Posts Tagged ‘economic history’
“Where all think alike there is little danger of innovation”*…
Last week, Northwestern Professor Joel Mokyr was awarded a half-share in The Nobel Prize in Economic Sciences (AKA The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel) “for having identified the prerequisites for sustained growth through technological progress.” Anton Howes explains why this is noteworthy…
Among today’s winners of the Nobel prize in Economics is Joel Mokyr, the professor at Northwestern whose name is indelibly associated with the primacy of innovation to modern economic growth – the gradual, sustained, and unprecedented improvement in living standards that first Britain, and then country after country, have enjoyed over the past few hundred years. It was reading Mokyr’s The Enlightened Economy that first opened my eyes to the importance of studying the history of invention to explaining the causes of the Industrial Revolution, which I have since made my career.
What makes this Nobel win so remarkable, and so pleasantly surprising, is that Mokyr’s work is not the kind that is often published by economics journals, or even many economic history journals anymore. Over the past few decades, journal editors and peer-reviewers have increasingly insisted that papers must present large datasets that have been treated using complex statistical methods in order to make even the mildest claims about what caused what. Although Mokyr is a master of such methods – he was one of the early pioneers of economic history’s quantitative turn – the work for which he has won the prize is firmly and necessarily qualitative.
Mokyr’s is the economic history that gets written up in books – his classics are The Lever of Riches, The Gifts of Athena, The Enlightened Economy, and A Culture of Growth – and in readable papers shorn of unnecessary formulae. His is history accessible to the layman, though rigorously applying the insights of economics. The prize is a clear signal from the economics profession that it doesn’t just value the application of fancy statistical methods; its highest prize can go to works of history.
Whereas most of the public, and even many historians, think of the causes of modern economic growth – the beginnings of the Industrial Revolution – as being rooted in material factors, like conquest, colonialism, or coal, Mokyr tirelessly argued that it was rooted in ideas, in the intellectual entrepreneurship of figures like Francis Bacon and Isaac Newton, and in the uniquely precocious accumulation in eighteenth-century Britain of useful, often mechanically actionable knowledge. Britain, he argued, through its scientific and literary societies, and its penchant for publications and sharing ideas, was the site of a world-changing Industrial Enlightenment – the place where progress was thoughtpossible, and then became real.
One of Mokyr’s big early insights, first appearing in Lever of Riches, was that many inventions could not be predicted by economic factors. Society could enjoy remarkable productivity improvements from simply increasing the size of the market, leading to division of labour and specialization – what he labelled ‘micro-inventions’ – in the vein popularised by Adam Smith. But this could not explain an invention that appeared out of the blue, like Montgolfier’s hot air balloon in the 1780s – what he called a ‘macro-invention’, not for the magnitude of its impact, but for its novelty. Macro-inventions often required further development to make them important, but the original breakthrough could not be predicted by looking at changes in prices or the availability of resources. It ultimately came down to advances in our understanding of the world. Mokyr put the Scientific Revolution – and the factors that contributed to it – on the economist’s map.
Mokyr also looked at the relationship between different kinds of knowledge. A scientist might know, through observation, that the air has a weight. A craftsman might know, through long training and experience with glass, how to make a long glass tube. Each could not get far alone. But combining them, by creating means to ensure that scientists and craftsmen talked with one another and collaborated – through connecting their propositional and prescriptive knowledge, their heads and hands – very quickly led to the invention of thermometers, barometers, and much more besides, in an ever expanding field of knowledge. What Mokyr taught economists is that it’s not knowledge per se that makes the difference, but the way it is organized. Much of his later work has shown just how deep a pool Britain’s scientists could draw on, of skilled artisans.
In a way, Mokyr himself has practised what he preached. As editor of Princeton University Press’s book series on the Economic History of the Western World, Mokyr has for decades provided an all-important space for economists and historians to write the kinds of research that would never have been publishable in economics journals – including of explanations of the Industrial Revolution that are the polar opposite to his own. He helped keep the connection between history and economics alive.
Mokyr’s case for the primacy of knowledge and ideas was not an easy one to make to economists. They are naturally drawn to data that can be counted, and not to narrative, often no matter how well evidenced. But it appears that Mokyr’s persistence, elevated by his infectious, irrepressible sprightliness, has paid off. His prize is a long overdue recognition of the historyin economic history, and a remarkable testament to the power of ideas to persuade…
A triumph for history and the importance of ideas: “Joel Mokyr’s Nobel,” from @antonhowes.bsky.social.
See also: “Why Joel Mokyr deserves his Nobel prize,” gift article from The Economist.
* Edward Abbey, Desert Solitaire
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As we ponder the process of progress, we might send creative birthday greetings to one of the subjects Mokyr’s study, Sir Christopher Wren; he born on this date in 1632. A mathematician and astronomer (who co-founded and later served as president of the Royal Society), he is better remembered as one of the most highly acclaimed English architects in history; he was given responsibility for rebuilding 52 churches in the City of London after the Great Fire in 1666, including what is regarded as his masterpiece, St. Paul’s Cathedral, on Ludgate Hill.
Wren, whose scientific work ranged broadly– e.g., he invented a “weather clock” similar to a modern barometer, new engraving methods, and helped develop a blood transfusion technique– was admired by Isaac Newton, as Newton noted in the Principia.
“There’s class warfare all right, but it’s my class, the rich class, that’s making war, and we’re winning”*…
Trevor Jackson on Martin Wolf‘s new book, The Crisis in Democratic Capitalism, and a fundamental question it raises: if globalization has allowed elites to remove themselves from democratic accountability and regulation, is there any path toward a just economy?…
Something has gone terribly wrong. In his 2004 book Why Globalization Works, the economics journalist Martin Wolf wrote that “liberal democracy is the only political and economic system capable of generating sustained prosperity and political stability.” He was articulating the elite consensus of the time, a belief that liberal democratic capitalism was not only a coherent form of social organization but in fact the best one, as demonstrated by the West’s victory in the cold war. He went on to argue that critics who “complain that markets encourage immorality and have socially immoral consequences, not least gross inequality,” were “largely mistaken,” and he concluded that a market economy was the only means for “giving individual human beings the opportunity to seek what they desire in life.”
Wolf wrote those words midway through a four-decade global expansion of markets. Throughout the 1980s in Britain, the United States, and France, governments led by Margaret Thatcher, Ronald Reagan, and François Mitterrand set about privatizing public assets and services, cutting welfare state provisions, and deregulating markets. At the same time, a set of ten policies known as the “Washington Consensus” (because they were shared by the International Monetary Fund, the World Bank, and the US Treasury) brought privatization, liberalization, and globalization to Latin America following a series of sovereign debt crises. In the 1990s a similar set of policies, then known as “shock therapy,” suddenly converted the formerly Communist economies of Eastern Europe and the Soviet Union to free markets. Around the Global South, and especially in the rapidly industrializing countries of East Asia after the 1997 financial crisis, “structural adjustment” policies that were conditions for IMF bailouts again brought liberalization, privatization, and fiscal discipline. The same policies were enforced on the European periphery after 2009, in Portugal, Ireland, Italy, Greece, and Spain, again, either as conditions for bailouts or through EU fiscal restrictions and restrictive European Central Bank policy. Today there are far more markets in far more aspects of human life than ever before.
But the sustained prosperity and political stability that these policies were meant to create have proved elusive. The global economy since the 1980s has been riven by repeated financial crises. Latin America endured a “lost decade” of economic growth. The 1990s in Russia were worse than the Great Depression had been in Germany and the United States. The austerity and high-interest-rate policies after the 1997 East Asia crisis restored financial stability but at the cost of domestic recessions, and contributed to political instability and the repudiation of incumbent parties in Indonesia, the Philippines, and South Korea, as they did again across Europe after 2009–2010. Global economic growth rates in the era of globalization have been about half what they were in the less globalized postwar decades. Around the world, violent racist demagogues keep winning elections, and although they all seem very happy with the idea of private property, they are openly hostile to the rule of law, political liberalism, individual freedom, and other ostensible preconditions and cultural accompaniments to market economies. Both democracy and globalization seem to be in retreat in practice as well as in ideological popularity. Or, as Wolf writes in his new book, The Crisis of Democratic Capitalism:
Our economy has destabilized our politics and vice versa. We are no longer able to combine the operations of the market economy with stable liberal democracy. A big part of the reason for this is that the economy is not delivering the security and widely shared prosperity expected by large parts of our societies. One symptom of this disappointment is a widespread loss of confidence in elites.
What happened?
Martin Wolf is probably the most influential economics commentator in the English-speaking world. He has been chief editorial writer for the Financial Times since 1987 and their lead economics analyst since 1996. Before that he trained in economics at Oxford and worked at the World Bank starting in 1971, including three years as senior economist and a year spent working on the first World Development Report in 1978. This is his fifth book since moving to the Financial Times. The blurbs and acknowledgments are stuffed with central bankers, financiers, Nobel laureates, and celebrity academics. The bibliography contains ninety-six references to the author himself.
Wolf’s diagnosis is impossible to dispute: “Neither politics nor the economy will function without a substantial degree of honesty, trustworthiness, self-restraint, truthfulness, and loyalty to shared political, legal, and other institutions.” But, he observes, those values have run into crisis all over the world, and, especially since about 2008,
…people feel even more than before that the country is not being governed for them, but for a narrow segment of well-connected insiders who reap most of the gains and, when things go wrong, are not just shielded from loss but impose massive costs on everybody else…
He describes in detail the mistaken policies of austerity in the US and Europe, the rise of a wasteful and extractive financial sector, the atomization and immiseration of formerly unionized workers, the pervasiveness of tax avoidance and evasion, and the general accumulation of decades of elite failure…
Read on for Wolf’s proposed remedies and Jacksons critiques: “Never Too Much,” from @nybooks.com.
And for an interview with Jackson that elaborates on his thoughts and their historical context, see here.
* Warren Buffett
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As we assess systems, we might send provocative birthday grretings to Founding Father Thomas Paine; he was born on this date in 1736 (O.S.; on February 9, 1737 per N.S., which accrued in Britain and its colonies in 1752). He is best known for Common Sense and The American Crisis, two influential pamphlets that helped to inspire colonial era American patriots in 1776 to declare independence from Great Britain.
But relevantly to the article above, in 1797 (after witnessing the birth and early years of the U.S. and spending time in France) he wrote Agrarian Justice, in which he proposed remedies for several of the (then nascent) ills discussed by Wolf and Jackson…
In response to the private sale of royal (or common) lands, Paine proposed a detailed plan to tax land owners [the “capitalists” of their day] once per generation to pay for the needs of those who have no land. Some consider this a precursor to the modern idea of citizen’s dividend or basic income. The money would be raised by taxing all direct inheritances at 10%, and “indirect” inheritances, those not going to close relations, at a somewhat higher rate. He estimated that to raise around £5,700,000 per year.
Around two-thirds of the fund would be spent on pension payments of £10 per year to every person over the age of 50, which Paine had taken as his average adult life expectancy.
Most of the remainder would be used to make fixed payments of £15 to every man and woman on reaching the age of 21, then the age of legal majority.
The small remainder of the money raised that was still unused would be used for paying pensions to “the lame and blind.”
For context, the average weekly wage of an agricultural labourer was around 9 shillings, which would mean an annual income of about £23 for an able-bodied man working throughout the year.
Paine’s proposal presaged the social safety net of later eras and governments, proposing seven entitlements to protect the poorest citizens from the ravages of market capitalism:
- Grants to subsidize schooling of 4 pounds per annum
- One-time payments to adults on reaching maturity
- One-time payments to newly married couples and new parents
- Eliminate taxes on working poor
- Back-to-work schemes
- Pensions for seniors
- Burial benefits to surviving spouses
and also provided a scheme of how to pay for them.
– source
“It’s easier to imagine the end of the world than the end of capitalism”*…
… so it’s useful to contemplate its beginning. David Rooney, in an excerpt from his book About Time…
Ömer Aga stood in the middle of Amsterdam’s Dam Square surrounded by his nineteen-strong party of advisers, interpreters and hosts, and gazed toward the huge new trading exchange that straddled the mighty Rokin canal, just to the south of the square. The year was 1614, and Aga was on a fact-finding mission to the Dutch Republic as the Ottoman Empire’s newest diplomatic emissary. Top of his list of must-see sights was this bold new building, completed just three years earlier. It was hard to miss, as it was the size of a soccer field and could accommodate thousands of traders in its 200-by-115-foot enclosed inner courtyard, but what Aga really noticed was the four-sided clock tower that loomed over the vast structure and the streets and canals all around, as well as the booming sound of its bell when they rang out the hours and then, at noon, tolled repeatedly for a few minutes before falling silent. Little did they realize it, but Omar Aga and his retinue were listening to one of the most significant clocks ever made. It was fitted to the world’s first stock exchange and sounded the birth of modern capitalism.
From the moment the Amsterdam exchange building first opened its doors in August 1611, traders were forbidden from trading anywhere else in the city. But the exchange did not just put spatial boundaries on trade. It concentrated traders in time, too. A few days before the new facility opened, the city council had issued a bylaw proclaiming that trading could only take place between the hours of 11 a.m. and noon, Monday to Saturday. At noon, the clock installed in the tower high above the exchange building would toll a bell for seven and a half minutes. If any traders were still in the exchange, or in the streets nearby, they would be fined. Additionally, trading was allowed between 6:30 p.m. and 7:30 p.m. during the summer months between May and August, and in winter evening trading took place for a thirty-minute period marked by a tolling bell at the city’s gates. At the end of evening trading, the exchange clock would again sound for seven and a half minutes and fines were issued for anyone caught trading after the bells fell silent.
Why were such strict limits placed on trading at the Amsterdam exchange? There were several reasons. One was a practical problem familiar to anybody involved with trade in a busy city center: time limits reduced congestion and disruption in the streets nearby. Another was that clocks made trading more efficient. Short, fixed trading hours concentrated buyers and sellers together, making it easier for each to find enough of the other. This increased the volume of trade, which was good for traders and for the city council collecting taxes on transactions. But clocks also helped prices to remain fair, as they could be used to regulate the people who occupied intermediate roles in the functioning of a market.
Some of the earliest references to mechanical clocks being used in towns and cities, in the Middle Ages and soon after, related to market restrictions. The first urban markets brought producers of food, cloth and so on into direct contact with the consumers of their wares. But as towns and cities grew, this model started to break down. It stopped making sense for every producer in the countryside to make the journey all the way to the center of towns. So, ‘intermediate trading’ emerged, whereby third parties might buy up the goods from several small producers somewhere on the edge of town, before bringing them in and selling them themselves at the market. Soon, a whole range of intermediate roles sprang up. Wholesalers, merchants, shopkeepers and peddlers were some, but intermediates also included financiers who advanced funds, and those speculating on the future in the hope of offsetting risk (whether because of bad harvests or other unpredictable events) and making more money. Some people occupied more than one role.
As populations grew and moved in increasing numbers to towns and cities, and markets began to sell more and more products, the rise of intermediate roles in market-based trade was inexorable, creating a new stratum of people who neither produced goods nor consumed them, but traded, speculated, brokered, hoarded, flipped and financed. Some market authorities feared intermediates would drive up prices or limit supplies and turned to clocks to control their involvement. Clocks meant that different groups could be treated differently at the market. In a sixteenth-century grain market, for instance, the first hours of trade could be restricted to residents, before bakers of bread could get in, and then the pastry bakers could enter. Only after several hours were wholesalers and other intermediate traders allowed in. But as societies and their market trading became ever more complex, the role of intermediates like brokers and financiers became increasingly important in keeping the flow of trading running smoothly. And, before long, finance became something that could be traded in its own right, and clocks took on a new regulatory role.
Amsterdam’s was not the first trading exchange. Antwerp and London had had exchanges since the sixteenth century where goods and money were traded, but Amsterdam was the first of a new kind of exchange: what became the modern securities exchange. As well as being a place to trade in commodities like salt or hides, people could also buy and sell financial assets. It started out as a place to buy and sell shares in the Dutch East India Company, an early joint-stock company and the first with freely tradable shares, but soon was used to trade other company shares, futures contracts and insurance policies as well as becoming the place to go for information about the state of the markets. The financial market had arrived, but its products, and the prices paid for them, which were time-dependent. The time at which each securities transaction was made, or would be enacted in the future, was central to this new type of trading to work fairly, everybody had to agree what time this was. In other words, trading needed time stamps, which is where the exchange clock came into its own. Clocks were no longer about excluding intermediates from the market. In the new exchanges, intermediates were the market — with the clock watching carefully over the whole thing…
The birth of modern capitalism and the role that timekeeping played in its nascence: The Amsterdam Stock Exchange, from @rooneyvision, via the invaluable @delanceyplace.
* Fredric Jameson (also sometimes attributed to Slavoj Žižek)
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As we examine enterprise, we might recall that it was on this date in 1937 that Sylvan Goldman introduced the first shopping cart in his Humpty Dumpty grocery store in Oklahoma City.
“Poverty is the worst form of violence”*…
Two economic historians, Peter A. Coclanis and Louis M. Kyriakoudes, on why about 20% of counties in the U.S. South are marked by “persistent poverty”…
For a brief moment in the summer of 2023, the surprise No. 1 song “Rich Men North of Richmond” focused the country’s attention on a region that often gets overlooked in discussions of the U.S. economy. Although the U.S. media sometimes pays attention to the rural South — often concentrating on guns, religion and opioid overdoses — it has too often neglected the broad scope and root causes of the region’s current problems.
As economic historians based in North Carolina and Tennessee, we want a fuller version of the story to be told. Various parts of the rural South are struggling, but here we want to focus on the forlorn areas that the U.S. Department of Agriculture refers to as “rural manufacturing counties” — places where manufacturing is, or traditionally was, the main economic activity.
You can find such counties in every Southern state, although they were historically clustered in Alabama, Georgia, North and South Carolina, and Tennessee. And they are suffering terribly.
First, let’s back up. One might be tempted to ask: Are things really that bad? Hasn’t the Sun Belt been booming? But in fact, by a range of economic indicators — personal income per capita and the proportion of the population living in poverty, for starters – large parts of the South, and particularly the rural South, are struggling.
Gross domestic product per capita in the region has been stuck at about 90% of the national average for decades, with average income even lower in rural areas. About 1 in 5 counties in the South is marked by “persistent poverty” — a poverty rate that has stayed above 20% for three decades running. Indeed, fully 80% of all persistently poor counties in the U.S. are in the South.
Persistent poverty is, of course, linked to a host of other problems. The South’s rural counties are marked by low levels of educational attainment, measured both by high school and college graduation rates. Meanwhile, labor-force participation rates in the South are far lower than in the nation as a whole.
Unsurprisingly, these issues stifle economic growth.
Meanwhile, financial institutions have fled the region: The South as a whole lost 62% of its banks between 1980 and 2020, with the decline sharpest in rural areas. At the same time, local hospitals and medical facilities have been shuttering, while funding for everything from emergency services to wellness programs has been cut.
Relatedly, the rural South is ground zero for poor health in the U.S., with life expectancy far lower than the national average. So-called “deaths of despair” such as suicides and accidental overdoses are common, and rates of obesity, diabetes, hypertension, heart disease and stroke are high – much higher than in rural areas in other parts of the U.S. and in the U.S. as a whole…
Although some people think that these areas have forever been in crisis, this isn’t the case. While the South’s agricultural sector had fallen into long-term decline in the decades following the Civil War — essentially collapsing by the Great Depression — the onset of World War II led to an impressive economic growth spurt.
War-related jobs opening up in urban areas pulled labor out of rural areas, leading to a long-delayed push to mechanize agriculture. Workers rendered redundant by such technology came to constitute a large pool of cheap labor that industrialists seized upon to deploy in low-wage processing and assembly operations, generally in rural areas and small towns.
Such operations surged between 1945 and the early 1980s, playing a huge role in the region’s economic rise. However humble they may have been, in the South — as in China since the late 1970s — the shift out of a backward agricultural sector into low-wage, low-skill manufacturing was an opportunity for significant productivity and efficiency gains.
This helped the South steadily catch up to national norms in terms of per-capita income: to 75% by 1950, 80% by the mid-1960s, over 85% by 1970, and to almost 90% by the early 1980s…
By the early 1980s, however, the gains made possible by the shift out of agriculture began to play themselves out. The growth of the rural manufacturing sector slowed, and the South’s convergence upon national per capita income norms stopped, remaining stuck at about 90% from then on.
Two factors were largely responsible: new technologies, which reduced the number of workers needed in manufacturing, and globalization, which greatly increased competition. This latter point became increasingly important, since the South, a low-cost manufacturing region in the U.S., is a high-cost manufacturing region when compared to, say, Mexico.
Like Mike Campbell’s bankruptcy in Hemingway’s “The Sun Also Rises,” the rural South’s collapse came gradually, then suddenly: gradually during the 1980s and 1990s, and suddenly after China’s entry into the World Trade Organization in December 2001…
A sobering read: “Poor men south of Richmond? Why much of the rural South is in economic crisis.”
* Mahatma Gandhi
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As we dive into the dynamics of development, we might recall that it was on this date in 1718 that the famous pirate Edward Teach– better known as Blackbeard– was killed off the coast of North Carolina.
Edward Teach, also known as Blackbeard, is killed off North Carolina’s Outer Banks during a bloody battle with a British navy force sent from Virginia.
Believed to be a native of England, Edward Teach likely began his pirating career in 1713, when he became a crewman aboard a Caribbean sloop commanded by pirate Benjamin Hornigold. In 1717, after Hornigold accepted an offer of general amnesty by the British crown and retired as a pirate, Teach took over a captured 26-gun French merchantman, increased its armament to 40 guns, and renamed it the Queen Anne’s Revenge.
During the next six months, the Queen Anne’s Revenge served as the flagship of a pirate fleet featuring up to four vessels and more than 200 men. Teach became the most infamous pirate of his day, winning the popular name of Blackbeard for his long, dark beard, which he was said to light on fire during battles to intimidate his enemies. Blackbeard’s pirate forces terrorized the Caribbean and the southern coast of North America and were notorious for their cruelty.
In May 1718, the Queen Anne’s Revenge and another vessel were shipwrecked, forcing Blackbeard to desert a third ship and most of his men because of a lack of supplies. With the single remaining ship, Blackbeard sailed to Bath in North Carolina and met with Governor Charles Eden. Eden agreed to pardon Blackbeard in exchange for a share of his sizable booty.
At the request of North Carolina planters, Governor Alexander Spotswood of Virginia dispatched a British naval force under Lieutenant Robert Maynard to North Carolina to deal with Blackbeard. On November 22, Blackbeard’s forces were defeated and he was killed in a bloody battle of Ocracoke Island. Legend has it that Blackbeard, who captured more than 30 ships in his brief pirating career, received five musket-ball wounds and 20 sword lacerations before dying…
Source
“If you would define the future, study the past”*…
The global economy and living standards have, Rafael Guthmann suggests, have had three “supercycles” of rise and fall over the past 4,000 years…
Economists often state that economic growth simply did not exist before recent times. The orthodox view that I was taught as an undergrad is that sustained economic growth began in the late 18th century. This view is articulated by economic historians like Clarke (2007). DeLong (2022) goes even further. He claims that modern economic growth only began in earnest in 1870, with the growth from 1770 to 1870 being very small in comparison, and that there was absolutely no growth in real incomes for ordinary people before 1770 (but he admits that living standards could have varied over pre-modern history for a tiny elite).
The data, however, shows that this model of economic history is plain wrong. Instead, over the last four thousand years, we can identify that there have been three major very-long-run economic cycles in the Western world that featured increasing incomes and then very long periods of decreasing incomes. These cycles of expansion and contraction lasted for several centuries.
As described by Bresson (2016), the first cycle corresponded to the rise and fall of Bronze Age civilizations, such as the Minoan and Mycenean cultures in Greece, the first literate civilization in Europe which developed writing around 2000 BC and collapsed towards the end of the 2nd millennium BC. The second cycle corresponded to the rise of Classical Greco-Roman civilization over the 1st millennium BC and its collapse during the 1st millennium AD. The third and present cycle began in the late 1st millennium AD and continues today. In this wider context, the industrial revolution beginning in the late 18th century was just an acceleration of the rate of economic development of the third cycle and did not really represent a discontinuity with past economic history…
He makes his case: “The Great Waves in Economic History,” @GuthmannR. (Note that, if one includes, for example, the long histories of the Chinese and African economies, the pattern of cycles of development and decline is further reinforced.)
* Confucius
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As we contemplate cyclicality, we might recall that it was on this date in 12 CE– in the middle of the second wave identified above– that the Roman emperor Augustus (AKA, Caesar Augustus, Caesar, and Octavian) was named Pontifex Maximus (chief high priest of the College of Pontiffs (Collegium Pontificum) in ancient Rome, this was the most important position in the ancient Roman religion), incorporating the position into that of the emperor.
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