Historical Economics
Art or Science?
Charles P. Kindleberger
Professor of Economics Emeritus, Massachusetts Institute of Technology
UNIVERSITY OF CALIFORNIA PRESS
Berkeley · Los Angeles · Oxford
INTRODUCTION
This is the eighth book of my collected papers, each on a fairly narrow range of topics withineconomics — international economics, international financial questions, financial history andeconomic history (including some specialized topics such as the multinational corporationand the Marshall Plan). The exercise has strong overtones of narcissism, which makes meuneasy, but may serve a useful purpose in assembling in convenient locations work thatwould otherwise remain scattered and in part lost (as perhaps it should be). And yet I am asufficient believer in the market test to defend myself against the charge of vainglory by pointing out that none of the eight has been published by a vanity press, subsidized by me, but each has been more or less willingly taken on, if not fought over, by some commissioningeditor.This collection deals with economic and financial history. The title implies that there is adifference between an economist who deals with historical issues and a historian who studies past economic questions. I come back to this in the Conclusion, which deals with themethodological question of whether history is a necessary dimension of the completeeconomist, as I think it is.The scattered provenance of the separate papers — written for symposia, delivered atconferences, as lectures on special occasions, and one on Spanish silver that appeared as a pamphlet (Chapter 3) produced on my own initiative to satisfy curiosity — is indicated in thefirst footnote of each chapter. None is the typical paper for a refereed journal that enjoys thehighest standing in academic circles. Chapter 2, in fact, was commissioned and then rejected by the editors of an encyclopedia, on the ground that it did not conform to their idea of howthe subject should be treated.I am grateful to Peter Johns of Harvester Wheatsheaf for urging me to proceed with thecollection, and to omit a couple of my beloved intellectual offspring which he thought,doubtless rightly, were out of place.CHARLES P. KINDLEBERGER LEXINGTON, MASSACHUSETTS NOVEMBER 1989
PART1—ECONOMIC HISTORY OR HISTORICAL ECONOMICS?
Historical Economics a Bridge between Liberal Arts and Business Studies?
If one looks through the Directory of the American Economic Association for addresses, itwill become clear that some economics departments are located in business schools and somein schools of arts and sciences. My brother-in-law was very fond of a
New Yorker
cartoon inwhich a man returned home, happened to discover an unkempt bearded hippy in his wife’s boudoir closet, and elicited the remark “Like, man, everybody’s got to be someplace.” This, Isuppose, is true of economics departments as well as of hippies, but the fact that they chooseliberal arts on some occasions, or have it chosen for them, and business schools at other times, emphasizes the ambiguity embodied in the subject. One could perhaps distinguish between technical economics, heavy with mathematics and econometrics, models and
n
-dimensional diagrams, and literary or anecdotal or intuitive economics — the former alliedto operations research, statistical inference and sharp-pencil subjects like finance, and belonging really in a business school; the latter flirting with sociology, politics, perhaps even psychology, more comfortable with social science, and, to the extent that it is historical, perhaps with the liberal arts. I say “perhaps” because economic history itself has bifurcatedinto clinometric, manipulating statistics and models to try to prove contentions in history, or more generally disprove those of others, and traditional economic history, which is moreinductive.I happen to profess historical economics, rather than economic history, using historicalepisodes to test economic models for their generality. Many economic models are plausibleand will fit particular circumstances; the question is how general they are and how much onecan rely on them to provide understanding and wisdom in particular circumstances. I do notsay prediction: I am a non-believer in positive economics that permits prediction because Itake the view that in general-equilibrium models, with scores or perhaps even hundreds of variables, it is difficult to the point of impossibility — what literary people sometimes callinfinitely difficult — to be certain that the various arguments in a given function have beenaccurately specified the first time and replicated the second. Historical economics, as I viewit, believes in partial equilibrium,
ceteris paribus
, rather than
mutatis mutandis
, and looksfor patterns of some uniformity but is wary of insisting on identity.I have moved into historical economics from international economics, and in this paper I propose to strike out in the directions of the international aspects of business, on the onehand, and the liberal arts on the other, meaning, I suppose, mostly history, politics, culturalanthropology, sociology, perhaps even a little geography. But first let me suggest that business schools may not have enough, and liberal arts too much, of ambiguity. Inmathematics and some business schools, the task is to prove theorems, relationships whichare universally true. In the real world, ambiguity is king.Should one look before one leaps, or is it true that he who hesitates is lost? If it ain’t brokedon’t fix it fits some occasions, but others demand a stitch in time that saves nine. When inRome do as the Romans do is one rule for the multinational corporation, but there areoccasions when it is better to follow Polonius and to thine own self be true. Good, better, best, never let it rest, until your good is better and your better best is the optimisticallyAmerican rule, but the French remind us that the best is the enemy of the good. Quit while
you are ahead often applies but occasionally keep going when you are on a roll, embarked onthe:
tide in the affairs of menWhich taken at the flood leads on to fortuneOmitted, all the voyage of their life Is bound in shallows and miseries.(Julius Caesar IV,3.)
I could go on, but forbear, reminding you, however, not to stay spellbound before ambiguity,catatonic, like the ass of Bouridon, the French philosopher, which starved to deathequidistant between two bales of hay, unable to decide which to go for first. In suchcircumstances it is important to do something; don’t just stand there. On the other hand, thereare occasions when it is important to stand there, rather than just do something.My interest in historical economics most recently has been in the fields of internationalfinance and economic growth and decline. The two subjects occasionally dovetail. Since theRenaissance there has generally been one dominant world financial center — Florence,Venice, Bruges, Antwerp, Amsterdam, London, New York — with economies of scale.Savers wanting to invest money take it to the center to examine various outlets; entrepreneursand impecunious governments wanting to borrow go to the center because that is not onlywhere the money is, as Woody Allen noted, but also where it is cheapest. The dominance of acenter at any one time is never complete because there are costs of information, anddiseconomies if all the information on the credit standing of everybody is gathered in a single place. The centers at the national level are sometimes the same as the capitals, e.g. Londonand Paris; sometimes not, e.g. New York, Toronto, and Zurich. The continuous shifts of thetop international financial center follow the change of the fortunes of countries, and in partare the result of accident.In recent years a number of explanations of the rise and fall of nations has been given. ToCipolla (1970), editing
The Decline of Empires
, the problem is that as a country improves itsstandard of living, more and more people demand to share the benefits. Incomes increase andextravagances develop. Prosperity spreads to neighboring countries which may become athreat and force the empire into military expenditures. Public consumption has a tendency torise sharply and outstrip production. Survival of the empire demands new methods of productivity, and in general, empires seem to resist change.A related view is that of Mancur Olson (1982) and is expressed in terms of distributionalcoalitions, vested interests in old-fashioned terminology, that lobby in democracies in their own interest, seeking to get protection, resisting taxation thought to bear on them, blockingthe national agenda, and edging the country into inflation. When the people’s representativescannot agree on taxation through a budget, the budget remains unbalanced and an arbitraryinflation tax is applied. The burden may differ from case to case — reparations, paying off foreign debt, military expenditure, correcting an import surplus, but inability to agree on itssharing produces decline. A recent book by Paul Kennedy (1987) attributes decline altogether to military expenditure. And an article by Anthony Burgess (1988) writing on EdwardGibbon’s
Decline and Fall of Rome
put it in terms of the complacency of successful empiresthat leads to enervation and fall before barbarian energy.I do not mean to subscribe to stage theories of economic development, like that of W. W.Rostow — preconditions, followed by take-off, then drive to maturity and high mass
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Economics Histroy - Arts or Science
Found while surfing about Long Depression of 1880's. Very Interesting and chronological narration of history of world economy. Provides information about almost 600 years of economic thought and developments ! Usuful for serious readers and also researchers offcourse.
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