World-System (1800-1900) How did Latin America Respond to Shocks?

 

In an earlier post (here) I investigated whether Latin America, in the 19th Century, benefited from the Monroe Doctrine. As a Geopolitical Alliance, Latin America benefited slightly from US intervention up to the 1880s, but not after that. However, the Monroe Doctrine was designed to minimize European influence in Latin America. One way to operationalize "interference" is to ask how the LA_19_US_input model handled shocks compared to the LA_19_WE_input.

In the 19th Century, interference in Latin America from Western Europe, the UK and the US is best viewed as a Random Walk.

A one standard deviation shock LA Growth (LA1) had effects extending out over about a half decade (see the graphic above). However, the Western European shocks were initially negative, meaning that growth in Western Europe depressed Latin American Growth. All the effects are small compared to the size of the shock. 

In fact, the AIC statistics above shows that Growth Shocks are best viewed as a Random Walk. For comparison, the three models are presented below.

Notes

LA_19_US_Input Model

LA_19_WE_Input Model

LA_19_UK_Input Model

LA_19_MM

US_19_MM

WE_19_MM

UK_19_MM

Did Great Britain Stabilize the World System in the 19th Century?

 

The role of the British Empire in the 19th Century (map in the Notes) was an important part of the Minsky-Kindleberger Framework for understanding the events of the Early 20th Century.

The Explanation of this book [...Charles Kindleberger (2013) World in Depression, 1929-1939...] is that the 1929 depression was so wide, so deep and so long because the international economic system was rendered unstable by British inability and United States unwillingness to assume responsibility for stabilizing it...(pps. 291-292)

The qualitative Minsky-Kindleberger Framework (M-K) can actually be tested using Systems Theory and I will present some of the results in this post. The M-K Framework is important because it is the only explanation of the Great Depression that looks at the entire World-System.

To test the M-K Framework, I compared the Growth Component (W1) from four different World System models: (1) W19 BAU, Business-As-Usual, no Geopolitical Inputs, estimated from (1800-1900) and then forecast into the 20th Century, (2) W19 UK-Input, Geopolitical Inputs from the "declining" UK Hegemonic Leader (3)  WE20 BAU, estimated from 1900-1950, and (4) WE20 RU-Input, input from the RU20 model.**

The outputs from the models are graphed at the beginning of this post. Both the W19 BAU and the W19 UK-Input models produce collapse, supporting the M-K Framework. The WE20 models produce steady states around 1950. The  WE20 BAU model peaks after 1950 and the  WE20 RU-Input model peaks after the Great Depression, and then stabilizes around 1950.

I've added the W19 US-Input model to the graph above. It too would have stabilized the World System but at a lower level of growth.***

These results add to the M-K Framework the definition of Systemic Stability. The World System during the early 20th Century was unstable. The Hegemonic Leader, Great Britain,was collapsing and could not provide stability. The emerging Hegemonic Leader, the US, was not yet a World Power but could have stabilized the system if it had not been preoccupied with the Great Depression. Russia could have also stabilized the system but was preoccupied by the Russian Revolution.****

Notes 

** The WE20 RU-Input model was discovered by estimating models with inputs from all the WWII participants. It is interesting because it stabilizes the World-System during the Great Depression as does the WE20 US-Input model. None of the other models create stability (see the AIC Statistics below).

*** Note that none of these models forecast the  Great Depression. I've dealt with that issue here and here. The Great Depression was the result of an Economic Bubble created by recovery from WWI. The Bubble was popped by the Stock Market Crash of 1929.

**** I should also point out that Germany, as the instigator of the World Wars, was also unstable (see Late Nineteenth Century Development in Germany).

For information about data sources and how the models were constructed, see the Boiler Plate.

Declining British Empire

The British Empire lasted from the Late 16th to the Early 20th Century.

The map above shows the growth of the British Empire over time (from Jorstrand17).

W_19 BAU Model

The W_19 BAU model was estimated from 1800-1900. It can then be forecast out to 1950 to see, counterfactually, what would have happened in the early 20th Century if WWI, the Great Depression and WWII had never happened.

Measurement Matrix 

The Measurement Matrix for the W_19 BAU model shows the weights given to each indicator variable. The state variables components are: (1) W1 = (Growth-T) an environmental growth controller explaining 92% of the variation in the indicators. (2) W2 = (T-XREAL+Q+L) an environmental-export employment controller explaining an addition 7% of the variation. (3) W3 = (XREAL -Q - T) A Real Export-Economic growth controller explaining another 0.3 % of the variation.

There are three other state variables that are interesting but explain little variance: (4) W4 = (X - XREAL) Export Prices, (5) W5 = (Q - N - X) Malthusian Exports and (6) W6 = (N - L - Q) Malthusian Employment.

System Matrix

You can run the W_19 BAU Model here.

The System Matrix for the W_19 BAU model has three unstable roots and, as can be seen from the graphic at the beginning of this post, the W19 model collapses in the early 20th Century. The collapse is the result of negative feedback loops especially from W2 = (T-XREAL+Q+L), environmental-export employment controller, to W1 = (Growth-T), the environmental growth (the coefficient is F[1,2] = -0.020318992).

W_19 UK-Input Model

Systems Matrices

W_E20 BAU Model

Measurement Matrix 

System Matrix

W_E20 RU-Input Model

W20 US-Input Model

W_19 AIC Statistics

W_20 AIC Statistics

 

World-System (1800-1900) Did the Monroe Doctrine Benefit Latin America?

 

The Monroe Doctrine (1820) ushered in, for the US and Latin America, the idea of spheres of influence. The US would recognize a country's dominance in regions of the World-System if other countries would recognize America's dominance over Latin America. The Monroe Doctrine was central to American grand strategy in the 20th century and has been resurrected in the 21st Century as the "Donroe Doctrine" by the Trump II Administration in the 2025 US National Security Strategy.

The original Monroe Doctrine had some benefits for Latin America (see below and in the graphic above) that only last until the 1880s. 

What the resurrected Monroe Doctrine signals for the Future is unclear, but what it does establish clearly is one explicit plank of the Right-Wing Platform: Isolationism and restricted military interventionism. My question in this post is whether the original Monroe Doctrine (1820) was any benefit to Latin American Economic Growth? 

To investigate this question, I used the LA19 model (Long-Nineteenth Century, 1800-1900) and applied it to the period 1800-1820. Then, I forecast from 1820-1920 using only the 1800-1820 data and only using the LA1 Growth Component of the model. The result is presented in the graphic*** at the beginning of this post.

From 1820 to about 1870, Geopolitical Alignment with the US would have been good for Latin America. after that, however, almost any other Geopolitical Alignment (BAU, Business-as-Usual, TECHP, Technical Productivity, W World System, LA Latin America or WE Western Europe) would have been better until 1900. 

The original Monroe Doctrine was supposedly aimed at reducing Western European influence in Latin America, a US Geopolitical objective. How shocks transmitted from the US and Western Europe were handled by Latin America is investigated here.

You can experiment yourself with the LA19 BAU model. The model is unstable, cyclical, nonlinear, and hard to stabilize without creating chaos. The LA19 US Input model, implementing the Monroe Doctrine, is also unstable but can be stabilized with instructions in the R-code using the dse Package. So, one benefit of the Monroe Doctrine was, potentially to stabilize Latin America Development.

This is not the entire story about the Monroe Doctrine: (1) What was happening in Europe during the Long Nineteenth Century to prompt the Monroe Doctrine? (2) What happened to Latin America during the Great Depression (early 20th Century)? And, (3) What can be expected to happen with the "Donroe" Doctrine in the 21st Century? I'll deal with these questions in future posts.

You can follow other posts I have written in the Blog Roll here. For more information about data sources and how the models were constructed, see the Boiler Plate.

Notes

*** The other Geopolitical Alignments (BAU,TECHP, W, LA, WE) are all grouped together since they are difficult to distinguish on the graphic, but see the AIC statistics below. 

AIC Statistics

ll the Geopolitical versions of the LA_19 model are unstable.

The best model, using the AIC criterion, takes the state of the US_19 model as input LA_US = (-1467 < AIC = -1412 < -1365). However, there is no clear separation between the other Geopolitical models, for example: LA_WE = (-1679 < AIC = -1609 < -1538), LA_W = (-1516 < AIC = -1441 < -1369), LA_TECHP = (-1611 < AIC = -1546 < -1465), LA_BAU = (-1552 < AIC = -1483 < -1402). From the graphic at the beginning of this post, after 1880 the BAU, TECHP and W start performing better in terms of exponential growth.

LA19 Measurement Model

The first component is Overall Growth, the second Component is Export-led Growth, the third Component is Malthusian Exports and the fourth component is a Real Export Controller. LA1=Overall Growth, LA2=Q-N-X, LA3=X-XREAL-N, LA4=N-XREAL.

In other words, Economic Control in Latin America was directed at shocks from World Trade which would become very important in the early 20th Century with transmitted shocks from the World Wars and the Great Depression. I look at how the Latin American Economic models handled shocks in another post here.

World-System 2025: The Donroe Doctrine

 

Notes

Technology Long Waves

  

The Kondratiev Wave is an important element of World-Systems Theory. The graphic above is taken from Andreas Goldschmidt and gives historical specifics for technological cycles. Goldschmidt's formulation allows for the idea to be tested (one of the models I always test), is partially consistent with economic Growth theory (particularly if we do not assume a functional form for exogenous disembodied technological change in the Solow-Swan Model) and I can present some examples.

• The Iranian Economy prior to 1979 and associated Tech Bubble.

Boiler Plate

 

State Space Model Estimation

The Measurement Matrix for the state space models was constructed using Principal Components Analysis with standardized data from the World Development Indicators. The statistical analysis was conducted in an extension of the dse package. The package is currently supported by an online portal (here) and can be downloaded, with the R-programming language, for any personal computer here. Code for the state space Dynamic Component models (DCMs) is available on my Google drive (here) and referenced in each post.

Atlanta Fed Economy Now

My approach to forecasting is similar to the EconomyNow model used by the Atlanta Federal Reserve. Since the new Republican Administration is signaling that they would like to eliminate the Federal Reserve, the app might well not be available in the future.

While the app is still available, there have been some interesting developments. In earlier forecasts, the Atlanta Fed was showing GDP growth predictions outside the Blue Chip Consensus. Right now, after unorthodox economic policies from the Trump II Administration, the EconomyNow model is predicting a drastic drop in GDP (the Financial Forecast Center is only predicting a slight drop here).

Climate Change

Another comparison for what I have presented above are the IPCC Emission Scenarios. These scenarios are for the World System. Needless to say, (1) the new Right-Wing Republican administration plans on withdrawing the US from all attempts to study or ameliorate Climate Change and (2) the IPCC does not produce any RW modes for the World System (but seem my forecasts here).

World System

The longest running set of data we have for the World-System is the Maddison Project based on the work of Angus Maddison (more information is available here). Data on production (Q) and population (N) for most countries and regions runs from years 0-2000. More data becomes available as we near the year 2000. 

Available data were entered in a spreadsheet (see Population above, double click to enlarge). Missing data were interpolated with nonlinear spline smoothing using the R programming Language.

In cases where initial values were not available (see GDP above), the E-M Algorithm was used to estimate initial conditions.

From the graph of GDP above (W_Q) for the World System, it can be seen that economic growth from the year 0-1500 was basically flat. The period of British Capitalism (after 1500) had a small plateau of growth. Takeoff does not happen until the Nineteenth Century.

From a system's perspective, the only model that can be tested for the entire period is Kenneth Boulding's Malthusian Systems Model [Q,N] = f[Q,N].

When developed as a State Space model (measurement matrix above) there are two components: W1=Growth and W2=(Q-N), the Malthusian Controller. When more data is available, the Malthusian Controller can be generalized to other SocioEconomic theories.

What the Malthusian Controller shows (plotted as Q-N above) is that a long-developing Malthusian Crisis (Q<N) started in the Late Middle Ages and accelerated through the period of British Capitalism (Dark Satanic Mills) and was reversed spectacularly during the Nineteenth Century.  Takeoff in response to a deepening Malthusian Crisis would not be an unreasonable way to view Modern Economic Growth.

Error Correcting Controllers (ECC)

In another post (here), I presented Leibenstein's Malthusian Error Correcting Controller (ECC). It can be generalized to the dominant ECCs in most theoretical economic models (above). These controllers can be further generalized. For example, (X-U) and (L-U) can be generalized to (N-U), a more general Urbanization Controller which describes market expansion for economic growth. In countries and periods with limited data, (N-U) might subsume all these processes. ECCs describe important feedback processes in SocioTechnical System that are typically not recognized as such in academic literature.

Kaya Identity

The basic theoretical model underlying all the World-System models I crate is the Kaya Identity. There are a number of advantages to starting theoretical development with the Kaya Identity: (1) An "identity" is true by definition Adding other variables to the model ensure that theory construction is on a solid footing. (2) The Kaya Identity is also used as the foundation for the IPCC Emissions Scenarios allowing a linkage between World-Systems Theory and the work of the IPCC.

World Development Indicators (WDI)

After WWII, extensive data sets on all countries in the World-System became available from the World Bank (here). The indicators above where chose to construct the state space for each WDI-based model. Addition indicators can be added for specific forecasts and analyses.

About

The Long Nineteenth Century is a term used by Historians to describe the period from the French Revolution in 1789, and ending with the outbreak of World War I in 1914. My dissertation in 1981 (here) studied the German Reich from the period 1872-1908 using state space statistical models. Since then, I have developed models for the major countries in the World System using the Maddison database. In this blog, I present results from those models.

Periodization

For the Quantitative Historian, selecting a time period over which to display statistical data or estimate models is an interesting problem with no solution. My approach has been estimate multi-models over whatever period seems appropriate to the purple (from a decade to 2000 years). A meta-analysis of the multi-models will have to be relegated to the future.

A General Periodization based on Centuries is provided in the Boiler Plate. In general, when I'm analyzing a Long "Century," the estimates are based on a given Century (for example, the Twentieth Century) and then projected into the future (for example, the Twenty-first Century).

Starting with the Twentieth Century, here are some interesting references with links where you can download the free pdf files:

• The Age of Extremes (Wikipedia Article)
• The Long Twentieth Century, Giovanni Aright 
• The Age of Extremes, The Short Twentieth Century, 1914-1991, Eric Hobsbawm
• The Age of Capital, 1848-1875, Eric Hobsbawm
• The Age of Revolution, 1789-18484, Eric Hobsbawm
• The Age of Empire, 1875-1914, Eric Hobsbawm

Notes

World-system theory (WST) has developed a new language for analyzing the historical social, economic and political development of societies based on concepts from General Systems Theory (GST). The basic GST concept is that all systems are organized in hierarchies. Applying this concept to the world system, WST find nation states organized into core, semi-peripheral and peripheral countries that create an inter-regional and transnational division of labor.

The premise about hierarcical organization, the analysis of world-system history and the adoption of other GST concepts has led to a number of conjectures. For example, the system works to the benefit of the core countries, bringing in the Marxist theory of Capitalist Exploitation. Or, the role of long-swings and business cycles in creating historical conjunctures when the system can change its orientation. Or, technological changes originate in the core and are used to further exploit the peripheral countries. Or, hierarchical imbalances generate world-system conflict that reaches a peak during system conjunctures.

WST has, understandably, not pursued every insight from GST. There is more to be done, particularly in the area of quantitative systems analysis and model building. My interest in this blog is to investigate World-System conjectures using quantitative models based on GST. In another blog, I am developing Causal Macrosystems using directed graphs (structural equation models) and state-space theory, quantitative tools drawn from GST. In yet another blog (Economic Bubble Machine), I am looking at economic cycles. This blog will use the insights from those blogs to develop empirical systems models of core, semi-peripheral and peripheral countries.

The kinds of questions I will be asking of these models are:

1. Is there a difference between the structure and time-series behavior of nation states based on their position in the world system?
2. Are models for failed states different form other peripheral country models?
3. Are technological parameters and technological change different based on world-system position?
4. How are effects transmitted, if at all, from core to semi-peripheral and peripheral countries?
5. Is there a difference in how systems react to economic crises based on world-system position?
6. etc.

I have been working with GST macro models since the mid-1970's. My first macro-model was published in my dissertation Instability and Late Nineteenth Century German Development. My goal is to put together the things that I have learned in the last forty years for the next generation of model builders.