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The Political Economy of Argentina in the Twentieth Century

Author(s):Conde, Roberto Cortés C
Reviewer(s):Fritscher, André Martínez Fr

Published by EH.NET (July 2009)

Roberto Cort?s Conde, The Political Economy of Argentina in the Twentieth Century. New York: Cambridge University Press, 2009. xi + 388 pp. $85 (hardcover), ISBN: 978-0-521-88232-3.

Reviewed for EH.NET by Andr? Mart?nez Fritscher, Department of Economics, Boston University.

Most of the world’s wealthy nations have been so since the nineteenth century. However, while Argentina enjoyed standards of living similar to the most developed countries during the second half of the nineteenth century, this South American country has reversed its fortune and fallen behind over the course of the twentieth century. Currently Argentina has a GDP per capita closer to other Latin American countries than the group of the developed countries to which it belonged a century ago. In his new book Roberto Cort?s Conde, a professor of Economics at the University of San Andr?s, describes in detail the evolution of Argentina’s economy in the twentieth century. The exceptionality of the Argentinean experience has been a fertile ground on which to explore relevant questions within the literature of economic growth. Why was Argentina unable to grow in the twentieth century at the same pace as countries with similar economic characteristics and endowments, such as Australia and Canada? Is the very poor Argentinean economic performance explained by exogenous shocks or domestic policies? What was the institutional framework in which the economic policies were instituted? Cort?s Conde?s narrative addresses the last two questions in particular, arguing that domestic choices and a weak government explain Argentina’s economic fall.

The book is organized chronologically in six chapters; each covering a different phase of the Argentinean economy from 1880 to 1989. Chapter 1 addresses the period during which Argentina experienced the fastest growth rates around the world in the pre-World War I era (the GDP per capita growth rate was 6.6%, twice as high as the rates of many developed countries). The export of agricultural goods drove this impressive and sustained economic performance, as Argentina is endowed with extensive and very productive portions of land. The profitability of this sector attracted foreign capital for railroads and industries. Moreover, Argentina was host to millions of European immigrants, who were tempted by the high wages. Chapter 2 discusses the economic transformation that Argentina underwent from World War I to the Great Depression. Like many other countries, Argentina entered into a recession following the commencement of hostilities as international flows of goods, capital and labor declined. Additionally, the introduction of universal male suffrage in 1912 changed the balance of power in Argentina. Cort?s Conde argues that higher democratization increased the role of the government in the economy as it intervened more actively in the determination of prices and wages. Now economic policy was put under pressure from different interest groups. Chapter 3 is a detailed description of the exchange and monetary policies in the 1930s. After abandoning the gold standard, the devaluation of the peso increased the competitiveness of Argentinean exports and protected domestic production. The strategy of growth was based on import substitution in which tariffs and quotas for final goods were raised. This period was also marked by the use of exchange margins to finance government activities and the foundation of the Central Bank.

Chapter 4 describes the main economic policies and events during Juan Per?n?s government. Argentina’s inward growth strategy not only remained during Peronism but the period was also characterized by direct public intervention through subsidies and state ownership of certain key industries. In addition, Per?n used subsidies, price controls, and monetary, exchange and trade policies to increase capital formation and real wages and to ensure full employment. The economic policy thus set up a complex and persistent network of interests, manipulated the incentives of the agents and furthermore, inefficiently allocated the factors, hindering long term growth. Chapter 5 provides a description of the period between Peron’s two terms as President (1955-1973), during which political and social instability affected economic performance. This period was characterized by innumerable military coups, reflecting the Army?s fear of Per?n?s return and communism. Any attempt to change the economic model was blocked by interest groups (e.g. land owners, entrepreneurs, unions). As a consequence Argentina underwent a process of decapitalization, macroeconomic instability and limited productivity gains. The sixth chapter analyzes the economic and political conditions that led Argentina to experience negative growth in the period from 1974 to 1989. Despite several orthodox and non-orthodox attempts, civil and military governments failed to put the economy on track. In sum, the seventies and eighties were a continuation of the institutional, political and economic problems inherited from previous periods.

The book is an excellent resource for those who wish to learn about the Argentinean economy and its main limitations during the twentieth century and it is highly recommended for any course on the economic history of Latin America. One of Cort?s Conde?s principal contributions is his fabulous effort to compile historical data and create a narrative of the evolution of the main variables. Do not expect, however, any empirical analysis that would corroborate his main points, although the data he gathers may be an important source for future empirical work. Cort?s Conde proposes that the economic failure of the Argentinean economy is due to a variety of factors and choices accumulated across time. But the initial institutional framework in which the decision making process occurred remains unclear. For instance, the reader may wish to see a discussion of whether the quality of institutions by the end of the nineteenth century was better than the quality of institutions in the next century. Moreover, it would have been enlightening to contrast the Australian and Canadian experiences with that of Argentina. What did they do right compared to Argentina? How were the interest groups held in check during the twentieth century? Would it not be the case that, since the nineteenth century, both countries had better institutions than Argentina, which would have allowed them to overcome the international shocks of the first half of the twentieth century? Furthermore, a brief discussion of why Latin American countries with similar institutions and development strategies could grow faster would help clarify Argentina’s particular situation. Finally, the potential reader would like to know a little bit more about hypotheses, proposed by other authors, concerning Argentina’s economic failure, and how they differ from the one proposed by Cort?s Conde. Although the book aptly describes the changes in economic policies and their consequences, an analytical framework explaining the winners, the losers, and the players’ sources of bargaining power would have been very useful.

Andr? Mart?nez Fritscher recently completed his Ph.D. at Boston University and will be joining Banco de M?xico as a research economist in the fall. His work focuses on the public finances and regional development in Latin American at the turn of the twentieth century.

Copyright (c) 2009 by EH.Net. All rights reserved. This work may be copied for non-profit educational uses if proper credit is given to the author and the list. For other permission, please contact the EH.Net Administrator ( Published by EH.Net (July 2009). All EH.Net reviews are archived at

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

Planters’ Progress: Modernizing Confederate Georgia

Author(s):Morgan, Chad
Reviewer(s):Adams, Sean Patrick

Published by EH.NET (July 2006)

Chad Morgan, Planters’ Progress: Modernizing Confederate Georgia. Gainesville: University Press of Florida, 2005. xii + 163 pp. $55 (cloth), ISBN: 0-8130-2872-8.

Reviewed for EH.NET by Sean Patrick Adams, Department of History, University of Florida.

Do we need another case study of the American Civil War? While the public demand for the beards and bullets side of America’s Iliad appears insatiable, many historians have wondered if every single aspect of this struggle has already been thoroughly chronicled. For those interested in questions of political economy, however, the American Civil War offers some tantalizing and yet unexplored possibilities, as wartime conditions can trigger dramatic changes in societies. The peculiar demands of a prolonged military struggle on a nation can erode longstanding institutional practices once considered as solid as bedrock. War can also thrust new actors to the forefront of a society; not just in military venues, but in the civilian realm as well. Fissures created by the unique demands of wartime, moreover, allow new entrepreneurs to blossom where they previously had no succor. Thus, there is still a great deal to learn about the intersection of political, military, and economic policies during this well-traveled period.

Chad Morgan’s slim volume entitled Planters’ Progress: Modernizing Confederate Georgia offers a new perspective on the impact of the Civil War upon southern industrialization. Morgan, a Triangle Research Libraries Network Fellow at North Carolina State University, takes issue with the longstanding argument that military exigencies forced the South to industrialize. He argues that Confederate industrialization was not a “clean break with the past” but “instead an elaboration and acceleration of existing tendencies” p. (2). As such, Morgan finds more continuity than change among planters’ conceptions of industrial growth at the same time that the Civil War years placed an unprecedented strain on Georgia’s economy. While his argument is not without its faults, Planters’ Progress is a valuable contribution to the burgeoning field in nineteenth-century political economy.

Morgan begins with an overview of Georgia’s antebellum industrial sector and attempts to challenge the prevailing wisdom about the antebellum southern state. After chronicling the rise of cotton mills in antebellum manufacturing centers like Athens, Augusta, and Columbus and the concurrent expansion of railroads in Georgia, Morgan reminds us that the South compared quite favorably with other nations in terms of industrial growth. He also makes a case for Georgia’s economic prowess by the eve of the Civil War. Here Morgan follows in the footsteps of Milton Sydney Heath, whose Constructive Liberalism still resonates a half-century after its publication.[1] Heath argued that Georgia’s public officials vacillated between laissez-faire and “constructive liberal” policies in the antebellum decades and drew upon an avalanche of statistical evidence to demonstrate that point. Morgan, on the other hand, asserts that Georgia witnessed a steady increase of state power and that planters did not oppose industrial development, but merely wanted to control it. “If industrialization ever took off in earnest, as happened during the Civil War,” Morgan claims, “slaveholders could bring state power to bear on industrialists to block their ascendance while preserving jurisdiction over manufacturing for the government” (p. 17)

Restoring agency to the South’s public policymakers makes sense, but Morgan’s main body of evidence for this trend comes from a close read of the writings of proslavery ideologues George Fitzhugh and Henry Hughes rather than a systematic exploration of Georgia’s political economy. By focusing on intellectual trends at the expense of political battles, Morgan avoids the sloppy world of legislative policymaking altogether. Yet this leads him to assign a great deal of prescience to Georgia’s planters, to whom, “Secession finally gave … an opportunity to pursue a modernity they had long sought” (p. 31). Was the goal of economic “modernity” so clear cut in nineteenth-century America? The work of historians such as Colleen Dunlavy, Robin Einhorn, Richard John, John Larson, William Novak, and Heather Cox Richardson — all of whom have restored contingency and conflict to nineteenth-century political economy — certainly questions that premise.[2] In fact, Morgan’s claim that the Civil War “was a fight over how the South would modernize — with or without slavery” (p. 109) evokes the same assumption that Planters’ Progress attacks throughout the text; namely that the South was a “pre-modern,” “pre-industrial,” and “pre-statist” society that needed to catch up to the North’s more advanced status in these categories. Whiggish conceptions of economic development thus undermine the argument at points, particularly when Morgan attempts to place Georgia’s case within the broader context of nineteenth-century political and economic history.

Planters’ Progress is much more effective in its discussion of Georgia’s wartime economy. Josiah Gorgas, the head of the Confederate Ordnance Bureau, made Georgia the hub of Confederate military production and the state’s industrial sector thrived as a result. The Civil War also saw the rise of Atlanta as a significant rail and manufacturing center, a process that Morgan attributes to the state-sponsored production of war materials. In areas where antebellum industries were established, wartime demand pushed production levels even higher. Morgan’s depiction of the “seemingly overnight creation of a government manufacturing establishment” (p. 44) and the heavy-handed Confederate oversight in running it is a compelling story of how rapid industrialization can occur out of necessity.

The story of labor relations in Georgia during the Civil War is an important one for Planters’ Progress. Here the strong presence of the Confederacy in Georgia’s manufacturing sector muted the labor unrest that often accompanies rapid industrialization. More specifically, Morgan argues, the presence of government officials allowed industrialists to employ a variety of black and white, male and female, and free and enslaved labor in ways that a civilian economy would find unpalatable. Of course, at the same time that a “combination of repression, segregation, and outright luck” in Confederate Georgia “defused a potentially explosive situation,” this style of industrial development resulted in “reprehensible conditions for workers” (p. 86). As the fortunes of the war shifted in the Union’s favor by 1864, this overwhelming state presence shifted from a managerial role into a more humanitarian one, as Georgians from all castes and classes drew upon public resources to survive the deprivations triggered by General Sherman’s invasion of the state.

In the end, Planters’ Progress provides an instructive case study of a state’s economic transformation during wartime conditions. Although Morgan’s wider arguments about Georgia’s “modernity” are less convincing, his concise account of rapid economic development during the Civil War is a model of efficient and effective prose backed by evidence. In a field often overburdened with duplication, Planters’ Progress is recommended reading for economic and political historians grappling with the complex nature of southern industrialization during the turbulent decades of the mid-nineteenth century.


1. Milton Sydney Heath, Constructive Liberalism: The Role of the State in Economic Development in Georgia to 1860 (Cambridge: Harvard University Press, 1954).

2. While not a formal school or organization, these historians are commonly cited as good examples of the “new institutionalist” approach that has revitalized the study of political economy in the nineteenth-century United States. See Colleen Dunlavy, Politics and Industrialization: Early Railroads in the United States and Prussia (Princeton: Princeton University Press, 1994); Robin Einhorn, Property Rules: Political Economy in Chicago, 1833-1872 (Chicago: University of Chicago Press, 1991); Richard John, Spreading the News: The American Postal System from Franklin to Morse (Cambridge: Harvard University Press, 1995); John Larson, Internal Improvement: National Public Works and the Promise of Popular Government in the Early United States (Chapel Hill: University of North Carolina Press, 2001); William Novak, The People’s Welfare: Law and Regulation in Nineteenth-Century America (Chapel Hill: University of North Carolina Press, 1996); Heather Cox Richardson, The Greatest Nation on Earth: Republican Economic Policies during the Civil War (Cambridge: Harvard University Press, 1997).

Sean Patrick Adams is the author of Old Dominion, Industrial Commonwealth: Coal, Politics, and Economy in Antebellum America (Baltimore: Johns Hopkins University Press, 2004).

Subject(s):Servitude and Slavery
Geographic Area(s):North America
Time Period(s):19th Century


Author(s):Miller, Worth Robert
Reviewer(s):Dighe, Ranjit S.

Published by EH.NET (February 2006)

Rebecca Edwards and Sarah DeFeo, “1896: The Presidential Campaign: Cartoons and Commentary.” Vassar College, 2000.

Worth Robert Miller, “Populism.” Missouri State University, 2001.

Website Review for EH.NET by Ranjit S. Dighe, Department of Economics, State University of New York at Oswego.

Populism and the 1896 Election

To economic historians, the Populist era is endlessly fascinating, raising as it does such issues as the Brandeisian conflict between democracy and concentrated wealth, the relative merits of the gold standard versus a bimetallic standard or fiat money, and, of course, the “puzzle of farm discontent” at a time when the average farm standard of living seems to have been rising (at least according to aggregate statistics cited by North 1966 and several other economic historians). Adding to the era’s wondrous quality are timeless documents, like the People’s Party platform of 1892 and William Jennings Bryan’s “Cross of Gold” speech at the Democratic convention of 1896, and larger-than-life characters such as Bryan; Populists Tom Watson, Mary Elizabeth Lease, and Jacob S. Coxey; and Mark Hanna, Republican campaign mastermind.

But possibly nowhere in the American economic history curriculum is the gap between instructor interest and student interest greater than it is for the Populist era. Apathy on this topic is perhaps unsurprising among students in urbanized America who have known only the relatively tranquil Age of Greenspan. For them to relate to the concerns of frontier farmers, or to appreciate how the choice of monetary regime could once have been the paramount issue in American politics, requires a great leap of imagination. Two websites, one devoted to Populism and the other to the famous “battle of the standards” that was the 1896 presidential election, go a long way toward aiding that leap, largely through the use of a device that itself came of age in the 1896 campaign: the political cartoon.

The 1896 website is the creation of Rebecca Edwards, an associate professor of history at Vassar College, and one of her students, Sarah DeFeo, with contributions from students in a Vassar history class. Edwards is the author of two books about American social and political history in the post-Civil War decades, and she is readying a biography of Populist orator Mary (“Raise less corn and more hell”) Lease. The site is attractive and user-friendly, with a distinctive logo and icons that link to its main sections: “The Cartoons,” a chronology of the 1896 election featuring over a hundred political cartoons; a list of newspapers and magazines whence those cartoons came; and pages on the Republican, Democratic, and People’s parties. The main page includes links to additional pages on political, economic, and social leaders, campaign themes, and popular amusements in the 1890s. Pages contain numerous links to other pages but are sufficiently self-contained that one need not spend much time clicking links.

The heart of the 1896 site is its cartoon chronology of that year’s presidential contest between Bryan and William McKinley. Even a century later, the dazzling full-color cartoons, such as those from the anti-Bryan Puck and Judge, convey much of the vividness of the campaign. Most of the other cartoons are cruder but accomplish the same purpose, by presenting an authentic and entertaining version of the campaign as Americans read about it at the time. Humorous put-downs of the opposition are a staple of every presidential campaign, and in 1896 those put-downs found their fullest expression in cartoon caricatures, such as those of McKinley campaign manager Mark Hanna in a dollar-sign suit, devilish-looking Populists holding pitchforks, and Bryan as a hot-air balloon. An accompanying “Journals” page provides the necessary perspective on the myriad periodicals that originally ran the cartoons, including circulation and political affiliation.

The pages on the three major political parties are workmanlike and easily digested. The main thing that distinguishes them from online encyclopedia entries is the extensive use of quotations from contemporary sources, from The Atlanta Constitution to The Rocky Mountain News to The Vineland (NJ) Independent. The quotations offer helpful context, but the pages do not match the vitality of the cartoon chronology. More cartoons or campaign illustrations would have helped. More expansive are the pages on individual leaders, campaign themes, and 1890s pop culture, which are a mix of short essays (some by Vassar students), political cartoons and illustrations, and quotations. The special-features section includes a bibliography, arranged by subject and including several websites, including the Library of Congress’s extensive “American Memory” collection of images ( Also included is an inspired list of classroom ideas for discussion, writing, and research. Additional assignments might be for students to respond to some of the student essays, which are generally good but not always airtight in their arguments. Undergraduates may feel more comfortable challenging assertions made by their peers than by credentialed economists and historians.

Worth Robert Miller’s “Populism” site also provides an impressive cartoon-based presentation but otherwise overlaps only a little with the 1896 site. Miller, a professor of history at Missouri State University, has written extensively and sympathetically on Populist politics, including a book on Oklahoma Populism. He is currently at work on a book on Populist cartoons, of which he has assembled over one thousand. The website presentation contains 40 cartoons (an alternate “short presentation” has 32), all from Populist newspapers. The presentations amount to cartoon histories of Populism, as depicted by the Populists themselves and annotated by Miller, who has provided simple explanatory captions. The presentations, though web-based, are as easy to use as slide shows, as one can advance from one cartoon to the next with just one click. One could easily and entertainingly devote a class period to either of these online presentations (or a selection thereof), perhaps following it up the next class with a discussion of Populism’s and free silver’s critics, illustrated with cartoons from the 1896 site.

Miller’s cartoons mostly predate the 1896 election. This is no accident, as Miller, like many historians of Populism, rejects the conventional view of Bryan’s 1896 campaign as the climax of Populism; instead he sees it as a debacle, and not just because Bryan lost. By endorsing Bryan, the People’s Party subordinated its original vision to the narrower concerns of the free-silver Democrats, “becoming an annex to Bryan Democracy” (Miller, “A Centennial Historiography of American Populism,” on the website. See Clanton 1991, 2004 for similar accounts).

The Populism site also contains some of Miller’s own writings, namely an annotated bibliography of Populism, an interpretive overview of the Populists (originally a book chapter), and three journal articles, two on Populist politics in Texas and the other a solid historiography of Populism. The annotated biography, which Miller revised in 1989 and again in 2001 from a 1973 book of Populist history sources by Henry Clay Dethloff contains entries on Populist activities in over thirty states and with about twenty categories. Finally, the site links to standard primary documents like the People’s Party platforms of 1892 and 1896 and Bryan’s “Cross of Gold” speech.

Neither Edwards nor Miller appears to be a card-carrying economic historian, and, not surprisingly, neither of these sites contains much discussion of the cliometric literature on monetary populism and agrarian discontent. This is regrettable, all the more so because it seems symptomatic of a more general communication breakdown between traditional historians and economic historians (as described in Coclanis and Carlton 2001). The New Economic History spawned a generation of skeptics about the true economic plight of the farmers and a plethora of research on the “puzzle of farm discontent,” but that research is generally absent from both of these sites. Both sites, and Miller’s otherwise comprehensive bibliography in particular, would do well to acknowledge the modern economic history literature, from early revisionist pieces like North’s (1966) book chapter, subsequent responses (e.g., Mayhew 1972, McGuire 1981), and more recent pieces that suggest the Populist preoccupation with price deflation and reflation was rational (e.g., Rockoff 1990, Frieden 1997). Miller does reference two cliometric works on railroads and Populism (Higgs 1970, Aldrich 1980), but that’s about all.

On the other hand, economic history instructors are probably already assigning works like those, or textbook chapters that incorporate their insights. And neither site claims to be a self-contained lesson on the economics of Populism. Despite their omissions, these sites can be highly valuable to economic historians, especially those seeking to spice up their classroom coverage of the Populist movement and the “battle of the standards.”


Aldrich, Mark. 1980. “A Note on Railroad Rates and the Populist Uprising.” Agricultural History 54 (3): 424-432.

Clanton, Gene. Populism: The Humane Preference in America, 1890-1900. Boston: Twayne Publishers, 1991.

Clanton, O. Gene. A Common Humanity: Kansas Populism and the Battle for Justice and Equality, 1854-1903. Manhattan, KS: Sunflower University Press, 2004.

Coclanis, Peter, and David Carlton. 2001. “The Crisis in Economic History.” Challenge 44 (November-December): 93-103.

Frieden, Jeffry A. 1997. “Monetary Populism in Nineteenth-Century America: An Open-Economy Interpretation.” Journal of Economic History 57 (June): 367-395.

Higgs, Robert. 1970. “Railroad Rates and the Populist Uprising.” Agricultural History 44 (3): 291-297.

Mayhew, Anne. 1972. “A Reappraisal of the Causes of Farm Protest in the U.S., 1870-1900.” Journal of Economic History 32 (June): 464-475.

McGuire, Robert A. 1981. “Economic Causes of Late-Nineteenth Century Agrarian Unrest: New Evidence.” Journal of Economic History 41 (December): 835-852.

North, Douglass C. 1966. Growth and Welfare in the American Past, chapter 2. Englewood Cliffs, NJ: Prentice Hall.

Rockoff, Hugh. 1990. “The ‘Wizard of Oz’ as a Monetary Allegory.” Journal of Political Economy 98 (August): 739-760.

Ranjit S. Dighe is Associate Professor of Economics at the State University of New York at Oswego. He is the author of The Historian’s Wizard of Oz: Reading L. Frank Baum’s Classic as a Political and Monetary Allegory (2002). His recent research concerns business support for Prohibition and its repeal.

Subject(s):Financial Markets, Financial Institutions, and Monetary History
Geographic Area(s):North America
Time Period(s):19th Century

Peddling Panaceas: Popular Economists in the New Deal Era

Author(s):Best, Gary Dean
Reviewer(s):Dighe, Ranjit S.

Published by EH.NET (October 2005)

Gary Dean Best, Peddling Panaceas: Popular Economists in the New Deal Era. New Brunswick, NJ: Transaction Publishers, 2005. xii + 270 pp. $49.95 (cloth), ISBN: 0-7658-0288-0.

Reviewed for EH.NET by Ranjit S. Dighe, Department of Economics, State University of New York at Oswego.

The most popular economist in the New Deal era was John Maynard Keynes, right? Of course not. While many New Deal policies would later be called Keynesian, Keynes was little known to the American public prior to the publication of The General Theory in 1936, and his influence in New Deal policy circles was minimal. The story of Keynes’s 1934 audience with President Franklin D. Roosevelt is often recounted: Keynes came away wishing Roosevelt “was more literate, economically speaking,” while Roosevelt dismissed Keynes as “a mathematician rather than a political economist.”[1]

The classical or “orthodox” economists of the time fared even less well with the Roosevelt Administration and the public. It seemed natural to associate them with the old economic order and its collapse in the first four years of the Depression. Moreover, orthodox prescriptions like liquidating labor and commodities, hewing to the gold standard, and balancing the budget were pure castor oil — hardly a welcome tonic for people seeking relief. Those prescriptions, with some notable exceptions like the widespread opposition of economists to the Smoot-Hawley tariff, may also have sounded too similar to those of the discarded and discredited Hoover Administration.

Instead, the most popular economists of the time were liberal-leaning amateur economists who beat the drums for various reforms in the popular press. While the Depression spawned a host of would-be economists, offering reforms ranging from the radical to the reactionary, a few of these amateur economists exerted tangible influence. They pressed for policies that the Roosevelt administration eventually adopted and promoted them among the general public. Gary Dean Best’s new book, Peddling Panaceas: Popular Economists in the New Deal Era, deals with three of the most influential of these writers: Edward A. Rumely (and his Committee for the Nation), Stuart Chase, and David Cushman Coyle.

Best, a retired professor of history in the University of Hawaii system, is the author of a dozen books that deal directly or indirectly with interwar America, including five books on the New Deal. Despite his own prolific output on this era, Best is remarkably un-self-referential in this book, though the book does continue the policy grouping from his 1990 book Pride, Prejudice, and Politics. That book broke down Roosevelt’s advisers into three groups, and this one treats each of its subjects as a representative of one of those groups. Rumely and the Committee for the Nation were reflationists, whose great victory came early with Roosevelt’s decision to take the country off the gold standard in 1933; Chase was a planner, like Raymond Moley and Rexford Tugwell, who favored more centralized control of industry and agriculture, as embodied in the National Recovery Administration (NRA) and the Agricultural Adjustment Administration (AAA); Coyle was a “Brandeisian,” a trust-buster in the mold of Louis Brandeis, with a deep distrust of big business and high finance.

The title Peddling Panaceas, recalling as it does Paul Krugman’s caustic Peddling Prosperity (1995), may lead the reader to suspect that Best holds little brief for these “popular economists” and the New Deal policies they advocated. Such suspicions are correct, as is evident from the full title of Best’s 1990 book, Pride, Prejudice, and Politics: Roosevelt versus Recovery, 1933-1938. In that book and in a provocative interview with The Objectivist Center in 1990 [2], Best condemns the New Deal from a conservative economic perspective similar to that of Robert Higgs [3]; in a nutshell, both say the New Deal retarded recovery because it provided a poor investment climate for business. In this new book Best mostly soft-pedals his negative assessment of the New Deal in favor of relatively neutral histories of Chase, Coyle, and the Committee for the Nation and their respective beliefs and influences with the public and the administration.

The book is organized tidily, perhaps too tidily, into nine chapters, three each for Chase, Coyle, and Rumely’s Committee for the Nation. While this arrangement is numerically elegant, it sacrifices some context and clarity. The introductory and concluding sections are just a few pages each (and are not numbered as chapters), with the result that the general reader may be frustrated by the lack of background. A non-specialist would likely feel bewildered by the opening sentence of chapter 1, with its referencing of “the ‘war’ between the planners and the Brandeisians” and of the miscategorization of reflationists as inflationists. A longer introductory chapter, numbered as chapter 1, would have been helpful.

The first three chapters deal with Rumely and the Committee for the Nation, whose program Best clearly sees as the most reasonable. Rumely’s colorful resume included editing and publishing the New York Evening Mail, promoting vitamins and other products in the 1920s, and working in his family’s agricultural machinery business. From his background Rumely was acutely aware of the farm depression that had begun in the 1920s and reached new depths in the early 1930s. Like the Greenbackers and some of the Populists two and three generations earlier, he believed that deflation was devastating the farm sector and the economy as a whole, and that the solution was to take the dollar off the gold standard and regulate its value so as to stabilize prices at an earlier, pre-deflation level. This monetarist prescription was too radical for even William Jennings Bryan and his fellow bimetallists in 1896, but by the early 1930s it would receive strong support from two of America’s leading academic economists, George F. Warren (of Warren-Pearson Index fame) of Cornell and Irving Fisher of Yale. Rumely began forming his committee in the summer of 1932 and managed to recruit a number of prominent businessmen. He wrote frequently to President-elect Roosevelt, influential congressmen like Senator Elmer Thomas of Oklahoma, and Henry Wallace, who joined the group’s executive committee shortly before he became Secretary of Agriculture. By January 1933 he had settled on the name Committee for the Nation for Rebuilding Purchasing Power and Prices, or Committee for the Nation for short, and taken the group public. The group lobbied Congress and the White House, and added numerous economists and businessmen to its ranks. Its efforts bore fruit almost immediately, as Roosevelt took the country off the gold standard in April and the Agricultural Adjustment Act, signed into law in May, included Senator Thomas’s “inflation amendment,” authorizing the president to inflate prices using any of six methods. Rumely declared victory in a letter to his daughter that month: “The Administration has adopted the Committee’s policy and this country is on the way to restoration of the 1926 price level, we believe” (p. 21).

Dissatisfaction soon set in among Committee members, however. Merely de-linking the dollar and gold, and ending the deflation, was not the group’s whole agenda. Fisher and many others favored a “commodity-backed dollar,” with its value tied to an index of commodity prices, and were disappointed when the administration and Congress did not enact such a plan. Probably most Committee members thought the NRA and AAA approaches of raising prices by restricting production were counterproductive. Most demoralizing of all was the failure of prices to return to their talismanic 1926 level (the average of the Prosperity Decade price levels). The Committee won perhaps its greatest victory in January 1934 when Roosevelt raised the dollar price of gold to the level commensurate with a “1926 dollar,” but even with the simultaneous pledge to buy up unlimited quantities of gold that price, the price level rose only partway toward that target. (And of course, once prices finally did reach that level, they kept on rising. Small wonder, then, that the reflationists were often called inflationists.) Committee members pushed for further devaluation of the dollar relative to gold, but to no avail. By 1936, Rumely and others on the Committee continued to press for reflation but believed the country had a bigger problem, namely the New Deal itself, which they found coercive, anti-business, and socialistic. Like the Association against the Prohibition Amendment, another business-heavy lobby that allied itself with Roosevelt on a single issue and reconstituted itself later as an anti-New Deal group (the American Liberty League), the Committee transformed itself in 1937 into an anti-Roosevelt group, the National Committee to Uphold Constitutional Government. The group helped block Roosevelt’s court-packing scheme and raised money in 1938 to defeat congressmen who had supported it and re-elect those who had opposed it. When the “Roosevelt depression” began in late 1937, the National Committee called once again for a reflationary monetary stimulus but derided the administration’s planned fiscal “pump-priming” as an “economic fallacy” which will eventually and “inevitably lead to destruction of democracy and to one-man government” (p. 84).

Stuart Chase, unlike Rumely, found a natural affinity with the New Deal program in general. His most common complaint was that it did not go far enough. An engineer turned accountant turned social critic, and a gifted prose stylist, Chase may well have been America’s most popular economist in the 1930s despite having no formal training as an economist. (The closest he came was spending several years researching the meat-packing industry for the government. To be fair, the Ph.D. credential was less important in Chase’s time than it is now.) He was technically employed as a research economist by the Labor Bureau, Inc., from 1922 to 1939, but for all practical purposes he was a professional pundit, as the nature of the research seemed to be to advocate for various liberal economic reforms in books and magazine articles for popular consumption. In scores of opinion pieces in magazines like The Nation, The New Republic, and Harper’s, Chase attacked waste, deplored the phenomenon of poverty amidst plenty, and cheered the New Deal. A technocrat by nature, Chase found the decentralized American economy hopelessly chaotic, wasteful, and unstable. His timing was perfect, for he had been making these charges all through the 1920s, most notably in a book written just before the crash and published just after, Prosperity: Fact or Myth?. As the Depression deepened and people lost faith in the economy’s ability to right itself, Chase became the pop prophet of economic planning.

Chase’s 1932 book A New Deal was especially prophetic. It may even have been the source of the phrase “new deal” as used by Roosevelt for the first time a few months later at the Democratic convention. Unlike the orthodox economic planks in the Democratic platform, which bore little resemblance to the eventual New Deal policies, Chase’s proposals amounted to a comprehensive reform program that did look a lot like the First New Deal. Chase called for a managed currency to replace the gold standard, drastic curbs on stock speculation, higher wages and shorter work weeks, a massive public works program, and rural electrification. Most strikingly, Chase, a self-proclaimed “collectivist,” called for national and regional planning boards and collectivized production in moribund sectors like railroads, coal, oil, electric power, steel, meat packing, wheat, and cotton. He refined those recommendations in subsequent articles in 1932 and said the ideal would be to shepherd “all basic industries into state trusts, under government supervision but operating as independent units as far as possible.” While these ideas did not originate with Chase, his eloquent exposition of them surely helped popularize them, making for a ready reception when Roosevelt finally proposed them himself.

Like the administration, Chase thought much about the twin evils of overproduction and underconsumption. To Chase, industrial overcapacity was a problem that would only get worse without new restrictions and regulations on private investment. He seemed to view new capital investment as something that firms undertook blindly, without considering whether idle plant and equipment could be obtained more cheaply or whether new goods in the industry could be sold. While viewing the Depression economy as well below full employment, he seemed to regard full-employment output as a fixed value, not one that grew a few percent each year. “Gentlemen, the market has come to the end of its adolescent growth,” he wrote in his 1934 book The Economy of Abundance. “The boy has reached maturity.” Toward solving the problem of overproduction, Chase also recommended shorter working hours for all. His main approach toward bringing production and consumption into balance, however, was to raise mass purchasing power through expanded public-works employment, higher minimum wages, and guaranteed subsistence income for everyone willing to work.

Chase’s faith in collectivism was little shaken by the mounting evidence that the NRA philosophy of restricting production was also retarding recovery, nor by the rising tide of public and business disaffection with the NRA, nor by the Supreme Court’s invalidation of the NRA in May 1935, which effectively ended the First New Deal. By this time business and the administration had grown exasperated with each other, and no attempt to revive the NRA was made. The Second New Deal, which commenced almost immediately thereafter, was characterized by a decided preference for labor over capital and a zeal for permanent reform. Chase remained loyal to the New Deal, and even did some consulting work for various New Deal agencies from 1935 to 1939, but by this time he was swimming against the tide. Regulation had become the order of the day, whereas Chase in 1935 and 1936 was still pushing as hard as ever for more direct government control of production and investment. By 1938, however, he was back on the same page as the administration, muting his support for collectivism and arguing for more of what the administration was already doing: enlarged and permanent public-works programs to absorb the remaining unemployed, greater progressivity in tax and transfer programs so as to redistribute income from savers to spenders, and a more expansionary fiscal policy in general. As fascism engulfed Europe, Chase made the by-now-commonplace argument that Roosevelt’s New Deal had saved America from a similar fate. “It is a safety valve which protects us against the explosion of totalitarianism.”

David Cushman Coyle, though less well remembered than Chase, was possibly even more influential, especially within the administration. Another engineer with a utopian bent and a talent for getting his message out, Coyle published at least three books that sold over a million copies, countless articles in the popular press, and a number of articles in scholarly and semi-scholarly journals as well. Coyle shared much of Chase’s agenda, though he never embraced collectivism, and like Chase he did some advisory work for various New Deal agencies. Best describes Coyle’s program as a synthesis of the proto-Keynesian writings of 1920s “popular economists” William T. Foster and Waddill Catchings and the anti-big-business, social democratic views of Supreme Court Justice Louis Brandeis. The basic prescriptions of Foster and Catchings, including large-scale countercyclical public works, were broadly consistent with the New Deal. But Brandeis’s Jeffersonian disdain for “bigness” was at odds with the First New Deal, in particular the NRA. After the NRA’s court-ordered dissolution in 1935, Brandeis exerted tremendous influence on the New Deal, most of it indirectly through his close friend Felix Frankfurter and Frankfurter’s New Deal prot?g?s, Thomas G. Corcoran and Benjamin V. Cohen. But nobody articulated the Brandeisian aspect of the New Deal better than Coyle, whom Moley called the “economic philosopher” of the Second New Deal.

Coyle’s influence on the New Deal began early, with a 1932 article in Corporate Practice Review that caught the eye of Frankfurter, then a Harvard law professor and Roosevelt adviser. The article argued that the key economic problem was how to divert money from saving and investment to “consumption of the goods that business is trying to sell.” The interests of business and finance were irreconcilable, he believed, because the “man-eating ogre Finance” thrived on high levels of saving and investment, which inevitably led to overbuilding, underconsumption, and instability. Such investment helped only Wall Street, not Main Street. “The normal processes of finance are poisonous to business.” Coyle recommended higher taxes on large incomes and inheritances as a way to soak up those unproductive savings, so that they would not be invested in overcapacity. Frankfurter was so impressed that he helped Coyle distribute a thousand copies of the article, under the new title The Irrepressible Conflict: Business and Finance. It ended up circulating through the Roosevelt White House as well, attracting the attention of the president himself. Coyle quickly became a New Deal insider, celebrated by the Brandeisian faction of the administration and also popular with Federal Reserve Chair Mariner Eccles.

Coyle was much more at home in the Second New Deal than in the First, and 1935 produced a bumper crop of laws that were in line with his recommendations. Social security legislation had been part of his program to raise mass purchasing power, and the Social Security Act made it a reality (though he objected to the Social Security tax, which he thought should not fall on wage-earning consumers but on the rich). The Wheeler-Rayburn Public Utility Holding Bill, aimed at breaking up large holding companies, made life difficult for Big Finance. The Banking Act of 1935 gave the Federal Reserve greater control over bank credit and imposed interest-rate ceilings on deposits, possibly deterring saving. The Revenue Act of 1935 was the “soak the rich” bill Coyle had long wanted, as it raised taxes on top earners, corporations, and estates. In 1936 Coyle saw another cherished cause become law, when Congress imposed a tax on undistributed corporate profits. Although Roosevelt said the tax was intended to raise revenue, it seems likely that part of the administration’s rationale for it and the new taxes in the Revenue Act was the same as Coyle’s: a penny saved (or re-invested) is a penny wasted. If this is so, then, from the New Dealers’ perspective, the much-noted failure of investment during the New Deal was actually a success!

The severe economic contraction that began in the summer of 1937 seems to have brought the New Deal’s legislative activism to a halt. With the government hemorrhaging revenue and the public growing impatient with the administration’s management of the economy, there was little support for bold new spending proposals of the type Coyle was advocating. Coyle had become passionate about natural resource conservation, and sought a massive expansion of programs like the Civilian Conservation Corps, as well as big federal subsidies for education and public health. Needless to say, this latest wish list went unfulfilled. Coyle had insisted all along that a program like his was necessary to keep capitalism alive, with “adequate markets free of paralytic spasms,” and in late 1939 he warned that continued paralysis could push America toward a fascist system of centralized production and dictatorship.

What are we to make of Coyle, Chase, and Rumely? Even though none of them spoke for the administration directly, Coyle and Chase served as key popularizers of its economic program and all three exerted some influence on that program, at least indirectly. While it is easy in hindsight to dismiss some of their proposals as quackery, in the crisis of the Depression the line between quackery and “bold, persistent experimentation” must have been hard to discern. And few would deny that some of that quackery became law (e.g., the NRA). As for Rumely and the Committee for the Nation, one might argue that they do not belong in the same category as Chase and Coyle, since the Committee not only included top-flight economists like Fisher and Warren but had a goal (taking the dollar off the gold standard) that seems entirely orthodox today. But in the financial circles of 1932-33, a monetary crank was probably defined as someone who favored going off the gold standard. By doing more to highlight the Committee’s orthodox opposition, which must have been considerable, Best could have established a greater commonality between Coyle, Chase, and the Committee.

A bigger complaint is that Best’s disdain for Roosevelt too often gets the better of him. For example, he characterizes Roosevelt’s first inaugural address as “a speech more worthy of a backwoods rabble rouser … Unfortunately, it was not simply a wild shot, but the opening gun in a prolonged assault that would prolong the tragedy of the depression for another eight years.” More worrisome for an economic historian is when Best mentions various phases of the Depression business cycle and crudely connects them to the New Deal without supporting detail. It is simplistic to say, as he does, that the apparent reason for the economy’s continued slide after a minor uptick in mid-1932 was anxiety over the possible policies of the Roosevelt administration. Net investment was already negative by then, and the monetary collapse of that period, brought on by general runs on the banks, seems hard to pin on the election returns alone. The debt-deflation of 1929-33, exacerbated by real wage deflation in 1932, was also a likely factor in the decline. (Also, if anxiety over Roosevelt was to blame for the ten percent drop in industrial production in the four months before his inauguration, then shouldn’t he receive at least some credit for the 69 percent increase in industrial production in the four months right after his inauguration?) Still dicier is Best’s statement that the 1937-38 contraction occurred because “the massive spending in [1936] to ensure Roosevelt’s reelection had triggered an inflationary wage-price spiral that triggered a collapse of the economy in late 1937.” It is by now well established that the 1937-38 contraction was preceded by severely contractionary monetary and fiscal policies, including a doubling of bank reserve requirements and a sharp swing of the full-employment budget from a small deficit to a huge surplus.[4] Best seems less interested in a careful examination of these fluctuations than in telling tales of crime and punishment.

All told, these flaws are easy enough to overlook. Peddling Panaceas offers a coherent and compelling alternative intellectual history of the New Deal (a “public intellectual history”?) and provides new detail on three important factions of New Deal policymaking. The chapters on the Committee for the Nation will be of particular interest to anyone researching the political economy of the end of the gold standard. The book would make a useful counterpart to more sympathetic histories of New Deal policymaking such as Arthur M. Schlesinger, Jr.’s classic The Age of Roosevelt trilogy (1960) or Irving Bernstein’s A Caring Society (1985). Perhaps an even better match would be William J. Barber’s Designs within Disorder (1996), a history of Roosevelt and the “real” economists.

Notes: 1. Irving Bernstein, A Caring Society (Boston: Houghton Mifflin, 1985), p. 109.

2. “The New Deal’s War against Economic Recovery” (interview with Gary Dean Best), The Objectivist Center, July 2000. Internet:

3. Robert Higgs, “Regime Uncertainty: Why the Great Depression Lasted So Long and Why Prosperity Resumed after the War,” The Independent Review 1(4): 561-90 (Spring 1997).

4. Milton Friedman and Anna Schwartz, A Monetary History of the United States, 1867-1960 (New York: Princeton University Press, 1963), p. 545; Larry C. Peppers, “Full-Employment Surplus Analysis and Structural Change: The 1930s,” Explorations in Economic History 10: 197-210 (1973), p. 200.

Ranjit S. Dighe is Associate Professor of Economics at the State University of New York at Oswego. He is the author of several papers on American labor markets in the Great Depression, as well as The Historian’s Wizard of Oz: Reading L. Frank Baum’s Classic as a Political and Monetary Allegory (2002). He is currently researching business support for Prohibition.

Subject(s):History of Economic Thought; Methodology
Geographic Area(s):North America
Time Period(s):20th Century: Pre WWII

The Destruction of the Bison: An Environmental History, 1750-1920

Author(s):Isenberg, Andrew C.
Reviewer(s):DePolt, Richard

Published by EH.NET (June 2003)

Andrew C. Isenberg, The Destruction of the Bison: An Environmental History, 1750-1920. New York: Cambridge University Press, 2000. xii + 206 pp. $40 (hardcover), ISBN: 0-521-77172-2; $18 (paperback), ISBN: 0-521-00348-2.

Reviewed for EH.NET by Richard DePolt, Department of Economics, Wake Forest University.

We know that over-hunting for the robe trade and the hide market during the nineteenth century nearly exterminated the bison from the Great Plains. But, according to Andrew C. Isenberg, this is an insufficient explanation for such a dramatic ecological event. To fully comprehend what happened, Isenberg presents the destruction as the outcome of an integrated dynamic process involving the volatile natural environment of the Great Plains, the ecological and economic invasion of the Euroamericans, and the culture and economy of the nomadic Plains Indians.

Isenberg argues that the natural volatility of the bison population is key to understanding the near extinction. Extended drought and other natural causes of death — fires, drowning, wolves, falls, blizzards, competition from other grazers — affected the carrying capacity of the plains, the growth rate of the population, or both. The result was that during certain periods, natural mortality may have exceeded the natural increase of the herd, raising the possibility of a catastrophic decline in the population. Any additional mortality due to hunting for subsistence or the market during these episodes would further deplete the stock of bison.

Isenberg’s objective is not to remove blame from the Indian and Euroamerican hunters but to emphasize the role of a dynamic natural world in which those hunters were operating. While Indian arrows and hide hunters’ bullets were sufficient on their own to ultimately destroy the herds, they were assisted by a volatile natural environment.

In addition to volatility of the natural environment, Isenberg seeks to integrate — and implicate — the nomadic equestrian hunting societies of the Great Plains into the explanation for the destruction of the bison. He attributes the development of these nomads to the ecological invasion of the Euroamericans, principally horses and Old World crowd diseases. The first increased the mobility of the Indians and pulled them onto the plains where they could follow the herds. The second pushed them from their horticultural villages and the security of their diversified resource use strategy. (Dispersion was but a temporary solution to the spread of disease. Eventually, visitors to Euroamerican trading posts diffused the pathogens throughout the plains.) The Indians adapted to the invasion, indicating they were not a passive and static element, and adopted a new resource use strategy that tied their fate to that of the bison.

Based on the ultimate outcome for the nomadic Indians, Isenberg is critical of this decision. He asserts that prior to the eighteenth century, “the Indians’ resource diversity was a conscious land use strategy … that protected them from both random environmental shock and overexploitation” (p. 39). Contrary to the security of self-sufficiency, the transformation required a total reliance on the bison and trade, and left the Indians vulnerable. While he suggests this was a necessary adaptation, he also allows that it was “a rational economic adjustment (that) yielded greater wealth at less expense” (p. 47). He points out that many Indians were already semi-sedentary and hunted bison on foot when the opportunity presented itself but they risked starvation when the bison were not to be found. Thus, the arrival of horses can be seen as removing a constraint on food production. Furthermore, the diversification may have been necessary due to the low productivity of hunting and gathering activities. Specializing in bison hunting and inter-tribal trade with horticultural villages was a lower cost way of providing goods for Indians located on marginal lands.

The economic invasion of the Euroamericans further affected the nomadic societies and the natural environment. The nomads participated in the fur trade, first in beaver pelts and later in bison robes. Both trade activities altered the ecology of the plains and influenced the behavior of those human societies that interacted with that environment. However, in contrast to the trade in beaver pelts, which was peripheral to the nomads’ main activities of hunting and processing bison for subsistence and intertribal trade, the robe trade utilized for commercial purposes the resource upon which their survival depended. Isenberg estimates that during periods with a favorable natural environment, the nomads’ harvest for consumption and intertribal trade was sustainable. However, the increased hunting for the market coincided with adverse environmental conditions to deplete the herds during the first half of the nineteenth century.

Isenberg identifies two factors to explain why the nomads exploited the bison for the robe trade. First, the social changes associated with nomadic society removed constraints upon individual economic behavior and the accumulation of wealth. A decline in the cooperative ethic, redistribution, and the centralized control of trade enhanced the individual reward and thus the incentive to increase commercial hunting effort. Also, to maintain mobility, wealth and status were measured by the number of wives and captive women. Second, the new resource utilization strategy eliminated the independent economic activities of women in horticulture and gathering and relegated them to processing robes. Import-competing activities were replaced by export-oriented activities as “men sought to advance their status by relying on the labor of socially subordinate women who dressed robes for trade” (p. 97). These factors were self reinforcing as larger family units could process more robes and thus generate more wealth for the male head.

According to Isenberg, a third factor — consumerism — was “not the cause of the robe trade but a symptom of it.” (p. 98) However, it seems plausible that to maintain their access to Euroamerican trade goods after depleting the beaver population, the nomads simply introduced a different article of trade into the existing trading system. While this ultimately proved not to be sustainable, in an environment without property rights in bison or centralized control over individual effort, it was a rational response by each individual hunter.

Following the Civil War, the scope and scale of the slaughter increased dramatically. Given that many recognized this as unsustainable, Isenberg explains why it was allowed to proceed. He offers two explanations. First, a new tanning process, more powerful rifles, the expansion of railroads, and a large supply of hunters and skinners combined to integrate bison hides into the industrialization occurring in the East. Thus, the bison were part of the nineteenth-century pattern of an industrial society exploiting the abundant natural resources.

Second, the destruction of the bison was also an integral part of Euroamerican expansion onto and domestication of the Great Plains. Some saw it as necessary for the advance of a superior resource utilization strategy — cattle ranching. Others saw it as a way to force the Indians to reservations where they could be civilized or tamed. This later view was supported by the Army, which encouraged hide hunters to violate treaties protecting the Indians’ hunting territories and deplete their food supplies. The result was the exhaustion of the bison from the southern plains during the 1870s and the northern plains between 1880 and 1883.

Isenberg concludes the book with an analysis of the late nineteenth-century and early twentieth- century efforts to preserve the bison from extinction. Two very different motivations are examined. The first was an effort by easterners to preserve the bison as a symbol of an “imagined masculine frontier culture” (p. 175). The second was an opportunity for western ranchers to profit from the species via private bison herds for viewing, sport hunting and meat production. This discussion highlights some interesting ironies. Isenberg attributes the rise of industry in the nineteenth century as the “monumental primary cause” in the destruction of the bison (p. 196). However, it was the wealth generated by industrialization that financed the preservation effort. The “wealthy (and) socially prominent” easterners were willing and able to provide private donations to preserve the species. Furthermore, while the market created very powerful incentives to exploit the resource, it was the lack of property rights that determined the nature of that exploitation. And it was the defining and enforcing of private property rights by ranchers that ensured the survival of the species. Such an interpretation may alter Isenberg’s message that the unsustainable exploitation of natural resources is not a viable development strategy.

The traditional explanation — overhunting — still explains the destruction of bison during the nineteenth century. Isenberg’s well-researched and very readable environmental history provides a more compelling explanation that acknowledges the interaction between a dynamic natural environment and the human societies that inhabited it.

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

Big Steel: The First Century of the United States Steel Corporation, 1901-2001

Author(s):Warren, Kenneth
Reviewer(s):Russell, Malcolm

Published by EH.Net (November 2002)

Warren, Kenneth, Big Steel: The First Century of the United States Steel

Corporation, 1901-2001. (Pittsburgh: University of Pittsburgh Press, 2001)

pp. xvii + 405.

Though by 1900 the United States ranked as the greatest steel-producing nation,

the leaders of its major firms despaired of achieving financial success to

match their industry’s stature. Output had nearly tripled since 1880, but

customers, not producers, seemed to benefit. Productivity-enhancing technology

encouraged an even faster rate of investment than sales, as did the relatively

low cost of “rounding out” existing plants. Then, during recessions, demand

plunged wildly, taking down output, prices, and profits. Initiated by Charles

M. Schwab of Carnegie Steel, who publicly addressed the advantages of combining

competitors to rationalize production, in early 1901 negotiations among J. P.

Morgan, Elbert Gary, Andrew Carnegie, and Charles M. Schwab himself created

United States Steel.

The new corporation combined three significant finishing firms (American Tin

Plate, American Steel and Wire, and National Tube) with two major integrated

companies, Carnegie Steel and Federal Steel, itself a recent merger of Illinois

firms with Minnesota mining interests. Its size was enormous: capitalized at

$1.466 billion, it included 213 manufacturing plants, one thousand miles of

railroad, and forty-one mines. In 1901, US Steel accounted for 65.7% of

national output, and almost 30% of the globe’s. During World War I, its annual

production exceeded the combined output of all German and Austro-Hungarian

firms. However, at the century’s end, the corporation fought for its very

existence, as imports and mini-mills undercut its sales in one product line

after another. Spun off by a very diversified company in 2001, US Steel

reemerged in 2002 with plants in three American locations (plus one in

Slovakia) that employed fewer than one-tenth the 168,000 workers of 1902.

Big Steel is Kenneth Warren’s attempt to narrate the chief events at US

Steel and to explain the almost continual decline in its share of the national

market. Well acquainted with the secondary literature and the industry

generally from his previous study, The American Steel Industry,

1850-1970 (University of Pittsburgh Press, 1988), Warren is an emeritus

fellow of Jesus College, Oxford. For Big Steel, he used corporate

archives and benefitted particularly from studies conducted for the

corporation. The result is a well-reasoned volume of lengthy paragraphs

overflowing with information and helpful statistics, something that judicious

editing might have transformed into a truly remarkable read.

Elbert Gary, Charles Schwab, and other founders clearly sought prosperity

through size. As Warren recognizes in the early chapters, larger size promised

many advantages. Larger units provided greater capital, labor, and managerial

productivity, and they conserved energy. Rather than producing multiple

products in one mill, the larger firm could specialize and thus reduce costs.

It could also increase the level of research, smooth the production of

specialized units, and reduce cross-hauling on the increasingly expensive

railroads. Finally, the US Steel chairman, Judge Gary, (but not his former

Carnegie executives) clearly expected market share to enable the firm to hold

prices during economic downturns. This philosophy of steady public prices,

acknowledged geographic patterns, and informal cooperation with other firms

earned the label “Judge Gary’s umbrella” for a policy that benefitted the

entire industry.

Nevertheless, Warren concludes that its great size harmed US Steel from the

start. Its management started with far too many plants, scattered irrationally

(some 100 in Pennsylvania alone). Its unwieldy managerial structure failed to

overcome the traditions and defensive attitudes inherited from some of the

merged firms. In the early years, earnings on capital and per ton of output

fell below those of the predecessor companies, particularly Carnegie.

Size also imposed a tremendous constraint on the firm’s market behavior. Not

until 1920 did the federal government abandon serious consideration of breaking

up the firm on grounds of monopoly. As a result, for its first two decades the

company carefully avoided predatory market behavior. In the process it probably

over-reacted and created an economic environment congenial to new firms, which

sought the faster-growing sectors of the industry.

Size also hampered US Steel’s geographical distribution. Because it cost only

$100-$200/ton to “round out” existing facilities (in 1950s prices), but

$300/ton to build a greenfield plant of similar size, the company’s

concentration of plants around Chicago and Pittsburgh led to further investment

in those localities. As demand shifted, the firm did acquire and expand an

integrated works in Alabama (chapter 5), but US Steel never gained prominent

market share in the West or on the East coast , even in the 1950s after it

purchased facilities in Utah from the government and built the Fairless

integrated plant near Philadelphia (chapter 15).

However, other factors besides size also contributed to lower profits and

market share. For nearly three decades, Judge Gary dominated the company with

an emphasis on financial factors. While his biographer, Ida Tarbell, credited

him for strengthening mutual interest, cooperation, and good will in American

business, Warren quotes approvingly an unidentified (and uncited) critic’s

label for the chairman, “restricted in imagination.” Gary proved unable to

retain the loyalty of experienced steel executives, and key personnel left the

firm. Chief among them was Charles M. Schwab, who soon founded a more

innovative rival, Bethlehem Steel.

Under Judge Gary, the firm moved slowly into growth areas and lagged behind its

competitors technologically. Warren focuses on these issues in chapters six,

ten, eighteen, and twenty, and he demonstrates clearly the severe failures.

Until the mid-1920s, the firm hesitated to adopt the new universal beam mill,

with its vertical and horizontal rollers, and when it did so, Schwab discovered

that it infringed on a Bethlehem patent. Decades later, it ignored the superior

technology of the oxygen converter for bulk steel production, pointing out the

waste of scrapping relatively new open hearth furnaces. Management remained

silent on the steel capacity urgently needing replacement.

Warren provides two explanations for the technological lag. First, in general,

large firms may be less responsive to technological opportunity, perhaps to any

opportunity, because bureaucracies change slowly, and advocates of change must

convince more layers of the virtue of the risk. Second, executives at US Steel

remained arrogant about the superiority of American techniques, even though by

the 1950s capacity was expanding much more rapidly abroad, giving foreign

producers more opportunity to experiment with new methods.

Readers with interests in social history will find it appalling that the

12-hour day/68 hour week existed into the 1920s, made worse by the “long turn”

of 24 hours when shifts changed from day to night. So poor were labor relations

at the firm that when conditions finally improved, the impetus came from a most

unlikely source: the President of the United States, Warren G. Harding, who

wrote to Judge Gary about abolishing the 12-hour day.

Big Steel focuses on corporate strategy rather than biography, but

Warren particularly admires the leadership of two chairmen while noting the

failure of others (especially Gary, Roger Blough, and Edgar Speer). Myron

Taylor guided the company through the Great Depression. His program of

rationalizing production replaced 30% of capacity with modern mills, and not

for another half-century would the firm experience — and benefit from — such

wrenching change. By improving labor relations, Taylor also avoided becoming a

target of the 1937 sit-down strikes.

David Roderick guided the corporation through perilous times the half-century

later. In 1979 he replaced Edgar Speer as chairman, and halted his

predecessor’s treasured dream of building a greenfield integrated plant on Lake

Erie. That alone did not save the company from the bankruptcy experienced by

many of its competitors. Roderick also halted the pattern of dribbling

investment funds in plants across the corporation, instead targeting only those

units capable of meeting the world’s most efficient standards and slashing the

rest. He took control with capacity at 35 million tons; the year following his

retirement in 1989 it amounted to only 16.4 million tons. Only three integrated

works remained, at Fairfield (Alabama), the Monongahela Valley, and Gary. Even

those areas suffered severe job losses. By 1984 greater Pittsburgh had lost

25,000 of its 30,000 jobs four years earlier. Through such surgery, though,

Roderick saved a much-reduced US Steel, to compete with surging imports and

competition from mini-mills.

In conclusion, Kenneth Warren’s business history is valuable for both its

detail and its interpretations. The supporting material – tables, maps,

appendices and bibliography – reflect fine scholarship. Nevertheless, one

senses a desire to “include it all,” and non-specialist readers may tire of

relentless details and technical jargon. A glossary of steel terms would have

been useful. Those considerations aside, Big Steel undoubtedly fills an

important place in American business history, and it will be valued by

specialists in a number of sub-disciplines.

Malcolm Russell is a generalist on the economics faculty at Andrews University.

His most recent publication is The Middle East and South Asia, 2002.

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

Socializing Capital: The Rise of the Large Industrial Corporation in America

Author(s):Roy, William G.
Reviewer(s):Levenstein, Margaret

H-NET BOOK REVIEW Published by (August, 1998)

William G. Roy. Socializing Capital: The Rise of the Large Industrial Corporation in America. Princeton, N.J.: Princeton University Press, 1997. xv + 338 pp. Figures, tables, notes, bibliography, and index. $35.00 (cloth), ISBN 0-69-104353- 1.

Reviewed for H-Business by Margaret Levenstein , University of Michigan

This book is extraordinarily ambitious and wide-ranging in its treatment of a very significant topic. At times Roy focuses specifically on the merger wave of the 1890s during which many large firms turned to public capital markets to facilitate mergers. But much of the book, and, from my perspective, the most interesting parts, take a much longer term view, examining changes in property rights and the use of those rights by railroads and then manufacturing firms over the course of the century. Most of the central points of the book I think are correct and many of Roy’s methodological points provide useful correctives to tendencies in business and economic hi story. There were sections of the book that I found insightful bordering on brilliant. There were also sections of the book that I thought were unconvincing, and others that were simply wrong.

The central points of the book can be summarized as follows :

1. The large, widely-held manufacturing corporation is a social creation, not a natural entity.

2. The corporation as it exists today is historically contingent and developed from pre-existing forms. In particular, it evolved from the public corporation, used by the state to accomplish public purposes and was given special privileges (monopoly, eminent domain, limited liability) in order to do so. The happenstance convergence of the economic crisis of 1837, the emergence of the railroad, and the po wer of the “anti-monopoly, anti-state” version of Jacksonian anti-corporatism privatized and democratized the corporation. Thus the corporate form retained many of its privileges (limited liability, alienability of ownership) but made those privileges available to all through general incorporation laws. In doing so, the corporation lost its public purpose and its public accountability (as well as its claim to monopoly).

3. There existed historical alternatives. Manufacturing could have continued to be conducted in firms that were not corporations. The corporate form could have retained its public purpose and its public accountability. The state could have remained a more active economic player in its own right — owning railroads or banks or manufacturing as today the state owns highways. It could have developed a stronger regulatory apparatus, developing the capability to administer public enterprises and assure that those who received the privilege of incorporation fulfilled a public responsibility. In other words, the boundaries between public and private could have been drawn quite differently in many dimensions.

4. Manufacturing firms followed the incorporation practices of railroads because that was required by investment banking firms to get access to large pools of capital, not because the corporate form was demanded by manufacturers to coordinate increasingly complex, large-scale, high-throughput technology.

5. Manufacturing firms (the “trusts”) turned to New Jersey’s incorporation law in order to legalize collusive activities, not to coordinate increasingly complex, large- scale, high-throughput technology.

6. The corporation was privatized – lost its public use and public accountability – and the corporation was socialized – its securities widely owned but no longer controlled by owners – not because this organizational form was the most “efficient” way to organize manufacturing production. Rather, manufacturing firms embrace and continuing use of the corporate form was the result of a “logic of power.”

Roy uses several methods to make his case. He first presents a theoretical argument that a “social logic based on institutional arrangements, including power” (p. 6) is more useful for understanding the dimensions and dynamics of the economy than is an analysis based on “the logic of efficiency.” The latter position he identifies with Chandler, and much of the book is cast as a polemic against Chandler. While I am very sympathetic to his historicizing and “de-naturalizing” of the corporation, I thought this framing of the issue was largely counter- productive. His presentation of Chandler sometimes bordered on caricature. Chandler’s point is not that managers are concerned only with efficiency or that clever managers always pi ck the most efficient organizational design. His point is that it was only in firms where managers made choices that gave the firm a competitive advantage that the firm survived. But Roy ignores the role of competition. He argues that “efficiency theorists” are functionalists, simply providing an ex post rationalization of whatever happened to emerge. While he is certainly correct that some business history is functionalist, and neo-classical economic historians are apt to fall back on “best of all possible worlds” descriptions of whatever institutions exist, the competitive model does provide a story of why it is that we should think that those that survive are different from those that didn’t; their survival is taken as an indication that they are better at competing. Thus it would have been useful to explain how power influenced who survived the competitive process and how power determined the rules of the competitive process. That is, it would have been useful to explain why the firms that survive the competitive process are not necessarily the most efficient. Instead, for the most part, Roy simply ignores competition as a significant force in capitalist economies, arguing that “the social arrangement that governed American industry could only vaguely be described as a market. American businessmen have always been aware that they share common interests at least as much as they compete over conflicting interests” (pp. 176-7). Roy is absolutely correct that American businessmen have often cooperated. But that does not mean that there is no market; it means that those who have been able to cooperate, and better yet, dominate cooperative agreements, are the firms that have survived and prospered. I would dispense with the word “efficiency” altogether. A more useful question is whether firms survived because they were good at inventing new, lower cost technology, good at getting workers to work harder, good at getting tax breaks from local governments, good at increasing demand for their product, good at getting access to others’ property through eminent domain, good at getting cheap capital because of connections to investment bankers. Whether or not any of these particular attributes improves efficiency or is a Good Thing for society as a whole (as if there is such a thing) is an altogether separate question.

Roy then turns to an econometric test of the “power” and “efficiency” explanations. He asks which industries were more likely to adopt the corporate form during the 1890s merger wave (which he measures by their use of publicly-traded securities, thus excluding incorporated firms that were not traded on public exchanges). He finds that average size of the firm and capital intensity are significantly and positively related to an industry’s use of publicly-traded securities. He also finds that labor productivity was negatively related to the use of such securities and that industry growth rates were insignificant. He concludes from this that Chandler and “the efficiency theorists” are wrong. Size matters even when controlling for other things. Labor productivity is lower in “incorporated” industries, so it must not be that incorporation makes firms more efficient. There are several problems with this analysis: he looks only at the 1890s and therefore conflates where the merger wave took place with where the corporate form endured. He groups “Chandlerian” causes of incorporation (growth and capital intensity) with effects (i.e. labor productivity); perhaps the negative relations hip between productivity and incorporation reflects the need for organizational change in low-productivity industries? His unit of analysis is the industry, which groups together large and small firms, and he treats large industries and small industries equivalently. Are we surprised that there are no large firms in the hammock or lapidary works industries despite a faster rate of growth than electrical machinery (p. 30)? Chapter two, which presents this econometric analysis, should be skipped entirely by anyone who has read Naomi Lamoreaux’s The Great Merger Movement (and if you haven’t read it you should). Lamoreaux presents a much more convincing and complete econometric rejection of the Chandlerian contention that the merger wave of the 1890s was motivated by the need for vertical coordination of inherently high-throughput technology. Save your time for the more edifying chapters to come.

In Chapters 3 and 6, Roy compares the history of public enterprise, the legal rights of corporations, and the emerging dominance of “socialized capital” in three states: New Jersey, Pennsylvania, and Ohio. He examines the evolution of the corporation from a tool used by states to encourage economic development and raise revenues to its emergence as a private agent, available to all through general incorporation statutes with no public responsibility or accountability. Roy argues that the differences in the experience of public investment during the canal and early railroad period, as well as the political interpretations placed on that experience, determined the rules under which corporations operated in each state at the end of the century. New Jersey had the most limited experience with public corporations, both quantitatively and qualitatively. It participated as an investor in the Camden and Amboy, and was able to keeps its taxes low as a result, but the railroad controlled the state rather than the other way around. Pennsylvania had both mixed corporations in which it invested and public corporations. Ohio had the most activist policy, both the most successful- the Ohio canal system developed the region and integrated it into the national economy – and the most spectacular failure when logrolling resulted in the expansion of public subsidization of canals and railroads and nearly bankrupted the state. Roy examines the implications of these different experiences for three aspects of corporate law: the permissibility of corporations owning other corporations, the powers of boards of directors (relative to shareholders), and the extent of limited liability. Roy finds that in all three aspects of corporate law, the experience with public and mixed corporations during the canal era shaped state attitudes such that New Jersey’s corporate law was the most “privatized,” allowing corporations broad flexibility in owning other corporations, giving power to corporate boards, and extending unlimited liability through both a general incorporation statute and special charters. Ohioans were at the other end of the spectrum, suspicious of the corporate form, retaining double liability and strictly limiting the activities of corporations to those for which they were chartered. Roy finds that these differences in corporate law led to differences in the importance of corporate capital in the three states. While some of this difference in corporate capital obviously reflects capital mobility – corporations with operations elsewhere chartered in New Jersey to take advantage of its lax laws – Roy’s fundamental point is that business in Ohio was simply less likely to be organized within a corporation. Thus, he suggests, economic activity need not have taken place within the socialized corporation, or at least not within a corporation with no social responsibility . Where the state legislature was unwilling to confer such generous benefits on the corporation, businesses made do with other forms of organization.

This empirical conclusion supports Roy’s argument that there were actually two distinct political responses to the canal crisis within the Jacksonian anti-corporate movement. One demanded more accountability on the part of the quasi-public corporation (i.e. more government) while the other demanded privatization (less government). Roy makes the interesting argument that the privatization ideology won out because it was self-fulfilling. Suspicion of the state led to weak oversight. With no oversight, projects were corrupt or failed; that failure was then interpreted as the failure of public investment (p. 74). But it is not clear from his comparison of the three states that strong state oversight was ever really in consideration. As he shows elsewhere in the book, the choices considered were either democratization of access to corporate privileges through general incorporation statutes or limitation of those privileges by statutes such as Ohio’s requiring double liability and strictly limiting the activities of corporations to those for which they were chartered.

Here and elsewhere, Roy compares the choices made in the United States to those made in France where a strong and competent state apparatus was created. This comparative perspective, though presented more casually than those between the U.S. states, is often very helpful. Unlike the U. S. case where states competed with one another and were, therefore, forced into a prisoner’s dilemma race to the bottom in terms of the social responsibilities of private actors, France was able to chart a very different course. Whether the “strong state ” approach was one that could ever have emerged in the United States will, of course, be debated by many. But that is not Roy’s point. The point is that there is nothing natural or inevitable about the present configuration of rights and responsibilities that constitute the corporation.

Chapters 4 and 5 examine the way that the railroad and investment banking influenced the construction of the corporation. Many of the generalizations he makes in his history of the railroads will not sit well with most economic and business historians. One could read these chapters and think that the railroads were a failure, both privately and publicly. For the most part, neither was the case. And the reader might understandably be confused when he presents Rockefeller’s demand for railroad rebates as an example of how the railroads exercised power. But try to ignore that and focus on the his fundamental point. The financing of railroads was not simply corrupt, or political, or determined by power games among the major players (though all that was certainly the case). The development of institutions to finance railroads determined the set of institutions that industrial corporations could choose from when they needed to finance growth and short term operations. The structure of those inherited institutions favored concentrated over unconcentrated industries, favored incorporation and management-owner separation, perhaps favored some technologies, organizations of work, and regions over others. This point is important and profound. The evidence he gives in its support is not always well organized to make his point. But the challenge that he lays out is clear. The observed choices of corporations are not necessarily the optimal ones in a global sense. They are the choices corporations made given the incentives created by institutions created for a different purpose and as part of deeply politicized process.

Chapters 7 and 8 return to the merger movement of the 1890s. He correctly argues that it is wrong to see this period as one of a shift from a competitive market to an administered or monopolized one. U.S. firms had been cooperating to control prices in many industries throughout the nineteenth century. In fact, he argues, it is only with the emerging dominance of a “free market” ideology that the state makes the strong distinction, now taken for granted in anti-trust law, between contracts promoting trade and those in restraint of trade. Others will argue that there was a long-standing tradition in common law not to enforce contracts in restraint of trade. But there is also a long-standing tradition of allowing quasi- public organizations, such as guilds and corporations, to engage in behavior that we would today think of as monopolistic. Roy perhaps takes this argument too far when he says, “If governments did not enforce contracts between buyers and sellers, markets would collapse by the same sort of opportunism that wrecked the pools” (p. 190). While the current state of the economy in Russia reflects the underlying truth of this statement, we should also recognize that there is not the same inherent incentive to deviate from a mutually beneficial contract to exchange that there is with a contract to restrict output or fix prices. It is true that the state creates and enforces markets, but there is a difference between a self-enforcing contract and one that is inherently a prisoners’ dilemma.

This chapter includes a very interesting section examining the interaction between the first use of the New Jersey incorporation statute and the terms of the statute. He not only shows that the writing of the statute was the result of a complex political process. He also shows that the way that it was used differed substantially even from the purposes of the first corporations for which it was written.

In these chapters he presents the histories of particular industries, arguing that their use of the corporate form cannot be explained by changes in their technology (i.e. by managerial demand). The histories of the sugar and tobacco industries, familiar to business historians, are re-told in a new light. Rather, he argues, the desire for monopoly control and the expectation of financiers that the corporate form would be used, led firms to incorporate. He also makes the interesting argument that the merger wave of the 1890s changed the expectations of investors so that “when a group of entrepreneurs wanted to establish a large-scale industrial enterprise, henceforth the standard procedure would be to mobilize the resources of the corporate institutions by recruiting investment bankers, brokerage houses, and the investment press in order to attract sufficient capital” p. 254. Prior to the 1890s it was deemed acceptable for Andrew Carnegie to operate his steel business as a limited partnership; after the merger wave of the 1890s investors perceived non- corporate firms as higher risk. Trying to operate outside the corporate sphere was now a more costly choice, but only because the prior history had changed investors’ (and investment bankers’ in particular) ideas about how business had to be organized.

The comparison of the three states is intended to suggest that there were various paths that the development of the corporation could have taken. But sin ce the corporation is now firmly ensconced in all three a more overarching point is that competition between the three states limited the power of any individual state to determine the structure of the corporation. The three states are also relatively similar in terms of their level of economic development, industrialization, and integration into the national economy. A slightly different story might have been told, and Roy’s argument made stronger, if he had looked at states that were less developed and continued to have more active state economic development policies throughout the century, including state investment in banks, railroads, and corporations. Did those states making post bellum public investments in corporations demand public accountability? Or had the prevailing ideology of the private corporation so come to dominate by the second half of the century that even where there was substantial and direct state investment the corporation was seen as an autonomous and privately responsible agent?

Roy makes several important methodological points that economic and business historians should heed. First, he emphasizes that actors can exercise power without power being the motivation for their actions. Individuals and groups exercise power when their actions determine the choice set or the constraints faced by others. I think this broad definition of power is very useful and would help economic and business historians to understand and analyze political movements, from late 19th century populism to late 20th century resistance to free trade. But defined this broadly we also have to recognize that the exercise of power is not inherently a bad thing. For example, in a capitalist economy with strong patent protection technological innovation gives the innovator power. Users of older technologies cannot simply continue to operate as they have in the past. This is the creative destruction that Schumpeter celebrated- and it is really does destroy something that someone values. That’s why the technocratic distinction between efficiency and distribution that economists cling to is silly. Any policy choice that has a significant impact on the “efficiency” of the economy will also have distributional consequences. That doesn’t mean that we don’t want technological change. Much of the time we probably do. But this perspective forces us to acknowledge that there are social decisions to be made, not simply private actors doing whatever they please, and that those social decisions require tradeoffs. Second, this book will serve as an enormously useful corrective to the tendency among economists studying the firm, property rights, and institutions generally (a growing trend that is very healthy in and of itself) to follow Oliver Williamson’s “In the beginning, there were markets” approach. Roy argues forcefully, and correctly, that both the market and the firm are social constructions. That does not mean that they are arbitrary or unreal. It means that their structure and their existence are the result of past political decisions and the outcome of social and political conflict. This is also a useful corrective to an approach that conflates the notion of the existence of a market with “rational” behavior by individuals. The existence of a market changes how rational individuals behave. Competitive pressure forces rational individuals to calculate more, and it increases the weight of monetary factors in those calculations relative to very real concerns for community and the quality of human inter action. Economic historians recognize this effect of the market on individual behavior when they can cast it in a positive light (see Sokoloff’s 1992 work on the spread of markets and the rate of patenting, for example), but tend to downplay it otherwise (see Rothenberg 1992, for example).

Third, Roy makes an interesting case for an interplay between contingency and determinacy in the book. He argues for contingency in order to make the case that there is nothing natural or inevitable about the current institution of the corporation. The current configuration of rights and responsibilities that constitute the corporation is the result of highly contingent events in the past. But he does not accept the standard version of path dependence and raises questions that I have long thought were problematic with that approach. He makes clear that while the current construction of the corporation is contingent and path dependent in the sense that it would and could have been different if different events had occurred at key turning points (particularly during the 1830s canal crises), he does not see this as simply the result of chance. The key events were themselves the result of who had power at the time. This approach opens up a whole line of fruitful research in this area. Why was it that the response to the canal crisis was privatization rather than increased regulation? Why was it that some state constitutions were modified to limit direct involvement in economic activity and others weren’t? These were explicitly political decisions that had long term economic ramifications. Understanding the political forces behind these decisions would be very useful. Roy also makes the point, applicable quite generally to the path dependence approach, that what matters is not simply the cost of shifting from one path to another (e.g. from one keyboard to another) but who bears that cost. If those who have the power to make the decisions about whether to switch paths do not bear the costs, then the switch will appear “costless” (see McGuire, Granovetter, and Schwartz, forthcoming).

In making the argument for the contingency of the corporation Roy plays down some forces – powerful forces I am sure he would agree – that led to its current incarnation. On a mundane level he downplays competition among states allowed by the federal structure that led to a spiraling down of public responsibilities for private actors. But on a more basic level, the transformation of assets from things that natural individuals own, use, and are responsible for, to capital personified in the corporation, responsible no longer to the state and barely to its nominal owners, seems to me not a happenstance, contingent event. The corporation gives agency to capital. It’s not for nothing that we call it a capitalist economy.

Finally, Roy’s “de-naturalizing” of the corporation is a giant step forward for business history. So is his problematizing of the boundaries between private and public, the economy and the state, and the rejection of the dichotomy of an “interventionist state” and a “natural market.” As Roy makes clear, the state creates the market, so it is meaningless to talk of it intervening in it. That language simply serves to de-legitimize some actions of the state relative to others. Finally, acknowledging that there are social choices to be made that influence how the economy will function in the future is important, and not simply for academics. Post-cold war ideology presents the corporation not only as natural but all- powerful. It is good to remind people that they can, through social and political action, make choices about how such social creations operate.


Lamoreaux, Naomi R. The Great Merger Movement in American Business, 1895-1904. Cambridge, England: Cambridge University Press, 1985.

McGuire, Patrick, Mark Granovetter, and Michael Schwartz. Forthcoming. The Social Construction of Industry: Human Agency in the Development, Diffusion, and Institutionalization of the Electric Utility Industry. New York, N.Y. and Cambridge, England: Cambridge University Press.

Rothenberg, Winifred (1992). From Market Places to a Market Economy: The Transformation of Rural Massachusetts . Chicago, Ill.: University of Chicago Press.

Sokoloff, Kenneth (1992). “Invention, Innovation, and Manufacturing Productivity Growth in the Antebellum Northeast” in Robert Gallman and John Wallis American Economic Growth and Standards of Living before the Civil War (Chicago, Ill.: University of Chicago Press), pp. 345-378 .

Williamson, Oliver E. (1985). The Economic Institutions of Capitalism. New York, N.Y.: The Free Press.


Subject(s):Markets and Institutions
Geographic Area(s):North America
Time Period(s):19th Century

Ships for the Seven Seas: Philadelphia Shipbuilding in the Age of Industrial Capitalism

Author(s):Heinrich, Thomas R.
Reviewer(s):Brown, John K.

Thomas R. Heinrich. Ships for the Seven Seas: Philadelphia Shipbuilding in the Age of Industrial Capitalism. Baltimore: The Johns Hopkins University Press, 1997. x + 290 pp. Illustrations, tables, notes, essay on sources, and index. $39.95 (cloth), ISBN 0-8018-5387-7.

Reviewed by John K. Brown, University of Virginia, for H-Business <

Forty or more years ago, business, economic, and technological historians took a great interest in ships, maritime trade, and shipbuilding, topics of seminal works by Robert G. Albion, Howard I. Chapelle, Louis C. Hunter, John G. B. Hutchins, Samuel Eliot Morison, David B. Tyler, and others. After the fertile work of this World War Two generation of scholars, academic historians turned away from the sea just as earlier Americans did following the War of 1812. But the popular interest in maritime history remains strong on many levels, as evidenced by: the present craze over the Titanic, resurgent interest in maritime museums, Jack Aubrey’s continuing chain of victories over Napoleon’s naval might, and the improbable success of a twelve-volume maritime history encyclopedia. Little wonder. So much of maritime history consists of those transforming events that offer dramatic narratives: humans’ epic struggles with the sea, the rise of successive maritime powers, voyages from old worlds to the New, and technological transformations from wood to iron and steel ships and from sail to engine-driven vessels.

So popular interest in maritime history continues, despite the waning of academic studies. Analysis has dethroned narrative in the work of professional historians, perhaps one reason for their apparently declining interest in maritime topics. But the moment is ripe for a new cadre of Morisons who combine the two approaches. A good story always interests general audiences — indeed a powerful tale can even sway the most rarefied intellectual. Furthermore, many of the analytical approaches and insights of the past forty years of land-based scholarship should travel well. In going to sea they offer new departures for maritime history.

Thomas Heinrich demonstrates this potential for a new maritime history in his Ships for the Seven Seas. Written for a broad range of readers, the book provides a “history of iron and steel shipbuilding in metropolitan Philadelphia . . . from the Civil War to the 1920s” (pp. 2-3). Heinrich takes the stance of an industrial historian — combining threads from political, labor, business, economic, and technological history. This multi-faceted approach is one of the book’s major strengths. For instance cogent summaries of merchant and naval history in each shipbuilding epoch provide admirable technological and economic context about the markets in which the shipbuilders operated. The book is well-designed, nicely illustrated, and free of most proofing errors (although misspelled proper nouns crop up too often). Heinrich tells a good story, and the book deserves the broad readership that its publisher wisely targeted.

Academic historians will find many rewards here too. Throughout the book Heinrich leavens his narrative with analysis, applying to his study of maritime industry the insights offered by labor process studies, Chandlerian business history, and accounts of batch production by Scranton and Zeitlin. On balance, however, Heinrich favors narrative over analysis — a wise choice given the limitations and problems of the original sources available to him. In sum, this is a finely-crafted book on a fascinating period when technical transformations, political compromises, broad economic changes, and world power aspirations reconfigured American shipbuilding. With its skillful blending of narrative and analysis, it is far more comprehensive and insightful than David Tyler’s The American Clyde, written forty years ago, which covered the same period and firms.

Philadelphia-area builders created the American metal shipbuilding industry, they dominated the trade until 1900 or so, and some of the city’s firms remained major players until after World War Two. So Heinrich has ample justification for his geographic focus. The book’s organization places a thematic approach within a chronological narrative. Chapter One provides an overview of wooden shipbuilding. The wooden builders enjoyed notable success for a century-and-a-half, but sank after the 1850s under combined weight of rising British iron shipping (sail and steam), trade disruptions during the Civil War (when Northern shippers registered their vessels under neutral foreign flags), and the broad shifts in investment capital from shipping to railroads, commerce to manufacturing.

In Chapter Two, Heinrich lays out the Civil-War-era foundations for Philadelphia shipbuilders in shifting from sail to steam and wood to iron. In a well-cast and original analysis, he argues that Philadelphia firms’ wartime success in building steam-driven ironclads established embryonic but valuable skills that later served in building iron steamers for the civilian merchant marine. Philadelphia’s strengths in mechanical engineering and metalworking and its proximity to the iron regions provided further advantages to the city’s early iron steamer industry.

Chapter Three focuses on the business history of the leading Philadelphia shipbuilders following the war. Here Heinrich contrasts proprietary capitalism (dominating at the shipyards) with the new corporate managerial capitalism introduced by the railroads. As he observes, the two forms of business organization became mutually dependent when the shipping subsidiaries of major railways became major customers for the shipyards’ iron steamers. Perhaps more insightful are this chapter’s discussions of the integration of marine engineering (design and construction of power plants for vessels) with shipbuilding — a unique attribute of the Philadelphia firms — as well as their disintegrative strategy of relying on extensive sub-contracting.

In his fourth chapter, Heinrich sketches the growing scale of iron shipbuilding firms circa 1875-1885. The American industry never approached the size, specialized capacities, efficiency, or sophistication of its counterpart in Britain. As a result, “American steamship operators paid 25-35 percent more for iron tonnage than their British rivals” circa 1880 (p. 78). But such U.S. builders as Roach, Cramp, and Harlan and Hollingsworth nonetheless achieved growth in this period. Naval construction did not yet amount to much, but Congress gave US shipbuilders a protected market, requiring American-built ships in the coastwise trade (i.e.: all marine freight and passenger traffic within U.S. borders). Although wooden sailing vessels carried most domestic marine commerce, Philadelphia-built iron steamers had few viable competitors in niche markets: oil tankers on routes from Texas to the East coast, overnight passenger steamers on Long Island Sound and Chesapeake Bay, coastwise towboats in the coal trade, and ocean freighters laden with passengers and Hawaiian sugar. On international routes, some American-owned shipping lines chose to buy U.S. vessels, notwithstanding their higher price. Having sketched the “anatomy of a shipbuilding boom” circa 1880 in this chapter, Heinrich then gives an able description of the labor processes involved in iron shipbuilding and marine engineering. From this he briefly considers labor-management relations and class formation in the industry.

By 1885 or so, American iron shipbuilders had established themselves, yet cheap wooden sailing vessels from Maine limited their ability to penetrate the domestic carrying trade, while cheap iron steamers from British yards took most international commerce. So builders like Cramp and Roach turned to the United States Navy after 1885 — the subject of Chapter Five. Here Heinrich ably describes naval procurement policies and the shipbuilders’ lobbying efforts to create a military-industrial complex that would finance plant expansions and the acquisition of subsidiaries while sustaining their yards when the civilian market evaporated, as it often did. Heinrich takes a critical view of naval shipbuilding and its effect on the yards, arguing that builders “preferred private contracts because they involved fewer organizational problems and were usually more profitable.” The yards had little choice — naval work was better than none — but the “potpourri of high-technology naval construction and low-quality commercial shipbuilding was not terribly efficient” for yard managers, workers, or systems (p. 120).

The history of commercial shipping, naval procurement, and steel shipbuilding from 1898 to 1914 occupies Chapter Six. Here themes of earlier chapters are largely reprised: a growing scale of operations despite boom and bust markets, enhanced skill requirements among the workers needed to operate technically-sophisticated production machinery, further innovations in the yards’ products, the challenges of complex and ever-evolving naval work, and the inefficiencies of generalist production in American yards. New issues in the industry circa 1900 included: the rise of competitors (in Philadelphia and elsewhere) seeking to capitalize on America’s new aspirations as a naval power, labor activism and management’s vehement counter thrusts, and a new corporate model of shipyard management. Narrative dominates in the chapter, leaving this reader wishing for a bit more analysis. For instance, Heinrich details a number of problems with the new managerial capitalism adopted at the Cramp shipyard after 1900. Yet he never really offers a verdict on the suitability of corporate management practices in this industry with its vast sales fluctuations, high skill requirements, and circumscribed influence over markets.

World War I occupies Chapter Seven. Beyond the predictable expansions in wartime, here the story centers on Philadelphia’s massive Hog Island Yard. This wartime emergency plant represented a government-funded experiment in standardized ship construction. With its fifty building ways, Hog Island was the world’s largest shipyard. But intractable problems discredited this attempt to produce ships in volume: inadequate transportation from inland fabricating shops to the yard, coordination difficulties once materials did arrive, and an overburdened market for shipbuilding labor in the Philadelphia area. Heinrich has sifted through a multitude of government reports, and he tells this story well.

The book closes out with an eighth chapter on the 1920s depression. The yards came on hard times when the predictable postwar glut in merchant shipping was matched by the novel Washington Naval Disarmament Treaty of 1922 that closed off naval work for a number of years. The shipbuilding depression reached around the world; in Philadelphia the yards responded by further diversifying into non-marine work (the Cramp yard pioneered this strategy circa 1900). Heinrich uses Cramp as a anchor throughout the book, so when that old-line firm dies in 1927, he conducts a detailed autopsy. His verdict: Cramp lost its viability after Averell Harriman merged the builder into his ocean shipping empire. When the Harriman shipping lines foundered, they dragged down Cramp as well. Heinrich also points to excessive competition in the industry and “the lack of an intelligent [federal] merchant marine policy” (p. 212).

A short Epilogue ends the book, wherein Heinrich summarizes his three main analytical points: 1. Naval demand laid foundations for metal steamship construction; thereafter it provided a useful but problematic market, 2. The American merchant marine and its supporting shipbuilders suffered because the federal government failed to pass maritime policies that offered “incentives for investment” for private American firms engaged in international shipping (p. 221), 3. In the absence of those policies, U.S. metal shipbuilders pursued a generalist policy, building whatever tugs, sand barges, passenger liners, or battleships that their markets demanded. This century’s slow withering of America’s merchant marine and the Philadelphia yards closes out the story.

In ways that may not be immediately apparent in this sketch of its contents, Heinrich has pulled off something of a gamble in this book. Despite the fact that essentially no business papers survive from Philadelphia’s metal shipyards, the author has produced a comprehensive history. He builds his portrait from exhaustive searches of periodical records, newspapers, trade and professional society journals, union periodicals, government documents, insurance surveys, and all relevant secondary sources. It is a monumental effort. Still the lack of internal business papers leaves the book with only scattered insights into profits or losses, work force fluctuations and pay rates, capital/labor ratios, the bidding process, cost accounting controls, the quality and severity of price competition, etc.

If the archives had been more forthcoming, it is possible to project a different explanation of American shipbuilders’ inefficiencies. Heinrich explains their shortcomings by pointing to the lack of federal support for U.S. firms in international shipping. This in turn limited the overall market and forced shipyards into an inefficient generalist approach in production. Charles Cramp and other builders made a similar argument in calling for subsidies during the Gilded Age.

While this view has merit, one could advance an argument that I think is equally plausible: namely that the yards’ inefficiencies arose from those federal policies that protected shipbuilders by targeting their chief customers, the shipping lines engaged in domestic commerce. The statutory requirement for American-built ships in coastwise and inland navigation chiefly benefited New England’s wooden yards since their cheap wooden sailing vessels took most of the business. But such slow schooners were simply unsuited to many trades: passenger service, high-value freight traffic, transport of bulk oil, the Hawaiian sugar trade, etc. Through 1900 or so, ship owners seeking metal steamers for these trades had little choice but to deal with the Philadelphia yards. Without protection, these American pioneers in metal shipbuilding would never have begun; with it they never approached the performance of the world’s leading yards in Britain.

Testing this alternate argument would require the sort of internal business papers that simply do not survive. Equally, this perspective and Heinrich’s argument may both be valid. I only raise the point to underscore how the lack of hard data and extensive sources renders any authoritative analysis problematic. Notwithstanding these difficulties, Heinrich has written a detailed, compelling account of iron and steel shipbuilding — an industry vital to America’s economic growth and its rise to world-power status.

Jack Brown

Division of Technology, Culture and Communication School of Engineering and Applied Science Thornton A-216 University of Virginia Charlottesville, VA 22903 (804) 924-6177


Subject(s):Transport and Distribution, Energy, and Other Services
Geographic Area(s):North America
Time Period(s):20th Century: Pre WWII