Knowledge that Transforms

Editor's Note Our policy is to annotate all English-language books on economics and related subjects that are sent to us. A very small number of foreign-language books are called to our attention and annotated by our consulting editors or others. Our staff does not monitor and order books published; therefore, if an annotation of a book does not appear six months after the publication date, please write to us or the publisher concerning the book.

Editor's Note Our policy is to annotate all English-language books on economics and related subjects that are sent to us. A very small number of foreign-language books are called to our attention and annotated by our consulting editors or others. Our staff does not monitor and order books published; therefore, if an annotation of a book does not appear six months after the publication date, please write to us or the publisher concerning the book.

In the eighteenth century, the Bank of England revolutionized money through its large-scale introduction of circulating banknotes. The consequences of this revolution are felt even today. In Making Money: Coin, Currency, and the Coming of Capitalism, Christine Desan argues that this legendary transformation was not a one-off event, but a culmination of long-standing trends within the English monetary tradition. This review concedes Desan’s point, but calls attention to other factors that were equally critical to the Bank’s success: exceptional business and political acumen, active suppression of competitors, and lots of good luck. The importance of these factors is evidenced by the failure of attempted copycat institutions in other countries. (JEL E42, E58, G21, N13, N23, P16)

The recent financial crisis has prompted much new research on the interconnectedness of the modern financial system and the extent to which it contributes to systemic fragility. Network connections diversify firms' risk exposures, but they also create channels through which shocks can spread by contagion. We review the extensive literature on this issue, with the focus on how network structure interacts with other key variables such as leverage, size, common exposures, and short-term funding. We discuss various metrics that have been proposed for evaluating the susceptibility of the system to contagion and suggest directions for future research. (JEL D85, E44, G01, G21, G22, G23, G28)

Fragile by Design by Charles W. Calomiris and Stephen H. Haber introduces a framework for understanding financial crises and credit abundance with politics at its center. Using the historical experiences of five nations to illustrate, the authors propose that democracies such as the United States and Canada can have stable banks and ample credit so long as populist forces do not dominate the policy agenda, and that strong autocratic states such as Mexico can also achieve stability at the cost of restricting credit. Weak autocracies, such as Brazil over much of its history, often require inflationary finance and suffer from the banking fragility that comes with it. The authors identify populist ideologies and related policy decisions (such as unit banking, deposit insurance, and the Community Reinvestment Act) as underlying causes of banking instability in the United States as typified by the recent subprime crisis. Canada, in contrast, by holding populist forces in check through calculated political choices, remains crisis-free. (JEL D72, E44, G01, G21, N20, O16, O17)

TOT THE LEAST of the problems involved in reviewing the economic history portions of the International Encyclopedia of the Social Sciences [5, 1968] is that of determining which portions properly are economic history. Some items easily fall into that category, but many others having such headings as Economic Thought, Poverty, or Slavery frequently provide interesting material though their contents are largely peripheral. In order to keep this review within reasonable bounds, attention will be confined to items specifically classified by the editors as economic history, with only an occasional glance at tempting subjects technically off limits. Some comparisons with the earlier Encyclopaedia of the Social Sciences [4, Seligman, 1930] which appeared more than thirty years ago are especially interesting. This earlier work will be referred to i what follows as the Encyclopaedia; the current one as the International Encyclopedia. In actual fact neither encyclopedia is international in any thorough-going sense. Both are written largely by, for, and about Western Europeans and North Americans. The editor of the original fifteen-volume Encyclopaedia made a courageous though not notably successful attempt to define the The tremendous expansion of the social sciences since that time has made the task of definition even more difficult. So the editor of the International Encyclopedia wisely gave up the attempt and merely indicates that the contents of the present work provide sufficient meaning for the term and the best indication of the expanded scope of the field. The heading does appear in the International Encyclopedia and a subtitle, the Philosophy of Science by Michael Scriven (Volume 14, Pp. 83-90), includes an excellent essay on the social sciences. His perceptive statement along with an unusually provactive one by Jack Hexter on the Rhetoric of History (6,368-94) might well be made required reading for all graduate economic history students. As is often true of general reference works, the reader may find most interesting some of the contributions lying outside the field of his own specialty. The editor makes clear that the International Encyclopedia is designed to supplement rather than to replace the earlier work. He also announces the plan to put special emphasis on method. Success in achieving these objectives, although considerable, varies from one subject to another. A general historical introduction, one of the major contributions of the older work, does not appear in the new one. Substantive historical coverage, especially for the years since 1930, is occasionally sketchy in the special topics. The new emphasis on method provides an attractive focus, though many sections and articles fall short of this intention. In its indexing of topics the International Encyclopedia reflects the uneasy position of

T HE NEW International Encyclopedia of the Social Sciences has already received the attention it rightly deserves. It is a worthy sequel the Encyclopedia of the Social Sciences which has, since its publication in the early 1930s, become badly outdated with respect both facts and theoretical developments in rapidly moving disciplines. The IESS is a wholly new product, not merely a revision of the earlier work. Its editors set themselves the task to make available readers throughout the world the concepts, principles, theories, methods, and empirical regularities that characterize the social sciences today (vol. 1, p. xxiii) and urged contributors include historical and descriptive material illustrate concepts and theories, rather than for its own sake. The publication coming from this effort contains 1716 articles-598 are biographical entries-bound in 17 volumes (including an extensive index) and selling for $503 a set, postpaid. (The Preface reports that the publisher was willing invest $2 million in the enterprise.) Casual perusal of the articles suggests that the editors were successful and early sales support this: an initial printing of 10,000 was sold out within five months, and the set went into a second printing of similar size. The buyers, I am told, include a large number of high schools, using Title II funds under the Federal Elementary and Secondary School Act. The purpose of this review is draw attention the non-biographical entries dealing with international economics. Sixteen articles deal directly with intemational economics, that is, with subjects that might be covered in a college course of that title. Many others, such as those on central banking, foreign aid (economic), mercantilism, spatial economics, and a number of the biographies, of course are also relevant international economics. About the same number of articles on international economcs appeared in the earlier Encyclopedia, and by rough calculation the share of international economics in the total material remained unchanged at 1.2 percent. But while in the earlier Encyclopedia 39 percent of the total coverage represented topics in economics, in the IESS this share dropped 14 percent [3, Sills, 1969, p. 1173]. No doubt this reflects not only the change in principal editorship from two economists (E.R.A. Seligman and Alvin Johnson) a sociologist (David Sills) but also the relative growth during the past generation of anthropology, sociology, statistics, and (especially) psychology. Thus international economists can take some satisfaction that the relative importance of their field within the discipline of economics seems have risen sharply; or else international economists are more prolix than their closed economy counterparts. Thirteen of the sixteen articles on international economics are grouped under three broad headings: international monetary economics is covered by R. A. Mundell

tends to creep into economists' assessment of foreign aid. In a respectable journal one reads that discipline seems of little use, our theories unrevealing or even irrelevant, and our evidence fragmentary and inadequate [10, Griffin, 1970, p. 313]. Similar statements abound. Their authors appear to regard aid as a political instrument to influence people and they claim that in the realm of political calculus scores need not be measured the way economists like to quantify entries into a balance sheet. One may wonder if the interdisciplinary character of the subject induces regression toward the lowest common platform? Do economists put aside their analytical techniques for the sake of facilitating communication with a larger audience, or do they simply acknowledge the inadequacy of their tool kit? Whatever the reasons, results usually lack the sophistication so characteristic of other branches of international economics, e.g., trade theory and policy. The articles touching upon foreign economic aid in the International encyclopedia of the social sciences [32, 1968] break only partially this execration. By and large, the overly simplistic presentation tends to lag behind the proficiency evident in the treatment of other economic topics elsewhere throughout the volumes. In this review I propose to follow the authors' coverage of the field, assessing exposition and filling gaps. Also, I shall abstract recent developments in the analysis of international grants. At the outset let us note that in the 17 volumes of the Encyclopedia there appear four contributions which discuss at some length foreign economic aid in one context or another. Foreign Aid: Economic Aspects by Gerald M. Meier [32, Vol. V, pp. 521-29] is the broadest in scope. Technical Assistance by Francis X. Sutton [32, Vol. XV, pp. 565-76] delves substantively into a more narrowly defined subject. This article in fact focuses only on the above two pieces. Still, it must be acknowledged that the essay on Social Overhead Capital by Henry J. Bruton [32, Vol. II, pp. 287-89) offers a good balanced exposition of the topic. Further, Community Development [32, Vol. III, pp. 169-73) is treated quite clearly by Irwin T. Sanders as the road toward . . conscious acceleration of economic, technological, and social change [p. 169]. Gerald Meier organizes his essay on the economic aspects of foreign aid under the following sections: evolution of aid programs, objectives and magnitude of aid, forms of aid, use of aid, burden of aid, and need for further research. The choice of these particular subheadings, however, fails as a guide to consistent presentation. The author accumulates a wide range of information and does probe relevant issues; nevertheless, the recurrent overlaps and ill-focused labels result in something like the transcript of a casual fireside chat at the World Affairs Club of Middletown. I agree with the author about 90 percent of the time, but that remaining 10 percent causes considerable concern; truly, what he does not say is more the problem. The evolution of aid programs is traced primarily through the actions of the donor countries after World War II. In the United States the Export-Import Bank of Washington has turned increasingly to development loans, the Marshall Plan supported European recovery,

THE RELATIONSHIPS between a priori theory and a posteriori theorizing are numerically large and causally complex. Few economists use only one method, yet relatively little has been written recently on the subject of economic methodology or the study of the criteria one uses for accepting principles. This article is a survey for economics students of the principal elements of our federal statistical data series. The point of departure is the census of manufacturers and thus the body of the article, even though some historical reference is employed, is neither a chronological listing of the growth of data collection nor an analysis of the perception of the problems of and improvements in statistical technique. Suffice it to stress the themes 1) that constructs (such as stock vs. flow) were perceived before extensive data were collected, 2) that some constructs (like the consumption function) proved empirically to be so unstable (or in other cases so hard to estimate) that they were neglected in favor of other a priori constructs, and 3) that data and constructs collected for one area of analysis of the economy are frequently converted for use in other areas of the economy (agricultural production functions are a useful example).