Independent Women: Investing in British Railways, 1870-1922

by Graeme Acheson (University of Strathclyde Business School), Aine Gallagher, Gareth Campbell, and John D.Turner (Queen’s University Centre for Economic History)

The full article from this blog post has been published on The Economic History Review, and it is currently available on Early View here

Women have a long tradition of investing in financial instruments, and scholars have recently documented the rise of female shareholders in nineteenth-century Britain, the United States, Australia, and Europe. However, we know very little about how this progressed into the twentieth century, and whether women shareholders over a century ago behaved differently from their male counterparts. To address this, we turn to the shareholder constituencies of railways, which were the largest public companies a century ago.

Figure 1. Illustration of a female investor reading the ticker tape in the early twentieth century. Source: the authors

Railway companies in the UK popularised equity investment among the middle classes; they had been a major investment asset since the first railway boom of the mid-1830s. At the start of the 1900s, British railways made up about half of the market value of all domestic equity listed in the UK, and they constituted 49 of the 100 largest companies on the British stock market in 1911. The railways, therefore, make an interesting case through which to examine women investors. Detailed railway shareholder records, comparable to those for other sectors, have generally not been preserved. However, we have found Railway Shareholder Address Books for six of the largest railway companies between 1915 and 1922. We have supplemented these with several address books for these companies back to 1870, and have analysed the Shareholder Register for the Great Western Railway (GWR) from 1843, to place the latter period in context.

An analysis of these shareholder address books reveals the growing importance of women shareholders from 1843, when they made up about 11 per cent of the GWR shareholder base, to 1920, when they constituted about 40 per cent of primary shareholders. By the early twentieth century, women represent 30 to 40 per cent of shareholders in each railway company in our sample, which is in line with estimates of the number of women investing in other companies at this time (Rutterford, Green, Maltby and Owens, 2011). This implies that women were playing an important role in financial markets in the early twentieth century.

Although women were becoming increasingly prevalent in shareholder constituencies, we know little about how they were responding to changing social perceptions, and the increasing availability of financial information, in order to make informed investment decisions, or if they were influenced by male relatives. To examine this, we focus on joint shareholdings, where people would invest together, rather than buying shares on their own. This practice was extremely common, and from our data we are able to analyse the differences between solo shareholders, lead joint shareholders (i.e., individuals who owned shares with others but held the voting rights), and secondary joint shareholders (i.e., individuals who owned shares with others but did not hold the voting rights).

We find that women were much more likely to be solo shareholders than men, with 70 to 80 per cent of women investing on their own, compared to just 30 to 40 per cent of men. When women participated in joint shareholdings, there was no discernible difference as to whether they were the lead shareholder or the secondary shareholder, whereas the majority of men took up a secondary position. When women participated as a secondary shareholder, the lead was usually not a male relative. These findings are strong evidence that women shareholders were acting independently by choosing to take on the sole risks and rewards of share ownership when making their investments. 

We then analyse how the interaction between gender and joint shareholdings affected investment decisions. We begin by examining differences in terms of local versus arms-length investment, using geospatial analysis to calculate the distance between each shareholder’s address and the nearest station of the railway they had invested in. We find that women were more likely than men, and solo investors more likely than joint shareholders, to invest locally. This suggests that men may have used joint investments as a way of reducing the risks of investing at a distance. In contrast, women preferred to maintain their independence even if this meant focusing more on local investments.

We then examine the extent to which women and men invested across different railways. In the modern era, it is common to adopt a value-weighted portfolio which is most heavily concentrated in larger companies. As three of our sample companies were amongst the six largest companies of their era and a further two were in the top twenty-five, we would, a priori, expect to see some overlap of shareholders investing in different railways if they adopted this approach to diversification. From our analysis, we find that male and joint shareholders were more likely than female and solo shareholders to hold multiple railway stocks. This could imply that men were using joint shareholdings as a means of increasing diversification. In contrast, women may have been prioritising independence, even if it meant being less diversified.

We also consider whether there were differences in terms of how long each type of shareholder held onto their shares because modern studies suggest that women are much less likely than men to trade their shares. We find that only a minority of shareholders maintained a long-run buy and hold strategy, with little suggestion that this differed on the basis of gender or joint versus solo shareholders. This implies that our findings are not being driven by a cohort effect, and that the increasing numbers of women shareholders consciously chose to invest independently. 

To contact the authors:

Graeme Acheson, graeme.acheson@strath.ac.uk

Aine Gallagher, Aine.Galagher@qub.ac.uk

Gareth Campbell, gareth.campbell@qub.ac.uk

John D.Turner, j.turner@qub.ac.uk

Taxation and the stagnation of cotton exports in Brazil, 1800 – 1860

by Thales Zamberlan Pereira (Getúlio Vargas Foundation, São Paulo School of Economics)

Port of Pernambuco. Emil Bauch, 1852. Brasiliana Iconográfica.

Brazil supplied 40 per cent of cotton imports in Liverpool during the last decade of the eighteenth century (Krichtal 2013). By the first half of the nineteenth century, however, cotton exports stagnated, and Brazil became the only major international cotton producer that decreased its exports to European countries. The reason for decline in production, despite increasing international demand during the 19th century, is not generally agreed on. Scholars have attributed the decline to high transport costs, competition from sugar and coffee plantations for slaves, Dutch disease from the increase in coffee exports, among others (Leff 1972; Stein 1979; Canabrava 2011). There is disagreement in part because previous research largely relies on data after 1850, which was after the decline of cotton plantations in Brazil.

In a new paper, I argue that cotton profitability was restricted by the fiscal policy implemented by the Portuguese (and, later, Brazilian) government after 1808. To make this argue I first show new patterns on the timing of the decline of Brazilian cotton. Specifically, using new data of cotton productivity for the 1800-1860 period, this research shows that Brazil’s stagnation began in the first decades of the nineteenth century.

The decline therefore cannot be explained by a number of factors. It took place before the United States managed to increase its productivity in cotton production and became the world export leader (Olmstead and Rhode 2008). Cotton regions in Brazil did not have a labour supply problem nor suffered from a Dutch disease phenomenon during the early nineteenth century (Pereira 2018). The new evidence also suggests that external factors, such as declining international prices or maritime transport costs, were not responsible for the stagnation of cotton exports in Brazil. As any other commodity at the time, falls in international prices would have to be offset by increases in productivity. In fact, Figure 1 shows that Brazilian cotton prices were competitive in Liverpool. From the staples presented in the Figure, the standard cotton from the provinces of Pernambuco and Maranhão had higher quality than from New Orleans and Georgia (and, hence, achieved higher prices), but “Maranhão saw-ginned”, which achieved similar prices, used the same seeds as the ones in US plantations.

Figure 1: Cotton prices in Liverpool 1825 – 1850
Source: Liverpool Mercury and The Times newspapers

So, what caused the stagnation of cotton exports in Brazil? I argue that the fiscal policy implemented by the Portuguese government after 1808 restricted cotton profitability. High export taxes, whose funds were transferred to Rio de Janeiro, explain the ‘profitability paradox’ that British consuls in Brazil reported at the time. They remarked that even in periods with high prices and foreign demand, Brazilian planters had limited profitability. Favourable market conditions after the Napoleonic wars allowed production in Brazil to continue growing at least until the early 1830s.

Figure 2 shows that when international prices started to decline after 1835, cotton was no longer a profitable crop in many Brazilian regions. This was especially pronounced for regions where plantations were far from the coast, which had to pay higher transport costs in addition to the export tax. To support that the tax burden decreased profitability, I calculate an “optimal tax rate”, which maximized government revenues, and the “effective tax rate”, which was the amount that exporters paid. Figure 2 illustrates that, while the tax rate by law was low, the effective tax rate for cotton producers was significantly greater than the optimal tax rate after 1835.

Figure 2 – Rate of cotton export tariffs, 1809-1850.

Facing lower prices, cotton producers in Brazil could have shifted production to varieties of cotton produced in the United States, which had higher productivity and were in increasing demand in British markets. As presented in Figure 1, some regions in Brazil tried to follow this route (with saw-ginned cotton in Maranhão), but this type of production was not profitable with an export tax that reached 20 percent. Brazil, therefore, was stuck in the market for long-staple cotton, for which demand remained relatively stable during the nineteenth century. Regions that could not produce long-staple cotton practically abandoned production.

Not only do the results provide insight to the cotton decline, but the paper contributes to a better understanding of the roots of regional inequality in Brazil and the political economy of taxation. Cotton production before 1850 was concentrated in the northeast region, which continues to lag in economic conditions to this day. As I argue in the paper, the export taxes implemented after 1808 largely targeted commodities from the northeast. Production of commodities from southeast regions, such as coffee, paid lower tax rates. Parliamentary debates at the time show cotton producers in the Northeast did demand tax reform. Their demands, however, were not met quickly enough to prevent Brazilian cotton plantations from being priced-out from the international market.

To contact the author: thales.pereira@fgv.br

References:

Canabrava, Alice P. 2011. O Desenvolvimento Da Cultura Do Algodão Na Província de São Paulo, 1861-1875. São Paulo: EDUSP.

Krichtal, Alexey. 2013. “Liverpool and the Raw Cotton Trade: A Study of the Port and Its Merchant Community, 1770-1815.” Victoria University of Wellington.

Leff, Nathaniel H. 1972. “Economic Development and Regional Inequality: Origins of the Brazilian Case.” The Quarterly Journal of Economics 86 (2): 243–62. https://doi.org/10.2307/1880562.

Olmstead, Alan L., and Paul W. Rhode. 2008. “Biological Innovation and Productivity Growth in the Antebellum Cotton Economy.” The Journal of Economic History 68 (04): 1123–1171. https://doi.org/10.1017/S0022050708000831.

Pereira, Thales A. Zamberlan. 2018. “Poor Man’s Crop? Slavery in Cotton Regions in Brazil (1800-1850).” Estudos Econômicos (São Paulo) 48 (4).

Stein, Stanley J. 1979. Origens e evolução da indústria têxtil no Brasil: 1850-1950. Rio de Janeiro: Editora Campus.

The Diaspora of a Diaspora: The Cassana and Rivarolo family network in the Atlantic, 1450-1530

By Andres Mesa (Università degli Studi di Teramo)

This research is due to be presented in the sixth New Researcher Online Session: ‘Spending & Networks’.

The Coast of Genoa, by Jasper Francis Cropsey, 1854. Available at Wikimedia Commons.

My project re-assesses the nature of Genoese family networks in the Atlantic, at the end of the fifteenth and early sixteenth centuries. The canonical understanding of these networks is based on three observations: family networks were highly co-dependent, centralized, and that Genoa was the centre of operations for all the Genoese. My research shows a multitude of scenarios and provides new explanations for these observations. Using a case study of the Rivarolo-Cassana family network, I show that this particular network functioned more in terms of cooperation, using a pluricentric language. As the title suggests, the economic endeavours of these merchants involved  a complex migration process. Consequently, their trading activities coincided with the interests of those in permanent settlements.

Genoese merchants chose cities in the Iberian peninsula for their homes and as a base for their  business activities. For example, Lisbon, Seville, and Valencia had a significant permanent Genoese population who were in the process of becoming naturalized Spanish and Portuguese citizens. In turn, some of the families that dominated the economic landscape of the 15th and 16th centuries disappeared in Genoa. Yet, their descendants still appear in Portugal and Spain with their original Ligurian surnames altered into Castilian or Portuguese.

The findings from my study indicate the need for a major reassessment of our understanding of Genoese family networks. The data I have collected shows that most of the day-to-day trade happened outside the family network, and the contractual relationships that emerged between partners  extended well beyond familial ties. Because the structure of private property ownership was connected to new interests and new markets, it was inevitable that these, in turn, were linked to the discovery of new lands. Consequently, The Genoese adopted a new business model based on owning the means of production for the goods they traded, particularly soap, wheat, and sugar.

Finally, I argue that the economic ties between families and family members, did not always translate into a share of business responsibility or welfare. The relationships and partnerships functioned in terms of very particular historical and geographical contexts. The contracts were between ‘individuals (Societas) to share losses and gains.’ Thus, liability was an individual matter despite the frequent use of jurists.


Andrés Mesa

Twitter: @mesaandres

Corporate Social Responsibility for workers: Pirelli (1950-1980)

by Ilaria Suffia (Università Cattolica, Milan)

This blog is part of our EHS Annual Conference 2020 Blog Series.

 

 

Suffia1
Pirelli headquarters in Milan’s Bicocca district. Available at Wikimedia Commons.

Corporate social responsibility (CSR) in relation to the workforce has generated extensive academic and public debate. In this paper I evaluate Pirelli’s approach to CSR, by exploring its archives over the period 1950 to 1967.

Pirelli, founded in Milan by Giovanni Battista Pirelli in 1872, introduced industrial welfare for its employees and their family from its inception. In 1950, it deepened its relationship with them by publishing ‘Fatti e Notizie’ [Events and News], the company’s in-house newspaper. The journal was intended to share information with workers, at any level and, above all, it was meant to strengthen relationships within the ‘Pirelli family’.

Pirelli industrial welfare began in the 1870s and, by the end of the decade, a mutual aid fund and some institutions for its employees families (kindergarten and school), were established. Over the next 20 years, the company set the basis of its welfare policy which encompassed three main features: a series of ‘workplace’ protections, including accident and maternity assistance;  ‘family assistance’, including (in addition to kindergarten and school), seasonal care for children and, finally,  commitment to the professional training of its workers.

In the 1920s, the company’s welfare enlarged. In 1926, Pirelli created a health care service for the whole family and, in the same period, sport, culture and ‘free time’ activities became the main pillars of its CSR. Pirelli also provided houses for its workers, best exemplified in 1921, with the ‘Pirelli Village’. After 1945, Pirelli continued its welfare policy. The Company started a new programme of construction of workers’ houses (based on national provision), expanding its Village, and founding a professional training institute, dedicated to Piero Pirelli. The establishment in 1950 of the company journal, ‘Fatti e Notizie’, can be considered part of Pirelli’s welfare activities.

‘Fatti e Notizie’ was designed to improve internal communication about the company, especially Pirelli’s workers.  Subsequently, Pirelli also introduced in-house articles on current news or special pieces on economics, law and politics. My analysis of ‘Fatti e Notizie’ demonstrates that welfare news initially occupied about 80 per cent of coverage, but after the mid-1950s it decreased to 50 per cent in the late 1960s.

The welfare articles indicate that the type of communication depended on subject matter. Thus, health care, news on colleagues, sport and culture were mainly ‘instructive’, reporting information and keeping up to date with events. ‘Official’ communications on subjects such as CEO reports and financial statements, utilised ‘top to bottom’ articles. Cooperation, often reinforced with propaganda language, was promoted for accident prevention and workplace safety. Moreover, this kind of communication was applied to ‘bottom to top’ messages, such as an ‘ideas box’ in which workers presented their suggestions to improve production processes or safety.

My analysis shows that the communication model implemented by Pirelli in the 1950s and 1960s, navigated models of capitulation, (where the managerial view prevails) in the 1950s, to trivialisation (dealing only with ‘neutral’ topics, from the 1960s.

 

 

Ilaria Suffia: ilaria.suffia@unicatt.it

Female petitioners to the English East India Company, 1600-1753

by Aske Laursen Brock (Aalborg University)

 

Shah 'Alam conveying the grant of the Diwani to Lord Clive, August 1765 (oil on canvas)
Benjamin West (1818) Shah ‘Alam conveying the grant of the Diwani to Lord Clive. Available on Wikimedia Commons

Today petitioning still gives us an opportunity to exert agency and, in theory, influence the institutions that shape our lives. Lately, petitions about Brexit, saving the climate or holding internet trolls accountable for their online actions have gathered thousands of signatures. The British government has set up a website to collect petitions in one place and make it accessible for a larger populace.

Petitions from the seventeenth and eighteenth century similarly shed light on how popular involvement in state formation, overseas expansion and the commercial revolution was integral in shaping society. Petitioning was ubiquitous in early modern Britain; the king, parliament and local magistrates among other institutions received petitions from all tiers of society. Each petition underlines groups’ as well as individuals’ agendas and links macro-levels developments to the smallest actors in society.

For example, women’s petitions to the English East India Company influenced the company’s policies and governance. Though rarely formal members of trading companies, women were among the many who took advantage of new opportunities afforded by global trade to make a living; either by their own means or through their extended network.

Simultaneously, the global nature of trade presented new challenges, as personal wealth and connections were more far-flung than before. For example, obtaining the wages or goods of a relative who passed away in Indonesia demanded insight into the inner workings of a company and a diverse network. These developments forced women to interact more frequently with trading companies such as the East India Company in order to secure or improve their fortunes.

The state was more decentralised than today and delegated important tasks such as charity, education and healthcare to various institutions and organisations, such as the church, guilds and trading companies. This made people constituents of a wide variety of institutions and meant that institutions consisted of various constituents, who used petitions as a tool to influence them.

But until now, petitions to trading companies have been overlooked. During a period in which the East India Company was one of the biggest employers in Britain, the company faced new challenges on a global scale and came to include a higher number of constituents that were more diverse than before. Though not formally employed by the company, families in England relied on receiving the wages of relations working on ships or overseas.

As the East India Company was dependent on a functioning relationship with employees, it could not afford to ignore wholly its female constituents. But to make certain the company made good on its contracts and agreements, women had to petition to ensure wages, goods, inheritance and, in some cases, their own employment.

These petitions present an interesting subset of the petitioning culture and shed light on the social composition of companies. They represent varied interactions between constituents and company, and introduce a unique opportunity for understanding how women navigated the company boardroom in London and, in some cases, the market overseas.

This in turn makes it possible to appreciate how corporations and early global capitalism were shaped not only by directors, goods and markets, but also by the contribution of otherwise largely disenfranchised agents, in this case women, operating formally and informally under the company umbrella.

Business bankruptcies: learning from historical failures

by Philip Fliers (Queen’s University Belfast), Chris Colvin (Queen’s University Belfast), and Abe de Jong (Monash University).

This blog is part of our EHS 2020 Annual Conference Blog Series.


 

 

BankruptBlog
The door of a bankrupt business locked with a chain and padlock. Available at Flickr.

 

Business bankruptcies are rare events. But when they occur, they can prove catastrophic. Employees lose their jobs, shareholders lose their savings and loyal customers lose their trusted suppliers.

Essentially, bankruptcies are ‘black swan’ events in that they come as a surprise, have a major impact and are often inappropriately rationalised after the fact with the benefit of hindsight. While they may be extreme outliers, they are also extremely costly for those affected.

Because bankruptcies are so rare, they are very hard to study. This makes it difficult to understand the causes of bankruptcies, and to develop useful early warning systems.

What are the risk factors for which shareholders should watch out when evaluating their investments, or when pension regulators audit the future sustainability of workplace pension schemes?

Our solution is to exploit the historical record. We collect a dataset of all bankruptcies of publicly listed corporations that occurred in the Netherlands over the past 100 years. And we look to see what we can learn from taking this long-run perspective.

In particular, we are interested in seeing whether these bankruptcies had common features. Are firms that are about to go out of business systematically different in terms of their financial performance, corporate financing or governance structures than those that are healthy and successful?

Our surprising result is that the features of bankrupt corporations vary considerably across the twentieth century.

During the 1920s and 1930s, small and risky firms were more likely to go bankrupt. In the wake of the Second World War, firms that did not pay dividends to their shareholders were more likely to fail. And since the 1980s, failure probabilities have been highest for over-leveraged firms.

Why does all this matter? What can we learn from our historical approach?

On first glance, it looks like we can’t learn anything; the drivers of corporate bankruptcies appear to change quite significantly across our economic past.

But we argue that this finding is itself a lesson from history.

The development of early warning failure systems needs to take account of context and allow for a healthy degree of flexibility.

What does this mean in practice?

Well, regulators and other policy-makers should not solely rely on ad hoc statistical models using recent data. Rather, they should combine these statistical approaches with common sense narrative analytics that incorporate the possibility of compensating mechanisms.

There are clearly different ways in which businesses can go bankrupt. Taking a very recent perspective ignores many alternative routes to business failure. Broadening our scope has permitted us to identify factors that can lead to business instability, but also how these factors can be mitigated.

Book Review – ‘Money and Markets: Essays in Honour of Martin Daunton’

review by Duncan Needham (University of Cambridge)

book edited by Julian Hoppit, Duncan Needham & Adrian Leonard

‘Money and Markets: Essays in Honour of Martin Daunton’ is published by Boydell and Brewer. SAVE  35% when you order direct from the publisher – offer ends on the 23rd April 2020. See below for details.

 

Daunton 1

Money and Markets was commissioned by Boydell and Brewer following a conference to celebrate the distinguished career of Cambridge historian Martin Daunton.  The volume follows the themes of that conference, bringing together essays from former colleagues and students that reflect Martin’s broad-ranging interests in the economic, social and cultural history of the United Kingdom and beyond.  As one of those colleagues Frank Trentmann points out, students could be forgiven for thinking there are four Martin Dauntons:

There is the Daunton of urban history and housing, then Daunton the author of books on state and taxation, and a third, younger Daunton, who writes about Britain and globalisation. Finally, there is the academic governor Daunton, Master of Trinity Hall, Cambridge, President of the Royal Historical Society, and chair of numerous boards and committees.

 

Martin Daunton was the sixth holder of the Cambridge chair in Economic History.  The first, Sir John Clapham, tasked economic historians with filling the ‘empty boxes’ of theory with historical facts.  This task was taken up with enthusiasm by his successor, Michael Postan, who insisted that theory, essential for establishing historical causation, be firmly grounded in social and institutional settings.  Martin has taken a similar approach throughout his career by focusing on the relationship between structure and agency, how institutional structures create capacities and path dependencies, and how institutions are themselves shaped by agency and contingency – what Fernand Braudel referred to as ‘turning the hour glass twice’.

The introduction to Money and Markets provides biographical detail to illustrate how Martin’s research has been influenced by the places in which he has lived – from growing up in South Wales, to university at Nottingham and Kent, then teaching at Durham, London and finally Cambridge.  The chapters then follow Trentmann’s taxonomy with new research on the financing of the British fiscal-military state before and during the Napoleonic wars, its property institutions, and the longer-term economic consequences of Sir Robert Peel.  There are also chapters on the birth of the Eurodollar market, Conservative fiscal policy from the 1960s to the 1980s, the impact of neoliberalism on welfare policy (and more broadly), the failed attempt to build an airport in the Thames Estuary in the 1970s, and the political economy of time in Britain since 1945.  While much of the focus is on Britain, and British finance in a global economy, the volume also reflects Daunton’s more recent work on international political economy with essays on the French contribution to nineteenth-century globalization, Prussian state finances at the time of the 1848 revolution, Imperial German monetary policy, the role of international charity in the mixed economy of welfare and neoliberal governance, and the material politics of energy consumption from the 1930s to the 1960s.

 

 

SAVE 35% when you order direct from the publisher using the offer code BB135 online here. Offer ends 23rd April 2020. Discount applies to print and eBook editions. Alternatively call Boydell’s distributor, Wiley, on 01243 843 291 and quote the same code. Offer ends one month after the date of upload. Any queries please email marketing@boydell.co.uk

Tawney Lecture 2019: Slavery and Anglo-American Capitalism Revisited

by Gavin Wright (Stanford University)

This research was presented as the Tawney Lecture at the EHS Annual Conference in 2019.

It will also appear in the Economic History Review later this year.

 

WrightCotton
Coloured lithograph of slaves picking cotton. Fort Sumter Museum Charleston. Available at Flickr.

My Tawney lecture reassessed the relationship between slavery and industrial capitalism in both Britain and the United States.  The thesis expounded by Eric Williams held that slavery and the slave trade were vital for the expansion of British industry and commerce during the 18th century but were no longer needed by the 19th.  My lecture confirmed both parts of the Williams thesis:  the 18th-century Atlantic economy was dominated by sugar, which required slave labor; but after 1815, British manufactured goods found diverse new international markets that did not need captive colonial buyers, naval protection, or slavery.  Long-distance trade became safer and cheaper, as freight rates fell, and international financial infrastructure developed.  Figure 1 (below) shows that the slave economies absorbed the majority of British cotton goods during the 18th century, but lost their centrality during the 19th, supplanted by a diverse array of global destinations.

Figure 1.

Wright1
Source: see article published in the Review.

 

I argued that this formulation applies with equal force to the upstart economy across the Atlantic.  The mainland North American colonies were intimately connected to the larger slave-based imperial economy.  The northern colonies, holding relatively few slaves themselves, were nonetheless beneficiaries of the trading regime,  protected against outsiders by British naval superiority.  Between 1768 and 1772, the British West Indies were the largest single market for commodity exports from New England and the Middle Atlantic, dominating sales of wood products, fish and meat, and accounting for significant shares of whale products, grains and grain products.  The prominence of slave-based commerce explains the arresting connections reported by C. S. Wilder, associating early American universities with slavery.  Thus, part one of the Williams thesis also holds for 18th-century colonial America.

Insurgent scholars known as New Historians of Capitalism argue that slavery, specifically slave-grown cotton, was critical for the rise of the U.S. economy in the 19th century.  In contrast, I argued that although industrial capitalism needed cheap cotton, cheap cotton did not need slavery.  Unlike sugar, cotton required no large investments of fixed capital and could be cultivated efficiently at any scale, in locations that would have been settled by free farmers in the absence of slavery.  Early mainland cotton growers deployed slave labour not because of its productivity or aptness for the new crop, but because they were already slave owners, searching for profitable alternatives to tobacco, indigo, and other declining crops.  Slavery was, in effect, a ‘pre-existing condition’ for the 19th-century American South.

To be sure, U.S. cotton did indeed rise ‘on the backs of slaves’, and no cliometric counterfactual can gainsay this brute fact of history.  But it is doubtful that this brutal system served the long-run interests of textile producers in Lancashire and New England, as many of them recognized at the time.  As argued here, the slave South underperformed as a world cotton supplier, for three distinct though related reasons:  in 1807 the region  closed the African slave trade, yet failed to recruit free migrants, making labour supply inelastic; slave owners neglected transportation infrastructure, leaving large sections of potential cotton land on the margins of commercial agriculture; and because of the fixed-cost character of slavery, even large plantations aimed at self-sufficiency in foodstuffs, limiting the region’s overall degree of market specialization.  The best evidence that slavery was not essential for cotton supply is demonstrated by what happened when slavery ended. After war and emancipation, merchants and railroads flooded into the southeast, enticing previously isolated farm areas into the cotton economy.  Production in plantation areas gradually recovered, but the biggest source of new cotton came from white farmers in the Piedmont.  When the dust settled in the 1880s, India, Egypt, and slave-using Brazil had retreated from world markets, and the price of cotton in Liverpool returned to its antebellum level. See Figure 2.

Figure 2.

Wright2
Source: see article published in the Review.

The New Historians of Capitalism also exaggerate the importance of the slave South for accelerated U.S. growth.  The Cotton Staple Growth hypothesis advanced by Douglass North was decisively refuted by economic historians a generation ago.  The South was not a major market for western foodstuffs and consumed only a small and declining share of northern manufactures.   International and interregional financial connections were undeniably important, but thriving capital markets in northeastern cities clearly predated the rise of cotton, and connections to slavery were remote at best. Investments in western canals and railroads were in fact larger, accentuating the expansion of commerce along East-West lines.

It would be excessive to claim that Anglo-American industrial and financial interests recognized the growing dysfunction of the slave South, and in response fostered or encouraged the antislavery campaigns that culminated in the Civil War.  A more appropriate conclusion is that because of profound changes in technologies and global economic structures, slavery — though still highly profitable to its practitioners — no longer seemed essential for the capitalist economies of the 19th-century world.

All quiet before the take-off? Pre-industrial regional inequality in Sweden (1571-1850)

by Anna Missiaia and Kersten Enflo (Lund University)

This research is due to be published in the Economic History Review and is currently available on Early View.

 

Missiaia Main.jpg
Södra Bancohuset (The Southern National Bank Building), Stockholm. Available here at Wikimedia Commons.

For a long time, scholars have thought about regional inequality merely as a by-product of modern economic growth: following a Kuznets-style interpretation, the front-running regions increase their income levels and regional inequality during industrialization; and it is only when the other regions catch-up that overall regional inequality decreases and completes the inverted-U shaped pattern. But early empirical research on this theme was largely focused on the  the 20th century, ignoring industrial take-off of many countries (Williamson, 1965).  More recent empirical studies have pushed the temporal boundary back to the mid-19th century, finding that inequality in regional GDP was already high at the outset of modern industrialization (see for instance Rosés et al., 2010 on Spain and Felice, 2018 on Italy).

The main constraint for taking the estimations well into the pre-industrial period is the availability of suitable regional sources. The exceptional quality of Swedish sources allowed us for the first time to estimate a dataset of regional GDP for a European economy going back to the 16th century (Enflo and Missiaia, 2018). The estimates used here for 1571 are largely based on a one-off tax proportional to the yearly production: the Swedish Crown imposed this tax on all Swedish citizens in order to pay a ransom for the strategic Älvsborg castle that had just been conquered by Denmark. For the period 1750-1850, the estimates rely on standard population censuses. By connecting the new series to the existing ones from 1860 onwards by Enflo et al. (2014), we obtain the longest regional GDP series for any given country.

We find that inequality increased dramatically between 1571 and 1750 and remained high until the mid-19th century. Thereafter, it declined during the modern industrialization of the country (Figure 1). Our results discard the traditional  view that regional divergence can only originate during an industrial take-off.

 

Figure 1. Coefficient of variation of GDP per capita across Swedish counties, 1571-2010.

Missiaia 1
Sources: 1571-1850: Enflo and. Missiaia, ‘Regional GDP estimates for Sweden, 1571-1850’; 1860-2010: Enflo et al, ‘Swedish regional GDP 1855-2000 and Rosés and Wolf, ‘The Economic Development of Europe’s Regions’.

 

Figure 2 shows the relative disparities in four benchmark years. If the country appeared relatively equal in 1571, between 1750 and 1850 both the mining districts in central and northern Sweden and the port cities of Stockholm and Gothenburg emerged.

 

Figure 2. The relative evolution of GDP per capita, 1571-1850 (Sweden=100).

Missiaia 2
Sources: 1571-1850: Enflo and. Missiaia, ‘Regional GDP estimates for Sweden, 1571-1850’; 2010: Rosés and Wolf, ‘The Economic Development of Europe’s Regions’.

The second part of the paper is devoted to the study of the drivers of pre-industrial regional inequality. Decomposing the Theil index for GDP per worker, we show that regional inequality was driven by structural change, meaning that regions diverged because they specialized in different sectors. A handful of regions specialized in either early manufacturing or in mining, both with a much higher productivity per worker compared to agriculture.

To explain this different trajectory, we use a theoretical framework introduced by Strulik and Weisdorf (2008) in the context of the British Industrial Revolution: in regions with a higher share of GDP in agriculture, technological advancements lead to productivity improvements but also to a proportional increase in population, impeding the growth in GDP per capita as in a classic Malthusian framework. Regions with a higher share of GDP in industry, on the other hand, experienced limited population growth due to the increasing relative price of children, leading to a higher level of GDP per capita. Regional inequality in this framework arises from a different role of the Malthusian mechanism in the two sectors.

Our work speaks to a growing literature on the origin of regional divergence and represents the first effort to perform this type of analysis before the 19th century.

 

To contact the authors:

anna.missiaia@ekh.lu.se

kerstin.enflo@ekh.lu.se

 

References

Enflo, K. and Missiaia, A., ‘Regional GDP estimates for Sweden, 1571-1850’, Historical Methods, 51(2018), 115-137.

Enflo, K., Henning, M. and Schön, L., ‘Swedish regional GDP 1855-2000 Estimations and general trends in the Swedish regional system’, Research in Economic History, 30(2014), pp. 47-89.

Felice, E., ‘The roots of a dual equilibrium: GDP, productivity, and structural change in the Italian regions in the long run (1871-2011)’, European Review of Economic History, (2018), forthcoming.

Rosés, J., Martínez-Galarraga, J. and Tirado, D., ‘The upswing of regional income inequality in Spain (1860–1930)’,  Explorations in Economic History, 47(2010), pp. 244-257.

Strulik, H., and J. Weisdorf. ‘Population, food, and knowledge: a simple unified growth theory.’ Journal of Economic Growth 13.3 (2008): 195.

Williamson, J., ‘Regional Inequality and the Process of National Development: A Description of the Patterns’, Economic Development and Cultural Change 13(1965), pp. 1-84.

 

Global trade imbalances in the classical and post-classical world

by Jamus Jerome Lim (ESSEC Business School and Center for Analytical Finance)

 

Global_trade_visualization_map,_2014
A Global trade visualization map, with data is derived from Trade Map database of International Trade Center. Available on Wikipedia.

In 2017, the bilateral trade deficit between China and the United States amounted to $375 billion, a staggering amount just shy of what the latter incurred against the rest of the world combined. And not only is this deficit large, it has been remarkably persistent: the chronic imbalance emerged in earnest in 1989, and has persisted for the better part of three decades. Some have even pointed to such imbalances as a contributing factor to the global financial crisis of 2008.

While such massive, chronic imbalances may strike one as artefacts of a modern, hyperglobalised world economy, nothing could be further from the truth. For example, recent economic history records large, persistent imbalances between the United States and Britain during the former’s earlier stages of development. Such imbalances also characterised the rise of Japan following the Second World War.

In recent research, we show that external imbalances between two major economic powers – an established leader, and a rising follower – were also observed over three earlier periods in economic history. These were the deficits borne by the Roman empire vis-à-vis pre-Gupta India circa 1CE; the borrowing by the Abbasid caliphate from Carolingian Frankia in the early ninth century; and the imbalances between West European kingdoms and the Byzantine empire that emerged around the 1300s.

Although data paucity implies that definitive claims on current account deficits are all but impossible, it is possible to rely on indirect sources of evidence to infer the likely presence of imbalances. One such source consists of trade-related documents from the time as well as pottery finds, which ascertain not just the existence but also the size of exchange relationships.

For example, using such records, we demonstrate that Baghdad – the capital of the Abbasid Caliphate – received furs and slaves from the comparative economic backwater that was the Carolingian empire, in exchange for goods such as spices, dates and olive oil. This imbalance may have lasted as long as several centuries.

A second source of evidence comes from numismatic records, especially coin hoards. Hoards of Roman gold aurei and silver dinarii have been discovered, for example, in India, with coinage dating from as early as the reign of Augustus through until at least that of Marcus Aurelius, well over half a century. Rome relied on such specie exports to fund, among other expenditures, continued military adventurism during the second century.

Our final source of evidence relies on fiscal records. Given the close relationship between external and fiscal balances – all else equal, greater government borrowing gives rise to a larger external deficit – chronic budgetary shortfalls generally give rise to rising imbalances.

This was very much the case in Byzantium prior to its decline: around the turn of the previous millennium, the Empire’s saving and reserves were in significant surplus, lending credence to the notion that the flow of products went from East to West. The recipients of such goods? The kingdoms of Western Europe, paid for with silver.