Author Archives: Manuel A. Bautista-González

About Manuel A. Bautista-González

Economist and financial historian specialized in banking, finance, means of payment, and payment systems.

Of Good and Better Companies: Reflections On Agency and Economic History

In Good Company: About Agency and Economic Development in Global Perspective
Jan Luiten van Zanden ( University of Utrecht (The Netherlands) and Stellenbosch University (South Africa).
Abstract: The paper discusses some evidence, based on a review of new literature on economic history, about what is referred to as the Sen-hypothesis, that increasing human agency (of both men and women) is a key factor in economic development. It briefly discusses various dimensions of agency (or its absence): slavery (as the absolute suppression of human agency), access to markets, agency concerning marriage, and political participation. This concept perhaps also allows economic historians to move beyond the historical determinism that is central to much recent work in this field.
“Economic history is very trendy these days” (Zanden 2011: 3)

J. L. van Zanden

This paper distributed by NEP-HIS on 2012-01-03 raises a challenge to economic historians: how can we improve our current explanations of differential development and escape the common rhetorical places of path dependency and institutional persistence in our explanations of material stagnation and change? By placing human agency of men and women in the center of our stories, says Jan Luiten van Zanden, in the form advocated years ago by Amartya Sen in his best-selling book Development as Freedom.

Amartya Sen

It might be useful to remember Sen’s definition of agency, a concept that diverged from the usual meaning of the term in economics:

The use of the term “agency” calls for a little clarification. The expression “agent” is sometimes employed in the literature of economics and game theory to denote a person who is acting on someone else’s behalf (perhaps being led on by a “principal” and whose achievements are to be assessed in the light of someone else’s (the principal’s) goals. I am using the term “agent” not in this sense, but in its older -and “grander”- sense as someone who acts and brings about change, and whose achievements can be judged in terms of her own values and objectives, whether or not we assess them in terms of some external criteria as well. This work is particularly concerned with the agency role of the individual as a member of the public and as a participant in economic, social and political actions (varying from taking part in the market to being involved, directly or indirectly, in individual or joint activities in political and other spheres) (Sen 1999: 18-19, my own emphasis added).

Zanden’s reading of agency in Sen is “the capacity for autonomous decision making” that ultimately drives “economic and social-political change” (Zanden 2011: 4). Agency is also a synonym of “participation, or autonomy” (Zanden 2011: 5). But two questions remain. How does agency affect economic change? How does freedom impact agency? Sen responds:

Development as Freedom

Expansion of freedom is viewed both as the primary end and as the principal means of development. Development consists of the removal of various types of unfreedoms that leave people with little choice and little opportunity of exercising their reasoned agency. The removal of substantial unfreedoms is constitutive of development (Sen 1999: xii).

Zanden advances the usefulness of Sen’s framework and formulates what he calls the dual Sen hypothesis, this is, if “development is defined as freedom [… that] freedom -or rather -agency- is an important precondition and driver of long-term economic and socio-political change” (Zanden 2011: 5).

The second part of the “Sen hypothesis”, agency as a determinant of historical change, can be tested with proxy variables such as the gross domestic product or the human development index. However, what is behind these indicators? Zanden advances a suggestive explanation drawn from the new growth theory of Paul Romer and Robert Lucas: human capital is the crucial determinant of economic growth and human development. Human capital is embedded in the other variables for “one has to possess the right skills -the human capital- to really participate in markets, political events and the civil society” (Zanden 2011:5).

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The European Debt Crisis in an American Fiscal Mirror

Fiscal federalism: US history for architects of Europe’s fiscal union

By C. Randall Henning ( and Martin Kessler (


Abstract: European debates over reform of the fiscal governance of the euro area frequently reference fiscal federalism in the United States. The “fiscal compact” agreed by the European Council during 2011 provided for the introduction of, among other things, constitutional rules or framework laws known as “debt brakes” in the member states of the euro area. In light of the compact and proposals for deeper fiscal union, we review US fiscal federalism from Alexander Hamilton to the present. We note that within the US system the states are “sovereign”: The federal government does not mandate balanced budgets nor, since the 1840s, does it bail out states in fiscal trouble. States adopted balanced budget rules of varying strength during the nineteenth century and these rules limit debt accumulation. Before introducing debt brakes for euro area member states, however, Europeans should consider three important caveats. First, debt brakes are likely to be more durable and effective when “owned” locally rather than mandated centrally. Second, maintaining a capacity for countercyclical macroeconomic stabilization is essential. Balanced budget rules have been viable in the US states because the federal government has a broad set of fiscal powers, including countercyclical fiscal action. Finally, because debt brakes threaten to collide with bank rescues, the euro area should unify bank regulation and create a common fiscal pool for restructuring the banking system.

Review by: Manuel Bautista González

This paper was included in the NEP-HIS report issued on January 18th, 2012, through it C. Randall Henning and Martin Kessler contribute to the debate on fiscal solutions to the current European debt crisis. This by offering insights drawn from the past and present of U. S. fiscal federalism.

Henning and Kessler periodize their historical overview in five moments, namely, the financial reforms enacted after the adoption of the U. S. constitution, the state defaults of the 1840s, the financial troubles of state and local levels during the Reconstruction period, the fiscal instability during the Great Depression, and some recent experiences of state and local troubles from the 1970s to the current economic recession.

Later, in the analytical section of the paper, the authors study the probable adoption of balanced budget rules in the European Union with regards to their political enactment, their diversity across the Union and their effectiveness in preventing fiscal disarray. Henning and Kessler assess the need for (federal) countercyclical policies that complement the procyclical fiscal discipline at the state and local levels. They also review the literature on the relationship between state and local debt and capital and banking markets and offer preliminary conclusions relevant to both policymakers and scholars of monetary unions and fiscal federalism.

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