Opponents of gay marriage might have trouble explaining this one, at least in the free world.
Too many shadows whispering voices. Faces on posters too many choices. If when why what how much have you got…
Opponents of gay marriage might have trouble explaining this one, at least in the free world.
Too many shadows whispering voices. Faces on posters too many choices. If when why what how much have you got…
My full review of Joel Mokyr’s A Culture of Growth is forthcoming in the Independent Review. Unfortunately, it won’t be out until the Winter 2017 issue is released so here is a preview. Specifically, I want to discuss one of the main themes of the book and my review: the role of political decentralization in the onset of economic growth in western Europe.
This argument goes back to Montesquieu and David Hume. It is discussed in detail in my paper “Unified China; Divided Europe’’ (forthcoming in the International Economic Review and available here). But though many writers have argued that fragmentation was key to Europe’s eventual rise, these arguments are often underspecified, fail to explain the relevant mechanisms, or do not discuss counter-examples. Mokyr, however, has an original take on the argument which is worth emphasizing and considering in detail.
Mokyr focuses on how the competitive nature of the European state system provided dynamic incentives for economic growth and development. This argument is different from the classic one, according to which political competition led to fiscal competition, lower taxes, and better protection of property rights (see here). That argument rests on a faulty analogy between competition in the marketplace and competition between states. The main problem it encounters is that while firms can only attract customers by offering lower prices (lower taxes) or better products (better public goods), states can compete with violence. Far from being competitive, low tax states like the Polish-Lithuanian commonwealth were crushed in the high-pressure competitive environment that characterized early modern Europe. The notion that competition produced low taxes is also falsified by the well-established finding that taxes were much higher in early modern Europe than elsewhere in the world.
It is also not the case that political fragmentation is always and everywhere good for economic development. India was fragmented for much of its history. Medieval Ireland was fragmented into countless chiefdom prior to the English conquest. Perhaps we can distinguish between low-intensity but fragmented state systems which tended not to generate competitive pressure such as medieval Ireland or South-East Asia and high-intensity fragmented state systems such as early modern Europe or warring states China. But even then it is not clear that a highly competitive and fragmented state system will be good for growth. In general, political fragmentation raised barriers to trade and impeded market integration. Moreover a competitive state system means more conflict or more resources spent deterring conflict. For this reason political fragmentation tends to result in wasteful military spending. It can be easily shown, for instance, that a much higher proportion of the population spent their lives in the economically wasteful activity of soldiering in fragmented medieval and early modern Europe than did in either the Roman empire or imperial China (see Ko, Koyama, Sng, 2018).
What then is Mokyr’s basis for claiming that political fragmentation was crucial for the onset of modern growth? Essentially, for Mokyr the upside of Europe’s political divisions was dynamic. It was the conjunction of political fragmentation with a thriving trans-European intellectual culture that was crucial for the eventual transition to modern growth. The political divisions of Europe meant that innovative and heretical thinkers had an avenue of escape from oppressive political authorities. This escape valve prevented the ideas and innovations of the Renaissance and Reformation from being crushed after the Counter-Reformation became ascendant in southern Europe after 1600. Giordano Bruno was burned in Rome. But in general heretical and subversive thinkers could escape the Inquisition by judiciously moving across borders.
Political fragmentation enabled thinkers from Descartes and Bayle to Voltaire and Rousseau to flee France. It also allowed Hobbes to escape to Paris during the English Civil War and Locke to wait out the anger of Charles II in the Netherlands. Also important was the fact that the political divisions of Europe also meant that no writer or scientist was dependent on the favor of a single, all powerful monarch. A host of different patrons were available and willing to compete to attract the best talents. Christina of Sweden sponsored Descartes. Charles II hired Hobbes as a mathematics teacher for a while. Leibniz was the adornment of the House of Hanover.
The other important point that Mokyr’s stresses is Europe’s cultural unity and interconnectedness. As I conclude in my review, Mokyr’s argument is that
“the cultural unity of Europe meant that the inventors, innovators, and tinkers in England and the Dutch Republic could build on the advances of the European-wide Scientific Revolution. Europe’s interconnectivity due to the Republic of Letters helped to give rise to a continent-wide Enlightenment Culture. In the British Isles, this met a response from apprentice trained and skilled craftsmen able to tinker with and improve existing technologies. In contrast, political fragmentation in the medieval Middle East or pre-modern India does not seem to have promoted innovation, whereas the political unity of Qing China produced an elite culture that was conservative and that stifled free thinking”.
It is this greater network connectivity that needs particular emphasize and should be the focus of future research into the intellectual origins of growth in western Europe. At present we can only speculate on its origins. The printing press certainly deserves mention as it was the key innovation that helped the diffusion of ideas. Mokyr also points to the postal system as a crucial institutional development that enabled rapid communication across political boundaries. Other factors include the development of a nascent European identity and what Chris Wickham calls, in his recent book on medieval Europe, “the late medieval public sphere” (Wickham, 2016). These developments were important but understudied complements to the fragmented nature of the European state system so frequently highlighted in the literature.
Lately I have been thinking about how minorities affect the Democratic Party here in the US. Basically, all minorities vote for the Democrats in national elections, but minorities tend to be conservative culturally. This has the effect of pulling the Leftist party waaaaay to the center (a fact that makes it hard for me to complain about Democrats’ pandering tactics).
Sure, the GOP will always be the party of old white people, but if the Democrats’ left-wing is essentially neutered due to minority voting blocs within the Party, who cares?
The fact that the Democrats pine for minorities explains why the US has never had a very powerful socialist movement. Socialists will often blame “neoliberals,” “capitalists,” “reactionaries,” and other assorted boogeymen, but doesn’t the minority insight make much more sense?
This minority insight has also got me thinking about demographic changes in Europe over the past 30 years. Basically, Europe has had a huge influx of immigrants since the fall of socialism. In the old days, Sweden was for Swedes, France was for the French, Germany was for Germans, etc. etc. This mindset helps to explain why European states had such overbearing welfare states and why economic growth was so limited up until the late 1980s.
As immigrants moved into these welfare states, the Left-wing parties began to pander to them. This had the same effect as it did in the United States: culturally conservative voting blocs diluted the Leftism of traditionally Left-wing parties. As a result, these welfare states became less robust and economic growth became attainable again.
A big underlying point about my musings on this subject is that socialism relies on nationalism in the area of popular politics and policymaking. Without Sweden for the Swedes-type sloganeering, socialism becomes ridiculous to the masses. This underlying point, along with the straightforward fact that immigrants dilute socialist power (economic, political, and cultural), suggests to me that libertarians who pay close attention to popular politics should relax when it comes to the fact that minorities don’t find libertarian ideals all that appealing.
Urban theorist Richard Florida is celebrated for arguing that cities today succeed by attracting members of the “creative class.” In a similar spirit I have a recent paper with Noel D. Johnson where we investigated whether or not cities in medieval and early modern Europe grew faster if they possessed a Jewish community.
Scholars have long noted the role of minority groups in economic development. This is particularly true for the the premodern period. The great scholar of long-run historical development in Europe, Fernand Braudel, observed that “successful merchants who controlled trade circuits and networks often belonged to foreign minorities.” These minorities could be other nationalities or religious minorities, for example, “the Jews, the Armenians, the Banyans, the Parsees, the Raskolniki (Old Believers) in Russia or the Christian Copts in Muslim Egypt” (Braudel, 1979, 1982, 165).
Hornung (2014) studies the impact of the Huguenot migration to Prussia. Since the nineteenth century, scholars like Friedrich List linked the presence of Huguenots with the transmission of human capital, skills, and innovation. Hornung (2014) is able to test this hypothesis using Prussian immigration lists from 1700 that document the location of Huguenot settlements and firm-level data on input and output for all 750 textile manufactories in Prussia in the year 1802. Approximately 16,000 to 20,000 Huguenots fled France to Prussia at the end of the seventeenth century. Hornung finds that the presence of Huguenots significantly increased firm productivity. Specifically, a 1 percentage point increase in the share of Huguenots was associated with 1.5 percentage points higher productivity in 1802.
In our paper we take a broad sweep of European history from 1400 to 1850. We have a total of 1,792 cities in our panel data from the Bairoch (1988) dataset and 1,069 Jewish communities that appear in the Encyclopedia Judaica. The figure below shows both the cities in the Bairoch dataset and the Jewish communities mentioned in the Encyclopedia Judaica.
To understand the relationship between the presence of a Jewish community and subsequent city growth we conduct a difference-in-differences style regression analysis.
The fact that we have data on city populations every century means we can hold constant the identity of a city using city fixed effects and see whether or not it grew faster in the centuries when it had a Jewish community in comparison to those centuries when it did not. We can also control for the possibility that overall city growth was faster in some centuries in comparison to others using century fixed effects.
We are also able to hold constant other factors that could plausibly have affected city growth. We control for local geography including cereal suitability, proximity to rivers, and proximity to coast, as these factors likely affected city growth in different ways over time. We also control for local infrastructure including presence of university and distance to a medieval trade route.
Our analysis suggests that, indeed, cities with Jewish communities grew faster on average between 1400 and 1850. The effect we find suggests that cities with Jewish communities grew about one third faster than those that did not have Jewish communities. This analysis remains a correlation, however. We do not know if the presence of a Jewish community brought with it economic benefits or if Jews merely choose to settle in faster growing cities.
We model the network of Jewish communities as one way to see whether the effect of Jews on city growth was indeed casual. By examining how Jewish communities expanded we hope to isolate a source of exogenous variation in the presence of a Jewish community.
We assume that a Jewish community is more likely to be established close to another Jewish community because of trade networks, financial relationships, or cultural linkages. We then calculate the closest travel path between Jewish communities using our information about the location of roads and river networks and estimates of premodern transport costs. The important assumption we make is that if cities with Jewish communities share certain “unobservable” characteristics that might make them more likely to grow rapidly, these characteristics become less correlated with distance.
We then divide Europe into 5km x 5km grids and assign the lowest travel cost to each grid. We apply Djikstra’s algorithm to determine the lowest cost of travel between all 3,211,264 city pairs (van Etten, 2012). This allows us to create a measure of ‘Jewish network access’ for each city.
Jewish network access itself is, of course, correlated with the unobservable characteristics of the city for which it is calculated. To overcome this we adopt two strategies to create valid instruments out of the network access measures. First, we calculate Jewish network access for cities that are only more than a certain distance away from each other. Second, we use information on expulsions to weight our measure of Jewish network access. The intuition behind this is that Jewish expulsions consist of an exogenous “push” factor leading to Jews settling in new cities close to the existing network of Jewish communities. Using these two strategies we obtain similar (though larger in magnitude) effects from the presence of a Jewish community on city growth. This provides further suggestive evidence that the correlation we found in our baseline analysis was indeed causal.
Across specifications, we find that cities with Jewish communities experienced no growth advantage in the 15th and 16th centuries. After 1600, however, they began to grow significantly faster.
The relationship we observe in the Figure does not appear to be inline with a pure human capital story. Jews had higher human capital than Christians throughout the medieval and early modern period. But the growth advantage of cities that had Jewish communities only became evident after 1600. This raises the possibility that something else changed around 17th century that made the human capital and skills of Jews more complementary to economic growth.
The two factors that stand out in explaining the emergence of a growth advantage for cities with Jewish communities after 1600 but not before are: (1) Jewish Emancipation after 1750; and (2) a complementarity between the presence of a Jewish community and market access.
The process of Jewish emancipation began in continental Europe after 1780. It was a major institutional break that signified a major change in the economic, social, and political status of the Jews in Europe. In work with Jean-Paul Carvalho, I’ve shown that Jewish emancipation lead to a religious schism and the emergence of both Reform and Ultra-Orthodox Judaism.
In the period before Jewish emancipation, legal barriers limited the ability of Jews to put their labor to its highest value use. Jewish businesses were prevented from hiring non-Jewish workers. Jews could not attend universities. Moreover, Jews and Christians were culturally isolated. This changed with emancipation, and we expect to see it reflected in the contribution of Jewish communities to city growth in the post-1750 period.
The second factor we study is the complementarity between the presence of a Jewish community and the development of markets. The historical literature points to the importance of Jewish trading and financial networks. But, while economic historians have conducted numerous studies of market integration during the early modern period, with a few exceptions these have focused on the grain trade with little systematic study of other markets due to data limitations. Jewish merchants in medieval and early modern Europe, however, did not play a prominent role in the grain trade but, rather, were involved in the transport of diamonds, sugar, silks, tobacco, and other luxury products in addition to playing a large role in banking and finance. Therefore, rather than looking at grain markets, we explore a more general measure of market integration based on market access.
Market access depends on the population size of nearby cities weighted by the cost associated with the least cost travel path. We show that market access was increasing for all cities after 1700. We find evidence that cities with Jewish communities were better able to take advantage of this increase in market access. As we detail in the paper, our findings are consistent with the argument made by numerous historians that Jewish trading and finance networks help to knit together the European economy, particularly in the period 1650 to 1800 (Israel, 1985).
Our analysis provides support for the accounts of historians who have emphasized the important role played by Jewish traders in 17th and 18th century Europe (such as Fortune, 1984; Israel, 1985; Trivellato, 2009). Furthermore, our story is in line with institutional arguments such as those developed by Douglass North, John Wallis and Barry Weingast, and Daron Acemoglu and James Robinson. In the Middle Ages, the presence of Jewish communities was part of an institutional arrangement that extracted rents from society and distributed them among members of the ruling elite. The eradication of these rent-seeking arrangements and the liberalization of Jewish economic activity, first in the Netherlands and England and then in the rest of Europe following Jewish Emancipation, was of critical importance as it is in those cities that possessed emancipated Jewish communities that we observe the strongest relationship between the presence of Jews and economic growth.
Warren shot me the following email a few days ago:
Brandon, do you know the name Deirdre McCloskey?
She is a first-rate economist with extensive expertise in history, literature and anthropology. She recently finished a trilogy, the third volume of which is “Bourgeois Equality.” It’s a fat book but you would be well rewarded for time invested. You don’t have to read the first two volumes to benefit from the third.
The purpose of the trilogy is to explain why we’re 30 times richer than our forebears of 250 years ago, as best that can be estimated. Conventional answers like the industrial revolution and rule of law don’t go far enough. The answer lies in attitudes toward commerce.
I haven’t read McCloskey’s book yet, but it’s been on my amazon wishlist for awhile and thanks to Warren’s prodding it’ll be my next purchase. (Here is all of NOL‘s stuff on McCloskey so far, by the way.)
My first instinct on this topic is to think about Europe’s Jews. Bear with me as I lay out my thoughts.
McCloskey’s book, which as far as I can tell takes readers to the Netherlands and the United Kingdom from the 17th to 19th centuries, is about how Europeans began to reconceptualize equality in a way that was very different from notions of equality in the past.
A very basic summary is that notions of equality in Europe prior to the modern era largely aligned with notions of equality elsewhere in the world. Basically, an established hierarchy based on either inherited land ownership or clerical ranking was justified in all cultures by a religious appeal: “we’re all Christians or Buddhists or Muslims or fill-in-the-blank, so don’t even worry about what we have and you don’t have.” This way of thinking was irrevocably altered in 17th century northwestern Europe. Once I actually read McCloskey’s book, I can give you more details (or, of course, you can just read it yourself).
This argument, that northwestern Europe became free and prosperous because of a change in ideas about equality, is of course very broad and qualitative, but I buy it. The big “however” in this line of reasoning is Europe’s treatment of its Jews.
I forget where I heard the argument before, but somebody or some school of thought has argued that because Europe’s Jews were forced by legislation to go into “dirty trades” like commerce, they became more broadly open-minded than other ethnic groups in Europe and therefore more prosperous. Dutch and British bourgeois culture no doubt had a Jewish influence, and because bourgeois culture is internationalist in scope this Jewish influence must have penetrated other European societies, but anti-Semitism in these other bourgeois centers was more rampant than than it was in the UK and the Netherlands. Why was this?
My main guesses would be “Protestantism” (because Protestants at the time were more open-minded due to being at odds with the Catholic Church), or “the seafaring character of British and Dutch societies.” These are just guesses though. Help me out!