The Social Rate of Return: A Note on a Note

Of all the social sciences, historical analysis is probably the most complex and the least rewarding. Theory on the interface of economics and politics, politics and sociology, and sociology and economics is at best embryonic; and, more importantly, it is nearly impossible to determine what motivated someone long since dead to take some particular action. In the 1960s the cliometrician profiting from a surfeit of unnecessary originality enunciated the principle that: when history goes beyond classification and description, what did happen can only be analyzed in terms of what did not happen. The counterfactual world of what did not happen is deduced from a model of behavior, but it is the assumption made about motivation that provides the steam to drive the logical engine. Alter the assumption and the counterfactual world may change from mountains to deserts or from night to day. When that world changes so does the "explanation" of the past-the comparison of what did happen with what could have happened is redrawn. Economists have been fairly satisfied with the assumption that profit maximization drives their economic models, but even in that area of inquiry certain anomalies have arisen. Models based on output rather than profit maximization appear to explain better the behavior of Soviet firms, and a Nobel prize was given for work of "satisficing" rather than "maximizing," to cite only two examples. Outside of economics the state of the art is even more disheveled: Do political parties maximize the number of votes, the probability of getting elected, or something else yet? What motives should be imputed to a bureaucrat: maximization of income, maximization of power, or minimization of the probability of getting fired? Do school boards choose expenditures on the basis of a median voter response or by exercise of "monopoly" bargaining by superintendents and board members? The historian attempting to explain party behavior, bureaucratic response, or school expenditure patterns makes one assumption, develops a consistent counterfactual argument, and produces an explanation of history. If he had chosen differently it is likely that the product would also have been different. Flynn and St. Clair's comments can be interpreted in this light-serious questions arising from the choice of motivation and the appropriate counterfactual-and to the extent that interpretation is correct, they could have a legitimate methodological point. But it is a point addressed to someone else. If, on the other hand, the criticism rests solely on a misuse of the sunk cost argument, it is difficult to conjure a rational response. The British empire could well have been the product of noneconomic forces, and it may well have been that empire firms were profitable-but these were not our questions. Our argument was directed not towards an examination of the motives that underlay Britain's aquisition and stockpiling of colonies. The goals were much more mundane. A broad spectrum of academics (J. Hobson, J. Seeley), politicians (J. Chamberlain, V. Lenin), to say nothing of men of the world (G. B. Shaw, H. M. Stanley) have argued that Britain or at least some Britons were economically much better off because Britain chose to exercise political suzerainty over a large fraction of the world's land mass. Whether they spoke in phrases like ". . . the Birmingham foundries were gleaming with