Late Nineteenth Century American Development by Jeffrey G. WilliamsonReview by: Don J. DevoretzThe Canadian Journal of Economics / Revue canadienne d'Economique, Vol. 9, No. 3 (Aug.,1976), pp. 547-549Published by: Wiley on behalf of the Canadian Economics AssociationStable URL: http://www.jstor.org/stable/134505 .

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Reviews of books / Comptes rendus / 547

science are simply to be 'translated into action.' Late in the book he at last notes that R & D iS 'an agent and instrument of the political authority or of business enterprise ... It is primarily valued for the contribution it makes to political purposes or to business profits ... The information that R & D pro- duces is not universally available' (187). But these crucial matters are not pursued, and the reader is left unnecessarily in the dark as to the likely in- fluences upon the composition of research, the diffusion of the output, and the eventual distribution of any resulting gains or losses. If only the raising of income levels through the application of science and technology were simply a matter of learning!

The Canadian reader cannot but be struck by the number of government- supported development-oriented research institutions there appear to be in the countries Solo has examined. What has Canada to compare? The new International Development Research Centre has focused upon the building of research institutions in the less developed countries rather than in Canada. A careful assessment of the relative effectiveness of the IDRC's approach as against, say, that of the French, as here described, would by now be a very worthwhile undertaking.

G.K. HELLEINER, University of Toronto

Late Nineteenth Century American Development by Jeffrey G. Williamson. New York: Cambridge University Press, 1974. Pp. ix, 350. Index. $26.00

This is the third book by Professor Williamson that applies a general equili- brium analysis to the historical or contemporary problems of economic development. The first two, which were co-authored, are Dualistic Economic Development: Theory and History (University of Chicago Press, 1972) and Lessons From Japanese Development: An Analytical Economic History (University of Chicago Press, 1974). The book under review focuses on American economic development in the post-Civil War period from 1870 to 1910. In particular, Williamson attempts to explain the post- 1870 retar- dation in American per capita income and labour productivity growth and its subsequent reversal in the 1890s. He investigates the well-known forces of immigration, capital market integration, railroads, and world agricul- tural prices as possible candidates for explaining American growth retarda- tion. His results, while carefully qualified, are startling. Immigration to the United States between 1870 and 1910 did not appreciably influence growth rates and only altered the 1910 level of GNP by 1 per cent. Continued counter- factual experiments lead Williamson to question Turner's thesis on the role of the frontier in stimulating American growth. Fogel's well-known findings that the social savings of us railroad development were minimal are also

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548

seriously challenged. Finally, Davis's explanation of American capital mar- ket integration is revised and a new interpretation, which removes the role of super-normal profits in attracting new financial intermediaries, is pre- sented.

Williamson, in contrast to all these views, offers a new and challenging thesis to explain American retardation. In the author's words: 'The econ- omy-wide savings rate rose, and the price of producer durables fell, markedly during the Civil War decade. The initial impact was to raise capital accumu- lation rates and, as a result, the rate of GNP and GNP per worker growth ... The subsequent retardation in the post-war growth rate was inevitable since the rate of capital accumulation diminished as the capital-labor and capital- output ratios rose' (112).

The magnitude of questions that Williamson confronts and the repeated serious challenges to traditional explanations of American retardation re- quire that we investigate the methodology which led him to these conclu- sions. In short, is this most recent tool of some cliometricans, general equili- brium analysis through historical simulation, a valid framework for histori- cal analysis?

Williamson does not sidestep this issue. He spends an entire chapter (58- 91 ) attempting to convince the reader that his neoclassical model of Ameri- can development is valid. He describes the technique of macroeconomic historical analysis by stating: 'there are four steps in the [macroeconomic] simulation procedure: model formulation, estimating, testing and analysis' (61). Upon acceptance of the model, counterfactual questions can be ex- plored by altering key parameters, e.g. halting immigration, which will pro- duce new simulations for all key variables. A comparison of the macro- economic model's original predictions to these new simulations provides a standard to measure the impact of the counterfactual event.

The methodological problems facing the practitioners of this macro- economic historical approach are twofold. First, as they recognize, their macro model must generate results which are consistent with the limited known data of the period. In effect, they are attempting to demonstrate that there exists one possible explanation of the historical phenomenon. Second, they must also demonstrate their model's uniqueness.

In evaluating the existence property of his macro-simulation model on us development, Williamson asks: 'What rules can we invoke to judge the descriptive accuracy of an historical model and thus its plausibility?' (63). In his attempt to answer this question Williamson (60) offers several test statistics and a caveat that 'The ultimate test is to compare our model's ac- curacy with a competing model of the ... period.' With this warning, Wil- liamson recognizes the required uniqueness property.

How is the reader of macroeconomic history to judge whether an explana- tion exists and is unique? A detailed examination of the tests presented by

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Reviews of books / Comptes rendus / 549

Williamson in chapter 4 does not convince this reader that he has provided us with an unique explanation of post-Civil War American retardation. His two major test statistics, Theil's 'Information Inaccuracy Statistic' and the 'Goodness of Fit Measure' are unable to distinguish between the possible types of errors that may arise when he compares his simulated results to the historical series under question. For several comparisons Williamson argues that his simulated series approximates the historical series, but the reader is unsure why this is true. The test statistics Williamson uses cannot sort out errors in his simulation due to missed turning points in the series or differences due to conflicting variance in his series and the historical data. Finally, no known probability distribution is available to place confidence intervals on the Williamson test results. An example of these problems is contained in Williamson's test of conformity between his simulation model's average per annum growth rates of GNP per worker and the Gallman- Kuznets historical data on this series (67 Table 4.1). He accepts that his model is a close approximation of this series because the average correspond- ence is 'close' between the two series. Williamson admits that his model is unable to capture the turning point of this series after 1898 (67), while the reader is left wondering if he is able to reproduce the variance in this historical series. Of course this is only one of many series that Williamson tests, but it illustrates the fundamental problem that historians face in assessing simulation models. Historians are often concerned with explaining turning points in history or large deviations from the general trend of events. Williamson has not shown convincingly that his model has reproduced the variance and turning points in the post-Civil War period of American de- velopment. Thus the counterfactual experiments carried out and the startl- ing revision of Turner's, Davis's and Fogel's results are also in doubt.

DON J. DEVORETZ, Simon Fraser University

Welfare Economics: A Liberal Restatement by Charles K. Rowley and Alan T. Peacock. London: Martin Robertson, 1975. Pp. viii, 198. Index

A serious challenge to the entrenched Paretian orthodoxy is both welcome and overdue. This one comes in the form of a good thriller. The assassina- tion occupies the first third, the apparent victim being Pareto. The actual victim, however, is a caricature rather than a character, a stereotype of the misguided Paretian constructed from selected references. The New Left is acknowledged for dealing a few prior blows at the Paretian, but is then despatched with comparable ruthlessness lest there be any doubt about who the real hero is. The reader is repeatedly accorded hazy glimpses of him and promised identification later. We are introduced to his forebears, and the

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