210a 2008 Notes

May 07, 2008

Econ 210a: May 7: The twentieth-century experience: half empty or half full?

May 7: The twentieth-century experience: half empty or half full?

Let's start today with Karl Marx: "The Future Results of British Rule in India," New York Daily Tribune, August 8, 1853:

The political unity... imposed by the British sword, will now be strengthened and perpetuated by the electric telegraph. The native army, organized and trained by the British drill-sergeant, was the sine qua non of Indian self-emancipation, and of India ceasing to be the prey of the first foreign intruder. The free press, introduced for the first time into Asiatic society, and managed principally by the common offspring of Hindoos and Europeans, is a new and powerful agent of reconstruction.... From the Indian natives, reluctantly and sparingly educated at Calcutta, under English superintendence, a fresh class is springing up, endowed with the requirements for government and imbued with European science. Steam has brought India into regular and rapid communication with Europe, has connected its chief ports with those of the whole south-eastern ocean.... The day is not far distant when, by a combination of railways and steam-vessels, the distance between England and India, measured by time, will be shortened to eight days, and when that once fabulous country will thus be actually annexed to the Western world.

The ruling classes of Great Britain have had, till now, but an accidental, transitory and exceptional interest in the progress of India. The aristocracy wanted to conquer it, the moneyocracy to plunder it, and the millocracy to undersell it. But now the ... millocracy have discovered that the transformation of India into a reproductive country has become of vital importance to them, and that, to that end, it is necessary, above all, to gift her with means of irrigation and of internal communication. They intend now drawing a net of railroads over India. And they will do it....

I know that the English millocracy intend to endow India with railways with the exclusive view of extracting at diminished expenses the cotton and other raw materials for their manufactures. But when you have once introduced machinery into the locomotion of a country, which possesses iron and coals, you are unable to withhold it from its fabrication. You cannot maintain a net of railways over an immense country without introducing all those industrial processes necessary to meet the immediate and current wants of railway locomotion, and out of which there must grow the application of machinery to those branches of industry not immediately connected with railways. The railway-system will therefore become, in India, truly the forerunner of modern industry. This is the more certain as the Hindoos are allowed by British authorities themselves to possess particular aptitude. for accommodating themselves to entirely new labor, and acquiring the requisite knowledge of machinery. Ample proof of this fact is afforded by the capacities and expertness of the native engineers in the Calcutta mint, where they have been for years employed in working the steam machinery, by the natives attached to the several steam engines in the Burdwan coal districts, and by other instances. Mr. Campbell himself, greatly influenced as he is by the prejudices of the East India Company, is obliged to avow

“that the great mass of the Indian people possesses a great industrial energy, is well fitted to accumulate capital, and remarkable for a mathematical clearness of head and talent for figures and exact sciences.” “Their intellects,” he says, “are excellent.”

Modern industry, resulting from the railway system, will dissolve the hereditary divisions of labor, upon which rest the Indian castes, those decisive impediments to Indian progress and Indian power.

All the English bourgeoisie may be forced to do will neither emancipate nor materially mend the social condition of the mass of the people, depending not only on the development of the productive powers, but on their appropriation by the people. But what they will not fail to do is to lay down the material premises for both. Has the bourgeoisie ever done more? Has it ever effected a progress without dragging individuals and people through blood and dirt, through misery and degradation?...

The devastating effects of English industry, when contemplated with regard to India, a country as vast as Europe, and containing 150 millions of acres, are palpable and confounding. But we must not forget... [t]he bourgeois period of history has to create the material basis of the new world — on the one hand universal intercourse founded upon the mutual dependency of mankind, and the means of that intercourse; on the other hand the development of the productive powers of man and the transformation of material production into a scientific domination of natural agencies. Bourgeois industry and commerce create these material conditions of a new world in the same way as geological revolutions have created the surface of the earth. When a great social revolution shall have mastered the results of the bourgeois epoch, the market of the world and the modern powers of production, and subjected them to the common control of the most advanced peoples, then only will human progress cease to resemble that hideous, pagan idol, who would not drink the nectar but from the skulls of the slain.

May 07, 2008 at 11:22 AM in 210a 2008 Notes | | Comments (1)

April 30, 2008

Apr 30: WWII and the thirty glorious years [DeLong]

Apr 30: WWII and the thirty glorious years [DeLong]

Audio

Let us sit in 1945 and look at western Europe. What do we see?

  • A truly genocidal subcontinent--devastated over the past four centuries by wars of religion, ideology, and nationalism.
  • A not-that-rich subcontinent--levels of output per worker averaging perhaps half those of what appears possible given technology elsewhere, in America, Canada, and Australia.
  • A Eurosclerotic subcontinent--lobbies and entrenched interests playing negative-sum games, whether unions, aristocracies, small craft producers, or mini-nations.
  • A politically-disordered subcontinent--Nazis, fascists, communists, shaky democracies, coups, street riots, large-scale political street violence.

You would have had to have been a brave person to predict the post-WWII western European renaissance...

  • Conversely, you might have been "optimistic" about the Soviet Union: cruel, barbarous, murderous, but also--effective in accomplishing its tasks.

Why the reversals of fortune of the 30 glorious years?

What Barry Eichengtreen and I wrote back in 1991:

The 1930’s in Europe had seen not chronic bottlenecks but chronic deficiencies of aggregate demand. Production had fallen far below normal for the entire decade; market forces had failed to restore demand to normal levels. Circumstances during the Great Depression had been exceptional, but circumstances in the aftermath of World War II were exceptional as well. Many feared the return of the Depression.

In fact (aside from the possibility that fear of a renewed Great Depression would act as a self-fulfilling prophecy) the return of the Great Depression was a less likely possibility in the 1940’s than was generally feared. The memory of the Depression, and the greater strength and incorporation of social democratic political movements in government kept right-wing governments from adopting policies of out-and-out national deflation. The availability of the large United States market to European exports--especially with the coming of the Korean War Boom and NATO in the early 1950’s--prevented any large world aggregate demand shortfall as in the Great Depression. With the American locomotive under full steam, Western European economies were unlikely to suffer from prolonged Keynesian demand-shortfall depressions.

Nevertheless, a live possibility in the absence of the Marshall Plan was that governments would not stand aside and allow the market system to do its job. In the wake of the Great Depression, many still recalled the disastrous outcome of the laissez-faire policies then in effect. Politicians were predisposed toward intervention and regulation: no matter how damaging “government failure” might be to the economy, it had to be better than the “market failure” of the Depression. Had European political economy taken a different turn, post-World War II European recovery might have been stagnant. Governments might have been slow to dismantle wartime allocation controls, and so have severely constrained the market mechanism. In fact the Marshall Plan era saw a rapid dismantling of controls over product and factor markets in Western Europe, and the restoration of price and exchange rate stability. An alternative scenario would have seen the maintenance and expansion of wartime controls in order to guard against substantial shifts in income distribution. The late 1940’s and early 1950’s might have seen the creation in Western Europe of allocative bureaucracies to ration scarce foreign exchange, and the imposition of price controls on exportables in order to protect the living standards of urban working classes.

The likely consequences of such alternative policies for post-World war II Europe can be seen in the Argentine mirror....

In 1929 Argentina had appeared as rich as any large country in continental Europe. It was still as rich in 1950, when Western Europe had for the most part reattained pre-World War II levels of national product. But by 1960 Argentina was poorer than Italy and had less than two-thirds of the GDP per capita of France or West Germany. One way to think about post-World War II Argentina is that its mixed economy was poorly oriented: the government allocated goods, especially imports, among alternative uses; the controlled market redistributed income. Thus neither the private nor the public sector was used to its comparative advantage.

In post-World War II Western Europe, by contrast, market forces allocated resources--even, to a large extent, for nationalized industries--the government redistributed income, and the outcome was much more favorable....

In Díaz Alejandro's estimation, four factors set the stage for Argentina’s relative decline: a politically-active and militant urban industrial working class, economic nationalism, sharp divisions between traditional elites and poorer strata, and a government used to exercising control over goods allocation that viewed the price system as a tool for redistributing wealth rather than for determining the pattern of economic activity.

From the perspective of 1947, the political economy of Western Europe would lead one to think that it was at least as vulnerable as Argentina to economic stagnation induced by populist overregulation. The war had given Europe more experience than Argentina with economic planning and rationing. Militant urban working classes calling for wealth redistribution voted in such numbers as to make Communists plausibly part of a permanent ruling political coalition in France and Italy. Economic nationalism had been nurtured by a decade and a half of Depression, autarky and war. European political parties had been divided substantially along economic class lines for a generation.

Yet post-World War II western Europe avoided this trap. After World War II Western Europe’s mixed economies built substantial redistributional systems, but they were built on top of and not as replacements for market allocations of goods and factors. Just as post-World War II Western Europe saw the avoidance of the political-economic “wars of attrition” that had put a brake on post-World War I European recovery, so post-World War II Western Europe avoided the tight web of controls that kept post-World War II Argentina from being able to adjust and grow...

April 30, 2008 at 07:22 AM in 210a 2008 Notes | | Comments (1)

April 23, 2008

Apr 23: WWI and the Great Depression [DeLong]

Apr 23: WWI and the Great Depression [DeLong]

Memo Question for April 30: "Thirty Glorious Years": A growing literature develops explanations for 'Europe's golden age' (the European economy's fast growth in the third quarter of the 20th century). Is this effort misguided? In other words, do we really need fancy explanations for a straightforward phenomenon that is easily explained in terms of convergence and delayed structural change?

Memo Question for April 23: The Great Depression: What do our readings tell us about the answers to the following two questions?

  • Why was the Great Depression so great?
  • Why has there been only one Great Depression in the long span between the commercial revolution and today?

World War I and the Task of Rebuilding:

John Maynard Keynes (1920), The Economic Consequences of the Peace, chapters 1, 2, and 6 http://www.gutenberg.org/files/15776/15776-h/15776-h.htm

The Coming of the Great Depression:

Christina Romer (1990), "The Great Crash and the Onset of the Great Depression," Quarterly Journal of Economics 104, pp.719-736, http://www.jstor.org/view/00335533/di971078/97p00037/0

Ben Bernanke (1983), "Nonmonetary Effects of the Financial Crisis in the Propagation of the Great Depression" American Economic Review 73, pp. 257-276, http://www.jstor.org/view/00028282/di950033/95p00602/0

Understanding the Great Depression:

John Maynard Keynes (1932), "The World's Economic Outlook," Atlantic http://www.theatlantic.com/unbound/flashbks/budget/keynesf.htm

Paul Krugman, "Introduction" to John Maynard Keynes, The General Theory of Employment, Interest and Money http://www.pkarchive.org/economy/GeneralTheoryKeynesIntro.html

Consequences of the Great Depression:

Margaret Weir and Theda Skocpol, "State Structures and Social Keynesianism: Responses to the Great Depression in Sweden and the United States," International Journal of Comparative Sociology pp. 4-29 http://books.google.com/books?hl=en&lr=&id=GLQ3AAAAIAAJ&oi=fnd&pg=PA7-IA3&dq=Margaret+Weir+and+Theda+Skocpol,+%22State+Structures+and+Social+Keynesianism&ots=P2iXGFkFfu&sig=APmY6D1P2QkJ0l28RRWX5YxjBmg#PPA29,M1

World War I and the Task of Rebuilding:

John Maynard Keynes (1920), The Economic Consequneces of the Peace, chapters 1, 2, and 6 http://www.gutenberg.org/files/15776/15776-h/15776-h.htm

  • Very few of us realize with conviction the intensely unusual, unstable, complicated, unreliable, temporary nature of the economic organization by which Western Europe has lived for the last half century. We assume some of the most peculiar and temporary of our late advantages as natural, permanent, and to be depended on, and we lay our plans accordingly. On this sandy and false foundation we scheme for social improvement and dress our political platforms, pursue our animosities and particular ambitions, and feel ourselves with enough margin in hand to foster, not assuage, civil conflict in the European family. Moved by insane delusion and reckless self-regard, the German people overturned the foundations on which we all lived and built. But the spokesmen of the French and British peoples have run the risk of completing the ruin, which Germany began, by a Peace which, if it is carried into effect, must impair yet further, when it might have restored, the delicate, complicated organization, already shaken and broken by war, through which alone the European peoples can employ themselves and live.... What an extraordinary episode in the economic progress of man that age was which came to an end in August, 1914! The greater part of the population, it is true, worked hard and lived at a low standard of comfort, yet were, to all appearances, reasonably contented with this lot. But escape was possible, for any man of capacity or character at all exceeding the average, into the middle and upper classes, for whom life offered, at a low cost and with the least trouble, conveniences, comforts, and amenities beyond the compass of the richest and most powerful monarchs of other ages. The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, in such quantity as he might see fit, and reasonably expect their early delivery upon his doorstep; he could at the same moment and by the same means adventure his wealth in the natural resources and new enterprises of any quarter of the world, and share, without exertion or even trouble, in their prospective fruits and advantages; or be could decide to couple the security of his fortunes with the good faith of the townspeople of any substantial municipality in any continent that fancy or information might recommend. He could secure forthwith, if he wished it, cheap and comfortable means of transit to any country or climate without passport or other formality, could despatch his servant to the neighboring office of a bank for such supply of the precious metals as might seem convenient, and could then proceed abroad to foreign quarters, without knowledge of their religion, language, or customs, bearing coined wealth upon his person, and would consider himself greatly aggrieved and much surprised at the least interference. But, most important of all, he regarded this state of affairs as normal, certain, and permanent, except in the direction of further improvement, and any deviation from it as aberrant, scandalous, and avoidable. The projects and politics of militarism and imperialism, of racial and cultural rivalries, of monopolies, restrictions, and exclusion, which were to play the serpent to this paradise, were little more than the amusements of his daily newspaper, and appeared to exercise almost no influence at all on the ordinary course of social and economic life, the internationalization of which was nearly complete in practice...

  • This chapter must be one of pessimism. The Treaty includes no provisions for the economic rehabilitation of Europe,—nothing to make the defeated Central Empires into good neighbors, nothing to stabilize the new States of Europe, nothing to reclaim Russia; nor does it promote in any way a compact of economic solidarity amongst the Allies themselves; no arrangement was reached at Paris for restoring the disordered finances of France and Italy, or to adjust the systems of the Old World and the New. The Council of Four paid no attention to these issues, being preoccupied with others,—Clemenceau to crush the economic life of his enemy, Lloyd George to do a deal and bring home something which would pass muster for a week, the President to do nothing that was not just and right. It is an extraordinary fact that the fundamental economic problems of a Europe starving and disintegrating before their eyes, was the one question in which it was impossible to arouse the interest of the Four. Reparation was their main excursion into the economic field, and they settled it as a problem of theology, of polities, of electoral chicane, from every point of view except that of the economic future of the States whose destiny they were handling...

  • If we take the view that for at least a generation to come Germany cannot be trusted with even a modicum of prosperity, that while all our recent Allies are angels of light, all our recent enemies, Germans, Austrians, Hungarians, and the rest, are children of the devil, that year by year Germany must be kept impoverished and her children starved and crippled, and that she must be ringed round by enemies; then we shall reject all the proposals of this chapter.... But if this view of nations and of their relation to one another is adopted... heaven help us all. If we aim deliberately at the impoverishment of Central Europe, vengeance, I dare predict, will not limp. Nothing can then delay for very long that final civil war between the forces of Reaction and the despairing convulsions of Revolution, before which the horrors of the late German war will fade into nothing, and which will destroy, whoever is victor, the civilization and the progress of our generation. Even though the result disappoint us, must we not base our actions on better expectations, and believe that the prosperity and happiness of one country promotes that of others, that the solidarity of man is not a fiction, and that nations can still afford to treat other nations as fellow-creatures?...

The Coming of the Great Depression:

Christina Romer (1990), "The Great Crash and the Onset of the Great Depression," Quarterly Journal of Economics 104, pp.719-736, http://www.jstor.org/view/00335533/di971078/97p00037/0

Ben Bernanke (1983), "Nonmonetary Effects of the Financial Crisis in the Propagation of the Great Depression" American Economic Review 73, pp. 257-276, http://www.jstor.org/view/00028282/di950033/95p00602/0

  • http://www.jstor.org/stable/pdfplus/2937892.pdf

  • http://www.jstor.org/stable/pdfplus/1808111.pdf

Understanding the Great Depression:

John Maynard Keynes (1932), "The World's Economic Outlook," Atlantic http://www.theatlantic.com/unbound/flashbks/budget/keynesf.htm

Paul Krugman, "Introduction" to John Maynard Keynes, The General Theory of Employment, Interest and Money http://www.pkarchive.org/economy/GeneralTheoryKeynesIntro.html

  • Keynes: The immediate causes of the world financial panic -- for that is what it is -- are obvious. They are to be found in a catastrophic fall in the money value, not only of commodities, but of practically every kind of asset. The 'margins,' as we call them, upon confidence in the maintenance of which the debt and credit structure of the modern world depends, have 'run off.'... Debtors of all kinds find that their securities are no longer the equal of their debts. Few governments still have revenues sufficient to cover the fixed money charges for which they have made themselves liable. Moreover, a collapse of this kind feeds on itself. We are now in the phase where the risk of carrying assets with borrowed money is so great that there is a competitive panic to get liquid. And each individual who succeeds in getting more liquid forces down the price of assets in the process of getting liquid, with the result that the margins of other individuals are impaired and their courage undermined. And so the process continues.... We have here an extreme example of the disharmony of general and particular interest.... Practically all the remedies popularly advocated to-day are of this... beggar-my-neighbor description. For one man's expenditure is another man's income. Thus, while we undoubtedly increase our own margin, we diminish that of someone else; and if the practice is universally followed everyone will be worse off. An individual may be forced by his private circumstances to curtail his normal expenditure, and no one can blame him. But let no one suppose that he is performing a public duty in behaving in such a way. The modern capitalist is a fair-weather sailor. As soon as a storm rises, he abandons the duties of navigation and even sinks the boats which might carry him to safety by his haste to push his neighbor off and himself in. Unfortunately the popular mind has been educated away from the truth, away from common sense. The average man has been taught to believe what his own common sense, if he relied on it, would tell him was absurd.... Meanwhile the problem of reparations and war debts darkens the whole scene...

  • Krugman: The message of Keynes: It’s probably safe to assume that the “conservative scholars and policy leaders” who pronounced The General Theory one of the most dangerous books of the past two centuries haven’t read it. But they’re sure it’s a leftist tract, a call for big government and high taxes. That’s what people on the right, and some on the left, too, have said about The General Theory from the beginning. In fact, the arrival of Keynesian economics in American classrooms was delayed by a nasty case of academic McCarthyism. The first introductory textbook to present Keynesian thinking, written by the Canadian economist Lorie Tarshis, was targeted by a right-wing pressure campaign aimed at university trustees. As a result of this campaign, many universities that had planned to adopt the book for their courses cancelled their orders, and sales of the book, which was initially very successful, collapsed. Professors at Yale University, to their credit, continued to assign the book; their reward was to be attacked by the young William F. Buckley for propounding “evil ideas.”

  • But Keynes was no socialist – he came to save capitalism, not to bury it. And there’s a sense in which The General Theory was, given the time it was written, a conservative book. (Keynes himself declared that in some respects his theory had “moderately conservative implications.” [377]) Keynes wrote during a time of mass unemployment, of waste and suffering on an incredible scale. A reasonable man might well have concluded that capitalism had failed, and that only huge institutional changes – perhaps the nationalization of the means of production – could restore economic sanity. Many reasonable people did, in fact, reach that conclusion: large numbers of British and American intellectuals who had no particular antipathy toward markets and private property became socialists during the depression years simply because they saw no other way to remedy capitalism’s colossal failures.

  • Yet Keynes argued that these failures had surprisingly narrow, technical causes. “We have magneto [alternator] trouble” he wrote in 1930, as the world was plunging into depression. And because Keynes saw the causes of mass unemployment as narrow and technical, he argued that the problem’s solution could also be narrow and technical: the system needed a new alternator, but there was no need to replace the whole car. In particular, “no obvious case is made out for a system of State Socialism which would embrace most of the economic life of the community.” [378] While many of his contemporaries were calling for government takeover of the whole economy, Keynes argued that much less intrusive government policies could ensure adequate effective demand, allowing the market economy to go on as before. Still, there is a sense in which free-market fundamentalists are right to hate Keynes. If your doctrine says that free markets, left to their own devices, produce the best of all possible worlds, and that government intervention in the economy always makes things worse, Keynes is your enemy. And he is an especially dangerous enemy because his ideas have been vindicated so thoroughly by experience. Stripped down, the conclusions of The General Theory might be expressed as four bullet points:

    • Economies can and often do suffer from an overall lack of demand, which leads to involuntary unemployment
    • The economy’s automatic tendency to correct shortfalls in demand, if it exists at all, operates slowly and painfully
    • Government policies to increase demand, by contrast, can reduce unemployment quickly
    • Sometimes increasing the money supply won’t be enough to persuade the private sector to spend more, and government spending must step into the breach

  • To a modern practitioner of economic policy, none of this – except, possibly, the last point – sounds startling or even especially controversial. But these ideas weren’t just radical when Keynes proposed them; they were very nearly unthinkable. And the great achievement of The General Theory was precisely to make them thinkable.

Consequences of the Great Depression:

Margaret Weir and Theda Skocpol, "State Structures and Social Keynesianism: Responses to the Great Depression in Sweden and the United States," International Journal of Comparative Sociology pp. 4-29 http://books.google.com/books?hl=en&lr=&id=GLQ3AAAAIAAJ&oi=fnd&pg=PA7-IA3&dq=Margaret+Weir+and+Theda+Skocpol,+%22State+Structures+and+Social+Keynesianism&ots=P2iXGFkFfu&sig=APmY6D1P2QkJ0l28RRWX5YxjBmg#PPA29,M1

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April 23, 2008 at 11:00 AM in 210a 2008 Notes |

April 16, 2008

April 16: The Gold Standard

Apr 16: Gold standard and pre-WWI globalization [DeLong]

Start with David Hume:

  • Mercantilism: Import a little, export a lot, all the money flows into your country and you become rich. What does Hume say is wrong with that?

  • David Hume, "Of the Balance of Trade": IT is very usual, in nations ignorant of the nature of commerce, to prohibit the exportation of commodities, and to preserve among themselves whatever they think valuable and useful. They do not consider, that, in this prohibition, they act directly contrary to their intention; and that the more is exported of any commodity, the more will be raised at home, of which they themselves will always have the first offer. It is well known to the learned, that the ancient laws of ATHENS rendered the exportation of figs criminal; that being supposed a species of fruit so excellent in ATTICA, that the ATHENIANS deemed it too delicious for the palate of any foreigner. And in this ridiculous prohibition they were so much in earnest, that informers were thence called sycophants among them, from two GREEK words, which signify figs and discoverer.40 , a There are proofs in many old acts of parliament of the same ignorance in the nature of commerce, particularly in the reign of EDWARD III.41 And to this day, in FRANCE, the exportation of corn is almost always prohibited; in order, as they say, to prevent famines; though it is evident, that nothing contributes more to the frequent famines, which so much distress that fertile country.... These errors, one may say, are gross and palpable: But there still prevails, even in nations well acquainted with commerce, a strong jealousy with regard to the balance of trade, and a fear, that all their gold and silver may be leaving them. This seems to me, almost in every case, a groundless apprehension; and I should as soon dread, that all our springs and rivers should be exhausted, as that money should abandon a kingdom where there are people and industry. Let us carefully preserve these latter advantages; and we need never be apprehensive of losing the former.... But as any body of water may be raised above the level of the surrounding element, if the former has no communication with the latter; so in money, if the communication be cut off, by any material or physical impediment, (for all laws alone are ineffectual) there may, in such a case, be a very great inequality of money. Thus the immense distance of CHINA, together with the monopolies of our INDIA companies, obstructing the communication, preserve in EUROPE the gold and silver, especially the latter, in much greater plenty than they are found in that kingdom.*47 But, notwithstanding this great obstruction, the force of the causes abovementioned is still evident. The skill and ingenuity of EUROPE in general surpasses perhaps that of CHINA, with regard to manual arts and manufactures; yet are we never able to trade thither without great disadvantage. And were it not for the continual recruits,° which we receive from AMERICA, money would soon sink in EUROPE, and rise in CHINA, till it came nearly to a level in both places. Nor can any reasonable man doubt, but that industrious nation, were they as near us as POLAND or BARBARY, would drain us of the overplus of our specie, and draw to themselves a larger share of the WEST INDIAN treasures. We need not have recourse to a physical attraction, in order to explain the necessity of this operation. There is a moral attraction, arising from the interests and passions of men, which is full as potent and infallible...

What was the gold standard?

How did the gold standard really work?

International capital flows under the gold standard:

Commodity trade and dynamic comparative advantage:

  • Douglas Irwin (1998), "Did Late Nineteen Century U.S. Tariffs Promote Infant Industries? Evidence from the Tinplate Industry," NBER Working paper no. 6835 (December), http://www.nber.org/papers/w6835

April 16, 2008 at 09:04 AM in 210a 2008 Notes | | Comments (0)

April 09, 2008

Notes for April 9: Econ 210a: "Settler" Industrialization, 1700-1914

Memo Question for April 9: The economies settled from northwestern Europe--the United States, Canada, Australia, New Zealand--were all resource rich. So why did they industrialize? Why didn't they simply become gigantic Denmarks, shipping agricultural and other resource-based products to the European industral powers in return for manufactures?

This week we have four readings:

They all four bear on the question of settler industrialization--and thus on the question of why the heart of the world economy today is not somewhere near Amsterdam but somewhere between Los Angeles and New York. You would think that the center of innovative industry would remain near its original heartlands--that agglomeration economies in R&D and economic activity would keep Manchester the heart of the world economy. But that is not what happened:

http://papers.nber.org/papers/h0066.pdf

The nineteenth-century periphery industrialized and grew rich--but only a part of the nineteenth-century periphery, and not just the English-speaking British-institutions nineteenth-century periphery--Japan, Barbados, Jamaica, British Guyana, Mississippi...

Paul Krugman on Evsey Domar:

Paul Krugman: [Domar] came up with a simple yet powerful insight: there's no point in enslaving or enserfing a man unless the wage you would have to pay him if he was free is substantially above the cost of feeding, housing, and clothing him. Imagine a pre-industrial society where population is pressing on limited land supplies, and the marginal product of labor... is barely at subsistence. In that case, why bother establishing property rights in human beings? It costs no more to hire a free worker than to feed an indentured laborer. Indeed, by 1300 - with Europe very much a Malthusian society - serfdom had withered away from lack of interest. But now suppose that for some reason land becomes abundant, and labor scarce. Then competition among landowners will tend to push up wages of free workers, and the ruling class will try, if it can, to pin peasants down and prevent them from bargaining for a higher standard of living. In Russia, it was all about gunpowder: suddenly steppe nomads were no longer so formidable, and the rich lands of the Ukraine were open for settlement. Serfdom was an effort to keep peasants from taking advantage of this situation. (And if I've got it right, those who were venturesome enough to run away and set up outside the system became Cossacks.)

Meanwhile, the New World opened in the west. Sure enough, the colonizing powers tried various forms of indentured servitude - making serfs of the Indians in Spanish territories, bringing over indentured servants in Virginia. But eventually they hit on a better solution, from their point of view: importing slaves from Africa...

Brad DeLong on Evsey Domar:

Brad DeLong: Domar's contribution is truly one of the most effective and powerful pieces of synthetic social science I have ever read. It isn't perfect. He has more predecessors than he realizes (Marx, for example, especially Marx's observations on the Swan River Colony in Australia, and the whole section on primitive accumulation and the creation of agrarian capitalism in Britain). And Domar misses one big cause of serfdom and slavery. During the formation of the Roman Empire, in Poland at the end of the Middle Ages, and in the Caribbean islands during the early modern period, slavery and serfdom did not emerge because a high land-labor ratio meant that the ruling elite could not afford to bid for labor in a free labor market. Slavery and serfdom emerged, instead, because high demand for staple products (grain, sugar, tobacco...) greatly lowered the gap between the productivity of free and the productivity of bound workers. Staple production is easier for gang-bosses to monitor than more diversified farming. Staple production also has lower skill requirements for workers. When demand for staple products is very high--to feed the proletariat of imperial Rome, to feed the growing cities of late-Medieval Flanders, or to supply the cheap luxuries demanded by early modern England--slavery or serfdom can emerge even without an extraordinarily high land/labor ratio....

[And there are the] two big questions:

  • First, why didn't the Western European nobility re-enserf the peasantry after the Black Death and the resulting big rise in the land/labor ratio? Domar wrestles with this question unsuccessfully in his paper. But I have to say that it is still largely a mystery.

  • Second, why hasn't bound labor reemerged in the modern world? Elites in developing countries can no longer be confident in their ability to earn hefty incomes by employing workers and paying them much less than their average product: an elite monopoly of land ownership is no longer worth much. So why haven't they responded to the potential erosion of their collective economic edge by turning to politics and force to bind workers. One answer is that, to some extent, they have: Consider that modern states are surprisingly effective as tax-collection machines, and in large chunks of the world the elite's power and (relative) prosperity is rooted in its "new class" control over the flow of resources from the state. Consider, also, the Communist Party of Vietnam--what is it but a gang labor boss for unfree labor deployed to produce shoes for Nike?

Very good questions, a very good paper, and I cannot feel but that my 210a class would have gone better [that] year had I kept Domar on the reading list, canned the "labor scarcity and interchangeable parts" part of the course, and spent not half a class on American slavery but a whole class on Unfree Labor in Historical Perspective.

Engerman and Sokoloff: Why did Latin America stay poor?

http://papers.nber.org/papers/h0066.pdf

...

http://papers.nber.org/papers/h0066.pdf

...

http://papers.nber.org/papers/h0066.pdf

...

http://papers.nber.org/papers/h0066.pdf

...

http://papers.nber.org/papers/h0066.pdf

Peter Temin, "Labor Scarcity":

http://www.jstor.org/stable/pdfplus/2115648.pdf

...

http://www.jstor.org/stable/pdfplus/2115648.pdf

....

  • A = F(L,R); K--capital, R--resources, A--agricultural goods
  • M = G(K,L); L--labor, M--manufactures
  • capital is made up of manufactured goods...

  • f--price of food, w--wage, r--real interest rate, m--price of manufactures and capital

  • M = g(K/L)L

  • r = {m(g'(K/L))}/m
  • K/L = g'-1(r)

Goldin and Sokoloff:

http://www.jstor.org/stable/pdfplus/1885960.pdf

...

http://www.jstor.org/stable/pdfplus/1885960.pdf

ref: W Arthur Lewis http://www.j-bradford-delong.net/2008_pdf/Lewis_Evolution_A.pdf http://www.j-bradford-delong.net/2008_pdf/Lewis_Evolution_B.pdf

audio

April 09, 2008 at 11:45 AM in 210a 2008 Notes | | Comments (0)

March 19, 2008

DeLong Econ 210a Industrial Revolution Slides: March 19: Marx and Urbanization and Industrialization and Marketization

Class Audio

In our last episode...

Greg Clark said that there wasn't really an industrial revolution--there was a large demographic expansion made possible by the fact that Britain's population was out-of-sync with Europe and so it could trade manufactured goods for food...

Economics 210a: Introduction to Economic History: U.C. Berkeley: Spring 2008: The Industrialization and Urbanization of England

And that technological progress in steam in the eighteenth century was no more impressive than progress in printing in the 15th century or ocean shipping in the 16th, and had bigger effects only because of the luck of demand elasticities...

And that Britons in 1860 had living standards barely better than those of Britons in the aftermath of the Bubonic Plague...

Nick Crafts said that there was an industrial revolution, but that it was small beer...

Nicholas Crafts (2002), "The Solow Productivity Paradox in Historical Perspective," (London: CEPR Discussion Paper no.3142) http://www.cepr.org/pubs/dps/DP3142.asp

CEPR-DP3142.PDF

Compare to 1.86% per year of real output per worker growth from the computer-communications leading sector of the late 1990s...

Jeffrey Williamson said that there was barely an industrial revolution because Britain tried to industrialize and fight wars...

Jeffrey Williamson, "Why Was British Economic Growth So Slow During the Industrial Revolution?" Journal of Economic History 44, pp.687-712 http://www.jstor.org/view/00220507/di975668/97p1230f/0

http://www.jstor.org/cgi-bin/jstor/printpage/00220507/di975668/97p1230f/0.pdf?backcontext=page&dowhat=Acrobat&config=jstor&userID=8898b438@berkeley.edu/01c0a8346d00501c14927&0.pdf

http://www.jstor.org/cgi-bin/jstor/printpage/00220507/di975668/97p1230f/0.pdf?backcontext=page&dowhat=Acrobat&config=jstor&userID=8898b438@berkeley.edu/01c0a8346d00501c14927&0.pdf

DeLong Indeed, back in 1776 Adam Smith had warned that Britain's politico-military state's success might well crush its economy, writing about even successful debt-funded wars:

The practice... has gradually enfeebled every state which has adopted it. The Italian republicks... Spain seems to have learned the practice from the Italian republicks, and (its taxes being probably has, in proportion to its natural strength, been still more enfeebled.... France... languishes under an oppressive load.... The republic of the United Provinces is as much enfeebled by its debts as either Genoa or Venice.... Is it likely that in Great Britain alone a practice, which has brought either weakness or desolation into every other country, should prove altogether innocent?...

Peter Temin said that there was too an industrial revolution, and it was substantial, and broad-based...

Peter Temin, "Two Views of the British Industrial Revolution," Journal of Economic History 57, pp.63-82 http://ideas.repec.org/p/nbr/nberhi/0081.html

http://www.nber.org/papers/h0081.pdf

http://www.nber.org/papers/h0081.pdf

But his argument appears to be vulnerable to a fall in the global price of textiles and other leading-sector goods...

And Maxine Berg and Pat Hudson said "wait a minute: people thought there was an industrial revolution..."

Maxine Berg and Pat Hudson, "Rehabilitating the Industrial Revolution," Economic History Review new ser. 45, pp.23-50 http://www.jstor.org/view/00130117/di011838/01p0208u/0

http://www.jstor.org/cgi-bin/jstor/printpage/00130117/di011838/01p0208u/0.pdf?backcontext=page&dowhat=Acrobat&config=jstor&userID=8898b438@berkeley.edu/01c0a8346d00501c14927&0.pdf

And there was... although when do we want to date it to?

Workbook1

Workbook1

I'm currently wearing... maybe 3 pounds of cotton, 2 pounds of leather and plastic... 4 pounds of wool...

Now we have Karl Marx and Friedrich Engels http://www.marxists.org/archive/marx/works/download/manifest.pdf, who write in the middle of it and have no doubt that something extraordinary is going on...

Something hopeful...

http://www.marxists.org/archive/marx/works/download/manifest.pdf

http://www.marxists.org/archive/marx/works/download/manifest.pdf

And yet malevolent...

http://www.marxists.org/archive/marx/works/download/manifest.pdf

http://www.marxists.org/archive/marx/works/download/manifest.pdf

http://www.marxists.org/archive/marx/works/download/manifest.pdf

To which the solution is--well, a new world-religion:

http://www.marxists.org/archive/marx/works/download/manifest.pdf

Susan Wolcott and Gregory Clark (1999). "Why Nation's Fail: Managerial Decisions and Performance in Indian Cotton Textiles, 1890-1938." Journal of Economic History, June http://links.jstor.org/sici?sici=0022-0507%28199906%2959%3A2%3C397%3AWNFMDA%3E2.0.CO%3B2-9:

http://www.jstor.org/cgi-bin/jstor/printpage/00220507/di010602/01p0306k/0.pdf?backcontext=page&dowhat=Acrobat&config=jstor&userID=889891e5@berkeley.edu/01c0a8346c00501c18ca5&0.pdf

http://www.jstor.org/cgi-bin/jstor/printpage/00220507/di010602/01p0306k/0.pdf?backcontext=page&dowhat=Acrobat&config=jstor&userID=889891e5@berkeley.edu/01c0a8346c00501c18ca5&0.pdf

http://www.jstor.org/cgi-bin/jstor/printpage/00220507/di010602/01p0306k/0.pdf?backcontext=page&dowhat=Acrobat&config=jstor&userID=889891e5@berkeley.edu/01c0a8346c00501c18ca5&0.pdf

http://www.jstor.org/cgi-bin/jstor/printpage/00220507/di010602/01p0306k/0.pdf?backcontext=page&dowhat=Acrobat&config=jstor&userID=889891e5@berkeley.edu/01c0a8346c00501c18ca5&0.pdf

Alfred D. Chandler (1992), "Organizational Capabilities and the Economic History of the Industrial Enterprise," Journal of Economic Perspectives 6 (Summer) http://links.jstor.org/sici?sici=0895-3309%28199222%296%3A3%3C79%3AOCATEH%3E2.0.CO%3B2-X

http://www.jstor.org/cgi-bin/jstor/printpage/08953309/di980572/98p0043j/0.pdf?backcontext=page&dowhat=Acrobat&config=jstor&userID=889891e5@berkeley.edu/01c0a8346c00501c18ca5&0.pdf

March 19, 2008 at 11:25 AM in 210a 2008 Notes | | Comments (1) | TrackBack (0)

March 12, 2008

DeLong Econ 210a Industrial Revolution Slides: March 12

Lecture Audio

Economics 210a: Introduction to Economic History: U.C. Berkeley: Spring 2008: The Industrialization and Urbanization of England

General Purpose Technologies and the Industrial Revolution

Nicholas Crafts (2002), "The Solow Productivity Paradox in Historical Perspective," (London: CEPR Discussion Paper no.3142) http://www.cepr.org/pubs/dps/DP3142.asp

CEPR-DP3142.PDF

CEPR-DP3142.PDF

CEPR-DP3142.PDF

Maxine Berg and Pat Hudson, "Rehabilitating the Industrial Revolution," Economic History Review new ser. 45, pp.23-50 http://www.jstor.org/view/00130117/di011838/01p0208u/0

http://www.jstor.org/cgi-bin/jstor/printpage/00130117/di011838/01p0208u/0.pdf?backcontext=page&dowhat=Acrobat&config=jstor&userID=8898b438@berkeley.edu/01c0a8346d00501c14927&0.pdf

http://www.jstor.org/cgi-bin/jstor/printpage/00130117/di011838/01p0208u/0.pdf?backcontext=page&dowhat=Acrobat&config=jstor&userID=8898b438@berkeley.edu/01c0a8346d00501c14927&0.pdf

Peter Temin, "Two Views of the British Industrial Revolution," Journal of Economic History 57, pp.63-82 http://ideas.repec.org/p/nbr/nberhi/0081.html

http://www.nber.org/papers/h0081.pdf

http://www.nber.org/papers/h0081.pdf

http://www.nber.org/papers/h0081.pdf

http://www.nber.org/papers/h0081.pdf

Jeffrey Williamson, "Why Was British Economic Growth So Slow During the Industrial Revolution?" Journal of Economic History 44, pp.687-712 http://www.jstor.org/view/00220507/di975668/97p1230f/0

http://www.jstor.org/cgi-bin/jstor/printpage/00220507/di975668/97p1230f/0.pdf?backcontext=page&dowhat=Acrobat&config=jstor&userID=8898b438@berkeley.edu/01c0a8346d00501c14927&0.pdf

http://www.jstor.org/cgi-bin/jstor/printpage/00220507/di975668/97p1230f/0.pdf?backcontext=page&dowhat=Acrobat&config=jstor&userID=8898b438@berkeley.edu/01c0a8346d00501c14927&0.pdf

  • [DeLong]:(http://delong.typepad.com/sdj/2007/09/marx-rostow-kuz.html) Indeed, back in 1776 Adam Smith had warned that Britain's politico-military state's success might well crush its economy, writing about even successful debt-funded wars: "The practice... has gradually enfeebled every state which has adopted it. The Italian republicks... Spain seems to have learned the practice from the Italian republicks, and (its taxes being probably has, in proportion to its natural strength, been still more enfeebled.... France... languishes under an oppressive load.... The republic of the United Provinces is as much enfeebled by its debts as either Genoa or Venice.... Is it likely that in Great Britain alone a practice, which has brought either weakness or desolation into every other country, should prove altogether innocent?..."

http://www.jstor.org/cgi-bin/jstor/printpage/00220507/di975668/97p1230f/0.pdf?backcontext=page&dowhat=Acrobat&config=jstor&userID=8898b438@berkeley.edu/01c0a8346d00501c14927&0.pdf

Memo Question

March 12: The Industrial Revolution

March 12, 2008 at 11:27 AM in 210a 2008 Notes | | Comments (0)

March 06, 2008

March 12: The Industrial Revolution

March 12: Technology, Investment, and the Industrial Revolution [DeLong]

March 12 Memo Question: Maxine Berg and Pat Hudson write that the "historiography of the industrial revolution in England has moved away from viewing the late eighteenth and early nineteenth centuries as a unique turning point in economic and social development." Do you agree with their conclusion that the literature has moved too far in this direction? Why or why not?

Readings:

More Food for Thought:

Greg Clark argues that eighteenth and early nineteenth century England would have urbanized and "industrialized" even in the absence of the revolutions in spinning, weaving, and ironworking: http://delong.typepad.com/teaching_spring_2006/2008/03/the-industriali.html

More hyper-industrial-revolution revisionism from Greg Clark: http://delong.typepad.com/teaching_spring_2006/2008/03/what-was-the-in.html:

[I]f we want to locate the Industrial Revolution as the beginning of the era of sustained productivity growth then the [sixteenth-century] Dutch have as good a case as the British. If we want to locate it in the era of very widespread productivity growth affecting large sectors of the economy, then the US in the after the 1870s is the best candidate....

[...]

[T]he conclusion is that there was little productivity growth in the Industrial Revolution era beyond that explained by the technological revolution in textiles... the accident that textiles were exported on a large scale by 1800, explained by the need to import large quantities of food and raw materials given English population growth after 1760, accounts for a substantial fraction of the gains in productivity. The Industrial Revolution becomes very narrow. It can then be interpreted as just another isolated technological advance [like printing or very long-distance trade that] European economies had been witnessing since at least the fifteenth century.

March 06, 2008 at 02:21 PM in 210a 2008 Notes |

February 07, 2008

Office Hours

Jan de Vries: My office hours are Thursdays, 2-4 pm, in 3317 Dwinelle Hall.

Brad DeLong: My office hours are Wednesdays, 2-whenever, in 601 Evans Hall

February 07, 2008 at 11:15 AM in 210a 2008 Notes | | Comments (0)

February 06, 2008

Brad DeLong's Notes of Jan de Vries on Historical Demography

Jan de Vries on Historical Demography

Policy questions and historical research advances

  • How does pop growth affect exon growth?
  • In what demographic setting did exon growth emerge?

A Malthusian world?

  • Models
  • Realities
  • High vs. low pressure
  • Eueipean marriage pattern
  • Really a "motionless" society?

The Demographic Transition

  • How did it start? Exog or endog?
  • Why fertility decline when?
  • How does the transition end?

American Exceptionalism?

  • Malthus in a benign environment
  • Antebellum puzzles
  • Declining fertility--target and strategic bequests
  • Rising mortality
  • Immigration
  • Baby booms and busts: echoes

February 06, 2008 at 03:02 PM in 210a 2008 Notes | | Comments (0)

January 23, 2008

Brad DeLong's Notes of Jan de Vries's Talk on the Purpose of Economic History

Econ 210a, January 23, 2008. Jan de Vries Speaks:

Here to present apologetics--a response to the question "why are we here, in this class, studying this material?" And this talk is going to give a historian's answer, a narrative, in response to this question...

History and Economics:

The emergence of the social sciences' out of moral philosophy in the 19th century. Positivism--seek truth from facts. resisted positivism; economics embraced it... "Historicism": you can't test, you have to understand... "Historicism": it's an illusion to suppose that we van reduce social science to natural science-like laws like those of mechanical physics... History: Inductive, descriptive, narrative, unique, example... As opposed Economics: Deductive, analytical, model-based, general, experiment...

Robert Solow: embedding of economy in society

All data are historical data... All theory is crystalized history... All history is based on an implicit theory...

Classical Economics:* 

CE is a historically-based inquiry into the nature and causes of the wealth of nations--to see through the accidents of history to the natural laws of social organization... For the CEs, "natural" is good

Moses Finley: Aristotle was a really smart guy, but Aristotle the economist is not very impressive. Finley claims this was the fault of ancient society--organized in such a different way so that Arostotle's categories make no sense. Wealth should flow to virtue...

So how eternal are the theoretical insights of Adam Smith? Do they apply to Athens in 350 BC?

The reaction against CE--German and Austrian reaction. Between 1860 and 1890: Jevons, Walras, Marshall and the rise of NE; institutional and historical critique--economics should recognize that different eras and different regions have different economicses. German Historical School vs. Austrians in the streets of Vienna: methodenstreit. Who won this battle? NE. But should we recover something of the losing side? Cunningham's review of Marshall and his Principles of Economics

Schumpeter, Gerschenkrom, Solow: economic history has a civilizing function when applied to economists... Marx: What's going down in Manchester tells us what will go down in Bombay... Gerschenkron: modified stage theory Return of institutionalism via DE...

Cliometrics: the New Economic History: economic history as a branch of applied NE... The New Institutional Economics, the Annales School, and Paul David's call for a historical economics

Doug North: NIE: price theory is not enough. Transaction costs as the only thing worth thinking about. The old institutionalist agenda in new clothes...

Annales: Braudel, Le Roy Ladurie... Longue duree... The different paces of time... The interplay of event and structure... 

Paul David: The demand for a Historical Economics: make up your own mind for how valuable Paul David's project is... Replace mechanical with biological metaphors, complexity instead of linearity. Are episodes of path-dependence trivial? Does qwerty matter? Is qwerty typical? Decreasing/constant/increasing returns? How long and how large a shadow does the past cast? If you have ever seen a typewriter in a museum...

How much does the path of historical development matter?

Big Questions:

Is capitalism "natural" in a Smithian sense, or a unique historical individual process?

Does the market system allows us to partake "of the common heritage of mankind", or is it a particular--and passing--phase?

Reference: John Maloney (1976), "Marshall, Cunningham, and the Emerging Economics Profession," The Economic History Review New Series, 29:3 (August), pp. 440-451.

January 23, 2008 at 08:00 PM in 210a 2008 Administrivia, 210a 2008 Notes | | Comments (1)

January 21, 2008

January 30: Modes of Production

Economics 210a: Introduction to Economic History: de Vries and DeLong: U.C. Berkeley: Spring 2008:

Pre-Class Memo Topic for January 30: Was it in fact the case--as UCLA's Jared Diamond maintains--that the invention of agriculture was the worst mistake in the history of the human race? What can we say about the causes of the fact that in some human societies technological and organizational progress appears relatively slow and in others relatively fast? And is there a relationship between these two questions?

Submit your 450-word, two page memo on this topic and post the text as a comment to this webpage by the start of the relevant class: noon on Wednesday January 30.

Readings:

Pre-Class Notes:

In addition to the four readings for January 30--Diamond, Finley, Temin, and Baumol--let me give you three other short things to read to orient yourselves for the class:

(1) Exchange and its vicissitudes as fundamental to human psychology and society? Adam Smith:

http://www.adamsmith.org/smith/won-b1-c2.htm: Nobody ever saw a dog make a fair and deliberate exchange of one bone for another with another dog.... When an animal wants to obtain something either of a man or of another animal, it has no other means of persuasion but to gain the favour of those whose service it requires. A puppy fawns upon its dam, and a spaniel endeavours by a thousand attractions to engage the attention of its master who is at dinner, when it wants to be fed by him. Man sometimes uses the same arts with his brethren, and when he has no other means of engaging them to act according to his inclinations, endeavours by every servile and fawning attention to obtain their good will. He has not time, however, to do this upon every occasion. In civilised society he stands at all times in need of the cooperation and assistance of great multitudes, while his whole life is scarce sufficient to gain the friendship of a few persons....

[M]an has almost constant occasion for the help of his brethren, and it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favour, and show them that it is for their own advantage to do for him what he requires of them. Whoever offers to another a bargain of any kind, proposes to do this. Give me that which I want, and you shall have this which you want, is the meaning of every such offer; and it is in this manner that we obtain from one another the far greater part of those good offices which we stand in need of. It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love....

[I]t is this same trucking disposition which originally gives occasion to the division of labour. In a tribe of hunters or shepherds a particular person makes bows and arrows, for example, with more readiness and dexterity than any other. He frequently exchanges them for cattle or for venison with his companions; and he finds at last that he can in this manner get more cattle and venison than if he himself went to the field to catch them. From a regard to his own interest, therefore, the making of bows and arrows grows to be his chief business, and he becomes a sort of armourer. Another excels in making the frames and covers of their little huts or movable houses. He is accustomed to be of use in this way to his neighbours, who reward him in the same manner with cattle and with venison, till at last he finds it his interest to dedicate himself entirely to this employment, and to become a sort of house-carpenter.... [T]he certainty of being able to exchange all that surplus part of the produce of his own labour, which is over and above his own consumption, for such parts of the produce of other men's labour as he may have occasion for, encourages every man to apply himself to a particular occupation, and to cultivate and bring to perfection whatever talent or genius he may possess for that particular species of business.

The difference of natural talents in different men is, in reality, much less than we are aware of; and the very different genius which appears to distinguish men... is not upon many occasions so much the cause as the effect of the division of labour. The difference between the most dissimilar characters, between a philosopher and a common street porter, for example, seems to arise not so much from nature as from habit, custom, and education... and widens by degrees, till at last the vanity of the philosopher is willing to acknowledge scarce any resemblance. But without the disposition to truck, barter, and exchange, every man must have procured to himself every necessary and conveniency of life which he wanted. All must have had the same duties to perform, and the same work to do, and there could have been no such difference of employment as could alone give occasion to any great difference of talents.... By nature a philosopher is not in genius and disposition half so different from a street porter, as a mastiff is from a greyhound, or a greyhound from a spaniel, or this last from a shepherd's dog....

Among men... the most dissimilar geniuses are of use to one another; the different produces of their respective talents, by the general disposition to truck, barter, and exchange, being brought, as it were, into a common stock, where every man may purchase whatever part of the produce of other men's talents he has occasion for...

(2) Different technologies as producers of different societies which give rise to different types of economies? Karl Marx:

Preface to A Contribution to the Critique of Political Economy: In the social production of their life, men enter into definite relations that are indispensable and independent of their will, relations of production which correspond to a definite stage of development of their material productive forces. The sum total of these relations of production constitutes the economic structure of society, the real foundation, on which rises a legal and political superstructure and to which correspond definite forms of social consciousness. The mode of production of material life conditions the social, political and intellectual life process in general. It is not the consciousness of men that determines their being, but, on the contrary, their social being that determines their consciousness.

At a certain stage of their development, the material productive forces of society come in conflict with the existing relations of production, or — what is but a legal expression for the same thing — with the property relations within which they have been at work hitherto. From forms of development of the productive forces these relations turn into their fetters. Then begins an epoch of social revolution. With the change of the economic foundation the entire immense superstructure is more or less rapidly transformed. In considering such transformations a distinction should always be made between the material transformation of the economic conditions of production, which can be determined with the precision of natural science, and the legal, political, religious, aesthetic or philosophic — in short, ideological forms in which men become conscious of this conflict and fight it out....

In broad outlines Asiatic, ancient, feudal, and modern bourgeois modes of production can be designated as progressive epochs in the economic formation of society...

(3) Living standards and the pace of economic progress: Brad DeLong:

Handout: http://www.j-bradford-delong.net/2008_pdf/20080120_longestrungrowth.pdf

Longest-Run Economic Growth - Google Docs

January 21, 2008 at 03:19 PM in 210a 2008 Notes | | Comments (19)

Why Should Economists Study Economic History? After-Action 210a Note

I'm Brad DeLong, and this is my morning coffee.

Jan de Vries ran our first Econ 210a class yesterday--"Introduction to Economnic History" for the first-year Ph.D. students in economics. He spent more time than I had in the past on what he called "apologetics"--outlining why we were requiring first-year Ph.D. students in economics to take an economic history course--and he gave a historian's answer to that question: a narrative, a particular individual story, a talk about the formation of the social sciences and the rise and fall of positivism and the subsequent vicissitudes of economic history as a subdiscipline within economics.

It struck me after the class that I should have taken up a bit of time to give the economist's answer to the question of why we make first-year Ph.D. students take economic history. I think it goes roughly as follows:

Economics is the hyper-positivist of social science disciplines: believing that everything of interest can be reduced to law-like theoretical and empirical propositions modeled after classical mechanics; that what cannot be reliably, repeatedly, quantitatively, and empirically demonstrated does not really exist as knowledge; that the only good social science is a deductive, analytical, model-based, general, experimental science.

But this misses a lot. Because we are people like those whom we study, we have psychological access to our subjects' internal decision-making processes and motivations at a level that we cannot obtain from market price-quantity data. There is lots of interest that happens once and only once. Natural experiments are rare, and so if we restrict ourselves to positivist tools alone much is underidentified. The individuals' preferences--the "tastes" part of "tastes and technologies" are not primitive but are themselves the result of long and complex historical, sociological, psychological, and--yes--economic processes. You need thickly-described case studies and anecdotes looking out from people's insides before you can tell if your statistical results mean what you assert they mean.

Most important, every piece of economic theory is ultimately a piece of crystalized history. And you have a much deeper and more sophisticated knowledge if you know the history that led people to think that elaborating these particular theories was worth doing. If you just do the crystalized stuff--well, there is a sense in which your thought processes are then on crack, unable to properly process and reflect on the systems of analysis you are using.

Of course, there is a parallel answer to the question of why historians should be forced to take economic history courses. It has, I think, two parts. First, certainly since 1800 and perhaps since 1500, what is most extraordinary and salient about our global society is primarily economic and scientific, so you cannot do post-1500 history without knowing economics anymore than you can do early Byzantine history without knowing theology.

Second, just as every piece of theory is ultimately crystalized history, so every individual historical narrative or judgment is based on a web of implicit social science theories. And your knowledge of the past is inadequate if you do not understand your implicit social science theories critically enough to be expert users of them.

I'm Brad DeLong, and this is my morning coffee, drunk this morning out of my Revelation of Saint John the Divine mug, it happens.

January 21, 2008 at 12:07 PM in 210a 2008 Administrivia, 210a 2008 Notes | | Comments (2)