Published by EH.NET (July 1, 2000)

Roger Middleton, The British Economy since 1945: Engaging with the

Debate. New York: St. Martin’s Press, 2000. xix + 198 pp. $49.95

(hardcover), ISBN 0-312-22862-7.

Reviewed for EH.NET by Alan Booth, Department of History, University of Exeter.

This is another textbook treatment of British economic performance since 1945

in a market that, if not nearing saturation point, is certainly crowded. This

book is designed for the real beginner, and assumes comparatively little

previous knowledge of either recent British economic history or the methods of

the economic historian. It is part of a series, British History in Perspective,

which provides for first year undergraduates an overview of a problem area in

historical interpretation, giving a guide to the literature, principal themes

and competing interpretations. This is the first volume of the series to deal

with an economic topic. Accordingly, the book begins with compelling arguments

for studying economic history and tries to establish a basic toolkit with which

students can interrogate British economic performance. The author (Reader in

the History of Political Economy at the University of Bristol, UK) knows his

intended readership and undertakes these tasks with skill. He presents the

introductory economics in the text, but the core arithmetical and statistical

techniques are relegated to an appendix–one must not frighten the horses!

Thereafter, the material is organized in a rather unconventional way, being

extremely state-centered and policy-oriented. There are separate chapters on

economic performance, economic policies (more accurately, the goals of

policy-makers) and the effectiveness of policy. In truth, the book’s design and

content would be more accurately described as British Economic Policy and

Performance since 1945 and, for those who know Middleton’s work, it is

essentially the postwar sections of his Government versus the Market

(Edward Elgar, 1996), up-dated and in a form accessible to first year

undergraduates. In one very important respect, however, it goes beyond the

previous book and is more interesting as a result.

Middleton has become much more sensitized to the problems of presenting British

economic history since 1945 within the grand narrative of decline and missed

opportunities for faster growth and improved competitiveness. He establishes

solid performance criteria and emphasizes that Britain’s economic record was

“poor” only during the 1970s and at other times should be more accurately

described as “adequate.” This enables him to contrast a “popular” discourse of

abject failure and a “British disease” with a more considered, “academic”

picture in which the critiques of Britain’s managers, workers, institutions and

policy regime are less persuasive and easily substantiated than commonly

believed. Indeed, this is an encouragingly post-modern textbook, arguing that a

single grand narrative is most unlikely, given the complex web of economic and

political interactions that determine national economic performance.

But Middleton has thrown off only some of the shackles of past interpretations.

He concludes that Britain’s economic performance can be understood in terms of

a complex interaction of market and non-market failures. He faithfully reports

and endorses the existing literature with its emphases on weaknesses on the

supply side of manufacturing and limited convergence towards US levels of

(manufacturing) productivity. At the same time, he makes some use of

Broadberry’s findings that the US and the major European countries “overtook”

the British economy by transferring resources from low productivity agriculture

into higher productivity manufacturing and service occupations and by relative

productivity advance in services, but that there is no obvious trend in

Britain’s relative performance in manufacturing. If Broadberry is correct, and

the outlines of his argument are very compelling, even the core “academic”

literature on British economic performance since 1945 can be questioned more

heartily and persuasively than Middleton ventures. Its preoccupation with

manufacturing appears excessive and the comparative lack of attention to

agriculture and services is quite shameful. The comparative weakness of

Britain’s service sector does not lend itself easily to Middleton’s

state-centered, policy-oriented approach, but a more penetrating analysis of

agricultural policy could have been expected. Thus, given his attempt to

encourage students to engage with the debate, it is a pity that Middleton did

not press his post-modern agenda much farther even to the extent of questioning

whether the period since 1945 is really an appropriate one for assessing the

national economy.

Alan Booth, Department of History, University of Exeter, has recently

completed for Macmillan a study of the British economy in the twentieth

century.

Published by EH.NET (July 1, 2000)

Robert Wright, Nonzero: The Logic of Human Destiny. New York: Pantheon

Books, 2000. x + 435 pp. $27.50 (cloth), ISBN: 0-679-44252-9.

Reviewed for EH.NET by J. Bradford De Long, Department of Economics, University

of California-Berkeley.

Back in 1794 the Enlightenment philosophe Marie Jean Antoine Nicolas Caritat,

Marquis de Condorcet wrote his Sketch for a Historical Picture of the

Progress of the Human Mind — the boldest of the eighteenth-century

declarations that humanity had and was destined to see Progress with a capital

P. Condorcet was a powerful and convincing advocate– Malthus wrote his

Essay on Population explicitly against Condorcet. But that was the high

water mark of belief in Progress. By and large the past two centuries have seen

the reaction, and confidence in human Progress — technological, political,

humanistic, and moral — fell out of intellectual favor.

Now comes Robert Wright, previously author of Three Scientists and Their

Gods and The Moral Animal, with an excellent book accompanied by an

enthusiastic blurb by William McNeill. Wright’s purpose is to set out the

gospel of progress anew, this time using the language of game theory as his

principal mode of rhetoric. At its most basic level Wright’s point is that

interactions are positive-sum: there are gains from cooperation. Thus human

cultural evolution has an arrow and a direction: toward greater complexity,

toward higher civilization.

The direction arises at two levels. First, individual humans seek out things

that increase their own powers and capabilities. Cooperation tends to do this,

so people find ways to cooperate. But the most important form of cooperation is

one that is almost impossible to stop: the simple sharing of knowledge. Two

heads are better than one. The denser the population (and the better the means

of communication) the more ideas will be generated, the larger the number of

ideas that turn out to be useful, and the faster will be progress. People are,

Wright argues — in my view correctly — naturally acquisitive in that they

want useful things, and will eagerly copy new technologies they hear about.

Thus Wright sees inventions such as agriculture as inevitable — not as a lucky

accident.

Second, at the level of human societies, the societies that are more powerful

— have better technologies, more effective social arrangements, greater

population densities, and so forth — either swamp their neighbors or force

their neighbors to copy them in order to maintain their autonomy. In Eurasia,

where contact was constant from an early age — as Wright points out, in 200 on

one could travel from Gibraltar to the Yangtze River and cross only three

borders (p. 117) — a good innovation at one end would diffuse all the way to

the other in a matter of centuries. He believes that the wide spread of

religion in agricultural civilizations proves that its productivity-boosting

and division of labor-enhancing effects outweigh its exploitative side (p. 86):

those societies that did not have temples and priests did not flourish.

Wright dismisses gloomy talk of barbarian invasions and the fall of empires by

asserting that one goes from furs-and-swords to linen-and-pens in three

generations: “The Romans weren’t exactly hailed by the Greeks as cultural

equals when they happened on the scene…. Yet they were massively infiltrated

by classical Greek memes, which they then spread across the wider world. In

Horace’s phrase, ‘The Greeks, captive, took the victors captive’. And, anyway,

who were the Greeks to look down on intrusive barbarians? … The early Greeks

had a title of honor, ptoliporthos, that meant ‘sacker of cities’…. But

whether these ‘barbarians’ sack cities, or hover on the periphery and trade …

or ally with them in war or ally against them, one outcome is nearly certain:

win, lose, or draw, the ‘barbarians’ become vehicles for advanced memes…” (p.

131). For what truly matters are the basic technologies of agriculture and

craft, not the products of high civilizations. And even when you do have

significant regression — in the post-Mycenean Dark Age, in the post-Roman Dark

Age, or in the wake of the Mongols – Wright reminds us that “the world makes

backup copies.”

Wright also dismisses gloomy talk of the stagnation of Ming and Qing China, the

fall of the Mughal Empire, and the technological and organizational stasis of

the Ottoman Empire by arguing that the key unit is not Europe vs. Asia but is

instead Eurasia. Sooner or later, Wright argues, some part of Eurasia — it did

not have to be Europe – would have hit upon a superior social and technological

recipe to that of the mid second millennium empires, and when it did the rest

would have copied it. Wright is of the school that holds that China almost

broke through to modernity, writing of how paper and woodblock printing were

used to distribute useful texts — Pictures and Poems on Husbandry and

Weaving, Mathematics for Daily Use, and the Treatise on Citrus

Fruit (p. 159). The recipe that ultimately proved successful — what Wright

calls the economic logic of freedom — was stopped in many places: “indeed, on

balance, in the centuries after the printing press was invented, European

governments grew more despotic” (p. 185). But it only had to succeed once. And

given sufficient cultural variation, sooner or later a breakthrough was

inevitable.

But even if you buy all of Wright’s argument that forms of increasing returns

— non-zero-sum-ness, as Wright calls it — impart an arrow of increasing

complexity and division of labor to human social, cultural, and economic

evolution, this does not necessarily amount to Progress — at least not to

anything we would see as progress in human morality or human happiness. For why

should organizational complexity be Progress? As Wright puts it: “… it would

be hard to argue that there was net moral gain between the hunter-gatherer and

ancient-state phases of cultural evolution. The Egyptians had slaves — which

virtually no known hunter-gatherer societies had — and their soldiers returned

from wars of conquest proudly brandishing the severed penises of their slain

foes” (p. 206).

So in the end Wright is forced to play a game of three-card monte to reach

conclusions that support his belief in Progress. The card labeled “complexity”

must be switched for the card labeled “Progress” without our noticing. In the

industrial core, at the end of the twentieth century, we are inclined to

tolerate this switch — to say that it is obvious that a highly complicated and

productive civilization will have widely-distributed individual wealth, lots of

individual freedom, and soft forms of rule, and that social complexity is

civilization. But back in the middle of the twentieth century this switch could

not have been accomplished at all: “complexity yes,” people would have said,

“but progress no.” And who knows how things will look in a hundred more years?

Marie Jean Antoine Nicolas Caritat, Marquis de Condorcet (1743-1794), was an

aristocrat, a mathematician, an official of the Academy of Sciences, and was a

friend of Voltaire (1694-1778). He strongly supported the revolution of 1789 as

an example of human progress. But the Committee of Public Safety turned on him:

he was arrested, and died in prison before he could be executed.

————————————————————————

*The above review covers only the first two-thirds of the book. At that point

Wright asks the question: “Aren’t organic evolution and human history

sufficiently different to demand separate treatment?”

I think the answer to this question is “yes,” and that the book should stop at

that point. Wright thinks that the answer is “no,” and so the book continues.

He goes on to draw analogies between human cultural evolution toward greater

complexity and biological evolution toward greater complexity.

Wright’s argument that biological evolution has an arrow as well — tends to

produce animals with big brains that think — runs roughly as follows:

Life starts out simple. It then evolves, with variation and with the

conservation and spread of successful variations. Thus evolution generates

increasing diversity, and increasing diversity generates increasing complexity:

it is hard for a one-celled organism to become less complicated (although

viruses have managed), and easy for it to become more complicated.

But wait! Most of your environment is made up of other living creatures. Hence

the environment becomes more complicated over time too. And because the

environment becomes more complicated over time, there is increasing adaptive

value in information acquisition and information processing organs: better eyes

(and ears) and bigger brains. Random evolution creates increasing diversity and

complexity of life. Increasing diversity and complexity of life make for a more

complicated environment. And a more complicated environment generates strong

evolutionary pressure for eyes, hands, and brains.

Maybe his biological argument is right — I’m inclined to think it probably is

— but maybe not. Big eyes and big brains are expensive in terms of energy. Why

not go for bigger teeth or stronger legs? And large complicated animals seem to

be (so far) at a disadvantage in species survival when the asteroids hit.

J. Bradford De Long is a professor of economics at U.C. Berkeley, and is the

author of the forthcoming “America’s Historical Experience with Low Inflation”

(Journal of Money, Credit, and Banking), and the recently published

“Some Speculative Microeconomics for Tomorrow’s Economy” (First Monday)

and “The Triumph[?] of Monetarism” (Journal of Economic Perspectives).

Published by EH.NET (June 1, 2000)

Walter Johnson, Soul by Soul: Life Inside the Antebellum Slave Market.

Cambridge, MA: Harvard University Press, 1999. 283 pp. $26 (cloth), ISBN

0-674-82148-3.

Reviewed for EH.NET by Robert Wolff, Department of History, Central Connecticut

State University.

Walter Johnson’s Soul by Soul: Life Inside the Antebellum Slave Market

traces the human history of the slave trade in the United States. Designed as

both complement to, and measured criticism of, economic and demographic

approaches to the slave trade, Soul by Soul begins with the claim that,

“we must now consider the roads, rivers, and showrooms where broad trends and

abstract totalities thickened into human shape. To the epochal history of the

slave market must be added the daily stories of the slave pens, the history of

sales made and unmade in the contingent bargaining of trader, buyer, and slave”

(p. 8). By placing enslaved African Americans at the center of analysis,

Johnson shifts the scholarly focus on the slave market from aggregate numerical

measures to the chilling day-to-day commerce in human beings. Soul by

Soul indicts the antebellum South on its own terms, meticulously

dismantling the slaveholders’ world. According to Johnson, the market served as

the foundation of the planters’ fantastic and frightening worldview in which

they “imagined who they could be by thinking about whom they could buy” (p.

79).

What distinguishes Soul by Soul from other recent works on the

experience of slavery, and, indeed, the history of the antebellum South, is the

innovative use of court records. Johnson, an assistant professor of history at

New York University, begins by asserting the importance of seeing the moment of

sale through the eyes of the people who were sold and not just through the eyes

of slaveowners and traders. A careful reading of the voluminous quantity of

published slave narratives forms the foundation of the volume but much of the

insight comes from an exploration of roughly two hundred disputed slave

transactions that were brought before the Louisiana Supreme Court. Under

so-called “redhibition” laws, slave buyers dissatisfied with the people they

had bought could sue the seller. Louisiana law forced slave traders to warranty

these sales in cases where the buyer was deceived or misled regarding a slave’s

physical health or “character.” [See Judith K. Schafer, Slavery, the Civil

Law, and the Supreme Court of Louisiana (Baton Rouge: Louisiana State

University Press, 1997) for more information on the legal history of slavery.]

Johnson makes excellent use of these documents, and others, to describe the

physical spaces and transactions of the slave trade. Far from the image of the

“slave auctions” that figured so prominently in abolitionist accounts, the

slave markets cloaked their transactions in civility as they clothed slaves to

reflect buyers’ desire. Traders displayed enslaved African Americans for

inspection in genteel showrooms, set apart from the slave pens in which they

were imprisoned. And it was in these showrooms that sellers and buyers

displayed their “knowledge” of slave bodies, reading them for signs of

punishment and disease, extrapolating character traits and physical abilities

from their faces, hands, limbs, and breasts, and all the while defining through

these acts their own honor, manhood and mastery.

The public transcript of disputed slaves sales allows Johnson to create what

might be termed, following James Scott, the “hidden transcript” of the market

transactions in human bodies. [James C. Scott, Domination and the Arts of

Resistance: Hidden Transcripts (New Haven: Yale University Press, 1990).]

Johnson examines all of his documents — including slaveholders’ writings — to

describe what the sales meant to the parties concerned, whether it was the

traders’ ambitions, the slaveholders’ desires, or the slaves’ fears. Through

his careful reading of the evidence emerge the slaves’ own narratives of sale.

Johnson’s evocative language describes the bitter ironies of a market in which

African Americans were “alienated . . . from their own bodies” and forced “to

perform their own commodification” (pp. 163-164). Here they were often faced

with impossible choices, for example whether to confirm a dealer’s embellished

account of their own abilities or not, when either course of action could lead

to a beating. Nevertheless, Soul by Soul argues that precisely because

slave deals invariably relied upon the slaves’ own presentation of their bodies

and minds, slaves had the ability to shape the moment of sale. At great risk to

themselves, they could selectively confirm or deny sellers’ claims based on

their own reading of the potential buyer. They could declare their intentions

to run away or harm themselves if certain conditions were not met, such as

being sold with family members. On the margin slaves could hope for a

beneficent master living within the city and struggle to avoid a cruel master

who owned a sugar plantation. Again, at peril of their own lives, slaves could

continue this struggle past the point of sale in an effort — through faking

illness or developing “bad” traits — to induce their masters to use the

redhibition laws to return them to the markets. There are times in the

narrative where this seems to be at best a pyrrhic victory. Yet in one of the

most significant passages Johnson concludes: “Placed on a scale between slavery

and freedom or judged according to a theory that accepts revolution as the only

meaningful goal of resistance, these slave-shaped sales do not look like much:

as many skeptics have put it, ‘after all, they were still enslaved.’ But placed

between subordination and resistance on the scale of daily life, these

differences between possible sales had the salience of survival itself” (p.

187).

The possibility of being sold is what set chattel slavery apart from other

forms of coerced labor. Soul by Soul demonstrates that slaveholders had

a far greater affinity for cash than for any individual slave. In so doing it

demolishes the lingering romanticism that still pervades much of the literature

on the Old South. In particular, Soul by Soul questions whether there

ever was a Southern paternalism that, in Eugene Genovese’s words, “implicitly

recognized the slaves’ humanity” or established a truly “mutual” set of

obligations between master and slave. [Eugene Genovese, Roll, Jordan, Roll:

The World the Slaves Made (reprint ed., New York: Vintage Books, 1976), p.

5.] According to Johnson, violence against slaves, often irrational and

unpredictable, was the “essence of that grim mutuality,” not a “violation” of

it (p. 206). When slaves were beaten, it was for violating the master’s vision

of his or her own world which was constructed, both literally and figuratively,

by the slaves themselves. Slaveholders, as Michael Tadman has also

demonstrated, crafted elaborate myths that have obscured the cold calculations

of the market. [Michael Tadman, Speculators and Slaves: Masters, Traders,

and Slaves in the Old South (Madison: University of Wisconsin Press,

1989).] Soul by Soul demonstrates that far too much of the historical

literature has obscured those cold calculations as well.

No research is without flaws, and no scholar impervious to the claim that

something should have been done differently. Johnson carefully crafts his

narrative to acknowledge the strengths and weaknesses of his evidence. For

example, Johnson wisely reads the court records as contingent evidence, which

is to say, he does not take the accounts contained therein as literal truth.

Court depositions and testimony do reflect the realm of the possible. People

presented arguments that were plausible; if they were not true in the

specifics, they were always framed in a way that made them possibly so.

Similarly, he acknowledges that the slave narratives were always survivors’

stories. Most slaves died in bondage. Is Soul by Soul really, as Johnson

claims, “the story of the making of the antebellum South” (p. 18)? Yes, in

large measure it is. Johnson’s narrative does possess a self-admitted

timelessness which makes it difficult to see whether time and place matter. It

may be that this story is unique to Louisiana in the late antebellum period,

but this would hardly lessen the volume’s significance. New Orleans was a

critical site in the slave trade, and Louisiana slaveholders epitomized much of

the southern gentry. By focusing on the moment of sale, and analyzing what it

meant to both slaveowner and slave, Soul by Soul establishes itself as

perhaps the most innovative work on slavery published in the last twenty-five

years.

Robert S. Wolff is an assistant professor of history at Central Connecticut

State University in New Britain, Connecticut. He is currently working on a

project entitled, “The Problem of Race in the Age of Freedom: Emancipation and

Schooling in Baltimore, 1860-1868.”

Published by EH.NET (June 1, 2000)

David Laidler, Fabricating the Keynesian Revolution: Studies of the

Inter-war Literature on Money, the Cycle, and Unemployment. New York and

Cambridge: Cambridge University Press, 1999, xvi + 380 pp. $74.95 (cloth) ISBN:

0-521-64173-X, $27.95 (paper) ISBN: 0-521-64596-4.

Reviewed for EH.NET by J. Daniel Hammond, Department of Economics, Wake Forest

University.

David Laidler’s thesis is just as the title suggests. The Keynesian revolution

was a fabrication. By this Laidler means that the putative revolution was

neither uniquely Keynesian nor revolutionary. The most transforming development

of post-1936 economics was the synthesis embodied in the IS-LM model. The

model, while generally and properly associated with Keynes’s General

Theory and the “revolution” that followed, owed more to John Hicks, James

Meade, Roy Harrod, Brian Reddaway, and Alvin Hansen than to Keynes. Though the

General Theory contained an informal version of the model, the ideas

that the model was subsequently used to organize were themselves neither

particularly Keynesian nor novel.

If there was not a uniquely Keynesian revolution, why organize the book around

the idea of such an event? Obviously, one reason Laidler did so is because the

book is an exercise in myth debunking. The term “Keynesian revolution” is part

of the common parlance among economists, and carries the message that J. M.

Keynes fomented a revolution with the General Theory. No less a source

than Keynes testified to this. Laidler quotes Keynes from a 1935 letter to

George Bernard Shaw: “I believe myself to be writing a book on economic theory

which will largely revolutionise – not, I suppose, at once but in the course of

the next ten years – the way the world thinks about economic problems” (p. 3).

In the decade following publication of the General Theory there was

disagreement over the particulars of the revolution but little doubt that there

had been a revolution and that it was Keynesian.

However, Laidler’s message is also that something new and substantial was

fabricated from inter-war economics, for which Keynes and his followers were

largely responsible. This was a consensus on how to deal analytically and

practically with problems of macroeconomic instability. In this sense

“fabricate” means “to make” rather than “to make up.” The consensus was

embodied in the formal structure and interpretation of the IS-LM model. IS-LM

provided a convenient, easy-to-learn, and rich vehicle for organizing and

comparing ideas. Much of Laidler’s book is an account of the inter-war material

from which this consensus was made. Laidler shows how in the framing consensus

within the formal structure of the IS-LM model portions of inter-war economics

were preserved and portions were lost.

The book is organized around several themes in the inter-war literature. The

first theme is Wicksell’s influence on the divergent ideas in Austrian and

Swedish cycle theory. The second is the British literature of the period, with

Marshall’s heavy influence. The third theme is geographically based — the

diverse American inter-war literature including Irving Fisher’s quantity

theory, the needs-of-trade monetary policy view that was influential at the

Federal Reserve, empirical business cycle research, and underconsumptionism.

The fifth and central theme is Keynes’s General Theory and reactions to

it by older and younger economists. Laidler’s division of Keynes’s critics into

older and younger groups provides a clear view of what was new and what was

old, what was kept and what was shed, in the “Keynesian revolution.”

The IS-LM model was not just a formalization of the General Theory. It

was both more and less than this. It summarized, for instance, Wicksellian

inter-temporal coordination issues and Marshallian quantity theory ideas that

were not original to the General Theory. And it omitted key ideas from

the inter-war period that Keynes emphasized in his book, such as the roles of

uncertainty and expectations.

Fabricating the Keynesian Revolution is an effective complement to

Laidler’s The Golden Age of the Quantity Theory (Princeton University

Press, 1991). Between the two, he has provided an in-depth account of the

development of monetary and macroeconomic theory from 1870 through the 1930s.

The books share the same historiographic approach, detailed and nuanced tracing

of the development and interplay of ideas from their sources. One difference in

their content is that this book has less emphasis on the interaction of

institutions and ideas. But the two books share the same central theme, that

economic ideas evolve gradually and without so much drama as is often presumed.

The evolution of economic doctrine is complicated, with ideas being created,

being lost, and being found. Laidler provided a preview of this book’s thesis

in The Golden Age. So readers who are familiar with The Golden

Age will not be surprised by Fabricating the Keynesian Revolution.

They will, however, be amply rewarded for reading it.

Dan Hammond is author of Theory and Measurement: Causality Issues in Milton

Friedman’s Monetary Economics (Cambridge University Press, 1996).

Published by EH.NET (June 1, 2000)

Julian E. Zelizer, Taxing America: Wilbur D. Mills, Congress, and the State,

1945-1975. Cambridge and New York: Cambridge University Press, 1998. xv +

384 pp. $49.95 (cloth), ISBN: 0-521-62166-6.

Reviewed for EH.NET by Dennis J. Ventry, Jr.

The Not-So-Hidden Welfare State

Julian Zelizer begins his award-winning book, Taxing America, with a

question: “How did the American state achieve what it did between 1945 and

1975, despite the nation’s anti-statist culture and despite its fragmented

political institutions?” He posits four answers. First, Congress guarded

jealously the power to tax. By maintaining its constitutional jurisdiction over

taxation, and through various institutional and procedural changes,

particularly the decentralized committee system, Congress maintained

“tremendous influence” over how and by how much the federal government raised

revenues and distributed tax expenditures (p. 7). Second, policy communities

helped bridge gaps between “fragmented political institutions,” and facilitated

interaction among otherwise disconnected members of the policymaking process

(pp. 8-11). Third, taxation was central “to postwar liberalism and its domestic

agenda” (p. 11). It provided legislators an indirect expenditure route that

bypassed the nation’s anti-statist culture, and allowed them to enact and

enlarge a social safety net that prominently included the Social Security and

Medicare programs. And finally, fiscal conservatives “entered into a fragile

alliance with the state,” accepting, for instance, stimulatory tax cuts,

moderate deficit financing, and contributory social insurance (pp. 16-17).

Zelizer, an Associate Professor of History and Public Policy at the State

University of New York at Albany, uses the career of Wilbur Mills to

demonstrate how the American state achieved so much between the end of World

War II and the mid-1970s. When Mills arrived in Washington in 1938 as a

first-term Congressman from central Arkansas, he encountered a political system

“dominated by political parties and interest groups” (p. 27). When Mills left

Washington thirty years later, the policymaking process had changed

dramatically, in large part because of the transformations that he and his

generation wrought, including significantly increasing the power of committees

and committee chairman, and insulating committees and Congressional politicking

from public and even executive scrutiny. Theirs was a generation that

emphasized technocratic, expert policymaking, not democratic processes. Attuned

to the value of specialization, Wilbur Mills, Chairman of the House Ways and

Means Committee from 1958 to 1974, carved out a power-niche for himself as

Congress’ resident tax expert. He poured over the Internal Revenue Code late at

night — not exactly light reading. More importantly, he forged alliances with

what Zelizer terms the “tax policy community.” The members of this community

included politicians and key committee members, representatives and experts

from business and financial associations (such as the Chamber of Commerce and

the Committee for Economic Development), staff members from executive and

congressional agencies (including the Treasury Department, the Council of

Economic Advisors, and the Joint Committee on Internal Revenue Taxation), civil

servants and administrative officials (from the Social Security Administration,

for instance), policy experts (primarily lawyers and economists) from

universities and thinktanks, and certain members of the media. While

anti-statists guarded the expenditure side of the national budget, Mills and

the tax policymaking community used the revenue side of the budget to undertake

a remarkable expansion of the American state. By enlarging self-supporting

programs like Social Security, moreover, fiscal conservatives such as Mills

consolidated their state-building gains, and became partners with the federal

government in providing social welfare services for millions of Americans.

Zelizer illustrates how taxation dominated the domestic political agenda in

postwar America by discussing several high profile, yet largely neglected,

fiscal policy discussions. He describes the Joint Economic Committee’s 1955 and

1957 hearings on “Federal Tax Policy for Economic Growth and Stability,” and

“Federal Expenditure Policy for Economic Growth and Stability,” respectively.

Moreover, he recreates the 1959 “Tax Revision Compendium,” sponsored by Wilbur

Mills’ Ways and Means Committee. These hearings and the multiple volumes that

recorded them, Zelizer shows, set the postwar tax policy agenda of tax cuts and

base-broadening that animated the Tax Reform Act of 1969, and ultimately, the

much-heralded 1986 Tax Reform Act. Taxing America also adds to our

understanding of both Social Security and Medicare. Zelizer provides a rich

discussion of the financing arrangements of Social Security, and how they

enhanced the program’s appeal and secured its consolidation. Moreover, the

chapter on Medicare — by describing the difficulties that policymakers faced

in financing health care benefits through payroll-tax expansions as well as the

natural inclination of politicians to enlarge existing programs — exposes the

limited state-building capacity of fiscal conservatives.

In the end, Taxing America (winner of the Organization of American

Historians’ Ellis W. Hawley Prize in 1999 for the best book on U.S. political

economy, politics, and institutions) describes, from the tax side, the

“triumph” of growth liberalism in postwar America. It illustrates how taxation

made comfortable bedfellows out of fiscal conservatives and growth liberals.

And it reminds readers that much of what Mills and his generation accomplished

in economic and social policy was facilitated by what economist Gene Steuerle

has called, an “era of easy financing.” That is, for twenty-five years after

World War II, growth characterized the American economy. An expanding economic

pie increased income tax revenues, created surpluses for the nation’s social

insurance system, and allowed legislators to enjoy a form of state-building

that was largely devoid of tough choices such as tax increases and spending

cuts.

We should keep in mind, however, that the era of easy financing and the

“triumph” of growth liberalism also involved the defeat of alternative liberal

agendas. Unfortunately, Taxing America ignores the vanquished. Liberal

politicians such as Paul Douglas and Albert Gore make quick appearances in the

book, but primarily as gadflies (pp. 141, 306). Liberal economists such as John

Kenneth Galbraith and Leon Keyserling are relegated hardly a mention; Zelizer

dismisses them as “social Keynesians” in a short paragraph under a section

entitled, “The Alternatives Rejected.” Indeed, there is no discussion of

alternative visions for postwar America beyond the fiscally conservative,

supply-side, rising-tide vision articulated by Mills and his tax policymaking

community. At several points in the book, Zelizer alludes to alternatives to

growthmanship, but he never explores them. For instance, he quotes liberal

economist Richard Musgrave criticizing the Kennedy administration’s tax package

at a Treasury Department consultants’ meeting. “I am bothered by the

Administration’s failure to emphasize the importance of the equity objectives

in the whole reform issue,” Musgrave stated. “To argue for base broadening as

needed merely to permit rate cuts (required on incentive grounds) without

exceeding the ‘permissible’ deficit, and not urge it on equity grounds, is a

pretty weak position from which to defend the reform case. One cannot but note

a change in flavor, in this respect,” Musgrave observed, “between the tax

messages of ’62 and ’63” (p. 192). Regrettably, Zelizer foregoes investigating

the implications of Musgrave’s complaint. The tradeoff between growth and

equity was real, as Musgrave suggested. Potentially, it involved redistributing

the economic pie, not just enlarging it. It involved, moreover, evaluating

relative societal benefits and burdens, and considering the moral, not just the

economic, implications of taxation. Taxing America disregards this

alternative vision of state-building altogether.

In Zelizer’s defense, he set out to tell the story of “how American government

has worked,” not how it might have worked (p. 372). In this endeavor, he has

succeeded admirably. Taxing America is a must read for economic,

political, and policy historians, as well as political scientists and

sociologists interested in state-building. It reminds scholars of postwar

America that the nation’s tax system played a crucial role in the formation of

the modern American state. And it points the way for further research into the

myriad ways tax policy also acts as social policy.

Mr. Ventry is a Ph.D. Candidate in History at the University of California,

Santa Barbara. He is also a Visiting Fellow at Harvard University (1999-2000),

and the Robert W. Hartley Memorial Fellow (2000-2001) at the Brookings

Institution in Washington, D.C. Recent publications include “The Collision of

Tax and Welfare Politics: The Political History of the Earned Income Tax

Credit, 1969-1999,” National Tax Journal (Sept. 2000), and Tax Justice

Reconsidered: The Moral and Ethical Bases of Taxation (Urban Institute

Press, 2000).

Published by EH.NET (June 1, 2000)

Richard Grassby, The Idea of Capitalism before the Industrial

Revolution. Lanham, MD: Rowman & Littlefield, 1999. ix + 145 pp. $50.00

(cloth), $14.95 (paper), ISBN: 0-847-69362-1 (cloth), 0-8476-9633-2 (paper).

Reviewed for EH.NET by Richard F. Teichgraeber III, Murphy Institute of

Political Economy and Department of History, Tulane University.

This book appears at a time when the bloody struggle between capitalism and

socialism unexpectedly seems to have ended, and now we must wonder why

capitalism triumphed and where it is leading us. Yet Richard Grassby, who has

written several books on the economic and social history of early-modern

England, and is currently a member of the Institute for Advanced Study,

suggests almost all our talk of the triumph of capitalism is mistaken.

Investigating the origins and evolution of the term, he reminds us that

“capitalism” did not exist as a distinct idea before the Industrial Revolution,

and that it first gained prominence only at the turn of the last century as

“the essential Manichean bogeyman of socialist theory” (p. 68). Since then,

“capitalism” has been revised and expanded in various ways to provide

explanations for innovations in almost every field of modern human activity.

The result, according to Grassby, is an idea that retains some symbolic

importance but little historical reality or explanatory power. “When we try to

understand the modern world,” he concludes, ” the idea of capitalism

constitutes the problem, not the solution” (p. 61).

Grassby’s insistence that even the most refined models of capitalism fail to

account for how change takes place over time should sound familiar to

specialists who know the economic and social history of pre-industrial Europe.

In fact, many historians have shared Grassby’s doubts about the explanatory

power of capitalism, and his argument perhaps would have been stronger had he

directly enlisted their support, rather than assembling a familiar inventory of

ambiguities and inconsistencies that color the work of those who have refused

to heed the call to cut the term “capitalism” from their vocabulary.

Readers more interested in understanding where capitalism, currently unchecked

by any substantial opposition and giddy with self-congratulation, may be taking

us, will find that Grassby has disappointingly little to say. Although we are

told his book will explore the influence of this still powerful idea on the

formation of the world in which we live, the issue is never directly or

systematically addressed. Those who recall Andrew Shonfield’s brief yet

persuasive justification for the continued use of the word “capitalism” — “no

one, not even its severest critics, has proposed a better word to put in its

place” — are not likely to be swayed by anything Grassby says. (Andrew

Shonfield, Modern Capitalism: The Changing Balance of Public and Private

Power, Oxford University Press, 1965, p. 3.) For in rehearsing the complex

and contested history of the word, he too offers nothing to take its place.

That the biggest questions in history often seem intractable is no

breath-taking insight. What is capitalism? How has it changed over time? Can

various conceptions of capitalism be unified? Grassby has raised these

questions, however, not to open them to further inquiry, so much as to dismiss

them out of hand. He, perhaps, could have addressed them more helpfully by

beginning with a query of a different order, and one that can be answered: “Why

must capitalism constitute the central problem in any effort to understand the

modern world?”

Richard F. Teichgraeber III is author of ‘Free Trade’ and Moral Philosophy:

Rethinking the Sources of Adam Smith’s Wealth of Nations (Duke University

Press, 1986).

Published by EH.NET (June 1, 2000)

Samuel Amaral, The Rise of Capitalism on the Pampas: The Estancias of Buenos

Aires, 1785-1870. Cambridge: Cambridge University Press, 1998. xviii + 290

pp. $64.95 (cloth), ISBN: 0-521-57248-7.

Reviewed for EH.NET by Edward Beatty, Department of History, Duquesne

University.

The large rural estates of Latin America have long attracted the attention of

historians, placed at the center of debates concerning social inequities,

political influence, and economic growth and development. Whether labeled

haciendas, fazendas, latifundia, or estancias, the large estate has often been

identified with social inequity, coerced labor, productive autarchy and

inefficiency, and technological backwardness. In short, the landed estate of

the eighteenth and nineteenth centuries has been seen as one locus of feudal

persistence in Latin America. Although many studies over the past two decades

have offered a more nuanced and largely revisionist view, only a handful have

provided systematic examinations of the internal dynamics of estate operation.

Samuel Amaral, who teaches history at Northern Illinois University and has

published extensively on Argentine rural and economic history, offers a long

overdue contribution to this subject. The Rise of Capitalism examines

the estancia, the large livestock ranch of the Argentine plains, during the era

of its critical reorientation toward the demand for cattle products generated

in the North Atlantic, circa 1780-1860. The importance of this contribution is

not so much the subject as the approach. Using detailed local sources,

including probate records, estate inventories, managers’ reports, travelers’

accounts, and agricultural surveys, Amaral presents an intensive and compelling

portrait of the internal operation of the Argentine estancia. His conclusions

— and the importance of this work –lie on two levels. First, Amaral shows

that the internal operations of the estancia were market oriented and profit

motivated. Owners and managers responded to market conditions and in their

daily behavior sought consistently to maximize efficiency and profit. Second,

Amaral shows that the estancia developed within an environment where

competitive pressures mattered more than political protection and social

privilege. This is not to say that the political environment did not matter,

for estancias evolved within a particular framework of formal law and informal

custom (and themselves helped alter that institutional context), but that

market-based allocation of the factors of production within the estancia “firm”

mattered more.

While the golden age of economic expansion in the Argentine pampas would not

come until the late nineteenth century, Amaral shows that extensive growth and

profitability were well underway in the first half of the century. The economic

foundations of the estancia lay in their use of land, capital, and labor, and

Amaral presents a systematic examination of each. Land was open and abundant

(chapters 2 & 3), estancias were capitalized largely in the cattle stock

(chapters 3 & 5), and labor consisted of relatively small numbers of slaves

(until after independence) and itinerant temporary free workers — the

Argentine gaucho (chapters 2 & 8). This last issue — labor instability in the

form of large numbers of temporary workers — receives careful treatment.

Neither labor scarcity nor cultural traits explain instability, he argues, but

rather the seasonal pattern of labor demand, patterns created by biological,

climatic, and environmental factors. Amaral is convincing here, although doubt

remains as we are given no view of the broader labor market, of gaucho society,

or of changes in labor’s price. Indeed, Amaral’s narrow focus on quantifiable

data and the dearth of reference to the broader political, social, and cultural

context throughout the book weakens and isolates the contributions that are

made here.

Perhaps the most interesting and important chapters of this work are those

which treat the environment (chapter 6), institutions (chapter 7), and

management (chapter 9). Moving beyond the more conventional issues like factors

of production and market conditions, Amaral shows convincingly that competitive

pressures and market signals mattered greatly, but mattered within a set of

environmental and institutional contexts that largely shaped their evolution.

The physical attributes of the Argentine pampas are well known. Fertile soil, a

broad frontier, and vast expanses of rolling grasslands provided an ideal

environment for grazing Old World cattle, with growing investment activity in

grain agriculture and, later, in sheep. Beyond this context, Amaral focuses on

the thistle, which grew prolifically after cattle disturbed the landscape,

providing a haven for rustlers and a constant aggravation for herders. Vast

“thistleries,” higher than a man’s head, spread across the pampas and shaped

the seasonal rhythm of estancia operations until the expansion of sheep grazing

and agriculture later in the century reduced their scope.

Like thistles, political institutions could also impinge on estancia operations

and productive growth. Both estancieros and the state had an interest in the

specification of property rights on the pampas, including survey and titling

provisions, herding conventions, stocking limits, brand management, the

depredations of wandering cattle, and law enforcement. Amaral shows that

estancieros lobbied for minimum restrictions on the full use of their property

rights (p. 150), but that they also sought increased regulation (or at least

enforcement) of their property rights (p. 147). The combination of wandering

cattle, game hunters, and unfenced lands created externalities against which

estancieros sought to rally protection. The outcome was largely a function of

estanciero’s demands, the physical environment of the pampas, and the limits

imposed on political institutions by the costliness of their enforcement in the

countryside. On most issues, all these worked in the same direction and favored

a competitive environment of private properties. Although this discussion could

use a more systematic comparison of pre-growth (circa 1780) institutional

conditions (including land grants, informal use, title legalization, and

emphyteusis) with the reforms considered in the 1850s and 60s, Amaral provides

an effective model for further work along these lines.

Management decisions were crucial to the estancia’s profitability. Allocating

the factors of production and adjusting to uncertainty required constant

vigilance and some expertise. An estancia’s success, Amaral writes, “was

guaranteed neither by vast tracts of land and large herds nor by the right

political connections. All those elements were necessary, but it was up to the

individual entrepreneur to combine them to make a profit” (p. 208). Indeed,

estancia management explains a central paradox of estancia expansion before

1860: that expansion occurred while the cost of inputs (principally land) was

rising and the price of outputs (principally cattle) was falling. Amaral argues

that estancieros succeeded in using resources more efficiently, allowing

survival, expansion, and profitability in the face of deteriorating relative

prices.

Although this book offers important evidence and insights into the formative

stages of the nineteenth century Argentine estancia, it comes at the price of

wading through pages of detailed evidence — often fascinating in itself but

also often tedious. Each chapter takes a narrative approach to the evidence,

and we get a step-by-step, at times disorderly, account of the author’s

exploration of historical minutia. It takes some effort to locate the

conclusions amidst the details (including over 120 tables and figures!),

although each chapter ends with a nice summation. The style is neither concise

nor always direct, and the historical evidence often stands alone. For

instance, Amaral’s extensive evidence on the relative costs and investments on

owned and non-owned lands (or, better put, on lands characterized by formal and

informal property rights) suggests that property right security affected

investment decisions, yet this important topic receives little direct comment

here (pp. 92ff and elsewhere).

For this reader, however, the price was well worth the effort. The Rise of

Capitalism on the Pampas is the result of intensive research, compelling

detail, sophisticated method, and convincing (if restrained) arguments and

insights. It makes a profound contribution to our understanding of this topic,

although it will not end historians’ debates on most of the subtopics. While

the book should appeal most to economic and Argentine historians, it should

also appeal to those interested in comparative agrarian history and in the role

of institutions in economic history.

Ted Beatty is author of Institutions and Investment: The Political Basis of

Industrialization in Mexico before 1911 (forthcoming from Stanford

University Press) and several articles on nineteenth century Mexican economic

history.

Published by EH.NET (June 1, 2000)

Craig Phelan, Grand Master Workman: Terence Powderly and the Knights of

Labor. Westport, CT: Greenwood Press, 2000. 304 pp. $65 (cloth), ISBN:

0-313-30948-5.

Reviewed for EH.NET by Robert E. Weir, Department of Liberal Studies, Bay Path

College, Longmeadow, MA.

Few labor leaders have been vilified more than Terence Powderly. Most

historians endorse Norman Ware’s 1929 assessment that Powderly was a “windbag”

and accuse him of misdeeds ranging from authoritarian control of the Knights of

Labor to cowardly sell-outs of strikes. Powderly is conventionally seen as an

incompetent leader who was against all strikes, opposed to third party

political action, and paranoid over radicalism. Most accounts blame at least

part of the Knights’ demise on Powderly’s ineffectual leadership.

Craig Phelan, a lecturer at the University of Wales, Swansea, finds this odd

given that no union head “before or since has even approached the level of

respect and adulation accorded Powderly” (p. 1). While scholars of John L.

Lewis, Walter Reuther, or Cesar Chavez might accuse Phelan of hyperbole, his is

an overdue corrective to the historical community’s uncritical acceptance of

Ware’s thesis. (Which was based largely on information provided by Powderly’s

arch-betrayer, John Hayes.) If we look closely at the evidence, a very

different Powderly emerges. Rather than the destroyer of the Knights of Labor,

Powderly transformed it from a fringe group to the largest, most powerful, and

most diverse labor organization of the nineteenth century. In fact, Phelan

opines, only a man of Powderly’s extraordinary talent could have headed such an

unwieldy organization.

Phelan attempts — with varying degrees of success — to demolish Powderly

myths. Powderly was not a small-town moralist, he argues, rather a “child of

industrial America,” (p. 37) whose early life was shaped by Catholicism, his

machinist’s training, political squabbles within Scranton, Pennsylvania, the

Panic of 1873, and the railroad strikes of 1877. Powderly’s active role in the

Knights of Labor began in 1878, when he resolved a potentially crippling debate

over ritual (which he disliked) and by 1879, Powderly headed the organization,

though he was also the mayor of Scranton.

Phelan praises Powderly’s tireless efforts to bring the Knights to prominence.

Troubled by quinsy for his entire life, Powderly often sacrificed his own

health to build the organization. As Phelan correctly notes, the early KOL had

no central office, no staff, and a constitution that decentralized authority

beyond the means of any single individual to dictate policy. It was chronically

short of money as local assemblies were reluctant to pay their assessments.

Were it not for Powderly’s dogged determination, the Knights might have died in

1881, when membership dropped precipitously.

Phelan notes that the discontent that marked the Knights in the 1880s was a

product of Powderly’s ability to bring to the fold men and women from various

ideological persuasions, not intolerance or rigidity on his part. Nor is there

evidence to sustain charges that Powderly failed to support strikes. Phelan

convincingly demonstrates the differences between what Powderly counseled in

private and how he conducted himself publicly once conflict arose. For example,

when Pittsburgh glassblowers struck in 1883 and KOL funds proved too meager to

sustain the fight, Powderly threw his own energies into raising necessary

funds. In nearly every strike the KOL conducted, Powderly supported the rank

and file. Most that failed, Phelan claims, did so because of lack of resources

or because they were ill-advised, not because Powderly sold out workers.

One by one, Phelan refutes charges laid at Powderly’s doorstep. He was not

against third parties per se, rather he saw lobbying as a more effective

alternative. He did not understand cooperation all that well, but lent his

authority to efforts to raise money for experiments. Phelan even argues that

Powderly was never controlled by or cooperated with the Home Club, largely by

claiming that trade union malcontents exaggerated the power of the New York

City-based kickers. Phelan also blames trade unions more than the Knights for

the bad blood that existed between them. It was Samuel Gompers, not Powderly,

who sandbagged peace overtures.

Phelan deftly gives context to many of the decisions for which Powderly has

been criticized during the Great Upheaval. He argues that the KOL’s structure

was simply “too fragile” (p. 172) to sustain the furious capitalist

counter-assault its own modest successes unleashed. In 1885 alone, the KOL

endured simultaneous crises of anti-Chinese riots in Wyoming, a coal strike in

Indiana, a strike against Jay Gould’s railroads, and clashes with carpet

weavers’ and cigarmakers’ unions. This was typical of what Powderly and the

Order faced for the next three years. The organization was neither rich nor

powerful enough to stand up to organized capital. Phelan credits common sense

in Powderly’s attempts to salvage what he could from futile battles (like the

1886 Chicago packinghouse strikes) and to distance the KOL from public

relations nightmares (like association with the Haymarket anarchists).

Phelan feels the KOL would have been stronger if it had given Powderly power to

centralize authority. The Knights rejected this overture in 1886, however, and

though he gained some measure of personal control in 1888 — which Phelan too

rosily calls “a necessary evil” (p. 234) — it was too late to save the KOL.

The last five years of Powderly’s tenure were unpleasant ones marked by

internal intrigue, lost strikes, shrinking membership, and financial hardship

for both Powderly and the KOL. Phelan makes Powderly’s 1893 ouster seem like a

mercy killing, and he skips quickly over the remainder of Powderly’s life. In

an ironic coda, Phelan echoes Ware’s assertion that the Knights of Labor were

an experiment in democracy, though he sees decentralized democracy as the

source of jurisdictional battles, money crises, and factionalism. The KOL’s

demise was not Powderly’s fault, rather the failure of “horizontal unionism”

(p. 273) to take hold in a Gilded Age context.

I admire this book, Phelan’s loving attention to detail, and his challenges to

long-held stereotypes. I have, however, reservations about various parts of it.

(In the interest of full disclosure I note that Phelan takes aim at some of my

work in his book, especially as it pertains to the Home Club.) In a word, the

book lacks nuance. He sets up straw men throughout. Why does being a “child of

industrial capitalism” preclude Powderly from being a “small town moralist,” as

I and others have charged? Couldn’t he be both? (Think William Green or Philip

Murray.) In a similar vein, Powderly’s ideological opposition to strikes is so

well-documented that it’s almost perverse to paint Powderly as an ardent strike

supporter. Contemporaries like Joseph Buchanan and Eugene Debs admirably led

strikes they personally opposed. Phelan should have played off the delineation

he made between Powderly’s counsel on strikes and his leadership once they

occurred.

Phelan is far too enamored of his subject and tries to rationalize unseemly

character flaws. A lovable Terence Powderly is as inaccurate as Ware’s windbag.

While it is true that Powderly was beloved by many, so too was he hated by

legions. His correspondence with men like Theodore Cuno, Charles Litchman, and

Henry Sharpe oozes venom and Powderly was not always the aggrieved party. He

could be charming, but he was also vain, cruel when angered, and a schemer. Nor

does Phelan’s whitewash of Powderly’s Haymarket response ring true. Powderly

was one of the very few labor leaders who did not endorse clemency and

historians rightly condemn his cowardice on this score. And if Powderly was as

principled as Phelan asserts, why didn’t he make good on threats to resign over

core issues like trade union policy, centralization, or the makeup of the

executive board?

I disagree with Phelan’s take on the Home Club. Suffice it to say that what he

rejects as “fanciful” requires a more improbable explanation. It’s hard to

imagine that men as level-headed, scrupulous, and as close to the truth as

George McNeill, Joseph Labadie, and Joseph Buchanan could be seduced by a myth.

Phelan categorically denies the Home Club ever controlled the KOL, but how does

one define “control?” During the crucial years of 1886 and 1887, Powderly

championed rapprochement with trade unions, centralized authority, and

curtailing strikes. He led an organization that endorsed the opposite. That

just happens to be the core of the Home Club’s agenda and sounds like “control”

to me.

Though this is hardly a flawless book, it points us in the right direction for

critically reassessing Terence Powderly and the Knights of Labor. Phelan asks

incisive and probing questions. Who, he asks, could have done as well as

Powderly in such a difficult position? What sort of labor organization would

have met laborer needs better than the KOL’s horizontal unionism? (Certainly

not the parochial craft perspectives of the Gompers clique.) Was it even

possible for workers to win the “lockout crusade” of the late 1880s? Phelan

challenges us to stop demonizing a single man and take a harder look at systems

of capitalist accumulation.

Robert E. Weir is author of Beyond Labor’s Veil: The Culture of the Knights

of Labor (Pennsylvania State University Press, 1996).

Karl Polanyi, The Great Transformation: The Political and Economic Origins of Our Time. 1944. xiii + 305.

Review Essay by Anne Mayhew, College of Arts and Sciences, University of Tennessee. amayhew@utk.edu

Markets to Market to Protection: Karl Polanyi’s Great Transformation

Karl Polanyi, once a World War I officer in the Austro-Hungarian army, a lecturer at the People’s University, and a member of the editorial staff of Vienna’s leading financial newspaper, who had been forced first from his native Hungary and then from Vienna by the turmoil of revolutions and dictatorships, began The Great Transformation as an exile in England at the end of the 1930s. He completed it in the U.S. during World War II. The task he set himself was to explain the political and economic origins of the collapse of nineteenth-century civilization, and the great transformation that Polanyi had lived through in the twentieth. As he saw it, four institutions were crucial to the economic and political order that had characterized the North Atlantic Community and its periphery in the nineteenth century: a balance of political power, the international gold standard, a self-regulating market system, and the liberal state. The SRM (self-regulating market) was “the fount and matrix of the system,” the “innovation which gave rise to a specific civilization” (p. 3).

The Great Transformation is a history of the SRM: of its emergence from the fact that the Industrial Revolution of the late eighteenth and early nineteenth centuries took place within a thoroughly commercial though not yet thoroughly market-organized economy; its nurture through the efforts of the liberal economists and statesmen of England in the first decades of the nineteenth century; and finally its demise as a consequence of the “protective reaction” to counteract the consequences that the SRM spawned. Two crucial differences between Polanyi’s analysis and that of most other historians of the economy and of the thought of the nineteenth century are so important to understanding his work that they must be made explicit even before their role in the larger argument is recounted. Polanyi differentiated between economic systems in which there were markets and the “starkly utopian” SRM of the nineteenth century. Markets are places or networks in which goods are bought and sold; they are human interactions organized by price, quality, and quantity of traded goods and services. The SRM was a society-wide system of markets in which all inputs into the substantive processes of production and distribution were for sale and in which output was distributed solely in exchange for earnings from sales of inputs. The second crucially distinct feature of Polanyi’s analysis is his argument that the SRM could not survive — not because of the distributional consequences that play the major role in Marx’s explanation of the inevitable collapse of capitalism — but because the starkly utopian nature of the SRM gave rise to a spontaneous counter movement, even among those enjoying increased material prosperity. Society is vital to humans as social animals, and the SRM was inconsistent with a sustainable society.

Polanyi developed his argument from the work of many economic historians, historians of thought, anthropologists, and others. The Industrial Revolution of the late eighteenth and early nineteenth centuries was “an almost miraculous improvement in the tools of production,” but was also an equally powerful revolution in economic organization that was in part a consequence of the introduction of the new machines into an already commercially organized economy, and in part a social experiment. Up to this point the economies of much of Western Europe, and certainly of most of Britain, had been quite thoroughly commercialized: cottage industries, paid agricultural labor, and thriving trade in towns meant that most people earned money and used that money to buy the material stuff of life. However, as Polanyi also noted, control and regulation of markets by governments and other organizations were also widespread and common. Markets were controlled; they did not control until the beginning of the nineteenth century.

In laying out this argument, Polanyi recognized the need to deal directly with the proposition, itself a creation of late eighteenth and early nineteenth century British thought, that market organization of economic activity was the natural state of human affairs. Polanyi was (counter to what many of his later critics say) quite well aware that markets and careful calculation of prices by buyers and sellers alike had long been important parts of many human societies. By use of logic and of the historical record, Polanyi developed a schema of “forms of economic integration”: that is, forms of organization for production and distribution, of which the familiar circular flow of an idealized capitalist economy (the SRM) is only one. Polanyi developed his schema for characterizing economies to show that economies could and had been organized in ways other than through an SRM. He argued that the organization of production and distribution in many societies had been accomplished through social relationships of kin or community obligations and counter obligations (reciprocity) and that other societies, on scales as small as a band of Kung bushmen or as large of Hammurabi’s empire, or even as large as the planned economy of the Soviet Union, employed redistributive systems.

In much of Western Europe a combination of redistributive and reciprocative systems dominated through the end of the feudal and manorial era, and came to be increasingly supplemented and then replaced by market trading, the control and encouragement of which was a major focus of medieval municipal and mercantilist national governments. (In The Great Transformation Polanyi also described “householding” as a form of integration, but in later work reclassified it as “redistribution writ small.”)

Then, toward the end of the eighteenth century, and with full force in the first half of the nineteenth century, two things happened. The rapidly expanding factory system altered the relationship between commerce and industry. Production now involved large-scale investment of funds with fixed obligations to pay for those funds. Producers were less and less willing to have either the supply of inputs or the vents for output controlled by governments. The second and closely related change was the development of economic liberalism as a body of thought that provided justification of a new set of public policies that facilitated transformation of land, labor, and capital into the “fictitious commodities” of a self-regulating system. Land (nature), labor (people), and capital (power of the purse) were not in fact produced for sale. Nor did the available quantity of land, labor, and capital disappear inconsequentially when relationships of supply and demand produced low input prices. This issue was, of course, particularly acute in the case of labor and led to the dismal conclusions of classical economics. Polanyi describes how, in spite of the threat to social order, the philosophy that came to be called “laissez faire” was “[b]orn as a mere penchant for non-bureaucratic methods . . . [and] evolved into a veritable faith in man’s secular salvation through a self-regulating market” (p. 135). Polanyi describes this evolution of British thought from the humanistic approach of Adam Smith, who wrote in a time of “peaceful progress,” through Malthus’s acceptance of poverty as part of the natural order, and on to the triumphant liberalism of the more prosperous 1830s. What is important is that a set of recommendations about public policy was transformed into widespread acceptance as the laws of a natural order.

Polanyi called the continuing tension and conflict between the efforts to establish, maintain, and spread the SRM and the efforts to protect people and society from the consequences of the working of the SRM “the double movement.” On one side was a concerted philosophical and legislative program to establish the SRM from the enclosures of the 1790s through the Poor Law Reform of 1834 to the Ricardian Bank Charter Act of 1844 and the repeal of the Corn Laws in 1846. The other side was a widely varying, unorganized set of movements, legislative reforms, and administrative actions to limit the effects of self-regulation, from the Chartists through early legislation to limit the hours and places of work of women and children, through the growth of labor unions, and through the emergence of the Bank of England as lender of last resort, to reimposition of tariffs on foodstuffs, and to the first legislation presaging the welfare state. As the SRM was impaired in operation, justifications for international economic cooperation and the liberal state weakened.

Polanyi’s story of the tensions in and collapse of the self-regulating economies that developed in the first half of the nineteenth century differs sharply from the story that Marx anticipated and from the story that Marxian economists have told. Though Polanyi argues that perception and response to the damages of the SRM varied by class, and therefore “the outcome was decisively influenced by the character of the class interests involved,” (p. 161) it was not unfair distribution of total output via exploitation that caused the tensions and ultimate collapse of the SRM system. The working class did not rise up to overthrow the system. Rather, land owners and bankers as well as merchants, whose interests were often threatened by fluctuations in trade, joined workers in seeking protection. As they got protection, the SRM was “impaired,” eventually the point of collapse. Increasing protection so impaired the SRM that it could no longer coordinate the world’s economy when World War I destroyed Europe’s balance of power. The struggle to restore the nineteenth century system by reestablishing the gold standard destroyed the international financial system.

Dictatorships in some places and more benign management elsewhere emerged in nationally varying responses to the collapse of the SRM system. Polanyi was optimistic but uncertain about what the longer term results of the reaction to the nineteenth century utopian experiment in economic organization would be, and if he were alive today his answer might remain uncertain for, to a remarkable extent, the conflicting sides of Polanyi’s double movement still dominate debates in public policy. As neo-liberalism founded on faith in secular salvation through the natural emergence of a self-regulating market system has spread in Central and Eastern Europe and in Asia, Africa, and Latin America, so too have calls for protection of man, nature, and national interests. The framework that Polanyi provided for understanding the collapse of nineteenth century civilization and the rise of the troubled twentieth remains powerful.

Having said this, however, it must also be said that The Great Transformation contains some major errors of omission and interpretation. Most striking to me, as an economic historian of the United States, is his cavalier and quite wrong assertion that a double movement did not develop in the U.S. until after 1890 because, until then, “free land,” a ready supply of cheap labor, and a lack of commitment to keeping foreign exchanges stable meant that a fully self-regulating market did not exist and no protection was needed. This is plainly wrong. In addition, some students of England in the late eighteenth and early nineteenth century quarrel with his interpretation of the Speenhamland system of subsidies in aid of wages.

However, the strongest and most long lasting criticism of The Great Transformation has been directed at the passages where he argues that reciprocative and redistributive forms of integration have been much more common in human history than self-regulating market systems. These criticisms invariably focus, however, not on the forms of integration themselves but on the mistaken proposition that Polanyi assumed the forms to be founded on different human motives: the SRM on self-interest and rational calculation and reciprocative systems on kindness and generosity. (Far less has been said about motives associated with redistribution, probably because emphasis has been on the contrast between greed and kindness, and on the proposition that “you cannot change human nature,” with the associated proposition that the nineteenth century British economy was truly natural.) The original attack of this kind came, not from economists or economic historians, but from anthropologists whose disciplinary literature Polanyi had used in making his assertion. Beginning in the early 1960s, anthropologists, for reasons having to do with changing political structures in the worlds that they studied and because of the evolution of thought in their discipline, began to insist that the primitive and peasant peoples whom they studied were as rational as any westerners.

These anthropologists — known as formalists in the debates that ensued — found in Polanyi, and in the work of some of his followers such as George Dalton, a convenient target. They accused Polanyi and his followers of romanticism about other peoples. Description of behavior in reciprocative systems was fodder: “The premium set on generosity is so great when measured in terms of social prestige as to make any other behavior than that of utter self-forgetfulness simply not pay” (italics added, p. 46). To anthropologists, who ignored the crass and rational self-interest implied by the phrase that I have italicized, this smacked of saying that non-modern, non-western people were “different” and not self-interested and rational. They disagreed and by extension dismissed the rest of Polanyi’s argument about reciprocity and the SRM.

Very similar arguments have been mounted by some economists. The passage most often quoted in ridicule of Polanyi’s argument is this: “previously to our time no economy has ever existed that, even in principle, was controlled by markets . . . gain and profit made on exchange never before [the nineteenth century] played an important part in human economy” (p. 43). Deirdre McCloskey, both in print and in a heated exchange on the FEMECON list serve, faults Polanyi in a way that illustrates precisely the difficulty that many readers, anthropologists and economists alike, have had with the book. McCloskey says that Polanyi asked the right question, but gives the wrong answer in saying that markets played no important role in earlier human societies. As proof McCloskey cites evidence that, the further away from their source of obsidian the Mayan blade makers were, the less was the ratio of blade weight to cutting length. To McCloskey this indicates that “By taking more care with more costly obsidian the blade makers were earning better profits; as they did by taking less care with less costly obsidian” (1997, p. 484). Ergo, Polanyi is wrong, presumably about the existence of other forms of integration and their importance. To be more careful with harder to get valuables is certainly rational, but it is not evidence of how blade makers were provisioned with material means for their sustenance or joys.

It is one thing to note that people for whom shipment of obsidian was difficult treated it with care; another to assume that they used it to produce goods that they sold for profit. Polanyi is in fact careful to note that the range of human motives varies little across systems, with the specific form of action that any motive such as self-interest, generosity, anger, or jealousy may take dependent upon the system. The economic system does not, however, depend upon the presence, or absence of the preponderance of any one motive. That this is perhaps the most difficult point that Polanyi makes is itself testament to the success of those who created the justifications for the nineteenth century.

In the years after publication of The Great Transformation Polanyi and a number of colleagues and students expanded analysis of the forms of economic integration and produced the collection of essays published as Trade and Markets in Ancient Empires. Both books present Polanyi’s understanding of what made the economies of the nineteenth and of the twentieth centuries so different, and with such far-reaching consequences, Polanyi created a way of thinking about economies and societies that has had substantial impact on economic history, anthropology, and the study of the ancient Mediterranean. The Great Transformation remains important as a highly original contribution to the understanding of the Western past; it has been and is important in methodological debates in the social sciences. Beyond that, as the double movement continues, the book is likely to remain one of the best guides available to what brought us to where we are.

Annotated References:

Polanyi, Karl. 1944, 1957. The Great Transformation: The Political and Economic Origins of Our Time. Boston: Beacon Press by arrangement with Rinehart & Company, Inc. (The Beacon Press version remains in print and is the version for which page numbers are given in this essay. The book has been translated into and published in Hungarian, Chinese, Japanese, French, German, Portuguese, and Spanish).

Dalton, George. 1961. “Economic Theory and Primitive Society,” American Anthropologist 63 (Feb.): 1-25. [One of the articles that sparked the formalist-substantivist dispute in economic anthropology.]

Drucker, Peter. 1979. Adventures of a Bystander. New York: Harper & Row. [This book contains an account of the remarkable Polanyi family by a friend who knew them in Vienna.]

Duncan, Colin A.M. and David W. Tandy. 1994. From Political Economy to Anthropology: Situating Economic Life in Past Societies. Montreal and New York: Black Rose Books. [Selection of papers from annual Polanyi Institute Conference.]

Finley, Moses I. 1978. The World of Odysseus . New York: Viking Press. [Classic application of Polanyi to the ancient world.]

Halperin, Rhoda. 1988. Economies Across Cultures: Towards a Comparative Science of the Economy. New York: St. Martin’s Press.

Mayhew, Anne. 1972. “A Reappraisal of the Causes of Farm Protest in the U.S., 1870-1900.” Journal of Economic History 32 (June): 464-475. [Though not acknowledged as such, this was an application of Polanyi’s ideas to the U.S. economy.]

Mayhew, Anne. 1980. “Atomistic and Cultural Analyses in Economic Anthropology: An Old Argument Repeated,” in John Adams, editor, Institutional Economics: Contributions to the Development of Holistic Economics . Boston: Martinus Nijhoff.

McCloskey, Deirdre N. 1997. “Polanyi was Right, and Wrong.” Eastern Economic Journal 23 (Fall): 483- 487.

North, Douglass C. 1977. “Markets and Other Allocation Systems in History: The Challenge of Karl Polanyi.” Journal of European Economic History 6 (Winter): 703-716.

Polanyi, Karl, Conrad M. Arensberg, and Harry W. Pearson. 1957. Trade and Market in the Early Empires: Economies in History and Theory. Glencoe, Illinois: The Free Press.

Sievers, Allen M. 1974. The Mystical World of Indonesia: Culture and Economic Development in Conflict. Baltimore: Johns Hopkins University Press. [Polanyi applied to development issues.]

Schaniel, William C. and Walter C. Neale. 2000. “Karl Polanyi’s Forms of Integration as Ways of Mapping.” Journal of Economic Issues 34 (March): 89-104.

Tandy, David W. 1997. Traders and Warriors: The Power of the Market in Early Greece. Berkeley: University of California Press. [Recent application of Polanyi to the ancient world.]

Published by EH.NET (May 2000)

Michael Perelman, The Natural Instability of Markets: Expectations,

Increasing Returns, and the Collapse of Capitalism. New York: St. Martin’s

Press, 1999. xiv + 188 pp. $39.95 (cloth), ISBN: 0-312-22121-5.

Reviewed for EH.NET by Thomas E. Hall, Department of Economics, Miami

University, Oxford, Ohio.

Economists have long known that competition has some ugly side effects. In

competitive industries, firms go out of business. The competitive process

exhibits Schumpeter’s creative destruction as new technologies come along which

displace existing industries. Workers lose their jobs, and firm owners lose

wealth. This is all very unpleasant for the people who are adversely affected

by these changes, but in the net society is better off by reaping the benefits

of economic efficiency. At least, that is what economists generally believe

about the competitive outcome. This is why most economists argue that (with the

exceptions of a few cases such as public goods and natural monopolies) a policy

of enhancing competition is desirable.

Michael Perelman challenges this conventional economic orthodoxy by arguing

that the economic instability caused by competition may be so large that it

outweighs the beneficial effects of economic efficiency. In fact,

competition is so awful that “the tendency of the competitive process is to

lead to depressions” (p. 62). Perelman does not argue that monopolies are the

solution, instead he contends that society’s welfare is enhanced by having an

industrial structure that is neither too competitive, nor too concentrated. The

optimal structure lies somewhere in between, where the gain in economic

stability resulting from a less than perfectly competitive structure exceeds

the loss to society of lower economic efficiency.

It’s an interesting argument, but one that isn’t well enough documented for

most people to accept. Too much of Perlman’s discussion focuses on what’s wrong

with competitive markets, and too little on the benefits they create.

Yes, the competitive process can cause wrenching changes in society, but what

about the lower prices we pay, the wider variety of goods and services we

choose among, the improved quality of products…? These considerations are

given short shrift compared to the evils of “instability.”

A serious weakness of the book is its lack of a discussion on the role of

demand. For example, Perelman considers economic depressions to be the

intensification of the competitive process. While most of us would agree that

competition among firms is more intense during economic recessions,

would we extend the argument by saying that competition caused the downturn? I

don’t think so. Economic recessions are typically caused by slowdowns in

aggregate demand growth. As spending growth slows, firms have to compete more

intensely for scarcer sales. Thus, we observe more competition during

downturns, but competitive pressures hardly caused the recession.

Perelman also argues that high wages during recessions are good since “high

wages represent a healthy stimulant to the economy . . . because high wages

will encourage productivity” (p. 121). This efficiency wage argument has merit,

but taken to extremes it could cause major problems. After all, if promoting

high wages is such a great idea, during the next recession let’s be sure to

raise the minimum wage to $1 million per hour and see how well that stimulates

recovery!

We often tell students not to get caught looking at the trees when they should

be concentrating on the forest. I think the opposite applies to this book.

Several of Perelman’s trees, i.e., the specific cases he discusses to buttress

his argument, are quite interesting. For example, there is an informative

history of entry and exit in the automobile industry, an excellent discussion

of x-efficiency, and a summary of estimates of the costs of unemployment in

terms of numbers of suicides, homicides, and such that would be useful to

instructors of macroeconomics principles classes.

However, I am considerably less enamored with the forest, the idea that

competition creates more problems than it solves.

Thomas E. Hall is the coauthor (with J.D. Ferguson) of The Great Depression:

An International Disaster of Perverse Economic Policies

(University of Michigan Press, 1998).

Subject: V, W Geographic Area: 7 Country/Region: U.S.

Time Period: 8, 9