Welcome to The Long Run

On behalf of the Economic History Society (EHS), it is a pleasure to welcome you to The Long Run, the EHS blog.

This blog aims to encourage discussion of economic and social history, broadly defined. We live in a time of major social and economic change, and recent research in social science is showing more and more how much a historical and long-term approach to current issues can be the key to understanding our times. The importance of bringing together the disciplines that compose what we call social sciences and have them interact in a historical perspective is absolutely fundamental not only for the future directions of economic history, but also to be able to reflect on the mechanisms that regulate our world through data and knowledge.

The Long Run aims to host senior scholars as well as young researchers, and anyone who has interesting and scientifically sound contributions to make to Economic and Social History. The blog will also be a way for EHS members and anyone interested in the activities of the Society to keep updated on its activities, from our Review to CFPs and other activities that you can find on our website

We welcome any contribution or suggestion – please contact us at ehs.thelongrun@gmail.com

or take a look at our CFP here

It is appropriate to record my appreciation for Professor Peter Fearon, outgoing Chair of the EHS Public Engagement committee, who originally conceived the idea for the blog. A special thanks also to our editorial team: Marta Musso, Bernardo Bátiz-Lazo, Amy Ridgway, Judy Stephenson and Romesh Vaitilingam, without whom this blog would not exist. Special thanks are due to Marta who did much of the ‘heavy lifting’.

We look forward to seeing you here regularly, always standing on the shoulders of giants.

Professor David Higgins (EHS Public Engagement Committee)

13 June 2016

Quantifying historical developments in occupational structures

Sebastian Keibek, University of Cambridge, won the New Researcher Prize at the Society’s conference in March for his work on England’s occupational structure. Establishing the occupational a structure of England before 1800 is made difficult because the nature of records is particularly complex. Here, he explains a little about his sources and methodology, and his important findings

Thirteen years ago, Leigh Shaw-Taylor and Tony Wrigley embarked on a research project called ‘The Occupational Structure of Britain, 1379-1911’. As is clear from its title, the project aims to describe over five centuries of change in British working life. My research, which focuses on men’s work during the 1600 to 1850 period, is part of the wider project, building on earlier efforts and feeding back into the ongoing programme of research. Understanding occupational change is of interest to economic historians for many reasons, but I would like to highlight two of these here. Firstly, quantitative data on the composition of the labour force provide us with excellent information on the structure of the economy, uniquely so at sub-national geographic scales. Secondly, when independent output estimates are available, understanding the contemporary occupational structure allows us to determine labour productivity growth and, thereby, gauge the effects of technological and organisational change as well as the room for improvements in living standards.  

Both reasons are especially pertinent for historians trying to understand the British Industrial Revolution. Traditionally, economists analysing this critical transition to modern economic growth have reserved an important role for structural change in their models. Arthur Lewis, for example, virtually equated industrialisation with a shift in the occupational structure from agriculture to industry, by which underutilised labour in the former was put to more productive use in the latter (1). Simon Kuznets too emphasized ‘the shift away from agriculture to non-agricultural pursuits’, followed later by one from industry to services (2). Walt Rostow’s five-stages model of economic growth was also strongly stucturalist in nature, with the share of the working population engaged in agriculture declining from seventy-five to forty per cent during the ‘take-off’ stage, and to twenty per cent during ‘drive to maturity’ stage (3).

In its quantification of the Industrial Revolution, the authors of Britain’s national accounts literature – from Dean and Cole, via Crafts and Harley to, most recently, Broadberry et al – have based their occupational estimates almost entirely on so-called ‘social tables’ (4). These were created by contemporary proto-statisticians like Gregory King and Joseph Massie. But these tables only provide information at the national scale and only for a single moment in time, are phrased in terms which allow wildly varying interpretations, were created by men pushing specific political agendas, and are, as Holmes phrased it, ‘far more the product of strained deduction, of mathematical juggling, or even plain guesswork, than of firmly grounded information’ (5). 

Fortunately, much more reliable and detailed information on men’s work is available in a number of sources. National censuses provide increasingly good occupational information, but only from 1831, so other sources are required for earlier years. The most important of these are baptism registers and testamentary documents. From 1813, registering the occupations of fathers became mandatory in Anglican baptism and during the eighteenth century too, these occupations were reliably registered in some English and Welsh parishes. Male occupations were also commonly recorded in testamentary documents such as wills and probate inventories, which are available in large numbers for most English and Welsh counties, often back into the sixteenth century. Baptism registers and testamentary documents complement one another beautifully: the former are reliable but scarce, the latter are widely available but heavily biased towards certain social groups and occupations. My methodology makes use of the complementary strength and weaknesses of each source: baptism data are used to calibrate the (biased) testamentary data, whilst testamentary data are used to interpolate and extrapolate the (scarce) baptism data. This methodology was applied to a new national database of over two million probate records, created from indexes to testamentary documents in forty-six (out of fifty-four) English and Welsh counties. Using the existing Cambridge Group’s baptism register database to calibrate these probate data, tables at the occupational sub-sector level (farming, fishing, textiles, transport, etcetera) were created for every twenty-year time interval between 1600 and 1850, for England and Wales as well as for the forty-six individual counties. Additionally, successions of maps were created for each of these counties, depicting the labour shares of the three main sectors (primary, secondary, tertiary) at the registration district level.

The picture of the Industrial Revolution which emerges from these tables and maps differs dramatically from the traditional one. There was no structural shift from agriculture to manufacturing during the Industrial Revolution; instead, this shift took place from the second half of the sixteenth to the early eighteenth century, with manufacturing overtaking agriculture as the largest male employer in c.1740. Whilst agriculture continued to decline in occupational importance after 1740, it was to the service sector rather than manufacturing to which superfluous labour flowed; whilst only one in eight men were employed in the service sector in 1740, this had risen to one in five a century later. But the occupational data also make clear that such national observations are only a small part of the story. The truly spectacular developments were regional in nature, with highly diverse trajectories for different parts of country. England and Wales witnessed rapid concentration of function, with regional economies focusing on their specific strengths, all tied together by a continuously growing number of transport workers. Where the north-west of England and the West Midlands rapidly industrialised, many southern English counties witnessed equally rapid de-industrialisation. Norfolk’s secondary sector labour share, for example, fell from a high of sixty-three per cent in 1700 to thirty-four per cent in 1820. Functional concentration took place at local levels too, as the example of Cheshire (see figure) demonstrates. Similarly, industry and services became more and more concentrated in urban areas; whereas half the secondary sector workers in 1700 were rural, this was the case for only one in three a century later.

Figure: Share of adult men working in the secondary sector (Cheshire, 1620-1820)

 

References:
1.  Lewis, ‘Economic development with unlimited supplies of labour’, The Manchester School, 22:2 (1954), pp. 105-38.

 2.  From his Nobel Prize lecture titled ‘Modern economic growth: findings and reflections’, http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1971/kuznets-lecture.html.

3.   Rostow, The stages of economic growth: a non-communist manifesto, 3d edn (Cambridge: Cambridge University Press, 1991), p. 71.

4.   Deane and Cole, British economic growth, 1688-1959: trends and structure, 2nd edn (Cambridge: Cambridge University Press, 1967), p. 137; Crafts, British economic growth during the Industrial Revolution (Oxford: Clarendon, 1985), pp. 11-7; Broadberry et al, British economic growth, 1270-1870 (Cambridge: Cambridge University Press, 2015), pp. 345-60.

 5. Holmes, ‘Gregory King and the social structure of pre-Industrial England’, Transactions of the Royal Historical Society, 27 (1977), p. 63.

I am currently finishing my PhD dissertation which will serve as the basis of a number of papers on the methodology and conclusions described above as well as a planned book jointly authored with Leigh Shaw-Taylor and Tony Wrigley. More generally, the baptism and probate data offer a uniquely detailed basis to (re)analyse issues of economic development at regional, local, and national scales – there is much work to be done!

Sebastian Keibek, sk571@cam.ac.uk

From VOX – Comparative advantage in manufacturing: A look back at the late Victorian ‘workshop of the world’

Modern discussions about a country’s ‘decline in manufacturing’ are seldom meaningful. Such talk of industrialisation and deindustrialisation across the entire sector tends to ignore important variation across individual industries. This column draws lessons from the revealed comparative advantage of late-Victorian Britain – the ‘workshop of the world’. Advantage lay mainly in industries that were relatively…

via The late Victorian ‘workshop of the world’ — VoxEU.org: Recent Articles

From the LSE Business Review – GDP per capita: from measurement tool to ideological construct

An excellent reading suggestion from the LSE Business Review

GDP per capita: from measurement tool to ideological construct

2016 Olympics reading list: Brazilian politics, history and culture — LSE Business Review

[With the paralympics games just closing, we would like to propose again this interesting reading list from the LSE Business Review, waiting for Tokyo 2020]

https://w.soundcloud.com/player/?url=https%3A%2F%2Fapi.soundcloud.com%2Ftracks%2F134267094&visual=true&color=ff0000&auto_play=false&hide_related=false&show_comments=true&show_user=true&show_reposts=false

The 2016 Rio Olympics officially opened on Friday and runs from 5 August – 21 August 2016. To mark the occasion, LSE Review of Books recommends seven reads that explore the culture, politics, history and economics of Brazil. We also offer a bookshop guide to Rio and São Paulo and showcase three award-winning podcasts from the…

via 2016 Olympics reading list: Brazilian politics, history and culture — LSE Business Review

Speculative Bubbles in History

by William Quinn and John Turner (Queen’s University Belfast)

South_Sea_Bubble_Cards-Tree
Unknown, 1720ca. Tree caricature from South Sea bubble cards. Public domain, available here

Although the “speculative bubble” is one of few financial concepts to regularly show up in popular culture, in academic financial economics it is a remarkably controversial topic. There are unresolved debates surrounding what constitutes a bubble, whether bubbles actually exist, whether central banks should take action in order to ‘prick’ bubbles, and why, exactly, bubbles often lead to economic recessions. Even the use of the word “bubble” can provoke the ire of economists: Peter Garber describes it as “a fuzzy word filled with import but lacking any solid operational definition”, whereas Eugene Fama simply states that “the word ‘bubble’ drives me nuts”.

Assuming that bubbles actually exist as a recurring phenomenon, how should they be defined? Charles Kindleberger defined a bubble as any substantial upward price movement followed by a crash. This, however, feels incomplete: if an industry grew due to unforeseeable good news, before shrinking due to unforeseeable bad news, it would not seem accurate to describe the event as a bubble. Peter Garber therefore proposes defining a bubble as “a price movement that is inexplicable based on fundamentals”, which seems more consistent with the popular understanding of the word.

A problem with Garber’s definition is that, although it is more precise, it renders bubbles impossible to identify with certainty. This is because testing for market efficiency always invokes a ‘double hypothesis’ problem: one can never tell whether prices were truly inconsistent with fundamentals, or they just appear to have been because the pricing model used for the test was incomplete. One solution is to avoid using the word ‘bubble’ at all. But given how frequently the concept appears outside of academia, it would be absurd if academic finance had nothing to say on the subject at all. In practice, the most sensible solution is often to revert to Kindleberger’s definition.

Why are economic historians interested in bubbles? There are purely historical reasons to be interested in these events: they have often played a central role in the development of financial markets and corporate law, most notably with the Bubble Act of 1720. However, this is also a field in which the past can directly inform the present. The potentially severe economic consequences of bubbles makes their study essential, but they are also rare events, and acquiring an overview of the subject is almost impossible without a historical perspective. Economic history has therefore recently contributed to three areas of contemporary, policy-relevant debates surrounding bubbles.

The first area is the central question of whether bubbles represent examples of market irrationality. The historical evidence on this point is somewhat mixed. Qualitative evidence has been used to suggest that bubbles result from mass irrationality, or, as Charles Mackay put it, the ‘madness of crowds’. However, closely analysing share prices during famous episodes often contradicts these stories. This is not to say that the price at the peak of a bubble is necessarily “correct”, but there is generally a sense in which it is justifiable. For example, Gareth Campbell has shown how prices during the British Railway Mania, although inaccurate in hindsight, were generally consistent with the pricing models widely used at the time. In practice, these models overestimated the sustainability of high initial dividends. But this is a long way from the ‘madness’ described by Mackay. The evidence from historical bubbles suggest that, while prices might not always have perfectly reflected underlying fundamentals, the popular characterisation of bubble investors as naïve fools absorbed by a speculative frenzy is inaccurate.

The second area is the question of whether central banks should raise interest rates in order to ‘prick’ a bubble, thereby preventing adverse economic consequences if it is allowed to grow. There are strong economic arguments for and against this point, but historical evidence generally suggests that it is a bad idea. Ben Bernanke, amongst others, has argued that the attempts of the Federal Reserve to burst the asset price bubble on the eve of the Wall Street Crash were partly responsible for the Great Depression. Hans-Joachim Voth has convincingly shown that a similar mistake was made in Germany in 1927, with even more severe political consequences. The counter-argument put forward by Nouriel Roubini is that these particular examples involve monetary policy which was ‘botched’, and more well-informed efforts to influence asset prices could be effective. This is theoretically possible, but any historical examples seem insignificant in comparison to the severe consequences of the aforementioned attempts to burst bubbles in the 1920s.

The final area is the question of why financial bubbles are often followed by a recession. Here there are two plausible mechanisms: the ‘wealth effect’ and the ‘debt effect’. The wealth effect argument is that the bursting of the bubble inflicts heavy losses on investors, who respond by decreasing spending, thus reducing aggregate demand. The debt effect argument is that, after the bubble bursts, demand is reduced because the public are less inclined to borrow, and banks are less inclined to lend. A 140-year study by Óscar Jordá, Moritz Schularick, and Alan Taylor finds that, while both of these mechanisms seemingly occur, recessions are much more severe when the bubble was accompanied by a high level of leverage. John Turner in his book Banking in Crisis, has suggested that bubbles which are driven by indebtedness, such as the housing bubble of 2006-07, are particularly dangerous for banking systems and economies.

Real estate bubbles leading to bank troubles — 2008? Not exactly — LSE Business Review

The recent financial crisis suggested an important connection between real estate investments and bank trouble, especially in the U.S. In fact, this is nothing new. Although financial crises can have multiple and varied causes, real estate investment booms are likely to bode particularly ill for the stability of the financial system. Indeed, in a new…

via Real estate bubbles leading to bank troubles — 2008? Not exactly — LSE Business Review

Medieval History and its Relevance to Modern Business

Joint publication review with The NEP-HIS Blog

Title: The Medieval Origins of a Culture of Cooperation and Inclusive Political Institutions

 

By: Carmine Guerriero (ACLE, University of Amsterdam)

Abstract: This paper evaluates the relative importance of a “culture of cooperation,” understood as the implicit reward from cooperating in prisoner’s dilemma and investment types of activities, and “inclusive political institutions,” which enable the citizenry to check the executive authority. I divide Europe into 120 km X 120 km grid cells, and I exploit exogenous variation in both institutions driven by persistent medieval history. To elaborate, I document strong first-stage relationships between present-day norms of trust and respect and the severity of consumption risk-i.e., climate volatility-over the 1000-1600 period and between present-day regional political autonomy and the factors that raised the returns on elite-citizenry investments in the Middle Ages, i.e., the terrain ruggedness and the direct access to the coast. Using this instrumental variables approach, I show that only culture has a first order effect on development, even after controlling for country fixed effects, medieval innovations, the present-day role of medieval geography, and the factors modulating the impact of institutions. Crucially, the excluded instruments have no direct impact on development, and the effect of culture holds within pairs of adjacent grid cells with different medieval climate volatility. An explanation for these results is that culture, but not a more inclusive political process, is necessary to produce public-spirited politicians and push voters to punish political malfeasance. Micro-evidence from Italian Parliament data supports this idea.

URL: http://EconPapers.repec.org/RePEc:pra:mprapa:70879

Circulated by NEP-SOC on 2016-05-14

Reviewed by Catherine Casson (University of Manchester) and Mark Casson (University of Reading)

This paper takes a long-run approach to an investigation of the importance of a ‘culture of cooperation’ and ‘inclusive political institutions’. The author defines a ‘culture of cooperation’ as the behavioural characteristics of ‘trust, respect, control and obedience’, while the term ‘inclusive political institutions’ is defined as institutions which ‘enable the citizenry to check the executive authority’.

Analysis is focused on Europe and on the agrarian economy. The author suggests that cooperation in the middle ages was particularly associated with the monastic orders of the Cistercians and Franciscans. Their houses were generally located, the author argues, in areas with unpredictable climates. The ability of the monks to farm the land in a way that put such unproductive land to productive use attracted the support and cooperation of the local community. In addition these monastic orders also introduced new financial practices, including improvements in access to credit, which also fostered local community cooperation. Inclusive political institutions, the author suggests, were especially associated with the success of long-distance trade. This created a shared goal between the elite and citizens.

Cistercian_monks_at_work1

The paper suggests that contemporary cultures of cooperation and inclusive political institutions are influenced by medieval ones. The medieval data used for ‘culture’ is climate data and the modern data is the 2008 European Value Study. For inclusive political institutions the medieval data is ‘the discounted number of years Cistercian and Franciscan houses were active per square km over the 1000-1600 period’ (p. 9) while the modern data is on prosecutions of members of parliament in Italy in 1948-87.

Later in the paper some more specific hypotheses are presented as controls for change over time:

  1. That Atlantic trade impacted on modern economic development
  2. That micro-credit systems introduced by the Franciscan order strengthened contemporary credit markets
  3. That monastic orders influenced religious beliefs in general, and that this influence may have had other, less defined, influences, on economic practice
  4. That distance to Wittenberg, where Protestantism began, influenced the development of a ‘culture of cooperation’
  5. Early transition to agriculture led to ‘higher inequality in gender roles’
  6. That genetic diversity in a country had a negative impact on cooperation
  7. That the suitability of soil for potato growing contributed to the development of institutions
  8. That the Black Death raised standards of living
  9. That education influenced the development of institutions and economic growth

The paper argues that the impact of the medieval culture of cooperation originating in the Cistercian and Franciscan monastic houses can be seen today. It also argues that this culture of cooperation has had a greater influence as a check on executive authority than inclusive political institutions.

Conflict, rather than cooperation, is often the term most associated with the middle ages. One of the benefits of this paper is that it highlights the presence of, and impact of, collaboration. Monastic orders are recognised in both history and economics literature for their important economic, as well as religious, impact. Their use to assess a culture of cooperation is therefore helpful, but they are perhaps a less obvious choice for an assessment of inclusive political institutions. One potential way in which the paper could be developed would be by expanding the scope to cover both urban and rural locations. Such an extension would retain the presence of monastic orders (and indeed extend it to cover urban ones) and, more significantly, allow urban political institutions to be considered. The presence of these institutions is briefly discussed on p. 12 but the issue is not developed further. Many of these town governments had as a shared goal the long-distance trade alluded to in the paper. They also offer more equivalent data to the contemporary data used as a proxy for inclusive political institutions.

images

Continuity and change over time is a key focus on the paper and the author shows an awareness of some key developments that occurred from the medieval to the modern period. The selection of the controls shows an engagement with recent secondary literature but does introduce additional time periods (such as the Neolithic), specific events (for example the Black Death) and general trends (for example the expansion of education). The paper could be strengthened by more clearly outlining the chronology of these events, and perhaps by narrowing the list of controls used.

Connections between contemporary and historic business have been increasingly recognised and explored in academic literature. The subject of this paper is therefore related to a growing trend to examine the medieval origins of many economic processes. Monasteries have been identified as key players in the ‘multinational enterprise’ of medieval pilgrimage and as originations of sophisticated forms of financial transactions (Bell and Dale, 2011; Bell, Brooks and Dryburgh, 2007). They were also important speculators in the property market (Baker and Holt, 2004; Bouchard, 1991; Casson and Casson, 2016).

Tintern_Abbey-inside-2004

Financial crises are a further topic that can be examined through the surviving qualitative and quantitative sources from the middle ages. In the light of the financial crisis of 2008 there has been a recognition that a long-run perspective, starting as early as the middle ages, provides the opportunity to study cycles of growth and decline. Surviving medieval records from the English government, for example, provide detailed data that can be subjected to statistical analysis, as shown in the work of Bell, Brooks and Moore (Bell, Brooks and Moore, 2014; Bell, Brooks and Moore, 2013). The importance of medieval data has also been highlighted in recent work on historic GDP (Broadberry et al, 2015).

Innovation and knowledge acquisition in the middle ages have recently been examined using both modelling approaches from economics, and historical case studies. De la Croix, Doepke and Mokyr (2016) have shown, using their combined expertise in the fields of economics and history, the important foundation that medieval guilds provided in the transmission of knowledge across Europe before the Industrial Revolution. Meanwhile Davids and de Munck’s edited collection on Innovation and Creativity in Late Medieval and Early Modern European Cities has used historical case studies to demonstrate that medieval cities saw a clear connection between the skills of their population and the overall economic performance of their city, and developed strategies that were intended to make their city economically resilient (Davids and De Munck, 2014; Casson, 2012).

Entrepreneurship can also be examined in a long-run context. Business records, letters, literary sources and government records all demonstrate that, contrary to popular belief, the origins of enterprise lie in the middle ages rather than the Industrial Revolution. Medieval entrepreneurs were involved in a range of activities, including infrastructure developments, property speculation and factory foundation (Casson and Casson, 2013a; Casson and Casson, 2013b; Landes, Mokyr and Baumol, 2012)

Overall, one of the key strengths of this paper is the contribution that it makes to this broader research agenda on the parallels between medieval and modern business.

 

References

Baker, N. and R. Holt (2004), Urban Growth and the Medieval Church: Gloucester and Worcester (Routledge, Aldershot).

Bell, A. R., Brooks, C. and Moore, T. K. (2014), ‘The credit relationship between Henry III and merchants of Douai and Ypres, 1247-70’, Economic History Review, 67 (1), 123-145. doi: 10.1111/1468-0289.12013.

Bell, A., Brooks, C. and Moore, T. (2013), ‘Medieval foreign exchange: A time series anaylsis’ in M. Casson and N. Hashimzade (eds.) Large Databases in Economic History: Research Methods and Case Studies (Routledge, Abingdon), 97-123.

Bell, A. R. and Dale, R. S. (2011), ‘The medieval pilgrimage business’, Enterprise and Society, 12 (3), 601-627. doi: 10.1093/es/khr014.

Bell, A. R., C. Brooks, C. and P. R. Dryburgh, P. R. (2007), The English Wool Market, c.1230-1327 (Cambridge University Press, Cambridge).

Broadberry, S., B. Campbell, A. Klein, M. Overton and B. van Leeuwen (2015), British Economic Growth, 1270-1870 (Cambridge: Cambridge University Press).

Bouchard, C. B. (1991), Holy Entrepreneurs: Cistercians, Knights, and Economic Exchange in Twelfth-century Burgundy (Ithaca, NY).

Casson, C. (2012), ‘Reputation and Responsibility in Medieval English Towns: Civic Concerns with the Regulation of Trade’, Urban History 39 (3), 387-408. doi:10.1017/S0963926812000193.

Casson, C. and Casson, M. (2016), ‘Location, Location, Location? Analysing Property Rents in Medieval Gloucester’ Economic History Review 69: 2 pp. 575-99 DOI:10.1111/ehr.12117.

Casson, M. and Casson C. (2013), The Entrepreneur in History: From Medieval Merchant to Modern Business Leader (Basingstoke: Palgrave Macmillan).

Casson, M. and Casson C. eds. (2013), History of Entrepreneurship: Innovation and Risk Taking, 1200-2000 (Cheltenham: Edward Elgar, 2 vols).

Davids, K. and B. de Munck, eds. (2014), Innovation and Creativity in Late Medieval and Early Modern European Cities (Ashgate: Farnham).

De la Croix, D., M. Doepke and J. Mokyr (2016), ‘Clans, Guilds, and Markets: Apprenticeship Institutions and Growth in the Pre-Industrial Economy’ NBER Working Paper No. 22131, circulated by NEP-HIS on 2016-04-16.

Landes, D. S., J. Mokyr & W. J. Baumol (2012), The Invention of Enterprise:Entrepreneurship from Ancient Mesopotamia to Modern Times (Princeton, Princeton University Press).