Friday, 21 October 2016

Danger to the Old Lady of Threadneedle Street?

Patrick O'Brien  is Professor Emeritus,
London School of Economics

NEW EHES Working paper 

The Bank Restriction Act of 1797 suspended the convertibility of the Bank of
England's notes into gold. The current historical consensus is that the suspension was a result of the state's need to finance the war, France’s remonetization, a loss of confidence in the English country banks, and a run on the Bank of England’s reserves following a landing of French troops in Wales.

In a recent EHES paper (O’Brien and Palma 2016) we argue that while these factors can help us understand the timing of the Restriction period, they cannot explain its success. We deploy new long-term data which leads us to a complementary explanation: the policy succeeded thanks to the reputation of the Bank of England, achieved through a century of prudential collaboration between the Bank and the Treasury. Furthermore, the Restriction Period led to a permanent shift in the role of banknotes in the economy, despite the inauguration of the classical gold standard in 1821.

Nuno Palma is Assistant Professor,
 University of Groningen

This episode has some parallel with the better-known 1914 suspension of the gold standard, but some important differences too. One such difference is the much more moderate effects that resulted. No major financial crisis followed, and inflation eventually increased but remained moderate. In the words of Schumpeter (1987/1954, p. 690-1): “In spite of the suspension … war finance did not produce any great effects upon prices and foreign exchange-rates until about 1800. To the modern student who is inured to stronger stuff, the most striking feature of the subsequent inflation is its mildness … at no time was the government driven to do anything more unorthodox than abnormally heavy borrowing from the Bank, and even this borrowing never surpassed the limits beyond which the term ‘borrowing’ becomes an euphemism for printing government fiat”.

The Bank of England – which was a private company, though it was already beginning to play a public role – had suffered a significant drain in its reserves from the mid-1790s. In 1797 it suspended convertibility of its notes into gold. It also started issuing small denomination notes. Banknotes became increasingly important as a means of payment. As we document in the paper, the economy-wide circulation of all means of exchange except coin (such as inland bills of exchange or banknotes) at the retail and wage-paying levels had remained limited until the 1790s. The data allows us to study the case of Bank of England notes in detail, by comparison with coin supply (Figure 1 below). As the figure suggests, the 1797 suspension marks a discontinuity for Bank of England notes, which increased a great deal in real terms after that date. At the same time, coin supply had been falling since shortly after the beginning of war. It is tempting to interpret this shift in terms of Gresham’s law, but we do not favor that interpretation because the selection of a “bad” means of payment implies asymmetry of information and no seller would have had any difficulty distinguishing Bank of England notes from coin. Instead, Bank of England notes eventually gained a discount (which reached a maximum of about 50%), but this only mattered after about 1808.

Not only did the value of Bank of England notes in circulation increase a great deal, but their denominational distribution changed. While up to the 1790s £10 notes were the lowest note denomination issued by the Bank of England (over £1,000 in 2015 prices), it was only in 1793, at the start of the war against Napoleonic France, that £5 notes were first issued. Denominations of £5 were in turn followed by £2 and £1 banknotes, issued in 1797, coinciding with the Restriction Period. Crucially, also allowing for a margin of contemporaneous inflation, £1 was then just enough to pay a laborer’s weekly wage. The fact that many new issues were of lower denominations implies that just looking at the value of the increase of Bank of England notes underestimates how much more frequent they became at this time. This had important long-term consequences, because it was at this point that for the first time ordinary people, and in particular the lower classes, became accustomed to banknotes as a means of payment.

Figure 1. Coin supply and Bank of England notes, at constant prices of 1700.
Sources: Bank of England (1967), Palma (2016); for the deflator, Broadberry et al (2015).

As the suspension took place, a large number of merchants all over the country signed declarations in which they promised to accept and keep using banknotes. The most prominent of these meetings was that of London; while the Bank of England had a role in arranging this meeting, the fact is that it could not force the merchants to take that decision, which was also publicly announced through publication in The Times. Hence both merchants and regular people accepted the Bank’s notes. Figure 2 shows a contemporary print where John Bull, who represents the English people, accepts the paper pound despite the warnings of French alarmists who warn him that it will be worthless once the French land.

Figure 2. John Bull accepts paper money despite the warnings of French alarmists,
by James Gillray. Published at Hannah Humphrey’s print shop
on St. James Street, London, March 1st, 1797

The argument we make in this paper is that the emergency conditions of the 1790s combined with a long history of prudent behavior as well as close collaboration between the Bank and the Treasury to allow this to be possible. While Bordo and White (1991) focus on the credibility of the public finances of the British State, our focus here is on the credibility of the outstanding liabilities of one particular institution, the Bank of England. We argue that the credible commitment underpinning the success of British public finance consisted of two parts: the government's commitment to sound public finance, and the Bank's commitment to sustaining both public and private credit. In this paper we focus on the latter, and in particular on the matter of how by the late eighteenth century the Bank managed to implement a set of monetary policies that were highly unconventional by the standards of the time, with a good measure of success. 

The Bank of England shifted gears with the Restriction Period, but it would be wrong to assume that after 1821 there was a return to the previous status quo. Figure 3 presents the data of Figure 1 as a ratio, and extends its horizon to the mid-nineteenth century. The figure shows three important facts about this period. First, as we have previously seen, after a long period of stability, there was a spike in Bank of England notes at the time of the Restriction Period. Second, and importantly, when the supply of notes was later reduced, the reversal was only partial: the level did not return that of the 1790s. Third, and crucially, the previously stationary distribution then gained an upward trend – the growth which started in the 1790s continued into the nineteenth century. The regime change to the system caused by the Bank Restriction in the 1790s persisted well into the future, long after that act was repealed. Through a process of path-dependence, it caused a permanent shift to a fiat-based monetary system, which – despite the later imposition of the classical gold standard – allowed for continuous growth of fiat money relative to slower-growing quantities of precious metals well into the nineteenth century.

Figure 3 The ratio of bank of England notes to coin supply, 1696-1844

Which factors interacted with the Bank of England’s initial reputation to make the policy a success? Three reasons stand out. First, the Bank of England’s expansion of banknotes during the restriction was of a much smaller magnitude than had been the case in France a few years before. In 1797, the ratio of Bank of England notes over nominal GDP was just under 23%, and in the next few years issues were never such that the 20% percent mark was crossed again, a target made easier by the economic growth performance of the British economy during those years (Bank of England 1967, Broadberry et al 2015). This strongly contrasts with the case of France during the assignats debacle, where the expansion of fiat was eventually exponential (Sargent and Velde 1995). In contrast with France, the Bank of England’s policies were subject to a series of checks and balances, being closely monitored, as exemplified by the “Bullion report”, and related controversies and debates (see for instance Feavearyear 1931, pp. 190-2). Second, not only did Britain’s already have a comparatively high level of fiscal capacity, being able to credibly borrow, but the policies of the Bank were also at this time accompanied by a series of fiscal reforms. An example was the introduction of an income tax in 1798, which complemented the monetary reforms and allowed for the sustainability of the government’s budget constraint, while ruling out hyperinflation. Finally, the policy was promised (and believed) to be a temporary, wartime measure.

This blog post was written by:
Patrick O'Brien (Professor Emeritus of Global Economic History, Department of Economic History, London School of Economics)

Nuno Palma (Assistant Professor, Department of Economics, Econometrics, and Finance, University of Groningen)

The working paper can be downloaded here:


Bank of England (1967). Bank of England Liabilities and Assets: 1696 to 1966. Quarterly Bulletin, June edition. Available at, Accessed August 13, 2014

Bordo, M., and White, E. (1991). A tale of two currencies: British and French finance during the Napoleonic Wars. The Journal of Economic History 51(02): pp. 303-316

Broadberry, Stephen, Bruce Campbell, Alexander Klein, Mark Overton, and Bas van Leeuwen (2015). British Economic Growth, 1270-1870. Cambridge University Press

Feavearyear, A. (1931). Pound Sterling: A History of English Money. Oxford

Palma, Nuno (2016). Reconstruction of annual money supply over the long run: the case of England, 1279-1870. EHES Working Papers in Economic History No. 94

Sargent, T. and F. Velde (1995). Macroeconomic features of the French Revolution, Journal of Political Economy, 103

Schumpeter, J. A. (1987/1954). History of Economic Analysis. Routledge

Monday, 17 October 2016

You Reap What You Know: Observability of Soil Quality, and Political Fragmentation

Thilo Hunig is  PhD student at
Humboldt University, Berlin

New EHES working paper

Geographic conditions limited medieval rulers in their attempts to extract their peasants’ agricultural product. Soil quality determines agricultural output, and a high spatial variation of the quality makes it hard to observe what peasants could potentially harvest.

If observability is bad, peasants can cheat rulers. Therefore, states with a lower soil observability should have relatively more volatile and lower  income, and in the end have a weaker military. We can show that this mechanism explains parts of the large differences in territories’ areas in the late medieval Holy Roman Empire. Among the over 600 territories we count on a map of the HRE in 1378, we find a robust and significant link between observability of soil quality, and the political fragmentation of an area.

Fabian Wahl is Assistant Professor
at the University of Hohenheim

We digitized a map of 1378 Holy Roman Empire featuring over 700 territories. Roman and Carolingian legacy did not leave a unified German state, and despite technologically determined economics of scale in public goods provision (Alesina and Spolaore, 1997), especially military, these territories persisted with a high degree of sovereignty until the 19th century. This, historically unprecedented political fragmentation is still visible ,e.g. in today’s Germany many different dialect areas, whose borders are still constitute barriers to trade by causing significant border effects (Lamelli et al., 2015). We provide a model why an equilibrium with many small states was stable for centuries, and why variation in soil quality can explain parts of the equilibrium variation in state sizes.

We extend the theoretical model on geography, transparency and institutions outlined by Mayshar et al. (2013).  We make the model empirically testable by proposing a continuous observability measure, and connect observability to state size, assuming that states’ income determines military spending. We hypothesize that states on soils which are more spatially homogenous concerning their soil quality are usually larger, despite the effect of the level of soil suitability. Furthermore, we argue that city states primarily occurred in areas with a high variation in soil quality, as the territorial states were weak in this area, and furthermore, the specialization of cities on trade and proto-industry made their tax revenue independent from agricultural conditions what enabled them to survive.

1378 Holy Roman Empire
This provides evidence for the foundations of state building during the middle ages and hence the origins of modern territorial states. We develop a GIS measure, the soil observability index, which captures this theoretical idea, and find a robust positive relationship between soil observability, and sizes of medieval German territories and between low observability and the existence of city states.

The blog post was written by Thilo Hunig and Fabian Wahl.
The working paper can be downloaded here:

Alesina, A. and Spolaore, E. (1997). On the number and size of nations. Quarterly Journal of Economics, 112(4):1027–1056.
Mayshar, J., Moav, O., and Neeman, Z. (2014). Geography, transparency and institutions. Mimeo.
Lameli, A., Nitsch, V., Südekum, J., and Wolf, N. (2015). Same same but different: Dialects and trade. German Economic Review, 16(3):290–306.

Wednesday, 12 October 2016

Sound for Seniors Workshop, August 23-24 in Gothenburg

Group photo, participants of the workshop

This new series of workshops builds upon the concept of the Sound Economic History Workshop, which is aimed at PhD students and post-docs, primarily from the Scandinavian countries, but instead, it targets researcher who may no longer claim for themselves the label “young”. It held its first event September 23–24, at the Unit for Economic History, Department of Economy and Society, University of Gothenburg. The event was organised by Jacob Weisdorf (SDU), Joacim Waara (Gothenburg), and Svante Prado (Gothenburg), who are also responsible for the initiative and the organisation of future workshops. Scandinavian scholars interested in hosting future workshops are encouraged to contact the organisers.

Keynote by Tommy Bengtsson

The conference accommodated nine speakers and Tommy Bengtsson from Lund University was invited to give a keynote. We also enjoyed the company of a guest from far away, namely Martin Shanahan from the University of South Australia, who happened to be staying at the department at the time of the conference.

The conference started with lunch at the Department of Economy and Society.

The first speaker was Kerstin Enflo, who presented a paper titled, “From conflict to compromise: The importance of mediation in Swedish work stoppages, 1907–1927”, co-authored with Tobias Karlsson. The paper deals with the role of mediation in labour market conflict resolution during first 20 years of state-sponsored intervention. The empirical evidence consisted of a geocoded panel dataset comprised of all reported work stoppages in Sweden from 1903 to 1927. The result suggests that the presence of mediation in a conflict resulted in an approximate 30% higher probability of a compromise outcome. Thus, mediation could have paved the way for a cooperative atmosphere in the local labour market.

The second speaker was Jørgen Modalsli, with the paper, “Multigenerational persistence: Evidence from 146 years of administrative data”. He used Norwegian census data on occupational associations among grandfathers, fathers and children between 1865 and 2011. He found significant grandparental influence throughout the period. In particular, the excess grandparental influence is strong for white-collar occupations. Grandparental effects remained when he restricted the study to grandparents who were not present in their grandchildren’s neighbourhoods, suggesting that mechanisms other than direct grandparent–grandchild interaction are part of the explanation for the observed associations.

The third speaker was Stefan Öberg, who presented a new research project called “Socioeconomic dimensions of diet and health during the 20th century: A longitudinal study”. This was a joint effort with Christer Lundh, Paul Nystedt, Kjell Torén, and Hanna Augustin. The members of the group belong to the fields of economic history, economics, clinical nutrition and environmental and social medicine. The overarching research problem is socioeconomic variations in diet and health. The research task is to examine the social patterns of health-related behaviours, living conditions and diet, as well as their consequences for health later in life. The project will create create a historical cohort, with rich information on health-related behaviours, living conditions and diet at baseline, and it will include a very long follow-up time. The information on socioeconomic background and consumption comes from household budget surveys carried out by the Swedish Social Board between 1913 and 1934 (N≈2,500). The authors will link this household level data to information on longevity and cause of death (and height and weight for men) of the members of the households (N≈10,000).

The fourth speaker was Jacob Weisdorf, who presented a paper named “Unreal wages?
A new empirical foundation for the study of growth and living standards in England, 1260–1860”, co-authored with Jane Humphries. The paper begins by recognising that we know very little about the length of the working year, which makes previous estimates of historical living standards, based on daily wages, very uncertain. The novel part of the paper is to present a new series for unskilled male workers employed by the year. This new series of annual estimates tracks trends in per capita GDP, unlike estimates of wages grossed up from daily rates through an assumption about days worked. By implication, the new annual estimates give us the number of workdays since the year 1260. It turns out that previous studies overestimated the medieval working year, but underestimated the industrial one.
Christer Lundh and Tommy Bengtsson
The final speaker of the first day was Tommy Bengtsson, delivering the keynote, titled “From hunger and disease to modern economic growth”. His presentation traced the rise of a new research field of historical demography, health and living standards, using combined time-series and event-history analyses of longitudinal, nominative, and microlevel data. For him, it started with a growing interest in the issues of health and living standards that were conventionally measured in the 1980s. An important point of departure in Tommy’s presentation was Robert Fogel’s (and Fogel and Costa 1997) description of the evolution of human physiology the last 300 hundred years as “techno-physio evolution”, made possible by advances in technology: “a synergism between technological and physiological improvements that is biological, but not genetic, rapid, culturally transmitted, and not necessarily stable”. In this model, nutritional status is a function of diet, disease and lifestyles, and nutritional status is measured as length of life and height. Improved nutritional status increases output, which in turn increases nutritional status, increasing output, and continuing endlessly. The early trigger of improved nutritional status is improved diet. Poor people, whether in pre-modern Europe or in todays less developed countries, are caught in a nutritional trap, preventing them from improvements in nutritional status and thereby stunting economic growth.

However, historical evidence did not provide unambiguous support for the idea of nutritional traps. Part of the problem, Tommy argues, pertained to the different concepts and measures of standards of living used to investigate the presence of nutritional traps historically: wage and price data, family budgets, mortality rates, heights, food prices and population totals etc. No wonder there is a lack of consensus. The time was ripe to develop a new and different concept of standard of living, designed for longitudinal and microstudies, as well as for comparative purposes. The new concept was borrowed from Amartha Sen’s ideas of functioning and capabilities. In short, demographic responses of individuals and households to short-term economic stress depend on access to resources. Effects of short-term economic stress on migration, nuptiality, fertility, and mortality can therefore be used as in indirect measure of individual living standards. Instead of looking at the relationship between economic conditions and demographic behaviour at the aggregate level, this research approach requires combined time-series and event-history analyses of longitudinal, nominative, microlevel data. These data allow for the finely grained differentiation of mortality, fertility, and other demographic responses by social class, household context, and other dimensions at the individual level a data-demanding framework, indeed.

Tommy formed a Swedish team to collect these data from family reconstitutions, in combination with population registers in a handful of parishes in Southern Sweden (Scania). Then, they collaborated with scholars from Belgium, China, Italy and Japan, in which appropriately detailed historical population register data exist for selected communities. This international collaboration, started in 1994, was coined EurAsia Project on Population and Family History – from macro to micro. Since the early 1990s, several books and many articles have examined the demographic responses mortality, fertility and marriage to social and economic pressures. Some of the conclusions that have emerged from this body of research are that (i) public welfare systems were more developed in the East; (ii) land was more unequally distributed in the West; (iii) households were more complex in the East, and were larger in China; (iv) marriages were planned and dependent on economic factors, both in the East and the West, as was fertility; and (v) living standards and life expectancy were about the same in the West and the East.

But what about the role of diet in the improvements of nutritional status? Was Robert Fogel right in assigning diet as the chief trigger for improvements? Although the jury is still out on that, Tommy seems to have gravitated towards a response in the negative. Mortality has not seemed to vary systematically with income in the past. Only after 1950 has the socioeconomic gradient become visible. This would question whether food intake is as important as what was posited. His recent research, as well as the research of others, places great emphasis on life conditions during very early life stages, because development of organs and cells are fastest during the foetal stage and early in life, and then gradually slows. The disease burden early in life seems to be important, more so than diet.

After the keynote, the participants finished off with a glass of wine at the Department of Economy and Society. Then, everyone walked across the city centre to Fiskekrogen, a restaurant famous for serving gourmet food, in particular fish and shellfish.

Christopher Lloyd

Christopher Lloyd’s presentation sparked off the second day of the conference. The title of his presentation was “From old extractive capitalism to generalised new extractivism: Continuity, transformation, and globalisation in the resource grab settler world”. He begins by recognising that all settler societies were, and many still are, commodity–dependent export economies with peculiar structural connections to the world economy. This is a remarkable fact in the 21st century, especially considering the long history of import-substitution protection of manufacturing that they all employed from the late 19th and early 20th centuries, with varying success. His paper aims to add to the analysis of export dependence the important concepts of generalised neo-Ricardian and imperialist rent. The use of these concepts will help to reveal the totalising social nature of rent extraction in these zones today, especially those without strong states and well-organised labour movements to resist the generalisation of rent extraction.

Klara Arnberg

The second speaker of the second day was Klara Arnberg, with a paper called “Advertising to advertisers: Intersectional perspectives on the development of Swedish market segments, 1880–1939.” Her paper examines the history of the expansion of a market for consumer goods and the history of the expansion of the press in the late 19th and early 20th centuries. When press publishers tried to convince advertisers to put ads in their newspapers and magazines, they not only tried to attract with circulation figures, but they also tried to reach specific consumer groups, as in the above quotation. Her paper follows how these ads framed and formulated different consumer groups in terms of intersections of class and gender in the industrialisation process when the purchasing power of different groups changed rapidly, when new consumer goods were introduced at the market, and when ideas about consumer behaviour were introduced in Swedish advertising. By studying how segments were formulated to the advertisers by the press, she can trace early ideas about consumption, gender and class.

The third speaker was Erik Bengtsson, presenting his paper “The wealth of the richest:
Inequality and the nobility in Sweden, 1750–1900”. This paper, co-authored with Anna Missiaia, Mats Olsson and Patrick Svensson, explores the wealth of the Swedish nobility from agrarian society to industrial society by using a sample of 200+ probate inventories of nobles for each of the benchmark years of 1750, 1800, 1850 and 1900. The paper shows that the nobility 0.5% of the population was very dominant in 1750: the average noble was 60% richer compared to the average person, and the nobles held 29%of private wealth. In addition, 90% of the nobles were richer than was the average person. On the other hand, in 1900, the nobles’ advantage had decreased and the stratification within the nobility had increased dramatically. There was a group of super-rich nobles, often old nobility with lots of land, but there was also a large minority who were not richer compared to the average Swede. This goes against the older interpretation of mediaeval and early modern Sweden, which has tended to downplay the political and economical importance of the Swedish nobility relative to elsewhere in Europe.

The fourth speaker was Sakari Saaritsa, who talked about a research project titled “Socioeconomic capital, physiological capital and human capital: An anthropometric perspective on schooling and social mobility in early 20th century Finland”. The project will exploit school-based statistics on height and weight by age to analyse the linkages between social inequality, physiological development, and evolving mass education in early 20th century Finland. Available aggregate statistics were available on height by age for a sample of thousands of pupils of both sexes by educational track between ages 7 and 20, from the turn of the 1920s and the mid-1930s, enable the incorporation of physiological capital into the analysis. Applying modern Finnish and WHO benchmarks makes it possible to estimate the extent of stunting by group and by sex in the two periods. In addition to measuring differences in height at age of tracking, it is possible to analyse gender differences in the degree of physiological inequality between secondary and non-secondary schooled children. The analysis adds an important dimension to the dynamics of pre-welfare-state inequality.

The fifth, and final, speaker was Cristián Ducoing Ruiz, who presented joint work with Sara Torregrosa Hetland, called “Voting for welfare? Comparative performance in Ibero-American democratisations”. The paper asks whether or not democracy leads to achieving economic and human development. Do dictatorships leave long-run legacies behind? The paper explores the cases of four Ibero-American countries having common histories, but under different contexts: Spain, Portugal, Brazil, and Chile. The two Iberian countries suffered long periods of autocratic regimes, while the South American cases had relatively later and shorter dictatorships. The authors intend to assess the extent to which these democratisations brought about improvements in societal welfare, looking at several indicators. As an indicator combining both of these dimensions, they propose the applicability of the concept of Inequality Extraction Ratio, initially suggested for ancient societies, but adapted by Milanovic (2013b) to the analysis of contemporary economies. The idea is that democratisations might not have been able to achieve reductions in inequality, but could have promoted decreases in the appropriation of economic surplus by the national elites.

Svante Prado, Jacob Weisdorf, Sakari Saaritsa, Chistoffer Collin
The conference ended with lunch at the Department of Economy and Society.
This blog post was written by: Svante Prado, University of Gothenburg

Sunday, 2 October 2016

Remembering Gunnar

By: Cormac Ó Gráda, Dublin

Karl Gunnar Persson
19 March 1943 – 14 September 2016
In last his email to me Gunnar Persson was full of the joys of life, looking forward to his trip to Buriano (where he died suddenly a few days later) and explaining how his sons had discovered a way of getting cheap tickets to the QPR-Fulham game all three planned to attend together in late September.
He also appended the anecdote below, which is told in typical Gunnar style.  I corrected a few typos, that is all.
Missing Gunnar, a proverb in Irish comes to mind: Ní bheidh do leithéid arís ann (You were special, one of a kind).

Barter trade between economic historians and a playwright: 

the Brecht- Kuczynski - Postan triangular trade in the early 1950s

As a research student in the early 1970s at the Department of Economic History, Lund University, I had the opportunity to meet Jürgen Kuczynski, the then director of Abteilung Wirtschaftsgeschichte  at the (East) German Academy of Sciences, when he was visiting Lund, invited by Lennart Jörberg. Kuczynski directed a large team of historians producing about 55 volumes of social and economic history, most of them in the 40 volumes series Geschichte der Lage der Arbeiter unter dem Kapitalismus, and other series from the late 1940s and onwards.  During the Cold War many academics in the West were often slightly and sometimes strongly dismissive of the quality of this research project. I really cannot tell if it was seriously tainted by submission to political orthodoxy or whether Western scholars automatically depreciated it. Perhaps it is time to have a fresh look at these books now, when that war is over.
Jürgen Kuczynski
Jürgen Kuczynski was a German communist and Jew, educated in Germany and the US, who fled Hitler in 1936 to England and returned to Germany with the allied forces and worked for them in 1944/45, then a short time as a civil servant in the Soviet zone of Germany. He was a parliamentarian in DDR until the mid 1950s, but published his first books on German working class conditions a couple of years after the war. After his retirement he became a tolerated dissident.
He was a larger than life personality and a good story teller. I remember more stories than the one I am going to tell now. However, I cannot guarantee that all the details in what follows are true. Perhaps it is just a play imagined but never written by Bertold Brecht.  This is what I remember Jürgen Kuczynski told me at that dinner in Lund many years ago. The story refers to a problem with barter trade which occurs when there is lack of convertible currency, pair-wise non-coincidence of wants and restrictions to trade. And amazingly pulp fiction (crime novels), enters as a means of exchange.

The plot and leading actors:
Bertold Brecht
Bertold Brecht, playwright and director of Berliner Ensemble with a keen desire for pulp fiction, say, Mickey Spillane, unavailable in east Berlin bookshops. However, as a cultural protégée in the new DDR regime Brecht had access to luxuries denied to ordinary east Germans, such as cigars. Being the creator of among other plays Mutter Courage and the Three Penny Opera (with Kurt Weil) did not make him a monetary theorist, but he certainly understood the mechanism of barter exchange and how to handle a situation when there was no access to convertible currency.
M. M. Postan economic historian at Cambridge who would like to see what the first volumes of the Lage der Arbeiter looked like and if they could be useful for the volumes of the Cambridge Economic History of Europe he was editing.
Jürgen Kuczynski, who had published the first couple of volumes in the long series of books on working class conditions and lacked access to foreign luxuries, such as cigars, that he was used to.
 The unfolding of the plot: triangular barter trade
1. Kuczynski offered a number of copies of his most recent book to Postan and asked him to pay back in a means of exchange as good as gold: pulp fiction.
2. Postan replied with a selection of pulp fiction, say Mickey Spillane, sent to Kuczynski.
3. Kuczynski exchanged the pulp fiction with Bertold Brecht, who paid Kuczynski in kind with cigars.
Happy End: Pareto optimal trade? Possibly.

Wednesday, 28 September 2016

A great scholar and friend has passed away

By: Paul Sharp

I always used to joke that I wanted to be like Gunnar when I grew up. What did I mean by that? Certainly I could never hope to be half the scholar he was. No, what I admired most about Gunnar, and the most important thing which my former supervisor and dear friend taught me, was the importance of enjoying life, and work as an integral part of that. His enthusiasm for the latter is reflected by his achievements throughout his career. He had great importance for the internationalization of the Department of Economics at Copenhagen University; for economic history in Denmark and the rest of Europe; for the teaching of economic history, in particular through his textbook on the Economic History of Europe; and last but by no means least he has of course also contributed much in terms of his research. There will be plenty of time to dwell on this in more formal obituaries. The Gunnar I want to remember here was so much more than that. He was truly someone who enjoyed life way beyond academia: he loved the outdoors, sailing, music, art, food and drink, to name just a few examples. Moreover, he was a truly happy and generous man, and someone I always looked up to.

Gunnar on the train on the way back to Copenhagen from Odense and the 2014 Growth Workshop at the University of Southern Denmark. He managed to sit next to two young Russian ladies on their way to a dancing competition, and seemed to enjoy the attention they gave him! 

Thus, his love of life and work intertwined. A few years ago, I interviewed Gunnar for the newsletterof the Cliometric Society. His sense of humour shines out through many of his replies. For example when asked about whether his political beliefs influenced his work, he began his reply by saying “Well I suppose I am more Rosé than Red these days, but I drink both”! He also described how his convictions as what he called a “card-carrying anti-Malthusian” was in part determined by his love of culture, and how the gothic cathedrals he had seen while travelling in his youth had led him to believe that “…the pre-industrial economies of Europe could not possibly be the sort of bare bones subsistence economies Malthusians say they were”.

Although I had also known him as an undergraduate, I think I first became very close to Gunnar while we were both visiting the European University Institute in Florence back in 2007. I was still his PhD student, but he, among other things, found time to enjoy many wonderful dinners with me. I was particularly impressed by his practice of always choosing the cheapest wine, claiming ex ante that it was actually very good, but then “discovering” ex post that it was not so good, with the implication that we would have to order another bottle, but only after the first one had been emptied, thus meaning that we always drank at least a bottle each! This was also when we planned the first edition of the textbook together, sitting outside his beautiful house in Buriano.

We have many unfinished projects together. Indeed, he was very active until the end, and had recently asked me to read through a new chapter he had written for a possible third edition of the textbook. Sadly, we never finished updating a paper we wrote on Tuscan red wines, which remains in working paper limbo. He asked me to work on this during my PhD, I think mostly as an excuse for him to go to a conference on wine economics (which seemed to involve relatively few sessions, and relatively many river cruises and wine tastings). I have frequently teased him about this in recent years, which resulted recently in the promise of a trip to Tuscany with him for the arduous task of visiting various vineyards in order to collect the data on wine prices we needed to finish the paper.

Gunnar and I proudly present the second edition of the textbook to the world in 2015

This was, however, not to be. I met him last on September 8, less than a week before his untimely death in his beloved Italy. We had attended a seminar at the Department of Economics, Copenhagen University, and, as we often did, we went to one of the many bars in Copenhagen with a wide selection of the craft beers he so loved. We didn’t go to our usual: it was the sort of evening which makes Copenhagen seem like paradise, and we sat outside at a different bar next to one of the lakes with a good APA and some salt and vinegar crisps. We weren’t sure where to go for dinner, but I checked my phone and found we were very close to a little French restaurant which had good reviews. There, we first enjoyed a glass of rosé outside, and then went inside for a very good meal, after which we went somewhere else to meet up with some others from his department and mine and the seminar guest. He didn’t enjoy the beer and the smoke at that bar, and anyway it was too late, so he soon left. That evening we had talked a lot about how I was finding it difficult to return to work after a long period of absence due to my daughter being ill, and I apologized for not having made more progress on our many unfinished projects together. He wrote to me the same evening saying

Paul, It was really nice seeing you back on the turf again.
Do not over-extend your commitments.  Well, except when it comes to a beer now and then, of course!

It was his typical mix of fatherly and professional advice which meant so much to me. I replied a couple of days later, on September 10:

Yes, thanks for a really enjoyable evening. I will always find time for beer with you!

Those were our last words together. How I will miss him. Goodbye Gunnar.

Friday, 23 September 2016

Gunnar Persson: a personal memoir

Karl Gunnar Persson was professor in  Economic
History at University of Copenhagen and one of
the founders of EHES
Written by: Giovanni Federico

Gunnar Persson was tall, big, a little overweight, and a very, very nice man. He loved reading, classical music, cycling, football, eating and drinking good wine, and was a very good cook. He loved his small apartment in Buriano, a village in the hills near Grosseto in southern Tuscany, with a small garden where we have sat many times after good lunches talking and gossiping about economic history and economic historians.  In short, he enjoyed life.

But Gunnar also enjoyed economic history. He was an active and very successful cultural entrepreneur and a great scholar, with a far-sighted intellectual agenda which he pursued throughout his scientific career. His first major work was his book on Pre-industrial Economic Growth (Persson 1989). As the title makes it clear, he did not accept the view of a stagnant and thus an intellectually unexciting pre-industrial world. To be sure, he knew that technical progress before the industrial revolution was slow and erratic, and that income grew very slowly if not at all. Yet, growth could be brought by trade and market integration. Some years later, in his  textbook on economic history of Europe (Persson 2013) he described the struggle between the forces of integration and the forces of disruption (mostly political events such as wars) as the key feature of pre-industrial Europe.   Early modern economic history was not so popular in those times among cliometricians (or ‘new economic historians’ as they were still called) but it has attracted a lot of attention since then. Greg Clark’s Malthusian monography (2007), which Persson criticized in a debate in European Review of Economic History (Persson 2008) was a commercial hit.  Within the last year, the discussion has seen renewed efforts at estimating GDP per capita before 1800 (Fouquet and Broadberry 2015). Although all these estimates cannot be as accurate as modern ones, they do show fluctuations within and across countries which confirm that pre-industrial Europe was not frozen in an immutable Malthusian world.

The interest in pre-modern economic growth related to the second major issue in Gunnar’s research agenda, market integration. His supervisor at Lund University, Lennart Jörberg, had written a pioneering book on the integration of the Swedish domestic market in the 18th and 19th centuries (Jörberg 1972) which, however, had made less impact than it deserved. In the early 1990s, the issue was put on the spotlight again by the joint efforts by Williamson, who focused on transatlantic integration, and Gunnar, who pioneered the research on domestic integration. He organized a seminar in Lerici (a wonderful place, as always with him) in 1994,  a session at the ill-fated Seville/Madrid world conference, and published widely on the issue.

He was the first, in a paper on France (Ejrnæs. and Persson 2000), to apply Threshold Autoregression, which for a while seemed THE method to measure integration (Federico 2012). He published several articles on transatlantic integration, exploring other methods of measurement (Ejrnæs, Persson, Rich 2008, Ejrnæs and Persson 2010) but also cautioning against too hasty inferences from data (Persson 2004). Above all he blended his two major research interest, on pre-modern Europe and market integration in a major book, Grain Markets in Europe 1500-1900 (Persson 1999). There he argued convincingly, with a nice combination of measurement, economic analysis and sifting of contemporary sources, that the ‘modern’ market integration substituted the ‘traditional’ market intervention and regulation as a way to dampen welfare-reducing price fluctuations.

Thus, pursuing a coherent scientific agenda,  he anticipated and shaped scholarly debate on two issues, early modern European economic history and market integration, which are now among the hottest topic in analytical economic history but were by then rather neglected by cliometricians  But he did two other major services to the profession.

First, he spotted a big gap in the literature, the lack of a good textbook on the  economic history of Europe.  He took a bold approach: he wrote a concise book suitable to teach economists who needed the big picture in their jargon without too many details (Persson 2013) .  The book was a hit and it is now in its second edition, which has softened somewhat its original uncompromising stance.

 The second contribution was its role in the birth and early years of the European Historical Economics Society. Gunnar himself has written a detailed account of the process (EHES) which however downplays his role.  Without his drive, and his successful fund-raising, the first congress of the EHES would not have been held, and it is likely that the initiative would have withered. Likewise, a few years later he was instrumental in kick-starting the European Review of Economic History. He served with Vera Zamagni and Tim Hatton as its first editors and, in spite of the scarce number of early submissions, they succeeded in setting a high quality standard, which has propelled the Review to the current rank as one of the top world journals in the field.  This success seemed unthinkable at the beginning. Many prominent scholars were doubtful about the chances of cliometrics in continental Europe, where ‘traditional’ economic  history still prevailed in terms of numbers of practitioners and  university legislation worked against new intellectual movements. Yet, they were proved wrong. Analytical economic history is thriving in Europe, within the limit of budget constraints which are hitting universities in many countries, and Gunnar was instrumental  in achieving all this.

Gunnar retired from teaching in 2013 and the event was marked by a small but very interesting conference in Copenhagen, which ended with a presentation by him about the transformation of the Department  of Economics in Copenhagen from a ‘traditional’ teaching department focused on Danish economics in an international theory-oriented one (alas, with little room for economic history).  But he did not retire from the profession.  The last time we met, he told me that he had just completed and submitted two papers; one on the demography of Buriano with Mette Ejrnæs, and another on measuring pre-industrial economic growth from changes in occupational structure with Christian Groth.  It is a pity that he did not have the opportunity to see them published. But it much more of a pity that he is no longer with us, with his booming laughter, his wise advice and his sharp mind.
This blog post was written by Giovanni Federico,
professor of Economic History, University of Pisa

Clark Gregory (2007) A farewell to alms. A brief economic history of the world.Princeton:Princeton University Press
Ejrnæs, Mette and Karl Gunnar Persson (2000), “Market integration and transport costs in France 1825-1903: a threshold error correction approach to the Law of One Price.” Explorations in economic history, 37, pp. 149-173.
Ejrnæs Mette, Karl Gunnar Persson and Søren Rich (2008) ‘Feeding the British: convergence and market efficiency in the nineteenth century grain trade’ Economic History Review 61  S1 pp.140-171
Federico Giovanni (2012) ‘How much do we know about market integration in Europe?’, Economic history review, 65,  pp. 470-497
Fouquet Roger and Stephen Broadberry (2015)  ‘Seven centuries of European economic growth and decline’ Journal of economic perspectives 29, pp.227-244
Jorberg Lennart (1972) A history of prices in Sweden 1732-1914, Lund:CWK Gleerup
Persson Karl Gunnar (1988) Pre-industrial economic growth: social organization and technical progress in Europe Oxford: Blackwell
Persson Karl Gunnar (1999) Grain markets in Europe 1500-1900 Cambridge: Cambridge University Press
Persson Karl Gunnar (2004) ‘Mind the gap! Transport costs and price convergence in the nineteenth century Atlantic economy’ European Review of Economic History 8  pp.125-147
Persson Karl Gunnar (2008) ‘The Malthus delusion’ European Review of Economic history, 12 pp. 165-17
Persson Karl Gunnar (2013) An economic history of Europe Cambridge: Cambridge University Press; second edition (with Paul Sharp) 2015

Saturday, 17 September 2016

Karl Gunnar Persson has passed away

Professor Karl Gunnar Persson
This morning I was reached by the sad news that professor Karl Gunnar Persson has left us. He was one of the founders of the European Historical Economics Society, its first president and the first editor of the European Review of Economic History.

More importantly Karl Gunnar Persson was one of the warmest and kindest professors I have ever met. He combined friendliness with intelligence and humour. He was always helpful to his younger colleagues and inspired us by showing his passion for economic history. His work on economic history included various aspects of market integration, trade and long-run growth. In his latest work he suggested a new approach to analyse income growth in pre-industrial Britain by changes in occupational structure. 

Karl Gunnar recently updated his leading text book on the Economic History of Europe 600 to the present. The analysis was sharp and elegant, as in all of Karl Gunnar's work.

Karl Gunnar Persson (right) at the EHES conference in Pisa 2015.
I was in contact with Karl Gunnar just some week ago when I asked him whether he would like to write something about the 100th working paper being published in the EHES working paper series. As usual, Karl Gunnar was quick to respond and had produced a witty and intelligent text in no time at all. Read his blog post here.

I am certain that Karl Gunnar will be greatly missed by the members of European Historical Economics Society, by his colleagues and by his many friends. Speaking for myself, I know I certainly will. 

This blog post was written by Kerstin Enflo.

Tuesday, 30 August 2016

It is endogeneity, stupid!

Karl-Gunnar Persson is
professor in Economic
history at University of
Realizing that  the working paper series of the European Historical Economics Society is approaching its 100th publication  makes  me remember a fringe meeting at the International Economic History Association congress in Milan 1994. 

A fairly small group, just about a significant fraction of 100, associated with the EHES met to discuss the possibility of launching a new journal devoted to European economic history. The group was evenly split in pessimists and optimists, those who argued that time was not ripe to fill a journal with good articles and those who believed that the creation of a new journal would attract young researchers to the subject and eventually fill the pages with good stuff. In the end the optimists prevailed,  that is those who implicitly argued that there is a lot of endogeneity out there. The journal is now in its 20th year of publishing and has established  a good reputation.  (The formative years of our society and the European Review of Economic History  is told here ).

I was not involved in the launching of the working paper series, but I believe  there was some discussion whether  it was a viable  venture, that is, whether time was ripe or not.  And even the optimists, I suppose, would be surprised by the instant success. With a society holding a congress every second year and with members actively organizing workshops, with so many research student being attracted to economic history during the last 10 to 15 years  the preconditions, propelled by endogeneity,  were present  or were made  present. With a twist of a famous quote (probably wrongly attributed to the historian  Arnold Toynbee) the history of the EHES is just one damned good thing after another. 

This blog post was written by Karl Gunnar Persson, professor in Economic History at University of Copenhagen.
The first hundered EHES working papers are found on this link:

Friday, 26 August 2016

The revealed comparative advantages of late-Victorian Britain

This blog post was written by
Brian Varian, PhD candidate at LSE
It has been argued that the manufacturing comparative advantages of late-Victorian Britain rested in the relatively labour-intensive industries. However, one problem with this argument is that Britain’s manufacturing comparative advantages have never been properly and systematically measured for any period prior to the twentieth century.

It is generally conceded that late-Victorian Britain realized a comparative advantage in the ‘staple industries’ of textiles and iron (Harley 2014). However, Britain’s manufacturing sector extended well beyond the traditional staple industries. In which other manufacturing industries did late-Victorian Britain possess a comparative advantage? In a recent EHES working paper, I answer this question by calculating indicators of revealed comparative advantage (RCA) for 17 British manufacturing industries for the years 1880, 1890, and 1900. Using these RCA indicators, I then proceed to argue that, in contrast to previous literature (Crafts and Thomas 1986), Britain’s manufacturing comparative advantages were in the relatively labour non-intensive industries.

My working paper offers the first systematic, sector-wide measurements of the manufacturing comparative advantages (disadvantages) of late-Victorian Britain. Such measurements exist for a later period; Crafts (1989) calculated RCA indicators for British manufacturing industries for the years 1899, 1913, 1929, 1937, and 1950. However, I argue that his RCA indicators for 1899 are misleading, largely on account of how Crafts segments the manufacturing sector into individual industries. One particular concern is how 46 per cent of Britain’s manufactured exports in 1899 are reduced to just a single industry—textiles. In my working paper, I treat the four textile industries of cottons, linens, silks, and woollens separately, and I find very substantial variation among these industries, with respect to both comparative advantage and factor intensity. This variation is obscured when there is a single industry for textiles.

Like Crafts, I calculate indicators of revealed comparative advantage (RCA) following the method advanced by Balassa (1965). The RCA indictor is simply the country share of per-industry world exports, normalized for the country share of total world exports. An indicator greater than 1 implies a comparative advantage, an indicator less than 1 a comparative disadvantage. The RCA indicators, for just the year 1890, are presented in the figure below.

British manufacturing comparativ advantages 1890 (click to  enlarge)

Among the manufacturing industries of late-Victorian Britain, cotton manufactures held pride of place, as expected. Yet, Britain was at a distinct comparative disadvantage in the industries of leather and manufactures thereof; glass; silk manufactures; and clocks and watches. Were these comparative-disadvantage industries similar with respect to their factor intensities? 

I identify the factor determinants of Britain’s manufacturing comparative advantages using a four-factor Heckscher-Ohlin model, the four factors being capital, (unskilled) labour, material, and human capital. Proxies for the factor intensities of the industries were obtained from British government publications, chiefly the first Census of production (1907)—the backward imposition of Edwardian factor intensities is perhaps more forgivable in the context of a mature economy with rather slow growth in the stocks of manufacturing capital and labour (Matthews et al. 1982). Care is exercised in obtaining consistent industry definitions between the RCA indicators and the factor proxies. 

I find that Britain’s manufacturing comparative advantages were positively associated with capital intensity and negatively associated with labour intensity. The comparative advantages were neutral with respect to material and human capital intensity.

The labour non-intensity of Britain’s manufacturing comparative advantages is my most surprising finding. Crafts and Thomas asserted that, in the year 1880, Britain’s manufacturing ‘comparative advantages’ were in the relatively labour-intensive industries. However, their analysis relies on non-normalized gross exports as a proxy for comparative advantage, whereas my analysis relies on a theoretically-founded measure of comparative advantage.

RCA indicators and factor intensity proxies (click to enlarge)

The factor determinants of Britain’s manufacturing comparative advantages are well-illustrated by a comparison of two textile industries: cotton manufactures and silk manufactures. The table above reports the RCA indicators and factor-proxy values for both of these industries, as well as the average factor-proxy values across all 17 industries. In the relatively capital-intensive, labour non-intensive industry of cotton manufactures, Britain had a comparative advantage. But in the relatively labour-intensive, capital non-intensive industry of silk manufactures, Britain was at a comparative disadvantage.

The labour non-intensity of Britain’s manufacturing comparative advantages departs from the archetype of labour-utilizing British manufacturing and labour-economizing American manufacturing in the nineteenth century (Habakkuk 1962). By the closing decades of the nineteenth century, a labour-economizing regime had taken hold in the British manufacturing sector. In this respect, the British and American manufacturing sectors appear more similar than different. Overall, my finding is consistent with the Anglo-American real-wage convergence of the late nineteenth century (Williamson 1995).

Given Britain’s relative scarcity of natural resource endowments, the material neutrality of the manufacturing comparative advantages might seem surprising. Yet, as I argue in the working paper, this constraint upon the British manufacturing sector was mitigated by high levels of economic integration in the resource-rich British Empire (Mitchener and Weidenmier 2008; Jacks et al. 2010) and a free-trade policy that extended to imported material inputs. Moreover, energy was an important material input in many industries, and Britain was favourably endowed with coal. 

In conclusion, a pattern emerges among the (hitherto unmeasured) manufacturing comparative advantages of late-Victorian Britain: they were labour non-intensive. Moreover, this finding remains robust after controlling for human capital intensity. If the British manufacturing sector now more closely resembles the American manufacturing sector, how does it compare to the Continental manufacturing sector? Further research ought to pursue this comparison. 

The working paper can be downloaded here:

Balassa, B., ‘Trade liberalisation and “revealed” comparative advantage’, Manchester School, 33 (1965), pp. 99-123.
Crafts, N. F. R., ‘Revealed comparative advantage in manufacturing, 1899-1950’, Journal of European Economic History, 18 (1989), pp. 127-37.
Crafts, N. F. R. and Thomas, M., ‘Comparative advantage in UK manufacturing trade, 1910-35’, Economic Journal, 96 (1986), pp. 629-45.
Habakkuk, H. J., American and British technology in the nineteenth century (Cambridge, 1962).
Harley, K., ‘The legacy of the early start’, R. Floud, J. Humphries, and P. Johnson, eds., The Cambridge economic history of modern Britain, II, 1870 to the present (Cambridge, 2014), pp. 1-25.
Jacks, D. S., Meissner, C. M. and Novy, D., ‘Trade costs in the first wave of globalization’, Explorations in Economic History, 47 (2010), pp. 127-41.
Matthews, R. C. O., Feinstein, C. H. and Odling-Smee, J. C., British economic growth, 1856-1973 (Oxford, 1982).
Mitchener, K. J. and Weidenmier, M., ‘Trade and empire’, Economic Journal, 118 (2008), pp. 1805-34.
Williamson, J. G., ‘The evolution of global labor markets since 1830: background evidence and hypotheses’, Explorations in Economic History, 32 (1995), pp. 141-96.