Fugitive Slave Ads and the Runaway New History of Capitalism

The OAH recently tweeted about a new post at the Process blog.  The tweet asked if runaway slave ads can change the way we study slavery.The post is authored by Mary Niall Mitchell, Edward Baptist, and Joshua Rothman, and it describes their new project to create a database of digitized fugitive slave ads:

“Most historians of chattel slavery looking for detailed information about individual enslaved people have turned to a familiar constellation of sources: nineteenth-century slave narratives, the Ex-Slave Narratives gathered in the 1930s and 1940s by the Works Progress Administration, plantation records, and legal documents. We hope that this is about to change, by bringing new and existing digital techniques to a type of narrative that ran daily on the pages of American newspapers from the eighteenth century until the Civil War: the fugitive slave advertisement.”

“By 1865, we estimate more than 200,000 such notices appeared.”

It is possible that there are 200,000 such notices. It seems plausible to me, though I would be more willing to accept it if I was not familiar with Ed Baptist’s technique for creating quantitative estimates. He makes them up.

Although they do mention the work of Loren Schweinger and John Hope Franklin on runaway slaves the overall impression that the authors leave is that little has been done to make use of these valuable pieces of evidence. After all, “historians …. have turned to a familiar constellation of sources,” but they “ hope that this is about to change” as a result of their work. It is this implication that they are boldly going where no historians have gone before that is the problem.  There are already a number of extensive collections of digitized fugitive slave ads that, unlike their project, are already available to people. Moreover, historians have long regarded fugitive slave ads as an important source. Some economic historians have created databases including tens of thousands of ads to conduct their research. Bellow I provide a list of some of the digitization projects and historical scholarship related to runaway slave ads.

Can runaway slave ads change the way we study slavery? Yes. I know this because they already have. Why don’t the authors just acknowledge the contributions of the numerous scholars that have already worked on fugitive slave ads? They could simply state that despite all these previous efforts none has yet created a truly comprehensive database that is accessible to everyone. That would be true, and if they were able to create such a database it would be a considerable achievement. But that is not the way of the new history of capitalism. Instead, the approach is to ignore or deny the work of earlier scholars in order to claim false novelty for their own work. 

North Carolina Runaway Slave Advertisements 1751-1840

“The North Carolina Runaway Slave Advertisements project provides online access to all known runaway slave advertisements (more than 2300 items) published in North Carolina newspapers from 1751 to 1840. These brief ads provide a glimpse into the social, economic, and cultural world of the American slave system and the specific experience within North Carolina. Working from microfilmed copies of these rare publications, the project team scanned the ads to provide digital images, create full-text transcripts and descriptive metadata, and develop a searchable database. The NCRSA website includes digital scans of the ads, contextual essays to address their historical research value, full text transcripts, an annotated bibliography to aid researchers, and a searchable database.”

Texas Runaway Slave Project

“The Texas Runaway Slave Project (TRSP) is a database of runaway slave advertisements, articles and notices from newspapers published in Texas. The project has so far documented the names of over 1400 runaway slaves from Texas.”

Louisiana Runaway Slave Advertisements

“The “Louisiana Runaway Slave Advertisements, 1836-1865” collection is a comprehensive digital collection of advertisements and notices harvested from the newspapers digitized as part of the Digitizing Louisiana Newspapers Project.  In these advertisements people from Louisiana and the Lower Mississippi Valley demonstrate their agency and resistance against the institutions of slavery and indentured servitude.

The project team identified and cropped advertisements directly from the digital newspaper images, and they created full-text transcriptions and descriptive metadata.”

Documenting Runaway Slaves

“The Documenting Runaway Slaves (DRS) research project is a collaborative effort to document newspaper advertisements placed by masters seeking the capture and return of runaway slaves. Dr. Max Grivno and Dr. Douglas Chambers, lead researchers and faculty members in the Southern Miss Department of History, are focusing their pilot project on Mississippi, but plans are already in place to expand the research to the larger Gulf South, the rest of the southern United States, the Caribbean, and Brazil.

The Geography of Slavery

“The Geography of Slavery in Virginia is a digital collection of advertisements for runaway and captured slaves and servants in 18th- and 19th-century Virginia newspapers. Building on the rich descriptions of individual slaves and servants in the ads, the project offers a personal, geographical and documentary context for the study of slavery in Virginia, from colonial times to the Civil War.”

Hodges, Graham Russell, and Alan Edward Brown. " Pretends to be Free": Runaway Slave Advertisements from Colonial and Revolutionary New York and New Jersey. Taylor & Francis, 1994.

Smith, Billy Gordon, and Richard Wojtowicz. Blacks who Stole Themselves: Advertisments for Runaways in the Pennsylvania Gazette, 1728-1790. University of Pennsylvania Press, 1989.

Prude, Jonathan. "To Look upon the" Lower Sort": Runaway Ads and the Appearance of Unfree Laborers in America, 1750-1800." The Journal of American History 78.1 (1991): 124-159.

Dittmar, Jeremiah, and Suresh Naidu. Contested Property: Fugitive Slaves in the Antebellum US South. Working paper, Columbia University (September 2012), 2012. Dittmar and Naidu collected more than 20,000 ads.

Komlos, John. "The Height of Runaway Slaves in Colonial America, 1720-1770." Stature, Living Standards, and Economic Development: Essays in Anthropometric History, ed. John Komlos (Chicago: University of Chicago Press, 1994) (1994): 93-116. Komlos collected more than 10,000 ads.

Loan Sharks

(Chicago Tribune Nov. 7, 1897)

Discussion about restricting payday lending has been in the news recently.

We first became interested in how states regulated attempts to collect debts from wage earners because bankruptcy rates look like this (see Hansen and Hansen 2012) Where it is easy to collect a large portion of someone’s wages people are more likely to file for bankruptcy.

As best I can tell, something like payday lending has existed about as long as paydays have existed. And as long as there has been payday lending, people have worried about the negative consequences of it and tried to place restrictions on it. In the late nineteenth and early twentieth centuries, many state legislatures restricted the ability to use garnishment or wage assignment. A wage assignment was a written statement that allowed the lender to collect from your employer if you did not pay. Some states prohibited wage assignments, others required spousal approval, or placed limits on the amount of wages that could be assigned. Some employers also attempted to prevent them. Armour, for instance required employees to sign a statement saying they would not assign their wages.

One problem states faced in regulating small lending was due process challenges. In addition to the due process clause in U.S. constitution many states also have due process clauses in their constitutions. The legal arguments involved substantive due process, which tends to raise fundamental questions about the appropriate role and operation of government. (See Hansen and Hansen 2014 on the evolution of garnishment and wage assignment in Illinois)

Due process clauses tend to say something like “no one may be deprived of life, liberty, or property without due process of law.” The first thing to note is that you can be deprived life, liberty and property. It just has to be done the right way. What does due process mean? There are two aspects: procedural due process and substantive due process. Procedural is what most people tend to think of when they think of due process. Did the state follow the rules? Did you, for instance, have access to an attorney? You will not find substantive due process in the constitution. It is a name given to what courts were doing. Consequently, people can disagree about exactly what it is. The description that best fits cases that I have read is that the court asks if the regulation is a reasonable means to obtain a legitimate public purpose. So, in the case of wage assignment restrictions, there was no question that the rights of the wage earner and the lender were being restricted. The problem to court faced was determining whether the restriction was a reasonable means to obtain legitimate public purpose. Some courts said that there was no state interest in interfering with how a grown man used his wages. Others said that there was a legitimate public purpose because loan sharks impoverished the working poor who then became a burden on the public. Behind the question of whether a regulation of “loan sharks” is a legitimate public purpose is an even more fundamental question: Who decides what a legitimate public purpose is?  Is it the legislature or the court? Courts went back and forth on this until the 1930s. Since the 1930s, courts have made a distinction between what they regard as economic rights and what they regard as civil rights. On economic rights they defer to the legislature. Consequently, cases like Kelo that may surprise the public should not surprise people familiar with American legal history.    I think legislatures are generally less restricted in their ability to regulate small lenders than they were in the early twentieth century. Moreover, the federal government been in the business of trying to eliminate loan sharks at least since the 1968 Consumer Credit Protection Act. 

On the other hand, I don’t think the fundamental economics has changed much. There are three basic problems: low income people often need to borrow money, they have no security for a loan other than their future wages (and sometimes a car), and it is expensive to lend to low income people. As I noted before, the problem is not new. People often focus on the interest rates and suggest that lenders are making extraordinary profits by exploiting the poor. The alternative explanation is that the interest rates are high because the cost of providing such loans is high. I tend to lean toward the second explanation. The primary reason I lean toward the second explanation is that I don’t see substantial barriers to entry in small lending. If a lender is making extraordinary profits by lending at an implicit rate of say 30%, why doesn’t another lender enter the market, charge 28%, attract all the customers, and make a real killing? Why don’t banks enter the market? They have reputation for liking profits. Moreover, why doesn’t someone start a non-profit payday lender? The non-profit should be able to easily cover its costs and provide lower cost loans to people. Actually, people have tried things like this and failed. They found that it was more costly than they anticipated. There are several good reasons why it is costly. First, the loans are small, which means the administrative cost tend to be a large fraction of the loan. Second, unlike banks that lend other people’s money, payday lenders lend their own money, and thus have a lower rate of return on capital.

So, what should be done? I don’t know. What I do know is that getting rid of payday lenders will not get rid of the need that low income people often have to borrow, and the more that you restrict legal options, the more room there will be for illegal options. What we shouldn't do is take away the option without providing an alternative and then pat ourselves on the back as if we solved the problem.

P.S. Usury laws have also restricted the ability to legally make loans to low income wage earners. They existed throughout most of American history (see Rockoff 2003 on the history of usury laws and Benmelech and Moskowitz 2010   on the political economy of usury laws. 

Economic and Business History Society

I first presented a paper at EBHS in 1996 in Savannah. My first, publication was in Essays in Economic and Business History. I go to the meeting whenever I can take the train or drive in a reasonable amount of time (say 12 hours or so), and I have published a couple more papers in Essays. EBHS has changed a great deal over the last twenty years. It has become much more international. Many of the members come from Europe, and there is an increasing number from Asia. Every other year the meeting is held outside the United States. This year it was in Montreal. Next year it will be in Oklahoma City, and in 2018 it will be in Finland. The editors of Essays have made it an open access online journal, with an impressive editorial board. What hasn’t changed is that the EBHS meeting always demonstrates that historians and economists (and even some business types) can coexist, not just peacefully, but happily and productively. As long as the methodology seems appropriate for the question, people just want to hear what you have to say. The sessions are well attended, and the questions and comments are thoughtful. EBHS is particularly welcoming of people just starting their academic careers.

This year

Fan Fei won the Lynne Doti award  for the best paper by a graduate student for his work on interstate highways and the decline of general stores. Fei is graduate student in the Economics Department at Michigan. You can find his job market paper here.

Soudeh Mirgashemi won the Fred Batemen prize for the best paper for her work on dams and agricultural development in the West in the early twentieth century.  She did her Ph. D. at Arizona and just finished her first year teaching at Hofstra. Soudeh presented at the same session as Nikola Tynan and Leslie Tomory. Nikola’s paper (coauthored with Brian Beach and Werner Troesken) showed a large drop in typhoid deaths following municipalization of water works in English cities. Leslie presented work on the history of the London water supply. I found it interesting that he said he began the work after he finished a book on the gas industry. Since Werner also started with the gas industry (the Chicago gas trust) it suggests there are economies of scope involved in the study of networks of pipe.   

Brad Sturgill and Dan Giedeman won the James Soltow Award for the best paper published in Essays the previous year.  

Economics still needs better critics

I just got back from the meeting of the Economic and Business History Society in Montreal, and I was going to blog about that, but then someone tweeted about this stupid essay at Evonomics. Eric Beinhocker writes about the problems with traditional economics and the benefits of the new economics. The primary problem with his essay is that his description of traditional economics is what would generally be referred to as bullshit.  He conveniently provides a table from his book, The Origin of Wealth, which I was fortunate enough to have never heard of before.

Pick any element you want. For instance the first one declares that traditional economics assumes that everyone has perfect information. Really? Even principles textbooks cover imperfect information and uncertainty. For Dynamics, he states that traditional economics assumes that the “The Economy automatically goes to equilibrium where social welfare is maximized.” Find me a principles textbook that doesn’t cover externalities, public goods, and monopoly. I like his description of the New Economics even better. “Economy is a highly dynamic system that can go far from equilibrium and become trapped in a suboptimal state.” It can become trapped in a state that is far from equilibrium? Does this guy not know what equilibrium means? Stability is the essential characteristic of equilibrium. In the absence of some sort of shock the situation won’t change. Later he refers to market failures, but he does so at the same time that he declares traditional economics assumes a natural tendency toward efficiency. Market failure is a situation in which the market equilibrium is inefficient. Moreover, equilibrium is a property of models, not reality. Reality is never stable. Equilibrium is nevertheless useful for helping us to consider the direction of change and possible unintended consequences.  In the case of innovation, what he ascribes to new economics is a feature of traditional economics and what he ascribes to traditional economics is not. Traditional economists have long studied the factors that are likely to encourage or impede innovation.

He describes one of the implications of new economic thinking for policy as follows:

Regulators take an action to address a perceived problem, that changes the perceptions and actions of market participants, which in turn creates a new set of problems triggering further regulator actions, and so on. Over time this infinite chase between fallible regulators and equally fallible market participants leaves a trail of rules, structures, and institutions that has a major effect on shaping the evolution of the economy.

Ironically, this is pretty much a description of my paper "LearningTo Tax: The Political Economy of the Opium Trade in Iran, 1921-1941," Journal of Economic History 61(March 2001):95-113. It is ironic because I regard myself as a pretty traditional economist. I see this paper, and most of my work on history and institutions, as building on traditional economics not refuting it.

I have taught pretty traditional principles of microeconomics for more than a quarter century, and I still believe that those simple models provide a great deal of value to students. 

I'll try to write about EBHS and Montreal later today.

Science Fiction and Economics

My friend John McAdams said that he was going to internet stalk me this week. This post is for him.

The Relationship Between Science Fiction and Economics

A List of the 50 Essential Science Fiction Books

Random Economic History Stuff

1. I will be in Montreal this week at the meeting of the Economic and Business History Society. Here is the program. I’ll be presenting a paper on “Trust Company Failures in New York State, 1875-1925.”

Abstract

Despite what appeared to be lax regulation and rapid growth, trust companies rarely failed. These few failures, however, provide a path to understanding the overall success of trust companies in New York in the late nineteenth and early twentieth centuries. Failures played a disproportionate role in shaping the rules and regulations that governed trust companies, and the resolution of each failure provided additional information about how the laws and regulations would be implemented. These failures shed light on issues of corporate governance and financial stability that are still relevant today.

2. This blog made the Intelligent Economist’s list of The Top 100 Economics Blogs of 2016.

Anton Howe’s Capitalism’s Cradle is another economic history focused blog on the list.

3. Pseudoerasmus' blog, which should also be on the list, has some new posts: Did Inequality Cause the First World War?; Inequality and the First Globalization, and Economic History Readings

4. By the way, for those of you who do not know, Pseudoerasmus is the name of a person who blogs and tweets, mostly about economic history and development. Most people seem to assume that that Pseudoerasmus is a pseudonym. Consequently, some people refer to him as an anonymous blogger.

He recently contributed to discussion about the history of capitalism at the Junto and published a long blogpost about the Lenin-Hobson theory of World War I as it appears in Branko Milanovic’s recent book.

Richard Drayton argued with Pseudoerasmus in the comments section over at the Junto. Drayton concluded his part of the exchange with the following:

I’m rather intrigued by a chap, and there’s too much chap coming out of your prose for me to go for gender neutral pronoun, who spends so much of his time writing aggressive anonymous critiques of — and these are only the ones I’ve noticed — David Armitage, Steve Pincus, Ed Baptist, Sven Beckert. These are, or have become, high profile figures, who have produced substantial original work which has been widely received and even often forcefully and critically responded to. Why not publish these pieces with your name behind it? It begins to look rather mean spirited, even envious, and as if you are afraid to defend your position in public, or afraid that somehow whoever you are would diminish the respect with which your opinions are received?

Reply

I, on the other hand, am intrigued by a chap who seems so much more concerned with who people are than with what they have to say. The last line is the most intriguing.  Are you “afraid that somehow whoever you are would diminish the respect with which your opinions are received?” What does that mean? Are we absolved from considering the logic and evidence that someone presents if they are not a high profile figure? Or, perhaps he just takes the same approach to argument  that people like Baptist and Cowie do. All you have to do is note that someone is an economist (or a sociologist in the case of John Clegg) before dismissing their argument.

Milanovic’s response to the blogpost by Pseudoerasmus challenging his interpretation of the cause of World War I was to retweet it.

New Institutional Economics and Economic History

The University of Wisconsin La Crosse has posted several videos of talks given at a conference there on New Institutional Economics and Economic History

JOHN NYE (GEORGE MASON UNIVERSITY) “HUMAN CAPITAL, BIOLOGY, AND INSTITUTIONS” COMMENT: JOHN WALLIS (UNIVERSITY OF MARYLAND)

PHIL KEEFER (INTER-AMERICAN DEVELOPMENT BANK) “COME TOGETHER? ECONOMIC DEVELOPMENT AND THE CHALLENGE OF COLLECTIVE ACTION” COMMENT: F. ANDREW HANSSEN (CLEMSON UNIVERSITY)

GARY LIBECAP (UNIVERSITY OF CALIFORNIA-SANTA BARBARA) “THE ROLE OF INSTITUTIONS AND HISTORICAL ANALYSIS IN ADDRESSING CONTEMPORARY PROBLEMS” COMMENT: F. ANDREW HANSSEN (CLEMSON UNIVERSITY)

KEYNOTE ADDRESS: LEE ALSTON (UNIVERSITY OF INDIANA) “WHERE THE PATHS INTERSECT? ECONOMIC HISTORY AND THE NEW INSTITUTIONAL ECONOMICS" COMMENT: JOHN WALLIS (UNIVERSITY OF MARYLAND)

The Ironic Origins of Libertarianism

From I Chose Liberty: Autobiographies of Contemporary Libertarians

“some liberty-loving soul had donated a copy of John Hospers’s Libertarianism: A Political Philosophy for Tomorrow (1971) to my local public library. While I doubt I would find Hospers’s book impressive today, at the time it was a thrilling read. I had never heard the “standard libertarian arguments” before. (Bryan Caplan)

 “When I was about thirteen, I decided I wanted to read all of the good books in the public library. …. At the public library I found Ayn Rand; my grandmother also recommended her to me. Capitalism: The Unknown Ideal had a big influence on me, as did Atlas Shrugged. Hayek and Rothbard followed shortly thereafter.” (Tyler Cowen)

“I had some unusual early influences. In the eighth grade I borrowed an H.L. Mencken book from the city library. I couldn’t understand why everybody didn’t think and write like he did. Also, I became enamored of the Barry Goldwater legend.” (Karen De Coster) 

“That experience led me to the public library and a host of books on economics, one of which was a book whose table of contents I could not understand and which had never before even been checked out: Mises’s Human Action.” (Robert Formaini) 

capitalism, institutions, and history

Related to yesterday’s post, here are a couple of reviews of Geoff Hodgson’s Conceptualizing Capitalism by Christian Barrere and Mehmet Kerem Coban.

Speaking of Geoff Hodgson (editor of the Journal of Institutional Economics), I just got an email from Cambridge University Press letting me know that BRADLEY A. HANSEN and MARY ESCHELBACH HANSEN (2016). The historian's craft and economics. Journal of Institutional Economics, 12, pp 349-370 was just published.

Is capitalism a useful concept?

Thanks to Tom Cutterham at the Junto for blogging about the Capitalism and Slavery session at the meeting of the Organization of American Historians.

I have been very critical of the “New History of Capitalism” NHC, which is the label that has been applied to much of the recent work in this area. Mostly, I have criticized it because it is bad history. The worst problems are that they tend to provide misleading historiography and simply make things up. The description of Beckert’s talk doesn’t do anything to alleviate these concerns.

It is particularly ironic that Beckert should point to “an active act of forgetting” since that is largely what he has been promoting. Rather than developing a truly novel argument, Beckert has simply tried to wipe out the work of earlier historians. The role of force has been prominent in the work of numerous scholars from Carlo Cippola’s Guns, Sails and Empire, to O’Rourke and Findlay’s Power and Plenty, and even Jared Diamond’s Guns, Germs and Steel. The use of force to maximize profits is the essence of Fogel’s analysis of slavery, which he repeatedly referred to as a dynamic capitalist system.  It is not just traditional economic historians that actively forgotten, John Clegg and  Peter James Hudson show how Beckert and Baptist also disregard the work of radical scholars.

The work of Edward Baptist is built on an even more misleading myth, the myth that he is telling the half that has never been told. Rather than responding to criticisms of his argument and evidence claims that people who disagree with him refuse to accept the legitimacy of slave testimony. Ed Baptist speaks for the enslaved, like the Lorax speaks for the trees. If you disagree with him you are denying the voice of enslaved people. The fundamental problem with Baptist’s claim is that the story has been told. Unlike the trees, enslaved people spoke for themselves. Charles Ball and Solomon Northrup don’t need to be filtered through Baptist. The half has been told. If you haven’t heard it, it’s because you chose not to listen until a professor at a prestigious university said it. Moreover, the economic historians that disagree with Baptist have not at any point rejected the statements of former slaves about the brutality of slaveholders. Their arguments are premised on the belief that enslaved people were brutally beaten to force them to work at maximum effort. Instead they argue that these accounts by former slaves to not provide evidence that increases in productivity were the result of improvements in torture that led to improvements in picking techniques over time.     

Even if the most prominent authors in this field were not doing really bad history, one can question the extent to which capitalism is a useful construct for analysis. In this regard, Caitlin Rosenthal’s attempt to define capitalism is an interesting development among new historians of capitalism and I am curious to see how it plays out. It is new development because to the extent that other historians follow her, I think it will force people to confront the more fundamental question: Is capitalism a useful concept for the analysis of societies?

Up to this point NHC have acted as if it is, but it is not clear to me that the work supports this conclusion. Beckert provides a good illustration of the problem. Beckert asserts that capitalism is not necessarily characterized by the things people normally associate with it:  wage labor, markets and contracts, property rights, and the rule of law. Sometimes it is associated with these things, but sometimes it is not. There are different capitalisms with different characteristics. But what makes a system capitalist as opposed to something else?  When discussing the expansion of cotton production in the Soviet Union, he explains that “Such recourse to the state in postcolonial and postcapitalist societies was not a return to the war capitalism of the eighteenth and early nineteenth centuries, but a sharpening of the tools and an enhancing of the methods of industrial capitalism.” (page 436) If the Soviet Union provides an illustration of industrial capitalism I’m left wondering if there is anything that is not capitalism. And if everything is capitalism what does the concept add to our understanding? Rather than using it as a tool, Beckert seems to toss the word capitalism in every once and a while, occasionally changing the adjective in front of it, to add a little flavor to the dish.  I think it is this sort of use of capitalism that prompted Lou Galambos to suggest that the NHC was primarily a clever marketing ploy.

Personally, I am skeptical of the extent to which capitalism can be a useful analytical concept. Economists, economic historians, and business historians do not seem to me to have had much success with it as a tool for analysis. Economics departments used to frequently have courses on Comparative Economic Systems, which were largely about comparing capitalism and socialism. Even before the fall of the Soviet Union and China’s turn toward markets these courses seemed to be running into a dead end. The differences among the capitalist and socialist countries often seemed more relevant the similarities. Economists generally turned to the analysis of specific institutions, rather than trying to classify entire systems.  It seems to me that much of the recent work in economic history has tended to undermine simple notions about capitalism. Things like individualism and private property seem to predate what had been thought of as the emergence of capitalism in England, and a lot of work since Pomeranz Great Divergence has challenged conventional notions about the significant differences between the West and the Rest.

I am not suggesting that historians abandon the study of capitalism. Historians can’t really avoid studying capitalism. “Capitalism” is a term that people have used for a long time to express their beliefs about certain kinds of economic systems since the early 19^th century (according to my very old copy of Raymond Williams Keywords). To the extent that ideas about “capitalism” have played an important role in shaping people’s thoughts and actions historians must study “capitalism.” But, at least for the most part, this hasn’t been what the “new historians of capitalism” have been doing. The NHC treat capitalism as an analytic concept. They write as if there is an objective thing called capitalism that by means of historical analysis they can make concrete statements about. 

Behavioral Whatever

I’m going to start a new discipline called behavioral physics. Unlike traditional physics, which assumes that objects just fly apart from each other, behavioral physicists recognize that a phenomenon they call “gravity,” prevents this from happening.  Or maybe I will create behavioral evolutionary biology based upon the concept of natural selection, rather than the assumption that everything just stays the same, which traditional evolutionary biologists rely on. The way a physicist or biologist would feel reading those sentences is the way that I feel most of the times I read about behavioral economics.

The latest irritation is an article from the New York Times about getting doctors to stop over-prescribing antibiotics. Getting doctors to stop over-prescribing antibiotics is a good thing. Personally, I worry more about the negative consequences of overuse of antibiotics than I do about the negative consequences of the overuse of painkillers. On the other hand, their suggestion that they are able to solve this problem because behavioral economics has remedied the flaws of traditional economics is nonsense.

They describe how various attempts to get doctors to stop prescribing unnecessary antibiotics have failed because they “are all based on the assumption that physicians are rational agents who will do the right thing if provided proper information and incentives. But,” they ask, “what if doctors are a little irrational, like the rest of us? They may over-prescribe antibiotics out of an unrealistic fear that the patient could eventually develop complications and need them, or because it is easier than arguing with a patient who insists on getting them.” The situation they just described is practically a definition of a rational choice. Prescribing the antibiotic has a benefit for the doctor (the patient is happy) and no cost to the doctor. 

Nevertheless, they go on to explain that “Over the last few years, our research team has developed several new approaches to reducing unnecessary antibiotic prescribing, drawing on insights from behavioral economics and social psychology. These disciplines acknowledge that people do not always behave rationally and are strongly motivated by social incentives to seek approval from others and compare favorably to their peers.” I have no idea what they mean by rational.  There is nothing irrational about being motivated by social incentives or wanting to compare favorably with peers. One of the characteristics of traditional economics is that economists don’t care what your preferences are, or where they came from.The only thing that is really required for rational behavior is that you respond in predictable ways to changes in the costs and benefits of a choice, which brings us to the interventions they introduced.

In one of their interventions “whenever doctors prescribed an antibiotic that was not clearly called for by the diagnosis, the electronic health record system asked them to provide a short “antibiotic justification note.”” Wait a minute, did they just say that they increased the cost to the doctor of prescribing an unnecessary antibiotic, and doctors chose to write less unnecessary prescriptions. Let me see if I’ve got this straight. As the cost of doing something increases, other things equal, people will do it less. Thank God for behavioral economics. If only someone had thought of this before, they could have given it a name like “the law of demand” and taught it in every principles of economics course.

Next week, I think I’ll invent behavioral history, which, unlike traditional history, relies on critical analysis of primary sources. You can play along too. It’s easy. Take any discipline, x. Identify one of the primary features of that discipline, y. Assert, contrary to all evidence, that x does not do y. Claim that the new discipline “behavioral x” does y. Repackage some standard results from x as startling new results of “behavioral x.”

Stories about economic historians

Here is an article in the Chronicle of Higher Education about Deirdre McCloskey. I have to say that I feel the same way about Deirdre’s recent work that Jim Holt does: "She has read the library, and won’t let you forget it." I am afraid many people no longer enjoy listening to her, even when she might be right. The problem is less the move away from cliometrics and toward culture than it is the voice that she chooses to use. Here, for instance is Noah Smith’s reaction to McCloskey’s review of Piketty.

This is a long but fascinating story about the economic historian Nathaniel Leff.

New York City Trust Companies

I am working on a paper about trust company failures in New York State between 1875 and 1925, which I will be presenting at the meeting of the Economic and Business History Society in Montreal. I ran across a bunch of illustrations stored on my computer that I had collected while working on the Panic of 1907. Since they did not make it in to the paper in Business History Review  (here is an earlier ungated version) I decided to post some of them here.

Here are two maps showing the location of trust companies in Manhattan in 1907. They were created by Karen Hogan, who was a Geography major here at the University of Mary Washington. They illustrate the geographic difference between the traditional downtown trust companies and the uptown trust companies that experienced most of the runs.

These two are pictures of runs on the Trust Company of America and the Lincoln Trust Company from the New York Tribune on October 24 and 25, 1907.

Here are two pictures of the main office of the Knickerbocker Trust Company. One shows how it looked in 1893; the other shows how the main branch looked in 1907. They illustrate the rapid growth of the first of the uptown trust companies.

This is an advertisement from the Van Norden Trust Company, the furthest uptown of the uptown trust companies. It illustrates how much their strategy differed from the focus of traditional trust companies on business clients.

Recent Essays on Slavery and the "New" History of Capitalism

Robert Wright asked Does Enslaving Others Help the Economy or Not? at a Historians Against Slavery Symposium. He argues that the claim that slavery was the driving force behind economic growth is both wrong and potentially dangerous:

“These good folks are trying to lay the grounds for reparations but at the same time putting living people at increased risk of enslavement by providing developing world officials with yet another reason not to clamp down on human trafficking, debt peonage, child soldiering, and so forth. If slavery made the U.S. wealthy, as Baptist and his buddies claim, such officials reason, then aren’tantislavery efforts just another imperialist attempt to keep their nations impoverished? Perhaps slavery should even be encouraged. Maybe slavery is immoral, they reason, but the ends justify the means.”

I have previously addressed the argument that slave produced cotton as a driving force in American economic development. I would also say that it is not clear to me why the benefits to slaveholders, or non-slaveholders who benefited, are relevant to the issue of reparations. My understanding of the law (at least in countries with a common law tradition) is that compensation should be based on the damage done to the party that was harmed not on the benefit gained by the person that caused the harm. If your negligence causes an accident in which I am injured I seek compensation for the damage done to me: my medical expenses, lost wages, pain and suffering, etc. It is no defense on your part to claim that you gained only minor benefit from your negligence.

The Racist Dawn of Capitalism by Peter James Hudson reviews books by Beckert, Baptist, Johnson, and Draper. On Baptist he writes

“This “half” has, in fact, been told—multiple times and more often than not by black writers, some of whom are fleetingly mentioned in Baptist’s footnotes. But the claim that African Americans built the world is simply wrong. Baptist’s book is marked by such rhetorical excesses, which lend themselves to a blinkered and narcissistic American exceptionalism. The result is an oversimplified view of capitalism and slavery that ignores the historical contributions to modernity of Africans in the Caribbean and in Africa itself.”

The Eviction Economy

Matthew Desmond wrote an interesting piece in the New York Times, drawing on his new book on eviction, but I’m not sure that the economics implicit in his analysis and the economics implicit in his remedy are consistent.

The analysis seems to be that landlords and lenders are not just earning a profit from dealing with the poor they are earning extraordinary profits from the poor:

“Landlords like Tobin aren’t making money in trailer parks or ghettos in spite of their poverty but because of it. Depressed property values offer lower mortgage payments and tax bills. In poor areas of the cities, rents are lower, too — but not by much. In 2010, the average monthly rent in Milwaukee’s poorest neighborhoods was only $50 less than the citywide median.

Landlords renting to poor families can charge slightly reduced rents but, owing to far lower expenses, still command handsome profits. As a landlord with 114 inner-city units once told me, speaking of an affluent suburb near Milwaukee: “In Brookfield, I lost money. But if you do low-income, you get a steady monthly income.”

He also points out that

“Exploitation is not confined to the housing sector alone. It thrives when it comes to other essentials, like food. Inner-city bodegas take advantage of families’ lack of transportation to increase grocery prices, effectively reducing the value of food stamps. The payday lending industry exploits poor people’s lack of access to credit by offering high-interest loans and collecting over $7 billion a year in fees.”

I say that I am not sure that his remedy, housing vouchers, is consistent with his analysis because while housing vouchers will increase the demand for housing on the part of low income households, it will only increase the supply if the increase in profits attracts more investment. If, however, landlords are already making higher than normal profits and the supply is not increasing, why should we expect the housing vouchers will be able to induce more affordable housing rather than simply going to even higher profits?

I agree there is a problem. But we need to understand the causes of the problem. There are essentially two reasons for high prices (rents or interest rates): either the cost of production is high or there are barriers to competition that enable sellers to earn monopoly profits. If renters are being exploited, in the sense that landlords are getting a greater rate of return than other people who take similar risks, then we need to find out what is preventing others from entering the market. Removal of these barriers to entry should drive down prices and profits. If on the other hand, there are actually high costs associated with lending or renting in low income neighborhoods we need to think about what might be done to reduce those costs. Desmond’s analysis seems to point toward monopoly but his prescription seems to point toward high costs of production.   

One other alternative is that the prices are not actually that high, but many people are still unable to afford them. If that is the case, then the issue is fundamentally one of redistribution. But then the story is not really about exploitation. 

Some thoughts on "Reassembling the Economic"

Kenneth Liparito recently published an essay on “Reassembling the Economic: New Departures in Historical Materialism” in American Historical Review. 

1.       

Lipartito understands North, Wallis and Weingast very differently than I do.

According to Lipartito

“In Violence and Social Orders, North and his co-authors look back over the centuries, concluding that economic growth is fostered by “open access orders.” In these societies, the state relinquishes its monopoly of violence, allowing private institutions to flourish.” (108)

He claims that

“A more balanced assessment of institutions comes from the pens of Daron Acemoglu, an MIT economist, and James Robinson, a Harvard political scientist. In Why Nations Fail, they ambitiously survey world history, cataloguing the political and institutional conditions that lead to good or bad economic outcomes. The pattern they uncover is similar to North’s closed versus open access orders. The main difference is that closed societies, dominated by elites who refuse to share resources and wealth, cannot be blamed solely on the state. Private actors are equally avid in pursuit of rents, and frequently create the type of state that serves their interests. “Wealth creators” in all societies are vested in protecting their positions, and their wealth can be translated into political power.”

In my reading of NWW I don’t see an argument that the state relinquishes its monopoly on violence. To the contrary, what the state relinquishes is direct control over access to and allocation of resources. You don’t get a charter because you are a friend of the King or have connections in Albany; you get a charter because you agree to abide by the same rules as everyone else that gets a charter. The state very much maintains its authority to enforce these rules. The issue is not state versus private power so much as it is getting a state that effectively promotes economic growth.  McCloskey has described her approach to modern economic growth as a story of how culture evolved to encourage more people to “Have a go.” NWW is more about the institutional side of that. By the way, I think both matter, and I know that Doug thought both mattered.

2.       I think Lipartito’s failure to appreciate the recent work by economic historians on the role of the state also limits his view of recent work on the Great Divergence. First it should be noted that recent work suggests that the evidence does not really support a divergence as late as Pomeranz first argued. On the other hand, there is more attention to the diversity of both the European and Asian experiences, and research has definitely moved away from simplistic stories of despotic governments inhibiting growth. The most rapidly growing countries during the early modern period also seem to have been the ones with the most well developed central governments in terms of taxing and spending.  Consequently, economic historians are still very much interested in the role of the state but are more focused on the specific activities they engaged in. See, for instance, recent work by Dincecco; Johnson and Koyama; and Vries; and  Broadberry.

By the way here is Patrick O’Brien on Ten Years of Debate on The Great Divergence after ten years. More generally, a lot of work by O’Brien and others (Broadberry, Deng, and Ma) can be found in the LSE Economic History working papers here.

3.       This is obviously a pet peeve of mine. Lipartito gives far too much credit to the New Historians of Capitalism. For instance, he suggests that because of their work we no longer see Southern slave holders as pre-capitalist the way that Genovese did. The only way to make this statement is to accept the false historiography offered by people like Edward Baptist, who tries to hide the fact that economic historians, going back to the late 1950s, had been accumulating evidence that slave holders acted as profit maximizers. Beckert writes Fogel completely out of the historiography of slavery in the United States. This isn’t just a matter of disagreement about how extensive the references to the prior literature should be. If other people have previously made one of your central arguments you must cite them. If there were a Ten Commandments for academics I am pretty sure that would be one of them. It is also not a conflict between the methods of economists and historians; the podcast Historically Thinking has a great discussion between two historians, Al Zambone and Bob Elder, about the troubling implications of Baptist’s historiography. One can also challenge the assertions about what the new historians of capitalism have brought to the table. I have noted before that Beckert’s book reminds me of the old saying that “There is much here that is new and much that is interesting. Unfortunately, that which is new is not interesting, and that which is interesting is not new.” The interesting parts are the discussions of the industrial revolution (mostly Robert Allen’s theory), the role of force in promoting trade (Findlay and O’Rourke, and others, have made this argument); the capitalist nature of slavery (Conrad and Meyer and Fogel and Engerman said this a long time ago). What’s new is the argument that cotton, slavery, and empire were not just important parts of economic history, they were the key to how the west got rich and capitalism was born. But this is the part of the argument that is least substantiated by evidence.

4.       I’m not sure that Lipartito has found the best way forward. This is in large part because I am not entirely sure what he is trying to say:

This is what I am talking about

The New York Times covered a project by Edward Baptist to collect runaway slave ads. The website for the project states that "Such ads provide significant quantities of individual and collective information about the economic, demographic, social, and cultural history of slavery, but they have never been systematically collected.” I added the underline.

Yet another illustration of the superiority of the New History of Capitalism. Why didn’t economic historians think to use this valuable resource? Why didn’t they try to systematically collect this data? It must be because of their narrow mindedness: their ideological and methodological constraints.

Oh, wait a minute. Here is a link to a working paper by Suresh Naidu and Jeremiah Dittmar based upon the 29,000 runaway slave ads they collected. This isn’t new. They received funding from Institute for New Economic Thinking and they have been presenting the work at conferences for about 4 years now, including the Economic History Association and the Organization of American Historians. 

Earlier, John Komlos had done a study that involved more than 10,000 ads. 

All  of this isn't to say that it is not potentially a good project and one that may add to our knowledge, but can you honestly say that it has never been systematically collected?

for the sake of argument: the evidence against the new history of capitalism

I was referred to the other day in a conversation on Twitter between Adam Ozimek and Marshall Steinbaum about economic history and the New History of Capitalism (NHC). I don’t know either of them, though I did like Ozimek’s Econ Talk with Russ Roberts. Steinbaum asserted that NHC is really the way to go, that NHC people are not playing fast and loose with evidence, and that “Economic history is constrained by methodological narrow-mindedness and thus circumscribed,” whereas “HoC actually entertains arguments that simply don't get a hearing in Econ, thanks to ideology,” He also claimed that the competence and honesty of econ is in question and that my response to Cowie is just more economist overreaction to “apt criticism.” Ozimek wanted someone to argue with Steinbaum. Twitter isn’t really well suited for argument; a real argument should have at least clear claims and evidence. Moreover, I haven’t seen any indication that the NHC people are interested in real argument.

In the interest of real argument, however, I will try to make clear the evidence behind my claims about NHC. The other day I claimed that “The primary features of the new history of capitalism seem to be hostility toward economics (including economic historians), ignorance or disregard of the work done by economic historians, and a willingness to play fast and loose with numbers.”

Perhaps someone can explain why these examples do not represent a problem with the NHC and then provide specific examples of how methodological narrow-mindedness and ideology are constraining economic historians. Later I’ll try to make the positive case for economic history.

Hostility Toward Economics:

Introduction, Zakim and Kornblith Capitalism Takes Command page 5: “The cliometric habits of economic historians are a case in point, for they consistently flatten the history of market society by “bracketing” whatever proves too difficult to integrate into a quantifiable universe of price series, wage averages, or productivity regressions. Long arcs of development resting on “data” retrofitted into axiomatic categories of growth or stagnation, invariably result in highly cogent patterns of secular change. The revolutionary disruptions essential to “capitalism” reorganization of society―conflicts over the very forms of capital and their legitimacy, or the political negotiation over the boundaries of property rights and contractual obligations, or concern over the effects of competition on the civic life of the polis―are then dismissed as exogenous to the organic logic of exchange, and so irrelevant to a history of the economy. That is why studies in economic history so often reproduce capitalist ideology itself, separating economic activity out from the murky realms of the unmeasureable and assigning it an autonomous operating principle.”

Baptist page 72 of Capitalism takes Command: “the evidence strongly suggests that –left to their own devices –neither economists nor the banking dynasts they often serve have learned the lessons of the past.”

And of course one can refer to Cowie’s essay. None of these claims are backed by specific cases.

Disregarding the Work of Economic Historians:

Baptist claims that economists and historians have accepted the claim that slavery was inefficient. One of his primary claims in Half Has Never is that he shows, contrary to what all these economists believe, that slave owners were profit seekers and slavery was dynamic capitalist system. Thanks to surveys conducted by Bob Whaples  it is demonstrably false that economic historians believed that slavery was an inefficient pre-capitalist system. Baptist can only make the claim by disregarding the mountain of work produced by economic historians, going back to Conrad and Meyer in 1958.

Beckert writes about slavery without referring to Fogel and about the use of force in spreading markets without citing Findlay and O’Rourke.

Hyman on p. 27 of Borrow cites Pete Daniel “Shadow of Slavery” that debt peonage trapped sharecroppers in “grueling oppressive lives” but does not cite the seminal work of Ransom and Sutch on debt peonage.

Playing Fast and Loose With Numbers:

 Julia Ott, When Wall Street Met Main Street, first page of the first chapter: "Severe financial panics in 1873 and 1893 punctuated a prolonged economic depression, as prices, profits, per capita output and productivity growth fell steadily from 1873 to 1896." Not true. If you don’t already know that this isn’t true see measuringworth.com

Louis Hyman page 18 Borrow: The American Way of Debt “Though a national bank was founded in 1791, its first incarnation lasted only forty years as Jacksonian populism triumphed over federalism.” There were two separate banks. You can see the physical evidence of this if you visit Philadelphia.

Here is Edward Baptist’s nonsense exercise in national income accounting:

“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.”

Again, the biggest problem is not that he does not understand national income accounting (he obviously does not); the biggest problem is that he is just making up numbers.

Both Baptist and Beckert note that cotton was the majority of U.S. exports, but do not note that exports were a small part of the American economy.

Olmstead and Rhode presented extensive analysis of the NHC misuse of quantification in a paper presented at the Cliometric Society session at ASSA. Anyone really interested in the topic should contact them about their working paper on the topic.

In the end, my problem with the new history of capitalism isn’t so much the bad economics as it is the bad history. What makes for good history? There are actually a lot of things that go into making good history, but I think that the most essential is a critical approach to sources, both primary and secondary. History majors at University of Mary Washington take a two course sequence in historical methods. The first course focuses on historiography. The second course focuses on the use of primary sources. The new historians of capitalism need to retake both.

I have no problem with legitimate criticism of economics or economic history. I have been known to criticize them myself. See, for instance, here. And if you think I am some right wing ideologue that hates the NHC people because they criticize capitalism, see here and here for my response to free market economists who misuse history. The difference between my criticism of economics, economic history or NHC and their criticism of economic history is that I point to a specific problem, provide evidence that it exists, and show that the problem has led to erroneous conclusions. The NHC critiques of economics provide no evidence. 

What are the important questions or topics are economic historians are not working on because of ideology or methodological narrowness? Is it slavery and coercion? See Fogel or Fenoaltea. Corruption? See Wallis.  The use of state power? See Findlay and O’Rourke. The importance of ideas? Take a look at Mokyr or McCloskey. Inequaltiy? See Lindert. The development of financial markets and dealing with risk? Where do I even begin? You could claim that economic historian's methods limit the answers they can arrive, but, as  I pointed out earlier, many of the conclusions are the same ones NHC is now taking credit for. 

Finally, I should note that the nature of the NHC claims about economic history make them virtually immune to real argument. After all, how can you believe anything I say when I am obviously just speaking for the banking dynasts that I serve?