EHS 2018 special: How the Second World War promoted racial integration in the American South

by Andreas Ferrara (University of Warwick)

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African American and White Employees Working Together during WWII. Available at <https://www.pinterest.com.au/pin/396950154628232921/&gt;

European politicians face the challenge of integrating the 1.26 million refugees who arrived in 2015. Integration into the labour market is often discussed as key to social integration but empirical evidence for this claim is sparse.

My research contributes to the debate with a historical example from the American South where the Second World War increased the share of black workers in semi-skilled jobs such as factory work, jobs previously dominated by white workers.

I combine census and military records to show that the share of black workers in semi-skilled occupations in the American South increased as they filled vacancies created by wartime casualties among semi-skilled whites.

A fallen white worker in a semi-skilled occupation was replaced by 1.8 black workers on average. This raised the share of African Americans in semi-skilled jobs by 10% between 1940 and 1950.

Survey data from the South in 1961 reveal that this increased integration in the workplace led to improved social relations between black and white communities outside the workplace.

Individuals living in counties where war casualties brought more black workers into semi-skilled jobs between 1940-50 were 10 percentage points more likely to have an interracial friendship, 6 percentage points more likely to live in a mixed-race neighbourhood, and 11 percentage points more likely to favour integration over segregation in general, as well as at school and at church. These positive effects are reported by both black and white respondents.

Additional analysis using county-level church membership data from 1916 to 1971 shows similar results. Counties where wartime casualties resulted in a more racially integrated labour force saw a 6 percentage points rise in membership shares of churches, which already held mixed-race services before the war.

The church-related results are especially striking. In several of his speeches Dr Martin Luther King stated that 11am on Sunday is the most segregated hour in American life. And yet my analysis shows that workplace exposure of two groups can overcome even strongly embedded social divides such as churchgoing, which is particularly important in the South, the so-called bible belt.

This historical case study of the American South in the mid-twentieth century, where race relations were often tense, demonstrates that excluding refugees from the workforce may be ruling out a promising channel for integration.

Currently, almost all European countries forbid refugees from participating in the labour market. Arguments put forward to justify this include fear of competition for jobs, concern about downward pressure on wages and a perceived need to deter economic migration.

While the mid-twentieth century American South is not Europe, the policy implication is to experiment more extensively with social integration through workplace integration measures. This not only concerns the refugee case but any country with socially and economically segregated minority groups.

WHEN ART BECAME AN ATTRACTIVE INVESTMENT: New evidence on the valuation of artworks in wartime France

by Kim Oosterlinck (Université Libre de Bruxelles)

 

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Scene from the Degenerate Artauction, spring 1938, published in a Swiss newspaper; works by Pablo PicassoHead of a Woman (lot 117), Two Harlequins (lot 115). “Paintings from the degenerate art action will now be offered on the international art market. In so doing we hope at least to make some money from this garbage” wrote Joseph Goebbels in his diaries. From Wikipedia

The art market in France during the Nazi occupation provided one of the best available investment opportunities, according to research published in the Economic Journal. Using an original database to recreate an art market price index for the period 1937-1947, his study shows that in a risk-return framework, gold was the only serious alternative to art.

The research indicates that discretion, the inflation-proof character of art, the absence of market intervention and the possibility of reselling works abroad all played a crucial role in the valuation of artworks. Some investors were ready to go to the black market to acquire assets that could easily be resold abroad. But for those who preferred to stay on the side of legality, the art market provided an attractive alternative.

The author notes that the French art market during the occupation has been the subject of numerous publications. But most of these focus on the fate of looted artworks, with limited attention given to the art market itself.

What’s more, previous research on the economics of art usually considers artworks as a poor investment. But the case of occupied France shows that in extreme circumstances, artworks may prove extremely attractive investment vehicles.

During wartime, illegal activities and the risk of being forced to flee the country increased the appeal of ‘discreet assets’ – ones that allow the storage of a large amount of value in small and easily transportable goods.

By comparing the price index for small and large artworks, the new study establishes that investors were looking for smaller artworks, especially just before the German invasion and during the period 1942-1943, when the black market flourished.

Non-pecuniary motives for buying art, such as ‘conspicuous consumption’, are often thought of as playing an important role in art valuation. The new research analyses this point for occupied France by exploiting the distinction made by the Nazis between ‘degenerate’ and ‘non-degenerate’ artworks.

Pricing of ‘degenerate’ works was indeed affected by the impossibility of engaging in their conspicuous consumption. The price difference between these two categories of artworks is clear at the beginning of the occupation, when the Nazi policy towards ‘degenerate’ artworks held in France had not been clearly spelled out.

The difference gradually vanished as it became known that Hitler took a favourable view of French ‘artistic decadence’ and was not planning to get these works destroyed as long as they remained in France.

Discretion does not only concern artworks, the researcher notes. Other discreet assets, such as collectible stamps, also experienced sharp price increases during the Nazi occupation of France. Assets that are easy to transport and hide therefore have characteristics that are valued by some investors during troubled times.

The interest in discreet artworks goes beyond wartime. At any point, tax evaders may be willing to buy art or other discreet assets to hide illicit profits or to diminish their tax burden. As a result, when wealth and wealth inequality increase, so does demand for discreet assets.

Whereas previous research traditionally attributes these price increases to social competition, the new study suggests an alternative explanation: assets that facilitate tax evasion should fetch a higher price in an environment characterised by increasing wealth inequality. The research thus opens the door to a different interpretation of the high demand for artworks in Japan in the 1990s or in China today.

To contact the author: koosterl@ulb.ac.be

THE HEALTH AND HUMAN CAPITAL OF WAR REFUGEES: Evidence from Jewish migrants escaping the Nazis 1940-42

by Matthias Blum (Queen’s University Belfast ) and Claudia Rei (Vanderbilt University)

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At Europe’s doorstep, the current refugee crisis poses considerable challenges to world leaders. Whether refugees are believed beneficial or detrimental to future economic prospects, decisions about them are often based on unverified priors and uninformed opinions.

There is a vast body of scholarly work on the economics of international migration. But when it comes to the sensitive topic of war refugees, we usually learn about the overall numbers of the displaced while knowing next to nothing about the human capital of the displaced populations.

Our study, to be presented at the Economic History Society’s 2017 annual conference in London, contributes to this under-researched, and often hard to document, area of international migration based on a newly constructed dataset of war refugees from Europe to the United States after the outbreak of the Second World War.

We analyse holocaust refugees travelling from Lisbon to New York on steam vessels between 1940 and 1942. Temporarily, the war made Lisbon the last major port of departure when all other options had shut down.

Escaping Europe before 1940 was difficult, but there were still several European ports providing regular passenger traffic to the Americas. The expansion of Nazi Germany in 1940 made emigration increasingly difficult and by 1942, it was nearly impossible for Jews to leave Europe due to mass deportations to concentration camps in the east.

The Lisbon migrants were wartime refugees and offer a valuable insight into the larger body of Jewish migrants who left Europe between the Nazi seizure of power in Germany in January 1933 and the invasion of Poland in September 1939.

The majority of migrants in our dataset were Jews from Germany and Poland, but we identify migrants from 17 countries in Europe. We define as refugees all Jewish passengers as well as their non-Jewish family members travelling with them.

Using individual micro-level evidence, we find that regardless of refugee status all migrants were positively selected – that is, they carried a higher level of health and human capital when compared with the populations in their countries of origin. This pattern is stronger for women than men.

Furthermore, refugees and non-refugees in our sample were no different in terms of skills and income level, but they did differ with respect to the timing of the migration decision. Male refugees were more positively selected if they migrated earlier, whereas women migrating earlier were more positively selected regardless of refugee status.

These findings suggest large losses of human capital in Europe, especially from women, since the Nazi arrival in power seven years before the period we analyse in our data.

The civil war in Syria broke out six years ago in March 2011, making the analysis of the late holocaust refugees all the more relevant. Syrian refugees fleeing war today are not just lucky to escape, they are probably also healthier and coming from a higher social background than average in their home country.

The Great War and Evolution of Central Banking in India

by Tehreem Husain, The Express Tribune

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Post global financial crisis, there has been increased importance on exploring financial history of advanced economies and emerging markets to identify episodes of boom, crisis and regulatory responses from which parallels can be drawn today. In this blog, Tehreem Husain discusses an episode from early twentieth century Indian financial history which narrates the tale of a crisis and the evolution of a regulatory institution-the central bank in its wake.

The importance of India amongst the pool of emerging market economies can be gauged from the fact that it contributed 6.8 per cent to global GDP on PPP basis in 2014. Sustaining this growth track requires robust financial regulatory frameworks which can only come with a thorough understanding of its history and the events which led to the evolution of its crucial building block-the central bank. Researching early twentieth century Indian financial history suggests that the onset of the Great War and the financial crisis that ensued in India gave impetus to the creation of a central banking institution in the country.

The Great War, one of the most expensive wars in history, caused untold loss of human life and damages to economic and social resources. Britain at the forefront of the war went through insurmountable stress to meet financing needs of the war. Stephen Broadberry and other eminent economic historians have estimated that the cost of the Great War to Britain exceeded one-third of the total national income of war years. As the war continued in Europe, its stress spilled over the boundaries of mainland Britain and British colonies also became entangled in human and financial costs. For instance, not only did India contribute approximately 1.5 million men recruited during the war, but Indian taxpayers also made a significant contribution of £146 million to Britain to finance the war.

War times impose huge costs on the entire economy but more so for banks, due to the key role that they play in financing it. The National Bureau of Economic Research published a special volume on the effect of war on banking in 1943. One of the chapters, ‘Banking System and War Finance’, highlighted the crucial importance of commercial banks for Treasury borrowing. Banks constituted the largest purchasers of government obligations in addition to being the single most important outlet for the sale of government obligations to the public during World War II. Going back, similar to the experience of other countries, during the Great War Indian treasury borrowed heavily from the banking system. Debt archives from 1918 show that Rs 503.3 million were raised in the form of loans, Treasury Bills and Post Office Cash Certificates. At the same time government continued to issue fresh currency notes, which contributed to extraordinary liquidity flushing the banking sector (evidenced by a high cash-to-deposit ratio).

Studying the Indian economy during that time period using macro-financial indicator analysis, the relation between the British involvements in the Great War and the evolution of central banking is explored in India. Evidence suggests that exigencies of war-finance and government resorting to banking system to finance expenditures, the latter came under huge strain. A stressed macro and financial environment during the war years further weakened the fragile and fragmented Indian banking system. It led to a contagion like financial crisis accelerating bank failures in the war years and beyond. This crisis went unabated due to lack of a formal regulatory structure.

The near absence of regulatory oversight leading to financial crisis gave impetus to the creation of a central banking authority. Although the idea of a ‘banking establishment for India’ dates back to 1836, as a consequence of this episode, restructuring and reforms process ensued. This led to the introduction of a quasi-central banking institution, the Imperial Bank of India in 1921 and finally the creation of a full fledged central bank – the Reserve Bank of India, in 1935. In general, as argued by economists Stijn Claessens and M. Ayhan Kose (2013) deficiencies in regulatory oversight[1] leading to currency and maturity mismatches and resultant financial crisis are applicable to this episode as well.

Interestingly, this episode was not unique to India. In the presence of no regulatory institutions, management and resolution of financial crisis becomes increasingly complex. Historian Harold James has written that the global financial panic of 1907 demonstrated the necessity to America the need to mobilize financial power themselves in the form of a central bank analogous to the Bank of England. The Federal Reserve was created in 1913.

To conclude, one can argue that absence of a formal central banking institution in India resulted in many stressed scenarios for Indian financial system and missed opportunities for the imperial government. This meant that at that time there was no liquidity support available to the failing commercial banks, no control and coordination of credit creation (i.e. no reserve requirements), no mechanism or support for price discovery of the securities to be traded in the primary and secondary markets, etc. A similar argument was given by Keynes in his book ‘Indian Currency and Finance’ supporting the idea of an Indian central bank. Had there been a central bank in India it would have performed three essential functions: (a) assist the government in flotation of bonds or other government securities to the commercial banks, (b) provide direct lending to treasury in the form of ways-and-means advances or by purchase of government securities, and (c) provide reserves to the commercial banks to help them buy government obligations and offer them guidance and support to carry on as much of their traditional task of financing trade and industry as was compatible with a maximum war effort.

This article was based on the working paper ‘’Great War and Evolution of Central Banking in India”.

[1] Claessens, S., and Kose, M.A, 2013,” Financial Crises: Explanations, Types and Implications”, IMF Working Paper WP/13/28