The Long Nineteenth Century: 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).