The inclusion of non‐economic institutions is ‘vital’ in analysing historical economies.

Historians often exclude non-economic institutions from their analysis of historical economies. A non-economic institution is defined here as internal or external organising and correcting factors that provide order to the market and other societal institutions so that they may function efficiently and effectively. In this essay, I argue that the inclusion of non-economic institutions is vital when analysing historical economies. Allocative and social organisations have a considerable affect on the workings of a society that are often missed by Marxian and neo-classical economics. I will use the examples of trust, reciprocity, household, gift-giving and ideology to illustrate the line of thinking that whilst current economic theory may suit many situations this is a simplification of the broader picture. It is thus important to take into account other factors, or it is possible that details and important explanations within an analysis will be missed.

To what extent can the behavioural assumptions of economics be generalised across history?

Neo-classical economics is built upon a series of behavioural assumptions that can be reduced to three main characteristics: rationality, self-control and self-interest. Effectively an economic model of this type assumes that individuals will act in a way that achieves maximum utility, and as they pursue this goal the market will follow. In this essay I will argue that it is useful to use these assumptions to model and explain history, as is attributed to Friedman (1953) irrationality is a self-defeating idea, but the results should still be viewed within reason and with some skepticism due to the idea of bounded rationality and the fact that in reality individuals are “dumber, nicer and weaker than Homo Economicus”.

A Brief Explanation: The Curse of Natural Resources

Despite the presence of natural resources seeming implicitly advantageous, resource rich economies have shown very little economic growth and have often seen negative affects from their discovery. For this essay a natural resource is limited to resources that can be mined, such as oil, gold, diamonds and many more, rather than the smaller natural commodities such as soil type or a temperate climate - which have a little effect on the economy. Natural resource wealth ‘can be bad for growth and bad for democracy’, in what has become to be known as the ‘resource curse’. The curse has effects such as loss of foreign investment and crowding out caused by the Dutch disease, and can also have a direct link to civil war and corruption through its change of incentives that strain democracy, stall political change and change institutions- all of which contribute to the slow growth of an economy.

Why did international trade rise rapidly between 1870 and 1914?

Here is a short article (that misses many points that could have been made, such as mass migration and transmission of knowledge) that I wrote before christmas on the series of events that lead to the rapid increase in international trade between 1870 and 1914.

Between 1870 and 1914 global trade was growing at a rate that was noticeably rapid in comparison to the time period before, and included vast amounts of international trade in capital, goods and ideas. The rapid rise in trade between countries grew for many reasons but is greatly connected to what the World Bank sets out as the first ‘wave’ of globalisation that began in 1870 and finished in 1914. This period of globalisation introduced a reduction in transport costs, which increased the value of involvement with international trade and it also introduced fixed exchange rates and other benefits via the gold standard.

Did geography matter? The basis of economic growth in history - a brief overview.

After my last post concerning the economic growth pattern of Africa I feel an important follow on is the impact of geographical factors on growth - I wrote this article a few months ago and feel it will be interesting to those interested in the Africa post, and others.

Geography has played an important role in the differences between countries economic success and development. Some countries experienced more stable and long term growth that made them the most economically successful to present day and the path that links this growth to geographical factors can be easily followed. Direct links can be found between productivity and institutions, mortality rates and institutions, factor endowments and income equality, and distance and market access that leads to discussion on how much geography mattered.

Why has growth failed to touch Africa?

During the 19th Century Africa dramatically fell behind in income and life expectancy and moving on to the 20th Century, Africa fell further. Africa experienced a fleeting boom from 1950 to 1980 in terms of GDP per head, which was short lived when Africa slowly declined into the 1980s. Many factors must be analysed as to why growth has failed to sustain in Africa, the main points that I will be studying include fractionalisation which can be seen as the levels of difference between the many ethnic, cultural, linguistic and religious groups which are abundant throughout Africa. I will also study the foundation of African economics; Agriculture, and how it was affected by the implication of trade and economic policies such as import substitution industrialisation - a policy advocating replacement of foreign imports with domestic production. My final point will analyse how geography has affected growth and I will tie in the inefficient transport systems in place in Africa. Once analysing these factors it is clear that the reason growth has failed to touch Africa cannot be attributed to one factor but must be based on the accumulation of interlinking factors. 

The Invisible Hand

It's actually really difficult to continue to blog, I need to turn it into a habit, maybe. Today i'm going to write on a subject I found interesting from my macroeconomics course that I also read about an alternative view in the Economist magazine here. The invisible hand.

Firstly i'll quickly explain what the invisible hand is: The invisible hand is the sort of self-regulating nature of markets that helps when determining how resources are allocated - if a resource is scarce then it'll become expensive meaning demand will fall and the commodity will be sold to those who value it the most. The invisible hand is based on individuals acting in their own self-interest. Essentially, as Adam Smith laid out, if everyone looks after themselves, and the government doesn't intervene, then this will be best for society as a whole. I personally disagree with this as have many, the need for intervention rose dramatically and fell over the past century, with catastrophic world events such as WWI, WWII and the Great Depression all calling for change.

Being an LSE student it would be rude not to side with Beatrice Webb and her ideal of the welfare state. Despite capitalism obviously raising world living standards and spurring technological growth, a total free market would be almost barbaric. Government intervention is definitely necessary to raise human capital - sending kids from the workhouse into school, raising the minimum wage to increase productivity and consumption, et cetera. I'm not a communist sympathiser although Marx' manifesto does seem increasingly utopian the more I think about it, but can the western world begin to become dubious with the increasing boom in China? I mean, they've had a 10% level of growth for so many years now... and from what I have read this growth is sustainable even after they have their final sectoral shift into industry.

Can the visible hand of state capitalism work as a long term option?

"Geography has made us neighbours. History has made us friends. Economics has made us partners, and necessity has made us allies." - JFK


[unfinished - any comments welcome]