Thanks for getting this started. I can take the next section, if nobody else volunteers, but I'll again mention that it might make more sense to do a CT-style seminar in which people identify and respond to interesting threads within the book, rather than going through and summarizing each section; just because it's a tricky book to summarize.
Also, in case it's helpful, let me quote his summary of Polanyi
Friedrich von Hayek loved that the market turned everything into a commodity .... Polanyi disagreed emphatically. In The Great Transformation, Polanyi explained that land, labor, and finance were "fictitious commodities." They could not be governed by the logic of profit-and-loss but needed to be embedded in society and managed by the community, taking into account religious and moral dimensions. The result, Polanyi wrote, was a tension, a contest, a double movement. Ideologues of the market and the market itself attempted to remove land, labor, and finance from society's moral and religious governance. In reaction, society struck back by restricting the domain of the market and putting its thumb on the scales where market outcomes seemed "unfair." As a consequence, a market society will face a backlash--it can be a left-wing backlash, it can be a right-wing backlash, but there will be a backlash--and it will be powerful.
Now these were--are--brilliant insights. As expressed by Polanyi in the original, they are also, sadly, incomprehensible to an overwhelming proportion of those who try to read him.
With deference to comprehension, my summary of what Polanyi was really saying follows:
The market economy believes that the only rights that matter are property rights, and the only property rights that matter are those that produce things for which the rich have high demand. But people believe that they have other rights. With respect to land, people believe they have rights to a stable community. This includes the belief that the natural and built environment in which they grew up or that they made with their hands is theirs, whether or not market logic says it would be more profitable if it were different--say a highway ran through it--or more lucrative if somebody else lived there.
With respect to labor, people believe they have a right to a suitable income. After all, they prepared for their profession, played by the rules, and so believe society owes them a fair income, something commensurate with their preparation. And this holds whether or not the logic of the world market says otherwise.
With respect to finance, people believe that as long as they do their job of working diligently, the flow of purchasing power through the economy should be such as to give them the wherewithal to buy. And "rootless cosmopolite" financiers--powerful people with no connection to the community, and yes, this often shades, and more-than-shades, over into antisemitism, as what is for Polanyi a critique of the operation of a system turns into a condemnation of Jewish and Jew-like people who fill a particular role in it--who may be thousands of miles away should have no commensurate right to decide that this or that flow of purchasing power through the economy is no longer sufficiently profitable, and so should be shut off. They should not be able to make your job dry up and blow away.
People have not just property rights, Polanyi declared, but these other economic rights as well--rights that a pure market economy will not respect. A pure market economy will lay down income, and allow your purchasing power to dry up and blow away along with your job if someone thousands of miles away decides better returns on investments are to be found elsewhere.
Hence society--by government decree or by mass action, left-wing or right-wing, for good or ill--will intervene, and re-embed the economy in its moral and religious logic so that these rights are satisfied. The process is one of double movement: the economy moves to remove the embedding of production, transactions, and consumption from the network of relationships that is society, and then society moves--somehow--to reassert itself.
Note that these rights that society will attempt to validate do not--or might not--be rights to anything like an equal distribution of the fruits of industry and agriculture. And it is probably wrong to describe them as fair: they are what people expect, given a certain social order. Equals should be treated equally, yes; but unequals should be treated unequally. And societies do not have to and almost never do presume that people are of equal significance.
... an unusually well educated workforce...
So what went wrong?
I was resistant to the CT-type-seminar thing partially because it is a hard book to summarize -- I think global reactions are going to miss stuff. At least, I think my global reaction would be oversimplified to the point of not being worth reading.
Something I found myself thinking in this section was that I would have liked to read something else by DeLong focusing on the history of industrial labs and their economic effects. There wasn't room in this book to get really fine-grained about it, but it would have been interesting.
religiously motivated sexual continence
I always thought that was because before soap you didn't want to think about where that person's hand last was.
On the other hand, it does look as though there's not enough interest to trawl slowly through the book. Nick, MC -- if you want to do global reactions, write them up and I'll post them. And anyone else, of course.
On the other hand, it does look as though there's not enough interest to trawl slowly through the book.
I like the idea of it, I didn't hate the last book club and I like DeLong, but this isn't the time. I have ~4 books I want to get through first as it is. So I won't be able to contribute intelligently to the discussion of this (not that that has stopped me before!) but that doesn't mean I won't be interested in something similar in a few months.
5: How about this -- we don't need to decide yet.
I'll plan on doing a summary of the next three chapters, and that gives another week for people to volunteer to do other sections. In the meantime I'll also think about a response to the book-as-a-whole.
It's been ages since I read it, but I remember Polanyi as fun to read and plenty clear. Does DeLong expand any on "incomprehensible to an overwhelming proportion of those who try to read him"?
Maybe his measurements are difficult to operationalize?
I looked it up. He's Hungarian. Hungarian scientists are always hard to understand.
He's been easy for me not to read.
Maybe if Polanyi had specified exactly how far market and society move, to two decimal places, it would have been better? (I guess that's just Moby in 11 written out.)
Someone do a Polya/Polanyi mashup, but not me because I haven't read either.
"Starting in 1870, though, the world began to get much richer. Globally, the real wages of unskilled workers in 1914 were 150% of what they were in 1870."
But most of global GDP was in Europe and the US at that point. And those countries were already going through their demographic transition. So something else was also going on that made people stop having large families (and quickly, too). Within 30 years the number of births per women 15-45 dropped by 30%.
And the timing seems off for "industrial labs". The webpage for the Menlo park museum describes it as the "world's first such research and development facility." And that was 1876. Given that standards of living were already rising quickly before 1870 (doubling in the US at least between 1820 and 1870), industrial labs seem to be a consequence, not a driver.
W.r.t large corporations, the timing seems off in the other direction. For example, the transcontinental railroad was 1869.
Seems like the dude is picking a point in an exponential growth curve and claiming that is where the transition occurred, because that is where the things he cared about started happening.
But the thing about exponential curves is that most of the increase always happens at the end of your chosen interval. So it will always naively appear that some transition occurs 1/tau prior to your chosen endpoint. So by choosing you endpoint you can align your desired "cause" with the bulk of your measured increase.
Pick 1910 as your endpoint and claim it was the beginnings of industrial labs and the rise of corporations in the 1870s.
Pick 1970 as your endpoint and claim it was unionization and the growth of conglomerates in the 1950s.
Pick 2000 as your endpoint and claim it was deregulation and the death of conglomerates in the 1970s-80s.
Also, consider the role of armories and other government manufacturing entities in industrialization. The wiki entry for the springfield armory goes into great detail about how technical concepts like interchangeable parts and assembly lines (and managerial concepts like cost accounting and centralized authority) were developed there a half-century before the "industrial labs" he cites.
A lot was going on prior to 1870!
"Industrial labs" makes me think of a dog working an assembly line.
Something I found myself thinking in this section was that I would have liked to read something else by DeLong focusing on the history of industrial labs and their economic effects. There wasn't room in this book to get really fine-grained about it, but it would have been interesting.
I find it surprising that he doesn't seem to go into more detail given how important they seem to be to his thesis. How much explanation does he give for the importance of industrial labs specifically?
Thinking about the first couple of chapters last night, I had a couple of new ideas about how they relate to the rest of the book.
First, Brad sets out this tension between Hayek and Polanyi as way to understand the long 20th C. It occurs to me that the story that follows is less a story of one or the other set of ideas gaining prominence, but rather a series of things going wrong, for which they offer an explanation. In the good times the market is creating tremendous wealth (and there is a gradual expansion of who is able to claim and share in that wealth) but, for much of the century, there is tremendous destruction happening which is explained as a failure to answer the demands of either the market or the people.
Second, I want to touch on a way that the book isn't quite what I expected and which I feel some ambivalence about.
Any reader knows, going into the book, that the world became much wealthier during the Century and will be curious, to some extent, how to assign credit (or blame that the wealth is so unequal).
As LB mentions, Brad opens by making the argument that the expansion was not inevitable; that there had been previous historical periods of increasing wealth which stalled and were washed out be increasing population, whereas the 20th C saw durable increases in wealth. He believes this was an enormous improvement in the human condition and that it was achieved through applied effort and intelligence of many people, and that we should recognize it as an important success. That makes it sound like the book will say that the winners deserved their success, and it doesn't. But it does so, in part, by dodging the question.
Brad is very clear that he believes the economic growth was good but also that the world was deeply unfair* and the book consistently reinforces both of those ideas without trying to resolve that tension in favor of one or the other. That's probably the right choice, but it also means that, in addition to his "grand narrative" of Hayek / Polanyi the reader is probably bringing their own grand narrative (of progress or exploitation) which the book touches on but also maintains a fair amount of strategic silence.
* I recall him saying, but can't find the quote, that there is probably somebody in the world who is much smarter and more capable than he is who is currently pushing a plow behind a water buffalo.
Seems like the dude is picking a point in an exponential growth curve and claiming that is where the transition occurred, because that is where the things he cared about started happening.
Kevin Drum made that argument, Brad replied here, and says that the 1870 breakpoint is political as much as technological.
I say: Up until 1870 there was no possibility of humanity baking a sufficiently large economic pie. Hence the foundation of politics and governments had to be an élite elbowing competitors out of the way and running a force-and-fraud exploitation game on the rest of humanity so that the élite of thugs-with-spears and their tame accountants, bureaucrats, and propagandists could have enough. After 1870 it was clear that things could be very different. And yet, while they were different, they were not different enough--so we are at best slouching towards utopia.
20: Zero. Tesla thing LB mentions in OP is as sophisticated as it gets.
23: That... seems like a problem for the thesis. The importance of industrial labs is not really self-evident. For one thing, as nope said, the timing seems off.
Meta: I'll write a general response, hopefully withing the next week. LB, which email will work?
24: Whole lot more of that coming.
Elizardb at Hotmail dot com works.
23: That... seems like a problem for the thesis. The importance of industrial labs is not really self-evident. For one thing, as nope said, the timing seems off.
It depends on where you place the emphasis on the thesis. You could believe both (a) that 1870 marked an important shift in human progress, and (b) that the shift included an increasing ability to coordinate work among large (and distributed) groups without believing (c) that the industrial research lab is a cause, rather than effect of that shift.
I agree, there was less in the book than I would have expected, given that he lists it as one of the 3 key elements.
Venture capitalism is also much older than one might think.
Industrial labs: There's a good big book by Manchester about Krupp that goes into a lot of detail about both early (around 1840 for Alfred) and 1910 stainless development. 19th century dye chemistry and pharmaceutical exploration from coal tar byproducts also are pretty well documented I think.
It's a big subject, and describing how these labs were different from earlier textile mills would be hard to do well, workplaces were secretive.
I liked his explicit identification of rapid change as a source of social stress.
I'm enjoying the book, would like to participate with the section summaries, but I've just started, we'll see how fast I go and how quickly others post summaries.
@22
Dear God. The "sufficiently" in "sufficiently large economic pie" is doing an absurd amount of work. Writing the the Wealth of Nations (1776), Adam Smith said:
A linen shirt, for example, is, strictly speaking, not a necessary of life. The Greeks and Romans lived, I suppose, very comfortably though they had no linen. But in the present times, through the greater part of Europe, a creditable day-labourer would be ashamed to appear in public without a linen shirt, the want of which would be supposed to denote that disgraceful degree of poverty which, it is presumed, nobody can well fall into without extreme bad conduct. Custom, in the same manner, has rendered leather shoes a necessary of life in England. The poorest creditable person of either sex would be ashamed to appear in public without them. In Scotland, custom has rendered them a necessary of life to the lowest order of men; but not to the same order of women, who may, without any discredit, walk about barefooted. In France they are necessaries neither to men nor to women, the lowest rank of both sexes appearing there publicly, without any discredit, sometimes in wooden shoes, and sometimes barefooted. Under necessaries, therefore, I comprehend not only those things which nature, but those things which the established rules of decency have rendered necessary to the lowest rank of people. All other things I call luxuries, without meaning by this appellation to throw the smallest degree of reproach upon the temperate use of them. Beer and ale, for example, in Great Britain, and wine, even in the wine countries, I call luxuries. A man of any rank may, without any reproach, abstain totally from tasting such liquors. Nature does not render them necessary for the support of life, and custom nowhere renders it indecent to live without them.
Would the day-labourer in 1876 have considered possession of a single linen shirt and a single pair of leather shoes "sufficient"? And today my daughter considers possession of an ipad barely "sufficient."
30: I'm not quite sure what you're asking. It's clear that, as you say, there's an exponential growth curve* and DeLong is looking at a period on that curve. The endpoint is much wealthier than the beginning and (as you note) most of the growth happens toward the end of the period under discussion. The question is whether there's a good reason to select 1870 as a starting point for his history or if he could have picked any year and told a similar story.
* Or maybe not: https://www.vox.com/future-perfect/23048981/economic-growth-productivity-philippon
Economic growth is generally modeled exponentially: our economic output grows by a set percentage every year, and while that percentage varies, it also compounds on itself. TFP is usually modeled the same way. If you have $100 growing 2 percent each year, that's exponential. If it instead just gains $2 every year, that's linear.
What Philippon does is attempt to assess whether TFP actually does, in practice, grow exponentially. He first looks at two datasets covering TFP in the US and finds, instead, linear growth since World War II: TFP does not increase by a set percentage each year, but a set amount (0.0245 points, if you're curious) each year. It doesn't compound; it just gradually, steadily grows. You're getting $2 a year, not 2 percent of an ever-increasing pile.
Extending the data back to 1890, he finds linear growth, but with a break: slower growth from 1890 to 1933, and faster after 1933, but steady and non-exponential in each period. He then extends the analysis to 23 relatively wealthy countries, from Japan to Germany to Spain. A linear model fits better here, too.
26: Thanks.
DeLong quantifies the rate of change of useful knowledge throughout the book. I kind of wish he hadn't -- while he's clear that the numbers he gives are estimates for argument's sake, I get very resistant to arguments that use numbers like that, where they're not really tied to anything measured
This. The closest I get to an explanation for how DeLong arrives at his numbers is this:
Assuming that each 1% increase in typical human standards of living worldwide at a constant global population tells us that the value of the useful ideas stock has risen by 1%. Assuming that each 1% increase in the human population at a constant typical living standard tells us that the value of the useful ideas stock has risen by ½% [...] Where does the ½ come from [...] The ⅓ [sic] is a heroic guess: a judgment that natural resources are, in the average and over time, roughly half as important as human brains, eyes, hands, and muscles in boosting production.So DeLong takes actual measurable things like GDP or calorie consumption per capita, well-known easily understood concepts for which there are well-established data series (not that he cites them, in the book or online), then multiplies those actual numbers (which would demonstrate precisely the points he wishes to make) by another number he pulls out of his ass, and proceeds to advance his argument with these bullshit numbers instead of the original numbers established by actual research.
Tough crowd
28 that makes it older than the first joint stock company which seems a bit odd to me but what do I know
@32
Delong argues that before 1870 there was "no possibility of humanity baking a sufficiently large economic pie." But what constitutes a "sufficiently large economic pie" is in the eye of the beholder. And different beholders of different eras have had radically different views of sufficiency.
The day-labourer of 1776 might have believed a pie that provided him 2 linen shirts and 2 pairs of leather shoes was sufficiently large. Thus this day-labourer might write "before 1776 there was no possibility of humanity baking a sufficiently large economic pie" as he anticipated his additional shirt & shoes.
But if I reduced my daughter's wardrobe to two shirts and two pairs of shoes she would murder me in my sleep. And a hypothetical great-granddaughter might consider possession of anything less than two personal AI attendants a sign of crushing poverty.
So identifying a date as the cutoff for "humanity baking a sufficiently large economic pie" without having some extrinsic definition of "sufficiently" is meaningless.
The reason why my first comment brought up the demographic transition is because one way to exit the malthusian trap is to stop having so many children. If the denizens of the 1870s UK had responded to a 50% increase per capita income by having 50% more children, then Delong's inflection point of history would have been delayed at least a generation. If the demographic transition had happened two generations earlier, the exit from the malthusian trap would have happened two generations earlier. That seems like an important point!
33: "the secret weapon of the economist is the ability to count."
Or is the secret weapon the ability to make up numbers?
For these chapters I'm just going to spit out some of my half-chewed notes like a llama. Blockquotes from the book unless noted.
before 1870, all that markets could do was to find customers for producers of luxuries and conveniences, and make the lives of the rich luxurious and of the middle class convenient and comfortable.Massive overstatement. Romans and especially Chinese moved vast quantities of staple foods and mass-consumption goods across subcontinental distances and did so for centuries (especially China). Frex, in Roman Britain (less than average in wealth) pottery was shipped from Africa in such quantities meals could be served in disposable dishes. Sites are thick with them. Likewise oyster shells, dozens of kilometers inland: moved fresh daily, throwaway snacks. These things are found in mid-to-low status sites, not high-status. DeLong will partially acknowledge this in chapter 1, but dismisses it as tribute for imperial capitals. He's right that state spending was central to those economies (especially Rome) but wrong that such movements were merely tribute; they were the sinews of the state, which permitted not only accumulation of wealth by the wealthy but also relative peace and prosperity for much of the rest of the population too.
Tough crowd
IIRC Brad did encourage people to "be merciless" in reviewing the book.
Related to Nope etc.
Then [in 1870] we got the institutions for organization and research and the technologies--we got full globalization, the industrial research laboratory, and the modern corporation. These were the keys. These unlocked the gate that had previously kept humanity in dire poverty. The problem of making humanity rich could now be posed to the market economy, because it now had a solution.These keys were centuries' accumulation of capital and science from the Early Modern on. 1870 is an inflection point, not a starting point. DeLong partially acknowledges this in later chapters, and by the end of the book I didn't think it mattered much: continuity versus change, as always in history. But thinking now, especially in light of Nope's comments, I suspect DeLong is so insistent on this date largely because he wants to reduce world history to US history and 1870 is about the point that such a strategy ceases to be transparently absurd.
@39 Also because if you are making a political argument in the guise of a economic argument, you really don't want to start the clock before 1848.
1870 is an inflection point, not a starting point. DeLong partially acknowledges this in later chapters, and by the end of the book I didn't think it mattered much: continuity versus change, as always in history.
That's interesting, and I suppose it partly comes down to the kind of book this is supposed to be. If he's essentially taking industrialization and growing real wealth as a given condition and talking about how societies reacted to that, maybe it doesn't really matter how or when that condition came about. (Except that if you're doing it as a narrative you have to start somewhere and any point is going to be somewhat arbitrary.)
We should use 1869, so we can say 'nice'.
There were then in 1870 1.3 billion people alive, 2.6 times as many as there had been in 1500. Farm sizes were only two-fifths as large, on average, as they had been in 1500, canceling out the overwhelming bulk of technological improvement, as far as typical human living standards were concerned.Phenomenal simplification. Average of farms where, people where? Stock of farmland isn't constant, nor hectares of farmland interchangeable. That period saw vast expansions of both arable and pasture, the Columbian Exchange, the agricultural revolution, the expansion of wet rice culture to much of south China and SEA. DeLong may nonetheless be right, but to show it he's got to count calories and measure bones, and he doesn't even attempt to do so.
41: He could and should have taken it as given, but really doesn't.
To date, we humans have failed to see the long twentieth century as fundamentally economic in its significanceSpeak for yourself.
44: But he also doesn't justify his explanations for it? Seems like there's kind of a lot missing in this book.
in 1914, all of Europe save France still saw the powerful political and social dominance of agrarian landlords, who still mostly saw themselves as descendants of knights who had fought for their kings with their swords.I stand very much to be corrected, but AIUI this is vastly wrong, the condition DeLong describes obtaining only* in Hungary (!= the Kingdom of Hungary != the Dual Monarchy), East Elbia (!= Prussia != Germany) and maybe in its special way Russia (did Russia ever even have knights in anything like the western European sense?). While the landed aristocracy may have dominated the officer corps, those corps did not (except, on every other day, thanks to Wilhelm II's psychodrama, Germany) dominate their states, but were subordinated to more or less parliamentary governments. I don't remember what point if any DeLong is trying to make here, but my point is that every time I see him go outside macroeconomics I see him making major errors.
I don't know about the German parliament, but in the U.K. weren't the districts such that wealthy landowners had way more power than their numbers. Plus the Lords.
To date, we humans have failed to see the long twentieth century as fundamentally economic in its significance
I'm not sure what that even means.
[Deng] may well have been the most consequential single figure in the history of the long twentieth centuryIntriguing, but I think wrong. The significance of Deng is that he allowed the Chinese to climb out of the hole the Party had driven them into; without the Party, no hole. Without Mao, no Deng; without Lenin, no Mao; without Wilhelm, no Lenin. One could argue, fairly, that Deng reformed and opened, and others might not have; but what would have been the longevity of such a regime? It would have had far less going for it economically than the USSR, which fell; I doubt brute force solutions like DPRK, Eritrea, Cuba would scale to the PRC (definitely wouldn't scale for the Eritrean model) and those are the only long-lived post-Soviet closed party regimes I know of. (Lao PDR? IDK shit. But, scale.)
49: From 1870 until the release of "Diamonds".
12: There's this thing about "Hungarian" scientists...
https://www.youtube.com/watch?v=eZShVsRM_-c
36: First, assume an economist.
(Then, presumably, assume like an economist.)
35: To be fair I think DeLong is pretty clear about what he means by "sufficiently large economic pie". It doesn't have anything to do with nope's daughter's ipad or clothing selection. It means that everyone has enough food to eat, decent shelter, and clean water and there's enough extra so that everyone can have children that will also have food to eat.
This thread and general topic seems so mysteriously impenetrable to me. Every comment makes me furrow my brow and concentrate to make sense of it.
If it helps, all my comments are completely beside the point. Except for 48 and maybe 11/12.
@35
"It means that everyone has enough food to eat, decent shelter, and clean water and there's enough extra so that everyone can have children that will also have food to eat."
So rice & beans & corn, plus some meat on Sunday. An orange for Christmas. A cabin with a well. Little House in the Big Woods.
57: Now we're making fractional comments?!
My dad talked about getting an orange at Christmas and they did not have indoor plumbing. They probably had meat at least once every day though (Lent excepted).
I first read Polanyi in an independent study as an undergrad, then taught The Great Transformation and related commentary in an independent study roughly ten years ago, and now can't remember a single thing about the book. I remember it being good and important but once I stopped regularly reading in political economy it apparently all fled my brain.
I just discovered this morning that my new minivan doesn't have heated seats. I think that puts me somewhere pre-industrial revolution.
Conveniently enough for this thesis, my dad's family first got land (followed shortly after by surplus wealth) starting in about 1860.
62: Does your state even have cold?
We had winter that one week in February, 2021 that was pretty intense! But more importantly, I semi-threw out my back yesterday and I thought seat-heaters might function as a heating pad on my drive to work.
I remember that week. I was driving across Iowa in even colder weather looking at windmills spinning while the radio said that Texas had no power because it was too cold for windmills.
Tonight is supposed to be a chilly 78-80° for trick-or-sharing-of-sufficient-economic-pie.
Or maybe I meant balmy. Who can say.
Apparently, we're supposed to pass out edibles this year. But I looked at the prices and went with candy again.
I bought a whole bunch of candy, and there have been no trick-or-treaters.
70: Still early, no? Doesn't even officially start here until 6 pm.
I wish there was some concerted city rule here.
Suppose I volunteered to write a summary of and/or response to Polanyi's The Great Transformation - would there be interest? I've been meaning to read it for something like two decades and even though that's not what this book club is about, it's a good excuse for me to read it and then read DeLong.
Re: #10: 'It's been ages since I read it, but I remember Polanyi as fun to read and plenty clear. Does DeLong expand any on "incomprehensible to an overwhelming proportion of those who try to read him"?'--Posted by: Kymyz Mustache
Well, Kymyz, you are a weirdo--about once every three years for the past thirty, I have tried assigning sections of Polanyi to undergrads. And it rarely goes well.
Gnoled Darb
Not, mind you, that their is anything wrong with being weird...
Gnoled Darb
Not "their": "there". There.
Gnoled Darb
Not "their": "there". There.
Gnoled Darb
Re: #27: "I agree, there was less in the book than I would have expected, given that he lists it as one of the 3 key elements."--NickS
Left on the cutting room floor. They would not let me publish a book with a four-digit page number. So I tried to write a book that was half industrial research labs and so forth, and half political economy. But in cutting it down I lost the balance.
Gnoled Darb
Re: #27: "I agree, there was less in the book than I would have expected, given that he lists it as one of the 3 key elements."--NickS
Left on the cutting room floor. They would not let me publish a book with a four-digit page number. So I tried to write a book that was half industrial research labs and so forth, and half political economy. But in cutting it down I lost the balance.
Gnoled Darb
76: Go for it! I was thinking of locating a copy myself.
77-80: Darb!
83: I was wondering if that had happened.
Guesses at the rate of increase of the value of the stock of "technology"--useful ideas about manipulating nature and organizing humans discovered, developed, deployed, and diffused across the world economy:
-1000 to 150: 0.062%/year
150 to 800: 0.014%/year
800 to 1500: 0.050%/year
1500 to 1770: 0.15%/year
1770 to 1870: 0.45%/year
1870 to 2010: 2.06%/year
with higher growth rates after 800 in the Dover Circle, and then in the Dover Circle-Plus
This table is, I think, the tentpole that needs to be central to every interpretation of human history.
Gnoled Darb
76: 100% yes
77: Internet achievement unlocked! To be fair, I read it in grad school for...hm...prelims maybe? In among all kinds of incomprehensibilia, and definitely not the sort that makes up an undergrad Econ syllabus, I bet. Went down real smooth.
They would not let me publish a book with a four-digit page number.
Maybe if you called it "Fifty Shades of Slouching Toward Utopia."
For those people who enjoy podcasts I remember a good discussion of some of the broad framing decisions (including the decision to start in 1870) in the Hexapodia episode on the book https://braddelong.substack.com/p/podcast-hexapodia-is-e-key-insight-d88#details
re: #42: "We should use 1869, so we can say 'nice'."
We are not Elon Musk.
Gnoled Darb
Homework reading on the pre-modern Malthusian Age: Greg Clark: "The Condition of the Working Class in England, 1209-2004"
Re: 85: "76: Go for it! I was thinking of locating a copy myself."
What I would want is for somebody to get my copy of Karl Polanyi et al., eds., _Trade and Market in the Early Empires" back from Amartya Sen...
Gnoled Darb
I read The Road To Wigan Pier (parts of it), so I have the middle of it covered.
copy of Karl Polanyi et al., eds., _Trade and Market in the Early Empires"
Google indicates that a pdf is available online. While I normally believe in supporting authors . . .
Then you will enjoy this from the Great Depression chapter! (with bonus MOAR Herbert Hoover gossip):
Conventional anti-Keynesian economic thinking would hold that any depression will be cured faster if wages and prices are encouraged--or forced--to fall in nominal terms. The same amount of spending in dollars will then buy more stuff and provide demand for more people to work. The problem is that when wages and prices fall, debts do not fall along with them. Thus, a decline in prices--deflation--during the Depression caused bankruptcies--companies unable to pay their debts--which led to further contractions in production, which triggered additional falls in prices, bankruptcies, and so on.
Banking panics and the collapse of the world monetary system cast doubt on everyone's credit and reinforced the belief that the early 1930s was a time to watch and wait. Demand for cash went up, and the excess supply of goods and services grew. And with prices falling at 10 percent per year, investors had compelling reasons to sit on the sidelines. Investing now would earn them less profit than if they waited to invest next year, when their dollars would stretch 10 percent further. The slide into the Depression, with increasing unemployment, falling production, and falling prices, continued throughout then newly elected Herbert Hoover's presidential term.
At its nadir, the Depression was collective insanity. Workers were idle because firms would not hire them to work their machines; firms would not hire workers to work their machines because they saw no market for goods; and there was no market for goods because idle workers had no incomes to spend. Journalist and novelists George Orwell's 1936 account of the Great Depression in Britain, The Road to Wigan Pier, speaks of "several hundred men risk[ing] their lives and several hundred women scrabbl[ing] in the mud for hours . . . searching eagerly for tiny chips of coal" in slagheaps so they could heat their homes. For them, this "free" coal was "more important almost than food." While they risked and scrabbled, all around them the machinery they had previously used to mine in five minutes more coal than they could now gather in a day stood idle.
There is no fully satisfactory explanation for why the Great Depression happened just when it did, and why there was only one. If such huge depressions were always a possibility in an unregulated capitalist economy, why weren't there two, three, or more of them in the years before World War II? Milton Friedman and Anna Schwartz would later argue that the Depression resulted from an incredible sequence of blunders in monetary policy. But those controlling policy during the early 1930s thought they were following the same gold-standard rules that their predecessors had used. Were they wrong? If they were not wrong, why was the Great Depression the only Great Depression?
A number of pieces of bad luck did all come together. In the United States, the decision to cut immigration in 1924 meant that a great deal of construction undertaken in the mid-1920s was undertaken for people who, it turned out, did not exist--or, rather, existed elsewhere. The rapid expansion of financial markets, and broader participation in them, made them more vulnerable than usual to overspeculation and panic. The shortage of monetary gold to act as a shock absorber, due to France and the United States deciding to lock it in their vaults, played a role. The international monetary system's reliance not just on gold but on other assets--assets also subject to runs--played a role as well.
When I first started writing this book, I felt, as many others did, that 1929-1933 was a uniquely vulnerable time, and planned to devote considerable space to explaining why. But in 2008, we skated to the edge of another Great Depression (which we'll explore in more detail in Chapter 17), which made it painfully clear that the years 1929-1933 were not so uniquely vulnerable after all. Rather, we had been remarkably lucky before 1929, and we had been remarkably lucky after 1929.
In the lead-up to the Great Depression, policy elites doubled down on the austerity measures to which they had committed themselves in the late 1920s. Faced with the gathering depression, the first instinct of governments and central banks was to do, well, nothing. Businessmen, economists, and politicians expected the recession of 1929-1930 to be self-limiting. They expected workers with idle hands and capitalists with idle machines to try to undersell their still at-work peers. Prices would fall. When prices fell enough, entrepreneurs would gamble that even with slack demand, production would be profitable at the new, lower wages. Production would then resume. This is how earlier recessions had come to an end.
Throughout the decline--which saw the unemployment rate rise to nearly a quarter of the US workforce, and production per worker fall to a level 40 percent below where it had been in 1929--the government did not try to prop up aggregate demand. The Federal Reserve did not use open-market operations to keep the money supply from falling. Instead, the only significant systematic use of open-market operations was in the other direction. After the United Kingdom abandoned the gold standard in the fall of 1931, the Fed raised interest rates to discourage gold outflows.
The Federal Reserve thought it knew what it was doing: it was letting the private sector handle the Depression in its own fashion. And it feared that expansionary monetary policy or fiscal spending and the resulting deficits would impede the necessary private-sector process of readjustment.
The Fed's do-little-to-nothing approach was backed by a large chorus, which included some of the most eminent economists of the era.
For example, Harvard's Joseph Schumpeter argued that "depressions are not simply evils, which we might attempt to suppress, but forms of something which has to be done, namely, adjustment to change." Friedrich von Hayek wrote, "The only way permanently to mobilize all available resources is, therefore, to leave it to time to effect a permanent cure by the slow process of adapting the structure of production."
Hayek and company believed that enterprises were gambles that sometimes failed. The best that could be done in such circumstances was to shut down those that turned out to have been based on faulty assumptions about future demands. The liquidation of such investments and businesses released factors of production from unprofitable uses so that they could be redeployed. Depressions, said Hayek, were this process of liquidation and preparation for the redeployment of resources.
Schumpeter put it this way: "Any revival which is merely due to artificial stimulus leaves part of the work of depressions undone and adds, to an undigested remnant of maladjustment, new maladjustment of its own which has to be liquidated in turn, thus threatening business with another [worse] crisis ahead." The market giveth, the market taketh away, and--in this case--blessed be the name of the market through gritted teeth. Except many didn't just grit their teeth, they also cursed loudly and repeatedly.
Herbert Hoover moved from commerce secretary to president on March 4, 1929, three months before the recession began and half a year before the 1929 stock market crash. He kept Andrew Mellon on as treasury secretary. Mellon had been nominated by Warren G. Harding and confirmed on March 9, 1921, five days after Harding's term began. Mellon stayed in his post when Harding died of a heart attack in 1923 and was succeeded by Calvin Coolidge. Mellon stayed in his post when Coolidge won a term in his own right and was inaugurated in 1925. Mellon stayed in his post when Hoover took over in 1929. Only Albert Gallatin--treasury secretary for Jefferson, Madison, and Monroe--served longer. Tax, budget, and monetary policy (for the treasury secretary was in those days the chair of the Federal Reserve Board)--all those were within Mellon's purview. Hoover was an expert mining engineer and a manager who believed in experts. And Mellon was his expert on how to deal with the Great Depression.
Looking back from the 1950s and contemplating the wreck of his country's economy and his own political career, Hoover cursed Mellon and his supporters in his administration who had advised inaction during the downslide:
> The "leave-it-alone liquidationists" headed by Secretary of the Treasury Mellon felt that government must keep its hands off and let the slump liquidate itself. Mr. Mellon had only one formula: "Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate." He held that even panic was not altogether a bad thing. He said: "It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people."
In his memoirs, Hoover wrote as though he had wanted to pursue more activist policies: do more than simply hand out relief and assure people that prosperity was, if not just around the corner, nearby. Hoover wrote as though Mellon had overruled him, and he had no choice but to comply. But, of Hoover and Mellon, which of them was head of the executive branch? And which was merely head of one of its departments?
This ruling doctrine--that, in the long run, the Great Depression would turn out to have been good medicine for the economy, and that proponents of stimulative policies were shortsighted enemies of the public welfare--was, to put it bluntly, completely bats, simply insane. John Stuart Mill had nailed the analytical point back in 1829: an excess demand for money was what produced a "general glut," and if the economy's money supply were matched to money demand there would be no depression. Practical central bankers had developed a playbook for what to do. Yet it was not followed.
Why? Perhaps because in previous downturns the excess demand for money had triggered a scramble for liquidity: people desperate for cash immediately dumped other assets, including the government bonds they held. As government bonds fell in price, the interest rates they paid rose. Central bankers saw such sharp spikes in government bond interest rates as a signal that the economy needed more cash.
But the Great Depression was not like previous downturns.
In this downturn the excess demand for money was so broad and fear was so great that it triggered a scramble for safety. Yes, people were desperate for more cash, but they were also desperate for assets that they could easily turn into cash. Believing the troubles would last for quite a while, they dumped other assets on the market--speculative stocks, industrial stocks, utility stocks, bonds of all kinds, even secure railroad stocks and things like their ancestors' furniture and their summer homes. The scramble was on for both cash and government bonds. Along with furniture left curbside, there was also no government-bond interest-rate spike, leaving central bankers unsure as to what was going on.
For their part, governments everywhere strained their every nerve and muscle to restore competitiveness and balance their budgets, which meant, in practice, further depressing demand, and in turn reducing wages and prices. In Germany, the chancellor--the prime minister--Heinrich Brüning, decreed a 10 percent cut in prices, and a 10 to 15 percent cut in wages. But every step taken in pursuit of financial orthodoxy made matters worse.
When you look at interest rates during the Great Depression you see a steadily widening gap between safe interest rates on government securities and the interest rates that companies able to borrow had to pay. Even though credit, understood as liquidity, was ample--in the sense that borrowers with perfect and unimpaired collateral could obtain loans at extremely low interest rates--the vast majority of businesses struggling to stay afloat--namely, businesses with imperfect, impaired collateral--found it next to impossible to obtain capital to finance investment because new investment expenditures on plant and equipment were risky, and the financial economy was desperately short of safety.
The banking system froze up. It no longer performed its social function of channeling purchasing power from savers to investors. Private investment collapsed; falling investment produced more unemployment, excess capacity, further falls in prices, and more deflation; and further deflation rendered investors less willing to invest and the banking system even more insolvent, deepening the freeze.
The spiral of deflation would continue to depress the economy until something was done to restore solvency to the banking system in a way that broke the expectation of further falls in prices. During the Great Depression, few economists understood this process. None of them who did walked the corridors of power.
So it was that the ruling "liquidationist" doctrine overrode the anguished cries of dissent from those less hindered by their theoretical blinders (as well as the anguished cries of the unemployed, the hungry, and the uncertainly housed, if housed at all). It was, wrote British monetary economist R.G. Hawtrey, a time of "fantastic fears of inflation... cry[ing], Fire, Fire, in Noah's Flood." The Great Depression was the twentieth century's greatest case of self-inflicted economic catastrophe. As John Maynard Keynes wrote at its very start, in 1930, the world was "as capable as before of affording for every one a high standard of life." But the outlook was nevertheless ominous: "Today," he said, "we have involved ourselves in a colossal muddle, having blundered in the control of a delicate machine, the working of which we do not understand."Keynes feared that "the slump" of 1930 might "pass over into a depression, accompanied by a sagging price level, which might last for years with untold damage to the material wealth and to the social stability of every country alike." He called for resolute, coordinated monetary expansion by the major industrial economies "to restore confidence in the international long-term bond market . . . and to restore [raise] prices and profits, so that in due course the wheels of the world's commerce would go round again." His was the croaking of a Cassandra.
But such action never emerges from committees, or from international meetings, unless it has been well prepared beforehand. It emerges, rather, from the actions of a hegemon. Such is required for a well-functioning global economy. Before World War I, everybody knew that Britain was the hegemon and adjusted their behavior to conform with the rules of the game laid down in London. After World War II, everyone would similarly know that the United States was the hegemon. America had the power to take effective action to shape the patterns of international finance all by itself, had it wished. But, during the interwar period, it didn't. The necessary action was not forthcoming.
And so Keynes's fears came to pass.
During World War I and after, the main belligerents, he said, had shaken "the delicate, complicated organization . . . through which alone the European peoples can employ themselves and live." Broken by war, the system was shattered by the Depression. These powers that be, he continued, had "render[ed] impossible a continuation of the social and economic order of the nineteenth century." And they had done so "with no plan for replacing it." Keynes warned that the consequences could be dire: "Vengeance, I dare predict, will not limp." And he was right. For once the Great Depression began, "nothing can then delay for long that final civil war between the forces of Reaction and the despairing convulsions of Revolution, before which the horrors of the late German war [World War I] will fade into nothing, and which will destroy, whoever is victor, the civilization and progress of our generation." Keynes was pessimistic. As it came to pass, civilization would not be "destroyed," but rather, "maimed."
93, 95: something something rivalrous vs. non-rivalrous goods something
It must have been stressful for them to have lived in a world where the hegemonic power might be rendered politically inactive at the same time as the forces of reaction were rising and aggressive.
96 is of course nothing but the truth. And yet, apart from a brief interval between 1945 and 1970, 19th century orthodoxy has continued to dominate in both university economics departments and treasury departments around the world. Why? What is there about that particular ideology that makes it so hard to question, even when its shortcomings are laid bare?
Re: #99: "Apart from a brief interval between 1945 and 1970, 19th century orthodoxy has continued to dominate in both university economics departments and treasury departments around the world. Why? What is there about that particular ideology that makes it so hard to question, even when its shortcomings are laid bare?"
I would say 1933-1980. And perhaps 1924-1933 if you follow Clara Mattei and see Mussolini's fascism a a form of "19th century orthodoxy", which it is and it isn't.
This is the question Ezra Klein wants me to answer during our "Ezra Klein Show" taping tomorrow. Any suggested answers?
Gnoled Darb
100.last: I don't have a good answer (I was hoping you would), but surely one answer is that it is psychologically more comfortable to believe that bad outcomes are outside of anyone's control, than it is to think that they are partially controllable-- that we can, with skill avoid some of the problems and that we should, therefore, hold ourselves responsible for whether we have paid sufficient attention and had sufficient skill.
apart from a brief interval between 1945 and 1970, 19th century orthodoxy has continued to dominate in both university economics departments and treasury departments around the world.
Has it, though? Really? I mean, the gold standard was 19th century orthodoxy. Keynesianism was not 19th century orthodoxy and is terribly widespread now.
Let me amend 101. I think there is a psychological element, but I don't think I captured it correctly.
Perhaps a better analogy would be to think about Freeman Dyson's study of risk for bombers in WWII. He knew that if the planes flew closer together the could help protect each other against fighting, but they were more likely to die from mid-air collisions.
He also found that the pilots, using their own judgment, did not arrive at the optimal solution. They preferred to fly farther apart, even at the cost of higher overall mortality, because, psychologically, dying from enemy fire was more acceptable than dying from accidental collision.
I think interdependence is scary.
I acknowledge, of course, that I am reaching for convenient, "just so" stories.
I feel like these things always have psychological answers, but before I can supply one, I need someone to pin down for me what we're saying when we say "19th century orthodoxy". Just generic "invisible hand/free market is the best market"? Or something more specific?
Maybe I don't need to have it pinned down (because I have to go teach anyway) so I'll assume we mean invisible hand stuff: these things always persist in order to keep the haves-having, and to keep some distance between the haves and the have-nots.
I recently heard something that struck me as insightful, which is that, as people constantly (obsessively) seek other comparisons in others to gauge how well they're doing, these comparisons are very biased - we need to be exposed to people who are doing slightly better than us. We're particularly terrible about comparing ourselves temporally to how people lived in the past.
I really think that there's some psychological panic-phenomenon among UMC/upper class people where pulling the lower classes up in any sense is seen as clawing the rich down. People's guts generally do not believe that a rising tide lifts all boats so much as the sea is a bunch of grabby hands that will pull you under if you don't climb as high as possible.
I think this is right there with racism in the kind of belief system that people find irresistible. If you anchor your greed in fear, you can do morally reprehensible things in the name of self-protection.
They preferred to fly farther apart, even at the cost of higher overall mortality, because, psychologically, dying from enemy fire was more acceptable than dying from accidental collision.
This makes psychological sense; remember that if you're killed by enemy fire, that's just you, but if you have a mid-air you'll be killing your mates in the other aircrew as well (or instead).
Dyson's conclusions, incidentally, have come in for a bit of doubt in the light of postwar analysis. He assumed that bombers were flying blind and would thus be unable to see either other bombers (which they collided with) or night fighters coming to shoot them down (not true in either case). He therefore argued for removing gun turrets from night bombers:
"The evidence that experience did not reduce losses confirmed our opinion that the turrets were useless. The turrets did not save bombers, because the gunners rarely saw the fighters that killed them...About 1 percent of all those [aircrew] shot down came back. Each week, Smeed would go to London and interview one or two of them. Sometimes he would take me along. We were not supposed to ask them questions about how they got back, but they would sometimes tell us amazing stories anyway. We were supposed to ask them questions about how they were shot down. But they had very little information to give us about that. Most of them said they never saw a fighter and had no warning of an attack. There was just a sudden burst of cannon fire, and the aircraft fell apart around them."
This, if it accurately represents his thinking, is an absolutely colossal error, along the lines of the "plane with red dots all over it" fallacy.
Of course gunners on shot-down aircraft didn't see fighters coming. By this stage it was well known by fighter pilots on every side that the first pilot to spot the enemy would probably win the fight. Most pilots who were shot down had no idea there was an enemy around. It's still a dogma of air combat to this day that if you detect first and shoot first you will win.
The correct question is not "do gunners ever see fighters before a successful attack?", of course, but "how many attacks fail because the gunner sees the attacking aircraft first and warns the pilot, allowing him to evade?"
The answer to the correct question, by the way, is "about half of them, according to Luftwaffe records". If Dyson's idea had been followed, Bomber Command's losses to fighters would have doubled.
If Dyson's idea had been followed, Bomber Command's losses to fighters would have doubled..
Fascinating. I would say that's evidence of what happens when you put a brilliant young person on a question-- you may get valuable original work, you may get work that is original and wrong, and they are not well positioned to tell the difference.
Give him a break. The vacuum cleaners are really nice.
19: Industrial labs, wagging towards utopia with a wet nose?
38: not in 1914, after three Reform Acts (which upped the franchise to the cockhaving half of the adult population and flattened out the rotten boroughs and funny corner cases like potwallopers) and a People's Budget crisis (which led to the Parliament Act 1911 cutting the House of Lords down to size).
99, 105: for me at least "19th century orthodoxy" would be the gold standard and a very strong presumption of a balanced budget in basically all circumstances. There aren't many treasury officials or academic economists out there fighting for the Return to Gold (there are some goldbug guys who want you to subscribe to their gold newsletter about buying gold though. did i mention they will sell you gold?). That said it's quite possible to get orthodox-ish policy proposals (inflation is baaad and deficits are scary, rather than a literal balanced budget amendment and a fixed supply gold currency) out of a weakly Keynesian modelling framework if you choose your parameters right/torture the data enough and for a long time that was the dominant school of thought.
107: also, RAF night bombers didn't fly formation (because of course they didn't - it was dark!)
Anyway, I'm happy to believe that someone else has a better answer to the question in 100.last than I do.
@ 103:
"He also found that the pilots, using their own judgment, did not arrive at the optimal solution."
"Seeing like a State" would like a word with you.
My uncle was a pilot bombing Germany, but I never asked him what he thought of his formation.
He probably died before that Beyonce album came out.
I'm pretty sure he lived to see "l Am... Sasha Fierce". Not the ones after.
111: You could express it psychologically as per Heebie. Not just the economic interests between 19th century sound money is mostly the same as today, but it's driven by the same instincts, habits of thoughts and emotional impulses...
I found Polanyi's The Great Transformations fun and accessible, but incredibly dense in a way that could probably be a problem, especially for someone that doesn't have some basic knowledge of the many different places and periods of history he discusses. That is, it feels like an 800 page book that someone cut down to 150 pages or whatever it is. I never finished it, but that's mostly down to add probably
I found my copy of Polanyi and can aim for a mid to late November post.
I laughed but still had to delete and wreck your joke.
This new trend in spam, super long posts (I'd thought posting more than 3 or 4 links in a comment wasn't possible) and spamming the latest threads. I guess they don't like that old "Double Penetration" post anymore.
First sentence should end "is very annoying."
121: when I started reading the first one I actually thought it was Darb posting LITERALLY EVERY REFERENCE.