Individual investors and local bias in the UK, 1870–1935

by J. Rutterford (Open University), D.P. Sotiropoulos (Open University), and C. van Lieshout (University of Cambridge)

 

In today’s financialised societies, households are exposed to financial risk. Researchers are currently exploring how such households make financial decisions and manage financial risk in practice. There are also substantial efforts being made by government, regulators, charities and financial players to increase the financial literacy of households to help them make better financial decisions.

This study explores the financial decisions made by a sample of late Victorian investors and attempts to draw some lessons from a period which, in its global outlook and investment opportunities, is similar to today.

money-finance-stock-exchange-paris-wood-engraving-1860-people-merchants-BJGEHY

The research shows that investors diversified their portfolios both internationally and across sectors, well before the mathematical benefits of diversification were modelled by Markowitz in the form of modern portfolio theory (MPT), which recommends that portfolio weights be chosen according to the returns and risks of individual securities but also according to the correlations between the various security returns. At the time of our study, though, contemporary investment publications also promoted the benefits of diversification in terms of enhanced yield without increased risk; they showed this by using historical data to quantify the greater returns achievable. So, nineteenth century UK investors were also aware of the benefits of spreading risk across different types of securities as recommended by MPT. The most common advice, though, was not to mathematically calculate correlation matrices, as does MPT, rather the advice was to invest equal amounts in a range of securities, the so-called 1/N or naïve diversification approach.

The paper breaks new ground in our understanding of what Victorian investors did in practice with their portfolios. Up to now, researchers have merely acknowledged that such diversification took place, or have used market prices to argue that Victorian investors ought to have diversified and quantified what such investors, had they had perfect foresight, would have gained in return terms. In contrast, this paper looks in detail at a sample of 508 investor portfolios at death, using carefully analysed probate data, for the period 1870 to 1902.

The results of the analysis of these investor portfolios allow us to draw a number of interesting conclusions. For example, the probate records of our sample show an almost equal number of women and men held financial portfolios at death, highlighting the importance of women investors in this period. Also, the research finds that, for these estates at death which included financial securities, investments represented on average a substantial 60% of gross assets, the remainder being property, life assurance, loans and cash.

The average number of financial securities held in a sample portfolio was 4.5, with a median of only 2. Surprisingly, though, this level of diversification is not dissimilar to that of portfolio holdings from US samples in the 1970s and 1990s, one hundred years later, and decades after MPT was formalised in the 1950s and 1960s. In our sample, the level of diversification was linked to wealth, with the top quartile in gross wealth terms holding an average of 11 securities in their portfolios, with men holding more diversified portfolios than women.

However, overall, investors did not hold securities in equal weights, as generally recommended in the investment literature of the period. They did not manage financial risk via naïve diversification. Nor did they evenly spread their risks across sectors and countries. For example, investors living outside London – – as well as less wealthy investors preferred the securities of domestic companies other than railways. This indicates a preference for local investment, which offers an alternative route to risk reduction, that of trust in local enterprise. This is in line with recent research on trust in the economic history literature. The research also finds that wealthier investors, who held more securities, were more willing to hold international and government securities than the less wealthy. In contrast, a surprising 35% of our sample of investors held only non-railway corporate securities in their portfolios.

In conclusion, individual investors in this late nineteenth century sample did diversify, but not as much as recommended by the contemporary literature. Instead, they relied more closely on local trust networks for their financial decision making. This does not mean that investors failed to see the benefits of international, sectoral or naïve diversification. Rather, and this is a key lesson for today’s decision makers, non-wealthy households who hold the majority of their wealth in non-tradable form and who are unable to easily hedge financial risk, are reluctant, as were their forebears, to embrace relatively sophisticated financial approaches to investment. They prefer, instead, to rely on trust, whether of the companies in which they invest or of their financial intermediaries.

 

The full paper: Rutterford J., D. P. Sotiropoulos, and C. van Lieshout (2017) “Individual investors and local bias in the UK, 1870–1935,” Economic History Review, 70, 4 (2017), pp. 1291–1320.    URL: http://www.ehs.org.uk/app/journal/article/10.1111/ehr.12482/abstract

To contact Janette Rutterford on Twitter: @JRutterford

 

ORIGINS OF BRITAIN’S HOUSING CRISIS: ‘Stop-go’ policy and the covert restriction of private residential house-building

by Peter Scott and James T. Walker (Henley Business School at the University of Reading)

ch_intro
University of the West of England, The History of Council Housing. Copyright of Bristol Record Office

‘Stop-go’ aggregate demand management policy represents one of the most distinctive, and controversial, aspects of British macroeconomic policy during the post-war ‘long boom’. This was, in turn, linked to an over-riding priority among an influential section of policy-makers in the Treasury and the Bank of England to restore sterling as a ‘strong’ currency (second only to the dollar) and to re-establish the City of London as a major financial and trading centre, despite heavy war-time debts and low currency reserves.

This policy is often viewed as having had damaging impacts on major sectors of the British economy – especially the manufacture of cars, white goods and other consumer durables, which were deliberately depressed in order to support sterling and thereby facilitate the growth of Britain’s financial sector.

This research explores an important but neglected impact of ‘stop-go’ policy: restrictions on house-building. This has been overlooked in the general stop-go literature, largely because the policy was mainly undertaken covertly, without public announcement or parliamentary discussion.

In addition to publicly announced restrictions on public sector house-building – by restricting local authority borrowing and raising interest rates on that borrowing – the government covertly depressed private house purchases and mortgage lending by restricting house mortgage funds to well below market clearing levels.

The Treasury used a combination of informal pressure and, less frequently, formal requests, to get the building societies’ cartel (the Building Societies Association) to set their interest rates at levels that forced them to ration mortgage lending in order to maintain acceptable reserves. Officials particularly valued this instrument of stop-go policy owing to its effectiveness and its ‘invisibility’ (mortgage lending restriction was not publicly announced and was not generally even subject to cabinet discussion).

Meanwhile political pressure for action to increase house-building and home ownership (especially in the run-up to national elections) led to a perverse situation whereby government was sometimes simultaneously boosting demand for house purchases and covertly restricting the supply of mortgages – feeding into a growing house price spiral that has become an enduring characteristic of the British housing market.

This study shows that the application of stop-go policy to mortgage lending for most of the period between the mid-1950s and the late 1970s had a major cumulative impact on the British economy: depressing the long-term rate of capital formation in housing; creating inflationary expectations for house purchasers; having negative impacts on living standards (especially for lower-income families); and damaging the growth, productivity, and capacity of the house-building sector and the building society movement.

The Travelling Kingdom during Medieval Period in England, France and the Holy Roman Empire: An Economic Interpretation

by Daniel Gottal (University of Bayreuth)

Untitled
Holy Roman Emperor Frederick Barbarossa on his Third Crusade

 Noblemen, knights and kings had always been on tour in Medieval Period. Weather on campaign, pilgrimage or on itinerant court – mobility was unexpected high to this specific aristocratic peer group. When capital cities had not emerged yet, the king as the political centre was on continuously travelling through his kingdom. This travelling kingdom had a political and an often missed out economic dimension.

At a time without newspapers, television or other mass media, dealing ‘oral contracts’ in personal relationships with his vessels, was essential. In the 13th century written documentation re-emerged and contributed to a slowdown of the royal itinerant court. Hence travelling kingdom was part of most mediaeval societies to a specific point of their cultural and institutional evolution.

The first modest beginnings originated from Merovingian dynasty on ox carts. Centuries later, Italian campaigns since Charles the Great (742-814) till the Ottonian dynasty, had a specific itinerant court character with their long stays in the three Italian capital cities: Pavia, Ravenna and Rome. Henry II (973-1024) – starting after his crowning in 1002 – bethinks on these older traditions and established the travelling kingdom in the Holy Roman Empire for centuries. Until the mid of the 15th century under Frederick III (1415-1493), where Late Middle Ages, Early Renaissance and Early Modern Period overlapped, the travelling kingdom survived, until it fossilised at the end of the century.

Besides of the fragility of the political system solely relying on personal relationships, the travelling kingdom had also an economic dimension. At the time food was rare in Europe in the Middle Ages and the king did not travel alone. He was accompanied by his royal court, including nobility, knights, bodyguards, and servants. This entourage could make up thousands of people. Because the transportation facilities were poor, the agricultural resources to provide the itinerant court food and shelter were scarce. Thus there was economic pressure for travelling around.

Unsurprising, that more frequented routes and stops were highly correlated with the most prosperous regions in Europe. In the Holy Roman Empire regional focus was on Franconia, Bavaria, Swabia and along the Rhine, the Franco-German border. The king and the king’s follower’s hostage were an enormous economic burden for cities and monastics they visited. Royal accommodation, the servitia regis, was an expensive duty for all his vassals. The average visit lasted three days but could be as long as two weeks. As prestigious as the king’s hostage might have been for a city, from a budgetary perspective his hoosts were relieved when he left for his next destination.

In contrast to continental Europe, England was once more special. A travelling kingdom was not common under Norman regimen. Power was less challenged than on the continent and Westminster early emerged as capital city. But John Lackland (1167-1216), king and heir to the throne after the death of his elder brother Richard the Lionheart (1157-1199), had done longer travels to secure his power, as well as his brother did before. But the tradition of a travelling kingdom was much more common to the north of the island, to the Scottish, than to the English.

Meanwhile, in the transition from the High to the Late Middle Ages the duty for king’s hostage was replaced by a financial grant – in France, Flanders and Bourgogne. Records from the French droit de gîte revealed, that most cities from 1223 to 1225 payed something in between 100 and 200 pound sterling silver a year. The combined income for the French crown was 3,000 pound sterling silver a year, covering 1% of Louis VIII of France (1187-1226) total expenses. The cities and monastics made a good deal in transforming the servitude into money. Fixing the amount via privilege, unadjusted by high inflation in the Late Middle Ages, the financial grant completely vanished over time – as well as the travelling kingdom.

 

 

When political interests block new infrastructures: evidence from party connections in the age of Britain’s first transport revolution

New research shows how party politics and connections slowed the diffusion of much-needed improvements in river navigation in Britain during the early eighteenth century. The study by Dan Bogart (University of California Irvine), which is forthcoming in the Economic Journal, reveals that modern concerns about powerful interests coalescing to block infrastructure projects that will benefit the wider economy are nothing new.

2459437192.jpg
Islington Tunnel in the early 19th century. Source: <http://www.islingtongazette.co.uk/news/a-look-back-at-regent-s-canal-history-200-years-after-plans-were-approved-1-1443464&gt;

 

The famous economist Adam Smith noted in The Wealth of Nations that landowners close to London petitioned Parliament against the extension of transport improvements because it threatened their rents. Was Smith right: do ‘downstream’ interests use their political connections to block ‘upstream’ transport improvements? The new research addresses this question in the context of river navigation, which before the development of canals and railways, was a key part of Britain’s early transport system.

A river navigation act established a company with rights to levy tolls and purchase land necessary for improvements in navigation. Through their statutory powers, navigation companies played a key role in the extension of inland waterways. Improved navigation lowered transport costs since freight rates by inland waterway were approximately one-third of the freight rates by road.

In light of their economic importance, it is significant that the diffusion of navigation acts was slow. It took nearly 50 years to extend navigation on most rivers in Britain. One immediate reason is that projects were proposed several times in Parliament as bills before being approved, and some were never approved.

In general, bills proposing infrastructure projects had high failure rates in Parliament. Opposition from interest groups was the most direct reason. Interest groups would appeal to their MP for assistance, and as this research shows, it was significant whether their MP was connected to the majority political party.

The Whig and Tory parties were in intense competition between 1690 and 1741, with the majority party in the House of Commons switching seven times. The two parties differed in their policy positions and their supporters. The Tories were favoured by small to medium-sized landowners, and the Whigs by merchants, financiers and large landowners.

This study is one of first to test empirically whether Britain’s early parties contributed to different development policies and whether they targeted supporters. The research uses new town-level economic, political and geographical data to investigate how party connections and interest groups worked in this important historical period.

The results show that the characteristics of river navigation supporters and opponents in neighbouring areas had a large effect on their diffusion. For example, more towns with roads in upstream areas (generally supporters) increased the likelihood of a town’s river bill succeeding in Parliament and more towns with harbours downstream (generally opponents) reduced the likelihood of the bill succeeding. Such factors were as important as project feasibility, measured by elevation changes.

Another important factor was the strength of majority party representation in neighbouring political constituencies. Having more downstream MPs in the majority party (a measure of opposition connections) reduced the likelihood of a town’s bill succeeding in Parliament and getting blocked from navigation acts. The identity of the majority party was also relevant. Whig majorities increased the probability of river acts being adopted.

These findings confirm the forces highlighted by Adam Smith and show that the institutional environment in Britain was not always favourable to rapid adoption of infrastructure. Interest groups were powerful and could block projects that went against their interest. The Whig and Tory parties contributed to the blocking power or bias from interest groups, although the Whigs appear to have been more pro-development.

More generally, this case focuses attention on the distributional effects of infrastructure and efforts to block projects. Political connections matter and can have important economic consequences.

‘Party Connections, Interest Groups, and the Slow Diffusion of Infrastructure: Evidence from Britain’s First Transport Revolution’ by Dan Bogart is forthcoming in the Economic Journal.

Globalisation and Economic Development: A Lesson from History

by Luigi Pascali (Pompeu Fabra University)

History teaches us that globalisation does not automatically translate into economic development.

How does globalisation affect development? This question has a long tradition in economics and has been much debated both in the academia and in policy circles. Neoclassical theories tell us that reducing trade barriers across countries should provide net benefits to individual economies by making markets more efficient and stimulating competition. Testing these theories, however, turns out to be difficult: rich countries are generally also those that trade the most, but is it trade that makes them rich, or do they trade more because they are rich to start with?

The ideal way to answer to these questions would be through an experiment, in which we randomly divide all the countries of the world into two groups and then we reduce trade costs for one group, while keeping trade costs constant for the other group. The difference in the observed GDP growth in the following years between the two set of countries would eventually provide us with an estimate of the impact of trade integration on development.

It turns out that history can provide us with such an experiment. The invention of the steamship in the late 19th century greatly reduced trade costs for some countries but not for others; whether a country was able to reduce its trade costs as a result of this innovation was the result of its geography, rather than economic forces. In a recent paper (Pascali, forthcoming), this natural experiment is used to assess the causal impact of trade on development.

The Experiment

Before the steamship, sea routes were shaped by winds. As an example, consider Figure 1, which illustrates a series of journeys made by British sailing ships in the 19th century, between England, the Cape of Good Hope and Java, and Figure 2, which depicts the prevailing sea-surface winds in the world.  Winds tend to follow a clockwise pattern in the North Atlantic; consequently, sailing ships would sail westward from Western Europe, after travelling south to 30 N latitude and reaching the ‘trade winds’, thus arriving in the Caribbean, rather than travelling straight to North America. The result is that trade systems historically tended to follow a triangular pattern between Europe, Africa, the West Indies and the United States. Furthermore, because in the South Atlantic winds tend to blow counterclockwise, sailing ships would not sail directly southward to the Cape of Good Hope; rather, they would first sail southwest toward Brazil and then move east to the Cape of Good Hope at 30 S latitude.

Figure 1. 15 journeys made by British ships between 1800 and 1860

fig 1

Notes: These journeys were randomly selected from the CLIWOC dataset among all voyages between England and Java comprised in the dataset. 

 

Figure 2. Prevailing winds in May (between 2000 and 2002)

fig 2

Note: direction of wind defined by the direction of the arrow and speed by the length of the arrow. 

 

The invention and subsequent development of the steamship was a watershed event in maritime transport and was the major driver of the first wave of trade globalisation (1870-1913), an increase in international trade that was unprecedented in human history. For the first time, vessels were not at the mercy of the winds, and trade routes became independent of wind patterns.

The steam engine, however, reduced shipping times in a disproportionate manner across trade routes, depending on the type of winds that vessels used to face throughout their journeys. In some routes, shipping times were cut by more than half, while in some others the change was minimal.

These asymmetric changes in shipping times (and related trade costs) across countries are used as a natural experiment, to explore the effect of international trade on economic development.

 Findings

Exploiting the random variation in trade costs, generated by the transition from sail to steam, this research documents that the consequences of the first wave of trade globalisation on development were not necessarily positive. On a sample of 36 countries, the average impact, in the short run, was a reduction in per-capita GDP, population density and urbanisation rates.

This average negative impact, however, masks large differences across different groups of countries.

Firstly, the initial wave of trade globalisation turned out to be particularly detrimental in countries that were already less economically developed to start with and it was probably the major reason behind the Great Divergence, the economic divergence observed between the richest countries and the rest of the world, in the second-half of the nineteenth century.

Secondly, trade turned out to be very beneficial for countries that were characterised by strong constraints on executive power, a distinct feature of the institutional environment that has been demonstrated to favour private investment.

Why should we expect institutions to be crucial to benefiting from trade? A common argument is that a country with ‘good’ institutions will suffer less from the hold-up under-investment problem in those industries that intensively rely on relationship-specific assets. In this sense, good institutions are a crucial source of comparative advantage in non-agricultural sectors, in which the hold-up problem is more binding. These results confirm this theoretical prediction: a reduction in trade costs increased the share of exports in non-agricultural products, and the share of the population living in large cities, only in those countries characterised by stronger constraints on the executive power.

Conclusions

How did the rise in international trade affect economic development? This research addressed this question using novel trade data and an historical experiment of history. It finds that 1) the adoption of the steamship had a major impact on patterns of international trade worldwide, 2) only a small number of countries, characterised by more inclusive institutions, benefited from trade integration, and 3) globalisation was the major driver of the Great Divergence.

Policymakers who are willing to learn from history are advised to consider that a reduction in trade barriers across countries does not automatically produce (at least in the short-run) large positive effects on economic development and can increase inequality across nations.

 

This article is based on research presented in the following paper: “The Wind of Change: Maritime Technology, Trade and Economic Development”, The American Economic Review, forthcoming. The associated working paper is available on the CAGE website

Brexit, Globalisation and De-Industrialisation

by Jim Tomlinson (Glasgow University)

brexit downloadIn seeking to understand the economic basis of the Brexit vote, we should concentrate not on globalisation but on the long-term impact of de-industrialisation.

The evidence is certainly strong that economic disadvantage played a significant part in the patterns of voting in the referendum (though age and educational qualifications seem to have played a large, independent role). But this disadvantage seems best linked to de-industrialisation, which has left a legacy of a much more polarised service sector labour market, with large numbers of people condemned to poorly paid and insecure jobs.

Globalisation has contributed to de-industrialisation, but it is only one contributor, and historically not the most important. De-industrialisation began in Britain in the 1950s. It was driven by shifts in patterns of demand and technological change, most strikingly in increasing the growth of productivity (and lowering the relative price) of manufactured goods. (Total industrial output has not fallen, but grown slowly on trend.)

These broad trends have affected all industrial countries, so that industrial employment has fallen substantially even in successful industrial countries with a manufacturing trade surplus, such as Germany. Industrial employment as a share of the total has more than halved in that country since its peak in 1970.

The long-run nature of these trends is illustrated by the fact that many more coal-mining jobs were lost in Britain under Harold Wilson’s government of the 1960s than under Margaret Thatcher’s government of the 1980s.

Similarly, the big collapse of industrial jobs in Lancashire began in the 1950s and accelerated in the 1960s; across the country, textiles and clothing lost 123,000 jobs between 1964 and 1969.

Proportion of workers in industrial employment in the UK

1957               48%

1979               38%

1998               27%

2016               15%

Serious errors of policy have undoubtedly accelerated this process, and compressed it into short time periods (most obviously, the extraordinary appreciation of the pound in 1979-81 as a result of the Thatcher government’s policies). But overall the process has not mainly been policy-driven.

In responding to the economic problems that underpinned the Brexit vote, it is important to be clear that globalisation is only one part of the story. To put it crudely, if globalisation were somehow reversed, it would not return Britain to having anything like the number of industrial jobs that existed in the 1950s.

While there are certainly powerful arguments for seeking to offset the impact that globalisation has had on particular groups of workers, the biggest challenge is how to make a service-dominated economy deliver much better outcomes for those who currently occupy the lousy jobs in the service sector.

THE INEFFECTIVENESS OF GOVERNMENT EFFORTS TO PROMOTE PRODUCTS MADE AT HOME: Evidence from the ‘Buy British’ campaigns of the 1960s and 1980s

David Clayton (University of York) and David Higgins (Newcastle University)

keep-calm-and-buy-british-18

Campaigns to promote the purchase of domestic manufactures feature prominently during national economic crises. The key triggers of such schemes include growing import penetration and concern that consumers have been misled into purchasing foreign products instead of domestic ones. Early examples of such initiatives occurred in the United States in 1890 and 1930, with the introduction of the McKinley tariff and the ‘Buy American’ Act, respectively.

In Britain, similar schemes were launched during the interwar years and in the post-1945 period. For the latter, Britain’s share of world trade in manufactures declined from 25% to 10%, and between 1955 and 1980, import penetration in the manufacturing sector increased from 8% to 30%.

Simultaneously, there were numerous government public policy interventions designed to improve productivity, for example, the National Economic Development Council and the Industrial Relations Commission. Both Labour and Conservative governments were much more interventionist than today.

Currently, the rise of protectionist sentiment in the United States and across Europe may well generate new campaigns to persuade consumers to boycott foreign products and give their preference to those made at home. Indeed, President Trump has vowed to ‘Make America Great Again’: to preserve US jobs he has threatened to tax US companies that import components from abroad.

Using a case study of the ‘Buy British’ campaigns of the 1960s and 1980s, our research, to be presented at the Economic History Society’s 2017 annual conference in London, considers what general lessons can be learned from such initiatives and why, in Britain, they failed.

Our central arguments can be summarised as follows. In the 1960s, before Britain acceded to the European Economic Community, there was considerable scope for a government initiative to promote ‘British’ products. But a variety of political and economic obstacles blocked a ‘Buy British’ campaign. During the 1980s, there was less freedom of manoeuvre to enact an official policy of ‘Buy British’ because by then Britain had to abide by the terms of the Treaty of Rome.

In the 1960s, efforts to promote ‘Buy British’ were hindered by the reluctance of British governments to lead on this initiative because of Treasury constraints on national advertising campaigns and a general belief that such a campaign would be ineffective.

For example, the nationalised industries, which were a large proportion of the economy at this time, could not be used to spearhead any campaign because they relied on industrial and intermediate inputs, not consumer durables; and in any case, the ability of these industries to direct more of their purchases to domestic sources was severely constrained: total purchases by all nationalised industries in the early 1970s were around £2,000 million, of which over 90% went to domestic suppliers.

Efforts to nudge private organisations into running these campaigns were also ineffective. The CBI refused to take the lead on a point of principle, arguing that ‘A general campaign would… conflict with [our] view that commercial freedom should be as complete as possible. British goods must sell on their merits and their price in relation to those of our competitors, not because they happen to be British’.

During the 1980s, government intervention to promote ‘Buy British’ would have contravened Britain’s new international treaty obligations. The Treaty of Rome (1957) required the liberalisation of trade between members, the reduction and eventual abolition of tariffs and the elimination of measures, such as promotion of ‘British’ products, ‘having equivalent effect’. Attempts by the French and Irish governments to persuade their consumers to give preference to domestic goods were declared illegal.

The only way to overcome this legislative restriction was if domestic companies chose to mark their products as ‘British’ voluntarily. This was not a rational strategy for individual firms to follow. Consumers generally prefer domestic to foreign products.

But when price, quality and product-country images are taken into account, rather than origin per se, the country of origin effect is weakened considerably. From the perspective of individual firms promoting their products, using a ‘British’ mark risked devaluing their pre-existing brands by associating then with inferior products.

Our conclusions are that in both periods, firms acting individual or collectively (via industry-wide bodies) did not want to promote their products using ‘British’ marks. Action required top-down pressure from government to persuade consumers to ‘Buy British’. In the 1960s, there was no consensus within government in favour of this position, and, by the 1980s, government intervention was illegal due to international treaty obligation.

In a post-Brexit Britain, with a much weakened manufacturing capacity compared even with the 1960s and 1980s, the case for the government to nudge consumers to ‘Buy British’ is weak.

From VOX – Short poppies: the height of WWI servicemen

From Timothy Hatton, Professor of Economics, Australian National University and University of Essex. Originally published on 9 May 2014

The height of today’s populations cannot explain which factors matter for long-run trends in health and height. This column highlights the correlates of height in the past using a sample of British army soldiers from World War I. While the socioeconomic status of the household mattered, the local disease environment mattered even more. Better education and modest medical advances led to an improvement in average health, despite the war and depression.

hattongraph
Distribution of heights in a sample of army recruits. From Bailey et al. (2014)

The last century has seen unprecedented increases in the heights of adults (Bleakley et al., 2013). Among young men in western Europe, that increase amounts to about four inches. On average, sons have been taller than their fathers for the last five generations. These gains in height are linked to improvements in health and longevity.

Increases in human stature have been associated with a wide range of improvements in living conditions, including better nutrition, a lower disease burden, and some modest improvement in medicine. But looking at the heights of today’s populations provides limited evidence on the socioeconomic determinants that can account for long-run trends in health and height. For that, we need to understand the correlates of height in the past. Instead of asking why people are so tall now, we should be asking why they were so short a century ago.

In a recent study Roy Bailey, Kris Inwood and I ( Bailey et al. 2014) took a sample of soldiers joining the British army around the time of World War I. These are randomly selected from a vast archive of two million service records that have been made available by the National Archives, mainly for the benefit of genealogists searching for their ancestors.

For this study, we draw a sample of servicemen who were born in the 1890s and who would therefore be in their late teens or early twenties when they enlisted. About two thirds of this cohort enlisted in the armed services and so the sample suffers much less from selection bias than would be likely during peacetime, when only a small fraction joined the forces. But we do not include officers who were taller than those they commanded. And at the other end of the distribution, we also miss some of the least fit, who were likely to be shorter than average.

FULL TEXT HERE

From The Conversation: No, the Black Death did not create more jobs for women

by Jane Humphries, Professor of Economic History, University of Oxford
Published on 8 April 2014

The plague known as the Black Death which tore through 14th century Europe is traditionally held to have had at least one upside. Women, the theory runs, were able to exploit the labour shortages of post-plague England to find themselves in a richer and more stable position than before. However the idea that women of the era were forerunners of the post World War I generation doesn’t stand up to much scrutiny, as new research shows.

Medievalists have long debated the extent to which women shared in the “golden age” of the English peasantry that followed the demographic catastrophe of the Black Death. The plague killed between 30% and 45% of the population in its first wave 1348-59. Recurrences meant that by the 1370s England’s population had been halved.

The silver lining, for the peasantry at least, was the dramatic increase in workers’ remuneration as landowners struggled to recruit and retain labourers. The results are apparent in a rapid increase in male casual (nominal and real) wages from about 1349.

hngts2cm-1396890152

Some historians have argued that women’s gains were even more marked as they could find employment in hitherto male-dominated jobs, or migrate to towns to work in the growing textile industries and commercial services and so enjoy “economic independence”.

Others however have suggested that whatever the implications of the Black Death for male workers, the sexual division of labour prevented women from seizing the opportunities created by the labour shortage. As one account puts it: “Women tended to work in low-skilled, low-paid jobs … This was true in 1300 and it remained true in 1700”.

The debate has significant implications as optimists have gone further in arguing that women’s improved wages changed demographic behaviour by delaying marriage, promoting celibacy and reducing fertility, with the resulting so-called north-west European Marriage Pattern raising incomes and promoting further growth.

READ FULL ARTICLE HERE

 

Credit, Currency & Commerce: New Perspectives in Financial and Monetary History

Conference Report: University of Cambridge, 13-14 September 2016
by Sabine Schneider, University of Cambridge

0187-a4
‘Dividend Day at the Bank of England’ by George Elgar Hicks (1824-1914), Bank of England Museum. Copyright: The Governor and Company of the Bank of England

 

Retracing the path to the Great Recession, Barry Eichengreen has observed how ‘The historical past is a rich repository of analogies that shape perceptions and guide public policy decisions.’[1] Certainly, recent years have shown that analogies drawn from historical experience are most in demand ‘when there is no time for reflection.’[2] Beyond the study of banking crises and financial regulation, the past decade of economic turmoil has generated renewed scholarly interest in the evolution and politics of financial capitalism. While the legacy of the Great Recession has profoundly shaken established tenets of mainstream economics, it has also stressed the need for new historical narratives that understand the world economy within the specific cultural contexts, economic ideas and political debates of the past. On 13 and 14 September, the Centre for Financial History at Darwin College, Cambridge, hosted an early career conference to foster an interdisciplinary dialogue about histories of finance, global trade and monetary policy. Over the two conference days, twenty early career scholars and doctoral researchers presented papers that ranged, in period and geography, from medieval Catalonia and eighteenth-century Scotland to pre-war China and post-war Britain. This review will reflect on three major themes of the conference: the art and science of central banking, studies in political economy, and cultural approaches to the history of finance.

Central banking and the formation of monetary policy have resurfaced as key concerns for economic historians since the 2007/8 financial crisis. The debate over the Bank of England’s evolving role as Lender of Last Resort, for instance, was re-examined by Dr Paul Kosmetatos (Edinburgh). His paper analysed Adam Smith’s and Henry Thornton’s differing recommendations for crisis containment as a starting-point for evaluating the Bank’s conduct in 1763 and 1772. Kosmetatos concluded that the Bank’s timely injection of liquidity via the banknote channel during the latter crisis showed that ‘the attitude and means of intervention described by Thornton were already practically in place.’ Pamfili Antipa (Banque de France/Paris School of Economics) presented new Bank of England balance sheet data that adds considerably to our knowledge of how the British government financed the Napoleonic and Revolutionary Wars. Her joint research with Professor Christophe Chamley (Boston) revealed that the Bank strategically operated in the secondary market for Exchequer bills in order to re-direct funds to the Treasury. For the post-war period, Oliver Bush’s paper (Bank of England/LSE) investigated Britain’s approach to monetary and macroprudential policies in the years after the UK Radcliffe Report (1959). Based on collaborative research with Dr David Aikman (Bank of England) and Professor Alan M. Taylor (California), Bush presented new findings on the ‘causal impacts of interest rates and credit controls’ on inflation and economic activity.[3]

The evolution and management of modern central banks in mainland Europe and Great Britain formed the focus of three further papers. Starting with the foundation of Germany’s Reichsbank in 1876, Ousmène Mandeng (LSE) explored the role of competition and monetary stability as integral elements of the operation of Germany’s central bank prior to 1890. Mandeng argued that the Reichsbank’s flexible reserve requirements, as well as its rivalry with regional note issuing banks in the market for bills, created an effective, incentives-based system of central banking. Enrique Jorge-Sotelo (LSE) took a micro-historical approach to the Spanish banking crisis of 1931, assessing the criteria the Banco de España employed for the provision and conditions of its emergency loans. In her closing keynote, Dr Anne Murphy (Hertfordshire) examined the origins of modern management practices at the Bank of England.[4] Shedding light on the Bank’s working processes, recruitment, and staff training during the 1780s, Dr Murphy demonstrated that the Bank took important steps towards fostering and monitoring good managerial practice, which over the long run may have aided ‘the development of trust in the British public finances.’[5]

The politics of currency, taxation, and trade shaped a second major strand of the conference. Professor Martin Daunton (Cambridge) delivered a wide-ranging keynote on ‘Bretton Woods Revisited: Currency, Commerce and Contestation’. Shifting the focus away from the predominant narrative of US-UK rivalry at Bretton Woods, Daunton re-evaluated the specific domestic concerns of several Western European and Commonwealth countries, which affected their negotiating positions at the 1944 summit and at subsequent international trade conferences. The League of Nations’ work in the field of trade finance in the years leading up to the Great Depression was re-examined by Jamieson Gordon Myles (Geneva). His paper investigated the League’s failed internationalist efforts, and traced how economic nationalism and beggar-thy-neighbour policies could take hold in the inter-war period. New research on France, China, and Germany prompted further reflections on the impact of global integration in capital markets, and its effect on nations’ public finances. Jerome Greenfield (Cambridge), for example, investigated the political economy of France’s fiscal constitution between 1789 and 1852. Greenfield’s paper elucidated the central government’s rationale for re-introducing and extending indirect taxes after they had been abolished during the French Revolution. Ghassan Moazzin (Cambridge) discussed the Chinese state’s practice of raising capital for public expenses through foreign bond markets in the early twentieth century. His paper demonstrated that the interventions of Western bankers to uphold China’s credit had a critical influence on the political outcome of the Republican Revolution of 1911. Considering the nexus between finance and diplomacy, Sabine Schneider (Cambridge) appraised the role of cosmopolitan financial elites in Germany’s conversion to a gold standard. Her paper examined the semi-official position of Gerson von Bleichröder, private banker and economic advisor to Bismarck, and his interventions in the monetary reforms Germany pursued after unification.

Several papers pointed to the underexplored potential of cultural and social history to broaden our understanding of how economic cultures, ideologies and policies are themselves socially constructed. Owen Brittan’s paper (Cambridge) drew on autobiographical evidence to assess men’s anxiety over bankruptcy and debt in later Stuart England, and revealed how such fears were mediated through ideals of masculinity, honour and economic independence. Henry Sless (Reading) discussed the news reporting of financial events in the Victorian era, while Damian Clavel (Geneva) revisited the speculative bubble in Latin American bonds that gripped investors in the 1820s, focusing, in particular, on how underwriters constructed the notorious story of the ‘fictitious country of Poyais’.[6] Exploring changing cultural attitudes to speculation, Kieran Heinemann (Cambridge) traced the practices of brokers and investors in Britain’s grey market for stocks and shares during the half-century leading up to the Prevention of Fraud Act of 1939. Heinemann recovered a largely forgotten ‘discursive struggle over the boundaries between investment, speculation and gambling’, which still resonates with the concerns of investors and regulators today.

Credit, Currency & Commerce brought together thirty-six junior researchers and senior academics from across history, economics, development economics, business management, and philosophy. Their contributions from a variety of disciplinary angles and methodologies produced lively exchanges on the trajectory of financial and monetary history, and the opportunities it holds for mastering a deeper understanding of the world economy.

—–

The full conference report and programme are available at https://camfinancialhistory2016.wordpress.com/

The conference was generously funded by the Economic History Society, the Centre for Financial History and the Faculty of History at the University of Cambridge. For more information on grants and conference funds: www.ehs.org.uk

 

[1] Barry Eichengreen, Hall of Mirrors: The Great Depression, the Great Recession and the Uses and Misuses of History (New York: Oxford University Press, 2015), 377.

[2] Eichengreen, Hall of Mirrors, 377.

[3] David Aikman, Oliver Bush, and Alan M. Taylor, ‘Monetary Versus Macroprudential Policies: Causal Impacts of Interest Rates and Credit Controls in the Era of the UK Radcliffe Report’, NBER Working Paper No. 22380 (June 2016).

[4] Anne Murphy, ‘The Bank of England and the Genesis of Modern Management’, eabh Working Paper, No. 16-02 (August 2016); see also, Anne Murphy, ‘“Writes a fair hand and appears to be well qualified”: the recruitment of Bank of England clerks, 1800-1815’, Financial History Review, 22 (2015), 19-44.

[5] Murphy, ‘The Bank of England and the Genesis of Modern Management’, 29.

[6] Carmen M. Reinhardt and Kenneth S. Rogoff, This Time is Different: Eight Centuries of Financial Folly (Princeton: Princeton University Press, 2009), 93.