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After the Galleons: Foreign Trade, Economic Change and Entrepreneurship in the Nineteenth-Century Philippines

Author(s):Legarda, Benito J.
Reviewer(s):Giraldez, Arturo

Published by EH.NET (November 2001)

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Benito J. Legarda, After the Galleons: Foreign Trade, Economic Change and Entrepreneurship in the Nineteenth-Century Philippines. Madison WI: University of Wisconsin Center for Southeast Asian Studies, 1999. x + 401 pp. $22.95 (paperback), ISBN: 1-881261-28-x.

Reviewed for EH.NET by Arturo Giraldez, Department of Modern Languages and Literatures, University of the Pacific.

The title of Benito Legarda’s book is somewhat misleading because the time span covered in the work begins well before the nineteenth century. In fact, After the Galleons is an economic history of the Phillippine Islands from the time of the arrival of Miguel Gomez de Legazpi’s expedition in 1565 to the independence from the metropolis in 1898. Legarda studies the Philippines’ evolution from an archipelago inhabited by almost self-sufficient communities to the era when it became an agricultural export economy dependent on external trade to meet domestic needs. But, as the author remarks: “The nineteenth-century Philippine economy did not start from scratch. The preceding Age of Transshipment dated back to pre-Hispanic times, and, during the centuries when it was in effect, a process of administrative unification and geographic consolidation took place that laid the groundwork for the rise of national consciousness” (p. 5).

These sentences outline the plan of the book. Part 1 studies Philippine trade from before the Spaniards’ arrival until 1815. Part 2 focuses on the domestic exports and economic changes in the Islands. Part 3, “Entrepreneurial Aspects,” studies the establishment of merchant houses, their activities and innovations. Legarda follows Joseph A. Schumpeter’s ideas on entrepreneurial activity, paying detailed attention to the agents responsible for the “creative responses” in the economy. Businessmen and firms are introduced in relation to new technologies, activities and financial institutions.

Fifteenth-century Chinese and Muslim (Persian and Arab) merchants frequented the archipelago’s coastal areas, attracting a population that established settlements dependent on sedentary agriculture and craft production. These communities, called “barangays,” traded among themselves and with the rest of Southeast Asia and China. Slaves, beeswax and gold were exchanged for porcelain, iron, lead, tin, silks, etc. The early connection with China was going to have a crucial role in Philippine history. The presence of the Spaniards dramatically changed the position of the Philippines with respect to the Asian continent and placed the Islands as one of the crucial points in the global economy created by the galleon trade. From 1565 to 1815 the ships came and went from Manila to Acapulco — “it was the longest shipping line in history” (p. 32). American silver and predominantly Chinese silks were the commodities exchanged between Mexico and the Philippines. A Ricardian model explains the trade. The bimetallic ratio of silver and gold in 1560 was 13 to 1 in Mexico, 11 to 1 in Europe and in China was 4 to 1. “China was long the suction pump that absorbed silver from the whole world” (p. 31). Obviously there were periods of convergence of bimetallic ratios, but until the end of the nineteenth century China continued to be the main receiver of the world’s silver. Considering the price differential in silver prices: “The opportunities for arbitrage profits were staggering” (p. 31). And indeed, they were. Net profits oscillated between 100 and 300 percent. The Chinese brought the wares for the galleons but they also provided supplies for shipbuilding, materials to the military garrisons and foodstuffs to Manila’s citizenry. Also the junks brought artisans and tradespeople to the Islands. The Chinese have played a crucial role in the Filipino economy since the sixteenth century up to the present.

The eighteenth century witnessed plans and proposals to change the monopolistic framework of the galleon trade. After the British occupation of 1762-64, war frigates sailed between Cadiz in Spain and Manila carrying European merchandise. The Royal Philippine Company founded in Madrid (1785) was “encouraged to try Asian ventures,” (p. 58) and the port of San Blas on the Pacific coast was established in 1766 to trade with the Philippines, challenging Acapulco’s position as the only Mexican port in the galleon route. The regulation of libre comercio in 1778 allowed several Spanish ports besides Seville and Cadiz to trade with the colonies, which provided Mexico with new sources of merchandise.

Revolutionary changes did not happen in the eighteenth century — Philippine commerce was still a transshipping operation — but they sowed the seeds of future developments: foreign merchants arrived in Manila; local merchants could travel to other Asian ports; export trade of native products was stimulated and local textile manufactures were encouraged. “And the combined effect of the tobacco monopoly and the domestic operations of export producers, including the company, was the start of agricultural specialization in the Philippines” (p. 90). The tobacco monopoly was established by Governor Jose Basco y Vargas by decree in 1781, was implemented in 1783 and was the main source of fiscal revenue for Spain in the Philippines. There was also a “tentative use of bills of exchange in transferring funds through Canton” (p. 89).

The decades from 1820 to 1870 were crucial in the economic history of the world and produced significant changes in the economy of the country. An increase in trade and navigation in Asia accompanied the opening of the Suez Canal. Goods like sugar, fibers, coffee, etc. became the main export commodities. The Spanish government granted shipping subsidies. As a result of all of this, in the Philippines there was “a saltatory rise in the level of foreign trade” (p. 179). These events and trends were common to the Southeast Asian transformations from subsistence to export economies. However, the trajectory followed by the Islands was different from the Southeast Asian path. The economies of the region’s colonial powers tried to increase agricultural output pressuring the peasants to produce more goods for export and to develop plantation agriculture. According to Legarda in the period between 1820 and 1870: “Neither pressure on the peasantry nor the development of large-scale plantation agriculture was primarily responsible for transforming the Philippines from a subsistence to an export economy” (p. 186). Such a role was played by foreign businesses — “they formed the main nexus between the Philippine economy and the currents of world trade” (p. 211). The foreign merchants introduced agricultural machinery, advanced money on crops which stimulated the opening of new agricultural areas and consequently exports grew. There was an increasing commodity concentration of exports (sugar, abaca, tobacco and coffee) to the United Kingdom, China, British East Indies, United States and Spain [Tables 1 to 5]. Textiles dominated imports accompanied by a decline of local manufacturing and in 1870 rice became an import commodity. “Both trends had significant social and demographic repercussions” (p. 178) [Tables 6 to 13].

British and Americans were predominant in the foreign trade. The Chinese occupied the position of intermediaries between foreign western merchants and the domestic market. In spite of the dominant presence of foreigners in the Philippine economy “a native middle class was rising” (p. 213).

In order to raise funds the merchant houses issued notes taking deposits in local currencies from people of different economic backgrounds. This capital was given as an advance to finance agricultural operations. “Liquid wealth” reached Filipinos in the countryside, at the same time the merchants’ exercised control over the supply of export commodities (p. 256).

The Philippines’ economic landscape was different from Southeast Asia, i.e. Malaya and Indonesia. Western foreigners, public entities, and the Chinese joined rising domestic entrepreneurs. The Spanish government participated financially in the origination of utility companies (steam navigation, telegraphy); western investors entered some joint ventures with local capital (rice, sugar mills, textile industry, railroads and electricity), and domestic businessmen invested in the tranways and created the brewing industry. “But the crucial dichotomy between economic initiative and political authority stamped the Philippine case as being more in the East Asian tradition than the Southeast Asian mold” (p. 289).

This processes of economic integration in the world market had its drawbacks. Income disparities between regions and occupations became more marked. The domestic textile industry could not compete with foreign imports. During the 1880s, ‘the decade of death,’ the lower income groups became more susceptible to diseases due to an imbalance between commercial and subsistence agriculture and due to the arrival of epidemics (p. 335). The upside of these transformations was improvement in communications (telegraphy, mail, cable, steamship lines, electricity, railroads), in finance (foreign banks arrived to Manila), and in infrastructure. The funds of the Obras Pias, a church institution employed in the past to finance the galleon trade, were used to establish the Banco Espanol-Filipino in 1851 and the Monte de Piedad (a savings bank and a pawn shop) in 1882. In the same year with Obras Pias monies coming from the cargo of the galleon Filipino, a municipal water system was built in Manila (pp. 337-38).

Benito Legarda quotes Victor Clark who wrote: “A period of industrial development and expansion immediately preceded the insurrection that marked the beginning of the end of Spanish rule in the Philippines” (p. 339). The United States’ occupation of the country after the war produced increases in exports, innovations in technology, and much higher standards of living. The Philippines’ economy now would resemble more closely the Southeast Asian model. “The price of twentieth-century progress would be economic dependence” (p. 340).

Historians of the Philippines have produced excellent work. Benito Legarda’s economic history of the archipelago is an important addition to this body of literature. For historians of Asia and of the Spanish Empire After the Galleons is essential, but Legarda’s care in placing the Philippines in the context of with global economic trends makes the book an excellent addition to the field of “World History.” For economic historians and development experts, Legarda has written an important book. With clarity, rigor and avoiding unnecessary jargon, After the Galleons addresses questions and processes that are still affecting our times. Scholars, graduate students and advanced undergraduates in economics, history and other social sciences should read Legarda’s work. It is an indispensable book.

Arturo Giraldez, along with his colleague Dennis O. Flynn, is the editor of The Pacific World: Lands, Peoples and History of the Pacific, 1500-1900 an 18-volume series published by Ashgate/Variorum. With Dennis O. Flynn and James Sobredo, he has edited in 2001 European Entry into the Pacific, the fourth volume of the series.

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

The Economy of Europe in an Age of Crisis, 1600-1750

Author(s):Vries, Jan de
Reviewer(s):Grantham, George

Project 2001: Significant Works in Economic History

Jan de Vries, The Economy of Europe in an Age of Crisis, 1600-1750. New York: Cambridge University Press, 1976. xi + 284 pp. ISBN: 0-521-29050-3.

Review Essay by George Grantham, Department of Economics, McGill University.

An Economy in Crisis

First published in 1976, The Economy of Europe in an Age of Crisis was chronologically the fourth in a series of general syntheses of European economic history commencing with Robert Lopez’s account of the medieval economic boom and carried forward by Harry Miskimin’s two volumes on the economic history of the Renaissance.1 The four works by two Yale professors of economic history and one of their students constituted as it were a ‘Yale’ history of the European economy, which was distinguished from other works by its attention to macroeconomics and the implications of general equilibrium. One recalls hoping for an ultimate volume from the pen of Yale’s other senior economic historian that would bring the story out of Europe to America and through the Industrial Revolution to the mid-twentieth century. Alas. The hungry sheep look up and are not fed. … Weep no more, woeful shepherds.

Jan de Vries’ contribution to this series deals with a particularly enigmatic period in the history of the European economy. The Age of Crisis began as a prolonged recession during which the older centers of economic growth, strung out like beads on a strand extending from the cities of Northern Italy to the trading and manufacturing towns of Flanders, fell into a deep economic sleep from which they were not roused until the coming of the railway. Elsewhere, sectarian violence, civil war and repeated incursions by Turkish troops ravaged vast regions of central and eastern Europe into the first decade of the eighteenth century; from the 1660s to 1713 commercial and real warfare between France, England and the Low Countries perturbed Europe’s most prosperous economies. Sovereign default occasioned by the financial burden of these conflicts ruined financial intermediaries; the supply of money declined and prices fell; population grew hardly at all and in some places actually declined. The paradox is that from this age of social and economic turmoil emerged an Industrial Revolution and the onset of sustained economic growth. The question addressed by The Economy of Europe in an Age of Crisis is how could this have happened. The answer is summed up by an aphorism and a label. The aphorism – ‘The division of labour is limited by the extent of the market’ — was Adam Smith’s; the label — an ‘Industrious Revolution’ — belongs to Jan de Vries.

To appreciate the how difficult it was in the early 1970s to explain how an economy of growth could emerge from an economy in crisis one must know something about the contemporary state of early modern economic historiography. The literature dealing with economic and social development between 1500 and 1800 fell into four broad classes: studies inspired by the stages theory of economic evolution, which were mainly concerned with the evolution of business and commercial organization; a literature on Mercantilism, which focused on economic policies of states and the attitudes and ideas that informed them; a literature centered on population, prices, and wages, which emphasized the Malthusian/Ricardian agricultural constraint on pre-modern economic growth; and a Marxist literature that viewed the period as the crucial transition from feudal to capitalist society. None of these approaches — with the latent exception of the Marxist labor theory of value — embodied an endogenous model of how the economy changed. Change came from outside the ordinary workings of the economy. Monographs on the economic history of particular industries and regions took the general economic context as exogenously given, as did the Malthusian literature, which interpreted falling wages and rising rents as infallible signs of overpopulation in an economy characterized by fixed production possibilities. Broader treatments like Braudel’s Material Civilization (1967) on the other hand, envisaged the period as a struggle between an aggressively expanding capitalist sector and agricultural traditionalism. Apart from some discussion of the relation between price levels and the supply of money, there was little economic analysis of factors affecting the general equilibrium of the economy.

The stages theory was the foundation of most narrative accounts of the period. As is well known, it hypothesizes a chronological taxonomy of economic forms or ‘stages’ that purports to describe in a generalized way how the western national economies progressed from familial and tribal self-sufficiency in the early middle ages to the economy of large-scale industry and international specialization of the nineteenth and early twentieth centuries. In the canonical sequence of stages the economies of early modern Europe occupy an intermediate position situated somewhere between the urban guild economy of the later middle ages and the industrial economy of the nineteenth century. The narrative thus emphasized the organizational response of urban and rural industrial enterprise to growth in trade, which was not explained but simply assumed to have happened for reasons of its own. The analysis of agricultural evolution was largely confined to the description of settlement patterns and modes of tenure. In the degree that the period was defined by the ‘stage’ attained by the most progressive nations, it was characterized by the expansion of municipal and regional market economies to a larger national level of aggregation.

Part of the appeal of this typology to the German historical economists most closely associated with it was its historical justification of protectionist policies accompanying Germany’s political unification in the nineteenth century, which combined reduced barriers to domestic trade with increased tariffs on imports from other countries. The departure from the abstract precepts of the theory of comparative advantage were rationalized as measures fitting the requirements of an economy that had not yet attained its ‘national’ stage of economic development. This argument was closely related to a relativistic proposition holding that economic motivation also varies across stages, an idea supported by philosophical traditions going back to Hellenistic times and by the striking social and economic disparities between rural and urban societies and between Europe and the underdeveloped world. The very magnitude of these disparities, however, caused scholars to conflate the supposed continuum of economic stages and behaviors into a dichotomy that contrasted a traditional rural sphere where social values and institutions worked to reproduce self-sufficient and self-sustaining communities, and a modern urban one where actions were motivated by the individualistic goals of social advancement and wealth maximization. This vision, which is most fully articulated in the sociologies of Emile Durkheim and Max Weber and which survives in the economic anthropology of Karl Polanyi and his followers, was adopted by the influential Annales historians as the central framework of their history of social and economic evolution. In the words of Braudel, the early modern economy was comprised of “two universes distinct from each other” — a rural world ruled by instinct and habit; and an urban world of “energy, innovation, new awarenesses, and even progress.”2 Economic and social development thus unfolded as a war between two mutually antagonistic worlds. This Manichean vision of social and economic process clearly left little space for the analysis of economic complementarities between town and countryside. The countryside and small towns were passive recipients of ‘energy’ emanating from the city. Metaphors like this provided little guidance as to how that energy was channeled, nor exactly how it was generated.

The second strand in early modern economic historiography revolved around the idea of Mercantilism. Coined by Adam Smith as an Aunt Sally, the term experienced rebirth in the late nineteenth and early twentieth century in works by economic historians like Schmoller, Cunningham, Ashley and Lipson, who held that the international division of labor reflected the unequal capacity of competitive nation states to protect their economic interest. To them the early modern period represented an age when princes tried to protect their people from the disquieting effects of rapid economic and social change. This rosy view of the paternalistic and authoritarian policies of seventeenth- and eighteenth-century government, which was advanced as a model for the paternalistic policies of the national welfare state, was devastatingly criticized in a monumental study by the Swedish economist Eli Heckscher, and in a comparative analysis of early modern France and England by the American economic historian John Nef.3 As the policies in question were quite diverse, the ensuing debate mainly emphasized questions of definition. Exactly what was Mercantilism? The quantitative significance of specific policies could not be analyzed given the limited available documentation, so the debate shed little light on the causes of economic change, although there are topics in this general sphere of enquiry that are more immediately fruitful of insight into this topic than the analysis of industrial and commercial regulations, most of which were easily circumvented. The first is the economic and administrative response to the transfer problem created by central taxation of rural districts; the second concerns the impact of military provisioning on the organization of the wholesale trade in cereals and other materials that were cumbersome to transport and costly to store. The Age of Crisis was an age of rising taxation and growing armies and navies. Neither trend could fail to affect industrial and commercial organization.

The third strand of economic historiography was unreservedly quantitative. Since the 1930s an international effort to collect prices and wages for the period prior to 1800 had provided numerical data that seemed to bear out the Ricardian hypothesis of an inverse correlation between movements in population and real income, which was explained as the joint consequence of a fixed supply of land and a static agricultural technology. By the 1970s compilations of crop yields and yield ratios further supported the impression that outside a few exceptional districts agricultural technology and agricultural productivity were indeed mired. At the same time, however, the price data indicated a positive correlation between the price of cereals relative to meat and dairy products, and growth in population. This was explained by the higher income elasticity of demand for animal products than for subsistence cereals; when population increased, real per capita income declined due to diminishing returns in farming, causing demand for meat and dairy produce to fall faster or rise more slowly than the demand for grain. Since scattered observations of the amount of land in different kinds of crops indicated a rise in the output of livestock products in periods when their relative price was increasing, the apparent increase in the output of the pastoral sector and the diffusion of forage legumes after 1650 could plausibly be explained as a consequence of demographic stagnation, which in the context of an unexplained upward drift in overall productivity generated the increase in per capita income needed to support the rising relative price of livestock. The difficulty with this demographic explanation of shifts in demand was that it didn’t explain how demand and agricultural production could increase in an otherwise stagnating economy, in which demand for all kinds of produce should have been contracting. Output had risen in a period when incentives to increase it seemed weak. The Ricardian paradigm was incomplete.

The final strand of the economic historiography suffered from no such logical misgivings. Marxist historians viewed the seventeenth century as crucial to the transition from ‘feudalism’ to capitalism. The defining event was the long English Revolution that began in the late 1620s and culminated in the substitution of a Dutchman for King James II in 1688. To English Marxist historians, the six decades represented the original ‘bourgeois’ revolution, which instituted political preconditions for capitalism. The crucial preconditions were the expropriation of the peasantry by Parliamentary acts of enclosure and the creation of a free labor market by the enactment of laws and judgments limiting the right of rural laborers to seek work outside their home parishes and the removing the right of all workers to combine in defense of wages and working conditions. Relieved of paternalistic regulations promulgated by Tudor and Stuart monarchs intended to protect peasants and maintain social stability, English landlords and businessmen could create a subservient force of free labor exploitation that was the source of the capital on which rested England’s later industrial supremacy. The crisis of the seventeenth century planted the seeds of capitalism and the industrial revolution. In a variant of this argument Wallerstein argued that the capital-creating surplus was extracted not so much from domestic labor, but from serfs and slaves in peripheral regions. Economics followed politics.

None of this added up to a theoretically coherent account of how the economy of the seventeenth and early eighteenth century gave birth to sustained economic growth. The stages literature described the changes in industrial organization, but could not explain them; the debate over mercantilism and the role of the state was virtually devoid of economic analysis of cause and effect. The Malthusian approach was more promising, and by the 1970s had been reinforced by outstanding regional studies in early modern agriculture and better demographic information, but the analysis was typically couched in terms of the tension between population and resources, and ignored the implications for agricultural productivity of farm specialization induced by the growth of cities and rural industrial districts. The Marxist approach focused on the evolution of social classes and politics.

The facts are that by the middle of the eighteenth century, the economies of the Netherlands, England, and in lesser measure France were significantly larger than they had been a century and a half earlier. Although some technical change had occurred, it was not enough to explain the apparent growth in output and productivity, since most production was done with the old techniques, albeit on a larger scale. The source of growth therefore had to be increased inputs. One input, however, could not have increased. Although population had expanded, the land available to supply it with food, fuel and building materials had not, which implies that the positive effect of a larger labor force should have been offset by diminishing returns. But in regions of Europe where population was rising, the standard of living — as evidenced by the kinds of goods people had in their homes when they died — had apparently increased.

De Vries’ proposed solution to the problem of how growth could proceed in the face of diminishing returns involved two correlations. The first was a regional correlation between the rate of urbanization and agricultural productivity. A survey of the agricultural regions of Europe reveals that places where the urban economy thrived were also places where agriculture prospered. In the Dutch Republic and southern England, the growth of Amsterdam (and other Dutch cities) and London created new incentives for nearby farmers to intensify and ameliorate methods of cultivation. It is now known that similar incentives had similar effects in other regions, most notably on the great farms that supplied Paris with grain and straw. By contrast, farming in the hinterlands of the declining Italian, Flemish and Iberian towns stagnated. Both economic logic and the price data indicate that the causal link runs from changes urban demand to changes in rural supply, rather than the other way round. De Vries also argued the traditional hypothesis that pre-existing differences in agrarian structure affected the rural response to changing market opportunity. The evidence for the exogeneity of rural institutions, however, is less convincing than the regional correlation between urbanization and agricultural productivity, as the regions where agrarian structure permitted an elastic response to market opportunity had the strongest market incentives to adjust agrarian institutions to that opportunity. In one part of the world such responses may nevertheless have worked to limit the range of subsequent response to economic opportunity. In Eastern Europe and in the American tropics, landowners used their political authority to solve the problems of growing labor scarcity caused by growing demand for produce by subjugating the labor force.

The second suggestive correlation is between urbanization and interregional trade. Between 1600 and 1750 much of the long-distance trade of Europe came to pass through a handful of entrep?ts situated on the southwest margins of the North Sea. Although geographical factors determined that this region would contain nodes of exchange between the Baltic and the Western Atlantic, it was the spatial economies of scale in distribution and exchange of economically useful information that caused them to capture the lion’s share of Europe’s trade with other continents as well as a significant share of her internal commerce. The entrep?t trade attracted related industries processing exotic materials and servicing the shipping and financial sectors. The growth in population supported by these activities was so large that it created a market large enough to induce economies of scale in production, of which the counterpart was rising real returns to capital, land and labor. De Vries noted that unlike other parts of Europe, where population growth lowered real wages, in urbanizing Holland and England it raised them. The land constraint was not absolutely binding. Spending the higher incomes created an effective market demand for more expensive kinds of farm produce, textiles and housewares, and so diffused the prosperity of the town into the countryside. The dynamic thus reflected the reciprocal relation between the extent of the market and the division of labour summarized by Smith’s famous maxim.

Economies of scale resulting from the concentration long-distance trade and related activities into a smaller number of large cities, however, could not fully explain how an economy in crisis could generate points of economic progress and prosperity. The major exogenous event in this century and a half of slowly growing population and imperceptibly improving technology was the colonization of North and South America and the growth of trade with Asia. The chief products of this expansion in Europe’s commercial space was increased supply and falling prices of exotic commodities, some of which are highly addictive. Unlike traditional commodities manufactured locally or within the household economy of peasant families, exotic goods and the cheaper kinds of manufactures available through trade had to be paid for with cash, which in the steady state could only be earned by exporting more goods to the urban sector. This, plus the demand for cash to pay increased taxes, explained why the extra rural income was not dissipated in leisure. The advent of exotic commodities and cheap manufactures changed tastes in a way that shifted the supply of labor, enterprise, and most likely capital, outward.

How, then, did the economy of crisis become an economy of growth? Part of the answer was the end of civil and religious warfare in Germany and the stabilization of government in France and England after 1720, which provided a period of comparative calm during which population could begin to grow again and the web of financial intermediation could be re-knitted. The continued growth of long-distance trade with Asia and the accelerated expansion of the European colonies in the New World imparted a further positive impetus, though its main effects happened late in the day. In the first century of the age of crisis the most important source of long-term growth was the dynamic scale economies associated with the concentration of trade and related activities on a handful of cities in Northern Europe. At first the growth of Amsterdam and perhaps London was at the expense of older centers like Antwerp, Venice and Genoa, but as overall activity stabilized and began to grow again after 1713, falling transaction and distribution costs fell throughout the continent. Declining costs of manufactured and imported goods improved the rural terms of trade, and induced more agricultural and industrial production in the countryside. The growing trade financed the improvement of transport facilities linking town and countryside, and provided the means of greater financial integration. The crisis, then, was in many ways a tipping event that led Europe’s economy to a new geographical and economic equilibrium. An important and as yet unanswered question is whether in the absence of the negative shocks of the seventeenth century the tipping would have favored southern Europe and the developing spine of development in central and western Germany, which were to be the heartland of Europe’s nineteenth-century industrialization.

Despite criticism from Dutch economic historians wedded to the Malthusian paradigm, De Vries’ economic model of the early modern transformation of the European economy has stood up well. Based to a large extent on the Hymer-Resnick model of gains from trade to be had from the specialization of rural households on agricultural production, and on Adam Smith’s scale economies, De Vries’ account of the dynamic returns to scale in the early modern economy found support in the arguments for increasing returns embedded in the economics of coordination failure and in the new trade theory of the 1980s and the early 1990s. In this respect, the book was ahead of its time. An Economy in Crisis has also influenced the reconstruction of Chinese economic history, where a similar dynamic has been found to operate with similar results.4 According to Kenneth Pomeranz a market-based division of labor in eighteenth-century China supported living standards comparable with the European standard of 1750.

One of the overlooked merits of this account of early modern economic development is its denial of the inevitability of an Industrial Revolution. Smithian trade dynamics could lift productivity for a long time, but not forever; it could alone give rise to the fundamental technological breakthroughs that have sustained economic growth since the late eighteenth century. Perfect property rights and easy trade might actually limit incentives to innovate by providing tradable substitutes for intellectual effort. These notions underlie Pomeranz’s assertion of an eighteenth-century Chinese ceiling that led to what he calls the Great Divergence. According to De Vries, the exceptionally commercialized Dutch economy was bounded by a similar ceiling.

As is to be expected some parts of the book have held up less well than the general model. The agricultural discussions are dated; it is now clear that French agriculture was more productive and less static than the accounts on which De Vries based his discussion indicated, and it appears that traditional husbandry was capable of supporting a more elastic supply response than was then believed to be possible. The role of structural determinants of regional differences in agricultural productivity is also problematic. The discussion of the role of rural industry in creating a proletariat reflects historical debates of an earlier time, and ignores the agricultural implications of a growing non-agricultural population. The analysis of the financial sector, including the evolution of commodity moneys, is less sophisticated and detailed than one would demand today. In particular, a new edition would have to incorporate the insights into public finance derived from the theory of rational expectations and the theory of games. A modern, longer treatment would also probably pay more attention to what one might call business cycles, bringing the short run back into the story of the long one. The study of population dynamics in this period has also progressed from its state in the early 1970s, and much more is now known about the role of women in the economy. A new edition would extend the discussion of technological change to the development of scientific institutions and scientific publishing. Nevertheless, it is surprising how well the book holds up. A recent textbook by Robert Duplessis covering the same ground has little more to say except in having more detail.5

In its modest way, The Economy of Europe in an Age of Crisis has made a signal contribution to the way we think about pre-industrial economic development. One might argue that the dynamics the book expounds are based on the atypical experience of a few rapidly growing regions; but this is the nature of dynamic economies of scale. They gather in business and enterprise from other places. One of the unanswered questions is how fragile was this trade-based growth. Was it rooted in the irreversible expansion of colonial trade, or did its continuance depend on the maintenance of stable trading relations? How integrated was the European economy of the seventeenth and early eighteenth century? How vulnerable was it to monetary instability? How close did it come to coming unraveled in the dark years between 1640 and 1660, and again between 1690 and 1713? How important for the subsequent growth of the European economy were the stabilization of finances and the political tranquility of Europe’s largest nation (France)? Exactly how crucial was the growth of population and production in North America? These are questions to which we still lack answers. That we can ask them is a tribute to the achievement of this remarkable little book.

Notes:

1. See Robert S. Lopez, The Commercial Revolution of the Middle Ages, 950-1350, Cambridge (1971); Harry Miskimin, The Economy of Early Renaissance Europe, 1300-1460, Cambridge (1969); and Harry Miskimin, The Economy of Later Renaissance Europe, 1460-1600. (Cambridge (1977).

2. Fernand Braudel, Afterthoughts on Material Civilization and Capitalism. Baltimore (1977), p. 17.

3. Eli Heckscher, Mercantilism, London (1935); John U. Nef, Industry and Government in France and England, 1540-1640, Ithaca (1964).

4. Philip Huang, The Peasant Economy and Social Change in North China, Stanford (1985); R. Bin Wong, China Transformed: Historical Change and the Limits of European Experience, Ithaca (1997); Kenneth Pomeranz, The Great Divergence: Europe, China, and the Making of the Modern World Economy, Princeton (2000).

5. Robert S. Duplessis, Transitions to Capitalism in Early Modern Europe. Cambridge (1997).

George Grantham was awarded the Cliometric Society’s annual prize — the Clio Can — in 2000. His recent publications include “La faucille et la faux: un cas de d?pendence temporelle?” Etudes Rurales (2000); “The French Agricultural Productivity Paradox: Measuring the Unmeasurable,” Historical Methods (2000); “Contra Ricardo: On the Macro-economics of Europe’s Agrarian Age,” European Review of Economic History (1999); and “Espaces priviligi?s: productivit? agricole et zones d’approvisionnement urbains dans l’Europe pr?-industrielle,” Annales. histoire, sciences sociales (1997).

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Subject(s):Economywide Country Studies and Comparative History
Geographic Area(s):Europe
Time Period(s):18th Century

New World Economies: The Growth of the Thirteen Colonies and Early Canada

Author(s):Egnal, Marc
Reviewer(s):Kulikoff, Allan

Published by EH.NET (August 2001)

Marc Egnal, New World Economies: The Growth of the Thirteen Colonies and

Early Canada. New York: Oxford University Press, 1998. xix + 236 pp.

$49.95 (cloth), ISBN: 0-19-511482-5.

Reviewed for EH.NET by Allan Kulikoff, Department of History, University of

Georgia.

I am writing this review from Beijing, capital of one of the most vibrant

capitalist economies in the world. Foreign trade has clearly underwritten

China’s remarkable growth, but what is most apparent, sitting at my

father-in-law’s computer, is the astonishing growth of China’s domestic

economy. Since my last visit in 1997, Beijing has built thousands of new

apartment blocks, constructed hundreds of kilometers of limited-access roads,

and opened dozens of new department stores. Middle-class Chinese have

purchased and remodeled their apartments; they have bought stylish clothes,

air conditioners, multi-language DVD players, and computers (and signed up for

email and surfed the internet).

While reveling in this newfound abundance, I read Marc Egnal’s interpretation

of the much more modest economic growth of the eighteenth-century British and

French mainland colonies, which averaged perhaps a half percent a year. Even

such modest growth meant that mid eighteenth-century families lived in greater

abundance, with more varied possessions (forks and knives, higher grades of

cloth) than their parents.

Building on a long tradition (of the so-called staple thesis), Egnal argues

that colonial prosperity depended upon the mother country and its demand for

staples the colonies produced. Using a mountain of data, some newly uncovered,

he documents long economic cycles in England and France and connects them to

levels of colonial exports and imports. He traces the substantial temporal

differences in growth in Quebec, the British Northern colonies, the Chesapeake

colonies, and the lower South to patterns of demand for colonial staples.

Egnal traces the different rhythms of growth in the four regions to the

economic experiences of major export partners: France for Quebec, England for

the northern colonies, England and western Europe for the Chesapeake, western

Europe and the West Indies for the lower South.

Egnal critiques the staple thesis for its lack of quantitative precision and

its failure to take other parts of the colonial economy (such as cultural

differences, capital accumulation, and shifts in the terms of trade) into

consideration. And unlike staple theorists, he emphasizes two long swings in

the colonial economy that stretched from roughly the 1710s to the 1780s, ones

heavily dependent upon government spending and warfare (that poured money into

the colonies but reduced prospects for trade). Yet the book follows staple

theorists in making foreign trade central and for economic development and in

downplaying the importance of the domestic economy. Most of Egnal’s measures

of credit and capital formation, for instance, strongly depend upon trade.

The book’s great strength is in its use of simple (but ingenious) statistical

measures of trade, credit, growth, prices, economic cycles, and consumption.

There are 103 figures and 17 tables in the 159 pages of the book’s main text,

taking up something like two-fifths of the text pages — but nary a regression

equation in sight. Egnal, for instance, measures trade by comparing exports

and imports, and using the difference (when imports outpaced exports) to

calculate the level of credit; and he uses relative prices (of staple exports

and manufactured imports) to determine the changing terms of trade.

The major arguments of New World Economies are generally persuasive.

The non-capitalist social formations that the expansion of the world

capitalist economy created in the European periphery did depend on the

European core for its survival. And trade was clearly of central importance in

the colonists’ well being. When tobacco prices dropped, Chesapeake planters

suffered; when French subsidies lagged or European fashions changed, Quebec

habitants descended toward subsistence. As Egnal shows, colonists’ attempts to

foster manufacturing usually failed, forcing them to import such basic

necessities as cloth and eating utensils. In developing economies, where both

labor and capital remained scarce, colonists needed a steady supply of credit,

even on the eve of the Revolution.

This reviewer nonetheless has several reservations about the thrust of Egnal’s

arguments. Can one truly compare the regions chosen? Quebec, in particular,

seems too different from the other regions to allow a coherent contrast.

Granted, its population grew as rapidly as that of the thirteen colonies, but

far fewer French peasants came there than English wage laborers, dispossessed

peasants, and yeomen came to the British colonies. Slavery thrived everywhere

in the colonies (even, to a small degree, in New England), but was generally

absent in Quebec. Perhaps Egnal should have compared the mainland British

colonies to the West Indies. Such a strategy would have allowed comparisons of

four British slave-holding societies and avoided the problem of contrasting

what Egnal knows were profoundly different cultures.

More importantly, Egnal seriously underestimates the significance of the

domestic economy. At first, colonists did have to import nearly all consumer

goods, could acquire credit only from abroad, and faced starvation and

nakedness if English supplies faltered. But by the early eighteenth century,

colonists had procured the basic necessities of life and could pass them on to

the next generation. During the Atlantic depression of the late seventeenth

and early eighteenth centuries (one that affected, as Egnal shows, both the

northern and Chesapeake colonies), farmers and planters took up home

manufacturing. Although colonists still imported textiles and finished

ceramics and metal ware more cheaply than that they made them, they gradually

acquired spinning, weaving, and smithing skills and readily made simple cloth,

clothing, and metal goods. Since Egnal uses imports as a proxy for growth, he

has no way of writing about, much less measuring, the significance of the

domestic economy.

Work on colonial crafts and domestic manufacture is just beginning, but

historians are beginning to measure its impact. The most promising work

revolves around craft skills (there are important articles and books on

seventeenth-century New England artisans, Connecticut furniture makers,

Pennsylvania weavers, and Eastern Shore artisans) and detailed considerations

of consumer goods found in probate inventories and store account records. A

recent issue of the William and Mary Quarterly examined the issue, from

a theoretical point of view, in some detail. If a historical economist as

imaginative as Egnal turns his or her mind toward measuring the domestic

economy, this reviewer is certain that robust numbers can be calculated.

These quibbles to the contrary notwithstanding, Egnal’s book is an essential

analysis of eighteenth-century international commerce, adding essential

details and arguments to Shepherd and Walton’s and McCusker and Menard’s

earlier works. Every economic and early American historian ought to read it.

Allan Kulikoff is Abraham Baldwin Professor of the Humanities at the

University of Georgia. His most recent book is From British Peasants to

Colonial American Farmers (University of North Carolina Press, 2000), an

examination of the early modern English economy, early immigration to the

colonies, the relations of farmers and Indians, and colonial population, land

acquisition, and household formation. He is currently working on three books:

a methodological examination of the theoretical bases of early American

history, an examination of farmer identity in eighteenth-century America

(The Making of the American Yeoman Class), and an analysis of the

impact of the American Revolution in the countryside (The Farmer’s

Revolution).

Subject(s):Economywide Country Studies and Comparative History
Geographic Area(s):North America
Time Period(s):18th Century

New Spain’s Century of Depression

Author(s):Borah, Woodrow Wilson
Reviewer(s):Salvucci, Richard

Project 2001: Significant Works in Economic History
Woodrow Wilson Borah, New Spain’s Century of Depression. Berkeley: University of California Press, 1951. 58 pp.
Review Essay by Richard Salvucci, Department of Economics, Trinity University.

An Obscure Century in a Backward Country: Woodrow Borah and New Spain’s Century of Depression

In 1938, the English novelist Graham Greene traveled to Mexico to investigate the condition of the Catholic Church under the regime of President Plutarco El?as Calles. While there, Greene interviewed the strongman of San Luis Potos?, General Saturnino Cedillo. In the most memorable terms, Greene called Cedillo “an Indian general in an obscure state of a backward country.” So my title, I fear, is a plagiarism, but an appropriate one. For certainly some who read this essay will wonder why a brief (58 pages) book about seventeenth?century New Spain (as Mexico was then known) counts as influential at all, let alone very influential? After all, Lesley Simpson, an authority on Mexico, famously labeled the seventeenth as Mexico’s “forgotten” century, and everyone from Adam Smith to Thomas Jefferson thought the Spanish empire both backward and obscure.

Influence, of course, is a matter of audience. There must be few economic historians of Latin America and fewer still of Mexico who are unfamiliar with the work of Woodrow Borah and the so-called “Berkeley School” of historical demography. Even with prevailing intellectual fashions, it is hard to believe that most English?speaking historians of Latin America have not heard of Borah, although whether or not they read his work in graduate school or after is much less certain. So I might best define my task as to explain why New Spain’s Century of Depression, published in 1951 as number 35 of the University of California Press’s celebrated Ibero?Americana series, should be counted one of the truly important works of twentieth?century economic history, especially for those who have yet to make its acquaintance. I take it for granted that colleagues in my field would agree. But it is a small field, and I am under no illusion that even its best work is widely known, much less regarded as a crucial contribution to economic historiography.

Woodrow Borah, who died in 1999, was one of the outstanding members of the postwar generation of Latin Americanists that included Howard Cline, Charles Gibson, John Lynch and Stanley Stein. At Berkeley, Borah, who was Abraham D. Shepard Professor of History, was one of a stellar cast of scholars drawn from a wide range of disciplines — Sherburne Cook, George Foster, James Parsons, John Rowe, Carl Sauer, and Lesley Simpson come immediately to mind. They exercised a profound influence on each other, sometimes as collaborators, but more often as valuable colleagues. What emerged from their work was a distinctive scholarship that brought together striking research and insights drawn from the natural and social sciences, precocious social science history, you might say. And Borah, his prodigious reading, meticulous scholarship and personal austerity notwithstanding, was one of this group’s more daring and imaginative members. Indeed, in a rueful aside, Borah once told me that his critics (there were a few) had accused him of “inventing Indians,” and this he meant quite literally, not in the now prosaic historicist sense of the term.

The burden of New Spain’s Century of Depression was to suggest the impact of the massive decline of the aboriginal population of Central Mexico (whom we can simply, if incorrectly, call Indians) on the material prospects of the Iberian conquerors (whom we can simply, and equally incorrectly, call Spaniards) and their descendants. As Borah understood it, the intent of the Spaniards was to live off the labor of the dense Indian population they had encountered in Central Mexico, a population accustomed to the rule of a privileged upper stratum by generations of Mesoamerican conquerors of whom the Aztec were simply the most recent. The Spaniards’ intention was no mystery. They announced they had come to the “Indies” (wrong again, but who’s counting?) to get rich, and that they had no intention of tilling the soil “like peasants” in order to do so. To accomplish their goal, the Spaniards, victorious in the wake of Cort?s’ historic expedition, rewarded themselves with the famous encomienda, the right to extract labor from the Indians. For some, like Cort?s himself, the encomienda was the source of great personal wealth and social prestige, although others, including some of Cort?s’ outspoken critics, were less richly rewarded.

For the encomienda to function as an avenue of accumulation, evidently, there had to be Indians to be distributed. At the time of the arrival of the Spaniards, Central Mexico perhaps supported an Indian population as large as 25 million. Within a century, shockingly, the same Indian population had fallen to less than a million, the victims of European disease, massive economic disruption, and the destruction of a coherent civilization that the Spaniards willingly exploited but never really understood. It was one thing for the encomienda to yield a comfortable existence for the Spaniards when Indian labor was abundant. But, obviously, such a system could hardly be expected to function when the people who supported it had disappeared. And here, then, is the gist of the argument of New Spain’s Century of Depression. What happens to a system of colonial expropriation when the society on to which it is fixed essentially disappears?

A bald summary can hardly begin to capture the twists and turns of the research agenda that New Spain’s Century of Depression ultimately entailed. When Borah published it in 1951, Sherburne Cook and Lesley Simpson had produced the population figures for New Spain on which he relied. It would require fully another quarter century, down to 1976, for what are now the standard estimates of early colonial population to emerge. There was considerable controversy along the way, and to an extent, there still is. Yet it is important to keep several things in mind. Much of the controversy regarding the population of New Spain involves the pre?contact population. About the course of events after the Spanish invasion there is far less doubt. The Indian population fell, and it fell sharply within a century, on the order of 90 percent. From an economic standpoint, only one thing really matters: factor endowments. Before the Conquest, labor was the abundant factor in Mexico. By 1620, land had become the abundant factor. No amount of scholastic contention about how many Indians there “really” were can alter that.

The other point is that even if Borah used imperfect population figures or made arbitrary assumptions, his scholarship was sound. He knew the sources and was particularly well versed in the documents associated with the relaciones geogr?ficas, the reports prepared to give Philip II of Spain an idea of what his Mexican dominions contained. While these documents are widely available today due to the efforts of the Instituto de Investigaciones Antropol?gicas in Mexico, it must have required considerably greater difficulty to master them fifty years ago. The impression from reading Borah’s notes is of a reasonably extensive investigation of the archival and printed materials available in the 1940s. In other words, you need to know something about the history of colonial scholarship to appreciate what Borah and his colleagues at Berkeley accomplished and some of the critics simply did not.

The conclusion to which Borah came was straightforward. Beginning sometime in the 1570s, an “economic depression besetting the Spanish cities because of the shrinkage of the Indian base [would last] more than a century,” and a “large number of white families must have found themselves reduced from comparative wealth to straitened circumstances as the drag in the Indian population forced a downward spiral in the economy of the European stratum”(p. 27). Although Borah presented his findings as a “hypothesis of a century?long depression” or “a hypothesis which needs much additional investigation,” the hypothesis is generally accepted as settled fact. It was not until the early 1970s that the work of the English historian Peter Bakewell raised questions about the impact of population decline on the fortunes of silver mining, but Borah’s view of the economic circumstances of the settlers went largely unchallenged. Even John Lynch, whose brilliant synthesis, Spain under the Hapsburgs (1981), called into question the entire notion of a Mexican depression in the seventeenth century, did not address the crucial issue that Borah raised. How did the elite of Mexican society — in effect the advocates, bearers, beneficiaries and putative defenders of colonialism — adjust when deprived of the Indian population on which it depended? My suspicion is that New Spain’s Century of Depression seemed logically unassailable. Borah’s citation (p. 23) of Viceroy Velasco the Younger’s report to Philip II in 1595 was especially acute: “those who consume are many and the Indians who produce are few.” What more could be said?

If you have persisted this far, you may, perhaps, think otherwise or wonder at the peculiar way in which Borah shaped his investigation. Borah did not discuss the fate of the Indians, other than to note that they “seemed doomed to relentless extinction” (p. 28). And even so, life did not come to an end in Mexico in 1576, or 1626, or 1676. Emigration from Spain continued, a fact of which Borah was quite aware. Moreover, if Cook and Borah’s later research indicated that the Indian population reached its nadir around 1620 — Borah puts its size at 750,000 — it began to recover thereafter and probably continued to do so until the 1730s, when severe epidemic disease made is reappearance. A century of population growth in a preindustrial society, however slow, does not square easily with falling living standards. And other developments, particularly the growth of colonial textile production in the middle decades of the seventeenth century, give pause as well. If a “depression” had taken hold, and more people were producing more goods, what sort of a depression was it?

To the extent that there was much data available to answer the question — and by and large, there was not — Borah made some attempt to address the objections, postulating, for instance, the existence of not one, but two economies, one Spanish, the other Indian. But there was not much he could make of the distinction, although there was a hint as to where research might lead. A dramatic change in the land-labor ratio, with the Indian population falling by 90 percent, surely affected the marginal productivity of Indian labor.

However, as Borah pointed out (p. 21), it was inconceivable that rising productivity could have offset the sheer decline in the Indians’ numbers, but the upward drift in real wages of Indian workers in cloth manufactories toward the end of the sixteenth century suggests the horrible irony of a decimated Indian population now better able to sustain itself in the face of Spanish demands. Here was one reason for the subsequent recovery in the Indians’ numbers, along with greater resistance to European disease, more aggressive defense of the Indians’ interests by the Spanish Crown, and even changes in diet — the Spaniards brought chickens with them, which came to be a ubiquitous presence in rural villages. While Borah never said as much in New Spain’s Century of Depression, Borah and Sherburne Cook would go on to argue years later that the material conditions of a reconstituted Indian society may well have been higher than they were before the Conquest. So, in a sense, Borah’s argument about “depression” was potentially revolutionary even if, in some sense, it proved a trap to the unwary who did not think its implications through. The historical intuition was of a very high order, but it was exercised by a scholar who turned twenty in 1932; who hailed from Utica, Mississippi; and for whom the term “depression” was less a technical one than a shorthand for widespread impoverishment.

Another feature of New Spain’s Century of Depression should be attractive to economic historians. It concerns the nature of institutional change that occurred under the pressure of population decline in the sixteenth century. One is sometimes struck by the fact that much (but by no means, all) of the economic historiography that relies on institutions for explanation often does a poor job of explaining why a country has a given set of institutions to begin with. In Latin America, some mix of Divine Providence, Indians, bizarre political culture, difficult geography and dumb luck often seem to be the reasons for the existence of Mexican institutions. This, for all practical purposes, means that institutions are treated as exogenously given. Well, they aren’t, or at least, not always. While Borah, of course, never wrote in these terms, he carefully links the emergence of a Mexican regime of labor and land institutions to the shifting factor endowments with which the colonists had to work. For Borah, the ultimate significance of the dramatic decline of the Indian population was the emergence of the hacienda (which reflected increasingly abundant land) and debt peonage (which reflected increasingly scarce labor). Indeed, this was another central message of New Spain’s Century of Depression. The institutions that had given rise to the Mexican Revolution of 1910 — the hacienda and debt peonage — were a product of the seventeenth century and of the demographic disaster that had destroyed the Indians. This was a remarkably clear statement of what had long been the liberal view of the causes of the Mexican Revolution. Anyone who doubts its durability need do little more than read Alan Knight’s monumental history of the Revolution (The Mexican Revolution, 1986), which largely restates the old verities.

For an historian from Mississippi, an account of “debt peonage” as the defining characteristic of rural labor may not have been untoward. But what exactly one means by “debt peonage” is another matter. Borah’s position was a moderate one. This was not slavery, open or disguised (the enslavement of Indians was forbidden under most circumstances), but an Indian peon who owed a landlord, or, indeed, any employer money was legally required to work for that employer (and for him or her alone) until the debt was discharged. The notion that debt created a form of chattel slavery in rural Mexico does not seem to have entered the vocabulary until well into the regime of President Porfirio D?az (1876-1880, 1884-1910) and provided one explanation for the Revolution in a place like Yucat?n. For a time, colonial historians went to another extreme, intent on showing the agency of free peasants as makers of their own world. They forgot that seventeenth-century Mexico was an unlikely venue for the emergence of a smoothly functioning labor market in which buyers and sellers of labor had no recourse to force or fraud. Indeed, conquest is precisely about force and fraud, depriving the conquered of their possessions, and making them do things they otherwise would never do.

A more fruitful way of viewing the phenomenon of debt peonage — or simply workers’ indebtedness, for debt did not invariably impede their mobility — is to understand how it allowed employers to determine the rate of discount at which workers in a shifting, unstable, and terribly uncertain world valued future income. There is no point in beating around the bush. Life expectancy at birth for a Mexican in the colonial period was about twenty years, and in view of the catastrophic changes that had visited the Indian world since 1519, we can only conclude that Hobbes was right, and that Mexicans knew it. Their lives were short enough, and nasty and brutish as well. In a world in which only God (and whose God was up for grabs too) knew what the future would bring, it made sense for ordinary people to get as much as they could up front, which, after all, is all the “debt” part of debt peonage meant. This was just an extreme form of live for today, for tomorrow, literally, who knew? Workers bargained for better advances and often sought to enlarge them and employers understood this. The wide variance of debts reported by farms and factories for which we have records shows that their owners struck quite different bargains with different workers, a form of price discrimination that allowed them to “pay” no more than they had to, certainly less than raising wages to market-clearing levels. In fact, in the disorganized and fluid circumstances of the late sixteenth and early seventeenth centuries, when Indian villages were forming and reforming under the pressure of Castillian administration, it would have been impossible to gauge the overall willingness of Indians to leave their communities to work for wages, or even the willingness of their communities to allow individuals to leave, a point to which Borah was quite sensitive (pp. 41-42).

Besides, the point of indebtedness was not necessarily to reduce mobility. The Spaniards had other ways of doing so, which is another aspect of the system of land tenure they devised. As Evsey Domar once wrote, it is impossible to have free labor, free land and a nonworking landlord class simultaneously. One of the three must disappear. In Mexico, the Church prevailed in the 1540s in the struggle against the frank coercion of Indian labor. For most purposes, the labor of enslaved Africans was simply too expensive, even though there was a sizeable black population in seventeenth?century Mexico. No, the Spaniards made another choice, to deprive the Indians of access to free land, for free land they very well may have had. The dramatic decline in the Indian population left vast expanses of Central Mexico essentially empty, so what was to prevent the Indians from moving on to the land as a subsistence peasantry, to the lasting dismay of the Spaniards? The answer is that the Spaniards consciously set about driving the Indians into villages over which they could exercise some level of control, as Bernardo Garc?a Mart?nez demonstrated in Los pueblos de la Sierra (1987). At the same time, they sanctioned land?grabbing by the settlers, usually in amounts far in excess of anything the settlers could reasonably cultivate. At a stroke, the Spaniards accomplished two things. First, they shifted to a system of agriculture that reflected the abundance of land, a regime vastly different from the preconquest one based on the intensive use of labor, of which the famous raised?ridged fields (chinampas) of the Valley of Mexico were but one example. Second, they regularized the settlers’ land titles at the beginning of the seventeenth century, effectively transferring much land to Spanish control, whether or not it was cultivated. The hacienda thus circumscribed the ability of the Indian communities to survive independently of the Spanish economy, and in so doing, obviated the need for a draconian regime of forced labor, at least in Mexico.

This dramatic transition, from an economy based on intensive agriculture and the exploitation of a dense indigenous population, to one that relied on extensive agriculture and scarce Indian labor could not be accomplished rapidly. Moreover, the shift from an economy with relatively high levels of personal wealth in the form of Indians held in encomienda to a poorer one with fewer Indians and no encomiendas reduced New Spain’s capacity to import. It was now necessary to produce at home many goods that were, in the early years of the colony, imported through Spain. A reduction in consumption and a reorientation of expenditure toward investment was required to accommodate such a change. Borah, for instance, noted that the construction of churches tended to slow dramatically in the 1570s (p. 31), attributing this primarily to a redeployment of scarcer labor. (The demand for churches sadly fell as well, for there were far fewer souls to fill them.) For Borah, presumably, all this was a depression. To a later generation of historians, however, notably the British school headed by John Lynch, Borah’s “depression” was more a case of deferred consumption, the redirection of productive effort toward mining, manufacturing and farming that a colony living on its own required. None of this could have come easily or cheaply — the mining and irrigation works, the granaries, fences, sugar mills, ranches and textile manufactories absorbed resources. Hence, for Lynch and his followers, the apparent stagnation of the Mexican economy in the seventeenth century was just that, an apparent stagnation that marked the reorientation underway, one that would result in the visible renewal of economic growth under the Bourbon monarchs of the eighteenth century. It was not so much that Borah was wrong about what he had seen, but that he had, instead, seen wrongly.

Viewed fifty years after its publication, New Spain’s Century of Depression reads much like the pioneering work it was, full of insight, largely intuitive, sometimes wrong in detail and premature in judgment, but, all the same, arresting and audacious. It was, above all, a great work of history, for it sought to explain the present through the past, and to explain in simple but persuasive terms how what was distinctively Mexican, the play of institutions, political economy and an emerging social structure, came together out of the shock of the Conquest in the sixteenth and seventeenth centuries. If there is anything disappointing about New Spain’s Century of Depression, it is that the response to it has been admiration or assent from most students of Latin American history, but few studies in which appropriately trained scholars have undertaken the work necessary to establish Borah’s hypothesis fully, or to revise and extend it in ways consistent with contemporary population studies. That is the problem with writing a classic about an obscure century in a backward country: it is hard to get people to notice. Those of us who spend our time studying the history of Mexico know full well how important Borah’s elegant “hypothesis” was. It is time for mainstream economic historians, and, one hopes, their students, to develop an interest in replying to Woodrow Borah’s pioneering work as well.

Richard Salvucci teaches economics at Trinity University in San Antonio, Texas. He was a colleague of Woodrow Borah’s at the University of California, Berkeley, from 1980 through 1989. He works on the economic and financial history of Mexico between 1823 and 1884.

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Subject(s):Historical Demography, including Migration
Geographic Area(s):Latin America, incl. Mexico and the Caribbean
Time Period(s):17th Century

The Conditions of Agricultural Growth: The Economics of Agrarian Change under Population Pressure

Author(s):Boserup, Ester
Reviewer(s):Federico, Giovanni

Project 2001: Significant Works in Economic History

Ester Boserup, The Conditions of Agricultural Growth: The Economics of Agrarian Change under Population Pressure. London, G. Allen and Unwin, 1965; Chicago: Aldine, 1965. 124 pp.

Review Essay by Giovanni Federico, Department of Modern History, University of Pisa.

Population, Agricultural Growth and Institutions: The Real Long-Run View

This may be an unusual review for the series. In fact, Ester Boserup was not a professional economic historian and this is not properly speaking a work of history. Boserup was part of the staff at the United Nations and she wrote the book out of her experience as a consultant in developing countries. The book does not discuss in depth any specific historical event, and quotations of historical works are rather rare. It nevertheless is one of the most widely quoted works in economic history. Usually, it is labeled as “anti-Malthusian” and encapsulated with a sentence such as “population growth causes agricultural growth.” This is undoubtedly an implication of her model and comes in handy to scholars who do not believe that the (human) carrying capacity of a given area is set, and cannot be exceeded. From this point of view, one can draw a parallel between The Conditions of Agricultural Growth and another highly influential book, Amartya Sen’s Poverty and Famines: An Essay on Entitlement and Deprivation (Oxford 1981), which dismantled another tenet of Malthusian theory — i.e. that famines were always (or mainly) caused by absolute deficiency of food.

However, Boserup’s book is much more than a simple rejection of Malthus. It aims at explaining all the characteristics of agriculture in any specific area and time according to the resource endowment — the land/labor ratio. The more dense population is, the more intensive cultivation becomes. Agrarian economists in the 1950s focused on the Western world, and thus they could appreciate only a relatively narrow range of techniques. Looking at less developed countries, Boserup could list five different agricultural systems, according to the length of fallow between periods of cultivation (pp.15-16): 1) forest-fallow or slash and burn (15-20 years of fallow), 2) bush-fallow (6-10 years); 3) short-fallow (1-2 years); 4) annual cropping (a few months); 5) multi-cropping (no fallow). Even if the original evidence comes from the observation of primitive societies in the 1940s, the leap from changes in space to changes in time is short. Thus the rest of the book explores the consequences of intensification — i.e. of the move from one stage to another caused by population growth. Each of them entails more labor per unit of (total) land, and thus the intensification increases the productivity of land and reduces that of labor. A household has to work more to keep the same level of income. The intensification brings about an improvement in tools (from the digging stick, to the hoe, to the plough) and in the long run also brings some investments in land improvement (e.g. irrigation schemes). With pre-industrial technology, land improvements had to be done manually by peasants. Thus, they are typical of the last stages of the process, when there is enough work-force and enough demand for food to justify them. Total factor productivity may increase in the long run, but surely most of the increase in total output is achieved with a massive growth of work effort by the agricultural population. Finally, the intensification also shapes institutions, and this is the most innovative aspect of Boserup’s model. The forest-fallow system is inconsistent with household property of any given plot of land. The land belongs to (or more precisely is exploited by) the tribe as a whole. Property rights have to be created only when the cultivation cycle is shorter, and the quality of each single piece of land begins to matter. In the later stages of development some people could cease to work, and be entitled to rights to a part of the product (a “two-tier” society). However, Boserup is not nostalgic about primitive societies. She makes it crystal clear that the “two-tier” societies are better, even if in these latter some men did not work as hard as others.

Some years later, Boserup extended her model from agriculture to the whole of society (Population and Technological Change: A Study of Long-term Trends, Chicago, 1981). She added the concept of economies of scale. Many technologies can be properly exploited only if the population is dense enough. Population growth makes urban civilization possible. The second book is highly interesting, and has many insightful passages. Yet it fails to reach the simple elegance of The Conditions of Agricultural Growth — that quality which makes this book really deserving of being added to this list of masterpieces.

Of course, one could quibble endlessly about the “details” of Boserup’s model such the number and the exact features of the “stages.” The overall view provides a short, but powerful, history of the world, from prehistory to the nineteenth century arranged around one of the basic principles of economic theory — that techniques (and much else) depend on resource endowments. As you would expect from a seminal work, The Conditions of Agricultural Growth launched and refocused many modern debates. Let me give two examples. When Boserup was writing, the British agricultural revolution (i.e. the change in rotations with the substitution of fodder crops for fallow) was considered an epochal change with far-reaching implications for the entirety of world history. This view is still diffused, if no longer dominant. In Boserup’s model, the change is only part of the long-run process of world-wide intensification, and Europe was trailing behind the two other major civilizations, India and China. In fact, the most advanced areas of Europe reached Stage 4 while China was already at Stage 5. Another, and perhaps less obvious, example may be Greg Clark’s thesis on the differences in work intensity between Eastern Europe and the West (including the US). He argues that in the early nineteenth century Eastern Europeans were less productive than Westerners, because they worked less hard, and that they worked less hard because “they were different” (Clark, “Productivity Growth without Technical Change in European Agriculture before 1850,” Journal of Economic History, Vol. 47, 1987, p. 431). The thesis is very controversial (see the subsequent debate with John Komlos in the Journal of Economic History, in 1988 and 1989), but let’s assume it is true. Is it not possible that the “different” work ethic had been shaped over the centuries by different land/labor ratios? Other examples could follow, but the main point is clear: Boserup’s book is a treasure-trove of ideas. Unfortunately, it is more often quoted than used in actual research. As far as I know, there are very few really “Boserupian” works — i.e., long-term analyses of agricultural change as driven by changes in factor endowments. The most ambitious is Kang Chao’s book on Man and Land in Chinese Economic History: An Economic Analysis (Stanford 1986).

Why this (relative) neglect in spite of the so frequent quotations? One can put forward three causes, which are not mutually exclusive. The first is academic specialization. Intensification lasted for centuries, even for millennia, and few scholars would feel at ease in discussing both pre-historical agriculture and nineteenth century techniques. This fate is common to all interpretations of long-term change (cf. J. L. Anderson, Explaining Long-term Economic Change, Basingstoke, 1991). Second, the evidence on early-stage societies is very scarce, and by its nature it is often unfamiliar to historians. “Real” historical sources exist for Western Europe, China and India in the last three stages.

Last, but not least, the model has its own weaknesses. It is surely convincing as an account of long-term growth. It is less convincing as an explanation of short-term trends, and in this case the “short” term can last for decades. Boserup speaks as if all the techniques were known since the beginning, so that the population had only to choose the one best suited to its resource endowment and adjust its institutions if necessary. On the contrary, new techniques had to be learned, and sometimes discovered or re-discovered. In backward economies, information travels very slowly or not at all, and thus a people may not know that another one, maybe hundreds or thousands of miles away, has successful managed to overcome a specific problem. And, even if it gets to know the right technique, plant, or implement, the population still may need time and effort to master it and to adapt it to its own environment. Thus a success in the long run may conceal several short-term crises. Outright failure cannot be ruled out entirely.

Second, Boserup assumes that population growth is exogenous, following a standard practice among economists in pre-Beckerian time. Today, however, most consider population growth to be endogenous, and largely affected by economic calculations. People could reduce population increase by delaying marriages, controlling births, migrating and the like. Slower population growth would, ceteris paribus, reduce the drive to agricultural intensification. This is, of course, an empirical issue.

Finally, Boserup seems to neglect the different nature of modern technology or, if you want, the new role of capital. Her world is a two-factor world — labor and land. As said, capital does exist either as simple tools or as labor-intensive investment projects — but not as labor-saving machinery and above all land-saving fertilizers. In her world, intensification is possible up to a point, but sooner or later it has to reach a limit. It is unclear whether in real history this limit had ever been reached, even if China in the eighteenth and nineteenth centuries may be a good candidate. Aside from China, even in, say, 1800 there was a lot of “free” land on the Earth and thus a “Malthusian” crisis was still far away for the world as a whole. But sooner or later, a limit had to be reached, and further population increase beyond it was bound to cause a Malthusian crisis (even if smart people may prevent it with birth control). As everyone knows, the solution was technical progress, which has increased the productivity of both land and labor. (One wonders whether there are ecological or maybe ethical limits to technical progress). Boserup should have added a Stage 6 to her intensification model. Of course, she was very well aware of the technical progress, but she did not. One may speculate that she was more interested in less developed countries than in advanced countries, or simply she did not want to add a stage which could not fit easily in a model based on the length of fallow.

It is too easy to criticize ex post with the hindsight of decades of research. In spite of all its shortcomings, The Conditions of Agricultural Growth remains a small masterpiece which economic historians should read — and not simply quote.

Giovanni Federico is the author of An Economic History of the Silk Industry, 1830-1930 (Cambridge University Press, 1997) and (with Jon Cohen) The Economic Development of Italy, 1820-1930 (Cambridge University Press, forthcoming for the Economic History Society).

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Subject(s):Economic Development, Growth, and Aggregate Productivity
Geographic Area(s):General, International, or Comparative
Time Period(s):General or Comparative

The Invention of Capitalism: Classical Political Economy and the Secret History of Primitive Accumulation

Author(s):Perelman, Michael
Reviewer(s):Clark, Gregory

Published by EH.NET (March 2001)

Michael Perelman, The Invention of Capitalism: Classical Political Economy

and the Secret History of Primitive Accumulation. Durham, NC: Duke

University Press, 2000. 412 pp. $22,95 (paper), ISBN: 0-8223-2491-1; $64.95

(cloth), ISBN: 0-8223-2454-7.

Reviewed for EH.NET by Gregory Clark, Department of Economics, University of

California-Davis.

One of our popular diversions here in California is “channeling” the thoughts

of those who have passed on to the spirit world. Michael Perelman has

seemingly by these methods made contact with Karl Marx himself. For his book

is a lively polemic directed at the Classical political economists, full of

allegations of double dealing and bad faith, that the master himself would

have been proud to deliver. Marx lives. He lives in Chico, California.

Perelman interprets Classical political economy as a political program in

search of an intellectual justification. Classical economists wanted to

promote the interests of the new capitalist class. To this end the Classical

system celebrated the virtues of the free market. But free markets were of no

use if the capitalist class could not recruit the wage slaves they needed for

their factories. So Classical economists simultaneously promoted intervention

in markets to strip the peasantry and handicraft workers of the vestiges of

their independence and reduce them to the wage labor. They advocated in Marx’s

terms (or at least in the terms of Marx’s English translators) “primitive

accumulation” as necessary to make a market economy. But they did not advocate

this openly: thus the “secret history of primitive accumulation.” Free

competition was optimal, unless it produced an independent peasantry unwilling

to submit to wage labor. “While energetically promoting their laissez-faire

ideology, they championed time and again policies that flew in the face of

their laissez-faire principles” (pp. 2-3).

Exhibit A in Perelman’s indictment of the Classical mob is the case of the

Game Laws. The Game Laws banned the landless and small owners in the

countryside from taking game animals. Thus in England by the laws of 1670 to

take game even on your own land a person had to meet a very substantial

property qualification. In both England and Scotland these laws became more

severe as the eighteenth century progressed, and more people were convicted

under the laws. Why, asks Perelman, did the new capitalist class and their PR

agents, the Political Economists, support these feudal restrictions in favor

of the country squires? They did so because it took away the sources of

support that kept the poor in the countryside from the factory door. They did

so because a hunting peasant was an idle peasant and an insolent peasant, not

a docile and dependable worker.

That is the Perelman claim. What is his evidence? The main evidence that

Classical political economy promoted the game laws to dispossess the peasantry

is their almost complete silence on the subject! Adam Smith, “that great

master of capitalist apologetics” (p. 49), was, writes Perelman, the only

Classical Economist to ever mention the Game Laws. Smith, however, condemned

the game laws as a feudal relic, noting that “The reason they give is that the

prohibition is made to prevent the lower sort of people from spending their

time on such unprofitable employment; but the real reason is that they

delightin hunting” (p. 50). In light of this Perelman concludes this

discussion by noting generously that “Although Smith refuses to acknowledge

any association between the Game Laws and the interests of capital, he

deserves some credit for broaching the subject, since all other political

economists failed to make any mention whatsoever” (p. 51).

Since Classical writers cunningly concealed their support and promotion of the

Game Laws by not discussing them, or pretending to be opposed to them, their

guilt is established by the silence of their friends in Parliament on the

issue. “When Parliament debated the Game Laws again in 1830, not one prominent

spokesperson for political economy called for their abolition” (p. 54). The

alternative hypothesis, that Classical economists really thought the Game Laws

were a feudal relic too minor to bother with, is not explored.

Exhibit B in the indictment of the Classical mob is their treatment of

household “self provisioning” or as Perelman also refers to it “the social

division of labor.” Here again we know of their bad faith in this matter in

the contrast between their obvious desire to destroy self-provisioning and

force all workers into the market and their public silence on the issue. Thus

“Smith, insofar as he addresses the subject, treated the social division of

labor as the result of voluntary choices on the part of free people” (p. 90).

On the other hand any random statement by anyone criticizing sloth or

indiscipline by independent producers is sign of a plan to eliminating

independence and create a proletariat.

It is true that Classical economists often wrote about the indolence of the

poor and of smallholders. But was this casual moralizing just a relic of

earlier modes of discourse, on the way to a more systematic way of thinking

about the economy? Here I read their general silence on the issue very

differently. It is the silence that shows that concern with forcing the poor

to labor for wages was a peripheral element of their system. Perelman, has to

transform this casual silence into a much more sinister conspiracy to conceal.

The book makes little progress in that direction. Indeed the bold links drawn

on the most tenuous of evidence are one thing that distinguishes the Chico

Marx from the original. Those connections are so bold that this book might

better be placed on the shelf with the “grassy knoll” and “Roswell” genres.

As a historian who has written on England in the Industrial Revolution period

I have a more innocent interpretation of the Classical conspiracy of silence

on the alleged expropriation of the peasantry. This is that the process

whereby independent peasants and artisans became wage laborers was already

largely complete in England by the time the Classical economists arrived on

the scene in the eighteenth century. Their silence on the issue is a silence

of true indifference. They had no need to conspire in the expropriation of

the means of subsistence by capitalists, because a free labor market was in

place. The issue of common rights, access to land, and self-provisioning had

been settled in favor of wage labor by 1700 in all but the rural fastnesses of

the Scottish highlands. Even before the formal Parliamentary enclosure

movement of 1750 and later common rights had mainly become private tradable

rights of access unlikely to be owned by the poorest workers. Truly common

areas with free access were limited and of little value (see Leigh

Shaw-Taylor, “Did Agricultural Laborers Have Common Rights?” forthcoming,

Journal of Economic History, and “Labourers, Cows, Common Rights and

Parliamentary Enclosure: The Evidence of Contemporary Comment, c. 1760-1810″

forthcoming, Past and Present).

Perelman, like Marx, suffers from a wildly romantic vision of a pre-industrial

England of laughter and leisure that accords little with reality. Marx had the

excuse that he was writing at a time when little was known about that past.

Gregory Clark is Professor of Economics at the University of California,

Davis.

Subject(s):Labor and Employment History
Geographic Area(s):Europe
Time Period(s):19th Century

Asian Merchants and Businessmen in the Indian Ocean and the China Sea

Author(s):Lombard, Denys
Aubin, Jean
Reviewer(s):Giraldez, Arturo

Published by EH.NET (November 2000)

Denys Lombard and Jean Aubin, editors, Asian Merchants and Businessmen in the Indian Ocean and the China Sea. New Delhi: Oxford University Press, 2000. iii + 375 pp. $35.00 (cloth), ISBN: 0195641094.

Reviewed for EH.NET by Arturo Giraldez, Modern Languages and Literatures Department, University of the Pacific.

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This collection of essays was edited in 1988 by two professors of the L’Ecole des Hautes Etudes en Sciences Sociales in Paris and was published originally in French by the institution’s publishing house. The volume was produced after a conference on the same topic organized by these two eminent historians some years before. As Sanjay Subrahmanyam points out in the “Foreword,” it was a response to the perspective taken by Dutch historians of the Early Modern Period who considered the trading world of Asia in terms of the European Companies and the reaction of ‘non-Western’ societies. The economic dynamism was perceived as coming from Europe and acting upon backward economies. Denys Lombard and Jean Aubin tried to promote a contrary view of an Asian history “that was largely controlled by its internal rhythms, even if related in complex ways after 1500 to various forms of European commercial and political presence” (Subrahmanyam, p. i). This historical debate is not new; it follows controversies involving specialists in Indian, Chinese and African histories. Despite the twelve-year lapse between the French version and the current translation, these essays come at a time when the debate between Eurocentric paradigms and new historiographic perspectives is taking on a new life. The work of Andre Gunder Frank, Ken Pomeranz and R. Bin Wong, among others, place China and the ‘rise of the West’ in a different light, showing the importance of China in world history before the beginnings in Britain of the so called ‘Industrial Revolution.’ (See Andre Gunder Frank (1998) ReORIENT: Global Economy in the Asian Age, Berkeley: University of California Press; Kenneth Pomeranz (2000) The Great Divergence: China, Europe, and the Making of the Modern World Economy, Princeton: Princeton University Press; and R. Bin Wong (1997) China Transformed. Historical Change and the Limits of European Experience, Ithaca and London: Cornell University Press. A recent exposition of the ‘Eurocentric’ paradigm is David Landes (1998) The Wealth and Poverty of Nations: Why Some Are So Rich and Some So Poor, New York: Norton. For a criticism of these ideas, see James M. Blaut (2000) Eight Eurocentric Historians, New York and London: Guilford Press.)

Despite inherent theoretical problems related to the meaning of the term ‘Europe,’ with even greater confusion in the case of the term ‘West,’ those intellectual constructs form the basis of historical interpretations of wide acceptance. This set of ideas considers past developments in the “European West” as essentially endogenous processes that produced economic and social institutions whose rationality and efficiency renders them the paradigm of economic modernization. Eurocentric views have the common trait of creating an intellectual template to be applied to the transformations of other societies and ranking them accordingly to the similarities and differences from an ideal historical development. To counteract this view, Denys Lombard and Jean Aubin have collected a vast array of articles dealing with the dense network of exchanges from the Persian Gulf, the Red Sea and the African East Coast to the shores of China and Japan. The Europeans — Portuguese, Spaniards, English and Dutch — took advantage of pre-existing dense economic networks but their disruptions did not essentially upset their control by Asian powers until the nineteenth century.

Four main themes structure the authors’ historiographical perspective: 1) “Harbor Towns” as centers of economic stimulation; 2) The role of Islam in developing merchant networks since the ninth century; 3) The study of merchant ‘diasporas’; and 4) The ‘Continuity’ of business in Asia.

Chronologically, the collection begins with Chen Dasheng and D. Lombard’s “Foreign Merchants in Maritime Trade in ‘Quanzhou’ (‘Zaitun’): Thirteenth and Fourteenth Centuries” and ends with “The Major Japanese Groups of Enterprises (Kigyoshudan), Heirs to the Zaibatsus” by Bertrand Cheng. This time span was chosen to avoid an Asian economic history “in which all exchanges are seen through the prism of a periodization, whose pulse is to be found in Lisbon, London or Amsterdam” (Lombard, p.3).

Cities were crucial to trade in Asian waters. Denys Lombard distinguishes between the ‘hydraulic’ city connected to an agricultural space and merchant cities, which depended, in fact, on the maritime nexus and its links with foreign land (p.114). An early case was Quanzhou in China: “a precursor of the merchant cities that we shall later see at different points of the Indian Ocean.” (Dasheng and Lombard, p.20). Luis Filipi F.R. Thomaz studies Melaka in the sixteenth century. Genevieve Bouchon places Calicut in relationship with the Arab world, Ceylon, the Moluccas and the trade with China. Studying the city-port of Surat, Ashin Das Gupta discovers how the arrival of the Dutch and English and the Portuguese departure opened a window of opportunity for Indian merchants to became ship-owners (pp.105-112). This is a good example of how Asian entrepreneurs were able to take advantage of changes produced by the European presence.

Islam played a great role in merchant networks after the ninth century. We find Muslim communities in Quanzhou in the eleventh century; by the sixteenth century they were present in Hurmuz, Malacca, Mindanao and Manila. “As late as the 19th and 20th centuries, Islam continued to animate a whole series of intermediate networks from one end to the Indian Ocean to the other” (Lombard, pp. 5-6). Several authors study these Muslim merchants: Hadramis, Gujaratis, Ismailis, Bohras, Kashmiris, Panthay, and so on.

One of the most intriguing aspects illustrated by these essays is the “continuity” of merchant family networks and how they took advantage of the opportunities provided by different social contexts. When “Saudi Arabia developed into a petro-economy state, it attracted a flood of Hadrami emigrants; two Hadrami multi-millionaires were known everywhere, Bin Mahfuz and Bin Laden” (R.B. Serjeant, p.149). Hadrami origins come from Yemen. Claude Markovits studies other industrial groups in India like the Kasturbhais family of Gujarati merchants whose ancestor, Shantidas Zaveri, was ‘jeweler’ to the Mughal Imperial Court. The family owned textile factories but during the 1960s the group expanded into the chemical industry in collaboration with European companies, ICI and CIBA. They passed from traditional merchants to modern industrialists: “This adaptation has been achieved without any basic modification in the working methods or in the forms of organization” (Markovits, p.318). Similar cases can be found among the Chinese Hakka studied by Claudine Salmon. In 1862 Aw Chi Ching, a Hakka doctor from Fujien settled in Rangoon where he practiced traditional medicine and sold medicinal herbs. His descendents marketed a remedy called “Tiger Balm” of great mass appeal. They began advertising in Chinese newspapers in Hong-Kong, Macao and Northern China. To fight competitors in the balm business they bought newspapers in Guandong, Amoy, Singapore, Hong-Kong and Penang. Despite losing their properties in China after the Revolution, the family overcame the post World War crisis. A successor, Sally Aw, bought newspapers in Hong-Kong and Australia and also invested in a variety of businesses. The Hakka network was a great contributor to family success. After World War II one family member founded the first Hakka Bank in Singapore, the Chong Qiao Yinhang.

The vicissitudes of business development in Japan are well exemplified by one prominent conglomerate of the country: “The Iwasaki family had created the Mitsubishi company, which was the result of a commercial enterprise installed in Nagasaki and financed by the Tosa fief. It had closely collaborated with the earlier Meiji administrations” (Akamatsu, p.365). Before World War II Mitsubishi was one of the ‘Big Four’ Zaibatsus — the others being Mitsui, Sumitomo, and Yasuda. “However, as early as the 1950s, a new type of structure called kigyoshudan emerged to regroup the erstwhile zaibatsus” (Chung, p.367). Mitsubishi is one of them. The previous cases go beyond mere anecdote, implying large theoretical issues. In the words of Lombard (p. 7): “The question still remains whether the recent development of Asian capitalism is a reproduction of Western capitalist systems or an outgrowth of an independent stand taken with regard to them.”

Asian merchants were not always able to develop into industrialists. Another completely different role was the symbiotic relationships between Chettiars and Kalangs with European powers. The Chettiar studied by Hans-Dieter Evers were a Tamil caste of South India. Initially they were moneylenders whose activities expanded to South Africa, Mauritius, Ceylon, Burma, Malaya, South Vietnam and Indochina at the end of the late nineteenth century. The Chettiar expansion coincided with development in South-East Asia of the corporate plantation system and the mining and logging industries. “The Chettiar money-lenders played a major role in the transformation of the remaining peasant subsistence economy and connecting it with the export crop-producing sectors” (Evers, p. 206). They also provided capital to Chinese, Burmese, Pathan and Sinhalese moneylenders, but at the same time were connected with European banking institutions. “Chettiar agents had turned peasants into ‘capillaries of a network of financial arteries leading to the banks of London and Paris'” (Evers, p. 208). The Kalangs are a group of Javanese merchants studied by Claude Guillot. Fatimah, a Kalang woman, involved herself in money lending, like her mother, and in buying and selling gold. The gold was melted down and made “into pure gold ingots that Fatimah personally took to sell to the Javasche Bank in Batavia.” After World War I, this bank “introduced Fatimah to diamond merchants from Antwerp.” The family became the most prominent diamond merchants of the Dutch East Indies (Envers, pp. 272-73).

One might criticize the editors’ decision to “set aside all that we know of the European networks” (Lombard, p.4). Ignoring the presence of the Europeans in Asian waters implies ignoring the substantial links developed between Asian economies, America and other colonial powers. For instance, the Chinese tributary system used Japanese and American silver as one of its main monetary substances; and in the nineteenth century the Atlantic economy, Australian gold, Chinese tea and Indian opium formed a network of exchanges with the British playing a pivotal role. This observation does not detract from the quality of the collection. The essays are full of information and their findings should be carefully incorporated into current historical narratives.

Denys Lombard and Jean Aubin were much aware of the difficulties of studying Asian economies. Whereas European companies and countries contain rich sources amenable to statistical treatment, that is not the case for many economies in the Indian Ocean and China Sea. That explains why many of the essays’ authors use biographical sources and anthropological research to fortify their cases. However, to dismiss their findings because of lack of statistical information would be a serious mistake. In so-called western societies many economic activities are not reported in a reliable numerical form, such as the drug trade that forms part of the, non-reported, “submerged economy.”

Sanjay Subrahmanym’s “Foreword” finishes with the following thoughts that express very well the book’s theoretical relevance. “It is a timely reminder, at the end of the twentieth century, that the family firm, the merchant community, and the networks of capital-raising and investment based on kinship, affinity, and sociability, are still a reality that one needs to contend with, in Asia, but also perhaps in Europe and even in America” (p.ix).

Overall, this is an excellent collection that is tremendously useful for the historian and social scientist willing to get acquainted with aspects of economic and social history usually known only to specialists. It is a deep loss that both Jean Aubin and Denys Lombard are no longer with us. Both were great examples of an excellent French tradition in social sciences. Also two other contributors to the volume, Ashin Das Gupta and R.B.Serjeant died in the last decade of the twentieth century. The book is a great occasion to get acquainted with their work.

Arturo Giraldez has published several articles (in collaboration with D. O. Flynn) on precious metals in the modern era and has edited Metals and Monies in a Global Economy (Aldershot: Varioum, 1997). Also he is a general co-editor of the Variorum collection The Pacific World: Lands, Peoples and History of the Pacific, 1500-1900.

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Subject(s):Business History
Geographic Area(s):Asia
Time Period(s):General or Comparative

Titles, Conflict and Land Use: The Development of Property Rights and Land Reform on the Brazilian Frontier

Author(s):Alston, Lee J.
Libecap, Gary D.
Mueller, Bernardo
Reviewer(s):Johnsen, D. Bruce

Published by EH.NET (July 1, 2000)

Lee J. Alston, Gary D. Libecap and Bernardo Mueller, Titles, Conflict and

Land Use: The Development of Property Rights and Land Reform on the Brazilian

Frontier. Ann Arbor: University of Michigan Press, 1999. xiv + 227 pp.

$49.50 (cloth), ISBN: 0-472-11006-3.

Reviewed for EH.NET by D. Bruce Johnsen, George Mason University School of Law.

Titles, Conflict, and Land Use comes very close to being a tour de

force. The authors provide a careful and largely convincing theoretical and

empirical analysis of both the evolution of property rights to land and the

determinants of violent conflict on the Brazilian frontier. Although the book

has important policy implications — most notably that a failure of private

property rights, and not corporate capitalism, is probably the main threat to

the Amazon rain forest — the authors downplay policy analysis in favor of

hypothesis testing. This book is essential reading for development economists,

economic historians, public choice economists, serious environmental scholars,

and followers of New Institutional Economics. I also recommend it to those

interested in the evolution of property rights in cyberspace or any other new

frontier.

Several of the book’s early chapters address the history and current structure

of Brazilian land policy, describing in detail the relevant legal, regulatory,

constitutional, and political institutions that have influenced frontier

settlement. Brazil’s land holdings have always been highly concentrated owing

to a system of large land grants the Portuguese Crown made to promote early

settlement. The Crown issued these grants under the condition that recipients

put the lands into beneficial use, but due to low land values over the long

course of time this condition has rarely been met or enforced on the frontier.

Beginning in the 1930s, the modernization of Brazilian agriculture led to

widespread agrarian unemployment, a large and growing class of poor landless

peasants, and corresponding social unrest. Given the large tracts of idle and

unproductive frontier land, public sentiment and political favor eventually

turned to land reform to achieve social justice (and quite possibly social

efficiency) by reducing the inequitable distribution of land holdings. Despite

organized and often successful resistance to land reform by large landholders,

the current Brazilian constitution allows the federal government to expropriate

private lands that have not been put into beneficial use.

Land reform policy is now carried out primarily by INCRA, a federal agency

created in 1970 to administer frontier settlement. INCRA performs its mission

largely by organizing settlement on public lands, expropriating unproductive

private lands for settlement by squatters, and securing title for settlers. As

it turns out, organized squatter groups have become increasingly adept at

controlling the land reform agenda by planning effective invasions of likely

parcels and using violence strategically to induce INCRA to press for

expropriation. Although Brazilian statutory law requires that owners of

expropriated land receive just compensation, in practice landowners are

unlikely to receive fair market value. This prospect often leads them to resist

squatter invasions through various legal or extra-legal means, such as eviction

or armed intimidation, all of which are costly and likely to lead to violent

conflict.

To explain the evolution of frontier property rights, the authors develop an

analytical framework in which land values decline with distance from the

central market and the differential value between titled and untitled land

rises with land values and declines with distance. The data clearly support

these underlying relationships. Further empirical analysis reveals that the

length of a settler’s tenure on a plot substantially increases the likelihood

the plot will be titled, that title clearly has a positive effect on

land-specific investment, and that land-specific investment dramatically

increases land value. In cases involving a squatter invasion, the participation

of a squatter organization significantly increases the likelihood of

expropriation, and the percentage of a landholding that has been cleared (a

proxy for beneficial use) significantly reduces the likelihood of successful

expropriation. This naturally leads landowners to clear their lands to

strengthen property rights.

The authors infer from the evidence that INCRA tends to undertitle high-valued

land claims near market centers, possibly because INCRA’s performance is judged

on the number of families initially settled rather than on the quality of the

final settlement project. Although this is surely plausible, the inference

seems premature because we have no measure of the value of INCRA’s scarce

resources in alternative activities and because we know very little about the

costs and benefits of establishing title relative to alternative institutions.

To explain the determinants of violent conflict, the authors develop a

game-theoretic model with three possible outcomes from squatter invasions: the

landowner may evict the squatters, INCRA may expropriate the parcel for the

squatters’ benefit, or the squatters may remain on the land indefinitely with

no expropriation. The probability the landowner evicts the squatters increases

with what the authors characterize as “landowner violence,” and the probability

the squatters either remain on the land indefinitely or mobilize a successful

INCRA expropriation increases with “squatter violence.” The authors use this

model to generate comparative statics regarding the effects on landowner and

squatter violence from changes in the level of property rights security,

changes in land values, parametric shifts in the parties’ cost functions, and

changes in the positions of the courts regarding evictions.

My main concern with the model is that it assumes each side understands the

rules of the game and knows the relevant probability functions, valuations, and

costs. With full information, however, why would violence ever occur? What the

authors characterize as violence is really an input provided by the parties to

encroach or resist encroachment and bears no necessary relationship to actual

violent conflict, which is an outcome. By failing to account for this, the

authors neglect the selection effect so familiar to law and economics scholars

in explaining which legal disputes are selected for litigation. A legal rule

more favorable to plaintiffs, say, a change from negligence to strict liability

for injuries due to defective products, will not necessarily lead to more

litigation (violence). It simply shifts the parties’ expectations and changes

the character of the disputes that get litigated.

The authors recognize earlier in the book that “there must be some uncertainty

in the outcome that contributes to violence.” But uncertainty, alone, may not

be enough if the parties hold identical expectations. Rather, asymmetric

information about probabilities, valuations, or costs seems necessary to

generate violence conflict. A model capable of explaining violent conflict

might hypothesize two different types of landowners and squatters — say,

aggressive and passive — with each group receiving a costly signal about the

other’s type that is accurate on average but subject to imperfectly correlated

errors. Violence occurs when the parties hold mistaken beliefs about one

another’s type.

From this perspective, violence is a costly but effective method of correcting

mistaken signals. Conditional on land reform policy, violence might even be

seen as a socially efficient signaling mechanism compared to the alternative.

Apparently, the alternative is for INCRA to expropriate private lands and then

match settlers to those lands in an orderly process free from violence. The

success of squatters in controlling the matching process through organized

invasions suggests that INCRA is incapable of efficiently generating the

necessary information. For all its drawbacks, a process of targeted invasions

backed by the threat of violent conflict may be superior.

This hypothesis has testable implications, the most obvious of which is that

the parties will have a mutual interest in minimizing information asymmetry and

the associated social losses from violence. By categorizing land disputes

according to various characteristics, we should be able to predict that

information asymmetry will decline as a given category of disputes recurs and

the parties learn. New categories of disputes reflecting a different

combination of characteristics than has previously been witnessed will be most

prone to violent conflict, while routine categories of disputes will be the

least prone to violent conflict. I cannot resist noting that the common ability

of human beings to recognize patterns and to reason by analogy allows them to

anticipate outcomes and to avoid or minimize costly signaling. This knowledge

is a public good that appears subject to network effects and may be one

plausible explanation for how human beings have escaped the infinite regress

problem, in which all rents are dissipated. That the rule of law, which

institutionalizes this knowledge by relying on precedent, is strongly

associated with wealth accumulation should come as no surprise.

According to the asymmetric information hypothesis, the magnitude of changes in

land values, rather than the level of land values, should be associated with

information asymmetry and should lead to an increase in violent conflict.

Indeed, the authors include a measure of land value changes in their empirical

analysis of violent deaths and its coefficient is positive and marginally

significant. If available, the variance of land values in an area might have

even greater predictive power.

The presence of INCRA in an area should increase information asymmetry and

violent conflict. Although INCRA might act predictably under normal

circumstances, as land disputes escalate there comes a point at which public

sentiment leads INCRA to dramatically change its stance in favor of supporting

squatters. Through some range, it therefore seems plausible that landowner and

squatter expectations regarding INCRA involvement will differ, leading to

violent conflict. According to the authors’ empirical work, the presence of

INCRA in an area has a large and highly significant positive effect on violent

deaths.

Additional measures of information asymmetry might be the presence of

overlapping agency jurisdiction, changes in law or judicial sentiment, and

changes in political administration. Early on in a squatter organization’s

existence we should expect more violent deaths in the disputes it organizes,

but over time this effect should diminish as the organization gains a credible

reputation.

The authors may be correct in conceding that land reform is in some broad sense

socially efficient, but this should translate into the inference that settling

the large population of unemployed landless peasants on the Brazilian frontier

can somehow be made privately efficient for frontier landowners. Why, in spite

of their considerable political influence, have they been unable to accomplish

this through sharecropping or land rental arrangements? I can even imagine a

group of neighboring landowners agreeing to give away a portion of their lands

to settlers in hopes that doing so would expand the market and generate

improvements in infrastructure sufficient to compensate for their ceded lands.

An entertaining explanation for this failure is that through some kind of

invisible hand process the owners of Brazil’s frontier lands have been

inadvertently acting to forestall the familiar rent dissipation from premature

settlement. But with the Brazilian government unable to credibly commit to

enforcing landowners’ claims, in what might be characterized as an episode of

Malthusian rational expectations rent dissipation took the form of a large

buildup in the population of unemployed peasants that ultimately overwhelmed

landowner interests. Land reform is then seen as the political manifestation of

the race to first possession.

D. Bruce Johnsen is author of “The Formation and Protection of Property Rights

Among the Southern Kwakiutl Indians,” Journal of Legal Studies 15: 41-67

(1986).

Subject(s):Markets and Institutions
Geographic Area(s):Latin America, incl. Mexico and the Caribbean
Time Period(s):20th Century: WWII and post-WWII

Production Efficiency in Domesday England, 1086

Author(s):McDonald, John
Reviewer(s):Botticini, Maristella

Published by EH.NET (March 2000)

John McDonald, Production Efficiency in Domesday England, 1086. London

and New York: Routledge, 1998, xiv + 240 pp. $85 (cloth), ISBN:

0-415-16187-8.

Reviewed for EH.NET by Maristella Botticini, Department of Economics,

Boston University.

On the cover page of John McDonald’s Production Efficiency in Domesday

England, 1086 it might be appropriate to include a warning label: “Reading

this book may have fatal consequences for certain scholars.” The reason is

simple: it takes a lot of energy and passion for a medievalist to keep reading

the book after page

14 when the author starts employing high-tech economic models (chapters 2 and

3) and fancy regressions (chapters 4). On the other hand, patient medievalists

(and other scholars as well) will be rewarded by learning that scholars have

been basically wrong

in arguing that English estates were run inefficiently by Norman conquerors.

According to McDonald (Professor of Economics at Flinders University of South

Australia) these estates were run at similar efficiency levels to comparable

production units in more modern economies, such as farms in the postbellum

U.S. South, farms in contemporary California, and surface coalmines in the U.S

(p. 137).

After a clear and insightful introductory chapter that describes the main

features of the English economy at the

time of the Norman conquest,

elucidates the data of the Domesday Book, and outlines the main themes of the

book, the reader enters with chapters 2 and 3 into a “jungle” of technical

models that explain the techniques used by the author to measure production

efficiency in agriculture. The core of the book is in chapters 4 and 6 where

McDonald applies these techniques to a sample of estates surveyed in the

Domesday Book (those of Essex lay estates).

The book addresses important questions such as: Which ten ants-in-chief ran

efficient estates? How was productivity affected by soil type, the size of the

estate, the tenancy agreement, the institutional framework of the time and the

proximity of a market center? Which inputs made the major contribution to the

net value of output? Did slaves make a greater contribution to the manorial

lord’s net income than peasants? What was the effect of feudal and manorial

systems, which discouraged mobility of inputs, on the system of production,

input productivities and total output produced? Given technology and the

institutional framework, were estates run efficiently?

Multivariate regression analysis carried out in chapter 4 indicates that

efficiency depended on the spatial location of the farm (in which hundred the

farm was located), but was not affected by the type of soil and proximity to

urban economies. Larger farms tended to be more efficient suggesting that

economies of scale were at work. Efficiency was influenced by whether an estate

was held in demesne by the

tenant-in-chief (estates being held in demesne tended to be more efficient) and

who the tenant-in-chief was. Estates with relatively more grazing were more

efficient than estates with relatively more arable or mixed farming. The

existence of some ancillary resources on the farm (beehives, mills, or

saltpans) seems to have made estates less efficient, whereas fisheries and

vineyards do not seem to have had any effect. Overall, English estates were run

efficiently by Norman conquerors. Yet the restrictions

and rigidities imposed by feudal and manorial systems had a negative impact on

agricultural efficiency (pp. 140-143).

While I highly recommend this book to both economists and historians, I think

it is worthwhile to stress some weaknesses. The first issue is why the author

does not compare medieval English agriculture to English agriculture in later

centuries. This would have been even more interesting than comparing Domesday

England to contemporary California farms or U. S.

surface coalmines. We could learn, for example, how the demise of the feudal

and manorial systems of production affected agricultural production in England,

or how the development of more important and significant urban centers

(compared to Maldon and Colchester in 1086) influenced agricultural

efficiency. Second, given that it is not always clear whether the annual value

of an estate included ancillary resources, one wonders if this can make the

comparisons of the efficiency of various estates meaningless. The author

dismisses the argument by arguing that the existence of ancillary resources

would have had opposite effects and that therefore their overall impact on

efficiency was probably minimal. But what about other incomes from feudal

rights that could have entered into the annual values of estates?

Another critical point is the organization of the book. The technical chapters

2 and 3 should have gone into large appendices. Those who know the frontier

technique are bored by reading these chapters; those who do not have the

knowledge to understand these chapters can be really discouraged from reading

the

book. A further minor criticism is of technical nature and has to do with the

multivariate regressions. The question is why the author does not include fixed

or random effects to

account for variables that do not vary across a tenant-in-chief or whoever was

running the farm. His abilities, experience, and other unobservable variables

could have affected the way he ran his estates.

The book requires a lot of patience and passion

for high-tech economy history. If one is willing to persevere and arrive at the

end of the book,

the effort is rewarded. Someone else can apply the same frontier technique to

Norfolk and Suffolk, for which, together with Essex, the Domesday Book provides

the most detailed information, and check whether McDonald’s findings still hold

for these counties. More importantly, someone can do the same exercise on

English agriculture for later periods and tell us whether and how the demise of

the feudal system affected agricultural efficiency.

Maristella Botticini’s research focuses on marriage markets, dowries,

intergenerational transfers, credit markets and Jewish lenders, and agrarian

contracts in medieval and Renaissance Tuscany. Her recent work includes “A

Tale of ‘Benevolent’ Governments: Private Credit Markets,

Public Finance, and the Role of Jewish Lenders in Medieval and Renaissance

Italy,” Journal of Economic History 60 (March 2000): 164-89 and “A

Loveless Economy? Intergenerational Altruism and the

Marriage Market in a Tuscan Town, 1415-1436,” Journal of Economic

History 59 (March 1999):

104-21.

Subject(s):Economic Development, Growth, and Aggregate Productivity
Geographic Area(s):Europe
Time Period(s):Medieval

The Great Wave: Price Revolutions and the Rhythm of History

Author(s):Fischer, David Hackett
Reviewer(s):Munro, John H.

Published by EH.NET (February 1999)

David Hackett Fischer, The Great Wave: Price Revolutions and the Rhythm of

History. Oxford and New York: Oxford University Press, 1996. xvi + 536.

$35 (hardcover), ISBN: 019505377X. $16.95 (paperback), ISBN: 019512121X.

Reviewed for EH.NET by John H. Munro, Department of Economics, University of

Toronto.

Let me begin on a positive note. This is indeed a most impressive work: a

vigorous, sweeping, grandiose, and contentious, though highly entertaining,

portrayal of European and North American economic history, from the High Middle

Ages to the present, viewed through the lens of “long-wave” secular price-

trends. Indeed its chief value may well lie in the controversies that it is

bound to provoke, particularly from economists, to inspire new avenues of

research in economic history

, especially in price history. The author contends that, over the past eight

centuries, the European economy has experienced four major “price-

revolutions,” whose inflationary forces ultimately became economically and

socially destructive, with adverse consequences that provoked various complex

reactions whose “resolutions” in turn led to more harmonious, prosperous, and

“equitable” economic and social conditions during intervening eras of “price

equilibria”. These four price-revolutions are rather too neatly set out as the

following: (1) the later- medieval, from c.1180-c.1350; (2) the far better

known 16th-Century Price-Revolution, atypically dated from c.1470 to c.1650,

(3) the inflation of the Industrial Revolution era, from c.1730 to 1815; and

(4) the 20th century price-revolution, conveniently dated from 1896 to 1996

(when he published the book).

Though I am probably more sympathetic

to the historical concept of

“long-waves” than the majority of economists, I do agree with many opponents of

this concept that such long-waves are exceptionally difficult to define and

explain in any mathematically convincing models, which are certainly not

supplied here. For reasons to be explored in the course of this review, I

cannot accept his depictions, analysis

, and explanations for any of them. This will not surprise Prof. Fischer, who

is evidently not an admirer of the economics profession. He is particularly

hostile to those of us deemed to be “monetarists,” evidently used as a

pejorative term. After rejecting not only the “monetarist” but also the

“Malthusian,

neo-Classical, agrarian, environmental, and historicist” models, for their

perceived deficiencies in explaining inflations, and after condemning

economists and historians alike for imposing rigid models in attempting to

unravel the mysteries of European and North American economic history,

Fischer himself imposes an exceptionally rigid and untenable model for all four

of his so-called price-revolutions, containing in fact selected Malthusian and

monetarist elements from these supposedly rejected models.

In essence, the Fischer model contends that all of his four long-wave

inflations manifested the following six-part consecutive chain of causal and

consequential factors, inducing new causes, etc., into the next part of the

chain. First, each inflationary long-wave began with a prosperity created from

the preceding era of price-equilibrium, one promoting a population growth that

inevitably led to an expansion in aggregate demand that in turn outstripped

aggregate supply, thus — according to his model

— causing virtually ALL prices to rise. Evidently his model presupposes that

all sectors of the economy, in all historical periods under examination, came

to suffer from Malthusian-Ricardian diminishing

returns and rising marginal costs, etc. Second, in each and every such era,

after some indefinite lapse of time, and after the general population had

become convinced that rising prices constituted a persistent and genuine trend,

the “people” demanded and

received from their governments an increase in the money supply to

“accommodate” the price rises. As Fischer specifically comments on p. 83: “in

every price-revolution, one finds evidence of frantic efforts to expand the

money supply, after people have discovered that prices are rising in a secular

way.” Third, and invariably, in his view, that subsequent and continuous growth

in the money supply served only to fuel and thus aggravate the already existing

inflation. He never explains, however, for any of

the four long-waves, why those increases in money stocks were always in excess

of the amount required “to accommodate inflation”. Fourth, with such

money-stock increases, the now accelerating inflation ultimately produced a

steadily worsening impoverishment of the masses, aggravated malnutrition,

generally deteriorating biological conditions, and a breakdown of family

structures and the social order, with increasing incidences of crime and social

violence: i.e., with a rise in consumer prices that outstripped generally

sticky wages in each and every era, and with a general transfer of wealth from

the poorer to richer strata of society. Fifth, ultimately all these negative

forces produced economic and social crises that finally brought the

inflationary forces to a halt,

producing a fall in population and thus (by his model) in prices, declines that

subsequently led to a new era of “price-equilibrium,” along with concomitant

re-transfers of wealth and income from the richer to the poorer strata of

society

(where such wealth presumably belonged). Sixth, after some period of economic

prosperity and social harmony, this vicious cycle would recommence, i.e., when

these favorable conditions succeeded in promoting a new round of incessant

population growth, which inevitably sparked those same inflationary forces to

produce yet another era of price-revolution, continuing until it too had run

its course.

While many economic historians, using more structured Malthusian-Ricardian type

models, have also provided a similarly bleak portrayal of

demographically-related upswings and downswings of the European economy,

most have argued that this bleak cycle was broken with the economic forces of

the modern Industrial Revolution era. Fischer evidently does not. Are we the

reforecondemned, according to his view, to suffer these never-ending bleak

cycles– economic history according to the Myth of Sisyphus, as it were?

Perhaps not, if government leaders were to listen to the various nostrums set

forth in the final chapter,

political recommendations on which I do not feel qualified to comment.

Having engaged in considerable research, over the past 35 years, on European

monetary, price, and wage histories from the 13th to 19th centuries, I am,

however, rather more qualified

to comment on Fischer’s four supposed long-waves. Out of respect for the

author’s prodigious labors in producing this magnum opus, one that is bound to

have a major impact on the historical profession, especially in covering such a

vast temporal and spatial range, I feel duty-bound to provide detailed

criticisms of his analyses of these secular price trends, with as much

statistical evidence as I can readily muster. Problematic in each is defining

their time span,

i.e., the onset and termination of inflations. If many medievalists may concur

that his first long- wave did begin in the 1180s, few would now agree that it

ended as late as the Black Death of 1348-50. On the contrary,

the preceding quarter-century (1324-49) was one of very severe deflation,

certainly in both Tuscany (Herlihy 1966) and England. In the latter, the

Phelps Brown and Hopkins “basket of consumables” price index (1451-75 =

100) fell 47%: from 165 in 1323 (having been as high as 216 in 1316, with the

Great Famine) to just 88 in 1346. Conversely, while most early-modern

historians would agree that the 16th-Century Price Revolution generally ended

in the 1650s (certainly in England), few if any would date its commencement so

early as the 1470s. To be sure, in both the Low Countries and England, a

combination of coinage debasements, civil wars, bad harvests, and other

supply-shocks did produce a short-term rise in prices from the later 1470s to

the early 1490s; but thereafter their basket-of-consumables price-indices

resumed their deflationary downward trend for another three decades (Munro

1981, 1983). In both of these regions and in Spain as well (Hamilton 1934), the

sustained rise in the general price level, lasting over a century, did not

commence until c.1520.

For Fischer’s third inflationary long-wave, of the Industrial Revolution era,

his periodization is much less contentious, though one might mark its

commencement in the late 1740s rather than the early 1730s.

The last and most recent wave is, however, by far more the most controversial

in its character. Certainly a long upswing in world prices did begin in 1896,

and lasted until the 1920s; but can we really pretend that this so neatly

defined century of 1896 to 1996 truly encompasses any form of long wave when we

consider the behavior of prices from the 1920s?

Are we to pretend that the horrendous deflation of the ensuing Great Depression

era was just a temporary if unusual aberration that deviated from this

particular century long (saeclum) secular tend? Fischer, in fact,

very

rarely ever discusses deflation, ignoring those of the 14th century and most

of the rest. Instead, he views the three periods intervening between his price-

revolutions as much more harmonious eras of price-equilibria: i.e. 1350-1470;

1650 – 1730; 1820 –

1896; and he suggests that we are now entering a fourth such era. In my own

investigations of price and monetary history from the 12th century, prices rise

and fall,

with varying degrees of amplitude; but they rarely if ever remain stable,

“in equilibrium”.

Certainly “equilibrium” is not a word that I would apply to the first of these

eras, from 1350 to 1470: not with the previously noted, very stark deflation of

c.1325 – 48, followed by an equally drastic inflation that ensued from the

Black Death over

the next three decades, well documented for England, Flanders (Munro 1983,

1984), France, Tuscany (Herlihy 1966),

and Aragon-Navarre (Hamilton 1936). Thus, in England, the mean quinquennial PB

& H index rose 64%: from 88 in 1340-44 to 145 in 1370-74, fal ling sharply

thereafter, by 29%, to 103 in 1405-09; after subsequent oscillations, it fell

even further to a final nadir of 87 in 1475-79 (when,

according to Fischer, the next price-revolution was now under way). For

Flanders, a similarly constructed price index of quinquennial means

(1450-74 = 100: Munro 1984), commencing only in 1350, thereafter rose 170%:

from 59 in 1350-4 to 126 in 1380-84, reflecting an inflation aggravated by

coinage debasements that England had not experienced, indeed none at all since

1351. Thereafter, the Flemish price index plunged 32%, reaching a temporary

nadir of 88 in 1400-04; but after a series of often severe price oscillations,

aggravated by warfare and more coin debasements, it rose to a peak of 138 in

1435-9; subsequent ly it fell another 31%, reaching its 15th century nadir of

95 in 1465-9 (before rising and then falling again, as noted earlier).

Implicit in these observations is the quite pertinent criticism that Fischer

has failed to use, or use properly, these and many other price

indices–especially the well-constructed Vander Wee index (1975), for the

Antwerp region, from 1400 to 1700, so important in his study; and the Rousseaux

and Gayer-Rostow-Schwarz indices for the 19th century (Mitchell &

Deane 1962). On the other hand, he has relied far too much on the dangerously

faulty d’Avenel price index (1894-1926) for medieval and early-modern France.

Space limitations, and presumably the reader’s patience, prevent me from

engaging in similar analyses of price trends

over the ensuing centuries, to indicate further disagreements with Fischer’s

analyses, except to note one more quarter-century of deflation during a

supposed era of price equilibrium: that of the so-called Great Depression era

of 1873 to 1896, at least within England, when the PB&H price index fell from

1437 to 947, a decline of 34% that was unmatched, for quarter-century periods

in English economic history, since the two stark deflations of the second and

fourth quarters of the 14th century. (The Rousseaux index fell from 42.5% from

127 in 1873 to 73 in 1893).

My criticisms of Fischer’s temporal depictions of both inflationary long-waves

and intervening eras of supposed price equilibria are central to my objections

to his anti-monetarist explanations for them, or rather to his

misrepresentation of the monetarist case, a viewpoint he admittedly shares with

a great number of other historians, especially those who have found

Malthusian-Ricardian type models to be more seductively plausible explanations

of

inflation. Certainly, too many of my students, in reading the economic history

literature on Europe before the Industrial Revolution era, share that beguiling

view, turning a deaf ear to the following arguments: namely, that (1) a growth

in population cannot by itself,

without complementary monetary factors, cause a rise in all prices, though

certainly it often did lead to a rise in the relative prices of grain,

timber, and other natural-resource based commodities subject to diminishing

return and supply

inelasticities; and thus (2) that these simplistic demographic models involve

a fatal confusion between a change in the relative prices of individual

commodities and a rise in the overall price-level. Some clever students have

challenged that admonition,

however,

with graphs that seek to demonstrate, with intersecting sets of aggregate

demand and supply curves, that a rise in population is sufficient to explain

inflation. My response is the following. First, all of the historical prices

with which Fischer and my students are dealing

(1180-1750) are in terms of silver-based moneys-of-account, in the traditional

pounds, shillings, and pence, tied to the region’s currently circulating silver

penny, or similar such coin, while prices expressed in terms of the gold-based

Florentine florin behaved quite differently over the long periods of time

covered in this study. Indeed we should expect such a difference in price

behavior with a change in the bimetallic ratio from about 10:1 in 1400 to about

16:1 in 1650,

which obviously reflects the fall in the relative value or purchasing power of

silver — an issue virtually ignored in Fischer’s book. Second, the shift, in

this student graph, from the conjunction of the Aggregate Demand and Supply

schedules,

from P1.Q1

and P2.Q2, requires a compensatory monetary expansion in order to achieve the

transaction values indicated for the two price levels: from 17,220,000 pounds

and 122,960,000 pounds, which increase in the volume of payments had to come

from either increased

money stocks and/or flows. Even if changes in demographic and other real

variables, shared responsibility for inflation by inducing changes in those

monetary variables, we are not permitted to ignore those variables in

explaining historical inflations.

Admittedly, from the 12th to the 18th centuries, to the modern Industrial

Revolution era, correlations between demographic and price movements are often

apparent. But why do so few historians consider the alternative proposition

that much more profound, deeper economic forces might have induced a complex

combination of general economic growth, monetary expansion, and a rise in

population, together (so that such apparent statistical relationships would

have adverse Durbin-Watson statistics to indicate significant serial

correlation)? Furthermore, if population growth is the inevitable root cause of

inflation, and population decline the purported cause of deflation, how do such

models explain why the drastic depopulations of the 14th-century Black Death

were

followed by three decades of severe inflation in most of western Europe?

Conversely, why did late 19th-century England experience the above-noted

deflation while its population grew from 23.41 million in 1873 (PB&H at 1437)

to 30.80 million in 1896 (PB&H

at 947)?

Nor is Fischer correct in asserting that, in each and every one of his four

price-revolutions, an increase in money supplies followed rather than preceded

or accompanied the rises in the price-level. For an individual country or

region, however

, one might argue that a rise in its own price level, as a consequence of a

transmitted rise in world or at least continental prices would have quickly —

and not after the long-time lags projected in Fischer’s analysis — produced an

increase in money supplies to satisfy the economic requirements for that rise

in national/regional prices. Fischer, however, fails to offer any theoretical

analysis of this phenomenon, and makes no reference to any of the well-known

publications on the Monetary Approach to the Balance of Payments [by Frenkel

and Johnson (1976), McCloskey and Zecher (1976), Dick and Floyd (1985, 1992);

Flynn (1978) and D. Fisher (1989), for the Price Revolution era itself]. In

essence,

and with some necessary repetition, this thesis contends:

(1) that a rise in world price levels, initially arising from increases in

world monetary stocks, is transmitted to most countries through the mechanisms

of international commerce (in commodities, services, labor) and finance

(capital flows); and (2) that monetized metallic (coin) stocks and other

elements constituting M1 will be endogenously distributed among all countries

and/or regions in order to accommodate the consequent rise in the domestic

price levels, (3) without involving those international bullion flows that the

famous Hume “price- specie flow” mechanism postulates to be the consequences of

inflation-induced changes in national trade balances.

In any event, the historical evidence clearly demonstrates that, for each of

Fischer’s European-based price-revolutions, an increase in European monetary

stocks and flows always preceded the inflations. For the first,

the price-revolution of the “long-13th century” (c.1180-c.1325), Ian Blanchard

(1996) has recently demonstrated that within England its elf,

specifically in Cumberland-Northumberland, a very major silver mining boom had

commenced much earlier, c.1135-7, peaking in the 1170s, with annual silver

outputs that were “ten times more than had been produced in the whole of

Europe” for any year in

the past seven centuries. By the 1170s,

and thus still before evident signs of general inflation or a marked

demographic upswing, an even greater silver mining boom had begun in the Harz

Mountains region of Saxony, which continued to pour out vast quantities of

silver until the early 14th century. For this same

“Commercial Revolution” era, we must also consider the accompanying financial

revolution, also evident by the 1180s, in Genoa and Lombardy; and though one

may debate the impact that their deposit-

and-transfer banking and foreign-exchange banking had upon aggregate European

money supplies,

these institutional innovations undoubtedly did at least increase the volume of

monetary flows, and near the beginning, not the middle, of this first

documented

long-wave.

For the far better known 16th-Century Price Revolution, Fischer seems to pose a

much greater threat to traditional monetary explanations, especially in so

quixotically dating its commencement in the 1470s, rather than in the 1520s.

Certainly Fischer and many other critics are on solid grounds in challenging

what had been, from the time of Jean Bodin (1566-78) to Earl Hamilton

(1928-35), the traditional monetary explanation for the origins of the Price

Revolution: namely, the influx of Spanish

American treasure. But not until after European inflation was well underway,

not until the mid-1530s, were any significant amounts of gold or silver being

imported

(via Seville); and no truly large imports of silver are recorded before the

early 1560s (a

mean of 83,374 kg in 1561-55: TePaske 1983), when the mercury amalgamation

process was just beginning to effect a revolution in Spanish-American mining.

Those undisputed facts, however, in no way undermine the so-called

“monetarist” case; for Fischer, and far too many other economic historians,

have ignored the multitude of other monetary forces in play since the 1460s.

The first and least important factor was the Portuguese export of gold from

West Africa (Sao Jorge) beginning as a trickle in the 1460s;

rising to 170 kg per annum by 1480, and peaking at 680 kg p.a. in the late

1490s (Wilks 1993). Far more important was the Central European silver mining

boom, which began in the 1460s, at the very nadir of the West European

deflation, which had thus raised the purchasing power of silver and so

increased the profit incentive to seek out new silver sources: as a

technological revolution in both mechanical and chemical engineering.

According to John Nef (1941, 1952), when this German-based mining boom reached

its peak in the mid 1530s, it had augmented Europe’s silver outputs more than

five-fold, with an annual production that ranged from a minimum of 84,200 kg

fine silver to a maximum of 91,200 kg — and thus well in excess of any amounts

pouring into Seville before the mid-1560s. My own statistical compilations,

limited to just the major mines, indicate a rise in quinquennial mean

fine-silver outputs from 12,356 kg in 1470-74 to 55,025 kg in 1534-39 (Munro

1991). In England, 25-year mean mint outputs rose

from 18,932 kg silver in 1400-24 to 33,655 kg in 1475-99 to 59,090 kg in

1500-24; and then to 305,288 kg in 1550-74 (i.e., after Henry VIII’s

“Great Debasement”); in the southern Low Countries, those means go from 54,444

kg in 1450-74 to 280,958 kg in 15 50-74 (Challis 1992; Munro 1983,

1991).

In my view, however, equally important and probably even more important was the

financial revolution that had begun in or by the 1520s with legal sanctions for

and then legislation on full negotiability, and the contemporary establishment

of effective secondary markets (especially the Antwerp Bourse) in fully

negotiable bills and rentes, i.e., heritable government annuities; and the

latter owed their universal and growing popularity, compared with other forms

of public debt, to papal bulls (1425,

1455) that had exonerated them from any taint of usury. To give just one

example of a veritable explosion in this form of public credit (which thus

reduced the relative demand for gold and silver coins), an issue that Fischer

almost completely ignores: the annual volume of transactions in Spanish

heritable juros rose from 5 million ducats (of 375 maravedis) in 1515 to 83

million ducats in the 1590s (Vander Wee 1977). Thus we need not call upon

Spanish-American bullion imp orts to explain the monetary origins of the

European Price Revolution, though their importance in aggravating and

accelerating the extent of inflation from the 1550s need hardly be questioned,

especially, as Frank Spooner (1972) has so aptly demonstrated,

even anticipated arrivals of Spanish treasure fleets would induce German and

Genoese bankers to expand credit issues by some multiples of the perceived

bullion values. Fischer, by the way, comments (p. 82) that: “the largest

proportionate increases in Spanish prices occurred during the first half of

the sixteenth century — not the second half, when American treasure had its

greatest impact.” This is simply untrue: from 1500-49, the Spanish composite

price index rose 78.5%; from 1550-99, it rose by another 92.1% (Hamilton

1934).

Changes in money stocks or other monetary variables do not, however,

provide the complete explanation for the actual extent of inflation in this or

in any other era. Even if every inflationary price trend that I have

investigate d, from the 12th to 20th centuries, has been preceded or

accompanied by some form of monetary expansion, in none was the degree of

inflation directly proportional to the observed rate of monetary expansion,

with the possible exception of the post World War I hyperinflations.

Consider this proposition in terms of the oft-maligned, conceptually limited,

but still heuristically useful monetary equation MV = Py [in which real y = Y/P

= C + I + G+ (X-M)]; or, better, in terms of the Cambridge “real cash

balances” approach: M = kPy [in which k = the proportion of real NNI (Py) that

the public chooses to hold in real cash balances, reflecting the constituent

elements of Keynesian liquidity preference]. Some Keynesian economists would

contend that an increase in M, or in the rate of growth of money stocks, would

be accompanied by some

offsetting rise in y (i.e. real NNI), whether exogenously created or

endogenously induced by related forces of monetary expansion, and also by some

decline in the income velocity of money, with a reduced need to economize on

the use of money. Since mathematically V = 1/k, they would similarly posit

that an expansion in M,

or its rate of growth, would have led, ceteris paribus — without any change in

liquidity preference, to a fall

in (nominal) interest rates, and thus, by the consequent reduction in the

opportunity costs of holding cash balances, to the necessarily corresponding

rise in k (i.e., an increase in the demand for real cash balances; see Keynes

1936, pp. 306-07). Sometimes, but only very rarely, have changes in these two

latter variables y and V (1/k) fully offset an increase in M; and thus such

increases in money stocks have also resulted, in most historical instances, in

some non-proportional degree of inflation: a rising P, as measured by some

suitable price index, such as the Phelps Brown and Hopkins

basket-of-consumables. [Other economists,

it must be noted, would contend that, in any event, the traditional Keynesian

model is really not applicable to such long-term

phenomena as Fischer’s price-revolutions.

Keynes himself, in considering “how changes in the quantity of money affect

prices… in the long run,” said, in the General Theory (1936, p. 306):

“This is a question for historical generalisation rather than for

pure theory.”]

For the 16th-century Price Revolution, therefore, the interesting question now

becomes: not why did it occur so early (i.e., before significant influxes of

Spanish American bullion); but rather why so late — so many decades after the

onset of the Central European silver-copper mining boom?

Since that boom had commenced in the 1460s, precisely when late-medieval

Europe’s population was at its nadir, perhaps 50% below the 1300 peak, and just

after the Hundred Years’ War had ended, and just

after the complex network of overland continental trade routes between Italy

and NW Europe had been successfully restored, one might contend that in such an

economy with so much “slack” in under-utilized resources, especially land, and

with elastic supplies for so many commodities, both the monetary expansion and

economic recovery of the later 15th century , preceding any dramatic

demographic recovery, permitted an increase in y proportional to the growth of

M, without the onset of diminishing returns an d without significant inflation,

before the 1520s By that decade, however, the monetary expansion had become

all the more powerful: with the peak of the Central European silver-mining

boom and with the rapid increase in the use of negotiable, transferable

credit instruments; and, furthermore, with the Ottoman conquest of the Mamluk

Sultanate (1517), which evidently diverted some considerable amounts of

Venetian silver exports from the Levant to the Antwerp market.

The role of the income-velocity of money

is far more problematic. According to Keynesian expectations, velocity should

have fallen with such increases in money stocks. Yet three eminent economic

historians — Harry Miskimin

(1975), Jack Goldstone (1984), and Peter Lindert (1985) — have sought

to explain England’s16th-century Price Revolution by a very contrary thesis:

of increased money flows (or reductions in k) that were induced by demographic

and structural economic changes, involving interalia(according to their

various models) disproportionate changes in urbanization, greater

commercialization of the rural sectors, far more complex commercial and

financial networks, changes in dependency ratios, etc. The specific

circumstances so portrayed, however, apart from the demographic, are largely

peculiar to 16th- century England and thus do not so convincingly explain the

very similar patterns of inflation in the 16th-century Low Countries, which had

undergone most of these structural economic changes far earlier. Certainly

these velocity model s cannot logically be applied to Fischer’s three other

inflationary long-waves. Indeed, in an article implicitly validating Keynesian

views, Nicholas Mayhew (1995) has contended that the income-velocity of money

has always fallen with an expansion in money stocks, from the medieval to

modern eras, with this one anomalous exception of the 16th-century Price

Revolution. Perhaps, for this one era,

we have misspecified V (or k) by misspecifiying M: i.e., by not properly

including increased issues of negotiable credit; or perhaps institutional

changes in credit (as Goldstone and Miskimin both suggest) did have as dramatic

an effect on V as on M. Furthermore, an equally radical change in the coined

money supply (certainly in England), from one that had been principally gold

to one which, precisely from the 1520s, became largely and then almost entirely

silver, may provide the solution to the velocity paradox: in that the

transactions velocity attached to small value silver coins, of 1d., is

obviously far higher

velocity than that for gold coins valued at 80d and 120d. Except for a brief

reference to Mayhew’s article in the lengthy bibliography, Fischer virtually

ignores such velocity issues

(and thus changes in the demand for real cash balances) throughout his

eight-century survey of secular price trends.

Finally, Fischer’s thesis that population growth was responsible for this the

most famous Price Revolution (and all other inflationary long waves) is hardly

credible, especially if he insists on dating its inception the 1470s. For most

economic historians (Vander Wee 1963; Blanchard 1970;

Hatcher 1977, 1986; Campbell 1981; Harvey 1993) contend that, in NW Europe,

late-medieval demographic decline continued into the early 16th-century;

and that England’s population in 1520 was no more than 2.25 million,

compared to estimates ranging from a minimum of 4.0 to a maximum of 6.0 or even

7.0 million around 1300, the upper bounds being favored by most historians. How

— even if the demographic model were to be theoretically acceptable — could

a modest population growth from such a very low level in the 1520s, reaching

perhaps 2.83 million in 1541, and peaking at 5.39 million in 1656, have been

the fundamental cause of persistent, European wide-inflation, already underway

in the 1520s?

According to Fischer, the ensuing, intervening price-equilibrium

(c.1650-c.1730) involved no discernible monetary contraction, and similarly,

his next inflationary long-wave (c.1730-1815) began well before any monetary

expansion became — in his view — manifestly evident. The monetary and price

data, suggest otherwise, however, incomplete though they may be. Thus, the data

complied by Bakewell, Cross, TePaske, and many others on silver mining at

Potosi (Peru) and Zacatecas (Mexico) indicate that their combined outputs fell

from a mean of 178,692 kg in 1636-40 to one of 101,534 kg in 1661-5, rising to

a mean of 156,497 kg in 1681-5

[partially corresponding to guesstimates of European bullion imports, which

Morineau (1985) extracted fr om Dutch gazettes]; but then sharply falling once

more, and even further, to a more meager mean of 95,842 kg in 1696-1700. During

this same era, the Viceroyalty of Peru’s domestically-

retained share of silver-based public revenues rose from 54% to 96%

(T ePaske 1981); the combined silver exports of the Dutch and English East

India Companies to Asia (Chaudhuri 1968; Gaastra 1983) increased from a

decennial mean of 17,293 kg in 1660-69 to 73,687 kg in 1700-09, while English

mint outputs in terms of fine sil ver (Challis 1992) fell from a mean of 19,400

kg in 1660-64 (but 23,781 kg in 1675-79) to one of just 430.4 kg in 1690-94,

i.e., preceding the Great Recoinage of 1696-98. From the early 18th century,

however, European silver exports to Asia were well more

than offset by a dramatic rise in Spanish-American, and especially Mexican

silver production: for the latter (with evidence from new or previously

unrecorded mines: assembled by Bakewell 1975, 1984; Garner 1980,

1987; Coatsworth 1986, and others), aggregate production more than doubled

from a mean of 129,878 kg in 1700-04 to one of 305,861 kg in 1745-49.

Possibly even more important, especially with England’s currency shift from a

silver to a gold standard, was a veritable explosion in aggregate

Latin-American gold production: from a decennial mean of just 863.90 kg in

1691-1700

zooming to 16,917.4 kg in 1741-50 (TePaske 1998). Within Europe itself, as

Blanchard (1989) has demonstrated, Russian silver mining outputs, ultimately

responsible for perhaps 7%

of Europe’s total stocks,

rose from virtually nothing in the late 1720s to peak at 33,000 kg per annum in

the late 1770s, falling to 18,000 kg in the early 1790s then rising to 21,000

kg per year in the later 1790s.

Finally, even though changes in annual mint outputs are not valid indicators

of changes in coined money supplies, let alone of changes in M1,

the fifty-year means of aggregate values of English mint outputs (silver and

gold: Challis 1992) do provide interesting signals of longer-term monetary

changes: a fall from an annual mean of 348,829 pounds in 1596-1645 to one of

275,403 pounds in 1646-95, followed by a rise, with more than a full recovery,

to an annual mean of 369,644 pounds in 1700-49 (thus excluding the Great

Recoinage of 1696-98). Meanwhile, if the earlier Price Revolution had indeed

peaked in 1645-49, with the quinquennial mean PB&H index at 680, falling to a

nadir of 579 in 1690-94, the fluctuations in the first half of the 18th-century

do not demonstrate any clear inflationary trend, with the mean PB&H index

(briefly peaking at 635 in 1725-9) stalled at virtually the same former level,

581, in 1745-49. Thereafter, of course,

for the second half of the 18th century, the trend is very strongly and

incessantly upward, with almost a

doubling in PB&H index, to 1093 in 1795-9.

Whatever one may wish to deduce from all these diverse data sets, we are

certainly not permitted to conclude, as does Fischer, that inflation preceded

monetary expansion, and did so consistently. Such a view becomes all the more

untenable when the radical changes in English and banking and credit

institutions, following the establishment of the Bank of England in 1694-97,

are taken into account: the consequent introduction and rapid expansion in

legal-tender paper bank note issues (with prior informal issues by London’s

Goldsmith banks), and more especially fully negotiable,

transferable, and discountable Exchequer bills, government annuities,

inland bills and promissory notes, whose veritable explosion in circulation

from the 1760s, with the proliferation of English country-banks, hardly

requires any further elaboration, even if these issues are given short shrift

in Fischer’s book. In view of such complex changes in Britain’s financial and

monetary structures,

subsequent data on coinage outputs have even more limited utility in

estimating money stocks. But we may note that aggregate mined outputs of

Mexican silver more than doubled, from a quinquennial mean of 305,861 kg in

1745-49 to 619,495 kg in 1795-99, while those of Peru more than tripled, from

34,318 kg in 1735-39 (no data for the 1740s) to 126,354 kg in 1795-99 (Garner

1980, 1987; Bakewell 1975, 1984; J.

Fisher, 1975).

Having earlier considered the so-called and misconstrued

“price-equilibrium” of 182 0-1896, let us now finally examine the inception of

the fourth and final long-wave commencing in 1896. Fischer again contends that

population growth was the “prime mover,” despite the fact that Britain’s own

intrinsic growth rate had been falling from its

1821 peak [from 1.75 to 1.31 in 1865, the last year given in Wrigley-Davies-

Oppen-Schofield (1997)]. For evidence he cites an assertion in Colin McEvedy

and Richard Jones, Atlas of World Population History (1978) to the effect that

world population, having increased by 35% from 1850 to 1900,

increased a further 53% by 1950. Are we therefore to believe that such growth

was itself responsible for a 45.2% rise in, for this era, the better structured

Rousseaux price-index [base 100 = (1865cp +1885cp)/2]: from 73 in 1896 to 106

[while the PB&H index rose from 947 in 1896 to 1021 in 1913]?

As for the role of monetary factors in the commencement of this fourth long

wave, Fischer observes (p. 184) that “the rate of growth in gold production

throughout the world was roughly the same before and after 1896.” This

undocumented assertion, about an international economy whose commerce and

finance was now based upon the gold standard, is not quite accurate.

According to assiduously calculated estimates in Eichengreen

and McLean

(1994), decennial mean world gold outputs, having fallen from 185,900 kg in

1850-9 to 135,000 kg in 1880-9 (largely accompanying the aforementioned 44%

fall in the Rousseaux composite index from 128 in 1872 to 72 in 1895),

thereafter soared to

a mean of 255,600 kg in 1890-9 — their graph of annualized data shows that

the bulk of this increased output occurred after 1896 — virtually doubling to

an annual mean of 513,900 kg in 1900-14.

World War I, of course, effectively ended the international gold-standard era,

since the Gold- Exchange Standard of 1925-6 was rather different from the older

system; and the post-war era ushered in a radically new monetary world of fiat

paper currencies, whose initial horrendous manifestation came in the hyper

inflations of Weimar Germany, Russia, and most Central European countries, in

the early 1920s. For this post-war economy, Fischer does admit that monetary

factors often had some considerable importance in influencing price trends; but

his analyses, even of the post-war radical, paper-fuelled hyperinflations, are

not likely to satisfy most economists, either for the inter-war or Post World

War II eras, up to the present day.

This review, long as it is, cannot possibly do full justice to an eight-century

study of this scope and magnitude. So far I have neglected to consider his

often fascinating analyses of the social consequences of inflation over these

many centuries, except for brief allusions in the introduction, where I

indicated his deeply hostile views to persistent inflation for its inevitably

insidious consequences: the impoverishment of the masses, growing malnutrition,

the spread of killer-diseases, increased crime and violence in general, and a

breakdown of the social order, etc.

While some of

the evidence for the latter seems plausible, I do have some concluding quarrels

with his use of real wage indices. Much of our available nominal money-wage

evidence comes from institutional sources on daily wages, which, by their very

nature, tend to be fixed over long periods of time [as Adam Smith noted in the

Wealth of Nations (Cannan ed.

1937, p. 74), “sometimes for half a century together”). Therefore, for such

wage series, real wages rose and fell with the consumer price index, as

measured by, for example, our Phelps Brown and Hopkins basket-of-consumables

index. Its chief problem (as opposed to the better constructed Vander Wee

index for Brabant) is that its components, for long periods, constitute fixed

percentages of the total composite index,

irrespective of changes in relative prices for, say, grains; and they thus do

not reflect the consumers’ ability to make cost-saving substitutions.

Secondly, they are necessarily based on daily wage rates, without any

indication of total annual money incomes; thirdly, the great majority of

money-wage earners in pre-modern Europe earned not day rates but piece-work

wages, for which evidence is extremely scant.

But more important, before the 18th century (or even later), a majority of the

European population did not live by money wages; and most wage-earners had

supplementary forms of income, especially agricultural, that helped insulate

them to some degree from sharp rises in food prices. If rising food prices hurt

many wage-earners, they also benefited ma ny peasants,

especially those with customary tenures and fixed rentals who could thereby

capture some of the economic rent accruing on their lands with such price

increases. It may be simplistic to note that there are always gainers and

losers with both inflation and deflation — but even more simplistic to focus

only on the latter in times of inflation, and especially simplistic to focus on

a real wage index based on the PB&H index. And if deflation is so beneficial

for the masses, why, during the deflationary period in later 17th and early

18th century England, do we find, along with a rise in this real-wage index, a

rise in the death rate from 23.68/1000 in 1626 to 32.14/1000 in 1681,

thereafter falling slightly but rising again to an ultimate peak of

37.00/1000 in 1725 (admittedly an era of anomalous disease-related

mortalities), when the PB&H real-wage index stood at 60 —

some 24% higher than the RWI of 36 for 1626? One of the many imponderables yet

to be considered, though one might ponder that sometimes high real wages

reflect labor shortages from dire conditions, rather than general prosperity

and more equitable wealth and income distributions, as Fischer suggests.

Finally, Fischer’s argument that inflationary price-revolutions were always

especially harmful to the lower classes by leading to rising interest rates is

sometimes but not universally true, even if rational creditors should have

raised rates to protect themselves from inflation. Thus, for the Antwerp money

market in the 16th century,

the meticulous evidence compiled by Vander Wee (1964, 1977) shows that

nominal interest rates fell over this entire period [from 20% in 1515 to 9% in

1549 to 5% in 1561; and on the riskier short term loans to the Habsburg

government, from a mean of 19.5

% in 1506-10 to one of 12.3% in 1541-45 to 9.63% in 1561-55]. In the next

price-revolution, during the later 18th century, nominal interest rates did

rise during periods of costly warfare, i.e., with an increasing risk premium;

but real interest rates actually fell because of the increasing tempo of

inflation (Turner 1984), more so than did real wages for most industrial

workers.

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Kingdom of Asante (Athens, Ohio

, 1993), pp. 1-39.

E.A. Wrigley, R.S. Davies, J.E. Oeppen, and R.S. Schofield, English Population

History from Family Reconstitution, 1580- 1837 (Cambridge and New York:

Cambridge University Press, 1997).

Subject(s):Macroeconomics and Fluctuations
Geographic Area(s):General, International, or Comparative
Time Period(s):General or Comparative