Category: History

Why is capital so often flowing out of emerging economies?

Sam asks me:

I was struck by something that Peter Thiel has talked a bit about in recent months, namely that capital is flowing ‘uphill’ from China to the U.S., which is not what the neoclassical model would predict. I’ve read a few of the general objections to this “Lucas Paradox” (e.g. differences in human capital, credit risks etc.), but would love to know what your take on this phenomenon is.

I would cite a few factors:

1. China is a high-savings country with high political risk.  In general savings don’t have that many safe outlets, noting the third largest government debt market in the world is that of Italy.  So of course much of this money flows into the United States.  And China is hardly the only high-savings emerging economy.

2. China makes it costly or impossible for many kinds of American firms and individuals to invest directly in China, this now being a familiar story.  The Chinese stock market also is limited and unrepresentative of the Chinese economy as a whole.

3. American capital will not flow to Russia the way British capital once sopped up opportunities in Argentina and elsewhere in the late 19th and early 20th centuries.  The end of gunboat diplomacy is one but not the only reason for this.

4. State-owned industry is a bigger factor today than in earlier times.  For instance, if Aramco is privatized, plenty of private Western capital will invest in the company.  But so far it is not.

5. Savings rates are often especially high during times of rapid income growth, because preferences have not yet caught up with income (an underrated mechanism, which perhaps someday will get its own blog post).  Emerging economies in much earlier times did not have such rapid growth, and therefore they did not have comparable huge savings surpluses to dispose of.

6. The United States has issued a lot of debt, whereas the earlier Great Britain ran a balanced budget at least intertemporally.

7. America has accumulated enough wealth so that flows of household savings can be relatively low.  Plus we are irresponsible — so good at marketing and spending! — and thus we do not save enough either.

8. If you counted holdings of American dollars, as a reserve currency, as “America exporting its rule of law,” the flow of funds would look less strange.

Which other reasons?

Columbus Lowered World Temperature

European germs killed 90% of the population of the Americas in the century after 1492 causing millions of hectacres of farm land to revert to forest which increased the uptake of carbon and reduced the planetary temperature. That is the upshot of a new paper that joins together previous estimates of population decline, farm land and carbon sequestration to push the onset of the Anthropocene to before the industrial revolution.

Earth system impacts of the European arrival and Great Dying in the Americas after 1492.

Abstract: Human impacts prior to the Industrial Revolution are not well constrained. We investigate whether the decline in global atmospheric CO2 concentration by 7–10 ppm in the late 1500s and early 1600s which globally lowered surface air temperatures by 0.15C, were generated by natural forcing or were a result of the large-scale depopulation of the Americas after European arrival, subsequent land use change and secondary succession. We quantitatively review the evidence for (i) the pre-Columbian population size, (ii) their per capita land use, (iii) the post-1492 population loss, (iv) the resulting carbon uptake of the abandoned anthropogenic landscapes, and then compare these to potential natural drivers of global carbon declines of 7–10 ppm. From 119 published regional population estimates we calculate a pre-1492 CE population of 60.5 million (interquartile range, IQR 44.8–78.2 million), utilizing 1.04 ha land per capita (IQR 0.98–1.11). European epidemics removed 90% (IQR 87–92%) of the indigenous population over the next century. This resulted in secondary succession of 55.8 Mha (IQR 39.0–78.4 Mha) of abandoned land, sequestering 7.4 Pg C (IQR 4.9–10.8 Pg C), equivalent to a decline in atmospheric CO2 of 3.5 ppm (IQR 2.3–5.1 ppm CO2). Accounting for carbon cycle feedbacks plus LUC outside the Americas gives a total 5 ppm CO2 additional uptake into the land surface in the 1500s compared to the 1400s, 47–67% of the atmospheric CO2 decline. Furthermore, we show that the global carbon budget of the 1500s cannot be balanced until large-scale vegetation regeneration in the Americas is included. The Great Dying of the Indigenous Peoples of the Americas resulted in a human-driven global impact on the Earth System in the two centuries prior to the Industrial Revolution.

*Timefulness: How Thinking Like a Geologer Can Save the World*

Still more incredible is the fact that one person almost single-handedly created the first maps of two-thirds of the planet yet is unknown to the average citizen of Earth (while Amerigo Vespucci, whose cartographic credentials are suspect, has two continents named for him).  The unsung mapmaker Marie Tharp, who earned a master’s degree in geology from the University of Michigan, worked briefly for an oil company, and then in 1948 became a drafter for a new oceanographic project led by Maurice Ewing at Columbia University.  For years, Ewing’s all-male team of graduate students collected sonar soundings of the ocean floor while Tharp laboriously transformed the linear strings of depth readings into three-dimensional topography.

Here is the Wikipedia page for Marie Tharp.  Here is a biography of Marie Tharp, which I just ordered.  Timefulness is by Marcia Bjornerud and you can order it here.

My Conversation with Noel Johnson and Mark Koyama

Lots of economic history in this one, with the underlying themes of persecution and tolerance, here is the audio and video.

We talk about the evolution of anti-Semitism, how the Black Death influenced Europe, the economics and politics of volcanic eruptions, how much prejudice will come back, amateur astronomy,  Jared Diamond, cousin marriage and the origins of the West, why England was a coherent nation-state so early, the origins of the Industrial Revolution, Schindler’s List, and more.  I split the time between the two, here is one excerpt:

JOHNSON: Mark and I have done a lot of work on building datasets of Jewish persecution and Jewish expulsions at the city level and the country level in Europe over a very long period of time. And a question that I, for one, don’t fully understand is, you don’t need to actually kill all the Jews or expel them in order to extract resources from them. In fact, in some way, this is off the equilibrium path. You’re no longer in some optimal equilibrium for both the ruler and for the Jewish community.

Oftentimes, these Jewish communities would be expelled from a city, they would be invited to come back, and they would come back — in 5, 10, 15 years, sometimes even shorter. But that’s a little bit easier to understand.

In the case I gave you in England in 1290s, I think I understand a little bit about why it might have happened that way. I think it was signaling credibility in some political compact between the king and the nobles, but I’m not sure. But that’s an example of top down.

Other times, clearly, people are . . . You have, say, guilds moving against these Jewish communities. An example of this would be in 1614, when the most well-known Jewish persecution was in Frankfurt am Main. It was called the Fettmilch Massacre. Fettmilch was a baker. He was in guild, and he was upset about the terms of the political deal between the city rulers — the city council — and what the guilds were getting. One of the things that the guilds wanted were the Jews to be expelled. This was competition in some sense.

There was this bit from me:

COWEN: If the Black Death raised wages, does that mean that immigration today lowers wages?


COWEN: Large volcanic eruptions earlier in history. From an economic point of view, what’s the single most interesting thing we know about them?

JOHNSON: I think what’s very interesting about the volcanic eruptions is that we are discovering more and more that they may have played a large role in political change that occurred. Joe Manning at Yale, and I believe his graduate student (Bruce M.S. Campbell) have been doing work on . . . They looked at a series of volcanic eruptions that led to the end of the pharaonic empire. That ended around 30 or 60 BC, I forget. Right around that time.

That was an empire that lasted for 300 years, but they experienced all these crop failures. And then once you look at it, you see that in Indonesia, all these major volcanic eruptions were happening in perfect timing with these crop failures that were taking place. Actually, they can tell from looking at the Nile and how much it’s flooding and things.

COWEN: Politics becomes nastier when the volcano goes off?

And from Mark Koyama:

COWEN: Why was China, as a nation or territory, so large so early in world history?

KOYAMA: Yeah, that’s a great question. There are several potential explanations, one of which is geographic. Another one would be an argument from the writing system. But I think the geography story is quite important. Jared Diamond, building on people like Eric Jones, argued that China’s geography . . .

Essentially there are two core geographic regions in China around the Yellow and Yangtze river deltas, which produced a huge amount of grain or rice. If you control those core regions, you can raise large armies. You can have a large population and dominate the subsequent regions.

Whereas, the argument is for Europe that these core regions are, perhaps, arguably more separated by geographical boundaries. The limitation of that argument on its own is that geography is static, so it doesn’t really tell you anything about the timing.

The interesting thing about China, in my view, is not just that it was once unified, or unified early. But it’s persistently unified. It reunifies. Interestingly enough, the periods of de-unification get consistently smaller. So there are always periods where it’s fragmented, like the warlord period in the early 20th century, but over time may become smaller.

Europe doesn’t seem to have that centrifugal force, so a lot of Europe is unified by the Romans, but it’s not able to come back together along those lines later.

And the argument that I put forward in an article with Tuan-Hwee Sng and Chiu Yu Ko of National University of Singapore is that it’s not just the core geographical reason. That’s part of it. But actually, the periodic threat from a nomadic steppe is another key factor.

This is geographic because China has a very sharp slope from really productive agricultural land to land which is only fit for horses, for Eurasian steppe. China could be invaded very easily from the north by these steppe nomads, whereas Europe — it was much less vulnerable to this. And that helps to explain why the Chinese state is often a northern state.

So if I can add, if you think about China today, or even China in the past, the really productive land — a lot of it’s in the quite far south, in Shanghai, Yangtze delta. But the political center of China is near Beijing, or it’s in the north. And that’s due to this political economy threat from the steppe. And it’s these periodic steppe invasions which we argue are responsible for the centralization, an almost militarized character of the Chinese state through history.


COWEN: Max Weber. Overrated or underrated?

KOYAMA: Underrated.


KOYAMA: Because most people just know the Protestant theory, and they misreport it. Whereas, actually, his most interesting stuff is on Chinese religion and ancient Judaism. And the role of —

COWEN: The history of music, right?

There is much more at the link.  I am very happy to recommend their forthcoming book Persecution and Tolerance: The Long Road to Religious Freedom.

Eric Kaufmann’s *Whiteshift*

The subtitle is Populism, Immigration, and the Future of White Majorities, and might this be the must-read book of the year?  It is “to the right” of my views on immigration policy, but still I found it informative, fascinating, and relevant on just about every page.  Here is the author’s opening framing:

First, why are right-wing populists doing better than left-wing ones?  Second, why did the migration crisis boost populist-right numbers sharply while the economic crisis had no overall effect?  If we stick to data, the answer is crystal clear.  Demography and culture, not economic and political developments, hold the key to understanding the populist moment.

Kaufmann, by the way, is Professor of Politics at Birkbeck in London, but hails from Canada.  As for the basics, there is this in addition:

Much of this book is concerned with the clash between a rising white tribalism and an ideology I term ‘left-modernism.’

If you wish to understand “all the stuff that is going on today,” maybe Whiteshift is the best place to start?  Kaufmann, by the way, is not a mega-pessimist and he seems to think that “broadening the category of white” will lead to a “good enough” solution for many of the Western democracies.  Still, much of this book is disturbing, especially for readers who might consider themselves to be on the left.  Most of all, he sees “whiteness” as a legitimate cultural interest, and one which, if we deny, will lead to more overt racism rather than less.

Here is Kaufmann on Brexit, brutal but I think largely correct:

…many analysts bring a political lens to their analysis which inclines them to want to tell a story about wealth and power.  Over half the country voted Leave and we can’t condemn such a large group.  So we pretend populist voters are motivated by the same things we are: economic stagnation (for fiscal conservatives) or, for left-liberals, inequality and resentment of the establishment.

Kaufmann also has strong evidence for the “immigration backlash” hypothesis, for instance:

…a higher immigrant share is a consistent predictor of higher opposition to immigration over time…in Western Europe there is a .63 correlation between projected 2030 Muslim share and the highest poll or vote share a populist-right party has achieved.

On top of all of its other virtues, Whiteshift provides the best intellectual history of the immigration debates I have seen.  It also has the best discussion of why Canada seems to be different when it comes to immigration, and I may cover that in another blog post.

Kaufmann does very much argue that the left-wing values of diversity and solidarity stand very much in conflict.  How is this for an “ouch” sentence?:

Casual observation would suggest that being black in diverse San Francisco is not necessarily better than being black in white-majority Fargo [North Dakota].

By no means am I convinced by everything in this book.  I don’t think European politics can handle systematized refugee camps in Europe itself (rather than Turkey and Lebanon), and most of all I am not sure that recognizing whiteness as a legitimate cultural concern will diminish rather than boost racism.  I wish he had said much more about gender, and how immigration and gender issues interact.

Nonetheless this book has more points of interest yet, including an original and persuasive take on residential clustering, a good analysis of racial intermarriage, and a sustained argument that avoiding the “no dominant ethnic group” approach of Guyana and Mauritius is imperative.

Strongly recommended, it is out next week, you can pre-order here.

Dalrymple on Aleppo

The history of Aleppo is terrible stuff; a long succession of massacres and sieges disappearing into the mists of Syrian pre-history. First held by the Hittites, it was captured in turn by the Philistines, Assyrians, Babylonians, Persians, Greeks, Romans, Persians (again), Byzantines, Arabs, Mongols and Ottomans, each of whom vied to outdo the carnage of their predecessors. The Assyrians were the most imaginatively sadistic: they impaled the town’s menfolk on their spears and feasted for two days while their victims groaned to a slow death.

In between invasions Aleppo was ruled by a succession of aristocratic thugs who exacted outrageous taxes and perfected ingenious ways of bankrupting their burghers.

In all the town’s history there are only two cheering anecdotes. The first tells of the Arabs who captured Aleppo by dressing up as goats and nibbling their way into the city; the second concerns Abraham, who is supposed to have milked his cow on the citadel’s summit. It is not much in ten thousand years of history, especially when the one story ends in a massacre…and the other is a legend, and untrue. It is the result of a misunderstood derivation of the town’s (Arabic) name Haleb, which comes not from the Arabic for milk (halib) but a much older word, possibly Assyrian, connected with the mechanics of child abuse.

From William Dalrymple’s In Xanadu written in 1989…things have not since improved.

Library of Congress to archive Marginal Revolution

From my email:

The United States Library of Congress has selected your website for inclusion in the historic collection of Internet materials related to the Economics Blogs Web Archive. We consider your website to be an important part of this collection and the historical record.

The Library of Congress preserves important cultural artifacts and provides enduring access to them. The Library’s traditional functions, acquiring, cataloging, preserving and serving collection materials of historical importance to foster education and scholarship, extend to digital materials, including websites. Our web archives are important because they contribute to the historical record, capturing information that could otherwise be lost. With the growing role of the web as an influential medium, records of historic events could be considered incomplete without materials that were “born digital” and never printed on paper.

The following URL has been selected for archiving:

We request your permission to collect your website and add it to the Library’s research collections. In order to properly archive this URL, and potentially other URLs of interest on your site, we would appreciate your permission to archive both this URL and other portions of your site, including public content that your page links to on third party sites such as Facebook, YouTube, etc. With your permission, the Library of Congress or its agent will engage in the collection of content from your website at regular intervals over time and may include it in future collections.

The Library will make this collection available to researchers at Library facilities and by special arrangement. The Library may also make the collection available more broadly by hosting the collection on the Library’s public access website no earlier than one year after our archiving has been completed. The Library hopes that you share its vision of preserving Internet materials and permitting researchers from across the world to access them.

Steven Pinker on slavery and the Enlightenment

Here is his Quillette response to critics.  Here is one of his arguments, one where I do not find the framing so convincing:

Slaves were always the most desirable spoils of conquest, and anyone who has been to a Passover seder or seen the movie Spartacus knows that slavery was not invented in 18th century Europe or America. Blaming the Enlightenment for slavery is particularly ludicrous given the chronology of abolition…

As the historian Katie Kelaidis put it in The Enlightenment’s Cynical Critics, “Millennia of great moral teachers sought to come to terms with slavery and to mitigate its inhumanity, but no one—not Jesus, not Buddha, not Muhammad, not Socrates—considered the complete liberation of all slaves prior to the Enlightenment. … The Enlightenment was not the inventor of slavery, but it was the inventor of the notion that no one should be held as a slave.”

This strikes me as a classic case of mood affiliation: “we must have a positive mood toward the Enlightenment!”  And perhaps we must. But what is wrong with this alternative formulation?:

“Early modern Europe, including its later manifestation of the Enlightenment, brought great benefits to the world.  Part of those benefits involved enhanced capacities.  Some of those enhanced capacities were used to do great evil, such as to capture, transport, and hold slaves on what was probably an unprecedented scale.  The extermination of many indigenous groups could be added to that ledger too.  Therefore we should beware of greater capacities, because even when they bring significant good, they also can carry great evils.”

More accurate than Pinker, but it also invokes a more complicated mood toward progress.

I would note also that so many of the most radical abolitionists, including in Britain, were Christians.  It is fine to consider them part of the Enlightenment as well, but still to describe the Enlightenment as “the inventor of the notion that no one should be held as a slave” seems off-base to me.  The 16th century Spanish Salamancans — theologians I might add — strongly opposed slavery well before the Enlightenment.  To call the Salamancans themselves “proto Enlightenment” is perhaps not wrong, but also has a tautological element if such a move is being used to defend the primacy of the Enlightenment (otherwise identified by Pinker as originating in the 18th century) in this regard.

It is also worth a query of the Pinker passage “Blaming the Enlightenment for slavery is particularly ludicrous given the chronology of abolition…”  First, you can hold a properly mixed opinion about this whole matter without “blaming the Enlightenment for slavery.”  (Most of all I would blame the slave capturers, traders, and owners.)  Second, “particularly ludicrous” is too often the mark of an under-argued claim, beware such rhetoric.  Third, so many of America’s greatest Enlightenment figures were themselves slaveholders or at least slavery defenders or tolerators.  I don’t mean to suggest any simple “blame the Enlightenment” approach here, but surely that is worth a mention and discussion?  Finally, the Enlightenment in America is well up and running by 1765, and slavery lasts for a full century more?  More yet in Brazil.  Maybe that is worth a bit of discussion too?

I am very much an admirer of Pinker and his work, and I consider myself an optimist, especially across longer time frames.  But what is sometimes called progress does also have a dark side, and we will do better fighting that dark side if we are clearer — in our own minds and with each other — on how things have run to date.

Shout it from the rooftops

Many top earners during the high-rate era, such as politicians Dwight Eisenhower and Ronald Reagan, entertainer Jack Benny and librettist Alan Jay Lerner, didn’t pay the top rates. In 1952, for example, when the top rate was 92%, the highest-earning 1% of taxpayers had an average rate of 32%, according to Elliot Brownlee, a tax historian and emeritus professor at the University of California, Santa Barbara.

“When top tax rates were high, there was always a large gap between the stated rates and what the highest earners actually paid as a percentage of their income,” says Joel Slemrod, an economics professor at the University of Michigan.

This one would not work today:

Gen. Dwight Eisenhower also successfully argued that $635,000 he earned from his 1948 memoir, “Crusade in Europe,” should be treated as a capital gain, saving him as much as $400,000 of tax, says Joseph Thorndike, a historian with Tax Notes magazine.

Here is the Laura Saunders WSJ piece.

A Behavioral Interpretation of the Origins of African American Family Structure

That is a new paper by Gerald D. Jaynes, Department of Economics, Yale University.  The abstract is difficult to read, so here is an excerpt from the paper:

The hypothesis underlying my reinterpretation of the origins of contemporary black family structure is, through the late 20th Century, throughout American history, structural differences in the race relations and economic discrimination confronting blacks in rural versus urban locations produced distinct childhood socialization experiences. These distinct socialization experiences exposed urbanized black children (north and south) to large numbers of recusant adults — men and women socially alienated by urban job ceilings and truculently refusing to acquiesce to race relations based in white supremacy. Observation of and interaction with recusant adults and discriminatory economic institutions put urbanized black children at great risk of early projection of a failure to achieve self-verification of an acceptable social identity. The developmental outcome was early adoption of recusant identities and oppositional agencies leading to a polarized choice: either seek self-verification elsewhere by avoiding institutions such as schools, labor markets, and marriage (causing high rates of single parent families), or (attempting to alter one’s reception in such institutions) intensely engage them leading to civil rights activism and a rising black middle class. In contrast, rural black children were more likely exposed to adults seeking self-verification by striving to climb the agricultural tenure ladder a life goal requiring conforming to behavioral norms based in the era’s white supremacist race relations. Failure to self-verify a positive self-image by achieving land ownership or rental tenancy occurred later in life when the adoption of oppositional agencies was greatly mitigated.

Speculative and uneven, but nonetheless of interest.

How to study history of economic thought

The Center for the History of Political Economy at Duke University will be hosting another Summer Institute on the History of Economics this summer from June 10-19, 2019. The program is designed for students in graduate programs in economics, though students in graduate school in other fields as well as newly minted PhDs will also be considered.

Students will be competitively selected and successful applicants will receive free housing and a booklet of readings. We are also able to provide limited travel support. The deadline for applying is March 1.

We are very excited about this year’s program, which will focus on giving participants the tools to set up and teach their own undergraduate course in the history of economic thought. There will also be sessions devoted to showing how concepts and ideas from the history of economics might be introduced into other classes. The sessions will be run by Duke faculty members Bruce Caldwell and Jason Brent, who will be joined by Steve Medema of the University of Colorado–Denver. More information on the Summer Institute is available at our website,

*The European Guilds: An Economic Analysis*

That is the new and highly comprehensive book by Sheilagh Ogilvie, and it is likely to stand as one of the more important works of economic history from the last decade.  Here is one opening summary bit:

…my own reading of the evidence is that a common theme underlies guilds’ activities: guilds tended to do what is best for guild members.  In some cases, what guilds did brought certain benefits for the broader public.  But overall, the actions guilds took mainly had the effect of protecting and enriching their members at the expense of consumers and non-members; reducing threats from innovators, competitors, and audacious upstarts; and generating sufficient rents to pay off the political elites that enforced guilds’ privileges and might otherwise have interfered with them.

And yes she really does show this, with a remarkable assemblage of data.  For instance:

…the 14 guilds in Table 2.4 devoted an average of 28 per cent of their expenditures to lobbying.  However, the average was 45 per cent across the five poor guilds and just 14 per cent across the eight rich ones.


Guild mastership fees could not be paid off in a couple of weeks of work.  Across these 1,102 observations, the average mastership fee consumed 276 days’ wages for a labourer, 215 days for a journeyman, and 1543 days for a guild master.

Operating licenses were expensive too (pp.125-126).  There are more “Ands”:

Guild entry barriers pushed people into illicit production, as emerges from 14 per cent of observations in Table 3.15.


Guild members whose trades stagnated could not legally diversify to other guilded work…

On top of that, guilds typically restricted the training of women and would not let them enter the relevant sectors.  And:

The amount of attention guilds devoted to product quality in their ordinances does not suggest they regarded it as a major concern.

Ouch!  Ogilivie also concludes, and demonstrates using data, that guilds did not promote human capital accumulation or innovation.  The various revisionist defenses of guilds, as produced over the years, basically seem to be wrong.

You can pre-order the book here.

What should I ask Mark Koyama and Noel Johnson

They are my colleagues, and both are economic historians, and they have an important forthcoming book Persecution and Toleration: The Long Road to Religious Freedom.  I will be doing a Conversation with them.

More generally they have worked on state capacity, nation building, why China evolved into such a large political unit, the Black Death, scapegoating, usury prohibitions in history, the economic impact of volcanic eruptions, and more.  I am always happy to see them.

Their home pages are here and here.  So what should I ask them?

When State-Building Hinders Growth: The Legacy of China’s Confucian Bureaucracy

That is the title of a new paper by Daniel Mattingly:

Do countries with a long history of state-building fare better in the long run? Recent work has shown that earlier state-building may lead to higher levels of present-day growth. By contrast, I use a natural experiment to show that the regions of China with over a thousand years of sustained exposure to state-building are significantly poorer today. The mechanism of persistence, I argue, was the introduction of a civil service exam based on knowledge of Confucian classics, which strengthened the social prestige of the civil service and weakened the prestige of commerce. A thousand years later, the regions of China where the Confucian bureaucracy was first introduced have a more educated population and more Confucian temples, but lower levels of wealth. The paper contributes to an important debate on the Great Divergence, highlighting how political institutions interact with culture to cause long-run patterns of growth.

Via the excellent Kevin Lewis.