De Revolutie die in Haar Eigen Staart Beet: Hoe de Economische Geschiedenis onze idee?n over Economische Groei veranderde

Published by EH.NET (September 2003)

J.W. Drukker. De Revolutie die in Haar Eigen Staart Beet: Hoe de Economische Geschiedenis onze idee?n over Economische Groei veranderde. Utrecht: Lemma Publications, 2003. 345 pp. 42 Euros, ISBN: 90-5931-141-8.

Reviewed for EH.NET by Joel Mokyr, Departments of Economics and History, Northwestern University.

The title of this book translates as “The revolution that bit its own tail: how economic history changed our views of the process of economic growth.” It is, however, more than that: Jan Willem Drukker, a distinguished Dutch cliometrician best-known for his work in anthropometric history, has summarized the history of cliometrics and the “new economic history” over the past fifty year. He has done so in style: he writes with grace and wit, and is enviably well versed in the literature of our profession. This is a user-friendly book and the audience is primarily undergraduates and non-specialists. At one point, he apologizes for the “inhospitality” of a Cobb-Douglas production function — most of the papers published today in Explorations in Economic History or the Journal of Economic History have considerably more complex mathematics than that. It is, in fact, so well done and eloquent that this reviewer heartily recommends a translation of the Dutch text. Like every good Dutch academic, Drukker knows his languages, and long discussions of texts in four languages are ornamented with clever puns and juicy Dutch expressions which this reviewer cannot hope to render in English without doing violence to the original (translating “free rider” as klaploper will raise a smile on all Dutch-speaking readers). The last chapter, which harks back to the West Lafayette roots of the New Economic history, is entitled “? la recherche de l’histoire ?conomique Perdue.” Lance Davis once wrote that the “new economic history will never be literature” — he had not heard of Jan Willem Drukker. Yet this book is also quite erudite, and the clever chapter on the history of the French Annales school, though not wholly pertinent to the main thrust of the book, is a testimony to Drukker’s learning.

Many of the contributors to the literature of economic history — including, in the interest of full disclosure, this reviewer — will find their work discussed and summarized in this book. Drukker, however, is not content with a “history of thought” piece. Instead, he has a particular point of view which explains the somewhat odd title of the book. Drukker maintains that the New Economic history intended from the outset to explain economic growth using a neoclassical production function: capital and labor together led to an increase in output. The unexplained residual, argues Drukker, is an illustration of the failure of simple neoclassical theory to explain differences in economic performance. Corrections in measured input and output, ? la Griliches-Jorgenson, have succeeded in reducing the residual somewhat, but have not eliminated it. In Drukker’s view, this is the “tail-biting” part: the revolution that started to apply neoclassical production theory to economic history found that it was inadequate in explaining economic growth and in the end had to return to the concepts and notions it started off attacking, such as culture and institutions. Hence the importance of those new economic historians such as Douglass North, who emphasized the role of institutions and Peter Temin who has declared it “kosher” to speak of culture.

Much of the book aptly describes the internecine wars among cliometricians, and the extent to which they criticized one another more effectively than “old” economic historians ever did. Drukker’s book will not be entirely immune to such critique. The definition that Drukker employs of “neoclassical economics” is minimalist and seems to be confined to general equilibrium models of perfect competition. In his view, game theory and public choice theory, for instance, are not part of neoclassical economics because free riding and the prisoners’ dilemma are incompatible with neoclassical economics. Moreover, the relation between cliometrics and the history of economic growth is actually more subtle than Drukker lets on. For decades, the New Economic History was not really engaged with explaining economic growth, as opposed to describing, quantifying and decomposing it. Indeed, as I showed in Mokyr (1998), there is no single cliometric explanation of the Industrial Revolution.

Cliometricians usually focused on specific, well-described problems, and eschewed the really Big Questions for which tightly specified and estimable models could not be estimated. It is undeniable that the New Economic History has been deeply concerned with computing and analyzing total factor productivity, and that nobody has quite been able to demonstrate precisely what the residual consists of. But beating up on the residual, as Drukker himself demonstrates, has not been the main concern of the Cliometric Revolution, and the inability of production function analysis to fully explain the growth of GDP in the twentieth century is not really a “black hole” in the theory as Drukker puts it. Cliometricians would indeed have been surprised if there had been no Solow residual (or Abramowitz residual, as Drukker prefers to call it). After all, ever since Kuznets and Rostow it has been realized that improved knowledge and technology are increasingly major factors in determining the rate of growth; since these phenomena are essentially unquantifiable, they will show up in the residual. While Drukker realizes this (p. 220), he still feels that a growth accounting exercise that takes into account human capital and capital age should have taken care of most technological progress — and yet even taking those into account the residual does not disappear. Drukker brilliantly characterizes the method of Cliometrics as “Socratic” — economic historians were very good at demolishing conventional wisdom, exposing the frailty of implicit assumptions and unwarranted inferences. It was much less effective in pointing to a persuasive explanation of why economic growth occurs in the first place. Economists know that if technological progress occurs, economic growth is likely to ensue; but the New Economic History never had a coherent view of why technological creativity and success occur in the first place.

It is therefore possible to criticize Drukker’s view that cliometricians had “explained” the rise of the modern economic world on the “neoclassical” basis of market growth and integration, and yet that their theories failed to explain why such markets did not arise in poor countries. Arguably, cliometrics had never held a strong position on the Rise of the Modern World, a question it left to less quantitatively-inclined economic historians such as David Landes, Eric Jones, or Nathan Rosenberg in whose work Drukker seems less interested. It was usually concerned with smaller micro questions such as why one mode of transportation was used over another, or what the effects of a tariff were. In fact, it is probably not easy to say what the “main concern” of the New Economic History has been, except to bring the insights of the economist’s training and more formal models to bear on historical questions, whether those involve game theory or Bayesian econometrics. To be sure, the New Economic History was (and to a lesser extent, still is) fascinated by markets, as well it should be. In its early stages, as William Parker once put it, the hallmark of the New Economic History was that the “market did it again.” But every economist knows that technology by being non-rival and to a large extent non-excludable is a prime example of market failure. Apart from arguing that the market usually saw to it that rational economic agents chose the “best” technique available, the New Economic History has had relatively little to say on the process of technological change. Insofar that modern economic growth is driven by technological progress, then, the ability of market analysis to explain is a priori limited. The perfectly competitive model, indeed, cannot easily generate technological progress except perhaps as a by-product of production and learning-by-doing. But neoclassical economics can readily expand to models of imperfect competition that are perfectly capable of generating it (Baumol, 2001). And some cliometricians have made a serious argument that market analysis is not quite as incapable of explaining technological progress as is often believed (e.g., Khan and Sokoloff, 1998).

Drukker’s review of Paul David’s or Nelson and Winter’s work as anti-neoclassical might have emphasized that this work was really orthogonal to much of the work done by early cliometricians. An orthodox neoclassical economist could well respond that if technological progress was an evolutionary or path-dependent process, so what? The conflict really arose in the context of technological lock-in caused by some form of network externality. David’s QWERTY paper has been interpreted as arguing that even in the presence of markets, economies might choose the “wrong” technique (in the sense that another, superior, technique is available). On this he was taken severely to task by Liebowitz and Margolis (1990), a paper not cited by Drukker and one that might have further tempered his judgment that David’s paper provided the dagger that destroyed neoclassical theory as a universal explanation of economic growth. This is not to say that neoclassical theory — whatever precisely is meant by that — has such an explanation, but rather that path-dependence and technological lock-in are in and of themselves not inconsistent with it and surely do not wipe out standard “neoclassical” accounts of economic growth except perhaps by an excessively narrow definition of neoclassical economics. Furthermore, he seems at times to equate “economic growth” with “gaps between rich and poor” assuming implicitly that the basic factors that made Luxembourg richer in 2003 than it had been in 1800 are the same that explain why Luxembourg today is richer than Zimbabwe. But that conclusion seems at least open to question.

Drukker believes the black holes are to be filled (if that is not an oxymoron) by institutional analysis and the understanding of the growth of useful knowledge — conclusions that surely will not be challenged by this reviewer. He is, of course, correct in pointing out that after half a century economic historians are coming back to the study of institutions because there is no other way to explain why Liberia or the Philippines or Paraguay are poorer than Switzerland or South Korea. He is also correct that it was the wisdom of Douglass North that drove this point home to them. In that sense, the snake is biting its own tail, since — as has been pointed out often — North’s recommendation does take economic history full circle back to its nineteenth century institutional origins. Regrettably, he does not mention in detail the pioneering work of economic historians inspired by North in trying to understand institutional change using another tool taken from the economist’s toolbag: formal game and contract theory (e.g. Greif, 1994).

These nitpicks should not detract from a learned, provocative, and yet engaging book that is as much fun to read as the author visibly had in writing it.

References: Baumol, William J. 2002. The Free-Market Innovation Machine: Analyzing the Growth Miracle of Capitalism. Princeton, N.J.: Princeton University Press.

Greif, Avner. 1994. “Cultural Beliefs and the Organization of Society: A Historical and Theoretical Reflection on Collectivist and Individualist Societies,” Journal of Political Economy, Vol. 102, No. 5. (Oct.), pp. 912-950.

Khan, B. Zorina, and Kenneth L. Sokoloff. 1998. “Patent Institutions, Industrial Organization, and Early Technological Change: Britain and the United States, 1790-1850.” In Maxine Berg and Kristin Bruland, eds., Technological Revolutions in Europe, pp. 292-313. Cheltenham, Eng.: Edward Elgar.

Liebowitz S.J. and Margolis, Stephen E. 1990. “The Fable of the Keys.” Journal of Law and Economics, Vol. XXXIII, pp. 1-25.

Mokyr, Joel. 1998. “Editor’s Introduction: The New Economic History and the Industrial Revolution.” In Joel Mokyr, ed., The British Industrial Revolution: An Economic Perspective. Second edition, Boulder: Westview Press, pp. 1-127.

Joel Mokyr is the Robert H. Strotz Professor of Arts and Sciences and Professor of Economics and History at Northwestern University and President Elect of the Economic History Association. His most recent publications are The Gifts of Athena: Historical Origins of the Knowledge Economy (Princeton University Press, 2002) and The Oxford Encyclopedia of Economic History (editor), 5 volumes, 2003. He is currently writing The Enlightened Economy: An Economic History of Britain, 1700-1850 for the New Penguin Economic History of Britain.