Economics 210a: Introduction to Economic History: U.C. Berkeley: Spring 2008

The Crisis of the "Mixed Economy"

Econ 210a: Introduction to Economic History: February 28 Class: The Crisis of the Mixed Economy

In the mid-1960s economists thought that they had it right. Bretton Woods. Keynesian domestic demand management. Progressive tax and transfer systems. And perhaps a bit of public ownership of the "commanding heights" and of "indicative planning." The problems of economic management seemed--to some at least, in the first world at least--to be broadly solved. And people were looking forward to future eras in which the "economic problem" would not be allocating scarce resources among various productive uses but allocating abundant products in the interest of human well-being. What is the economic problem in an era in which we have enough food not to be hungry, enough clothing not to be cold, enough shelter not to be wet, and certainly enough diversions not to be bored?

But as a result of the 1970s and 1980s, consideration of these problems was pushed into the far future, because it became clear that economists did not have it right:

Readings:

• J. Bradford DeLong (1997), "America's Peacetime Inflation: The 1970s," in Christina Romer and David Romer. eds., Reducing Inflation: Motivation and Strategy (Chicago: University of Chicago Press) http://www.j-bradford-delong.net/pdf_files/Peacetime_Inflation.pdf.
• William Nordhaus (2004), "A Retrospective on the 1970s Productivity Slowdown" http://mirror.nber.org/cgi-bin/sendWP.cgi/311459297/w10950.pdf.
• Olivier Blanchard "European Unemployment: The Evolution of Facts and Ideas," unpublished manuscript, MIT (October 2005), http://www.nber.org/papers/w11750
• Richard Ericson, "The Classical Soviet-Type Economy: Nature of the System and Implications for Reform," Journal of Economic Perspectives 5 (Fall 1991), pp. 11-28, http://uclibs.org/PID/1011.
• J. Bradford DeLong and Barry J. Eichengreen (2001), "Between Meltdown and Moral Hazard: Clinton Administration International Monetary and Financial Policy" http://www.j-bradford-delong.net/Econ_Articles/CIEP/CIEP_revision06102001.PDF

The embarrassing question is: "What is this class doing in an economic history course?" I say: "Some ask 'why?' I say 'why not!'!"

Barry Eichengreen says that when he was on the job market, Zvi Griliches asked him: "You say you're an economic historian, and you study the 1920s and 1930s. How can that be? I lived through the 1920s and 1930s."

And after today (except for special fill-in and guest lectures, except for dissertation and thesis supervising, except for talking to students about their class papers and then grading them, except for seminars--but I don't have organizational responsibility for any this semester) I am off the teaching line...

Econ 210a: Fall 2006: Agriculture and Forced Labor in Early Modern Growth: Major Headings

Nov. 1. Agriculture and Forced Labor in Early Modern Growth [DeLong]

• Evsey Domar (1970), "The Causes of Slavery or Serfdom: A Hypothesis," Journal of Economic History, pp. 18-32 http://www.j-bradford-delong.net/movable_type/2003_archives/001447.html
• Why slavery (or serfdom)?
• Aristotle: we will always have slavery until we have looms that work of themselves.
• Landlord upper class--needs workers, and no alternative land for the workers to go to.
• Laborlord upper class--needs effective means of control.
• What limits the rate of exploitation with laborlords?.
• Trade and laborlords.
• Adam Smith's bet: slavery inefficient. Why was his bet wrong?
• Stanley Engerman and Kenneth Sokoloff (1994), "Factor Endowments, Institutions and Differential Paths of Development Among New World Economies: A View from Economic Historians of the United States" (Cambridge: NBER Working Paper no. h0066) http://papers.nber.org/papers/h0066.pdf
• Haiti richest in world in 1776.
• Haiti not richest in world today.
• What went wrong in Haiti--and what went right in North America?
• What is Sokoloff and Engerman's story?
• Sokoloff and Engerman aren't doing economics, are they?
• Claudia Goldin and Kenneth Sokoloff (1984), "The Relative Productivity Hypothesis of Industrialization: The American Case, 1820-1850," Quarterly Journal of Economics 99 (August), pp. 461-87 http://links.jstor.org/sici?sici=0033-5533%28198408%2999%3A3%3C461%3ATRPHOI%3E2.0.CO%3B2-V
• America rich in land, and scarce in labor.
• America scarce in capital.
• Why, then, did part of America--New England--industrialize?
• O'Brien, Patrick (1982), "European Economic Development: the Contribution of the Periphery," Economic History Review, 1-18. http://links.jstor.org/sici?sici=0013-0117%28198202%292%3A35%3A1%3C1%3AEEDTCO%3E2.0.CO%3B2-W
• How much did western Europe gain, 1500-1800, from trade?
• How much did western Europe gain, 1500-1800, from pillage?
• How much did western Europe gain, 1500-1800, from empire?

Econ 210a: Fall 2006: Trade and the Industrious Revolution Major Headings

Oct. 25. Trade and the Industrious Revolution:

Avner Greif (1989), "Reputation and Coalitions in Medieval Trade: Evidence on the Maghribi Traders," Journal of Economic History 49:4 (December), pp. 857-882 http://links.jstor.org/sici?sici=0022-0507%28198912%2949%3A4%3C857%3ARACIMT%3E2.0.CO%3B2-M

• How is "trade without law" possible?
• How much "trade without law" can there be?
• What would Ronald Coase say about this situation?
• Are game-theoretic models of these kinds of interactions adequate?
  • What if you have no insular, despised ethnic group around?

J. Bradford DeLong and Andrei Shleifer (1993), "Princes and Merchants: City Growth Before the Industrial Revolution," Journal of Law and Economics 36:5 (Oct), pp. 671-702 http://www.j-bradford-delong.net/movable_type/archives/000638.html.

• Why isn't monarchy good enough?
  • Hobbes called it "Leviathan"
  • Mancur Olson called it a "stationary bandit"
  • Why do DeLong and Shleifer say that "Leviathan" alone is insufficient?
• How strong is DLS's empirical evidence, really?
• Why should "merchants" be different from "princes"?
  • The peculiar status of the European city...
  • Why so few "merchants" elsewhere in the early-modern world?
    • China
    • India
    • Middle East (Ibn Khaldun)

Jan de Vries (1994), "The Industrious Revolution and the Industrial Revolution," Journal of Economic History 54:2 (June), pp. 249-70 http://links.jstor.org/sici?sici=0022-0507%28199406%2954%3A2%3C249%3ATIRATI%3E2.0.CO%3B2-8

• What, exactly, changes to make the "industrious revolution" possible?
• What did peasants do in the evening before the "industrious revolution"?
• What did they do afterwards?
• How large can these effects plausibly be?
  • What is an "entre-preneur"?

Adam Smith (1776), The Wealth of Nations, Book I and Book V http://www.econlib.org/library/Smith/smWNtoc.html

• The literature of "political oeconomy"
• "The system of natural liberty" as a game-changing insight
• How reliant is Book V on Book I?

A Note: Natural Resources and Pre-Industrial Malthusian Population Dynamics

In the year 1--we guess--world population was about 170 million. In the year 1650--we guess--it was about 540 million. This tripling of world population over the course of one and two-thirds millennia was accompanied by very little improvement in the standard of living of the median peasant (though things may well have been very different for the upper-class elite). We can thus say that world real GDP--at least when measured in terms of necessities rather than luxuries--roughly tripled over this one and two-thirds millenium.

We can feed these numbers to a standard Solow growth model with natural resources, as in:

J. Bradford DeLong (2006), "Lecture Notes: Econ 101B: Explorations in the Theory of Economic Growth: Natural Resources and Malthusian Population Dynamics" http://delong.typepad.com/print/20060905_lecture_notes.pdf

We then conclude that the rate of real GDP and population growth over this period was roughly 0.07% per year. Under the further assumption that natural resources had a parameter of roughly 0.3 in the world economy's production function back then, we can calculate that total factor productivity growth in the pre-industrial world averaged 0.02% per year.

Compare and contrast that to the 2-3% per year of total factor productivity growth in the world today.

Post-Neolithic Pre-Industrial Economies: Recommended, Highly Optional, Readings

Recommended (but not required: only for those of you with great interest and copious amounts of spare time) readings for October 18:

• William Godwin (1793), "An Enquiry Concerning Political Justice" http://dwardmac.pitzer.edu/anarchist_archives/godwin/PJfrontpiece.html
• Thomas R. Malthus (1795), "An Essay on the Principle of Population" http://www.econlib.org/library/Malthus/malPlong.html
• Paul R. Ehrlich (1968), The Population Bomb http://en.wikipedia.org/wiki/The_Population_Bomb
• Peter H. Lindert (1986), "Unequal English Wealth since 1670," The Journal of Political Economy 94:6 (December), pp. 1127-1162 http://www.jstor.org/view/00223808/di951041/95p0070r/0
• Michael Kremer (1993), "Population Growth and Technological Change: One Million B.C. to 1990," Quarterly Journal of Economics 108:3 (August), pp. 681-716 http://links.jstor.org/sici?sici=0033-5533%28199308%29108%3A3%3C681%3APGATCO%3E2.0.CO%3B2-A
• Richard H. Steckel (1995), "Stature and the Standard of Living," Journal of Economic Literature 33:4 (December), pp. 1903-1940 http://links.jstor.org/sici?sici=0022-0515%28199512%2933%3A4%3C1903%3ASATSOL%3E2.0.CO%3B2-C
• J. Bradford DeLong (1998), "Estimates of World GDP, One Million B.C. – Present " http://delong.typepad.com/print/20061012_LRWGDP.pdf
• Gregory Clark (2004), "Lifestyles of the Rich and Famous: Living Costs of the Rich versus the Poor in England, 1209-1869" http://www.iisg.nl/hpw/papers/clark.pdf#search=%22clark%20lifestyles%20of%20the%20rich%20and%20famous%22
• Kenneth Arrow et al. (2004), "Are We Consuming too Much?" http://www.atypon-link.com/AEAP/doi/pdf/10.1257/0895330042162377
• Gregory Clark (2005), "Living Standards in the Malthusian Era," chapter 3 of The Conquest of Nature http://www.econ.ucdavis.edu/faculty/gclark/GlobalHistory/Global%20History-3.pdf

Guesses at Historical Human Populations

Guesses at historical human populations: