----------------- EH.RES POSTING ----------------- Dear Robert et al. When railroads first were built, there was a speculative mania in railroad shares. Railroad companies came out of nowhere, promising to exploit the new technology, return vast riches to their investors, and raised public and private capital by the bucketload. There was also a frenzy of wasted capital as rail companies built duplicate or unprofitable lines, where traffic didn't meet anticipated demands. Many companies went bust -- I think "boom and bust" is a perfect description of the new technology cycle. People did better by buying US Steel, who supplied the raw material for rails, cars, and locomotives. Similar to buying Cisco Systems today, instead of dot.coms. Best, Jack A. Goldstone ------------ FOOTER TO EH.RES POSTING ------------ For information, send the message "info EH.RES" to lists@eh.net. >

----------------- EH.RES POSTING ----------------- Jonathan Bean's note on economist as economizer reminds me of Edmund Burke's usage in _Reflections on the Revolution in France_: "The age of chivalry is dead, and that of sophisters, calculators, and economists is upon us." The Greek oikonomos is most familiar to us in the Christian Bible, often translated as steward. More to the point on current usage, remember that the discipline used to be called political economy, hence referring to management (nomos/nomia) of the 'household' (oikos) of the polis or polity. Perhaps it's not strictly proper, etymologically, to use the term economist for the researcher rather than practitioner of such management. Of course, one of the great early (and continuing) insights of economics is that there is something we may call an 'economy' that is to a large extent self-managing. Douglas Puffert University of Munich ------------ FOOTER TO EH.RES POSTING ------------ For information, send the message "info EH.RES" to lists@eh.net. >

----------------- EH.RES POSTING ----------------- Ray Marano (rmarano@sbnnet.com) wrote: > I am looking for historical parallels to the current investment activity > in e-commerce and Internet companies and technologies. When breakthrough > technologies and concepts emerged in the past, such as the invention of > the steam engine, the telegraph, the telephone, or the development of > the assembly line and mass production techniques, were there huge > migrations of capital into related enterprises that sprung out of these > concepts and technologies? Were there many, many failures? It seems to > me that we often hear about the great successes but rarely hear about > the miserable failures. Actually I am working on this issue now but we do not have anything written. So obviously I think that you're asking an interesting question. There also is an implication that the literature will not answer your question very completely (or I wouldn't work on the problem.) There are a couple of observations that may be helpful. If you look at histories of the automobile industry, you'll see that there were many different firms initially and the number declined dramatically over time. Interestingly, it turns out that the wealth of someone who invested in General Motors in 1912 increased a multiple of the wealth increase received by those who invested in other car companies or stocks in general from 1912 to 1938. $100 in GM stock in 1912 became roughly $70,000 by 1938. Not bad. I am inclined to guess that the telephone industry is not a very good example because of early patents and government regulation about five years after the patents expired. There was a lot of entry after the patents expired but government regulation and possibly some predatory acts by AT&T fenced off the offending entrants in isolated geographic pockets. There was a lot of entry, though ultimately for naught perhaps.

----------------- EH.RES POSTING ----------------- >I am inclined to guess that the telephone industry is not a very good >example because of early patents and government regulation about five years >after the patents expired. There was a lot of entry after the patents >expired but government regulation and possibly some predatory acts by AT&T >fenced off the offending entrants in isolated geographic pockets. There was >a lot of entry, though ultimately for naught perhaps. (I say perhaps because >I don't have stock prices.) True of the telephone industry only before the patents expired. There was in fact rather little government regulation in the 19th century, and not much more in the early twentieth. But during the competitive period in America (roughly 1894-1912) there was tremendous investment that resulted in a classic boom-bust pattern of over-capacity and cutthroat competition, which in fact led to a wonderful build up of facilities, with low prices introducing more people than ever to the technology. If you want to learn more, may I humbly suggest my article, "Cutthroat Competition, Corporate Stategy and the Growth of Network Industries," in Research on Technological Innovation, Management and Policy, volume 6, 1997, 1-53. KL Kenneth Lipartito Department of History Florida International University Miami, FL 33199 ------------ FOOTER TO EH.RES POSTING ------------ For information, send the message "info EH.RES" to lists@eh.net. >

----------------- EH.RES POSTING ----------------- Re: the mania and bubble aspect of "new economies" - I love Leland Jenks's 1927 "Migration of British Capital to 1875." Re: the investment advice to buy parking lots in the fastest growing city in the world - the primary economic value of a downtown parking lot is its option value as a buildable lot. Its value should climb as long as the building boom continues. But at the height of the building boom, it is clearly be best to sell, not buy. Ask the parking lot entrepreneurs in Bankok. ------------ FOOTER TO EH.RES POSTING ------------ For information, send the message "info EH.RES" to lists@eh.net. >

----------------- EH.RES POSTING ----------------- Jack Goldstone wrote > > When railroads first were built, there was a speculative mania in railroad > shares. Railroad companies came out of nowhere, promising to exploit the > new technology, return vast riches to their investors, and raised public and > private capital by the bucketload. There was also a frenzy of wasted > capital as rail companies built duplicate or unprofitable lines, where > traffic didn't meet anticipated demands. Many companies went bust -- I > think "boom and bust" is a perfect description of the new technology cycle. > > People did better by buying US Steel, who supplied the raw material for > rails, cars, and locomotives. Similar to buying Cisco Systems today, > instead of dot.coms. > There were other beneficiaries to the railroad boom -- retailers such as Sears and Montgomery Ward who were able to reduce costs to rural customers. The development of catalogs and direct marketing allowed them to reach this market and RFD helped too. These companies were, perhaps, the direct analogs to the marketing-based dot.coms, but I don't believe they were the same objects of speculation. (The direct analogs to the railroads would be AOL, the ISPs and network service companies.) I suspect that the focus of speculation was what the railroads would allow farmers to bring to the city, not the other way around. Sears did not offer stock to the public until 1906. ALso, it took some time before this use of the railroads really took off. In this sense, the current technology cycle is different. Perhaps the real lesson is the difficulty and time it takes for some of the new applications of technology to develop. Jim Bessen ------------ FOOTER TO EH.RES POSTING ------------ For information, send the message "info EH.RES" to lists@eh.net. >

----------------- EH.RES POSTING ----------------- On the evolution of "the insight of economics...that there is something we may call an 'economy' that is to a large extent self-managing" (Doug Puffert), see Joyce Appleby -Economic Thought and Ideology in Seventeenth Century England- (Princeton: Princeton Univ.Press, 1978); and William J. Ashley -Introduction to English Economic History and Theory- 3rd ed. (London: Longmans, Green, 1894). Winnie Rothenberg ------------ FOOTER TO EH.RES POSTING ------------ For information, send the message "info EH.RES" to lists@eh.net. >

----------------- EH.RES POSTING ----------------- Douglas Puffert writes: > > My point is that it is more useful to define 'lock in' to mean that > something is actually 'locked in' (not with a negative connotation) than to > define this and other terms in relation to 'the efficiency characteristics > of outcomes', as L&M do. The natural meaning of lock-in is that there are > positive feedbacks reinforcing a market outcome as a stable equilibrium. It > is simply unhelpful to define lock-in in a way that implies that there is no > lock-in. Yes, I understand your point, but it is what you accuse L & M of: tautology. Further, it is clear that their "third degree" PD definition, does fit the example I gave you from David's paper: <<...competition in the absence of perfect futures markets drove the industry prematurely into standardization on the wrong system -where decentralized decision making subsequently has sufficed to hold it. >> Were that true, and the benefits of the "right standard" large enough, we'd have an example of "third degree" PD. Just as we would if Brian Arthur could have provided us with legitimate examples for his claim: << To what degree might the actual economy be locked-in to inferior technology paths? As yet we do not know. Certainly it is easy to find cases where an early-established technology becomes dominant, so that later, superior alternatives cannot gain a footing. >> If you are now conceding there are none, then the mattered is settled. That is exactly the usefulness of L & M's definition. > After terms are defined, we can then proceed to consider the conditions > under which the phenomena described can exist and persist--as well as issues > of efficiency.

----------------- EH.RES POSTING ----------------- Joshua L Rosenbloom wrote, " Finally, and on a somewhat different point, it seems to me that the monolithic focus on efficiency in discussions of path dependence is also misguided." This hits the nail on the head. The focus on efficiency permeates discussions about lock-in, and it is a distraction. Liebowitz and Margolis challenge the QWERTY lock-in model by pointing out that claims about the increased efficiency of Dvorak were exaggerated. They reject path dependence (and by-extension lock- in) when they reject the efficiency claim. But lock-in and path dependence still remain. Questioning the existence of lock-in may be "philosophical", but being philosophical (as opposed to scientific) isn't causing the problem here. Assuming that an inability to prove efficiency implies that path dependence and lock-in do not exist is the flaw. These questions need to be separated. If you drop efficiency from the analysis for a moment, it becomes quite clear that lock-in exists in some markets. To be a bit more specific, the lock-in of particular technological designs occurs. For example, the light water reactor design has been locked in to the nuclear power market, internal combustion engines were locked-in to the automobile market, the list goes on. I suspect that a lot of dust has been raised here as fighting over efficiency has been taken to be fighting over the existence of lock-in, and since efficiency is a slippery issue, it might appear that lock-in never really occurs. I also wanted to say a brief word about policy. It has been pointed out that lock-in advocates have been somewhat silent on policy. It strikes me that there is much work to be done on policy, and that the full resources of the path- dependence, lock-in model are not being used.

----------------- EH.RES POSTING ----------------- Dierdre McCloskey wrote: > > > ...until I show quantitatively that it matters, I'm just speculating. Actually there is more than just speculation, there is at least some empirical support. A couple of years ago I mentioned the QWERTY story, in a casual conversation, to a friend. This person had been an executive of AT&T in their New York headquarters from the mid 60's through the mid 70's, and he told me that he remembered the enthusiasm (he may have said, excitement) for this fabulous productivity improvement they were going to get from their teletype operators by switching keyboards. He told me he later wondered why it hadn't eventuated. I was able to answer: the results of the Western Electric experiments. It might pay a young graduate student to invest some time in further investigating this episode. As to Peter Lewin's comments on burden of proof, we could also bring up the very revealing interview Brian Arthur gave to Pretext Magazine. http://www.pretext.com/may98/columns/intview.htm#theories Pretext: Do you have a smoking gun for increasing returns? Arthur: I find I'm puzzled by all of this because it's a bit like debating evolution with creationists: "But if you believe in evolution, the inference is that angels must have evolved their wings, and that would upset all of theology." For me it's moot. The onus isn't on me or anyone else, to show that we're locked in to any inferior thing. The onus is on the opinion page of the Wall Street Journal and the libertarians to show that all things that we're using in the economy are not just the best they could have been at the time, but are the best that could possibly have emerged. Nobody in computer science believes that about DOS. As for the QWERTY keyboard, if Margolis and Liebowitz can prove it's the best, my hat is off to them.

----------------- EH.RES POSTING ----------------- On 30 Mar 01, at 10:17, Peter Lewin wrote: > That the South got > "locked-in" to an inferior pattern of economic development as a result > of its relatively higher reliance of investment in slavery, is a > plausible but not unassailable proposition, and is one that can be > made only in retrospect. I wonder if you are suggesting that such an > argument against slavery could have been made at the time, namely, > slavery will be bad for you in the long run, it will lock you into an > inferior pattern of economic development It is nearly unassailable IMHO and one that probably was in fact understood at the time by some. See Genovese and the concept that "all hands must be occupied at all times." As Gallman and Anderson showed, the consequences of using slave labor (e.g. a capital good) in a highly seasonal activity (cotton planting and harvesting) created a context in which plantations (rationally) utilized slave labor for a host of other activities, so long as the margin product was greater than zero (because they are capital, not labor). Thus plantations became the nodes of activity and undermined a host of "developmental" processes. This was progressively more evident, especially after 1840. While at the margin it is reliably accurate to believe that there is an equilibrium, but that in a sense is a mere proof of existence, a reaffirming of a very useful insight but one which sidesteps the institutional context and the constraints or opportunities it creates. The choice of slavery had huge consequences for the South (and remember it was a choice, constructed over roughly the first hundred years of colonial history). Just as other institutional choices have consequences.

----------------- EH.RES POSTING ----------------- Ian Slater wrote "Liebowitz and Margolis challenge the QWERTY lock-in model by pointing out that claims about the increased efficiency of Dvorak were exaggerated. They reject path dependence (and by-extension lock-in) when they reject the efficiency claim." This reminds me of what I have never quite understood about the L&M argument. My reading was that they did show that the efficiency claims were exaggerated. However, the ergonomics studies they cite still show superior performance for Dvorak. The differences are less than 10 %. L&M declare there are no "real" differences. It is not clear what a real difference is. In short they do not show that Dvorak is not more efficient they show that David's claims were exaggerated. If Dvorak is more efficient it seems to me that why more people don't use it is an interesting question. The small differences in efficiency actually seem more consistent with a network externality effect. If the efficiency differences were huge one would expect that individuals would have sufficient incentive to eliminate it. The situation seems some what analogous to a tariff that imposes a small cost on a lot of people. Changing it would require collective action, but the benefits to individuals are not sufficient to overcome the costs of organization. That doesn't make the tariff efficient but it does suggest that there are limits to how big the costs can be. I think Becker made this argument for politics a while back. ------------ FOOTER TO EH.RES POSTING ------------ For information, send the message "info EH.RES" to lists@eh.net. >

----------------- EH.RES POSTING ----------------- Ian, I was puzzled by your post. At first you seemed to recognize how a preoccupation with efficiency ("market failure") by the QWERTY proponents got us off on the wrong track (locked us into a suboptimal discussion?:) ), but then you appear to think that somehow government policy is generally or presumptively in a position to help us escape from these inefficiencies that we might be better off not discussing. I would like to respectfully suggest that you 1. read LM (the book or the articles) and/or my paper more thoroughly and 2. whenever you have the impulse to suggest a regulatory escape you ask yourself: who has what information/knowledge and how did they come by it? Peter Lewin University of Texas at Dallas School of Management Richardson, TX 75083-0688 ------------ FOOTER TO EH.RES POSTING ------------ For information, send the message "info EH.RES" to lists@eh.net. >

----------------- EH.RES POSTING ----------------- Ricardo Duchesne wrote > > Without disputing the point about "limits to the diversity of markets", > I still think it is not enough to say that "markets are > everywhere hedged around with culturally-inspired supports and > restrictions" as if markets themselves are culturally neutral. I am in complete agreement; this is what I intended to say rather too cryptically by pointing to "culturally-inspired supports". As markets presume a particular type of human agent, they also presume a particular morality. It's not very reciprocal; I just reviewed a book by a development economist on labor markets. If firms dropped wages in response to a change in minimum wages policy, it was a rational calculation without a moral dimension. If workers responded to lower wages by reducing their efforts, they became "shirkers". Thank you for expanding the point originally introduced by Prof. Carstensen. Jim Hess Program in Social Networks School of Social Science University of California, Irvine ------------ FOOTER TO EH.RES POSTING ------------ For information, send the message "info EH.RES" to lists@eh.net. >

----------------- EH.RES POSTING ----------------- In reply to Bradley Hansen's well taken point: Perhaps I put this too provocatively, although I did put scare quotes around "efficient." I concede that I too do not think of tariffs as efficient or teach that. But the whole context points up the many problems connected with the way we have to think about efficiency. What I meant was something that E. J. Mishan pointed out many years ago, and others, including Paul David, have done again many times since; that the Pareto framework that we use to derive efficiency criteria can easily collapse into the result that whatever is, is efficient, since any existing outcome would be changed if it were not efficient - more specifically, using the Pareto compensation criterion, if gainers could compensate losers there would be scope for entrepreneurial action to effect the change. What this says to me is that our notions of efficiency inevitably contain prior values or presumptions. I cannot elaborate this here. (I have done this at excessive length in a paper on my website, and, perhaps should do so more efficiently :) sometime). The essence is in my article on path dependence and the question of burden of proof. Take, for example, the tariff question. By strict Pareto criteria it may be (theoretically) argued that the tariffs that now exist are "efficient" since it would "cost" more to get them changed than the "benefits" that would result - concentrated costs and dispersed benefits result in prohibitive transactions costs. Of course, this applies to private voluntary actions. I might argue that there is an efficiency case for government to abolish tariffs and, I am sure, there are those who would then extend this reasoning to the case of QWERTY and related cases.