Financial History, Historical Analysis, and the New History of Finance Capital

Financial History, Historical Analysis, and the New History of Finance Capital1 Barry Eichengreen The traditional way of starting an essay on the history of capitalism is by not defining the term. The practice is regrettable, since it elides multiple definitions of which two most obviously stand out. For Karl Marx, the essence of capitalism was the separation of labor from the means of production, the concentration of the latter in the hands of the capitalist class, and the development of a political superstructure to secure property rights.2 For Milton Friedman, who positioned himself as the Marxist's mid-twentieth-century bête noire, capitalism was synonymous with markets and their association with private property and voluntary exchange.3 The Marxian portrait lends itself to a characterization of the economic system as unequal, exploitative, and unstable, whether due to a falling rate of profit or, in its twenty-first-century variant, an ever-increasing concentration of wealth and power in the hands of the 1 percent. Friedman and his followers, on the other hand, see unregulated market exchange as expressing freedom of choice, as a vehicle of opportunity and self-improvement, and as a mechanism for competing away inefficiencies. Both conceptualizations are of ideal types. Both are ahistorical since they treat capitalism as a disembodied system detached from time and place. For Marx, the dynamics of the system arise out of a struggle between classes that occurs independently of the particulars of the setting. For Friedman, the magic of capitalism is its extraordinary facility at aggregating the decisions of self-interested individuals—homos [End Page 20] economicus—into a social optimum in any context in which an unregulated market exists. This analysis of ideal types, whether undertaken by neoclassical economists or class theorists, appeals to neither the "new economic historians" who reside in economics departments nor to "new historians of capitalism" whose disciplinary home is history.4 Both are dissatisfied with the disembodied nature of such analyses. Both are concerned to understand how the response of individuals to the economic problems that they confront is shaped by a particular historical setting. Economic historians respond to this dissatisfaction by assembling large data sets that can expose the particularities and historically contingent nature of economic behavior. They use these data points of historical information on, inter alia, individual consumers, investors, and entrepreneurs, together with statistical techniques, to document actual economic behavior, dispensing with the economist's assumption of convenience, utility maximization. They use historical data to contextualize economic behavior and demonstrate how it is shaped by the specific context. Historians of capitalism substitute narrative for statistical methods in an effort to make their portrayal of historical action more vivid and context-specific. They invoke global history to demonstrate how national cases are embedded in a larger social and economic setting and a broader set of power relations. They embed their analyses of economic processes in the twenty-first-century historian's framework, emphasizing race, gender, and ethnicity in order to show how the dynamics of the economic order are contingent on its social underpinnings.5 Thus, economic historians and historians of capitalism see economic structure and organization as contingent. Both see it as contextually and historically specific. Both challenge the economist's conception of an ideal, rarified market. Both seek to denaturalize the economic order. In their common emphasis on how economic relations are shaped by historical context, the two schools are natural allies. [End Page 21] That's the positive take, anyway.6 The negative take is that economic historians, concentrated in economics departments, have been corrupted by that discipline's obsession with statistical technique, causing them to focus on ever-narrower questions to which such technique can be neatly applied to the exclusion of aspects of economic behavior that are not easily measured and quantified. They narrow their audience to that small subset of historical scholars with advanced training in mathematics. Historians of capitalism, lacking that training, disregard their colleagues' statistical analyses and, all too often, the findings of a half-century of scholarship in economic history. Lacking a statistical mindset, they use evidence selectively, in a manner consistent with their grand narrative. In this view, the two...