Friday, June 03, 2016

Uses of History or Abused Historians?

I posted these comments in response to this recent Los Angeles Times op ed by American Historical Association's executive director James Grossman:

History isn't a 'useless' major. It teaches critical thinking, something America needs plenty more of

Not everyone can read the comments on the native page for some reason, so I have copied them here for "posterity."

The amazing thing to me is that history can teach more than skills, it can relate actual everyday useful information about business and the economy. But mainstream history organizations, like that Dr. Grossman represents, regularly eschew business and economic historians, save for a few "historians of capitalism" who don't know the difference between a leading economic indicator and a negative externality. As I noted in the Chronicle of Higher Education over a decade ago, the problem is that departments make hiring decisions and they hire their own, people who think about the same things they do in the same tired, old ways. Despite having a Ph.D. in History and authoring almost 20 books, most from major university publishers like Chicago and Penn or major commercial publishers like McGraw Hill and Wiley, I couldn't land a tenure track job in history, so I had to make more money (much more money) teaching out of business, economics, and policy departments! If Grossman himself knew how to think critically, he'd make sure that people like me were able to teach out of history departments because then enrollments would be going up, not down. Instead, he writes an op ed and checks a box on his To Do list.

Stephen Campbell
Jun 03
@robertewright but I'm sure Grossman does indeed have critical thinking skills even if you disagree with his approach, conclusions, etc

To which I respond, I don't disagree with his approach, conclusions, etc. per se, I don't think he is approaching the issue in a critical way. Instead of whining that people don't understand the benefits of his increasingly unpopular product and banal generalities he ought to actually improve the product by ensuring that those of us with proven track records of making history relevant to the real world (business, economics, policy) are accorded our fair share of jobs, professional laurels, etc. What he is trying to do, in essence, is to shove the same old product down the throats of clients instead of listening to what his clients are telling him and responding accordingly. He hasn't even considered the correct metrics, which are the number of students taking history courses offered out of all departments, not just the number of history "majors." What he would see is that history is thriving while his narrow view of history is the one dying.

Entrepreneurship in South Dakota

So. Dak. So Entrepreneurial

By Robert E. Wright, Nef Family Chair of Political Economy, Augustana University, Sioux Falls, SD for Sioux Falls Rotary West, Sioux Falls Country Club, 3 June 2016

 I often work in my office at Augie late into the evening to write because it’s quieter and with fewer distractions. So I know the night janitor in my building better than most. He’s what comedians call a quote unquote grown ass man, not a kid working his way through college or a retiree supplementing his income. Most college professors, like my colleague Reynold Nesiba, would now launch into a diatribe about needing to raise the minimum wage or the evils and inefficiencies of wealth disparities. They wouldn’t share their own money with the night janitor, mind you, but they would be happy to take some of your money to give to him!
But I’m no ordinary professor and South Dakota is no ordinary state. It turns out that the night janitor is very comfortable indeed because he owns his own cleaning business. While he toils at Augie, he has people who work for him, cleaning various businesses around town. When I asked him where he got such a brilliant idea, he responded that all his family members had been proprietors at some point in their lives. His specific story is not in my book, Little Business on the Prairie, but his story fits the theme perfectly: South Dakota is one of the most entrepreneurial states in the nation.
The claim that South Dakota is hyper-entrepreneurial jars most people on the coasts, especially those who associate entrepreneurship only with high tech startups. In fact, scholars have identified three types of entrepreneurship: innovative, replicative, and exploitative. The last mentioned one includes the sorts of activities depicted in HBO series like The Wire, The Sopranos, and Game of Thrones: extorting, thieving, killing sorts of activities. Thankfully, we have little of that here, though I did read someplace that Ian McShane of Deadwood fame is going to appear on Game of Thrones soon. Of course McShane is British and not actually from Deadwood.
As measured by patent activity, South Dakota is not home to much innovative entrepreneurship. South Dakota ranks 49th in total patents issued but of course its population is about the same as that of Monroe County, New York, the seat of which is my hometown of Rochester. In per capita terms, the state still ranks 47th in patent issuance, better than Arkansas and Mississippi but slightly worse than Alabama. No wonder the state is called South Dakota.
Seriously, South Dakota lacks several key drivers of patent activity, large corporations in manufacturing or big pharm -- that is P H, not F, A R M or a large, private research university. Augie’s a university now, in name, but very small and teaching-oriented and only a handful of public schools have achieved elite, patent producing status and ours are not among them.
Of course not all innovative activities can be patented but measuring them reliably is well-nigh impossible. Measuring replicative entrepreneurship, by contrast, is relatively easy. Replicative entrepreneurs extend innovations developed elsewhere to new markets defined by geography or market segment or niche. It is best measured by proprietorship income as a percentage of total income or rates of self-employment.
Nationally, since 1990, about 10 percent of workers have been self-employed. In South Dakota, the figure is almost twice that. Here is a snapshot from 2012 that shows that self-employment rates in South Dakota for all major categories are higher than the national average except for minorities, a point to which I will return shortly.
The vast majority of farmers are self-employed, replicative entrepreneurs who extend innovations developed elsewhere, at John Deere and Monsanto say, to the prairies and grasslands. That might seem to give South Dakota a leg up in the proprietorship stats but they don’t include agriculture. Here is what they include, which is essentially everything else.
To explain South Dakota’s lead in replicative entrepreneurship, most people point to its public policies, which are among the most business-friendly to be found today. The state has one of the highest levels of quote unquote economic freedom in all of North America and hence the world. That means that total taxes are relatively low, that entry and exit into business is relatively easy, that hiring and firing workers is fairly simple, and so forth.
But the real question is why is South Dakota so economically free? Right next door is a state that ranks considerably lower on the economic freedom scale, though it has improved from the days when it was called Taxasota or Mininumfreedomota. Okay, I made the latter one up. The only way to understand So. Dak.’s high level of replicative entrepreneurship, I believe, is by studying the state’s history backwards. I don’t mean ass backwards -- I’ll leave that to my aforementioned colleague -- I mean we need to ask “What are the root causes of present day conditions?”
Scholars have shown that high levels of entrepreneurship lead to … you guessed it, high levels of entrepreneurship. When people, like Augie’s night janitor, have family and friends who form their own businesses that gives them the courage and knowledge to do likewise, which gets yet more people involved in business on their own account. That explanation, however, is a mere tautology unless we think about why the state’s first inhabitants were replicative entrepreneurs.
Well, the first Euroamerican residents. American Indians were obviously the state’s first inhabitants. We know they engaged in exploitative entrepreneurship well before contact with Europeans. There is a massive massacre site on the Missouri River called Crow Creek that has been dated to about 1325 AD. 10,000 years before that, American Indians killed and slaughtered mammoth in western South Dakota, a clear example of replicative entrepreneurship. Later, especially in the river valleys, Indians engaged in agriculture, planting crops, like maize, domesticated elsewhere, again clear examples of replicative entrepreneurship. If this interests you, I urge you to visit Blood Run, on the Big Sioux right outside of Sioux Falls, for further details.
If you ever find yourself in Mitchell, check out the Archeodome on the south side of the lake. Researchers from Augustana University working there discovered a facility that Indians used to process bison into pemmican, a mixture of fat and protein that keeps for relatively long periods. They may have exchanged it for pottery made downriver at Cahokia, near present day Saint Louis. Not enough of the archeological record survives to proclaim this innovative entrepreneurship, but it was at least replicative.
Unfortunately, the U.S. government did not just steal the Indian’s land, which according to the thinking of the day was justified by non-improvement. What was not justified, by law or religion, was the destruction of native entrepreneurship. Paternalistic government policies essentially infantilized Indians, stripping them of the financial and human capital necessary to start their own businesses as well as the incentives to grow businesses beyond the nano-stage, as exemplified here by Flossie Bear Robe’s sewing business.
So it is to the first Euroamerican settlers that we must turn to for the roots of South Dakota’s entrepreneurial culture. They were miners in the Black Hills, farmers in the east, and ranchers in between, along with the wholesalers and retailers who supplied them with life’s essentials. Here are goods traveling overland before the railroads came in and here are some fancy goods for sale in Sioux Falls. In short, they were almost all replicative entrepreneurs, extending mining techniques learned in California and Nevada, ranching technologies developed in Texas, and farming systems honed in Minnesota, Iowa, and Nebraska, and selling goods manufactured in the Eastern states in ways perfected in that same region.
As I show in Little Business on the Prairie, which makes a great gift if you are not into nonfiction reading yourself, replicative entrepreneurship bred more replicative entrepreneurship each generation ever since. In fact, South Dakota’s history can be told, decade by decade, as the story of the next “Big Thing,” as a series of hot economic activities that drove the state’s economy. A sketch appears on my blog,, that’s financehistoryandpolicy all one word dot blogspot dot com, where I’ll also post a copy of this talk.
Here are some highlights:
Sturgis: an orgy of entrepreneurship as well as of the flesh
The Black Hills lumber industry
The Aeronautics industry: heavier and lighter than air
Sioux Falls’ Automobile industry: The famous Fawick Flyer
Tourism as big as the sky
Although Amerindian entrepreneurship was squelched and hence did not spur the state’s entrepreneurial culture, the American Indian’s story is an important one because it shows what the state’s economy would look like if the government were to greatly diminish the economic freedom of the state’s non-Indians. Incomes East River would not be quite as low as they are in the state’s Indian Country because the soil is better and water more plentiful, but they would be much lower than they currently are.
Some of you might be thinking that Indians are different, even racially or culturally inferior, and that explains the poverty found on Pine Ridge, Rosebud and so forth. If so, expunge the thought immediately as it is pure, unadulterated male cattle feces. Indians thrive economically when allowed to do so and, as the son of an Appalachian, I’ve seen Euroamericans living in utter despair and squalor in districts run by, and for, the coal industry.
Thankfully, early South Dakotans endowed us with a healthy skepticism of government as well as a culture of replicative entrepreneurship. South Dakota has long possessed one of the most small-d democratic governments in the world and its constitution is replete with checks against arbitrary governmental power. One reason that the same political party was able to dominate the state’s government almost every year for an entire century was that the electorate, unlike voters in many other states, felt no need to see-saw back and forth between the parties to maintain some semblance of balance.
One of those important checks against governmental overreach, however, appears to be getting out of control. Generally speaking, ballot initiatives served South Dakota’s citizens well when the prevailing ethos would not countenance laws that interfered with individual economic freedom. Due perhaps to the increasingly nationalized K thru 12 curriculum taught in South Dakotan schools and the influx of immigrants from more liberal, by which I mean statist, places throughout the United States and abroad, initiatives that would not have been countenanced even a decade ago are now making it to voters and even winning.
If left unchecked, ballot initiatives may become too democratic, too much like De Tocqueville’s tyranny of the majority, too much like two wolves and a sheep voting on the dinner menu. Rather than abandon ballot initiatives, I think we should limit their scope via the Golden Rule. In other words, policy X must apply to everybody, not just group Y. For example, if you believe that the government should be allowed to prevent people from working unless they earn at least so much per hour, then you should be prepared to allow the government to set a minimum salary for your particular occupation as well. Then imagine explaining to your daughter that you lost your job because your company can only pay you $56,000 per year for a job that the government says it needs to pay at least $60,000 to fill.
Or, if you believe that some interest rates are too high and should be capped, then you should be prepared to allow the government to set all interest rates, which is the same thing as it deciding who gets credit and who does not. Then imagine explaining to your son that you cannot buy him an automobile because you cannot find a loan for less than the 6% the government says you are allowed to pay.
In short, right now it is just too easy to vote to restrict other people’s economic freedom while continuing to enjoy your own.
Too much is at stake here to be decided by a simple majority on a specific date. As economic freedom deteriorates, so too will levels of entrepreneurship and that will snap the close connection between present and future levels of entrepreneurship. Then South Dakota will start to look like my home state of New York, where people who lose their jobs ask “how much money can I get from the government and for how long?” instead of “how can I go into business for myself” as many South Dakotans still do. What they have in New York and states like it is a vicious cycle of high taxes and restrictions on hiring and firing necessitated by high levels of unemployment. That means less economic freedom and hence less entrepreneurship and hence more need for expensive social programs when the economy turns sour, as it often does in places that cannot rapidly respond to market changes because of a dearth of economic freedom. That means more taxes and another spin of the wheel, or rather another swirl of the toilet water.
If South Dakota turning into New York sounds far-fetched, keep in mind that the state’s economy has thrice imploded, once due to drought and migration outflow, once due to drought and restrictions on economic freedom called the New Deal, and once due to drought, migration outflow, and restrictions on economic freedom called Nixon’s New Economic Plan and inflation. Well, to adapt a famous line from Game of Thrones to the West, drought is coming, we just don’t know exactly when, but it will bring zombie cattle. The state’s economy is more diverse than it was as recently as the Farm Crisis of the 1970s and 80s but it is to some extent a Ponzi scheme based on in-migration, which is a function of jobs and hence ultimately on levels of entrepreneurship and economic freedom. If migration flows were to stop or, worse, to reverse, the whole boom could quickly unwind as housing prices drop and construction jobs dry up.
Trust me on this as I saw it firsthand in my hometown of Rochester, New York, which lost 34 percent of its population in the last few decades of the twentieth century. It stabilized soon after I left in 1995 but I’m 99 percent sure my departure was more effect than cause. Okay, 100 percent. The cause was the loss of economic freedom throughout the state that led Kodak executives to ignore their company’s greatest invention, digital photography. Given the high tax rate, it was simply too much work to develop a whole new industry so they milked their cash cow, photograph development, dry until an east wind just blew it away and its plants had to be shuttered. That’s was a pun, by the way. Xerox, too, got fed up, first moving its headquarters and then most of its operations out of the state. Others were not far behind, leaving only Bausch and Laum to carry on the city’s storied comparative advantage in optics.
Can you tell that I don’t want to be an economic refugee again? But I also don’t want other people to suffer needlessly. The way to help the poor is to directly transfer resources to them, not to implement public policies the unintended ripple effects of which few voters grasp or even think about.
Thanks for your time and attention. Any questions about So. Dak.’s long history of entrepreneurship?

Tuesday, May 24, 2016

Yet More Evidence Against State Usury Laws

Ever wonder why Arkansas was an economic basket case for so long? If you have ever driven through it, it is not all Ozark Mountains. (And mountains can be very good for an economy as South Dakota showed.) It is, basically, just part of the thriving Sun Belt.

Well, it turns out that after World War II it was controlled by loan sharks who imposed a binding usury cap on institutional lenders. Without an effective financial system, business stagnated and the state economy suffered. For details, see James M. Ackerman, “Interest Rates and the Law: A History of Usury,” Arizona State Law Journal (1981): 103-5.

An attempt by Good Will Industries and Prospera Credit Union to reduce the cost of payday loans got it down to $9.90 per $100 borrowed for 2 weeks. "Its experiment offers clear proof that two-week or one-month loans could never be viable if the usury limit were reduced to 36%." -- Robert Mayer, Quick Cash: The Story of the Loan Shark (DeKalb: Northern Illinois University Press, 2010), 225.

Friday, April 22, 2016

Warpreneurship on the Prairie During the Great War

Warpreneurship on the Prairie During the Great War

By Robert E. Wright, Nef Family Chair of Political Economy, Augustana University for the Center for Western Studies Dakota Conference, Sioux Falls, S.D., 23 April 2016.

As I argued in Little Business on the Prairie, which was published by the Center for Western Studies this time last year, South Dakota was from its inception a very innovative place. Necessity birthed creativity, and living in this beautiful but isolated and dangerous land, South Dakotans needed a lot. Much of what South Dakotans needed they purchased from innovators in other states or countries but because of their state’s unique climate and geology, low population density, and distance from major urban centers, South Dakotans enjoyed a comparative advantage in some areas, including farming and ranching, of course, but also air travel, military bases, mining, telephonics, tourism, and wholesale distribution.
As I showed conferees at the 2014 Dakota conference, already by 1910 South Dakota was home to 2,165 corporations taxed by the federal government. Almost a third were the tiny branchless banks mandated by federal and state banking regulations, but the other largest sectors comported with the state’s comparative advantage as show in slide 2.[i] So even before World War I, the first of the two Great Wars of the twentieth century, South Dakota’s economy showed signs of sectoral diversification and development on a scale recommending the use of the corporate form. In short, the state wasn’t all cornfields and cattle pastures. But economic diversification was not a linear process. The Second World War, in particular, made the state’s economy more dependent on agriculture.
The two Great Wars stimulated much war-related entrepreneurship, or warpreneurship, but, aided by ample rain, it mostly took the form of replicative agricultural entrepreneurship.[ii] In other words, more farming and ranching rather than more mining, manufacturing, or service. To see this, let’s look at a couple of slides. The first, slide 3, shows non-farm proprietary income -- that’s basically the profits of South Dakotans running their own non-agricultural businesses -- as a percentage of total income. Note that during World War II, non-farm proprietary income remained relatively stagnant and slightly below its average for the 1929 to 1961 period. Slide 4 shows why: farm proprietary income as a percentage of total income was extremely high during World War II, a major turnaround from the losses of the Depression decade and well above the average of the 1929 to 1961 period.
Slide 5 illustrates the change in sources of income for South Dakotans between 1940 and 1946. During that period, farm income increased its share of total income by over 15 percent. Miscellaneous income, which was inconsequential anyway, increased its share slightly and construction was able to hold its own, largely due to military construction in Sioux Falls, Rapid City,[iii] and some smaller communities like Edgemont.[iv] Every other major sector, from mining to government, lost some of their share of the percentage of total income. In other words, they shrank in absolute terms or grew less slowly than the agricultural sector and hence became less important components of the state’s economy during the war.
Of course the state’s economy grew quickly during World War II so almost every sector saw an increase in its absolute dollar size, from blue to red in slide 6. The sole exception was mining because the War Production Board shuttered the prodigious Homestake gold mine.[v] So some room for warpreneurship outside of agriculture existed, there just was not much of it because the smart money went into farming and ranching.
That World War II did not stimulate much manufacturing in South Dakota makes sense once one realizes that most of the state’s prewar manufacturing base was concentrated in food processing, printing, lumber and wood, and stone products, none of which were as important to the war effort as heavy manufacturing. Manufacturing enterprises of all other types numbered just 40 in 1939 and 51 in 1947 and manufacturers employed just 360 people before the war and 878 people after it, less than 10 percent of the state’s manufacturing workforce in both cases.[vi]
            Moreover, companies in South Dakota’s core manufacturing areas faced new obstacles during the war. Valley Queen Cheese in Milbank, for example, began to produce both butter and cheese during the war but the government slapped ration controls on both, rendering further innovation impractical.[vii] The war also trashed the state’s burgeoning hunting tourism industry to such an extent that farmers hired young boys to walk their fields and stomp on the eggs of pheasants, a game bird introduced to the state by warpreneurs during the Great War.[viii]
            Both World Wars stimulated postwar non-agriculture related entrepreneurship in South Dakota by increasing human capital or know-how. The number of licensed pilots in both states jumped after each war, for example, and the new pilots soon put their talents to work in a variety of ways including entertainment, transportation, crop dusting, and photography.[ix] The human capital of the state’s Amerindians also increased greatly during the World Wars but unfortunately federal policies and bureaucracies continued to limit their incentives to put their new skills and experience to work on the state’s numerous, large, and impoverished Reservations.[x] The strong desire on the part of many Lakota to work for themselves therefore manifested itself in nano, or extremely small scale, entrepreneurship.[xi]
            South Dakota’s economy eventually diversified away from agriculture, most dramatically in the 1980s and no thanks to either of the World Wars. One could imagine another world war, global climate change, or a large natural catastrophe once again driving the state’s economy back towards a large reliance on agriculture but for the foreseeable future the state’s growth drivers will remain in human capital intensive service sectors like healthcare, research, and higher education.

[i] Corporate Assessment Lists, 1909-1915, Volume 29, Records of the Internal Revenue Service, Record Group 58, National Archives and Records Administration, Washington, DC.
[ii] Harry Thompson, ed. A New South Dakota History 2nd ed. (Sioux Falls: Center for Western Studies, 2009), 210, 237.
[iii] Robert E. Wright, Little Business on the Prairie: Entrepreneurship, Prosperity, and Challenge in South Dakota (Sioux Falls: Center for Western Studies, 2015), 93.
[iv] Harry Thompson, ed. A New South Dakota History 2nd ed. (Sioux Falls: Center for Western Studies, 2009), 189.
[v] Robert E. Wright, Little Business on the Prairie: Entrepreneurship, Prosperity, and Challenge in South Dakota (Sioux Falls: Center for Western Studies, 2015), 57, 312-13.
[vi]W.K. Gray et al, South Dakota Economic and Business Abstract, 1939-1962 (Vermillion: University of South Dakota Business Research Bureau, 1963), 238.
[vii] Ron Robinson, Valley Queen Cheese: The Birth and Growth of an American Dream (Sioux Falls: Ex Machina Publishing Cmopany, 2006), 47.
[viii] Robert E. Wright, Little Business on the Prairie: Entrepreneurship, Prosperity, and Challenge in South Dakota (Sioux Falls: Center for Western Studies, 2015), 171-73.
[ix] Robert E. Wright, Little Business on the Prairie: Entrepreneurship, Prosperity, and Challenge in South Dakota (Sioux Falls: Center for Western Studies, 2015), 64-68.
[x] Robert E. Wright, Little Business on the Prairie: Entrepreneurship, Prosperity, and Challenge in South Dakota (Sioux Falls: Center for Western Studies, 2015), 76; Kathleen Ann Pickering, Lakota Culture, World Economy (Lincoln: University of Nebraska Press, 2000).
[xi] Kathleen Ann Pickering, Lakota Culture, World Economy (Lincoln: University of Nebraska Press, 2000), 20-21.