New Economics Papers
on Business, Economic and Financial History
Issue of 2009‒08‒30
seventeen papers chosen by

  1. Bourgeois dignity and liberty: Why economics can’t explain the modern world By McCloskey, Deirdre
  2. Five Centuries of Latin American Inequality By Jeffrey G. Williamson
  3. Crisis and Protectionism: Will History Repeat Itself? By Sumru Oz
  4. A Financial System Perspective on Japan's Experience in the Late 1980s By Masazumi Hattori; Hyun Song Shin; Wataru Takahashi
  5. What - or Who - Started the Great Depression? By Lee E. Ohanian
  6. The Swedish System of Payment 995-1534 By Edvinsson, Rodney; Franzén, Bo; Söderberg, Johan
  7. Creative Destruction and Fiscal Institutions: A Long-Run Case Study of Three Regions By Jan Schnellenbach; Thushyanthan Baskaran; Lars P. Feld
  8. Why did the Breed Reactor Fail? - Swedish and international nuclear development in a cold war context By Fjaestad, Maja
  9. Cartoons and economics: general analysis based on colombian economic cartoons. By Villaveces Niño, Juanita; Rodríguez Lesmes, Paul Andrés
  10. "Financial and Monetary Issues as the Crisis Unfolds" By James K. Galbraith
  11. Economic Conditions and U.S. National Security in the 1930s and Today By Martin S. Feldstein
  12. Del fascismo al movimiento nacional-popular: el peronismo y el intercambio Germani-Lipset, 1956-1961 By Samuel Amaral
  13. Economic thought at the European Commission and the creation of EMU (1957-1991) By Ivo Maes
  14. La Industria del Petróleo en Chile By Claudio Agostini; Eduardo Saavedra
  15. Exclusión en la Distribución de Productos Durables y la Estrategia de Predar por Tiempo: la Guerra del Plasma By Claudio Agostini; Eduardo Saavedra
  16. "Securitization, Deregulation, Economic Stability, and Financial Crisis, Part I-- The Evolution of Securitization" By Eric Tymoigne
  17. Issues Affecting the Movement of Rural Labour in Myanmar: Rakhine Case Study By Okamoto, Ikuko

  1. By: McCloskey, Deirdre
    Abstract: Two centuries ago the world’s economy stood at the present level of Chad. Two centuries later the world supports more than six-and-half times more people. Starvation worldwide is at an all-time low, and falling. Literacy and life expectancy are at all-time highs, and rising. How did average income in the world move from $3 to $30 a day? Economics mattered in shaping the pattern but to understand it economists must know the history and historians must know the economics. Material, economic forces were not the original and sustaining causes of the modern rise, 1800 to the present. Ethical talk runs the world. Dignity encourages faith. Liberty encourages hope. The claim is that the dignity to stand in one’s place and the liberty to venture made the modern world. An internal ethical change allowed it, beginning in northwestern Europe after 1700. For the first time on a big scale people looked with favor on the market economy, and even on the creative destruction coming from its profitable innovations. The world began to revalue the bourgeois towns. If envy and local interest and keeping the peace between users of old and new technologies are allowed to call the shots, innovation and the modern world is blocked. If bourgeois dignity and liberty are not on the whole embraced by public opinion, the enrichment of the poor doesn’t happen. The older suppliers win. The poor remain unspeakably poor. By 1800 in northwestern Europe, for the first time in economic history, an important part of public opinion came to accept creative accumulation and destruction in the economy. People were willing to change jobs and allow technology to progress. People stopped attributing riches or poverty to politics or witchcraft. The historians of the world that trade created do not acknowledge the largest economic event in world history since the domestication of plants and animals, happening in the middle of their story. Ordinary Europeans got a dignity and liberty that the proud man’s contumely had long been devoted to suppressing. The material economy followed.
    Keywords: economics; innovation; industrial revolution; bourgeoisie; modern world
    JEL: B1 O40
    Date: 2009–07
  2. By: Jeffrey G. Williamson
    Abstract: Most analysts of the modern Latin American economy hold to a pessimistic belief in historical persistence -- they believe that Latin America has always had very high levels of inequality, suggesting it will be hard for modern social policy to create a more egalitarian society. This paper argues that this conclusion is not supported by what little evidence we have. The persistence view is based on an historical literature which has made little or no effort to be comparative. Modern analysts see a more unequal Latin America compared with Asia and the rich post-industrial nations and then assume that this must always have been true. Indeed, some have argued that high inequality appeared very early in the post-conquest Americas, and that this fact supported rent-seeking and anti-growth institutions which help explain the disappointing growth performance we observe there even today. This paper argues to the contrary. Compared with the rest of the world, inequality was not high in pre-conquest 1491, nor was it high in the post-conquest decades following 1492. Indeed, it was not even high in the mid-19th century just prior Latin America's belle époque. It only became high thereafter. Historical persistence in Latin American inequality is a myth.
    JEL: D31 N16 O54
    Date: 2009–08
  3. By: Sumru Oz
    Abstract: As a result of the current global financial crisis, in 2009 the world economy is likely to experience the largest contraction since World War II and the unemployment rate to reach historical highs in many countries. The fact that the current global crisis is originated from the U.S. and followed another intensive wave of globalization, has led to an unprecedented public interest towards the Great Depression of 1929-1933. These parallels between the two episodes further fueled the fears that the current crisis would deepen and last a couple of years, similar to the Great Depression. The aim of this paper is to discuss the validity of these worries by studying the root causes of the current crisis in the light of the causes of the Great Depression as laid out by the related literature. The paper concludes that the factors that deepen and widen the Great Depression are not valid anymore to a great extent. Together with the decisions taken by the leaders of the world's largest economies at the London Summit in April, the conclusions of the paper keep the hope that the current global crisis will not turn into a severe global depression.
    Keywords: Great Depression, Global Crisis, International Trade, Protectionism
    JEL: N72 F13 E32
    Date: 2009–07
  4. By: Masazumi Hattori (Institute for Monetary and Economic Studies, Bank of Japan (E-mail:; Hyun Song Shin (Professor, Princeton University (E-mail: hsshin@; Wataru Takahashi (Director-General, Institute for Monetary and Economic Studies, Bank of Japan (E-mail:
    Abstract: This paper revisits the events of the 1980s bubble in Japan in light of the lessons learned from the subprime crisis in the United States. Our focus is on the role played by sectoral developments in the financial system in Japan. We highlight the transformation of a subset of non-financial firms (the large manufacturing firms) from being net debtors to the banks to becoming net creditors to the banks, thereby becoming part of the financial intermediary sector. In this way, large manufacturing firms in Japan played the role of surrogate wholesale banks that increased the overall supply of credit to the economy. When good borrowers already had credit and yet loose monetary conditions encouraged greater credit supply, credit availability to marginal borrowers and to real estate-related sectors increased. We discuss the role of market conditions and monetary policy in this development.
    Keywords: Balance sheet, Commitment, Credit supply, Financial liberalization, Financial system perspective, Japan, Subprime crisis
    JEL: E51 G21 G28 N22 N25
    Date: 2009–08
  5. By: Lee E. Ohanian
    Abstract: Herbert Hoover. I develop a theory of labor market failure for the Great Depression based on Hoover's industrial labor program that provided industry with protection from unions in return for keeping nominal wages fixed. I find that the theory accounts for much of the depth of the Depression and for the asymmetry of the depression across sectors. The theory also can reconcile why deflation and low levels of nominal spending apparently had such large real effects during the 1930s, but not during other periods of significant deflation.
    JEL: E3 N1
    Date: 2009–08
  6. By: Edvinsson, Rodney (Dept. of Economic History, Stockholm University); Franzén, Bo (Dept. of Economic History, Stockholm University); Söderberg, Johan (Dept. of Economic History, Stockholm University)
    Abstract: The medieval system of payment in Sweden was complex. This paper aims at clarifying some essential features of it in a way that may facilitate further study of medieval Swedish economic history by international researchers. For instance, the presentation of the exchange rate between the silver mark and the mark penningar provides information that is indispensable to anyone who wishes to convert nominal Swedish prices into silver prices, which in turn is necessary for international comparisons. Part of the complexity of the monetary system is due to the lack of a country-wide monetary standard for most of the medieval era. Several currencies existed alongside the mark penning. In addition, various foreign gold coins circulated at a floating rate. The exchange rates between these various currencies are sometimes not known with any precision. We have, however, tried to summarize the available information in several tables.
    Keywords: monetary history; mark; silver; gold; Middle Ages; exchange
    JEL: E42 N13 N23
    Date: 2009–08–17
  7. By: Jan Schnellenbach; Thushyanthan Baskaran; Lars P. Feld
    Abstract: We analyze the rise and decline of the steel and mining industries in the regions of Saarland, Lorraine und Luxemburg over a long period, from the mid-19th century to 2003. Our main focus in on the period of structural decline in these industries after the second world war. Differences in the institutional framework of these regions are exploited to analyze how the broader fiscal constitution sets incentives for governments to either obstruct or to encourage structural change in the private sector. Our main result is that fiscal autonomy of a region subjected to structural change in its private sector is associated with a relatively faster decline of employment in the sectors affected. Contrary to the political lore, fiscal transfers are not used to speed up the destruction of old sectors, but rather to stabilize incomes.
    Keywords: structural change; fiscal federalism; grants in aid; creative destruction Length 31 pages
    JEL: E63 E64 H54 H77
    Date: 2009–08
  8. By: Fjaestad, Maja (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: This article discusses the visions about nuclear breeder reactors, plans set out in the aftermath of World War II. This seemed like the ideal solution for future energy, and even small countries, as Sweden, launched breeder reactor programs. The breeder reactor never reached industrial development, interestingly; however, different countries cancelled their breeder project at different times. In this article, in addition to discussing why breeder reactors failed generally, I also suggest possible explanations for the differences in when the reactors failed, particularly between Europe and the United States. Though the breeder reactor never fulfilled its promises, it is an interesting example about the complex mechanisms behind technological development. It tells us a story about a technological failure that is not simple, but must be understood in a social, economical and political context.
    Keywords: technology; technology development; institutions; innovation; innovation failure
    JEL: N70 O14 O32 O38
    Date: 2009–08–26
  9. By: Villaveces Niño, Juanita; Rodríguez Lesmes, Paul Andrés
    Abstract: May cartoons be considered as a viable and credible source for the study of economics? There is hardly any research on the subject, even though there is a quite significant amount of cartoons with economic content. This suggests that economics (and economists) have not paid enough attention and do not incorporate in their analysis a relevant primary source. The present paper aims to explore the value of using cartoons as a complementary primary source in economic analysis. We present a way of analyzing economic history through cartoons; first, reviewing cartoons which describe particular historical circumstances and second, examining cartoons that represent generic economic situations and are not necessarily linked to a historical period. We choose 17 cartoons, from different cartoonist, especially Colombian cartoonists that may give us an idea of economic matters and economic history.
    Date: 2009–08–13
  10. By: James K. Galbraith
    Abstract: A group of experts associated with the Economists for Peace and Security and the Initiative for Rethinking the Economy met recently in Paris to discuss financial and monetary issues; their viewpoints, summarized here by Senior Scholar James K. Galbraith, are largely at odds with the global political and economic establishment. Despite noting some success in averting a catastrophic collapse of liquidity and a decline in output, the Paris group was pessimistic that there would be sustained economic recovery and a return of high employment. There was general consensus that the precrisis financial system should not be restored, that reviving the financial sector first was not the way to revive the economy, and that governments should not pursue exit strategies that permit a return to the status quo. Rather, the crisis exposes the need for profound reform to meet a range of physical and social objectives.
    Date: 2009–08
  11. By: Martin S. Feldstein
    Abstract: This paper comments on the experience of the U.S. economy in the 1930s, its lessons for managing the current economic downturn, and the relation of U.S. economic conditions to our future national security. Some of the conclusions are: (1) Although the current recession will be long and very damaging, it is not likely to deteriorate into conditions similar to the Depression of the 1930s. Policy makers now understand better than they did in the 1930s what needs to be done and what needs to be avoided. (2) The focus on domestic economic policies in the 1930s and the desire to remain militarily neutral delayed the major military buildup that eventually achieved the economic recovery. (3) A well-functioning system of bank lending is necessary for economic expansion. We have yet to achieve that in the current situation. (4) Raising taxes, even future taxes, can depress economic activity. The administration's budget proposes to raise tax rates on higher income individuals, on dividends and capital gains, on corporate profits and on all consumers through the cap and trade system of implicit CO2 taxes. (5) Inappropriate trade policies and domestic policies that affect the exchange rate can hurt our allies, leading to conflicts that spill over from economics to impair national security cooperation. Reducing long-term U.S. fiscal deficits would reduce the risk of inflation and thereby reduce the fear among foreign investors that their dollar investments will lose their purchasing power. (6) The possibilities for domestic terrorism and of cyber attacks creates risks that did not exist in the 1930s or even in more recent decades. The scale and funding of the FBI and the Department of Homeland Security is not consistent with these new risks.
    JEL: E6 H0 H56
    Date: 2009–08
  12. By: Samuel Amaral
    Abstract: This paper explores Gino Germani’s further interpretations of Peronism after considering it a particular case of Fascism (see Working Paper N° 371). A visit paid to American universities in late 1956 or early 1957 put him in touch with leading sociologists, Seymour Martin Lipset among them. Lipset’s work on “working-class authoritarianism” made an impact on Germani’s views. By mid-1957 he wrote a paper on “Authoritarianism and the popular classes”, following and discussing Lipset’s views. Lipset, however, in his book Political Man (1960), accepted to some extent Germani’s first view while defining Peronism as an extreme left-wing phenomenon, a Fascism of the lower classes, and Fascism of the Left. Germani’s dissatisfaction with Lipset’s definitions moved him to look for a new category for Peronism and what he considered similar ideologically hybrid authoritarian phenomena – national-popular movements. This paper studies the Germani-Lipset exchange and the consequences for Germani’s views on Peronism.
    Date: 2009–08
  13. By: Ivo Maes (National Bank of Belgium, Robert Triffin Chair, Universit‚ catholique de Louvain and ICHEC Brussels Management School.)
    Abstract: To understand macroeconomic and monetary thought at the European Commission, two elements are crucial: firstly, the Rome Treaty, as it determined the mandate of the Commission and, secondly, the economic ideas in the different countries of the Community, as economic thought at the Commission was to a large extent a synthesis and compromise of the main schools of thought in the Community. The Rome Treaty transformed economic and legal rules in the countries of the Community. It comprised the creation of a common market, as well as several accompanying policies. Initially, economic thought at the Commission was to a large extent a synthesis of French and German ideas, with a certain predominance of French ideas. Later, Anglo-Saxon ideas would gain ground. At the beginning of the 1980s, the Commission?s analytical framework became basically medium-term oriented, with an important role for supply-side and structural elements and a more cautious approach towards discretionary stabilization policies. This facilitated the process of European integration, also in the monetary area, as the consensus on stability oriented policies was a crucial condition for EMU. Trough time, the Commission has taken seriously its role as guardian of the Treaties and initiator of Community policies, also in the monetary area. The Commission always advocated a strengthening of economic policy coordination and monetary cooperation. In this paper, we first focus on the different schools which have been shaping economic thought at the Commission. This is followed by an analysis of the Rome Treaty, especially the monetary dimension. Thereafter we go into the EMU process and the initiatives of the Commission to further European monetary integration. We will consider three broad periods: the early decades, the 1970s, and the Maastricht process.
    Date: 2009–02
  14. By: Claudio Agostini (ILADES-Georgetown University, Universidad Alberto Hurtado); Eduardo Saavedra (ILADES-Georgetown University, Universidad Alberto Hurtado)
    Abstract: Este artículo describe y caracteriza, desde el punto de vista de su organización industrial, los mercados del petróleo y sus derivados líquidos en Chile. Con ese objetivo, se realiza primero una descripción sistemática de cada uno de los mercados que componen esta industria, considerando para ello la estructura vertical de la industria que permite que el insumo básico proveniente de la naturaleza llegue al usuario final: exploración, producción de crudo, importación de crudo, refinación, almacenamiento, transporte y distribución mayorista y minorista. Posteriormente, se realiza un análisis de organización industrial que, a partir de los niveles de concentración y los grados de integración vertical y competencia, identifica posibles conductas anticompetitivas en la industria. Finalmente, se entregan recomendaciones de política pública en aspectos que requieren medidas de corrección o perfeccionamiento para garantizar la competencia. Los autores se inclinan por sugerir una ley marco que proteja la competencia en la industria y la libertad de entrada en segmentos de mercado que pueden operar competitivamente, con la debida tutela de las autoridades de competencia, pero con un mínimo de regulación sectorial.
    Keywords: Combustibles Líquidos, Petróleo, Organización Industrial, Chile
    JEL: L11 L22 L40 L72
    Date: 2009–03
  15. By: Claudio Agostini (ILADES-Georgetown University, Universidad Alberto Hurtado); Eduardo Saavedra (ILADES-Georgetown University, Universidad Alberto Hurtado)
    Abstract: Este trabajo realiza un análisis económico del caso conocido como La Guerra del Plasma, en el cual la reacción de las multitiendas Falabella y París S.A. frente a sus proveedores impidió la realización del Banco de Chile de una feria tecnológica para sus clientes en Abril de 2006. Más allá de la conducta de colusión, acreditada en el juicio, este trabajo muestra que las multitiendas predaron el mercado para ganar tiempo, por la vía de usar restricciones verticales sobre sus proveedores. Este comportamiento les habría permitido retrasar la entrada de empresas rivales en el retail de productos durables, en un período de alta demanda esperada. En tal sentido, la estrategia de exclusión seguida, generando una predación temporal del mercado, habría sido altamente rentable para Falabella y París S.A.
    Keywords: Exclusión de Competidores, Restricciones Verticales, Predación, Colusión, Retail, Guerra del Plasma
    JEL: L41 L42 L81
    Date: 2009–06
  16. By: Eric Tymoigne
    Abstract: This study analyzes the trends in the financial sector over the past 30 years, and argues that unsupervised financial innovations and lenient government regulation are at the root of the current financial crisis and recession. Combined with a long period of economic expansion during which default rates were stable and low, deregulation and unsupervised financial innovations generated incentives to make risky financial decisions. Those decisions were taken because it was the only way for financial institutions to maintain market share and profitability. Thus, rather than putting the blame on individuals, this paper places it on an economic setup that requires the growing use of Ponzi processes during enduring economic expansion, and on a regulatory system that is unwilling to recognize (on the contrary, it contributes to) the intrinsic instability of market mechanisms. Subprime lending, greed, and speculation are merely aspects of the larger mechanisms at work. It is argued that we need to change the way we approach the regulation of financial institutions and look at what has been done in other sectors of the economy, where regulation and supervision are proactive and carefully implemented in order to guarantee the safety of society. The criterion for regulation and supervision should be neither Wall Street's nor Main Street's interests but rather the interests of the socioeconomic system. The latter requires financial stability if it's to raise, durably, the standard of living of both Wall Street and Main Street. Systemic stability, not profits or homeownership, should be the paramount criterion for financial regulation, since systemic stability is required to maintain the profitability--and ultimately, the existence--of any capitalist economic entity. The role of the government is to continually counter the Ponzi tendencies of market mechanisms, even if they are (temporarily) improving standards of living, and to encourage economic agents to develop safe and reliable financial practices. See also, Working Paper No. 573.2, "Securitization, Deregulation, Economic Stability, and Financial Crisis, Part II: Deregulation, the Financial Crisis, and Policy Implications."
    Date: 2009–08
  17. By: Okamoto, Ikuko
    Abstract: This paper presents issues affecting the movement of rural labour in Myanmar, by examining the background, purpose and earned income of labourers migrating to fishing villages in southern Rakhine. A broad range of socioeconomic classes, from poor to rich, farmers to fishermen, is migrating from broader areas to specific labour-intensive fishing subsectors, such as anchovy fishing. These labourers are a mixed group of people whose motives lie either in supplementing their household income or accumulating capital for further expansion of their economic activities. The concentration of migrating labourers with different objectives in this particular unstable, unskilled employment opportunity suggests an insufficiently developed domestic labour market in rural Myanmar. There is a pressing need to create stable labour-intensive industries to meet this demand.
    Keywords: Migration, Labour, Fishery, Migrant labor, Labor market
    JEL: J61 R23
    Date: 2009–07

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