The Newer History of Capitalism

Robert Wright has a blog post about Why the History of Capitalism Subfield Got Slavery (and Almost Everything Else) so Terribly Wrong His argument is that because history departments abandoned economic and business history, there was no one with expertise in these subjects to guide new scholars when interest in economic issues re-emerged. The evidence that history departments largely abandoned economic and business history is irrefutable, and I certainly wish that they would pursue his remedy of hiring some highly qualified economic and business historians. However, I am not entirely persuaded by his argument. I am not persuaded because I think that the problems he points to arose more from the failure to follow traditional standards of historical research than lack of knowledge in economics. In addition, at least some recent scholars working in “the history of capitalism” subfield seem to have found ways to deal with lack of expertise within history departments.

The problem with the work of people like Baptist and Levy is less the bad economics than the bad history. It is true that Baptist is arrogantly ignorant of economics, but it is not clear that the problem of Baptist’s misrepresentation of the historiography of slavery would have been resolved by a little more knowledge of economics. One only needs access to google to discover that his claim that before him most economists and historians believed that slavery was inefficient was false. His procedure for estimating the economic importance of slave produced cotton is nonsense, but the biggest problem is that he made up the numbers that he used. Even if he had paid attention in Principles of Macroeconomics and used something resembling national income accounting, his calculations still would have produced crap because he think it is okay to just make up evidence rather than deriving it from historical sources. Yes, Baptist does not understand the meaning of the term productivity, but the bigger problem is that he misrepresents the sources that he claims to be using to explain productivity growth. He claims that slaves used the term “pushing system” but it is not in the narrative that he cites or any other source that anyone has presented. He re-wrote the story of the whipping machine from Henry Clay’s narrative to make it fit his argument. Narratives that he relies upon generally paint a much different picture of picking than Baptist. Baptist argues that enslaved people under the force of harsher and harsher pushing were forced to develop techniques to pick more quickly. To explain productivity increases in the antebellum period these techniques can’t be unique to individuals they need to be passed on and further developed. In contrast, slave narratives frequently emphasize inherent dexterity and the age at which one starts picking as determinants of speed; there is no mention of innovations in picking techniques being handed down. Here is a recent post that has links to other posts about the numerous problems in Baptist’s work and here is the post about his rewriting of the story of the whipping machine.

Similarly, Levy’s sloppiness with sources seems to be the cause of his confusion about economics rather than the other way around. Suggesting that modern use of the term risk (and in fact risk itself) only dates to the mid-nineteenth century is a failure historical scholarship not economics. Using George Perkins as his source on the Panic of 1907 without any recognition that many people regarded Perkins as one of the people who had perpetuated the Panic is a failure of historical research not business or economic knowledge. Making Veblen’s work the focus of a paper and then repeatedly cite them incorrectly is less a problem arising from his lack knowledge of economics (most economists don’t know anything about Veblen) than it is a problem arising from his sloppy handling of his sources. Knowing a little more about economics is not going to help someone who does not read carefully enough to know that Veblen was writing about pecuniary magnates not pecuniary magnets. In other words, I do wish that Baptist and Levy and others had tried to learn a bit more about economic and business history before deciding to write about it, but their bad economics is not nearly as much a problem as their bad history.

Here are links to post describing my concerns about Levy’s work about risk and capital.

Economists might still disagree with them, but I don’t think they would express as much hostility toward them if these historians of capitalism had they displayed the skills generally associated with historical training: accurate historiography, and careful and faithful use of their sources.

The good news is that in the last year or so I have read good books by historians, examining subjects that probably fit into the history of capitalism subfield. A partial list of these books would include Noam Maggor’s Brahmin Capitalism, Anne Fleming’s City of Debtors: A Century of Fringe Finance, Josh Lauer Creditworthy, Caitlin Rosenthal Accounting for Slavery, Daina Ramey Berry The Price of Their Pound of Flesh. I’m pretty sure from interaction on twitter that Maggor and Rosenthal identify with “the history of capitalism” label, and Lauer’s book was published in Columbia Studies in the History of U.S. Capitalism series. I did not see in these books the problems that I identified in the earlier history of capitalism. None of these is economic history the way it is typically written by economists now, but the authors appeared to take advantage of the work of people in other disciplines, including economics. Most mentioned at least one economist economic historian in their acknowledgments, Caitlin Rosenthal and Daina Ramey Berry both thank several economists. Even if experts in the field are not in your department, they are out there, and there is a good chance they are willing to help. Keri Leigh Merritt is another example of a historian working on economics related issues who has gone out of her way to interact with economists.  

In short, I am optimistic about the ability of historians who want to write about economic and business history. I wish I was as optimistic about the future of their ability to get good jobs

P.S. Wright also suggests that the work of people like Baptist is driven in part by a desire to provide support for reparations. Actually, it is probably more accurate to say that Wright is suggesting they want to make a show of supporting reparations.

“The general gist of their story is that slavery made America rich so its government ought to make restitution to the descendants of slaves.”

I have to say I have never understood why reparations would need to be justified by a showing of the amount of benefit derived from slavery. In general, the law compensates people for the damage done to injured not the benefit to the injurer.

Women in Economics

Marginal Revolution University is starting a series on Women in Economics. 

It reminded me to post that the St. Louis Federal Reserve (which happens to be the best Fed) already has a podcast series on Women in Economics.

Ayn Rand and American Business History

I saw a celebration of Ayn Rand online the other day (her birthday was Feb. 2). So thought I would post this, though I don't think you can really describe it as being in honor of her birthday.

I don’t like really like Ayn Rand’s fiction. If I just thought it was bad fiction, I would probably ignore it. I usually only criticize fiction when it is masquerading as history. But many people seem to think that Rand’s fiction has important things to say about reality. One of the central messages seems to be that progress depends on the efforts of a few great people. In general, American’s seem to like “Great Man” theories of business history. If you want to sell books write another big biography of J.P. Morgan, Ford, Rockefeller, Vanderbilt, or Carnegie. Rand’s heroes are extreme versions of the great man theory of business history. They tend to start with nothing and struggle ceaselessly against both the government and all of the ignorant, incompetent and just plain lazy people that surround them.

For instance

“Nathaniel Taggart had been a penniless adventurer who had come from somewhere in New England and built a railroad across a continent, in the days of the first steel rails.” “He never sought any loans, bonds, subsidies, land grants or legislative favors from the government.” He never talked about the public good.” “Taggart Transcontinental was one of the few railroads that never went bankrupt and the only one whose controlling stock remained in the hands of the founder’s descendants”

Or consider the story of Henry Reardon

Henry Reardon began working in the Minnesota iron mines when he was 14 and had built a business empire by the time he was 30, struggling constantly against the incompetence of those around him. Of the times that he had worked for others, “All he remembered of those jobs was that the men around him had never seemed to know what to do, while he had always known.” Even after he was the boss, he remembered “the days when the young scientists of the small staff that he had chosen to assist him waited for instructions like soldiers ready for a hopeless battle, having exhausted their ingenuity, still willing, but silent, with the unspoken sentence hanging in the air: “Mr Rearden, it can’t be done—”

The problem is that these stories do not resemble the stories of actual business history.

I have seen it suggested that Nathaniel Taggart was a thinly veiled version of James J. Hill, the Empire Builder, who built the Great Northern across the northern plains without any government grants or assistance.

Hill was a very successful railroad executive, but he did not build the Great Northern without government assistance. First, as John Rea noted years ago the Great Northern was built on the foundation of the failed St. Paul and Pacific Railroad, which had received 3 million acres in land grants (Rae, John B. "The Great Northern's Land Grant." The Journal of Economic History 12, no. 2 (1952): 140-145). One might, of course, argue that Hill and his partners did not directly receive the grants; they had to pay for them when they purchased the bankrupt railroad (though it should be noted that one of Hill’s partners was a lawyer who was also serving as the trustee for the bondholders). So, let’s put those land grants aside.

The sort of subsidies that railroads like the Union Pacific received in which they received large grants of land on each side of the road, were generally not an option when Hill was building the Great Northern. In the 1870s, the federal government had shifted away from providing land grant subsidies. But that does not mean that the Great Northern did not receive any government land. Any incorporated railroad could obtain access to public land for the construction of a railroad and related structures like stations by using the General Railroad Right of Way Act of 1875. We know that the Great Northern used the Act because it went to court to contest the rights that had been granted under the act (Great Northern Ry. Co. v. Steinke and Great Northern Ry. Co. v. United States.)

Unlike the land grant subsidies, the Right of Way Act did not bestow special treatment on particular railroads. Consequently, it might be viewed as another step toward an open access order, like general incorporation and free banking laws. On the other hand, it does not seem reasonable to claim that  being allowed to build on public land is nothing. The federal government had purchased the land in the Louisiana Purchase, and the federal government had driven Native American on to reservations to make way for railroads and settlers.

This is a map showing the general location of Native American tribes in the mid 1800s

Minnesota, North Dakota, Montana, Idaho and Washington, were not un-populated lands waiting for James J. Hill to build a railroad and promote pioneer settlers. They first needed to be depopulated. This was done courtesy of the United States government. These are the locations of Native American reservations when Hill went to build his railroad.

It turns out, however, that even driving Native Americans on to reservations was not enough for Hill, because one of the best routes required going through a reservation. Hill appears to have been able to put aside his aversion to the government to lobby to either have the size of the reservation reduced or be given the right of way to build on the reservation (Smith, Dennis J. "Procuring a right-of-way: James J. Hill and Indian reservations 1886-1888." (1983) see also White, W. Thomas. "A Gilded Age Businessman in Politics: James J. Hill, the Northwest, and the American Presidency, 1884-1912." Pacific Historical Review 57, no. 4 (1988): 439-456.

These are the reservations in 1870

These are the reservations in 1888 (both maps are from Smith, "Procuring Right of Way")

Fans of Hill, like Burton Folsom see only Hill’s business genius: “James J. Hill showed us the right way to build infrastructure. He built slowly and chose the best routes. When Hill learned that the best route west probably lay through the Marias Pass in Montana, he was determined to build his railroad there. The explorers Lewis and Clark had traveled through the Marias Pass and discussed it in their diaries. But in the 1880s, no one knew where it was. Hill’s chief engineer, John Frank Stevens, trekked through the Rockies in Montana with a Blackfoot Indian guide named Coonsah. The pair located the Marias Pass, and Hill used that shorter route to save many miles of construction.” But we should remember that the crossing of the Marias Pass was preceded by the Marias Massacre in which U.S troops killed around 200 Blackfeet men, women and children.

In other words, Nathaniel Taggart and the Taggart Transcontinental are fictions based on myth. 

The self-made man, who not only receives no aid but must constantly battle the weak and stupid people around him, is also not what American business history looks like. Pamela Walker Laird’s Pull picks apart this myth, exploring the many ways in which self-made men like Ben Franklin and Andrew Carnegie actually benefited from the aid of others.

Henry Ford’s “invention of the automated assembly line” depended on the work of Charles Sorensen, Walter Flanders, Clarence Avery, and Ed Martin. Edison worked with the mathematician Francis Upton to develop his version of a light bulb. Mc Donalds is the result of both the McDonald’s brothers’ vision of a fast food restaurant and Ray Kroc’s vision of how far it could be taken.

The story of Ellis Wyatt, who “had discovered some way to revive exhausted oil wells and he had proceeded to revive them” is illustrative. In Rand’s imagination an entire region was revitalized and “One man had done it, and he had done it in eight years.” The process of getting oil out of places that people had thought it impractical if not impossible sounds a lot like fracking. In reality, many people played a role in developing fracking. In 2006, the Society of Petroleum Engineers honored nine people as pioneers in the development of fracking.

To be clear, I do believe that what Schumpeter referred to as the creative response is central to economic growth and development. And I believe that an open access society in which people are generally allowed to pursue these creative actions is likely to be most conducive to human welfare. I am, after all, and economist. I like voluntary exchange in markets and I think people respond to incentives. I just don't believe in the sort of philosophy that regards whatever someone earns as "the fruits of their labor" as if the amount of fruit that you get in life doesn't depend crucially on the society your were born into and you place in it, things that have nothing to do with your labor.    I don't see evidence that the creative response the creative response is the result of a select group of great people struggling against the ignorant and ignoble masses who seek to hold them back. My reading of history suggests  that these creative people depend upon both the help of others, their society, and an effective government. 

But why should I be concerned about an inaccurate picture of business history in a work of fiction? I'll just leave you with this quote. “Any refusal to recognize reality, for any reason whatever, has disastrous consequences.”