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McKenna, Marian C., Franklin D. Roosevelt and the Great Constitutional War: The Court Packing Crisis of 1937. New York: Fordham University Press, 2002. xxvi + 612 pp. $60.00 (cloth), ISBN: 0-8232-2154-7.
Reviewed for EH.NET by Dr. Harvey G. Hudspeth, Department of Social Sciences, Mississippi Valley State University, Itta Bena, MS.
As a young graduate student at the University of Mississippi, I had originally planned to devote my dissertation to the subject of the Roosevelt Court and the Court Packing Plan of 1937. Having just read professor McKenna’s study on that very subject, I am frankly relieved that my graduate advisor talked me out of it. Franklin Roosevelt and the Great Constitutional War is a brilliantly researched, thoroughly documented book. It is probably the most definitive work ever written on the entire 1937 controversy.
1) How a “popular political leader can climb to dizzying heights” only to plunge within a short time to “an all-time low”; 2) How presidents can often assert even less influence over domestic affairs than exercise over foreign affairs; 3) How FDR was not the “master politician” that most historians have made him out to be; 4) How FDR’s Court Packing Plan, far from being a last-minute reaction to an “obstructionist Supreme Court,” was instead, “a long time in the making”; and 5) How FDR’s threat to remake the Court ultimately had no effect on subsequent Court decisions.
McKenna’s argument that neither Owen Robert’s notorious “Switch in Time that Saved Nine” vote in Parrish and Willis Van DeVanter’s subsequent decision to retire had not in any way been influenced by constitutional concerns as to the future political integrity of the High Bench are at best half-hearted. Even if these decisions were reached before Roosevelt’s formal announcement of his judicial scheme, neither justice could have possibly been unaware of the president’s ultimate intent. As McKenna repeatedly points out, the Roosevelt Administration had been working on a plan for “judicial reorganization” even before it took command of the government in 1933.
Nevertheless, McKenna does an excellent job in establishing her other points. In much the same way as Julius Caesar clearly yearned to become Emperor of Rome (before his assassination at the hands of senators concerned for the future of the Republic), Franklin Roosevelt’s de facto control of both executive and legislative branches of the federal government obviously were not enough to satisfy his perceived desire for absolute power. His “judicial reorganization bill” was consequently seen by most Americans (even his most devoted admirers of that time and afterwards) as a bald-faced attempt to achieve his final goal. In his effort to accomplish this, he single-handedly demonstrated McKenna’s point that a political leader can sacrifice his popularity without need of a Vietnam or a Watergate. He can also prove to be as ineffectual in domestic maters as a Bill Clinton with universal health care.
Dr. McKenna has also more than successfully established the fact that while Franklin Roosevelt may have been a “master politician,” he was apparently not the master politician that he thought he was – at least not to the extent that he could manipulate both the Congress and the American people into allowing him to take personal control over the judicial branch of the government. No matter how out-of-touch it might have seemed to most Americans with regard to their current economic and social problems, the idea of a future Court being at the mercy of Roosevelt or a future less-enlightened despot cut against the grain of American Democracy. As McKenna makes clear, patrician elitist that he might have been, even Franklin Roosevelt should have recognized this basic reality and responded accordingly. Coming at a time when such erstwhile tyrants as Adolf Hitler and Benito Mussolini were demanding similar “emergency” powers so as to allow them absolute power in Germany and Italy respectively, this was especially true for Roosevelt.
The book, regrettably, is not without its technical flaws. To my knowledge, Jim Farley was never secretary of the treasury (page three – of course, a simple comma could have avoided that error). Additionally, Olin T. Johnson was never governor of Alabama, but even if he had been as McKenna suggests (page 545), he never could have legally contested “Cotton Ed” Smith’s 1938 re-election bid to the US Senate from South Carolina. All of that notwithstanding, McKenna has made an excellent contribution to both the political and constitutional history of the United States – not to mention to a new understanding of our heretofore Teflon-like thirty-second president. Apparently, not even our so-called “gods” are quite as bullet-proof as some of us would seem to prefer.
In her epilogue, Dr. McKenna makes no bones in her by-now well-established contention that, as beloved and as talented and as well-intentioned as he might have been, America’s would-be emperor essentially had no clothes. In her final analysis of the President’s performance, she shines “a different and far less flattering light on Roosevelt’s political leadership, personal integrity, and character from that presented in previous accounts.” Citing both FDR and his advisors for “a series of political mistakes, bad miscalculation, and failures of judgment,” McKenna concludes that the Court-Packing fiasco constituted “the worst political defeat ever endured by a president at the pinnacle of his power.” Excluding scandals and wars, it is difficult to find fault with her conclusions.
Dr. Harvey G. Hudspeth is past president of the Economic and Business Historical Society. His essay, “The Roosevelt Court and the Changing Nature of American Liberalism: An Uncertain Legacy,” is scheduled for publication as part of Franklin D. Roosevelt and the Transformation of the Supreme Court in March 2003.
(paperback), ISBN: 0-415-24409-9; $60 (hardcover), ISBN: 0-415-24408-0.
consumerism; and the third, the future of consumerism.
treating consumerism as neither inherently good or evil.
the adoption of ideas that are at once assumptions and cases to be tested.
however, it has been overlooked.
history, his full insights on this issue would have been especially welcome.
secondary sources listed as “Suggested Readings” at the end of each chapter.
currently conducts the USC History Department’s course on Modern World History.
Morton J. Horwitz, The Transformation of American Law, 1780-1860. Cambridge, MA: Harvard University Press, 1977. xvii + 356 pp.
Review Essay by Winifred B. Rothenberg, Department of Economics, Tufts University.
Horwitz is not alone in remarking a critical period in the law in and around the 1780s. For Roscoe Pound, the early years of the Republic were “the formative era of American law,” although he seems thoroughly to have rejected the notion, so central to Horwitz, of an ideological discontinuity at that time. “Tenacity of a taught legal tradition,” he wrote, “is much more significant in our legal history than the economic conditions of time and place”(Pound, p. 82).4 But in William E. Nelson’s telling, “The War of Independence ushered in the beginning of a new legal and social order . . . the most important element [of which] was the emergence of new legal doctrines that recognized the materialism of the age” (Nelson, p. 5). And Lawrence Friedman, author of the first general history of American law, describes a “fundamental change in the concept of law” after the Revolution, one in which “the primary function of law was … to be a utilitarian tool [protecting] property in motion or at risk rather than property secure and at rest . . . [in order] to foster growth [and] to release and harness the energy latent in the commonwealth” (Friedman, p. 100).
Horwitz’s use of the word “instrumental” is an important clue to his thesis. The dictionary definition of ‘instrumental’ is simply “helpful; serving as a means,” in which sense the word could apply equally well — could it not? — to the eighteenth-century English common law which just because it was based on precedent, was biased in favor of the status quo, was indifferent to social consequences and was resistant to change, was ‘instrumental’ insofar as it preserved order in a society that valued order above all things. It is clear, then, that Horwitz uses the word ‘instrumental’ in a heightened sense to mean reshaping private law so that it may serve as “a creative instrument for directing men’s energy toward social change” (p. 1). To effect social change within a common law tradition inherently biased against change required a transformation not only of legal rules but of the role of judge-made law in the society. Courts shed their passivity, to the point of assuming a quasi-legislative role. Early nineteenth century judges understood — Coase to the contrary notwithstanding — that legal rules do matter, that “different sets of legal rules would have differential effects on economic growth, depending both on the distribution of wealth they produced and the level of investment they encouraged” (p. xvii, note).
The property-rights emphasis in the New Institutional Economic History makes knowing what property rights _are_ a matter of importance, what they _were_ a matter of greater importance, and that they are not what they were, and why, of greater importance still. The substance of Horwitz’s argument begins with property law the transformation of which ran parallel to a transformation in the conception of property itself, from an estate to be tranquilly enjoyed (in the eighteenth century), to a resource to be productively employed (in the nineteenth). The rubric of property law included riparian and other water-power rights, tenant rights, and the law of ‘waste.’ Eminent domain, nuisance, negligence, and damages fall under this rubric as well, but rules changes in those areas figured so conspicuously as subsidies to growth sectors in the economy that Horwitz treats them as such in a separate category.
Land use in the eighteenth century was constrained within two legal maxims that seem at first glance to check each other, but in fact were mutually reinforcing. On one hand stood Blackstone’s definition of private property rights as absolute: “the sole and despotic dominion which one man claims and exercises over the external things of the world in total exclusion of the rights of any other individual in the universe.” On the other stood the ancient common law principle in which property rights appear to be conditional: sic utere tuo, ut alienum non laedas, ‘so use yours that others be not harmed’. But far from mitigating the despotism of A’s dominion, sic utere extended it, for it conferred on A the power to prevent any use by B of his own land that disturbed A’s quiet enjoyment.
Property law would have to change to accommodate the nineteenth century, and it was with respect to rights in the use of water that judges, “listening to the future,” began the transformation. Two iconic cases, Merritt v. Parker (New Jersey, 1795) and Palmer v. Mulligan (New York, 1805) defined the era. Both are riparian rights cases in which a new user constructed a mill upstream or downstream of a prior user, obstructing, diverting, diminishing the flow of water or back-flooding the land. In 1795 the plaintiff won on the common law principle of aqua currit et debet currere, ‘water runs and ought to run.’ In 1805 the defendant won on efficiency grounds: that “explicit consideration of the relative efficiencies of conflicting property uses should be the paramount test of what constitutes legally justifiable injury” (p. 38). On the cusp of the new century the rules of the game had changed.
Palmer v. Mulligan may have been the tipping point that Horwitz tells us it was, but in fact it was challenged, Horwitz tells us, by other judges and by Joseph Angell in his treatise on watercourses. As late as 1827, in Tyler v. Wilkinson, the much-esteemed Justice Story of Massachusetts attacked the Palmer decision as “unjust.” His rejection of the ‘efficiency’ and ‘balancing’ standards that had been determining in Palmer “spawned a line of decisions opposed to all diversion or obstruction of water regardless of any beneficial consequences, [and] marks the nineteenth-century high point in articulating the traditional conception of property that had already come under attack” (p. 39, emphasis mine). In another watercourse case, Cary v. Daniels (1844), Chief Justice Shaw “stated a legal doctrine strikingly different from Story’s earlier formulation [in Palmer]” (p. 41). Judge Morton came down on the other side of Story on the Charles River Bridge’s claim of prescriptive rights. The reader, then, is tempted to ask which — Palmer or Tyler? Story or Angell or Morton or Story? — correctly caught the spirit of the age? Could Horwitz be accused, here and indeed throughout, of selection bias in the judicial opinions upon which he chose to hang his argument? In the age of waterpower there must have been hundreds of riparian rights cases in state courts all over the country.5 How much and how wide was the difference of opinion among sitting state court judges on each of the pivotal issues that made new law? By what process did one opinion become regnant, diffuse, and become new law? Had Horwitz wanted to construct an operationally testable hypothesis, these are the questions, I should have thought, with which he would have dealt. It is early in this review to make this point, but it should, I think, be made.
If ‘for example’ is not proof, neither is it irrelevant to a proof. If the “professional historians and other nonlegally-trained scholars” for whom The Transformation of American Law was written (p. x) are persuaded by it, it will be in large part because of the sheer weight of the evidence, the enormous amount of corroborating testimony with which Horwitz has illuminated a critical juncture in the history of ideas in America.
The reinterpretation of eighteenth-century Mill Acts provided another opportunity for nineteenth-century courts to shed the neutrality with which the common law had clothed them and overtly to take sides in the “sacrifice of ‘old’ property for the benefit of the ‘new'” (p. 63). “Under the Mill Acts, an owner of a mill situated on any non-navigable stream was permitted to raise a dam and permanently flood the land of all his neighbors, without seeking prior permission” (p. 48). Mill Acts had been enacted by provincial legislatures as early as 1713 to privilege colonial gristmills on the ground that they were private enterprises exercising a public function. This gave the floodings something of the character of a taking in eminent domain. A jury set the height of the dam, the time of the flooding, and the compensation. In return for the remedies provided in the Acts, the plaintiffs relinquished their common law right to sue for trespass, for punitive damages, for nuisance, or to seek an injunction. But in 1827, the Massachusetts court extended to textile, paper, and saw mills, unaffected with any public interest, the same privileges and immunities, allowing them “virtually unlimited discretion to destroy the value of lands far in excess of any benefit they might possibly receive,” while at the same time to “escape damages entirely by showing that the irrigation benefits the plaintiff received from having his lands over-flowed more than outweighed any injury he had incurred” (pp. 50-51). A sterner lesson could be drawn from this but for the fact that the Mill Acts, in response to public outrage, were repealed in 1830.
Immediately after the Revolution, the “release of energy” that Willard Hurst would teach us to associate with the buoyant business of settling Wisconsin, could already be felt in the ambitious infrastructure projects being undertaken in the East. At such a time, “the most potent legal weapon” in the quiver of an instrumental jurisprudence is the power of eminent domain. Late in his book, Horwitz says of its potential to take and redistribute wealth that it was “the one truly explosive legal ‘time bomb’ in all antebellum law” (p. 259). That a State should have such a power inheres in the principle of sovereignty itself. Under English law, all who hold land do so at the sufferance of the Sovereign. Under U.S. law, where sovereignty resides in the whole people represented by the states, those states possess “unlimited power”(p. 65) to take private property for public use — even, in the case of railroads, to take private property for private use. The argument has gone even further: even to take private property for private use without compensation, for (argued counsel for the railroads) any limitation of the power of eminent domain is a limitation of sovereignty (p. 65). And, indeed, until the ratification of the fourteenth amendment carried the Bill of Rights to the States, the clause of the Fifth Amendment that reads, “nor shall private property be taken for any public use without just compensation” bound only the Congress. Most state constitutions had no such provision even as late as 1820.
Aware, as they always were, that the ad hoc outcomes of eminent domain cases could set precedents that would impact significantly upon the cost of future development projects across the continent, the courts became involved in eminent domain takings only when disputes arose over compensation. How, for example, should the land be valued? By the current owner’s purchase price? By its current price? By its estimated future price given the trend rate of growth of population and land prices? Or by speculating as to its value after the projected construction has secured its market access? Any one of these, even the most generous, could have a perverse outcome: in one of the many cases involving abutters injured by the diversion of water during construction of the Erie Canal, compensation was denied entirely on the ground that the “general increase in land values and access to markets” that might arise as a consequence of the Canal was sufficient remedy (p. 69).
And how should the consequential destruction of property be compensated? In the Erie Canal cases, the court exempted consequential injuries from liability, and never did make clear the grounds on which it did so. Horwitz suggests five: ? the risk of consequential damage was already discounted in the price originally paid for the land; ? the threat of appropriation by the state was already discounted in the price originally paid for the land; ? the injury was damnum absque injuria, (defined in Black’s Law Dictionary as “a loss which does not give rise to an action for damages against the person causing it,” just something to be borne “as part of the price to be paid for the advantages of the social condition”); ? the injury resulted from a breach of contract that could not have been anticipated; ? the injury was entirely predictable, but it is not clear who should bear the cost. In the event, “Landowners whose property values were impaired without compensation in effect were compelled to underwrite a portion of economic development”(p. 70).
The question of who should bear the cost also lies at the center of the negligence doctrine. The issues in negligence law have attracted considerable attention, not only because it is “the largest item of business on the civil side of the nation’s trial courts,” but also because Richard Posner’s well-known analysis of appellate-level determinations in cases of railroad and street railway accidents launched the field of Law and Economics (Posner, p. 29). In that exhaustive study, Posner tested his hypothesis that sitting justices aimed to set damage awards in such a way as to ‘make the market work'; that is, “to bring about an efficient level of accidents and safety” (Posner, p. 34). “The only recognized basis for invoking the legal process to shift an accident loss from the victim to another party is the expectation of improving the efficiency of resource use.” If, as a result of an accident, the magnitude of the loss, L, weighted by the probability or forseeability of it happening, a, is less than the cost, C, of preventing it, then economic welfare requires that the injurer not assume the costs of prevention. The injurer — it was so often the railroad — would do better, both for itself and with respect to maximizing some social welfare function, to assume liability and pay full damages to the victim rather than incur the cost of installing guard-rails, fences, gates and bells at every cross-road, automatic coupling devices, fire extinguishers, etc. to prevent further accidents. The observed behavior of judges confirmed Posner’s proposition. But his data are for the period 1875-1905, leaving room for Horwitz’s discussion of the prior history of negligence to make an important contribution.
He traces the stages in the evolution of the negligence standard from the an eighteenth-century action for nuisance in which the defendant was held strictly liable; to nonfeasance or failure to perform a duty required by law or by contract; to carelessness, as in collisions between non-contracting strangers, where the joint-ness of the act makes causation (and therefore liability) difficult to determine; to contributory negligence where the assumption of the plaintiff’s complicity can defeat his claim against the defendant; to a standard, used in railroad and bridge collapse cases, where there is a defendant at fault but no liability on the rule that “injury brought about by risk-producing activity was itself no ground for imposing legal liability” (p. 97); and finally: to the use of the negligence standard as an instrument of social change. Judges, says Horwitz, were “encouraged to regard themselves as social engineers and legislators, whose decisions to impose liability were influenced by broader considerations of social policy” (p. 88). The rule governing the outcomes in Posner’s sample would, I should think, fit here.
In order to immunize new forms of enterprise against the huge costs of strict liability, the watering-down of negligence doctrine provided a significant subsidy to the dynamic edge of the American economy.6 As in the case of tariffs on British textiles, it is fair to ask, was this subsidy necessary? If it was, it should have been done, says Horwitz, through (progressive) taxation rather than through changing legal rules — a criticism he makes throughout. There are interests of substantive justice as well as of law at stake here, and, as should be clear by now, Horwitz has taken sides. “The increasingly ruthless application of the private law negligence principle . . . became a leading means by which the dynamic and growing forces in American society were able to challenge and eventually overwhelm the weak and relatively powerless segments of the American economy” (p. 99).
Evidence of the shift from “the old learning” (that contractual obligation derives “from the inherent justice or fairness of an exchange”) to the new (that contractual obligation shall reside solely in “the convergence of the wills of the contracting parties”) (p. 160) was made manifest as early as 1790 in the first legal action to acknowledge expectation damages. With the emergence of financial markets, “the function of contracts correspondingly shifted from that of simply transferring title to a specific item to that of ensuring an expected return” (p. 161, emphasis mine). Price could no longer be thought of as a stable, objective, customary, absolute measure of value when it was in the very instability of prices that gains were to be made and losses from foregone gains sustained. Henceforth the courts would acknowledge that it is “the consent of the parties alone that fixes the just price of any thing, without reference to the nature of things themselves, or to their intrinsic value” (p. 160).
It is curious to see the extent to which, in this telling, eighteenth-century legal rules are made to rest upon the foundation of intrinsic or objective value. To borrow Calvin’s devastating comment on free will: “What end could it answer to decorate a thing so diminutive with a title so superb?” There could have been little, if any, experience of price stability in the lives of this generation of judges. They had lived through the extreme price volatility of 1720-40, the simultaneous circulation of several paper currencies denominating several sets of prices with only an arbitrary relation to one another, the steady depreciation of each colony’s silver currency on the British pound sterling, and the spectacle of the Continental vanishing daily. ‘Objective value’ must have been less a ‘foundation’ than an “instrumental conception” in the service of a static social order. In light of the dominant place Horwitz gives throughout his book to this shift from objective to subjective value, one might almost say that the emergence of a market economy had a more profound impact upon the law than it had upon the real economy.
The consequential link between subjective value and the will theory of contract is nowhere more clearly illustrated than in the emergence of caveat emptor and the triumph of express over implied contracts. Whereas the most important aspect of the eighteenth-century conception of exchange had been an equitable limitation of contractual obligation if the underlying exchange were unfair, under modern will theory contractual obligation was bounded entirely by the ‘meeting of minds’ as expressed in the contract. The existence of informational asymmetries, even if establishing the inherent inequality of the parties, would no longer invalidate a contract as unfair. No provision of the contract — having been “created by it alone” (p. 182) — could be other than that expressly agreed to, even if the terms of that agreement contravened rules of law. And thus, by 1825, “the chasm” (p. 186) between express and implied contracts had emerged. The bench’s treatment of nineteenth-century labor contracts would make that chasm a bitterly contested terrain.
Applying the will theory to labor contracts The whole corpus of contract theory today is based on the recognition that it is impossible to write a complete contract. “It is simply too difficult to anticipate all the many things that may happen … [I]t is clear that revisions and renegotiations will take place. In fact, the contract is best seen as providing a suitable backdrop or starting point for such renegotiations rather than specifying the final outcome … [Both parties] are looking for a contract that will ensure that, whatever happens, each side has some protection, both against opportunistic behaviour by the other party and against bad luck” (Hart, p. 2). To interpret and enforce a contract as ‘entire’ that even under the best of circumstances is incomplete, enlists something beyond legal rules; it enlists the sympathies of the judges. Horwitz’s thesis, of course, is that the sympathies of nineteenth-century judges were, by this time, allied to commerce and industry and quite orthogonal to labor’s interests. The judicial zeitgeist, having “destroyed most substantive grounds for evaluating the justice of exchange” (p. 201), reified in its stead “the momentary intention of the parties” (p. 196).
Based on the doctrine that “an express contract bars an action in quantum meruit,” laborers who quit on a long-term contract were barred from recovering wages for time served. “In no case,” said the court in Stark v. Parker (Massachusetts 1824), “has a contract in the terms of the one under consideration been construed by practical men to give a right to demand the agreed compensation before the performance of the labor, … it would be a flagrant violation of the first principles of justice to hold it otherwise” (Karsten, p. 170). This precedent stood, with only one “solitary challenge” — Britton v. Turner (New Hampshire 1834) — until the 1870s.7 Horwitz strikingly underscores his point by presenting a parallel case: while laborers were denied recovery, building contractors who quit on an express contract were allowed to recover, both in quantum meruit for labor services and in quantum valebant for materials used (Hayward v. Leonard (Massachusetts 1828). “While the judges who adhered to the distinction between labor and building contracts never acknowledged an economic or social policy behind the distinction, it seems to be,” says Horwitz, “an important example of class bias” (p. 188).
Horwitz has been sharply taken to task for his analysis of labor contracts, and the critics have come at him from all sides, disputing both the benign class relations he attributes to the eighteenth century and the exploitative class relations he attributes to the nineteenth century. Peter Karsten (1997) and Robert J. Steinfeld (1991) are among those who have re-examined these issues in recent years. Karsten disputes Horwitz’s allegation of discrimination in the contrast between Stark v. Parker and Hayward v. Leonard. “I identified some sixty-eight ‘contractor’ cases in American courts,” he writes, “and found very little difference between the ways that courts treated ‘contractors’ and other workers. Contractors fared no better, no worse, than laborers in suits to recover in quantum meruit (and quantum valebant)” (Karsten, p. 186).
And as to the implication that the eighteenth-century common law was more equitable, more just, less punitive, and less coercive than judge-made law in the nineteenth, Karsten responds, “One searches in vain for an idyllic past in the history of British labor law” (Karsten, p. 159). Karsten and Steinfeld both sketch the sorry chronicle of over 550 years of oppressive English labor legislation and jurisprudence, from the Ordinance of Labourers (1349) to the Master-Servant law (which lasted, amended, from 1747 to 1875), during which quitting on a contract not only forfeited wages, but was prosecuted as criminal theft of the master’s property in his servant’s labor. The servant was brought before a magistrate and punished with “wage abatement, imprisonment, and whipping” (Karsten, p. 159), “and a fine largely exceeding the amount of his wages” (Steinfeld, p. 151). “As late as 1875 about two thousand agricultural laborers were still being convicted and imprisoned each year for leaving or threatening to leave their employers” (Karsten, p. 160). In his most recent book, I understand that Steinfeld has found 10,000 such prosecutions each year.
In defense of nineteenth-century American labor law, by contrast, “no one even imagined that [laborers] might be compelled to serve out their time. … Direct coercion would not be permitted, but legally sanctioned economic compulsion would. And this,” says Steinfeld, “made perfect sense. It comported with the emerging model of labor that left to the laborer the formal decision whether to stay or to go” (Steinfeld, pp.150-51).
Our interest as economic historians in the judicial enforcement of these contracts is in their labor-market consequences, for it is upon mobile resources and minimal transaction costs that the efficiency of a labor market depends. In his article on negligence theory, Posner had remarked “the affinity between economic market and common law adjudication as methods of allocating resources” (Posner, p. 75). What efficiency argument justifies the employer’s capture of the worker’s wages? The productivity-enhancing consequences of coercive discipline? But in Clark’s (1994) model of factory discipline it was enough that the worker ‘hired’ the coercive boss; he did not have to forfeit all his earnings to pay him. Then, did the employer need to be compensated by the worker for the savings he must now forgo on search costs, implicit contracting, labor hoarding, and lock-in that had motivated the annual contract in the first place? If so, the loss to the worker should vary inversely, rather than directly, with time worked.
The most plausible explanation is, of course, the deterrent effect. But in my own research on contract labor on Massachusetts farms, 1750-1865, where the quit rate was about ten percent of hires, the account books of the employing farmers showed that in no case were earnings withheld (Rothenberg, p. 207). America’s most ‘peculiar institution’ may not have been plantation slavery — after all, almost every agrarian society designs institutions to constrain the mobility of its labor force — but the genuinely free labor on New England farms.
But with this elegiac insertion from my own work I have broken the mood of Horwitz’s book, which at this point is utterly bleak. With the transformation of contract, having “neutralized” substantive justice, objective values, the power of juries, earlier protective or regulatory doctrines, and moral duties, “judges and jurists could no longer ascribe any purpose to legal obligations that were superior to the expressed ‘will’ of the parties. As contract ideology thus emasculated all prior conceptions of substantive justice, [the patently false assumption of] equal bargaining power inevitably became established as the inarticulate major premise of all legal and economic analysis. The circle was complete; the law had come simply to ratify those forms of inequality that the market system produced” (p. 210). The “affinity” between law and economics that Posner had remarked in 1875, Horwitz has found at least a generation earlier.
While the responsibility for the transformation of most areas of private law fell upon (or was appropriated by) the state courts, the development of a body of commercial law — having to do with negotiability, usury, and marine insurance — was the preserve of the federal judiciary. Of these areas, negotiability, which lay at the heart of all commercial relations, presented the most difficult contradictions with the common law for it intruded upon the privity of contract.
Ideally, full negotiability requires that endorsed notes “should circulate as freely as money,” which, if one thinks about what money is, means that a subsequent innocent holder of the note “might depend on payment, regardless of any unknown defects in the obligation arising out of the original transaction between distant parties” (p. 213). To illustrate, following Horwitz: A, debtor to B, can be sued by C to whom B had transferred A’s note, even if no understanding had passed between A and C. And if C had endorsed the note over to D not knowing that A had defaulted, D could sue B, a prior endorser. Most crucial — and this is what distinguishes fully negotiable instruments from assignments — suppose A has already paid the note to B; the courts will protect D, an innocent purchaser of the instrument, from the assumption of any risk arising from B’s attempts to defend himself against D’s suit. It was with respect to this last particular that the state courts, particularly in Massachusetts, balked, until the federal court overruled them in 1809, thereby taking the first step in creating a general commercial law. For Horwitz this step was doubly important: it established full negotiability, and it deposited commercial disputes in the jurisdiction of the federal courts, thereby taking them from the “uncongenial anti-commercial environment often found (sic!) in state courts” (p. 252).
Marine insurance in the eighteenth century had been operated out of taverns, inns, and coffee-houses, by merchants and shipowners for their mutual protection; “it had never been intended for profit” (p. 227). Each voyage was a unique event; each transaction was personal; only extraordinary perils at sea were covered; and the underwriters held themselves strictly liable in all cases, unless it could be proved that the ship was unseaworthy, or an agent was negligent (called ‘barratry’).
Sometime during the remarkably fruitful period 1790-1820 came “the gradual acceptance of what we might call an actuarial conception of social risk … a social consciousness that comes to conceive of a greater and greater portion of activity as appropriately within the realm of chance” (p. 228). With the chartering in the 1790s of incorporated insurance companies with large pools of capital, marine insurance law — like bankruptcy and negligence law — devolved upon an actuarial conception of insurable risks. Losses were no longer unique events, but were predictable according to a probability distribution calculated on the experience of hundreds of voyages. Unseaworthiness and barratry were no longer bars to recovery against the insurance companies; moral responsibility became attenuated, and while the risks of moral hazard increased, insurance companies protected themselves by requiring a variety of warranties and representations any breach of which would defeat recovery. For example, “any deviation from the stipulated route of a marine voyage would void a policy even without a showing that it had increased the risk of loss” (p. 231).
“The ultimate triumph of a market ideology” (p. 241) was the movement to abolish usury laws. It is noteworthy, however, that by the Civil War, seven states still voided usurious contracts, penalizing them with fines and/or forfeiture of principal, and every state except California maintained some regulation over the legal rate of interest (p. 243), but by 1860, “it was no longer possible to recapture an earlier and more coherent system of premarket morality” (p. 245) in the context of which this lingering survivor of the ‘just price’ any longer made sense.
Horwitz is not a Luddite. His target is not the process of economic development per se. It is that the courts appropriated so much of the process, and by so doing effected the transformation by obiter dicta rather than by legislation; by changing legal rules rather than by accommodating conflicting interests; by debt- and equity-financing rather than by progressive taxation. It is that, as a consequence, “growth was subsidized by victims of the process” (p. xvi).
Much of Horwitz’s argument depends on his belief that something precious was lost in the passing of the eighteenth century. Objective value, just price, equitable standards, fair contracts, symmetrical information, implied contracts, substantive justice, compensated takings, strict liability: the furniture of “the heavenly city of the eighteenth century.” It can all be compressed into one of his sentences, the belief “that unequal bargaining power was an illegitimate form of duress” (p. 184).
As the book moves through the antebellum period and the lineaments of the transformation harden in place, Horwitz’s own deeply moral commitment to humane values becomes increasingly engaged. The rhetoric grows angrier, the sarcasm more difficult to conceal. It makes this wonderful book exciting to read, but more problematic. One hates – I hate — to disagree with him.
1. Becker (1932), p. 15, quoting Aristophanes. The full quote is “Whirl is king, having deposed Zeus.” 2. The phrase is from Gerschenkron (1968). 3. The phrase is from Nelson (1975). 4. Pound goes on to say, “Today national law schools, teaching law, not laws, and teaching law in the ‘spirit of the common legal heritage of English-speaking people’, are working effectively to preserve this uniformity, against many forces of disintegration” (p. 83). 5. Riparian rights are property rights to the banks of non-navigable waterways, i.e., of waterways not subject to the ebb and flow of the tides, and to the waters up to the mid-point of the stream. 6. Subsidy? Posner replies, “It is true that if you move from a regime where railroads are strictly liable for injuries inflicted in cross accidents to one where they are liable only if negligent, the costs to the railroads of crossing accidents will be lower, and the output of railroad service probably greater as a consequence. But it does not follow that any subsidy is involved — unless it is proper usage to say that an industry is being subsidized whenever a tax levied upon it is reduced or removed” (Posner, p. 30). 7. Karsten has an extended discussion of Britton v. Turner on pp. 157-82. Apparently it was not at all a “solitary” case; it was “hotly debated” in many state courts, and “before the Civil War had ended, five states had adopted the Britton v. Turner standard” (p. 175). Others had recognized it as more equitable but so radical as to require a legislative rather than judicial initiative.
Becker, Carl L., 1932. The Heavenly City of the Eighteenth Century Philosophers, New Haven: Yale University Press.
Clark, Gregory, 1994. “Factory Discipline.” Journal of Economic History 54 (1), pp. 128-163.
Friedman, Lawrence M., 1973. A History of American Law. New York: Simon & Schuster.
Gerschenkron, Alexander, 1968. Continuity in History and Other Essays. Cambridge, MA: Harvard University Press.
Glaeser, Edward and Andrei Shleifer, forthcoming. “Legal Origins,” Quarterly Journal of Economics .
Hart, Oliver, 1995. Firms, Contracts and Financial Structure. Oxford: Oxford University Press.
Holmstrom, Bengt and John Robert, 1998. “The Boundaries of the Firm Revisited.” Journal of Economic Perspectives 12 (4), pp. 73-94.
Jameson, J. Franklin Jameson, 1926. The American Revolution Considered as a Social Movement. Princeton: Princeton University Press.
Karsten, Peter, 1997. Heart versus Head: Judge-Made Law in Nineteenth-Century America. Chapel Hill: University of North Carolina Press.
Kuznets, Simon, 1968. “Reflections on Economic Growth,” in Toward a Theory of Economic Growth. New York: W.W. Norton.
Nelson, William E., 1975. The Americanization of the Common Law: The Impact of Legal Change on Massachusetts Society, 1760-1830. Cambridge, MA: Harvard University Press.
Posner, Richard A., 1972. “A Theory of Negligence.” Journal of Legal Studies 29, pp. 29-96.
Pound, Roscoe, 1938. The Formative Era of American Law. Gloucester: Peter Smith.
Rosen, Sherwin, 1985. “Implicit Contracts: A Survey.” Journal of Economic Literature 23 (3), pp. 1144-75.
Rothenberg, Winifred, 1992. From Market-Places to a Market Economy: The Transformation of Rural Massachusetts, 1750-1850. Chicago: University of Chicago Press.
Steinfeld, Robert J., 1991. The Invention of Free Labor: The Employment Relation in English and American Law and Culture, 1350-1870. Chapel Hill: University of North Carolina Press.
Winnie Rothenberg is Associate Professor of Economics at Tufts University. She is the author of From Market-Places to a Market Economy: The Transformation of Rural Massachusetts, 1750-1850 (Chicago: University of Chicago Press, 1992), and of a number of articles in Journal of Economic History, one of which, published in 1981, won the Arthur H. Cole Prize for best article. She has served as Vice President of the Economic History Association and as a member of its Board of Trustees.
implement or invention be in bringing about social and economic change?
education, low standards of living and the tedium of unchanging expectations.
its early stages, one of Holley’s cases involves a small landowner.
process; we know only in retrospect of the sustained rise in harvesting wages.
different would the timing have been without the war?
makers would no doubt have been aware of the breadth of the potential market.
who had been “pulled” to better jobs in the cities (chapters eight and nine).
labor supply side, there was also migration to the cities.
“replaced” those who left the fields rather than kicking workers off the land.
were more than a step away from the fields.
assure the longevity of his work as a reference.
of New York Press, 2001. vii + 184 pp. $17.95 (paper), ISBN 0-7914-5084-8.
the centerpiece of Wermuth’s excellent new book.
woolgrowers and textile manufacturers from New England.
mediated some of the harsher consequences of the market economy.
the process of dramatic economic change.
anti-Malthusian thesis that population growth has positive economic effects.
of knowledge to further growth in numbers.
are made from grapes grown in stony soil.
warming, apparently none (there is no index to serve as a check on my memory).
drug-resistant agents. Perhaps in the longer perspective he is right.
other miscues did not originate in Malthusian diminishing returns.
European economic and urban history.
+ 352 pp. $30 (cloth), ISBN: 1-85898-816-0.
The pace of governmental growth among nations during this time was uneven.
United Kingdom, by only 35 percent” (p. 100).
seemed almost routine” (p. 28).
can demand more services from government and the welfare state will grow.
U.S. has grown expenditures have declined.
explanatory key to the growth of the welfare state will come away disappointed.
regarding public policy after World War II.
shaped much of the New Deal.
Heather Cox Richardson, The Greatest Nation on Earth: Republican Economic Policies During the Civil War. Cambridge, Massachusetts: Harvard University Press, 1997. viii + 342 pp. $35.00 (cloth), ISBN: 0-674-36213-6.
Reviewed for EH.NET by Gavin Wright, Department of Economics, Stanford University.
American economic historians do not pay enough attention to the history of economic policymaking, and when they do take up one of the usual policy suspects — tariffs, banks, transportation — these are often treated as specialty topics in isolation from each other and from the political context of the times. We generally leave to political historians questions about contending economic philosophies and ideologies, especially for the nineteenth century and especially for the federal government. Perhaps we are implicitly committed to a view that American policies were driven by interest group pressures and pure politics, so that the whole concept of implementing an economic program seems out of place.
There is at least one glaring exception to this image, the insurgency of the Republican Party during the 1850s and its abrupt ascension to political power in the 1860s. To be sure, wartime conditions were exceptional in ways that had little to do with ideology. But even in the midst of war — to some extent because of these extraordinary circumstances — Republicans were able to push through sweeping changes in national policy in any number of areas, with a minimum of political opposition. Many of these are standards in the economic history curriculum — tariffs, banking, the Homestead Act, railroad land grants — but rarely are these treated as a cohesive policy package enacted by a party in power. This quasi-neglected topic is the subject Heather Cox Richardson’s new book, growing out of a Ph.D. thesis from the Harvard history department.
According to Cox, the story has the structure of classical tragedy. In the “self-righteous optimism” of their celebration of individual labor and private property, the Republicans enacted policies that “unwittingly lay the groundwork for the turmoil of the late nineteenth century” (255). Believers in active government support for economic development, party members thought they were opening opportunities for family farmers and ordinary workers. But because they underestimated greed, corruption, racism, and the exercise of economic power, what they gave the country instead was the Gilded Age: “their vision contained the seeds of its own destruction” (vii). This interpretation is not entirely novel — this version is more-or-less what I remember learning in my undergraduate American history class — but to map this transformation in historically specific detail would be no small achievement.
Unfortunately, the book’s individual chapters are not up to the task of carrying such an ambitious historical structure. In her focus on legislative histories, Cox rarely gets close enough to the substance of the issues to be able to compare intentions and reality in any depth. Her command is stretched to the breaking point in the second and third chapters, which deal with war bonds and monetary legislation. These subjects are certainly important, and wartime financial policies had lasting consequences; but they hardly fit the framework of a fresh political opportunity to implement a pre-existing economic philosophy. What Lincoln said about his entire administration– “I claim not to have controlled events, but confess plainly that events have controlled me” — applies as well to Chase’s desperate struggle to pay the wartime bills, and to William Pitt Fessenden’s reluctant support for greenbacks. In general, Cox does not make enough room in her narrative for the possibility that in many areas, Republicans were pressured by events into policies they would otherwise not have dreamed of adopting.
Her best cases are in the next four chapters: taxes and tariffs, support for agriculture — not just the Homestead Act, but the founding of the Department of Agriculture, and the Morrill Act establishing land grant colleges — transcontinental railroads, and, of course, slavery. On many of these one can make the case that a naive enthusiasm for positive action gave birth to something quite different in practice. On the other hand, one can also argue that many of these measures had positive long-run benefits, whatever the calculations and intentions behind them. To pursue these sorts of evaluations rigorously would require a different kind of book, one with more of an empirical base and more follow-up study into the postwar implementation of legislation that originated during the war. To expect such material in a relatively conventional political history is doubtless unfair. What Cox might have provided within her own frame of reference, however, is a better-developed sense of the political context behind each of these measures — not just the Republican ideology, but the lineup of interest groups and the evolution of the debate over time. It would be extremely helpful to know whether the party really functioned as a legislative unit on economic issues, drawing up strategies, choosing leaders, imposing discipline. But organizational matters like these are almost entirely neglected by Cox, and one is led to infer by its absence that by and large the party did not operate in these ways.
With her interest in ideology, Cox is often too ready to take political rhetoric at face value, as in the arguments of Justin Smith Morrill (influenced by Francis Wayland and Henry Carey) that his tariff legislation was not traditional special-interest protectionism, but instead would benefit all members of society (105). Morrill may have been sincere in this belief, but how much of the political support for his tariff bill was attributable to his sincerity?
One particularly interesting shift in the Republican position is noted but not really explained. Although the party had some of its roots in the nativism of the 1850s, by the end of the war it was a champion of immigration (160-168). Cox attributes the change to wartime shortages of farm labor. But was it a permanent change, and did it correspond to a change in the party’s political constituency? To answer these questions one would have to trace political developments beyond the wartime period, which Cox is not generally inclined to do.
Whatever the book’s shortcomings, Cox has formulated or at least revived an extremely interesting set of issues that deserve further attention from economic historians and others. Reading her concluding chapter, however, reminded me that there are still some fairly strong differences between political and economic historians in working assumptions about American history. Cox takes it as axiomatic that the Gilded Age was a disaster. Republican policies, she says, “paved the way for the eventual demise of the small farm” (256). “The standard of living for city workers, especially immigrants, fell to appalling levels” (257). None of these statements are footnoted, and the author seems unaware that documenting them would be a real challenge. The deeper problem is that the entire construction of a disastrous Gilded Age is unexamined. This willingness to accept contemporary rhetorical formulations at face value seems oddly out of date nowadays — which is not to say that on closer examination these conceptions would be entirely wrong. This promising subject area seems ripe for re-examination.
Robert H. Bates, The Development Dilemma: Security, Prosperity, and a Return to History. Princeton: Princeton University Press, 2017. xii + 188 pp. $28 (hardcover), ISBN: 978-0-691-16735-0.
Reviewed for EH.Net by Eoin McGuirk, Department of Economics, Yale University.
In The Development Dilemma, Robert Bates (Harvard) addresses a fundamental question on the political economy of development: when is power used to foster economic growth? His approach is shaped by the idea that, in order to study the development process, it is unwise to limit one’s analysis to countries that are yet to develop. With this in mind, he turns to early modern Europe for illustrative case studies. From similar beginnings following the fall of Rome, England and France embarked on divergent paths that left the former on the cusp of the Great Transformation and the latter mired in violence. Bates attributes this divergence to the use of power: in England, regional interests were aligned with the center; in France, they were not. These competing interests created a trade-off between development and political stability in France that was not present to the same extent in England. Drawing lessons from this historical comparison, Bates revisits his fieldwork in Kenya and Zambia, where, he argues, colonial intrusions generated political environments more akin to medieval France than to medieval England.
The foundation of Bates’ argument lies in what he calls the “fundamental tension” between security and prosperity — a theory of development that puts power and coercion at the center of the development process. He begins with a Malthusian setting: agrarian societies are destined to be poor, owing to the diminishing marginal returns to land, and poor societies are destined to be agrarian, owing to Engel’s law. To escape this trap, families must either migrate in search of better land or specialize and trade. This produces the first dilemma: once families begin to accumulate wealth in this manner, they in turn attract the specter of violent appropriation from other families. As long as private families control both production and coercion, therefore, society’s choice is one between poverty and security on the one hand, or wealth and violence on the other.
This tension was evident as England and France recovered following the fall of Rome. In France, the emerging rural elite sought to concentrate their landholdings into estates that would pass only to the eldest surviving male. The growth of prosperity was thus accompanied by a new class of younger, unmarried warriors with little stake in social order. The violence, extortion and fear that they generated ultimately led families to recruit their own armed companies in response, giving rise to the “era of the chatelain,” characterized by growing prosperity and conflict in the countryside. Over time, this outbreak of violence was met by a demand for peace and the successful attempt to centralize the means of coercion by the church and the royal family. Power would be vested in their hands, and the private use of violence would be outlawed.
A similar process took hold in twelfth century England. Following his death in 1135, the battle to succeed Henry I exacerbated existing tensions over land in the countryside. This pattern of conflict resulted in “The Anarchy” — a period in which private armies were established and violence spread throughout the country. When the Angevins eventually captured the throne, the new monarch, Henry II, sought to secure his possessions by enacting statutes that prohibited private acts of violence. As in France, such acts were to be deemed crimes against the political community.
A second tension emerges at this point in Bates’ model. In theory, removing the means of coercion from rival families ought to lay the groundwork for private investment and the pursuit of prosperity. The problem, of course, is that any central authority that has the power to secure property also has the power to seize it. Here, the fates of England and France diverged. While the Norman conquest of England resulted in a relatively unified political class under William, by contrast the regions of France were both culturally and economically distinct under the House of Capet. Facing diverse and powerful families, the Capetians “assembled” rather than seized France. In this environment, political expediency meant placating diverse interests rather than pursuing common goals.
Bates argues that these contrasting terrains shaped political behavior in a manner that would have profound and lasting effects. This is best illustrated by the development of their respective public finance systems. In England, landowners and merchants were willing to provide tax revenues to finance wars in return for political influence. As a result, the entire political class had a shared interest in both military victory and policies that facilitated private enterprise. From these origins also emerged a tax infrastructure that would underpin state capacity into the future. In France, competing interests undermined any attempt to foster cohesion. Under Charles V, for example, vulnerable duchies from the west were willing for pay for military protection while those from Paris were not. In return for political quiescence, kings in France were therefore apt to exchange private privileges to regional families — such as exemptions from taxes — rather than orchestrate collective agreements in the name of the national interest. In many instances, the authority to collect taxes on behalf of the center was devolved to the regions themselves, who, Bates notes, tended to underreport their collections and inflate their costs.
Bates provides further enriching examples of how these contrasting political landscapes determined the use of power in both countries. By the end of the eighteenth century, England strode toward the Great Transformation while the French monarchy descended into predation, violence and state failure.
The central tenet of Bates’ analysis is that lessons for contemporary development can be drawn from these historical case studies. To this end, he introduces his considerable expertise on the political economy of development in twentieth century Africa. European colonization, he argues, created fractured, decentralized states throughout the continent that resembled medieval France. First, the crude imposition of arbitrary borders threw together large numbers of ethnically, culturally and regionally diverse groups into the same polity; second, European colonial powers found it more profitable to govern by “indirect rule,” whereby the national interest was relegated in favor of placating regional leaders to ensure political stability; and third, the investments made by European settlers served to exacerbate regional inequalities rather than promote broad-based development.
To illustrate the effect of this political environment on the subsequent use of power, Bates focuses on post-independence Kenya and Zambia, and their first presidents, Jomo Kenyatta and Kenneth Kaunda. Both had to consolidate the support of their core constituencies: the Central Province for Kenyatta and the United National Independence Party for Kaunda; both had to garner the support of competing interests beyond their core: the Rift Valley for Kenyatta and the Copperbelt for Kaunda; and both altered the rules of the game upon their failure to ensure political stability through legitimate means. The result in both countries was an era of authoritarianism, corruption and violence.
This is a beautifully written book that will add much to the scholarly discourse on the origins of comparative development. By looking to medieval Europe for insights on contemporary development, it presents a rare and valuable analysis that has important lessons for all readers. While the core argument is provocative — that there exists a trade-off between economic growth and political stability in polities with incongruent regional interests — it is refreshing to note that there is much in the state-of-the-art empirical literature that aligns well with its implications (e.g., see Michalopoulos and Papaioannou, 2016; Alesina, Michalopoulos and Papaioannou, 2016; and Burgess, Jedwab, Miguel, Morjaria and Padro i Miquel, 2015).
Ultimately, like all grand theories in development, this book raises several interesting questions for future scholarship: How can the low-income countries of today escape the trade-off between growth and stability? Is it better to sacrifice scale economies in the name of secession, or it is better to invest in nation building? And if national unity is indeed a first order condition for development, then why is Kenya richer than neighboring Tanzania, where a common identity has been carefully fostered since independence? The Development Dilemma will inspire political economists to tackle questions such as these for years to come. It is an essential addition to a paramount research agenda.
Alberto Alesina, Stelios Michalopoulos and Elias Papaioannou, 2016. “Ethnic Inequality.” Journal of Political Economy, 124 (2): 428-88.
Robin Burgess, Remi Jedwab, Edward Miguel, Ameet Morjaria, and Gerard Padró i Miquel. 2015. “The Value of Democracy: Evidence from Road Building in Kenya.” American Economic Review, 105 (6): 1817-51.
Stelios Michalopoulos and Elias Papaioannou, 2016. “The Long-Run Effects of the Scramble for Africa.” American Economic Review, 106 (7): 1802-48.
Eoin McGuirk is a Postdoctoral Associate the Department of Economics and the Economic Growth Center at Yale University. He will join the Department of Economics at Tufts University as an Assistant Professor in 2019.
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Gareth Dale, Karl Polanyi: A Life on the Left. New York: Columbia University Press, 2016. ix + 381 pp. $40 (hardcover), ISBN 978-0-231-17608-8.
Reviewed for EH.Net by Janet T. Knoedler, Department of Economics, Bucknell University.
Gareth Dale’s intellectual biography, Karl Polanyi: A Life on the Left, excavates the numerous intellectual influences on Karl Polanyi’s life and work during the tumultuous first half of the twentieth century. Dale frames this biography using Polanyi’s own description of his life as “a ‘world’ life” (p. 10). Indeed! During the first three decades of his professional life, Polanyi witnessed two world wars and a worldwide depression; and as he explored the causes and consequences of these major episodes of twentieth century history, he collaborated with leading thinkers in progressive political and intellectual circles in Europe and the United States. And in the end Polanyi produced a body of work that remains relevant today. Using extensive primary and secondary sources, Dale examines the individuals and the ideas that led Polanyi to produce his masterpiece, The Great Transformation (hereafter, GT), and Polanyi’s many other contributions to scholarly and political discourse along the way.
During the eventful five decades of his professional life, Polanyi combined political engagement with the great issues of his day and scholarly pursuit of knowledge in a wide range of disciplines. Before World War I, as a newly minted Ph.D. in jurisprudence, Polanyi, along with other leftists, formed the Galileo Circle, which promoted such progressive issues as universal suffrage, land reform, and racial tolerance, and he joined Hungary’s Radical Bourgeois political party. As Dale explains, Polanyi was sympathetic to the Marxist critique of capitalism, but was drawn more to the ideas of Ernst Mach, Leo Tolstoy, G. K. Chesterton, Edouard Bernstein, Henry George, and Henry Charles Carey. Polanyi came to perceive that the exploitation he and his colleagues were striving to overturn was rooted in ‘conquest and enserfment’” (p. 50), ideas that would become more fully developed in GT. When the war broke out, Polanyi served as an officer in the Austro-Hungarian army, where his experience led him to ponder the “human capacity to construct sociotechnical systems geared to the wreaking of carnage” (p. 59). A bout with typhus forced him to bed, during which he read the Bible and converted to Christianity, but a version of Christianity underpinned by an activist ethos in support of radical social change. During his recuperation, he relocated to Vienna, where he lived for a time with Eugenie Schwarzwald, a noted social reformer, and learned from her frequent guests, including Hans Kelsen and Karl Popper. There he also met his future wife, Ilona Duczynska, a scholar/activist committed to the communist revolution, and her pragmatism and activism remained an enormous influence on Polanyi throughout the rest of his life.
At this time, Vienna was the only large European city to be run by a labor party, which allowed Polanyi to observe social democracy at close quarters. While in Vienna, Polanyi began to write about world affairs for the prominent Osterreichische Volkswirt, where he again came into contact with Kelsen, as well as Peter Drucker, Gottfried Haberler, Friedrich Hayek, and Joseph Schumpeter. To supplement his meager salary, he taught part time at the People’s College in Vienna, where he began to delve more deeply into the history of economic ideas. After reading H. G. Wells, Polanyi concluded that, not just war, but market-based society as well, was bringing catastrophic social disintegration to the world. Polanyi increasingly viewed the international scene through the analytical framework that he would use in the GT: “with the enfranchisement of the working class, democratic government in the modern era had entered into an irreconcilable tension with the rule of capital” (p. 104).
However, by the 1930s, Austria’s social democratic movement was displaced by Nazism. The Polanyis relocated to London, where they moved within a new circle of socialist friends and liberal idealists, including G. D. H. Cole, Richard Tawney, Harold Laski, Thomas Green, Arnold Toynbee, A. D. Lindsey, and John Macmurray. Dale singles out Toynbee’s “Challenge and Response” framework as inspiring Polanyi’s concept of the double movement. Polanyi began to read the classical economists, but rejected their analysis of market capitalism for “reducing human beings and nature to commodity status” (p. 156). As Dale puts it, through his synthesis of the classical economists and the Christian socialists, “Polanyi had arrived at the thesis for which he was to make his name: that the introduction of laissez-faire liberalism provokes a protectionist reaction . . . that he famously termed the ‘double movement’” (p. 156).
However, due to the economic distress in Britain during this time, Polanyi was only able to find part-time work. Through his influential contacts, he made a lecture tour in the United States, which led to a visiting position at Bennington College. There he expanded his network of influences to include E. H. Carr, Erich Fromm, Aurel Kolnai, Karl Mannheim, Franz Borkenau, and Lionel Robbins. There he also drafted the GT. As Dale recounts, the book was, for Polanyi, not simply an analysis of the economics of industrial capitalism, but also a philosophy of history, a fusion of Christian socialism and modern British welfare policy, and an “analytical survey of contemporary history” (p. 169). Though his famous brother, Michael Polanyi, predicted that the GT would make Karl famous, Dale reports that the initial reviews of the GT were lukewarm at best, some overtly hostile.
After the war, with the support of Carter Goodrich and Walter Stewart, Polanyi secured a permanent position in the Columbia economics department. There Polanyi came into contact with prominent American economists and sociologists: along with Goodrich, John Maurice Clark, Talcott Parsons, Robert Merton, Seymour Lipset, C. Wright Mills, Arthur Burns, Moses Finley, and Paul Lazarsfeld. Ironically, as Dale remarks, even in that diverse crowd of intellects, the sociologists at Columbia saw Polanyi as an economist while the economists saw him as a sociologist. At Columbia, Polanyi began work on Trade and Market in the Early Empires, a study of ancient non-market economies. During these years, Polanyi flourished as a scholar, thanks to a regular income, good research support, and collaboration with his colleagues and graduate students. Moreover, working with anthropologists on the topic of non-market economies, Polanyi was “thrilled” to see that the evidence supported “the lack of a primary orientation to material gain . . . by ‘primitive’ people” (p. 226). Polanyi’s study of non-market societies led him to develop his substantivist approach to economics, i.e., an institutional economic analysis that relied on the broader concept of provisioning rather than on the narrower concept of decision-making under scarcity being cemented in mainstream economics at the time. Despite this scholarly success, Polanyi reentered the political realm with the Co-Existence project in the early 1960s, to engage in the debate over Hungary’s future. His death in 1964 prevented him from seeing this project through.
Dale concludes his book with the observation that Polanyi has again become relevant for twenty-first century capitalism. Workers are “bought and sold like cucumbers” (p. 282); welfare critics offer simplistic solutions to poverty and unemployment; global capitalism is increasingly ‘financialized;’ and trade is producing a race to the bottom. As Dale puts it, “It is Polanyi’s diagnosis of the corrupting consequences of the marketization of labor power and nature that gives his work a contemporary feel and explains its continued appeal” (p. 282). However, while Polanyi’s grounding in social democracy instilled in him a faith in the power of government to mitigate the excesses of industrial capitalism, as Dale notes, Polanyi did not live to see how modern governments would themselves be captured by the “interests and imperatives of capital accumulation” (p. 284).
Gareth Dale has done an outstanding job of recounting Polanyi’s very full life in both the political and academic realms. A truly important contribution is how he has woven, throughout his narrative of Polanyi’s different periods and activities, the origin of the ideas that underpinned the GT. Moreover, Dale has used extensive work in five different archival repositories as well as Polanyi’s own writings, and the writings of many of those who influenced Polanyi during the key turning points of his life, to place Polanyi in his historical context. Dale has also placed Polanyi’s work in the modern context by highlighting the increased relevance of Polanyi’s critique of market capitalism. If at times Dale’s description of the pantheon of important thinkers who influenced Polanyi becomes dizzying to the reader, it should be seen as testament to the rich tapestry of intellectual ideas upon which Polanyi daily seemed to gaze, and not the fault of Gareth Dale, who has done a masterful job in situating and summarizing these myriad important influences. For those interested in the work, not only of Karl Polanyi, but of many leading liberal thinkers of the first six decades of the twentieth century, this book will be invaluable.
Janet Knoedler is co-editor and co-author of three books, The Institutionalist Tradition in Labor Economics (with Dell P. Champlin), Thorstein Veblen and the Revival of Free-Market Capitalism (with Dell P. Champlin and Robert Prasch), and Introduction to Political Economy (with Charles Sackrey and Geoffrey Schneider), as well as numerous articles on institutional economics.

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