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Weekend Reading: Dietz Vollrath: Deep Roots of Development


Dietz Vollrath: The Deep Roots of Development: "Think statistically, rather than in absolutes.... It is plausible that ethnic groups in areas where there were large returns to long-run investment in agricultural production may end up more patient in the long-run as well.... There is a significant relationship of productivity with patience... but the R-squared is about 10%.... [And] the results don’t mean that ethnic group A with higher productivity had to have higher patience than group B with lower productivity.... Lots of other things affect the patience of an ethnic group over and above the productivity level, and hence lots of things could have changed over the course of history to explain patience.... The findings... do not mean it is impossible to change the development level of countries or groups today. But the deep-rooted nature of development may mean we have to find other policy levers to push, as we cannot go back in time and roll back colonization, or change inherent agricultural productivity...

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Note to Self: Lessons from East Asian Development: Japanese Industrial Policy: Readings:

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Andrew Ian Wilson: Developments in Mediterranean Shipping and Maritime Trade from 200 BC to AD 1000: "Figures 2.2–2.6 show a massive drop in shipwreck numbers between the first and second centuries AD, just when there was major investment in harbour works at Portus, and just when African Red Slip exports from North Africa take off. The pan-Mediterranean distribution of this tableware shows that maritime trade links were not declining; yet most of this evidence comes from terrestrial excavations. There is therefore something anomalous about the underwater evidence...

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Grand Narrative: An Intake from Slouching Towards Utopia?: An Economic History of the Twentieth Century, 1870-2016

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Slouching Towards Utopia?: An Economic History of the Twentieth Century, 1870-2016

I. Grand Narrative

J. Bradford DeLong :: U.C. Berkeley, NBER, WCEG https://www.icloud.com/pages/0TzensY9YyNvqcY8elYagLUnQ https://www.icloud.com/keynote/0_nA1dc3XLgFa_2rEVsk3nuWQ

1.1: The Long 20th Century in Human History

The Long 20th Century began around 1870 and ended in 2016.

Before 1870 humanity was poor, and life was typically nasty, brutish, and short. Before 1870, over and over again, technology lost its race with human fecundity, and greater numbers coupled with resource scarcity to produce a humanity where most people most of the time could not be confident that they and their families would have their 2000 calories, plus essential nutrients, plus a roof over their head in a year. Before 1870 those on the make overwhelmingly focused on how to take from others or keep what they had while maintaining order, rather on how to make more for everyone. It is true that between 1800 and 1870 technology and organization gained a step or two in their race with fecundity. But only a step. Any post-1870 slackening of the pace of technological or organizational progress, or any major redivision of society’s dividends devoting less to the sinews or peace and more to the sinews of war, and “nasty, brutish, and short” would reassert itself.

But starting in 1870 all that changed. Science reached critical mass and gave birth to engineering. A liberal political order gave birth to a market economy. Engineering and the market produced an explosion of economic growth: these days one single year sees as much proportional technological and organizational advance and change in the human economy as a typical fifty years did back before 1800.

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American Twentieth-Century Exceptionalism: An Outtake from "Slouching Towards Utopia: An Economic History of the Long Twentieth Century 1870-2016"

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Sources of American Exceptionalism

In 1870 the focus of economic growth crossed the Atlantic to America, where continent-wide scale, a flood of immigration, vast resources, and an open society that made inventors and entrepreneurs culture heroes welcomed economic growth. In the United States the Belle Époque, the Gilded Age, the period of the explosion of prosperity set in motion around 1870 lasted without interruption longer than elsewhere in the world. China collapsed into revolution in 1911. Europe descended into the hell of World War I in 1914. In America the period of progress and industrial development lasted longer—perhaps from when the guns fell silent at the end of America’s Civil War at Appomattox in 1865 until the start of the Great Depression in the summer of 1929.

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Migration 1870-1925 and International Economic InequalityOuttake from "Slouching Towards Utopia: An Economic History of the Long Twentieth Century 1870-2016

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What did matter for inequality and upward mobility in the pre-World War I era was not trade but migration. The descendants of those who lived in Ireland at the start of the nineteenth century are, today, one of the richest groups in the world: less than half of the descendants of the Irish of 1800 live in Ireland today; instead, they are spread throughout America, Britain, and Australia, and they have prospered.

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Ancient Economies: A Malthusian Model: Markdown Notebook

DRAFT: Ancient Economies: A Malthusian Model : The math for complicating the standard Solow Growth Model with (a) a rate of population growth that depends positively on the excess of spending on necessities above "subsistence" and (b) a level of the efficiency-of-labor that depends inversely on population, as a higher population induces resource scarcity that makes labor less productive. For understanding both the long-term apparent stagnation of living standards between the Neolithic and the Industrial Revolutions, and for understanding the rise and fall of ancient civilizations. Question: How should we add on to the Python class for the Solow Growth Model to turn this into a tool for doing problem sets for Econ 101b (and perhaps 135):


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Historical Nonfarm Unemployment Statistics

Historical Nonfarm Unemployment Statistics: An updated graph that Claudia Goldin had me make two and a half decades ago. The nonfarm unemployment rate since 1869:

2016 04 05 Historical Nonfarm Unemployment Estimates numbers

Then it was 1890-1990, now it is 1869-2015, thanks to:

  • J.R. Vernon (1994): http://delong.typepad.com/1-s2.0-0164070494900086-main.pdf
  • C.D. Romer (1986): http://delong.typepad.com/spurious-volatility.pdf
  • BLS (2015): http://data.bls.gov/cgi-bin/surveymost?ln

with spreadsheet at: http://tinyurl.com/dl20160405

The assumption–debateable–is that “unemployment” is not a farm thing–that in the rural south or in the midwest or on the prairie you can always find a place of some sort as a hired hand, and that “unemployment” is a town- and city-based nonfarm phenomenon.

I confess I do not understand how anyone can look at this series and think that calculating stable and unchanging autocorrelations and innovation variances is a reasonable first-cut thing to do.

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PREVIEW: Economic Growth in Historical Perspective: U.C. Berkeley: Spring 2020

After hearing Ellora Derenoncourt rave about being a TA for Melissa Dell and her Econ 142: The History of Economic Growth, I have decided to go full parasite and stand up my own version of the course for the spring of 2020 here at U.C. Berkeley. Tell me what you think! Here are my notes so far:

Course to be at: Teaching Economics: https://delong.typepad.com/teaching_economics/econ-135.html

Econ 135: Economic Growth in Historical Perspective

This course examines the idea and reality of economic growth in historical perspective, beginning with the divergence between human ancestors and other primates and continuing through with forecasts for the 21st century and beyond. Topics covered include human speciation, language, and sociability; the discovery of agriculture and the domestication of animals; the origins and maintenance of gross inequality; Malthusian economies; the commercial and industrial revolutions; modern economic growth; international prosperity differentials; OECD convergence and East Asian miracles; the political economy of growth and stagnation; and the stubborn persistence of poverty.

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Killing My Darlings: A "Great Depression Recovery" Outtake from "Slouching Towards Utopia?: An Economic History of the Long Twentieth Century, 1870-2016"

No, Brad: The "Great Depression Recovery" chapter needs to be 7000 words, not 30,000. I am willing to torment editors by shipping them 10000 words, but not more:

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13.1: Recovery Outside the United States

The rule to memorize about recovery from the Great Depression is: the sooner countries went off the gold standard, the better; and the less that gold standard habits of orthodoxy fettered countries thereafter, the better. The Scandinavian countries bailed first, and did best. Japan and Britain abandoned the gold standard in 1931, but Japan embraced expansionary policies more thoroughly. The U.S. and Germany abandoned the gold standard in 1933, but Hitler had a clearer view that Nazi persistence and success required putting people to work than FDR did with the try-everything-expediency of his New Deal. France stuck it out on the gold standard until 1937, and did worst of all.

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The Great Depression: An Intake from "Slouching Towards Utopia?: An Economic History of the Long Twentieth Century 1870-2016"

This is the current draft of chapter 10 of Slouching Towards Utopia?. I am, again, of several minds with respect to it. I think it says what really needs to be said. I am not sure it says it in the right length. And I am not sure that I have successfully assembled the puzzle pieces in the right way...

So tell me what you think of it:

The road to Wigan Pier 75 years on Books The Guardian

X. The Great Depression


George Orwell (1937): The Road to Wigan Pier:

Presently the train hove in sight. With a wild yell a hundred men dashed down the slope to catch her as she rounded the bend. Even at the bend the train was making twenty miles an hour. The men hurled themselves upon it, caught hold of the rings at the rear of the trucks and hoisted themselves up by way of the bumpers, five or ten of them on each truck. The driver took no notice. He drove up to the top of the slag-heap, uncoupled the trucks, and ran the engine back to the pit, presently returning with a fresh string of trucks. There was the same wild rush of ragged figures as before. In the end only about fifty men had failed to get on to either train.

We walked up to the top of the slag-heap. The men were shovelling the dirt out of the trucks, while down below their wives and children were kneeling, swiftly scrabbling with their hands in the damp dirt and picking out lumps of coal the size of an egg or smaller. You would see a woman pounce on a tiny fragment of stuff, wipe it on her apron, scrutinize it to make sure it was coal, and pop it jealously into her sack.


10.1: Understanding the Business Cycle

10.1.1: Say’s Law

When market economies emerged, there was great worry that things would not necessarily fit together: Might not the farmers be unable to sell the crops they grew to the artisans because the artisans could not sell the products they made to the merchants who would be unable to make money carrying artisans products to the farmers because the farmers would not purchase anything? Back at the beginning of economics it was Jean-Baptiste Say who wrote that such an idea of a “general glut”—of economy-wide “overproduction” and consequent mass unemployment—was incoherent. Nobody, Say argued, would ever produce anything for sale unless they expected to use the money they earned in order to buy something else. Thus, “by a metaphysical necessity”, as subsequent-generation economist John Stuart Mill outlined Say’s argument in 1829, there can be no imbalance between the aggregate value of planned production-for-sale, the aggregate value of planned sales, and the aggregate value of planned purchases. This is “Say’s Law”.

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The Knot of War 1870-1914: An Intake from "Slouching Towards Utopia?: An Economic History of the Long Twentieth Century 1870-2016"

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This is chapter 7 of Slouching Towards Utopia?. I am of several minds with respect to it. I think it says what really needs to be said. I think it says it all in a remarkably short space—or it says it all to me. But it seems, to me, very different in tone from both the rest of the book I have written and from how this stuff is usually presented...

So tell me what you think of it:

VII. The Knot of War, 1914-1920

Nikita Sergeyevitch Khrushchev to John F. Kennedy (1962):

We and you ought not now to pull on the ends of the rope in which you have tied the knot of war, because the more the two of us pull, the tighter that knot will be tied. And a moment may come when that knot will be tied so tight that even he who tied it will not have the strength to untie it, and then it will be necessary to cut that knot, and what that would mean is not for me to explain to you, because you yourself understand perfectly of what terrible forces our countries dispose…

Two chapters ago we shifted our focus from economics to political economy: we needed to look not just at technology, production, organization, and exchange, but also at how people governing themselves and others tried to regulate the economy to preserve or produce a good society, or a society good for them. One chapter ago we shifted our focus to imperial politics: we needed to look not just at how peoples and their elites governed themselves, but how they governed others. Each of these two shifts brought us away from processes and factors that seem almost inevitable—in which the actions of individuals mostly cancel out, and if an opportunity was not seized by one person at one date it would have been seized by another soon after. Each of these two moved us closer to that part of history where individual actions matter: where individuals and their luck can divert history for good, either because of their place in the society or because of the waves of belief and expectations that they set in motion. And so the history became less a flowering of long-planted seeds and more choice and chance.

This chapter takes a further step in that direction: into politico-military affairs, where choice and chance is dominant. This fits awkwardly into an economic history. But it is necessary. For we cannot understand what the world was like in 1918 without looking at World War I. The world in 1914 had been a growing, substantially peaceful, prosperous—with problems, but prosperous—world, in which it was not irrational to be optimistic about human civilization. The world, especially Europe, in the ashes after World War I was different.

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It is interesting to note that Adam Smith's one explicit use of the phrase "Invisible Hand" in his Wealth of Nations is not a situation in which the competitive market equilibrium is Pareto-optimal. It is of a situation with two market failures—a home bias psychological failure among the merchants of Amsterdam, and agglomeration economies for mercantile activity in Amsterdam. And the two offset each other: if merchants were rational, the free-market equilibrium would ternate an inefficient sacrifice the agglomeration economies. If the agglomeration economies were absent, psychological home bias would lead to an inefficient concentration of activity:

Glory Liu: How the Chicago School Changed the Meaning of Adam Smith’s ‘Invisible Hand’: "For Friedman and Stigler, economics’ scientific power came from its ability to predict outcomes based on two central insights... in The Wealth of Nations... self-interest... [and,] of course, the invisible hand.... Few economists were as successful as Friedman in spreading this interpretation of Smith’s ideas to the public... populariz[ing] this interpretation of Smith’s invisible hand for an overtly conservative political agenda.... What makes the Smith of Milton Friedman and George Stigler so... problematic... is that they 'economized' Smith in a way that obscured if not precluded the relevance of his moral philosophy and political theory.... Whether his political value stems from the idea that he is an economist or moral philosopher or something else, however, is something that we—Smith’s readers—get to decide...

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Anna Stansbury: "The Black Death in England in the mid-1300s was an enormous human tragedy-and a fascinating labor supply shock. (Who said economists are heartless?) A thread FRED has a new record holder: The longest data series now belongs to a new addition, Population in England, which dates back to 1086. Check it out here: http://ow.ly/Dzkb50kfrvA. The Black Death first hit England in 1348. The population fell by more than a third in just a few years: from over 6 million to less than 4 million. As the graph from @stlouisfed and @bankofengland shows, it would take another 250 years for the population to recover...

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Greenspan and Wooldridge Argue the American Love and Embrace of Capitalism Is the Key...

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The world as a whole is much richer than it was three centuries ago. Back then, at the end of the long era since the invention of agriculture, the typical human lived on two dollars a day, had a life expectancy at birth of 25, and was protein deprived in utero. Mothers worldwide no longer run a one-in-six chance of dying in childbed. Literacy in no longer a rare accomplishment. Less than one in six humans worldwide live like all of our pre-industrial ancestors—and even those less-than-one-in-six likely have some access to the village smartphone.

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Raising the Curtain: Trade and Empire

Yet Another Outtake from "Slouching Towards Utopia?: An Economic History of the Long Twentieth Century, 1870-2016"

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Raising the Curtain: The Long Twentieth Century—Trade and Empire

The extent to which the navies and trading fleets of the great European sea-borne empires of the sixteenth, seventeenth, and eighteenth centuries shaped the industrial development of western Europe has always been one of the most fiercely-debated and unsettled topics in economic history. That European expansion in the sixteenth, seventeenth, and eighteenth centuries were catastrophes for the regions of west Africa that were the sources of the slave trade; for the Amerindians of the Caribbean; for the Aztecs, Incas, the mound-builders of the Mississippi valley; and for the princes of Bengal and others who found themselves competing with the British East India Company in the succession wars over the spoils of India’s Moghul Empire—that is not in dispute.

But how much did pre-industrial trade and plunder affect European development? That is not so clear.

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“An Extraordinary Episode in the Economic Progress of Man!”: Yet Another Outtake from "Slouching Towards Utopia?: An Economic History of the Long Twentieth Century, 1870-1914"


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“An Extraordinary Episode in the Economic Progress of Man!”

Yet all in all it is not possible to see the 1870-1914 making of the single global economy—and society—as anything other than an extraordinary and wonderful episode in the history of humanity. Looking back from 1919 on the optimistic, economists’ world that he had thought he had lived in up until the start of World War I in August 1914, John Maynard Keynes wrote, in his Keynes-centric upper-class-focused way:

What an extraordinary episode in the economic progress of man that age was which came to an end in August, 1914!... 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.... He could secure forthwith, if he wished it, cheap and comfortable means of transit to any country or climate....

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Six Migrants and Their Descendants Who Made History: Yet Another Outtake from "Slouching Towards Utopia?: An Economic History of the Long Twentieth Century, 1870-2016"


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Six migrants and their descendants who made a lot of our history:

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The Lighting Budget of Thomas Jefferson

Thomas jefferson jpg 307×200 pixels

On December 21, the sun sets at Monticello at 4:57 pm. Civil twilight—when there is still enough light to conduct normal activities—ends at 5:27 pm. By March 21, the sun sets at 6:26 eastern standard time—Monticello is west of the center of America's eastern time zone—and civil twilights ends at 7:52. And on June 21 the sun sets at Monticello at 7:39 pm. Civil twilight ends at 8:11 pm (standard time). Even in the summer, moreover, Thomas Jefferson was unlikely to want to go to sleep when it got dark, with the chickens.

Hence his concern with candles:

1791 September 15: I will now ask the favor of you to procure for me, in the proper seasons 250 lb. of myrtle wax candles, moulded, and of the largest size you can find...

1792 January 24: Myrtle candles of last year out...

1792 November 4: I must now repeat to you my annual sollicitation to procure and send me 200 ℔ myrtle wax candles. I do not know whether the mixing tallow with the wax be absolutely necessary. If not, I would wish them of the pure wax; but if some mixture be necessary, then as little as will do...

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Still Haunted by the Shadow of the Greater Recession...

key: https://www.icloud.com/keynote/0UtILjGfChXSFFUBSCJ3PTf1g
pages: https://www.icloud.com/pages/0eLbd_zXINsC-YRNSL1zQxIdA
html: http://www.bradford-delong.com/2019/02/haunted-by-the-shadow-of-the-greater-recession.html

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"Gunpowder Empire": Should We Generalize Mark Elvin's High-Level Equilibrium Trap?: Hoisted from the Archives

Natalie Pierson A Comparative Look at the Gunpowder Empires

Hoisted from the Archives: "Gunpowder Empire": Should We Generalize Mark Elvin's High-Level Equilibrium Trap?: OK. Popping the distraction stack again. A chance remark by the extremely sharp Cosma Shalizi when he came through Berkeley has caused me to spend a lot of time meditating upon a passage written by Bob Allen:

Robert Allen (2006): The British Industrial Revolution in Global Perspective: "The different trajectories of the wage-rental ratio created different incentives to mechanize production.... It was not Newtonian science that inclined British inventors and entrepreneurs to seek machines that raised labour productivity but the rising cost of labour... due to... Britain’s success in the global economy... in part the result of state policy... Britain['s] vast and readily worked coal deposits...

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Some Great Past First-Year Berkeley Economic History Course Papers

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Yes, some of these have been highly revised since they were submitted for a grade. Why do you ask? :-)

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Dietz Vollrath: The Deep Roots of Development: "Institutions versus geography?... Compare... Melissa Dell’s paper on the mining mita in Peru... forced labor... to provide work in the Potosi silver mine for Spain. Dell established in her paper that areas today that were once inside the mita have lower development levels.... Marcella Alsan’s paper on the effect of the TseTse fly on African development. She builds a measure of the natural geographic range of the TseTse fly.... Both... show that aspects of development are persistently affected by deep roots... the mita... continues to cast a shadow... historical shocks have persistent effects.... In Alsan, the deep root is the range of the TseTse fly, which affected how ethnic groups within Africa subsisted, with effects on the role of women and type of agriculture...

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According to my Grandmother Florence Richardson Usher Lord, my Great-Great Uncle Abbott Payson Usher back in The Day used to teach—very boringly, she said—(1) Middle Ages, (2) Commercial Revolution, (3) Industrial Revolution, (4) Age of Modern Science, with growth accelerations in each of the four: Dietz Vollrath: Sustained growth and the increase in work hours: "Jane Humphries and Jacob Weisdorf... labor contract terms in England over several centuries... annual labor contracts starting seeing sustained growth in their value around 1650 or so, far sooner than the day wages indicated...

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Why Economic History?

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The unfortunate fact is that economists have gotten too good at making theories. In fact, the set of plausible and admissible economic theories is now dense in the space of possible conclusions: For every desired conclusion X, for every ε, and for a norm of "closeness" ||, there is a chain of theories T of increasing complexity indexed by n and a degree of theoretical complexity nδ such that:

(∀X)(∃nδ)(∃T(.))(∀n)(n > nδ -> | T(n) - X | < ε)

Or: with enough time and ingenuity and sweat, a theorist can prove that anything can be an equilibrium.

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Richa Gupta and Umang Aggarwal: Is there a “Late Converger Stall” in Economic Development? Can India Escape it?: "A major driver of these good times is 'economic convergence', whereby poorer countries have grown faster than richer countries and closed the gap in standards of living. The convergence process has been broadening and accelerating for the last 20-30 years.... [But] the possibility of... a 'Late Converger Stall'...

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I now think the right dates for the "long" 20th Century are: May 10, 1869-November 8, 2016: Frederick Studemann: The New Year Could Mark the Beginning of a New(ish) Century: "There are those, such as the economic historian Brad DeLong, who wonder whether Hobsbawn may have short-changed the 20th century. Can a case can be made, they ask, for the 20th century to run from 1870, when the wider impact of the industrial revolution became clear, political economics became central and liberal democracy took hold, to just after the global financial crisis?...

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The Appalachian and Other Trails


Let's consider the United States in the time of major westward expansion and "Amerindian removal": the century 1760 to 1860 before the Civil War. We have U.S. output-per-worker growth then at about 1.0% per year, in contrast to British output-per-worker growth at about 0.5% per year. We have the U.S. population and labor force growing at 2.5% per year, from 2.5 to 30 million. Our conclusion:

An America penned behind the Appalachians would probably have seen its living standards and productivity levels not growing at 1% per year from 1760 to 1860 but shrinking. For the $ \gamma = 3.0 $ benchmark case, living standards and productivity levels would have shrunk at a pace of -0.325% per year had population growth been the historical 3% per year.

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Patrick Karl O’Brien: The Contributions of Warfare with Revolutionary and Napoleonic France to the Consolidation and Progress of the British Industrial Revolution: "A traditional and unresolved debate on economic connexions between the French and Industrial Revolutions.... The costs flowing from the reallocation of labour, capital and technical knowledge to wage warfare from 1793- 1815 have been overstated in relation to a range of benefits...

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Adam Tooze: Keynes and the Calculations of Liberalism: "We were once again living through a profound crisis of the liberal order.... I had Keynes on my mind and the thinker of liberal reconstruction... seemed in many ways more relevant than ever. This led me to put together a slide pack of notes on Keynes’s collection Essays in Persuasion (1931)...

...The slide pack is long, but the Keynes material is worth the effort!... The key to understanding Keynes’s politics is... the boundary between politics and the economy fluid.... In Keynesianism their manipulation becomes the key variable in liberalism’s updated repertoire of politics and government.... [In] the crisis of 2008... not only monetary and fiscal policy, but also a dramatic extension of the macroprudential regime in the name of financial stability.... Wherever there were activist central banks and an ability to withstand a currency devaluation the bond vigilantes were held at bay.... As Keynes said the key is to keep “minds flexible” and to push the argument in “detail”...


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Friedrich Engels (1843): Outlines of a Critique of Political Economy: Weekend Reading

Friedrich Engels 1820 1895 German socialist directing the Stock Photo 57348937 Alamy

Friedrich Engels (1843): Outlines of a Critique of Political Economy: "The eighteenth century, the century of revolution, also revolutionised economics. But... all the revolutions of this century were one-sided and bogged down in antitheses...

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Hoisted from teh Archives: Joseph Schumpeter on "Liquidationism"

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Today's Economic History: Joseph Schumpeter on "Liquidationism": "Three things strike me while rereading Schumpeter's 1934 "Depressions" (and also his 1927 Explanation of the Business Cycle):

  1. How much smarter Schumpeter is than our modern liquidationists and austerians--he says a great many true things in and amongst the chaff, which is created by his fundamentally mistaken belief that structural adjustment must be triggered by a downturn and a wave of bankruptcies that releases resources into unemployment. How much more fun and useful it would be right now to be debating a Schumpeter right now than the ideologues calling for, say, more austerity for and more unemployment in Greece!

  2. How very strange it is for Schumpeter to be laying out his depressions-cause-structural-change-and-growth theory of business cycles at the very same moment that he is also laying out his entrepreneurs-disrupt-the-circular-flow-and-cause-structural-change-and-growth-theory of enterprise. It is, of course, the second that is correct: Growth comes from entrepreneurs pulling resources into the sectors, enterprises, products, and production methods of the future. It does not come from depressions pushing resources into unemployment. Indeed, as Keynes noted, times of depression and fear of future depression are powerful brakes halting Schumpeterian entrepreneurship: "If effective demand is deficient... the individual enterpriser... is operating with the odds loaded against him. The game of hazard which he plays is furnished with many zeros.... Hitherto the increment of the world’s wealth has fallen short of the aggregate of positive individual savings; and the difference has been made up by the losses of those whose courage and initiative have not been supplemented by exceptional skill or unusual good fortune. But if effective demand is adequate, average skill and average good fortune will be enough..."

  3. How Schumpeter genuinely seems to have no clue at all that the business cycle is a feature of a monetary economy--how very badly indeed he needed to learn, and how he never did learn, what Nick Rowe and company teach today about the effects of monetary stringency on economic coordination.

  4. And, finally, how absolutely bonkers liquidationism and austerianism remain...

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Tail Risks

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Tail risks. Can we afford right now to think about tail risks? Probably not: right now what were our tail risks have become head risks, and given them and our day jobs we are all fully absorbed. But if we are going to be spending even a little time thinking about tail risks, the big worry has to be that something happens to cause the Global North to stop investing, as it did in 2008-2009.

Cast your minds back to ten years and two months ago. Back then people were patting themselves on the back; The United States had wound down from its over-the-top overcommitment to housing construction, and had done so without a recession. The Federal Reserve had handled the unpleasantness of mortage-firm, structured-product, and Bear-Stearns bankruptcy. In doing so the Federal Reserve had effectively guaranteed the unsecured debt of every systemically-important commercial and investment bank in and out of New York. The forecast—at least among those who were not close students of Hyman Minsky, an who had not paid attention to Paul Krugman's The Return of Depression Economics—was for at most a small recession, with the balance of risks such that the major risk to the economy—at least in the minds of the Federal Reserve's Open Market Committee—was an increase in core inflation.

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Weekend Reading: Robert Allen on Japan

Weekend Reading: On Japan: Robert Allen** (2013) Global Economic History: A Very Short Introduction (Very Short Introductions) (Oxford: Oxford University Press: ) https://books.google.com/books?isbn=0199596654: On Japan: "Japan is a particularly interesting case, for it was the first Asian country to catch up with the West...

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