The Economic Future in Historical Perspective (review)

The objective of this collection is to find in economic history some guidance for dealing with contemporary economic issues. Almost all of the essays are by economic historians and rely heavily on the authors' previously published work. The seventeen essays are grouped into three parts. Part one deals with the sources of long-term economic growth, Part two with changes in economic regimes and ideologies, and Part three with individual welfare and security.

The best essays show that economic history provides an important complement to economic theory. For example, the detailed analysis by Jan de Vries of what he calls the "industrious revolution" in northern Europe in the seventeenth and eighteenth centuries contains the material for a potential reorientation of modern growth theory. De Vries documents parallels between this earlier era and today's world of proliferating gadgets and an overworked middle class, suggesting that changes in household attitudes have more to do with economic prosperity than contemporary theory allows.

The essay by Jane Humphries shows that the complementarity between history and theory works in both directions. She uses modern contract theory to analyze the role of the English apprenticeship system in the first industrial revolution. She points out that the system dealt effectively with what amounts to a "dual hold-up" problem familiar to contract theorists, according to which an apprentice could evade his obligations once trained, and the master could exploit the apprentice for cheap labor. By mitigating this hold-up problem, the system provided the well-trained and mobile labor force needed for England's early transition from an agrarian society. Only someone equally familiar with archives and modern theoretical models could produce such an illuminating analysis.

Economic history reveals that historians do not just use first-rate theory; they sometimes even produce it, without the aid of mathematical models. Alexander Gerschenkron was such a historian/theorist, and the essay by Nicholas Crafts provides further evidence for Gerschenkron's theory that late-industrializing countries can benefit from collective intervention of the sort that might have stifled innovation among earlier industrializers. Crafts examines the record of the East Asian "miracle" countries, pointing out the important role that state industrial policies played in the financing of their development. He also argues persuasively that these policies are unlikely to allow a complete catch-up to OECD income levels, because, in many cases, they provide a hierarchical solution to problems that at the highest level of development require a market solution. The issues that he addresses are on the current frontiers of growth theory, where theorists and historians have much to learn from each other.

One of the most pressing economic problems among industrial countries today is the provision of income security for the elderly. The essay by Paul Johnson and Mark Thomas shows that the problem was in many respects even more acute before the introduction of Social Security in the United States and the welfare state in Britain; in both countries, most people have never saved adequately for their old age. This essay is an excellent starting point for thinking about the issue.

The collection is certainly worth reading by any economist relatively unacquainted with economic history. Some of the essays might also serve as good introductions to contemporary economic problems. For non-economists, the book offers a useful demonstration of how modern economic theory is used by those who take it most seriously, not as a rigid set of formulas but as a guide to understanding the record of human experience.