What can we learn from a century of economic history?

Good economic history offers insights to policy-makers, showing them how crises have been navigated in the past, and the intended and unintended consequences of the actions of earlier governments.

The Economic History Society (EHS) was founded 100 years ago in a period of intense economic conflict and change, as the world recovered from the turmoil of the First World War and moved insensibly towards the crisis of the Great Depression.

The chancellor of the exchequer, Winston Churchill, had taken Britain back onto the gold standard in 1925, damaging the nation’s exports and leading to recession, wage cuts and job losses. The General Strike called by the Trades Union Congress (TUC) in early May 1926 had seen almost two million workers walk out, only two months before the EHS was established.

The Society’s members have written the economic history of the years that followed at the same time as they have investigated earlier centuries. The facts and arguments that economic historians have developed have shaped how governments, businesses and individuals have acted.

Bold but ultimately misguided changes to the country’s international economic relationships and acute periods of industrial action may sound eerily familiar. Yet, the economy of the UK today looks very different to that of 1926.

Then, the UK was home to one of the world’s largest textile industries, with cotton and woollen mills dominating many of its cities, and mining active in many counties. The achievements of the Industrial Revolution still gave form to the economy, even if leadership had slipped to the United States, while the British Empire continued to span continents, guiding trade, investment and migration.

Now, industry and manufacturing have shrunk to a fraction of their former size. Most of the great manufacturing firms of 1926 have disappeared. Services dominate both employment and exports: education, finance, health, law, technology. The Empire is gone. The Commonwealth is much reduced. The coal miners whose wage dispute formed the centre of the General Strike have all but disappeared.

The EHS was formed in a world where the major economies were tied together by the gold standard, fixing exchange rates and the value of currencies. Today, few major economies fix exchange rates, instead preferring the freedom to use interest rates to influence inflation expectations.

The Society was also founded in the city that was the world’s centre for finance and banking, and its largest equity market. While London’s financial sector remains large, it is far from pre-eminent.

The way in which the labour market works has also changed. Trade union membership has fallen substantially after peaking at 54% in 1979. Collective bargaining is now largely a feature of the public sector. Wage-setting is largely left to the market, with the exception of the minimum wage, and the number of days lost to strikes is a fraction of the level in the 1920s or the 1970s.

The workforce looks very different in other ways. Almost three-quarters of women work today, compared with around one-third in 1920s. The loss of industrial jobs has been followed by a decline in mid-level service work, such as bank clerks, leaving a far more polarised workforce, often employed in a smaller, more consolidated number of large firms.

These changes have brought benefits. The nation is much richer, with GDP per capita having risen five-fold in real terms. It is also a society in which riches are somewhat more fairly distributed, having seen consistent declines in economic inequality measured by the share of wealth held by the top 1%. Wealth inequality has stabilised since the early 1980s. But income inequality has grown substantially since then, as has ethnic inequality in wealth.

The population of the UK is also healthier. Life expectancy has gone up substantially: from 62 for women and 56 for men to, respectively, 84 and 80 years among those born today.

Children’s health has improved greatly as water, hygiene, nutrition and medicine, including vaccinations, have all advanced in step with rising family incomes. They are taller, heavier and experience far fewer serious infections than their counterparts in the 1920s. Far fewer suffer from stunting due to malnutrition and disease. And the infant mortality rate – perhaps the starkest of measures – has fallen almost 20-fold from 70 deaths per thousand to fewer than four.

Unemployment was higher a century ago – peaking at over 15% in 1932. In the last quarter century, it has not reached close to those heights, but levels remain far higher than in the decades that followed the Second World War. Unemployment insurance had only been established a few years before, in 1911.

The track record of the century might suggest that any lessons from economic history have yet to do much to prevent crises and shocks, or to guide policy-makers and politicians to a secure consensus on policy. We might still struggle to answer the question Queen Elizabeth II famously asked of economists generally after the global financial crisis of 2007-09: ‘why did no one see it coming?’

My view is that this is a spur to go further and do better, not to throw over the effort. Even after 100 years of hard work, two fundamental challenges continue to face us as we enter the Economic History Society’s next century.

First, seeing the economy is hard. It has no obvious physical form. It defies easy categorisation, as debates about who is unemployed and who might be unable to work due to sickness or might not be seeking work at all illustrate. Each time we dig down to a new level of evidence, we can find that our ideas need to change radically.

Deindustrialisation can conceal the growth of new industries, as occurred in the 1930s with the rise of cars and electrical manufacturing. Labour market trends are redefined if we delineate the nature of work in new ways. Climate change has provoked new ways to measure the impact of economic activity.

Second, successfully managing the economy is even harder. Good economic history offers insights to policy-makers, showing them how crises have been navigated in the past, and the intended and unintended consequences of the actions of earlier governments.

What it cannot do is provide a precise road map to the future. Economic cycles do not follow a single pattern, but are prompted by a variety of unpredictable factors. As historians, we recognise that context matters, and context always changes, as it seems to be doing rapidly today, with the development of artificial intelligence and cryptocurrencies, and sharp changes in international trade.

As economists, we recognise that people acting in the economy today share the same knowledge as the policy-makers, allowing them to anticipate and move in ways that can undermine, exploit or counter policy.

Faced by these challenges, the purpose of economic history remains vital. To understand, to inform and to educate.