New working paper: Monetary Famine, Paper Money, and International Constraints on Economic Growth: The Case of Colonial Quebec

As I mentioned in the preceding post, my paper with Bryan Cutsinger and Mathieu Bédard on the strange history of the playing card money episode of New France has been accepted at European Review of Economic History. However, there is much more to be said about the strange episode especially at it relates to economic growth. Thus, Gabriel Mathy (American University) and I endeavored to complete the circle by writing up a paper exclusively on economic growth and paper money in colonial Canada. The paper is here on SSRN and the abstract is below. For those who are attending the meetings of the Canadian Economic Association (CEA), we will be presenting this paper in the panel organized by the Canadian Network for Economic History:

New France, like most European colonies in the New World, suffered from a persistent shortage of metal coins. As Quebec could only legally import from France, their standards of living were constrained by their ability to export a few primary products (mostly fur, cod, timber and wheat). Mercantilist restrictions and underdeveloped financial markets limited the ability to use the capital account to import coins and tightened the balance of payments constraint. The introduction of playing card money in New France in 1685, the first use of paper money in the West, provided a means of relaxing this constraint. It produced a substitute domestic money which allowed scarce metal coins to be used to purchase imports. The balance-of-payments constrained growth models that grew out of Thirlwall’s Law is applied to this experience, with discussions of the export constraints of Quebec’s reliance on a few primary exports (with furs being the most dominant one) with inelastic demand and facing the vagaries of changing tastes in Europe.

Forthcoming: The Wild Card: Colonial Paper Money in French North America, 1685 to 1719

Yesterday, I received news that my paper with Bryan Cutsinger and Mathieu Bédard on the strange monetary experiment of playing card money in New France had been accepted at the European Review of Economic History. In the 1680s, the French colony began issuing money on the back of playing cards. However, the experiment did not lead to inflation for many years in spite of large issues. Bryan, Mathieu and I explain why that is the case. Essentially, it is a macroeconomic narrative of one the strangest monetary experiment we ever saw. In the process, it offers great insights on the debate between the quantity theory of the price level and the fiscal theory of the price level. The abstract for the paper is below, the SSRN link is here and I should note that I have another paper related to this experiment with paper money but this time (in collaboration with Gabriel Mathy) we explore the effects of playing card money on economic growth:

During the colonial era, the French colonial government in Canada experimented with paper money printed on the back of playing cards. The first experiment lasted from 1685 to 1719. In the first years, there was little inflation in spite of a rapidly expanding stock of playing card money. It is only in the later years of the experiment that prices rose. The behavior of the money stock and nominal output suggest that velocity fluctuated throughout the period. We argue here that these fluctuations can be explained by variations in the enforcement of legal tender laws. This interpretation provides insights into the debate over the inflationary impact of paper money in the colonial United States.

New Working Paper: Statogenic Climate Change? Julian Simon and Institutions

I have a new working paper which has been submitted to the Review of Austrian Economics for a special issue on the late Julian Simon. The paper is available here on SSRN and the abstract is below:

Outside of economics (and even within), Julian Simon is mostly remembered for his famous bet on resource prices against biologist Paul Ehrlich. The bet is frequently used to illustrate how some environmental scares are exaggerated. In the rare instances when more details are added, the emphasis is always on how the role of innovation in promoting socio-economic progress which, directly or indirectly, solves environmental problems. However, Simon had a rich and complex view of the role of institutions in modulating the pace of socio-economic progress (broadly defined) and the extent of environmental problems. In this paper, I highlight the unappreciated institutional conditions that Simon placed in his work. Institutions that foiled or distorted the market process had, in Simon’s view, the dual effect of reducing living standards and amplifying environmental problems. I show, using the case of climate change, that Simon’s forgotten nuances can help explain modern environmental problems such as climate change. Most notably, it allows a subtle shift from claiming that climate change is anthropogenic (i.e. man-made) to claiming that climate change is “statogenic” (i.e. government-made).

Rent seeking for madness: the political economy of mental asylums in the United States, 1870 to 1910

My paper with Raymond March on the expansion of mental asylums in America between 1870 and 1910 is now publicly available at Public Choice. The paper is substantially revised from the SSRN version available online but the main results still hold: there was a rent-seeking force behind the expansion. The abstract is below and the article can be found here:

From the end of the Civil War to the onset of the Great War, the United States experienced an unprecedented increase in commitment rates for mental asylums. Historians and sociologists often explain this increase by noting that public sentiment called for widespread involuntary institutionalization to avoid the supposed threat of insanity to social well-being. However, that explanation neglects expanding rent seeking within psychiatry and the broader medical field over the same period. In this paper, we argue that stronger political influence from mental healthcare providers contributed significantly to the rise in institutionalization. We test our claim empirically with reference to the catalog of medical regulations from 1870 to 1910, as well as primary sources documenting rates of insanity at the state level. Our findings provide an alternative explanation for the historical rise in US institutionalizations.

Regulatory Capture and the Dynamics of Interventionism:The Case of Power Utilities in Quebec and Ontario to 1944

I have a new working paper available on SSRN. This time its with my putative father Germain Belzile (HEC Montreal) and my eternal partner in crime Rosolino Candela (George Mason University). In the paper, we argue that the nationalization of electrical utilities in Quebec in the 1940s was an outcome of nationalization and consumption subsidization of electricity in Ontario in the 1900s and 1910s. To do so, we connect George Stigler’s theory of economic regulation to Ludwig von Mises’ theory of the dynamics of interventionism. The paper is somewhat of a myth-buster for Quebec/Canadian economic history as it builds on earlier work of Germain and I arguing that the industry in Quebec was very innovative, charged very low rates in North American perspective and was quite competitive on many margins. We point out that, however, nationalization in Ontario caused demand to be met by Quebec’s private firms which caused prices in Quebec to increase. This fueled pro-nationalization movements in the province. The link is above and the abstract is below:

To what extent are the outcomes of economic regulation intended and desired by its proponents?  To address this question, we combine Stigler’s theory of regulatory capture with the Austrian theory of the dynamics of interventionism.  We reframe Stigler’s theory of regulatory capture as an analytical starting point for a dynamic theory of interventionism, one which accounts for the unintended consequences that emerge from regulation, even if the origins of such regulation were designed to benefit a particular industry or special interest group. Therefore, we argue that regulatory capture is not necessarily inconsistent with a dynamic theory of intervention. We illustrate this theoretical point by applying it to an econometric case study of electric utility regulation and its nationalization in both Ontario and Quebec in the early 20th century, resulting in unintended and undesirable consequences that deviated from the interests of the regulation’s intended beneficiaries.