for the sake of argument: the evidence against the new history of capitalism

I was referred to the other day in a conversation on Twitter between Adam Ozimek and Marshall Steinbaum about economic history and the New History of Capitalism (NHC). I don’t know either of them, though I did like Ozimek’s Econ Talk with Russ Roberts. Steinbaum asserted that NHC is really the way to go, that NHC people are not playing fast and loose with evidence, and that “Economic history is constrained by methodological narrow-mindedness and thus circumscribed,” whereas “HoC actually entertains arguments that simply don't get a hearing in Econ, thanks to ideology,” He also claimed that the competence and honesty of econ is in question and that my response to Cowie is just more economist overreaction to “apt criticism.” Ozimek wanted someone to argue with Steinbaum. Twitter isn’t really well suited for argument; a real argument should have at least clear claims and evidence. Moreover, I haven’t seen any indication that the NHC people are interested in real argument.

In the interest of real argument, however, I will try to make clear the evidence behind my claims about NHC. The other day I claimed that “The primary features of the new history of capitalism seem to be hostility toward economics (including economic historians), ignorance or disregard of the work done by economic historians, and a willingness to play fast and loose with numbers.”

Perhaps someone can explain why these examples do not represent a problem with the NHC and then provide specific examples of how methodological narrow-mindedness and ideology are constraining economic historians. Later I’ll try to make the positive case for economic history.

Hostility Toward Economics:

Introduction, Zakim and Kornblith Capitalism Takes Command page 5: “The cliometric habits of economic historians are a case in point, for they consistently flatten the history of market society by “bracketing” whatever proves too difficult to integrate into a quantifiable universe of price series, wage averages, or productivity regressions. Long arcs of development resting on “data” retrofitted into axiomatic categories of growth or stagnation, invariably result in highly cogent patterns of secular change. The revolutionary disruptions essential to “capitalism” reorganization of society―conflicts over the very forms of capital and their legitimacy, or the political negotiation over the boundaries of property rights and contractual obligations, or concern over the effects of competition on the civic life of the polis―are then dismissed as exogenous to the organic logic of exchange, and so irrelevant to a history of the economy. That is why studies in economic history so often reproduce capitalist ideology itself, separating economic activity out from the murky realms of the unmeasureable and assigning it an autonomous operating principle.”

Baptist page 72 of Capitalism takes Command: “the evidence strongly suggests that –left to their own devices –neither economists nor the banking dynasts they often serve have learned the lessons of the past.”

And of course one can refer to Cowie’s essay. None of these claims are backed by specific cases.

Disregarding the Work of Economic Historians:

Baptist claims that economists and historians have accepted the claim that slavery was inefficient. One of his primary claims in Half Has Never is that he shows, contrary to what all these economists believe, that slave owners were profit seekers and slavery was dynamic capitalist system. Thanks to surveys conducted by Bob Whaples  it is demonstrably false that economic historians believed that slavery was an inefficient pre-capitalist system. Baptist can only make the claim by disregarding the mountain of work produced by economic historians, going back to Conrad and Meyer in 1958.

Beckert writes about slavery without referring to Fogel and about the use of force in spreading markets without citing Findlay and O’Rourke.

Hyman on p. 27 of Borrow cites Pete Daniel “Shadow of Slavery” that debt peonage trapped sharecroppers in “grueling oppressive lives” but does not cite the seminal work of Ransom and Sutch on debt peonage.

Playing Fast and Loose With Numbers:

 Julia Ott, When Wall Street Met Main Street, first page of the first chapter: "Severe financial panics in 1873 and 1893 punctuated a prolonged economic depression, as prices, profits, per capita output and productivity growth fell steadily from 1873 to 1896." Not true. If you don’t already know that this isn’t true see measuringworth.com

Louis Hyman page 18 Borrow: The American Way of Debt “Though a national bank was founded in 1791, its first incarnation lasted only forty years as Jacksonian populism triumphed over federalism.” There were two separate banks. You can see the physical evidence of this if you visit Philadelphia.

Here is Edward Baptist’s nonsense exercise in national income accounting:

“here’s a back- of- the –envelope accounting of cotton’s role in the US economy in the era of slavery expansion. In 1836, the total amount of economic activity―the value of all the goods and services produced―in the United States was about $1.5 billion. Of this, the value of the cotton crop itself, total pounds multiplied by average price per pound―$77 million―was about 5 percent of that entire gross domestic product. This percentage might seem small, but after subsistence agriculture, cotton sales were the largest single source of value in the American economy. Even this number, however, barely begins to measure the goods and services directly generated by cotton production. The freight of cotton to Liverpool by sea, insurance and interest paid on commercial credit―all would bring the total to more than $100 million (see Table 4.1).

                Next come the second- order effects that comprised the goods and services necessary to produce cotton. There was the purchase of slaves―perhaps $40 million in 1836 alone, a year that made many memories of long marches forced on stolen people. Then there was the purchase of land, the cost of credit for such purchases, the pork and the corn bought at the river landings, the axes that the slaves used to clear land and the cloth they wore, even the luxury goods and other spending by the slaveholding families. All of that probably added up to about $100 million more.

Third order effects, the hardest to calculate, included the money spent by millworkers and Illinois hog farmers, the wages paid to steamboat workers, and the revenues yielded by investments made with the profits of the merchants, manufacturers, and slave traders who derived some or all of their income either directly or indirectly from the southwestern fields. These third order effects would also include the dollars spent and spent again in communities where cotton related trades made a significant impact another category of these effects is the value of foreign goods imported on credit  sustained the opposite flow of cotton. All these goods and services might have added up to $200 million. Given the short term of most commercial credit in 1836, each dollar “imported” for cotton would be turned over about twice a year: $400 million. All told more than $600 million, or almost half of the economic activity in the United States in 1836, derived directly or indirectly from cotton produced by the million odd slaves― 6 percent of the total US population―who in that year toiled in labor camps on slavery’s frontier.”

Again, the biggest problem is not that he does not understand national income accounting (he obviously does not); the biggest problem is that he is just making up numbers.

Both Baptist and Beckert note that cotton was the majority of U.S. exports, but do not note that exports were a small part of the American economy.

Olmstead and Rhode presented extensive analysis of the NHC misuse of quantification in a paper presented at the Cliometric Society session at ASSA. Anyone really interested in the topic should contact them about their working paper on the topic.

In the end, my problem with the new history of capitalism isn’t so much the bad economics as it is the bad history. What makes for good history? There are actually a lot of things that go into making good history, but I think that the most essential is a critical approach to sources, both primary and secondary. History majors at University of Mary Washington take a two course sequence in historical methods. The first course focuses on historiography. The second course focuses on the use of primary sources. The new historians of capitalism need to retake both.

I have no problem with legitimate criticism of economics or economic history. I have been known to criticize them myself. See, for instance, here. And if you think I am some right wing ideologue that hates the NHC people because they criticize capitalism, see here and here for my response to free market economists who misuse history. The difference between my criticism of economics, economic history or NHC and their criticism of economic history is that I point to a specific problem, provide evidence that it exists, and show that the problem has led to erroneous conclusions. The NHC critiques of economics provide no evidence. 

What are the important questions or topics are economic historians are not working on because of ideology or methodological narrowness? Is it slavery and coercion? See Fogel or Fenoaltea. Corruption? See Wallis.  The use of state power? See Findlay and O’Rourke. The importance of ideas? Take a look at Mokyr or McCloskey. Inequaltiy? See Lindert. The development of financial markets and dealing with risk? Where do I even begin? You could claim that economic historian's methods limit the answers they can arrive, but, as  I pointed out earlier, many of the conclusions are the same ones NHC is now taking credit for. 

Finally, I should note that the nature of the NHC claims about economic history make them virtually immune to real argument. After all, how can you believe anything I say when I am obviously just speaking for the banking dynasts that I serve?