Abstract
There is a general historical consensus that seventeenth-century Virginia planters‑-whether because of the need to accumulate wealth in order to purchase the requisites of gentility, the struggle to survive and raise a family on a rugged frontier, or simply entrepreneurial drive‑-were industrious maximizers par excellence. Historians believe that rising tobacco prices either encouraged planters to increase tobacco production and demand for labor or had little impact on planters already maximizing production. Yet multiple regression analysis reveals that supposedly maximizing planters responded to changes in tobacco prices in a very “perverse” manner. Rising tobacco prices actually resulted in a reduced demand for additional labor and a decrease in productivity.
However, far from being perverse, such behavior was then and still is quite normal, indeed perhaps universal. This kind of behavior is no different than the reduced hours of work (taken the form of fewer hours of labor per day, fewer days per week, a younger age at retirement, more holidays and longer vacations, more years of schooling and an older age of entry into the work force) associated with rising incomes in the industrial West in the twentieth century, while real wages were steadily rising. Evidence has also emerged in the last twenty years from experimental and field studies of American farmers, Third World peasants, and business corporations alike. The Western farm and firm are ubiquitously pervaded by what economists call “organizational slack” which only tightens up during recessions, promptly to return again with prosperity.
We might have no problem accepting as pretty universal that when the going gets tough even the not-so-tough usually have to get going. The newspapers are filled with stories about how our largest corporations have to tighten their belt and knuckle down when faced with cost-price squeezes. But the idea that the same corporation might loosen their belt and slack off with the return of prosperity strikes us as perverse. Indeed, we might even tend to think that the return of prosperity would lead so-called “modern” individuals and corporations to increased rather than decreased exertion as their efforts meet with greater rewards. Trying to synthesize these two images we are forced into the logically troubling conclusion that people respond to good times and bad times in the same way, with ever greater effort every time rewards fall or rise, pushed during busts and pulled during booms, a paradox I call “the myth of maximizing.”
In fact, we are anything but maximizers and, up until relatively recently in the history of political economy, no one thought we were. Certainly early modern Englishmen would have had no trouble understanding such perverse behavior. British political economists from Thomas Mun in the early seventeenth century to Adam Smith in the late eighteenth century believed that only “necessity” (or as we might say, relative poverty, relative deprivation, or a falling standard of living), only necessity could overcome the natural laziness of Englishmen or of mankind in general. This is what Englishmen meant when they said “Necessity is the mother of invention,” a proverb that became quite popular in the seventeenth century.
This “necessity” model, much neglected by historians of economic thought, deserves much more than passing interest because all of the available evidence suggests that this model well explains the actual behavior of Englishmen. Besides the statistical findings on Chesapeake productivity and demand for labor already mentioned, such a framework explains better than the reigning models of early American economic development the failure of Virginia to develop in the seventeenth century and the reasons why planters eventually turned from indentured servants to slavery. Furthermore, the necessity framework can shed much new light on early modern British economic development and the coming of the Industrial Revolution by highlighting the central role of cost-price squeezes in fostering expanded production and technological and organizational innovation among farmers and businessmen, thus lowering commodity prices and fueling an eighteenth-century consumer revolution.
In the first and last chapters, I explore how American and Western exceptionalism, Marxian-Weberian theory, and neo-classical economic theory have worked hand in hand to reinforce the myth of maximizing. The inherent flaws in this paradigm suggest that it is high time we re-examine the implicit assumptions that we bring to our work about the nature of economic motivation and behavior, and recognize how those assumptions distort our ability to understand not only early modern Europeans and Americans but also other peoples in the past and present and, indeed, ourselves today.
Chapter-by-chapter precis
Preface
Summary: A brief autobiographical account of how, from its humble origins in an M.A. thesis analysis of land acquisition in 17th-century Virginia, I rather inadvertently stumbled into taking on such a huge project.
Chapter 1 The Origins of American Capitalism
Summary: The United States has long played a central role in scholarly debates about the origins and nature of capitalism. But scholars have a great difficulty in defining exactly what they mean by capitalism. A brief review of debates on the “transition to capitalism” in the early American North and South demonstrates the character of the debates focusing in particular on the traditional Yankee-Cavalier dichotomy and the influence of seminal figures like Max Weber, Frederick Jackson Turner, Adam Smith, Karl Marx, and Thomas Jefferson Wertenbaker. In order to move beyond these debates‑-which tend to rest on a priori assumptions about the mindset of early Americans‑-the chapter shifts the focus to a frequently implicit, sometimes explicit, yet far more testable assumption in these debates: that capitalist men and women maximize (wealth, income and/or profits) and pre-capitalist men and women do not. This link between capitalism and maximizing has very long roots that date back to Aristotle’s contrast between two economic ethics: oikonomike (“the art of household management”) and chrematistike (“the art of wealth-getting”). Karl Marx explicitly historicized this Aristotelian dichotomy in conceiving the transition from pre-capitalist production for use inherently limited by needs to infinitely expansive capitalist production for exchange. The end of the chapter introduces the challenge posed by the perverse behavior of seventeenth-century Virginians taken up in Chapter 2.
Chapter 2 “One of the Poorest, Miserablest, and Worst Countries in All America”
Summary: There is a general historical consensus that seventeenth-century Virginia planters‑-whether because of the need to accumulate wealth in order to purchase the requisites of gentility, the struggle to survive and raise a family on a rugged frontier, or simply entrepreneurial drive‑-were industrious maximizers par excellence. Historians believe that rising tobacco prices either encouraged planters to increase tobacco production and demand for labor or had little impact on planters already maximizing production. Yet multiple regression analysis (presented in Appendices I-III) reveals that supposedly maximizing planters responded to changes in tobacco prices in a very “perverse” manner. Rising tobacco prices actually resulted in a reduced demand for additional labor and a decrease in productivity. Building upon this basic insight, this chapter synthesizes much of the literature on “economic development” in the seventeenth-century Chesapeake to provide an alternative explanation to a problem that greatly occupied the thoughts of Virginians in the seventeenth century and historians today: Why did Virginia fail to live up to its great promise? We will see how the impact of cost-price squeezes in the late seventeenth century forced planters not only to increase tobacco production and demand for labor and land but also to cut back on imports, increase domestic production, diversify their crops, undertake new enterprises, migrate to other colonies or back to England, delay marriage, search for more efficient production and transportation techniques, and, most significantly for the course of American history, shift from white indentured servants to African slaves.
Chapter 3 An Industrious Revolution?
Summary: Seventeenth-century Virginians were not the only Englishmen guilty of such “perverse” behavior. This chapter looks at the other side of the Atlantic and finds one can tell a similar story about early modern British economic development and the coming of the Industrial Revolution. The more they were paid, the fewer hours English laborers worked. Farmers in England responded to the lower grain prices following the Restoration by increasing grain production, thus outrunning demand and promoting even lower grain prices. Manufacturers, caught in cost-price squeezes (especially due to the relative shortage of labor and thus high wages), adopted technological and organizational innovation which lowered commodity prices and fueled an eighteenth-century consumer revolution. While contrary to some popular notions about the coming of the Industrial Revolution, the evidence presented in this chapter is actually quite consistent with the basic findings what has become known as the “John‑Jones synthesis,” acknowledging the seminal work of Arthur H. John and Eric L. Jones. This synthesis represents the dominant scholarly interpretation of seventeenth- and eighteenth-century English economic development, readily reflected in recent historical overviews.
Chapter 4 Necessity, the Perpetual Mother
Summary: Early modern Englishmen would have had no trouble understanding such perverse behavior. On the issue of the supply of labor, historians of pre-classical British political economy have well captured the essence of seventeenth- and eighteenth-century polemics in dividing thinkers from Thomas Mun to Adam Smith into black (mercantilist/anti-labor/low-wage) and white (liberal/pro-labor/high-wage) camps. Nevertheless, when one looks beyond the political biases, one finds a shared belief in the idea of “necessity” (or as we might say, relative poverty, relative deprivation, or a falling standard of living) as the mother of invention, industry, and frugality. It went almost without saying that this necessity was inherently reversible. Relative prosperity naturally led to indolence, prodigality, and luxury. Parts of this chapter have been published in my article, “Necessity and the ‘Perverse’ Supply of Labor in Pre-Classical British Political Economy,” History of Political Economy 29.3 (Fall 1997), 497-522.
Chapter 5 Reversible Necessity, Exceptionalism, and Human Nature
Summary: Western and American exceptionalism and the lack of a proper synthesis based on “reversible necessity” steered historians wrong in their assumptions about the economic motivation and behavior of seventeenth-century Virginia planters. The necessity consensus depicted in Chapter 4 gradually fragmented in the nineteenth and twentieth centuries more for social, cultural, and political reasons than empirical evidence. In its place arose “the myth of maximizing,” the seemingly paradoxical notion that modern man will respond to good times and bad times in the same way, with ever greater effort every time rewards fall or rise, pushed during busts and pulled during booms. Nevertheless, contrary to this general consensus, an impressive amount of evidence from Western and Third World countries demonstrates that a model of economic behavior based on the principle of reversible necessity continues to explain historical and cross-cultural behavior better than competing theories. The chapter ends with a brief exploration of the possible ramifications of these findings for the transition to capitalism debate in early America.
Appendix I Tobacco Productivity, 1669-1703
Appendix II Demand for Labor, 1662-1679
Appendix III Demand for Land, 1664-1706
Summary: Multiple regression analysis of changes in tobacco productivity, demand for labor, and demand for land in the Chesapeake over the period 1660-1706, reveals that planters responded to changes in tobacco prices in the “perverse” manner typically associated with traditional peasants and a backward-sloping supply of labor. Far from escalating productive forces, rising tobacco prices actually resulted in a reduced demand for additional labor and a decrease in productivity.