New Economics Papers
on Business, Economic and Financial History
Issue of 2010‒04‒17
twenty-two papers chosen by

  1. The Shanxi Banks By Randall Morck; Fan Yang
  2. ‘The Greatest Bubble in History’: Stock Prices during the British Railway Mania By Campbell, Gareth; Turner, John
  3. Family Planning as ‘Liberation’: The Ambiguities of ‘Emancipation From Biology’ in Keralam By J Devika
  4. Marriage relationships among households in the mid 19th century Tama, Japan By Nobuyuki Hanaki; Satomi Kurosu
  5. The Post-War Issei : A History of Japanese Chamber of Commerce of Southern California, 1949-1990s By Kinoshita, Natsuki
  6. Banking and Financial Crises in United States History: What Guidance can History Offer Policymakers? By Tallman, Ellis W; Wicker, Elmus R.
  7. The Value of Human Capital during the Second Industrial Revolution—Evidence from the U.S. Navy By Darrell J. Glaser; Ahmed S. Rahman
  8. The Futile Quest for a Grand Explanation of Long-Run Government Expenditure By Durevall, Dick; Henrekson, Magnus
  9. Amartya Sen revisited: trade, inequality and growth in central Spain, 1700-1800 By Carlos Santiago Caballero
  10. How novel is social capital: Three cases from the British history that reflect social capital By Akcomak, Semih; Stoneman, Paul
  11. Mean Reversion in International Stock Markets: An Empirical Analysis of the 20th Century By Laura Spierdijk; Jacob A. Bikker; Pieter van den Hoek
  12. Crisis? What Crisis? Currency vs. Banking in the Financial Crisis of 1931 By Albrecht Ritschl; Samad Sarferaz
  13. Swedish regional GDP 1855-2000 : estimations and general trends in the Swedish regional system By Kerstin Enflo; Martin Henning; Lennart Schön
  14. Economic Dynamics as a Succession of Equilibria: The Path Travelled by Morishima By Massimo Di Matteo
  15. Catching up in pharmaceuticals: a comparative study of India and Brazil By Guennif, Samir; Ramani, Shyama
  16. A Concise History of Exchange Rate Regimes in Latin America By Roberto Frenkel; Martin Rapetti
  17. From Utility to Freedom: The Co-evolution of Technology and Institutions in the History of the Swedish Moped 1952–75 By Blomkvist, Pär; Emanuel, Martin
  18. Leveraging the British Railway Mania: Derivatives for the Individual Investor By Campbell, Gareth
  19. The Relationship between Height and Economic Development in Spain.An Historical Perspective By María-Dolores, Ramon; Martínez Carrión, José Miguel
  20. Beer - the ties that bind By Waterson, Michael
  21. Growth, History, or Institutions? What Explains State Fragility in Sub-Saharan Africa By Graziella Bertocchi; Andrea Guerzoni
  22. Valuing Japanese Corporations: A New Perspective on Japanfs Stock Market hBubbleh of the 1980s By Hiroki Arato; Katsunori Yamada

  1. By: Randall Morck; Fan Yang
    Abstract: The remote inland province of Shanxi was late Qing dynasty China’s paramount banking center. Its remoteness and China’s almost complete isolation from foreign influence at the time lead historians to posit a Chinese invention of modern banking. However, Shanxi merchants ran a tea trade north into Siberia, travelled to Moscow and St. Petersburg, and may well have observed Western banking there. Nonetheless, the Shanxi banks were unique. Their dual class shares let owners vote only on insiders’ retention and compensation every three or four years. Insiders shares had the same dividend plus votes in meetings advising the general manager on lending or other business decisions, and were swapped upon death or retirement for a third inheritable non-voting equity class, dead shares, with a fixed expiry date. Augmented by contracts permitting the enslavement of insiders’ wives and children, and their relative’s services as hostages, these governance mechanisms prevented insider fraud and propelled the banks to empire-wide dominance. Modern civil libertarians might question some of these governance innovations, but others provide lessons to modern corporations, regulators, and lawmakers.
    JEL: G21 G3 N2 N25 O16
    Date: 2010–04
  2. By: Campbell, Gareth; Turner, John
    Abstract: Although the British Railway Mania has been described as one of the greatest bubbles in history, it has been largely neglected by academics. This paper attempts to redress this neglect by creating a daily stock price index for the 1843-50 period and by assessing the contribution of the many newly-created railways to the bubble-like pattern in stock prices. The paper then examines whether this bubble-like pattern was due to an increase in the stochastic discount factor arising from an increase in the probability of large-scale adoption of railway technology. We find little evidence to support this hypothesis.
    Keywords: bubbles; financial crises; Railway Mania
    JEL: G12 G11 N23
    Date: 2010–03–31
  3. By: J Devika
    Abstract: The overall effort of the paper is to highlight the ambiguities of ‘liberation’ in 20th century Keralam and to problematise the tradition/modernity binary that too often organises the writing of the history of 20th century Malayalee society. [WP 335].
    Keywords: Keralam, Malyalee society, history, tradition, modernity, liberation, sexual desire, socio-economic, cultural, labour, natural birth-control, artificial birth control, modern, liberation, modern conjugality, domesticity, sexual selfdiscipline,
    Date: 2010
  4. By: Nobuyuki Hanaki (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - Ecole des Hautes Etudes en Sciences Sociales (EHESS) - CNRS : UMR6579, Economics Department - Université de Tsukuba); Satomi Kurosu (Reitaku University - Reitaku University)
    Abstract: This paper studies the formation of marriage relationships between two households in 19th century, Tama, Japan. Previous studies on marriage market or partner selection in the Japanese past tended to rely either on information from a single village in case of statistical analysis, or on collection of oral histories. By using the information from a household register that covers 35 villages, and applying the method of social network analysis, this paper goes beyond the limitation of previous studies. Our empirical results show that there was a tendency for socio-economic homogamy and endogamy (within kinship and within village) among peasants in the mid 19th century Tama, Japan.
    Keywords: Marriage, Japan, Network, Household, Household registers
    Date: 2010
  5. By: Kinoshita, Natsuki
    Date: 2010–03
  6. By: Tallman, Ellis W; Wicker, Elmus R.
    Abstract: This paper assesses the validity of comparisons of the current financial crisis with past crises in the United States. We highlight aspects of two National Banking Era crises (the Panic of 1873 and the Panic of 1907) that are relevant for comparison with the Panic of 2008. In 1873, overinvestment in railroad debt and the default of railroad companies on that debt led to the failure of numerous brokerage houses, an antecedent to the modern investment bank. For the Panic of 1907, panic-related deposit withdrawals centered on the less regulated trust companies, which were less directly linked to the existing lender of last resort, similar to investment banks in 2008. The popular press has made numerous references to the banking crises (there were three main ones) of the Great Depression as relevant comparisons to the present crisis. This paper argues that such an analogy is inaccurate in general.
    Keywords: Systemic Risk; Financial Crises; Bank Failures
    JEL: N22 E44 N21
    Date: 2009–07–31
  7. By: Darrell J. Glaser (United States Naval Academy); Ahmed S. Rahman (United States Naval Academy)
    Abstract: This paper explores the role of human capital on earnings and other measures of job performance during the late 19th century. During this time, U.S. Naval ocers belonged either to a regular or an engineer corps and had tasks assigned to their specialized training and experience. To test for the eects of specialized skills on performance, we compile educational data from original-source Naval Academy records for the graduating classes of 1858 to 1905. We merge these with career data extracted from official Navy registers for the years 1859 to 1907. This compilation comprises one of the longest and earliest longitudinal records of labor market earnings, education and experience of which we are aware. Our results suggest that greater technical skill translated into higher earnings early in careers, but wage premia diminished as careers progressed. From this evidence we argue that technical progress was more skill-depreciating than skill-biased during this period.
    Date: 2010–01
  8. By: Durevall, Dick (Department of Economics, School of Business, Economics and Law, Göteborg University); Henrekson, Magnus (Research Institute of Industrial Economics (IFN))
    Abstract: This paper carries out a critical reappraisal of the two contending theories purporting to explain long-run government spending: Wagner’s Law and different variants of the ratchet effect. We analyze data spanning from the early 19th century until the present day in Sweden and the United Kingdom. Hence, in contrast to previous studies, we evaluate the validity of Wagner’s Law and the ratchet effect hypothesis over a very long time period, starting at the beginning of industrialization. Cointegration analysis is used to investigate the long-run relationships between government expenditure and GDP, focusing on sub-periods and parameter stability. Moreover, we test the ratchet effect hypothesis by estimating models which allow for asymmetric adjustment. According to our main results, Wagner’s Law does not hold in the long run, although the data are consistent with Wagner’s Law between roughly 1860 and the late 1960s in Sweden, and the 1970s in the UK. This can be traced to the formation of the modern public sector, including the introduction of public education, health care, and so forth. Yet Wagner’s Law did not hold during the initial industrialization phase (before 1860), or during recent periods. Finally, we find some evidence of asymmetric adjustment, particularly in the post WWII period in the UK: Public expenditure grows more during bad times than it decreases during good times. However, the ratchet effect is only a short to mediumterm phenomenon.<p>
    Keywords: Displacement effect; Government expenditure; Growth of government; Public sector; Ratchet effect; Wagner’s Law
    JEL: H10 H55 I38
    Date: 2010–01–22
  9. By: Carlos Santiago Caballero
    Abstract: This paper studies the effects of trade and inequality in central Spain during the eighteenth century, taking as case study the province of Guadalajara and the surrounding regions. The first part of the paper presents a specific factors model as theoretical framework that will later be applied to the empirical data. The second part introduces an analysis of income inequality in the province during the eighteenth century and concludes that inequality decreased, especially during the last third of the century. Finally the paper addresses this unexpected result and concludes that it was consequence of the success of the land reform carried out by the central government in the late 1760s. The reform was a success in Guadalajara thanks to the characteristics of its population and the lack of bargaining power of pressure groups. Following Sen’s ideas, the reduction in inequality meant that markets could work properly and that a majority and not only a few could take full advantage of the benefits of trade.
    Keywords: Trade, Inequality, Pressure groups, Institutions
    JEL: D63 F1 N33 N53 O1 O18
    Date: 2010–03
  10. By: Akcomak, Semih (UNU-MERIT, Maastricht University, and CPB (Netherlands Bureau for Economic Policy Analysis)); Stoneman, Paul (Department of Sociology, University of Essex)
    Abstract: Social capital increases efficiency by reducing transaction costs, creating new forms of information exchange and by inducing change in individual attitudes. How Royal Society of London, the Media and the Private Prosecution Societies functioned in the 17th and 18th century Britain display astonishing similarities with these three elements that have been identified by contemporary scholars. By and large current literature treats social capital as novel phenomenon, as "manna from heaven". We argue that social capital is no such magical discovery and it could emerge whenever and wherever social networks exist.
    Keywords: Social capital, British History, Voluntary associations
    JEL: A12 A13 N33 Z13
    Date: 2010
  11. By: Laura Spierdijk; Jacob A. Bikker; Pieter van den Hoek
    Abstract: This paper analyzes mean reversion in international stock markets during the period 1900-2008, using annual data. Our panel of stock indexes in seventeen developed countries, covering a time span of more than a century, allows us to analyze in detail the dynamics of the mean-reversion process. In the period 1900-2008 it takes stock prices about 13.8 years, on average, to absorb half of a shock. However, using a rolling-window approach we establish large fluctuations in the speed of mean reversion over time. The highest mean reversion speed is found for the period including the Great Depression and the start of World War II. Furthermore, the early years of the Cold War and the period covering the Oil Crisis of 1973, the Energy Crisis of 1979 and Black Monday in 1987 are also characterized by relatively fast mean reversion. Overall, we document half-lives ranging from a minimum of 2.1 years to a maximum of 23.8 years. In a substantial number of time periods no significant mean reversion is found at all, which underlines the fact that the choice of data sample contributes substantially to the evidence in favor of mean reversion. Our results suggest that the speed at which stocks revert to their fundamental value is higher in periods of high economic uncertainty, caused by major economic and political events.
    Keywords: mean reversion, market efficiency
    JEL: C23 G14 G15
    Date: 2010–03
  12. By: Albrecht Ritschl; Samad Sarferaz
    Abstract: This paper examines the role of currency and banking in the German financial crisis of 1931 for both Germany and the U.S. We specify a structural dynamic factor model to identify financial and monetary factors separately for each of the two economies. We find that monetary transmission through the Gold Standard played only a minor role in causing and propagating the crisis, while financial distress was important. We also find evidence of crisis propagation from Germany to the U.S. via the banking channel. Banking distress in both economies was apparently not endogenous to monetary policy. Results confirm Bernanke's (1983) conjecture that an independent, non-monetary financial channel of crisis propagation was operative in the Great Depression.
    Keywords: Great Depression, 1931 financial crisis, international business cycle transmission, Bayesian factor analysis, currency, banking
    JEL: N12 N13 E37 E47 C53
    Date: 2010–02
  13. By: Kerstin Enflo; Martin Henning; Lennart Schön
    Abstract: This paper uses a method devised by Geary and Stark to estimate regional GDPs for 24 Swedish provinces 1855-2007. In empirical tests, we find that the Swedish estimations yield results of good precision, comparable to those reported in the international literature. From the literature, we generate six expectations concerning the development of regional GDPs in Sweden. Using the GDP estimations, we test these expectations empirically. We find that the historical regional GDPs show a high correlation over time, but that the early industrialization process co-evolved with a dramatic redistribution of productive capacity. We show that the regional inequalities in GDP per capita were at their lowest point in modern history in the early 1980s. However, while efficiency in the regional system has never been as equal, absolute regional differences in scale of production has increased dramatically over our investigated period. This process has especially benefited the metropolitan provinces. We also sketch a research agenda from our results.
    Keywords: Industrialization, Regional inequality, Regional income, Economic growth
    JEL: N93 N94 R11
    Date: 2010–03
  14. By: Massimo Di Matteo
    Abstract: In the paper I bring to the attention of the economists and historians of economic thought the idea of economic dynamics that one can found in the first book by Morishima published in 1950 but totally overlooked. It has a great interest not only because there it appears for the first time the application of new mathematical concepts ("structural stability") but also because he pursues a way of dynamizing general equilibrium theory that has been neglected in the postwar developments that appears to have been inspired by Samuelson. The paper has three parts. In the first and second parts I outline the development of economic dynamics and its applications to general equilibrium elaborated by Morishima; in the third part a comparison between the prevailing idea of economic dynamics as originally put forward by Samuelson and that elaborated by Morishima is developed and discussed.
    Keywords: dynamic general equilibrium; comparative statics and dynamics; dynamic and structural stability.
    JEL: B31 B21 B49
    Date: 2009–12
  15. By: Guennif, Samir (CEPN - CNRS, UFR de Sciences Economiques); Ramani, Shyama (UNU-MERIT, Maastricht University, and Ecole Polytechnique)
    Abstract: Since the mid-twentieth century, the national objective of India and Brazil has been to develop industrial capabilities in essential sectors such as pharmaceuticals. At the outset, they shared some common features: a considerable period of lax intellectual property rights regimes, large internal market and a reasonably strong cadre of scientists and engineers. However, over fifty years, India has had much more success in building indigenous capabilities in pharmaceuticals than Brazil, at least to date. Why? In exploring the answer to this question, we show that in both countries the design of State policy played a crucial role and the endogenous responses in the national system of innovation consisted of two parts. On the one hand, most of the time, the predicted and desired outcome was partially realized and on the other hand, there were invariably, other unpredicted responses that emerged. The latter unexpected elements, which were specific to the two countries, pushed them along distinctive trajectories.
    Keywords: Pharmaceutical industry, India, Brazil, industrial capabilities, Catching up, Technology transfer
    JEL: O33 O38 O57
    Date: 2010
  16. By: Roberto Frenkel (Centro de Estudios de Estado y Sociedad (CEDES)); Martin Rapetti (University of Massachusetts Amherst)
    Abstract: The paper analyzes exchange rate regimes implemented by the major Latin American countries since the Second World War, with special attention on the period of the second globalization process beginning in the 1970s. The analysis follows a historical narrative aiming to provide an understanding of the domestic and external circumstances in which various regimes were adopted. A simple conceptual framework is developed in order to emphasize how the exchange rate regime may affect key nominal and real variables in a small open economy. After an overview of the main trends followed by the major countries in the region over the last 60 years, the paper focuses on regimes that were implemented 1) with stabilization purposes (nominal anchors) and 2) with the aim of targeting the level of the real exchange rate. These two sections analyze in greater detail some experiences illustrating the pros and cons of both strategies. The paper closes with an assessment about exchange rate experiences in Latin America. JEL Categories: F41, N16, F31
    Keywords: Latin America, exchange rate regimes, real exchange rate, inflation targeting.
    Date: 2010–02
  17. By: Blomkvist, Pär (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology); Emanuel, Martin (CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology)
    Abstract: The first of July 1952, the moped was legislatively excluded from existing restrictions for heavier two-wheeled motorized vehicles. A driver/owner of a “bicycle with auxiliary engine” – this was the original denomination of the vehicle – thus needed no registration, driver’s license or insurance, nor pay any vehicle tax. The legislators did, however, postulate some technical requirements. Besides regulation of the engine, the vehicle should be “bicycle-like” and have pedals. It should thus be driven primarily by means of human, not mechanical, power (i.e., it was not supposed to be a lighter version of a motorcycle). In terms of social and economical goals, the state assumed workers to be the primary users, and a utilitarian use rather than one connected to pleasure and spare time. Very quickly, however, the moped lost all resemblance with the ordinary bicycle (except for the pedals). In a new legislation in 1961, the state yielded to the technical development. The moped no longer needed to resemble a bicycle or have pedals. Meanwhile, the moped also became more of a toy for boys – a vehicle for freedom – rather than the useful tool the state had wished for. In fact, we argue that the demands from user groups not foreseen played a crucial role in changing the legal technical requirements of the moped. This report treats the co-evolution, technically and institutionally, of the moped during the period 1952–75. Using a method inspired by evolutionary theory, the moped models released in Sweden in these years are grouped in “families” with distinctive technical features and accompanying presumed uses. For understanding how demands of different user groups can alter the “dominant design” of a technology (Abernathy & Utterback, 1978), the concept pair of technical and functional demand specifications are developed. While dominant design may capture conservative features in technological development, our concepts seem to better capture the dynamics in technical and institutional change – the co-evolution of technology and institutions.
    Keywords: bicycle; co-evolution of technology and institutions; demand specification; dominant design; evolutionary theory; history of technology; industrial dynamics; moped; motorcycle; road traffic legislation; technology studies; transport history
    JEL: O31
    Date: 2010–02–11
  18. By: Campbell, Gareth
    Abstract: During the British Railway Mania of the 1840s the promotion and construction of new railways increased dramatically. These new projects were generally financed by shares with uncalled capital, which allowed investors to make payments on an instalment basis over a period of several years. There is evidence that these assets can be regarded as futures or options, implying that investors were purchasing highly leveraged derivatives. The leverage embedded in these assets multiplied both the positive returns during the boom, and the negative returns during the downturn. It also affected the payment schedule for investors as little capital was required initially, but the subsequent ‘calls for capital’ resulted in deleveraging.
    Keywords: bubbles; financial crises; Railway Mania
    JEL: G12 N23 G13
    Date: 2010–03–31
  19. By: María-Dolores, Ramon; Martínez Carrión, José Miguel (Departamentos y Servicios::Departamentos de la UMU::Fundamentos del Análisis Económico)
    Abstract: This paper investigates the relationship between height and economic development in the modern Spain. The relation is investigated using recently constructed times series with recruitment data of conscripts. We observed changes in average height along the analyzed period. These variations could be explained by different indicators of economic development such as for consumption of hygiene products, for deflator of private consumption, schooling rate, infant mortality and trade. We model human stature as a Vector Autoregressive Model (VAR) and we proceed to estimate a Vector Autoregressive Equilibrium Correction Model (VECqM) to quantify the height response to different changes in the different explanatory variables. The analysis shows that there is a long-run relationship between height, income, and other indicators of economic development in Spain as consumption of hygiene products, and the degree of openness.
    Keywords: Height, health, income, education, economic development, cointegration
    JEL: D12 R23
    Date: 2009–12
  20. By: Waterson, Michael (Department of Economics, University of Warwick)
    Abstract: It started with the Beer Orders (1989). A watershed decision was made by the Law Lords in July 2006. For one man, Bernie Crehan, this was the culmination of a 15 year episode in the pub trade, in which he has made legal history as the first UK case of damages for breach of competition law being awarded by a court. Possibly hundreds of other cases hung on their Lordships’ decision and Nomura, the Japanese bank that took over the chain called Inntrepreneur, had a total potential liability of £100m. And it all concerns Article 81, vertical agreements, and the price of a pint of beer. In 1989, the UK Monopolies and Mergers Commission published its lengthy and longawaited report on Beer. The Commission “…recommended measures that eventually led brewers to divest themselves of 14000 public houses. The MMC claimed that their recommendations would lower retail prices and increase consumer choice. There is considerable doubt, however, that their objectives were achieved.” (Slade, 1998, p565). In their report, the MMC noted rising real prices of beer and seized upon the power of the then big six brewers exercised through their considerable tied estates as being a prime motor. Consequently, they recommended that the ties be substantially cut. At that stage, the MMC (unlike the present day Competition Commission) did not determine remedies and it was left to the Department of Trade and Industry (DTI) to formulate the remedies (the Beer Orders) and the Office of Fair Trading (OFT) to supervise their implementation. Thus the OFT found itself implementing the Beer Orders in the face of a brewing industry determined to fight back.
    Date: 2010
  21. By: Graziella Bertocchi; Andrea Guerzoni
    Abstract: We explore the determinants of state fragility in sub-Saharan Africa. Controlling for a wide range of economic, demographic, geographic and istitutional regressors, we find that institutions, and in particular the civil liberties index and the number of revolutions, are the main determinants of fragility, even taking into account their potential endogeneity. Economic factors such as income growth and investment display a non robust impact after controlling for omitted variables and reverse causality. Colonial variables reflecting the history of the region display a marginal impact on fragility once institutions are accounted for.
    Keywords: State fragility, Africa, institutions, colonial history
    JEL: O43 H11 N17
    Date: 2010–03
  22. By: Hiroki Arato; Katsunori Yamada
    Abstract: Employing a new accounting data set we apply the framework of McGrattan and Prescott (2005) to the Japanese economy in order to assess if Japanese stocks were priced correctly in the period after 1980.@We find that the stock market tended to undervalue the fundamental value of installed capital. We also provide a new interpretation of Japanese stock market phenomena during the gbubble periodh and suggest that from a theoretical perspective, stock prices during the gbubble periodh were correctly valued. Changes in the reproducible cost of intangible capital play an important role in our new interpretation.
    Date: 2010–02

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