Mark Thornton is interviewed about the basics of Bitcoin

Not exactly correct on all point, but worth a read.

In fact, there is one anarchist who could be considered influential in Washington, but he wasn’t among the activists who participated in the Occupy movement—he died nearly twenty years ago. His name is Murray Rothbard, and, among small-government Republicans, he is something of a cult hero. He was Ron Paul’s intellectual mentor, which makes him the godfather of the godfather of the Tea Party.

Robert Fogel died a few days ago. He was a prominent figure in the academic economic history profession for five decades, virtually from the time he burst onto the scene with the publication of a polished-up version of his Johns Hopkins Ph.D. dissertation, Railroads and American Economic Growth, in 1964. This book was the most impressive accomplishment to date of the type of research espoused by those who participated in a research program known as the new economic history, econometric history, or cliometrics, which had begun to take shape in the late 1950s. The hallmark of this program was the systematic application of neoclassical economic theory and the methods of statistical inference in the study of economic history.

In his book, Fogel undertook to determine how important the railroads had been as contributors to U.S. economic growth by calculating what he called their “social saving,” essentially the amount by which GDP would have been diminished if they had not existed and Americans had been compelled to use the next best means of transporting goods—by horse-drawn wagons on the land and by canal boats on a national system of canals. His conclusion that the social saving had been equal to less than 3 percent of the national product in 1890 cast great doubt on the beliefs historians had previously held about the railroad’s great importance. Although many objections were raised subsequently to Fogel’s approach, his specification of the no-railroads counterfactual, and his data, the book became an instant cliometric classic.

Having entered the economic history profession at the very top, Fogel then proceeded, along with his Johns Hopkins classmate Stanley Engerman, to tackle the subject of slavery in the United States. This time the target was the widely accepted idea that prior to the War Between the States slavery had been on its economic last legs, and therefore had the war not led to slavery’s destruction, this labor system would have died a natural death before long. In 1974, Fogel and Engerman brought their findings together in Time on the Cross: The Economics of American Negro Slavery, a book that probably made a bigger splash than any economic history book ever published in the United States. The main claims this time were that slavery had been economically thriving on the eve of the war, slave-plantation productivity had exceeded the productivity of comparable free-labor production, slaves had received much better treatment than generally believed, and the system had yielded handsome returns to the slave owners, in most cases at least as great as the returns that feasible alternative investments would have yielded them. The reaction to these findings bordered on academic violence as historians and fellow economists rushed to challenge Fogel and Engerman’s methods, data, and conclusions, and to indict them for omissions and errors of various sorts.

Fogel, who believed that any research project that required less than a decade was scarcely worth undertaking, then spent much of the next decade and a half in accumulating additional evidence and carrying out additional analyses, often in collaboration with colleagues or graduate students, to support the initial findings. The fruits of these follow-up efforts appeared in a two-volume work, Without Consent or Contract: The Rise and Fall of American Slavery, published in 1989.

From the 1980s onward, however, Fogel devoted the lion’s share of his research efforts to work that relates more closely to demographic changes in history than to economic history, although he always maintained that critical interrelations existed, for example, between improvements in nutrition and increases in labor productivity. I did not follow closely the mass of research that emerged from this project, much of it by other researchers in the United States, Europe, and elsewhere. I found that I could stand only a certain number of calculated height-by-age profiles and that I could not always accept the conclusions drawn on the basis of such data. In any event, many publications by Fogel and other economic historians grew out of this project.

Fogel taught mainly at the University of Chicago and, for a few years (1975-81) at Harvard. In 1993, he and Douglass C. North shared the Nobel prize in economics for their work as leaders of the new economic history. Fogel’s work was also recognized by his election to prestigious scientific bodies and by the award of honorary degrees by leading universities in the United States and abroad. Yet he never rested on his laurels and remained engaged in research and writing until the end.

I got to know Bob in the early 1970s. At that time I was carrying out research on what had happened to the U.S. freedmen and their descendants during the half-century after the War Between the States, and I imagined that my book on this subject might be seen as a sequel to Fogel and Engerman’s Time on the Cross. In 1977, Cambridge University Press published my book titled Competition and Coercion. Although it failed to receive anything like the gigantic recognition that Fogel and Engerman’s blockbuster had received, Bob was gracious in his own reception. He rarely wrote book reviews, but he did review my book in 1978 for the Business History Review and gave it high marks. Shortly afterward, he invited me to Harvard to make a presentation at the economic history workshop (where I first met Robert Margo, then a graduate student and later a friend and coauthor of mine), and he and his wife Enid entertained me at their home for dinner with some colleagues from the Harvard Department of Economics. In the late 1970s Bob used to encourage me when I complained that my book had been largely neglected, assuring me that in fifty years, it would still stand up.

Bob never showed any indication that he understood Austrian economics or cared to understand it. He was a Chicago School economist, and he enjoyed immense professional success as such. At Chicago and Harvard he oversaw the training of many excellent graduate students, who are now among the leading economic historians in the world. He had no incentive to cut loose from his Chicago-School moorings, which in his mind were those of science, however much some of his work might now seem to me to be more scientistic than scientific. At a symposium to honor my dear friend Max Hartwell, held at the University of Virginia in 1991, Bob became publicly angry with me for challenging, on Austrian grounds, his computation of “slave incomes.” I left academic employment in 1994 and never had any personal contact with him afterward. He must have got over his pique eventually, however, because in 2011, when I was honored with the Alexis de Tocqueville Award, he sent a very gracious video to be shown at the event in which he recalled my early days in the profession and praised my contributions to it.

It is difficult to imagine what academic economic history might have looked like during the past half-century without Bob Fogel. With the possible exception of only Doug North as a comparably influential figure, he did more than anyone to set the profession’s standards, determine its leading topics and methods of research, and train its most highly regarded practitioners. Especially considering that he had become a Communist during his undergraduate years at Cornell and had worked afterward as a Party organizer for eight years before abandoning communism as an unscientific doctrine, one must say that he had a truly amazing career.

Cross-posted at The Beacon.

Nobel Laurette Joseph Stiglitz claims here that Japan is the model for how economic policy can get the world economy out of its current malaise.

Now, though, Japan is leading the way. The recently elected prime minister, Shinzo Abe, has embarked on a crash course of monetary easing, public works spending and promotion of entrepreneurship and foreign investment to reverse what he has called “a deep loss of confidence.” The new policies look to be a major boon for Japan. And what happens in Japan, which is the world’s third-largest economy and was once seen as America’s fiercest economic rival, will have a big impact in the United States and around the world.

Bob Higgs provides a nice tribute to economic historian Robert Fogel, a leading economic historian and cliometrician.

In 1995 Higgs’s “Austrian Economics and the New Economic History” in Austrian Economics Newsletter vol. 15, no.1, (available here pages 2 and 3) offered a well thought out assessment of what cliometrics might offer “of value to the Austrian economist.” After stating, “At first glance one might well answer no”, he argues, “Upon closer inspection, one may revise this assessment. Austrain economists do sometimes write economic history… .”  Thus, “Austrians engaged in historical interpretation can sometimes benefit from some cliometric work.”

It is two pages well worth keeping accessible for any Austrian researcher “practicing their own disticntive style of interpretative economic history.”

It was advice I tried to keep in mind for my own research and teaching.

Nicholas Wapshott is the British journalist who produced 2011′s Keynes-Hayek: The Clash that Defined Modern Economics, an entertaining but ephemeral tale of Cambridge in the 1930s (here is John Cochran’s less-than-flattering review). Wapshott sees himself as an important critic of “free-market orthodoxy,” but his grasp of economic theory, history, and policy is more than a bit muddled. His newest article, a tribute to the late Robert Fogel, is positioned as a defense of cliometrics, the application of econometric techniques to economic history (and a critique of — well, he doesn’t say, exactly, but presumably Austrian-style deductive analysis wouldn’t pass muster). Unfortunately, the article is riddled with howlers.

Wapshott describes Hayek, author of “Why I Am Not a Conservative,” as a “conservative saint” and calls Abba Lerner, one of Fogel’s teachers, an “Austrian School economist.” Fogel’s cliometric approach is described as a “data mining,” a somewhat loose term that generally applies to inductive analysis, not the kind of hypothesis testing associated with cliometrics. Wapshott takes time to praise Simon Kuznets, “whose pioneering work in econometrics led to the accurate measurement of economic growth.” Kuznets’s work was certainly pioneering, as in novel, but no respectable development economist thinks GDP is an “accurate” measure of national well-being, let along economic welfare, and its limits are well known in the growth accounting literature.

The funniest line, however is this: “Fogel was one of the best sort of economists, like Milton Friedman and Anna Schwartz, devoted to determining cause and effect through a meticulous study of the facts.” Only the most naive empirical social scientist — or journalist without any actual research experience — could believe that causality emerges from “studying the facts.” To be sure, modern empirical economics is obsessed with causal inference, but no skilled econometrician thinks that the various popular identification techniques “determine” cause and effect. The so-called identification revolution is not without critics, and many practitioners worry that it has gone too far.

Well not quite, but Elvira Sakhipzadovna Nabiullina, a surprise choice of President Putin to head the Central Bank of the Russian Federation, describes herself as “a liberal economist with no hint of radicalism.” She cites books by Austrian economic historian Robert Higgs and by Keynes disciple Joan Robinson as influential in her education.

You were considered a hoarder and a slacker if you still resisted turning over your gold to the government. From the New York Times, June 13, 1933:

(Click on the image for a sharper picture.)

Roosevelt had only been in office for 101 days and while there was broad bipartisan support for inflationary policies in Congress, it’s safe to say that most of those who voted for FDR never expected him to confiscate private holdings of gold coins, bullion, and certificates. Roosevelt called the measure a temporary one (it wasn’t), and he followed it up by invalidating gold clauses in private contracts that obligated payment in gold dollars, which had the effect of devaluing the assets of bond and contract holders. Many of these hoarders and slackers purchased gold as a hedge against the (Fed-fueled) inflationary boom of the 1920s and then hung on to it during the Hoover years when his crazed and unprecedented interventions in wages and prices caused a normal market correction to devolve into a depression. Why would they trust Roosevelt any more?

They were smart not to. By January 1934, Roosevelt increased the dollar price of gold from $20.67 to $35, thus devaluing the dollar by 70 percent while increasing the value of gold that the government now owned.

Gold flowed to the United States because the new price exceeded the world price, causing Fort Knox to become, well, Fort Knox. Since the Treasury was authorized to maintain the new dollar-gold exchange rate, it increased the money supply accordingly. Over the next three years, M2 increased by an average of 13.4 percent a year. Congress and the president with strong ties to Wall Street got the inflation they wanted.

Queue the tape: “Happy Days Are Here Again.”

A major constraint on the federal government’s ability to spend had been lifted, and by the end of the decade the balance of political power had shifted from the states and the cities to Washington, D.C. It remains to be seen whether inflating the money supply will have any different effect in the 2010s than it did in the 1930s.

Gary Gorton’s view of bank runs has already filtered down to students. Sam Williams won first prize at the ASSC in February with the paper The Return of the Bank Run: How the Financial Crisis of 2007-2008 was a Next Generation Bank Run

Congress had just passed the Underwood Tariff (reinstating the federal income tax following the passage of the 16th Amendment) and, miracle of miracles, the stock market began to slump.  While the trade-off for passing the income tax was a reduction in tariff rates—this way, the tax’s proponents could claim pro-trade motivations—the powers-that-were wanted to inflate the currency to counter any adverse economic effects of the new tax.  They thus began promoting  the need for a currency bill that would consolidate many competing currencies into one that would be both subject to legal tender law and administered by a federal agency.

From the New York Times (“Hostile Action to Currency Now” June 12, 1913, p. 4):

From the time the tariff bill reached the Senate a month ago Republican Senators have been trying to obtain promises that a currency bill will not be pushed.  Democrats have evinced in private an equal earnestness in their desires to go home as soon as the tariff bill is out of the way.  The possibility of increasing the present financial uncertainty by threats of immediate tariff revision merely supplied another argument.

As a matter of fact, [President Wilson] has let it be known that he wishes prompt currency revision to supply easy money for what hardships might arise in the first months of reduced protection.  The inference was openly drawn by Senator Tillman in discussing the letter he received from the President that the Republicans want to block currency revision for the simple purpose of giving full headway to any [financial] panic which might arise and which could be ascribed to the Democratic customs policy.  The shortage of the money in New York, London, Berlin, and Paris, which, of course, cannot be attributed to the promise of reduced protection in the United States, would thus seem to be another argument for the prompt provision of an elastic currency.

We now know that Wilson would get his way and that, in fact, he surely knew legislation had already been drawn up in secret in Jekyll Island, Georgia, less than three years earlier by leaders from the public and private sectors who were waiting for such a political environment to introduce it.  In November 2010, the Fed held a conference to commemorate this meeting, entitled “A Return to Jekyll Island.”  The Fed’s return, however, occurred some nine months following the Mises Institute’s conference at Jekyll Island, entitled “The Birth and Death of the Fed.”