-Abstracts are in alphabetical order by presenting author; presenting authors are listed in italics

Predicting Patterns of Early Twentieth Century Wage Inequality

Marina Estelle Adshade

The predictions of a model of ability-biased technological change are tested for the inter-war period using data from the state of Ohio. In the model, an exogenous decrease in the cost of education accompanied by an increase in the rate of technological progress influences the income distributions of two types of workers, skilled and unskilled. The long-run equilibrium outcome is a function of the level of correlation between abilities in the two occupations (i.e. whether or not the most able unskilled worker would also be the most able skilled worker), as well as the relative ease at which workers in either occupation adapt to increases in the growth rate of technology and the technological change bias. This paper extends the existing model of ability-biased technological change, allowing for the prediction of log-normally distributed income (over worker type) and permitting realistic feature of over-lapping income distributions between skilled and unskilled workers. Given this particular feature of the model, and given the particular structure of this data set, I compute a novel metric for inequality that captures changes in the relative distributions of wages rather than merely in the mean wage ratio of skilled and unskilled workers. Using this metric, the model is tested with a panel data analysis which exploits the variations in the wage distributions over industry-year observations using a remarkably detailed data set collected by the State of Ohio from 1914 to 1937.

[Up and] Down on the Farm: Tenure Mobility and Intergenerational Wealth Transfers in U.S. Agriculture, 1880-1920

Lee J. Alston, Joseph P. Ferrie

The agricultural ladder — the progression from wage worker to tenant to owner — has been recognized in the U.S. since the early twentieth century. We analyze patterns of movement up the ladder for more than 10,000 farmers whose careers are documented in the surviving schedules of the 1920 Census of Agriculture. The schedules allow us to measure how long farmers spent at each "rung" on the ladder and to compare how movement up the ladder differed across five very different counties — Carbon County, Montana; Jackson County, Michigan; McLean County, Illinois; Santa Fe County, New Mexico; and Wilson County, Tennessee. This analysis provides the first detailed look at early twentieth century career mobility within farming for a large population that spans much of the U.S. Our results have implications for both (1) attitudes toward resource allocation in a dynamic setting; and (2) beliefs about prospects for advancement within farming and the attractiveness of off-farm job opportunities at a time when net migration was increasingly toward cities and towns. We find that tenancy was an important step on the way towards becoming an owner throughout the early decades of the twentieth century, though some workers never moved past the tenant rung. The paths to ownership that we explore include: 1) climbing up to ownership without the help of relatives; 2) climbing up to ownership through inheritance; or 3) starting as an owner directly either through purchase or inheritance. We find considerable variation in our counties in the time that farmers spent on various rungs on the ladder as well as considerable variation in the value of farms across counties. The two extremes are McLean County in the rich agricultural heartland and Santa Fe County in the arid Southwest. In McLean County, 75% of farm owners had experience on the agricultural ladder whereas as only 4% of farm owners in Santa Fe County had prior experience on the agricultural ladder. In McLean County the median value of farms for owners was $30,000 while in Santa Fe County the median value of farms was $1,500. We also found that the value of farms operated by tenants exceeded the value of farms owned by a considerable amount in four of our five counties, with Wilson tenants being the outlier.

The Evolution of the Pharmaceutical Industry: Sunk Costs, Market Size and Market Structure, 1800-2000

Gerben Bakker

The pharmaceutical industry developed from a small, fragmented industry into a large and highly concentrated one. The largest firms were many times the minimum efficient plant size or medicine development costs. This paper investigates the puzzle of rising concentration in a booming market. It uses new industrial economics theory to analyse detailed industry time series on sunk costs, market size and industrial concentration for the United States, Britain, and several European countries between 1800 and 2000. The findings suggest that strategic interaction between firms resulted in a 'quality race', a competitive escalation of endogenous sunk outlays on R&D and marketing, that prevented industry fragmentation in the face of a booming market, and also contributed to the dramatic geographical shifts. The escalation was reinforced by the interacting effects of joint R&D and advertising outlays, distribution access to capture rents, and portfolio effects. Contributing factors included institutions, war and government intervention.

From Baghdad to London

Maarten Bosker, Eltjo Buringh, Jan Luiten van Zanden

On the basis of a large (new) dataset of cities in Europe, North Africa and the Middle East in the millennium between 800 and 1800, we try to provide an answer to the question why, during this millennium, the urban center of gravity moved from Iraq (or more generally the Arab world) to Western Europe and to the shores of the Atlantic (during the 17th and 18th century) in particular. We study the characteristics of the European and Arab urban systems involved, amongst others focusing on the interaction between cities, and explain why one system was much more dynamic in the long run than the other. Also we assess the importance of various geographical, religious and institutional factors as the driving forces of urban expansion. Overall, we provide a better understanding of the dynamics of urban growth in the centuries leading up to the Industrial Revolution and an answer to the question why London, an economic backwater in 800, was able to overtake Baghdad, in 800 the thriving capital of the Abbasid caliphate, as the largest city in this part of the world.

The Trade Boards Act of 1909 and the Alleviation of Household Poverty

Jessica S. Bean, George R. Boyer

This paper examines the effects of the 1909 Trade Boards Act on women's wage rates and income contributions to poor households. The Act established Boards charged with setting minimum hourly wages in selected low-paid trades, and though the minimum wage rates applied to male as well as female labour, the majority of workers affected by the Boards instituted before the First World War were women. Many of the women whose wages were raised by the Act were the wives and daughters of low-skilled workers, whose increased contributions to household income helped to alleviate their families' poverty, while many others were sole earners who supported children or elderly parents. Our main finding is that the Trade Boards Act would have increased the wages of the women who were affected by it enough to have been effective in reducing household poverty rates.

Part I of the paper examines the extent of working-class poverty and its causes from 1899 to 1913, using earnings data from the Board of Trade's 1906 wage census and the results of poverty surveys undertaken by Rowntree and by Bowley and Burnett-Hurst. We show that as many as one-third of adult male manual workers earned wage rates that were too low to enable them to maintain a family consisting of a wife and three school-aged children, and that 12-15% of working-class households lived in poverty. Part II examines the contributions of women workers to household income, and offers estimates of the effects of the adoption of minimum wages on household income and poverty rates. We construct a data set consisting of approximately 300 women employed in the tailoring, box making, match-box making, and shirt making trades, obtained from two 1906-08 surveys, and calculate how many of the women were paid wages below the minimum set by the Trade Boards, and, for those below, how much their weekly earnings would have increased in order to bring them up to the minimum. Close to 70% of the women workers in our sample would have been affected by the minimum rates, and increasing their hourly wages to the minimums would have increased their earnings by an average of about 4s. per week. For those cases where we have information on total household income and family size, we determine whether the family lived in poverty. We then estimate the extent to which the increased income of women resulting from the Trade Boards Act reduced the poverty rate and the intensity of poverty. We find that an initial poverty rate of 54.5% would have been reduced to 33% and that the poverty gap for those households which remained below the poverty line would have been reduced by about 23%. Part III summarizes our results and offers some brief concluding thoughts on the political economy of the Trade Boards Act.

Efficiency of the Korean Slave Market —1689-1890

Elise S. Brezis, Heeho Kim

From the ancient ages until the twentieth century, Korea was an agricultural economy. The population of Korea in the late 17th century was around 15.8 millions, and almost a quarter of it was made of slaves who worked in the agricultural sector (see Maddison, 2000). The Korean economy was not monetized until 1689 but already in1678, for the first time ever, the coin money had been introduced and circulated in Korea. The introduction of money and a growing population would bring about the development of markets along with a growing volume of transactions. Lands, slaves and labor services began to be sold in the markets systematically.

The market for slaves in the US has given place to one of the most passionate debate in economic history. Many theories have been put to scrutiny on this subject from the principal-agent theory to the analysis of labor markets. One theory has not been used until recently, although this theory makes perfect sense to use it for the slave market — it is the asset price theory.

The purpose of this paper is to analyze whether the slave market in Korea was efficient during the eighteenth and nineteenth centuries, and most exactly from the time of the appearance of money in 1689 until the almost total disappearance of slaves in the late nineteenth century applying the asset price theory. Slaves can be interpreted from an economic point of view as a kind of asset that is bought and can also be sold, as machines, trees, gold or other assets.

In order to analyze whether the Korean slave market was efficient during the period 1689-1893, it is necessary to gather data on wages and slave prices. We collected long run time series on slave prices and real wages for this period. We first present the market for slaves in Korea and we put it into the perspective of the Korean economy during this period. We then present the data, the theory and finally our results.

The Historical Roots Of India's Service-Led Development: A Sectoral Analysis Of Anglo-Indian Productivity Differences, 1870-2000

Stephen Broadberry, Bishnupriya Gupta

India fell further behind the UK in terms of GDP per capita and overall labour productivity between the 1870s and the 1970s, but has been catching-up since. This paper offers a sectoral analysis of these trends. Comparative India/UK labour productivity in agriculture has declined continuously, and agriculture still accounts for around two-thirds of employment in India. Agriculture thus played a key role in India's falling behind and has subsequently slowed down the process of catching up. Although there have been substantial fluctuations in comparative India/UK labour productivity in industry, this sector has exhibited no long run trend. The only sector to exhibit an upward trend in comparative India/UK labour productivity is services. India's recent emergence as a dynamic service-led economy thus appears to have long historical roots. Although India has been characterised by relatively low levels of physical and human capital formation overall, its education provision has historically been unusually skewed towards secondary and tertiary levels. This has provided a limited supply of high productivity workers who have been employed predominantly in services.

Corporate Law and Underpricing of Initial Public Offerings: Evidence from Germany, 1870-1896

Carsten Burhop

In this article, we evaluate the evolution of the market for initial public offerings (IPOs) in Germany between 1870 and 1896, i.e., the period between implementation of free incorporation in Germany in June 1870 and the coming into force of the stock exchange act in January 1897. In between these two legislator acts, the 1884 corporate law reform significantly changed the regulatory environment for IPOs in Germany. We evaluate the impact of this corporate law reform on the IPO underpricing puzzle by using unique data for 213 undertaken at the 19th century Berlin Stock Exchange. Initial returns were zero during the hot market of the 1870s. After a corporate law reform in 1884, first-day returns increased to about five percent — far less than at modern financial markets - and were virtually censored at zero.

The 1884 corporate law reform changed the rules of the IPO game in (at least) four respects: first, it introduced a legal definition of the incorporator, an important pre-condition for sue incorporators in case of misbehavior. Moreover, incorporators' comrades (e.g., the underwriter) were defined by the law and — like the incorporator itself — responsible for a fair and truthful incorporation; however, incorporators' and their comrades' could be sued by the corporation, not by the shareholders. Yet, a minority of ten percent of the shareholders could instruct the supervisory board to do so. Consequently, the litigation risk of incorporators increased, which should induce rising underpricing. Second, the information provided to first investors became broader in scope, of higher quality, and more easily accessible after the 1884 corporate law reform. Thus, underpricing was bound to decline. Third, the minimum investment to buy one share was increased eight times after the legal reform, driving small investors out of the market. Therefore, the remaining investors were more homogenous and underpricing should have declined. Fourth, special cash-flow rights allocated in the corporate charter to the incorporators were interdicted in 1884. Before the reform, such rights were legal and could be hidden, since the publication of the corporate charter was not compulsory. The interdiction of this practice should induce declining underpricing.

The main results of our paper shows, that underpricing increased significantly after the 1884 legal reform. A dummy variable reflecting the impact of the reform is highly significant and shows an increase of underpricing of about 3.7 percentage points. This result holds even if we control for the interdiction of special cash flow rights for incorporators, the higher minimum investment, and better information provision to first investors after the reform. Therefore, we interpret the coefficient of the dummy variable as the litigation risk effect.

Testing for Wage Discrimination in US Manufacturing in 1832

Joyce Burnette

This paper adds to a small literature that uses productivity ratios estimated from production functions to test for wage discrimination. This method of testing for wage discrimination is superior to the more common method of calculating the percentage of the wage gap explained by observables because in the later method omitted variables can lead to an overestimation of wage discrimination. Using a sample of textile factories from the 1833 McLane report, I estimate nested Cobb-Douglass production functions. The estimates suggest that the female workers employed in the factories were on average about two-fifths as productive as an adult men. Boys under age 16 were also about two-fifths as productive as an adult male, and in both cases the estimated productivity ratios closely match the observed wage ratios. I find not evidence of wage discrimination in US textile factories of the 1830s. However, since the test used in this paper does not detect occupational crowding, discrimination could still have existed in other forms. My conclusion that there was no wage discrimination supports Claudia Goldin's claim that the nineteenth century was characterized by spot labor markets, and that wage discrimination emerged at the beginning of the twentieth century.

Survival in 19th Century Cities: The Larger the City, the Smaller Your Chances

Louis Cain, Sok Chul Hong

It is widely known that 19th-century life expectancy was substantially lower in cities than in rural areas. It is less widely known that survival rates in cities over 50,000 were considerably below those in smaller cities, which in turn were considerably below those in rural areas. With the aid of the Union Army database, we investigate this urban mortality penalty.

We first construct an 1866-1900 survival rate by dividing the number of veterans in any class we know were alive in 1900 by those we know survived the Civil War. Sorting by birthplace, 50 % of veterans born in urban places who survived the war lived to 1900. The figure for those born in rural places is 13 % higher. Only 31% of veterans residing in large cities in 1860 survived to 1900. This is consistent with a population belonging to a life table with eo = 25.0. By contrast, 61% of veterans residing in rural areas lived to 1900. This is consistent with a population belonging to a life table with eo = 45.0.

We next limited the data to those veterans who could be found in the death records. Since most of the information about death places comes from the pension records, this sample is more representative of those who lived longer as the pension law was liberalized in 1890. The results, therefore, should be considered as a lower bound of the urban mortality penalty.

We observe the veterans at three times during the life cycle: birth, 1860, and death. There are five possible birthplaces: large cities, small cities, high malaria rural areas, low malaria rural areas, and foreign. There are four possible residences in 1860, and five possible places of death. The additional death place is a situation where we are sure the place of death is a rural area, but the county does not appear in the death register.

The veteran's birth year always appears as a control variable. There are three additional sets of variables. The first involves socio-economic variables, the individual's wealth in 1860 and his occupation at enlistment. The second includes variables that reflect the veteran's wartime experience. In addition to the year of enlistment, there is data on initial rank, whether he experienced infections or illness, whether he had wounds or other injuries, and whether he was a POW. The third involves variables that reflect health conditions later in life as reported in the Surgeon's Certificates for pension purposes.

We run Cox hazard regressions for each stage of a veteran's life separately and collectively, using various combinations of the control variables. The penalty appears in each regression. While the data permit us to document the magnitude of the penalty, we cannot yet explain why it occurred. We feel it is reasonable to conclude that both socioeconomic and environmental variables contributed. It appears that less emphasis should be placed on where veterans were born and more on where they lived later in life, particularly where they spent their adolescence.

Grain Prices and Mortality in Vienna,1648-1754

Julia Casutt, Ulrich Woitek

Class specific mortality in 17th and 18th Century Vienna shows a cyclical pattern which is related to grain price cycles in the 5-10 years range. This relationship is not stable over time. Applying spectral analysis based on time-varying VARs, it can be shown that at the beginning of the observation period, co movement of grain prices and mortality is considerably high in areas populated by lower classes of society. This co movement cannot be found in richer areas and vanishes over time for the entire population.

Malthus to Modernity: When and How did Fertility Behavior Change in the Demographic Transition in England?

Gregory Clark, Neil Cummins

In the modern world a stylized fact accepted by most economists is that high incomes are associated with lower fertilities. We see this across countries, and until recently it was believed that is prevailed within countries also. This is a complete reversal of the pre-industrial pattern where net fertility was strongly positively associated with wealth, at least in England. Yet in England by 1891 this pattern had seemingly changed, with the poor now showing higher fertilities. This implies that the rich were the group that most dramatically changed their behavior in the period leading up to the demographic transition of 1870-1930. But when between 1640 and 1890 did this change in the behavior of the wealthier occur? When in England did the connection between income and fertility switch from positive to negative? And what was the reason for that change? Was it a response to a decline in child death rates that occurred first among the rich?

Using a large sample of nearly 5,000 male wills for England in the years 1500-1912 this paper examines when and how the pattern of fertility changed between the Malthusian and the modern eras. The evidence suggests that a significant change occurred in the fertility behavior of the rich in England long before the general demographic transition of the 1890s, perhaps as early as the 1810s. By the time of the 1820s birth cohort of men there is no longer an association between net fertility and income. This potentially links the demographic transition more closely with the Industrial Revolution. The paper also examines whether the earlier decline in fertility by the rich can be explained by an earlier decline for this group in child mortality. The answer seems to be that it is not induced by mortality changes. The chances of a rich man leaving a male heir declined substantially as a result of their fertility decline from about 77% in the pre-industrial period to only 55% by the late nineteenth century.

Construction of this database is still in its infancy. In particular we are working hard to increase the numbers of observations of in the years of interest in 1800-1914 to try and estimate better when behavior of the rich actually changed. With this larger data set we will also hope to be able to consider the gross fertility of rich and poor, by linking the testators to the censuses of 1851-1901, and to earlier parish records. But one strong implication of our data already is that there must have been for the class of the rich in England a period of substantial and perhaps even dramatic change in their demographic behavior that occurred much earlier than the conventionally dated demographic transition of the late nineteenth century.

Global Trends In Numeracy:New Estimates Based On Age Heaping Techniques, 1820-1940

Dorothee Crayen, Joerg Baten

The age heaping technique allows estimates of numerical abilities and numerical discipline for most world regions for the 1820-1940 period. This study is based on representative data from population censuses (the only exception is China before 1890) and brings together first estimates of the long-run human capital development of most countries in South and East Asia, the Middle East, Africa, Latin America, and the Western world. Assessing the determinants of basic numeracy, we find school enrolment as well as Chinese instruments of number learning to have been particularly important. To a lesser extent, a tradition of state bureaucracy and the absence of malnutrition impacts positively on our measure of numeracy.

Given that human capital accumulation is at the heart of modern long-run growth economics, considerable efforts have been made to strengthen the available empirical evidence on human capital indicators, mainly in terms of literacy or school enrolment rates. Although great improvements have been accomplished, more than half of all are as yet mostly undocumented for the late 19th century, and existing samples are biased towards today's richer spectrum of countries. This study is a first attempt to achieve almost global coverage since the late 19th century. Moreover, quite a number of additional countries can be included for the 1820-1890 period. Another aim of this article is to broaden the human capital literature by capturing an aspect of human skills and knowledge that has been widely neglected by economic history research up to now. Hence, in this paper, we go beyond traditional literacy and enrolment indicators by presenting proxies for numeracy based on age heaping, i.e. sharp jumps and clusterings at certain ages in a given age distribution. While demographers and applied statisticians perceive age heaping mainly as a data problem, we use the displayed ignorance of one's own age or the tendency to round ages as a proxy for non-numeracy.

In our estimates, the northern Islamic countries stretched between Iran and Turkey, and the northwestern part (Algeria, Tunisia etc.) of the Islamic world performed much better than the southeastern part. Within Europe, the Greeks, Cypriotes, Irish, Portuguese and Spanish stood out as having had relatively low numeracy during the 19th century. Especially for the birth cohorts after the Great Famine, there was even a temporary deterioration before Ireland and Spain converged back to Western European levels. Other parts of Europe experienced their numeracy revolution already in the 17th and 18th centuries.

Finally, we run explorative regressions on the determinants of age heaping. We find schooling to be the most important correlate. The age and authority of state bureaucracy does not play a significant role in our sample. Finally, we assessed the contribution of basic numeracy as measured by the age heaping strategy for long-run economic growth. Overall, the age heaping technique provides an additional tool to allow a more nuanced view on human capital formation in most of the world's regions during the 19th and early 20th centuries.

Domestic Trade and Market Size in Late Eighteenth Century France

Guillaume Daudin

This paper checks if differences in market size can explain the retardation of the Industrial Revolution in France compared to Britain. It uses an exceptional source on French domestic trade in a variety of goods in the late eighteenth century: the Tableaux du Maximum. The first part presents this source and the data. The second part checks if the data are plausible using a logit theoretical gravity equation. The third part uses the results of this gravity equation to compute the expected markets size of specific supply centres. For all types of high value-to-weight goods, some French supply centres reached 25 million people or more. For all types of textile groups, some French supply centres reached 20 million people or more. Even taking into account differences in real, nominal and disposable income per capita, these supply centres had access to domestic markets that were at least as large as the whole of Britain.

Differences in the size of foreign markets were too small to reverse that result.

New Institutional History of the Adaptive Efficiency of Higher Education Systems Lessons from the Prussian Engineering Education: 1806-1914

Jean-Luc Demeulemeester, Claude Diebolt

In this paper we propose an historical account of the development of the Prussian engineering higher education system in terms of its adaptiveness to economic needs. This research constitutes a kind of empirical counterpart to more theoretical researches carried out by the authors on the optimal organisation of higher education systems, inter alia the relative virtues of binary systems (i.e. technical higher education institutions competing with universities). In the theoretical framework we tried to determine the optimal decisions by two competing institutions in terms of both quality level and types of curricula (from the more abstract to the more applied). The latter research remained quite abstract and a-historical (no real dynamic evolution, and no attempt to link the assumed behaviour of educational institutions with the incentives faced by the individuals operating them, i.e. professors). In this paper, we use the results of more traditional historical researches in order to account for the evolution of the Prussian engineering education system and how it reacted to both the incentives faced by professors and to the lobbying power of employers. We show that the Prussian engineering education system was set up before the proper take off of the Prussian economy, and within a broader binary model of higher education (universities versus technical schools). The engineering education was itself of a binary nature, depending on the future employment perspectives of the graduates (private or public sector). The schools that prepared engineers for work in the civil service were much more elitist (entry requirements included a classic education). This system mirrored strong social prejudices and aristocratic values (anti-utilitarian). This institution and value system created specific incentives for the professors at the engineering schools. As the economy itself was not fully developed, the demand for engineering education remained quite low, allowing professors to concentrate more on their own agenda of social upgrading through imitation of the value system of the Gymnasium and the Humboldtian university. Engineering schools faced an increasing "academic drift" that culminated in the mid-sixties of the 19th century. However, the post-1873 period of both economic crisis and jeopardized German economic competitiveness led employers (including lots of former graduates in the V.D.I., Association of Engineers) to oppose this academic drift and push towards lower admission requirements, diversification of the education (development of lower engineering schools) and a more vocational curriculum. This process led to an increasing number of graduates — with negative side effects for the engineers themselves but positive side effects for the German economy as a whole. We show that in the long run the demand side (demand of human capital by the employers) was central in the evolution of the Prussian system and that the supply-side (the quest of status by professors and institutions) played a rather temporary role (only when the economy was not sufficiently developed or when the booming economy did not lead employers to complain about the quality of the engineering manpower).

The Political Economy of Financial Good Housekeeping in Historical Perspective

Mark Dincecco

This paper uses a new panel or time-series cross-section (TCSC) data set to perform a statistical analysis of political regimes and financial rectitude in Europe from 1650 to 1913. Though Old Regime polities typically suffered from fiscal fragmentation and absolutist rule, many such countries had centralized institutions and limited government by the start of World War I. Panel regressions indicate that centralized and/or limited regimes were associated with significant improvements in financial housekeeping relative to fragmented and absolutist ones. Structural breaks tests also reveal close relationships between major changes in financial rectitude and political transformations. The findings suggest that better housekeeping was an important mechanism through which political reforms reduced sovereign credit risk.

The New Deal and the "New Cuba": Cuba's Participation in the U.S. Sugar Quota Program, 1934-1941

Alan Dye

The Agricultural Adjustment Act was the first and key piece of New Deal legislation introduced in the first days of the first Roosevelt administration to establish production controls for a list of "basic agricultural commodities." Sugar initially was not included in the list because the AAA mechanisms would not work for import-competing commodities. But it was included a few months later, due to a confluence of events, both domestic and foreign. The amendment that included sugar as a "basic commodity" was both about farm policy and foreign policy toward Cuba. Cuba was the only significant foreign source of sugar upon which the import quota would apply. The adoption of sugar controls in 1934 has been championed as an example of the unintended consequences of regulatory policy. Anne Krueger argues that the system of sugar controls, which began from an effort to "shore up the Cuban economy," took on "a life of its own" as a domestic interest group endogenously emerged as the principal beneficiary and, then, lobbied for its continuation. In Krueger's account, Roosevelt's action as a "benevolent guardian" to pacify Cuba, became the initial condition in a path-dependent process that later persisted because of endogenous domestic interest-group formation.

Yet there is reason to doubt the historical validity of the story about the initial conditions. This paper, without pretending to overturn the path dependence of regulatory regimes, which is now well-established, aims to develop a better understanding of the economic relationship between the United States and Cuba that this program helped to create. Besides incorrectly attributing its principal motivation to foreign policy, the "benevolent guardian" argument overlooks the integral role that Cuba played in helping an essentially domestic program function as a stabilization measure. It also misperceives the long-run significance of sugar controls in the United States as a source of economic instability in Cuba.

The paper examines the quota assignment rules established in the legislation and in the AAA, and it presents data on the assignment and fulfillment of quotas on domestic production and import quotas, which permits an examination of the role that Cuba played in making the program function as a price stabilization program. It finds that that Cuba served as a "shock absorber" or a "producer of last resort," as it stood prepared to absorb a demand shock of considerable size. Data on excess production capacity in Cuba and domestic suppliers show that Cuba was in a unique position because of great excess capacity caused by its own political and institutional response to the world crisis. The argument that Cuba was ready to step up to a sudden change in the demand for sugar is confirmed as war emerged in Europe in 1939. The long-run consequences are, as in Krueger's analysis, unintended. One can surmise that, if the United States had any part in the rise of Fidel Castro to power in 1959, the persistence of the U.S. sugar controls in the form they took on cannot be dismissed as a principal cause.

Correlates of Mobilization in the Two World Wars

Jari Eloranta, Mark Harrison

Richer countries had an advantage in both world wars, because they were able to mobilize the greatest quantity of military resources. To investigate the impact of income on mobilization statistically, we analyzed pre-war income, as well as structural (persistence of agriculture) and institutional (financial and political) mechanisms. In mobilization of total economic resources, pre-war income had a positive impact. Neither income nor institutions played a substantial role in mobilizing troops, but fiscal mobilization was explained well by all the mechanisms. Income had a positive impact, as did various financial and political institutions. The richer countries possessed an advantage in fiscal mobilization due to their superior institutions.

Is Social Capital Persistent? Comparative Measurement in the Nineteenth and Twentieth Centuries and its Synergies with Per Capita Income

Marta Felis-Rota

This paper proposes a new historical measure of social capital based on principal component analysis. The paper argues this technique is especially appropriate for the understanding of complex socio-economic relations, and proposes its re-introduction as an empirical toolbox. The empirical quantitative analysis is based a reconstructed nineteenth-century international socio-economic database. International social capital indicators are presented for the years 1870 and 1890. The resulting Social Development Index (SDI) can be interpreted as measuring social development or social capital, just as the Human Development Index (HDI) measures human development. The new SDI series are the first available nineteenth-century international social capital estimates. They are available for a large set of countries, 23 in total, from all continents. Together with the existing contemporary measurement alternatives, this facilitates the study of the evolution of social capital over the nineteenth and twentieth centuries. Amongst the conclusions that arise from this paper are the persistence of social indicators. In the very long run, one can find a significant decline in the relative position of the European countries and the United States.

In a second part, the paper analyses the relationship between social capital and economic performance by means of cross-country regressions. In light of the empirical evidence showing a positive link between social capital and economic performance in the second half of the twentieth century, can we go a step forward and speak of stylized fact or structural relationship in the long run? Firstly, it is confirmed that in the post-Second World War era, countries with higher levels of social development are associated to higher levels of income and vice versa. The SDI coefficient is highly significant, and it coincides with that obtained by Knack and Keefer for the period 1980-1992, using social capital proxies obtained from surveys. In particular, the coefficient of .08 coincides with that of their trust in people indicator. Secondly, making use of a new social development index for 1870 and 1890, we find that this positive relationship between social development and log per capita income already existed in the late nineteenth century. At this respect, a strong positive linear association between the two variables is found. Regression results show coefficients that are significantly different from zero in all years discussed, and very similar between them. This upholds after controlling for foreign trade volume and structure, urbanization, education, quality of institutions, political stability, government expenditure, population growth, and climate.

This is the first empirical investigation on the co-evolution of social capital and economic welfare for an international panel of countries starting in the nineteenth century. It shows some evidence pointing at a stable long run structural relationship between social capital and macroeconomic performance. We can conclude that social development is positively related to economic wellbeing, and this relationship already existed in the nineteenth century.

Advances in Communication Technology and Growth of the American Over-the-Counter Markets, 1876-1929

J. Peter Ferderer

Historically, two different venues have been used to facilitate securities trading in the United States: the organized exchange and over-the-counter (or unorganized) markets. This paper explores the competition between these two trading venues during the telecommunications revolution of the late nineteenth and early twentieth centuries. Using several different data sources, we provide four main findings.

First, membership roles from the National Quotation Bureau — the predecessor of the NASDAQ — show that the number of over-the-counter (OTC) dealers grew rapidly in the 15 years prior to World War One. This growth correlates well with the diffusion of the telephone after the Bell patents expired in 1894 and network competition between Bell and independent telephone companies lowered the cost of service, spurred technological progress and increased the density and reach of telephone networks. The telephone was important for decentralized, dealer-intermediated trading because it provided a good search technology, allowed traders to project personality necessary for trust-building prior to negotiations, helped dealers become repositories for qualitative information ("market color") about unexpressed order flow ("hidden liquidity"), and allowed investors to establish reputations as liquidity-based traders.

Second, data from a directory of financial firms (Security Dealers of North America) provides evidence that OTC dealers were intensive users of private wire telegraph. In some cases dealers created their own private wire networks. For example, National City Bank of New York created a large network which it used to act as a market maker for government bonds at the turn of the century. In other cases, dealers utilized networks established by investment banking syndicates to place new issues around the country. Finally, there is evidence that exchange brokers subsidized OTC trading by allowing dealers to communicate on their wire networks at little cost.

Third, trading for some securities migrated from the organized exchanges to the OTC markets prior to World War One. This is evidenced by reduced turnover on the exchanges, falling exchange seat prices and commentary of contemporary observers. This finding suggests that growth of the OTC markets did not simply result from an increasing number of securities that were unfit for exchange trading. Rather, it appears that technological changes conferred a competitive advantage to dealer-intermediated trading during this period.

Finally, institutional factors influenced the venue competition. While restriction of NYSE trading to member brokers reduced counterparty risk, it also allowed them to form a cartel and maintain minimum commissions. This collusive behavior caused other markets to challenge the NYSE and these threats were strengthened by the telegraph which allowed rivals to free-ride on the NYSE's price discovery services. While the NYSE repelled the challenge of several important rivals, the OTC markets proved to be a stronger adversary in the long run. The private nature of OTC markets made them less visible targets for retaliation by the NYSE and dealers were not constrained by membership requirements or floor space. Thus OTC markets grew rapidly in response to technological change.

Taxation and Welfare: the case of Rubber in the Brazilian Amazon (1870-1910)

Felipe Tâmega Fernandes

In this paper, an Almost Ideal Demand System for rubber is calculated using data from UK and US Balance of Trade from 1870 to 1910, from which it is possible to compute elasticities of demand for Brazilian rubber as well as cross-elasticities between Brazilian and British Colonial rubber. The results indicate that from 1870 to 1910 the demand for Brazilian rubber was very inelastic: had the government not set any export tariff, the elasticity of demand that Brazilian exporters faced might have laid within the -0.78 to -1.03 range.

The paper then shows that the literature on Brazilian rubber has neglected the fact that the government was able to ensure the monopoly outcome even under a high degree of competition amongst Brazilian rubber exporters and under a high inelasticity of supply. Indeed, the government possessed several mechanisms to pursue this goal: nationalisation of rubber production, licensing scheme, stockpiling, export tariff and import tariff over goods that affected the cost structure of rubber gathering in Brazil. It was argued here that the export tariff and the import tariff were the main instruments actually used by the government but the welfare analysis here focused on the export tariff only.

Under reasonable assumptions, results suggested that the optimum export tariff laid in the 97.2%-127.5% interval but the government levied only 17.6% on average in the years for which data were available (1870-1910). Had the government imposed the optimum export tariff, welfare could have been increased as much as £341,444 per year from 1891-1910, equivalent to 1.89% of Amazonian GDP in the period. This welfare would have been generated on top of 1.80% that had already been generated by the government when it set the export tariff at 18.9% in the same period (1891-1910).

In short, the paper thus shows that the Amazonian State governments were indeed generating positive welfare gains for the Amazon region through taxation, regardless of how competitive the rubber market was. Moreover, the results further indicate that there was room for the government to extract monopoly rents even in a context of high inelasticity of Brazilian rubber supply. Therefore, the results show the extension of market power Brazil possessed in rubber market and suggest that the government could have ensured the maximum regional welfare at the rubber consumer's expense. As explained in the paper, this conclusion seems to contribute a great deal for the debate about the rubber boom in the Brazilian Amazon and about taxation in general.

Procyclical TFP and the Cyclicality of Growth in Output per Hour, 1890-2004

Alexander J Field

Procyclical TFP growth has been a persisting feature of the US economy for more than a century. Everything else equal, an increase of one percentage point in the unemployment rate has reduced the TFP growth rate by approximately .9 percentage points. This relationship is estimated on data for the private nonfarm economy from 1890 through 2004 and is stable across subperiods during which the trend growth rate of TFP has been quite different. After developing the empirical evidence for this regularity, the paper considers whether TFP procyclicality is a statistical artifact resulting from failure to cyclically adjust capital input. It goes on to ask whether technology shocks rather than demand driven output gap fluctuations are its cause, and whether the long run as well as the short run behavior of TFP results from economies of scale. The paper reinforces the view that the sources of TFP procyclicality differ from those that fuel secular advance

Black Man's Burden, Redux: On the Miscalculations of the British Empire, 1880-1913

Olivier Accominotti, Marc Flandreau, Riad Rezzik, Frédéric Zumer

Ferguson and Schularick (2006) recently provided a measure of the effect of Empire subjection on borrowing countries' interest rates. They find this effect to be large and significant, ranging between 80 to 180 basis points. We argue that their methodology is inadequate and that their estimates are biased. The reason is that Empire subjection did not affect borrowing conditions at the margin, as they assume, but structurally. We also develop a new approach of the incidence of colonial rule on market access. It suggests that the benefits of Empire were unevenly distributed. It shows that the main incidence of colonial rule was to create financial incentives to adopt development policies that encouraged government spending.

Venture Capital Institutions in Post-War America: Political Influences on Geography and Organizational Change

Caroline Fohlin

This paper presents some first results of a new study on the evolution of the American venture capital industry, and on the firms financed by these organizations, from the end of World War II through the 1970s. I begin by examining the supply and demand for venture capital services and the various ways in which political influences spurred the emergence of a venture capital industry and shaped three distinct forms of venture capital organization. I then focus on the formative decade of the 1960s, when government-backed venture capital firms (SBICs) blossomed and a number of private limited partnerships formed, and address three questions about the geography of their development: 1. What explains the geographic location of SBICs and of venture capital organizations more broadly? 2. What explains the geographic distribution of target firms (venture capital investments)? 3. Does geographic location affect the growth rates of SBICs? I argue that venture capitalists are more likely to locate in geographical areas with significant agglomerations of individuals and institutions, particularly those engaged in innovative activity.

The findings, albeit preliminary, indicate that state-level characteristics, such as population size, urbanization, and education levels in prior decades (1940s through mid-1960s), help predict the location of venture capital organizations in the late 1960s and early 1970s. Volume of federal government research and development funding correlates to the size of a state's venture capital industry as well. The presence of VCs, in turn, provides the key determinant of target firm location. Performance does not differ systematically by region as might be expected (e.g., areas with more SBICs do not necessarily support more rapid growth rates).

Overall, the findings suggest strong performance among venture-backed firms, even at this early stage of the learning process, with common stock returns consistently outperforming those of the broader market (S&P 500) on average. While there is some evidence that Greylock offered the greatest advantages to its portfolio firms—or at least selected better performers—the differences are statistically weak. These firm-level returns also demonstrated higher variance, and therefore risk; so higher returns, as expected, came with a cost. Indeed, for the narrower time frame of the 1960s and 70s, Greylock firms performed below the ARD and SBIC-backed firms on average, but they also grew more rapidly over that period.

The results of this study provide new insights into the importance of distinctive characteristics of particular geographical areas for the concentration of venture capital firms and potentially to greater prevalence of the VC sector (and their investments) in those same, narrow geographical areas. These findings suggest that policies aimed at increasing the supply of venture capital as a means to spur innovative activity in technology-oriented industries are unlikely to succeed without concomitant investment in the underlying demand side factors that reach the necessary level of agglomeration.

This paper is part of a larger project. It sets the stage for a number of possible new areas for research, and reveals a number of areas in which additional data and analysis are required.

How do Electoral Systems Affect Fiscal Policy? Evidence from State and Local Governments

Christina Gathmann, Patricia Funk

The article analyzes the role of the electoral system for explaining differences in the size and scope of government. The fundamental tradeoff involved in the design of electoral systems is between the accountability of politicians and representation of the electorate. One the one hand, it is desirable in a democracy that elected candidates represent the whole population, not just a select few. On the other hand, elected politicians should be held accountable to the voters. Electoral systems, which can be broadly classified as either proportional or majoritarian systems, solve this tradeoff in different ways. Proportional systems give minorities a voice in decision-making according to their share in the population. However, since proportional representation often results in multi-party government, it is more difficult to hold politicians accountable. In majority systems, only the candidate with the majority of votes is elected. While this implies that politicians do typically not represent the whole electorate, it results in stiffer electoral competition which fosters accountability.

We use institutional variation at the state and local level in Switzerland to analyze the link between electoral system and fiscal policy. In particular, we rely on differences in the timing of adoption of proportional representation across cantons in Switzerland to identify its effect on fiscal policy. In 1890, all cantons elected their state legislatures under a majoritarian system, as was the rule in most countries at the time. Over the next 110 years, most cantons switched to proportional representation. Today, only two cantons still elect their parliament using majority rule. The diffusion of proportional representation is by no means unique to Switzerland. In fact, many countries in Europe and elsewhere adopted proportional representation over the past century. Hence, we believe that our results are of general interest beyond the particular Swiss setting. We collected a new, comprehensive data set spanning from the late 19th century until today from published sources. Our data provides the unique opportunity to isolate the fiscal policy effects of the electoral rule from differences in district magnitude, i.e. the number of seats distributed in the average voting district.

Our findings suggest that proportional representation has strong effects on the scope of government: it shifts spending away from targeted transfers for roads and agricultural subsidies toward spending on education and welfare that benefit broad social groups. Adopting proportional representation is also associated with a 9.5% increase in the size of government. We provide evidence that the effect of district magnitude on the size of government varies by electoral rule. Hence, institutional details of the electoral system matter for fiscal policy. We calculate that a full electoral reform, i.e. a joint switch to proportional rule and increase in district magnitude, raises government spending by 19%. Exploiting the fact that many cantons mandate the electoral rule for local elections, we establish that our canton-level estimates are a lower bound of the true effect. A number of additional specification tests reported in the working paper support this interpretation.

Free Schools in America, 1850-1870: Who Voted for Them, Who Got Them, and Who Paid

Sun Go

American public schools, which have been mainly financed by local property taxes, were not entirely free until aids from states grew and local resources were redistributed by states. This paper, concentrating on the period between 1850 and 1870 when common schools became free, investigates the following questions: How and why did the rules of public school finance change, and how did those changes affect the level and inequality of school support? A political economy model, supported by statistical analyses, well explains how different groups voted in the free school referenda in New York and Indiana. Policies shifted toward redistribution over localities through imposing more tax burdens on the rich, who were a minority in the elections. Regression results from a hazard model reassure that a rise of tax bases and growing teachers drove the shift toward state free school systems. Finally, inter-state analyses based on the decennial census data show that the centralization of school finance during the period increased the provision of public education and reduced intra-state inequality in public schooling across counties.

Wall Street's First Corporate Governance Crisis: The Conspiracy Trials of 1826

Eric Hilt

In July of 1826, several prominent Wall Street firms abruptly went bankrupt, amid scandalous revelations of fraudulent financial practices by their management. The directors of many of these companies, mostly insurance firms, were indicted by the District Attorney of New York for criminal conspiracy, and their subsequent trials captivated the attention of the city for months. These events represented a watershed in the early development of the corporation laws and investor protections governing Wall Street: in the aftermath of the scandals, New York State enacted an extensive package of legislation designed to protect the interests of investors. This paper analyzes the fraudulent practices of the firms that failed, and the evolution of the law in response. The analysis highlights the critical role played by scandal-driven legislation in developing effective investor protections, and improving the governance institutions of corporations.

Prepaid Passage and the Timing of Emigration

Heather F. Howard

The spread of prepaid passage played a major role in the demise of indentured servitude. This paper contributes to the study of prepaid passage by taking advantage of the household-level records of the Perpetual Emigrating Fund Company (PEF). The PEF essentially institutionalized prepaid passage to Utah among Mormon emigrants where religious affiliation replaced the traditional kinship ties. I create a sample of 2,250 Mormon emigrant households from the British Isles, 1854-1885. At the time, universal emigration of all converts was official church policy, so adult baptism signaled both conversion and intention to emigrate. This unique data set allows analysis that goes beyond documenting the importance of prepaid emigration and provides insights into the demographic and economic factors affecting prepaid passage receipt and emigration timing. Similarities between Mormon emigrants and their contemporaries—particularly Europeans settling on the Western frontier—suggest my results can be broadly generalized.

I estimate a simultaneous equations model of PEF passage allocation and the time lag between baptism and emigration. I correct for endogeneity between delay and passage receipt using 3SLS. Delay between baptism and emigration is affected by occupation, PEF passage, and demographic characteristics. Increased skill level in occupation tended to decrease delay, but the effect was not linear. Surprisingly, highly skilled professionals did not emigrate as quickly as skilled craftsmen, though both groups had shorter delays than unskilled laborers. I attribute the nonlinearity to differences in the transferability of skills, rather than in wages or personal savings. I find that prepaid passage tended to hasten emigration by one to six years for women and unskilled men, but passage receipt was associated with longer delays for skilled men. The differential effect may reflect unobservable, exogenous circumstances could have increased the cost of emigrating for skilled borrowers, such as outstanding debts. It could also be explained by concerns that skills would not be readily transferable to the Utah frontier. Larger households and households headed by women also had longer delays, on average.

I find evidence that PEF passage was focused on helping those with financial need. This is consistent with the charge given to PEF agents to help the "worthy" poor. Worthiness was measured, at least in part, by tenure in the church. I find a positive relationship between delay and loan receipt, to a point. After thirteen years the marginal impact of delay diminishes, and the effect becomes negative by about 25 years. The quadratic effect for delay may suggest that converts who waited too long were perceived as less committed to the church and therefore not worthy of aid. Annual fund size also affected loan allocation, with more loans granted in years when the annual fund was larger. The only other characteristic associated with preferential loan allocation was larger household size. I find no impact based on gender or occupation. It is not clear whether the lack of occupational targeting was idiosyncratic for the rural Utah destination. Prepaid passage for urban destinations (not the PEF) may have been more likely to target specific occupations.

Trade Booms, Trade Busts, and Trade Costs

David S. Jacks, Christopher M. Meissner, Dennis Novy

What has driven trade booms and trade busts in the past 130 years? We construct a new balanced sample of bilateral trade flows for 103 country pairs across the Americas, Asia and Europe. We then use a micro-founded measure of bilateral trade costs derived from the Anderson and van Wincoop gravity framework to gauge the importance of trade frictions in determining international trade flows. We demonstrate an overriding role for declining trade costs in accounting for the pre-World War I trade boom. In contrast, for the post-World War II trade boom we find a more muted role for trade costs and identify the growth of output as the dominant driving force. Thus, we document substantial differences between the pre-World War I and the post-World War II waves of globalization. Our unified framework of examining the long-run evolution of international trade also supports the finding that trade flows have become more sensitive to geographical distance over time.

Panics and the Disruption of Private Payments Networks: The United States in 1893 and 1907

John A. James, James McAndrews, David F. Weiman

Panics in which banks temporarily restricted the redemption of their deposit liabilities in cash were virtually regular events in the United States before the establishment of the Federal Reserve System. Friedman and Schwartz have famously contrasted this response under the national banking system (pre-1914) with that in the Great Depression under the Federal Reserve System. In the earlier period restrictions were argued to have mitigated the effects of panics by stopping bank runs and consequently bank failures. As a result, the rate of monetary contraction was damped. Recent research in macroeconomics though has raised the possibility that monetary changes might affect the real economy through changes in aggregate supply as well as changes in aggregate demand. Contemporary studies have generally emphasized the impact on investment in working capital, but at a more basic level the "hemorrhaging" of payments networks which delayed transfer good funds in settlement of transactions would have had (much more) pronounced real effects through aggregate supply dislocations as well. Here we consider the downside effects of cash payment restrictions— there was one significant aspect that was not stabilizing, disruptions of the payments system, and it is that element on which this paper concentrates.

In this paper we examine the nature of payments system disruptions in the panics of 1893 and 1907. We focus primarily on disruptions of the intercity or interregional payments system caused by the restriction of cash payments as evidenced in domestic exchange markets. Daily data from major regional financial centers allow us to chart the effects of the panic and subsequent cash restriction (in New York) across cities. In turn we show that the degree of disruption to domestic exchange markets in regional financial centers over this period was increasingly a function of their place or centrality in intercity correspondent networks rather than local conditions. Banks in reserve cities with larger holdings of bankers' balances from country banks relative to individual deposits experienced greater strains in 1907. We then provide both qualitative and quantitative evidence on the effects of cash restriction and payments disruptions. Reports in national trade periodicals and local newspapers offer many accounts of factories closing because the inability to obtain currency to meet payrolls and of disruptions to internal trade because of the state of the domestic exchange markets. Furthermore, monthly series such as freight ton-miles, the Babson index of economic activity, or the Miron-Romer industrial production index all show sharp drops around the time of panic and cash restriction in 1893 and 1907, with no bounce back after resumption

The private payments networks based on the correspondent banking system which had developed to clear and settle interregional or intercity transactions in the pre-Federal Reserve period were normally quite efficient arrangements. However when the convertibility of New York balances was threatened or limited, these networks were also important channels for transmitting financial pressures. Such restrictions in turn had serious consequences for payments settlement at both the local and interregional level and consequently for the level of economic activity.

Shareholding, coalition formation and political development: evidence from 17th century England

Saumitra Jha

This paper documents the importance of shares in joint stock companies in aligning disparate interests and instituting representative government in 17th century England. The paper identifies a 70 percent increase due to shareholding on the probability of support for reforms by members of parliament during England's Civil War (1642-48). The paper suggests that shares allowed a broad spectrum of investors to benefit from new opportunities overseas. Because the rights needed to profit from overseas investment belonged to the executive, shareholding aligned incentives in favour of constitutional reforms. These reforms led to representative government and overseas public investments crucial for economic growth.

Teachers and Tipping: Historical Origins of the Teacher Quality Crisis

Stacey Jones

A current line of thought in the economic literature attributes a perceived decline in teacher quality in recent decades to the expansion of women's job opportunities outside of teaching (Temin, 2002; Corcoran, 2004; Bacolod, 2007). In the past, it is argued, the vocational options of high-ability women were limited to teaching and other traditionally female occupations. For this reason, the teaching profession was able to attract high-ability women even when paying relatively low wages. When wider occupational opportunities opened to women in the late 1960s, women left teaching for more lucrative professional occupations. This paper argues that rather than being pulled out of teaching by the exogenous broadening of occupational opportunities, women were pushed out of teaching by conditions of extreme oversupply in the market for teachers. In the late 1960s and early 1970s, the supply of college women for the first time in US history vastly exceeded the demand for teachers. College women in this generation leveraged Civil Rights legislation and a political climate favorable to social change to push their way into a broad set of professional occupations. Once this critical generation had lowered the barriers for women in occupations outside of teaching, subsequent generations of women had a much wider set of occupational choices. Teaching from that point on has had to compete with a broad range of occupational choices for high-ability men and women.

Long run outcomes of conservation expenditures: Watershed destruction, rehabilitation and protection in Hawaii

Brooks A. Kaiser

We examine the deterioration and subsequent rehabilitation of forest watersheds on Oahu, Hawaii, in order to determine the long run outcomes of conservation activities that occurred in the early 20th century. Our analysis allows for the generation of a long run accounting of the net benefits of the conservation activities to date. We incorporate remote-sensing data on forest cover, expert opinion on the state of the watersheds today, and an integrated economic and hydrological model of Oahu's freshwater supply and demand with detailed reports of annual conservation activities from 1910-1960 to assess these long run benefits. Additional benefits of our work are that it allows for a calibrated calculation of a depreciation rate for conservation investments and it informs on what conservation activities have generated the greatest returns. We find a current 2.3% annual increase in groundwater recharge levels for Oahu from forest replantings and other conservation activities in the first half of the 20th century. We estimate these actions have returned between 7.1 and 9.5 as the benefit-cost ratio to date. Understanding the ecological and policy interactions of the past is currently important for the state as water demand continues to grow with population and prosperity.

Premium inventions: Prizes and Patents among Great Inventors in Britain and the United States, 1750-1930

B. Zorina Khan

A number of economists have been persuaded by the properties of theoretical models of prizes and subsidies and have begun to lobby for these policies as superior alternatives to patent institutions. The late-18th and 19th centuries provide a natural experiment for studying the emergence, evolution, and effects of patent and prize systems. The analysis of this paper is based on samples of "great inventors" and "ordinary inventors" in Britain and the United States, during the critical transition from the First to the Second Industrial Revolutions. The data set includes biographical details, patterns of patenting, as well as premiums and honours for more than 850 of the great inventors.

European intellectual property systems ultimately reflected the oligarchic nature of their social and political institutions. By contrast, the early American patent system provided an impressive route to rapid technological progress and economic development, in part because of the supportive network of effective legal, educational and commercial institutions. The market-orientation of the U.S. patent system especially benefited disadvantaged inventors whose wealth would not have allowed them to directly exploit their inventions through manufacturing or other business activity. However, even after European reforms in the direction of the American system of intellectual property, the contrasts in the social origins of those active at invention persisted, possibly because of other institutional differences that impinged on the operation of patent institutions.

In Europe, unlike the United States, an extensive array of prizes was offered to "deserving" inventors. The results for the great inventors in England suggest that the award of these premia was primarily influenced by the elite status of the recipients and other noneconomic criteria that were unrelated to the productivity of their inventive contribution. Americans tended to be more skeptical about the grant of premiums for inventions as a substitute for patents than their European counterparts. My analysis indicates that the award of prizes among the great inventors in the United States was more unsystematic and not as market-oriented as patents. However, these grants did seem more related to the nature of the technology rather than the identity of their recipients.

Thus, the overall results in Britain and America suggest that the award of prizes tended to be less systematic than that of patents, but that the results varied with the overall institutional context. If inventors respond to expected benefits, an implication is that prizes may have been less effective as inducements for investments in inventive activity. These results are consistent with the decline over time in the popularity of premia for technological innovations even among the major prize-granting institutions in Europe. The Prize for Longitude should perhaps be viewed as a cautionary tale rather than an exemplary parable, for John Harrison's problems seem to have been more general than many economist theorists have acknowledged.

While the mass migration phenomenon that characterized the pre-1914 World has been widely studied, the related pattern of emigrants' remittances during the same period is still largely untouched. This paper aims at filling this gap by analyzing the contribution of remittances to financial stability during the classical gold standard. Recent research has shown that the current process of financial globalization has brought about a new surge of financial market instability, and also that volatility is not new. As is now well known, the pre-1914 World reached levels of financial market integration only recovered after the 1970s. But what is striking about this period is that, despite a high level of capital mobility, financial disturbances remained infrequent. One explanation for this relative stability lies in the existence of the gold standard: the adoption of credible convertibility rules fostered the stability of the system and allowed to weather financial whirlwinds not only in core countries but also along the periphery. However, recent papers that try to identify the determinants of financial volatility during the classical gold standard do not find evidence of the link between financial disturbances and the exchange rate regime. Therefore, the explanation for the relative stability of financial markets during the gold standard period has to be looked for somewhere else, namely, in the international flow of remittances.

A Fantastic Rain of Gold: European Migrants' Remittances and Balance of Payments Adjustment during the Gold Standard Period

Rui Pedro Esteves, David Khoudour-Castéras

As a first contribution, this paper gathers a data set of remittances received by five of the European countries with higher emigration rates between 1880 and 1914 (Austria-Hungary, Italy, Portugal, Spain, and Sweden). Second, the paper analyzes the role of remittances in the balance of payments adjustment. As underscored by the optimum currency area theory, labor mobility can constitute an adjustment mechanism for countries under fixed exchange rate regimes. In that perspective, emigrants' remittances help to finance external imbalances and buffer financial disturbances. The evidence compiled in this paper confirms patterns observed in recent years, which emphasize the lower volatility and greater relevance of remittances compared to foreign capital inflows received by developing nations countries with significant rates of emigration Third, the paper tests this claim by showing that higher levels of remittances reduced the incidence of sudden stops and current account reversals in the five-countries sample between 1880 and 1913. This effect is stronger for countries under the gold standard, since floating countries could rely on exchange rate fluctuations for their external adjustment. Part of the "mystery" of financial stability during the gold standard is therefore unveiled using remittances as a clue.

A Broker and his Network: Marine Insurance in Philadelphia during the French and Indian War, 1755-1759

Christopher Kingston

Marine insurance played a crucial role in supporting the rapidly expanding trade of the American colonies throughout the eighteenth century. In the early years of the century, American merchants had generally obtained their insurance in London. However, this entailed considerable inconvenience, which encouraged the development of a local marine insurance industry. Marine insurance emerged in Philadelphia in the 1740s, but it was during the French and Indian War (1754-63) that the industry really took off. Perhaps the key figure in this expansion was Thomas Wharton (1730/1-1784).

This paper studies how Wharton's marine insurance business worked, how it was affected by the French and Indian War, and sets this development in the context of the long-term evolution of marine insurance institutions in Britain and America during the eighteenth century. I use data on over 4,000 marine insurance transactions contained in three ledgers, which contain a complete record of Wharton's accounts with the underwriters on policies issued through his brokerage during three distinct phases of the war. I also draw on contemporary merchants' correspondence to explore how the insurance business was organized and the motivations and methods of market participants. I argue that the war disrupted channels of communication with London and exacerbated various agency problems between Philadelphia merchants and their London agents, and that this increased Philadelphia merchants' propensity to insure locally during the war and thereby accelerated the development of Wharton's business.

A challenge to triumphant optimists? A new index for the Paris Stock-Exchange (1854-2007)

Pierre-Cyrille Hautcoeur, David Le Bris

This paper describes and analyzes a new homogeneous stock index for the French stock market from 1854 to 1998, and compares it to those of some other countries. The paper first describes the index's methodology (a weighted, yearly adjusted index comparable to Euronext's CAC40). It then provides some major results. First, investment in French stocks provided a positive real return during the 19th century, but a negative one — because of inflation — in the 20th. After 1914, hoarding gold or investing in real estate provided better returns than stocks. The equity premium was low and consistent with standard models of risk aversion. These results contrast no only with those observed on the US market, but also with older studies of the French market, which were based on un-weighted large indices suffering survivor bias. They are more consistent with the history of the French financial markets and policy regimes in the 19th and 20th centuries

The Cost Of Transporting Slaves to the Caribbean, 1683 - 1686

David Eltis, Frank Lewis, Kimberly McIntyre

The number of slaves carried off from Africa to the Americas increased fivefold between the middle third of the seventeenth century and the last third of the eighteenth century — the point at which the transatlantic slave traffic reached its all time high. In this one hundred and thirty year period captive Africans became by far the most important stream of migrants in the re-peopling of the Americas. Slaves went from less than half the transatlantic movement of people in the late sixteenth century to over eighty percent in the late eighteenth century. This dramatic shift made the sub-tropical plantations Americas the high-income core of the New World. The supply side of the transatlantic market for slaves has received much less attention than the demand side - especially in the second half of the seventeenth century when the dramatic growth got underway. What exactly was the cost structure of the transatlantic slave market in the late seventeenth century? The issue of costs has entered the debate on the profitability of the slave trade with the more recent literature suggesting that excess profits, at least in the long run, were unlikely because of competition. And indeed work on some eighteenth-century accounts supports the findings for the earlier period that firms involved in the slave trade were doing little more than covering their costs. But the focus on profitability may obscure a more fundamental aspect of the forced migration Africans to the Americas, namely the role of transport costs in determining the prices of slaves.

The Colonial Legacy as a Determinant of Regional Per Capita Income in Colombia

Jaime Bonet, Adolfo Meisel

This paper contributes to the understanding of the long-run determinants of regional income differences in Colombia. First, we estimate an econometric model similar to the one used by Acemoglu, Robinson, and Johnson (2002), for the study of the determinants of growth in a sample of countries. We utilize as a proxy for institutions the relative size of the population of European origin in each region. This is an important variable because the relative size of the conquering group will determine how explotative the new institutions were. This paper makes use of a departmental income data recently estimated for Colombia. Previous researchers had utilized per capita GDP as a proxy for income. However, this latter measure has serious limitations when trying to understand differences in regional prosperity. For example, the presence of mining enclaves in some areas of the country introduces distortion between the production and the income generated in these zones.

The colonial legacy turn out to be a robust determinant of the differences in per capita regional income levels: the prosperous regions today are those where the population of European origin was proportionality larger in the colonial period. However, it is not possible to determine from current evidence the way through which the colonial legacy influenced regional income over the long term: institutions or human capital. A detailed historical study about regional economic development process in Colombia will contribute to know how the colonial legacy influenced the long-run regional economic performance.

New technologies and earnings variation within occupation since 1960

Peter B. Meyer

This paper analyzes trends in the dispersion of earnings within occupations in the U.S. Current Population Survey since 1968 and the decennial U.S. Census since 1960. It uses a new set of occupation categories coarsened from the 1990 Census in such a way that the categories extend over the whole period since 1960 (Meyer and Osborne, 2005; Meyer, 2006).

New media technologies make it easier to transmit certain kinds of work, such as athletic, musical, or artistic performances, to wider audiences around the world, enhancing the relative payoffs to the most-favored performers. As measured here, earnings inequality indeed did increase within these occupations, consistent with the superstars effect described by Rosen (1981). Rosen's paper also argues that the effect should be visible among doctors and lawyers but this is not found in the data.

Earnings inequality rose within occupations which call for working closely with new semiconductor and information technologies, such as electrical engineers and computer programmers. It is argued that these occupations experienced technological uncertainty, which leads to extraordinary opportunities and also rapid obsolescence. For example, an individual may find or develop a truly unique technology in such an area, and then start a product line or a company. In a field where the technological opportunities had already been picked over, and the technology had settled down, this is less likely. At the other end of the spectrum, a worker's capabilities could become obsolete in an area where new technologies are appearing. This is less likely to happen when the technology in that field is no longer changing much.

A similar effect had been found in an earlier study of the rise of mass production steel technologies in the 1860s and 1870s (Meyer, 2005). There, the new steel-making technologies led to a sharp rise in the earnings dispersion within the occupation of rollers, whose job was to roll steel into rails or other product shapes. On average they produced many more rails per hour over the years.

The uncertainty and superstars effects naturally occur to some extent in many occupations. Therefore the paper also examines occupations in which these effects are likely to be the weakest — those that call for personal interaction with other individuals. On average inequality within occupations at this other extreme has not risen.

Conclusion: Occupations differ in their technological opportunities, and whether they lead to a superstars effect, and these distinctions can be measured with a sharp enough occupation category system.

The Effect of Free Land Access on Former Slaves and Their Descendents

Melinda Miller

The Cherokee Nation, located in what is now the northeastern corner of Oklahoma, permitted the enslavement of people of African descent. After joining the Confederacy in 1861, the Cherokee Nation was forced during post-war negotiations to allow its former slaves to claim and improve any unused land in the Nation's public domain. In an earlier paper, I found that the racial gap in land ownership, farm size, and investment in long-term capital projects was smaller in the Cherokee Nation than in the southern United States. The advantages Cherokee freedmen experience in these areas translate into smaller racial wealth and income gaps in the Cherokee Nation than in the South. Additionally, the Cherokee freedmen had higher absolute levels of wealth and higher levels of income than southern freedmen. These results together suggest that access to free land had a considerable and positive benefit on former slaves.

But did this benefit persist into the twentieth century? In this paper, I examine the longer term impact of the Cherokee freedmen's access to free land using a linked sample of individuals and families from the 1880 Cherokee Census to the 1900 United States.

First, I will focus my analysis solely on the Cherokee Nation to determine how a black family's occupation in 1880 influenced the outcomes of their children in 1990. A positive correlation between the economic outcomes of parent and child would provide evidence that the effect of distributing land to former slaves could have been both positive and lasting. Occupational analysis indicates that this was the case. For male heads of households in my linked sample, over 85 percent of fathers who were farms had sons who were also farmers. This high degree of intergenerational occupational persistence suggests that at least some of the beneficial effects of free land persisted in the first generation of Cherokee freedmen born after emancipation.

Second, I compare the levels of human capital attainment, home ownership rates, and employment rates for the Cherokee Nation and the South to determine if blacks in the Cherokee Nation were better off than southern blacks. I find that the Cherokee freedmen were more likely be literate, their children were more likely to attend school, and children attend school a greater number of months. Additionally, Cherokee freedmen are more likely be farmers and to own their homes than southern freedmen. However, in the measures available, the racial gap in status between blacks and non-blacks in the Cherokee Nation and the South is significantly insignificant.

How fluid were labour markets in pre-industrial Britain? New evidence from apprenticeship records.

Tim Leunig, Chris Minns, Patrick Wallis

This paper uses a newly constructed dataset of over 150,000 London apprentices and over 50,000 masters to examine patterns of migration between 1600 and 1800 in order to ascertain whether the quality of information about London opportunities was equally good across England. We find evidence that it was: apprentices were drawn from a wide area early on, kinship and name ties were uncommon, the proportion apprenticed to a master from the same town or county was low, and stable over time. Those from faraway counties or counties who sent few migrants went into a wide range of companies, the distribution of apprentices across companies was not radically different by place of origin, and new companies soon recruited from across England. We conclude, therefore, that Britain had a fluid, well-functioning labour market well before the industrial revolution.

High Stakes Testing in Victorian England

David Mitch

This paper considers the political economy and the educational consequences of the policy that has come to known as "Payment by Results" that was used to allocate parliamentary funds for school operating expenses in England and Wales between the mid-1860's and the mid-1890's. Under this scheme, parliamentary funds were allocated to each school according to the number of students achieving passing scores in examinations administered by inspectors, with a particular emphasis on the fundamentals of reading, writing, and arithmetic. The paper argues that funding according to examination performance was introduced and persisted for some 30 odd years more as a way of dealing with the administrative and political problems of monitoring the use of funds and deciding on their allocation across localities than as a way of improving educational outcomes. It thus sides with previous authors in arguing that by addressing these administrative and political problems, Payment by Results facilitated the growth of primary education in England at a critical juncture. And it thus opposes authors who argue that primary aim and consequence of Payment by Results was to lower public spending on primary education.

Preliminary results are also reported of examining the impact of this policy on entry and exit of schools as well as school performance for the city of Birmingam. They suggest that disparities between schools in both funding and educational level outcomes narrowed rather than widened in conjunction with the system of payment by results. At least some of the initially poorest performing schools did catch up to overall standards while some of the initial leaders regressed towards the mean.

The Value of Silver in an Age of Gold

Kris James Mitchener, Marc Weidenmier

Although there is a large literature examining how gold standard adoption affected trade flows during the first era of globalization (1870-1913), research on the silver standard and its effects on trade is comparatively underdeveloped. This is quite surprising given that a significant number of countries adhered to the silver standard at some point during this earlier era of globalization, including Austria-Hungary, China, Colombia, Egypt, Germany, India, Japan, Mexico, Netherlands, Peru, Persia (Iran), Sweden, and the Ottoman Empire (Turkey). Moreover, the impact of the silver standard on trade flows is particularly interesting since silver depreciated against gold from 1870-1896 before it reversed course and then steadily appreciated relative to gold until the outbreak of World War I.

Although the movement of the gold-silver price ratio is well known, its effects on trade flows have yet to be systematically quantified. Providing quantitative estimates of how changes in relative prices impacted trade for countries silver-standard countries will shed light on whether abandoning silver was a costly decision for countries that then joined the gold standard. Nineteenth century policymakers were quite aware of the movements in the gold-silver price ratio and its effects on trade, and appear to have factored this into their decisions on whether to adopt the gold standard. In addition, fluctuations in the gold-silver price provide an exogenous way of testing the impact of relative price changes on exports. Such estimates are useful for policymakers today who are keen to understand the impact of competitive devaluations on trade flows. Moreover, previous studies of historical monetary standards have not attempted to sort out whether competitiveness effects account for a significant portion of the "monetary standard effect" that has otherwise been attributed to reductions in transactions costs or network externalities.

To shed light on the how the silver standard affected trade during the first era of globalization, we construct a new database of over 40,000 observations of bilateral exports flows from 1870-1913. The database, collected from primary sources, is nearly 20 times larger than existing databases for this sample period. We then use this database to estimate gravity models of trade to measure two channels through which silver may have impacted bilateral exports: (1) network externalities (reduced exchange rate volatility and transactions costs) and relative price or competitiveness effects. A variety of fixed effects estimates suggest that membership in the silver standard did not increase exports via network externalities, i.e., by reducing transactions costs or exchange rate volatility. On the other hand, the depreciation of silver from 1870-1896 increased the exports of silver countries to gold countries by 70 approximately percent. The relative competitiveness effect began to recede in the early 1890s, however, as the rate of silver depreciation slowed. This may have factored into policymakers' decisions to join the gold club. Overall, our results point to the importance of relative price effects for export trade as well as the potential role of the presence of a competitiveness effect in a country's decision to join a fixed-exchange rate system.

Why Don't Inventors Patent?

Petra Moser

This paper argues that the ability to keep innovations secret may be a key determinant of patenting. To test this hypothesis, the paper examines a newly-collected data set of more than 7,000 American and British innovations at four world's fairs between 1851 and 1915. Exhibition data show that the industry where an innovation is made is the single most important determinant of patenting. Urbanization, high innovative quality, and low costs of patenting also encourage patenting, but these influences are small compared with industry effects. If the effectiveness of secrecy is an important factor in inventors' patenting decisions, scientific breakthroughs, which facilitate reverse-engineering, should increase inventors' propensity to patent. The discovery of the periodic table in 1869 offers an opportunity to test this idea. Exhibition data show that patenting rates for chemical innovations increased substantially after the introduction of the periodic table, both over time and relative to other industries.

When Smaller Families Look Contagious — A Spatial Look at the French Fertility Decline Using an Agent-Based Simulation Model

Sandra González-Bailón, Tommy E. Murphy

Despite some disagreements about specific timing, it is now widely accepted that France was the first country in Europe to experience a systematic fall in birth rates. At least two further features, however, make the French case particularly noteworthy: how long it took and how persistent internal heterogeneity was throughout. Fertility rates evolved following quite a distinctive geographical pattern, where two clear areas of low fertility (the Seine valley and the Aquitaine region) appeared to spread their influence while two 'islands' of high fertility (Bretagne and the Massif Central) kept shrinking until they more or less disappeared in the early 1900s. Standard quantitative analyses have shed some light into some of the factors driving this dynamic, but to better understand the mechanisms underlying this apparent diffusion we need other tools. In an attempt to provide a sensible explanation of this salient feature, we build an agent-based simulation model which incorporates both historical data on population characteristics and spatial information on the geography of France, and assess how different behavioural assumptions on social interaction might have affected variations in the patterns followed by fertility rates. In doing so we incorporate two components normally neglected in the literature. On the one hand, we introduce the role of social influence in fertility decisions [following e.g. Kohler, 2001]. On the other, we assess the effect of the French Revolution. Its simultaneity with the onset of the decline is quite suggestive already, but an increasing literature is now pointing towards a more regular connection between social upheavals and fertility decline [Binion, 2001; Caldwell, 2004; Bailey, 2006]. We build upon these studies and introduce the Revolution in the model as a heterogeneous, exogenous shock to the population. Individuals in more 'progressive' départements are more likely to be affected by a shock that makes them want to have fewer children, and we use département level quantitative data on the Ecclesiastical Oath of loyalty to the Revolution of 1791 [see Tackett, 1986] to proxy for the percentage of agents switching to this new status. In this way this article aims at the difficult task of combining two recently developed lines of research using agent-based simulation, a quantitative technique that only lately has gained a space in the toolkit of the social scientist [Axelrod, 1997, 2005; Arthur, 2005; Hedström, 2005; Gilbert, 2008; Gilbert and Troitzsch, 2005; Tesfatsion, 2005]. Preliminary results suggest that indeed both social influence and the revolution might partly explain the particular evolution of fertility rates in France. The model also performed more or less well at micro level, suggesting our choice of the proxy for the 'modernisation factor' might have been a good one. Although failing to fully perceive the impact on those départements leading the decline, simulated fertility trends —and in many cases levels- follow actual ones in intermediate areas, and in those that lagged behind in the demographic transition. Overall, the model provides some new insights into an old problem and could serve as a base to assess various diverse alternative behavioural hypotheses.

Democracy Under the Tsars? The Case of the Zemstvo

Steven Nafziger

The emancipation of the serfs is often viewed as watershed moment in 19th-century Russian history. However, this reform was accompanied by numerous others measures aimed at modernizing the Tsarist economy and society. Among these "Great Reforms" was the creation of a new institution of local government - the zemstvo — which has received comparatively little attention from economic historians. This quasi-democratic form of local government played a vital role in expanding the provision of public goods such as primary education and rural healthcare in the half century leading up to the Russian Revolution. In this paper, I outline the structure of the zemstvo, its sources of revenue, and the various services and programs it spent money on. I draw on newly collected data from several years of spending and revenue decisions by district zemstva and match these data to information on local socio-economic conditions to produce one of the first panel datasets with broad geographic coverage on any topic in Russian economic history. I use this dataset to investigate how population characteristics, local economic conditions, and mandated peasant representation in the zemstva influenced funding decisions over public goods. Through their elected representatives to this political institution, were peasants able to voice their preferences over spending levels and funding for specific initiatives? I find evidence that is consistent with the zemstvo acting responsively to the demands of the peasant population majority. This study initiates a broader research agenda into the zemstvo's place in Russian economic history and contributes to the growing literature on the political economy of public good provision in developing societies.

Poverty in Britain in 1904: an early social survey rediscovered

Ian Gazeley, Andrew Newell

Until now there have been no national estimates of the extent of poverty in Britain at the turn of the 20th century. This paper introduces a newly-discovered household budget data set for the early 1900s that is more representative of urban working households in Britain in the period than any other existing record, although not without deficiencies. We use these data to estimate urban poverty among working families in the British Isles in 1904. Applying Bowley's poverty line we estimate that at least twenty-five percent of people in urban working class households had income insufficient to meet minimum needs. This is well above Rowntree's estimate of primary poverty for York 1899 and high in the range that Bowley found in Northern towns in 1912-3. This major revision is due to the inclusion in our calculations, of lower wage regions, such as Scotland, Ireland and the South of England. This average of course masks a heavy concentration of poverty among the unskilled and those with large families.

The structure of protection and growth in the late 19th century

Sibylle H. Lehmann, Kevin H. O'Rourke

There is a vast literature on the relationship between trade policy and growth, including several papers on the late 19th century experience (e.g. O'Rourke 2000, Clemens and Williamson 2004). However, standard trade models suggest that the structure of protection, rather than the overall average tariff level, should matter for resource allocation and hence for growth. This paper assembles a database of agricultural, manufacturing and revenue tariffs for 10 countries between 1875 and 1913, and asks what the relationship was between each of these variables and (a) aggregate (b) sectoral growth.

Inventiveness and Economic Growth on the Periphery: Patenting activity in New Zealand, 1871-1939

Les Oxley

New Zealand's early economic development was based upon an abundance of land and natural resources relative to labour and capital. The attractions of her natural resources, initially timber, seals and whales, and by the 1850s and 1860s tussock grass and gold, drew, eventually, New Zealand into the international economy. Staple trades and the concomitant flows of people, capital and technology are at the core New Zealand's economic development. By 1900 New Zealand's prosperity was based upon processing commodities for British markets. At the beginning of the twentieth century average income per capita in New Zealand was similar to that of California, and thus around 50% higher than the USA more generally. New Zealand had a distinctive staple export boom, of dairy and meat products whose impact spanned far beyond extending the cultivated area and the size of the Dominion's economy. The technological change of refrigeration saw the first shipment of New Zealand frozen meat in 1882. Technological changes promoting dairy product and frozen meat exports transformed the farming landscape, patterns of land ownership, and the organization of manufacturing in the Dominion.

In this paper we explore the depth and the causes of the changes promoted by commodity trade expansion. The merging of two new data sets provides the core of the analysis. Firstly, new data for commodity output disaggregated for 25 industries used in conjunction with modern time series methods shows that New Zealand's economy was driven by a small number of common trends, and most especially by gold, meat, printing and publishing, butter, and cheese output. Output in the key industries was driven by a range of forces, including the availability of land suited to pasture, mineral resources, and the opportunities of trade and the migration of people and capital. However, the prominent role of printing and publishing within New Zealand manufacturing shows her development was not simply based upon exploiting natural resources and selling to the British market.

A key feature of New Zealand's staple exports is the extent that processing, in meat or dairy factories, was needed. Integration of farm with factory was central to the emergence of a 'New Zealand System' of manufacturing, and required a variety of technology. The second new data set we utilize here is for patent applications. These data, together with the output data, are used to explore the role of inventiveness in New Zealand economic development. The results show the relationship between patents and output was deep, and they support clearly the view that enterprise and new technology played a key role in promoting New Zealand's prosperity. Directions of causation are complex, and undoubtedly the opportunities provided by faster growing industries in part stimulated patenting, but patents also led output expansion. On balance the evidence reported here points to patents being more a cause than a consequence of commodity output growth. The output of the majority, but not all of the key industry drivers of commodity output were led by patents.

Market power on the colonial frontier: São Paulo 1750-1850

Giovanni Federico, Ricardo Paixão

Economists often assume that agricultural markets were competitive, and all producers received the same price. In contrast, most agricultural historians deem prices to depend on the social status of agents. This paper tests these opposite views with a data-base of some 12500 transactions for the São Paulo area in Brazil in the first decades of the 19th century. Prices received by farmers were positively related to total sales, a proxy for the size of the estate, and also to the share on the relevant market, which measures the market power. These results are consistent with the anecdotal evidence about the growing importance of large slave estates, which however did not wipe out small household farms

Reinventing Export-led Growth: Sweden in the 1930s

Alexander Rathke, Tobias Straumann, Ulrich Woitek

In contrast to the US and most European countries, Sweden experienced an early and strong recovery from the Great Depression. The paper examines the question how much of this growth miracle was due to Sweden's economic policies. Part of it can easily be explained by the fact that the Swedish krona was devalued only one week after the fall of the British pound in September 1931. But the suspension of the gold standard does not account for the whole story. Denmark, Norway, and obviously the United Kingdom took the same measure at the same time, yet their industrial production increased less rapidly than Sweden's. Keynesians used to explain Sweden's growth by highlighting fiscal policy. Accordingly, the Swedish Social Democrats (SAP) who came to power in 1932, forming a coalition with the Agrarian Party, fostered growth by running sizeable budget deficits. The numbers do not add up, however, as several economic historians have demonstrated. A second explanation is based on monetary policy. Officially, Sweden adopted price level targeting after the end of the gold standard. Possibly, this regime shift enabled Swedish central bank (Riksbank) to pursue an optimal policy in comparison with the Bank of England as well as the Danish and Norwegian central banks. Recent research has shown, however, that inspite of official declarations the Riksbank gave priority to exchange rate stabilization over price level stabilization (Berg and Jonung 1999, Fregert and Jonung 2004, Straumann and Woitek 2007). A third and last explanation is centered on Sweden's exchange-rate policy. According to Lundberg (1983) the undervaluation of the Swedish krona was mainly responsible for the higher-than-average growth record.

Our preliminary empirical findings suggest that Lundberg's explanation is most convincing. Obviously, Sweden pursed the same strategy as Dooley, Folkerts-Landau and Garber described in their influential essay on the revived Bretton Woods system. In other words, the typical postwar policy of peripheries was anticipated by the policymakers of Sweden and possibly of other Scandinavian countries. Export-led growth had also been a feature of the era of the classical gold standard. But the conscious stabilization of its own currency at an undervalued level was a true innovation of the 1930s — a sort of reinvention of export-led growth

Fetters of Debt, Deposit, or Gold during the Great Depression? The International Propagation of the Banking Crisis of 1931

Gary Richardson, Patrick Van Horn

A banking crisis began in Austria in May 1931 and intensified in July, when bank runs struck institutions throughout Germany. In September, the crisis compelled Britain to quit the gold standard. Newly discovered data shows that failure rates rose for banks in New York City, at the center of the United States money market, in July and August 1931. This rise in failure rates comes before Britain abandoned the gold standard and before financial outflows compelled the Federal Reserve to raise interest rates. Banks in New York City had large exposures to foreign deposits and German debt, sponsoring billions of dollars in German debt and holding hundreds of millions of dollars in European deposits. Those debts and deposits provided potential channels for the transmission of the banking panic across the Atlantic This paper tests to see whether the foreign exposure of money center banks linked the financial crises on the two sides of the Atlantic. Microeconomic data reveals the correlation between the financial crisis on the continent and bank distress in New York City was coincidental, not causal. Bank distress in the central money market of the United States peaked during the summer of 1931 for reasons unrelated to financial incidents across the Atlantic. Political pressure and regulatory reform determined the timing of events in New York City. The impetus for these reforms arose from the failure of The Bank of United States in December 1930, and the criticism directed at the Superintendent of Banks for the State of New York for his role in that institution's collapse. Its demise led to political pressures that pushed the superintendent of banks to take a more aggressive approach towards imperiled banks.

The Role of Exports in the Economy of Colonial North America: Estimates for the Middle Colonies

Peter C. Mancall, Joshua L. Rosenbloom, Thomas Weiss

Most interpretations of colonial economic growth lean heavily on the performance of international exports. Whether one looks at the literature about the colonies taken as a whole, or for any of the major regions exports loom large as the primary engine of economic growth. According to the dominant theme found in textbooks as well as scholarly works, enterprising Europeans arrived in North America and through hard work and abundant land created a prosperous and burgeoning economy based on the export of agricultural staples

In this paper we seek to advance the discussion by presenting new and more comprehensive measures of export performance for the Middle Colonies (New York, New Jersey, Pennsylvania, and Delaware). By combining the available data for this region in a coherent manner and employing a consistent theoretical framework we are able to construct time series of total export volumes from near the beginning of the eighteenth century until American independence.

It is a bit surprising that exports have been accorded such prominence in colonial economic history because they did not comprise a substantial share of the colonies' economy. The results of our investigation, however, go beyond this obvious question about the relevance of the staples thesis as an explanatory framework for analyzing colonial economic growth. Although we do find that in the Middle Colonies exports grew substantially faster than population for brief periods, over the long-run exports did not keep pace with population. Such a finding appears to be at odds with the central proposition of the staples thesis—that the expansion of foreign demand shaped colonial economic growth. We do not wish to dispute the importance of exports as a source of foreign earnings that enabled colonists to afford imported luxuries and manufactured goods that they could not produce themselves. And it may still be the case that forward and backward linkages played a role in the development of increasingly sophisticated colonial economic institutions. But it appears that the importance of export earnings was stable or diminishing over the course of the eighteenth century, a fact that suggests that the central feature of the colonial economy was its extensive growth, a conclusion that implies that more weight should be given to Malthusian forces of abundant resources and scarce labor.

Female Salaries and Careers in the British Banking Industry, 1915-41

Jeff Frank, Andrew Seltzer

The British banking industry experienced dramatic growth in female employment beginning with the First World War. Using data from the employment records of Williams Deacon's Bank, we examine salaries and other career outcomes for clerks during the interwar period. There were formal institutional barriers restricting female careers, and women were disproportionately assigned back office jobs. Younger female staff were paid comparably to men; however, there emerged a substantial pay gap after about 10-15 years tenure, which increased thereafter. Finally, the arrival of women in the industry resulted in a general reduction of salaries for male staff, but also increased their opportunities for promotion.

The two uses of bankruptcy law in 19th century France: dealing with the poor and restructuring capital

Vincent Bignon, Jérôme Sgard

Economic history offers an almost endless collection of social mechanisms designed to support contractual exchange. Some mechanisms address the initial structure of contracts, while other are rather ex post remedies that typically call for the intervention of third parties: they will help re-negotiation, adjudicate conflicts, offer new guarantees of enforcement, or sanction wayward behaviour (legal or illegal). Bankruptcy laws may provide the best example of institution, at the most formal and judicialised end of the spectrum. This is also a complex institution, mainly because it has to address competing claims between collective action and private rights, ex ante and ex post concerns, social relief (think to poor debtors) and Schumpeterian selection.

These questions can be explored in details in the case of France, thanks to the data on bankruptcy procedures collected and published from 1840 onwards by the Ministry of Justice. These data were indeed instrumental in monitoring local jurisdictions, especially the elected, largely-self-managed Tribunaux de Commerce. Thanks to the continuity of bureaucratic purpose over time, they offer a detailed view of how the procedures worked and evolved, their performance and outcomes, how agents reacted to reforms or interacted among themselves. This paper reports the early results of their exploitation.

Three main conclusions stand out.

- There are clear evidences of a sustained, long-term process of legalisation and judicialisation, whereby the settlement of private defaults became increasingly ruled by law and by courts. Especially until the 1880s, the gross number of procedures being processed each year increased more rapidly than either GDP or the total number of businesses; there are also indications of an increase in the productivity of courts; i.e. the costs of processing defaults went down.

- The gross increase in the total number of procedures was driven, first and foremost, by the expanding reach of the institution towards the lower strata of economic activity, i.e. small and very small businesses. In other words, this is not primarily a history of big business, industry and investment banking, but should rather be compared with the experience of formalisation in present day developing countries.

- The logic of "formalisation" is however a complex one: there are clear elements of "legal supply" meeting a "demand for formalisation", but reforms have also had unintended effects, as they were used in unintended ways. Whereas the institution seems to have worked and adapted in a rather continuous, apparently satisfactory way as regard relations between established businesses, the law and the court have clearly had difficulty addressing the case of the poorer debtors, with not or limited residual assets. How to alleviate the risk of a debt-trap, though without creating market hazard has clearly been a major dilemma. Though the law seems to have eventually worked as an instrument for an Anglo-american type of fresh-start policy, this seems to have been much more a matter of ex post result, than ex ante political intention.

Malthus in Cointegration Space: A fresh look at the relationship between demography and living standards in pre-industrial England

Niels Framroze Møller, Paul Sharp

Malthus' (1798) model of the interaction between demography and the economy is routinely invoked by economists when modelling the pre-industrial world. It has even been claimed that all of economic history before 1800 can be explained by the Malthusian model. The aim of this paper is to put the Malthusian model to the test using English preindustrial data (1560-1760).

Malthus makes just three assumptions. First, he postulated that society was subject to preventive checks: an increase in income would lead to an increase in fertility. He believed that this mainly occurred through marriage. Second, he suggested that society was subject to positive checks: an increase in income would lead to a decrease in mortality. Malthus claimed that in equilibrium society enjoyed a subsistence level of income per head. This required a third assumption: that society was subject to diminishing marginal returns to labour, which was due to the presence of a fixed production input, i.e. land.

In spite of its simplicity the Malthusian model has proved difficult to test econometrically due to the endogeneity and persistence of variables. To our minds these issues have not been adequately tackled in previous work. These two intrinsic features of the Malthusian system constitute our main motivation for analyzing a cointegrated VAR model.

A related issue is that previous work has failed to provide an explicit link between the econometric analysis and the theoretical model. By formally deriving implications in terms of stationarity and cointegration, we not only deal with the inherent endogeneity and persistence explicitly, but we also obtain detailed and economically meaningful interpretations of our empirical results.

Our estimation shows that the evidence is indeed consistent with a Malthusian process, with strong preventive checks working via marriages, and weak or non-existent positive checks. The Malthusian impact of population growth on real income through diminishing returns to labour is, however, not found. Given the empirical evidence we formalize a consistent explanation.

From a theoretical point of view, the model treats technology as exogenous and thus fails to allow for the possibility that the use and/or invention of productive technology can be influenced by population as postulated by economists going back to the work of Adam Smith. If this is the case then the Malthusian diminishing returns are likely to be offset and the dynamics of the model change radically. We relate this possibility to specific parameters in our model, and a synthetic model allowing for the possibility of endogenous technological progress does indeed seem to describe the data.

By extending the sample to 1850 we then see what happens to the model with industrialization. Using recursive estimation, we find that the model remains stable until about 1785 (thus validating our previous results). The main change seems to come around about 1800, when the coefficient describing the impact of the marriage rate on fertility becomes insignificant, thus destroying the preventive check mechanism. The implication of these results is that industrialization does impact on the Malthusian relationships, as expected.

A Reassessment of Japan's Monetary Policy during the Great Depression: The Constraints and Remedies

Masato Shizume

Temin (1989) and Eichengreen (1992) argue that monetary policy played a key role in the economic performance of each country during the Great Depression, and that some European policymakers hesitated to pursue expansionary monetary policies even after departing from gold. Why did these policymakers not pursue the opportunities they were able to pursue to the fullest extent? We use Japan as a case study to explore how a peripheral country looked at and responded to the collapse of the international gold standard system. In a sense, this study complements those of Temin (1989) and Eichengreen (1992), given that their studies focused primarily on the core countries.

Japan departed from the gold standard in December 1931 under the leadership of its veteran Finance Minister, Korekiyo Takahashi. Many observers argue that Takahashi's three-pronged economic stimulus package, combining depreciation of the yen, expansionary fiscal policy, and the lowering of interest rates, contributed to the early recovery of the Japanese economy during the Great Depression.

A few previous quantitative studies have analyzed Takahashi's economic policies. Among these studies, Nanto and Takagi (1985) stress the effects of the increase in exports accompanying the depreciation of the yen. Cha (2003) emphasizes the effects of the debt-financed fiscal expansion. However, very few studies have focused on the conduct of monetary policy. Most previous studies on monetary policy in interwar Japan have been constrained by the lack of data enabling empirical research to be conducted.

This study explores monetary policy during the interwar period in Japan, making use of a new dataset and narratives. It derives a new series of representative long-term interest rates from the market price of one kind of government bond. It then uses this interest rate series to explore the relationship between long-term interest rates in Japan and in main financial centers. This study also explores the contemporary view of Japanese policymakers at that time using narratives. In doing so, it delivers a new interpretation of monetary policy in Japan, a small open economy, during the interwar period. Finally, this study compares Japanese economic indicators and policy measures with those of other peripheral countries.

This study reveals that Japan imposed a kind of self-constraint on its monetary policy even after departing from the gold standard. Japan did so because as a small, open economy, it needed to maintain its ties both with its trading partners and with international financial markets. Quantitative analysis shows that Japanese long-term interest rates had a long-run relationship with British rates throughout the interwar period. Narrative analysis shows that Japan sacrificed monetary policy autonomy in order to stabilize the exchange rate. The primary reasons for the self-constrained monetary policy in Japan, as a small open economy, were to maintain its relationships with its trading partners and to service its external debts. A comparison of the Japanese economy with other countries suggests that monetary policy did not contribute to the early recovery of the Japanese economy, but that the depreciation of the currency and debt-financed fiscal stimulus did.

Why Was the Uniform Sales Act Adopted in Some States but not Others?

Donald J. Smythe

The Uniform Sales Act was an early attempt to unify American sales law. Between 1906 and 1947 it was adopted in 34 American states. Transaction cost theory suggests that states' adoption decisions should have been influenced by large manufacturing interests, neighborhood effects, and major transportation systems. Historians have also suggested that states' adoption decisions should have been influenced by whether the states' legal professions had adopted a state bar association and whether the states had been admitted to the union. This paper uses a logistic regression model to evaluate the contributions of these variables to states' adoption decisions. The results suggest that manufacturing interests, neighborhood effects, and transportation systems all played an important role in the diffusion of the Uniform Sales Act. It appears that the Act ultimately failed to diffuse across all states primarily because the southern states resisted legal unification and because most of them were not well integrated into the national transportation network.

The Role of Financial Conglomerates in Industrialization: Evidence from Meiji Japan, 1868-1912

John P. Tang

Large family-owned conglomerates known as zaibatsu have long been credited with leading Japanese industrialization during the Meiji Period (1868-1912). It particular, it is argued on the basis of little systematic evidence that zaibatsu pioneered new industries and technologies in these formative years. I develop a new dataset collected from corporate genealogies and estimate the likelihood of first entry with discrete choice econometric methods. I find that zaibatsu are indeed more likely to be first entrants in new industries relative to independent firms. This effect is especially pronounced in capital-intensive sectors, and may be due to their ability to finance investments internally, autonomy from shareholder interference, and lower risk-aversion from being diversified. At the same time, zaibatsu may lag independent firms in introducing innovative technologies, possibly from their preference for scale and monopolistic industries, conservative ownership, and organizational complexity

Bairoch Revisited. Tariff Structure and Growth in the Late 19th Century.

Antonio Tena-Junguito

This paper revisits Bairoch's hypothesis that tariffs were positively associated with growth in the late 19th century, as confirmed recently by a new generation of quantitative studies (see O`Rourke (2000), Jacks (2006) and Clements-Williamson (2002, 2004)). This paper highlights the importance of the structure of protection in the relation between trade policy and growth and its potential growth-promoting impact. Evidence is based in a new data base on industrial tariffs for the 1870`s. First results, based on these findings, show that protection was only positive for a "rich club" if we include in this group New Settler countries which grew rapidly in the late 19th century. Leaving out these countries, which protected mainly for fiscal reasons, the evidence shows that more protection, indicated by total average and manufacture tariff average, implied more un-skilled inefficient protection and less growth and this is especially true for the poor countries in the late 19th century.

Peer to Peer:Lifetime Learning and the Evolution of the Gender Literacy Gap

William Troost

In the Unites States prior to the American Civil War, slaves and free blacks in the South were legally denied access to education. As a result, Southern blacks had extremely low levels of literacy at the point of emancipation. Although many economists have detailed the large differences in the educational outcomes of blacks and whites during the 19th Century, few have examined the differences in educational outcomes between male and female blacks. While many blacks vigorously pursued their new educational opportunities at the conclusion of the Civil War, young black women especially took advantage of these new opportunities. By 1870, black females under the age of twenty had rates of literacy that were significantly higher than their male counterparts.

Although males born between 1850 and 1860 had rates of literacy 2.3 percentage points lower than their female counterparts in 1870, by 1880 they had rates of literacy nearly eight percentage points higher than their female counterparts. In total the change in the gender literacy gap was a stunning 10.3 percentage points. What caused this reversal in the gender literacy gap? While the reported literacy rates of females increased a modest 6.5 percentage points between the 1870 and 1880 Censuses; the reported literacy rates of males increased by a staggering 16.6 percentage points during this time period. This indicates that males obtained literacy later in life through self-help and increased workplace interaction.

An implication of this paper is a revision of perceptions about the way in which individuals gain literacy. The quick reversal of the gender literacy gap suggests that human capital attainment is often the result of personal labor market experiences. In societies with less developed educational systems, peer to peer interaction can be a major way in which individuals acquire literacy. Regressions testing this theory are mixed. Two variables that are associated with increased labor market interactions for males are positively correlated with the change in the literacy gap. Variables that were used as proxies for increased and decreased labor force participation on the part of females have little explanatory power.

Another implication of this paper is that educational efforts to increase literacy rates for women in developing countries may not be successful in reducing the gender literacy gap. Young black females in the South were very successful in school and were able attain a higher rate of literacy than young males by 1870. However, by 1880 they were faced with a large literacy deficit. In addition to the literacy of individuals transforming labor market experiences, it appears that labor market experiences can also transform the literacy of individuals.

The Origins of Foreign Exchange Policy: a detailed analysis of the case of the National Bank of Belgium, 1851-1853

Stefano Ugolini

The National Bank of Belgium (NBB) is generally acknowledged as the first central bank in the world having put in place a foreign reserve policy: since the beginning of its operations, the Bank was an active player on the foreign exchange market, thus providing an outstanding model for later followers until the First World War. Yet this innovative case has never been studied up to now: this is mostly due to lack of data, and to a very difficult archival situation.

This paper aims at filling this gap in central banking historiography thanks to a newly created 'high-frequency' database covering all the Bank's foreign exchange operations during its first three years of life (January 1851 to December 1853).

The paper starts by looking at the distribution of interventions vis-à-vis the exchange rate, and states the shortcomings of both a classical target zone and a managed float analytical framework in providing an explanation for the NBB's actual policy. This is the reason why we switch from a 'macroeconomic' approach to a 'microeconomic' one, taking into account the institutional framework and the structure of the monetary market in which the central bank was bound to operate.

Starting from the Bank's own budget constraint, we build a model taking foreign reserve accumulation as a function of the cash surplus (i.e. the amount of bullion reserves exceeding the minimum statutory requirements): our assumption is that the central bank is targeting a certain level of its own liquidity, rather than a certain level of the exchange rate — and this, with the aim of avoiding convertibility crises on the one hand, and profit shortages on the other one. The model also predicts which kind of intervention (sterilised or non-sterilised) is likely to be implemented with respect to the Bank's situation. Empirical tests buttress these theoretical findings.

Once the determinants of the size of foreign reserves explained, we look for the determinants of the allocation of reserves to different currencies. Our hypothesis is that profitability concerns played a pivotal role in the central bankers' choices: to test this, we use a simple way of computing expected returns as heterogeneously formed. Again, empirical results support our assumptions: the NBB first determined the amount of foreign assets to be held as a function of liquidity concerns, and then determined its allocation as a function of profitability concerns.

The results of the paper shed new light on the actual workings of foreign exchange policy, and raise a number of interesting questions. One is about transparency: the NBB's foreign reserve management was very opaque, yet this seems to have strengthened rather than weakened the Bank's credibility in defending convertibility. Another one is about the explanatory power of a purely 'macroeconomic' approach to foreign exchange policy, which can lead to an imperfect understanding of the actual targets pursued by central bankers. On the whole, analysing the case of the 'pioneer' of foreign exchange policy opens new perspectives for future research.

Slave Emancipation as a Natural Experiment in American Fertility

Marianne Hinds Wanamaker

This paper uses the natural experiment of slave emancipation to test an economic theory of fertility decline. In order to overcome endogeneity in measuring the value of children, I exploit slave emancipation in the U.S. South between 1863 and 1865 as a plausibly exogenous change in the value of own children to slaveowning households. I develop a model of household production in the presence of slave labor where own children enter the production function. Using data on the size and composition of families' slave labor forces in 1860 and their subsequent fertility rates, I measure the fertility response of families to a change in the value of children. Incorporating data on household wealth allows me to abstract from any wealth effect of emancipation, and limiting my data to the Deep South allows me to abstract from any "war effect". I hypothesize that small slaveowners and owners of young slaves were likely to experience an increase in the value of their own children following emancipation while owners of adult females slaves should have experienced a lower post-war value for children. Indeed, the results show that small slaveowners who lost young children to emancipation had fertility rates up to 30% higher by 1870 than did the non-slaveowning middle class. Further, slaveowners who owned adult female slaves showed reduced fertility rates. These same patterns cannot be discerned in earlier periods and do not, therefore, appear to represent fixed effects in household fertility. These results seem to validate an economic theory of American fertility decline.

The Effect Of Wage-Payment Reform On Workers' Labor Supply And Welfare

Esther Redmount, Arthur Snow, Ronald S. Warren, Jr.

During the last quarter of the nineteenth century, factory workers in several states lobbied for, and ultimately secured passage of, legislation requiring that firms provide the option of weekly wage payments, which in the past had typically been made on a monthly basis. Considerable anecdotal evidence indicates that the switch from monthly to weekly payments would have benefited workers by reducing their reliance on credit extended by opportunistic merchants, landlords, and lenders. However, as a countervailing factor, the higher transactions costs of making up payrolls and distributing wages to their employees on a weekly — rather than monthly - basis would presumably have been passed on to workers in the form of lower wages. Hence, such legislation was not unambiguously beneficial for workers a priori.

We use a two-period model of deferred compensation to analyze the theoretical effects of wage-payment reform on labor supply, the effective wage rate, and workers' welfare. Assuming the wage elasticity of labor supply is positive, we show that if the effect of the payment reform on labor supply is positive (negative), then the reform increases (decreases) both the effective wage rate and workers' utility. We then examine empirically the effect on labor supply of the switch from monthly to weekly payments, using data on male and female mill workers in Lowell, Massachusetts from January 1885 to March 1886 - a period which encompasses the introduction of the option of more frequent pay disbursement. The econometric framework for our empirical analysis is a modified version of the Blundell, et al. (1986) model of labor supply that allows us to incorporate demand- as well as supply-driven forces determining observed variations in hours of work each week. The empirical results reveal a positive wage elasticity of labor supply for both men and women and a small, but statistically significant, increase in mean hours worked per week attributed to the increase in the frequency of payment. In light of the predictions of our theoretical model, these findings imply that the switch from monthly to weekly payment increased workers' effective wage and well-being. The results are also consistent both with the widespread political agitation by workers for wage-payment legislation and the observation that ninety percent of the mill workers in our sample opted for weekly payments when management offered the choice of monthly or weekly payments prior to the effective date of the legislative mandate.

The Role of the Real Interest Rate in U.S. Macroeconomic History

Ernst Juerg Weber

In this paper the tools of dynamic macroeconomic analysis are applied to U.S. macroeconomic history. The focus is on the first order optimum condition of consumers, which relates consumption growth to the real interest rate. Negative real interest rates are a key feature of American business cycle history because even a small fall in expected consumption requires a negative real interest rate in the Euler equation. The real interest rate became negative during the Civil War, World War I, World War II, the Korean War, the oil crises in the 1970s, and after the attack on the World Trade Center. The real interest rate was negative in 35 years between 1831 and 2004. Macroeconomic equilibrium required a negative real interest rate when the economy was hit by political and economic shocks. People who face adverse economic prospects save in order to maintain consumption. There is an incentive to save because the expected marginal utility of future consumption is high if expected consumption is low and/or uncertain. During wars and periods of distress, the incentive to save was so strong that there would have been excess saving and a corresponding excess supply of commodities without a negative real interest rate. The history of the Great Depression in the 1930s confirms that negative real interest rates were instrumental in preventing more depressions in American economic history. Using the Euler equation with plausible parameter values and conditional moments, the real interest rate should have been minus 16.2 percent in 1931 and minus 18.2 percent in 1932. Instead, the real interest rate was strongly positive in these years, namely 11.0 and 13.1 percent. The finding that the real interest rate exceeded the equilibrium rate by a wide margin gives credence to the Keynesian view that saving was excessive during the Great Depression, although Keynes attributed this more to a decline in investment than to an increase in saving. Temin (1976), however, has a strong case that the Great Depression was caused by insufficient consumption. During the Great Depression, the interest rate mechanism broke down because the fact that the nominal interest rate cannot be negative implies that a negative equilibrium real interest rate can prevail only if there is inflation. The crucial difference between the periods of war and distress and the Great Depression is that there was moderate to high inflation during the former, while prices fell during the latter. During the periods of war and distress, inflation made it possible that the negative equilibrium real interest rate, which was required by pessimistic consumer expectations, was indeed realized. During the Great Depression, the interest rate mechanism failed to achieve macroeconomic equilibrium because the nominal interest rate could not fall further and deflation produced a positive real interest rate. The lesson from American economic history is that central banks should accept moderate inflation if an adverse political or economic shock causes a decline in expected consumption and an increase in consumer uncertainty.

Coin Sizes and Payments in Commodity Money Systems

Angela Redish, Warren E. Weber

There are numerous historical episodes in which agents have complained about there being a shortage of small coins (low value media of exchange). For example, Spufford (1970) states that there was a "continual demand for small change, the lack of which was a frequent topic of popular complaint" in the Burgundian Netherlands in the 15th century. Ruding (1840) cites many examples from medieval England, and Sargent and Velde (2002) offer examples from medieval France. The occurrence of what Cipolla in a (1956) study of medieval Italy called the 'big problem of small change' has been argued to explain policies such as debasement and the permissive use of token coins.

There have been theoretical analyses of the shortage of small change in a commodity money standard, but none of them rest on the sound theoretical footing supplied by a model in which the need for a medium of exchange arises from fundamentals. This paper attempts to fill this gap.

Our model economy has two durable commodities, gold and silver, which the monetary authority mints into coins. The monetary authority decides the amount of gold and silver put into each coin. We give coins the attributes of commodity money by assuming each pays a dividend. We also assume that there is a cost to holding either coin.

In the model, trade occurs pairwise between agents who meet randomly. Double coincidence of wants meetings are ruled out by assuming that there are three types of agents and that each type consumes good i but can only produce good i+1 (mod 3). It is this lack of double coincidence meetings and the fact that we assume there is a continuum of agents of each type that gives rise to the need for a medium of exchange. The terms of trade in a single coincidence match is determined by assuming that the potential 'buyer' makes a take-it-or-leave-it offer to the potential seller. The buyer offers the seller some coins in exchange for the good and possibly some other coins ('change').

We examine steady state equilibria in this economy. (Steady state equilibria are ones in which agents trade, but the distribution of coin portfolios in the population remains constant over time.) We examine how the equilibrium number and types of trades and the level of ex ante aggregate welfare change as the size and quantity of each coin varies. In particular, we address the questions of whether or not there is an optimal quantity of each coin and whether an optimal denomination structure exists.

We find that small change shortages can exist in the sense that changes in the size of the small coin affects ex ante welfare. Further, the optimal ratio of coin sizes is shown to depend upon the trading opportunities in a country and a country's wealth. Thus, coinage debasements can be interpreted as optimal responses to changes in fundamentals. Finally, the model shows that replacing full-bodied small coins with tokens is not always welfare-improving

Danger On The Exchange: Counterparty Risk On The Paris Exchange In The Nineteenth Century

Angelo Riva, Eugene N. White

No matter how large or sophisticated contemporary financial markets become, they continue to be battered by financial crises. How these markets should be structured to withstand shocks is an important and unresolved question. In this paper, we examine how the Paris Bourse sought to manage the failures of its brokers and prevent liquidity crises. The Bourse faced a conundrum, for when it finally imposed a tight regulatory regime that limited risk, trading began to migrate off the exchange to less regulated markets.

The key problem for brokers on the Bourse was to ensure that customers completed their contractual obligations in the forward market, which constituted the bulk of trading but did not have legal status until 1885. If there was a large fraud or general shock, customer defaults could endanger the solvency of a broker. Given that brokers built up balances with each other that were only netted on settlement day, one broker's demise could bring down several of his colleagues—the problem of counterparty risk. When a crisis overwhelmed the exchange in 1818, the Bourse created a mutual guarantee to insure against failures. The fund was sometimes inadequate, induced moral hazard, and the exchange was forced to ask for assistance from the Banque de France, whose rescue of the market created another moral hazard problem.

To examine the determinants of broker failures, we study the annual number of defaulting brokers using negative binominal regressions, a proportional hazard model to explain the individual brokers' duration in office, and logit regressions for identifying the factors behind individual broker failures. These econometric analyses produce consistent results, showing that in addition to declines in asset prices and drops in trading volume, the moral hazard from the mutual guarantee fund contributed to brokers' defaulting on their obligations. More experience reduced the likelihood of failure, and brokers inherited serious and sometimes fatal problems when they purchased the office of a failed broker. Our narrative identifies five regulatory regimes, and dummy variables for these periods confirm that only after the Crash of 1882 were rules developed that constrained risk-taking and reduced failures.

To control moral hazard, the exchange sought to monitor and discipline its members. However, any reduction of risk-taking on the exchange raised the returns to those who could evade the regulation and drove business off the exchange to the curb market. In the late 1880s, the curb market grew rapidly taking on more risk. When it was felled by a financial crisis and multiple broker failures in 1895-1896, the Bourse secured government intervention and legislation after 1898 that reinforced its monopoly and subjected the curb market to stringent regulation. But, risky trading then migrated to the free "third" market. This cautionary tale reveals emphasizes the difficulty of controlling risk-taking and parallels the recent contemporary movement of the trading in derivative instruments off of the exchange to the largely unregulated over-the-counter market.

Microfinance in Colonial India

Susan Wolcott

It has long been argued that rural India is poor because of a lack of investment. Farms were too small and worked with too little fertilizers, too little irrigation, and too few livestock. Government administrators have suggested more rural credit, but none of the multiple programs from colonial times to the present have been fully satisfactory. In Bangladesh, the Grameen (Village) Bank is seen as a singularly successful attempt to provide rural credit to those with no collateral. Field representatives go to the village, and form lending groups of 5. The groups will only continue to receive loans if all of the members repay previous loans. Thus the incentive to repay is access to future loans and standing within the village. The Grameen Bank has what is perceived to be an astounding 98% repayment rate. Yunus received the Nobel Prize in 2006 for his awareness of the needs of the poor.

No one would consider giving such an honor to a moneylender. Yet, moneylenders were seen as indispensable in colonial Indian villages. Colonial moneylenders followed many of the same practices as the Grameen Bank. They loaned without collateral based on their personal knowledge of the borrower. They lent very small amounts. They were, most historical descriptions agree, reasonably flexible with regard to repayment. Colonial moneylender rates were similar to the rates charged by the Grameen Bank today. This paper examines the provision and nature of credit in rural colonial India, including moneylenders. I exploit the voluminous records of the 1929-1930 Provincial Bank Enquiry Committees and a remarkable data set on Indian rural expenditures and finance from 1950-51, the All India Rural Credit Survey. I first establish that the colonial credit market was large, competitive and reasonably efficient, at least relative to mid-19th century US credit markets. This is a relevant comparison as the US was another very large agricultural economy, but unlike colonial India, is considered to have successfully developed. I will argue that there was a fully understood, if somewhat implicit, system of collective liability based upon caste standing. In short, there was microfinance in colonial India. In fact, I will argue that there was no shortage of credit in rural India, despite appearances. There was credit, but no investment. It is an important to understand why, both to interpret colonial Indian development, and to correctly fashion future credit policies in India.

Endogenous Borders? The effects of new borders on trade in Central Europe 1885-1933

Hans-Christian Heinemeyer, Max-Stephan Schulze, Nikolaus Wolf

A large literature on "border effects" in the wake of McCallum (1995) documents the massive impact of borders on trade. However, all these studies suffer from an identification problem. "Border effects" are usually identified from cross-sectional variation alone. We do not know how trade would change in response to a change in borders — the "treatment effect" of borders on trade — simply because trade flows across "future" borders are typically not documented. Nor can we rule out that that there is "reverse causation": that borders run along pre-existing trade patterns rather than shape trade flows. We exploit a natural experiment from history to explore this issue: the many dramatic border changes that were imposed and codified by the peace treaties in 1919 across Europe. We follow Ritschl and Wolf (2008) and implement Ashenfelter's difference-in-difference estimator in levels on a large, new data set on sub-national trade flows. This allows us to trace the effects of changing borders over time and produces two key results: first, new borders have a large effect on trade. However second, the "treatment effects" of borders tend to be significantly smaller than the pure cross-sectional effects,. This is so, because most of the 1919 border changes followed a pattern of trade relations across the region that was clearly visible already before 1914. Borders shape trade, and trade shapes borders.

Sharing the Prize: The Civil Rights Revolution and the Southern Economy

Gavin Wright

Economists and economic historians have shown that the Civil Rights Revolution in the American South generated economic gains for African-Americans that were both substantial and sustained. This paper asks a different question: Were these gains won at the expense of white southerners, or as part of a restructuring that also enhanced the economic wellbeing of most southern whites? Although a comprehensive accounting of gains and losses would be a monumental task, the issue boils down to this: Did the political and social revolution of the 1960s facilitate economic progress for the South as a whole? The paper offers a preliminary basis for an affirmative answer and a research agenda for a longer-term project.

Prior to the 1960s, urban and industrial growth in the Jim Crow South did not weaken the policies and practices of segregation, but if anything strengthened the region's commitment to racial subordination. During the 1950s, median southern black income declined while white median income grew, a disparity that induced millions of African-Americans to depart the region altogether. Southern black income began to grow in the early 1960s, as desegregation advanced. Southern white income did not decline as a result, but grew instead at an accelerated rate. Thus, despite stout resistance on the part of southern whites, desegregation proved to be an economic blessing to the region.

The primary empirical focus here is on public accommodations, a surprisingly neglected topic in Civil Rights history. The working hypothesis is that racial segregation was fundamentally a calculated business policy chosen by profit-seeking firms, who feared that serving blacks in socially sensitive activities such as eating and sleeping would result in the loss of white customers. In almost every case, the initial response of both local managers and chain executives was to wait out the protests, in the belief that "demonstrations would fizzle in time." Only when it became clear that sit-ins and boycotts would continue indefinitely did business leaders reluctantly agree to locally-negotiated desegregation arrangements. As events unfolded in several leading cities, however, the presence of black customers was far less objectionable to whites than had been anticipated, and retail sales in downtown areas actually grew rapidly. These success stories weakened opposition to federal legislation on public accommodations, and indeed contributed to acceptance of the relatively comprehensive coverage of the Civil Rights Act of 1964. An additional consequence was the rapid loss of collective white regional memory regarding the pre-Civil Rights era.

Rule Britannia!: British Stock Market Returns, 1825-1870

Graeme G. Acheson, Charles R. Hickson, John D. Turner, Qing Ye

Financial economists have become increasingly interested in the historical returns of financial assets (Goetzmann and Ibbotson, 2006). This interest partially stems from a desire to calculate the expected equity risk premium, which requires long historical periods to reduce the estimation error. In particular, academics and practitioners are interested to discover whether or not the high returns on stock-markets over the past 50 or so years are an aberration or are somehow intrinsic to equity as an asset.

Historical series of returns are also are of interest to economic historians for at least two reasons. Firstly, indices of returns can serve as a measure of the levels and fluctuations of real economic activity in historical periods where there is a paucity of real economic data. Secondly, series of returns can be used to assess the impacts of major political, legal or technological changes on an economy.

To date, monthly returns data stretching back into the nineteenth-century has only been developed for the United States (Goetzmann et al, 2000). The only monthly stock market indices for pre-1870 Britain are the Gayer et al (1940, 1953) monthly index, which covers the period 1811 to 1850, and F. A. Hayek's unpublished monthly index which covers 1820-68. From the perspective of the financial economist, these series are defective because they are indices of price appreciation only. Consequently, in this paper, we develop a series of monthly returns, comprising both capital appreciation and dividends for Britain for the period 1825 to 1870.

Gayer et al's and Hayek's indices can also be criticized because they are small samples rather than including all available stock price data. In contrast, our indices cover the vast majority of stocks traded on the London market and are adjusted for survivorship bias.

A further defect of existing indices is that they are either unweighted in the case of Hayek's or weighted by the number of shares outstanding in the case of the Gayer et al index. This latter index also assigns weights to each industry sub-category based on paid-up capital, but these weights only change five times throughout the sample period. In contrast, we produce unweighted indices as well as indices weighted by paid-up capital and market capitalization, with weights changing on a monthly basis.

When we compare the returns generated in the 1825-70 British equity market with those produced in the United States and with later periods in Britain, we find that this period was a golden era for investors, with investors receiving higher returns yet facing lower risk. We suggest that this finding may firstly be due to Britain enjoying a comparative advantage in this period arising from its position as the first industrial nation, and secondly capital-market imperfections. We also find that in the second half of the twentieth century, dividends constitute a substantially smaller proportion of total returns than they did in the nineteenth century.