is owned and operated by the Economic History Association
with the support of other sponsoring organizations.

Rewriting Capitalism: Literature and the Market in Late Tsarist Russia and the Kingdom of Poland

Author(s):Holmgren, Beth
Reviewer(s):Blobaum, Robert E.

Published by EH.NET (June, 1999)

Beth Holmgren. Rewriting Capitalism: Literature and the Market in Late

Tsarist Russia and the Kingdom of Poland. Pitt Series in Russian and East

European Studies. Pittsburgh, Pa: University of Pittsburgh Press, 1998. xv

+ 240 pp. Illustrations, notes, bibliography, and index. $45.00 (cloth),

ISBN 0-8229-4075-2; $19.95 (paper), ISBN 0-8229-5679-9.

Reviewed for H-Business and EH.NET by Robert E. Blobaum, Department of History,

West Virginia University.

Reconciling Art and the Market in Russia and Poland

In this ambitious examination of the impact of capitalism on Russian and Polish

literature at turn-of-the century, Beth Holmgren has produced a timely,

original, insightful and accessible book. An associate professor of Russian

and Polish literature at the University of North Carolina, Chapel Hill,

Holmgren exploits not only the tools of her own trade in appraising the

relationship between literature and the market, but those of the intellectual

and cultural historian as well. Moreover, Holmgren’s history is usable as it

affords relevant comparisons with the recently restored market-driven

literature of the 1990s. A wide range of readers will derive any number of

insights from this concise, sophisticated and engaging work.

Industrial capitalism’s first wave had indeed come to Imperial Russia and its

subjected territory of the Kingdom of Poland by the last decades of the

nineteenth century, resulting in a rapid and painful transformation of

traditional agrarian societies. Adjustment to new sets of social and economic

relations defined by the market proved difficult in most, if not all instances.

As caste-like social structures eroded due to greater mobility demanded by the

market and as literacy ceased to be the preserve of elites, an emerging

mass-circulation press both represented and shaped a new consumer culture.

Within a comparative framework, Holmgren attempts to discern how the “serious,”

highbrow and elitist Russian and Polish literary traditions adapted to a

developing modern mass culture, whether the new literary marketplace produced

an approximation of the Western “middlebrow,”

and how in the new circumstances literary products were marketed by Russian and

Polish publishing industries..

This is a tall order indeed, but Holmgren succeeds admirably in filling most of

it. On the Russian side, she concedes that her task has been made easier by

Western historians of Russian popular culture while chiding fellow

literary scholars who “remain in thrall to high culture’s legislation of

literary value” (p. xiv). Major works by Jeffrey Brooks on literacy and popular

literature,[1] Louise McReynolds on the mass-circulation press,[2] and Laura

Engelstein on the contest ed terrain of sexuality in fin-de-siecle Russian

culture[3] are used by Holmgren to map out her territory. She is less certain

of her Polish ground. While studies of Polish popular literature are as limited

in scale as Holmgren claims,

she would have done

well to consult Jerzy Jedlicki’s work on the nineteenth-century Polish

intelligentsia’s discourse over “civilization”

[4], where she would have discovered an excellent discussion of elite cultural

responses to the prospect of capitalism before it became

an actual part of Polish landscape. Stephen D. Corrsin’s work on

turn-of-the-century Warsaw,[5] which contains a good deal of information on

literacy and the mass-circulation press in Poland’s publishing capital, would

have been useful as well. In the absence of these and other sources, Holmgen

makes some avoidable errors. For instance, she grossly inflates Polish literacy

rates, when in reality at approximately 30 percent they were lower than those

prevailing in European Russia, due mainly to a “colonial

” and finacially-starved system of primary education. Nevertheless, such gaps

affect the backdrop of Holmgren’s analysis rather than her arguments as such,

which are based on well-chosen examples.

“Serious” literature was the domain of the Russian and Polish intelligentsia

whose writers enjoyed tremendous authority as self-styled social and national

missionaries. Especially in the Russian tradition, the intelligentsia’s

literary heroes came from its own ranks and were characterized by altruism and

intellectuality. Merchants, as purveyors of material goods, had a

“marginalized and frequently ambiguous image” (p.18)

in the bulk of “serious” nineteenth-century Russian literature. If the merchant

was allowed to become a hero, according to Holmgren, it was only

“by stepping directly into the shoes of the affluent intelligentsia”

(p.33). In the Kingdom of Poland, on the other hand, the image of the merchant

was tarnished by hybrid ethnicity as Germans and Jews traditionally competed

with and actually outnumber ed Poles as dealers of merchandise. The movement of

part of the traditional merchantry into the ranks of industrial entrepreneurs

and patrons of the arts, as well as the emergence of a new generation of

“serious” writers, modified but did not supplant these established images. In

examining the fin-de-siecle works of Russians Maxim Gorky and Anton Chekhov,

themselves the “articulate sons” of tradesmen, and of the Pole Boleslaw Prus,

Holmgren argues that these

“serious” writers “seemed to sense the cultural

impossibility of the capitalist hero” (p. 180). Prus’s capitalist characters in

The Doll are as intent on maintaining their nobility of spirit, defined

as a Polish national trait, as they are on amassing fortunes in a “misalliance

of idealism and materialism” (p.61). While both Gorky and Chekhov rejected

traditional stereotypes based on estate or class distinctions, including the

intelligentsia’s own heroic self-image, they also refused to embrace Russia’s

embryonic middle. Consequently, in Holmgren’s view, “serious”

literature displayed a remarkable resiliency, mounting a powerful and complex

self-defense against capitalist revaluation.

But what of the Russian and Polish “middlebrow” literature? While a coherent

middle class had yet to emerge in Russia

and Poland, an array of diverse and fragmented groups held sufficient numbers

to comprise an eager audience for a writers of hybrid works that bridged

“serious” and popular literature and were connected to the market, both in

terms of sales and themes of

consumption. Moreover, a market-proven formula was ready at hand,

the popular romance, which had done much to define the “middlebrow” in the

West. Holmgren’s comparative analysis of Anastasia Verbitskaia’s The Keys to

Happiness (featured also in the aforementioned scholarly works of Brooks

and Engelstein) and Helena Mniszek’s The Leper reveals some interesting

variations on the classical romance theme. Both were widely popular, both were

dismissed by “serious” critics (despite the homage paid to big

ideas and issues characteristic of Aserious literature), both sanctioned the

new commodity culture and a “cult of personality” (p. 98)

that dovetailed into unprecedented assertions of individualism, especially

female. Yet just as their “serious” counterparts, Gorky, Chekhov and Prus,

stopped short of endowing men and women of the middle with a positive image, so

too Verbitskaia and Mniszek rewrote the classical popular romance to suit the

cultural context of their audiences. Their heroines do not find bourgeois

happy endings, but instead become martyrs to an unsatisfactory status quo,

though differently perceived, in Russia and Poland. According to Holmgren,

“middlebrow” literatures which took themselves seriously, like

“serious” literature itself, rewrote capitalist role models and values in

order to retain the distinctive cultural worth of their products.

In the second part of her book, Holmgren takes a closer look at the

mass-circulation press which “blatantly transubstantiated the printed word from

semi-sacred text into a made and paid-for product accessible to everyone”

(118). For her case studies, Holmgren focuses on the Vol’f Bookstore

News, essentially a catalogue which trailblazed innovative modes of

marketing Russian literature, and The Illustrated Weekly,considered the

standard-bearer of the period’s Polish illustrated journals. From Holmgren’s

comparison of the two publications, the similarities appear more striking than

the differences. Vol’f Bookstore Newsadvertised books as if they we re

icons, replete with detailed instructions regarding their care and maintenance.

The Illustrated Weeklyconferred secular sainthood on contemporary Polish

literary “greats” such as Henryk Sienkiewicz and Eliza Orzeszkowa, enjoining

the reader/consumer

to patronize their art as a patriotic duty. Both anticipated “the consumption

of celebrity” (p.131).

And both catered to their readers’ cultural sensitivities, Vol’f by promoting

material book culture “as a mean to imperial greatness and a sign of imperial

prowess” (149), The Illustrated Weeklyby offering its mass readership a

“surrogate nation-space” (p. 151).

For Holmgren then, the reconciliation of art and the market in Russia and

Poland involved rewriting market influence “so as to broaden deeply roo ted

cultural patterns” (p. 180). She concludes by comparing the commercialization

of literature in the 1890s with that of a century later following the collapse

of communism. In the early 1990s, it appeared that

“serious” literature had lost its reason for existence in both countries as

consumers, once again made sovereign, abjured the politicized literary

traditions, whether official or unofficial, of the recent past. However, as the

decade continued, “serious” literature began to make something of a comeback,

occupying a more specialized market niche. Holmgren suspects that this smaller

self-selecting scale will nevertheless exceed Western proportions as writers

and publishers take greater pains to assert national cultural models.

This reviewer sees no

reason to challenge such a conclusion. In February,

1999, I bore witness to a Polish national spectacle, the release of Jerzy

Hoffman’s film version of Henryk Sienkiewicz’s Of Fire and Sword.

Corporate sponsorship, slick advertising and considerable media hype

transformed the film’s premiere into a patriotic event as enterprising

ticket-scalpers greeted the faithful at the box office. I was reminded of

Holmgren’s analysis of the Sienkiewicz jubilee of 1900 as it appeared in the

pages of The Illustrated Weekly, in particular, its “commodification of

the artist’s person, life style and work” (pp. 163-164). Soon Adam Mickiewicz’s

classic, Pan Tadeusz, will be rendered unto film by Andrzej Wajda, and

is already being neatly packaged for mass consumption.

Ultimately, the questionable artistic quality of these “blockbusters”

matters less than their reaffirmation of Holmgren’s main argument about the

market’s skillful accommodation of high culture notions of the writer and his

or her message.

[1]. Jeffrey Brooks, When Russia Learned to Read: Literacy and Popular

Literature, 1861-1917 (Princeton, N.J.: Princeton University Press 1985).

[2]. Louise McReynolds, The News Under Russia’s Old Regime: The Development

of a Mass-Circulation Press (Princeton,

N.J.: Princeton University Press, 1991).

[3]. Laura Engelstein, The Keys to Happiness: Sex and the Search for

Modernity in Fin-de-Siecle Russia(Ithaca, N.Y.: Cornell University Press,


[4]. Jerzy Jedlicki, Jakiej cywilizacji Polacy potrzebuja(


Panstwowe Wydawnictwo Naukowe, 1988). Jedlicki’s book has recently been

translated by the author into English as A Suburb of Europe:

Nineteenth-Century Polish Approaches to Western Civilization(Budapest:

Central European University Press, 1999).

[5]. Stephen D. Corrsin, Warsaw Before the First World War: Poles and Jews

in the Third City of the Russian Empire, 1880-1914(Boulder, Colo: East

European Monographs. 1989).

Subject(s):Social and Cultural History, including Race, Ethnicity and Gender
Geographic Area(s):Europe
Time Period(s):19th Century

The Political Economy of the New Deal

Author(s):Couch, Jim
II, William F. Shughart
Reviewer(s):Fishback, Price V.

Published by EH.NET (June 1999)

Jim Couch and William F. Shughart II, T he Political Economy of the New

Deal. Cheltenham, UK and Northampton, MA: Edward Elgar, 1998. xvi + 229

pp. $85 (hardback), ISBN 1-85898-899-3.

Reviewed for EH.NET by Price V. Fishback, Department of Economics,

University of Arizona.

The New Deal is certainly one of the most dramatic peace-time expansions of

government activity in recorded history. As a result, numerous social

scientists and historians have tried to understand the political economy of the

New Deal. In

particular, a great deal of effort has been devoted to trying to explain the

dramatic differences in per capita New Deal spending across states that were

first mentioned prominently by Leonard Arrington

(1970). Jim Couch and Bill Shughart offer a book-length study that is devoted

to explaining those differences using public choice theory.

Franklin Roosevelt gave speeches that argued that the New Deal was designed to

promote “Relief, Recovery, and Reform.” New Deal administrators like Harold

Ickes and Harry Hopkins also consistently talked about noble goals for the New

Deal programs. Yet Leonard Arrington’s simple comparison of New Deal spending

per capita across the states quickly raises questions about how well the New

Deal met these goals. There was substantial variation in the distribution of

New Deal funds per capita across the states; the West fared well, while the

South fared poorly. This has led a number of economists to perform econometric

studies of the New Deal. Donald Reading

(1973) found that

the distribution of funds seem to be associated with improving federal land,

building highways, and helping to promote recovery.

However, there was little sign that the New Deal money was designed to reform

society because money was not being distributed

disproportionately to poorer areas. Gavin Wright (1974) then added the issue

of presidential politics to the analysis. His results show that the primary

goal in distributing New Deal funds was to ensure the reelection of Roosevelt,

as money was primarily

distributed to swing states and to areas where the money could be used most

productively to increase presidential electoral votes. John Wallis (1987) then

expanded the sample by obtaining information on New Deal spending from year to

year and obtaining more information on the movement of the economic variables

over the course of the decade. Wallis emphasized that Congress had structured

the New Deal so that state and local governments played a role in determining

how much they would receive from

the federal government. Wallis also worried about problems of simultaneity

bias arising in the coefficients on the unemployment variables. Gary Anderson

and Robert Tollison (1991) then added Congressional politics to the mix. Couch

and Shughart’s contribution tot his literature involves a book-length study

that describes a wide variety of New Deal spending and loan programs, offers

numerous anecdotes about their impact, and performs further econometric

analysis on the determinants of New Deal spending and loan across states.

The focus of the book is on developing a public choice analysis of the New

Deal. This is not really a new emphasis because all of the previous work has

used the same notion that people in government were acting in a self-interested

manner. What is new in the book is the combining of the econometric analyses

with extensive descriptive material and a very strong negative tone about the

motives of the Roosevelt administration. The econometric results from nearly

all the studies generally imply that a focus on reelection by political

leaders and pressures from interest groups did a great deal to shape the New

Deal. Couch and Shughart’s econometric results show very little evidence that

reform, recovery, and relief were key factors, although earlier econometric

work suggests that recovery and relief motives might have played a role. To

supplement the econometric results, Couch and Shughart, offer numerous tales of

malfeasance in the book, which offer a counterpoint to many books that heap

unadulterated praise on the New Deal programs.

People interested in the distribution of New Deal funds should read the book in

conjunction with a recent paper by John Wallis (1998) in

Explorations in Economic History. Wallis’s paper in part serves as a

book re view in the sense that Wallis goes through the analyses of all the

prior authors mentioned in the book and tries to compare the results of each

analysis using the same data and the same variables as closely as possible.

Wallis also offers some new insights that are not in this volume because the

book was in press at the time that the Wallis article appeared. Couch and

Shughart expand on the earlier econometric work by offering additional material

and by dissaggregating and examining some of the specific programs.

One of the central issues that Wallis (1998, 1987) was trying to do in his

analysis was take into account the impact on New Deal spending of the matching

features that were included in some programs, as well as differences in the

attitudes of state and local governments toward seeking and obtaining New Deal

funds. His technique involved using a lagged value of grants in the New Deal

distribution equation in a panel data set. In addition for the period 1937

through 1940 Wallis has tried to directly examine the impact of state spending

on New Deal distributions. Couch and Shughart challenge the notion that

matching institutions and local attitudes had much impact on New Deal spending.

They found evidence from the Congressional Record on the share

of WPA projects funded by local sponsors. Regression analysis shows that the

sponsor’s share of the program was negatively related to the amount of WPA

expenditures. Therefore, they argue that there was no simple mechanical

relationship between the money provided by state and local governments and the

“match” from the federal government. I tend to agree that there was no

mechanical relationship, but it is likely that the attitudes and activities of

the state and local governments did influence how much effort they devoted to

obtaining New Deal funds. Couch and Shughart really do not address this issue

well because they do not try to take into account the issues of simultaneity

bias in their regression equations. Wallis (1987) has already made the

theoretic al case that federal government spending and state and local spending

are endogenous and that there are feedbacks between the two. Thus,

it is somewhat surprising that Couch and Shughart ignore the issue by running

simple OLS regressions that ignore the endogeneity issues. They do offer some

criticisms of some of the work Wallis has done on the impact of state spending

on New Deal funds, but it would seem very important to test the issue directly

in their regression analysis.

Couch and Shughart press their argument that state and local activity was

relatively unimportant further by claiming that leaders in the South, which

received less than other regions, did not oppose New Deal programs. They claim

that southerners only opposed the Roosevelt administration late in the 1930s

(p. 212). They argue that nearly all of the southern congressmen voted for the

Emergency Relief Appropriation Act, and that most of the southern opposition

came about in response to the court-packing plan in 1937. Their claims of la ck

of southern opposition to the New Deal are not very convincing. The vote for

the enabling legislation was not even remotely close, suggesting that everybody

expected that the legislation would go through because it was just continuing

the programs already in existence. Further, they appear to have missed the

work of Lee Alston and Joseph Ferrie, who have articles in the Journal of

Economic History

(1985) and in the American Economic Review (1993) that show that

southern planters were strongly opposed to many New Deal programs,

particularly Social Security.

I was surprised by another omission. In their concise history of the Great

Depression, they do not mention the work on the impact of the gold standard on

the depression by Barry Eichengreen (Golden Fetters, 1992). My

impression is that most economists and economic historians see Eichengreen’s

book as the most comprehensive discussion of the issue.

So, what can we learn from the analysis in this book, which also summarizes

most of the literature on the issue? Couch and Shughart give strong emphasis

to the notion that politics and interest groups were the primary factors

shaping the New Deal. Their regression analysis finds little evidence that the

distribution of funds matched the noble rhetorical goals of reform, recovery,

and relief motives. They dismiss the notion that matching had much impact on

the distribution of funds. At this point I am not fully convinced that the New

Dealers did not at least partially try to achieve the noble goals in their

rhetoric. One issue that cannot be addressed with the econometrics is the idea

that the New Deal was conceived to solve a national problem of relief and

recovery. In fact, the 1930s led to all sorts of federal legislation on issues

that had been the state’s preserve because people seemed to believe that these

were national problems. It is clear that the Depression did not touch all

states equally, but it certainly touched each and every state to some extent.

Each state

received a significant amount of spending, at least $200 per capita. So

Roosevelt, Hopkins, Ickes and the rest of the New Dealers could at least claim

that they used resources to foster relief and recovery at a base level in each

state. The variation across states shows that other factors determined the

distribution beyond this base level. None of the regression analyses by any of

the scholars writing on this subject show any sign that the New Deal was

reform-minded, a finding consistent with most historians’

views of the Roosevelt

Administration. It is clear that political maneuvering played an important role

in this story in all of the analyses.

The question of whether or not the variation also reflected more noble motives

is still not fully answered. Different specifications show

different results. One problem with the Couch and Shughart analyses is that

they do not adequately control for problems with simultaneity bias, which was a

central feature of Wallis’s earlier analyses. My sense having followed all of

this literature care fully over the past decade is that the distribution of New

Deal funds was complicated. It was driven by some noble goals, some political

goals, and certainly by special interest pressures.

It was probably driven as well by sheer confusion because there we re so many

diverse programs that it seems likely (and historians have documented)

that the goals of some programs came into direct opposition to the goals of

other programs. All of these factors come together into a giant and very

complex stew that boiled

over into the largest peacetime expansion of government in U.S. history.

Price V. Fishback Department of Economics University of Arizona Tucson, AZ


Price V. Fishback is the Frank and Clara Kramer Professor of Economics at the

University of Arizona. His book with Shawn Kantor on the origins of workers’

compensation laws is forthcoming from University of Chicago Press early in

2000. Fishback and Kantor are currently collaborating with various scholars on

a large-scale project examining the economic impact of the New Deal on the

economy using county- and city-level data.


Alston, Lee and Joseph Ferrie, “Labor Costs, Paternalism, and Loyalty in

Southern Agriculture: A Constraint on the Growth of the Welfare State,”

Journal of Economic

History, 45 (March 1985): 95-117.

Alston, Lee and Joseph Ferrie, “Paternalism in Agricultural Labor Contracts in

the U.S. South: Implications for the Growth of the Welfare State,”

American Economic Review, 83 (September 1993): 852-76.

Anderson, Gary

M., and Robert D. Tollison, “Congressional Influence and Patterns of New Deal

Spending, 1933-1939,” Journal of Law and Economics,

34 (April 1991): 161-175.

Arrington, Leonard J., “Western Agriculture and the New Deal,”

Agricultural History, 49 (1970)

: 337-353.

Eichengreen, Barry, Golden Fetters: The Gold Standard and the Great

Depression, 1919-1939. New York: Oxford University Press, 1992.

Fleck, Robert Kenneth, “Essays on the Political Economy of the New Deal”

(Ph.D. thesis, Stanford University,


Reading, Don C., “New Deal Activity and the States, 1933 to 1939,” Journal

of Economic History, 33 (Dec. 1973): 792-810.

Wallis, John Joseph, “Employment, Politics, and Economic Recovery During the

Great Depression,” Review of Economics and Statistics, 69 (Aug.

1987): 516-20.

, “The Political Economy of New Deal Spending Revisited, Again: With and

Without Nevada,” Explorations in Economic History, 35 (April (1998):


Wright, Gavin, “The Political Economy of New Deal Spending:

An Econometric Analysis,” Review of Economics and Statistics, 56 (Feb.

1974): 30-38.

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

Hiring the Black Worker: The Racial Integration of the Southern Textile Industry, 1960-1980

Author(s):Minchin, Timothy
Reviewer(s):Lyons, Thomas

Published by EH.NET (June 1999)

Timothy Minchin, Hiring the Black Worker: The Racial Integration of the

Southern Textile Industry, 1960-1980. Chapel Hill, NC: University of North

Carolina Press, 1999. xii + 342 pp. $49.95 (hardback), ISBN:

0-8078-2470-4; $19.95 (paperback), ISBN 0-8078-4771-2

Reviewed by Thomas Lyons, American Bar Foundation.

African Americans were excluded from employment in the Southern textile

industry for most of this century. Before 1965, they made up little more than

two percent of its employees. At first glance this fact is unsurprising since

economic life throughout the South was strictly segregated, with blacks

occupying poorly paid laborer jobs whenever they worked in the same industries

with whites. But from an economic point of view the exclusion of African

Americans from textiles is surprising indeed.

The textile industry was the largest manufacturing industry in the South and

one of the most competitive. Most

production jobs in the mills required little skill. Hence the pressure of

competition might be expected to force textile mills, more than any other

industry, to hire African Americans.

Timothy Minchin has written an impressive historical survey which demonstrates

that the textile industry was integrated only through the federal Civil Rights

Act of 1964 and the lawsuits that followed it.

Minchin, who teaches American history at St. Andrew’s University in Scotland,

compiles internal industry data, legal documents, and dozens of interviews

with the first black textile workers in order to show that mills kept blacks

completely out of production jobs until after the Civil Rights Act came into

effect in 1965. Although anecdotal rather than statistical,

the evidence for the importance of the Act is overwhelming: employees, and

employers themselves, openly state that the federal statute was the only reason

any black workers were hired. Hence Minchin’s book establishes the efficacy of

the Civil Rights Act in bringing blacks into this industry.

But the book suffers a failing common in labor history: the consequences of

this conclusion are to some extent buried under the wealth of fascinating

testimony. Economists since Gary Becker have tended to view racial

discrimination as an aberration in the market that must be explained. All other

things being equal, discrimination against a given racial group is inefficient,

since it translates into a wage premium paid to the members of the favored

group. Minchin is aware of this received theoretical wisdom and considers one

alternative to the Civil Rights Act–the possibility that mill owners faced an

increasingly tight labor market in the late 1960’s which forced them to hire

blacks. He notes that while overall the industry was competitive, locally many

mills were situated in poor Piedmont areas with no other industry, and had

monopoly power. The labor supply changed little in the mid-’60s, Minchin

shows, yet mills began hiring blacks for the first time. An analysis in terms

of market efficiency can explain neither the initial exclusion nor the eventual


Minchin also scrutinizes mill management’s quasi-economic defenses of its

hiring practices. One defense was the claim that blacks were unqualified for

textile jobs. Discrimination is inefficient, of course, only if the two groups

are otherwise equally productive. In fact, industry records show that the first

black workers hired turned out to be more productive, and even slightly more

highly educated, than whites

in comparable jobs. (After the initial breakthrough in 1965, however, black

male workers remained in unskilled production and rarely entered the skilled

trades or management;

Minchin shows that on-the-job training was overwhelmingly the most important

qualification for these jobs, and was systematically denied black workers.)

Mill owners further argued that white workers would not tolerate working with

blacks. Minchin shows that in fact whites almost immediately accepted the new

employees, especially when

they were told the government had obliged the mill to hire them.

Hiring the black worker, then, did more than rectify an injustice. It would

seem also to have been sound business practice, since it tapped an unused

supply of productive workers whom white workers eventually came to accept. But

in an epilogue Minchin notes that, in fact, the Southern textile industry

contracted sharply in the 1980’s. At least half a million jobs were lost as

textile manufacturing moved overseas. Of course the decline in American

manufacturing overall eliminates the possibility that the decline in Southern

textiles had anything to do with its hiring practices. But Minchin does not

confront this fact directly; he notes that the hiring of blacks coincided with

the beginning

of the industry’s decline, but provides no assessment of the overall effect of

the hiring. This weakens the book as evidence against its presumed

interlocutors, scholars such as Charles Murray, Richard Epstein, and the

Thernstroms, among others, for whom legislation like the Civil Rights Act

unnecessarily interferes in markets.

Minchin’s book adds to the evidence that market forces narrowly defined do not

explain the exclusion of blacks from Southern textiles before 1965 nor their

inclusion thereafter. Economists such as James Heckman and Brook Payner had

already come to the same conclusion, by comparing hiring in textiles to that in

other southern industries while systematically eliminating explanations other

than the Civil Rights Act for the hiring.

Min chin’s contribution is to amass evidence that all parties involved at the

time also held federal legislation directly responsible for the hiring–and

praised or blamed it accordingly. This book will be one more obstacle, and a

significant one, for opponents of anti-discrimination laws.

But it stops short of dealing with counterarguments that would point to the

overall declining position of textiles after the 1960’s. It allows critics to

dismiss the entry of blacks into textiles as a unique occurrence, and

to continue their speculations about the overall effect of anti-discrimination

law and affirmative action in the American economy.

Thomas Lyons is a research assistant at the American Bar Foundation, where he

is working with James Heckman and Petra Todd

on a study of black-white wage differences in the United States since the

Second World War.

Subject(s):Social and Cultural History, including Race, Ethnicity and Gender
Geographic Area(s):North America
Time Period(s):20th Century: WWII and post-WWII

Free Trade Free World: The Advent of GATT

Author(s):Zeiler, Thomas W.
Reviewer(s):Aaronson, Susan Ariel

Published by EH.NET (June 1999)

Thomas W. Zeiler. Free Trade Free World: The Advent of GATT. Luther

Hartwell Hodges Series on Business, Society

and the State. Chapel Hill:

University of North Carolina Press, 1999. Pictures, text, notes,

bibliography, and index. Pp. 288. ISBN -0-8078-2458-5. $39.95

Reviewed for H-Business and EH.NET by Susan Ariel Aaronson, George Mason


One of the world’s most misunderstood organizations sits on the glistening

shore of Lake Geneva, in Geneva, Switzerland. Its 450 international civil

servants toil in a former palace. Despite their tony digs, they have little

power or clout. The World Trade Organization (WTO) is a member driven

organization. Its 132 members meet to develop rules to govern trade among

nations. Decisions at the WTO are not made by these officials, but by consensus

among all members. And consensus is not quickly or easily arrived at.

At this writing, the WTO is some 4 years old, but it has a little known

history. It was built on a multilateral trade agreement, the GATT (General

Agreement on Tariffs and Trade), established in 1948. The GATT was supposed to

be a temporary measure, superseded by a formal international organization to

govern trade. This organization, the International Trade Organization (ITO),

not only included the GATT’s agreements on commercial policies (tariffs,

quotas, exchange controls and other border measures that can distort trade)

but also rules on economic policies that could also distort trade such as

employment policies or business practices.

The ITO was the most comprehensive international agreement ever negotiated.

In my opinion, it made the WTO look simple. Had it been approved, the ITO

would have required Congress to change some U.S. laws and regulations–beyond

the traditional turf of trade policy. But Congress never voted on the ITO.

Republicans and Democrats alike were preoccupied with

the spread of Communism throughout Eastern Europe, instability in Asia, hunger

throughout the world and inflation in the United States.

President Truman made NATO and the Marshall Plan his legislative priorities in

1948-1949 and did not press for its approval. He was satisfied with the

achievement of the GATT.

This is a complicated history and it gets more complex. The U.S. Congress also

never approved U.S. membership in the GATT. The GATT was built on America’s

reciprocal trade agreements act, first passed by the Congress in 1934, during

the Great Depression. With this law, for a limited period,

Congress granted its traditional authority to make trade policy to the

Executive in the hopes that bilateral trade liberalization would yield economic


The GATT was tailored to fit the limitations of this legislation as well as

Congressional reluctance to cede control over trade policy either to the

Executive or to a formal international organization.

This act allowed the United States to negotiate bilateral trade agreements

that mutually reduced border measures such as tariffs that distorted trade.

The GATT then generalized these agreements among its contracting parties.

They were called contracting parties because the authors of the GATT, in


State Department official John Leddy, recognized that Congress would not like

the term “members.” Moreover, the United States accepted the GATT’s provisions

only insofar as it did not interfere with its existing laws. As a result, the

United States could

continue to protect and subsidize its agricultural producers without breaching

the very trade agreement it had created. To reiterate, the trade agreement used

to reduce protectionism allowed protectionism and was built to accommodate

protectionism. And the trade agreements act did not allow U.S. policy makers

to convene discussions about the many other policies (such as labor or

competition policies) that distorted trade among the United States and its

trade partners. Thus, the GATT was not built on a very stable foundation,

because the trade agreements act had to be renewed every couple of years. Until

1995, when the United States joined the WTO, the GATT was simply a trade

agreement, a club, because the reciprocal trade agreements act did not


the executive branch to sign a treaty or build an international organization.

Tom Zeiler, an associate professor in the history department of the University

of Colorado at Boulder, has worked hard to shed light on this complicated

history in his new book

, Free Trade, Free World: The Advent of GATT. Knowing that the

historians of foreign economic policies have not focused on the GATT, Zeiler

tries to fit its history into American foreign policy. This is an important

objective. He argues that this multilateral trade agreement was “designed to

ensure American values and security, not just profits” (p.2). And he argues

that “by liberalizing trade while protecting domestic economies–a bargain

consistent with U.S. trade law,

practice, and history–GATT facilitated American foreign economic and

diplomatic objectives” (p.5). GATT was flexible, because it facilitated a

global compromise on free trade and protection. And thus, Zeiler concludes,

because GATT was a protectionist/free trade compromise, GATT endure d.

Zeiler reviewed archival documents in the United States, Canada, Great Britain,

and Australia. Thus, he examined policy makers’ view of the same policies and

decisions with many different perspectives. By so doing he has raised the bar

for other historians attempting to assess the development of economic

internationalism. But Zeiler’s research is also incomplete. He ignored the

views of other important nations such as the Netherlands,

France or Brazil which were also involved in the development of the

GATT and the ITO.

Zeiler’s book focuses on how “free trade” theory and tools had to accommodate

political reality. He believes that the U.S. was thwarted in achieving “free

trade” by foreign policy realities–the economic and political problems of her

allies; the Cold War, etc. But “free trade” was never a goal of U.S. policy

makers or U.S. business. There is no evidence in the State Department files

that the policy planners sought free trade as a goal. And the best evidence of

this is the tools they used to encourage trade(trade agreements). The GATT

(and all trade agreements) are not designed to free trade–but to regulate it.

Such trade agreements regulate how entities may trade and how nations may

protect. They help forge “freer trade” but free trade is nonexistent. There

are always times (whether to protect consumers from unsafe food or producers

from dumped imports) that nations must protect. And in democracies, there is

always strong pressure for protection. Thus, the U.S. led global efforts to

free trade while protecting its textile, sugar and steel industries, among



(The design of the GATT, as noted above, makes this clear).

Zeiler’s model hamstrings both his analysis and his presentation of the

characters in this complex story.

He lumps business, labor, and government leaders into two camps: protectionist

or free traders. Because he presumes that “free trade” was the only goal of the

postwar planners, he underplays other objectives valued by postwar planners

such as Harry Hawkins (a foreign service officer) and Clair Wilcox (an

economics professor serving the government) . These equally important goals

were to prevent a revival of the Great Depression and to find ways to encourage

full employment. He also mischaracterizes the views of senior leadership as

pure free traders.

Will Clayton, a businessman who served in government as the senior

Undersecretary of State responsible for trade) and President Harry S.

Truman had very different views about balancing trade and other economic

policies. And they had very different views about how best to encourage trade

while encouraging employment. Yet he lumps these four men into the same

category: free traders. For example, he describes Clair Wilcox as

“steeped in free trade doctrine” (p.7 1). Wilcox was more concerned with full

employment than with ensuring market access for American capitalists.

(One can get this understanding by interviewing one of his former

students–William Diebold–or by reading Wilcox’s own views in his Charter for

World Trade.) Or Zeiler cites Truman as committed to free trade (p.75).

But in none of his writing did Truman show how much he valued “free trade.”

He never went to any of the trade agreement conferences; and he made little

effort to defend trade agreements before Congress. Even businessmen Will

Clayton was not a doctrinaire “free trader.” Why simplify their complex views

if the goal is to enlighten the reader into the development of U.S.

trade policy?

Zeiler also misunderstands the relationship of the G ATT (an agreement

governing commercial policies–such as tariffs, quotas and exchange controls)

and the broader ITO, which was designed to subsume it. The ITO failed to gain

broad U.S. support because it was so comprehensive–it included rules governing

employment, business practices, and investment. It clearly was designed to

regulate both border measures (the traditional stuff of trade policy) as well

as national policies that can distort trade.

Thus, it affected national sovereignty and was bound to be


as the WTO is today. Those people advocating for the ITO and the GATT were

creating rules and defending rules that delineated how nations could protect.

Thus, it is illogical to call them “free traders.” They were trade policy

realists–freer trade, not free trade was always the goal. But Zeiler persists

in believing “free trade undergirded a Free world.” (p.


This review was very difficult for me to write. Tom Zeiler is a superb

researcher; a good writer; a solid analyst; and a friend, who has generously

given of his time to critique and improve my own work. His first book,

American Trade and Power developed new insights into Kennedy

Administration foreign economic policy. However, we must await additional

studies of the global development of the GATT to understand its evolution and


Subject(s):International and Domestic Trade and Relations
Time Period(s):19th Century

The History of Black Business in America: Capitalism, Race, Entrepreneurship

Author(s):Walker, Juliet E. K.
Reviewer(s):Dailey, Maceo

Published by EH.NET (June 1999)

Juliet E.K. Walker. The History

of Black Business in America: Capitalism, Race, Entrepreneurship. New

York: Macmillan Library Reference USA. 1998.

Pp. xxv, 482. $45.00.

Reviewed for H-Business and EH.NET by Maceo Dailey, Jr.,

University of Texas (El Paso).

In The History of Black Business In America, Juliet E. K. Walker makes a

magnificent contribution to the literature on African American entrepreneurship

and capitalism. Shattering myths, pointing

to possibilities, and refining our thinking about procrustean racism,

Professor Walker explores perceptively a world where blacks have been much

maligned and vilified as incapable of mastering simple and/or worldshaking

business attitudes and skills.

Writing boldly in her introduction, the author quickly alerts us to the value

of the book: “Beginning in l600s, Africans in America, slave and free, seized

every opportunity to develop enterprises and participate as businesspeople in

the commercial life of a

developing new nation . . . Why,

after almost 400 years do we find black business activities in the late

twentieth century existing at virtually the same level of industry

participation as it did under slavery?”

From the first page of the book, we are

carried through the maze of history to the answer: one that lies not in

when-the-sinner-comes-to-the-mourner’s-bench bromides, but the very serious and

destructive practice of American racism preventing blacks from access to

resources and fair opportunities to develop. Professor Walker invites us to

review and put asunder the old foolishness, the blaming the victim ad hominem

argument, that black business failure and/ or limited growth were rooted in

African inexperience turned into African American ineptitude and lassitude.

Professor Walker was inspired to take up the question of the African American

business ethos owing to the family lesson and lore of her

great-great-grandfather, Free Frank (l777-1854), who entered the realm of

commerce and business with good intentions that got good results. Previous

scholars would have us belief that Free Frank was an anomaly in his

determination and his more than modicum of success. Though he “could not read

or write…he could count,” notes Walker. Free Frank established his own

saltpeter (gunpowder) manufacturing business. He used profits to purchase his

wife’s freedom. In the intricacies of the slave world, Free Frank occupied a

“triple status” as entrepreneur, intrapreneur, and field laborer, respectively

opera ting his own business, managing his absentee owner’s farm, and producing

as a worker. If Free Frank was in an awkward situation, he nonetheless made the

best of circumstances in a world driven by capitalism. In this, he found

himself within, as well as inspiration for, a great tradition of black men and

women in business–dealing with the hard and unfair, but constantly showing

resolve. If the stories of Free Frank and other African American business

individuals were unappreciated by contemporaries, historians have compounded

the ignorance by omitting black entrepreneurs and intrapreneurs from any

serious discussion of the nexus between American racism and capitalism.

The evidence is overwhelming in Professor Walker’s book that African slaves

were not dumbfounded upon entry into America. Despite the disorientation,

they found means of marketing goods for profits to improve their lot. Free

blacks came forth too with similar stellar business strategies and successes.

In the l7th century, Africans, as victims and profiteers,

existed within a market for selling human capital on both sides of the

Atlantic. Africans had great experience in market economies in their homeland

as evinced by their trading organizations, secret societies, craft and merchant


and cooperatives. African women also functioned significantly in trade and

commerce on their continent. Certainly those skills were exported with them to

the so-called new world, and their abilities were manifold in the names of

Anthony Johnson, and later as attitudes and determination were carried over

into the l8th and l9th centuries in the personages of Amos Fortune, Cyrus

Bustill, and Samuel Frances, William Leidesdorff, Stephen Smith, Norbert

Rillieux, James Forten, John B. Vashon, Henriett S. Duterte, Elleanor

Eldridge, and Lucy McWorter. But Walker reminds us that “Race-based exclusion

from credit networks limited the commercial advancement of blacks throughout

colonial America,” as it did also in later centuries. Furthermore there were

enacted laws to strip slaves of their property as they themselves used profits

to purchase freedom for family members and friends, especially in the cases of

slave women concerned about the welfare of their children. We are,

perforce, made to face the fact that Africans and African Americans were

thinking, business-minded individuals with agendas for progress. Any doubt

about a significant history of black capitalism prior to the late l9th century

and early 20th century should be dispelled by Martin Delaney’s report in l852,

one giving an idea of the range of business activities of African Americans.

Also the annual meetings of reform-minded blacks known as the National Negro

Convention urged in l834, in Hamiltonian fashion,

that a black bank be created and underscored that idea again in l847. One

enterprising African American sought a seat on the New York Stock Exchange

prior to the Civil War, but ultimately was denied in his request.

Black women during this period demonstrated their capability, though their

numbers were small: in l850, 438 of a total of 48,888 free African American


were property owners. Statistic revealed that by l860 another 2,000 free black

women in the South possessed property. The lesson was clear:

“Those (women) who worked for themselves achieved more wealth than those who

worked for others.”

Within the pre-Civil War days was the embryonic black capitalism that gave rise

to rapid movement in the period l876-l901, dubbed the “Nadir” by scholar

Rayford Logan (a conceptual framework we must now rethink owing to Professor

Walker’s book). Looked at another way, the era revealed the promises of freedom

as mutual benefit societies and other youthful business enterprises were

turned into manufacturing, real estate, banking, and insurance establishments.


l876, some five million black southerners had purchasing power of $300 million,

remarkable when one considers the depths from which they came. By l900, the

total wealth of slightly more than ten million blacks was $700 million.


Americans had been enterprising enough to prepare their communities for the

“Golden Age Of Black Business From l900 to l930,” as Professor Walker sees it.

She is right to redirect our attention to this era and the African American

business dynamics now legendary black scholars of the period–Benjamin Brawley

and Carter G. Woodson–understood and addressed so ably. Booker T. Washington’s

National Negro Business League was founded in Boston in l900; W. E. B. Du Bois

and John Hope even got a touch of capitalist fever as they adumbrated the

“Talented Tenth” to action. Heman Perry of Atlanta, Madam C. J. Walker of New

York, Jessie Binga of Chicago,

Robert Church of Memphis, and Harry H. Pace of Chicago all proved to be some of

the most imaginative and success-

tasting black capitalists. Mound Bayou and Boley, respectively in Mississippi

and Oklahoma, were townships demonstrating what black capitalism could do in

microcosm. In other places in America, a black started a car manufacturing

company; a company for making black dolls came into existence. Embalming

fluid, hair care, and toothpaste producers emerged also during this period.

Capitalist ideas abounded in the Universal Negro Improvement Association and

Marcus Garvey-led black nationalist movement.

The Depression hit, however, and “‘New Thought'” economic principles were born

of necessity and introduced to black Americans most dramatically by the

evangelist Father Divine (George Baker). Black churches and consumers came to

believe in the “Double Duty Dollar (don’t spend a dollar where you can’t get a

job),” as they established interracial Consumers Cooperative Associations and

other economic projects for serving their communities.

Blacks did much of this without the protection or encouragement of government,

and, as Walker writes, we see in the later years the set asides of a paltry

$8.5 billion for minority corporations compared to $246 billion for white

firms. So whites have had “affirmative action,” so long built into the system

that they sanctimoniously talk of free enterprise ability,

individual initiative, and skillful business techniques as though they were

endowed with them at birth and ordained with clever means of making money.

Coming to the modern period, the story revolves around many confide nt and

enterprising African Americans such as H. J. Russell, John H. Johnson,

Reginald Lewis, Ron Brown, Oprah Winfrey, Bill Cosby, Earl Graves, and Robert

L. Johnson, a few of the nationally known individuals who strode on the scene

knowing full well their abilities and what they wanted to achieve. In some

instances, the black capitalists antedated the Civil Rights Movement. In other

cases, they profited from the doors that were opened by the suffering and

sacrifices of Rev. Dr. Martin Luther King, Jr., Malcolm X, Rosa Parks, Angela

Davis, and H. “Rap” Brown. The emergent black capitalists of the post World War

II era all demonstrated an ingenuous aptitude for business, despite being

encumbered by racism as when the Federal Trade Commission peculiarly singled

out John H. Johnson for scrutiny on one occasion and Reginald Lewis was

indicted by foes for being

“too greedy.” One, therefore, cannot take lightly the observation of Beatrice

founder and guiding force, Reginald Lewis, that “Here in this country the re is

a certain conspiratorial desire–regardless of what you do, how much you earn,

you’re still black. And that’s meant to demean. But it only demeans if you

allow it.” The codeword in corporate America cannot be “beware of blackness,”

as it too frequently seems now! All benefit from inclusion; competition

fosters better products, markets, and entrepreneurs.

It remains for America to make this a reality as Professor Walker demonstrates

so aptly in this book, a scholarly work that will remain the benediction for a

long time to come on the meaning of the black American business tradition.

The prizes already bestowed on Professor Walker for this monumentally important

book are well deserved. Picayune criticism, nonetheless, will surface, and here

I can add my own by pointing to minor errors in spelling or printing: Herman

Perry for Heman ( p. l83) and Marvin Gay (p. 327) for Gaye. The last surname is

also omitted from the index.

In addition in the category of perhaps asking too much of a scholar who already

has done a prodigious amount of research: a fuller exploration is needed

into institutional–church sponsored, black college curricula, and

newspaper–endeavors to foster a black capitalist ethos and support for those

business activities in the African American community. Howard University, for

example, tried desperately in the 20th century to direct attention to commerce,

even exploring establishing a chair for the purpose.

T. Thomas Fortune, the dean of African American journalism in the late l9th and

early 20th centuries (also both a Bookerite and Garveyite) sought to promote

the concept of black capitalism on significant trips through the South and


Finally, while the book is compelling in its thesis, some may find it

circumstantial in the

absence of mastodon direct and systematic data (many times the hidden,

misplaced, or destroyed evidence) showing that African American businesspeople

hit that wall of racism when applying for loans or competing in markets.

Whatever the pundits might argue

, however, the reading audience should know that no effective discussion of the

black community can go on without Professor Walker’s book as a basis for

understanding the peculiarities and promises of Black life in America.

Maceo Crenshaw Dailey, Jr.,

Director, African American Studies Associate Professor, Dept. of History

University of Texas at El Paso El Paso, Texas 79968

Subject(s):Social and Cultural History, including Race, Ethnicity and Gender
Geographic Area(s):North America
Time Period(s):General or Comparative

The Great Population Spike and After: Reflections on the 21st Century

Author(s):Rostow, W. W.
Reviewer(s):Guinnane, Timothy W.

Published by EH.NET (June 1999)

W.W. Rostow, The Great Population Spike and After: Reflections

on the 21st Century. New York: Oxford University Press, 1998. x + 228 pp.

$35.00, ISBN: 0195116917.

Reviewed for EH.NET by Timothy W.

Guinnane, Department of Economics, Yale


The approaching millennium seems to have reminded academic historians, or at

least their publishers, that there is a future. The genre is welcome even if

the intellectual content is often low; Barnes and Noble sells far worse than

the musings of someone who has thought hard about the past 200

years and who wants to speculate about the next 100. This book is an example of

such musings. The first part of the title suggests a focus on the single issue

of population, but the subtitle is more important. The nine chapters of this

book are a set of

reflections on three issues that Rostow thinks will be important in the next

century. The first is the world-wide slowdown in the rate of population growth.

The second is the limited role of the United States in a post-Cold War world.

And the third is the

state of the inner cities in the U.S. Rostow introduces the volume as “an

extended essay on the 21st century” (vii). The connection among these three

themes appears to be that they will all be important issues in the 21st

century. But it might be more ac curate to say that Rostow is primarily

concerned with the power and influence of the United States in the coming

century. The deeper connection among these three themes is the way they bear on

that power.

This book has some interesting, if not novel, contributions and a wealth of

semi-biographical anecdotes that will make it of some interest to scholars

studying the intellectual currents of our time, or perhaps the careers of

academics who had the unusual career path of someone like Rostow.


, to get at these nuggets the reader must wade through far too much restatement

of material that has already appeared elsewhere. Foremost among this unneeded

restatement is Rostow’s famous (or infamous) stages theory of economic growth.

Little here requires the repetition of this argument, but (another) statement

of the argument occupies a long section of the book. A brief appendix suggests

how seriously Rostow still takes it;

he as much as suggests that a correct understanding of the stages model can

help us to predict the experience of the period 1997-2025. Slightly less

frustrating is Rostow’s long digression on the intellectual history of the

limits to growth. This is a condensed paraphrase of his Theorists of

Economic Growth (New York, 1990), and readers who are interested in

Rostow’s views on Malthus, Keynes, and others would more naturally turn to the

book-length discussion.

The actual arguments of the present book are not without interest, even if they

are hardly original. On population Rostow

presents what must be called a surprisingly balanced, informed view. His title

signals that he has grasped a fact that still eludes many alarmists: rapid

population growth today is confined to only a few regions of the world. Rather

than the global population catastrophe feared three decades ago, we seem

headed for a maximum population of about 10 billion people, and in some regions

population has already began to decline in size. He also devotes some

discussion to the serious problems that population growth may still cause in

our world, including environmental degradation and social strains caused by the

inability of some societies to provide sufficient economic and social

opportunities for their population. Rostow deserves credit for a sensible and

balanced approach to this issue. In the world of policy-oriented discussions

of population most writings are little more than dogmatic restatements of the

basic positions of either Paul Ehrlich

(“the sky is falling”) or Julian Simon (“the more people the better”).

The stress on population growth here invites comparison to Paul Kennedy’s

Preparing for the Twenty-First Century (New York, 1993) both in its

general theme and in its (partial) stress on population and population

problems. Rostow and Kennedy both

note that population growth rates accelerated sharply in Europe during the

eighteenth century, and in much of the non-European world after World War II.

The earth now has a population of some six billion people, compared to just one

billion only two centuries ago. Rostow and Kennedy agree that these population

developments set the stage for the twenty-first century, and in many ways

define or exacerbate the problems human societies will face. But the two

authors conceive of population trends in very different ways. Rostow stresses

the prediction of stabilization and the hint of decline. His title, with its


suggests that this largest population of ten billion people will be just

that–a spike, perhaps with important, long-term consequences, but not the

long-term fate of the world in itself. Rostow sees strains in the next few

decades, during which population growth will continue in several societies

ill-equipped to handle its consequences, but his argument is couched in terms

on a passing danger.

Kennedy, on the other hand, is more pessimistic in his assessment of both

population trends and their impact on future social problems. Part of his

pessimism stems from a greater stress on regional problems and the

multi-lateral problems posed by huge disparities in wealth. Rostow

acknowledges these problems but minimizes them as amenable to wise

statesmanship and perhaps a bit of good luck. And part of Kennedy’s pessimism

doubtless reflects his greater stress on environmental problems, problems which

have replaced Malthusian gloom-and-doom accounts among those who point to the

negative consequences of population growth.

A second theme in The Great Population Spike takes us back to the role

for which Rostow is best known, foreign policy. Here he draws

a distinction between the U.S. as a “superpower” (which it no longer is, he

argues) and the U.S. as the “critical margin.” This distinction turns on the

observation that the United States no longer has the power to act unilaterally,

and so must build coalitions of nations to achieve its goals,

and on the related observation that few international efforts in our day can

succeed without the active participation of the U.S. What Rostow calls the

critical margin is of course not new; to take one relevant example,

many observers argue that the Gulf War was a true coalition effort, while the

Vietnam War was not, and that it is Gulf Wars the United States will conduct in

the post-Cold War world. This discussion is the best example of a habit that is

the book’s

strongest and weakest point: Rostow is very inconsistent about citing other,

relevant works on his subject, and often the most recent works cited are

several decades old. Consider chapter seven, which outlines and elaborates on

this idea of “the critical


This chapter includes precious few references to the works of international

relations theorists and the other academics whose business it is to think about

such matters. At the very least, given his career, the reader expects Rostow to

contrast his views with those of a Henry Kissinger or someone else who

experienced the limitations of super power first-hand. Failure to cite much

academic literature from international relations theory might be a good thing,

as anyone who has tried to read through

that morass of Great Powers, Hegemons, and Spheres of Influence probably

knows, but it is difficult for the reader to understand how Rostow’s views

differ from anyone else’s because he does not tell us what others think.

Perhaps Rostow deserves some credit for restraint; unlike Kissinger, whose

memoirs include a great deal of vicious score-settling, Rostow seems content

not to draw sharp contrasts between himself and people who have often been his

harsh critics.

The most novel part of the book is also the most puzzling. By his account,

Rostow has spent the past decade engaged in a project that studies and

advocates preventative measures to deal with the many and considerable problems

facing inner cities in the United States. The reasons for this are somewhat

unusual (Rostow is concerned that urban problems will distract American

interest and resources from its responsibilities as a global power), and even

more unusual is someone of Rostow’s political and intellectual leanings arguing

that inner-city problems are an entirely predictable response to the collapse

of economic opportunity for many residents. Consider the following statement,

which summarizes Rostow’s view of the etiology of inner-city problems:

A powerful converging set of economic and technological forces sharply raised

the level of unemployment in the inner city and simultaneously reduced in the

minds of young men and women future prospects for good jobs.

This perceived narrowing of realistic options led many young people to accept

life on the streets. (p.167)

William Julius Wilson would presumably

agree. Rostow, to be sure, later blames the “neocolonial” welfare system for

exacerbating these problems,

but Wilson would agree with some form of that argument as well. The remainder

of this

section has most of the virtues and faults of the earlier parts of the book.

Rostow clearly cares deeply about this issue, and links it to his overarching

theme (which remains the ability of the U.S. to influence events around the

world). But very little

other work on urban poverty or other urban problems is mentioned, and it is not

clear how much Rostow has done to learn from the enormous, relevant literatures

in economics, sociology, and other disciplines.

In the end, this book is not the place to go for a monographic treatment of

any of its themes, nor does it provide a useful introduction to current

research in any of the areas it covers. Much of it consists of repetitions of

material and arguments Rostow has published elsewhere. The book is quirky,

uneven and not very scholarly, and its author seems to presume that few other

scholars are writing anything worth reading. Yet the book will be of use to

some, primarily because of the role its author has played in intellectual and

policy circles over the

past 50-plus years. Free-form musings such as those contained here tell

usually tell us more about their author than the future, and the author here is

of considerable interest.

Timothy W. Guinnane is Professor of Economics at Yale University. He is the

author The Vanishing Irish: Households, Migration, and the Rural Economy in

Ireland, 1850-1914- (Princeton University Press, 1997), and is currently at

work on a book about the development of Germany’s credit cooperatives.

Subject(s):Economywide Country Studies and Comparative History
Geographic Area(s):General, International, or Comparative
Time Period(s):General or Comparative

The International Origins of the Federal Reserve System

Author(s):Broz, J. Lawrence
Reviewer(s):Wheelock, David C.

Published by EH.NET (June 1999)

J. Lawrence Broz. The International Origins of

the Federal Reserve System. Ithaca: Cornell University Press, 1997. xiii

+ 269 pp.

$35,ISBN: 0-8014-3332-0.

Review for EH.NET by David C. Wheelock, Federal Reserve Bank of St. Louis.

Why was the Federal Reserve System established? The common view is that the

Fed was established as a public good to correct deficiencies in the U.S.

banking and payments system that made the system inefficient and prone to

crises. Reform proponents blamed crises on the nation’s “inelastic currency”–

stocks of currency and bank reserves that did not adjust with seasonal or

cyclical fluctuations in demand, let alone in response to bank runs. Other

proponents of reform pointed to the difficulty of making inter-regional

payments, citing long delays and high costs associated with the clearing of

checks and drafts. Still other reformers decried the concentration of bank

reserves in the central money markets and the investment of correspondent

balances in stock market call loans. A less import ant goal of reformers, the

traditional view argues, was to promote use of the dollar in international

trade and finance.

J. Lawrence Broz argues that the goal of promoting the dollar as an

international currency was in fact the primary consideration of reform

proponents, and that reform was achieved only by alignment of strong private

interests for promoting international usage of the dollar with the general

public interest of improving the stability of the U.S. payments system. The

establishment of the

Federal Reserve System thus fits a “joint products” model, in which

institutional change produces a public good, but occurs only because of the

efforts of a narrow interest group seeking private gain.

The United States’ share of world exports, particular ly of manufactured goods,

rose during the last decades of the nineteenth century, and by the early

twentieth century the Untied States enjoyed an increasingly persistent current

account surplus. Despite these gains, the dollar was not used widely in inter

national commerce because, Broz contends, U.S. banks were prohibited from

issuing bankers acceptances to finance international trade and the U.S. lacked

a central bank with the power to create liquidity as needed by re-discounting

commercial paper. Because the dollar was not an international currency,

American exporters faced exchange risk and high transactions costs, while

American banks were largely shut out of the market for financing international

transactions. A coalition of leading bankers and manufacturers thus developed

with the goal of enhancing the dollar’s role as an international currency by

reforming American banking laws and institutions.

For the dollar to be acceptable to international markets, the stability and

efficiency of the U.S. banking and payments system had to be enhanced.

Thus, the interests of large U.S. banks and exporters aligned with the public

interest generally. The creation of the Federal Reserve System, Broz argues,

was an institutional reform that was consistent with both sets of interests.

Various alternatives for improving the domestic payments system, such as

adoption of nationwide branch banking, were insufficient to meet the interests

of internationally-oriented bankers and businessmen, and hence failed

to inspire a

strong coalition to push for their adoption.

Broz points to two features of the Federal Reserve Act that were crucial for

gaining acceptance of the dollar for international payments. First, the act

permitted U.S. banks to issue bankers acceptances to finance foreign trade.

Second, the act established facilities to re-discount acceptances and other

commercial paper, thereby adding depth and liquidity to the U.S.

money market. Other features of the legislation directly benefiting large banks

included a reduction of reserve requirements and authority for banks with

capital of at least $1 million to establish foreign branches. The legislation

thereby solved, apparently, the problems of an inelastic currency and an

inefficient payments system, while promoting the dollar’s use as an

international currency.

While the fundamental reforms embedded in the Federal Reserve Act provided the

key ingredients for promoting the dollar as an international currency,

specific features of the Act reflected give and take among various private and

public interests. Banks outside the central money market, for example,

were strong proponents of a currency backed by commercial paper, while New York

City bankers by and large preferred a currency backed by government bonds.


outside New York City also favored a decentralized system that limited the

ability of New York City banks to dominate. Bankers in general and many in

Congress favored a system controlled by banks themselves, but the Wilson

Administration, and especially

William Jennings Bryan, pushed for strong public oversight in the form of a

Federal Reserve Board. The Federal Reserve System was the product of compromise

at every stage and detail.

Broz supports his study of the origins of the Federal Reserve by examining how

well the founding of other central banks fit his joint products model.

The central banks he considers are the Bank of England, and the First and

Second Banks of the United States. In contrast to the Federal Reserve, each of

these banks was created

in part for government revenue. In exchange for providing loans on favorable

terms to the government, the owners of the banks were granted certain monopoly

privileges. The Bank of England was given a monopoly over note issuance, while

the First and Second Banks of the United States profited as the government’s

fiscal agents, as well as from their unique ability to branch nationwide. Broz

argues persuasively that the Bank of England survived, while the two U.S. banks

did not because in the United States federalism created a potent political

opposition that could be exploited by private enemies of the central bank.

While Andrew Jackson’s militant “hard money” philosophy explains his opposition

to the Second Bank, Wall Street bankers also sought to kill the

Bank on the grounds that its monopoly position as the government’s fiscal

agent gave the Bank advantages that state-chartered banks did not have.

I find little to quibble with Broz’s explanation of the origins of the Federal

Reserve System. Clearly the

most ardent proponents of establishing a central bank, especially the New York

bankers, sought to establish a major international money market in the United

States and to promote the dollar in international commerce and finance. There

was, however, strong

opposition to the establishment of a “central bank,” particularly one dominated

by New York bankers, and key players in shaping the Federal Reserve Act, such

as Carter Glass, William Jennings Bryan and Woodrow Wilson, sought to limit the

influence on the

System of New York banks.

Nonetheless, Broz has persuaded me that establishment of the Federal Reserve

required the ongoing support of leading banks and others who sought to firmly

establish the U.S. dollar as an international currency. I highly recommend

this book for anyone interested in either the history of the Federal Reserve or

other central banks, or for those interested in the origins of institutions and

institutional change more broadly.

David C. Wheelock is Assistant Vice President and Economist at the Federal

Reserve Bank of St. Louis. His research interests are the history of the

Federal Reserve System and other monetary policy institutions, and the

regulation and performance of commercial banks.

Subject(s):Financial Markets, Financial Institutions, and Monetary History
Geographic Area(s):North America
Time Period(s):20th Century: Pre WWII

The Economics of the Great Depression

Author(s):Wheeler, Mark
Reviewer(s):Wicker, Elmus

Mark Wheeler, editor, The Economics of the Great Depression. Kalamazoo,

MI: W.E. Upjohn Institute for Employment Research, l998. 220 pp. $25

(cloth), ISBN 0-88099-192-5; $15 (paper), ISBN 0-88099-191-7.

Reviewed for EH.NET by Elmus Wicker, Department of Economics, Indiana


The Great Depression of the nineteen thirties remains perhaps the most

enduring economic enigma of the twentieth century despite the voluminous

literature it has generated.

There have been two general approaches to the study of the Great Depression: as

a specific country phenomenon and as a global even t.

Friedman and Schwartz (1965) preferred the former and concentrated on the U.S.

Charles Kindleberger (1973) and, more recently, Barry Eichengreen

(1992) have preferred the latter.

The occasion for this book was a series of six lectures given during the

academic year 1996-97 at Western Michigan University. The editor boasts that

these essays take a fresh approach to the study of the Great Depression, but it

is not always easy to detect wherein that “freshness”


Four of the six papers continue

the specific country approach: Robert Margo reexamines the U.S. labor market in

the thirties; James Fackler constructs and tests a macroeconomic model of the

U.S. for the l921-37 period, and Michael Bernstein attempts to revive a version

of the economic maturity hypothesis popular in the post World War II period.

David Wheelock links events in the Great Depression to the inflation bias of

the Fed and the ultimate collapse of the Bretton Woods international monetary


Carol Heim’s essay is the

only paper specifically global in scope. It examines the incidence of the Great

Depression in the U.S., the U.K. and in some less developed economies including

Latin America, India, China, and Japan.

If the Great Depression was a global event, it rarely

has received systemic and extensive treatment across continents. We know more

about what happened in the U.S. and Europe than we do about what happened in

Japan, China,

India and Africa. Carol Heim has performed yeoman service by drawing our

attention the

differential impact of the Great Depression across continents, among nations

and among industries within individual countries.

Heim begins by contrasting the depression’s impact on the U.S. and the U.K.

Great Britain, unlike the U.S., suffered from an industrial malaise during

1920s. The Great Depression simply exacerbated the situation. Still some

industries continued to grow while others declined, but labor failed to move

away from the depressed areas. In the U.S. the South managed to improve its

relative, if not its absolute, position partly as a consequence of labor

migration and the effects of the New Deal.

Heim breaks new ground when she describes the impact of the Great Depression on

the less developed countries. Japan continued to grow, while China does not

seem to have been affected. Heim attributes the moderate effects of the Great

Depression on the less developed countries to the

“delinking” of domestic currency from the international economy. Resources were

shifted from the export to domestic industries thereby stimulating economic

development. This is an interesting hypothesis which needs to be worked out

more fully than what was possible in a short lecture. The Great Depression as a

stimulus to economic growth in the less developed countries is a “fresh” and

provocative idea.

The other five papers treat the Great Depression as a specific country event.

James Fackler constructs an econometric model of the U.S. economy for the

period 1921-37. It is a variant of the standard aggregate demand

/aggregate supply with IS and LM underpinnings. His purpose is to attempt to

differentiate between alternative propagation mechanisms. He identifies three:

a decline in the money stock (Friedman and Schwartz),

autonomous changes in consumption (Temin) and

the debt-deflation or credit view (Fisher and Bernanke). Fackler recognizes

the they may not be mutually exclusive. It is doubtful how much we have learned

from this exercise.

Alternative propagation mechanisms can not be ruled out. The “best,” he

surmises, appears to be a shock to the IS curve whose source, however, can not



Robert Margo’s paper is more modest in its aspirations but, nevertheless,

makes two “fresh” contributions to the behavior of the labor market during the

Great Depress ion. He presents new evidence about the labor participation rate

of wives of husbands on WPA projects and the effects of the Great Depression on

income distribution. Using microeconomic data Margo refutes the “added worker

effect” hypothesis–that other family members have an incentive to seek

employment when the head of household becomes unemployed. What he finds is that

the WPA inhibited the wives of husbands on WPA from seeking a job. Even if

wages were relatively low on WPA projects, they were still better than what

married women could earn.

Margo’s conclusion that WPA work was essentially full time and excluded job

search is consistent with the Lucas-Rapping (1972) model of the Great

Depression where the labor market is presumably in continuous short

-term equilibrium.

Margo also questions the conventional wisdom that the Great Depression helped

to produce a more egalitarian distribution of income. This did not happen

because earnings differentials widened between skilled and unskilled

workers–the decline in hours worked was greater among the unskilled. By 1939,

however, the differential had returned to what it had been in the late 1920s.

Instead, a substantial decline in the inequality of wages occurred between 1940

and 1950.

The papers of Wheelock and Cecchetti are less concerned with the causes of the

Great Depression than with its legacies. Wheelock maintains that institutional

change spawned by the Great Depression imparted an inflationary bias to

monetary policy and completely undermined any

lasting commitment to the gold standard which led inevitably to the rejection

of the Bretton Woods agreement in 1971. He concludes correctly that the Fed’s

commitment to the full gold standard was weakened by gold sterilization in the

twenties, the priority of domestic stabilization objectives, a reluctance to

raise rates in 1931, and the final abandonment of gold temporarily in 1933. It

was not the Great Depression that weakened the U.S.

commitment to the gold standard but the realization when “push comes to shove”

exchange rate rigidity must be subservient to domestic stabilization


Cecchetti derives three lessons of the Great Depression for current policy:

the central bank’s function as lender of last resort is of primary importance,

deflation is extremely costly, and the gold standard is very dangerous! One

lesson that we should have learned, but which Cecchetti omits, is that the

initial structure of the Federal Reserve (as embodied in the original Federal

Reserve Act) was faulty. All banks were not required to become members thereby

excluding those banks that later were in most need of Federal Reserve support.

A faulty Federal Reserve Act and not inept management was the primary cause of

the Fed not having done more.

Bernstein eschews the relatively short-run view of the Great Depression. He

prefers an explanation couched in terms of secular changes in technology and

shrinkage of investment outlets that bears a strong resemblance to the older

theories of Kalecki, Schumpeter, and Hansen.

The key is to be found in the concept of industrial maturity which he derives

from the work of the Austrian economist Joseph Steindl (1976). In the Steindl

version there were long-run tendencies toward capital accumulation in

capitalist development which

led to diminished competition and investment. Bernstein acknowledges that

Steindl’s explanation does not have the unequivocal support of the historical


There is no simple interpretation of the Great Depression to which these six

essays point.

Nor do they make any pretense at summarizing the state of the art. They

represent a combination of singular efforts to come to terms with specific

problems. Some are more successful than others.


Barry Eichengreen. Golden Fetters: The Gold Standard and the Great

Depression, 1919-1939. New York: Oxford University Press, 1992.

Milton Friedman and Anna Jacobson Schwartz, The Great Contraction,

1929-1933, Princeton: Princeton University Press, 1965.

Charles P. Kindleberger. The World Depression, 1929-1939. Berkeley:

University of California Press. 1973.

Robert E. Lucas and Leonard Rapping. “Unemployment in the Great Depression:

Is There a Full Explanation?” Journal of Political Economy, 80, 1972,


Joseph Steindl, Maturity and Stagnation in American Capitalism, New


Monthly Review Press, 1976.

Elmus Wicker is Professor of Economics, Emeritus at Indiana University. He is

the author of Banking Panics of the Great Depression, Cambridge

University Press. 1996, and Banking Panics of the Gilded Age, Cambridge

University Press, forthcoming.

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

Daimler-Benz in the Third Reich

Author(s):Gregor, Neil
Reviewer(s):Mierzejewski, Alfred C.

Published by and EH.Net (May 1999)

Neil Gregor. Daimler-Benz in the Third Reich. New Haven: Yale, 1998.

xii + 276 pp. Bibliography, and index. $30.00 (cloth), ISBN 0


Reviewed for and EH.NET by Alfred C. Mierzejewski,

Athens State University.

Neil Gregor has written the best history to date of Daimler-Benz (DBAG)

under the Nazi regime. It is an interesting work with

much informative detail. Gregor did extensive research in the Mercedes-Benz

archive and public repositories such as the Federal Archives (Bundesarchiv) in

Koblenz and the Central Office of the State Justice Administrations (Zentrale

Stelle der Landesjust izverwaltungen) in Ludwigsburg. He consulted the right

sources and bases his work overwhelmingly on the personal papers of Wilhelm

Kissel and Wilhelm Haspel, the men who lead the management board of the company

during the Nazi years. The conclusions that

Gregor reaches are credible. However, his analysis is not without weaknesses.

Gregor’s major finding is that Daimler-Benz pursued its own corporate

self-interest throughout the period of Nazi rule. He shows clearly that,

except for the period from the failure of Operation Barbarossa (the Nazi

invasion of the Soviet Union) in December 1941, to the defeat at Stalingrad in

February 1943, the company consistently anticipated a short war.

Consequently, it attempted to retain a core of consumer products to facilitate

the transition to a peacetime economy. It struggled to continue production of

passenger automobiles even after the war began so as to maintain the production

lines devoted to them. It especially fought to protect its cadre of skilled

workers who were needed to produce cars at the level of quality that

management thought necessary to preserve the aura of the Mercedes-Benz name.

When the company consented to build the three liter Opel Blitz truck in 1944,

it did so to position itself for the post-war market. Already, the management

of DBAG expected that the war would be over in the foreseeable future and that

Germany would lose. It anticipated a large market for trucks due to the need to

rebuild Germany’s heavily bombed cities. It also agreed to build the product

of one of its competitors in order to learn about Opel’s manufacturing


Gregor demonstrates that DBAG was reluctant to invest in additional plant to

fill military contracts due to its fear of being left with excess capacity

after the end of the war. He contends that the company used labor,

including slave labor, as a substitute for capital investment. This reduced the

burden on its balance sheet and lead to the barbaric exploitation of its

employees, especially those from Eastern Europe who worked for the company

against their will. Put differently, Daimler-Benz used slave labor only to

survive in the short-term. It could rid itself of these laborers easily after

the war and it could use them to produce military aircraft engines

and other war related products while conserving its skilled German workforce,

concentrated in its plants in western Germany, for the resumption of peacetime

production. Gregor demonstrates that the failure of the German armed forces

before Moscow in December 1941 marked an increase in the brutalization of

DBAG’s workers. At this point, the company concluded that a long war was in the

offing and resolved to increase military output, without, however, burdening

itself with capital that would be superfluous

to peacetime needs. It increased output by driving its employees harder and

demanding more foreigners and slaves from the government. Gregor is careful to

point out that the influx of foreigners did not alter the company’s basic

reliance on skilled labor

. As a corollary to this, Gregor shows that Daimler-Benz never developed a

strategy for seizing factories in the areas conquered by the Wehrmacht. Rather,

it was interested in the skilled labor available from its competitors in

occupied France and took responsibility for factories in Austria and the East,

in large measure, to keep them out of the hands of competitors like BMW. In

short, the DBAG was not a co-conspirator in a grand imperialist enterprise.

In his introduction, Gregor raises a number of issues that he hopes to

illuminate by looking at Daimler-Benz during the war. He attempts to shed light

on why the West German economy recovered so strongly after the war.

He deprecates the Zero Hour (Stunde Null) myth, contending that the same

companies that dominated German manufacturing before the war dominated it

afterwards. He claims that Daimler-Benz came out of the war with comparatively

little damage. Consequently, it was well positioned to resume operations in the

peacetime market. Based on his description of the rationalization of

production processes during the 1920’s and again during the 1930’s, combined

with the additional changes required by the war, he concludes that the rapid

post-war recovery was due to these earlier advances, not to a post-

war miracle. The key, for Gregor, was continuity.

As far as he goes, Gregor is correct. Yet, the recovery of the post-war West

German economy was the result of other factors as well, some of them much more

important than the improvements that he discusses

. Shortly after the war, Ludwig Erhard realized that the obstacle confronting

the west German economy was not so much a lack of goods or the means to produce

them, as an excess of government regulation and the threat of the destruction

of the surviving production apparatus by the Allies seeking reparations. It

can be argued that the single most important factor in the West German

recovery, and the factor that distinguished events in the west from what

happened in the east, was Erhard’s almost complete abolition of state

restrictions (Zwangswirtschaft) on domestic economic activity in June 1948.

Without this step, no managerial or technological advances would have sufficed

to restore West Germany to prosperity.

Gregor also addresses the modernization debate triggered by Rainer Zittelmann.

Zittelmann contends that modernization is a value free concept.

Therefore, it is conceivable that even the Nazis, however loathsome their

policies may have been, contributed to the modernization of German society.


rejects this claim. He demonstrates that Nazi policies did not assist the

modernization of German industry with a detailed discussion of DBAG’s

introduction of new machines and new management techniques. He correctly points

out that these changes conformed to pan-European trends.

He especially emphasizes how the war accelerated the change in the way that

Daimler-Benz compensated its employees. The company shifted from a socially

oriented system that took into account the worker’s family status and age to

one based on pay for production. While Gregor implicitly criticizes this trend

on moral grounds, he does show that management sought to conform more closely

to market signals in valuing the output of its workforce. In the opinion of

this reviewer, the en tire discussion of the modernization debate could have

been omitted. Clearly, Zittelmann and the other German scholars who have

followed him have missed the point. Modernization is a culture bound concept

with no universal meaning. From an economic standpoint, what produces the

largest volume of goods demanded by consumers at the least cost is the best.

The machines that equip factories, contrary to the fantasies of many German

engineers, need not be the newest. The standard of measurement is the

satisfaction of consumer wants, not an arbitrary definition of modernity.

Gregor also discusses the issue of Blitzkrieg economics. This concept,

developed by the United States Strategic Bombing Survey, Nicholas Kaldor,

one of its members, and Alan Milward, holds

that low German armaments production before February 1942 was due to a lack of

demand on the part of the Wehrmacht. According to this interpretation, Hitler

planned a series of short, sharp wars that would conquer economically valuable

areas in Europe while placing little burden on the German population. Hitler

allegedly based this strategy on the mistaken belief that Germany had lost

World War I due to a failure of morale among the German civilian population,


“stab in the back.” Gregor rejects the Blitzkrieg economics interpretation and

the notion that the economic history of Germany during World War II can be

conveniently divided into two halves: one before and one after Albert Speer.

Instead he agrees with Rolf-Dieter Mueller, that the low product ion of the

early war years was the result of bureaucratic confusion on the part of the

German military. He notes that the expansion of armaments production began

before Speer was appointed minister of armaments and munitions. He also

contends that overall

economic reform, the elimination of confusion caused by the military, was more

important in increasing production than changes on the shop floor. He agrees

with Richard Overy that Hitler planned for a big long war.

Why Gregor addressed this problem is not clear. The Blitzkrieg economics

debate was settled over a decade ago. Milward has abandoned his earlier

position and, ironically, Mueller and other authors, including this reviewer,

have shown the serious flaws in Overy’s alternative explanation.

It is

clear from an examination of the relevant German documents that Hitler planned

a big short war, fully in the tradition of Frederick the Great, Moltke the

Elder and Schlieffen. In addition, Gregor presents no evidence to show that

reform of the government

economic administration was more important than changes to production

processes in improving efficiency. Here Overy and this reviewer, using evidence

from the United States Strategic Bombing Survey and other sources, demonstrate

that efficiency gains on

the factory floor were very significant. Gregor is on safer ground when he

contends that bureaucratic political competition replaced the market in

steering the Nazi economy. This reviewer’s own research concerning the German

National Railway confirms his


Indeed, if one takes a market oriented approach, rather than Gregor’s Marxist

one, one would not be surprised that Daimler-Benz pursued its own interests

even in this changed environment. This is precisely what both neoclassical and

Austrian theory would have us anticipate.

Gregor also makes a series of claims concerning the company’s policies towards

its workers that are equally difficult to accept. He contends that DBAG’s

rationalization of production methods was primarily a social control effort

intended to prevent conflict during the 1920’s, when, as he puts it,

“capitalism was becoming increasingly crisis-prone.” However, if viewed from a

different perspective, the Depression in Germany, to which he alludes, could

just as easily be seen as

the crisis of a heavily regulated,

partially socialized economy in which the market already played a limited role.

Daimler-Benz’s rationalization measures could be seen simply as efforts to

reduce operating costs in the face of government mandated pay increases and

serious competition in the automobile market. Gregor bemoans the fact that the

company took advantage of the Depression to reduce wages.

Yet, if viewed from a market perspective, it could also be contended that this

was precisely what management should have done since the workers’

remuneration was excessive in comparison to the value that they added to the

company’s products. Gregor goes further and contends that all of the

productivity gains registered both between the wars and during the war

came at the expense of the worker. He offers no detailed economic analysis to

support this claim. At the same time, he ignores the very serious argument made

by Knut Borchardt that industrial wages in Germany were too high during the

1920’s, hurting German competitiveness and weakening corporate finances.

Unintentionally, by showing how Daimler-Benz reacted to the challenge of the

Depression and the war, Gregor provides evidence that Ludwig von Mises’s theory

of how companies react to market signals is correct. The analysis provided by

Gregor also lends credence to the argument that the Third Reich was not the

product of a capitalist conspiracy.

Surprisingly, in light of his discussion of historiographical issues in his

introduction, Gregor overlooks literature that is directly relevant to his

thesis. In the latter part of his book, he repeatedly discusses the effects of

Allied bombing on Daimler-Benz and the more general effects of the air

offensive. He concludes that the impact of Allied bombing was limited.

However, he states that it did have an important effect on the attitudes of the

DBAG’s management and that production was hampered by transportation

difficulties. He makes the latter statements without having consulted the

relevant literature, most

especially the report on the transportation bombing produced by the US

Strategic Bombing Survey and this reviewer’s 1988 study. Had he consulted these

works, Gregor would have gained a clearer picture of how production could have

declined so dramatically

without the loss of many machine tools. The dispersal that he discusses in

great detail actually made Daimler-Benz and German industry in general much

more vulnerable to the disruption of transportation by bombing.

More importantly, Gregor does not discuss adequately three books that directly

address his subject. He mentions Bernard Bellon’s Mercedes-Benz in Peace and

War briefly in just two footnotes. Bellon’s last chapter in particular

provides information on DBAG’s use of slave and forced labor that is a very

useful supplement to Gregor’s discussion. Gregor also makes only a brief

comment in a note on Hans Pohl’s official history of the company during the

war. Pohl’s work suffers from very serious flaws and Gregor would have done

well to have exposed them and to have shown how his own work is superior.

Finally, Gregor only mentions briefly in a note Das Daimler-Benz Buch

published by a Marxist collective in Hamburg. While this book offers a

distorted interpretation, it does provide valuable detail concerning labor

conditions in the company’s plants.

Finally, this reader at least would have welcomed a few tables summarizing the

output of selected products, corporate operating results and the corporate

balance sheet. If Daimler-Benz actually pursued its self-interest, as Gregor

indeed shows, and since it was a private company,

having the latter two in particular would have been very helpful.

Neil Gregor has written an interesting book that can be read with profit while

ignoring its theoretical underpinnings. Ironically, Daimler-Benz comes off

surprisingly well in his account. He shows that DBAG was not a Nazi company, it

merely pursued its narrow corporate interest. Gregor’s most serious criticism

of the company, which he never states explicitly,

is that it did indeed protected its own interests when it should have

displayed more civil courage and served the common good. Yet, this implied

criticism is itself the product of a misunderstanding of how private enterprise

functions, of how self-interest can prevent the excesses of regimes which,

like the Nazis, pursue the common good (Gemeinwohl) with monstrous results.

Subject(s):Business History
Geographic Area(s):Europe
Time Period(s):20th Century: WWII and post-WWII

Oil and the Arab-Israeli Conflict, 1948-63

Author(s):Bialer, Uri
Reviewer(s):Gross, Nachum

Published by EH.NET (May 1999)

Uri Bialer, Oil and the Arab-Israeli Conflict, 1948-63. New York:


Martin’s Press and Oxford: Macmillan Press, 1999. vii + 282 pp. $69.95

(hardback), 0-312-21284-4.

Reviewed for EH.NET by Nachum Gross, Department of Economics, The Hebrew

University of Jerusalem.

This fascinating and intriguing book rightly claims to contribute to the field

of international political economy. It describes and analyzes in considerable

detail Israel’s oil diplomacy during the first fifteen years of statehood, and

the extremely adverse circumstances under which the country’s energy supplies

were procured. At the time, petroleum was the only practical source of energy

for Israel’s rapidly growing population and its expanding and modernizing

economy. As such, it was no less a basic existential problem than the

supply of armaments. However, despite almost crippling financial limitations,

the chief constraints in obtaining crude oil and its refined products were

political. Governments and the major oil companies, primarily British and

American (and later the Soviets and the Iranians, too) viewed the issue

predominantly from the perspective of the Arab-Israeli conflict. In view of the

Arab countries’ role as the Western world’s major oil suppliers, their

strategic location, and their potential as developing markets for manufactures

and other goods (in contrast to Israel’s negligible weight as a market), it is

in a sense surprising that Britain and its oil companies did not abandon Israel

entirely–as they almost did in the mid-1950s.

Nevertheless, Israel pursued

an ambitious oil policy, whose aims extended well beyond the supply of minimal

civilian and military requirements. It sought to reestablish the Haifa oil

refinery (a British enterprise, in operation since 1939) as a supplier of

domestic demand (to include

a newly-established petrochemical industry) and of export-earned foreign

exchange. For these purposes the pipeline from Iraq to Haifa was expected to be

reactivated and/or the Suez Canal opened for tankers serving Haifa.

Moreover, the Israeli government

repeatedly tried to break the monopolistic price structure imposed on the

domestic oil market during the British Mandate regime, and to abolish the

tax-exempt status of the foreign oil companies. Only few of these goals were

achieved. The long-run policy

aim was to rid Israel of its dependence on a small number of leading British

and American oil companies and to diversify its sources of supplies.

The present study traces the successes and failures of these endeavors. It is

based on recently declassified

records from Israeli, British and US archives. In this case especially,

contemporary sources were almost silent on the painful limits of Israel’s

capability to translate political sovereignty into independence from the

international oil companies, whose interests coincided with their respective

countries’ dominant strategic interests. Moreover, from its earliest days

Israel was handicapped by “an almost total lack of familiarity with the

international oil business and the world of oil diplomacy” (p. 31),

and even twenty years later such experience and expertise were the province of

a mere handful of

“initiates.” It was thus relatively easy to preserve the desired secrecy

regarding oil supplies, since secrecy was also an integral part of the modus


of the oil companies. This book is therefore more revealing

(and at times surprising) than most other contemporary history works.

Regrettably, this feature also tempts the author to relate parts of the story

in excessive detail.

In mid-1950 Israel seemed to have finally circumvented the Arab oil blockade.

The British companies agreed to operate the Haifa refinery at partial capacity,

using Middle Eastern oil from non- member countries of the Arab League to

satisfy Israeli demand, despite doubts with respect to the enterprise’s

profitability. All that had been achieved, however, relied on temporary

arrangements, without redress of Israel’s grievances regarding prices, taxes

and foreign exchange earnings or guaranteed supplies for the petrochemical

industry. Subsequently, the foreign companies marketing in Israel even agreed

to the establishment of an Israeli-owned corporation which would gradually be

allocated up to 30% of the domestic market. But the British owners of the

refinery adamantly refused to invest in its modernization and diversification.

Gradually Israel also managed to acquire oil business know-how and connections,

to diversify its supplies by closing independent deals with Russia and Iran,

and to somewhat improve its relations with the foreign companies operating

domestically. However, the Israeli market became commercially less and less

attractive, and outside developments–chiefly the 1956 Suez-Sinai

campaign–weakened the political will to stay in it.

Thus, during 1954-1957 the oil companies decided one by one to sell off their

interests in Israel and leave the country. This process culminated in the 1959

agreement to sell the Haifa refinery to the Israeli government.

While this process must be viewed as an Arab League success, it did

not result in blocking Israel’s oil supplies.

The crucial new factor was a series of oil supply agreements with Iran,

made possible once the Anglo- Iranian dispute following the nationalization of

Iran’s oil industry was settled. The chapters describing

the formation of Israel’s “petroleum link” with Iran, which analyze its


complications, and the varied political interests involved, are the most

fascinating and innovative in this volume. This link was related to developing

the Red Sea port of

Eilat into an oil depot, constructing pipelines from there northward,

eventually to Haifa, and thus opening a new oil supply route (of Iranian crude

and of Haifa-refined products) to Europe. Iran was even willing to underwrite

part of the cost of the Eilat-Haifa sixteen-inch pipeline. The US in effect

guaranteed secure shipping in the Gulf of Aqaba, and Iranian war ships

discreetly escorted Israeli tankers in the Persian Gulf.

The book ends with the very favorable agreement with Iran in May 1963.

Although its almost total dependence on a single oil supplier was a drawback,

Israel’s position in the international oil business had apparently been

secured, and was even strengthened after the 1967 closure of the Suez Canal. As

the Epilogue points out, however, subsequent events,

chiefly the 1973 war, reopening of the Suez Canal and the fall of the Shah of

Iran in 1978 virtually wiped out these achievements. The Sisyphean labor of

securing Israel’s energy supplies had to start all over again. The next

installment of the story awaits the declassification of the relevant archives,


will hopefully be addressed again in Bialer’s exemplary manner.

Nachum T. Gross is professor emeritus of economics (economic history) at The

Hebrew University of Jerusalem, and for the past 30 years has studied the

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