Proposal preview

Experience and Expectations in the age of globalization

This session explores the impact of historical experience on the formation of economic expectations in the modern economy. Economic expectations that are often shaped by individual experiences guide actors when making decisions under fundamental uncertainty, and thus are essential for understanding the behavior of economic agents. However, the historical dimension of economic expectations has not been systematically explored. We argue that the manner in which expectations were formed underwent significant changes over time. In this panel, we examine how the formation of expectations by enterprises, economic experts, investors, states, and households was affected by structural change and crises, and emphasize two aspects: globalization and methodological problems. By presenting our ongoing research projects at the WEHC in Boston, we hope to initiate several co-operations with international scholars who research similar topics.
Globalization worked as a major force on expectation formation on the operational and the analytical level. The integration of markets and the emergence of an international financial regime since the later 19th century increased the complexity and uncertainty of transactions and provoked attempts to mitigate new forms and magnitudes of risk. State and private finances were affected to an unprecedented degree by international debt crises, and actors were forced to develop new methods for assessing credit worthiness and mechanisms to cope with failure to service debts. Business cycles research and economic forecasting evolved together with this new, increasingly synchronized global economy and struggled to integrate the different speeds and rhythms of the international economies into plausible models, while at the same time the economic discipline itself became more international. Economics was baffled by the Great Depression of the 1930s and forced to revise fundamental assumptions just at the time when enterprises, governments and households faced existential threats. The globalization backlash of the interwar period can be explained partly by a shift in expectations that was triggered by the fundamental uncertainty and learning effects of the Great Depression. Crises, shocks, and structural ruptures are central determinants of the formation of experience. Expectations do not only play a relevant part in the emergence of crises, but themselves are modified and revised over the course of crises as part of a learning process of economic actors that might be a precondition for attaining a new stability. In so far, the globalization backlash of the 1930s also can be attributed to a breakdown of the trust to reliably predict the expectations of others and an international failure to communicate.
However, studying the expectations of historical actors poses serious methodological problems that are best tackled by an interdisciplinary approach. The formation of economic expectations is widely understood as a complex process shaped strongly by historical events and individual (and social) experience. Still, we know little about the specific impact of experiences on expectations. How are expectations perceived by actors in a specific situation, and how does this affect economic behavior? How can historians detect cognitive processes of actors in the past? The study of written sources might yield insights into the expressed motivations of individual actors, yet in order to arrive at plausible statements about shared sentiments and expectations towards the economic future, the study of individual sources is not sufficient. Quantitative methods, on the other hand, heavily rely on qualitative input in order to build adequate models and interpret the results. Media analysis and topic modelling seem to be promising tools for the analysis of serial sources that provide quantifiable insights into a society‘s communication about its economic state and anticipated future.
In the panel, we present selected empirical studies from the Priority Programme „Experience and Expectation“ financed by the German Science Foundation, and the methodology involved. We invite scholars that work on the historical dimension of economic expectations to join the panel and exchange ideas.

If you are interested in joining us, please send an abstract of 500 words maximum to mark.jakob@hu-berlin.de until 15 January 2018.

Organizer(s)

  • Alexander Nützenadel Humboldt University, Berlin nuetzenadel@geschichte.hu-berlin.de Germany
  • Jochen Streb University of Mannheim streb@uni-mannheim.de Germany
  • Mark Jakob Humboldt University, Berlin mark.jakob@hu-berlin.de Germany
  • Sebastian Schöttler Humboldt University, Berlin sebastian.schoettler@hu-berlin.de Germany

Session members

  • Ingo Köhler, Georg August University, Göttingen
  • Christoph Trebesch, Kiel Institute for the World Economy
  • Sibylle Lehmann-Hasemeyer, University of Hohenheim
  • Michael Schneider, University of Duesseldorf
  • Louis Pahlow, Goethe University Frankfurt a. M.
  • Amos Nadan, Tel Aviv University
  • Francesca Fauri, University of Bologna
  • Gregori Galofré-Vilà, Bocconi University
  • Bruno Gabriel Witzel de Souza, University of Göttingen
  • Kathrin Pindl, Regensburg University
  • Andreas Neumayer, University of Hohenheim

Discussant(s)

  • Regina Grafe European University Institute
  • Jeffrey Fear University of Glasgow
  • Eric Vanhaute Ghent University

Papers

Panel abstract

This session explores the impact of historical experience on the formation of economic expectations in the modern economy. Economic expectations that are often shaped by individual experiences guide actors when making decisions under fundamental uncertainty, and thus are essential for understanding the behavior of economic agents. However, the historical dimension of economic expectations has not been systematically explored. We argue that the manner in which expectations were formed underwent significant changes over time. In this panel, we examine how the formation of expectations by enterprises, economic experts, investors, states, and households was affected by structural change and crises, and emphasize two aspects: globalization and methodological problems. By presenting our ongoing research projects at the WEHC in Boston, we hope to initiate several co-operations with international scholars who research similar topics.

1st half

How Italian Mass Migration Coped with Globalization Challenges Posed by the 1890 Argentinean Financial Crisis in and the 1917 US Literacy Bill

Francesca Fauri

In this paper I would like to present two cases in which the globalization backlash hit Italian migrants and authorities and forced them to follow new paths: the case of Argentina in 1890 and the United States in 1917. When a deep financial crisis that hit Argentina, one of Italy’s main destination countries in 1890, it was a blow to the Italians who were already integrated in the new country. The collapse in the value of the Argentine peso significantly reduced emittances, decimated savings and these effects were also felt by families who had remained in Italy. Moreover, the dollar’s strength compared to the collapse of the Argentine currency contributed decisively to re-directing Italian emigrants toward the US labour market, which from then on became the main destination of Italian emigration.

In this paper I would like to present two cases in which the globalization backlash hit Italian migrants and authorities and forced them to follow new paths: the case of Argentina in 1890 and the United States in 1917. When a deep financial crisis that hit Argentina, one of Italy’s main destination countries in 1890, it was a blow to the Italians who were already integrated in the new country. The collapse in the value of the Argentine peso significantly reduced emittances, decimated savings and these effects were also felt by families who had remained in Italy. Moreover, the dollar’s strength compared to the collapse of the Argentine currency contributed decisively to re-directing Italian emigrants toward the US labour market, which from then on became the main destination of Italian emigration.

The rationale of sharecropping: Brazilian coffee planters and German-speaking contract laborers in the transition from slavery (1830-1890)

Bruno Gabriel Witzel de Souza

This paper studies the history of contract labor in the coffee plantations of São Paulo, Brazil, in the context of the transition from slavery in the mid-nineteenth century. It analyzes the immigration of German-speakers, who were the bulk of the Brazilian immigration policy until the 1870s. Focused on this ethno-linguistic group, it traces the dynamics of the immigration flows and how the Brazilian immigration policy dealt with institutional change in the prelude of the age of mass migration. In recovering a classical debate of the historiography, we add to the literature on contract labor, especially on the economic rationale of sharecropping. With new historical evidence from a systematic review of the “Brazilian Digital Newspapers’Repository”, the paper rejects theories of a linear transition from slavery to free labor, passing through labor-tenancy contracts increasingly more efficient. Rather, it proposes a framework of persistence in which the main theoretical element was the interlinkage...

This paper studies the history of contract labor in the coffee plantations of São Paulo, Brazil, in the context of the transition from slavery in the mid-nineteenth century. It analyzes the immigration of German-speakers, who were the bulk of the Brazilian immigration policy until the 1870s. Focused on this ethno-linguistic group, it traces the dynamics of the immigration flows and how the Brazilian immigration policy dealt with institutional change in the prelude of the age of mass migration. In recovering a classical debate of the historiography, we add to the literature on contract labor, especially on the economic rationale of sharecropping. With new historical evidence from a systematic review of the “Brazilian Digital Newspapers’Repository”, the paper rejects theories of a linear transition from slavery to free labor, passing through labor-tenancy contracts increasingly more efficient. Rather, it proposes a framework of persistence in which the main theoretical element was the interlinkage between credit and labor. Brazilian coffee planters were initially indifferent to the specific type of contract proposed to immigrants, as long as the credit dimension was present. This strategy allowed the rural elite to compete for the poorest mmigrants, instead of promoting institutional reforms to make the country more competitive to spontaneous immigrants. To the Brazilian historiography, the paper adds some new episodes, such as a benchmark for the hiring of immigrants in 1835, a petition of workers in farm Ibicaba in 1851, and diplomatic tensions between Brazil, Switzerland, and the German States caused by debates about immigrants.

The Impact of Social Insurance on Marriage and Fertility: Prussia 1875-1910

Jochen Streb

Economists have long argued that introducing social insurance will reduce fertility. The hypothesis relies on standard economic models of fertility: if children are desirable because they provide security in case of disability or old age, then state programs that provide insurance against these events should induce couples to substitute away from children in the allocation of wealth. We test this claim using the introduction of social insurance in Germany in the 1880s and 1890s. We find that some parts of the system indirectly promoted fertility by promoting marriage. Social insurance did reduce fertility directly, although the effects are small.

Economists have long argued that introducing social insurance will reduce fertility. The hypothesis relies on standard economic models of fertility: if children are desirable because they provide security in case of disability or old age, then state programs that provide insurance against these events should induce couples to substitute away from children in the allocation of wealth. We test this claim using the introduction of social insurance in Germany in the 1880s and 1890s. We find that some parts of the system indirectly promoted fertility by promoting marriage. Social insurance did reduce fertility directly, although the effects are small.

Global flows of knowledge: Expectations towards transnational regulatory aspects of intellectual property rights in the 20th century chemical industry

Louis Pahlow, Michael Schneider

In the late 19th century, an intensification of transnational co-operation occurred in many fields, such as postal services and telegraphy. The international protection of intellectual property rights also made progress, or so it seemed: the Paris Convention of 1883 at least guaranteed the priority for any patent applicant in one country for six months. During this period, no other applicant could file for a valid patent with a reasonable chance of success in any other member state. Germany at first abstained from joining the Paris Convention; only later, when the priority period was extended to 12 months, Germany ratified the convention in 1903, whereas the US had ratified the convention already in 1887. It is highly important to underscore that it was not the main intention of the Paris convention to harmonize the different national patent laws, but to facilitate the transnational flow of inventions and the property rights involved....

In the late 19th century, an intensification of transnational co-operation occurred in many fields, such as postal services and telegraphy. The international protection of intellectual property rights also made progress, or so it seemed: the Paris Convention of 1883 at least guaranteed the priority for any patent applicant in one country for six months. During this period, no other applicant could file for a valid patent with a reasonable chance of success in any other member state. Germany at first abstained from joining the Paris Convention; only later, when the priority period was extended to 12 months, Germany ratified the convention in 1903, whereas the US had ratified the convention already in 1887. It is highly important to underscore that it was not the main intention of the Paris convention to harmonize the different national patent laws, but to facilitate the transnational flow of inventions and the property rights involved. The aim of our paper is to show this limited approach of the Paris convention during the decades to come from two angles, namely 1) the discussion and growing pressure from parts of German industry towards joining the convention, and 2) the concrete dealing with the convention’s regulation, highlighted with a case study of the 1930s. The case study shows in detail the dealings between the pharmaceutical company E. Merck from Darmstadt and its US counterparts when it came to securing priority rights in several European countries.

2nd half

The Forgotten History of Official Debt

Sebastian Horn, Carmen Reinhart, Christoph Trebesch

Cross-border bail-outs and international rescue lending between governments have become a central policy issue of recent years and an important determinant of sovereign borrowing costs. Despite this importance, the history of sovereign bailouts and official debt is very much forgotten. In this paper, we address this gap in the literature by providing the first systematic database on international rescue packages during financial crises from 1800 to 2015. Our data allows us to put the recent bail-outs in emerging markets during the 1990s and in the Eurozone into historical perspective and to quantify the experiences of private investors with official bail-outs in a novel way.

Cross-border bail-outs and international rescue lending between governments have become a central policy issue of recent years and an important determinant of sovereign borrowing costs. Despite this importance, the history of sovereign bailouts and official debt is very much forgotten. In this paper, we address this gap in the literature by providing the first systematic database on international rescue packages during financial crises from 1800 to 2015. Our data allows us to put the recent bail-outs in emerging markets during the 1990s and in the Eurozone into historical perspective and to quantify the experiences of private investors with official bail-outs in a novel way.

Austerity and the rise of the Nazi party

Gregori Galofré-Vilà, Christopher M. Meissner, Martin McKee, David Stuckler

The current historical consensus on the economic causes of the inexorable Nazi electoral success between 1930 and 1933 suggests this was largely related to the Treaty of Versailles and the Great Depression (high unemployment and financial instability). However, these factors cannot fully account for the Nazi’s electoral success. Alternatively it has been speculated that fiscally contractionary austerity measures, including spending cuts and tax rises, contributed to votes for the Nazi party especially among middle- and upper-classes who had more to lose from them. We use voting data from 1,024 districts in Germany on votes cast for the Nazi and rival Communist and Center parties between 1930 and 1933, evaluating whether radical austerity measures, measured as the combination of tax increases and spending cuts, contributed to the rise of the Nazis. Our analysis shows that chancellor Brüning’s austerity measures were positively associated with increasing vote shares for the Nazi party. Depending...

The current historical consensus on the economic causes of the inexorable Nazi electoral success between 1930 and 1933 suggests this was largely related to the Treaty of Versailles and the Great Depression (high unemployment and financial instability). However, these factors cannot fully account for the Nazi’s electoral success. Alternatively it has been speculated that fiscally contractionary austerity measures, including spending cuts and tax rises, contributed to votes for the Nazi party especially among middle- and upper-classes who had more to lose from them. We use voting data from 1,024 districts in Germany on votes cast for the Nazi and rival Communist and Center parties between 1930 and 1933, evaluating whether radical austerity measures, measured as the combination of tax increases and spending cuts, contributed to the rise of the Nazis. Our analysis shows that chancellor Brüning’s austerity measures were positively associated with increasing vote shares for the Nazi party. Depending on how we measure austerity and the elections we consider, each 1 standard deviation increase in austerity is associated with a 2 to 5 percentage point increase in vote share for the Nazis. Consistent with existing evidence, we find that unemployment rates were linked with greater votes for the Communist party. Our findings are robust to a range of specifications including a border-pair policy discontinuity design and alternative measures of radicalization such as Nazi party membership. The coalition that allowed a majority to form government in March 1933 might not have been able to form had fiscal policy been more expansionary.

Experience, Expectations and National Rebellions in Palestine, 1936-9 and 1987-90

Amos Nadan

The field of knowledge concerned with the history of national rebellions cannot be fully understood when disconnected from its economic roots. The aim of this paper is to integrate economic history analysis with the nationalistic-oriented perspective, not to replace it. Initial findings from the outbreak of the Arab Revolt of 1936-9 and from the Intifada of 1987-90 show that a Davies-style fall did not occur prior to these outbreaks, and this may serve as an indicator for danger of using single-disciplinary answers to analyze the cause of rebellions. Still, the fact that the Arab Revolt of 1936-9 and the Intifada of 1987 occurred about 20 years after the beginning of a period of occupation (the British in 1918, Israel in 1967), and that the rebels were primarily young people who grew up under occupation, may suggest that the expectations of the specific groups of young people needed to be discussed...

The field of knowledge concerned with the history of national rebellions cannot be fully understood when disconnected from its economic roots. The aim of this paper is to integrate economic history analysis with the nationalistic-oriented perspective, not to replace it. Initial findings from the outbreak of the Arab Revolt of 1936-9 and from the Intifada of 1987-90 show that a Davies-style fall did not occur prior to these outbreaks, and this may serve as an indicator for danger of using single-disciplinary answers to analyze the cause of rebellions. Still, the fact that the Arab Revolt of 1936-9 and the Intifada of 1987 occurred about 20 years after the beginning of a period of occupation (the British in 1918, Israel in 1967), and that the rebels were primarily young people who grew up under occupation, may suggest that the expectations of the specific groups of young people needed to be discussed on both macroeconomic and microeconomic levels and that expectations do not necessarily rise gradually.

Does the preference for investment in local firms rise in turbulent times? Evidence from the portfolio of Joseph Frisch, private banker (1923-1955)

Sibylle Lehmann-Hasemeyer, Andreas Neumayer

We show that the bias towards local investments can to a large extent be explained by overall economic circumstances, the general performance of the market and the level of activity of the investor, using a unique historical source. We examine portfolio choices over the lifetime of the private banker Joseph Frisch, in Stuttgart, and find that t he preference for local shares was highest in times of insecurity, low returns and reduced investment activity. With higher returns, a stable and growing economy and more experience, the preference for local shares decreased.

We show that the bias towards local investments can to a large extent be explained by overall economic circumstances, the general performance of the market and the level of activity of the investor, using a unique historical source. We examine portfolio choices over the lifetime of the private banker Joseph Frisch, in Stuttgart, and find that t he preference for local shares was highest in times of insecurity, low returns and reduced investment activity. With higher returns, a stable and growing economy and more experience, the preference for local shares decreased.

Storage decisions. Experiences, expectations, and Regensburg´s hospital granary (17th - 19th centuries)

Kathrin Pindl

The “Little Divergence” is supposed to follow a west-east gradient. Bavaria, in general, has been depicted as a “late-starter” region, where the material standard of living of huge strata of the society only improved in the 19th and 20th centuries. However, have there been economically advanced urban regions which had managed to get past the so-called poverty trap earlier? The core aim of this paper is to examine this question of economic development by the example of a case study of the grain storage policy of St Catherine´s hospital in Regensburg from the late 17th century until the late 19th century. This institution served not only as a hospital and as a home for the elderly – as an enterprise it has been active in the brewery business, on the agricultural and horticultural markets, and in finance.

The “Little Divergence” is supposed to follow a west-east gradient. Bavaria, in general, has been depicted as a “late-starter” region, where the material standard of living of huge strata of the society only improved in the 19th and 20th centuries. However, have there been economically advanced urban regions which had managed to get past the so-called poverty trap earlier? The core aim of this paper is to examine this question of economic development by the example of a case study of the grain storage policy of St Catherine´s hospital in Regensburg from the late 17th century until the late 19th century. This institution served not only as a hospital and as a home for the elderly – as an enterprise it has been active in the brewery business, on the agricultural and horticultural markets, and in finance.