American Economic Association

The State of Economic History

Author(s): Douglass C. North
Source: The American Economic Review, Vol. 55, No. 1/2 (Mar. 1, 1965), pp. 86-91
Published by: American Economic Association
Stable URL: http://www.jstor.org/stable/1816246
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 ECONOMIC HISTORY: ITS CONTRIBUTION TO
ECONOMIC EDUCATION, RESEARCH,
AND POLICY
THE STATE OF ECONOMIC HISTORY

By DOUGLASS C. NORTH
University of Washington

I wish to make two points in this paper: (1) that the quality of re-
search in economic history is generally very poor and that the econom-
ics profession must take a large share of the blame and (2) that the
new economic history falls short of the mark in remedying this prob-
lem.
Despite the fact that a good deal of economic history in the United
States is taught in economics departments, there appears to be some
schizophrenia on the part of economists between the way they look at
the quality of research in economic history and the way in which they
regard the research of colleagues engaged in other fields of economics.
If economists were to apply the same critical standards to economic
history that they apply to the rest of the field of economics, very little
of today's economic history would be recognized as high-quality re-
search. There appears to be an implicit notion that the criteria by which
we judge economic history should differ from those used in judging
economics.' If so, then we should turn the field back to the historians,
who at least write with charm and style.
A moment's reflection on the part of any economist should convince
him that to the extent that economic history moves beyond the simple
cataloguing of facts, it must meet of necessity the same set of stand-
ards that we attempt to impose by the use of scientific methods in eco-
nomics. It should not be necessary to elaborate this point, since the ex-
cellent article by Conrad and Meyer, "Economic Theory, Statistical
Inference and Economic History,"2 at the 1957 annual meetings, as
well as the more recent statement by Bob Fogel in his book on
railroads,3both make the point effectively. I am well aware that we
frequently do not have either adequate theory or the statistical data to
lIndeed, three well-known economists at the 1957 annual meeting of the Economic
History Associationimpliedas much,when they were reportedby SimonKuznetsto believe
that economictheory had limited relevancefor economichistory and that the state of the
field was, in fact, rather good. Perhapsthese three economistshad not botheredto read
much economichistory or simply wished to be polite amongst economichistorians.
2J of Econ. Hist., Dec., 1957.
'Railroads and AmericanEconomic Growth (Johns Hopkins Press, 1964).
86
 HISTORY:ITS CONTRIBUTIONS
ECONOMIC 87
develop and test hypotheses in any definitive fashion. My point is that
economic historians do not make use of the theory we do have. While
it is true that we have no overall theory of economic growth worth the
name and that therefore the grand theme of the economic rise and fall
of nations cannot be treated in a formal fashion, we still know a good
deal about productivity change and its sources; but little of the litera-
ture in economic history reflects any awareness of this fact. And for
the rest of economic history, much of it deals with problems in which
various fields of economic theory are directly relevant.
A summary statement of deficiencies of economic history is as fol-
lows: (1) Vast areas of economic history have not been treated at all;
that is, treated in the sense that economic theory and statistics have
been used to examine the past.4 (2) Many writings in economic histo-
ry are loaded with statements which have economic implications and
imply causal relationships which are not only not supported in the re-
search but which run counter to basic economic propositions. In fact,
in most such cases, the author appears to be completely unaware of
these implications. (3) Even more conspicuous is the character of the
evidence advanced to support propositions. In good part it consists of
a mishmash of quotations and oddly assorted statistics which do not
provide any support or test for the propositions developed. (4) A good
deal of economic history draws broad welfare conclusions which are by
no stretch of the imagination warranted from the evidence cited. In
fact, a general characteristic of economic history is that the treatment
of propositions with broad welfare implications is typically undertaken
without even a token acquaintance with welfare economics. Let me il-
lustrate my point with respect to five broad areas of economic history.
First, the industrial revolution is still looked upon as the great
threshold of economic history, and in turn technological change is re-
garded as the deus ex maciina of this threshold. Quite aside from the
fact that this does not seem to have inspired economic historians to do
much analytical work on a theory of technological change (nor indeed
even to have encouraged them to have any precise definition of tech-
nological change) no such simple view of the acceleration of growth of
the Western world is consistent even with our limited knowledge of
sources of productivity change. I would hazard the speculation that if
we ever did the research necessary to get some crude idea of the mag-
nitudes involved, we would discover that improved economic organiza-
' In a few other cases,there has been a great deal of researchdone on areas far beyond
the extent to which they were importantin economichistory. Labor history is a case in
point, where the tendencyto identify the history of labor with the history of unionismis
all too commondespite the fact that trade-unionsdid not exceed 5 percent of the labor
force before 1900.In a widely used currenttext, one-fifth of the book is devotedto trade-
unionhistory.
88 AMERICAN ECONOMIC ASSOCIATION

tion was as important as technological change in the development of

the Western world between 1500 and 1830. I mean by this, improve-
ments in the factor and product markets, reduction in impediments to
efficient resource allocation, and economies of scale. Moreover, the
complementaritybetween physical and human capital in the develop-
ment, application, and spread of technological change requires equal
analytical attention before we can begin to make sense on this subject.
Clearly, we need to overhaul our view of the whole process by which
the WVestern world developed in the last five or six centuries.
Second, the colonial period of American history, lasting for almost
two hundred years, is nearly a void as far as any economic analysis is
concerned. This period has been the exclusive province of the histori-
an, and therefore it is not surprising that the treatment of economic
issues leaves much to be desired. There have been no studies of the
performance of the colonial economy, particularly in the crucial years
1763-75, although historians have drawn broad inferences from scraps
of evidence. The relationship between the money supply, price levels,
specie flows, and the balance of payments has not been adequately
treated. There are no analytical studies of the major industries. What
has been written with respect to the implications of the effects of Brit-
ish imperial policy on colonial welfare is completely devoid of any use
of incidence theory. Even one of the best articles on the subject-
Harper's piece on the effects of the Navigation Acts on the thirteen
American colonies5-measures the burden upon the colonies of British
imperial policy without any reference to the elasticity of demand for
the commodities involved. (He implicitly assumes a perfectly inelastic
demand.)
Third, the ten years following the end of the Revolutionary War are
one of the most interesting periods in our economic history. This was
not only a time of important economic readjustment but one in which
a new society had to make a set of basic political decisions which
would set the fundamental ground rules for the operation of its econo-
my. The problems of tax incidence, government participation in the
economy, federal-state economic relationships, and monetary policy
were all influenced by the performance of the economy, by immediate
economic issues, and by the underlying philosophical bent of the par-
ticipants during this critical decade. Yet the argument over the
economy's performance has usually been settled by a few contempo-
rary quotations and odd statistics.6 The immediate economic issues
'Lawrence A. Harper, "The Effects of the Navigation Acts on the Thirteen Colonies,"
in R. B. Morris, ed., The Era of the American Revolution (Columbia University Press,
1939).
'A beginning on a systematic examination of the economy's performance has been made
in the recent article by Gordon Bjork, "The Weaning of the American Economy," J. of
Econ. Hist., Dec., 1964.
 ECONOMIC HISTORY: ITS CONTRIBUTIONS 89
have received scant analytical attention, and the economic interpreta-
tion of the era has gone by default to the naive views of some historians.
Fourth, it is an axiom of a good deal of our economic history that
government investment played an important role in accelerating the
growth of the economy in the nineteenth century. Yet absolutely no
evidence exists that warrants such a conclusion. While the work of
Carter Goodrich and his students has made an important contribution
in showing that the government did, in fact, intervene in canal invest-
ments, railroad investments, etc., neither Goodrich nor his students,
nor anyone else, has shown that this actually accelerated the rate of
growth of the economy. To make the case, it would be necessary to
show that there were significant differences between the private and
the social rate of return on investment such that private investors were
underinvesting in these activities; that government investments did in
fact yield a high social rate of return; that alternatively these same
funds invested through private channels (under the conditions of full
employment that typically prevailed) would have yielded significantly
lower returns; and that the magnitude of this differentialwas sufficient
to have altered significantly the rate of growth of the economy.7
Fifth, perhaps nowhere are the deficiencies in American economic
history more glaring than in the voluminous writings about the disposi-
tion of public land in nineteenth-centuryAmerica. Did public land pol-
icy adversely affect the rate of growth of the economy? Or slow down
the pace of the westward movement? Or cause a more unequal distri-
bution of income? While the extensive literature on the subject seldom
put the issues so clearly, these are obviously the meanings implicit in a
great many of the assertions made in leading articles on the subject.8
If it is true that the form of distribution of public lands through the
various land acts or the purchases of speculators or the railroad land
grants produced the results cited above, none of the evidence advanced
on the subject proves the point at all. It miayvery well be that factors
cited above did have some of the results which have been suggested,
but if so, the whole question has not been examined in any analytical
sense yet. And it will require such research before any such statement
can be made.
The illustrations cited above are only a very small ripple of an end-
lessly dreary stream that would flow from cataloguing the poor quality
of research in economic history. However, it is not necessary for me to
continue. Anybody can play the game of testing the quality of the lit-
erature in the field for himself. Let me suggest to you a simple way of
' For a further discussion of the issues involved, see my comment on Stuart Bruchey's
article in Explorations in Entrepreneurial History, 2d Ser., I, No. 2 (1964), pp. 160-62.
8 convenient source is The Public Lands, Vernon Carstenson, ed. (Univ. of Wisconsin
Press, 1963).
90 AMERICAN ECONOMIC ASSOCIATION

playing this game which I use in my graduate seminar in American

economic history. I ask my students to take leading interpretive arti-
cles in American economic history and to make explicit models of the
articles.9 Even by plugging into each model the most favorable possi-
ble implicit assumptions, most of the resultant models turn out either
to be internally inconsistent or to run counter to the most fundamental
propositions in economics.
Let me turn now to the new economic history. There has been some
valuable work-particularly in the gathering of statistics-to provide
us with some solid footing for analysis, and there have been a few
first-rate articles and books, yet the results have been generally disap-
pointing. Too much of it has been dull and unimaginative, and there
seems to be a widespread conviction that econometric techniques, the
computer, and running a few regressions can substitute for theory and
imagination. Some of the new economic history written by economists
is of distressingly poor quality. Some of it is so imprecise and fuzzy as
to make it difficult,if not impossible, to make any model at all. A good
deal of it includes partial-equilibriumanalysis of problems with broad
general-equilibrium or disequilibrium implications. Too much of it
shows that the writer clearly had no fundamental understandingof the
way by which an economy operates. In particular, a lot of it shows
that the role of prices in resource allocations and the implications of
price behavior have completely eluded the writer.
The inadequacy of the new economic history is nowhere more evi-
dent than in its failure to nail down and to refute the shoddy argu-
ments and propositions that riddle the literature. Let me illustrate my
point by discussing at some length an article in the new economic his-
tory. In fact, it is one of the classics. I refer to the article by Conrad
and Meyer on "The Economics of Slavery in the Ante-Bellum
South."10The Conrad and Meyer article is frequently taken as the
epitome of the way in which the new economic history should be writ-
ten, indicating the sophisticated use of economic theory and statistics
to nail down a long-debated issue of American economic history. It
does deserve a special place in the literature as a pioneering piece of
work. The article pinpointed and clarified a number of issues which
have been muddied in the history of the controversy. In particular, it
demonstratedthat resources in the South were allocated efficiently and
that the market for slaves operated in a fashion that was compatible
with a profit maximizing economy. However, the article did not accom-
' For an illustration, see my comment on H. J. Habakkuk's essay, "Population Problems
and European Economic Development in the Late Eighteenth and Nineteenth Centuries,"
A.E.R., May, 1963, pp. 639-42.
10J.P.E., Apr., 1958, p. 95.
 ECONOMIC HISTORY: ITS CONTRIBUTIONS 91
plish its objective, and it has permitted the endless discussion of an
issue which long since should have been buried. Conrad and Meyer set
out to measure the viability of slavery by testing its profitability. As a
result, given the limited and imperfect nature of available data, they
have perpetuated an endless controversy around the issue of whether
their data (or anyone else's) do indicate that slavery was profitable
and therefore viable.1"In fact, there is no possibility that slavery was
economically not viable. As long as there existed both a rent on land
and a rent on slaves-that is, the price of slaves was above the real re-
production costs of slaves-any short-run unprofitabilityof slaves as a
result of their price being bid up for noneconomic reasons would sim-
ply result in a readjustment, either in land rents or ultimately in slave
prices, so that the equilibrium rate would again prevail. Only if the
wages of free labor fell to the subsistence level, so that in fact the
prices of slaves fell to below their reproductioncost, would the institu-
tion become nonviable.12And since no such consideration was in-
volved, there never was any real issue about the viability of slavery.
While one might well make the argument that slave prices might be
maintained at a higher level than would be justified by the rate of re-
turn in cotton production because of their use for conspicuous con-
sumption or noneconomic reasons, then the answer simply would be
that in that case land rents would fall so as to adjust to an equilibrium
solution. In short, the Conrad and Meyer article has perpetuated an
issue which is really no issue at all.
In summary, it is my convinction that we need to sweep out the door
a good deal of the old economic history, to improve the quality of the
new economic history, and it is incumbent upon economists to cast a
skeptical eye upon the research produced by their economic history
colleagues to see that it lives up to standards which they would expect
in other areas of economics.
This criticism of the state of economic history is not based on some
utopian notion that we can achieve a scientific consensus on interpret-
ing the past, but rather on the wide gap that exists between contempo-
rary practice and the potential which could vastly enrich our knowl-
edge of the past and reduce the range of uncertainty and disagreement
over our economic heritage.
"For the two most recent illustrations, see Edward Saraydar, "A Note on the Profita-
bility of Ante-Bellum Slavery," S. Econ. J., Apr., 1964, and Richard Sutch, "The Profita-
bility of Ante-Bellum Slavery Revisited," S. Econ. J., Apr., 1965. It should be noted that
Sutch's paper, presented in preliminary form in my graduate seminar in American economic
history, makes clear that the issue discussed is short-run profitability but not viability.
2 See the article by Yasukichi Yasuba, "The Profitability and Viability of Plantation

Slavery in the United States," Econ. Studies Quar., Vol. XII, No. 2.