Using History to Make Sense of the Impact of Brexit on Markets

24 06 2016

I am still trying to process the impact of the Brexit vote.



In this video, Gillian Tett and John Authers of the Financial Times discuss the possible results of Brexit for markets. The video is well worth watching in its entirety. As someone who studies how firms make use of the past, I was particularly interested in the first minute or so, where the speakers are using historical analogy to make sense of what is likely to happen to markets in the next few days. Gillian Tett poses the question: “What are we facing here, is this LTCM or is this another Lehman Brothers?” Gillian then explains the historical references by pointing out the failure of Long-Term Capital Management caused a brief plunge in the market that was followed by recovery and a return to normal, while the collapse of Lehman Brothers initiated a chain reaction and an impact that is still being felt nearly a decade later. Tett cautiously says it is too soon to tell whether Brexit will be a LTCM or Lehman Brothers.  Tett argues that increased capital ratios imposed on TBTF banks in recent years means that financial institutions are in a better position to survive a TBTF-style crisis than they were before the GFC.

It occurs to me that my fellow management academics should do more research on how people in finance use history for sensemaking and sensegiving. Natalya Vinokurova of the Wharton School is doing important research in this area but we need much more of it.



The Uses of History in the Brexit Debate

20 06 2016

My primary research interests nowadays are on how economic actors such as entrepreneurs and managers use historical ideas to make sense of the present and to plan for the future. I am, therefore, fascinated by the ways in which historical analogy is being used in the debate leading up to our referendum on EU membership. The quality of the analogic-historical reasoning on display varies enormously, of course, (yesterday David Cameron was compared to Neville Chamberlain)  .but from my point of view the interesting thing is that businesspeople are having recourse to the heuristic of historical analogy to make sense of the EU debate. I suppose it isn’t surprising that they are using historical analogy, given the degree of Knightian uncertainty that the prospect of leaving the EU has created for UK firms. For instance, if you watch this video from the Financial Times, you will note that the antiques dealer interviewed by Robert Armstrong refers to the Anglo-Dutch trade wars of the 1650s in the course of explaining why he will vote to leave the EU. [The Armstrong video is a superb piece of videojournalism that explores complex cultural and economic issues in a thoughtful and understated way).


As as a British citizen, I hope that we vote to stay in the EU.  I don’t want GDP to contract 5% by 2020, which is the figure most frequently forecast by economists  who have been asked to predict the impact of leaving the EU. As a researcher who is constantly looking for data about how firms use history, however, I believe I would benefit from a Leave vote: in the resulting economic chaos, economic actors would likely use historical analogies to make sense of the new business environment, creating source material for me to use in future papers.



Barry Eichengreen’s Challenge to Business Historians

30 04 2015

Although he doesn’t use the term analogic-historical reasoning, Barry Eichengreen’s important new book Hall of Mirrors The Great Depression, The Great Recession, and the Uses-and Misuses-of History certainly adopts this approach. As I have said earlier, this book is important for anyone who teaches about finance, political economy, financial history, economic history, and so forth. There is tonnes of really good historical material in this book. For instance, I learned about Henry Ford’s pet bank and its place in the politics of bank bailouts in the early 1930s. But perhaps the most important part of the book isn’t the empirical data presented in it, but the author’s methodology, which is constitutive historicism, albeit without the label.

To hammer home this point, I’m going to reproduce the first paragraph of the conclusion of the book:

The historical past is a rich repository of analogies that shape perceptions and guide public policy decisions. Those analogies are especially influential in crises, where there is no time for reflection. They are particularly potent when so-called experts are unable to agree on a framework for careful analytic reasoning. They carry the most weight when there is a close correspondence between current events and an earlier historical episode. And they resonate most powerfully when an episode is a defining moment for a country and a society. For President Harry S. Truman, in deciding whether to intervene in Korea, the historical moment was Munich. For policymakers confronted in 2008-9 with the most serious financial crisis in eighty years, the moment was the Great Depression.

There is a lot going on in this paragraph, so let’s unpack it. Note how Eichengreen is here employing Daniel Kahneman’s distinction between thinking fast and thinking slow. Eichengreen isn’t saying that historical-analogic reasoning always has a massive influence on policymakers, merely that its influence is more pronounced during crises. Students of the making of US foreign policy were among the first group of social scientists to apply constitutive historicism as a research methodology (think of the classic book Analogies At War) and Eichengreen alludes to all of the earlier research in this area before applying the same basic approach to economic policymakers.

Eichengreen’s book shows how the lessons that economists and historians distilled from the Great Depression influenced policymakers before, during and after the 2008-9 financial crisis. Establishing that perceptions of history influenced policymakers during the crisis is, for a scholar of Eichengreen’s abilities, kind of like shooting fish in the barrel, since some of the key policymakers, most notably Ben Bernanke but also British Prime Minister Gordon Brown, had studied the Great Depression in their earlier academic careers. Moreover, these policymakers often used historical analogies to the Great Depression in their public pronouncements, as Eichengreen documents. All of these references to history are on the record and online for Eichengreen or any other researcher to use. As more and more documents created by policymakers during the financial crisis become available to researchers (e.g., as they are released to the public after the statutory term of years) we will be able to see from their private correspondence, FOMC transcripts, and emails how the key players used historical analogies when they were addressing each other, rather than a larger audience.

The challenge to business historians and other management academics who are interested in applying the constitutive historicism approach is to determine how and when decision-makers in the private sector use historical-analogic reasoning. Barry Eichengreen’s primary focus is on policymakers (e.g., policymakers and civil servants). The primary focus of academics in management schools is on decision-makers within companies. By using a different range of primary sources, we should be able to adapt Eichengreen’s constitutive historicism approach and then apply it to corporate actors. Looking at how Wall Street executives used historical-analogic reasoning during the crisis in the autumn of 2008 would seem to be a logical place to start. Another possible avenue of investigation would be to look at whether venture capitalists and others involved in the highly uncertain and unpredictable world of launching new companies use historical-analogic reasoning.

The Historical Consciousness of the Academic Literature on Commons-based Peer Production

16 07 2014



As readers of this blog will know, I’m interested in constitutive historicism (i.e., the ways in competing perceptions of history structure decision-making in the present). There is a large body of literature that examines how historical facts, historical factoids, historical analogies, and historical meta-narratives shape the thinking of people in different domains, such as the making of US foreign policy (see book cover below).


One of my current research projects examines the use of historical analogy by people involved in particular type of technology-based start-up. As I’ve read through the academic literature on open innovation and commons-based peer production (think of Linux and also Wikipedia), I’ve been struck by how frequently academics use ideas about different types of history (e.g., world history, US history, the history of technology, business history) to understand the new part of the economy.


Consider Yochai Benkler’s seminal 2002 article  “Coase’s Penguin, or, Linux and” The Nature of the Firm“.” Yale Law Journal (2002): 369-446. Benkler argues that we have entered a new era in the history of innovation in which the old model, whereby innovation was done in-house by for-profit corporations, is becoming obsolete.  In the following paragraph, which references key personalities in post-war US history, Benkler makes this point.

Imagine that back in the days when what was good for GM was good for the
country an advisory committee of economists had recommended to the President of
the United States that the federal government should support the efforts of volunteer
communities to design and build their own cars, either for sale or for free distribution
to automobile drivers. The committee members would probably have been locked up
in a psychiatric ward—if Senator McCarthy or the House Un-American Activities
Committee did not get them first. Yet, in September of 2000, something like this in
fact happened. The President’s Information Technology Advisory Committee
recommended that the federal government back open source software as a strategic
national choice to sustain the U.S. lead in critical software development.


One of the interesting things about this paragraph is that Benkler, who is originally from Israel, assumes a fair amount of knowledge about US history on the part of the readers of the Yale Law Review. Although he does not feel the need to refer to him by name, Benkler alludes to General Motors CEO Charles Erwin Wilson in his first paragraph. In the 1950s and the 1960s, a statement attributed to Wilson “what’s good for General Motors is good for the United States” went viral and became part of the consciousness of many Americans. Today, many Americans believe that some General Motors executive once uttered these words back during the Cold War. This factoid shapes how they thing about the world. Of course, Wilson never actually said the exact words that have been attributed to him, but for the purposes of Benkler’s argument, the important thing is most readers of the Yale Law Review probably think that some suit from GM said it.

If you want more information about what Wilson actually said and did, including the major cuts to spending on defence contracts he made after 1953, you may wish to check out William M. McClenahan Jr and William H. Becker. Eisenhower and the Cold War Economy. JHU Press, 2011, especially pages 21, 48.

Becker, Eisenhower and the Cold War




I’m not saying that the overall argument of Benkler’s article is wrong.  I’m certainly not saying that Benkler (see below) deliberately set out to impart inaccurate historical information to his readers. I’m certain that Benkler, like most educated Americans, believes in the accuracy of the mythical Wilson quote.  I’m more interested in the fact that he and many other people use the familiar world of history to try to understand the brave new world of open source software.