my work was progressing. I am sure that I am not the only young

academic who benefited from his generous support and encouragement.

There is a regular stream of memoirs and autobiographies from retired

politicians looking to set the record straight and, for the more famous, to

earn some easy money at the same time. By contrast, few economists have written

their memoirs. So one could well ask why Sir Alec Cairncross decided to write

his. The reason, I think, is that Cairncross was not a typical economist. His

main impact was not on the intellectual development of economics but through

its application, in particular through his influence on policy-making in

Britain. For many years he was at the center of government economic policy

formulation. In January 1940 and only twenty-eight years old, he entered

government service, first in the Economic Section, a small group of

professional economists at the center of government, (for eighteen months),

then briefly the Board of Trade, before spending the rest of the war working on

planning in the Ministry of Aircraft Production. From 1946 to 1949 he was

Economic Adviser to the Board of Trade and he finally returned to government

service from 1961 to 1969 as Chief Economic Adviser to the Government and then

as the first Head of the Government Economic Service. It is significant,

therefore, that the foreword to this book is written by Roy Jenkins, a

politician, and not by a fellow economist.

The chapters that cover this lengthy government service are perhaps the least

interesting to those that know Cairncross’s previous publications because he

has written widely on many of these experiences, for example in A. Cairncross

and N. Watts, The Economic Section 1939-61 (1989), Planning in

Wartime (1991), Years of Recovery: British Economic Policy 1945-51

(1985), and Managing the British Economy in the 1960s (1996). Indeed,

for the period when he was Chief Economic Adviser and the Head of the

Government Economic Service his diary has also been published.

It is elsewhere in the book that one finds more interesting material. The sheer

variety of his life and his activities is perhaps the most striking feature of

the memoirs. As a postgraduate he was in Cambridge in the 1930s and was one of

the founders of the Review of Economic Studies (later he was to help

establish the Scottish Journal of Political Economy). In 1944 he

published Introduction to Economics, which was one of the first

textbooks of modern economics and was to go through six editions, the last

being in 1982. And in the 1950s, his newly formed department at Glasgow was one

of the earliest in Britain to offer courses to business managers. In addition,

he was a member of a number of important committees in Britain, most notably

the Radcliffe Committee on the Working of the Monetary System; wrote a highly

influential report on regional growth point policy; and in 1969 became a master

of an Oxford college. Nor were his activities restricted to Britain.

Immediately after the war he was in Germany dealing with reparations, in 1950

he spent a year as Director of the Economics Division of the OEEC and for

eighteen months from 1955 was the founding Director of the Economic Development

Institute of the World Bank. Amongst his many activities in retirement were a

number of trips to China.

What is significant about this is that he was a generalist, dealing with micro

and macro issues, domestic and international affairs. He was a firm believer in

the power of human reason: economics was a way of thinking, whereby clear,

rational thought could provide the solution to a problem. Inevitably, this

meant he often had no knowledge of a particular subject prior to being asked to

consider it. It is hard to imagine that anyone now appointed to a position

equivalent to the Director of the World Bank’s Economic Development Institute

would know little about developing countries and the development literature, as

was the case with Cairncross. In the book he emphasizes how the twentieth

century has been the century of the economist and of economics, but also how

much, as a result, economics has developed over that time, not just

intellectually but also in terms of the number of practitioners and the extent

of specialization. It is highly unlikely that any young economist today would

be able in the next century to lead such a varied life and work in so many

different areas of economics. Nevertheless, we can all learn from Cairncross’s

belief that ‘to rest content with the familiar is a way of remaining

underdeveloped’ (p. 292).

Neil Rollings has just published, with Astrid Ringe, “Responding to Relative

Decline: The Creation of the National Economic Development Council,”

Economic History Review (May 2000). “Reluctant Europeans?: The

Federation of British Industries and European Integration, 1945-63,” written

with Alan McKinlay and Helen Mercer, will appear in Business History in

October 2000.

Subject(s):History of Economic Thought; Methodology
Time Period(s):20th Century: WWII and post-WWII

Europe in the International Economy, 1500-2000

Author(s):Aldcroft, Derek H.
Sutcliffe, Anthony
Reviewer(s):Persson, Karl Gunnar

Published by EH.NET (August 2000)

Derek H. Aldcroft and Anthony Sutcliffe, editors, Europe in the

International Economy, 1500-2000, Cheltenham: Edward Elgar Publishing,

1999. xi + 289 pp. $90 (cloth), ISBN: 1-85898-670-2.

Reviewed for EH.NET by Karl Gunnar Persson, Institute of Economics, University

of Copenhagen.

This volume carries an endorsement on the book jacket by Peter Mathias saying,

“This will surely prove to be the definitive account — an authoritative text

by six leading authors. Well integrated, clearly written, objective and

balanced in judgment, excellently documented with key bibliographies — the

answer to the needs of all students of the subject.” This assessment sounds too

good to be true, but it is not completely wrong. Although the well-read in the

profession will learn little new from the book, it can be a very useful text

for a course in European economic history when little time can be devoted to

the subject and a comprehensive text is needed — say, at business schools or

at non-European universities.

The purpose of this book, according to the editors, is to explain the

pre-eminence of Europe and its impact on the international economy from the

early modern period, surveying the recent “rise of the west” literature in the

introductory chapter. There are few surprises here, but it gives a

comprehensive overview of the subject.

The first substantial chapter, by Jan L. Van Zanden and Edwin Horlings, offers

a balanced account of recent re-interpretations of early modern and

pre-industrial growth (c.1500 to c. 1800). It stresses the regional and

national differences in growth experiences and contrasts that story with the

traditional view of general stagnation in productivity levels before the

industrial revolution. Most of the quantitative results stem from van Zanden’s

recent research, most of which is not easily available, and the underlying

methodology is not extensively discussed. The results seem plausible, however,

with growth centers in the Low Countries, England and some parts of France as

suggested by other researchers such as Robert Allen, Philip Hoffman and myself.

Sidney Pollard, who died just before the book went to press and to whom the

book is dedicated, writes about the “Europeanization” of the international

economy from 1800 to 1870, giving a fair amount of attention to dissenting

voices when presenting the mainstream account. Like the preceding chapter, the

quantitative information is extensive and the focus is not only on Europe but

also its impact on the rest of the world.

The book proceeds chronologically to the 1870-1918 period, which James

Foreman-Peck describes as the “zenith” of European power. Although clearly the

most thought provoking of the contributions, it does not fit well into the

narrative stream of this volume. Where the rest of the book relies on main

economic indicators, this section concentrates on institutions and regulation

of the international economy. Foreman-Peck also returns to the discussion of

the costs and benefits of empire, offering something for all tastes.

Derek H. Aldcroft follows Foreman-Peck with his chapter on the disintegration

of Europe in the interwar period. Barry Eichengreen and others have made this

narrative familiar to us, and the reference list to this chapter, like most of

the others, is extensive and accurate, as is the survey of the topic. I am

surprised, however, that the excellent little textbook by Charles Feinstein,

Peter Temin and Gianni Toniolo (The European Economy between the Wars,

Oxford University Press, 1997), which is a more wide-ranging alternative to

this compact chapter, is missing from Aldcroft’s list.

The final two chapters by Anthony Sutcliffe and Steven Morewood deal with the

present and focus quite a bit on European institutional integration. By and

large I find these chapters rather less penetrating, and they do not satisfy

the quantitative economic historian’s appetite for numbers and rigorous

economic reasoning. However, both chapters survey the main issues discussed in

relation to the acceleration and decline in European growth rates.

All in all, this book can be useful as a comprehensive textbook on European

economic history since it surveys, over a limited number of pages, such an

extended period. It gives little specific information on national experiences,

so one must go elsewhere for that. If I were teaching this course I would

probably replace the final chapters with excerpts from Economic Growth in

Europe since 1945 (Cambridge University Press, 1996) edited by Nick Crafts

and Gianni Toniolo. I would also like to have a text on the European backlash

to free trade from the 1870s in the O’Rourke-Williamson vein.

The price of the hardcover version of the book might deter teachers from

recommending it. However, if the publisher decides to print a paperback

edition, it should urge the editors to add a workbook section that would assist

students in facing the issues and controversies surveyed in the main text.

K.G. Persson is professor at the Institute of Economics, University of

Copenhagen and co-editor of the European Review of Economic History. His

most recent book is Grain Markets in Europe, 1500-1900: Integration and

Deregulation, Cambridge University Press, 1999 and a recent article

(jointly with Mette Ejrn?s) is “Market Integration and Transport Costs in

France, 1825-1900: A Threshold Error Correction Approach to the Law of One

Price,” in Explorations in Economic History, Vol. 37, pp. 149-73, 2000.

Subject(s):Economywide Country Studies and Comparative History
Geographic Area(s):Europe
Time Period(s):General or Comparative

Globalization and History: The Evolution of a Nineteenth-Century Atlantic Economy

Author(s):O'Rourke, Kevin H.
Williamson, Jeffrey G.
Reviewer(s):McInnis, Marvin

Published by EH.NET (August 2000)

Kevin H. O’Rourke and Jeffrey G. Williamson. Globalization and History: The

Evolution of a Nineteenth-Century Atlantic Economy. Cambridge, MA: MIT

Press, 1999. xii + 343 pp. $47.95 (cloth), ISBN 0-262-15049-2.

Reviewed for EH.NET by Marvin McInnis, Department of Economics, Queen’s

University, Canada.

For almost a decade Jeffrey Williamson, in collaboration with various other

authors, has been investigating the many facets of late nineteenth century

international economic integration. It was the topic he chose for his

presidential address to the Economic History Association. Parts of this ongoing

project have appeared in many articles; I could tally at least fifty-two. The

project and many of its findings are well known to specialists in economic

history, and many of these experts have closely followed Williamson’s work.

Why, then, this book?

This work represents an attempt at a final statement. Various pieces of

research are brought together into an integrated whole. Moreover, whether or

not it is the primary intention, the book speaks to a wider readership–to

economists, and historians and many others beside who have not been following

the reports in the journals. It is important to assess the book with that in

mind. Economic historians who have been following the Williamson project will

encounter few surprises. There is little in the book that avid followers of

EH.NET do not already know. Nevertheless, seeing it all pulled together into a

final compilation will be, for most, a worthwhile read.

For Kevin O’Rourke (University College, Dublin) and Jeffrey Williamson

(Harvard) globalization means a substantial increase in the international

movement of goods and also of factors of production. As economic historians are

well aware, this process was clearly occurring in the late decades of the

nineteenth century and was the initial inspiration for their undertaking. To

relate nineteenth century globalization to today’s concerns, O’Rourke and

Williamson start with its alleged consequence–economic convergence. They pay

some attention to convergence of real per capita output, but their asserted

primary interest is in convergence of wages. Williamson and O’Rourke view this

primary dependent variable in the light of its inherent interest as a measure

of the economic well being of large numbers of people as well as its provision

of an angle on the distributive question, which emerges as one of the central

themes of the book. Trade, factor flows, and globalization all have their

initial effects on factor earnings. It is the urban, unskilled wage, seen as a

measure of the return to raw labor, that is focused upon as the central measure

of labor earnings. Already that raises some questions about what is being put

forward. Most of the economies included in the study had proportionally large

numbers of agricultural workers. On the other hand, increasing numbers of

workers were gaining some element of skill, so the measure of the return to

urban, unskilled labor has to be interpreted with care. One might also question

the claim that the wages of urban unskilled workers is more reliably measured

than real per capita income, which O’Rourke and Williamson assert rather than


Globalization, in the O’Rourke and Williamson scheme, does not evidently

encompass the international transfer of technology. The authors argue that they

are able to fully account for such convergence, especially that of real wages,

occurring in terms of international factor flows and the convergence of prices

brought about by increased international trade. There is no residual left to be

attributed to technological convergence; ergo, international flows of knowledge

can be ignored. Hints that those might be lurking behind the closed door,

however, appear here and there throughout the book. The implementation of

improved transport technology is seen to play a powerful role as factors of

production are attracted to natural resource rich regions, exploiting frontier

opportunities that have important technological underpinnings. Connecting the

primary period of convergence, 1870-1900, with a surge of technological

developments that revalued natural endowments and gave greater weight to the

distribution of accumulated human capital suggests that the whole story might

be told from a different perspective and with a different set of prime movers.

It is difficult to give a concise resume of a book that encompasses so much,

but a quick overview will allow us to highlight certain important points. The

authors begin with what they conclude is evidence of substantial convergence,

especially of real wages, among seventeen national economies for which

statistical data are available–essentially OECD countries plus Argentina.

Experiences among members of this group were quite varied, and O’Rourke and

Williamson are fairly careful to show how the selection of countries alters the

outcome. They emphasize the contrast between the New World and Old World

economies, which is where the big change occurred. Within the European set, the

evidence for convergence is much slimmer. The New World economies consist only

of the resource-abundant areas settled by Europeans. Surely this conveys an

inherent bias within the narrative. It must inevitably be a tale dominated by

the movement of European labor and capital to the (almost) unoccupied spaces of

the earth.

The authors, assuming there was important economic convergence in the late

nineteenth century, seek to relate it to the “forces of globalization.” They

begin with the convergence of commodity prices and in chapter 3 show that there

was a lot of it (yet again mostly trans-oceanic) and that it was much more a

result of greatly reduced transport costs rather than of more liberal trade

policy. In chapter 4 they forge the link, following Heckscher-Ohlin, between

trade-induced price convergence, factor prices, and the distribution of income.

The evidence on income distribution broadly supports the predictions of

Heckscher-Ohlin, but once more the main component of the effect is

trans-Atlantic. In chapter 5 they turn to trade liberalization and show that

the British took the lead because they realized that they were able thereby to

generate large and widespread gains in real wages. The same analysis explains

why there was less enthusiasm on the Continent for trade liberalization. In

chapter 6 O’Rourke and Williamson turn to the backlash stirred up by price

convergence and the return to protectionism. They aim to prove that this falls

well within the predictive consequences of the interests affected by the grain

invasion. In Britain, as expected, large numbers of (potentially voting) urban

wage earners gained increases in real wages. On the Continent there commonly

were larger reductions in land rents offsetting smaller wage gains, and in

France real wages actually fell. Hence the backlash in many of the Continental

jurisdictions is understandable and politically predictable.

Chapter 7 presents yet another explanation of the great trans-Atlantic

migration. This account begins with a large wage gap, essentially exogenously

introduced, that subsequently narrows as large-scale migration proceeds. In the

O’Rourke and Williamson scheme the out-migration is then impelled by

“demographic forces” that are not clearly explained but which result from past

natural increase augmented by an “emigrant stock” effect (relatives and

friends, or chain migration). The falling costs of migrant transportation and

the emigration-depressing effects of industrialization in sending countries are

claimed to be insignificant influences.

The effects of mass migration, which in O’Rourke and Williamson are by far the

leading force for convergence, are examined in chapter 8. Attention there is on

the United States as the foremost receiving economy and on Ireland and Sweden

as two prominent sending economies. Large impacts are found for the United

States (negative of course) and Ireland (positive), which will come as a

surprise only to those who have convinced themselves that immigration did not

lower wages in the United States. In Sweden, on the other hand, large-scale

emigration gave wages only a modest boost. The following chapter looks at the

effects of globalization on income inequality via factor prices. Once more the

main result is the contrasting experience of Europe and the New World. In

Europe, in the era of globalization, rising ratios of unskilled wages to land

rents were associated with decreasing inequality in the distribution of income.

In chapter 10 O’Rourke and Williamson return to the political backlash against

the consequences of globalization. They tell a story of increasingly

restrictive immigration policy. This occurred not only in the United States,

but in other receiving countries as well during an extended period of time.

O’Rourke and Williamson construct an index of restrictiveness in immigration

policy and, in a regression analysis, show that it moves most significantly in

relation to the impact of immigration on the labor market.

The authors devote two chapters to international capital flows and the

integration of world capital markets. The major claim here is that, in relative

terms, capital markets were even more integrated than they are today. The big

problem for O’Rourke and Williamson is that capital was not generally flowing

in the opposite direction to labor. The labor abundant regions of the world

were not attracting large capital flows. Capital, then, was acting as a

divergent influence, substantially offsetting the convergent effects of

international migration. It was the abundant land and the unexploited natural

resources of the New World that attracted most of the capital. Here O’Rourke

and Williamson explicitly recognize that European, especially British, capital

flows were greatly attracted by foreign investment demand on the frontier. It

would have been more satisfying to see that thought more effectively integrated

into the analysis of labor migration (chapter 7) where capital is repeatedly

described as “chasing labor.” An alternative model, which O’Rourke and

Williamson do not consider in their migration analysis but which is implied in

their treatment of international capital flows, would have capital attracted to

the New World to combine with the abundant natural resources there and with the

labor drawn there by the abundance of capital.

In chapter 13 O’Rourke and Williamson directly address an issue that has been

much debated in recent years–whether trade and factor flows are substitutes or

complements. This is one of the fresher sections of the book, relying less on

previous publications by the authors. Cases of substitutability are not to be

found. There are some notable cases of complementarity between trade and factor

flows, but more commonly the relationship is neutral.

In their final summing up (chapter 14), O’Rourke and Williamson reiterate their

message that the globalization force most responsible for wage and even per

capita income convergence was mass labor migration, given the generally

perverse direction of capital movements and the more modest contribution of

commodity trade and price integration. They ask whether serious wage and income

convergence can be expected without large-scale international migration. A

second important point is that in the late nineteenth century globalization

backlash was endogenous and could well be again. O’Rourke and Williamson also

offer a partial admission that they may have underplayed the role of technology

and the role of its international diffusion. Throughout, they have ignored that

influence and neglect it on the grounds that they can obtain substantial

explanation of the phenomena they wish to account for without calling

technology into play. That makes less than a wholly convincing case against it.

Throughout their book O’Rourke and Williamson acknowledge the limitations of

their study. Their continuous inclination, though, is nevertheless to forge

ahead. They return to some of those limitations in their final chapter. The

authors, for example, admit that individual national experiences were highly

varied–so varied, some readers might suspect, that generalizations cannot be

made. The results reported are often from the most prominent cases that best

exemplify the authors’ argument. Time and again the focus is on the

relationship between the United States and Europe. That is an important case,

but probably sui generis and not enough of a basis for an international


This book should be widely read due to the very fact that the authors’

arguments are open to debate. Professional economic historians, especially

those interested in entering the debate, should see the whole account in its

crystallized form. For students this book is a useful introduction to an

important topic. It is also a book to be recommended to our colleagues in

economics, history, or other disciplines who do not ordinarily pay attention to

what is being written as economic history.

Marvin McInnis primarily studies Canadian economic development in the late

nineteenth and early twentieth centuries. His most recent writing includes two

chapters on Canada in Michael Haines and Richard Steckel, (eds.) Cambridge

Population History of North America. New York: Cambridge University Press,


Subject(s):International and Domestic Trade and Relations
Geographic Area(s):General, International, or Comparative
Time Period(s):20th Century: Pre WWII