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Over the 1919–1929 period, fluctuations in the value of stock trading on the New York Stock Exchange exercised statistically significant and economically important impacts on the demand to hold cash balances. The marked post–1925 rise in the volume and value of stock trading led to a measurable increase in the transactions demand to hold cash balances, an increase in demand not recognized or seriously discussed by individuals inside or outside of the system. Had it been recognized, it is unlikely that the Fed would have persisted in its antispeculative policies in 1928–1929, policies associated with rises in interest rates and the beginnings of a downturn in real activity in the second quarter of 1929.

A divergence of views among microeconomists in general and game theorists in particular regarding the explanatory objectives of microeconomic theory has become apparent in recent years. This divergence concerns, most fundamentally, the question whether institutions, legal or customary rules, or social norms are to be classified among the endogenous as opposed to the exogenous variables in the framework of microeconomic analysis. 1 The majority of economists are probably agnostic or ambivalent on this question, not having confronted, or not having had to confront, the issue in their own work. Many have sidestepped it by treating institutions as immutable or by restricting their analyses to a given rule regime. But rules do vary and change, and among those who are concerned with studying variation in institutions, two diverging views are increasingly identifiable, sometimes coexisting even within the writings of the same author.

Although Thomas Robert Malthus achieved his most lasting notoriety for one rather controversial idea – his so-called principle of population, he was also the author of an important general treatise on economic theory and policy, Principles of Political Economy, Considered With a View to their Practical Association. Published in 1820, three years after the first edition of David Ricardo's magnum opus, Malthus' contributions to economics have not been universally acclaimed. Put on the defensive by many of his colleague's arguments, Malthus spent much of his Principles trying to refute them. The at times defensive and querulous tone contrasts unfavourably with Ricardo's confident assertive style in a way that surely contributed to the latter's reputational eclipse of the former. The low repute in which Malthus is held even today by many economists is also probably in no small part due to the disdain that Marx exhibited toward him. The recognition accorded him by Keynes not only for anticipating a concern with the adequacy of aggregate demand but also, more generally, for his inductive, empirical method has served only partially to counterbalance this negative evaluation.

The recent appearance of two books, both dealing with the relationships between education and economic and social structure in parts of nineteenth-century North America and both claiming to be examples of quantitative social science history (an appellation to which more attention will be given below) gives us an opportunity not only to assess their merits relative to each other, but also to pose, by implication, some general questions about the future of research conducted within this mold. We are now emerging from a period in which empirical and analytical techniques developed by social scientists for the analysis of contemporary data have percolated through and to other subdiscipline and disciplines. Affecting economic history first, winds of change subsequently invaded more methodologically traditionalist departments, where they have given rise to a flurry of unimaginative but genuine neologisms: the New Urban History, the New Family History, the New Social History, even the New Political History. At the same time, techniques and concerns associated with the practice of demography, a discipline which although quantitative from its inception and by its very nature has not (at least in the United States) been firmly rooted in any one academic or departmental structure, have exercised an independent influence on historically oriented researchers in various departments.

A variety of scholars with widely differing political and disciplinary orientations continue to be fascinated by the prospect of making endogenous variation or changes in institutional structures through the use of a general model. While sympathetic to the appeal of such a research program, I argue in this paper that this methodological objective is, in the following sense, not attainable. At a minimum, some subset of institutional structures or rules needs to be treated as parametric in a general equilibrium model, and granted the same explanatory status traditionally accorded tastes, technologies, and endowments in such models. This proposition is developed through a critical analysis of work representative of this research program: in particular Richard Posner's Economic Analysis of Law (Boston: Little, Brown 1973) and, more especially, Douglass North and Robert Paul Thomas' The Rise of the Western World