Mostly economic history

Geoffrey Jones on the role of history in business.

Did people in the U.S. actually get shorter during the Industrial Revolution? Maybe not Bodenhorn, Guinnane and Mroz and  Ariell Zimran. (HT @pseudoerasmus)

Pseudoerasmus on famines.

Business History Conference program

Economic History Association program

Special issue of Journal of Financial Stability on alternatives to the Fed. Lawrence White advocates a return to a commodity standardOn the other hand, the St. Louis Fed doesn’t think a return to gold would be such a good idea. . Also, here is George Selgin on 10 things economists should know about the gold standard. Selgin argues out that most of the problems that arose under the gold standard arose less from the gold standard itself than from attempts to interfere with it. I agree with a lot of what he has to say, but I wouldn’t go so far as to say “That U.S. financial crises during the gold standard era had more to do with U.S. financial regulations than with the workings of the gold standard itself is recognized by all competent financial historians.” I do think that U.S. financial regulations were largely responsible for financial crises, but I am not prepared to call anyone who disagrees with me incompetent. Hanes and Rhode, for instance make a case for a combination of  cotton crops and the gold standard.

But I assume if we had a gold standard again governments would interfere with it just like they did back then.  

While I do not regard all advocates of the gold standard as nuts, I am skeptical that it would be a good idea. First, there seemed to be a fair amount of manipulation of gold flows. Attempts by the Bank of England to prevent the outflow of gold played a role in several U.S. Panics, e.g. 1837 and 1907, and Irwin has made a case that France’s sterilization of gold inflows played a significant role in causing the Great Depression. Second, when push comes to shove, countries abandon the gold standard. In other words, it’s not obvious why a commitment to uphold a commodity standard should be more convincing than a commitment to strictly adhere to a rule to target money supply growth, inflation, NGDP, or something else.   

 

And here is another take on the Alice Goffman controversy.

What is a rational choice?

 Many people know that economists use models of rational choice. But what does that mean?

Ruth Marcus explains to her readers that, “Economically speaking, the decision to have children is not utility-maximizing. And yet, most of us — intentionally, passionately, joyfully — make this least rational of choices. More than once.”

The economist Richard Thaler makes similar statements in the New York Times, as well as in his new book

“Economists create this problem with their insistence on studying mythical creatures often known as Homo economicus. I prefer to call them “Econs”— highly intelligent beings that are capable of making the most complex of calculations but are totally lacking in emotions. Think of Mr. Spock in “Star Trek.” In a world of Econs, many things would in fact be irrelevant.”

Thaler goes on to explain that

 “An Econ would not expect a gift on the day of the year in which she happened to get married, or be born. What difference do these arbitrary dates make? In fact, Econs would be perplexed by the idea of gifts. An Econ would know that cash is the best possible gift; it allows the recipient to buy whatever is optimal. But unless you are married to an economist, I don’t advise giving cash on your next anniversary. Come to think of it, even if your spouse is an economist, this is not a great idea.”

The problem is that all this is a bunch of nonsense. Utility simply means satisfaction. If you are doing something “intentionally, passionately, joyfully” it seems fair to assume you are getting a great deal of utility from it. How are people “totally lacking in emotions” going to get satisfaction from anything?

What do economists actually mean by rational choice? I’ll let Gary Becker explain:

“What is meant by rational behavior? Consider first what is not meant. Certainly not that people are necessarily selfish, “economic men” solely concerned with their own well being. That would rule out charity and love for children, spouses, relatives or anyone else, and a model of rational behavior could not be so grossly inconsistent with actual behavior and still be useful. A viable definition of rationality must not exclude charity and love: indeed consistent family behavior probably requires love between family members.

                Also, rationality should not imply that each household’s decisions are necessarily independent of those made by others. Different households are linked ultimately by a common cultural inheritance and background, and they may also be linked in a more proximate way. If household j increases its consumption of X, household I might be led to change its consumption of X. Such interdependencies commonly occur, and should be consistent with our model of rational behavior.

                The essence of the model of rational behavior is contained in just two assumptions: each consumer has an ordered sort of preferences, and he chooses the most preferred position available to him.” Becker Economic Theory pages 25 and 26)

Preferences can, and often are, driven by emotions. Preferences are also influenced by the culture we live in and the people we live with.

The one thing that the rational choice approach does not do is to say what people should want. This, of course, makes the traditional economic approach very different from a behavioral economic approach that seeks to “nudge” people to do what Richard Thaler thinks they should do.   

On The Run and Social Science Research Methods

There has been a lot more about Alice Goffman’s On the Run the last few days.

Lubet’s review

Goffman’s response to Lubet

Lubet’s response to the response

The Volokh Conspiracy

The anonymous 40 page critique of Goffman’s work

Philip Cohen

 

Although, much of the attention has been focused on the issue of her possible criminal conduct, it is the methodology of her project that really concerns me. I have not yet read the book. I have, however, read her paper in the American Sociological Review that was based upon the same research. She claims to have spent six years studying the residents of a neighborhood in Philadelphia. The name of the neighborhood is a pseudonym as are the names of all the individuals. Consequently, it is not possible to verify any of her claims. It is not even possible to check her account against her own field notes. She claims to have destroyed them. All of this is ostensibly to protect the people who are described in the book.

Her entire methodology is so alien to my view of research in the social sciences I find it hard to comprehend. It is not her immersion in the culture of the people she was studying that concerns me. It seems like a legitimate method of qualitiative research. Whether you use qualitative or quantitative methods should be determined by the question you are trying to answer. What puzzles me is the complete lack of accountability. One of the essential elements of good historical research is to be clear about the relationship between your conclusions and the sources that you use. Anyone should be able to follow your trail of sources to see if it leads to your conclusions. Is anyone going to believe you if you say that you use evidence from a secret notebook at an undisclosed archive? Could you write a history dissertation at Princeton based upon a secret diary that you say you destroyed to protect the author’s privacy?  In economics you are generally expected to be ready to present you data to other researchers or have a very good reason why you cannot. The American Economic Review, for instance, expects authors to make their data available. Reinhart and Rogoff got in trouble a while back for a spreadsheet error, but we should not forget that when a graduate student asked for the data they gave it to him. Goffman’s entire body of research appears to depend on “Just trust me.”

I am not saying that she lied. There are troubling inconsistencies within her accounts and between her accounts and other evidence. And her response to Lubet’s suggestion that she had committed a crime only adds another inconsistency. Her account in the book is completely different than the account in her response. Even if there were not inconsistencies, I would be concerned about a methodology that places so much weight trusting the author. The rewards in the social sciences for coming up with results that are deemed interesting and important are considerable. Goffman got a Ph. D. from Princeton, a best dissertation award, a book contract, a publication in the American Sociological Review, a TED talk, and a job at the University of Wisconsin. The temptations to give people what they want are too great to rely upon a methodology that provides no means for subsequent researchers to evaluate the evidence.

 

Note about the anonymous critique: Some might wonder why I am willing to link to an anonymous critique when I have such a problem with the anonymity in Goffman’s work. I have seen discussion on the web suggesting that because this critique is anonymous it should be completely disregarded. I don’t know why the author prefers to remain anonymous. As long as their argument is not based upon their authority I do not really care. The Federalist papers were published under a pseudonym. Gosset’s work on the t distribution was published under a pseudonym. I do not regard anonymity itself as a problem. The anonymous author of the critique does not at any point ask me to just trust them. There is nothing in their argument that hinges on their identity rather than the evidence.

   

Hobbes and GameTheory

In Hobbled by Hobbes Christopher Ryan argues that the anthropological and archeological evidence is inconsistent with Steven Pinker’s interpretation of long term trends in violence. I don’t yet have a firm opinion about that issue, but Ryan also refers to Pinker and others as neo-Hobbesian. He explains that

“For reasons having nothing to do with scientific accuracy, Hobbes’ dire sloganeering about the misery of pre-civilized human life echoes down the centuries. Who among us, three and a half centuries later, has not heard that our ancestors’ lives were “solitary, poor, nasty, brutish and short”? This demonization of human existence in pre-state societies is essential to preserving the legitimacy of God and country—both of which run a protection racket promising to guard us against our own demonic inner nature. Hobbes’ infectious meme is certainly among the most famous phrases ever penned in the English language, and it shows no sign of fading. Indeed, his dismal view of human nature is still being enthusiastically spread by neo-Hobbesian presidents, pundits and professors.”

I have thought for some time that Hobbes view of human nature has been somewhat misinterpreted. In Chapter 11 of Leviathan he describes his view of human nature:

“So that in the first place, I put for a general inclination of all mankind, a perpetual and restless desire of power after power that ceaseth only in death.”

 That does sound like a pretty dismal view of human nature, but then he explains:

“And the cause of this is, is not always that a man hopes for a more intensive delight than he has already attained to; or that he cannot be content with a moderate amount of power; but because he cannot assure the power and means to live well, which he hath at present without the acquisition of more.”

In Hobbes view the problem was less our demonic human nature than that people are essentially a prisoners’ dilemma type game, a multi-person arms race.

Just make it up

I have written several times about how Edward Baptist just makes up numbers for his estimate of the importance of slavery to American economic development. It turns out that he is on to something. Just making things up seems to be very popular in the social sciences now. Here is some recent just making things up in sociology, and here is some recent just making things up in political science. All of these examples share three things in common:

1.       They just made stuff up.

2.       It wasn’t that hard to see that they just made things up.

3.       The all got glowing reviews or awards because their conclusions confirmed the beliefs of the reviewers.

Of course, this isn’t really new

Anthropology

Psychology

More history

Sort of related to economic history

We just spent the weekend driving from Fredericksburg to St. Louis and back (for Mary's parents 60th anniversary). We stayed a night in Louisville because we wanted to eat at 610 Magnolia. The meal was very good, but we wished that there had been more Smoke and Pickles. We stayed a few blocks away from the restaurant at the Culbertson Mansion on 3^rd Street, one of the many amazing homes built along that street in the 1880s and 1890s. Our brief stay made me curious about the economic history of Louisville, particularly the Southern Exposition.

In St. Louis, we discovered the Urban Chestnut Brewing Company. While living in München  in the summer of 1997 I discovered that I had a taste for weissbier, and Urban Chestnut makes a very good one, though Schneider Weisse is still my favorite. If you are in St. Louis, the food at their Bierhall is also quite good.

Some big picture economic history

Robin Grier talks with Marshall Poe about The Long Process of Development: Building Markets and States in Pre Industrial England, Spain and the Colonies her new book with Jerry Hough at the New Books Network. She argues that state capability is an essential (though hard to develop) ingredient for economic growth.

Jeremy Adelman considers “What Caused Capitalism?” as he reviews some recent books.

Education, Economics and History

Here is a nice essay on the benefits of higher education from the New York Times.

 

Also from the New York Times is Mankiw on the economics of trade and the politics of trade.

 

Here is more from Pseudoerasmus on cotton and economic growth, highlighting McCloskey’s argument about the role of cotton in the Industrial Revolution.

 

Speaking of cotton and economic growth, The Half Has Never Been Told won two awards last week. I feel like the boy who said the emperor has no clothes, except I keep saying the Baptist has no evidence.

 

It is not a great work of history; it is not good work of history, and it should be obvious to any historian who reads the book.

 

1.       Baptist misrepresents the historiography of slavery and his references are often missing or misleading.  See also an earlier post of mine and the recent post by Pseudoerasmus

 

2.       Baptist makes glaring factual errors.

 

3.       Baptist does not make a pretense of using evidence to support some of his conclusions. To me the most obvious problem, one that even non-historians should be able to see, is the way that he makes up an estimate of the economic importance of slavery. Many people have suggested that the book shows how slavery was central to the development of the American economy. That argument hinges on this calculation, and the numbers in that calculation are clearly just made up. To me, this tendency to just make things up is the most damning of the problems with the book. Although it can’t be proven, I suspect that every book on history contains some error. We all make mistakes. Consequently, problems with historiography, facts and citation are matters of degree. It is difficult to say at what point such mistakes start to raise doubts about the book as a whole. On the other hand, making up numbers is not a mistake. It is not like misremembering a date, or name, or citation. It demonstrates a fundamental disregard for the role of evidence in historical argument.

What Is Capitalism?

S-USIH.org has the fourth of James Livingston’s essays on What is Called History at the End of Modernity. among other tings, Livingston is interested in recent assertions that slavery was capitalist. Like many of the people who have commented on the essay, I was reminded of the debate between Brenner and Wallerstein in the 1970s, but I also thought of this from Beckert’s Empire of Cotton

 

“In 1980 the Soviet Union produced nearly 6 billion pounds of cotton, making it the world’s largest producer after China. These stratospheric gains—production increased by about 70 percent between 1950 and 1966 alone—were only possible because of massive state investments in irrigation, fertilizers and machinery.

                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 enhancing of the methods of industrial capitalism.” (Empire of Cotton pages 435-36)

Maybe I am reading this the wrong way, but it seems to say that the rapid growth of cotton production in the USSR and China was “a sharpening of the tools and enhancing of the methods of industrial capitalism.” It is not just slavery that is capitalist, communism is capitalist. If communism is capitalism, is capitalism a useful category for the analysis of economies?

Clearly, there is a place for the study of capitalism.  If nothing else, we need to try to understand how people have used the term in different places and times. What is not clear is how useful it is as a tool to analyze economic history.

In economics it seems to me that capitalism has largely gone out of fashion as a useful category for analysis. Economists used to write about capitalism on a regular basis (for example, Schumpeter’s Capitalism, Socialism and Democracy; Friedman’s Capitalism and Freedom; and Williamson’s Economic Institutions of Capitalism).  Many departments of economics offered courses in Comparative Economic Systems that examined the differences between capitalism, communism and socialism. Comparative economic systems courses went out of fashion with the decline of communism. More generally, it wasn’t clear that traditional notions of what capitalism were useful for understanding big questions like growth and distribution.  New institutional economists generally seem to regard the old categories used in comparative economic systems as inadequate.

 

Standards of Accuracy in Historical Scholarship

At H-SHEAR Daniel Feller writes about Standards of Accuracy in Historical Scholarship in recent works by Johnson and Baptist and starts an interesting discussion.

 

Another Rant on Cotton and Growth

This is one of the reasons why books like Empire of Cotton and The Half has Never Been Told irritate me so much. People like Harold Myerson start spreading their misinformation in newspapers like the Washington Post. Myerson writes that

“For much of the 20th century, the prevailing view of the North-South conflict was that it had pitted the increasingly advanced capitalist economy of the North against the pre-modern, quasi-feudal economy of the South. In recent years, however, a spate of new histories has placed the antebellum cotton economy of the South at the very center of 19th-century capitalism. Works such as “Empire of Cotton,” by Harvard historian Sven Beckert, and “The Half Has Never Been Told,” by Cornell University historian Edward E. Baptist, have documented how slave-produced cotton was the largest and most lucrative industry in America’s antebellum economy, the source of the fortunes of New York-based traders and investors and of British manufacturers. The rise in profitability, Baptist shows, resulted in large part from the increased brutalization of the slave work force.”

Was the prevailing view that the South was quasi-feudal? No. Anyone who had read any economic history in the last 60 years knew better.

Was slave produced cotton the largest and most lucrative industry? No. Cotton was the largest export, but not the largest product; both wheat and corn exceeded cotton in the value of crops produced (based on estimates from De Bows Statistical View). Cotton production amounted to about 4 % of GDP.

 

Have they documented how slave produced cotton was the source of the fortunes of New York based traders and investors? No. I think this will be rather difficult for them to do. According to Albion’s Rise of New York Port, in 1860 only $12.4 million worth of cotton was exported from New York, while more than $96 million was exported from New Orleans, smaller southern ports like Charleston and Savanah also exported more cotton than New York. Cotton accounted for a small share of the more than $120 million in exports from New York. Moreover the $233 million in imports that came through New York dwarfed the value of exports from the port. In other words, cotton accounted for a relatively small share of the shipping activity in New York. In addition, while some New York investors no doubt profited from slavery, at least some others saw slavery as a liability in financial markets. When Lewis Curtis of the Farmers Loan and Trust Company wrote to the Rothschilds in June 1838, trying to interest them in bonds to finance railroad construction in Michigan, he underlined that “it is a Free State and Slavery is prohibited.”  I do not know that the Rothschilds cared, but Curtis clearly thought they might. The bottom line is that we do not yet know the extent to which fortunes of New York traders and investors were built on cotton. So far, it has only been asserted; it has not been established with evidence.

Maybe I am wrong, but at least I will tell you what evidence I am basing my conclusions on.

Cheap as Chips

An essay on open access from the blog of the Omohundro Institute.

" Debates about Open Access often take place at a level of abstraction that privileges not simply clichés about technology (“Information wants to be free”) and statements of moral principle (“Impeding the circulation of knowledge hinders human progress”) but also assertions about out-of-control costs.  The comparator in these conversations, in short, is never an order of french fries.  Instead, it’s the thousands upon thousands of dollars charged by commercial publishers for access to STEM journals.  And fair enough.  There are discussions that need to be had about access to scholarship and the transfer of resources from educational institutions to private companies.  (For Karin’s recent contribution to those discussions, see her guest post on the Scholarly Kitchen blog.)  But those conversations must also recognize that there are other realities out there."

Some new stuff

Cohen and Mandler on silent changes to the History Manifesto.

The preliminary program for BHC EBHA is up.

Lindert and Williamson income estimates for colonial America.

Open Access and Predatory Publishing

LSE Impact Blog has an essay by Monica Berger and Jill Cirasella  on Open Access:

“Although predatory publishers predate open access, their recent explosion was expedited by the emergence of fee-charging OA journals. Monica Berger and Jill Cirasella argue that librarians can play an important role in helping researchers to avoid becoming prey. But there remains ambiguity over what makes a publisher predatory. Librarians can help to counteract the misconceptions and alarmism that stymie the acceptance of OA.”

They have some valid points, but there is also much that I disagree with. They spend too much time criticizing Jeffrey Beall for not being sufficiently supportive of OA. In addition, they confuse the issue of low quality and predatory. There are a lot of low quality journals out there, but they do not charge large fees to publish papers on line, they do not advertise that you can have your paper published in a month, they do provide some peer review and editing. They do not face up to the costs of the rush to OA, especially attempts to mandate publication in OA journals.

Open access is not the same thing as predatory. Open access means that people can view a piece of scholarship without having to pay a fee, either directly or indirectly through their school or employer. Predatory journals exist to make money by selling false information. The false information that they sell is that the papers in them have been published in a peer reviewed journal. Academics pay the predatory publisher to say that their paper has been published in a peer reviewed journal; the academics then put the lie into their cvs and their annual activity reports and their tenure and promotion files. After examining a number of these journals I am convinced that it is all too easy tell legitimate publishers from predatory publishers.   The researchers that publish in these fake journals are not being preyed upon; the people that are led to believe that these researchers are publishing in peer reviewed journals are the prey.  Beall’slist is really more of a tool for these people than it is for researchers.

Being open access does not prove that a journal is predatory. Not being open access does not prove that a journal is not predatory. There is, however, a connection between open access and predatory publishers. Legitimate open access journals have created an opportunity for predatory publishers by publishing online and charging fees. Predatory publishers mimic these features, but, unlike traditional journals they have no incentive to provide peer review and editing. Traditional journals have an incentive to engage in careful peer review and editing. They need to get people to buy their journal. The articles have to be good enough that universities, members of an association, or people in the field will be willing to pay to read them. Predatory publishers have no incentive to expend time and resources on peer review and editing. The last thing they want is to have anyone read the articles.  If you read something like this it will only make it harder to tell people that you thought you were publishing in a legitimate journal.

Personally, I do not see publication in traditional journals as incompatible with open access. I noted in a previous post that I went through a recent issue of The American Economic Review and was able to find an open access, or ungated, version of every paper.  In addition, we were hiring this year and pretty much everyone had a website with access to their job market paper. There are often some differences between the “ungated” version of a paper and published version of a paper; if you want to cite a paper you should probably get access to the published version. But if the issue is simply access to research results the ungated version will typically provide this. It seems to me that this general approach existed in economics for a long time. Even before widespread access to the internet economists distributed working papers.  Pretty much anyone who mattered had probably read your paper years before it appeared in print.  There may be reasons why this approach will not work in some disciplines. There may even be reasons it will not continue to work in economics, but advocates for open access journals need to acknowledge the problems they give rise to and the possible alternatives.

More on The History Manifesto

American Historical Review has Cohen and Mandler’s critique of The History Manifesto and Armitage and Guldi’s reply. Cohen and Mandler also have a rejoinder to Armitage and Guldi’s reply. I have previously referred to reviews of the Manifesto by Pseudoerasmus and Mark Koyama.

More on the "new history of capitalism"

The U.S. Intellectual History Blog has published an interesting essay by James Livingston on the new history of capitalism and Walter Johnson's River of Dark Dreams. The essay is part 3 of a 4 part series.

More on the recession of the early 1920s

I saw the other day that James Grant’s The Forgotten Depression had received an award from the Manhattan Institute. The book argues that the economy recovered quickly from a “Depression” in the early 1920s because the government did not intervene, and that this provides a lesson for our times. On the same day I read a new paper in the Journal of American History, “Before the Roar: U.S. Unemployment Relief after World War I and the Long History of a Paternalist Welfare Policy,” by Daniel Amsterdam.  You would think they were written about two different countries. Amsterdam describes numerous government responses (largely at the state and local level, but in some cases promoted at the federal level) to unemployment during the recession in the early 1920s.

I have to say, I find The Forgotten Depression and its reception a bit puzzling. It seems to me that the need to identify examples of times when the economy recovered quickly without government intervention is motivated more by politics than by economic theory or historical evidence. Why should a recovery be quick? If a credit boom leads to a severe misallocation of resources, why would we expect that reallocation after the boom would occur at any particular speed? Where is there in, for example, Austrian Business Cycle Theory a method of predicting how many months a recovery will take? Why, even in the absence of government intervention, might it not take years for reallocation to occur?

I can understand making an argument that, other things equal, markets should adjust more quickly when there are fewer restrictions placed upon them. But 1920 and 2008 are so far from other things equal it is difficult to make useful comparisons. The two periods differ fundamentally in terms of the source of the boom and bust. The misallocation of resources, by peacetime standards, was driven by the war.  In addition, Grant focuses on the federal government’s response to unemployment, but before WWII spending by state and local governments (as well as regulation) exceeded that of the federal government.  Just because the federal government did not do something in the past does not mean that government did not do it. One would need to look carefully at state and local actions to understand the role of “government” during the recession of the early twenties. Amsterdam does not provide a complete picture of state and local action, but it is a good start.

And, yes, I called it a recession, not a depression. If we choose to call the early twenties a depression then almost every downturn in U.S. history should be called a depression. Grant rejects recent estimates of historical business cycles by Christina Romer. Perhaps Romer’s estimates are in error, but I do not find the lyrics of “Aint We Got Fun” to be persuasive evidence that she erred.

The graph below shows percent change in Real GDP (1890-1950) based on the Millennial Edition of Historical Statistics (Ca 9). The recession of the early 1920s was simply was not unusually long or severe compared to other downturns.