Posts filed under ‘Business/Economic History’
“Age Heaping,” Numeracy, and Human Capital
| Peter Klein |
Important economic and managerial concepts like social capital and human capital, as latent variables, are difficult to discern in aggregate or historical data. My very clever friend (and occasional O&M commenter) Brian A’Hearn suggests that “age-heaping” — rounding up or down one’s self-reported age to the nearest five or zero — may be a good proxy for human capital. From Brian’s paper with Jörg Baten and Dorothee Crayen, “Quantifying Quantitative Literacy: Age Heaping and the History of Human Capital”:
As signature ability can proxy for literacy, so accuracy of age awareness can proxy for numeracy, and for human capital more generally. A society in which individuals know their age only approximately is a society in which life is governed not by the calendar and the clock but by the seasonal cycle, in which birth dates are not recorded by families or authorities, in which numerical age is not a criterion for access to privileges (e.g. voting, office-holding, marriage, holy orders) or for the imposition of responsibilities (such as military service or taxation), in which individuals who know their birth year have difficulty accurately calculating their age from the current year. Within a society, the least educated and those with the least interaction with state, religious, or other administrative bureaucracies will be least likely to know their age accurately. Age awareness thus tells us something about both the individual and he society he or she inhabits. Approximation in age awareness manifests itself in the phenomenon of age heaping in self-reported age data. Individuals lacking certain knowledge of their age rarely state this openly, but choose instead a figure they deem plausible. They do not choose randomly, but have a systematic tendency to prefer “attractive” numbers, such as those ending in 5 or 0, or even numbers, or in some societies numbers with other specific terminal digits. Age heaping can be assessed from any sufficiently numerous source of age data: census returns, tombstones, necrologies, muster lists, legal records, or tax data, for example. While care must be exercised in ascertaining possible biases, such data are in principle available much more widely than signature rates and other proxies for human capital.
Brian and his coauthors use age-heaping data to generate estimates of human capital in Europe over a long period of time, finding substantial increases in human capital just before the Industrial Revolution.
Call for Papers: Putting Social Capital to Work
| Peter Klein |
Those of you studying networks, clusters, and social capital may find this Call for Papers of interest:
Doing business is a profoundly social process. Social capital and its dynamics, therefore, are inescapable components of every interaction. Among other things, they affect group cohesiveness and functionality, and they give advantages or disadvantages to some individuals and groups relative to others. This special issue of Business History will explore the research and analytical opportunities in putting social capital to work.
Full details: (more…)
Do Multinationals Restrain the State?
| Peter Klein |
I referred early to Ralph Raico’s essay on the European Miracle, the unprecedented, long-term rise in living standards that began in late-medieval Europe. As discussed there, the consensus of mainstream scholars such as Rosenberg and Birdzell, Mokyr, North, Landes, and Weingast is that Europe grew rich because unlike more centralized Eastern civilizations, European political and social life was controlled by a complex, decentralized mosaic of institutions and organizations, each of which placed limits on the other.
The most important of these institutions was the transnational Church. The concept of the sovereign as subordinate not only to a Higher Law, but also to a higher earthly authority, located outside his realm, was unique to European politics. State power was thus restricted by horizontal competition among sovereign states and complex vertical relationships between church and state.
Today, of course, the Catholic Church no longer plays this limiting role. However, there are other multinational and transnational institutions that place powerful limits on state power. These include charitable and relief organizations such as the Red Cross or Doctors Without Borders, religious movements and groups, the news media (we bloggers especially!), and other voluntary associations. But the most important of these institutions is the multinational or transnational corporation. What role do multinational firms play in limiting the power of the state? (more…)
The New Model CEO
| Peter Klein |
The firing of Home Depot’s Robert Nardelli, whose Saban-esque compensation package was a flashpoint of controversy during his six-year tenure as CEO, dominates the front page of Thursday’s WSJ. Alan Murray’s column, “Executive’s Fatal Flaw: Failing to Understand New Demands on CEOs,” neatly summarizes the New Corporate Governance:
What Mr. Nardelli missed . . . is that in the post-Enron world, CEOs have been forced to respond to a widening array of shareholder advocates, hedge funds, private-equity deal makers, legislators, regulators, attorneys general, nongovernmental organizations and countless others who want a say in how public companies manage their affairs. Today’s CEO, in effect, has to play the role of a politician, answering to varied constituents. And it’s in that role that Mr. Nardelli failed most spectacularly.
Here’s the problem: Do we really want CEOs to be politicians? If we accept Hayek’s argument that in the political marketplace, the worst get on top, what kind of leader becomes our New Model CEO? (more…)
Institutions and Avner Greif
| Peter Klein |
Avner Greif is one of the leading contributors to the “institutional environment” branch of the New Institutional Economics. His work on the emergence of long-distance trade in the medieval Mediterranean world changed the way many social scientists think about reputation, trust, and the role of decentralized, non-state institutions in supporting commercial activity.
The January 2007 issue of Reason features a review essay of Greif’s recent book, Institutions and the Path to the Modern Economy (Cambridge, 2006). The review provides a solid, non-technical overview of Greif’s work. (more…)
EH.Net Classic Review: Usher’s A History of Mechanical Invention
| Peter Klein |
George Grantham reviews Abbott Payson Usher’s A History of Mechanical Invention (1929), the first book to “establish logical foundations for an empirically based explanation of economic change.”
By what intellectual and social processes do new methods of production, new products, and new patterns of behavior become objects of choice in the stream of economic and social life?
Historians traditionally answered this question in two ways. The first was that inventions are inspired intuition given to exceptionally gifted persons. This approach stressed the discontinuity of inventions and the importance of a small number of inventors in creating the modern world. Usher deemed it “transcendental,” because in taking invention to be what amounts to a miracle, it puts the event logically outside time, so that it can have no mere historical explanation. The second approach took the opposite tack of holding that inventions occur continuously in small steps induced by the stress of necessity, somewhat like Darwinian evolution. Usher termed this approach “mechanistic,” because it relegated the inventor to the status of “an instrument or an expression of cosmic forces.” Neither the transcendental nor the mechanistic account of invention, then, was historical in the sense that explanation necessarily takes the form of a narrative. To the transcendentalist, inventions just happen (and we should all be grateful they do); to the mechanist, they occur automatically in the fullness of time. Neither explains how inventions happen. . . .
The History of Marketing
| Peter Klein |
History has been defined as “one damn thing after another.” What, then, would you call the history of marketing — one damn advertising campaign after another?
If you want to know, come to this symposium at the University of Glasgow, “The Value of the Past: A Symposium on Marketing and History.” The event, 19 January 2007, examines “both the history of marketing and the marketing of company histories.”
We will emphasise the ways in which historical artefacts of trade (such as advertisements and illustrations in a variety of media, trade cards and catalogues, pamphlets, consumer education campaigns, testimonials and endorsements) are useful both in crafting business history and also as contemporary marketing tools. As marketing materials often reflect the relationship between firms and consumers, they are also sites to learn more about consumer response to products and services over time. We will explore the value of documents originally intended to be ephemeral, and discuss conservation of and access to these materials in corporate and other archives or in other forms such as the internet.
Sounds interesting. I believe it was Santayana who said: “Those who cannot remember their past marketing campaigns are condemned to repeat them.”
Economics of Multiple Voting Shares
| Peter Klein |
During the 1920s, the phenomenon of multiple voting shares expanded all over France and the world. This contributed significantly to the separation of ownership and control emphasized by Berle and Means (1932), and very much discussed by the foreign contemporaries. As is the case today, some argued that the reinforcement of the power of majority shareholders facilitated their firms’ development, while others emphasized the high agency costs that might result from managers’ and major shareholders’ absolute control. In this paper, we present detailed data on the development of multiple voting shares in France in the 1920s. We reword the arguments of the authors writing during the interwar period by using an interpretative framework of recent concepts in corporate finance and corporate governance. We test two alternative views from our data on the Stock Market performances: the “agency view,” in which the concentration of control did not affect the performances of firms issuing multiple voting shares, and the “timing view,” in which the issuing of these shares was favoured by the long bull market of the 1920s.
The paper is Muriel Petit-Konczyk, “Big Changes in Ownership Structures: Multiple Voting Shares in Interwar France,” Working Paper, ESA Lille2 University, 2006. Via EH.Net Abstracts.
The Economics of Maps
| Peter Klein |
I’ve always loved maps. Maybe I should have specialized in economic geography, like my friend Pierre Desrochers. Anyway, I enjoyed reading this EH.Net review of Mary Sponberg Pedley’s The Commerce of Cartography: Making and Marketing Maps in Eighteenth-century France and England (University of Chicago Press, 2005). Maps are information goods, characterized by strong increasing returns and frequently sold through unorthodox marketing strategies. Economists have studied competition among telephone directories — part of an interesting “nothing-new-under-the-sun” theme — but I don’t recall seeing anything on competition among cartographers.
Excerpt from Susan Danforth’s review:
As a map curator, I recall students and researchers over the years who felt certain that as soon as a new place was “discovered,” as soon as a significant event was reported, it would certainly appear on a map, because it made sense that the “public” would demand and support the publication of scientifically accurate, up-to-date maps. So it is interesting to read that the French cartographer Guillaume Delisle was praised by his contemporaries for adding new information to his maps slowly, so as not to shock his public. Other eighteenth-century commentators were happy to see that mapmakers left outdated information on maps “just in case.” Perhaps the island in the middle of the Pacific that hadn’t been seen in fifty years was there after all. What mapmaker would want to be responsible for a shipwreck? “In the end,” Pedley says, “what sold maps was price. A copy or counterfeit was as good as the real thing to the consumer.”
The Wizard of Oz as Monetary Allegory
| Peter Klein |
In recent remarks on literature in economic discourse (here and here) I forgot to mention Hugh Rockoff’s classic “The ‘Wizard of Oz’ as a Monetary Allegory” (Journal of Political Economy, August 1990):
The Wonderful Wizard of Oz, perhaps America’s favorite children’s story, is also an informed comment on the battle for free silver in the 1890s. The characters in the story represent real figures such as William Jennings Bryan. This paper interprets the allegory for economists and economic historians, illuminating a number of elements left unexplained by critics concerned with the politics of the allegory. It also reexamines Bryan and the case for free silver. Far from being monetary cranks, the advocates of free silver had a strong argument on both theoretical and empirical grounds.
Another good resource is Michael Watts’s The Literary Book of Economics (Intercollegiate Studies Institute, August 2003).
Economics and Literature Redux: Panics in Fiction
| Peter Klein |
On the heels of these remarks on economic analysis in fiction comes a review of David Zimmerman’s Panic! Markets, Crises, and Crowds in American Fiction (University of North Carolina Press, 2006), reviewed by Scott Dalrymple for EH.Net.
In _Panic!_, David Zimmerman, a professor at the University of Wisconsin, Madison, has chosen a fascinating lens through which to view the phenomenon of bank panics: contemporary novels written in response to the panics. As Zimmerman points out, bank panics left people searching for answers about what had just happened, and why. And as they always do, authors of fiction stepped forward in an attempt to make sense of it all.
See also this discussion on teaching economic history through fiction and narrative.
Was Coase Right About the Lighthouse?
| Peter Klein |
A few years ago I attended a Liberty Fund conference on the private provision of public goods. In preparation for the conference I re-read Coase’s classic 1974 article, “The Lighthouse in Economics,” for the first time since my graduate-school days. I recall being surprised how much weaker the argument was than the way I had remembered it. Far from showing that British lighthouses were “private” — as the paper is widely thought to have demonstrated — Coase’s analysis shows simply that public goods can be financed through user fees, rather than general tax revenue. But, in the case of the British lighthouses, the user fees were compulsory, government-enforced levies on ship owners, not voluntary market transactions. The British lighthouses were government-granted monopolies, more like the East India Company or a local public utility than “free-enterprise” institutions. (more…)
Celebrating the Entrepreneur in Film
| Peter Klein |
Like other cutting-edge, deeply committed educational professionals, I use film clips in class wherever possible. When teaching entrepreneurship I show the courtroom scene at the end of Francis Ford Coppola’s fine 1985 film Tucker: The Man and His Dream. Jeff Bridges (as Preston Tucker) delivers a magnificent speech on the entrepreneur’s right to dream, to experiment, to take chances, and to be wrong. The scene moves me to tears. (Then again, so does the segment on the for-profit lifeguard in John Stossel’s “Greed” special.) In any case, Tucker, along with the 1951 Alec Guinness flick The Man in the White Suit, have been the only entrepreneurship films in my collection.
Now from Stephen Carson I learn of another film celebrating the entrepreneur: Boom Town (1940):
A marvelous and fun ode to entrepreneurship starring Clark Gable and Spencer Tracy as two wildcatters that take extreme risks hunting for oil in 1918 Texas. The roles of risk, capital and entrepreneurial insight are all portrayed wonderfully. The cherry on top is when competitors invoke the Sherman Antitrust Act to go after a company they can’t defeat fair and square in the marketplace (imagine that!)
The courtroom speech at the end includes an argument indicating how private owners of capital are motivated to wisely manage natural resources(!) and this wonderful tribute to entrepreneurs: “McMasters is a wildcatter. If it wasn’t for automobiles he’d be driving a covered wagon. It’s always been his breed that has opened up the country and made it what it is. So now, I’m wondering… Is it getting to be out of line in these Unites States for a man like him to make a million dollars with his brains and with his hands? Because if that’s true, then we’d better rewrite this land-of-opportunity stuff.” Did Hollywood really make this film? Wow!
It’s moving to the top of my Netflix queue.
Chestnut Street: The First “Wall Street”
| Peter Klein |
Did you know that the US’s first financial hub was not in New York, but in Philadelphia? So says Robert Wright’s The First Wall Street: Chestnut Street, Philadelphia, and the Birth of American Finance (University of Chicago Press, 2005).
Here’s an interesting point made in Peter Rousseau’s review:
One point that Wright does not make explicitly, but which is nonetheless reinforced by his lively narratives, is the primal nature of real activity as the driving force behind the location and development of finance. At a time when colonial economic activity was more local in nature and commerce more international, Philadelphia’s position as an Atlantic port made it an adequate commercial center, especially since it was already a political center. It was therefore natural for the financial system to have its mainsprings there. A virtuous cycle of real needs leading to finance and promoting further real growth seems to have been the result. But as it became increasingly clear that the new nation and its large land mass was not a featureless plain, the move to New York might be seen as a classic example of Joan Robinson’s famous adage that “where enterprise leads, finance follows.” And follow it did in this case. As Chestnut Street’s best financiers headed off to New York, their expertise went with them. Only large sunk investments in plant and equipment for the Federal mint and the central bank could hold these institutions in the Quaker City, at least until political forces took care of the latter.
Varieties of Capitalist Development and Corporate Governance
| Peter Klein |
That is the theme for the 2007 Asia-Pacific Economic and Business History Conference at the University of Sydney. As noted in the call for papers: “While the historical study of market economies has been commonplace, there are many aspects worthy of further analysis including the role of savings, human capital, technology, government, and changing markets. Corporate governance has received wide attention in the wake of recent enterprise collapses, yet historians have only begun to research differences in corporate governance over time and among countries.”
The keynote speaker is Doug Irwin, author of several outstanding books on international trade theory and policy.
New Papers: Chandler, Leijonhufvud, Phelps, Summers
| Peter Klein |
The current issue of Capitalism and Society (volume 1, number 2) features an all-star cast. Alfred D. Chandler, Jr., leads off with his newest article, “How High Technology Industries Transformed Work and Life Worldwide from the 1880s to the 1990s” (abstract below). Chandler recently celebrated his 88th birthday, so new Chandler paper — while perhaps not quite as significant as a new Coase paper — is a major event.
In the same issue is a piece by Foss hero Axel Leijonhufvud, “Understanding the Great Changes: A Comment,” which is a comment on Edmund Phelps’s “Understanding the Great Changes in the World: Gaining Ground and Losing Ground since World War II.” The journal also contains a comment on Chandler by Richard Sylla, a paper by Richard Zeckhauser on “Investing in the Unknown and Unknowable,” and a comment on Zeckhauser by Lawrence Summers. (more…)
26 September 2006 at 10:37 am Peter G. Klein Leave a comment
Albert Fishlow and the New Economic History
| Peter Klein |
Previous posts have touched on cliometrics or the “new economic history” (not quite so new anymore). For interesting reflections on the cliometric revolution see John Majewski’s recent commentary on Albert Fishlow’s 1965 book American Railroads and the Transformation of the Ante-bellum Economy (part of a clever “Classic Reviews in Economic History” series; I’d love to see similar series for management, industrial organization, etc.). As Majewski notes, the “book’s forty-year career is a window from which one can glimpse the transition from the ‘Old Economic History’ to the ‘New Economic History.'” (more…)
25 September 2006 at 11:25 am Peter G. Klein Leave a comment
Integrating Hirschman and TCE
| Peter Klein |
Another interesting paper from the May 2006 issue of Economic History Review is Tetsuji Okazaki’s “‘Voice’ and ‘Exit’ in Japanese Firms During the Second World War: Sanpo Revisited.” The “Sanpo” was a government-sponsored labor-bargaining organization for large firms. “This article examines the role of sanpo, using prefecture-level and firm-level data, based on a framework integrating the ‘voice view’ of unionism and transaction cost economics.”
Incidentally, Williamson has an interesting discussion of voice in “Calculativeness, Trust, and Economic Organization” (JLE, April 1993; ch. 10 of The Mechanisms of Governance). Responding to the claim that TCE (and the economic notion of “calculative trust” more generally) elevates exit over voice, Williamson writes:
First, if voice in the absence of an exit option is relatively ineffective, which evidently it is (Hirschman, 1970), then voice really does have a calculative aspect. Second, voice works through mechanisms, and those mechanisms are often carefully designed. . . . The voice mechanics are often defined by the terms of the contract. . . . Plainly, the procedures through which voice is expected to work [in a contract] are laid out in advance. Again, therefore, calculativeness is implicated in the design of ex post governance (voice).
In TCE, therefore, the “importance of voice is not in the least discredited. Instead, voice is encompassed within the extended calculative perspective” (pp. 255-56).
Nothing New Under the Sun
| Peter Klein |
Back when the “New Economy” was in vogue I enjoyed challenging the claim that the “new” phenomena were really new. Before the internet, there was the telegraph. Before the Yahoo! directory there was the telephone book. Before the personal computer there was electric service, the refrigerator, the washing machine, the telephone, and the VCR. In short, such breathlessly touted phenomena as network effects, the rapid diffusion of technological innovation, and highly valued intangible assets are nothing new.
Now comes an interesting paper in the current issue of Economic History Review by Jochen Streb, Jörg Baten, and Shuxi Yin, “Technological and Geographical Knowledge Spillover in the German Empire 1877-1918.” The authors use patent and geographic data to identify four distinct technological waves during this period, drive by innovation in railways, dyes, chemicals, and electrical engineering, respectively. The general claim is that “inter-industry knowledge spillovers between technologically, economically, and geographically related industries were a major source for innovative activities during German industrialization,” and that “technological change affected the geographical distribution of innovative regions.” A nice application of the modern literature on clusters, innovation, and knowledge spillovers to the recent past. Perhaps Ecclesiastes was right after all.
14 September 2006 at 10:44 am Peter G. Klein Leave a comment
Coase and the Myth of Fisher Body
| Peter Klein |
I vividly recall, at the inaugural meeting of the International Society for New Institutional Economics in 1997, a discussion about the best empirical strategy for that emerging discipline. Harold Demsetz stood up and said “Please, no more papers about Fisher Body and GM!” The Fisher-GM case had become the canonical example of holdup in transaction cost economics and was considered stale and even trite. Ronald Coase, who was at the podium, replied (I’m paraphrasing from memory) “Sorry, Harold, that is exactly the subject of my next paper!”
The GM-Fisher case was introduced into the transaction cost literature by Klein, Crawford, and Alchian in their 1978 paper “Vertical Integration, Appropriable Rents and the Competitive Contracting Process.” They cited the case as a classic example of vertical integration designed to mitigate holdup in the presence of asset specificity. As the story is told, Fisher refused to locate its plants near G.M. assembly plants and to change its production technology in the face of an unanticipated increase in the demand for car bodies. This led G.M. to terminate its existing ten-year supply contract with Fisher and to acquire full ownership of Fisher.
The basic facts of the account, and the interpretation of these facts, were challenged in five independently written papers, all appearing in 2000. Three of the papers, by Coase, Casadesus-Masanell and Spulber, and Freeland, are in the April 2000 Journal of Law and Economics. A fourth paper by Helper, MacDuffie, and Sabel appears in Industiral and Corporate Change and one by Miwa and Ramseyer is in the Michigan Law Review. These papers showed that nearly every detail of the canonical account is wrong. (more…)
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