Published by EH.NET (May 2000)

William G. Thomas. Lawyering for the Railroad: Business, Law, and Power in

the South. Baton Rouge: Louisiana State University Press, 1999. xxii + 318

pp. Maps, photographs, notes, Note on Manuscript Sources, bibliography, and

index. $47.50 (cloth) ISBN 0-8071-2367-6; $24.95 (paper) ISBN 0-8071-2504-0.

Reviewed for H-Business and EH.NET by William R. Childs, childs.1@osu.edu,

Department of History, Ohio State University.

A Flawed Attempt to Synthesize Business, Legal, and Regional History

Focused on a topic which historians have not investigated in any depth–the

role of lawyers in the evolution of the railways in the South–this is a book

that scholars of business, the South, and the law should consult. But there are

problems with the book: It is not well-conceived or written and too often it is

not always clear in the footnotes what sources sustain the author’s assertions.

The major strength of the book lies in the sources that William G. Thomas

uncovered, particularly records of over 40 railway legal departments. He

supplemented these organizational records with another 20 manuscript sources,

mostly the papers of individuals, but also including the voluminous Baker &

Botts History Collection, which chronicles the important history of the

Houston, Texas, law firm. His short “Note on Manuscript Sources” furnishes a

concise overview and helpful comments on the significance of some of the

sources. Nonetheless, the manner in which Thomas conveys the results of his

research is disappointing.

Perhaps the problem lies in Thomas’s effort to meet too many purposes in

writing the book. Thomas, who studied at the University of Virginia, where he

is now director of the Virginia Center for Digital History, is interested in

lawyers (his family has many) and their work, in the South as a region, and in

how “monopoly power worked” (xi). He attempted an

“interactive” approach to the law and society in which “law and legal processes

both shape and derive from social and economic change” (xiiin1).

He also tried to write a social history of Southern lawyers, as well as a

business history of railroading from the perspective of the legal department.

So, he wanted to synthesize business, legal, and social history in a regional

setting, an endeavor that requires not only expertise in each field but also

facility in composition. Had Thomas been more careful in writing introductions

and conclusions to each chapter–helping the reader keep clear the many threads

of his complicated tale–he might have accomplished many of these goals.

Instead, anecdotes are not always clearly related to the larger themes;

repetition of evidence appears without reason; and themes (such as federalism)

are introduced and dropped without adequate development in the text or notes.

And, as those of us who have worked in Southern history understand only too

well, trying to generalize across the region holds numerous traps. While in

many ways southern, Texas,

for example, does not always fit the general economic and political patterns

found in the rest of the Old Confederacy; yet, much of Thomas’s key evidence

comes from Texas.

The book generally follows a chronological approach over nine chapters.

When railroads first appeared, Thomas argues, they hired local lawyers to help

in establishing rights-of-ways and to work with construction aspects of the

business. Once the railways were up and running, the need for a permanent legal

department emerged. In chapters 3, 4, and 5, he attempts to show how the growth

of railways changed the nature of legal departments

(they became more hierarchical and bureaucratic) and how litigation,

particularly personal injury lawsuits, evolved. Growth also forced railway

lawyers into the role of lobbyist in the state legislatures, and eventually in

congress. Thomas spends a lot of time focusing on personal injury litigation

(almost to the exclusion of the important work of regulation).

He indicates that tensions emerged as corporate managers attempted to demand

total loyalty from the hired hands; local lawyers had to weigh the balance

between the steady assignments associated with the interstate railroad legal

department and the negative impact that work would have on the rest of their

local practices.

In chapter 6, “Progressive Reform and the Railroads,” Thomas argues that the

consolidation movement in railroading at the turn of the century prompted many

Southerners to oppose the “monopoly” power of the railways.

The 1890s and first decade of the 20th century were busy times for railway

lawyer-lobbyists as they attempted to undermine legislative controls before

they were enacted and, if failing that, after they were enacted. Several

anecdotes indicate that the lawyers and the corporate managers sometimes took a

cost-benefit approach in deciding whether to fight legislation and complaints

from customers; sometimes it made more economic sense to clean up a work yard

in order to reduce the number of potential personal injury suits. Beyond the

anecdotes, however, Thomas does not indicate to what extent lawyers became

involved in the management decisions of the railways.

Meanwhile, lawyers began to engage in their own profession-specific

associational activities. They used this associational power to prepare for

appeals in the Federal court system and to lobby against bills in Congress,

but there remained tension among the members, for they often met one another as

adversaries in personal injury suits.

Chapters 7 and 8 continue the story of southern railway lawyers interacting in

the national arena. Chapter 7 is notable for its confusing narrative on

delaying tactics (see pp. 218-219 and the citations in 219n42, where Thomas

confuses state and national delay tactics). In Chapter 8, Thomas discusses the

liability issue as it relates to the Federal arena. Congressional legislation

in 1906 and 1908 prompted railway legal departments to move liability cases to

Federal courts in order to avoid more onerous state laws. The several pages at

the end of this chapter on the conflicts between state and Federal regulation

add nothing to what scholars already know on this subject. In fact, Thomas is

not very sure footed on the evolution of the regulation of railways. To cite

one example, he claims that Munn v.

Illinois (1877) was reversed in 1890 (p. 170) and does not seem to

understand that the U.S. Supreme Court waxed and waned on the issue of state

versus Federal regulation of railways before and after Munn nor that

Munn was more important for what it said about government regulation of

business than it was for state-Federal jurisdiction. Chapter 9, “The Changed

Law Business,” repeats too much information from earlier chapters,

yet fairly well summarizes the author’s overall argument. Still, Thomas relies

too heavily here on Texas (and on Baker & Botts) and Virginia to make the

generalizations that he does about the entire region.

While Thomas ignores for the most part the role of lawyers in the development

of regulation, he does include helpful insights on a few key topics, including:

analysis of the free pass, which dominated much of the politics of railroading

at the turn of the century (I learned a lot from this; see especially pp.

92-96, 178-181); a useful overview of the railways’ attempts to sidestep Jim

Crow laws (219-225); and, interesting anecdotes on particular train wreck cases

(Chapters 3 and 4 especially).

Thomas occasionally alludes to the lawyers’ attempts to settle cases out of

court, but, as with much else in the book, he does not elaborate on this

important insight. In short, specialists interested in these topics should

consult the book. Other readers might benefit from reading Chapter 9 and the

Conclusion.

Published by EH.NET (May 1, 2000)

Lynn Hollen Lees, The Solidarities of Strangers: The English Poor Laws and

the People, 1700-1948. Cambridge: Cambridge University Press, 1998. xii +

373 pp. $64.95 (cloth), ISBN: 0-521-57261-4.

Reviewed for EH.NET by George R. Boyer, Department of Labor Economics, School

of Industrial and Labor Relations, Cornell University.

This book presents a broad overview and interpretation of the English poor

laws from the late seventeenth century up to the early twentieth century. In

the introduction Lees states that, despite the large literature on the poor

laws, “we know relatively little about how such institutions operated, how

their practices changed over time, and how they were regarded by ordinary

people” (p. 9). Her book is a very good first step toward filling that gap in

the literature.

The book is divided into three roughly equal parts. Part One (Chapters 1-3)

deals with poor relief up to the Poor Law Amendment Act of 1834. While most of

the discussion is based on secondary sources, Lees nicely summarizes the recent

literature on the poor law, and offers her own well-reasoned interpretations of

the role of poor relief in the lives of the poor. Lees contends that, at least

before 1800, the legitimacy of the poor laws was accepted both by recipients

and by local taxpayers. Members of the working class might not have liked

applying for relief, but they often were forced to turn to the poor law during

bad times, and they strongly defended their right to public assistance. And

while taxpayers, then as now, grumbled about the level of their taxes, they saw

the payment of poor relief to the unfortunate of the community as a duty.

Sometime around 1800, however, the middle class began to question the

legitimacy of poor relief and to view applicants for relief as undeserving.

According to Lees, this change in opinion largely was a result of the sharp

increase in relief expenditures and numbers on relief that began in the late

eighteenth century, and it was accelerated by the writings of Thomas Malthus

and other classical economists claiming that the poor laws actually created

pauperism. The middle class began to feel that the role of the poor law was not

simply to relieve the poor but also to discipline and reform them.

Part Two deals with the early years of the New Poor Law, from 1834 to 1860.

Chapter 4 contains a discussion of the activities of the Royal Poor Law

Commission, its condemnation of current welfare practices, and its

recommendations for implementing the New Poor Law. Chapter 5 examines the

responses of the poor to the New Poor Law. While the middle classes had come to

view acceptance of relief as a sign of moral failings, the working class

continued to regard public relief as an important form of social insurance.

Lees rejects the argument of some historians that workers hated the poor laws,

noting that it is necessary “to distinguish between the rejection by the poor

of specific welfare institutions [such as the workhouse] and their adamant

insistence upon their own entitlement to parish relief” (p. 165). Chapter 6, on

the local administration of poor relief from 1834 to 1870, is the best chapter

in the book. Lees convincingly shows that the official statistics of poor

relief for this period do not accurately measure the incidence of relief or the

type of relief recipients. She calculates that between 1850 and 1870, 10 to 13

percent of the population of England and Wales received poor relief each year;

over a three-year period perhaps a quarter of the population received

assistance. Despite a boom in the construction of workhouses, most paupers

continued to receive outdoor relief. In order to determine the composition of

the “pauper host,” Lees studied the settlement examinations for three London

parishes and six towns — Bedford, Cambridge, Cheltenham, Shrewsbury,

Southhamption, and York — for the years around 1850. While her sample of

provincial towns is not representative of urban Britain in 1850 — it includes

no large cities and no northern industrial towns — the data she collects

provide a more detailed, and almost certainly more accurate, picture of

applicants for and recipients of relief than do the official statistics. She

finds that large numbers of prime-age males continued to apply for relief in

the provincial towns during the 1840s, and that a majority of those assisted

were granted outdoor relief. Adult females were more likely to get relief in

counties where the demand for their labor was relatively high, and yet few

unemployed women appear in the account books Lees examined. She concludes that

women who applied for relief told overseers stories that were likely to produce

assistance, stressing widowhood, desertion, sickness, or pregnancy rather than

lack of work.

Part Three covers the period from 1860 until the official repeal of the poor

laws in 1948. Lees maintains that the late nineteenth century saw a decline in

the legitimacy of the poor laws in the eyes of both the middle and working

classes. The crusade against outrelief in the 1870s led to a sharp decline in

numbers on relief, as cities throughout Britain refused outdoor relief to both

able-bodied and non-able bodied paupers, and large numbers of applicants for

relief refused to enter workhouses. Lees’s discussion of the crusade against

outrelief and the Charity Organization Society in Chapter 8 is disappointing.

She has little to say about the causes of the crusade, and she ignores the

important work on the subject by Mary MacKinnon and Robert Humphreys. Aside

from a brief discussion of case records for Stepney, in East London, for

1876-89, there is no detailed examination of relief practices at the local

level to match her study of settlement examinations in 1850. In Chapter 9, Lees

argues that by the end of the nineteenth century public assistance had become

more avoidable as a result of rising incomes and the availability of private

insurance through trade unions and friendly societies. As the demand for

assistance declined, workers came to see poor relief as stigmatizing. Chapter

10 examines the decline of the poor law after 1906, and its replacement first

by social insurance and then, after World War II, by the welfare state.

While the analysis of late nineteenth century poor relief needs to be

supplemented by other sources, there is much to be commended in this book.

Especially noteworthy are Lees’s discussions of the extent to which the precise

methods and generosity of relief were determined by “welfare bargaining”

between applicants for relief and local poor law officials, and of the changing

attitudes of the working class toward poor relief. Lees also significantly

extends our knowledge of how female-headed households were treated under the

poor laws, and how the comparative treatment of male and female relief

applicants changed over time. Overall, The Solidarities of Strangers

provides an excellent introduction to the changing nature of the English poor

laws over three centuries.

George Boyer is author of An Economic History of the English Poor Law,

1750-1850 (Cambridge University Press, 1990), and of “The Historical

Background of the Communist Manifesto,” Journal of Economic

Perspectives, Vol. 12 (Fall 1998).

Published by EH.NET (May 1, 2000)

?

Richard Sylla, Richard Tilly, and Gabriel Tortella, editors, The State, the Financial System and Economic Modernization. New York: Cambridge University Press, 1999. xiv + 295 pp. ISBN: 0-5215-9123-6.

Reviewed for EH.NET by Caroline Fohlin, Division of the Humanities and Social Sciences, California Institute of Technology. fohlin@hss.caltech.edu; hss.caltech.edu/~fohlin/Fohlin.html.

The role of the financial system in industrial development is a topic of perennial interest to economic historians, and there is no shortage of volumes dealing with the topic. Though this book enters a crowded field, it still manages to offer a valuable contribution. In particular, this volume of a dozen essays takes a comparative approach to the question of state involvement in the development of financial institutions — a less-researched topic that is gaining greater attention among economic historians, as well as among economists of the modern stripe. At least according to the preface, the collection began as a conversation among old colleagues and grew into a project that would involve well-known scholars mainly of Europe, but of the U.S. and Argentina as well. Hardly any contributor will be a stranger to consumers of the financial history literature. The approach is intended to be Cameronian, and the volume is explicitly dedicated to that role-model of comparative financial history.

The editors’ introductory essay calls for rejoining the study of public and private finance and for taking an international, comparative approach in such work: “[The book’s] intent is to demonstrate, through comparative historical analysis, the richness of the history of modern financial systems and to restore the state to its primary role in the shaping of those systems” (p. 3). After surveying the landscape of the book, the authors set out four main themes to watch out for in reading the chapters to follow: 1. Inter-country differences in the mix of public and private finance and role of the state are significant, 2. States affected private development by altering information flows relevant to private financial decision making, 3. Economic history has important things to say about the relative effectiveness of ‘market-oriented’ and ‘bank-oriented’ financial systems as development mechanisms, and 4. Short-run state policy responses to immediate problems could have long-run effects.

The book includes entries on nine countries: France, Belgium, England (and Wales), Germany, Spain, Italy, Russia, Argentina, and the United States. Forrest Capie, in studying the role of central banking in Europe, offers the only comparative essay of the group, other than the introduction. The first half of the paper sets out to define the idea of central banking and of the role of lender of last resort — an important first step, it turns out, given the variety of experiences and interpretations. The second part of the chapter then applies these hypotheses to the British and continental European records. In pointing to the role of central banks as ‘lender of last resort,’ Capie argues that the Bank of England was a full-fledged LOLR-central bank by the 1870s and then makes the somewhat surprising claim that true central banking arrived on the European continent only in the twentieth century. This argument is based on the idea, drawn in part from the classical writers on the subject as well as the more recent work by Charles Goodhart, that the LOLR should shoulder responsibility for the stability of the banking system without regard to its own profitability. Such a shift in policy is difficult to date precisely, but the evidence laid out on Germany, Austria, France, Italy, Belgium, the Netherlands, Scandinavia, and Iberia does, for the most part, support the author’s conclusions quite compellingly (though one might want to quibble with certain details, such as the notion that the universal banking systems were more concentrated than the specialized system of Great Britain).

Taking the reader off the beaten path of European and U.S. financial history, Roberto Cort?s Conde offers a quick tour of the Argentine financial system of the nineteenth and early twentieth centuries. The inclusion of this less-frequented area of the literature will broaden the book’s appeal beyond the normal Euro-centric audience. The chapter mainly provides a descriptive primer on the country’s monetary and financial systems — the first discount and issue bank in 1822, the founding of the first National Bank in 1826, the government-dominated operations of the Buenos Aires Provincial Bank, the founding of the second National Bank in 1872, and the passage of the free banking legislation-rather than a unified analysis of the government’s role in that development. The author follows the many financial twists and turns (particularly interesting is the discussion of the free banking act, designed to closely resemble the American National Banking System) and comes to rest at a two-fold conclusion: that the main business of the banks was seignorage and that the banks were primarily used to dispense funds to the government and its allies. After this chapter, the reader will not question the “whats” of the rather poor performance of the Argentine financial and monetary system, but many will be left wondering about the “hows” and the “whys.”

A real stand-out is Phil Cottrell and Lucy Newton’s chapter on banking liberalization in England and Wales between 1826 and 1844. The authors mine the archives of the large banks as well as the pages of the Circular to Bankers, to offer a new look at the earliest formations of quasi-corporate banks. In particular, the authors review the politics of money and banking at the time and especially surrounding the 1826 banking act, analyze and explain the expansion of joint-stock banking in the 18 years following the Act, and assess overall the impact of banking liberalization on English banking after 1826. The active involvement of the state in commercial banking policy, spurred by the banking crises of the early 1820s, followed a century of legislative silence. Of course, the Bank of England’s monopoly over joint-stock banking from 1707 (the famous six-partner limitation on banking firms), essentially a political kickback for financing the government’s wars, determined the industrial organization of banking up until its reform. In a political debate that seems to presage the branching debate in the U.S., small, country bankers opposed the lifting of the ban on large banking partnerships, since the law safeguarded each little patch of monopolistic territory. Widespread banking collapses in 1825-26 finally ensured the success of the liberalization measures, and the number of joint-stock banks exploded from 3 in 1826 to 113 a decade later (including 59 promotions in 1836 alone). The middle portion of the paper presents the bulk of the primary-source research; offering detailed insight into the management, competitive positions, and share flotations of the new banks as well as the gathering anxiety over speculation in the new shares.

As with any edited volume, a reviewer must pick and choose. But readers will learn much from other offerings as well — Fran?ois Crouzet’s tale of politics and banking in Napoleonic France, Gabriel Tortella’s look at government policies and their connection to banking sector development in Spain, Boris Anan’ich’s exploration of government control of Russian banking (if there was one case in which the government played a role in banking, this was it), and the two chapters on the U.S. by Richard Sylla and Mira Wilkins. In addition, Hermann van der Wee and Monique van der Wee-Verbreyt cover 175 years of Belgium’s top bank, while Peter Hertner investigates two decades of relations between the top two Italian universal banks and the central bank. Both these chapters make use of extensive archival evidence in developing their stories. Finally, Richard Tilly poses some rather provocative hypotheses about the relative efficiency of the German capital markets (e.g., that the Berlin market rivaled or exceeded London on certain performance measures).

Though the topics are all of great interest, with fewer than 300 pages for all twelve essays and the index, the treatment is not as deep as one might prefer (and specialists will likely recognize material in certain chapters). Many readers will likely yearn for a more explicit link among the various contributions — perhaps a final chapter to tie it all together — and the cliometrically-inclined might hanker for more formalized hypothesis testing. Most important among these relatively small quibbles, this book demonstrates the entrenchment of certain views and paradigms in financial history: the dichotomy between banks versus markets, for example, and the connection between a country’s geographical position relative to the UK and the role played by financial and government institutions. These shortcomings, however, do not spoil the usefulness of a volume that permits one to travel several areas of the globe, gleaning insights on an important topic, all in one place. As a result, this book will be a useful reference both for established scholars and for students in search of research topics in the political economy of banking from an historical perspective.

Caroline Fohlin is Assistant Professor of Economics at Caltech. She has published several articles on financial history, including “Relationship Banking, Liquidity, and Investment in the German Industrialization,” (Journal of Finance, 1998) and “Universal Banking in Pre-World War I Germany: Model or Myth?” (Explorations in Economic History, 1999). Her manuscript in progress, Financial System Design and Industrial Development: International Patterns in Historical Perspective, has just been granted the ninth Sanwa Monograph Award from the Center for Japan-U.S. Business and Economic Studies at New York University’s Stern School of Business.

Published by EH.NET (May 1, 2000)

James Foreman-Peck and Giovanni Federico, European Industrial Policy: The

Twentieth-Century Experience. Oxford: Oxford University Press, 1999. xvi +

466 pp. $105 (cloth), ISBN: 0-19828998-7.

Reviewed for EH.NET by Francesca Fauri, Professor of Istituzioni Economiche

Europee, Faculty of Political Sciences, University of Bologna in Forl?.

The aim of this multi-authored volume is to contribute to an understanding of

European industrial policy, broadly interpreted, by introducing an historical

perspective. The collection of case studies allows the reader to become

familiar with the differences among countries, and the remarkable continuity

within countries, of European national industrial policies.

The book analyses the industrial policies of four broad groups of countries:

the largest Western European states – Britain, France, Germany and Italy – a

group of small, but highly productive nations – Sweden, the Netherlands,

Belgium and Ireland – three states with a long tradition of state industrial

regulation: Spain, Portugal and Greece, and finally the case of Russia, a huge

economy with a deep-rooted tradition of centralized decision making and state

intervention.

British industrial policy from the nineteenth century was characterized by

economic liberalism, and despite the greater industrial role of the government

after the First World War, it clung to the liberal precepts of minimum state

expenditure and ‘self-regulation’ during the inter-war period. It was only

after 1945 that the Labour government took a much more interventionist

stance-nationalizing industries such as the coal industry, gas, electricity and

railways and adopting a variety of measures including import controls and

industrial subsidies at levels unknown in the past. In the 1980s, the state

reversed to more market-oriented industrial policies: it abandoned state

ownership and direction of industry, radically improving the performance of

British economy (even though the author claims that the redirection of economic

activity was not necessarily ideal and skill and learning deficiencies began to

emerge).

The French claim to have invented the concept of industrial policy and, as a

matter of fact, since Colbert, the idea that productive capacity can be

increased by state aid has never been abandoned by French governments.

Curiously enough, the chapter on Germany is titled “The Invention of

Interventionism,” contending with the French for the primacy. The first and

most important industrial policy instruments used by the German government

since the 1880s have been tariffs and subsidies. In this case economic

performance has shown that state interventionism and a positive economic trend

are not incompatible at all. Also the Italian state has a long-standing

tradition of intervention, progressively shifting its range of interest from

railways, tariffs and public procurements to bailouts, planning regulation,

subsidization and the use of state-owned enterprises. Albeit, not with German

results, being in the words of the authors “much less effective than it may

have been given the large resources allocated to industrial promotion.”

Small states such as Sweden, the Netherlands, Belgium and Ireland, all

experienced, though in different historical periods, state attempts to

influence industrial growth, usually ranging from rare selective interventions

(protection, subsidies, nationalization) in the past, to general efforts to

facilitate and stimulate industrial growth in more recent times. The

Netherlands is a case in point: arguably the most liberal country in Europe

since its creation in the sixteenth century, between 1948 and 1963 the

government actually intervened in support of declining industries as had never

done before (or has done since).

Spain, Portugal and Greece, three latecomers in the industrialization process,

all present, with different degrees of intensity, a key state role in the

promotion of industrial development. Spain, as the other two, was characterized

by a long-term presence of an authoritarian government, but it was the only one

to combine authoritarianism with a political ideology of intense and

large-scale industrialization. Yet, results were meager: the state

interventionist approach proved not very efficient, supporting the

implementation of a rigid system of import substitution that soon became not

only superfluous, but harmful to overall economic growth.

Russia is the utmost example of industrial policies with maximal state

intervention, at least until the 1990s. During the Tsarist peacetime economy

(1890-1913) the state promoted the development of heavy and defense industry in

order to remedy the technological backwardness of the country. The main

beneficiaries of Tsarist industrial policies were the railway, engineering,

iron, steel and defense industries, with much of the burden falling on the

agricultural sector as a result of tax policies. After the New Economy Policy

interval (1921-27) in which the Bolshevik policy-makers tried to reverse the

policy of nationalization by privatizing small industrial enterprises,

industrial policy in the Stalinist era became highly centralized, the state

owned all productive assets and quantity-oriented plans were utilized as the

main coordination mechanism. State planning was retained as the key industrial

policy instrument until 1992 when economic decision-making started being

decentralized to banks, firms and regions and Russia started its difficult

transition to a market economy. Yet, historical traditions are likely to

influence the pattern of industrial organization and policies that Russia will

develop in the future.

The introduction of a cultural theory of industrial policy in the last chapter

helps explaining why European industrial policies show different degrees of

state intervention. Inter-country differences in the propensity to intervene

also depend on the dimension of trust: industrial policy requires an adequate

degree of trust to succeed.

Surely this volume has two great merits: it provides a collection of case

studies constructed along the same line of discussion themes, thus facilitating

comparative analysis, and it offers a synthesis of a great deal of literature

unavailable in English. Undoubtedly, the book has fulfilled its task of

rendering the future writing on the history of European industrial policy more

manageable.

Francesca Fauri is author of “A Comparative Analysis of Italian and British

Management before World War II” in Vera Zamagni and Lars Engwall, editors,

Management Education in Historical Perspective (Manchester University

Press, 1999) and “Economic Miracle and Italy’s Chemical Industry: A Missed

Opportunity” in Enterprise and Society (forthcoming, summer 2000). She

is currently working on a book on “L’Italia e l’integrazione economica europea

(1947-2000).”

Published by EH.NET (April 2000)

Timothy R. Whisler. The British Motor Industry, 1945-94; A Case Study in

Industrial Decline New York: Oxford University Press, 1999. ISBN:

0198290748 Cloth Price $105

Reviewed for H-Business and EH.NET by Susan Bowden, University of Sheffield,

S.Bowden@sheffield.ac.uk

Four months after the publication of Whisler’s British Motor Industry,

BMW announced its intention to dispose of Rover. The publication of Whisler’s

assessment of the decline of the British motor industry would thus appear to be

well-timed. It is also against this announcement that readers will come to

Whisler’s book for an understanding of how and why this once dynamic industry

floundered.

The British Motor Industry is a welcome addition to the now voluminous

literature on the motor industry in the UK. Whisler’s has produced a “new”

synthesis which aims to place the declining fortunes of the industry into an

overall explanatory perspective. That perspective is grounded in economic

theories of path dependency and lock-in. His thesis is that strategy formed a

managerial lock-in which meant that despite the numerous structural and indeed

personnel changes in the industry over time, the industry was locked into a

prevailing ethos which failed to read the signals of changing market

conditions. The strategy was inherited from the original founder, Morris, and

was to pervade all subsequent manifestations of organizational form and

structure. Strategy was the outcome of a pervading if mis-calculated belief in

the innate superiority of the company’s products: all the company had to do was

make cars.

The thesis was originally set out by Roy Church in the Economic History

Review. In that sense, Whisler’s perspective is not new. What is new is the

detailed elaboration of how that ethos dominated managerial thinking.

Much of the book concentrates on the earlier formations of the company,

most notably events prior to the spectacular collapse of 1975. Chapters follow

a thematic approach detailing, inter alia, with design and development, product

quality and reliability, production methods, domestic and export markets and

distribution structures: all of which contain an immense amount of detail, but

all of which tend to focus more on the specifics of one firm rather than the

industry as a whole.

The problem with the path dependency, lock-in thesis, is that it can become a

retrospective self-justification for the problems of the industry,

especially when applied not, as in the usual case, to technology but to

managerial culture. Thus reference to the new literature on professional

lock-in might have helped – as it is some readers might feel confused as to

exactly how and why cultural lock-in should occur. Equally, readers from the

industrial, economics and managerial disciplines might question why reference

to market signals– most particularly why the strategy and culture did not

respond to changed signals–is not addressed by Whisler.

Thus we have references to issues of asymmetric information and transaction

costs, but such issues are never really fully explored. The role of the

financial markets, shareholders and Government – who were as much agents in

this story as management – is equally never fully assessed. The pages dealing

with divided issues, for example, relies on one source and fails to pick up the

relations between the company and its shareholders.

The issue of Government policy is particularly pertinent in this respect.

The news of BMW’s decision has been dominated by the “employment” question.

If one is to understand path-dependency then one has to look to game theory and

to bargaining between agents. A self-perpetuating ethos may be allowed to

continue, if the agent concerned has superior bargaining leverage.

Whilst Government’s prioritized employment in marginal constituencies (as motor

plants were located), then management was under no real pressure to effect real

change. This theme runs through the entire history of the industry–from the

first assessments of the future prospects towards the end of the Second World

War, to civil servants meetings under the Thatcher Regime and indeed to the

current Government’s reaction to BMW’s decision.

Dissecting and synthesizing the troubled history of the British motor industry

is not an easy task, and Whisler is to be congratulated for taking this on and

for producing a wealth of detailed analysis which makes an important

contribution to the literature. As the above makes clear, this reader would

have welcomed more–but surely an indication of a good book is that the reader

becomes engrossed and finishes wanting not less, but more.

Published by EH.NET (April 2000)

Daniele Besomi, The Making of Harrod’s Dynamics. New York: St Martin’s

Press and London: MacMillan, 1999. (Published in the Studies in the History

of Economics series, D.E. Moggridge, editor). xii + 289 pp. $75

(hardcover), ISBN: 0-312-21908-3.

Reviewed for EH.NET by Steve Keen, Department of Economics and

Finance,

University of Western Sydney (Australia).

Movie-going economists might recall the line in Apollo 13 that NASA

learned more from this failed mission than it had from all its previous

successes. In part, Daniele Besomi tries

to achieve something of the same in Roy Harrod’s failure to inspire economists

to adopt a dynamic approach to their discipline.

There is little doubt that Harrod’s adventure into dynamics was a failure,

in that little if any of what he saw as the dynamic way of thinking took root

in economics. Indeed, economics today is distinguished from almost all other

sciences by a central reliance upon static analysis, rather than the dynamic

and evolutionary approaches which characterize other disciplines.

If Veblen were alive today, his seminal methodological work would not be

titled “Why is Economics not an Evolutionary Science?”, but “Why is Economics

the Only Non-Evolutionary Science?”

Much of the answer lies in the strengths, failings and foibles of Roy F.

Harrod, the economist who most openly and prominently championed economic

dynamics, and in the reactions of other economists to his challenge. While this

point is taken up in Besomi’s epilogue, the main purpose of Besomi’s treatise

is to uncover the process by which Harrod developed his approach to dynamics.

Through his comprehensive survey of Harrod’s published writings and

correspondence with other economists, Besomi finds more method in Harrod’s

quest to develop a dynamic economics than is apparent to

anyone who simply relies upon Harrod’s major works on dynamics (I take these to

be “An Essay in Dynamic Theory” [1939], “Towards a Dynamic Economics” [1948],

“Second Essay in Dynamic Theory” [1960], “Themes in Dynamic Theory” [1963], and

“Economic Dynamic s” [1973]). These works in themselves appear a patchy melange

of concepts to anyone well-versed in modern dynamic analysis, with inexplicable

attempts to define the greater part of economics as the province of “Statics”

rather than “Dynamics,” a painfully

slow development of analytic technique – if indeed there was any development

at all – and gross inconsistency over time, as highlighted many years ago by

David McCord Wright (1949).

However, there is methodological consistency, Besomi argues, but it can

only be seen if one looks through Harrod’s eyes and in Harrod’s time.

Harrod believed that the Marshallian theory of value could be extended in

stages to cover dynamics, with an essential first step in this being

generalizing Marshallian analysis to cover imperfect competition. Thus those

of us who normally associate the theory of imperfect competition with Robinson

and Chamberlin learn that Harrod devised the concept of marginal revenue, and

developed the formula relating it to price and the inverse elasticity of

demand.

The belief that there was continuity between static and dynamic analysis

appears curious to a dynamicist today – as curious as the belief that, to ride

a bike, one must first learn how to balance it while it is stationary.

But it is explicable in the context of Harrod’s time, especially when Harrod’s

extremely limited understanding of mathematics is taken into account. However,

this perceived continuity, which he stressed so much in his writing, made it

very difficult for Harrod to convince economists that he was saying something

new – and made it more difficult still for economists to accept that, where

Harrod was obviously saying something new,

he was not also saying something quite wrong.

This problem was sharpest with the next essential element in Harrod’s

methodology, the belief that a dynamic economics required “abandoning the

assumption of stability of equilibrium, and introducing some destabilizing

factor in the model at the outset” (Besomi, p. 3). Here arose many

misunderstandings of Harrod, largely because economists of his time (and many

since) could

not accept that an unstable equilibrium was a meaningful concept. Hicks’s

(1949) erroneous but widely believed statement that “A mathematically unstable

system does not fluctuate; it just breaks down” was typical of the manner in

which this crucial aspect of Harrod’s dynamics was dismissed by economists.

Finally, Harrod was competing for attention at a time when many others –

most notably Keynes – were vying for the attention

of economists, with many calls of new ways to think economically. Besomi

emphasises the extent to which Harrod was a participant in, and product of

these debates, while at the same time establishing that Harrod was as guilty of

misunderstanding his fellows – again, most notably Keynes – as they were of

misunderstanding him.

Besomi also indicates the extent to which Keynes played an important role in

helping Harrod formulate his ideas. Keynes proposed a “fundamental growth

relation” – in terms of the multiplier and accelerator – to Harrod before he

had devised his own (Besomi, pp. 138-150). Keynes’s notion of dynamics was also

much richer than Harrod’s: “What Keynes held against Harrod in the course of

their debate, and what Harrod did not understand,

is

that in dynamics time must be the ordinary time, full of hopes and

disenchantment, enabling one to recognize the importance of the uncertainty

regarding the future course of events as distinct from the certitudes of the

past” (Besomi, p. 162).

Harrod’s

most direct competitors were the econometricians, following on from Frisch, who

modeled the trade cycle as the product of a stable propagation mechanism

reacting to exogenous shocks. Here he lost out completely – so much so that his

own “model” of cycles,

which he insisted could not be reduced to the mechanical interaction of lags,

was recast in precisely that mould by Hicks, Samuelson et al in a fashion which

divorced growth and trend

Harrod was not necessarily correct to oppose a lagged reformulation of his

analysis. Elsewhere (Keen 2000) I argue that the Hicks-Samuelson second order

difference equation was in fact the product of bad economics, and that Harrod’s

model can be stated in a lagged form in which growth and cycle are

interdependent. However,

he was correct to oppose basing cyclical behavior upon lags alone, and

divorcing growth from cycle. But he had little chance of defending this

position against the far more technically proficient Hicks, Samuelson, and

econometricians generally. As Besomi

observes, “We may thus agree with Goodwin, and Samuelson before him, that

Harrod’s intuition was far superior to his mastery of the analytical tools he

devised for solving the important problems he was posing” (Besomi, p.

210).

Given all this, it is remarkable that anything of merit emerged from this sea

of confusion. Yet something of merit did. Harrod’s dynamics, with its

well-known but misunderstood emphasis upon instability, and its poorly known

but important emphasis upon nonlinearity, did contribute something new and

important to economic theory – regardless of whether or not these ideas ever

took root in mainstream economics.

Precisely because these valid ideas did not take root, Besomi’s book is as much

a study in the pathology of economics as is it a study of Harrod per se. Many

of those who are critical of the twists and turns mainstream economics has

taken since World War II point a finger at textbooks, and here Besomi is no

exception. He observes that “The story of the textbook recognition of Harrod’s

contributions concludes even more sadly: since the 1980s, Harrod’s name rarely

appears in the author indexes of books on macroeconomics. Surveys of trade

cycle theory hardly mention his contributions, while endogenous growth

theorists seem to remember Harrod only in passing, for his ‘production

function with little substitutability among the inputs’ used ‘to argue that the

capitalistic system is inherently unstable'” (Besomi, p. 209, citing Barro and

Salai-Martin (1995), p. 10).

Besomi’s Harro dian saga is a useful tonic to the textbook view of the history

of economic thought. Far from showing a linear progression from old ideas to

new, good ideas to better ideas, we see a haltering to and from movement, with

Harrod buffeted by the debates of his day, publishing what he thought would

communicate well rather than what he necessarily thought, tailoring articles

to the desires of editors All stuff with which practitioners in economics are

familiar, but which has rarely been as well

documented for

a major figure like Harrod.

There is, therefore, much that economics could learn from Besomi’s anatomy of

Harrod’s Apollo 13. However, I disagree with the conclusion Besomi

himself draws, when he states that “it would seem that the success of a theory

does not depend only upon its clarity, logical consistency, and heuristic

value, let alone empirical accuracy, but also on its capacity to be integrated

within the accepted currents of thought. To generate

interest, a theory must contain some element of novelty; but to be

understood and integrated, the break with tradition must not be too radical”

(Besomi, p. 214).

I would instead argue that Harrod’s false belief that dynamics did not

constitute “too radical a break with tradition” is part of the reason why

economic dynamics was stillborn in Harrod’s hands.

(Daniele Besomi is an independent research scholar (lucky man!) based in

Switzerland.)

References:

R. Barro and X. Sala-I-Martin, 1995. Economic Growth, New York:

McGraw-Hill.

R. F. Harrod, 1 939. “An Essay in Dynamic Theory,” Economic Journal, 49:

14-33.

1948. Towards a Dynamic Economics, London: Macmillan.

,1960. “Second Essay in Dynamic Theory,” Economic

Journal, 70:

277-293.

, 1963. “Themes in Dynamic Theory,” Economic Journal,

73: 401-421.

, 1973. Economic Dynamics, London: Macmillan.

J. R. Hicks, 1949. “Mr. Harrod’s Dynamic Theory,” Economics 56: 106-121.

S. Keen, 2000. “The Nonlinear Economics of Debt Deflation,” in W. Barnett

,

C. Chiarella, S. Keen,, R. Marks, and H. Schnabl, editors, Commerce,

Complexity and Evolution, New York: Cambridge University Press.

D. M. Wright, 1949. “Mr. Harrod and Growth Economics,” Review of Economics

and Statistics, 31: 322-328.

Steve Keen’s principal interests are in dynamic modeling and Hyman Minsky’s

Financial Instability Hypothesis. He is co-editor of Commerce, Complexity

and Evolution (see references above), to be published this August by

Cambridge University Press. Works in progress include Debunking

Economics

(Zed Books) and Finance and Economic Breakdown (Edward Elgar).

Subject: L Geographical Area: not relevant Country/Region: not relevant Time

Period: 8, 9

Published by EH.NET (April 2000)

Elizabeth Sanders, Roots of Reform: Farmers, Workers, and the American

State, 1877-1917. Chicago, University of Chicago Press, 1999. x + 532 pp.

$16.00 (paper), ISBN: 0-226-73477-3; $48.00 (cloth), 0-226-73476-5.

Reviewed for EH.NET by Gerald Friedman, Department of Economics, University of

Massachusetts,

Since the publication in 1963 of Gabriel Kolko’s The Triumph of

Conservatism, scholars have been highly suspicious of American

progressivism. Working from a ‘corporate liberalism’ perspective, Kolko,

James Weinstein, Martin Sklar, James Livingston, and others have interpreted

Progressive Era reforms, such as railroad regulation,

anti-trust, the Federal Reserve system, and workers’ compensation, as products

of nefarious capitalist campaigns. In this story, the new, giant corporations

used ‘reform’ programs to control markets, reduce competition,

and replace worker militancy with complacency. This puts studies of the early

American welfare state in sharp contrast with comparable studies for Canada

and Europe. There, a social democratic coalition linking militant labor with

agrarian radicals is credited with pushing state programs regulating labor and

product markets over the objections of capitalists.

Such grass-roots radical

groups disappear from corporate liberal studies of the American Progressive

Era, replaced by ingenious and scheming corporate capitalists. Early

welfare-state programs in Canada and Europe, are signs of the growth in power

of a nascent working class. In

the United States, by contrast, they are viewed as signs of the emergence of a

modern ruling capitalist class.

It may be that the welfare state began to look more attractive to American

scholars after it began to be dismantled. Or perhaps its undoing in

an era of weak unions and triumphant corporate capitalism encouraged scholars

to reexamine labor and capital’s role in the creation of the welfare state.

Discounting the impact of corporate capitalists, Theda Skocpol, for example,

uses state-centered and

maternalist models to attribute early welfare-state initiatives in the United

States to a coalition uniting women’s groups with professional reformers.

Others have applied society-centered and social-democratic models to the United

States,

including political scientist Richard Valelly, and labor historians Julie

Greene and Richard Schneirov. They have shown the extent of political action by

Progressive Era labor and radical farmers, and the impact of their militancy on

both the national and local politics

.

Enter Elizabeth Sanders. Rejecting corporate liberalism, she argues that

Progressive-era reforms were championed by a reform coalition uniting organized

labor, middle-class reformers, and radical farmers. More, Sanders rejects both

the state-centered approach associated with Skocpol and labor historians’

social-democratic approach to argue that the real driving force behind the

early welfare state in the United States came from the country side, from

politically mobilized farmers in the South and West.

Dismissing progressive intellectuals as too isolated and organized labor as

too weak and disorganized, Sanders argues “that agrarian movements constituted

the most important political force driving the development of the American

national state in the first half century before World War I. And by shaping

the form of early regulatory legislation and establishing the centrality of the

farmer-labor alliance to progressive reform and the Democratic Party,

the agrarian influence was felt for years thereafter”

(p. 1).

Sanders supports this strong statement by examining roll-call votes in Congress

on several major Progressive-Era laws. Using county-level data on manufacturing

value added per capita in 1919, she divides the United States into three

regional blocks. These include a “core” of highly industrialized localities,

mostly in the Northeast, a “periphery” in the South and West,

and “diverse” localities mostly in the Midwest and along the border of the

other two. Examining votes on such measures as extending ICC jurisdiction,

the Clayton Act, the Underwood Tariff, the income tax, the Federal Reserve Act,

and vocational training, she shows how congressmen from the periphery,

favored an ‘agrarian statist agenda’ of state regulation and intervention meant

to

redistribute wealth and power towards farmers, wage laborers, and residents of

the periphery. Their agenda was enacted when senators and representatives from

the periphery joined with allies from diverse localities, generally progressive

Republican insurgents, and a few core Democrats closely allied with labor

unions. By contrast, this reform agenda was vigorously opposed by core

Republicans associated with major corporations and industrial and financial

capital. In this way, Sanders argues, the alliance

of farmers and organized labor in the American Progressive Era resembled the

farmer-labor alliances behind social democratic reforms and the early welfare

state in Scandinavia and elsewhere described in the works of Gosta

Esping-Andersen, Leo Loubere and

Seymour Martin Lipset.

Sanders’s work is a major contribution to our understanding of politics in the

Progressive Era. By restoring ‘farmer’ to the ‘farmer-labor’ coalition,

she moves scholarship back to an earlier appreciation of the role of agrarians

in American radicalism, providing background, for example, to the role agrarian

radicals like Iowa’s Henry Wallace and Minnesota’s Floyd Olson played in

building the New Deal coalition of the 1930s. Showing how,

even before the New Deal, Democrats united

northern labor with peripheral agrarians to advance economic reforms, she

broadens our understanding of the role of the Democratic Party in American

politics. United by more than racism, the Democrats were a party of reform

committed to advancing an agrarian statist agenda.

Thus Sanders provides new insight into the regional and industrial sources of

political parties’ economic programs. But the parties themselves are a weak

link in her argument. Slavery, the Civil War, and segregation made regions

almost synonymous with political party in the United States. In the

Progressive Era, almost all southern congressmen were Democrats, but

Republicans controlled most congressional seats from the Northeast.

Sanders’s regional division between ‘core’ and ‘periphery,’ therefore,

confounds party and region, separating ‘core’ Republicans and ‘peripheral’

Democrats. Sanders supports her argument with two-way tables showing support

for various progressive reforms by representatives or senators by region. But

she rarely distinguishes between voting by party in each region and never

performs the statistical tests needed to determine the relative importance of

party and region in congressional voting. But it is clear in her tables that

there is a strong partisan component to congressional voting. In the final

vote on the Payne-Aldrich Tariff of 1909, for example,

80% of representatives from the core supported passage compared with only 33%

of those from the periphery (p. 225). However, the vote was even more partisan

than it was regional: 98% of Democrats opposed the tariff bill against 99% of

Republicans. Did peripheral representatives oppose the bill because they were

from the periphery or because they were Democrats? The same question can be

asked for other partisan measures. The Federal Reserve Act, for example, was

supported by 100% of Senate Democrats against 90% of Republicans (p. 252). A

measure in 1910 forbidding the use of Justice Department funds to prosecute

unions under the antitrust laws was supported by 98

% of House Democrats but was opposed by 74% of Republicans (p. 343).

Sanders chooses to emphasize the strong regional alignment in all of these

votes; she may as well have seen them as partisan votes driven by the

imperatives of political coalition building in an era of strong parties.

In addition, there may also be problems in Sanders’s regional classification by

manufacturing output per capita in 1919. Are all manufacturing regions the

same? Is it appropriate to place declining New England textile counties in the

same category as Pennsylvania steel towns and Washington State canning

communities? And is it appropriate to put Southern cotton regions dominated by

racism and sharecropping in the same peripheral category as western mining

communities, Minnesota dairy towns,

and wheat farmers on the Great Plains? Sanders could do a finer breakdown and

then provide statistical tests for using a higher level of aggregation.

This would be a great deal of work; but that may explain why God made graduate

students

.

Elizabeth Sanders is well aware of the partisanship and regional subtleties

behind the progressive era legislation she discusses. Beyond the statistical

analysis, she shows a firm understanding of the qualitative literature, the

congressional debates and the maneuvering among the leadership of Congress and

the Executive Branch. Roots of Reform is a work of the highest

scholarship, providing an insightful account of the origins of the American

welfare state. Whether one agrees or disagrees with her findings, Sanders’s

work marks a new beginning in the study of twentieth-century American politics.

Gerald Friedman is an Associate Professor of Economics at the University of

Massachusetts at Amherst. He is the author of State-Making and Labor

Movements

: France and the United States, 1876-1914 (Cornell University Press, 1999)

as well as numerous articles on the history of organized labor in the United

States and Europe.

Published by EH.NET (April 2000)

Byron W. Daynes, William D. Pederson and Michael P. Riccards, editors, The

New Deal and Public Policy. New York, St. Martin’s Press, 1998. 293 pp.

$49.95 (cloth), ISBN 0-312-17540-X.

Reviewed for EH.NET by Michael V. Namorato, Department of History,

University of Mississippi.

This volume grew out of the American Studies program at Louisiana State

University-Shreveport and its sponsorship of a presidential conference series

originally be ginning in 1983. In 1992, LSU-Shreveport sponsored a conference

on Abraham Lincoln which, in turn, led to a summer institute for teachers.

Three years later, in 1995, the university sponsored “Franklin D.

Roosevelt after Fifty Years.”

According to the editors, this 1995 conference had nearly one hundred scholar

participants and was “the largest ever held” on FDR, even winning awards from

the Louisiana Endowment for the Humanities (which apparently assisted in

funding it) and the Olympic Games Cultural Olympiad. The published result is

this volume on public policy.

The edited book is divided into four parts: agriculture; environment;

housing, welfare, and economics; and industry regulation. A brief

historiographical article concludes the work along with a

select bibliography and list of contributors. The authors are individuals who

have master’s degrees, or are doctoral students, or are academics in

disciplines such as political science, or are university administrators.

Evaluating this book is not an easy

task. In general, the work is disappointing. There are no notable New Deal

historians who contributed any articles, except for Roger Biles who has done

work on the New Deal on the local and regional level. In the articles

themselves, a good number of the

authors rely heavily on outdated secondary source materials. The articles offer

little or no originality whether it be in the problems studied, the approaches

used, or the conclusions drawn. And, at least one of the articles is simply a

jargon-filled social science tract of little value.

Fortunately, there are a few bright spots. June Hopkins, granddaughter of Harry

Hopkins, presents a substantive (although biased) study on Harry Hopkins’

attitude towards relief. Roger Biles offers a good piece on public housing,

demonstrating FDR’s dislike for such governmental interference.

Jim Codling writes a solid paper on the economic impact of Roosevelt’s programs

in Oktibbeha county, Mississippi and on Mississippi State University. And,

finally, Erik Carlson offers a good, yet tedious to read,

piece on the Civil Aeronautics Authority, showing how the federal government’s

role in this blossoming industry had particularly significant long-term

effects.

Nevertheless, other than these four articles, The New Deal and Public

Policy has little to offer. New Deal scholars or anyone interested in

Franklin D. Roosevelt and his era will not find anything in this work that adds

significantly to what is already known about this presidential era.

Michael V. Namorato is a

Professor of History at the University of Mississippi. He has published a

biography of Rexford Tugwell, edited the Tugwell diary, and edited a volume on

the New Deal and the South. He is also currently the editor of Essays in

Economic and Business History, the journal of the Economic and Business

Historical Society.

David S. Landes, The Unbound Prometheus: Technological Change and Industrial Development in Western Europe from 1750 to the Present. Cambridge: Cambridge University Press, 1969. ix + 566 pp.

Review Essay by Paul M. Hohenberg, Department of Economics, Rensselaer Polytechnic Institute. hohenp@rpi.edu

Economic History’s Greatest Story, Never Told Better

Let me put my cards on the table at the outset: this is the book I would like to have written. From its basic argument to its style, from the broad range of its scholarship to the tenacity with which Landes pursues the story in the details of production techniques, I admire almost everything in the book. Most of all, it is a model of argument, clear yet subtle, strong without being dogmatic. Little wonder The Unbound Prometheus has been in print continuously since 1969.

It is worth recalling the genesis of the book. The core of it appeared in 1965 as an extended (390 pages in total!) chapter in Volume VI of the Cambridge Economic History of Europe (CEHE), probably responsible by itself for making this a double volume. Yet even this earlier version was much delayed, first by the editors’ request that Landes bring the story at least as far as 1914, length be damned, and then by the bug-a-boo of collective volumes, that the slowest ship (chapter) in the convoy sets the pace for all. The 1969 book made the material accessible to students, among others (it appeared as a paperback from the start), and allowed Landes to bring the story forward to the then present. The Preface includes the author’s intention to revise the old material fully, notably devoting more attention to neglected countries, but that hope has not been fulfilled (yet!). Of course, Landes’s recent Wealth and Poverty of Nations (New York: W.W. Norton, 1998) will be judged by many readers to offer more than full compensation.

The 1969 book gave the reader a good deal beyond what was in the CEHE “chapter,” but not without some cost. The magnificent bibliography appended to the end of Volume VI is now scattered in the many footnotes and correspondingly harder to use. (These footnotes, by the way, are often masterful little essays and should by no means be glossed over.) On the other hand, the added Introduction is hardly dated at all in its discussion of how development has historically begun. One finds prefigured many of the themes and concepts that have made the name of other economic historians since then. Joel Mokyr’s macro-inventions and micro-innovations, Franklin Mendels’ proto-industrialization, Jan de Vries’ industrious revolution, E. A. Wrigley’s organic versus mineral economy, E. L. Jones’ European miracle – these come easily to mind. At the other end, Landes added almost 180 pages – and a Landes page is always full – on the twentieth century (ca.1914-1965), as well as a (revised) Conclusion that matches the Introduction in strength and thoughtfulness.

Given the original task Landes had taken on, the core chapters, those that appeared in 1965, are closely circumscribed in their coverage. Many aspects of development – the book’s preface mentions agriculture, demography, and transport – would be assigned to other authors. Here the concern was with industrialization as such and with technology in particular, though not to the exclusion of the finance, organization, and regulation of production. The wealth of detail and the tenacity with which Landes digs into the story, using statistics but always looking under and behind them, and unafraid of technical and scientific specifics, make the book sometimes heavy going, despite the superb clarity of the presentation. Similarly, although the writing is masterful, many students – and not just they – have found their command of language(s) stretched to and past the breaking point.

When one gets to the interwar and postwar chapters of the book, the emphasis changes. It is not quite clear why Landes undertook to cover broader issues of development, macroeconomic stability, and policy here. Perhaps a part of the reason is that the technological story became less compelling, indeed often depressing, especially in the interwar years. There were some high spots to be sure, such as radio and motor cars, but most industries saw only limited progress. Whereas productivity grew in the nineteenth century largely through the addition of more productive capacity to the existing stock, after the Great War overall efficiency was more often boosted when excess capacity forced the closing of the most obsolete plants. Even postwar recovery and growth up to the mid-60s mainly called for renewing the damaged or worn-out capital stock and catching up with American best practice. As we now know, the impact of microelectronics and other Third (?) Industrial Revolution technologies would take a long time to make themselves felt in the productivity statistics. It remains true, however, that extended discussions of financial instability in the interwar, and of aid, trade liberalization, and planning after 1945, do not quite fit in with the rest of the book, well done as they undoubtedly are.

For Landes, development as experienced in Europe owed its principal thrust to the development and adoption of new technology, a view that puts him pretty squarely with the New Growth Theorists and their emphasis on knowledge and human capital. Landes did not neglect natural resources, but put entrepreneurs at the heart of the analysis, whether looking at Britain’s initial industrialization, at emulation in continental countries, or at the later comparative performance of the various national economies. Rationality may well have prevailed everywhere, but some rational styles of enterprise, notably bets on new technology, worked better than others most of the time. Knowledge itself being portable and ultimately public, the critical factor was willingness on the part of business decision makers to devote resources to acquiring it and to accept inherently risky change. This thesis is pursued in industry after industry, with arguments and counterarguments pitilessly confronted with available evidence, itself always probed and cut down to size. But Landes also looks at the whole, at industrial structure. Thus, British retardation in the later nineteenth century involved both lagging performance in such industries as steel making and a reluctance to shift resources out of mature industries and into faster-growing sectors (which happened to be more knowledge-intensive).

Landes’s thesis and method, to whose subtlety I cannot do justice here, bring up the issue of the book’s influence, since a principal criterion of selection for the Project 2000 set of review essays is the work’s “significance.” Surely, no EH.NET subscriber can have gotten very far in the study of economic history without engaging with Prometheus. Yet the work appeared even as the cliometric revolution was gathering strength. Is it far-fetched to argue that a good deal of the New Economic History, at least that devoted to Europe, can be seen as a critique of Landes, both his thesis and his method, on the part of economists? [I do not suggest that Landes stood alone, of course; his book was part of a large conversation that included many he cited or who cited him or wrote concurrently.] To be specific, much of the New Economic History fell in with the economists’ tendency to set as their goal “explaining” whatever happened as the working of rational actors in well-behaved markets. It was thus impatient with social or non-market determinants of performance, to which Landes gave considerable weight.

For all the work and ingenuity lavished on the period since Landes published, I wonder how many scholars truly feel that our best understanding of European industrialization today owes more to the work of the “new” scholars than to Landes and his fellow “old” practitioners. Landes himself insisted (p. 535) that his hesitation in ascribing single causes or quantifying explanations placed him on the historians’ side of the disciplinary divide. Nonetheless, it seems to this reader, at least, that the economics in Prometheus generally holds up no less well for being discreet and non-technical. The argument, as I see it, has few if any gaping holes for the critic to shoot technical arrows through. On the other hand, thirty years of hindsight allow us to ask how well Landes’s technical emphases have held up. (Let me stress that he himself did not extrapolate from the past record to forecasts or predictions.) He did not, apparently, fully sense the coming crisis in the old heavy industries, based on coal, and thus in the regions where they flourished. By the same token, there is scarcely an inkling of the new industrial landscape of Europe, including the revival and renewal of some pre- and proto-industrial regions overshadowed in the great paleotechnic wave.

The teacher of “modern” European economic history can choose whether or not to assign students The Unbound Prometheus as a text. There are both newer treatments and easier books to read. Also, many important topics are barely touched on or omitted entirely. Perhaps the best argument for not choosing Landes is that one can then take parts of it, for example from the Introduction and Conclusion, and use them to give smashingly clever lectures without the students’ realizing that their instructor is just an inspired borrower.

(Paul Hohenberg is Professor of Economics Emeritus and currently Acting Chair of the Department of Economics at Rensselaer Polytechnic Institute. He has served as editor of the Journal of Economic History and is the author, inter alia, of A Primer in the Economic History of Europe, obscurely in print since 1968. He chairs the Project 2000 committee responsible for soliciting, selecting, and assigning for review books on the list of “Significant Works in Twentieth-Century Economic History.” He thanks his colleagues and particularly Robert Whaples for their efforts.)

Published by EH.NET (March 2000)

Melvin W. Reder, Economics: The Culture of a Controversial Science

.

Chicago: University of Chicago Press, 1999. xii + 384 pp., $35.00 (cloth),

ISBN: 0-226-70609-5.

Reviewed for EH.Net by Ross B. Emmett, Department of Economics, Augustana

University College, Canada.

In the 1980s, it became common among management types to speak of

“corporate culture” and its importance in understanding the work of an

organization. Business analysts began to examine the institutional framework

and practices of an organization in order to understand the way its

underlying values were carried out. While “the bottom line” obviously remained

important, the corporate culture gurus showed that every organization pursues

profitability through different practices and institutional structures.

“Successful” cultures were

those which were able to create institutional structures which brought the

practices of the organization’s members in line with the organization’s overall

goals,

including profitability.

Melvin Reder has applied the same insight to the discipline of economics in

this engaging book. For the scientist, “predictive accuracy” could serve as a

proxy for the bottom line. Traditionally, the potential for prediction and

control was the hallmark of a “true” science, and economics was either praised

or vilified for its ability/failure to live up to that potential. Reder shows

that the economics discipline, as an organization, has a set of

institutionalized structures that shape the practices of its members. While

these structures are possibly intended to assist the predictive accuracy of

outcomes, they also create a “culture” in which adherence to a paradigm or the

pursuit of status may be more important than prediction and control. Near the

end of the book, Reder addresses the question of economics’

“success.” If its culture includes structures that impede prediction and

control, what good is it to society? The tone of much of the book is carried in

his answer, which is a paraphrase of Bob Solow: “I know the wheel is crooked,

but economics is still the best game

in town” (p. 362).

The notion of “corporate culture” had another important role in the management

literature: it suggested that the student of organizational behavior needed to

act like the student of culture. The management specialist, in other words,

needed to become an ethnographer. To understand the success of an organization,

one needed to get “inside” it, to see how it functioned by its own rules and

standards, rather than judge it solely by external criteria (even

profitability). Here, too, Reder

follows the organizational behaviorist. Part I explores the notion of culture

in science, and several of the chapters in other parts of the book provide an

inside guide to the practices of economists. Those who operate within the

structures and practices

of academia will find Reder’s exploration familiar: editorial prescriptions,

the quest for status among the elite of a profession, the role of prizes and

honors, and the requirements of tenure and promotion. In fact, Reder’s analysis

of the culture of economics sounds suspiciously like the culture of American

universities: a fact he recognizes near the beginning of the book, but focuses

little attention on

(we will return to this in a moment).

The use of the term “controversial” in the sub-title of the

book reveals another of Reder’s themes. Some would argue, he claims, that the

institutional structures and practices of economics render it unscientific.

In Reder’s view, they should instead simply remind us of the limitations of

economic science (Reder’s

argument here is very similar to that developed by one of his predecessors at

the University of Chicago, Frank Knight). The notion that economics’ scientific

reach is limited makes its claim to be a science controversial, giving Reder

his title. But Reder’s argument about the scientific status of economics seems

to falter here. One could say that the focus on organizational culture was

intended to remind us that organizations are artifices, and that looking at the

culture of economics reminds us that it,

too, is a human creation. But “science” is not supposed to be a human

creation. Instead, it is created by adherence to a particular method, or by

observation of reality (in other words, science’s creator —

or at least its judge — lies outside human artifice).

The tension between his emphasis on economics as a form of human activity and

the claim that economics is still a science permeates Reder’s book.

Recognizing this tension helps to explain a number of unusual features to the

book. For example, the

majority of the book (chapters 3 to 10) is an account of the scientific

paradigms of economics (yes, Kuhn plays a prominent role in the book) for

non-economists. And there is the obligatory chapter on the relation of the

dominant scientific paradigm (Rat ional Allocation Paradigm – RAP for short –

or what is commonly called neoclassical economics) to the ideology of laissez

faire. Investigation of the “culture” of economics is surprisingly slim

compared to the amount of space devoted to exposition of the

scientific side of economics. As already indicated, most of the discussion of

the culture of the economics disciplines depends upon the reader’s prior

appreciation for American academic life. There is no ethnographic examination

of economists at work,

no

attempt to explain the human drama of RAP’s rise to dominance, and only a

glance at the roles of graduate education, foundation funding and non-North

American economists in the discipline.

In other words, Reder’s book is a long way from a “science studies”

approach to economics, and despite his use of “culture,” is still rooted in the

philosophy of science approaches common to the 1970s and 1980s.

Nevertheless, in a discipline that still pursues the mantle of Science,

Reder has provided an account that may help readers admit that economic

science is fundamentally a human activity.

Ross B. Emmett is editor of The Selected Essays of Frank H. Knight (two

volumes), recently published by the University of Chicago Press.