Economic Evolution and Revolution in Historical Time

Paul W. Rhode, Joshua L. Rosenbloom, David F. Weiman, Paul W. Rhode, Joshua L. Rosenbloom, David F. Weiman

• Verlag: Stanford Economics and Finance
• Jahr: 2011
• ISBN:
  9780804777629
• Auflage: 1
• Thema: Économie
• Thema: Histoire économique

This book challenges the static, ahistorical models on which Economics continues to rely. These models presume that markets operate on a "frictionless" plane where abstract forces play out independent of their institutional and spatial contexts, and of the influences of the past. In reality, at any point in time exogenous factors are themselves outcomes of complex historical processes. They are shaped by institutional and spatial contexts, which are "carriers of history, " including past economic dynamics and market outcomes.

To examine the connections between gradual, evolutionary change and more dramatic, revolutionary shifts the text takes on a wide array of historically salient economic questions—ranging from how formative, European encounters reconfigured the political economies of indigenous populations in Africa, the Americas, and Australia to how the rise and fall of the New Deal order reconfigured labor market institutions and outcomes in the twentieth century United States. These explorations are joined by a common focus on formative institutions, spatial structures, and market processes. Through historically informed economic analyses, contributors recognize the myriad interdependencies among these three frames, as well as their distinct logics and temporal rhythms.

CHAPTER 1

The Stanford Tradition in Economic History

GAVIN WRIGHT

STANFORD UNIVERSITY HAS a long and distinguished tradition in economic history, many elements of which are richly on display in the present volume. The purpose of this essay is to offer a brief synopsis of this backstory and to point out some of the linkages between these contributions and the Stanford tradition. It may be hoped that non-Stanford participants and readers will forgive the measure of chauvinistic exaggeration inevitably associated with such an exercise. Certainly Stanford has no monopoly or exclusive claim to any of the ideas discussed here. But identifying intellectual legacies and continuities is part of the historical craft and as such needs no apology. If the effort helps future practitioners to motivate and frame issues pertaining to historical economics, then perhaps it will have some redeeming social value beyond mere nostalgia.

To quote from the letter we send to prospective graduate students: “The hallmark of the Stanford tradition may be summarized in the expression ‘History Matters,’ which is to say that we think of ourselves as active participants in the discipline of economics, upholding the view that historical events and processes make a difference for economic outcomes.”¹ We sometimes trace our heritage back to Thorstein Veblen, who taught at Stanford from 1906 to 1909 and is often identified as the founder of institutional economics. But unlike many earlier institutionalisms, economic history at Stanford has never been “anti-economics.” We accept economics as the parent discipline but insist that good practice should consider the historical context within which economic processes occur. In this way, Stanford economic history dissents not just from unhistorical economics but from approaches to historical research that make no such methodological distinction—sometimes referred to as “applied economics with old data.” This case was articulated in Veblen’s time by Frederick Jackson Turner, in his 1910 presidential address to the American Historical Association:

The economic historian is in danger of making his analysis and his statement on the basis of present conditions and then passing to history for justificatory appendixes to his conclusions. . . . In fact the pathway of history is strewn with the wrecks of the “known and acknowledged truths” of economic law, due not only to defective analysis and imperfect statistics, but also to the lack of critical historical methods, to insufficient historical-mindedness on the part of the economist, to failure to give due attention to the relativity and transiency of the conditions from which his laws were deduced. (Turner 1911, pp. 231–232)

The challenge has been to transmute this largely negative critique into a positive agenda for historical research that meets the standards and informs the understanding of both parent disciplines. It should be evident in what follows that the Stanford tradition in economic history does not offer a standardized methodological recipe. Good research in historical economics may be abstract and theoretical, cliometric, archival, or some combination of these, as appropriate for the question at hand. What counts is the commitment to taking history and historical processes seriously in addressing economic topics. The intellectual underpinnings of the historical approach have been ably expounded and demonstrated by my Stanford colleagues over the years.

INFLUENTIAL ECONOMIC HISTORIANS AT STANFORD

In the 1950s, 1960s, and 1970s economic history was shaped with a distinctive Stanford flavor by Moses Abramovitz, Paul David, and Nathan Rosenberg. Moe Abramovitz became widely known in the 1950s as one of the founders of growth-accounting, when his pioneering work with national income statistics revealed (at about the same time as Robert Solow) that most historical output growth could not be explained by the expansion of labor and capital (Abramovitz 1956). But Moe always insisted that the residual gap between output and inputs should not be identified as “technological change.” It was merely, he said, “a measure of our ignorance.” Moe’s later work in collaboration with Paul David put historical flesh on this skepticism by showing that the “stylized fact” attributing most U.S. growth to the residual held only for the twentieth century, contrasting with the nineteenth century dominated by the expansion of land, labor, and capital. Not, they hastened to say, because there was “no technological progress” in the nineteenth century but because new technologies in that era were biased in a labor-saving, capital-using direction. Abramovitz and David (1993) argued that U.S. economic history should be conceptualized as a series of disequilibrium traverses between stable growth paths, the shifts between them driven by deep changes in the underlying technologies. Their position, in other words, was that macroeconomic trends and fluctuations should be interpreted in historical context, using frameworks that allow for the possibility of epochal shifts between eras. The subsequent record of unanticipated shifts in prevailing macroeconomic regularities amply confirms the wisdom of this broad perspective. Moe continued to wrestle with these matters for the rest of his life.²

An important aspect of historical economics is technology and, going further, the institutions of a society that generate and direct technological change. Long before coming to Stanford in 1974, Nate Rosenberg was writing economic history from “inside the black box” of technology, well beyond the boundaries most economists impose on themselves. The central theme of Nate’s work has been to show that economics can gain from viewing technologies from the perspective of inventors, engineers, and innovating firms. To be sure, most technological change is driven by economic motives. But innovators cannot give equal attention to all possible directions of change, and Nate shows that new opportunities often emerge to technicians as a “sequence of engineering challenges” with an apparent internal logic of their own. The resulting historical trajectories are deeply path dependent, implying, as Nate has always argued, that “the most probable directions for future growth in knowledge can only be understood within the context of the particular sequence of events which constitutes the history of the system.”³ Economic historians feel that we were studying endogenous technological change long before the advent of new growth theory. But to do so in a substantive as opposed to a formalistic manner means taking technology history seriously.⁴

Urging economists to take history seriously has been Paul David’s mission throughout his long career. Paul arrived at Stanford in 1962, still working on his dissertation on the economic history of Chicago. Harvard awarded Paul a PhD in 1973, not because he had finished the thesis but on the basis of a collection of already-published articles. Among the many topics on which Paul has worked over the years, perhaps the biggest impact has come from his articulation of the intellectual basis for historical economics in the concept of “path dependence,” using the persistence of the QWERTY typewriter keyboard as a metaphorical illustration.⁵ Stanford was a hotbed of historical thinking related to technology in the mid-1980s, as Paul, Nate Rosenberg, Brian Arthur, Kenneth Arrow, and numerous visitors and graduate students thrashed out and debated these concepts and their implications.⁶

Out of this milieu came the second of Paul’s major impact papers, “The Dynamo and the Computer,” which appeared in 1990, in the midst of the productivity slowdown known as the “Solow Paradox”: If productivity growth is generated mainly by new technology, why was productivity stagnant in the midst of dramatic advances in computer technology? Paul suggested an analogy between computers and electrification, in which major productivity effects lagged by a full generation behind the breakthroughs in technical feasibility (David 1990 and a fuller version, David 1991). Why the delay? Because diffusion of electric power required complementary investments in infrastructure, and exploiting the productivity potential of electrification required a new capital stock designed with this purpose in mind, plus reconfiguration of work routines on the shop floor. All of these processes took time, and they came to fruition in a discontinuous manner during the U.S. investment boom of the 1920s. The productivity surge after 1995, closely associated with computers and other information technology, has given Paul’s paper iconic status.

Path dependence and QWERTY are often mischaracterized as pertaining to narrow issues and anomalies in the history of technology. But Paul has always stressed that the QWERTY keyboard is meant as a broader metaphor for historical economics. Societies feature many other types of persistence in institutions, norms, locational patterns, and other realms of economic life. Not that any of these are permanently “locked in” to a single unchanged status forever. But they tend to change in an incremental, evolutionary manner, constrained by the legacy of the past. As Paul puts it, institutions are the “carriers of history” because they represent solutions to historical coordination problems, often built on complex codes and information channels with many of the properties of highly durable capital goods (David 1994).

I came to Stanford in 1982, in the midst of writing a book on the economic development of the U.S. South since the Civil War. Stanford was an attractive place for an economic historian, largely because of the strength of the faculty (especially after the arrival of Steve Haber in 1985) but also because of the rich harvest of graduate students working on historical topics. This intellectual setting helped me to formulate the thesis of Old South, New South, which was that the southern economy was characterized not by the survival of slave-like institutions but by persistent regionalism in the labor market. Low-income southerners were geographically mobile, blacks as well as whites, but prior to World War I their migration routes were east–west rather than south–north. These patterns were of course shaped by culture, geography, and politics, but the labor market in turn accentuated regional distinctiveness along all of these dimensions. In short, the South became locked into a low-wage political-economic equilibrium, vividly illustrating the powerful role of history in spatial economic processes.

In the late 1980s, with Paul David’s encouragement, I began to broaden my horizons beyond the South to the larger issue of U.S. development in comparative and international context. At a time when Japanese innovations seemed to be overwhelming American industries, we began a search for the historical origins of U.S. “technological leadership.” As often happens in historical research, the quest turned in an unexpected direction when I discovered that the most salient characteristic of U.S. manufacturing exports during the country’s surge to world leadership (roughly 1890–1910) was intensity in nonreproducible natural resources. Thus began a preoccupation with minerals that has captivated me ever since. Because the United States was the world’s leading producer of virtually every major industrial mineral during this era, at first glance it appeared that industrial leadership was the fortuitous result of generous geological endowment. Over time, however, Paul and I came to the conclusion that the United States was no better endowed with minerals than other large nations. Abundance instead derived from early development of the country’s mineral potential, through investments in physical capital, exploration, human capital, and, above all, diverse forms of knowledge (Wright 1990; David and Wright 1997). This insight proved more far-reaching than we could have imagined, implying that so-called natural resources are not really natural but socially constructed as an economic matter, a perspective that mainstream economists find extraordinarily difficult to absorb.

Paul David and I worked together on several projects over the years, but no collaborative effort was more fruitful than recruiting, promoting, and retaining Avner Greif at Stanford. Superficially, Avner’s background and methodology—a Northwestern University PhD whose research specialties were game theory and medieval trade—might seem very different from those just described. But it did not take long after his arrival in 1989 for a deep sense of common purpose to emerge, in Avner’s insistence on the essentially historical character of the institutions that allowed long-distance medieval trade to flourish in the absence of formal legal enforcement systems. In a series of stunning papers published in the mid-1990s Avner launched an interpretive paradigm known as “historical institutional analysis” that was at once more rigorous and more historical than earlier approaches.⁷ The core perspective is that “institutions” should be understood not as exogenously specified constraints on individual behavior but as the outcome of historical processes in which individual responses to a structure also serve to reproduce that structure. Characterizing institutions as equilibria in a game theory setting is a powerful way to encapsulate this view. The real payoff, however, has been to use this framework to generate persuasive historical narratives for understanding fundamental economic phenomena. An example would be Avner’s contrast between the “collectivist” Maghribi traders of the eleventh century and the “individualist” Italian city-states—each one a viable institutional “solution” to agency problems in long-distance trade but with very different implications for the subsequent evolution of these societies.⁸

EVOLUTIONARY PROCESSES IN ECONOMICS

All of the essays in Part One highlight the role of historical context in shaping the early development of institutions that became economically significant at a later phase. Although he has never had formal association with Stanford, George Grantham (Chapter 3) fits nicely into the tradition just described. Grantham argues that the “institutionalization” of science in European universities between 1780 and 1850 represented a resolution of emerging...