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The President and Fellows of Harvard College

The Lever of Riches: Technological Creativity and Economic Progress by Joel Mokyr
Review by: William M. McBride
The Business History Review, Vol. 66, No. 4 (Winter, 1992), pp. 809-811
Published by: The President and Fellows of Harvard College
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Book Reviews / 809 Book Reviews / 809
Closing
insolvent thrifts
early
would have reduced the
severity
of these
credit losses and saved
large
amounts of
taxpayers' money.
The
primary
regulatory failure, however,
was in
permitting
thrifts to
operate
with low
levels of
capital
and with
portfolios
that were
subject
to loss from
unex-
pected
interest-rate increases. This situation has not
changed enough
to
prevent
a similar debacle should interest rates
again
increase
sharply.
I
agree
with Litan that
higher capital requirements
are
important
for
reducing
future losses that
might
be
imposed
on
taxpayers
and well-run
banks. Nationwide
branching
is an idea that is
sixty
to one hundred
years
past
due. But his
suggestion
that not even
well-capitalized
banks should
be
permitted
to offer a full
range
of financial services
directly
is inconsis-
tent with
empirical
evidence here and abroad and basic economic reason-
ing.
Most of these activities
(particularly
insurance sales and securities
underwriting
and
sales)
are
risk-reducing. Why, then,
should banks be
prohibited
from
offering
them
except
in
separately capitalized
and insu-
lated
holding-company affiliates,
structures that would
prevent
banks and
their customers from
obtaining
economies of
scope?
Litan also does not
explain why
banks that hold
capital
sufficient to absorb most losses would
be unable to
compete successfully
with other lenders who hold
capital
sufficient to
satisfy
their
(uninsured)
creditors.
Thus,
although
Litan
puts
the
present banking
situation into a useful historical
perspective
and
points
to some
important government-imposed
restraints that have exac-
erbated the situation
(particularly
the
prohibition
on interstate
banking),
he does not
go
far
enough
in
recommending change.
George J.
Benston is the
John
H. Harland
Professor of
Finance,
Account-
ing,
and Economics at
Emory University.
He is the author
of
numerous
books and
of refereed
and other articles on
banking, including
The
Sep-
aration of Commercial and Investment
Banking:
The
Glass-Steagall
Act
Revisited and Reconsidered
(1990).
He has
recently completed
a
paper
with Mike Carhill on the
thrift
disaster,
which includes tests
of
the moral
hazard and
deregulation hypotheses,
based on market-value estimates
of
thrifts'
net worth.
The Lever of Riches:
Technological Creativity
and Economic
Progress. By Joel Mokyr.
New York: Oxford
University Press,
1990. ix + 349
pp. Figures, notes,
bibliography,
and index.
$24.95. ISBN 0-19-506113-6.
Reviewed
by
William M. McBride
In this
ambitious,
chronologically comprehensive survey,
economic histo-
rian
Joel Mokyr surveys
the
relationship
between
technology
and eco-
nomic
progress
from
antiquity
to the eve of the First World War.
Mokyr
seeks to
explain why
some societies were more
technologically
creative
Closing
insolvent thrifts
early
would have reduced the
severity
of these
credit losses and saved
large
amounts of
taxpayers' money.
The
primary
regulatory failure, however,
was in
permitting
thrifts to
operate
with low
levels of
capital
and with
portfolios
that were
subject
to loss from
unex-
pected
interest-rate increases. This situation has not
changed enough
to
prevent
a similar debacle should interest rates
again
increase
sharply.
I
agree
with Litan that
higher capital requirements
are
important
for
reducing
future losses that
might
be
imposed
on
taxpayers
and well-run
banks. Nationwide
branching
is an idea that is
sixty
to one hundred
years
past
due. But his
suggestion
that not even
well-capitalized
banks should
be
permitted
to offer a full
range
of financial services
directly
is inconsis-
tent with
empirical
evidence here and abroad and basic economic reason-
ing.
Most of these activities
(particularly
insurance sales and securities
underwriting
and
sales)
are
risk-reducing. Why, then,
should banks be
prohibited
from
offering
them
except
in
separately capitalized
and insu-
lated
holding-company affiliates,
structures that would
prevent
banks and
their customers from
obtaining
economies of
scope?
Litan also does not
explain why
banks that hold
capital
sufficient to absorb most losses would
be unable to
compete successfully
with other lenders who hold
capital
sufficient to
satisfy
their
(uninsured)
creditors.
Thus,
although
Litan
puts
the
present banking
situation into a useful historical
perspective
and
points
to some
important government-imposed
restraints that have exac-
erbated the situation
(particularly
the
prohibition
on interstate
banking),
he does not
go
far
enough
in
recommending change.
George J.
Benston is the
John
H. Harland
Professor of
Finance,
Account-
ing,
and Economics at
Emory University.
He is the author
of
numerous
books and
of refereed
and other articles on
banking, including
The
Sep-
aration of Commercial and Investment
Banking:
The
Glass-Steagall
Act
Revisited and Reconsidered
(1990).
He has
recently completed
a
paper
with Mike Carhill on the
thrift
disaster,
which includes tests
of
the moral
hazard and
deregulation hypotheses,
based on market-value estimates
of
thrifts'
net worth.
The Lever of Riches:
Technological Creativity
and Economic
Progress. By Joel Mokyr.
New York: Oxford
University Press,
1990. ix + 349
pp. Figures, notes,
bibliography,
and index.
$24.95. ISBN 0-19-506113-6.
Reviewed
by
William M. McBride
In this
ambitious,
chronologically comprehensive survey,
economic histo-
rian
Joel Mokyr surveys
the
relationship
between
technology
and eco-
nomic
progress
from
antiquity
to the eve of the First World War.
Mokyr
seeks to
explain why
some societies were more
technologically
creative
This content downloaded from 148.206.96.158 on Fri, 12 Sep 2014 13:48:31 PM
All use subject to JSTOR Terms and Conditions
Book Reviews / 810
and
progressed economically,
in a
Schumpeterian sense,
more than oth-
ers. One of
Mokyr's premises
is that "invention and innovation are com-
plements [and]
in the
long run,
technologically
creative societies must be
both inventive and innovative"
(p. 10).
Both characteristics
require
cul-
tural mentalites that
support creativity.
After his
introduction,
Mokyr presents
a
129-page summary
of the his-
tory
of
technology
in
chapters
on classical
antiquity,
the Middle
Ages,
the
Renaissance and
beyond (1500-1750),
the Industrial Revolution
(1750-
1830),
and the
period
from 1830 to 1914.
Mokyr's
narrative reflects his
keen
analysis
of the extensive
corpus
of
existing historiography.
This sec-
tion could stand alone as an excellent introduction to
technology
for busi-
ness
history students,
but it is
presented
as the foundation for a
subsequent section,
"Analysis
and
Comparisons,"
in which
Mokyr pre-
sents his
concept
of
technological progress
in
history
and
compares
the
technological complementarity
of
contrasting
societies: classical
antiquity
and the medieval
period;
China and
Europe;
and Britain and
Europe
during
the Industrial Revolution.
In
"Analysis
and
Comparisons," Mokyr
examines
why
some societies
have had
technological change resulting
in economic
progress,
whereas
other societies have remained
technologically stagnant. Mokyr
leads the
reader
through
a
laundry
list of
factors-cultural, intellectual,
ideological,
and
institutional-previously
assessed as
affecting technological change
and concludes that
creativity
is the essential
ingredient
for
technological
progress.
In
determining why
classical
society
"with its
indisputable
intellectual
superiority, achieve[d]
so little
by way
of
technological
innovation com-
pared
to the crude and illiterate
peasants
of medieval
Europe" (p. 193),
Mokyr
draws on the work of
Lynn White, among
others,
and concludes
that the Christian church and
competition
between a
politically pluralis-
tic
Europe
fostered medieval
technological progress. Mokyr
attributes
the
technological stagnation
of the Roman
Empire
to its
"inability
to
gen-
erate
altogether
new
technologies
. . .
[and its] inability
to find new and
imaginative
economic
applications
for the new ideas it did
generate"
(p. 198).
In
seeking
to
explain
the
"greatest enigma
in the
history
of
technology"
(p.
209)-China's
failure to maintain its
supremacy
in
technology
vis-a-vis
the
West-Mokyr
draws on the seminal studies of
Joseph
Needham.
Mokyr
concludes that the "difference between Chinese and
European
civilizations was one of
degree,
a
degree
that rose after
1400,
when
Europe's
attitudes to the material world
grew increasingly exploitative"
(p. 227).
For
Mokyr, technological progress
is a
"positive-sum game,"
and
the
"adjustment
costs" and
"political
unrest"
(p. 232)
that often accom-
pany
new
technologies may
have been considered
by
Chinese
society
too
steep
a
price
to
pay.
In
Imperial
China,
the
government
was in a
stronger
position
to retard innovation and to enforce the status
quo
than
govern-
ments were in
pluralistic Europe,
where
technological change
could be
sustained "in the
long
run" and could "make
great leaps" (p. 238).
This content downloaded from 148.206.96.158 on Fri, 12 Sep 2014 13:48:31 PM
All use subject to JSTOR Terms and Conditions
Book Reviews / 811
While macro-scale
technological
differences
eventually developed
between East and
West,
comparable
variances existed within
Europe
during
the Industrial Revolution. The difference between Britain and
the
Continent between 1750 and 1830 was "one of
degree
and nuance"
(p.
256). Many important
inventions
employed
in Britain
originated
on
the
Continent,
and British success was
due,
in
large measure,
to
better
implementation
rather than to innovation. The decline of
technologically
induced economic
growth
in Britain in the late nineteenth
century
resulted from British
attempts
to "live
through
the Second Industrial
Revolution with the tools of the First"
(p. 262).
At that
point, technolog-
ical
stagnation
came to
Britain,
supporting
the
Schumpeterian
tenet that
technological change
is
temporary
and
technological stagnation may
be
more common than innovation. If
technological progress
is
"ephemeral
and
rare,"
the lesson is that "it is crucial that the world
preserve
a mea-
sure of
diversity.
... As
long
as some societies remain
creative,
others
will
eventually
be
dragged along" (p. 302).
In his
concluding section,
Mokyr compares technological change
with
evolutionary
models. For
Mokyr, technology
is
epistemological,
and tech-
nique
is
analogous
to
species (p. 267).
He is not the first to embrace an
evolutionary technological paradigm,
and his work
parallels
that of
George
Basalla
(The
Evolution
of Technology, 1988).
While Basalla
emphasizes technological continuity, Mokyr
subscribes to
technological
evolution with marked discontinuities. It is the discontinuities
("macro-
inventions"), occurring
in
clusters,
that have resulted in
significant
eco-
nomic
progress, according
to
Mokyr. Many
historians of
technology may
have trouble with
Mokyr's macro-inventions,
favoring
instead Basalla's
argument
that
any "revolutionary explanation
for
technological change
is
the confusion of
technology
with its social and economic ramifications"
(Basalla, p. 61).
Mokyr
offers a well-written and
finely argued analysis
of the relation-
ship
of
technology
to economic
progress.
This is an
important monograph,
and historians of business
history
will find that it contains ideas that are
sure to stimulate debate.
William M. McBride is assistant
professor of history
at
James Madison
University.
He received his Ph.D. in the
history of
science and technol-
ogy from
the
Johns Hopkins University
and is a
former
Olin Fellow in
history
at Yale
University.
He is the author
of
several articles in the his-
tory of technology
and
science,
the most recent
being "Strategic
Deter-
minism in
Technology
Selection: The Electric
Battleship
and U.S. Naval-
Industrial
Relations,"
Technology
and Culture
(April 1992).
He is
currently completing
a
history of
the
relationship
between intellectual
paradigms
and
technology
selection within the U.S.
Navy
since 1865.
This content downloaded from 148.206.96.158 on Fri, 12 Sep 2014 13:48:31 PM
All use subject to JSTOR Terms and Conditions