Ronald Coase passed away this week at the age of 102. Three other greats have passed this year, Armen Alchian (98), James Buchanan (93), and Robert Fogel (86). They were also four of my favorite economists. Two were Nobel Prize winners, two started their careers as socialists and two were primarily knowns as empirical economists. None were particularly known for advanced mathematics.
Coase was best known for the so-called “Coase Theorem” (warning:pdf) and founding the journal Law and Economics. I haven’t read much of Coase directly (apparently the “Coase Theorem” paper is hard to follow), but the exposition in both David Friedman’s and Steven Landsburg’s Price Theory textbooks give very clear and insightful presentations of the ideas.
Alchian was probably my favorite of the bunch. He wrote on The Firm, property rights and many other subjects. He looked at things from a hundred different angles. That type of thinking went into the problems section of his textbook. Many of the questions are open ended and very challenging. My favorite paper of his is “Private Property and the Relative Cost of Tenure“. He points out that the reasons often given for tenure don’t really make sense, but looking at it through the lens of property rights brings it into focus. It ends with several ideas for testing his hypothesis.
Alchian was mentioned in the book The Prisoners Dilemma. As an economist at Rand, he was selected to participate in a repeated prisoner’s dilemma experiment. As he made his moves he made notes about what he thought the other player was up to, what he thinks that he is doing, and how he should proceed. The result strikes me as funny.
I haven’t read much Buchanan, but his quotes are frequently featured by Don Boudreaux at Cafe Hayek. He was the most philosophically focused of the four, and the most prolific. Reading Buchanan set me to looking at issues of voting and public choice.
Robert Fogel was one of the founders of Cliometrics, the quantitative study of history. His book Without Consent or Contract changed the way I thought about the Civil War. I’m still not certain that it was a good thing that the war happened, but I’m not certain that it was the worst outcome. The entire book is well written history, and the quantitative emphasis really gives perspective that a lot of history writing lacks. His book Railroads and American Economic Growth showed that the common view that railways were essential to growth in the U.S. was not correct, and in fact the upper bound for growth lost was only around 5%. He may not have been correct (pdf) but reading his book you realize how much history that you’ve missed.
His latest book was The Escape from Hunger and Premature Death, 1700-2100: Europe, America, and the Third World. It shows how the length of life in first world countries has increased substantially since about 1900. The change in life expectancy really is remarkable, as shown here, for example. I guess it’s too much to ask that these four might have lived a few years more.
There’s a good article on slate discussing the low cost of helping the poorest people.
Cheaply preventing infectious diseases was a major catalyst of the growth in America in the early twentieth century. The eradication of hookworm was a result of private charity (the Rockefeller Foundation financed much of the early efforts), government research (C.W. Stiles was instrumental), and yellow journalism (inaccurate and sensationalistic articles in newspapers brought awareness to the issue). I learned of this from the Teaching Company lecture listed here.
“The best books… are those that tell you what you know already.”
― George Orwell, 1984
Orwell knew about confirmation bias. That’s why it’s important to follow the golden rule, as stated by Darwin
“I had also, during many years, followed a golden rule, namely that whenever published fact, a new observation of thought came across me, which was opposed to my general results, to make a memorandum of it without fail and at once; for I had found by experience that such facts and thoughts were far more apt to escape from the memory than favourable ones.”
Lenina shook her head. “Somehow,” she mused, “I hadn’t been feeling very keen on promiscuity lately. There are times when one doesn’t. Haven’t you found that too, Fanny?”
Fanny nodded her sympathy and understanding. “But one’s got to make the effort,” she said, sententiously, “one’s got to play the game. After all, every one belongs to every one else.”
“Yes, every one belongs to every one else,” Lenina repeated slowly and, sighing, was silent for a moment; then, taking Fanny’s hand, gave it a little squeeze. “You’re quite right, Fanny. As usual. I’ll make the effort.”
Brave New World, Aldous Huxley
Very good book by John Mann tracing the history of pharmaceuticals from pre-history to now, in all their various uses. I learned that Pope Leo XIII approved of cocaine usage, the potion that Juliet took was likely based on curare, and that most people that discovered these drugs are far more adventurous with their bodies than I would ever be. An economics puzzle: Why is the latest edition 50 times as expensive as the next most recent edition?
Trade, technology, cheaper transportation, protestant work ethic, education, colonialism, geography, or division of labor. That isn’t quite true, these things can, and do, contribute to growth. But the facts indicate that none of them can explain the levels of growth that have taken place in the modern world since growth started. At least this is the claim made by Deirdre McCloskey in her survey article in The Economic History of Britain since 1700, and her newest book, Bourgeois Dignity: Why Economics Can’t Explain the Modern World
For the first 49750 years or so, humankind had lived at subsistence levels. This translates into roughly 3 dollars a day. There were usually a few kings, pharaohs, and emperors who were richer than this, but for the most part people would live lives that were nasty, brutish and short. In Europe there was a measurable growth in the 9th and 10th centuries, that accompanied the use of horses to pull plows, but it wasn’t sustained. Then, around 250 years ago, something happened. It started in the Belgium, and then moved to Britain, where the growth between 1780 and 1860 was a full 100% moving toward 1100% around 1990.
All of the above reasons for growth have been given at some point or other. McCloskey knocks them down one by one. In order to dis-confirm some supposed reasons for growth Harberger’s Law is invoked. Harberger’s Law states that if one calculates the gain amounting to some fraction from a sector that amounts to again a fraction of the national economy one is in effect multiplying a fraction by a fraction. Suppose X per cent of gain comes from a sector with Y per cent of the national income. the resulting fraction, X times Y, is the gain from that section. And when this is calculated for any particular sector of the economy it is small compared to the growth of 1100% from 1780 to the present, or even the 100% from 1780 to 1860. For example, the calculation from foreign trade explains produces about 13% of the 100% . Advances in cotton might get another 7%, transportation improvements 2 or 3 %.
What about science? Well, no, since science generally lagged technology. The steam engine was the impetus to studying thermodynamics, electricity wasn’t used commercially until the very late 19th century, chemistry made no contribution to the making of steel until the 20th century, the computer until the middle of the 20th. What about technology? The pace of invention from at least the 15th century through 1750 was at least at the same pace as it was at 1750. Watt had his steam engine ready to go in 1775, but if the Harberger’s rule is applied to the part of the economy affected by the steam engine, the result is minimal.
Some of the explanations are probably necessary conditions, but not sufficient for sustained growth, literacy and education, large enough population densities for specialization, and access to raw materials being particularly important. But these combinations had been present in other cultures in the past, and the growth never happened. McCloskey’s thesis is that merchants, innovators and business people came to be, for the first time in human history, not only tolerated but respected. And very importantly, the way that people spoke about market activity and about the bourgeoisie reflected this change. To me, it is very convincing, but I recognize there are other possible sociological and psychological ways to explain what has happened in the last 250 years or so. But the usual reasons given for growth are, I think, conclusively proven wrong.
This is a great example of how speculation creates value. Imagine how much value is created by Wall St speculators!
The paragraph has only been around since about 1795, and the generally accepted rules for paragraphs have only been around since about 1865. That’s when Alexander Bain came up with six rules for building paragraphs. For example, each paragraph should have a topic sentence that summarizes the main idea of the paragraph. Bain’s six rules were whittled down to three by successive generations of grammarians, but the general form remained.
But it turns out that the rules were wrong. More recently academics have analyzed writing samples and it turns out that, for example, only 10% of the paragraphs have topic sentences, and that is using a generous definition of topic sentence. Most good writing doesn’t follow the Bain rules. This might have been obvious if teachers had checked, yet these rules were believed for over 100 years.