Sunday, September 3, 2017

I Blame Foner

The author in New York Times  By the Book today was Jesmyn Ward, author of Sing, Unburied, Sing and Salvage the Bones
These are her answers to two of the questions:

What’s the last great book you read?
“The Half Has Never Been Told: Slavery and the Making of America Capitalism,” by Edward E. Baptist. It taught me so much about slavery and how slavery enabled America to become America. Every time I left my house after reading it, I saw the world differently. I saw the legacy of human misery underpinning it all.

What’s the most interesting thing you learned from a book recently?
From “The Half Has Never Been Told”: “All told, more than $600 million, or almost half of the economic activity in the United States in 1836, derived directly or indirectly from cotton produced by the million-odd slaves — 6 percent of the total U.S. population — who in that year toiled in labor camps on slavery’s frontier.”

In other words, the most interesting thing she has learned from a book recently is an inaccurate assessment of the role of slavery in the American economy that was concocted in Ed Baptist’s imagination and presented in one of the worst books by an academic historian that I have ever read.

I blame Eric Foner. Foner is not the only one to blame, but he certainly deserves a large share of the blame. Foner praised the book in The New York Times and did not point out that Baptist was imply making things up. Foner is a famous historian with a long record of impressive scholarship. It is not unreasonable for non-historians to place their faith in his assessments of work in American history. We all count on recognized experts to give us some guidance in areas that are beyond our personal expertise. Foner, however, failed them. He took a shot at economists, repeated Baptist’s misleading historiography, and failed to note the fundamental flaws in the book.

The flaws truly are fundamental. The claim that slavery was the driving force behind American economic development was central to Baptist’s book. I have seen the book cited on this point by numerous people. Yet Baptist did not actually estimate the importance of slavery; he did not even try. He made a up some numbers, added them up and compared them to an actual estimate of GDP. The way he added up the numbers did not make sense. He is clearly unfamiliar with the problem of double counting or the difference between the sales of newly produced goods and the sales of assets. Even if he had looked in a principles of economics textbook to learn the basics of national income accounting, however, it would not have solved the fundamental problem: he was just making up the numbers. Non-historians are likely say to themselves, “These numbers must be okay; it was reviewed by famous historians, like Eric Foner, and they did not say anything.”  Eric Foner, however, does not have that excuse. Nor do other historians who refused to call bullshit on Baptist. Foner owed the readers of the New York Times a critical reading of the book, and he let them down. Personally, I think this unwillingness to call bullshit on other historians, just because you like their conclusions, is a serious threat to the integrity of history.

As for me, as long as people keep citing his book, I will keep pointing out that Baptist is a charlatan.

Friday, September 1, 2017

Economic History to Read, Listen and Watch


Gregory Clark on Rationally Speaking on What Caused the Industrial Revolution? (and the why it is so difficult to answer that question)

Noel Johnson at the Economics Detective on The French Revolution, Property Rights and the Coase Theorem

Alan Taylor on credit booms and crises in economic history

Deirdre McCloskey on How we got rich

Tuesday, August 22, 2017

Business History and the Great Divergence

Luca Zan and Kent Deng “Micro Foundations in the Great Divergence Debate: Opening Up a New Perspective” LSE Department of Economic History Working Paper No. 256 Jan. 2017


Prevailing approaches in historical studies adopt a macro view and place an overwhelming emphasis on the Industrial Revolution as a major discontinuity in Western development. On the contrary, recent research in accounting, management and business history has suggested a different direction. When opting for a micro-level focus, crucial discontinuities in management and accounting in the West can be traced back to the Renaissance Period. The paper thus searches for ‘micro foundations’ in managing and accounting practices to address the on-going debate on the East-West divergence. Despite the obvious problems with source availability, we outline a new research agenda for the debate.

Geoffrey Jones Business History, the Great Divergence and the Great Convergence Harvard Business School Working Paper 18-004


This working paper provides a business history perspective on debates about the Great Divergence, the rise of the income gap between the West and the Rest, and the more recent Great Convergence, which has seen a narrowing of that gap. The literature on the timing and causes of the Great Divergence has focused on macro analysis. This working paper identifies the potential for more engagement at the micro level of business enterprises. While recognizing that the context of institutions, education, and culture plays a role in explanations of wealth and poverty, the paper calls for a closer engagement with the processes of how these factors translated into generating productive firms and entrepreneurs. The challenges of catching up were sufficiently great in the Rest that initially ethnic and religious minorities held significant advantages in raising capital and trust levels, which enabled them to flourish as entrepreneurs. Yet by the interwar years, there is evidence of a more general emergence of modern business enterprise in Asia, Latin America, and Africa. Many governmental policies after 1945 designed to facilitate catch-up ended up crippling such emergent business enterprises without putting effective alternatives in place. The second wave of globalization from the 1980s provided more opportunities for catch-up from the Rest. Firms from emerging markets had the opportunity to access the global networks that replaced large integrated firms. There were also new ways to access knowledge and capital, including through management consultancies and hiring graduates from business schools. The upshot was the rise to global prominence of firms based in the Rest, including Foxcomm, Huawei, HNA, Cemex, and TCS.

Tuesday, August 15, 2017

Steinbaum on Public Choice

Marshall Steinbaum has published a sort of review of NancyMacLean's Democracy in Chains in which describes “the racist origins of Public Choice theory” and suggests that everyone should read Democracy in Chains “despite its rhetorical shortcomings.”

Steinbaum seems to unquestioningly accept MacLean’s claim that Buchanan’s “study of how government officials make decisions became “public choice economics.”” (MacLean xxiii) In making public choice theory and Buchanan's though synonymous, Steinbaum and MacLean strip public choice of all context other than that related to Buchanan. Buchanan, however, was only one of a number of people attempting to apply economic methods (rational choice and models) to the analysis of both politics and political philosophy. Duncan Black’s work was published before Buchanan, and Ken Arrow, William Riker, Vincent Ostrom, Amartya Sen and others were working on this approach in the 1950s and 1960s at the same time as Buchanan. To the best of my knowledge, none of them appear in Democracy in Chains. They are not listed in the index. The point is that there were a lot of people interested in applying the economic approach to politics. Many of them did not have the same normative preferences as Buchanan. It is this broader approach to public choice that you will find in Mueller’s text on the subject. It is even what you will find here at the Library of Economics and Liberty. Public choice is more than James Buchanan.

By the way, this is more of a defense of public choice theory than it is of Buchanan,Virginia, or UVA. The University of Virginia was an avowedly racist and sexist place in the '50s and '60s? UVA was both all white and all male (until the 1970s). To the best of my knowledge neither Buchanan or anyone of his colleagues at the time made any effort to change that. Of course that could be said of most of the men at UVA and a lot of other universities at the time. The liberty they were most concerned with seemed to be the liberty of men like themselves. 

I'll also say that I have no intention of reading the whole book. If you want to say I have no right to criticize it until I have read the whole thing, go ahead. I don’t care. I don’t have enough time to waste on historians that I do not trust. This is particularly true for a subject that I do not regard as my area of expertise. If it is nineteenth or early twentieth century American economic history I can quickly identify inconsistencies and errors, but for other topics I need to have some faith in the historian. For me the bottom line on MacLean’s book is still that there are numerous instances where she did not honestly represent her sources. Misrepresenting your sources is more than a rhetorical shortcoming.

Tuesday, August 8, 2017

Trust Company Failures and Institutional Change in New York, 1875-1925

My paper "Trust Company Failures and Institutional Change in New York, 1875-1925" is now available under First View at Enterprise and Society.

Here are the first two paragraphs

The State of New York created the first trust company in 1822, when
it granted a corporate charter to the Farmers’ Fire Insurance and
Loan Company, later renamed Farmers’ Loan and Trust Company,
and authorized it to act as a trustee. As the name suggests, Farmers
and other early trust companies, like the New York Life Insurance
and Trust Company and the Massachusetts Hospital Life Insurance
Company, also sold insurance, and they provided trusts as an alternative
to insurance. Trust companies later used their trust powers
to facilitate the development of corporate finance by serving as registrars
and transfer agents for corporate securities and as trustees for
corporate mortgages. Trust companies also accepted deposits; by the
middle of the nineteenth century, some of these deposits could be withdrawn
on demand including by check. Thus, by the late nineteenth
century, trust companies in New York occupied a unique position in
the financial system by combining functions associated with banks
with functions associated with trustees.

Between 1875 and 1925, the number of trust companies in New York
State increased from ten to 110, and the total resources of trust companies
increased more rapidly than those of state banks or savings
banks. Trust companies have been characterized as early examples
of “shadow banks,” operating outside the laws and regulations that
applied to commercial banks. However, as with other financial institutions,
New York State trust companies rarely failed. Between 1875
and 1925, the superintendent of banks only intervened eleven times
to deal with troubled trust companies, and in several of these cases
the trust company reopened. Despite this rarity, these failures provide
a path to understanding the overall success of trust companies.
The path leads through institutions: failures played a leading role in
shaping the institutions that governed trust companies. Consequently,
failures shaped the expectations and actions of everyone involved
with trust companies: depositors, shareholders, and executives.

Friday, July 28, 2017

Some recent history and economic history

The latest issue of History Now from the Gilder Lehrman Institute is about the history of the blues and jazz. It has this nice list of links to music.

There has been a lot of discussion recently about state capacity and the evolution of norms. I think it is safe to say many economist historians regard both as essential to understanding long run economic performance.

On state capacity, here is Koyama on Salter on Johnson and Koyama. And here is Koyama on Political Decentralization and Innovation in early modern Europe and The Economist covers the work of Anderson, Johnson and Koyama on poor harvests and violence.

On the evolution of norms:

Pseudoerasmus “Where Do Pro-Social Institutions Come From?” originally published as a blog post but recently published on Evonomics.

Peter Turchin writes that

“Cultural Evolution is a new interdisciplinary field whose intellectual roots go back only to the 1970s (unless, of course, you count Charles Darwin; but in a sense any new development in evolutionary science can be traced to Darwin). In this new field, “culture” is defined as information, which can affect human behavior, that is socially transmitted—through books and manuals, by teaching, or simply by observing and imitation. Cultural variants are information packages that cause people to behave in alternative ways. Cultural Evolution, then, studies how and why frequencies of cultural variants change with time, just as biological evolution focuses on the changing frequencies of genetic variants.”
Of course North placed a great deal of emphasis on the importance of changing beliefs (especially in Structure and Change and later works) but this also reminds me of Veblen, who argued that “institutions are, in substance, prevalent habits of thought with respect to particular relations and to particular functions of the individual and of the community” and that "the evolution of society is substantially a process of mental adaption on the part of individuals under the stress of circumstances which will no longer tolerate habits of thought formed under and conforming to circumstances in the past." He argued that these prevalent habits of thoughts influenced both the objectives that people sought to achieve and the means that they perceived to achieve them. Consequently, their evolution should be the primary concern of economists.

In addition, Jared Rubin and Murat Iyigun have a paper on the Ideological Roots of Institutional Change

BTW there is actually a connection between the first link and the last link in this post.

Monday, July 17, 2017

The Importance of Honesty in Historical Research

I am not now, nor have I ever been a fellow at the Mercatus Institute or any other institute that receives funding from the Koch brothers. I have never received any funding from the Koch brothers. To be honest, I haven’t received much funding from anyone else either. I know several people at Mercatus (Mark Koyama, Noel Johnson, and John Nye), and I have been there a couple of times when the Washington Area Economic History Seminar was held there. I am not a libertarian, I have, in fact, written several blog posts critical of libertarians generally as well as specific people affiliated with Mercatus: Walter Williams, Arnold Kling, Bryan Caplan and Tyler Cowen. Finally, I never met James Buchanan and if I have ever cited him I can’t think of where it would be. I hope this establishes my bona fides as not just another shill for the Koch brothers.

Now that I have gotten that out of the way, I find the arguments that some historians are making in support of Nancy MacLean’s Democracy in Chains mindboggling.

MacLean quoting Cowen: “the weakening of checks and balances would increase the chance of a very good outcome.”

Cowen’s full quote: “While the weakening of checks and balances would increase the chance of a very good outcome, it also would increase the chance of a very bad outcome.”

This is scholarly malpractice. Are there really professors who would accept this from a student? It is indefensible, yet Andy Seal defends it:

Her critics see this as prima facie evidence of a bad faith effort to distort Cowen’s meaning to make him appear to be anti-democratic. I think that’s immediately debatable, however, because by her lights any open-minded contemplation of the possibility of weakening checks and balances is anti-democratic. And that’s what Cowen is doing here: entertaining the possibility that weakening checks and balances could produce a desirable outcome.
Let’s think about it this way. If I said, “While permitting five-year-olds to be employed in manual labor would increase the chance of a very good outcome, it also would increase the chance of a very bad outcome,” what could we conclude? That I was advocating child labor? No, that would be too much. But that I was open to the idea? Yes, that’s a fair reading of the sentence.

He claims that her version of the quote does not show bad faith “because by her lights any open-minded contemplation of the possibility of weakening checks and balances is anti-democratic.” But consider Seals’s example: “While permitting five-year-olds to be employed in manual labor would increase the chance of a very good outcome, it also would increase the chance of a very bad outcome.” Who believes that it would be acceptable to quote him as saying: “permitting five-year-olds to be employed in manual labor would increase the chance of a very good outcome”? What if I told you that it is okay because in my lights any open-minded contemplation of the possibility of child labor is supportive of child labor? Would it be okay then?

This is not a small matter. I can’t just brush this issue aside and look at her broader argument because I can't trust somone who does this. Her claims may very well be correct, but I am not going to be persuaded by her argument because I can’t trust the evidence that she puts forward in favor of them. I don’t care what a historian’s political leanings are, I need to be able to trust that they are honestly representing their sources.