Off with his head? Capital punishment and jurors’ dilemmas in 19th and 20th century Britain

The Fall of Capital Punishment and the Rise of Prisons: How Punishment Severity Affects Jury Verdicts

By Anna Bindler (University of Gothenburg) and Randi Hjalmarsson (University of Gothenburg and CEPR)

Abstract: This paper studies the effect of punishment severity on jury decision-making using a large archival data set from the Old Bailey Criminal Court in London from 1715 to 1900. We take advantage of three natural experiments in English history, which result in sharp decreases in punishment severity: The offense specific abolition of capital punishment in the 1800s, the temporary halt of penal transportation during the American Revolution, and the abolition of transportation in 1853. Using a difference-in-differences design to study the abolition of the death penalty and pre-post designs to study the temporary and permanent halts to transportation, we find that decreasing expected punishment (especially via the end of the death penalty), had a large and significant impact on jury behavior, generally leading to the jury being ‘harsher’. Moreover, we find that the size of the effect differs with defendants’ gender and criminal history. These results raise concerns about the impartiality of juries as well as the implicit assumption often made when designing and evaluating criminal justice policies today – that the chance of conviction is independent of the harshness of the penalty.

URL: http://EconPapers.repec.org/RePEc:hhs:gunwpe:0674

Distributed by NEP-HIS on: 2016-10-16

Reviewed by Mark J Crowley

This is a very interesting article. It focuses on what is a hot topic today in British jurisprudence, and sets it within a strong historical context. It shows a deep understanding of the issues concerning statutory interpretation, and the consequent pressures facing juries. The uniqueness of this article is that it explores the extent to which juries were influenced by the severity of the punishments available to Judges. The article draws on thousands of pages of testimony from the Old Bailey Court Records. This magnificent online resource has opened several new possible avenues of research into the legal history of the United Kingdom, and this article will undoubtedly make a very important contribution in this field.

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The Old Bailey, The Central Criminal Court of England and Wales, has passed down countless historic legal judgments

In examining the wide range of material from thousands of court cases, the authors conclude that the pressures on jurors were immense. These pressures, and ultimately their decision on whether to convict, were deeply influenced by not only moral judgements reached by individuals, but emotional considerations based on the severity of the sentence likely to be passed. In the nineteenth century, when punishments such as transportation to Australia were used for crimes, this would often lead to the death of those convicted (owing to the bad conditions and the length of the journey) and raise deeper questions about the quality and validity of the evidence. The conscience of jurors certainly would be provoked if the person sentenced to transportation or death was later found not guilty of the crime to which they were convicted.

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The common scene of a public hanging had been an integral part of the English Legal System, but was now becoming more open to question in the latter part of the nineteenth century.

In their detailed analysis of the statistics concerning conviction rates, the authors show that there was an overall increase of 7.6% in convictions after the abolition of the death penalty. This was taken as an average across a range of offences. The area seeing the largest increase in convictions was for sexual offences (increasing by 34.5%) and fraud (increasing by 22%). However, the authors argue that these convictions, passed in the latter half of the nineteenth century, did not occur against a backdrop of improved evidence in court. In fact, they suggest that since the abolition of the death penalty in the twentieth century, it is possible that jurors were more ready to convict in the knowledge that this would lead to imprisonment (and subsequent release if found not guilty) than if capital punishment had remained in place.

Another aspect explored by the authors is whether there is a connection between capital punishment and criminal behaviour. Citing the 1823 Judgement of Death Act, the authors note that Prime Minister Robert Peel used this legislation to render capital punishment discretionary for judges (except for murder and treason). This could potentially explain the rise in convictions for other crimes that the authors cite, suggesting again that the absence of capital punishment for these crimes made juries more likely to convict. Moreover, they allude to the procedural changes that occurred with the conduct of juries in 1974. Hereafter, juries would only be permitted to listen to one case, and would remain in charge of the case until its conclusion (or their removal by a judge). Previous regulations permitted juries to listen to several cases. This procedural change was in part to ensure the quality of decision-making to facilitate the best form of justice to all through the age-old English legal system that ensured trial by your peers.

The latter part of the paper uses complicated (and very impressive) quantitative methods to identify the discontinuities caused by the changes to the sentencing provisions. The overall conclusion is that not only the ultimate abolition of capital punishment in Britain in the twentieth century contributed to increased convictions, but that changes to sentencing laws provided fertile ground for increased criminality. While the reasons for this are not explored in detail, they could be connected to contemporary debates on this topic, where Conservatives have traditionally argued that ‘softer’ punishments, and community rehabilitation does not provide a deterrent for criminals.

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The dilemma facing juries was whether their conviction would result in the death penalty. Later evidence showing that the accused was innocent would prove a major factor influencing juries when considering the legal punishments open to them when listening to court cases.

Critique
There is a lot of insightful analysis and information in this paper. The connections that it develops between changes to sentencing law and the impact on juror’s psyche is interesting and new. It is based on a sound and comprehensive archival base that shows a deep understanding of the legal context. It answers its original research question comprehensively. Any suggestions for improvement would seem like a criticism, which I do not intend to make, as I believe this paper will make a very important contribution to the historiography of the English legal system in its current form. My suggestions perhaps would be more aptly placed if they were offered as possible suggestions for future research. For example, it would be interesting to get more information (if it is available) about the social class from which jurors were drawn. Since juries were supposed to reflect the composition of society, it would be interesting to see whether there were correlations between sentencing and the social demographic from which the jurors came. For example, would a conviction of a working-class criminal be more likely with a jury comprising people from predominantly a higher social class. I appreciate that this is a completely different research question, but as noted, this paper has comprehensively answered its own research question but has posed several others that may be worthy of investigation. Furthermore, this paper has examined the thousands of materials available at the Old Bailey, but would there be any scope to extend this research to a local level, to ascertain whether there were any local or regional variations to these findings? Nevertheless, this is a most impressive paper, and I hope that we will hear a lot more from these authors on this topic.

References
Burns, Arthur, and Joanna Innes. Rethinking the age of reform: Britain 1780-1850. Cambridge University Press, 2003.
Croall, Hazel. Crime and society in Britain. Longman, 2011.
Christoph, James Bernard. Capital Punishment and British Politics: The British Movement to Abolish the Death Penalty, 1945-57. London: Allen & Unwin (1962).
Smith, Susan J. “Social relations, neighbourhood structure, and the fear of crime in Britain.” The Geography of Crime. London: Routledge (1989): 193-227.

 

 

 

A New Take on Sovereign Debt and Gunboat Diplomacy

Going multilateral? Financial Markets’ Access and the League of Nations Loans, 1923-8

By

Juan Flores (The Paul Bairoch Institute of Economic History, University of Geneva) and
Yann Decorzant (Centre Régional d’Etudes des Populations Alpines)

Abstract: Why are international financial institutions important? This article reassesses the role of the loans issued with the support of the League of Nations. These long-term loans constituted the financial basis of the League’s strategy to restore the productive basis of countries in central and eastern Europe in the aftermath of the First World War. In this article, it is argued that the League’s loans accomplished the task for which they were conceived because they allowed countries in financial distress to access capital markets. The League adopted an innovative system of funds management and monitoring that ensured the compliance of borrowing countries with its programmes. Empirical evidence is provided to show that financial markets had a positive view of the League’s role as an external, multilateral agent, solving the credibility problem of borrowing countries and allowing them to engage in economic and institutional reforms. This success was achieved despite the League’s own lack of lending resources. It is also demonstrated that this multilateral solution performed better than the bilateral arrangements adopted by other governments in eastern Europe because of its lower borrowing and transaction costs.

Source: The Economic History Review (2016), 69:2, pp. 653–678

Review by Vincent Bignon (Banque de France, France)

Flores and Decorzant’s paper deals with the achievements of the League of Nations in helping some central and Eastern European sovereign states to secure market access during in the Interwar years. Its success is assessed by measuring the financial performance of the loans of those countries and is compared with the performance of the loans issued by a control group made of countries of the same region that did not received the League’s support. The comparison of the yield at issue and fees paid to issuing banks allows the authors to conclude that the League of Nations did a very good job in helping those countries, hence the suggestion in the title to go multilateral.

The authors argue that the loans sponsored by the League of Nation – League’s loan thereafter – solved a commitment issue for borrowing governments, which consisted in the non-credibility when trying to signal their willingness to repay. The authors mention that the League brought financial expertise related to the planning of the loan issuance and in the negotiations of the clauses of contracts, suggesting that those countries lacked the human capital in their Treasuries and central banks. They also describe that the League support went with a monitoring of the stabilization program by a special League envoy.

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Empirical results show that League loans led to a reduction of countries’ risk premium, thus allowing relaxing the borrowing constraint, and sometimes reduced quantity rationing for countries that were unable to issue directly through prestigious private bankers. Yet the interests rates of League loans were much higher than those of comparable US bond of the same rating, suggesting that the League did not create a free lunch.

Besides those important points, the paper is important by dealing with a major post war macro financial management issue: the organization of sovereign loans issuance to failed states since their technical administrative apparatus were too impoverished by the war to be able to provide basic peacetime functions such as a stable exchange rate, a fiscal policy with able tax collection. Comparison is made of the League’s loans with those of the IMF, but the situation also echoes the unilateral post WW 2 US Marshall plan. The paper does not study whether the League succeeded in channeling some other private funds to those countries on top of the proceeds of the League loans and does not study how the funds were used to stabilize the situation.

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The paper belongs to the recent economic history tradition that aims at deciphering the explanations for sovereign debt repayment away from the gunboat diplomacy explanation, to which Juan Flores had previously contributed together with Marc Flandreau. It is also inspired by the issue of institutional fixes used to signal and enforce credible commitment, suggesting that multilateral foreign fixes solved this problem. This detailed study of financial conditions of League loans adds stimulating knowledge to our knowledge of post WW1 stabilization plans, adding on Sargent (1984) and Santaella (1993). It’s also a very nice complement to the couple of papers on multilateral lending to sovereign states by Tunker and Esteves (2016a, 2016b) that deal with 19th century style multilateralism, when the main European powers guaranteed loans to help a few states secured market access, but without any founding of an international organization.

But the main contribution of the paper, somewhat clouded by the comparison with the IMF, is to lead to a questioning of the functions fulfilled by the League of Nations in the Interwar political system. This bigger issue surfaced at two critical moments. First in the choice of the control group that focus on the sole Central and Eastern European countries, but does not include Germany and France despite that they both received external funding to stabilize their financial situation at the exact moment of the League’s loans. This brings a second issue, one of self-selection of countries into the League’s loans program. Indeed, Germany and France chose to not participate to the League’s scheme despite the fact that they both needed a similar type of funding to stabilize their macro situation. The fact that they did not apply for financial assistance means either that they have the qualified staff and the state apparatus to signal their commitment to repay, or that the League’s loan came with too harsh a monitoring and external constraint on financial policy. It is as if the conditions attached with League’ loans self-selected the good-enough failed states (new states created out of the demise of the Austro-Hungarian Empire) but discouraged more powerful states to apply to the League’ assistance.

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Now if one reminds that the promise of the League of Nations was the preservation of peace, the success of the League loans issuance was meager compared to the failure in preserving Europe from a second major war. This of course echoes the previous research of Juan Flores with Marc Flandreau on the role of financial market microstructure in keeping the world in peace during the 19th century. By comparison, the League of Nations failed. Yet a successful League, which would have emulated Rothschild’s 19th century role in peace-keeping would have designed a scheme in which all states in need -France and Germany included – would have borrowed through it.

This leads to wonder the function assigned by their political brokers to the program of financial assistance of the League. As the IMF, the League was only able to design a scheme attractive to the sole countries that had no allies ready or strong-enough to help them secure market access. Also why did the UK and the US chose to channel funds through the League rather than directly? Clearly they needed the League as a delegated agent. Does that means that the League was another form of money doctors or that it acts as a coalition of powerful countries made of those too weak to lend and those rich but without enforcement power? This interpretation is consistent with the authors’ view “the League (…) provided arbitration functions in case of disputes.”

In sum the paper opens new connections with the political science literature on important historical issues dealing with the design of international organization able to provide public goods such as peace and not just helping the (strategic) failed states.

References

Esteves, R. and Tuner, C. (2016a) “Feeling the blues. Moral hazard and debt dilution in eurobonds before 1914”, Journal of International Money and Finance 65, pp. 46-68.

Esteves, R. and Tuner, C. (2016b) “Eurobonds past and present: A comparative review on debt mutualization in Europe”, Review of Law & Economics (forthcoming).

Flandreau, M. and Flores, J. (2012) “The peaceful conspiracy: Bond markets and international relations during the Pax Britannica”, International Organization, 66, pp. 211-41.

Santaella, J. A (1993) ‘Stabilization programs and external enforcement: experience from the 1920s’, Staff Papers—International Monetary Fund (J. IMF Econ Rev), 40, pp. 584–621

Sargent, T. J., (1983) ‘The ends of four big inflations’, in R. E. Hall, ed., Inflation: Causes and Effects (Chicago, Ill.: University of Chicago Press, pp. 41–97

Debt forgiveness in the German mirror

The Economic Consequences of the 1953 London Debt Agreement

By Gregori Galofré-Vilà (Oxford), Martin McKee (London School of Hygiene and Tropical Medicine), Chris Meissner (UC Davis) and David Stuckler (Oxford)

Abstract: In 1953 the Western Allied powers implemented a radical debt-relief plan that would, in due course, eliminate half of West Germany’s external debt and create a series of favourable debt repayment conditions. The London Debt Agreement (LDA) correlated with West Germany experiencing the highest rate of economic growth recorded in Europe in the 1950s and 1960s. In this paper we examine the economic consequences of this historical episode. We use new data compiled from the monthly reports of the Deutsche Bundesbank from 1948 to the 1960s. These reports not only provide detailed statistics of the German finances, but also a narrative on the evolution of the German economy on a monthly basis. These sources also contain special issues on the LDA, highlighting contemporaries’ interest in the state of German public finances and public opinion on the debt negotiation. We find evidence that debt relief in the LDA spurred economic growth in three main ways: creating fiscal space for public investment; lowering costs of borrowing; and stabilising inflation. Using difference-in-differences regression models comparing pre- and post LDA years, we find that the LDA was associated with a substantial rise in real per capita social expenditure, in health, education, housing, and economic development, this rise being significantly over and above changes in other types of spending that include military expenditure. We further observe that benchmark yields on long-term debt, an indication of default risk, dropped substantially in West Germany when LDA negotiations began in 1951 and then stabilised at historically low rates after the LDA was ratified. The LDA coincided with new foreign borrowing and investment, which in turn helped promote economic growth. Finally, the German currency, the deutschmark, introduced in 1948, had been highly volatile until 1953, after which time we find it largely stabilised.

URL: http://EconPapers.repec.org/RePEc:nbr:nberwo:22557

Distributed by NEP-HIS on 2016-09-04

Review by Natacha Postel-Vinay (LSE)

The question of debt forgiveness is one that has drawn increased attention in recent years. Some have contended that the semi-permanent restructuring of Greece’s debt has been counterproductive and that what Greece needs is at least a partial cancellation of its debt. This, it is argued, would allow both faster growth and a higher likelihood of any remaining debt repayment. Any insistence on the part of creditors for Greece to pay back the full amount through austerity measures would be self-defeating.

One problem with this view is that we know very little about whether debt forgiveness can lead to faster growth. Reinhart and Trebesch (2016) test this assumption for 45 countries between 1920-1939 and 1978-2010, and do find a positive relationship. However they leave aside a particularly striking case: that of Germany in the 1950s, which benefited from one of the most generous write-offs in history while experiencing “miracle” growth of about 8% in subsequent years. This case has attracted much attention recently given German leaders’ own insistence on Greek debt repayments (see in particular Ritschl, 2011; 2012; Guinnane, 2015).

Eichengreen and Ritschl (2009), rejecting several popular theories of the German miracle, such as a reallocation of labour from agriculture to industry or the weakening of labour market rigidities, already hypothesized that such debt relief may have been an important factor in Germany’s super-fast and sustained post-war growth. Using new data from the monthly reports of the Deutsche Bundesbank from 1948 to the 1960s, Gregori Galofré-Vilà, Martin McKee, Chris Meissner and David Stuckler (2016) attempt to formally test this assumption, and are quite successful in doing so.

By the end of WWII Germany had accumulated debt to Europe worth nearly 40% of its 1938 GDP, a substantial amount of which consisted in reparation relics from WWI. Some already argued at the time that these reparations and creditors’ stubbornness had plagued the German economy, which in the early 1930s felt constrained to implement harsh austerity measures, thus contributing to the rise of the National Socialists to power. It was partly to avoid a repeat of these events that the US designed the Marshall Plan to help the economic reconstruction of Europe post-WWII.

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Marshall aid to Europe between 1948 and 1951 was less substantial than is commonly thought, but it came with strings attached which may have indirectly contributed to German growth. In particular, one of the conditions France and the UK had to fulfil in order to become recipients of Marshall aid was acceptance that Germany would not pay back any of its debt until it reimbursed its own Marshall aid. Currency reform in 1948 and the setting up of the European Payments Union facilitated this process.

Then came the London Debt Agreement, in 1953, which stipulated generous conditions for the repayment of half the amount due from Germany. Notably, it completely froze the other half, or at least until reunification, which parties to the agreement expected would take decades to occur. There was no conference in 1990 to settle the remainder.

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Galofré-Vilà et al. admit not being able to directly test the hypothesis that German debt relief led to faster growth. Instead, making use of simple graphs, they look at how the 1953 London Debt Agreement (LDA) led to lower borrowing costs and lower inflation, which comes out as obvious and quite sustained on both charts.

Perhaps more importantly, they measure the extent to which the LDA freed up space for social welfare investment. For this, they make use of the fact that Marshall aid had mainly been used for infrastructure building, so that the big difference with the LDA in terms of state expenditure should have been in terms of health, education, “economic development,” and housing. Then they compare the amount of spending on these four heads to spending in ten other categories before 1953, and check whether this difference gets any larger after the LDA. Perhaps unsurprisingly, it does, and significantly so.

This way of testing the hypothesis that the LDA helped the German economy may strike some as too indirect and therefore insufficient. This is without mentioning possible minor criticisms such as the fact that housing expenditure is included in the treatment, not control group (despite the 1950 Housing Act), or that the LDA is chosen as the key event despite the importance of the Marshall Plan’s early debt relief measures.

Nevertheless testing such a hypothesis is necessarily a very difficult task, and Galofré-Vilà et al.’s empirical design can be considered quite creative. They are of course aware that this cannot be the end of the story, and they are careful to caution readers against hasty extrapolations from the post-war German case to the current Spanish or Greek situation. Some of their arguments have somewhat unclear implications (for instance, that Germany at the time represented 15% of the Western population at the time, whereas the Greek population represents only 2%).

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Perhaps a stronger argument would be that Germany’s post-war debt was of a different character than Greek’s current debt: some would even call it “excusable” because it was mainly war debt; it was not (at least arguably) a result of past spending excesses. For this reason, one may at least ask whether debt forgiveness in the Greek context would have the same — almost non-existent — moral hazard effects as in the German case. Interestingly, the authors point out that German debt repayment after the LDA was linked to Germany’s economic growth and exports (so that the debt service/export revenue ratio could not exceed 3%). This sort of conditionality is strangely somewhat of a rarity among today’s sovereign debt contracts. It could be seen as a possible solution to fears of moral hazard, thereby mitigating any differences in efficiency of debt relief emanating from differences in the nature of the debt contracted.

 

References

Eichengreen, B., & Ritschl, A. (2009). Understanding West German economic growth in the 1950s. Cliometrica, 3(3), 191-219.

Guinnane, T. W. (2015). Financial vergangenheitsbewältigung: the 1953 London debt agreement. Yale University Economic Growth Center Discussion Paper, (880).

Reinhart, C. M., & Trebesch, C. (2014). A distant mirror of debt, default, and relief (No. w20577). National Bureau of Economic Research.

Ritschl, A. (2011). “Germany owes Greece a debt.” in The Guardian. Tuesday 21 June 2011.

Ritschl, A. (2012). “Germany, Greece and the Marshall Plan.” In The Economist. Friday 15 June.

Review: Avner Offer and Gabriel Soderberg, The Nobel Factor: The Prize in Economics, Social Democracy and the Market Turn (Princeton University Press, 2016) — The Long Run

The Nobel Factor: On the eve of the announcement of the Nobel prize in economics we review Offer and Soderberg’s new book and ask “What relationship should economic historians have to economics? ” What relationship should economic historians have to economics? For those who see economic history as essentially applied economics, the answer is perhaps […]

via Review: Avner Offer and Gabriel Soderberg, The Nobel Factor: The Prize in Economics, Social Democracy and the Market Turn (Princeton University Press, 2016) — The Long Run

Keynes and Actual Investment Decisions in Practice

Keynes and Wall Street

By David Chambers (Judge Business School, Cambridge University) and Ali Kabiri (University of Buckingham)

Abstract: This article examines in detail how John Maynard Keynes approached investing in the U.S. stock market on behalf of his Cambridge College after the 1929 Wall Street Crash. We exploit the considerable archival material documenting his portfolio holdings, his correspondence with investment advisors, and his two visits to the United States in the 1930s. While he displayed an enthusiasm for investing in common stocks, he was equally attracted to preferred stocks. His U.S. stock picks reflected his detailed analysis of company fundamentals and a pronounced value approach. Already in this period, therefore, it is possible to see the origins of some of the investment techniques adopted by professional investors in the latter half of the twentieth century.

Source: Business History Review (2016), 90(2,Summer), pp. 301-328 (Free access from October 4 to 18, 2016).

Reviewed by Janette Rutterford (Open University)

This short article looks at Keynes’ purchases of US securities in the period from after the Wall Street Crash until World War II. The investments the authors discuss are not Keynes’ personal investments but are those relating to the discretionary fund (the ‘Fund’) which formed part of the King’s College, Cambridge endowment fund and which was managed by Keynes. The authors rely for their analysis on previously unused archival material: the annual portfolio holdings of the endowment fund; the annual report on discretionary fund performance provided by Keynes to the endowment fund trustees; correspondence between Keynes and investment experts; and details of two visits by Keynes to the US in 1931 and 1934.

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The authors look at various aspects of the investments in US securities made by Keynes. They first note the high proportion of equities in the endowment fund as a whole. They then focus in detail on the US holdings which averaged 33% by value of the Fund during the 1930s. They find that Keynes invested heavily in preferred stock, which he believed had suffered relatively more than ordinary shares in the Wall Street Crash and, in particular, where the preference dividends were in arrears. He concentrated on particular sectors – investment trusts, utilities and gold mining – which were all trading at discounts to underlying value, either to do with the amount of leverage or with the price of gold. He also made some limited attempts at timing the market with purchases and sales, though the available archival data for this is limited. The remainder of the paper explores the type of investment advice Keynes sought from brokers, and from those finance specialists and politicians he met on his US visits. The authors conclude that he used outside advice to supplement his own views and that, for the Fund, as far as investment in US securities was concerned, he acted as a long-term investor, making targeted, value investments rather than ‘following the herd’.

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This paper adds a small element to an area of research which is as yet in its infancy: the analysis of actual investment decision making in practice, and the evolution of investment strategies over time. In terms of strategies, Keynes used both value investing and, to a lesser extent, market timing for the Fund. Keynes was influenced by Lawrence Smith’s 1925 book which recommended equity investment over bond investment on the basis of total returns (dividends plus retained earnings) rather than just dividend yield, the then common equity valuation method. Keynes appears not to have known Benjamin Graham but came to the same conclusion – namely that, post Wall Street Crash, value investing would lead to outperformance. He experimented with market timing in his own personal portfolio but only to a limited extent in the Fund. He was thus an active investor tilting his portfolio away from the market, by ignoring both US and UK railway and banks securities. Another fascinating aspect which is only touched on in this paper is the quality of investment advice at the time. How does it stack up compared to current broker research?

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The paper highlights the fact that issues which are still not settled today were already a concern before WWII. Should you buy the market or try to outperform? What is the appropriate benchmark portfolio against which to judge an active strategy? How should performance be reported to the client (in this case the trustees) and how often? How can one decide how much outperformance comes from the asset allocation choice of shares over bonds, from the choice of a particular sector, at a particular time, whilst making allowance for forced cash outflows or sales such as occurred during WWII? More research on how these issues were addressed in the past will better inform the current debate.

The Limitations of Correcting Data with more Data

Brazilian Export Growth and Divergence in the Tropics during the Nineteenth Century

By Christopher D. Absell and Antonio Tena Junguito (both at Carlos III, Madrid).

Abstract: The objective of this article is to reappraise both the accuracy of the official export statistics and the narrative of Brazilian export growth during the period immediately following independence. We undertake an accuracy test of the official values of Brazilian export statistics and find evidence of considerable under-valuation. Once corrected, during the post-independence decades (1821-50) Brazil’s current exports represented a larger share of its economy and its constant growth is found to be more dynamic than any other period of the nineteenth century. We posit that this dynamism was related to an exogenous institutional shock in the form of British West Indies slave emancipation that afforded Brazil a competitive advantage.

url: http://econpapers.repec.org/paper/ctewhrepe/wp15-03.htm

Distributed by NEP-HIS on: 2015-05-22 and published under the same title in Journal of Latin American Studies (Online, April 2016)

Reviewed by Thales A. Zamberlan Pereira (University of São Paulo)

The best place to find the (rather scarce)  macroeconomic data for 19th century Brazil are the official statistics compiled by the Brazilian Statistics Institute (IBGE). The IBGE data is the main source in Brian Mitchell’s international historical statistics and both are commonly used in the literature exploring Brazilian economic history. The paper by Absell and Tena is an attempt to test the accuracy of these sources by looking at official export statistics between 1821 and 1913. If nothing else this  already makes this an interesting paper.

Paraguay-Guiana-Brazil

The focus in export data relies on the argument that the Brazilian economy remained stagnant during the decades that followed Brazil’s independence until 1850 when there was renewed economic growth. While the more recent literature suggests the development of a domestic economy before 1850, the more “classic” literature focuses on the foreign sector to calculate Brazil’s economic growth in the 19th century.

Absell and Tena confirm previous findings that official export statistics were undervaluing exports after 1850. But their study extends to the earlier period and suggests that official statistics  also had a significant bias for the first half of the 19th century. In particular their analysis suggests that Brazilian export growth before 1850 was much higher than previously assumed and that a change in international demand, especially for coffee, was the principal determinant for this growth. The last section of the paper tries to explain the sources of Brazil’s “dynamic export growth” during the post-independence decades and shows that an increase in foreign demand was much more important than changes in domestic productivity. The high rate of growth in exports between 1821 and 1850, a very interesting result, is calculated by deflating prices using an index from a new series of commodities prices.

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Comment

All of Absell and Tena’s results are grounded in the price correction of the official export data and, therefore, the most interesting part of the paper is the reconstruction of Brazil’s export statistics. To correct the official data, they used international prices for the different commodities (mainly cotton, sugar, and coffee) and subtract freight rates, insurance costs, and export taxes. That is, they convert c.i.f. (cost, insurance and freight) values to f.o.b. (free on board) creating new series for these variables. For insurance and freight rates they used trade data between Rio de Janeiro and Antwerp. It should be noted, however, that a large part of cotton exports before 1850 went to Britain, and freight rates between Brazil and Liverpool were half of what they were for freight travelling to Portugal or France.

Absell and Tena argue that official data for exports was sourced in a weekly table organized “by a government committee in consultation with local commodity brokers and commercial associations.” This information was then verified by the Ministry of Finance,  who sent the tables to provincial customs houses (which calculated the tax revenue) and also to major news periodicals. If the official values were organized like this for the whole period under study, as the authors argue, it would be easier to doubt the accuracy of exports statistics. But, it is difficult to understand how a system of weekly information could work in a country the size of Brazil during the 19th century. Before 1850, northern provinces like Maranhão had stronger business relationships with Lisboa and Liverpool than with Rio de Janeiro. Some northern provinces did not support independence in 1822 because of close economic ties with Portugal.

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An additional issue is that many important provinces, even after 1850, did not use the weekly table to calculate their taxes. Evidence suggests that in Minas Gerais and São Paulo, two major coffee exporters, the government used a fixed price system to calculate taxes. See, for example, debates at the provincial assembly of Rio de Janeiro, November 1862, 1879; available online. This information, of course, does not invalidate the argument about the inaccuracy of official values, but it provides some clues that the authors’ correction could have a significant bias as well.

Another problem with the transformation to f.o.b. prices regards export duties. In the working paper version of this article, they assume this “additional trade cost” represented between 1 to 7 per cent of export values. There is extensive evidence, however, that export taxes were a much higher burden throughout the 19th century. Debates at the Chamber of Deputies, the Senate, and in newspapers show that before the fiscal reform in the 1830s, export duties for sugar and cotton could reach more than 20 per cent. The export duties also varied across provinces. After 1850, they continued to be at least 10 per cent.  The export duties presented by Absell and Tena are undervalued because their source from 1821 to 1869 only show the total revenue collected by the central government, not revenue collected by provincial custom-houses. Making assumptions in such calculations is valid, but information regarding data sources should have been more clearly explained in the published version.

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Because the objective of the authors is to correct export values using more accurate price data, it should be clear that they do not use only price for Brazilian commodities to adjust the official statistics. To correct the value of Brazilian cotton exports, for example, they use price information of Guyana Raw (Berbice or Demerara) and Middling Uplands (United States) to the United Kingdom. The figure below shows the price of an arroba of cotton in pennies (d) from four different sources, including two prices series for Brazil not used in Absell and Tena paper. The first is the price from the official statistics (IBGE), the second is the price of cotton at the port of Maranhão, the third is the price of cotton from Maranhão in Liverpool, and the last one in the average price of West Indies in Liverpool. As can be seen,  using prices for Brazilian cotton would change some of the magnitudes that the paper proposes.

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In summary the paper by Absell and Tena makes a worthy contribution and it proposes a revisionist approach to an important source. An important problem in the paper, however, is not discussing how its own sources could limit their conclusions, a crucial aspect in any revisionist study.

Medieval History and its Relevance to Modern Business

Joint publication review with The Long Run Blog

 

Title: The Medieval Origins of a Culture of Cooperation and Inclusive Political Institutions

The Medieval Origins of a Culture of Cooperation and Inclusive Political Institutions

 

By: Carmine Guerriero (ACLE, University of Amsterdam)

Abstract: This paper evaluates the relative importance of a “culture of cooperation,” understood as the implicit reward from cooperating in prisoner’s dilemma and investment types of activities, and “inclusive political institutions,” which enable the citizenry to check the executive authority. I divide Europe into 120 km X 120 km grid cells, and I exploit exogenous variation in both institutions driven by persistent medieval history. To elaborate, I document strong first-stage relationships between present-day norms of trust and respect and the severity of consumption risk-i.e., climate volatility-over the 1000-1600 period and between present-day regional political autonomy and the factors that raised the returns on elite-citizenry investments in the Middle Ages, i.e., the terrain ruggedness and the direct access to the coast. Using this instrumental variables approach, I show that only culture has a first order effect on development, even after controlling for country fixed effects, medieval innovations, the present-day role of medieval geography, and the factors modulating the impact of institutions. Crucially, the excluded instruments have no direct impact on development, and the effect of culture holds within pairs of adjacent grid cells with different medieval climate volatility. An explanation for these results is that culture, but not a more inclusive political process, is necessary to produce public-spirited politicians and push voters to punish political malfeasance. Micro-evidence from Italian Parliament data supports this idea.

URL: http://EconPapers.repec.org/RePEc:pra:mprapa:70879

Circulated by NEP-SOC on 2016-05-14

Reviewed by Catherine Casson (University of Manchester) and Mark Casson (University of Reading)

This paper takes a long-run approach to an investigation of the importance of a ‘culture of cooperation’ and ‘inclusive political institutions’. The author defines a ‘culture of cooperation’ as the behavioural characteristics of ‘trust, respect, control and obedience’, while the term ‘inclusive political institutions’ is defined as institutions which ‘enable the citizenry to check the executive authority’.

Analysis is focused on Europe and on the agrarian economy. The author suggests that cooperation in the middle ages was particularly associated with the monastic orders of the Cistercians and Franciscans. Their houses were generally located, the author argues, in areas with unpredictable climates. The ability of the monks to farm the land in a way that put such unproductive land to productive use attracted the support and cooperation of the local community. In addition these monastic orders also introduced new financial practices, including improvements in access to credit, which also fostered local community cooperation. Inclusive political institutions, the author suggests, were especially associated with the success of long-distance trade. This created a shared goal between the elite and citizens.

Cistercian_monks_at_work1

The paper suggests that contemporary cultures of cooperation and inclusive political institutions are influenced by medieval ones. The medieval data used for ‘culture’ is climate data and the modern data is the 2008 European Value Study. For inclusive political institutions the medieval data is ‘the discounted number of years Cistercian and Franciscan houses were active per square km over the 1000-1600 period’ (p. 9) while the modern data is on prosecutions of members of parliament in Italy in 1948-87.

Later in the paper some more specific hypotheses are presented as controls for change over time:

  1. That Atlantic trade impacted on modern economic development
  2. That micro-credit systems introduced by the Franciscan order strengthened contemporary credit markets
  3. That monastic orders influenced religious beliefs in general, and that this influence may have had other, less defined, influences, on economic practice
  4. That distance to Wittenberg, where Protestantism began, influenced the development of a ‘culture of cooperation’
  5. Early transition to agriculture led to ‘higher inequality in gender roles’
  6. That genetic diversity in a country had a negative impact on cooperation
  7. That the suitability of soil for potato growing contributed to the development of institutions
  8. That the Black Death raised standards of living
  9. That education influenced the development of institutions and economic growth

The paper argues that the impact of the medieval culture of cooperation originating in the Cistercian and Franciscan monastic houses can be seen today. It also argues that this culture of cooperation has had a greater influence as a check on executive authority than inclusive political institutions.

Conflict, rather than cooperation, is often the term most associated with the middle ages. One of the benefits of this paper is that it highlights the presence of, and impact of, collaboration. Monastic orders are recognised in both history and economics literature for their important economic, as well as religious, impact. Their use to assess a culture of cooperation is therefore helpful, but they are perhaps a less obvious choice for an assessment of inclusive political institutions. One potential way in which the paper could be developed would be by expanding the scope to cover both urban and rural locations. Such an extension would retain the presence of monastic orders (and indeed extend it to cover urban ones) and, more significantly, allow urban political institutions to be considered. The presence of these institutions is briefly discussed on p. 12 but the issue is not developed further. Many of these town governments had as a shared goal the long-distance trade alluded to in the paper. They also offer more equivalent data to the contemporary data used as a proxy for inclusive political institutions.

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Continuity and change over time is a key focus on the paper and the author shows an awareness of some key developments that occurred from the medieval to the modern period. The selection of the controls shows an engagement with recent secondary literature but does introduce additional time periods (such as the Neolithic), specific events (for example the Black Death) and general trends (for example the expansion of education). The paper could be strengthened by more clearly outlining the chronology of these events, and perhaps by narrowing the list of controls used.

Connections between contemporary and historic business have been increasingly recognised and explored in academic literature. The subject of this paper is therefore related to a growing trend to examine the medieval origins of many economic processes. Monasteries have been identified as key players in the ‘multinational enterprise’ of medieval pilgrimage and as originations of sophisticated forms of financial transactions (Bell and Dale, 2011; Bell, Brooks and Dryburgh, 2007). They were also important speculators in the property market (Baker and Holt, 2004; Bouchard, 1991; Casson and Casson, 2016).

Tintern_Abbey-inside-2004

Financial crises are a further topic that can be examined through the surviving qualitative and quantitative sources from the middle ages. In the light of the financial crisis of 2008 there has been a recognition that a long-run perspective, starting as early as the middle ages, provides the opportunity to study cycles of growth and decline. Surviving medieval records from the English government, for example, provide detailed data that can be subjected to statistical analysis, as shown in the work of Bell, Brooks and Moore (Bell, Brooks and Moore, 2014; Bell, Brooks and Moore, 2013). The importance of medieval data has also been highlighted in recent work on historic GDP (Broadberry et al, 2015).

Innovation and knowledge acquisition in the middle ages have recently been examined using both modelling approaches from economics, and historical case studies. De la Croix, Doepke and Mokyr (2016) have shown, using their combined expertise in the fields of economics and history, the important foundation that medieval guilds provided in the transmission of knowledge across Europe before the Industrial Revolution. Meanwhile Davids and de Munck’s edited collection on Innovation and Creativity in Late Medieval and Early Modern European Cities has used historical case studies to demonstrate that medieval cities saw a clear connection between the skills of their population and the overall economic performance of their city, and developed strategies that were intended to make their city economically resilient (Davids and De Munck, 2014; Casson, 2012).

Entrepreneurship can also be examined in a long-run context. Business records, letters, literary sources and government records all demonstrate that, contrary to popular belief, the origins of enterprise lie in the middle ages rather than the Industrial Revolution. Medieval entrepreneurs were involved in a range of activities, including infrastructure developments, property speculation and factory foundation (Casson and Casson, 2013a; Casson and Casson, 2013b; Landes, Mokyr and Baumol, 2012)

Overall, one of the key strengths of this paper is the contribution that it makes to this broader research agenda on the parallels between medieval and modern business.

 

References

Baker, N. and R. Holt (2004), Urban Growth and the Medieval Church: Gloucester and Worcester (Routledge, Aldershot).

Bell, A. R.Brooks, C. and Moore, T. K. (2014), ‘The credit relationship between Henry III and merchants of Douai and Ypres, 1247-70’, Economic History Review, 67 (1), 123-145. doi: 10.1111/1468-0289.12013.

Bell, A.Brooks, C. and Moore, T. (2013), ‘Medieval foreign exchange: A time series anaylsis’ in M. Casson and N. Hashimzade (eds.) Large Databases in Economic History: Research Methods and Case Studies (Routledge, Abingdon), 97-123.

Bell, A. R. and Dale, R. S. (2011), ‘The medieval pilgrimage business’, Enterprise and Society, 12 (3), 601-627. doi: 10.1093/es/khr014.

Bell, A. R., C. Brooks, C. and P. R. Dryburgh, P. R. (2007), The English Wool Market, c.1230-1327 (Cambridge University Press, Cambridge).

Broadberry, S., B. Campbell, A. Klein, M. Overton and B. van Leeuwen (2015), British Economic Growth, 1270-1870 (Cambridge: Cambridge University Press).

Bouchard, C. B. (1991), Holy Entrepreneurs: Cistercians, Knights, and Economic Exchange in Twelfth-century Burgundy (Ithaca, NY).

Casson, C. (2012), ‘Reputation and Responsibility in Medieval English Towns: Civic Concerns with the Regulation of Trade’, Urban History 39 (3), 387-408. doi:10.1017/S0963926812000193.

Casson, C. and Casson, M. (2016), ‘Location, Location, Location? Analysing Property Rents in Medieval Gloucester’ Economic History Review 69: 2 pp. 575-99 DOI:10.1111/ehr.12117.

Casson, M. and Casson C. (2013), The Entrepreneur in History: From Medieval Merchant to Modern Business Leader (Basingstoke: Palgrave Macmillan).

Casson, M. and Casson C. eds. (2013), History of Entrepreneurship: Innovation and Risk Taking, 1200-2000 (Cheltenham: Edward Elgar, 2 vols).

Davids, K. and B. de Munck, eds. (2014), Innovation and Creativity in Late Medieval and Early Modern European Cities (Ashgate: Farnham).

De la Croix, D., M. Doepke and J. Mokyr (2016), ‘Clans, Guilds, and Markets: Apprenticeship Institutions and Growth in the Pre-Industrial Economy’ NBER Working Paper No. 22131, circulated by NEP-HIS on 2016-04-16.

Landes, D. S., J. Mokyr & W. J. Baumol (2012), The Invention of Enterprise:Entrepreneurship from Ancient Mesopotamia to Modern Times (Princeton, Princeton University Press).