economic history

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Adam Smith, paste medallion by James Tassie, 1787; in the Scottish National Portrait Gallery, Edinburgh.

Courtesy of the Scottish National Portrait Gallery, Edinburgh

economic history, branch of historiography concerned with the history and development of economic systems and, more broadly, with the investigation of economic aspects of historical societies.

The studies of history and economics were once closely related. The Scottish economist and philosopher Adam Smith (1723–90), the English economist and demographer Thomas Malthus (1766–1834), and the German economist and philosopher Karl Marx (1818–83) were all political economists who incorporated historical data into their analyses. A historical school of economics, which attempted to understand the economic situation of a nation in the context of its total historical experience, developed in Germany in the late 19th century and was associated with figures such as Gustav von Schmoller (1838–1917). Reacting against the free trade doctrines of British economists (which would have prevented Germany from protecting its industries until they were strong enough to compete), the historical economists argued that there are no universally valid economic laws and that each country should define its own economic path.

A similar interest in historical development was shown by institutional economists such as the eccentric genius Thorstein Veblen (1857–1929). The American Historical Association and the American Economic Association were founded together and did not separate for several years; indeed, it was common in American colleges for historians and economists to be in the same department. From the turn of the 20th century, however, the two disciplines pursued radically different paths. While economists developed ever-more-elaborate mathematical models, historians remained mired in the messy details of the world.

While this division between the disciplines occurred, much good research was done on the workings of preindustrial economies and on the question of why serfdom was introduced in Poland and Russia just as it was dying out in western Europe. In several countries, cost-of-living indexes that covered several centuries were computed. Although these estimates were imperfect (as they still are), they illuminated such famous questions as the causes of the French Revolution (1787–99) and the condition of the working class during the Industrial Revolution in England. The French historian Camille-Ernest Labrousse (1895–1988) showed that in France during the period from 1778 to 1789, a long recession was exacerbated by high bread prices and eventually the bankruptcy of the crown. Believers in “deeper” causes of the revolution treated this conjunction as only a trigger, but since many popular disturbances in the first years of the revolution were bread riots that turned to political violence, it is hard to avoid the conclusion that the history of the period would have been quite different under different economic conditions.

Economic history in Great Britain has always been influenced by the fact that it was the first country to undergo an industrial revolution. In the aftermath of World War II, economic planners looked to Great Britain for an example of how countries in the developing world might achieve the same transformation. The American economist and political theorist Walt Whitman Rostow (1916–2003), in The Stages of Economic Growth (1960), attempted a general theory of how economies industrialize. His six-stage model did not gain general acceptance, but he did raise the issue of long-term economic development, which directed some economists, at least, toward history.

The proposition that the Industrial Revolution was a good thing was universally maintained by historians who were sympathetic to capitalism. Socialist historians, on the other hand, judged it more ambivalently. For orthodox Marxists, only industrialized countries would create a proletariat strong enough to expropriate the means of production, and the enormous productive power of industrial society would be the basis of the “kingdom of plenty” under communism. At the same time, they emphasized the arbitrary way in which industrialization was carried out and the suffering of the workers. Because much of the evidence for the suffering of the workers was in fact anecdotal, a number of economic historians tried to determine whether their standard of living actually declined. Although wage rates were known, industrial workers were often laid off, so their annual income was not a simple multiple of their average wage. Despite the difficulties of the inevitably controversial calculations, it seems to be true that workers’ standard of living at least did not decline, and may even have improved slightly, before 1850. This conclusion did not resolve the issue of their suffering, however, since workers also endured noneconomic losses. The matter continues to be a concern for social and economic historians.

The distinctive feature of the American economy was slavery. One overriding issue for economic historians has been whether slavery was inherently inefficient as well as inhumane and thus whether it might have disappeared through sheer unprofitability had it not been legally abolished. This is an extremely complicated question. An answer requires not only large amounts of data but also data about almost all aspects of the American economy. To see how the data fitted together, historians after World War II drew upon macroeconomic theory, which showed how various inputs affect the gross national product (GNP).

There was, however, a further problem: how did the productivity of slave labour compare with the hypothetical product of free labour applied to the same land? In other words, if there had been no slavery, would Southern agriculture have been more (or less) profitable? One attempt to resolve this counterfactual question was offered in Railroads and American Economic Growth: Essays in Econometric History (1964) by Robert Fogel, an American economist who shared the Nobel Prize for Economics with Douglass C. North in 1993. Fogel tested the claim that railroads were of fundamental importance in American economic development by constructing a model of the American economy without railroads. The model made some simplifying assumptions: passenger travel was ignored, and, since canals were the principal alternatives to railroads, the part of the United States west of the continental divide was also left out. With these provisos, the model showed that the importance of railroads had been exaggerated, because in 1890 the GNP without railroads would have reached the same level as the actual one.

In Time on the Cross: The Economics of American Negro Slavery (1974), Fogel and his colleague Stanley Engerman addressed the issue of the profitability of slavery, using the methods Fogel had developed in his earlier study. Using evidence from only the last decade of American slavery, they argued that the system was not only profitable but more profitable than free labour would have been. The response to their work illustrates many of the accomplishments and pitfalls of what came to be called cliometrics, or the application of statistical analysis to the study of history. It sold more than 20,000 copies, a large number for a scholarly book; it shared the Bancroft Prize for history; and it was the subject of stories and bemused reviews in the popular press. However, because it adopted the French custom of segregating tables and other statistical matter in a second volume—which appeared not simultaneously but several months later—the initial reviewers had access only to the conclusions and the supporting textual arguments. These initial reviews were generally respectful, but when the second volume appeared, many cliometricians attacked its statistical analysis. Other scholars assailed the work for everything from insufficient indignation about the evils of slavery to improper attributions of classical profit-maximizing economic motives to participants in an institution that Thomas Jefferson once characterized as “a continuous exercise of the most boisterous of passions.” (Fogel and Engerman argued that slaves were rarely whipped, because whipping would have diminished their capacity for work.)

Some of these criticisms missed the mark. Fogel and Engerman did not undertake even a political economy of slavery, much less a moral evaluation. The most searching critiques, from fellow cliometricians, were arcane and technical. But they resembled disputes in the natural sciences in that the data were publicly available, and fairly well-understood criteria were available to adjudicate the issues. Furthermore, the authors’ main conclusion, which was anticipated by earlier studies, has not been refuted: slavery was indeed profitable and was not withering on the vine in 1861.

Cliometrics was an important innovation because it offered new answers to old questions and provided a methodology better suited to tackling large questions of system and structure. Although it was a new and rather spectacular technique, it did not eclipse older branches of economic history. In the United States, which had pioneered business history, institutional historians continued their work on entrepreneurs and on management tactics, while labour history was avidly pursued not only in the United States but throughout Europe. Historians were also preoccupied by peasants in numbers sufficient to justify The Journal of Peasant Studies, established in 1973, and, since peasants were found all over the world, peasant studies easily became comparative. These studies readily crossed the fluid boundary between economic history and social history. Quantitative analysis of the records left by ordinary people, gathered for cliometric purposes, has brought their experiences to light—the great accomplishment of the social historians of our time.

From the early 21st century, economic history has encompassed a broad range of topics, methodologies, and geographic foci, including the causes and consequences of economic crises (such as the global financial crisis of 2007–08 and the ensuing Great Recession), the effects of economic globalization on national economies and societies, the disparities in income and living standards between different world regions, and the deleterious effects of economic growth on the natural environment. In 2014 the English publication of Capital in the Twenty-first Century, a monumental work of economic history by the French economist Thomas Piketty, provoked a lively debate between liberals and conservatives over economic inequality, the distribution of wealth, and the future of capitalism. Piketty’s principal claim was that there is a “central contradiction of capitalism.” Basing his conclusions on 200 years of tax records from the United States and Europe, Piketty maintained that the average return on capital exceeds the rate of economic growth, so without countervailing factors—such as World Wars I and II, the Great Depression of the 1930s, or specific government action—inherited wealth will grow faster than earned wealth, leading to unsustainable levels of economic inequality that could threaten democracy. Unchecked, this contradiction will ultimately bring a return to what he called the “patrimonial capitalism” of the 19th century, wherein the preferred path to wealth is inheritance or marriage rather than labour.