New Economics Papers
on Business, Economic and Financial History
Issue of 2009‒10‒10
seventeen papers chosen by

  1. The Americanization of European Higher Education and Research By Borghans, Lex; Cörvers, Frank
  2. From the Great Depression to Bretton Woods: Jacob Viner and International Monetary Stabilization (1930-1945) By Sebastiano Nerozzi
  3. Assessing the Impact of World War I on the City of London By Sarah Cochrane
  4. Explaining London's Dominance in International Financial Services, 1870-1913 By Sarah Cochrane
  5. Emulation versus Comparative Advantage: Competing and Complementary Principles in the History of Economic Policy By Erik S. Reinert
  6. Persistence of Civil Wars By Acemoglu, Daron; Ticchi, Davide; Vindigni, Andrea
  7. The legacy of the Swedish gift and inheritance tax, 1884-2004 By Ohlsson, Henry
  8. From famine to food crisis. What history can teach us about local and global subsistence crises By Vanhaute, Eric
  9. Personal Income of U.S. States : Estimates for the Period 1880–1910 By Klein, Alexander
  10. 28th out of 30: Poor medicine and unhealthy Americans By Fullbrook, Edward
  11. Are Hard Pegs Ever Credible in Emerging Markets? Evidence from the Classical Gold Standard By Kris James Mitchener; Marc D. Weidenmier
  12. Elasticity of factor substitution and the rise in labor's share of income during the Great Depression By Fabien Tripier
  13. U.S. Trade Policy Since 1934: An Uneven Path Toward Greater Trade Liberalization By Robert E. Baldwin
  14. Banking Crises and the Rules of the Game By Charles Calomiris
  15. The Culture of Fear and Control in Costa Rica (II): The Talk of Crime and Social Changes By Sebastian Huhn
  16. La implantación del sistema de intendencias en Indias: especial referencia a la Ordenanza para el Río de la Plata By Manuela Dominguez Orta
  17. "Money Manager Capitalism and the Global Financial Crisis" By L. Randall Wray

  1. By: Borghans, Lex (Maastricht University); Cörvers, Frank (ROA, Maastricht University)
    Abstract: Over the past two decades there has been a substantial increase in the mobility of students in Europe, while also research has become much more internationally oriented. In this paper we document changes in the structure of research and higher education in Europe and investigate potential explanations for the strong increase in its international orientation. While higher education started to grow substantially around 1960, only a few decades later, research and higher education transformed gradually to the American standard. Decreased communication costs are likely causes for this trend. This transformation is most clearly revealed in the change of language used in research from the national language, Latin, German and French to English. Smaller language areas made this transformation earlier while there are also clear timing differences between research fields. Sciences and medicine tend to switch to English first, followed by economics and social sciences, while for law and arts only the first signs of such a transformation are currently observed. This suggests that returns to scale and the transferability of research results are important influences in the decision to adopt the international standard.
    Keywords: higher education, research, Americanization
    JEL: O31 I23
    Date: 2009–09
  2. By: Sebastiano Nerozzi (Università Cattolica Di Milano)
    Abstract: This paper examines Jacob Viner’s contribution to the debate and the policy decision making concerning international monetary policy from the Great Depression to the Bretton Woods agreements. An outstanding member of the so called “early Chicago School of Political Economy”, Viner was actively engaged in the debate over the causes and cures of the depression, emphasizing the important role international economic problems played in producing its onset and in reinforcing its duration. During the 1930’s Viner was an outspoken supporter of international monetary cooperation, set up to secure exchange rates stability, which he regarded as a paramount factor in restoring business confidence and fostering recovery. As a close assistant to Secretary of the Treasury Henry Morgenthau, Jr. Viner was able to exert a positive influence on the administration’s foreign economic policy, from the Gold Stabilization Act of 1934 to the Tripartite agreement of 1936. Though not directly involved in the Bretton Woods Conference, he played a role in preparing the ground for the establishment of multilateral agencies such as the IMF and the IBRD. By means of his unpublished papers and other archival sources, as well as his writings, we will examine Viner’s analysis of the Great Depression, his contribution to the debate over American foreign economic policy and his work as economic adviser from 1930 to 1945.
    Keywords: Great Depression, Gold Stabilization Act, Tripartite Agreement, Bretton Woods, Jacob Viner.
    JEL: B31 E63 F59 N12
    Date: 2009
  3. By: Sarah Cochrane
    Abstract: The interwar years saw the rise of New York to challenge London as the world’s leading provider of financial services. This paper will show that the current explanations fail to identify a key factor in New York’s rise. The City was prevented from operating a full capacity by a capital issues embargo, imposed by the Bank of England to support the pound. As a result, New York was able to enter the sector with little competition from London, and expand rapidly to issue over half of the global capital exported abroad in the 1920s. Without the embargo, this would not have been possible, as the London merchant banks were the most productive producers in the industry, a position built up over the previous half century. This result challenges the consensus that the return to gold was good for the City. The merchant banks suffered and lost business, suggesting that this policy was even more disastrous than is currently thought.
    Keywords: Financial services, City of London, WWI, CGE simulations
    JEL: N20 F14 G21
    Date: 2009
  4. By: Sarah Cochrane
    Abstract: Contemporaries and historians have highlighted London’s position as the world’s leading financial centre, and its dominance of both trade financing and international capital investment at this time. The current historical literature focuses on the presence of the London Stock Exchange and Britain’s role as leader of the Gold Standard as the key reasons behind the City’s position. This paper presents a richer explanation, that treats the international financial services industry as a footloose sector that can migrate around the globe. By focusing on how the individual merchant banks operated and the forces that were important in driving the banks to agglomerate to the City, this work provides an alternative explanation for London’s dominance of financial services prior to 1913, and can explain how London was able to maintain its position for so long, despite competition from other centres.
    Keywords: Financial services, City of London, Pre-WWI, Agglomeration, CGE simulations
    JEL: N23 F14 G21
    Date: 2009
  5. By: Erik S. Reinert
    Abstract: The objective of this chapter is to show how economic policies based on completely different principles - one described as 'emulation' and the other as 'comparative advantage' - have been strategically employed in order to achieve economic development when nations have made the transition from poor to wealthy. It also briefly describes key aspects of the process by which Europe, through emulation, developed from a collection of fief- doms ruled by warlords into city-states and later to nation-states. It is argued that the timing of the strategic shift from emulation to comparative advantage is of utmost importance to a nation. Making this policy shift too early will hamper development much as a late shift will do. It is argued that these principles, although sometimes under different names, were well known and employed by European nations from the seventeenth century the United States all the way to the end of the nineteenth cen- tury.and that the Marshall Plan implemented more than 60 years ago owed its success to putting the principle of emulation chronologically ahead of comparative advantage.
    Date: 2009–08
  6. By: Acemoglu, Daron (MIT); Ticchi, Davide (University of Urbino); Vindigni, Andrea (Princeton University)
    Abstract: A notable feature of post-World War II civil wars is their very long average duration. We provide a theory of the persistence of civil wars. The civilian government can successfully defeat rebellious factions only by creating a relatively strong army. In weakly-institutionalized polities this opens the way for excessive influence or coups by the military. Civilian governments whose rents are largely unaffected by civil wars then choose small and weak armies that are incapable of ending insurrections. Our framework also shows that when civilian governments need to take more decisive action against rebels, they may be forced to build over-sized armies, beyond the size necessary for fighting the insurrection, as a commitment to not reforming the military in the future.
    Keywords: civil wars, commitment, coups, military, political transitions, political economy
    JEL: H2 N10 N40 P16
    Date: 2009–09
  7. By: Ohlsson, Henry (Uppsala Center for Fiscal Studies)
    Abstract: This paper has two objectives. The first is to study the revenue from the gift, inheritance, and estate taxes in Sweden during more than a century. The second is to focus on a unique episode during the second half of the 1940s when gifts and gift tax revenue exploded. This episode has never before been discussed in the research literature. It gives an extremely clear illustration of behavioural response to taxes in general, and the impact of expectations of future tax increases in particular. It is also a very interesting episode in the economic history of Sweden. I have access to aggregate tax revenue data since 1884. Moreover, I have constructed a rich micro data set of all gifts reported during the period 1942-1949 in one county. A first main result is that gift tax revenue during the 1940s started to increase long before a new estate tax and increased wealth taxation were decided an implemented. The increase even began before the legislative process started. Second, both the number and the average values of gifts increased. Promissory notes were, in value, the most common way to give. Finally, gifts, inheritances, and estates were never important sources of tax revenue. Revenue as a share of GDP reached a peak already in the 1930s. The role of these taxes has instead primarily been equity and to provide integrity for other tax bases.
    Keywords: gift tax; inheritance tax; estate tax; tax avoidance; expectations
    JEL: D10 D31 H24 N33 N34
    Date: 2009–09–22
  8. By: Vanhaute, Eric
    Abstract: The range of famine prone regions in the world has been shrinking for centuries; it’s currently mainly limited to sub-Sahara Africa. Yet the impact of endemic hunger has not declined and the early 21st century seems to be faced with a new threat: global subsistence crises. In this essay I question the concepts of famine and food crisis. I will formulate some suggestions to understand these seemingly unrelated processes in a more integrated way. The article successively debates historical famine research, Europe’s ‘grand escape’ from hunger, past and contemporary ‘depeasantisation’, and the state of 21st century food systems. Only more integrated models of interpretation can supersede the dualistic histories of food and famine that have been dominating developmentalist stories for so long.
    Keywords: famines food crisis peasantry depeasantisation
    JEL: N10 N50 Q10 Q18
    Date: 2009–09
  9. By: Klein, Alexander (Department of Economics, University of Warwick)
    Abstract: This paper constructs an estimate of the total personal income for every U.S state in 1880, 1890, 1900, and 1910. The series includes new figures for 1890 and 1910, and updated figures for 1880 and 1900, which were originally estimated by Richard Easterlin more than fifty years ago. The estimation follows the methodology developed by Easterlin. The paper presents a comparison of the original with the updated 1880 and 1900 figures, a formalization of Easterlin’s methodology, the details of the data sources and the calculation of the new 1890 and 1910 U.S. states’ total personal income estimates.
    Keywords: state national income ; regional GDP ; regional development
    Date: 2009
  10. By: Fullbrook, Edward
    Abstract: In 1970 the USA spent 7% of its GNP on healthcare, in 200716%. Whereas the OECD average per capita expenditure on healthcare in 2007 was $2,964, the USA spent $7,290. Yet in that same period, the health of America’s citizens relative to those of other developed countries declined dramatically, so much so that the CIA lists 49 countries whose citizens now can look forward to on average living longer than Americans. This paper looks for the causes of this colossal disparity between expenditure and results. It argues that they are due to the unique economic institutions that, beginning during WWII, have grown up around healthcare in the USA. Because the magnitude of the relative decline in healthcare in the USA is poorly appreciated, especially by Americans, this paper begins with a set of OECD data tables documenting that decline. The main body of the paper is an historical analysis of the institutional economics of American healthcare from 1940 to the present. The paper concludes with a brief consideration of the possibilities for serious reform.
    Keywords: USA; health expenditure; health indicators; life expectancy; OECD; obesity; healthcare; American healthcare; HMOs; healthcare reform; medicine; heath insurance; pharmaceutical industry; Obama
    JEL: N32 H51 I1
    Date: 2009–10–06
  11. By: Kris James Mitchener; Marc D. Weidenmier
    Abstract: Using a new database of weekly sovereign debt prices of paper currency and pound sterling (or gold) denominated debt, we identify the currency-risk component of sovereign yield spreads for nine of the largest emerging market borrowers for the period 1870-1913. Five years after a country joined the gold standard, paper currency bonds traded at significantly higher interest rates (more than 400 basis points on average) than a country’s foreign currency debt denominated in pound sterling. Investors also expected exchange rates to fall by roughly 20 percent even after emerging market borrowers had joined the gold standard. The presence of persistent positive currency risk premiums long after gold standard adoption suggests that hard pegs for emerging market borrowers may never be fully credible.
    JEL: F2 F33 F36 F41 N10 N20
    Date: 2009–10
  12. By: Fabien Tripier (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - Université de Nantes : EA4272)
    Abstract: The sudden rise in labor's share of income during the U.S. Great Depression of 1929-1933 is examined. To explain this phenomenon, the deflation-based model of the Great Depression of Bordo et al. (2000) [Bordo, M.D.; Erceg, C.J.; Evans, C.L. "Money, Sticky Wages, and the Great Depression." American Economic Review 90:5, 1447-63.] is extended to the case of a Constant Elasticity of factor Substitution (CES) production function. It is shown that considering the low elasticity of factor substitution allows the model to explain the rise in labor's share of income, improves the model's predictions on other macroeconomic variables, and renders the issue of productivity during the Great Depression less puzzling.
    Date: 2009–09–23
  13. By: Robert E. Baldwin
    Abstract: This paper presents a comprehensive but relatively brief historical survey of U.S. trade-policy over the last 75 years. It is aimed at individuals who are not already familiar with the concepts and terminology used in discussions of trade policy and the domestic and international institutional framework within which U.S. trade policies are formulated and implemented. Particular attention is devoted to exploring the underlying economic and political conditions that have shaped U.S. trade policies over the period.
    JEL: A22 A23 F02 F1 F13 F5 F53 F59
    Date: 2009–10
  14. By: Charles Calomiris
    Abstract: When and why do banking crises occur? Banking crises properly defined consist either of panics or waves of costly bank failures. These phenomena were rare historically compared to the present. A historical analysis of the two phenomena (panics and waves of failures) reveals that they do not always coincide, are not random events, cannot be seen as the inevitable result of human nature or the liquidity transforming structure of bank balance sheets, and do not typically accompany business cycles or monetary policy errors. Rather, risk-inviting microeconomic rules of the banking game that are established by government have always been the key additional necessary condition to producing a propensity for banking distress, whether in the form of a high propensity for banking panics or a high propensity for waves of bank failures. Some risk-inviting rules took the form of visible subsidies for risk taking, as in the historical state-level deposit insurance systems in the U.S., Argentina’s government guarantees for mortgages in the 1880s, Australia’s government subsidization of real estate development prior to 1893, the Bank of England’s discounting of paper at low interest rates prior to 1858, and the expansion of government-sponsored deposit insurance and other bank safety net programs throughout the world in the past three decades, including the generous government subsidization of subprime mortgage risk taking in the U.S. leading up to the recent crisis. Other risk-inviting rules historically have involved government-imposed structural constraints on banks, which include entry restrictions like unit banking laws that constrain competition, prevent diversification of risk, and limit the ability to deal with shocks. Another destabilizing rule of the banking game is the absence of a properly structured central bank to act as a lender of last resort to reduce liquidity risk without spurring moral hazard. Regulatory policy often responds to banking crises, but not always wisely. The British response to the Panic of 1857 is an example of effective learning, which put an end to the subsidization of risk through reforms to Bank of England policies in the bills market. Counterproductive responses to crises include the decision in the U.S. not to retain its early central banks, which reflected misunderstandings about their contributions to financial instability in 1819 and 1825, and the adoption of deposit insurance in 1933, which reflected the political capture of regulatory reform.
    JEL: E5 E58 G2 N2
    Date: 2009–10
  15. By: Sebastian Huhn (GIGA Institute of Latin American Studies)
    Abstract: The Costa Rican talk of crime is fundamentally based on the assumption that a formerly explicitly nonviolent nation has been transformed into a battleground for social violence — that is, on the belief that an alarming “crime wave” is occurring today while there was no crime at all in the past. On the basis of this assumption, the fear of crime and the call for zero tolerance and drastic law enforcement actions have been increasing. In this paper I discuss the Costa Rican talk of crime from a historical perspective to demonstrate that crime has always been a topic that has generated pervasive feelings of insecurity and social pessimism. I argue that social changes in Costa Rican society and the paradigmatic shift in economic and social-welfare politics since the 1980s have been essential in the transformation of the talk of crime. As part of this transformation, the politicization of crime since the 1990s has been one of the most powerful changes in the dominant discourse.
    Keywords: Costa Rica, violence, crime, social order, public discourse, social change
    Date: 2009–09
  16. By: Manuela Dominguez Orta (Department of Business Administration, Universidad Pablo de Olavide)
    Abstract: El presente estudio se contextualiza en la segunda mitad del siglo XVIII. Siglo caracterizado por el cambio dinástico de los Austrias a los Borbones, el pensamiento ilustrado y la corriente reformista guiada por la racionalización de la administración. En este escenario reformador, destacó la creación del sistema de intendencias, con el que se pretendió incrementar el control y gestión de las Colonias desde la Metrópoli. La mayoría de los estudios sobre intendencias en indianas han sido elaborados desde una perspectiva histórica o jurídica. Sin embargo, se ha estudiado poco sobre las implicaciones del sistema en la organización económica y en la Real Hacienda. Por ello, el presente trabajo pretende ampliar los conocimientos en este ámbito para el caso del Río de la Plata. Tomando como referencia la Ordenanza para este territorio, se pone de manifiesto cómo las intendencias influyeron en la administración de la Hacienda, especialmente a través de su organización. Este sistema proporcionó una estructura jerarquizada que especificó los diferentes grados intendenciales, facilitó la identificación de funciones y responsabilidades de los ministros al frente de ellos, y clarificó el flujo de información de cada nivel con el inmediatamente superior e inferior.
    Keywords: : Sistema de Intendencias; Indias; Hacienda
    Date: 2009–09
  17. By: L. Randall Wray
    Abstract: This paper applies Hyman Minsky's approach to provide an analysis of the causes of the global financial crisis. Rather than finding the origins in recent developments, this paper links the crisis to the long-term transformation of the economy from a robust financial structure in the 1950s to the fragile one that existed at the beginning of this crisis in 2007. As Minsky said, "Stability is destabilizing": the relative stability of the economy in the early postwar period encouraged this transformation of the economy. Today's crisis is rooted in what he called "money manager capitalism," the current stage of capitalism dominated by highly leveraged funds seeking maximum returns in an environment that systematically under-prices risk. With little regulation or supervision of financial institutions, money managers have concocted increasingly esoteric instruments that quickly spread around the world. Those playing along are rewarded with high returns because highly leveraged funding drives up prices for the underlying assets. Since each subsequent bust wipes out only a portion of the managed money, a new boom inevitably rises. Perhaps this will prove to be the end of this stage of capitalism--the money manager phase. Of course, it is too early even to speculate on the form capitalism will take. I will only briefly outline some policy implications.
    Date: 2009–09

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