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Female Economic Strategies in the Modern World

Reviewer(s):Arthi, Vellore

Published by EH.Net (April 2013)

Beatrice Moring, editor, Female Economic Strategies in the Modern World. London: Pickering and Chatto, 2012. xiii + 201 pp. ?60/$99 (hardcover), ISBN: 978-1-84893-350-7.

Reviewed for EH.Net by Vellore Arthi, Faculty of History, University of Oxford.

In Female Economic Strategies in the Modern World, Beatrice Moring and her contributors add to ongoing debates on women?s work and wellbeing, compiling varied but thematically linked historical accounts of female survival.

Moring, in her introduction, argues that women were more resilient and had greater access to diverse survival strategies than is traditionally assumed. The eight cases presented in the chapters that follow suggest, perhaps less optimistically, that women faced grim realities fraught with uncertainty. Indeed, even where they found the means to get by, women rarely enjoyed stability, comfort, and upward mobility.

While these studies hang together rather loosely, and examine women?s lives through broad-ranging sources and contexts, they reveal striking similarities in female economic strategies. The thematic patterns that emerge ? for instance, reliance on interpersonal networks or the importance of housing-sharing ? emphasize women?s creativity and self-sacrifice as engines of survival, and patriarchal ideology, gender-segregated labor markets, and institutional barriers to women?s autonomy as impediments to their wellbeing. Below, I provide a brief look at some of these patterns in the contexts of propertied women, working-class women, and women in today?s developing world.

Unique among the contributions to this volume, and indeed, rare in studies of women?s welfare,
Marie-Pierre Arrizabalaga and Margareth Lanzinger examine the fates of women of means.

Arrizabalaga shows how unusual, gender-equitable inheritance patterns in French Basqueland provided sisters and brothers fairer footing than in many contemporary European societies, but nevertheless resulted in gender-distinct migration patterns for non-inheriting siblings ? patterns which reflected customary norms, gender segregation in occupations, and persistent gender gaps in returns to human capital. Non-inheriting men frequently moved abroad, with the American West a popular destination. Women, on the other hand, preferred to move to cities near their family home, so as to capitalize on plentiful employment and possible marriage opportunities there, to be nearer to their kinship and social support networks, and to avoid the hardships of American frontier life. While overseas migration represented a high-return option for women, they were less prepared than their brothers to accept the concomitant risks, and chose instead to have lower-status but more stable lives closer to home.

Lanzinger, too, examines the consequences of eighteenth-century Austrian women?s institutionally-determined relationship to property. Notably, she spotlights marital property law, a little-studied corner of property law. Using marriage contracts to contrast the rights and options afforded women under varying property and inheritance systems ? including those that pooled and those that separated the property brought into and amassed during marriage ? Lanzinger finds that women?s outcomes were highly context-dependent, shaped overwhelmingly by gender and relative wealth at marriage. While Lanzinger does not comment on the larger implications for marriage-market and intra-household bargaining, given the unique variation in property regimes described in her sources, such topics would make particularly promising avenues for future research.

Other contributors focus on more familiar topics in working-class households.

The sharing of housing recurs in these accounts as both a means of earning income and cutting costs. Lola Valverde Lamfus, studying nineteenth- and twentieth-century Guipuzcoa, Spain, notes that when the tourism industry in San Sebastian drove up housing prices, living with extended family and taking in lodgers became attractive strategies for women. Susannah Ottaway finds that in eighteenth-century England, vulnerable women coped with isolation and high living costs by sharing housing, whether with their grown children or with strangers, and by drawing on their social networks for support. Indeed, among these poor groups, for whom cohabitation offered a measure of freedom and was thus preferable to the workhouse, unrelated women were often found living together in the same houses, and, more intriguingly, nearby each other in ?widow-spinster clusters.? Similarly, Moring finds that both lodger-taking and cohabitation in bargain housing were popular in the twentieth-century Finnish context. Such findings are fascinating not only because they suggest female-headed households were often too poor to afford independent housing, but also because they imply a disconnect between the supply and demand for housing, between rents and incomes, between dwelling sizes as constructed and household sizes as they naturally occurred.

Contributors agree less on questions of poor relief. Richard Wall, for instance, finds that poor English widows secured reasonable diets and living standards equivalent to those of young laboring households, due not only to these women?s freedom from male consumption dictates, but also to Poor Law assistance. While he and Ottaway present a more benign view of poor relief in England, legal and institutional barriers loom large in Anne-Lise Head-K?nig?s story of twentieth-century Swiss widows. Restrictions on internal migration, in combination with laws mandating both self-reliance through work and financial support from unfamiliar and distantly-related kin, evoke a draconian state that provided limited social support. Furthermore, unsympathetic policies ? such as those that sent female poor relief-seekers to ancestral cantons in which they had few social networks ? often complicated women?s circumstances. Over time, however, laws became more attuned to the realities confronting single, widowed, and elderly women, with particular improvement in the situation of older widows following the implementation of post-World War II pension programs.

In contrast to the post-war policy success discussed above, Ver?nica Villarespe Reyes and Ana Patricia Sosa Ferreira describe the failure of policy in modern Mexico to disrupt systemic gender barriers. As emerges frequently throughout the book, in Mexico, too, male breadwinner ideology constrained women, revealing cultural and labor market resistance to female financial independence. In such a society, the authors argue, Progresa-Oportunidades, a conditional cash transfer program designed to raise schooling levels and predicated on patriarchal notions of motherhood and housekeeping, served to exacerbate gender gaps in the labor market and entrench the very factors (e.g. rigid gender roles, lack of support for working mothers) keeping women ? and indeed entire families?poor.

This chapter presents one of the more provocative arguments in the book. The authors? critique of Progresa-Oportunidades as conceptually flawed, on the grounds that its conditions reinforce regressive gender divisions, is strong. However, they do not address or investigate the policy?s actual impacts as these align with its stated goals. This oversight is of special concern since many evaluations of the program, such as those conducted by the International Food Policy Research Institute, have hailed its effectiveness in improving child health, nutrition, and schooling outcomes.[1] By examining program results in terms of educational outcomes, the authors could counter the claim that Progresa-Oportunidades merely accomplishes the right things (i.e., boosting education, especially that of girls) in the wrong ways (i.e., by intensifying gender roles). Despite this omission, the authors propose an alternative and possibly more effective policy: one which would disrupt structural and ideological barriers to women?s work, and provide practical support for working women ? for instance, greater childcare provision and reductions in salary discrimination. Indeed, since the authors find gender gaps in wages at all levels of schooling, such policies could prove more successful in reducing gender inequalities and poverty than those, such as Progresa-Oportunidades, targeting human capital investment.

The studies in this volume make persuasive use of rich qualitative evidence, but in many instances could benefit from greater quantitative rigor and more cautious interpretation. For example, Chapter 6 could be strengthened by controlling for (or subdividing tabular data by) variables such as income, region, or education levels; ensuring the gender gaps in incomes reported are adjusted to reflect only unexplained residuals between male and female earnings ? that is, true ?wage discrimination,? to borrow Claudia Goldin?s terminology[2]; or distinguishing between diminishing returns, negative returns, and gender gradients in returns to schooling. Similarly, in some cases, such as those in Chapters 1 and 4, small or selected samples limit the authors? ability to generalize about women?s economic conditions and their strategies, successes, and failures in shaping their destinies. Crucially, with the book?s focus on Western Christian societies, it misses out on opportunities to comment on a more diverse range of institutions, family forms, and patterns in marriage, inheritance, and motherhood, as might be found with the inclusion of cases on Asia or Africa. However, the cases the volume explores in the modern Western world suggest remarkable continuity and universality in women?s experiences across space and time: disheartening in the suggestion of how little women?s most fundamental struggles have changed over a half-millennium, but inspiring in its demonstration of women?s resourcefulness in the face of persistent and systemic adversity. As such, Moring and her contributors offer evidence with present-day academic and policy relevance, and suggest ways in which we might better support women in their pursuit of brighter futures.


1. Emmanuel Skoufias and Bonnie McClafferty, ?Is Progresa Working? Summary of the Results of an Evaluation by IFPRI,? International Food Policy Research Institute Food Consumption and Nutrition Division Discussion Paper No. 118 (2001).

2. Chapter 4 in Claudia Goldin, Understanding the Gender Gap: An Economic History of American Women, New York: Oxford University Press, 1990.

Vellore Arthi is a doctoral student in Economic and Social History at the University of Oxford. Her work focuses on gender, intra-household allocation, and human capital formation across diverse periods and global contexts. (

Copyright (c) 2013 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (April 2013). All EH.Net reviews are archived at

Subject(s):Household, Family and Consumer History
Social and Cultural History, including Race, Ethnicity and Gender
Geographic Area(s):General, International, or Comparative
Time Period(s):18th Century
19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII

Lionel Robbins

Author(s):Howson, Susan
Reviewer(s):Hands, D. Wade

Published by EH.Net (December 2012)

Susan Howson, Lionel Robbins. Cambridge: Cambridge University Press, 2011. xiii + 1161 pp. $135 (hardcover), ISBN: 978-1-107-00244-9.

Reviewed for EH.Net by D. Wade Hands, Department of Economics, University of Puget Sound.

Susan Howson’s biography is, and I suggest will remain, the definitive work on the life of Lionel Robbins. At over 1,100 pages it is obviously an extremely detailed biography, but the word “detailed” seriously understates the close-focus character of Howson’s investigation. It is a committee meeting by committee meeting, white paper by white paper, and trip by trip, documentation of Robbins’s public and professional life. It is an overwhelming research and writing project, and the author who undertook it, saw it through, and ultimately produced such a biography, deserves our greatest respect.

The book generally proceeds chronologically, beginning with Robbins’s childhood and ending with his death in 1984. Howson traces Robbins’s lifetime involvement with the London School of Economics (LSE) from his entrance as a student after World War I, to his acceptance of a permanent position in 1929, through his leadership during the following decades, and on to his retirement (all three of his retirements: 1961, 1966, and 1973). It is very clear that for much of the period from the mid-1930s to the mid-1950s LSE economics and Lionel Robbins’s vision of economics were effectively inseparable. This said, he was also surrounded by a host of bright lights. Friedrich Hayek of course, but there were many others including John R. Hicks who was developing the ideas that would become Value and Capital (1939) and collaborating with his colleague R. G. D. Allen on what is now considered to be the key paper in the ordinal revolution (Hicks and Allen 1934), as well as a number of later-to-be-influential students such as Abba Lerner and Nicholas Kaldor. As Paul Samuelson often said, the 1930s were a great time to be an economist, and Howson makes it clear that was as much the case in London as it was in Cambridge, England or in Cambridge, Massachusetts.

Two aspects of Robbins’s professional life that are consistently highlighted throughout the book are his extraordinary public service during and immediately after World War II (service both to Britain and to the Western political-economic system in general), and his close relationship with John Maynard Keynes. These two things are related of course since much of Robbins’s contact with Keynes occurred within the context of their war-related service. Robbins first met Keynes in 1928 and they were both involved in the 1930 Committee of Economists report on the economic slump. This was followed by a number of close collaborations during the war years as a result of Robbins’s duties in the economics section of the Office of the War Cabinet and later at the Bretton Woods conference in 1944 and the negotiations over the Anglo-American loan agreements at the end of 1945 (during which Keynes’s health was rapidly deteriorating). Throughout this service Robbins was in the heart of the fight ? the fight for victory as well as the fight for the construction of fair, efficient, and robust economic institutions to help the world economy recover from the war ? with the same energy and commitment as Keynes. In the conclusion Howson notes that “Robbins was one of Keynes’s most powerful allies within the government machine” (p. 1084) and quotes from Robbins’s autobiography on the question of his adoption of Keynesian ideas: “But if all that is involved by that description is a conviction that, in a free society, the fluctuations of aggregate demand must not be left to look after themselves and that it is an important function of government, national and international, to pay attention to such matters, then indeed that was now my position” (p. 1085).

Of course Lionel Robbins was also involved in a substantial amount of public service independently of his war time service, Bretton Woods, and all that. He also played a key role in British educational policy as the influential chair of the Committee on Higher Education (1961-1965), served for over a decade on the Trustees of the National Gallery (1954-1967), as well as serving in a number of other capacities. Robbins was an important academic economist, but he had a profound influence on mid-twentieth century British social and cultural life independently of his academic research or the students he taught.

Anyone reading 1,100 pages of detailed biographical narrative is bound to have many moments where they suddenly see interesting new connections between certain events or ideas. I would just like to note two of many such cases for me. The first is that in the early years of World War II Robbins was involved with a number of other economists in promoting the federation of Britain and France that “would form a nucleus for the postwar federation of Europe” (p. 346), a federation that would “have full taxing and borrowing powers and also the power to carry out public works” (p. 350). Given this, one really wonders what he would have to say about the current European situation (or alternatively, one wonders whether we would be in the current predicament if economists like Robbins and Keynes had been around during the 1990s). The second issue is Howson’s discussion of Robbins’s involvement with the Mount Pelerin Society and in particular the impact that his relationship with Hayek had on his association with that society (pp. 661-664, 703-705, 845-848). The bottom line is that even though Robbins was the primary author of the Mount Pelerin founding statement, he attended the first meeting in 1947 but resigned soon after and did not attend again until 1979 and his relationship with Hayek had much to do with it. Interesting indeed.

Even though Howson’s book is painstakingly researched, extremely detailed, and clearly written, no reviewer is ever entirely satisfied. In my case, there was one topic where I found both the quantity and the quality of the discussion to be quite disappointing; the topic is economic methodology and related philosophical ideas. Other than his definition of economics and the impossibility of interpersonal utility comparisons, contemporary economics students are unlikely to know anything about Lionel Robbins. But this is not the case in economic methodology where An Essay on the Nature and Significance of Economic Science (1932, 1935) is one of the field’s most important texts and its arguments continue to be hotly debated. So I expected to find a discussion of the origins of, and how Robbins’s thinking evolved on, many of these methodological and philosophical questions. How exactly was Robbins influenced by logical positivism (many claim it had a great impact, but others cite an Austrian influence at odds with positivist empiricism)? Connected with this, he was obviously critical of American Institutionalism and of the popular psychological ideas of the day ? How did he come to have these views? How about behaviorism (he seemed quite critical of it in the second edition, but not in the first)? And later in his life ? What exactly did he think of the relationship between Karl Popper’s philosophical ideas and economics, in particular the tensions between some of the things Popper wrote about economics and his general falsificationist philosophy of science? And on the subject of Popper, how did Robbins feel about the claims of the young Turks such as Richard Lipsey and Chris Archibald who argued in the LSE M2T seminar that Popper’s philosophy of science was a better approach than Robbins’s methodology? And on and on ?

And what does one find that might help us understand Robbins’s thinking on such questions? Very little. Robbins’s philosophical ideas are seldom discussed ? either the origins of his ideas or how he considered revising them in light of criticism ? and what discussion there is, seldom sheds much light on these matters. We are told that his 1930s lectures included “a spirited attack on American Institutionalism” (p. 175). Okay, so what were his criticisms and how were they related to his arguments in Nature and Significance? Howson quotes at length from a first draft of the preface to the second edition where he argues that the critics of the normative-positive dichotomy are the manifestation “of that wave of revolt against the rational which in the shape of Hitlerism Fascism ? etc is sweeping over the civilized world today” (p. 273). Perhaps this was true for some critics, but there were many ? including associates like Frank Knight, Terence Hutchison, and Hayek ? who raised substantive issues unrelated to his use of the normative-positive dichotomy. What of these? Nothing is said.? There are various mentions of Popper speckled around in the book ? his visit to LSE in 1936 (p. 290), his criticism of historicism (pp. 496-497), a mention of the Latsis conference in 1974 (p. 1080), and even a brief note on some of Popper’s comments on the rationality principle (p. 849) ? but nothing sustained, or systematic, and nor is there any serious attempt to fit these ideas into the evolution of Robbins’s thinking about the character of economic science. Similarly for the T2M seminar. Howson tells us that the criticisms were “somewhat unfair to Robbins” because his “methodological viewpoint in the 1950s was not identical with his in the 1930s” (p. 820). Okay, but how exactly did it change and why? Finally, and perhaps most exasperatingly, we are told early on that Robbins was a “provisional utilitarian” (p. 96) and then reminded again at the very end that he was “a utilitarian in his political philosophy” (p. 1087), but there is essentially nothing on the subject in the one thousand intervening pages (in particular there is nothing that might be considered to be a defense of these claims or even any effort to explain what type of utilitarianism Robbins ostensibly supported). What could one mean by saying that Robbins was a utilitarian when his most well-known contribution to economics effectively snapped the back of applied utilitarian-based welfare economics? Perhaps he was a utilitarian of some kind, but exactly what kind, and why, needs to be explained. These are only a few of many such cases ? sins of both omission and commission ? that jumped out as me as I read through the book.

Now, I am willing to admit that my disappointment is based in part on my personal interest in methodological questions and my desire to gain some additional insight into Robbins’s views on a number of long-standing philosophical issues. Perhaps my expectations were unrealistic. I suppose it is also possible that Robbins himself just never thought about such topics (or at least never wrote about, or corresponded about, such topics in a way that would leave a record for the historian) but that seems unlikely since such issues were at the heart of his most influential work, they were the topic of the most heated discussion about his work during his lifetime, and he continued to address them in print in later life. It seems more likely that the reader’s attention is deflected away from such methodological questions and toward Robbins’s contribution to important policy debates because of the author’s own interest in British economic policy and the desire to give Robbins proper credit for his under-appreciated policy work. There is of course nothing wrong with the author of a biography emphasizing one particular aspect of the relevant individual’s life and helping Robbins get proper credit is a reasonable goal, but this emphasis should be made clear to the reader from the beginning. Perhaps the title should have been “Lionel Robbins: Economist in the Public Service.” In any case ? and for whatever reason ? I found the discussion of economic methodology and related philosophical ideas to be the most disappointing part of the book.

So to summarize, Lionel Robbins is generally an extraordinarily well-researched and well-written biography. As I said in the first paragraph, it not only is, but will remain, the definitive work on Robbins’s life. It is much more of a facts-of-his-life history than an intellectual history ? what he did, what he said, what he wrote, at particular times ? rather than the evolution of his ideas, but it is a beautiful example of the type of biography that it is. It is long, but it is worth it, and one comes away with a much greater appreciation of the man, the economist, and in a sense the hero, Lionel Robbins. I close with the suggestion that since Howson has already done such a vast amount of research, perhaps she should now write a short, 150 pages or so, biography that paints Robbins’s life with a much wider, faster moving, and more interpretative brush. There would certainly be benefits associated with reaching a wider audience.


Hicks, John R. (1939) Value and Capital. Oxford: Clarendon Press.

Hicks, John R. and Allen, R. G. D. (1934), “A Reconsideration of the Theory of Value, Parts I and II,” Economica, 2, 52-76, 196-219.

Robbins, Lionel. (1932). An Essay on the Nature and Significance of Economic Science. London: Macmillan & Co.

Robbins, Lionel. (1939). An Essay on the Nature and Significance of Economic Science. 2nd Edition, London: Macmillan & Co.

D. Wade Hands is Distinguished Professor of Economics at the University of Puget Sound in Washington state and has taught history of economic thought for over thirty years. He has written on a wide range of topics in the history of economic thought and economic methodology. He is co-editor of the Journal of Economic Methodology and the author of Reflection Without Rules: Economic Methodology and Contemporary Science Theory, Cambridge University Press, 2001. His Agreement on Demand: Consumer Choice Theory in the Twentieth Century, edited with Philip Mirowski, was published in 2006 by Duke University Press and The Elgar Companion to Recent Economic Methodology, edited with John B. Davis, was published in 2011.

Copyright (c) 2012 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (December 2012). All EH.Net reviews are archived at

Subject(s):History of Economic Thought; Methodology
Geographic Area(s):Europe
Time Period(s):20th Century: Pre WWII
20th Century: WWII and post-WWII

Trade Policy Disaster: Lessons from the 1930s

Author(s):Irwin, Douglas A.
Reviewer(s):Ploeckl, Florian

Published by EH.Net (June 2012)

Douglas A. Irwin, Trade Policy Disaster: Lessons from the 1930s.? Cambridge, MA: MIT Press, 2011. xv + 195 pp. $25 (cloth), ISBN: 978-0-262-01671-1.

Reviewed for EH.Net by Florian Ploeckl, Department of Economics, University of Oxford

Occasionally we face a trilemma, a situation where we can only get two out of three choices and are forced to sacrifice one of them. The international finance literature has recently popularized the notion of an international finance trilemma, which describes a country?s choice between capital mobility, fixed exchange rates, and independent monetary policy and demonstrates that states have to sacrifice one — they can`t have their cake and eat it too (Obstfeld and Taylor 1998). The simplicity of its structure has made it, or slightly different formulations, also a popular teaching tool. But as Doug Irwin points out in his new book, Trade Policy Disaster, there is actually a closely related open economy trilemma, featuring the choice between independent monetary policy, gold standard parity (or fixed exchange rates) and open trade, which was recognized already decades ago by economists like Graham, Friedman and Meade.

Irwin?s central thesis argues that this trilemma became stark during the years leading into the Great Depression and that many states chose to sacrifice open trade and subordinate their trade policy to support their respective monetary systems, usually the gold standard.? His book is a tour de force explaining trade policy throughout the Great Depression on a global scale.? It utilizes the outlined trilemma framework to illuminate the existing institutional and economic structures, the major policy options available and the reasons behind the actual observed choices. The first chapter sets up the analysis by looking at the emergence of protectionism during the Great Depression, the monetary arrangements at the time and how the trilemma links them together. Chapter 2 then provides a narrative focusing on the decisions by the major powers, the UK, the U.S., Germany and France and respective smaller states in the related economic blocs. This is followed in chapter 3 by a closer look at quantitative and qualitative evidence for the causes and consequences of the trilemma. Chapter 4 concludes with a summarizing discussion of trade policy and exchange rate regimes during the decades following the Great Depression and a final comparison between the situation in the 1930?s and the current economic circumstances.

The issue of trade policy during the Great Depression has obviously been the focus of intense scrutiny ever since the interwar period. The author of the book himself has made contributions to this debate and those are important pieces of the puzzle he presents. The book isn?t intended to present a new argument, but to combine what we know already into one coherent explanation. The central part of this story is the impact of monetary arrangements. The international financial system recovered from the shock of the First World War, but states were not able to return it to the balance and stability of the pre-war arrangements. When international and domestic imbalances required adjustments, states initially rejected the use of exchange rate mechanisms and many turned to various forms of trade restrictions. Irwin demonstrates the respective logic of this preference for trade policy adjustments as well as that of the chosen trade restriction mechanism for the major international powers and a number of smaller states. The discussion doesn?t attempt to rehabilitate contemporary policy makers but does show how their reactions were shaped by economic constraints like the trilemma, political ideology, public opinion and the arguments and advice of economists. Shifting towards a more technical analysis the author in chapter 3 brings together academic results to show the economic consequence of protectionism, trade restrictions and the emergence of trade blocs. Irwin lays out in direct comparison to these why adjustments to the monetary system, in particular the abandonment of gold, would have been the better option to mitigate the economic problems arising during the interwar period.

The book is clearly targeted at a wider audience. Its relatively short length, under 200 pages in a small format, and a fluid, clear writing style make it very accessible and suitable for interested readers from a wide variety of backgrounds, including those? outside of academia.? The description and evidence marshaled to support its arguments rely predominantly on narrative evidence, eschewing extensive quantitative and technical details.? Some points are clarified with a number of simple graphs, like the iconic contracting spiral of trade volume during the Great Depression, and contemporary cartoons. A particular strength is Irwin?s ability to seamlessly weave the views of contemporary economists into the story, providing an illustrative link between policy making and the academic world.

In conclusion the book provides an accessible, yet comprehensive and convincing explanation of trade policy in the 1930?s, in particular the constraints governments faced in their decision making and the origins and reasons behind the rise of protectionism during the Great Depression.


Maurice Obstfeld and Alan M. Taylor (1998) ?The Great Depression as a Watershed: International Capital Mobility over the Long Run,? in The Defining Moment: The Great Depression and the American Economy in the Twentieth Century, edited by Michael D. Bordo, Claudia Goldin and Eugene N. White, Chicago: University of Chicago Press

Florian Ploeckl is currently a Marie Curie Fellow in the economics department at the University of Oxford and a Research Fellow at Nuffield College. His work focuses on the role of geography for the development of trade institutions, urban systems and information services.?

Copyright (c) 2012 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (June 2012). All EH.Net reviews are archived at

Subject(s):Industry: Manufacturing and Construction
Geographic Area(s):General, International, or Comparative
North America
Time Period(s):20th Century: Pre WWII

Pay for Play: A History of Big-Time College Athletic Reform

Author(s):Smith, Ronald A.
Reviewer(s):Depken, Craig A.

Published by EH.NET (July 2011)

Ronald A. Smith, Pay for Play: A History of Big-Time College Athletic Reform. Champaign, IL: University of Illinois Press, 2011. xii + 344 pp. $30 (paperback), ISBN: 978-0-252-07783-8.

Reviewed for EH.Net by Craig A. Depken II, Department of Economics, University of North Carolina ? Charlotte.

It seems every academic year numerous big-time athletic programs are added to the long list of programs investigated or penalized by the NCAA over the past several decades. In these cases, individual athletes, coaches, boosters, alumni or faculty are often found to have violated one or more of the rules pertaining to amateurism, recruitment, eligibility, or academic preparedness. Why do people continue to violate the NCAA membership agreement when the costs to their affiliated program, if caught and penalized, seem to be increasing over time? In his book Pay for Play: A History of Big Time College Athletic Reform, Ronald A. Smith provides a partial answer to the question: a lack of serious reform. Smith?s extensively researched and well-documented text shows that throughout the history of college athletics there have been only a handful of true champions of reform and they have universally lost to the pressures of professionalization.

The problem of professionalization arose at the very inception of inter-collegiate sport in 1855 as Yale and Harvard wrangled over eligibility of former students in the sport of rowing. Since then amateurism, recruitment, eligibility and academic preparedness have all been the focus of various levels of oversight even while individuals find new ways to circumvent the rules. How best to reform college athletics in order to mitigate the incentives to cheat?

As Smith points out, early in the history of intercollegiate sports, students and faculty provided primary oversight at the institutional level. This period was characterized by so-called ?Home Rule? ? that is, individual institutions dealt with amateurism, recruitment, eligibility and academic preparedness, as well as the professionalization of the coaching ranks. However, systemic reform under Home Rule was nearly impossible because each institution found itself in a prisoners? dilemma: if one institution implemented a reform it might find itself at a competitive disadvantage to those schools that chose not to participate. This coordination problem was somewhat solved by the creation of (what would eventually become) the National Collegiate Athletic Association (NCAA) in 1905. Smith points to the NCAA as a positive development in reform efforts, although it was not created to address recruitment or eligibility issues, per se, but in response to the increasing violence in American football.

However, early in its history the NCAA had no enforcement powers and thus the interwar period was characterized by ever-increasing professionalization. Smith provides in-depth discussions of specific university presidents, such as Frank Graham of the University of North Carolina, and groups of presidents, such as those of the Ivy League schools, who took up the mantle of reform with various levels of success. However, as Smith points out in convincing detail, university presidents find themselves caught in the pincer of advocating reform while often finding it necessary to cheerlead for their school?s athletic programs and turning a blind eye to those who bend the rules.

Despite the solution to the coordination problem the NCAA represented, true reforms to big-time college athletics were sporadic at best through World War II. Smith provides a fascinating read of how fast-and-loose college athletics became during the interwar period leading up to the Sanity Code of the early 1950?s. The story surrounding the failure of the Sanity Code and its implications is one of the more interesting portions of the book. The narrative continues through the NCAA?s evolving enforcement efforts, changes to academic requirements, failures in curbing excesses on the part of a number of schools until the ?Death Penalty? was imposed on Southern Methodist University in 1987, culminating in a discussion of the most recent struggles in dealing with professionalism in college sports.

While Smith?s contribution in terms of a historical text is commendable, he offers suggestions about how long-lasting reform might take place in the future. As mentioned, he is not optimistic that university presidents will provide desired reform because of their inherent conflicts of interest. It is equally unlikely that coaches, students, alumni or boosters will step up to provide credible reform efforts. Smith points to two possible sources of future reform, both of which have made contributions in the past. First is the long-lost faculty oversight. As Smith asserts, the faculty are the only body that is inherently interested in the student athlete qua student and therefore are in the best position to balance athletics and academics. Unfortunately twin problems of free-riding and self-selection would plague this model of reform: those faculty members who are agnostic about sport are unlikely to incur the personal costs required to participate in quality oversight; if the only faculty members willing to incur the personal costs are anti-sport then oversight could become overly ideological.

Smith?s discussion of integration and Title IX highlights one of the major themes of the book: efforts for internal reform of college athletics are rare and half-hearted whereas reforms from the outside, whether from the legislature or the courts, have had substantial and permanent impacts on college athletics. Smith suggests that long-lasting reform might be possible if the broader viewpoint of Congress or the courts is employed. There are substantial reasons for an economist to question whether reform from these sources would be first-best, but Smith?s contribution should be welcomed to the debate by all who are interested and concerned with intercollegiate sports.

Craig A. Depken II is author of over 45 peer-reviewed articles in sports economics, real state, applied microeconomics and industrial organization. He is a regular contributor to collected works, is author of the book Microeconomics Demystified and is a co-editor of Contemporary Economic Policy.

Copyright (c) 2011 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (July 2011). All EH.Net reviews are archived at

Subject(s):Markets and Institutions
Social and Cultural History, including Race, Ethnicity and Gender
Geographic Area(s):North America
Time Period(s):19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII

The Invention of Enterprise: Entrepreneurship from Ancient Mesopotamia to Modern Times

Author(s):Landes, David S.
Mokyr, Joel
Baumol, William J.
Reviewer(s):Blackford, Mansel G.

Published by EH.NET (May 2010)

David S. Landes, Joel Mokyr and William J. Baumol , editors, The Invention of Enterprise: Entrepreneurship from Ancient Mesopotamia to Modern Times. Princeton: Princeton University Press, 2010. xv + 566 pp. $49.50 (hardcover), ISBN: 978-0-691-14370-5.

Reviewed for EH.NET by Mansel G. Blackford, Department of History, Ohio State University.


The second volume published in the Ewing Marion Kauffman Foundation?s Series on Innovation and Entrepreneurship, this collection of eighteen essays explores entrepreneurship, innovation, and economic development in parts of the world from ancient times to the present.? This work, states William J. Baumol, an economist at New York University and one of the study?s editors, was designed to test three basic hypotheses: 1) ?that the practical utilization of inventions? and accompanying economic growth would be lower without the work of entrepreneurs; 2) that ?entrepreneurial activities are not always productive?;? and 3) that ?the direction taken by entrepreneurial activity depends heavily, at any particular time and in any particular society, on the prevailing institutional arrangements? (p. ix).? David Landes, another editor and an economic historian at Harvard University, argues further that ?the countries and regions that have done best are precisely those that have taken advantage of the opportunities offered by active trade and entrepreneurial freedom.?? Those areas, Landes claims, have been mainly in the West, with ?China and the Arabic Middle East? offering ?pungent case studies? of ?resistance to innovation?(p. 2) — surely an outdated assertion.? The essays comprising this volume bear out Baumol?s hypotheses, but not the statements made by Landes.[1]

Six essays investigate preindustrial entrepreneurship and innovation.? Michael Hudson explores the development of entrepreneurship and business enterprises in ancient Mesopotamia (3500-1200 BC), where the association of businesses with public temples and palaces led to a commercial take off.? Many of the business practices first created in Mesopotamia — the use of money, uniform weights and measures, price systems, interest charges, and profit-sharing — Hudson shows, then spread to the Mediterranean world, only to collapse in Roman times.? In an essay on the Neo-Babylonian Empire (626-539 BC), Cornelia Welch looks at family entrepreneurship in agriculture and trade.? Particularly valuable is her case study of the Egibi family, which left an archive of 2,000 cuneiform tablets spanning five generations.? ?The Egibi family represents,? she concludes, ?an outstanding example of Schumpeter?s idea that the main entrepreneurial opportunities for profit or quasi-rent lie in creating new business opportunities.?? The Egibi family had ?far-flung operations? based on a ?marketing plan that integrated agricultural production, tax payments, and the shipment of crops to cities along Babylon?s canal system? (p. 53).? Timur Kuran claims that Islam first spurred entrepreneurship and economic development in the Middle East by creating ?institutions well suited to personal exchange,? but later ?became a source of retardation with the transition to impersonal exchange.?? Islamic institutions, Kuran finds, ?supported small-scale entrepreneurship,? but ?inhibited larger-scale entrepreneurship? (p. 63).? James Murray suggests that the European Middle Ages ?deserve a special place in the history of entrepreneurship,? for by 1500 merchants ?came to direct many of society?s ?productive forces?? (p. 88).? John Munro then examines the ideas of Max Weber and Richard Tawney, about economic development.? He finds that the alterations in mindsets and institutions that Tawney claimed were needed as precursors to industrialization in Great Britain occurred in 1640-1740, not, as Tawney posited, a century earlier.? Oscar Gelderblom defines entrepreneurs broadly as ?not just merchants involved in long-distance trade, but also shipmasters, fishermen, millwrights, farmers, artisans, and shopkeepers,? in arguing for the importance of entrepreneurial actions as the sources of economic development in the Dutch Republic between 1580 and 1650 (p. 156).

Eight essays probe entrepreneurship in Western Europe and the United States during industrial and post-industrial times.? Joel Mokyr, the third editor of this volume and a faculty member in history and economics at Northwestern University and Tel Aviv University, argues for the importance of institutions, especially informal ones such as codes of conduct, as stimuli for entrepreneurship in industrializing Great Britain.? In two jointly authored essays, Mark Casson and Andrew Godley debunk the idea that entrepreneurial failure retarded British economic development in the late-nineteenth and twentieth centuries — a well-worn topic.? They find that entrepreneurs rationally shifted their attentions from manufacturing to infrastructural projects and other undertakings (such as finance) in Great Britain and abroad, in which they were very successful.? Ulrich Wengenroth surveys the ?tortured? history of entrepreneurship in Germany from the early 1800s to the present, emphasizing the roles institutions (including educational ones) played in creating opportunities for innovation.? Pulling no punches, he also looks at anti-Semitism and the unbalanced nature of Germany?s economy, which he concludes became over-industrialized and lacking in service businesses.? Turning to France, Michael Hau presents a picture of varying regional developments and changing roles taken by the national government, concluding that after declining in importance for several decades after World War II ?entrepreneurs have greatly gained in power? in the present day (p. 323).? Louis Cain examines entrepreneurship in the antebellum United States, first exploring innovations in law, finance, and transportation that allowed entrepreneurship to flourish and then describing the processes of industrialization and the diffusion of products to American markets.? Discussing the United States between 1865 and 1920, Naomi Lamoreaux stresses the importance of institutions, including federal and state governments, and big businesses, which encouraged entrepreneurship.? In a particularly wide-ranging essay, Margaret Graham offers a nuanced picture of American entrepreneurship after 1920, looking at the varied roles played by people in companies of all sizes and in many sectors of the economy.

Three essays and a short conclusion complete the volume.? Susan Wolcott examines supplies of financial credit, especially ?informal? types, available to entrepreneurs in Colonial India.? She addresses issues about economic growth in India from the 1700s to the present, emphasizing the importance of family and ethnic networks defined, in part, by caste distinctions.? Wolcott concludes that, while such networks and the informal credit they commanded initially aided economic development, they ultimately limited business development — a finding similar to Kuran?s conclusions about the Islamic Middle East.? Wellington Chan looks at entrepreneurship and innovation in China from the late 1800s, emphasizing continuities in stressing the roles personal relationships and networks have played for business people throughout Chinese history.? ?Chinese entrepreneurship,? Chan concludes, ?has always been an inherent part of Chinese history and tradition? (p. 495).? Seiichiro Yonekura and Hiroshi Shimazu find entrepreneurship at the core of the development of zaibatsu in Japan before World War II and present accounts of the development of Mitsui and Mitsubishi, unfortunately ignoring the significant roles small and medium size business played in Japan?s economic development.? Finally, Baumol and Robert Strom (a director of the Kauffman Foundation) offer short concluding remarks underlining the importance of cultural developments and institutions for the evolution of entrepreneurship and innovation over time.

Anyone interested in entrepreneurship, innovation, and economic development will find much to ponder in this work, and extensive multilingual notes and bibliographies at the end of each essay will lead readers to additional sources.? However, even such an extensive volume as this one has limitations.? The focus is clearly on Western Europe and the United States.? Only a few essays examine developments in Asia and the Middle East, and none look at entrepreneurship in Latin America or Africa.? Then too, most of the essays approach entrepreneurship and innovation from the vantage points of economics and economic history.? The substantial contributions of business historians — Harold Livesay, Thomas McCraw, and William Lazonick, among many others, come to mind — are largely ignored.[2]? Moreover, the authors of the essays follow no commonly agreed-upon definition of entrepreneurship, making cross-national comparisons difficult.? Most of the authors bow in the direction of Joseph Schumpeter, but essentially fail to adopt a common approach.? I was disappointed that little effort was expended by the editors or authors to reach comparisons across boundaries of time or space.? For the most part, this study consists of fairly traditional national studies. ?Ironically for a book about innovation, this volume contains little in the way of conceptual breakthroughs.? The authors might well have explored more fully innovative business networks and industrial districts that often spread across national lines, especially in modern times.[3].? Even with these caveats, however, I think these essays deserve close consideration, as much for the questions they raise as for the answers they give about innovation and entrepreneurship.


1. On innovation in China, see for example, William T. Rowe, China?s Last Empire: The Great Qing (Cambridge, 2009); and Peter Zarrow, China in War and Revolution, 1895-1949 (London, 2005).? Landes? main source on Islamic developments is Bernard Lewis, _What Went Wrong? The Clash between Islam and Modernity in the Middle East_ (Oxford, 2002), a one-sided study.

2. Harold Livesay, American Made: Shapers of the American Economy (New York, 2007); William Lazonick, ?Business History and Economic Development,? in Geoffrey Jones and Jonathan Zeitlin, eds., The Oxford Handbook of Business History (Oxford, 2007), 67-95; and Thomas K. McCraw, Prophet of Innovation: Joseph Schumpeter and Creative Destruction (Cambridge, MA, 2007).

3. See, for example, Louis Galambos and Jane Eliot Sewell, Networks of Innovation: Vaccine Development at Merck, Sharpe & Dohme, and Mulford, 1895-1995 (Cambridge, 1995); and Charles Sabel and Jonathan Zeitlin, eds., World of Possibilities: Flexibility and Mass Production in Western Industrialization (Cambridge, 1995).


Mansel G. Blackford is a business historian at Ohio State University and, most recently, is the author of The Rise of Modern Business: Great Britain, the United States, Germany, Japan, and China Chapel Hill, 2008 (third edition).

Subject(s):Business History
Economywide Country Studies and Comparative History
Markets and Institutions
Geographic Area(s):General, International, or Comparative
Time Period(s):General or Comparative
16th Century
17th Century
18th Century
19th Century
20th Century: Pre WWII
20th Century: WWII and post-WWII

The Cost of Living in America: A Political History of Economic Statistics, 1880-2000

Author(s):Stapleford, Thomas A.
Reviewer(s):Logan, Trevon

Published by EH.NET (February 2010)

Thomas A. Stapleford, The Cost of Living in America: A Political History of Economic Statistics, 1880-2000. New York: Cambridge University Press, 2009. xviii + 421 pp. $30 (paperback), ISBN: 978-0-521-71924-7.

Reviewed for EH.NET by Trevon Logan, Department of Economics, Ohio State University.

Thomas Stapleford of the University of Notre Dame has managed to make fascinating what is likely one of the most boring parts of economic theory ? the calculation of price changes. Indeed, standard textbooks at the undergraduate and graduate level pay little attention to such issues. He does so by bringing a keen insight into the analysis ? price indices are not simply economic measures, they are inherently political measures that reflect the growing interest of the state in human welfare and economic policy. While economists know well the theoretical differences between different ways of measuring price increases (Laspeyres, Paasche, Marshall, and so on), the development and use of these measures had a more intimate relationship with political and historical realities than we may realize. Stapleford?s book describes this relationship over the twentieth century in the United States.

It was quite wise for Stapleford to begin his book?s introduction by considering the controversy around the Boskin Commission?s work on whether or not the CPI was overstating inflation, which briefly caused the economics profession to reconsider what we knew about price indices (this is not to say that work had stopped before or after, but price indices are no longer a ?hot? topic in economic research). As he makes clear, very small changes in the CPI have big effects (he notes by the early 1950s a 0.5 percent change in the CPI would cause transfer payment changes of $1 billion). This strategy highlights the importance and the continuing debate about the proper measurement of the CPI. Stapleford also uses the introduction as an opportunity to lay out his main thesis: the idea that rationalization is the driving force behind the development of economic statistics (mainly the Consumer Price Index, CPI). To him, rationalization is the way that the state takes controversial issues and places them in the hands of bureaucrats behind a wall of objective ?science.? As an example, we do not decide to increase or decrease Social Security payments when we ?rationalize? the process by indexing the benefits to inflation. The Bureau of Labor Statistics (BLS) becomes a collection of experts who use a given technique (supposedly a ?scientific? one) to arrive at a number that has large effects on the economy. The key, to Stapleford, is to realize that such a decision is a decidedly political one with seen and unseen causes and consequences.

Overall, this is intellectual and political history of the first rate. Well researched, carefully argued, it does a good job of describing the technical difficulties in price indices without losing focus on the historical narrative. As a scholar of early consumer expenditure surveys myself, I was particularly impressed with Stapleford?s descriptions in the early chapters of the failed efforts to combine the state statistical bureaus into a national force with systematic evidence. While the data collected by the state bureaus has given economic and social historians a detailed picture of many aspects of working class life from 1870 to 1910 or so, Stapleford impressed upon me how much we lost by the inability to regularly and systematically survey workers, firms, and prices. But Stapleford ties this failure to politics ? there was simply very little need for the state bureaus to cooperate because there was no national consensus for what anyone would even do with the price series that could be created. Rather, since each state bureau had its own charge, resource constraints, and politics, the jumbled mass of surveys reflects the jumbled thinking about the usefulness of economic statistics at the time.

After these first chapters Stapleford is left to explain how we constructed and codified the CPI. In the remaining chapters (especially chapters 3 through 6) he builds his case ? in his narrative the impetus for the construction and maintenance of federal economic statistics, and the later canonization of them, took place from roughly 1910 to 1945. There was no one key event; the needs of World War I, the increasing concerns about labor disputes and wages in the 1920s and the Depression each exerted independent forces that not only caused a much larger federal presence in the economy, but a much larger federal measurement of the economy. World War I impressed upon the government (and its citizens) the need for efficient control of resources that needed to be harnessed for national defense. In the 1920s, both organized labor and big business saw the need for standard measures, which were many times used to settle labor disputes. This is key for Stapleford?s hypothesis of rationalization since both labor and business could appeal to ?objective? measures of the cost of production and consumption. The final movement was solidified by the Depression, which left the federal government with the duty to regulate the economy, and also gave it the power to define how that economy would be measured. Given the uses of the price measures in the decade before, it was natural to appeal to these economic statistics when setting goals and in dispersing transfers.

In Stapleford?s narrative the concept of ?purchasing power? was a politically loaded expression of progressives? desires for large changes in industrial relations, while the economic theorists and institutionalists argued about whether a ?true? cost of living could be accurately measured. These developments did not take place independently, as Stapleford shows time and again that the choice of method and, indeed, the decision to measure at all, were carefully navigated political processes. Stapleford shows that during FDR?s administration BLS officials used the economic circumstances to place themselves in a key position for national economic policies. For example, the Economy Act of 1933 allowed the federal government to reduce wages by up to 15 percent based on the BLS cost-of-living index. Stapleford shows that this technique of indexation gave the BLS a larger role in the macroeconomy as indexation proliferated, which he argues is consistent with his rationalization hypothesis. Even after the war the units of measurement they developed ? the series on prices and wages ? continued to exert influence after the New Deal policies were abandoned.

While the heart of the book ends at the beginning of the 1950s, Stapleford spends the last two chapters describing the way that the CPI came to be used as a macroeconomic measure, and even delineates the debates about what the index should be. By this Stapleford does not mean inflation as pi used in macroeconomic models, but for the way that through the 1970s the federal government more and more began to index transfers to inflation. This began with poverty lines in the Great Society, extended to Social Security, and by the early 1980s income tax brackets were indexed. By the end of this indexation movement roughly 50 percent of federal expenditures became tied to the CPI either directly or indirectly. While the CPI has long aimed to be a ?constant utility? measure, Stapleford concludes by noting that while theoretically advantageous, the problems with the ?constant utility? measure of the CPI continue to raise a number of troubling issues. (Chief among them is whose utility we are measuring.) Indeed, the BLS has recently begun developing alternative CPIs for different groups whose utilities may be more dependent on certain expenditure categories (as in the case of older Americans who spend more on health care).

There are naturally some drawbacks. One drawback of the book is that Stapleford paints with a relatively broad brush at times. He regularly implies that the CPI is intimately related to a host of other economic statistics, but this is truly a book about the intellectual history and political history of the CPI. This is not a critique of the book, but the focus could have been sharper if Stapleford had tempered his desire to use the CPI history and then cast a wider, more tenuous net to other measures, especially later in the book. As economic historians know well, unemployment, industrial production, and GDP itself are their own stories (and their histories certainly deserve to be revised or in some cases written as well). Another drawback is that the intellectual development of the indices, while covered well for the novice reader, takes a decided back seat to the politics, but to be fair that is exactly Stapleford?s point.

And perhaps putting the economics in the background was a good idea. About a year ago I was attending a seminar on the misuses of the Penn World Tables ? the large and well used panel dataset of country GDP and other macro indicators. The seminar speaker discussed the fact that revisions of the data changed the results of many well-cited and influential papers. These included studies of the effects of assassinations on growth, the relationship between volatility and growth, and civil conflict and growth. An elder statesman remarked that economists today do not pay much attention to issues such as the measurement of prices and inflation, and that we (as a profession) are worse for it. I agree. For some reason the thorny issues involved in something as ?simple? as a price index have fallen out of vogue in favor of what we like to think of as ?causal? policy analysis. The bite is that we know, without the use of instrumental variables and the sometimes fantastic stories that accompany their use, price index calculations are causally related to a host of economic issues. Even more, all of our time series or panel estimates depend, critically, on getting the prices right ? applied microeconomists are not exempted. One can only hope that Stapleford?s book will cause renewed interest into one of the most important (and non-mundane) economic statistics in use.

Trevon D. Logan is an Assistant Professor of Economics at Ohio State University and a Faculty Research Fellow at the National Bureau of Economic Research. Recent publications include “Economies of Scale in the Household: Puzzles and Patterns from the American Past” in Economic Inquiry, “The Transformation of Hunger: Demand for Calories Past and Present” in Journal of Economic History, and ?Health, Human Capital, and African-American Migration before 1910? in Explorations in Economic History.

Subject(s):Living Standards, Anthropometric History, Economic Anthropology
Geographic Area(s):North America
Time Period(s):20th Century: WWII and post-WWII

A History of the Federal Reserve: Vol. II, 1951-85

Author(s):Meltzer, Allan H.
Reviewer(s):Wood, John

Published by EH.NET (January 2010)

Allan H. Meltzer, A History of the Federal Reserve: Vol. II, 1951-85. Chicago: University of Chicago Press, 2010. xii + 1424 pp. $150 (two books, hardcover), ISBN: 978-0-226-52001-8 and 978-0-226-51994-4.

Reviewed for EH.NET by John Wood, Department of Economics, Wake Forest University.

Allan Meltzer?s History of the Federal Reserve from its founding in 1913 to near the end of Paul Volcker?s chairmanship in 1987 is primarily an account of the thinking behind monetary policy taken from the records of the chief policymaking bodies ? the Federal Open Market Committee (FOMC) and the Federal Reserve Board ? and the papers of members of those bodies ? the seven governors of the Board and the presidents of the twelve Federal Reserve Banks. Meltzer?s searches are a great service to historians and potentially a useful service to reformers. We know what the Fed did ? open market operations and changes in the discount rate and reserve requirements ? but seldom, if ever, its reasons. This history does not give us the reasons because many people with conflicting and often unclear views participated in these committee discussions and decisions, but Meltzer has given us a better chance to understand them or, in many cases, at least to conclude that a coherent rationale for monetary policy was absent.

Meltzer (Carnegie Mellon University) has been following the Fed since he and Karl Brunner prepared a study of The Federal Reserve?s Attachment to the Free Reserves Concept for the House of Representatives Banking and Currency Committee in 1964.

Volume II (the subject of this review) begins with the Treasury-Federal Reserve Accord of March 1951 that released the Fed from its obligation to support Treasury bond prices, and thereby recognized its freedom and responsibility to conduct an ?independent? monetary policy. There is more about independence below, but it was qualified immediately by the Accord?s condition that the Fed assist Treasury financing. This qualified independence of the Treasury was given or taken away in the late-1960s and early 1970?s, regained in 1979, and thrown away in 2008 (which is after Meltzer?s History but recognized in the Epilogue).

The years of this volume can be divided into three periods according to inflationary regimes: mostly 1-2% per annum between 1951 and 1966, rising to double digits in the 1970s, and falling to less than 2% in 1985. It is notable that these periods correspond to those of more or less independence. This review is limited to domestic monetary policy, which is the main emphasis of the book, abstracting from regulation and international monetary affairs.

Meltzer?s discussion is organized around the interwoven concepts of structure, independence, and procedures. At the center of the discussion for over half the volume is William McChesney Martin, Jr., the longest-serving chairman of the Board of Governors (1951-70; three months longer than Alan Greenspan. ?The structure of the modern Federal Reserve is, in large part, Martin?s creation? (p. 43).) The Fed?s main instrument, open market operations, is decided by the FOMC, composed of the seven governors of the Board (whose chairman is also chairman of the FOMC), the president of the Federal Reserve Bank of New York (vice-chairman of the FOMC), and four of the other Bank presidents on a rotating basis. When Martin arrived, the FOMC met four times a year, the minimum mandated by the 1935 Banking Act, to decide general policy while its five-person Executive Committee (including the chairman and vice-chairman) met every two weeks to implement the full committee?s objective and instruct the manager of the open market desk. The desk is in New York, where open market operations are conducted, and the manager is a subordinate of the president of the New York Bank, who had dominated FOMC discussions. Over the next few years, Martin persuaded the FOMC to meet more often and abolish the Executive Committee, thereby reducing the influence of New York. The Board?s power was increased but so was that of the presidents outside New York. Meltzer calls attention to the value of the presidents? market view that frequently opposed the governors in Washington who are more subject to political influence (pp. 55-59, 70-75). The presidents have been allies of the chairmen who opposed inflation (Martin, Volcker, and Greenspan) and the chief dissenters of the policies of Burns, Miller, and Bernanke (pp. 507, 934, 991; Wood 2005, pp. 347-49; FOMC Minutes).

Martin also persuaded the FOMC to limit open market operations to Treasury bills, ostensibly to avoid market breaks arising from operations in long-term bonds, but which also limited New York?s discretion and was defense against political pressures to reduce long rates (pp. 59-70).

These structural changes were qualified by the Fed?s understanding of its independence, defined by Martin as ?independence within the government, not independence of the government? (p. 48). This included, following the Accord, the duty to support Treasury financing, which restricted the Fed?s ability to fight inflation by raising interest rates in the presence of government deficits.

?Procedures? refer to the process by which the ideas of FOMC members are converted into policy. They studied economic conditions with the aid of their economic staffs, met, discussed, and voted on ?directives? to the manager of the desk. Sounds simple, but the difficulties in the way of understanding policy are great. The FOMC did not possess an explicit model of the relations between its instruments and its objectives. It was certainly not the Keynesian model prevalent among economists, including the Board?s staff. Its objectives were not transparent. Were they general conditions such as prices, employment, and output as directed by the Employment Act of 1946, or money market conditions, whose relations to the former were not clarified? ?Nothing in the 1950s compares [even to] the Board?s Tenth Annual Report or the Riefler (1930) and Burgess (1927) books.? (Both were Fed advisors.) Even so, the treatment of the effects of monetary policy in the third edition of The Federal Reserve System: Purposes and Functions (Board of Governors, 1954) ?was more complete than mainstream academic views of that time. … Although the various elements [of the transmission process] were not combined in an explicit framework, the emphasis given to expectations, capital values, and relative prices … suggests an underlying sophistication that anticipated much future research? (p. 79) ? although any policy influence of the staff economists is doubtful.

The Fed?s response to the 1953-54 recession, ?its first major trial after it regained independence,? was in many ways characteristic of later episodes, even to the present. It paid more attention to general economic conditions than in the 1920s and 30s, which was in line with President Eisenhower?s reaction to Council of Economic Advisor Arthur Burns? report to the cabinet that a recession had started: Ike ?recalled the Republican party?s commitment to use the full resources of the federal government to prevent another 1929.?

The Fed?s ?performance was mixed. It recognized the slowdown promptly and voted to provide additional ease. In June, a month before the start of the recession, the FOMC decided on a policy of ?aggressively supplying reserves to the market? rather than ?exercising restraint upon inflationary developments? as agreed at the March meeting.? However, the manager?s instructions that ?reserves should be supplied in sufficient volume to prevent further tightening, but not in such volume as to ease the degree of credit constraint? leaves much to be determined because of the lack of agreed measures of ease and other terms. Long rates were falling but short rates were rising, so that the rise in free reserves (because of a decline in member bank borrowing) ?probably misled the manager on this as on other occasions? [notably 1929-33]. ?Martin criticized the desk for ?failing to purchase Treasury bills more aggressively?? and keeping the FOMC informed, but ?rejected any specific measure of ease or restraint? (pp. 107-109).

Meltzer notes in connection with the onset of recession in 1960: ?Several members referred to the decline in the money supply and wanted to end it by using quantitative targets. The manager preferred to concentrate attention on the tone and feel of the market. … There was no agreement about how to define and conduct policy. [New York] President Hayes proposed more active use of regulation Q ceiling rates to signal the direction in which interest rates should change, and Leedy (Kansas City) proposed using an interest rate target. The FOMC could not reach a consensus. … Vague instructions gave the manager considerable freedom to make decisions or perhaps respond to direction from Martin or Hayes? (pp. 208-209).

Returning to 1954, conflicts continued into the recovery phase. ?Until December 1954, seven months after the recession ended, the System continued the policy of ?actively maintaining a condition of ease in the money market?,? although ?Martin expressed concern about a speculative boom. ?[T]here were indications of an exuberance of spirit among intelligent businessmen with respect to 1955 business prospects that seemed to him to be dangerous?.? Fed ?operations remained procyclical. Money growth was higher in the expansion than in the recession? [a tendency that continued into the next century] because ?the decline in member bank borrowing and rise in free reserves [was interpreted] as evidence of ease? (pp. 112-14).

Friedman and Schwartz (1963, pp. 628-31) wrote about this period that the Fed?s new attention to money represented ?a near-revolutionary change,? although it continued to ?lean against the wind.? As in Volume I, Meltzer?s accounts and interpretations of Federal Reserve actions give us no reason to revise those of Friedman and Schwartz, but reinforce them with the System discussions behind them.

The Fed was not free of easy-money pressures from the Eisenhower administration (pp. 135-53), but those were weaker than in the 1960s, especially during the Vietnam War when the seeds of the Great Inflation were sown. Meltzer gives Martin generally low marks, especially for failing to resist the later pressures more strongly. The reasons for the start of the Great Inflation were, first, ?Martin?s leadership and beliefs? (especially his willingness to coordinate policy with the administration). ?Second, neither Martin, nor his colleagues in the FOMC, nor the staff had a valid theory of inflation or much of a theory at all (which might have bolstered their resistance?). And some of their main ideas were wrong.? Meltzer?s third reason, ?institutional arrangements [that] hindered ? timely effective action? ? coordination with the administration and ?even keel? policies ? fit within the first two (pp. 472-78).

Meltzer?s rating of Martin was shared by most economists at the time, Keynesian and monetarist, who held him largely accountable for the longest peacetime inflation (averaging 2.3% over nineteen years) in history. However, many, probably most, students of monetary policy changed their opinions of Martin after the dozen unhappy years succeeding his tenure, when inflation averaged 7.1%. Some of them credit a sophisticated, if informal, model for what they came to see as the Fed?s success in the 1950s (Romer and Romer 2002), although Meltzer finds ?no evidence to support? this claim. ?A more important factor was the Eisenhower administration?s conservative fiscal policy … The Federal Reserve was not under pressure to finance budget deficits most of this decade? (p. 48).

This reviewer shares Romer and Romer?s view, and finds even more theoretical completeness/sophistication than they do. Contrary to his frequent protestations that ?I am not an economist? (p. 476), Martin was more sophisticated than his critics. Meltzer saw no evidence of ?economic explanations of inflation? (p. 476) but his quotations of Martin are filled with incentives, expectations, and the importance of credibility. Martin anticipated Greenspan?s definition of price stability as one in which inflationary expectations are not a factor in business and consumer decisions. He was explicit about the neutrality of money (or absence of a Phillips curve) in the long-run. His bills-only policy was designed to supply money (although he refused to define it) without obstructing the efficient allocation of resources. He understood that the Fed could not permanently reduce interest rates; reducing them led to inflation. He did not talk of real rates, but he understood them. ?The history of money demonstrates the difficulties which men have to distinguish the permanent from the temporary. … [M]aking this distinction is a constant imperative? (p. 843). Above all, he understood and embraced the idea that inflation was the Fed?s responsibility (pp. 59-60, 89, 112, 126, 207, 242). He rejected the argument of Senator Paul Douglas (himself an eminent economist) that inflation was a cost-push phenomenon generated by unions and oligopolistic industries. Martin wrote to Douglas in 1959 (as Greenspan told Congress in the 1990s; Wood 2005, p. 397): ?My interest in a monetary policy directed toward a dollar of stable value is not based on the feeling that price stability is a more important national objective than either maximum sustainable growth or a high level of employment, but rather on the reasoned conclusion that the objective of price stability is an essential prerequisite for their achievement? (p. 243).

Meltzer recognizes this in places. ?Pressure from the administration to increase purchases of long-term debt remained strong [1961]. Martin cooperated within the limits set by his concern about inflation and his beliefs about how monetary policy worked. But he regarded some of [James] Tobin?s [of the Council of Economic Advisors] arguments as ?hopelessly na?ve?? (p. 323).

Martin?s statements, and perhaps more important, the Fed?s performance under his chairmanship, show an almost explicit sophisticated modern model of monetary policy subject to a survival constraint measured by the costs of resisting political pressures, which Meltzer?s reaction to Romer and Romer seems to support.

The 1970s saw improvements in Federal Reserve data, increased transparency in more frequent reports to Congress, a state-of-the-art econometric model, quantitative money and interest targets, economic forecasts in ?green? and ?blue? books, and a distinguished economist (Arthur Burns, 1970-78) as chairman to join the growing number of economists on the FOMC (pp. 582-92). Unfortunately, the result was ?the Fed?s second great mistake? that produced the Great Inflation and stagflation. The reasons given for the excessive money growth are many: mistaken forecasts, an increased natural rate of unemployment (?bad luck?? Velde 2004), unwillingness to bear the social costs of disinflation, reliance on controls, a preference for an ?even keel? approach that inhibited action, and submission to political pressures (pp. 667-81, 843-63).

Underestimations of inflations could not realistically have persisted for years on end. ?The simple explanation of why inflation persisted and rose … through the 1970s is that the Federal Reserve did not sustain actions that would end it? even though it ?was aware that its actions increased inflation.? ?That was basically political,? said advisor Stephen Axilrod (p. 1005).

The summer of 1979 saw high and rising inflation and unemployment, and falling approval ratings of President Carter. He reorganized his administration, sending Fed Chairman G. William Miller to the Treasury and replacing him with New York Fed President Paul Volcker, a known inflation hawk. On October 6, with the Fed funds rate at 11.6% and inflation at 12.5%, the Fed announced that it would no longer control interest rates, but shift to money control. Interest rates skyrocketed ? the Fed funds rate reached 19.85% in March 1980 ? and recession ensued. The Fed was supported by Carter and his successor (Ronald Reagan, elected in November 1980), and it stuck to its guns. Inflation fell below 4% in late 1982, although real interest rates remained high for several years, until the public was persuaded that low inflation was permanent.

The Fed returned to interest targeting in 1982, but as Meltzer says about 1979, the ?change in objective [a genuine commitment to reduce inflation] was more important and more durable than the change in procedures? (p. 1034). The Fed?s aggressive actions in 1979, as in the months leading up to the Accord in 1951, were made possible by the support of a public and Congress weary of inflation, along with grudging acceptances by politically weak presidents (p. 1128).

The lesson that I draw from this book is that the necessary and sufficient conditions for price stability (or low inflation) are a Fed that recognizes its effect on inflation, is committed to its control, and is supported politically.

Meltzer?s primary proposal for ?better results? in the last chapter is to follow the example of inflation-targeting countries. This ?rule-like behavior? reduces short-term policy influences and improves credibility (pp. 1234-39), although he recognizes elsewhere that procedures are less important than objectives.

In any case, as Meltzer reports in his Epilogue on the 2007-2009 crisis, the current Fed shows no sign of having learned anything. Current pressures dominate its actions, it has no credibility (no one knows what it will do), it favors controls (like Burns and the Keynesian critics of Martin), and, after the Volcker-Greenspan era restored independence, ?Chairman Bernanke has acted frequently as a financing arm of the Treasury? (pp. 1243-56).

This book, or parts of it, should be required reading for students of American monetary policy. Those who study textbook chapters or journal articles about what policy is or ought to be learn only a small part of the subject, and that part contains much misinformation. Monetary policy is a complex combination of politics, structure, and monetary theory, and the least of these may be the last. ?The most comprehensive recent statement of modern macroeconomic theory, Woodford (2003), is an elegant, erudite development of the rational expectations model that currently dominates academic thinking. … Many central bank economists use this model. No central banker uses it? (p. 14).


Burgess, W. Randolph. 1927. The Reserve Banks and the Money Market. Harper & Bros.

Friedman, Milton and Anna J. Schwartz. 1963. A Monetary History of the United States, 1867-1960. Princeton University Press.

Meltzer, Allan H. 2003. A History of the Federal Reserve: Vol. I, 1913-51. University of Chicago Press.

Riefler, Winfield W. 1930. Money Rates and Money Markets in the United States. Harper & Bros.

Romer, Christina D. and David H. Romer. 2002. ?The Evolution of Economic Understanding and Postwar Stabilization Policy,? in Rethinking Stabilization Policy. Federal Reserve Bank of Kansas City.

Velde, Francois R. 2004. ?Poor Hand or Poor Play? The Rise and Fall of inflation in the U.S.,? Federal Reserve Bank of Chicago Economic Perspectives.

Wood, John H. 2005. A History of Central Banking in Great Britain and the United States. Cambridge University Press.

Woodford, Michael. 2003. Interest and Prices: Foundations of a Theory of Monetary Policy. Princeton University Press.

John Wood, Reynolds Professor of Economics, Wake Forest University, is author of A History of Macroeconomic Policy in the United States (Routledge 2009) and is working on a book provisionally titled The Political and Economic Genius of William McChesney Martin, Jr..

Subject(s):Financial Markets, Financial Institutions, and Monetary History
Geographic Area(s):North America
Time Period(s):20th Century: WWII and post-WWII

Triumph of the South: A Regional Economic History of Early Twentieth Century Britain

Author(s):Scott, Peter
Reviewer(s):Wardley, Peter

Published by EH.NET (October 2009)

Peter Scott, Triumph of the South: A Regional Economic History of Early Twentieth Century Britain. Aldershot, UK: Ashgate, 2007. xiv + 324 pp. ?65 (cloth), ISBN: 978-1-84014-613-4.

Reviewed for EH.NET by Peter Wardley, Department of History, University of the West of England, Bristol.

In the Triumph of the South, Peter Scott, Director of the Centre for International Business History and Professor at the University of Reading, has drawn upon his research into specific aspects of interwar British economic and social history to provide an overview of regional development between 1870 and 1939. Scott?s investigations, that have utilized neglected or under-utilized sources, encompass the origins of British regional policy, private sector industrial estates, the nature of the English property market and its agencies, working class house-ownership, hire purchase, and the institutional barriers that impeded transport rationalization in both the coal mining industry and the coal carrying trade undertaken by British railway companies. At the heart of this study are chapters informed by this research that describe and analyze dynamic components of the interwar British economy: the new manufacturing industries of Greater London, the labor market that characterized the interwar industrial estates, and the long distance migration of workers recruited to the new factories. By contrast to vibrant industrial development in the ?South,? the manufacturing sector of depressed ?outer-Britain? experienced only limited innovation; relatively few new plants were established, the expansion of employment in the factories associated with the ?New Industries? was relatively small and their labor productivity was relatively low. Oddly, given the clearly demonstrated relative advantage of the ?South? in the provision of services, and the relative importance of these activities in both the region?s prosperity and economic expansion, apart from tourism the services sectors receive relatively little attention. For example, to select one specific dimension of change, whereas much is made of the failure to embrace technical innovation exhibited by the ?old staples,? and especially the coal industry, no mention is made of the comprehensive implementation of mechanization undertaken by British financial companies at the end of the 1920s. Furthermore, not only is the measurement of productivity growth in services presented here as a more problematic exercise than recent research has demonstrated but the early twentieth century domestic service sector is described as ?a very large employer, with very limited potential for productivity gains? (p. 24). In the context of this study, this is somewhat odd: if this were so in the interwar years, what then was the motive of those who purchased the millions of household appliances produced on the industrial estates so carefully enumerated here?

Scott?s authoritative treatment of the aspects of the interwar years he has so closely researched also stands in contrast with his less convincing consideration of the longer run historical context. The introductory chapters demonstrate a range of basic problems that are conceptual and definitional in kind, reflecting geo-political and economic ambiguities that could lead astray a more naive reader. It would have been useful to indicate very clearly that ?Britain? in this period is a political fiction as the functioning state was the ?United Kingdom,? a union of Britain and Ireland before 1921 and Britain and Northern Ireland after. In this book England gets the lion?s share of attention, Scotland some consideration, Wales little and Ireland none. This constrained perspective has broader analytical and interpretative consequences. A somewhat pessimistic stance towards British economic performance before the First World War depends to a large extent on a comparison of British income per capita data (Table 3.2, p. 33) relative to that of the world?s more developed economies. However, George Boyer?s chapter on ?Living Standards, 1860-1939? (Boyer, pp. 282-83; 294-95), the source upon which Scott relies, is not unmisleading in this context. Boyer, citing data estimated by Angus Maddison, and without mention of this distinction, reports the national income per capita of a ?Britain? which is really an ahistorical United Kingdom, a hypothetical economy defined by political boundaries that would be drawn only in 1921. Nevertheless, Maddison does provides disaggregated estimates for Irish and British income per capita, and it is the latter that Scott should be interested in, given that his story relates specifically to Britain. When Britain, strictly defined, is compared to the United States of America, the relative gap in national income per capita in 1913 is shrunk from that reported of just over five percent to less than three; by analogy to conventional measures of statistical significance, while the former might just about warrant mention, the latter difference would be usually be regarded as insignificant. Moreover, the same comparative perspective indicates that in 1913 British income per capita was in excess of thirty percent higher than that of Germany or France; how many Britons would not now be delighted by the restoration of a similar lead relative to the current level of output per person achieved in Germany and France? Clearly, and contrary to Scott?s gloomy prognosis, on the eve of the Great War the British economy was not failing.

This somewhat negative view also colors analysis of British economic agencies, especially the firms that populated the Victorian economy, and questionable assumptions bolster a rather thin international perspective. Although Britain was the location of most of the world?s largest industrial enterprises at the time of the Great Exhibition of 1851, and probably a third of the world?s largest companies in 1912, with Germany assumed wrongly here to outstrip Britain on this count, much is made of the detrimental consequences of the relatively small size of British firms. However, the significance of firms at the lower end of the corporate spectrum is also interpreted somewhat narrowly. It is difficult to see the existence of well-developed networks of small and medium enterprises (SMEs) that had been established in Britain in the nineteenth century as, per se, a peculiarly national impediment to economic growth. After all, the significant contribution to German economic development of the Mittelstand is well-established in the literature. Moreover, Philip Scranton has told a similar story concerning the contribution of the SMEs, which also saw the development of clusters, networks, external economies and regional specialisms, to American economic development before 1939. Given these international comparisons, that suggest otherwise, and taking the long run view, I remain puzzled also by the statement that, ?Sectoral specialisation appears to have been originally developed as a means of coping with Britain?s poor inland transport links? (p. 15). It is less surprising to read, however, that ?Poverty in rural Britain was even more widespread than in towns and cities? (p. 1).

The empirical database underpinning the introductory chapters that consider regional development in a quantitative framework are provided by statistics extracted from the United Kingdom Census of Population by Clive Lee and published in his British Regional Employment Statistics 1841-1971 and the recently published associated estimates of income per capita for British regions derived by Nick Crafts. Inspection of these data prompt the undisputable conclusion that London was not only the most prosperous region within the British economy in 1871 but that it subsequently and consistently enjoyed the more dynamic economic path to the twentieth century and beyond. Taking a long-run perspective this was only the restoration of a preeminence that had its origins in Norman, Saxon or even Roman times. However, the popular and enduring appeal of the Industrial Revolution does tend to color and even distort our views of British economic development such that the much remarked upon growth of manufacturing in the peripheries, especially cotton textiles in south Lancashire, woolen textiles in west Yorkshire and ferrous metal production and processing in south Wales, central Scotland and the north east of England, crowd out the relatively undramatic and less exotic incremental developments in Bristol, Birmingham and, especially, London. And London, often regarded as synonymous with the ?South,? provided England?s most populated urban center, its cultural center, the social focus of its elite, and the political capital that served first, England, then England and Wales, then the United Kingdom and, ultimately, at least until its more recent imperial retreat, the British Empire and its world. In this sense the ?Triumph of the South? has been persistent and enduring, a process of consolidation and confirmation rather than the outcome of a late nineteenth and early twentieth century contest that saw London emerge as the dominant victor over the industrial ?North? (which often stands as shorthand for all the British periphery). Put quite simply, and galling though this is to many a subject of British crown, the South rules.

This narrative was clearly established by Lee?s The British Economy since 1700, a pioneering text sensitive to regional differentiation that might have had more credit than allowed here as it also highlights the historic significance of the London?s national and international financial predominance, the consequences of London?s role as the global market place for international services, the impact of government policy, and the nature of labor processes found in Britain?s industrial heartlands. Moreover, not only have variants upon these themes long populated the continuing debate among economists and economic historians concerning British ?Declinism? but they also informed two highly visible critiques of more recent economic policy: first, the politically significant but economically ambiguous thesis propounded in the Sunday Times in 1974 by Robert Bacon and Walter Eltis that identified Britain?s problem in their diagnosis of ?Too Few Producers? and, a decade later, the proposition that services, and especially financial services, were privileged by policies introduced by Margaret Thatcher?s governments and then continued by New Labour, with damaging consequences for industry and the ?North.? These same issues now arise with the current reconfiguration of British politics produced by our contemporary recession.

Here I would suggest that Scott?s unique selling point is, his specialist research topics indicated above apart, the strong argument he proposes concerning the detrimental consequences of London?s successes and the resultant bifurcation of the interwar British economy that operated to the detriment of the ?North.? He opines that ?the ?Dutch disease? effect of London?s growing invisibles surplus progressively crowded out the commodity exports of Britain?s provincial regions? and that this was accentuated by re-investment overseas of surpluses on invisible trade which further enhanced its ?growing comparative advantage as a rentier and services-exporting, rather than industrial, nation? such that the growth of non-wage income ?began to crowd out its provincial export industries? (p. 281). However, although this thesis of relative regional deprivation is propounded with keen enthusiasm, if not zealous certainty, it remains largely untested and leaves at least two major questions abegging. The first asks if the adoption of economic policies less permissive to economic development in the ?South? would have resulted a better outcome for those who lived and worked in the ?North,? let alone higher incomes per capita across the whole economy? The second inquires as to the nature of an alternative economic policy regime that would have produced the beneficent counterfactual implicit in Scott?s story? Both questions loomed large for contemporaries and neither prompted an easily defined or uncontested policy response. Just as today.


Boyer, George. ?Living Standards, 1860-1939,? in Roderick Floud and Paul Johnson (eds.), 2004. The Cambridge Economic History of Modern Britain, Vol. II: Economic Maturity, 1860-1939, pp. 280-313. Cambridge: Cambridge University Press.

Crafts, Nicholas. 2005. ?Regional GDP in Britain, 1871-1911: Some estimates,? Scottish Journal of Political Economy, 52, pp. 1-24.

Lee, C.H. 1979. British Regional Employment Statistics 1841-1971. Cambridge: Cambridge University Press.

Lee, C.H. 1986. The British Economy since 1700: A Macroeconomic Perspective. Cambridge: Cambridge University Press.

Maddison, Angus, 1995. Monitoring the World Economy. Paris: OECD.

Maddison, Angus (Home Page) ?Statistics on World Population, GDP and Per Capita GDP, 1-2006 AD.? Scranton, Philip. 2000. Endless Novelty: Specialty Production and American Industrialization, 1865-1925. Princeton: Princeton University Press.

Peter Wardley has written on “The Commercial Banking Industry and Its Part in the Emergence and Consolidation of the Corporate Economy in Britain before 1940,” Journal of Industrial History (October 2000) and [with Norman Gemmell] ?The Contribution of Services to British Economic Growth, 1856-1914,? Explorations in Economic History (1990). His more recent research appears in ?A Global Assessment of the Large Enterprise on the Eve of the First World War: Corporate Size and Performance in 1912,? a chapter published in Youssef Cassis and Andrea Colli (eds.) Business Performance in Theory and History (forthcoming, Cambridge University Press).

Subject(s):Urban and Regional History
Geographic Area(s):Europe
Time Period(s):20th Century: WWII and post-WWII

The Political Economy of the World Bank: The Early Years

Author(s):Alacevich, Michele
Reviewer(s):Galambos, Louis

Published by EH.NET (October 2009)

Michele Alacevich, The Political Economy of the World Bank: The Early Years. Stanford, CA: Stanford University Press, 2009. xvi + 197 pp. $30 (paperback), ISBN: 978-0-8047-6066-9.

Reviewed for EH.NET by Louis Galambos, Department of History, Johns Hopkins University.

At the end of World War II, a momentous change took place in relations between the strong and weak nations. For all of human history to that point, the strong had systematically exploited the weak, taking their people for slaves, stealing booty, and creating colonies subject to the authority and taxation of this or that empire. Seeking to create a new and stable world order, the victors in the late 1940s set out to build a series of international institutions that would no longer involve exploitation. One of these new institutions was the World Bank.

As Michele Alacevich points out, the Bank began its evolution with a relatively simple mandate. It was designated The International Bank for Reconstruction and Development and sent out to help the allied and associated nations recover from the war?s devastation. Preempted in that task by the Marshall Plan, the Bank quickly turned to the task of encouraging the economic development of those nations that had yet to experience the first and second industrial revolutions.

Alas, there was no consensus among economists or government officials as to how, exactly, that should be done. Enter the Canadian-born Lauchlin Currie, who had studied at the London School of Economics and Harvard University before heading to Washington, DC, where he prepped in Treasury and the Fed, then became FDR?s economic advisor. Dedicated to a full-blown form of economic, political, and social planning, Currie was at home in the New Deal White House. In 1948, the World Bank selected Currie to head its mission to Colombia, the first significant effort to launch the new development program. Enter economist Albert Hirschman, who left a position at the Federal Reserve in order to explore the new and exciting field of development economics. Sent by the Bank to assist in Colombia, Hirschman soon clashed with Currie. Their struggle provides the central tension of Alacevich?s stimulating, on-the-ground account of this important phase of the Bank?s grand experiment in closing the gap between the developed and the under-developed nations.

The job wasn?t (and still isn?t) easy. Currie?s mission struggled with a lack of good data, with third-world political turmoil, and with an inefficient agricultural economy stubbornly resistant to change. The mission?s approach emphasized a broad, New-Deal type program that included consideration of health as well as productivity, education as well as infrastructure. Meanwhile, the Bank was drifting toward a project-centered approach to development. Hirschman, who was skeptical about balanced growth, became the Bank?s leading advisor after Currie completed his mission and began to work with the Colombian government. Alacevich does an excellent job of unraveling the opposing concepts of growth and demonstrating how important personality was in this innovative stage of the development saga. Meticulous research in the extant records enables the author to convey a powerful sense of the sort of confusion and conflict that drops out of history written from the top down.

Does the book fall short in any regards? Yes, of course. It still has the marks of originating in a doctoral dissertation ? in this case, a Ph.D. completed at the University of Milano, Italy. Far better written than most revised dissertations, the book nevertheless seems to be reaching for an appropriate philosophy of history without actually grasping one aligned with this subject. The most serious limitation is one the author probably couldn?t avoid. Having set up the Currie-Hirschman conflict as the central story, Alacevich has a problem when that particular tension is resolved. As a result, the final section of the book appears to be tacked on to a story that has already ended. While the author goes into the Bank?s reorganization of 1952 as a final denouement, the reader?s impression is that this structural adaptation was an epilogue, not a conclusion.

These problems aside, The Political Economy of the World Bank is a study that merits a careful reading. The author has dug deeply into a significant process of institutional change, a process worthy of serious reflection half a century later. The World Bank, despite its thick layers of expertise, has not escaped the problems first uncovered in Colombia. Powerful reasoning could not persuade Colombian leaders that they did not need and could not operate efficiently the integrated steel mill that they badly wanted. Import substitution became an even more powerful form of reasoning, and the Bank had to yield. Amidst steadily increasing costs and some episodes of bad-faith negotiating by the government, Colombia moved ahead with the steel plant at Paz de Rio. As the Bank?s vice president noted with a shrug, ?Paz de R?o had become a national symbol? (p. 98).

Every international program has collided with this style of resistance. Should you provide fresh, safe water or build a hospital ? with a naming opportunity. Should you improve agriculture or buy a modern weapon system? The list of tensions seems endless, and they define the boundary between the ideology of nationalism and the internationalism the Bank was attempting to strengthen. More than fifty years later, we are still perched along that boundary, looking for better ways to close the gaps that still exist between the developed and developing worlds. That, in large part, explains why Alacevich?s history deserves our attention today.

Louis Galambos is a professor of economic and business history at Johns Hopkins University and is a co-director of the Institute for Applied Economics and the Study of Business Enterprise. He has long been interested in the Bretton Woods institutions and has just completed a book on ?The Creative Society ? and the Price Americans Paid for It.?

Subject(s):Economic Planning and Policy
Geographic Area(s):North America
Time Period(s):20th Century: WWII and post-WWII

Financing Innovation in the United States: 1870 to the Present

Author(s):Lamoreaux, Naomi R.
Sokoloff, Kenneth L.
Reviewer(s):Calomiris, Charles W.

Published by EH.NET (July 2009)

Naomi R. Lamoreaux and Kenneth L. Sokoloff, editors, Financing Innovation in the United States: 1870 to the Present. Cambridge, MA: MIT Press, 2007. xii + 503 pp. $45 (cloth), ISBN: 978-0-262-12289-4.

Charles W. Calomiris, Columbia Business School, Columbia University.

Innovation has played a central role in the economic ascendance and continuing economic dominance of the United States. It gave a distinctive form to America?s first and second industrial revolutions (including, for example, the development of the unique U.S. patent system, the use of interchangeable parts, and the development of the moving assembly line), as well as to America?s leadership in the current information age. Strangely, despite the well-deserved emphasis on the evolving processes of technological change and its consequences for industrial organization, productivity and growth by economic historians, and the attention given by business historians to the activities of inventive geniuses like Edison and Ford, the literature on the financial history of innovation is scant.

This volume is thus a welcome addition to an under-researched area. It consists of eleven original contributions and a wonderfully cohesive editors? introduction by two of the most prominent contributors to the history of innovation and its financing. The editors bring together the very best scholars in the area, who offer a balanced mix of breadth and depth, which also covers a broad swath of time.

Some of the chapters analyze broad tendencies in innovation. For example, one chapter reviews the experience of the most innovative industries of the second industrial revolution, showing a common pattern of a lack of reliance either on formal financial intermediaries or on financial markets to provide early stage financing to innovative firms; instead, partnerships and other personal relationships, as well as retained earnings, were the primary means of financing innovation in the U.S. The 1920s ? not the pre-World War I period ? saw the first departure from that pattern (as stock market investors for the first time played an active role in financing innovative start ups, especially the utilities). After the 1960s, venture capitalists offered a new source of financing focused on the mobilization of funds for new technologies. One chapter shows that intangible capital (proxied by patent citations) was priced in the stock market boom of the 1920s, which demonstrates that fundamental technological value underlay much of the boom in growth stocks prior to the Great Depression. A related investigation in another chapter exploring more recent events shows that the modern venture capital industry has been quite successful in identifying and valuing productive innovations.

Three of the chapters (covering different periods and employing an impressive array of datasets and empirical methods) identify the determinants of differences over time and across locations in the industrial organization of invention (the extent to which innovation occurs within specialized firms or within large integrated firms) and show how that industrial organization implied important differences in the means of financing innovation.

Another chapter reviews the IT revolution, emphasizing the important role of government in promoting basic research, ensuring competitive diffusion of the fruits of that research, and hastening beneficial learning through procurement policies that created critical demand at early stages of development. Still another explores the ways that complex contracting structures evolved in similar ways across different countries to solve information problems inherent in financing early-stage enterprises.

More narrowly focused chapters make similarly important general points by focusing on particular examples. The chapter on the evolution of the automobile industry in Detroit shows the crucial role of early inter-firm relationships and the history of linkages in production among firms in creating productivity-enhancing innovations via spin offs, and in promoting interpersonal relationships that helped to diffuse technology and spur the development of informal financing networks. There is also a chapter on the development of Cleveland as a hotbed of industrial innovation which similarly points to the crucial role of informal personal connections in financing the most important innovations of the second industrial revolution there.

Perhaps the most gripping story in the volume is the chapter on Corning?s decision to pursue its path-breaking fiber optic technology despite daunting financial challenges, which contains compelling general lessons about the problems of managing breakthrough technologies in firms with limited resources (and no scarcity of enemies), the helpful role of strategic alliances in overcoming some of those barriers, and the crucial importance of developing a corporate culture conducive to rewarding entrepreneurship in research.

Another chapter helpfully qualifies the earlier discussion of the government?s helpful role in the IT sector by pointing out that the market, not the government, played the central role in identifying and shaping winners among specific products ? that is, defining the most productive specific form that technological progress in computing should take, once the government had helped promote the production and diffusion of basic science.

My only complaint about the volume is the conspicuous absence of any attempt to integrate the industrial organization of finance into the discussion of the financing of innovation and its industrial organization. There is one chapter in the volume that properly identifies important reforms in New York Stock Exchange clearing and listing requirements (in the late nineteenth century), which undoubtedly were somewhat helpful to the eventual usefulness of the stock market for financing innovation in the 1920s. But the second industrial revolution was unable to take advantage of those improvements for several decades and the posited causal connection between changes in trading and listing rules and stock market access for innovative firms is not convincing.

That same chapter, and others in the volume, simply ignore important changes in financial structure (changes after World War I in the structure and size of banks and the connections between commercial and investment banks), which played a crucial role in the new access to stock financing for growth firms in the 1920s. The discussion also exaggerates the U.S.?s superiority to other countries in its ability to finance technology during the second industrial revolution. German banking structure, operating under a nationwide banking system that integrated commercial and investment banking operations from an early date, was much more conducive to the financing of growth firms, and was far ahead of the U.S. in the amount of stock issues by utility companies and other industrial innovators prior to World War I. Other subsequent changes in the structure of U.S. intermediation are also ignored ? most importantly, the growth of institutional investors (pensions and mutuals) after World War II, which was crucial in financing the growth of venture capital and investing in IPOs for start ups in the 1970s and afterward.

Anyone interested in the organization of innovation, and the nexus between finance and the organization and process of innovation, must read this book. All of the chapters are original, scholarly, and packed with insightful gems (truly a font of inspiration for Ph.D. students), and the analysis manages to be both sophisticated (theoretically and statistically) and accessible to a broad audience. While the volume is too rich to boil down to a single theme, the editors? introduction does point to a common thread that runs through many of the essays: ?… perhaps the most striking aspect of the record of innovation over American economic history is the flexibility that technologically creative entrepreneurs have exhibited in adjusting their business and career plans so as to obtain financing for, and extract returns from, their projects.?

One can only hope that this impressive volume will inspire other scholars to take up the mantle and help to fill the numerous remaining gaps in our knowledge about the history of the financing of innovation. Sadly, one of the editors, the late Ken Sokoloff, will not be able to continue to provide us with such inspiring examples.

Charles W. Calomiris is Henry Kaufman Professor of Financial Institutions at Columbia Business School and a Professor at Columbia?s School of International and Public Affairs. His recent edited volumes include Sustaining India?s Growth Miracle, 2008 (co-edited with Jagdish Bhagwati) and China?s Financial Transition at a Crossroads 2007, both published by Columbia University Press.

Subject(s):Markets and Institutions
Geographic Area(s):North America
Time Period(s):20th Century: WWII and post-WWII