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American Railroads and the Transformation of the Ante-bellum Economy

Author(s):Fishlow, Albert
Reviewer(s):Majewski, John

Classic Reviews in Economic History

Albert Fishlow, American Railroads and the Transformation of the Ante-bellum Economy. Cambridge, MA: Harvard University Press, 1965. xv + 452 pp.

Review Essay by John Majewski, Department of History, University of California – Santa Barbara.

Albert Fishlow and the Road to the New Economic History

Albert Fishlow’s 1965 book, American Railroads and the Transformation of the Ante-bellum Economy, received widespread praise when it was initially reviewed. Jeffrey Williamson considered it “as the ripest fruit thus far to come from the vineyard of the new economic historian.”[1] Stuart Bruchey similarly ranked American Railroads as “the finest product of the ‘new’ economic history.”[2] Fishlow’s impressive evidentiary base and his carefully drawn conclusions have made American Railroads an enduring classic that is still cited today. There is more to the story of American Railroads, though, than that of well-crafted scholarly work. The book’s forty-year career is a window from which one can glimpse the transition from the “Old Economic History” to the “New Economic History.”

American Railroads is Fishlow’s award-winning Harvard dissertation written under the supervision of Alexander Gerschenkron. Fishlow’s project was, to say the least, ambitious for a graduate student: he wanted to systematically evaluate the impact of railroads on the antebellum economy. Fishlow started by calculating the social savings of railroads, which can be roughly defined as the railroad’s reduction in freight and passenger rates over the next best alternative. Calculating the social savings of antebellum railroads, given the period’s uneven statistical sources, presented Fishlow with an immense challenge. His statistical appendices, which totaled more than 150 pages, indicate how rigorously he tackled the problem. The quantitative element of American Railroads reflected the rise of the New Economic History, which was transforming their field through the use of formal models and sophisticated statistical techniques. Gerschenkron, in fact, also served as mentor for Paul David and Peter Temin, two other distinguished contributors to the New Economic History.[3]

Fishlow’s conclusions, though, differed significantly from those of Robert Fogel, often considered the leading figure of the cliometrics revolution. Fogel famously argued that railroads made a relatively small contribution to U.S. economic growth in 1890. Fishlow, on the other hand, estimated the social savings of railroads in 1859 was 4 percent of GNP. Extrapolating to 1890, Fishlow calculated, produced social savings of least 15 percent of GNP, far higher than Fogel’s estimate of 5 percent. The key difference rested on the way each defined social savings. Fishlow estimated the social savings by comparing railroads to actual alternatives available in the antebellum period. Fogel, on the other hand, calculated the social savings of railroads to a vast system of improved roads and canals that nineteenth-century Americans might have built in the absence of railroads. Fogel, in essence, compared railroads to an economy that did not exist. What William R. Summerhill calls “Fishlovian” and “Fogelian” counterfactuals have different strengths and weaknesses.[4] Fishlow’s method generally results in upper-bound estimates of social savings, but avoids what Fishlow called “[t]he inherent difficulties of measuring what never occurred” (p. 58).

If Fishlow and Fogel philosophically disagreed over the nature of social savings, their work nevertheless had much in common. Both criticized W. W. Rostow, who claimed that antebellum railroads constituted a “leading sector” that induced widespread industrialization via backward linkages to coal, iron, and machinery. Such bold claims, in fact, initially sparked Fishlow’s interest in railroads, and his book provides a devastating critique. Fishlow shows, for example, that most locomotives in the antebellum period burned wood, which meant that railroads used a surprisingly little coal. As for iron, Fishlow demonstrates that railroads accounted for only 20 percent of net consumption in the 1850s. Twenty percent was certainly significant, as Fishlow notes, but hardly revolutionary. Nor did railroads single handily create the machinery industry. Fishlow argues that the production of locomotives created “no strategic breakthroughs” in steam engine design and production (p. 152). Steamboats, in fact, demanded far more in the way of large, sophisticated engines.

In Fishlow’s account, Midwestern farmers and agricultural processing industries (such as flour milling) benefited the most from railroads. Railroads led to the creation of new farms and the growth of towns and cities that could market and process the growing surplus of grains, hogs, and cattle. Fishlow persuasively argued that these railroads were not built ahead of demand. Midwestern railroads, in fact, ran through densely populated areas, which intensified development in locales best suited for commercial agriculture. Almost from the very beginning, these railroads made substantial profits, which one would not expect from developmental enterprises built ahead of demand. Private capital markets (with occasional help from local governments) financed most Midwestern railroads, thus confirming that investors expected these companies to make money sooner rather than later.

Fishlow’s argument has important implications for understanding the relationship between government policy and economic development. Since antebellum railroads generally made money, investment from the national or state governments was not important. To the extent it occurred at all, government investment led “to excess and wasteful construction” (p. 310). The U. S. case showed that investment in railroads — an example of “social overhead capital” — produced high social rate of returns, but only in the context of a vibrant market economy. Fishlow presciently warned that underdeveloped nations — especially those “wracked with large and unproductive agricultural sectors, illiteracy, concentrations of wealth, frequently wasteful government intervention” — should avoid mechanistically investing in “social overhead capital” to magically replicate the U. S. experience (p. 311). The generally poor record of large-scale infrastructure projects in many parts of Africa, Asia, and Latin America underscores the salience of Fishlow’s point.[5]

Fishlow’s conclusion foreshadowed a shift in his research to contemporary development issues, where he often focused on Brazil and other Latin American nations. The influence of American Railroads, not surprisingly, subtly waned. The comparison with Fogel’s Railroads and American Economic Growth is instructive. Whereas Fishlow’s book remained an expensive hardback, Fogel’s book was published in paper, suggesting a wider readership in undergraduate courses and graduate seminars. Fogel, of course, never shied away from debate and controversy. His 1979 article “Notes on the Social Saving Controversy” — which defended his previous arguments with new evidence and new models — effectively gave him the last word in the debate.

That Fogel’s book received more sustained attention than Fishlow’s attests to its greater appeal to up-and-coming cliometricians. Fogel formally modeled his conception of social savings. Equations fill entire pages of Railroads and American Economic Growth, and even the book’s subtitle, Essays in Econometric History, has a strong cliometric flavor. Fishlow, on the other, eschewed formal models expressed as algebraic equations. Instead of running regressions, Fishlow presented most of his statistical evidence in descriptive tables. As D. McCloskey has argued, Fogel’s provocative rhetorical approach — which combined the confrontational approach of a courtroom lawyer with the technical apparatus of a cutting-edge scientist — appealed to new generation of economic historians.[6]

One might think that the practitioners of the old economic history would embrace Fishlow’s work as a more conservative alternative to Fogel’s aggressive counterfactual models. Alfred Chandler, for one, certainly found Fishlow’s approach more compatible with own view that railroads fundamentally transformed the American economy. Many other traditional economic historians, though, criticized Fishlow’s conclusions. Carter Goodrich, in particular, believed that Fishlow had underestimated the importance of government action. Goodrich considered himself part of the “American System” synthesis that stressed the importance of government investment in the early American economy. Goodrich seriously questioned few of Fishlow’s specific findings, but argued that the broader history of internal improvements — whether the canals of the Early Republic or the transcontinental railroads of the Gilded Age — showed the necessity of government investment.[7] Goodrich’s critique subtly changed the question from the role of railroads in the antebellum period to the role of government in the nineteenth century economy. That, of course, is a far different question than Fishlow asked, and one that has still not been fully answered to this day. If Goodrich’s critique did not undermine Fishlow’s evidence or analysis, it highlighted the profound differences between cliometricians and those using more traditional historical methods. Politics, ideology, and culture — not counterfactuals and social savings — most interested Goodrich and his intellectual heirs.

Here, then, is the bittersweet career of American Railroads. Fishlow’s impressive scholarship was not quite econometric enough to hold the attention of economists, yet proved too statistical to appeal to the more traditional economists and historians. One might interpret the fate of American Railroads as a cautionary tale of the troubles that befall interdisciplinary scholarship in an age of specialization. Such a dire assessment is unwarranted. Fogel may have grabbed the headlines, but Fishlow’s careful analysis and extensive research have provided scholars with a treasure trove of hard-earned knowledge. That Fishlow’s book is included in this series testifies to its significance. In his preface to American Railroads, Fishlow apologized (in 1965!) for writing yet another book about railroads. Future generations will certainly acknowledge their debt to Fishlow’s work as they write their own histories of railroads and government policy.

Notes:

1. Jeffrey G. Williamson, Economic History Review, (April 1967): 196.

2. Stuart Bruchey, American Historical Review, (April 1967): 1098.

3. For more details on Gerschenkron’s Harvard workshop, see Eugene N. White’s interview of Fishlow in Samuel H. Williamson, John S. Lyons, and Louis P. Cain (eds.), Reflections on the Cliometric Revolution: Conversations with Economic Historians (forthcoming, 2006).

4. William R. Summerhill, Order against Progress: Government, Foreign Investment, and Railroads in Brazil, 1854-1913 (Stanford: Stanford University Press, 2003), 215-16.

5. William Easterly, The Elusive Quest for Growth: Economists’ Adventures and Misadventures in the Tropics (Cambridge, MA: MIT Press, 2001), 25-44.

6. D. N. McCloskey, The Rhetoric of Economics (Madison: University of Wisconsin Press, 1985), 113-137.

7. Carter Goodrich, “Internal Improvements Reconsidered,” Journal of Economic History, (June 1970): 289-311.

John Majewski is an associate professor in the history department at UC Santa Barbara. He is the author of A House Dividing: Economic Development in Pennsylvania and Virginia before the Civil War (Cambridge University Press, 2000), and is currently writing a book on the political economy of Confederate secessionists. He thanks John Lyons and Robert Whaples for their helpful comments on this review.

Subject(s):Transport and Distribution, Energy, and Other Services
Geographic Area(s):North America
Time Period(s):19th Century

John Sutter: A Life on the North American Frontier

Author(s):Hurtado, Albert L.
Reviewer(s):Doti, Lynne Pierson

Published by EH.NET (September 2006)

Albert L. Hurtado, John Sutter: A Life on the North American Frontier. Norman, OK: University of Oklahoma Press, 2006. xvii + 416 pp. $35 (cloth), ISBN: 0-8061-3772-X.

Review for EH.NET by Lynne Pierson Doti, Department of Economics, Chapman University.

Billed as “the definitive biography of California’s renowned gold-rush entrepreneur,” this book is a long overdue update on all the available information about John Sutter. Although the amount of material gathered by the author certainly justifies the term “definitive biography,” even the author would probably question labeling John Sutter as a “gold rush entrepreneur.” One of the best-known facts about this renowned Swiss transplant is that he was ruined by the gold rush.

Sutter earned the title entrepreneur. He took risks and regularly tried new ventures. His entrepreneurial life started in Switzerland, but at age 32 he left his wife and five children for the United States to avoid his debts. He traveled to New York, then St. Charles, Missouri, in 1835, but quickly left there with his European wardrobe as his contribution to a trading venture to New Mexico. This venture apparently earned him enough to return with wine, seven mules and cash. His success sent Sutter to New Mexico again. But he was back in Missouri in less than a year. The next year, facing debtors’ court, Sutter left Missouri and by the end of the year was in Hawaii. He celebrated the 4th of July, 1839 in Monterey, California. Governor Alvarado was also present at that celebration, and promised Sutter land in California’s central valley if he would settle it and become a citizen of Mexico. Sutter agreed, planning to model his settlement after the prosperous cattle ranch owned by Guadalupe Vallejo and staffed by local Indians. Within months Sutter was residing in a grass house, erected by his Hawaiian workers, in what would become Sacramento. By 1841, he was a Mexican citizen and had heavily-encumbered but vast acreage under his control. Sutter’s Fort soon became a destination for every visitor to California and the first stop for settlers.

Apparently gregarious, and probably an alcoholic, Sutter was a generous host and collected companions, workers and hangers-on wherever he went. At his fort in Sacramento, he lived in a rich stew of French, British, Germans, Hawaiians, Russians, Mexicans, New Mexicans and Native Americans from tribes all over the west. Adding to this melting-pot community were over one hundred children, most of whom had mixed parentage.

The Mexican War of 1846 to 1848 was a confusing affair in California. Sutter mostly supported the American side, but also spent a great deal of time during the war fraternizing with his Mexican friends. When he was keeping the Mexican Commander Vallejo prisoner at his fort (commandeered by Fremont), Sutter was chided for inviting the prisoner to dine with him. United States victory in the war increased the population in California and Sutter began expanding his production of horses, cattle and wheat. The horses and cattle supplied the military and other ranchers; much of the wheat was exported to Russia. Hock Farm, his home north of the fort, supplied his own and local needs. A new flour mill was planned, and his role in American history was assured when construction of a lumber mill revealed a rich vein of gold. At this point, Sutter’s financial situation should have improved further. Notoriously, Sutter marked this as the beginning of his ruin. He eventually lost title to all of his land. The title to some of the land was lost because of difficulties in staking claims in the administrative void between the end of Mexican rule and statehood. There were other reasons. While Mexican grants were honored under the Treaty of Hidalgo, Sutter’s grants were not specified correctly. Even on land that clearly belonged to Sutter, squatters took up residence. Downtown Sacramento developed along the river, land Sutter had avoided due to periodic flooding, instead of in Sutter’s safer subdivisions. Above all, Sutter trusted people who clearly should not have been trusted, over-encumbered his property and paid too little attention to business. “He was a poor businessman,” notes Hurtado early in the book (p. 65).

Sutter’s family joined him during the gold rush, but his son August, who came first, seemed to have even less sense than his father. In 1850 the Sacramento property was sold to satisfy debts. After that, Sutter and his wife lived at Hock Farm, in debt, and often on the charity of friends and the state government. When they lost their home to an arsonist in 1865, Sutter and his wife moved to Washington, D.C. where he received a pension from the federal government. With August’s financial assistance, Sutter built a home in Lititz, Pennsylvania in 1871. He spent time lobbying Congress in support of his property claims and died in 1880 in Washington, D.C.

Is this “the definitive biography of California’s renowned gold rush entrepreneur?” Normally there isn’t much to think about in the dust-cover blurbs, but this comment sums up what is great about this book and also what is disappointing. There is a huge amount of information here about John Sutter, but even knowing perhaps all there is to know, the reader is left without any new understanding of this enigmatic figure.

While Sutter is left, perhaps forever, as an enigma, this book is one of the most important additions to California history in the last decade. The research is extensive and taps many original sources. There is information on financial, agricultural, military and trade history for the1840s and 50s. Hurtado also expands the work he did in Indian Survival on the California Frontier in exploring the native tribes and their lives as they connect with Sutter.

Lynne Pierson Doti is the David and Sandra Stone Professor of Economics in the Argyros School of Business and Economics at Chapman University. She is writing a financial history of California.

Subject(s):Business History
Geographic Area(s):North America
Time Period(s):19th Century

Divided Mastery: Slave Hiring in the American South

Author(s):Martin, Jonathan D.
Reviewer(s):Pritchett, Jonathan B.

Published by EH.NET (September 2006)

Jonathan D. Martin, Divided Mastery: Slave Hiring in the American South. Cambridge, MA: Harvard University Press, 2004. 237 pp. $45 (cloth), ISBN: 0-674-01149-X.

Reviewed for EH.NET by Jonathan B. Pritchett, Department of Economics, Tulane University.

For an economist, the owners’ attempts to master or control their slaves are examples of the principal-agent problem. In order to maximize economic profit, owners constructed elaborate systems of monitoring, punishments and rewards (see, for example, Fogel and Engerman’s Time on the Cross and the ensuing literature). For many owners, control required the threatened use of force. Southern society placed very few restrictions on the owner’s right to coerce labor from his slaves. As interpreted by the courts, such absolute mastery was only restrained by the owner’s self interest. Coercion through harsh punishments risked possible injury to the slaves, thus reducing the market value of the owner’s property.

Like owners, renters sought the absolute mastery of their slaves. Renters’ absolute mastery was not recognized by the courts, however, because they lacked the owner’s self interest when it came to the protection of slaves as property. The title of Jonathan D. Martin’s book, Divided Mastery, refers to the conflict of interests between owners, renters, and slaves. Although Martin’s book is a comprehensive survey on slave hiring in the American South, “the story about hiring is, at bottom, one about conflict” (p. 11).

Chapter 2, entitled “A Blessing and a Curse,” is written from the viewpoint of the hired slaves. Hiring was a curse because it threatened the separation of families, but it was also a blessing because slaves could exploit the conflict of interests between the owner and the renter. Slaves were empowered by their ability to modify the rental contract, by refusing to work for some renters or by threatening to run away.

The owner’s views are considered in Chapter 3. Although owners expressed many different reasons for hiring out their slaves, money was the most important. “Worth, values, profit, and expense — these were the criteria by which slaveholders judged their slaves. As a result, slaves and owners approached each other on ground thoroughly shaped by the market, in particular by the potential returns for owners in the hiring market” (p. 86). In addition to prompt payment, owners wanted renters who would protect the property value of their slaves. Although the renter’s reputation was important, many owners required legal contracts that specified the treatment of their slaves.

Although renters sought absolute mastery, owners placed checks on the use and treatment of their slaves. Despite these limitations, Martin argues in Chapter 4 that renters still preferred hired slaves to free labor. Renting gave poor Southern whites an “enticing taste of mastery” and could change “an individual’s social and personal identities overnight” (pp. 11, 109). Apparently Martin attributes conspicuous consumption to the renters of slaves.

Disputes over hiring contracts are discussed in Chapter 5. In general, the courts restricted the absolute mastery of renters for fear such punishments would violate the property rights of owners. Renters had the right to enforce obedience by moderate correction but the difference between prudent actions and abuse was ill defined. Especially troublesome was the lack of recognized witnesses of the renters’ actions. Although slaves could not serve as witnesses in a court of law, their actions could be used to infer abusive behavior by a renter. For example, a rented slave who ran back to his owner might be taken as evidence of brutal treatment by the renter (p. 156). Consequently, a slave’s threat of running away might have deterred some of the most abusive behavior by renters.

Chapter 6 addresses self hire, where the slave promised payment to his owner in exchange for greater independence. Because self hires often lived on their own, with little supervision from their owners, this arrangement is sometimes referred to as a form of quasi freedom. But as Martin stresses, self hires faced constant threats and hardships — the slaves were under the constant pressure to acquire money for their owners; they were exploited by their costumers; and threatened by white workers fearing competition. According to Martin, self hires were just another form of slavery rather than a form of quasi freedom.

According to Martin, historians have paid little attention to the practice of slave hiring. This “neglect is no doubt due in part to scholarly suspicion that slave hiring was merely one of the ‘business’ aspects of slavery, an insipid subject that reflects only on the viability and profitability of the system” (p. 8). Instead, Martin promises to “take the story of slave hiring beyond the basic economics of supply and demand” (p. 9). Despite his promises, Martin could have benefited from some basic economic analysis. For example, Martin calculates a high rate of return from hiring out slaves and concludes that it was lucrative (p. 80). A high rate of return from hiring suggests that owners demanded compensation for risking their slaves with others. In addition, Martin speculates that the scale of slave hiring was nothing short of monumental (p. 8). Consequently, the conflict of interests between owners and renters was not large enough to prevent the operation of this market.

Jonathan B. Pritchett is the author of “Quantitative Estimates of the United States Interregional Slave Trade, 1820-1860,” Journal of Economic History, 61 (June 2001): 467-75.

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

The Merchants of Zigong: Industrial Entrepreneurship in Early Modern China

Author(s):Zelin, Madeleine
Reviewer(s):Shiue, Carol H.

Published by EH.NET (September 2006)

Madeleine Zelin, The Merchants of Zigong: Industrial Entrepreneurship in Early Modern China. New York: Columbia University Press, 2006. xxiv + 404 pp. $45 (cloth), ISBN: 0-231-13596-3.

Reviewed for EH.NET by Carol H. Shiue, Department of Economics, University of Colorado.

The considerable fortune accumulated by the famed salt merchants of China has often been attributed to their privileged access to government licenses that limited salt sales through quotas. In this volume, Madeleine Zelin, Professor of History and East Asian Languages and Cultures at Columbia University, uses source materials based on municipal archival documents of case records of legal suits; business accounts and contracts; local gazetteers; memoirs and transcribed oral histories; and other primary and secondary materials to evaluate the economic history of the salt industry. Among the many substantial findings that emerge in her study is that the industry was built on much more than the government’s regulations on salt.

The “Merchants” of the title refer to the entrepreneurs of Zigong, in the western hinterland province of Sichuan, who dealt in the business of producing and trading salt. Salt production was a multi-step process that began with raising the salty brine. This required pumping and well drilling, a costly venture that could potentially take five or ten years. Afterwards, furnaces were needed to evaporate the salt. Because the tasks involved in processing were invariably larger than anyone could undertake alone, production ultimately relied not only on advances in new technologies, but just as importantly, on organizational structures that allowed groups (such as corporate groups and lineages) to finance the drilling, to create profit sharing arrangements, and to allow a rental market in productive assets. The first chapters of the book describe the technology used in salt production. Using the example of two saltyards, Chapter 2 discusses the structure of investment contracts in well drilling. Chapter 3 shows how partnerships (e.g. contracts for renting a well or for renting a furnace and leasing brine and gas) were used to organize fragmented resources and to merge smaller amounts of capital. Zelin provides important new evidence of an active industrial sector where property rights and contracts were recognized and enforced by the existing legal framework, but commercial laws governing limiting liability and the effects of bankruptcy did not exist until the turn of the twentieth century.

For acquiring the necessary capital, banking and credit services were not critical to the early development of the salt industry. Instead, assets were often brought together through kin and the establishment of lineage trusts, with little outside sources of financing. Chapter 4 focuses on the role of the lineage in structuring the management of the firm, taking as examples several families that had accrued large fortunes as salt developers.

In addition to capital, processing the salt required a sizable labor force, and the possibility of shipping the goods to potential buyers. Large vertically integrated firms could ensure not only their own supplies of brine and gas, but establish contacts in merchant networks for the sale of their goods. Chapter 5 considers working conditions in the salt industry, which was the largest employer outside of agriculture in Sichuan. Chapter 6 considers the question of the impact of government regulation on producers.

The remaining chapters, Chapters 7-10, turn to the changes in the twentieth century, when the prosperous salt empires of the previous century faced decline, mainly as a result of political instability and the lower profitability of processing brine. In addition, increasingly over the late-nineteenth century and twentieth century, the state sought to tax salt in transit. Chapter 7 surveys the impact of technological changes. Chapter 8 details the family histories of the salt magnates in the later period. Chapter 9 brings the implications of politics to bear on the business of merchants, and Chapter 10 addresses the question of the long-term implications of the industry on Zigong’s economic development.

The text assumes some familiarity with the institutional background of early modern China, and most chapters are packed with carefully teased out analysis from original sources, but Zelin also provides brilliant summaries in the introductory and concluding sections of each chapter that tend to be targeted to a wide audience in business history. The book’s glossary compiles an excellent list of more than 750 names and terms used in the text in both pinyin and in Chinese. If this sounds specialized, it is — but the writing is so clear and engaging that even the general reader will want to know more about the uses of bamboo piping in pumping or the intra-familial spats of the merchant clans.

A recurrent theme of the book is that the business arrangements seen in the Chinese salt industry belie not only previous perceptions about the predatory influence of the “feudal” state on entrepreneurial incentives in China, but also the purported uniqueness of Western business practice. On both fronts, this book breaks important new ground and will have a major influence on the future research agenda. The Merchants of Zigong, however, is fundamentally not a comparative study, and as such its comparisons are based mostly on secondary sources from the business history of the United States. Nevertheless, it is at these points that some of the more provocative observations emerge. For example, Zelin observes, “On a much more limited playing field, the chengshouren then played much of the same role of informed ‘honest broker’ performed by investment bankers like J.P. Morgan” (p. 48). In another analogy, Zelin finds that the advantages of vertical integration in the Chinese salt industry “match in importance the organizational breakthrough made by the great American oil and steel companies?” (p. 96). The implication of the analogies is that despite differences in institutional environments, similarities in business practice between China and the United States arose out of underlying similarities in “opportunities and constraints” (p. 292). For those who see more differences than similarities between oil and salt, the correspondences may seem to be too broad brush. How far should the similarities be taken, and what is the significance of the differences? It may take another book to answer these questions, but the undertaking would be well worth it.

The Merchants of Zigong is a microeconomic case study that expands our knowledge of business practices in the nineteenth and twentieth centuries by leaps and bounds while shedding light on the institutions in which the Chinese firms operated. It is a work that shows just how good historical scholarship on China can be and the volume is one that researchers will refer to time and time again.

Carol H. Shiue is Associate Professor of Economics at the University of Colorado at Boulder, a Research Affiliate at CEPR and a Research Economist at the NBER. She is the author of “Transport Costs and the Geography of Arbitrage in Eighteenth-Century China,” American Economic Review, December 2002, and co-author (with Wolfgang Keller) of “Markets in China and Europe on the Eve of the Industrial Revolution,” NBER and CEPR Working Papers. Additional details on her work can be found at http://spot.colorado.edu/~shiue/.

Subject(s):Markets and Institutions
Geographic Area(s):Asia
Time Period(s):20th Century: Pre WWII

The Natural Origins of Economics

Author(s):Schabas, Margaret
Reviewer(s):Moss, Laurence S.

Published by EH.NET (September 2006)

Margaret Schabas, The Natural Origins of Economics. Chicago: University of Chicago Press, 2005. xi + 231 pp. $40 (cloth), ISBN: 0-226-73569-9.

Reviewed for EH.NET by Laurence S. Moss, Department of Economics, Babson College.

The Natural Origins of Economics is brimming with original material, insights and clever asides and segues. It is not above taking a few stabs at the older “Whigs” among us and the type of histories that we have produced in the past. At her best (and there are places where the book is at its best) Schabas combines a broad interest in the history of natural science with the important problem of how classical economics ended up to be what we know today as “neoclassical” economics. Her book might best be classified as a contribution to the philosophy of science, explaining how the development of natural philosophy in the eighteenth and subsequent centuries affected the content of economic discussion, especially among the English and French sources. The economic thought of Germany, Austria, Italy, Spain, Russia and Ireland is not discussed in any detail.

Schabas shares with Philip Mirowski (1989) the verdict that nineteenth-century neoclassical economics never achieved much more than a “superficial resemblance” to contemporary physics and was never really part of natural science (p. 156). Its pretensions to be “scientific” were only pretensions and not much more that that. Perhaps earlier contributions to economics in previous centuries suffered a similar fate. This, however, is not Schabas’s view at all. Quite to the contrary, Schabas finds a cross-fertilization between natural science and ideas about wealth and economy, especially in the eighteenth century. This was all in the past. Today, things are different. That is her thesis most simply stated.

Although respectful of the older generation of historians of economics, such as Joseph Schumpeter, Schabas finds more comfort among that “number of prominent historians of economics” who no longer choose to tell the story about how economics developed in terms of progress and analytic clarity (p. 9). To be branded a “Whig historian” by this younger generation of historians is never complimentary and often tantamount to being called a “fuddydud” or worse. Schabas is no Whig (p. 79). She is not a Whig because the story she tells is not about “progress” leading up to the glorification of the Walrasian equations and the rest of neoclassical economics. Still, she tells the story of developments within the discipline on two related fronts. First, she explains how economic discussion became steadily more secular, letting the Christian God problem sink in importance until it has been largely relegated today to certain evangelical movements and “right wing” think tanks. Second, she offers an account of how economics went from being entwined in natural philosophy to its present-day status of being entirely “mental” and all about human agency. Let us summarize the first line of analysis and then move on to the second.

The Christian problem in economics consists of attempting to reconcile two insights that were firmly entrenched in the discipline certainly as late as the 1830s. The first insight is that God created men and women and implanted certain instincts or passions in their bodies. The second insight is that whenever men and women give these instincts or passions the full throttle, they end up miserably poor, solitary and sometimes dead. The Malthusian debate and the early debates over poor law reform in Britain provide dramatic evidence of this conflict about how a Christian God could have created something so awful as life on earth. As economics developed, the major thinkers retreated from a social science centered on instincts and passions towards an appreciation of human rationality and something Schabas and other contemporary philosophers term “human agency.” This is the second development that Schabas tries to chronicle.

Human agency means that humans actually make genuine choices and these choices affect the world around them sometime changing that world for the better. In the classical world of David Hume and Adam Smith, individual deliberation existed only in appearance because what was always and everywhere driving economic development were those passions and instincts hidden beneath the appearance of rational discussion. As Hume famously stated, reason is only the slave of passion and not its master. The passions operated through the interests of the three classes in society; the landlords, workers and capitalists. The job of the economist/philosopher was to uncover the real (hidden) natural laws behind the motions of individuals. In some of the writings of the classical school economists (Nassau Senior is mentioned) but certainly by the end of the nineteenth century when neoclassical economics came of age, the classes have melted away and all that is left behind is the rational calculating individual striving after the mysterious substance dubbed “utility” that (according to Schabas) “flows” into objects. Since wealth is now mental, economics is now separated from the world of nature.

Modern economics is all about human agency and nature and its search for genuine laws is gone completely. Schabas’s central thesis and the main theme repeated throughout the book is that the history of economic thought is a history of how a body of thinking about “wealth” became both secularized and denaturalized. More important and perhaps more sensationally, Schabas regrets at least one part of this development. Where certain neoclassical economists see “progress” in the elevation and appreciation of human agency, Schabas sees only nonsense and pretentiousness.

Schabas makes her case by drawing on an enormous literature in both the philosophy of science and the history of science. She backs up her claims and consistent thematic views in surprising and interesting ways. For example, historians of science have long distinguished the mathematical mechanics of Isaac Newton’s Principia (1687) from the experimental physics of Isaac Newton’s Optics (1704). This is old hat to historians of science and standard textbook material. Schabas is one of the first to suggest that Newton’s scientific work spawned two distinct traditions not only in science proper but in economics as well. The mathematical mechanics of the Principia eventually spawned the French mathematic schools of the Ecole des Points et Chaussees and later Leon Walras and modern neoclassical economics. The experimental tradition of the Optics informed much Enlightenment thought about the fluids of nature from ectoplasm oozing from the medium during the s?ances attended by economists in the late Victorian period, to the more promising speculations about magnetism and electricity sparked by Benjamin Franklin’s exciting research and its promulgation in Europe. This is all quite original and exciting and apt to be on the research radar screen of historians of economics for years to come.

Her thesis is that Victorian period economic literature — by which she means mostly John Stuart Mill, William Stanley Jevons, Philip Wicksteed and Alfred Marshall — ended up not only “secular” (with God removed from the driver’s seat of economic development) but also completely severed from nature and natural processes. By the time of Marshall’s Principles (1890), economics had morphed into a study of economic phenomena that were entirely the result of human agency and institutions, and nature and natural processes no longer played much of a role. Detached from nature and natural processes, the economy is capable of producing mountains of “utilities” — the sky is the limit.

As a result, professional economists are mostly engineers out to “control” the economy with clever mathematical models. With the denaturalization of economics completed, there is a sharp loss of interest in “economic laws.” Models are not used to determine what the fundamental underlying laws of economic development are and how they operate. On the contrary, models help rationalize economic data and subsequently control those processes natural or otherwise that have given rise to the data themselves. Economists have become the social engineers of the modern world (p. 157; cf. Hayek 1955).

It wasn’t always this way of course. There once was time when “the economy” that emerged in scientific discussion was tightly linked to natural processes. Let us turn our attention to the eighteenth century and the amazing writings of the Swedish naturalist Carl Linnaeus. Schabas breaks new ground by emphasizing Linneaus’s importance to the history of economic thought. Linneaus — that old Cameralist who advocated protectionism and autarky — actually worked within the Swedish Academy of Sciences to establish economics as a science (p. 31). Linnaeus not only classified the kingdoms of animals and plants but wrote about the natural “balances” that were maintained by nature without the intervention of human agency at all. Although the idea of household management was firmly rooted in Aristotle’s manuscripts, Linnaeus insisted that nature matched births and deaths among the myriad species of plants, insects and animals automatically so as to maintain balance and keep matters stationary.

Charles Lyell at the start of the Victorian period carried the idea of an economy of nature further than Linneaus and pondered the ideas of dynamic equilibrium and the “economy of nature thesis.” Later in the nineteenth century, Charles Darwin’s broke with Lyell and explained how new species are produced from processes already known in nature. Darwin revolutionized our understanding of nature. But, as is well known among contemporary historians of economics, Darwin’s insights about evolutionary processes that never reached a final result did not have much of an impact on the economists of his day. The possible exception is Thorstein Veblen, who led a heroic and unsuccessful battle against neoclassical orthodoxy. It was Herbert Spencer’s discussion of evolution that had the major impact on Alfred Marshall and later economists, and that formulation was stunningly different from the one Schabas attributes to Darwin himself. Had the economists of the day followed Darwin more closely, economics may not have been so denaturalized so quickly.

I should stop for a moment and comment on Schabas’s use of the term “denaturalization.” (It does not mean taking away an immigrant’s legal status and then deporting him back to his country of birth.) In Schabas’s vocabulary, denaturalization is a term of art. It suggests a long and documented process that took place between 1740 and 1890. It produced the bete noir of contemporary economics — neoclassical economics.

To appreciate the old economics and contrast it with the new, we must start with the eighteenth-century French literature. As Schabas shows with depth and eloquence, the physiocrats produced a vast literature that identified wealth with the bounty of nature and insisted that while labor may have something to do with value it did little to produce wealth. Wealth was due entirely to natural processes or the “rule of nature.” It is the expression “rule of nature” that is the best English translation of the term “physiocracy.”

And there is much more to the story that Schabas tells. She provides convincing evidence that Quesnay’s training at the University of Leiden as a surgeon exposed him to the mechanical philosophy and human physiology studies of his day. These natural science studies informed his work in economics. Schabas’s praise of the French Enlightenment and its contributions to the naturalist tradition in economics is packed into Chapter 3. This chapter is without any doubt my favorite chapter in the entire book. It is a tour de force not only because it is clearly written and convincing but because it introduces the reader to a vast literature in several languages, over which Schabas has an impressive command.

Schabas covers a vast number of leading French writers and apparently has consulted the several major journals of the period, such as the Journal Oeconomique which ran from 1751 to 1772. She is at home with the majority of contemporary writers who have offered glosses on the French tradition and they also receive her attention and their works are respectfully cited as well. The French economists would be the heroes of the story Schabas tells but for the mathematical tradition in France associated with the Ecole des Points et Chaussees and the mischief later caused by Leon Walras, whose simultaneous equations mesmerized the economics profession after World War II and hastened the “denaturalization of the economic order” that Schabas regrets.

Adam Smith’s familiarity with the writing of the physiocrats is well established. Schabas acknowledges that there are thousands of books and articles about Smith and his economics ideas — enough to “sink a small boat” (p. 79). Fortunately, there is no need to discuss these works because “most of these are Whiggish” (p. 79). To remedy the deficiencies of this decrepit literature, Schabas offers an original and alternative pr?cis of Smith’s thought.

What Schabas offers about Smith is not new. She had published an article on Smith in the History of Political Economy and offers large parts of that article as Chapter 5 in the book under review. But perhaps it is all worth repeating. Smith did something original with labor that his predecessors did not do. Whereas John Locke had labor putting the difference in value on things and “mixing” with labor to establishing the moral basis for property rights, Smith did something different. According to Schabas, Adam Smith has labor operating like “alienable stuff” and filling up objects. Now, filling up objects is not the same thing as mixing. When labor fills up an object it is “productive labor,” and when it does not do this it is “unproductive labor.” The unproductive/productive labor distinction lasted quite a long time in economics until it finally died a quiet death in Marshall’s writings, although the Austrian school economists had long since dismissed the idea as well.

These ideas about labor filling-up objects may have something to do with the ongoing debates in natural sciences surrounding fluids and in Smith’s time the remarkable ideas of Benjamin Franklin, who took Europe by storm with his ideas about electricity and its invisible behavior. Franklin’s contributions to natural philosophy and the great debates about magnetism, electricity and ectoplasm in the world of con men and s?ances now needs to be included in the history of our discipline as well.

According to Schabas, Smith did not say much about “individual autonomy” (read, individual agency) at all. Trade and the division of labor were caused by a natural instinct that God planted in human nature to truck, barter and exchange one thing for another. The market process ideas that we find in Smith’s brilliant discussion of what happens with the sudden and unexpected shift in the demand for black cloth only mimics what Linnaeus had already written about as occurring naturally (without any human intervention) in nature. While Smith never denied the importance of human agency in causing economic events, he certainly did not emphasize this feature. In Smith’s discussions about economic development and how it proceeds, there are always deeper forces in the nature of things that override human folly and errors as they frequently occur.

In chapter 4, Schabas reprints material from another of her articles in the History of Political Economy. This time David Hume is the subject of an entire chapter. There she deftly documents how Hume’s exposure to the exciting debates about electricity and its properties may have shaped his appreciation about how money “flows” naturally from one region to another stimulating trade but settling down to an equilibrium. Again, human agency is not called upon to tell the story about the economy and how it works. Surely it is individual cash balances and individual spending that are driving the sequence of events that Hume describes in his famous essays about money and prices, but whatever rational thoughts exist among these individuals carrying around the cash balances are almost always passed over without comment. Men were created by God to have their reason or rational faculties always and everywhere the “slaves of the passions,” and these passions are what are needed to explain economic relationships. Human nature may be no more predictable than the weather, but this does not prevent us from developing a general science of human action the same way we carry on every day with our conjectural weather forecasts. In the end, Hume regarded “economic processes as part and parcel of nature” (p. 78).

So it is with the Physiocrats, numerous French Enlightenment thinkers, David Hume and Adam Smith all drawing insights from natural experimental science and using these insights to inform a fledgling body of economic knowledge. When did the history of economic ideas deteriorate? When did the “denaturalization” that Schabas regrets so deeply actually begin?

I suspected that David Ricardo with his secular education would get blamed. But not so. Ricardo’s amazing book (and perhaps his previous pamphlets and essays) “set the substantive and methodological parameters of the discipline that we know today as economics” (p. 102). However, it was not the enormously influential Ricardo that drove a wedge between the natural world and the socio-economic world. Guess who did the mischief?

It was none other than John Stuart Mill. Mill famously argued that human development although steeped in custom and routine could and should break free of these customs and traditions. Individuals are capable of developing “qualities which are the distinctive endowment of a human being” (Mill 1978 [1859]: 56). In Mill’s mature work, it is the self-development of the individual, and especially the occasional individual of genius whose liberty to discover and experiment must be protected from the general intolerance of society — from the masses in a democracy. In economics, Schabas joins a long list of historians of economics and credits Mill with a sharp distinction between laws of production — that (supposedly) have nothing to do with human agency and limit what human action can accomplish – and laws governing the distribution of wealth. Unlike the natural laws, the laws governing the distribution of wealth can be and in many instances should be reengineered by changing the existing legal institutions and modifying ancient customs. With Mill, labor is producing utilities and not physical wealth. Human agency has squeezed out human instinct and passions. According to Schabas, Millsian economics is entirely different from the economics of Hume and Smith, Mill allows human nature to be malleable. Schabas sums up her position that: “While naturalists were bringing man into nature, treating him as just another biological species and reducing his intellectual and moral capacities to animal instincts, political economists such as Mill were taking him out [of nature]” (p. 133). The result is a social science in which customs, and law-like relationships surrounding the consumption, production and distribution of wealth are all mental and the structures of the economy are “artificially” created (p. 136).

Schabas identifies an interpretive problem in Mill’s thought. Apparently, at the same time in the 1850s when he was immersed in the reediting of his Principles of Political Economy, he wrote an important essay entitled “On Nature” that was published posthumously in his Essays on Religion in 1874. In that essay, Mill denied that nature in any way, shape, or form should be used as a standard against which to justify the quality of human action. According to Mill, everything valuable in human life has been artificially created by human agency. All the bridges, all the tunnels, all the methods of human manufacture and agricultural wisdom are the result of human contrivance and discovery. If Mill really believed this, then why didn’t he modify his famous passages in the Principles of Political Economy and declare laws of production to be as malleable as the laws of distribution. This is the “Mill problem” that Schabas has identified.

Actually, there is no Mill problem at all. In later editions of his Principles, Mill explained that the immutable laws of production always depended on the state of knowledge and when the knowledge base in society changed so did the constraints on production. The laws of production were malleable and changed with the advance of knowledge. This interpretation of Mill was first presented by an old Whig, Pedro Schwartz, in 1972 but what Schabas has named the “Mill problem” was dealt with in greater detail by her former colleague Samuel Hollander (Hollander 1: 222-31). The Schwartz-Hollander tradition supports the view that Mill privileged human agency in the development of economic life but did this rather consistently throughout his writings both in economics and in moral philosophy.

Schabas’s view that Mill dealt the last blow to the dying naturalism in economics is the main theme of Chapter 7. By privileging human agency, Mill is changing economics irreparably and possibly forever. After Mill, it is Marshall, Philip Wicksteed, William Stanley Jevons, and Ysidro Edgeworth who hammer in the last coffin nails to the older economics. The naturalized economics is gone. Neoclassical economics is here and later on in the twentieth century will cover its deficiencies by the mathematics of nineteenth-century physics (Mirowski: 377).

I conclude this review by offering two short criticisms that seem to me to be quite fundamental. First, the “utility” theory is clearly the bad guy in Schabas’s story. By treating utility as a mental substance like the oozing ectoplasm of the s?ance room that flows into things and objects making them valuable it is difficult not to present modern economic ideas as laughable and grotesque. Still, not all neoclassical economists (and certainly not the Austrian school group) treated utility this way. The insight that is especially strong in Carl Menger’s works is that what made objects valuable was their perceived suitability toward satisfying human wants or needs. As Friedrich A. Hayek and others explained repeatedly during the entire twentieth century, certain valued objects such as “toys” or “tools” were such because the human mind attached meaning and discovered uses for their natural features. An empirical or ontological investigation of their measurable characteristics might never produce a clue as to why a child’s mind might find them interesting and engaging or a carpenter might find them useful or helpful. It seems to me that this version of the utility theory is far removed from the ectoplasm of the s?ance room and not something laughable or ridiculous (Hayek 1955, p. 27; cf. Mirowski: 354- 58). The Austrian school of utility theorizing did not have utility “flowing” into objects.

My second criticism is to challenge her claim that modern neoclassical economics is “denaturalized.” Certainly, there was heroic effort circa 1950 to present the basic ideas of welfare economics without any reference(s) to human institutions. This was considered to be progress in pure economics. But the remarkable point that all commentators quickly realized, was that it could not be done. Impossible! Also, the Walrasian equations needed to take notice of the “technological coefficients of production” that determined the maximum output that could be squeezed out of any amount of input given the “state of the arts.” Even with a stable and well-curved production possibilities curve, someone’s preferences were needed to figure out what maximum social welfare could possibly mean. It is this curious interaction between human agency and objective reality that makes economics so interesting as a social science. In other words, welfare economics was not denaturalized in Schabas’s sense.

And there are many other examples of nature biting back. During the enormously important debates from about 1880 to 1930, about the interest rate and how it was formed in a modern competitive economy the consensus was that the structure of the world in the form of investment opportunities played an important part along with subjective time-preference in the determination of the rate of interest.

These criticisms are aimed to direct Schabas to a larger literature in economics that many of the older Whigs have written about and documented in their histories of analysis. I do not think that despite the importance of human agency, the economics literature had ever entirely divorced itself from nature in Schabas’s sense. The Schabas study is an important study and worth further discussion but it is certainly not the whole story about economics or its origins.

References:

Hayek, Friedrich, The Counter-Revolution of Science: Studies on the Abuse of Reason. London: The Free Press, 1955.

Hollander, Samuel, The Economics of John Stuart Mill: Theory and Method, 2 volumes. Toronto: University of Toronto Press, 1985.

Mill, John Stuart, On Liberty. E. Rapaport, editor. Indianapolis: Hackett Publishing, 1978 [1859].

Mirowski, Philip, More Heat than Light: Economics as Social Physics: Physics as Nature’s Economics. Cambridge: Cambridge University Press, 1999 [1989 first edition].

Laurence S. Moss is a past president of the History of Economics Society and now serves as editor of the American Journal of Economics and Sociology. He has written articles on a variety of topics in the history of economics including Austrian school economics, the Salamancan school, and Georgist economics and is currently working on the Dublin school of Irish economists in the first part of the nineteenth century.

Subject(s):History of Economic Thought; Methodology
Geographic Area(s):Europe
Time Period(s):19th Century

American Capitalism: Social Thought and Political Economy in the Twentieth Century

Author(s):Lichtenstein, Nelson
Reviewer(s):Hoeveler, J. David

Published by EH.NET (August 2006)

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Nelson Lichtenstein, editor, American Capitalism: Social Thought and Political Economy in the Twentieth Century. Philadelphia: University of Pennsylvania Press, 2006. vi + 377 pp. $50 (cloth), ISBN: 0-8122-3923-7.

Reviewed for EH.NET by J. David Hoeveler, Department of History, University of Wisconsin-Milwaukee.

American Capitalism makes its way within the long shadows of Francis Fukuyama’s The End of History and the Last Man. Two considerations define its purpose. First, it recognizes, and generally regrets, that capitalism has enjoyed a late ascendancy, almost unchallenged around the world and, furthermore, enjoys its high status in part because of the acquiescence of intellectuals in that ascendancy. Second, it wants to show that nonetheless a viable critique of capitalism once did flourish among American thinkers. Herein lay both the uses and the problems of this anthology. The various essays in the collection derive from a conference at the University of California, Santa Barbara in 2005. They highlight some familiar thinkers, “key writers and intellectuals, from across the political and aesthetic landscape” (p. 3) — John Kenneth Galbraith, C. Wright Mills, Talcott Parsons, and others. But the book enhances interest by locating for its chapter subjects some fresh and less familiar individuals, too. Editor Lichtenstein hopes that the thirteen essays here will help awake the twenty-first century from its dogmatic slumber. “Historical consciousness,” he writes, “remains one of the intellect’s most potent subversions, which is why it is our hope that an historical understanding of twentieth-century capitalism can unsteady a few twentieth-first-century verities and provide a glimpse of a possible future that is something more than a return to the political economy of a pre-New Deal era that we once thought long-buried” (p. 17).

The book has four parts. It opens with two essays, by Howard Brick and David C. Engerman, which set theoretical frameworks for the other sections. These parts divide into the topics of “Liberalism and Its Social Agenda,” “A Critique from the Left,” and “The Rise of the Right.” Part II on liberalism brings essays about Clark Kerr (Paddy Riley), Galbraith (Kevin Mattson), and Peter Drucker (Nils Gilman). Part III on the Left offers pieces on Mills (Daniel Geary), C. L. R. James (Christopher Phelps), Oliver C. Cox (Christopher A. McAuley), and three historians of feminism (Daniel Horowitz). The section on the Right looks at Friedrich von Hayek (Juliet Williams), Congressional investigation committees (Alice O’Connor), Lemuel Ricketts Boulware (Kimberly Phillips-Fein), and Ayn Rand (Jennifer Burns).

Brick’s essay speaks to one of the considerations addressed in this volume. Titled “The Post-Capitalist Vision in Twentieth-Century American Social Thought,” it seeks to recover a not-so-distant past when an array of American thinkers anticipated a transition away from the dominant capitalism in American history, with the expectation that the advancing twentieth century would supply new models of class and power. That vision, Brick concedes, was “largely limited to left-liberal intellectuals” and he includes among that company John Dewey, the progressives of the early New Republic, some of the New Deal intellectuals, and others, such as members of the Frankfurt School. This introduction suits the next two parts of the book quite well. What struck me about several of the essays in these sections on liberalism and the Left was their authors’ efforts to place their subjects within a larger complex of social criticism, to have us see how they derived from and expanded on larger currents of American thought. Brick supplies the lead by constructing the “post-capitalist vision” from native American roots that yield a sustaining, non-Marxian heritage of dissent serviceable for current use amid the intellectual malaise forged by triumphant capitalism.

To illustrate the pattern, Mattson’s essay on Galbraith recognizes a major contributor to the critique of capitalism who led in fashioning an “aesthetic” or “qualitative” liberalism. But we should not understand Galbraith as simply a brilliant or idiosyncratic dissenter. Mattson traces connections to Thorstein Veblen, Dewey, Adolph Berle, and Gardiner Means, thus rooting Galbraith in a tradition of American progressivism. We see similar efforts in Geary’s essay on Mills. Recognized as a major early voice of the American New Left, Mills often appears, in historians’ depictions of him, as the bold rebel from Texas, the intellectual on a motorcycle, an iconoclast even among the liberals at Columbia University. Geary, however, makes it the burden of his essay to show how Mills’ whole intellectual trajectory came out of, and from within, the currents of American academic sociology in the 1940s. Mills drew on and expanded the discussions of modernization theory, contributed significantly to the debates about Max Weber in this decade, and ultimately gave a new and more radical application to very topical subjects in the discipline.

Taken together then, the essays, at least in several key cases in the volume from Brick’s opening through Part III, have the effect of presenting the critique of capitalism as a kind of intellectual Popular Front. The individual subjects, however special and personal their contribution, relate to, draw from, and altogether enrich a viable native tradition of dissent. They are in the American grain.

We have a different story when it comes to Part IV on the Right. There are interesting essays here, to be sure, but I believe that somewhere an opportunity was missed. Williams cites Hayek’s current status as “a Cold War hack” and seeks to redeem him by showing that has was really not that dogmatic a defender of laissez-faire economics. So actually he’s sort of liberal. O’Connor’s essay describes the congressional investigations led by B. Carroll Reese in 1953 against the Rockefeller, Ford, Carnegie, and Sage foundations, accusing them of “un-American subversive activities.” In this instance, the defense of capitalism is exemplified by anti-elitist, anti-intellectual populists. Phillips-Fein’s essay on Boulware, the union-buster for General Electric, describes another zealous ideologue for the free market and the rights of business to run its own affairs. The last three subjects in this section appear in a rather unsavory light, and not unfairly so, in my judgment. But their inclusion raises questions about capitalism and the conservative movement.

Burns’s essay on Rand does the best job of relating pro-capitalism to that movement. She recalls the intense warfare Rand had with William F. Buckley, Jr., at National Review in the late 1950s. The Catholic Buckley and others at the journal recoiled from the efforts of the atheist Rand to defend capitalism on the ethical grounds of pure self-interest, liberated from any altruistic standards or any notion of a social morality. Whittaker Chambers joined in the attack on her.

With the exception only of a brief discussion of Garry Wills and a mention of Russell Kirk, the section on the Right leaves the overwhelming imprecision that conservatism is synonymous with an uncritical defense of capitalism. Even Rand and Buckley, after all, were simply debating on what grounds capitalism merits its defense. Readers here would thus have not a hint of a whole tradition of American conservative thinking that has registered a profound skepticism toward capitalism. I would have suggested placing Brick’s essay in the section on liberalism, as it recognizes only leftist thinkers in the “post-capitalist vision.” Then I would have offered an essay that showed the larger dimensions of the capitalist critique by bringing into the dissent any number of thinkers representing “the Right.” For there is a kind of conservative, a partisan of history, tradition, and social continuity, that is inherently uncomfortable with the dynamics of capitalism, with its destabilizing social impact, with its erosion of the organic community, with the hedonist culture it generates, with its reckless individualism. Here one could include the prolific conservative writer Kirk, who often recalled with bitterness the ugly inroads of industrialism into his beloved rural Michigan; one could look at the essays of George Will in the 1970s (“Capitalism undermines traditional social structures and values; it is a relentless engine of change, a revolutionary inflamer of appetites, enlarger of expectations, diminisher of patience”), or Irving Kristol (“Godfather of Neoconservatism”), who, in his Two Cheers for Capitalism, presented a trenchant critique of capitalism’s moral legitimacy. The American grain is not only a left-liberal one.

J. David Hoeveler is professor of history at the University of Wisconsin-Milwaukee. His most recent book is Creating the American Mind: Intellect and Politics in the Colonial Colleges.

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

Ecology, Colonialism, and Cattle: Central India in the Nineteenth Century

Author(s):Satya, Laxman D.
Reviewer(s):Gilmartin, David

Published by EH.NET (August 2006)

Laxman D. Satya, Ecology, Colonialism, and Cattle: Central India in the Nineteenth Century. New Delhi: Oxford University Press, 2004. x + 204 pp. Rs. 545 (cloth), ISBN: 0-19-566875-8.

Reviewed for EH.NET by David Gilmartin, Department of History, North Carolina State University.

This is a book about the ecological impact of British colonialism in Berar, in central India. Laxman D. Satya, who is a professor of history at Lock Haven University, is forceful in presenting the book’s central thesis, namely that British rule brought ecological disaster to this region in the second half of the nineteenth century. Though the book’s central focus is on cattle, the book is a sweeping denunciation of colonial rule that is cast in terms far broader than the history of cattle. “The environmental degradation brought about by the colonial state led to the ecological crisis that spelled doom for cattle in Berar,” he writes. But this was not a fate peculiar to cattle.

The basic argument is straightforward. The beginning of Berar’s degradation began with the introduction of cotton cultivation on a large scale in the 1850s and 1860s, encouraged by Berar’s fertile black soil. As a commercial crop linked to British colonial networks of production, cotton cultivation soon pushed out food grains, and led to the rapid extension of agriculture over previously open access lands in the region. “Wastelands” were occupied and “large areas of prime grazing lands and pastures hitherto available to cattle and people were forcefully put to plough.” This produced numerous effects. Deforestation led to decreases in rainfall. Water scarcity became a perennial problem as commercialization undermined earlier communal forms of water management, even as the colonial state took no active role in new irrigation investment or development. Problems of shrinking pasturage were exacerbated by British revenue policies. “Every act of the government,” Satya writes, “was designed to derive maximum profits at minimum cost to the state.” The result was an ecological crisis that produced accelerating effects in the last decades of the century, culminating in the “devastating” famine of 1899-1900. However much the British (and others) have sought to blame this famine on “natural” causes, the root cause, for Satya, lay not in the vicissitudes of nature, but in the ongoing, ecologically destructive policies of the British themselves.

This is the framework that Satya uses for analyzing the history of cattle in Berar. Their decline in these conditions was relentless and inescapable. Though Berar had at one time been known for its distinctive breeds of cattle, and for cattle fairs that attracted cattle traders from far-flung regions, by the beginning of the twentieth century, the condition of its cattle, both in terms of numbers and well-being, was deplorable. Using numerous statistical tables, the author shows an ongoing decline in the available pasturage for cattle, a decline in their numbers, and a cattle population increasingly subject to disease. Though this situation was in large part due to the general environmental deterioration of the province, it was also a product of the particular “anti-cattle ideology” of the British, who wanted to restrict the importance of mobile cattle in Berar in the interest of focusing on the extension of agriculture and settlement. Even as signs of increasing cattle mortality and deterioration increased, the British thus did little to counter it. This was evident, for example, in the British veterinary establishment in Berar, which was, as Satya notes, tiny and wholly inadequate. And even when the British did act in the name of controlling cattle disease, they did so using methods of quarantine and segregation that only reflected, in Satya’s words, the “authoritarian, patriarchal, and patronizing nature of the officials and the state.”

Given the relatively limited scholarly attention that has been focused on the history of cattle under the Raj, Satya’s detailed attention to the history of cattle in one region of colonial India is an important contribution to the historical literature. The book is based on careful research in government documents and provides us with a window on the dynamics of cattle keeping in the province. The chief weakness of the book lies in the single-mindedness of Satya’s commitment to proving, at every turn, that the colonial state was wholly responsible for Berar’s ecological disaster. To say this is neither to attack nor defend this thesis. There is plenty of solid evidence adduced to support his conclusions, even as there are instances in which he seems to push the evidence into contradictory corners. Rather, it is to suggest that there are a range of questions about the history of cattle in Berar that are either ignored or marginalized in the interests of sustaining this narrative of events. The very structure of his argument tends to lead him into presenting the colonial state as a monolithic entity and the people (and cattle) of Berar as a largely undifferentiated collection of victims. We get little analysis, for example, of the roles of power relations among the people of Berar and of the ways that these relations may have shaped (or been shaped by) control over cattle. Nor do we get much of an analysis of the ways that different groups of people went about trying to adapt to the significant changes that were taking place. Though there are occasional references to “resistance,” we in fact get little sense of how such resistance among cattle owners may have developed or been expressed. None of this is to detract from the book’s accomplishments. Yet, for all its careful research, this book succeeds more as a moral critique of colonialism than as a history of the changing place of cattle in Berar society, no doubt reflecting the author’s intent.

David Gilmartin is Professor of History at North Carolina State University. He has written on Muslim politics in the Punjab and on cattle-lifting in north India, and is currently completing a history of irrigation in the Indus basin in the British colonial period.

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

Schumpeter on the Economics of Innovation and the Development of Capitalism

Author(s):Heertje, Arnold
Reviewer(s):Frank, Mark W.

Published by EH.NET (August 2006)

Arnold Heertje, Schumpeter on the Economics of Innovation and the Development of Capitalism. Cheltenham, UK: Edward Elgar, 2006. vii + 142 pp. $90 (cloth), ISBN: 1-84542-445-X.

Reviewed for EH.NET by Mark W. Frank, Department of Economics and International Business, Sam Houston State University.

This book presents a collection of eleven reprinted essays written by Arnold Heertje (Professor Emeritus, University of Amsterdam), the outcome of twenty-five years of research on the work of Joseph Schumpeter. The book offers a solid introduction into the insights of Schumpeter’s vision, as well as an interesting first-hand account on the evolution of Schumpeter’s influence within economics over the past several decades.

The book’s eleven essays are organized into three thematic parts. The first part contains three essays which present a broad picture of Schumpeter’s life and thoughts. The first essay is, in fact, a reprint of Heertje’s wonderfully concise and informative biographical sketch of Schumpeter, originally published in The New Palgrave (1987). The second essay comments on Schumpeter’s understanding of technical change in a dynamic economic system. The third offers insights into Schumpeter’s role in the development of methodological individualism, a concept fundamental to the public-choice theory of James Buchanan and Gordon Tullock.

The second part of the book consists of two essays which concern Schumpeter’s view on the sustainability of capitalism, and a third essay, that deals almost exclusively with the work of Joseph Stiglitz. While the third essay (chapter 6, “From Schumpeter to Stiglitz”) is largely out of place in a book on Schumpeter, the first two essays constitute the most provocative and insightful parts of the entire book. These essays concern Schumpeter’s famous contention in Capitalism, Socialism and Democracy (1942) that capitalism would fail, despite its successes, and be replaced by a socialist society. With the advantage of hindsight, Heertje argues Schumpeter largely missed the mark on this prediction, and considers inconsistencies in Schumpeter’s thought to be the primary cause. In Heertje’s view, the importance of small firms and new entrepreneurs, so prominent in Schumpeter’s earlier work, is missing in his later work, replaced with the routine mechanization of large monopolistic firms. Had Schumpeter remained faithful to his original connotation of entrepreneurs, according to Heertje, he would not have lost faith in the creative destruction of capitalism. But such are the inherent contradictions of Schumpeter, in his writings as well as in his life.

The third and final part consists of two essays concerning the role of technical change and economic growth in the writings of Schumpeter, one essay comparing Schumpeter’s work with that of Keynes, and two essays reviewing more recent works by neo-Schumpeterians. Though the thematic connection of these five essays is less obvious, the attempt to place Schumpeter in a larger historical context is well valued. Heertje also shows us in these essays that he is no blind disciple of Schumpeter, despite devoting several decades to the study of his work. Heertje’s repeated criticisms of Schumpeter’s lack of mathematical rigor, for example, are quite striking (though justified). According to Heertje, Schumpeter’s work should be seen as ramified analysis and description, not true economic theory. While Schumpeter’s counterpart Keynes was able to successfully use the mathematical apparatus of this time, Schumpeter’s visions of economic discontinuity lacked such rigor. Heertje views this as a clear limiting factor in the early acceptance of Schumpeter’s work, though recent advances in endogenous growth theory, non-linear dynamics, and chaos theory have given rise to a new and promising generation of neo-Schumpeterians.

On the whole, this book offers a nice presentation of Schumpeter’s views on technical change, innovation, and entrepreneurs from one of the leading scholars on Schumpeter’s life and work. The book will certainly be of value to scholars of Schumpeter, but will also be of interest to novice-Schumpeterians interested in a concise and accessible critique on Schumpeter’s work.

Mark W. Frank is Associate Professor of Economics at Sam Houston State University, and author of “Schumpeter on Entrepreneurs and Innovation: A Reappraisal” Journal of the History of Economic Thought (1998): 505-16.

Subject(s):History of Technology, including Technological Change
Geographic Area(s):General, International, or Comparative
Time Period(s):20th Century: WWII and post-WWII

Muddied Waters: Historical and Contemporary Perspectives on Management of Forests and Fisheries in Island Southeast Asia

Author(s):Boomgaard, Peter
Henley, David
Osseweijer, Manon
Reviewer(s):Nawiyanto, S.

Published by EH.NET (August 2006)

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Peter Boomgaard, David Henley and Manon Osseweijer, editors, Muddied Waters: Historical and Contemporary Perspectives on Management of Forests and Fisheries in Island Southeast Asia. Leiden: KITLV Press, 2005. viii + 418 pp. ?35 (paperback), ISBN: 90-6718-243-5.

Reviewed for EH.NET by S. Nawiyanto, Division of Pacific and Asian History, RSPAS, Australian National University and Department of History, Jember University, Indonesia.

This book is edited by three prominent scholars in Southeast Asian studies. Peter Boomgaard is Professor of Environmental History of Southeast Asia at the University of Amsterdam and senior researcher at the Royal Institute of Linguistics and Anthropology (KITLV) in Leiden. David Henley is a researcher at the Royal Netherlands Institute of Southeast Asian and Caribbean Studies (KITLV). Manon Osseweijer is academic affairs coordinator at the International Institute for Asian Studies in Leiden. This volume is the outcome of a workshop on “Sustainability and Depletion in Island Southeast Asia: Forests and Fisheries, Past and Present,” held in Leiden in 2002 and is the sequel to a pioneering work, entitled Paper Landscapes: Explorations in the Environmental History of Indonesia (Boomgaard, Henley, and Colombijn, 1997). The two volumes, however, are quite different. Drawn heavily upon archival and published materials, the earlier work focused on historical developments exerting great influence on current environmental realities. The present volume, by contrast, puts a much stronger emphasis on contemporary conditions, and is strongly supported by close observation through field work and experience as “muddy-boots environmentalists.” It contains sixteen contributions, organized under two headings — fisheries (six papers) and forests (eight papers), preceded by two introductory papers by Henley and Osseweijer, and by Fox, which make this collection of papers systematically hang together well.

By focusing the history of human-environment relationships in Southeast Asia, this volume seeks to identify several preconditions for sustainable marine and forest resource uses. It wrestles with a complex of broad questions: Why did the exploitation of forest and marine resources in the past have limited consequences on the environment? Did these limited consequences result from better management and institutions in the past? Or did it have something to do with lower population densities, less developed markets and less efficient extraction technology? It is surely not an easy task to establish conclusive answers to these questions due primarily to the unavailability or unreliability of statistical data on resources. Such problems are paramount particularly in the section on fisheries. But quite surprisingly, similar problems still persist, even in contemporary forest statistics. In the fisheries section, most papers focus on Indonesia, while other countries are only cursorily discussed. There is no paper specifically dealing with fisheries in the Philippines, which obviously makes up one major part of the island Southeast Asia. In this connection, the forests section is much more balanced with the inclusion of various contributions specifically discussing forest issues in island Southeast Asian countries other than Indonesia.

Despite the imbalance, contributions in the fisheries section are able to grasp core issues in this sector. One major view arising from most papers concerns the issues of declining marine resources. A macro study by Butcher argues that a great variety of marine populations in Southeast Asia had been on the decline since 1850, but steep decreases took place only from around 1960. Butcher’s argument is adequately supported with evidence taken from across the region, such as rays and slipmouths in the Gulf of Thailand, flying fish off the southwest coast of Sulawesi, fusiliers and groupers in the Philippines and Indonesia, and trepang and shellfish in many places in Southeast Asia. According to Butcher, this depletion was the result of improved boats and fishing gear and rising numbers of fishing vessels, marking what Butcher describes as “the great fish race.” Boomgaard’s study suggests a relatively similar view, stating that particular marine species, with a special reference to trepang and turtles, experienced depletion only in the last decade of the twentieth century. But, unlike Butcher’s broad assertion of little impact of human activities on marine populations until 1850, Boomgaard suggests that local depletion of fish stocks might have appeared much earlier — beginning around 1600.

The use of resources, however, is not the only variable in the question of marine resource sustainability. There are other factors that also exert great influence on the issue of resource sustainability. On the basis of the Singapore case, Reeves and Reeves argue that the development of this island as a multi-faceted port city caused the demise of inshore and culture fisheries. The ways in which marine resources were managed and with which groups the control over resources rested, however, seem to be key issues requiring broader investigation. Atun?s’ micro study on Kei Besar, Maluku clearly demonstrates that changes in power relationships and wealth distribution in the community-based resource management system led to unsustainable exploitation. In his study on island Riau, Osseweijer underlines that a complex of problems, including the lack of consensus among state institutions, different points of view between government and fishing communities, and the growing environmental problems, inhibits the success of the state in promoting sustainable marine development. A study by Arnscheidt on marine conservation in Indonesia argues that the inability of the government to create effective communication among bureaucrats was responsible for the failure of the well-designed marine protected areas to promote the sustainable use of resources.

The section on forests provides much deeper and detailed insights into the questions of resource depletion and sustainability, reflecting the longer and more established academic interests and concerns about this topic. Deforestation and biodiversity loss are in focus in many contributions and there seems to be some agreement on certain issues. One of them is the consensus about the rapid rate of natural forest and biodiversity loss in many parts of inland Southeast Asia from the second half of the twentieth century, despite diverse estimates of the exact rates due to data limitations and other methodological problems. Strongly voiced in part by Fox’s study, the two trends are well-discussed either together or separately in broad studies by Boomgaard on Indonesian forests, by Aiken on Peninsular Malaysian forests, by Kummer on Philippine forests, and also in more regional studies by Persoon and Wakker on Sumatran forests, and by Potter on Kalimantan forests. As most papers suggest, the assault of the Southeast Asian forest was caused by the combined forces of population growth, commercialization, and technological advances.

But, as the section shows, the relationship between population, commercialization, and technology on one side and deforestation on the other is often more complicated than what has been previously thought. As Henley underlines in the introductory chapter, the role of these structural forces is ambivalent and is also greatly affected by other variables including property rights, economic development, and resources management systems. Under particular circumstances, demographic and commercial pressures stimulated sustainable forms of forest resource use and provided incentives for conservation. Aiken observes that in Peninsular Malaysia the rate of deforestation has declined with the successful achievement of economic development, despite continuing commercialization. Kummer notes that in several parts of the Philippines, extensive reforestation took place in the 1990s under the farmers’ own initiatives in response to market opportunities. But, Budidarsono and Burgers highlight that in Java during the crisis and Reformasi era, demographic and commercial pressures brought an alarming increase in deforested areas.

The contributions on forests also cast a new light on the role of the state in the context of resource sustainability. What emerges from the discussion is that there is no single, uniform conclusion on this issue. Boomgaard notes that in Indonesia the Dutch colonial state was relatively successful in achieving sustainable use of teak forests, but that was no longer the case for the state after independence. Fox’s contribution suggests that the Indonesian state during both colonial and post-colonial period was responsible for the sandalwood depletion. Similarly, Kummer describes the Philippines as a good example of a state with a policy of “how not to manage natural resources.” Two other studies by Henley on sago in pre-colonial Sulawesi and Colombijn on non-timber forest products in pre-1870 Sumatra provide examples of the successful role of ‘pre-colonial states” in promoting sustainable use of forest resources. Henley argues that in certain cases, direct state control and effective government agents are preconditions required for successful management of resources. Meanwhile, Colombijn underlines that sustainable exploitation of non-timber forest products depended also on other factors including the regenerative power of the crops, geographical distribution, and mode of collection.

On the whole, Muddied Waters offers an invaluable contribution to the environmental study of Southeast Asia. It joins pioneering efforts on the environmental history of the region in general and Indonesia in particular to expand the historical horizon beyond conventional interests. Henley and Colombijn’s contributions, in particular, provide excellent model of the historical study on non-timber forest resources and pre-colonial management systems, important issues that have frequently been neglected. For environmental studies, this volume provides a better understanding of the historical roots of contemporary environmental issues. Deforestation, overfishing, and biodiversity loss obviously are not new, but phenomena that have deep historical roots in colonial times. What makes them look new is the scale and intensity of problems and the fast-growing role of human agency in changing the environment, either for good or bad. For resource management studies, this volume brings a new awareness that there is basically no single panacea — either centralized state, decentralized or community-based management — for marine and forest resource depletion in order to achieve a sustainable level of resource use. Effective resource management in the present context seems to require a balance combining multiple parties, interests and institutions. This balance, however, should be flexible both in spatial and temporal settings, given the characteristically different ecological, economic, and socio-political circumstances from one locality to another. The volume is also well illustrated with photographs from early and more recent times, taking the readers’ imagination through time and helping their understanding of the region, its people and its changing environment.

S. Nawiyanto is a Ph.D. student in the Division of Pacific and Asian History, RSPAS, Australian National University, Canberra and lecturer in the Department of History, Jember University, Indonesia. He is currently writing his thesis on the environmental history of Besuki residency, East Java, Indonesia. His publications include: “The Economy of Besuki during the 1930s Depression,” in P. Boomgaard and I. Brown, editors, Weathering the Storms: The Economies of Southeast Asia in the 1930s Depression (Singapore: Institute of Southeast Asian Studies, 2000); Translator, Fondasi Historis Ekonomi Indonesia [Historical Foundations of a National Economy], edited by J.T. Lindblad (Yogyakarta: Pustaka Pelajar, 2002); Agricultural Development in a Frontier Region of Java: Besuki, 1870-Early 1970 (Yogyakarta: Galang Press, 2003); The Rising Sun in a Javanese Rice Granary: Change and Impact of Japanese Occupation on the Agricultural Economy of Besuki Residency 1942-1945 (Yogyakarta: Galang Press, 2005); “Responses to the Crises in a Javanese Frontier Society: Besuki’s Experience in Historical Perspective” (forthcoming).

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

Migration and Economic Growth: A Study of Great Britain and the Atlantic Economy

Author(s):Thomas, Brinley
Reviewer(s):Foreman-Peck, James

Classic Reviews in Economic History

Brinley Thomas, Migration and Economic Growth: A Study of Great Britain and the Atlantic Economy. Cambridge: Cambridge University Press, 1954. 362 pp. (second edition, 1973, xxxi + 498 pp.)

Review Essay by James Foreman-Peck, Department of Economics, Cardiff Business School, Cardiff University.

The Rise and Fall of the Atlantic Economic Community

Brinley Thomas’ (1906-1994) contention that “it is instructive to regard the Atlantic community of nations as one economy” was immensely refreshing for those of us brought up on national economic histories. Interactions with the wider world tended to be downplayed or at least left unexplained in more conventional accounts. Moreover Migration and Economic Growth was not the work simply of a period specialist historian; Thomas was an economist, deploying a massive range of statistics to discover the nineteenth-century world that had been lost after a half century of total war.[1] In the second edition, this world, in many respects rather close to textbook neoclassical economics, provided a fruitful means of interpreting the great boom after 1945, as well.

Unusually by today’s standards, the study begins with a history of nineteenth-century thought about non-competing groups, social mobility and migration. Traditionally trade theory assumed perfect mobility of labor within the national economy, but none between economies. Changes in trade policy and market integration required shifts of employment between sectors within the national economy. Yet in the later nineteenth century, rather than change occupation and sectors, workers would often choose a different country of residence; they were not substitutes or competitors for other types of labor.

Thomas concentrates on class rather than occupational immobility, however. He has a model of secular changes in social structure and mobility (from landless laborer to landowning farmer). This scheme bolsters an argument for national protectionism, when land is owned by residents of a different country. Industrialization brings social stratification and, with a rigid social structure, immigrants are no longer welcome. In a later chapter his “dynamic theory of economic development,” involving increasing U.S. social rigidity as the land filled up over the nineteenth century, is used to explain the switch of British immigration away from the U.S. in the years 1896-1913, when immigration from other destinations was booming.

In Part 2, Thomas discusses his British and U.S. statistical sources. He concludes that changes in the series, if not the levels, can be trusted. Part 3 contains the analysis of the first edition and the second edition includes a Part 4, a reappraisal.

As Thomas’s obituarist and former research assistant makes clear, the structure of the book, and particularly the second edition, is the outcome of an evolutionary process (Lewis 1996). The central idea was published as an article in 1951, and appears as chapter 7 – “Migration and the Rhythm of Economic Growth.” The new edition was strongly influenced by Thomas’s work in the intervening years on urban development and economic growth and on the Welsh economy. The chief revision to the material of the first edition concerns Southern U.S. migration to the North. Thomas also adds chapters taking issue with his critics on the brain drain and on monetary influences, these last two swayed by the very different economic environment of the 1950s and 1960s.

Unlike Schumpeter, Thomas regards international migration as responding to innovations, as well as contributing to fluctuations. He also believes internal or rural-urban migration was a substitute for emigration so that when one was high the other was low. If the same type of people emigrated as migrated internally this is what we would expect — but not if they were non-competing groups.

Thomas’s central theme translates well as a real business cycle. A technology shock in a region raises the productivity of labor there. More capital and labor are supplied (migration) because higher wages match higher productivity; there is a positive correlation of the real wage and the upswing. This contrasts with shorter cycles perhaps based on workers’ misperceptions of prices and the real wage in monetary fluctuations. In the region without the positive shock, less labor and capital are supplied, because better returns are to be had elsewhere. In the booming region, the time necessary for building the infrastructure to take full advantage of the technology means that the flow of labor and capital continues for some years, until marginal returns are equalized again between regions (allowing for non-pecuniary differences and costs of migration), or other shocks occur.

Demographic impulses as well as technology shocks promote the distinctive inverse cycles between the regions. A case in point is the Napoleonic war “baby boomers” that, in due course Thomas maintains, created the “hungry forties.” Malthusian pressure in Europe pushed migrants to the U.S., capital tended to follow them and the demand for housing in the U.S. rose (even though, in contrast to the positive technology shock, real wages in the receiving region fall and those in the transmitting region rise, relative to what they would have been). Non-competing groups add richness to the model. To the extent that the immigrants are complementary to the indigenous work force, wages will rise. More likely is that some wages (say skilled) will rise and others fall – if, for instance, immigrants are unskilled. The more capital that flowed with the migrants the stronger the growth they promoted, and the less adverse the impact on wages.

Today we are more likely to consider Heckscher-Ohlin derived approaches, for example that focus on income distributional consequences of factor flows, or the determinants of skill premia.[2] When transport costs fall, free trade permits a lower price of food in land-scarce countries like Britain and leaves landowners and agricultural laborers worse off. This encourages migration (internal or external) from the rural sector regardless of class mobility, although not regardless of occupational mobility. But Thomas largely ignores trade, as well as product and factor prices.[3]

Part 3 of the second edition concludes with a chapter (12) on the impact of the U.S. immigration restrictions of the 1920s. Thomas observes that the legislation encouraged agricultural protectionism in Europe because redundant population, unable to move to the U.S., was employed growing subsidized crops. Migrants were also diverted to Canada and South America, boosting output there. He contends that the restrictions played an important part in the process that ended in the world depression. But “it is an ill wind that blows nobody any good”; Thomas’s final chapter (18) argues that black migrants from the South gained from the elimination of European competition. In the second edition he notes that white and black internal migration were inverse. The immigration restriction act of 1924 was followed by big increases in southern blacks in the North.[4] Conversely, “What the evidence suggests is that in the sixty years after the end of the Civil War the strong competition of white workers from abroad … set a stern limit to the number of blacks who could obtain employment in the booming urban areas of the North and West, and consequently they suffered relative impoverishment” (p. 333). Jeffrey Williamson (2005) cites later literature to this effect, and discusses the corollary that the position of blacks deteriorated after 1970 because of competition from immigrants.

Thomas’s chapter 16 on migration and British regional growth introduces the wider world to Welsh “exceptionalism.” This thesis allows the possibility of enlivening economic history syllabuses with questions such as “If Ireland had Wales’ coal would New York now conduct a parade on St. David’s rather than St. Patrick’s Day?” In the later nineteenth and early twentieth centuries Wales absorbed immigrants at a rate not much less than the U.S. in the same period. Migration cycles for Wales were inverse to those of Scotland and England; Wales exported coal (measured by tonnage Cardiff was the largest port in the world by 1890), whereas English coal was for domestic consumption.[5] Whereas Ireland lost population absolutely, and Scotland lost natural increase by net migration, Wales gained from net migration and the population almost doubled between 1871 and 1911.

Taking issue with “exceptionalism,” Dudley Baines (1985) has pointed out that the Welsh were more likely to emigrate than the English, and through England (Liverpool boasted the first real Welsh-language newspaper). He contends that the U.S. returns of the 1880s almost certainly classified the Welsh as English, and that internal migration does not seem to have been a substitute for emigration. Wales actually experienced a massive influx of English and others. In the 1870s and 1880s they may well have been assimilated, for the numbers of Welsh speakers rose in every decade to 1911, when there were more than a million (Davies 1994). But in the two decades before the First World War, foreign arrivals were too numerous to be absorbed culturally.

Omitted from the second edition is a discussion of the wider consequences of the interwar regime shift for the “Atlantic community.” In Chapter 14 (“The Atlantic Economy, Old and New”) of the first edition, the focus is on the disruption of factor flows and the role of government transfers within national economies. The labor and capital movements, that allowed adjustment of “regional” economies despite the apparently irrevocable linking of exchange rates through the gold standard, and compensatory public spending, are suggestive of the later optimum currency area literature.

Pursuing the greater role of government, Thomas analyzes the “brain drain” in the years after 1945 in chapter 17 of the second edition. Highly skilled labor migrated from poorer economies (often where they were trained at public expense) to richer countries. In the U.S. Brinley explains the phenomenon by the massive expansion of government expenditure, particularly research and development spending, together with inelasticity of skilled labor supply. In Britain by contrast, immigration of highly skilled personnel merely offset emigration to the U.S. and elsewhere.

How much further has half a century of analysis and data construction taken us? General equilibrium modeling and econometric estimation have certainly added precision both to the questions and the answers. But Thomas’s book continues to be worth reading thanks to his ability to identify and analyze empirically a range of important problems over 120 years or more of the Atlantic economy.

Notes: 1. I met Thomas in California in the early 1980s when I believe he was in demand to entertain the All-California group of economic historians with after dinner speeches. Among other nuggets he offered me was the optimum quantity of money to carry if obliged to walk in Berkeley after dark (as he was sometimes). He estimated that two 20 dollar bills were sufficient to avoid being beaten up by frustrated muggers, while not imposing an intolerable burden on the budget. I am unsure as to whether this doctrine was ever tested.

2. Jeffrey Williamson and collaborators (for example Hatton and Williamson 1998, and O’Rourke and Williamson 1999) have been particularly influential in this respect.

3. The neglect of Ohlin’s (1933) book is presumably because it was nominally about trade while Thomas was interested in factor mobility.

4. Subsequently Hatton and Williamson (2006) constructed a counterfactual immigration rate and level in the absence of the legislation, showing that it accounted for about half of the reduction in labor supply and therefore for even more of the decline in unskilled labor force growth.

5. Lewis (1960) analyzes a helpful model of such an export economy, in which today “coal” would probably be replaced by “tradable goods” and “building” by “non-tradable (capital) goods.”

References:

Baines, Dudley. 1985. Migration in a Mature Economy: Emigration and Internal Migration in England and Wales, 1861-1900. Cambridge: Cambridge University Press.

Davies, John. 1994. A History of Wales. London: Penguin.

Hatton, Timothy J. and Jeffrey G. Williamson. 1998. The Age of Mass Migration: Causes and Economic Impact, New York: Oxford University Press.

Hatton, Timothy J. and Jeffrey G. Williamson. 2006. Global Migration and the World Economy: Two Centuries of Policy and Performance. Cambridge, MA; MIT Press.

Lewis, J. Parry. 1960. “Building Cycles: A Regional Model and Its National Setting,” Economic Journal 70 (September): 519-35.

Lewis, J. Parry. 1996. “Brinley Thomas, C.B.E., M.A., Ph.D., F.B.A.: Formerly Fellow of the University of Wales,” Economic Journal 106 (July): 984-93

Ohlin, Bertil G. 1933. Interregional and International Trade. Cambridge, MA: Harvard University Press.

O’Rourke, Kevin H. and Jeffrey G. Williamson. 1999. Globalization and History: The Evolution of a Nineteenth-Century Atlantic Economy. Cambridge, MA: MIT Press.

Williamson, Jeffrey G. 2005. The Political Economy of World Mass Migration: Comparing Two Global Centuries. Washington, DC: American Enterprise Institute.

Director of the Welsh Institute for Research in Economics and Development and former President of the European Historical Economics Society, James Foreman-Peck has been Economic Adviser at H.M. Treasury concerned with micro-economic policy issues, particularly public service delivery and procurement. Other previous posts include Professor of Economic History at the University of Hull, Visiting Associate Professor of Economics at the University of California, Davis, and Fellow of St Antony’s College, University of Oxford. His books include A History of the World Economy: International Economic Relations since 1850, Public and Private Ownership of British Industry 1820-1990 (with R. Millward) and European Industrial Policy: The Twentieth Century Experience (edited with G. Federico).

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