Tag Archives: history

Always and everywhere a political phenomenon

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I was quite excited about Carola Binder’s Shock Values: Prices and Inflation in American Democracy, as I expected something similar to Thomas Stapleford’s (2009) The Cost of Living in America. It isn’t about price indices, however, but about monetary policy and inflation. Macroeconomics is so much not my area that I feel unable to comment on the argument of the book, except to wholeheartedly agree that inflation is always and everywhere a political phenomenon. I’ve written (in my forthcoming book, The Measure of Progress) about the scarring experience of the late 1970s inflation for my working class family.

Anyway, Shock Values is a very readable monetary history of the United States, from the Revolutionary era to the 2020s. The theme throughout is the question of the political legitimacy of prevailing monetary arrangements, particularly the role of the state in aiming to stabilise prices. As the final chapter notes, the current episode of inflation has combined with broader US political instability and the arrival of crypto to raise new questions about that legitimacy – the book borrow’s Paul Tucker’s concept of legitimacy as set out in his book Unelected Power.

I knew less about the early (19th century) period and so particularly enjoyed that; perhaps I was the only audience member to leave Hamilton wishing there had been more about the formation of the first federal banking system. The sections on wartime price controls are also very interesting. If you’re already steeped in monetary history there might not be much new in the book, but I found it an excellent overview and it didn’t seem to be ideological – politely ignoring MMT and casting justifiably measured doubt on crypto assets.

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We’re all doomed – maybe

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I read Peter Turchin’s (2023) End Times: Elites, Counter-Elites and the Path of Political Disintegration on a long flight yesterday (I’m at Stanford for a couple of workshops). I’m not sure what to make of it. It’s well-written and an engaging read. The basic idea that there is a pendulum in the strength and health of polities, of generation-long good times and bad times, seems valid enough. The idea that one can model these computationally, I find a bit weird – speaking as one who spent some years early in her career modelling the UK and other economies computationally. Predicting outcomes from those models a year ahead that was tricky enough. This kind of system-wide modelling involves a great deal of judgement whereas this book claims an implausible degree of automaticity. As a sceptic about macroeconomic-modelling I’m a natural sceptic about – whatever we are going to call this – metaeconomic-modelling?

Turchin’s dynamics are driven by two phenomena: the immiserisation of the working class as the labour share of the economy declines, due to a ‘wealth pump’ as successful elites rig the economy to grab ever more of the value; and the over-production of elites who have to compete to benefit from the wealth pump. After a cycle of growth and integration, these mechanisms give way to a cycle of conflict and chaotic politics, driven by a coalition of the impoverished (Trump voters from the former manufacturing heartlands) and the not successful-enough elites (J.D.Vance).

This is a neat model, and seems to correspond to today’s US reality, but I have questions. For example, if expanding education is ‘over-production of elites’, what are we to make of the role of expanded education in technical progress and growth – is periodic conflict simply a cost of investment in human capital that has to be borne? Where does the role of demand in creating jobs for these productive people fit in? Do we need a war to kill off the excess PhDs and return to a stable, integrative phase? The role of excess labour supply in Turchin’s model seems to involve the lump of labour fallacy. All the (UK) evidence I know on immigration is that the effects on local wages and employment depend on (a) how complementary or not the skills of migrants are to local skills and (b) the state of the business cycle. Additional labour supply does not automatically mean immiserisation of workers.

There’s also a long quotation from Jack Goldstone to the effect that the population had grown substantially for 50 years before every major revolution and rebellion between 1500 and 1900. Does this mean the model will predict no more revolutions outside sub-Saharan Africa as populations are now in decline? It’s also a very US centric book despite using historical examples from many countries. For the instance UK labour share has not fallen like that in the US, although median wages have certainly stagnated.

I suppose in the end how seriously you take this kind of modelling depends on your belief about the extent to which human societies can learn and thus escape from past patterns. For what it’s worth, the book predicts the 2020s in the US will stay tumultuous. Of course, one doesn’t need a model to see this. I visit here once or twice a year but might stay away for a bit after early November 2024.

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Institutions, finance – and war

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Perhaps it was because I read the book in several stages, but I found it hard to take away a single line of argument from Geoffrey Hodgson’s The Wealth of a Nation: Institutional Foundations of English Capitalism. There is plenty of interest in the book but the chapters seem unconnected. One of the comments on the back, from my former colleague Sheilagh Ogilvie, makes a virtue of this, praising it for steering clear of monocausal explanations, which is true. But the book is also making an argument about the mode of economic analysis as well as about causes of the Industrial Revolution.

Anyway, here is what I took from my read:

  1. Other accounts of the origins of the Industrial Revolution and capitalism in England get something wrong: Marx, McCloskey, Mokyr, Allen, Weber, Uncle Tom Cobbley and all.
  2. This is because they do not employ the framework of evolutionary economics.
  3. Economics goes wrong big time in mixing up capital as in physical capital goods and capital as financial capital, starting with Adam Smith.
  4. Economic development is a process of the creation and changing of both technical and institutional rules.
  5. The distinctiveness of capitalism lies in the development of financial instruments and markets, especially mortgages lent against collateral: “Developed financial institutions make capitalism historically specific.”
  6. The Industrial Revolution was due to institutional evolution – mostly gradual but with some big moments of dramatic change such as the deal that brought about the 1688 accession of William and Mary.
  7. But the impact of external shocks – especially war – in bringing about economic development is under-appreciated.

I liked this observation about institutions: “They function as information registries of what is produced and owned, and of rules governing their use and allocation.” Hodgson cites Shannon and Weaver’s definition of information – something whose receipt can cause an action. This metaphor of units of information underlies the evolutionary approach, as I understood this chapter. Hodgson here and elsewhere has strongly argued the case for a paradigm shift in economics away from its still-extant physical production function framework to the evolutionary framework. (I do see the crumbling of the old paradigm in some respects but we’re far from a new one taking its place.)

The book ends, to my surprise, with a chapter about Japan’s economic development. I think the point here is that: “Major institutional changes in the fundamental areas that matter for economic development typically depend on exogenous shocks.” For Japan these were the Meiji restoration, then loss and occupation in 1945/6.

All in all, an interesting read, but it made me think I’d get more from reading one of Prof Hodgson’s earlier books on evolutionary economics.

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The Paper Age

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October already!

I just finished reading Dinner With Joseph Johnson: Books & Friendship in a Revolutionary Age by Daisy Hay, thanks to a couple of train journeys and a quiet evening alone at home. I enjoyed it a lot. It’s one of the mini-genre of books (like The Lunar Men) that paints a picture of an era’s ideas through a description of the people who gathered to talk and wirte and indeed paint about them. In this case it’s Britain of the 1770s to 1790s, and the centre – although an enigmatic character himself compared to some of his famous authors and illustrators – was Unitarian publisher Joseph Johnson. The central event giving the book its narrative arc is the French Revolution, and the subsequent crackdown on freedom of speech and worship by the British Government.

Anyway, the relevance here is this passage about a magazine started by Johnson, the Analytical Review (great title). One reviewer is quoted: “This is a PAPER AGE.” the book continues, “Paper had become the engine of Britain’s emergent capitalist economy, as banknotes, share certificates, contracts and promissory notes circulated out from London into the provinces and across the globe.” The magazine estimated that nine tenths of Britain’s trade relied on the medium of paper.

I suppose ours is an ELECTRON age. Although electrons, as Ed Conway makes so plain in the excellent Material World, depend entirely on a material substrate.

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Classes, elites and people

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I was very excited to get a proof copy of Branko Milanovic’s new book, Visions of Inequality From the French Revolution to the End of the Cold War, a while ago. The book is out in early October so it seems ok to post about it now. For anybody interested in inequality – and we all should be – anything by Milanovic is an essential read. His collation and interpretation of global inequality data is masterly, and his perspective from a socialist background (he was born in former Yugoslavia) is always interesting.

This new book is an intellectual history of how economists of the past have perceived and analysed inequality. The chapters cover Quesnay, Smith, Ricardo, Marx, Pareto, Kuznets and then – for the second half of the 20th century – a cluster of neoclassical economists during the period the book labels as ‘the long eclipse of inequality studies’. The Cold War involved in the west the myth (in economics although not in life) of a classless society. The book aims to describe each thinker’s ideas about the dynamics of income distribution, but not their normative perspective. Hence the discussion of Marx covers the evolution of wages and the downard tendency of the rate of profit but not the labour theory of value and alienation.

As I’m no expert on the history of thought, I learned a lot from the earlier chapters. The earlier thinkers all framed their analysis around the concept of social classes: “Classes were the natural concepts around which income distribution was ‘built’.” With Pareto, the analysis shifted to interpersonal distribution within a framework of the social hierarchy (the eltie vs the rest), and then with Kuznets and the later neoclassicals to individuals. This was partly driven by the availability of data on individual incomes from income tax records, after the introduction of direct taxation. The distribution among individuals could be sliced in different ways – location, education, occupation – but the background context of social structure faded. And then, after around 1960, economists’ interest in income distribution faded too. Why?

One comment Milanovic makes in the introduction struck home: “The puzzle was solved when I realized that the discipline of economics, as it was taught and studied betweem 1960 and 1990 in the West, was really designed for the period of the Cold War. …. Inequality seemed like a problem that was going away, and this reduced interest in studying it.  … Each side [in the Cold War] had to insist that it was more equal and less class based than the other.” The book quotes Kuznets’ 1955 AEA Presidential Address calling for economists to begin to look at processes of long-term change – technology, demography, social frameworks: “Effective work in this field necessarily calls for a shift from market economics to political and social economy,” Kuznets said. Of course, this did not happen and economics doubled down on the market framework. “We might say that economics as a field stagnated or even regressed, at least in its understanding of income distribution under modern capitalism,” Milanovic comments.

This has changed in recent years, with the empirical work of economists like Milanovic, Saez and Piketty – I would add the prescient prior work of Tony Atkinson (Inequality: What Can Be Done is a terrific overview and battle cry), who was ahead of his time. Visions of Inequality ends with a call to augment the study of individual incomes with a greater focus on non-labour income, on household income rather than the individual wage earner, and on global inequality. My addendum would be the distribution of unpaid work within the household and the community. It’s an exciting time to be studying inequality thanks to the data and recent scholarship, and an important time given how unsustainable the current distribution has become – after all, the term ‘elite’ has become an insult in political debate. This book is a great scene setter for the modern debate, not least in illustrating the link between ideas of inequality and the times in which ideas are formed.

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