The Department of International History is delighted to welcome Professor Rui Esteves, who joined the Graduate Institute in September 2018. Previously at Oxford University, Professor Esteves specialises in monetary and financial history. In this interview, Professor Esteves highlights his work and its contribution to our understanding of international history and global affairs.
What is your current project?
I am currently working on several projects, but if I have to pick one, I would say that I am mostly interested in understanding the role of economic networks in history, particularly as they affect political choices about regulation and international relations. The academic study of networks in the social sciences goes back to the 1930s when the sociologist Jacob Moreno invented the ‘sociogram’ depicting individuals as points and the relations between them as lines. Apart from sociology, however, networks did not influence markedly other social sciences until the last two or three decades. Prevalent models of human behaviour in history as in political science or economics long emphasised the dominance of social forces over individual agency.
This has now changed thanks to a number of methodological advances, combined with the increasing availability of embarrassingly networked data (e.g. data from social network companies) and the easy access to computing power. In economic history, networks have become a popular form of analysis, particularly in business and financial history, where they underscore the study of correspondence networks between trade partners or the interlock of company directors across firms. To take up a classical metaphor in economics, in the traditional model of a market, buyers and sellers interact anonymously via a common market price. Whilst this may be true for specific instances, such as stock markets, actual trading usually involves personal and enduring bilateral relations between traders. Likewise, the traders’ success depends on their ability to form new trade links. Of course, no trader in a market is immune to large shocks, such as technological change, regulation, or a crisis, but the way they are affected depends on how they are connected to their peers. Not all traders in a market are consequential for overall outcomes, but those who are typically play a central role in the network of trade relations, as we recently rediscovered in the context of ‘too-big’ or ‘to-interconnected-to-fail’ banks.
In a sense, network analysis offers a methodological middle ground between the tyranny of social forces and the peculiarities of single units, be they individuals, firms, or even states. In my own work, I use networks as a conceptual framework to understand the diffusion and regression of international monetary standards before World War I. Specifically, this project aims to identify the determinant forces of countries’ decisions to adopt or leave currency pegs, namely gold. The expansion of the gold standard is frequently attributed to network effects from trade, driven by the adoption of this monetary regime by the core European economies in the 1870s. However, these effects have been more asserted than shown, probably because establishing a causal relation is not trivial since causality can run in both ways. On the one hand, countries could have adopted particular monetary regimes (such as gold) in expectation of trading more with nations also on gold, but they probably also had an interest in adopting the currency regime of their main trade partners.
The methods I use explain, for the first time, the changes in trade networks during the 19th century and countries’ choices of exchange rate regimes. Preliminary results suggest that countries adopted the gold standard more as a reaction to the evolution of their trade networks than as a strategy to change their trade partners. Exchange rate regimes were more the consequence than the cause of trade networks.
Where does economic history fit in international history, and what specific contribution does it make to our understanding of global affairs?
I believe that economic forces and conflicts have to be part of a proper understanding of the international dimension of history and of the present. This is all the more obvious since globalisation extended the reach of market forces across borders leading to powerful trends toward economic integration (international trade and specialisation, capital markets and migration). No household, firm or government anywhere is immune to these forces, although undesirable consequences in terms of income distribution and the location of production have led to regulatory backlashes. This is as familiar a story to 21st century observers as it was to the generations that lived through the collapse of liberalism in the interwar. The current wave of nationalism and protectionism has distinct echoes in the economic dislocations and political reactions of the 1920s and 1930s.
As Hegel, I doubt that history repeats itself, but economic history can help us to contextualize our current challenges by providing a perspective on possible counterfactuals. Coming back to my project on currency regimes, the network effects that led countries to adopt the same currency were clearly at stake in the path toward the European Monetary Union. The current composition of the Eurozone is a reflection of the many strong economic ties that bind its member nations. The Common Market clearly served to strengthen those ties by purposely increasing economic integration prior to the adoption of a common currency. Unfortunately, the process can also work in reverse. The balkanization of European capital markets since 2009 and the political reaction against migration threaten the strength of economic ties between member countries and have, understandably, raised questions in some countries about their continuation in the Euro. The future will tell whether the European Union will avoid a similar fate to the unravelling of the gold standard in the late 1920s, but economic history is key to appreciate what will be at stake.