Lance E. Davis and Douglass C. North (with the assistance of Calla Smorodin), Institutional Change and American Economic Growth. Cambridge: Cambridge University Press, 1971. viii + 282 pp.

Review Essay by Cynthia Taft Morris, Department of Economics, Smith College and American University.

Davis and North Launch Neoclassical Institutional Theory

This book is an early major step in the evolution of the thinking of Douglass North and his collaborators on the “new” neoclassical theory of institutional change — the institutional arm of the new economic history that began to flourish in the 1960s. Among the many notable later steps are The Rise of the Western World (1973) with Robert Paul Thomas and “Constitutions and Commitment: The Evolution of Institutions Governing Public Choice” with Barry Weingast (1989) — which ranks third in citations among articles ever published in the Journal of Economic History.

Lance Davis and Douglass North develop a theory of institutional change so familiar that it is easy to forget the theory was ever “new.” They lay out a model where the core logic of institutional change is neoclassical cost-benefit analysis and the motivating drive for institutional change is profit maximization. The goal of the authors’ “intellectual journey through American economic history [is] . . . to provide a description of the processes that have produced the present structure of economic institutions. That description, in turn, is the basis for a first (and very primitive) attempt at the formulation of a specified, relevant, and logical theory of the birth, growth, mutation, and, perhaps, death of these institutions. The book is a study of the sources of institutional change in American history. It is concerned with the relationship between economic organization and economic growth” (p. 4).

Chapter 1 presents the concepts and definitions (institutional and economic environments, institutional arrangement, institutional instruments, and institutional innovation). An institutional arrangement will be innovated if the expected net gains exceed the expected costs. Arrangements range from purely voluntary to totally government controlled and operated and seek to realize economies of scale, lowered transactions costs, internalization of external economies, reduction of risk, or redistribution of income (pp. 10-11).

Chapter 2 analyses the government’s role in redistribution. The authors’ purpose is to include the role of government in their theory of institutional change in spite of the unsatisfactory state of political theory. To exclude it would likely “yield a model of institutional change no more useful in the growth context than are the present models with their ceteris paribus assumptions about institutions” (pp.37-38). In their analysis, governments with effective coercive power will be the preferred vehicle for institutional innovations where governments are well developed but markets are not, where external benefits are large but property rights are dispersed, where benefits are substantial but indivisible, and where benefits are not increased and the goal is redistribution. The costs of using government to appropriate others’ wealth and income depends on the numbers and heterogeneity of the persons organized, the feasibility of excluding outsiders from benefiting, the complexity of political coalitions, the rules of the political game, and the character of electoral suffrage.

Chapter 3 specifies the dynamics of the model in the context of American history. The authors seek to predict both the institutional “level” of change and the time lag from first perception of profit opportunity to institutional innovation: New institutional arrangements will be innovated where profit or income opportunities appear that require institutional changes or where cost reductions can be achieved with new business forms or political moves redistributing income. Among many influences changing the benefits and costs of institutional innovations are changes in market size, technical change, changes in income expectations, organizational changes in closely related activities, cost reductions associated with government-financed information or reductions in risk, and political changes altering voting or property rights. All these except political changes have parallels in neoclassical theories of technical change. However, “to do no more than assert a relationship between income changes and arrangemental innovation is hardly a significant step; . . . it is our intention to offer a theory that helps predict (or explain) the emergence of these new or mutated arrangements. In particular, the theory predicts the level (individual, voluntary cooperative, or governmental) of the new institutional arrangement and the length of time that passes between the recognition of the potential profit and the emergence of the new arrangement” (p. 39).

The core of chapter 3 divides the causes of varying lags between the perception of an innovation and its successful emergence into four steps: perception and organization, invention, menu selection, and start-up time. (i) The time lag between perceived profit and the organization of a “primary action group” depends on how much profits there are and their certainty. (ii) Where no suitable options are immediately available, time is required for invention. (iii) Where options are available, time is required to search out and select the most profitable ones. (iv) The start-up time for the innovation will vary with the “level” of institutional change, that is, according to whether it is an individual arrangement (shortest lag), a voluntary cooperative one (a longer lag because of more complex arrangements), or a governmental innovation (a still longer lag because political organization is required).

The final chapter of Part I on the theory deals with the exogenous institutional environment, and thus the initial conditions in Davis and North’s model of institutional change. Chapter 4 sketches substantial historical changes in the institutional environment: the rules governing the extent and weighting of voting rights, the legal basis for private property, and “the expectational weights that the community chooses to apply to the future costs and revenues of particular arrangemental innovations — weights that are the product of experience triggered by events exogenous to the model” (p.65). Important sources of change in these three aspects of economic life are (i) the Constitution and its interpretation by the courts, (ii) the common law, and (iii) “the external changes in the political and economic life of the nation that affect the people’s attitudes toward government” (p. 65). A lively sketch of dramatic historical changes and fluctuations over 175 years in each of these categories follows.

Part II consists of six historical chapters in which Davis and North apply their model of institutional change to American economic history by telling vivid stories of changes in land policies, financial institutions, transportation, market structure in manufacturing, the organization of the service industry, and labor market changes affecting unions and education. These stories illustrate well the explanatory potential of their model by describing the history of business and labor responses to changing profit and income opportunities through the adoption of new institutions or adaptations of old ones. No attempt is made here to evaluate these stories since this reviewer has no specialized expertise in American economic history. Of necessity given space constraints, they are selective and reflect the specialties of the authors, as they themselves carefully state in the introduction to the book.

The great strength of the neoclassical theory of institutional change is that it yields an insightful and plausible “explanation” of a wide range of institutional changes over time in individual market economies where the private profit motive is strong and neoclassical-type market supply responses are already widespread. An enormous volume of literature has developed in response to the work of Douglass North and his colleagues. North himself has been an outstanding leader in the expansion of the scope of applications of neoclassical institutional theory.

The limitations of the theory are most evident in the study of cross-country differences in institutional responses to the challenges of opportunities for profit and higher incomes. The new economic theory of institutional change is a variant of historical challenge and response theories, all of which suffer from a similar problem. To quote Nathan Rosenberg’s discussion of David Landes’s Unbound Prometheus (1969), “the industrial world is full of ‘challenges’ and always has been. Why do some challenges in some places at certain times generate successful responses and at other times do not?” (1971, p. 498). Telling historical stories consistent ex post with theories of institutional change does not address the questions raised by many historical instances when profitable opportunities for institutional change did not bring forth historical responses that helped accelerate economic growth. Constrained by its focus on market opportunities and responses, the neoclassical institutional theory poorly accommodates institutional changes driven by nationalist, religious, or imperialist motives so intense as to sacrifice economic gain. Also, the theory accommodates poorly historical country-specific institutional developments that are the outcome of chance and strong path dependency such as are evident in historical patterns of private land acquisitions or foreign domination in some developing countries.

The limitations to the excellent work of North and his collaborators are noted here as a warning that no one theory handles well the diversity of comparative historical experience. Casual empiricism is the usual practice in delimiting the countries and periods to which each theory applies. Because of this, the entire literature on institutional change is particularly weak on the diverse consequences of similar economic, demographic, and technological changes in different institutional settings. We all need to delimit more effectively the domains to which familiar models apply (Morris and Adelman, 1988, p. 32).

References

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

Cynthia Taft Morris and Irma Adelman. 1988. Comparative Patterns of Economic Development, 1850-1914. Baltimore: Johns Hopkins University Press.

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

Douglass C. North and Barry Weingast. 1989. “Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England,” Journal of Economic History, 49 (December): 803-832.

Nathan Rosenberg. 1971. “Review of the Unbound Prometheus,” Journal of Economic History, 31 (June): 497-500.

Cynthia Taft Morris is distinguished economist in residence, American University and Charles N. Clark Emeritus Professor of Economics, Smith College. She is past president of the Economic History Association.

?

Published by EH.NET (October 2000)

Silvano A. Wueschner, Charting Twentieth-Century Monetary Policy: Herbert

Hoover and Benjamin Strong, 1917-1927. Westport, CT: Greenword Press,

1999. xi + 178 pp. $59.95 (cloth), ISBN: 0-313-30978-7.

Reviewed for EH.NET by Mark Toma, Department of Economics, University of

Kentucky.

Charting Twentieth-Century Monetary Policy by Silvano Wueschner,

Assistant Professor of History at William Penn College, is a history of the

political forces that shaped United States monetary policy during the 1920s.

What is intriguing about this account is the injection of Herbert Hoover into

the picture. While a big-time player in the Great Depression, Hoover was

seemingly only a bit-player earlier in the 1920s as head of the Commerce

Department. By documenting the birth and growth of Hoover’s monetary policy

agenda in the 1920s, Wueschner’s analysis sets the stage for a deeper

understanding of the politics of the Great Depression.

Wueschner’s account of monetary policy during the 1920s unfolds as a struggle

between Hoover who covertly exercised influence through kindred spirits on the

Federal Reserve Board and Benjamin Strong who overtly exercised influence as

Governor of the Federal Reserve Bank of New York. Simply put, Strong was a

monetary internationalist who favored cooperation between the Fed and the Bank

of England while Hoover was a monetary nationalist who favored rivalry among

national central banks. On the domestic front, the tables were turned. Hoover

was all in favor of cooperation — as long as the Federal Reserve Board led

the way with strong central powers over discount and open market operation

powers. In contrast, Strong opposed the Board as monetary czar. He sought to

increase the powers of the individual Reserve banks, particularly the New York

Fed.

In the 1920s, the divisive issue between the two sides was whether the Fed’s

monetary policy would be “easy,” as favored by Strong, to smooth the way for

the international gold standard, or “tight,” as favored by Hoover, to combat

stock market speculation. The basic structure of the Federal Reserve seemed to

favor Hoover since the original Reserve Act provided the Board with relatively

strong powers to influence the discount rates established by the individual

Reserve banks. The Act contained a loophole in the Board’s control, however.

Individual Reserve banks were authorized to conduct open market operations on

their own. With the New York Fed playing a leading role, Reserve banks tended

to purchase government securities for their own accounts when discount policy

was tight. The overall result, as summarized in the title of the penultimate

chapter “Easy Money,” was that the easy money policy won by default. Strong’s

internationalism beat Hoover’s nationalism in the 1920s.

Although beyond the scope of book, it is interesting to consider how the

policy tension between Hoover and Strong in the 1920s set the stage for policy

during the Great Depression. As is well known, the Hoover Administration won

an isolationist victory on trade policy with passage of the Smoot-Hawley

Tariff Act. Less purposefully, Hoover also attained the type of monetary

policy that he had earlier sought as the Board effectively exercised its

muscle in shutting down open market operations during the Great Depression.

Hoover’s fiscal and monetary nationalism carried the day.

Wueschner’s history has much to offer two groups of academic researchers —

those with a general interest in the politics of US democracy and those with a

special interest in the monetary policy of the early Federal Reserve. I, for

one, was surprised to learn that the head of the Commerce Department in the

1920s played such an important role in shaping the course of monetary policy

for decades to come.

Mark Toma is an Associate Professor of Economics at the University of

Kentucky. His recent research (“Open Market Operations and the Great

Depression,” working paper) is on Federal Reserve policy during the 1920s and

1930s.

Published by EH.NET (September 2000)

Amy Sue Bix. Inventing Ourselves Out of Jobs?: America’s Debate over

Technological Unemployment, 1929-1981. Studies in Industry and Society.

Baltimore and London: Johns Hopkins University Press, 2000. x + 376 pp.

Illustrations and index. $45.00 (cloth). ISBN 0-8018-6244-2.

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

University of Florida.

Men (and Women) at Work?

Inventing Ourselves Out of Jobs? is an able and lucidly written account

of the ongoing debate in the United States over the effects of technology on

employment. Drawing on a wide range of published materials as well as on

corporate, labor, and governmental archives, Amy Sue Bix traces in rich detail

the views of three generations of policy makers, labor leaders, engineers, and

business executives to come about the relationship between expanding

productivity and the availability of jobs. A notable feature of the debate has

been the absence of a definitive empirical method for weighing the impact of

technology on employment. Thus, over the seventy years covered in the book

(which deals with developments over the past twenty years as well as with the

period indicated in the title), celebrants and critics of workplace technology

have tended to make the same arguments, often with the same rhetorical

embellishments. According to corporate leaders, engineers, and other partisans

of labor-saving technology, expanding production inevitably lowers prices,

increases consumption, and boosts employment. Labor leaders, social critics,

and troubled politicians, on the other hand, have focused technology’s role in

work force reduction and have argued that promises of long-term growth in job

opportunities have proved unduly optimistic or even illusory.

In Bix’s telling, however, virtually no one called for an end to technological

advance. Laborites, for example, have accepted and even celebrated

technology-facilitated productivity gains, arguing only that workers should

share in them through shorter hours, higher wages, and greater voice in the

actual implementation of new workplace regimes. Three generations of labor

leaders, from William Green and John L. Lewis in the 1930s through Walter

Reuther in the 1950s and John Sweeney currently have repudiated Ludism,

confining their critique of job-related technology to advocacy of

worker-friendly regulation, job training, and the passing on of productivity

savings to workers and consumers. Critical of the blithe optimism of corporate

spokesmen and their scientific and engineering allies that productivity gains

lead inexorably to expanded (and enriched) employment opportunities, even those

most troubled by job loss have accepted the inevitably of continuous workplace

transformation.

Employers have dismissed concerns about job loss, although often in a

defensive idiom. Equating technological advance with progress, and, in turn,

a commitment to progress with national identity, corporate leaders and their

scientific allies have painted a bright new world of abundance and ease.

Rejecting calls for public intervention in the development and application of

labor-saving devices, business leaders such as Henry Ford and machine-tool

innovator John Diebold acknowledged that inevitably some workers would be

displaced and might suffer local and temporary hardships. But the advantages

of expanded production and its concomitant proliferation of consumer goods far

outweighed these minor side effects. Popular writers and editorial cartoonists

might depict soulless robots and inexorable machines spitting out superfluous

unemployed workers as well as appliances and amenities, but resistance to the

machine was in fact ignorant, self-defeating, and even unpatriotic. “Workplace

mechanization,” writes Bix in summary of industrialists’ views, “represented

the inevitable, the only possible way to attain national success.” (166-67).

She quotes economist Benjamin Anderson: “on no account,” declared this banking

analyst of the 1930s, “must we retard or interfere with the most rapid

utilization of new inventions.” (166)

The debate over technology and unemployment has waxed and waned since the onset

of the Great Depression. It raged most fiercely during the 1930s, when

joblessness rose to catastrophic proportions. During World War II, full

employment and military needs dampened it. It re-emerged, now stimulated by

early computerization and other forms of electronic replication, during the

prosperous era of the 1950s and early 1960s, with labor leaders such as Walter

Reuther calling attention to the problem of lingering unemployment amidst

otherwise bright economic prospects. Congressional hearings in 1955 on what

was now called “automation” demonstrated that even during good times, the

specter of worker redundancy walked hand-in-hand with the promise of a brave

new consumerist world. By the late 1970s and into the 1980s, of course, the

computer revolution raised these issues in a new idiom, although corporate

down-sizing, globalization, and widening income disparities have tended to

merge discrete apprehensions about technology’s adverse effects with broader

concerns about job security and living standards.

Bix touches on a wide range of industries and employment situations in

surveying the technology-vs.-unemployment theme. Drawing on TNEC and WPA

studies, she examines the experiences of telephone operators, musicians, steel

workers, coal miners, and railwaymen buffeted by the demands of new

technologies in the 1930s. In the 1950s and 1960s, it was the turn of

packinghouse workers, longshoremen, clerical workers, and electrical workers.

Unions attempted various strategies in an effort to cope with mechanical

displacement. In the 1930s, the musicians union, faced with the substitution

of recorded music for live orchestras in movie houses, launched a massive

public relations campaign, hoping futilely to stimulate an outraged public to

demand live music. In the 1950s, the West Coast Longshoremen’s Union followed

an opposite course, capitulating to what its leaders regarded as the inevitable

inroads of containerization while securing for its existing membership generous

severance and manning reduction payments.

Bix’s account of the protracted and continuing debate over technology and work

is enlivened by frequent references to popular literature and films. In

addition, drawings and cartoons, some hailing the brave new future of a

worker-less future, others depicting with grim foreboding the social chaos sure

to afflict hapless displaced workers, give the debate vivid expression.

Inventing Ourselves Out of Jobs? also brings to attention governmental

efforts in the 1930s, primarily through studies conducted by the Works Progress

Administration and testimony offered at the Temporary National Economic

Committee congressional hearings, to establish an empirical basis for weighing

the impact of industrial technology on employment. The latter chapters ably

survey a wide range of opinion drawn from more contemporary sources, attesting

to the continuing pertinence of concern about the relationship between

employment and technology.

Inventing Ourselves Out of Jobs touches on but explores only briefly a

number of key themes that the general subject would seem to entail. The book

is more of a history of discourse about employment and technology than it is a

social history of the subject. Thus, themes of gender and, especially, race

receive only brief explicit exposition, for example. The social context in

which employers and engineers devise and implement labor-saving devices

likewise is only glancingly dealt with. Thus, for example, some observers have

argued that rapid mechanization of labor- intensive departments in metal

working, paper making, and meat packing after World War II represented less a

technological imperative than an effort on the part of employers to curtail

African American employment in operations that had proven unusually susceptible

to worker militancy and trade union pressure. This is not an issue that

captures Bix’s attention, however.

Likewise, Bix invokes but never quite explores in detail the implications of

the consumerist justifications to which employers increasingly turned in

justifying their resort to labor-saving measures. In 1951, Fortune magazine

published a special edition titled “USA-The Permanent Revolution,” boldly

proclaiming that mass affluence and its attendant consumerism constituted the

real revolution of the 20th century. In the 1960s, social critics such as

Herbert Marcuse, Charles Reich, Paul Goodman, E. F. Schumacher, and Christopher

Lasch-none of whom receives mention in Inventing Ourselves Out of

Jobs?-expressed the reverse of this kind of celebration of material plenty,

which in corporate America’s view depended on continuous technological

innovation. In a sense, competing visions of America centering on consumerism

(and, thus, technology) are the modern echo of the 18th century debate between

adherents of the civic republic and partisans of a commercial republic.

Implicit also, but underdeveloped in the book, is the question as to whether

work can remain an adequate vehicle for the social identities that before the

Great Depression it conveyed. Many of the jobs that Americans hold today are

far removed from productive enterprise, at least as it has traditionally been

understood. Technological advance and productivity gains have made it possible

for televangelists, day traders, and historians to flourish. Why these

particular occupations should attain public certification while other kinds of

non-productive employment languish or are suppressed is a question of culture

and politics, not one of technology per se.

Bix suggests rather than asserts her own sympathies. Her prose comes alive

when she exposes the fatuities and excesses of technology celebrants while

taking on a more troubled and somber tone when exploring the plight of the

displaced and dissident. Her dismay with those who equate America’s purposes

and promises with technological progress and consumerist indulgence is evident,

although never strident. She seems reluctant to concede that ordinary people

might have benefitted from technological innovation and at times flirts with

nostalgia for the good old days of man-killing coal mines and lethal railroad

work. Even so, Inventing Ourselves Out of Jobs? is a useful survey of

the ongoing debate over the relationships between technology and work in the

modern United States.

Robert Zieger has worked extensively in the fields of American labour history

and twentieth century history. His latest book is America’s Great War: World

War One and the American Experience, Rowman & Littlefield, 2000.

Published by EH.NET (September 2000)

Rosemary L. Hopcroft, Regions, Institutions and Agrarian Change in European

History. Ann Arbor: University of Michigan Press, 1999. xiv + 272 pp.

$49.50 (cloth), ISBN: 0-472-1102303.

Reviewed for EH.NET by George Grantham, Department of Economics, McGill

University, Montreal.

Explaining pre-industrial divergences in the agricultural performances of

European nations has been a major preoccupation of agricultural and economic

historians for decades, and constitutes, if not the holy grail of European

economic history, at least one of its consecrated mugs. Professor Hopcroft’s

book belongs to this sprawling enterprise. Like Adam Smith, she thinks that the

critical factor was the presence or absence of secure property rights in land

and its produce. Good property rights encourage agricultural innovation and

investment by narrowing the gap between private cost and private benefit and by

reducing uncertainty. Ill-defined property rights do the opposite. It stands to

reason, then, that regional agricultural divergence in the early modern era

must have been, to some degree, due to ex ante differences in agrarian

institutions affecting the exercise of private property rights in land. The

institutions Professor Hopcroft thinks are most important are the ones

associated with communal supervision of crop rotations, the timing of

agricultural operations and guaranteed free access of people and their

livestock to other people’s land. In brief, the book addresses the age-old

issue of whether “communal” agrarian customs constituted a significant

impediment to agricultural improvement.

This is well-tilled ground, which historians have cropped so frequently that

its soil is in danger of being exhausted. Professor Hopcroft claims to have

invented a new fertilizer that combines the purported insights of the new

institutional economics with the traditional techniques of comparative history.

The institutional part shows why “communal” forms of agrarian organization

should have been relevant to agricultural performance; the comparative part

tries to show that they were. The demonstration compares agricultural

institutions and early modern agricultural histories in England, France, the

Low Countries and Sweden. As studies of this type are legion, she

differentiates her product by making the comparisons not on nations but on but

on eighteen regions that comprised them, distinguished chiefly, though not

exclusively by the form of their agrarian regime. In principle the extra

observations should increase the degrees of freedom enough to control for

factors other than the agrarian regime. This assumes, however, that the

variables subject to the analysis are well-defined and that they possess a

common metric across the sample of regions. In addition, for the study to

transcend conventional national comparisons, the regional units should be

defined independently of the states in which they happen to be located. This

book meets neither of these conditions. The “regions” are drawn from national

historiographies, and thus do not cross national boundaries, while variables

like “access to markets” the “strength” of communal regulations, “feudalism”

and “propensity to seek communal solutions to conflicts over access to

resources” that enter the analysis are not defined nor probably are they

definable. This looseness means that the comparisons can prove nothing about

the impact of communal regulation of agriculture.

The extent and importance of communal regulation of agriculture in the

open-field districts of Europe where they flourished is in any event greatly

exaggerated. Professor Hopcroft competently surveys the standard literature on

the topic, but misses the important fact that most of the scholarship on which

it rests was conducted before the Second World War at a time when the study of

agrarian institutions was badly infected by the view that the shape of the

fields, vernacular architecture, peasant costume, dialects, tools and agrarian

regulations expressed the lasting “genius” of the folk (a term Marc Bloch

finessed by calling it “rural civilization”). After the War social

anthropologists and historians placed functional constructions on some of the

elements of the agrarian regime — most notably on the choice of techniques and

communal regulations. However, they maintained the original typological

framework of analysis, which minimized the variability of local agrarian

regimes, and hid from view the need to explain that variability in terms other

than a rigid historical path-dependence linking the observable institutions of

the eighteenth and nineteenth century to a dim medieval and pre-medieval past.

Professor Hopcroft accepts this historiography, which allows her to treat

“communal” agriculture as a pre-determined variable rather than an endogenous

one in her comparisons.

The book is organized as a general argument followed by a series of national

case studies, somewhat belying the claim that the analysis is about regions.

Chapter 1 surveys single-cause models of early modern agricultural development

and finds them inferior to a comprehensive multivariate approach. Chapter 2

supplies a somewhat potted account of the types and origins of European field

systems. Chapter 3 analyses the institutions from the standpoint of

transactions cost, and sets out supposedly testable hypotheses such as

“development will be most likely in countries and regions where state

institutions (particularly legal institutions) and policies decrease

transactions costs involved in production and exchange.” Chapters 4 through 8

carry out the tests of hypotheses on England, the Netherlands, France, Germany

and Sweden. Chapter 9 concludes that “less-communal” institutions were critical

in creating the agrarian conditions for agricultural innovation. Readers

unfamiliar with the standard literature on European agrarian history may

benefit from the bibliography, but on the whole the material is rather dated

and the conclusions drawn from it are unexceptional. This is not a book that

will change anyone’s mind about the topic it treats.

It is also essentially a book in historical sociology rather than historical

economics. As a doctoral dissertation in sociology, it no doubt meets the

analytical standards of its discipline, but it is far from meeting those of

professional historians and professional historical economists. Historians will

be dismayed by the cavalier utilization of secondary sources taken at face

value; economists will be appalled by its failure to meet elementary

definitional requirements of logical analysis; scholars specializing in the

history of agrarian institutions will wonder whether the book’s failure to

discuss comparatively recent work arguing the contrary hypothesis that common

field practices had little long-term effect on the history of agricultural

improvement (Meuvret 1971 and 1987; Grantham 1980) is intentional or just

grossly negligent. Fundamentally, however, this is a work that should not have

been undertaken by a fledgling scholar, even one as obviously intelligent as

Professor Hopcroft. The risks of reasoning from secondary works in history are

so great there ought to be a standing order preventing anyone who has not won

her spurs in hand-to-hand combat with original sources from undertaking it.

This is not because primary sources speak with unforked tongues — quite the

opposite. But they can be made to tell something like the truth by testing them

against each other and against the whole body of scholarship that concerns

them, and by reviewing that literature in their light. This multi-dimensional

triangulation is what gives seasoned historians and seasoned historical

economists a sense of what to trust and what to test. This is not a skill

lightly acquired. How many times have economic historians witnessed an

accomplished economist constructing hypotheses out of stylized facts that have

long been proven to be false, in the gullible belief that if the work once

passed a referee, its results must still be valid, something he would never do

in his own field of expertise. Professor Hopcroft is not an accomplished

economist, but she has fallen into the same trap. Deans being who they are,

assistant professors have to publish books that should not be published. The

best one can hope for is that these books stand untouched on university library

bookshelves, where the only damage they do is to the library budget. It is

painful to see an obviously talented and promising scholar waste her gifts on

an enterprise that cannot but fail. The work shows a strong and vigorous mind

working with tools that are inadequate to the task. As failures go, this is a

promising one.

References:

G. Grantham, “The Persistence of Open-field Farming in Nineteenth-century

France,” Journal of Economic History, 40 (1980), pp. 515-31.

Jean Meuvret, “La vaine p?ture et le progr?s agronomique avant la

R?volution,” in J. Meuvret, ?tudes d`histoire ?conomique.

Paris: Cahiers des Annales. 1971;

Jean Meuvret, Le probl?me des subsistances ? l’?poque Louis XIV. Vol

II. La production des c?r?ales et la soci?t? rurale,

chapter 1. Paris: 1987.

Published by EH.NET (September 2000)

Edwin J. Perkins. Wall Street to Main Street: Charles Merrill and

Middle-Class Investors. New York: Cambridge University Press, 1999. xiv +

283 pp. $29.95 (cloth), ISBN: 0-521-63029-0.

Reviewed for EH.NET by Kenneth A. Snowden, Department of Economics, University

of North Carolina at Greensboro.

Ed Perkins claims (p. 237) that “Charles Merrill deserves high ranking on any

list of the most influential entrepreneurs in American History … in the same

rarified company as Carnegie, Rockefeller, Edison, Ford, Walton, Gates and J.P.

Morgan.” In this lively and well-written book Perkins makes the case with equal

doses of biography, business and economic history and homage to a subject

familiarly referred to throughout the text as “Charlie.” Do not despair if your

syllabus, like mine, fails to recognize Merrill’s “unparalleled contributions

to the development and democratization of twentieth-century capital markets,”

because “[t]he main reason for his lack of public recognition has been the

paucity of information about his monumental accomplishments” (p. 237).

Or perhaps not. In fact, the biographical high points that Perkins lays out,

while clearly establishing Merrill as a shrewd, successful financier and

remarkable personality, hardly seem to place him in the entrepreneurial

pantheon. In 1914, at age 29, this native Floridian, average college student,

and aspiring Wall Street bond dealer opened Charles E. Merrill & Company to

specialize in investment and merchant banking activities for clients in the

retail sector. A largely unsuccessful foray into financing automobile

manufacturers, and a fortuitous and highly lucrative one into movie production,

did not distract his company from becoming a major player in this small and

previously neglected corner of the capital market. By the mid-1920s Merrill and

his then-partner Lynch issued, underwrote and distributed securities for chains

such as Kresge, McCrory, J.C. Penney’s, Kinney’s and Safeway. This last company

commanded increasingly large shares of Merrill’s attention, time and the firm’s

resources, and he abandoned the financial services industry altogether in 1930

when Merrill and Lynch’s brokerage arm was transferred to E.A. Pierce & Co. in

which the firm became silent and inactive partners. By 1932 Merrill had

engineered a remarkable expansion of the Safeway chain through merger, but the

management of the grocery giant was left to his hand-picked CEO, Marion Skaggs.

By 1940 the fifty-five year old Merrill had triumphed twice — as an investment

banker and a grocery chain magnate. Perkins has to acknowledge, however, that

his claim to entrepreneurial immortality had not yet been earned. Merrill’s

genius, according to Perkins, emerged during the next decade and a half as he

created the first truly nationwide system of brokerage houses to connect Wall

and Main Streets. But even here Perkins’ claim seems to founder on biographical

detail; after a series of devastating heart attacks in 1944 and 1945, Merrill

rarely visited the firm before his death in 1956, and served as directing

partner from homes in Long Island and Florida through his most trusted

colleague, Winthrop Smith. Perkins convincingly argues that Merrill’s influence

on the firm, even when infirm and partially incapacitated, remained significant

during the last decade of his life. But the biographical facts frame ever more

narrowly the window during which Merrill’s entrepreneurial accomplishments

occurred. Perkins’ ultimately relies, in fact, on events between 1940 and 1944,

well before the spectacular postwar growth of Merrill Lynch, Pierce, Fenner &

Smith.

The crux of the argument is laid out in Chapters 11 and 12 where Merrill’s

third career is characterized as formulating and testing a new strategy on Wall

Street. In 1940 Merrill was faced with either dissolving the firm’s interest in

Pierce’s faltering brokerage firm or becoming active once again in the

financial service industry. Merrill and trusted associates huddled for two

months in early 1940 as the merger of Merrill Lynch and E.A. Pierce was being

arranged, and in April 1940 the organizing principles of the new company were

announced at a meeting of branch managers.

Merrill relied on his experience in both financial services and the retail

trade in formulating his strategy and even used information culled from a

survey of the brokerage’s customers in California. Perkins observes that little

of the plan was modified in subsequent years, and that the April meeting “set

the tone and direction for Merrill Lynch over the next quarter century.” We

have here, therefore, entrepreneurial innovation in its purest form.

Merrill integrated three interrelated principles: a new culture for the

brokerage house and its employees, a rejuvenation of the public’s confidence in

securities and the securities markets, and an expansion in the numbers and

types of investors. Numerous specific innovations were involved: the firm’s

brokers received training, were referred to as account executives and were

compensated with salaries and profit-sharing instead of commissions; the firm

began to publicly disclose an annual performance statement, advertised the

benefits of stock investment as a long-term investment strategy and liberally

offered education and research on security investments to current and

prospective customers; new customers were asked to fill out a questionnaire

after which their accounts were directed to account specialists who were most

experienced in the investment activities that they desired. Merrill had been

espousing some of these ideas since the 1910s; had been exposed to others in

his dealings with retail firms; and had gleaned still others from the research

his team had recently undertaken. This amalgam proved wildly successful — by

1953 Merrill Lynch was operating 108 retail offices nationwide (9 percent of

the brokerage outlets of all NYSE members) and claimed a 12 percent share of

all trades on the NYSE exchange and an 18 to 20 percent share of trades on

regional exchanges. As Perkins notes, Merrill’s firm was an undeniable leader

in introducing the customer-oriented approach to marketing securities and

promoting the postwar expansion and democratization of corporate ownership.

But was Merrill an innovator of first rank? Perkins has taken an important

first step in making this case, and his book deserves to be widely read and

discussed. But additional work and analysis on two fronts will be required

before the name Merrill rolls as easily off the tongue as Morgan, Ford or

Carnegie. To begin with, it is not clear from Perkins’ treatment where the

contributions of Merrill end and those of numerous trusted associates and

colleagues begin. Win Smith, son-in-law Robert Magowan, consultant Ted Braun

and journalist-advertising head Louis Engel play pivotal roles in this story

both before and after Merrill’s incapacitating illness. Merrill clearly

assembled this team and was early on its leader and most powerful spokesman,

but the entrepreneurial contributions of his firm may be better described by

the “We the People” moniker that journalists bestowed on the multi-name

organization firm in the early 1940s than on Merrill’s contributions alone.

More fundamentally, it remains unclear just how Merrill’s innovations solved

underlying informational problems and market imperfections that had prevented

an earlier development of the modern retail brokerage house. We are told that

Merrill advocated full disclosure in his company’s dealings, aggressively

invested in advertising and educational programs that benefited the entire

brokerage industry as well as his firm, and welcomed rather than feared

imitators of his methods. This list of “accomplishments” looks impressive when

juxtaposed against the worst instances of market “manipulation,” “fraud” and

“greed” that Perkins attributes to nameless predecessors in the industry, but

they only suggest how Merrill’s specific innovations cost-effectively overcame

security market imperfections.

Parts of the Merrill story, in fact, can be interpreted as evidence that his

“genius” lay in advertising, packaging and selling unnecessary services to

small and medium investors. The firm’s own research in the 1940s and 1950s

identified “churners” — investors who borrowed from the firm on margin and

undertook a large volume of trades — as the principal source of the firm’s

profits. The numerous accounts of small, relatively inactive investors actually

generated losses for the company, but were cultivated in order to increase the

pool out of which new churners would emerge (p. 153). Furthermore, while the

company’s favorite advertising slogan, “investigate, then invest” had the

trappings of empowering investors, it also created a market for investment

advice and research of dubious value. In fact, Perkins tells us (pp. 222-32)

that Merrill’s dogmatic resistance to mutual funds in the early 1950s stemmed

from his belief that their availability would lead investors to adopt rigid buy

and hold policies that would reduce trading volume and the firm’s revenues.

Was this self-proclaimed “grocery man at heart” a giant of financial

innovation? Maybe, but do not rewrite your syllabi just yet. Instead, read

Perkins’ interesting and provocative treatment yourself and, like me, wait for

the outcome of the discussion of Merrill’s career that this fine book is sure

to engender.

Ken Snowden is author of “Historical Returns and Security Market Development,

1872-1925,” and “American Stock Market Development and Performance, 1871-1929,”

Explorations in Economic History (October 1987 and 1990). He is

currently working on a history of the Building and Loan Industry, see “Building

and Loan Associations in the US, 1880-1893: The Origins of Localization in the

Residential Mortgage Market,” Research in Economics, 51, 1997.

Joseph A. Schumpeter, Capitalism, Socialism and Democracy. New York: Harper & Row, 1942, 381 pp.; Third edition, 1950, 431 pp.

Review Essay by Thomas K. McCraw, Harvard Business School.

The Creative Destroyer: Schumpeter’s Capitalism, Socialism, and Democracy

Does Joseph Schumpeter’s Capitalism, Socialism and Democracy rank with the most important works of economic history of the twentieth century? Of course it does. Has there been a more penetrating analyst of capitalism than Joseph Schumpeter? No, I do not think there has.

Schumpeter led a melodramatic life (1883-1950), moving from Austria to England to Egypt to Germany before coming to Harvard for good in 1932. He was a phenomenally productive scholar, despite occasional forays into business and government in addition to a plethora of romantic liaisons that included three marriages. His first published article appeared in 1905, his last in 1950. His output included fifteen books (several of immense length), six pamphlets, about one hundred book reviews, and 148 articles, comments, and occasional pieces.

Long after his death, his influence continues to grow. Massimo M. Augello’s Joseph Alois Schumpeter: A Reference Guide appeared in 1990 and ran to over 350 pages. Since then, several dozen articles on Schumpeter have appeared, in addition to biographies by Eduard M?rz, Robert Loring Allen, Richard Swedberg, and Wolfgang Stolper. All of this work has enriched our knowledge of this remarkable polymath.

Just how great was Schumpeter? Tibor Scitovsky places him at the very top: “America’s most brilliant economist.” The intellectual historian Martin Kessler agrees, arguing that Schumpeter was, apart from Keynes, “the only truly great economist the twentieth century has produced.” Oskar Morgenstern sensibly comments that at this level rankings become pointless, that “all will agree that [Schumpeter] belongs to that small top group where a further ranking becomes almost impossible.”1

Many scholars of business history, most notably Alfred D. Chandler, Jr., have looked to Schumpeter as the economist who best understood the rise of big business and the central roles of innovation and entrepreneurship.2 In economic history, the work of Nathan Rosenberg and William Lazonick, among others, is imbued with Schumpeterian insights.3 In the study of “business strategy,” a term probably coined by Schumpeter in Capitalism, Socialism and Democracy, Michael Porter’s seminal work places a distinctly Schumpeterian emphasis on relentless innovation as the essence of competitive strategy.4 Within economics, Schumpeter’s influence in America is perhaps best exemplified by the work of F. M. Scherer and Richard R. Nelson. Scherer, a prolific scholar and author of a standard textbook in industrial organization, acknowledges his intellectual debts in a book entitled Innovation and Growth: Schumpeterian Perspectives . Nelson’s Schumpeterian proclivities are on display in An Evolutionary Theory of Economic Change , co-authored with Sidney G. Winter.5 A few other economists have tried to implement parts of the Schumpeterian system, particularly those having to do with innovation.6

Most mainstream economists have been frustrated by the difficulty of operationalizing Schumpeter’s models. His aversion to equilibrium as a realistic picture of capitalist economies restricts the mathematicization of his system. Then, too, because he insisted on fusing economics with history, sociology, and psychology, the number of variables becomes almost impossible for the analyst to control.7

As a scholar Schumpeter never advanced a program of economic reform. He believed that doing so compromised “scientific” work. In particular he criticized Keynes and other English economists for their “Ricardian Vice” of leaping into policy debates with abstract models as general prescriptions for change.8 Schumpeter himself took a very different approach in Capitalism, Socialism, and Democracy.

Capitalism, Socialism, and Democracy and Its Predecessor Book

Schumpeter’s core argument in Capitalism, Socialism, and Democracy is reducible to three major tenets:

1. The essence of capitalism is innovation (“creative destruction”) in particular sectors. Certain standard tools of economics, such as static equilibrium and macroeconomic analysis, can therefore disguise reality and mislead scholars and students.

2. The virtues of capitalism–in particular its steady but gradual pattern of growth–are long-run and hard to see; its defects, such as inequality and apparent monopoly, are short-run and conspicuously visible.

3. It is dangerous for economists to prescribe “general” recipes, because political and social circumstances are always changing.

Capitalism, Socialism, and Democracy was Schumpeter’s most popular success by far. Translated into at least sixteen languages, it still sells widely in paperback editions. Although the author often compared it unfavorably with his more scholarly books, it retains its seminal quality three generations after it appeared.

Despite the book’s title, it contains little of lasting interest about either socialism or democracy. But it bursts with ideas about capitalism, and as a “performance”–a term Schumpeter liked to apply to others’ works–it may be the best analysis of capitalism ever written.

Only three years before the appearance of this great work, Schumpeter had brought out another book he thought would be his magnum opus: the 1100-page Business Cycles: A Theoretical, Historical, and Statistical Analysis of the Capitalist Process. The virtues of the second book, Capitalism, Socialism, and Democracy, can be fully understood only against the shortcomings of this prior work.

The first problem with Business Cycles was its extraordinary and wholly unnecessary length. A second characteristic was the author’s misguided attempt to turn business cycle patterns into predictive scientific wave theories borrowed from physics. As Schumpeter wrote, “Barring very few cases in which difficulties arise, it is possible to count off, historically as well as statistically, six Juglars [8-10-year business cycles] to a Kondratieff [50-60 years] and three Kitchins [40 months] to a Juglar–not as an average but in every individual case.” Why this was so, he admitted, “is indeed difficult to see.”9 As his former student Paul Samuelson wrote thirty-five years later, the whole exercise “began to smack of Pythagorean moonshine.”10

The third noteworthy aspect of Business Cycles was its remarkable richness of historical detail and understanding. Though the explanation of cycles remained problematical, the historical vision was squarely on point: that capitalism–not all economic activity, just capitalism–is fundamentally an unstable, disequilibrating process.11

Simon Kuznets, a macroeconomist and future Nobel laureate, wrote for the American Economic Review a fifteen-page analysis of Business Cycles. It was the most thorough and important of the reviews, kindhearted in tone but still devastating. Kuznets conceded that Schumpeter had written a “monumental treatise” that raised all the right questions and did relate short-term business cycles to long-run economic movements. Still, Kuznets wrote, business cycles are essentially quantitative phenomena. Instead of robust statistical argument, Schumpeter had presented the reader with “an intellectual diary,” an account of his own “journey through the realm of business cycles and capitalist evolution, a journal of his encounters there with numerous hypotheses, diverse historical facts, and statistical experiments.” These efforts could not substitute for robust quantitative analysis.12 Two other reviewers noticed Schumpeter’s implicit distaste for macroeconomics, referring to his “vigorous stand against ‘the curse of aggregative thinking.'”13

Given the harsh reception of Business Cycles, published only three years earlier, the content and also the detached and ironic tone of Capitalism, Socialism and Democracy appear in a different light. It is as though Schumpeter, now deeply pessimistic about the state of the world, decided to unburden himself not only on economics but on a broad array of other subjects as well. Hence the candor and breadth of the 1942 book, which produced thousands of future citations by scholars in sociology, history, economics, and other disciplines.14

Some of the major themes represent reworkings of ideas Schumpeter had first presented in articles published long before, while in his twenties (he was fifty-nine in 1942). A capitalist economy, he now wrote in Capitalism, Socialism and Democracy, “is not and cannot be stationary. Nor is it merely expanding in a steady manner. . . . Every situation is being upset before it has had time to work itself out. Economic progress, in capitalist society, means turmoil.”15

In a 54-page analysis of Karl Marx at the beginning of Capitalism, Socialism and Democracy, Schumpeter considers Marx as Prophet, Sociologist, Economist, and Teacher. It’s hard to avoid the thought that the author construed himself in the same roles. Certainly his critique of Marx is full of insight: “Now Marx saw this process of industrial change more clearly and he realized its pivotal importance more fully than any other economist of his time.” He accomplished a fusion of history and theory whose result represented something different from either one alone. Marx “was the first economist of top rank to see and to teach systematically how economic theory may be turned into historical analysis and how the historical narrative may be turned into histoire raison?e.” Nevertheless, Schumpeter’s final verdict is negative, because of the “failure of [Marx’s] prediction of increasing misery,” which in turn derived from “wrong vision and faulty analysis.” Although Marx the economist and sociologist was mostly correct, Marx the prophet and teacher proved to be disastrously wrong.16

As prophet, the same might be said of Schumpeter himself. On page 61 of Capitalism, Socialism and Democracy Schumpeter asks, “Can capitalism survive?”, then replies, “No. I do not think it can.”17 This provocative passage may have been sincere, or simply Schumpeter’s way of getting the reader’s full attention. His purpose was to lay bare the core nature of capitalism–to show how it works, to demonstrate why, on balance, it is a good thing; and then to highlight its fragility.18

In response to the standard charge that capitalism distributes its fruits inequitably, Schumpeter points out that “Queen Elizabeth owned silk stockings. The capitalist achievement does not typically consist in providing more silk stockings for queens but in bringing them within the reach of factory girls in return for steadily decreasing amounts of effort. . . . the capitalist process, not by coincidence but by virtue of its mechanism, progressively raises the standard of life of the masses.”19

A by-product of capitalism is the dominance of all life by an economic calculus, which Schumpeter calls “rationality.” He shows how powerfully the economic way of thinking bestows rewards and penalties: “Prizes and penalties are measured in pecuniary terms. Going up and going down means making and losing money. . . . The promises of wealth and the threats of destitution that [this arrangement] holds out, it redeems with ruthless promptitude.” Constant, relentless change is the hallmark of capitalism. “It may seem strange that anyone can fail to see so obvious a fact which moreover was long ago emphasized by Karl Marx.”20

Underscoring the deficiencies of any conceptual system that proceeds from static assumptions, Schumpeter compares the universe of Adam Smith and other classical economists with the reality of modern industry. The classicists “recognized cases of ‘monopoly,’ and Smith himself carefully noticed the prevalence of devices to restrict competition.” Yet neither Smith nor most other classical and neoclassical economists “saw that perfect competition is the exception and that even if it were the rule there would be much less reason for congratulation than one might think. If we look more closely at the conditions . . . that must be fulfilled in order to produce perfect competition, we realize immediately that outside of agricultural mass production there cannot be many instances of it.”21

Schumpeter contrasts this situation with modern business, parts of which involve constantly evolving oligopolies. These new situations do not easily lend themselves to mathematical modeling. In oligopolies, “there is in fact no determinate equilibrium at all and the possibility presents itself that there may be an endless sequence of moves and countermoves, an indefinite state of warfare between firms.”22

The contemporary structure of business is best understood as having evolved from long “organizational development.” It reflects a “process of industrial mutation–if I may use that biological term–that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.”23

In sum, the process is one of “creative destruction”–the sweeping out of old products, old enterprises, and old organizational forms by new ones. It is what capitalism consists in and what every capitalist concern has got to live in.”24 For the scholar, this necessitates a lengthy time frame for analysis: “Every piece of business strategy acquires its true significance only against the background of that process and within the situation created by it. It must be seen in its role in the perennial gale of creative destruction; it cannot be understood irrespective of it or, in fact, on the hypothesis that there is a perennial lull. . . . As long as this is not recognized, the investigator does a meaningless job.25

One result of this approach should be a sharper focus on product quality and on marketing, and a reduced emphasis on price. “[I]n capitalist reality as distinguished from its textbook picture, it is not [price] competition which counts but the competition from the new commodity, the new technology, the new source of supply, the new type of organization (the largest-scale unit of control for instance)–competition which commands a decisive cost or quality advantage and which strikes not at the margins of the profits and the outputs of the existing firms but at their foundations and their very lives.” A theoretical analysis that “neglects this essential element of the case . . . even if correct in logic as well as in fact, is like Hamlet without the Danish prince.”26

Schumpeter then turns to the question of monopoly. He mounts a devastating attack on what he regards as popular American attitudes toward this subject, which, in his judgment, spill over onto big business in general. Much of what Schumpeter says here was conditioned by what happened in the 1930s, and specifically by New Dealers’ assaults on big business. He argues that the very nature of giant, capital-intensive enterprise requires strategic behavior not contemplated by orthodox economic theory except to the extent that the theory holds such behavior monopolistic. As a matter of historical record, Schumpeter insists, long-run price rigidities are practically unknown. The same is true of long-run cases of monopoly, which are rarer than instances of perfect competition.27

It seemed plain to Schumpeter that big business, instead of exploiting consumers, had radically elevated their living standards. Organizational innovation, not monopolistic profits, accounted for the prosperity of most great companies. They should be viewed with pride and awe, not with detestation and fear. “These units not only arise in the process of creative destruction and function in a way entirely different from the static scheme, but in many cases of decisive importance they provide the necessary form for the achievement. They largely create what they exploit.” Monopoly rents might flow for awhile, but they are inevitably temporary, “the prizes offered by capitalist society to the successful innovator.” Under capitalism, the idea of a permanent monopoly is ludicrous, especially in manufacturing.28

Schumpeter next mounts a savage assault on the idea of perfect competition. He implies that it has evolved from an analytical tool of theoretical economics into an ideal toward which theory should guide public policy. This, he suggests, is catastrophic:

If we try to visualize how perfect competition works or would work in the process of creative destruction, we arrive at a still more discouraging result. . . . In the last resort, [cases approaching perfect competition, such as] American agriculture, English coal mining, [and] the English textile industry are costing consumers much more and are affecting total output much more injuriously than they would if controlled, each of them, by a dozen good brains.29

Pushing his analysis to its limits, Schumpeter identifies capitalist entrepreneurship with technological progress itself. As a matter of historical record, they were “essentially one and the same thing,” the first being “the propelling force” of the second.”30

At this point in the book, Schumpeter begins to lay the foundations for his famous argument that capitalism contains the seeds of its own destruction–not for economic reasons but for sociological ones. His reasoning proceeds as follows:31

1. In pre-capitalist times, no sheer economic achievement, by itself, could advance anyone into the ruling class.

2. When capitalism began to develop, persons of “supernormal ability and ambition” became upwardly mobile provided they would “turn to business.”

3. It was hard to succeed in business, yet success remained inglorious: “no flourishing of swords about it, not much physical prowess, no chance to gallop the armored horse into the enemy. . . . The stock exchange is a poor substitute for the Holy Grail.”

4. There can be no assurance that people are “happier” or “better off” under industrialism than in the medieval manor or village. Efficiency is only one of many human desiderata, and perhaps not the most important one.

5. So the future of capitalism can’t be assured purely because of its economic superiority. “I am not going to argue, on the strength of that performance, that the capitalist intermezzo is likely to be prolonged.”

6. Capitalism all but destroyed most of the secular underpinnings of civilized society–the manor, village, and craft guild. Yet it replaced these institutions with nothing: no idealism, no sense of organic life, no essential ability for social organization of a non-economic nature.

7. In particular, the talents necessary for economic success don’t translate well into other realms of life. “A genius in the business office may be, and often is, utterly unable outside of it to say boo to a goose–both in the drawing room and on the platform.”

8. So, without protection from some other source, “the bourgeoisie is politically helpless and unable not only to lead its nation but even to take care of its particular class interest.”

9. Because capitalist evolution, and particularly the rise of big business, attacks masses of small producers and merchants, it alienates its natural allies, indirectly giving reinforcements to the enemy.

10. The substitution of a share of stock for tangible goods “takes the life out of the idea of property.” If this process goes on long enough and thoroughly enough, “there will be nobody left who really cares to stand for [property].”

11. Capitalism works gradual changes within the psyches of individuals. By reducing everything to an economic calculus, it “rationalizes” thinking. It “creates a critical frame of mind which, after having destroyed the moral authority of so many other institutions, in the end turns against its own.”

12. The philosophical case for capitalism is beyond the intellectual capacity of most persons, even most economists. “Why, practically every nonsense that has ever been said about capitalism has been championed by some professed economist.”

13. Most important, the case for capitalism “must rest on long-run considerations.” In the short run, it is impossible for most people, even intellectuals, to ignore exasperating “profits and inefficiencies” and focus instead on long-range trends.

14. Uniquely among types of societies, capitalism is so successful economically that it “creates, educates and subsidizes a vested interest in social unrest.” It underwrites a class of hostile intellectuals who have no “direct responsibility for practical affairs” and little experience in managing anything.

15. The rise of mass media makes this situation more dangerous by multiplying the access of demagogues to short-run human instincts and desires. In the process, “public policy grows more and more hostile to capitalist interests.”

16. Bureaucracies in Europe antedate the capitalist epoch and owe no allegiance to bourgeois values. Bureaucracies in America, however, with no real civil service tradition, hold onto their antipathy toward capitalism because they don’t grasp the vast stakes at issue. Given the “legislative, administrative and judicial practice born of that hostility, entrepreneurs and capitalists–in fact the whole stratum that accepts the bourgeois scheme of life–will eventually cease to function.”

17. Most alarming of all, the bourgeois family may disintegrate. As soon as men and women “introduce into their private life a sort of inarticulate system of cost accounting,” they will become aware that “children cease to be economic assets.” When this happens, the last pillar of bourgeois society will fall.

Much of Schumpeter’s argument here might be interpreted as a cry from the heart of a brilliant but unlucky European elitist, who had witnessed one catastrophe after another during the bloody first half of the twentieth century. Even in contemporary America, a unique opportunity for the development of an advanced capitalist society stood on the edge of disaster. It was happening in the United States because of the Great Depression, the ascendance of fascism and communism in Europe, and the onset of World War II. It had not happened earlier because “The scheme of values that arose from the national task of developing the economic possibilities of the country drew nearly all the brains into business and impressed the businessman’s attitudes upon the soul of the nation.”32

Schumpeter professed to see not only the decline of capitalism but also the ultimate triumph of socialism. “Can socialism work?” he asks. “Of course it can.” In large part, it can work because it inspires people to noble ends, to something larger than themselves. Socialism implies “a new cultural world” whose psychic rewards may be worth the price of optimal economic efficiency. For true believers, “Socialist bread may well taste sweeter to them than capitalist bread simply because it is socialist bread, and it would do so even if they found mice in it.”33

Despite memorable aphorisms such as this one, Schumpeter’s analysis of socialism and democracy is a good deal less compelling than his dissection of capitalism. He says of democracy that it is best understood not as a system but merely a “method”–an “institutional arrangement for arriving at political decisions in which individuals acquire the power to decide by means of a competitive struggle for the people’s vote.” Of course there is much more to democracy than this, but Schumpeter’s real interests lie elsewhere.34

At the very end of Capitalism, Socialism and Democracy, Schumpeter delivers a philippic about the intrusion of modern government, and specifically the New Deal state, into economic life. He mentions counter-cyclical policies, redistributive taxation, antitrust, price controls, monetary policy, the regulation of labor, securities legislation, and the “indefinite extension of the sphere of wants” to be supplied by public enterprise. Yet, ever the “scientist” reluctant to succumb to the Ricardian Vice, Schumpeter closes with this remarkable statement: “It would spell complete misunderstanding of my argument if you thought that I “disapprove” or wish to criticize any of these policies. Nor am I one of those who label all or some of them “socialist.”35

The Book’s Reception

Capitalism, Socialism and Democracy received a modicum of attention in 1942, when it was first published. A second edition, which appeared in 1946, attracted wider notice, and the third, in 1950, became an international best-seller.

Reviewing the first edition, the Cambridge economist Joan Robinson found that Schumpeter “has little love for socialism, and none at all for socialists. His natural sympathy is all with the heroic age of expanding capitalism.” Herself a leading theorist of imperfect competition, Robinson found Schumpeter’s analysis of that subject the “most brilliant” part of the book: “his argument blows like a gale through the dreary pedantry of static analysis.” Although Schumpeter had little to say about contrary evidence, especially in his argument about the fadeout of capitalism and its replacement by socialism, “The reader is swept along by the freshness, the dash, the impetuosity of Professor Schumpeter’s stream of argument.” Whether or not the reader was totally convinced, “this book is worth the whole parrot-house of contemporary orthodoxies, right, left, or centre.”36

Reviewing the 1946 edition of Capitalism, Socialism and Democracy, Arthur M. Schlesinger, Jr. wrote that the book “burst into the generally sterile atmosphere of political discussion like a collection of firecrackers and skyrockets.” Schumpeter’s analysis made it pointless to keep repeating mindless slogans about the evils of monopoly. Even if he were wrong, “there is no percentage in dodging the uncomfortable points he raises. The intellectual rigor of his analysis sets a standard that liberal writers should try to meet.” The book “is the performance of an intellectual virtuoso, brilliant, complex, perfectly controlled.”37 In 1981, a retrospective analysis of the book appeared, entitled Schumpeter’s Vision: Capitalism, Socialism, and Democracy After 40 Years.38 Here several of Schumpeter’s former students and associates joined with some European scholars in evaluating the book’s legacy. Paul Samuelson led off, conceding that the subject under discussion was “a great book.” He added that from a game theoretic viewpoint Schumpeter might have taken account of the propensity of democratic groups to change the nature of capitalism and to bend it to their own self-interest. Schumpeter’s praise of Marx for “being learned, bold to speculate, and broad in his dynamic vision” describes Schumpeter himself, Marx thereby being “a veritable chip off the new block.” Yet “Schumpeter was of all my teachers the one whose economics was essentially farthest from Marx’s.”39

The sociologist Tom Bottomore, a man of the Left, lamented Schumpeter’s disinclination to cast his analysis in terms of economic and social class. Thus, he had overlooked some important changes that now (in the 1980s) were clearer: “A very large part of the middle class, in spite of variations. . . has maintained a political orientation which is much more favourable to parties of the right and the centre than to those of the left. . . . [Schumpeter] thought that the ‘march into socialism’ was well-nigh irresistible, and deplored the fact. I, on the contrary, think that this ‘march’ has come to an untimely halt, and regret the eclipse of the highest ideal that has emerged in modern Western culture.”40

In a third essay, Schumpeter’s fellow Austrian and longtime Harvard colleague Gottfried Haberler wrote that although Schumpeter never said so in Capitalism, Socialism and Democracy, it was clear that his “real feeling” was “that capitalism or the ‘bourgeois’ society is very much worth fighting for.” Schumpeter’s forecast of capitalism’s downfall “has shocked and puzzled many people. If all qualifications, reservations, and elucidations are given their proper attention, however, the forecast of capitalism’s early doom becomes less apodictic and the demise of capitalism loses much of its inevitability.” Then, too, Schumpeter’s emphasis on rising resentment of taxation anticipated the American tax revolt that began in the 1970s, a movement of extraordinary importance.41

The economist Robert L. Heilbroner, a first-rate stylist himself, judged Capitalism, Socialism and Democracy partly on artistic terms: “There is [in the book] a great deal of attitudinizing. . . an open delight in epater le bourgeois and tweaking the noses of radicals. There is also pomposity and pedantry, mixed with an arrogance that teeters on the edge of a dangerous elitism.” Yet the book remains full of “perceptive insights,” such as Schumpeter’s remark that “The evolution of the capitalist lifestyle is best described ‘in terms of the genesis of the modern lounge suit,’ a remark worthy of Thorstein Veblen.”42

Arthur Smithies, Schumpeter’s former student and colleague, saw Capitalism, Socialism and Democracy in part as a reaction against Keynesianism. Schumpeter had openly derided the “stagnation thesis” introduced in Keynes’s General Theory. This thesis holds that as a country grows richer investment opportunities shrink but the propensity to save increases; therefore savings and investment balance only at high unemployment. “If valid,” wrote Smithies, “the long-run Keynesian argument provided an impregnable case for socialism.” Yet Schumpeter saw that the underpinnings of the stagnation thesis were the atypical conditions of the Great Depression. He “maintained his sanity” and insisted that such problems were not permanent but cyclical. As for Schumpeter’s concern with inflation, in the 1940s Anglo-American economists thought it “obsessive,” but in fact Schumpeter proved remarkably prescient.43

Herbert K. Zassenhaus, another economist from the generation just behind Schumpeter, detected “a certain mysticism” in Capitalism, Socialism, and Democracy. “In the shape of the ‘entrepreneur,'” Schumpeter introduces “a social miracle in the precise sense of the word: an event beyond the laws of nature and society.”44

In perhaps the most telling of all the retrospective comments, the Dutch scholar Henrik Wilm Lambers recalled Schumpeter’s influence on him as a youth and the continued appeal of his book. In Capitalism, Socialism and Democracy, Lambers wrote, “Schumpeter accomplished the feat of moving five layers of thought–the firm, the markets, the institutions, the cultural values, the leaders of society–as one interwoven dynamic process. With incomparable skill he made history go through time as one stream.” Lambers’ own students were invariably taken with the book: “After many an oral graduate examination, I have often heard remarks like: ‘to be honest, the one stimulating book was Schumpeter’.” Radical and conservative students alike “say, each in their own way, ‘he keeps me puzzled: is it my fault or did he intend to?'”45

Capitalism, Socialism, and Democracy continues to puzzle and provoke readers–to make them think, to question their own perceptions measured against their own ideologies and to wonder about the author’s intentions. Only the very greatest books do this, and age so well.

Endnotes:

1. Tibor Scitovsky, “Can Capitalism Survive? — An Old Question in a New Setting,” Ely Lecture, American Economic Review, 70 (May 1980), p. 1; Martin Kessler, “The Synthetic Vision of Joseph Schumpeter,” Review of Politics, 23 (July 1961), p. 334; O. Morgenstern, “Obituary,” Economic Journal, 61 (March 1951), p. 203.

2. Chandler, Strategy and Structure: Chapters in the History of the Industrial Enterprise, Cambridge, MA: MIT Press, 1962, p. 284; and Chandler, Scale and Scope: The Dynamics of Industrial Capitalism, Cambridge: Harvard University Press) pp. 597, 830-831 n1.

3. See, for example, Lazonick, Competitive Advantage on the Shop Floor, Cambridge: Harvard University Press, 1990, pp. 3, 10, 323-324; and Rosenberg, “Joseph Schumpeter: Radical Economist,” in Exploring the Black Box: Technology, Economics, and History, New York: Cambridge University Press, 1994. Schumpeter often spoke on the relationship between history and theory: “Personally, I believe that there is an incessant give and take between historical and theoretical analysis and that, though for the investigation of individual questions it may be necessary to sail for a time on one tack only, yet on principle the two should never lose sight of each other”; see Schumpeter’s 1949 essay, “Economic Theory and Entrepreneurial History,” reprinted in Richard V. Clemence, editor, [Schumpeter’s] Essays: On Entrepreneurs, Innovations, Business Cycles, and the Evolution of Capitalism, New Brunswick, NJ: Transaction Publishers, 1989. See also Schumpeter, “The Creative Response in Economic History,” Journal of Economic History, 7 (November 1947).

4. Porter, The Competitive Advantage of Nations, New York: Free Press, 1990, p. 778 n.46.

5. Frederic M. Scherer, Innovation and Growth: Schumpeterian Perspectives, Cambridge, MA: MIT Press, 1984. Richard R. Nelson and Sidney G. Winter, An Evolutionary Theory of Economic Change, Cambridge, MA: Harvard University Press, 1982. Part V of this book (pp. 273-351) is entitled “Schumpeterian Competition,” and in it the authors try, mathematically, to apply Schumpeter’s insights to the process of innovation.

6. See, in general, Richard V. Clemence and Francis S. Doody, The Schumpeterian System, Cambridge, MA: Addison-Wesley, 1950. For more specialized efforts, and critiques of them, see Carolyn Shaw Solo, “Innovation in the Capitalist Process: A Critique of the Schumpeterian Theory,” Quarterly Journal of Economics, 65 (August 1951), pp. 417-428; Franklin M. Fisher and Peter Temin, “Returns to Scale in Research and Development: What Does the Schumpeterian Hypothesis Imply?” Journal of Political Economy, 81 (January/February 1973), pp. 56-70 [see also Comments by Carlos Alfredo Rodriguez and Reply by the authors in Journal of Political Economy, 87 (April 1979), pp. 383-389]; Morton I. Kamien and Nancy L. Schwartz, “Market Structure and Innovation: A Survey,” Journal of Economic Literature, 13 (March 1975), pp. 1-37; Carl A. Futia, “Schumpeterian Competition,” Quarterly Journal of Economics, 94 (June 1980), pp. 675-695; Meir Kohn and John T. Scott, “Scale Economies in Research and Development: The Schumpeterian Hypothesis,” Journal of Industrial Economics, 30 (March 1982), pp. 239-249; and Horst Hanusch, editor, Evolutionary Economics: Applications of Schumpeter’s Ideas, Cambridge: Cambridge University Press, 1988.

7. During the 1990s the Schumpeter literature became especially voluminous, with articles in such publications as the Journal of Evolutionary Economics and the Journal of Institutional Economics. These pieces often drew as much on Schumpeter’s sociology as on his economics. Several sought to apply biology to Schumpeter’s evolutionary analysis.

8. Schumpeter actually used the word “sins”: “I did not exactly wish to put Ricardo and Keynes on the same level, but I do think that there is striking similarity between their sins.” (Letter to Arthur W. Marget, Feb. 24, 1937, Schumpeter Papers, Harvard University Archives.)

9. Joseph A. Schumpeter, Business Cycles: A Theoretical, Historical, and Statistical Analysis of the Capitalist Process, New York: McGraw-Hill, 1939, Volume I, pp. 169, 173, 174.

10. Samuelson, “Joseph A. Schumpeter,” Dictionary of American Biography, Supplement Four, 1946-1950, New York: Scribner, 1974, p. 723.

11. In this book the orientation appears most clearly in some vivid passages on pages 220-245 of Volume I.

12. Simon Kuznets, American Economic Review, 30 (June 1940), pp. 257, 266-271.

13. E. Rothbarth, Economic Journal, 52 (June-Sept. 1942), p. 229; J. Marschak, Journal of Political Economy, 48 (Dec. 1940), p. 892.

14. An insightful analysis of Schumpeter’s state of mind when he wrote Capitalism, Socialism, and Democracy may be found in Chapter 7 of Richard Swedberg, Schumpeter: A Biography, Princeton, NJ: Princeton University Press, 1991.

15. Capitalism, Socialism, and Democracy, New York: Harper Torchbook Edition, 1976, pp. 31-32.

16. Capitalism, Socialism, and Democracy, p. 32, 34, 44.

17. Capitalism, Socialism, and Democracy, p. 61.

18. In the revised edition of Capitalism, Socialism and Democracy appears Schumpeter’s final paper, “The March into Socialism” (December 1949). Here he speaks candidly about capitalism’s social implications: “Capitalism does not merely mean that the housewife may influence production by her choice between peas and beans; or that the youngster may choose whether he wants to work in a factory or on a farm; or that plant managers have some voice in deciding what and how to produce: it means a scheme of values, an attitude toward life, a civilization–the civilization of inequality and of the family fortune” (p. 419).

19. Capitalism, Socialism, and Democracy, pp. 67-68.

20. Capitalism, Socialism, and Democracy, pp. 73-74, 77 n1, 82. In History of Economic Analysis, published posthumously (New York: Oxford University Press, 1954), Schumpeter wrote that in capitalism, “Disequilibrium prevails throughout, but Marx saw that this disequilibrium is the very life of capitalism” (p. 1051).

21. Capitalism, Socialism, and Democracy, pp. 78-79.

22. Capitalism, Socialism, and Democracy, p. 79.

23. Capitalism, Socialism, and Democracy, p. 83.

24. Capitalism, Socialism, and Democracy, p. 83.

25. Capitalism, Socialism, and Democracy, pp. 83-84.

26. Capitalism, Socialism, and Democracy, pp. 84-86.

27. Capitalism, Socialism, and Democracy, pp. 93, 99.

28. Capitalism, Socialism, and Democracy, pp. 101-102.

29. Capitalism, Socialism, and Democracy, pp. 104-106.

30. Capitalism, Socialism, and Democracy, p. 110. Schumpeter adds that making such a distinction is “quite wrong–and also quite un-Marxian.”

31. My summary here is abstracted from Capitalism, Socialism and Democracy, pp. 124-157.

32. Capitalism, Socialism, and Democracy, p. 331. This point echoes one of Schumpeter’s pet themes: that all societies suffer from a paucity of first-rate talent. Legal issues, labor problems, price control issues, and antitrust prosecutions add up to a “drain on entrepreneurial and managerial energy.” So much effort is expended on such issues that an executive often “has no steam left for dealing with his technological and commercial problems.” One consequence is that except in very large companies, which can afford numerous specialists, “leading [management] positions tend to be filled by ‘fixers’ and ‘trouble shooters’ rather than by ‘production men'” (p. 388.)

33. Capitalism, Socialism, and Democracy, pp. 167, 170, 190.

34. Capitalism, Socialism, and Democracy, p. 269.

35. Capitalism, Socialism, and Democracy, p. 418. This passage is from Schumpeter’s last address, delivered to the American Economic Association in December, 1949, three weeks before his death. The address was entitled “The March into Socialism.”

36. Joan Robinson, in the Economic Journal, 53 (December 1943), pp. 381-383.

37. Arthur M. Schlesinger, Jr., in The Nation, April 26, 1947, pp. 489-491.

38. Arnold Heertje, editor, Schumpeter’s Vision: Capitalism, Socialism and Democracy after 40 Years, New York: Praeger, 1981.

39. Paul A. Samuelson, “Schumpeter’s Capitalism, Socialism and Democracy,” in Schumpeter’s Vision, pp. 1, 13, and passim.

40. Tom Bottomore, “The Decline of Capitalism, Sociologically Considered,” in Schumpeter’s Vision, pp. 22-29, 44.

41. Gottfried Haberler, “Schumpeter’s Capitalism, Socialism and Democracy after Forty Years,” in Schumpeter’s Vision, pp. 70, 71, 74-75, 83, 84, 89.

42. Robert L. Heilbroner, “Was Schumpeter Right?” in Schumpeter’s Vision, pp. 95, 96, 99-100, 101-102, 106.

43. Arthur Smithies, “Schumpeter’s Predictions,” in Schumpeter’s Vision, pp. 130-132, 145-146.

44. Herbert K. Zassenhaus, “Capitalism, Socialism and Democracy: The ‘Vision’ and the ‘Theories,'” in Schumpeter’s Vision, pp. 173, 176, 181, 189.

45. Hendrik Wilm Lambers, “The Vision,” in Schumpeter’s Vision, pp. 107-129.

Thomas K. McCraw is the Isidor Straus Professor of Business History at the Harvard Business School and editor of the Business History Review. He is author of Morgan Versus Lilienthal (William P. Lyons Award, 1970), TVA and the Power Fight (1971), co-author of Management Past and Present (1996); and editor of Regulation in Perspective (1981), America Versus Japan (1986), The Essential Alfred Chandler (1988), and Creating Modern Capitalism (1997). His book Prophets of Regulation won both the Pulitzer Prize in History for 1985 and the Thomas Newcomen Award for 1986. His American Business, 1920-2000: How It Worked (2000) was recently reviewed on EH.NET.

?

Published by EH.NET (August 2000)

Xu Dixin and Wu Chengming, Chinese Capitalism, 1522-1840. Translated by

Li Zhengde, Liang Miaoru and Li Siping. Edited and abridged by C.A. Curwen. New

York: St. Martin’s Press, 2000. xl + 517 pp. $79.95 (cloth), ISBN:

0-333-49732-5.

Reviewed for EH.NET by Kenneth Pomeranz, Department of History, University of

California, Irvine.

This is a translation and abridgment (by about 30 percent) of the first volume

of Xu Dixin and Wu Chengming’s huge three-volume history of Chinese capitalism.

It was originally published in China in the mid-1980s, though much of the work

was done quite a bit earlier (Xu died in 1968). It has now been rendered into

very readable English, and trimmed in a way that retains the real essentials of

the work.

The Chinese version was immediately proclaimed a landmark work, even by people

who disagreed with its sometimes rigid Marxist framework. Since the text now

reaches English readers through a bit of a time warp — and what current

readers may find most valuable may differ from what the authors emphasized — a

few words about its original context are in order. (Some of this context is

provided in the helpful introduction by Peter Nolan and Chris Bramall, who also

suggest ways of relating this book to more recent scholarship, and to more

recent developments in East Asia. In particular, they argue — as would I,

though for somewhat different reasons — that contrasts between Qing China,

Tokugawa Japan, and much of early modern Europe may have been overstated.)

Official Chinese Communist historiography faced a conundrum. If the four stages

of society — slave, feudal, capitalist, socialist — identified by various

authoritative Marxist texts were truly a universal progression, why had China

remained in its “feudal” stage so long? If it had still been “stuck” in that

stage at the time of the Opium War (thus explaining why it was roundly defeated

by relatively small forces from the capitalist world) but had been ready for a

proletarian revolution by 1949, did this mean that capitalism had come from

abroad, and imperialism needed to be accorded a progressive (if painful) role?

To deny that — and to rescue the universality of the Marxist stages — it was

necessary that China had been incubating its own “sprouts of capitalism.”

Various scholars found signs of just that in the late Ming and early Qing; the

failure of these sprouts to blossom fully were then blamed on either Manchu or

British intervention from outside. But there was clearly something ad hoc about

such a solution — if capitalist development had been well underway in the

sixteenth century, why had it been so easily derailed, leaving China to enter

the twentieth century with a small bourgeoisie, tiny proletariat, and much of

what was considered “feudal” society still intact? At least through the 1950s,

the majority of PRC scholars preferred to see Chinese “feudalism” as remarkably

stable, if not quite stagnant, and capitalism as something that came to China

from without.

Xu and Wu sought to cut through the debate by identifying both endogenous

Chinese tendencies toward capitalism and endogenous reasons why they were not

strong enough to “dissolve feudalism” and create a transformation comparable to

what occurred in Northwestern Europe. In a short concluding section, they then

argued that despite the limitations of China’s pre-1840 “embryonic capitalism,”

its development is crucial to understanding what they see as an accelerated

growth of capitalism after 1840, when the economic stimulus and socio-political

disruptions of imperialism were added to endogenous forces. But since we

already have a fairly large literature on the post-1840 period (some of which

builds on material unavailable to Xu and Wu), most readers will find the

material on late Ming and early Qing the most useful part of the book.

Xu and Wu’s response to the received wisdom took two separable, though related,

paths. First, they painstakingly collected evidence of the scale of commerce in

late Ming and early Qing society: how much grain, cloth, iron, liquor, and so

on were sold for cash. The results suggested that far too much of the Chinese

economy was commoditized in this period for it to be comfortably characterized

as “feudal,” and that the scale of commercial exchange was continuing to grow

in the late-eighteenth/early nineteenth century. (It should be noted here that

since Xu and Wu were primarily interested in showing the scale of commodity

production in China, they rarely attempted to estimate total output, or the

quantities of goods that were consumed by their producers, bartered, provided

as in-kind payment for services, or traded locally without the participation of

merchants seeking to accumulate capital, rather than peddlers meeting their own

subsistence needs. Thus these estimates are of relatively little use in the

more recent debate over late imperial Chinese standards of living.) A more

recent generation of scholars has since refined many of these estimates with

the help of additional data, and has usually found them to be lower than is

probably warranted. But many of them are still the state of the art for

particular kinds of trade; making them available to those who don’t read

Chinese is a very important contribution. (An unfortunate limitation of this

contribution is that somewhere in the production of the English text, a number

of numbers were reproduced incorrectly — dropping zeros, for instance — which

sometimes makes two calculations [of say, the number of workers involved in an

enterprise and the size of its output] inconsistent. As far as I can tell, none

of these arithmetic errors are in the original; so while readers who cannot

check the original may need help in figuring out which of two conflicting

numbers is correct, they should not conclude from this that Xu and Wu were

generally unreliable.) For many comparativists –particularly those who do not

share the authors’ Marxist viewpoint – these estimates will be the most

valuable part of the book, and the volume’s organization, with many short

clearly labeled chapters, makes it easy to zero in on the numbers provided for

a particular industry.

But Xu and Wu probably felt that their second line of inquiry — a

reconstruction of the forces and relations of production in various sectors —

was even more important. One need not share their assumption that those sectors

in which workers were fully proletarianized (earning a cash wage, owning none

of the tools of production, enjoying full legal equality, etc.) necessarily

represent the cutting edge of historical change (and were most the likely to

experience technological breakthroughs) to profit from their clear and detailed

reconstructions of how particular industries financed production, paid and

monitored laborers, marketed their products, and so on, and of who was involved

in various lines of production at various times. For most industries, the

technological material offered is less detailed than in the enormous volumes by

Joseph Needham and his collaborators, but quite sufficient for an introduction,

and more attentive to describing average (as opposed to best) practices. The

discussion of the social organization of production is skewed toward

enterprises closely tied to the state (a small portion of the economy, but by

far the best documented part), but exemplary in its careful attention to what

the sources actually do (and don’t) say about payment, supervision,

productivity, and various other topics.

In explaining why what they call “embryonic capitalism” was “retarded” in China

— such that it was a real phenomenon, but not one that would radically remake

Chinese society anytime soon — Xu and Wu emphasize two phenomena: 1) the role

of the Chinese state and 2 )the “unity of agriculture and industry”: i.e. the

fact that much handicraft production was carried out by rural people whose

families continued to own or rent some land.

On the first point, they stake out a rather moderate position, arguing that the

Ming and Qing did not encourage commerce, but were not hostile to it except in

certain specific areas and at certain specific times: they single out frequent

restrictions on foreign trade, mining (which it was felt collected too many

unruly young males in a single place) and in certain frontier zones (where it

was feared that rapid commercialization might undermine local customs and lead

to violence that would be expensive to suppress). They also note that in

general, policies were liberalizing during the first half of the Qing, though

they note that they did not approximate true free trade. (Did they anywhere?)

Given the huge size of China’s domestic economy and long-range internal trade,

the intermittent restrictions on foreign trade seem to me probably not crucial,

except insofar as they inhibited access to foreign science and technology; and

both the Japanese example (where quite a bit of “Dutch learning” was absorbed

through a trade window much narrower than China’s) and the speed with which

certain Western crafts were reproduced on the southeast coast of China suggest

to me that freer foreign trade would not have made a crucial difference here,

either. The arguments about mining seem to me more promising, given the ways

that energy problems and shortages of certain metals may have shaped the Qing

economy. Perhaps most impressive in a book written in pre-reform China is the

simple fact that the authors break down the question “Was the Qing state good

for commerce?” into more specific and verifiable pieces, not insisting on a

blanket answer that covers all kinds of trade and industry; in this way, they

remain ahead of what one still encounters in many of the polemics about Chinese

development, European exceptionalism, and so on.

On the second point, Xu and Wu simply take it as axiomatic that a society in

which the same households produce handicrafts and agricultural goods must be

more “backward” than one in which these functions are separated, and that

households of workers with no way to secure any of their subsistence except by

selling their labor will be more ruthlessly driven to do only those things that

create the highest marginal return than those that still have some access to

subsistence not mediated by the market. These both seem to me questionable

assumptions, not only in the light of late imperial Chinese experience, but

that of Tokugawa Japan, various parts of continental Europe, and the booming

economy of contemporary rural China. But if the persistent combination of

farming and handicrafts, and of market-oriented and subsistence activities in a

highly commercialized economy (perhaps one might call it the failure of

proletarianization rather than the failure of capitalism) was not necessarily

the impediment to growth that Xu and Wu suggest, it is nonetheless a phenomenon

worth careful study; and, for anyone who is interested but does not read

Chinese, the mass of material that Xu and Wu have assembled is now available as

an excellent point of departure. By thus widening the range of scholars who can

help us sort this out, this translation renders an important service.

Kenneth Pomeranz is Professor of History at the University of California,

Irvine. His most recent book is The Great Divergence: China, Europe, and the

Making of the Modern World Economy (Princeton University Press, 2000).

Published by EH.NET (August 2000)

Fernand Braudel, Les ?crits de Fernand Braudel. Paris: Editions de

Fallois. Volume I, Autour de la M?diterran?e, 1996. 535 pp. 150 French

francs, ISBN: 2-87706-259-7. Volume II Les ambitions de l’histoire,

1997. vi +529 pp. 150 French francs, ISBN: 2-87706-290-2.

Fernand Braudel, Les m?moires de la M?diterran?e: pr?histoire et

antiquit?. Paris: Editions de Fallois, 1998. 399 pp. 150 French francs,

ISBN: 2-87706-304-6.

Reviewed for EH.NET by Cheng-chung Lai, Department of Economics, National Tsing

Hua University, Sinchu 30013, Taiwan.

Braudel’s Memories of the Mediterranean

Fernand Braudel’s miscellaneous writings were published by ?ditions de Fallois

in four volumes between 1996 and 2000. The first three volumes have their

respective subtitles under a common title Les ?crits de Fernand Braudel,

the fourth volume is an independent monograph on the ancient history of the

Mediterranean. Volumes II and III of Les ?crits contain Braudel’s

various essays that are, in my opinion, of secondary importance, on which I

have no particular points to offer. On the other hand, there is a common

subject between the first and the fourth volume that may be of interest to

Braudel readers, economic historians and scholars of the Mediterranean.

Braudel’s La M?diterran?e et le monde m?diterran?en ? l’?poque de Philippe

II (1949) is a masterpiece that is still in print half a century later.

There is another less well-known book on the Mediterranean that he edited La

M?diterran?e, l’espace et l’histoire (volume 1); La M?diterran?e, les

hommes et h?ritage (volume 2) (Paris: Arts et M?tiers Graphiques, 1977;

reprinted by the Edition Flammarion, 1985-6 in the Collection Champs Nos. 156,

167). There are twelve articles in this handsomely illustrated two-volume set

(often used as Christmas gift), in which Braudel contributed five: “La terre”,

“La mer”, “L’aube”, “L’histoire” and “Venise”.

Yet, Braudel had some other writings (about 850 pages) on the Mediterranean, a

major part of which is unfamiliar to many specialists of the Mediterranean

studies and unknown to most Braudel readers. They were published more than ten

years after his death in December 1985. We shall begin with Autour de la

M?diterran?e of 1996.

Autour was edited by Roselyne Ayala and Madame Paule Braudel, with a

Preface by Maurice Aymard, and a detailed index (pp. 511-32). This volume

collected writings of Braudel on the Mediterranean, including his early project

proposal, unpublished manuscripts, published texts and many reviews. It

contains three parts: North Africa (4 chapters), the Spanish Empire (4

chapters), Italy and the Mediterranean (6 chapters).

Among the abundant text, “Charles Quint” (pp. 171-212), which had already

appeared in his ?crits sur l’histoire II (1990), should not be reprinted

here. Another article, “Philippe II” (pp. 213-57), also appeared in ?crits

II, but it was retranslated from the Italian version, the original French

text is included here for the first time. For Braudel readers, neither of these

add any new information, except for being the “original version”.

The first two chapters of this volume attract me particularly. The very first

one entitled “The Early Researches” (pp. 15-28) has an old story. In 1927,

Braudel (aged 25) proposed doctoral dissertation subject to the Sorbonne,

entitled “Philippe II, Spain and the Mediterranean.” At the same time he used

this proposal to apply for a research scholarship from the Bourse Jules Ferry,

which he obtained in 1928. On March 29, 1929, he reported to the Bourse

explaining his work in progress and what he was going to do that summer. This

report could be found in the Archives municipales de Saint-Di? and had never

been published before. It reveals significant information about the young

Braudel: his eagerness, his ambitions, his methodology, his initial ideas about

the Mediterranean, and we can see that the initial project diverged

considerably from the finished book that was published in 1949.

A few things stand out. There is no room for diplomatic history, showing that

Braudel was already taking a different path. Surprisingly, he was very

interested in the religious life in Spain (p. 16). The great varieties of

documentation that he consulted also manifest his unique ways of selecting

information from the sea of archives in various Spanish cities (as listed on p.

16). He complained about the chaotic arrangement of files in the archives, he

would have been greatly relived had there been a photocopier, but he was wise

enough to use a movie camera to film the files and project them on the wall to

retrieve the information he needed. The zeal for the project that Braudel

showed in this report is evident, for instance, from the Naples papers alone,

he took 800 pages of notes. In the concluding paragraph, Braudel stated that in

early 1928 he had explained to his thesis supervisor Prof. Pag?s about the

progress of his project, some of his preliminary findings, and the questions to

be studied; he would be glad to mail the same document to the Bourse. If I were

to review the project, I would have endorsed it enthusiastically.

The second essay entitled “The Spanish and the North Africa, 1492-1577,” was

published in the Revue africaine in 1928 (Nos. 2-3, pp. 184-233 and

351-428). Henri Hauser (then professor of economic history at the Sorbonne)

wrote a comment on this long essay in Revue historique (1930): “for the

historians of the sixteenth century, this excellent study, with solid

documentation, has a rare value of critique and is remarkably suggestive.” This

long essay served as the “secondary thesis” (a kind of supplementary work to

show that the doctorate candidate’s view is not too narrow) when Braudel

presented his thesis in 1947. To his honor, it was Maurice Bataillon, then

professor at the Coll?ge de France who examined this secondary thesis (see

editor’s note on p. 31).

What strikes me in this 1928 essay (Braudel was aged 26) is that, although the

topic is quite general in nature and very broad in scope, it is easy to see

that Braudel was quite mature in writing this kind of traditional history. He

was able to present an overall structure of the topic and showed the masteries

of the rich documents that he consulted. What is even more attractive is his

talent to depict the historical scene with big and powerful brushes, the key

issues were organized systematically and the overall flow of the essay was

conquering. In short, in this essay Braudel clearly manifested a kind of

sophistication in the writing of traditional history, he would have been bored

had he remained any longer in this old camp. It is therefore unsurprising that

he soon switched to the new history camp, known as the Annales school,

advocated by Lucien Febvre and Marc Bloch in the early 1930s.

These two 1928 writings are particularly interesting because they allow us to

see how the young Braudel was shining. But they also serve as bad mirrors

reflecting that, except for the ingenious The Mediterranean (1949),

Braudel’s work on the Mediterranean in his more mature stage was not any more

brilliant than those written when he was a high school teacher in Algeria

before 1932.

*************************************************************************

Les m?moires de la M?diterran?e: pr?histoire et antiquit? (1998) was

edited by Roselyne Ayala and Paule Braudel, with a Preface by Jean Guilaine (a

professor at the Coll?ge de France) and Pierre Rouillard (a director of

research au C.N.R.S.). The book contains eight chapters, divided into two

parts, with 42 color plates and 15 maps (pp. 352-70); the index of names and

places is well prepared (pp. 371-93). As the book is printed directly from

Braudel’s manuscripts, the editors should be acknowledged for the many

editorial footnotes, which provide updated information and corrections on

Braudel’s inexact knowledge of archeological matters.

Why did Braudel write this volume and why was it published posthumously? The

publisher’s Foreword tells us that in early 1968 the famous publisher Albert

Skira in Geneva planned a series of illustrated books on the Mediterranean,

from its antiquity to the seventeenth century. Skira asked Braudel to do the

first volume for the series. Braudel complied and wrote it with great pleasure.

He soon completed the task (no more than eighteen months), as we can see from

his Acknowledgements (in four brief paragraphs) dated July 28, 1969. But

Skira’s health was declining in 1970 and he passed away three years later. Some

hesitations arose about the whole project when considering the high printing

costs, so the publisher finally aborted the plan. Braudel was then quite

involved in the writing of the second volume of Capitalism, it would

have cost him a lot of energy to do supplementary work in preparing maps and

illustrative materials on that Mediterranean book. He put the typescript aside

and forgot all about it.

But Madame Braudel and some other people did remember this almost completed

book. It would have been difficult to publish the manuscript as such because

many archeological discoveries and new techniques had rewritten the prehistory

of the sea since the 1970s. The solution was simple but arduous: publish the

manuscript as such, but seek clarification from specialists for ambiguities,

update the related literature, and offering supplementary evidence in the form

of footnotes. Readers are therefore reading Braudel’s original writings along

with new evidence provided by modern specialists.

How could Braudel complete 350 pages of writing so quickly? As we do not see a

long list of archives or references that he consulted, one wonders if this is

an original profound research or if this is a work of synthesis based on

unidentified secondary literature. In his Acknowledgments, Braudel stated that

“my own real researches covered only the 1450-1650 period. ? The present

volume, designated for the general public, allows me to undertake a fantastic

voyage to travel into the very longue dur?e. I seized the occasion”.

So, should we read it as a masterpiece or as a synthesis of the

state-of-the-field (1960s) by a great Mediterranean historian named Braudel?

One realizes that what is interesting in this volume would be Braudel’s views

of the topic, his ways of selecting the materials, but not his opinions as an

expert so far as the archeological aspect is concerned. His ambition was to

describe a pre-fifteenth century history of the Mediterranean such that it can

be connected to his already famous book covering the 1450-1650 period.

The table of contents reveals another message. In the eight chapters that were

divided into two parts we see again Braudel’s famous tri-partition of

historical time (the longue dur?e, conjoncture and event). One may think that

in this book that covers so many centuries, perhaps only the longue dur?e is

the appropriate notion. This is the case for the first five chapters (Part I),

in which the sea, the island, the catastrophes, in short the geography has the

central role. Most Braudel readers are familiar with this in all his books, so

we shall not be surprised to see that the second notion “conjoncture” plays a

central role in Part II. For instance, the section in entitled “Face aux

conjonctures” (pp. 223-25) begins with the statement: “Living in the

Mediterranean, the Carthaginians were necessarily sensible to the overall

movement of the sea, to its conjoncture. The history of the city follows step

by step the rhythms of the Mediterranean life.” By “conjoncture,” Braudel meant

the political, religious and economic crises of the era.

Is there room for the history of events, Braudel’s third notion of historical

time? Yes, Section II of Chapter 7 entitled “Error of Alexander the Great” (pp.

277-83) is an example. But Braudel was alert enough not to have a Part III for

the history of events alone, he combined the history of conjoncture and events

in Part II. How about Braudel’s other important notion, the “economic world”?

He had not forgotten it, as can be seen from Map 15 “L’Empire Romain sous

Septime S?v?re (193-211)” and the related pages (mainly in Chapter 8). If I

were shown this table of contents without knowing who was the author, I would

guess that it was by Braudel or by his imitators. The same framework of The

Mediterranean (1949) was simply applied to an earlier period.

As a general reader, I find the book intriguing, the scale and scope are broad,

and the story is attractively told; it expands my knowledge about the

Mediterranean. Although I have, as most general readers, no sufficient

background knowledge to judge the contents, I do have some feelings about the

book. The writing style is basically synthetic, there is no central argument to

be defended and no new concept is offered. Under the same Braudellien brushes,

I find the ancient history of the Mediterranean much less interesting than that

of the Philip II period.

Experts may have other complaints: the nature of the topic is not Braudel’s

specialty, little archeological insight is added, and no new historical

proposition is offered. Perhaps it is in this sense that Braudel was not

totally wrong to abandon the typescript. For him and the general readers, this

is merely a “popular” book, it should not be a representative volume among his

lifework; for specialists, it was wise for Braudel not to publish what he did

not really know about the pre-fifteenth century Mediterranean.

Cheng-chung Lai’s recent publications include “Braudel’s Key Concepts and

Methodology Reconsidered,” The European Legacy, 2000, 5(1): 65-86. He is editor

of Adam Smith Across Nations: Translations and Receptions of The Wealth of

Nations, Oxford: Oxford University Press, 2000.

Published by EH.NET (August 2000)

Peter Temin, editor, Engines of Enterprise: An Economic History of New

England. Cambridge, MA: Harvard University Press, 2000. vii + 328 pp.

$24.95 (cloth), ISBN: 0-674-00099-4.

Reviewed for EH.NET by David R. Meyer, Department of Sociology, Brown

University.

New England has been subjected to more economic history studies than any other

region, except the South, but coherent explanations of long-term change remain

scarce. Breadth of colonial-period coverage contrasts with idiosyncratic case

studies of nineteenth-century towns, firms, and industries; and seemingly

obvious explanations of New England’s economic travails during the twentieth

century resting on false assumptions. This book helps rectify these gaps in our

knowledge and points to future research. The essays, a result of a conference

at the Federal Reserve Bank of Boston, intend to provide a survey of New

England’s economic history and an intellectual rationale for the Bank’s

creation of a New England economic history museum. Most contributors draw on

their previous New England research or on their expertise with themes that are

applicable to New England; thus, essays are reflective and synthetic, rather

than original.

Several themes — comparative advantage, agglomeration economies, technical

change, and culture — run through the essays, according to Temin’s

introductory chapter, but they serve mostly as reference points for subsequent

narratives. Margaret Newell explains the economic success of colonial New

England as an outcome of an imported culture that valued work, thrift, success,

and consumption. This culture combined with the use of government to support

the common good; the inheritance of Native Americans’ capital investments in

land; an aggressive shift into commercial services and supplying Caribbean

slave economy; and capital investment in agriculture and manufacturing. This

created numerous economic actors (wholesalers, retailers, farmers,

manufacturers) who were poised to contribute to post-colonial development.

Winifred Rothenberg covers the period up to the 1830s and argues that New

Englanders’ value system supported business enterprise. Farmers were swept into

a market economy as price signals increasingly governed decision-making; they

raised productivity, reduced fertility, accumulated capital that was

transferred to commerce and manufacturing, and created markets to efficiently

employ labor. Rural economic transformation set the stage for industrial

growth, especially in cotton textiles. Peter Temin traces rapid

industrialization of New England during 1830-1880, and he attributes it to the

protective tariff that allowed the cotton textile industry to grow and to the

large supply of women, not employed intensively in agriculture, who were

available for factory work. The American System of Manufactures, based on

interchangeable parts, emerged from government armories, which became leaders

in the machine tool industry. Firms with access to these innovations

capitalized on them to become leaders in machinery.

The standard view posits that New England drifted into decline during

1880-1940, because its top industrial sectors of textiles and shoes were not

leaders in the new industrial economy based on consumer and producer durables,

but Joshua Rosenbloom demonstrates errors in that interpretation. Relative,

followed by absolute, decline in New England’s old industries was compensated

by a shift into services and growth of machinery, machine tools, and

instruments, that were part of the emerging industrial economy. Consequently,

per-capita income levels remained 20 to 30 percent above the national level.

That success helps explain New England’s transformation from manufacturing to a

knowledge-based economy — as Lynn Browne and Steven Sass document. Labor

supplies adjusted to economic cycles through in- and out-migration, maintaining

wage levels, and industries shifted, coincident with national manufacturing

changes, from aircraft engines and electronics to minicomputers and instruments

to services (computer, financial, health care). New England’s leadership in

higher education supported this transition to a knowledge-based economy.

The last chapter, in the form of three vignettes, includes reflections on New

England’s economy. Bernard Bailyn highlights the critical boost that Caribbean

and southern slave economies gave to its growth during the colonial period;

Merritt Roe Smith reiterates his research theme that government armories were

critical to its industrialization; and Paul Krugman posits that the directions

of its future economy are indeterminate.

The essays link together sequentially, and, as importantly, thematically, and

major points provide building blocks for the next essay. This is a tribute to

Temin’s editorial skills and guidance. Therefore, readers can consider

questions that span longer time frames, such as the role of education, capital

investment, or industrial innovation. And, perplexing incongruities become

apparent, such as: how were new industries (instruments, aircraft engines)

funded and nurtured coincident with substantial decline in a large share of the

industrial base (textiles, shoes)?

Although the writers reflect on previous research and synthesize it, they

succeed in stimulating fascinating questions for future research. Newell’s

argument that New Englanders successfully built a prosperous economy on trade

services, finance, and production of high value-added products for exports

challenges standard views that regional economies are better off with an export

staple that is widely demanded in external markets. Rather than New Englanders

being forced to adapt to no staples, they grasped opportunities to move into

sophisticated services with high returns on investment, and they built skills

in trade and finance that were less susceptible to competition than staple

exporters, who always faced competition from new, better production areas.

The essays coverage of industry, especially in the nineteenth century, point to

the continuing conundrum of New England industrialization. Rothenberg has slain

the argument that poor agriculture left people with no alternative but to enter

manufacturing. Instead, prosperous farmers accumulated capital that was, in

part, transferred to industry. Nevertheless, we are left with few factors – a

large supply of women not employed intensively in agriculture and government

funding of armories — as reasons why New Englanders grasped industrial

leadership during the nineteenth century, especially before 1880. These are

thin reeds to explain industrialization. New England was not the only eastern

region with large supplies of women not employed intensively in agriculture;

New York and Pennsylvania had similar areas, but their textile and shoe

industries were dwarfed by New England’s. The American System of Manufactures

based on interchangeable parts was not important until late in the nineteenth

century, yet how does one explain widespread development of New England’s metal

manufactures outside the arms sector from 1840 to 1880? While armories were

important, it is not clear that they were pivotal — many private firms had

leading mechanics who did not serve in armories, and even if they went to

armories, they also brought their technical skills. Providence area machine

shops trained many of America’s leading mechanics, but their links to armories

were episodic at most. The large scale of textiles and shoes, and to lesser

extent, machine tools and machinery, obscure growth of other industries such as

jewelry, brass, hardware, clocks, and rubber. Explanation of New England

industrialization must account for them. That effort will broaden

identification of factors that contributed to industrial success. This approach

also provides a better base for explaining, as Rosenbloom argues, resiliency of

New England’s economy even with massive industrial decline during 1880-1940,

and the capacity to shift into new industries after 1940 that Browne and Sass

document, but only explain tentatively.

Many articles and books have covered the post-1945 decline of New England, and

often they have had the facts and explanations wrong. This collection

identifies some factors missing in previous studies, but it leaves important

questions unanswered. Tempting targets for research include tracing links among

machinery, instruments, telecommunications, and early computers. They had deep

roots in the late nineteenth century, but the threads that bind them up to the

1970s remain obscure. Financial services have emerged as a major part of the

New England economy, yet that sector has a rich heritage that continued to

build, not only standard banking and insurance, but also venture-capital firms

and investment management, some of whom go back decades. The essayists

highlight the importance of New England’s educated labor force and its capacity

to move into new economic sectors. Briefly touched on, but awaiting more

research, is the fact that New England contains the nation’s greatest

collection of leading liberal arts colleges and universities, providing

education that has been touted as core to the new knowledge-based economy. As

Krugman notes, change is not predictable. Nevertheless, these essays

demonstrate that the New England economy has maintained strong links to its

past, as well as idiosyncratically departing in new directions. Its

specialization in liberal arts education may suggest some predictability to the

future — precise economic specialization may be uncertain, but labor force

adaptability and the capacity to enter new, leading sectors may be predictable.

David R. Meyer is author of Hong Kong as a Global Metropolis, Cambridge

University Press, 2000. He is completing a book about the

agricultural-industrial transformation of the eastern United States during the

antebellum period.

Fernand Braudel, Civilization and Capitalism, 15th-18th Century, in 3 volumes, New York: Harper and Row, 1981-84, original editions in French, 1979.

Review Essay by Alan Heston, Departments of Economics and South Asia Regional Studies, University of Pennsylvania.

Fernand Braudel’s Civilization and Capitalism

Fernand Braudel is associated with the influential Annales School (La nouvelle histoire) that advocated a major break from the dominant narrative paradigm of the early twentieth century embracing an approach to history integrating the social sciences with a problem-focused history. Braudel is uniformly praised as one of the most influential historians of the twentieth century, but a hard act to follow. Braudel immersed himself into masses of materials and emerged with plausible broad-brush stories to tell, teaching others how to replicate this approach is problematic. While the Annales School has made only a small dent in the economic history curriculum in the United States, it has had much more influence on social history worldwide and on economic history in France, Europe and the rest of the world. Rondo Cameron (1989, p. 406) in speaking of Civilization and Capitalism says, “it contains a wealth of factual information, mostly correct, but the brilliance of its author’s rather idiosyncratic interpretation has been exaggerated by the popular press.” Whether one buys the whole quotation, one can certainly agree with Cameron that Braudel builds very idiosyncratic interpretations based upon a wealth of information, often very imaginatively used.

This essay will not pretend to cover the three volumes of Civilization and Capitalism but rather touch on some broad themes that have had influence on our understanding of world economic history. These themes include Braudel’s emphasis on the economic condition of every-man, on a global approach to economic and social history, and on the process of capitalism and its geographical spread. This essay will begin with Braudel’s uses of capitalism, and then take up themes from the volumes of Civilization and Capitalism.

Before dealing with capitalism, some background on Braudel’s career is needed. Many consider The Mediterranean and the Mediterranean World in the Age of Philip II (1966 English translation) published in France in 1949 as his defining work. Braudel began this research in 1923 at age twenty-one and it was envisaged as his doctoral dissertation and was to concentrate on the policies of Philip II in the form of a conventional diplomatic history. Braudel taught secondary school in Algeria from 1923 to 1932 and then lived in Brazil where he taught at the University of Sao Paulo from 1935 to 1937. During this period he kept up with developments in Paris including establishment of Annales in 1929 by Marc Bloch and Lucien Febvre. The long gestation period of this impressive work undoubtedly had much to do with how different was the final product from the original design. Braudel says that he began to see the sense of writing a history of the Mediterranean world in discussions with Febvre circa 1927 but that he did not find models upon which to build. And then in 1934 he began to find quantitative data on ship arrivals and departures, cargoes, prices and other economic data that he felt would be the bricks and mortar of an economic and social history of the Mediterranean. By 1939 he had an outline of what he wished to say, but he was captured by the Germans in 1940 and was imprisoned for the next five years where amazingly he wrote the first draft of The Mediterranean totally from memory. The Mediterranean focuses on the history of one world region in a wide-ranging intellectual breakthrough, involving the geographic setting, transport and communications, urban and hinterland developments, trade, empires and more political themes.

In 1950 his mentor, Lucien Febvre, asked Braudel, who was then teaching at the College of Paris, to contribute a volume to a series on world history. This series was to feature a volume on “Western Thought and Belief, 1400-1800,” that Febvre would prepare while Braudel would focus on the development of capitalism over the same period. Febvre died before he could complete his volume. Braudel succeeded Febvre in 1956 at the Ecole Pratique des Hautes Etudes where he headed the Sixth Section, history. Braudel took responsibility for preparation of what became a three-volume series and was sole editor of the Annales during its most influential period. Braudel published the first volume of Civilization and Capitalism in 1967, and it was translated as Capitalism and Material Life, 1400-1800 in 1973. Volume II, Les Jeux de l”Echange and volume III, Le Temps du Monde, were published in France in 1979; volume II was translated and published as The Wheels of Commerce in 1982 and volume III as The Perspective of the World in 1984, a year before his death. (When the three-volume set was prepared, Volume I, Les Structures du Quotidien: Le Possible et L’Impossible, was a substantially rewritten version of the 1967 edition and was published in France in 1979. The English translation, The Structures of Everyday Life: The Limits of the Possible, was published in 1981. That translation followed the form of the original translation, Capitalism and Material Life, 1400 – 1800, incorporating new materials and changes. In the text, Volume I will be referred to as Capitalism and Material Life.)

A number of centers that focus on aspects of his work were begun during Braudel’s lifetime. Immanuel Wallerstein was instrumental in establishing the Fernand Braudel Center at Binghamton University (SUNY) in 1976. Their journal, Review, begun in 1977, explores a variety of issues relating to the evolution of capitalism, and the study of world systems, about which more below. The Fernand Braudel Institute in Sao Paulo is a think tank that has a strong social dimension to its studies. The economic history emerging from these centers is likely to emphasize the impact of capitalism on the social structures of society and the dependencies involved in the evolution of a worldwide economy over the past five hundred years.

1. Capitalism

Braudel emphasizes that capitalism is something different from the market economy, a distinction that should be kept in mind in understanding Civilization and Capitalism. In lectures in 1976, he said, “…despite what is usually said, capitalism does not overlay the entire economy and all of working society: it never encompasses both of them within one perfect system all its own. The triptych I have described–material life, the market economy, and the capitalist economy–is still an amazingly valid explanation, even though capitalism today has expanded in scope.” (-Afterthoughts on Material Civilization and Capitalism, p. 112) Whether or not one agrees with Braudel, this is his explanation of the order of the three volumes moving from the lower level of the daily material life of everyman to the market economy to the highest level of capitalism. It is a structure of thinking that is rather alien to trends in economic research that seek to explain the behavior of households, markets and business firms using similar economic models, a point discussed further below.

What is capitalism? For Wallerstein capitalism is a system built upon the international division of labor in which the core of the resulting world system prospers, if not at the expense of the others, at least relative to others. A familiar enough theme from the recent Seattle World Trade Organization protests. While Wallerstein took inspiration from Braudel, this is not what Braudel means by capitalism. Braudel viewed the capitalist economy as in the above paragraph, namely as something above everyday material life and the operation of markets. Capitalism takes advantage of high profit opportunities generated by linking markets into a world economy. Braudel distinguishes between the world economy and a world economy, a distinction that is not felicitous, but as one searches for alternatives, such as “regional economy” for a “world economy,” it seems better to stay with his language.

For Braudel a world economy features a core capitalist city whose commercial and financial spread may be well beyond national political boundaries. However, for Braudel there may be several world economies operating at the same time, and for each there will be a dominant core city. Capitalism may utilize an international or larger spatial division of labor but the hegemony of any particular core city for a world economy will wax and wane over time. Further, Braudel believes there have been capitalist worlds from the Italian city states or earlier, whereas Wallerstein’s analysis relies more on a Marxian progression from feudalism to capitalism. Further, Wallerstein treats the political empires like Rome, the Ottomans or the Mughals as non-capitalist systems while Braudel would be inclined to see in them some capitalistic features. He says, “…I am personally inclined to think that even under the constraints of an oppressive empire with little concern for the particular interests of its different possessions, a world-economy could, even if rudely handled and closely watched, still survive and organize itself, extending significantly beyond the imperial frontiers; the Romans traded in the Red Sea and the Indian Ocean, the Armenian merchants of Julfa, the suburb of Isfahan, spread over almost the entire world; the Indian Banyans went as far as Moscow; Chinese merchants frequented all the ports of the East Indies; Muscovy established its ascendancy over the mighty periphery of Siberia in record time” (Perspective of the World, p. 55). Braudel’s position would clearly find support in Mancur Olson’s work.

One further point on capitalism concerns its origins. Wallerstein seeks the origins of the capitalist world system in the feudal breakdown of the agrarian society of Northern Europe in the sixteenth century. Braudel is less concerned with questions of origins, but would certainly place a European world economy much earlier, perhaps in fourteenth-century Italy. Braudel is equally uncomfortable with Max Weber and any attempt to tie capitalism to the Protestant reformation (see Stanley Engerman’s essay in this project). Again, his first line of attack would be to point to all of the developments in the Italian city states that long pre-dated Luther and Calvin.

One point deserves further mention, namely the emphasis that Braudel gives to the ebb and flow of world economies over time and space. There is an element of Joseph Schumpeter’s creative destruction in Braudel’s view of the process but with a spatial spin. Schumpeter saw new innovations involving new entrepreneurs replacing older businesses along with their technologies and labor force. For Braudel the slowly shifting boundaries of world economies have two important implications. First, some areas never become involved with a world economy and their economic level remains very low. And second, some areas that were in a world economy, and were perhaps a core city, lose their place as boundaries of world economies change over time.

2. Capitalism and Material Life

Braudel and the Annales School represented a reaction to traditional narrative history with its emphasis on major actors, usually political or economic elites. More problem-oriented social and economic history has been mainstream for such a long period that present-day readers are unlikely to see anything revolutionary in Braudel’s work. However, in Volume I the chapter headings at that time were themselves a statement, beginning at the lowest level of economic and social organization.

Braudel begins Volume I of Civilization and Capitalism with a discussion of world population during the fifteenth to nineteenth centuries, including an evaluation of the reliability of the numbers and a description of the balance of peoples around the world. Beginning his study with counting all of humanity, Braudel starts off with a global view, involving the rich and the poor, and all regions of the world. He takes on social classifications, like civilized and barbaric, providing an overview of global social divisions. Public health receives major emphasis throughout but certainly the importance of the education of mothers on the health of children does not find its way into Braudel’s treatment. It is a man’s world and although his wife, Paule, was an important contributor to his research, one has to look hard in Braudel for that half of humanity.

Braudel follows population in Capitalism and Material Life with chapters on the major categories of consumer expenditure, bread and cereals, other foods and drink, and clothing and housing. These chapters, enriched with appropriate illustrations, include the diets of the poor, food fashions of the rich, the lack of furnishings of the homes of the poor and middle classes, and the increasingly elaborate interiors of the more affluent. The treatment of fashion and necessity in clothing is wide ranging. While much of this is based on the research of others, it is an extraordinary synthesis of materials from many sources and it is good reading.

The focus on everyday life in Capitalism and Material Life represents a concern shaping many areas of study after 1950, a movement from the study of elites to those of more ordinary people. This entered archaeology, as excavations moved from the palaces and temples to remains of foods, bones, and the dwellings of the poor, or lack thereof. Braudel’s emphasis thus fit very well into much Marxian history and with a view that capitalism grew at the expense of the lower classes. The following quotation referring to Naples is in his chapter Towns and Cities, and is from one of several sketches of cities of the era. It gives the tone of Braudel’s treatment of income inequality.

“Both sordid and beautiful, abjectly poor and very rich, certainly gay and lively, Naples counted 400,000, probably 500,000 inhabitants on the eve of the French Revolution. It was the fourth town in Europe, coming equal with Madrid after London, Paris and Istanbul. A major breakthrough after 1695 extended it in the direction of Borgo de Chiaja, facing the second bay of Naples (the first being Marinella.) Only the rich benefited, as authorization to build outside the walls, granted in 1717, almost exclusively concerned them. As for the poor, their district stretched out from the vast Largo del Castello, where burlesque quarrels over the free distribution of victuals took place, to the Mercato, their fief, facing the Paludi plain that began outside the ramparts. They were so crowded that their life encroached and overflowed on to the streets. ? These ragged poor numbered at the lowest estimate 100,000 people at the end of the century” (Volume I, p. 532).

Here in the midst of a description of impoverishment in Naples we also have imbedded an estimate of the homeless as 20 to 25 percent of society, a typical quantitative illustration that Braudel uses to great effect. He also tells us that the rich have the political power to live in more desirable locations, nothing new there. It is not surprising that Marxist historians would find much to like in Braudel, but there is very little ideological in his writings.

In fact, Braudel is much more interested in putting the everyday life of all peoples in perspective by comparisons of 1400 to 1800 and to contemporary levels of living. Braudel admired Simon Kuznets’ work on national income but does not appear familiar with concepts like urban versus rural versus national growth rates, and his career predates the development of poverty weighted growth rates. But one senses from his discussions of material life that Braudel would have found these comfortable constructs with which to work. He also suggests that he would have liked to use cliometrics in the analysis of his period but that there were not adequate data. However, Braudel would have probably wanted to build up social and national accounts rather than deal with behavioral models.

3. The Wheels of Commerce

It is curious that Volume I devotes chapters to Money and Towns and Cities, which seem much more the subjects of Volume II, The Wheels of Commerce. However, Braudel looks at money as an indicator of the degree of monetization of societies and the complexity of their economies. And as we have noted, the increase in towns and cities during the 1400-1800 period meant an increasing number of poor making their material life in urban areas. On the other hand, this curious treatment may only reflect the evolution of Civilization and Capitalism, in which Capitalism and Material Life was fairly self contained and appeared thirteen years earlier than the remaining volumes.

Wheels of Commerce moves from markets to capitalism and society. Although Braudel does not use the language, he is concerned with the development of institutions, ideology and social norms. He offers a justification for employing the term capitalism, noting that it was not a term used by Marx, only his followers. Capitalism for Braudel involves not only the use of capital but also its position at the apex of material life. As discussed, it is this aspect of Braudel that has had a large influence on those associating the expansion of capitalism and world systems as necessarily intertwined. The first chapter of Wheels of Commerce is called the Instruments of Exchange, by which Braudel means the types of markets in which exchange took place; it is followed by a chapter on Markets and the Economy. The two may only be separate because together they are the length of an average book. Braudel deals with local commodity markets serving surrounding villages and market towns serving their hinterland, as well as wholesale and financial markets. Markets for financial instruments including bourses and exchanges, as well as credit institutions like banks, are also discussed. Bourses, after the Hotel des Bourses in Bruges where early meetings of merchants took place, also dealt in wholesale commodity trade, especially for articles like pepper, cotton, tea and the like. For Europe the 1400-1800 period sees the development of exchanges in Amsterdam and London that while subject to bubbles, also provided a basis for financial intermediation for even small investors.

In treating the development of markets Braudel gives emphasis to the geography of markets, and his treatment is often imaginative, though not terribly systematic. He analyzes the frequency and density of fairs and markets in England and France. He gives more cursory treatments of other parts of the world, though both India and China receive their fair due. G. William Skinner’s treatment of Chinese market towns and cities is discussed in terms of the hexagons of Walter Chrystaller and August Losch. Here Braudel argues that the size of the hexagon embracing different size market towns varies inversely with the density of population (II, pp.118-19). He then applies this to puzzles in French history about the varying boundaries of pays, which he argues may well have been due to changing population densities over time–a rather nice cross-section, time-series application.

Braudel asks questions about markets that are fundamental but often not treated systematically. When do wholesale markets emerge? What leads to the establishment of year-round shops versus occasional markets and fairs? Why did the number of shops proliferate during the 1400-1800 period? When are peddlers really agents of wholesalers and when are they petty traders? Braudel concludes that the expansion of markets was stronger in England than in France, though he does not probe further into why this may have been so. And he argues in terms of his view of hierarchy, that the development of capitalism was interdependent with the expansion of exchange. He also notes that France and particularly China had administrations that constrained the expansion in markets and hence the amount of capitalistic development.

How do markets relate to each other? One way they are integrated is through the activities of the same firm, most typically in this period, an extended family firm. Braudel examines these connections mainly in Europe. The extended family firm was a common practice of merchants from India, China and the Middle East, some of which are discussed by Braudel. While he recognizes the importance of business families in extending the boundaries of any world economy, this also poses a puzzle in some of the diasporas that Philip Curtin has described so well.

For example, in Asia, which in 1400 contained more than half of world population, income and wealth, there was an established pattern of trade prior to European incursions involving intersections of an East Asian world economy that was linked to an Indian world economy stretching from Malacca in the Malaysian Peninsula to Calicut and Cambay in Western India. This in turn joined with what Braudel terms an Islamic world economy extending from the East Coast of Africa through the Arabian Peninsula, Egypt, Turkey and Persia. However, when Vasco da Gama arrived in Calicut in 1498, it was not the core city of an Indian world economy, nor is it obvious that there was such a core city. Vijayanagar was a major South Indian empire at this time but its ability to expand northward was constrained by the presence of the five hostile Bahami kingdoms. The Mughal empire only emerges after 1526. Calicut is itself ruled by the Zamorin, a Hindu ruler whose state was physically quite small, and who did not have territorial ambitions. As Braudel notes, the proportion of Arabs, Indian Muslims, Hindus, and Chinese among the actual merchant groups and shippers varied over the centuries. Diasporas like Malacca and Calicut were home or branch office to Arabs, Armenians, Chinese, Hindus, Bohras, Khojas and similar Muslim groups, Jews, Malays and others. The activities of these traders seem to fit Braudel’s model of high profit seekers linking smaller markets. However, the claim that these Asian world economies of the fifteenth and earlier centuries involved core cities seems strained. Even after the Mughal, Ming, Ottoman and Persian empires were established, it is problematic.

The remaining chapters of Wheels of Commerce deal with the development of capitalism and the role of the state in markets and in establishing monopolies including a lengthy treatment of the activities of the merchant trading monopolies in Africa, Asia and the Americas. Braudel’s treatment of society is a wide-ranging social and political analysis including discussions of hierarchies, revolts and the state and social order. Braudel does not use the terminology, “social norms,” but in a section “Civilizations do not always put up a fight” (II, p. 555) he certainly explores their importance. He says, “When Europe came to life again in the eleventh century, the market economy and monetary sophistication were ‘scandalous’ novelties. Civilization, standing for ancient tradition, was by definition hostile to innovation. So it said no to the market, no to profit making, no to capital. At best it was suspicious and reticent. Then as the years passed, the demands and pressures of everyday life became more urgent. European civilization was caught in a permanent conflict that was pulling it apart. So with a bad grace, it allowed change to force the gates. And the experience was not peculiar to the West.”

4. The Perspective of the World

In his very ambitious last volume, Braudel deals with long cycles, the emergence of various world economies, historical problems in measuring GDP per person, the colonial economies and the industrial revolution. It is certainly successful in one of its aims, to treat the economic history of the 1400-1800 period as a story of the world, not simply Western Europe. There are rich discussions of Africa, the Americas, and Asia balancing well the perspective of the colonizer and the colonized. In his essay on Max Weber, Engerman (p. 5) places Weber and Braudel, along with David Landes, Joel Mokyr, Douglass North, Nathan Rosenberg and others as scholars dealing with the “perceived uniqueness of the Western European economy.” Let me close this essay by arguing that while Braudel has a lot to say about developments in Western Europe, he did not see a simple explanation of the causes of growth in the West, nor did he think this was the most interesting question to explore.

The uniqueness of Western European experience has certainly been taken as the phenomenon to be explained by many economic historians. Writers like Weber not only looked at European evidence in the Protestant Reformation but also offered explanations of why the religions of other societies, such as India, were less conducive to growth. Braudel is not at home with Weber, nor does he seem to give great importance to institutions like private property, contract, and the like. In fact, he does not seem to accept even the premise that there is something unique to be explained about the development of capitalism in Europe.

It might be argued that this is because of Braudel’s idiosyncratic view of capitalism. Let me again quote Braudel;

“Throughout this book, I have argued that capitalism has been potentially visible since the dawn of history, and that it has developed and perpetuated itself down the ages. (III, p. 620) … It would however be a mistake to imagine capitalism as something that developed in a series of stages or leaps–from mercantile capitalism to industrial capitalism to finance capitalism, with some kind of regular progression from one phase to the next, with ‘true’ capitalism appearing only at the late stage when it took over production, and the only permissible term for the early period being mercantile capitalism or even ‘pre-capitalism’. In fact as we have seen, the great ‘merchants’ of the past never specialized: they went in indiscriminately, simultaneously or successively, for trade, banking, finance, speculation on the Stock Exchange, ‘industrial’ production, whether under the putting-out system or more rarely in manufactories. The whole panoply of forms of capitalism–commercial, industrial, banking–was already employed in thirteenth century Florence, in seventeenth-century Amsterdam, in London before the eighteenth century”(III, p. 621).

Here Braudel strongly sees in his period and earlier the same business forms that exist today and to which others attribute the uniqueness of Western European experience.

However, the following quotation perhaps illustrates where Braudel imparts his own special view of capitalism. He says,

“The worst error of all is to suppose that capitalism is simply an ‘economic system,’ whereas in fact it lives off the social order, standing almost on a footing with the state, whether as adversary or accomplice: it is and always has been a massive force, filling the horizon. Capitalism also benefits from all the support that culture provides for the solidity of the social edifice, for culture–though unequally distributed and shot through with contradictory currents–does in the end contribute the best of itself to propping up the existing order. And lastly capitalism can count on the dominant classes who, when they defend it, are defending themselves.

Of the various social hierarchies–the hierarchies of wealth, of state power or of culture, that oppose yet support each other–which is the most important? The answer as we have already seen, is that it may depend on the time, the place and who is speaking” (III, p. 623).

Braudel has a number of elements of Schumpeter in his view of world economic history, in particular long cycles and creative destruction. One of his important insights shared by many others who stress uneven or unbalanced growth is that world economies have changing borders and that there are often areas not included in any world economy. Indian software programmers are writing for Oracle in Bangalore while other areas of India (and many other world areas) are as yet unaffected by the information technology revolution. Most large countries have special development programs for backward areas, of which many have had flourishing histories, such as natural resource-rich Bihar and Eastern Uttar Pradesh in India, the seat of the Mauryan Empire and the birthplace of the Buddha.

However, Braudel departs sharply from Schumpeter in how he views the capitalist entrepreneur. For Braudel the monopolistic character of capitalism is the key element of privilege and the link between the state and society. He says,

“The rise of capitalism in the nineteenth century has been described, even by Marx, even by Lenin, as eminently, indeed healthily competitive. Were such observers influenced by illusions, inherited assumptions, ancient errors of judgement? In the eighteenth century, compared to the unearned privileges of a ‘leisured’ aristocracy, the privileges of merchants may perhaps have looked like a fair reward for labour; in the nineteenth century, after the age of the big companies and their state monopolies (the Indies companies for instance) the mere freedom of trading may have seemed the equivalent of competition. And industrial production (which was however only one sector of capitalism) was still quite frequently handled by small firms which did indeed compete on the market and continue to do so today. Hence the classic image of the entrepreneur serving the public interest, which persisted throughout the nineteenth century, while the virtues of laissez-faire and free trade were everywhere celebrated. The extraordinary thing is that such images should still be with us today in the language spoken by politicians and journalists, in works of popularization and in the teaching of economics, when doubt long ago entered the minds of the specialists…”(III, pp. 628-9).

These closing quotations from Braudel restate his view that everyday material life and operation of markets proceed at one level while capitalism carries on at a higher level above the others. Further Braudel sees capitalism as closely related to the political elites of the world economy in which they are operating. While Braudel’s view of the world economy is shared by many Marxist historians it is also consistent