Category: History
GUSTAV Cassel
That’s how Richard Ebeling used to stress the guy’s name; who knows why? But Richard was right to appreciate Cassel as an intelligent and underrated economist. Doug Irwin, in his latest paper, proves the point. Here is the abstract:
The intellectual response to the Great Depression is often portrayed as a battle between the ideas of Friedrich Hayek and John Maynard Keynes. Yet both the Austrian and the Keynesian interpretations of the Depression were incomplete. Austrians could explain how a country might get into a depression (bust following an investment boom) but not how to get out of one (liquidation). Keynesians could explain how a country might get out of a depression (government spending on public works) but not how it got into one (animal spirits). By contrast, the monetary approach of economists such as Gustav Cassel has been ignored. As early as 1920, Cassel warned that mismanagement of the gold standard could lead to a severe depression. Cassel not only explained how this could occur, but his explanation anticipates the way that scholars today describe how the Great Depression actually occurred. Unlike Keynes or Hayek, Cassel explained both how a country could get into a depression (deflation due to tight monetary policies) and how it could get out of one (monetary expansion).
The links are working funny in the software right now, I’ll work on getting it fixed, in the meantime Doug’s paper is at www.dartmouth.edu/~dirwin/Cassel.pdf.
Jeopardy question of the day
Groucho Marx and T.S.Eliot (really)
Groucho cannot resist the compulsion to remind one of literature’s most famous expatriates of his origins: “Dear Tom…I think I read somewhere that your first name is the same as Tom Gibbons’, a prizefighter who once lived in St Paul.” He is quite open about his ignorance of the very public details of the poet’s life: “My best to you and your lovely wife, whoever she may be.” He pushes Eliot’s origins in his face. In another letter he calls him an “early American, (I don’t mean that you are an old piece of furniture, but you are a fugitive from St Louis)…” In the same letter he relays to Eliot that “the name Tom fits many things. There was once a famous Jewish actor named Thomashevsky. All male cats are named Tom—unless they have been fixed.” He concludes by assuring the famously buttoned-down author that “I would be interested in reading your views on sex, so don’t hesitate. Confide in me.”
Here is much more, hat tip goes to Mike Tamada.
Model this (a continuing series)
From a profile of Donald Keene:
“He [Mishima] died, as you know, at the age of 45, leaving at least 45 stacked volumes of novels, plays, criticism, poetry.” Mishima slit his belly after leading a failed, and farcical, coup to restore the emperor’s power but Keene thinks he committed suicide because he was passed over for the Nobel Prize. During the 1964 Tokyo Olympics, Mishima had written Keene a letter with the line, “I envy the athletes who know if they are first, second or third.” Keene says: “That was all he said but I knew exactly what he meant.” The irony was that Kawabata, who did win the Nobel Prize, also committed suicide because of the pressure of living up to his new reputation.
*Engineering the Financial Crisis*
This is an excellent conceptual book on the financial crisis, full of deep research and intellectual honesty. The authors, Jeffrey Friedman and Wladimir Kraus, are not in the usual loops of the economist elite, so I hope it is not ignored. They place central importance on the Basel capital regulations and mark-to-market accounting, complemented by a credit channel, in their narrative. Arnold Kling has much more on the book. You can buy the book here; anyone interested in the financial crisis should read it. The authors have some of the best arguments against the “moral hazard” interpretations of the crisis, preferring instead knowledge and calculation arguments. My main worry is about how much the Basel regulations mattered, given that many banks held more mortgage-backed securities than Basel regulations required.
Here is a blog post on their most controversial claim in the book.
The update from Pompeii
Almost every word of this report reflects some of Italy’s broader problems:
A labour union on Thursday reported that a chunk of the wall from Domus of Diomede building on Via Consolare collapsed a day after European Commissioner Johannes Hahn announced that the European Union would give up to 105 million euros to protect and restore the fragile site UNESCO World Heritage site that was buried by volcanic ash around two thousand years ago.
The funds are part of one billion euros earmarked for cultural heritage projects, with particular emphasis on southern Italy, according to Italian minister for regional affairs Raffaele Fitto.
An similar collapse last week prompted Italian culture minister Giancarlo Galan to promise that he would make Pompeii his “the utmost priorty.”
He made almost identical remarks in March shortly after the state of Pompeii led to his predecessor’s resignation.
Only thirty percent of the buildings at the site are considered to be in good condition.
Addendum: Here is a report which doubts whether in fact another wall has collapsed.
Capitalist Kibbutz or from Marx to Rawls
The Israeli kibbutzim are surprisingly successful examples of voluntary socialism. Even today about 2% of the Israeli population lives on a kibbutz and they account for a significant share of output; about 4% overall (using data from 2004 from here and here) and much higher in some industries such as agriculture where the kibbutzim account for some 40% of Israeli output.
Nevertheless, the kibbutzim aren’t growing and, under economic and social pressure, many are privatizing in various ways. Most notably, beginning in 1998 many kibbutzim lowered the marginal tax rate from 100% (!) to about the same level as in the rest of Israel, 20-50%. The reduction in taxes meant that for the first time there were large wage differences for members of a kibbutz and, most importantly, there were large potential wage differences for those who increased their productivity.
In How Responsive is Investment in Schooling to Changes in Redistribution Policies and in Returns (free here) Ran Abramitzky and Victor Lavy look at the acquisition of human capital for high school students living on kibbutzim before and after the reduction in taxes (using a dif and dif strategy on early and late adopters). The authors find (from an NBER summary):
…The effects of the reforms were relatively small for students from highly educated families, in contrast to relatively large effects for students from families with lower parental education who had been covered by the pay reform for all of their years in high school. This group’s high school completion rates increased by 4.4 percent, their mean exam score went up by 8.3 points, their qualification rate for the Bagrut diploma increased by 19.6 percent, and the fraction of students with university qualifying scores increased by 16.8 percent….boys were most strongly influenced by the change.
The pay reform produced larger increases in educational outcomes than monetary bonuses for Bagrut diploma qualifying scores, a school choice program that allowed students to choose their high school in seventh grade, or a teacher bonus program that paid teachers of math, English, and Hebrew bonuses when their students did well on the Bagrut.
The authors argue that there are general lessons to be learnt:
Our findings have important implications beyond the Israeli context. First, they shed light on the educational responses that could result from a decrease in the income tax rate, thus are informative on the long-run labor supply responses to tax changes. Second, they shed light on the educational responses expected when the return to education increases. For example, such changes might be occurring in many countries as technology-oriented growth increases the return to skills.
I am less confident that the numerical results can be generalized, although of course the general point that incentives matter is well-taken.
The results, however, raise another issue. The original kibbutz were inspired by a combination of Marxism, socialism and Zionism. In the capitalist kibbutz, there is an opportunity for a new principle. Taxes can be set not according to Marx but according to Rawls and his second principle of justice: inequalities are to be allowed so long as they benefit the least-advantaged members of the society/kibbutz.
Thus, it would be interesting to know if any of the kibbutz have tried to adjust taxes so as to implement a Rawlsian approach to inequality (if not, perhaps Israeli taxes are already above Rawlsian levels.)
*Creating Wine: The Emergence of a World Industry, 1840-1914*
That is the new book by James Simpson, home page here, with free chapter one. Excerpt:
In Britain, taxes on all types of alcohol contributed 36 percent of national revenue in 1898-99, but they were also 19 percent in France (1898), 18 percent in Germany (1897-98), and 28 percent in the United States (1897-98).
Anyone interested in the economic history of wine and drink should read this book; you may already know John Nye’s War, Wine, and Taxes.
Yesterday was the 200th birthday of Franz Liszt
I don’t usually like to reprise previous posts, but here goes:
1. Franz Liszt: The “late, serious” pieces are important but I don’t think they are much fun to listen to. I recommend the Transcendental Etudes, performance preferences here. “Funerailles,” played by the young Lazar Berman. “Years of Pilgrimage, the Swiss years,” by Aldo Ciccolini. The Hungarian Rhapsodies, played by Cziffa or Robert Szidon. Many of the opera transcriptions are subtler than they are made out to be, as creative examples of early mash-ups. The B Minor Sonata is a bit too long but Clifford Curzon has a lovely version. The organ music remains undervalued and the instrument well suited the composer’s chromatic tendencies.
The Alan Walker biography of Liszt is an excellent look at the nineteenth century and they are among my favorite biographies. Has anyone written the book — in any language — on what the career of Liszt shows about the decline of mainstream classical liberalism?
I very much like the recent Liszt CD by Haiou Zhang; amazing that we can have such a pianist and hardly anyone has heard of him.
Interview with Edward Luttwak on geopolitics
It is interesting throughout, for instance:
There is a good measure of social control in Iran, and that is the price of genuine imported Scotch whiskey in Tehran, because it’s a) forbidden, and b) has to be smuggled in for practical purposes from Dubai, and the only way it can come from Dubai is with the cooperation of the Revolutionary Guard. The price of whiskey has been declining for years, and you go to a party in north Tehran now and you get lots of whiskey. And it’s only slightly more expensive than in Northwest Washington.
But on the other hand, the regime is doing something for which they will have my undying gratitude—that is, they have been manufacturing the one and only post-Islamic society. They created a situation in which Iranians in general, worldwide, not only in Iran, are disaffiliated. They are converting Muslim Iranians into post-Muslim Iranians.
The pointer comes from Steve Sailer.
Piero Garegnani passes away at age 81
He combined neo-Ricardian and Marxist ideas with Keynesian aggregate demand and he thought marginalist neoclassical economics was incoherent, for reasons related to the Cambridge capital debates. Robert Vienneau offers one summary of his work. Matías Vernengo writes:
As early as 1961, while spending an academic year at MIT, he suggested during a presentation by Paul Samuelson that his results depended on the assumption that all sectors use the same capital-labor ratio. The final results of his critique were presented in Garegnani’s paper “Heterogeneous Capital, the Production Function and the Theory of Distribution.” His paper shows conclusively that the marginalist theory of value and distribution based on an aggregate production function is untenable. This of course builds on Sraffa’s work in the Production of Commodities (PC). By 1966, in the famous Quarterly Journal of Economics (QJE) Symposium, Samuelson had admitted that the neoclassical parable was not defensible.
Here are some of his articles on scholar.google.com. He always struck me as a very intelligent writer and capable of a good bracing critique, even though I don’t think his proposed alternatives have gone anywhere. Every profession needs smart and articulate dissenters and I am glad that we have had Garegnani.
For the pointer I thank Juan Carlos Esguerra.
“Theoretical question relating to life on other planets”
That was the email heading from Nick Mann a week or so ago. Nick asked:
If humans saw strong signs of life on Mars when telescopes became powerful enough to detect it (1800’s?), how would’ve that impacted our economic space priorities? Would’ve we already have sent a manned mission there? Does it matter what stage the life was in (i.e. seeing villages & dirt roads vs glowing metropoli)?
I will predict a one-way mission to Mars, sent in the 1980s, but not too much earlier. For one thing, Mars is far away (duh). The moon shot already took quite a concentrated effort, and it is hard to imagine it being started before the 1950s, given earlier missile technology and the like. World War II already gave associated technologies a big boost, large relative to the likely effect of Mars-gazing on the political equilibrium for everyday science funding.
Ask a comparable question about today. Let’s say we could identify a distant planet as having intelligent life, or likely to have intelligent life. How much would the budget of NASA go up? Not enough to make a huge difference in the short run I suspect. It already seems there may be not-very-intelligent life on Mars (though don’t forget the slime mold, maybe the Martians are smart), and possibly something of interest on some moons of Saturn and Jupiter, and yet we are dismantling NASA’s space efforts.
If you wish to argue this the other way around, both voters and politicians up through the 1960s seemed to have a much more “can do” attitude about large science projects than they do today. As Peter Thiel mentioned recently, is it not odd — and bad — that we refer to ourselves as “the developed nations”?
Steven Pinker on violence
It is an important and thoughtful book, and I can recommend it to all readers of intelligent non-fiction, reviews are here But I’m not convinced by the main thesis.
Might we run an econometrics test on regime changes? The 17th century was much more violent than the preceding times, as was the early 19th century, albeit to a lesser extent. Perhaps the distribution is well-described by “long periods of increasing peace, punctuated by large upward leaps of violence”, as was suggested by Lewis Richardson in his 1960 book on the statistics of violent conflict? Imagine a warfare correlate to the Minsky Moment. In the meantime, there will be evidence of various “great moderations,” though each ends with a bang.
Pinker does discuss these ideas in detail in chapter five, but at the end of that section I am not sure why I should embrace his account rather than that of Richardson. I am reminded of the literature on the peso problem in finance.
Another hypothesis is to see modern violence as lower, especially in the private sphere, because the state is much more powerful. Could this book have been titled The Nationalization of Violence? But nationalization does not mean that violence goes away, especially at the most macro levels. In a variant on my point above, one way of describing the observed trend is “less frequent violent outbursts, but more deadlier outbursts when they come.” Both greater wealth (weapons are more destructive, and thus used less often, and there is a desire to preserve wealth) and the nationalization of violence point toward that pattern. That would help explain why the two World Wars, Stalin, Chairman Mao, and the Holocaust, all came not so long ago, despite a (supposed) trend toward greater peacefulness. Those are hard data points for Pinker to get around, no matter how he tries.
We now have a long period between major violent outbursts, but perhaps the next one will be a doozy.
How would this book sound if it were written in 1944? Maybe there is a regime break at 1945 or so, with nuclear weapons deserving the credit for a relative extreme of postwar peace. Pinker’s discussion of the nuclear question starts at p.268, but he underrates the power of nuclear weapons to reach the enemy leaders themselves and thus he does not convince me to dismiss the nuclear issue as central to the observed improvement, throw in Pax Americana if you like.
In one of the most original sections of the book (e.g., p.656), Pinker postulates the greater reach of reason, and the Flynn effect, working together, as moving people toward more peaceful attitudes. He postulates a kind of moral Flynn effect, whereby our increasing ability to abstract ourselves from particulars, and think scientifically, helps us increasingly identify with the point of view of others, leading to a boost in applied empathy. On p.661 there is an excellent mention of the wisdom of Garett Jones. Pinker’s thesis implies the novel conclusion that those skilled on the Ravens test have an especially easy time thinking about ethics in the properly cosmopolitan terms; I toy with such an idea in my own Create Your Own Economy.
What is the alternative hypothesis to this moral Flynn Effect? Given that the private returns to supporting violence are rare — most of the time — and violence has been nationalized, people will have incentives to invest in greater empathy and to build their self-images around such empathy. This empathy will be real rather than feigned, but it also will be fragile rather than based in a real shift in cognitive and emotive faculties; see 1990s Mostar and Sarajevo or for that matter Nagasaki or British or Belgian colonialism.
When doing the statistics, one key issue is how to measure violence. Pinker often favors “per capita” measures, but I am not so sure. I might prefer a weighted average of per capita and “absolute quantity of violence” measures. Killing six million Jews in the Holocaust is not, in my view, “half as violent” if global population is twice as high. Once you toss in the absolute measures with the per capita measures, the long-term trends are not nearly as favorable as Pinker suggests.
Here is John Gray’s (excessively hostile) review of Pinker. In my view this is very much a book worth reading and thinking about. And I very much hope Pinker is right. He has done everything possible to set my doubts to rest, but he has not (yet?) succeeded. I find it easiest to think that the changes of the last sixty years are real when I ponder nuclear weapons.
Silvestre Pantaleón trailer inglés
That is a forthcoming Jonathan Amith documentary on Nahua culture in the Rio Balsas region of Mexico. The trailer video is here; it is set in San Agustin Oapan, where I did the field work for my book Markets and Cultural Voices. Recently I saw the film at National Geographic and loved it, admittedly it is not for all tastes. I’ll let you all know when a DVD becomes available.
A brief description of the film is here.
Who first called gold a barbarous relic?
Barry Popik, who by the way was a childhood chess friend of mine, reports:
Although Keynes is credited with calling the gold standard a “barbarous relic,” many other people had written similar terms (“gold is a relic of barbarism”) well before 1923. John Austin Stevens wrote to the New York (NY) Times in October 1873, stating that “gold is a relic of barbarism to be tabooed by all civilized nations.” Tennessee merchant John T. Goss testified before the U.S. Senate in 1894, saying that “Gold is a relic of barbarism and should be discarded by all civilized nations as a medium of exchange.” The book Civilized Money (1895), by Charles M. Howell, also declared that “gold is a relic of barbarism.” In December 1921, Thomas Edison said that “”Gold is a relic of Julius Caesar and interest is an invention of Satan.”
Barry’s impressive etymology page is here.