Economics and the Historian - Softcover

Rawski, Thomas G. G.; Carter, Susan B.; Cohen, Jon S.; Cullenberg, Stephen

Softcover

ISBN 10: 0520072693 ISBN 13: 9780520072695

Verlag: University of California Press, 1996

Inhaltsangabe

These essays provide a thorough introduction to economics for historians. The authors, all eminent scholars, show how to use economic thinking, economic models, and economic methods to enrich historical research. They examine such vital issues as long-term trends, institutions, labor--including an engaging dialogue between a labor historian and a labor economist--international affairs, and money and banking. Scholars and teachers of history will welcome this volume as an introduction and guide to economics, a springboard for their own research, and a lively and provocative source of collateral reading for students at every level. The combined research experience of these authors encompasses many varieties of economics and covers a kaleidoscopic array of nations, subjects, and time periods. All are expert in presenting the insights and complexities of economics to nonspecialist audiences.

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Über die Autorin bzw. den Autor

Thomas G. Rawski, the lead author, has written extensively on the economy of China. He is Professor of Economics and History at the University of Pittsburgh.

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"Developing a dialogue between historians and economists is a crucially important task if we are to improve our understanding of the past. Economists have the tools to be able to provide in-depth analysis, the historians have the meat and substance which is necessary, and a blending of the two is terribly important. Economics and the Historian is a valuable resource for this interchange."—Nobel Laureate Douglass C. North, author of Institutions, Institutional Change, and Economic Performance

"This is a superlative collection of essays for historians who would like to learn about economic history but lack much formal training in mathematics and economic theory. The essays present fundamental concepts of economic analysis in a clear and concise manner, and they show how these concepts can be applied to a variety of historical problems."—Ted W. Margadant, author of Urban Rivalries in the French Revolution

"This book is must reading for historians who want to know what there is in economics that might be useful for their fields."—Nobel Laureate Robert W. Fogel, author of Time on the Cross

"Introduces historians and history students to the concepts, models, and logic of economic theory and shows how economic analysis can be applied to solving historical puzzles and problems. Each of the essays illuminates a different subfield of economics with numerous examples drawn from a quarter century of cliometrics. This book will make basic tools of economic historical analysis accessible and at times even entertaining to students (and colleagues) who have little or no background in economics. And it is guaranteed to enliven any course or seminar, as it did mine."—John H. Coatsworth, author of Central America and the United States

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"Developing a dialogue between historians and economists is a crucially important task if we are to improve our understanding of the past. Economists have the tools to be able to provide in-depth analysis, the historians have the meat and substance which is necessary, and a blending of the two is terribly important. Economics and the Historian is a valuable resource for this interchange." Nobel Laureate Douglass C. North, author of Institutions, Institutional Change, and Economic Performance

"This is a superlative collection of essays for historians who would like to learn about economic history but lack much formal training in mathematics and economic theory. The essays present fundamental concepts of economic analysis in a clear and concise manner, and they show how these concepts can be applied to a variety of historical problems." Ted W. Margadant, author of Urban Rivalries in the French Revolution

"This book is must reading for historians who want to know what there is in economics that might be useful for their fields." Nobel Laureate Robert W. Fogel, author of Time on the Cross

"Introduces historians and history students to the concepts, models, and logic of economic theory and shows how economic analysis can be applied to solving historical puzzles and problems. Each of the essays illuminates a different subfield of economics with numerous examples drawn from a quarter century of cliometrics. This book will make basic tools of economic historical analysis accessible and at times even entertaining to students (and colleagues) who have little or no background in economics. And it is guaranteed to enliven any course or seminar, as it did mine." John H. Coatsworth, author of Central America and the United States

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Economics and the Historian

By Thomas G. Rawski

University of California Press

Copyright © 1996 Thomas G. Rawski
All right reserved.
ISBN: 9780520072695


Economics and the Historian
THOMAS G. RAWSKI

We aim to broaden and deepen the exchange of ideas between economists and historians. Our specific purpose is to show how to apply the core ideas and methods of economics to a wide range of historical issues.

Historians who neglect economics can lose sight of factors that affect every historical situation. Saints and sinners, elites and masses, rich and poor-all require food, clothing, and shelter. Even if man does not live by bread alone, economics lurks beneath the surface of any historical inquiry. The economist who hesitates to peek outside the confines of his models can overlook cultural influences on markets. Likewise the historian of labor, of agriculture, of trade policy, of elite politics, of the church, of international conflict, of the arts, of migration, ideas, industrialization, universities, technology, demography, or crime ignores the economic approach at the risk of losing important lines of explanation.

Historians often shy away from economics because of its reliance on models apparently devoid of institutions. But the model of homo economicus, the hyperrational actor, deserves a place in the scholar's analytic repertoire. This model implies, and statisticians confirm, for instance, that female children receive better nutrition (relative to their male siblings) in regions of India where the wages of female adults (relative to male adults) are high, and that wealthy parents receive more attention from their offspring than poor parents, but only if they have more than one child.1

On Indian child-rearing, see Rosenzweig and Schultz 1982. The results reflecting competition among children of wealthy parents are from Kotlikoff 1988.

Although these and other examples demonstrate the power of models, economics is not a discipline wholly preoccupied with their construction. The development of economics is itself a historical process tied to the evolution of the economy. Take the example of economic thinking about corporations. In 1776 Adam Smith, thinking of conflicts of interest among owners and managers, opined that "negligence and confusion. . . must always prevail, more or less, in the management of" joint stock companies. He predicted that corporations could not succeed without special monopoly rights: "They have. . . very seldom succeeded without an exclusive privilege; and frequently have not succeeded with one. Without an exclusive privilege they have commonly mismanaged the trade. With an exclusive privilege they have both mismanaged and confined it" (Smith 1937 [1776], 700). Events of the two centuries following showed the breadth of Smith's misjudgment. Alfred Chandler (1962, 1977) has chronicled the triumph of corporate organization over individual and family enterprise.

In this case as in others, changes in the economy have influenced economic theory. The traditional idea of a market economy based on exchange among autonomous and independent agents begins to crumble if the "individual agents" include complex organizations like General Motors, Hitachi, or the Department of Defense. Thinking about organizations raises issues that cut to the core of economics. To ask Smith's question: how can the corporation function effectively if the interests of its members (workers, middle managers, executives, shareholders) pull in different directions?

Efforts to answer the question (Simon 1991; Williamson and Winter 1993) focus on internal mechanisms of bargaining, contracting, monitoring, enforcement, and governance-matters that play no part in standard economic thinking. Theorists cannot penetrate these mechanisms without drawing on law, psychology, and sociology. They must adopt a comparative approach, and study the consequences of different structures (the multidivisional firm; the Japanese firm), the effects of specific market mechanisms (e.g., for the hiring of medical interns), and the implications of information flows and blockages for the rate of technical change (Aoki 1990; Roth 1990; Milgrom and Roberts 1992).

This sort of theorizing, known as the "new institutional economics," involves modeling, but it builds on the information treasured by historians: detailed appreciation of actual business practice. It moves away from the abstraction of homo economicus to "study man as he is, acting within restraints imposed by real institutions" (Coase 1984, 231).

New institutional economics is not an isolated instance of linkage between changes in the economy and changes in economic theory. The observation that poor farmers often reject "improved" seed varieties sparked a revolution in the economic analysis of risk (Schultz 1964; Calabresi and Bobbitt 1978; Lipton 1989). Systematic exploration of the idea that information is scarce and costly rather than freely available has spawned a rich and varied literature (Stigler 1968, 171-190; Akerlof 1984, chap. 2; Stiglitz 1986). Growing discomfort with the incongruity between traditional analysis of international trade, which assumes small producers and pure competition, and the reality of huge volumes of exchange involving related products and powerful multinational firms has sparked the development of new trade theories based on economies of scale and departures from atomistic competition (Krugman 1987, 1990b, 1991). Observation of large expenditures on research and development led to a new vision of technical change as a commodity capable of being produced rather than an external phenomenon like "manna from heaven" (Nelson 1987; "Symposium" 1994). The rapid growth of Japan and other East Asian nations whose governments reject laissez-faire principles has forced proponents of free-market orthodoxy to rethink their analysis of long-term growth (Wade 1990; World Bank 1993). The recent and often painful experience of economic transition in the former communist states of Europe and Asia, a market birthing that fascinates even the purest of laissez-faire theorists, demonstrates how economic analysis can fall short if it overlooks the cultural forces in history.

Our book is rooted in the conviction that historians will find it useful to acquaint themselves with economics. The chapters that follow provide repeated examples of how standard items in the economist's intellectual arsenal extend the reach of historical source materials by revealing unexpected connections between different elements of market systems.

Historians who do incorporate economic analysis into their working vocabulary can expect to find an enthusiastic response from economists. Rising interest in history is visible at every level of the economics profession. Robert Fogel and Douglass North, two economic historians, shared the 1993 Nobel prize. The work of other Nobel recipients, such as James Buchanan, Ronald Coase, Simon Kuznets, W. Arthur Lewis, T. W. Schultz, and Herbert Simon, reflects a commitment to historical and institutional studies. Robert Solow, another Nobel laureate, advises colleagues to seek inspiration for theories of technological change and long-term growth from "case studies, business histories, interviews, expert testimony" (1994, 53).

Richard Sutch, a coauthor of this volume, notes in his presidential address to the Economic History Association that economists now recognize "the central importance of institutional innovation and path dependencies to the dynamics of economic change." He emphasizes that "the rhetorical importance of arguments from history, the need for historical consistency, and the value of historical perspective are now, as never before, appreciated by young economists" (1991, 276-277). These new realities are visible in graduate schools. A survey of Ph.D. students in top-ranked economics programs places history second only to mathematics as a cognate field: 92 percent of the respondents regard a knowledge of history as "important to their development as an economist" (Klamer and Colander 1990, 16).

If economists have much to learn from history, it is equally true that historians can benefit from integrating economic methods into their research. To do so, the historians must acquire a working knowledge of relevant aspects of economic theory. It's not easy. Introductory texts tend to ignore historical issues; advanced treatments are preoccupied with mathematical techniques.2 Economists have a well-deserved reputation for infelicitous writing.3 The fundamentals of economics remain inaccessible to historians.

This volume seeks to bridge the gap that separates historical researchers from the insights of economics. Our plan is to introduce fundamental concepts and to provide sufficient vocabulary, bibliography, and analytic depth to enable readers to begin exploring. We began with a group of China historians who, after working with the initial draft chapters of the present volume and a set of related readings (see the Suggestions for Readings), produced a collection of essays, Chinese History in Economic Perspective (Rawski and Li 1992). The success of this experiment persuaded us to write this book.

We do not insist that all is well in economics. The authors sympathize with insiders like Nobel laureate Wassily Leontief (1971), who criticizes contemporary economics for its narrow assumptions and elaboration of technique at the expense of relevance. Just as drug companies maximize profit rather than human welfare by focusing their research on the hairlines and waistlines of affluent populations, economists often pursue trendy research that yields job offers rather than deeper knowledge

Texts by McCloskey (1985a), a coauthor of this volume, and by Milgrom and Roberts (1992) are exceptions; both link theory with specific historical issues.

Blinder 1974 offers a deft parody of conventional economic writing.

(Colander 1989). Yet despite its limitations, economic theory provides a base line against which the historian (or the economist) can compare actual outcomes. This base line (statisticians call it a "null hypothesis") builds on the assumption that

people's choices are based on informed, autonomous decisions made under the conditions of a competitive market. You might believe this extremely simple null hypothesis is wrong 98 percent of the time in the real world. I'd be sympathetic. But as an analytic device, a standardized and widely accepted null hypothesis is a wonderful thing to have. (Blank 1993, 139)

If you are investigating a historical situation in which markets are not competitive, or women cannot own property, or large groups of people feel "dominated, oppressed, passive, stuck, ill, unsure. . . or unaware of alternatives," standard models still provide a valuable point of departure in the search for "more realistic variations" (Blank 1993, 139, 141).

Furthermore, the economics that concerns us here bypasses the intricacies of Nash equilibrium or dynamic programming and concentrates on what is best described as the logic of self-interest. Such theory is neither mysterious nor especially complex; basic economic thinking is perhaps best described as refined common sense. But it is "refined," as one might expect from the product of generations of concentrated intellectual effort (McCloskey 1987, 20). Many propositions of economics are not apparent to the untrained eye. This capacity to expose causal ties between seemingly unconnected phenomena offers opportunities to the historian.

ECONOMICS AND SOCIETY

Economic theory is built around the logical analysis of profit-seeking behavior by large numbers of well-informed, independent individuals in competitive markets governed by legal systems that enforce contracts and ensure the rights of private owners. Jon Cohen's essay on institutions and Susan Carter and Stephen Cullenberg's dialogue on labor economics explain how economists expand the basic model to encompass situations involving departures from the core assumptions about personal objectives, individual behavior, information structures, market organization, and property rights.

A SINGLE MARKET IN ISOLATION

Imagine the market for grain as a single entity in which price and sales volume emerge from the interaction of supply and demand. Bad weather,

for example, will curtail supply and raise prices. The effect of rising prices on consumers is obvious, but the impact on farmers is uncertain-if food prices rise more than harvests decline, which is often the case, the total amount of farm income will increase even though some farmers will suffer losses. The argument immediately highlights the conflict inherent in the dual role of the market price in "determining food consumption levels, especially among poor people, and the adequacy of food supplies through incentives to farmers" (Timmer, Falcon, and Pearson 1983, 11).

The same framework, which treats the marketplace as a venue for organized, regulated strife between sellers seeking high prices and bargain-hunting buyers, can serve as a vehicle for analyzing the impact of new crops, new markets, new credit arrangements, or transport innovation. It reveals, for example, the brutal choice arising from a famine. Prompt relief may save lives, but at the cost of undercutting the profitability of traditional behavior (planting quick-growing tubers in response to higher grain prices) without which the severity of future famines may increase.

Although many implications of market forces are widely understood, others are not. A governmental initiative that establishes stockpiles of grain to reduce seasonal price fluctuations and guard against shortage, such as the policies of imperial China analyzed in Will and Wong (1991), may have no lasting impact on price. Price variation provides the rationale for grain storage by private agents seeking to profit from anticipating a price rise, and so a policy aimed at limiting price fluctuations is likely to reduce the amount of privately held grain. Private storage will drop as public storage expands, quite possibly on a one-for-one basis. Conversely, policies that exclude speculators from the market are likely to enlarge the magnitude of price fluctuations. This is because such policies curtail the activity of people who make it their business to buy grain when prices are low (thus counteracting falling prices) and try to sell grain at the peak of the price cycle (which pushes prices downward).

NETWORKS OF MARKETS

Visualizing the food economy as a network of interrelated markets expands the range of possibilities. If an urban uprising leads to "the enforced sale of provisions at the customary or popular price" (Thompson 1964, 65), there is an initial transfer of resources from merchants to "the masses." But this transfer must affect rural markets as well. Any reduction in the price obtainable for selling grain in the city will push down

the prices that merchants offer to their rural suppliers. If political forces maintain urban grain prices at their new low levels, we would anticipate lower prices in rural grain markets. This in turn may affect the direction of trade, the mix of crops, the rents charged by owners of land suitable for grain cultivation, the incomes of farmers, the wages of laborers who grow and transport grain, and the earnings of traders and craftsmen who serve the grain growers. The result, in E. P. Thompson's words, is "something in the nature of a war between the countryside and the towns" (1964, 66).

Since there is a conflict of interest between food producers and consumers of food, it makes little sense to speak of "the people" or "the masses" as a homogeneous group.4 If the initial incomes of urban grain-eaters exceed those of rural wheat-growers, a political uprising directed at prosperous urban merchants may end up transferring income to poor city-dwellers at the expense of poorer villagers. In essence the enforced reduction of urban prices is equivalent to a tax on grain arriving in urban marketplaces, reducing the merchant's expected revenue from selling in city markets. The consequences for rural grain producers are analogous to the impact of higher cigarette taxes on the incomes of tobacco farmers.

We expect market forces to eliminate interregional differences in wheat prices that exceed the cost of moving wheat from one location to another. As long as excessive price differences persist, traders can profit by moving wheat from low-price to high-price sales points. The same quest for profit will compress differences in the financial returns available from alternative uses of funds. Grain prices follow well-known seasonal patterns. Prices are low at harvest time, rise during the winter months, and reach peak levels prior to the new harvest. After the harvest merchants, farmers, or anyone with cash balances can buy grain at low prices for storage in anticipation of selling at higher prices several months in the future. Alternatively, the same funds can be loaned to borrowers, again in anticipation of the future receipt of larger sums. Faced with the choice of buying grain or buying IOUs, most people look for high returns (taking into account the cost of storing grain and the risk that borrowers may default). With large numbers of people involved in

"The final years of the 18th century saw a last desperate effort by the people to re-impose the older moral economy as against the economy of the free market" (Thompson 1964, 67).

the markets for grain and loans, the financial returns to these two opportunities should be approximately equal over a period of many years. This application of the economist's "law of one price," which works to equalize the financial returns to similar resources in different markets as well as compressing price differentials across space, implies that the seasonal changes in grain prices can be used to trace changes in the rate of interest, a fundamental parameter that influences decisions about consumption, saving, and investment at every level of society (McCloskey and Nash, 1984).

MACROECONOMICS: VIEWING THE ECONOMY AS A SINGLE ENTITY

The fate of individuals depends in part on changes in the level of aggregate output, a quantity that workers and firms cannot predict. The 1929 stock market crash and the ensuing depression turned capable workers into vagrants and shrewd entrepreneurs into paupers. Pity the small Japanese manufacturer whose carefully nurtured business collapses not because he manages badly but because a political joust between Tokyo and Washington leads traders to drive up the international value of the yen.

Inflation, which measures changes in the value of money relative to commodities and services, affects many issues of concern to historians. The benefits that inflation bestows on borrowers and its cost to lenders are well understood. If rapid monetary expansion causes prices of many goods to rise simultaneously, the researcher must guard against the danger of exaggerating the significance of common price trends as measures of interregional integration in large economies like China (Rawski and Li 1992, part 1), India (McAlpin 1983, chap. 5), or Russia (Metzer 1974). Inflation is one of many areas in which government policy is a crucial determinant of outcomes. Consider the oil price shocks of the 1970s, in which the industrial nations were stunned by huge increases in the price of Middle Eastern crude oil. The 1973 shock brought sharp price increases everywhere. But after 1978, the inflationary impact of higher oil prices was much smaller in Japan than in the United States even though Japan imports nearly all of its energy supplies. The reason: firm credit restraint by Japan's central bank swiftly extinguished pressures for successive rounds of price increases to "pass along" higher costs (Ito 1992, chap. 3).

Economists have recently devoted much effort to showing how expectations can affect outcomes in many markets. The basic idea of "rational expectations" (Scheffrin 1983) is simple and appealing. Individuals and businesses react to economic change. They also seek to position themselves advantageously in anticipation of new developments. Property owners who expect an upsurge of inflation will seek large fixed-rate mortgages. These new directions in economic theory reflect undeniable realities of human behavior. "Rational expectations" also involve a political and philosophical reaction against the Keynesian idea that governments can use policy to manipulate the economy. Theorists of rational expectations extend the notion of individual choice by arguing that only unforeseen government actions in the monetary and fiscal sphere can affect macroeconomic outcomes. A systematic policy will fall victim to the rational responses of alert individuals.

Historians familiar with studies of crowds and mob behavior will recognize that the importance of expectations undercuts the economist's assumption of independent individual choice. Expectations can be contagious, and widely shared beliefs can drive events. If enough people believe that the dollar or the stock market will rise, the result may be a self-fulfilling prophecy. The psychology of the crowd surely contributes to the emergence of booms and panics in contemporary or historical equity markets (Kindleberger 1978; Galbraith 1993). Nor is the herd instinct limited to ordinary folk: witness the losses by bankers who raced one another to increase loans to Latin America in the 1970s and to Eastern Europe in the 1980s.

MARKETS AS PART OF SOCIETY

Market activity does not occur in isolation but depends on institutions. The disposition of household labor resources, the intensity of cultivation, and the level of crop yield will vary with the nature of landholding arrangements (owner-cultivation, tenancy with fixed or share rents, cultivation by hired workers, collective farming).

The consequences of alternative arrangements are far from obvious. If tenants pay fixed cash rents and enjoy security of tenure, the theory predicts that crop selection, cultivation methods, and farm output will be the same on farms tilled by tenants and by owner-operators. Economics focuses on marginal or incremental decisions. At the margin, the financial consequences of adding an extra hour of labor or an extra ton

of fertilizer are identical for owner-farmers and for secure tenants paying fixed rents; with identical costs and benefits, theory anticipates identical decisions.5

As a result, and contrary to widespread belief, land reform need not improve farm productivity. Proponents easily forget that land reform transfers resources from upwardly mobile, efficient cultivators to idlers and wastrels at the same time that it shifts ownership from the incompetent rich to the deserving poor. The losses from the first type of transfer may cancel the gains from the second, as in Japan, where Dore (1959, 217) finds no association between the amount of land redistributed and postreform gains in productivity, or in China, where land redistribution in the 1950s produced nothing comparable to the output spurt that followed the abolition of collectives three decades later. Collective production suffers from serious incentive problems but contributed substantially to Israel's development (Aharoni 1991, chap. 4). Even where collectives sapped productive efficiency, as in China, the reinstatement of household farming has crippled collective systems that effectively promoted health care and transport development (Perkins and Yusuf 1984).

The influence of ownership rights extends beyond the household. The issue of whether cultivators can obtain exclusive access to the land appears again and again in the annals of agrarian history, ranging from the English enclosures, the American West, and Latin America (Thiesenhusen 1989) to the Sahel region of Africa, where the spread of commercial cropping has pushed nomadic herdsmen toward starvation (Sen 1981, chap. 8) and to southern Spain, where the continued right of herders to move their sheep through farming regions held back agrarian development for centuries (North 1981, chap. 11). North and Thomas view the emergence of the property rights that undergird the modern capitalist system as a central element in the political evolution of modern Europe, during which rulers systematically strengthened private ownership rights in return for the loyalty and tax payments of their propertied subjects (1973, chap. 8).

The study of property rights does not begin to exhaust the external forces that condition market behavior. Noting the flagrant asymmetry of the rich nations' efforts to expand international capital flows while

Things are different for the sharecropper, who must share the fruits of adding extra labor or fertilizer with the landlord rather than retaining 100 percent of the extra output. If output is split between tenant and landlord on a 50:50 basis, the calculating tenant will refrain from applying extra fertilizer unless the cost of doing so is no more than half of the incremental return. The theorist thus expects share tenants to devote less labor, fertilizer, etc. to their plots than owner-farmers or tenants paying fixed rents.

tightly restricting migration into their own territories, Carlos Diaz-Alejandro observes that "market rules. . . and the determination of which markets are allowed to operate, are essentially political decisions" (1975, 218).

Market behavior also reflects ideas and values. If Japanese feel that prestigious corporations should never dismiss long-term employees, while Americans believe that it is fair for hard-pressed businesses to dismiss employees but not to reduce wages for the remaining workers, these contrasting visions of equity and property surely leave their mark on employment arrangements in Japanese and American companies. The economic consequences of beliefs are evident in the "immense resources expended. . . to convince participants that particular forms of political or economic organization are fair" (North 1984, 257). The current explosion of discussion and confrontation over affirmative action, empowerment, and comparable worth exemplifies the cost of accommodating new ideas about fairness and justice.

Amartya Sen's (1981) investigation of famines in Asia and Africa illustrates the extent to which the market activities that dominate the concern of economists are constrained by institutions that, in their widest dimensions, encompass the entirety of culture. Although we think of famine as arising from a sudden decline in the availability of food, Sen's case studies show that hunger can appear in the midst of plenty. To Sen, famine represents a failure of entitlement to food. Reduced food output is only one possible cause of famine. Sen's analysis "places food production within a network of relationships" that encompasses law, politics, social security, kinship, and ecology, as well as markets and market-linked economic institutions. He finds that "shifts in some of these relations can precipitate gigantic famines even without receiving any impulse from food production" (1981, 158).

If the market system, including the whole penumbra of legal, financial, and other enabling institutions, operates within a broader sociocultural matrix that helps to determine the course of economic evolution, then the study of any economy, past or present, must involve a range of knowledge that reaches far beyond the focal points of conventional economic theory. The Nobel laureate James Buchanan asks economists to investigate the processes that lead to the emergence of market structures and market activity (1979, 19). This formulation is sufficiently broad to encompass the Marxian notion that economic outcomes arise from an interaction between physical and human resources and "structures of social power. . . that determine the influence exercised by different classes

of people over how goods are produced and how the resultant income is distributed" (Lazonick 1987, 258). It resonates with Nancy Folbre's view that economic factors "constrain and influence," but cannot fully determine human behavior (1986a, 7).

HOW ECONOMICS CAN CONTRIBUTE TO HISTORICAL RESEARCH

Consider the problem of America's relative economic and political decline during the past half century. The history of this transition must encompass such factors as political objectives, ideology, and national aspirations in the United States and in other nations. But purely economic explanations deserve careful scrutiny, for they may provide the core of a satisfactory analysis. Gavin Wright (1990) argues that American industrial dominance, like Britain's, was a predictably transient phenomenon based on superior access to resources that gradually declined in cost outside the U.S. and also lost their central position in the industrial economy.

The competitive strength of Japanese manufacturers arose partly because extensive corporate borrowing, the prevalence of long-term employment, and seniority-based wage systems forced managers to focus on sales growth and output volume (to spread high fixed costs including interest and wages) rather than on current profit. This enabled them to continue production even when competition drove price below average cost, an inference that arises from pure textbook economics (e.g., Samuelson and Nordhaus 1985, 479). If selling price falls below average total cost of production, a profit-maximizing firm will temporarily continue to produce as long as sales revenues exceed all variable costs. This allows the firm to cover some of its fixed costs (which must be paid even if output ceases) from sales income. If a price war breaks out between firms that differ only in that the share of fixed costs in (identical) total outlays is higher for Japanese than for American rivals, the Japanese will continue to operate at prices so low that the Americans cease production and lay off their work force.

Textbook analysis, of course, does not tell everything we want to know. Why did Japanese firms borrow more than their American rivals? How did Japan's banks cope with the risks of lending to firms with high ratios of debt to equity? Should we expect recent increases in the debt load of U.S. corporations and concurrent reductions in the ratio of debt to equity among Japan's blue-chip companies to reverse long-standing patterns of corporate strategy on either side of the Pacific? When and how

did the Japanese develop a tenure system for a substantial segment of their labor force? Is this system beginning to crack under the pressure of accelerated technical change and intensified global competition? If long-term employment offers important competitive advantages, why have American managers failed to adjust employment arrangements in this direction?

Although it cannot answer such questions, textbook theory offers a plausible interpretation of market competition between American and Japanese manufacturers in many industries. It even explains the mutual incomprehension displayed by both sides, with American managers complaining that the Japanese must receive huge government subsidies (they don't) because no rational manager could operate at the low prices offered by the Japanese (true, but only under American rather than Japanese cost structures), while the Japanese ridicule the Americans' inability to compete.

Here, as elsewhere, economics gives partial answers to our historical inquiries. The economic perspective often establishes unexpected connections and reveals new vantage points that enable historians to expand the range of their studies and enlarge the value of source materials. For the historian who finds that available materials do not bear directly on the desired research objective, economics may open new vistas by connecting land prices and benefits from transport improvements (Ransom 1970) or nonfarm wages and agrarian productivity (Bairoch 1989; Rawski 1989, chap. 6).

Even in the absence of statistical materials, economic theory provides a fruitful means of organizing a historical analysis. Studies of discrimination in labor markets can draw on theories of market segmentation, which portray employers (or landlords, or bank managers) as resorting to rules of thumb based on race, religion, education, ethnicity, or language as inexpensive substitutes for costly information about individuals (Doeringer and Piore 1985; Honig 1992). Research on ties between business and government can benefit from the theory of rent-seeking, which depicts people as dividing their resources between competing in the marketplace and in Congress (Krueger 1974; Buchanan, Tollison, and Tullock 1980).

A PROSPECT

This book reviews seven aspects of economics. The authors are economists with long experience of studying historical problems and working

collaboratively with historians. Each chapter illuminates a particular subdivision of economics in a lucid and nontechnical fashion. The chapters are complementary but can be read in various orders.

We begin with trends, institutions, and labor, subjects that historians study from noneconomic perspectives. The chapter on trends describes the economist's method of organizing data and leads the reader through a number of practical examples that illustrate simple procedures for validating quantitative information and constructing effective arguments based on statistical information. The chapter on institutions focuses on three examples: the household, the farm, and the firm, showing how economists analyze the institutional arrangements that condition and mediate links between individuals and markets for commodities and services. The chapter on labor uses the device of a dialogue between a historian and an economist to examine the ways in which economic methods contribute to the study of labor markets.

The next two chapters concern the heart of the discipline. The chapter on microeconomics illustrates the myriad variations on the economist's central vision of economic life as the outcome of a vast array of self-interested choices by individuals. The chapter on macroeconomics pursues a series of examples that show how system-wide thinking avoids pitfalls and leads to fresh conclusions.

The final chapters highlight monetary economics and international trade. The chapter on money develops a historical parable to lay out the principles of money and banking, a subject that often confuses economists as much as historians. The chapter on trade offers a guide to the study of international economics, in particular the interactions between growing trade and the domestic distribution of income. At the end is a list of suggested readings, with advice on how to approach them.

Continues...

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Details zur Ausgabe

• Verlag: University of California Press
• Erscheinungsdatum: 1996
• Sprache: Englisch
• ISBN 10: 0520072693
• ISBN 13: 9780520072695
• Einband: Tapa blanda
• Anzahl der Seiten: 312
• Kontakt zum Hersteller: Nicht verfügbar
• Verantwortliche Person: Nicht verfügbar