Posts filed under ‘Business/Economic History’
Impact of the Commodore 64
| Peter Klein |
If Nicolai’s calculator fetish isn’t nerdy enough for you, check out this videotaped lecture on the impact of the Commodore 64 computer. A panel of industry pioneers (including Steve Wozniak) explain the Commodore 64’s impact on the computer industry.
For a more scholarly treatment of this industry’s evolution see Dick Langlois’s “Cognition and Capabilities: Opportunities Seized and Missed in the History of the Computer Industry,” in Garud, Nayyar, and Shapira, eds., Technological Innovation: Oversights and Foresights (Cambridge University Press, 1997).
Accountics in Japan
| Peter Klein |
We discussed earlier the increasingly quantitative nature of accounting research, what some call accountics. (When I hear that term I’m reminded of a cartoon I once saw showing a woman dressed as a dominatrix standing before a company reception desk: “Oh, you must be the new accountrix.”)
Tomo Suzuki’s paper, “Accountics: Impacts of Internationally Standardized Accounting on the Japanese Socio-economy” (Accounting, Organizations, and Society, April 2007), argues that the postwar spread of Western accounting practices “directed new courses of the Japanese economy and firms through the development of ‘statistical habits of thought.’ ” A follow-up paper (same journal, August 2007 issue) traces the history of Japanese accounting practices in more detail, emphasizing the role of academic accountants in fostering the postwar accounting revolution. (See, professors can make a difference!)
Summer Workshop on Social Norms
| Peter Klein |
It’s hosted by Spain’s Urrutia Elejalde Foundation and takes place in San Sebastián, 14-17 July 2008. (Basque Country, not Spain, if you prefer.) The impressive speaker list includes Jon Elster, Diego Gambetta, Herb Gintis, Russell Hardin, and Edna Ullmann-Margalit, among others. Details here.
Do Transactional Lawyers Add Value?
| Peter Klein |
What do bosses do? asked Stephen Marglin in his famous 1974 article. Nothing productive, he said; they create hierarchies with task specialization to extract value from laborers. Despite heroic efforts by David Landes and others to set the record straight, the myth has persisted, in some quarters, that “management” — including intermediation, market-making, the facilitation of transactions, etc. — does not create economic value, but merely redistributes it. Making widgets is OK, but merely facilitating widget transactions is wasteful or redundant.
How about transactional lawyers? Do they add value by reducing transaction costs, minimizing the chance of ex post litigation, reducing regulatory burdens, acting as reputational intermediaries, providing confidentiality, or exploiting economies of scope? Or do they simply extract value from the transacting parties?
An interesting paper by Steven Schwarcz, “Explaining the Value of Transactional Lawyering,” uses survey data to examine this question and finds that reducing regulatory costs appears to be the main source of added value. The results “present a very different picture of how business lawyers add value than that portrayed by existing scholarship, challenging the reigning models of transactional lawyers as ‘transaction cost engineers’ and ‘reputational intermediaries,'” activities in which lawyers do not necessarily have a comparative advantage. Instead, suggests Schwarcz, it is precisely lawyers’ expertise in (business) law that gives them a role in the contracting process. (The broader question of whether legislators, most of whom are also lawyers, deliberately design rules of contract law, regulation, administrative procedure, and the like so that only other lawyers can understand them, is not addressed.) (more…)
Langlois on McCraw on Schumpeter
| Peter Klein |
Former O&M guest blogger Dick Langlois reviews Thomas McCraw’s Schumpeter biography, Prophet of Innovation, for EH.Net.
McCraw is at his best in conveying Schumpeter the man, providing an engaging and beautifully written portrait of this larger-than-life and often tragic figure. McCraw also works hard at weaving Schumpeter’s economics into the life story and at making the ideas supply their share of the drama. The result deepens our understanding of a fascinating and complex man and of the difficult times in which he lived, even if it does not necessarily sharpen our understanding of his economics or add much that is new to his biography.
See also our previous comments on McCraw and Schumpeter more generally.
AEI Conference on Private Equity
| Peter Klein |
Those of you in the Washington, DC area may wish to drop by “The History, Impact, and Future of Private Equity: Ownership, Governance, and Firm Performance,” November 27-28 at AEI. The lineup features heavyweights like Michael Jensen, Glenn Hubbard, Josh Lerner, Steve Kaplan, Ken Lehn, Karen Wruck, Annette Poulsen, Mike Wright, and David Ravenscraft, along with a few not-so-heavyweights like me. From the conference announcement:
From humble beginnings twenty-five years ago on Wall Street, the leveraged buyout boom has developed into a veritable industry; today, 30 percent of all corporate merger and acquisition activity in the United States is driven by buyout firms, and the sector commands over $2 trillion in leveraged assets. Along with hedge funds and real assets, private equity is now seen as an important alternative investment class, and fundamental changes in corporate control, governance, modern capital markets, institutional investing, and the funding of entrepreneurial pursuits have all been driven by the growth and evolution of the private equity sector.
My view is that the growth of the PE sector represents an increasingly important manifestation of entrepreneurship — not only because private equity helps fund new ventures, but because the creation of new financial instruments such as high-yield (“junk”) bonds, the establishment and management of diversified buyout funds, the use of private equity to restructure public enterprises, and the like are themselves entrepreneurial acts, given an appropriately broad understanding of entrepreneurship.
Tribute to Bob Higgs
| Peter Klein |
It was a great pleasure watching Robert Higgs accept the 2007 Schlarbaum Award for Lifetime Defense of Liberty at the Mises Institutes’s 25th Anniversary Celebration in New York. Bob is an outstanding scholar whose 1987 book, Crisis and Leviathan, should be required reading for Naomi Klein. He is a fierce defender of political and economic freedom, private property, and the rule of law. Bob also edits the Independent Review, a terrific interdisciplinary journal that values clear exposition as well as academic rigor (a rare combination, these days).
Earlier this year a group of Bob’s friends, colleagues, and former students produced a Festschrift volume, Government and the American Economy: A New History, in his honor. Contributors include Price Fishback (the editor), Gary Libecap, Stanley Engerman, Robert McGuire, Richard Sylla, John Wallis, Jeff Hummel, Robert Margo, Mark Guglielmo, Werner Troesken, Sumner La Croix, Randal Rucker, E. C. Pasour, Jr., Lee Alston, and Joseph Ferrie. The result is “a series of stimulating cameos by a distinguished assemblage of economic historians,” writes reviewer Gavin Wright (himself a distinguished economic historian). Check it out!
Nye on Wine and Trade
| Peter Klein |
John Nye is a very interesting economic historian. I still remember his fiery (and controversial) talk at the inaugural ISNIE conference in 1997, in which he urged new institutional economists to separate themselves from their brothers and sisters in mainstream economics. (Other participants, such as Paul Joskow, thought this was a bad idea.)
John’s new book, War, Wine, and Taxes: The Political Economy of Anglo-French Trade, 1689-1900 (Princeton, 2007) argues that Britain was not, contrary to popular perception, devoted to free trade after the repeal of the Corn Laws in 1846. The British retained high tariffs on French wine, among other goods, leading to substantial welfare losses among Britons. (more…)
Why Are Markets So Scary? Some Things (Liberal) Academics Get Wrong
| David Hoopes |
Many people make incorrect assumptions about capitalism. Some would have us believe that capitalism is based on greed, selfishness, and promotes behavior that is completely self-centered. This is a common interpretation of Smith’s advice to allow people to make decisions based on self-interest. Examples are easy to find in the many organization theory-based papers complaining about economics and economists.
Two very good papers can aid in a deeper understanding of the invisible hand. First is James Q. Wilson’s “Adam Smith on Business Ethics.” A central point Wilson makes is that Adam Smith assumed people will behave with a moral sense. Wilson, “A moral man is one whose sense of duty is shaped by conscience; that is, by that impartial spectator within our breast who evaluates our own actions as others would evaluate it.” By suggesting people be allowed to make decisions based on their own self interest Smith was not advocating selfishness and greed. What then was he advocating?
This leads to the second paper, Harold Demstez’s “The Theory of the Firm Revisited.” In the third paragraph Demsetz notes that the debate between mercantilists and free traders was over the role of the government in the economic affairs of the state. “Is central economic planning necessary to avoid chaotic economic conditions?” The great achievement of the perfect competition model, what Demsetz argues should be called perfect decentralization, is its abstraction from centralized control of the economy.
Thus, the central element to capitalism is that decision making is pushed down as far as possible. (more…)
Kleins Behaving Badly
| Peter Klein |
Cousin Naomi is in the news again. Her new book, The Shock Doctrine: The Rise of Disaster Capitalism, is attracting a lot of attention in the econo-blogosphere, virtually all negative. The Economist offers this guide to the commentary. The only sensible person who likes the book appears to be Joe Stiglitz, taken to task here by Pete Boettke. Klein’s shocking treatment of Milton Friedman has raised hackles everywhere (see this and this). Ultimately, her thesis is unsupported by any historical evidence. When one is a “cultural critic,” however, facts and reason are not too important.
World Freedom Atlas
| Peter Klein |
Here is a terrific resource: the World Freedom Atlas, a “geovisualization tool” — i.e., cool interactive map — for world statistics. It includes the most important variables used by economists including income and purchasing power from the Penn World Table, legal origin from LLSV, economic freedom from the Fraser Institute and the Heritage Foundation, policy constraints from Witold Henisz, the World Bank’s governance indicators, and a host of other variables from Acemoglu, Johnson and Robinson; Barro and Lee; Easterly and Levine; Persson and Tabellini; and several others. All that’s missing is links to the original datasets. Still, an impressive tool. (HT: Mike Kellermann)
More Crappy Research
| Peter Klein |
We’ve written before about the history of industrial recycling, how waste products, both natural (manure, animal parts) and man-made (scrap metal, old rags), were frequently collected and re-used, for profit, at the dawn of the Industrial Revolution.
Now comes another paper on the market for manure: Liam Brunt’s “Where There’s Muck, There’s Brass: The Market for Manure in the Industrial Revolution” (Economic History Review 60, no. 2, May 2007, 333-72). (Non-gated version here.) Writes Brunt:
In this paper we present the first detailed assessment of off-farm manure in English agriculture, by quantifying the use of 21 varieties. We consider how many people were using each type of manure; how much they were using; and the total effect on wheat yields. . . . We show that by 1770 there were local, regional and even international markets for manure; and we can explain the pattern of manure use by supply and demand. We estimate that off-farm manure raised yields by a steady 20 per cent throughout the period 1700 to 1840.
I suppose I could have titled this post (channelling Tyler Cowen) “Markets in Everything: ________ Edition” (fill in the blank yourself).
Private Disupte Resolution
| Peter Klein |
Brian Caplan and Edward Stringham explore the private provision of dispute-resolution services:
Must the state handle the adjudication of disputes? Researchers of different perspectives, from heterodox scholars of law who advocate legal pluralism to libertarian economists who advocate privatizing law, have increasingly questioned the idea that the state is, or should be, the only source of law. Both groups point out that government law has problems and that non-state alternatives exist. This article discusses some problems with the public judicial system and several for-profit alternatives. Public courts lack both incentives to be customer oriented and pricing mechanisms, plus they face problems associated with the bureaucratic provision of services. When parties can choose their tribunals, in contrast, those tribunals must serve customers and be mindful about conserving resources. Competition between arbitrators also can allow for experimentation and the provision of customized services rather than a centrally planned, one size fits all system. Contracts with an arbitration clause can easily stipulate the choice of tribunal, and we argue that if government courts simply refused to overrule binding arbitration agreements, de facto privatization could easily take place. This article discusses how private adjudication of disputes could enable the market to internalize externalities and provide services that customers desire.
See also these comments about Bruce Benson’s Enterprise of Law.
New Video and Audio
| Peter Klein |
Video and audio files that may intrest our readers:
- The 2006 and 2007 Allen Hamilton Eminent Scholar in International Management awards presentations. See lectures by C. K. Prahalad (with commentary by Yves Doz) and Ikujiro Nonaka (with commentary by David Teece).
- Economic history lectures from Brad LeLong: Marx, Rostow, Kuznets, Gerschenkron; The Slow Spread of Industrialization; Political Economy 101 .
- Original video from the 1962 Milgram experiment (via Max Raskin). As chilling today as 45 years ago. (See also the wiki.)
IT and Creative Destruction
| Peter Klein |
Information technology (IT) intensity is correlated with firm-specific performance heterogeneity, controlling for industry- and time-fixed effects and a host of strategic and financial control variables. Moreover, high rates of firm-specific performance heterogeneity are associated with subsequent increases in industry total factor productivity (TFP). In other words, IT can be interpreted as a general-purpose technology that unleashes a wave of innovation, leading to a shakeout followed by performance improvements — Shumpeter’s “gale of creative destruction.”
So say Hyunbae Chun, Jung-Wook Kim, Randall Morck, and Bernard Yeung in “Creative Destruction and Firm-Specific Performance Heterogeneity” (NBER Working Paper No. 13011, April 2007). (Non-gated version here.) There’s not much theory but the empirical exercise is interesting and worth a look.
Dissing the Corporation
| Peter Klein |
Several papers in economic history, law, and political economy argue that the corporate form owes its emergence and persistence not to superior performance, but to legal privilege. This two-part series by Piet-Hein van Eeghen in the Journal of Libertarian Studies (1, 2) makes such a case, as do many essays by regular O&M commentator Kevin Carson. I tend to be somewhat skeptical of this literature, finding it insufficiently comparative institutional and not always consistent with the historical record as I understand it.
A new paper by Naomi Lamoreaux, whose work I very much admire, may force me to rethink my views, however. In “Putting the Corporation in its Place” (NBER Working Paper No. 13109) Lamoreaux and her coauthors Timothy Guinnane, Ron Harris, and Jean-Laurent Rosenthal argue that entrepreneurs in common-law countries tended to choose the corporate form over the next-best alternative, the partnership, only because a still more desirable alternative, the private limited liability company, was not available. (more…)
Men of Wealth
| Peter Klein |
John T. Flynn’s 1941 classic Men of Wealth is back in print, courtesy of the Mises Institute. I’ve had an old copy on my shelf for years, having once stumbled across a rare first edition at Bell’s Books in Palo Alto. The book profiles Jacob Fugger, John Law, the Rothschilds, Robert Owen, Cornelius Vanderbilt, Henry Green, Hachirobei Mitsui, Cecil Rhodes, Basil Zaharoff, Mark Hanna, John D. Rockefeller, and J. Pierpont Morgan. Unlike the typical business history text (ahem), it is written in a lively and engaging style. To get the flavor, consider this excerpt from chapter 9 on the little-known but highly influential arms dealer Basil Zaharoff:
Zaharoff played a leading, if not the leading, role in that strange world comedy of the arms makers leading the double life of chauvinists and internationalists. They gave us the spectacle of Boers mowing down English regiments with Vickers’ pom-poms, Prussian surgeons picking out of Prussian wounded Austrian shrapnel fired by Krupp’s cannon, French poilus massacred by shot poured out of guns made in Le Creusot, English Tommies killed by weapons produced by Armstrong and Vickers, and American ships sent to the bottom by U-boats built on models supplied by American submarine builders. Zaharoff was the master of what one biographer has called the “principle of incitement,”under which war scares were managed, enemies created for nations, airplanes sold to one nation and antiaircraft guns to her neighbors, submarines to one and destroyers to another. He did what the cigarette people did, what the liquor industry, the beauty industry did — created a demand for his merchandise. The armament industry became a game of international politics, the arms salesman a diplomatic provocateur, the munitions magnates of all nations partners in cartels, combines, consolidations; exchanging plans, secrets, patents. He was the greatest of all the salesmen of death, and, as one commentator has observed, if you would see his monument, look about you at the military graveyards of Europe.
You can read the rest of the chapter here.
Schumpeter Podcast
| Peter Klein |
Bloomberg’s Tom Keene interviews Thomas McCraw on his new book Prophet of Innovation: Joseph Schumpeter and Creative Destruction. McCraw discusses Schumpeter’s relationship with Keynes, the impact of Schumpeter’s concept of the entrepreneur, the legacy of Alfred Chandler, and more.
Tulip Mania: Not So Manic After All
| Peter Klein |
Popular and scholarly accounts of the Dutch tulip bubble of 1636-37 — including Robert Shiller’s — greatly exaggerate the magnitude of the crisis. It seems the tulipmania literature tends to rely not on primary sources or other authoritative documents but on popular pamphlets that appeared shortly after the crisis, designed to ridicule tulip-market participants.
So says Larry Neal, reviewing Anne Goldgar’s Tulipmania: Money, Honor, and Knowledge in the Dutch Golden Age for EH.Net. Goldgar’s careful archival research demonstrates, among other things, that tulip-market participants were not hapless dupes but experienced merchants who knew how to price risks and who were part of a small, close-knit community that relied on strong social ties to enforce good behavior. Indeed, tulip transactions were highly complicated ones governed by detailed contractual arrangements designed to protect both buyers and sellers. Goldgar “notes that the participants in the tulipmania largely worked out the terms of the broken contracts among themselves with little impact on the rest of the Dutch economy. . . . So the tulip trade in Holland revived and continued to prosper, as it does to this day.”
Garrett on Ford
| Peter Klein |
Garet Garrett’s 1953 book on Ford Motor Co., The Wild Wheel, is now available as a free e-book at Mises.org. Garrett, the iconoclastic American journalist who wrote for the New York Times, Wall Street Journal, and Saturday Evening Post and is best known as a critic of Franklin Roosevelt, was trained as a financial reporter and covered Ford for many years. Worth a read.
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