American Economic Association

The State of Economic History Author(s): Douglass C. North Source: The American Economic Review, Vol. 55, No. 1/2 (Mar. 1, 1965), pp. 86-91 Published by: American Economic Association Stable URL: http://www.jstor.org/stable/1816246 . Accessed: 30/04/2013 16:49
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ECONOMIC HISTORY: ITS CONTRIBUTION TO ECONOMIC EDUCATION, RESEARCH, AND POLICY

THE STATE OF ECONOMIC HISTORY
By DOUGLASS C. NORTH University of Washington

I wish to make two points in this paper: (1) that the quality of research in economic history is generally very poor and that the economics profession must take a large share of the blame and (2) that the new economic history falls short of the mark in remedying this problem. Despite the fact that a good deal of economic history in the United States is taught in economics departments, there appears to be some schizophrenia on the part of economists between the way they look at the quality of research in economic history and the way in which they regard the research of colleagues engaged in other fields of economics. If economists were to apply the same critical standards to economic history that they apply to the rest of the field of economics, very little of today's economic history would be recognized as high-quality research. There appears to be an implicit notion that the criteria by which we judge economic history should differ from those used in judging economics.' If so, then we should turn the field back to the historians, who at least write with charm and style. A moment's reflection on the part of any economist should convince him that to the extent that economic history moves beyond the simple cataloguing of facts, it must meet of necessity the same set of standards that we attempt to impose by the use of scientific methods in economics. It should not be necessary to elaborate this point, since the excellent article by Conrad and Meyer, "Economic Theory, Statistical Inference and Economic History,"2 at the 1957 annual meetings, as

well as the more recent statement by Bob Fogel in his book on

railroads,3both make the point effectively. I am well aware that we frequently do not have either adequate theory or the statistical data to
lIndeed, three well-known economists at the 1957 annual meeting of the Economic impliedas much,when they were reportedby SimonKuznetsto believe History Association that economictheory had limited relevancefor economichistory and that the state of the field was, in fact, rather good. Perhapsthese three economistshad not botheredto read much economichistory or simply wished to be polite amongst economichistorians. 2J of Econ. Hist., Dec., 1957. 'Railroads and AmericanEconomic Growth (Johns Hopkins Press, 1964).
86

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develop and test hypotheses in any definitive fashion. My point is that economic historians do not make use of the theory we do have. While it is true that we have no overall theory of economic growth worth the name and that therefore the grand theme of the economic rise and fall of nations cannot be treated in a formal fashion, we still know a good deal about productivity change and its sources; but little of the literature in economic history reflects any awareness of this fact. And for the rest of economic history, much of it deals with problems in which various fields of economic theory are directly relevant. A summary statement of deficiencies of economic history is as follows: (1) Vast areas of economic history have not been treated at all; that is, treated in the sense that economic theory and statistics have been used to examine the past.4 (2) Many writings in economic history are loaded with statements which have economic implications and imply causal relationships which are not only not supported in the research but which run counter to basic economic propositions. In fact, in most such cases, the author appears to be completely unaware of these implications. (3) Even more conspicuous is the character of the evidence advanced to support propositions. In good part it consists of a mishmash of quotations and oddly assorted statistics which do not provide any support or test for the propositions developed. (4) A good deal of economic history draws broad welfare conclusions which are by no stretch of the imagination warranted from the evidence cited. In fact, a general characteristic of economic history is that the treatment of propositions with broad welfare implications is typically undertaken
without even a token acquaintance with welfare economics. Let me il-

lustrate my point with respect to five broad areas of economic history.

First, the industrial revolution is still looked upon as the great

threshold of economic history, and in turn technological change is regarded as the deus ex maciina of this threshold. Quite aside from the fact that this does not seem to have inspired economic historians to do much analytical work on a theory of technological change (nor indeed even to have encouraged them to have any precise definition of technological change) no such simple view of the acceleration of growth of the Western world is consistent even with our limited knowledge of sources of productivity change. I would hazard the speculation that if we ever did the research necessary to get some crude idea of the magnitudes involved, we would discover that improved economic organiza' In a few other cases,there has been a great deal of researchdone on areas far beyond the extent to which they were importantin economichistory. Labor history is a case in point, where the tendencyto identify the history of labor with the history of unionismis all too commondespite the fact that trade-unionsdid not exceed 5 percent of the labor force before 1900.In a widely used currenttext, one-fifth of the book is devotedto tradeunionhistory.

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tion was as important as technological change in the development of the Western world between 1500 and 1830. I mean by this, improvements in the factor and product markets, reduction in impediments to efficient resource allocation, and economies of scale. Moreover, the complementaritybetween physical and human capital in the development, application, and spread of technological change requires equal analytical attention before we can begin to make sense on this subject. Clearly, we need to overhaul our view of the whole process by which the WVestern world developed in the last five or six centuries. Second, the colonial period of American history, lasting for almost two hundred years, is nearly a void as far as any economic analysis is concerned. This period has been the exclusive province of the historian, and therefore it is not surprising that the treatment of economic issues leaves much to be desired. There have been no studies of the performance of the colonial economy, particularly in the crucial years 1763-75, although historians have drawn broad inferences from scraps of evidence. The relationship between the money supply, price levels, specie flows, and the balance of payments has not been adequately treated. There are no analytical studies of the major industries. What has been written with respect to the implications of the effects of British imperial policy on colonial welfare is completely devoid of any use of incidence theory. Even one of the best articles on the subjectHarper's piece on the effects of the Navigation Acts on the thirteen
American colonies5-measures the burden upon the colonies of British

imperial policy without any reference to the elasticity of demand for the commodities involved. (He implicitly assumes a perfectly inelastic demand.) Third, the ten years following the end of the Revolutionary War are one of the most interesting periods in our economic history. This was not only a time of important economic readjustment but one in which a new society had to make a set of basic political decisions which would set the fundamental ground rules for the operation of its economy. The problems of tax incidence, government participation in the economy, federal-state economic relationships, and monetary policy were all influenced by the performance of the economy, by immediate economic issues, and by the underlying philosophical bent of the participants during this critical decade. Yet the argument over the economy's performance has usually been settled by a few contemporary quotations and odd statistics.6 The immediate economic issues
'Lawrence A. Harper, "The Effects of the Navigation Acts on the Thirteen Colonies," in R. B. Morris, ed., The Era of the American Revolution (Columbia University Press, 1939). 'A beginning on a systematic examination of the economy's performance has been made in the recent article by Gordon Bjork, "The Weaning of the American Economy," J. of Econ. Hist., Dec., 1964.

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have received scant analytical attention, and the economic interpretation of the era has gone by default to the naive views of some historians. Fourth, it is an axiom of a good deal of our economic history that government investment played an important role in accelerating the growth of the economy in the nineteenth century. Yet absolutely no evidence exists that warrants such a conclusion. While the work of Carter Goodrich and his students has made an important contribution in showing that the government did, in fact, intervene in canal investments, railroad investments, etc., neither Goodrich nor his students, nor anyone else, has shown that this actually accelerated the rate of growth of the economy. To make the case, it would be necessary to show that there were significant differences between the private and the social rate of return on investment such that private investors were underinvesting in these activities; that government investments did in fact yield a high social rate of return; that alternatively these same funds invested through private channels (under the conditions of full employment that typically prevailed) would have yielded significantly lower returns; and that the magnitude of this differentialwas sufficient to have altered significantly the rate of growth of the economy.7 Fifth, perhaps nowhere are the deficiencies in American economic history more glaring than in the voluminous writings about the disposition of public land in nineteenth-centuryAmerica. Did public land policy adversely affect the rate of growth of the economy? Or slow down the pace of the westward movement? Or cause a more unequal distribution of income? While the extensive literature on the subject seldom put the issues so clearly, these are obviously the meanings implicit in a great many of the assertions made in leading articles on the subject.8 If it is true that the form of distribution of public lands through the various land acts or the purchases of speculators or the railroad land grants produced the results cited above, none of the evidence advanced on the subject proves the point at all. It miayvery well be that factors cited above did have some of the results which have been suggested, but if so, the whole question has not been examined in any analytical sense yet. And it will require such research before any such statement can be made. The illustrations cited above are only a very small ripple of an endlessly dreary stream that would flow from cataloguing the poor quality of research in economic history. However, it is not necessary for me to continue. Anybody can play the game of testing the quality of the literature in the field for himself. Let me suggest to you a simple way of
' For a further discussion of the issues involved, see my comment on Stuart Bruchey's article in Explorations in Entrepreneurial History, 2d Ser., I, No. 2 (1964), pp. 160-62. 8 convenient source is The Public Lands, Vernon Carstenson, ed. (Univ. of Wisconsin Press, 1963).

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playing this game which I use in my graduate seminar in American economic history. I ask my students to take leading interpretive articles in American economic history and to make explicit models of the articles.9 Even by plugging into each model the most favorable possible implicit assumptions, most of the resultant models turn out either to be internally inconsistent or to run counter to the most fundamental
propositions in economics.

Let me turn now to the new economic history. There has been some valuable work-particularly in the gathering of statistics-to provide us with some solid footing for analysis, and there have been a few first-rate articles and books, yet the results have been generally disappointing. Too much of it has been dull and unimaginative, and there seems to be a widespread conviction that econometric techniques, the computer, and running a few regressions can substitute for theory and imagination. Some of the new economic history written by economists is of distressingly poor quality. Some of it is so imprecise and fuzzy as to make it difficult,if not impossible, to make any model at all. A good deal of it includes partial-equilibriumanalysis of problems with broad general-equilibrium or disequilibrium implications. Too much of it shows that the writer clearly had no fundamental understandingof the way by which an economy operates. In particular, a lot of it shows that the role of prices in resource allocations and the implications of price behavior have completely eluded the writer. The inadequacy of the new economic history is nowhere more evident than in its failure to nail down and to refute the shoddy arguments and propositions that riddle the literature. Let me illustrate my point by discussing at some length an article in the new economic history. In fact, it is one of the classics. I refer to the article by Conrad and Meyer on "The Economics of Slavery in the Ante-Bellum South."10The Conrad and Meyer article is frequently taken as the epitome of the way in which the new economic history should be written, indicating the sophisticated use of economic theory and statistics to nail down a long-debated issue of American economic history. It does deserve a special place in the literature as a pioneering piece of work. The article pinpointed and clarified a number of issues which have been muddied in the history of the controversy. In particular, it demonstratedthat resources in the South were allocated efficiently and that the market for slaves operated in a fashion that was compatible with a profit maximizing economy. However, the article did not accom' For an illustration, see my comment on H. J. Habakkuk's essay, "Population Problems and European Economic Development in the Late Eighteenth and Nineteenth Centuries," A.E.R., May, 1963, pp. 639-42. 10 J.P.E., Apr., 1958, p. 95.

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plish its objective, and it has permitted the endless discussion of an issue which long since should have been buried. Conrad and Meyer set out to measure the viability of slavery by testing its profitability. As a result, given the limited and imperfect nature of available data, they have perpetuated an endless controversy around the issue of whether their data (or anyone else's) do indicate that slavery was profitable and therefore viable.1"In fact, there is no possibility that slavery was economically not viable. As long as there existed both a rent on land and a rent on slaves-that is, the price of slaves was above the real reproduction costs of slaves-any short-run unprofitabilityof slaves as a result of their price being bid up for noneconomic reasons would simply result in a readjustment, either in land rents or ultimately in slave prices, so that the equilibrium rate would again prevail. Only if the wages of free labor fell to the subsistence level, so that in fact the prices of slaves fell to below their reproductioncost, would the institution become nonviable.12And since no such consideration was involved, there never was any real issue about the viability of slavery. While one might well make the argument that slave prices might be maintained at a higher level than would be justified by the rate of return in cotton production because of their use for conspicuous consumption or noneconomic reasons, then the answer simply would be that in that case land rents would fall so as to adjust to an equilibrium solution. In short, the Conrad and Meyer article has perpetuated an issue which is really no issue at all. In summary, it is my convinction that we need to sweep out the door a good deal of the old economic history, to improve the quality of the new economic history, and it is incumbent upon economists to cast a skeptical eye upon the research produced by their economic history colleagues to see that it lives up to standards which they would expect in other areas of economics. This criticism of the state of economic history is not based on some utopian notion that we can achieve a scientific consensus on interpreting the past, but rather on the wide gap that exists between contemporary practice and the potential which could vastly enrich our knowledge of the past and reduce the range of uncertainty and disagreement over our economic heritage.
"For the two most recent illustrations, see Edward Saraydar, "A Note on the Profitability of Ante-Bellum Slavery," S. Econ. J., Apr., 1964, and Richard Sutch, "The Profitability of Ante-Bellum Slavery Revisited," S. Econ. J., Apr., 1965. It should be noted that Sutch's paper, presented in preliminary form in my graduate seminar in American economic history, makes clear that the issue discussed is short-run profitability but not viability. 2 See the article by Yasukichi Yasuba, "The Profitability and Viability of Plantation Slavery in the United States," Econ. Studies Quar., Vol. XII, No. 2.

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