Does the Conquest Explain Quebec’s Historical Poverty? The Economic Consequences of 1760

This new working paper is probably the one that will get me most in trouble. However, as I am gradually assembling the pieces of a book on the economic history of French-Canadians (tentatively titled The Seeds of Distinctiveness: Economic Growth and Institutions in French Canada to 1913), I felt there was no way around it. How could one assess the historical origins of Quebec’s relative poverty (and how it speaks to wider questions in economic history) without discussing the extent to which the British Conquest of 1760 matters. Historians have been going back and forth on this for decades (at least since François-Xavier Garneau) and no one is convinced. However, I noticed that all arguments boil down to a simple mechanism: the extent of French-Canadian engagements with markets.

More nationalist historians argued that there was a retreat from the market into a form of subsistence agrarianism. Others argue that there was no retreat to be had. Others argued that the British unleashed some form of market revolution (not in those terms). As such, the validity of the mechanism advanced by all sides can be tied to whether markets grew more integrated (which would mean greater responsiveness to market signals) over time and space. I test exactly that and find that there was market integration — very strong signs of market integration in fact after signs of disintegration under French rule.

My findings provide a strong development in the literature as it leaves only two questions to consider. Indeed, we now know which mechanism was correct (i.e., that which claimed that British rule was associated with greater market development) and which are incorrect (that there was either zero effects of the conquest or negative effects). All we need to know is how beneficial was the Conquest and whether the market integration trends observed were due specifically to British rule. The link to the paper is here and the abstract is below:

The British Conquest of Quebec in 1760 was a key moment in Canadian history as it marked the beginning of a tense coexistence between French and English Canadians. Many argue that the Conquest had strong economic consequences in the form of the relative poverty of the French settlers. The mechanisms proposed are manifold, but they all rely on a key feature: a retreat from the market by French farmers. Using 171 years of wheat price data for Quebec City and Montreal, I test whether there are any signs of this retreat from the market and instead find the opposite: over time, markets grew more integrated across regions. In fact, there are more signs of disintegration during the era of French rule. Additionally, over time, regional prices became better predicted by current prices elsewhere than by the lagged prices in the same region. By the 1830s, markets in Quebec were as well integrated as those in economies such as the United States, France, Britain and Germany. The evidence in this paper is consistent with recent empirical findings about Quebec’s economic history, and so I argue that the case for the Conquest’s initiation of the relative poverty of Quebec (also dubbed “economic inferiority” in the historiography) is non-existent. This does not exclude long-run consequences of the Conquest, but the correct answer must lie elsewhere than in conventional explanations.

New Working Paper: Was there a Crisis?

I have a new working paper available. This time it is co-authored with Matthew Curtis (great guy currently doing his postdoc at Université libre de Bruxelles — you should hire him if you are looking for a good economist). In the paper, we employ data on wages, mortality and literacy to create a human development index (HDI) for Quebec from 1688 to 1911 with an intent to focus on the 1760 to 1850 period. The focus is because there is a claim of an agricultural crisis (due to falling wheat output) in Quebec between 1800 and 1850. This, apparently, translated into falling living standards. This decline in living standards is behind many key political developments in Canadian history (notably the 1837-38 rebellions, the Act of Union, Confederation, the massive emigration of French-Canadians etc.).

We essentially obliterate (yes, that is actually what we do) the idea that there was a prolonged collapse in living standards in Quebec during the first half of the 19th century. We dont even find signs of stagnation. We only find positive economic growth and improvements in living standards. There was, simply put, no crisis (see the graph of our resulting HDI). All the historiography built on the idea of this crisis is simply building on moving sands.

The abstract is below and the paper is available here on SSRN:

The colony of Lower Canada, now the modern-day province of Quebec in Canada, is presented as having experienced a prolonged agricultural crisis (marked by the shift away from wheat-farming) during the first decades of the nineteenth century. During this crisis, living standards supposedly fell, but this is subject to a debate which persists to this day because of the absence of convincing data. In this paper, we use new data (real wages, literacy, and infant mortality) to provide quantitative evidence of living standards in the form of a Human Development Index (HDI) to study whether there was a crisis between 1760 and 1850 (and we extend the index to 1688 and 1911 in appendix). Across multiple specifications of the HDI to account for non-linearity, we find no signs of a crisis. We find only signs of improvements during the period — driven largely by falling infant mortality rate and rising literacy rates. This new evidence should finally put to rest the claim that there was a crisis.

Roundabout solutions to calm down the abortion debate

In the wake of the recent Supreme Court decision on returning the regulation of abortions to the state level, it is hard to find anyone who does not have an opinion on the matter of abortions. Most of the positions stated are about virtue-signaling or tribal-signaling. Little of it has any productive value nor do they have a chance at persuading people. As such, let me propose a different take on the matter that few have considered: that the debate’s magnitude can only be reduced by indirect solutions.

The issue at hand is that having a child is costly. It clearly alters the life-course of women who become pregnant (regardless of age). This is in addition to the monetary cost of raising children – which is not trivial. As any economist would tell you, increasing the cost of something means you will get less of it. Or, you might see people allocate energy and money to avoiding that cost – which means that demand for abortions would rise with rising costs of childrearing. Reduce the cost of childrearing and you will reduce the demand for abortion. Fewer abortions demanded should please pro-life advocates by reducing the number of abortions while pro-choice people should be satisfied by reducing the number of instances where the choice to abort hasto be made.

Nothing radical here for anyone with a modicum of economics knowledge. However, what is generally underappreciated is how much government policies have increased the cost of childrearing. Consider two examples: childcare and housing.

Childcare is an obvious cost associated with childrearing. Families in the United States can be expected to pay somewhere between $5,110 and $21,610 for full-time service depending on the state of residence. As childcare is a cost associated with the return to work for mothers, it is no surprise that the labor economics literature finds that mothers are quite sensitive to childcare costs in their decisions of when to return to work (and how many hours to work).

However, as Devon Gorry and Diana Thomas found in an article published in Applied Economics, childcare providers are heavily regulated at the state-level regulations with measures such as minimum child-staff ratios, licensing requirements, continuous training obligations, group size restrictions, building requirements, degree requirements etc. While these measures appear to have little relevance to service quality, they clearly raise the price of the services. Gorry and Thomas found that forcing smaller group size by one child increases rates quoted by 9% to 20% whereas degree requirements for educators increased them by 22% to 46%.  Deregulation of childcare would help reduce prices. As childcare accounts for more than 50% of the weekly expenditures on a pre-school age child, such reductions would dramatically reduce the total cost of having kids. In turn, this will make the prospect of having a child less financially less daunting for parents and make them more willing to eschew the decision to abort.

Housing regulations have a similar effect. Why? One of the most important costs associated with children is the area they need in a housing unit. After all, they need bedrooms, room for toys, a play area etc. Also, parents like some privacy and no one wants to go back to the 19th century style of living where kids live in the same bedroom as them. In economist-speak, we would say that housing is a complement to children just like batteries are a complement to electronic equipment and steaks are a complement to whiskey. If you raise the price of a complement, you reduce the quantity demanded of the other good even if its price is unchanged. As my colleague Bryan Caplan notes, “the few empirical papers on this topic fit the theory” – higher housing prices reduce the demand for having children (as seen through lower fertility rates). This means that higher housing prices might incentivize some potential parents to opt for an abortion because of the financial inability to deal with the need for greater space. Housing regulations, by reducing the supply of housing and making it more inelastic, drive-up housing prices.

How much do they drive up prices? A lot! One study for the United States suggest that even mild reductions in land-use restrictions in San Francisco – a particularly egregious municipality in terms of overregulation – could reduce rents by 4% to 8% annually. Another famous study, also using San Francisco, found that land-use regulations adopted in the 1980s increased housing prices by 20% to 40%. Another study, concerned this time with Manhattan, found similar proportions when studying the effects of land-use restrictions on construction costs.  Land-use deregulation would reduce housing prices and thus increase the demand for having children. Logically, it should also decrease the number of cases where parents will consider the choice of aborting.

Moreover, these examples compound each other. Indeed, housing costs are roughly 15% of the operating costs of childcare centres. If land-use deregulation reduced rents by 25%, daycare costs would fall by roughly 4% — an effect that compounds those of deregulating the supply of daycare services.

Abortion legislation is unlikely to resolve this contentious issue to anyone’s satisfaction. While they will not resolve the issue, indirect solutions that reduce the cost of family formation will reduce the contentiousness of the issue. In other words, these solutions might dial down the tone and reduce the stakes in play. This, while not perfect, may help cooler heads to prevail.

On Kedrosky, infant industries and protection in 19th century canada

Today, Davis Kedrosky published an interesting substack article well worth reading on whether infant industry protection in late 19th century Canada was a success. The post is well worth reading but I have reservations regarding the conclusion that it was a success is correct. My reluctance does not stem from my knowledge of international trade theory – which I deem elementary for an economist – but rather from my knowledge of Canadian historical data. As such, I want to throw out reasons to be cautious with regards to the actual findings and argue that there is still a crying need to improve and push that literature forward. Simply put, I see the claim of “success” as plausible but not yet convincingly addressed.


Pre-1879 growth is poorly estimated


The ultimate source in Canadian economic history is that of Urquhart (1993). The problem with that source is its price deflator used to convert everything in real output. The component for consumption is lacking a price component for clothing from 1870 to 1900. This would not be problematic if a) clothing was a small share of expenditures; and b) clothing prices behave like other prices. Both assumptions are, however, wrong. Clothing prices fell much faster than other prices – something I documented in Geloso and Hinton (2020) using prices from newspapers across Quebec and Ontario and prices reported by manufacturers in the Canadian Journal of Fabrics. Its only in the late 1880s that clothing prices began changing at rates similar to other prices. Clothing was also more than 20% of consumer expenditures. As such, their exclusion from the implicit price deflator creates a major bias for the 1870s and early 1880s.


As I showed in Geloso and Hinton (2020), incorporating new price evidence shows that real income levels were much lower in the 1870s and 1880s (by as much as 10%) than the Urquhart series. The more important result is that this alters the growth pace as Canada starts from a much lower base in 1870. Indeed, I found that rather than having a middling growth rate amongst rich nations, Canada has the fastest growth of all rich nations between 1870 and 1900.


Why does this matter? Because most of the papers that rely on Urquhart (some but not all) out there relied on the uncorrected figures that show less growth pre-1879 than was truly the case. Proper corrections suggest that 1879 is not as much of a break-point in growth than a statistical artifact. It is also relevant because the best paper out there on nascent industries and protection – Harris, Keay and Lewis in Explorations in Economic History – uses some limited price indexes to estimate real gross output. This is not a fault in their work as they were working with the best there was at the time. However, it is clear that this is a weak point that needs to be discussed as clothing was one of their key industries in terms of leading the results. The differences between the price series they use and mine are noticeable (see figure below). Their was a wholesale price index (with some adjustments) rather than a producer price index (which is closer to what I had in my work with Hinton) to 1885. Moreover, their post-1885 series is based on a very small array of goods (wool hosiery, wool underwear, gingham apron, gingham dress) whose missing values were interpolated from the same wholesale price index pre-1885. How big are the differences? The annual price changes in clothing industry are placed at -1.7% from 1870 to 1879 in Harris et al. (2015) versus -4.6% in Geloso and Hinton (2020). This must have an effect on the results (even though I should point that I really do like the Harris et al. (2015) paper) and which explains why I am still reluctant to jump on the bandwagon.

Output is missing regionally concentrated industries


Because of its monumental size, the Urquhart volume is a reference volume. Few seem to dispute its precision. However, a few years ago I was at a conference of the Canadian Network for Economic History and there was Marvin McInnis – a man not well known outside of Canada but who is well known by all Canadian economic historians and who was deeply involved as a colleague of Urquhart in creating the 1870 to 1926 estimates (notably with respects to agricultural output). At the conference, McInnis gave a keynote address and said that he was still unsatisfied with some issues – notably that maple products and shipbuilding were not well measured (and underestimated). This is not trivial if he is correct as these were two industries that were regionally concentrated in Quebec and Atlantic Canada. Unfortunately, McInnis never did put ink to pen on this and its hard to assess whether this is true for shipbuilding and he did not explicit his concerns in his chapter in the Urquhart volume. However, Urquhart’s book (pp. 425–427) does mention that certain industries such as shipping were not well measured as reports for vessel operators “on the Great Lakes or on the High Seas” were not required. As such, while some larger operators were reported through trade figures, smaller operators were not and fixed assumptions that Urquhart clearly seemed unsatisfied with were made to approximate output.


However, it is worth investigating and withholding judgment for two reasons because of these issues. First, in the historiography, there is a clear agreement that eastern Quebec and Atlantic Canada suffered most from the 1879 tariff. Second, some of these industries (i.e., shipbuilding) are not considered in some key studies such as Harris et al. (2015) or are considered in spite of the problems associated with their constructions (e.g., waterway shipping). This should make one reluctant to embrace the claim that it was a success – there is still some precision steps to be made.


Regional Costs


This last criticism is not levelled at the existing literature. It rather applies to what should be the next step in the conversation: the distribution of costs. All estimates of the benefits and costs of the infant industry protection are produced at the national level – no disaggregation at the regional level is produced. Why does this matter? The reason is tied to the well-known and major price differences across regions in Canada (Minns and MacKinnon 2007; Emery and Levitt 2002). The rough pattern is that prices were higher in Atlantic Canada and Quebec than they were in Ontario. As such a nominal loss of a dollar in these provinces represented a much greater loss in real consumption than the same dollar in Ontario (because prices were lower). If protection reshuffled production within Canada – westwards towards Ontario – the loss in wellbeing would be greater than the one measured at the aggregate level. To this day, no one has attempted to produce correctives in the matter. I am not sure if this will matter (and I have a project to do with Casey Pender of Carleton University, but I am swamped with other Canadian economic history papers now), but this is another reason for my reluctance to declare as enthusiastically as Kedrosky does.


Overall


Yes, I do find it plausible that the protection may have boosted some domestic industries. It would fit with the Krugman “New Trade Theory” literature. However, I am reluctant to declare a winner here because of these data issues above. I have too frequently seen important results overturned by improved precision (e.g., Kaufmann 2020) to embrace an empirical finding wholeheartedly when the historical data has shortcomings (note: this is why anyone who reads any of my economic history papers will notice that I generally expend considerable time and space on complementary evidence rather than on the empirical evidence alone – I also often take swipes at my own previous work such as in Geloso (2022, fn. 12 for e.g.) against Geloso et al. 2017).

REFERENCES:

Emery, J. H., & Levitt, C. (2002). Cost of living, real wages and real incomes in thirteen Canadian cities, 1900–1950. Canadian Journal of Economics/Revue canadienne d’économique, 35(1), 115-137.


Geloso, V., & Hinton, M. (2020). Improving Deflators for Estimating Canadian Economic Growth, 1870-1900. Research in Economic History, 36, 125-150.


Geloso, V., Hinton, M., & Kufenko, V. (2017). The equally “bad” French and English farmers of Quebec: New TFP measures from the 1831 census. Historical Methods: A Journal of Quantitative and Interdisciplinary History, 50(3), 170-189.


Geloso, V. (2022). Unenlightened peasants? Farming techniques among French-Canadians, circa 1851. Cliometrica, 1-23.


Harris, R., Keay, I., & Lewis, F. (2015). Protecting infant industries: Canadian manufacturing and the national policy, 1870–1913. Explorations in Economic History, 56, 15-31.


Kaufmann, D. (2020). Is deflation costly after all? The perils of erroneous historical classifications. Journal of Applied Econometrics, 35(5), 614-628.


Minns, C., & MacKinnon, M. (2007). The costs of doing hard time: a penitentiary‐based regional price index for Canada, 1883–1923. Canadian Journal of Economics/Revue canadienne d’économique, 40(2), 528-560.


Urquhart, M. (1993). Gross national product, Canada, 1870-1926: The derivation of the estimates. McGill-Queen’s Press-MQUP.

Now published: Escapre Underway — Malthusian Pressures in Late imperial moscow

A few weeks ago, Vadim Kufenko, Ekaterina Khaustova and myself received news from Explorations in Economic History that our paper on Malthusian pressures in Late Imperial Moscow/Russia had been accepted. The paper makes the following point: economies with weak land constraints (i.e., large land reserves relative to population) can have rising income per capita and rising population levels but still be in a Malthusian equilibrium. Normally, rising population and income per capita would mean an escape from the Malthusian world. However, this assumes strict land constraints. In the presence of weak constraints, an economy could still be converging towards the equilibrium but without having escaped the Malthusian world (i.e., limited technological gains). In the paper, we propose that the use of a cointegrated vector autoregression approach can disentangle the two possibilities (i.e., actual escape v. weak constraint). We apply it to the case of late Imperial Russia by using Moscow and find that the Russian economy was indeed transitioning away from the Malthusian world. However, that escape was weak and vulnerable to exogenous shocks.

The paper is here online now and the abstract is reproduced below:

Did late Imperial Russia suffer from Malthusian pressures? At first glance, with its rising levels of population and per capita income, it seems Russia was in a transition away from Malthusian equilibrium. However, the joint increase in population and per capita income could also have been the result of Russia’s high land-to-labor ratio. Which of the two is it? Such a problem is a frequent one in economic history, as many frontier economies have high land-to-labor ratios, which foil the researcher’s ability to determine whether an economy was transitioning or whether it was growing because of weak land constraints. In this paper, we use quarterly demographic and economic data from Moscow (which we take as a proxy for Russia) in conjunction with a Cointegrated Vector Autoregression approach to determine whether the Russian economy was transitioning away from a Malthusian equilibrium. We find signs of Malthusian pressures still operating while wages had stopped responding to changes in death and birth rates. This combination suggests that a vulnerable transition was truly underway even though a Malthusian shadow remained.