Tuesday, November 11, 2014
Sunday, November 9, 2014
Saturday, November 1, 2014
Friday, October 31, 2014
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
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.
Thursday, October 30, 2014
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.
Monday, October 27, 2014
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.
Thursday, October 23, 2014
Wednesday, October 15, 2014
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.
Monday, October 13, 2014
Monday, October 6, 2014
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.
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.
Wednesday, October 1, 2014
What I'm Listening To
A really interesting Junto Cast on Bernard Bailyn's The Ideological Origins of the American Revolution.
Sunday, September 21, 2014
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.
Thursday, September 11, 2014
The Dismal Science
In the Los Angeles Times Hector Tobar writes that "In "The Half Has Never Been Told," Baptist adds many new, stark and essential elements to that story. His most important achievement is to show us how the "dismal science" of economics served to make the lot of slaves even grimmer."
If Baptist were to do this it would be a nice trick. Thomas Carlyle was the one who named economics the dismal science. What did he find dismal about it? He thought it was dismal that economic theory did not provide support for slavery and that economists like John Stuart Mill supported emancipation.
I think there are a number of problems with Baptist's book, but I suspect this quote just reflects Tobar's ignorance.
If Baptist were to do this it would be a nice trick. Thomas Carlyle was the one who named economics the dismal science. What did he find dismal about it? He thought it was dismal that economic theory did not provide support for slavery and that economists like John Stuart Mill supported emancipation.
I think there are a number of problems with Baptist's book, but I suspect this quote just reflects Tobar's ignorance.
Wednesday, September 3, 2014
Tuesday, June 24, 2014
The truth about student debt
The Reality of Student Debt in the New York Times
"the share of income that young adults are devoting to loan repayment has remained fairly steady over the last two decades, according to data the Brookings Institutions is releasing on Tuesday. Only 7 percent of young-adult households with education debt have $50,000 or more of it. By contrast, 58 percent of such households have less than $10,000 in debt, and an additional 18 percent have between $10,000 and $20,000."
"the share of income that young adults are devoting to loan repayment has remained fairly steady over the last two decades, according to data the Brookings Institutions is releasing on Tuesday. Only 7 percent of young-adult households with education debt have $50,000 or more of it. By contrast, 58 percent of such households have less than $10,000 in debt, and an additional 18 percent have between $10,000 and $20,000."
Thursday, June 5, 2014
For what shall it profit a university if it shall gain AACSB accreditation and lose its own soul?
Mark Perry argues that the Association to Advance Collegiate Schools of Business is fueling the growth of fraudulent journals by demanding that faculty publish but giving no consideration to where they publish. I am starting believe that he is right.
Friday, February 28, 2014
Evergreen
http://www.insidehighered.com/news/2014/02/28/evergreen-state-colleges-unusual-take-assessment
This sounds like a good idea, but I think the article might
be exaggerating how large a change this is. I graduated from Evergreen in 1984.
For each interdisciplinary program you had to write a self-evaluation and an
evaluation of the program and faculty, and the faculty member that you worked
with wrote an evaluation of you. Each of these evaluations was 2-4 pages.
Written evaluations and serious reflection have always been the norm at
Evergreen. I do, however, think this is a nice addition. It sounds like it asks
students to keep the big picture in mind. It also reminds me a bit of the plans
that my daughter had to do while she was at Bennington.
P.S. I looked at the Evergreen webpage, and it is great to see that Greeners still have the opportunity to work with Tom Rainey and Jeanne Hahn.
HT to Steve Greenlaw
HT to Steve Greenlaw
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