A Subversive Take on Captive State

A Subversive Take on Captive State

The apparent intent of the creators of the recently released film Captive State is that all it will take to
destroy the evil capitalist system currently destroying both humanity and the environment is for a
highly-placed, well-intentioned insider like John Goodman to spark a revolution.

My interpretation, though, is rather more subversive.

The movie’s aliens come not to annihilate or even enslave humanity but to become the alpha dogs
of our current world, or at least the wet nightmare crony version of it conjured by many on the Left.

The unequivocal message is that although the aliens and their capitalist betas employ super scary
weapons and tracking technologies, they can be defeated with ingenuity, their own weapons,
and the blood of a few martyrs.

While it seems likely that people throughout the globe indeed would try to expel alien overlords,
termed “Legislators” in the movie, if they had any hope of success, the global proletariat has
yet to unite or otherwise cast off the “chains” Marx imagined.

Communist revolutions occurred in backwards places like Russia, China, and Cuba because most
people in those places had nothing to lose. That is clearly not the case in the developed world.
America may yet slide into an alcohol soft middle aged socialism but it will be due to intellectual laziness,
not violent revolution, and certainly not this so-so movie.

Applying Game Theory Models to Games (Athletic Contests)

Applying Game Theory Models to Games (Athletic Contests)

By Robert E. Wright, Nef Family Chair of Political Economy, Augustana University for the 30^th Annual Teaching Economics Conference, McGraw-Hill Higher Education/Robert Morris University, Moon Township, Pennsylvania, 22-23 February 2019.

“In theory, there is no difference between theory and practice. In practice there is.” Or so baseball legend Yogi Berra once reputedly quipped. He may have said that -- it sounds like Yogi -- but he wasn’t the first to utter those words, an upperclassman at Yale in 1882 was (https://quoteinvestigator.com/2018/04/14/theory/). Similarly, I am not the first to apply game theory to sport (see, e.g., Mottley 1954) but I hope to add to the discussion by suggesting that game theory’s application to coaching territorial team sports like basketball, football, hockey, lacrosse, rugby, soccer, and water polo, can be powerful, but it is not a panacea and even can be counterproductive. Game theory is often more powerfully applied to various non-territorial sports, including baseball (see, e.g., Weinstein-Gould 2009; Turocy 2014) and volley sports like tennis and volleyball (Lin 2014).

I would not call strategic problems in the actual playing of territorial team sports “wicked,” in the technical sense of “wicked social problems” that have no stopping rule, have solutions that are only better or worse rather than right and wrong, and so forth (Peters 2017). But they are certainly “complex” problems a la Nason (2017) and even “chaotic” a la Fergus Connolly (Connolly and White 2017), who incidentally consults for the Robert Morris University Colonials, among other elite level teams. His hyper-interdisciplinary systems-within-systems approach to territorial sports forms the core of the masters course that I teach at Augustana University on the Business of Coaching.

But Connolly’s approach does not make absolutely clear to readers that successful coaches must engage in strategic competition, where strategy refers to the anticipation of the moves of their opponents and not some vague notion of planning, as in the term “game plan.” Game theory, which of course is intrinsically interesting for many students and a key tool in the honing of strategic sensibilities (Dixit 2005), barely registers in Connolly’s otherwise seminal/ovanal/gaminal 2017 opus, Game Changers.

Two player/team/coach games, especially zero-sum ones, seem like a natural way to apply game theory to sport. The realities of on-field competition, however, quickly reveal the shortcomings of simultaneous one-shot games, much as happened when Chicken was applied to the Cuban Missile Crisis (Zagare 2014) and the Prisoner’s Dilemma (PD) was applied to the actual behaviors of criminals (Khadjavi and Lange 2013). In both instances, it quickly became apparent that PD and other simple games exist within larger game structures and cannot in themselves always satiate real world decision makers. For example, HBO’s The Wire showed that the simple PD description we all work through in class (a la Tucker 1983) is, in the reality of Baltimore’s drug scene, embedded in another game, actually referred to on the street as The Game, where “snitches get stitches,” or worse, creating a payoff structure where players keep their mouths shut no matter what (Cherrier 2012).

Simple games also break down due to the speed of competitive play. Time to think through payoff structures does not exist; reactions must be instinctive to be fast enough to matter. The best that can be done is for coaches and players to think through and model various game scenarios and then drill the rational responses, much as ex-NHL player Nicklas Lidstrom has done regarding one-on-one plays in hockey, and so forth (Lennartsson, Lidstrom, and Lindberg 2015).

Many games applicable to sport have mixed strategy equilibria and hence dissolve into Minimax with random strategy solutions (see, e.g., Flanagan 1998), a fact that the offensive coordinator of the Los Angeles Rams seems not to have fully grasped during the recent Super Bowl LIII. Several studies have shown that minimax predictions do not hold up well in the laboratory (Levitt, List, and Reiley 2010) but do on the field, at least where strategy randomization and outcomes can be precisely measured, as in tennis serves and soccer penalty kicks (Palacios-Huerta 2003). Similarly, McGarrity and Linnen (2010) leverage a natural experiment, the injury of a starting quarterback, to show that NFL football teams play the equivalent of a matching pennies game wherein the defense tries to match the offense’s decision to run or pass and the offense tries to not match the defense’s decision. I suggest that football teams actually run three types of plays -- run, pass, and hybrids like draws, options, play action, and screens -- so a rock-paper-scissors type game might be even more realistic (Spaniel 2011).

In any event, working through mixed strategy examples can be helpful for aspiring coaches to see that randomness can be optimal under specific conditions. That does not alleviate their angst concerning their replacement by, if not just computers, then nerds using computers (Davenport 2016; Jones 2018), but it can help them to overcome behavioral biases like the risk aversion that apparently induces baseball pitchers to throw too many fastballs (Kovash and Levitt 2009), football coaches to punt too frequently on fourth down and to run the ball too much, and basketball players not to attempt as many three-point shots as they should (Fichman and O’Brien 2018).

The best applications of game theory to territorial sports often occur off the field but can still be of immense importance to coaches. Aspects of sport design, a huge arena ably surveyed, albeit over 15 years ago now, by Szymanski (2003), are amenable to game theoretic modeling. How to keep up fan interest is a core concern as it forms the basis for all sports funding, except in amateur pay-to-play leagues, in which case maximization of player and/or parent utility is paramount. Most research suggests that fans want the home team to win, but in a close contest, rendering mechanisms for ensuring something like on-field parity of prime interest. That leads in many fruitful directions, like rules for demoting teams from the top tier, as in European soccer leagues, and drafting new players. Forty years ago, for example, Brams and Straffin (1979) showed, with a simple PD game and four fairly realistic assumptions about complete information and incomplete collusion, that North American-style drafts could lead to Pareto inefficient outcomes. As Syzmanski (2010) has shown, however, many early treatments of competitive balance made unrealistic assumptions about the correspondence between individual athletic talent and team wins. In sum, the sum of individual talent can be greater than, equal to, or less than actual team performance.

The need to maintain competitive balance also raises the largely intractable issue of doping, or the use of performance-enhancing substances (Kirstein 2009). Frank Daumann of the Institute for Sports Science in Jena, Germany, recently (2018) offered a game theoretic analysis of the doping strategies of two athletes that can be easily modified to a scenario where two head coaches must decide whether or not to allow their players to use performance enhancing substances not explicitly banned by the league or conference in which they compete. Benefits of doping include a higher probability of winning and hence of job retention (Fizel and D’Itri 1997), advancement, bonuses, and a burnished reputation. Costs include the price of the substances themselves and reductions in athlete health, both presumably small in present value terms, and the risk of a tarnished reputation (Butler 2014). This, Daumann shows, could be modeled as a one-off PD such that both coaches will decide to allow their players to dope although both teams would be better off if they did not use performance enhancing substances.

But of course in team sports, especially the territorial ones considered here, athletes may try to free ride on their teammates. In other words, simply because a coach signals that athletes may dope does not mean that they will choose to do so as players may hope that enough of their fellows will bear the costs of doping to improve team performance without having to bear the costs themselves.

The prospect of free-riding raises the specter of coaches forcing their players to dope, or leveraging asymmetric information to trick them into doping (Johnson 2003), either of which would radically change the payoff structure the coach faces as he or she may have to bear all of the cost of the enhancement substances and any negative social and reputational effects if league officials, competitors, or fans discover the doping, which seems more likely if the coach forces it than if he or she simply allows it (Dunbar 2014). Coercion seems unlikely, moreover, because team sport coaches regularly face free rider problems in a variety of areas and have techniques for mitigating them analogous to the techniques used by those drug dealers in Baltimore that I mentioned earlier.

Like the leaders of drug dealers and criminal gangs (Spergel 1990), organized crime “families” (Shvarts 2002), and most military units (Rose 1945-46; Montgomery 1946), coaches reduce free riding by creating a culture of trust, an ideology of service to others, and pseudo-familial bonds through various rituals and shared adversity. In effect, they try to reduce the economic rationality of their athletes by convincing them that they love their teammates more than they love themselves (Connolly and White 2017), thus inducing them to place a large weight on their colleagues’ well-being in their own utility functions (Bergstrom 1997). Game theory aficionados will recognize the similarities of this with the Battle of the Sexes, the iconic version of which features a husband who wants to go to a football game and a wife who wants to go to the opera but both prefer that outcome only if they can persuade the other spouse to attend with them (Hahn 2003).

Of course, cultural manipulations sometimes fall short or break down under stress, so coaches have other tools for reducing free riding. One I call the wildebeest solution after a technique that wildebeest herds reputedly use to cross crocodile-infested waters during their great migrations across the African savannah. They force the putatively oldest, weakest, least fertile member of the herd into the waters first. As the voracious crocs devour her, the younger, stronger, healthier members of the herd safely cross (Sapolsky 2017). No strategic choice is involved as the wildebeests force one of their number into the river first, but costly signaling may be involved. The key to survival is to appear not to be the oldest, weakest member of the herd or, in our case, team, where death-by-crocodile is substituted with getting cut from the team. Coaches, in other words, can reduce defection, free riding, and shirking by making it clear that players who do not signal that they are “team players,” who do not stand ready to forgo the temptation to free ride, may end up making the ultimate sacrifice (Spence 1973).

Despite some recognition that Braess’s paradox may apply to territorial team sports like basketball (Skinner 2010), superstar athletes know that coaches cannot costlessly bench them, much less cut them from the team, so some may shirk or defect by going for individual statistics instead of wins (Berri and Krautmann 2006; Krautmann and Donley 2009), which is why it is wise to make team performance, short of championship bonuses, a major component of elite athlete compensation (Frick 2003). For most players, though, fear of being labelled the wildebeest is enough to induce them to take one for the team, even if that means injecting or imbibing some new or unusual substance not yet banned.

In sum, coaches and other sports administrators can leverage the insights of game theory to improve competitive outcomes but they need to employ theory carefully and switch toolkits when need be, or face becoming the expendable wildebeest themselves.

References

Audas, Rick, John Goddard, and W. Glenn Rowe. (2006) “Modelling Employment Durations of NHL Head Coaches: Turnover and Post-succession Performance.” Managerial and Decision Economics 27, 4: 293-306.

Azar, Ofer H. and Michael Bar-Eli. (2010) “Do Soccer Players Play the Mixed-Strategy Nash Equilibrium?” Applied Economics 43, 25: 3591-601.

Bergstrom, Theodore C. (1997) “A Survey of Theories of the Family.” In Mark R. Rosenzweig and Oded Start, eds. Handbook of Population and Family Economics, Vol. 1A, New York: Elsevier.

Berri, David J. and Anthony C. Krautmann. (2006) “Shirking on the Court: Testing for the Incentive Effects of Guaranteed Pay.” Economic Inquiry 44, 3: 536-46.

Brams, Steven J. and Philip D. Straffin, Jr. (1979) “Prisoners’ Dilemma and Professional Sports Drafts.” The American Mathematical Monthly 86, 2: 80-88.

Butler, Nick. (2014) “Coaches Can Influence Whether Athletes Decide to Dope, Claims Scottish Study.” Inside the Games: The Inside Track on World Sport 6 March.

Cherrier, Beatrice. (2012) “To Teach or Not to Teach Economics with The Wire?” Institute for New Economic Thinking Blog 1 November.

Connolly, Fergus and Phil White. (2017) Game Changer: The Art of Sports Science. New York: Victory Belt Publishing.

Daumann, Frank. (2018) “Doping in High-Performance Sport -- The Economic Perspective.” In The Palgrave Handbook on the Economics of Manipulation in Sport, Markus Breuer and David Forrest, eds. New York: Palgrave Macmillan, 71-90.

Davenport, Mike. (2016) “Will a Robot Take Your Coaching Job?” CoachingSportsToday 27 March. https://coachingsportstoday.com/will-robot-take-coaching-job/

Dixit, Avinash. (2005) “Restoring Fun to Game Theory.” Journal of Economic Education 36, 3: 205-19.

Dunbar, Graham. (2014) “Lance Armstrong’s Coach Banned 10 Years for Dope Promotion.” Las Vegas Review Journal 22 April.

Fichman, Mark and John O’Brien. (2018) “Three Point Shooting and Efficient Mixed Strategies: A Portfolio Management Approach.” Journal of Sports Analytics 4, 2: 107-120.

Fizel, John L. and Michael P. D’Itri. (1997) “Managerial Efficiency, Managerial Succession and Organizational Performance.” Managerial and Decision Economics 18, 4: 295-308.

Flanagan, Thomas. (1998) “Game Theory and Professional Baseball: Mixed-Strategy Models.” Journal of Sport Behavior 21, 2: 121-38.

Frick, Bernd. (2003) “Contest Theory and Sport.” Oxford Review of Economic Policy 19, 4: 512-29.

Hahn, Sunku. (2003) “The Long Run Equilibrium in a Game of ‘Battle of the Sexes’.” Hitotsubashi Journal of Economics 44, 1: 23-35.

Hsu, Shih-Hsun, Chen-Ying Huang, and Cheng-Tao Tang. (2007) “Minimax Play at Wimbledon: Comment.” American Economic Review 97, 1: 517-23.

Johnson, Michael. (2003) “Athletes Must Take Share of the Blame.” The Telegraph 25 October.

Jones, Dean. (2018) “How Close Are We to Having Robots as Managers in the Premier League?” Bleacher Report 23 November. https://bleacherreport.com/articles/2806980-how-close-are-we-to-having-robots-as-managers-in-the-premier-league

Khadjavi, Menusch and Andreas Lange. (2013) “Prisoners and Their Dilemma.” Journal of Economic Behavior and Organization 92: 163-75.

Kirstein, Roland. (2009) “Doping, the Inspection Game, and Bayesian Monitoring.” Working Paper. 8 October.

Kovash, Kenneth and Steven D. Levitt. (2009) “Professionals Do Not Play Minimax: Evidence from Major League Baseball and the National Football League.” NBER Working Paper 15347.

Krautmann, Anthony C. and Thomas D. Donley. (2009) “Shirking in Major League Baseball Revisited.” Journal of Sports Economics 10, 3: 292-304.

Lennartsson, Jan, Nicklas Lidstrom, and Carl Lindberg. (2015) “Game Intelligence in Team Sports.” PLOS One 13 May.

Levitt, Steven D., John A. List, David H. Reiley. (2010) “Stays in the Field: Exploring Whether Professionals Play Minimax in Laboratory Experiments.” Econometrica 78, 4: 1413-34.

Lin, Kai. (2014) “Applying Game Theory to Volleyball Strategy.” International Journal of Performance Analysis in Sport 14, 3: 761-74.

McGarrity, Joseph P. and Brian Linnen. (2010) “Pass or Run: An Empirical Test of the Matching Pennies Game Using Data from the National Football League.” Southern Economic Journal 76, 3: 791-810.

Montgomery, Bernard. (1946) “Morale in Battle: Address Given to the Royal Society of Medicine.” British Medical Journal 2, 4479: 702-4.

Mottley, Charles M. (1954) “Letter to the Editor -- The Application of Operations-Research Methods to Athletic Games.” Journal of the Operations Research Society of America 2, 3.

Nason, Rick. (2017) It’s Not Complicated: The Art and Science of Complexity in Business. Toronto: UTP-Rotman Publishing.

Palacios-Huerta, Ignacio. (2003)  “Professionals Play Minimax.” The Review of Economic Studies 70, 2: 395-415.

Peters, B. Guy. (2017) “What Is So Wicked About Wicked Problems? A Conceptual Analysis and a Research Program.” Policy and Society 36, 3: 385-96.

Rose, Arnold. (1945-46) “Bases of American Military Morale in World War II.” The Public Opinion Quarterly 9, 4: 411-17.

Sapolsky, Robert W. (2017) Behave: The Biology of Humans at Our Best and Worst. New York: Penguin.

Shvarts, Alexander. (2002) “Russian Mafia: The Explanatory Power of Rational Choice Theory.” International Review of Modern Sociology 30, 1/2: 69-113.

Skinner, Brian. (2010) “The Price of Anarchy in Basketball.” Journal of Quantitative Analysis in Sports 6, 1.

Spaniel, William. (2011) Game Theory 101: The Complete Textbook. Createspace IPP.

Spence, Michael. (1973) “Job Market Signaling.” Quarterly Journal of Economics 87, 3: 355-74.

Spergel, Irving A. (1990) “Youth Gangs: Continuity and Change.” Crime and Justice 12: 171-275.

Szymanski, Stefan. (2003) “The Economic Design of Sporting Contests.” Journal of Economic Literature 41, 4: 1,137-87.

_______. (2010) “Teaching Competition in Professional Sports Leagues.” Journal of Economic Education 41, 2: 150-68.

Tucker, Albert W. (1983) “The Mathematics of Tucker: A Sampler.” The Two-Year College Mathematics Journal 14, 3: 228-32.

Turocy, Theodore L. (2014) “An Inspection Game Model of the Stolen Base in Baseball: A Theory of Theft.” Working Paper. 22 August.

Weinstein-Gould, Jesse. (2009) “Keeping the Hitter Off Balance: Mixed Strategies in Baseball.” Journal of Quantitative Analysis in Sports 5, 2.

Zagare, Frank C. (2014) “A Game-Theoretic History of the Cuban Missile Crisis.” Economies 2: 20-44.

Why the History of Capitalism Subfield Got Slavery (and Almost Everything Else) so Terribly Wrong

Why the History of Capitalism Subfield Got Slavery (and Almost Everything Else) so Terribly Wrong

By Robert E. Wright, Nef Family Chair of Political Economy, Augustana University

Abstract:

This article summarizes the argument of my 2017 book, The Poverty of Slavery: How Unfree Labor Pollutes the Economy, which critiques the work of “historians of capitalism,” especially Ed Baptist’s The Half Has Never Been Told. It then explains how those historians were able to convince themselves, despite all the evidence to the contrary, that slavery and other forms of unfreedom can spark economic growth and development. It concludes by suggesting that governments should continue to ban even so-called “voluntary slavery” because they cannot effectively enforce labor contracts.

JEL codes: J10, N00, N01, O12, P51

Keywords: slavery, economic growth, economic development, negative externalities, deadweight losses

The thesis of my 2017 book, The Poverty of Slavery: How Unfree Labor Pollutes the Economy, will seem trite to many readers of this journal. It is, simply, that enslaving others, which I define according to a 20 point scale, has never anywhere caused economic growth or development. From the beginning of recorded history, enslavers have coerced laborers to build great monuments, complex systems of infrastructure, and even entire cities. Their societies, however, were poor in per capita terms and their economic development was stunted and always eventually reversed. Vide, for example, the Dark Ages that followed the fall of Rome. Although some slave nations, like the U.S. and U.K., grew rich, others, like Holland, Switzerland, and the Asian Tigers, grew wealthy without being slave societies, proving that the widespread enslavement of human beings is not a necessary cause of growth. Moreover, the U.S. and the U.K. jettisoned forced labor in its most virulent forms as slavery’s inimical effects on growth and development became ever clearer with the aid of natural experiments, especially that offered by the division of the United States into free and slave states.

Freedom leads to prosperity and unfreedom to poverty. Communist and other types of rent-seeking dictators essentially enslaved their populations, depleting their incentive to work harder and smarter, i.e., to make the innovations necessary to drive productivity growth. Economic stagnation, it turns out, is just one of the many negative externalities created by unfreedom. Numerous others abound, like the deadweight losses associated with restricting the economic and civil liberties and controlling the behavior of the enslaved. In the aggregate, the negative externalities created by slavery swamp the marginal profits of slaveholders, past and present. Slavery, in this view, is the most socially expensive and virulent form of pollution in history.

Why would I spend years writing about something so obvious? In short, for almost the last decade ‘historians of capitalism,’ the group of scholars writing in the new subfield called the ‘new history of capitalism,’ have been asserting the exact opposite. In their view, most clearly stated in Ed Baptist’s screed The Half Has Never Been Told, slavery caused the Industrial Revolution and hence America’s and Great Britain’s current economic prosperity. I trash that view in Poverty and eminent economic historians, from Alan Olmstead to Peter Rousseau, have subjected the book to detailed criticism, down to its own bailiwick, the interpretation of narrative primary sources (Murray et al 2015).

Richard Kilbourne also argues that historians of capitalism also have badly misunderstood the financial system’s role in America’s system of chattel slavery, while David Blair shows that they have missed the large negative externalities created by the international trade in human beings. Putting all this criticism together, any objective observer must conclude that Adam Smith and today’s economic historians are right and that slavery did not, and cannot, cause economic growth, which of course was the consensus view in the century and a half between the start of the U.S. Civil War and the rise of the history of capitalism subfield circa 2008. (Historians of capitalism have also botched most other topics they have tried to address but there is insufficient room to detail their failures here and, thanks to a recent article by economist historian Eric Hilt, little incentive to do so.)

This conclusion of course raises the troubling question of why historians of capitalism were so wrong about the economic effects of slavery. At one level, the answer is that they are engaged in low-quality activist scholarship that seeks to make a case for the payment of reparations to the descendants of American chattel slaves. The general gist of their story is that slavery made America rich so its government ought to make restitution to the descendants of slaves. None of the historians of capitalism, however, propose adequate answers to the difficult decisions that such a policy would entail. Would, for example, the descendants of slaves fathered by plantation owners have to pay reparations to themselves? Would an impoverished Appalachian whose great, great, great, great grandfather owned a single slave for a single year have to pay reparations to a multi-millionaire actor, basketball player, or entrepreneur who happened to be descended from a slave on one half of his or her family tree? Would the descendants of coal miners and textile factory operatives who were subjected to coercive labor methods themselves have to contribute to the reparation fund as well? The mind quickly boggles at the complexity of the problems a real world reparations policy would entail even without considering the political mire into which it would almost certainly fall. It seems likely, then, that historians of capitalism are simply trying to score ideological points rather than set forth an actual policy agenda.

But in trying to put themselves on the ‘right side’ of history, historians of capitalism have put themselves on the wrong side of the present. By some counts, over 40 million people in the world today are enslaved, as in physically and/or psychologically prevented from leaving a place of work to seek employment elsewhere. Many are the victims of the sex trade, but about half beg, fish, or manufacture bricks, carpets, cigarettes, or other commodities entirely for the benefit of their masters. Slavery, arguably worse than the chattel slavery of the Old South because the market price of slaves has plummeted to just a few dollars (and hence the incentive to keep them alive and well is low, creating what Kevin Bales [1999] calls “disposable people”), remains endemic in parts of South Asia, Southeast Asia, Africa, and Latin America. Many governments, including the U.S. government, have been pressuring nations with significant ‘human trafficking’ problems to shape up or face various sanctions.

Today’s enslavers and the local government officials tasked with stopping them are thrilled to hear that slavery creates economic growth because it gives them an excuse to maintain the status quo. They point to the claims of historians of capitalism and say, in effect, see, the West got rich off of slavery and now wants to keep us poor by denying us the goose that laid their golden eggs. (They use similar logic to argue in favor of looser pollution controls, higher tariffs, and a host of other policies that favor special interest groups rather than actually drive economic growth and development.) So, to score some points for a policy that has little to no chance of ever being implemented, but which sounds good in certain ideological circles, historians of capitalism have helped to doom to slavery tens of millions of people alive today.

How could historians of capitalism justify such a tradeoff? Simply put, they had no clue on either end of the transaction. None of them really understand the economics of growth or slavery, past or present, because they know almost nothing about economic theory or thought. Most graduate programs in history do not require any training in economics, even for those students interested in pursuing topics with significant economic content. Field and dissertation advisers are supposed to guide history Ph.D. candidates to read the books they need to understand their areas of interest. The problem is that most top Ph.D.-granting history departments have no real economic or even business historians on their staffs and those that do typically have only one, who since the revival of interest in economic and business topics in history departments following the Crash of 2008 are stretched unconscionably thin (Townsend 2015).

History departments, in other words, have a real human capital problem, and it is one of their own making. Prior to 1970 or so, historians considered economic history to be an important subfield and hence stayed staffed up. After the so-called Linguistic Turn, history departments began leaving economic history slots unfilled, concentrating their increasingly meager resources on various types of cultural history. By the mid-1990s, when I was earning my Ph.D. in History, it was difficult to find any economic historians still taking graduate students. Some, like Stu Bruchey and Ed Perkins, were getting too old and disillusioned, while others, like John McCusker and Thomas Doerflinger, fled the Research I life for smaller institutions or left academe altogether. At SUNY Buffalo, I had to study under Richard E. Ellis, a brilliant historian but a specialist in political and legal history, and teach myself economics by reading Hume, Steuart, Smith, Hamilton, Ricardo, Mill, and eventually modern economists.

By the time I was on the tenure track job market in the late 1990s, literally no History department wanted anything to do with economic history so I taught economics at the University of Virginia and the Stern School of Business instead! The few other graduate students so brazen and/or daft to study economic history in that era suffered similar fates instead of ending up in the Research I history departments where we belonged. So when the worm of historiography finally turned after 2008, not only were we not available to mentor History Ph.D. students interested in the history of capitalism, our work was not even as widely known or read by historians and their students as it should have been. The result was the disastrous path the history of capitalism subfield has taken.

Thankfully, Robert Plant’s admonition in Stairway to Heaven, that there is still time to change the road you are on, holds here. The past failures of the history of capitalism subfield are sunk costs that can never be recovered but they need not be repeated. For a start, History departments need to admit that they have a problem. They should not allow graduate students to conduct research, even in a hot field like the history of capitalism, without having the proper professors on staff in sufficient numbers. That means making senior level hires, many at salaries that will have to be more akin to those paid to economists and business or law professors. (They can think of it as reparations for not hiring such people at the assistant level ten, twenty, or thirty years ago, as they should have. But economists will recognize it simply as the result of competing for talent with the professional schools where most such scholars sought remunerative work after being eschewed by the History Establishment.) When making hiring decisions, History departments will have to forgo the usual signals of quality, like publication in the American Historical Review, and defer to the judgments of journals like Business History Review, the Journal of Economic History, and even the American Economic Review, as well as book review authors they have never heard of before. They should look for historians, in other words, who have proven that they are astute in business, economic, and financial matters because they alone are the ones who can guide graduate students in History to make substantive contributions to academic and policy discourse in economic history. Think people similar to Naomi Lamoreaux, now at Yale, one of the few bona fide economic historians helping to train history graduate students.

Despite its obvious conclusion, The Poverty of Slavery is still worth reading for all the details it provides about slavery, in all its many forms, from prehistory to the present. It is also valuable as a teaching tool because it situates something that almost Americans today find repulsive, slavery, on a scale of economic unfreedom. Every downward tick in a state’s or the nation’s economic freedom index, therefore, can be thought of as a step closer to government enslavement of the population and hence economic impoverishment (Miller and Kim 2017).

Finally, Poverty also clarifies a few seeming anomalies in libertarian thought, especially the concept of “voluntary slavery,” which posits that free individuals should be allowed to contract to become slaves if they so choose (Block 2003). The book shows that society should never allow a free individual to give up the right to seek new employment because governments cannot be trusted to enforce labor contracts fairly. In other words, employers can, and do, break contract terms with impunity and the right of a worker to leave is the ultimate self-enforcement mechanism in the face of almost inevitable government failure. Ergo, even "voluntary slavery" should be against state policy.

References

Bales, Kevin. 1999. Disposable People: New Slavery in the Global Economy. Berkeley: University of California Press.

Baptist, Edward E. 2014. The Half Has Never Been Told: Slavery and the Making of American Capitalism. New York: Basic Books.

Block, Walter. 2003. “Toward a Libertarian Theory of Inalienability: A Critique of Rothbard, Barnett, Smith, Kinsella, Gordon, and Epstein.” Journal of Libertarian Studies 17 (2): 39-85.

Hilt, Eric. 2017. “Economic History, Historical Analysis, and the ‘New History of Capitalism’.” Journal of Economic History 77 (2): 511-536.

Miller, Terry and Anthony B. Kim. 2017. 2017 Index of Economic Freedom. Washington, DC: The Heritage Foundation.

Murray, John E., Alan L. Olmstead, Trevon D. Logan, Jonathan B. Pritchett, and Peter L. Rousseau. 2015. “Review of The Half Has Never Been Told: Slavery and the Making of American Capitalism.” Journal of Economic History 75 (3): 919-931.

Townsend, Robert B. 2015. “The Rise and Decline of History Specializations Over the Past 40 Years.” Perspectives on History (December). https://www.historians.org/publications-and-directories/perspectives-on-history/december-2015/the-rise-and-decline-of-history-specializations-over-the-past-40-years

Wright, Robert. 2017. The Poverty of Slavery: How Unfree Labor Pollutes the Economy. Cham, Switzerland: Palgrave Macmillan.

Some Nuanced Perspective on The "Failing" New York Times/Fake News Phenomena

It is easy for intellectuals completely to dismiss certain absurdities spouted from on high but most actually have some basis and it is better to listen and understand why people hold the views they do rather than to dismiss them out of hand.

For example, back during the debates over the Affordable Health Care Act (aka Obamacare), people worried about "death panels." It seemed bizarre but was rooted in a profound insight: one should not have a life annuity (like Social Security retirement) and health insurance (like Medicare) through the same insurer (Uncle Sam) because of the incentive problem -- the annuity provider wants you to die so it can stop paying you.

Fake news is similarly rooted in a profound insight: the New York Times, WaPo, and so forth are written by and for members of the Eastern Establishment. One example of this appeared recently in the guise of a story about a play that critiques the now famous Hamilton musical. The reporter goes for comment to Eric Foner of Columbia, an esteemed doyen for sure but not an economic historian, and comes away with a quotation about the effect of slavery on the economy that most economic historians would have questioned or rejected. Like me, for example. I also critiqued Hamilton via a short rap song and alternative scene. Did the NYT reporter contact me? Of course not! I went to the University of Buffalo for my Ph.D. and teach in South Dakota. How could I know anything? I've only published like 18 books versus Foner's 22. It matters not that I'm 25 years younger than he is, and that he has never really studied the economics of slavery, he is right there at Columbia, where he also took his Ph.D. so he automatically knows more about the economic effects of slavery than I do, or any other economic historian (is that a thing?). My Poverty of Slavery can be safely ignored because the NYT Review of books did not review it, so it does not, in effect, exist. Except it does, and people who live outside of "the bubble" know it, and that it shows that slavery has never anywhere induced economic growth, it just enriches enslavers. But don't take my word for it. So the story, reporter, editor, and paper come across as perpetrators of news that is obviously incomplete and misleading. (Fake of course goes too far.)

My response to May's response to my review of his biography of Albert Gallatin

My response to May's response to my review of his biography of Albert Gallatin

I recently reviewed Gregory May’s biography of Albert Gallatin, Jefferson’s Treasure, on EH.NET here: http://eh.net/book_reviews/jeffersons-treasure-how-albert-gallatin-saved-the-new-nation-from-debt/ As anticipated, he has responded, as is his right. Rather than provide his book with more publicity than it deserves, I rebut his response here on my blog, where only interested parties are likely to find it.

As Deidre McCloskey explains in her excellent Economical Writing, if an author has to inform a reviewer what his or her book is really about, the author has already lost readers. May seems not to have understood a point that I made clear in my review, i.e., that my assessment would have been quite different if written for a different audience, e.g. political historians. He at least concedes that he has written a political biography, i.e., a work not usually of interest to economic historians, which was the thesis of my review for EH.NET (to wit, an audience of economic historians).

May also seems to have misunderstood my critique of his generalizations about early US bond ownership, which was not that some rich city dudes did not own bonds but that they were far from the only people to own them and that it is not clear that they owned a disproportionate share of them given their relative wealth. He also fails to see the importance of the fact that the bonds were actively traded, i.e., that ownership was not static but in fact changed frequently.

Ditto May’s complaint about the whiskey tax. My claim was not that the whiskey tax was solely to prevent distortion of the domestic economy, only that May failed to mention that fact, which is a highly pertinent one to economic and policy historians.

May’s book contains no bibliography, rendering it bloody difficult indeed to know for certain what he did or did not cite someplace in the book. My complaint about missing Freeman’s Affairs of Honor refers to specific passages where it should have been, but was not, cited. Moreover, it was meant as only one of numerous examples where the best sources were missed.

May’s complaint about my summoning of charivari again misses my point, which was that economic historians and other readers not conversant with “rough music” might think the Federalists who serenaded Gallatin one night were acting in an unusual way when in fact they were not. The fact that such tactics were employed primarily on “not important persons” only reinforces the notion that in fact Gallatin was not important at that time, that he was more infamous than famous, at least according to Federalists.

If May had read books like Bill White’s America’s Fiscal Constitution or Robert Hormats’ The Price of Liberty, he would know that the United States did NOT, in fact, “embrace … debt finance” long ago but did so only recently, basically since Bush II according to White. That is an important point because it means there is still time to revert to our superior Hamiltonian (and Gallatinian, etc.) fiscal constitution, which allowed for deficit financing only in wartime, with the debt paid down in nominal and real terms during periods of peacetime prosperity.

So I stand by my original conviction that May’s biography is well-written but that it contains little new and is not astute enough economically to be of much interest to economic or policy historians.

Loving the Bank Run Scene in It’s a Wonderful Life

Loving the Bank Run Scene in It’s a Wonderful Life

By Robert E. Wright

NOTE: This is the original, and much more personally revealing, version of the piece that appeared on 6 December 2018 on Zocalo here http://www.zocalopublicsquare.org/2018/12/06/george-baileys-building-loan-company-can-still-teach-us-banking/ideas/essay/ under the title "What George Bailey's Building and Loan Company Can Still Teach Us About Banking."

The bank run scene in It’s a Wonderful Life always makes me cry the tears of one whose lover may never return from prison, or battle. If you care about America, you should love the scene too, because it is a brilliant piece of cinematic storytelling but more importantly because it encapsulates the promise of the financial system, the reason that policymakers not only tolerate but actively encourage the development of institutions and markets powerful enough to make, or break, the lives of all Americans.

Technically, the scene fulfills all the requirements of brilliance laid out in Robert McKee’s classic Story: Style, Structure, Substance, and the Principles of Screenwriting (1997). It builds tension through a progression of “beats” that constantly defies the viewer’s expectations as protagonist George Bailey battles antagonist Henry F. Potter, first with his words and vision and then with a timely infusion of cash. The protagonist starts the scene in a negative position but ends in a positive one, with the stakes in his struggle with Potter over the fate of Bedford Falls higher than ever, helping the story to arc towards its bell-ringing climax.

The scene begins with George and Mary in the back of a taxicab on a cold, rainy day when the driver informs the newlyweds that a run on the local commercial bank, the only one in town given the policies of the era, appears to be in progress. George immediately hustles to his beloved eponymous Building and Loan, only to find it closed and hence in mortal peril. He lets his distraught depositor-investors in and opens for business. He learns that the bank ordered the immediate repayment of the loan it made to the Building and Loan, thus denuding the mortgage lender of all its cash.

That premise was plausible because financial intermediaries often made short-term loans to each other that stipulated repayment upon demand. The subtext revealed in this and a previous scene is that the Bailey Building and Loan needed to borrow from the bank because some of its own borrowers were in distress and not making payments. Rather than foreclose, evict, and sell, George, like other community bankers with the means, allowed delinquent borrowers time to get back on their feet. The loan did not seem risky to George because at the time he took it out the bank was not yet under Potter’s complete domination.

But then the evil Potter telephones to offer George his backhanded assistance, threatening that if George doesn’t sell out to him on the cheap like the bank just did, he’ll have to dispatch the police to prevent the “mob” from doing bodily harm to George and his relatives/employees after the Building and Loan goes bankrupt before the official close of business at six that evening.

George hangs up and attempts to talk his way out of the jam but wailing sirens immediately trounce his attempt to calm the fears of his customers by asserting that the economic crisis, one of the several waves of bank failures that swept the nation during the Great Depression, “isn’t as black as it appears.”

When Tom demands repayment of the $242 he invested in the institution, George correctly explains to him that building and loans are not commercial banks and that Tom owns time deposit-like shares in the institution payable in sixty days, not a checking deposit payable on demand. Despite George’s heartfelt, and accurate, reminder that the Building and Loan’s assets consist of long-term loans to his neighbors, Tom insists, implying that something must be wrong if the institution cannot pay out a mere $242.

Randall then enters and tells the crowd that they can sell their shares in the Building and Loan to Potter for fifty cents on the dollar, cash. Tom immediately threatens to sell his shares to Potter because “it’s better to get half than nothing.” As the crowd starts to head for the door, George vaults the counter and blocks their path while plausibly explaining that if enough of the Building and Loan’s investors sell out, Potter will gain control of the institution and monopolize the town’s financial system and housing market, which will allow him to raise borrowing costs and rents to oppressive levels.

An intimate knowledge of his investors and borrowers, the telltale attributes of a good community banker, enables George to draw out the implications of Potter’s control in personal, detailed terms, which stops the crowd long enough for him to expose Potter’s intent: the old codger is buying shares, not selling them, because he is using the financial crisis to get rich at the expense of the poorer and presumably less astute and informed townsfolk.

The crowd seems to agree with George’s assessment, which triggers Americans’ long-standing hatred of monopolists, but the atmosphere remains thick with panic because everybody needs cash to feed their kids, pay medical bills, and hold them over until a family member can find employment once again. That’s when Mary steps up with $2,000 in honeymoon money that George begins to lend out, starting with $242 for the recalcitrant Tom. The next two customers, however, request only $20 each and George foreshadows the end of the run when he kisses Mrs. Davis for seeking only $17.50.

The scene ends with the Building and Loan with just $2 left at the close of the business day, the employees drinking and joking that they hope the two bills will make love and reproduce like rabbits in the safe that night. Unstated is the fact that if the Federal Reserve System (“the Fed”) had been doing its job, it would have lent funds to the local commercial bank (or its correspondent bank in Manhattan), which then could have remained independent of Potter and would have had no reason to demand immediate payment of its callable loan to George’s institution.

Then, as now, one of the Federal Reserve’s major functions was to act as a lender of last resort, to make emergency loans to troubled but solvent banks during crises. It failed to do so during the Great Depression, greatly exacerbating the misery. Since then, the federal government and its central bank have gone too far in the other direction on several occasions, bailing out bankrupt institutions that took on too much risk and should have been liquidated in an orderly fashion instead. Worst of all, its policies, most notoriously Too Big to Fail doctrine but numerous others as well, have actually increased the likelihood of financial crisis.

As McKee shows, many other scenes in cinematic history are technically perfect but few of them, even those designed to elicit powerful emotions, make me cry more than once, let alone every dang time. My emotions arise not so much from lusting after Donna Reed or even the film’s hoary, classic arch plot of “good versus evil” as they do from the details of the struggle, which poignantly illustrate a point that I have been trying to establish since my pitiable career began a quarter century ago: To remain prosperous, America needs a robust, innovative financial system, but its policymakers need to ensure that Americans do not have to rely on a lucky good guy (George or the Federal Reserve) to thwart the numerous bad guys who happily hurt others (cause a financial crisis) in order to “make a bar” (Wall Street slang for a million dollars). Crises ultimately stem from the structure of incentives, institutional and individual, and hence that is where regulators should concentrate their efforts.

That seems like an easy point to establish but it is not when almost everybody, Left and Right, approaches financial system regulation with more ideological baggage than they could check gratis on a Southwest flight. A cacophony of “isms” that block clear thinking and stymie learned judgement reduces incentive structures to “greed,” with the Left clamoring for less and the Right for more. But the devil lurks in the details, in precisely what people are rewarded for doing, and not so much in the amount they will be paid for doing so.

In an age, however, when “capitalism” contends with “capitalisn’t” in sound bites and tweets, many swapped by people who cannot clearly differentiate supply from demand or micro from macro, making good sense just is not good enough. So I labor and blubber on, hoping not to end up some snowy night on a bridge over an icy river next to some modern day community banker, knowing full well that, despite our best efforts, America has become Pottersville.

ROBERT E. WRIGHT IS THE NEF FAMILY CHAIR OF POLITICAL ECONOMY AT AUGUSTANA UNIVERSITY IN SIOUX FALLS, SOUTH DAKOTA. HE IS THE AUTHOR OF 19 BOOKS ON U.S. FINANCIAL AND POLICY HISTORY, INCLUDING GENEALOGY OF AMERICAN FINANCE (WITH RICHARD SYLLA).