Economic History from the Last ASSA

Historical Perspectives on Financial Crisis, Banks and Regulation 
Presiding: Gary Richardson 
Crisis and Collapse in the Long Run: Some Microeconomic Evidence Raghuram Rajan and Rodney Ramcharan
What Ends Banking Panics? Gary Gorton and Ellis Tallman
Interbank Markets and Banking Crises: New Evidence on the Establishment and Impact of the Federal Reserve Mark Carlson and David Wheelock 
Commercial Bank Leverage and Regulatory Regimes: Comparative Evidence from the Great Depression and Great Recession Christoffer Koch, Gary Richardson and Patrick Van Horn 
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Critiquing Robert J. Gordon's Rise and Fall of American Growth (Panel Discussion)
Presiding: Robert Shiller
Gregory Clark
Nicholas Crafts
Benjamin Friedman
James T. Robinson
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Evononsense and Homo Paleas

I was just looking at Evonomics.com, an important new source of misinformation about economics. Numerous essays there talk about how economic analysis is based on the study of homo economicus, a creature that is only concerned about its own selfish material interest.  

More specifically:

“homo economicus… is the character that inhabits the economics texts, and the computer models that are the silent dictators of analysis and policy. Econ, as I will call him, is a myopic integer of self-seeking, who goes through life with a relentless and unfailing calculus of personal loss and gain. He has no social affinities, is oblivious of social context, and has no capacity or inclination to think of anyone besides him or her self.” (Jonathan Rowe at Evonomics)

It is easy to see how foolish those economists are and what a waste of time economics is. There is only one small problem. The imaginary being is not homo economicus, it is homo paleas. Homo paleas is an imaginary economist created by people who want to criticize economics without having to go to the trouble of studying what economists actually do.

Economists generally do analyze models in which people are assumed to maximize utility, but these people can get utility from anything they like. No real economist says that you can’t get utility from someone else’s pleasure, or, for that matter, someone else’s pain.

What have economists actually said?

Adam Smith wrote in his Theory of Moral Sentiments that

“How selfish soever a man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though h derives nothing from it except the pleasure of seeing it.”

Well, Smith was special. It must have been after him that economists starting studying homo economicus. What did Alfred Marshall say?

Alfred Marshall wrote in his Principles of Economics that

“Thus though it is true that "money" or "general purchasing power" or "command over material wealth," is the centre around which economic science clusters; this is so, not because money or material wealth is regarded as the main aim of human effort, nor even as affording the main subject-matter for the study of the economist, but because in this world of ours it is the one convenient means of measuring human motive on a large scale. If the older economists had made this clear, they would have escaped many grievous misrepresentations; and the splendid teachings of Carlyle and Ruskin as to the right aims of human endeavour and the right uses of wealth, would not then have been marred by bitter attacks on economics, based on the mistaken belief that that science had no concern with any motive except the selfish desire for wealth, or even that it inculcated a policy of sordid selfishness.” (Book I Ch. II).

Okay, it wasn’t Marshall. Maybe economists now think that people can’t care about others.

In 2011, Andersen, Ertac, Gneezy, Hoffman and List explained that

“where economics provides its most basic predictions revolves around how people should respond to changes in incentives—pecuniary or nonpecuniary (Gneezy and Aldo Rustichini 2000)—not whether subjects have fairness, spite, or altruistic proclivities.” (Stakes Matter in Ultimatum Games)

Because they analyze the actions of the imaginary homo paleas rather than actual economists, these critics of economics think they have shown the weakness of economics when they point out that people vote, or give to charity, or are willing to incur a cost to punish economic experiments are concerned with fairness. The trouble is that there is actually nothing in economics that suggests a person cannot care about other people.

Economics theory does not suggest that people should not give to charity. It suggests that people will do it more if you lower the cost by, for instance giving a charitable deduction.

Some New Stuff

Here is the program for the Development of the American Economy section of the NBER summer Institute. There are links to many of the papers.

Here is the program for a conference on the history of capitalism. Although I have been critical of much of what has been labeled the new history of capitalism, there are some interesting looking papers here. I don't plan to go to the conference, but I look forward to seeing Sharon Murphy's work on bank financing and slavery at some time in the future.

Here is Jeffrey Beall blogging about a new paper on open access publishing (particularly the fraudulent form of it) by my colleague Margaret Ray. He provides a link to the paper.

Based upon this tweet, it appears that someone at Cornell's History of Capitalism Camp was talking about Mary Eschelbach Hansen's work on bankruptcy. She is, by the way, my favorite economic historian.

Stanley Fish on Historians Against Trump

The New York Times published a remarkably dishonest essay by Stanley Fish. Fish attacks a group of historians for publishing a statement opposing Donald Trump.

Fish begins by making clear that, while he is specifically attacking these historians, his remarks really apply to all professors. Ironically, the historians make clear in their letter that they are not all professors. Even casual examination of the list of historians reveals that many are not professors. But Fish won’t let details like that get in his way. (quotes from Fish are in bold)

“PROFESSORS are at it again, demonstrating in public how little they understand the responsibilities and limits of their profession.”

Fish claims that

“They suggest that they are uniquely qualified to issue this warning because they “have a professional obligation as historians to share an understanding of the past upon which a better future may be built.”

This is a really nice touch. Fish has taken a quote from the letter, but introduced it with a lie. Nowhere in the letter is it explicitly or implicitly suggested that historians are uniquely qualified. To the contrary, the letter refers to other groups that have already issued similar letters.

This is followed by some more cutting, pasting and inserting by Professor Fish. He is, after all, Professor Fish, which is the reason is being published in the New York Times.

Or in other words: We’re historians and you’re not, and “historians understand the impact these phenomena have upon society’s most vulnerable.” Therefore we can’t keep silent, for “the lessons of history compel us to speak out against Trump.”

I’ll just include this statement about extraordinary hubris for the enjoyment of anyone that knows who Stanley Fish. I wouldn’t be surprised if Fish himself didn’t get a good laugh out of it.

I would say that the hubris of these statements was extraordinary were it not so commonplace for professors (not all but many) to regularly equate the possession of an advanced degree with virtue.

He then returns to his assertion that the historian’s claim to be uniquely qualified.

The claim is not simply that disciplinary expertise confers moral and political superiority, but that historians, because of their training, are uniquely objective observers: “As historians, we consider diverse viewpoints while acknowledging our own limitations and subjectivity.”

In fact, no such claim of uniqueness is made in the letter. They don’t say that all historians oppose Trump and they don’t say that only historians are in a position to evaluate Trump. They simply state that they are historians and that their position as historians has led them to believe that they should oppose Trump.

Historians do have to consider diverse viewpoints and acknowledge their own limitations and subjectivity. They don’t all do it well. I spend plenty of time criticizing bad historical scholarship, but that criticism presumes that historians should consider diverse viewpoints and acknowledge their limitations and subjectivity.

In the interest of acknowledging my own subjectivity, I probably should acknowledge that I hate Trump with the white hot passion of a thousand burning suns. But the evidence that Fish is lying is clear. Simply read the letter.

The Rise and Fall of American Economic Growth

I finally got around to reading Robert Gordon’s Rise and Fall of American Economic Growth. It is an excellent book. Much of the book is essentially an expansion of Lebergott’s Pursuing Happiness. It describes the many ways in which the material conditions of life (what they consumed, how they worked, and their health) were transformed from 1870 to 1970. Gordon argues that economic growth this period essentially created modern economic life: comfortable homes with electricity and clean water, cars parked out front, and all of this purchased with less labor hours and less onerous labor. 

Much of the attention the book has received has focused on Gordon’s argument that current innovations in information and communication are not transforming life the way the earlier changes did and that the rate of growth is unlikely to return to the rapid pace experienced for most of the twentieth century. This argument actually occupies a relatively small part of the book. I also found this part of the argument to be somewhat more cautiously stated than I think it has been in the popular press and in blurbs for the book. While Gordon argues that some of these innovations were uniquely transforming and points to specific factors that he believes are likely to slow growth (e.g. demographic change, education, inequality), he also has suggestions for policy changes which might mitigate some of these headwinds (e.g. reducing excessive regulation, policies to reduce inequality). In other words, he doesn’t appear to believe that the current course is inevitable. He also acknowledges that any attempts to make predictions about future innovations are somewhat speculative.

His analysis of the causes of the “Great Leap Forward” also seems reasonable, though I think he gives too much credit to Alex Field for pointing out the technological innovations that took place during the Great Depression and not enough to Michael Bernstein, who emphasized these changes long before Field.

I do tend to disagree with Gordon and others who underplay the transformation brought about by information technology. You can say that it is only entertainment and communication but my children ages 17, 23 and 27 are never without their phones. They use social media, they watch movies and tv shows. They listen to an incredible variety of music. When I was a teenager you pretty much had to pick one kind of music: heavy metal, or punk, or disco. My kids listen to everything. They listen to podcasts on soccer, cooking, politics, etc. They can’t get lost. A map is no further than the phone. Maybe it is just entertainment and information, but it is a world of information and entertainment in their hand.

I agree with Gordon that attempts to make predictions about future innovations are speculative, but I tend to be somewhat more optimistic than he is. In part, my optimism stems from the dismal performance of dire predictions about the future. Read Jevon’s on the Coal Question, or Alvin Hansen on secular stagnation.

Part of my optimism is also related to what I think might be the chief weakness of the book. It tells the story strictly from an American standpoint. The problem with this is that the same things happened in many other countries. The United States is not the only wealthy country. One of the things that I believe I learned from John Nye (listen to John’s Econ Talk on the Great Depression, Political Economy and the Evolution of the State) is that you might want to occasionally look outside of particular area to see if the same thing is happening in other places. If it is, you might want to ask what are the broader forces at work. I think that if innovations can travel across borders and innovation is not isolated to Americans there are some good reasons to be optimistic. Increased economic freedom and access to education in Asia have the potential to dramatically increase the pool of innovators. I don’t think that economic freedom is firmly enough established to feel completely secure about this, but I think the potential is great.

Robin Hanson on Slavery

Robin Hanson and Bryan Caplan were having an argument about something called “Em.” I have no idea what Em is so I am not writing about that. But the argument had something to do with slavery, and it prompted Hanson to do a quick review of the literature and write up a summary on his blog overcoming bias. I’m afraid that Hanson’s quick review of the literature was a bit too quick. Some of the statements are simply wrong and others can reasonably be contested. I posted these responses on his blog, but it did not seem to keep the links. Consequently, I'm posting it here as well.

He states that

Historically, even when slaves were common, they were usually a minority of the population. (Beware, the term “slave” is used in different ways.) About 10% in the Roman Empire and US south.

This statement is simply incorrect. Slaves accounted for substantially more than 10 percent of the population of the South. Slaves were as much as 57 percent of the population (South Caroline) and at least 25 percent (Tennessee). See, for instance, Jenny Wahl. Or you can check at the Historical Census Browser at UVA

He states that

(The sex story is overrated, as only 1-2% of slave babies were fathered by white men.)

The first thing to note is that, unlike population, the number of children born to slave mothers and white fathers is difficult to estimate. Some estimates put it as low as 1-2 percent, but Stephen Crawford found that in ex-slave interviews, by the WPA and Fisk University, as many 10 percent of slaves reported that their father was white. The 10 percent figure was when the interviews were done by African –American interviewers. In other words we don’t know. It may be possible use genetic studies to produce a more accurate estimate, but I don’t know of such a study. There is also the question of “How large is large?” Stating that “the sex story is overrated” suggests that 1-2 percent is somehow not important. Given that the vast majority of enslaved people in the South lived on plantations of 15 or more people, even 1 or 2 percent could be consistent with a relatively large percentage of slave owners fathering an enslaved child (or a smaller percentage fathering numerous children). It is not obvious to me that 1 or 2 percent is small in this case.      

He states that

Sometimes people sold themselves into slavery for a limited time, as with indentured servitude.

This is just kind of odd. It may be that he is using a definition of slavery that makes this make sense, but I don’t know of any historian who regards slavery and indentured servitude as equivalent.

Finally, he states that

Slaves weren’t converted into debt perhaps because of credit market failures, or more plausible because the full control approach was especially productive on plantations.

I’m not entirely clear about what this means, but it does not sound consistent with current understanding of slavery in the United States. Historians have devoted considerable attention to the well developed credit markets that facilitated slave purchases. See for instance, recent work by Bonnie Martin, John Clegg, Calvin Schemerhorn, Kathryn Boodry, and Gonzalez, Marshall, and Naidu.

Some Random Economic History

The Program of the next meeting of the Economic History Association.

The Economic History Society now has a blog: The Long Run

Pseudoerasmus attempts to describe the essence of Beckert’s argument about economic development in Empire of Cotton

Ed Baptist explains how he was able to misinform so many people.

Jane Humphries examines the role of women in English economic history and gives a lesson in the use of primary sources in economic history.

At Ben Franklin’s World Liz Covart and Zara Anashanslin also discuss the use of primary sources, particularly in reference to Anashanslin’s book  Portrait of a Woman in Silk: Hidden Histories of the British Atlantic World.