Economic History and the New History of Capitalism: A Case for Dialogue

Interview with Barry Eichengreen, the George C. Pardee and Helen N. Pardee Professor of Economics and Political Science at the University of California, Berkeley

Interview by Johnny Fulfer

In his recent essay “Financial History, Historical Analysis, and the New History of Finance Capital,” economic historian Barry Eichengreen offers a brief monetary history of the United States, highlighting points of potential dialogue between economic historians and historians of capitalism. The rising interest in “new economic history” in the 1960s was focused on numbers rather than narratives, the isolation of variables, and the dependence on a narrow statistical methodology. The “new history of capitalism,” on the other hand, emerged in the early 2000s, with a focus on race, gender, sexuality, and the power dynamics within American capitalism. Though there are many differences between these two schools of thought, Eichengreen argues that it is possible to create a dialogue.

Johnny Fulfer: You begin the essay by offering two conceptions of capitalism. For Marx, capitalism was inherently exploitative, while Milton Friedman and his colleagues in the Chicago School held that an unregulated market was the most efficient way of distributing resources. A common response to this latter conception is that it does not acknowledge power relations that materialize from an unregulated market system. While these conceptions of capitalism are ahistorical, as you state, what are some ways in which these two theories of capitalism continue to frame the questions that economic historians and historians of capitalism ask? How do they frame what questions are important and which questions are not?

Barry Eichengreen: These conceptions, both of them, should be seen as points of departure — as abstract analytical frameworks, what economists like to call models — for thinking about how events and interpersonal dynamics unfold over time. That is, they should be seen as points of departure for thinking about history. The problem being that economists, including sometimes economic historians, tend to take their models not only seriously but also literally (apologies to Salena Zito), leading them to invoke the evidence selectively so as to fit it into the categories, variables and relationships that make up their models. New historians of capitalism adopt different models, but in some cases seem to fall prey to this same tendency. Sensitive historical analysis takes seriously evidence that does not conform neatly to the predictions and categories of the model. My optimism, such as it is, derives from the belief that there are sensitive historians on both sides.

JF: Because power dynamics are so central for historians of capitalism, how can economic historians engage with this type of analysis? What would be a good starting point for an economic historian to examine power dynamics within American finance?

BE: Economic historians — not all economic historians but certainly some — are attuned to the idea that markets are not perfect. Market power exists. Monopoly exists. Asymmetric information exists. Rent seeking exits. Markets with these features — markets in which the economy is not a level playing field — are more difficult to model than perfectly competitive markets, which is why when teaching economics we start with the simple case, the perfectly competitive market, before moving on to more complex and realistic structures. The point is to avoid stopping with the simple case. And it applies as much to economic history as to other subfields of economics.

JF: You write that economic historians have a fascination (or even an obsession) with statistical methods, which creates a narrow view about which historical questions are important to ask and which aren’t. These scholars have invested their time and energy learning what kinds of historical questions have value within their methodological framework. The types of questions that historians of capitalism are interested in — which often involved categories of race, gender, and sexuality — don’t fall within the methodological framework that economic historians are invested in and thus don’t hold as much value. So, with the goal of your paper in mind — to create space for dialogue — what can economic historians do to widen the range of historical questions they consider valuable?

BE: Actually, I don’t write about a “fascination” or “obsession” with quantitative methods, only that quantitative methods are part of the basic toolkit of economists, and consequently also of economic historians trained as economists. Again, the problem is not with the tools but with taking the tools too literally — regarding them as the only way of confirming or rejecting a hypothesis. Proceeding in this way leads one to focus on that subset of questions for which evidence can be measured and quantified. In practice, these aren’t always the most interesting questions. My point is that economic historians shouldn’t look under the lamppost because that’s where the light is. If there are other questions that their tools are only capable of illuminating dimly, this doesn’t mean that those questions deserve to be ignored.

In my own work, I like to think that I pursue two methodological strands. I write journal articles where referees and editors expect statistical rigor. And I write books in which it’s possible to write for a different audience, making it possible to stretch out and consider larger and, I would argue, more difficult questions because narrative, thick description and archival evidence are accepted forms of analysis.

JF: You write that historians of capitalism are also guilty of narrowing their view on race, gender, and sexuality, while also disregarding years of scholarship because they are too mathematical. Instead of hard data, historians of capitalism rely on diaries, newspapers, pamphlets, or personal correspondence — using them selectively to write narratives. Do you think the selective use of evidence sort of comes with the territory for anyone writing a narrative, whether it is a story propelled by data or diaries? What are some ways in which economic historians have used quantitative data selectively to craft their own narrative of the past? While it seems obvious that history departments should offer more opportunities to learn mathematical methods, what seems to be less obvious is the notion that economic historians lack training in the type of analysis that historians of capitalism utilize. Do you think economic historians would benefit from this type of training?

BE: Diaries, newspapers, pamphlets and personal correspondence are invaluable sources for historians. But embracing them doesn’t justify failure to absorb and build on earlier scholarship based on census enumerations, household surveys, trade statistics and the like. I’m not claiming that historians of capitalism are ignorant of census enumerations, household surveys and trade statistics, or that they uniformly fail to use them in their work. But I do see cases of failure to build on earlier scholarship making use of such materials, presumably indicating that the findings of that earlier scholarship have not been fully absorbed.

Such critical comments notwithstanding, it’s also unfair to generalize about historians of capitalism for the same reasons it’s unfair to generalize about quantitative economic historians. In my graduate (economics) class this semester, we are reading Accounting for Slavery, by my Berkeley history colleague Caitlin Rosenthal. I would associate Caitlin with the History of Capitalism School, but I would never characterize her as lacking appreciation and awareness of or failing to build on earlier scholarship in economic and business history.

JF: You discuss a debate among economic historians about whether masters in the colonial period used violence or economic incentives to motivate indentured servants to work harder. Older histories point to violence, while new economic historians lean toward incentives. Because historians of capitalism are so focused on African American slavery, you mention that they have not offered any assessment at all. Along with the fact that evidence on indentured servitude is fragmented, as you mention, one could also argue that historians have focused more on African American slavery because it has more enduring legacy in the United States and thus requires more attention. Beyond the availability of reliable sources, why do you think historians of capitalism have focused so much more on the racial dynamics of capitalism? Because racial dynamics were so entrenched in American society, do you think economic historians have marginalized race too much?

BE: I disagree strongly with the view that historians of capitalism have focused too much on Afro-American slavery. (Indeed, I’m not sure that I’ve heard of anyone who has actually mad that assertion.) Slavery continues to cast a long shadow over American society, and understanding the problems of 21st century America requires coming to terms with slavery and its legacy. In my book, The Populist Temptation: Economic Grievance and Political Reaction in the Modern Era, I write about how this history of slavery, racial discrimination and segregation are part of the explanation, even today, for why the United States provides less social insurance, public goods and collective goods than other advanced economies, a shortcoming that in turn makes it harder for us as a country to respond to economic dislocations, and something that empowers populist politicians, who can then appeal to the disaffected. That same history explains why we have a Senate in which conservative rural interests are overrepresented. It explains why we have the Electoral College, an institutional with similar consequences.

Indeed, there is an immense literature in the “new” quantitative, Cliometric history, coming out of economics departments, on Afro-American and Caribbean slavery. I don’t agree with the premise that Historians of Capitalism have focused more on slavery than economic historians coming out of a neoclassical tradition. The “slavery debate” was one of the foundational questions of the “new” economic history. It gave rise to violent debates among members of the tribe, a fact that is itself indicative of how important economic historians thought it was to get the analysis right.

JF: Toward the end of the essay, you discuss the history of the Federal Reserve System, which has been dominated by quantitative economic historians that built on Friedman’s and Schwartz’s famous Monetary History of the United States. While historians of capitalism have focused more on “the financial circumstances of working-class savers and investors,” you would like to see them focus more on resistance to banking reforms after the mass banking failures during Great Depression. What kinds of resistance were there to banking reforms during this period? Who took part in this resistance and how did the instability of the era frame the way they approached this resistance?

BE: I don’t read my essay quite the way you do. Economic historians and historians of capitalism both focus on the financial circumstances of working-class savers and investors. On the economics side, I’m thinking for example of the work of George Alter, Claudia Goldin and, Elyce Rotella on the Philadelphia Savings Fund Society (One could come up with lots of other examples). But, in addition to how working-class savers and investors as agents — in addition to how they respond to their circumstances — there’s the question of how their opportunities and actions are shaped by the financial superstructure: how those opportunities and actions are shaped by the regulation and structure of the banking and financial system. Historical analysis is informed by the study of both levels and of there interaction.

JF: In her recent book, Banking on Freedom: Black Women in U.S. Finance Before the New Deal, historian Shennette Garrett-Scott shows how traditional views of race and gender in the late nineteenth and early twentieth centuries, were important factors in commercial bank lending. Black men and especially black women were often perceived as a greater risk than white men and women. For many commercial bank lenders, black Americans were inherently incapable of manly virtues such as thrift and self-restraint. In response, black Americans created building and loan associations (B&Ls), as you mentioned, which were collectives that offered mortgage loans to members. For many black Americans, this model offered a way to challenge racially based perceptions of risk. Based on this brief discussion, what kind of dialogue could an economic historian have with Garrett-Scott and other historians that show the centrality of race and gender in perceptions of risk? What sort of quantitative economic history could materialize from this dialogue?

BE: I liked Garrett-Scott’s book. If we had a sample, even a small sample, of Afro-American centered B&Ls and their balance sheets, we could analyze why some performed better than others. “Better” could be defined in different ways (loan losses, rate of growth of mortgage loans, interest rates charged, etc.). We then could draw conclusions about what kind of organizational structures worked best to advance Afro-American self help. (How big was the board? Who was on the board? What were the governance and voting rules?) I’m reminded of an article on family-based banks in early 19th century America that Christopher Meissner, a professor at UC Davis, published in Explorations in Economic History, “Voting Rules and the Success of Connected Lending in 19th Century New England Banks.” Chris used a sample of New England banks drawn from archives held at the Baker Library at Harvard Business School to draw analyze why some banks performed better than others and how they dealt with the moral hazards of insider lending (a problem very much relevant to B&Ls).

JF: Economist Eric Hilt offers a critique of the new history of capitalism in his essay, “Economic History, Historical Analysis, and the ‘New’ History of Capitalism.” He argues that historians “have unwittingly revived debates that were resolved long ago.” Historians of capitalism that emphasize race and gender, among other categories of analysis, would likely argue that there are many different types of questions one can ask about any particular historical experience. There is no right or wrong answer or a single way of resolving a question, just multiple perspectives that often fall within different schools of thought, which privilege certain ways of examining sources over others. How would you respond to economic historians that argue that certain questions have been “resolved”?

BE: I’m not sure that “resolution or not” is the best framing, since not all economic historians agree, irregardless of the topic. There can be good reasons for reopening old questions. Still, on at least some of these topics there has long existed an accumulated body of evidence that tilts the scales of judgment in one direction or another. It would be foolish to disregard or allow oneself to be unaware of that evidence. At the same time, historical issues and controversies are multidimensional. Even when there exists a consensus about certain dimensions, it’s possible to do new work on additional dimensions. But the point, again, is to build on that previous work when setting out in new directions.

JF: To me, it seems as if economic historians often view historical experience through a lens of linear progress. One study builds on the next that builds on the next and so on until you have a series of definitive studies on some topic and then there’s nothing left to say about it because it’s been “resolved.” Scholars trained in history departments, in contrast, often view history as a narrative, which is subject to the ideological predispositions of whomever writes it. It is a continual discussion that can be debated and rewritten over time. For the historian, it is essential that historical debates previously thought resolved are continually reconsidered from other perspectives, which may be different, but no less legitimate. How can scholars with drastically different views, such as the ones just discussed, create a productive dialogue?

BE: I disagree with the proposition that economic historians believe in linear progress leading ultimately to definitive studies and intellectual closure. Economic historians, like historians of capitalism, are continuously challenging past scholarship and reevaluating the past, whether because of the availability of new methods (GPS technology, big data, easier digitization of historical evidence) or new evidence and context (the Global Financial Crisis, the Coronavirus). I revised my own views of the Great Depression in light of the Global Financial Crisis, and ended up writing a book about how my understanding of that earlier episode had changed: Hall of Mirrors: The Great Depression, the Great Recession, and the Uses and Misuses of History. As we speak, a slew of economic historians are revisiting the economic effects of pandemics and in some cases challenging and overturning conventional wisdom.

JF: In your last sentence, you say: “Maybe…it just takes an economic and social catastrophe to produce a “post-disciplinary dialogue.” How do you define a post-disciplinary dialogue?

BE: Post-disciplinary dialogue means that one can engage in a dialogue as easily with someone whose Ph.D. is in a different academic discipline as with a person who is in one’s own academic discipline. One can dream.