Monday, September 25, 2017

New History of Capitalism meets the History of Economic Thought

Jonathan Levy has a paper forthcoming in Business History Review, Capital as Process and the History of Capitalism.” If you have access to the journal it is available on First View. He attempts to develop a definition of capital that is useful for the study of capitalism. I should be grading papers right now so I will make this quick.

Unfortunately, it bears many of the hallmarks of some of the most celebrated work in the new history of capitalism.

1. Misunderstanding basic economics: Here for, for instance, is his description of the problems associated with thinking of capital as a produced means of production

And yet, because it equates capital with a produced physical factor of production, the materialist conception is a highly restrictive definition of capital. For the writing of history, there are chiefly three almost natural consequences of the materialist restriction. First, because of its emphasis on a produced factor of physical production, capital becomes almost synonymous with industrial machinery and equipment. Second, likewise the materialist capital concept abstracts from money—treating monetary and financial dynamics as extrinsic to both capital and the “real economy” in general. Third, for reasons to be explained later, the materialist capital concept is a temporally static concept. Thus, in addition to money it also abstracts from historical time—or at least, in pursuit of analytical clarity, it abstracts from the many eventful historical processes that are extrinsic from the point of view of the physical characteristics of the masses of objects that materialists define as capital.

Reference to a principles of economics textbook would have made clear that capital is not synonymous with industrial machinery and equipment.

2. Use of sources that can at best be described as sloppy. I have been interested in Veblen since I was an undergraduate. Levy seems interested in Veblen as well. When I checked the places where Levy specifically quotes Veblen this is what I found. Levy is in bold  

“At the most abstract level, capital, in this line of thought, is what Thorstein Veblen once called a “pecuniary magnet.”11 (Levy page 5)
“11 Thorstein B. Veblen, “On the Nature of Capital II: Investment, Intangible Assets, and the
Pecuniary Magnate,” Quarterly Journal of Economics 23, no. 1 (1908): 104–36.”

One might think that Veblen used the phrase “pecuniary magnet” in this paper. He did not. He did use the phrase “pecuniary magnate.” But a magnate is not a magnet. Veblen is referring to people, “captains of industry,” not capital. If Veblen ever referred to capital as a pecuniary magnet it was not in the cited paper.

Oddly enough, Berch Berberoglu made this same mistake earlier this year. Since neither references the other one has to conclude that they made the mistake independently.

“By becoming the exclusive legal owners of capitalized goods, capitalists over time had politically and legally “cornered” the market in immaterial “technological expedients.”42(Levy page 14)
42 Thorstein B. Veblen, “Fisher’s Capital and Income,” Political Science Quarterly 23, no. 1 (1908): 117.”

Again, one might think that the quoted phrases appear on page 117; they do not. Like “pecuniary magnet” they do not appear anywhere in the paper.



 “Addressing culture, Veblen argued that capital was merely one economic “method of
doing things” in the world among others.44(Levy page 14)
44 Thorstein B. Veblen, “Why Is Economics Not an Evolutionary Science?” Quarterly Journal of Economics 12, no. 4 (1898): 389.”

Levy is at least in the ballpark this time. Veblen uses the phrase “methods of doing things.” He does not, however, use it on page 389. Page 389 is devoted to his critique of the hedonistic conception of man, not an argument that capital was merely one economic method of doing things.

“If capital has no fixed, authentic value, the question becomes, as Veblen put it, “Whose imputation of value is to be accepted?”71 (Levy page 20)
71 Veblen, “Fisher’s Capital and Income,” 120.”

This time Levy almost nailed it. The quote is in the paper, and he only missed the citation by 5 pages; its on page 125.


At what point does putting quotation marks around things that were not a actually said by the person they are attributed to become a problem in historical scholarship.

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

Read:


Listen:
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

Watch:
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

Abstract

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

Abstract


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.