Sunday, February 5, 2017

Stephen Mihm and the State of Financial History

The winter 2016 issue of The Journal of the Early Republic includes several papers from a conference on Economic History’s Many Muses, held at the Library Company of Philadelphia.
The papers consider a wide array of topics and approaches within history. Two were of particular interest to me as an economist/economic historian: Caitlin Rosenthal and Stephen Mihm. Both authors have been associated with the “new history of capitalism,” and both wrote essays that explicitly address the relationship between economists who work on historical issues and historians who work on economic issues. Rosenthal argues that both sides need to work to break down the barriers between the two. I agree.

I’m not sure that Mihm shares that goal. His essay on financial history was the one most closely related to my work in economic and business history, yet it presented a picture of the state of economic history generally and financial history specifically that I found largely unrecognizable.

The essence of Mihm’s argument was that financial history has largely disappeared:

“Financial history, as well as economic history more generally, was once a vital part of both the historical and economics disciplines. And then it effectively vanished, save for a few isolated individuals in the academy. Understanding how and why that happened may help frame the challenges facing practitioners of the “history of capitalism.” He argues that historians largely abandoned the field to economists and that “the move to economics departments ended less happily than it began. Increasingly, economic historians in economics departments served to substantiate existing models and formulas, where historical inquiry was not really the point. Economic historians found themselves marginalized.”

Yet when you actually look at some evidence you are more likely to come to the conclusion that Ran Abramitzky did, that “economic history is far from being marginalized and overlooked by economists.” Abramitzky finds that “economic history today is more respected and appreciated by the average economist is also reflected by an increase in economic history publications in the top-5 economic journals. The decline in economic history in the top-3 journals that McCloskey documented has been reversed, and the percentage of economic history publications in the top-3 journals has gone back up to its heydays of the 1920s and 1930s, although QJE has replaced the JPE as the most historical journal (Table 1). 4 Similarly, the number and percentage of economic history papers published in the top 5 economic journals (AER, QJE, JPE, Econometrica, Restud) has doubled over the last twenty years (Figure 1), in part, reflecting a broader trend in economics away from theory and into empirical work.”

In short, the rumors of economic history’s demise have been greatly exaggerated. There have been some setbacks. My own alma mater, Washington University in St Louis, is one of the worst examples. On the other hand, many highly regarded economics departments in the United States still have multiple economic historians: Harvard (Eric Chaney, Melsissa Dell, Claudia Goldin, and Nathan Nunn); Stanford (Avner Grief and Ran Abramitzky); Yale (Naomi Lamoreaux, Tim Guinane, Jose Antonio Espin Sanchez); Northwestern, (Joel Mokyr, Robert Gordon, Joe Ferrie); Berkeley (Barry Eichengreen, Brad De Long, Martha Olney, Christina Romer); Michigan (Paul Rhode, Martha Bailey); Vanderbilt (Peter Rousseau, William Collins, Claudia Rei, Andrew Goodman-Bacon); U.C. Davis (Alan Taylor, Katherine Eriksson, Greg Clark, Chris Meissner); UCLA (Leah Boustan, Michela Giorcella, Dora Costa, Walker Hanlon). Other departments, like George Mason (John Nye, Noel Johnson, Mark Koyama, and Carlos Ramirez) have built up very strong programs in economic history in recent years. And this is just the United States. As best I can tell economic history seems to be thriving in Europe as well. Moreover, several of the economic historians that I just listed focus on financial issues, and Rutgers (Hugh Rockoff, Eugene White, and Michael Bordo) practically has a financial history department.


Ironically, Mihm’s argument that financial history all but vanished is most forcefully refuted by his own footnotes. He cites numerous recent papers by Rockoff, Grubb, Wallis, Sylla, Bodenhorn, Rousseau, Knodell, Calomiris, Schweikart, Lamoreaux, and Wright. Moreover, the list could have been even longer. Mihm does not include references to important recent work by economic historians like Eric Hilt and Matt Jaremski. And this is only counting people who have written on early America. The list is much longer if one turns to Europe or America after the Civil War.

Mihm’s footnotes also seem at odds with his text on specific issues. For example, when he acknowledges that economists have given considerable attention to some topics, like “free banking,” he suggests that “a significant portion of past scholarship by economists has been motivated in order to produce a historical brief to support the abolition of central banks or the deregulation of banking.” The term “free banking” seems to conjure notions of some sort of financial equivalent of “free love.” Free banking, however, did not mean that anything goes. Free banking de-politicized bank chartering. It moved finance in the United States toward what North, Wallis and Weingast describe as an open access order. It was not a world without rules. It was a world in which everyone had to follow the same rules. Everyone had to follow the same rules about capital requirements, specie redemption, and security backed note issues. Ironically, although Mihm cites numerous authors who have written on free banking (e.g., Rockoff, Rolnick and Weber, and Economoupolous), he does not cite some more libertarian leaning economists (Lawrence White and George Selgin) who have written on financial history. His fellow NYU grad and University of Georgia colleague George Selgin, who has written extensively on the money and banking, doesn’t get a single mention.


Similarly, he claims that “Also understudied are the ways that “bringing the state back in,” to use the famous words of Theda Skocpol, requires a recognition of the central role public finance played and its corresponding entanglements with private finance.” Yet he cites a number of the papers by Sylla, Wallis, Lamoreaux, and others that do exactly this.

Reading Mihm’s paper it is easy to see why Cathy Matson, who organized the conference and introduces the papers, would suggest that a “A new kind of financial history would retrieve the themes of tariffs, taxation, and especially banking from the special preserve of economists. Its historians would ask such questions as who underwrote banks, how was bank money used, how was its value created, what was the extent of banking power at different times in North American history, what are the links between banks and slavery or the rise of wage labor?” In other words, this new financial history would do what financial historians, both economists and historians, are already doing.