1965, state of economic history

7/30/2019 1965, State of Economic History

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American Economic Association

The State of Economic HistoryAuthor(s): Douglass C. NorthSource: The American Economic Review, Vol. 55, No. 1/2 (Mar. 1, 1965), pp. 86-91Published by: American Economic AssociationStable URL: http://www.jstor.org/stable/1816246 .

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ECONOMIC HISTORY: ITS CONTRIBUTION TOECONOMIC EDUCATION, RESEARCH,AND POLICYTHE STATE OF ECONOMIC HISTORY

By DOUGLASS C. NORTHUniversity of Washington

I wish to make two points in this paper: (1) that the quality of re-search in economichistory is generally very poor and that the econom-ics profession must take a large share of the blame and (2) that thenew economichistory falls short of the mark in remedying this prob-lem.Despite the fact that a good deal of economic history in the UnitedStates is taught in economics departments, there appears to be someschizophreniaon the part of economists between the way they look atthe quality of research in economichistory and the way in which theyregardthe researchof colleagues engaged in other fields of economics.If economists were to apply the same critical standards to economichistory that they apply to the rest of the field of economics,very littleof today's economic history would be recognized as high-quality re-search. There appears to be an implicit notion that the criteriaby whichwe judge economic history should differ from those used in judgingeconomics.' If so, then we should turn the field back to the historians,who at least write with charm and style.A moment'sreflectionon the part of any economist should convincehim that to the extent that economic history moves beyond the simplecataloguing of facts, it must meet of necessity the same set of stand-ards that we attempt to impose by the use of scientific methods in eco-nomics. It should not be necessary to elaboratethis point, since the ex-cellent article by Conrad and Meyer, "Economic Theory, StatisticalInference and Economic History,"2 at the 1957 annual meetings, aswell as the more recent statement by Bob Fogel in his book onrailroads,3both make the point effectively. I am well aware that wefrequentlydo not have either adequate theory or the statistical data to

lIndeed, three well-known economists at the 1957 annual meeting of the EconomicHistoryAssociationmpliedas much,whenthey werereportedby SimonKuznets o believethat economic heoryhad limited relevance or economichistory and that the state of thefield was, in fact, rathergood. Perhapsthese three economistshad not botheredto readmuch economichistory or simply wishedto be polite amongsteconomichistorians.2J of Econ. Hist., Dec., 1957.'Railroads and AmericanEconomicGrowth (Johns Hopkins Press, 1964).86

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ECONOMIC ISTORY: TS CONTRIBUTIONS 87develop and test hypotheses in any definitive fashion. My point is thateconomic historians do not make use of the theory we do have. Whileit is true that we have no overall theory of economicgrowthworth thename and that therefore the grand theme of the economic rise and fallof nations cannot be treated in a formal fashion, we still know a gooddeal about productivity change and its sources; but little of the litera-ture in economic history reflects any awareness of this fact. And forthe rest of economic history, much of it deals with problems in whichvarious fields of economic theory are directly relevant.A summary statement of deficiencies of economic history is as fol-lows: (1) Vast areas of economichistory have not been treated at all;that is, treated in the sense that economic theory and statistics havebeen used to examine the past.4 (2) Many writings in economichisto-ry are loaded with statements which have economic implications andimply causal relationshipswhich are not only not supportedin the re-search but which run counter to basic economic propositions. In fact,in most such cases, the author appears to be completely unaware ofthese implications. (3) Even more conspicuous is the character of theevidence advanced to support propositions. In good part it consists ofa mishmash of quotations and oddly assorted statistics which do notprovide any support or test for the propositionsdeveloped. (4) A gooddeal of economic history draws broad welfare conclusionswhich are byno stretch of the imagination warranted from the evidence cited. Infact, a general characteristicof economic history is that the treatmentof propositionswith broad welfare implications is typically undertakenwithout even a token acquaintance with welfare economics. Let me il-lustrate my point with respect to five broad areas of economichistory.

First, the industrial revolution is still looked upon as the greatthreshold of economic history, and in turn technological change is re-garded as the deus ex maciina of this threshold. Quite aside from thefact that this does not seem to have inspired economic historians to domuch analytical work on a theory of technological change (nor indeedeven to have encouragedthem to have any precise definition of tech-nological change) no such simple view of the accelerationof growth ofthe Western world is consistent even with our limited knowledge ofsources of productivity change. I would hazard the speculation that ifwe ever did the researchnecessary to get some crude idea of the mag-nitudes involved, we would discover that improvedeconomic organiza-

' In a few othercases,therehas been a greatdeal of researchdone on areasfar beyondthe extent to which they were important n economichistory.Laborhistory is a case inpoint, wherethe tendencyto identify the historyof labor with the historyof unionism sall too commondespitethe fact that trade-unionsdid not exceed5 percentof the laborforcebefore 1900.In a widely used current ext, one-fifthof the book is devotedto trade-unionhistory.



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88 AMERICAN ECONOMIC ASSOCIATIONtion was as important as technological change in the development ofthe Western world between 1500 and 1830. I mean by this, improve-ments in the factor and product markets, reduction in impediments toefficient resource allocation, and economies of scale. Moreover, thecomplementarity between physical and human capital in the develop-ment, application, and spread of technological change requires equalanalytical attention before we can begin to make sense on this subject.Clearly, we need to overhaul our view of the whole process by whichthe WVestern orld developed in the last five or six centuries.Second, the colonial period of American history, lasting for almosttwo hundred years, is nearly a void as far as any economic analysis isconcerned. This period has been the exclusive province of the histori-an, and therefore it is not surprising that the treatment of economicissues leaves much to be desired. There have been no studies of theperformance of the colonial economy, particularly in the crucial years1763-75, although historians have drawn broad inferences from scrapsof evidence. The relationship between the money supply, price levels,specie flows, and the balance of payments has not been adequatelytreated. There are no analytical studies of the major industries. Whathas been written with respect to the implicationsof the effects of Brit-ish imperial policy on colonial welfare is completely devoid of any useof incidence theory. Even one of the best articles on the subject-Harper's piece on the effects of the Navigation Acts on the thirteenAmerican colonies5-measures the burden upon the colonies of Britishimperial policy without any reference to the elasticity of demand forthe commodities involved. (He implicitly assumes a perfectly inelasticdemand.)Third, the ten years following the end of the RevolutionaryWar areone of the most interesting periods in our economic history. This wasnot only a time of important economic readjustment but one in whicha new society had to make a set of basic political decisions whichwould set the fundamental groundrules for the operationof its econo-my. The problems of tax incidence, government participation in theeconomy, federal-state economic relationships, and monetary policywere all influenced by the performance of the economy, by immediateeconomic issues, and by the underlying philosophical bent of the par-ticipants during this critical decade. Yet the argument over theeconomy's performance has usually been settled by a few contempo-rary quotations and odd statistics.6 The immediate economic issues

'Lawrence A. Harper, "The Effects of the Navigation Acts on the Thirteen Colonies,"in R. B. Morris, ed., The Era of the American Revolution (Columbia University Press,1939).'A beginning on a systematic examination of the economy's performance has been madein the recent article by Gordon Bjork, "The Weaning of the American Economy," J. ofEcon. Hist., Dec., 1964.



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ECONOMIC HISTORY: ITS CONTRIBUTIONS 89have received scant analytical attention, and the economic interpreta-tion of the era has gone by default to the naive views of some historians.Fourth, it is an axiom of a good deal of our economic history thatgovernment investment played an important role in accelerating thegrowth of the economy in the nineteenth century. Yet absolutely noevidence exists that warrants such a conclusion. While the work ofCarter Goodrich and his students has made an important contributionin showing that the government did, in fact, intervene in canal invest-ments, railroad investments, etc., neither Goodrich nor his students,nor anyone else, has shown that this actually accelerated the rate ofgrowth of the economy. To make the case, it would be necessary toshow that there were significant differences between the private andthe social rate of return on investment such that private investorswereunderinvesting in these activities; that government investments did infact yield a high social rate of return; that alternatively these samefunds invested through private channels (under the conditions of fullemployment that typically prevailed) would have yielded significantlylower returns; and that the magnitude of this differentialwas sufficientto have altered significantly the rate of growth of the economy.7Fifth, perhaps nowhere are the deficiencies in American economichistory more glaring than in the voluminous writings about the disposi-tion of public land in nineteenth-centuryAmerica. Did public land pol-icy adversely affect the rate of growth of the economy? Or slow downthe pace of the westward movement? Or cause a more unequal distri-bution of income? While the extensive literature on the subject seldomput the issues so clearly, these are obviously the meanings implicit in agreat many of the assertions made in leading articles on the subject.8If it is true that the form of distribution of public lands throughthevarious land acts or the purchases of speculators or the railroad landgrants produced the results cited above, none of the evidence advancedon the subject proves the point at all. It miayvery well be that factorscited above did have some of the results which have been suggested,but if so, the whole question has not been examinedin any analyticalsense yet. And it will requiresuch researchbefore any such statementcan be made.The illustrationscited above are only a very small ripple of an end-lessly dreary stream that would flow from cataloguing the poor qualityof researchin economichistory. However, it is not necessary for me tocontinue. Anybody can play the game of testing the quality of the lit-erature in the field for himself. Let me suggest to you a simple way of

' For a further discussion of the issues involved, see my comment on Stuart Bruchey'sarticle in Explorations in Entrepreneurial History, 2d Ser., I, No. 2 (1964), pp. 160-62.8 convenient source is The Public Lands, Vernon Carstenson, ed. (Univ. of WisconsinPress, 1963).



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90 AMERICAN ECONOMIC ASSOCIATIONplaying this game which I use in my graduate seminar in Americaneconomic history. I ask my students to take leading interpretive arti-cles in American economic history and to make explicit models of thearticles.9Even by plugging into each model the most favorable possi-ble implicit assumptions,most of the resultant models turn out eitherto be internally inconsistent or to run counter to the most fundamentalpropositions in economics.Let me turn now to the new economichistory. There has been somevaluable work-particularly in the gathering of statistics-to provideus with some solid footing for analysis, and there have been a fewfirst-rate articles and books, yet the results have been generally disap-pointing. Too much of it has been dull and unimaginative,and thereseems to be a widespread conviction that econometrictechniques, thecomputer,and runninga few regressionscan substitute for theory andimagination.Some of the new economic history written by economistsis of distressinglypoor quality. Some of it is so impreciseand fuzzy asto make it difficult,if not impossible, to make any model at all. A gooddeal of it includes partial-equilibriumanalysis of problemswith broadgeneral-equilibriumor disequilibrium implications. Too much of itshows that the writer clearly had no fundamentalunderstandingof theway by which an economy operates. In particular, a lot of it showsthat the role of prices in resource allocations and the implications ofprice behaviorhave completely eluded the writer.The inadequacy of the new economic history is nowhere more evi-dent than in its failure to nail down and to refute the shoddy argu-ments and propositionsthat riddle the literature. Let me illustrate mypoint by discussing at some length an article in the new economichis-tory. In fact, it is one of the classics. I refer to the article by Conradand Meyer on "The Economics of Slavery in the Ante-BellumSouth."10The Conrad and Meyer article is frequently taken as theepitome of the way in which the new economichistory should be writ-ten, indicating the sophisticated use of economic theory and statisticsto nail down a long-debated issue of American economic history. Itdoes deserve a special place in the literature as a pioneering piece ofwork. The article pinpointed and clarified a number of issues whichhave been muddied in the history of the controversy. In particular, itdemonstratedthat resourcesin the South were allocated efficientlyandthat the market for slaves operated in a fashion that was compatiblewith a profitmaximizingeconomy. However, the article did not accom-

' For an illustration, see my comment on H. J. Habakkuk's essay, "Population Problemsand European Economic Development in the Late Eighteenth and Nineteenth Centuries,"A.E.R., May, 1963, pp. 639-42.10 .P.E., Apr., 1958, p. 95.



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ECONOMIC HISTORY: ITS CONTRIBUTIONS 91plish its objective, and it has permitted the endless discussion of anissue which long since should have been buried. Conradand Meyer setout to measurethe viability of slavery by testing its profitability.As aresult, given the limited and imperfect nature of available data, theyhave perpetuated an endless controversy around the issue of whethertheir data (or anyone else's) do indicate that slavery was profitableand therefore viable.1" n fact, there is no possibility that slavery waseconomically not viable. As long as there existed both a rent on landand a rent on slaves-that is, the price of slaves was above the real re-productioncosts of slaves-any short-rununprofitabilityof slaves as aresult of their price being bid up for noneconomic reasons would sim-ply result in a readjustment,either in land rents or ultimately in slaveprices, so that the equilibrium rate would again prevail. Only if thewages of free labor fell to the subsistence level, so that in fact theprices of slaves fell to below their reproductioncost, would the institu-tion become nonviable.12 And since no such consideration was in-volved, there never was any real issue about the viability of slavery.While one might well make the argument that slave prices might bemaintainedat a higher level than would be justified by the rate of re-turn in cotton production because of their use for conspicuous con-sumption or noneconomic reasons, then the answer simply would bethat in that case land rents would fall so as to adjust to an equilibriumsolution. In short, the Conrad and Meyer article has perpetuated anissue which is really no issue at all.In summary,it is my convinctionthat we need to sweep out the doora good deal of the old economichistory, to improve the quality of thenew economic history, and it is incumbent upon economists to cast askeptical eye upon the research produced by their economic historycolleagues to see that it lives up to standardswhich they would expectin other areas of economics.This criticism of the state of economic history is not based on someutopian notion that we can achieve a scientific consensus on interpret-ing the past, but rather on the wide gap that exists between contempo-rary practice and the potential which could vastly enrich our knowl-edge of the past and reduce the range of uncertainty and disagreementover our economic heritage.

"For the two most recent illustrations, see Edward Saraydar, "A Note on the Profita-bility of Ante-Bellum Slavery," S. Econ. J., Apr., 1964, and Richard Sutch, "The Profita-bility of Ante-Bellum Slavery Revisited," S. Econ. J., Apr., 1965. It should be noted thatSutch's paper, presented in preliminary form in my graduate seminar in American economichistory, makes clear that the issue discussed is short-run profitability but not viability.2 See the article by Yasukichi Yasuba, "The Profitability and Viability of PlantationSlavery in the United States," Econ. Studies Quar., Vol. XII, No. 2.

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1965, state of economic history

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