Computational general equilibrium models in economic history and an analysis of British capitalist agriculture

Abstract

A general equilibrium arbitrated by prices arising from consumers and firms interacting in markets is a core idea in economic analysis and provides powerful insight into many historical issues. Modern computational models permit investigators to exploit the insights of general equilibrium. This article outlines the ideas of general equilibrium and of computational general equilibrium models. In the process, strengths and limitations are discussed. The discussion is given focus by using the Harley-Crafts model as its focus and explores briefly the consequences of changing the allocation principals in the agricultural sector of the model from a capitalist arrangement to a peasant arrangement.Historians aim to understand social change; economic historians specifically aim to understand how economies evolved by identifying causes and mechanisms of change. We need to know not only the details of how a proposed cause evolved and to trace its impact on the society but also to imagine cases in which the cause was not present. Unfortunately, history seldom provides exact evidence. Comparable situations, except that the imagined cause is absent, never occurred exactly as we would like. Consequently, we must use creative imagination disciplined by historical evidence and theories of social behaviour. The historian's imagination fruitfully draws on a wide range of sources. Much important history rests on contemporaries' perceptions or on insights from comparative analysis. In economic history, economist's theories provide important insights. Here, I want to discuss the use of formal economic models, in particular, computational general equilibrium models.  European Review of Economic History, , -. Printed in the United Kingdom ©  Cambridge University Press  Perhaps the first computational general equilibrium model in the economic history literature was John James' (, ) analysis of the antebellum American tariff. He also provided an overview of general equilibrium models in economic history (James ). I pointed out (Harley ) that James' results depended on questionable simplification of his computational model. More recently Kevin O'Rourke has been the main user of CGE models in economic history. He has analysed Irish economic history since the mid-nineteenth century (O'Rourke a, b, c;  a, b; ). He has used the technique as part of a multi-authored project on convergence in the late nineteenth century (see various articles cited in the bibliography; O'Rourke and Williamson  summarises the project). I have used CGE techniques to address issues of the British Industrial Revolution (Harley , Harley and Crafts ).  European Review of Economic Historydecisions.  A profit-maximising firm faces a range of decisions regarding product choice and scale of production. Minimising the cost of producing the chosen amount of a product (Q) is fundamental to successful operation and is a key focus of formal general equilibrium analysis. To minimise costs a firm must, of course, pursue tec...

Explaining UK wage inequality in the past globalisation period, 1880–1913

“…Conversely, the Armington elasticity has been set to a relatively high value of 5, which means that substituting imports for domestic production is relatively easy. These elasticities are in accordance with previous economic history research using a calibrated general equilibrium model, such as Harley and Crafts (2000), Harley (2002) and Federico and O'Rourke (2000).…”

“…Moreover, general equilibrium models have been used by economic historians to resolve the problems which arise in the long run when there are a lot of interrelationships and variable changes. 1 There are several 1 In addition to already mentioned references see also, for example Taylor and Williamson 1997, Harley 2002and Voigtländer and Voth 2006 advantages of using a general equilibrium approach against a reduced from: first, it is based on an explicit model structure from which most of the reduced-form models can be derived; second, it avoids the identification problem implicit in the reducedform approach meaning that multiple model parameterisations are consistent with the same reduced form (see Abrego and Whalley 2000) and finally it takes into account the interactions among all the variables.…”

Agriculture and growth nexus in Gambia

“…This historical fact has missed the textbook economics, which has been dominated by the neo-classical mindset. To bring out some scientific evidence from the historical data, Harley (2002) applies CGE to 1841 British capitalist agriculture, and finds evidence that, despite its inefficient failure to equate marginal product of labor to various uses, has increased labor and peasant welfare. Brivand et.…”

British Business History: Review of the Periodical Literature for 2002

“…Such is the case with, for example, Knick Harley's exploration of computational general equilibrium models in the context of British capitalist agriculture. 68 Elsewhere, Clark and Kanzaka both explored land rental, though with very differing degrees of focus. 69 Others, though, focused on issues of much more direct concern to the readership of this journal.…”