Paper for Business History Conference

This is the abstract of the paper we are presenting at BHC at the end of the month.
Bradley A. Hansen and Mary Eschelbach Hansen

Business and the Evolution of Debt Collection Laws: Garnishment and Wage Assignment in Illinois, 1880-1930

In the 1870s and 1880s legislation and court rulings combined to make the wages of a head of household almost completely exempt from garnishment in Illinois. Yet by the 1930s, Illinois was regarded as one the states where it was easiest for a creditor to claim a large share of a debtor's wages. We argue that the driving force behind the evolution of garnishment and wage assignment in Illinois was the conflict between two groups of business people: large employers and businesses that supplied credit to wage earners. Large employers regarded garnishment and wage assignment as costly nuisances and sought to restrict their use. Businesses that provided credit to wage earners regarded garnishment and wage assignment as important tools and sought to minimize restrictions on their use. Each group pursued change through legislation, through the judiciary, and through private contracting. Because the conflict between large employers and businesses that provided credit was meditated through the political and legal systems, the outcomes were also shaped by the influence of other interest groups and by the ideologies of judges. By the 1930s, this combination of forces left Illinois with a relatively moderate garnishment law but virtually unrestricted use of wage assignment.

Economic Theory and Prediction

I was listening to a podcast at New Books in Law with Lynn Stout discussing her recent book Cultivating Conscience: How Good Laws Make Good People. She was arguing against the assumption of rational self interested behavior and pointed to the large amount of evidence that people often behave in ways that are not narrowly self interested. She then noted that some economists have tried to get around this by saying that people can value things other than money.  She, however, claimed that doing this eliminated the ability to make predicitions because you could explain anything by making the right assumption about what people value: "They did this because that is what they want to do." I think this misinterprets the sort of predicitions that can be made with economic theory. Economic theory enables us to make predicitions about how groups of people will respond to changes in constraints. Assuming that people value giving money to charity does not prevent me from making predicitions. I predict that, in general, if we lower the cost of giving to charity people will give more to charity. I predict that if we increase the cost of voting, in general, people will vote less. One of the fundamental assumptions in economics is that people like lots of different things and that they have tochoose between them. Assuming that one of those things is a nice house and another is feeding the poor presents no problem.The problem is not assuming that people value things other than money, the problem is using changes in those preferences rather than changes in constraints to explain behavior. For instance, explaining financial crises as a result of greed, as if people have become more greedy, tends not to hold up to scrutiny.

Interestingly enough, Professor Stout later noted that if you want to get people to behave ina pro-social fashion you need to make sure that the benefits of selfish behavior are not too great.

Three Essays In Search of a Point

I just received a job market packet from a large university, which I will not name. The dissertations include "Three Essays in Applied Economics," "Three Essays in Econometrics, and "Essays in Econometrics." Don't worry. There were three essays in "Essays in Econometrics."  

Dealing with the Situation

Here is an example of an attempt at a private solution to a negative externality.

Why Economics Needs History

Barry Eichengreen's INET talk

NEP-HIS

Bernardo Batiz-Lazo's blog on new papers in economic history.

Trust Companies in the Panic of 1907

I recently posted "Sometimes Bad Things Happen to Good Trust Companies: A Reexamination of the Trust Company Panic of 1907" on SSRN

Abstract

The runs on trust companies during the Panic of 1907 have been blamed on unregulated financial innovation. New York trust companies are said to have taken advantage of gaps in regulation to engage in risky behavior, ultimately causing depositors to lose confidence in trust companies. This paper shows that there was not a general loss of confidence in trust companies. Runs were concentrated on a specific group of trust companies: the uptown trust companies. But there is no evidence of mismanagement or unusually risky asset allocation among these companies. Instead, it was the nature of their deposits that made them more susceptible to runs. While traditional trust companies focused on small numbers of large deposits from businesses, the uptown trust companies had large numbers of household deposits.

His Dark Materials and Economic History

According to the documents at the end of Philip Pullman's Once Upon a Time in the North Lyra went on to study economic history. Her dissertation for an M.Phil in Economic History was titled "Developments in patterns of trade in the European Arctic region with particular reference to independent cargo balloon carriage (1950-1970)."