nep-his New Economics Papers
on Business, Economic and Financial History
Issue of 2009‒11‒21
sixteen papers chosen by
Bernardo Batiz-Lazo
University of Leicester

  1. Saving, Investment, Greed, and Original Accumulation Do Not Explain Growth By McCloskey, Deirdre
  2. Agricultural Improvements and Access to Rail Transportation: The American Midwest as a Test Case, 1850-1860 By Jeremy Atack; Robert A. Margo
  3. Growing at the Production Frontier. European Aggregate Growth, 1870-1914 By Albert Carreras; Camilla Josephson
  4. The End of Chimerica By Niall Ferguson; Moritz Schularick
  5. Monthly and Quarterly GDP Estimates for Interwar Britain By Mitchell, J.; Solomou, S.; Weale, M.
  6. Wages, prices, and living standards in China, 1738-1925: in comparison with Europe, Japan, and India By Allen, Robert C.; Bassino, Jean-Pascal; Ma, Debin; Moll-Murata, Christine; Zanden, Jan Luiten van
  7. Innovators: Songwriters By David Galenson
  8. The life and times of Nicolas Dutot By François Velde
  9. The Long-Lived Effects of Historic Climate on the Wealth of Nations By Bluedorn, John C.; Valentinyi, Akos; Vlassopoulos, Michael
  10. Perspectives on Mature Marshallian Industrial Districts By Marco Bellandi
  11. Institutions and the environment: the case for a historical political economy By Ali DOUAI (GREThA-GRES); Damien TALBOT (GREThA-GRES)
  12. Credit Booms Gone Bust: Monetary Policy, Leverage Cycles and Financial Crises, 1870–2008 By Moritz Schularick; Alan M. Taylor
  13. Richard M. Goodwin: a pioneer in the field of economic dynamics between the two Cambridges By Massimo Di Matteo; Serena Sordi
  14. Italian export capacity in the long run perspective (1861-2009): a tortuous path to keep the position By Michelangelo Vasta
  15. A Banking Explanation of the US Velocity of Money: 1919-2004 By Benk, Szilárd; Gillman, Max; Kejak, Michal
  16. The equity premium in 150 textbooks By Fernandez, Pablo

  1. By: McCloskey, Deirdre
    Abstract: Thrift was not the cause of the Industrial Revolution or its astonishing follow on. For one thing, every human society must practice thrift, and pre-industrial Europe, with its low yield-seed ratios, did so on a big scale. British thrift during the Industrial Revolution, for another, was rather below the European average. And for still another, savings is elastically supplied, by credit expansion for example (as Schumpeter observed). Attributing growth to investment, therefore, resembles attributing Shakespeare’s plays to the Roman alphabet: “necessary” in a reduced sense, but in fact an assumed background, not the cause in any useful sense. Certainly Europeans did not develop unusual greed, and the Catholics---in a society of bourgeois dignity and liberty---did as well as the Protestants (in Amsterdam, for example). Ben Franklin, for example, was not (as D. H. Lawrence portrayed him in a humorless reading of this most humorous man) “dry and utilitarian.” If capitalism accumulates “endlessly,” as many say, one wonder why Franklin give up accumulating at age 42. The evidence also does not support Marx’s notion of an “original accumulation of capital.” Saving and investment must be used when they are made, or they depreciate. They cannot accumulate from an age of piracy to an age of industry. Yet modern growth theory, unhappily, reinstates as initiating the theory of stages and, especially, capital accumulation. They are not initiating, whether in physical or human capital. Innovation 1700-2010 pushed the marginal product of all capitals steadily out, and the physical and human capital followed.
    Keywords: Industrial Revolution; thrift; Europe; capital accumulation; innovation; growth theory; economic history; saving; investment; bourgeois dignity; human capital; physical capital
    JEL: N10 N11 N13 N0
    Date: 2009–07–07
  2. By: Jeremy Atack; Robert A. Margo
    Abstract: During the 1850s, land in U.S. farms surged by more than 100 million acres while almost 50 million acres of land were transformed from their raw, natural state into productive farmland. The time and expense of transforming this land into a productive resource represented a significant fraction of domestic capital formation at the time and was an important contributor to American economic growth. Even more impressive, however, was the fact that almost half of these total net additions to cropland occurred in just seven Midwestern states which comprised barely less than one-eighth of the land area of the country at that time. Using a new GIS-based transportation database linked to county-level census, we estimate that at least a quarter (and possibly two-thirds or more) of this increase can be linked directly to the coming of the railroad to the region. Farmers responded to the shrinking transportation wedge and rising revenue productivity by rapidly expanding the area under cultivation and these changes, in turn, drove rising farm and land values.
    JEL: N51 N71 N91
    Date: 2009–11
  3. By: Albert Carreras; Camilla Josephson
    Abstract: The view of a 1870-1913 expanding European economy providing increasing welfare to everybody has been challenged by many, then and now. We focus on the amazing growth that was experienced, its diffusion and its sources, in the context of the permanent competition among European nation states. During 1870-193 the globalized European economy reached a “silver age”. GDP growth was quite rapid (2.15% per annum) and diffused all over Europe. Even discounting the high rates of population growth (1.06%), per capita growth was left at a respectable 1.08%. Income per capita was rising in every country, and the rates of improvement were quite similar. This was a major achievement after two generations of highly localized growth, both geographically and socially. Growth was based on the increased use of labour and capital, but a good part of growth (73 per cent for the weighted average of the best documented European countries) came out of total factor productivity –efficiency gains resulting from not well specified ultimate sources of growth. This proportion suggests that the European economy was growing at full capacity –at its production frontier. It would have been very difficult to improve its performance. Within Europe, convergence was limited, and it only was in motion after 1900. What happened was more the end of the era of big divergence rather than an era of convergence.
    Keywords: Economic history, aggregate growth, total factor productivity, comparative national patterns, Europe
    JEL: E01 N10 N13 O47 O52
    Date: 2009–10
  4. By: Niall Ferguson (Harvard Business School, Business, Government and the International Economy Unit); Moritz Schularick (Freie Universität Berlin)
    Abstract: For the better part of the past decade, the world economy has been dominated by a world economic order that combined Chinese export-led development with US over-consumption. The financial crisis of 2007-2009 likely marks the beginning of the end of the Chimerican relationship. In this paper we look at this era as economic historians, trying to set events in a longer-term perspective. In some ways China's economic model in the decade 1998-2007 was similar to the one adopted by West Germany and Japan after World War II. Trade surpluses with the U.S. played a major role in propelling growth. But there were two key differences. First, the scale of Chinese currency intervention was without precedent, as were the resulting distortions of the world economy. Second, the Chinese have so far resisted the kind of currency appreciation to which West Germany and Japan consented. We conclude that Chimerica cannot persist for much longer in its present form. As in the 1970s, sizeable changes in exchange rates are needed to rebalance the world economy. A continuation of Chimerica at a time of dollar devaluation would give rise to new and dangerous distortions in the global economy.
    Date: 2009–11
  5. By: Mitchell, J.; Solomou, S.; Weale, M.
    Abstract: We derive monthly and quarterly series of UK GDP for the inter-war period from a set of indicators that were constructed at the time. We proceed to illustrate how the new data can contribute to our understanding of the economic history of the UK in the 1930s and have also used the series to draw comparisons between recession profiles in the 1930s and the post-war period.
    Keywords: Economic History, National Accounts, Monthly GDP Data, Great Depression
    JEL: N34 C82
    Date: 2009–11–16
  6. By: Allen, Robert C.; Bassino, Jean-Pascal; Ma, Debin; Moll-Murata, Christine; Zanden, Jan Luiten van
    Abstract: The paper develops data on the history of wages and prices in Beijing, Canton, Suzhou/Shanghai in China from the eighteenth century to the twentieth and compare them with leading cities in Europe, Japan and India in terms of nominal wages, the cost of living, and the standard of living. In the eighteenth century, the real income of building workers in Asia was similar to that of workers in the backward parts of Europe but far behind that in the leading economies in northwestern Europe. Real wages declined in China in the eighteenth and early nineteenth centuries and rose slowly in the late nineteenth and early twentieth with little cumulative change for two hundred years. The income disparities of the early twentieth century were due to long run stagnation in China combined with industrialization in Japan and Europe.
    Date: 2009–10
  7. By: David Galenson
    Abstract: Irving Berlin and Cole Porter were two of the great experimental songwriters of the Golden Era. They aimed to create songs that were clear and universal. Their ability to do this improved throughout much of their careers, as their skill in using language to create simple and poignant images improved with experience, and their greatest achievements came in their 40s and 50s. During the 1960s, Bob Dylan and the team of John Lennon and Paul McCartney created a conceptual revolution in popular music. Their goal was to express their own ideas and emotions in novel ways. Their creativity declined with age, as increasing experience produced habits of thought that destroyed their ability to formulate radical new departures from existing practices, so their most innovative contributions appeared early in their careers.
    JEL: N00
    Date: 2009–11
  8. By: François Velde
    Abstract: Nicolas Dutot (1684–1741) is an important figure for the history of economic thought, as a pioneer in monetary theory and price statistics, and for economic history as a chronicler of John Law’s System. Yet until recently very little about him was known, some of it incorrect. I present extensive research that reveals a remarkable career rising from humble origins and full of surprises. He spent his formative years in the ranks of the “ancienne finance” he was thought to despise, and then worked for the chamber of justice that he so decried in his writings, only to be sent to the Bastille for corruption. After working for Law’s Bank and retiring quite comfortably thereafter, he continued to socialize with his pre-System financier and banker friends, joined a short-lived learned society, and accumulated a substantial library that reveals much about his tastes and affinities. The portrait that emerges is at odds with the image of an honest accountant he tried to project, but also richer and more engaging.
    Date: 2009
  9. By: Bluedorn, John C.; Valentinyi, Akos; Vlassopoulos, Michael
    Abstract: We investigate the long-run consequences of historic, climatic temperatures (1730-2000) for the modern cross-country income distribution. Using a newly constructed dataset of climatic temperatures stretching over three centuries (18th, 19th, and 20th), we estimate a robust and significant time-varying, non-monotonic effect of climatic temperature upon current incomes for a cross-section of 167 countries. We find a large, positive effect of 18th century climatic temperature and an even larger, negative effect of 19th century climatic temperature upon current incomes. When historic, climatic temperature is introduced, the effect of 20th century climatic temperature on current income is either weakly positive or insignificant. Our findings are robust to various sub-samples, additional geographic controls, and alternative income measures. The negative relationship between current, climatic temperature and current income that is commonly estimated appears to reflect the long-run effect of climatic variations in the 18th and 19th centuries.
    Keywords: climate; temperature; economic performance; geography; history
    JEL: O11 N50 O57 O50 O40
    Date: 2009–11–17
  10. By: Marco Bellandi (Università degli Studi di Firenze, Dipartimento di Scienze Economiche)
    Abstract: Industrial districts growing in various industrialized countries and regions after the golden age of mass production, in the second half of the twentieth century, have shown a re-emergence of forces of local development. The success stories, in particular those more peculiar and consistent as forms of industrial and social organization, like many Italian cases, have asked and favored the definition of apposite concepts and frames of interpretations. A strong basis of theoretical refinement was extracted from Alfred Marshall’s reflections on the role and working of industrial districts before the golden age of mass production. A well-known refinement is the model of the so-called Marshallian industrial district (MID). Sustained trajectories of success gravitating around the logic of such model have resulted in what may be intended as cases of typical mature industrial districts. They have been confronting since the end of the last century with the effects of a new wave of globalization challenges. It is argued in this paper that MID general structural and dynamic characters encompass a large set of empirical cases, in particular those of typical mature IDs reacting progressively, in terms of innovation and internationalization, to contemporary challenges and de-maturing. They find their way and combine old and new characters, still within the model. However, the MID’s borders may be trespassed as well, as the MID logic coalesces with other logics of industrial and social organization.
    Keywords: Marshallian industrial districts; contemporary innovation and internationalization challenges
    JEL: D24 R12
    Date: 2009
    Abstract: This paper provides a critical review of the ‘state of the art’ of institutional analysis applied essentially by social-ecological economists in the environmental domain. It highlights both areas of strength and issues where there is still room for improvement in analytical terms, by construing these approaches in the context of a general taxonomy of institutionalisms – widely used in politics and applied here in the economic realm. This provides the rationale for re-construing a number of related issues drawn from the core insights of a historical institutionalist approach to human-nature
    Keywords: Ecological economics, institutional analysis, socio-economy, regulation
    JEL: Q01 Q57 B52 P16
    Date: 2009
  12. By: Moritz Schularick; Alan M. Taylor
    Abstract: The crisis of 2008–09 has focused attention on money and credit fluctuations, financial crises, and policy responses. In this paper we study the behavior of money, credit, and macroeconomic indicators over the long run based on a newly constructed historical dataset for 12 developed countries over the years 1870– 2008, utilizing the data to study rare events associated with financial crisis episodes. We present new evidence that leverage in the financial sector has increased strongly in the second half of the twentieth century as shown by a decoupling of money and credit aggregates, and we also find a decline in safe assets on banks' balance sheets. We also show for the first time how monetary policy responses to financial crises have been more aggressive post-1945, but how despite these policies the output costs of crises have remained large. Importantly, we can also show that credit growth is a powerful predictor of financial crises, suggesting that such crises are “credit booms gone wrong” and that policymakers ignore credit at their peril. It is only with the long-run comparative data assembled for this paper that these patterns can be seen clearly.
    JEL: E44 E51 E58 G20 N10 N20
    Date: 2009–11
  13. By: Massimo Di Matteo; Serena Sordi
    Abstract: In the attempt to answer three (interrelated) questions, we concentrate on a crucial step in Goodwin’s (RMG) life: his move from Cambridge, Mass. to Cambridge, UK. Why did RMG not get a permanent position at Harvard? How did RMG reach the decision to settle down in Cambridge, UK? Why was it that RMG never finished the book on economic dynamics he had started to write at Harvard? In answering these questions we show that the material available in the Goodwin Archive at the University of Siena is invaluable and adds much to the ‘known story’.
    Keywords: Richard M. Goodwin, economic dynamics, archive, Harvard University, Cambridge University.
    JEL: B31
    Date: 2009–09
  14. By: Michelangelo Vasta
    Abstract: The paper focuses on the evolution of the capacity of Italian goods to reach international markets from the Unification (1861) up to now. In so doing we provide a wide range of new series on the topic. On one hand we present the general trends of macroeconomic data related to trade, on the other hand we provide the evolution of Italian foreign trade focusing, in particular, on the characteristics of export flows. The paper illustrates the Italian tortuous path to keep the position amongst the most advanced countries in spite of its peculiar specialisation
    Keywords: Italian trade, Export capacity, Technological specialization, Economic growth, trade policies
    JEL: N70 O11
    Date: 2009–09
  15. By: Benk, Szilárd; Gillman, Max (Cardiff Business School); Kejak, Michal
    Abstract: The paper shows that US GDP velocity of M1 money has exhibited long cycles around a 1.25% per year upward trend, during the 1919-2004 period. It explains the velocity cycles through shocks constructed from a DSGE model and annual time series data (Ingram et al., 1994). Model velocity is stable along the balanced growth path, which features endogenous growth and decentralized banking that produces exchange credit. Positive shocks to credit productivity and money supply increase velocity, as money demand falls, while a positive goods productivity shock raises temporary output and velocity. The paper explains such velocity volatility at both business cycle and long run frequencies. With filtered velocity turning negative, starting during the 1930s and the 1987 crashes, and again around 2003, results suggest that the money and credit shocks appear to be more important for velocity during less stable times and the goods productivity shock more important during stable times.
    Keywords: Volatility; business cycle; credit shocks; velocity
    JEL: E13 E32 E44
    Date: 2009–11
  16. By: Fernandez, Pablo (IESE Business School)
    Abstract: I review 150 textbooks on corporate finance and valuation published between 1979 and 2009 by authors such as Brealey, Myers, Copeland, Damodaran, Merton, Ross, Bruner, Bodie, Penman, Arzac¿ and find that their recommendations regarding the equity premium range from 3% to 10%, and that 51 books use different equity premia in various pages. The 5-year moving average has declined from 8.4% in 1990 to 5.7% in 2008 and 2009. Some confusion arises from not distinguishing among the four concepts that the phrase equity premium designates: the Historical, the Expected, the Required and the Implied equity premium. 129 of the books identify Expected and Required equity premium and 82 identify Expected and Historical equity premium. Finance textbooks should clarify the equity premium by incorporating distinguishing definitions of the four different concepts and conveying a clearer message about their sensible magnitudes.
    Keywords: equity premium puzzle; required equity premium; expected equity premium;
    JEL: G12 G31 M21
    Date: 2009–10–11

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