Category: History

Heckman Thinks that Economists Who Are Only Economists May Be Dangerous

The Journal of Political Economy, edited by the University of Chicago economics department, is one of the three or four most prestigious journals in the economics profession. For the last 20 years or so (if memory serves) the back cover of each issue has had a funny quote or interesting or unusual anecdote, related to some aspect of economics.
I was surprised to see that the quote from the October 2014 issue as “suggested by James J. Heckman.” Heckman is a Nobel-Prize-winner who is known mainly for developing new econometric techniques in the area of labor economics. When I was a graduate student at Chicago, his graduate students tended to be among those who were most oriented to formalism and technique. So I was surprised to see that he had suggested the following quote from neo-Austrian economist and fellow Nobel-Prize-winner F.A. Hayek:

(p. 463) But nobody can be a great economist who is only an economist—and I am even tempted to add that the economist who is only an economist is likely to become a nuisance if not a positive danger.

Source:
Hayek, F. A. “The Dilemma of Specialization.” In The State of the Social Sciences, edited by Leonard D. White. Chicago: University of Chicago Press, 1956.
(Note: I do not have the book, and cannot find the page range of Hayek’s article in the book.)

Hamilton Thought “Contracts Formed the Basis of Public and Private Morality”

(p. 297) Hamilton argued that the security of liberty and property were inseparable and that governments should honor their debts because contracts formed the basis of public and private morality: “States, like individuals, who observe their engagements are respected and trusted, while the reverse is the fate of those who pursue an opposite conduct.” The proper handling of government debt would permit America to borrow at affordable interest rates and would also act as a tonic to the economy. Used as loan collateral, government bonds could function as money–and it was the scarcity of money, Hamilton observed, that had crippled the economy and resulted in severe deflation in the value of land. America was a young country rich in opportunity. It lacked only liquid capital, and government debt could supply that gaping deficiency.
The secret of managing government debt was to fund it properly by setting aside revenues at regular intervals to service interest and pay off principal. Hamilton refuted charges that his funding scheme would feed speculation. Quite the contrary: if investors knew for sure that government bonds would be paid off, the prices would not fluctuate wildly, depriving speculators of opportunities to exploit. What mattered was that people trusted the government to make good on repayment: “In nothing are appearances of greater moment than in whatever regards credit. Opinion is the soul of it and this is affected by appearances as well as realities.” Hamilton intuited that public relations and confidence building were to be the special burdens of every future treasury secretary.

Source:
Chernow, Ron. Alexander Hamilton. New York: The Penguin Press, 2004.

Rich Slaveholders “Posed as Plucky Populists”

(p. 267) As Hamilton tangled with Lansing, neither knew that Virginia had on June 25 become the tenth state to ratify the Constitution. Like their New York counterparts, antifederalists there posed as plucky populists, even though their ranks included many rich slaveholders. Patrick Henry, the leading antifederalist, warned delegates who supported the Constitution, “They’ll free your niggers.” George Washington noted the hypocrisy of the many slaveholding antifederalists: “It is a little strange that the men of large property in the South should be more afraid that the Constitution will produce an aristocracy or a monarchy than the genuine, democratical people of the East.”

Source:
Chernow, Ron. Alexander Hamilton. New York: The Penguin Press, 2004.

Few Founding Fathers Toiled Harder Against Slavery than Hamilton

(p. 211) The magnitude of southern slavery was to have far-reaching repercussions in Hamilton’s career. The most damning and hypocritical critiques of his allegedly aristocratic economic system emanated from the most aristocratic southern slaveholders, who deflected attention from their own nefarious deeds by posing as populist champions and assailing the northern financial and mercantile interests aligned with Hamilton. As will be seen, the national consensus that the slavery issue should be tabled to preserve the union meant that the southern plantation economy was effectively ruled off-limits to political discussion, while Hamilton’s system, by default, underwent the most searching scrutiny.
Few, if any, other founding fathers opposed slavery more consistently or toiled (p. 212) harder to eradicate it than Hamilton–a fact that belies the historical stereotype that he cared only for the rich and privileged.
. . .
(p. 213) The issue surged to the fore with the peace treaty that ended the Revolution. At the prompting of Henry Laurens, article 7 placed a ban on the British “carrying away any Negroes or other property” after the war. This nebulous phrase was construed by slaveholders to mean that the British should return runaway slaves who had defected to the British lines or else pay compensation. The British, in turn, claimed that the former slaves had been freed when they crossed behind British lines. Conceding that Britain may have violated article 7 on technical grounds, Hamilton nevertheless refused to stand up for the slaveholders and invoked a higher moral authority:

In the interpretation of treaties, things odious or immoral are not to be presumed. The abandonment of negroes, who had been induced to quit their masters on the faith of official proclamations, promising them liberty, to fall again under the yoke of their masters and into slavery is as odious and immoral a thing as can be conceived. It is odious not only as it imposes an act of perfidy on one of the contracting parties, but as it tends to bring back to servitude men once made free.

This fierce defender of private property–this man for whom contracts were to be sacred covenants–expressly denied the sanctity of any agreement that stripped people of their freedom.

Source:
Chernow, Ron. Alexander Hamilton. New York: The Penguin Press, 2004.
(Note: italics in original.)

The Underground Railroad Was No Myth

(p. C7) The first scholarly study of the Underground Railroad, published by Wilbur Siebert in 1898, named some 3,200 “agents,” virtually all of them white men, who presided over an elaborate network of fixed routes, illustrated with maps that looked much like those of an ordinary railroad.
That view largely held among scholars until 1961, when the historian Larry Gara published “The Liberty Line,” a slashing revisionist study that dismissed the Underground Railroad as a myth and argued that most fugitive slaves escaped at their own initiative, with little help from organized abolitionists. Scholarship on the topic all but dried up, as historians more generally emphasized the agency of African-Americans in claiming their own freedom.
But over the past 15 years, aided by newly digitized records of obscure abolitionist newspapers and local archives, scholars have constructed a new picture of the Underground Railroad as a collection of loosely interlocking local networks of activists, both black and white, that waxed and waned over time but nevertheless helped a significant number reach freedom.
. . .
In “Gateway to Freedom,” Mr. Foner ties much of that work together, while uncovering the history of the eastern corridor’s key gateway, New York City.
“This book is a capstone,” said Matthew Pinsker, a historian at Dickinson College in Carlisle, Pa., who will be teaching it to K-12 educators at a workshop this summer. “The Underground Railroad was real, and Foner will help ordinary people understand that in a way that doesn’t rely on fiction or quilt stories, but on actual documents and records.”

For the full review, see:
JENNIFER SCHUESSLER. “Words From the Past Illuminate a Station on the Way to Freedom.” The New York Times (Thurs., JAN. 15, 2015): C1 & C7.
(Note: ellipsis added.)
(Note: the online version of the review has the date JAN. 14, 2015.)

The book under review is:
Foner, Eric. Gateway to Freedom: The Hidden History of the Underground Railroad. New York: W. W. Norton & Company, 2015.

Cornwalis Betrayed the Slaves Who Had Helped Him

(p.161) Dug in on high ground, Cornwallis had been throwing up earthwork redoubts since early August, employing thousands of slaves who had defected to the British lines in expectation of earning their freedom.
. . .
(p. 164) Cornwallis had grown so desperate that he infected blacks with smallpox and forced them to wander toward enemy lines in an attempt to sicken the opposing forces.

Source:
Chernow, Ron. Alexander Hamilton. New York: The Penguin Press, 2004.

Moral Progress Accelerated in the 18th Century

(p. A11) For hundreds of years, people flocked to public hangings as a form of entertainment. Onlookers crowded into town squares and brought their families, reveling in the carnival atmosphere. Today most people are sickened at the idea of merriment at an execution. (Many are disturbed that executions take place at all.) We recoil from other once-common practices, too: slavery, the mistreatment of children, animal cruelty. Such shifts in attitude or belief surely constitute a form of moral progress and suggest, for once, that civilization is advancing and not receding.
. . .
Mr. Shermer defines moral progress as an “increase in the survival and flourishing of sentient beings,” which he illustrates with graphs and charts that reveal, among other things, a decline in war-related deaths, the expansion of the food supply, the reduction in major epidemics, the growth of world GDP and the spread of democracy.
Humanitarian achievements in the West, Mr. Shermer notes, began in earnest [in] the 18th century. Yet the ability to reason ethically is not a product of the Enlightenment. A moral instinct seems to be present at birth: Even infants possess innate intuitions about fairness and reciprocity, as Mr. Shermer explains. All societies punish free riders. The Golden Rule and Babylon’s Code of Hammurabi (advocating proportionate punishment) predate the ancient Greeks. So why did we need an Enlightenment to jump-start our moral progress?

For the full review, see:
SALLY SATEL. “BOOKSHELF; Getting Better All the Time; Crowds once flocked to watch executions. Now we recoil at the idea. What causes such transformations of ethical standards?” The Wall Street Journal (Tues., Jan. 20, 2015): A11.
(Note: ellipsis, and bracketed word, added.)
(Note: the online version of the review has the date Jan. 19, 2015.)

The book under review is:
Shermer, Michael. The Moral Arc: How Science and Reason Lead Humanity toward Truth, Justice, and Freedom. New York: Henry Holt and Co., 2015.

“Hamilton Constantly Educated Himself”

(p. 110) During the winter encampments, Hamilton constantly educated himself, as if equipping his mind for the larger tasks ahead. “Force of intellect and force of will were the sources of his success,” Henry Cabot Lodge later wrote. From his days as an artillery captain, Hamilton had kept a pay book with blank pages in the back; while on Washington’s staff, he filled up 112 pages with notes from his extracurricular reading. Hamilton fit the type of the self-improving autodidact, employing all his spare time to better himself. He aspired to the eighteenth-century aristocratic ideal of the versatile man conversant in every area of knowledge. Thanks to his pay book we know that he read a considerable amount of philosophy, including Bacon, Hobbes, Montaigne, and Cicero. He also perused histories of Greece, Prussia, and France.

Source:
Chernow, Ron. Alexander Hamilton. New York: The Penguin Press, 2004.

George Washington’s “Entrepreneurial Bent”

(p. 87) Washington proved an excellent businessman, first as a canny speculator in western lands, then as lord of Mount Vernon. Sometimes buying human cargo directly from the holds of slave ships, he came to own more than one hundred slaves by the Revolution and expanded his estate until it encompassed thirteen square miles. An innovative farmer, he invented a plough and presided over a small industrial village at Mount Vernon that included a flour mill and a shop for manufacturing cloth, an entrepreneurial bent that appealed to Hamilton.

Source:
Chernow, Ron. Alexander Hamilton. New York: The Penguin Press, 2004.

Hamilton Was an Autodidact

Others who might be considered autodidacts include Andrew Carnegie, Winston Churchill, Bill Gates, Mark Zuckerberg, and Guglielomo Marconi. When the self-taught can achieve so much, it raises the question of whether we over-emphasize formal education? (Chernow also mentions Hamilton being an autodidact on pages 110, 206, and 682.)

(p. 42) Hamilton’s early itinerary in America closely mirrored the connections of Hugh Knox. Through Knox, he came to know two of New York’s most eminent Presbyterian clergymen: Knox’s old mentor, Dr. John Rodgers– an imposing figure who strutted grandly down Wall Street en route to church, grasping a gold-headed cane and nodding to well-wishers–and the Reverend John M. Mason, whose son would end up attempting an authorized biography of Hamilton. Through another batch of Knox introductory letters, Hamilton ended up studying at a well-regarded preparatory school across the Hudson River, the Elizabethtown Academy. Like all autodidacts, Hamilton had some glaring deficiencies to correct and required cram courses in Latin, Greek, and advanced math to qualify for college.

Source:
Chernow, Ron. Alexander Hamilton. New York: The Penguin Press, 2004.

Depression of 1920-21 Ended Quickly, Without Government Stimulus or Bailouts

(p. C3) Beginning in January 1920, something much worse than a recession blighted the world. The U.S. suffered the steepest plunge in wholesale prices in its history (not even eclipsed by the Great Depression), as well as a 31.6% drop in industrial production and a 46.6% fall in the Dow Jones Industrial Average. Unemployment spiked, and corporate profits plunged.
. . .
In the absence of anything resembling government stimulus, a modern economist may wonder how the depression of 1920-21 ever ended. Oddly enough, deflation turned out to be a tonic. Prices–and, critically, wages too–were allowed to fall, and they fell far enough to entice consumers, employers and investors to part with their money. Europeans, noticing that America was on the bargain counter, shipped their gold across the Atlantic, where it swelled the depression-shrunken U.S. money supply. Shares of profitable and well-financed American companies changed hands at giveaway valuations.
Of course, the year-and-a-half depression must have seemed interminable for all who were jobless or destitute. It was, however, a great deal shorter than the 43 months of the Great Depression of 1929-33. Then too, the 1922 recovery would bring tears of envy to today’s central bankers and policy makers: Passenger-car production shot up by 63%, for instance, and the Dow jumped by 21.5%. “From practically all angles,” this newspaper judged in a New Year’s Day 1923 retrospective, “1922 can be recorded as the renaissance of prosperity.”
In 2008, as Lehman Brothers toppled, the Great Depression monopolized the market on historical analogies. To avoid a recurrence of the 1930s, officials declared, the U.S. had to knock down interest rates, manipulate stock prices to go higher, repave the highways and trade in the clunkers.
The forgotten depression teaches a very different lesson. Sometimes the best stimulus is none at all.

For the full commentary, see:
JAMES GRANT. “The Depression Fixed by Doing Nothing; The agonizing but often forgotten 1920-21 economic crisis suggests that sometimes the best stimulus is none at all.” The Wall Street Journal (Sat., Jan. 3, 2015): C3.
(Note: ellipsis added.)
(Note: the online version of the review has the date Jan. 2, 2015, and has the title “The Depression That Was Fixed by Doing Nothing; The often forgotten 1920-21 economic crisis suggests that sometimes the best stimulus is none at all.”)

Grant’s commentary is elaborated on in his book:
Grant, James. The Forgotten Depression: 1921, the Crash That Cured Itself. New York: Simon & Schuster, 2014.