Category: History
*The Economic Government of the World, 1933-2023*
By Martin Daunton, retired economic historian from Cambridge. 1024 pp., and full of information, so yes many people should read this book. It is a major achievement, but somehow I wanted something with more economics and a sharper framework? Here is a very positive Adam Tooze FT review, who describes the narrative as “postheroic and disillusioned.” Multilateralism is covered in great detail.
You can pre-order it here, I picked up my copy in London at Daunt.
*Goodbye Eastern Europe*
The author is Jacob Mikanowski and the subtitle is An Intimate History of a Divided Land. Might this be the best overall book on how Eastern Europe ended up so different (but not entirely different) from Western Europe? I’ll be doing a CWT with him later this fall (hold your suggestions for now, and I’ll hold further commentary as well), but though I would flag this book for you in the meantime. I hope it gets some good publicity as the release date is approaching.
*Medieval Horizons: Why the Middle Ages Matter*
Ian Mortimer is the author of this excellent book, here was one of my favorite bits:
It may seem preposterous today to describe a 5 mph increase in the maximum land speed as revolutionary. It sounds like someone pointing to a hillock and calling it a mountain. But it was revolutionary, for a number of reasons. Like a one-degree rise in average global temperature, it represents a huge change. This is because it is not a one-off event but a permanent doubling of the maximum potential speed. By 1600 the fastest riders could cover 150 miles in a day and individual letters carried by teams of riders could travel at speeds of up to 200 miles per day. This significantly reduced the time it took to inform the government about the goings-on in the realm. If the Scots attacked Berwick when the king was at Winchester, and the news came south at 40 miles per day, as it is likely to have done in the eleventh century, it would have taken nine days to arrive. After the king had deliberated what to do, if only for a day, the response would have travelled back at the same speed — so the north of the kingdom would have been without royal instructions for almost three weeks. If, however, the post could carry the news at 200 miles per day, the king and his advisers could decide on a response in less than two days. After a day’s discussion, the king’s instructions would have been back in the Berwick area less than five days after the danger had arisen — two weeks faster than in the eleventh century.
It is hard to exaggerate the political and social implications of such a change. The rapid delivery of information allowed a king far greater control over his realm…The rise in travelling speeds subtle shifted the balance of power away from territorial lords and towards central government.
The speed of information thus created a demand for more information.
That meant, among other things, more spies. And there was this:
Looked at simply as a statistic, an increase in speed of 5 mph is not very impressive. In terms of the cultural horizons explored in this book, however, it is profoundly important. Imagine the rings spreading out from where you are now — the first ring marking the limit of how far you can travel in one day, with a further ring beyond it marketing two days, and then a yet further ring marking three days. Now imagine all those moving further and further outwards, each one twice as far…you haven’t just doubled or trebled the area you could cover in one, two or three days, you’ve increased it exponentially…With the collective horizon also increasing exponentially, you can see how a doubling of the distances people could travel in a day had a huge impact on the nation’s understanding of itself and what was going on within and beyond its borders.
Interesting throughout, this one will make the year’s “best of non-fiction” list. You can buy it here.
What should I ask Ada Palmer?
I will be doing a Conversation with her. She is a unique thinker and presence, and thus hard to describe. Here is a brief excerpt from her home page:
I am an historian, an author of science fiction and fantasy, and a composer. I teach in the History Department at the University of Chicago.
Yes, she has tenure. Her four-volume Terra Ignota series is a landmark of science fiction, and she also has a deep knowledge of the Renaissance, Francis Bacon, and the French Enlightenment. She has been an advocate of free speech. Here is her “could be better” Wikipedia page. The imaginary world of her novels is peaceful, prosperous, obsessed with the Enlightenment (centuries from now), suppresses both free speech and gender designations, and perhaps headed for warfare once again?
Here is her excellent blog, which among other things considers issues of historical progress, and also her problems with chronic pain management and disability.
So what should I ask her?
How the Russian Revolution boosted Marx’s influence
Karl Marx’s high academic stature outside of economics diverges sharply from his peripheral influence within the discipline, particularly after nineteenth-century developments rendered the labor theory of value obsolete. We hypothesize that the 1917 Russian Revolution is responsible for elevating Marx into the academic mainstream. Using the synthetic control method, we construct a counterfactual for Marx’s citation patterns in Google Ngram data. This allows us to predict how often Marx would have been cited if the Russian Revolution had not happened. We find a significant treatment effect, meaning that Marx’s academic stature today owes a substantial debt to political happenstance.
That is from a new JPE paper by Philip W. Magness and Michael Makovi. Here are ungated versions of the paper.
Orwell Against Progress
Orwell was deeply suspicious of technology and not simply because of the dangers of totalitarianism as expounded in 1984. In The Road to Wigan Pier, Orwell argues that technology saps vigor and will. He quotes disparagingly, World Without Faith, a pro-progress book written by John Beever, a proto Steven Pinker in this respect.
It is so damn silly to cry out about the civilizing effects of work in the fields and farmyards as against that done in a big locomotive works or an automobile factory. Work is a nuisance. We work because we have to and all work is done to provide us with leisure and the means of spending that leisure as enjoyably as possible.
Orwell’s response?
…an exhibition of machine-worship in its most completely vulgar, ignorant, and half-baked form….How often have we not heard it, that glutinously uplifting stuff about ’the machines, our new race of slaves, which will set humanity free’, etc., etc., etc. To these people, apparently, the only danger of the machine is its possible use for destructive purposes; as, for instance, aero-planes are used in war. Barring wars and unforeseen disasters, the future is envisaged as an ever more rapid march of mechanical progress; machines to save work, machines to save thought, machines to save pain, hygiene, efficiency, organization, more hygiene, more efficiency, more organization, more machines–until finally you land up in the by now familiar Wellsian Utopia, aptly caricatured by Huxley in Brave New World, the paradise of little fat men.
What’s Orwell’s problem with progress? He is a traditionalist. Orwell thinks that men need struggle, pain and opposition to be truly great.
…in a world from which physical danger had been banished–and obviously mechanical progress tends to eliminate danger–would physical courage be likely to survive? Could it survive? And why should physical strength survive in a world where there was never the need for physical labour? As for such qualities as loyalty, generosity, etc., in a world where nothing went wrong, they would be not only irrelevant but probably unimaginable. The truth is that many of the qualities we admire in human beings can only function in opposition to some kind of disaster, pain, or difficulty; but the tendency of mechanical progress is to eliminate disaster, pain, and difficulty.
..The tendency of mechanical progress is to make your environment safe and soft; and yet you are striving to keep yourself brave and hard.
I will give Orwell his due, he got this right:
Presumably, for instance, the inhabitants of Utopia would create artificial dangers in order to exercise their courage, and do dumb-bell exercises to harden muscles which they would never be obliged to use.
Orwell’s distaste for technology and love of the manly virtues of sacrifice and endurance to pain naturally push him towards zero-sum thinking. Wealth from machines is for softies but wealth from conquest, at least that makes you brave and hard! (See my earlier post, Orwell’s Falsified Prediction on Empire). Orwell didn’t favor conquest but it’s part of his pessimism that he sees the attraction.
Another of Orwell’s tragic dilemmas is that he doesn’t like progress but he does favor socialism and thus finds it unfortunate that socialism is perceived as being favorable to progress:
…the unfortunate thing is that Socialism, as usually presented, is bound up with the idea of mechanical progress…The kind of person who most readily accepts Socialism is also the kind of person who views mechanical progress, as such, with enthusiasm.
Orwell admired the tough and masculine miners he spent time with in the first part of Wigan Pier. In the second part he mostly decries the namby-pamby feminized socialists with their hippy-bourgeoise values, love of progress, and vegetarianism. I find it very amusing how much Orwell hated a lot of socialists for cultural reasons.
Socialism is too often coupled with a fat-bellied, godless conception of ’progress’ which revolts anyone with a feeling for tradition or the rudiments of
an aesthetic sense.…One sometimes gets the impression that the mere words ‘Socialism’ and ‘Communism’ draw towards them with magnetic force every fruit-juice drinker, nudist, sandal-wearer, sex-maniac, Quaker, ‘Nature Cure’ quack, pacifist, and feminist in England.
…If only the sandals and the pistachio coloured shirts could be put in a pile and burnt, and every vegetarian, teetotaller, and creeping Jesus sent home to Welwyn Garden City to do his yoga exercises quietly!
What Orwell wanted was to strip socialism from liberalism and to pair it instead with conservatism and traditionalism. (I am speaking here of the Orwell of The Road to Wigan Pier).
It’s still easy today to identify the sandal wearing, socialist hippies at the yoga studio but socialism no longer brings to mind visions of progress. Today, fans of progress are more likely to be capitalists than socialists. Indeed, socialism is more often allied with critiques of progress–progress destroys the environment, ruins indigenous ways of life and so forth. A traditionalist socialism along Orwell’s lines would add to this critique that progress destroys jobs, feminizes men, and saps vitality and courage. Thus, Orwell’s goal of pairing socialism with conservatism seems logically closer at hand than in his own time.
Orwell’s Falsified Prediction on Empire
In The Road to Wigan Pier, George Orwell argued:
…the high standard of life we enjoy in England depends upon our keeping a tight hold on the Empire, particularly the tropical portions of it such as India and Africa. Under the capitalist system, in order that England may live in comparative comfort, a hundred million Indians must live on the verge of starvation–an evil state of affairs, but you acquiesce in it every time you step into a taxi or eat a plate of strawberries and cream. The alternative is to throw the Empire overboard and reduce England to a cold and unimportant little island where we should all have to work very hard and live mainly on herrings and potatoes.
Wigan Pier was published in 1937 and a scant ten years later, India gained its independence. Thus, we have a clear prediction. Was England reduced to living mainly on herrings and potatoes after Indian Independence? No. In fact, not only did the UK continue to get rich after the end of empire, the growth rate of GDP increased.
Orwell’s failed prediction stemmed from two reasons. First, he was imbued with zero-sum thinking. It should have been obvious that India was not necessary to the high standard of living enjoyed in England because most of that high standard of living came from increases in the productivity of labor brought about capitalism and the industrial revolution and most of that was independent of empire (Most. Maybe all. Maybe more more than all. Maybe not all. One can debate the finer details on financing but of that debate I have little interest.) The second, related reason was that Orwell had a deep suspicion and distaste for technology, a theme I will take up in a later post.
Orwell, who was born in India and learned something about despotism as a police officer in Burma, opposed empire. Thus, his argument that we had to be poor to be just was a tragic dilemma, one of many that made him pessimistic about the future of humanity.
*The Corporation and the Twentieth Century*
The author is Richard N. Langlois, and the subtitle is The History of American Business Enterprise. 551 pp. of text. I’ve taught Ph.D Industrial Organization for a good while now, and have always wanted a text that provides an overview and introduction to U.S. business history, with sophistication and good economics, and without being out of date. This is that book, so I am happy indeed.
How effective was the IAEA?
Here is the Open AI call for international regulation, most of all along the lines of the International Atomic Energy Agency. I am not in general opposed to this approach, but I think it requires very strong bilateral supplements, from the United States of course. Which in turn requires U.S. supremacy in the area, as was the case with nuclear weapons. From a 564 pp. official work on the topic:
For nearly forty years after its birth in 1957 the IAEA remained essentially irrelevant to the nuclear arms race. (p.22)
There is also this:
However, in the late 1950s and early 1960s it was not the failure of the IAEA’s functions as a ‘pool’ or ‘bank’ or supplier of nuclear material that inflicted the most serious blow on the organization, on its safeguards operation and eventually on Cole himself. For a variety of reasons, the Agency’s chief patron, the USA, chose to arrange nuclear supplies bilaterally rather than through the IAEA. One reason was that the IAEA had been unable to develop an effective safeguards system. Another was that in a bilateral arrangement it was the US Administration, under the watchful eyes of Congress, that chose the bilateral partner rather than leaving the choice to an international organization that would have to respond to the needs of any Member State whatever its political system, persuasion or alliance. But the most serious setback came in 1958 when, for overriding political reasons, the USA chose the bilateral route in accepting the safeguards of EURATOM as equivalent to — in other words as an acceptable substitute for — those of the IAEA.
It is frequently suggested that the IAEA has been partially captured by the nuclear sector itself. I do not consider that bad news, but it is a sobering thought for those expecting too much from this approach. Do note that it took years to set up the agency, and furthermore when North Korea wanted to acquire nuclear weapons the country simply left the agency and broke its earlier agreement. Perhaps the greatest gain from this approach is that the non-crazy nations have a systematic multilateral framework to work within, should they decide to defer to the external, bilateral pressure from the United States?
On the other side, my fear is that the international agreement will lead to excess regulation at the domestic level.
There is also this:
The fact that Iraq’s nuclear weapon programme had been under way for several years, perhaps a decade, without being detected by the IAEA, led to sharp criticism of the Agency and posed the most serious threat to the credibility of its safeguards since they had first been applied some 30 years earlier.
All of these issues could use much more intelligent discussion.
Islam and human capital in historical Spain
We use a unique dataset on Muslim domination between 711-1492 and literacy in 1860 for about 7500 municipalities to study the long-run impact of Islam on human-capital in historical Spain. Reduced-form estimates show a large and robust negative relationship between length of Muslim rule and literacy. We argue that, contrary to local arrangements set up by Christians, Islamic institutions discouraged the rise of the merchant class, blocking local forms of self-government and thereby persistently hindering demand for education. Indeed, results show that a longer Muslim domination in Spain is negatively related to the share of merchants, whereas neither later episodes of trade nor differences in jurisdictions and different stages of the Reconquista affect our main results. Consistent with our interpretation, panel estimates show that cities under Muslim rule missed-out on the critical juncture to establish self-government institutions.
That is from a new paper by Francesco Cinnirella, Alieza Naghavi, and Giovanni Prarolo, via a loyal MR reader.
*The Fall of the Turkish Model*
The author is Cihan Tuğal, and the subtitle is How the Arab Uprisings Brought Down Islamic Liberalism, though the book is more concretely a comparison across Egypt and Tunisia as well, with frequent remarks on Iran. Here is one excerpt:
This led to what Kevan Harris has called the ‘subcontractor state’: an economy which is neither centralized under a governmental authority not privatized and liberalized. The subcontractor state has decentralized its social and economic roles without liberalizing the economy or even straightforwardly privatizing the state-owned enterprises. As a result, the peculiar third sector of the Iranian economy has expanded in rather complicated and unpredictable ways. Rather than leading to liberalization privatization under revolutionary corporatism intensified and twisted the significance of organization such as the bonyads…Privatization under the populist-conservative Ahmedinejad exploited the ambiguities of the tripartite division of the economy…’Privatization’ entailed the sale of public assets not to private companies but to nongovernmental public enterprises (such as pension funds, the bonyads and military contractors).
This book is one useful background source for the current electoral process in Turkey.
*Russia and China*
Authored by Philip Snow, the subtitle is Four Centuries of Conflict and Concord. This book is excellent and definitive and serves up plenty of economic history, here is one bit from the opening section:
The trade nonetheless went ahead with surprising placidity. Now and again there ere small incidents in the form of cattle-rustling or border raids. In 1742 some Russians were reported to have crossed the frontier in search of fuel, and in 1744 two drunken Russians killed two Chinese traders in a squabble over vodka.
I am looking forward to reading the rest, you can buy it here.
Substitutes Are Everywhere: The Great German Gas Debate in Retrospect
In March of 2022 a group of top economists released a paper analyzing the economic effects on Germany of a stop in energy imports from Russia (Bachmann et al. 2022). Using a large multi-sector mathematical model the authors concluded that if prices were allowed to adjust, even a substantial shock would have relatively low costs. In contrast, the German chancellor warned that if the Russians stopped selling oil to Germany “entire branches of industry would have to shut down” and when asked about the economic models he argued that:
[the economists] get it wrong! And it’s honestly irresponsible to calculate around with some mathematical models that then don’t really work. I don’t know absolutely anyone in business who doesn’t know for sure that these would be the consequences.
The Chancellor was not alone in predicting big economic losses; some studies estimated reductions in output of 6-12% and millions of unemployed workers. The key distinction between the economists and the others was in their understanding of elasticities of substitution. When the Chancellor and the average person think about a 40% reduction in natural gas supplies, they implicitly assume that each natural gas-dependent industry must cut its usage by 40%. They then consider the resulting decline in output and the cascading effects on downstream industries. It’s easy to get very worried using this framework.
When the economists replied that there were opportunities for substitution they were typically met with disbelief and misunderstanding. The disbelief stemmed from a lack of appreciation of the many opportunities for substitution that permeate an economy. In our textbook, Modern Principles, Tyler and I explain how the OPEC oil shock in the 1970s led to an increase in brick driveways (replacing asphalt) and the expansion of sugar cane plantations in Brazil (for ethanol production). Amazingly, the oil shock also prompted flower growers to move production overseas, as the reduction in heating oil costs from growing in sunnier climates outweighed the increase in transportation fuel expenses. While these examples highlight long-term changes, short-term substitutions are also possible, though their precise details are usually hidden from central planners and economists.
The misunderstanding came from thinking that we need every user of fuel to find substitutes. Not at all! In reality, as fuel prices rise, those with the lowest substitution costs will switch first, freeing up fuel for users who have more difficulty finding alternatives. Just one industry with favorable substitution possibilities, combined with a few moderately adaptable industries, can produce a significant overall effect. Moreover, there are nearly always some industries with viable substitution options. To see why reverse the usual story and ask, if fuel prices fell by 50% could your industry use more fuel? And if fuel prices fell by 50% are their industries that could switch into the now cheaper fuel?
People often find it easier to imagine new uses rather than ways to reduce existing consumption. However, it is typically the new uses that are scaled back first. Tyler and I illustrate this with our jet and rubber ducky graph. Although jet aircraft won’t shift away from oil even at high prices, rubber (actually plastic) duckies, which are made from oil, can find substitutes–wood, for example–when oil prices rise. And if plastic ducky manufacturers cannot find substitutes, they go out of business, freeing up more oil for other uses. In this way, the market identifies the least valuable goods to cease production, another kind of substitution.
Substitution is a more nuanced concept than many people imagine. Here’s another example. Imagine that an economy has an energy-intensive goods producing sector and that there are few substitutes for the fuel used in this sector. Disaster? Not at all. We don’t need a fuel substitute, if we can substitute imports of the energy-intensive goods for domestically produced versions. Storage is also a substitute and notice that the more you substitute away from a fuel in final uses the greater the effective storage. If you use 1 gallon a day a 10 gallon tank lasts 10 days. If you use a quarter gallon a day it lasts 40 days. Everything is connected.
All of these myriad changes happen under the guidance of the invisible hand, i.e. the price system. Remember, a price is a signal wrapped up in an incentive. Thus Bachmann et al. wisely recommended letting energy prices rise to convey the signal and not insuring energy users so the incentive effects were fully felt on the margin.
So what happened? Gas from Russia was indeed cut very substantially but the German economy did not collapse and instead proved as robust as predicted, perhaps even more so. (The Chancellor’s predictions were off the mark but, to be fair, the government also did do a good job in sourcing new supplies and building reserves.) Moll, Schularick, and Zachmann have revisited the analysis and conclude:
The economic outcomes confirm the core theoretical argument that macro elasticities are larger than micro elasticities and that “cascading effects” along the supply chain would be muted as opposed to destroying the economy’s entire industrial sector. As foreseen, producers partly switched to other fuels or fuel suppliers, imported products with high energy content, while households adjusted their consumption patterns….Market economies have a tremendous ability to adapt that was widely underestimated. In addition, the German economics ministry (BMWK) was very successful in quickly sourcing gas supplies from third countries and building LNG capacity. Finally, it probably helped that German policymakers refrained from imposing a price cap on natural gas (like in many other European countries) and instead opted for lumpsum transfers based on households’ and firms’ historical gas consumption.
Hat tip: Alex Wollman.
*The Middle Kingdoms: A New History of Central Europe*
An excellent book by Martyn Rady, here is the passage most relevant to the history of economic thought:
A Norwegian economist and his wife have published a line of bestsellers in the field of economics written before 1750. Top is Aristotle’s Economics. Composed in the fourth century BCE, it is still available in paperback. Martin Luther’s denunciation of usury (1524) is number three. But there, in the top ten, is an unfamiliar name — Veit Ludwig von Seckendorff (1626-1692), who was a government official in the duchy of Saxe-Gotha in Thuringia. Seckendorff’s German Princely State (Teutscher Fürsten-Staat, 1656) is a thousand-page blockbuster that went through thirteen editions and was in continuous print for a century. Although only ever published in German, it was influential throughout Central Europe, shaping policy from the Banat to the Baltic.
I enjoyed this sentence:
Besides his distinctive false nose (the result of a duelling accident), Tycho Brahe kept an elk in his lodgings as a drinking companion.
And yes the book does have an insightful discussion of Laibach, the Slovenian hard-to-describe musical band. You can buy it here.
New blog on science and economic growth
By economist Jack Leach, here is the blog. Here is a post on the Greek origins of modern science.