Economic History, which is, to begin with, totally different from “History of Economics” or “History of Economic Thought,” is a field that lies at the “crossroads” of economics and history in that it applies economic theory and econometric methods to the study of economic (or more generally, social) phenomena in the past or in the long-run using historical micro or macro datasets.

The field, as practised in recent decades in North American and U.K. economics departments, but perhaps less so in Continental Europe, has been called “Cliometrics,” which is a term coined by joining the word “Clio,” the name of the Greek muse of history with the word “metrics,” or quantitative measurement. This terminology is no coincidence, however. In fact, it is the need for emphasis on theorization and quantification in history that pushed a then-young generation of American economists in the 1950s and 1960s, such as Douglass North, Robert Fogel, Paul David and Peter Temin, who had a strong passion for history, to initiate the so-called “New Economic History” or the quantitative revolution in history, and to coin the term “Cliometrics” to describe the conceptual and methodological approach of this revolution. Needless to say, before the 1960s, economic history was mostly a qualitative field. Since then, there have been many “victories” achieved by Cliometricians in reinterpreting U.S. history using economic theory and the then-modern quantitative methods. Among these major victories were Fogel’s estimation of the role of railways in the growth of the U.S. economy in the nineteenth century.

Also, together with Stanley Engerman, he reshaped our understanding of the history of the slavery institution in the antebellum U.S. South by arguing using quantitative evidence that slavery was in fact a profitable and economically efficient institution, and that it would not have declined for economic reasons alone without the U.S. Civil War intervention in 1861-1865. Douglass North (among others including, of course, Ronald Coase) emphasized the role of institutions in economic development, via assuming non-zero transaction costs, primarily because of his analysis of economic history.
But why do we need economic history? As a “cross-roads” field between to act as a peace messenger aiming at reconciliating – or perhaps put in a more ambitious way, learning from – the two “mother” fields: economics and history. The latter objective, the need to learn from the two fields, which implicitly presumes a mutual need that economics needs history and vice versa, seems to have been rather “obvious” even back in the day.
In fact, many economists in the past even before the “Cliometrics” revolution were actually economic historians and benefited a lot from reading history. For example, Adam Smith, Karl Marx, Alfred Marshall, Joseph Schumpeter, and John Maynard Keynes were all economic historians in one way or another. However, again as a “cross-roads” field, economic history or Cliometrics then “suffered” from the divergent paths between the two fields, or more generally, between social sciences and humanities, that started in the 1970s.

Since then, economics has drifted towards an “ahistorical” approach to economic phenomena, based on the assumption that economic theory, in particular, neoclassical theory, is universally valid regardless of time and space. As Greif (1997) puts it, neoclassical economic theory “is an ahistorical approach that deductively assumes that the same preferences, technology, and endowment lead to a unique economic outcome in all historical episodes. Its ahistorical nature reflects theoretical assumptions rather than empirical observations regarding the relevance of these assumptions or conclusions.”
On the other hand, history was dominated until the 1960s by positive or analytical (mostly Marxist) approaches seeking to generalize or reach general laws of history. Starting from the 1970s, however, history, especially in North America, shifted from social/economic history towards “cultural” history and post-modernist approach. It refrained from “theorization” or generalization altogether, based on the presumption that objective reality in history is non-existent or non-knowable, and we can only reiterate the different subjective narratives. In other words, history drifted in exactly the opposite direction to economics.

A renowned economic historian, Jürgen Kocka (2010), summarizes the situation in history as follows: “(Historians) called for greater attention to be paid to actions, perceptions, and experiences – the subjective dimension of history. Interest was soon to grow in the reconstruction of symbolic forms and the interpretation of cultural practices. Whereas the focus had often been on broad structures and processes, the charm of micro-historical approaches was now discovered.” The divergence led to Cliometrics being practised almost exclusively by economists, who generally continued, however, to be only modestly interested in it (economic historians remained a small minority among economists), whereas historians grew more skeptical about quantification and theorization altogether, and hence became more interested in cultural history than social or economic history. In fact, economic history, as practised by economists, is as Donald McCloskey (1976) describes it an “imperialist” approach that seeks to impose economic theory and econometric methods on history. In other words, it is the economists’ solution to the problem. This is because it applies neoclassical economic theory and the standard econometric methods to historical datasets, just like what an applied economist would do to current datasets. Yet, the original goal of economic history is actually different. Economic history should inform and even “revise” economic theory and public policies and should learn from both history and economics. And this leads me to attempt to answer the initial question: Why is economic history useful for both economics and history?”

There are usually three arguments raised by historians against economic history (Meyer and Conrad 1957): (a) Causality cannot be established among singular historical statements, (b) Historical hypotheses cannot be stated in quantitative terms, and (c) Scarcity of data makes quantification impossible. These arguments could, however, be debated. First, causal statements and generalizations are what we are really after in history, and are “unavoidable.” It is useful to start the historical analysis with a priori ideas perhaps because this is how our minds work. Also, Avner Greif stresses the idea of “contingent laws” in history, which could act as a middle-ground between social science and humanities’ approaches to history. Second, econometrics has gone a long way in addressing the concern of “deterministic” relationships between social phenomena. We are no longer advocating for a “deterministic” approach to history. Third, contrary to a widelyheld belief about the lack of historical data, the primary data sources are right there, but we need to dig for them in archives and libraries.

The other side of the argument, however, is more difficult to convey: history useful for economics? McCloskey (1976) makes several arguments here: first, history is a huge source of datasets. Why do applied economists limit themselves to current data sources? Is it because of the burden of collecting historical datasets? For example, the historical population censuses that can be linked constructing panel datasets in the very long-run have just no equivalent in any contemporary dataset. Second, history is the “society’s laboratory.” In history, natural experiments occur, which is quite useful in applied econometric analysis. Third, history informs economic theory, although this fact is often ignored. In fact, many claims on which economists base their analysis are historical in nature.

Finally, history informs public policies. If someone wants to study the effects of state industrialization, for example, the only way to go is history. Despite these points, I must note that recently, economic history has become closer to other applied economic fields such as development economics or labor economics. This perhaps comes at a cost: its ability to inform economic theory, and its ability to revise the neoclassical economic theory.

Example on Economic History from the Middle East I now turn to discuss an example from my own research for using economic history in understanding the origins of current economic or social phenomena. The correlation between religion and socioeconomic outcomes (e.g. education, occupation, and wages) is observed throughout history in various parts of the world. For example, a very old and widely known empirical fact that perhaps triggered Max Weber to write his seminal work in 1905, The Protestant Ethic and the Spirit of Capitalism, is that Protestants in Western Europe have, on average, better socioeconomic outcomes than Catholics.

The phenomenon is not confined to the Protestant-Catholic divide though. In the United States, Jews seem to be doing better than other religious groups, while in India, Hindus are traditionally better off than Muslims. In the Middle East, a region where religious divisions remain to be the major source of social segmentation, native non-Muslim minorities are, following a long medieval tradition, better off than the Muslim majority.
But why do we observe this phenomenon? The answers provided in the social science literature, perhaps following Weber’s thesis, sought a causal impact of religion: perhaps some religious beliefs are more conducive to economic success than others. In this paper, I provide a different answer: historical processes of self-selection (on income) across religions, which were induced by economic incentives, might have shaped the membership in religious groups, and hence, might have generated the observed correlation between religion and socioeconomic outcomes. The paper focuses on Egypt, where Copts (Egyptian Christians) were traditionally better off than the Muslim majority. I trace the origins of the phenomenon to a historical process of self-selection across religions, which was induced by a pure economic incentive: the imposition of the poll tax on non-Muslims (jizya) upon the Islamic Conquest of the then-Coptic Christian Egypt in 640. The regressive tax, which remained until 1856, led to the conversion of poor Copts to Islam to avoid paying the tax, and to the shrinking of Copts to a better off minority. I test this hypothesis using new data sources that I digitized from the Egyptian Archives. Using a sample of men of rural origin from the 1848-68 census manuscripts (one of the earliest censuses in the region), I find that districts with historically stricter poll tax enforcement measured by Arab immigration to Egypt in 640-900), and/or lower attachment to Coptic Christianity before 640 (measured by the legendary route of the Holy Family), have fewer, yet better off, Copts in 1848-68. This answer is not limited to Egypt, however. The idea of self-selection of converts to specific religions could be generalized to the Jewish and Protestant contexts. In fact, the Islamic poll tax (jizya) was implemented in every region that Muslims conquered. It remains to be studied if the poll tax could explain why Christianity survived in Egypt and the Levant but was completely wiped off from North Africa, or why Hindus are better off than Muslims in India.

References: McCloskey, Donald, “Does the Past Have Useful Economics?” Journal of Economic Literature, 14(2), pp. 434-461 (1976). Meyer, John R. and Alfred H. Conrad, “Economic Theory, Statistical Inference, and Economic History,” Journal of Economic History, Vol. 17 (4), pp. 524- 544 (1957). Kocka, Jürgen, “History, the Social Science, and Potential for Cooperation: With Particular Attention to Economic History,” InterDisciplines 2010 (1), pp. 43-63 (2010). Greif, Avner, “Cliometrics after 40 Years,” American Economic Review, 87(2), pp. 400-403 (1997).