Monday, October 8, 2012

Economists, if they must drink tea, should choose Earl Grey I

The Myth

Sometimes an error is sufficiently common as to need periodic debunking, Samuelson recites it, in quest of a thesis that does not bear examination, so it is as good a place to start as any:
What we are witnessing in Europe — and what may loom for the United States — is the exhaustion of the modern social order. Since the early 1800s, industrial societies rested on a marriage of economic growth and political stability. Economic progress improved people’s lives and anchored their loyalty to the state. Wars, depressions, revolutions and class conflicts interrupted the cycle. But over time, prosperity fostered stable democracies in the United States, Europe and parts of Asia. The present economic crisis might reverse this virtuous process. Slower economic expansion would feed political instability and vice versa. This would be a historic and ominous break from the past.
So where is the story coming from? From one interpretation of the work of Angus Maddison, who published on historical economy, and whose final thoughts on the matter are set down in Counters of the World Economy based on his The World Economy. A Millennial Perspective and The World Economy, Historical Statistics. Prof. Maddison spent much of his career with the OECD.

The story he infers from his statistical study is this: comparing per capita GDP between China and Western Europe, the two begin to diverse around 1820, and this leads him to date the modern capitalist-democratic progression from that time. It's a neat story which does not happen to work out that well when lined up against historical facts.

First historical: 1820 does not mark any particular establishment of Democracy in the European world. On the contrary, France is under a restored monarchy, Britain under a conservative government, Germany under principalities. The US is a one party state with limited suffrage. During the 1820's a series of regressions happen, which reduce, not increase democracy, until late in the decade.

Consider the career of the Earl of Liverpool as Prime Minister: in 1819 following the Peterloo massacre he pushed through "The Six Acts":

  1. Training Prevention Act, which outlawed military drilling except as part of municipal or national government.
  2. Seizure of Arms Act, giving essentially unlimited search and seizure powers to magistrates looking for weapons.
  3. Misdemeanors Act, which restricted bail.
  4. Seditious Meetings Prevention Act, which outlawed meetings with a permit by the local sheriff.
  5. Blasphemous and Seditous Libels Act, which is self-explanatory.
  6. Newspaper and Stamp Duties Act, which widen the publications which were required to have stamps.
This is not a list for democracy or free market capitalism, and it does not support the thesis that 1820 marks a turning point. Some of these acts were subsequently repealed or allowed to fall into disuse, but that mere means a return to the pre-1819 status quo, and in the case of the Training Prevention, repeals of sections only began in the 1870's, and some parts allowing warrant-less arrest were only repealed in 2005.

France was still under the Ultras during the reign of Louis XVIII, restored monarch, and then his brother Charles X. One could go on, with Francis I, Emperor of Austria and so on. Thus 1820 can hardly be a democratic turning point. However there is a simpler explanation for a macro-economic upturn here: the ending of the long series of wars which culminated in the Napoleonic War – but which had started with the Seven Years War, ending a half century of destructive global conflict does not require democracy to start having a positive effect on personal GDP.

The 1820-1830 period then is not democracy driving loyalty to a state providing greater living standards, but a decade of reactionary order, which is overthrown later by external political forces. Far from being the beginning of a period of stability, peace, and prosperity, 1820 marks the point were aristocratic groups are trying to maintain power by offering a minimalist compromise, which is the overturned in a series of reverse, the first clustering late in that decade – the Jacksonian Revolt in the US. The one area to rebel successfully during that time was Latin America – but we don't speak of the flowering of Democratic Capitalism as starting with Simon Bolivar.

Instead, it is England, Germany, and the United States that were poised to expand industrially, but the path to democracy and industrialization did not run smoothly, nor was it really evident outside of Britain for almost 30 years afterwards. When one looks at markers of industrial progress, a useful place to look is Bairoch's Economics and World History: Myths and Paradoxes, where he makes it clear on pages 81-82 that the industrialization of core industries based on coal fired and water driven technologies, as well as the densification of agriculture, precede everywhere else in the world by, in many cases, a full century. By 1780, a significant share of English GDP is tied up with coke fired iron, and mill driven production of textiles. 1820 theories, need not apply. Despite this the quality of many critical manufactures from the UK is falling, as seen from the condition of British warships through the period. This despite having a monopoly on graphite, and better iron production. British sea power and production where hampered even with rapid industrialization.

Thus the 1820 date does not accord with historical facts, and it is questionable on economic grounds. While Maddison is an import statistical series, it is not the only one, and the thesis that 1820 marks a jumping off point for their linkage is refuted by an examination of the political facts. A better case could be made for 1830 as the moment of intense democratization. In the US, the Jacksonian Revolt, which in 1828 ushers in almost universal male suffrage for the Presidency, in France the establishment of the July Monarchy which shifted power from the old aristocratic families to the "haute-boursgeoise," and in England the "Great Reform" embodied by the Reform Act of 1832, a question that ended the career of the Duke of Wellington. It ended slavery, expanded the franchise, and change the manner of election to the House of Commons

However, these reforming waves are destined to be swept away by what I term "The Federalist Revolutions," the enshrinement of a two tier structure of government, with a dominant center, as opposed to the Confederal structures that then prevailed. This period, foreshadowed by 1848, which was a series attempts to institute a Romantic, Liberal, and National order, gave way to a structure which was Realist, Conservative – though not reactionary – and Federal. These revolutions were indeed an expansion of participation which clearly mark that the trend to democratization had begun earlier.

Thus the Democracy and Capitalism argument falls apart because there is no good linkage – industrial democracy was largely an English national phenomenon, and a local matter elsewhere. In England the innovations that would lead to industrialization center around coal had been developed in the early to mid 18th century, but the problems with quality and with the lack of improvement in an industrial means of transportation meant that England could produce a great deal of very ordinary quality goods, for which demand was, as yet, weak. Hence the colonial export policies of the time. This is not to say that the transformation in England is unimportant, merely that it does not accord with a Democracy and Capitalism leading to loyalty to the State argument.

Thus a different frame work must be looked at, both for state power, and for the basis of the upturn in fortunes of the large mass of human beings.