Growth and Price: Douglass North vs. the New History of Capitalism

So far while writing this series on the new history of capitalism, I have been deliberately avoiding the topic which has often drawn the most attention—what we might call the Eric Williams Question: what is the historical relationship between slavery in the Americas and economic growth under capitalism?

I have avoided writing about the recent work which addresses this question and the critical responses which have attacked that recent work in large part because I wanted to slip out of the tendency to see the field of NHOC as centered in that question and to judge the success of the field by the validity of the scholarship which has sought to answer it. In plainer language, I didn’t want this series to become an excuse to stick my oar into the turbulent waters of the controversy surrounding the books of Edward Baptist, Sven Beckert, and Walter Johnson.

I’m still reluctant to turn in that direction (readers of my last post in this series can probably see why), but I do think that it may be worthwhile to think about why there seems to be so much distance between the new history of capitalism and economic history, why the conversation between these fields seems to be so unproductive.

By “unproductive,” I do not mean that good scholarship has not been produced as a result of the attempt to hold this conversation. But these attempts have mostly gone one way and have focused on a very small number of works—for the most part, this “conversation” has been economic historians reviewing (and generally panning) the work of the three historians named above. This narrow engagement of the new history of capitalism by economic historians, on the one hand, and the general lack of an effectual defense by Beckert, Baptist, and Johnson against economic historians’ critiques, on the other, suggests a mutual lack of interest in truly learning from one another.

That is, I think, a misfortune, but it is also a problem that needs to be explained—and that can be explained (I hope) by trying to isolate those concepts or underlying presumptions where the two fields are widest apart and least in conversation. To do so, I’m going to take a look at a classic of economic history which—and please correct me if I’m wrong—still displays many of the same intellectual commitments and dispositions which characterize practitioners today. To keep this short, I’m going to focus on the Preface and first chapter (titled “The Analytical Framework”) of Douglass North’s 1961 The Economic Growth of the United States, picking out two key elements which indicate substantial conceptual gulfs between historians of capitalism and economic historians. It is on these counts (and probably others) that the two groups find themselves talking past one another.

***

The first element is the way North uses the word “growth.” This is such a pervasive word as to be camouflaged by its own repetition, but other historians—Robert M. Collins foremost—have done substantial work on both the centrality and the slipperiness of “growth” as the watchword of post-World War II economics and economic policy. What is left to say?

North makes a silent but significant equation of the word “growth” with another word in his first sentence: “On the eve of the Civil War the United States had already achieved rapid and sustained economic expansion.” North immediately makes clear why his conflation of the two terms is consequential in the next sentence: “We had filled out our territorial boundaries, and the frontier was already encroaching upon the parched lands in the lee of the Rocky Mountains and moving east of the Sierra Nevadas” (v).

There are strong empirical reasons to object at this point. It simply was not true that the United States had “filled out our territorial boundaries” by 1860—in fact, it’s rather surprising that North could say that, as Alaska and Hawai’i (both of which were acquired by the United States after 1860) attained statehood while North must have been doing the research for this book.[1] Moreover (as I hardly need to tell anyone reading this), the U.S. acquired many other territories after 1860—the Philippines, Guam, Puerto Rico, and so forth. Even if we give North the latitude (or, rather, the longitude, I suppose) to interpret “territorial boundaries” as “the lower 48,” it is not even strictly accurate to say, as North does on the next page, that “westward expansion… [was] accomplished” by 1860. Native American claims to sovereignty and to rightful possession of land in the lower 48 may have been generally ignored by white settlers and the federal government, but the matter was certainly not resolved by 1860. North is preaching a strikingly crude Turnerian gospel here.

North treats the “obstacles to American economic growth” as identical to the obstacles to territorial expansion—essentially, mastery of geographic/logistical problems: “Each surge of expansion during this period consisted of extensive movement into new territory, with all the concomitant internal migration and investment in transportation and construction which accompanied the opening up, settlement, and integration of the area into the economy” (12-13). Violence and coercion—not to mention federal land policy—are treated as exogenous or even accidental factors that occur on a separate plane from the combined narrative of economic/territorial growth/expansion. In fact, one of his foundational points in this study is that the Civil War should not be thought of as a significant factor in the history of US economic development. “That war,” he writes, “was a costly and bitter interruption.”[2]

My point in stressing North’s errors here is not to score some pc points but to gesture toward a very real difference in the way “economic growth” is understood. No historian of capitalism treats “territorial expansion” as simply as North does, and this has real effects on the way historians of capitalism conceptualize economic growth. For historians of capitalism, territorial expansion is not domestic but imperial, and it has a variable and contingent relation to economic growth, not a naturally harmonious and mutually reinforcing one. Wars and violence are not “interruptions” of normal economic processes or smooth spatial movements; they must be part of the model. “Growth” cannot be simply equated with “expansion.” There are many mediating influences, and frequently it was federal policy that attempted to intervene to suture the two together, to turn a chaotic and violent process of territorial expansion into economic growth.

That in turn leads us to the second element where I see broad discrepancies between historians of capitalism and economic historians. If the first element is a basic divergence over how to conceptualize “growth,” the second is how to conceptualize “price.” Consider this declaration North makes of the book’s guiding principle:

This study is based on the proposition that U.S. growth was the evolution of a market economy where the behavior of prices of goods, services and productive factors was the major element in any explanation of economic change. Institutional and political policies have certainly been influential. They have acted to accelerate or retard growth on many occasions in our past, primarily by affecting the behavior of the prices of goods, services or productive factors either directly or indirectly. But they have modified rather than replaced the underlying forces of a market economy. (vii)

It is tempting to focus on “market” in this passage, largely because arguments over neoliberalism have trained our ears to perk up whenever someone uses the word. But it is really “price” that makes this passage important, and it is the treatment of price that pushes this “proposition” far away from something which I think any historian of capitalism would endorse.

What North is saying is effectively that prices can be manipulated or “modified” but—and this is more important—there are also times when prices are working normally—i.e., without any manipulation.

This is not the time for a precis (much less a critique) of neoclassical price theory, but I think it is safe to say that the understanding of prices one picks up from reading the new history of capitalism is entirely different. There is definitely a political element to this divergence, but that is not really a sufficient explanation of why it exists. There is a basic conceptual difference between historians of capitalism and economic historians over what a price is—where it comes from, why it changes, and what social effects it has.

This will admittedly be a crude generalization, but historians of capitalism seldom treat prices as a simple reconciliation of supply and demand; generally, prices are treated in coordination with assessments of the distribution of power among groups or individuals. Prices are indices of power as well as market signals, to put it plainly.

The implications of this understanding again are broad, but I think they can be gestured towards by turning once again to a statement by Douglass North that is relatively incomprehensible within the general framework of the history of capitalism. He writes, “The business cycle is a poor framework for the analysis of economic growth. The shortness of the period, monetary disturbances, and speculative excesses combine to conceal rather than expose the underlying factors in the long-run growth of the economy” (11).

Take away the business cycle—panics, bubbles, monetary crises, overproduction, underconsumption, resource shortages, inflation, etc. etc.—and do you still have the new history of capitalism? It is hard to conceptualize the new history of capitalism if one were to treat such phenomena as more likely to obscure than to reveal “underlying factors.” The new history of capitalism generally proceeds, it seems to me, in the belief that it is precisely in moments of economic crisis that underlying factors are laid bare, that we get some clarity on how various forms of power are distributed and aligned.

This difference again has less to do with divergent understandings of “the market” and more to do with a conceptual gulf regarding the meaning of “price.” For economic historians, price has two faces: on the one hand, it facilitates the clearing of the market; on the other, it places constraints on the absolute free wills of both buyers and sellers. In either case, prices operate internally within the market. The market may extend over most of human life, but prices are imagined as existing wholly within the operations of the market.

For historians of capitalism, however, prices instead reach out from inside the market to draw previously unpriced (or “uncapitalized”) things into the market. Putting a price on something, in other words, is not primarily about helping it to move through the market; it’s about sucking it into the market in the first place. Whether on land or love or on the breast milk of enslaved women (to use a particularly vivid example from Stephanie Jones-Rogers’s new book They Were Her Property: White Women as Slave Owners in the American South), putting a price on something is an exertion of power, and reveals stark power differences between those whose interest is served by pulling that item into the market and those whose interest would best be served by keeping it out.

Again, I don’t think these two elements—growth and price—are the only ones on which there are stark dissimilarities between historians of capitalism and economic historians, and I absolutely invite criticism regarding the way I have conceived of either group’s ideas. As someone who is much more the former than the latter, it is possible that I have misrepresented the state of play today in economic history, but my hope is to have drawn attention to two key locations where mutual misunderstanding has impeded better communication.