Editor’s note:
In her first contribution to our blog, Stephanie Decker (Aston), the new member of the nep-his blog editorial team, departs from the usual norm of commenting on specific working papers to discuss a forthcoming panel on African business history in the next Association of Business Historians meeting. This departure responds to NEP’s commitment to building and supporting academic communities.

Review by Stephanie Decker

On the fringes of the The XVIth World Economic History Congress in Stellenbosch (South Africa),  my South African colleague Grietjie Verhoef, the vice president of the International Economic History Association, and I had several interesting discussions regarding the state of business and economic history of our host country and continent. And while the economic history of Africa has gone from strength to strength, which is to no small extent due the activities of groups such as the African Economic History Network, the same cannot be said for the business history of Africa. Perhaps ten years ago this would have not been an issue, as business history was still better integrated in the wider field of economic history. But since then, the conference circuit, the publications, and the institutional location of business and economic historians have diverged, and with it common methodologies and research problems seem to have disappeared.

Satellite image of Africa, showing the ecological break that defines the sub-Saharan area (Photo credit: Wikipedia)

As the economic development of the African continent has gone from protracted crisis to what some refer to as an “African Renaissance”, the role of business in Africa, and its institutional legacies, is certainly a subject worthy of further inquiry, and of wider relevance. It is certainly an ideal research setting to observe the role that business can play in supporting or obstructing the economic and social development of poor societies. And around the world there are scholars working on these issues from a variety of angles.

My colleague Grietjie and I decided to write a call in order to find out who is interested in these problems, and whether, if we brought them together, we could find common research agendas that may improve our knowledge of these issues. We were delighted to get responses from scholars around the globe, and on a wide variety of topics.

English: Johannesburg from the top of the Carlton Centre. Deutsch: Innenstadt Johannesburgs (Blick vom Carlton Center) (Photo credit: Wikipedia)

Kofi Asante, as well as Sherryllynne Haggerty, both take a classic African Studies approach byinvestigating the role of African agency in the encounter with the colonial administration and the slave merchants, respectively. But the encounter with foreign powers went beyond colonialism and slavery, as shown by Kingsly Ollong, and Suzanne McCoskey. Kingsly Ollong is interested in how French multinationals manage their investments in Africa through the framework of corporate social responsibility (CSR), even though this may range from lip service to actual commitment to creating social value. Suzanne McCoskey addresses the difficult encounter of African-American freed slaves with Liberian society – similarly to present-day debates about CSR, good intentions did not always translate into social improvements. Finally, Tetsuhiko Takai reflects on the state of the archives of colonial chambers of commerce in some countries of Francophone Africa. Here he specifically highlights the importance for scholars of African business history to cross borders to collect material both on the African continent and beyond.

This is a good reminder of how challenging it is in practice to write African business history, and why so little of it comes from the African continent itself. With perhaps the exception of South Africa, it is difficult for students of African business to write an archivally based history of business without traveling internationally. We are now looking forward to our meeting with these scholars at the Association of Business Historians Annual Conference (http://www.abh-net.org/conferences.html)  at the  University of Central Lancashire, 28th & 29th of June 2013, and hope that this will only be the first step in our initiative to create a global network of scholars interested in the history of business in Africa.

By Carolina Castaldi  (c.castaldi@tue.nl), School of Innovation Sciences, Eindhoven University of Technology

Koen Frenken, (k.frenken@tue.nl) School of Innovation Sciences, Eindhoven University of Technology

Bart Los, (b.los@rug.nl), Groningen Growth and Development Centre

URL: http://econpapers.repec.org/paper/eguwpaper/1302.htm

Abstract

We investigate how variety affects the innovation output of a region. Borrowing arguments from theories of recombinant innovation, we expect that related variety will enhance innovation as related technologies are more easily recombined into a new technology. However, we also expect that unrelated variety enhances technological breakthroughs, since radical innovation often stems from connecting previously unrelated technologies opening up whole new functionalities and applications. Using patent data for US states in the period 1977-1999 and associated citation data, we find evidence for both hypotheses. Our study thus sheds a new and critical light on the related-variety hypothesis in economic geography.

Review by Anna Missiaia

This paper by Carolina Castaldi, Koen Frenken and Bart Los was distributed by NEP-HIS on 30-03-2013. The paper is not, strictly speaking, an economic or business history paper. However, it provides some very interesting insights on how technological innovation and technological breakthroughs happen. This is a large and expanding field in economic history and on-going research on the economics of innovation, I believe, can be of interest to many of our readers.

Professor Butts and the Self-Operating Napkin: The “Self-Operating Napkin” is activated when the soup spoon (A) is raised to mouth, pulling string (B) and thereby jerking ladle (C) which throws cracker (D) past parrot (E). Parrot jumps after cracker and perch (F) tilts, upsetting seeds (G) into pail (H). Extra weight in pail pulls cord (I), which opens and lights automatic cigar lighter (J), setting off skyrocket (K) which causes sickle (L) to cut string (M) and allow pendulum with attached napkin to swing back and forth, thereby wiping chin. (Rube Goldberg, 1918).

The paper is concerned with the study of how innovation in a region is affected by the connections within its sectors in terms of shared technological competences. The term “variety” conveys this concept. The authors differentiate in two types of variety: related and unrelated variety. The former describes the connection among sectors that are complementary in terms on competences and can easily exchange technological knowledge. Unrelated variety, on the other hand, steams from sectors that do not appear to have complementary technology.

These two different types of variety are useful to distinguish for their effects on innovation. Related variety supports productivity and employment growth at regional level. However, unrelated variety is the one that causes technological breakthroughs, as it brings a completely new type of technology into a sector. In a subsequent stage, unrelated variety becomes related, being absorbed by the new sector.

The paper keeps these two types of variety separate and tests for their effects. The authors use patent data for US states in the period 1977-1999. The methodology implies regressing the number of patents as a proxy for innovation, on measures of related variety, unrelated variety, research and development investment, time trend and state fixed effects.  Variety is measured by looking at the dispersion of the classification of patents within and between technological classes of the patents. The paper also proposes two different regressions, one using the total number of patents as dependent variable and one using the share of superstar patents, which represent patents that lead to breakthrough technologies. Superstar patents are distinguished from “regular” patents according to the distribution of their citations: superstar patents have a fat tail, meaning that they are cited more in later stages of their development compared to regular patents.

A nice contribution of this paper is to measure super patents through their statistical distribution of their citations instead of relying on superimposed criteria such as being on the top 1% or 5% of the citations. The idea here is to distinguish between general innovation (regular patents) and breakthrough innovation (superstar patents). Theory predicts that regular patents will be positively affected by related variety, producing general innovation, while superstar patents will be positively correlated with unrelated variety, producing breakthrough innovation. The empirical analysis nicely confirms the theory.

Technological progress is said to resemble a flight of stairs

The possible shortcomings of the paper are related to the role of geography in the analysis. The sample is at US state level and the underlying implication is that variety in the state affects the number of patents registered in it. There could be, under this assumptions, some issues of spatial dependence. The authors touch upon this point in two parts of the paper: in the methodology section they explain that superstar patents tend to cluster in fewer states that general patents and this pattern requires a different approach for the two types of patents. It would be useful if this issue could be elaborated further by the authors in a future version of the paper.

As for the possible spatial dependence effect among explanatory variables, the authors try to control for the fact that R&D in one state could affect the patent output of neighboring states as well. They construct an adjacency matrix to capture the effect of the R&D effort of neighboring states.

The conclusion is that the analysis is robust to spatial dependence. In spite of this robustness check for spatial dependence, some concerns remain. Restricting the R&D effect only to neighboring states could be a limit, as the effect could not only go through physical proximity, but also through other types of connections: for example, the same firm could have different branches in different non-adjacent states, leading to an influence not captured by the adjacency matrix.

In short, this paper provides a very interesting insight on how two types of innovations can arise as measured by patent citations at regional level. The results are consistent with the theory and could be useful to future research in historical perspective. A further improvement of the paper could be to conduct more robustness check on the geographical aspects of these results, especially expanding them to non-adjacent states.

Images of the future technology – The Jetsons, 1962

by Alain Béraud (alain.beraud@u-cergy.fr), THéorie Economique, Modélisation et Applications (THEMA), Université de Cergy-Pontoise (France)

Abstract

When French economists read The Purchasing Power of Money, they were primarily interested in the equation of exchange and the reformulation that Fisher proposed regarding the quantity theory of money. This reading led them to ponder the meaning that should be given to this theory and to study its empirical significance. Some of them, namely Rueff and Divisia, went further still and considered Fisher’s work as a starting point for their own analyses, which were related in particular to the monetary index, the integration of money into general equilibrium theory and the analysis of monetary phenomena in an open economy.

Keywords: quantity theory of money; price index; theory of purchasing power parity; marginal utility of money; integration of money into general equilibrium.

URL http://econpapers.repec.org/paper/emaworpap/2013-10.htm

Review by Bernardo Bátiz-Lazo

This paper was circulated by NEP-HIS on 2013-03-30. Alain Béraud, its author, offers a detailed account of how many French economist criticised Irving Fisher’s (1867–1947) quantity theory of money while others supported it. In particular, he explores the extent to which Firsher’s ideas appear within the work of two great French economists, namely François Divisia (1889-1964) and Jacques Rueff (1896-1978).

Alain Béraud – Professeur de Sciences Économiques
(Université de Cergy-Pontoise)

Fisher’s formulation of the equation of exchange (where the total price of commodities sold equals the total value of the money that was given in exchange) is now part and parcel of every undergraduate programme in economics. It is integral and fundamental to the current understanding of macroeconomic management. Given this plus the rise of digital payments, mobile-phone wallets and crypto-currencies like Bitcoin, it is important to remember and indeed timely, to have an in depth discussion about how our conception of money – then measured as notes and coins – came to be and how it was shaped by dissenting views. In this regard says Béraud:

From the time of its publication through to the 1930s, The Purchasing Power of Money was the reference work for French economists who interpreted it as the modern, rigorous version of quantity theory. But this theory was hardly popular. It is therefore not surprising that many French economists, while recognising its merits, fiercely criticised it. It was only in the 1920s that Rueff and Divisia, both graduates of the École Polytechnique where they had been students of Clément Colson, used this book to develop their own analyses of monetary phenomena. Here, I have defended the idea that their contributions were certainly original but were nonetheless based on ideas that Fisher had supported.

Front of French frank coin (1996), commemorating the life of Jacques Rueff

As noted above, through his narrative Béraud compares and contrasts how the work of Fisher was incorporated into the ideas of French economists. He also offers a rich discussion of the reasons why there was dissent and why many took exception and actively criticised Fisher’s work.

The picture that emerges from Béraud’s work allows us to see how economist of the early 20th century on both sides of the Atlantic are engaging in a type of debate that now dominates the discipline, namely highly quantitative and empirically based. Something that, I thought, only took place after World War II – and thus, happy to be set straight. Moreover, this sort of debate was something that, according to Walter Friedman’s brief biography of Fisher, characterised Fisher’s early contributions to our understanding of macroeconomic phenomena. However, we are not provided by Béraud with enough detail to ascertain if a debate with such characteristics was widespread in France or whether it is Béraud’s reconfiguration of the debate between monetary factors and prices, that which leads us to emphasise its quantitative, formal, empirical aspects.

It was also interesting to know that the contemporary discussion of Fisher’s ideas was hampered by lack of available data. For instance, Béraud notes that at this point in time: “data on bank deposits [was unavialble]. Only some establishments published monthly statements.” Here, in my view, some more context as to how and when such measures came to be mainstream and a brief reference to the overall construction of macroeconomic statistics in France would have given a bit more sense of perspective to the discussion.

In the same vein, I would have liked, as a manner of introduction, some context as to why, how relevant and how widespread the debate of Fisher’s ideas was in France during the interwar period. It seems French economists are very concerned with determining exchange rates and the future of the Gold Standard at the end of the First World War. But this is only mentioned in passing. For the international reader it would have also been helpful to have an introduction as to the broad configuration of French economists groups or lines of work at this point in time.

But for all my comments and on balance, this paper makes an interesting read.

François Divisia (1889-1964) – a founding member of the “Econometric Society”

Sascha O. Becker (s.o.becker@warwick.ac.uk), CAGE University of Warwick

Hans K. Hvide (hans.hvide@econ.uib.no), University of Bergen, CEPR and University of Aberdeen

Abstract

Within the broad literature on firm performance, economists have given little attention to entrepreneurs. We use deaths of more than 500 entrepreneurs as a source of exogenous variation, and ask whether this variation can explain shifts in firm performance. Using longitudinal data, we …find large and sustained effects of entrepreneurs at all levels of the performance distribution. Entrepreneurs strongly affect firm growth patterns of both very young firms and for firms that have begun to mature. We do not find significant differences between small and larger firms, family and non-family firms, nor between firms located in urban and rural areas, but we do find stronger effects for founders with high human capital. Overall, the results suggest that an often overlooked factor –individual entrepreneurs plays a large role in affecting firm performance.

URL: http://d.repec.org/n?u=RePEc:wrk:warwec:1002&r=his

Review by Beatriz Rodriguez-Satizabal

Promoting entrepreneurship has been fashionable since the 1980s and there are no signs of it going away. Messages about the importance of becoming your own boss, giving something back to the society, and be an active agent of the economy are there to be seen everywhere on a daily basis. Governments around the world are constantly discussing new ways to increase the number of entrepreneurs and we also see on a regular basis articles within broadsheet newspapers and the popular media trying to identify and challenge those who see themselves grow by creating firms and markets.

In this paper, distributed by NEP-HIS on 2013-01-28, Hvide and Becker question the outcomes of investments to promote entrepreneurship during the last 20 years: Do the entrepreneurs really deliver technological change? Is it sustainable for an emerging country to allow a growing number of entrepreneurs? Is the longevity of the firm related to the characteristics of the founder? Should entrepreneurs be employees in their firms?

The idea of the entrepreneur as an important agent is not entirely new. But studying the role of the entrepreneur within the firm and its effect over its performance has been neglected. In this regard evidence documented in this paper is a step towards a better understanding of the effect of the entrepreneur over the performance of the firm.

Based on the assumption that the death of an entrepreneur has an immediate effect on the firm due to the changes in corporate governance that it implies, Becker and Hvide constructed a database of Norwegian firms consisting of incorporated, limited liability companies for the period 1999 to 2007. The authors identified a total of 500 firms where the founding entrepreneurs died, providing an opportunity to quantify whether entrepreneurs have a causal effect on firm performance or not.

As a result of a thorough statistical analysis, the authors find that the effects are large and strong. The entrepreneur shapes the firm and affects its growth patterns. Entrepreneurs matter because of the loss of human capital (but, interestingly, the effect could be also negative as higher performance takes place after death of the founder). Surprisingly, Becker and Hvide do not find any difference between small and large firms, family and non-family owned, nor between firms located in rural or urban areas. This last result is certainly, in my view, an open call to bring the individual characteristics of the entrepreneur to the study of the firm, which is a unit that needs the human capital factor to success.

This paper is a valuable contribution to those studying entrepreneurship because it positions the role of the individual deep into the nature of firm performance rather than having it as a separate unit. It calls our attention over the widely spread assumption that entrepreneurs also innovate within the organization (Schumpeter) and have effects in and out of it (Baumol). If entrepreneurs matter, then knowing the who, why and how must be part of the discussion on public policy to promote entrepreneurship. Moreover, when in emergent countries the close relationship between the successful entrepreneurs and the government still persists.

Alan Dye (adye@barnard.edu), Barnard College, Columbia University

Sumner La Croix (lacroix@hawaii.edu), University of Hawai’i-Mānoa

URL: http://d.repec.org/n?u=RePEc:hai:wpaper:201207&r=his

Abstract: This paper compares public land privatization in New South Wales and the Province of Buenos Aires,in the early nineteenth century. Both claimed frontier lands as public lands for raising revenue. New South Wales failed to enforce its claim. Property rights originated as de facto squatters’ claims, which government subsequently accommodated and enforced as de jure property rights. In Buenos Aires, by contrast, original transfers of public lands were specified de jure by government. The paper develops a model that explains these differences as a consequence of violence and the relative cost of enforcement of government claims to public land.

Review by Manuel Bautista Gonzalez

The U.S. economy has racked up an enviable record of two centuries of sustained economic growth —an achievement, it has often been asserted, that was predicated on the establishment of institutions guaranteeing the security of property rights. My aim in this article has been to qualify this assertion by reminding scholars that economic development also requires that societies be able flexibly to reallocate property rights in response to new technological and other developments. If such reallocations could always occur smoothly—either through market transactions or a consensus effort on the part of society to capture the resulting gains in efficiency—there would be nothing mysterious about this qualification. As I have shown, however, reallocations in the United States have often been involuntary, and losers have not always received adequate (or any) compensation. Owners whose property has been taken from them have routinely charged that property rights are in fact not secure, but aside from some relatively brief episodes when broader protest movements have taken up their cause, these kinds of complaints have never become general. Hence the mystery. Despite the many involuntary reallocations of property that have occurred repeatedly since the formation of the republic, Americans still strongly believe that their property rights are secure and they act in their economic lives accordingly. – Lamoreaux (2011), emphasis added.

This paper was first distributed by NEP-HIS on 2012-05-15. The paper reviewed in this post was a more recent version from January 4, 2013, made available by the authors.

Alan Dye

Sumner La Croix

Dye and La Croix’s paper is an illuminating exploration of the history of land property rights in the province of Buenos Aires (Argentina) and the colony of New South Wales (Australia) in the first half of the nineteenth century. Whereas Australian squatters acquired de facto claims over lands outside the official settlement areas defined by colonial authorities and some of them managed to transform their claims into de jure property rights, porteño landholders often relied on the will of the authorities of the nascent republic to enforce de jure property rights, with mixed results. Why did authorities honor or not existing claims over land when governments stood to lose revenues from their sale or lease?

In their answer, the authors refute the presentist bias of popular institutionalist and factor-endowment accounts: contrary to the belief, developed countries have not always had a better record of securing and enforcing property rights over land than developing countries. Why?

The authors argue that it is not institutional inheritance but the distribution of power and the militarization of conflicts over land which ultimately affect the recognition and enforcement of land property rights. By considering land privatization in Argentina and Australia, two countries of relatively new European colonization, Dye and La Croix reinstate contingency to historical narratives assuming the enforcement of property rights as a main driver in economic change through time.

The paper is a valuable contribution to the economic history of land in newly settled territories, as well as an invitation to study how governments have claimed land for fiscal purposes often facing dilemmas of temporal inconsistency. A question that surges is how to incorporate speculation behind land booms and rushes into the model. Another question that remains pending is how efficient the government was on the ground level through direct agents and indirect state presence. Including the altitude variable in Figure 4 would allow for comparisons between the Province of Buenos Aires and the Figure 3 depicting New South Wales.

Dye and La Croix invite economic historians to embed in their narratives the diversity of property rights and heterogeneous legal regimes across space and time. Their approach to the Australian case is a welcome addition to the literature questioning the view of common law countries as uniformly and consistently better at law-abiding. Dye and La Croix’s paper is an inviting exploration of how sovereignty over land is construed and modified to better serve political coalitions and powerful men in public offices. Their study also raises the question of the importance of land surveyors in creating legal limits to claims on lands with rather uncertain spatial extensions.

Dye and La Croix’s model would ultimately be helped by micro-evidence provided by future case studies that combine both archival evidence with spatial history techniques. The authors provide much needed insight into the heuristic decision to compare countries with different paths of economic growth: When does it become necessary to explain the impact of expansive imperial governance vis-à-vis unstable republican policymaking in early stages of nation-state building?

When can we set aside the difference between negotiation and coercion? When does pacific settlement of the frontier end? When do conquest and exploitation begin? The paper suggests that the timing of colonization and the various forms it is performed through demand a revision on the claims of indigenous populations over disputed lands. In so doing, we need to consider their agency in the face of dispossession performed by both public and private interests.

In the end, this paper reminded me of the importance to reread Karl Polanyi (2001) on the formation and significance of land markets in capitalist economies and the disruptions the commodification of land brings to fragile groups on the margins of the market society. This study certainly helps reopen the debate on the importance and optimality of certain forms of property rights over land. A historical understanding of the political economy through which land has become a commodity is necessary to avoid simplistic and often mistaken policy recommendations for developing countries.

References

- Lamoreaux, Naomi R. “The Mystery of Property Rights:  A U.S. Perspective.” The Journal of Economic History 71, no. 275-306 (2011).

- Polanyi, Karl. The Great Transformation. The Political and Economic Origins of Our Time. Boston, MA: Beacon Press, 2001 (originally published in 1944).

Michael T. Owyang, Valerie A. Ramey, Sarah Zubairy

Abstract

A key question that has arisen during recent debates is whether government spending multipliers are larger during times when resources are idle. This paper seeks to shed light on this question by analyzing new quarterly historical data covering multiple large wars and depressions in the U.S. and Canada. Using an extension of Ramey’s (2011) military news series and Jordà’s (2005) method for estimating impulse responses, we find no evidence that multipliers are greater during periods of high unemployment in the U.S. In every case, the estimated multipliers are below unity. We do find some evidence of higher multipliers during periods of slack in Canada, with some multipliers above unity.

URL: http://econpapers.repec.org/paper/fipfedlwp/2013-004.htm

Review by Sebastian Fleitas

For a very long time the size of the expenditure multipliers has been one of the most vivid economic debates. For instance as recently as 2009, when the Obama administration proposed a fiscal stimulus package, there was a heated discussion regarding the relative size of the expenditure and tax multipliers. The reason fuelling this narrative is perhaps clear: ascertaining the potential impact of a particular proposed measure is key when designing the fiscal policy.

The paper by Owyang, Ramey and Zubairy, which was distributed by NEP-HIS on 2013-02-08 tries to answer this question: Are government spending multipliers greater during periods of slack for the US and Canada when we look at the historical data? The argument behind it is to consider that the expenditure multipliers will be greater in times of crisis, that is, during periods without full employment of labor and capital in the economy. This argument follows the idea that to wake up animal instincts, you need to have something in the forest when guys go out to hunt.

Image in Barro’s comment on expenditure multipliers debate in 2009 in Hoover Institution Stanford University’s blog (http://www.hoover.org/publications/hoover-digest/article/5401)

The answer that the authors offer is counterintuitive, which makes the paper very interesting. They find that the expenditure multipliers were higher in periods with high unemployment in Canada but they were the same for both periods in the US. To arrive to this conclusion the authors first construct high frequency (quarterly) historical data for the US and Canada. The procedure they follow to build the database is documented in an online available annex of the paper (here). After this process they have data on GPD, GDP deflator, government spending and the unemployment rate for the period 1890q1 to 2010q4 for the US and from 1921q1 to 2011q4 for Canada. The other key variable is the “news” variable, which reflects the changes in expected present value of government spending in response to military events as in Ramey (2011), which in turns directs to Ramey (2009).

Regarding the econometric approach, the authors use Jorda’s (2005) local projection technique to calculate impulse responses. The idea in Jorda (2005) is that, in contrast to VAR approaches which  linearly approximate the data generating process to produce optimal one period forecasts, when we are looking at impulse response analysis we should care about the estimation of longer horizons. In this context, it is a better approach to estimate the impulse responses consistently by a sequence of projections of the endogenous variables shifted forward in time onto their lags using ordinary least squares (OLS) with standard errors addressing heterogeneity and serial correlation. The authors estimate a set of OLS regressions of different number of leads of the log of per capita government expenditure and GDP, over their lags and the variable news for periods with high and low unemployment and a quadratic trend. The coefficient for the variable “news” is the impulse response at that certain number of lags.

Finally, the paper made me think of three comments. First of all, the paper shows a very interesting and creative way to proceed when the data needed for the study is actually not available for that historical period. Besides combining sources of information, the authors constructed quarterly series of the variables. Since the paper was prepared for the American Economic Review Paper and Proceedings, it is a very short paper and the procedure to construct the variables is explained not in the paper but in the Annex. Given the lack of data, assumptions about the data generating process must be made. However, and besides the obvious limitation of space, the reader could miss an explanation about the assumptions that are made in the methods used and, also, what implications these assumptions have for the results, in particular about what is the source of variation that allows the identification of the coefficients. Maybe a section in the paper or in the appendix discussing these issues can shed light about what are the potential problems of different assumptions.

The last two comments are related to what is exactly the interpretation of the results. The first one directly follows from the last sentence of the paper. The authors state that they do not adjust for the fact that taxes often rise at the same time as government spending, which turns these multipliers not equal to pure deficit financed multipliers. However, it seems plausible that the effect of the multiplier on the GPD depends on whether this increase in the government was financed by taxes or by debt. If that is the case, and if the episodes when the former and the latter happen are mixed in a non-random way between the periods of high and low unemployment, then it is possible that the value of the coefficients can reflect not only the effect of the exogenous shock but also the effect of different ways to finance it.

A joke?

The last comment relates to the consistent estimation of the parameters of the model. In the paper the “news” about military expenditure is taken as the only source of exogenous shock in this economy during the period of two years, four years and the time of the peak of each response. This “news” variable reflects exogenous innovations to the expenditure from a military source. However, it would be relevant for the paper to discuss the existence of other (non-military) sources of exogenous shocks to the expenditure. The relevance of this issue is because, given that the estimation of the parameters of interest is done by OLS, the consistency of the estimates requires zero covariance between the ¨news” and the error term of the equation, and this assumption can be violated if there exist this kind of non-military shocks and they are correlated to military “news”.

Overall I think this is a very interesting paper because of the results they find and also because of the construction of historical data. I found the results very puzzling and therefore a big motivation to continue trying to understand the relationship between GDP and public expenditure.

Matthew Jaremski (Colgate University)

Peter Rousseau (Vanderbilt University)

Abstract

The “Federalist financial revolution” may have jump-started the U.S. economy into modern growth, but the Free Banking System (1837-1862) did not play a direct role in sustaining it. Despite lowering entry barriers and extending banking into developing regions, we find in county-level data that free banks had little or no effect on growth. The result is not just a symptom of the era, as state-chartered banks seem to have strong and positive effects on manufacturing and urbanization.

URL: http://econpapers.repec.org/paper/vanwpaper/vuecon-12-00012.htm

Review by Chris Colvin

Do banks facilitate economic growth, and if so, what type of banks do so best? Matthew Jaremski and Peter Rousseau attempt to answer this question by looking at the economic impact of the entry of “free banks” to the US market for banking services in the mid-nineteenth century.

Free banks, so called because they required no charter, were an early form of financial liberalisation which in the long-run proved to be unsuccessful; by 1863, one third of all the free banks ever created had closed.

The advent of free banking laws lowered entry barriers because any group of individuals could establish a bank, as long as they fulfilled certain requirements set down by the state in which they operated. The incumbent charter banks, by contrast, required significant political lobbying before they were permitted to open.

Jaremski and Rousseau look at a period of US history in which both types of bank operated side-by-side. Using county-level social, financial and economic data, they are able to track the impact, if any, of a bank opening on its locality.

Jaremski and Roussasu find that free banking had little effect on growth

Overall, they find that banks of any kind had a strong effect on local growth, especially in manufacturing. But when differentiating the impact by bank type (charter versus free), charter banks had a positive effect while free banks had little or no effect on growth.

So in conclusion, banks appear to facilitate economic growth, but free banks not so much. Why? The authors reckon it has something to do with: (1) what they were investing in (agriculture rather than manufacture); (2) what backed their note issues (some states required very little stable collateral); and (3) new banking legislation in the 1860s (which saw the advent of national banking).

The Open Access Debate and Economic History

This paper, which was distributed by NEP-HIS 2013-02-03, is an example of an alternative use of working paper series: the distribution of soon-to-be-published journal articles that have already gone through peer review. Jaremski and Rousseau are about to have this article published in Economic Inquiry; it is already available there on Early View.

Why do authors use working paper series for this purpose? Well, probably to improve the access to their work.

Improving access to academic work is a very live political issue here in the UK. There is much talk about ways to make academic research available to the general public. The UK government seems to be in favour of something called Gold Access, where researchers pay to have their work published in journals (see here). This strikes me as a way to prop up the status quo, to support publishers’ existing business models, which in my opinion have come under incredible pressure from digital paper archiving and distribution services like RePEc.

An alternative mooted by others has been dubbed Green Access, and is very much the spirit of what Jaremski and Rousseau do here: in addition to publishing work in the standard way, through an established journal with peer review, academics make a version of their article available free-of-charge through their own website or their institution’s online archive, perhaps after some time delay. Many publishers seem dead against this route, perhaps because it threatens their business model more than Gold Access would. But I think putting pressure on their business is a good idea; I reckon that the likes of Elsevier need this pressure in order to curb their market power.

The Economic History Society has recently sent at letter to the UK government committee tasked with looking into the issue of Open Access (see here). It is written from the perspective of not-for-profit academic publisher, and has a different assessment of the situation than me. I urge economic historians to read it and debate its implications, also those located outside of the UK.

David Card (University of California, Berkeley) (card@econ.berkeley.edu)

Stefano della Vigna (University of California, Berkeley) (sdellavi@econ.berkeley.edu)

Abstract

How has publishing in top economics journals changed since 1970? Using a data set that combines information on all articles published in the top-5 journals from 1970 to 2012 with their Google Scholar citations, we identify nine key trends. First, annual submissions to the top-5 journals nearly doubled from 1990 to 2012. Second, the total number of articles published in these journals actually declined from 400 per year in the late 1970s to 300 per year most recently. As a result, the acceptance rate has fallen from 15% to 6%, with potential implications for the career progression of young scholars. Third, one journal, the American Economic Review, now accounts for 40% of top-5 publications, up from 25% in the 1970s. Fourth, recently published papers are on average 3 times longer than they were in the 1970s, contributing to the relative shortage of journal space. Fifth, the number of authors per paper has increased from 1.3 in 1970 to 2.3 in 2012, partly offsetting the fall in the number of articles per year. Sixth, citations for top-5 publications are high: among papers published in the late 1990s, the median number of Google Scholar citations is 200. Seventh, the ranking of journals by citations has remained relatively stable, with the notable exception of the Quarterly Journal of Economics, which climbed from fourth place to first place over the past three decades. Eighth, citation counts are significantly higher for longer papers and those written by more co-authors. Ninth, although the fraction of articles from different fields published in the top-5 has remained relatively stable, there are important cohort trends in the citations received by papers from different fields, with rising citations to more recent papers in Development and International, and declining citations to recent papers in Econometrics and Theory.

Keywords: Publications, Top-5 Journals, Economics

URL http://www.nber.org/papers/w18665.pdf

Review by Anna Missiaia

This working paper was distributed by nep-his on 2013-01-12 and contains some information that might be of use to academics engaged in economics related disciplines. In particular, it should be read by young and mid-career academics whose future is still highly dependent on the number of their publications and the ranking of the journals where they publish. This survey by David Card and Stefano della Vigna, both from the Department of Economics of UC Barkeley, provides several facts and comments about articles published in top economics journals from 1970 to today.

The paper considers the top-5 economics journals, namely the American Economic Review (AER), Econometrica (EMA), the Journal of Political Economy (JPE), the Quarterly Journal of Economics (QJE), and the Review of Economic Studies (RES). All the articles published between 1970 and 2012 have been tracked looking at the number of authors, the length of the article and the number of citations. The number of submissions to each journal from 1990 onwards has been collected as well in order to compute acceptance rates.  The first two facts that emerge from this article are that the number of submissions per year almost doubled between 1990 and 2012 and that of articles published declined from 400per year to 300 per year. These first two facts will appear particularly grim to those who are in the early stages of their academic career, as they boil down to a decrease of acceptance rate from 16% to 6% today. However, this tendency is contrasted by a rise of the average number of co-authors from 1.3 to 2.3 in the same period. Finally, the length of the articles has increased three-fold from 1970 to today.

David Card – Class of 1950 Professor of Economics (UC Berkeley)

These first three facts are worth to be analysed together. It is the opinion of card and Della Vigna that the increase of the number of co-authors is a response to the more restrictive policy by journals on publication. The reason for teaming-up is that publications with one or multiple authors have the same weight in terms of career. Therefore, if acceptance rate decreased, the number of papers authored by each scholar has decreased less than that. The dramatic increase of the length of articles is interpreted by the authors as an improvement in the quality of research, which is due to both more selectivity and to joint work of scholars. Moving to the citations front, the readers will be glad to hear that whenever they will manage to get published on a top-5 journal,  this will make them extremely popular, although it will take a while. Papers published today have a lower number of citations compared to the ones published in the in the 1990s, which reminds us that it takes years to accumulate citations. However, if you compare the papers published in the 1970s to those of the 1990s, they have fewer citations. This is probably  a sign of the quality increase in papers that we have seen from the 1990s onwards. The ranking of journals in terms of citations has been fairly stable over the past decades, suggestion a sort of stickiness in the relative reputation of journals (the notable exception is the QJE that climbed four positions and became first). The last fact to report is that the number of citations depends on the field: more empirical fields (Development and International Economics) tend to have more citations from recent papers while more theoretical fields (Econometrics and Economic Theory) still have more citations from older papers.

Stefano Dellavigna – Professor of Economics (UC Berkley)

In conclusion, this survey on publications on the top-5 journals in economics tells us that publishing has become tougher,  it requires higher quality of the papers, longer papers and collaboration among scholars to pass the harsh judgements of referees and editors of these journals. However, the glory received from the publication in terms of citations and career seems to be worth the suffering.

Marisa Agostini (marisa.agostini@unive.it) and Giovanni Favero (gfavero@unive.it)
(Both at Department of Management, Università Ca’ Foscari Venezia, Italy)

Abstract
This paper puts under the magnifying glass the path to failure of Sunbeam Corp. and emphasizes the reasons of its singularity and exceptionality. This corporate case emerges as an outlier from the analysis of the US fraud cases mentioned by WebBRD: the consideration of the time between fraud disclosure and the final bankruptcy reveals the presence of an exceptional sampled case. In fact, the maximum value of this temporal variable is estimated equal to 840 days: it is really far from the range estimated by the survival function for the entire sample and it refers to Sunbeam Corp. Different hypotheses are evaluated in the paper, starting from the consideration of Sunbeam’s history peculiarities: fraud duration, scapegoating and creative auditing represent the three main points of analysis. Starting from a micro-analysis of this case that the SEC investigated in depth and this work describes in detail, inputs for future research are then provided about more general problems concerning auditing and accounting fraud.

URL http://econpapers.repec.org/paper/vnmwpdman/25.htm

Review by Masayoshi Noguchi

This paper was distributed by NEP-HIS on 30 September 2012. It was also distributed by other NEP reports, namely Accounting (nep-acc), Heterodox Microeconomics (nep-hme) and Informal & Underground Economics (nep-iue).

Agostini and Favero use the case study method to raise questions and considerations concerning the accounting of fraud. Their analytical focus is the company now named Sunbeam Products Inc. It was established in 1897 as the Chicago Flexible Shaft Company by John K. Stewart and Thomas Clark. Its first ‘Sunbeam’ branded household appliance, the Princess Electric Iron, was launched in 1910 and following the success of this line of products the company officially change its name to ‘Sunbeam’ in 1946.

Wikipedia informs us that ‘in 1996, Albert J. Dunlap was recruited to be CEO and Chairman of what was then called Sunbeam-Oster. In 1997, Sunbeam reported massive increases in sales for its various backyard and kitchen items. Dunlap purchased controlling interest in Coleman and Signature Brands (acquiring Mr. Coffee and First Alert) during this time. Stock soared to $52 a share. However, industry insiders were suspicious. The sudden surge in demand for barbecues did not hold up under scrutiny. An internal investigation revealed that Sunbeam was in severe crisis, and that Dunlap had encouraged violations of accepted accounting rules. Dunlap was fired, and under a new CEO, Jerry W. Levin, the company filed for Chapter 11 bankruptcy protection in 2001. In 2002, Sunbeam emerged from bankruptcy as American Household, Inc. (AHI), a privately held company. Its former household products division became the subsidiary Sunbeam Products, Inc. Then AHI was purchased in September 2004 by the Jarden Corporation, of which it is now a subsidiary.’

Al ‘Chainsaw’ Dunlap

Agostini and Favero look at this situation in detail while aiming to show ‘how the specific fraudulent strategy of performance overstatement adopted in the Sunbeam case can be connected to the peculiar modality of its disclosure, allowing to scapegoat the CEO, to (temporarily) discharge the board and the company of any responsibility, and to pursue a business recovery’ (p. 4).

By examining what they consider an exceptional case, Agostini and Favero aim to avoid over simplification and ‘not to sacrifice knowledge of individual elements to wider generalization’, but to be coupled with the informed use of ‘all forms of abstraction since minimal facts and individual cases can serve to reveal more general phenomena’ (p.4). The reason for examining this single outlier case is that, in their view, ‘“deviant cases” follow a peculiar path-dependent logic where early contingent events set cases on an historical trajectory of change that diverges from theoretical expectations’ (p. 2). By so doing, Agostini and Favero aim to ‘enlighten causal mechanisms which are too complex to emerge from standard empirical studies based on statistical approaches’ (p. 4).

The case documents the very aggressive management strategies of Dunlap. As mentioned, these led to fraudulent financial reporting through the misstatement of significant amounts in the financial accounts. In other words, Dunlap was found to have manipulated accounting numbers in numerous ways, skilfully covering these up through the acquisitions of new subsidiaries. Measures were also taken to assure the survival of the company after revelations of the fraud emerged. But in spite of scapegoating, rather tyranic management and the extremely long duration of the fraud the company final reached bankruptcy.

Normally auditors are integral (either by action or omission) to the process leading to accounting fraud (see for instance my work with Bernardo on the auditing of building societies here). But the case of Sunbeam was exceptional in the sense that its auditor, Arthur Andersen, avoided being involved in the crisis (but shortly after were intimate involved in the infamous Enron case). Agostini and Favero point out that ‘[t]his represents another item of exceptionality in Sunbeam Corp. case where there is a shift from the auditors to the CEO of the scapegoat function’ (p. 9). They further add that it was indeed the ‘auditors’ peculiar behaviour that which led to Dunlap being ‘the scapegoat’ (p. 9).

From the late 1940′s to 1997, the upscale toaster market was dominated by the ‘Radiant Control Toaster’ from Sunbeam.

To explore the point above the authors propose the concept of ‘creative auditing’ in comparison with the counterpart of ‘creative accounting’ or ‘earnings management’. According to Agostini and Favero, ‘auditors (agents) may use their professional knowledge, the asymmetrical information and the flexibility inside auditing rules to distract the principals’ attention (owners, shareholders, investors, etc.) from news which will not be welcome’ (p. 14). Agostini and Favero argue that ‘auditors working with management of the company are privy to essential information that can be used in a legal, but not proper way, to maximize their own interests at the expense of the principal’ (p. 14) by citing that ‘Prior to scandal, many assumed that either legal liability or reputational concerns would prevent the large audit firms from engaging in collusion with their clients. Enron and the many frauds that followed have undermined these assumptions’ (p. 14) from Brown (2007, p. 178)

In spite of having effectively discovered the accounting fraud at Sunbeam, the partner in charge of Arthur Andersen, Phillip E. Harlow, signed clean audit report on the ground that ‘the part, which was not presented fairly, was not material, so it did not matter’(p. 22). Agostini and Favero further claim:

After Sunbeam fraud disclosure, Mr. Harlow was supported by its partners at Arthur Andersen, which stated that this case involved not fraud, but “professional disagreements about the application of sophisticated accounting standards.” As emphasized by The New York Times (May 18, 2001), “in the typical accounting fraud case, the auditors say they were fooled. Here, at least according to the S.E.C., the auditors discovered a substantial part of what the commission calls sham profits”. Moreover, stating the immateriality of a part of improper profits, they used their professional knowledge, the asymmetrical information and the flexibility inside auditing rules to distract other stakeholders’ attention from news which will not be welcome.

However, the above indication only refers to the technical nature of the accounting fraud committed and the professional judgment exercised for the degree of materiality. In order to consider the case of Sunbeam as an incident of creative auditing (as Agostini and Favero claim it is), elucidations as to the supposed for Arthur Andersen participating in the fraudulent scheme are insufficient. An improvement on this point would be desirable. Although one can fully agree with their view that the role of auditors for the financial reporting of business enterprises should be reexamined. This paper is thought provoking in this sense.

William Lazonick (University of Massachusetts-Lowell)

Abstract
The employment problems that the United States now faces are largely structural. The structural problem is not, however, as many economists have argued, a labor-market mismatch between the skills that prospective employers want and the skills that potential workers have. Rather the employment problem is rooted in changes in the ways that U.S. corporations employ workers as a result of “rationalization”, “marketization”, and “globalization”. From the early 1980s rationalization, characterized by plant closings, eliminated the jobs of unionized blue-collar workers. From the early 1990s marketization, characterized by the end of a career with one company as an employment norm, placed the job security of middle-aged and older white-collar workers in jeopardy. From the early 2000s globalization, characterized by the movement of employment offshore, left all members of the U.S. labor force, even those with advanced educational credentials and substantial work experience, vulnerable to displacement. Nevertheless, the disappearance of these existing middle-class jobs does not explain why, in a world of technological change, U.S. business corporations have failed to use their substantial profits to invest in new rounds of innovation that can create enough new high value-added jobs to replace those that have been lost. I attribute that organizational failure to the financialization of the U.S. corporation. The most obvious manifestation of financialization is the phenomenon of the stock buyback, with which major U.S. corporations seek to manipulate the market prices of their own shares. For the decade 2001-2010 the companies in the S&P 500 Index expended about $3 trillion on stock repurchases. The prime motivation for stock buybacks is the stock-based pay of the corporate executives who make these allocation decisions. The justification for stock buybacks is the erroneous ideology, inherited from the conventional theory of the market economy, that, for superior economic performance, companies should be run to “maximize shareholder value”. In this essay I summarize the damage that this ideology is doing to the U.S. economy, and I lay out a policy agenda for restoring equitable and stable economic growth.

URL http://econpapers.repec.org/paper/pramprapa/42307.htm.

Review by Bernardo Bátiz-Lazo

As I have noted before (see Bátiz-Lazo and Reese, 2010), financialisation has been coined to encompass greater involvement of countries, business and people with financial markets and in particular increasing levels of debt (i.e. leverage). For instance, Manning (2000) has used the term to describe micro-phenomena such as the growth of personal leverage amongst US consumers.

In their path breaking study, Froud et al. (2006) use the term to describe how large, non-financial, multinational organisations come to rely on financial services rather than their core business for sustained profitability. They document a pattern of accumulation in which profit making occurs increasingly through financial channels rather than through trade and commodity production.

Instead, in the preface to his edited book, Epstein (2005) notes the use of the term as the ascendancy of “shareholder value” as a mode of corporate governance; or the growing dominance of capital market financial systems over bank-based financial systems.

Alternative view is offered by American writer and commentator Kevin Phillips, who coined a sociological and political interpretation of financialisation as “a process whereby financial services, broadly construed, take over the dominant economic, cultural, and political role in a national economy.” (Phillips 2006, 268). The rather narrow point I am making here and which I fail to elaborate for space concerns, is that ascertaining the essential nature of financialisation is highly contested and is in need of attention.

Sidestepping conceptual issues (and indeed ignoring a large number of contributors to the area), in this paper William Lazonick adopts a view of financialization cum corporate governance and offers broad-base arguments (many based on his own previous research) to explore a relatively recent phenomenon: the demise of the middle class in the US in the late 20th century. In this sense, the abstract is spot on and the paper “does what it says on the can”. Yet purist would consider this too recent to be history. Indeed, the paper was distributed by nep-hme (heterodox microeconomics) on 2012-11-11 rather than NEP-HIS. This out of neglect rather than design but goes on to show that the keywords and abstract were initially not on my radar.

William Lazonick

Others may find easy to poke the broad-stroke arguments that support Lazonick’s argument. Yet the article was honoured with the 2010 Henrietta Larson Article Award for the best paper in the Business History Review and was part of a conference organised by Lazonick at the Ford Foundation in New York City on December 6-7, 2012 (see program at the Financial Institutions for Innovation and Development website).

Lazonick points to the erotion of middle class jobs in a period of rapid technological change. This at a time when others question whether the rate of innovation can continue (see for instance The great innovation debate). Lazonick implicitly considers our age as the most innovative ever. But his argument is that the way in which the latest wave of innovation was financed is at the hear of the accompanying ever-growing economic inequality.

So for all its short comings, Lazonick offers a though provoking paper. One that challenges business historians to link with discussions elsewhere and in particular corporate governance, political economy and the sociology of finance. It can, potentially, launch a more critical stream of literature in business history.

References

Bátiz-Lazo, B. and Reese, C. (2010) ‘Is the future of the ATM past?’ in Alexandros-Andreas Kyrtsis (ed.) Financial Markets and Organizational Technologies: System Architectures, Practices and Risks in the Era of Deregulation, Basignstoke: Palgrave-Macmillan, pp. 137-65.

Epstein, G. A. (2005). Financialization and The World Economy. Cheltenham, Edward Elgar Publishing.

Froud, J., S. Johal, A. Leaver and K. Williams (2006). Financialization and Strategy: Narrative and Numbers. London, Routledge.

Manning, R. D. (2000). Credit Card Nation. New York, Basic Books.

Phillips, K. (2006). American Theocracy: The Peril and Politics of Radical Religion, Oil, and Borrowed Money in the 21st Century. London, Penguin.

Alessandro Nuvolari (alessandro.nuvolari@sssup.it) and James Sumner (james.sumner@manchester.ac.uk)

URL: http://ideas.repec.org/p/ssa/lemwps/2012-18.html

Abstract

This paper examines the relationship between patents, appropriability strategies and market for technologies in the English brewing industry before 1850. Previous research has pointed to the apparent oddity that large-scale brewing in this period was characterized both by a self-aware culture of rapid technological innovation, and by a remarkably low propensity to patent. Our study records how brewery innovators pursued a wide variety of highly distinct appropriability strategies, including secrecy, selective revealing, patenting, and open innovation and knowledge-sharing for reputational reasons. All these strategies could co-exist, although some brewery insiders maintained a suspicion of the promoters of patent technologies which faded only in the nineteenth century. Furthermore, we find evidence that sophisticated strategies of selective revealing could support trade in inventions even without the use of the patent system.

Review by Chris Colvin

Much about the recent legal dispute between Apple and Samsung suggests that our patent system is broken. The conventional economic argument for patent protection is that it is socially beneficial because it: (1) incentivises invention in areas where there would otherwise be few rewards for inventors; and (2) aids in the dissemination of ideas and combats secrecy (for a good explanation of the conventional view, see Suzanne Scotchmer’s excellent textbook). But in their 2008 polemic, and again in a recent working paper, Michele Boldrin and David K Levine argue that patents create only ‘an “intellectual monopoly” that hinders rather than helps the competitive free market regime that has delivered wealth and innovation to our doorsteps’. The authors argue instead that: (1) patents neither increase invention, nor adequately reward inventors; and (2) patents simply create a market in patents and in associated legal services.

Nuvolari and Sumner try to understand the remarkably low propensity to patent in brewing before 1850.

It is against this on-going debate on the value and efficacy of patent protection that Alessandro Nuvolari and James Sumner’s new working paper should be read. Distributed on NEP-HIS-2012-11-03, the paper offers an excellent industry case study from history with which to understand the role of patents within a single sector. Nuvolari (Scuola Superiore Sant’Anna, Pisa) and Sumner (University of Manchester) track their use in the brewing industry before, during and after the Industrial Revolution. Not only do they compile a new dataset of patents and patentees in brewing across the period, but they also catalogue alternative appropriability strategies used by innovators at the time: trade secrecy, complete openness, and everything between. Of particular interest to economists and historians studying innovation and incentives are the authors’ findings that the strategies of “insiders” and “outsiders” to the brewing industry differed substantially, and that there was a large trade in inventions, even for those that were not protected by patents.

Today, and with few exceptions, we have a one-size-fits-all patent system that offers the same levels of protection to inventors in all sectors of the economy. One mooted solution to our current patent mess is that these government-granted monopoly rights should be redesigned to be sector-specific; they are perhaps more appropriate to some industries than others and should have different protection lengths, breadths and costs to reflect this. For example, patents that relate to tablet computers should be weakened, whilst those relating to pharmaceuticals strengthened. Nuvolari and Sumner give us a warning shot from history for policymakers considering such an approach: a great deal of different appropriability strategies can be present even within the same industrial sector, let alone between sectors. Redesigning today’s patent system to be sector-specific would fail to reflect the different ways in which inventors compete; it may force rivals to use the same strategies, and may hamper rather than help progress.

Claude Diebolt (Bureau d’Économie Théorique et Appliquée (BETA), Université de Strasbourg) (cdiebolt@unistra.fr)

URL: http://ideas.repec.org/p/afc/wpaper/12-12.html

No abstract

Review by Anna Missiaia

Distributed by NEP-HIS on 2012-10-20, this is a short, dense, methodology paper by Claude Diebolt, the editor of the journal Cliometrica, tackles a well known issue among economic historians: the role of quantitative research in economic history (cliometrics) and its relationship with both history and economics. The so-called Cliometric Revolution has now come of age, having started in the 1960s with the work of Robert Fogel. It is safe to say that it has now conquered its space in the field. Diebolt offers us a retrospective of the field, and his vision of its future. The (sometimes harsh) debate is focused on the usefulness and validity of applying economic/econometric tools to the study of the past. He provides a lot of food for thought in this sense.

The paper’s main point is to highlight the usefulness of counterfactual analysis in history. The first example of this line of research that Diebolt discusses is the genre-defining work of Fogel (1964), reviewed here by Lance Davis over on EH.net. I think that Diebolt’s emphasis on counterfactual analysis is somewhat surprising; the shortcomings of this type of approach are now well known (see Leunig, 2010), and cliometric research today encompasses many other types of analysis that are as fruitful, from institutional analysis, to labour history, and historical economic geography.

I welcome Diebolt’s call for a shift in the economic history discipline at large from the “understanding side” to the “explaining side”. This implies that (quantitative) research should not limit itself to the description of historical phenomena, but also to the study of causal relationships.

Vermeer’s “The Art of Painting” (late 1660s), depicting a woman dressed as Clio, the muse of history.

The second part of the paper is devoted to the positioning of cliometrics with respect to both history and economics. Diebolt states that cliometrics is first and foremost a branch of history. It uses economic tools to provide historical answers, but it is not a mere application of economic models to the past. However, Diebolt recognises that cliometric research might also be seen as an auxiliary discipline with respect to economics. This last statement needs a clarification before the detractors of cliometrics start sharpening their weapons. The message here is that economic history could be a tool for economic theory building, not simply as a provider of empirical evidence for its models, but as a source of inspiration to theory. Ideally, there should be a mutual relationship in which cliometricians absorb from economists the latest theoretical and econometric advances, and economists get insights and ideas from the rigorous study of the past. Diebolt pushes the discussion forward, claiming that economic history could in future become a “full-fledged field of economic theory”.

Of the three main arguments about the “branding” of cliometrics, Diebolt’s mission to sell cliometrics as a field of economic theory seems to me the hardest. It is a difficult task to believe that cliometrics is, or ever will be, able to hold its role as a historical tool alongside the creation of a sort of unified theory of economic history. That aside, it would mean a reversal in the logic in what drives cliometric research. If cliometrics is meant to be part of history, as supported by the author, economic theory is just a mere tool used to provide possible answers to historical questions. Conversely, when history is used to prove the validity of an economic model, cliometrics becomes merely applied economics. I believe that the survival of the distinction between cliometrics as part of historical research and applied economics is most likely to be crucial for its future.

By Li Liu (li.liu@sbs.ox.ac.uk), Centre for Business Taxation, University of Oxford

URL: http://d.repec.org/n?u=RePEc:btx:wpaper:1205&r=his

Abstract

If the corporate income tax is set at a different rate from non-corporate income tax, it can play an important role in a firm’s choice of organizational form. The impact and interdependency of income tax incentives are crucial factors to take into account when designing efficient tax policies. In this paper I exploit the substantial variation in income taxes across U.S. states in the early twentieth century to estimate these sensitivities. The potential endogeneity of state taxes is addressed using an IV approach. The results demonstrate that the relative taxation of corporate to personal income has a significant impact on the corporate share of economic activities. Raising the entrepreneur’s tax cost of incorporation by 10% decreases the mean corporate share of economic activities by about 11-18%. In addition, higher personal tax rates may affect the share of corporate activities through tax evasion and tax progressivity.

Review by Beatriz Rodríguez-Satizábal

What are the implications of income tax on the organizations? As Li Liu claims in this paper distributed by NEP-HIS on 2012-10-20, the interplay of corporate and personal income taxes are central to tax policy design. As we have all witnessed, the new century has been marked by a turbulent corporate world. Politicians, economic-policy makers, and citizens are calling for new regulation and control over the giant corporations ruling the economies of most countries.

After almost a century of dealing with corporations, the issue is still which is the best way to keep the corporations within the limits of what is right for a country’s economy without having a negative effect on the firm’s growing path. The fact that the taxation lies in the heart of the relation between the businesses and the rest of the society, implies that its understanding needs both sides of the story (even shown from different perspectives): the policy-maker decision on how, when, and whom to tax; and, the effects of taxation in the structure, productivity, and revenues of the firm. The former commonly studied, and the latest still open to include case studies of firms and countries.

Studying the case of the United States during the first two decades of the twentieth century, Liu brings together a period of tremendous changes in the income regimes –including the introduction of the income taxes (corporate in 1909, personal in 1913)- with the appearance of the first well-known big corporations. In other words, this paper is a step forward to fill the gap in the literature on the contribution of income taxes in the spread of corporate forms during an early period.

Using a dataset that includes the tax rates, the corporate share of establishment, employment, and production in the manufacturing sector, Liu builds a theoretical framework that starts with a simple model to illustrate how firms make decisions about whether to incorporate based on comparison of the profits they are likely to obtain from each organizational form (p. 7). This offers a result that shows the complexity of the business decisions and the reality which the policy-maker has to deal with: the taxation of firms differs by organizational form.

Interestingly, Liu adds to the discussion the degree of incorporation making a case on the economic importance of corporations and the fact that a great number of firms incorporate in response to tax incentives, rather than productivity options. Therefore, there is a strong relationship between business incorporation and income taxes when the big transformation occurred.

In other words, firms were not keeping it simple for the policy-maker! As a dynamic unit, the decision on the organizational form they were going to take while growing depended not only on the complexity of the production, the financial options available, or the size of the markets, but also on how they relate with the taxation system that at the end could increase or decrease the degree of incorporation.

Being this intuition not new for those who study the evolution of firms, this paper adds data to a methodological approach that combines the advances of the corporate governance on the structure of the firm and the accounting concern on how to deal with what they have to give back to the society.

by Tumuhairwe Collins (Maastricht School of Management)

No abstract

URL http://econpapers.repec.org/paper/msmwpaper/2012_2f37.htm

Review by Bernardo Batiz-Lazo

The brutality of Idi Amin’s (1923?-2003) dictatorship in Uganda was legendary. I vividly recall reading about it in my youth. This early impression was most likely augmented by successful productions for film and TV, namely Irvin Kershner’s Raid on Entebbe (TV 1976), and more recently Kevin Macdonald’s The Last King of Scotland (2006).

He took office in 1971 after successfully ousting Milton Obote (President 1966-1971) in a military coupe. According to his BBC News’ obituary, up to 400,000 people are believed to have been killed under his rule. After eight years in office Amin was forced from power in 1979 by Tanzanian troops after which he fled to Libya, then Iraq, and finally Saudi Arabia, where he was allowed to settle in Jiddah provided he stayed out of politics. Although it seems the Saudi government ignored the one known attempt to return to Uganda, in early 1989, getting as far as Kinshasa, Zaire (now the Democratic Republic of the Congo), where he was identified and forced to return to Saudi Arabia.

It is widely assumed that Amin’s rule had many lasting negative consequences for Uganda including a low regard for human life and personal security, widespread corruption, and the disruption of economic production and distribution. In spite of having presided over one of the bloodiest rules in recent African history, he never faced trial for his alleged crimes.

Idi Amin Dada (President of Uganda 1971-1979)

In this paper, distributed by NEP-His on 2012-10-20, Collins describes the macroeconomic impact of the expulsion of the entire Asian population of Uganda by Amin in 1972. Blaming them for controlling the economy for their own ends, on August 4th 1972, Amin gave all the members of the Indian and Pakistani’s minorities (around 60,000 were not Ugandan citizens) 90 days to abandon the country. Collins’ analysis of this Indophobic episode recalls the expulsion of Jews from Spain in the 16th century and that of the Spanish-born from Mexico in the 19th century. This narrative assumes that specific ethnic cleansing episodes associate with a loss of social and economic capital and as a result, there is a long term weakining of institutions and productive capacity.

About 30,000 Ugandan Asians came to the UK in 1972 (BBC News)

Collins argues that Indophobic sentiment was widespread in the Ugandan society in the 1960′s and thus, pre-dating the Amin government. This is evidenced by the introduction of a system of permits and trade licencies in 1968 by the President Obote. Resentment against Asians was fuelled by the lack of successful entrepreneurial activities by Black Ugandans, to the extent that around 90% of the economy was controlled by Asians before 1972. But, says Collins, “[alt]hough anti-Asian sentiment was rife in the 1960s, the expulsion was unprecedented.” As a result, “[i]nvestments dried up, exports declined, and per capita incomes fell continuously from 1973 [see below]. Thus, there were three main effects of the Asian expulsion

1.Skilled managers were replaced by largely unskilled people, often drawn from the military and with little education;

2. The appropriation of their properties earned the country a long-lived reputation for lawlessness and property confiscation;

3. The manner in which former Asian businesses were acquired created insecurity of tenure, leading to asset stripping…”

Collins’ estimates show that annual growth of GDP peaked in 1969, before Amin came to power and three years before the expulsion (see graph below). It then remained flat until he is ousted in 1979. The 1970s was a period of high volatility for the world economy and specially for an oil-importing country such as Uganda. More so if, as it seems, “Big Daddy” was not a particularly dextrous at economic management. Interestingly, however, for the same period GDP per capita also peaks in 1969 and then consistently falls during the dictatorship. Taken together, the trends in GDP growth and per capita income may suggest that the expulsion of Asians adds to a process of wealth redistribution rather than the destruction of productive capacity within Uganda.

Uganda’s GDP per capita (index) and GDP growth over time (1967-1980)
(Source Collins, 2012)

Of course, causality is hard to ascertain based on simple descriptive series. It would be worthwhile for Collins to develop his views further by moving from descriptive to inferential statistics as well as expanding the database to test not only for the immediate effects of the Asian expulsion but also for its long-term impact.

Epilogue: This post celebrates the wealth of opportunities for business and economic history in developing countries and particularly Africa in the contemporary period. In this regard readers are pointed to the forthcoming World Bank Archives Workshop on Using History (which includes a presentation by Stephanie Decker, who has been quite successful in using the archives of the World Bank to reconstruct African history), the musing of Johan Fourie and Taylor & Francis’ Economic History of Developing Regions.

Postscript: I was pleasently surprised that this post was re-tweeted by David Birch, who thinks the UK is still benefiting from the arrival of some 30,000 Asian-Ugandans in the mid-1970s. This sentiment was shared and re-tweeted by Andrew Curry. Here is then another angle that could be explored.

Charles W. Calomiris (cc374@columbia.edu), Joseph R. Mason (joseph.r.mason@gmail.com ), Marc Weidenmier (marc_weidenmier@claremontmckenna.edu), Katherine Bobroff (klbobroff@gmail.com)

URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:18427&r=his

Abstract

This paper examines the effects of the Reconstruction Finance Corporation’s (RFC) loan and preferred stock programs on bank failure rates in Michigan during the period 1932-1934, which includes the important Michigan banking crisis of early 1933 and its aftermath. Using a new database on Michigan banks, we employ probit and survival duration analysis to examine the effectiveness of the RFC’s loan program (the policy tool employed before March 1933) and the RFC’s preferred stock purchases (the policy tool employed after March 1933) on bank failure rates. Our estimates treat the receipt of RFC assistance as an endogenous variable. We are able to identify apparently valid and powerful instruments (predictors of RFC assistance that are not directly related to failure risk) for analyzing the effects of RFC assistance on bank survival. We find that the loan program had no statistically significant effect on the failure rates of banks during the crisis; point estimates are sometimes positive, sometimes negative, and never estimated precisely. This finding is consistent with the view that the effectiveness of debt assistance was undermined by some combination of increasing the indebtedness of financial institutions and subordinating bank depositors. We find that RFC’s purchases of preferred stock – which did not increase indebtedness or subordinate depositors – increased the chances that a bank would survive the financial crisis. We also perform a parallel analysis of the effects of RFC preferred stock assistance on the loan supply of surviving banks. We find that RFC assistance not only contributed to loan supply by reducing failure risk; conditional on bank survival, RFC assistance is associated with significantly higher lending by recipient banks from 1931 to 1935.

Review by Sebastian Fleitas

The systemic risk of bank failures, and its macroeconomic consequences, led the Fed to take action when some banks started to fail in 2008. How much money did the Fed give to the banks in 2008? And even more important, was this money helpful to avoid banking failures? The latter question seems to be a key question every time that the government is implementing a program to try to stem bank failures and to reduce the economic cost of financial disintermediation.

Detroit skyline, circa 1930

The paper by Calomiris, Mason, Weidenmier and Bobroff, distributed by NEP-HIS on October 6th,2012, assess the success of a public support program aimed at banks in financial distress. This through assistance provided by the Reconstruction Finance Corporation (RFC), ,a government-sponsored enterprise, to Michigan’s banks in the  1930’s.

Calomiris and friends offer a very interesting description of the timing of the crisis and a regression analysis of the impact of the RFC assistance. The period of analysis, from January 1932 through December 1934, covers two sub-periods: the first in which bank failures occurred sporadically; and a second sub-period in which the failures were concentrated and coincided with regional and national panics.

The banking crisis of 1933 in Michigan is situated in the middle of the period of analysis. This is a very important episode as it can be seen as a prelude to the national banking disaster as well as the Michigan hosting the automobile industry, an industry on the raise and of future importance for the national economy.

The role of the RFC changed between the two sub-periods. During the first period, the RFC main action was to help banks advance money on loan. The risk involved in these loans was mitigated through their short duration, strict collateralization rules and high interest rates. Although these rules protected the RFC from losses, they also limited the effectiveness of the RFC lending policy. However, on March 9, 1933 the Congress passed an act altering the original mandate, allowing the RFC to purchase preferred stock in some financial institutions that were considered as likely to survive. This opened the possibility for the RFC assistance to be more effective in the second sub-period than in the first one.

1940 Reconstruction Finance Corporation RFC Cartoon

Econometric estimates then try to identify the effect of RFC assistance. Specifically whether in light of an increasing rate of bank failures, the federal government had decided offer support to banks with greater risk of failure. In this sense, the dummy variable of RFC assistance is an endogenous variable, and this problem has to be addressed in order to consistently estimate the effect. To deal with this problem, the authors use two different estimation techniques and they use two sets of instruments. First, they use a set of instruments that indicate the correspondent relationships of each bank, that indicate the extent to which the bank was important within the national network of banking and also the correspondent relationships with Chicago and New York. Second, they included county specific characteristics that might have affected RFC assistance without affecting bank failure risk.

The authors conclude that the loans from the RFC did mitigate the risk of bank failure  but rather, that recapitalization (in the form of the purchase of preferred stocks) increased the likelihood of bank survival. Reasons why preferred stocks assistance was more effective included: a) because unlike loans, it neither increases the debt of the bank nor the liquidity risk or collateral requirements, b) the RFC was selective when choosing who was included in the program, and c) the RFC was able to prevent abuse from assisted banks. In general, they conclude that these results suggest that during a banking crisis, effective assistance requires that the government takes a significant part of the risk of the bank failure.

January 1931, Chester Garde

Emprical estimates in this paper concur with previous results in the literature. But by incorporating Michigan this papers offered added granularity and also improves in the use of econometric techniques used to address the issue of the effect of the RFC in banks failure. However, I think the paper could be improved by a more thorough discussion of the instruments used, in terms of why they can be assumed to be related to the RFC assistance and not directly related to bank failure. This is especially important because the results of the first stage estimations cast some doubt about the suitability of some of the instruments selected. Regarding the first set of instruments, one variable indicates the connections of a bank within the national network of banking and another one the relationships with Chicago and New York. However, in the first stage the effect of these two variables over the RFC assistant have different signs and their statistical significance depend on the period and specification of the model. A second concern is that they use the variable “Net due to banks over total assets” but this instrument is not significant in any first stage estimate. Banks with more creditors or debtors could be more important to save, but it could also be the case that these banks are more indebted with other banks because they are facing problems and thus they have more risk of failure. Regarding the second set of instruments, these variables generally fail to be consistently significant and the mechanisms through which they affect the decisions of the RFC without affecting the hazard of failure are not completely clear. Was the main proportion of the business of the banks concentrated at the county level at those times? Does the political importance of the county matter to allocate the assistance, even when the authors say that the manipulation of the RFC by Congress or the Administration was mitigated? Is the unemployment rate in the county in 1930 unrelated with the risk of failure of the banks during the crisis? A more deep consideration of these issues could help to understand why these variables are good instruments and why the results of the first stage estimations look like they do.

To sum up, this paper provides new evidence about the role of the RFC during the important period of 1932-1934. Furthermore, this paper addresses an issue that is relevant today: the efficiency of public funds to avoid bank failures. The general conclusion the authors achieve is that an effective assistance involves that the government assumes a significant share of the risk of bank failure. As in the thirties, in the present the government has spent lots of money trying to avoid the systemic risks related with the failures of some banks. This and other related papers in the literature can help us to understand the effects of a banking crisis in the real sector and the efficiency of public policies that try to reduce its negative impacts. This particular historical experience can not only shed light about what happened in that opportunity but also give us insights to approach these situations when they appear again, in particular to design better economic policies.

URL: http://d.repec.org/n?u=RePEc:ehl:wpaper:41940&r=his

Abstract: This article provides an historical overview on the development of Chinese money and monetary regimes between about 1800 and 1950. It develops a simple conceptual framework based on the relative costs of assessing the inherent value of the currencies of different denomination. Based on this framework, I develop a historical narrative that ties important political and institutional changes with the evolving structural changes in the Chinese monetary regime marked by the vicissitudes in the use of copper, silver currencies and paper money in both the private and public financial sectors from the Opium War in mid-19th century to the end of the Civil War in the 1950s.

Review by Manuel Bautista González

Silver 8-reales of the Mexican Republic with Chinese chopmarks, made in Mexico and circulated in China. British Museum, CM 1920-9-7-343, Room 68: Money.

China was the first country to have coins, or the first along with Lydia in Asia Minor; the first to have paper currency, free banking (competitive issue of notes), and a government monopoly of paper currency; perhaps the first to have a kind of currency board (circa 1270); and a pioneer in some fairly sophisticated forms of exchange control. – Schuler (2012).

This paper, distributed by NEP-HIS on 2012-02-27, offers both a conceptual framework (based on politics and geography) and a historical overview of monies/money and the monetary system of China. As was the case in most of the world, diversity and concurrence of several monies prevailed in the Chinese monetary system well until the 20th century. A bimetallic, commodity standard prevailed, with silver bars named tael (or liang) as the main reference unit, convertible with a “fixed” price in official copper money, and copper cash coins strung together named tiao (or chuan), whose value fluctuated across regions, time and trades. Spanish American silver dollars also circulated widely (with chops of local assayers) since the 16th century (see an example above).

Imaginary units of account, denominated in either silver bars, copper cash or silver dollars were the effectual anchors of the system. The most successful units of account, the Kuping tael and the Haikwan tael, were used for the payment of direct and custom taxes across the empire, but even those standards were challenged across the territory. Currencies were traded with a “nearly infinite set of cross exchange rates” (Ma 2012, 5).

Ma offers a historical framework based on the “interaction of politics and geography” (Ma 2012, 6) to account for monetary plurality. The political arrangements from the Qing dinasty (1644-1911) and the geographical extension of the empire resulted in “a monetary system that perched on a nexus of contradictions that simultaneously harboured both uniformity and diversity, centralization and localization, governmental heavy-hand and laissez-faire, openness and insularity” (Ma 2012, 8).

The Chinese case allows us to see benefits in monetary diversity. Scholars have traditionally considered the multiplicity of currencies disadvantageous, for they raise transaction costs and prevent economic integration. Ma challenges this view, and understands monetary plurality as a rational response to prior monetary malfeasance: the author argues that the Chinese public was very aware of  the debasement temptation experienced by prior governments through the monetization of deficits. This record justified the existence of several currencies. Yes, transactions costs and exchange risk might have been significant, but the advantages of constantly assessing the value of currencies was “a safeguard against possible tempering motivated by seigniorage profits” resulting in inflation or hyperinflation (Ma 2012, 6).

Ceteris paribus, monetary evaluation should have occurred more frequently with large denomination money, since the cost of not evaluating the quality of say, silver bars or Spanish American dollars would have been quite significant given their wide acceptance as units of reserve and means of payment in long-distance trade circuits. The geographic extension of China made the central provision of an uniform means of payment an almost impossible task: henceforth, we find groups and networks shaping the monetary system on a local level through customs and “private rules” (Ma 2012, 8).

Ma then proceeds to recapitulate the monetary history of China in four periods, and offers some interesting stylized facts, some of which will be mentioned here:

1800-1850

The collapse of the Spanish American peso standard, the trade imbalances produced by rising opium imports and monetary disequilibrium amidst regions created growing tension in the Chinese economy. The banning of opium imports derived in war with Great Britain which ultimately caused China’s forced opening to the West.

1850-1911

The Taiping rebellion of the 1850s caused the Xianfeng administration to debase copper cash and issue inconvertible paper notes to finance public expenditures. The opening of China to the west brought merchant houses and banks providing deposits redeemable in silver. Chinese authorities seized the increase in external trade by means of an Administration of Maritime Customs. Foreigners soon controlled the agency, and tax revenue from customs was later used as collateral for debt emissions. Negotiations between the central and local authorities made possible the emergence of the Haikwan tael, the first uniform unit of account. After the Sino-Japanese treaty of Shimonoseki in 1896, two major developments affected the monetary system: the creation of the Imperial Bank of China (1896) and the first attempts to sustain a domestic silver standard by minting silver dollars.

1911-1930

The Republican era and the increased power of regional warlords coincided with the emergence of free banking. Some episodes of suspension of the convertibility of bank notes strained severely some banks in the interior, but the organized efforts of foreign and Chinese bankers mostly located in the emerging financial center of Shanghai helped ease the tensions in the payments network. Shanghai bankers would soon control the payments system: thus began the golden era of Chinese banking. The Chinese public increasingly accepted paper money and deposited money in the banks: “a system of competitive and differentiated money” arose, where the bills issued by the most reputed banks such as HSBC, the Chartered Bank, the Bank of China and the Bank of Communication achieved widespread use (Ma 2012, 13).
This period also saw widespread acceptance of the Yuan Shikai silver dollars, which displaced foreign coins in transactions and marked the convergence between specie and imaginary unit of account. This did not mean the unification of currency standards nor that of currencies, rather monetary diversity added transparency and helped disseminate information. Silver arbitrage provided liquidity where it was demanded, stimulating (albeit unintendedly) financial integration across regions. Money in China was slowly integrating its functions of units of account, means of payment and store of value.

1930-1949

As silver was the monetary anchor of the country, and the international price of the precious metal was falling, China was able to counteract the recessive forces operating in the rest of the world via the gold standard. However, this would not last long: with the repudiation of the gold standard in the 1930s and moreover after the passing of the Silver Purchase Act in the US in 1934, the monetary system experienced a deflationary bias.
Calls for change found echo in the monetary reform of 1935, an effort by the imperial government to move from top-down imposition to cooperation and coordination with the banking and financial sector. Chinese authorities oversaw the creation of agencies to institutionalize change: soon China had a Currency Reserve Board and a Central Bank. The reform adopted the first national legal tender, the fabi, fiduciary money with convertibility to a basket of currencies, not redeemable in silver, and issued by the Bank of China, the Bank of Communication and the newly created Central Bank.
After the Japanese invasion in 1937, the Chinese government resorted to inflationary issuing of paper money. Hyperinflation was the prelude to the end of Nationalist governments and the eruption of civil war, finally won by the Communists.

Debin Ma

Ma’s analysis of the Chinese case provides monetary historians of other eras and regions with key variables traditionally dismissed by economic analysis: national, comparative, transnational and global approaches would all benefit if careful attention is placed on the interplay of power and location through time. Ma’s account can be framed within the emergence of “territorially exclusive and homogeneous currency” among nations in the world, a process that runs parallel to that of nation-building (Helleiner 2003: 1). Monetary historians will profit from reading this article, as the sociology, the geography and even the anthropology of money provide insights that might help illuminate a past where there was no single money, but monies.

References

- British Museum, “Silver 8-reales of the Mexican Republic with Chinese chopmarks”, http://www.britishmuseum.org/explore/highlights/highlight_objects/cm/s/silver_8-reales_of_the_mexican.aspx (Consulted on October 9, 2012)

- Helleiner, Eric. The Making of National Money. Territorial Currencies in Historical Perspective. Ithaca, NY: Cornell University Press, 2003.

- Schuler, Kurt. Review of Peng Xinwei, A Monetary History of China. Bellingham, WA: Center for East Asian Studies, University of Western Washington, 1994.  Published by EH.Net (July 2012), http://eh.net/book_reviews/monetary-history-china (Consulted on October 9, 2012)

No abstract is available

URL http://econpapers.repec.org/paper/hitiirwps/12-08.htm

Reviewed by Masayoshi Noguchi

This paper is an interesting work on Japanese business history in the Meiji Period and was distributed by NEP-HIS on 2012-06-13. The author’s stated purpose is to help us better understand the emergence of capitalist firms in Japan during this period,

This paper examines how the financial issues that emerged out of foreign affairs made it necessary for them not just to become Restoration politicians and bureaucrats, but to dismantle samurai class (“shizoku”) from which they emerged. Restoration officials had an extremely creative response to the task of dismantling their own class for the purpose of rebuilding the country’s finances. Their idea was to use national bonds to purchase the status of having belonged to the former samurai class and to convert those national bonds to industrial capital. However, this idea would never have gotten off the ground had it not been for another creative response by those responsible for it –to transform the samurai into entrepreneurs, indeed, to create the “samurai entrepreneur.” (p.3)

Yonekura also suggests that, ‘few studies have attempted to empirically verify the role played by the samurai class in dismantling feudalism and promoting industrialization’ (p.3). The double creative response which the author refers to means (1) ‘the creativity of Restoration officials in institutional reform’ as represented by ‘the issue of hereditary pension bonds’ to eliminate the heredity stipends paid to the former samurai class and the creation of ‘a lending facility to provide necessary funds to the samurai entrepreneurs and (2) ‘the creative corporate activities of the former samurai class’ as represented by Junpachi Kasai’s tactfulness in establishing and managing Onoda Cement, the subject of Yonekura’s study.

The hereditary pension bonds was the public loan delivered by the Meiji Restoration as the compensation to the noble families and the samurai class that returned hereditary stipends in accordance with the abolition of the system. Therefore, as the author states, ‘the Meiji government purchased the privileges and status of the former samurai for a lump sum payment of 170 million yen, and the samurai likewise sold their status to the new government for that amount’ (p. 6). This exchange was disadvantageous of the dealings of the samurai and they became further destitute economically through the inflation brought about by the accelerated issuance of inconvertible paper money. This was made worse by increased dissatisfaction with the new government. To avoid the risk of rebellion, the government implemented the ‘Samurai Relief Plan (shizoku jyusan)’ to encourage (or redirect?) the samurai to have them work in industry by creating the system of a lending facility.

On the other hand, Kasai’s creativeness was summarized in the way of fund-raising to establish Onoda Cement Co. The company was established by issuing the shares to the samurai investors in the Choshu Fief who had possessed the hereditary pension bonds bearing 7% interest at the rate of one share per 50 yen face value of the bonds. Furthermore, the bonds provided were used as security to borrow funds and raise further capital money. In managing the company, Kasai faced difficulty many times, but it got through using the connection of Kaoru Inoue who was a renown Restoration politician. This evidence helps to support the idea that:

‘The role of samurai in industrial promotion policy has not traditionally been highly regarded. They were largely amateurs, and their moves into commerce coincided with the Matsukata deflation period went failure. However…little empirical research has been done on the processes involved. This paper attempts to fill in some of the blanks with empirical research on Onoda Cement, a representative samurai relief company.’ (p. 24)

As suggested in the title of the paper, it is considered that the success or failure of the author’s attempt relies on the extent of Onoda Cement representing the ‘samurai company’ and depends on that of Junpachi Kasai, the founder, representing the ‘samurai entrepreneur’ of those days. It can be said that the former is based on the ability to present more comparative cases other than Onoda Cement and the latter depends on the quality and quantity of evidence to confirm the extent of which Kasai actually shared the consciousness as antigovernment element with other complaint samurais besides his own statement “shamed by their births as samurai” (p.14). This paper will serve as a new contribution in these days when the relevance of the Samurai Relief Plan for the management of Japanese enterprises is being reexamined as represented by the example of Okamoto’s (2006) latest work.

Reference

Okamoto, Y. (2006) Shizoku Jusan to Keiei – Fukuoka niokeru Shizoku Jusan no Keieishi teki Kosatsu (The Samural Relief Plan and the Management: Review in Business History of the Samurai Relief Plan in
Fukuoka), Kyushu University Press.

By Noel D. Johnson (njohnsoL@gmu.edu) and Mark Koyama (mkoyama2@gmu.edu), George Mason University

URL: http://econpapers.repec.org/paper/pramprapa/40887.htm

Abstract

This paper investigates the relationship between the historical process of legal centralization and increased religious toleration by the state. We develop a model in which legal centralization leads to the criminalization of the religious beliefs of a large proportion of the population. This process initially leads to increased persecution, but, because these persecutions are costly, it eventually causes the state to broaden the standards of orthodox belief and move toward religious toleration. We compare the results of the model with historical evidence drawn from two important cases in which religious diversity and state centralization collided in France: the Albigensian crusades of the thirteenth century and the rise of Protestant belief in the sixteenth century. Both instances sup- port our central claim that the secularization of western European state institutions during the early-modern period was driven by the costs of imposing a common set of legal standards on religiously diverse populations.

Review by Chris Colvin

The cause of the transition from religious to secular government in Europe remains a heavily debated topic among historians of all flavours. This working paper, by George Mason University economic historians Noel Johnson and Mark Koyama, provides a novel explanation by marrying a formal model with secondary literature to construct an analytic narrative. Distributed by NEP-HIS on 2012-09-03, the paper contrasts the history of the Cathars and the Huguenots to argue that secularisation was a way for the French Crown to limit the costs of legal centralisation.

Johnson and Koyama argue that traditional accounts of European secularisation don’t quite match the history; the process commenced much earlier than existing explanations give credit to. Secularisation cannot be a product of the 18th century Enlightenment movement as it is observed at least two centuries earlier. And secularisation cannot be associated with the advent of religious toleration, a thesis advocated by the likes of Montesquieu, as it occurred at a time of religious strife. The solution offered in this paper is that a path towards secular government was taken because enforcing an intolerant orthodoxy was deemed no longer “cost effective” by Europe’s rulers.

Johnson and Koyama apply their theoretical model to French history. In so doing they are able to explain why the Cathars were the subject of a Crusade in thirteenth century, whilst the Huguenots were (eventually) permitted to co-exist with the official religion of the French state in the sixteenth century. In line with recent historical research, they note that the Cathars only consciously became a separate heretical religion when the French defined it as such in their effort to incorporate Languedoc into the French state; in reality their beliefs were very similar to the French orthodoxy. By contrast, the Huguenots were a self-defined separate religious and political grouping. The very process of state formation led to the Cathars being seen as a legitimate target for elimination, but permitted the Huguenots to co-exist with Catholics (following a short initial spike in persecution). The Reformation led to an increase in the bounds of tolerance because eliminating a highly cohesive and highly deviant new religion simply became too expensive.

The Cathars only became heretics when the French wanted rid of them in a very 13th century approach to state-building

I would like to see this model applied to the Low Countries, an analytical narrative I will now briefly attempt to start myself. Taken together, the people of the Seventeen Provinces (what are now the Netherlands and Belgium) can be said to have formed three separate groups: the linguistically and culturally homogenous Protestant Netherlands north of the Rhine delta (Holland and its hinterland), the Dutch-speaking Catholic Netherlanders (Brabant and Flanders), and the French-speaking Walloons in the far south. The fact that the Protestant north colonised and incorporated half of the Catholic south in its effort to break away from Habsburg Netherlands means that the new Dutch state had to either tolerate or eradicate the highly cohesive and highly deviant Roman religion it now found within its borders. In the end, it chose the former. Perhaps the cost of purging the Generality Lands of their separate religious identity was found to be too costly in the face of the protracted war between the Seven United Provinces and Habsburg Spain.

The construction of analytical narratives is an approach to economic history that has been popularised, above all, by Avner Greif in his work on the Maghribi traders. As a consequence of Greif’s choice of theoretical framework, it has become viewed by many in the profession as the application of game theory to history. Johnson and Koyama – the latter of whom teaches a graduate course on analytic narratives at GMU – form part of a new group of “analytic narrators” who use other rational choice frameworks in their research. This second wave may allow the analytic narratives project to grow from being merely applied game theory into a genuine independent methodology. I would like to see analytic narratives used elsewhere in business, economic and financial history; its use in business history in particular could prove fruitful, perhaps in the context of the “New Business History” project initiated by Abe de Jong and David Higgins.

Matthew Hollow (matthew.hollow@durham.ac.uk)

URL http://econpapers.repec.org/paper/pramprapa/40780.htm

Abstract – This article looks in more depth at the different ways in which ideas about cashless societies were articulated and explored in pre-1900 utopian literature. Taking examples from the works of key writers such as Thomas More, Robert Owen, William Morris and Edward Bellamy, it discusses the different ways in which the problems associated with conventional notes-and-coins monetary systems were tackled as well as looking at the proposals for alternative payment systems to take their place. Ultimately, what it shows is that although the desire to dispense with cash and find a more efficient and less-exploitable payment system is certainly nothing new, the practical problems associated with actually implementing such a system remain hugely challenging. This paper was written for the Cashless Society Project, an interdisciplinary and international effort to add some historical and analytical perspectives to discussions about the future of money, banking and payments. For more information, see http://cashlesssociety.wordpress.com

Review by Bernardo Bátiz-Lazo

This short paper was distributed by NEP-HIS on 2012-09-03. It is part of a broader effort to discuss the future of money through contemporary and historical perspectives.

In this paper Mathew Hollow identifies the idea of cashlessness within five pre-1900 authors namely, Thomas More’s Utopia (1516), the socialist utopians Robert Owen (1771–1858), William Morris (1834–1896) and Samuel Butler (1835–1902), and Edward Bellamy’s Looking Bakwards (1888). Although none of these authors actually coins the term ‘cashless’, Hollow tell us that

‘… new ideas about monetary systems have been presented and debated is the utopian treatise…. through which thinkers of all political persuasions could articulate their thoughts and ideas as to how to overcome the various practical and ethical problems associated with money.’

This was revealing as I expected cashlessness to emerge as part of the ‘classical political economy’, 19th century French economists like Léon Walras, J. B. Say, within the work of Stanley Jevons, Karl Menger or simply related to ideas dealing with the separation between real and nominal economies. Also of interest is that these early authors initially discuss money (in the form of gold and silver coins) and move to portray a dissatisfaction with financial intermediaries (which in a way echoes today’s critiques).

Hans Holbein the Younger, Sir Thomas More (1478–1535), oil on panel, 1527

Matthew Hollow argues that in Utopia, More is concerned with how money is a hindrance to peace and prosperity and therefore the best way to do away with all the problems associated with money is to do away with it. But for for this to work society has to be reorganised from first principles. As a result, the inhabitants of the Island of Utopia are in no need of anything (as far as finance is concerned). A perfect society. An idea that later on reappears in many shape and forms, including 20th science fiction authors (which, by the way, take a superficial attitude towards this and largely side step deeper issues relating to money, financial institutions or economic organisation).

In Hollow’s interpretation of More, money is more than a medium of exchange, unit of account or store of value. It actually acquires a social dimension. An idea that is not really explored systematically until perhaps Georg Simmel’s The Philosophy of Money (1907) or even Viviana Zelizer’s The Social Meaning of Money (1994).

Hollow’s then takes us to the 19th century to show how More’s ideas influenced Robert Owen (1771–1858) and William Morris (1834–1896). Like More, Hollow tells us, Owen ‘detested’ the monetary system and proposed one of locations where workers could exchange their surplus, and was critical of  gold and silver ‘.. as a means of exchange and was particularly concerned about the effect that a shortage of either could have upon the welfare of the poor.’ Owen goes as far as proposing a medium of exchange with the quality of ‘… expansion and contraction to a fractional accuracy ..’ but fails to specify how this would work. We all know that Owen’s ideas were highly influential in both the US and Britain and in spite of several efforts, they all failed in practice.

Hollow also reminds us how More’s ideas of a perfect society with no ideas of private property or commercial profit resurge in William Morris’ News from Nowhere (1890). Its a future where money holds no value. So why is this relevant? Hollow says that these ideas ..’ reflected a deep seated unease that many contemporaries felt about the pace of economic and industrial development.’

Regarding Samuel Butler’s satirical utopian text Erewhon (1872), Hollow believes the message behind the ‘Musical Bank’ reflected Butler’s view of a fundamental reshaping of the already outworn financial services of his era and a critique of the coins and note system of the Western world.

Edward Bellamy (1850-1898)

Of course, a review of pre-1900 authors would be incomplete without Edward Bellamy’s now classic book. But here Hollow helps us by comparing and contrasting the Ballamy’s ideas with those of his contemporary utopians. This includes tackling head on whether Bellamy indeed introduced the idea of a ‘credit card’ in light of his own views on credit.

Finally, Hollow offers some conclusions as to why there is more in the socialist utopian literature about the cashless society than just removing the ‘conventional’ notes and coin system (which was already there as a posibility in More). But that it was technologically difficult and doing away with cash would require a major transformation of society. Here then a clear link with the idea of cashless and checkless that emerges in the mid-20th century along side business applications of computer technology.

In summary, Matthew Hollow offers a short yet provocative essay as to early notions of cashlessness which help to put the idea of a cashless society in long term perspective.

Matthew Hollow (Durnham)

Timothy J. Hatton (Australian National University) (tim.hatton@anu.edu.au)

URL http://d.repec.org/n?u=RePEc:auu:hpaper:004&r=his

Abstract
A country’s most important asset is its people. This paper outlines the development of Britain’s human resources since the middle of the 19th century. It focuses on four key elements. The first is the demographic transition – the processes through which birth rates and death rates fell, leading to a slowdown in population growth. The second is the geographical reallocation of population through migration. This includes emigration and immigration as well as migration within Britain. The third issue is labour supply: the proportion of the population participating in the labour market and the amount and type of labour supplied. Related to this, the last part of the chapter charts the growth in education and skills of the population and the labour force.

Review by Anna Missiaia

This work by Tim Hatton was distributed by NEP-HIS on 2012-07-29 and deals with the evolution of population, labour force and human capital in Britain over the last 140 years. It is part of the upcoming third edition of the Cambridge Economic History of Modern Britain edited by Roderick Floud, Paul Johnson and Jane Humphries. The author of this paper is one of the most known scholars when it comes to British labour history. The paper neatly illustrates the main trends in the evolution of human capital in Britain in the long run.

The first trend is the one of population. British population tripled over this period, predominately due to the increase in the number of the over 60 population. The reduction in deaths was due to the reduction in infectious diseases.  This change in the age structure is typical of demographic transitions experienced by industrializing countries. Nowadays, the main cause of death is chronic conditions that are also responsible of the increased number of years spent in disability. As for the fertility transition, Hatton claims that it was not caused by the decrease in infant mortality (and therefore the need to have fewer children in order to ensure support in old age). On the contrary, Hatton claims that a shift in preferences for smaller and better off family took place and was enabled by more awareness of birth control.

The second trend is the shift of Britain from an emigration to an immigration country. Emigration was in general connected to fluctuations in the business cycle abroad and the author estimates that the without emigration, real wages would have been about 12% lower. The reversal took place in the 1980s due to a mix of changes in institutional factors and economic incentives. Countries such as the US, Canada and Australia abolished the preference for British migrants and Britain facilitated the migration of Commonwealth citizens.

As for the condition of the labour force, the participation of women increased and the one of people over 65 decreased. There are two hypotheses on why women stayed out of the labour market until the 1930s: economic choice or social norms hostile to women labour. In the first case the decrease in the number of children to take care of should have led to an increase in participation, which did not occur for a long time after the beginning of the fertility transition. According to Hatton, women empowerment led to the overcoming of social norms. In general, the number of hours worked decreased from 60 per week to 36 from the 1980s on. This was possible because of the increase in real wages that allowed workers to work fewer hours.

Finally, education became universal through the expansion of public schooling and higher education (especially in professional subjects). For women, the attainment of a higher level of education was functional to the larger participation in the labour force. In conclusion, this paper gives an excellent overview on different topics in British labour history. It connects the different dimensions (population, labour force, migration, schooling) within one framework and proposes the author’s view on several debated issues.