History

Proust as speculator

by on May 29, 2017 at 12:10 am in Books, Economics, History, The Arts | Permalink

Through a fast alternation of buying and selling, orders and counterorders, the end of 1911 marked Proust’s fastest plunge into debt exposure in his fifteen-year-long investing career. His patrimony amounted to about 1,522,000 francs, but more than 40 percent of it, precisely 640,000 francs, was tied up in forwards contracts—a crazy level of exposure for an amateur investor. In terms of American dollars, at this time Proust owned a personal fortune of $6,864,000 and had about $2,900,000 tied up in obligations to buy.

That is from Proust and His Banker: In Search of Time Squandered, by Gian Balsamo, via Ray Lopez.  Ray also passes along this from the book summary:

Focusing on more than 350 letters between Proust and Hauser and drawing on records of the Rothschild Archive and financial data assembled from the twenty-one-volume Kolb edition of Proust’s letters, Balsamo reconstructs Proust’s finances and provides a fascinating window into the writer’s creative and speculative process. Balsamo carefully follows Proust’s financial activities, including investments ranging from Royal Dutch Securities to American railroads to Eastern European copper mines, his exchanges with various banks and brokerage firms, his impetuous gifts, and the changing size and composition of his portfolio. Successes and failures alike provided material for Proust’s fiction, whether from the purchase of an airplane for the object of his affections or the investigation of a deceased love’s intimate background. Proust was, Balsamo concludes, a master at turning financial indulgence into narrative craftsmanship, economic costs into artistic opportunities. Over the course of their fifteen-year collaboration, the banker saw Proust squander three-fifths of his wealth on reckless ventures and on magnificent presents for the men and women who struck his fancy. To Hauser the writer was a virtuoso in resource mismanagement. Nonetheless, Balsamo shows, we owe it to the altruism of this generous relative, who never thought twice about sacrificing his own time and resources to Proust, that In Search of Lost Time was ever completed…
This sounds like a book I should read.

That is the new NBER working paper by Alberto Alesina, Bryony Reich, Alessandro Riboni, here is the abstract:

The increase in army size observed in early modern times changed the way states conducted wars. Starting in the late 18th century, states switched from mercenaries to a mass army by conscription. In order for the population to accept to fight and endure war, the government elites began to provide public goods, reduced rent extraction and adopted policies to homogenize the population with nation-building. This paper explores a variety of ways in which nation-building can be implemented and studies its effects as a function of technological innovation in warfare.

That is related to some recent work by Ferejohn and Rosenbluth.

The latest video in our Principles of Macroeconomics course at MRUniversity covers Understanding the Great Depression. I like this video a lot. It starts by illustrating the great fall in aggregate demand using the AD-AS model but also looks at the dust bowl, the Smoot-Hawley tariff and the National Industrial Recovery Act (NRA). The section on the tariff beautifully illustrates the argument that trade is like a technology that allows us to almost-magically transform one good into another. And the final section on the awful NRA has some great visuals.

I will be doing a Conversations with Tyler with him, June 14, Arlington, 6:30 p.m., register here.

Here is Wikipedia on Ben Sasse.  In addition to being a Senator from Nebraska, he has extensive experience in government, was an assistant professor, president of Midland University, and he has a Ph.d. in history from Yale University, with a prize-winning dissertation on religious liberty and the origins of the conservative movement as it relates to the battle over school prayer.  He also now has the #1 best-selling book, on raising kids.

Just to be clear, I will not be making what you might call “very current events” the focus of this discussion.  So what should I ask him?

Update: rsvp link corrected.

About my earlier China post, from Harrison Searles of GMU:

On the comparison of China and Rome, one of the factors that immediately came to my mind was a combination of (2) and (4): The Roman Empire faced a much more complex logistical problem of maintaining territorial integrity than did China and its territorial integrity could be destroyed from a sea campaign.

These two themes actually did greatly contribute to Rome’s unraveling during the Crisis of the 5th Century: One of the under-appreciated aspects of the Crisis of the 5th Century that led to the Fall of the Roman Empire was the loss of North Africa to the Vandals. Peter Heather provides a short description of how destructive the loss of North Africa was to the empire in The Fall of the Roman Empire (2006):

“No other single blow could have done the Empire so much harm. At a stroke. Geiseric had removed from Aetius’ control the richest provinces of the Roman west, with the result that financial crisis looked How was it allowed to happen? Presumably, after four and a half years of relative peace, and thinking that Geiseric was going to keep the treaty made in February 435, people took their eyes off the ball. There was, I suspect, simply too much instability in other parts of the empire for troops to be left in Carthage on a ‘what if?’ basis. The Visigothic war in particular, brought to an end just before Geiseric made his move, had probably demanded every available man. So with the Carthage garrison at minimum strength, the cunning Vandal had taken full advantage.” (p. 289)

Here, I see the theme of (4) in your blog post: “[China] has a large space of relatively flat plains.” Chinese generals did not face the same complex logistical problems that Roman ones did in deploying their military force across their nation.

When North Africa was lost, retaking it to reassert territorial integrity was not as easy as simply marching a couple of legions there. If it were that easy, I very much doubt the Vandals could have held onto North Africa. Instead, the Roman Empire needed to launch a sea campaign, which is theme (2) of your post: “when it comes to naval warfare — more common for Europe — small countries have a chance to punch above their weight, witness England and Portugal.”

In 468 both the Western and Eastern Empires launched a massive joint campaign to take back North Africa. However, the armada they had launched was smashed at the Battle of Cape Bon by a much smaller Vandal fleet that had the weather gauge to its advantage. Punching above their weight, the Vandal kingdom of North Africa was able to beat back a campaign manned and funded by both Ravenna and Constantinople—a feat that would have been close to impossible on land.

The failure of that armada to land on North Africa doomed half of the Roman world to extinction, for without the North African provinces, the Western Roman Empire could not reassert its hegemony over the centrifugal forces now at full force across Gaul and Hispania. The difficulties of maintaining optimal deployments of troops in an empire largely bifurcated (at least in scale of importance) by a sea and the hazards of warfare at sea conspired to make the problem of maintaining imperial territorial integrity too difficult for Roman politics to solve during the Crisis of the 5th Century, contributing to the total collapse of that integrity in the west. Had the Western Roman Empire not been encumbered by (2) and (4) the survival of said integrity is certainly imaginable—and within the capability its resources offered it.

China from the East

by on May 14, 2017 at 11:18 am in Books, History | Permalink

The image was sent to me by Christopher Jared.  And, via Shivaji Sondhi, here is a review essay on ideology and the longevity of the Chinese empire.

There are two striking facts about China.  First, the country is quite large.  Second, the country was remarkably large early in its history, compared to most other political units.  For instance, here is China in 200 AD:

How did this happen?

Or consider a modern version of the puzzle: currently there are over one billion Chinese in one political unit, and a bit of scattering.  And there are over one billion Europeans, spread in fairly significant numbers across about fifty political units.  How did such a fundamental difference come to pass?

I can think of many instructive explanations for China’s early size and unity that are nonetheless derivative.  For instance perhaps a common language for writing played a key role, or perhaps the civil service and the exam system bound the country together.  I don’t mean to gainsay those claims, but they are not fundamental.  In part they are simply alternative descriptions of China’s relatively early unity.  And there still ought to be reasons why those factors were the case, and some of them seem to postdate unity.  On top of that, ideally we would like the explanation to account for China’s periodic descents into fragmentation and sometimes warring chaos.

I can think of a few factors that might count as fundamental, and often they involve economies of scale:

1. There may be greater economies of scale in Chinese agriculture.  One specific hypothesis is that China’s “hydraulic” system of rice irrigation favored a centralized despotic authority (Karl Wittfogel, though I’ve never found this particular view convincing, see also earlier takes on “Oriental Despotism”).

2. There may be economies of scale for fighting land battles with horses.  Alternatively, when it comes to naval warfare — more common for Europe — small countries have a chance to punch above their weight, witness  England and Portugal.

3. China had lower climate volatility than did Europe, and that made it easier for a more stable equilibrium to emerge.  (Or the kinds of climate volatility China had mattered less for its agriculture.)  Big changes in climate, in contrast, periodically overturn political equilibria, most of all when agriculture was a huge chunk of gdp.

4. China has two main, navigable rivers running east to west, the Yellow and Yangtze rivers.  It also has a large space of relatively flat plains.

5. China was formed when the prevailing technologies favored size and scale, and thus size and scale were imprinted onto early Chinese political DNA.  This is a bit like the “inflation” theory of the universe.  (NB: This part of the explanation is arguably “accidental” rather than “fundamental.”)

6. China and Rome are with regard to size and early unity not so different, but China did a better job absorbing the “barbarians” and thus persisted as a larger political unit.

What else?  With some mix of those (and other) factors in place, the more traditional detailed explanations then kick in to promote China’s size as China.

Ideally, an explanation for China’s early size and unity, and why that size and unity bounced back from so many periodic bouts of warring states, should address the following:

a. Why the mountainous Tibet also ended up as a more or less coherent nation-state, and why that too happened fairly early.  That seems to militate against purely rice-based explanations.

b. Why Yunnan was absorbed into China at a relatively late date — the 17th century — but once attached did become a stable part of the country in a manner that other parts of southeast Asia did not mimic.

c. Why Korea remained separate.

d. Why the Khmer empire proved unstable and perished, despite a high level of sophistication and state capacity.

e. Why the Aztec Triple Alliance grew to a much larger size than any political unit in North America at the same time.

What else?

I am grateful to a presentation by Debin Ma, and to comments from the Washington Area Economic History Seminar (recommended!), from a seminar last night.  None of them are implicated in what I have written.  I look forward to Debin’s paper on this topic (here is his earlier 2012 work), and Kenneth Pomeranz is writing an entire book on the question.

Addendum: Here is the Ko, Koyama, and Sng piece (pdf).

Yes, the Garry Kasparov, here is the link to the podcast and transcript.  We talked about AI, his new book Deep Thinking: Where Machine Intelligence Ends and Human Creativity Begins, why he has become more optimistic, how education will have to adjust to smart software, Russian history and Putin, his favorites in Russian and American literature, Tarkovsky, his favorite city to play chess in, his match against Deep Blue, Ken Rogoff, who are the three most likely challengers to Magnus Carlsen (ranked in order!) and who might win.  Here is one excerpt:

GK: The biggest problem, and I’ve been talking about for quite a while, that we’re still teaching very specific knowledge in the schools. Instead of teaching what, we have to teach how because this knowledge may be redundant 10 years from now. We are preparing kids for the world that will change dramatically. By the way, we already know it will look different. So what’s the point of trying to teach kids at age 10, 11, 12 without recognizing the fact that when they finish college, when they will become adults looking for jobs, the job market will be totally different?

And:

COWEN: …If we look back on centuries of Russian history, do you think there’s something in Russian geography or demographics or geopolitics — what has it been that has led to such unfree outcomes fairly systematically?

Where do you find the roots of tyranny in the history of Russia? Is it a mix of the size of the country, its openness to invasion, its vulnerability, something about being next to a dynamic Europe, on the other side, China? What is it?

KASPAROV: It’s a long, if not endless, theoretical debate based on our interpretation of certain historical events. I’m not convinced with these arguments about some nations being predetermined in their development and alien to the concept of democracy and the rule of law.

The reason I’m quite comfortable with this denial . . . We can move from theory to practice. While we can talk about history and certain influence of historical events to modernity, we can look at the places like Korean Peninsula. The same nation, not even cousins but brothers and sisters, divided in 1950, so that’s, by historical standards, yesterday.

And:

Let’s look at Russia and Ukraine, and let’s look, not at the whole Ukraine, but just at eastern Ukraine. Eastern Ukraine is populated mostly by ethnic Russians. In the former Soviet Union, the borders between republics were very nominal. People could move around, it was not a big deal. Even after the collapse of the Soviet Union, the official state border between Russia and Ukraine was respected, but people still could move around. They didn’t need special visas.

When we look at ethnic Russians born and raised in Kursk and Belgorod on the Russian side and across the border, say in Kharkiv and Dnipropetrovsk on the Ukrainian side, there were people that could be hardly separated anything. They read the same newspaper, Pravda, watched the same television, spoke the very same language, not even accents. But somehow, in 2014, after Putin’s annexation of Crimea and invasion of eastern Ukraine, we saw a huge difference. Most of ethnic Russians in Ukraine signed for the Ukrainian army, fighting against Putin’s invasion, against the same Russians that came from the other side.

It could be a long debate, but I would say that one of the main reasons is that Ukraine experienced in 1994 a gradual transition of power from one president to another after sitting president Leonid Kravchuk lost elections and walked away. Ukrainians somehow got an idea that power is not sacred, and government can come and go, and they can remove it by voting.

And even despite the fact that Ukraine never experienced higher living standards than Russia, people realized that keeping this freedom, keeping this ability to influence their bureaucrats and government through the peaceful process of voting and, if necessary, striking, far more effective than Russia’s “stability” where the same leader could be in charge of the country with his corrupt clique for a long, long time.

On computer chess, I most enjoyed this part of the exchange:

KASPAROV: But I want to finish this because what we discovered in this process . . . I wouldn’t overweight our listeners with all these details. I don’t want just to throw on them the mass information.

COWEN: It’s amazing what people will enjoy, though. You’d be surprised.

Self-recommending!  We cover many other topics as well, again you can read or listen here.

And I strongly advise that you buy and read Garry’s wonderful new book Deep Thinking: Where Machine Intelligence Ends and Human Creativity Begins.

Let’s say that somehow Britain had let its opportunity pass by (lost the wrong war?), or perhaps never had been in the right position at all (no Gulf Stream?).  When would the world have seen an Industrial Revolution?  Keep in mind Song China came relatively close to having a break through of some kind, but still did not pull it off; some commentators suggest the same about the Roman Empire.

My initial presumption is that “industrial revolutions,” if we can even make the term plural in that way, are remarkably difficult to see through.  I offer a few points:

1. Mankind spent about a hundred thousand years before making enough progress to attain the civilizations of Sumeria and Mesopotamia.  Along the way, people discovered how to tame fire and use various stones and metals, but still it was a long, tough slog to a point that still was almost 6000 years short of an industrial revolution.

2. I see, in world history, only two regional units being in a position at all to make a run at an industrial revolution, namely Rome and its offshoots, and China.  That is discouraging, especially because each of those required a fairly large, semi-unified territorial area.  (As an aside, I view “how did China get so big so quickly?” as one of the most under-discussed questions of world history.  Try it sometime, it’s better than arguing about Trump or ACA.)

2b. Were the Roman Empire and China actually independent events?

3. I fear what I call “the James C. Scott dead end,” namely that many territories will develop strong enough “state capacity-resistant” units that further Chinas and Romes will be difficult to achieve in terms of the size of the political unit.  Imagine a world like Laos or northern Thailand.  You may think that is a “mountains effect,” but neither the Great Plains nor Africa developed a China or Rome equivalent in earlier times, or much in the way of a very large or effective political unit.  By the way, when is the next James C. Scott book coming out?

4. I also fear the “energy dead end.”  The Aztec empire and its precursors created an amazing time, most of all for biotechnology — they bred corn out of a crummy weed, one of mankind’s greatest achievements, and without external grants.  Tenochitlan may have been larger and more impressive than any European city, and the residents probably ate better too.  Yet they used the wheel only for children’s toys and, more importantly, they stuck with direct uses of solar power.  There is no evidence of them coming remotely close to a major deployment of fossil fuels.  They did burn coal for fuel, and to make ornaments, but seemed to have no idea of how to put the pieces together to make it an energy source for powerful machines.  For most of their purposes, solar energy seemed to work remarkably well, and Mexico had plenty of it.  It nourished their food and kept them warm.

5. The economic historian R.C. Allen overrated the role of coal in the British Industrial Revolution, and this has kept many people away from seeing #4.  Don’t assign coal a dominant monocausal role in the Industrial Revolution, just have an n-factor model where fossil fuels are one of the binding constraints; circa 2017 we still need them!  By the way, here is an Allen essay on the Britishness of the Industrial Revolution, closely related to this blog post.  I agree with most of his sentences as stand-alone claims, though he vastly underrates the role of non-energy factors in the bigger picture.

6. The Incas also had a remarkably advanced civilization, in select areas ahead of Europeans and spanning a fairly large geographic area at its peak with plenty of state capacity.  They too seemed to be in a cul-de-sac with respect to an industrial revolution, energy again being one factor as best we can tell.

7. Many people fear internecine warfare as preventing an industrial revolution in alternative locales, and while that is a factor, I worry more about “the James C. Scott dead end” and “the energy dead end.”  What other possible dead ends are there?

8. At what point was a European/British industrial revolution “in the bag”?  1740?  1600?  1050?  If the Brits had failed us, at what point would Japan or Bohemia have picked up the ball and run with it?  Seventy years later?  Three hundred years?  Never?

9. The optimistic perspective is gained from studying the history of the arts.  Then one sees European culture as having a series of mini-industrial revolutions, starting in late medieval times and rapidly accelerating progress in painting, sculpture, perspective, bookmaking, goldsmithing, musical instruments, musical notation, paper-making, and many other areas, most of all in northern Italy and also Franco-Flemish territory and a bit later Germany.  Bach came before the British “Industrial Revolution” and his genius had a lot of preconditions too!  The “special” thing about the British IR is that it overturned Malthusian assumptions, but from the point of view of understanding how the inputs related to the outputs, and how so many new, complex innovations were possible all at once, that is arguably of secondary import.  Study Monteverdi, not coal!

For this post I am thankful to a recent lunch conversation with John Nye, Bryan Caplan, and Robin Hanson, of course implicating none of them in these views, though can you guess who disagreed the most?

The author is Richard Rothstein, and the subtitle of this excellent and important book is the apt A Forgotten History of How Our Government Segregated America.  The upshot is that twentieth century segregation had a lot more to do with government restrictions — and not just government toleration — than many of us had thought.  Here is one bit of many:

Calling itself the Peninsula Housing Association of Palo Alto, the co-op purchased a 260-ranch adjacent to the Stanford campus and planned to build 400 houses as well as shared recreational facilities, a shopping area, a gas station, and a restaurant on commonly owned land.  But the bank would not finance construction costs nor issue mortgages to the co-op or its members without government approval, and the FHA would not insure loans to a cooperative that included African American members.  The cooperative’s board of directors, which included [Wallace] Stegner, recommended against complying with the demand that the cooperative reconstitute itself as an all-white organization, but the membership, attempting to appease the government, voted…to compromise.

And:

At the time [immediate post-war era], the Federal Housing Administration and Veterans Administration not only refused to insure mortgages for African Americans in designated white neighborhoods like Ladera; they also would not insure mortgages for whites in a neighborhood where African Americans were present.  So once East Palo Alto was integrated, whites wanting to move into the area could no longer obtain government-insured mortgages.

Furthermore, a bit earlier, many of the New Deal agencies shared a commitment to residential segregation, and were willing to enforce it.  Keep in mind that residential integration started moving backwards in 1880, through the middle of the twentieth century.

Recommended, and here is NPR coverage of the book.  Here is coverage from Slate.  Here is an earlier MR post on the roots of racial segregation in Baltimore.

They are:

Johnny Rogan, The Byrds: Timeless Flight Revisited, The Sequel, get the full-length edition, not the much shorter 1980 volume.

Chris Twomey, XTC: Chalkhills and Children.

…in addition to the very recent Dreaming the Beatles, which I just reviewed.

NB: These are music books and I am not even recommending them to most of you.  These books only make sense if you already know a good deal about the careers of the artists involved.

Here is my advice on how to find excellent management books and management advice: pick some areas you know fairly well, be it music, sports, military campaigns, a scientific discovery, the making of a historic plane flight, or whatever.  Read a very detailed book about that.  Think through the lessons of that book(s).  Unfortunately, books about corporations so often filter their management information through homilies, hidden agendas, NDAs, ego boosts, paybacks, and other forms of…bullshit.  Music and sports books won’t, as they are too concerned with other kinds of stupid filters.  But you will get the lowdown on management for the most part.

There are some special reasons why I find the Byrds and XTC fruitful areas for reading for management advice, above and beyond my knowledge of the history and the musical content.  Neither group was massively profitable in a sustained manner, though they had their successes.  The two histories contain both triumphs and some major mistakes.  The main creators worked very consistently at their music for decades, and were not afraid to take chances or to operate with a long time horizon.  Nor did they destroy themselves, even though they were fatally flawed as creators.  Both histories are also studies in small group dynamics, including their eventual collapse; the Byrds are more a story of changing personnel and its costs.  Both histories embody tales of retreat and also return, and an ongoing evolution of styles and media.  Both stories have (relatively) happy endings, but only for those who kept at work rather than partook in indulgences.  Those features may or may not apply to your own personal circumstances, choose your management books accordingly, but I those kinds of stories more interesting than say books about the Rolling Stones.

If you can find books such as these, they are among the most valuable you will read.  Yet it is very hard to find them through recommendations, given the idiosyncratic nature of the content and its relevance.  Of course that is precisely why they have such high marginal value.

Recall the development of the Polaris nuclear-missile system in the late 1950s. The whole package—a nuclear submarine, a solid-fuel missile, an underwater launch system, a nuclear warhead and a guidance system—went from the drawing board to deployment in four years (and using slide rules).

Today, according to the Defense Business Board, the average development timeline for much less complex weapons is 22.5 years. A case in point is the Ford-class aircraft carrier. The program is two years delayed and $2.4 billion over budget.

That is from John Lehman, Secretary of the Navy under President Reagan.

I hope Peter remains my colleague for a long time to come:

COMING FALL 2017

“This book has a surprise—not to mention a puckish joke—on every page. It’s strange, it’s fascinating, and it’s one of the most original books I’ve ever read.”
—Tim Harford, author of The Undercover Economist

“The most interesting book I have read in years! Peter Leeson displays his unique talent: unearthing mankind’s seemingly craziest behaviors, and then showing that these behaviors, against all odds, ultimately make perfect sense. WTF?! is like Freakonomics on steroids.”
—Steven D. Levitt, co-author of Freakonomics

“A fascinating tour of the world’s strangest customs and behaviors, led by a brilliant, funny, and eccentric tour guide. It’s okay to gawk, he says, but it’s even better to empathize and, armed with Leeson’s insights, there’s no reason why we can’t do both.”
—Steven E. Landsburg, author of The Armchair Economist

“Your initial reaction might be ‘WTF!?’ How can medieval trials by ordeal, wife sales, and divine curses all boil down to rational economic behavior? But Leeson will lead you deftly through the logic and history behind these seemingly senseless rituals. Keep an open mind and this book will surprise, teach, and entertain!”
—Andrei Shleifer, Harvard University

Here is the link.  Here is the Amazon link, you can request to be emailed when it becomes available.  I thank Peter Boettke for the pointer, and I look forward to reading the book.

That was then, this is now

by on April 28, 2017 at 12:37 pm in History | Permalink

In Britain and Ireland, a large number of enterprising early birds made a living waking people for work.

A knocker-up would be paid a few pence a week to make the rounds and rouse workers, banging on their doors with a short stick or rapping on upper windows with a long pole. The knocker-up would not move on until he received confirmation that his drowsy client was up and moving.

The profession died out in the 1920s as alarm clocks became cheaper and more reliable, but a few specialized knockers-up — such as Doris Weigand, employed by a railway depot to summon workers for short-notice shifts — survived for a few decades more.

Here is the full story, via Michael Clemens.  Remember how the Brits used to say “can you knock me up in the morning?”  Here is the Guardian on the race to build the world’s first sex robot.

I refer you to the excellent post by A Fine Theorem on David Donaldson, here is one excerpt:

Donaldson’s CV is a testament to how difficult this style of work is. He spent eight years at LSE before getting his PhD, and published only one paper in a peer reviewed journal in the 13 years following the start of his graduate work. “Railroads of the Raj” has been forthcoming at the AER for literally half a decade, despite the fact that this work is the core of what got Donaldson a junior position at MIT and a tenured position at Stanford. Is it any wonder that so few young economists want to pursue a style of research that is so challenging and so difficult to publish? Let us hope that Donaldson’s award encourages more of us to fully exploit both the incredible data we all now have access to, but also the beautiful body of theory that induces deep insights from that data.

The post is superb, yet A Fine Theorem remains underrated.