Introduction to Economic History for Graduate Students

Introduction to Economic History Research Paper

Research Paper

Your research paper is due on Friday May 9th. In addition to sending an electronic copy to both instructors, be sure to put a copy in Professor Eichengreen’s mail box in Economics Department reception on the 5th floor of Evans Hall. The office is open 9:00-4:00. The paper should not exceed 25 pages. This deadline will not be changed; plan in advance.

Introduction to Economic History Logistics

Introduction to Economic History: Economics 210A


Brad DeLong and Barry Eichengreen 
 Spring 2014 :: University of California, Berkeley :: Wednesday 1:00-3:00 p.m. :: 597 Evans Hall

Introduction

Economics 210a is required of Ph.D. students in the first year of the graduate program. The course is designed to introduce a selection of themes from the contemporary economic history literature ( not to present a narrative account of world economic history). Emphasis is on the insights that history can provide to the practicing economist.

Econ 210a Memo Questions for April 20 and April 27, 2011

Econ 210a Memo Questions for April 20 and April 27, 2011:

April 20: A couple of weeks ago Martin Wolf asked Lawrence Summers a question:

Wolf: "Wouldn’t a reasonable non-economist conclude... here we have this fantastically dangerous [macroeconomic-financial] engine, which you don’t fully understand, therefore... you just cannot risk deregulating it. It has to be under government control, very tightly, all the time. How would you tell a layperson that that’s not a reasonable response?"

And Summers answered: "Well, in some ways it probably is a reasonable response. The last time [we had such a crisis, the Great Depression] – this is an overstatement – but this was why Harry Dexter White was a communist.... [A] very large number of thoughtful people who were communists in the 1930s, because they looked and they saw that just letting the market rip had ended in disaster.... [T]hey convinced themselves that having not just the financial system but the processes of production be controlled and planned as they were in the Soviet Union that had not suffered a similar unemployment problem, would produce a better outcome. And that did not prove to be conspicuously successful."

Were the social-democratic "mixed economies" that developed after World War II a different species of animal than either market classical liberalism or state socialist planning, or are the "mixed economies" just an incoherent mix of organizing principles?

---

April 27: A couple of weeks ago Lawrence Summers said, of the period between 1968 and 1984:

Summers: "[It was] a Keynesian disaster... the crude application of totally demand-oriented policies that... produced an inflationary disaster..."

To what degree was he right and to what degree was he wrong about the episode of inflation that triggered the election of Reagan and Thatcher and the rightward political shift of the North Atlantic?

Memo Question for April 13, 2011

"How important were federal aid to the states and federal initiatives to resolve the housing crisis for the recovery of the U.S. economy post- 1933? Does this historical experience contain any lessons relevant to post-2007 policy (what if anything does it suggest that the federal government should have done differently)?

Econ 210a: Memo Question for March 30

Econ 210a: Memo Question for March 30:

What were the "rules of the gold standard game?" To what extent were they obeyed or, to the contrary, violated? If they were violated, how then did the gold-standard system survive?

Econ 210a: Memo Question for March 16

Econ 210a: Memo Question for March 16: Read Walter Bagehot's Lombard Street. Think about the recent financial crisis and economic downturn. To what extent did policymakers in the recent financial crisis follow the model of crisis management set out by Bagehot, and to what extent did they deviate from it?

Econ 210a: Memo Question for March 9

Sanford Jacoby, Susan Carter-Elizabeth Savoca and John James provide three different pictures of labor markets in the United States toward the end of the 19th century. How and why do they differ? Can their views be reconciled?

Econ 210a: Memo Question for March 2

Ken Snowden's article on the late-19th century mortage market in the United States suggests parallels with the Subprime Crisis. What are the important parallels? How far should one push them?"

Econ 210a: Memo Question for February 23

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

Econ 210a: Memo Question for February 16, 2011

Memo question for 210a for next week (to be posted on THURSDAY morning) is:

The scarcity of labor in the United States in the first half of the 19th century is said in the literature to have been responsible for the country's distinctive technological development. Does this argument make sense logically? Does the evidence support it?

Econ 210a: Memo Question for February 9

Econ 210a: Memo Question for February 9:

What, if anything, remains "revolutionary" about the British Industrial Revolution?  Can it still be viewed as a decisive turning point in economic history?

Econ 210a: Memo Question for February 2, 2011

Econ 210a: Memo Question for February 2, 2011:

Adam Smith confidently predicted that slavery was on its way out for economic reasons. In commercial society, manumission would be the rule because the carrot of working for yourself is much more efficient than the stick of being whipped by others. Was Smith right? If you conclude he was wrong, why was he wrong?

Econ 210a: Memo Question for January 26, 2011

"The treasure captured outside Europe by undisguised looting, enslavement and murder, floated back to the mother-country and were there turned into capital."

-- Marx, Capital, Vol. 1 Ch. 32.

Do the other assigned readings provide any basis for assessing the general truth of this passage from Marx? In what sense did colonial trade in the 1497-1800 period contribute to capital formation in Europe?

Econ 210a Syllabus

January 19: Introduction, and the Malthusian Economy

20110107 210a_syllabus_1-7-11-1.pdf

January 19. Introduction, and the Malthusian Economy (DeLong)

January 19. Introduction, and the Malthusian Economy (DeLong)

R.G. Hawtrey (1925), "Public Expenditure and the Demand for Labour," Economica 13 (March), pp. 36-48. http://www.jstor.org/stable/2548008

John Hicks (1937), "Mr. Keynes and the 'Classics': A Suggested Interpretation," Econometrica 5:2 (April), pp. 147-159. http://www.jstor.org/stable/1907242

Eugene Fama (2009), "Bailouts and Stimulus Plans" (January 13). http://www.dimensional.com/famafrench/2009/01/bailouts-and-stimulus-plans.html

Jared Diamond (1987), "The Invention of Agriculture: The Worst Mistake in the History of the Human Race," Discover. http://delong.typepad.com/sdj/2005/09/the_malthusian_.html

Gregory Clark (2005) on the Malthusian Economy, draft chapters 2 and 3 of A Farewell to Alms (published version: Princeton University Press, 2007). Clark-2.pdf and Clark-3.pdf

M. I. Finley (1965), "Technical Innovation and Economic Progress in the Ancient World," Economic History Review, New Series, 18:1, pp. 29-45. http://tinyurl.com/dl20090112f

---

The readings for the first week of Econ 210a fall into three groups.

First come three readings on the determination of nominal spending. Among them we have, first, R.G. Hawtrey trying to tease out the implications of the quantity theory of money for the effect of government fiscal policy on total nominal spending. Hawtrey makes two mistakes. First, he implicitly assumes that the velocity of money is not a function of the nominal interest rate--that, at least as far as the effects of fiscal policy on spending are concerned, we have a rigid cash-in-advance economy. Second, he assumes that all agents in the economy have the same desired spending velocity--that even though the government is a vastly larger entity able to self-insure against fluctuations in its cash flow, it must hold the same ratio of cash to spending as the smallest household.

The second nominal spending reading is John Hicks's reconciliation of Knut Wicksell's macroeconomics (which saw the level of spending as determined by the balance of planned savings and planned investment at an interest rate set by a central bank that controlled the money supply) and Irving Fisher's macroeconomics (which saw the level of spending as determined by the money stock and money velocity at an interest rate set by the equilibration of planned savings and investment). Hicks points out that money demand is interest-elastic and that planned savings and investment are spending-elastic: thus you have two unknowns--the flow of nominal spending PY and the interest rate i--and two equations--S(i, PY) = I(i, PY) and PY = MV(i).

Starting from Hawtrey and Hicks you can begin to think about under what circumstances an expansionary fiscal policy like Christina Romer's Recovery Act might make sense--and under what circumstances it might not.

And the fascinating thing is that Eugene Fama has heard of absolutely none of this, and tries to reason out the issues over a weekend... and implicitly assumes a rigid cash-in-advance economy with a technologically-fixed velocity. The painful thing is that there is nothing special about the government in his argument: Fama appears to have proved that nominal spending can never fluctuate--for, after all, even a helicopter drop of money is offset by the higher future taxes needed to cover the future liability of withdrawing the money when the bills wear out.

This is, I think, a cautionary tale: it is very important to test your theoretical arguments against as broad a range of historical cases and past economists' thought as possible in order to keep in touch with the world as it is.

The second group is made up of Diamond and Clark on the Malthusian economies of the agrarian age. We think that there were perhaps 5 million people alive at the start of the Neolithic Age in 7500 BC--and if we want to be very brave we can assign them a living standard of $500 of today's international dollars per capita. We think that there were perhaps 500 million people alive 9000 years later in 1500--and if we want to be very brave we can assign them a living standard of $500 of today's international dollars per capita. Probably the upper class lives a lot better in 1500 than it had lived in 7500 BC. But the peasants and the craftsmen? Probably not. For one thing, you had 100 times the population density.

The key to understanding why effectively all technological progress from 7500 BC to 1500 went into rising populations and next to none of it into higher living standards rests on four facts:

• That effective birth control is hard to do.
• That almost nobody wants effective birth control in a world in which surviving descendants are one of the very few ways you can save for your old age.
• That although customs and cultures can drive a large wedge between the standard of living at which population is stable and the poverty at which ovulation ceases and deficiency diseases collapse your immune system, such customs and cultures are unstable.
• That technological progress was never fast enough to get any group over the hump and into the range where female literacy and better public health begin to give people incentives to work hard to restrict their fertility.

And this brings us to the third of our topics. Why was the rate of technological progress so slow? We don't think we have anything to teach Sophocles about writing plays or Homer about writing epics or Sappho about writing poetry. We don't have anything to teach Cicero about pulling the wool over the eyes of a jury or Julius Caesar about blitzkrieg. We might have some things to teach Pericles and Augustus about how to set up a stable and non-oppressive government, but not very much. Yet we have a huge amount to teach everybody in the past not just about technology but how to make more and better technology, not just our inventions but rather the master invention of how to make the process of invention more-or-less routine.

For it is a fact that if you do the arithmetic you see that we have about the same relative productivity growth in one year as previous pre-1500 epochs had in a century.

There are two big theories as to why. The first is what I think of as Michael Kremer's density hypothesis: two heads are better than one, and a literate head is better than an illiterate one, and so it is our greater population and greater wealth that makes our technological progress faster.

The second is the more "cultural" approach that I associate with M.I. Finley. When William Gates wants to make his mark on the world at the end of the twentieth century, he drops out of college and starts a software company to make money by selling people operating systems, games, and office programs--and rises to become the richest man in the world. When Williams Marshall wants to make his mark on the world in the middle of the twelfth century, he practices with sword, shield, lance, and horse and then heads out into the world as a combination of professional athlete, bully-boy, soldier, and then courtier-administrator--and rises to become regent of England for Henry III and Earl of Pembroke.

This is the background for Finley's discussion of why it was that (military applications aside) the literate brainpower of the pre-industrial world was not directed at things of practical utility.

April 28: Econ 210a: The Great Recession in Historical Perspective

April 28: Macroeconomics—Up to 2007:

• Walter Bagehot (1873), Lombard Street http://www.gutenberg.org/etext/4359, entire.
• 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
• John Hicks (1937), "Mr. Keynes and the 'Classics': A Suggested Interpretation", Econometrica http://web.econ.unito.it/bagliano/macro3/hicks_econ37.pdf
• John B. Taylor (2000), "Reassessing Discretionary Fiscal Policy," Journal of Economic Perspectives Vol. 14, No. 3 (Summer, 2000), pp. 21-36 http://www.jstor.org/stable/2646917
• Alan Auerbach and William Gale (2009), "Activist Fiscal Policy to Stabilize Economic Activity" http://www.nber.org/papers/w15407.pdf

Question: In what respects, given what you know, has the police response to what we are now starting the call the "great recession" exceeded reasonable expectations for what can be accomplished in the heat of the moment?

Apr 7: The Forward March of Social Democracy Halted?

Apr 7: The Forward March of Social Democracy Halted?

Question:

What were the reasons behind the general belief--on the left, on the right, and in the center--in the late-1970s that North Atlantic social democracy had failed as a political-economic system?

Readings:

• Mancur Olson (1996), "Varieties of Eurosclerosis: The Rise and Decline of Nations Since 1982," in Nicholas Crafts and Gianni Toniolo (eds), Economic Growth in Europe Since 1945, Cambridge, Cambridge University Press, pp.73-94 http://books.google.com/books?hl=en&lr=&id=wiTtnUn5qGsC&oi=fnd&pg=PA73&dq=%22OLSON%22+%223+The+varieties+of+Eurosclerosis:+the+rise+and+decline+...%22+&ots=s86KlJoXe7&sig=wabLIsaAIsicZhoppgt-vDhRxcE#PPA69,M1
• J. Bradford DeLong (1995), "America's Only Peacetime Inflation: The 1970s," in Christina Romer and David Romer, eds., Reducing Inflation: Motivation and Strategy (University of Chicago Press), pp.-, http://tinyurl.com/dl20090112v
• Eric Hobsbawm (1978), "The Forward March of Labour Halted?" Marxism Today http://www.amielandmelburn.org.uk/collections/mt/pdf/78_09_hobsbawm.pdf Yours,

Syllabus: Econ 210a, Spring 2010

Jan 20: Introduction: Why Are We Here?

Assignments and notes at: http://delong.typepad.com/economics_210a_spring_201/2010/01/first-class-resources.html

• Growth Readings: Paul Krugman (1999), "The Fall and Rise of Development Economics" http://tinyurl.com/20100105a; Tyler Cowen (2010), "Daron Acemoglu on the U.S.-Mexican Border" http://tinyurl.com/dl20100105h Daron Acemoglu (2009), "What Makes a Nation Rich? One Economist's Big Answer" http://tinyurl.com/dl20100105i.
• Macro Readings: Narayana Kocherlakota (2009), "Some Thoughts on the State of Macro" http://tinyurl.com/20100105b; John Cassidy (2009), "Letter from Chicago," New Yorker (January 11), pp. 44-49 http://delong.typepad.com/cassidy2.pdf; Richard Posner (2009), "Honesty About the Stimulus," Atlantic http://tinyurl.com/dl20100105d; Robert Lucas (2009), "Why a Second Look Matters," Council on Foreign Relations http://tinyurl.com/dl20100105e.
• Systems Readings: Alex Tabarrok (2010), "Soviet Growth and American Textbooks" http://tinyurl.com/dl20100105f; David Levy and Sandra Peart (2009), "Soviet Growth and American Textbooks" http://tinyurl.com/dl20100105g.

---

Jan 27: One Economics or Many?

Assignments and notes at: http://delong.typepad.com/economics_210a_spring_201/2010/01/econ-210a-uc-berkeley-january-27-2010-one-economics-or-many.html

• M. I. Finley (1970), "Aristotle and Economic Analysis," Past and Present, No. 47. (May), pp. 3-25 http://www.jstor.org/view/00312746/ap020049/02a00010/0
• Peter Temin, "A Market Economy in the Early Roman Empire" http://sshi.stanford.edu/Seminars/Papers/classics/temin.pdf
• William Baumol (1990), "Entrepreneurship: Productive, Unproductive, and Destructive," Journal of Political Economy 98:5(1) (Oct), pp. 893-921 http://links.jstor.org/sici?sici=0022-3808%28199010%2998%3A5%3C893%3AEPUAD%3E2.0.CO%3B2-Z
• Snippets: Smith, Marx, Solow: http://delong.typepad.com/economics_210a_spring_201/2010/01/january-27-2010-snippets-smith-marx-solow.html
• J. Bradford DeLong, "Handout: Longest-Run Economic Growth" http://www.j-bradford-delong.net/2008_pdf/20080120_longestrungrowth.pdf
• (Optional) 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
• (Optional) M. I. Finley (1965), "Technical Innovation and Economic Progress in the Ancient World," Economic History Review, New Series, Vol. 18, No. 1, Essays in Economic History Presented to Professor M. M. Postan), pp. 29-45 http://www.jstor.org/stable/pdfplus/2591872.pdf
• (Optional) Michael Kremer (1993), "Population Growth and Technological Change: One Million B.C. to 1990," Quarterly Journal of Economics 108 (August), pp. 681-716. http://www.jstor.org/stable/pdfplus/2118405.pdf

---

Feb 3: The Malthusian Economy

Assignments and notes at: http://delong.typepad.com/economics_210a_spring_201/2010/01/econ-210a-uc-berkeley-february-3-2010-the-malthusian-economy.html

Readings:

• Jared Diamond (1987), "The Invention of Agriculture: The Worst Mistake in the History of the Human Race," Discover http://tinyurl.com/dl20090112d.
• Gregory Clark (2005), "The Logic of the Malthusian Economy," draft of chapter 2 of A Farewell to Alms (published version: Princeton University Press, 2007) http://tinyurl.com/dl20090112e.
• Gregory Clark (2005), "Living Standards in the Malthusian Era," draft of chapter 3 of A Farewell to Alms http://tinyurl.com/dl20090112j.
• M. I. Finley (1965), "Technical Innovation and Economic Progress in the Ancient World," Economic History Review, New Series, 18:1, pp. 29-45 http://tinyurl.com/dl20090112f.
• (Optional) Thomas Malthus, An Essay on the Principle of Population http://socserv2.socsci.mcmaster.ca:80/~econ/ugcm/3ll3/malthus/popu.txt

---

Feb 10: Industrious Revolutions

Assignments and notes at: http://delong.typepad.com/economics_210a_spring_201/2010/01/econ-210a-uc-berkeley-february-210-2010-industrious-revolutions-and-divisions-of-labor.html

• 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
• Hans-Joachim Voth, "Time and Work in Eighteenth-Century London," Journal of Economic History 58 (1998): 29-58 http://links.jstor.org/sici?sici=0022-0507%28199803%2958%3A1%3C29%3ATAWIEL%3E2.0.CO%3B2-Y
• Douglass North and Barry Weingast (1989), "Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England," Journal of Economic History 49:4 (December), pp. 803-832 http://links.jstor.org/sici?sici=0022-0507%28198912%2949%3A4%3C803%3ACACTEO%3E2.0.CO%3B2-9
• 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.
• (Optional) Adam Smith (1776), An Inquiry into the Nature and Causes of the Wealth of Nations http://www.econlib.org/library/Smith/smWNtoc.html. Read Books I and V.

---

Feb 17: Industrial Revolutions

Assignments and notes at: http://delong.typepad.com/economics_210a_spring_201/2010/01/econ-210a-uc-berkeley-february-17-2010-industrial-revolutions.html

• Daron Acemoglu, Simon Johnson, and James A. Robinson (2005), "The Rise of Europe," American Economic Review 95 (2005) http://www.nber.org/papers/w9378
• Jan de Vries, "Dutch Economic Growth in Comparative-Historical Perspective, 1500-2000," De Economist 148 (2000): 443-467 http://www.springerlink.com/content/l4qp2l551l7t7361/
• Karl Marx and Friedrich Engels, "Manifesto of the Communist Party" http://www.marxists.org/archive/marx/works/1848/communist-manifesto/
• Robert Allen (2009), "Why Was the Industrial Revolution British?" http://www.voxeu.org/index.php?q=node/3570
• 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
• Nicholas Crafts (2002), "The Solow Productivity Paradox in Historical Perspective," (London: CEPR Discussion Paper no.3142) http://www.cepr.org/pubs/dps/DP3142.asp
• (Optional) Karl Marx, "The So-called Primitive Capital Accumulation," Capital, I, Part VIII, Chs 26-32 http://www.marxists.org/archive/marx/works/1867-c1/ch26.htm
• (Optional) 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
• (Optional) 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

---

Feb 24: Globalizations

Assignments and notes at: http://delong.typepad.com/economics_210a_spring_201/2010/02/globalizations.html

• Jeffrey Williamson and Kevin O'Rourke, "After Columbus: Explaining Europe's Overseas Trade Boom, 1500-1800," Journal of Economic History 62 (2002): 417-456 http://www.nber.org/papers/w8186
• Jan de Vries, "The Limits to Globalization in the Early Modern World," Economic History Review (forthcoming) http://www.j-bradford-delong.net/2008_pdf/devries_limits_of_globalization.pdf
• W. Arthur Lewis, Evolution of the International Economic Order (Princeton, Princeton Univ. Press, 1978) http://j-bradford-delong.net/2008_pdf/Lewis_Evolution_A.pdf http://j-bradford-delong.net/2008_pdf/Lewis_Evolution_B.pdf
• Jeffry G. Williamson, "Globalization, Convergence, and History" Journal of Economic History 56 (1996):227-306 http://links.jstor.org/sici?sici=0022-0507%28199606%2956%3A2%3C277%3AGCAH%3E2.0.CO%3B2-T
• Richard Baldwin and Philippe Martin (1999), “Two Waves of Globalization: Superficial Similarities, Fundamental Differences,” NBER Working Paper no.6904 (January) http://www.nber.org/papers/w6904

---

Mar 3: Divergences

Assignments and notes at: http://delong.typepad.com/economics_210a_spring_201/2010/03/econ-210a-uc-berkeley-march-3-2010-divergences.html

• 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
• 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
• Richard Easterlin (1981), "Why Isn't the Whole World Developed?"_ Journal of Economic History_ 41:1 (March), pp. 1-19
• 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
• Lant Pritchett, "Divergence, Big Time," Journal of Economic Perspectives (Summer 1997), pp. 3-17, http://uclibs.org/PID/1011

---

Mar 17: WWI and the Great Depression

• Michael D. Bordo and Hugh Rockof (1996), "The Gold Standard as a 'Good Housekeeping Seal of Approval'" Journal of Economic History 56 (1996): 389-428 http://tinyurl.com/dl20090112ah
• John Maynard Keynes (1920), The Economic Consequnces of the Peace, chapters 1, 2, and 6 http://www.gutenberg.org/files/15776/15776-h/15776-h.htm
• Christina Romer (1990), "The Great Crash and the Onset of the Great Depression," Quarterly Journal of Economics 104, pp.719-736, http://tinyurl.com/dl20090112af
• John Maynard Keynes (1932), "The World Economic Outlook," Atlantic http://tinyurl.com/dl20090112ae
• Christina Romer (1992), "What Ended the Great Depression?" Journal of Economic History 52, pp.757-784. http://www.jstor.org/stable/2123226
• 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
• (Optional) William Keeton (1992), “The Reconstruction Finance Corporation: Would it Work Today,” Economic Review of the Federal Reserve Bank of Kansas City 77:1, pp.33-54. http://www.kc.frb.org/PUBLICAT/ECONREV/EconRevArchive/1992/1q92keet.pdf

Mar 19: Paper prospectus due, 5 PM

---

Mar 31: WWII and the Thirty Glorious Years

• Peter Temin (2002), "The Golden Age of European Growth Reconsidered," European Review of Economic History 6, pp. 33-22. http://www.international.ucla.edu/cms/files/Temin.pdf
• Barry Eichengreen, "Institutions and Economic Growth in Postwar Europe: Evidence and Conjectures" (with Pablo Vazquez), http://www.econ.berkeley.edu/~eichengr/research/vanark.pdf
• Paul Krugman, "Introduction" to John Maynard Keynes, The General Theory of Employment, Interest and Money http://www.pkarchive.org/economy/GeneralTheoryKeynesIntro.html

---

Apr 7: The Forward March of Social Democracy Halted?

• Mancur Olson (1996), "Varieties of Eurosclerosis: The Rise and Decline of Nations Since 1982," in Nicholas Crafts and Gianni Toniolo (eds), Economic Growth in Europe Since 1945, Cambridge, Cambridge University Press, pp.73-94 http://books.google.com/books?hl=en&lr=&id=wiTtnUn5qGsC&oi=fnd&pg=PA73&dq=%22OLSON%22+%223+The+varieties+of+Eurosclerosis:+the+rise+and+decline+...%22+&ots=s86KlJoXe7&sig=wabLIsaAIsicZhoppgt-vDhRxcE#PPA69,M1
• J. Bradford DeLong (1995), "America's Only Peacetime Inflation: The 1970s," in Christina Romer and David Romer, eds., Reducing Inflation: Motivation and Strategy (University of Chicago Press), pp.-, http://tinyurl.com/dl20090112v
• Eric Hobsbawm (1978), "The Forward March of Labour Halted?" Marxism Today http://www.amielandmelburn.org.uk/collections/mt/pdf/78_09_hobsbawm.pdf

---

Apr 21: China Stands Up

• David Landes (2006), "Why Europe and the West? Why Not China?" Journal of Economic Perspectives 20(2): 3–22 http://www.atypon-link.com/AEAP/doi/pdf/10.1257/jep.20.2.3
• Dani Rodrik, "Getting Interventions Right: How South Korea and Taiwan Grew Rich," Economic Policy 20, (1995) pp. 55-107, http://papers.nber.org/papers/w4964.pdf
• Barry Bosworth and Susan M. Collins( 2008), "Accounting for Growth: Comparing China and India." Journal of Economic Perspectives 22(1): 45–66 http://www.atypon-link.com/AEAP/doi/pdf/10.1257/jep.22.1.45
• Franco Modigliani and Shi Larry Cao (2004)< "The Chinese Saving Puzzle and the Life-Cycle Hypothesis," Journal of Economic Literature Vol. XLII (March) pp. 145–170 http://home.wlu.edu/~smitkam/274/pdfs/ModiglianiCao.pdf

---

April 28: Macroeconomics to 2007

• Walter Bagehot (1873), Lombard Street http://www.gutenberg.org/etext/4359 , entire.
• 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
• John Hicks (1937), "Mr. Keynes and the 'Classics': A Suggested Interpretation", Econometrica http://web.econ.unito.it/bagliano/macro3/hicks_econ37.pdf
• John B. Taylor (2000), "Reassessing Discretionary Fiscal Policy," Journal of Economic Perspectives Vol. 14, No. 3 (Summer, 2000), pp. 21-36 http://www.jstor.org/stable/2646917
• Alan Auerbach and William Gale (2009), "Activist Fiscal Policy to Stabilize Economic Activity" http://www.nber.org/papers/w15407.pdf

---

May 5: The Panic of 2007-2010

• Martin Baily, Robert Litan and Matthew Johnson (2008), "The Origins of the Financial Crisis" http://www.brookings.edu/~/media/Files/rc/papers/2008/11_origins_crisis_baily_litan/11_origins_crisis_baily_litan.pdf
• Claudio Borio (2008), "The Financial Turmoil of 2007-?" http://www.bis.org/publ/work251.pdf?noframes=1
• Markus Brunnermeier (2009), "Deciphering the Liquidity and Credit Crunch 2007-2008," Journal of Economic Perspectives http://www.princeton.edu/~markus/research/papers/liquidity_credit_crunch.pdf
• David Greenlaw, Jan Hatzius, Anil Kashyap, and Hyun Song Shin (2008), "Leveraged Losses: Lessons from the Mortgage Meltdown" http://faculty.chicagogsb.edu/anil.kashyap/research/MPFReport-final.pdf
• Lars Jonung, Jaako Kiander and Pentti Vartia, "The Great Financial Crisis in Finland and Sweden: The Dynamics of Boom, Bust and Recovery" http://ec.europa.eu/economy_finance/publications/publication13551_en.pdf
• Gauti Eggertson and Michael Woodford (2003), "Optimal Monetary Policy in a Liquidity Trap" http://www.nber.org/papers/w9968

---

May 12: Reflections

• Robert M. Solow (1985), "Economic History and Economics," American Economic Review Papers and Proceedings 75 (May): 328-331 http://www.jstor.org/view/00028282/di950057/95p00934/0

---

May 12: Paper due, 5 PM

---

Economics Learning Goals: CT2: Apply economic analysis to evaluate specific policy proposals. CT3: Compare two or more arguments that have different conclusions to a specific issue or problem. CT4: Understand the role of assumptions in arguments. QT1: Understand how to use empirical evidence to evaluate an economic argument. PS1: Solve problems that have clear solutions. PS2: Propose solutions for problems that do not have clear answers, and indicate under what conditions they may be viable solutions. CS1: Communicate effectively in written, spoken, and graphical form about specific economic issues. CS2: Formulate a well-organized written argument that states assumptions and hypotheses, which are supported by evidence. LL3: Understand and evaluate current economic events and new economic ideas.

Econ 210a: U.C. Berkeley: March 3, 2010: Divergences

Readings:

• 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
• 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
• Richard Easterlin (1981), "Why Isn't the Whole World Developed?"_ Journal of Economic History_ 41:1 (March), pp. 1-19
• 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
• Lant Pritchett, "Divergence, Big Time," Journal of Economic Perspectives (Summer 1997), pp. 3-17, http://uclibs.org/PID/1011

Writing Assignment:

The economic history of the world over the past two centuries has been one in which the world has shrunken enormously in distance along every conceivable measurement, and yet in which income and productivity differences between societies have grown enormously. What are the big-picture theories for explaining this phenomenon that you think are worth further investigation?

Additional and Very Optional Readings:

• N. Gregory Mankiw, David Romer, and David N. Weil (1992), "A Contribution to the Empirics of Economic Growth," Quarterly Journal of Economics, Vol. 107, No. 2 http://www.uac.pt/~amenezes/macroeconomiaII/macroeconomiaII_20062007/papers/mrw1992.pdf
• 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
• Angus Maddison (1983), "A Comparison of Levels of GDP Per Capita in Developed and Developing Countries, 1700-1980," Journal of Economic History 43:1 (March), pp. 27-41 http://links.jstor.org/sici?sici=0022-0507%28198303%2943%3A1%3C27%3AACOLOG%3E2.0.CO%3B2-3
• Peter Temin (1966), "Labor Scarcity and the Problem of American Industrial Efficiency in the 1850s," Journal of Economic History 26, pp. 277-298 http://www.jstor.org/view/00220507/di975596/97p0463m/0
• 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

Globalizations

Readings:

• Jeffrey Williamson and Kevin O'Rourke, "After Columbus: Explaining Europe's Overseas Trade Boom, 1500-1800," Journal of Economic History 62 (2002): 417-456 http://www.nber.org/papers/w8186

• Jan de Vries, "The Limits to Globalization in the Early Modern World," Economic History Review (forthcoming) http://www.j-bradford-delong.net/2008_pdf/devries_limits_of_globalization.pdf

• W. Arthur Lewis, Evolution of the International Economic Order (Princeton, Princeton Univ. Press, 1978) http://j-bradford-delong.net/2008_pdf/Lewis_Evolution_A.pdf http://j-bradford-delong.net/2008_pdf/Lewis_Evolution_B.pdf

• Jeffry G. Williamson, "Globalization, Convergence, and History" Journal of Economic History 56 (1996):227-306 http://links.jstor.org/sici?sici=0022-0507%28199606%2956%3A2%3C277%3AGCAH%3E2.0.CO%3B2-T

• Richard Baldwin and Philippe Martin (1999), “Two Waves of Globalization: Superficial Similarities, Fundamental Differences,” NBER Working Paper no.6904 (January) http://www.nber.org/papers/w6904

Writing Assignment:

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

Additional and Optional Readings:

*Barry R. Chiswick and Timothy J. Hatton, "International Migration and the Integration of Labor Markets," in Michael Bord, Alan M. Taylor, and Jeffrey G. Williamson, Globalization in Historical Perspective (NBER 2003), pp. 65-120 http://books.google.com/books?id=vDL0u3Rz7C8C&pg=PA65&lpg=PA65&dq=chiswick+and+hatton+international+migration+and+the+integration+of+

Econ 210a: U.C. Berkeley: February 17, 2010: Industrial Revolutions

Readings:

• Daron Acemoglu, Simon Johnson, and James A. Robinson (2005), "The Rise of Europe," American Economic Review 95 (2005) http://www.nber.org/papers/w9378
• Jan de Vries, "Dutch Economic Growth in Comparative-Historical Perspective, 1500-2000," De Economist 148 (2000): 443-467 http://www.springerlink.com/content/l4qp2l551l7t7361/
• Karl Marx and Friedrich Engels, "Manifesto of the Communist Party" http://www.marxists.org/archive/marx/works/1848/communist-manifesto/
• Robert Allen (2009), "Why Was the Industrial Revolution British?" http://www.voxeu.org/index.php?q=node/3570
• 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
• Nicholas Crafts (2002), "The Solow Productivity Paradox in Historical Perspective," (London: CEPR Discussion Paper no.3142) http://www.cepr.org/pubs/dps/DP3142.asp
• (Optional) Karl Marx, "The So-called Primitive Capital Accumulation," Capital, I, Part VIII, Chs 26-32 http://www.marxists.org/archive/marx/works/1867-c1/ch26.htm
• (Optional) 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
• (Optional) 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

Writing Assignment:

• 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?

Write a 200-500 essay on this topic. At least 18 hours before the class--by 6 PM PST on January 26, 2010--email your paper (either in the message text or as an attachment) to [email protected] and post it as a comment on the webpage at http://delong.typepad.com/economics_210a_spring_201/2010/01/econ-210a-uc-berkeley-february-17-2010-industrial-revolutions.html.

Econ 210a: U.C. Berkeley: February 10, 2010: Industrious Revolutions and Divisions of Labor

Adam Smith wrote, according to Dugald Stewart (1811), Account of the Life and Writings of Adam Smith, LL.D. (Edinburgh: George Romney): "Man is generally considered by statesmen and projectors as the materials of 'a sort of political mechanics. Projectors disturb nature in the course of her operations in human affairs; and it requires no more than to let her alone, and 'give her fail play id the. pursuit of her ends, that she may establish her own designs..." And: "Little else is requisite to carry a state to the highest glegree of opulence from the lowest barbarism, but peace, easy taxes, and a -tolerable administration. of justice; all the rest being brought about by the natural course of things. All governments.which thwart this natural course, which force things into another channel, or which endeavour to arrest the progress of society at a particular point, are unnatural, and to support themselves are obliged to be oppressive and tyrannical..."

This is Douglass North and Barry Weingast's story. Is it sufficient to give us an understanding of the industrious--commercial--revolution? And is it sufficient to give us an understanding of the industrial revolution, and what has followed it?

---

Readings:

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 * Hans-Joachim Voth, "Time and Work in Eighteenth-Century London," *Journal of Economic History 58 (1998): 29-58 http://links.jstor.org/sici?sici=0022-0507%28199803%2958%3A1%3C29%3ATAWIEL%3E2.0.CO%3B2-Y * Douglass North and Barry Weingast (1989), "Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England," Journal of Economic History 49:4 (December), pp. 803-832 http://links.jstor.org/sici?sici=0022-0507%28198912%2949%3A4%3C803%3ACACTEO%3E2.0.CO%3B2-9 * 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. * (Optional) Adam Smith (1776), An Inquiry into the Nature and Causes of the Wealth of Nations http://www.econlib.org/library/Smith/smWNtoc.html. Read Books I and V.

Writing Assignment:

In his article Voth cites the elegant dictum of D. N. McCloskey that "ingenuity rather than abstention governed the Industrial Revolution." By this McCloskey meant that technological change was more important than a rise in investment (and a corresponding decline in current consumption) in driving economic growth during the Industrial Revolution. Voth concludes his article as follows: "Abstention seems to have been more important than invention [in bringing about the Industrial Revolution]but it was abstention from leisure ... that was at the core of economic growth." Does Voth provide the evidence needed to persuade you that he is correct? Is his evidence convincing to Clark? What evidence would you deem necessary to make this case?

Write a 200-500 essay on this topic. At least 18 hours before the class--by 6 PM PST on February 9, 2010--email your paper (either in the message text or as an attachment) to [email protected] and post it as a comment on the webpage at http://delong.typepad.com/economics_210a_spring_201/2010/01/econ-210a-uc-berkeley-february-210-2010-industrious-revolutions-and-divisions-of-labor.html.

Or, alternatively, wrestle with North and Weingast (and Smith).

Thoughts and Notes:

• Why isn't monarchy by itself good enough to produce "industrious revolution"-level prosperity? 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).
• 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"?
• Re: Adam Smith: The literature of "political oeconomy". "The system of natural liberty" as a game-changing insight. How reliant is Book V on Book I?

Econ 210a: U.C. Berkeley: February 3, 2010: The Malthusian Economy

Between the year zero and 1500 world population and real GDP tripled; world TFP grew by 30%; and as best as we can tell median world living standards did not grow at all. Why didn't 30% growth in TFP have any impact on living standards? How did the world economy work on a very broad scale before the industrial revolution? And why wasn't growth in TFP faster?

---

Readings:

• Jared Diamond (1987), "The Invention of Agriculture: The Worst Mistake in the History of the Human Race," Discover http://tinyurl.com/dl20090112d.
• Gregory Clark (2005), "The Logic of the Malthusian Economy," draft of chapter 2 of A Farewell to Alms (published version: Princeton University Press, 2007) http://tinyurl.com/dl20090112e.
• Gregory Clark (2005), "Living Standards in the Malthusian Era," draft of chapter 3 of A Farewell to Alms http://tinyurl.com/dl20090112j.
• M. I. Finley (1965), "Technical Innovation and Economic Progress in the Ancient World," Economic History Review, New Series, 18:1, pp. 29-45, http://tinyurl.com/dl20090112f
• (Optional) Thomas Malthus, An Essay on the Principle of Population http://socserv2.socsci.mcmaster.ca:80/~econ/ugcm/3ll3/malthus/popu.txt

Writing Assignment:

Write a 200-500 essay on whether Gregory Clark was right in his claim that "the real income in Malthusian economies (all economies after 5000 B.C. and before 1800) was determined from the birth rate and death rate schedules alone." You might, as you write your essay, think about the following question: Does this mean that mankind was powerless to improve its material conditions via factors such as technology, social organization, population control, etc.?

At least 18 hours before the class--by 6 PM PST on February 2, 2010--email your paper (either in the message text or as an attachment) to [email protected] and post it as a comment on the webpage at .

Alternatively, write on the following: 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? Which side of this question do you come down on-yes or no-and why? Or, if you want to suspend judgment, what additional facts about the past and present would you need to know before you would come down on one side or the other?

---

Food for Thought:

DeLong (2008), "Economic Growth--The Ultimate Bird's Eye View":

Econ 210a, U.C. Berkeley: January 27, 2010: One Economics or Many?

How many economicses are there?

Karl Marx was sure that there were many:

Economists express the relations of bourgeois production, the division of labour, credit, money, etc., as fixed, immutable, eternal categories.... Economic categories are only the theoretical expressions, the abstractions of the social relations of production.... Economists have a singular method of procedure. There are only two kinds of institutions for them, artificial and natural. The institutions of feudalism are artificial institutions, those of the bourgeoisie are natural institutions.... When the economists say that present-day relations – the relations of bourgeois production – are natural, they imply that these are the relations in which wealth is created and productive forces developed in conformity with the laws of nature. These relations therefore are themselves natural laws independent of the influence of time... eternal laws which must always govern society.... [But] during the epoch of the domination of feudalism... the knightly virtues, the beautiful harmony between rights and duties, the patriarchal life of the towns, the prosperous condition of domestic industry in the countryside, the development of industry organized into corporations, guilds and fraternities.... Thus, feudal production, to be judged properly, must be considered as a mode of production.... Is not this as good as saying that the mode of production, the relations in which productive forces are developed, are anything but eternal laws, but that they correspond to a definite development of men and of their productive forces, and that a change in men's productive forces necessarily brings about a change in their relations of production?...

Was he right? Or wrong?

---

Readings Around the Knotty Question of "Modes of Production":

• M. I. Finley (1970), "Aristotle and Economic Analysis," Past and Present, No. 47. (May), pp. 3-25 http://www.jstor.org/view/00312746/ap020049/02a00010/0
• Peter Temin, "A Market Economy in the Early Roman Empire" http://sshi.stanford.edu/Seminars/Papers/classics/temin.pdf
• William Baumol (1990), "Entrepreneurship: Productive, Unproductive, and Destructive," Journal of Political Economy 98:5(1) (Oct), pp. 893-921 http://links.jstor.org/sici?sici=0022-3808%28199010%2998%3A5%3C893%3AEPUAD%3E2.0.CO%3B2-Z
• Snippets: Smith, Marx, Solow: http://delong.typepad.com/economics_210a_spring_201/2010/01/january-27-2010-snippets-smith-marx-solow.html
• J. Bradford DeLong, "Handout: Longest-Run Economic Growth" http://www.j-bradford-delong.net/2008_pdf/20080120_longestrungrowth.pdf
• (Optional) 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
• (Optional) M. I. Finley (1965), "Technical Innovation and Economic Progress in the Ancient World," Economic History Review, New Series, Vol. 18, No. 1, Essays in Economic History Presented to Professor M. M. Postan), pp. 29-45 http://www.jstor.org/stable/pdfplus/2591872.pdf
• (Optional) Michael Kremer (1993), "Population Growth and Technological Change: One Million B.C. to 1990," Quarterly Journal of Economics 108 (August), pp. 681-716. http://www.jstor.org/stable/pdfplus/2118405.pdf

Writing Assignment:

Write a 200-500 essay on whether we are better off presuming that there is one economics common to all societies, or alternatively that there are many--that different types of economies follow different economic laws of motion. At least 18 hours before the class--by 6 PM PST on January 26, 2010--email your paper (either in the message text or as an attachment) to [email protected] and post it as a comment on the webpage at http://delong.typepad.com/economics_210a_spring_201/2010/01/econ-210a-uc-berkeley-january-27-2010-one-economics-or-many.html.

You might, as you write your essay, think about the following question:

"Formalists" would say that all economies are pretty much alike--that people make stuff and distribute it in a social process, and that this social process is or can be fruitfully and conveniently modeled as one of reciprocal exchange of commodities at market prices. I contract with the Bay Alarm Company to provide security for my house: they install, monitor, and respond to a burglar alarm, and I pay them valuable money. Similarly, Hrothgar (Roger) the Scylding, King of the Danes "contracts" with warriors to provide security for his villages: they acquire weapons, train until they are skilled in their use, and follow him into battle against raiding bandits who want to steal the cows and rape and kidnap the women of the Danes; he in return feeds them dinner, plies them with alcohol, entertains them with skalds, and gives them places to sleep every night in his great hall of Heorot. These are, the formalists would say, fundamentally the same thing: the "purchase" of security services in exchange for value at an "equilibrium" price.

"Substantivists" would say that economies are very different: that there is next to nothing in common between the business conducted by the Bay Alarm Company on the shores of San Francisco Bay early in the twenty-first century and the business conducted by Prince Beowulf of the Geats and his companions on the shores of sixth-century Jutland. The "prices" at which the reciprocal obligations that make up social life are "exchanged" or "bought and sold" are not set by equalizing a supply and demand themselves the results of utility, scarcity, opportunity, and capabliity but are instead determined by overpowering sociological forces--fear, force, custom, command, bureaucracy, and honor--combined with a generalized human desire to return good for good and evil for evil alongside a sense of shame if the flow seems to be too one-way. The economic is thus "embedded" in the sociological and the political.

An example. Back in 1997 there was on two-week period in which my wife and I hired three babysitters: a 22 year old recent graduate of Berkeley who was also our children's swimming teacher who we paid $10 an hour as a babysitter (and $40 an hour as a swimming teacher); a 16 year old just moved to Bayarea from Mexico city for her last two years of high school whom we paid $7 an hour as a babysitter; and a 13 year old living in our neighborhood who put up a sign at the local playground whose mother would not let us pay her more than $4 an hour. In none of these cases were the terms and conditions of employment determined by anything like supply-and-demand equilibrium in a competitive auction market. In all of these cases what we pay is determined much more by what we feel is an appropriate level of earnings for someone of her age and skill. Economic conditions--scarcity and opportunity--do enter, for where do beliefs about appropriate wages come from?, but they enter only at one remove, for we pay different people different wages for the same work.

Clearly even the most "substantivist" of situations has a formal element: when Grendel shows up very few of Hrothgar's warriors stick around because the food and drink is not worth having your arms torn off. And even the most "formalist" of situations has a substantivist element: we don't have the cartoon of oatmeal tested by a biochemist before we pay for it at Safeway, but rely (most of the time) on the Safeway workers' belief that their social role is to sell food rather than garbage and (most of the time) we are right. But to say that the truth is in the middle is unsatisfactory. So: to what degree should we lean toward the "formalist" or the "substantivist" end in doing are economic analyses? To what degree should we presume that there is only one economics? And to what degree should we presume that there are many?

---

Food for Thought:

DeLong (2008), "Economic Growth--The Ultimate Bird's Eye View":

(

DeLong (1997), "On the 'Embedded Economy' Thesis"

Econ 210a: U.C. Berkeley: January 20, 2010: First Class: in the Words of the Talking Heads: "How Did I Get Here?"

How did we get here--me teaching and you taking a class in economic history during your first year in graduate school, a year otherwise filled with economic and statistical theory?

This is the odd course out in a first-year curriculum that consists of math, optimization, statistics, constrained optimization, market equilibrium, econometrics, general equilibrium, intertemporal optimization, and dynamic stochastic general equilibrium. What is economic history doing here? I want to point you to an interview that the Atlantic Monthly's Conor Clarke conducted with the late Paul Samuelson[1]: Clarke: "What would you say to someone starting graduate study in economics?..." Samuelson: "Well, I'd say, and this is probably a change from what I would have said when I was younger: Have a very healthy respect for the study of economic history, because that's the raw material out of which any of your conjectures or testings will come. And I think the recent period has illustrated that. The governor of the Bank of England seems to have forgotten or not known that there was no bank insurance in England, so when Northern Rock got a run, he was surprised. Well, he shouldn't have been. But history doesn't tell its own story..."

Let's see if we can develop and deepen what our Uncle Paul said...

---

For the first class:

(1) Read the following before the first class, and come to Evans 608-7 at 1 PM on Wednesday January 20, 2010 prepared to discuss them:

I. Growth and Development

• Paul Krugman (1999), "The Fall and Rise of Development Economics" http://tinyurl.com/20100105a.
• Tyler Cowen (2010), "Daron Acemoglu on the U.S.-Mexican Border" http://tinyurl.com/dl20100105h.
• Daron Acemoglu (2009), "What Makes a Nation Rich? One Economist's Big Answer" http://tinyurl.com/dl20100105i.

II. Macroeconomics:

• Narayana Kocherlakota (2009), "Some Thoughts on the State of Macro" http://tinyurl.com/20100105b.
• John Cassidy (2009), "Letter from Chicago," New Yorker (January 11), pp. 44-49 http://delong.typepad.com/cassidy2.pdf.
• Richard Posner (2009), "Honesty About the Stimulus," Atlantic http://tinyurl.com/dl20100105d.
• Robert Lucas (2009), "Why a Second Look Matters," Council on Foreign Relations http://tinyurl.com/dl20100105e.

III. Comparative Systems:

• Alex Tabarrok (2010), "Soviet Growth and American Textbooks" http://tinyurl.com/dl20100105f.
• David Levy and Sandra Peart (2009), "Soviet Growth and American Textbooks" http://tinyurl.com/dl20100105g. (Note: in some ways Levy and Peart inhabit a strenge alternate universe: Rose Wilder Lane, V. Orval Watts, and William F. Buckley were not and should never be called "libertarians"--well, maybe Wilder Lane, but only if you overlook her McCarthyite campaign against Lorie Tarshis.)

---

(2) Write a 200-500 word essay on any of the three sets of readings, discussing whether in your view a knowledge or lack of knowledge of economic history is helping or hindering the economists who write and whose ideas are discussed in the readings. At least 18 hours before the first class--by 6 PM PST on January 19, 2010--email your paper (either in the message text or as an attachment) to [email protected] and post it as a comment on the webpage at http://tinyurl.com/dl20100105j.

You might, as you write your essay, think about one or more of the following questions:

• Paul Krugman is certain that his "thin" model-based set of techniques would have been better than Albert Hirschman's techniques for trying to deal with the now-two generation ago "crisis in development economics." Is Paul correct?

  1. Why is Daron Acemoglu so certain that Mexican growth would skyrocket if only somebody could, in Woodrow Wilson's words, "teach the Mexicans to elect good men"?

  2. Why is Tyler Cowen so suspicious of Daron Acemoglu's certainty that Mexican growth would skyrocket if only somebody could, in Woodrow Wilson's words, "teach the Mexicans to elect good men"?

  3. It is clear what Narayana Kocherlakota does not think modern macroeconomic theory is good for. As he writes: "Why do we have business cycles? Why do asset prices move around so much? At this stage, macroeconomics has little to offer by way of answer to these questions..." What does he think modern macroeconomic theory is good for?

  4. In June 2007 the S&P Composite U.S. stock index closed at an index value of 1503 and a ten-year 5% coupon $1000 U.S. Treasury bond sold for $990. In March 2009 the S&P Composite U.S. stock index closed at an index value of 798 and a ten-year 5% coupon $1000 U.S. Treasury bond would have sold for $1170. Over that 21 month period investors in long Treasuries gained 23% (in real terms) while investors in diversified equities lost 45% (in real terms). Richard Thaler (and I) would say that this extraordinary divergence in the values of these asset collapses is the result of market irrationality: the unwinding of an "irrational exuberance" in which the risk tolerance of the market was artificially elevated into an irrational pessimism in which the risk tolerance of the market was artificially depressed. John Cassidy quotes Eugene Fama as seeing no evidence for any form of market "irrationality" whatsoever: "Stock prices typically declne prior to a recession.... This was a particularly severe recession.... This was exactly what you would expect if markets are efficient.... I don't know what a credit bubble means. I don't even know what a bubble means. These words have become popular. I don't think they have any meaning." What are Fama's arguments that the enormous wheeling of asset prices between June 2007 and March 2009 is "exactly what you would expect if markets are efficient"? Why don't Thaler and I find Fama's arguments convincing? Why doesn't he find our arguments convincing?

  5. In August 2009 Richard Posner attacked our own Christina Romer for saying that she believed for reasons that fiscal stimulus had already been effective in reducing the size of the recession: "her claim is that the stimulus had a dramatic effect on output and employment during that quarter. I do not think her analysis is responsible, and I am concerned with the fact that academic economists, when they become either public officials or public intellectuals (like Paul Krugman), leave behind their academic scruples..." In January 2010 John Cassidy quotes Richard Posner as saying that while he had never before "bothered to investigate [John Maynard Keynes's] The General Theory..." he now believes that it has "more of a grasp of what is going on in the economy" and believes that modern theoretical economics is a menace: "very mathematical... credulous about the self-regulating power of markets. That combination is dangerous." Reflect on Posner in the context of Saul of Tarsus on the road to Damascus, or perhaps of Martin Luther in the lightning storm--"St. Anne save me! I shall become a monk!"

  6. For the brave who want to undertake extra reading. In 1983 Ben Bernanke published his still most-cited paper: Ben Bernanke (1983), "Nonmonetary Effects of Financial Crisis in the Propagation of the Great Depression," American Economic Review 73:3 (June), pp. 257-76 http://tinyurl.com/dl20100105k. In this paper, Bernanke argued that the money stock is not a sufficient statistic for the determinants of nominal spending but instead that the capitalization and soundness of the banking system affects its ability to perform financial intermediation and has at times a powerful independent effect on nominal spending. In March 2009 Robert Lucas said that he did not understand this worry about an independent influence of the "credit channel" on nominal spending: "I avoided this bank bailout issue.... I don't really get it. Some of the problems you're talking about about deciding who gets paid and who doesn't, that's the whole function of bankruptcy law is to deal with that in an effective way. Now, it may be that the kind of neighborhood effects of the bankrupt banks are sufficiently different from the neighborhood effects of a bankrupt auto company -- that they need some kind of special treatment. But then it seems like the right public policy is something that -- maybe some kind of accelerated bankruptcy proceedings. Just to say make them well on all the money they've lost over this thing, I just -- I do not get it and I know of -- I don't know whether we're headed that way or not. I hope not.... Friedman and Schwartz have got a lot to tell us about the current situation..." Why do you think that Friedman and Schwartz's 1963 ascription in their Monetary History of the United States of the depth of the Great Depression exclusively to the collapse of the nominal money stock has had intellectual traction in a way that Bernanke (1983) apparently has not?

  7. Why did so many economists retain their confidence that the USSR would in less than a generation catch up to the US in total GDP for so long?

---

Econ 210a--How Did I Get Here.pdf