Grasping Reality with Both Hands 2017-01-17 23:46:39

Live from Planet Gutenberg: The day's book haul. These both look very good. Unfortunately, the first day of classes is absolutely the last day you want your book showing up in my mailbox in the form of a review copy...

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James Kwak (2016): Economism: Bad Economics and the Rise of Inequality (New York: Pantheon: 1101871199)

Daniel Wolff: Grown-Up Anger: The Connected Mysteries of Bob Dylan, Woody Guthrie, and the Calumet Massacre of 1913 (New York: Harper: 0062451693)

Reading: Karl Marx and Friedrich Engels (1848): The Communist Manifesto

Karl Marx and Friedrich Engels (1848): The Communist Manifesto This piece by Marx and Engels stands at the head of two traditions:

  1. the political tradition of world communism that was the second-greatest political catastrophe to ever afflict the human race...
  2. the intellectual tradition of the analysis of history as driven by modern capitalism--a historical-economic process...

You cannot separate these two. You should not try.

Read with an eye toward what is going to flourish in later intellectual and political history.

On the positive intellectual side, Marx and Engels were:

  1. Among the very first to get the industrial revolution right and understand what it meant for human possibilities and human destiny.
  2. Got a lot about the economic history of the development of modern capitalism in England right--very much worth grappling with as an economic historian of 1500-1850.
  3. Believed, probably wrongly, that a capitaliist market economy with wage labor is an insult to humanity, delivered low utility, and was sociologically and psychologically unsustainable.
  4. Believed, certainly wrongly that a capitalist market economy with wage labor was incapable of delivering an acceptable distribution of income.
  5. Among the very first to recognize that the fever-fits of financial crisis and depression that afflict modern market economies were not a passing phase but rather a deep and chronic malady of the system.

On the more negative side, we have Marx (and Engels) as activist-prophets:

  1. Technological progress and capital accumulation would raise labor productivity but lower the market real wage--hence the necessity for revolution.
  2. Globalization would raise inequality--hence the necessity for revolution.
  3. Previous systems of hierarchy and domination had hypnotized the poor, but capitalism replaced masked exploitation by naked exploitation--hence the possibility of revolution
  4. The ruling class would never buy off the working class by sharing the fruits of economic growth----hence the necessity for revolution.
  5. Factory work would lead people to develop a sense of their common interest and of class solidarity--hence the possibility of revolution.
  6. Nationalism would succumb to cosmopolitanism as the working classes of different nations realized how much they had in common.
  7. What is needed is not argument and evolution, but rather revolution--the overthrow and punishment of the oppressors.

This is worth paying attention to for its role in 20th century history.



My Very Short Take on World War II…: Hoisted from the Archives

Hoisted from the Archives: My Very Short Take on World War II...: From “September 1, 1939,” by W.H. Auden...

...I sit in one of the dives/On Fifty-second Street
Uncertain and afraid/As the clever hopes expire
Of a low dishonest decade:/Waves of anger and of fear
Circulate over the bright/And darkened lands of the earth,
Obsessing our private lives;/The unmentionable odor of death
Offends the September night.

Accurate scholarship can/Unearth the whole offence
From Luther until now/That has driven a culture mad,
Find what occurred at Linz,/What huge imago made
A psychopathic god:/and the public know
What all schoolchildren learn,/Those to whom evil is done
Do evil in return...


To Munich

While most other countries continued to stagnate in the Great Depression, the German economy recovered rapidly. But peaceful spending-fueled recovery was not what Hitler thought his regime was about. His regime was about German rearmament: the breaking of the shackles of the Treaty of Versailles that restricted the German military to a total strength of 100,000; and eventually aggressive war with the Soviet Union and the other powers to Germany's east with the aim of increasing the “living space” of the German people.

Hitler announced that Germany was rearming, and met with no complaints. The victorious allies of World War I faced a knotty foreign policy problem. The isolationist United States was uninterested in sending soldiers and garrisons to Europe. The British and French electorates definitely did not want to do World War I again. And Hitler’s program of rearmament and national self-assertion demanded that Britain and France make a choice.

The treaties of Muenster and Osnabrueck in 1648—the Peace of Westphalia—and the earlier peace of Augsburg in 1555 established the principle in European international law that internal affairs were nobody else’s business. Not all rulers agreed. Pope Leo X condemned the Peace of Westphalia. The French revolutionaries sought the overthrow of kings and oppressors and the creation of sister republics all across Europe—until Napoleon taught them the joys of conquest and empire. (The American republic, by contrast, positioned itself as, in the words of John Quincy Adams: “the friend of liberty everywhere but the guarantor only of our own.”) Nevertheless, the idea that it was no concern on one duly recognized government what another did within its borders became one of the strongest taboos of European international law: freedom from nosy oversight was something all governments could agree on.

When you combine this Westphalian sovereignty principle with the particular features of the post-World War I settlement, you brewed an explosive cocktail. World War I ended with a settlement notionally based on the Fourteen Points of Woodrow Wilson. Most important, there was supposed to be:

  • Universal disarmament.
  • The abolition of offensive war—international disputes to be settled by arbitration in the League of Nations.
  • Adjustment of national borders to correspond to linguistic groupings: people should be ruled from a capital where people spoke the same language that they did.


When Hitler began his diplomatic campaign he thus had a powerful array of arguments on his side. The Versailles Treaty that had ended World War I had restricted the size of the German army to 100,000. But the other nations of the world had never cut back their own armies. Was Germany to be the only great power to fear invasion from Denmark or Yugoslavia? That was not fair. And the response that Nazi Germany was a pariah nation—ruled by a cruel, oppressive dictatorship—was not a statement that made sense in the language of European diplomacy. Besides, a strong German army could serve as a buffer against communist Russia. (That was, indeed, the argument with which post-World War II West Germany convinced the allies to let it rearm.)

The Versailles Treaty and the other aspects of the post-World War I settlement had tried, imperfectly but as much as was possible, to redraw national borders along linguistic lines. Except for Germany. Linguistic Germans were ruled not just from Berlin but from Rome, from Vienna, from Budapest, from Prague, from Warsaw, from Vilnius, from Paris, by various League of Nations High Commissioners, and even from Bucharest. As long as Hitler restricted his foreign policy goals to (a) removing the restrictions on German armaments that made Germany a less than equal nation, and (b) trying to “settle” national minority problems by redrawing borders to more closely match linguistic lines, it was hard for Britain and France and others to say no.

After all, what did they want to do? Did Britain and France want to invade Germany, depose Hitler, and set up an unstable government bound to be viewed as their puppet in his place, further inflaming German nationalism? Well yes—they did, had they but known what was coming.

But their political leaders did not know the future at the time. In the middle of the Great Depression, French and British political leaders believed that they had bigger problems than enforcing every jot and tittle provision of the Treaty of Versailles, and that they wished to see Germany rejoin the community of western European nations. Since armaments were one of the standards prerogatives of the nation-state, it would be silly in addition to pointless to complain about Germany building its armed forces above the Versailles limits.

Besides, with Germany effectively disarmed there was a power vacuum between the border of the Soviet Union and the Rhine River. Poland and the Soviet Union had fought one war in the early 1920s that had seen the Red Army approach Warsaw before being turned back. Did French and British geopoliticians want to see a possible future Soviet war with Poland end with Communist armies on the Rhine River? Probably not.

In 1936 Hitler broke yet another provision of the Treaty of Versailles: he moved token military forces into the Rhineland, the province of Germany west of the Rhine that had been demilitarized after 1918. Once again it seemed pointless to protest, or to take action. No other European country had demilitarized zones within its borders. To require that Germany maintain a demilitarized zone seemed likely to pointlessly inflame German nationalism. And, once again, to enforce the provision would presumably require an invasion of Germany, the deposition of Hitler, and the installation of a puppet government—for Hitler seemed genuinely popular: there was a substantial risk if not a strong likelihood that new elections would simply return Hitler to power.

In the spring of 1938 Hitler annexed Austria. Austria was inhabited overwhelmingly by ethnic Germans. One principle of the 1919 peace settlement had been, as much as possible and with a few exceptions, to draw national borders along ethno-linguistic lines so that every language had a nation, and everyone speaking a given language lived in the same nation. In annexing Austria, Hitler declared, he was simply gathering the German people into their one nation: reversing a political error committed in the late nineteenth century when the Austrian Germans were excluded from the political boundaries of Germany, an error that would have been corrected in 1919 save for Allied unwillingness to apply the same national self-determination principles to the Germans that they had applied to themselves and to the rest of Europe.

After the annexation of Austria, Hitler turned his attention to a second of the anomalous boundaries of post-World War I Europe: the “Sudetenland.” The northern and western boundaries of Czechoslovakia followed the boundaries of the medieval Kingdom of Bohemia, and included a mountainous region that was the location of all the Czech frontier defenses and was also heavily populated by German-speakers. It took little for Hitler to fund a movement in the Sudetenland that decried oppression and discrimination by Czechs, and that demanded the annexation of the Sudetenland by Germany: the return of German-speakers to the German nation, according to the national self- determination principles of the Treaty of Versailles.

The British government had commitments to defend France; the French governments had commitments to go to war to defend the territorial integrity of Czechoslovakia; Czechoslovakia had no desire to surrender its mountain territories—and its frontier defenses. The British and French governments had no desire to get into a war to prevent the people of the Sudetenland from becoming part of Germany. Moreover, they feared the costs of a war. In the worlds of the novelist Alan Furst, they thought that:

The German bomber force as constituted in a theoretical month—May 1939, for instance—would be able to fly 720 sorties in a single day... 50,000 casualties in a twenty-four hour period. A million casualties every three weeks. And the USSR, Britain, and France were in absolute harmony on one basic assumption: the bomber would always get through. Yes, anti-aircraft fire and fighter planes would take their toll, but simply could not cuse sufficient damage to bring the numbers down...

The western democracies' military advisors feared that World War II would bring the horrors of the World War I trench line to civilians located far from the front.

They were right.

In order to avoid war, on September 29 and 30, 1938, at Munich in Germany, British Prime Minister Neville Chamberlain and French Prime Minister Edouard Daladier reached an agreement with Hitler: Hitler would annex the Sudetenland, would pledge to respect the independence of the rest of Czechoslovakia, and Britain and France would guarantee the independence of Czechoslovakia.

The Czechoslovak representatives were not even allowed in the room where the negotiations took place. Upon his return to Britain, after being applauded by a cheering crowd that saw that general war had been averted, Neville Chamberlain irretrievably blackened his reputation for all time by saying: My good friends, this is the second time in our history [the first time was 1878] that there has come back from Germany to Downing Street [official residence of the British Prime Ministers] peace with honour. I believe it is peace in our time.

Winston Churchill—out of office, and shunned by the other conservative members of the British House of Commons—had a very different view: better to fight Hitler in 1938 before German rearmament was well advanced and with Czechoslovakia as an ally, than to fight him later when Germany was better-armed and Czechoslovakia was gone. "You were given the choice between war and dishonour," Churchill told teh Prime Minister of his own Conservative Party. "You chose dishonour and you will have war." In retrospect Churchill was almost certainly correct. Given what was known about the ruthlessness and violence of the Nazi regime in its own country, it is hard to credit Chamberlain’s belief that Hitler could be “appeased” and pacified by the abandonment of the restrictive military clauses of the Treaty of Versailles and by being allowed to absorb all regions occupied by ethnic Germans into his state.


From Munich to War

Czechoslovakia and Poland

On March 15, 1939, Hitler annexed the remains of Czechoslovakia, after first having sponsored secessionist movement in the “Slovakia” part of the country. Britain and France took no action. Neville Chamberlain stated:

The effect of this declaration [of independence by the Hitler-sponsored secessionist movement] put an end by internal disruption to the state whose frontiers we had proposed to guarantee [at Munich]. His Majesty's government cannot accordingly hold themselves any longer bound by this obligation...

Within two days Chamberlain had reversed himself. Neville Chamberlain and company extended guarantees to Poland and Romania: German attacks on Poland or Romania would cause declarations of war against Germany by Britain and France. Chamberlain appeared to believe that this commitment would deter Hitler from further adventures.

But why should it? How could Britain help Poland in a war with Nazi Germany? Hitler concluded that the British and French were bluffing. And he wanted to get himself ready for the main course in his foreign policy: the attack east to do to the Slavic populations of European Russia what the United States had done to the Amerindians, and to turn the Ukraine into a huge breadbasket populated by ethnic German farmers on large, mechanized farms.

In the spring of 1939 Hitler turned his attention to Poland, where the German-Polish border after World War I had been drawn not with attention to the ethno-linguistic principle but to give the newly-created Polish Republic at least one port city, and an outlet to the Baltic Sea. Hitler once again demanded the redrawing of borders—the elimination of the “Polish corridor” between the rest of Germany and the province East Prussia. Had the British and French diplomatic policy makers been flinty- eyed realists, they would have shrugged their shoulders: Hitler wants to go east? Let him go east. They would have concluded that a Hitler fighting a series of wars to his east was unlikely to cause them trouble for a while at least. And that if Hitler at some point turned west, then would be the time to deal with him.

But they did not do this. They had guaranteed Poland and Roumania. They doubled down, betting on deterrence. Chamberlain and his Foreign Minister, Lord Halifax, appear to have given very little thought to what would happen if deterrence failed. After all, Hitler must be bluffing too, mustn’t he? Nobody wanted a repeat of World War I, right?

The Nazi-Soviet Pact

And it was at this point that Hitler became interested in a—temporary—alliance with Stalin and the Soviet Union.

Stalin throughout the years of the “Popular Front” and “collective security,” put out feelers to Hitler. Hitler was not interested. Hitler became interested in a deal with Stalin only in 1939, when he recognized how useful Soviet neutrality would be for his conquest of Poland. He and Stalin agreed to split Poland down the middle at the Bug River, and to give the Soviet Union a green light to annex the three Baltic Republics of Lithuania, Latvia, and Estonia.

On Stalin’s part, this was the mother of all miscalculations. It allowed Hitler to fight three one-front wars in succession—one against Poland, one against Britain and France, and then one against the Soviet Union. Only by the skin of its teeth did the Soviet Union survive until America entered the war and American armies and air forces made it possible for an Anglo- American force to reenter the main theaters of the war. Much better for Stalin and Russia to have fought Germany in 1939 with powerful British and French allies with armies on the continent than to, as he had to, face Germany’s undivided attention in 1941 when no other anti-fascist armies were on the continent of Europe, or would be for two more years. It is always difficult to understand Stalin, or indeed anything about the Soviet Union. “A riddle wrapped in a mystery inside an enigma,” Winston Churchill called it. It is possible, however, to guess at what the thinking inside the Kremlin was:

Q: What is Hitler, comrade?
A: Hitler is a tool of the capitalists, comrade.
Q: Why might Hitler wish to wage an aggressive war against the Soviet Union, comrade?
A: To gain cheap access to our raw materials, comrade, so that his big- business capitalist backers can earn higher profits.
Q: So what happens if we offer him as many of our raw materials as possible at an incredibly cheap price, comrade?
A: Then he will not seek to invade, comrade. He will have no reason to do so.
Q: What will happen then, comrade?
A: What always happens in the highest stage of capitalism, comrade. The big capitalist powers become imperialists, and then they fight terrible wars over markets.
Q: Correct. And after the war is over?
A: We will do what we did at the end of World War I, comrade, we will move in and expand the socialist camp.
Q: Therefore our goal, comrade, is?
A: To appease Hitler by providing him with all the raw materials he wants. And then wait for our moment, comrade.

Stalin did not recognize the danger of even a temporary alliance with Hitler. Perhaps it was because he was—wrongly—anticipating a replay of World War I: trench warfare that would lead to a prolonged stalemate on the Franco-German border, during which another generation of young men would be turned into hamburger, another set of bourgeois countries would exhaust themselves, and another group of countries would become ripe for a Moscow-led Communist revolution.

The Start of the War

Thus at the start of September 1939 Hitler and Stalin together moved into and partitioned Poland. And it turned out that Britain and France were not bluffing. They did carry out their commitments. They did declare war on Germany. Hitler attacked the Poles at dawn on September 1. After some hesitation, the British government demanded at 9 A.M. on September 3 that the German army withdraw from Poland. At 11 A.M. Britain declared war. France followed, But their forces were unready and were far from Poland, which fell to Hitler and Stalin in a month. Thereafter for eight months all was quiet on the western front.

It is conventional to damn Chamberlain and Daladier and the other politicians who ruled Britain and France in the 1930s for their actions, and to damn them in the strongest possible terms. They had not destroyed Hitler when he was weak. They had not prepared their countries to fight Hitler when he was strong. They had not even constructed a grand alliance, calling in the New Worlds to redress the balance of the Old World by enlisting the United States and the Soviet Union in the anti- fascist coalition. (Of course, neither country’s decision makers wished to be so enlisted: Roosevelt was hobbled by an isolationist congress, and Stalin was an enigma.)

But there is another point of view. Only one country with a land border with Nazi Germany declared war on it. Everybody else waited until Hitler declared war on them—or, more often, just attacked. That one country was Edouard Daladier’s France. Only one other country, albeit one without a land border with Nazi Germany, ever declared war on it. That country was Neville Chamberlain’s Britain. Admittedly, they declared war only when they saw no other option and thought (correctly) that their political survival was at stake. And they had no idea how to fight the war that they started. But they were willing to put their countries and their people in harm’s way in an attempt to stamp out the greatest tyranny the world has ever seen. Spare a moment for the limited virtue that Edouard Daladier and Neville Chamberlain exhibited: it was more than anybody else.

Their virtue was not rewarded.

In May and June of 1940 France fell in six weeks in 1940. To everyone's surprise, Britain—by then led to Winston Churchill—did not then negotiate a peace but kept fighting, daring Hitler to try an invasion across the English Channel. Hitler did not try.

Instead he turned east. In 1941 Hitler turned on the Soviet Union.

When war came to the Soviet Union, and Germany attacked on June 22, 1941, Stalin's first instinct was to tell his troops not to fire back for fear of "provoking" the Germans. As a result, his air force was destroyed on the ground in the first day of the war. And the Soviet armies on the border died (or were taken prisoner) where they stood. In 1941 nearly four million Soviet troops were captured.


The Greater East Asia Co-Prosperity Sphere

Japan had responded to the Great Depression by turning imperialist.

World War I was a powerful stimulus to Japanese industrialization. Although the Japanese government honored its alliance with the British government and declared war on Germany, its military actions during the war were limited to the largely-peaceful takeover of Pacific islands that Germany had claimed as colonies. However, exports from Europe to Asia effectively ceased during World War I. Where were the countries of Asia to purchase the manufactures that they had purchased from Europe? The growing and industrializing Japanese empire was an obvious source. Industrial production and manufactured exports from Japan nearly quadrupled during World War I. Strong demand for Japanese goods provoked inflation: prices more than doubled during the war.

After World War I the European economies once again began to export to Asia, and the newly-expanded Japanese industries faced heavy competition. The Japanese economy in the first half of the 1920s was also badly hit by the disaster of the 1923 Tokyo earthquake, in which between 50,000 and 100,000 people died. But industrialization continued. Manufacturing surpassed agriculture in terms of the share of national product produced in the 1920s.

Japanese manufacturing originally relied—as had manufacturing in other countries—on the unmarried young woman as its typical worker. From the employers’ point of view, the main problem with this workforce was its relative lack of experience. So over the first half of the twentieth century, Japanese manufacturers worked to try to balance their short-term labor pool of unmarried females with a longer-term cadre of experienced male workers.

What evolved in Japan’s industries was what is now called the “permanent employment system.” Male workers were recruited on leaving school, or as apprentices, and promised effective lifetime employment and regular increases in wages in return or loyal service to the company. The company promised wages, medical care, and pension benefits. It is possible that this permanent employment system flourished in Japan because the system fitted Japanese sociology. It is also possible that Japan avoided the deep recessions that would have given manufacturing firms the incentive to fire their permanent workers.

Cotton textiles, furniture manufacturing, apparel, and a relatively small heavy industrial sector were the heart of the Japanese economy by the 1930s, and this modern manufacturing sector was dominated by the zaibatsu: associations of businesses that exchanged executives, cooperated, owned each other's stock, and relied on the same banking and insurance companies for finance. Japan’s form of financial capitalism seemed to mimic Germany's to a large degree.

The Great Depression had come to Japan in an attenuated form in 1930. Its exports, especially of silk, fell dramatically. The gold standard applied pressure to deflate the economy. Japan responded by cutting loose from the gold standard, and by expanding government spending—especially military spending. The Great Depression touched but did not stun the Japanese economy. More important, perhaps, the Great Depression revealed that the European imperialist powers were in crisis.

So 1931 saw the Japanese government turn expansionist. The extension of Japanese influence into Manchuria was followed by a Manchurian declaration of “independence” as the Japanese client state of Manchukuo. Expansion was followed by rearmament. Rearmament was followed by a full-scale attack on China in 1937. Government orders for war material and for capital goods to construct infrastructure in Manchuria provided a strong boost to Japanese industrial production at home. From 1937 on Japan turned to a war economy: warships, airplances, engines, radios, tanks, and machine guns.

But in order to continue its war against China, Japan needed oil from either the United States, or from what was to become Indonesia—what was then the Dutch East Indies. Roosevelt was anxious to exert what pressure he could on Japan. And in early 1941 the U.S. embargoed exports of oil to Japan—all oil, not just oil from the United States. It is not clear why. And it is not clear why the U.S. did not immediately go to a "war is imminent" footing in the Pacific. Without imports of oil Japan's military machine could not run: the embargo offered Japan a choice between acquiescing in the U.S.'s demands or starting a war at sea to at the very least seize the oil fields of what is now Indonesia.

Faced with the choice of backing down and abandoning the conquest of China, or seizing the Dutch-held oil fields of the southwestern Pacific and probably becoming embroiled in a war with the United States, the Japanese military elected to strike first. On December 7, 1941 attacks began on British, Dutch, and American forces and possessions in the Pacific. Most famous was the Japanese attack on Pearl Harbor that sank the battleships of the U.S. Pacific fleet. Most damaging was probably the attack on the U.S. airbase of Clark Field in the Philippines, which destroyed the B-17 bomber force that might have blocked Japanese seaborne invasions.


The War Proper

World War II in Europe began on September 1, 1939. World War II in Asia had already been ongoing for more than two years. The range of belligerents expanded and contracted. In Europe the war began as France, Britain, and Poland against Germany. Poland was conquered by Germany and Russia by the end of September, 1939. Russia attacked Finland, which fought it to a draw and a peace, in the winter and spring of 1940. The spring of 1940 also saw Germany attack and occupy Norway, Denmark, Belgium, the Netherlands, and Luxemburg; and conquer France, with Italy joining in on Germany's side.

By the summer of 1940 only Britain was fighting Germany.

In late 1940 and early 1941 Britain acquired Greece and Yugoslavia as allies. But they were conquered by Germany by the spring of 1941. In the summer of 1941 Germany attacked Russia. And on December 7, 1941, the Japanese navy bombed Pearl Harbor in Hawaii and attacked a wide range of U.S., British, and Dutch territories in the Pacific. Germany declared war on the U.S. a day later. (But, curiously enough, Japan remained at peace with Russia.) And the war was truly global.

World War II was a “total” war. At its peak, some 40 percent of U.S. GDP was devoted to the war. Some 60 percent of British GDP was devoted to the war. Some 50 million—plus or minus 10 million—people died in, during, and as a result of war.

Tactics and Operations

How are we to understand World War II? One way is to take a look at the first three major campaigns—the Polish campaign of September 1939, the French campaign of May-June 1940, and the first six months of the Russian campaign from June 22 to the end of 1941.

In the 1939 Polish campaign, the Nazis lost 40,000 soldiers killed and wounded. The Poles lost 200,000 killed and wounded. The Poles also lost about 1,000,000 taken prisoner.

In the 1940 French campaign, the Nazis lost 160,000 soldiers killed and wounded. The allies lost 360,000 soldiers killed and wounded. And the allies also lost 2,000,000 soldiers taken prisoner.

In the first six months of the 1941 Russian campaign, the Nazis lost 1,000,000 soldiers killed and wounded. The Russians lost 4,000,000 soldiers killed and wounded. And the Russians lost 4,000,000 soldiers taken prisoner.

The Nazis were simply better, tactically, at the business of war then any of their enemies. They understood dive bombers, they understood tank columns, they understood surprise and flank attacks and digging in. The interwar German army on which the Nazis built had been one of only 100,000 soldiers. But those 100,000 had learned and developed their business to a terrifying degree of tactical superiority over their enemies. That is the first lesson of World War II: Fight the Nazis, and expect to be tactically outclassed. Expect to lose between two and five times as many soldiers on the battlefield as the Nazi armies do. That is true for everyone at the start of the war, and still true remarkably late—even though the allies did learn.

Moreover, the Nazis’ opponents were operationally outclassed as well. That is the second lesson of World War II: Fight the Nazis, and expect periodically to find large groups of your soldiers overwhelmed, surrounded, cut off, out of supply, fleeing in panic and forced to surrender in large numbers. The last such episode took place in December 1944, less than five months before the collapse of the Nazi regime: the Nazi Fifth Panzer Army surrounded and forced the surrender of nearly the entire U.S. 106th Infantry Division in the Schnee Eifel of the Ardennes.

How did this happen? Well, take a look at the French campaign of 1940. The French are expecting the Nazis to attack through Belgium north of the Ardennes Forest. Instead, the Nazis make their main attack through the Ardennes Forest, against the weak French Ninth Army—weak because the French command thought that the forest, the poor road network, and the Meuse River line would be sufficient additional defenses.

Three days into the battle it was clear that a major Nazi attack was coming through the Ardennes, and the French began to respond. According to Ernest May’s Strange Victory:

At 3 P.M. on May 12 [General] Huntziger signaled La Ferte that he wanted strong reinforcements to repel a prsopective German attack.... Three of the strongest elements in the general reserve proceed[ed] immediately to join Huntziger's Second Army: the Third Armored, Third Motorized, and Fourteenth Infantry divisions.... The infantry division was a crack unit commanded by... General Jean de Lattre de Tassigny... (p. 410)

By May 15, these three divisions had been further reinforced: The French First Armored division had been switched from the Belgian plain to the Ninth Army sector to its south, infantry formations had been ordered to assemble behind the Ninth Army to form a new Sixth Army, and the Second Armored division had been ordered to assemble behind Ninth Army as well. Charles de Gaulle was placed in command of the newly- formed Fourth Armored division, and ordered to attack the southern flank of the incipient German breakthrough. So what happened to all these forces—four heavy armored divisions with perhaps 800 tanks between them, plus a large chunk of the sixteen infantry divisions that were in the French strategic reserve on May 10? They had as many tanks as the seven Nazi panzer divisions that were in the Nazi main thrust.

  • The French First Armored division simply ran out of gas. While it was waiting for the fuel trucks to come up to refuel it, it was attacked by Rommel’s panzer division and destroyed as a fighting unit. (Curiosity: the czar of fuel for First Army--from which the armored division had come--was medieval historian Marc Bloch.)
  • The French Second Armored division, according to William L. Shirer’s The Collapse of the Third Republic: “Orders for the [second armored] division to move... did not come until noon of May 13.... The trains with the tanks and artillery were not able to start until the afternon of the 14th.... The wheeled vehicles with the supplies ran into the panzers racing west from Sedan and, having no combat elements, withdrew south of the Aisne.... The tanks and tracked artillery were finally uinloaded from their flatcars... between Saint-Quentin and Hirson.... The division was hopelessly dispersed over a large triangle between Hirson, La Fere on the Oise, and Rethel on the Aisne...” and was ineffective because its assembly areas had already been overrun by the Nazis.

  • The French Third Armored division retreated to the south as General Huntziger had ordered: he thought its principal task should be to guard the Maginot line against a flanking attack should the Nazis turn south after crossing the Meuse.

  • The infantry formations of the French Sixth Army were, like the French Second Armored Division, overrun by Reinhardt's Sixth panzer division on May 15 and 16 while they were trying to coalesce in their assembly areas.

By May 16, as Shirer puts it (p. 689):

The three heavy [armored divisions] the French had, all of which in May 10 had been stationed... within 50 miles of the Meuse at Sedan and Mezieres, which they could have reached by road overnight, had thus been squandered.... Not one had been properly deployed.... By now, May 16, they no longer counted. There remained only the newly formed 4th [armored division], commanded by de Gaulle, which was below strength and without divisional training...

The French failed in tactics—the comparative battlefield casualties make that clear. The French failed in strategy—opposing the main Nazi attack with the weak Ninth Army while leaving the stronger formations to the north vulnerable to encirclement. Yet the French threw 800 tanks in four armored divisions plus between six and ten infantry divisions in front of the Nazi breakthrough in plenty of time to make a difference—yet (de Gaulle's division aside) they were completely ineffective in a running fight against seven Nazi panzer divisions which had no more tanks and somewhat fewer soldiers than the French reserves committed to oppose them.

Winston Churchill had kissed hands and taken over as First Lord of the Treasury on May 10, 1940. Five days later he received a phone call from the French Prime Minister, Paul Reynaud:

We have been defeated. We are beaten. We have lost the battle. The road to Paris is open. We are defeated...

On the sixteenth Churchill crossed the English Channel:

At about 3 PM I flew to Paris in a “Flamingo,” a Government passenger plane, of which there were three. General Dill, Vice-Chief of the Imperial General Staff, came with me, and Ismay.... [W]e... reached [Paris airport] in little more than an hour. From the moment we got out of the “Flamingo” it was obvious that the situation was incomparably worse than we had imagined. The officers who met us told General Ismay that the Germans were expected in Paris in a few days at most.... Reynaud was there, Daladier, Minister of National Defence and War, and General Gamelin.... Utter dejection was written on every face. In front of Gamelin... a map, about two yards square, with... a small but sinister bulge at Sedan.

The Commander-in-Chief [Gamelin] briefly explained what had happened. North and south of Sedan, on a front of fifty or sixty miles, the Germans had broken through. The French army in front of them was destroyed or scattered. A heavy onrush of armoured vehicles was advancing with unheard-of speed.... Behind the armour, he said, eight or ten German divisions, all motorized, were driving onwards, making flanks for themselves as they advanced against the two disconnected French armies on either side.... When he stopped... I then asked: “Where is the strategic reserve?” and, breaking into French, which I used indifferently (in every sense): “Ou est las masse de manoeuvre?” General Gamelin turned to me and, with a shake of the head and a shrug, said: “Aucune.”

There was another long pause. Outside in the garden... clouds of smoke arose of large bonfires... venerable officials pushing wheel barrows of archives onto them. Already therefore the evacuation of Paris was being prepared.... [H]ere were two new factors that I had never expected to have to face... the overrunning of the whole of the communications and countryside by an irresistible incursion of armoured vehicles and secondly NO STRATEGIC RESERVE. “Aucune.” I was dumbfounded. What were we to think of the great French Army and its highest chiefs?... [O]ne can have, one must always have, a mass of divisions which marhes up in vehement counter-attack at the moment when the first fury of the offensive has spent its force.... I admit this was one of the greatest surprises I have had in my life....

Presently I asked General Gamelin when and where he proposed to attack the flanks of the Bulge [that was the Nazi breakthrough]. His reply was “Inferiority of numbers, inferiority of equipment, inferiority of method”—and then a hopeless shrug of the shoulders...

But before we scorn the French army of 1940 as cheese-eating surrender monkeys, remember what happened to the U.S. 106th Infantry Division when Hitler’s Third Reich was on its very last legs, and what happened to Major General Lloyd Fredendall’s U.S. II Corps at Kasserine Pass. Everybody who faced the Nazis did more-or-less equally badly, in their initial encounters at least.



The tactical and operational superiority of the Nazi armies was a powerful force multiplier. Fortunately for the world and for the allies, it was offset by equally large strategic deficits. Take a look at the high-water mark of Nazi conquest in Europe in November 1942: look especially at the bulge northeast and east of the Black Sea in southern Russia; the orange dots show the positions of the centers of gravity of the German armies committed to the eastern front.

The first question that strikes anyone is this: why are those five armies in the southeast so far extended? What are they doing? The answer for the three southernmost is that they are trying to conquer the Caucasus oil fields. Hitler and his staff were convinced that Germany cannot continue the war unless the conquer more oil fields than simply the Roumanian ones around Ploesti.

As it happens, they were wrong—their subordinates were lying to them about how much fuel they had and how much they were using (one of the defects of command-and-control central planning). But Hitler was convinced that everything must be risked to conquer the oil fields.

The two dots further north are the Nazi Sixth and Fourth Panzer Armies. They are trying to capture the bombed-out rubble that had been the city of Stalingrad. It’s unclear why—other than that the city was named after Russian dictator Josef Stalin, that is. Capture of Stalingrad and the Volga River banks on which it sat would not provide better flank protection for the armies further south than a position back at Kalach on the River Don. And the Sixth and Fourth Panzer Armies had to worry about their own flank—the long gap between them and the German Second Army to their west-northwest that was covered only by eastern European allied troops with a low standard of equipment and an even lower standard of morale.


The Russians attempted two great winter offensives in the winter of 1942- 1943. Operation Mars was directed against the center of the Nazi line, near Moscow: it was a failure with heavy casualties. Operation Uranus was directed against the long exposed Nazi flanks near Stalingrad: it was a total success, surrounding and capturing the entire German Sixth Army (and large chunks of the Fourth Panzer Army as well) and forcing a precipitous withdrawal of the Nazi forces further south away from the oil fields and bank toward Germany. It was an extraordinary victory—and one made possible only by the extraordinary strategic lapses that had created Nazi eastern front dispositions as they stood in late 1942.

In the long run these strategic lapses were not something the Nazi regime could afford. Consider the time series of the number of German troops killed or missing month-by-month from the start of 1941 to the end of 1944. From the start of Russian theater operations in June 1941 on, with occasional pauses, the Nazis lose about 50,000 German soldiers killed and missing every month. Nazi Germany has an ethnic German population of perhaps 60 million, with perhaps 15 million men of potential military age. Half of those can be mobilized—no more unless the Nazis were willing to go against their ideology and mobilize women for war work on a large scale, which they were not. With a maximum potential army strength of only 7.5 million, losing 50,000 a month is a very heavy burden.


Thus the Nazi army simply could not afford the December-January 1943 spike which is the surrender of the Sixth Army at Stalingrad, the April-May spike which is the surrender of the Nazi army group in Tunisia, and the million-soldier spike which is the surrender of the Nazi Army Group Center under the impact of Russia’s Operation Bagration in the summer of 1944. Better Nazi strategy that did not undermine their tactical and operational edge would have prolonged the war. Perhaps it would have won it: a Nazi Germany that chose its enemies and fought until they were defeated might have been a much more dangerous and evil thing than a Nazi Germany that attacks Russia while still fighting a war with Britain, and that then declares war on the United States on December 8, 1941 just because.



But even the best strategy coupled with its operational and tactical advantages would probably not have won World War II for the Nazis. The logistical and productivity differentials were just too great. This table is perhaps the only thing you really need to know to understand why the allies won World War II: it shows war production of the major belligerents, with the U.S. in 1944 set equal to 100.

From 1942 on, once the war had become a truly global war, Hitler’s defeat was nearly inevitable. Even Britain alone was matching Germany and Nazi-occupied Europe in war production. Throw in the United States and the Soviet Union, and Germany was outproduced more than eight to one; Germany and Japan together were outproduced more than six to one.


A three-to-one tactical advantage in casualties does not help when you are outnumbered in tanks and aircraft by eight to one, and outnumbered in potential military manpower by ten to one. Starting in the fall of 1942 a large number of important battles go against Nazi Germany and Imperial Japan: Midway northwest of Hawaii, Guadalcanal on the way from the U.S. to Australia, El Alamein in Egypt, ONS5/SC30 in the middle of the Atlantic Ocean, and most of all Stalingrad and Operation Uranus. By their end it is very clear who will win the war if they want to keep fighting. It was not, said Churchill, the end. It was not even, said Churchill, the beginning of the end. But it was the end of the beginning.

U.S., British, and Russian armies met in the rubble that had been Germany in the spring of 1945; Adolf Hitler committed suicide as the Russian armies closed in on his Berlin command post. Japan, atom-bombed, firebombed, blockaded, and threatened with invasion, surrendered in the summer of 1945.



Death and Destruction

When World War II ended, perhaps 40 million in Europe (and perhaps 10 million in Asia) were dead by violence or starvation. More than half of the dead were inhabitants of the Soviet Union. But even west of the post- World War II Soviet border, perhaps one in twenty were killed—close to one in twelve in Central Europe. In World War I the overwhelming proportion of those killed had been soldiers. During World War II fewer than half of those killed were soldiers.

European Jews: 6M (70%)
Poland: 6M (16%)
Soviet Union: 26M (13%)
Germany: 8M (10%)
Japan: 2.7M (4%)
China: 10M (2%)
France: 600K (1%)
Italy: 500K (1%)
Britain: 400K (1%)
United States: 400K (0.3%)

Material damage in World War II was spread over a wider area than in World War I. Destruction in the First World War was by and large confined to a narrow belt around a static trenchline. Although material destruction along the trenchline was overwhelming, it extended over only a small proportion of the European continent. World War II’s battle sites were scattered more widely. Weapons were a generation more advanced and more destructive. World War II also saw the first large-scale strategic bombing campaigns. The aftermath of World War II saw many of Western Europe’s people dead, its capital stock damaged, and the web of market relationships torn. Relief alone called for much more substantial government expenditures than reduced tax bases could finance. The post- World War I cycle of hyperinflation and depression seemed poised to repeat itself. Prices rose in Italy to 35 times their prewar level. France knocked four zeroes off the franc.


What If?

Had World War II gone otherwise, we would live in a very different world.

Had Franklin D. Roosevelt decided in the spring of 1941 that with Europe ablaze it was unwise for the U.S. to try to use an economic embargo of militarily-necessary oil to pressure Japan to withdraw from China, 1945 would probably have seen the U.S. and Japan at peace, the coastal provinces of China Japanese-occupied colonies, the interior of China an anarchy, and the prestige of the Japanese military that had established this co-prosperity sphere greatly heightened.

Had the British and French governments been willing to use force to remove Hitler when he occupied the Rhineland in 1936, or threatened Czechoslovakia in 1938, there would have been no World War II in Europe. Had Stalin allied with Britain and France and declared war on Germany when Hitler invaded Poland in 1939, in all probability Hitler would have been crushed and World War II in Europe ended by the end of 1941. Had anyone other than Winston Churchill become British Prime Minister in 1940—had Nevile Chamberlain remained, or had Lord Halifax assumed the post—then the British government would almost surely have negotiated a separate peace with Germany in 1940. When Germany attacked Russia in 1941, it would have done so with its full strength. Stalin’s regime would probably have collapsed, and European Russia up to the Urals (and perhaps beyond) have become German territories, colonies, or puppet states.

It is not likely that Hitler would have refrained from attacking Russia in any possible universe. The need to do so was buried too deeply in his world view to be denied.

Last, what if Hitler had not declared war on the United States in 1941? Would Roosevelt have been able to get congress to declare war on Germany on the grounds that all the Axis powers were allied, or would congress have insisted on concentrating on fighting Japan first? If the second, then would Britain and Russia have been able to defeat Germany by themselves, or would 1945 have seen the United States dominant in the Pacific and Germany dominant in Europe?

We do not know. We do know that most of the alternative ways that World War II might have gone would trade a postwar period with a Communist evil empire centered in Moscow and dominant over eastern Europe for a postwar period with a Nazi evil empire centered in Berlin and dominant over all Europe, or perhaps Eurasia. Not an improvement. We are very lucky that World War II was not even worse for humanity than it was.

Econ 210b: Spring 2017: Announcement

Live from Evans Hall: I'm taking over Barry Eichengreen's "The Current Research Frontier: Great Recent Books in Non-American Economic History" course--Econ 210b--this semester...

I would ask those planning to show up on Tuesday please drop me a line--and also a book they want to read, if they have one.

Joachim Voth from Zurich visiting Haas will be joining us, and the book list still has a few spaces available... Grasping Reality with Both Hands 2017-01-16 15:44:07

Must-Read: Guido Alfani: Europe’s Rich since 1300: "Throughout this time, the only significant declines in inequality were the result of the Black Death and the World Wars...

...EINITE has collected, systematically and with a uniform methodology, information about long-term trends in wealth inequality, and in the share of the richest, for many ancient Italian states as well as for a few other areas of Europe... from around 1300 to 1800.... Figure 1 shows the share of wealth of the top 10% between 1300 and 2010, using Piketty (2014) for the post-1800 period.... Remarkably, Piketty’s series for 1810-1910 shows the share of the richest growing at almost exactly the same pace as the I calculated for the series between 1550 and 1800....

Europe s rich since 1300 VOX CEPR s Policy Portal

In the seven centuries... we find only two phases of significant inequality decline. Both were triggered by catastrophic events: The Black Death.... Shocks occurred between 1915 and 1945 related to the two World Wars, as argued by Piketty 2014, pp. 368-370).... The share of the richest 10% today is about the same as that in Europe (or at least, Italy) immediately before the Black Death.... The long-term perspective of recent research requires us to move beyond the characterisation of inequality time dynamics provided by Kuznets....

During the early modern period (from around 1600) the prevalence of the rich grew almost continuously until the onset of the Industrial Revolution. The rich made up no more than 5% of the overall population during the Middle Ages and the first part of the early modern period...

Europe s rich since 1300 VOX CEPR s Policy Portal

Reading: Robert Allen (2011): Global Economic History: A Very Short Introduction, chapter 1

Robert Allen (2011): Global Economic History: A Very Short Introduction (New York: Oxford: 0199596654), chapter 1

A lot goes by in a very small number of pages in this chapter:

  • The depth of global poverty in 1500
  • The magnitude of economic growth since 1500
  • The sequencing of economic growth since 1500
  • The divergence of economies since 1500
  • "Reversal of fortune"--the not rich so much as densely populated stay poor; (some of the) less densely populated become rich--with cultural distance from Manchester being the key
  • Exceptions to this general pattern
  • Clues to "why?"

There are two tables and four figures in the chapter. Study them. Memorize them. Internalize them:

  • GDP/capital, 1820-today
  • What bare-bones subsistence baskets consist of
  • Initial prosperity and growth since 1820
  • Percentage distribution of world manufacturing, 1750-2006
  • Laborer wages as a multiple of subsistence, six cities 1325-1875
  • Laborer wages as a multiple of subsistence, London and Beijing 1300-2000

This is the best short précis I have ever seen of "the facts" on global economic growth across time and space since 1500.

Cursor and James s Kindle for Mac 4 Global Economic History A Very Short Introduction Very Short Introductions

Cursor and James s Kindle for Mac 4 Global Economic History A Very Short Introduction Very Short Introductions

Cursor and James s Kindle for Mac 4 Global Economic History A Very Short Introduction Very Short Introductions

Cursor and James s Kindle for Mac 4 Global Economic History A Very Short Introduction Very Short Introductions

Cursor and James s Kindle for Mac 4 Global Economic History A Very Short Introduction Very Short Introductions Cursor and James s Kindle for Mac 4 Global Economic History A Very Short Introduction Very Short Introductions


Reading: Paul David (2005): Clio and the Economics of QWERTY

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These days a lot of energy and effort goes into user interface and user experience design.

And then we have the typewriter keyboard from 150 years ago.

It shows up in remarkably many places.

Is there any reason to think that it is in any sense the best way to lay out an alphabetical interface entry form?


As you read your way through Paul David, look out for the ways he uses the following concepts:

  • path dependence
  • equilibrium
  • "free to choose"
  • lock-in
  • system compatibility
  • system scale economies
  • quasi-irreversibility
  • choices made myopically
  • "QWERTY worlds"

And three more questions:

  1. In the end, does it really matter?
  2. How could we figure out how much it matters, both in particular cases and in the general case?
  3. Which do you think will be the most spoken language in three centuries: English or Mandarin? Why?

Criticisms of Paul David:

  1. All of the research on the superiority of alternative keyboards that was published was done by people who had a strong interest in replacing QWERTY.
  2. You cannot prove that QWERTY is in any sense grossly inefficient.
  3. It must not matter very much or people would have changed it.

I have not yet found anything I can regard as a successful smart and good faith effort's to set out and document any of these three lines of criticism. Why is this so? Or, alternatively, am I wrong? Is one or more of these lines of criticism actually a devastating rebuttal to Paul David?

And how might we tell?


The Story of American Economic History

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Let me start this course about American economic history with a story:

This is a story about a guy born in the late 19th century, in 1879, on the prairie: his family's homestead was 17 miles from the nearest post office. In historical terms, The horse-riding nomads who had dominated the prairie had only recently been driven off by the guns of government soldiers. Agricultural settlement in one of the richest soil regions of the world was well advanced, but frontier life was still raw and uncivilized.

The kid was smart. So at the age of nine his parents decided to send him to the big city for school. He thus grew up in the bustling cosmopolitan big port city undergoing very rapid economic growth and industrialization as it processed and transported the grain and other exports of one of the most fertile agricultural regions of the world.

But the city was Odessa, not Chicago. He was Russian, not American. His name was Lev Davidovitch Bronstein--Lev is either Hebrew for "heart" or Russian for "lion"; Davidovitch is "son of the beloved one"; Bronstein is German or Yiddish for "stone well".

He did eventually wind up in the United States, after being arrested, jailed, and exiled four times; leading one unsuccessful revolution; and rising to the top of the Russian Social Democratic Labor Party. By then he was known as Leon Trotsky—a pseudonym he adopted in 1902 to try to throw the Czarist secret police—the Okhrana—off of his scent, supposedly the name of one of his Czarist jailers. By then he had lived in many places and seen a great deal of the world--Nikolayev, Kherson, Kiev, and Odessa in Ukraine; Moscow and St. Petersburg in European Russia; Alma-Ata in Kazakhstan; Ust-Kut in Siberia, Vienna, Geneva, and Paris, all before being deported from France to Spain and then Spain to New York, where he arrived on January 13, 1917.

But he did not stay in the United States for long. When the Kerenskyites overthrew the Romanov Czar Nikolai II in February 1917 to try to establish a democratic republic in Russia, Trotsky immediately sailed back to his country, departing from New York on March 27, 1917. He then took his place at Vladimir Lenin's right hand in the October Revolution and the construction of the Soviet Union before being purged, exiled, and murdered—stabbed with an ice pick by an NKVD agent soon after moving out of artist Frida Kahlo's house in Mexico City—by Josef Stalin. Russia was his country. Lenin was his friend, leader, and comrade. And Lenin's Majority—Bolshevik—faction of the Russian Social Democratic Labor Party was his cause.

However, later, in 1930 in his autobiography My Life, he would write that he left with regrets that his stay had been so short:

It would be a gross exaggeration to say that I learned much.... The Russian revolution came so soon that I only managed to catch the general life-rhythm of the monster known as New York. I was leaving for Europe, with the feeling of a man who has had only a peep into the foundry in which the fate of man is to be forged...

"The foundry where the fate of humanity is to be forged".

The then-38 year old Trotsky had seen more of the world and its history from more levels than all but a few, and had a brain and education that put him in the very select company of those who could try to grasp and understand it. And Trotsky's judgment was that he; in returning to St. Petersburg and Moscow was returning to a backwater: moving back to the past that was his country from where the future was being made every day.

And Trotsky was right. America has been--since 1776 and perhaps since 1630--the place where the future of humanity has been and is being hammered out. That is why its history--the study of what has happened here--is of general interest to humans wherever they live in the world, and will be of interest to humans long into the future.

Why did I start this lecture with this story?

Why didn't I just say: "America has been--since 1776 and perhaps since 1630--the place where the future of humanity has been and is being hammered out. That is why its history--the study of what has happened here--is of general interest to humans wherever they live in the world, and will be of interest to humans long into the future"; and omit the windup?

First, to stress that my judgment that the history of America is of general rather than parochial interest is shared by one of the smartest and most farsighted human beings of the twentieth century, and one whose politics and understanding of the world are very, very different from mine. My judgment is not mine alone--far from it.

Second, to try to keep you awake: We have here someone who should be sympathetic to you--a young, very smart, man on the make, upwardly mobile and trying to figure out what to do with his life. Plus we have travel, danger, imprisonment, revolution, and murder while reading in his study by a single blow in the back of his head from an ice pick wielded by the lover of his personal secretary and Russian NKVD agent Ramon Mercader.

Third, you won't remember "America has been--since 1776 and perhaps since 1630--the place where the future of humanity has been and is being hammered out. That is why its history--the study of what has happened here--is of general interest to humans wherever they live in the world, and will be of interest to humans long into the future". You will remember the story: You will remember that there was this interesting dude named Trotsky who had a very full life and to whom lots of things happened, and he thought the U.S. and its history was really important--so much so that he left New York to become Lenin's principal deputy and People's Commissar for Foreign Affairs in the Soviet government with some regret.

You see, we are narrative-loving animals. We like stories. It is how we think. We are jumped-up East African Plains Apes, only 3000 generations removed from those who first developed language, trying to understand the world as monkeys with, as Winnie-the-Pooh would say, "very little brain". We are lousy at remembering lists--that is why we need to write them down. We are not much good at retaining sets of information--unless we can, somehow, turn them into a journey or a memory palace. We are excellent, however, at remembering landscapes. And we are fabulous at stories: human characters with believable motivations; beginnings, middles, and endings; hubris and nemesis; cause and effect; villains and heroes.

To place ideas and lessons in the context of a story is a mighty aid to our thinking. And history and its narratives are how we do that.

That is the first BIG IDEA of this course: that you should study history because it is a mental force multiplier for your brain, and that disciplines that do not take a historical approach and ideas that do not admit of a narrative historical presentation are crippling themselves.

There are thirteen other BIG IDEAS to watch out for in this American economic history course. Yes, I know that is too many. Make a list and refer to it.

The BIG IDEAS are:

  1. We are animals that live by narrative—hence by history…
  2. There are three American nationalisms…
    • The City Upon a Hill: “Let it be as it was in New-England…”
    • A place where we can live freely…
    • “But here was Old Kentucky!”
  3. The American project has been astonishingly successful—in Trotsky’s words: “the furnace where the future is being forged…”
  4. But the American project has been much worse than shadowed by plantation slavery and its echoes down the centuries…
  5. One big contributor to the success of the American project has been immigration…
  6. American society has generated a large—in comparative context—but unevenly distributed quantum of liberty…
  7. American society used to deliver an unusually large quantum of opportunity—but not any more…
  8. American society has delivered an unprecedented and unequalled quantum of prosperity
  9. The story of industrialization requires focusing on growth-oriented industrial policy…
  10. The story of industrialization requires focusing on societal well being-oriented industrial policy…
  11. The story of opportunity and prosperity is the story of our two Gilded Ages: their rise, fall, and rise
  12. The apogee of American success is the mid twentieth century era of social democracy
  13. Society has moved from agriculture to industry to post-industrial services, and is now moving on to ?…
  14. Much of what has gone wrong with America can be traced to regional geography—and to the cultures that entrenched themselves in that geography…

Note: Want to learn more about Lev Bronstein--Leon Trotsky? IMHO, the best places to start are with two books: First, the relevant sections of Edmund Wilson (1940): To the Finland Station. Second, Leon Trotsky (1930): My Life.


Readings for Econ 115: 20th Century Economic History

Il Quarto Stato

Last chance to change any of them out. Are these the right readings? Which will fail in their task? What should I replace the ones that will fail with? What things I have not included must be added?

„Globalization“ and „Neoliberalism“

Hoisted from the Archives from the Twentieth Century: "Globalization" and "Neoliberalism": for the Chronicle of Higher Education": pages version at:

From left and right alike we hear something called "globalization" condemned. The forces driving the world economy toward increased economic integration are sinister. On the left politicians like Democratic congressman David Bonior begin speeches by noting three things that come to the U.S. from Mexico--dirty trucks, drugs, and hepatitis. On the right politicians like ex-Republican Pat Buchanan blame a century-old conspiracy to deliver America into the hands of the international bankers--and somehow to Buchanan the bankers are always named Goldman, Sachs, or Rubin; never Morgan or Baker.

In books with titles like The Case Against Free Trade: GATT, NAFTA, and the Globalization of Corporate Power, Ralph Nader and his coauthors tell us that increased international trade and investment are responsible for the ills of the American economy, from disappointing blue-collar wage growth to pesticide-laden fruit. These cries of alarm from left and right about the destructive consequences of rapid international economic integration were a constant part of the background. Then in 1997 and 1998 came the calamitous flight of capital from the previously fast-growing economies of East Asia. The East Asian crisis left almost every observer believing that the global marketplace was baldy out of control. Something was amok, it seemed, when traders in lower Manhattan could cause widespread bankruptcies and unemployment in Bangkok.

The alarming crisis in Asia led to a swelling of the volume of a broad anti-trade chorus. This chorus, in turn, inspired a counter-chorus. Chin-stroking neoliberals apologized for the "excesses" of the market. They agreed that market forces are occasionally a little reckless in their roughhousing. But they stressed--like any owner of a Rotweiller--that if you only realized that you shouldn't make any sudden moves to disturb the animal, you wouldn't get bitten again. Now I am a card-carrying neoliberal: a believer that a bet on increased international economic integration is our best hope for rapidly moving to a truly human world, an advocate of NAFTA and GATT, a former not-very-senior official in the Bentsen and Rubin Treasury Departments, and a believer that those fighting to hold back world economic integration are or are the dupes of foes of global prosperity and liberty.

But I also think that this bet on increased international economic integration is a bet. It is not a sure thing. And I think that it is less important to assure people that it is a good bet (although I think that it is) than to help people distinguish the light from the rhetorical heat. After all, there will be other bets and other policy choices to be made in the future. And to fail to understand what is going on now will diminish our chances of collectively choosing wisely tomorrow. So I want to turn down the volume. I want to approach ideologies of every stripe (including my own) with skepticism. For despite the gallons of ink tha thave been spilled, our understanding of what "globalization" is and what it will do is still primitive. The people whom you can learn the most from aren't those who claim to have the answers, but those who are still working overtime to ask the useful questions.

The critics of free trade aren't necessarily wrong to be critical of the current state of the international economy. But they write tomes that seem to me at least to reveal confusion and fail to enlighten--instead they deepen the surrounding darkness. For example, Rolling Stone columnistWilliam Greider's One World, Ready or Not left me puzzled:.How could it be that when American-based corporations invested abroad, they harm American workers by stealing their jobs, while when German-based corporations invested in Alabama, they harm American workers by exploiting them to earn profits to be transferred back to Germany? What is sauce for the goose must be sauce for the gander.

There are, however, some excellent anti-globalization books:

The granddaddy of them all is Karl Polanyi's (1944) more than half a century-old The Great Transformation. Polanyi--a journalist and refugee born in central Europe whose teaching career included stints at Oxford, Bennington, and Columbia--argued that the market economy erodes the web of relationships that holds human society together. The market for labor pressures people to move around the globe to where they can earn the most--creating strangers in strange lands. The market for consumer goods rewards people for being fortunate or for responding to the incentives--making status a product of market forces rather than the result of social norms or visions of distributive justice. Moreover, Polanyi argued, the market's undermining of social order threatens to destroy the very societal and institutional structures on which the market economy rests.

Now you can disagree with Polanyi, or with his values, but even a card-carrying neoliberal like me finds his arguments hard to dismiss completely. Consider hate crimes committed against Turkish workers and their families in Germany, or women working in New York's garment industry who cannot both provide for their extended families in China and raise their children--and so send their babies back to China to live with their grandmothers. Consider the extent to which special-interest politics means that it is not the government that regulates the market but the market's oligarchs who regulate the governments.

More recent works have provided intriguing updates to Polanyi's argument. The Work of Nations by Robert B. Reich, who went onto become Clinton's Secretary of Labor, focuses on the dangers posed by globalization to America's sense of community and to the political order established by Roosevelt's New Deal. According to Reich, in the future America's blue-collar workers will be unable to share in the relative prosperity made possible by American inventions and America's resources: the need to keep the blue-collar assembly line near the research and design labs is rapidly vanishing. And the only way to reverse growing income inequality is to massively upgrade the educational level and skills of America just as universal high school in the early twentieth century gave America then the most literate and skilled labor force in the world.

Saskia Sassen's (1998) Globalization and Its Discontents speculates on how the "new mobility of people and money" is about to lead to increases in relative inequality within the narrow spaces of modern post-industrial cities. You can applaud migration from the world economy's periphery to the core. I certainly do, as do almost all economists. Few economic processes do more to enrich the world than to move unskilled workers from places were they earn $0.50 an hour to places where they earn $5.00 an hour. And those who move benefit, as their vote-with-their-feet shows. But market forces do not construct the social capital to make high-inequality post-industrial cities truly liveable.

In response to such critiques, the neoliberal political establishment--the Brookings Institution, the Progressive Policy Institute, and the Century Foundation--assures us that critics of increasing international economic integration are suffering from an irrational fear: Globaphobia is what they cal it. International economic integration--driven by rapidly falling transport and communications costs--is both inevitable and beneficial, argue authors Robert Litan (of Brookings), Robert Z. Lawrence (now a member of the Council of Economic Advisers), and Robert J. Shapiro (now Undersecretary for Economic Affairs at the U.S. Departmetn of Commerce). The only question is how quickly governments are going to learn to adjust to that integration, and learn how to benefit from it.

The benefits of this "globalization," according to the neoliberal argument, are threefold:

  • Both the nations comprising the world economy's industrial core and those in the developing periphery benefit massively when the capital-rich core (where interest rates are low) loans to the capital-poor periphery (where interest rates are high).

  • Consumers benefit when lower transport costs and reduced tariffs make goods produced far away more affordable. Producers of goods that are exported gain as well because they sell into a wider market. Producers of goods for home consumption do not gain, but there is nothing like competition from abroad to keep them on their toes, alert to ways in which they can improve efficiency and better satisfy their customers.

  • The more internationalized the world economy, the more use producers in each country can make of commodities and production processes invented elsewhere. Faster diffusion of knowledge raises the level of productivity and technology worldwide.

Thus globalization leads to a richer world, and to a more vibrant and tolerant world as well. Governments should not fight globalization, neoliberals contend. Instead they should embrace it.

To a poor country hoping to develop an industrialized economy, neoliberals outline several incentives to embrace the global market.

  • In the past it might have made sense to impose tariffs to protect so-called "infant industries" or cushion economic instability. But in the information age, an integrated global marketplace will accelerate the transfer of technology. And it is only by accelerating the transfer of technology that poor countries have a chance of growing rapidly.

  • The industrial core has lots of money to lend to the developing periphery. Economies should embrace such inflows of capital, for they provide an opportunity to cut a decade or more off of the half-century process of industrialization.

  • Removing trade barriers reduces the scope of the government. That reducation, in turn, reduces the inevitable corruption, stagnation, and bureaucratic obstacles to growth that have beset developing economies for two generations.

In a sense the neoliberal position is a counsel of despair. Once upon a time development advisors, politicians, economists, and others argued that social democracy was the proper road for developing economies. A strong, active government to build infrastructure and redistribute wealth to ensure that growth would benefit all--or so the argument went. Couple that with high investment (perhaps behind a wall of substantial tariffs) and the private sector would flourish.

But over the past two decades cynicism has set in. A consensus has formed that outside already-developed nations (and indeed inside some of them) an activist developmental state has entailed too many coups, too much corruption, too many business leaders deciding that the road to profits is not capital investment but marrying the C.F.O. to the daughter of the vice-minister of finance.

Neoliberals hope that multinational corporations, financial analysts, bond-fund managers, and bond raters will in the end be able to apply some constructive pressure to improve the situation: better the discipline of the world market than no discipline on less-than-fully-democratic governments at all.

This neoliberal line may sound a little to pat. But it is virtually the only game in town. Critics try to poke holes in it, but the neoliberal stance has no serious challengers these days in policy-making. The "dependency" arguments--that developing economies should fear and tightly manage contact with the industrial core because it would take more than 100% of the gains from trade--have vanished. In 1960 left-wing intellectuals and politicians argued that the close economic links between Batista's Cuba and the United States was impoverishing Cuba. Today everyone--left, right, and center--agrees that it is the lack of close economic links with the U.S. that impoverishing Cuba.

Some others seek to point out the ways in which the idea of globalization has been overhyped. Their research is a useful reality check. Globalization has been overhyped. Globalization theories are always in danger of falling victim to grandiosity. Yet there remains a sense in which debunkers of globalization run the risk of missing the forest for the trees. They focus on the minutiae of the present, at the expense of the trends that would allow them to forecast the future.

Among the best debunkers of the globalizers' position is John Helliwell, a professor of economics at the University of British Columbia. In his book How Much Do National Borders Matter?, Helliwell systematically examines trade linkages among Canadian provinces. He finds that the linkages are many times more extensive than those between the provinces and American states that are just as close as the snowy owl flies: Toronto trades more than ten times as much with Vancouver as with Seattle. The same holds true between the industrial core and the developing periphery. National borders today are still tall barriers to movements of goods, capital, and most of all labor.

Helliwell is right. Globalization has been oversold and its impact overstated.

But what makes his and similar arguments of potentially limited value is that--while correct now--they may not be correct for long. An expert on mail delivery in 1900 might well have stated that the new technology of automobiles was of very limited value in delivering the mail over muddy rural roads. Such an expert would have been correct. But in terms of planning being correct about today is not necessarily being relevant for the planning for tomorrow. The arguments that globalization has been oversold looks good for the decade of the 1990s. It will probably not look good for the decade of the 1930s.

So if you find yourself unsatisfied by isolationist Cassandras and neoliberal Polyannas, and if careful statistic-wielding debunkers seem to speak to today and not to tomorrow, where should one turn?

My primary allegiance is to a fourth group--reformers, call them, who see the economy as resting on sociological and political foundations and capable of being shaped to bring the story of globalization to a relatively happy ending. And among the reformers there are two currents of thought that seem to me to be well worth heeding. The best example of the first current is found by exiting my Berkeley office, walking north ten feet, and knocking on the next office door. Barry J. Eichengreen, my Berkeley colleague, has written two recent books: Globalizing Capital and Toward a New International Financial Architecture. The first explains how we have arrived at the international monetary system that we have, with its floating exchange rates and large international flows of capital. It explains why we see rapid growth among those developing economies that convince Wall Street that they should be growing rapidly, and brutal financial crises when those claims are shown to be unfounded or even called into question.

The second book contains "practical" proposals for reform: recognize the compelling long-term benefits of open capital markets, worry less about guarding against "moral hazard" (economists' term for the skewing of expectations if a past bailout leads investors to expect that future crises will always be met by bailouts), and establish a better safety net to catch nations falling into international financial disarray. There are imperfect institutions that already strive to provide that kind of security for world financial structures--chief among them the IMF. But in Eichengreen's view it has worried too much about opening capital markets and making sure that governments that preside over financial crises are punished and humiliated, and too little about making sure that national governments have the right incentives in advance to diminish the damage that a panic-stricken flight of international capital might do.

Eichengreen has more realistic expectations than do the globalizers, recognizing that the global market economy is "the worst way of allocating resources except for all other forms that have been tried." There are many problems that decentralized markets cannot solve, and that must be resolved by governments if they are to be resolved at all. (A broader perspective, with more points of view but tending toward the same lessons, can be found in Capital Flows and Financial Crises, edited by Miles Kahler.)

The second vein of reform-minded thinking about globalization is best exemplified by Dani Rodrik's Has Globalization Gone too Far? Rodrik, an economist at Harvard's Kennedy School of Government, tries to create a middle ground between leading cheers for the onrush of intenational economic integration and mindlessly condemning such integration in a fit of reactionary nostalgia for a past that never was.

Rodrik fears that developing economy governments that do not carefully manage international economic integration will wind up without the ability to achieve anything like what was achieved in the post-World War II industrial core: the good society (not the great society) and the mixed economy.

The mixed economy taxes income from capital and transfers wealth from market winners to market losers. Globalization, however, raises the mobility of capital and makes it harder for governments to tax profits. Globalization increases competition in the labor market. Most economists (me included) have argued that this increase in labor market conditions has had little impact on the wages of American workers. But Rodrik points out that "...saying that the impact of globalization on advanced-country labor markets is quantitatively rather small... is no different [in standard analytical frameworks] from saying that gains from trade have... been small." He asks economists to put up or shut up: recognize either that the gains from trade or small, that trade has potentially large effects on wages, or that the standard analytical framework is wrong.

He also throws down the gauntlet. He claims that globalization cannot be a replacement for (failed) social democracy in the developing periphery. Instead, he believes that globalization must be assisted by (successful) social democracy if it is to produce a world with a human face.

I do not kinow if Rodrik is right in his analytical challenges to other economists or to neoliberalism. But I know that his challenges are very useful challenges, and that the debate he seeks to open would be a very useful debate.

Capital Flows and Financial Crises, edited by Miles Kahler (Cornell University Press, 1998).

The Case Against Free Trade: GATT, NAFTA, and the Globalization of Corporate Power, by Ralph Nader et al. (Earth Island Press and North Atlantic Books, 1998).

Globaphobia: Confronting Fears About Open Trade, by Gary Burtless, et al. (Brookings Institution: 1998).

Globalizing Capital: A History of the International Monetary System, by Barry J. Eichengreen (Princeton University Press, 1996).

Globalization and Its Discontents, by Saskia Sassen (New York: New Press, 1998).

The Great Transformation, by Karl Polanyi (Beacon Press, 1944).

Has Globalization Gone too Far? by Dani Rodrik (Institute for International Economics, 1997).

How Much Do National Borders Matter? by John Helliwell, (Brookings Institution, 1998).

One World, Ready or Not: The Manic Logic of Global Capitalism, by Wiliam Greider (Simon and Schuster, 1997).

Toward a New International Financial Architecture: A Practical Post-Asia Agenda, by Barry J. Eichengreen (Institute for International Economics, 1999).

The Work of Nations: Preparing Ourselves for Twenty-First Century Capitalism, by Robert B. Reich (A.A. Knopf, 1991).

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