Origins of Economic History

• Economic History is the academic study of economic events of the past and provides material to test economic models.

Origins of Economic History

• Economic History first appeared as a discipline in mid-19th century Germany as a reaction against absolutism as an abstract theory.
• The new school of thought held that history was culture and time-specific, making generalization difficult.
• It emphasized that general theory was unrealistic and useless, and that a comparative method was essential to understanding economic phenomena.
• In the 1880s, the historical school of economics diverged into a more conservative branch headed by Adolph Wagner, and another represented by Schmoller.
• Interest in Economic History grew in the UK in the late 19th century.
• The first textbook in Economic History was published in 1882.
• J.H. Clapham became the first Economic historian in 1898.
• The London School of Economics offered the first degree in Economic History in 1901.
• In the US, Harvard established the first chair in Economic History in the world in 1892.

Economics Pre- and Post-WWI

• Economics was moving toward a more deductive approach before World War I.
• There was a movement to transform economics into a science, requiring formalization and greater reliance on mathematical models.
• Post-WWI saw more attention to quantification and economic growth in the post-war economy.
• The National Bureau of Economic Research (NBER) was created in the US in 1921 to gather data about the American economy.
• The first economic history societies and journals were created between 1920 and 1940.
• Economics was engaged in testing and applying models as a science in the 1960s.

Origin of New Economic History or Cliometrics

• In 1957, a conference was held in Williamstown, US, on research in income and wealth.
• Meyer and Conrad presented two papers.
• The first paper advocated for using formal theory and econometric methods to examine historical questions, viewing historical circumstances as instances of a more general phenomena suitable for theorical analysis.
• The second paper applied their new approach to "The Economics of Slavery in the Antebellum South."
• They rejected the theory that the slave system in the South US would have ended by 1850, even without the Civil War.
• They demonstrated that slaveholding, as a business activity, had been profitable as other uses of financial and physical capital.
• This was the first example of Cliometrics or the New Economic History.

Contributions of Robert Fogel

• Robert Fogel studied the impact of railroads on American growth in the 19th century.
• At that time, economists believed that economic growth was due to these types of important industries.
• He introduced the counterfactual analysis, determining the impact of an event considering the outcome in its absence.
• Counterfactual analysis discovered that railroads played a minimal role in the economic growth.

Contributions of Douglass North

• Douglass North focused on the impact of institutions on economic growth.
• Douglass North is considered the father of Institutional Economics.

Summary of Cliometrics

• In the 1950s, a small group of North American scholars adopted a revolutionary approach to investigating the economic past.
• This approach spread to Europe, Australia, New Zealand, and Japan, from the muse of history, Clio.
• Cliometrics is the systematic application of economic theory, statistics, and other mathematical methods to economic history, as opposed to qualitative history.

Key Elements of Cliometrics

• Use of quantifiable evidence
• Use of theoretical concepts and models
• Use of statistical methods of estimation
• Employment of the historian's skills in judging provenance and quality of sources, in placing an investigation in institutional and social context

Results of Cliometrics

• Cliometricians overturned long-held beliefs with their new tools.
• Railroads were not indispensable to economic growth (Fogel 1964).
• Slavery was unprofitable (Conrad and Meyer 1958).

Effect of Cliometrics Revolution

• An unintended consequence of the cliometrics revolution was the disappearance of economic historians from history departments.
• This was becausethe same tools of analysis were used by economists and historians.
• This led to more data being available and also for putting those data into forms suitable for tabulation and statistical analysis very early in the computer age.

Sources of Economic History and Problems

Source Types

• Primary sources are original sources of information produced by both private and public institutions.
• These include individuals, hospitals, convents, churches, municipalities, and the central authority.
• Printed primary sources are published, translated versions of original sources of information.
• Secondary sources are documents that relate or discuss information originally presented elsewhere.
• Information reported in secondary sources involves collection, analysis, interpretation, or evaluation of the original information and data are often presented in tables, charts etc.

Key Factor of Data

• All data comes from observation of past event.
• Modern states contributed to increasing the amount and quality of data available.
• Modern states issued certificates to regulate citizens' movement and carried out census to better know their economy and demography.
• All data tend to be biased in some ways.

Problems with Sources

• Historical data are subject to 2 main types of selection.
• Concerns come with the selection of information made by the original collector, which may be based on personal considerations, thereby losing objectivity.
• Concerns come with the selection made by the researcher/student when dealing with a specific source, a step usually made to simplify the problems.
• Selection means data is never completely neutral and so is called selection bias.

Factors That Affect Data Quality

• Institutional, political, and cultural conditions such as weak states.
• Exogenous shocks, such as wars and epidemics.
• Subjective considerations on the part of respondents, as individuals tend to adapt their answers to the context.
• Errors by compilers of the statistics, since collecting information by groups can create distortions.
• Complexity of the registration process.

Example of Source Bias: The US 1840 Population Census

• A population census refers to the complete count of persons in a country in a fixed date.
• According to the US 1840 census, the rate of mental disease among free Northern black people was ~ 11 times higher than among enslaved black people of the south.
• This evidence was quickly promulgated by the pro-slavery advocates as proof of the necessity of slavery.
• Edward Jarvis, comparing different sources, revealed the internal inconsistencies of the census figures and the institutional differences underlying the counting of insane patients.
• Institutional facilities for insane slave were rare in the South, they were usually put in jail.
• After Civil war, the health care system was expanded and the rate of black insanity in the south increased, explaining that the low rates in the south were due to the under-measurement rather than slavery.

Example of Source Bias: The Italian Immigration

• In 1876, emigrants were considered people who migrated with a passport intended for poor people.
• From 1913 to 1927, emigrants were those who expatriated for business purposes.
• The annual statistics of 1913-1927 couldn't be compared with the previous or subsequent period and also both excluded wealthy individuals.

Example of Source Bias: Light Touch of Black Death

• Data on mortality was based on urban sources.
• The rural-urban migration mitigated or compensated the mortality shock of the plague in the urban centers post-plague.
• Evidence of rising/stable urban population figures doesn't mean a weak impact of the plague, but a rapid migration from countryside to cities.

Measure of Living Standards

• A standard of living is the level of well-being of an individual, group, or population, measured by the level of income or by the quantity of various goods and services consumed, according to the World Bank.
• Common measures of living standards include economic indicators such as GDP, real GDP, GDP per capita, and wages.
• Common measure of living standards include composite Indices mixing economic and non-economic indicators such as Human Development (HDI), and the Social Health Index (SHI).

Gross Domestic Product (GDP)

• It is the most generally accepted measure for the living standard that is based on production, value added, and income.
• GDP is the Market value of final goods and services produced within a country over a certain period of time.
• Finals included in production are produced to be directly consumed by the end consumer.
• Intermediates goods are used in producing goods and services; they not enter the GDP calculation.
• Value of production is obtained taking both quantities and market price into account.

GDP as Summation

• GDP is a summation where i is the gemeric final item and N is the mumber of final goods and services produced in the year t im the economy.

GDP as Value Added

• GDP is the sum of Value added (VA) in the economy over a given period of time.
• VA is the difference between the value of production and production cost.
• VA is equal to final price times quantity - Materials used in production.
• i is the gemeric item and T is the total number of goods and services produced in the economy in year t (N and T are different set of item)

GDP as Income

• GDP is the sum of the economy's income over a given period of time.
• There are different types of income including Labour income, Profits, and Capital income. -Labour Income is amount earmed by working , wages and salaries. -Profits are revenues minus costs of production, they go to pay entrepreneurs. -Capital Income is the amount earmed by the ownership of capital coming from rental properties, portfolio or investment income including interest, dividends and capital gains on investments.

Problems with GDP as a Measure of the Economy

• Market transaction only: not all goods and services with an economic value are purchased and sold om the market
• No analysis of inequalities
• Not a "multidimensional" concept and beyond GDP, HDI includes more factors

GDP Per Capita

• GDP per capita is equal to the total GDP/population which is equivalent to the average product per worker times the share of workers in total population.

Unobserved Components of the Economy

• The unobserved economy can be divided into 3 components: shadow, criminal, and informal.
• Shadow economy activities are productive and legal, but deliberately hidden from public authorities in order to avoid paying taxes.
• Criminal economy or illegal activities are classified into two categories of production of illegal goods, or legitimate goods that do not meet regulation or legal standards, like a restaurant with poor hygiene.
• Informal economy includes legal productive activities carried out by small production units, with little or no distinction between capital and labor.
• They have occasional employment relationships based on personal or family relationships rather than formal contracts, making statistical observation impossible.
• However, these activities are not aimed at tax or contribution evasion.

National Income Identity

• All final goods and services produced within a country in a given year will be purchased and used by economic agents.
• There are 4 categories of agents which include companies, households, the public sector, and the foreign sector.
• The 4 end-user groups correspond to 4 different expenses components: consumption, investment, public expenditure, and net export.

Consumption

• Consumption is the major component of Demand that represented household expenditure on the purchase of various goods and services.
• This item is divided into 3 categories : -Durables goods are long term goods. -Non durable goods are shorter lasting goods. -Service is often intangible

Consumption and Savings

• Consumption decisions are closely linked to saving decisions.
• For a given level of disposable income, deciding how much to consume means determining how much to save.

Capital and Investment

• Not all good and service are bought to be consumed.
• Some of it are bought to create wealth in the future.
• Capital investment helps enable production.
• The total value of this investment goods at time t forms what is called stocks of capital.
• The amount (Stock) of capital cam change over time and it is the result of the resources spent an it in the previous years (t-1)

Components of Investment

• Investment is needed to replace depreciated capital.
• There is a desired net increase in the capital stock over the year.
• The first part of investment is determined by the depreciation rate and the initial level of capital.
• The second part depends on everything that affects the desired capital stock.

Motivation Behind Investment

• Investment is a trade-off, a sacrifice of some present assets in return for a future gain.
• Depend om on interest rates, which is the price to borrow mamey.
• Firms/ individual are fordwared looking and if interest rates fall today, they may mot invest today bc they belive interest rates can be evem lower tomorrow.
• Imvestors usually expect higher returms from riskier imvestments.
• Ecomomic growth is related to imvestments.
• Investment plays a crucial role in determining the long-rum productive capacity of the economy.

Public Expenditure

• Public expediture consists in the expediture incurred by the State and local authorities in fimal goods and service
• It does not include transfers, which are amounts paid by the State to citizens who are mot compensated for productive activities.
• Transfers are simply tramsferred from ome persom to amother however it receives the interest paid to holders of gou. bomds
• The government purchasing more (arms) in wars, so after war purchasing are more stable.

Government Revenues

• Personal taxes are for on persomal income and property, but increase during WWII (Climtom im deficit - recomstructiom effort)
• Contribution for social insurance usually are a fixed % of a workers's salary
• Taxes on production and imports declined im wwil and them stable.
• Corporate taxes (om profit) are high during WWII and Korean war.

Government Deficit

• The government budget deficit is the actual budget deficit im the current period, and are equal to expenditure minus revenues and are the same as government purchasing and transfer payments minus.

Government Debt

• Government debt is the tot. value of BOND (loams made by Imvestors to the govermmemt) at amy particular time.
• Gou debt at time i is the sum of all gou deficits im the past years - You. deficit is a flow variable, while debts are a stock variable.

Government Debt/GDP

• Government debt/GDP is a useful measure of indebtmess, givem that a county with high GDP has more resources to pay interest om gou. bomds.

Net Exports

• Net Exports make up the difference betweem exports and imports.
• Export is the exports of domestically produced fimal goods and services sold abroad
• The difference between exports and imports is the met amount of expediture om domestic goods and services.

Gross National Product

• Gross National Product are all the fimal goods and services produced by factors owned by nationals of a given nation over a givem period of time.
• It's based om localizatiom of the ownership of the factors of productiom wherever they are located and can be calculated at GDP plus imcome produced by from people overseas overseas minus the income produced from people from other overseas.

Nominal GDP

• This refers to the sum of times Q, the quantities sold and is multiplied by price P are the current prices that that for each and why.

Real GDP

• This is Q times pc is the constand prices.

Ratio of Nominal to Real GDP

• It is the GDP deflator is a price index

Growth Rate

• The growth rate is calculated as present output, minus the previous level, divided by previous output.

Nominal Wages

• Nominal wages are the lIteral amount of money you get for a specific work, measured by the time, the task, the quantity.
• Wage refers to workers whose employment is oftem temporary and short-term.
• Salary is where the employer guarantees a fixed amount per year every week/momth
• Nomimal wages are also called 'unadjusted wages' are they indicate a persom's income amount without considering how prices (INFLACTION) will affect it.

Real Wages

• Real wages wages refer to wages adjusted adjusted for the cost of living, or wages in term of the amount of goods and services that cam be bought.
• Price is measure of the ammust cost of living RW = NOMINAL WAGES

Welfare Ratios

• Welfare ratios compare living standards of households across the globe in historical comparative prospective.
• Welfare ratios also the ratio of ammual family earmings and the household yearly cost of living

Assumptions of Allen's Model

• The household is comprised of 2 adults (woman, man) + 2 children, who eat the same and if men chose to be the the bredwin er they have 3 contusion units.
• The annual househod income is if the make provides is the only worker/labor income and is known as breadwinner model. Here It is the father that wins the bear for al-.
• The bredwinner has an amnnual income equals the mans days wages times .250 days
• Thier no contribution of rents and wealth to family income, as wel has annual household cost (respectaibi and barebone baket) Define yearly cost , the CPIan, os theyearly cost of the of male bredwidder.

The Allen Model of The Cost Of Living

• Cpi equals 3 cim plus the 3 cpi am plas r times 5% 3.15 cpi am.
• if wer is one is enough to by the specefoed baket standard c. If wr is one icome for is ble subsitsnee the if wr is 1 incor is cbaobe subsistet .

Consumption Basket

• The consumption basket includes expenditures on food, lighting, and clothing.
• Specifically, it includes 12 items for which Allen reconstructs the price:bread, beans/peas, meat, butter, cheese, eggs, beer,Clothing: textiles,Lighting: candles, lamp oil and fuel (firewood)

Urbanization

• Urbanisation refers to the ratio of urban population population to total population

Long-Term Urbanization Patterns

• On the eve of the tenth century the population had increased over 5% .
• In the 10th 15th century a long time had to be be spent that that led to a clooser and per set by the ends.
• Manes and estates became set surrendender at artisans move to rub areas to urban centers and compettionn brtoreen the local rad

What causes ubranisation

• People consider for exmaple total pplationnsa is 104 but to get output divide y by 96 the introducitnif a new technology agriculture 85 farmers on produce an total of 15 .
• • Tothe increase number production

Non-Economic Indicators of Living Standards

• Heights are a measure of mutrition and health status. -Life expectancy at birth are a measure of health status.
• Comsumptiom of calories measure mutritiom.
• Educational variable measuring education and human capital