Published by EH.NET (March 2000)

Salamon, Lester M., Helmut K. Anheier, Regina List, Stefan Toepler, S.

Wojciech Sokolowski and Associates. Global Civil Society: Dimensions of the

Nonprofit Sector. Baltimore, MD: Johns Hopkins Comparative Nonprofit Sector

Project, 1999. Price (paper) $34.95. ISBN 1-886333-42-4.

Reviewed for H-Business and EH.NET by Milton Goldin

National Coalition of Independent Scholars (NCIS)

The Global Associational Revolution

“…a veritable ‘global associational revolution’ appears to be underway, a

massive upsurge of organized private, voluntary activity in literally every

corner of the world. Prompted in part by growing doubts about the capability of

the state to cope on its own with the social welfare,

developmental, and environmental problems that face nations today, this growth

of civil society organizations has been stimulated as well by the

communications revolution….” (p. 4)

If these statements appear to be exaggerations–after all, how often do you

think of nonprofits in connection with revolutions?–brace yourself before

reading this book. Dr. Salamon and his co-authors will positively jolt you with

their conclusions based on data from 22 nations including Israel,

Japan, the United States, five countries in Eastern Europe, and five countries

in Latin America. All data relate to 1995.

Consider the following:

– “Even excluding religious congregations, the nonprofit sector…is a $1.1

trillion industry that employs close to 19 million full-time equivalent paid

workers. Nonprofit expenditures in these [22] countries…average 4.6 percent

of the gross domestic product, and nonprofit employment is nearly 5 percent of

all nonagricultural employment,” (p. 8)

– “… if the nonprofit sector in these countries were a separate national

economy, it would be the eighth largest economy in the world, ahead of Brazil,

Russia, Canada, and Spain.” (p. 9)

– “Nonprofit employment in the eight countries for which time-series data were

available grew by an average of 24 percent, or more than 4 percent a year,

between 1990 and 1995

. By comparison, overall employment in these same countries grew during this

same period by a considerably slower 8 percent, or less than 2 percent a year,”

(p. 29)

– “…the growth in nonprofit employment evident in these figures has been made

possible

not chiefly by a surge in private philanthropy or public-sector support, but by

a substantial increase in fee income,” (p. 31)

– “…the relative size of the nonprofit sector varies greatly among countries,

from a high of 12.6 percent of total nonagricultural employment in the

Netherlands to a low of less than 1 percent of total employment in Mexico. The

overall 22-country average, however, was close to 5 percent.

This means that the U.S., at 7.8 percent without religious worship, lies

substantially above the global average. However, it falls below three Western

European countries the Netherlands (12.6 percent), Ireland (11.5 percent), and

Belgium (10.5 percent), as well as Israel (9.2 percent). (pp.

265-266)

Despite the awesome data, Salamon writes in

his Preface that we are nowhere near having enough information to fully grasp

what is happening in America or elsewhere vis-a-vis nonprofits. For those of us

who closely follow the philanthropic literature, this is surely no

exaggeration: The IRS isn’t even certain how many private foundations or

nonprofits exist. Nor is lack of data the extent of the problem. Salamon and

his associates at the Johns Hopkins Comparative Nonprofit Sector Project which

manages the research rightly seek in the long term not only to describe the

“basic scale,

structure, and revenue bases” of nonprofits around the world but hope, in later

volumes, to account “for the differences that exist” between nonprofits in

various countries, “the factors [that] seem to encourage or retard

their development,” and, finally (and perhaps most important of all), to

answer the questions, “what difference…these entities seem to make? What are

their special contributions?” (p. xvii)

The more philosophical among us might have preferred that Salamon and his

associates begin with a volume responding to the questions about economic

benefits that justify nonprofits and what expectations we should entertain for

their future. The purpose would be not only to provide intellectual

satisfaction but because of the gigantic transfer of wealth currently

underway, in America, from the World War II generation and baby boomers to

foundations and other tax shelters.

But to return to the present volume, someone somewhere once said there are no

specialists, only vested interests. When Salamon writes, “Traditionally,

the United States has been considered the seedbed of nonprofit activity,”

and then proceeds to write that Alexis de Tocqueville, “a keen 19th century

observer of American institutional life, aptly considered voluntary

associations a uniquely democratic response to solving social problems. . .”

(p. 261), you have to wonder exactly which vested interests de Tocqueville

thought were being served. But had de Tocqueville attempted to address this, he

would have come across immediate, knotty problems, including how,

exactly, to define “nonprofit” or “charity” or “philanthropy” in an American

context.

Definition is no easier 150 years after de Tocqueville’s visit. Annual salaries

of some nonprofit executives now exceed $1 million; this suggests that

nonprofit is not non- profit for them. Benjamin Franklin, the patron saint of

American philanthropy, thought charity (meaning welfare) should be the business

of churches and never of government. To him, philanthropy meant community

advancement, and community advancement must be the business of all citizens. To

put the matter bluntly, successful entrepreneurs could only do well if they did

some local good, but finding shelter for the homeless was not the kind of good

in which they should be involved.

As Global Civil Society

makes clear, one of the most remarkable aspects

of post-industrial philanthropy is the degree to which systems in various

countries throughout the world have come to resemble each other.

In Western Europe, “On average, three-fourths of all nonprofit employees…work

in education, health or social service organizations. This reflects the

historic role that the Catholic and Protestant churches have long played in the

education and social service field.” (p. 16). In America, “…almost half of

all nonprofit employment…is in the health field. This is more than twice as

high as the global average of 19.6%….” (p. 269) (On the other hand, it should

be pointed out, as Salamon does, that “one

out of every five nonprofit employees in the United States works in the

educational field. This is proportionally well below the all-country average

and also falls below the developed country average. The principal reason for

this is that the tradition of

separation of church and state in the U.S. has limited the growth of public

funding of religiously affiliated education institutions in the country….”)

(p. 270)

But in America, as in the other 22 countries during the past two decades,

financing nonprofits has had less and less to do with philanthropic giving and

more and more to do with fees paid for services by governments. In this

connection, Catholic Charities of America receives some 62 percent of its

annual $1.9 billion operating income from eight national agencies as well as

local and state governments, to provide home care for the elderly,

battered-women’s shelters, foster care, and other essential services.[1]

Global Civil Society was published at a time when the American economy

flourished

as no one had ever imagined it could. But not in Washington or in any other

world capital were those officials concerned with welfare policy over- curious

about what might happen if the global economy falters and a depression

threatens. Hopefully, a succeeding volume in this series will include a “What

If” chapter. We badly need thinking in this area.

[1] David Van Bema, “Can Charity Fill the Gap?” Time (December 4, 1995),

pp. 44-46, 53.

Published by EH.NET (March 2000)

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Frank Neal, Black ’47: Britain and the Famine Irish. London: Macmillan Press and New York: St Martin’s Press, 1998. xv + 292 pp. $69.95 (cloth), ISBN: 0-333-66595-3.

Reviewed for EH.NET by Ron Weir, Department of Economics, University of York.

During the 1980s there appeared to be developing a minor academic industry popularly known as ‘The Irish in ….’ It was concerned with describing the experiences of Irish immigrants in nineteenth century Britain and seemed destined to embrace every British city. In fact this research was never quite so all inclusive as its critics suggested and focussed pre dominantly on Dundee, Glasgow, Leeds, Liverpool, London, Manchester, Salford, and York. It could also be justified in terms of the quantitative dimensions of Irish immigration, particularly during the decade of the Great Famine. Between 1841 and 1851 the Irish-born percentage of the population of England and Wales rose from 1.8% to 2.9%, or from 291,000 to 520,000. In Scotland the proportionate increase was even greater, from 4.8% to 7.2%, or from 126,000 to 207,000. Nevertheless, the sheer volume of such single city studies did pose the question whether further research was likely to yield more than marginal gains to our existing knowledge of the Irish in Britain.

In Black ’47 Frank Neal, Professor of Economic and Social History at the University of Salford, proves conclusively that there is still a lot to be learned. That this is so, owes much to five features of his research. First, he adopts a very narrow time horizon, essentially the events of a single year, 1847. Secondly, he concentrates on a tightly focussed area, Lancashire, the county that exceeded all others in the number of Irish-born residents, and in particular on Liverpool, the main port of entry for famine refugees. Outside London, Liverpool had the greatest number of Irish-born within its boundaries and the greatest proportion of its population who were Irish-born. By comparing Liverpool with Glasgow, Manchester, and Salford, the four towns which accounted for 27% of all Irish-born in Britain in 1851, the sheer concentration of Irish immigration and the resulting problems are starkly revealed. Thirdly, he is aware that much previous research has been ‘going over old ground’ and responds by utilizing a wider range of primary source material, including county and church archives, newspaper reports, and personal testimony. Fourthly, he regards what might be described as the mechanisms of migration, that is the behavior of the shipping companies and the nature of the passage, as vital to understanding the condition of the refugees when they arrived in Britain. Finally, he has two clear objectives: to employ statistical evidence to establish ‘the parameters of sensible discussion’ and to evaluate the nature of individual experiences. The resulting analysis never loses sight of the individual yet offers a clear explanation of public policy and its consequences.

The book is also carefully structured. After an introductory review of recent work on the Famine, eight chapters take us through the nature of Irish settlement in urban Britain before the famine, the escape from Ireland, the arrival in Britain, the Irish fever (the typhus epidemic of 1847) – this is examined in separate chapters on Liverpool, and Glasgow and South Wales – survival and dispersal, removal, and the cost of famine immigration. Well before the influx of famine refugees, living conditions for the immigrant Irish were extraordinarily bad. At the bottom of the housing market with low incomes and intermittent employment, the Irish endured a wretched lifestyle and their presence was increasingly subject to unfavorable press comment. Yet at the same time their importance to the regional economy was recognized, not least because they were more mobile than English laborers subject to the laws of settlement. Whilst the volume of immigration swelled with the Famine, Neal argues convincingly that the ordinary workings of the labor market continued throughout 1845 to 1851. A perceptive analysis of the economics of shipping explains why. Human cargoes had always taken second place to goods and livestock, but as food exports from Ireland fell, competition between shipping companies intensified and fares were varied to suit whatever level the traffic would bear. The destitute found the fare either by selling their remaining assets or by assistance from ratepayers and landlords. In an unregulated market, terrible conditions were tolerated because ‘Irish paupers had no friends in high places’ and, unlike livestock, had no market value. On arrival the Irish had no legal claim to long term poor relief and were subject to the laws of removal. On the other hand, the poor law unions had a legal obligation to ensure that nobody died of starvation, malnutrition, or ‘the want of the necessaries of life.’ It is the resolution of this essential paradox which forms Neal’s core theme and he displays great skill in interpreting it at several different levels: ratepayers, Boards of Guardians, clergy, medical officials, and individual paupers. He also makes the first attempt to estimate the cost of famine immigration: for Liverpool in 1847 this amounted to #33,159 on a tax base of #929,645; for England and Wales as a whole perhaps #155,000 or 2% of all expenditure on the poor. Whilst coping with famine refugees did exert pressure on ratepayers, in what was a disastrous year for the economy, it was not a disaster for wealthier or business ratepayers, nor did the working class finance the payment of poor relief to the Irish. The extra rates burden amounted to 9s7d, roughly the equivalent of half a wee k’s wages for a laborer. However, as so often with refugees, it was perceptions rather than facts that counted; the belief that the Irish were diverting funds from Britain’s own poor damaged inter-communal relations.

Despite the harrowing nature of individual testimonies, Neal’s overall judgement of the performance of the poor law authorities during 1847 is that they fulfilled their responsibilities to the welfare of Irish famine refugees. They increased spending in proportion to the numbers seeking relief, they kept deaths from starvation to low levels (a maximum of 22 in Liverpool in 1847), they acted swiftly to deal with the much more serious problem of famine related diseases and, by doing so, averted a much greater crisis. Above all, they shouldered a burden whose ultimate duration was unknown – in Liverpool it was not till 1854 that Irish immigration dropped dramatically – and which ought properly to have been borne by national government rather than local ratepayers. Generous they were not, but the poor law was not generous to the British poor. Neal’s conclusion is that social class rather than ethnicity determined the response to the crisis.

Ron Weir, Provost of Derwent College, University of York, is on the editorial panel of the journal Irish Economic and Social History. His recent publications include The History of the Distillers Company 1877-1939 (Oxford University Press, 1995) and “The Scottish and Irish Unions: The Victorian View in Perspective,” in S. J. Connolly, editor, Kingdoms United? Great Britain and Ireland since 1500 (Dublin, Four Courts Press, 1999).

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Max Weber, The Protestant Ethic and the Spirit of Capitalism

Review Essay by Stanley Engerman, Departments of Economics and History, University of Rochester

Capitalism, Protestantism, and Economic Development:

Max Weber’s The Protestant Ethic and the Spirit of Capitalism after Almost One Century

Max Weber’s The Protestant Ethic and the Spirit of Capitalism has had an enduring impact on the field of economic history. Ironically, Weber’s contemporary, Joseph Schumpeter (1991, 220-229) argued that, althoughWeber’s academic career began with chairs in economics, “he was not really an economist at all,” but rather a sociologist. Schumpeter (1954, 21 and 819) distinguished between economic analysis, which “deals with the questions of how people behave at any time and what the economic effects are they produce by so behaving,” and economic sociology, which “deals with the question how they came to behave as they do.” This concern with the latter question is reflected in Weber’s still important work on the development of capitalism.

Weber’s concerns within economic history, particularly in The Protestant Ethic and the Spirit of Capitalism, fit well into the general interests of the turn-of-the-century historical schools in Germany and in England. These scholars were concerned with explaining the rise of modern economies, as well as with the explanation of the institutions and conditions that influenced the development and operation of economies and societies. Weber, unlike others in the German School, spent little time describing the role played by economic policies of governments in economic change. He focused, as did Werner Sombart, more on the study of modern capitalism, its natureand the causes of its rise. As the interest in this topic waned, the interest in Weber’s work was lessened, a pattern that persisted for several decades.

Weber’s major contribution to the study of economic history no doubt remains his classic study The Protestant Ethic and the Spirit of Capitalism, first published in 1904-1905, and republished with some revision in 1920, with the addition of extensive footnotes. Weber did not originate the thesis linking Protestantism and capitalism, as he himself pointed out. Jacob Viner (1978, 151-189), among others, has indicated thatthis idea of linking religion to the onset of capitalism had a long history in regard to Protestantism and to other religions prior to Weber’s writings. Earlier writers, including the English economist William Petty, made some of these links. What Weber did was to provide the specifics for the argument, with the details of the mechanism by which the belief in a”calling” and in worldly asceticism developed, leading to modern capitalism. Nevertheless, Weber argues that these behavioral changes alone could not bring about modern capitalism as it required the appropriate set of conditions in the economic sphere.

To clarify his contention on the uniqueness of the west, Weber undertook several major studies in the sociology of religions in different areas, particularly Asia, in order to understand why other religions did not generate the emergence of a modern capitalism. These comparative religious studies have yielded insights into the impact of these different religious systems in China, India, and elsewhere, and their impacts on behavior. To some scholars, however, it was the political nature and openness to new beliefs and innovations in those countries in northwest Europe that lead to developments in science, business, and political freedom that permitted economic and scientific progress to take place.

The issue of the relation of Protestantism and capitalism remains a historic perennial, frequently cited and necessarily discussed and evaluated in all works dealing with its general time period. Weber clearly had raised a central issue for historic studies. The general question and Weber’s approach have remained important to recent works by economic historians for several reasons. First, they have made central the question of the uniqueness of western civilization and the nature of its economicand social development. Whatever might have been the relative incomes of different parts of the world before 1700, it is clear that since then economic growth has been much more rapid in Western Europe and its overseas off shoots than in other parts of the world.

Modern economic growth has taken place with a quite different economic and social structure from that which had existed earlier. Economic growth occurred at roughly the same time, or soon after, these areas experienced the rise of Protestant religions. Some may hold this similarity to be of completely different occurrences, but for many such a non-relationship would seem difficult to understand and accept. Second, Weber has pointed to the significance of non-pecuniary (or what some would call non-economic) factors in influencing economic change, at least in conjunction with some appropriate set of conditions. For Weber, the key non-pecuniary factor wasbased on a particular religion and set of religious codes; to others it was a religious influence, but from a different religion, such as Catholicism or Judaism; while to other scholars it has been some different factorleading to behavior changes, such as rationalism, individualism, or the development of an economic ethic. Some, such as R. H. Tawney (1926), invertWeber’s argument, making the economic change a basic contribution to the religious changes. To still other scholars, the major factor has been the nature of a minority group of penalized outsiders in society. These scholars include William Petty (1899, 260-264), who looked at several different areas in the seventeenth century, Sombart (1969) and Thorstein Veblen (1958) who wrote on the Jews, and Alexander Gerschenkron (1970) who examined the Russian Old Believers. Each of these explanations has been advanced in the attempt to describe the primary cause of those changes in economic behavior that have lead to the distinction between the modern and pre-modern worlds.

In explaining the rise of capitalism in the Western World, Weber makes it clear that “the impulse to acquisition, pursuit of gain, of money, of the greatest possible amount of money, has in itself nothing to do with capitalism”; and “unlimited greed for gain is not in the least identical with capitalism, and is still less its spirit.” The desire for gain has been seen in “all sorts of conditions of men at all times and in all countries of the earth.” Rather what developed in the West was “the rational capitalistic organization of formally free labor,” which was based on “the separation of business from the household” and “rational book keeping,” although the basic factor was the presence of free labor. The ability to calculate, the development of technical capabilities, the creation of systems of law and administration – all have been important to Western culture but, according to Weber, their economic usefulness is “determined by the ability and disposition of men to adopt certain types of practical rational conduct,” unobstructed by spiritual and magical beliefs.

Since religion has always had a major impact upon conduct, the particular development of the West is attributed by Weber to “the influence of certain religious ideas on the development of the economic system,” which, in the case “of the spirit of modern economic life [is] the rational ethics of ascetic Protestantism.” That the impact of the actual teachings of the church was limited is suggested by Weber’s contention that his concerns were with “predominately unforeseen and even unwished-for results.” Hedenies that he believes that the spirit of capitalism could only have derived from the Reformation, and claims that he only wishes “to as certain whether and to what extent religious forces have taken part in the qualitative formation and of quantitative expansion of that spirit over the world.” Nevertheless, he often does suggest that is was Christianasceticism and Calvinism that provided the orientation that led to the development of such ideas as the “necessity of proving one’s faith in worldly activity,” “the preaching of hard, continuous bodily or mentallabor,” and “rational conduct on the basis of the idea of the calling” that were to provide “the fundamental elements of the spirit of modern capitalism.”The recent literature by economic historians, dealing with “How the West Grew Rich,” “The Rise of the Western World,” “The European Miracle,” “The Lever of Riches,” “The Unbound Prometheus,” and related titles, has begun, as did Weber, with the perceived uniqueness of the Western European economy. These studies, by such leading economic historians as Nathan Rosenberg ((1986) with L.E. Birdzell, Jr.), Douglass North (alone (1990),and with Robert Paul Thomas (1973)), Eric Jones (1981), Joel Mokyr (1990),and David Landes (1969, 1998), with the related writings by Fernand Braudel(1981, 1982 and 1984), Immanuel Wallerstein (1974, 1980 and 1989), John R.Hicks (1969), and Deepak Lal (1998), focus on somewhat different explanatory factors from Weber’s, but the problem to be analyzed isidentical. Posited answers include the role of political freedom, the development of property rights, changes in technology and organization of workers, the changing ratio of land to labor, the reactions to different environmental conditions, the emergence of markets, the rise of rational thought, the inflow of specie and various others. Some focus more on what might be regarded as economic factors, while others are more in theWeberian tradition, even if there is no unanimity concerning specific causal factors. Rather curious, however, is that several of these recent works by economic historians do not refer to Weber’s work on the Protestantethic, and in those that do not completely ignore him, his work is not seen as central to explaining the rise of the West, either because the role of religion is seen as more endogenous, or because other religions have been consistent with economic development during the growth of the West. Nevertheless, it is clear that as long as there is a belief that the economic performance of Western Europe has been unique, Weber has presentedan argument that must be confronted. Early in the second half of the twentieth century a non-western nation, Japan, as well as, somewhat later, several East Asian nations, came to experience some of the characteristics of modern economic and social change, with the development of a pattern of thrift and of a work ethic (even if cooperative not individualist), but with a different form of religion. This seems, however, to have done more to reawaken interest in Weber’s arguments than to lead to their dismissal.

Despite the frequency of the criticism, of the specific hypothesis in the past, the Weber thesis remains central to posing questions about the onset of modern economic growth and social and religious change in seventeenth-and eighteenth-century Western Europe. Its importance as a spiritual and ideological counter to a concentration on material conditions, as in the works of Karl Marx, provides an alternative approach to understanding economic change. In addition to the debates on economic growth there are subsidiary questions about related aspects of western development, which might be regarded as either substitutes for or complements to the Weber Thesis. These include debates on the rise of individualism, the causes ofthe development of a more deliberate and rational approach to economic and other behavior, and the link between the emergence of modern capitalism and modern science. Weber discussed the role of those climate and geographic factors that have interested such present-day economic historians as Eric Jones, arguing that the development of firstly cities, and then nation-states, left Europe, unlike Asia, with rational states and rational law. This set of developments reflected, according to Weber, initial differences in natural forces.

As with all “big theories,” there are several different types of criticisms that have been made, posing some rather different questions. First, it is often unclear what the proponent had really said, particularly crucial since we usually look only at the briefest summary of what was presented, without paying as much attention to the various qualifications and boundary conditions that the author was intelligent enough to have added. Second, there are these complications in defining precisely what are regarded ascauses, and what are the effects. In terms of the Weber Thesis, we need to be clearer both on what was to be considered the nature of religion and religious beliefs, and also what exactly we are trying to explain when we discuss capitalism. Third, is the manner by which the cause and effect can be linked, whether we believe they can be related by other than a pattern involving direct causation, and whether the same cause will yield a different effect or, alternatively, the same effects can be achieved with a broader range of causes. Variants of all these types of criticisms have been applied to The Protestant Ethic, and much more space than that available here would be needed to provide a complete examination of this debate.

Many of the disagreements about Weber’s linking of Protestantism and capitalism contain a distinct moral flavor. To those who find capitalism and the modern world morally distasteful, linking capitalism’s rise to religious beliefs places an unfortunate and unfair burden upon the religion, which can lead to a denial of any relationship between the two. Presumably those more sympathetic to modernism and capitalism would find a relationship more acceptable. Weber, himself, believed that capitalism generated important problems, and he did not believe that capitalist growth could continue indefinitely. The decline of capitalism was anticipated because of the development of rigid institutions and the rise of a bureaucratic state, posing a threat to political freedom as well as causing economic stagnation. Weber’s use of the image of the “iron cage” to describe modern society reflected his belief that certain cultural problems emerged because of capitalist development. And while Weber did not describe the same scenario for capitalism’s demise as that later presented by Schumpeter, it was similarly based upon the impact of increasing bureaucracy and rationalism on the belief system in society. Many of Weber’s works dealt with topics in the area of economic history, and even his more sociological writings were concerned with economic comparisons. Particularly rich in presenting his later views was his book devoted exclusively to the study of world economic history, GeneralEconomic History (1981), based on the transcripts of lectures in1919-1920, taken from students’ notes. A look at this work is useful inputting Weber’s economic history in a broad perspective.

General Economic History is an overall survey of economic developments,from ancient times to the modern world. It provides summary statements (insome cases, revisions) of key arguments found in earlier writings, useful descriptions of the pattern of western economic development, and insightful brief views of major economic changes that are sometimes detailed in other writings. Its major contributions include the claim that forms of what could be considered capitalism had long existed, leading to earlier accumulations of wealth, but it was only with the development of capital accounting and rational commerce, and with the need for rules and trust that arise when there are continued transactions among individuals, that the modern form of capitalism emerged in Western Europe. This development was unique to that particular geographic region. In describing this evolution Weber also provides discussions of the changing organization of the manor, the stages in the rise of industry, the impacts of slavery and other forms of labor organization upon the economy as well as the reasons for their transformation over time, and numerous other topics that are still covered, often in a quite similar manner, in today’s textbooks in European economic history.

Weber gave some attention to the importance of non-pecuniary tastes in actions within the economy. Following a strand of argument raised by a member of the Older German Historical School, Karl Knies, he argued that people did not necessarily profit-maximize at all times. Non-economic factors play a role in human behavior. Weber believed that it was certainly possible that there may be less extensive attempts at the maximum degree of maximization within a market economy, at least as a short term goal, than in other forms of social organization. Weber argued that “the notion that our rationalistic and capitalistic age is characterized by a stronger economic interest than other periods is childish,” and claims that while Cortez and Pizarro had strong economic interests, they certainly did not have “an idea of a rationalistic economic life.” Weber distinguished between economic interests, found in many past societies, and arationalistic, capitalistic channeling of those interests. To Weber, the market system was not an idealized means of solving social problems. He recognized the conflicts that existed within the market system, suggesting that price and market outcomes should be seen as the result of conflict, since people disagreed over the use of the economic surpluses that could exist. But to Weber the market, with its various difficulties, seemed to provide a reasonable way to resolve conflicts and to allocate resources with some limitations on destruction and loss of freedom.

While attention was given to the cultural problems due to capitalism, in Weber’s view the rise of capitalism was related to favorable changes in the distribution of economic resources within society. It was what Weber called the “democratization of luxuries” that was the key source of early market demand, rather than “Army, Luxury, or Court Demands.” None of these factors, important as they may have seemed at the time or to subsequent scholars (for example, Sombart), based on demand from a limited segment of the population, had led to prolonged economic growth anywhere. Prolonged growth, rather, was the result of growth of the mass market which arose with capitalism, and which lowered prices permitting the broad masses to imitate the consumption patterns of the rich. Weber argued that “first the prices fell relatively and then came capitalism,” the price declines being due to preceding shifts in technology and economic relations.

One of the major substantive legacies of Weber is his description of the characteristics of modern capitalism. Weber regarded capitalism as an evolving system, so that present-day capitalism has some features rather different from those at the onset of modern capitalism. He did not, however, regard commercial and capitalist activity as something new in the modern era, since such behavior had existed in most societies in earliertimes, as well as in other societies considered non-capitalist at the present time. Under modern capitalism, however, activities of a somewhat different pattern and nature occurred from those in the other forms of capitalism.

The principal characteristics of modern capitalism that Weber points to are the centrality of rationality and those measures that help to implementrational behavior. The emergence of a rationally organized formally free labor market to replace the various forms of labor institutions that had characterized earlier forms of capitalism, the development of rational law and administration in large firms and governments, the evolution of forms of rational bookkeeping and capital accounting, and the growth of bureaucracies in the public and private sectors to order the behavior of the larger-scale units in economic society – all these represent those factors developed out of Protestantism which permit continued capitalist accounting procedures to separate business and household capital in the interests of determining growth. Other accounting procedures of the modern capitalist economy include the use of interests of rational decisionmaking, and the increased number of business leaders whose leadership is based upon their personal charisma, not on either traditional or legal influences. Weber’s argument that charisma weakens the growth of bureaucracy resembles Schumpeter’s contention of the decline of the entrepreneurial function in modern capitalism, leading to a declining social appeal of capitalism. Recent studies in leadership of management, however, have focused upon so-called “change agents” and shapers of corporate culture, leading to attempts to determine what are the crucial characteristics of successful business leaders and what they have done to achieve their success.

Weber’s contribution to the study of economic history includes both methodological approaches and substantive conclusions. His general questions on the role of changing institutions and human behavior have again come into vogue, as has his interest in the law, legal rationality, and the process of historical development. Thus, in a number of ways, Weber reads very much like a present-day economic historian, a development that has taken place after a long period in which Weber was relatively ignored by economic historians. In part his loss of influence was due to a shift in questions, to those mainly dealing with only a relatively short, recent period in the history of the west, based, in the 1930’s, on a primary focuson the relatively short-run set of economic cycles, and, in the 1940’s, ona belief that with the right economic conditions all societies could achieve economic growth. As it became clear that the process of economic growth was rather more complex than believed in the mid-twentieth century, and that its understanding was based on happenings over a much longer timespan than was being examined, Weber’s analysis, with its broad chronological, spatial, and intellectual sweep, again became more central.

Bibliographical Note:

There have been several publications of The Protestant Ethic and The Spirit of Capitalism since the first English-language translation in 1930. All use the original translation by Talcott Parsons, differing only in their introductions. Among them are: – New York: Scribner, 1930, 1948, and 1958 (foreword by R. H. Tawney). – London: Allen & Unwin, 1976; London: Routledge, 1992 (introduction by Anthony Gidden)- Los Angeles: Roxbury Publishing Company, 1996 and 1998 (introduction by Randall Collins) and- Los Angeles: Roxbury Publishing Company, 2000 (introduction by Stephen Kalberg). A recent analysis of the work of Weber is in Stephen P. Turner, editor,Cambridge Companion to Weber (Cambridge: Cambridge University Press,2000). This includes my essay on “Max Weber as Economist and Economic Historian,” parts of which have been drawn upon here.

References:

Braudel, Fernand. 1981, 1982, and 1984. Civilization and Capitalism, 15th-18th Century. New York: Harper and Row (French edition published in 1979).

Gerschenkron, Alexander. 1970. Europe in the Russian Mirror: Four Lecturesin Economic History. Cambridge: Cambridge University Press.

Hicks, John R. 1969. A Theory of Economic History. New York: Oxford University Press.

Jones, Eric L. 1981. The European Miracle: Environments, Economies, and Geopolitics in the History of Europe and Asia. Cambridge: Cambridge University Press.

Lal, Deepak. 1998. Unintended Consequences: The Impact of Factor Endowments, Culture, and Politics on Long-Run Economic Performance.Cambridge, MA: MIT Press.

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

Landes, David S. 1998. The Wealth and Poverty of Nations: Why Some Are SoRich and Some So Poor. New York: W. W. Norton.

Mokyr, Joel. 1990. The Lever of Riches: Technological Creativity and Economic Progress. New York: Oxford University Press.

North, Douglass C. 1990. Institutions, Institutional Change and Economic Performance. Cambridge: Cambridge University Press.

North, Douglass C. and Robert Paul Thomas. 1973. The Rise of the Western World: A New Economic History. Cambridge: Cambridge University Press.

Petty, William. 1899. The Economic Writings of Sir William Petty. Cambridge: Cambridge University Press.

Rosenberg, Nathan and L. E. Birdzell, Jr. 1986. How the West Grew Rich: The Economic Transformation of the Industrial World. New York: Basic Books.

Sombart, Werner. 1969. The Jews and Modern Capitalism, New York: BurtFranklin (originally published 1913).

Schumpeter, Joseph A. 1954. History of Economic Analysis. New York:Oxford University Press.

Schumpeter, Joseph A. 1991. “Max Weber’s Work,” in Richard Swedberg,editor, Joseph A. Schumpeter: The Economics and Sociology of Capitalism.Princeton: Princeton University Press.

Tawney, R. H. 1926. Religion and the Rise of Capitalism. New York: Harcourt, Brace & World.

Veblen, Thorstein. 1958. “The Intellectual Pre-eminence of Jews in Modern Europe,” in Max Lerner, editor, The Portable Veblen. New York: Viking Press (originally published 1919).

Viner, Jacob. 1978. Religious Thought and Economic Society. Durham: Duke University Press.

Wallerstein, Immanuel. 1974, 1980, and 1989. The Modern World- System,New York: Academic Press.

Weber, Max. 1981. General Economic History. New Brunswick, NJ: Transaction Books (originally published in English in 1927).

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Published by EH.NET (February 2000)

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Deutsche Bundesbank, editor, Fifty Years of the Deutsche Mark. Central Bank and the Currency in Germany since 1948, translated. New York: Oxford University Press, 1999. xxv i + 836 pp. $90.00 (hardback), ISBN: 0-19-829254-6.

Reviewed for EH.NET by Albrecht Ritschl, Department of Economics, University of Zurich, Switzerland. .

This volume was written in commemoration of West Germany4s post-war currency reform. In June, 1948, the Allied military administration in the Western occupation zones of Germany distributed a new currency which had been printed in the U.S. and brought into Germany in a secret operation of the U.S. Army. The bank notes carried no signatures and made no mention of an issuing authority. But they did carry the name of Deutsche Mark. Seldom has a peacetime operation of the Army created a more successful brand name, but that is not the theme of the book.

Actually, this is not the first festschrift issued by the Bundesbank. Two previous ones appeared in 1976 and 1988. The former intended to commemorate the establishment of the Reichsbank in 1876 and consisted of a collection of very carefully edited essays plus a statistical companion volume [1,2]. The 1988 volume, celebrating forty years – why just forty? – of the deutschmark, was an updated data collection for post-war Germany [3].

So, this is the third such festschrift, and in fact it is an obituary. It comes at a time when the deutschmark has already disappeared from official quotations and is scheduled to be withdrawn from circulation in the near future. As the text inside the book jacket asserts, the purpose of the book is an eminently political one: “On June 20th, 1998, the Deutsche Mark was 50 years old: this book will ensure that its legacy lives on.” We have some doubts that it will be sufficient to do that, but the volume is actually a collection of interesting and sometimes very good essays.

Harold James leads with a historical retrospective on the Bundesbank4s predecessor from 1876 to 1945, the Reichsbank, commenting also on the role of notorious Dr. Schacht in financing Hitler4s preparation for war. James argues quite convincingly that except for the interlude of the inter-war gold standard, the general theme of German central banking was a religious belief in a radical version of the banking doctrine. Engineering the credit expansion of the early 1930s was thus not just an invention of Schacht but followed a firmly established intellectual tradition within the bank (of which, lest it be forgotten, the hyperinflation formed an integral part).

After all this, the saving grace of the new currency was that it was originally not German. After World War II, Germany remained under the military administration of the four Allied powers, and attempts to establish joint administrative bodies soon fell victim to the upcoming Cold War. Attempts by the U.S. in 1947 to overcome the deadlock and establish separate structures in the Western zones included preparations for currency reform, which was seen as the only viable way to cope with the monetary overhang created by the Nazi war debt. For this, a separate central bank (called “Bank deutscher Laender”) was created, an act which both manifested and deepened the political division of the country between East and West. Christoph Buchheim has a chapter on the institutional background of the currency reform of 1948, which provides a meticulous review of the scattered literature on the reorganization of central banking prior to that date. It also details the various technical aspects of the project and highlights the principal distributional conflict that underlay the reform process. It is notable that currency reform and a unified central bank preceded political reform in the late 1940s; the Federal Republic was established only a year after the deutschmark had been introduced.

Carl-Ludwig Holtfrerich reviews monetary policies during the Bretton Woods era. He identifies the target of German monetary policy in the 1950s to have consisted of traditional credit-expansion doctrines, which he argues clashed with the needs for monetary stabilization after the middle of the decade. This appears to be a minority view, though. Recent research [4] has argued that German monetary policies in the 1950s just reacted to increasing capital mobility and did so in a roughly consistent way. But clearly, if there were lessons to be learnt for what later became the Mundell-Fleming model, West Germany provided a case in point. Since the mid-1950s, the country experienced growing capital inflows, and whatever monetary sterilization measures were attempted proved to be counter-productive. Several contributors to the book mention also the failures of fiscal policy at the time. These were largely due to an inept attempt at public saving for a future German military contribution to the NATO. The funds were ultimately spent in the run-up for a general election, heating up the economy even further at a time when external stability would have called for budget cuts and tax increases. A nice institutional detail in this context is the foundation of the Bundesbank, which came as late as 1957. Much of the delay was caused by unsuccessful attempts of the government to get a bill approved that would have created a far less independent central bank.

Among the many other contributions in this book that cover everything from the juridical aspects of Bundesbank independence to the policies of monetary unification in 1 990, one that this reviewer liked in particular is a thoughtful essay by Juergen von Hagen on the Bundesbank after the collapse of Bretton Woods. Writing as a monetary economist who has worked on Bundesbank target functions, decision-making coalitions in the board of directors and the like, von Hagen sets out in this paper to find supporting evidence from the minutes of the board meetings of the 1970s. This is really an interesting experiment, and the result is actually a very nice piece in monetary history. Contrary to his original intention, von Hagen dismantles one myth after another, ranging from money-base targeting to whatever way of consistent decision making altogether. In two of the more impressive graphs of this richly documented book, he shows how in mid-1973, M1 growth collapsed from an annualized 15% to zero and how short-term interest rates exploded from 2% to 16% (pp. 406, 410). That is indeed the kind of evidence that Friedman and Schwartz would have liked to find for the Great Depression of the 1930s. As if this were not enough, the essay by Ernst Baltensperger on monetary policies from 1979 on has a chart showing another spectacular rise in interest rates (from 3% to 12%) during 1979-81 (p. 447). Any oil shock out there?

The picture that emerges of the Bundesbank in the critical 1970s is that of a battered institution, trying to recover from the Bretton Woods disaster and to overcome its internal divisions by creating a new public image of itself. It was only in this era that the Bundes bank established its reputation as a committed inflation fighter. In retrospect, it is noteworthy that large parts of Germany4s monetary history since around 1980 consisted in the Bundesbank4s attempts to punish finance ministers for their budget laxity by tightening its monetary stance. Given that German national debt has tripled or so since 1980, the ultimate success of these policies in the wake of the Euro amounts to closing the barn door after the horses have escaped, but that is another matter.

Actually, a notable part of the contributions to the volume come from monetary economists and academic policy advisors. As thus, they often reflect primarily their different views on present-day issues in German monetary policy. As the chapters were original ly contributed to a German edition directed to the domestic market, some of the material will be less interesting to the outside reader. Beginners will find large parts of the book to be excessive on institutional details, and more than one reader will be puzzled by the results of trying to translate those typical, lengthy clauses of written German style into halfway readable English (yes, these lines are also an example of that 🙂 ). But clearly, the volume is a must for any student of German monetary policies, and it will probably become a standard reference for all work related to the field.

References:

[1] Deutsche Bundesbank (ed.) (1976a), Waehrung und Wirtschaft in Deutschland 1876-1975, Frankfurt: Knapp.

[2] Deutsche Bundesbank (ed.) (1976b), Deutsches Geldund Bankwesen in Zahlen, Frankfurt: Knapp.

[3] Deutsche Bundesbank (ed.) (1988), 40 Jahre Deutsche Mark. Monetaere Statistiken 1948 bis 1987, Frankfurt: Knapp.

[4] Berger, Helge (1997), Konjunkturpolitik im Wirtschaftswunder. Handlu ngsspielraeume und Verhaltensmuster von Bundesbank und Regierung in den 1950er Jahren, Tuebingen: Mohr.

Albert Ritschl is author of numerous articles on German economic history including “Germany and the Political Economy of the Marshall Plan, 1947-52:A Re-revisionist View,” (with Helge Berger) in Barry Eichengreen, editor Europe’s Post-war Recovery. Studies in Monetary and Financial History, (Cambridge University Press, 1995); “An Exercise in Futility: East German Economic Growth and Decline, 1945-89 ,” in Nicholas Crafts and Gianni Toniolo, editors, Economic Growth in Europe since 1945, (Cambridge University Press, 1996) and “Reparation Transfers, the Borchardt Hypothesis and the Great Depression in Germany, 1929-32: A Guided Tour for Hard-Headed Keynesians,” European Review of Economic History; 2(1), April 1998.

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Published by EH.NET (February 2000)

Steven P. Reti, Silver and Gold: The Political Economy of International

Monetary Conferences, 1867-1892. Westport, CT: Greenwood Press, 1998. x +

214 pp. $59.95 (cloth), ISBN: 0-313-30409-2.

Reviewed for EH. NET by

John H. Wood, Department of Economics, Wake Forest University.

Two important sets of economic and political data lay behind and condition the

meetings described in this book: after falling from 15.93 to 15.19 between 1843

and 1859, the market ratio of silver to gold rose to 15.57 in 1867, 23.72 in

1892, and 39.15 in 1902 (Table. 1); and the western world discontinued the

coinage of silver and followed Britain onto the gold standard.

The book is an interesting account of the international monetary conferences

of 1867, 1878, 1881, and 1892, and is recommended to anyone who wishes to

become informed of diplomatic efforts to resist the dominant market and

political forces reflected in the above data. The first conference, of

representatives of twenty leading commercial nations,

convened in Paris at the invitation of Emperor Louis Napoleon and agreed to

recommend to their governments formal negotiations toward a common gold

coinage. The Conference of 1867 “marked the pinnacle of success

for international coinage advocates” (p. 45), but its recommendations received

little support at home. Governments were reluctant to be seen to tinker with

the contents of their coins, and significant bimetallic sentiment of the silver

interests undermined support for a universal gold coinage.

The other

three conferences were convened at the invitation of United States government

under pressure from domestic silver interests to arrest the decline

of silver, primarily by adopting a bimetallic standard with a fixed

silver/gold ratio that greatly overvalued the former. The Bland-Allison Act of

1878 directed the Treasury to buy and coin $2 million to $4 million of silver

per month and the President to invite such “nations as he may deem advisable to

join the

United States in a conference to adopt a common ratio between gold and silver

for the purposes of establishing,

internationally, the use of bimetallic money and securing fixity of relative

value between those metals.” None of the conferences rallied material support

for this goal, although there was some brief European sentiment in that

direction after the large gold flow to the United States in 1879-80.

The story is well told, but the author’s efforts to increase its importance by

tying it to various theories of how gold came to dominate world finance are

unconvincing. His purpose is to correct the impressions that the gold standard

regime arose “spontaneously as states responded to silver depreciation in an

uncoordinated but similar fashion” and was ”

a case of international cooperation arising without international negotiation”

(p.

33). He “examines spontaneous [market?] and [British] hegemonic explanations 

and argues that a coordination-game explanation of the classical gold standard

possesses greater validity.” Cooperation in the latter setting “is by no means

assured” because the parties may “disagree about the appropriate conventions,

or focal point, to coordinate policies.

The challenge of developing and maintaining a focal point is the central

concern of this book. The monetary conferences under investigation were

concerned about the appropriate point to fix exchange rates” (p. 5).

An alternative approach seems both simpler and more fruitful. Ask the following

questions: Did any of the last three conferences have a chance?

What would have become of the international monetary system if the American

silver interests had gotten their way? The first must be answered in the

negative because important economic and political interests saw chaos in the

second.

Agents desire predictability in the settlement of contracts

and are averse to

accepting payment in a depreciating currency. The aversion was not limited to

British lenders. Those wanting credit needed to promise repayment in sound

money. That

is as true today as in the nineteenth century.

The supporters of so-called “bimetallism” were not interested in a workable

bimetallic system with a market-responsive ratio (as in Arthur J. Rolnick and

Warren E. Weber, “Gresham’s Law or Gresham’s Fallacy?

” Journal of Political Economy, Feb. 1986). They wanted support for

silver, a redistribution of wealth to silver producers and to borrowers wanting

to repay gold debts in a depreciating currency. A freely convertible bimetallic

system with a market-violating ratio is bound to fail (as the United States

was reminded in 1893, when President Cleveland called Congress to repeal the

Sherman Silver Purchase Act of 1890). Furthermore,

complaints of a shortage of money were senseless because more money generate

sits own demand through higher prices. The Asian crisis of a hundred years

later was a reminder that there may even be a shortage of money in a fiat

paper system when borrowers have promised more than they can deliver.

All this was known in contemporary

private and government circles. The impression of a system formed by market

forces without the benefit of conferences called to mollify silver interests

might be the best one after all.

John H. Wood is author (with Jac Heckelman) of “Federal Reserve Membership and

the Banking Act of 1935: An Application to the Theory of Clubs,” in Jac

Heckelman, John Moorhouse and Robert Whaples, editors, Public Choice

Interpretations of American Economic History (Kluwer, 1999). His

forthcoming book is titled “A Company of Merchants:” A History of the

Theories and Ideas That Have Shaped Monetary Policy.

Published by EH.NET (February 2000)

John Komlos and Jvrg Baten, editors, The Biological Standard of Living in

Comparative Perspective. Stuttgart: Franz Steiner Verlag, 1998. 528 pp.,

ISBN 3-515-07220-9.

Reviewed for EH.NET by John E. Murray, Department of Economics, University of

Toledo.

This book is a collection of conference proceedings, or rather pre-conference

proceedings, since it gathers together papers that would have been presented at

an A session of the ill-fated Seville/Madrid IEHA meetings in 1998. The

session (which was organized by John Komlos and Sebastian Coll) and book are

devoted to reporting a variety of studies in anthropometric history, that is,

the analysis primarily of human height as measured in large samples, but also

weight in those rare cases when it is available. The essays number twenty-eight

in total, followed by a brief summary by the editors who were also the session

organizers.

Geographical coverage is positively sprawling, with notable papers on

heights in China (by Stephen Morgan), Argentina (by Ricardo Salvatore and Jvrg

Baten) and Korea (by Insong Gill). Individual studies appear on nearly every

European country. Height and body mass index (weight adjusted for height) in

Australia are examined by Stephen Nicholas, Robert Gregory, and Sue Kimberley;

and there are no fewer than five essays on heights of Federal soldiers in the

American Civil War. Two papers combine height data from several different

countries to synthesize a broader yet coherent story, Henk-Jan Brinkman and

J.W. Drukker on developing countries today and Sebastian Coll on four European

nations of the nineteenth and twentieth centuries.

Modes of analysis are catholic. Most papers are by economic historians who

generally employ tried and true techniques of statistical regression analysis

on data recovered from written manuscripts. They dutifully report the results

of regressions with those tiny R-squareds that vex the non-cognoscenti. But not

only that: nearly every paper in this

style presents data in pictorial format, for example, distribution frequencies

of heights, growth by age curves, and time trends in final adult height. One

need not be able to read a table of regression results to learn plenty about

the state of the anthropometric art from this volume. In addition,

two essays present findings of physical anthropologists. Jesper Boldsen and Jes

Sxgaard estimate Danish heights from bones that date from as far back as 1100

A.D. Barry Bogin and Ryan Keep consider bones that

are some eight millennia old in Mesoamerica. In short, the range of

contributions reflects how international and interdisciplinary the

anthropometric history research project has become.

In general, as might be expected, the authors are optimistic that the study of

height and other anthropometric data can illuminate issues of human welfare in

the past. To the editors’ credit, they include two papers that might be

described as anthropo-skeptical. One, by Robert McGuire and Philip Coelho,

urges the disease

factor in the height = gross nutrition – disease

– workload equation be given more emphasis. The other by Sally Horrocks and

David Smith is a postmodern take on the “social processes of science” which

despite the now-standard use of “privilege” as a verb

offers constructive suggestions for linking more data-driven anthropometric

history with the institutional histories of the data generating sources.

As is common among volumes of conference proceedings, the virtues of the genre

are its vices. The organizers have edited the volume lightly, leading to an

odd combination of intense concentration on a few issues and a collection of

other papers that almost seem to have walked in from a different conference.

For example, in two separate and most intriguing papers Michael Haines (in

one) and Lee Craig and Thomas Weiss (in the other) examine the relationship

between local agricultural output and stature among American Civil War

soldiers. The results do not exactly coincide as Craig and Weiss find a much

stronger relationship than does Haines. The interested reader would like to

see these papers in dialog. At the same time, the geographic and chronological

coverage is mind-boggling.

It is hard to imagine many other concepts that can be fruitfully applied to

humans from so many different times and places.

The book may not be easy to find; for example, I could not locate it on

Amazon.com’s website. You may need to order it directly from the publisher.

(Their email address is service@steiner-verlag.de. Their URL

is www.steiner-verlag.de.) This volume would make a very good addition to

academic libraries, where students and scholars of economic history, world

history, physical anthropology, and economic development can see where this

particular research strategy stands at present. The freshness of this volume

embodies the current state of the anthropometric research project,

which might make it an optimal venue to inform the scholarly reading public of

its findings. Scholars of many periods, regions, and disciplines are analyzing

and reporting anthropometrica. Let a hundred flowers bloom.

John E. Murray’s articles on anthopometric history have appeared in

Journal of Economic History, Journal of Interdisciplinary

History, and

Annals of Human Biology.

Published by EH.NET (February 2000)

Masayo Umezawa Duus, The Japanese Conspiracy: The Oahu Sugar Strike of

1920. (Translated by Beth Cory and adapted by Peter Duus.) Berkeley:

University of California Press, 1999. xiii + 375pp. $55 (cloth),

0-520-20484-0: $18.95 (paper), 0-520-20485-9.

Reviewed for EH.NET by Edward D.

Beechert, Professor Emeritus of Labor History, University of Hawaii.

In early 1920 in Hawaii, Japanese sugar cane workers, who made up nearly half

of the work force on Hawaiian sugar plantations, struck for a wage increase.

Although the strikers eventually capitulated, the Hawaiian territorial

government cracked down on the strike leaders, bringing them to trial for

conspiracy to dynamite the house of a plantation official.

Afterward, to end dependence on Japanese immigrant labor,

the planters lobbied in Washington to lift restrictions on the immigration of

Chinese workers. Instead, the clash helped secure that passage of the

Immigration Act of 1924 (often called Japanese Exclusion Act). Originally

published in Japan in 1991, Masay o Umezawa Duus’s narrative of these events

presents a complex picture of the Oahu sugar strike tailored to the Japanese

audience. (In fact, the book won the Oya Prize and the Sincho Gakugei Prize,

the two most distinguished nonfiction prizes in Japan.) The author tries to

remedy a limited knowledge in Japan regarding Hawaii in 1920 by surrounding

the details of the strike and its aftermath with a variety of details and

material not immediately relevant to Hawaii, such as comments on the

Sacco-Vanzetti case to

illustrate the fear of radicals then prevalent.

Using newspaper sources, Japanese Foreign Office correspondence and reports and

Hawaii court records, Duus gives a detailed, blow-by-blow account of the

strike, the dynamite case which occurred after the strike, and the trial of

fifteen of the alleged conspirators. This narrative leads to the conclusion,

which examines the 1924 Immigration Act sponsored by Senator Hiram Johnson of

California. The bill added Japanese to the excluded category — now all

Asians were excluded and lower quotas were put in place for southern and

eastern Europeans. The legislation reflected the views of residents of the

Pacific coast states and was bitterly resented in Japan.

The “conspiracy” of the title stems from the news paper and sugar planters’

propaganda developed to fight the strike and the campaign to persuade Congress

to admit Chinese workers on an indenture contract to counter the perceived

dominance of Japanese workers. Hawaiian planters had been searching for the

proverbial ideal worker — cheap, docile and plentiful since 1850. Hawaiians,

Chinese, Portuguese, Japanese, eastern Europeans,

Puerto Ricans, African-Americans, poor white Americans, and Filipinos made up

the list of trials; each in turn had been found

to be unreliable,

expensive, truculent and generally unworthy. Each new group in turn was praised

as the “final solution’ to Hawaii’s “Labor Question.”

While Duus’s narrative is interesting and somewhat informative, the

conspiratorial approach results in

a misleading picture. Despite the erratic documentation, the author presents

an interesting and useful picture of the important event from a Japanese

perspective. The intense focus on actions of Japanese workers tends to obscure

the Hawaiian elements of

the situation. There is considerable confusion in the story about the events of

the Kingdom of Hawaii, its overthrow and the establishment of the Republic of

Hawaii and its subsequent annexation. Thus, chapter one is good in showing the

flow of ideas between Japan and the United States but is weak on Hawaiian

details. There is no recognition of the fact that Japanese men had been barred

from emigrating to Hawaii since 1906 and that a large percentage of the

plantation workers were born in Hawaii. The lack

of knowledge of the labor movement results in a telescoping of the labor

structure. The American Federation of Labor is described as the “largest union”

(p. 23). In an attempt to set the scene, the author describes the IWW on the

mainland as being identified as “bomb throwers,” drawing on the Haymarket

affair. A meeting at Waialua Plantation in 1913 is described as a

“meeting of white telephone operators from the mainland urging the Japanese to

join the IWW” (p. 44). A Hawaiian Sugar Producers Association (HSPA)

transcript of the IWW meeting describes one A. V. Roe, a telegraph operator,

addressing the Portuguese Camp workers at Waialuas (Beechert,

Working in Hawaii, p. 153). Lurid descriptions of the Filipino workers

being imported to Hawaii are based

on stereotypical newspaper accounts. The author seems unaware that the

Hawaiian sugar industry was desperately seeking a new supply of labor. Cut off

from Japan in 1906 and barred from China as a source, the Philippines was the

sole remaining source of cheap labor. The industry had tried to meet U.S.

objections to Asian labor by importing a variety of Europeans. The high cost

and the refusal of these to submit to the conditions of sugar employment led to

the elaborate scheme to import indentured Chinese

workers. The Hawaii Emergency Labor Commission,

formed in 1921, launched a massive campaign to persuade Congress to grant an

exemption to the Chinese Exclusion Act of 1882.

The Japanese sugar workers’ strike of 1920 had its origins in World War I

inflation. As early as 1917, the Young Men’s Association of Hawaii, a Buddhist

organization, began to hold meetings on the issue of the cost of living and the

wage scale. Made up largely of young men born in Hawaii,

these workers communicated through the Buddhist organization. Beginning in

Hilo in 1919, the Young Men’s Association issued demands for a higher wage.

“Within ten weeks organization ran like a cane fire through the four major

islands.” (John E. Reinecke: Feigned Necessity: Hawaii’s Attempt to Import

Chinese Contract Labor, 1921-1923, 1979, pp. 98-99) The HSPA issued a

warning in early 1917 to its managers that wage demands of Japanese

organizations could lead to trouble. Nowhere in the text is there any awareness

of this development. The younger workers, recalling the results of the 1909

strike, were determined not to allow the Honolulu Japanese business and

intellectual community to dominate the issue. Plantation unions, based on the

AF of L model were set up through 1919-1920.

Local leaders formed an executive committee. As negotiations broke down,

the need for planning resulted in the appointment of spokesmen. The book

focuses on these spokesmen to the exclusion of the local leadership. The

emphasis is placed on the propaganda generated by the

Hawaiian Sugar Planters Association and the two main Honolulu newspapers. The

Honolulu Advertiser was hysterical in its denunciation of the strike as

a plot by Japan “to take over Hawaii” as an outpost of Japan. No evidence is

cited,

nor is there any explanation of how such an action could occur without U.S.

response. The lack of citation throughout lends an air of popular journalism to

the book. Conversations are laid out at length, thoughts and mindsets are

described in vivid terms, all without documentation. Then at other points, the

author is lavish in documentation, as in the blow-by-blow account of the

dynamite conspiracy trial.

The problem of translation and “adaptation” is evident in a number of ways.

The leading defense attorney is misidentified. William B. Lymer is

consistently cited as Lymar. J. Edgar Hoover is listed as the Director of the

Federal Bureau of Investigation in 1920. The Bureau of Investigation,

the predecessor of the FBI, produced a report in 1921 describing the strike as

“a weapon in Japan’s strategy to take over Hawaii.” The Bureau cited the

Japanese Federation of Labor as an example of the frightening unity and

teamwork of the Japanese (pp. 220-221). The author correctly doubts that the

Japanese translator at the trial had

a sufficient command of English to produce intelligible translations for the

all-English speaking jurors. At one point prosecutor Heen is described as

objecting to a witness’ testimony on the grounds of “hospitality” rather than

hostility (p. 210). Numerous errors of Hawaiian sugar industry detail detract

from the authority of the narrative. For example, Waikiki is described as an

“uninhabited swamp”

until developed by Gov. McCarthy (p. 234). Likewise, people in Hawaii are

incorrectly described as being unable to afford white sugar because of the

high prices prevalent in 1920-1922.

The work concludes with a detailed examination of Hiram Johnson’s immigration

bill in 1923-1924 and the efforts of the Hawaii Emergency Labor Commission to

deflect the exclusion of Japanese. The chapter is entitled

“The Japanese Exclusion Act.” For a Japanese audience, the focus makes sense.

The desperate efforts of the Commission to win an exemption for Chinese

workers, the opposition of organized labor and the widespread anti-Asian

sentiment of the Pacific Coast were too much for the limited political

influence of the Hawaiian planters. However, the book does considerable

violence to an understanding of the basic issues. Although the author quotes

extensively from Reinecke’s

Feigned Necessity, the clear focus of Reinecke’s work on the labor

aspects of the situation is lost. A large part of Duus’s effort is taken up in

a minute examination of the spokesman for the Japanese Federation of Labor,

Noboru Tsutsumi. This obscures

the fact that the Federation was organized by plantation unions,

coming together only at the executive board level. Inexperience and poor

communication complicated and hindered their efforts. Despite this, the local

unions raised significant amounts of money. The fact that a majority of

Hawaii’s plantations continued production unabated and had a loss sharing

agreement through the HSPA and their insurance policy, the workers faced a

difficult barrier. The industry made extensive changes in their organization

as a result of the strike. The HSPA emerged as the dominant factor in

plantation policy, shifting the center of power from the managers to the

agency. An extensive social welfare program was initiated to alleviate some of

the worst features of plantation life. In that sense, the strike succeeded,

despite the appearance of defeat.

Edward D. Beechert is the author several books and articles on Hawaiian labor

history including Working in Hawaii-: A Labor History (1986);

“Mechanization and the Plantation Labor Supply” in S. Eakin and J. Tarver:

One World, One Institution: The Plantation (1989): and Honolulu:

Crossroads of the Pacific (1991). He is the editor (with Brij Lal and

Douglas Munro) of Plantation Workers: Resistance and Accommodation (

1993).

Published by EH.NET (February 2000)

John Coatsworth and Alan Taylor, editors, Latin America and the World

Economy since 1800. Cambridge, MA: Harvard University Press, 1999. xv +

484 pp. $49.95 (cloth), ISBN 0-674-51280-4; $24.95 (paper), 0-674-51281-2.

Reviewed for EH.NET by Richard

Salvucci, Department of Economics, Trinity University, San Antonio, Texas.

Welcome to the Cliometric Revolution, Latin Style

When I started graduate school in 1973, there were no textbooks on Latin

American economic history. Today, depending on your definition of a textbook,

there are 3 or 4 in English alone. In 1973, we argued about the Asiatic mode of

production and precapitalist economic formations. Today we discuss conditional

convergence. In 1973, bourgeois economists were the enemy. Today a bourgeois

economist is your dissertation supervisor. Welcome to the Cliometric

Revolution, Latin style. It’s been 25 years in coming,

but now that it’s come, it’s come with a vengeance.

The present anthology is an artifact of that revolution and like all

historical artifacts, it requires a bit of study to appreciate its meaning in

full. And so to begin, I’m going to quibble with the idea that what you read

here is really all that novel. After all, there’s always been some cliometric

work on Latin America, as the outstanding books of Carlos Dmaz Alejandro on

Argentina or Clark Reynolds on Mexico might attest. In my primary field,

Mexican history, you could point to things done by Luis Tellez or by Jaime

Zabludovsky as recognizably cliometric, but Tellez and Zabludovsky have gone

on to major careers in government service rather into careers as economic

historians. What’s more unusual is to find suitably trained professionals doing

purely academic work-doing economic history for a living. For that we can

thank, at least partly, a sea change in development ideologies in Latin

America, where economists in universities can now spend their time thinking

about conditional convergence (whose acquaintance they may have made in some

gringo institution) rather than about the Asiatic mode of production. And I

think I have some idea why.

For my generation, it was the fall of Allende in 1973 that was critical.

For this one, it is the fall of the Berlin Wall. That makes all the difference

in the world. You can write sympathetically about the economic history of

Cuban sugar mills without espousing the labor theory of value.

You can study the history of financial markets in Brazil without being

implicated in the overthrow of Joco Goulart in 1964. For

now, at least,

there are no gangster regimes advocating “market friendly” policies while

energetically murdering their own citizens. The ideological and political

baggage of the 1960s and 1970s is, for want of a better phrase, just so much

history. Hence

what we read here by so many relative newcomers to the field. Their authors

are students, not prisoners of the past, and that’s what makes their

scholarship worthwhile. I do have a small bone to pick with the volume’s title.

This is not a book about Latin America since 1800.

It is mostly about Argentina, Brazil and Mexico since 1870, which is not quite

the same thing. There are no Indians. There is no Caribbean or Central America.

No Andes. But worse, there are really no papers that engage with the period

before 1870 and that is a real problem. As John Coatsworth’s perceptive essay

on the nineteenth century puts it, “the available quantitative evidence shows

that Latin America became an underdeveloped region between the early eighteenth

and the late nineteenth century” (p. 26). In other words, most of the papers

in the volume-Carlos Newland’s excepted-do not address the principal issue of

Latin America’s economic history, namely, the origins of what Lant Pritchett

has called

“divergence, big time.” Even

if you argue in reply, that X (what existed before 1870) causes Y (what changed

later), the historian is liable to wonder why X occurred when it did and not

before, especially if Y is extremely profitable, the proverbial big bill on the

sidewalk.

I think

I know why. Sensible historians avoid the period before 1870 because it is a

Hobbesian world where life, not to mention some of its major actors, was nasty,

brutish and short. For most of Spanish America,

the era before 1870 (and after Independence in the 1820s) is much, much harder

to work in, let alone understand. The archives with which I am familiar (mostly

Mexican, to be sure) are a mess-disorganized,

uncatalogued, impenetrable-and very nearly impossible to utilize. Of course,

the messiness of the sources faithfully reflects the messiness of economic and

political life at the time, with unending coups, countercoups,

invasions, constitutions, blockades, wars, partitions, regulations,

proclamations, declamations, you name it. There’s no stable structure for

understanding, essentially. Unfortunately, this is where the action is,

unless you regard disorder itself as the proximate cause of poor economic

performance. As anyone reading this is probably aware, there’s really no

consensus about that either.

For this reason, I take claims made for the cliometric potential of Latin

American economic history the way I take tequila: in limited doses, and with

many grains of salt. Still,

triumphalism only infects the blurbs to the volume, for the “Introduction”

by John Coatsworth and Alan Taylor is conspicuously moderate in tone. So maybe

I shouldn’t complain. Besides, the papers are generally very good and a couple

are outstanding. One of the most coherent themes here is the importance of

financial markets and institutions in facilitating or accommodating economic

growth. This really is a new direction, at least in the Latin American context,

for I can think of little in the older historiography that makes this point

with any cogency. A very interesting paper by

Michael Twomey provides the relevant context in arguing that

“[t]he general trend of direct foreign investment [in the twentieth century]

has been downward relative to income and, probably, total capital stock” (p.

192). Portfolio investment aside, which

Twomey identifies as mainly, until 1990, loans to governments, the implication

is that domestic sources of capital were increasingly important between 1913

and 1950, the years when foreign direct investment fell sharply relative to

GDP. Twomey’s argument

frames papers by Stephen Haber, Anne Hanley, Leonard I. Nakamura and Carlos E.

J. M. Zarazaga, Gerardo della Paolera and Alan M. Taylor, and Gail D. Triner.

First, Brazil. Anne Hanley’s study of business finance and the Sco Paulo Bolsa

offers a good point of departure. In the spirit of Twomey’s conclusions,

Hanley argues that the role of foreign capital in direct investment “while

sizeable, mainly played a supporting role in the domestic business formation

that was the cornerstone of Sco Paulo’s development.”

The industrial and utilities sectors “actually found their base in the domestic

capital market” (both quotations, p. 126). And it was the impersonal mechanism

of the stock exchange rather than traditional kin-based finance that fueled “a

type of financial Big Bang” between 1905 and 1913 (p. 131). Similarly, Gail

Triner finds that the recharter of the Banco do Brasil in 1905 created a

“natural infrastructure for financial transactions” (p. 224) that supported a

“strong, centralized role for the national government in the economy.” And

like Hanley, Triner emphasizes that “[t]he banking system increasingly

accumulated and reallocated financial resources of the private sector at the

expense of either personal or other institutional channels” (p. 226, both

quotations). After 1905 the real money supply and the monetized economy grew

rapidly even as the economic predominance of Sco Paulo was consolidated.

The evolution of a modern financial infrastructure for Brazil had measurable

implications for the growth of industrial productivity in Brazil after 1890.

Stephen Haber’s sophisticated analysis of capital market regulation and the

development of a securities market argues that “one crucial piece of the puzzle

explaining the lack of industrial development

before 1890 and rapid industrial growth after 1890 was access to capital”

(p. 279). The maturation of debt and equity markets along with the

establishment of limited liability laws and mandatory financial disclosure

lowered the cost of capital. As a result, the cotton textile industry,

which is Haber’s focus, grew more quickly than it would have had traditional

patterns of kin-based and other less formal avenues of finance been maintained.

In short, “entrepreneurs who could best combine the factors of production and

choose the optimal output mix were able to mobilize capital that otherwise

would not have been available to them” (p.

279).

Argentina has always seemed baffling. Between 1870 and 1900, real per capita

product there doubled, but after 1900, it would not do so again until 1958. In

other words, the rate of real per capita growth fell from 2.3 percent per year

to 1.19 percent per year, which is some slowdown. For Gerardo della Paolera and

Alan Taylor, a capital constraint is (part of)

the answer

. The domestic financial system was simply unable to replace the dwindling

supply of British capital after World War I. Caught between the gold standard,

international convertibility, and repeated financial crises,

the monetary authority, the Caja de Conversisn, was unable to support domestic

banks and maintain convertibility at the same time. For this reason, Argentine

banks “had to maintain a higher capital cushion” than their foreign

counterparts who could borrow abroad much more easily.

“[D]omestic banks could not fill the void left by the retreat of foreign

capital after 1914″ (p. 163). A paper by Leonard I. Nakamura and Carlos E.

J. M. Zarazaga raises some questions about this argument by looking at returns

to Argentine debt instruments, which don’t

seem particularly high.

Daniel Dmaz Fuentes’ chapter on the gold standard in Argentina, Brazil and

Mexico reminds us that the Argentine peso was inconvertible between 1914 and

1927, an awkward point for della Paolera and Taylor as well.

Nevertheless, their discussion of the non-monetary aspects of financial crises

in Argentina is very stimulating. I have heard it said by some historians that

there is nothing “new” in the findings of the new economic history of Latin

America. I defy them to read della Paolera and Taylor and then tell me that. I

doubt the critics have read Bernanke’s 1983 paper and the subsequent work it

inspired. The remaining papers are somewhat more difficult to characterize

because they deal with a wide variety of subjects. Let me give

some examples.

Students of Mexican history will welcome the chapters by Graciela Marquez and

Aurora Gsmez-Galvarriato. Both make extensive use of archival data and both

question commonly held beliefs about Mexico between 1890 and 1920, the last

years of

the Porfiriato (the dictatorship of Porfirio Dmaz from 1876 through 1910) and

the opening decade of the Mexican Revolution (which lasted until 1920, 1938,

1968, or last week, depending on how you view Mexican history). Marquez shows

that it is not enough

to simply label Porfirian Mexico a high-tariff country since nominal

protection fell sharply during the 1890s. It never recovered its former levels

before the outbreak of the Revolution. Gsmez-Galvarriato looks at real wages in

the Santa Rosa textile factory in Veracruz. Stability in real wages through

1907 gave way to a sharp decline between 1907 and 1911. A marked recovery

occurred between 1911 and 1913, only to fall sharply during the bitterest years

of the civil war (1914-1916). From 1917 through 192 0, real wages recovered,

but did not rise much above their level in 1907. I think Marquez and

Gsmez-Galvarriato are saying that the stories we tell about Dmaz and the coming

of the Revolution are not likely to hold up under the careful scrutiny of a new

historiography informed by detailed industry and firm-level studies. Where

this leaves the big studies of the Revolution,

such as Alan Knight’s, which retells many of the old verities, remains to be

seen.

Both William Summerhill and Alan Dye contribute chapters that represent

aspects of larger projects. Dye’s study of the contracts between sugarcane

growers and millers in Cuba lays to rest the myth that the contracts between

growers and millers evolved to exploit the growers, upon whom they were

coercively imposed. Summerhill’s paper on Brazilian railroads concludes that

“The direct impact of the railroad in Brazil places it comfortably within the

top tier of the cases for which economic historians have constructed social

savings estimates” (p. 391). Interested readers can certainly learn more from

Dye’s Cuban Sugar in the Age of Mass Production

(Stanford, 1998) or Summerhill’s forthcoming Order Against Progress:

Government, Foreign Investment and Railroads in Brazil, 1854-1913

(Stanford, scheduled for Summer 2000).

Papers by Lee Alston, Gary

Libecap and Bernardo Mueller; Andri A. Hofman and Nanno Mulder; and Carlos

Newland round out the volume. All are well worth

reading.

A final observation. It’s ironic that economic historians of Latin America

stress the study of institutions, a theme that features prominently in this

volume as well. For those of us trained in the early 1970s, “institutional

history” was something to be avoided, the province of dullards and the

unimaginative. It was a matter of faith, enshrined in a famous article by

James Lockhart, that the only real historians of Latin America were social

historians, and, well, social historians had better things to do than pay

attention to, of all things, institutions. Institutions didn’t affect the

behavior of real people. And real historians studied real (read: ordinary)

people. My how times do change. There isn’t much doubt about who’s doing the

interesting history of Latin America these days. Not a few of them are

represented in this excel lent collection. Now if only I could get them to

explain the Asiatic mode of production to me, my life would be complete.

Fat chance.

Richard Salvucci teaches at Trinity University. He is co-author with Linda K.

Salvucci of “Cuba and the Latin American

Terms of Trade in the Nineteenth Century: Old Theories, New Evidence,”

forthcoming in the

Journal of Interdisciplinary History in Autumn 2000.

Published by EH.N ET (February 2000)

Theodore Rosenof, Economics in the Long Run: New Deal Theorists and Their

Legacies, 1933-1993. Chapel Hill: University of North Carolina Press,

1997. ix + 223 pp. $34.95 (cloth), ISBN: 0-8078-2315-5.

Reviewed for EH.NET by Michael Perelman, Department of Economics,

California State University at Chico.

This book tells a complex story about the development of the economic theories

of Keynes and Schumpeter, along with those of Alvin Hansen and Gardiner Means,

in the context of the Great Depression. While Schumpeter preferred to let the

depression run its course, the other three advocated a more activist approach.

Although Keynes’s specific policy prescriptions at the time were vague

(Perelman 1989), his basic approach was to let business be free to do as it

would choose, while creating a macroeconomic climate in which investment would

be brisk.

Hansen concurred, although the context of his policy was quite different.

For Hansen, the long run process of secular stagnation had diminished

investment opportunities so much that massive government spending was required

in order to stimulate business. At times, Keynes seemed to agree with Hansen,

but for the most part, he was vague about the particulars.

Moreover, throughout the General Theory, Keynes emphasized the role of

subjective expectations rather than objective economic conditions.

Just as Hansen dropped Keynes’s concern with the subjective element in the

investment equation, Hansen’s followers in the United States ignored his

concern with the long run forces that shape the economic environment,

giving rise to the sterile economics of the neoclassical synthesis, which

Rosenof classifies as short run Keynesianism. By the time that World War II

arrived

, this stripped-down version of Keynesianism had carried the day within the

economics profession. Activist macroeconomic policy meant little more than

infusions of government spending to keep the business cycle in check, with no

concern for the long-run economic environment.

Although Gardiner Means’s role is less familiar today, in the early years of

the Roosevelt administration, he was probably the most influential economist

among policymakers. His influence suddenly waned with the disillusionment

regarding the National Recovery Administration and the outbreak of the

depression

within the depression in 1937-38. The torch then passed to the aggregative

economic policies advocated by Alvin Hansen.

According to Means, industry consists of two unequal sect ors. On one side,

highly competitive industries, such as agriculture, live in a world of flexible

prices. On the other side, industries inhabited by a few large corporations

enjoy sufficient power to set prices at levels of their own choosing. Because

the se high prices restricted demand, employment rather than prices fall in

this sector whenever a negative shock hits the economy.

In contrast, prices collapse in the competitive sector, restricting buying

power from within that sector, compounding the deflationary shock.

For Means, the Depression required something like what we now call industrial

policy. The New Deal implemented industrial policies, but not in a fashion that

won Means’ approval. Instead, the New Deal consisted of a variety of agencies,

each operating in its own bailiwick. In contrast,

Means’s industrial policy would take the entire economy into account,

rather than a few specific industries.

Although Means thought he found support in Keynes for his writings, he was

sadly disappointed by

Keynes’s response. Ironically, each thought that the others’ economic theory

was merely a special case of his own more general theory. In time, Means came

to see Keynes as an adversary. He even proposed that expansionary monetary,

rather than fiscal policy would remove the pressures that created the

imbalances between the competitive and the noncompetitive sectors of the

economy.

The appearance of inflation in the late fifties led to the reemergence of

Gardiner Means in economic analysis and public policy advocacy. Means no

longer called for a monetary expansion. Instead he advocated a return to the

policies associated with the National Resources Planning Board, where he once

wielded enormous influence. Means’s modest rehabilitation could have never

returned him to the center of power. By that time, McCarthyism was in full

bloom.

Economists who questioned the efficiency of private enterprise were coming

under severe attack (Leeson 1997, p. 125). The safest course was to follow the

lead of the neoclassical synthesis and put questions of corporate power aside.

In the midst of Cold War hysteria,

Means’s approach was not likely to find a warm reception in influential

circles.

Even Hansen’s fiscal policies were too dangerous for the times. By 1945 the

Federal Reserve Board dropped Hansen as an adviser. According to press

accounts, complaints by bankers were a major factor. Soon thereafter, the

Eisenhower Administration purged Washington of Democratic Keynesians (Tobin

1976, p. 35).

The slow growth of the 19 50s also lent some credence to Hansen’s theory of

secular stagnation. As the postwar boom wore on, Hanson and Means were largely

forgotten again, and Keynes’s star dimmed significantly, while for some

admirers of the prosperity of the time, Schumpeter has

became an almost cult-like figure. With the stagflation of the 1970s, Means

again achieved a modicum of attention, since short-run Keynesianism seemed at a

loss at the time.

Each of the four authors under study recognized a part of the totality.

None seemed willing to incorporate the insights of the others, except for

Alvin Hansen, who was the least original of the group. Hansen enthusiastically

incorporated one side of Keynes, but not the other side that emphasized

subjectivity. Similarly, he disregarded Means, at least until the 1960s, when

they were no longer rivals for power. Rosenof attributes this failure of

communication to a resistance to on the part of his subjects to make a

sufficient break with orthodox economic theory (p.

174).

Rosenof notes that John Kenneth Galbraith managed to incorporate both the

Means and the Keynes-Hansen approach to economic theory (pp. 126-27),

stressing the need for macroeconomic policies to expand demand while paying

close attention to the nature of corporate power. Galbraith also has

affinities with Schumpeter. Both have successfully drawn upon a sociological

style of writing. However, most economists today put a premium on tight

theoretic modeling regardless of the realism of such efforts. In this

environment, the broad sweep of Galbraith’s writing appears as a defect rather

than as a strength. Because Schumpeter’s ideas resonate with the current

political climate, economists tend to forgive him for his sociological style.

Rosenof cites Paul Samuelson to buttress his case. Samuelson noted that

American Keynesians such as himself did believe that “imperfections of

competition” were “an important part of the Keynesian under-employment

equilibrium story.” Upon reflection he realizes that

“Keynes-cum-Chamberlin-and

-Means would have been better than Keynes alone”

(Samuelson 1983, p. 217; cited on p. 134).

The author’s own preferred synthesis would combine institutionalism and

post-Keynesianism. Many economists might find that mix too a theoretical for

their preferences, but Rosenof makes a strong case that the more rigorous

economics commonly practiced today is too restrictive to account for the

complex world in which we live.

References:

Robert Leeson, 1997. “The Political Economy of the Inflation-Unemployment

Trade-Off.” History of Political Economy, Vol. 29, No. 1 (Spring):

117-56.

Michael Perelman, 1989. Keynes, Investment Theory and the Economic Slowdown:

The Role of Replacement Investment and q-Ratios (NY and London:

St. Martin’s and Macmillan).

Paul A

. Samuelson, 1983. “Comment.” in David Worswick and James Trevithick,

editors, Keynes and the Modern World: Proceedings of the Keynes Centenary

Conference, Kings College, Cambridge (Cambridge, England).

James Tobin, 1976. “Hansen and Public Policy.” Quarterly Journal of

Economics, Vol. 90, No. 1 (February): 32-37.

Michael Perelman’s most recent books are The Invention of Capitalism: The

Secret History of Primitive Accumulation (Duke, May 2000), Transcending

the Economy: On the Potential of Passionate Labor and the Wastes of the

Market (St. Martin’s Press, May 2000), The Natural Instability of

Markets: Expectations, Increasing Returns and the Collapse of Markets (St.

Martin’s Press, 1999), and Class Warfare in the Information Age_ (St.

Martin’s Press, 1998).

Published by EH.NET (February 2000)

William A. Darity, Jr. and Samuel L. Myers, Jr., Persistent Disparity: Race and Economic Inequality in the United States since 1945. Cheltenham, UK: Edward Elgar, 1998. xiii + 191 pp. $80 (cloth), ISBN: 1-85898-658-3; $25 (paper), ISBN: 1-85898-665-6.

Reviewed for EH.NET by William A. Sundstrom, Department of Economics, Santa Clara University

Occasionally enlightening, often frustrating, this book examines the continuing gap in economic status between white Americans and African-Americans. The authors stake out a pessimistic position, arguing that the perceived relative economic progress of blacks during the 1960s and 1970s was largely illusory. Furthermore, they contend, the stagnation or erosion of black relative incomes since the 1970s cannot be attributed to rising general inequality or changing family structure. Rather, racial discrimination in the labor market has played an important ongoing role.

Darity (Professor of Economics, University of North Carolina) and Myers (Professor of Human Relations and Social Justice, University of Minnesota) propose a link between increased discrimination and the general trend toward greater income inequality of the last 30 years, arguing in the introductory chapter that “Job losses and earnings losses for white males who are the ‘victims’ of the unequalizing spiral will lead them to intensify their efforts to preserve their remaining occupational turf and to squeeze black workers further down the occupational ladder” (p. 3). An intriguing possibility, to be sure, but a reader expecting to find direct evidence of this endogenous discrimination will be disappointed.

Instead, much of the monograph is devoted to undermining competing explanations of changes in the black-white gap. This it does with mixed success. The authors are compelling in their claim that evidence of wage convergence between blacks and whites before the 1980s is severely biased by the exclusion of non-earners from the comparison. Whereas the median wage of black workers converged toward that of white workers during the 1960s and 1970s, convergence disappears if one includes non-workers and assigns them a wage in the lower half of the distribution. Similarly, family incomes fail to show the same racial convergence as the wages of individual workers over the same period.

Thus the evidence supports a claim of economic polarization within the African-American population during the 1960s and 1970s, with employed blacks experiencing gains relative to whites, but a substantial segment of un- and underemployed blacks (who would be labeled the “underclass”) falling further behind. Darity and Myers suggest that this mixed picture undermines the views of the “optimists,” including James Smith, Finis Welch, and Richard Freeman, who have argued that improved educational opportunities and/or diminished labor-market discrimination contributed to large gains for blacks before the 1980s.

It is not entirely clear, however, why the authors think one must reject the optimists’ explanations for progress on the part of those African-Americans who did succeed. Darity and Myers assert that the rise of a black professional class during these decades was due to “the growth in public sector employment opportunities in social welfare agencies attributable to the Johnson Administration’s Great Society programs” (p. 52), although they provide little supporting evidence. It seems unlikely that public employment explains the emergence of the black middle class as a whole.

The book’s central chapters present the authors’ analysis of data from the Current Population Survey regarding the role of the racial “skills gap” and racial differences in family structure in generating income inequality between the races. Darity and Myers present truly bleak figures documenting the widening of the racial gap in incomes for families with poorly educated family heads. Among families headed by young people with less than a high school education, the black-white ratio of family incomes dropped from about 70 percent in 1970 to about 50 percent in 1991. By contrast, the racial gap was virtually unchanged among families headed by older, better-educated persons.

In Darity and Myers’s view, this evidence tends to refute a widely held explanation of the erosion of black relative gains during the 1980s: namely, that the growing return to skills exacerbated racial inequality because blacks tended to have lower skills on average. If this were the case, argue the authors, then the least skilled whites should have done no better than the least skilled blacks. Instead, we observe the racial gap widening even among high school dropouts, suggesting that something more than skill differentials is at work. This conclusion is bolstered by earnings regression results, which suggest that racial differences in the return to schooling actually narrowed between 1976 and 1985.

The role of rising general inequality cannot be dismissed quite so easily, however. It is well established that recent increases in inequality occurred within skill groups as well as between them. In regression terms, the variance of the residual in standard earnings equations has increased. If black workers tend to fall in the lower tail of that earnings residual, whether because of discrimination or unobserved skill differences, the increased spread in the residual could also increase racial inequality, a point demonstrated empirically in the important work of Chinhui Juhn and co-authors. (Robert Margo and Thomas Maloney have also shown that the reverse process helped narrow racial pay differentials during the “great compression” of wage inequality during the 1940s.)

Darity and Myers focus much of their data analysis on the incomes of families and family heads, and naturally they must consider the role of changing family structure. Disputing the conventional wisdom, they claim that the rising rate of female headship “is not even a weak candidate” for explaining the reversal of relative black economic progress after the mid-1970s (p. 87). The reason given is essentially that rates of female headship rose as rapidly among whites as among blacks during these years.

This is true, but rather misleading. Among white families, the percentage headed by females rose from 9 percent in 1970 to 13 percent in 1991. The corresponding figure for African-Americans went from 28 to 46 percent. The proportionate increases are thus not dissimilar, but the absolute change in proportions may be more important. For instance, suppose that female-headed households earned 50 percent of two-parent households, but that within family types there were no racial income differences. Then in 1970, the black-white household income ratio would have been 0.90, falling to 0.82 in 1991 on account of the change in family structure alone.

This is not to deny that racial discrimination in job and housing markets has played a significant role in generating racial differences in family structure. But changing family structure cannot be so readily dismissed as an intermediate factor in generating trends in racial income inequality.

In fairness, later in the same chapter Darity and Myers report estimates of the impact of increased female headship on the racial income gap from a complex counterfactual exercise. They conclude that “less than 10 per cent of the increase in racial earnings inequality among family heads can be attributed to changes in the proportion of families headed by females” (p. 105). In their model, however, female headship apparently affects earnings only through its impact on labor-force participation. It is not clear that their model has captured the full impact of female headship to the extent that it affects earnings in other ways (for example because women are paid less than men).

Darity and Myers conclude their empirical analysis by noting that very little of the change in racial income inequality between the 1970s and 1980s can be attributed to racial differences in measured characteristics. Is this then evidence of differential treatment–i.e., labor-market discrimination? Darity and Myers believe so. A reader familiar with this highly contentious literature, however, will wonder about the role of unmeasured factors, including school quality and family background, which some argue show up in the much-discussed test-score gap between whites and blacks.

The book’s final two chapters discuss the political and economic ramifications of various possible remedies to the problem of racial economic inequality. Darity and Myers are deeply pessimistic about the prospects of reducing racial income inequality in the United States any time soon. They see the economic trends as largely negative, and the political trends increasingly hostile to the race-based remedies that might have the greatest chance of success.

Given all that has come before, the concluding chapter, which is in many ways the most thought-provoking in the book, seems to come out of left field with a plea for monetary reparations to the descendants of African-American slaves. For Darity and Myers, the case for reparations is not merely a matter of correcting a past injustice. As they put it, “The effects of historic deprivations are cumulative” (p. 151).

The cumulative deprivation that would be offset by reparations is the maldistribution of wealth between blacks and whites. Wealth is much less equitably distributed than income, and Darity and Myers cite recent studies finding that racial wealth differences are truly historical in origin, arising from differences in the size of inheritances rather than differences in savings rates or asset returns.

But would the wealth redistribution achieved through a one-time payment of reparations bring about the hoped-for transformation of African-American economic prospects? Those of us who are of the Rawlsian persuasion can agree with the authors that a considerable reduction in wealth inequality may be a necessary condition for fair equality of opportunity, but is it sufficient? Darity and Myers think it can be, if coupled with vigorous enforcement of anti-discrimination law and a concerted movement among African-Americans to promote entrepreneurship and economic independence, especially among the poorest. But experience provides us with very little evidence to assess this claim one way or the other.

Disillusioned with the disappointing results and declining political viability of race-based affirmative action, Darity and Myers in the end argue for the transfer of literally trillions of dollars from whites to blacks. The irony and air of unreality in this proposal are not lost on the authors, who admit that it would be “outrageous and unrealistic” to the vast majority of Americans. But what if they happen to be right that reparations offer the best chance for eliminating the persistent disparity between the races once and for all? One can hope that if the authors write another book, they will steer their considerable intellectual talents away from inconclusive exercises in crunching the same old earnings data, and toward a serious and thorough defense of the justice and effectiveness of their immodest proposal for reparations.

William A. Sundstrom is Associate Professor of Economics at Santa Clara University. He is the author of several articles on the history of racial disparities in U.S. labor markets, and is currently studying the changing occupations of African-American women during the postwar period.

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