History for economists

The world is divided into two types: The followers of Henry Ford I, who is believed to have stated that "history is more-or-less bunk", and those who think that despite his other grand achievements he must have been a very silly man.

Economists, in particular, are prone to forget that the things they study""you know, prices, interest rates, money, employment and so on""are about people and not nature. They therefore also overlook the fact that politics and sociology are to economics what an egg yolk is to an omelette.

The main casualty of this oversight is causality. So economists can tell you what happened, when it happened, how much of it happened and so on. But they can never figure out why really it happened. They have their theories, of course, but none ever gets even remotely close to the truth.

Thus, they may discover that prices went up because tariffs went up. But rarely do they ever find out why tariffs actually went up. Indeed, more often than not they'd like to believe some base human reaction or crass political requirement, not to mention plain old incompetence, lies at the root of it.

Bombay, after all, came in dowry to England when Charles II agreed to marry a Portuguese princess who was proposed in marriage to three others. She was of greater political and strategic value to England than to the others. Her looks have never been regarded as her chief asset.

Angus Maddison, a guru among economic historians (if not economists), has worked hard to produce this mountain of data. But like many mountains, the view from its top disappoints. He tells us what happened, when it happened, and how much of it happened. But only infrequently does he tell us why it happened. One emerges better informed but wiser? Perhaps not.

But there are lots and lots of little things that can enhance the quality of a debate on causality. You can, for example, point out to the Europeans when they complain (which they do endlessly these days) that they could try working harder.

Maddison's tables show that between 1870 and now the working hours have almost halved. Perhaps because of this, more Europeans are employed now and productivity (GDP per hour worked) has increased staggeringly""from 1.6 in 1870 to 28.5.

This increase is the consequence of greater capital (and therefore technology) intensity. But colonial exploitation is not given the pride of place it deserves for bringing this about. It is mentioned, of course.

Nevertheless, the chapter entitled "The Impact of Western Development on the Rest of the World (1000-1950)" is a superb exercise in providing a panoramic view. It should be read by all serious economists as a means of improving their perspective on globalisation, labour laws, SEZs and the like.

They will learn that, on the whole, Aristotle was right: there is nothing new under the sun. Wealth (growth?) results either from technological innovation or labour exploitation. The former is an infrequent process while the latter goes on and on almost continuously. When it stops, growth slows down, sometimes to zero. The examples are there in this book, though you will not find them described in quite these terms.

Another portion of the book that should become a "must read" in India, especially for the Marxists, is about the contrast between land taxation during Mughal and colonial times. Maddison shows how the rates of taxation of farmers and peasants under the Mughals were far higher. Irrigation and other infrastructure also increased in British India.

However, due to the strengthening of property laws, the number of the landless grew as moneylenders moved in to enforce their rather unfairly acquired property rights. Needless to say, the biggest moneylender was the East India Company.

Maddison also sets at rest, I should think, the debate about the de-industrialisation of India. But in the process he opens up, perhaps inadvertently, another large can of worms.

The point he makes is this: yes, there was de-industrialisation but it mainly impacted the production of luxury goods (textiles, mainly) for the rich because of the cheap imports, first from Britain, and then from Japan in the 1920s. When the latter became a big threat, the Brits imposed a high tariff, and this led to re-industrialisation as Indian firms came up.

The publishers have also done well in bringing out this single volume for the Indian reader (Vol. 1: A Millennial Perspective; Vol 2: Historical Statistics) at a very affordable price, at least for libraries and those who can get a tax set-off. As a first cut into what went on in the world economy since, say, 1066 (Battle of Hastings, leading to the Norman invasion of Britain), it is an invaluable tool.

Among its many other uses would be is handiness for scoring debating points or sounding learned in newspaper articles. Keep it at your bedside. The nuggets are fascinating.

THE WORLD ECONOMY

Angus Maddison
OECD Development Centre Studies (published in India by Academic Foundation)
Price: Rs 1,295; Pages: 653