Special Issue on Piketty's Capital

The British Journal of Sociology has a special issue on Piketty's Capital. All the articles are available free of charge.

Happy Birthday to The Junto

The Junto is celebrating its second birthday. I am not an early Americanist, but The Junto is one of my favorite blogs. The contributors are thoughtful and passionate about what they do. Anyone interested in American history, doing history, or teaching history should read what they have to say.

The Depression of 1921?

The “Depression of 1921” has been receiving a lot of attention recently (Krugman, Selgin, Murphy, and Sumner)  mostly in response to James Grant’s The Forgotten Depression:1921: The Crash That Cured Itself. The argument of the book is that the economy recovered more quickly because neither the federal government nor the Federal Reserve attempted to pursue activist policies. I am skeptical that 1921 is a useful case to generalize from.

It was a post war recession, much like the one after World War II. Most business cycle movements have been associated with busts after periods of credit expansion (see the recent work of Alan Taylor et al). In those cases it was households and businesses that borrowed and spent during the boom. Consequently, when the bust comes, businesses and consumers struggle to repay their debts. Businesses fail and consumers default. Even consumers who do not go bankrupt reduce their current spending to avoid default (see Martha Olney). As businesses and households default the value of bank assets fall and banks fail. The bank failures result in decreases in the money supply (Friedman and Schwartz) and disintermediation (Bernanke). In other words, it creates a real mess when people take on excessive amounts of debt, especially when they use that debt to bid up the prices of assets like stocks or real estate.

In terms of increases in output and prices, war time booms look similar to credit fueled booms, but the government is the one borrowing and spending. The end of the boom does not necessarily lead to a financial crisis or reductions in consumption and investment. Granted government borrowing can also create a mess, particulalry if people begin to doubt its willingness or ability to pay, but that hasn't really been an issue for the U.S. 

I also have a problem with calling this a depression. I know that there is no universally accepted definition of the term depression. And I know that Grant is not the first to refer to this episode as a depression. But we completely lose any distinction between a recession and a depression if this was a depression. Neither the length nor the severity of the decline in real GDP warrant the term depression.

Business History Conference

The Business History Conference launched its new website yesterday. In addition to the usual stuff about meetings it has an extensive list of links for research in business history and syllabi and other resources for teaching business history and business history related courses.

Claudia Goldin in Saudi Arabia

The New York Times reports on how the economic historian Claudia Goldin tries to help Saudi women enter the labor force while following the prime directive (see paragraph 5).

The Fall and Rise of Economic History

Jeremy Adelman and Jonathan Levy describe "The Fall and Rise of Economic History" in the Chronicle of Higher Education

 

I found this essay particularly interesting because both Jeremy Adelman and I studied economic history at the LSE in 1984-85. If I remember correctly, we were the first cohort to do a new M.Sc. program focusing on Third World economic history. He went on to get his PhD. In history (Oxford); I went on to get a Ph. D. in economics (Washington University).   

I remember a seminar where Jeremy presented the work he was doing on Argentina. The first person to speak was one of the older professors in the department, very much a traditional historian. He said, “That is political history. This is a seminar in economic history.” He then leaned back, laced his fingers over his stomach, and looked around the room, smiling as if he had just said all that needed to  be said.  I know he did not speak for all the professors present, but it was still a very discouraging moment. Like Jeremy, I was interested in economic questions but didn’t believe it was possible to leave politics and ideology out of the answer. I had also just started to read Douglass North’s work on institutions and ideology and thought it might provide the way forward. I decided to pursue a degree in economics. Since then, I think economists (for example, North, Wallis, McCloskey, Mokyr) have continued to make progress in reintegrating politics, the law, and culture into the study of economic history.    

I have, on the other hand, been very disappointed in the “new history of capitalism” that has arisen in history departments. I first thought that this might be the moment for a much needed reunion of economists and historians, but it quickly became clear that that was not what the new history of capitalism was about. Instead of confronting the work of economists directly it is generally ignored or dismissed. People throw around terms like homo economicus, suggesting that economists all think that people care only about maximizing their material wealth and that they do so with perfect information. They seem to believe that the recent financial crisis has undermined the credibility of economic theory because things did not work out well, while a student in any decent principles of economics class could show you the prisoners’ dilemma and explain to you that economic models do not all conclude that everything will work out for the best.  The quality of the historical research is secondary to the author’s stance against capitalism (which is not defined) and economics.

 

I still hope that economic history will regain a prominent position in both economics and history and that economists and historians will be able to move forward together.

 

Who is shocked by this?

The Economist reports that the performance of state owned enterprises has been shockingly bad.

If there is state capitialism, is there private enterprise socialism?

Jeffrey Beall Explains Why People Should Avoid "journals" published by the Clute Institute

http://scholarlyoa.com/2014/11/27/why-researchers-should-avoid-the-clute-institute/

"In conclusion, I recommend that honest scholars seek out a better publisher for disseminating their research than the Clute Institute. This publisher, with its dubious claim to be an institute, is little more than a scholarly vanity press — it’s essentially a money press — and publishing papers in this publisher’s journals may hurt authors in the long run. By this I mean that for any researcher who publishes a paper in a Clute Institute journal, that paper will be in the company of other papers with highly questionable citation and authorship practices and may be damaged by association."

What Was Funny?

Huffington reports on how the Board of Visitors of UVA deal with the problem of sexual asault on campus:

"Later, however, as the meeting neared its third hour, board member Edward D. Miller interrupted to note the Visitors were laughing too much for a session dedicated to such a serious issue. Miller commented through a conference call, as he was not able to be there in person. His comment was quietly applauded by public audience members."

Ice Fountain at Mary Washington

Courtesy of Lauren Castellano

Kudos to Cabell's

Cabell's is taking a stand against fake journals:

"Unfortunately, academic publishing has been rife with fraudulent procedures over the past several years. Instances of deceptive practices and outright fraud have skyrocketed. Understandably, this has led to a significant erosion of trust in the scholarly publication process. In an effort to offer our users guidance and to support our mission of providing academics with accurate information and reputable outlets for publication, Cabell’s has launched a reevaluation initiative whereby selected journals appearing in our Directories will be examined according to new, more stringent criteria on a rotating basis throughout the year. Journals are selected for reevaluation based on inclusion in Jeffery Beall’s 2014 List of Predatory Publishers, exclusion from DOAJ and/or OASPA, and not meeting requirements of the Cabell’s Selection Policy. As these selected journals undergo this reevaluation process, they will be removed from our database. Essentially, these journals will be reapplying for inclusion. Journals will be evaluated according to the Cabell’s Selection Policy. Each journal’s editor or publisher will be asked to complete a new Application for Inclusion. Our Journal Admissions Department will verify that all journals reapplying for inclusion meet the required criteria. This comprehensive reevaluation process is expected to be completed by the end of 2015."

More on the History of Capitalism

Tom Cutterham has a post at the Junto about both the recent Shenk essay in The Nation and the discussion in the recent issue of Journal of American History.

Apostles of Growth

Timothy Shenk's essay on the the new history of capitalism.

Transcontinental Railroad

The Linda Hall Library in Kansas City has a cool web exhibit about railroads.

International economic history data

https://www.clio-infra.eu/

A Failure of Regulation: Reinterpreting the Panic of 1907

The Autumn 2014 issue of Business History Review is out now. It contains my paper on New York city trust companies during the panic of 1907.

This is the abstract for the paper

                 Financial Regulation and the Panic of 1907

 

Lax regulation enabled trust companies to take excessive risks, according to previous studies of the Panic of 1907, leading to a loss of confidence and massive runs. These studies have, however, given relatively little attention to the historical development of trust companies. This article argues that a more historical perspective can lead to a better understanding of the institutional framework and the actions of trust companies. Depositors did not lose confidence because of inadequate regulation; depositors lost confidence in specific trust companies because of false rumors, and diversity among trust companies hindered cooperation to halt the Panic.

The Back of Ed Baptist's Envelope

I have finally had a chance to read some more of Edward Baptist’s The Half Has Never Been Told.

A central claim of the book is that slavery was not just an important institution in American economic growth but that “the returns from the cotton monopoly powered the modernization of the rest of the American economy.” Baptist provides a back of the envelope accounting of the impact of slave produced cotton.

 

Baptist The Half has Never Been Told (page 321-2)

 

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

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

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

 

Where do I begin? The approach is fundamentally flawed. Baptist begins with gross domestic product (GDP), the value of all the final goods and services produced in the country during the year. He refers to this as a measure of the total economic activity. He notes that the value of cotton production equaled about 5 % percent of GDP. No problems so far. But he then adds the cost of the inputs to the production of cotton. Anyone who has taken Principles of Macroeconomics knows that you can’t do this; it is referred to as double counting. If I buy $1000 worth of wood and then make it into a table that I sell for $1,500, we do not add $1,000 and $1,500 because the value of the wood is included in the value of the table, the final good. If he is going to engage in double counting for cotton he would need to engage in double counting for all other goods. He then adds the costs of transportation and insurance; these only count toward US GDP to the extent that they are produced by Americans. He also adds the sales of assets: land and slaves. Again, the sales of assets are not counted in GDP. GDP only counts the value of final goods and services produced during the year. Not all purchases are counted as part of GDP. Only purchases of newly produced goods and services are counted in GDP.  Comparing his calculation of economic activity related to cotton to GDP is meaningless.

 

There is, however, an even deeper problem with this back of the envelope accounting:

perhaps $40 million

probably added up to about $100 million

might have added up to $200 million

 

Baptist is simply pulling numbers out of thin air, or a hat, or wherever it is that he gets them. Back of the envelope calculations tend to involve simplifying assumptions. Baptist seems to understand the term to mean that he can just make things up. The only reference provided is to Table 4.1. Table 4.1 does not provide, as one might assume, information about shipping and insurance. It does not even have any information at all for the year 1836.

Both historians and authors of fiction tell stories, but the stories that historians tell are distinguished from fiction by their grounding in the sources. Historians are constrained to tell stories that they can support with evidence from their sources. Baptist has thrown off this constraint and set himself free to simply make up numbers (or events). This really is a new history of capitalism.

Economic History's Many Muses

Many of the papers from the the Library Company of Phildelphia Program on Early American Economy and Society's conference on Economic History's Many muses are available here. 

predatory publishing: letter to the editor version

http://jimromenesko.com/2014/10/22/want-your-letter-to-the-editor-published-in-the-watch-youll-have-to-pay-up/

More Slavery and the History of Capitalism

The September 2014 Journal of American History has an Interchange on the History of Capitalism. In the Interchange Scott Marler states that

 

“The problem arises when historians assert that the slave South was “a flexible, highly developed form of capitalism” (as Robert Fogel does). The evidence for such characterizations is thin and usually hinges on questionable interpretations. For example, some will emphasize the careful attention given to profit among that minority of big planter–slave owners, despite the facts that the majority of slaves were held on small units, using roughly five or fewer slaves, and that three-fourths of white households held no slaves on the eve of the Civil War. This is why definitions of capitalism matter. The relationship between master and slave was, at bottom, a nonmarket relationship, redolent of precapitalist relations between lords and serfs—not an economic one, as with the qualitative changes apparent in fast-growing wage-labor societies elsewhere.”

 

 

I am not going to get into the issue of whether slavery in the United States was capitalist or not, but Marler bases his conclusion on “the facts that the majority of slaves were held on small units, using roughly five or fewer slaves, and that three-fourths of white households held no slaves on the eve of the Civil War.” All of the sources I know of do indicate that the vast majority of southern families did not own slaves. On the other hand, Gavin Wright estimated that the majority of slaves (nearly 80 percent in the Cotton South in 1860) lived on plantations with 16 or more slaves.  Marler cites Kolchin’s American Slavery as a reliable source on the demographics of southern slavery. Kolchin (Appendix Table 4) claims that about 70 percent of slaves lived on farms with 10 or more slaves in the South as a whole; the figure was 80 percent for the Deep South. The majority (about 75 percent) lived on plantations with less than 50 slaves. Overall, the estimates in Wright and Kolchin are pretty consistent.

 

The availalbe evidence does suggest that the majority of slaveholders had five or fewer slaves, but that is not the same as saying that the majority of slaves lived on farms with five or fewer slaves. In other words, the typical southern farm owner would have looked around his farm and seen few if any slaves. The typical slave, on the other hand, would have looked around the farm he worked on and seen more than a dozen other slaves.

2014 Nobel

Jean Tirole

Tyler Cowen has an overview of Tirole's work.

et tu Foner?

There is a myth about historians and the Great Depression that some economists have tried to peddle over the years. The myth is that historians think Hoover was an opponent of government action and that the New Deal brought the country out of the Depression. They then act like they have made a great discovery if they show that Hoover tried to intervene in markets and that the economy continued to operate well under potential throughout the 1930s. The only problem is that this story is a complete misrepresentation of what most historians knew about the Great Depression. Listen to David Kennedy's Econ Talk with Russ Roberts for a discussion of what historians actually tended to think.

Some historians are now trying to peddle their own myth that before the "new history of capitalism" historians all believed that slavery was unprofitable and did not appreciate the economic importance of slavery, especially cotton production, to the development of the American economy.

In his New York Times review of Edward Baptist's book Eric Foner seems to join this crowd. He  writes that

"For residents of the world’s pre-­eminent capitalist nation, American historians have produced remarkably few studies of capitalism in the United States. This situation was exacerbated in the 1970s, when economic history began to migrate from history to economics departments, where it too often became an exercise in scouring the past for numerical data to plug into computerized models of the economy." 

He goes on to state that

"For decades, historians depicted the institution as unprofitable and on its way to extinction before the Civil War (a conflict that was therefore unnecessary). Recently, historians like Sven Beckert, Robin Blackburn and Walter Johnson have emphasized that cotton, the raw material of the early Industrial Revolution, was by far the most important commodity in 19th-century international trade and that capital accumulated through slave labor flowed into the coffers of Northern and British bankers, merchants and manufacturers. And far from being economically backward, slave owners pioneered advances in modern accounting and finance."

As with the Great Depression story, the problem is that this story is not true. It is true that "for decades, historians depicted the institution as unprofitable and on its way to extinction," but these were decades after 1918 when Ullrich B. Philllips published his American Negro Slavery. By the 1960s, however, evidence was beginning to pile up that slave owners received high rates of return on their investment, managed their plantations with an eye on profits, achieved high levels of productivity, and were increasing productivity over time.  The economic historians who produced this evidence did not keep their work secret. Someone taking an intro to American history class was likely to know about it. In George Brown Tindall's America: A Narative History we find that "More often than not the successful planter was a driving newcomer bent on maximizing profits." and "in recent years economic historians have reached the conclusion that slaves on the average supplied about a 10 percent return." (Tindall 1988:571)This is was written nearly three decades ago. Suggesting to people that before the new history of capitalism everybody thought that slavery was unprofitable is either dishonest or incompetent.

Foner's snarky comment about economists turning economic history into an exercise in scouring the past for numerical data is particulalry ironic since Baptist's argument is based on the work of economic historians who scoured the past for numerical data. His book is based on an increase in productivity in cotton production. It turns out this can only be demonstrated with numerical data that Alan Olmstead and Paul Rhode scoured the past to obtain.

What happened to historians like Herbert Gutman and Kenneth Stampp who were willing to challenge economists head on when they disagreed with their work on slavery.

What I'm Listening To

A really interesting Junto Cast on Bernard Bailyn's The Ideological Origins of the American Revolution.

It's A Start

More women are among the top earners

The cost of college

Susan Dynarski in the New York Times:

"In 1988, state legislatures gave their public colleges an average of $8,600 a student. Students contributed an additional $2,700 in tuition, which gets us to a total of $11,300. By 2013, states were kicking in just $6,100, while students were contributing $5,400"

The half (maybe a bit more) that Baptist does not tell

The new book by Edward Baptist The Half Has Never Been Told has been getting a lot of attention on the internet. More precisely, a review of the book in The Economist has been getting a lot of attention.

Amid all the attention to the Economist’s ridiculous review, the book itself has been somewhat neglected.

I have not read the entire book. I have read the parts related to the areas that I am most familiar with. What I have read I do not like. On page 129 he writes that “during the late antebellum years, northern travelers insisted that slave labor was less efficient than free labor, a point of dogma that most historians and economists have accepted.” The footnote for this statement does not actually provide any evidence to support, which is not surprising since you would be hard pressed to find an economic historian who does accept it. Actually, there have been surveys of economic historians that show that more than two-thirds would agree that slave agriculture was efficient relative to non-slave agriculture. It has been more than a half century since Conrad and Meyer showed that investment in slaves had a return comparable to other potential investments. As best I can tell Baptist does not even cite Conrad and Meyer. Fogel and Engerman long ago argued that slave agriculture was as dynamic a version of capitalism as existed anywhere in the United States. In awarding the Nobel Prize to Fogel in 1993, the Nobel committee stated that “Fogel showed that the established opinion that slavery was an ineffective, unprofitable and pre-capitalist organization was incorrect. The institution did not fall to pieces due to its economic weakness but collapsed because of political decisions. He showed that the system, in spite of its inhumanity, had been economically efficient.” How can any of this be reconciled with the claim that most economists and historians and economists accept the dogma that slave labor was less efficient?

To say that Baptist is knocking down a straw man would be an injustice to straw men.

He suggests that pretty much everyone has failed to notice that productivity increased on cotton plantations, but his primary evidence for this is from Olmstead and Rhode, and, for some reason, he cites their NBER working paper, even though the paper was published in the Journal of Economic History six years ago. He also rejects Olmstead and Rhode’s explanation for the productivity increase, which emphasizes improvement in cotton plants, but he does not address the evidence that they provided to support of this conclusion (productivity increased much more in areas that grew varieties of cotton for which new seeds were being developed than it did in areas where new varieties were not grown). Contrary to what he seems to suggest Olmstead and Rhode did not simply assume that it must have been technological change that caused productivity to increase. They went to considerable effort to rule out other explanations.

This is not nitpicking. These arguments are at the center of the book. Baptist consistently misrepresents or ignores the contributions of others, even when it is clear that he is familiar with their work. The false claims about the book’s contributions make it difficult to discern if there are any legitimate contributions.

By the way, if you are looking to read a good recent book about slavery in the United States, I would suggest Kathleen Hilliard’s Masters,Slaves and Exchange.