Was Slavery Central to American Economic Development?

Antebellum Economic Growth 

Last week on Twitter Matt Yglesias raised a question about changes in how historians interpreted slavery. One historian, Joshua Rothman replied and Edward Baptist added his two cents.

I'm not sure what Rothman means by "in fact and as a matter of history." Perhaps it is reference to Baptist, who prefers to avoid mixing facts with his history. In any case, Rothman seems to believe that the centrality of slavery to American economic development is not something a reasonable person could dispute. I regard myself as a reasonable person. So, on the off chance that someone might be interested in why I would dispute the claim that slavery was central to American economic development I'm going to ask that we take a closer look at the antebellum economy.

The argument against the centrality of slavery is based on two things: the assumption that Rothman is using the word central as it is defined in the dictionary and used by most people, and the available evidence on the antebellum economy. Central means that something is not just important but that it is of primary importance. The central character in a movie is not just an important character, she is the main character, the primary character. This is clearly what Baptist has in mind when he claims that  “the returns from the cotton monopoly powered the modernization of the rest of the American economy” and that "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.” By the way, Baptist's tweet about it being easier to make claims about alternate universes than to come to grips with the past of this one was particularly appropriate given his expertise in making false claims. I and others have shown that Baptist's estimate is nothing but smoke and mirrors, a combination of numbers he makes up and bad accounting; see also Pseudoerasmus posts on Baptist. In addition, Olmstead and Rhode also show that Baptist made up  things that he claimed to have found in the testimonies of enslaved people.  

By the way, if Rothman actually just means to say that slavery was important, I wish he would do that. I don't know anyone who disagrees with that. When, however, he claims that slavery was central to American economic development he is helping Ed Baptist to keep pedaling his snake oil.

To show why I believe that it is not accurate to state that slavery was central to American economic development I begin by reviewing the growth of total output, then I look at the composition of this output, and then I look at the regional distribution of income generated from this production. I argue that the fundamental problems with Rothman's claim are that no one thing was central, and claiming that "one big thing" was central gives a misleading view of economic development.

I should note that the argument is not new. It is essentially the same approach that has been used to counter exaggerated arguments about the role of cotton textiles in the industrial revolution (see McCloskey by way of Pseudoerasmus or the role of railroads in American economic development (see Fogel, but if you want the quick version McCloskey has a back of the envelope calculation of the impact of railroads in The Rhetoric of Economics). I've made essentially the same argument before. I'm hoping that by providing more detail about the antebellum economy that I might clarify the argument, make it more persuasive, and illustrate why most economic historians don't like "one big thing" theories of economic development.

I.                    Overview of Antebellum Economic Growth

Between 1790 and 1860 real GDP grew at a 4.4 percent annual rate, somewhat faster than the long run rate of growth (1790- 2000) of 3.87 percent. However, because population growth was also more rapid than the long run average, per capita real GDP increased at an average annual rate of 1.34 percent, somewhat less than the long run rate of growth of 1.77 percent (all growth rates are from measuringworth.com).

Real GDP in millions of 1996 dollars

Source: Historical Statistics Millennial Edition, Series Ca 9

Real GDP per capita

Source: Historical Statistics of the United States Millennial Edition, Series Ca 11

Keep in mind we are always talking about estimates.  Nevertheless, these are estimates; not just guesses. They are not simply made up numbers. If you want stuff that is just made up rather than based on actual historical research I suggest Ed Baptist’s work. Given these cautions we can look in more detail at antebellum growth, but it is important to keep in mind that when I say something accounted for about 3.9 percent of output in 1850, you should not ignore the about. 

II. What Were People Producing?
               

What were Americans producing in the antebellum period? The table below shows how output was divided between commodities and services. Over the course of the nineteenth century the share of output accounted for by services was increasing, but commodities still accounted for nearly 60 percent of output on the eve of the Civil War.

Source: Gallman, Robert E., and Thomas J. Weiss. "The service industries in the nineteenth century." In Production and productivity in the service industries, pp. 287-381. NBER, 1969.

The next table shows the division of commodity output between different sectors. Over the course of the nineteenth century the  relative importance of manufacturing was increasing, but in the decade preceding the Civil War agriculture still accounted for the majority of commodity output.

Source: Gallman, Robert E. "Commodity Output, 1839-1899." In Trends in the American economy in the nineteenth century, pp. 13-72. Princeton University Press, 1960.

The following table shows how agricultural output was divided between livestock and crops. Unlike the previous tables, these tables show the value of output rather than the share of output. It is, however, apparent that agricultural production was split relatively evenly between crops and livestock.

Source: Towne, Marvin, and Wayne Rasmussen. "Farm gross product and gross investment in the nineteenth century." In Trends in the American economy in the nineteenth century, pp. 255-316. Princeton University Press, 1960.

The next table also shows the value of output and provides a more detailed breakdown of agricultural production. 

Source: Towne, Marvin, and Wayne Rasmussen. "Farm gross product and gross investment in the nineteenth century." In Trends in the American economy in the nineteenth century, pp. 255-316. Princeton University Press, 1960.

On the eve of the Civil War, grain production was the largest source of income from crop production, but the most important single commodity was clearly cotton. Taken as a whole, however, the preceding tables illustrate why it is probably not useful to regard cotton, or any other single good, as the central to American economic development. On the eve of the Civil War, cotton accounted for about 35 percent of the value of crops produced. That is a large percentage, but because crop production was only about 51 percent of agricultural output, cotton only accounted for about 17.8 percent (.35 x .51 = .178) of agricultural production. That is still a large percentage, but if we are interested in cotton’s importance for the whole economy, we must keep going. Because agriculture accounted for 56 percent of commodity output in 1859 and cotton accounted for 17.8 percent of agricultural output, cotton accounted for about 9.9 (.178 x .56 = .099) percent of commodity output. Finally, because commodity output accounted for 59 percent of all output, cotton would have accounted for about 5.8 percent (.099 x .59 = .058) of all output. If you conduct the same exercise for 1850 you would get an estimate of about 4.8 percent. If you compare the cotton values from the above table with estimates of nominal GDP from measuringworth.com, cotton equals 4.95 percent of GDP in 1860 and 4.57 in 1850. Although the second method is more direct, I wanted to show why cotton is a relatively small share of the whole economy: people produced many different things. Even after cotton’s rapid expansion during the first sixty years of the nineteenth century, it accounted for less than 6 percent of GDP. 

I do not have as much information for manufacturing, but Joseph Davis research on industrial production gives us some idea of the growth of industrial output and the relative importance of different components of industrial production. Below is a table showing the weights that he used for different components of his index of industrial production, reflecting their relative importance.  

Source: Historical Statistics Millennial Edition, Series Ca19

Source: Davis, Joseph H. "An annual index of US industrial production, 1790–1915." The Quarterly Journal of Economics 119, no. 4 (2004): 1177-1215.

Employing the same sort of exercise as above, we find that cotton textiles, the largest component in manufacturing in the United States would have accounted for around 3.9 percent (.218 x.30 x .60 = .039) of GDP.

Livestock production accounted for 15.5 percent of output. Food grain production accounted for 3.7 percent. Total grain production accounted for 6.7 percent. 

Let me reiterate my use of the word about. All of these are estimates, and the further back in time we go the more the estimates tend to be based on smaller amounts of evidence. It is all possible that I made an error in here somewhere. New estimates, however, are unlikely to change the overall conclusion because cotton was only a fraction of all crops, crops were only a fraction of all agricultural production, agricultural production was only a fraction of all commodity production, and commodity production was only a fraction of all output. Multiplying fractions tends to generate small fractions relatively quickly. The math just reflects the underlying reality: the United States in the early nineteenth century already produced a wide array of goods and services.

III. Where Were People Producing?                 

One could argue that the focus on cotton does not give an accurate estimate of the impact of slavery. Not all cotton was produced by slaves and slaves produced other things. However, a look at the regional distribution of income also does not support the primacy of slavery in economic development.

Regional variations in personal income reinforce the argument that it is probably not useful to regard slavery and the cotton that enslaved people produced as central to American economic development. The following table shows estimates of personal income generated in different parts of the country.

Source Robert E. Gallman "Economic Growth and Structural Change in the Lang Nineteenth Century" in Cambridge Economic History of the United States. See also Global Prices and Incomes Database, United States in 1860, Personal Income Totals.

The North’s leading role in the economy was a consequence of both more people and higher per capita output.

Source: Lindert, Peter H., and Jeffrey G. Williamson. American Incomes 1774-1860. No. w18396. National Bureau of Economic Research, 2012.

There is one final argument about the centrality of slavery that I should address. Some people claim that because of the spillover effects of slavery. This for instance is the idea behind Baptist's attempt to add up imaginary estimates to calculate the importance of cotton. There are two problems with this approach. First, you can do it with any good. For wheat I could count land sales, and the cost of transportation, and the cost of equipment, etc. Using Baptistian income accounting I could easily show that the amount of national output accounted for by grains and cotton was greater than the total output. How is that for an alternate universe? The other problem is that the evidence does not support the claims of strong interregional linkages during the antebellum period (see, for instance, this post).    

Conclusion

Slavery was not central to American economic development in the sense that it did not power the modernization of the rest of the economy. The claim that slavery was central to American economic development is factually incorrect: slavery was important, but no one thing was central. The claim also promotes a misleading view of the process of economic growth. It suggests that economic growth is about one big thing. No one thing was big enough to drive economic growth, not railroads, not cotton, not cotton textiles. Explanations for economic development need to explain why people were investing and innovating in a lot of different things. Consequently, economic historians have tended to move away from one big thing theories of economic growth toward understanding the underlying causes of development, such as the emergence of a culture of growth (Mokyr), or the rise of bourgeois values (McCloskey)  or the evolution of growth promoting institutions (North, Wallis and Weingast). 

Slavery was not central to American economic development, but it was an important part of American economic development, and economic historians have devoted considerable attention to understanding slavery its continued impact on the American economy (see, of course, work by Fogel, and Wright, and for a small sample of recent work you can look at Logan, Cook, and Parman, Logan and Pritchett, Nunn, Naidu, and Collins and Wanamaker.

Podcasts I Listen To

I saw Tim Harford’s list of best podcasts. I agree with some, but thought he missed some good ones. I don’t know if these are the best, but they are podcasts that I often listen to while working out or walking the dog.

Podcasts for Anyone Interested in Economics.

Planet Money

The Indicator

Freakonomics Radio

EconTalk

Odd Lots

FT Alphachat

Podcasts for Economists. The discussions on these shows tend to be directed more toward an audience of economists.

Macro Musings

Economics Detective

Economic Rockstar

EconTalk Econ Talk is usually directed toward a broad audience, but some episodes are directed more toward economists.

History Podcasts That I Like

Ben Franklin’s World

Age of Jackson

New Books in History

Historically Thinking

A Podcast That I Do Not Like

Revisionist History (link intentionally omitted). I listened to the episode on country music, which I love. If you are interested in having someone that knows nothing about country music explain to you what they think country music is about you should listen to it.

Free and Unfree Labor: The Political Economy of Capitalism, Share-Cropping, and Slavery

The UCLA Center for Social Theory and Comparative History hosted an event on the topic of Free and Unfree Labor in March. Below is a link to the page that has an audio recording. Unfortunately, there does not appear to be video.

Free and Unfree Labor: The Political Economy of Capitalism, Share-Cropping, and Slavery

Speakers:

Gavin Wright is William Robertson Coe Professor of American Economic History, Stanford University and author of Sharing the Prize: The Economics of the Civil Rights Revolution in the American South (2018) and Slavery and American Economic Development (2006). Professor Wright will present on "Slavery and Anglo-American Capitalism.”

Suresh Naidu is Associate Professor of Economics and Public Affairs at Columbia University. Professor Naidu will present on "Labor Markets in the Shadow of American Slavery.”

John Clegg is a doctoral candidate in the Department of Sociology at NYU. His paper is entitled “The Real Wages of Whiteness.”

Wright tells why Eric Williams, Barbara Solow, and Joseph Inikori are right about the importance of British development during the Industrial Revolution and Ed Baptist is wrong about the importance of slavery for American economic development during the 19^th century. He also has some positive things to say about the recent work of historians like Caitlin Rosenthal and economists like Trevon Logan.

Naidu talks about the importance of the overall repressiveness of the South as a prerequisite for repression on individual plantations.

Clegg talks about his work on wages of poor whites. It seemed the most preliminary and most difficult to assess without access to the actual paper, or at least the tables and graphs. He points to the recent work of Keri Leigh Merritt, but it was not clear to what extent he regards his work as either supporting or contradicting hers.

Economic & Business History Society

The annual conference of the Economic & Business History Society is going on now in Finland. Unfortunately I was not able to go to the conference this year. It looks like they put together a great program.

They are livestreaming the keynote by Deirdre McCloskey at 10:30 eastern time.

I should also note that the society's journal Essays in Economic & Business History is now listed in the Chartered Association of Business Schools Academic Journal Guide. Congratulations to the editor, Jason Taylor, the associate editors, and the editorial board.

Industrial Revelations

I think most people have a very vague notion of what the Industrial Revolution was, and descriptions and pictures are not particularly helpful. You really need to see a spinning wheel, a spinning jenny, and a water frame at work to appreciate what was happening in the 1700s. I have been fortunate enough to visit some great museums and see some of these things at work, but I don’t have the opportunity to do that with my students. That is where Industrial Revelations comes in handy. There are several seasons of Industrial Revelations, and I haven’t had time to watch them all, but the first season with Mark Williams (aka Arthur Weasley) is great for showing many important technological changes during the Industrial Revolution. Here is a link to the textile episode, which I think is one of the best.

Stop Telling Kanye to Read Ed Baptist

Since Kanye West decided that the World had spent enough time paying attention to people that are not him, I have seen a number of suggestions for Kanye’s education. More than a few have been along these lines

If he were to read Baptist, Kanye, like many of Baptist’s other readers, could learn all sorts of things that are not true. He could learn that

1.       Before Ed Baptist, economists and historians did not believe that slave owners were profit seeking capitalists. Many historians and almost all economic historians viewed slavery as a profit seeking enterprise.

2.       Slave produced cotton accounted for more than 60% of GDP. Baptist made up numbers and summed them in an approach to national income accounting that defies all logic.

3.       The pushing system was a term that enslaved people used. Ed Baptist made up the term (see section 4.1; on second thought, just read the whole thing).

4.       Economic historians don’t think slave owners used violence to coerce enslaved people. This is simply not true.

5.       Baptist shows that innovations in violence led to innovations in picking that drove increases in productivity during the antebellum period.  He never provides any evidence to support one of the central claims of his book. See the link for the previous point and this by Pseudoerasmus, and this by Olmstead and Rhode. I should also mention Trevor Burnard as one of the first historians to call out Baptist.

If we want Kanye to understand the brutality of slavery, how about Charles Ball, or Solomon Northup, or Harriet Jacobs? If you think he needs to read some professor, how about Daina Ramey Berry? Maybe if Kanye gets through these readings we can come up with some more, but let’s not contribute to the miseducation of Kanye West by telling him to read Ed Baptist’s terrible book.

P.S. Stop telling anyone to read Ed Baptist!

Thoughts on Kochs and GMU

1.       Cabrera sounds like Captain Renault. He should have actually said that he was “shocked – shocked to find that there were deals like this”

2.       The deals seem pretty stupid in terms of the level of involvement that the Koch’s wanted. I say stupid because they should have known that it would look bad when it came out, and it wasn’t necessary. As long as the president and provost want the money to keep coming in they will make sure the donor is happy.

3.       Provosts and presidents can do that because universities are like schoolyards.

4.       None of this alters the fact that Nancy MacLean engaged in historical malpractice.

5.       I will continue to judge academics at George Mason, whether they are in economics, Mercatus, the law school, or any other department or center, based upon what they do as individuals. That means that Mark Koyama and Noel Johnson are among the best economic historians working now, Robin Hanson and Arnold Kling are willing to play fast and loose with evidence to support their claims, and I still don’t understand why Tyler Cowen gets so much attention.

6.       This is the third time I have posted something critical of Democracy in Chains and I still haven’t gotten any Koch money.

Diane Lindstrom (1944-2018)

At the risk of making this seem like a blog of economic history obituaries, I think it is necessary to note the passing of Diane Lindstrom. Here is the obituary from the University of Wisconsin.

Along with Robert Gallman, Lawrence Herbst, Paul Uselding and others Lindstrom challenged the version of American antebellum growth presented in Doug North’s Economic Growth of the United States, 1790-1860. In Economic Growth Doug argued that growth was driven by a combination of cotton exports and interregional trade, in which Southern specialization in cotton generated demand for the products of farmers and manufacturers, driving growth in the rest of the country. Although some new historians of capitalism continue to cite the theory to demonstrate the central role of slavery in American economic development, Lindstrom and others had built a strong case against it by the mid-1970s.

She generated evidence to argue that the South was largely self-sufficient in grain:

Lindstrom, Diane. "Southern Dependence upon Interregional Grain Supplies: A Review of the Trade Flows, 1840-1860." Agricultural History 44, no. 1 (1970): 101-113.

And she went on to build an alternative explanation of growth based on the case of Philadelphia. She showed that the development in Philadelphia was largely driven by the regional market, rather than an inter-regional one:

Lindstrom, Diane L. "Demand, Markets, and Eastern Economic Development: Philadelphia, 1815-1840." Journal of Economic History (1975): 271-273; Lindstrom, Diane. Economic Development in the Philadelphia Region, 1810-1850. Columbia University Press, 1978; and Lindstrom, Diane. "American economic growth before 1840: New evidence and new directions." The Journal of Economic History 39, no. 1 (1979): 289-301.

Subsequent economic historians have expanded on her work. John Majewski, for instance, builds on Lindstrom’s argument by contrasting the case of Philadelphia with Virginia, showing how slavery led to conditions that did not promote strong local demand or support long term growth: A house dividing: Economic development in Pennsylvania and Virginia before the Civil War. Cambridge University Press, 2000.

I did not know her personally, but anyone interested in understanding American economic development needs to know the argument she developed and the evidence that she collected to support it.

By the way, if anyone is surprised that I, a student of Doug’s, am posting this you should know that the third edition of North’s Growth and Welfare in the American Past (coauthored with Terry Anderson and Peter Hill) states that “The spread of the cotton economy in the South and the development of the cotton export trade are elements of a well known story. It now appears, however, that economic historians have overemphasized the pattern of regional interdependence among the South, the West, and the Northeast (page 72)” and cites Lindstrom in the bibliography for that chapter. Doug once told me that the only good thing about getting old was that he knew lots of things that did not work.

John Murray

Sad news. John was both an excellent economic historian and a really nice guy. Below is the text of the email about his death from EH.net. He will be missed by many people and in many ways.

John Murray, Joseph R. Hyde III Professor of Political Economy and Professor of Economics at Rhodes College, passed away on March 27, 2018 in Memphis, TN at the age of 58. 

He was born on April 9, 1959 in Cincinnati, and became the first member of his family to attend college.  He worked at a variety of jobs to pay his tuition, including phlebotomist, house painter, roofer, and ice cream vendor, graduating in 1981 from Oberlin College with a degree in economics.  He later added an M.S. in mathematics from the University of Cincinnati, and the M.A. and Ph.D. in economics from The Ohio State University, where he wrote his dissertation under the tutelage of Rick Steckel.

John taught high school math before pursuing his graduate work in economics.  After finishing at Ohio State, he accepted a position at the University of Toledo, where he remained for 18 years before accepting the Hyde Professorship at Rhodes College in 2011.

He had a lifelong penchant for learning, spending a summer studying the German language in Schwabish Hall in 1984, and summers as an NEH scholar in Munich in 1995 and at Duke in 2013.  He also spent 2009-10 studying Catholic theology and philosophy at the Sacred Heart Major Seminary in Detroit.

Murray was the author of two books and co-editor of a third.  The most recent, The Charleston Orphan House: Children’s Lives in the First Public Orphanage in America, published by the University of Chicago Press in 2013, was the recipient of the George C. Rogers, Jr. Prize, awarded by the South Carolina Historical Society for the best book on South Carolina history.  His first book, Origins of American Health Insurance: A History of Industrial Sickness Funds (Yale University Press, 2007) was named one of ten “Noteworthy Books in Industrial Relations and Labor Economics” in 2008 by the Industrial Relations Section, Princeton University.

He published book chapters, monographs, encyclopedia and handbook contributions, and numerous articles in refereed journals including the Journal of Economic History, Explorations in Economic History, and Demography.  His clear, crisp writing style and ability to explain complicated economic concepts made him a frequent choice to write for the popular press as well.

His research interests were varied.  His most recent work centered on coal mine safety, post bellum African-American labor supply, and families in 19^th century Charleston.  He published extensively in the areas of the history of healthcare and health insurance, religion, and family related issues from education to orphanages, fertility, and marriage, not to mention his work in anthropometrics, labor markets, and literacy.

He was a scholar and a teacher, who believed deeply in the value of a liberal arts education, arguing that “a rigorous education, based on the traditional great books, teaches students great things—compassion for others in the human condition, the value of striving for greatness, the need for self-awareness, and humility in those efforts.”  He won awards for his teaching at Ohio State and Toledo.

He was the director of the Program in Political Economy, a rigorous interdisciplinary major at Rhodes College.  He taught a variety of economic history courses, including courses on demography and economic development, as well as mathematical economics, freshman calculus, introductory statistics, and econometrics. Then on the weekend he donated his time to his local parish, teaching Sunday School.

He was also generous with his time on a professional level, frequently reviewing books, and serving as the Book Review editor for the Journal of Economic History from 2014-16.  He was a member of the editorial board of four journals: Explorations in Economic History (2008-15), the History of Education Quarterly(2016-19), Social Science History (1996-98 and 2006-14), and theJournal of Economic History since 2015.  He served as the Associate Editor of Social Science History from 2001 to 2006.

He was a trustee for the Cliometric Society and served on its Program Committees, and was active in the Social Science History Association, holding numerous positions.  He also served on numerous university committees at both Rhodes College and the University of Toledo.

More than a respected academic and award-winning author, John was a devoted husband and proud father.  As impressive as his professional accomplishments were, his career always came second to his family.  Conversations with John would eventually lead to family, and hearing him talk about them left no doubt about his true passion.

John is survived by his wife Lynn and their twin daughters.

The Annunciation by Henry Ossawa Tanner

If you are in Philadelphia you should go see it at the Philadelphia Museum of Art. Reproductions do not do it justice.

Quick Take on The Mystery of the Kibbutz

While the power was out this weekend, and I was free from electronic distractions, I had a chance to read Ran Abramitzky’s The Mystery of the Kibbutz: Egalitarian Principles in a Capitalist World. The book is a sort of economic history equivalent of good micro-history, or good business history. It tells a particular story in great detail but uses that story to shed light on broader issues. Being an economist, Abramitzky collects and analyses as much data on the kibbutzim (one of the things I learned is the plural of kibbutz) as he can to examine problems of free riding, adverse selection, and brain drain. But the book is built around a very personal story. His grandparents helped to found and fought to protect Kibbutz Negba; his mother grew up there, and he clearly has fond memories of visiting there while he was growing up. His aunt, uncle and brother still live in kibbutzim. He uses the story of the origins, successes, and recent struggles of this and other kibbutzim to address broad questions of equity versus efficiency, and of material versus non-material incentives. There is also an interesting chapter on the history of communes in the United States.

The book is a pleasure to read. And, although kibbutzim are unique, the economic issues that they have faced are not.

What Happened to The Standard of Living During the Gilded Age?

Richard White devotes a chapter of his new book on Reconstruction and the Gilded Age, The Republic for Which It Stands, to declining standards of living during the Gilded Age.

White writes that

“By the most basic standards—life span, infant death rate and bodily stature, which reflected childhood health and nutrition—American life grew worse over the course of the nineteenth century. Although economists have insisted that real wages were rising during most of the Gilded Age, a people who celebrated their progress were, fact, going backwards—growing shorter and dying earlier—until the 1890s.” (page 475)

“The average life expectancy of a white man dropped from the 1790s until the last decade of the nineteenth century. A slight uptick at midcentury proved fleeting, nor was it certain that the smaller rise in 1890 would be permanent.” “What this added up to was that an average white ten-year-old American boy in 1880, born at the beginning of the Gilded Age and living through it, could expect to die at age forty-eight. His height would be 5 feet, 5 inches. He would be shorter and have a briefer life than his Revolutionary forebears.” “Infant mortality worsened in many cities after 1880.” (page 479)

White also notes the difficulty of creating historical statistics but suggests that

“When these statistics all point in a similar direction, they are worth of some attention.”

In general, White bases his interpretation on excellent work done by economic historians. I do, however, want to argue that there is less consensus than he seems to suggest. In other words, the statistics do not all point in a similar direction when it comes to the Gilded Age.

I also want to point out there is a miscalculation in the statement about height. White relies on Costa (2015) for the evidence on height; he includes a version of the graph from Costa (see below) in which one can see that the series hits its lowest point in 1890 at 169.1 cm, which translates to 5 feet six and a half inches. I am sure that I would make many more grievous errors in a 940 page book, but I had already seen the number repeated once as if it were fact.

Nevertheless, the overall picture that White presents of material well being during the Gilded Age is consistent with picture in the graph. Clearly the most noteworthy feature of the graph is the decrease in average height and life expectancy during the nineteenth century. The average height and life expectancy fell relative to colonial ancestors before beginning to rise again in the late nineteenth century. The timing of the movements in the series seem to be consistent with each other.

Source: Costa, Dora L. "Health and the Economy in the United States from 1750 to the Present." Journal of economic literature 53, no. 3 (2015): 503-70.

I want to argue that the evidence of declining living standards in the Gilded Age is not as consistent as White suggests. Estimating life expectancy in the United States during the nineteenth century is extremely difficult and different approaches have produced different estimates. They all suggest that life expectancy fell during the nineteenth century, but they do not all estimate that life expectancy reached its lowest point in the late, as opposed to the mid, nineteenth century.  Estimating average heights is also difficult, and recent work suggests that the series reproduced by White may overestimate the extent of the decline and place the low point too late in the nineteenth century.

 The United States did not have a death registry for the entire country until 1933. Some states and localities registered deaths, but we are left with questions about how representative they are. One innovative approach to the problem has been to use genealogical records (see Fogel 1986).  Beginning in 1850 the Census began to ask about people that had died in the last year, which can then be used to calculate life expectancy. On the numerous shortcomings of both types of data see Hacker (2010).

Source: Hacker 2010

The above figure is from Hacker 2010 and presents four different series of estimates of life expectancy at age 20. Only the Haines series based on census data shows in the late nineteenth century. Both the Pope and Kunze series bottom out in the 1860s.  

  Hacker develops his own estimates based upon Pope and Kunze but adjusted using other sources. Hackers estimates (see below) also suggest that life expectancy reached its lowest point during the 1860s and then began to rise.

Source: Hacker 2010

The mortality rates for several large cities also do not seem consistent with worsening conditions during the Gilded Age. There is a reduced incidence of large spikes in mortality, though there also isn’t a clear trend toward declining mortality rates until late in the 19^th century (See Haines 2001).

The nineteenth century height estimates are based, for the most part, upon a large sample of Union Army soldiers. I say for the most part because late nineteenth century estimates are based upon an extrapolation from Ohio National Guard data. The figure below from Costa and Steckel shows the part of the series that is inferred from the Ohio National Guard data.

Source: Costa and Steckel, Long Term Trends in Health, Welfare, and Economic Growth in the United States

Economic historians have long recognized that there are potential problems with these estimates. The problem is not just that they might be biased, but that the bias might change over time. On the other hand, if shorter than average people became more likely to join the army or the national guard then our estimates might suggest a decrease in average heights that did not occur.

Although the potential for selection bias was known, later research found similar patterns for the antebellum period in a variety of other populations, for instance Ohio prison inmates (Maloney and Carson 2008) and Pennsylvania prison inmates (Carson 2008).

Bodenhorn, Guinane and Mroz (2017) recently argued that sample selection bias is a significant problem in the height data. Ariell Zimran has attempted to match soldiers with their census records and use the information to adjust for selection bias. He concluded that, after adjusting for selection bias, there was still a decrease in average height of about .64 inches between 1832 and 1860.

Matthias Zehetmayer took a different approach. He developed a more comprehensive sample of soldiers. Because his observation extended into the late nineteenth century he did not have to rely on an extrapolation for the years after the Civil War. The graph below compares Zehetmayers estimates with previous estimates. His estimates follow the original until you get to the extrapolation from the Ohio national guard. Zehetmayer finds increases in the 1870s and 1880s rather than a steep decline.

Source: Zehetmayer 2011

There are a lot of evidence pointing to a decline in height, but there is no consensus that about when that decline began to reverse or even if it might be explained by selection bias. Zehetmayer's recent estimates do, however, seem to be consistent with the life expectancy estimates of Pope, Kunze, and Hacker, reaching a low point in the 1860s or 1870s rather than 1890.

I think White was right to emphasize the difficulties involved in creating historical statistics. Like other interpretations of history our knowledge of material well-being in the past has to be derived from the bits and pieces that were left behind, even if they are not ideally suited to the task. Although estimates are very consistent regarding a declining standard of living in the ante-bellum period, they are much less consistent about a decline during the Gilded Age. The most recent estimates of both height and life expectancy seem toward rising standards of living during the late nineteenth century.

Three Revolutions in Economic History

 Here is a link to Gareth Austin’s Inaugural Lecture

"Three Revolutions in Economic History" »

This is his description of the lecture

The lecture discusses what I would describe as three 'revolutions' in the study of economic history since the era of Sir John Clapham, the first holder of the chair of economic history: (1) the cliometric revolution of the 1960s, which applied neoclassical theory and analytical statistics to the economic past; (2) the emergence in the 1950s-80s of the systematic and continuous study of the economic history of the non-Western word, what may be called 'The Other Economic History'; and (3) the attempt, essentially in the present century, reciprocally to integrate the economic history of the West and the Rest, using quantitative and other methods. The final part of the lecture will be devoted to the pitfalls and promise of this endeavour. In practical terms we have a lot still to do to achieve a genuinely global economic history, based on the principle of reciprocal comparison. In doing this, we need to combine the best insights from the cliometric and other traditions of economic history, respecting the different approaches which historians and economists take to determining causality. Economic History needs to re-affirm its position as the intersection set of the disciplines of History and Economics.

Follow up on Capitalism and History

I have seen some interesting responses on twitter to the new Capitalism and History journal that I mentioned yesterday. She is not alone, but I saw Vanessa Ogle’s response first.

I have to admit that I was surprised by the diversity in terms of disciplines and politics and did not notice the lack of diversity on other dimensions. This, however, is not the first time someone has noted that some of the most prominent participants in the New History of Capitalism seem to have problems with race and gender.

Some business history stuff

Here are two recent papers on culture and business history

Naomi Lamoreaux Cultural Change and Business History

Abstract

This paper draws on the literature of experimental economics to suggest a model of cultural change with applications to business history. The model is based on experiments involving the public goods game, in which players are given an initial endowment of money and told that they can keep it or contribute some or all of it to a common fund. The fund earns interest, and, at the conclusion of the game, the total is divided among all the players, regardless of the magnitude of their contributions. In most settings, players initially contribute a significant fraction of their endowment to the fund, but some choose to free ride on others’ investments. If the game is repeated for multiple periods, players observe this free riding and stop putting their money in the fund. If the rules are changed, however, so that free riders can be punished, players will start contributing again and the common fund will grow and provide general benefits. Although this game is typically used to study topics such as tax avoidance and the provision of schools, roads, hospitals, and other similar investments, I argue that cultural practices have many of the features of public goods and that insights from these experiments can be used to explore systematically the dynamics of cultural change.

The Entrepreneurial Culture and the Mysteries of Economic Development by Louis Galambos

Abstract

Culture is easy to study but difficult to specify. This essay attempts to pin down this illusive subject by linking it to entrepreneurship—that is to specific efforts to combine land, labor, capital, and knowledge in the creation of economic activity that has some aspect of novelty. Entrepreneurship is important because of its central role in capitalism. Culture is important because it influences the willingness of individuals to take the risk of exploring possibilities for entrepreneurial ventures even though the most of them will be unsuccessful in the long-run. In search of entrepreneurial culture in America around 1800, this paper examimes immigration, agriculture, commerce, and the beginnings of the Industrial Revolution in the US. These insights are then employed in an examination of the post-WWII efforts of the World Bank—most of which failed—to promote economic growth in nations that had not yet experienced “modernization.”

And here is the flyer for a new journal on Capitalism and History, coming out in 2019. I would love to see a meeting of this advisory board. Although I have been very critical of several people on the list, this looks like it could be a serious attempt to bring together historians and economists working on economic history.

Merry Christmas

The Holy Family by Henry Ossawa Tanner

The Mellon Tax Cuts of the 1920s

Opponents of tax cuts claim that the large income tax cuts in the 1920s caused increased inequality and the Great Depression. For instance, Robert S. McElvaine writes in “I’m a Depression historian. The GOP tax bill is straight out of 1929” Washington Post’s PostEverything Perspective that

The crash followed a decade of Republican control of the federal government during which trickle-down policies, including massive tax cuts for the rich, produced the greatest concentration of income in the accounts of the richest 0.01 percent at any time between World War I and 2007 (when trickle-down economics, tax cuts for the hyper-rich, and deregulation again resulted in another economic collapse).

In 1926, Calvin Coolidge’s treasury secretary, Andrew Mellon, one of the world’s richest men, pushed through a massive tax cut that would substantially contribute to the causes of the Great Depression.

In that decade, the mass-production American economy became dependent on mass consumption. For it to work, the masses need a sufficient share of the national income to be able to consume what is being produced.

Republican policies in the ’20s instead pushed to concentrate more of the income at the top.

On the other hand, proponents of tax cuts have used the 1920s tax cuts (sometimes referred to as the Mellon after the Secretary of the Treasury Andrew Mellon) to illustrate how tax cuts can fuel so much economic growth that they generate increases in revenue. For instance, back in 2003, Veronique de Rugy argued that

The decade of the 1920s had started with very high tax rates and an economic recession. Tax rates were massively increased in 1917 at all income levels. Rates were increased again in 1918. Real GNP fell in 1919, 1920, and 1921 with a total three-year fall of 16 percent. (Deflation between 1920 and 1922 may also help explain the drop in tax revenues in those years, evident in Table 1).

As tax rates were cut in the mid-1920s, total tax revenues initially fell. But as the economy responded and began growing quickly, revenues soared as incomes rose. By 1928, revenues had surpassed the 1920 level even though tax rates had been dramatically cut.

She also notes that Between 1922 and 1929, real gross national product grew at an annual average rate of 4.7 percent and the unemployment rate fell from 6.7 percent to 3.2 percent. 

I am not persuaded that either of these stories clearly establishes connections between cause (tax cuts) and effect (inequality, economic growth, Great Depression).

Both stories attribute a great deal of economic influence to a relatively small federal government. Prior to the Great Depression, the federal revenue typically accounted for less than 5% of GDP. 

Moreover, income taxes accounted for only about half of federal revenue (Statistical Abstract of the United States for 1926 Table No. 169) Neither opponents or proponents of tax cuts explain  how changes that are so small relative to the whole economy could have effects as large as they suggest.

In addition, many of the changes during the 1920s were part of a reversion to pre-War patterns.The federal government lowered income tax rates during the 1920s, but it lowered them from the rates that had been imposed during World War I. By the end of the 1920s the top marginal rates were still almost double what they had been before the War.

Source: http://eh.net/encyclopedia/the-u-s-economy-in-the-1920s/

Likewise, the available evidence suggests that inequality of both income and wealth increased during the 1920s, but they were also moving back toward the rates that had existed before the war.

Source Piketty, Thomas, and Emmanuel Saez. "Income inequality in the United States, 1913–1998." The Quarterly journal of economics 118, no. 1 (2003): 1-41.

From a longer run perspective, the rapid decline of World War I and increase in the 1920s was a blip in a trend of decreasing inequality that was not isolated to the U.S.

Source: http://voxeu.org/article/american-growth-and-inequality-1700

Moreover, taxes were cut for all income groups and both the amount and the share of taxes paid by lower income groups decreased.

Source: de Rugy

Even if there is not a clear connection between tax cuts and inequality, inequality did increase. Could that increase in inequality have led to underconsumption as an important cause of the Great Depression? It seems unlikely.

Although inequality increased during the 1920s, it was not immiserating working class people. After the recession of the early 1920s, real wages generally increased until the Great Depression.

Source: http://eh.net/encyclopedia/the-u-s-economy-in-the-1920s/

Dramatic decreases in consumption expenditures were certainly a cause of the severity of the Great Depresion, but they were not an initiating factor. Consumption fell after a tightening of monetary policy and the stock market crash. Consumption fell because of decreases in wealth and income, but also because of increases in uncertainty about the future (Romer 1990, Romer and Romer 2013) and because of the need to reduce current consumption to make installment payments and avoid repossession (Olney 1999). The initial problems were exacerbated by continued bank failures and decreases in the money supply. Economic historians continue to explore the extent to which the problems in money and banking were the result of Federal Reserve failures or problems with the international gold standard. Given the small initial size of the federal government it should perhaps not be surprising that economists tend to find the causes of the Great Depression in monetary rather than fiscal policy.

 What about the alternative argument that the Mellon tax cuts spurred economic growth. Higher income individuals did pay a larger share of income tax after tax rates decreased, but it is not clear that this was because tax cuts spurred rapid economic growth? Here too, I'm skeptical.

The 4.7 percent rate of growth from 1922 to 1929 that de Rugy mentions is very sensitive to beginning and end dates. Much of it comes from very high rates at the beginning and the end. The annualized growth rate from 1923 to 1928 was a much less spectacular 2.8%.

https://measuringworth.com

It seem likely that the lower rates simply meant it was no longer worthwhile for high income earners to incur the costs associated with tax avoidance. This was primary the reason that Mellon gave for the tax cuts. 

I'll try to keep an open mind, but I am not yet persuaded that the Mellon tax cuts were able to generate very large macroeconomic economic effects despite the relatively small role of the federal government generally and the federal income tax specifically prior to the Great Depression.

Clegg on Capitalism and Slavery

I just ran across John Clegg’s  "Credit Market Discipline and Capitalist Slavery in Antebellum South Carolina." Social Science History (2017): 1-34. Clegg got a lot of attention a couple of years ago for "Capitalism and Slavery." in which he criticized the approach of New Historians of Capitalism, especially Edward Baptist. Clegg’s critique was based in part on work that he had done on the role of credit among slaveholders in South Carolina, and that work is presented more fully in this new paper.

Clegg follows Robert Brenner in terms of focusing on competition for the means of production as the driving force behind capitalist growth. Capitalists are forced to increase productivity to survive as capitalists. Clegg’s twist is to add the need to use credit to finance the purchase as land and slaves as the mechanism that drove this competition in the South. He has interesting information about the development of debtor creditor law and the extent to which slaveholders experienced foreclosure.

Clegg explains that

I claim that the ability of creditors to seize the land and slaves of insolvent debtors compelled slave owners to specialize for the market and increase productivity. It did so because most slave owners were in debt, and those who failed to repay their debts at the going rate would end up losing their land and slaves, and thus cease to be slave owners.

He concludes that

if the debt constraint I am describing was operative, then identifiably capitalist outcomes—market orientation, profit maximizing, technical innovation—are in an important sense independent of mentality. This is because slave owners who were not interested in specializing for the market, maximizing profit or adopting cost-reducing innovations would end up losing their slaves to those who were. On this view, capitalist patterns of behavior can be the unintended consequence of competitive selection operating via credit markets

That description made me think of Armen Alchian’s Uncertainty, Evolution and Economic Theory, which made essentially the same argument in defense of economic theory.  I should also mention John Nye’s "Lucky fools and cautious businessmen: On entrepreneurship and the measurement of entrepreneurial failure." The Vital One: Essays in Honor of Jonathan RT Hughes. Research in Economic History 6 (1991): 131-52 which makes a similar sort of evolutionary argument regarding entrepreneurship. 

P.S. If you weren't paying attention when Clegg's first paper came out you might to check out the Junto for some of the discussion it generated.

Our Lady of Guadalupe

Hartman on Public Choice

Andrew Hartman has an essay at The Baffler arguing that “libertarianism is a political philosophy shot through with white supremacy. Public choice theory, a technical language nominally about human behavior and incentives, helps ensure that blacks remain shackled.”

I have pointed out before that I am not a libertarian. I have been critical of libertarians on several occasions (for instance, here and here) . I am not associated with George Mason, not paid by the Koch brothers, and not really a big fan of James Buchanan. So why bother writing this? I do have an interest in public choice, and I find the recent attempts to bind racism, Buchanan, public choice, libertarianism, and the Koch brothers into  a neat little bundle ridiculous.

Below are quotes from Hartman’s essay (in bold) and my responses to them.

IN DECEMBER 1992, AN OBSCURE ACADEMIC JOURNAL published an article by economists Alexander Tabarrok and Tyler Cowen, titled “The Public Choice Theory of John C. Calhoun.” Tabarrok and Cowen, who teach in the notoriously libertarian economics department at George Mason University, argued that the fire-breathing South Carolinian defender of slaveholders’ rights had anticipated “public choice theory,” the sine qua non of modern libertarian political thought.

That obscure academic journal is The Journal of Institutional and Theoretical Economics. While it may not be The Baffler, it has been around for over 150 years, and Nobel prize winners, such as Oliver Williamson, Douglass North and Ronald Coase have published in it.

Public choice theory, which grew in stature across the late twentieth century and is now a bedrock conservative doctrine marketed to right-wing policymakers by the billionaire Koch brothers, has indeed tilted the scales of justice in favor of the white, rich, and powerful.

Libertarians seem unaware that Buchanan’s public choice theory is the thing without which their philosophy cannot exist. Milton Friedman does not refer to Buchanan or public choice in Capitalism and Freedom. Robert Nozick does not mention Buchanan or public choice in Anarchy, State and Utopia. David Boaz can put together a 600 page Libertarian Reader that has just a handful of references to public choice and no readings from Buchanan or Tullock. On a personal note, I was once invited to a lunch where John Allison former head of BB&T and a well-known libertarian spoke. I remember him talking a lot about Aristotle, but I don’t recall any mention of Buchanan or any other public choice theorists. I’m not suggesting that there are not libertarians who like Buchanan’s work, but I don’t see a case for the claim that it is regarded as an essential ingredient.

In marking Calhoun’s political philosophy as the crucial antecedent of public choice theory, Tabarrok and Cowen unwittingly confirmed what critics have long maintained: libertarianism is a political philosophy shot through with white supremacy. Public choice theory, a technical language nominally about human behavior and incentives, helps ensure that blacks remain shackled.

Cowen and Tabarok did not mark Calhoun as a crucial antecedent of public choice. To the contrary, they argue that economists have ignored Calhoun. It would be more accurate to say that they argue that although Calhoun did not influence the development of public choice theory, there are some interesting similarities. They note some of these similarities, but also point to significant differences. Including the differences that enabled him to include support for slavery in his philosophy.

The sheer volume and intensity of these protests suggest that MacLean’s observations have hit a nerve. And by historicizing the putatively neutral and scientific character of Buchanan’s research, MacLean has apparently shaken the pediment supporting the altar of this libertarian saint. 

Apparently, Hartman regards it as noteworthy that calling someone’s friend a racist would strike a nerve. I’m not sure what to make of that. As for neutral. I don’t know of anyone who would argue that Buchanan’s work was neutral. Buchanan had values that he argued for throughout his career. There is just no evidence that racism was one of them.

Just as Calhoun developed his novel political philosophy in response to the growing fear among his class of southern slaveholders that a Northern majority might seek to abolish slavery, Buchanan’s public choice theory was an innovative approach to resisting federal enforcement of civil rights in the South.

Hartman simply parrots MacLean here. They use innuendo to create a link between Buchanan and segregation, while ignoring the well documented intellectual context in which Buchanan was working. Buchanan was one of a number of people in the 1950s and 1960s working on applying economic or rational choice methods to the analysis of politics.

Buchanan saw his work as part of this broader movement. The following quotes are from a talk he gave on public choice theory at Hillsdale College in 2003

“Public choice should be understood as a research program rather than a discipline or even a subdiscipline of economics. Its origins date to the mid-20th century, and viewed retrospectively, the theoretical “gap” in political economy that it emerged to fill seems so large that its development seems to have been inevitable. Nations emerging from World War II, including the Western democracies, were allocating between one-third and one-half of their total product through political institutions rather than through markets. Economists, however, were devoting their efforts almost exclusively to understanding and explaining the market sector.” He goes on to explain that he “entered this discussion with a generalized critique of the analysis generated by the Arrow Black approach.” He also describes the 19^th century thinker who influenced his work. No, it was not Calhoun. It was Knut Wicksell.

Oddly, Hartman cites S.M. Amadae, but seems to have missed Amadae’s description of this broader context, Amadae describes Buchanan’s early essays as responses to the work of Ken Arrow and his Calculus of Consent (with Gordon Tullock) as “a new analysis of the rapidly forming study of politics that had been articulated by John von Neumann and Oskar Morgenstern, Duncan Black, Arrow, and Arrow’s student Anthony Downs.” (Amadae 136)

Buchanan was part of a movement to develop a rational choice approach to politics. He also had normative views about what government should do. These beliefs were essential to James Buchanan, but not central to public choice.  Being interested in a rational choice approach to politics does not require that one hold any specific set of normative beliefs. A rational choice approach to politics has been followed by people as disparate views of what should be as James Buchanan, Amartya Sen, Howard Rosenthal and Jon Elster.

Other people involved in the development of a rational choice approach to politics, such as Anthony Downs,  Amartya Sen and Mancur Olson, also viewed Buchanan’s work as part of this broader movement and engaged his arguments in their work.

If Hartman is right, then he and MacLean have seen through a false facade that fooled all of these other scholars. Buchanan somehow managed to hide his true motives from all of them, tricking them into believing that, like them, he was  trying to understand collective decision making, when in fact he was simply working to preserve race based segregation.  

As opposed to wishing to free the masses from a state controlled by the capitalist elite, Buchanan wished to free the capitalist elite from a state controlled by the unruly masses. And this returns us, suitably enough, to John C. Calhoun.

Public choice theory is interesting and important because recognizing that the state is composed of human beings means that the state can be controlled by an elite that oppresses the masses or a majority that oppresses a minority.  The outcome depends upon the institutions for making public choices. Some of us hope that it is possible to have institutional arrangements that protect the majority from a despotic elite and protect minorities from the tyranny of the majority.

In the end, there is no evidence for Hartman’s argument and considerable evidence against it. Public choice theory did not develop out of the work of Calhoun nor was it an outgrowth of attempts to preserve segregation in Virginia. Buchanan was influential in the development of public choice, but public choice theory is not synonymous with the thought of James Buchanan.  Buchanan and public choice theory are not the sine qua non of modern libertarianism. In fact there is no necessary connection between public choice and any set of normative beliefs.

In the end, I am puzzled why Hartman would choose to write an essay about something that he obviously has so little interest in? He doesn’t appear to have made any attempt to learn anything about the history of public choice theory beyond reading MacLean.  He could have written a better informed essay if he had read the Wikipedia page on public choice.

Some Recent Podcasts

If you are interested in the economy of colonial America listen to two recent episodes of Liz Covart’s Ben Franklin’s World: The Revolutionary Economy and The Politics of Tea. Of course, the politics of tea is about the economics of tea.

If you want to know about the economic divergence between Western Europe and the Middle East listen to Jared Rubin discuss his recent book on Garreth Petersen’s Economics Detective.

If, on the other hand, you are interested in listening to two intellectual historians who do not know anything about public choice theory discuss a book about public choice theory by another intellectual historian who does not know anything about public choice theory you should definitely check out Andrew Hartman and Ray Haberski discussing Nancy McLean’s Democracy in Chains on Trotsky and the Wild Orchids