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HISTORY MATTERS

STANFORD UNIVERSITY PRESS

Contents

List of Contributors.........................................................................................................................................................................................................................xiPreface......................................................................................................................................................................................................................................xiiiEditors' Introduction Timothy W. Guinnane, William A. Sundstrom, and Warren Whatley.........................................................................................................................................................1PART I WHY HISTORY MATTERS: PATH DEPENDENCE AND ECONOMIC THOUGHTChapter 1 Path Dependence and Competitive Equilibrium Kenneth J. Arrow......................................................................................................................................................................23Chapter 2 Path Dependence and Reswitching in a Model of Multi-Technology Adoption Paul Stoneman.............................................................................................................................................36Chapter 3 Path Dependence, Network Form, and Technological Change Douglas J. Puffert........................................................................................................................................................63Chapter 4 The Tension between Strong History and Strong Economics Melvin W. Reder...........................................................................................................................................................96PART II PATH DEPENDENCE IN PRACTICEChapter 5 Financial History and the Long Reach of the Second Thirty-Years' War Charles W. Calomiris.........................................................................................................................................115Chapter 6 Path Dependence in Action: The Adoption and Persistence of the Korean Model of Economic Development Phillip Wonhyuk Lim...........................................................................................................142Chapter 7 Continuing Confusion: Entry Prices in Telecommunications Peter Temin..............................................................................................................................................................163Chapter 8 After the War Boom: Reconversion on the Pacific Coast, 1943-1949 Paul W. Rhode....................................................................................................................................................187Chapter 9 Standardization, Diversity, and Learning in China's Nuclear Power Program Geoffrey Rothwell.......................................................................................................................................221PART III CONTEXT MATTERS: THE INFLUENCE OF CULTURE, GEOGRAPHY, AND POLITICAL INSTITUTIONS ON ECONOMIES AND POLICIESChapter 10 Incentives, Information, and Welfare: England's New Poor Law and the Workhouse Test Timothy Besley, Stephen Coate, and Timothy W. Guinnane.......................................................................................245Chapter 11 Family Matters: The Life-Cycle Transition and the Antebellum American Fertility Decline Susan B. Carter, Roger L. Ransom, and Richard Sutch......................................................................................271Chapter 12 Building "Universal Service" in the Early Bell System: The Coevolution of Regional Urban Systems and Long-Distance Telephone Networks David F. Weiman............................................................................328Chapter 13 International Competition for Technology Investments: Does National Ownership Matter? Trond E. Olsen.............................................................................................................................364PART IV EVIDENCE MATTERS: MEASURING HISTORICAL ECONOMIC GROWTH AND DEMOGRAPHIC CHANGEChapter 14 Conjectural Estimates of Economic Growth in the Lower South, 1720 to 1800 Peter C. Mancall, Joshua L. Rosenbloom, and Thomas Weiss...............................................................................................389Chapter 15 The Value-Added Approach to the Measurement of Economic Growth Mark Thomas and Charles Feinstein.................................................................................................................................425Chapter 16 A User's Guide to the Joys and Pitfalls of Cohort Parity Analysis Warren C. Sanderson............................................................................................................................................459Chapter 17 Stochastic Dynamic Optimization Models with Random Effects in Parameters: An Application to Age at Marriage and Life-Cycle Fertility Control in France Under the Old Regime Thomas A. Mroz and David R. Weir.....................483

Chapter One

Kenneth J. Arrow

1. INTRODUCTION

Paul David has been a pioneer and innovator in so many directions that it is hard to keep track of them all. He has moved with ease from specific historical events and episodes to broad generalizations, both theoretical and empirical in nature. The diffusion of the reaper, with close attention to both social interaction and profitability, the need for purchasing-power comparisons to replace foreign-exchange rates in international welfare comparisons, the bias toward labor-saving innovation in explaining the evolution of the distribution of income, the interpretation of Habbakuk's thesis on American economic growth relative to England's, and more recently the comparative roles of science and technology in technical change are merely a few of the many contributions that David has made to the progress of economics and in particular to the analysis of technical change and its economic implications.

I want here to discuss one particular thesis that David has been strongly associated with, the idea of path dependence. This is a concept whose general meaning is fairly clear, though a precise definition is not so easy. Roughly speaking, it means that the long-term historical evolution of an economy (or any other system) depends on where it started, or perhaps on some of the disturbances to the system during its history. The critical point is that the effect of these initial conditions or disturbances is essentially permanent; it does not gradually vanish with time.

Many economic theories do not show path dependence, for example, the Solow growth model, which predicts that all economies will converge to the same limiting capital-labor ratio even though they may start with very different ratios. It is a thesis of Paul David and others that real economies display path dependence.

I do not think there is the slightest question that path dependence is a real phenomenon in economic history and development, as it is in biological evolution and in the history of political and social institutions. My purpose in this chapter is to examine one claimed aspect of path dependence, namely, that it arises as a result of increasing returns to scale in some relevant part of the economy. I will argue, by...