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Book Review: Second Thoughts

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Second Thoughts: Myths and Morals of U.S. Economic History
edited by Donald N. McCloskey (New York: Oxford University Press, 1993); 208 pages; $24.95.

In his introduction to the 1954 book Capitalism and the Historians , Friedrich A. Hayek pointed out that “past experience is the foundation on which our beliefs about the desirability of different policies and institutions are based. . . . Yet, if it is too pessimistic a view that man learns nothing from history, it may well be questioned whether he always learns the truth. . . . Historical myths have perhaps played nearly as great a role in shaping opinion as historical facts. . . . The influence which writers of history thus exercise on public opinion is probably more immediate and extensive than that of the political theorists who launch new ideas. . . . The historian is in this respect at least one step nearer to direct power than is the theorist.”

It is a welcome event when a volume appears that has as its purpose the refutation of many of the myths that have served as the historical background upon which public policy has been and continues to be debated and decided. Economic historian Donald McCloskey, under the sponsorship of the Manhattan Institute, has edited a collection of twenty-four essays by economists and historians entitled Second Thoughts: Myths and Morals of U.S. Economic History. The authors are not all free-marketeers, and not all of their conclusions are consistent with a classical-liberal world view. But they all evaluate a wide variety of past historical interpretations that have served as rationales for statist-type policies in the 20th century.

Elyce J. Rotella summarizes the history of state and federal legislation limiting the hours and type of work women were permitted to perform in the 19th and early 20th centuries. She shows that the advocates of these laws argued that women were weaker and inferior to men and needed special protection in the marketplace from unscrupulous employers who wished to exploit them. She also points out that trade unions usually supported these work restrictions because they did not want competition from women. Furthermore, Professor Rotella explains that the equal-rights amendment, as originally written in 1920, was meant to end such restrictions and allow women to compete freely in the market for work and wages.

Mark Thomas analyzes the history of trade deficits in American history and demonstrates that throughout most of the 19th century, America’s international trade balance was negative. But rather than being harmful, the trade deficit enabled the importation of European capital that fueled America’s industrialization and economic development. America, therefore, industrialized and developed more quickly than if the pool of investment funds had been limited to available domestic savings.

Price V. Fishbeck interprets the history of workers’ compensation laws in the early 20th century and demonstrates that rather than reducing accidents in the coal industry, these laws actually created perverse incentives to be less careful on the job. By shifting the burden of proof as to who was responsible for work-related accidents from the employee to the employer, workers were less risk-averse in their on-the-job behavior.

Elizabeth Hoffman recounts the history of how workers in the weaving and spinning industry in the 19th century adjusted to the new technologies of machine textile production from the methods of the hand loom. Professor Hoffman shows how workers — without state retraining programs — learned new skills and created and took advantage of employment opportunities in a 19th-century “high-tech” sector of the economy.

Richard Sylla reviews the history of free banking in 19th-century America and concludes that rather than being an era of monetary and banking instability, it worked rather effectively and efficiently. Banking problems during the middle of the last century, Professor Sylla explains, had to do with state and national regulation — particularly the requirement that banks use government debt instruments as basic reserves for their issuance of bank notes. And he compares the free-banking era with the problems of American banking today under regulation.

Donald McCloskey debunks the myth of America’s declining competitiveness in the world economy. And he shows that this fear is nothing new and has been shown to be wrong over and over again.

Jeffrey Williamson demonstrates that there is a preferable alternative to sending unending foreign aid to third-world nations. He shows that those countries that have followed a more market-driven set of policies have experienced rates of growth and rising incomes that are much faster than the rates experienced by the first industrializing European nations of the 19th century.

Susan Phillips and J. Richard Zecher analyze the history of the Securities and Exchange Commission and show its anticompetitive, cost-inefficient consequences.

Benjamin Baack and Edward Ray point out that since the passage of the income-tax amendment to the Constitution in 1913, there have been fewer limits on the federal government’s ability to grow than in the 19th century.

These are just some of the themes discussed in Second Thoughts. Altogether, these essays represent an important beginning in overthrowing many of the misconceptions and distortions that continue to plague much of the public-policy discourse in America today. With this better understanding of the power of the market and the dangers from state action in the past, we can hopefully improve the case for economic liberty in the future.

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    Richard M. Ebeling is a professor of economics at Northwood University. He was formerly president of The Foundation for Economic Education (2003–2008), was the Ludwig von Mises Professor of Economics at Hillsdale College (1988–2003) in Hillsdale, Michigan, and served as vice president of academic affairs for The Future of Freedom Foundation (1989–2003).