The Microeconometrics of Household Behaviour
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London School of Economics and Political Science Department of Economic History Doctoral thesis The Microeconometrics of Household Behaviour: Building the Foundations, 1920-1960 Chung-Tang Cheng A thesis submitted to the Department of Economic History, of the London School of Economics and Political Science, for the degree of Doctor of Philosophy May 2021 Declaration I certify that the thesis I have presented for examination for the PhD degree of the London School of Economics and Political Science is solely my own work other than where I have clearly indicated that it is the work of others (in which case the extent of any work carried out jointly by me and any other person is clearly identified in it). The copyright of this thesis rests with the author. Quotation from it is permitted, provided that full acknowledgement is made. This thesis may not be reproduced without my prior written consent. I warrant that this authorisation does not, to the best of my belief, infringe the rights of any third party. I can confirm that a version of Chapter IV is published in History of Political Economy (Cheng 2020). I can also confirm that this thesis was copy edited for conventions of language, spelling and grammar by Scribbr B.V. I declare that my thesis consists of 62,297 words excluding bibliography. 2 Abstract This thesis explores the early history of microeconometrics of household behaviour from the interwar period to the 1960s. The analytical framework relies on a model of empirical knowledge production that captures the scientific progress in terms of its materialistic supplies and intellectual demands. Under this framework, the thesis traces how microdata at the household level first appeared in the econometrician’s research agenda and how the discipline was consolidated by communities of econometricians. This study contains four substantive chapters. The first three chapters are selective case- studies charting three important approaches in the development of microeconometric practices. The first chapter reviews the interwar literature. Among those decentralised practices, Arthur Bowley’s analysis on family expenditure stands out as one of the earliest exemplars. The second and third chapters explore the formation of two communities in the post-war period: Richard Stone’s Department of Applied Economics (DAE) at Cambridge, and Guy Orcutt’s Social Systems Research Institute (SSRI) at Wisconsin. With the benefit of the new microdata and the introduction of computer-based calculation, Stone and his crew created a cooperative group that produced the first series of microeconometric publications driven by intellectual problems and economic questions. By contrast, Orcutt came to the analysis of microdata driven by his dream of microsimulation, a bottom-up method of microeconometric modelling, more heavily dependent on computing power and designed for revising public policies. After frustration at the SSRI, he finally finished a household simulation model at the Urban Institute. Taking the DAE and SSRI as examples, the fourth chapter assesses both the internal academic relationships of these groups, and the consolidation of both literatures using bibliometric data and network analysis. The results demonstrate the ways in which the DAE was a more interconnected network than the SSRI. The citation analysis offers an alternative way in understanding the formation of econometric knowledge based on community relations rather than the supply of materials or intellectual demands. 3 Acknowledgements After reading many economist’s acknowledgements, now it finally comes to my round. When I first came to the UK in 2015, I was not even sure whether I could survive in an English- speaking environment and became an academic. My pessimism gradually disappeared because of helps and supports of many individuals and institutions. My deepest gratitude goes to my supervisors, Mary Morgan and Julian Wells, for their constructive comments, patience, and encouragement. Mary has been taking care of my research since I joined the LSE. I owe her the most for her insightful ideas and rigorous supervision. Julian always reads my draft meticulously. His comments hugely improved the quality of my network analysis chapter. I thank Hsiang-Ke Chao, who first introduced me to the history and methodology of economics during my master’s programme. I am blessed to have his mentoring and feedback, especially at the final stage of this thesis’s completion. The LSE has provided me the biggest financial support for this journey. During these years I have received many individual supports from the economic history department – special thanks to Joan Rosés, Neil Cummins, and Loraine Long, for taking care of the PhD students, to Eric Schneider, for his engaging discussion on my job applications, and to Alejandra Irigoin and Guillaume Yon, for their kind encouragement. I am also grateful to the constructive feedback from other faculty members during my graduate seminar. All my colleagues in the department made my PhD journey enjoyable. Among them I would like to mention Mauricio Canals-Cifuentes, Hanzhi Deng, Sijie Hu, Ziang Liu, Maanik Nath, and Greta Seibel. My Taiwanese friends are great companions when I sometimes felt nostalgic or wanted to talk about baseball. I remember those good pre-pandemic times with Ko-Hung Kuan, Hsinyen Lai, and Chen-An Yu. Despite with British pale ale and stout, hanging out with them made me feels like coming back home. During my stay in the US, Chen-An Lin and Pei-Chun Su offered me a place. Those chillout trips with them were always joyful. My research has enormously benefited from the history of economics community. I am in debt to my thesis examiners, Marcel Boumans and Tiago Mata. Their invaluable comments and critical insights are extremely helpful to this thesis. I thank Roger Backhouse, Erich Pinzón-Fuchs, and Gerardo Serra, for their useful advice when we met at different occasions. During the 2018–19 academic year, I visited the Center for the History of Political Economy at Duke University. I am grateful to the Center’s generous funding and the people there – Jason Brent, Bruce Caldwell, Paul Dudenhefer, Kevin Hoover, and Roy Weintraub, and other visiting 4 fellows Juan Acosta, James Forder, and Aurélien Goutsmedt. They greatly strengthened my understanding of the field. I also thank the history of economics society and its Warren J. and Sylvia J. Samuels Young Scholars Prize for the financial support. This thesis would not be finished without archival trips supported by the LSE Radwan Travel Fund and the Royal Economic Society Small Academic Expenses. I would also like to express my gratitude to the librarians and archivists of Duke University, Harvard University, Massachusetts Institute of Technology, the Computer History Museum, the LSE, the University of Cambridge, the University of Chicago, the University of Michigan, the University of Wisconsin-Madison, and Yale University. Their efforts have made my archival works much smoother and easier. In the end, I dedicate this thesis to my family, my parents in Taipei, Hsi-Chi and Chiao- Ying, and my brothers in Tokyo, Chung-Min and Chung-Lan. They have encouraged and supported me continuously throughout these years. Although the pandemic may stop them from attending the graduation ceremony, I would like to share my satisfaction and happiness with them. Another biggest thank you goes to my partner, best friend, and grammar police, Ning. She has contributed the most to our long-distance relationship and spent her time visiting me in the UK and the US. I thank her for being there and dancing to Joy Division with me – everything is going wrong, but we are so happy. 5 Contents Declaration 2 Abstract 3 Acknowledgements 4 Chapter I. Introduction 10 1. The Large Gap in the History of Microeconometrics 12 2. The Historical Scope of this Thesis 16 3. The Theoretical Concepts of this Thesis 18 4. The Model of Empirical Knowledge Production 20 5. The Historical Background of Household Microeconometrics 22 5.1 The Emergence of Household Microdata 23 5.2 The Popularisation of General-Purpose Computers 26 5.3 The Rise of the Haavelmo-Cowles Programme in Macroeconometrics 29 6. The Goals of this Thesis 33 Chapter II. Arthur Bowley and the Development of Interwar Microeconometrics 35 1. Introduction 35 2. Bowley as a Proto-Econometrician 37 3. Bowley as a Microeconometrician 45 4. Interwar Budgetary Demand Analysis 51 5. Interwar Budgetary Consumption Function 56 6. Marshak’s Pooling Method 60 7. Concluding Remarks 64 Chapter III. Richard Stone’s ‘Cambridge Crew’ and the Consolidation of Postwar Microeconometrics 65 1. Introduction 65 2. Stone’s Early Years 66 3. Towards a Macroanalysis of Market Demand 71 4. The Department of Applied Economics at Cambridge 75 5. Building Materials for Microeconometrics 79 6. The Consolidation of Microeconometrics 82 7. Concluding Remarks 89 Chapter IV. Guy Orcutt and the Creation of Microanalytic Simulation in Empirical Economics 91 1. Introduction 91 6 2. Orcutt’s Early Years 92 3. The Birth of Microsimulation in Economics 99 4. Struggle at Wisconsin: Social Systems Research Institute 106 5. Urban Institute and the 1976 DYNASIM 111 6. Microsimulation as a New Source of Evidence in Policymaking 115 7. Concluding Remarks 117 Chapter V. The Formation of Microeconometrician’s Communities at Cambridge and Wisconsin: A Bibliometric Study 118 1. Introduction 118 2. Data 121 3. Evaluating the Strength of Academic Networks 124 3.1 Definition and Methodology 124 3.2 Network